Business context and reporting period
The supplied filing identifies the registrant as Great American Group, Inc. (not BRC Group Holdings, Inc.), a provider of asset disposition, auction and liquidation, valuation and appraisal, capital advisory, and real estate consulting services. This unaudited Form 10-Q covers the quarter and nine months ended September 30, 2013. The business operated through Auction and Liquidation, Valuation and Appraisal, and UK Retail Stores segments during periods when Shoon was consolidated.
Financial performance and condition
Amounts below are in millions of dollars unless stated otherwise.
| Metric | Q3 2013 | Q3 2012 | Nine months 2013 | Nine months 2012 |
|---|---|---|---|---|
| Revenue | $21.8 | $14.2 | $57.9 | $53.2 |
| Operating income (loss) | $0.8 | $(0.7) | $1.2 | $2.5 |
| Net income (loss) | $0.2 | $(0.8) | $(0.4) | $1.8 |
| Net income (loss) attributable to Great American Group, Inc. | $0.4 | $(0.5) | $0.1 | $1.1 |
| Operating margin | 3.6% | (4.6)% | 2.1% | 4.7% |
| Basic and diluted earnings (loss) per share | $0.01 | $(0.02) | $0.00 | $0.04 |
- Q3 revenue increased 52.8% year over year, primarily reflecting $9.3 million of revenue recognized on the sale-type lease of four oil rigs. The transaction generated approximately $1.8 million of gross profit.
- Nine-month revenue increased 8.9%, but operating income declined and consolidated net income turned to a loss. The prior-year period included a $1.4 million bargain-purchase gain from Shoon’s acquisition; 2013 included Shoon operating losses.
- Q3 segment gross margins: Auction and Liquidation 28.0% overall (46.1% on services and fees; 19.2% on goods sales); Valuation and Appraisal 53.2%; UK Retail Stores 34.5%. Nine-month gross margins were 50.1%, 53.4%, and 42.5%, respectively.
- Nine-month operating cash flow was $(2.0) million, versus $15.6 million generated in the prior-year period. The filing attributes much of the comparison to the prior-year collection of an $8.3 million loan receivable; 2013 operating cash use also reflected working-capital movements, including loan and lease finance receivables.
- At September 30, cash and cash equivalents were $14.0 million and restricted cash was $2.5 million, compared with $18.7 million and $7.9 million at year-end 2012. Current assets were $43.1 million and current liabilities $22.1 million.
- Reported borrowings included $50.5 million of subordinated long-term notes, $7.1 million of notes payable, and $1.3 million under the accounts-receivable line of credit. The separate $100 million asset-based facility had no cash borrowings and $2.2 million of letters of credit outstanding. Total equity was a deficit of $5.3 million.
Material changes and management commentary
- In August 2013, amended Shoon governance rights ended Great American’s control; Shoon was deconsolidated after July 31. Great American retained a 44.4% ownership interest and loans to Shoon totaling $1.331 million; reported maximum exposure to loss was $1.366 million. Shoon’s post-deconsolidation two-month results included $1.9 million revenue and a $0.4 million pretax loss.
- The Fashion Bug liquidation joint venture contributed $8.1 million of service and fee revenue in the first nine months of 2013, or 14.0% of total revenue. The engagement’s $6.7 million letter of credit was returned in the first quarter after liquidation proceeds exceeded the minimum guarantee.
- Great American completed liquidation of eight Orchard Supply Hardware stores in Q3; the engagement was expanded to 17 stores, with the additional nine completed in October 2013.
- The company renewed its Wells Fargo asset-based credit agreement in July 2013, extending its maturity to July 15, 2018. The facility’s advances and letters of credit remain subject to lender discretion and transaction-specific terms.
- Management stated that available cash, facility availability, and expected operating cash generation should be sufficient for working capital and capital expenditures for at least the next 12 months. No specific earnings or revenue guidance was provided.
- Management cited volatile engagement timing and results, substantial indebtedness, potential losses on guaranteed or purchased assets, reliance on credit facilities, and economic and competitive conditions as significant risks. The company reported no legal proceedings expected to materially affect its financial position or results.
Most important facts for investors to verify
- Confirm the issuer identity: the request metadata names BRC Group Holdings, Inc., while the supplied Form 10-Q names Great American Group, Inc.
- Assess how much Q3 revenue and profit depended on the one-time oil-rig sale, and whether remaining lease receivables and collateral support collection of the related balances.
- Review cash conversion and liquidity, including the operating cash outflow, restricted cash, lender-discretionary facility access, and near-term repayment requirements.
- Check the terms, interest costs, related-party status, and repayment capacity for the $50.5 million subordinated notes and other borrowings.
- Monitor Shoon’s performance and repayment of its secured loans, as well as risks from minimum-guarantee engagements and asset valuations.