Live Ventures Incorporated (NASDAQ:LIVE) Q4 2022 Earnings Call Transcript December 15, 2022

Live Ventures Incorporated misses on earnings expectations. Reported EPS is $-0.21 EPS, expectations were $1.27.

Operator: Good day, everyone, and welcome to today's Live Ventures Incorporated Earnings Call. At this time, all participants are in a listen-only mode. Please note, today's call maybe recorded and I will be standing by, should you need any assistance. It is now my pleasure to turn the conference over to the Director of Investor Relations, Greg Powell. Please go ahead.

Greg Powell: Thank you, Chloe. Good afternoon, everyone, and welcome to the Live Ventures fiscal fourth quarter and full year 2022 conference call. Joining us this afternoon for the call are Jon Isaac, our Chief Executive Officer and President; David Verret, our Chief Financial Officer; and Eric Althofer, our Chief Operating Officer. 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. The actual results could differ material due to the number of factors, including those outlined in our latest Forms, 10-K and 10-Q filed with the Securities and Exchange Commission. We have no obligation to publicly update any forward-looking statements after this call.

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Whether as a result of new information, future events, changes in assumptions or otherwise, you can find our press release referenced on this call in the Investor Relations section of the Live Ventures Web site. I direct you to our Web site www.liveventures.com or www.sec.gov for our historical SEC filings. And now I'll turn the call over to David to walk through our financial performance.

David Verret: Thank you, Greg, and good afternoon, everyone. Overall, the company delivered a solid fourth quarter and full year 2022 performance in spite of increasing economic headwinds. During our fiscal year 2022, we continue to execute on our multi-lever, buy-build-hold strategic plan to maximize stockholder value. On the buy side, we added Kinetic and Better Backers to our steel manufacturing and flooring manufacturing segments, respectively. On the build side, we made significant capital investments in new equipment in our flooring manufacturing business Marquis Industries. In addition, we repurchased 86,451 shares of our common stock during the year. Before we jump into the numbers, let me discuss the acquisitions that we completed during the year.

At the end of June, our steel manufacturing segment acquired The Kinetic Company Incorporated, a 74-year old Wisconsin based company. Kinetic is a highly recognized 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. We believe that Kinetic is a great fit within our growing steel manufacturing segments. In July, we acquired certain assets of Better Backers Incorporated for approximately $3.2 million. Better Backers provides carpet-backing for its carpet manufacturing customers. For more than 40 years Better Backers has taken great pride in its reputation for standing behind the quality of its products and providing its customers with the highest level of service.

Better Backers is a nice addition to our flooring manufacturing segment. Now I'll briefly discuss the financial results for the fourth quarter and full fiscal year 2022. The revenue for the fourth quarter, or total revenue for the fourth quarter increased to $73.8 million, up 4.6% as compared to $70.5 million in the prior year period. The increase in revenue is primarily attributable to the acquisitions of Kinetic and Better Backers partially offset by decreased revenue in our corporate and other segment. Gross profit for the fourth quarter was $22.9 million, down from $25.6 million in the prior year period. The gross margin percentage for the company decreased to 31.1% from 36.3% in the prior year period. The decrease in gross margin percentage is primarily due to increased raw material costs.

Operating income decreased to $1.2 million in the fourth quarter of 2022 as compared to $9.1 million in the prior year period. The decrease in operating income is attributable to the SW Financial goodwill and other intangible assets impairment charge of $4.9 million and inflationary cost increases. For the 3 months ended September 30, 2022, net loss was $0.6 million as compared to net income of $7.1 million in the prior year period. The decrease in net income is attributable to the goodwill and other intangible assets impairment charge and lower operating income. Diluted net loss per share for the current quarter was $0.20 per share as compared to a diluted earnings per share of $2.23 in the prior year period. Adjusted EBITDA for the fourth quarter was $7.2 million, a decrease of approximately $4.3 million as compared to the prior year period.

The decrease in EBITDA is primarily due to the increase in cost of revenues resulting from inflationary cost increases. I will now discuss the financial results of our fiscal year ended September 30, 2022. Fiscal year 2022 total revenues of $286.9 million increased approximately $13.9 million or 5.1% as compared to the prior year period. The increase in revenues is primarily due to the acquisitions of Kinetic and Better Backers, the inclusion of a full year's financial results for SW Financial and inflation based sales price increases. Flooring Manufacturing segment revenues increased 0.5% to $130.9 million as compared to $130.2 million in the prior year. The increase is primarily due to increased sales prices as well as the acquisition of Better Backers.

These increases were partially offset by lower sales volume stemming from decreased customer demand. The Retail segment revenues decreased 3% to $86.2 million as compared to $88.8 million in the prior year. The decrease was primarily due to inflationary pressures, supply chain issues and overall product sales mix. In addition, prior year's sales were positively impacted by government stimulus payments that consumers received during fiscal year 2021. Decrease in revenue was partially offset by the addition of seven new vintage stock store openings in 2022. Steel Manufacturing segment revenues increased by approximately $11.3 million or 23% as compared to the prior year due to increased sales pricing as well as the acquisition of Kinetic in June 2022.

