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Sotheby’s Reports 2018 Full Year Financial Results

16% Increase in Consolidated Sales Fuels Operating Income Growth  

Company Will Celebrate 275th Anniversary on March 11, 2019

NEW YORK, Feb. 28, 2019 (GLOBE NEWSWIRE) -- Sotheby’s (BID) today reported its financial results for the fourth quarter and year ended December 31, 2018. 

For the year ended December 31, 2018, Sotheby’s reported net income of $108.6 million, or $2.09 per diluted share, as compared to $118.8 million, or $2.20 per diluted share, in the prior year.  Excluding certain items in both periods, Adjusted Net Income* was $128.9 million and Adjusted Diluted Earnings Per Share* was $2.48, as compared to Adjusted Net Income* of $121.7 million, and Adjusted Diluted Earnings Per Share* of $2.25 in the prior year.

Driven in part by 37% growth in Private Sales to $1.02 billion, the Company’s Consolidated Sales increased 16% to reach $6.4 billion in 2018.  This growth contributed to a 9% improvement in Operating Income to $181.3 million, and an 18% improvement in Adjusted Operating Income* to $198.1 million, when compared to the prior year.

“As a result of our entire team’s efforts and the continued trust placed in Sotheby’s by our clients, I am pleased to report that in 2018 we fulfilled our objective to substantially improve upon last year’s good results,” commented Chief Executive Officer Tad Smith, continuing, “we have the potential to deliver even better results in 2019 by improving technology and processes for clients, though, as always, market conditions will be a factor.”       

2018 Highlights

  • Consolidated Sales – which combine Aggregate Auction Sales, Private Sales and sales from Inventory – increased 16% to $6.4 billion when compared to prior year.
  • Adjusted Operating Income* improved 18% to $198.1 million in 2018.
  • In 2018, Private Sales grew 37% to $1.02 billion, when compared to the prior year, representing a five-year high and nearly double the level achieved in 2016.
  • Aggregate Auction Sales increased 15% to reach $5.3 billion, compared to the prior year.
  • Aggregate Auction Sales in Hong Kong reached approximately $1 billion – the highest total in Sotheby’s 45-year history in Asia.
  • Aggregate Auction Sales in key categories improved from 2017 to 2018: Watches (nearly 57%), Wine (nearly 41%), Old Master Paintings (33%), Contemporary Art (14%), Chinese Works of Art (14%), Impressionist and Modern Art (nearly 9%).
  • Sales to online buyers – which include items from our live auctions purchased online, all online-only sales, as well as purchases made on our retail websites, Sotheby’s Home and Sotheby’s Wine – totaled $220.4 million, a 24% increase compared to the prior year.
  • 37% of all lots sold at Sotheby’s in 2018 were purchased online.
  • In the fourth quarter of 2018, net income increased 12% to $85.7 million and diluted earnings per share increased 20% to $1.72. Excluding certain items in both periods, fourth quarter Adjusted Net Income* increased 10% to $86.8 million and Adjusted Diluted Earnings per Share* increased 18% to $1.74.
  • In 2018, Adjusted Return on Equity* was 24.4% as compared to 21.7% in 2017, both significant improvements from the average of just over 15% between 2014 and 2016.
  • In the three years between 2016 and 2018, Sotheby’s has repurchased approximately 20.6 million shares for $689.1 million at an average price of $33.49.  Current total shares outstanding are 46.4 million, a 30% decrease since the end of 2015.
  • As of December 31, 2018, based on our long-term debt balance of $638.8 million, the Company’s Adjusted Leverage Ratio* was 3.1x and the Company had $578 million in available revolving credit facility borrowings.


