Collectors Universe Inc. (CLCT)
Q3 2010 Earnings Call
May 10, 2010 4:30 PM ET
Michael McConnell – Chief Executive Officer
Joe Wallace – Chief Financial Officer
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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 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. The 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 Michael McConnell. Michael?
Thank you. And welcome, everyone, to today’s conference call. Before I turn the call over to Joe Wallace, our CFO, I’ll comment briefly on the quarter and key elements of our thinking and plans going forward.
First, simply the company produced record results this quarter. Both top and bottom line performed well and represented a culmination of the focus and efforts of our employees over the last year. Understanding who we are, what we do well and being accountable to our plans have led to a renewed confidence in ourselves and formed a solid foundation to the business.
Second, our process to develop and then implement growth initiatives has begun to take shape. Last fall, we introduced coin facts, which in less than a year has approximately 3,000 subscribers and is growing every week. In late March, approximately six weeks ago, we launched PCGS Secure Plus and while it’s early days, we are pleased with the market’s initial response.
PSA and PSA/DNA launched a new service in the quarter targeted at personalized trading cards and will launch an innovative product within our photo and autograph activities in June. Selectively these and others in development are consistent with our strategy to protect our core businesses and to extend pragmatically. What I mean by that, to extend within our core markets, build upon our core competencies, to have low capital requirements and healthy profit margins.
Third, we have steadily improved the capital efficiency of our balance sheet in our business. Operating cash flow has increased substantially while capital deployed in the business has declined.
On a LTM basis return on equity is approximately 37% after being in single digits for years. Capital management actions over the last year include a significant Dutch tender last summer at $5 per share. We then full reinstatement and now subsequent increase in the quarterly dividend, as well as the tightening of the balance sheet accounts, such as note receivable. The Board will continue to seek to manage the capital resources of the company efficiently, just as we seek to manage the operations of our business efficiently.
At this point, I’ll turn the call over to Joe to discuss the quarter’s financial results in more detail.
Thank you, Mike, and good afternoon, everyone. I’ll now give a brief overview of the financial results for the third quarter and nine months of fiscal 2010. For the current third quarter, the company reported net service revenues of $10.8 million, operating income of $2.5 million and after tax income from continuing operations $2.4 million, or $0.32 per diluted share.
This compares to net service revenues of $9.3 million, operating income of $944,000 and after tax income from continuing operations of $891,000 or $0.10 per diluted share for the third quarter of fiscal 2009.
For the current nine months, the company’s net service revenues were $29 million, operating income was $5.8 million and after tax income from continuing operations was $5.8 million or $0.76 per diluted share.
This compares to net service revenues of $26.2 million, operating income of $858,000 and an after tax loss from continuing operations of $192,000, or a loss of $0.02 per diluted share for the nine months ended March 31, 2009.
The income tax provisions for the current year third quarter and nine months reflect an estimated annual effective tax rate of 5% reduced by a benefit that arose in the current second quarter related to a change in the rules for alternative minimum taxes.
The company continues to have net operating losses and other tax attributes available that should offset our minimized taxes over the short-term depending on our financial performance over the next few years.
In fiscal 2008 and 2009, the company had established non-cash valuation allowance of $13 million, excuse me, again with our deferred tax assets due to uncertainty of realization. As of March 31, 2010, except to the extent of the company earned taxable income in the current year we have maintained this valuation allowance.