SOURCE: Great American Group, Inc.

Great American Group, Inc.

November 14, 2011 16:00 ET

Great American Group®* Announces Third Quarter 2011 Financial Results

WOODLAND HILLS, CA--(Marketwire - Nov 14, 2011) - 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, 2011.

  • Total revenues of $28.5 million, up 106% from a year ago
  • Operating income of $9.0 million, up 272% from a year ago
  • Net income of $4.0 million, up from $0.5 million a year ago
  • Diluted earnings per share of $0.14, up from $0.02 per share a year ago

Third Quarter Results

For the third quarter ended September 30, 2011, the Company reported total revenues of $28.5 million, an increase of 106% from revenues of $13.9 million in the third quarter of 2010. Revenues from services and fees were $27.6 million, compared to $13.5 million in the same period the prior year. Revenues from sales of goods were $0.9 million, compared to $0.4 million in the third quarter of 2010. The increase in total revenues during the quarter was primarily due an increase in revenues in the Auction and Liquidation segment. The increase in revenues in the Auction and Liquidation segment was primarily due to an increase in revenues from GA Capital, the Company's finance division, two retail liquidation engagements in the Unites States and one retail liquidation engagement in the United Kingdom. In the United States, revenues increased as a result of the Company's participation as a minority partner in the retail liquidation of 399 Borders Book Stores and the retail liquidation of Pierre Deux. In the United Kingdom, revenues were primarily related to the liquidation of the inventory of T.J. Hughes Limited, a discount department store chain with 57 stores in the United Kingdom.

"Although the operating environment remains challenging for us, we experienced significant improvement in our financial results for the third quarter, with strong increases in both revenues and profitability. Our newer business initiatives, GA Europe and GA Capital, contributed meaningfully to revenues. The retail liquidation of Borders Book Stores also contributed to the increase in revenues during the quarter in our auction and liquidation segment," said Andrew Gumaer, Chief Executive Officer of Great American Group.

Direct cost of services was $7.6 million, compared to $2.9 million a year ago. The increase in direct cost of services was primarily the result of an increase in the number of fee and commission engagements in the third quarter of 2011, where the Company contractually bills fees, commissions and reimbursable expenses, in the auction and liquidation segment as compared to the same period in 2010. Cost of goods sold was $1.0 million in the third quarter of 2011, compared to $0.6 million in the third quarter of the prior year, primarily as a result of the sale of goods with high asset values and gross margins in 2011 compared to the prior year.

Selling, general and administrative expenses were $10.9 million, compared to $8.0 million in the third quarter of 2010. The increase was primarily the result of increases in selling, general and administrative expenses in the Auction and Liquidation and Corporate and Other segments, which were partially offset by a decrease in expenses in the Valuation and Appraisal segment. The increase in expenses in the Auction and Liquidation Segment was primarily the result of increases in expenses from the expansion of the Company's European operations, payroll and bonus expense for GA Capital due to improved profitability, an unrealized loss from foreign currency exchange rates and operating expenses from the Company's newly formed division in January 2011, GA Keen Realty Advisors.

Operating income for the third quarter of 2011 was $9.0 million, compared to operating income of $2.4 million during the same period of 2010.

Interest expense during the third quarter of 2011 was $2.9 million, compared to $0.8 million in the third quarter a year ago. The increase in interest expense was primarily the result of increases in interest expense on borrowings under the Company's credit facility and notes payable to fund retail liquidation engagements.

Income from operations before a provision for income taxes was $6.0 million during the third quarter of 2011, compared to income from operations of $1.3 million in the third quarter of 2010.

During the third quarter of 2011, the Company recorded a provision for income taxes of $2.0 million, compared to a provision for income taxes of $0.9 million in the third quarter of 2010. Overall, in the third quarter of 2011, the Company generated net income of $4.0 million, or $0.14 per diluted share, compared with net income of $0.5 million, or $0.02 per diluted share, in the third quarter of 2010.

Nine Month Results

For the first nine months of 2011, the Company reported total revenues of $52.2 million, an increase of 67.5% from $31.1 million in the first nine months of 2010. Revenues from services and fees were $50.1 million, up from $26.4 million a year ago. Sales of goods were $2.0 million, compared to $4.7 million in the same period of 2010.

Total operating expenses were $45.0 million, compared to $41.7 million in 2010. Operating income was $7.1 million, compared to an operating loss of $10.5 million in the prior year. Income before provision for income taxes was $3.1 million, compared to a loss before income taxes of $14.1 million during the first nine months of 2010. The Company recorded a provision for income taxes of $1.9 million during the first nine months of 2011, compared to a benefit for income taxes of $5.0 million in the same period of 2010. Net income during the first nine months of 2011 was $1.3 million, or $0.04 per diluted share, compared with a net loss of $9.1 million, or $(0.33) per diluted share, in the same period of 2010.

