Q3 2022 Live Ventures Inc Earnings Call

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Good day, everyone and welcome to todays life insurance incorporated third quarter earnings call. At this time all participants are in a listen only mode. Later, you will have an opportunity to ask questions. During the question and answer session. You May Register to ask a question at any time by pressing the star.

One on your Touchtone phone. Please note this call maybe recorded and I will be standing by should you need any assistance. It is now my pleasure to turn today's program over to Greg Powell Director of Investor Relations. Please go ahead.

Thank you Britney and good afternoon, everyone and welcome to the live ventures third quarter fiscal 2022 conference call I'm here. This afternoon joined by John <unk>, Our Chief Executive Officer, and President Gary called Hopper, Our Chief operating Officer, and David Barrett, Our Chief Financial Officer.

Some of the statements we're 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.

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 this call in the Investor relations sections of the well I've ventures website.

Earlier today, we filed our 10-Q with the SEC I direct you to our website www Dot ventures, dot com or www dot FCC dot Gov for a copy of this quarters 10-Q, and other historical SEC filings I will now turn the remainder of our call over to David.

To walk through our financial performance.

Thank you, Greg and good afternoon, everyone. Overall, the company delivered a solid third quarter 2022 performance representing the three months ended June 32022, despite increasing economic headwinds and inflationary pressures.

During the third quarter, we continued to execute our multi pronged capital allocation strategy to maximize shareholder value.

Before we jump into the numbers, we should discuss the biggest event of the quarter.

At the end of June our steel manufacturing segment acquired the kinetic Company, Inc. A 74 year old, Wisconsin based company.

Kinetic is a highly recognizable and regarded brand name and the production of industrial knives, and hardened where products for the tissue metals and wood industries. It is known as a one stop shop for in house grinding machining and heat treating.

We believe that kinetic is a great fit within our growing steel manufacturing segment.

Now I will discuss the financial results for the third quarter.

Total revenue for the third quarter decreased slightly to $68 3 million down one 2% as compared to $69 1 million in the prior year period.

Revenue decreased into retail and flooring manufacturing segments, which was partially offset by increased revenue and the steel manufacturing and corporate and other segments.

Flooring segment revenue decreased 6% to $32 2 million as compared to $34 2 million in the prior year period, primarily due to reduced customer demand.

Retail segment revenue decreased 11, 5% to $19 2 million as compared to $21 7 million in the prior year period.

The decrease was primarily due to reduced demand as a result of inflationary factors.

Steel segment revenue increased 15% to $15 million as compared to $13 million in the prior year period.

The increase in revenue was primarily due to increased sales prices, resulting from rising costs.

Finally, approximately $1 8 million of the increase in corporate and other segment revenue was due to Solomon Whitney becoming a consolidated variable interest entity in 2021.

Gross profit for the third quarter was $22 3 million down from $25 1 million in the prior year period.

The gross margin percentage for the company decreased to 32, 7%.

From 36, 3% in the prior year period.

Decrease in the gross margin percentage is primarily due to inflationary pressures, which resulted in increased raw material costs.

The flooring segments gross profit margin decreased to 23, 2% as compared to 28, 8% in the prior year period.

The decrease is primarily due to increases in raw material costs.

The retail segments gross profit margin decreased slightly to 53, 2% as compared to 53, 8% in the prior year period.

The steel segments gross profit margin increased to 26, 8% as compared to 26, 2% in the prior year period.

The increase was primarily due to increased sales prices, resulting from inflationary pressures.

General and administrative expenses decreased by two 8% to approximately $13 4 million for the three months ended June 32022, as compared to the three months ended June 32021, primarily due to decreases in taxes and license costs legal expenses and employee.

Variable compensation costs.

Which were partially offset by costs associated with the acquisition of kinetic.

General and administrative expenses as a percentage of revenues decreased to 19, 6% of revenue as compared to 20% in the prior year period.

Sales and marketing expenses for the third quarter were $3 1 million as compared to $3 million in the prior year period.

Sales and marketing expenses as a percentage of revenue were four 5% as compared to four 4% in the prior year period.

Operating income was $5 9 million for the third quarter, a decrease of $2 4 million or 28% as compared to the prior year period.

And net income of $3 5 million for the three months ended June 32022.

Decreased $6 5 million or <unk> 65, 1% as compared to the prior year period.

The decrease is primarily attributable to fiscal year 2021 gains on settlements of debts of approximately $5 4 million.

Again on the payroll protection program loan forgiveness.

