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Great American Group Announces Third Quarter 2012 Financial Results

Wednesday, November 14, 2012 4:01 PM


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WOODLAND HILLS, CA -- (Marketwire) -- 11/14/12 -- Great American Group, Inc.® (OTCBB: GAMR) ("Great American Group" or the "Company"), a leading provider of asset disposition, valuation and appraisal services, today announced financial results for its third quarter ended September 30, 2012.

  • Total revenues of $14.2 million, a decrease from $28.5 million a year ago
  • Net loss of $0.5 million, versus net income of $4.0 million from a year ago
  • Diluted loss per share of $0.02, versus a diluted earnings per share of $0.14 from a year ago

Third Quarter Results

For the third quarter ended September 30, 2012, the Company reported total revenues of $14.2 million, a decrease from revenues of $28.5 million in the third quarter of 2011. Revenues from services and fees were $11.0 million, compared to $27.6 million in the same period the prior year. Revenues from sale of goods were $3.3 million, compared to $0.9 million in the third quarter of 2011. The decrease in total revenues during the quarter was primarily due to decreases in the auction and liquidation segment of $17.3 million, and a decrease in revenues in the valuation and appraisal services segment of $0.1 million, offset by an increase in revenues of $3.1 million from the UK Retail Stores segment.

"During the third quarter we experienced a slowdown in business activity in our auction and liquidation segment. In the prior year quarter, we generated revenues of $14.7 million from the TJ Hughes retail liquidation engagement in the United Kingdom and the Borders retail liquidation engagement in the United States and there were no similar large retail liquidation engagements in the third quarter of this year," said Andrew Gumaer, Chief Executive Officer of Great American Group. "Revenues from our auction and liquidation segment typically comprise a significant amount of our total revenues and thus can impact our operating results from quarter to quarter. I am happy to report that we are currently participating in the joint venture that is conducting the sale of all inventory for Fashion Bug, a 568 store women's apparel and accessories chain. The 568 Fashion Bug stores are located in 39 states and is part of Ascena's planned divestiture of the Fashion Bug brand and orderly wind down of the Fashion Bug operations. In addition, we were recently engaged to provide consulting services on the store closure for Comet, a 236 store electronics chain in the United Kingdom. We expect our engagement on Comet to be mostly completed by the end of 2012. We continue to be highly focused on the execution of our business initiatives and expanding our business outside the United States."

Direct cost of services was $4.8 million, compared to $7.6 million a year ago. The decrease in direct cost of services was primarily the result of a decrease in the number of fee and commission engagements in the third quarter of 2012, where the Company contractually bills fees, commissions and reimbursable expenses as compared to the third quarter of the prior year. Cost of goods sold was $2.2 million in the third quarter of 2012, compared to $1.0 million in the third quarter of the prior year.

Selling, general and administrative expenses decreased to $7.9 million, compared to $10.9 million in the third quarter of 2011. The decrease in selling, general and administrative expenses was primarily the result of a decrease of $2.0 million in the auction and liquidation segment, a decrease of $0.1 million in the valuation and appraisal segment, and a decrease of $2.6 million in corporate and other, offset by an increase of $1.6 million in the UK Retail Stores segment as a result of the consolidation of Shoon in May 2012.

Loss before the benefit of income taxes was $1.1 million during the third quarter of 2012, compared to income before the provision of income taxes of $6.0 million in the third quarter of 2011. During the third quarter of 2012, the Company recorded a benefit for income taxes of $0.4 million, compared with a provision for income taxes of $2.0 million in the third quarter of 2011. Net loss attributable to the Company was $0.6 million, or $0.02 per diluted share, compared to net income of $4.0 million, or $0.14 per diluted share in the third quarter of 2011.

Nine Month Results

For the first nine months of 2012, the Company reported total revenues of $53.2 million, compared to $52.2 million in the first nine months of 2011. Revenues from services and fees were $41.1 million, compared to $50.1 million a year ago. Sales of goods were $12.1 million compared to $2.0 million in the same period of 2011.

