Live Ventures Incorporated — Form 10-Q Summary
Reporting period: Fiscal second quarter and first six months ended March 31, 2024, compared with the periods ended March 31, 2023. The company is a diversified holding company operating in retail entertainment, retail flooring, flooring manufacturing, steel manufacturing, and corporate and other. Amounts below are in millions unless otherwise noted.
Financial performance
| Metric | Three months 2024 | Three months 2023 | Six months 2024 | Six months 2023 |
|---|---|---|---|---|
| Revenue | $118.6 | $91.1 | $236.2 | $160.1 |
| Gross profit | $35.5 | $31.6 | $71.8 | $53.6 |
| Gross margin | 29.9% | 34.7% | 30.4% | 33.4% |
| Operating income (loss) | $(0.8) | $5.0 | $2.7 | $9.5 |
| Net income (loss) | $(3.3) | $1.6 | $(4.0) | $3.4 |
| Diluted EPS | $(1.04) | $0.49 | $(1.25) | $1.08 |
| Adjusted EBITDA | $4.5 | $9.2 | $13.2 | $16.7 |
For the quarter, revenue increased 30.2%; for six months, it increased 47.5%. Management attributed growth primarily to the Flooring Liquidators and PMW acquisitions, with additional flooring-manufacturing revenue. Acquisitions contributed approximately $29.6 million of quarterly growth and $81.4 million for six months. Lower revenue in existing businesses partly offset those contributions.
Margins and earnings weakened despite higher revenue. Cost of revenue rose to 70.1% of quarterly revenue and 69.6% for six months, versus 65.3% and 66.6%, respectively. Management cited PMW’s lower-margin profile and lower steel production and efficiency; higher-margin Harris Flooring Group sales partly offset these pressures. Higher operating expenses and interest also contributed. Net interest expense was $4.2 million for the quarter and $8.3 million for six months, up from $3.2 million and $5.3 million.
Six-month operating cash flow was $2.1 million, down from $14.2 million. Investing used $4.9 million, including CRO and Johnson acquisitions and capital expenditures; financing provided $3.0 million. Cash increased by $0.2 million to $4.5 million.
Balance sheet and liquidity
- At March 31, 2024, cash was $4.5 million, current assets $185.4 million, and current liabilities $106.4 million. Working capital was approximately $79.0 million, down from $85.0 million at September 30, 2023.
- Reported long-term debt, including its current portion and net of issuance costs, was $106.7 million. Related-party notes were $11.3 million net, and related-party seller notes were $40.4 million. These amounts exclude lease liabilities. The filing reports approximately $31.5 million available under revolving credit facilities.
- Operating and finance lease liabilities totaled approximately $103.5 million. The company reported compliance with its loan covenants at quarter-end.
- Management expects cash, operating cash generation, and available revolver capacity to fund operations and scheduled obligations for at least the next 12 months. This is management’s outlook, not a quantified earnings forecast.
Segments and material changes
- Retail-Entertainment: Quarterly revenue fell 12.2% to $16.8 million and operating income declined to $1.8 million. Management cited softer consumer demand; a greater mix of used products supported gross margin but lowered average ticket sales.
- Retail-Flooring: Quarterly revenue rose 54.2% to $32.0 million, reflecting acquisitions. The segment recorded a $3.0 million operating loss, versus a $0.2 million loss, which management attributed mainly to temporary integration inefficiencies at CRO and Johnson.
- Flooring Manufacturing: Quarterly revenue increased 12.7% to $34.2 million, with higher gross margin attributed partly to Harris Flooring Group brands. Operating income was $2.0 million, compared with $2.4 million.
- Steel Manufacturing: Quarterly revenue increased 78.2% to $35.5 million, principally from PMW. Gross margin fell to 14.3% from 28.4%, and operating income declined to $0.9 million from $2.8 million, reflecting PMW’s lower margins and weaker production efficiency and demand in the segment.
Adjusted EBITDA, a non-GAAP measure, declined 51.5% for the quarter and 21.4% for six months. It should not be treated as a substitute for GAAP earnings or operating cash flow. The six-month comparison also reflects a different acquisition base: Flooring Liquidators was acquired in January 2023 and PMW in July 2023.
Outlook, risks, and unusual items
- The filing provides no specific revenue or earnings guidance. Management describes continued acquisition activity as part of its strategy and says additional financing may be required for acquisitions, refinancing, or strategic investments. Further debt or equity financing could increase leverage or dilute shareholders.
- The company recognized approximately $0.6 million of second-quarter gain in connection with selling a JanOne-related promissory note; the deferred payment was subsequently received. The filing also reports acquisition costs and other non-recurring charges in its Adjusted EBITDA reconciliation.
- Material litigation includes the SEC enforcement action against the company and executives, which the defendants deny and are defending; a related securities class action with a motion to dismiss pending; a seller holdback dispute in which the company asserts counterclaims; and a California wage-and-hour class action. Outcomes and potential exposure are uncertain. Management states that it does not currently expect pending matters, individually or collectively, to materially adversely affect the company.
- Related-party financing is significant. The CEO beneficially owns 49.0% of the company through Isaac Capital Group, which is also a lender; other related parties and acquisition sellers hold notes. Review the terms, maturities, interest rates, guarantees, and governance oversight of these arrangements.
- Management concluded disclosure controls and internal control over financial reporting were effective as of March 31, 2024. The company reported no material changes in internal control during the six-month period.
Investor verification priorities
- Separate acquisition-driven revenue growth from comparable or organic performance, and assess whether CRO and Johnson integration inefficiencies resolve.
- Track gross margins, especially in steel, and determine whether lower demand and production efficiency continue to pressure earnings.
- Monitor operating cash conversion, revolver availability, debt maturities, interest expense, and the company’s ability to refinance or meet obligations.
- Review related-party notes and seller financing, including repayment schedules and the company’s exposure to the CEO-affiliated lender.
- Follow developments and potential exposure in the SEC case, securities class action, holdback dispute, and wage-and-hour matter.