Live Ventures Incorporated (LIVE) Earnings Call Transcript & Summary

Good day, everyone, and welcome to the first quarter 2023 earnings call. [Operator Instructions] Please note, this call may be recorded. It is now my pleasure to turn today's program over to Greg Powell, Director of Investor Relations. Please go ahead.

Thank you, Gretchen. Good afternoon, everyone, and welcome to the Live Ventures Fiscal 2023 First 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 Althofer, 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 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 and 10-Q referenced on this call in the Investor Relations section of the Live Ventures website. I will direct you to our website www.liveventures.com or www.sec.gov for our historical SEC filings. I will now turn the call over to David to walk through our financial performance.

Thank you, Greg, and good afternoon, everyone. Overall, the company delivered $69 million of revenue, $1.8 million in net income and $7.5 million of adjusted EBITDA in spite of a challenging economic environment. As evidenced by our acquisition of Flooring Liquidators, we continue to execute our multi-lever buy-build-hold strategic plan to maximize stockholder value. In addition, we repurchased 24,710 shares of our common stock during the quarter. Before we jump into the numbers, let's briefly discuss the Flooring Liquidators acquisition that we announced in January. We are very excited about the Flooring Liquidators acquisition. Flooring Liquidators is a leading retailer and installer of floors, carpets and countertops to consumers, builders and contractors in California and Nevada. Over the years, they have established a strong reputation for innovation, efficiency and service in the home renovation and improvement market. The transaction valued at approximately $84 million was financed through a combination of cash, debt and the issuance of 116,441 shares of our common stock, representing a 3.78% dilution of Live Ventures fully diluted common stock. Our expectation is that Flooring Liquidators will add a significant new revenue stream of approximately $125 million per year. We believe there are strong growth opportunities in all 3 of Flooring Liquidators divisions: retail, builder and franchise mobile store model. We look forward to sharing the results with you beginning with our next earnings report. Now I will discuss the financial results for our first quarter. Total revenue for the first quarter decreased to $69 million, down 8.2% as compared to $75.2 million in the prior year period. The decrease in revenues is due to lower revenues in the Flooring Manufacturing, Retail and Corporate and Other segments. Flooring Manufacturing revenues of $26.4 million decreased approximately $6.4 million or 19.6% as compared to the prior year period. The decrease is primarily due to reduced demand as a result of general economic conditions. Retail revenues of $23.3 million decreased approximately $2.9 million or 11.2% as compared to the prior year period. The decrease is primarily the result of reduced demand due to inflationary pressures, supply chain issues and overall product sales mix. Steel Manufacturing revenues of $18 million increased approximately $5.6 million or 45.4% as compared to the prior year period, primarily due to the acquisition of Kinetic. Corporate and Other segment revenues decreased approximately $2.4 million, primarily due to the decreased revenues at SW Financial. Gross profit for the quarter was $21.9 million, down from $27.6 million in the prior year period. The gross margin percentage for the company decreased to 31.8% from 36.7% in the prior year. This decrease is primarily due to the tightening margins in our Flooring and Steel segments. Flooring Manufacturing segment's gross profit margin decreased to 17.6% as compared to 27.5% in the prior year. This decrease was primarily due to increases in raw material costs and lower demand. Retail segment's gross profit margin increased to 52.5% as compared to 51.1% in the prior year. The increase is primarily due to fluctuations in product mix. Steel Manufacturing segment's gross profit margin decreased to 24.4% as compared to 29.2% in the prior year period. The decrease in profit margin was primarily due to increases in raw material costs as well as the acquisition of Kinetic. General and administrative expense increased by 3.1% to approximately $14.6 million as compared to the prior year period. The increase is primarily due to the acquisition of Kinetic, partially offset by decreases in professional fees and other general and administrative expenses. Selling and marketing expense decreased by 9% to approximately $2.8 million as compared to the prior year period. The decrease was primarily due to a decrease in trade show and convention activity related to our Flooring Manufacturing segment. Operating income decreased to $4.6 million for the first quarter of 2023 as compared to $10.4 million in the prior year period. The decrease in operating income is primarily attributable to lower gross profit as a result of inflationary cost increases. First quarter interest expense increased approximately $1 million as compared to the prior year period. The increase is primarily due to increased debt balances as a result of the Kinetic acquisition and increased interest rates. First quarter net income was $1.8 million as compared to net income of $6.5 million in the prior year period. Diluted EPS for the first quarter was $0.60 per share as compared to $2.04 per share in the prior year period. And adjusted EBITDA for the first quarter was $7.5 million, a decrease of approximately $4.6 million as compared to the prior year period. Turning to liquidity. We ended our first quarter with cash of $12.8 million and cash availability under our various lines of credit of $21.2 million for a combined total liquidity of $34 million. I'd like to highlight our low level of leverage. As of the end of our first quarter, our net debt to the last 12 months adjusted EBITDA ratio was 2.3x. We maintained a low level of leverage while purchasing 2 new businesses in the last 12 months, repurchasing shares and making significant capital investments in our businesses. We had working capital of approximately $78.1 million as of December 31, 2022, as compared to $78.4 million as of September 30, 2022. Total assets increased to $279.1 million as compared to $278.6 million as of September 30, 2022, and total stockholders' equity increased $1.2 million to $98.4 million. As a 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 the first quarter, we repurchased 24,710 shares of common stock at an average price of approximately $25.16 per share. As of December 31, the company had approximately $3.4 million available for repurchases under this program. In conclusion, while we continue to face significant macroeconomic headwinds, we believe we are well positioned to continue to deploy our capital in a smart, focused and disciplined manner to create long-term stockholder value. We will now take questions from those of you on the conference call. Operator, please open the line for questions.

