Q2 2020 Earnings Call
Good afternoon, everyone and thank you for joining us to discuss collectors universes financial results for the second quarter ended December 31st 2019. Today's conference is being recorded with US today from management, our Joseph J., Orlando, President and Chief Executive Officer, and Joseph <unk>, Senior Vice President and Chief Financial Officer Management.
I'll provide a brief overview of the quarter and then open the call let to your question.
Comments made during today's call may contain statements regarding the companys expectations about 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.
Actual results in the future may differ possibly materially from nice for cashed in this call due to a number of risks and uncertainties certain of these risks and uncertainties. In addition to other risk are more fully described in the company's filings with the Securities and Exchange Commission. The forward looking statements are made only adds up to date of today's conference call.
And the company undertakes no obligation to update or revise the fourth looking statements wonder as a result of new information future events or otherwise.
That I would like to now turn the conference ever to Joe Orlando, Jeff. Please go ahead.
Thank you and welcome to today's second 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 third fiscal quarter of the year.
Collectors Universe finished Q2 with strong overall results revenues in the second quarter were up year over year to 19.5 million from 15.7 million a 24% increase from a year ago. The 19.5 million dollar figure also established a new Q2 record for the company.
The strong performance was driven by double digit growth within both major divisions as P.C.G.S.N.P.S.A. improved substantially from a year over year perspective.
Our primary division showed an increase of 21% in our overall coin business and 35% and our trading cards and autograph business from the previous year.
[noise] within the PCGS Division, our U.S. vintage and show services were up a combined 13% or 0.6 million compared to last year.
PCGS bulk was up approximately 15% or zero point threemillion for the quarter compared to Q2 last year, continuing the positive momentum generated over the last 12 months as we head into our busier bulk season in Q3 over.
Overall, P.C.G.S.U.S. was up 11% or 0.8 million versus last year in Q2.
Within our PCGS International services, while the Paris office was down about zero point Threemillion as a result of hosting one grading event instead of two compared to last year in the same quarter, the Hong Kong and Shanghai Office is posted positive results in Q2.
Hong Kong revenues improved over last year by a modest 2% there, but our Shanghai office turned in a standout performance eclipsing Q2 in fiscal 2019 by 185% or about one point threemillion. The coin business continues to gain steady traction in China. After summary.
Structuring this part of our company has generated operating income through the first half of our fiscal year, which is an important milestone.
Once again and even with the impressive performance in China PCGS finished the quarter with a strong international point backlog entering Q3, we are encouraged by the gradual growth in this region. During the last few quarters as it remains one of our more intriguing opportunities.
Turning our sites to the company's other major division the P.S.A.N.P.S.C. DNA business set another quarter specific revenue record for the service. The divisions finished at 8.1 million and surpassed last year's Q2 revenue by approximately 2.1 million. This includes all time record output for the division.
In any quarter shipping over 770000 total collectibles, surpassing the prior record of roughly 735000 items set in Q1 earlier this fiscal year.
Some of the early modifications made during our operational revamp our helping improve efficiency, but the backlog continues to grow to unprecedented levels. The faster. We have returned the product to our customer base the faster the submissions come back to us in Q2, P.S.A. receiving averaged over 68.
Thousand submissions per week with peaks North of 85000 units towards the end of the quarter the highest weekly figures in our history.
As we stand here today, the P.S.A. backlog has surpassed the 1 million unit Mark while this trend is extremely positive for the growth of the business. Our company continues to invest in people and technology, which can help improve turnaround times for our loyal customer base.
Turning to our overall business gross profit margins were 56% for the quarter, which was which was the same a year ago.
Our operating income for Q2 after noncash stock based compensation was 3.3 million compared to 2.2 million. The previous year net income was 2.6 million for the second quarter of fiscal 2020, or 29 cents per diluted share, which was up from 1.5 million and 17 cents per share in the prior year.
Sure.
Now, let me turn it over to Joe Wallace for a more detailed review of our financial performance in Q2, Joe.
[laughter]. Thank you Joe.
I will now give a brief overview of the financial results for the second quarter first six months of fiscal 20.
And this year second quarter. The company generated record second quarter revenues is 19.50, you earned operating income of 3.3 million a net income of 2.6 million or 29 cents for sure.
This compares to quarterly revenues of 15 point Sevenmillion.
Operating income of 2.2 million, a net income of 1.5 million or 17 cents per share since the second quarter fiscal 19.
And the first six months of fiscal 20, the company generated record first half rabbits, a 39.7 million earned record first half operating income of 7.9 million a net income of 6.2 million or 69 cents per sure.
