LIVE VENTURES Inc 10-Q

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 and nine months ended June 30, 2024, 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”). 36 Table of Contents 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, 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 72 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 Carpet Remnant Outlet, Inc. ("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 Floor & Home ("Johnson"), a floor covering retailer and installer serving residential and commercial customers through locations in Tulsa, Oklahoma and Joplin, Missouri. On May 24, 2024, CRO entered into an asset purchase agreement with the original Seller of Johnson under which the original Seller agreed to purchase certain assets and assume certain obligations acquired by CRO under the original asset purchase agreement. 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, Inc., 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”), and its wholly-owned subsidiaries, The Kinetic Co., Inc. (“Kinetic”), CSF Holdings, LLC (“Central Steel”), 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. 37 Table of Contents 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 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, Precision Marshall 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. On May 17, 2024, we acquired Central Steel. Founded in 1969 in Chicago, Illinois, Central Steel is a manufacturer of specialized fabricated metal products. Central Steel offers over 2,300 unique products to more than 500 customers. Its extensive product line, primarily for data centers, includes cable racks, auxiliary framing, hardware, insulation products, and network bays. On June 10, 2024, Kinetic acquired certain assets and assumed certain liabilities of Midwest Grinding. Founded in 1961 in Milwaukee, Wisconsin, Midwest Grinding is a grinding house dedicated to precision Blanchard and specialty surface grinding of small to extra-large capacity. 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 38 Table of Contents financial measures differently, Adjusted EBITDA, as calculated by the Company, should not be compared to any similarly titled measures reported by other companies. Results of Operations Three Months Ended June 30, 2024 and 2023 The following table sets forth certain statement of income items and as a percentage of revenue, for the three months ended June 30, 2024 and 2023 (in $000’s): Three Months Ended June 30, 2024 Three Months Ended June 30, 2023 % of Total Revenue % of Total Revenue Selected Data Revenue $ 123,878 $ 91,516 Cost of revenue 86,833 70.1 % 59,347 64.8 % General and administrative expenses 30,062 24.3 % 23,226 25.4 % Sales and marketing expenses 5,852 4.7 % 3,382 3.7 % Interest expense, net 4,233 3.4 % 3,485 3.8 % (Loss) income before provision for income taxes (3,823) (3.1 %) 1,357 1.5 % (Benefit) provision for income taxes (968) (0.8 %) 297 0.3 % Net (loss) income $ (2,855) (2.3 %) $ 1,060 1.2 % Adjusted EBITDA (a) Retail-Entertainment $ 1,575 $ 1,864 Retail-Flooring (258) 2,083 Flooring Manufacturing 2,797 2,935 Steel Manufacturing 3,102 3,534 Corporate & Other (1,093) (841) Total Adjusted EBITDA $ 6,123 $ 9,575 Adjusted EBITDA as a percentage of revenue Retail-Entertainment 9.5 % 10.3 % Retail-Flooring (0.7 %) 7.6 % Flooring Manufacturing 8.9 % 10.7 % Steel Manufacturing 7.9 % 19.2 % Corporate & Other N/A N/A Consolidated adjusted EBITDA as a percentage of revenue 4.9 % 10.5 % (a) See reconciliation of net income to Adjusted EBITDA below. 39 Table of Contents The following table sets forth revenue by segment (in $000’s): For the Three Months Ended June 30, 2024 For the Three Months Ended June 30, 2023 Net Revenue % of Total Revenue Net Revenue % of Total Revenue Revenue Retail-Entertainment $ 16,503 13.3 % $ 18,009 19.7 % Retail-Flooring 36,981 29.9 % 27,449 30.0 % Flooring Manufacturing 31,264 25.2 % 27,424 30.0 % Steel Manufacturing 39,047 31.5 % 18,409 20.1 % Corporate & Other 83 0.1 % 225 0.2 % Total Revenue $ 123,878 100.0 % $ 91,516 100.0 % 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 June 30, 2024 For the Three Months Ended June 30, 2023 Gross Profit Gross Profit % of Total Revenue Gross Profit Gross Profit % of Total Revenue Gross Profit Retail-Entertainment $ 9,552 7.7 % $ 9,845 10.8 % Retail-Flooring 13,525 10.9 % 10,386 11.3 % Flooring Manufacturing 7,731 6.2 % 6,388 7.0 % Steel Manufacturing 6,161 5.0 % 5,381 5.9 % Corporate & Other 76 0.1 % 169 0.2 % Total Gross Profit $ 37,045 29.9 % $ 32,169 35.2 % Revenue Revenue increased approximately $32.3 million, or 35.4%, to approximately $123.9 million for the quarter ended June 30, 2024, compared to revenue of approximately $91.5 million in the prior year period. 