Earnings Call Transcript - LIVE Q3 2025

Operator, Operator

Good day, everyone, and welcome to the Live Ventures Fiscal Year Q3 2025 Conference Call. Now I'd like to turn the call over to Greg Powell, Director of Investor Relations. Please go ahead, Greg.

Greg Powell, Director of Investor Relations

Thank you, Elvis. Good afternoon, and welcome to the Live Ventures Third Quarter Fiscal Year 2025 Conference Call. Joining us 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 forms, Form 10-K and Form 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 a copy of our press release that was referenced on today's call 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 through our financial performance.

David Verret, CFO

Thank you, Greg. Good afternoon, everyone. Before discussing our financial results, I'd like to touch on a few key highlights from the quarter. We are pleased to report that all four of our operating segments delivered improved performance in the third quarter with each achieving higher operating income and operating margin compared to the prior year period. These results were delivered despite continued softness in the new home construction and home refurbishment markets, which remain a headwind for our Retail-Flooring and Flooring Manufacturing segments. As noted last quarter, in response to the challenges in our Retail-Flooring segment, we appointed a new executive leadership team. The new team is actively implementing operational cost-saving initiatives focused on top-line growth and improving efficiency. During the quarter, our targeted cost-saving initiatives are having a significant impact and generating considerable savings in the Retail-Flooring segment. In addition, our other segments are also benefiting from the cost-saving measures implemented during the quarter. Now let's discuss the financial results for the third quarter ended June 30, 2025. Total revenue for the quarter decreased $11.2 million or 9.2% to approximately $112.5 million. The decrease is primarily attributable to the Retail-Flooring and Steel Manufacturing segments, which collectively decreased by approximately $12 million. The Retail Entertainment segment revenue increased $2.5 million or 15.2% to approximately $19 million as compared to the prior year period. The increase in segment revenue is primarily due to increased consumer demand for new products, which typically have higher selling prices. Retail-Flooring segment revenue decreased $6.6 million or 17.9% to approximately $30.4 million as compared to the prior year period. The decrease is primarily attributable to the disposition of certain Johnson Floor & Home Carpet One stores in May 2024 and reduced consumer demand due to the weakness in the housing market. Flooring Manufacturing segment revenue decreased $1.8 million or 5.7% to approximately $31.3 million as compared to the prior year period. The decrease was primarily due to reduced consumer demand as a result of the ongoing weakness in the housing market. Steel Manufacturing segment revenue decreased $5.4 million or 13.8% to approximately $33.6 million as compared to the prior year period. The decrease was primarily driven by lower sales volumes of certain business units, partially offset by incremental revenue of $5 million at Central Steel, which was acquired in May 2024. Gross profit for the quarter increased $1.2 million or 3.4% to $38.3 million. Gross margin increased by 410 basis points to 34% from 29.9% in the prior year period. The increase was primarily driven by higher margins in our Steel Manufacturing and Flooring Manufacturing segments. The increase in gross margin in the Steel Manufacturing segment is primarily due to improved efficiencies and the May 2024 acquisition of Central Steel, which has historically generated higher margins. The increase in gross margin in the Flooring Manufacturing segment is primarily due to improved efficiencies and more favorable product mix. General and administrative expense decreased approximately $3.8 million or 12.6% to $26.3 million. The decrease was primarily due to lower compensation and other operating expenses resulting from targeted cost reduction initiatives in the Retail-Flooring and Flooring Manufacturing segments. Sales and marketing expense decreased approximately $1.8 million or 31.5% to $4 million. The decrease was primarily due to lower compensation and marketing expenses resulting from targeted cost reduction initiatives in the Retail-Flooring and Flooring Manufacturing segments. Interest expense decreased 9% to $3.9 million. The decrease was due to lower average debt balances as compared to the prior year period. Net income was approximately $5.4 million for the quarter and diluted EPS was $1.24 compared with a net loss of approximately $2.9 million and a loss per share of $0.91 in the prior year period. Net income for the third quarter includes a $1.5 million gain on employee retention credits and a $1.3 million gain on the settlement of a holdback liability related to the Precision Marshall acquisition. Adjusted EBITDA for the quarter was approximately $13.2 million, an increase of approximately $7.1 million compared to the prior year period. The increase in adjusted EBITDA is primarily due to the improved operating performance during the third quarter of 2025, reflecting the targeted cost reduction initiatives in the Retail-Flooring and Other segments. Turning to liquidity. We ended the quarter with total cash availability of $37.1 million, consisting of cash on hand of $7.6 million and availability under various lines of credit totaling $29.5 million. Our working capital was approximately $65.9 million as of June 30, 2025, compared to $52.3 million as of September 30, 2024. As of the end of the quarter, total assets were $387.5 million and total stockholders' equity was $94.3 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 12,695 shares of the company's common stock at an average price of $8.83 per share. In conclusion, we are pleased that all four of our operating segments delivered improved performance in the third quarter of fiscal 2025, with each reporting higher operating income and operating margin compared to the prior year period. Our third quarter results reflect the impact of our strategic pricing actions and continued focus on operational excellence. These outcomes underscore the success of our disciplined cost management and efficiency initiatives across our diversified portfolio. We believe these results affirm our ability to enhance profitability and generate strong cash flow even in challenging market environments. We will now take questions from those of you on the call. Operator, please open the line for questions.

