U.S. Markets open in 3 hrs 37 mins

Edited Transcript of CLCT earnings conference call or presentation 31-Oct-19 8:30pm GMT

Q1 2020 Collectors Universe Inc Earnings Call

SANTA ANA Nov 15, 2019 (Thomson StreetEvents) -- Edited Transcript of Collectors Universe Inc earnings conference call or presentation Thursday, October 31, 2019 at 8:30:00pm GMT

TEXT version of Transcript

================================================================================

Corporate Participants

================================================================================

* Joseph J. Orlando

Collectors Universe, Inc. - President, CEO & Director

* Joseph J. Wallace

Collectors Universe, Inc. - Senior VP & CFO

================================================================================

Presentation

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

Good afternoon, everyone, and thank you for joining us to discuss Collectors Universe's financial results for the first quarter ended September 30, 2019. Today's conference is being recorded.

With us today from management are Joseph J. Orlando, President and Chief Executive Officer; and Joseph Wallace, Senior Vice President and Chief Financial Officer.

Management will provide a brief overview of the quarter and then open the call up to your questions.

Comments made during today's call may contain statements regarding the company's expectations, about its 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 other risks are more fully described in the company's filings with the Securities and Exchange Commission. These 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 call over to Joseph Orlando. Joe?

--------------------------------------------------------------------------------

Joseph J. Orlando, Collectors Universe, Inc. - President, CEO & Director [2]

--------------------------------------------------------------------------------

Thank you, and welcome to today's first quarter conference call for fiscal 2020. I want to summarize the results for the quarter and then give you some commentary on the outlook going forward into our second fiscal quarter of the year.

Collectors Universe finished Q1 with outstanding overall results. Revenues in the first quarter were up year-over-year, $20.2 million from $17.5 million, a 16% increase from a year ago. The $20.2 million figure also established a new all-time quarterly record for the company. Similar to our strong Q4 finish in June, the Q1 results were a product of positive performances found within both major divisions as PCGS and PSA improved from a year-over-year perspective.

Our primary division showed an increase of 9% in our overall coin business and 33% in our trading card and autograph business from the previous year. Within the PCGS division, our U.S. Vintage and Show services were down slightly by $0.2 million combined compared to last year.

That said, it is important to note that PCGS had one fewer on-site grading event in Q1 this year, which explains the shortfall by comparison. PCGS bulk on the other hand, was up approximately 25% or $0.6 million for the quarter compared to Q1 last year, continuing the positive momentum generated in Q3 and Q4 of fiscal 2019. Overall, PCGS U.S. was up 3% or $0.3 million versus last year in Q1.

PCGS International produced positive results in each of our 3 offices. The Shanghai office was up approximately $0.2 million in Q1 to $1.3 million, while our Hong Kong and Paris offices were up an additional $0.4 million combined compared to last year's Q1. Once again, PCGS finished the quarter with a strong international coin backlog entering Q2. We continue to make efforts in building the base business overseas, especially in China, where we feel the greatest potential return on investment lies.

Turning to our PSA and PSA/DNA division, this part of our business finished the quarter with another record top and bottom line performance. This marks the 10th consecutive time that PSA surpassed the Q1 figures from the previous year. The revenue figure of $8.1 million exceeded last year's record Q1 of $6.1 million, a year-over-year increase of $2 million. This was the first time that PSA reached or exceeded $8 million in any quarter.

PSA's strong performance included a new all-time quarterly high for units shipped at over 735,000 collectibles. This exceeded our prior record, which was set in Q4 of fiscal 2019 by roughly 50,000 units. Despite record output for the quarter, the incoming submissions outpaced our throughput. PSA ended the quarter with an unprecedented submission backlog, the largest in the division's history. The management team is focused on increasing operational capacity as we head further into the second quarter of the fiscal year. Customer demand has never been higher for our services, and customer satisfaction is our priority.

Returning to our overall business, gross profit margins were 60% for the quarter, which was up from 59% a year ago. Our operating income for Q1 after noncash stock-based compensation was $4.6 million, which represents a new Q1 record compared to $2.8 million in the previous year. Net income was $3.6 million for the first quarter of fiscal 2020 or $0.40 per diluted share, which was up from $2.1 million and $0.24 per share in the prior year. Now let me turn it over to Joe Wallace for a more detailed review of our financial performance in Q1. Joe?

