LIVE VENTURES INCORPORATED — FY2022 Form 10-K
Reporting period: Fiscal year ended September 30, 2022; comparisons are with the year ended September 30, 2021. Live Ventures is a diversified holding company operating in retail, flooring manufacturing, steel manufacturing, and corporate and other businesses.
Financial performance
- Revenue: $286.9 million, up 5.1% from $273.0 million. Gross profit was $97.8 million versus $99.5 million; gross margin contracted to 34.1% from 36.4%.
- Profit: Operating income fell to $25.9 million from $35.8 million. Net income was $24.7 million, down from $31.0 million. FY2022 included an $11.4 million ApplianceSmart bankruptcy-settlement gain and a $4.9 million impairment charge; FY2021 included $6.2 million of PPP-loan forgiveness gain. Basic EPS was $7.94 versus $19.92; diluted EPS was $7.84 versus $9.80.
- Adjusted EBITDA: $38.4 million, down 13.8% from $44.5 million; margin was 13.4% versus 16.3%. This is a company-defined non-GAAP measure, not a substitute for operating cash flow or net income.
- Segment trends: Retail revenue declined 3.0% to $86.2 million and operating income fell to $12.6 million. Flooring revenue was nearly flat at $130.9 million, but operating income declined to $14.2 million. Steel revenue rose 23.0% to $60.6 million and operating income increased to $8.9 million, benefiting from price increases, efficiency improvements, and the Kinetic acquisition. Corporate and other revenue rose to $9.3 million, while its operating loss widened to $9.7 million.
- Cash flow and investment: Cash from operations was $14.6 million, down from $29.2 million, with management citing inventory purchases and timing of tax and supplier payments. Investing used $40.0 million, mainly for acquisitions and capital expenditures; financing provided $25.4 million. Cash and restricted cash ended the year at $4.6 million.
- Liquidity and debt: Working capital was $78.4 million, versus $33.8 million. The company reported $26.4 million available under revolving facilities. Total indebtedness was approximately $86.3 million, including $4.0 million of related-party notes; about $51.0 million of borrowings were floating-rate. It reported compliance with debt covenants at year-end. Balance-sheet lease liabilities were approximately $58.0 million; contractual lease payments are larger because they include future interest.
- Margins and costs: Cost of revenue rose to 65.9% of revenue from 63.6%, with management citing inflationary product and raw-material costs. Interest expense declined to $4.2 million from $5.2 million.
Material changes and notable items
- Acquired Kinetic in June 2022 for a combined purchase price of approximately $25.0 million, funded with borrowings, sale-leaseback proceeds, seller financing, and cash. Kinetic contributed to steel-segment growth.
- Acquired Better Backers assets and intellectual property in July 2022 for approximately $3.2 million; the acquisition also involved two long-term building leases.
- ApplianceSmart’s reorganization plan was approved in February 2022. Debt discharges generated an approximately $11.4 million gain; the company ceased operating its remaining location in April and is winding down.
- SW Financial recorded a $4.9 million impairment: $3.7 million of goodwill and approximately $1.2 million of customer-relationship and trade-name intangibles. Management attributed the goodwill impairment to financial-market downturns and lower revenue. The company withdrew its application for FINRA change-of-control approval and is assessing strategic options.
- Series B preferred shares converted into approximately 1.58 million common shares in March 2022. Issued and outstanding common shares increased from approximately 1.58 million to 3.07 million during the year; the company also repurchased $2.7 million of common stock.
Outlook, risks, and contingencies
- Management believes cash, operating cash generation, and available revolver capacity will fund operations and scheduled payments for at least the next 12 months. It provided no specific financial guidance. It expects directory-services revenue and operating income to continue declining and is no longer accepting new customers in that business.
- Key risks include substantial debt and variable interest rates, inflation and supply-chain constraints, cyclical retail/flooring/steel demand, customer and supplier dependencies, acquisition integration, and access to financing. Management may seek additional debt or equity capital for acquisitions or other needs, which could dilute existing shareholders.
- The SEC’s civil complaint alleging securities-law and reporting violations remained pending; the court denied motions to dismiss in September 2022. The company disputes the allegations. The filing does not state a clear estimate of potential financial exposure or outcome.
- Related-party matters include notes payable to entities associated with the CEO and a 20-year Better Backers property lease with an entity whose sole member is the CEO. The filing says lease rents were determined to be at market rates. The CEO and an affiliated entity controlled approximately 50.2% of voting power on an as-converted/as-exercised basis.
- The financial statements received an unqualified audit opinion. Management reported disclosure controls and internal control over financial reporting were effective at year-end and said previously identified material weaknesses were remediated. The auditor was not engaged to attest to internal control effectiveness.
Most important facts for investors to verify
- Whether operating cash flow and margins recover as inventory levels, input costs, and customer demand change.
- Debt maturities, borrowing-base availability, covenant headroom, and sensitivity to higher floating rates, particularly with substantial debt due in 2023 and 2027.
- Kinetic and Better Backers post-acquisition performance, integration costs, purchase-price assumptions, and obligations under long-term leases.
- Developments and any eventual financial consequences of the SEC litigation, and the outlook for SW Financial after its impairment and withdrawal of its FINRA application.
- Effects of the preferred-share conversion, repurchases, concentrated voting control, and related-party financing and lease arrangements on common shareholders.