Live Ventures Q3 2024 Earnings Call Transcript

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August 8, 2024

There are 4 speakers on the call.

Operator

I would now like to turn the call over to Greg Powell, Director of Investor Relations. Please go ahead, sir.

Speaker 1

Thank you, Paul. Good afternoon, and welcome to the Live Ventures' Q3 fiscal year 2024 conference call. Joining me this afternoon are John Isaac, our Chief Executive Officer and President and David Varett, 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 forms 10 ks and 10 Q as filed with the Securities and Exchange Commission.

Speaker 1

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 our historical SEC filings. I will now turn the call over to David to walk you through our financial performance.

Speaker 2

Thank you, Greg, and good afternoon, everyone. Let's jump right in and discuss the financial results for the Q3 ended June 30, 2024. Total revenue for the quarter increased 35.4 percent to approximately 123,900,000 dollars The increase is primarily attributable to the acquisitions of PMW, which was acquired during the Q4 of fiscal year 2023 and Central Steel, which was acquired in May 2024, collectively adding approximately $21,100,000 in revenue. Additionally, the increase was attributable to increased revenue in the retail flooring segment of approximately $9,500,000 dollars and an increase in the flooring manufacturing segment of approximately 3,800,000 approximately $2,200,000 in the company's other businesses due to general economic conditions. Retail Entertainment revenue of approximately $16,500,000 decreased $1,500,000 or 8.4% compared to the prior year period.

Speaker 2

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 $37,000,000 an increase of $9,500,000 or 34.7 percent 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 Q1 of fiscal year 2024. Flooring manufacturing revenue of approximately $31,300,000 increased $3,800,000 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 Q4 of fiscal year 2023.

Speaker 2

Steel Manufacturing revenue of approximately $39,000,000 increased $20,600,000 or 112.1 percent compared to the prior year period. The increase is primarily due to increased revenue of approximately $19,200,000 at PMW and approximately $1,900,000 at Central Steel, partially offset by a $500,000 decrease in the company's other steel manufacturing businesses. Gross profit for the Q3 was $37,000,000 up from $32,200,000 in the prior year period. The gross margin percentage for the company decreased to 29.9 percent from 35.2 percent in the prior year period. 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.

Speaker 2

General and administrative expense increased approximately $6,800,000 to $30,100,000 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 $2,400,000 to 5,900,000 dollars 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 $2,900,000 and loss per share was $0.91 compared to net income of approximately $1,100,000 and diluted EPS of $0.33 per share in the prior year period.

Speaker 2

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 $6,100,000 a decrease of approximately $3,500,000 as compared to the prior year period. Turning to liquidity, we ended the quarter with total cash availability of $34,400,000 consisting of cash on hand of $4,700,000 and availability under our various lines of credit totaling $29,700,000 Our working capital was approximately $57,500,000 as of June 30, 2024 compared to $85,000,000 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 1 of its financial covenants.

Speaker 2

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 436,800,000 dollars and stockholders' equity was $92,700,000 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.

Speaker 2

On June 4, 2024, we replaced our existing share repurchase program with a new $10,000,000 program. As of June 30, the company had $10,000,000 available for repurchases under the new repurchase program. In conclusion, we are pleased that our Q3 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.

Speaker 2

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

Operator

And our first question comes from Joseph Pawlowski of J. B. Investments. Please ask your question.

Speaker 3

Hi, good afternoon folks. Almost good morning, I guess, where you guys are. Yes, hello. I actually have a number of questions. Is any of the debt floating rate that you have?

Speaker 2

Yes, we do have yes, they are floating rate.

Speaker 3

So if interest rates go down, that might benefit the company as well?

Speaker 2

That would benefit the company. That is correct.

Speaker 3

There was a mention somewhere that I read about integration costs being an issue this quarter. Does that have to do with the new debt that you were talking about or was there something else? I don't remember if it

Speaker 2

said specifically. I believe what you are referring to is on the Flooring Liquidator side, integrating CRO and Johnson. They were 2 smaller acquisitions that happened in the Q1 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.

Speaker 3

Do you have any estimate as to how much that affected this quarter as opposed to what we can basically ignore for future?

Speaker 2

Yes. I'll say that there was a number of headcount reductions that we were able to implement in this Q3. 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.

Speaker 2

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 3rd quarter.

Speaker 3

But you can't give us an idea of what in this quarter was attributable dollar wise to those costs?

Speaker 2

Yes. Not at this time, I can't.

Speaker 3

Okay. What was the average price of the repurchases, please, share repurchases?

Speaker 2

It was around $18 I think you'll find it summarized in the 10 Q that was listed in the file. Okay.

Speaker 3

I'll take a look, I'm sorry.

Speaker 2

Yes.

Speaker 3

And then you said something about, I think you said PMW that had an issue that's now current and has to be current on its debt because there was an issue. Yes. 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.

Speaker 2

It's one of the financial leverage covenants that we have with them. So as of June 30, 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.

Speaker 2

S. GAAP standpoint, even though we still have availability, they're still letting us borrow under the credit facility. But because we were in default from a U. S. GAAP standpoint, we put everybody in current.

Speaker 2

So that is

Speaker 3

just kind of Is that something that was kind of expected down the that you saw this coming or is this something that's a change in economics or something?

Speaker 2

Yes. We knew it was going to be tight. And just with the overall market conditions that we're seeing, they ended up busting that covenant.

Speaker 3

All right. And then finally, where do you think we are in the economic cycle vis a vis your companies? I mean, clearly you said there were some headwinds. It seems from most of what reading that we're just at the very beginning of not even considering being in a recession at this point, but that things could get worse from here as far as the general economy. What about with regard to your company?

Speaker 2

Right. So we believe just overall in general, we're pretty recession resilient. One of our companies, Vintage Stock, sells used products 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.

Speaker 2

Also, just I think our biggest company that's facing some big headwinds right now is just Flooring Liquidators, given the interest rates that 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 possibility, pretty good possibility that we'll start to see an uptick in the foreign liquidators segment.

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Live Ventures Q3 2024
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