Q1 2021 Collectors Universe Inc Earnings Call
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Good afternoon, everyone and thank you for joining us to discuss collectors Universal Universe fiscal 2021 first quarter earnings conference call with us today.
Before management or to assist the GE, Orlando, President and Chief Executive Officer, and Joseph <unk>, Senior Vice President and Chief Financial Officer Management will provide a brief overview on the court and open up the call to your questions.
Comments made during today's call may contain statements regarding the company's expectations about future financial performance, including forecasts and statements concerning business trends and profitability that are forward looking statements and find in the private Securities litigation reform not just that you're 95, the company's actual results in the future may differ possibly materially from those forecasts.
That's called due to a number of risks and uncertainties.
These risks risks and uncertainties. In addition to other risks are more fully described striking in the Companys filings with the Securities and Exchange Commission.
These forward looking statements are made only as of the date of todays conference call and the company undertakes no obligation to update or revise these forward looking statements, whether as a result of new information future events or otherwise.
With that let's turn the conference over to Leon <unk>. She.
She wears off Shelton group Investor Relations. Please go ahead.
Thank you and welcome everyone, who has joined US today to review our first quarter fiscal 2021 22 results.
I'd like to now turn the call over to Joel Orlando, President and CEO Joe. Please go ahead.
Thank you Ed and welcome everyone to todays conference call to review, our first quarter fiscal 2021 financial results I'll begin today's call by summarizing the results for Q1, and then provide some commentary on the outlook going into our second fiscal quarter I.
I am pleased to report that collectors universe finished Q1 with record operating results.
Total revenues in the first quarter were up 52% year over year to 30.8 million from 20.2 million in the same quarter a year ago setting an all time quarterly record for the company.
Our strong growth this quarter was led by our P.S.A. trading card and autograph business, which was up 130% year over year.
We're also pleased with the performance of our coin business, PCGS, which was up 4% over last year. Despite the headwinds in this business related to the pandemic.
Also highlighting our quarter was the achievement of record operating profit and cash flow operating income was 7.8 million or 25% of revenue compared to 4.6 million in the previous year. It is important to note that the first quarter operating profit included expenses related to professional and recruitment fees.
In the amount of 2.2 million and higher non cash stock based compensation expenses of 0.9 million.
Together these expenses reduced operating margin by 10% in the quarter further underscoring the significant leverage in our operating model. In addition, our cash position increased by a record 8.1 million sequentially to 36.7 million, surpassing last quarter's record of 6.4 million in Q4.
For fiscal 2020.
These results are a direct reflection of the diligent work by our team over the past few years to transform the business in a way that could enable the kind of growth we achieved in the first quarter of fiscal 2021.
And while it's gratifying to deliver these results, it's even more exciting that we continue to see expanding opportunities ahead.
To support this growth, we recently announced the expansion of our existing facility in southern California by an additional 63000 square feet, which is directly adjacent to our current facility, thereby doubling our square footage to over 126000.
This new facility has recently been upgraded and include space for training rooms that we can utilize for quickly onboarding new employees.
This expansion will also allow our chief customer service and marketing personnel to return to the office, while still being able to adhere to social distancing guidelines.
Due to the proximity of the newly acquired space, we will not experience any material workforce disruptions or downtime that is typically associated with moving to an offsite locations.
Our expansion into the new space will be staged over time to support our growing backlog of business. While also providing ample room to integrate technology solutions in the future such as robotic automation and support our long term vision for the company.
Now, let's take a deeper look into the performance of each authentication and grading division.
Beginning with our P.S.A.N.P.S.A. DNA services, a strong combination of increased throughput and improved pricing catapulted, our trading card autograph and memorabilia division to a new quarterly record of 18.6 million, which represented 60% of total collectors universe revenue.
This includes record quarterly output for the division as we shipped approximately 1.25 million total collectibles, surpassing the prior record of about 775000 items set in Q2 of fiscal 2020.
The P.S.A.S.P. rose, 40% year over year.
Improved market conditions, and the need for faster turnaround times from our customer base helped drive the ASP strength in the quarter, which resulted in better margins.
That's throughput increases however, the average ASP in our P.S. They division could fluctuate due to changes in submission mix.
This is the substantial demand for these services and the strength of the overall trading card market have not shown signs of letting up which is why we continue to believe that our KFC division will be a material contributor to our future growth.
Now turning to P.C.G.S., our coin division grew year over year by 4% to 11.5 million. Despite the previously reported headwinds the division has been facing due to the global pandemic Pcs.