[Operator Instructions] And our first question comes from Theodore O'Neill from Litchfield Hills Research.

Congratulations on a good quarter despite the issues here. Last quarter and this quarter both cited inflation as issues for the Retail segment and the Flooring segment. Do you see any abatement of that now that we're here in February?

We are seeing some abatement in that, but we believe it's just going to take some time for it to really funnel through and be able to start driving up our margins.

And I know you talked about the Flooring acquisition in your prepared remarks at the beginning. Is there any kind of guidance you can give us as to how that revenue might flow in over the subsequent quarters coming up?

We don't give guidance on -- but I mean, we have noted that we expect around $125 million per year. So I would just kind of prorate that. I think it's a great start.

Okay, that's fine.

None of the figures that you see in the Q here reflect anything from Flooring Liquidators because it was purchased after the end of the quarter. So next quarter, we should see revenues flowing from Flooring Liquidators. We put in our press release that we expect about $125 million a year. It could be more. It could be less. But it's just a high-level number.

Okay. In the Steel Manufacturing segment, is there any seasonality to that business that would make revenue maybe go up next quarter or future quarters here?

I don't think so now. There's moderate seasonality, but not significantly in the Steel segment.

We'll take our next question from Joseph Kowalsky.

Thank you for the hard work and a good quarter. I have several questions, so just stop me if I'm taking up more than my fair share of time, if that's all right. First one is I'm not an accountant, and I just want to understand the dilution compared to the increase in the asset value. I mean, we are getting a new asset for that dilution. So it sounds like some stockholders equity is up. Does that mean that each share actually owns more even after the dilution given the new asset that has become part of the portfolio?

That dilution is just representative of the number of shares that we issued in connection with the deal. And that -- so there's no -- it's just strictly the number of shares that are outstanding, how many did we add and to what percentage of that dilute overall.

That I understand. What I'm asking is that the actual assets that each share owns, does that go up given the new asset that we now own?

Yes. Yes, we'll have assets and we'll allocate that towards that. We've also noted that it has value of less than $84 million. So we have $84 million of additional [ assets that we're going to put ] [indiscernible].

Got it. All right. My next question is...

The word you're looking for is, is it an accretive deal?

That's exactly what I mean.