Q3 2024 Live Ventures Inc Earnings Call
Operator: Welcome to the Live Ventures FY 2024 third quarter earnings conference call. At this time, all participants are in a listen-only mode. Later, we will conduct the question and answer session. I would now like to turn the call over to Greg Powell, Director of Investor Relations.
Greg Powell: Paul, good afternoon, and welcome to the Live Ventures third quarter fiscal year 2024 conference call. Joining us this afternoon are John Isaac, our Chief Executive Officer and President, and David Verret, our Chief Financial Officer.
Greg Powell: 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. However, 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 forwarding statements after this call, whether as a result of new information, future events, changes in assumptions, or otherwise.
Greg Powell: You can find the press release referenced on the call this afternoon in the Investor Relations section of the Live Ventures website. I direct you to our website, liveventures.com, or sec.gov for historical SEC filings. I will now turn the call over to David to walk you through our financial performance.
David Verret: Thank you, Greg, and good afternoon, everyone. Let's jump right in and discuss the financial results for the third quarter ended June 30, 2024. Total revenue for the quarter increased 35.4% to approximately $123.9 million. The increase is primarily attributable to the acquisitions of PMW, which was acquired during the fourth quarter of fiscal year 2023, and Central Steel, which was acquired in May 2024, collectively adding approximately $21.1 million in revenue. Additionally, the increase was attributable to increased revenue in the retail flooring segment of approximately $9.5 million and an increase in the flooring manufacturing segment of approximately $3.8 million.
David Verret: These increases were partially offset by decreased revenue of approximately $2.2 billion in the company's other businesses due to general economic conditions. Retail entertainment revenue of approximately $16.5 million decreased $1.5 million, or 8.4%, 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 prices with higher margins.
David Verret: Retail flooring revenue for the quarter was approximately $37 million, an increase of $9.5 million, or 34.7% compared to the prior year period. The increase is primarily due to increased revenue, hiring liquidators, the builder design and installation segment, elite builder services, and the acquisitions of CRO and Johnson by Floor and Liquidators during the first quarter of fiscal year 2024. Flooring manufacturing revenue of approximately $31.3 million increased $3.8 million, or 14% compared to the prior year. The increase is primarily due to increased sales related to Harris Flooring Group brands, which were acquired in the fourth quarter of fiscal year 2023.
David Verret: Steel manufacturing revenue of approximately $39 million increased $20.6 million, or 112.1%, compared to the prior year period. The increase is primarily due to increased revenue of approximately $19.2 million at PMW and approximately $1.9 million at Central Steel, partially offset by a $0.5 million decrease in the company's other steel manufacturing business. Gross profit for the third quarter was $37 million, up from $32.2 million in the prior year period.
David Verret: The gross margin percentage for the company decreased to 29.9% from 35.2% in the prior year period. The decrease in gross margin percentage is primarily due to the acquisition of PMW, which has historically generated lower margins, and decreased margins overall in the steel manufacturing segment due to reduced production efficiencies as a result of lower demand. General and Administrative Experts increased approximately 6.8 million to 30.1 million, primarily due to the acquisitions of PMW in the steel manufacturing segment, as well as CRO and Johnson in the retail flooring segment.
David Verret: Sales and marketing expense increased approximately $2.4 million to $5.9 million. The increase is primarily due to increased sales personnel acquired in connection with the acquisition of Harris-Floring Group Brands, increased convention and trade show activity in the Floring Manufacturing segment, and an increase in the sales force in the retail Floring segment.
David Verret: Interest expense increased by approximately $750,000 compared to the prior year period; the increase is primarily due to incremental debt incurred in connection with the acquisitions of PMW, CRO, and JOC. That loss for the quarter was approximately $2.9 million. And the loss per share was $0.91 compared to income of approximately $1.1 million and diluted EPS of $0.33 per share in the prior year period. This decrease is primarily attributable to the quarter's lower operating earnings and higher interest expense compared to the prior year period. The adjusted EBITDA for the quarter was approximately $6.1 million, a decrease of approximately $3.5 million as compared to the prior year period.
David Verret: Turning to liquidity, we ended the quarter with total cash availability of $34.4 million, consisting of cash on hand of 4.7 million and availability under our various lines of credit totaling 29.7 million. Our working capital was approximately $57.5 million as of June 30, 2024 compared to $85 million as of September 30, 2023. The decrease is primarily due to an increase in the current portion of long-term debt associated with PMW. As of June 30, PMW was in default of one of its financial contracts.
David Verret: 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 stock market. During the quarter, we repurchased 18,156 shares of common stock. On June 4, 2024, we replaced our existing share repurchase program with a new $10 million program. As of June 30, the company had $10 million available for repurchases under the new repurchase program. In conclusion, we are pleased that our third quarter revenue increased 35%.
