Item 2. Management’s Discussion and Analysis
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
For a description of our significant accounting policies and an understanding of the significant factors that influenced our performance during the three months ended December 31, 2023, this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” (hereafter referred to as “MD&A”) should be read in conjunction with the condensed consolidated financial statements, including the related notes, appearing in Part I, Item 1 of this Quarterly Report on Form 10-Q, as well as our Annual Report on Form 10-K for the fiscal year ended September 30, 2023 (the “2023 Form 10-K”).
Note about Forward-Looking Statements
This Quarterly Report on Form 10-Q includes statements that constitute “forward-looking statements.” These forward-looking statements are often characterized by the terms “may,” “believes,” “projects,” “intends,” “plans,” “expects,” or “anticipates,” and do not reflect historical facts.
Specific forward-looking statements contained in this portion of the Annual Report include, but are not limited to: (i) statements that are based on current projections and expectations about the markets in which we operate, (ii) statements about current projections and expectations of general economic conditions, (iii) statements about specific industry projections and expectations of economic activity, (iv) statements relating to our future operations, prospects, results, and performance, (v) statements that the cash on hand and additional cash generated from operations together with potential sources of cash through issuance of debt or equity will provide the Company with sufficient liquidity for the next 12 months, and (vi) statements that the outcome of pending legal proceedings will not have a material adverse effect on business, financial position and results of operations, cash flow or liquidity.
Forward-looking statements involve risks, uncertainties, and other factors, which may cause our actual results, performance, or achievements to be materially different from those expressed or implied by such forward-looking statements. Factors and risks that could affect our results, future performance and capital requirements and cause them to materially differ from those contained in the forward-looking statements include those identified in our 2023 Form 10-K under Item 1A “Risk Factors” and Part II, Item 1A. "Risk Factors" below, as well as other factors that we are currently unable to identify or quantify, but that may exist in the future.
In addition, the foregoing factors may generally affect our business, results of operations and financial position. Forward-looking statements speak only as of the date the statements were made. We do not undertake and specifically decline any obligation to update any forward-looking statements except as required by federal securities laws. Any information contained on our website www.liveventures.com or any other websites referenced in this Quarterly Report are not incorporated into and should not be deemed a part of this Quarterly Report.
Our Company
Live Ventures Incorporated is a holding company of diversified businesses, which, together with our subsidiaries, we refer to as the “Company”, “Live Ventures”, “we”, “us” or “our”. We acquire and operate companies in various industries that have historically demonstrated a strong history of earnings power. We currently have five segments to our business: Retail-Entertainment, Retail-Flooring, Flooring Manufacturing, Steel Manufacturing, and Corporate and Other.
Under the Live Ventures brand, we seek opportunities to acquire profitable and well-managed companies. We work closely with consultants who help us identify target companies that fit within the criteria we have established for opportunities that will provide synergies with our businesses.
Our principal offices are located at 325 E. Warm Springs Road, Suite 102, Las Vegas, Nevada 89119, our telephone number is (702) 939-0231, and our corporate website (which does not form part of this Quarterly Report Form 10-Q) is located at www.liveventures.com. Our common stock trades on the Nasdaq Capital Market under the symbol “LIVE”.
Retail-Entertainment Segment
Our Retail-Entertainment Segment is composed of Vintage Stock, Inc., doing business as Vintage Stock, V-Stock, Movie Trading Company and EntertainMart (collectively, “Vintage Stock”).
Vintage Stock is an award-winning specialty entertainment retailer that offers a large selection of entertainment products, including new and pre-owned movies, video games and music products, as well as ancillary products, such as books,
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comics, toys and collectibles, in a single location. With its integrated buy-sell-trade business model, Vintage Stock buys, sells and trades new and pre-owned movies, music, video games, electronics and collectibles through 70 retail locations strategically positioned across Arkansas, Colorado, Idaho, Illinois, Kansas, Missouri, Nebraska, New Mexico, Oklahoma, Texas, and Utah.
Retail-Flooring Segment
Our Retail-Flooring Segment is composed of Flooring Liquidators, Inc. (“Flooring Liquidators”).