Operator, Operator

Our first question comes from Joseph Kowalsky.

Joseph Kowalsky, Analyst

Gentlemen, very nice. I like what I read and what I heard. It sounds generally very good. I appreciate it. I have a couple of questions that I will present together, and you can address them as you see fit. My understanding is that your goal was to acquire companies and allow their management to handle operations while you address the issues and overhead. In the case of flooring, where you've taken a more active role, is that indicative of a broader strategy with your companies, or is it specific to that area? I'll wait for your answer before asking the other related questions.

David Verret, CFO

Yes. I would say our strategy remains the same. Our intention is always to keep the management teams in place as long as they're delivering the operating performance that we expect. If there's a gap, we'll step in and ensure that we put the right people and resources in order to generate the return for our shareholders.

Jon Isaac, CEO

This is Jon. We prefer not to intervene, but we will when we have to. And in this case here, if you look at our historical financials, we have to intervene and make changes. So this is what you see today, and we're very pleased now with the changes. What's your next question?

Joseph Kowalsky, Analyst

And I appreciate that. And I think that that's a great way to act. I was just curious to know that if it indicated a change what you're telling me, it doesn't. So that I appreciate very much all of that. Okay. These couple of questions, all kind of are related. When you're looking now for companies to acquire, are you looking largely in the same general areas that you have companies already? Or are you looking to expand the footprint into different areas and build? That is, do you think you have a solid core of the companies you have within those areas and it's time to look outside of that? Or do you think it's better to look for more to fill out those core areas? Or are you doing both? The second question is, do you have a committee that looks for these things? Or is it just 1 or 2 individuals? And then the third question is, do you wait to have a certain amount of cash on hand to determine whether it's time to buy another company? And then finally, what do you think about the marijuana space? I know it's kind of oversaturated and there's questions of government regulation, but I was just curious to know if that's something that's on your radar screen.

Jon Isaac, CEO

The short answer, Joseph, is we will look at anything and everything. Obviously, if it's something that could be perceived as a bolt-on acquisition, and we feel that we have a management team that knows the space very well, then we will likely focus on that more. But we will look at anything and everything. The team is the C-suite team. We look at all acquisitions together, and we discuss them as they mature. Regarding the marijuana space, as you know, we don't have anything in the marijuana space. I think it's federally not legal yet. So there are many other opportunities out there for us that are low-hanging fruit and other potential acquisitions. We don't have to go that far yet, so yes, we'll look at anything.

Joseph Kowalsky, Analyst

Will there be a time when you feel you have reached a sufficient level in a particular business area and decide to focus on other opportunities? Or do you believe that your approach will always be guided by whatever seems appropriate at the moment, with no clear endpoint for how much you can take on in any specific area?

Jon Isaac, CEO

We will look at opportunities as they arise and at the opportunity costs. If we find that something delivers a return of X, versus another acquisition that will give us a return of 2X, then we will both look at and evaluate what's best for shareholders, what delivers the most return with the least amount of risk. This is what we do at the Live level: evaluate and allocate capital as quickly as possible.