Total operating expenses were $50.7 million, compared to $45.0 million in 2011. Operating income was $2.5 million, compared to $7.1 million in the prior year. Income before provision for income taxes for the first nine months of 2012 was $2.2 million, compared to $3.1 million during the first nine months of 2011. The Company recorded a provision for income taxes of $0.4 million compared to $1.9 million in the same period of 2011. Net income attributable to the Company during the first nine months of 2012 was $1.1 million, or $0.04 per diluted share, compared with $1.3 million, or $0.04 in the same period of 2011.

Financial Position

At September 30, 2012, the Company had $19.0 million in cash and cash equivalents, an increase compared to $15.0 million at December 31, 2011. Working capital was $26.5 million at September 30, 2012.

Conference Call

The Company will host a conference call today at 4:30 p.m. EST, to discuss results for the third quarter ended September 30, 2012. To participate in the event by telephone, please dial (877) 407-0789 10 minutes prior to the start time (to allow time for registration) and use conference ID # 403231. International callers should dial (201) 689-8562. A digital replay will be available beginning November 14, 2012, at 7:30 p.m. EST, through November 21, 2012, at 11:59 p.m. EST. To access the replay, dial (877) 870-5176 (U.S.), and use passcode 403231. International callers should dial (858) 384-5517 and enter the same passcode.

The call will also be broadcast over the Internet and can be accessed on the Investor Relations section of the Company's website at www.greatamerican.com. To listen to the webcast, please visit the site at least 15 minutes prior to the start of the call in order to register, download and install any necessary audio software. A replay of the call will also be available for 90 days on the website.

About Great American Group, Inc. (OTCBB: GAMR)

Great American Group is a leading provider of asset disposition and auction solutions, advisory and valuation services, capital investment, and real estate advisory services for an extensive array of companies. A trusted strategic partner at every stage of the business lifecycle, Great American Group efficiently deploys resources with sector expertise to assist companies, lenders, capital providers, private equity investors and professional service firms in maximizing the value of their assets. The company has in-depth experience within the retail, industrial, real estate, healthcare, energy and technology industries. The corporate headquarters is located in Woodland Hills, Calif. with additional offices in Atlanta, Boston, Charlotte, N.C., Chicago, Dallas, New York, San Francisco and London. For more information, call (818) 884-3737 or visit www.greatamerican.com.

Forward-Looking Statements

This press release may contain forward-looking statements by Great American Group that are not based on historical fact, including, without limitation, statements containing the words "expects," "anticipates," "intends," "plans," "believes," "seeks," "estimates" and similar expressions and statements. Because these forward-looking statements involve known and unknown risks and uncertainties, there are important factors that could cause actual results, events or developments to differ materially from those expressed or implied by these forward-looking statements. Such factors include those risks described from time to time in Great American Group's filings with the SEC, including, without limitation, the risks described in Great American Group's proxy statement/prospectus filed with the SEC on July 19, 2012, and its Annual Report on Form 10-K for the year ended December 31, 2011. These factors should be considered carefully and readers are cautioned not to place undue reliance on such forward-looking statements. All information is current as of the date this press release is issued, and Great American Group undertakes no duty to update this information.

Note Regarding Use of Non-GAAP Financial Measures

Certain of the information set forth herein, including Adjusted EBITDA, may be considered non-GAAP financial measures. Great American Group believes this information is useful to investors because it provides a basis for measuring Great American Group's performance against the contingent share earnout provisions in the AAMAC transaction. In addition, Great American Group's management uses these non-GAAP financial measures along with the most directly comparable GAAP financial measures in evaluating Great American Group's operating performance, capital resources and cash flow. Non-GAAP financial measures should not be considered in isolation from, or as a substitute for, financial information presented in compliance with GAAP, and non-financial measures as reported by Great American Group may not be comparable to similarly titled amounts reported by other companies.