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, which collectively added approximately $21.1 million, an increase of approximately $9.5 million in the Flooring Retail segment, as well as an increase of approximately $3.8 million in the Flooring Manufacturing segment. The increase was partially offset by decreased revenue of approximately $2.2 million in the Company’s other business segments due to general economic conditions. Cost of Revenue Cost of revenue as a percentage of revenue was 70.1% for three months ended June 30, 2024 as compared to 64.8% for the three months ended June 30, 2023. 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 related to a slowdown in sales, partially offset by an increase in margins in our Flooring Manufacturing segment due to increased sales of Harris Flooring Group® brands, which generates higher margins. General and Administrative Expense General and Administrative expenses increased by 29.4% to approximately $30.1 million for the three months ended June 30, 2024, as compared to the three months ended June 30, 2023. The increase is primarily due to the acquisition of PMW during fiscal 2023, as well as increased expenses in our Flooring Retail segment. 40 Table of Contents Sales and Marketing Expense Sales and marketing expense increased by 73.0% to approximately $5.9 million for the three months ended June 30, 2024, as compared to the three months ended June 30, 2023, primarily due to expanding our sales force in connection with the acquisition of the Harris Flooring Group® brands, increased convention and trade show activity in our Flooring Manufacturing segment, as well as increased sales force in our Retail Flooring segment. Interest Expense, net Interest expense, net, increased by approximately $750,000 to $4.3 million for the three months ended June 30, 2024, as compared to the three months ended June 30, 2023, primarily due to increased debt balances related to the acquisition of PMW, and for our Retail Flooring segment, and to fund operations, and increased interest rates during the period. Results of Operations Nine Months Ended June 30, 2024 and 2023 The following table sets forth certain statement of income items and as a percentage of revenue, for the nine months ended June 30, 2024 and 2023 (in $000’s): For the Nine Months Ended June 30, 2024 For the Nine Months Ended June 30, 2023 % of Total Revenue % of Total Revenue Statement of Income Data: Revenue $ 360,097 $ 251,624 Cost of revenue 251,258 69.8 % 165,903 65.9 % General and administrative expenses 87,565 24.3 % 60,443 24.0 % Sales and marketing expenses 17,440 4.8 % 10,198 4.1 % Interest expense, net 12,563 3.5 % 8,767 3.5 % Income before provision for income taxes (9,227) (2.6 %) 5,924 2.4 % Provision for income taxes (2,409) (0.7 %) 1,462 0.6 % Net income $ (6,818) (1.9 %) $ 4,462 1.8 % Adjusted EBITDA (a) Retail-Entertainment $ 7,441 $ 8,519 Retail-Flooring (803) 3,194 Flooring Manufacturing 7,571 8,082 Steel Manufacturing 8,235 9,729 Corporate & Other (3,169) (3,224) Total Adjusted EBITDA $ 19,275 $ 26,300 Adjusted EBITDA as a percentage of revenue Retail-Entertainment 13.8 % 14.1 % Retail-Flooring (0.8 %) 6.6 % Flooring Manufacturing 8.0 % 9.6 % Steel Manufacturing 7.6 % 17.3 % Corporate & Other N/A N/A Consolidated adjusted EBITDA as a percentage of revenue 5.4 % 10.5 % (a) See reconciliation of net income to Adjusted EBITDA below. The following table sets forth revenue by segment (in $000’s): 41 Table of Contents For the Nine Months Ended June 30, 2024 For the Nine Months Ended June 30, 2023 Net Revenue % of Total Revenue Net Revenue % of Total Revenue Revenue Retail-Entertainment $ 