Joseph Kowalsky, Analyst

And then the last question was, do you wait for a particular amount of cash on hand before you start thinking about doing something else? Or is it just if you find something, you'll borrow as needed to do it and the cash on hand is not as relevant?

Jon Isaac, CEO

We're always looking at deals and opportunities. As you know, deals take time, it's a slow process. So we're always looking at opportunities. We're not looking at whether we need to have a specific amount of cash in the bank to make that happen. We're always looking at deals, and we always come up with creative ways to finance them, whether it be bank financing, seller financing, or any other type of financing.

Joseph Kowalsky, Analyst

Thank you. Thank you very much. Basically keeping everything open, which is, I guess, the best way to be. And I really appreciate you taking the time to address that question.

Jon Isaac, CEO

Thank you for your support...

Operator, Operator

Our next question comes from Todd St. Mary.

Unidentified Analyst, Analyst

Gentlemen, I wasn't going to comment on this, but listening to the last set of questions, I feel compelled to do so. I'm actually a retired executive from a company called USFilters, and we grew via acquisition in the 1990s. We actually did 150 deals in 2 years. So I know something about this. And I would have two suggestions. The first one is, I would recommend you continue to focus on running your business and improving it the way you have this last quarter because I think if you do that, there's a good chance that you can get your earnings on a consistent basis to $2 or $3 or maybe even more per share that would drive your share price up to $30 or $40 or $50 again. And then what you can do from there is use your stock as currency for deals. So that's a far more efficient way to grow by acquisition than cash or debt, in general, if you can get your share price up. And that was kind of the magic of what we did back in the '90s. So I'm just throwing that out there. I did have a series of questions on the quarter. And the first question I have is in regard to the improvements you made with margins and with your cost-cutting, do you see any additional improvements coming? Or have you done everything that you've targeted?

David Verret, CFO

No. We're not done yet. And still, I think when we look at the Retail-Flooring segment, we feel like there's still more work to do. We're doing much better than where we were a year ago, but I think we still have room for improvement. There are initiatives like lease negotiations and things like that that we're working on in that segment that haven't flowed through the numbers yet, so there's still more to come, and we're continuing to focus. And especially during the times when the market is down, it makes us stronger coming out of that soft market.

Unidentified Analyst, Analyst

So as I'm thinking about this going forward then, I can reasonably expect that the margin improvement we saw this quarter and the cost savings in SG&A will continue or even improve over time?

Jon Isaac, CEO

We will always be evaluating these things, Todd, whether we're in a good market or a bad market. This is the job of the CEOs of our subsidiaries. We're always evaluating for more and more efficiencies. But yes, some of our operating subsidiaries have more opportunities than others within our portfolio. And so what David said was correct. We believe there's more room for improvement, and our heads of our subsidiaries are working very hard on those and delivering those for our shareholders.

Unidentified Analyst, Analyst

My next question is, are any of your business segments seeing material impacts from tariffs, either good or bad?

David Verret, CFO

The short answer is no. There have been a few minor impacts, but nothing significant. We have taken various actions because this space can be quite volatile. We are diversifying our vendors across different countries, including the U.S., to ensure we maintain relationships that allow us to respond if any issues arise. Additionally, I believe we are positioned similarly to our peers, so if we need to raise prices in the future, it would likely be a market-driven decision rather than one made by management.

Unidentified Analyst, Analyst

Do you think you might have an opportunity in the steel manufacturing business because of the steel tariffs where it could actually be a plus for you?

David Verret, CFO

It is in the steel because if those prices go up, some of our subsidiaries carry a decent amount of steel on hand. So as those prices go up, we're sitting on inventory that's at a lower cost, which could provide for better margins and more profitability if the space goes that way.

Unidentified Analyst, Analyst

My next question is on revenue. Obviously, revenue has been pressured here for the reasons you stated. I'm wondering if you could give us a feel on what you see going on in the next 3 to 6 months to 12 months? Have we bottomed out or is it going to get worse?

