Collectors Universe's CEO Discusses F4Q12 Results - Earnings Call Transcript

Collectors Universe Inc. (CLCT)

F4Q12 Earnings Call

August 29, 2012 04:30 pm ET

Executives

Michael McConnell - CEO

Joe Wallace- CFO

Analysts

Adrian Day - Adrian Day Asset Management

Presentation

Operator

Good after everyone and thank you for joining us to discuss Collectors Universe financial results for the fourth quarter ended June 30, 2012. With us today from management are Michael McConnell, Chief Executive Officer; and Joe Wallace, Chief Financial Officer. The management will provide a brief overview of the quarter and then open up the call to your questions.

Comments made during today’s call may contain statements regarding the company’s expectations about the future financial performance, including forecasts and statements concerning business trends and profitability that are forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995.

The company’s actual results in the future may differ possibly materially from those forecast in this call due to a number of risks and uncertainties.

Certain of these risks and uncertainties in addition to the other risks are more fully described in the company’s filings with the Securities and Exchange Commission. The forward-looking statements are made only as of the date of today’s conference call and the company undertakes no obligation to update or revise the forward-looking statements, whether as a result of new information, future events or otherwise.

With that, I would now like to turn the conference over to Michael McConnell.

Michael McConnell

Thank you and welcome everyone to today’s conference call. I’ll touch briefly on the quarter and full-year results and relate them to our overall strategy. I’ll then turn the call over to Joe Wallace, our CFO, who will provide a more detailed explanation of the financial results. At the conclusion of Joe’s remarks, we will open the call to questions.

Throughout fiscal 2012, I have discussed our investments in targeted growth and strategic initiatives notably Asia against the background trends in our core authentication in grading activities. Overall, revenues grew solidly for the year driven largely by both unit and average selling price increases.

A few data points. Units in our vintage coin line were essentially flat while ASP had a modest increase. Units in our World Coin Division grew by approximately 24% and ASP average selling price by approximately 28% for the year. Paris units doubled which is encouraging but ASP declined by approximately 15% for the year.

Units in our bulk division declined by 3% while the ASP increased by 7%. However, in the fourth quarter, units in our bulk division declined by approximately 12% and ASP declined by almost 22%, a significant and rampant slowdown compared to the trend during the first three quarters of the year.

At PSA, an 8% increase in ASP drove its revenue increase for the year. PSA/DNA was our standout performer for the year with units increasing by almost 40%, partially driven by our opening of an east coast office in the second half of the year. I wanted to highlight these data points and it is important to understand that within our key two key divisions, there are different lines of businesses that while they are related, can operate someone independently of one another.

Moreover in descending order of magnitude, our largest line of business on a revenue basis within the company is our Bulk Modern Coin division followed by our vintage coin division and then PSA, our card division and collectively these three represent approximately 70% of total grading and authentication revenue. Thus when we experience a slowdown in an area such as bulk like we did in the fourth quarter, it challenges the overall corporate results.

Turning to the cost and profit metrics. During the year a variety of items contributed to the decline in operating profit despite an approximate 4 million increase in revenue. All other things equal, we estimate for illustrative purposes the revenue increase would be expected to contribute an incremental operating income of approximately 1 million. Instead operating income excluding the prior-year impairment charge related to expose declined by approximately $500,000.

So, what drove the GAAP of approximately $1.5 million in operating income? First there were targeted investments in the P&L related to the global strategy, notably our expansion into Asia. This totaled approximately $450,000. Next we implemented a significant system upgrade for the first time in ten years. The P&L expenses associated with this upgrade was approximately $300,000 including depreciation related to the equipment purchases.

In 2012, we were required to conduct a SOC’s audit at a cost of approximately $50,000. You may recall we purchased for a significant amount of money last year a coin under our warranty claim and that coin was sold for less than we forecast resulting in a P&L charge of $200,000.

Despite that charge, our warranty reserves sits at a five-year high and we are comfortable with its current balance. Next and lastly, the previously mentioned impact on the P&L from the recording of the vouchers related to our collectors club memberships was approximately $300,000 for the year. This is virtually all profit that currently sits on the balance sheet as differed revenue and for which we have collected the cash.

Collectively these 5 items totaling approximately $1.3 million were the primary drivers to the GAAP that I referred to. Looking ahead we don’t expect approximately 1 million of these cost to recur in fiscal 2012 and 2013.

Read the rest of this transcript for free on seekingalpha.com

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