Sotheby's (BID) Q4 2018 Earnings Conference Call Transcript

Sotheby's (BID)
Q4 2018 Earnings Conference Call
Feb. 28, 2019 9:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants
  
  

  See all our earnings call transcripts.

Prepared Remarks:

Operator

Good day, ladies and gentlemen, and welcome to the Sotheby's fourth-quarter 2018 earnings conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. [Operator instructions] As a reminder, ladies and gentlemen, this conference is being recorded.

At this time, I would like to introduce Jennifer Park, vice president of investor relations. Ms. Park, please go ahead.

Jennifer Park -- Vice President of Investor Relations

Great. Thank you, Andrew. Good morning, and thank you for joining us today. With me on this call are Tad Smith, Sotheby's president and chief executive officer; and Mike Goss, chief financial officer. GAAP refers to Generally Accepted Accounting Principles in the United States of America.

In this earnings call, financial measures are presented in accordance with GAAP and also on an adjusted non-GAAP basis. An explanation of the non-GAAP financial measures used in this earnings call, as well as reconciliation to the comparable GAAP amounts is provided in an appendix to the earnings release filed earlier this morning. Also during the course of this call, the company may make projections or other forward-looking statements regarding future events or the future financial performance of the company. We wish to caution you that such projections and statements are only predictions and involve risks and uncertainties resulting in the possibility that the actual events or performance will differ materially from such predictions.

We refer you to the documents the company files periodically with the Securities and Exchange Commission, specifically the company's most recently filed Form 10-K. These documents identify important factors that could cause the actual results to differ materially from those contained in the projections or forward-looking statements. Please also see our investor web page for a transcript of our prepared remarks. Now, I'll turn the call over to Tad.

Tad Smith -- President and Chief Executive Officer

Thank you for joining us this morning. Today, I will share the headlines of our financial results, review noteworthy successes from 2018, describe what to expect in 2019, and then review our investment thesis for our company. Mike Goss will then go deeper into the financials. Overall, you will see a company in great shape for the future. Before we begin, however, I'm honored to announce that on March 11, Sotheby's will celebrate its 275th birthday by ringing the bell of the New York Stock Exchange, and we will be celebrating this achievement throughout the year in ways to help our consigners, recognize our colleagues and benefit our shareholders.

As a result of our entire team's efforts and the continued trust placed in Sotheby's by our clients, I'm pleased to report that in 2018, we fulfilled our objective to substantially improve upon last year's good results. Today, we are reporting full-year 2018 earnings per share of $2.09 compared to $2.20 in the prior period. However, after excluding certain items in both periods, adjusted diluted earnings per share improved from $2.25 in 2017 to $2.48 in 2018, a 10% increase. For the fourth-quarter 2018, we are reporting a $1.72 in diluted earnings per share compared to a $1.43 in the prior-year period.

After excluding certain items in both periods, adjusted diluted earnings per share improved from $1.47 in 2017 to $1.74 in 2018, an 18% increase. On an operating basis, we are particularly pleased with our adjusted operating income for the full-year 2018, which increased nearly 18%, primarily due to the 16% growth in the consolidated sales, including growth in private sales of 37% to a total of $1.02 billion, a five-year high, and nearly double the level achieved in 2016. As a result, in 2018 we achieved a second straight year of 20% plus after-tax returns on equity, which is a significant improvement from the average of just over 15% between 2014 and 2016. In addition to strong overall financial performance, our company once again achieved many milestones in 2018.

We led the market in Asia for the third year in a row with sales of approximately $1 billion, the highest total in our 45-year history in Asia. In March, our London team achieved the highest price ever paid for any painting sold at auction in Europe with Pablo Picasso's beautiful portrait of Marie-Therese Walter, which sold for $69.2 million. Our global wine auctions crossed $100 million for the first time, highlighted by a new record set for a single bottle of wine, $558,000 paid for a bottle of Romanee-Conti DRC 1945. Our colleagues in France had their best year since the opening of the French market to international auction houses in 2001, led by the two-day sale of the contents of Pierre Berge's last residences, which was 100% sold and totaled $31.3 million.