This compares to quarterly revenues of 33.2 million operating income of 5.0 million.
Net income of 3.6 million or 40 cents per share in the first six months of fiscal 19.
The second quarter revenue increased to 3.8 million or 24% to 19.5 million for the quarter included increases of 2.1 million or 35% since cards and autographs.
1.8 million or 21% in coins.
Cards, and autographs inquiries represent record second quarter revenues and that business has achieved quarter over quarter revenue growth and 37 last 38 quarters.
The corn increase of 21% include improved U.S. revenues of 11% mainly from vintage coins.
Trying to corn revenues in Q2 increased by 1.3 million or 185% to 2.0 million for the quarter.
Perhaps in Hong Kong revenues were down by about zero point, Threemillion, reflecting one less grading events our friends at this years Q2.
To six months revenue increase of 6.5 million or 19%.
39.7 million.
Polluted increases.
4.1 million or 34% in card cards, and autographs and 2.7 million a 14% in coins cards and autographs increase represented record first half revenues for that business.
The corn increase a 14% included improved U.S. Robins, a 7% mainly for modern vintage coins.
China corn reminiscent of first six months increased by 1.5 million or 86% to three point Threemillion.
[laughter] rounds in Hong Kong revenues were up by about 0.1 million <unk> million in Hong Kong.
[noise] combined the corn business other cards and autographs business represented 95% of revenues and the first six months the year.
Reflects the continued importance of those two businesses to our overall financial performance.
As discussed in prior years Orchard fiscal quarter is typically are seasonally strongest quarter up you're in the United States for coins.
Due to the release of gold and silver Eagles by the U.S. meant in that quarter.
And we expect that trend to continue this year. In addition, we expected our cards and autographs revenues will continue to grow in the stable matter as that business continues to have a record backlog of submission for authentication and grading.
With respect to China, which was about 8% of revenues in the first six months our expectation had been have you would see improved revenues. This year's Turkey as compared to last year's third quarter based on strong submissions of coins or China grading events.
Finishing the second quarter with a strong backlog.
However, the recent Corona virus outbreak in China related travel restrictions of business closures could slow the momentum. We are currently experiencing in China at least in the near term.
For completeness, we out of the risk factor for this matter and air form 10-Q that was filed with the FCC today.
The gross profit margins were 56% of 58%. This your second quarter first six months as compared to 56%, 57% to say periods of last year.
The higher gross profit margins this year second quarter in six months.
It was due to improved margins in our corn business due to the higher revenues, partially offset by lower gross profit margins at our cards and autographs business as we build capacity to reduce the record backlog in that business.
As previously disclosed or couldn't be variability in the gross profit margin due to the mix of revenues at the seasonality of our business.
On a quarterly basis during the three years ended June 19, our gross profit margins vary between 54% I'm, 64%.
Our combined operating expenses.
Represented 39% I'm, 38% of revenues this year second quarter in six months as compared to 42% of revenues in last year's second quarter in six months.
Selling and marketing expenses were 13% of referenced this your second quarter in six months versus 16% of revenues and last year second quarter in six months.
Dollar terms selling and marketing expenses were substantially unchanged due to lower business development cost incurred other overseas corn operations.
For the most part offset by higher selling and marketing expenses, and our growing cards and autographs business.
Gionee expenses represented 27% in 25% of revenues. It does your second quarter in six months.
As compared to 26% in last year's second quarter in six months.
The dollar increase in the current year periods include higher payroll related related costs, including higher performance based incentives due to the improved performance the business higher legal related expenses and higher noncash stock based compensation expense.
Primarily as a result of the increase revenues and improved operating leverage increased operating income of 3.3 million at 7.7 million in this years second quarter in six months represent an increase of 48% that 57% over the 2.2 million of 5.0 million.
Earned in Q2 at the first six months of fiscal 19.
Our operating margins were 70% and 20% of referenced this year's cute Q2 in six months I was compared to 14%, 15% the same periods of last year.
Adjusting for non cash stock based compensation expense, the operating margins were about 19% and 21% induce your second quarter in six months outcome purchase 15% of 70% of last year's Q2 in six months.
Turning to our balance sheet.
The company's cash position is 22.2 million at December 19.
As compared to 19.2 million of June 19, and 12.4 million at December 18.
Net cash generated 3.0 million the first half of the year included cash generated from operating activities of 7.9 million, partially offset by cash dividends paid to stockholders of 3.1 million 1.4 million use for capital expenditures and capitalized software costs.
Zero point Fourmillion used to pay down the company's term loan.
On January 3rd or sorry, I'm, sorry, 20, Threerd, we announced our third quarter cash dividend.