--------------------------------------------------------------------------------

Joseph J. Wallace, Collectors Universe, Inc. - Senior VP & CFO [3]

--------------------------------------------------------------------------------

Thank you, Joe. I will now give a brief overview of the financial results for the first quarter of fiscal '20. In the first quarter, the company generated record quarterly revenues of $20.2 million, earned record Q1 operating income of $4.6 million and net income of $3.6 million or $0.40 per diluted share.

This compares to quarterly revenues of $17.5 million, operating income of $2.8 million and net income of $2.1 million or $0.24 per diluted share in the first quarter of fiscal '19. The first quarter revenue increase of $2.7 million or 16% includes the increases of $2.0 million or 33% in cards and autographs and $0.9 million or 9% in coins. The cards and autographs increase represented record quarterly revenues, and that business has achieved quarter-over-quarter revenue growth in 36 of the last 37 quarters.

The coin increase of 9% included improved U.S. revenues from modern coins, partially offset by having one less U.S. show in the quarter. China coin revenues in Q1 increased by $0.2 million to about $1.1 million for the quarter, and the France and Hong Kong revenues were up about $0.4 million. Combined, the coins, cards and autograph businesses represented 94% of revenues in this year's first quarter and reflect the continued importance of those 2 businesses to our overall financial performance.

As previously disclosed, our second fiscal quarter ending December 31 is typically our seasonally slowest quarter of the year in the U.S. due to the winter holidays that occur in the quarter, and we expect that trend to continue this year. This slower activity will mostly impact our U.S. coin business as our trading cards business continues to have a record backlog of submissions for authentication and grading.

With respect to China, our current expectation is that we will continue to see improved revenues in China in this year's second quarter as compared to last year's second quarter. The gross profit margin was 60% in this year's first quarter as compared to 59% in the same period of last year. The higher gross profit margin in this year's Q1 was due to improved margins in our coin businesses. As previously disclosed, there can be variability in our gross profit margin due to the mix of revenues and the seasonality of our business.

On a quarterly basis, during the 3 years ended June '19, our gross profit margins varied between 54% and 64%. Our combined operating expenses were flat at about $7.5 million in both first quarters and represented 37% of revenue in this year's first quarter as compared to 43% of revenues in last year's first quarter.

Selling and marketing expenses were 13% of revenues this year versus 16% of revenues in Q1 last year. In dollar terms, selling and marketing expenses were down $0.2 million, primarily due to having one less trade show, as discussed above, in this year's first quarter. G&A expenses represented about 24% of revenues in this year's first quarter as compared to 27% of revenues in last year's first quarter.

The small dollar increase of $0.2 million in fiscal '20 included recruitment and relocation costs and expenses for infrastructure-related costs.

The resulting operating income of $4.6 million in this year's first quarter represented an increase of 64% over the $2.8 million earned in Q1 '19 and represented 23% of revenues this year as compared to 16% last year. Adjusting for noncash, stock-based compensation expense, the operating margins were about 24% in the quarter as compared to 18% in Q1 '19.

Turning to our balance sheet. The company's cash position was $21.3 million in September '19 as compared to $19.2 million in June '19 and $12.2 million in September '18. Net cash generated of $2.1 million in Q1 included cash generated from operating activities of $4.3 million partially offset by cash dividends paid to stockholders of $1.6 million, $0.5 million used for capital expenditures and capitalized software costs and $0.2 million used to pay down the company's term loan.

As discussed in our 10-Q that was filed with the SEC today on July 1, '19, we adopted a new leasing guidance, which required us to recognize right-of-use assets and related lease liabilities on our balance sheet as of September 30. Our leases are operating leases, mostly related to real estate, and there was no material impact on the company's operating results arising from this new guidance.

On October 22, '19, we announced our quarterly cash dividend of $0.175 per share, which will be paid on November 29 to stockholders of record on November 15.

With that, I'd like to thank you for your attention. Joe?

