Live Ventures Incorporated — FY2020 Form 10-K
Reporting period: Fiscal year ended September 30, 2020. Unless otherwise stated, financial amounts below are in thousands of U.S. dollars. The company is a diversified holding company operating retail, flooring manufacturing, and steel manufacturing businesses. Its audited consolidated financial statements received an unqualified audit opinion; the auditor did not attest to internal control effectiveness.
Financial performance and liquidity
| Metric | FY2020 | FY2019 |
|---|---|---|
| Revenue | $191,720 | $193,288 |
| Gross profit / margin | $75,317 / 39.3% | $70,873 / 36.7% |
| Operating income / margin | $20,422 / 10.7% | $3,256 / 1.7% |
| Net income (loss) | $10,659 | ($4,012) |
| Net income (loss) attributable to Live stockholders | $10,927 | ($4,012) |
| Basic / diluted EPS | $6.40 / $3.09 | ($2.11) / ($2.11) |
| Operating cash flow | $28,791 | $19,053 |
| Cash at year-end | $8,984 | $2,681 |
- Revenue was nearly flat, down $1,568 (about 0.8%). Cost of revenue fell 4.9%, while general and administrative expense declined 17.6% and sales and marketing expense declined 23.3%.
- Year-end current assets were $95,928 and current liabilities were $57,362, with reported working capital of $38,566. Management reported a further $28,673 available under revolving facilities.
- Total consolidated indebtedness was reported as $85,266, including $77,143 of notes payable and $8,123 of related-party notes payable. The debt schedule shows $11,986 of notes payable due within one year; operating lease liabilities were $37,269 on a present-value basis.
- Cash flow from investing was a use of $8,776, including acquisition and equipment spending. Financing activities used $13,712, including $12,709 of note repayments and $1,660 of common-stock repurchases.
Business mix and changes versus prior year
- Flooring manufacturing generated $109,642 of revenue, up 19.2%, and operating income rose to $16,082 from $11,735. Growth reflected new products and the January 2020 acquisition of Lonesome Oak.
- Retail revenue fell to $73,563 from $100,701, primarily reflecting ApplianceSmart store closures. Segment operating income improved to $8,737 from a $9,074 loss, aided by lower costs and closures. Vintage Stock revenue declined, which the filing attributes partly to fewer new video games and movie releases.
- Steel manufacturing contributed $7,962 of revenue and $172 of operating income for the period after Precision Marshall was acquired on July 14, 2020.
- Precision Marshall was acquired in July for cash consideration described in the filing as approximately $31.5 million, subject to adjustments and holdbacks. The acquisition produced a $1,507 bargain purchase gain. Lonesome Oak’s stated purchase price was $2 million plus assumed debt; its acquisition accounting reports $13,879 of debt assumed.
- ApplianceSmart, then operating one Ohio store, filed for Chapter 11 protection in December 2019. Its debtor-in-possession balance sheet at September 30, 2020 showed $520 of assets and $12,228 of liabilities subject to compromise.
Outlook, risks, contingencies and unusual items
- Management stated that cash, operating cash flow and available asset-based revolving credit were expected to fund operations and scheduled payments for at least 12 months. This is management’s assessment, not earnings guidance; no quantified revenue or profit forecast is provided.
- COVID-19 materially disrupted operations: Vintage Stock stores were closed for an average of 45 days during the fiscal year; all locations had reopened by June 30, subject to government requirements. Marquis used rolling layoffs in March and April. Further effects on demand, operations, liquidity and cash flow remained uncertain.
- The company reported a $307 net gain on lease settlements and the $1,507 Precision bargain purchase gain. FY2019 included $3,222 of impairment charges, compared with $525 in FY2020. FY2020 income tax expense was $4,957, including substantial deferred tax expense.
- The company disclosed a Crossroads Revolver covenant exception. It also received SEC Wells Notices: three executives received notices in August 2020 and the company received one in October 2020. SEC staff indicated a preliminary recommendation for enforcement action; a Wells Notice is not a formal charge or finding. The company said it intended to defend itself.
- Management concluded disclosure controls and internal control over financial reporting were ineffective at year-end and identified material weaknesses, including insufficient written control documentation and inadequate evaluation of controls across subsidiaries. Remediation was planned during FY2021.
- Additional risks include high debt and restrictive covenants, variable-rate borrowing, ApplianceSmart’s bankruptcy and litigation, acquisition integration, supplier and raw-material availability, cyclical flooring and steel markets, and labor agreements at Precision Marshall scheduled to expire in December 2020 and April 2021.
- Management reported no common-stock dividend plan for the foreseeable future. The company repurchased $1,660 of common stock during FY2020. After year-end, Marquis bought a previously leased manufacturing facility for $2,500, financed in part by a $2,000 seller loan.
Important facts for investors to verify
- Current covenant status, borrowing-base availability and near-term debt maturities, particularly the disclosed Crossroads covenant exception.
- ApplianceSmart’s Chapter 11 outcome, creditor claims, liquidity needs and potential effect on the parent company.
- Developments in the SEC investigation and any resulting enforcement action, costs or disclosures.
- Progress remediating material weaknesses and whether subsequent filings demonstrate effective financial-reporting controls.
- PPP loan forgiveness: the company reported applications for forgiveness after year-end, but stated that forgiveness was not assured.
- Acquisition performance and debt assumptions for Lonesome Oak and Precision Marshall, and the sustainability of improved operating margins and cash generation.