                GREAT AMERICAN GROUP, INC. AND SUBSIDIARIES
                   Condensed Consolidated Balance Sheets
                  (Dollars in thousands, except par value)
                                               September 30,   December 31,
                                                    2012           2011
                                               -------------  -------------
                                                (Unaudited)
                    Assets
Current assets:
  Cash and cash equivalents                    $      18,987  $      15,034
  Restricted cash                                      6,767              -
  Accounts receivable, net                             6,148          7,482
  Advances against customer contracts                  2,813          5,276
  Inventory                                            2,686              -
  Goods held for sale or auction                      10,626         12,934
  Loan receivable                                        537          8,306
  Note receivable - related party                        680          3,844
  Deferred income taxes                                4,765          4,460
  Prepaid expenses and other current assets            1,175          1,110
                                               -------------  -------------
    Total current assets                              55,184         58,446
Property and equipment, net                              897            916
Goodwill                                               5,688          5,688
Other intangible assets, net                             140            140
Deferred income taxes                                 10,311         10,504
Other assets                                             642            664
                                               -------------  -------------
    Total assets                               $      72,862  $      76,358
                                               =============  =============
       Liabilities and Equity (Deficit)
Current liabilities:
  Accounts payable and accrued liabilities     $      12,514  $      13,718
  Auction and liquidation proceeds payable               612             18
  Mandatorily redeemable noncontrolling
   interests                                           2,817          3,408
  Revolving credit facility                            1,266          1,942
  Current portion of long-term debt                    1,724          1,724
  Notes payable                                        9,695         11,555
  Current portion of capital lease obligation             20             29
                                               -------------  -------------
    Total current liabilities                         28,648         32,394
Capital lease obligation, net of current
 portion                                                   -             13
Long-term debt, net of current portion                50,483         52,207
                                               -------------  -------------
    Total liabilities                                 79,131         84,614
                                               -------------  -------------
Commitments and contingencies
Great American Group, Inc. stockholders'
 equity (deficit):
  Preferred stock, $0.0001 par value;
   10,000,000 shares authorized; none issued               -              -
  Common stock, $0.0001 par value; 135,000,000
   shares authorized; 30,002,975 and
   31,001,609 issued and outstanding as of
   September 30, 2012 and December 31, 2011,
   respectively                                            4              4
  Additional paid-in capital                           3,082          3,177
  Retained earnings (deficit)                        (10,051)       (11,190)
  Accumulated other comprehensive income
   (loss)                                                (36)          (247)
                                               -------------  -------------
    Total Great American Group, Inc.
     stockholders' equity (deficit)                   (7,001)        (8,256)
Noncontrolling interests                                 732              -
                                               -------------  -------------
    Total equity (deficit)                            (6,269)        (8,256)
                                               -------------  -------------
    Total liabilities and equity (deficit)     $      72,862  $      76,358
                                               =============  =============

                GREAT AMERICAN GROUP, INC. AND SUBSIDIARIES
  Condensed Consolidated Statement of Operations and Comprehensive Income
                                   (Loss)
                 (Dollars in thousands, except share data)
                            Three Months Ended         Nine Months Ended
                               September 30,             September 30,
                         ------------------------  ------------------------
                             2012         2011         2012         2011
                         -----------  -----------  -----------  -----------
Revenues:
  Services and fees      $    10,956  $    27,575  $    41,154  $    50,147
  Sale of goods                3,279          937       12,052        2,012
                         -----------  -----------  -----------  -----------
    Total revenues            14,235       28,512       53,206       52,159
                         -----------  -----------  -----------  -----------
Operating expenses:
  Direct cost of
   services                    4,844        7,613       16,097       15,904
  Cost of goods sold           2,172          974        8,449        2,287
  Selling, general and
   administrative
   expenses                    7,878       10,897       26,155       26,848
                         -----------  -----------  -----------  -----------
    Total operating
     expenses                 14,894       19,484       50,701       45,039
                         -----------  -----------  -----------  -----------
    Operating income
     (loss)                     (659)       9,028        2,505        7,120
Other income (expense):
  Other expense                    -           (3)           -          (13)
  Interest income                 30          119          186          409
  Income (loss) from
   equity investment in
   Great American Real
   Estate, LLC                   165         (174)          45         (522)
  Gain from bargain
   purchase                        -            -        1,366            -
  Interest expense              (678)      (2,921)      (1,951)      (3,874)
                         -----------  -----------  -----------  -----------
    Income (loss) before
     income taxes             (1,142)       6,049        2,151        3,120
(Provision) benefit for
 income taxes                    375       (2,018)        (387)      (1,864)
                         -----------  -----------  -----------  -----------
  Net income (loss)             (767)       4,031        1,764        1,256
Net income attributable
 to noncontrolling
 interests                      (220)           -          625            -
                         -----------  -----------  -----------  -----------
  Net income (loss)
   attributable to Great
  American Group, Inc.   $      (547) $     4,031  $     1,139  $     1,256
                         ===========  ===========  ===========  ===========
Basic income (loss) per
 share                   $     (0.02) $      0.14  $      0.04  $      0.04
Diluted income (loss)
 per share               $     (0.02) $      0.14  $      0.04  $      0.04
Weighted average basic
 shares outstanding       28,682,975   28,650,980   28,682,521   28,491,812
Weighted average diluted
 shares outstanding       28,682,975   29,519,141   29,599,012   29,359,973
Comprehensive income
 (loss):
Net income (loss)        $      (767) $     4,031  $     1,764  $     1,256
Other comprehensive
 income (loss):
  Change in cumulative
   translation
   adjustment                    (52)          36          211          (94)
                         -----------  -----------  -----------  -----------
Other comprehensive
 income (loss), net of
 tax                             (52)          36          211          (94)
                         -----------  -----------  -----------  -----------
Total comprehensive
 income (loss)                  (819)       4,067        1,975        1,162
Comprehensive income
 (loss) attributable to
 noncontrolling
 interests                       220            -         (625)           -
                         -----------  -----------  -----------  -----------
Comprehensive income
 (loss) attributable to
 Great American Group,
 Inc.                    $      (599) $     4,067  $     1,350  $     1,162
                         ===========  ===========  ===========  ===========

