Live Ventures Incorporated — Form 10-Q Summary
Reporting period: Fiscal third quarter and nine months ended June 30, 2023. Amounts are in U.S. dollars; financial statement amounts are in thousands unless noted. Live Ventures is a diversified holding company operating in retail entertainment, retail flooring, flooring manufacturing, steel manufacturing, and corporate and other activities.
Key Financial Results
| Metric | Three months ended June 30, 2023 | Prior-year quarter | Nine months ended June 30, 2023 | Prior-year period |
|---|---|---|---|---|
| Revenue | $91.5 million | $68.3 million | $251.6 million | $213.1 million |
| Gross profit / margin | $32.2 million / 35.2% | $22.3 million / 32.7% | $85.7 million / 34.1% | $74.9 million / 35.2% |
| Operating income / margin | $5.6 million / 6.1% | $5.9 million / 8.6% | $15.1 million / 6.0% | $24.7 million / 11.6% |
| Net income | $1.1 million | $3.5 million | $4.5 million | $25.4 million |
| Diluted EPS | $0.33 | $1.11 | $1.42 | $8.01 |
| Adjusted EBITDA (non-GAAP) | $9.6 million | $8.8 million | $26.3 million | $31.2 million |
- Quarterly revenue rose 34.1%; nine-month revenue rose 18.1%. Management attributed growth mainly to Flooring Liquidators, acquired in January 2023, and Kinetic, acquired in June 2022. Other businesses experienced lower revenue, which management attributed largely to weaker demand and inflationary pressures.
- Quarterly gross margin improved, but operating income and net income declined. For the nine-month period, net income fell substantially; the prior-year period included an $11.4 million bankruptcy-settlement gain, while current-period results also reflected higher expenses and interest costs.
- Nine-month interest expense was $8.8 million, versus $2.5 million a year earlier. Management cited acquisition-related borrowing and higher interest rates.
- Quarterly Adjusted EBITDA increased 8.3%, while nine-month Adjusted EBITDA declined 15.7%. These are company-defined non-GAAP measures and should be considered alongside GAAP results.
Cash, Debt and Liquidity
- At June 30, 2023, cash was $3.5 million; working capital was $81.6 million, compared with $78.4 million at September 30, 2022. The company reported approximately $28.8 million available under revolving credit facilities.
- Nine-month operating cash flow was $26.0 million, investing cash outflow was $38.7 million, and financing cash inflow was $11.7 million. Cash declined $1.1 million from fiscal year-end.
- Long-term debt, net of issuance costs, was $88.2 million, including $23.7 million current. Related-party notes totaled $48.0 million gross, or $45.8 million net of issuance costs, including $1.0 million current. Operating and finance lease liabilities totaled approximately $70.5 million.
- The company said it was compliant with its loan covenants at June 30 and expected available cash, operating cash flows, and revolver availability to support operations and scheduled obligations for at least 12 months. This is management’s assessment, not a guarantee.
Material Changes, Outlook and Risks
- Acquisitions: Flooring Liquidators was acquired in January 2023 for stated purchase-price components of $83.8 million, with preliminary fair-value consideration of $78.7 million; the transaction included substantial seller and related-party financing. Cal Coast Carpets assets were acquired for approximately $1.3 million in June. After quarter-end, on July 20, the company acquired Precision Metal Works for approximately $28 million, including potential earn-out consideration of up to $3 million, funded in part with borrowing and a seller note.
- Operating trends: Management cited reduced demand in retail entertainment and flooring manufacturing, inflationary pressures, and continued declines in the legacy directory-services business. The company is no longer accepting new directory-services customers and expects that business’s revenue and operating income to continue decreasing.
- Unusual items: The company received $2.0 million under a Salomon Whitney settlement and recorded a $1.7 million loss on deconsolidating SW Financial after shutting down its operations. The filing also reports significant acquisition-related financing and purchase-accounting estimates.
- Legal contingencies: The SEC’s civil case against the company and executives continued after unsuccessful mediation in June 2023 and was proceeding through discovery. A related securities class action had a motion to dismiss pending. Other disclosed matters include wage-and-hour and consumer-protection putative class actions and a seller holdback dispute; the company said potential losses for some matters could not yet be estimated.
- Governance and controls: The company disclosed extensive related-party dealings, including loans from entities associated with its CEO and leases with a CEO-controlled entity. Management concluded internal control over financial reporting was operating effectively as of June 30, 2023. The filing states “Risk Factors: None,” while also describing the litigation and business risks above.
- No specific earnings or revenue guidance was provided. Management’s stated outlook is to continue pursuing acquisitions and to rely on cash, operating cash generation, and borrowing availability for near-term liquidity.
Investor Verification Priorities
- Assess whether acquired businesses can sustain results and whether weaker demand and inflation are affecting legacy segments and margins.
- Review debt maturities, variable-rate exposure, borrowing-base availability, and the terms and repayment obligations of related-party and seller financing.
- Track cash conversion and acquisition funding needs, including the post-quarter Precision Metal Works acquisition and related sale-leaseback financing.
- Review developments and potential financial exposure from the SEC action, securities class action, and other pending litigation; some possible losses are not estimable in the filing.
- Examine related-party transaction terms and governance oversight, as well as purchase-price allocation and goodwill assumptions for recent acquisitions.