Sotheby’s Financial Highlights
Year Ended December 31, 2018 v. Prior Years
(in thousands of dollars, except per share data)

Year ended December 31, 2018 2017 2016 2015 2014
Consolidated Sales (a) $6,350,155 $5,490,932 $4,894,146 $6,730,848 $6,769,814
Operating income $181,345 $165,675 $114,635 $201,721 $226,044
Adjusted Operating Income (b) $198,082 $167,410 $156,379 $255,170 $267,881
Net income attributable to Sotheby’s $108,634 $118,796 $74,112 $43,727 $117,795
Adjusted Net Income (b) $128,941 $121,699 $99,616 $143,131 $142,398
Diluted earnings per share $2.09 $2.20 $1.27 $0.63 $1.68
Adjusted Diluted Earnings Per Share (b) $2.48 $2.25 $1.71 $2.07 $2.03
Adjusted EBITDA (b) $230,066 $200,176 $192,646 $278,771 $289,873
Adjusted Return on Equity  (b) (c) 24.4% 21.7% 15.2% 17.0% 14.1%
Aggregate Auction Sales (d) $5,250,503 $4,567,310 $4,247,873 $5,949,030 $6,075,345
Net Auction Sales (e) $4,395,593 $3,816,792 $3,556,090 $5,016,738 $5,151,419
Private Sales (f) $1,018,844 $744,640 $583,410 $673,119 $624,511
  1. Represents the sum of Aggregate Auction Sales, Private Sales, and inventory sales.
  2. See Appendix B for a description of these non-GAAP financial measures and reconciliations to the most comparable GAAP amounts.
  3. Return on Equity is calculated as Adjusted Net Income* divided by average equity.  See Appendix B for a description of Adjusted Net Income and a reconciliation to the most comparable GAAP amounts.
  4. Represents the total hammer (sale) price of property sold at auction plus buyer’s premium, excluding amounts related to the sale of our inventory at auction, which are reported within inventory sales.
  5. Represents the total hammer (sale) price of property sold at auction, excluding amounts related to the sale of our inventory at auction, which are reported within inventory sales.
  6. Represents the total purchase price of property sold in private sales that we have brokered, including our commissions.


Sotheby’s Digital Highlights
Year Ended December 31, 2018 v. Prior Years
(in thousands of dollars)

  2018 2017 2016 2015 2014
Online Sales (a) $220,399 $178,042 $154,142 $129,455 $106,534
Online Sales Growth Rate (b) 24% 16% 19% 22% 12%
Lots sold to online buyers as % of total sales (c) 37% 25% 19% 15% 11%
Online Underbid Value (d) $545,715 $518,934 $406,389 $323,653 $301,709
Online Underbidders as % of total (e) 53% 48% 41% 31% 26%
Online-Only Sales (f) $72,092 $18,945 $7,297 $529 $555
Online Consignment Platform Sales (g) $56,468 $7,338 n/a n/a n/a
  1. Online Sales include the aggregate sale price of lots purchased through online bids at our live auctions and lots purchased in our online-only auctions, as well as items purchased through our retail websites, Sotheby’s Home and Sotheby’s Wine.
  2. Represents the year-on-year percentage increase in Online Sales.
  3. Represents the total number of lots purchased in Online Sales as a percentage of total lots sold.
  4. Represents the total value of unsuccessful bids placed either through online bidding in a live sale or in an online-only sale.
  5. Represents the number of unsuccessful online bidders in a live or online-only auction as a percentage of the overall number of unsuccessful bidders in a live or online-only auction.
  6. Represents the aggregate purchase price of lots purchased in our online-only auctions, including commissions and fees paid by the buyer and through our retail websites Sotheby’s Home and Sotheby’s Wine.
  7. Represents Aggregate Auction Sales attributable to lots purchased either through online bids at our live auctions or lots purchased in our online-only sales that were consigned through our Online Consignment Platform.


Non-GAAP Financial Measures

*Adjusted Operating Income, Adjusted Net Income, Adjusted Diluted Earnings Per Share, EBITDA, Adjusted EBITDA, Adjusted EBITDA Excluding SFS, Adjusted Return on Equity, and Adjusted Leverage Ratio are non-GAAP financial measures.  See Appendix B for a description of these non-GAAP financial measures and reconciliations to the most comparable GAAP amounts.

Forward-Looking Statements

This release contains certain “forward-looking statements” (as such term is defined in Section 21E of the Securities and Exchange Act of 1934, as amended) relating to future events and the financial performance of Sotheby’s.  Such statements are only predictions and involve risks and uncertainties, resulting in the possibility that the actual events or performances will differ materially from such predictions.  Major factors, which Sotheby’s believes could cause the actual results to differ materially from the predicted results in the “forward-looking statements” include, but are not limited to, the overall strength of the global economy and financial markets, political conditions in various countries, competition with other auction houses and art dealers, the amount and quality of property available for consignment and the marketability at auction of such property.  Please refer to our most recently filed Form 10-K for a complete list of Risk Factors.

