Live Ventures - Q3 2023

Transcript

Operator (participant)

Good day, everyone, and welcome to today's Live Ventures Incorporated 2023 3rd Quarter 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. You may register to ask a question at any time by pressing the star and one on your telephone keypad. You may withdraw yourself from the queue by pressing star two. Please note this call may be recorded. I'll be standing by if you should need any assistance. It is now my pleasure to turn the conference over to Greg Powell, Director of Investor Relations. Please go ahead, sir.

Greg Powell (Director of Investor Relations)

Thank you, Travis. Good afternoon, welcome to the Live Ventures fiscal 2023 third quarter conference call. Joining us this afternoon for the call are Jon Isaac, our Chief Executive Officer and President, David Verret, our Chief Financial Officer, and Eric Althofer, our Chief Operating Officer. Some of the statements we are making today are forward-looking and are based on our best view of our businesses as we see them today. The actual results could differ materially due to a number of factors, including those outlined in our latest forms, 10-K and 10-Q, filed with the Securities and Exchange Commission. We have no obligation to publicly update any forward-looking statements after this call, whether a result of new information, future events, changes in assumptions, or otherwise.

You can find our press release and 10-Q referenced on this call in the investor relations section of the Live Ventures website. I direct you to our website, www.liveventures.com or 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. Before jumping into the numbers, let's briefly discuss the Precision Metal Works acquisition. Subsequent to quarter end, we acquired Precision Metal Works, or what I'll refer to as PMW, for a total consideration of $28 million, adding approximately $75 million of revenue per year. PMW manufactures and supplies highly engineered parts and components. They also offer world-class metal forming, assembly, and finishing solutions across diverse industries, including appliance, automotive, hardware, electrical, electronics, and medical products and devices. The acquisition of PMW is a source of great excitement for us, as it complements our current steel manufacturing operations and aligns perfectly with our long-term buy-build-hold strategy. We see immense potential with this acquisition. I will discuss the financial results for our third quarter. Total revenue for the third quarter increased 34.1% to $91.5 million.

The increase is primarily attributable to the acquisitions of Flooring Liquidators and Kinetic, partially offset by decreased revenues in our other businesses as compared to the prior year period. Flooring manufacturing revenues of $27.4 million decreased by approximately $4.8 million, or 14.8%, as compared to the prior year period, primarily due to reduced consumer demand. Retail entertainment revenues of $18 million decreased by approximately $1.2 million, or 6.3%, as compared to the prior year. Revenues decreased due to reduced consumer demand. As we announced last quarter, we have a new segment, the retail flooring segment, which consists of Flooring Liquidators. Revenues for retail flooring were $27.4 million for the third quarter.

Steel manufacturing revenues of $18.4 million increased by approximately $3.4 million, or 22.9%, as compared to the prior year period, primarily due to the acquisition of Kinetic. Corporate and other segment revenues decreased by approximately $1.7 million, primarily due to decreased revenues at SW Financial, which was due to the shutdown of operations at SW Financial in the current quarter. As a result of the shutdown, we recorded a loss on the disposition of SW Financial's assets and liabilities of approximately $1.7 million. In addition, we recognized a $1 million gain related to the settlement agreement that we entered into in the second quarter. Gross profit for the third quarter was $32.2 million, up from $22.3 million in the prior year period.

Those margin percentage for the company increased to 35.2% from 32.7% in the prior year period. The increase is primarily due to the addition of Flooring Liquidators and Kinetic, which have higher margins. General and administrative expenses of $23.2 million increased $9.8 million as compared to the prior year period. The increase is primarily due to the additions of Flooring Liquidators and Kinetic. Selling and marketing expenses increased 9.9% to approximately $3.4 million as compared to the prior year. Operating income decreased 5.2% to $5.6 million for the third quarter, as compared to $5.9 million in the prior year period.

The decrease in operating income is primarily attributable to lower revenues and higher costs in the retail, entertainment, flooring, manufacturing, and corporate segments, partially offset by additions of Flooring Liquidators and Kinetic. Third quarter interest expense increased approximately $2.8 million as compared to the prior year period, primarily due to the increased debt balances related to the acquisition of Flooring Liquidators and Kinetic. Third quarter net income was $1.1 million, and diluted EPS was $0.33 per share with net income of $3.5 million and diluted EPS of $1.11 in the prior year period. The decrease in net income is primarily attributable to lower operating margins and higher interest expense. Adjusted EBITDA for the third quarter was $9.6 million, an increase of approximately $700,000 as compared to the prior year period.

