An impressive lineup of an increasing number of museum-quality exhibitions, expanding margins, and the simplification of their business model are the primary reasons we like Premier Exhibitions, Inc. (PRXI). Current FY EPS guidance of $0.40 has been reaffirmed twice. PRXI is trading at $6.03. That is 15x earnings for a company expected to double EPS in 2007. We don't see why double digit earnings growth would end any time in the near future.

The Product
Premier Exhibitions is the salvour in possession of the Titanic and has recovered a collection of 5,500 artifacts from the wreck. Titanic exhibitions are how the company got its start. In addition to these exhibitions, PRXI also has 5 BODIES Exhibitions touring the world. This controversial exhibition is educational and puts preserved human bodies on display. It is hard not to be repulsed by that description, but consider that teachers bring students to the displays. I also have spoken to several people who have been to these exhibitions. Every one was impressed, not disgusted, by the experience. The exhibitions are controversial, which has resulted in stories in the New York Times. We believe that the controversial nature helps - and does not hinder - PRXI.

On the latest conference call, we learned that there is so much interest in PRXI's exhibitions that venues are being secured up to three years into the future. Yet another exhibition concept is due to debut next fiscal year and has an American History theme.

Growth Opportunities
We should also see revenues grow in the next fiscal year as a result of an increased number of exhibitions and the realization of Jam's operating efficiencies. (Jam is PRXI's parnter at some exhibitions.) When Jam reduces expenses PRXI receives more revenue from the exhibitions that drops straight to the bottom line. Additionally, none of PRXI's exhibitions have ever been unprofitable. It is because of this track record that management no longer feels that they need to share risk (and profits) of future exhibitions. As PRXI operates more of these exhibitions on its own we should see margin expansion because of the elimination of profit sharing agreements.

Even if we assume flat revenues and margins, the future still looks bright. Q306 EPS is expected to come in at 15 cents, as is Q4 EPS. Extrapolating this, we arrive at a 2007 EPS of 15x4 = 60 cents per share. But Arnie Geller (CEO) has confirmed that once Jam curtails spending we can see 10 cents of additional revenue which will drop straight through the income statement. This provides us with an EPS close to 70 cents for 2007. EPS is entering a rapid growth phase and seeing it double in FY07 and increase drastically again in FY08 as a result of at least one more exhibition coming online is not too optimistic. The fact that there is demand for exhibitions three years from now speaks volumes.

At the current price of $6.03, PRXI is trading at roughly 16 times this year's earnings, and only 7 times next year's.

Additional Exhibitions
PRXI is expanding its number of exhibitions by stretching artifacts, acquiring new artifacts for Bodies, and also starting a whole new American History exhibit of which very few details have been disclosed.

Why PRXI is Undervalued
Currently, it is a little tricky to make financial projections because each exhibition's cost and profitability profile is different. This is primarily because of the rather complicated profit sharing arrangements. However, the Jam agreement has been simplified and PRXI will be the sole operator of future exhibitions. These factors should make financial forcasting easier and allow analysts to better value the company.

We have dedicated a lot of time to understand PRXI. The last conference call was two hours long; if you didn't listen to the whole call then you would have missed out on Arnie's comments regarding $0.70 earnings next year. Few analysts follow the company, which provides informed investors to get in at a low price.

In addition to the earnings growth, the price to earnings multiple should expand as PRXI gains recognition in the investment community. We believe this recognition is innevitable because of the increased presence in major cities. Most notably, a Titanic exhibition is now open in New York city - the financial headquarters of the US

Risks
The biggest risk is the volatility of short term stock prices. The stock is thinly traded and has little float because insiders own a large portion. Insiders have made a lot of money (PRXI was under $1 in 2003). Do not be alarmed. We consider the current company to be new as they have completely changed their business model. They have focused on what they do best. Insiders who trade large amounts of stock could very easily cause significant changes in the stock price. We view this as a short "risk" and does not concern us because we believe in the long-term viability of the company.

Up until this point the management has said that they are better at operating exhibitions than Jam is. As the company operates more exhibitions, this claim will be put to the test. Should PRXI fail to meet expectations, they may see a decline in attendance and in profitability of exhibitions.

