Live Ventures Incorporated — Form 10-Q Summary
Business context and reporting period. This filing covers the fiscal third quarter and nine months ended June 30, 2022; amounts are in U.S. dollars, generally millions unless noted. Live Ventures is a diversified holding company with Retail, Flooring Manufacturing, Steel Manufacturing, and Corporate and Other segments. The company acquired Kinetic on June 28, 2022.
Key financial results
| Metric | Three months ended June 30 | Nine months ended June 30 |
|---|---|---|
| Revenue | $68.3m, down 1.2% from $69.1m | $213.1m, up 5.3% from $202.4m |
| Gross profit / margin | $22.3m / 32.7%, versus $25.1m / 36.3% | $74.9m / 35.2%, versus $73.8m / 36.5% |
| Operating income | $5.9m, versus $8.2m | $24.7m, versus $26.6m |
| Net income attributable to Live stockholders | $3.5m, versus $9.9m | $25.4m, versus $24.1m |
| Basic / diluted EPS | $1.12 / $1.11, versus $6.35 / $3.01 | $8.11 / $8.01, versus $15.41 / $7.31 |
| Adjusted EBITDA (non-GAAP) | $8.8m, down 9.5%; 12.9% of revenue | $31.2m, down 5.5%; 14.6% of revenue |
For the nine-month period, operating cash flow was $10.8m, down from $32.2m. Investing used $32.7m, principally for Kinetic and property and equipment; financing provided $20.8m, largely from borrowing. Cash was $3.6m at June 30, 2022, compared with $4.7m at September 30, 2021. Working capital was approximately $72.0m, up from $33.8m.
At June 30, gross notes payable were $77.5m, or $76.9m net of debt issuance costs, including $18.4m current; an additional $4.0m was payable to related parties. Operating and finance lease liabilities totaled $46.5m. The company reported approximately $32.0m of available borrowing under revolving facilities and stated it believed available cash, operating cash generation, and revolver capacity would cover planned needs for at least 12 months. It was in compliance with loan covenants.
Material changes versus the comparable period
- Third-quarter revenue declined as Retail and Flooring Manufacturing sales fell, partly offset by Steel price increases and higher Corporate and Other revenue. For the nine months, revenue growth reflected Steel sales, Corporate and Other consolidation of SW Financial, and modest Flooring growth; Retail revenue declined.
- Margins weakened: cost of revenue rose 4.3% in the quarter and 7.5% for the nine months, with management citing inflation and higher product costs. Nine-month operating income and Adjusted EBITDA declined despite revenue growth.
- Quarterly net income was lower in part because the prior-year quarter included a $4.8m PPP loan-forgiveness gain. Nine-month 2022 results included an approximately $11.4m ApplianceSmart bankruptcy settlement gain; ApplianceSmart ceased operations on April 1, 2022. Prior-year nine-month results included $6.2m of PPP forgiveness and a $1.8m bankruptcy settlement gain.
- Basic weighted-average shares rose to 3.13m from 1.56m for the nine-month comparison. In March 2022, all 315,790 Series B preferred shares converted into 1,578,950 common shares. The company also repurchased 79,828 shares for approximately $2.5m during the nine months.
Outlook, risks, and unusual items
- Kinetic acquisition: Precision Marshall acquired Kinetic for a combined preliminary purchase price of approximately $24.6m, subject to adjustments, and recognized $2.2m of preliminary goodwill. The acquisition was partly funded by borrowings and a $3.0m seller note. The related real estate was sold and leased back under a 20-year net lease, with renewal options.
- Management outlook: No specific revenue or earnings guidance was provided. Management expects directory-services revenue and operating income to continue declining and is no longer accepting new customers in that business; it expects SW Financial revenue to trend upward.
- Risks and contingencies: An SEC civil action filed in 2021 alleges financial reporting, disclosure, and other securities-law violations. Defendants deny the allegations; motions to dismiss were under submission, and discovery was stayed pending the court’s ruling. The filing does not quantify a potential financial exposure.
- Controls: Management concluded disclosure controls and internal control over financial reporting were ineffective at June 30, 2022 due to material weaknesses involving written control documentation, subsidiary-level evaluation procedures, and staffing/segregation of duties. Remediation work was underway.
- Management cited inflation, supply-chain constraints, consumer demand, and continuing COVID-related uncertainty as factors that could affect results. It stated the interim results are not necessarily indicative of full-year performance.
Important facts for investors to verify
- Whether Kinetic’s post-acquisition performance, purchase-price allocation, and sale-leaseback obligations develop as expected.
- How much of nine-month earnings reflects the ApplianceSmart bankruptcy gain and other nonrecurring items, and the sustainability of operating cash flow amid inventory growth.
- Debt maturities, borrowing availability, borrowing costs, and compliance with facility covenants as acquisition-related financing is integrated.
- Progress and evidence of remediation of the reported material weaknesses in internal controls.
- Developments and potential consequences of the SEC litigation, which remain unresolved in this filing.
- Whether Retail and Flooring demand and margins recover from inflationary and supply-chain pressures, and whether Steel’s price increases and improved operating performance persist.