                GREAT AMERICAN GROUP, INC. AND SUBSIDIARIES
               Condensed Consolidated Statement of Cash Flows
                           (Dollars in thousands)
                                                         Nine Months Ended
                                                           September 30,
                                                       --------------------
                                                          2012       2011
                                                       ---------  ---------
Cash flows from operating activities:
  Net income                                           $   1,764  $   1,256
  Adjustments to reconcile net income to net cash
   provided by (used in) operating activities:
    Depreciation and amortization                            611        625
    Recoveries of bad debts                                 (116)         -
    Impairment of goods held for sale or auction             127          -
    Share-based payments                                       -        431
    Effect of foreign currency on operations                 (48)       (85)
    Non-cash interest                                        (10)     1,148
    Amortization of discount on note payable                   -        424
    Loss (income) from equity investment in Great
     American Real Estate, LLC                               (45)       522
    Gain from bargain purchase                            (1,366)         -
    Loss on disposal of assets                                 3          3
    Deferred income taxes                                   (112)     1,735
    Income allocated to mandatorily redeemable
     noncontrolling interests                              1,497      3,538
    Change in operating assets and liabilities:
      Accounts receivable and advances against
       customer contracts                                  3,588    (11,208)
      Inventory                                            1,050          -
      Goods held for sale or auction                       2,054        597
      Loan receivable                                      7,769    (10,939)
      Prepaid expenses and other assets                      314       (507)
      Accounts payable and accrued expenses               (2,097)     8,482
      Auction and liquidation proceeds payable               594     (1,712)
                                                       ---------  ---------
        Net cash provided by (used in) operating
         activities                                       15,577     (5,690)
                                                       ---------  ---------
Cash flows from investing activities:
  Acquisition of business                                 (1,246)         -
  Purchase of noncontrolling interest in subsidiary          (95)         -
  Purchases of property and equipment                       (403)      (237)
  Proceeds from sale of property and equipment                21
  Decrease in note receivable - related party              3,164      2,706
  Equity investment in Great American Real Estate, LLC      (120)      (331)
  Increase in restricted cash                             (6,767)    (5,373)
                                                       ---------  ---------
        Net cash used in investing activities             (5,446)    (3,235)
                                                       ---------  ---------
Cash flows from financing activities:
  Repayments of capital lease obligations                    (22)       (20)
  Proceeds from (repayment of) revolving line of
   credit                                                   (676)     1,694
  Repayments of notes payable                             (2,042)      (306)
  Repayments of long term debt                            (1,724)         -
  Proceeds from notes payable                                  -      7,000
  Payment of employment taxes on vesting of restricted
   stock                                                       -       (132)
  Proceeds from formation of noncontrolling interests         78          -
  Distribution to noncontrolling interests                (2,074)    (2,962)
                                                       ---------  ---------
        Net cash (used in) provided by financing
         activities                                       (6,460)     5,274
                                                       ---------  ---------
        Increase (decrease) in cash and cash
         equivalents                                       3,671     (3,651)
        Effect of foreign currency on cash                   282         (9)
                                                       ---------  ---------
        Net increase (decrease) in cash and cash
         equivalents                                       3,953     (3,660)
Cash and cash equivalents, beginning of period            15,034     20,080
                                                       ---------  ---------
Cash and cash equivalents, end of period               $  18,987  $  16,420
                                                       =========  =========
Supplemental disclosures:
  Interest paid                                        $   1,961  $     887
  Taxes paid                                                 278          -