Flooring Liquidators is a leading retailer and installer of flooring, carpeting, and countertops to consumers, builders, and contractors in California and Nevada, operating 20 warehouse-format stores and a design center. Over the years, the company has established a strong reputation for innovation, efficiency and service in the home renovation and improvement market. Flooring Liquidators serves retail and builder customers through two businesses: retail customers through its Flooring Liquidators retail stores, and builder and contractor customers through Elite Builder Services, Inc.
On October 13, 2023, Flooring Liquidators acquired certain assets and assumed certain liabilities of CRO, a floor covering retailer and installer serving residential and commercial customers throughout Northwest Arkansas.
On November 30, 2023, CRO acquired certain assets and assumed certain liabilities of Johnson, a floor covering retailer and installer serving residential and commercial customers through locations in Tulsa, Oklahoma and Joplin, Missouri.
Flooring Manufacturing Segment
Our Flooring Manufacturing segment is comprised of Marquis Industries, Inc. (“Marquis”).
Marquis is a leading carpet manufacturer and distributor of carpet and hard-surface flooring products. Over the last decade, Marquis has been an innovator and leader in the value-oriented polyester carpet sector, which is currently the market’s fastest-growing fiber category. Marquis focuses on the residential, niche commercial, and hospitality end-markets and serves thousands of customers.
Since commencing operations in 1995, Marquis has built a strong reputation for outstanding value, styling, and customer service. Its innovation has yielded products and technologies that differentiate its brands in the flooring marketplace. Marquis’s state-of-the-art operations enable high quality products, unique customization, and exceptionally short lead-times. Furthermore, the Company has recently invested in additional capacity to grow several attractive lines of business, including printed carpet and yarn extrusion.
On July 1, 2022, Live acquired certain assets and intellectual property of Better Backers, a Georgia corporation, which was accomplished through an Asset Purchase Agreement.
Steel Manufacturing Segment
Our Steel Manufacturing segment is comprised of Precision Industries, Inc. (“Precision Marshall”), its wholly-owned subsidiary The Kinetic Co., Inc. (“Kinetic”), and Precision Metal Works, Inc. (“PMW”) .
Precision Marshall is the North American leader in providing and manufacturing, pre-finished de-carb free tool and die steel. For over 75 years, Precision Marshall has served steel distributors through quick and accurate service. Precision Marshall has led the industry with exemplary availability and value-added processing that saves distributors time and processing costs.
Founded in 1948, Precision Marshall “The Deluxe Company” has built a reputation of high integrity, speed of service and doing things the “Deluxe Way”. The term Deluxe refers to all aspects of the product and customer service to be head and shoulders above the rest. From order entry to packaging and delivery, Precision Marshall makes it easy to do business and backs all products and service with a guarantee.
Precision Marshall provides four key products to over 500 steel distributors in four product categories: Deluxe Alloy Plate, Deluxe Tool Steel Plate, Precision Ground Flat Stock, and Drill Rod. With over 5,000 distinct size grade combinations in stock every day, Precision Marshall arms tool steel distributors with deep inventory availability and same day shipment to their place of business or often ships direct to their customer saving time and handling.
On June 28, 2022, Precision Marshall acquired Kinetic. Kinetic is a highly recognizable and regarded brand name in the production of industrial knives and hardened wear products for the tissue, metals, and wood industries and is known as a
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one-stop shop for in-house grinding, machining, and heat-treating. Kinetic is headquartered in Greendale, Wisconsin. Kinetic manufactures more than 90 types of knives and numerous associated parts with modifications and customizations available to each. Kinetic employs approximately 100 non-union employees.
On July 20, 2023, we acquired PMW. Founded nearly 76 years ago in 1947 in Louisville, Kentucky, PMW manufactures and supplies highly engineered parts and components across 400,000 square feet of manufacturing space. PMW offers world-class metal forming, assembly, and finishing solutions across diverse industries, including appliance, automotive, hardware, electrical, electronic, medical products, and devices.