Investor Relations Information

All Sotheby’s Press Releases and SEC filings are available on our web site at www.sothebys.com.  An outline of the conference call can be found here: https://sothebys.gcs-web.com/events-and-presentations.

Sotheby’s will host a conference call at 9:00 AM EST on February 28, 2019, to discuss its fourth quarter and full year 2018 financial results.  Please dial 888-371-8897 and for callers outside the United States, Puerto Rico and Canada, please dial 1-970-315-0479, approximately 15 minutes before the scheduled start of the call.  The call reservation number is 1869875. The conference call will also be accessible via webcast on the Investor Relations section of the Sotheby’s web site at https://sothebys.gcs-web.com/events-and-presentations.

About Sotheby’s

Sotheby’s has been uniting collectors with world-class works of art since 1744. Sotheby’s became the first international auction house when it expanded from London to New York (1955), the first to conduct sales in Hong Kong (1973), India (1992) and France (2001), and the first international fine art auction house in China (2012). Today, Sotheby’s presents auctions in 10 different salesrooms, including New York, London, Hong Kong and Paris, and Sotheby’s BidNow program allows visitors to view all auctions live online and place bids from anywhere in the world. Sotheby’s offers collectors the resources of Sotheby’s Financial Services, the world’s only full-service art financing company, as well as the collection, artist, estate & foundation advisory services of its subsidiary, Art Agency, Partners. Sotheby’s presents private sale opportunities in more than 70 categories, including S|2, the gallery arm of Sotheby's Global Fine Art Division, and three retail businesses: Sotheby’s Wine, Sotheby’s Diamonds, and Sotheby’s Home, the online marketplace for interior design. Sotheby’s has a global network of 80 offices in 40 countries and is the oldest company listed on the New York Stock Exchange (BID).

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APPENDIX A

SOTHEBY’S
CONSOLIDATED INCOME STATEMENTS
(Thousands of dollars, except per share data)

    UNAUDITED   AUDITED
    Three Months Ended   Year Ended
    December 31,
2018
  December 31,
2017
  December 31,
2018
  December 31,
2017
Revenues:                
Agency commissions and fees   $ 338,648     $ 315,274     $ 891,774     $ 809,571  
Inventory sales   17,968     6,167     80,808     178,982  
Finance   12,942     13,114     43,887     50,937  
Other   5,589     3,649     19,271     17,890  
Total revenues   375,147     338,204     1,035,740     1,057,380  
Expenses:                
Agency direct costs   70,147     55,067     184,491     150,133  
Cost of inventory sales   16,372     9,091     81,103     181,487  
Cost of finance revenues       3,143     4,056     19,312  
Marketing   7,075     7,582     23,897     25,377  
Salaries and related   99,976     101,247     342,687     318,555  
General and administrative   48,585     48,154     180,360     172,950  
Depreciation and amortization   6,891     7,286     27,048     24,053  
Restructuring charges   4,826         10,753      
Voluntary separation incentive programs, net               (162 )
Total expenses   253,872     231,570     854,395     891,705  
Operating income   121,275     106,634     181,345     165,675  
Interest income   118     282     1,467     1,184  
Interest expense   (11,693 )   (9,046 )   (39,984 )   (32,218 )
Extinguishment of debt           (10,855 )    
Write-off of credit facility fees           (3,982 )    
Non-operating (expense) income   (2,357 )   927     4,688     7,045  
Income before taxes   107,343     98,797     132,679     141,686  
Income tax expense   21,709     22,567     27,652     25,415  
Equity in earnings of investees   75     474     3,591     2,508  
Net income   85,709     76,704     108,618     118,779  
Less: Net loss attributable to noncontrolling interest   (3 )   (5 )   (16 )   (17 )
Net income attributable to Sotheby's   $ 85,712     $ 76,709     $ 108,634     $ 118,796  
Basic earnings per share - Sotheby's common shareholders   $ 1.75     $ 1.44     $ 2.10     $ 2.22  
Diluted earnings per share - Sotheby's common shareholders   $ 1.72     $ 1.43     $ 2.09     $ 2.20  
                                 