In May, we sold Amedeo Modigliani's Reclining Nude for $157.2 million, the highest auction price in Sotheby's history. Our Contemporary team set countless auction records in 2018 including for works by Kerry James Marshall, Cecily Brown and John Chamberlain, as well as for any living female artist with a painting by Jenny Saville selling for $12.4 million last October. Sales of Old Master Paintings & Drawings were up over 30% in 2018, and among the many highlights of the year was the sale of a rare oil sketch by Rembrandt measuring just over ten inches that sold for $12.1 million and is now part of the collection of the Louvre Abu Dhabi. In Geneva, we offered a 100 treasures from the Bourbon Parma Family led by Queen Marie Antoinette's pearl, which achieved an astonishing $36.2 million, tripling the previous auction record for a natural pearl.

Our watch team had a very good year with sales up nearly 57% and a new record set for a wristwatch sold at Sotheby's, The Asprey, which sold for $3.9 million. We held inaugural auctions in Mumbai and Dubai, and celebrated our 50th anniversary in Italy. And our support of institutions continued in 2018 with sales on behalf of the Studio Museum of Harlem and the Georgia O'Keeffe Museum, among many others, and the second annual Sotheby's Prize for curatorial excellence was awarded to the Academy Museum of Motion Pictures in California. We also achieved many digital milestones in 2018.

Online buyers spent $220.4 million in 2018, up 24% from the prior year, as a reminder, that total includes items from our live auctions purchased online, all online-only sales, as well as purchases made on our retail websites, Sotheby's Home and Sotheby's Wine. We rolled out a new e-commerce platform that helped drive $72.1 million in online-only sales, quadruple the previous year's total. 37% of all lots sold in 2018 were purchased online. We saw a record number of new bidders in 2018 and 64% of those bid online.

Video views more than doubled in 2018 to over 28 million and Sotheby's video team won three prestigious awards including a Webby. Sotheby's gained one million new social media followers in 2018 and leads the auction industry with a total audience of more than 2.5 million. We had more than 1,200 items consigned through our new online estimate platform, resulting in $56 million in sales in 2018. My colleagues and I begin 2019 with a great sense of excitement about our company's future.

Although we are the oldest company listed on the New York Stock Exchange, we are looking very fresh for our 275th birthday. Our mission has not changed, we help people discover, buy, and sell precious objects. Our strategy in pursuit of that mission employs trusted expertise, technology and service innovation to make it easy and effective for clients to work with us and thereby for us to generate attractive returns for investors. Many of our projects that we began two years ago have reached or will reach an inflection point in this calendar year.

Our program to upgrade our content management system was completed in 2018. We have already been rolling out a new online auction engine together with mobile bidding and other features this year, as well as deployed new digital tools for our private sales business. Both will be substantially completed in 2019. Our digital advertising, customer relationship management programs, digital video and editorial creation, and our social media reach have grown very rapidly in recent years, and this growth will continue.

In 2019, Sotheby's Home, Thread Genius, and our online consignment platform will build a powerful foundation to drive highly profitable middle market growth for many years to come. For example, in January and February alone, we expect to have consigned $16 million in property through the online consignment platform, which is a 162% increase compared to the $6 million combined during the previous two months. Also this year, we will complete the most significant transformation of our physical space in many years. In May, we will unveil new galleries at our Manhattan headquarters, which will be the largest and most important state-of-the-art commercial gallery space in the world.

In October, we will unveil spectacular upgrades to our New Bond Street property in London. In December, we will have completed the refresh of our beautiful gallery space opposite the Elysee Palace in Paris. With a strong team and the proper technology infrastructure in place, together with a new executive charged with driving global transformation, in 2019 we will continue to identify processes that would benefit from automation, simplification, greater alignment with customer needs, and crucially, cost reduction or elimination. Our people will become more efficient, our client service will improve, and our investors will yield the benefits.

And of course, in 2019 we will be celebrating our innovation, our client service, our culture, and our 275 years of commitment to helping people around the world to discover, buy and sell the world's most precious objects. What does all of this mean for investors? Let's begin by saying that we are planning for another good year of 20% plus returns on equity and a very healthy balance sheet in 2019. We acknowledge that, although the base case expectation for our company in 2019 is favorable, the range of outcomes has a bit more uncertainty than when we entered 2018. On the other hand, there is a great deal of property in the marketplace that we have already won, and still much being competed for right now, especially for New York in May.

And we expect the comparison of 2019 performance to 2018 to be much more favorable in the second quarter than in the first quarter, so keeping an eye on the six month performance is as important as ever. Moreover, we do believe that our efforts in recent years to retool the company to make it easier to do business with us will be beneficial when we next face market headwinds. The middle market, for example, is not as sensitive to the cycle as the high end and our efforts to grow there are bearing fruit. There will also be a new base of business that comes to us simply because our online consignment technology makes it easy to do so.

