LIVE VENTURES INCORPORATED For a description of our significant accounting policies and an understanding of the significant factors that influenced our performance during the three months endedDecember 31, 2022 , 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 endedSeptember 30, 2022 (the "2022 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 Quarterly 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 about the Chapter 11 Case, (vi) 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 (vii) 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 2022 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. Any information contained on our website www.liveventures.com, or any other websites referenced in this Quarterly Report, are not part of this Quarterly Report.
Our Company
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 at325 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". 23 --------------------------------------------------------------------------------
Retail Segment
Our Retail Segment is composed of
Vintage Stock
Vintage Stock Holdings LLC , Vintage Stock, V-Stock,Movie Trading Company and EntertainMart (collectively, "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 69 retail locations strategically positioned acrossArkansas ,Colorado ,Idaho ,Illinois ,Kansas ,Missouri ,Nebraska ,New Mexico ,Oklahoma ,Texas , andUtah .ApplianceSmart ApplianceSmart is a household appliance retailer with two product categories: one consisting of typical and commonly available, innovative appliances, and the other consisting of affordable value-priced, offerings such as close-outs, factory overruns, discontinued models, and special-buy appliances, including open box merchandise and others. OnDecember 9, 2019 ,ApplianceSmart filed a voluntary petition (the "Chapter 11 Case") in theUnited States Bankruptcy Court for the Southern District of New York (the "Bankruptcy Court ") seeking relief under Chapter 11 of Title 11 of the United States Code (the "Bankruptcy Code"). The bankruptcy affectedLive Ventures' indirect subsidiaryApplianceSmart only and did not affect any other subsidiary ofLive Ventures , orLive Ventures itself. OnFebruary 28, 2022 , the court approvedApplianceSmart's plan for reorganization (the "Plan"), dischargingApplianceSmart of certain debts according to the Plan resulting in the Company recording a gain of approximately$11.4 million , which includes a write-off or adjustment of approximately$11.5 million on the settlement of debts and other liabilities, offset by payments subject to the bankruptcy that were not included as debtor-in-possession liabilities of approximately$149,000 . As ofApril 1, 2022 , we have ceased operations of its one existing location, and are in the process of winding down operations, which will be immaterial to the consolidated financial statements.
Flooring Manufacturing Segment
Our Flooring Manufacturing segment is comprised of
Marquis Affiliated Holdings LLC and wholly-owned subsidiaries ("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
Steel Manufacturing Segment
Our Steel Manufacturing segment is comprised of
Precision Marshall is the North American leader in providing and manufacturing, pre-finished de-carb free tool and die steel. For nearly 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. 24 -------------------------------------------------------------------------------- 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. OnJune 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 was founded by the Masters family in 1948 and is headquartered inGreendale, 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.
Critical Accounting Policies
Our consolidated financial statements have been prepared in accordance with accounting principles generally accepted inthe 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 10-K report as filed onDecember 16, 2022 .
Adjusted EBITDA
We evaluate the performance of our operations based on financial measures such as revenue and "Adjusted EBITDA." Adjusted EBITDA is defined 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 of 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. Adjusted EBITDA is a non-GAAP financial measure. As companies often define non-GAAP financial measures differently, Adjusted EBITDA, as calculated byLive Ventures Incorporated , should not be compared to any similarly titled measures reported by other companies. 25 --------------------------------------------------------------------------------
Results of Operations for the Three Months Ended
The following table sets forth certain statement of income items and as a
percentage of revenue, for the three months ended
For the Three Months Ended December 31, For the Three Months Ended December 31,
2022 2021
% of Total % of Total
Revenue Revenue
Selected Data
Revenues $ 68,986 $ 75,158
Cost of revenues 47,042 68.2 % 47,542 63.3 %
General and administrative expenses 14,600 21.2 % 14,157 18.8 %
Sales and marketing expenses 2,777 4.0 % 3,052 4.1 %
Interest expense, net 2,047 3.0 % 1,017 1.4 %
Income before provision for income
taxes 2,459 3.6 % 9,506 12.6 %
Provision for income taxes 615 0.9 % 2,960 3.9 %
Net income $ 1,844 2.7 % $ 6,546 8.7 %
Adjusted EBITDA (a)
Retail business $ 4,003 $ 5,202
Flooring Manufacturing business 1,785 5,255
Steel Manufacturing business 2,525 1,844
Corporate & Other (774 ) (199 )
Total Adjusted EBITDA $ 7,539 $ 12,102
Adjusted EBITDA as a percentage of
revenue
Retail business 17.2 % 19.8 %
Flooring Manufacturing business 6.8 % 16.0 %
Steel Manufacturing business 14.0 % 14.9 %
Corporate & Other -59.5 % -5.4 %
Consolidated adjusted EBITDA as a
percentage of revenue 10.9 % 16.1 %
(a) See reconciliation of net income to Adjusted EBITDA below.