53,930 15.0 % $ 60,388 24.0 % Retail-Flooring 103,332 28.7 % 48,218 19.2 % Flooring Manufacturing 94,689 26.3 % 84,195 33.5 % Steel Manufacturing 107,889 30.0 % 56,306 22.4 % Corporate & other 257 0.1 % 2,517 1.0 % Total Revenue $ 360,097 100.0 % $ 251,624 100.0 % 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 Nine Months Ended June 30, 2024 For the Nine Months Ended June 30, 2023 Gross Profit Gross Profit % of Total Revenue Gross Profit Gross Profit % of Total Revenue Gross Profit Retail-Entertainment $ 30,916 8.6 % $ 32,606 13.0 % Retail-Flooring 38,259 10.6 % 18,128 7.2 % Flooring Manufacturing 22,913 6.4 % 18,377 7.3 % Steel Manufacturing 16,513 4.6 % 15,420 6.1 % Corporate & other 238 0.1 % 1,190 0.5 % Total Gross Profit $ 108,839 30.2 % 0.302249116210354 $ 85,721 34.1 % Revenue Revenue increased approximately $108.5 million, or 43.1%, to $360.1 million for the nine months ended June 30, 2024, as compared to the prior year period revenue of $251.6 million. The increase is primarily attributable to the acquisitions of PMW and Flooring Liquidators, which collectively added $110.2 million, as well as an increase of approximately $10.5 million in the Flooring Manufacturing segment. The increase was partially offset by decreased revenue of approximately $12.2 million in the Company’s other business segments due to general economic conditions. Cost of Revenue Cost of revenue as a percentage of revenue was 69.8% for nine months ended June 30, 2024 as compared to 65.9% for the nine months ended June 30, 2023. 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 due to a slow down in sales, partially offset by an increase in margins in our Flooring Manufacturing segment due to increased sales of Harris Flooring Group® brands, which generates higher margins. General and Administrative Expense General and administrative expenses increased by 44.9% to approximately $87.6 million for the nine months ended June 30, 2024, as compared to the nine months ended June 30, 2023. The increase is primarily due to the acquisitions of Flooring Liquidators and PMW during fiscal 2023. Sales and Marketing Expense Sales and marketing expense increased by 71.0% to approximately $17.4 million for the nine months ended June 30, 2024, as compared to the nine months ended June 30, 2023, primarily due to expanding our sales force in connection with the 42 Table of Contents acquisition of the Harris Flooring Group® brands, 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 $3.8 million for the nine months ended June 30, 2024, as compared to the nine months ended June 30, 2023, 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 June 30, 2024 and 2023 For the Three Months Ended June 30, 2024 For the Three Months Ended June 30, 2023 Retail-Entertainment Retail-Flooring Flooring Manufacturing Steel Manufacturing Corporate & Other Total Retail-Entertainment Retail-Flooring Flooring Manufacturing Steel Manufacturing Corporate & Other Total Revenue $ 16,503 $ 36,981 $ 31,264 $ 39,047 $ 83 $ 123,878 $ 18,009 $ 27,449 $ 27,424 $ 18,409 $ 225 $ 91,516 Cost of Revenue 6,951 — 23,456 — 23,533 — 32,886 — 7 86,833 8,164 17,063 — 21,036 — 13,028 — 56 59,347 Gross Profit 9,552 13,525 7,731 6,161 76 37,045 9,845 10,386 6,388 5,381 169 32,169 General and Administrative Expense 8,043 13,760 1,662 4,596 2,001 30,062 8,086 9,188 1,501 2,551 1,900 23,226 Selling and Marketing Expense 177 1,263 4,213 195 4 5,852 211 149 2,865 127 30 3,382 Operating Income (Loss) $ 1,332 $ (1,498) $ 1,856 $ 1,370 $ (1,929) $ 1,131 $ 1,548 $ 1,049 $ 2,022 $ 2,703 $ (1,761) $ 5,561 Retail-Entertainment Segment Retail-Entertainment segment revenue for the quarter ended June 30, 2024 was approximately $16.5 million, a decrease of approximately $1.5 million, or 8.4%, compared to prior year period revenue of approximately $18.0 million. Revenue decreased 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 57.9% for the quarter ended June 30, 2024, compared to 54.7% for the prior year period. Operating income for the quarter ended June 30, 2024 was approximately $1.3 million, compared to operating income of approximately $1.5 million for the prior year period. Retail-Flooring Segment The Retail-Flooring segment