Earnings Call Transcript - LIVE Q3 2023

Operator, Operator

Good day, everyone, and welcome to today's Live Ventures Incorporated 2023 Third 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. Please note this call may be recorded. 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, and 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 Althofper, 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 as 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 on the Live Ventures website. I direct you to our website www.liveventures.com or sec.gov or our historical SEC filings. I will now turn the call over to David to walk us through our financial performance.

David Verret, Chief Financial Officer

Thank you, Greg, and 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 PMW, for 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, electronic, 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. Now 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 our 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 in 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. Gross 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 acquisitions of Flooring Liquidators and Kinetic. Third quarter net income was $1.1 million, and diluted EPS was $0.33 per share, as compared 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 30, 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 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 30, 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 will now take questions from those of you on the conference call. Operator, please open the line for questions.

Operator, Operator

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

Theodore O'Neill, Analyst

Thank you very much. I have a question about the Salomon Whitney disposition. It appears that I can only connect the settlement and the loss together, but since they are broken out separately, there must be a reason for that. Can you provide us with some history and more details about what the settlement entails?

David Verret, Chief Financial Officer

From an accounting perspective, the loss is associated with the disposal of the asset and deconsolidation, which requires a separate line item alongside the settlement gain. We included some disclosures in our 10-Q regarding the settlement. I want to emphasize that we believe the settlement agreement is in the best interest of Live and its shareholders by ceasing operations related to Salomon Whitney. However, we are restricted in what we can discuss per that agreement. Therefore, I recommend referring to our disclosures in the 10-Q for more information.

Theodore O'Neill, Analyst

Okay. I read the Q&A, I was just looking for some information, but that's fine.

David Verret, Chief Financial Officer

If you look at the press release that we published and go down to adjusted EBITDA, you'll see a breakdown there, and it will say Salomon Whitney financial settlement gain and disposition, you will see that event matter pretty easily.

Theodore O'Neill, Analyst

Yes, okay. And you sort of talked about the Flooring business and the Retail business having reduced customer demand. Is there anything idiosyncratic about that that's going on? Or is that just sort of a general economic?

David Verret, Chief Financial Officer

It's going to be more or less of general economic conditions. The only other thing I would add is during 2020 and 2021, there was a decent boost in revenues. A lot of people were getting home remodels and things like that. So between that and just overall general economic conditions, what we're seeing is kind of right in line with our company.

Jon Isaac, Chief Executive Officer

I would say, Theodore, if you looked at companies similar to what we do and looked at more numbers, it will paint a very clear picture. LL Flooring published their numbers yesterday, and you'll see that their same-store sales are down 22%. I think that we are outperforming the general market, but that is my opinion.

Theodore O'Neill, Analyst

Yes. Okay. 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. Okay, those are my questions. Thank you.

David Verret, Chief Financial Officer

Excellent. Thank you, Theodore.

Operator, Operator

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

David Verret, Chief Financial Officer

Well, I want to thank everyone for attending the call today, and we look forward to our next call following our year-end. So thank you.

Operator, Operator

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