The following table sets forth revenues by segment (in 000's):
For the Three Months Ended For the Three Months Ended
December 31, 2022 December 31, 2021
% of % of
Net Total Net Total
Revenue Revenue Revenue Revenue
Revenue
Retail $ 23,273 33.7 % $ 26,211 34.9 %
Flooring Manufacturing $ 26,432 38.3 % 32,872 43.7 %
Steel Manufacturing $ 17,981 26.1 % 12,366 16.5 %
Corporate & Other $ 1,300 1.9 % 3,709 4.9 %
Total Revenue $ 68,986 100.0 % $ 75,158 100.0 %
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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, For the Three Months Ended December 31,
2022 2021
Gross Gross
Gross Profit % of Gross Profit % of
Profit Total Revenue Profit Total Revenue
Gross Profit
Retail $ 12,210 17.7 % $ 13,390 17.8 %
Flooring Manufacturing $ 4,661 6.8 % 9,029 12.0 %
Steel Manufacturing $ 4,392 6.4 % 3,615 4.8 %
Corporate & Other $ 681 1.0 % 1,582 2.1 %
Total Gross Profit $ 21,944 31.8 % $ 27,616 36.7 %
Revenue
Revenue decreased approximately $6.2 million , or 8.2%, to approximately $69.0
million for the three months ended December 31, 2022 , as compared to the
corresponding prior year period. The decrease is primarily due to reduced demand
due to inflationary pressures in all segments, as well as supply chain issues
and overall product mix in our Retail Segment. The increase in revenue for our
Steel Manufacturing segment was primarily due to the acquisition of Kinetic.
Cost of Revenue
Cost of revenue as a percentage of revenue was 68.2% for the three months endedDecember 31, 2022 as compared to 63.3% for the three months endedDecember 31, 2021 . The increase is primarily attributable to the decreases in revenues, partially offset by inflationary cost increases and the acquisition of Kinetic.
General and Administrative Expense
General and Administrative expenses increased by 3.1% to approximately$14.6 million for the three months endedDecember 31, 2022 , as compared to the three months endedDecember 31, 2021 primarily due to the acquisition of Kinetic, partially offset by decreases in professional fees and other General and Administrative expenses.
Selling and Marketing Expense
Selling and marketing expense decreased by 9.0% to approximately$2.8 million for the three months endedDecember 31, 2022 , as compared to the three months endedDecember 31, 2021 , primarily due to decreased trade show and convention activity related to our Flooring Manufacturing segment.
Interest Expense, net
Interest expense, net increased by approximately
Results of Operations by Segment
For the Three Months Ended December 31, 2022 For the Three Months Ended December 31, 2021
Flooring Steel Corporate Flooring Steel Corporate
Retail Manufacturing Manufacturing & Other Total Retail Manufacturing Manufacturing & Other Total
Revenue $ 23,273 $ 26,432 $ 17,981
21,771 13,589 619 47,042 12,821 23,843 8,751 2,127 47,542
Gross Profit 12,210 4,661 4,392 681 21,944 13,390 9,029 3,615 1,582 27,616
General andAdministrative
Expense 8,385 1,491 2,792 1,932 14,600 8,454 1,639 1,821 2,243 14,157 Selling and Marketing Expense 161 2,419 145 52 2,777 126 2,782 140 4 3,052 Operating Income (Loss)$ 3,664 $ 751 $ 1,455$ (1,303 ) $ 4,567 $ 4,810 $ 4,608 $ 1,654$ (665 ) $ 10,407 27
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Retail Segment
Revenue for the three months endedDecember 31, 2022 decreased by approximately$2.9 million , or 11.2%, as compared to the prior year, primarily due to reduced demand as a result of inflationary factors, supply chain issues, and overall product mix. Further, effectiveApril 2022 ,ApplianceSmart shut down its operations. Cost of revenue as a percentage of revenue was 47.5% for the three months endedDecember 31, 2022 , as opposed to 48.9% for the three months endedDecember 31, 2021 . Operating income for the three months endedDecember 31, 2022 was approximately$3.7 million , as compared to operating income of approximately$4.8 million for the prior year period.