Financial Position

At September 30, 2011, the Company had $16.4 million in cash and cash equivalents. Working capital was $27.2 million at September 30, 2011. During the first nine months of 2011, the Company used $5.7 million in cash from operations.

Promissory Notes

On July 26 and August 3, 2011, the Company entered into agreements with certain Phantom Equityholders, including executive officers of the Company, which extended the payment date for $1.4 million of the $1.7 million of principal amount originally due and payable on July 31, 2011. Of the $1.4 million originally due on July 31, 2011, $0.6 million of principal amount was paid on October 1, 2011, $0.3 million was paid on October 15, 2011, and $0.5 million was paid on November 4, 2011.

On July 31, 2011, the Company entered into agreements that increased the principal amount of the promissory notes with Andy Gumaer and Harvey Yellen, both of whom are executive officers and directors of the Company, by an aggregate amount of $1.8 million of accrued interest that was originally due on July 31, 2011. The addition to the principal amount will accrue interest at the note rate of 3.75% and continue to be subject to annual prepayments based upon the Company's cash flow and the maintenance of a minimum adjusted cash balance as provided in the notes prior to the capitalization of the accrued interest. As a result, the principal balance of the promissory notes to Mr. Gumaer and Mr. Yellen increased to approximately $48.8 million.

Conference Call

The Company will host a conference call at 4:30 p.m. EST on Monday, November 14, 2011, to discuss results for the third quarter ended September 30, 2011. To participate in the event by telephone, please dial (877) 941-1428 10 minutes prior to the start time (to allow time for registration) and use conference ID #4488078. International callers should dial (480) 629-9665. A digital replay will be available beginning November 14, 2011, at 7:30 p.m. EST, through November 21, 2011, at 11:59 p.m. EST. To access the replay, dial (877) 870-5176 (U.S.), and use passcode 4488078. 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 Web site 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 Web site.

About Great American Group, Inc.

Great American Group, Inc. is a leading provider of asset disposition solutions and valuation and appraisal services to a wide range of retail, wholesale and industrial clients, as well as lenders, capital providers, private equity investors and professional service firms. Great American Group has offices in Atlanta, Boston, Chicago, Dallas, London, Los Angeles, New York and San Francisco. For more information, please visit www.greatamerican.com.

*Great American Group and the Eagle Design are trademarks registered in the US Patent and Trademark Office and are exclusive property of Great American Group, Inc.

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 18, 2011, and its Annual Report on Form 10-K for the year ended December 31, 2010. 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.

GAMR-F

(FINANCIAL TABLES FOLLOW)

