Live Ventures Incorporated — Form 10-Q
Reporting period: Fiscal second quarter and six months ended March 31, 2021. Unaudited figures are in millions of dollars except per-share amounts. Live Ventures operates Retail, Flooring Manufacturing and Steel Manufacturing businesses.
Financial performance
| Metric | Three months ended March 31, 2021 | Prior year | Six months ended March 31, 2021 | Prior year |
|---|---|---|---|---|
| Revenue | $70.9 | $46.4 | $133.3 | $88.4 |
| Gross profit | $26.5 | $17.8 | $48.8 | $34.4 |
| Gross margin | 37.4% | 38.3% | 36.6% | 38.9% |
| Operating income | $11.1 | $3.1 | $18.4 | $6.6 |
| Net income | $8.7 | $1.9 | $14.0 | $2.9 |
| Diluted EPS | $2.66 | $0.54 | $4.34 | $0.82 |
Quarterly revenue rose 53%; six-month revenue rose 51%. Operating margins improved to 15.7% for the quarter and 13.8% for the half-year, from 6.6% and 7.4%. Despite higher gross profit, gross margin declined in both comparisons. The reported earnings include $1.4 million from forgiveness of Precision’s PPP loan and $1.1 million from a bankruptcy-related payable discharge; these items contributed to net income.
Segment growth reflected both acquisitions and operating trends. In the quarter, Retail revenue increased 26%, Flooring Manufacturing increased 21%, and Steel Manufacturing contributed $13.8 million following the July 2020 Precision Marshall acquisition. Management attributed higher Vintage Stock sales partly to gaming-system launches and home-entertainment demand, and flooring growth to new products and residential demand. Steel demand benefited from distributors replenishing inventory amid stronger automotive demand. ApplianceSmart revenue continued to fall; it operates one store while in Chapter 11.
Cash, liquidity and debt
- Cash was $11.9 million at March 31, versus $9.0 million at September 30, 2020. Six-month operating cash flow was $20.9 million, compared with $6.6 million a year earlier; investing cash outflow was $5.5 million, primarily capital expenditures, and financing cash outflow was $12.5 million.
- Working capital was $41.9 million. Management said cash, operating cash generation and borrowing availability should fund operations and scheduled obligations for at least 12 months. It reported $38.3 million of available revolver capacity, including the undrawn ICG line.
- Debt carrying value was approximately $66.9 million, including $4.0 million of related-party notes. The balance sheet separately reports $52.979 million of long-term debt, $9.878 million current debt and $4.0 million of long-term related-party notes. Debt declined from September 2020; the Comvest loan was repaid in January.
- The company reported compliance with debt covenants except those relating to the Crossroads Revolver. The filing does not clearly explain the scope or consequences of that exception. Capital spending was $5.5 million; the company also repurchased $0.4 million of treasury stock during the half-year.
Outlook, risks and notable matters
- No quantified financial guidance was provided. Management expects revenue and operating income from the legacy directory-services business to continue declining and says it is no longer accepting new customers.
- COVID-19 effects remain uncertain, including potential impacts on supply chains, store traffic, consumer demand, revenue, earnings and cash flow. Management noted Vintage Stock stores had reopened by June 2020.
- ApplianceSmart remains in Chapter 11. Its March 31 debtor-in-possession liabilities were $11.8 million against $0.2 million of debtor-in-possession assets; certain claims and proceedings are stayed or subject to bankruptcy resolution. The filing also describes other litigation and contingencies.
- The SEC investigation remains significant: the company and three executives received Wells Notices, which state SEC staff preliminarily intended to recommend enforcement action. A Wells Notice is not a formal charge or final determination; the company says it intends to defend itself.
- Management concluded disclosure controls and internal control over financial reporting were ineffective, citing material weaknesses in written control documentation and subsidiary-level evaluation procedures. It planned remediation during fiscal 2021. The filing states the auditor did not attest to internal control.
- Series B preferred shares are convertible into common stock, and diluted weighted-average shares substantially exceeded basic shares. The company reported 1,555,175 common shares outstanding at May 13, 2021.
Investor verification priorities
- Assess the durability of revenue and margin gains, separating organic growth from acquisitions, pandemic-related demand and one-time gains.
- Confirm the Crossroads covenant status, remaining borrowing availability and debt repayment and maturity requirements.
- Track ApplianceSmart’s Chapter 11 outcome, related claims and any effects on the parent or other subsidiaries.
- Monitor the SEC investigation, potential enforcement action and remediation of reported control weaknesses.
- Evaluate potential dilution from convertible preferred stock, options and other equity-linked instruments.