Description

With even moderate levels of execution, Premier Exhibitions has 100-150% appreciation potential over the next two years with little downside risk. We feel that is an even better idea than we originally wrote it up in May of 06, despite the stock appreciating nearly 150%. Due to a large short interest and a proliferation of erroneous and misleading information about the company, the stock has pulled back 30% from its 2007 highs creating a very nice opportunity for the long term investor. The company is currently trading at only 10 times FY08 (began on 3/1) EBITDA and 7 times our very conservative estimates for FY09. The company has no debt, $25mm in cash, and this year will more than double revenues and increase EPS by at least 150%. The company currently generates over $5mm in free cash flow per quarter. Premier will also this year exceed their guidance (.68) on a cash flow/operation basis (they took some non-cash charges for new CEO options, etc). In FY 09 the company will go from 9 working Bodies shows to 16, will have increased the per show unit economics of the domestic shows by not having to pay Jam, will move their Las Vegas show to a top five property with room for additional exhibition concepts and no Jam, and are planning to launch at least two new exhibitions by the start of the fiscal year. Please refer to the original write up for a detailed explanation of the business. In sum, Premier is an exhibition with currently two lines of business-Titanic and Bodies. The company was originally formed by the chairman of Premier for the purpose of originally diving the Titanic wreck. The company ultimately became publicly traded and called Premier Exhibitions and later added the “Bodies” business-displays of human anatomy. In the current quarter Premier will have 7 Titanic shows working and 16 Bodies shows. Since our original write up the company has executed beautifully by successfully ramping up the Bodies business and increasing EPS 150%. However, the most significant development is the hiring of Bruce Esckowitz as the new CEO. Eskowitz was formerly one of the top executives at Live Nation, responsible for North American entertainment and merchandising which is one of the key profit drivers. All of our channel checks credit Eskowitz as one of the key factors in Live Nation’s success and consider his departure a substantial loss for Live Nation. Eskowitz’s goals for Premier is very clear. He simply wants to double-triple Premier’s EBITDA (currently $30mm) and make it a billion company ($30 stock price). We feel that if the company does $60mm in EBITDA it should easily trade to $25 (12xs EBITDA with no debt, strong growth rate and substantial cash balances). Current Business. In FY08 the company has guided to $30mm in EBITDA and has recently confirmed the guidance. Additional Bodies Shows. In Q4 and for FY09 Premier will have 16 Bodies shows working with is double the average they had for FY08. With even lackluster success, assuming all the shows are partnered 70/30 with lower ticket prices, the company would generate $10mm EBITDA in incremental EBITDA. Merchandising and Corporate Sponsorships. Esckowitz considers merchandising of the Bodies shows the lowest hanging fruit. King Tut for example gets on average an additional $20 per person for merchandising. Eskowitz thinks it will be relatively easy to get to $4 per person (they current Titanic figure) from $1 and will increase gross margins from 20% to 50% as they take it in house. The types of merchandise they will focus on are educational items like DVDs, coffee table books, software, etc. On 8mm Bodies visitors he will drop an additional $10-12 mm in EBITDA in two years, seeing some effect in FY 09. Premier will also be focusing on corporate sponsorships in Titanic and Bodies which is nearly 100% gross margins. They have already retained a firm specializing in procuring sponsorships to assist them. We feel that $5mm in EBITDA is a very reasonable goal. New Vegas. New Vegas venue will be a significant driver of new EBITDA revenues. The new site (rumored to be The Luxor) will open sometime in Q4 of FY08. If it is the Luxor it will move to a location with four times more hotel rooms in a much better venue with no Jam (takes 20% of the bottom line). There is also the likelihood of new exhibition concepts, a large merchandising center and food and beverage concessions. We estimate new Vegas could add $7mm in incremental EBITDA. New Exhibition Concepts. According to management they are working on nine exhibition concepts and they fully expect to announce at least two new exhibitions prior to the beginning of the fiscal year on March 1st. Hard to quantify how much EBITDA they will generate, but Eskowitz is adamant that he is at Premier to build out an exhibition platform and not to just do Titanic and Bodies. Pier A. For a very long time Premier has been in talks with the New York park service to host a permanent exhibition of Titanic assets at Pier A in a building adjacent to where the ferry leaves for tours of the State of Liberty. The project seemed dead, but in a recent development New York City took back the expired lease and invited Premier to come to New York and bid on the museum. Premier has met directly with New York officials twice and provides them with what they consider a very attractive proposal. They are supposed to hear about whether it has been accepted in January. We are giving them no credit for this happening in our model, but if it does happen it will generate at least $12mm in EBITDA ($1mm Txts @$25 with 50% gross margins). The ferry service currently sells 8mm tickets annually so; we think our estimates are extremely conservative. Earnings Power of the Business. To sum up the earnings power of the business, we fell that Escowitz’s goals of generating an additional $30 mm of EBITDA is very realistic giving them no credit for Pier A and modest credit for new exhibitions the company could do in excess of $30mm in EBITDA: Current Business $30mm Increment 7 Bodies Shows $10mm New Vegas $7mm Merchandising and Sponsorships $13mm New Exhibitions $10mm Pier A $0 Incremental SGA $5mm Additional EBITDA $35mm Valuation. $60mm EBITDA trading at a modest 13 times= $25 stock price Misperceptions/Short Thesis. While the stock is up nearly 100% in 