Flooring Manufacturing Segment
Revenue for the three months endedDecember 31, 2022 decreased by approximately$6.4 million , or 19.6%, as compared to the prior year period, primarily due to reduced demand as a result of inflationary factors. Cost of revenue as a percentage of revenue was 82.4% for the three months endedDecember 31, 2022 , as opposed to 72.5% for the three months endedDecember 31, 2021 . The increase is primarily due to increases in raw material costs, as compared to the prior year period. Operating income for the three months endedDecember 31, 2022 was approximately$750,000 , as compared to operating income of approximately$4.6 million for the prior year period.
Steel Manufacturing Segment
Revenue for the three months endedDecember 31, 2022 increased by$5.6 million , or 45.4%, as compared to the prior year period, primarily due to the acquisition of Kinetic. Cost of revenue as a percentage of revenue was 75.6% for the three months endedDecember 31, 2022 , as opposed to 70.8% for the three months endedDecember 31, 2021 . The increase is primarily due to increases in raw material costs, as compared to the prior year period, as well as the acquisition of Kinetic. Operating income for the three months endedDecember 31, 2022 was approximately$1.5 million , as compared to operating income of approximately$1.7 million in the prior year period.
Corporate and Other Segment
Segment results for Corporate and Other includes our directory services business and our investment in SW Financial. Revenues for the three months endedDecember 31, 2022 decreased by approximately$2.4 million , or 65%, as compared to the prior year period, primarily due to decreased revenue for SW Financial. The decrease was primarily due to a decrease in commissions derived from stock market trading activity due to market volatility, as well as a decrease in commissions derived from initial public offerings and private placements due to reduced activity. Cost of revenue as a percentage of revenue was 47.6% for the three months endedDecember 31, 2022 , as opposed to 57.3% for the three months endedDecember 31, 2021 . Operating loss for the three months endedDecember 31, 2022 was approximately$1.3 million , as compared to a loss of approximately$665,000 in the prior period. Revenues and operating income for our directory services business continue to decline due to decreasing renewals. We expect revenue and operating income from this business to continue to decrease in the future. We are no longer accepting new customers in our directory services business. We anticipate revenues from our investment in SW Financial to trend upward in the future.
Adjusted EBITDA Reconciliation
The following table presents a reconciliation of Adjusted EBITDA from net income
(in 000's):
For the Three Months Ended
December 31, 2022 December 31, 2021
Net income $ 1,844 $ 6,546
Depreciation and amortization 2,651 1,549
Stock-based compensation - 18
Interest expense, net 2,047 1,017
Income tax expense 615 2,960
Acquisition costs 382 12
Adjusted EBITDA $ 7,539 $ 12,102
Adjusted EBITDA decreased by approximately $4.6 million , or 37.7%, for three
months ended December 31, 2022 , as compared to the prior year period. The
decrease is primarily due to decreases in revenue and gross profit, which is
primarily due to our Flooring Manufacturing segment, as discussed above.
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--------------------------------------------------------------------------------Liquidity and Capital Resources
As ofDecember 31, 2022 , we had total cash and restricted cash of approximately$12.8 million and approximately$21.2 million of available borrowing under our revolving credit facilities. The Company's restricted cash of approximately$890,000 is required collateral for a standby letter of credit for a customs bond, which is renewed annually. 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 fund our operations, pay our scheduled loan payments, allow for the repurchase of 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$78.1 million as ofDecember 31, 2022 , as compared to working capital of approximately$78.4 million as ofSeptember 30, 2022 .
Cash Flows from Operating Activities
The Company's cash and restricted cash, as ofDecember 31, 2022 , was approximately$12.8 million compared to approximately$4.6 million as ofSeptember 30, 2022 , an increase of approximately$8.2 million . Net cash provided by operations was approximately$6.3 million for the three months endedDecember 31, 2022 as compared to net cash provided by operations of approximately$4.2 million for the three months endedDecember 31, 2021 . The increase was primarily due to receipts of accounts receivable, partially offset by timing of payments on accounts payable. 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 were approximately
Cash Flows from Financing Activities
Our cash flows provided by financing activities of approximately$3.2 million during the three months endedDecember 31, 2022 consisted of net 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 in the amount of approximately$620,000 . Our cash flows provided by financing activities of approximately$4.2 million during the three months endedDecember 31, 2021 consisted of net proceeds from notes payable of approximately$5.5 million , and approximately$2.0 million in net payments under revolver loans, partially offset by payments of notes payable and financing leases of approximately$3.4 million . Currently, the Company is 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 and/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 may further dilute or otherwise
impair the ownership interest of our existing stockholders.
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