--------------------------------------------------------------------------------

Joseph J. Orlando, Collectors Universe, Inc. - President, CEO & Director [4]

--------------------------------------------------------------------------------

Thanks, Joe. Before we conclude, I would like to make a few comments about the close of Q1 and the outlook moving forward into our second quarter of the fiscal year. While the record-setting performance in Q1 is now behind us, it helped Collectors Universe set the tone for the remainder of the year as we continue to make progress in key areas of the company. That progress has now led to 3 consecutive record revenue performances for each respective quarter. Our focus over the past year has been on fundamentals, and that continues to be the case here early in fiscal 2020. More specifically, our management team is hyper-focused on building capacity as we turn the corner into the second half of our fiscal year. This process includes maximizing existing resources in addition to adding new ones. This is especially important in light of the fact that PSA continues to grow at such a rapid pace and is enjoying an unprecedented level of demand for our services. But that's not all.

At PCGS, we are rapidly approaching our busiest bulk season of the year as new products are released by the U.S. Mint in early 2020. One of the more highly anticipated new coins will marry the world of numismatics with the world of sports. Due out in the spring, the U.S. Mint will be releasing a commemorative Basketball Hall of Fame Coin to celebrate the museum's 60th anniversary. The coin's design was unveiled at the 2019 Hall of Fame Induction Ceremony over the summer at Springfield Symphony Hall in Massachusetts. More importantly, PCGS has signed an exclusive agreement with The Naismith Memorial Basketball Hall of Fame for this new coin project. The U.S. Mint special program calls for the production of up to 50,000 gold coins, 400,000 silver coins and 750,000 clad coins. The funds generated from the U.S. Mint sales and certification of the coins by PCGS will help the hall bolster their educational programs and expand their portfolio of events nationwide.

As part of this partnership, PCGS will act as the Hall of Fame's exclusive grading service. Our company will work with the Hall of Fame on designing special labels, including autographed inserts that will accompany the certified coins. It is an honor for Collectors Universe to work with the Naismith Memorial Basketball Hall of Fame on this project. Not only do we believe the specially designed coin will appeal to the numismatic and sports collector communities alike domestically, the worldwide popularity of the sport opens the door to international opportunities.

In addition to creating customized designs to enhance the presentation of these coins, we intend on using the power of our leading PCGS and PSA brands to help broaden the appeal of these collector items.

Turning our sights to new services. And as a reminder, PCGS will be reentering the domestic currency grading market in early 2020. Our PCGS banknote service is scheduled to be relaunched in Q3. During the last few months, our management team has been working on all facets of the upcoming launch, including everything from staffing to product design. We are excited to, once again, offer this service to the collecting community, which should act as a natural complement to our domestic coin grading services.

At PSA, the division has now officially reached a full decade of year-over-year improved performance, establishing new highs in a number of areas from quarterly units shipped to revenue to backlog size. That backlog remains the focus of our operations team, which now includes the help of outside consultants, who have been brought in to assist in the improvement process. These consultants possess the kind of background and expertise required to enhance our throughput while maintaining quality. There is no doubt that these kinds of improvements take time to implement and bear fruit. But every change we employ can help the millions of collectibles we process each year make it back into the hands of our customers faster.

As we move deeper into Q2, the management team is concentrated on our customers and the user experience. That not only includes some of the operational improvements mentioned earlier, but it also includes new service offerings. From content to certification, Collectors Universe wants to act as the foundation for all great collections. Our goal is to improve the collector experience by making an already enjoyable hobby better through structure and innovation. This leads to increased participation, commerce, and ultimately, it gives our company more opportunities to grow. Of course, all our expectations are governed by several factors not in our control, such as the price of precious metals, the market for collectibles and the overall state of the economic climate, primarily in the U.S., and the possibility of changing international trade policies worldwide. Thank you for joining us today, and I look forward to speaking with you next quarter. Now I would like to open the call to any questions you may have.

--------------------------------------------------------------------------------

Operator [5]

--------------------------------------------------------------------------------

[Operators Instructions) And we have no questions at this time. I would now like to turn the conference back to Joe Orlando for any closing remarks.

--------------------------------------------------------------------------------

Joseph J. Orlando, Collectors Universe, Inc. - President, CEO & Director [6]

--------------------------------------------------------------------------------

We thank all of you for joining us today and look forward to speaking with you next quarter.

--------------------------------------------------------------------------------

Operator [7]

--------------------------------------------------------------------------------

Thank you. Ladies and gentlemen, this concludes today's conference. You may now disconnect.