Exhibit 99.1
Great American Group(R)* Announces Third Quarter 2010
Financial Results
Woodland Hills, Calif., (November 15, 2010) – 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, 2010.
Third Quarter Results
For the third quarter ended September 30, 2010, the Company reported total revenues of $13.9 million, compared to revenues of $15.0 million in the third quarter of 2009. Revenues from services and fees were $13.5 million, compared to $11.0 million in the same period the prior year. Revenues from sales of goods were $0.4 million, compared to $4.1 million in the third quarter of 2009. The decline in total revenues during the quarter was primarily the result of reduced revenues in the Company’s auction and liquidation segment. This decline resulted from an overall lack of retail liquidation opportunities across the industry as economic conditions for retailers and credit markets improved from the prior year.
“We are disappointed with our results during the third quarter. Although our reported results reflect sequential improvements from the second quarter, we continue to face challenges in the auction and liquidations business environment as economic conditions for retailers and creditors have continued to improve,” said Andrew Gumaer, Chief Executive Officer of Great American Group. “We completed the previously announced review of our operations to reduce operating expenses and streamline operations in September 2010. This resulted in a reduction in employee headcount of approximately 7%, reduction in salaries to our senior executives, and other expense reductions. We believe these measures will result in annual cost savings of approximately $2.2 million, and we would expect to see some of the financial benefits of these cost savings during the fourth quarter of 2010. We have also recently experienced increased activity related to the auction of machinery and equipment, which we believe is a sign our business is beginning to improve.”
Direct costs of services were $2.9 million, compared to $4.8 million a year ago. The decrease in direct costs of services was the result of a decrease in the number of fee and commission engagements in the third quarter of 2010, where the Company contractually bills fees, commissions and reimbursable expenses in the auction and liquidation segment, and a reduction in personnel during the second quarter of 2010 in the valuation and appraisal segment, which resulted in a decrease in salaries and wages in the third quarter of 2010 as compared to 2009. Cost of goods sold was $0.6 million in the third quarter of 2010, compared to $3.9 million in the third quarter of the prior year, primarily as a result of fewer auction engagements where the company sells assets.
Selling, general and administrative expenses were $8.0 million, compared to $7.2 million in the same period a year ago. The increase in selling, general and administrative expenses was primarily attributed to increases in payroll and operating expenses from the ongoing expansion of the Company’s European operations and advertising and promotional expenses. Selling, general and administrative expenses during the third quarter of 2009 included a $2.4 million credit from the deferred compensation plan for the Phantom Equityholders. Excluding this credit, selling, general and administrative expenses were $9.6 million during the third quarter of 2009, which included approximately $2.2 million of accounting, legal and consulting expenses as a result of the Acquisition on July 31, 2009.
Operating income for the third quarter ended September 30, 2010 was $2.4 million, compared to an operating loss of $0.9 million during the third quarter of 2009.
Interest expense during the period declined to $0.8 million from $2.3 million a year ago, primarily as a result of a decrease in interest expense from significantly lower borrowings during the third quarter ended September 30, 2010, as compared to the same period in 2009, when the Company had more retail liquidation engagements. Interest expense during the third quarter of 2010 was primarily comprised of interest expense on the notes payable to the former Great American Members and Phantom Equityholders. Interest expense also reflects the interest rate reduction from 12.0% to 3.75% on $52.4 million of the $55.6 million of notes payable to the former Great American Members and certain Phantom Equityholders that was effective February 1, 2010.
Income from operations before provision for income taxes was $1.3 million during the third quarter ended September 30, 2010, compared to a loss from operations of $3.5 million in the third quarter of 2009.
The Company recorded a provision for income taxes of $0.9 million during the third quarter ended September 30, 2010, compared with a benefit for income taxes of $7.6 million in the same period of 2009. For the third quarter of 2010, the Company generated net income of $0.5 million, or $0.02 per diluted share, compared with net income of $4.0 million in the same period a year ago.
Nine Month Results
For the first nine months of 2010, the Company generated total revenues of $31.1 million, compared to $72.0 million in the same period of 2009. Revenues from services and fees were $26.4 million, compared to $60.8 million a year ago. Sales of goods were $4.7 million, compared to $11.2 million in the first nine months of 2009.
