Live Ventures Incorporated — Form 10-Q Summary
Reporting period: Quarter and six months ended March 31, 2023 (the company’s fiscal second quarter). Amounts are in U.S. dollars; financial statement amounts are generally in millions unless noted.
Business context
Live Ventures is a diversified holding company operating in retail entertainment, retail flooring, flooring manufacturing, steel manufacturing, and corporate and other activities. On January 18, 2023, it acquired Flooring Liquidators and related entities, adding a retail-flooring segment. The filing reports the acquisition was funded with cash, seller financing, related-party financing, and shares.
Financial performance and liquidity
- Revenue: Second-quarter revenue was $91.1 million, up 30.7% year over year; six-month revenue was $160.1 million, up 10.5%. The filing attributes growth mainly to the Flooring Liquidators and Kinetic acquisitions.
- Profit and margins: Second-quarter gross profit was $31.6 million (34.7% gross margin, versus 35.8%); operating income was $5.0 million, versus $8.4 million; net income was $1.6 million, versus $15.4 million. Six-month net income was $3.4 million, versus $21.9 million. Prior-year comparisons benefited from an approximately $11.4 million bankruptcy-settlement gain.
- Expenses and interest: Second-quarter general and administrative expense rose 71.9% to $22.6 million. Net interest expense increased to $3.2 million from $0.9 million for the quarter, reflecting higher debt balances and interest rates. Management cited inflationary cost increases.
- Adjusted EBITDA: Non-GAAP Adjusted EBITDA was $9.2 million for the quarter, down 10.4%, and $16.7 million for six months, down 25.2%. Consolidated Adjusted EBITDA margin was 10.1% for the quarter and 10.4% for six months.
- Cash flow: Six-month operating cash flow was $14.2 million, compared with $5.3 million a year earlier. Investing activities used $36.8 million, mainly for the Flooring Liquidators acquisition; financing activities provided $22.2 million. Cash declined to $4.2 million from $4.6 million at September 30, 2022.
- Liquidity and debt: Working capital was approximately $80.7 million. The company reported $21.7 million available under revolving credit facilities and said cash, operating cash generation, and available revolver capacity should fund operations and scheduled obligations for at least 12 months. Long-term debt, net of current maturities, was $97.8 million; related-party notes, net of issuance costs, were $45.7 million. Current maturities of non-related-party debt were $30.3 million. The company said it was in compliance with loan covenants.
- Balance sheet changes: Total assets increased to $365.4 million from $278.6 million, including goodwill of $69.5 million, substantially reflecting the acquisition. Total liabilities rose to $262.2 million from $181.5 million.
Material changes versus prior period
- Flooring Liquidators contributed $20.8 million of reported revenue in the six-month period after its January acquisition. The acquisition’s stated purchase price was $83.8 million before fair-value considerations; the filing reports fair value of consideration of $78.7 million and preliminary goodwill of approximately $28.7 million.
- Retail-Entertainment revenue fell 9.6% for six months, and Flooring Manufacturing revenue fell 13.5%; management cited reduced demand, inflationary pressures, and product mix. Steel Manufacturing revenue increased 43.6%, primarily reflecting the Kinetic acquisition.
- Gross margin declined for both the quarter and six-month period. Six-month cost of revenue rose to 66.6% of revenue from 63.7%.
Outlook, risks, and unusual items
- The filing provides no specific revenue or earnings guidance. Management expects revenue and operating income from its directory-services business to continue declining and says it is no longer accepting new customers for that business.
- Management says current liquidity sources are expected to be sufficient for at least 12 months, but also notes it may need additional debt or capital for acquisitions, refinancing, or strategic investments. Future financing could dilute existing shareholders.
- Material litigation includes an SEC enforcement case alleging historical securities-law violations and a related shareholder class action. The company denies the allegations and intends to defend itself. Other disclosed matters include wage-and-hour and unsolicited-text-message class claims, and a Pennsylvania holdback dispute involving a claimed $2.5 million; the company says it intends to defend these matters. Potential losses for some proceedings cannot currently be estimated.
- A $1.0 million Salomon Whitney settlement receivable was recorded as other income at March 31, 2023 and received in April. A further $1.0 million payment is conditional on settlement terms.
- Related-party matters warrant attention: ICG beneficially owned 48.8% of outstanding capital stock and provided or holds loans, including a $5.0 million loan connected with the Flooring Liquidators acquisition. The CEO is ICG’s sole member.
Important facts for investors to verify
- Whether Flooring Liquidators can improve from its reported $0.2 million second-quarter operating loss and deliver the expected acquisition economics.
- Debt-service capacity, revolving-credit availability and borrowing-base conditions, upcoming maturities, and the effect of variable rates on interest expense.
- Underlying operating trends excluding acquisitions and unusual items, particularly in flooring manufacturing and retail entertainment; also review the non-GAAP Adjusted EBITDA reconciliation.
- Developments and potential financial exposure in the SEC case, shareholder class action, and other legal matters.
- Terms, governance, and repayment obligations of related-party financing and the company’s continuing share repurchases.