APPENDIX B

NON-GAAP FINANCIAL MEASURES

GAAP refers to generally accepted accounting principles in the United States of America. Included in this earnings release are financial measures presented in accordance with GAAP and also on a non-GAAP basis. Non-GAAP financial measures are important supplemental measures used in our financial and operational decision making processes, for internal reporting, and as part of our forecasting and budgeting processes, as they provide helpful measures of our core operations. These measures allow us to view operating trends, perform analytical comparisons, and benchmark performance between periods. We also believe that these measures may be used by securities analysts, investors, financial institutions, and other interested parties in their evaluation of our performance. The non-GAAP financial measures presented in this earnings release are:

  (i) Adjusted Operating Income (iv) Adjusted EBITDA
  (ii) Adjusted Net Income (v) Adjusted Leverage Ratio
  (iii) Adjusted Diluted Earnings Per Share (vi) Adjusted Return on Equity

To the extent applicable, these non-GAAP financial measures exclude the effect of the following items, as detailed in the accompanying reconciliation tables below:

(i) Restructuring charges;
(ii) Charges related to contractual severance agreements entered into with certain former employees;
(iii) Accelerated depreciation charges related to certain fixed assets that have been removed from service in connection with enhancements being made to the York Property;
(iv) Earn-out compensation expense related to the acquisition of AAP;
(v) Leadership transition severance costs;
(vi) Net credits associated with our previous regional voluntary separation incentive programs;
(vii) CEO Separation and Transition Costs;
(viii) Special charges associated with shareholder activism;
(ix) The loss incurred in connection with the extinguishment of our 2022 Senior Notes;
(x) The write-off of unamortized credit facility fees related to the refinancing of our previous credit agreement;
(xi) The charge resulting from the concurrent amendments to the York Property Mortgage and the related interest rate collar;
(xii) The net charge associated with the effective settlement of an income tax audit;
(xiii) Net income tax (benefit) expense associated with the enactment of the U.S. Tax Cuts and Jobs Act; and
(xiv) Income tax expense associated with the repatriation of pre-2014 foreign earnings.

We caution readers of this earnings release that amounts presented in accordance with these non-GAAP financial measures may not be comparable to similar measures disclosed by other companies because not all companies and analysts calculate such measures in the same manner.

The following is a reconciliation of operating income to Adjusted Operating Income for the years ended December 31, 2018, 2017, 2016, 2015 and 2014 (in thousands of dollars):

Year Ended December 31,   2018   2017   2016   2015   2014
Operating income   $ 181,345     $ 165,675     $ 114,635     $ 201,721     $ 226,044  
Add: Restructuring charges   10,753             (972 )   14,238  
Add: Contractual severance agreement charges, net   2,625         7,354          
Add: Accelerated depreciation charges   3,359     1,897              
Add: Acquisition earn-out compensation expense           35,000          
Add: Leadership transition severance costs               13,251      
Add: Voluntary separation incentive program credits, net       (162 )   (610 )   36,938      
Add: CEO separation and transition costs               4,232     7,591  
Add: Special charges, net                   20,008  
Adjusted Operating Income   $ 198,082     $ 167,410     $ 156,379     $ 255,170     $ 267,881  
Variance versus prior period - $   $ 30,672     $ 11,031     $ (98,791 )   $ (12,711 )   $ 43,934  
Variance versus prior period - %   18 %   7 %   (39 %)   (5 %)   20 %

The following is a reconciliation of net income attributable to Sotheby's to Adjusted Net Income for the years ended December 31, 2018, 2017, 2016, 2015, and 2014 (in thousands of dollars):