Total operating expenses were $41.7 million for the first nine months of 2010, compared to $48.2 million in 2009. Operating loss was $10.5 million for the first nine months of 2010, compared to operating income of $23.8 million in the same period in 2009. Loss from operations before a benefit for income taxes was $14.1 million for the first nine months of 2010, compared to income from operations of $14.0 million during the first nine months of 2009. The Company recorded a benefit for income taxes of $5.0 million during the first nine months of 2010, compared with a benefit for income taxes of $7.6 million during the same period in 2009. Net loss during the first nine months of 2010 was $9.1 million, or $(0.33) per diluted share, compared with net income of $21.5 million in the same period of 2009.
Financial Position
At September 30, 2010, the Company had $21.0 million in cash and cash equivalents, compared to $38.0 million at December 31, 2009. Working capital was $25.0 million and total long-term debt was $53.9 million at September 30, 2010. During the first nine months of 2010, the Company used $6.9 million in cash from operations.
Promissory Notes
On October 27, 2010 the Company entered into agreements with $51.3 million of the $53.9 million principal amount outstanding of the subordinated, unsecured promissory notes payable to the Great American Members and Phantom Equityholders, whereby the noteholders agreed to allow the Company to defer payment of the interest payments due on each of October 31, 2010, January 31, 2011, and April 30, 2011, until July 31, 2011.
Supplemental Information
During the quarter ended September 30, 2010, the Company generated adjusted earnings before interest, taxes, depreciation and amortization of $3.1 million.
Conference Call
The Company will host a conference call at 4:30 p.m. EST on Monday, November 15, 2010, to discuss results for the third quarter ended September 30, 2010. To participate in the event by telephone, please dial (877) 941-4776 10 minutes prior to the start time (to allow time for registration) and use conference ID #4384586. International callers should dial (480) 629-9762. A digital replay will be available beginning November 15, 2010, at 7:30 p.m. EST, through November 22, 2010, at 11:59 p.m. EST. To access the replay, dial (877) 870-5176 (U.S.), and use passcode 4384586. International callers should dial (858) 384-5517 and enter the same passcode. The call will also be broadcast live over the Internet and can be accessed on the Investor Relations section of the Company’s Web site atwww.greatamerican.com. To listen to the live 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 visitwww.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 dated July 17, 2009 and filed with the SEC on July 20, 2009, and its Annual Report on Form 10-K for the year ended December 31, 2009 and its subsequent Reports on Form 10-Q and 8-K. 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 selling, general and administrative expenses, excluding certain charges and 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 prior periods excluding the impact of extraordinary events. 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
Investor Contacts:
Great American Group
Phil Ahn, SVP, Strategy & Corporate Development
818-884-3737
Addo Communications
Andrew Blazier
310-829-5400
andrewb@addocommunications.com
or
Press Contact:
Great American Group Laura Wayman
847-444-1400 ext. 312
lwayman@greatamerican.com
(FINANCIAL TABLES FOLLOW)
GREAT AMERICAN GROUP, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(Dollars in thousands, except par value)
September 30, 2010 | December 31, 2009 | |||||||
(Unaudited) | ||||||||
Assets | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 21,018 | $ | 37,989 | ||||
Restricted cash | 195 | 459 | ||||||