Corporate and Other Segment
Our Corporate and Other segment consists of certain corporate general and administrative costs, Salomon Whitney LLC, which was shut down during the three months ended June 30, 2023, and operations of certain legacy products and service offerings for which we are no longer accepting new customers .
Critical Accounting Policies
Our condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). Preparation of these statements requires us to make judgments and estimates. Some accounting policies have a significant and material impact on amounts reported in these financial statements. Estimates and assumptions are based on management's experience and other information available prior to the issuance of our financial statements. Our actual realized results may differ materially from management’s initial estimates as reported. Our critical and significant accounting policies include Trade and Other Receivables, Inventories, Goodwill, Revenue Recognition, Fair Value Measurements, Income Taxes, Segment Reporting and Concentrations of Credit Risk. For a summary of our significant accounting policies and the means by which we develop estimates thereon, see Part II, Item 8 – Financial Statements - Notes to unaudited condensed consolidated financial statements Note 2 – summary of significant accounting policies in our 2023 Form 10-K.
Adjusted EBITDA
We evaluate the performance of our operations based on financial measures such as “Adjusted EBITDA”, which is a non-GAAP financial measure. We define Adjusted EBITDA as net income (loss) before interest expense, interest income, income taxes, depreciation, amortization, stock-based compensation, and other non-cash or nonrecurring charges. We believe that Adjusted EBITDA is an important indicator of the operational strength and performance of the business, including the business’ ability to fund acquisitions and other capital expenditures, and to service its debt. Additionally, this measure is used by management to evaluate operating results and perform analytical comparisons and identify strategies to improve performance. Adjusted EBITDA is also a measure that is customarily used by financial analysts to evaluate a company's financial performance, subject to certain adjustments. Adjusted EBITDA does not represent cash flows from operations, as defined by GAAP, and should not be construed as an alternative to net income or loss and is indicative neither of our results of operations, nor of cash flows available to fund all our cash needs. It is, however, a measurement that the Company believes is useful to investors in analyzing its operating performance. Accordingly, Adjusted EBITDA should be considered in addition to, but not as a substitute for, net income, cash flow provided by operating activities, and other measures of financial performance prepared in accordance with GAAP. As companies often define non-GAAP financial measures differently, Adjusted EBITDA, as calculated by the Company, should not be compared to any similarly titled measures reported by other companies.
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Results of Operations Three Months Ended December 31, 2023 and 2022
The following table sets forth certain statement of income items and as a percentage of revenue, for the three months ended December 31, 2023 and 2022 (in $000’s):
Three Months Ended
December 31, 2023 Three Months Ended
December 31, 2022
% of Total
Revenue % of Total
Revenue
Selected Data
Revenues $ 117,593 $ 68,986
Cost of revenues 81,266 69.1 % 47,042 68.2 %
General and administrative expenses 27,679 23.5 % 14,600 21.2 %
Sales and marketing expenses 5,107 4.3 % 2,777 4.0 %
Interest expense, net 4,163 3.5 % 2,047 3.0 %
(Loss) income before provision for income taxes (906) (0.8 %) 2,459 3.6 %
(Benefit) provision for income taxes (224) (0.2 %) 615 0.9 %
Net (loss) income $ (682) (0.6 %) $ 1,844 2.7 %
Adjusted EBITDA (a)
Retail-Entertainment $ 3,667 $ 4,003
Retail-Flooring 1,303 —
Flooring Manufacturing 1,877 1,785
Steel Manufacturing 2,802 2,525
Corporate & Other (953) (774)
Total Adjusted EBITDA $ 8,696 $ 7,539
Adjusted EBITDA as a percentage of revenue
Retail-Entertainment 17.8 % 17.2 %
Retail-Flooring 3.8 % N/A
Flooring Manufacturing 6.4 % 6.8 %
Steel Manufacturing 8.4 % 14.0 %
Corporate & Other N/A N/A
Consolidated adjusted EBITDA as a percentage of revenue 7.4 % 10.9 %
(a) See reconciliation of net income to Adjusted EBITDA below.
