Sotheby’s (NYSE:BID) today reported its financial results for the
third quarter and nine months ended 30 September 2016.
For the three months ended 30 September 2016, Sotheby’s reported
a net loss of ($54.5) million and diluted loss per share of ($0.99)
which compares to ($17.9) million and ($0.26), respectively, a year
ago. Excluding certain acquisition related and other charges,
Adjusted Net Loss* for the third quarter of 2016 is ($43.1) million
and Adjusted Diluted Loss Per Share* is ($0.78), as compared to
($17.9) million and ($0.26) per share in the third quarter of
2015.
“As we communicated previously, the third quarter results were
not expected to be good,” said Tad Smith, President and Chief
Executive Officer of Sotheby’s. “Underneath our seasonally
low level of sales, there were encouraging but tentative indicators
that the market could be looking for a rallying point. At the
same time, we are thrilled with the continued results of our
internal initiatives.”
The comparison to the 2015 third quarter net loss is
significantly influenced by three factors.
First, Net Auction Sales and Auction Commission Revenue were
adversely impacted by a change in the timing of the summer
Contemporary Art sales in London which were held in the second
quarter of 2016 after occurring in the third quarter in 2015.
This shift in timing accounted for $197 million, or 93%, of the
$211 million decline in Net Auction Sales from quarter to
quarter.
Secondly, the Company reported a $15 million swing in Inventory
activities, driven by $9 million in net gains, largely from the
sale of a single painting in the year ago period, and $6 million in
net losses from sales in inventory and other inventory write downs
in the current period.
Partially offsetting these factors in the quarter was an
improvement in the Company’s Auction Commission Margin and a lower
level of share-based compensation expense, continuing trends seen
throughout the year. The Company also reported a lower
effective tax rate and a significantly lower number of shares
outstanding, both of which will benefit the year, but are negative
factors for a quarter in which a loss is reported.
Finally, the Company recorded a $17.2 million pre-tax charge in
the quarter related to the previously announced earn-out
arrangements associated with the acquisition of Art Agency,
Partners. These charges are required to be reflected in the
financial statements as Salaries and Related Costs, but because
they are part of the consideration paid for the acquisition, the
Company is excluding them when reporting Adjusted Net Loss* and
Adjusted Diluted Loss Per Share*. The timing of this non-cash
expense recognition has no bearing on the timing of cash payments
due under the earn-out which are limited to no more than $8.75
million per year over a four year period.
“Since integrating AAP into our existing business, we have seen
marked improvements ranging from competitive successes and enhanced
auction commission margins to improved focus on private sales and
the creation of a formidable advisory business which has brought in
incremental revenues each quarter. Based on the trajectory of
the principals’ progress against certain targets, we need to take
the accounting charge now, although the payouts will still be made
over the next four years as planned,” said Mike Goss, Sotheby’s
Chief Financial Officer.
For the nine months ended 30 September 2016, Sotheby’s reported
net income of $8.6 million and diluted earnings per share of $0.14,
which compares to $54.9 million and $0.79, respectively, in the
prior year period. The lower level of net income is
principally due to a decrease of $764.5 million, or 26%, in Net
Auction Sales associated with the recent decline in the global art
market. Also unfavorably influencing the comparison of
year-to-date results to the prior year is $21.6 million in
compensation expense related to the aforementioned AAP earn-out
expense as well as unfavorable experience with inventory
activities. These factors are somewhat mitigated by an
increase in Auction Commission Margin from 15.3% to 16.5%, a
reduced level of incentive and share-based compensation expense, a
lower effective income tax rate, and diluted earnings per share
benefited from a lower number of shares outstanding due to share
repurchases made over the last twelve months.
Adjusted Net Income* for the nine months ended 30 September 2016
is $25.9 million and Adjusted Diluted Earnings Per Share* is $0.43
which compares to $62.5 million and $0.90, respectively, in the
prior period. Adjustments between GAAP and non-GAAP measures
are largely the result of $13.2 million of after- tax acquisition
earn-out compensation expense and $4.5 million of after-tax
contractual severance agreement charges in the current period, as
well as $5.8 million of after-tax leadership transition severance
costs in the prior period.
"Given the seasonality of our business, we encourage investors
to look at our results on a rolling six month basis," added
Mr. Goss. "To make this analysis easier for our investors, we will
be posting our six month data to our investor relations
website."
Non-GAAP Financial Measures
*Adjusted Net (Loss) Income and Adjusted Diluted (Loss) Earnings
Per Share are non-GAAP financial measures. See Appendix B for
a description of these non-GAAP financial measures and
reconciliations to the most comparable GAAP amounts.