Diluted EPS for the current quarter was $1 11 per share a decrease of 63, 2% as compared with the prior year period.

Adjusted EBITDA for the third quarter of 2022 decreased nine 5% to $8 8 million as compared to $9 8 million in the prior year period.

The decrease in EBITDA is primarily due to the decrease in revenue and increased cost of revenue.

<unk> from inflationary pressures.

Reconciliation of adjusted EBITDA has been provided in our earnings release and in the 10-Q.

Turning to liquidity, we ended the quarter with cash of $3 6 million in cash availability under our various lines of credit of $32 million for combined total liquidity of $35 6 million.

Net cash provided by operations was approximately $10 8 million for the nine months ended June 32022, as compared to net cash provided from operations of approximately $32 2 million for the nine months ended June 32021.

The decrease was primarily due to purchases of inventory and inflationary pressures on raw materials.

Working capital for the company at the end of the third quarter was $72 million as compared to $33 8 million as of September 32021. The increase is primarily due to net assets received from the acquisition of kinetic.

And an increase in inventory.

Total assets increased $51 million or 24, 1% to $262 8 million as compared to $211 7 million as of September 32021.

Cash flows provided by financing activities increased approximately $28 million. During the nine months ended June 32022, primarily due to proceeds from borrowings under revolver loans and the issuance of notes payable, which was primarily associated with the acquisition of kinetic.

As part of our capital allocation strategy, we may do share repurchases from time to time.

We believe our stock repurchase 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 quarter, we repurchased 14160 shares of common stock at an average price of approximately $23 31 per share.

Year to date, we have repurchased 79828 shares of common stock an average price of approximately $31 67 per share.

The company has repurchased.

498298 shares of its common stock for approximately five 8 million under this program as of June 30, the company had approximately $4 $2 million available for repurchases under this program.

In conclusion.

While the current business environment remains challenging we remain optimistic about our ability to navigate the environment and drive long term returns for our shareholders.

We will now take questions from those of you on the conference call.

Operator.

Please open the line for questions.

At this time, if you would like to ask a question. Please press the star and one on your Touchtone phone you may remove yourself from the queue at any time by pressing star to once again that is star one if you would like to ask a question.

Pause for just a moment to allow questions to queue.

Okay.

And once again that is star and Wonder if you would like to take to ask a question.

We'll take our first question from Joseph Kowalsky, with Joseph Koski, J D upstream investment partners. Your line is open.

Thank you very much less closer to <unk>, but.

Great job and continuing great job on this.

Really happy about the kinetics purchase I think thats, that's really terrific.

I have actually several questions and I know there aren't usually a lot of questions on these calls so.

I'm going to.

Go into them and just stop me if I am going beyond my my fair share.

You have something on their corporate and other in the revenue and I'm just not clear I think SW financials included in that what else is included in the revenue from corporate and other.

It's also the cost center, where the.

<unk> corporate.

So the corporate office is in there.

Corporate up but what revenue comes from that.

There is.

A little bit very.

Very immaterial amount of I mean, it's pretty much all Salomon Whitney and the revenue.

Okay and then.

I didn't see free cash flow listed do you list that you have that.

We have not lifted the free cash flow.

Okay.

And the 10-Q as our cash flow statement cash flow statement. It isn't there okay I will take a look at the Q I'm sorry, Tom.

The.

You mentioned it was 22 point something million that number you mean.

Mentioned it.

We will give you the number here in a second.

Okay, I'm, sorry, if you mentioned it and I missed it I apologize I'm wondering at $20 8 million during the nine months ended June 30th, but Youll see them. Thank you.

Okay great.

The <unk>.

Can you just say Oh in the nine month numbers.

<unk> was the PPP gain included was that included in the 2021 number to the 2022 nine months numbers. It was in the 2021 June .

Numbers.

The 20th.

Prior to joining Warner Okay.

So then it would've been in the June 2021, nine months as well Im sorry, yes.

Settling so that is why you see that is why you see a material decrease in our net income this quarter versus last year's quarter because of the because last year, we had the pvp forgiveness, which was.

I guess the noncash.

Income Im sorry, we don't have it.

Yeah, No I understood that I saw that and I was just I wanted to make sure that I was reading it correctly as far as when it came in and I thought that I mean that only made sense, but I still wanted to double check it.

Do you intend to take a larger holding in Salomon Whitney.

Or is that is that something you've disclosed or is that.

