Live Ventures Incorporated — Form 10-Q Summary
Reporting period: Fiscal first quarter ended December 31, 2020; comparative period is the three months ended December 31, 2019. Unless stated otherwise, financial amounts are in thousands of dollars. Live Ventures is a diversified holding company with Retail, Flooring Manufacturing, and Steel Manufacturing segments.
Financial performance and liquidity
- Revenue: $62,454, up 49% from $42,001. Gross profit was $22,269, up from $16,626.
- Margins: Gross margin declined to 35.7% from 39.6%; operating margin increased to 11.7% from 8.3%.
- Profit: Operating income was $7,291 versus $3,487. Net income attributable to Live stockholders was $5,413 versus $547. Basic and diluted EPS were $3.45 and $1.63, respectively, compared with $0.30 and $0.15.
- Cash flow: The cash flow statement reports operating cash flow of $7,668, investing cash outflow of $3,258, and financing cash outflow of $6,162. Cash declined $1,752 to $7,232 from September 30, 2020.
- Liquidity: Working capital was $38,324, compared with $38,566 at September 30, 2020. The company reported $32,811 of available borrowing under revolving facilities and said it expects liquidity to cover at least the next 12 months.
- Debt and leases: Reported net debt was $74,027 at quarter-end; operating lease liabilities totaled $33,461. Total liabilities were $141,979 and stockholders’ equity was $48,585.
Changes versus prior-year quarter
- Flooring Manufacturing revenue grew 48% to $30,222, reflecting new products and the January 2020 Lonesome Oak acquisition; segment operating income rose to $4,150 from $2,403.
- Steel Manufacturing contributed $9,735 of revenue and $144 of operating income following the July 2020 Precision Marshall acquisition; there was no steel segment revenue in the comparison quarter.
- Retail revenue was $22,370 versus $21,488. Vintage Stock’s entertainment sales benefited from demand for home entertainment, while ApplianceSmart revenue declined following store closures. Retail operating income increased to $4,493 from $1,859, primarily due to lower expenses.
- Cost of revenue rose 58%, faster than revenue, and gross margin fell. The prior-year quarter included $1,207 of ApplianceSmart impairment charges; none were reported in this quarter. Current-quarter other income included $779 primarily from settling lease liabilities and other payables.
Outlook, risks, and unusual items
- No specific revenue or earnings guidance was provided. Management cited uncertainty around COVID-19 effects on customers, store traffic, employees, supply chains, consumer spending, and future operations.
- ApplianceSmart remained in Chapter 11 as a debtor-in-possession. Its reported quarter revenue was $296; its debtor-in-possession liabilities were $11,889. Certain related litigation is stayed or otherwise unresolved.
- The company disclosed that it and three executives received SEC Wells Notices concerning, among other matters, historical financial reporting, executive compensation disclosures, and ApplianceSmart. The notices indicate a preliminary staff recommendation, not a finding or formal charge; the company said it intends to defend itself.
- The company was not in compliance with covenants related to the Crossroads Revolver; it reported compliance with other existing loan covenants. The Crossroads facility was scheduled to mature in March 2021.
- Management concluded disclosure controls and internal control over financial reporting were ineffective at December 31, 2020, citing material weaknesses in written control documentation and subsidiary-level evaluation procedures. Remediation was planned, with completion expected during fiscal 2021.
- Subsequent events: the Comvest loan was repaid in January 2021; Precision’s $1,382 PPP loan was forgiven in February 2021; Series B preferred warrants were cashlessly exercised in January 2021. Common-stock repurchases during the quarter totaled 33,926 shares for $383.
Important facts for investors to verify
- Reconcile operating cash flow: the cash flow statement reports $7,668, while MD&A states $8,668.
- Review the Crossroads covenant noncompliance, facility maturity, available borrowing conditions, and consequences for liquidity.
- Assess the SEC investigation and Wells Notices, ApplianceSmart bankruptcy and litigation, and any resulting financial exposure.
- Consider the material weaknesses in controls and progress against the stated remediation plan.
- Evaluate earnings quality and comparability, including acquisition contributions, the $779 settlement-related other income, and potential dilution reflected in the difference between basic and diluted EPS.