LIVE Ventures Incorporated — Form 10-Q Summary
Reporting period: Fiscal first quarter ended December 31, 2018; comparative period is the three months ended December 31, 2017. Live Ventures is a holding company with Manufacturing, Retail and Online, and Services segments.
Financial performance and liquidity
- Revenue: $53.20 million, up 31.8% year over year. Growth primarily reflected the inclusion of ApplianceSmart, acquired at the end of December 2017, and higher flooring sales.
- Profitability: Gross profit was $19.34 million, up 17.9%, but gross margin narrowed to 36.4% from 40.6%. Operating income fell 46.7% to $2.09 million; operating margin declined to 3.9% from 9.7%. Net income decreased 18.5% to $1.53 million. Basic and diluted EPS were $0.79 and $0.41, respectively, versus $0.95 and $0.50.
- Cash flow: Operating activities provided $8.25 million, versus $6.30 million. Investing activities provided $3.84 million, mainly reflecting asset-sale proceeds; financing activities used $10.62 million, including debt repayments. Cash increased $1.46 million to $3.45 million.
- Balance sheet and liquidity: Current assets were $60.30 million and current liabilities $30.32 million at December 31. Total assets were $131.81 million; total liabilities were $90.80 million. Net long-term debt, including its current portion, was $62.26 million, plus $5.82 million of related-party notes. Management said cash, operating cash generation and revolver availability were expected to fund operations and scheduled needs for at least 12 months.
- Revolver availability: Additional availability was $12.62 million on Marquis’s Bank of America facility and $1.08 million on Vintage Stock’s Texas Capital facility. The company reported compliance with loan covenants at quarter-end.
Changes versus the prior year
- Retail and Online revenue rose 43.9% to $30.65 million, with ApplianceSmart contributing significant sales; the segment recorded an operating loss of $0.24 million, compared with $2.23 million of operating income.
- Manufacturing revenue increased 18.6% to $22.38 million, and operating income rose 44.5% to $2.17 million. Services revenue fell 14.0% to $0.17 million; management expects that segment to continue declining and is no longer accepting new directory-services customers.
- Operating expenses increased, including sales and marketing expense, which more than doubled. Management attributed much of the increase in general and administrative and marketing costs to ApplianceSmart.
- Net interest expense declined 33.0% to $1.65 million, which management attributed primarily to debt reduction and refinancing. Other income included an approximately $1.51 million gain related to the sale of Marquis’s synthetic-turf extrusion lines. The prior-year quarter included a $3.77 million bargain-purchase gain on ApplianceSmart’s acquisition.
- The prior-year tax provision included an approximately $2.3 million expense related to the federal corporate tax-rate change. The reported effective tax rates were 27.3% this quarter and 64.6% in the prior-year quarter.
Outlook, risks and unusual items
- No numerical revenue or earnings guidance is provided. Management’s liquidity outlook is based on current operating plans and is subject to operating performance, credit-facility limits and market conditions.
- On December 21, 2018, Marquis sold two synthetic-turf extrusion lines. The transaction included cash consideration and inventory-related amounts, with additional contingent payments tied to nylon sales over the following 36 months.
- Vintage Stock’s credit agreement includes leverage, EBITDA, fixed-charge coverage and capital-expenditure requirements. Its revolver had only $1.08 million of additional availability at quarter-end; the company stated it was in compliance with covenants.
- Related-party financing includes a $2.0 million note bearing 12.5% interest and a $3.82 million ApplianceSmart seller note bearing 5%. The seller note was amended in December 2018 to grant security interests and make principal and accrued interest due at maturity in April 2021.
- The company disclosed an ongoing SEC investigation concerning, among other matters, prior-period restatements, acquisitions and a change in auditors, and a separate SEC inquiry regarding the timing of a Form 8-K. The company said it is cooperating. Management did not expect pending litigation to materially affect the company, based on information then available.
- Management reported effective disclosure controls and internal control over financial reporting as of December 31, 2018, while noting that controls provide reasonable, not absolute, assurance.
Important facts for investors to verify
- Whether ApplianceSmart can improve segment profitability after its contribution to revenue growth but reported Retail and Online operating loss.
- Vintage Stock’s compliance with tightening debt covenants and its limited remaining revolver availability.
- The company’s ability to meet debt maturities, including $8.36 million scheduled for 2019 and $15.05 million for 2020, excluding separately stated related-party debt.
- Developments and potential consequences of the SEC investigation and separate inquiry.
- The final accounting and cash economics of the synthetic-turf asset sale; the filing cites slightly different gain amounts in different sections.