Live Ventures - Q3 2024
August 8, 2024
Transcript
Operator (participant)
I would now like to turn the call over to Greg Powell, Director of Investor Relations. Please go ahead, sir.
Greg Powell (Director of Investor Relations)
Thanks, Paul. Good afternoon, and welcome to the Live Ventures third quarter fiscal year 2024 conference call. Joining this afternoon 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 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 Form 10-K and 10-Q, as 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 referenced on the call this afternoon in the Investor Relations section of the Live Ventures website.
I direct you to our website, liveventures.com, or sec.gov for historical SEC filings. I will now turn the call over to David to walk you through our financial performance.
David Verret (CFO)
Thank you, Greg, and good afternoon, everyone. Let's jump right in and discuss the financial results for the third quarter ended June 30, 2024. Total revenue for the quarter increased 35.4% to approximately $123.9 million. The increase is primarily attributable to the acquisitions of PMW, which was acquired during the fourth quarter of fiscal year 2023, and Central Steel, which was acquired in May 2024, collectively adding approximately $21.1 million in revenue. Additionally, the increase was attributable to increased revenue in the retail flooring segment of approximately $9.5 million, and an increase in the flooring manufacturing segment of approximately $3.8 million. These increases were partially offset by decreased revenue of approximately $2.2 million in the company's other businesses due to general economic conditions.
Retail entertainment revenue of approximately $16.5 million decreased $1.5 million, or 8.4%, compared to the prior year period. The decrease in revenue is primarily due to reduced consumer demand and a shift in sales mix towards used products, which generally have lower ticket sales prices with higher margins. Retail flooring revenue for the quarter was approximately $37 million, an increase of $9.5 million, or 34.7% compared to the prior year period. The increase is primarily due to increased revenue in Flooring Liquidators builder design and installation segment, Elite Builder Services, and the acquisitions of CRO and Johnson by Flooring Liquidators during the first quarter of fiscal year 2024. Flooring manufacturing revenue of approximately $31.3 million increased $3.8 million, or 14%, compared to the prior year.
The increase is primarily due to increased sales related to Harris Flooring Group brands, which were acquired in the fourth quarter of fiscal year 2023. Steel manufacturing revenue of approximately $39 million increased $20.6 million, or 112.1%, compared to the prior year period. The increase is primarily due to increased revenue of approximately $19.2 million at PMW and approximately $1.9 million at Central Steel, partially offset by a $0.5 million decrease in the company's other steel manufacturing businesses. Gross profit for the third quarter was $37 million, up from $32.2 million in the prior year period. The gross margin percentage for the company decreased to 29.9% from 35.2% in the prior year period.
Greg Powell (Director of Investor Relations)
The decrease in gross margin percentage is primarily due to the acquisition of PMW, which has historically generated lower margins, and decreased margins overall in the steel manufacturing segment due to reduced production efficiencies as a result of lower demand. General and administrative expense increased approximately $6.8 million to $30.1 million, primarily due to the acquisitions of PMW in the steel manufacturing segment, as well as CRO and Johnson in the retail flooring segment. Sales and marketing expense increased approximately $2.4 million to $5.9 million. The increase is primarily due to increased sales personnel acquired in connection with the acquisition of Harris Flooring Group brands, increased convention and trade show activity in the flooring manufacturing segment, and an increase in sales force in the retail flooring segment.
Interest expense increased by approximately $750,000 compared to the prior year period. The increase is primarily due to incremental debt incurred in connection with the acquisitions of PMW, CRO, and Johnson. Net loss for the quarter was approximately $2.9 million, and loss per share was $0.91, compared to net income of approximately $1.1 million and diluted EPS of $0.33 per share in the prior year period. This decrease is primarily attributable to the quarter's lower operating earnings and higher interest expense compared to the prior year period. Adjusted EBITDA for the quarter was approximately $6.1 million, a decrease of approximately $3.5 million as compared to the prior year period.
Turning to liquidity, we ended the quarter with total cash availability of $34.4 million, consisting of cash on hand of $4.7 million, and availability under our various lines of credit totaling $29.7 million. Our working capital was approximately $57.5 million as of June 30, 2024, compared to $85 million as of September 30, 2023. The decrease is primarily due to an increase in the current portion of long-term debt associated with PMW. As of June 30, PMW was in default of one of its financial covenants. As a result, PMW's long-term debt balances and its seller finance loans were reclassed to current liabilities. We are currently in discussions with the creditors to resolve this issue in a timely manner. As of June 30, total assets were $436.8 million, and stockholders' equity was $92.7 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. During the quarter, we repurchased 18,156 shares of common stock. On June 4, 2024, we replaced our existing share repurchase program with a new $10 million program. As of June 30, the company had $10 million available for repurchases under the new repurchase program. In conclusion, we are pleased that our third quarter revenue increased 35%. Despite elevated interest rates contributing to industry-specific headwinds, we are unwavering in our commitment to adapting our businesses to navigate these challenges. We are confident in our business prospects and long-term buy, build, hold strategy, highlighting our dedication to creating sustainable growth and long-term value for our shareholders.
We will now take questions from those of you on the conference call. Operator, please open the line for questions.