07, it did become a heavily shorted stock with about 25% of the shares sold short. Of course, a stock that was up 150% in a bad market that is in the dead bodies business does sound like a short! The short arguments are primarily that the Bodies business is in decline, the company will miss guidance, and they will lose their Titanic salvor-in possession status possession. We have seen no evidence to suggest that that Bodies business has declined and the company is adamant that there is more demand for the Bodies show than ever before and there is no drop off in current ticket sales. The shorts argue that Bodies business is in decline because the “revenues per exhibition day” declined in Q3 despite the company having their best quarter even earning .17. This is metric is useless since some shows are partnered (meaning PRXI only gets their share of the net) and some are not. The company doesn’t even use this metric themselves so it probably doesn’t mean anything. Our channel checks don’t suggest there is any waning interest in the shows and their only competitor who posts ticket sales on their website doesn’t seem to be experiencing any decline in tickets sales. Most importantly there is a huge number of cities domestically and internally that have never hosted the show. One of the company’s goals is to publicly publish their exhibition schedule two years out. The company could miss their guidance EPS guidance of .68, but most likely will exceed it on an operational/cash basis. The company got a slight benefit from a lower tax rate but was penalized greatly for the non-cash charges, most notably Esckowitz’s options. The company has admitted that they have not explained this well and they are exceeding their internal expectations for the year, so far. The story that Premier will lose their Titanic Salvor-In-Possession Rights which is being aggressively portrayed by the shorts is clearly not the case. In a recent court letter the judge questioned whether or not Premier has the rights to the personal possession of the passengers currently on the bottom of the ocean (Premier believes they do). However, the court makes it very clear that Premier does have salvor-in possession rights of the artifices and it has been confirmed by the courts three times. Even in the worst case scenario, Premier does own 1800 artifacts outright which is almost all the artifacts they use in the shows. The short arguments that we agree with is that they use a no-name audit firm and there has been some related party transactions in the past. Summary: We consider Premier Exhibitions of one of our best ideas with limited downside risk and 100-200% + upside potential with moderate execution. We find it very unusual to find a company with so many growth drives in their business requiring so little cap ex, a strong balance sheet with no debt, high gross margins and a very low valuation.

Catalyst

1) Annoucement of New Vegas location 2) Annoucement of two new exhbitions by 3/1 3) Q4 Results of 16 Bodies shows working in one quarter 4) Execution of plan

Messages

Subject	Not Readible
Entry	01/01/2008 04:37 PM
Member	neo628
Do you mind posting a readably copy with formatting in the comments? Thanks
Subject	Yowsa!
Entry	01/09/2008 08:49 AM
Member	jm671
So much for limited downside risk. Any updated thoughts on the thesis and valn?
Subject	Digging deeper in to PRXI
Entry	01/09/2008 12:45 PM
Member	ben111
One interesting feature of Value Investors Club is that we have plenty of short sellers that short big liquid stocks here. But we appear to have fewer short sellers on the board that short smaller less liquid stocks like Premier Exhibitions. As a result, we will often hear the bull thesis on a stock like this without hearing the bear thesis, since the bears on these small companies don't post. I have no position in this. What the bears are saying is that the right way to measure this is on the basis of "same store sales" - essentially, an exhibition opens, it has great attendance at first and then it drops off over time. The shorts say the following - a few years ago whenever a krispy kreme opened up there were lines of people out the door - a real frenzy. momentum investors came in because of this. Only by tracking the same store sales of Krispy kreme was it possible to see that the economics fall off dramatically over time. They say PRXI is the same - huge lines of people when a show first opens, followed by a decline just like Krispy Kreme's From your write up "The shorts argue that Bodies business is in decline because the “revenues per exhibition day” declined in Q3" Now the shorts argue that many people called up management to discuss this metric over the past few months and management would refuse to discuss it since some members of management were selling stock. Management did not want anyone to look at this metric. In your write up you say "The company doesn’t even use this metric themselves so it probably doesn’t mean anything" The shorts argue that just because the company TELLS you that they don't use that metric doesn't mean they are telling you the truth. The shorts also argue that even if the company doesn't use that metric, the metric may be worth looking at anyway, in an effort to get to the truth of the matter. Let's have a free and open and honest discussion on this board. Many many people on this board have had conversations with management. Has management ever deliberately misled any of us, or have they simply tried to steer attention away from metrics they didn't want us to look at? The key issue on the table is, has management been honest with us - bulls, bears, and people who have not yet formed an opinion? Can we trust management? Let's figure this out together
Subject	Jim
Entry	01/09/2008 08:15 PM
Member	bruin821
There is a backstop of Titanic assets and cash which is around $6. Q3 numbers were good, q4 numbers were obviously very weak. Our suspicion is that they are being overly conservative in their guidance. We are digging deeper in it, but intial reaction is that we like the story today more than yesterday at this valuation. The explaination for the quarter seem intially plausible and with the backdrop of assets and cash, any reasonble level of exectution could result in a very good return. Long term potentially a great return.