PCGS is recent response to those challenges, including hosting smaller domestic events to come happy ongoing absence of major trade shows looking.
Looking at PCGS domestic PCGS vintage was up 6% year over year to 3.6 million in Q1 versus 3.4 million in the prior year quarter.
As expected all major coin convention as scheduled in Q1 were cancelled, including our own trade show at Long Beach, California.
By hosting smaller corn trading events PCGS was able to replace approximately 87% of the show grading revenue versus last year.
And as we have talked about on prior earnings calls it is important to combine PCGS vintage and show revenue when evaluating performance since some points can simply be rerouted to our vintage service line or vice versa by the customer.
When combined in this way both revenue figures in Q1 of fiscal 2021 were virtually even with last year's first quarter. So PCGS is quick response to the changing environment helped stabilize this revenue stream. Despite the lack of traditional trade shows.
Turning to PCGS default. This part of the business was up 10% year over year and finished Q1 with approximately 3 million and service revenues compared to 2.7 million in fiscal 2020.
In terms of PCGS International this is where we saw the greatest impact from co that overall, we were pleased with our continued progress in China from a year over year perspective, even though we were not able to host any onsite grading events or send additional PCGS personnel to Shanghai due to restricted travel.
China revenue still rose, 20% to approximately 1.6 million compared to $1.3 million in the same quarter a year ago.
We have been increasing our operational capacity in China. So that we are less reliance on U.S. based staff, which helped contribute to our performance in the quarter.
We did see some weakness and our Hong Kong in Paris locations, which were down about $270000 on a combined basis from the prior year.
Mainly due to processing challenges from the pandemic.
With that let me now turn the call over to Joe Wallace for a more detailed review of our financial performance in Q1, Joe.
Thank you Joel ill.
I'll give a brief overview of the financial results.
For the first quarter fiscal 21.
Despite the cold at night.
Alan just a continued to impact primarily our corn business in Q1, the company announced record operating results in the quarter.
The first quarter the company generated record quarterly revenues of 30.8 million earned operating income of 7.8 million net income of 6.0 million or 65 cents per share.
This compared to quarterly revenues of 20.2 million operating income of 4.6 million and net income of 3.6 million or 40 cents per share in the first quarter fiscal 2000.
Despite earning record operating income in the quarter. The operating results were impacted by higher Gms expenses because discussed below.
The total revenue increase of 10.6 million up 52% in the quarter.
Was driven by an increase of 10.5 million in cards, and autograph revenues, representing a growth rate of 130% in the quarter on a quarterly record for that business.
The revenue increase was driven by increasing capacity, primarily personnel, which enabled us to ship more units in the quarter, earning higher average service fees from customers paying for faster turnaround times although.
Although revenue growth for cars monographs accelerated this quarter to 60% of total revenues that business has achieved quarter over quarter revenue growth going.
40 over the last 41 quarters.
You ask corn revenues increased 5% to zero point.
Excuse me you ask one revenues increased 5% or zero point $5 million and China revenues increased 20% or 0.3 billion in the quarter. Despite the cobot related charges with counsel trade shows uncertainty as to the U.S. mass production schedule and the restrictions on international travel.
Combined our cards and autographs, calling businesses, representing about 98% of revenues for the quarter.
Right yes.
The continued importance of those two businesses to our overall financial performance.
Cards, and autographs finished the quarter with another record backlog. Therefore, we plan on continuing to increase authentication grading capacity through adding personnel are utilizing the additional space. We have recently secured which will allow us to support the continued growth of that business.
The second fiscal quarter is seasonally the slowest quarter of the year for coins or we expect that strategy continue this year also.
Respective to our China business, which ended the quarter with a sizable backlog will continue increasing local capacity.
To offset the impact of travel restrictions between U.S. in China, which we expect will result in progressive revenue growth in future quarters.
The gross profit margin was 63% in the quarter.
As compared to 60% in last years first quarter.
Higher gross profit margin was due to the higher ASP earn the cards and autographs business.
As previously disclosed.
The ongoing variables in the gross profit margin.
Due to the mix of revenues as the seasonality of our business.
On a quarterly basis during the three years ended June 28.
Our gross profit margins vary between 53% and 62%.
Our combined operating expenses represented 77% of revenues in both this year and last years first quarter.
Selling and marketing expenses were 7% of revenues in the current first quarter versus certainly presented in last years first quarter.