Accounts receivable, net | 2,277 | 2,628 | ||||||
Advances against customer contracts | 806 | 58 | ||||||
Income taxes receivable | — | 1,100 | ||||||
Goods held for sale or auction | 13,995 | 15,014 | ||||||
Note receivable - related party | 6,246 | — | ||||||
Deferred income taxes | 3,270 | 8,475 | ||||||
Prepaid expenses and other current assets | 894 | 981 | ||||||
Total current assets | 48,701 | 66,704 | ||||||
Property and equipment, net | 1,474 | 1,411 | ||||||
Goodwill | 5,688 | 5,688 | ||||||
Other intangible assets, net | 262 | 382 | ||||||
Deferred income taxes | 13,404 | 3,238 | ||||||
Other assets | 665 | 1,250 | ||||||
Total assets | $ | 70,194 | $ | 78,673 | ||||
Liabilities and Stockholders’ Equity (Deficit) | ||||||||
Current liabilities: | ||||||||
Accounts payable and accrued liabilities | $ | 5,534 | $ | 9,192 | ||||
Auction and liquidation proceeds payable | 4,021 | 446 | ||||||
Mandatorily redeemable noncontrolling interests | 2,926 | 2,619 | ||||||
Current portion of long-term debt | 1,724 | 11,123 | ||||||
Note payable | 11,705 | 11,705 | ||||||
Current portion of capital lease obligation | 25 | 25 | ||||||
Total current liabilities | 25,935 | 35,110 | ||||||
Capital lease obligation, net of current portion | 51 | 69 | ||||||
Long-term debt, net of current portion | 52,169 | 44,494 | ||||||
Total liabilities | 78,155 | 79,673 | ||||||
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; 30,559,036 and 30,022,478 issued and outstanding as of September 30, 2010 and December 31, 2009, respectively | 4 | 3 | ||||||
Additional paid-in capital | 1,928 | (249 | ) | |||||
Retained earnings (deficit) | (9,886 | ) | (754 | ) | ||||
Accumulated other comprehensive loss | (7 | ) | — | |||||
Total stockholders’ equity (deficit) | (7,961 | ) | (1,000 | ) | ||||
Total liabilities and stockholders’ equity (deficit) | $ | 70,194 | $ | 78,673 | ||||
GREAT AMERICAN GROUP, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(Unaudited)
(Dollars in thousands, except share data)
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Revenues: | ||||||||||||||||
Services and fees | $ | 13,499 | $ | 10,980 | $ | 26,408 | $ | 60,767 | ||||||||
Sale of goods | 359 | 4,056 | 4,732 | 11,197 | ||||||||||||
Total revenues | 13,858 | 15,036 | 31,140 | 71,964 | ||||||||||||
Operating expenses: | ||||||||||||||||
Direct cost of services | 2,852 | 4,792 | 10,938 | 12,540 | ||||||||||||
Cost of goods sold | 561 | 3,851 | 6,098 | 9,553 | ||||||||||||
Selling, general and administrative expenses | 8,018 | 7,246 | 24,617 | 26,084 | ||||||||||||
Total operating expenses | 11,431 | 15,889 | 41,653 | 48,177 | ||||||||||||
Operating income (loss) | 2,427 | (853 | ) | (10,513 | ) | 23,787 | ||||||||||
Other income (expense): | ||||||||||||||||
Other income (expense) | (401 | ) | (341 | ) | (1,268 | ) | (580 | ) | ||||||||
Interest income | 157 | 12 | 334 | 20 | ||||||||||||
Interest expense | (848 | ) | (2,328 | ) | (2,640 | ) | (9,272 | ) | ||||||||
Income (loss) from continuing operations before benefit for income taxes | 1,335 | (3,510 | ) | (14,087 | ) | 13,955 | ||||||||||
(Provision) benefit for income taxes | (880 | ) | 7,610 | 4,955 | 7,610 | |||||||||||
Income (loss) from continuing operations | 455 | 4,100 | (9,132 | ) | 21,565 | |||||||||||
Loss from discontinued operations | — | (67 | ) | — | (67 | ) | ||||||||||
Net income (loss) | $ | 455 | $ | 4,033 | (9,132 | ) | 21,498 | |||||||||
Weighted average basic shares outstanding | 28,160,667 | 22,088,614 | 28,020,733 | 14,445,101 | ||||||||||||
Weighted average diluted shares outstanding | 29,129,099 | 23,472,774 | 28,020,733 | 14,906,487 | ||||||||||||
Basic earnings (loss) per share | $ | 0.02 | $ | 0.18 | (0.33 | ) | 1.49 | |||||||||
Diluted earnings (loss) per share | $ | 0.02 | $ | 0.17 | (0.33 | ) | 1.44 | |||||||||