Suddenly you are considering or is this an intentional because I mean generally you buy companies outright you don't usually take at least in the past I haven't taken partial holdings that's.

That's correct and the unique situation here is that to get that majority of our 100% ownership, we need approval from FINRA.

And so that is a long process and we're kind of working through that now but.

Once.

We have to wait for that before we get the complete.

Ownership.

And good luck with FINRA Theyre always fun to deal with.

What is the current outstanding debt it must be there, but somehow I just missed it I guess.

You want the current portion of debt, let's say so we have.

We're looking for.

So long term debt, we have $49 million in long term and.

We're actually.

Luis.

I think I have it.

I think it's a older one.

Yeah, I got that for you.

Yes.

Got it.

Is the current portion is $18 4 million and the long term debt is is $58 5 million.

Okay. Thank you and I have just two more questions if thats okay.

Sure.

Okay. Thanks.

Yes.

<unk> what percent of that.

The shares repurchased what percentage was that of the total shares outstanding I just don't know how many are at this point are outstanding. So I guess, you could tell me that too and I could do the calculus, we have a total of 3 million shares 3.081 million shares outstanding.

So it's about half.

Okay Alright, great.

And were any of the shares that were bought back reissued.

Net debt is four.

Employee stock purchase plans or anything like that.

No.

And then finally consideration of new ventures I was just wondering how you go about finding companies too.

That you might be interested in if you are looking at things you've typically done things that are very vanilla, which I kind of like because they provide steady income, but I mean have you been looking at anything like space exploration biotech green technologies or anything like that still within the parameters of small companies that are profitable, but something a little bit differ.

Or are you.

Largely staying in things that are more I don't know you might say old school kind of Warren Buffett sort of they just keep making money for you that kind of thing.

And in particular like I'll give you. An example, I was just just heard that the.

The fellow who invented the MRI.

The median that he just passed away this week.

Phone or which is this his baby.

It's maybe $100 million company or something like that very profitable, but it's a techie Tech company and I didn't know if that's the kind of if you'd be looking out in that area. If youre looking in particular areas.

I guess I'd ask the question six times from Sunday So.

No no problem at all and so this is Eric I'll tougher I oversee M&A group and multi part questions.

The answer them in stages.

In terms of our deal flow and our sources or.

Our M&A team has a development team that goes out.

Contacts brokers and intermediaries and is tasked with sourcing new deal opportunities. The majority of the deals that we review come in through that channel given our growing presence in the market and our continued M&A activity. We also receive a considerable considerable amount of inbound enquiries and proposals for potential.

<unk> acquisitions those.

Those are the primary sources of our deal flow in terms of what we would look at.

We will look at anything and everything you kind of nailed it though in terms of our general box when you started your.

Question, we tend to look at family run founder owned businesses that are closely held historically, we have looked at more asset intensive businesses. We have historically been value oriented in our acquisitions that continued with the kinetic acquisition. We look at asset bases, we like manufacturing businesses that has been our primary background.

And focus that said, we have the flexibility to look at any transaction, which would be accretive to our shareholders and wouldn't rule out any potential opportunities.

Thank you very much that does it.

John Jones these acquisitions can come in different.

Every acquisition has a different story.

One here, we kind of.

For Connecticut was actually an interesting story, we got it by fluke.

One of the suppliers of kinetic was chatting with the owner and said Hey, you have have you looked at live ventures, the acquired precision and they've been doing some wonderful things for it to it and so the owner contacted his investment banker, who contacted US and said Hey are you interested in this company.

You never know where these companies come from sometimes our phone rings, sometimes we call out when we work with various investment bankers, who have deals deal pipeline and we and we've been on those.

Thank you I appreciate that it is a good story and I would imagine that as the company grows and gets better known youre going to have it'll be both a blessing and a curse youll have a lot more people coming to you and.

A lot more opportunities, but also a lot more as we go through and try and weed out.

But thank you. Thank you very much for all that that's it for me. Thank you for your questions. Thank you very much. Thanks Chuck.

And once again that is star one if you would like to ask a question, we'll pause for just a moment to allow additional questions to queue.

And it appears we have no further questions on the line at this time I will turn the program back over to our presenters for any additional or closing remarks.

Thank you all for joining us today, we really appreciate it if you have any further questions. After the call. Please feel free to reach out to US my phone number and email as at the end of the press release. Thank you have a great day.

Look forward to talking to you next quarter.

This does conclude today's program. Thank you for your participation you may disconnect at any time and have a wonderful day.

Sure.

No.

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