B Riley Financial Inc (RILYL) 2012 Q2 法說會逐字稿

Good afternoon, everyone, and welcome to Great American Group second-quarter 2012 earnings conference call. With me today are the Company's Chief Executive Officer, Andrew Gumaer, and Chief Financial Officer, Paul Erickson.

Before I hand the call over to them, please note that on this call certain information presented contains forward-looking statements. These statements are based on management's current expectations and are subject to risks, uncertainties and assumptions. Potential risks and uncertainties that could cause the Company's business and financial results to differ materially from these forward-looking statements are described in the Company's Form 10-K filed with the SEC. All information discussed on today's call is as of today, August 14, 2012, and Great American Group does not intend and undertakes no duty to update future events or circumstances.

Also during today's call, the Company will be discussing adjusted EBITDA, which is a non-GAAP financial measure. Please see the Company's press release for a reconciliation of adjusted EBITDA to net income, the most directly comparable GAAP measure.

And now I will turn the call over to Andy Gumaer, Chief Executive Officer of Great American Group. Andy?

Thank you and thanks to everyone for joining us today on our second-quarter conference call. We experienced a slowdown in business activity in the second quarter compared to the first quarter. However, our efforts over the past year to diversify our business continues to have a positive impact on our operating results.

Our net income for the second quarter was $619,000 or $0.02 per diluted share, which respects an improvement from the loss we incurred in the second quarter of 2011 at $2.2 million or $0.08 per diluted share.

Our US retail liquidations business remains subdued. We've not seen many large liquidation opportunities in this business segment over the past six months.

In spite of this, we believe there are pockets of opportunities that exists which may have a meaningful impact to our future operating results.

Turning our attention to the United Kingdom and Europe, we continue to be optimistic about our expansion there and the favorable contribution to our operating results.

During the first half of 2012, we completed engagements related to [Game Group LLC], TJ Hughes and Blockbuster Italy. We are optimistic that we will see additional opportunities in the near term in the UK and in the European market.

During the second quarter, we had a leadership change to our GA Capital segment and appointed Stuart Armstrong as President. Stuart has more than 20 years of experience in the financial services industry, having held senior positions with GE Capital and Tygris Financial. Stuart has assumed the day-to-day management and operations of GA Capital, which provides senior and junior secured loan facilities to help middle market businesses meet their financing needs. With his experience and background, he will be a tremendous asset to the customers who come to us for the wide variety of our financial solutions we have available.

Our appraisals business continues to perform very well. During the second quarter, revenues increased 4.7% to $6.6 million during the quarter. The increase was primarily due to higher revenues related to appraisals we performed that are monitoring the collateral for financial institutions, lenders and private equity investors. This business continues to contribute a steady stream of earnings to our overall profitability. Our continued focus on our relationship with banks and other lending institutions makes us a provider of choice in this market.

Subsequent to quarter end, our appraisals division entered a partnership with Rig Planet, a global marketplace for new and used oilfield equipment. This partnership represents an opportunity for us to grow our appraisal business in the oil, gas and energy sector. While we have provided numerous appraisals in the valuation projects within the oil and gas industry for some time, this alliance will allow our appraisal division to benefit from Rig Planet's years of experience in the valuation of energy equipment throughout the world. Rig Planet is a highly respected firm, and the new relationship really broadens our capacity to service the sector of the industry.

While our operating results for the second quarter trailed the performance we generated in the first quarter, we are encouraged by the improved results as compared to the prior year. We believe that we are well positioned to take advantage of opportunities in US and Europe as they present themselves in the future.

And now I would like to turn the call over to Paul Erickson, our Chief Financial Officer, who will discuss our second-quarter results in greater detail.

