Premier Exhibitions closed up 18% after earnings. (I have a very small short position so I have a very small loss.) I believe that the two most important factors for the gain are as follows:
- Premier reported a very profitable quarter. They announced a profit of $2.76M for the quarter.
- They announced that they have a non-binding letter of intent to buy the Titanic artifacts for $189M.
On closer examination of these two points, I am not worried. (But again, I may be a little biased.)
The operating business
Regarding the operational profits, management explains on the conference call that the next quarter is unlikely to be as profitable:
The Touring segment of our business was a significant contributor in the second quarter as our partner venue saw strong attendance yielding profit-sharing revenues that exceeded our forecasts. The nature of the touring exhibition model is that, most deals start with a fixed fee and move to a profit share as the attendance for the exhibit reaches specified levels.
As such for a successful touring exhibition, profit tends to be back loaded. As Mike will explain many of our shows in the market during the second quarter have concluded that we will be moving to new venues during the third quarter. This will limit the number of exhibition days for the current period. The results for our third quarter will reflect both the decline in operating days, as well as the reduction in profit-sharing revenues as the new venues work toward overall attendance numbers that will begin generating additional profit-sharing opportunities.
A small part of the current year’s success was attributed to the Titanic’s 100th anniversary, a one-time event. From the 10-K:
With 18 exhibits presented, the Company experienced a corresponding increase in attendance from 497,547 in the second quarter of fiscal 2012 to 924,129 in the second quarter of fiscal 2013. We attribute this increase in exhibitions and attendance in large part to better venue selection and to a lesser extent the Titanic’s 100th year anniversary.
My guess is that in the long run, revenues and profits will decline as the exhibits become played out. There is a reason why the touring exhibitions have to continually change venues.
The latest 10-Q states:
On October 15, 2012, the Company announced that it had entered into a non-binding letter of intent with an entity representing a group of individuals (the “Consortium”) working to effect a purchase of the stock of RMS Titanic, Inc., for educational, regional economic development and cultural purposes for a price of $189 million. The letter of intent is confidential, and is subject to the parties negotiating binding purchase agreements, obtaining requisite financing commitments and other approvals. The letter of intent represents the first formalization of the process in which the Company and the Consortium seek to combine efforts to place the Titanic assets in a permanent home and to monetize the assets for the benefit of the Company’s shareholders. The execution of the letter of intent does not guarantee that a purchase will be consummated with the Consortium. The letter of intent is designed to allow the Consortium the opportunity to secure its financing sources, prepare to handle and house the collection of artifacts and to continue its efforts to establish public and private support for the venture.
To me, it is unclear if this non-binding letter is smoke and mirrors. It does not seem that this “Consortium” has financing if it needs to follow up on its “opportunity to secure its financing sources”. It all seems a little fishy to me as Premier hasn’t really stated that a sale is likely or that the buyers are serious. You can substitute “group of individuals” with “Mark Sellers and his friends”… everything Premier is saying would still be true. The purchase price is a little curious considering that the Guernsey’s auction failed and presumably didn’t meet the reserve price.
We can also look at sections removed from its last two 10-Qs. Previously, Premier’s 10-K filing and the 10-Q before that had information regarding Davino’s transaction bonus. From the 10-K:
If a Transaction Bonus is paid to Mr. Davino, it is expected to be in the range of $625 thousand to $5.25 million, as previously disclosed by the Company. In addition, the Company expects to incur other legal, accounting and investment banking expenses if and when a sale of the Titanic artifacts is completed.
The latest two 10-Qs do not contain the phrases “Davino” or “Transaction bonus”. This is curious as Davino is entitled to a bonus if a sale agreement is signed before April 30, 2013 as per his contract filed on EDGAR. The omission of this information may or may not suggest that a sale is highly unlikely by April 2013.
Not surprisingly, management doesn’t really provide much detail on trying to sell the Titanic artifacts. You can read Seeking Alpha’s transcript (*it may contain a few errors?).
Let me start with an update of the Titanic assets. As we have discussed on previous calls, we’ve been working through a process to monetize the Titanic assets. I’m happy to announce this company has entered into a non-binding letter of intent with an entity representing a group of individuals will refer to as the consortium, working to purchase the stock of RMS Titanic Inc. for educational, regional, economic development and cultural purposes for price of a $189 million.
[blah blah blah]
We also look forward to continuing the company’s ongoing relationship with the collection through a license arrangement to continue exhibiting the artifacts and joint efforts to fully exploit RMST’s Titanic-related intellectual property. While no transaction can be guaranteed and there is still significant work to be done to close the transaction, we are working with the Group, we are confident, can execute on their plan and allow us to complete the sale process.
It doesn’t entirely make sense why somebody would want to buy the artifacts for economic development (and pay $189M for them) when they would also have to compete with Premier’s exhibitions. Of course, if Mark Sellers is trying to line up various public and private sources of funding then it would be accurate to state economic development as a purpose. And of course that would pretty much mean that Premier does not have any serious buyers lined up if they haven’t figured out whether or not Premier will be able to use the artifacts for its exhibits.
*Disclosure: Still short PRXI.