Filing summary
Entity and period: The supplied filing identifies the registrant as Great American Group, Inc. and covers the unaudited quarter ended March 31, 2013; this differs from the request metadata naming BRC Group Holdings, Inc. The company provides auction and liquidation, valuation and appraisal, and UK retail services. Unless otherwise stated, financial amounts below are in thousands of dollars.
Financial performance and position
| Metric | Q1 2013 | Q1 2012 / comparison |
|---|---|---|
| Revenue | $20,954 | $19,320; up 8.5% |
| Operating income and margin | $2,345; 11.2% | $2,400; 12.4% |
| Net income | $935 consolidated; $1,289 attributable to Great American | $1,067 consolidated and attributable to Great American |
| Basic and diluted EPS | $0.04 | $0.04 |
| Operating cash flow | $7,650 | $7,508 |
| Cash and cash equivalents at quarter-end | $31,093; restricted cash $230 | Cash was $18,721 at December 31, 2012 |
| Total assets / liabilities | $77,594 / $81,237 | At December 31, 2012: $80,583 / $84,758 |
| Equity | Deficit of $3,643 | Deficit of $4,175 at December 31, 2012 |
Gross margin in Auction and Liquidation was 75.5% versus 57.1% a year earlier; Valuation and Appraisal margin declined to 48.6% from 55.3%. Shoon, the UK retail segment, recorded $2,281 revenue and an operating loss of $833. Consolidated net income margin was approximately 4.5%, compared with 5.5% in Q1 2012; the company-attributable result increased, partly because of the loss allocated to noncontrolling interests.
At March 31, current assets were $61,203 and current liabilities $30,754, implying a current ratio of approximately 2.0. Debt included $52,207 of acquisition-related notes, $8,458 of other notes payable, and $1,728 outstanding on the accounts-receivable line; the balance sheet also lists $1,724 current and $50,483 long-term for the acquisition notes. Management reported no cash borrowings or letters of credit outstanding under its $100 million asset-based facility at quarter-end. The $100 million facility was due to expire July 16, 2013. The filing says borrowing and letters of credit remain subject to lender discretion.
Cash increased by $12,372 during the quarter. Investing activities provided $7,642, principally reflecting the release of restricted cash, including $6,667 of collateral returned after the Fashion Bug liquidation; financing activities used $2,366, including debt repayments and distributions to noncontrolling interests. The cash-flow statement reports operating cash flow of $7,650, while MD&A describes it as $7.3 million; investors should reconcile this discrepancy.
Changes versus prior period and key drivers
- Revenue rose mainly because Shoon contributed $2,281 and US retail-liquidation activity increased. Auction and Liquidation revenue overall fell to $12,697 from $13,160; Valuation and Appraisal revenue declined to $5,976 from $6,160.
- One Fashion Bug liquidation engagement contributed $8.1 million, or 38.6% of Q1 2013 revenue. Its inventory liquidation exceeded the minimum guarantee, and the related $6.7 million letter of credit was returned.
- SG&A increased 28.4% to $10,937, including Shoon’s costs and higher expenses in other segments and corporate operations. Operating income declined despite higher revenue.
- Shoon’s Q1 operating loss of $833 and lower post-holiday selling prices reduced results. Its gross margin was 34.3%, compared with 46.4% for the period from acquisition through year-end 2012.
- Foreign currency translation produced a $355 comprehensive loss, versus $211 of translation income in Q1 2012. The filing also reports foreign-currency transaction losses in SG&A.
Outlook, risks and unusual items
- No specific earnings or revenue guidance is provided. Management says cash, expected operating cash flow, and facility availability should cover working capital and capital expenditure needs for at least 12 months; this depends in part on facility availability and future operating performance.
- Management emphasizes that results are volatile and depend on the timing, size, and mix of liquidation engagements. A single contract represented a material share of quarterly revenue.
- Substantial indebtedness is a key risk. The $52.2 million acquisition-note balance includes $48.8 million owed to former owners, with annual cash-flow-based prepayments subject to limitations, and $3.4 million owed to Phantom Equityholders. A $1.724 million principal payment to Phantom Equityholders was due July 31, 2013. The asset-based credit facility’s July 2013 expiration was a near-term refinancing or renewal consideration.
- The company identifies risks from guaranteed-recovery and outright-purchase engagements, inventory valuation, UK operations and retail competition, customer concentration, economic conditions, and its ability to secure credit and letters of credit. The filing also notes prior defaults under credit agreements.
- A related-party note receivable from Great American Real Estate had a $415 carrying value; its maturity was extended to December 31, 2013, and the company stopped accruing interest because expected recovery was not above principal. The company reported no material expected effect from ordinary-course litigation and no anticipated material impact from an IRS audit.
- Management concluded disclosure controls were effective at a reasonable-assurance level and reported no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Confirm the registrant identity: the filing is for Great American Group, Inc., not the company named in the request metadata.
- Reconcile reported operating cash flow of $7.650 million in the financial statements with the $7.3 million cited in MD&A.
- Verify renewal, replacement, or expiration status of the $100 million asset-based credit facility due July 16, 2013, and the availability of lender-approved borrowing.
- Assess scheduled debt service, particularly the $1.724 million payment due to Phantom Equityholders in July 2013 and the terms of the related-party notes.
- Evaluate dependence on large, episodic engagements, including the Fashion Bug contract, and whether Shoon can improve performance after its quarterly operating loss.
- Review the carrying value and collectability of the related-party receivable and the recovery prospects for equipment securing the $8.412 million equipment note.