AMREP Corporation Form 10-Q Summary
Business Context and Reporting Period
AMREP operates through two primary segments: Real Estate, including New Mexico land sales and investment property, and Fulfillment Services, operated by Palm Coast Data. This Form 10-Q covers the three and nine months ended January 31, 2017, the third quarter and first nine months of fiscal 2017. The financial statements are unaudited.
Key Financial Metrics
| Metric | Q3 FY2017 | Q3 FY2016 | 9M FY2017 | 9M FY2016 |
|---|---|---|---|---|
| Revenue | $9.777 million | $12.198 million | $33.450 million | $32.994 million |
| Net income (loss) | $174 thousand | $(569) thousand | $916 thousand | $(2.424) million |
| EPS, basic and diluted | $0.02 | $(0.07) | $0.11 | $(0.30) |
| Operating income (loss) before taxes | $270 thousand | $(806) thousand | $1.357 million | $(3.816) million |
| Net cash from operating activities | Not separately provided | Not separately provided | $7.607 million | $(1.246) million |
- Fulfillment Services revenue was $8.222 million in Q3 and $23.908 million for nine months, down 6.1% and 10.3%, respectively.
- Real estate land-sale revenue was $1.461 million in Q3 and $7.710 million for nine months, compared with $3.197 million and $5.487 million in the prior-year periods.
- Land-sale gross profit margins were 42.0% in Q3 and 17.4% for nine months, compared with 13.0% and 14.4%, respectively, in the prior year.
- Management reported consolidated EBITDA of $783 thousand in Q3 and $2.893 million for nine months, compared with $251 thousand and negative $563 thousand, respectively.
- Cash and cash equivalents were $10.753 million at January 31, 2017, versus $14.562 million at April 30, 2016.
- Total assets were $109.539 million, including $57.165 million of real estate inventory and $9.715 million of investment assets.
- Total liabilities were $25.637 million, including $13.654 million of accrued pension cost. Shareholders’ equity was $83.902 million.
- Notes payable declined to $1.586 million from $12.939 million at April 30, 2016. The related-party loan balance of $1.586 million was repaid in February 2017.
- Capital expenditures were $63 thousand for the first nine months, compared with $655 thousand in the prior-year period. Interest paid was $314 thousand and income taxes paid were $4 thousand.
Material Changes Versus the Prior Comparable Period
- Quarterly revenue decreased 19.8%, primarily because of lower land-sale and Fulfillment Services revenue. Nine-month revenue increased 1.4%, driven by higher real estate and other revenue.
- The Company returned to profitability in both the quarter and nine-month period. The improvement reflected higher land-sale margins, lower Fulfillment Services operating and administrative costs, and substantially lower interest expense.
- Other revenue for the nine-month period included a $1.496 million pretax gain from the sale of a retail commercial property in Rio Rancho, New Mexico.
- Fulfillment Services operating expenses declined 13.1% in Q3 and 17.5% for nine months, primarily due to lower payroll, benefits, supplies, bad debt, consulting, amortization and facilities costs.
- Real estate inventory declined by $4.498 million from April 30, 2016, primarily due to land sales. Investment assets declined by $611 thousand following the sale of the retail property.
- Operating cash flow improved by $8.853 million year over year to $7.607 million, while financing activities used $11.353 million, primarily because of $10.798 million in related-party principal repayments.
Guidance, Outlook, Risks and Unusual Items
- The filing does not provide quantitative earnings or revenue guidance.
- Management stated that Fulfillment Services remains exposed to declining magazine publishing volumes, competition from digital media and alternative technologies, weaker advertising, higher paper, printing and postal costs, customer contract repricing and lost business.
- A major Fulfillment Services customer represented 10.7% of nine-month consolidated revenue and had notified the Company that a significant portion of its business would transfer to another provider during fiscal 2018.
- Palm Coast received $3.0 million under a State of Florida incentive agreement but did not meet certain performance requirements. The State filed a complaint on December 30, 2016 seeking repayment. The amount and timing of any repayment remain unresolved, although the $3.0 million is recorded as a liability.
- The Company held approximately 12,000 acres of New Mexico land classified as long-term investment. Development timing and future sale values remain uncertain.
- Real estate sales can vary materially by period based on transaction timing, property type, location and pricing; prior results may not indicate future performance.
- The Company recorded a $150 thousand impairment of real estate assets in the nine-month period.
- The accrued pension liability was $13.654 million. Certain pension obligations are secured by first-lien mortgages on real property; no additional pension contribution was required from the latest appraisal during the period.
- The filing states that disclosure controls and procedures were effective and that no material change occurred in internal control over financial reporting during the quarter.
Important Facts for Investors to Verify
- Whether the anticipated fiscal 2018 customer transfer materially reduces Fulfillment Services revenue and profitability.
- The eventual amount and timing of any repayment to the State of Florida under the incentive agreement and the outcome of the related litigation.
- Whether future land sales can sustain the unusually high third-quarter land-sale margin and offset weaker Fulfillment Services volumes.
- The Company’s post-quarter repayment of the $1.586 million related-party loan and its effect on available cash and liquidity.
- The adequacy of the $13.654 million accrued pension liability and compliance with collateral and funding requirements.
- The realizable value and development prospects of the Company’s real estate inventory and approximately 12,000 acres of long-term investment land.