Year Ended December 31,   2018   2017   2016   2015   2014
Net income attributable to Sotheby's   $ 108,634     $ 118,796     $ 74,112     $ 43,727     $ 117,795  
Add: Restructuring charges (net), net of tax of ($2,327), $0, $0, $339, and ($5,221)   8,426             (633 )   9,017  
Add: Contractual severance agreement charges (net), net of tax of ($627), $0, ($2,852), $0, and $0   1,998         4,502          
Add: Accelerated depreciation charges, net of tax of ($830), ($721), $0, $0, and $0   2,529     1,176              
Add: Acquisition earn-out compensation expense, net of tax of $0, $0, ($13,615), $0, and $0           21,385          
Add: Leadership transition severance costs, net of tax of $0, $0, $0, ($5,167), and $0               8,084      
Add: Voluntary separation incentive program (credits) charges (net), net of tax of $0, $63, $227, ($13,298), and $0       (99 )   (383 )   23,640      
Add: CEO separation and transition costs, net of tax of $0, $0, $0, ($1,651), and ($3,138)               2,581     4,453  
Add: Special charges (net), net of tax of $0, $0, $0, $0, and ($8,875)                   11,133  
Add: Loss on extinguishment of debt, net of tax of ($2,692), $0, $0, $0, and $0   8,163                  
Add: Write-off of credit facility fees, net of tax of ($922), $0, $0, $0, and $0   3,060                  
Add: Charge related to interest rate collar amendment, net of tax of $0, ($398), $0, $0, and $0       642              
Add: Net charge associated with the effective settlement of an income tax audit   4,837                  
Add: Income tax (benefit) expense associated with the enactment of the U.S. Tax Cuts and Jobs Act   (8,706 )   1,184              
Add: Income tax expense related to repatriation of pre-2014 foreign earnings               65,732      
Adjusted Net Income   $ 128,941     $ 121,699     $ 99,616     $ 143,131     $ 142,398  
Variance versus prior period - $   $ 7,242     $ 22,083     $ (43,515 )   $ 733     $ 2,937  
Variance versus prior period - %   6 %   22 %   (30 %)   1 %   2 %

The income tax effect of each line item in the reconciliation above of net income attributable to Sotheby's to Adjusted Net Income is computed using the relevant jurisdictional tax rate for each item.

The following is our calculation of Adjusted Return on Equity, which we define as Adjusted Net Income divided by average equity, for the years ended December 31, 2018, 2017, 2016, 2015, and 2014 (in thousands of dollars):

Year Ended December 31,   2018   2017   2016   2015   2014
Adjusted Net Income   $ 128,941     $ 121,699     $ 99,616     $ 143,131     $ 142,398  
Average Equity   $ 529,217     $ 576,271     $ 656,153     $ 842,471     $ 1,008,952  
Adjusted Return on Equity   24.4 %   21.1 %   15.2 %   17.0 %   14.1 %

The following is a reconciliation of diluted earnings per share to Adjusted Diluted Earnings Per Share for the years ended December 31, 2018, 2017, 2016, 2015, and 2014:

Year Ended December 31,   2018   2017   2016   2015   2014
Diluted earnings per share   $ 2.09     $ 2.20     $ 1.27     $ 0.63     $ 1.68  
Add: Restructuring charges (net), per share   0.16             (0.01 )   0.13  
Add: Contractual severance agreement charges (net), per share   0.04         0.08          
Add: Accelerated depreciation charges, per share   0.05     0.02              
Add: Acquisition earn-out compensation expense, per share           0.37          
Add: Leadership transition severance costs, per share               0.11      
Add: Voluntary separation incentive program (credits) charges (net), per share           (0.01 )   0.34      
Add: CEO separation and transition costs, per share               0.04     0.06  
Add: Special charges (net), per share                   0.16  
Add: Write-off of credit facility fees, per share   0.06                  
Add: Extinguishment of debt, per share   0.16                  
Add: Charge related to interest rate collar amendment, per share       0.01              
Add: Net charge associated with the effective settlement of an income tax audit, per share   0.09                  
Add: Income tax (benefit) expense associated with the enactment of the U.S. Tax Cuts and Jobs Act, per share   (0.17 )   0.02              
Add: Income tax expense related to repatriation of pre-2014 foreign earnings, per share               0.96      
Adjusted Diluted Earnings Per Share   $ 2.48     $ 2.25     $ 1.71     $ 2.07     $ 2.03  
Variance versus prior period - $   $ 0.23     $ 0.54     $ (0.36 )   $ 0.04     $ 0.01  
Variance versus prior period - %   10 %   32 %   (17 %)   2 %   %

           
The following is a reconciliation of net income attributable to Sotheby's to EBITDA and Adjusted EBITDA for the years ended December 31, 2018, 2017, 2016, 2015, and 2014 (in thousands of dollars):

