Live Ventures Incorporated — Form 10-Q Summary
Reporting period: First fiscal quarter ended December 31, 2022; financial statements are unaudited. The filing was signed February 9, 2023. Live Ventures is a diversified holding company with Retail, Flooring Manufacturing, Steel Manufacturing, and Corporate & Other operations.
Financial performance
| Metric | Three months ended Dec. 31, 2022 | Prior-year period |
|---|---|---|
| Revenue | $69.0 million | $75.2 million |
| Gross profit / margin | $21.9 million / 31.8% | $27.6 million / 36.7% |
| Operating income | $4.6 million | $10.4 million |
| Net income | $1.8 million | $6.5 million |
| Diluted EPS | $0.60 | $2.04 |
| Adjusted EBITDA (non-GAAP) | $7.5 million | $12.1 million |
| Cash provided by operating activities | $6.3 million | $4.2 million |
- Revenue declined 8.2%. Management cited inflation-related softer demand across segments, supply-chain issues and Retail product mix. Steel revenue rose, mainly following the Kinetic acquisition.
- Gross margin fell to 31.8% from 36.7%; cost of revenue increased to 68.2% of sales from 63.3%. Operating margin was approximately 6.6%, versus 13.8%; net margin was 2.7%, versus 8.7%.
- Net interest expense approximately doubled to $2.0 million from $1.0 million, reflecting higher debt balances and interest rates. Income tax expense was $0.6 million, compared with $3.0 million.
- Operating cash flow increased to $6.3 million, primarily due to collections of receivables, partly offset by payment timing. Investing used $1.3 million, primarily for property and equipment. Financing provided $3.2 million, including $5.7 million of note proceeds, offset by debt and lease payments and $0.6 million of share repurchases.
- Cash was $12.8 million at December 31, 2022, versus $4.6 million at September 30, 2022. Management also reported approximately $21.2 million of available revolver borrowing and working capital of $78.1 million. Approximately $0.9 million of restricted cash serves as customs-bond collateral.
- Debt notes payable, net of issuance costs, totaled $86.0 million, including $26.1 million current; related-party notes totaled $4.0 million, of which $2.0 million was current. Operating and finance lease liabilities totaled approximately $57.8 million. The company reported compliance with loan covenants.
Material changes and segment results
- Retail: Revenue fell 11.2% to $23.3 million and operating income declined to $3.7 million from $4.8 million. ApplianceSmart had ceased operations in April 2022.
- Flooring Manufacturing: Revenue fell 19.6% to $26.4 million; operating income fell to $0.8 million from $4.6 million. Management attributed the deterioration chiefly to weaker demand and higher raw-material costs.
- Steel Manufacturing: Revenue rose 45.4% to $18.0 million, primarily due to Kinetic, acquired in June 2022. Operating income was $1.5 million versus $1.7 million; higher raw-material costs and the acquired business affected cost of revenue.
- Corporate & Other: Revenue fell to $1.3 million from $3.7 million, primarily due to lower SW Financial commissions and continuing declines in directory-services renewals. Operating loss widened to $1.3 million from $0.7 million. The company is no longer accepting new directory-services customers.
- On January 18, 2023, after quarter-end, the company acquired Flooring Liquidators and related entities for a stated $85.0 million, subject to adjustments. Consideration included $41.4 million cash, a $34.0 million subordinated note, $4.0 million in shares, and $2.0 million in additional cash and restricted stock units. The filing does not provide a completed purchase-price allocation.
Outlook, risks and unusual items
- Management gave no specific earnings or revenue guidance. It stated that cash, operating cash generation and revolver availability are expected to fund operations and scheduled payments for at least the next 12 months, while noting potential need for additional financing for acquisitions, refinancing or strategic investments.
- The SEC civil action alleges historical financial, disclosure and reporting violations involving 2016–2018. The court denied the company defendants’ motion to dismiss; the company denies the allegations and says it will defend itself. Mediation was scheduled for April 2023. A related shareholder class action was also pending.
- Other disclosed matters include a dispute over a $2.5 million Precision Industries indemnity holdback and a California wage-and-hour class action involving Elite Builder Services. The company said it could not estimate the possible loss in the wage matter because discovery had not commenced and the class scope was unknown.
- Related-party matters merit attention: CEO-linked Isaac Capital Group owned 42.6% of outstanding capital stock and held a $2.0 million loan at 12.5%; a $2.0 million loan from an entity associated with the Vintage Stock CEO bears 10% interest and matures July 2023. Marquis also leases buildings from an entity owned by the CEO; the filing says rents were determined to be at market rates.
- The company repurchased 24,710 common shares for approximately $0.6 million during the quarter; about $3.4 million remained under its repurchase authorization. Management reported effective disclosure controls and internal control over financial reporting as of quarter-end.
Investor verification points
- Assess whether weaker Flooring Manufacturing demand and margins persisted, and whether the company’s cost and pricing actions offset raw-material inflation.
- Review funding, debt terms, integration and performance of the January 2023 Flooring Liquidators acquisition, including the substantial subordinated note and equity consideration.
- Track near-term maturities, variable-rate borrowing costs, revolver availability, covenant compliance and liquidity after the acquisition.
- Follow developments and potential financial exposure in the SEC action, securities class action, holdback dispute and wage-and-hour case; the filing does not quantify potential losses for these matters.
- Reconcile cash and restricted-cash presentation and monitor cash conversion, given the quarter’s working-capital movements and reported restricted collateral.