Live Ventures Incorporated (LIVE) Earnings Call Transcript
August 16, 2021
Earnings Call Speaker Segments
Good day, everyone, and welcome to today's Live Ventures Incorporated Third Quarter Fiscal Earnings Call. [Operator Instructions] Please note, this call may be recorded. It is now my pleasure to turn today's program over to Virland Johnson, Chief Financial Officer.
Thank you, Amy. Good afternoon, everyone. Welcome to Live Ventures Third Quarter Fiscal Year 2021 Earnings Call. I'm joined by CEO, Jon Isaac. Note that 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. In the last few minutes, we filed our SEC Form 10-Q. I direct you to our website www.liveventures.com or www.sec.gov for a copy of this quarter's SEC Form 10-Q filing for Live Ventures and other historical SEC form filings. Overall, the company delivered a strong third quarter and 9 months performance ended June 30, 2021. The revenue -- the company had revenues for the quarter of $69 million -- $69.1 million compared to $42.5 million in the same period last fiscal year, a 63% increase. Revenue growth was driven by our Retail segment posting $21.7 million, a 52% gain for the same quarter last year due primarily to COVID and stimulus payments from the government in the second quarter of 2021. The Flooring segment increased revenue by 23%, $34.2 million as compared to $28.1 million, with our steel segment recorded $13.0 million in revenue for the quarter. The company had revenues for 9 months of $202.4 million, up from $130.9 million or 55%. Revenue growth was led by our Flooring segment of $97.4 million compared to $75.7 million, a 29% increase. Retail segment revenue grew 24%, recording $68.1 million as compared to $54.7 million. The Steel segment recorded revenue of $36.5 million. Gross profit for the third quarter was $25.1 million, up from $16.7 million for the comparable period last year. The gross margin percentage for the company was down slightly to 36.3% from 39.4% for the same comparable period. Retail gross profit margin dipped to 53.9% from 58.0% due to the various sales mix of revenue and labor pressures. Vintage is in the process of opening 4 to 5 new locations with leases signed on 2 of those locations. Flooring gross profit also recorded a small dip in gross profit percentage to 28.8% from 30.6%, again due to mix of products sold, carpet versus hardwood flooring and the tightening of the labor market. Due to mainly inflationary price changes, the Steel segment reported 26.2% gross margin percentage or $3.4 million. Gross profit for the 9 months was $73.8 million, up from $51.1 million for the comparable period last year. Gross margin percentage for the company was again down slightly to 36.5% from 39.0% for the same period last year. Retail gross profit margin dipped to 54.0% from 56.1% due to new versus used sales mix of revenue. Flooring gross profit for the 9 months was slightly up in gross profit percentage to 28.9% from 28.1%. The Steel segment for the 9 months had gross margin of $8.6 million or 23.4% on revenue. General and administrative expenses were slightly up at 20% of revenue for the third quarter as compared to 19.4%. Sales and marketing expenses improved to 4.4% of revenue versus 5.9% of revenue for the third quarter and same period last year. General and administrative expenses for the 9 months were -- are down to 19.1% of revenue as compared to the same period last year of 23.5% of revenue. Sales and marketing expenses were also down to 4.2% of revenue for the 9 months when compared to the same period last year of 6% of revenue. Operating income was $8.2 million for the third quarter, an increase of $2.2 million or 37%. Operating income for the 9 months ended June 30, 2021, was $26.6 million as compared to $12.5 million for the same period last year, an increase of 112%. Other income included a gain on Payroll Protection Program loan forgiveness of $4.8 million for the third quarter and $6.2 million for the 9 months ended June 30, 2021. Gains on debtor settlements related to the ApplianceSmart Chapter 11 proceeding in the third quarter were $650,000 for the 9 months and for the 9 months, $1.8 million. Net income for the third quarter was $9.9 million as compared to $3.6 million for the third quarter last year, an increase of 177%. Net income for the 9 months was $24.1 million, up from $6.5 million in the same period -- in our prior year, a 272% increase. Earnings per basic common share for the third quarter was $6.35, 191% increase over this quarter last year of $2.18. Earnings per basic common share for the 9 months was $15.41 as compared to $3.72 for the same period last fiscal year or an increase of 314%. We ended the quarter with cash of $10.6 million and cash availability under our