Finally, our technology platforms will enable us to be more cost efficient and flexible in our service offering. So we are quite pleased with our recent investment program and the one we are continuing in 2019. At the same time, our attractive returns on equity and good sales growth in recent years have not masked the fact that our investment program has somewhat dampened our recent EBITDA margins as well as pushed up capital spending compared to the company's historical norms. Beginning in 2020, we believe that the results of our investments will be much more visible, due either to contribution growth or our increased efficiencies or both, and our EBITDA margins will begin to climb and our capital spending return to a more typical level.

On the occasion of our 275th birthday, I hope I have given investors reason for great optimism. Yes, we are a seasonal business. Yes, we are a cyclical business. But we have a significant secular growth tailwinds, a superb team that has a proven capacity to innovate and perform, a commitment to excellence in capital allocation, and by the end of 2019, we will have substantially retooled the company's infrastructure over the past several years for more returns to come.

Let me now hand the call to Mike Goss for a deeper dive into our company's performance.

Mike Goss -- Chief Financial Officer

Thanks, Tad. Given our filing of this morning's 10-K and the inclusion of new data tables in our press release, both of which pretty well lay out the facts behind our 2018 earnings. I'd like to spend my time this morning providing context by which you should view our financial performance for the year just completed and the year that lies ahead.First, and perhaps most importantly, our adjusted operating income improved 18% versus last year, in large part reflecting the combination of two important factors; a 10% growth in Agency Commissions and Fees accompanied by only a 5% increase in adjusted expenses. Our revenue growth is a reflection of both higher auction activity and higher private sales commissions. The lower expense growth reinforces the trend we've been focused on and communicating throughout 2018, namely that much of our investment spending has started to, and will continue to, moderate over time. Assuming the market cooperates, going forward, we expect to see -- start seeing the benefit from this operating leverage, not only leading to continued margin improvement, but also allowing us to redirect our investment spending away from projects that were necessary to catch up on our infrastructure toward projects that can accelerate our growth or lower our operating costs even further. Secondly, I'd like to share a few thoughts with respect to our auction commission margin.

Although our auction commission margin rebounded to 17.1% in the fourth quarter, for the full year, we reported an ACM of 16.1% versus 17.2% last year. As many of you may recall, our margin for the year was suppressed by two specific high value paintings in the second quarter. If you exclude the effect of these two paintings and look at what happened with the remainder of our business, our auction commission margin would have been 16.7%. When comparing this level to the 17.2% level of 2017, those last 50 basis points are explained by the greater mix of higher value lots in 2018 and the higher percentage of competitive, price driven estate and charitable sales that drove market growth in 2018. Looking ahead to 2019, we continue to see a market dominated by estate sales that can carry lower margins, but we also anticipate fewer of the very high value paintings that impacted 2018.

On balance, the guidance we made at the end of Q2 that 16% is the new 17% is still relevant, but we also see a pathway to slight improvement in 2019. I should note that we recently revised our buyer's premium schedule to help toward that end. And in addition, as our online sales and consignments from our online consignment platform become a larger part of our business, the impact on our margins will be quite favorable. Third, with respect to our balance sheet and capital allocation strategies, 2018 was clearly a year of further improvement and creation of shareholder value. During the course of the year, we returned approximately $295 million through share repurchases, retiring another 6.5 million shares, or 12% of the shares outstanding at the end of 2017.

Today, we have 46.4 million shares outstanding. We accomplished this return of excess capital to shareholders while simultaneously increasing our capital spending by $36 million from $21 million in 2017 to $57 million in 2018, and managing our total of long-term debt and revolving credit borrowings to very little change. In terms of our adjusted leverage ratio, which is calculated using our long-term debt divided by adjusted EBITDA excluding the EBITDA from SFS, you see we lowered our leverage ratio from 3.9 times at the end of 2017 to 3.1 times at the end of 2018. In fact, speaking of Sotheby's Financial Services, it's noteworthy that after seeing our loan balances decline through the first part of the year, we exited 2018 with a loan book nearly $100 million higher than this time last year. Our loan balance at December 31st, 2018, stood at $694 million versus $591 million a year ago, which is a new year-end high. Most importantly, with a much leaner balance sheet, our after-tax return on equity for the year increased further to 24.4%, which we think is an overlooked, or perhaps underappreciated characteristic of our business model.Finally, let me close with a few thoughts on how 2019 is starting out for us.