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The following table sets forth revenues by segment (in $000's):
For the Three Months Ended December 31, 2023 For the Three Months Ended December 31, 2022
Net
Revenue % of
Total
Revenue Net
Revenue % of
Total
Revenue
Revenue
Retail-Entertainment $ 20,586 17.5 % $ 23,273 33.7 %
Retail-Flooring 34,319 29.2 % — 0.0 %
Flooring Manufacturing 29,245 24.9 % 26,432 38.3 %
Steel Manufacturing 33,354 28.4 % 17,981 26.1 %
Corporate & Other 89 0.1 % 1,300 1.9 %
Total Revenue $ 117,593 100.0 % $ 68,986 100.0 %
The following table sets forth gross profit earned by segment and gross profit as a percentage of total revenue for each segment (in $000's):
For the Three Months Ended December 31, 2023 For the Three Months Ended December 31, 2022
Gross
Profit Gross
Profit % of Total Revenue Gross
Profit Gross
Profit % of Total Revenue
Gross Profit
Retail-Entertainment $ 11,528 9.8 % $ 12,210 17.7 %
Retail-Flooring 13,032 11.1 % — — %
Flooring Manufacturing 6,422 5.5 % 4,661 6.8 %
Steel Manufacturing 5,262 4.5 % 4,392 6.4 %
Corporate & Other 83 0.1 % 681 1.0 %
Total Gross Profit $ 36,327 30.9 % $ 21,944 31.8 %
Revenue
Revenue increased approximately $48.6 million, or 70.5%, to approximately $117.6 million for the three months ended December 31, 2023, as compared to the corresponding prior year period. The increase is primarily attributable to Flooring Liquidators and PMW, both of which were acquired after the first quarter of fiscal year 2023, as well as an increase of approximately $2.8 million in the Flooring Manufacturing segment. The increase was partially offset by decreased revenues of approximately $6.2 million in our other businesses.
Cost of Revenue
Cost of revenue as a percentage of revenue was 69.1% for three months ended December 31, 2023 as compared to 68.2% for the three months ended December 31, 2022. The increase was primarily attributable to the acquisition of PMW, which historically has generated lower margins, as well as a decrease in margins in our Steel Manufacturing segment as a whole due to decreased production, partially offset by the acquisition of Flooring Liquidators, which historically has generated higher margins.
General and Administrative Expense
General and Administrative expenses increased by 89.6% to approximately $27.9 million for the three months ended December 31, 2023, as compared to the three months ended December 31, 2022. The increase is primarily due to the acquisitions of Flooring Liquidators and PMW during fiscal 2023.
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Sales and Marketing Expense
Sales and marketing expense increased by 83.9% to approximately $5.1 million for the three months ended December 31, 2023, as compared to the three months ended December 31, 2022, primarily due to increased compensation for sales personnel acquired as part of the acquisition of the Harris Flooring Group® brands from Q.E.P, and increased convention and trade show activity in our Flooring Manufacturing segment, as well as the acquisition of Flooring Liquidators.
Interest Expense, net
Interest expense, net, increased by approximately $2.1 million for the three months ended December 31, 2023, as compared to the three months ended December 31, 2022, primarily due to increased debt balances related to the acquisitions of Flooring Liquidators and PMW, and to fund operations, and increased interest rates during the period.