Year Ended December 31,   2018   2017   2016   2015   2014
Net income attributable to Sotheby's   $ 108,634     $ 118,796     $ 74,112     $ 43,727     $ 117,795  
Add: Income tax expense   27,652     25,415     25,957     131,145     75,761  
Add: Income tax expense related to equity investees                   599  
Subtract: Interest income   1,467     1,184     1,294     1,776     1,883  
Add: Interest expense   39,984     32,218     30,310     32,745     35,189  
Add: Depreciation and amortization   27,048     24,053     21,817     19,481     20,575  
EBITDA   201,851     199,298     150,902     225,322     248,036  
Add: Restructuring charges, net   10,753             (972 )   14,238  
Add: Contractual severance agreement charges, net   2,625         7,354          
Add: Acquisition earn-out compensation expense           35,000          
Add: Voluntary separation incentive program (credits) charges, net       (162 )   (610 )   36,938      
Add: Leadership transition severance costs               13,251      
Add: CEO separation and transition costs               4,232     7,591  
Add: Special charges, net                   20,008  
Add: Extinguishment of debt   10,855                  
Add: Write-off of credit facility fees   3,982                  
Add: Charge related to interest rate collar amendment       1,040              
Adjusted EBITDA   $ 230,066     $ 200,176     $ 192,646     $ 278,771     $ 289,873  
Variance versus prior period - $   $ 29,890     $ 7,530     $ (86,125 )   $ (11,102 )   $ 43,435  
Variance versus prior period - %   15 %   4 %   (31 %)   (4 %)   18 %

The following is a reconciliation of net income attributable to Sotheby's to Adjusted Net Income for the three months ended December 31, 2018 and 2017 (in thousands of dollars):

    Three Months Ended
December 31,
    2018   2017
Net income attributable to Sotheby's   $ 85,712     $ 76,709  
Add: Restructuring charges (net), net of tax of ($865) and $0   3,961      
Add: Accelerated depreciation charges, net of tax of ($55) and ($721)   181     1,176  
Add: Net charge associated with the effective settlement of an income tax audit   (2,225 )    
Add: Income tax (benefit) expense associated with the enactment of the U.S. Tax Cuts and Jobs Act   (879 )   1,184  
Adjusted Net Income   $ 86,750     $ 79,069  
Variance versus prior period - $   $ 7,681      
Variance versus prior period - %   10 %    

The income tax effect of each line item in the reconciliation above of net income attributable to Sotheby's to Adjusted Net Income is computed using the relevant jurisdictional tax rate for each item.

The following is a reconciliation of diluted earnings per share to Adjusted Diluted EPS for the three months ended December 31, 2018 and 2017:

    Three Months Ended
December 31,
    2018   2017
Diluted earnings per share   $ 1.72     $ 1.43  
Add: Restructuring charges (net), per share   0.08      
Add: Accelerated depreciation charges, per share   0.01     0.02  
Add: Net charge associated with the effective settlement of an income tax audit, per share   (0.05 )    
Add: Income tax (benefit) expense associated with the enactment of the U.S. Tax Cuts and Jobs Act, per share

  (0.02 )   0.02  
Adjusted Diluted EPS   $ 1.74     $ 1.47  
Variance versus prior period - $   $ 0.27      
Variance versus prior period - %   18 %    

The following is our calculation of Adjusted Leverage Ratio, which we define as Long-Term Debt divided by Adjusted EBITDA Excluding SFS, for the years ended December 31, 2018 and 2017 (in thousands of dollars, except for the Adjusted Leverage Ratio):

Year ended December 31,   2018   2017
Adjusted EBITDA   $ 230,066     $ 200,176  
         
SFS EBITDA:        
SFS income before taxes   26,036     33,103  
Add: SFS depreciation expense   120     244  
SFS EBITDA   26,156     33,347  
Adjusted EBITDA Excluding SFS   $ 203,910     $ 166,829  
         
Long-Term Debt, net   $ 638,786     $ 653,003  
         
Adjusted Leverage Ratio   3.1     3.9  

Lauren Gioia | Jennifer Park | Dan Abernethy | Lauren.Gioia@Sothebys.com | Jennifer.Park@Sothebys.com | Dan.Abernethy@Sothebys.com  +1 212 606 7176