GREAT AMERICAN GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except par value)
September 30, December 31,
2011 2010
(Unaudited)
Assets
Current assets:
Cash and cash equivalents $ 16,420 $ 20,080
Restricted cash 5,373
Accounts receivable, net 12,391 3,087
Advances against customer contracts 15,906 3,063
Goods held for sale or auction 12,907 13,504
Note receivable - related party 3,224 5,930
Deferred income taxes 5,128 5,463
Prepaid expenses and other current assets 2,785 1,353
Total current assets 74,134 52,480
Property and equipment, net 1,059 1,369
Goodwill 5,688 5,688
Other intangible assets, net 140 221
Deferred income taxes 9,972 11,372
Note receivable -
Other assets 727 1,144
Total assets $ 91,720 $ 72,274
Liabilities and Stockholders' Equity (Deficit)
Current liabilities:
Accounts payable and accrued liabilities $ 19,304 $ 10,631
Auction and liquidation proceeds payable - 1,712
Mandatorily redeemable noncontrolling interests 3,434 2,858
Revolving line of credit 1,694 -
Current portion of long-term debt 3,142 1,724
Notes payable 19,332 12,014
Current portion of capital lease obligation 27 27
Total current liabilities 46,933 28,966
Capital lease obligation, net of current portion 22 42
Long-term debt, net of current portion 52,207 52,169
Total liabilities 99,162 81,177
Commitments and contingencies
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; 31,001,609 and 30,559,036 issued and outstanding as of September 30, 2011 and December 31, 2010, respectively 4 4
Additional paid-in capital 3,177 2,878
Retained earnings (deficit) (10,536 ) (11,792 )
Accumulated other comprehensive income (loss) (87 ) 7
Total stockholders' equity (deficit) (7,442 ) (8,903 )
Total liabilities and stockholders' equity (deficit) $ 91,720 $ 72,274
GREAT AMERICAN GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands)
Three Months Ended
September 30,
Nine Months Ended
September 30,
2011 2010 2011 2010
Revenues:
Services and fees $ 27,575 $ 13,499 $ 50,147 $ 26,408
Sale of goods 937 359 2,012 4,732
Total revenues 28,512 13,858 52,159 31,140
Operating expenses:
Direct cost of services 7,613 2,852 15,904 10,938
Cost of goods sold 974 561 2,287 6,098
Selling, general and administrative expenses 10,897 8,018 26,848 24,617
Total operating expenses 19,484 11,431 45,039 41,653
Operating income (loss) 9,028 2,427 7,120 (10,513 )
Other income (expense):
Other income (expense) (3 ) - (13 ) -
Interest income 119 157 409 334
Income (loss) from equity investment in Great American Real Estate, LLC (174 ) (401 ) (522 ) (1,268 )
Interest expense (2,921 ) (848 ) (3,874 ) (2,640 )
Income (loss) before income taxes 6,049 1,335 3,120 (14,087 )
(Provision) benefit for income taxes (2,018 ) (880 ) (1,864 ) 4,955
Net income (loss) $ 4,031 $ 455 $ 1,256 $ (9,132 )
Weighted average basic shares outstanding 28,650,980 28,160,667 28,491,812 28,020,733
Weighted average diluted shares outstanding 29,519,141 29,129,099 29,359,973 28,020,733
Basic earnings (loss) per share $ 0.14 $ 0.02 $ 0.04 $ (0.33 )
Diluted earnings (loss) per share $ 0.14 $ 0.02 $ 0.04 $ (0.33 )
GREAT AMERICAN GROUP, INC. AND SUBSIDIARIES
Condensed Consolidated Statement of Cash Flows
(Unaudited)
(Dollars in thousands)
Nine Months Ended
September 30,
2011 2010
Cash flows from operating activities:
Net loss $ 1,256 $ (9,132 )
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 625 580
Provision for doubtful accounts 45
Impairment of goods held for sale or auction 1,308
Share-based payments 431 3,430
Effect of foreign currency on operations (85 ) (6 )
Non-cash interest 1,148 (316 )
Amortization of note payable 424
Loss from equity investment in Great American Real Estate, LLC 522 1,268
Loss on disposal of assets 3 2
Deferred income taxes 1,735 (4,961 )
Income allocated to mandatorily redeemable noncontrolling interests 3,538 1,174
Change in operating assets and liabilities:
Accounts receivable and advances against customer contracts (22,147 ) (442 )
Income taxes receivable 1,100
Goods held for sale or auction 597 (289 )
Prepaid expenses and other assets (507 ) 672
Accounts payable and accrued expenses 8,482 (3,658 )
Auction and liquidation proceeds payable (1,712 ) 3,575
Net cash used in operating activities (5,690 ) (5,650 )
Cash flows from investing activities:
Purchases of property and equipment (237 ) (526 )
Decrease (increase) in note receivable - related party 2,706 (5,930 )
Equity investment in Great American Real Estate, LLC (331 ) (1,267 )
Decrease (increase) in restricted cash (5,373 ) 264
Net cash used in investing activities (3,235 ) (7,459 )
Cash flows from financing activities:
Payment of note payable (306 ) (1,724 )
Proceeds from note payable 7,000
Proceeds from revolving line of credit 1,694
Repayments of long-term debt and capital lease obligations (20 ) (18 )
Payment of employment taxes on vesting of restricted stock (132 ) (1,132 )
Distribution to noncontrolling interests (2,962 ) (987 )
Net cash used in financing activities 5,274 (3,861 )
Decrease in cash and cash equivalents (3,651 ) (16,970 )
Effect of foreign currency on cash (9 ) (1 )
Net decrease in cash and cash equivalents (3,660 ) (16,971 )
Cash and cash equivalents, beginning of period 20,080 37,989
Cash and cash equivalents, end of period $ 16,420 $ 21,018
Supplemental disclosures:
Interest paid $ 887 $ 3,134
The accompanying notes are an integral part of these condensed consolidated financial statements.
GREAT AMERICAN GROUP, INC. AND SUBSIDIARIES
ADJUSTED EARNINGS BEFORE INTEREST, TAXES, DEPRECIATION AND AMORTIZATION
(Unaudited Adjusted EBITDA)
(Dollars in thousands)
Three Months Ended
September 30,
Nine Months Ended
September 30,
2011 2010 2011 2010
Adjusted EBITDA Reconciliation:
Net income (loss) as reported $ 4,031 $ 455 $ 1,256 $ (9,132 )
Adjustments:
Provision (benefit) for income taxes 2,018 880 1,864 (4,955 )
Interest expense 2,921 848 3,874 2,640
Interest income (119 ) (157 ) (409 ) (334 )
Depreciation and amortization 186 204 625 580
Share based compensation 10 1,032 431 3,430
Total EBITDA adjustments 5,016 2,807 6,385 1,361
Adjusted EBITDA $ 9,047 $ 3,262 $ 7,641 $ (7,771 )

Contact Information

  • Investor Contacts:

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

    Addo Communications
    Andrew Blazier
    310-829-5400
    Email Contact

    or

    Press Contact:
    Great American Group
    Laura Drummond
    847-444-1400 ext. 312
    Email Contact