Results of Operations by Segment for the Three Months Ended December 31, 2023 and 2022
For the Three Months Ended December 31, 2023 For the Three Months Ended December 31, 2022
Retail-Entertainment Retail-Flooring Flooring
Manufacturing Steel
Manufacturing Corporate
& Other Total Retail-Entertainment Retail-Flooring Flooring
Manufacturing Steel
Manufacturing Corporate
& Other Total
Revenue $ 20,586 $ 34,319 $ 29,245 $ 33,354 $ 89 $ 117,593 $ 23,273 $ — $ 26,432 $ 17,981 $ 1,300 $ 68,986
Cost of Revenue 9,058 — 21,287 — 22,823 — 28,092 — 6 81,266 11,063 — — 21,771 — 13,589 — 619 47,042
Gross Profit 11,528 13,032 6,422 5,262 83 36,327 12,210 — 4,661 4,392 681 21,944
General and Administrative Expense 8,200 12,019 1,605 4,157 1,698 27,679 8,385 — 1,491 2,792 1,932 14,600
Selling and Marketing Expense 185 923 3,872 123 4 5,107 161 — 2,419 145 52 2,777
Operating Income (Loss) $ 3,143 $ 90 $ 945 $ 982 $ (1,619) $ 3,541 $ 3,664 $ — $ 751 $ 1,455 $ (1,303) $ 4,567
Retail-Entertainment Segment
Revenue for the three months ended December 31, 2023 decreased by approximately $2.7 million, or 11.5%, as compared to the prior year, primarily due to reduced consumer demand and a shift in sales mix toward used products, which generally have lower ticket sales with higher margins. The shift in sales mix also contributed to the increase in gross margin to 56.0% for the quarter ended December 31, 2023, compared to 52.5% for the prior year period. Operating income for the quarter ended December 31, 2023, was approximately $3.1 million, compared to operating income of approximately $3.7 million for the prior year period.
Retail-Flooring Segment
Our Retail-Flooring segment consists of Flooring Liquidators, which we acquired in January 2023. Revenue for the three months ended December 31, 2023 was $34.3 million, and cost of revenue as a percentage of revenue was 62.0%. Operating income for the three months ended December 31, 2023 was approximately $90,000. During the three months ended December 31, 2023, Flooring Liquidators acquired certain assets and assumed certain liabilities of CRO. Additionally, during the three months ended December 31, 2023, CRO acquired certain assets and assumed certain liabilities of Johnson.
Flooring Manufacturing Segment
Revenue for the three months ended December 31, 2023 increased by approximately $2.8 million, or 10.6%, as compared to the prior year period. The gross margin was 22.0% for the quarter ended December 31, 2023, compared to 17.6% for the prior year period. The increase in revenue and gross margin is primarily due to the buildup of the sales force as a result of the acquisition of the Harris Flooring Group® brands in the fourth quarter of fiscal year 2023. Operating income for the year ended December 31, 2023, was approximately $0.95 million, compared to operating income of approximately $0.75 million for the prior year.
Steel Manufacturing Segment
Revenue for the three months ended December 31, 2023 increased by approximately $15.4 million, or 85.5%, as compared to the prior year period. The increase is primarily due to increased revenues of approximately $18.3 million at The Kinetic Co., Inc. and PMW, partially offset by a $2.9 million decrease in our other Steel Manufacturing business. This decrease is primarily due to reduced customer demand as a result of general economic conditions. The gross margin was 15.8% for the quarter ended December 31, 2023, compared to 24.4% for the prior year period. The decrease in gross margin is primarily due to the acquisition of PMW, which has historically generated lower margins and decreased margins in the Steel
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Manufacturing segment due to reduced production. Operating income for the year ended December 31, 2023, was approximately $1.0 million, compared to operating income of approximately $1.5 million in the prior year period.
Corporate and Other Segment
Revenues for the three months ended December 31, 2023 decreased by $1.2 million, or 93.2%, as compared to the prior year period. The decrease was primarily due to the closure of SW Financial in May 2023. Operating loss for the quarter ended December 31, 2023, was approximately $1.6 million, compared to a loss of approximately $1.3 million in the prior year.
Adjusted EBITDA Reconciliation
The following table presents a reconciliation of net income to Adjusted EBITDA for the three months ended December 31, 2023 (in 000's):
For the Three Months Ended
December 31, 2023 December 31, 2022
Net (loss) income $ (682) $ 1,844
Depreciation and amortization 4,295 2,651
Stock-based compensation 50 —
Interest expense, net 4,163 2,047
Income tax (benefit) expense (224) 615
Debt refinancing costs 183 —
Acquisition costs 406 382
Other noncash charges 505 —
Adjusted EBITDA $ 8,696 $ 7,539
Adjusted EBITDA increased by approximately $1.2 million, or 15.3%, for the three months ended December 31, 2023, as compared to the prior year period. The increase is primarily due to an increase in non-operating and other non-recurring expenses, partially offset by decreases in operating income, as discussed above.