various lines of credit of $37.7 million for a combined total of $48.3 million. Cash generated by operations grew to $32.2 million for the 9 months, up from $18.1 million for the same period last year. Through the 9 months ended June 30, 2021, the company has continued to execute upon its strategy of both investing in the growth of its subsidiaries as well as managing balance sheet risk and providing value to its shareholders through deleveraging. Net payments on revolving related party and notes payable were $18.3 million for the 9 months as compared to $20.3 million for the same period last year, and proceeds from the issuance of notes payable were $2.3 million and $9.8 million for the 9 months this year and last year, respectively. Overall, the company reduced long-term debt by approximately $23.7 million year-to-date. Working capital for the company at the end of the third quarter was $36.8 million, and assets grew slightly to $198.7 million, up from $197.3 million as of September 30, 2020. For the 9 months, the company invested $8.5 million in property and equipment as compared to $2.4 million for the same period last year. During the 3 months ended June 30, 2021, the company also continued to execute on its acquisition-based growth strategy, making a minority interest investment in Salomon Whitney LLC, TBA, SW Financial, a broker dealer of securities for $6 million during the third quarter and is currently pursuing FINRA approval to acquire the balance of the shares of the company. The company continues to invest in buying back its common stock as opportunities the market present themselves. As of June 30, 2021, the company has repurchased 533,011 shares of common, up from 499,805 shares as of our prior year-end. Stockholders' equity is up applicable to Live shareholders to $68 million from $43.9 million as of our prior year-end, or 55%. With that, Jon and I will now take questions from those of you on the conference call.
[Operator Instructions]
Let's take a call from [ Jeremy ].
I'm just curious about the acquisition of Salomon Whitney, and I'm curious as to like why you found it an enticing acquisition? What metrics do you use? What's the most, if there is one? And just a little bit more about the acquisition there.
It's a variety of reasons. But at a high level, we found that this to be a good acquisition for -- this is Jon speaking, good acquisition long term for Live. We -- as we've stated in our press release that we think that there is potentially a roll-up opportunity. Right now, we have a minority interest in Salomon until we obtain FINRA approval, but we've looked at all sorts of things as we do with other acquisitions, such as the management team. We have an excellent and amazing management team running this, Larry and Tom, and the historical revenues being very stable and predictable. We think it's a good investment for Live for the long term. Thank you for your question. Let's move over to Joseph, please, for your questions.
Inflation has been discussed in numerous contexts. And some people think it's transitory, some people think it's longer term. What is your outlook on it? And how do you think it's going to affect the company?
Our feeling at the moment is, inflation is not going to be transitory. It's going to be somewhat longer lasting, specifically in our steel market. We also feel that it will affect our Flooring segment and Retail. Retail, probably not as much, but definitely, our Flooring segment and Steel segments will be impacted by it.
In what way? I mean what are -- how do you think it's going to...
A lot of it is passed as well pass through. I mean -- and on the flooring side, for example, we are a very big buyer of resin. Resin has moved and same with steel. We're somewhat pleased with our acquisition of Precision Marshall. When we bought the company, commodity prices shot up, and we've made millions of dollars on paper, so to speak, just with the true value of steel. Of course, we book according to GAAP, the lower of cost or market. And so we are forced to book it at cost, but inflation helped us in that regard and a lot of it -- I can't tell you what percentage of it is also passed on to the customer. We've had numerous price increases at both companies that I just mentioned, Marquis and Precision. Hopefully, that answers your question.
Well, I guess what I'm asking is, how do you see the response of the market to any price increases that you might have to have? Is it elastic, inelastic? That's really where I was going with it.
We feel it more elastic. We feel the market has already responded to the higher prices in both segments. And we feel that if there's any more continued inflation, it will also be met with elastic changes in our pricing structures.