Finally, approximately $4.7 million of the increase in corporate and other segment revenue was due to SW Financial becoming a consolidating variable interest entity in June of 2021. Gross profit for the full year 2022 was $97.8 million, down from $99.5 million in the prior year. The gross margin percentage for the company decreased to 34.1% from 36.4% in the prior year. The decrease is primarily due to the tightened margins in our Flooring Manufacturing segment. The Flooring Manufacturing segment gross profit margin decreased to 24.4% as compared to 29.1% in the prior year. The decrease is primarily due to increases in raw material costs. Retail segment's gross profit margin decreased 52.9% as compared to 54.1% in the prior year. The decrease is primarily due to sales mix of new and pre-owned products.

The Steel Manufacturing segment's gross profit margin increased to 27.8% as compared to 24.2% in the prior year period. The increase in gross profit margin is primarily due to sales price increases throughout 2022. Full year 2022 general and administrative expenses increased by approximately $2.3 million or 4.4% as compared to the prior year. The increase is primarily due to the acquisition of Kinetic in June of 2022, increases in employee compensation and related costs as a result of our Retail segment opening new locations and the consolidation of SW Financial in June 2021, partially offset by reductions in legal and other professional fees. General and administrative expenses as a percentage of revenues remained steady at approximately 19% as compared to the prior year.

Selling and marketing expenses increased approximately $1 million for the full year 2022 as compared to the prior year, primarily due to increased convention and tradeshow activity, which was largely cancelled in fiscal year 2021 due to COVID. Sales and marketing expenses as a percentage of revenue were 4.3% as compared to 4.2% in the prior year. Full year 2022 operating income of $25.9 million decreased 27.6% as compared with the prior year. The decrease in operating income is attributable to the fourth quarter goodwill and other intangible assets impairment charge and lower profit margins. Net income for fiscal year 2022 was $24.7 million, a decrease of $6.5 million or 20.7% as compared with the prior year. The decrease is primarily attributable to lower operating income and one-time gains net of charges, partially offset by decreases in interest expense and income tax expense.

Diluted EPS for the current year was $7.84, a decrease of 20% as compared to the prior year. Fiscal year 2022 net income of $24.7 million includes an $11.4 million gain related to the ApplianceSmart bankruptcy settlement, partially offset by the $4.9 million impairment charge and one-time acquisition related charges of approximately $1.5 million. Fiscal year 2021 net income of $31.2 million includes $7.9 million and gains related to the extinguishment of PPP loans, and the settlement of certain ApplianceSmart liabilities in connection with the bankruptcy. Adjusted EBITDA for fiscal 2022 decreased 13.8% to $38.4 million as compared to $44.5 million in the prior year. The decrease in EBITDA is primarily due to the decrease in profit margins. A reconciliation of adjusted EBITDA has been provided in our earnings release that we filed earlier today.

Turning to liquidity. We ended the fourth quarter with cash of $4.6 million and cash availability under our various lines of credit of $26.4 million for a combined liquidity of $31 million. I would like to highlight our low level of leverage. As of fiscal year end, our net debt to adjusted EBITDA ratio was 2.1x. We maintained a low level leverage, while purchasing two new businesses this year, repurchasing shares and making significant capital investments at Marquis. Net cash provided by operations was approximately $14.6 million for the year ended September 30, 2022 as compared to net cash provided by operations of approximately $29.2 million for the year ended September 30, 2021. We had net working capital of approximately $78.4 million as of September 30, 2022, as compared to approximately $33.8 million as of September 30, 2021.

The increase is primarily due to the net assets received from the acquisitions of Kinetic and Better Backers, increases in accounts receivable and inventories, partially offset by a decrease in debtor in possession liabilities. Total assets increased $66.9 million or 31.6% to $278.6 million as compared to $211.7 million as of September 30, 2021. Total stockholders' equity increased $22.1 million to $97.2 million. Cash flows provided by financing activities increased to approximately $25.4 million during the year ended September 30, 2022 primarily due to proceeds from borrowings under the revolver loans and issuance of notes payable, which is primarily associated with the acquisition of Kinetic. 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 stockholders. As previously disclosed, the company announced a 10 million common stock repurchase plan in 2018. During fiscal year 2022, we repurchased 86,451 shares of common stock at an average price of approximately $31.18 per share. The company has repurchased 504,921 shares of its common stock for approximately 6 million under the plan to date. As of September 30, the company had approximately $4 million available for repurchases under this program. In conclusion, while the current business environment remains challenging, we remain optimistic about our ability to navigate the environment and drive long-term returns for our stockholders. We will now take questions from those of you on the conference call.

Operator, please open the line for questions.

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