Live Ventures Incorporated — FY2019 Form 10-K
Reporting period: Fiscal year ended September 30, 2019; comparisons are to FY2018. This is an annual report, not a standalone fourth-quarter report. Live Ventures is a diversified holding company with Manufacturing (Marquis), Retail and Online (Vintage Stock and ApplianceSmart), and Services (legacy directory services) segments. Financial amounts below are in thousands of dollars unless otherwise stated.
Financial performance and position
| Metric | FY2019 / year-end | FY2018 / comparison |
|---|---|---|
| Revenue | $193,288 | $199,633 |
| Gross profit; gross margin | $70,873; 36.7% | $74,198; 37.2% |
| Operating income; operating margin | $3,256; 1.7% | $10,800; 5.4% |
| Net income (loss) | $(4,012) | $5,923 |
| Basic and diluted EPS | $(2.11) | $3.01 basic; $1.58 diluted |
| Cash from operations | $19,053 | $11,823 |
| Cash and cash equivalents | $2,681 | $2,742 |
| Working capital | $20,727 | $28,466 |
| Total assets; stockholders’ equity | $122,453; $34,129 | $141,084; $38,760 |
- Revenue fell 3.2%; gross profit declined 4.5%. General and administrative expense rose 7.3% to $52,840, contributing to the 69.9% drop in operating income.
- Net loss included $3,222 of impairment charges, principally ApplianceSmart trade-name and customer-list impairments, lease-intangible write-downs for closed stores, and retired software. FY2018 included a $7,294 bargain-purchase gain from the ApplianceSmart acquisition; FY2019 did not.
- Operating cash flow increased despite the net loss, supported in part by lower inventory (a $7,160 cash-flow source) and other working-capital movements. Investing cash flow was $100; financing cash flow was $(19,214), including debt repayments and $888 of common-stock repurchases.
- At year-end, notes payable were $57,100 gross, less $1,384 of unamortized issuance costs; related-party notes were $4,826. Balance-sheet current and long-term debt, net of issuance costs, totaled $55,716, plus $4,826 of related-party debt. Contractual obligations totaled $87,266, including $57,100 of notes payable and $25,340 of lease obligations.
- Current assets were $55,752 versus current liabilities of $35,025. Marquis reported $14,914 available on its Bank of America revolver; Vintage Stock reported $1,410 available on its Texas Capital Bank revolver. ApplianceSmart’s Crossroads revolver had $1,981 outstanding, and the company disclosed covenant noncompliance associated with that facility.
Material changes versus FY2018
- Retail and Online revenue declined 8.6% to $100,701, and the segment moved from $1,338 operating income to a $9,074 operating loss. ApplianceSmart revenue decreased $9,203 amid store closures and competition; its retail-appliance gross margin fell to 6.5% from 23.8%.
- Manufacturing revenue grew 3.6% to $91,951 and operating income rose 34.0% to $11,735, as carpet and hard-surface sales increased with new products. Synthetic-turf revenue declined after equipment was sold.
- Services revenue declined to $636 from $745. Management expects continued decline as directory-service renewals fall; the company no longer accepts new customers for this legacy business.
- Debt declined from $74,417 to $57,100 gross notes payable, while cash from operations increased. Working capital decreased by $7,739.
Outlook, risks and unusual items
- Management said cash, operating cash flow, and available revolving credit were expected to fund operations, scheduled debt payments, store investment, repurchases, and Series E preferred dividends for at least the next 12 months. This assessment should be considered alongside the subsequent ApplianceSmart bankruptcy and disclosed revolver covenant issue.
- ApplianceSmart filed for Chapter 11 on December 9, 2019. The filing says the proceeding affects that subsidiary, not Live Ventures or its other subsidiaries; ApplianceSmart expected to operate as a debtor-in-possession. Its continuing operations, financing, creditor claims, and potential restructuring or liquidation remain uncertain.
- After year-end, Marquis acquired Lonesome Oak Trading Co. for approximately $14 million; the transaction closed January 31, 2020. Lonesome Oak reported approximately $48 million in FY2018 revenue. Marquis also sold its A-O division in December 2018 for about $5.5 million cash plus contingent payments tied to nylon sales.
- The company disclosed ongoing SEC inquiries concerning earlier financial-statement restatements, acquisitions, auditor changes, and the timing of a 2018 Form 8-K. It also disclosed that a delayed 10-K filing triggered a Nasdaq deficiency notice; the company believed filing this report restored compliance.
- Management found disclosure controls and internal control over financial reporting ineffective at September 30, 2019, citing insufficient segregation of duties, missing written control documentation, inadequate control evaluation, and insufficiently followed or documented reconciliations. The auditor did not attest to internal-control effectiveness. The report’s risk factors refer to a FY2019 restatement, while the accounting note describes immaterial corrections to prior-period receivables and inventory; the filing text does not clearly reconcile those descriptions.
- Other notable exposures include the SEC investigation, ApplianceSmart-related litigation and lease disputes, high leverage and debt covenants, related-party financing, acquisition integration, retail demand and digital substitution, and flooring-industry cyclicality and input costs. The company reported no common-stock dividend plan for the foreseeable future.
Investor verification priorities
- Confirm ApplianceSmart’s Chapter 11 outcome, asset recoveries, creditor claims, and any impact on parent-company liquidity or guarantees.
- Review the Crossroads facility covenant breach, lender remedies, current borrowing availability, and repayment or refinancing needs.
- Reconcile the filing’s FY2019-restatement reference with the financial-statement note on immaterial prior-period corrections; assess the extent and status of control remediation.
- Track operating results after the period, especially ApplianceSmart exposure, Vintage Stock performance, Marquis margins, and integration of the Lonesome Oak acquisition.
- Verify debt maturities, covenant headroom, related-party debt terms, and whether operating cash generation can support contractual obligations and planned investment.