consists of Flooring Liquidators, which was acquired in January 2023. Revenue for the quarter ended June 30, 2024, was approximately $37.0 million, an increase of approximately $9.5 million, or 34.7%, compared to prior year period revenue of approximately $27.4 million. The increase is primarily due to increased revenue in Flooring Liquidator's builder design and installation segment, EBS, and the acquisitions of CRO and Johnson by Flooring Liquidators during the first quarter of fiscal year 2024. The gross margin for the quarter ended June 30, 2024 was 36.6%, compared to 37.8% for the prior year period. Operating loss for the quarter ended June 30, 2024 was approximately $1.5 million, compared to operating income of approximately $1.0 million for the prior year period. The increase in operating loss was primarily due to temporary inefficiencies associated with the acquisitions of CRO and Johnson. Flooring Manufacturing Segment Revenue for the quarter ended June 30, 2024 was approximately $31.3 million, an increase of approximately $3.8 million, or 14.0%, compared to prior year period revenue of approximately $27.4 million. The gross margin was 24.7% for the quarter ended June 30, 2024, compared to 23.3% for the prior year period. The revenue and gross margin increases are primarily due to increased sales associated with the acquisition of the Harris Flooring Group® brands in the fourth quarter of fiscal year 2023. Operating income for the quarter ended June 30, 2024 was approximately $1.9 million, compared to operating income of approximately $2.0 million for the prior year. Steel Manufacturing Segment Revenue for the quarter ended June 30, 2024 was approximately $39.0 million, an increase of approximately $20.6 million or 112.1%, compared to the prior year period revenue of approximately $18.4 million. The increase is primarily due to increased revenue of approximately $19.2 million at PMW, which was acquired during July 2023, and approximately $1.9 million at Central Steel, which was acquired during May 2024, partially offset by a $0.5 million decrease in the Company’s other Steel Manufacturing businesses. The gross margin was 15.8% for the quarter ended June 30, 2024, compared to 43 Table of Contents 29.2% for the prior year period. The decrease in gross margin is primarily due to the acquisition of PMW, which has historically generated lower margins, as well as an overall decrease in margins in the Steel Manufacturing segment due to reduced production efficiencies as a result of lower demand. Operating income for the quarter ended June 30, 2024 was approximately $1.4 million, compared to operating income of approximately $2.7 million in the prior year period. Corporate and Other Segment Revenue for the quarter ended June 30, 2024 was approximately $0.1 million, a decrease of approximately $0.1 million, or 63.1%, compared to the prior year period revenue of approximately $0.2 million. The decrease was primarily due to the closure of SW Financial in May 2023. Operating loss for the quarter ended June 30, 2024 was approximately $1.9 million, compared to an operating loss of approximately $1.8 million in the prior year period. Results of Operations by Segment for the Nine Months Ended June 30, 2024 and 2023 For the Nine Months Ended June 30, 2024 For the Nine Months Ended June 30, 2023 Retail-Entertainment Retail-Flooring Flooring Manufacturing Steel Manufacturing Corporate & Other Total Retail-Entertainment Retail-Flooring Flooring Manufacturing Steel Manufacturing Corporate & Other Total Revenue $ 53,930 $ 103,332 $ 94,689 $ 107,889 $ 257 $ 360,097 $ 60,388 $ 48,218 $ 84,195 $ 56,306 $ 2,517 $ 251,624 Cost of Revenue 23,014 65,073 71,776 91,376 19 251,258 27,782 30,090 65,818 40,886 1,327 165,903 Gross Profit 30,916 38,259 22,913 16,513 238 108,839 32,606 18,128 18,377 15,420 1,190 85,721 General and Administrative Expense 24,117 39,251 5,133 12,801 6,263 87,565 24,528 17,061 4,430 8,019 6,405 60,443 Selling and Marketing Expense 494 3,441 13,001 487 17 17,440 536 234 8,768 429 231 10,198 Operating Income (Loss) $ 6,305 $ (4,433) $ 4,779 $ 3,225 $ (6,042) $ 3,834 $ 7,542 $ 833 $ 5,179 $ 6,972 $ (5,446) $ 15,080 Retail-Entertainment Segment