Operator (participant)
At this time, we will conduct a question-and-answer session. If you would like to ask a question, please press star one on your phone now, and you'll be placed into the queue in the order received. Once again, to ask a question, please press star one on your phone now. And our first question comes from Joseph Kowalski of JD Investment. Please ask your question.
Joseph Kowalski (Research Anayst)
Hi, good afternoon, folks. Almost good morning, I guess, where you guys are.
David Verret (CFO)
Yes, hello.
Joseph Kowalski (Research Anayst)
I actually have a number of questions. Is any of the debt floating rates that you have?
David Verret (CFO)
Yes, we do have, yeah, they are floating rate.
Joseph Kowalski (Research Anayst)
So if interest rates go down, that might benefit the company as well?
David Verret (CFO)
That would benefit the company. That is correct.
Joseph Kowalski (Research Anayst)
There was a mention somewhere that I read about integration costs being an issue this quarter. Did that have to do with the new debt that you were talking about, or was there something else? I don't remember if it said specifically.
David Verret (CFO)
I believe what you are referring to is on the Flooring Liquidators side, integrating CRO and Johnson. They were two smaller acquisitions that happened in the first quarter of this year. They were operating on their own systems and had their own kind of salaries and wages and administrative functions, as opposed to leveraging what we have already from Flooring Liquidators. So we have been in a process to get them migrated onto Flooring Liquidators' systems to be able to get efficiencies in the administrative and management processes.
Joseph Kowalski (Research Anayst)
Do you have any estimate as to how much that affected this quarter as opposed to, you know, what we can basically ignore for future?
David Verret (CFO)
Yeah. I'll say that there was a number of headcount reductions that we were able to implement in this third quarter. There was also some performance issues with the Johnson, and one of the things you will also see is that we ended up disposing of some of those stores by way of selling it back to the sellers. So we're able to kind of give back. We kept one of the stores that was actually performing well, and some of the other ones we sold back, basically unwound what we had entered into. So we expect to see some decent savings coming from the debt disposition, as well as some of the efficiency initiatives that are starting to go into place here in the third quarter.
Joseph Kowalski (Research Anayst)
But you can't give us an idea of what in this quarter was attributable dollar-wise to those costs?
David Verret (CFO)
Yeah, yeah, I'm not at this time, I can't.
Joseph Kowalski (Research Anayst)
Okay.
David Verret (CFO)
Yeah.
Joseph Kowalski (Research Anayst)
What was the average price of the repurchases, please? Share repurchases.
David Verret (CFO)
It was around $18. I think you'll find it. It's summarized in the 10-Q that was recently filed.
Joseph Kowalski (Research Anayst)
I'll take a look. I'm sorry.
David Verret (CFO)
Yep.
Joseph Kowalski (Research Anayst)
and then you said something about, I think you said PMW-
David Verret (CFO)
Mm-hmm.
Joseph Kowalski (Research Anayst)
that had an issue that's now current and has to be current on its debt because there was an issue.
David Verret (CFO)
Yes. Yes.
Joseph Kowalski (Research Anayst)
What was the issue there? I don't... If it was in there, I didn't read it. I'm sorry, maybe I missed it.
David Verret (CFO)
It's one of the financial leverage covenants that we have with them. So as of June thirtieth, they ended up failing on that covenant. The only thing I'll say is that our communications and everything with the creditors have been positive. I think we're both interested in working through a quick and positive outcome to this, but just from a U.S. GAAP standpoint, even though we still have availability, they're still letting us borrow under it, under the credit facility. But because we were in default from a U.S. GAAP standpoint, we put everything in current.
Joseph Kowalski (Research Anayst)
Right.
David Verret (CFO)
That is just-
Joseph Kowalski (Research Anayst)
Is that something that was kind of expected down the r-- that you saw this coming, or was this something that's-
David Verret (CFO)
We-
Joseph Kowalski (Research Anayst)
You know, a change in economic or something?
David Verret (CFO)
We knew it was going to be tight.
Joseph Kowalski (Research Anayst)
Okay.
David Verret (CFO)
Yeah. We knew it was going to be tight, and just with the overall market conditions that we're seeing, they ended up, you know, busting that covenant.
Joseph Kowalski (Research Anayst)
All right. And then finally, where do you think we are in the economic cycle vis-à-vis your companies? I mean, clearly, you said there were some headwinds.
David Verret (CFO)
Mm-hmm.
Joseph Kowalski (Research Anayst)
It seems from, you know, most of what I'm reading, that we're just at the very beginning of, you know, not even considering being in a, in a recession at this point, but, that, that things could get worse from here as far as the general economy. What about with regard to your company?
David Verret (CFO)
Right. So, we believe just overall in general, we're pretty recession resilient. You know, one of our companies, Vintage Stock, sells used products, so and cheaper. So what we see is a migration when money isn't flowing to the consumers like it was in the past, those are options for entertainment that's on the cheaper end. Also, just I think our biggest company that's you know, facing some big headwinds right now is just Flooring Liquidators, given the interest rates and where they have been, and what that does to the housing market, which then trickles down to the flooring retail sales.
If we start to see interest rates coming down, we believe that there is a, you know, possibility, you know, very good possibility that we'll start to see an uptick in the Flooring Liquidators segment.