Earnings Call Transcript - LIVE Q2 2024

Operator, Operator

Good day, everyone, and welcome to today's Live Ventures Second Quarter Conference Call. Please note this call is being recorded, and I will be standing by if you need any assistance.

Greg Powell, Director of Investor Relations

Thank you, Travis. Good afternoon, and welcome to the Live Ventures Second Quarter Fiscal Year 2024 Conference Call. Joining us this afternoon for the call 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 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 a copy of our press release referenced on this call in the Investor Relations section of the Investor Relations website. I direct you to our website, www.liveventures.com or sec.gov for our historical SEC filings. And now I'll turn the call over to David to walk you through our financial performance for the quarter.

David Verret, CFO

Thank you, Greg, and good afternoon, everyone. Let's jump right in and discuss the financial results for the second quarter ended March 31, 2024. Total revenue for the quarter increased 30.2% to approximately $118.6 million. The increase is primarily attributable to the acquisitions of PMW, which was acquired during the fourth quarter of fiscal year 2023, and Flooring Liquidators, which was acquired during the second quarter of fiscal year 2023, which collectively added $29.6 million in revenue. In addition, the Flooring Manufacturing segment contributed incremental revenue of approximately $3.8 million in the quarter. The increase was partially offset by decreased revenue of approximately $5.9 million in the company's other businesses due to general economic conditions. Flooring Manufacturing revenue of approximately $34.2 million increased by $3.8 million or 12.7% as compared to the prior year period. The increase is primarily due to increased sales related to Harris Flooring Group brands, which was acquired in the fourth quarter of fiscal year 2023. Retail-Entertainment revenue of approximately $16.8 million decreased $2.3 million or 12.2% as 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 with higher margins. Retail-Flooring revenue for the quarter was approximately $32 million, an increase of $11.3 million or 54.2% compared to the prior year period. The increase is due to the acquisition of Flooring Liquidators in fiscal year 2023 as well as the acquisitions of CRO and Johnson in Q1 2024. Steel Manufacturing revenue of approximately $35.5 million increased $15.6 million or 78.2% as compared to the prior year period. The increase is primarily due to increased revenue of approximately $18.3 million at PMW, partially offset by a $2.7 million decrease in the company's other Steel Manufacturing businesses. Corporate and other revenue was approximately $100,000, a decrease of $800,000 compared to the prior year period. The decrease is primarily due to the closure of SW Financial in May 2023. Gross profit for the second quarter was $35.5 million, up from $31.6 million in the prior year period. The gross margin percentage for the company decreased to 29.9% from 34.7% in the prior year period. The decrease in gross margin is primarily due to the acquisition of PMW, which has historically generated lower margins, as well as overall decreased margins in the Steel Manufacturing segment due to general economic conditions impacting the industry. The decrease in gross margin was partially offset by the acquisition of Flooring Liquidators, which contributed a gross margin of 36.5% in the quarter. General and administrative expense increased approximately $7.2 million to $29.8 million. The increase is primarily due to the acquisitions of Flooring Liquidators and PMW, which collectively contributed an additional $6.4 million in general and administrative expense during the quarter. Sales and marketing expense increased approximately $2.4 million to $6.5 million. The increase is primarily due to increased sales personnel acquired in connection with the acquisition of Harris Flooring Group brands and increased convention and trade show activity in the Flooring Manufacturing segment. Interest expense increased by approximately $925,000 as compared to the prior year period. The increase is primarily due to incremental debt incurred in connection with the acquisitions of Flooring Liquidators and PMW. Net loss was approximately $3.3 million and loss per share was $1.04 compared to net income of approximately $1.6 million and diluted EPS of $0.49 per share in the prior year period. This decrease is primarily attributable to the quarter's operating loss and higher interest expense. Adjusted EBITDA for the second quarter was approximately $4.5 million, a decrease of approximately $4.7 million compared to the prior year period. Turning to liquidity. We ended the quarter with total cash availability of $36 million, consisting of cash on hand of $4.5 million and availability under our various lines of credit totaling $31.5 million. Our working capital was approximately $78.8 million as of March 31, 2024, compared to $85 million as of September 30, 2023. Total assets were $433.9 million, and total stockholders' equity was $95.9 million as of March 31. 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've repurchased 11,849 shares of common stock at an average price of approximately $25.16 per share. As of March 31, the company had approximately $2.9 million available for repurchases under our repurchase program. In conclusion, we are pleased that our second quarter revenue increased 30.2%. Despite some challenging industry-specific headwinds, we are committed to adapting to market changes, maintaining operational efficiency and enhancing customer satisfaction. As we navigate the current market conditions, we're confident about our business prospects and are steadfast in our commitment to our long-term strategy of buy-build-hold. This approach underscores our belief in creating sustainable growth and value over time.

Jon Isaac, CEO

Let's take the question from Joseph, please.

Operator, Operator

We do have a question from Joseph Kowalsky with Joseph Kowalsky, JD, Investment Partners.

