Live Ventures - Q2 2023

Transcript

Operator (participant)

Good day, everyone, and welcome to today's Live Ventures Incorporated earnings call. At this time, all participants are in a listen-only mode. Later, you will have the opportunity to ask questions during the question-and-answer session. Please note today's call may be recorded, and I will be standing by should you need any assistance. It is now my pleasure to turn the conference over to Director of Investor Relations, Greg Powell. Please go ahead.

Greg Powell (Director of Investor Relations)

Thank you, Chloe. Good afternoon, everyone, and welcome to the Live Ventures Fiscal 2023 Q2 conference call. Joining us this afternoon for the call are Jon Isaac, our Chief Executive Officer and President, and David Verret, our Chief Financial Officer. Some of the statements we are making today are forward-looking and are based on our best views of our businesses as we see them today. The actual results could differ materially due to the number of factors, including those outlined in our latest forms, Form 10-K and Form 10-Q filed with the Securities and Exchange Commission. We have no obligation to publicly update any forward-looking statements after this call, whether as a result of new information, future events, changes in assumptions, or otherwise. You can find our press release and 10-Q, which are referenced on the call, in the Investor Relations section of the Live Ventures website.

I will direct you to our website, which is www.liveventures.com or www.sec.gov for our historical SEC filings. I will now turn the call over to David to walk us through our financial performance.

David Verret (CFO)

Thank you, Greg. Good afternoon, everyone. For our Q2, we delivered revenue of $91.1 million, net income of $1.6 million, and adjusted EBITDA of $9.2 million. We were able to report these results despite a tough market environment characterized by rising interest rates, inflation, and weakening consumer demand. In addition, during the quarter, we acquired Flooring Liquidators for approximately $78.7 million. Despite the challenging macroeconomic conditions, we continue to execute our multi-lever, buy-build-hold strategic plan while also investing in our existing businesses. Before we jump into the number, let's briefly discuss the Flooring Liquidators acquisition. We are very excited about the Flooring Liquidators acquisition, which closed in January of this year.

Flooring Liquidators is a retailer and installer of floors, carpets, and countertops to consumers, builders, and contractors in California and Nevada, operating 20 warehouse format retail stores and a design center. Over the years, they have established a strong reputation for innovation, efficiency, and service in the home renovation and improvement market. Now I'll discuss the financial results for our Q2. Total revenue for the Q2 increased 30.7% to $91.1 million. The increase is primarily attributable to the acquisition of Flooring Liquidators and Kinetic, partially offset by decreased revenues in our other businesses. Flooring manufacturing revenues of $30.3 million decreased by approximately $2.4 million or 7.4% as compared to the prior year period, primarily due to reduced customer demand.

Retail entertainment revenues of $19.1 million decreased by approximately $1.6 million or 7.5% as compared to the prior year. Revenues decreased due to general economic conditions as well as changes in overall product mix. Beginning this quarter, we have a new segment, the retail flooring segment, which consists of Flooring Liquidators. Revenues for retail flooring were $20.8 million for the Q2. Steel manufacturing revenues of $19.9 million increased by approximately $5.9 million or 42% as compared to the prior year period, primarily due to the acquisition of Kinetic. Corporate and other segment revenues decreased approximately $1.3 million, primarily due to the decreased revenues at SW Financial. Gross profit for the Q2 was $31.6 million, up from $25 million in the prior year period.

Gross margin percentage for the company decreased to 34.7% from 35.8% in the prior year. This decrease is primarily due to tightening of margins in our flooring manufacturing and steel manufacturing segments, partially offset by margins in the retail flooring segment. General and administrative expenses of $22.6 million increased 71.9% as compared to the prior year period. The increase is primarily due to the acquisitions of Flooring Liquidators and Kinetic, as well as one-time acquisition related costs. Selling and marketing expenses of approximately $4 million increased 20.6% as compared to the prior year period. Operating income decreased to $5 million for the Q2 of 2023 as compared to $8.5 million in the prior year period. The decrease in operating income is primarily attributable to lower gross profit margins and increased general administrative expenses.

Q2 interest expense increased approximately $2.4 million as compared to the prior year period, primarily due to the increased debt balances related to the acquisitions of Flooring Liquidators and Kinetic. Q2 net income was $1.6 million, and diluted EPS was $0.49 per diluted share as compared to net income of $15.4 million and diluted EPS of $4.84 per share in the prior year period. Prior year's net income included the benefit of approximately $11.4 million, or $3.58 per diluted share, for a gain on bankruptcy settlement. In addition, the decrease in net income is partially attributable to lower profit margins as a result of inflationary cost increases.

Adjusted EBITDA for the Q2 was $9.2 million, a decrease of approximately $1.1 million as compared to the prior year period. Turning to liquidity. We ended our Q2 with cash of $4.2 million and cash availability under our various lines of credit of $21.7 million for a total combined liquidity of $25.9 million. We had working capital of approximately $80.7 million as of March 31, 2023, as compared to working capital of approximately $78.4 million as of September 30, 2022. Total assets increased to $365.4 million as compared to $278.6 million as of September 30, 2022. Total stockholders' equity increased $6.1 million-$103.2 million.

As part of our capital allocation strategy, we may make share repurchases from time to time. We believe our stock repurchases represent long-term value for our stockholders. As previously disclosed, the company had announced a $10 million common stock repurchase plan in 2018. During our Q2, we repurchased 674 shares of common stock at an average price of approximately $25 per share. As of March 31st, the company had approximately $3.4 million available for repurchases under this program. In conclusion, we remain committed to creating long-term value for our stockholders. To achieve this, we focus on strategic, well-planned acquisitions and investments aligning with our growth objectives and generating sustainable returns. We believe that our financial strength and strategic focus position us to well weather near-term headwinds and emerge as a stronger, more resilient company in the long run.

We will now take questions from those of you on the conference call. Operator, please open the line for questions.

Operator (participant)

Absolutely. At this time, if you would like to ask a question, please press star one on your touchtone phone. You may withdraw your question at any time by pressing star two. Once more to join the question queue, that is star one. We'll pause a moment to allow any questions to queue. Once again, that is star one. We'll pause for another moment. It does appear there are no questions at this time.

David Verret (CFO)

Well, I just wanna thank everyone for joining the call, and we look forward to sharing our progress in the next quarter meeting. Thank you.

Have a nice day. Thank you.

Operator (participant)

This does conclude today's program. Thank you for your participation. You may disconnect at any time, and have a wonderful afternoon.