Live Ventures Incorporated — Form 10-Q Summary
Reporting period: Fiscal first quarter, three months ended December 31, 2023. Comparative income and cash-flow figures are for the three months ended December 31, 2022. Unless noted, amounts are in millions of dollars. Live Ventures is a diversified holding company with retail, flooring manufacturing, and steel manufacturing businesses.
Financial performance
| Metric | Q1 FY2024 | Q1 FY2023 |
|---|---|---|
| Revenue | $117.6 | $69.0 |
| Gross profit / margin | $36.3 / 30.9% | $21.9 / 31.8% |
| Operating income | $3.5 | $4.6 |
| Interest expense, net | $4.2 | $2.0 |
| Net income (loss) | $(0.7) | $1.8 |
| Basic and diluted EPS | $(0.22) | $0.60 |
| Adjusted EBITDA (non-GAAP) | $8.7 | $7.5 |
| Operating cash flow | $7.9 | $6.3 |
Revenue rose 70.5%, primarily because Flooring Liquidators and PMW were acquired after the prior-year quarter, with additional contribution from flooring manufacturing. Gross margin declined as PMW’s lower-margin business and reduced steel production weighed on results. Operating expenses increased substantially, including general and administrative expense of $27.7 million versus $14.6 million and sales and marketing expense of $5.1 million versus $2.8 million. Higher interest expense, attributed mainly to acquisition-related debt and higher rates, contributed to the swing to a net loss. Adjusted EBITDA is a company-defined non-GAAP measure and increased 15.3%; the filing attributes the increase primarily to higher non-operating and other nonrecurring expenses, partly offset by lower operating income.
Segments and notable changes
- Retail-Entertainment: Revenue was $20.6 million, down 11.5%; operating income was $3.1 million versus $3.7 million. Management cited weaker consumer demand and a shift toward used products; that mix increased reported gross margin to 56.0% from 52.5%.
- Retail-Flooring: Revenue was $34.3 million and operating income was $0.1 million. The segment was not present in the comparative quarter because Flooring Liquidators was acquired in January 2023. During this quarter it acquired CRO; CRO also acquired Johnson.
- Flooring Manufacturing: Revenue increased 10.6% to $29.2 million; operating income increased to $0.9 million from $0.8 million. Management linked growth and improved gross margin to the Harris Flooring Group brands and expanded sales force.
- Steel Manufacturing: Revenue increased 85.5% to $33.4 million, substantially reflecting Kinetic and PMW. Operating income declined to $1.0 million from $1.5 million, and gross margin fell to 15.8% from 24.4%, attributed to PMW’s lower margins, reduced production, and weaker demand in other steel operations.
- Corporate and Other: Operating loss was $1.6 million versus $1.3 million; revenue declined following the closure of SW Financial.
Cash, liquidity, and debt
- Cash was $5.6 million at December 31, 2023, up from $4.3 million at September 30, 2023. Working capital was $81.8 million, down from $85.0 million.
- Operating cash flow of $7.9 million was offset by $3.2 million of investing outflows, including $1.0 million for CRO, $0.5 million for Johnson, and $1.7 million of property and equipment purchases. Financing activities used $3.4 million.
- Management reported approximately $39.4 million available under revolving credit facilities and said cash, operating cash generation, and revolver availability were expected to cover operations, scheduled debt payments, potential share repurchases, and declared preferred dividends for at least 12 months. This is management’s assessment, not a guarantee.
- Reported long-term debt, net of issuance costs, was $99.6 million, including $21.2 million current. Related-party notes were $10.9 million net, of which $4.0 million was current; related-party seller notes were $39.7 million, with no current portion reported. These amounts exclude lease liabilities. Operating and finance lease liabilities totaled approximately $104.4 million, including current portions.
- Interest paid was $3.3 million. Debt includes variable-rate facilities and near-term maturities, including the Bank Midwest revolver maturing October 2024 and certain related-party notes maturing in 2024. The company stated it was in compliance with loan covenants at quarter-end.
Outlook, risks, and unusual items
- The filing provides no specific revenue, earnings, or margin guidance. Management’s stated liquidity outlook covers at least the next 12 months, subject to operating performance, borrowing availability, obligations, and market conditions. The company may seek additional debt or equity financing for acquisitions, refinancing, or investments; equity issuance could dilute shareholders.
- Acquisitions expanded the business and materially affect year-over-year comparability. CRO’s purchase consideration was approximately $1.8 million; Johnson’s was approximately $2.0 million, including deferred consideration and an earnout. Purchase accounting remains based on preliminary fair-value estimates in certain respects.
- Material litigation includes the SEC enforcement action concerning alleged historical reporting, disclosure, and other securities-law violations; the company and named executives deny the allegations and intend to defend themselves. Fact discovery was scheduled through May 20, 2024. A related securities class action had a motion to dismiss pending, with discovery stayed. The company also disclosed a seller holdback dispute with a counterclaim alleging fraud and damages exceeding $4.5 million, and a California wage-and-hour class action for which the company said potential losses could not yet be estimated.
- Management reported disclosure controls and internal control over financial reporting were effective as of December 31, 2023, and no material control changes occurred during the quarter. The filing reported no new risk factors in this 10-Q.
Important facts for investors to verify
- Whether acquired businesses can sustain revenue and improve profitability, particularly Retail-Flooring’s low reported operating income and Steel Manufacturing’s margin decline.
- Liquidity and refinancing capacity, including actual revolver availability, covenant headroom, variable interest costs, and near-term debt maturities.
- Progress and potential financial exposure in the SEC case, securities class action, holdback dispute, and wage-and-hour matter.
- Final purchase-price allocations and earnout or deferred-payment obligations for recent acquisitions, and the assumptions underlying goodwill and intangible-asset valuations.
- The reconciliation and nature of Adjusted EBITDA add-backs, and whether cash generation supports debt service, acquisitions, repurchases, and preferred dividends.