[Operator Instructions] And it appears we have no further questions as of now.
Let's take a question from [ Robert ].
Yes. I was just wondering, if the SEC were to prevail in their complaint, what would the impact be on the company?
Robert, that's a good question. We've been instructed by counsel that not to discuss the SEC matter. I will repeat that the company categorically denies all the charges, and we will vigorously defend ourselves. And I will say again that we look forward to our day at court and our indication and trial. So that's the only way really I can -- that's the only thing I can comment regarding that question that involves -- that also applies to anyone else who has a question regarding the SEC. We will -- we categorically deny everything, and we will be vigorously defending ourselves. So I appreciate the question, though. Did you have others?
No, that's really the main one. Everything else seems to be fine.
Thank you. Thank you. Kumar? Let's take a question from Kumar.
[indiscernible] the U.K. here. So I just really had a question about capital allocation. No, not the same question, a different question. Can you hear me?
Yes. Yes, we can hear you. What is your question? Sorry, can you repeat it?
Hello?
Yes. Yes. Kumar, what is your question?
Yes. Okay. Yes. So my question was around capital allocation. Yes, so my question is around capital allocation. How are you planning now going forward with share buyback versus paying down some of the debt? Do you have any plans, given where the share price is now? Do you want to take advantage of the current market? Or what are you guys thinking?
That's a good question. Share buybacks or payment reduction and outstanding debt really varies on many, many circumstances. It could be -- an obvious one is, what is our share price. Number two is, should we preserve cash to be ready for another acquisition? Or three, do we have any debt that we should pay off? Or do we have any debt that's outstanding, that's coming due soon? So it's a very, very fluid answer. It really depends on a day, week by week, month by month basis. I can tell you that since the beginning of our stock buyback program, the company reacquired or repurchased 533,000 shares since the beginning, which was February of 2018. So I think we've done well. The stock has spiked since then. In the quarter that -- in the 10-Q that we just filed, you will notice that long-term debt decrease from $63 million to $45 million, which is a pretty big decrease since September 30, since the beginning of our fiscal year. So these last couple of quarters, we've focused on repayment of debt, and we've done very extremely well, in my opinion, operationally. We generated $32 million in cash from operations. But I can tell you one thing is that we are keeping a very close eye on the stock price, and if we feel that it is the best use of money for shareholders, we will focus on that. If we feel that we should preserve that for an acquisition or repayment of debt or whatever else it may be, it could be opening a new plant or investing in new equipment, this is what we do predominantly. So think about those things. We appreciate your question. Let's move over to [ Marcel ].
[indiscernible] question. One for you. So would you talk a little bit more about your acquisition criteria?
Acquisition criteria.
Criteria?
Yes. What do you look for in acquisitions?
We look for many things. If you look at our website, we have a criteria as to what we look for. But generally speaking, we look for companies that are: Number one, profitable; number two, as important is an amazing or stellar management team, and I think we have an amazing management team at every one of our current subsidiaries. So those are the 2 easy ones. The third one is stability in earnings. We don't like volatility. We don't like a company that generated $5 million in 1 year and $20 million in the next year and $1 million in the third year. We like stability and we like consistency. We look for companies that I like to call no-brainer type acquisitions, companies that we know for a fact or to a high degree that they will continue to generate the amount of cash flow that they have been generating over the years prior. So that's -- I don't have anything more scientific or specific. We evaluate and look at dozens and dozens of companies every year. So we are very, very selective. We only make 1 or 2 or maybe 3 acquisitions. A lot of them are even bolt-on acquisitions. We make very few acquisitions a year, and we're highly selective because we can afford to be, and we can wait for the right acquisition.
Sound good. Sound good. Now just a quick follow-up. How do you retain current management to work for Live?
To retain management?