Joseph Kowalsky, Analyst

I'm very pleased to hear about the increased revenue and the introduction of new products. However, I'm concerned about the losses compared to profits. I have a couple of specific questions: What is our current status on debt? Is there a timeline for reducing that debt? I understand the amount of debt we've discussed, but I'm interested in your thoughts on the timeline for its reduction.

David Verret, CFO

We will reduce debt as the company generates cash. We have lines of credit that we utilize as needed for immediate requirements. However, in the absence of future acquisitions, we will continuously monitor our leverage ratio and make the best decisions accordingly, considering our prospects for potential acquisitions.

Joseph Kowalsky, Analyst

I really appreciate share buybacks. However, I wonder if it might be wiser to prioritize debt reduction instead of share buybacks for the time being, until our profitability improves. I assume that's something you're considering.

David Verret, CFO

It is part of the consideration and actually the share repurchase program ended at the end of May. So that's something that we'll look at.

Jon Isaac, CEO

We only repurchased 11,849 shares. It's not...

Joseph Kowalsky, Analyst

Right. No, I saw that.

Jon Isaac, CEO

Yes, exactly. So as David stated, we will make the right allocation decisions as they come up. A lot of our debt is sub-market now anyway, so we are getting some favorable rates in some areas and others not so much. But yes, we're keenly focused on debt repayment as one of the places that we can invest our cash.

Joseph Kowalsky, Analyst

So, the other two questions I had are about the entertainment sector, where you mentioned an increase in secondary sales, resulting in lower ticket sales but higher margins. In your opinion, is it generally more advantageous to have higher margins even with lower ticket sales, or would you prefer higher ticket sales at the expense of margins? Or is this not a direction you take; rather, do you focus on what the market demands and adjust accordingly?

David Verret, CFO

That's probably the best case of what it is, how I would characterize it, but higher margins is obviously preferable. But at the same time, we also have to offer the new products because they kind of go hand in hand.

Jon Isaac, CEO

We're focused on the bottom line. However, as David mentioned, sometimes we need to sell high-ticket items to create momentum for lower-priced items. For instance, when a new console is released, we sell it even though the profit is minimal. We do this because selling the console attracts customers back to where they purchased it, leading them to buy games and other products, and eventually return items to us. It's more of a service than anything else. To answer your question, our primary concern is on what benefits our shareholders and how we can maximize profitability. Revenue is a nice figure to report, but ultimately, it's all about earnings per share and the bottom line.

Joseph Kowalsky, Analyst

I'm reminded of the sales of razor blades, and I see all these ads for Harris. They want to sell you their holders so they can then sell you the blades because that's where the money is. It sounds similar. When you're looking for new companies to acquire, are you focusing more on areas that align with your current companies or are you open to any type of company that you think would be beneficial? Is there a goal to achieve a certain scale with the companies you have?

David Verret, CFO

Yes. We don't focus on a specific industry. Instead, we look for opportunities that make sense. As we explore the carpet industry, we're finding many additional opportunities that enhance our existing business. If we can increase the profitability of our current investments by expanding, that's a positive outcome. Overall, we're open to any industry, but complementary areas are a nice advantage.

Joseph Kowalsky, Analyst

Got you. I think the only question I have left is, and I apologize because I'm not an accountant, but how does free cash flow factor into all of this? And do you have an estimate for when you expect to achieve profitability? Then I'm finished.

David Verret, CFO

From an EBITDA perspective, we are pleased that we are positive. Regarding free cash flow, I believe we are in a solid position. Even in the current market, where many are experiencing challenges, we observe that our performance is on par with, if not superior to, some of our peers in certain situations. We are satisfied with our positioning, and as we anticipate an increase in the market, it should benefit us across the board.

Joseph Kowalsky, Analyst

I’m not sure if it directly addresses my question. In my business, I prioritize doing the right things for customers over focusing solely on profits; when you take care of customers, the profits naturally follow. I would hope you have a similar approach. I definitely don’t expect you to prioritize profit above all else, as that isn't sustainable in the long term, in my opinion. I was curious if you have any insights about when you expect the shift from losses to profits might occur. Perhaps you do, or maybe you don't; I’m not certain.

David Verret, CFO

I believe we're in different industries that are somewhat related but also have unique aspects. In the flooring business, interest rates drive consumer decisions, and that’s something we’re monitoring closely. When people move, they tend to replace carpets, which increases sales. New home construction also boosts carpet sales. In tighter markets, higher rates and lower consumer liquidity lead to reduced spending. This trend is also reflected in retail and entertainment, where people spend less due to having less disposable income, but they tend to buy higher margin items from us, helping to balance things out. Overall, various factors including manufacturing, interest rates, and consumer sentiment play a significant role.

Joseph Kowalsky, Analyst

All right. So I'll go talk to Jay Powell.

Jon Isaac, CEO

Let us know what he says.

Operator, Operator

We have no further questions in the queue at this time.

David Verret, CFO

Okay. I'd like to thank everyone for calling in to the second quarter earnings call and look forward next quarter to talking with everyone. Thank you.

Jon Isaac, CEO

Thank you.

Operator, Operator

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