Historically, it is quite common for Sotheby's to report a loss in the first quarter, and this year will be no exception. It is still too early to get a firm picture of the first quarter, but for the most part, the results will be driven by strong performance in our New York Old Masters sales, offset by Brexit-driven smaller sales in London and any macro driven headwinds in Asia. We anticipate that our loss will be less than in 2017 or '16, and instead closer to the 10-year median first quarter loss for our company. But interestingly, we're seeing a very strong pipeline of potential consignments for New York in May, in part because a sizable segment of the consignment market continues to come from a number of estates and charitable organizations. I look at these recent trends as yet another reason to track our results in rolling six-month increments.

By doing so, investors get a better feel for the state of our business free from the vagaries of the quarterly sales calendar. It also reminds us of the strength of being an international company competing in a global business insofar as our revenues are diversified by region and we benefit from consignors and buyers who shift their activities around the world and between quarters as they see fit. I will now turn the call over to the moderator, and we can begin our Q&A.

Operator

[Operator instructions] And our first question comes from the line of Daniel Moore with CJS Securities. Your line is now open.

Daniel Moore -- CJS Securities -- Analyst

Good morning. Congrats on a strong finish to the year obviously, Tad and Mike, wondering in terms of categories you mentioned Old Masters, in addition to those any new categories that are accelerating kind of picking up momentum, and any others that maybe offer a little bit of headwinds as we think about going into 2019?

Tad Smith -- President and Chief Executive Officer

I don't see headwinds by categories, and in fact, I would even step back necessarily from the concept of headwinds. We're going to get more data throughout the quarter. But what's really interesting is let's -- if you just look at the modern impression of sale of the last two days and I'll start with ours, we really had three sales; one, we had the Modern Impressionist evening sale. The team frankly killed it.

It was a 90% plus sell-through rate by lot and something like 97% by value. The lots went really, really well. There was active bidding on multiple lots and by the way, if you look at the underlying composition of it, the purchases were around the world, but significantly throughout Asia. It was a very encouraging picture.

The Surrealist sale was a smaller sale, it didn't do quite as well as the evening sale. And then if you dive into the Modern Impressionist day sale just in the couple of days ago, what you saw is a picture that underneath the sort of headline numbers was really very encouraging. I mean, something like 40% on a hammer-to-hammer basis, but 60% of the lots -- that sold were above their high estimate. Now, part of that is an excellent team.

But what you're seeing is, when you read tea leaves closely, we're seeing some very encouraging things as recently a couple of days ago. If you look at another auction house, the night before last or last night, what you saw there was, they had a fair bit of strength in a good portion of their auction, they had one area that didn't do quite as well, but I came away very encouraged to their performance and I thought it boded well for the market. If you turn to what we're seeing for Hong Kong at the end of the year, the current consignments are below last year, but I think in the earnings script we said very clearly that last year was a 45-year high for subsidies in Asia. So, I'm seeing good things and we feel quite good about it.

Daniel Moore -- CJS Securities -- Analyst

And then just switching gears quickly, Mike, obviously an exceptionally difficult comp in 2017, just in terms from a cash flow perspective. How much of an impacted timing of receivables and other working capital -- other working capital accounts have on the year, and what are your expectations as we look forward, and maybe just your thoughts on CAPEX as well?

Mike Goss -- Chief Financial Officer

Yes. Remember that when you look at balance sheet dates, it's heavily skewed by the timing of when the sales occur relative to our 30 and 35-day collection standard in addition from time to time, we will offer extended payment terms on particularly large paintings that usually in the interest of the consignor as well, so often times they choose to step up and match the payment, and of course that's something we always try to do. At the end of 2018, we had a couple of large paintings that sold near the end of the year, which needed to be settled after the balance sheet date of December 31st, that's happened, we got the money, it's all good. So, well, I know what's happened next November-December, no.

But our philosophy is to always try to match the receivable with the payable, and generally speaking, we've been able to do that. So, be sure to look at both sides of that equation.

Tad Smith -- President and Chief Executive Officer

One other thing to add by the way, we've got absolutely dazzling curated sale contemporary coming up, and we're going to see -- I think we have a beautiful sale coming up on Monday in London on the contemporary side as well as on Tuesday in the day sale. So, we're about to move into a period where you see really, really terrific sales, beautifully curated, and I think you'll see some good things. So, I think we're looking hard obviously, because we're looking for any possible inflection points, because there's a lot of sort of macro background stuff going on in the last few months, we're seeing good things.