Retail-Entertainment segment revenue for the nine months ended June 30, 2024 was approximately $53.9 million, a decrease of approximately $6.5 million, or 10.7%, compared to the prior year period revenue of approximately $60.4 million. The decrease in revenue is 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 57.3% for the nine months ended June 30, 2024, compared to 54.0% for the prior year period. Operating income for the nine months ended June 30, 2024 was approximately $6.3 million, compared to operating income of approximately $7.5 million for the prior year period. Retail-Flooring Segment The Retail-Flooring segment consists of Flooring Liquidators, which was acquired in January 2023. Revenue for the nine months ended June 30, 2024 was approximately $103.3 million, an increase of approximately $55.1 million, or 114.3%, compared to the prior year period revenue of $48.2 million. The increase is due to the acquisition of Flooring Liquidators in the second quarter of fiscal year 2023 and the acquisitions of CRO and Johnson by Flooring Liquidators during the first quarter of fiscal year 2024. The gross margin for the nine months ended June 30, 2024 was 37.0%, compared to 37.6% for the prior year period. Operating loss for the nine months ended June 30, 2024 was approximately $4.4 million, compared to operating income of approximately $0.8 million for the prior year period. The increase in operating loss was primarily due to temporary inefficiencies associated with the acquisitions of CRO and Johnson in the current period. Flooring Manufacturing Segment Revenue for the nine months ended June 30, 2024 was approximately $94.7 million, an increase of approximately $10.5 million, or 12.5%, compared to the prior year period revenue of approximately $84.2 million. The gross margin was 24.2% for the nine months ended June 30, 2024, compared to 21.8% for the prior year period. The increase in revenue and gross margin are primarily due to increased sales associated with the acquisition of the Harris Flooring Group® brands in the fourth quarter of fiscal year 2023. Operating income for the nine months ended June 30, 2024 was approximately $4.8 million, compared to operating income of approximately $5.2 million for the prior year period. Steel Manufacturing Segment Revenue for the nine months ended June 30, 2024 increased approximately $51.6 million or 91.6% to approximately $107.9 million, as compared to the prior year period revenue of $56.3 million. The increase is primarily due to increased revenue of approximately $55.1 million at PMW, which was acquired during Q4 2023, and $1.9 million at Central Steel, which was acquired during May 2024, partially offset by a $5.4 million decrease in the Company’s other Steel 44 Table of Contents Manufacturing businesses. The gross margin was 15.3% for the nine months ended June 30, 2024, compared to 27.4% for the prior year period. The decrease in gross margin is primarily due to the acquisition of PMW, which has historically generated lower margins, as well as overall decreased margins in the Steel Manufacturing segment due to reduced production. Operating income for the nine months ended June 30, 2024 was approximately $3.2 million, compared to operating income of approximately $7.0 million in the prior year period. Corporate and Other Segment Revenue for the nine months ended June 30, 2024 decreased by approximately $2.3 million. The decrease was primarily due to the closure of SW Financial in May 2023. Operating loss for the nine months ended June 30, 2024 was approximately $6.0 million, compared to a loss of approximately $5.4 million in the prior year period. Adjusted EBITDA Reconciliation The following table presents a reconciliation of net income to Adjusted EBITDA for the three and nine months ended June 30, 2024 and 2023 (in 000's): For the Three Months Ended For the Nine Months Ended June 30, 2024 June 30, 2023 June 30, 2024 June 30, 2023 Net (loss) income $ (2,855) $ 1,060 $ (6,818) $ 4,462 Depreciation and amortization 4,349 3,683 12,832 9,978 Stock-based compensation 174 287 274 396 Interest expense, net 4,233 3,485 12,563 8,767 Income tax (benefit) expense (968) 297 (2,409) 1,462 SW Financial