Forward-Looking Statements
This release contains certain “forward-looking statements” (as
such term is defined in Section 21E of the Securities and Exchange
Act of 1934, as amended) relating to future events and the
financial performance of Sotheby’s. Such statements are only
predictions and involve risks and uncertainties, resulting in the
possibility that the actual events or performances will differ
materially from such predictions. Major factors, which
Sotheby’s believes could cause the actual results to differ
materially from the predicted results in the “forward-looking
statements” include, but are not limited to, the overall strength
of the global economy and financial markets, political conditions
in various countries, competition with other auction houses and art
dealers, the amount and quality of property available for
consignment and the marketability at auction of such
property. Please refer to our most recently filed Form 10-Q
(and/or 10-K) for a complete list of Risk Factors.
Investor Relations Information
All Sotheby’s Press Releases and SEC filings are available on
our web site at www.sothebys.com. An outline of the
conference call as well, as an accompanying presentation detailing
our rolling six month results, can be found here:
http://investor.shareholder.com/bid/events.cfm.
Sotheby’s will host a conference call at 9:00 AM EST on 7
November 2016, to discuss its third quarter 2016 financial
results. Please dial 888-371-8897 and for callers outside the
United States, Puerto Rico and Canada, please dial 1-970-315-0479,
approximately 15 minutes before the scheduled start of the
call. The call reservation number is 86401298. The conference
call will also be accessible via webcast on the Investor Relations
section of the Sotheby’s web site at
http://investor.shareholder.com/bid/events.cfm.
About Sotheby’s
Sotheby’s has been uniting collectors with world-class works of
art since 1744. Sotheby’s became the first international auction
house when it expanded from London to New York (1955), the first to
conduct sales in Hong Kong (1973), India (1992) and France (2001),
and the first international fine art auction house in China (2012).
Today, Sotheby’s presents auctions in 10 different salesrooms,
including New York, London, Hong Kong and Paris, and Sotheby’s
BidNow program allows visitors to view all auctions live online and
place bids from anywhere in the world. Sotheby’s offers collectors
the resources of Sotheby’s Financial Services, the world’s only
full-service art financing company, as well as private sale
opportunities in more than 70 categories, including S|2, the
gallery arm of Sotheby's Contemporary Art department, and two
retail businesses, Sotheby’s Diamonds and Sotheby’s Wine. Sotheby’s
has a global network of 80 offices in 40 countries and is the
oldest company listed on the New York Stock Exchange (BID).
For More News from Sotheby’s
News & Video:
http://www.sothebys.com/en/news-video.htmlTwitter:
www.twitter.com/sothebysFacebook:
www.facebook.com/sothebysInstagram:
www.instagram.com/sothebysSnapchat ID: sothebysWeibo:
www.weibo.com/sothebyshongkongWeChat ID: sothebyshongkong
Browse sale catalogues, view original content, stream live
auctions and more at www.sothebys.com, and through Sotheby’s apps
for iPhone, iPad, Android, Apple TV and Amazon Fire
APPENDIX A
SOTHEBY’SCONDENSED
CONSOLIDATED STATEMENT OF
OPERATIONS(UNAUDITED)(Thousands
of dollars, except per share data)
|
|
Three Months Ended |
|
Nine Months Ended |
|
|
September 30, 2016 |
|
September 30, 2015 |
|
September 30, 2016 |
|
September 30, 2015 |
Revenues: |
|
|
|
|
|
|
|
|
Agency
commissions and fees |
|
$ |
51,285 |
|
|
$ |
69,222 |
|
|
$ |
406,114 |
|
|
$ |
507,481 |
|
Inventory
sales |
|
24,359 |
|
|
53,226 |
|
|
36,434 |
|
|
73,214 |
|
Finance |
|
11,138 |
|
|
12,933 |
|
|
40,643 |
|
|
37,590 |
|
Other |
|
4,710 |
|
|
2,611 |
|
|
13,497 |
|
|
7,388 |
|
Total revenues |
|
91,492 |
|
|
137,992 |
|
|
496,688 |
|
|
625,673 |
|
Expenses: |
|
|
|
|
|
|
|
|
Agency
direct costs |
|
5,142 |
|
|
8,156 |
|
|
45,924 |
|
|
52,725 |
|
Cost of
inventory sales |
|
29,616 |
|
|
43,678 |
|
|
47,735 |
|
|
72,380 |
|
Cost of
finance revenues |
|
4,433 |
|
|
4,282 |
|
|
12,980 |
|
|
11,544 |
|
Marketing |
|
4,099 |
|
|
3,767 |
|
|
13,520 |
|
|
12,575 |
|
Salaries
and related |
|
70,471 |
|
|
56,897 |
|
|
213,869 |
|
|
228,009 |
|
General
and administrative |
|
39,355 |
|
|
38,124 |
|
|
115,940 |
|
|