Liquidity and Capital Resources
As of December 31, 2023, we had total cash on hand of approximately $5.6 million and approximately $39.4 million of available borrowing under our revolving credit facilities. As we continue to pursue acquisitions and other strategic transactions to expand and grow our business, we regularly monitor capital market conditions and may raise additional funds through borrowings or public or private sales of debt or equity securities. The amount, nature, and timing of any borrowings or sales of debt or equity securities will depend on our operating performance and other circumstances; our then-current commitments and obligations; the amount, nature and timing of our capital requirements; any limitations imposed by our current credit arrangements; and overall market conditions.
Based on our current operating plans, we believe that available cash balances, cash generated from our operating activities and funds available under our asset-based revolver lines of credit will provide sufficient liquidity to do the following: fund our operations; pay our scheduled loan payments; ability to repurchase shares under our share buyback program; and, pay dividends on our shares of Series E Preferred Stock as declared by the Board of Directors, for at least the next 12 months.
Working Capital
We had working capital of approximately $81.8 million as of December 31, 2023, as compared to working capital of approximately $85.0 million as of September 30, 2023; a decrease of approximately $3.2 million. The decrease is primarily due to increases in accrued liabilities and the current portion of operating lease obligations, and a decrease in prepaid expenses of approximately $8.6 million, partially offset by decreases in accounts payable, and increases in accounts receivable, inventories, and cash of approximately $5.3 million.
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Cash Flows from Operating Activities
The Company’s cash, as of December 31, 2023, was approximately $5.6 million compared to approximately $4.3 million as of September 30, 2023, an increase of approximately $1.3 million. Net cash provided by operations was approximately $7.9 million for the three months ended December 31, 2023, as compared to net cash provided by operations of approximately $6.3 million for the three months ended December 31, 2022. The increase was primarily due to increases in accrued liabilities, depreciation and amortization expense, and allowance for obsolete inventory, partially offset by an increase in accounts receivable and decrease in deferred income tax liabilities.
Our primary sources of cash inflows are from customer receipts from sales on account, factored accounts receivable proceeds, receipts for securities sales commissions, and net remittances from directory services customers processed in the form of ACH billings. Our most significant cash outflows include payments for raw materials and general operating expenses, including payroll costs and general and administrative expenses that typically occur within close proximity of expense recognition.
Cash Flows from Investing Activities
Our cash flows used in investing activities of approximately $3.2 million for the three months ended December 31, 2023 consisted of the acquisitions of CRO by Flooring Liquidators, and Johnson by CRO, and purchases of property and equipment. Our cash flows used in investing activities of approximately $1.3 million for the three months ended December 31, 2022 consisted of purchases of property and equipment.
Cash Flows from Financing Activities
Our cash flows used in financing activities of approximately $3.4 million during the three months ended December 31, 2023 consisted of payments on notes payable of approximately $1.8 million, purchases of treasury stock and payments for finance leases of approximately $900,000, and net payments under revolver loans of approximately $750,000.
Our cash flows provided by financing activities of approximately $3.2 million during the three months ended December 31, 2022 consisted of proceeds from notes payable of approximately $5.7 million, partially offset by payments of notes payable and financing leases of approximately $1.8 million, and purchases of treasury stock and net borrowings under revolver loans of approximately $670,000.
Currently, we are not issuing common shares for liquidity purposes. We prefer to use asset-based lending arrangements and mezzanine financing together with Company provided capital to finance acquisitions and have done so historically. Occasionally, as our Company history has demonstrated, we will issue stock and derivative instruments linked to stock for services or debt settlement.
Future Sources of Cash; New Products and Services
We may require additional debt financing or capital to finance new acquisitions, refinance existing indebtedness or other strategic investments in our business. Other sources of financing may include stock issuances and additional loans; or other forms of financing. Any financing obtained by us may further dilute or otherwise impair the ownership interest of our existing stockholders.