Operator: Good day, everyone, and welcome to today’s Live Ventures Incorporated 2023 Third Quarter Earnings Call. at this time all participants are in a listen-only mode. Later you will have the opportunity to ask questions during the question-and-answer session. [Operator Instructions]. Please note this call may be recorded. [Operator Instructions]. It is now my pleasure to turn the conference over to Greg Powell, Director of Investor Relations. Please go ahead, sir.

Greg Powell: Thank you, Travis. Good afternoon, and welcome to the Live Ventures Fiscal 2023 third quarter 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 Althofper, 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 materially due to a 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, whether as a result of new information, future events, changes in assumptions or otherwise.

You can find our press release and 10-Q referenced on this call in the Investor Relations section on the Live Ventures website. I direct you to our website www.liveventures.com or sec.gov or our historical SEC filings. I will now turn the call over to David to walk us through our financial performance.

David Verret: Thank you, Greg, and good afternoon, everyone. Before jumping into the numbers, let’s briefly discuss the Precision Metal Works acquisition. Subsequent to quarter end, we acquired Precision Metal Works or I refer to as PMW, for total consideration of $28 million, adding approximately $75 million of revenue per year. PMW manufactures and supplies highly engineered parts and components. They also offer world-class metal forming, assembly and finishing solutions across diverse industries, including appliance, automotive, hardware, electrical, electronic, and medical products and devices. The acquisition of PMW is a source of great excitement for us, as it complements our current steel manufacturing operations and aligns perfectly with our long-term buy-build-hold strategy.

We see immense potential with this acquisition. Now I will discuss the financial results for our third quarter. Total revenue for the third quarter increased 34.1% to $91.5 million. The increase is primarily attributable to the acquisitions of Flooring Liquidators and Kinetic, partially offset by decreased revenues in our other businesses as compared to the prior year period. Flooring manufacturing revenues of $27.4 million, decreased by approximately $4.8 million or 14.8%, as compared to the prior year period, primarily due to reduced current consumer demand. Retail Entertainment revenues of $18 million, decreased by approximately $1.2 million or 6.3% as compared to the prior year. Revenues decreased due to reduced consumer demand. As we announced last quarter, we have a new segment, the Retail Flooring segment, which consists of flooring liquidators.

Revenues for our retail flooring were $27.4 million for the third quarter. Steel Manufacturing revenues of $18.4 million, increased by approximately $3.4 million or 22.9% as compared to the prior year period, primarily due to the acquisition of Kinetic. Corporate and Other segment revenues decreased by approximately $1.7 million, primarily due to decreased revenues at SW Financial, which was due to the shutdown of operations at SW Financial in the current quarter. As a result of the shutdown, we recorded a loss in of disposition of SW Financial’s assets and liabilities of approximately $1.7 million. In addition, we recognized a $1 million gain related to the settlement agreement that we entered into in the second quarter. Gross profit for the third quarter was $32.2 million, up from $22.3 million in the prior year period.

Gross margin percentage for the company increased to 35.2% from 32.7% in the prior year period. The increase is primarily due to the addition of Flooring Liquidators and Kinetic, which have higher margins. General and administrative expenses of $23.2 million, increased $9.8 million as compared to the prior year period. The increase is primarily due to the additions of Flooring Liquidators and Kinetic. Selling and marketing expenses increased 9.9% to approximately $3.4 million, as compared to the prior year. Operating income decreased 5.2% to $5.6 million for the third quarter, as compared to $5.9 million in the prior year period. The decrease in operating income is primarily attributable to lower revenues and higher costs in the retail entertainment, flooring manufacturing and corporate segments, partially offset by additions of Flooring Liquidators and Kinetic.