The development and rollout of the American History exhibition poses risks as it an unproven concept. Although we were pleased to hear that the capital outlay for this exhibition will not exceed that of a similarly-sized Bodies exhibition.

Summary
PRXI should see growing revenues and margins. As the company grows, analysts should find out about PRXI, and simplification of the financial statements will make it easier for these analysts to value the company. Increased analyst awareness and understanding should assist in P/E expansion.

PRXI is a growth story, but is currently valued as if it was a bad company in a declining industry. We believe PRXI is a great opportunity at these prices.

Additional Resources
Premier Exhibitions Investors - community run website providing information about PRXI.

Disclosure: Author is long PRXI

The following report is an incomplete rough draft

We came across the following post over at the Yahoo! message boards by the_yoddler and have repeated it here. The PRXI conference call occurred recently and we believe the numbers mentioned in the conference call and in the following commentary are realistic (if not conservative).

A word of caution: Geller, the CEO, stated numerous times that we can't take costs from some shows and extrapolate them reliably because some of these costs vary form location to location. That being said, the following is as close as we can get to an estimate.

From Amigo Mike:
I am still fiddling with my model. I will say that PRXI has not shown the capability to avg 350K per 6 month run yet. I think I heard one of the institutional investors try to back into numbers similar to yours of $4.4 million gross exhibit profit for a company Bodies exhibit. I think that is too high.

An example with Miami for instance:
$18 avg ticket
325,000 avg attendance
Gross revenues $5.85 million

$500K bodies lease
$750K marketing
$300K space lease
$300K human resources
$500K miscellaneous (build out, transport, etc)
Total Expenses ~$2.35 million

Gross exhibit profit $3.5 million.

Attendance numbers above 325,000 would result in most of that revenue falling direct gross exhibit profit line. Just the same, a lower avg of 300K per would shave of about 1/2 million each. This is also an example for a commercial venue. IMO the structure for a science center type venue would be different.

For the next 12 months:

I have PRXI running 6 company Bodies exhibits (Miami, Monterrey, a replacement for each, plus 2 new Bodies sets coming into play as Mr Geller was emphatic about an expansion to 8 sets).

I have 4 JAM exhibits and I discount the PRXI profit on these to $1.75 million each assuming properly run.

I have 2 semi permanent exhibits, NYC and LV. NYC at 70/30 for the duration. LV gradually moving to 80/20 by around year end. I expect each will contribute gross profit to PRXI at roughly $5-6 million each. After rerunning NYC numbers, the JAM deal there isn't likely to produce the revenues I had originally anticipated. So ~$10+ million contribution from these. I would expect PRXI to be reimbursed at least $1 million for the lease of the body sets beyond 6 months at these 2 venues.

Titanic, roughly 13 exhibits. Contribution of about $6 million to gross exhibit profit.

Teach America ..... an unknown.
I have always fully discounted Pier A as it doesn't exist in my book.
Acquistion targets ..... an unknown.
The sale / leaseback of Titanic artifacts ..... an unknown.

Gross exhibit profits potentially ...
Bodies - $35-$38 million
Titanic - $6 million
Total $41-$44 million
Corporate expenses - $12 million
Gross operating profit - $29-$32 million roughly around $1/share
40% tax
Net around 60 cents.

Mind you, this does not include a minimal outlay for the launch of Teach America. I believe this will be a concurrent multi city exhibition launched March 2007 contributing for 6 months in this projection. I have no knowledge of the exhibit or how it will be received but I gather from the CC Mr Geller has very high hopes for it. I also gather 3 revenue streams will result ..... ticket revenue, corporate sponsorship and a residual "subscription" possibility. It sounds like the gross margins on this should be extremely high. But again, no way to extrapolate.

The numbers are higher for FY08 (March 07 - Feb 08) as there will be less JAM (2), more company Bodies (8-10), plus full year of Teach America. Any success from Teach America that is even remotely close to Bodies and PRXI will become a huge momo stock.

Assign your multiple of choice.
Amigo Mike

Disclosure: Author is long PRXI