David Verret, CFO

We usually avoid speculation on these matters, but I can share what seems clear to all of us. It has been quite volatile. There are some reasons for hope and optimism. For instance, many of our subsidiaries are influenced by interest rates, particularly in the housing market, where rising interest rates have slowed things down significantly. This, in turn, hampers renovations and affects the demand for new flooring, which impacts our flooring manufacturers and retail sector. Additionally, in the steel industry, some of our suppliers produce parts that serve as raw materials for manufacturing items like appliances and automobiles, which are usually financed. This contributes to consumers' purchasing decisions. Moreover, while interest rates are a factor, consumers' disposable income is also crucial. There are reasons for optimism, as it seems the general consensus is that rates might decrease around September. However, on the other hand, the job market appears to be somewhat weaker. We will have to see how everything unfolds, but I believe we've positioned ourselves as well as any of our competitors.

Jon Isaac, CEO

There's a lot of unknown factors: interest rates, as David mentioned, wars, what's happening in the world. But as you saw, I mean, we've been hyper-focused on the bottom line in our earnings. This quarter, as you could see from our numbers, revenues were down, but adjusted EBITDA doubled. So we've really been focusing on efficiencies, and we'll continue to focus on efficiency. We will see what happens with revenue, what happens with the economy, what happens with the fiscal policies.

Unidentified Analyst, Analyst

Well, you've done a great job this quarter with the improvement. There's no question. I was really excited when I saw the report. So I compliment you guys on that. And I honestly feel if you can get any kind of revenue growth, your bottom line is going to surge. I mean, it will be great...

Jon Isaac, CEO

Exactly. Exactly.

Unidentified Analyst, Analyst

This might be a stupid question because I'm not an expert at all in your business. But is there any opportunity for your flooring businesses to take advantage of what is happening with the manufacturing build-out in this country to actually do it like in office buildings and things like that?

David Verret, CFO

No, I'm not sure I follow.

Unidentified Analyst, Analyst

Well, I mean, your flooring businesses are concentrated, if I understand it correctly, in the residential markets.

David Verret, CFO

We have residential and commercial. We also do some commercial work.

Unidentified Analyst, Analyst

Do you see an opportunity on the commercial side? I mean, I'm assuming with all this money coming in to increase manufacturing in the U.S. that there's gotta be a great opportunity there for flooring.

David Verret, CFO

Yes. We haven't seen any of that trickle through yet. I mean, I think there's a couple of areas. Another one of the areas that I was thinking about is Central Steel, which does all the racking and stuff like that for data centers. And with AI that's out there, they're actually doing pretty well. That was an acquisition that we had last year. So I think there's going to be different opportunities that come up just with the different things that we're seeing in the market, such as what you're just talking about, more manufacturing coming back here. So we'll take advantage of them as we can. But yes, we do some commercial as well as residential.

Unidentified Analyst, Analyst

I have one more thought that came to mind. I hadn't planned to discuss this, but since the acquisition topic was brought up, it triggered a point for me. You might want to consider targeting a company that has access to the markets you want to enter; it may not be a top manufacturer, but rather someone who can serve as a sales arm for your manufacturing efforts. That could be a valuable acquisition for your team. Additionally, have you discussed what would happen if the business reaches a point where it consistently generates earnings of $2, $3, or $4 or more? I know this might be a year or two out, but with your current small share buybacks, would you consider implementing a dividend at that stage?

David Verret, CFO

I don't know that we've kind of gotten far enough along to consider that. I think at this point, one of the things that we're focused on is paying down our debt and driving shareholder value by decreasing our debt. But I mean, I think that's another avenue. Once we start seeing some of this improved consistent performance, then those are things we'll have to be thinking about.

Unidentified Analyst, Analyst

If you have more acquisition targets and that's your focus, I strongly encourage you to continue your current strategy and take the necessary actions to concentrate on your business and boost your share price. Consider using your shares as a form of currency, as it could benefit you and increase liquidity for the stock.

David Verret, CFO

I agree. We just gotta get that stock price higher.

Operator, Operator

We have no further questions at this time. That concludes our meeting today. You may now disconnect.

David Verret, CFO

Thank you.