Live Ventures Incorporated — Form 10-Q Summary
Reporting period: Fiscal third quarter and nine months ended June 30, 2021; filed August 16, 2021. Unless stated otherwise, financial amounts are in thousands of dollars. The company operates Retail, Flooring Manufacturing, and Steel Manufacturing businesses.
Financial performance
| Metric | Three months ended June 30, 2021 | Three months ended June 30, 2020 | Nine months ended June 30, 2021 | Nine months ended June 30, 2020 |
|---|---|---|---|---|
| Revenue | $69,095 | $42,472 | $202,439 | $130,904 |
| Gross profit / margin | $25,066 / 36.3% | $16,713 / 39.4% | $73,825 / 36.5% | $51,115 / 39.0% |
| Operating income / margin | $8,232 / 11.9% | $5,990 / 14.1% | $26,648 / 13.2% | $12,545 / 9.6% |
| Net income | $9,933 | $3,585 | $23,907 | $6,451 |
| Diluted earnings per share | $3.01 | $1.07 | $7.31 | $1.87 |
| Cash from operating activities | Not separately reported for the quarter | $32,199 | $18,075 |
Quarterly revenue rose 63% and nine-month revenue rose 55%. Growth reflected higher Vintage Stock demand, flooring sales and the inclusion of Precision Marshall, acquired in July 2020. Gross margin declined in both comparisons. Operating income increased, but reported net income also benefited from nonrecurring PPP loan-forgiveness and bankruptcy-settlement gains.
For the quarter, the company recorded $4,768 of PPP forgiveness gain and $650 of bankruptcy-settlement gain; for nine months, the respective gains were $6,150 and $1,765. These items materially contributed to earnings growth and should be distinguished from operating performance.
Liquidity, debt and cash flow
- Cash was $10,565 at June 30, 2021, versus $8,984 at September 30, 2020. Working capital was $36,794, down from $38,566.
- Nine-month investing cash use was $14,470, mainly capital expenditures of $8,470 and a $6,000 investment in SW Financial. Financing cash use was $16,148, including debt repayments and treasury-stock purchases. Cash increased $1,581 over the period.
- The filing reports $37,707 of available borrowing under revolvers, including the undrawn $1,000 ICG line; management believes cash, operating cash generation and available credit will fund operations and scheduled obligations for at least 12 months.
- Debt decreased from $80,673 net of issuance costs at September 30, 2020 to $56,944 at June 30, 2021, according to the debt note. The company reported compliance with loan covenants except covenants relating to the Crossroads facility, which it says was repaid and terminated in May 2021.
Material changes, outlook and risks
- Segments: Nine-month revenue was $68,092 Retail, $97,428 Flooring Manufacturing, and $36,546 Steel Manufacturing. Retail and flooring benefited from consumer demand and new products; steel benefited from distributor restocking and automotive demand. Management said higher steel input costs had been passed through, while hiring qualified hourly workers had been challenging.
- SW Financial: In June, the company invested $6,000 and acquired 24.9% of the broker-dealer. The remaining 75.1% purchase, for a stated total transaction price of approximately $7,000, remained subject to customary conditions including FINRA approval.
- ApplianceSmart: The subsidiary remained in Chapter 11 as a debtor-in-possession. Its nine-month revenue was $876; the filing reports $11,208 of debtor-in-possession liabilities. Several creditor matters remain stayed in bankruptcy proceedings.
- Legal exposure: After quarter-end, the SEC filed a civil complaint against the company and two executives alleging financial reporting, disclosure, stock-promotion/trading and compensation violations. The SEC seeks injunctions, officer-and-director bars, disgorgement and penalties. The company denies the allegations and intends to defend itself. A securities class action was filed August 13, 2021; defendants also deny those allegations.
- Controls: Management concluded disclosure controls and internal control over financial reporting were ineffective, citing material weaknesses in written control documentation and subsidiary-level evaluation and testing. Remediation was planned, but completion was not assured.
- Other risks and outlook: Management provided no specific numerical earnings or revenue guidance. It expects directory-services revenue and operating income to continue declining and is no longer accepting new customers in that business. The filing identifies ongoing COVID-19 uncertainty, potential supply-chain, store-traffic and consumer-demand effects, and the possibility of additional financing needs and dilution.
Important facts for investors to verify
- Reconcile the debt disclosure: the balance sheet lists long-term debt of $44,844, while the debt note lists $48,844; the note’s $56,944 net debt total does not agree with the balance-sheet current and long-term amounts.
- Track the SEC complaint and shareholder litigation, including potential financial, management, reputational and trading consequences.
- Assess progress in remediating the disclosed material weaknesses and whether control effectiveness is subsequently re-evaluated.
- Confirm FINRA approval and final closing terms for SW Financial, and review the investment’s subsequent performance.
- Monitor ApplianceSmart’s Chapter 11 proceedings, creditor claims and any effect on the parent company.
- Separate recurring operating results from PPP forgiveness and bankruptcy-settlement gains when evaluating earnings quality.