Third quarter interest expense increased approximately $2.8 million, as compared to the prior year period, primarily due to the increased debt balances related to the acquisitions of Flooring Liquidators and Kinetic. Third quarter net income was $1.1 million and diluted EPS was $0.33 per share, as compared with net income of $3.5 million and diluted EPS of $1.11 in the prior year period. The decrease in net income is primarily attributable to lower operating margins and higher interest expense. Adjusted EBITDA for the third quarter was $9.6 million, an increase of approximately $700,000 as compared to the prior year period. Turning to liquidity. We ended our third quarter with cash of $3.5 million and cash availability under our various lines of credit of $28.8 million for a combined total liquidity of $32.3 million.

We had working capital of approximately $81.6 million as of June 30, 2023, as compared to working capital of approximately $78.4 million as of September 30, 2022. Total assets were $360.2 million as of June 30, 2023, as compared to $278.6 million as of September 30, 2022. Total stockholders’ equity was $104.2 million, as compared to $97.1 million as of September 30, 2022. 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 our third quarter, we repurchased 3,702 shares of common stock at an average price of approximately $25.31 per share under this program.

As of June 30, the company had approximately $3.3 million available for repurchases under this program. In conclusion, we remain committed to creating long-term value for our stockholders. To achieve this, we focus on strategic, well-planned acquisitions and investments, aligning with our growth objectives and generating sustainable returns. We believe that our financial strength and strategic focus position us well to weather near-term headwinds and emerge as a stronger, more resilient company in the long run. We will now take questions from those of you on the conference call. Operator, please open the line for questions.

Operator: [Operator Instructions] We have a question from Theodore O’Neill, Litchfield Hills Research.

Theodore O’Neill: Thank you very much. Just a question on Salomon Whitney disposition. It seems like I only be able to net those two things together, the settlement and the loss, but you’ve got a broken out separately, so there must be a reason for that. Can you give us just a little history of — a little more information what the settlement is about?

David Verret: So just from an accounting standpoint, the loss is just related to disposing of the asset, deconsolidating. And so that requires a separate line item and the settlement gain. We provided some disclosures in our 10-Q related to the settlement. But I guess what I’ll say about the settlement agreement is — that settlement agreement, we basically pursuant to that written agreement that we believe is in the best interest of Live and its shareholders that we shut — that we closed the operations, a round down operations to Salomon Whitney. And according to that agreement, we are limited on what we can discuss. So really what I want to do is just refer you over to our disclosures in our 10-Q.

Theodore O’Neill: Okay. I read the QA, I was just looking for some information, but that’s fine.

David Verret: If you look at the press release that we published and go down to adjusted EBITDA, you’ll see a breakdown there, and it will say Salomon Whitney financial settlement gain and disposition, you will see that event matter pretty easily.

Theodore O’Neill: Yes, okay. And you sort of — you talked about the Flooring business and the Retail business and having reduced customer demand. Is there anything idiosyncratic about that that’s going on? Or is that just sort of a general economic?

David Verret: It’s going to be more or less of general economic conditions. I mean the only other thing I would add is during 2020 and 2021, there was a lot of — there was a decent boost in revenues. A lot of people were getting home remodels and things like that. So between that and just overall general economic conditions and what we’re seeing is kind of right in line with our pure company.

Jon Isaac: I would say, Theodore, if you went and looked at companies of similar to what we do, look at more numbers, it will paint a very clear picture. And LL Flooring published their numbers yesterday, you’ll see that their same-store sales are down 22%. I think that we are outperforming the general market, but that is my opinion.

Theodore O’Neill: Yes. Okay. That makes total sense. Everybody was staying at home and doing remodeling or finding something else to get entertained at home and now we’re all out and about. Okay, those are my questions. Thank you.

David Verret: Excellent. Thank you, Theodore.

Operator: We have no further questions in the queue at this time. I would now like to turn the call back over to today’s speakers.

David Verret: Well, I want to thank everyone for attending the call today, and we look forward to our next call following our year-end. So thank you.

Operator: This does conclude today’s program. Thank you for your participation. You may disconnect at any time.

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LIVE VENTURES INC

Q3 2023

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