              GREAT AMERICAN GROUP, INC. AND SUBSIDIARIES
          Condensed Consolidated Statement of Equity (Deficit)
               (Dollars in thousands, except share data)

                                                            Additional
                       Preferred Stock     Common Stock       Paid-in
                     ------------------ ------------------
                      Shares    Amount    Shares    Amount    Capital
                     --------  -------- ----------  ------  ----------
Balance, January 1,
 2012                       - $       - 31,001,609 $     4 $     3,177
Net income for the
 nine months ended
 September 30, 2012
Foreign currency
 translation
 adjustment
Formation of
 noncontrolling
 interests
Cancellation of
 founders contingent
 shares held in
 escrow                                 (1,000,000)
Purchase of
 noncontrolling
 interest in
 subsidiary                                                        (95)
Changes in
 noncontrolling
 interests
Adjustment from
 restricted stock
 awards                                      1,366
                     --------------------------------------------------
Balance, September
 30, 2012                   - $       - 30,002,975 $     4 $     3,082
                     ==================================================

                                  Accumulated
                      Retained       Other                          Total
                      Earnings   Comprehensive   Noncontrolling    Equity
                     (Deficit)        Loss          Interests     (Deficit)
                     ---------   -------------   --------------   ---------
Balance, January 1,
 2012               $  (11,190) $         (247) $             -  $   (8,256)
Net income for the
 nine months ended
 September 30, 2012      1,139                              625       1,764
Foreign currency
 translation
 adjustment                                211                          211
Formation of
 noncontrolling
 interests                                                   78          78
Cancellation of
 founders contingent
 shares held in
 escrow                                                                   -
Purchase of
 noncontrolling
 interest in
 subsidiary                                                             (95)
Changes in
 noncontrolling
 interests                                                   29          29
Adjustment from
 restricted stock
 awards                                                                   -
                    --------------------------------------------------------
Balance, September
 30, 2012           $  (10,051) $          (36) $           732  $   (6,269)
                    ========================================================

                GREAT AMERICAN GROUP, INC. AND SUBSIDIARIES
  Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization
                                (Unaudited)
                           (Dollars in thousands)
                                   Three Months Ended    Nine Months Ended
                                     September 30,         September 30,
                                  -------------------   -------------------
                                    2012       2011       2012       2011
                                  --------   --------   --------   --------
Adjusted EBITDA Reconciliation:
Net income (loss) as reported    $    (547) $   4,031  $   1,139  $   1,256
Adjustments:
  Provision (benefit) for income
   taxes                              (375)     2,018        387      1,864
  Interest expense                     678      2,921      1,951      3,874
  Interest income                      (30)      (119)      (186)      (409)
  Depreciation and amortization        153        186        611        625
  Share based compensation               -         10          -        431
                                  --------   --------   --------   --------
    Total EBITDA adjustments           426      5,016      2,763      6,385
                                  --------   --------   --------   --------
Adjusted EBITDA                  $    (121) $   9,047  $   3,902  $   7,641
                                  ========   ========   ========   ========

Investor Contacts:

Great American Group
Phil Ahn
SVP, Strategy & Corporate Development
818-884-3737

Addo Communications
Patricia Dolmatsky-Nir
310-829-5400

(Source: Market Wire )
(Source: Quotemedia)

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