PRO FORMA COMPUTATION RELATED TO CONVERSION TO C CORPORATION FOR INCOME TAX PURPOSES (unaudited): | ||||||||||||||||
Historical (loss) income from operations before income taxes | $ | (3,510 | ) | $ | 13,955 | |||||||||||
Pro forma benefit (provision) for income taxes | 1,383 | (5,498 | ) | |||||||||||||
Pro forma income (loss) from continuing operations | (2,127 | ) | 8,457 | |||||||||||||
Pro forma loss from discontinued operations, net of tax | (41 | ) | (41 | ) | ||||||||||||
Pro forma net (loss) income | $ | (2,168 | ) | $ | 8,416 | |||||||||||
Pro forma weighted average basic shares outstanding | 22,088,614 | 14,445,101 | ||||||||||||||
Pro forma weighted average diluted shares outstanding | 22,088,614 | 14,906,487 | ||||||||||||||
Pro forma basic (loss) earnings per share | $ | (0.10 | ) | $ | 0.58 | |||||||||||
Pro forma diluted (loss) earnings per share | $ | (0.10 | ) | $ | 0.56 |
GREAT AMERICAN GROUP, INC. AND SUBSIDIARIES
Condensed Consolidated Statement of Cash Flows
(Unaudited)
(Dollars in thousands)
Nine Months Ended September 30, | ||||||||
2010 | 2009 | |||||||
Cash flows from operating activities: | ||||||||
Net income (loss) | $ | (9,132 | ) | $ | 21,498 | |||
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: | ||||||||
Depreciation and amortization | 580 | 465 | ||||||
Provision (recoveries) of doubtful accounts | 45 | (24 | ) | |||||
Impairment of goods held for sale or auction | 1,308 | 67 | ||||||
Share-based payments | 3,430 | 1,543 | ||||||
Effect of foreign currency on operations | (6 | ) | — | |||||
Non-cash interest | (316 | ) | 9 | |||||
Loss on disposal of assets | 3 | 15 | ||||||
Deferred income taxes | (4,961 | ) | (7,610 | ) | ||||
Income allocated to mandatorily redeemable noncontrolling interests | 1,174 | 1,311 | ||||||
Change in operating assets and liabilities: | ||||||||
Accounts receivable and advances against customer contracts | (442 | ) | 5,140 | |||||
Income taxes receivable | 1,100 | — | ||||||
Goods held for sale or auction | (289 | ) | 2,325 | |||||
Prepaid expenses and other assets | 672 | (2,159 | ) | |||||
Accounts payable and accrued expenses | (3,658 | ) | (3,237 | ) | ||||
Auction and liquidation proceeds payable | 3,575 | 1,658 | ||||||
Accrued compensation plans | — | 4,005 | ||||||
Net cash provided by (used in) operating activities | (6,917 | ) | 25,006 | |||||
Cash flows from investing activities: | ||||||||
Purchases of property and equipment | (526 | ) | (666 | ) | ||||
Increase in note receivable - related party | (5,930 | ) | — | |||||
Decrease (increase) in restricted cash | 264 | (21,303 | ) | |||||
Net cash used in investing activities | (6,192 | ) | (21,969 | ) | ||||
Cash flows from financing activities: | ||||||||
Payment of note payable | (1,724 | ) | (4,383 | ) | ||||
Repayments of long-term debt | — | (4,086 | ) | |||||
Repayments of capital lease obligations | (18 | ) | (134 | ) | ||||
Payment of employment taxes on vesting of restricted stock | (1,132 | ) | — | |||||
Proceeds from reverse merger dated July 31, 2009 | — | 70,409 | ||||||
Distributions to stockholders | — | (33,853 | ) | |||||
Distribution to noncontrolling interests | (987 | ) | (1,116 | ) | ||||
Net cash provided by (used in) financing activities | (3,861 | ) | 26,837 | |||||
Increase (decrease) in cash and cash equivalents | (16,970 | ) | 29,874 | |||||
Effect of foreign currency on cash | (1 | ) | — | |||||
Net increase (decrease) in cash and cash equivalents | (16,971 | ) | 29,874 | |||||
Cash and cash equivalents, beginning of period | 37,989 | 16,965 | ||||||
Cash and cash equivalents, end of period | $ | 21,018 | $ | 46,839 | ||||
Supplemental disclosures: | ||||||||
Interest paid | $ | 3,134 | $ | 6,654 | ||||
Supplemental disclosures of noncash investing and financing activities | ||||||||