17 to have sounds per share, which will be paid off for every 28 to stockholders of record on February four things [noise].
With that I'd like to thank you for your attention Joe.
Thanks, Joe before we conclude I would like to make a few comments about the close of Q2 and the outlook moving forward into our third quarter of the fiscal year.
Q2 marked the fourth consecutive quarter, where collectors universe set a new revenue record for the respective quarter as I stated during our last earnings call. We continued to be focused on fundamentals and that focus has a lot to do with our positive performance over the past year. Our operational revamp is at the top of the priority list.
This is how we moved the millions of submissions we receive each year through the system any efficiency gains we can make here will not only help our throughput and financial performance, but it will also help our customers who depend on our service to help move their inventory.
I PCGS, we have now entered what has traditionally been are busy bulk season, as 2020, silver and gold Eagles amongst other coins hit the market this winter and spring.
Interestingly one of the more noteworthy coins of the season is scheduled to be unveiled in April as the Naismith Memorial Basketball Hall of Fame coin hits the Street PCGS isn't the process of developing a diverse menu of customized packaging to accompany the coins once received.
In addition, PCGS officially launched domestic banknote grading in January to complement our U.S. coin and international banknote services.
This logical extension of our brand should prove to be a valuable addition for our customer base, especially for those who sell both collectible coins and paper money, which is fairly common.
As noted earlier, our coin business in China has been steadily gaining traction during the last several quarters.
That said our business in Shanghai may be adversely affected by the Corona virus outbreak and the related travel restrictions in the short term, while China revenues are not immaterial part of our overall revenues at this time.
Outbreak could impact some of the momentum generated in previous quarters. The significance of the impact will of course depend on a number of factors, including the ultimate geographic spread of the virus and the duration of the outbreak.
Turning to P.S. say the division keeps growing as renewed interest in modern card collecting has been driving our submission volumes to new levels. This past fall P.S.A. reached an interesting milestone in the non sports market in October P. S. A certified it's 1 million to poke came on card and most of those million cars have been.
Graded inside the last three years shortly after reaching this milestone a single Pokey mine card a PSC meant 919 98 Japanese promo illustrator card sold for $224250 at auction in November [noise].
Pokey mine is merely one category inside the increasingly popular non sports genre, but it has become a material contributor to the business as youngsters who started playing this popular game in the late 19 nineties are now entering their thirtys.
Like baseball cards were for me as a child pokey monistat subject to an entire generation.
The franchise, which is known worldwide continues to produce product the submission volumes and prices paid for rare or exceptional Pokey mine card shows how real this market is.
As much of a contributor as Pokey mine has been to P.S. say it hasn't been the main driver of the business that driver is the market for PSC graded modern sports cards. This rejuvenated segment of the market is more robust that at any point in our company's history as younger generations of collectors are becoming more active.
In fact around 80% of our approximately million count backlog are of the modern variety and P.S. say.
And the vast majority of that 80% our sports cars.
This extremely encouraging this is extremely encouraging not only for P.S. say, but for the industry at large in the second half of our fiscal year. The management team continues its focus on maximizing efficiency in operations as we delve further into our busy bulk coin season.
In addition, new anti counterfeiting security features are being incorporated into our 2020, PCGS and P.S.A. products.
Security chip, otherwise known as NFC or near field communication technology will be embedded into some of our product. So collectors and dealers can verify the product has in fact been certified by our company. This kind of technology is currently being used in a variety of industries, including the world of luxury.
Goods, but it has never been used in the collectibles world for this purpose.
By simply touching our certified product with a current smartphone a verification link will instantaneously appear on the screen. The link will provide the exact information of the certified collectible in our database the embedded security as a new level of sophistication to the validation process.
And next level protection for our certified products.
CGS has already announced the addition of this new technology and P.S. say, we'll be doing the same in the coming weeks. Finally, we are exploring new opportunities that can help us profitably grow the collectors universe business in the future of course, all our expectations are governed by several factors not in our control such as the price of precious metal.
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.
[noise]. Thank you ladies and gentlemen at this time, we will open the floor for questions. If you would like to ask a question. Please signal by pressing star one on your telephone keypad.
Are you thinking speakerphone. Please make sure that your mute function is turned off to allow your signal to reach our equipment and again not a star wanted to ask a question.
<unk> for just amendment to allow everyone an opportunity to signal for questions.
At this time I'm showing no questions in the queue I'll turn it back to Joe Orlando for closing remarks.
We would like to thank everyone for joining us today, and we look forward to talking with every one of the close of Q3.
[noise] [noise]. This concludes today's call. Thank you for your participation you may now disconnect.
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