Daniel Moore -- CJS Securities -- Analyst

Very helpful. I'll jump back with any follow-ups. Thanks.

Tad Smith -- President and Chief Executive Officer

Thanks, Dan.

Operator

Thank you. And our next question comes from the line of Greg Pendy with Sidoti. Your line is now open.

Greg Pendy -- Sidoti and Company -- Analyst

Hey, guys. Thanks for taking my question. Just -- it looks like this is the second quarter in a row where we've seen some moderation in those core expenses, marketing, G&A and salaries, and just as we think out to 2019, I know you guys had heightened investment levels in 2017 and the first half of 2018. But how should we think about a normalized run rate and what are some of the -- maybe the more expensive projects that you might be cycling that -- that will help you, I guess lower expenses in the future?

Tad Smith -- President and Chief Executive Officer

So, let me take a qualitative piece of that, if I may, Mike, and then kick it over to you for -- if you want to add anything to it. First, thanks for the question. I should point out our investment actually began in 2016. So in '16, '17 and '18, we've been investing heavily that both would have brought the EBITDA margins down.

And also in '17 and' 18, particular, you saw the CAPEX jump up. What I was trying to convey in 2019, is that we expect 2020 to be in terms of CAPEX a reversion to the norm. And also we should begin to see improved contribution from those investments as well as and that comes from either boosting revenue and there are a lots of areas where we're seeing some encouraging things there, as well as some new cost efficiencies that should be benefiting us as well. So 2020 looks very good.

You want to comment on 2019, as what we've shared at the moment.

Mike Goss -- Chief Financial Officer

Yes. Sure. Yes. So, I think that the relevant metric you ought to be looking at is adjusted operating expenses, that excludes the cost of the stuff we sell from inventory, it excludes any cost of money that we incurred to make loans at SFS, and importantly it excludes agency direct costs, which are virtually variable with net auction sale.

So, we don't mind if that goes up, it's usually a result of auction sales going up. So, if you look at adjusted operating expenses that excludes that variable cost of agency directs, I think for 2019, you will see something that looks more like inflationary growth. So, our point about moderating expense growth means that we basically caught up and now we're comparing against normalized investment levels for our company with our ambition and from here on out, it's going to be undramatic.

Greg Pendy -- Sidoti and Company -- Analyst

That's very helpful. Thanks a lot.

Operator

Thank you. And our next question comes from the line of Omar Saad with Evercore. Your line is now open.

Westcott Rochette -- Evercore ISI -- Analsyt

Hi, guys. Thank you very much. It's Westcott Rochette on for Omar. I'd like to go in a little deeper on your online and your consigned in particular business.

And you think about growing that business beyond kind of art and antiquities, are there other categories that you see it over time kind of moving into. And the second part of that question would be, how do you intend to draw a consignors to the site, should we expect more aggressive kind of marketing online, what's the avenue to attract the consignors?

Tad Smith -- President and Chief Executive Officer

Both very, very interesting and astute questions. We're pausing as we think about how much we want to say on this topic, because you're putting your finger on some really interesting things here. Let me start first with the first question. The total addressable market facing Sotheby's Home, in fact, the near-term addressable market facing Sotheby's Home isn't actually art or antiquities, it is vastly larger, it is home, decoration and furniture, things like that.

Art and antiquities are obviously in it, jewelries in it too. So, when we think about the total addressable market for Sotheby's Home, that is a very, very big market, and that's why we privately have lots of excitement and ambition about that, and in fact, we just completed a Board meeting where we see a very encouraging developments on Sotheby's Home. The online-only sales, which including the commissions are $72 million as of 2018 have been growing gangbusters, but underneath that, what's really encouraging to us is that a good portion of that $72 million is actually commission margin, a very good portion of the commission margin -- is commission margin. And so, when we -- Mike made this sort of veiled reference at the end of his text about -- as the online continues to develop, we should expect margin expansion, what he's referring to is that the mix of online-only has robust commission margins and we're really quite encouraged by it. On the online consignment platform part of what you said, hidden inside our investment, if you dug deep, you would see that David Goodman and his team have already developed a highly sophisticated approach to online advertising, and we've actually already been doing online advertising to draw consignments to that in an analytically return on investment way. But the facts of it, as you get even closer to that online consignment platform are fascinating, which is the percentage of things that we are consigning or getting consignments from is relatively small compared to the total number of things that we've estimated, and estimated is small relative to the total number of things in the funnel.