settlement gain — (1,000) — (2,000) Disposition of SW Financial — 1,697 — 1,697 Acquisition costs 889 66 1,762 1,538 Debt acquisition costs — — 183 — Disposition of Johnson 301 — 301 — Other non-recurring charges — — 587 — Adjusted EBITDA $ 6,123 $ 9,575 $ 19,275 $ 26,300 Adjusted EBITDA for the quarter ended June 30, 2024 was approximately $6.1 million, a decrease of approximately $3.5 million, or 36.1%, compared to the prior year period. The decrease is primarily due to decreases in gross profit and operating income. Adjusted EBITDA for the nine months ended June 30, 2024 was $19.3 million, a decrease of approximately $7.0 million, or 26.7%, compared to the prior year period. The decrease is primarily due to decreases in gross profit and operating income. Liquidity and Capital Resources As of June 30, 2024, we had total cash on hand of approximately $4.7 million and approximately $29.7 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. 45 Table of Contents Working Capital We had working capital of approximately $57.5 million as of June 30, 2024, as compared to working capital of approximately $85.0 million as of September 30, 2023; a decrease of approximately $27.5 million. The decrease is primarily due to increases in accrued liabilities, the current portion of long-term debt, and the current portion of operating lease obligations, and a decrease in income taxes receivable, partially offset by decreases in the current portion of notes payable to related parties and accounts payable, and an increase in accounts receivable. Cash Flows from Operating Activities The Company’s cash, as of June 30, 2024, was approximately $4.7 million compared to approximately $4.3 million as of September 30, 2023, an increase of approximately $0.4 million. Net cash provided by operations was approximately $13.8 million and $26.0 million for the nine months ended June 30, 2024 and 2023, respectively. The decrease was primarily due to decreases in net income, deferred income tax liabilities, prepaids and other current assets, and trades receivables, partially offset by increases in accrued liabilities, depreciation and amortization expense, and accounts payable. Our primary sources of cash inflows are from customer receipts from sales on account, factored accounts receivable proceeds, 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 $18.0 million for the nine months ended June 30, 2024 consisted of the acquisitions of CRO by Flooring Liquidators, Johnson by CRO, Central Steel by Precision Marshall, Midwest Grinding by Kinetic, and purchases of property and equipment. Our cash flows used in investing activities of approximately $38.7 million for the nine months ended June 30, 2023 consisted of the acquisitions of Flooring Liquidators and Cal Coast Carpets, and purchases of property and equipment. Cash Flows from Financing Activities Our cash flows provided by financing activities of approximately $4.6 million during the nine months ended June 30, 2024 consisted of proceeds from failed sales and leaseback transactions of approximately $7.9 million, proceeds from the issuance of notes payable of approximately $2.7 million, net borrowings under revolver loans of approximately $2.0 million, and net borrowings under related party revolver loans of approximately $1.3 million, partially offset by payments on notes payable of approximately $5.1 million, payments for finance leases of approximately $2.5 million, payments of related party notes payable of $0.9 million, and purchases of treasury stock of approximately $860,000. Our cash flows provided by financing activities of approximately $11.7 million during the nine months ended June 30, 2023 consisted of proceeds from notes payable of approximately $9.9 million, proceeds from related party notes payable of approximately $7.0 million, net proceeds under revolver loans of approximately $3.1 million, partially offset by payments of notes payable, financing leases, seller financing arrangements, debt acquisition costs and taxes paid for net settlement of stock options of approximately $7.3 million, and purchases of treasury stock in the amount of approximately $988,000. 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.