Deferred compensation arrangements | $ | — | 1,022 | |||||
Issuance of notes payable from reverse merger dated July 31, 2009 | — | 60,000 |
GREAT AMERICAN GROUP, INC. AND SUBSIDIARIES
Segment Financial Information
(Unaudited)
(Dollars in thousands)
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Auction and Liquidation reportable segment: | ||||||||||||||||
Revenues - Services and fees | $ | 8,563 | $ | 5,772 | $ | 10,957 | $ | 44,424 | ||||||||
Revenues - Sale of goods | 359 | 4,056 | 4,732 | 11,197 | ||||||||||||
Total revenues | 8,922 | 9,828 | 15,689 | 55,621 | ||||||||||||
Direct cost of services | (680 | ) | (2,381 | ) | (4,200 | ) | (5,778 | ) | ||||||||
Cost of goods sold | (561 | ) | (3,851 | ) | (6,098 | ) | (9,553 | ) | ||||||||
Selling, general, and administrative expenses | (2,083 | ) | (1,549 | ) | (5,678 | ) | (3,747 | ) | ||||||||
Depreciation and amortization | (32 | ) | (20 | ) | (85 | ) | (51 | ) | ||||||||
Segment income | 5,566 | 2,027 | (372 | ) | 36,492 | |||||||||||
Valuation and Appraisal reportable segment: | ||||||||||||||||
Revenues | 4,936 | 5,208 | 15,451 | 16,343 | ||||||||||||
Direct cost of revenues | (2,172 | ) | (2,411 | ) | (6,738 | ) | (6,762 | ) | ||||||||
Selling, general, and administrative expenses | (1,893 | ) | (1,957 | ) | (6,324 | ) | (5,962 | ) | ||||||||
Depreciation and amortization | (39 | ) | (46 | ) | (125 | ) | (118 | ) | ||||||||
Segment income | 832 | 794 | 2,264 | 3,501 | ||||||||||||
Consolidated operating income from reportable segments | 6,398 | 2,821 | 1,892 | 39,993 | ||||||||||||
Corporate and other expenses | (3,971 | ) | (3,674 | ) | (12,405 | ) | (16,206 | ) | ||||||||
Interest income | 157 | 12 | 334 | 20 | ||||||||||||
Other income (expense) | (401 | ) | (341 | ) | (1,268 | ) | (580 | ) | ||||||||
Interest expense | (848 | ) | (2,328 | ) | (2,640 | ) | (9,272 | ) | ||||||||
Income (loss) from continuing operations before benefit for income taxes | 1,335 | (3,510 | ) | (14,087 | ) | 13,955 | ||||||||||
(Provision) Benefit for income taxes | (880 | ) | 7,610 | 4,955 | 7,610 | |||||||||||
Income (loss) from continuing operations | 455 | 4,100 | (9,132 | ) | 21,565 | |||||||||||
Loss from discontinued operations | — | (67 | ) | — | (67 | ) | ||||||||||
Net income (loss) | $ | 455 | $ | 4,033 | $ | (9,132 | ) | $ | 21,498 | |||||||
Capital expenditures: | ||||||||||||||||
Auction and Liquidation segment | $ | 155 | $ | 239 | $ | 510 | $ | 381 | ||||||||
Valuation and Appraisal segment | — | 154 | 15 | 285 | ||||||||||||
Total | $ | 155 | $ | 393 | $ | 525 | $ | 666 | ||||||||
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, | ||||||||
2010 | 2009 | |||||||
Adjusted EBITDA Reconciliation: | ||||||||
Net income as reported | $ | 455 | $ | 4,033 | ||||
Adjustments: | ||||||||
Provision for income taxes | 880 | (7,610 | ) | |||||
Interest expense | 848 | 2,328 | ||||||
Interest income | (157 | ) | (12 | ) | ||||
Depreciation and amortization | 204 | 171 | ||||||
Share based compensation | 932 | 100 | ||||||
Deferred compensation - Phantom stock plan | — | (2,428 | ) | |||||
Total EBITDA Adjustments | 2,707 | (7,451 | ) | |||||
Adjusted EBITDA | $ | 3,162 | $ | (3,418 | ) | |||
Nine Months Ended September 30, | ||||||||
2010 | 2009 | |||||||
Adjusted EBITDA Reconciliation: | ||||||||
Net income (loss) as reported | $ | (9,132 | ) | $ | 21,498 | |||
Adjustments: | ||||||||
Benefit for income taxes | (4,955 | ) | (7,610 | ) | ||||
Interest expense | 2,640 | 9,272 | ||||||
Interest income | (334 | ) | (20 | ) | ||||
Depreciation and amortization | 580 | 465 | ||||||
Share based compensation | 3,430 | 1,543 | ||||||
Deferred compensation - Phantom stock plan | — | 4,005 | ||||||
Total EBITDA Adjustments | 1,361 | 7,655 | ||||||
Adjusted EBITDA | $ | (7,771 | ) | $ | 29,153 | |||
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