117,584 |
|
Depreciation and amortization |
|
5,426 |
|
|
4,881 |
|
|
16,214 |
|
|
14,444 |
|
Voluntary
separation incentive programs (net) |
|
(176 |
) |
|
— |
|
|
(714 |
) |
|
— |
|
CEO
separation and transition costs |
|
— |
|
|
— |
|
|
— |
|
|
4,232 |
|
Restructuring charges (net) |
|
— |
|
|
(86 |
) |
|
— |
|
|
(975 |
) |
Total expenses |
|
158,366 |
|
|
159,699 |
|
|
465,468 |
|
|
512,518 |
|
Operating income |
|
(66,874 |
) |
|
(21,707 |
) |
|
31,220 |
|
|
113,155 |
|
Interest income |
|
295 |
|
|
479 |
|
|
966 |
|
|
1,238 |
|
Interest expense |
|
(7,549 |
) |
|
(7,438 |
) |
|
(22,733 |
) |
|
(25,173 |
) |
Other income
(expense) |
|
633 |
|
|
(2,116 |
) |
|
1,054 |
|
|
(3,830 |
) |
(Loss) Income before taxes |
|
(73,495 |
) |
|
(30,782 |
) |
|
10,507 |
|
|
85,390 |
|
Income tax (benefit)
expense |
|
(17,775 |
) |
|
(10,078 |
) |
|
3,794 |
|
|
36,635 |
|
Equity in earnings of
investees |
|
1,220 |
|
|
2,827 |
|
|
1,807 |
|
|
5,953 |
|
Net (loss) income |
|
(54,500 |
) |
|
(17,877 |
) |
|
8,520 |
|
|
54,708 |
|
Less: Net
(loss) income attributable to noncontrolling interest |
|
(30 |
) |
|
17 |
|
|
(90 |
) |
|
(172 |
) |
Net (loss) income
attributable to Sotheby's |
|
$ |
(54,470 |
) |
|
$ |
(17,894 |
) |
|
$ |
8,610 |
|
|
$ |
54,880 |
|
Basic (loss) earnings
per share - Sotheby’s common shareholders |
|
$ |
(0.99 |
) |
|
$ |
(0.26 |
) |
|
$ |
0.15 |
|
|
$ |
0.79 |
|
Diluted (loss) earnings
per share - Sotheby's common shareholders |
|
$ |
(0.99 |
) |
|
$ |
(0.26 |
) |
|
$ |
0.14 |
|
|
$ |
0.79 |
|
Weighted average basic
shares outstanding |
|
55,013 |
|
|
67,946 |
|
|
58,379 |
|
|
68,789 |
|
Weighted average
diluted shares outstanding |
|
55,013 |
|
|
67,946 |
|
|
58,975 |
|
|
69,358 |
|
Cash dividends declared
per common share |
|
$ |
— |
|
|
$ |
0.10 |
|
|
$ |
— |
|
|
$ |
0.30 |
|
APPENDIX B
NON-GAAP FINANCIAL MEASURES
GAAP refers to generally accepted accounting principles in the
United States of America. Included in this earnings release are
financial measures presented in accordance with GAAP and also on a
non-GAAP basis. The non-GAAP financial measures presented in this
earnings release are:
(i) |
|
Adjusted Net (Loss) Income |
(ii) |
|
Adjusted Diluted (Loss) Earnings
Per Share |
Management cautions users of Sotheby's financial statements that
amounts presented in accordance with its definitions of these
non-GAAP financial measures as provided below may not be comparable
to similar measures disclosed by other companies because not all
companies and analysts calculate such measures in the same manner.
Sotheby's defines the non-GAAP financial measures presented in this
earnings release as follows:
(i) |
|
Adjusted Net (Loss)
Income is defined as net (loss) income attributable to Sotheby's,
excluding the after-tax impact of earn-out compensation expense
related to the acquisition of AAP, charges related to certain
contractual severance agreements (net, recorded within salaries and
related costs), leadership transition severance costs (recorded
within salaries and related costs), charges related to Sotheby's
voluntary separation incentive programs (net), CEO separation and
transition costs, and restructuring charges (net). |
|
|
(ii) |
|
Adjusted Diluted
(Loss) Earnings Per Share is defined as diluted (loss) earnings per
share excluding the after-tax per share impact of earn-out
compensation expense related to the acquisition of AAP, charges
related to certain contractual severance agreements (net, recorded
within salaries and related costs), leadership transition severance
costs (recorded within salaries and related costs), charges related
to Sotheby's voluntary separation incentive programs (net), CEO
separation and transition costs, and restructuring charges
(net). |
|
|
|
Adjusted Net (Loss) Income and Adjusted Diluted (Loss) Earnings
Per Share are important supplemental measures used by the Board of
Directors and management in their financial and operational
decision making processes, for internal reporting, and as part of
Sotheby's forecasting and budgeting processes, as they provide
helpful measures of Sotheby's core operations. These measures allow
the Board of Directors and management to view operating trends,
perform analytical comparisons, and benchmark performance between
periods. Management also believes that these measures may be used
by securities analysts, investors, financial institutions, and
other interested parties in their evaluation of Sotheby's.
