Live Ventures Incorporated — Form 10-Q Summary
Business context and reporting period. Live Ventures is a diversified holding company with Retail (Vintage Stock and ApplianceSmart), Flooring Manufacturing (Marquis), Steel Manufacturing (Precision Marshall), and Corporate and Other operations. This fiscal second-quarter filing covers the three and six months ended March 31, 2022; financial amounts below are in millions of dollars unless otherwise stated. The quarter is not necessarily indicative of full-year results.
Financial performance
| Metric | Three months ended Mar. 31, 2022 | Year-over-year | Six months ended Mar. 31, 2022 | Year-over-year |
|---|---|---|---|---|
| Revenue | $69.7 | Down 1.7% | $144.9 | Up 8.6% |
| Gross profit / margin | $25.0 / 35.8% | $26.5 / 37.4% | $52.6 / 36.3% | $48.8 / 36.6% |
| Operating income / margin | $8.4 / 12.1% | $11.1 / 15.7% | $18.9 / 13.0% | $18.4 / 13.8% |
| Net income | $15.4 | $8.7 | $21.9 | $14.0 |
| Adjusted EBITDA | $10.3 | Down 23% | $22.4 | Down 4% |
Second-quarter net income included an $11.4 million gain from ApplianceSmart’s bankruptcy reorganization; it therefore substantially exceeded operating income. Net interest expense declined to $0.9 million for the quarter and $1.9 million for the six-month period, aided by debt repayment and Precision Marshall’s refinancing. Six-month diluted EPS was $6.87 versus $4.34; quarterly diluted EPS was $4.84 versus $2.66. Per-share comparisons were affected by the conversion of Series B preferred stock into common shares.
Segments and material period changes
- Retail: Second-quarter revenue fell 14% to $20.7 million and operating income declined to $3.1 million from $5.1 million. Management cited weaker Vintage Stock discretionary spending versus the stimulus-supported prior-year quarter and continued ApplianceSmart competition. Six-month revenue was up 1%, but operating income fell to $7.9 million from $9.6 million.
- Flooring Manufacturing: Second-quarter revenue was nearly flat at $32.8 million, while operating income fell to $3.9 million from $6.0 million, reflecting raw-material costs and higher sales and marketing expense. Six-month revenue rose 4% to $65.6 million, but operating income declined to $8.5 million from $10.2 million.
- Steel Manufacturing: Second-quarter revenue increased 2% to $14.0 million and operating income increased to $2.7 million from $1.7 million. Six-month revenue rose 12% to $26.4 million and operating income to $4.4 million from $1.9 million, reflecting pricing and improved manufacturing efficiencies.
- Corporate and Other: Six-month revenue rose to $5.9 million from $0.2 million, primarily because SW Financial was consolidated in fiscal 2021. Directory-services revenue and operating income continue to decline; the company is no longer accepting new customers in that business.
Cash flow, debt and liquidity
- Cash was $6.2 million at March 31, 2022, compared with $4.7 million at September 30, 2021. Working capital was approximately $53.0 million, up from $33.8 million.
- Six-month operating cash flow was $5.3 million, down from $20.9 million. Inventory purchases used $8.7 million of cash; lower accrued liabilities also reduced cash generation. Capital expenditures were $7.5 million, versus $5.5 million a year earlier.
- Financing activities provided $3.8 million, including $9.0 million of note proceeds and $4.9 million of net revolver borrowings; debt payments and $2.1 million of share repurchases were uses of cash.
- Long-term debt, net of issuance costs, was $59.4 million, plus $4.0 million of related-party notes. Operating lease liabilities totaled $34.5 million. The company reported $31.8 million of available borrowing under revolving facilities and stated it was compliant with loan covenants.
- Precision Marshall refinanced its credit facility with Fifth Third Bank in January 2022. The company said the refinancing lowered interest costs and increased available liquidity by approximately $3.0 million at closing.
Outlook, risks and unusual items
- Management said available cash, operating cash flow and revolver capacity are expected to support operations, scheduled debt payments, potential share repurchases and declared Series E dividends for at least the next 12 months. No specific earnings or revenue guidance was provided.
- ApplianceSmart’s reorganization plan was approved February 28, 2022, resulting in the $11.4 million settlement gain. ApplianceSmart operated one store at March 31.
- The SEC’s civil action against the company and certain executives remains pending; motions to dismiss were under submission, and discovery was stayed. The company disputes the allegations and intends to defend itself.
- Disclosure controls and internal control over financial reporting were reported ineffective due to material weaknesses, including insufficient written control documentation, inadequate subsidiary-level evaluation procedures and limited resources for segregation of duties. Management planned remediation during fiscal 2022 but said completion timing was uncertain.
- Management described continuing uncertainty from COVID-19, including potential effects on supply chains, customer traffic, demand, revenue, liquidity and cash flows. Inflation and raw-material costs also affected results.
- The filing’s Item 1A reports no new risk factors; investors should also consider the risk factors in the company’s latest Form 10-K. The company stated that it identified no goodwill impairment-triggering events as of March 31.
Important facts for investors to verify
- How much of reported earnings and year-over-year net-income growth reflects the nonrecurring ApplianceSmart bankruptcy gain, rather than ongoing operations.
- Whether inventory levels, operating cash flow and capital spending improve, given cash flow from operations fell materially year over year.
- Debt maturities, borrowing availability and covenant compliance, including the refinancing terms and upcoming obligations.
- Progress and timing of remediation of material weaknesses in internal controls, and the status and potential consequences of the SEC litigation.
- Whether Retail and Flooring Manufacturing margins recover amid softer demand, competition, inflation and increased operating expenses.
- The effect of the Series B preferred conversion: 1,578,950 common shares were issued in March 2022, and reported common shares outstanding rose to 3,095,616 at March 31.