In other words, with essentially zero incremental advertising, if we just increase using some operational improvements our consignment on estimate yield, very good things would happen. And back to the reference that Mike made, the consignment margin on the online consignment platform is positively robust.

Westcott Rochette -- Evercore ISI -- Analsyt

OK. Yes. It sounds like extremely excited. And as opposed to -- just to expand on categories beyond kind of home, are you looking to get into fashion items and watches and you're obviously in wine...

Tad Smith -- President and Chief Executive Officer

We're already in -- we're in watches now and we're in wine now. We don't have anything more to add to that.

Westcott Rochette -- Evercore ISI -- Analsyt

OK. Thank you. And on the economics or how we should think about it in terms of the capital contribution. I know the incremental sale is going to be very accretive to margins, but are you -- when can we expect that the point where it will be delivering margin on the bottom line basis relative to your existing EBITDA margin.

Are you still in investment ramp for the next couple of years as you continue to build out the capabilities or should it be contributing relatively quickly?

Mike Goss -- Chief Financial Officer

Well. I mean, there were -- sorry [Inaudible], but you said it and I'd like to do them. There were several different pieces I addressed. So, let's do Sotheby's Home for the moment.

Sotheby's Home was a modest loss in 2018. We anticipate in our budgeting a modest loss in 2019, and no loss after 2019. In the case of the online consignment platform, it's -- we're actually not sure and what I mean by that is this, which is we have some investment that is the beneficiary of and if we add that full cost in, you could argue it's a modest loss, but there are other beneficiaries of that, so part of it is a bit of a cost allocation, however, we can say that on a contribution margin basis it looks positively robust. And the same can be said for the online-only sales.

Westcott Rochette -- Evercore ISI -- Analsyt

OK. Great. And can I just ask one more follow-up question on the home, is that all consignment or are there new furniture design, high-end that you're selling as well?

Mike Goss -- Chief Financial Officer

I don't actually want to go there for the moment. So...

Westcott Rochette -- Evercore ISI -- Analsyt

OK. Well. Thanks a lot, guys. Very exciting, and good luck on the upcoming...

Tad Smith -- President and Chief Executive Officer

Yes. We're actually very excited about all of these things, and we appreciate your questions, because it gave us an opportunity to go probably a bit farther than we anticipated.

Operator

Thank you. And our next question comes from the line of Oliver Chen with Cowen and Company. Your line is now open.

Unknown speaker

Hi. This is Jungwon for Oliver today. Thank you for taking our questions. Just on the buyer's premium structure you mentioned that you recently changed.

What led you to make that change at this time and what are some opportunities and risks with the recent change that you see. And also just if you could comment on the drivers behind the 17.1% auction commission margin improvement, that would be helpful? Thank you.

Mike Goss -- Chief Financial Officer

Do you want to take the auction commission margin improvement?

Tad Smith -- President and Chief Executive Officer

Sure. Well. Our auction commission margin is heavily impacted by mix. The higher mix of big pictures that we have that lower the auction commission margin, that's why, that's one part of the contributor to what we saw in the second quarter when we had an extraordinary number of extra expensive paintings, those extra expensive paintings also tend to have more aggressive terms negotiated inside of them, because of the consignors in that particular case where from largest states where the decision on where they were going to sell their painting was largely a price-driven decision.

In the fourth quarter, we had fewer of those expensive paintings. So, mix once again worked in our favor. And I think it's just the result of hundreds of people working that issue every day to make sure that we are selling our stuff with the best possible economics for us and for the consignor. So, it was just a multitude of a lot of little factors, it wasn't any particular one big factor.

Unknown speaker

Got it. And could you give color on...

Tad Smith -- President and Chief Executive Officer

I should also just point out with respect to the change to the auction commission schedule, this is like the third time we've done it. And we do it in small increments. We're investing a lot in the buyer experience and this helps fund that.

Mike Goss -- Chief Financial Officer

And also it's an incredibly competitive market, and we need the competitive intensity requires to be competitive.

Unknown speaker

Got it. And then could you just comment on anything you saw in 4Q in terms of guarantees, the use of guarantees, did it spike up or any notable trend that you saw there would be helpful? Thank you.