The following is a reconciliation of net (loss) income
attributable to Sotheby's to Adjusted Net (Loss) Income for the
three and nine months ended September 30, 2016 and 2015 (in
thousands of dollars):
|
|
Three Months Ended September 30, |
|
Nine Months Ended September 30, |
|
|
2016 |
|
2015 |
|
|
2016 |
|
|
2015 |
Net (loss)
income attributable to Sotheby's |
|
$ |
(54,470 |
) |
|
$ |
(17,894 |
) |
|
$ |
8,610 |
|
|
$ |
54,880 |
|
Add:
Acquisition earn-out compensation expense, net of tax of ($6,701),
$0, ($8,402), and $0 |
|
10,525 |
|
|
— |
|
|
13,198 |
|
|
— |
|
Add:
Contractual severance agreement charges (net), net of tax of
($632), $0, ($2,852), and $0 |
|
992 |
|
|
— |
|
|
4,502 |
|
|
— |
|
Add:
Leadership transition severance costs, net of tax of $0, $0, $0,
and ($3,743) |
|
— |
|
|
— |
|
|
— |
|
|
5,758 |
|
Add:
Voluntary separation incentive programs charges (net), net of tax
of $65, $0, $264, and $0 |
|
(111 |
) |
|
— |
|
|
(450 |
) |
|
— |
|
Add: CEO
separation and transition costs, net of tax of $0, $0, $0, and
($1,668) |
|
— |
|
|
— |
|
|
— |
|
|
2,564 |
|
Add:
Restructuring charges (net), net of tax of $0, $37, $0, and
$314 |
|
— |
|
|
(49 |
) |
|
— |
|
|
(661 |
) |
Adjusted Net (Loss) Income |
|
$ |
(43,064 |
) |
|
$ |
(17,943 |
) |
|
$ |
25,860 |
|
|
$ |
62,541 |
|
Variance versus prior period - $ |
|
$ |
(25,121 |
) |
|
|
|
$ |
(36,681 |
) |
|
|
Variance versus prior period - % |
|
|
* |
|
|
|
|
|
(59 |
)% |
|
|
Legend: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*
Represents a variance in excess of 100%. |
|
APPENDIX B
The income tax effect of each line item in the reconciliation of
Net Loss Attributable to Sotheby's to Adjusted Net Loss is computed
using the relevant jurisdictional tax rates for each item.
The following is a reconciliation of diluted (loss) earnings per
share to Adjusted Diluted (Loss) Earnings Per Share for the three
and nine months ended September 30, 2016 and 2015:
|
|
Three Months Ended September 30, |
|
Nine Months Ended September 30, |
|
|
2016 |
|
2015 |
|
2016 |
|
2015 |
Diluted (loss) earnings
per share |
|
$ |
(0.99 |
) |
|
$ |
(0.26 |
) |
|
$ |
0.14 |
|
|
$ |
0.79 |
|
Add: Acquisition
earn-out compensation expense, per share |
|
0.19 |
|
|
— |
|
|
0.22 |
|
|
— |
|
Add: Contractual
severance agreement charges (net), per share |
|
0.02 |
|
|
— |
|
|
0.08 |
|
|
— |
|
Add: Leadership
transition severance costs, per share |
|
— |
|
|
— |
|
|
— |
|
|
0.08 |
|
Add: Voluntary
separation incentive program charges (net), per share |
|
— |
|
|
— |
|
|
(0.01 |
) |
|
— |
|
Add: CEO separation and
transition costs, per share |
|
— |
|
|
— |
|
|
— |
|
|
0.04 |
|
Add: Restructuring
charges (net), per share |
|
— |
|
|
— |
|
|
— |
|
|
(0.01 |
) |
Adjusted Diluted (Loss) Earnings
Per Share |
|
$ |
(0.78 |
) |
|
$ |
(0.26 |
) |
|
$ |
0.43 |
|
|
$ |
0.90 |
|
Variance versus prior period -
$ |
|
$ |
(0.52 |
) |
|
|
|
$ |
(0.47 |
) |
|
|
Variance versus prior period -
% |
|
* |
|
|
|
(52 |
)% |
|
|
Legend: |
|
|
|
|
|
|
|
|
|
* Represents a
variance in excess of 100%. |
|
|
|
|
|
|
|
|
|
New York | Lauren Gioia | Jennifer Park | Lauren.Gioia@Sothebys.com | Jennifer.Park@Sothebys.com | +1 212 606 7176
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