Turning to liquidity, we ended our third quarter with cash of $3.5 million and cash availability under our various lines of credit of $28.8 million, for a combined total liquidity of $32.3 million. We had working capital of approximately $81.6 million as of June 30th, 2023, as compared to working capital of approximately $78.4 million as of September 30, 2022. Total assets were $360.2 million as of June 30, 2023, as compared to $278.6 million as of September 30, 2022. Total stockholders' equity was $104.2 million, as compared to $97.1 million as of September 30, 2022. As part of our capital all-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 announced a $10 million common stock repurchase plan in 2018. During our third quarter, we repurchased 3,702 shares of common stock at an average price of approximately $25.31 per share under this program. As of June 30th, the company had approximately $3.3 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 well to weather near-term headwinds and emerge as a stronger, more resilient company in the long run.

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

Operator (participant)

Yes, sir. At this time, if you would like to ask a question, please press the star and one on your telephone keypad. You may remove yourself from the queue at any time by pressing star two. Once again, that is star one to ask a question. We will pause for a moment while the questions to queue.

David Verret (CFO)

Can you open the line for Theodore, please?

Operator (participant)

Yes, we have a question from Theodore O'Neill, Litchfield Hills Research.

Theodore O'Neill (CEO)

Thank you very much. Just a question on the Salomon Whitney disposition. It seems like I ought to be able to net those two things together, the settlement and the loss, but you've got them broken out separately, so there must be a reason for that. Can you give us just a little history of, or a little more information what the settlement's about?

David Verret (CFO)

Just from an accounting standpoint, the loss is just related to disposing of the asset, deconsolidating, and that requires a separate line item than of the settlement gains. We provided some disclosures in our 10-Q related to the settlement. I guess what I'll say about the settlement agreement is, you know, that that settlement agreement, we basically pursuant to that written agreement that we believe is in the best interest of Live and its shareholders, that we shut, you know, that we closed the operations or wound down the operations of Salomon Whitney. According to that agreement, we are limited on what we can discuss. Really what I want to do is just refer you over to our disclosures in our 10-Q.

Theodore O'Neill (CEO)

Okay.

David Verret (CFO)

Um-

Theodore O'Neill (CEO)

I read the, I read the Q, I was just looking for some-

David Verret (CFO)

Yeah

Theodore O'Neill (CEO)

- information, but that's fine.

David Verret (CFO)

Yeah.

Theodore O'Neill (CEO)

If you look at the, if you look at the press release that we published and, and go down to the Adjusted EBITDA, you'll see a breakdown there, and it'll, it'll say, SW Financial settlement gain and disposition. You'll see that, and you can net it, pretty easily.

David Verret (CFO)

Yeah.

Theodore O'Neill (CEO)

Yeah. Okay. And you've, you've sort of... You, you talked about the flooring business and the retail business and, and having reduced customer demand. Is, is there anything idiosyncratic about that that's going on, or is that just sort of a general economic thing to see?

David Verret (CFO)

It, it's gonna be more or less the general economic conditions. I mean, the, the only other thing I would, I would add is, you know, during 2020 and 2021, there was a lot of, you know, there, there was a decent boost in, in revenues. A lot of people were getting home remodels and, and things like that. Between that and just overall general economic conditions and, and what we're seeing is kind of right in line with, with our peer companies.

Jon Isaac (CEO and President)

I, I would say, Theodore, if you, if you went and looked at companies of, of, you know, similar, you know, that do what we do, look at Mohawk's numbers, it'll paint a very clear picture. LL Flooring published their numbers yesterday. You'll see that their same-store sales are down 20%. I think that we are outperforming the general market with this line item.

Theodore O'Neill (CEO)

Yeah. Okay. Yeah, that makes total sense. Everybody was staying at home and doing remodeling or finding something else to get entertained at home, and now we're all out and about.

David Verret (CFO)

Yeah.

Theodore O'Neill (CEO)

Okay, those are my questions. Thank you.

David Verret (CFO)

Excellent. Thank you, Theodore.

Operator (participant)

We have no further questions in the queue at this time. I'd now like to turn the call back over to the day speakers.

David Verret (CFO)

I want to thank everyone for attending the call today. We will look forward to our next call for our year end. Thank you.

Operator (participant)

This does conclude today's program. Thank you for your participation. You may disconnect at any time.