Thank you, Andy. In the second quarter of 2012, our revenues increased to $19.7 million from $9.8 million in the second quarter of 2011. Revenues from services and fees were $13.3 million compared to $9.6 million in the second quarter of 2011. Sales of goods increased to $6.4 million from $262,000 in the prior year quarter. The increase in revenues during the second quarter were primarily due to the increase in revenues in the auction and liquidation segment of $6.7 million and revenues of $2.8 million from the new UK retail segment.

The new UK retail segment is a result of our investment in Shoon Trading Ltd. We purchased a 40% interest in the common stock of Shoon Trading Ltd. and extended the term loan collateralized by the assets of the Company.

In turn, Shoon Trading Ltd. purchased the rights to operate the former Shoon Internet business and retail stores that were an administration in the United Kingdom. As part of our investment, we control the Board of Directors at Shoon, and we exercised our right to appoint the Chairman of Shoon. Shoon is considered a payable interest entity that we are required to consolidate in accordance with the generally accepted accounting principles.

Accordingly, the operations of Shoon from May 4, 2012, the date of our investment, through June 30, 2012, have been included in our operating results for the second quarter.

Our operating results from the second quarter include retail sales of $2.8 million from the Shoon stores, an operating income of $200,000. We've also recognized a gain on bargain purchase, net of tax of $1.4 million, which is included in other income as a result of our investment in Shoon. The gain on bargains purchase represents the amount in which the fair value of assets required exceeds the consideration we paid for Shoon.

Direct cost of services were $5 million in the second quarter compared to $3.5 million a year ago. The increase in direct cost of services is primarily the result of an increase in the number of fee and commission engagement in the second quarter of 2012 where we contractually deal fees, commissions and reimbursement expenses as compared to the same period of 2011.

Cost of goods sold was $4.1 million, compared to $405,000 a year ago. The increase in cost of goods sold of $3.7 million was primarily due to an increase in the sale of goods of $2.2 million in the auction and liquidation segment and $1.5 million in UK retail stores segment accretable to Shoon.

Selling, general and administrative expenses were $9.8 million during the second quarter, an increase of $1.6 million from $8.2 million a year ago. The increase in SG&A was primarily attributed to an increase in the expenses of $500,000 i our auction and liquidation segment and the increase of $1.1 million in the new UK retail stores segment as a result of the consolidation of Shoon in our operating results.

It is important to point out that SG&A expenses in the quarter for corporate overhead increased only by $100,000, and this was offset by a decrease in SG&A expenses of $100,000 related to our valuation and appraisal segment.

Our operating income during the quarter was $764,000 compared to operating loss of $2.3 million in the second quarter of 2011. Interest expense during the quarter was relatively flat at $646,000 compared to $625,000 in the prior year's quarter. Interest expense in the 2012 quarter was primarily due to interest expense on our notes payable due to the Great American members and family equity holders.

Our income from operations before conversion for income taxes was $1.5 million compared to a loss of operations before provision for income taxes of $3.1 million in the second quarter of 2011. Our second-quarter results include a provision for income tax of approximately $57,000 compared to a benefit for income tax of $858,000 in the second quarter of 2011.

Overall, our net income during the second quarter of 2012 was $619,000 or $0.02 per diluted share compared with a net loss of $2.2 million or $0.08 per diluted share in the second quarter of 2011. During the second quarter of 2012, we generated adjusted EBITDA of $1.5 million compared to negative adjusted EBITDA of $2.4 million a year ago. This was the result of the improvement in our operating results in the second quarter of 2012 as compared to the same period a year ago.

At June 30, 2012, we had $23.4 million in cash and equivalents. Working capital was $29 million compared to $26.1 million in the prior year period.

Now I will turn it back over to Andy.

Thanks, Paul. And thanks, everyone, for joining us today. This concludes our second-quarter conference call. We look forward to updating you on our next call. Thank you.

Thank you, ladies and gentlemen. At this time, we will begin the Q&A session. (Operator Instructions).

I'm showing no questions in my queue at this time.

Ladies and gentlemen, that does conclude our conference call for today. Thank you very much for your participation. You may now disconnect.