The lower selling and marketing expense dollars reflected lower trade show costs due to the cancellation.
Installation of two of the largest shows the year the nationals, the cards and autographs M&A for coins, both due to the COVID-19.
Those cost reductions were partially offset by higher business development customer service costs, primarily due to the growth of the cards and autographs business.
[noise] Gionee expenses represented 70% of revenues in this year's first quarter as compared to 24% in last years first quarter.
The dollar increase in <unk> expenses of $4.4 million in the quarter included one $2.2 million up this personal fees incurred in connection with the now settled after this issue on the recruitment of New board members to higher non cash stock based compensation Ics.
Spends with 0.9 million and three higher DNA payroll cost of about $1 million, which was inclusive of higher incentive costs due to the improved performance of the business.
Together, the higher professional fees, a noncash stock based compensation costs represented about $3.1 million or 10% of revenue.
The resulting operating margins were 25% of revenues this quarter as compared to 23% in last year's first quarter.
Which $1 million to $3.1 million of higher DNA cost discussed above are taken into account demonstrates the improving operating leverage of the business.
Turning to our balance sheet.
The company's cash position with $36.7 million at September thirtyth slightly as compared to $28.6 million at June 20, and $21.3 million at September 19.
Net cash generated for the quarter of 8.1 million included cash generated from operating activities of $11.7 million.
Partially offset by 1.6 million of cash dividends paid to stockholders.
1.6 million used for capital expenditures and capitalized software costs.
0.2 million used to pay down the company's term loan 0.2 million used to pay withholding taxes divestitures.
As previously disclosed on October one.
2020, we entered into a lease amendment with our landlords will these additional space that doubles the space occupied other operations and corporate headquarters facility.
The updated lease will be accounted for as a lease modification under the accounting rules.
Rise to a higher arrive use assets related to lease obligation, which will will be reflected on our balance sheet from we announced our Q2 results.
Our parents dividend of 75 cents per share for the second quarter of fiscal two anyone will be paid on November 27 to stockholders of record on November 13.
In summary, our first quarter results further demonstrate our ability to ramp up increase capacity got quickly contributes to revenue generation.
We finished Q1 with strong momentum, primarily and the cards and autographs business. What's it continued record backlog in that business, we intend to build on that momentum as we progress through fiscal 21.
With that I'd like to thank you for your attention.
Thanks, Joe before we conclude and open the call to your questions I would like to make a few final comments about the close of Q1 and the outlook going into our second fiscal quarter as.
As we look to the coming quarter the record backlog in the P.S.A. Division will help moderate any anticipated volatility and authentication and grading revenues and what has typically been the seasonally slowest quarter of our fiscal year.
We have visibility into this side of our business, which helps support our efforts to begin staging our capacity expansion efforts over the coming quarters I.
Additionally, the outlook for PCGS remained solid, but tempered somewhat tempered due to the near term obstacles that are present in the coin business with the ongoing absence of major trade shows and restricted international travel with a great start to the new fiscal year, we remain focused on the opportunity we have in front of us to grow the business.
To fully capitalize on that opportunity we plan to continue investing in our operations in terms of personnel capacity and technology.
Some of these actions will bear fruit immediately as we showcased in the first quarter, while others will potentially be key contributors to the long term evolution of our company.
As a reminder, our expectations going forward are subject to several factors outside our control such as the price of precious metals the market for collectibles fallout from the COVID-19 pandemic. The overall state of the economic climate, primarily in the U.S. and the possibility of changing international trade policies.
Worldwide.
Overall, we remain very encouraged by the record results achieved in Q1, the collectors Universe management team and board of directors are both energized by the progress and aligned as we set our course for the future and focus on providing increasing returns to our shareholders.
Now I would like to open the call to any questions you may have.
Thank you and she'd like to ask a question. Please signal by pressing star one on your telephone keypad, if you're using a speaker phone. Please me. Please make sure. Your mute function is turned off to license and we try to equipment.
Once again that is star one I asked the question well pause for just a moment.
Once again that is star one to ask a question.
So it is just we have no questions I'll turn it back to Joe.
Thank you all for joining US today, one final comment we plan to attend the Fury research hidden Gems conference on November 19th and then the Needham growth conference. The week of January 11.
If you'd like to request a meeting please reach out to the respective from or you can also contact the Shelton group to arrange a call with management.
We look forward to providing an update on our business next quarter. Operator, you may now disconnect.
This concludes today's call. Thank you for your participation you may now disconnect.
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