Subject	Bruin
Entry	01/10/2008 10:10 AM
Member	zzz007
Can you give me your quick back of the envelope on the $6/shr Titanic assets + cash? Cash, I guess is obvious. More interested in the Titanic asset valn. Thanks.
Subject	Reply to Ben
Entry	01/11/2008 02:15 PM
Member	bentley883
Ben In light of your question and in the spirit of the club, I want to add my two cents to the discussion on PRXI. Our firm is highly interested in the name from an investment perspective. We had a significant position in the stock, which we sold a few months ago, and currently are sitting on the side monitoring the situation closely. The reason we sold our position was two fold; management and valuation. Regarding your question on management, we had some uneaslyness on how professionally the company was managed. Some of the things we felt uneasy with were the lack of a full time CFO in Atlanta and the number of earnings surprises (even before Wednesday) that have occurred over the last 2-3 years. What also made us uneasy was that it was very difficult to reach management when we needed to. Despite the fact that we had a fairly healthy position in the stock, we never try to abuse this or take up too much of management’s time. However, the situation had gotten progressively worse. For example, we repeatly requested to meet with Arnie when he was in town multiple times and after more than a year of trying, we gave up. In addition, we would leave multiple messages for the CFO to call us over several months and finally received a call back from the PR guy. He could not answer most of our questions and said he would try to have the CFO call us back (which he never did). This lack of access to management raised many questions in our minds, including how open management was and if there were things they did not want to discuss. While I am not suggesting management lied to us or was untruthful, with significant questions outstanding, we felt we did not have adequate information to feel comfortable holding the stock any longer. Regarding valuation, another reason we sold, was that the stock had reached our price target and was less a true value stock anymore (like when we first purchased it) and more of a growth or at least a GARP stock, with a different set of expectations. At present, while the stock has come down significantly and the valuation has become much more interesting, we do not believe it is overly cheap by our definition. On current earnings and adding all the non-cash charges back into cash flow, the EV/FCF yield of about 9% is not compelling in our opinion. Based on managements latest guidance the FCF trends in the current quarter are flat to down from Q3 levels. In addition the new CEO repeatedly stated on the last conference call how many of the new initiatives would take time to have a meaningful impact. Thus, we are not comfortable modeling any significant growth into our projections in order to maintain a healthy margin of safety (especially given the recent uncertainty and questions raised last quarter). In order to show a more attractive double digit EV/FCF yield you would have to assume a fair amount of growth returning to the story. As the timing and magnitude of this is somewhat uncertain, I do not want to pay for this growth at this time (especially given some of the issues raised last quarter). Thus, we are still inclined to sit on the side and monitor the stock and wait for a more favorable opportunity to invest in the company. I add these thoughts to contribute to the discussion and point out that these are our just our opinions based upon our investment style. I recognize and welcome the fact that others may have a different opinion and that’s what makes a market. Hope these comments are helpful Bentley
Subject	Re: Reply to Ben
Entry	01/12/2008 01:12 PM
Member	max685
Great comments, Bentley! Thanks for adding them to the discussion.
Subject	ZZZ
Entry	01/14/2008 10:57 PM
Member	bruin821
Sorry for the delay in getting back to you. They own 1800 artifacts outright which they could do what they want with, have salvor in possession rights/lean that were appraised at $110mm and $30mm in cash. I roughly assume the salvor artifacts are worth $70mm taking a 30% discount and their own artifacts are worth $100mm plus cash. I think assigning a specific value is obviously difficult but there are some real assets there that should provide a valuation backdrop.