Yes. I mean, generally speaking, any acquisition that we make, we like the founders or the sellers to remain on board because they are the -- they know the company more than anyone else. And so we have -- we try to sign employment contracts. We have employment contracts with most of them, and with -- we financially incentivize them to perform well. This is -- at a high level, this is what we do. I mean we let our subsidiaries CEOs do what they believe is best. We give them autonomy, and we think that they like that. And we let them do what they do best, and we do what we do best. So it's worked well over the years. We appreciate your question. Let's move over to [ Jeremy ]. He's been waiting with a question.
I'm also curious as you mentioned earlier the roll-up strategy. And I would just like to hear more about what is a roll-up strategy or some further details on that.
Without going into too much details on how finance works, but roll-ups is basically acquiring similar companies in similar industries that potentially would be a fit. They would "roll up" to the existing -- to whatever company that we have today. So in your initial question about Salomon, companies that are similar to what Salomon does. Perhaps, they are smaller. Perhaps, the seller wants to retire. We can acquire them and potentially, make them as part of Salomon, to use your example. That's what roll-up -- that's how roll-ups work. Let's move over to Joseph. I think you had another question, Joseph?
Actually, I just -- I neglected to say well done, which I wanted to say, and thank you for the hard work and the company. The question did come up to me as I was listening, which is, when you're talking about roll-ups, are you also considering vertical integration? Is that similar? Is that something you're not thinking about? But the main reason I got back in the queue was really just to say, thank you and well done.
We always look at vertical integration opportunities and that would also work with our roll-up strategy in terms of any of our existing portfolio holdings that we have right now. So yes, we do.
Thank you for you positive -- thank you for your commendation, Joseph. We look at any and all opportunities. We get presented with opportunities on a weekly basis, and we evaluate what's the return and what's the risk involved and all this and versus what other opportunities we have going on elsewhere, and we try to do whatever is going to maximize shareholder value. Any other questions? Our next -- Robert, go ahead. Let's take a final question from Robert.
Yes. So I was just wondering, is there a stock buyback authorization in place at the moment?
There is, yes. Back in May, on May 19, we put out a -- published a press release that the February 2018 stock buyback program was extended to June 1, 2024. So we have another about 3 years left on it. And we have under the -- it was originally a $10 million program. There is around $6.7 million left on that program.
I see. Yes. Just as an observation, it would seem like a wonderful time to exercise that authorization. I know you...
Yes. I can tell you that since the beginning, we bought 533,000 shares that I believe that is single digit. I think $7 or $8 or something like this. We've done very, very well, and as we continue to buy back shares or whenever we see opportunities in the market, we will pounce, and we will report them to you in our disclosures. John?
Just curious on which efforts you are doing to try to increase institutional ownership and get equity research?
Interesting. Right now, our stock float is somewhat low in terms of the actual shares that are floating in the market space. We do have plans to increase institutional ownership. Recent events have somewhat [ folded ] those efforts, but we will continue and work on that as we go forward.
And we already do have institutional ownership. If you look at publicly available information, you'll see we have Renaissance Technologies that owns 5.3% of our company. We have Vanguard. We have Geode Capital.
Yes, I saw that all. Just -- I mean, you personally in a lot of the shares of the stock. And so just curious on how you might be trying to think about broadening out the investor base, which was, I think, helped.
Yes. We are getting there. We're getting to pretty quickly to a certain size that we become more and more appealing to bigger institutions. For a long time, we had a very small market cap and our financials were much smaller than where they were today, but we are getting there. We're getting more awareness. I could see on the call, we have people that are -- potentially institutions that are dialing in and listening. And so we think, in time, it's going to -- the mix will change. With that, we will end the call. The next time we will speak, I believe, will be -- the next filing will be the 10-K, which is at the end of the year. But we've changed the format this time around, whereby the calls will be -- the next earnings call will be mid-February, which is when we announced or published our first fiscal quarter. And at that point, we will discuss the year -- the full year of 2021, and we will discuss the first quarter. So we will see everybody on the next call, which is around mid-February. Thank you, everybody, for joining us, and we look forward to hearing from you again on the next call.
Thank you.
This does conclude today's program. Thank you for your participation. You may disconnect.
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