Tad Smith -- President and Chief Executive Officer

In fourth quarter?

Unknown speaker

Correct.

Tad Smith -- President and Chief Executive Officer

Well. I mean, we use what we think makes sense for the marketplace. At the moment if you -- when you go through the 10-K, you will see that guarantees at the moment aren't at a particularly high level.

Unknown speaker

Got it. Thank you.

Operator

Thank you. And our next question comes from the line of David Schick with Consumer Edge. Your line is now open.

David Schick -- Consumer Edge -- Analyst

Hi. Good morning.

Tad Smith -- President and Chief Executive Officer

Good morning.

David Schick -- Consumer Edge -- Analyst

Want to talk about private sales and the continued strength there. Congrats. Could you talk about, you've updated us on people and process improvements and enhancements that you've made, anything else you'd share along those lines, I'd be interested to know, is this more business with existing customers driving growth or is it more new customers of the Sotheby's ecosystem, because of the efforts of what you're working on with private sales? Thank you.

Tad Smith -- President and Chief Executive Officer

It's a lot of talent improving processes with still some opportunities to go and also the beginnings of some improvements in technology that are being deployed very rapidly, and good things are to come. So, we feel -- now -- new private sales are volatile, they'll go up, they'll go down, and what we want is that the overall average trend line to be rising at a good pace overtime, and we're incredibly encouraged what the team has produced in 2018.

David Schick -- Consumer Edge -- Analyst

OK. And then is there any real change in mix between new versus existing clientele?

Tad Smith -- President and Chief Executive Officer

No. Nothing really to say on that at the moment.

David Schick -- Consumer Edge -- Analyst

OK. Thank you.

Operator

[Operator instructions] Our next question comes from the line of Alex Maroccia with Berenberg. Your line is now open.

Alex Maroccia -- Berenberg Capital Markets -- Analyst

Hi. And thanks for taking my question. Just going back to online sales, have you guys seen the average total auction value trend on the online-only auctions. And do you ever intend to dramatically increase the value of these lots?

Mike Goss -- Chief Financial Officer

Well. As the unit volume rises, you would expect the average to bounce around quite a bit and also because the distribution of our lot values is very high, the average is highly sensitive to a big lot here or there and by the way that's true whether we're talking about online or total or ones that are not delivered online. And that's why average is sort of tricky, I mean we mentioned a minute ago that we did a $157 million Modigliani this past year and a $157 million lot can make a lot of changes. We did 800,000 plus online-only lot of Skateboards recently, and loan behold the lots going to bounce around quite a bit.

Overall, we continue to develop that middle market very aggressively and we're pretty excited about it.

Alex Maroccia -- Berenberg Capital Markets -- Analyst

OK. Great. And then shifting gears a little bit with net working capital and then you guys have had some pretty wild swings in recent years due to the restricted cash balances, do you expect any similar volatility this year, and then what they are -- is it above its 2014 levels in your 100% of sales, do you expect this to normalize? Thanks.

Mike Goss -- Chief Financial Officer

Well. I guess I'll refer back to the answer I gave earlier in the call that those kind of numbers swing dramatically based on the timing of sales relative to the date of the balance sheet. There is no trend line there, that's discernible, what we try to do is manage receivables and payables to match each other as often and as frequently as possible. So, if a buyer wants extended terms, the consignor usually matches that extension, that's the number we measure is that difference and there's been no discernible trend, we manage it closely.

Alex Maroccia -- Berenberg Capital Markets -- Analyst

All right. Great. Thanks, guys.

Operator

And I'm showing no further questions at this time. So with that, I'd like to turn the call back over to president and CEO, Mr. Tad Smith, for closing remarks.

Tad Smith -- President and Chief Executive Officer

Thank you, all. We appreciate it, and a special call out to all the new Sotheby's shareholders worldwide. We thank you all. Cheers.

Operator

[Operator signoff]

Duration: 40 minutes

Call Participants:

Jennifer Park -- Vice President of Investor Relations

Tad Smith -- President and Chief Executive Officer

Mike Goss -- Chief Financial Officer

Daniel Moore -- CJS Securities -- Analyst

Greg Pendy -- Sidoti and Company -- Analyst

Westcott Rochette -- Evercore ISI -- Analsyt

David Schick -- Consumer Edge -- Analyst

Alex Maroccia -- Berenberg Capital Markets -- Analyst

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