David Verret: Despite elevated interest rates contributing to industry-specific headwinds, we are unwavering in our commitment to adapting our businesses to navigate these challenges. We are confident in our business prospects and long-term buy-build-hold strategy, highlighting our dedication to creating sustainable growth and long-term value for our shareholders. Operator, please open the line for questions.
Operator: At this time, we will conduct the question and answer session. If you would like to ask a question, please press star 1 on your phone now, and you'll be placed in the queue in the order received. Once again, to ask a question, please press star 1 on your phone now. And our first question comes from Joseph Kowalsky of JD Investments. Please ask your question.
Joseph Kowalsky: Hi. Good afternoon, folks, or almost good morning, I guess where you guys are. Yes, hello. I actually have a number of questions. Is any of the debt floating rate that you have?
David Verret: Yes, we do have them, yeah, they are floating right now.
Joseph Kowalsky: So if interest rates go down, that might benefit the company; that would benefit the company, that is correct. Then, there was a mention somewhere that I read about integration costs being an issue this quarter. Does that have to do with the new set that you were talking about, or was there something else? I don't remember if it said specifically.
David Verret: I believe what you are referring to is on the flooring liquidator side, integrating CRO and Johnson. They were two smaller acquisitions that happened in the first quarter of this year. They were operating on their own systems and had their own kind of salaries and wages and administrative functions, as opposed to leveraging what we have already from Flooring Liquidators. We have been in a process to get them migrated onto Flooring Liquidators' systems to be able to get efficiencies in the administrative and management processes.
Joseph Kowalsky: Do you have any estimate as to how much that affected this quarter as opposed to, you know, what a.., what we can basically ignore for the future?
David Verret: Yeah, I'll say that there were a number of headcount reductions that we were able to implement in this third quarter. There were also some performance issues with the Johnson.
David Verret: And one of the things you will also see is that we ended up disposing of some of those stores by way of selling them back to the sellers. So we were able to kind of give back. We kept one of the stores that was actually performing well, and some of the other ones we sold back, basically unwinding what we had entered into. So we expect to see some decent savings coming from that disposition, as well as some of the efficiency initiatives that are starting to go into place here in the third quarter.
Joseph Kowalsky: But you can't give us an idea of what, in this quarter, was attributable dollar-wise to those costs.
David Verret: Yeah. Yeah, I'm not at this time. I can't. Okay.
Joseph Kowalsky: Okay, what was the average price of the repurchases?
David Verret: It was around $18. I think you'll find it; it's summarized in the 10-Q that was recently filed. I'll take a look. I'm sorry. You said something about... Yes. It's one of the Financial Leverage Covenants that we have with them. So as of June 30th, they ended up failing on that covenant. The only thing I'll say is that our communications and everything with the creditors have been positive. I think we're both interested in working through a quick and positive outcome for this.
David Verret: But just from a US GAAP standpoint, even though we still have availability, they're still letting us borrow under the credit facility. But because we were in default from a US GAAP standpoint, we put everything in current. So it's just that kind of... Is that something that was kind of expected down the road, that you saw this coming? Or was this something that's, you know, a change in economics? We knew it was going to be tight. Yeah, we knew it was going to be tight. And just with the overall marking conditions that we're seeing, they ended up, you know, busting that covenant.
Joseph Kowalsky: Where do you think we are in the economic cycle vis-à-vis your companies? Clearly, you said there were some headwinds. It seems from most of what I'm reading that we're just at the very beginning of the recession, not even considering being in a recession at this point, but that things could get worse from here as far as the general economy is concerned, but what about with regard to yours?
David Verret: Right. So, I mean, we believe just overall, in general, we're pretty recession-resilient. You know, one of our companies, Vintage Stock, sells used products and is cheaper. So what we see is a migration when money isn't flowing to consumers like it was in the past. Those are options for entertainment that's on the cheaper end. Also, just what I think. Our biggest company that's facing some big headwinds right now is just flooring liquidators, given the interest rates and where they have been and what that does to the housing market, which then trickles down to the flooring retail sales. If we start to see interest rates coming down, we believe that there is a possibility, a very good possibility, that we'll start to see an uptick in the flooring liquidators segment.
Joseph Kowalsky: Okay, thank you very much. Thank you.
Operator: And once again, if you'd like to ask a question, please press star 1 now. And if there are no further questions, I'll turn the call back over to our host. Thank you for joining us on the calls today, and we'll speak to you next quarter. Thank you. Thank you. Thanks, everyone. The meeting has now concluded. Thank you for joining us, and have a pleasant day.
Operator: The host has ended this call.
David Verret: As a result, PMW's long-term debt balances and its seller finance loans were reclassified to current liabilities. We are currently in discussions with the creditors to resolve this issue in a timely manner. As of June 30, total assets were $436.8 million, and stockholders' equity was $92.7 million.