Subject	Bentley
Entry	01/14/2008 11:11 PM
Member	bruin821
Thanks for your comments-you make fair points and we have always said the inexperience of the CFO was a concern. We are pleased that he is being replaced and they have engaged Korn Ferry to do a search for a real CFO. As we have had multiple calls with management over the past week and have rebuilt our models, I think the story is not that much different than before they reported the quarter. Q3 was very good and met our expectations. It seems as if Arnie has delegated Bodies venue selection to Tom Zeller who didn't have the expertise to make these decisions as Arnie was consummed with hiring Bruce and other responsibilities. When asked Bruce told us at the begining of his tenure that the site selection process would be different and he wouldn't have gone to suburban sites such as Framingham. It seems now that the sites selection and calendar is being managed directly by Bruce and it seens unlikely they will make these sort of errors again. Also, Bruce has told me that he has personally spent many, many hours going over the financals and their 08 guidance will be very attainable when announced. He has only been on the job for 90 days and I think now the company is being cleaned up and many of the issues you have alluded to have been fixed. As a side, he has always called us back within half a day. We think the base business can do about .80 with modest contributions from incremental bodies shows. There is still all of the upside of Luxor Vegas (additional 5k rooms with no Jam and additional concepts), merchandise and sponsorships, new exhibitions which we should hear about by 3.1, Pier A potential and most importantly large international markets which they will be going to with Jam. They are supposed to meet with Jam tomorrow to discuss potential venues. While we think you make fair points, we feel that the valuation is attractive here while there is blood in the streets and the "easy money" will be from here to 10/11.
Subject	Frankie-buyback
Entry	01/14/2008 11:13 PM
Member	bruin821
Frankie, good points. The only other comment I would add to is they seem very motivated to buy back stock here and they can turn a negative into somewhat of a positive by reducing shares at what we think is a very attractive valuation.
Subject	Options / dilution
Entry	01/15/2008 01:05 PM
Member	ben111
I think the comments by the bulls here are very very perceptive. I appreciate the new information they provided here. Can everyone comment on dilution here? When i build my model for the next few years, should i assume that 3% of the outstanding shares will be given away in options each year or more like 7% This dilution from options is a major input in my model - i mean i see many companies where more than half the upside is given away in the form of options. What can i expect here?
Subject	Ben
Entry	01/15/2008 05:54 PM
Member	bruin821
Most of the options that were granted were to Eskowitz and the Board. By all accounts Eskowitz it top shelf so probably a good allocation of human capital. I would suspect that on go-foward basis option grants will be modest, althought I don't have an estimate. Fully dilluted the share count is 33.5mm-I am pretty sure they wil buy at least the 1mm shares that are authorized and hopefully more.
Subject	class action lawsuit
Entry	02/21/2008 02:07 PM
Member	ben111
I would like to hear both the longs and the shorts comment on legal issues / class action lawsuit The Chinese government has obviously rounded up plenty of its political opponents and executed them. There is plenty of evidence that organs have been harvested from executed political prisoners in China. As of today, there is no proof that the bodies used by PRXI are harvested from executed political prisoners. However, if i understand correctly, the family members of the executed political prisoners have the standing to file a class action lawsuit against PRXI in the USA - The shorts are saying that if PRXI loses just one of these class action lawsuits the stock goes to zero Again, I am not saying the shorts are right, but i would like to hear the bulls on this stock handicap the various legal outcomes - lose a class action suit, settle a class action suit, etc. Seems like we really need to explore this carefully - juries in the USA are likely to be sympathetic to the families of the executed prisoners
Subject	RE: RE: class action lawsuit
Entry	02/22/2008 01:30 PM
Member	ben111
I am not an expert and would like an atty to comment - however what i have heard is that the lawyers for the families will make the case that PRXI benefitted from murder - no one has accused PRXI of deliberately ordering murders - no one has even accused PRXI if causing murders accidentally - the key issue is, did PRXI benefit from murders, and should they have to disgorge all the profits that resulted from those murders to the families of the victims. Again, can a lawyer comment please
Subject	Lawsuit/Valuation
Entry	02/26/2008 11:29 PM
Member	bruin821
This lawsuit sounds completely bogus and seems like a ploy to keep the stock down so the shorts can get out. At this point the stock is screamingly cheap trading at cash and an extremely conservative estimate of the artifacts they own outright and the ones they have salvor-in-possession rights. You get the Bodies business, 2 new exhibitions, sponsorships, merchandise, food and beverge and possibly Pier A all for free. Worst case scenario they can just use the 7 sets of bodies they have consent on.
Subject	Lawsuit/Valuation
Entry	02/26/2008 11:29 PM
Member	bruin821
This lawsuit sounds completely bogus and seems like a ploy to keep the stock down so the shorts can get out. At this point the stock is screamingly cheap trading at cash and an extremely conservative estimate of the artifacts they own outright and the ones they have salvor-in-possession rights. You get the Bodies business, 2 new exhibitions, sponsorships, merchandise, food and beverge and possibly Pier A all for free. Worst case scenario they can just use the 7 sets of bodies they have consent on.
Subject	Just saw the stockprice
Entry	11/27/2008 03:30 AM
Member	dj927
Anyone care to give an update on what happened?