SOURCE: Great American Group, Inc.

Great American Group, Inc.

November 14, 2012 16:01 ET

Great American Group Announces Third Quarter 2012 Financial Results

WOODLAND HILLS, CA--(Marketwire - Nov 14, 2012) - 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,
2012
    December 31,
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
September 30,
    Nine Months Ended
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)  
                                                           
                            Accumulated                  
                          Additional     Retained       Other               Total  
    Preferred Stock   Common Stock     Paid-in     Earnings       Comprehensive       Noncontrolling       Equity  
    Shares     Amount   Shares     Amount     Capital     (Deficit)       Loss       Interests       (Deficit)  
                                                           
Balance, January 1, 2012   -   $ -   31,001,609   $ 4   $ 3,177   $ (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             (1,000,000 )                                       -  
Purchase of noncontrolling interest in subsidiary                         (95 )                           (95 )
Changes in noncontrolling interests                                               29       29  
Adjustment from restricted stock awards             1,366                                         -  
Balance, September 30, 2012   -   $ -   30,002,975   $ 4   $ 3,082   $ (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
September 30,
      Nine Months Ended
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  
                                 
                                 

Contact Information

  • Investor Contacts:

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

    Addo Communications
    Patricia Dolmatsky-Nir
    310-829-5400