Live Ventures Incorporated (LIVE) Q2 2018 Earnings Report, Transcript and Summary

Good day, everyone, and welcome to the Second Fiscal 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 maybe recorded. It is now my pleasure to turn today's conference over to CFO, Virland Johnson. Please go ahead, sir.

Thank you. Good afternoon, and welcome to the Live Ventures Incorporated fiscal second quarter 2018 conference call. The company will file its Form 10-Q for the second fiscal quarter ended March 31, 2018, within the next few days but no later than May 21st, 2018. This filing can be found on our website www.live-ventures.com in the Investor Relations section as well as on the SEC website at www.sec.gov. I'm joined today by Jon Isaac, Chief Executive Officer. Please note that some of the remarks you will hear today may contain forward-looking statements about the company's performance, as well, there may be forward-looking statements made during the Q&A session that follow our prepared remarks. These statements are neither promises nor guarantees, and there are a number of risks and uncertainties that could cause actual results to differ materially from those set forth in these forward-looking statements. Additional information concerning factors that could cause actual results to materially differ from those in these forward-looking statements is contained in our filing and periodic reports filed with the SEC, copies of which are available on our website and may be requested directly from the company. Forward-looking statements are made as of today's date, and we do not undertake any obligation to update any forward-looking statements made during today's call. Thank you for -- thanks to everybody joining us today for our second fiscal quarter 2018 call. I would also like to express my appreciation to our management and associates of Live Ventures for another outstanding quarter. During our call today, we will briefly cover our company's operating and financial results for the quarter, and then, answer your questions at the end of our prepared remarks. Operating results for the second fiscal quarter 2018. The company reported record quarterly revenue of $52.2 million, representing an increase of 35.3% over the same period last year and quarterly earnings per basic share of $0.98. Hard surface products revenue continues to grow up over 66.6% year-over-year. Hard surface products gross profits were up 55.1% year-over-year due to increased sales efforts. Vintage had a strong quarter both on revenue and operating results. ApplianceSmart, our newest acquisition contributed positive operating income for the quarter, and is included in our retail segment. For the quarter, gross profit was $19.7 million which is up 19.3%from the same period of fiscal 2017. In addition, our operating income was $4 million compared to the same period last year of $5.2 million, 22.7% decline. And net income was $1.9 million compared to $1.8 million in the same period last year due to the new favorable corporate tax rate at the federal level and decreased borrowing and related interest expense. For the quarter, margins for gross profit were down slightly to 37.7 % and operating income of 7.8%. This compares to the prior year margins for gross profit were 42.8% and operating income of 13.7%/ Gross profit and gross profit margin are down primarily due to a loss of a major customer in the synthetic turf product line at Marquis. This customer has been replaced in this next quarter. As of March 31, 2018, the company reported approximately $2.5 million of cash on hand, plus an additional $13. 6 million of available credit under the company's revolving lines of credit. Net cash provided from operating activities for the first six months was $6.6 million. Stockholders equity increased approximately 10.6% to $37.1 million over our year-end September 30th, 2017. Our general and administrative expenses were higher this quarter in year-to-date due to a larger than expected personnel expense, professional fees, property taxes and repairs and maintenance .Corrective action has been taken to drive these expenses as a percent of revenue lower and back to more historical norms for our core businesses. We are continuing to work at replacing our capital term debt facility. This refinancing has not taken place as of yet. Jon will address this more in his comments today. For additional financial information and details I invite you to review our press release distributed this afternoon and view our SEC filings when we available either on our website or on the SEC website. With that I thank you very much for your participation on this call, and your continued interest in Live Ventures Incorporated. At this time, Jon has some comments. And we welcome any questions that you may have at the end of his comments.

This is Jon. We are very pleased with the quarter. First of all, thank you for everyone for joining the call. Secondly, sorry for the mess up on the numbers we were able to correct it. It was a mistake on our part that hopefully won't be repeated in the future. So thank you for joining us. We're very pleased with the quarter. Record revenue of $52 million as Virland mentioned. Our net worth as a company which is probably the most important metric in my view, also increased almost 20% year-over-year. So we're very pleased with that business seems to be very strong at all of our subsidiaries. We also have Rodney Spriggs who is a CEO and President of Vintage Stock, our largest subsidiary here with us on the line. So if anyone has any questions related to Vintage Stock you are welcome to ask questions. At this time, operator can you please repeat the instructions to on how if someone can ask a question. So all of our -- and Appliance Mart has also contributed to our financials this quarter. As you know, we acquired ApplianceSmart at the end of calendar 2017. So the all financials have been consolidated with ApplianceSmart. At the Vintage level we opened one store that we mentioned a couple weeks ago in another press release. In February we announced the new buyback program $ten million that came into effect in February. At the Marquis level, one of the primary reasons why SG&A was a little higher is because of new personnel expenses as Virland mentioned. And the reason for that is we have an employment contract that is expiring in July with the sellers -- the guys who are currently running Marquis Industries. We are, very, very happy that they are with us and they contributed -- they added a lot of value for us as a company over the last almost three years since we've acquired Marquis Industries. But there will be a transition over the next few months and current management has agreed to stay with us on a part-time basis when they retire in order to help the new management team that's currently in training. So there will be announcements in the future relating to that. Maybe I will pass -- anyone has questions please feel free to ask. In the meantime I'll pass the phone past the mike so to speak to Rodney. Maybe Rodney you can provide us with a brief update on the pulse of how your operations are going.

Thank you, Jon. We also opened up a store that had been destroyed in Tulsa, Oklahoma by a tornado last August. And so it is currently operating in a temporary location that happened in February. We also have insurance that for 18 months makes us whole. So even if that store doesn't generate the exact income that it did in the past which it's not because it's only in a 1,500 square foot location, which is over half as small as what it originally was. The insurance company will make up any lack or less profit at that location for 18 months from the date of the tornado. We did open up another store in the Oklahoma City Market that has been open for a week and a half now. And it is come out of the gate fairly decent. We're happy with where that's at. We also negotiated a little bit of free rent on the front end. So our occupancy cost is very low there. We are also looking favorably for hopefully getting this refi done here very soon because we have put a lot of efforts and energies in that over the last six months or so. So I think everybody's looking forward to conclusion to that. And we also have other locations out there we're looking at. There's also Nintendo of America which came out with the switch Nintendo system for the home console market is still very successful. And Nintendo has also came out with a NES mini and a Super NES mini that have been very successful products for them. They've actually been in short supply for most retailers, but they just made an announcement that they are re-releasing the original NES mini at the end of June. So hopefully we've been working with Nintendo to secure additional higher allocations for that one it does re-release. The Super NES mini will also continue to be going out through the end of this year's what they are saying currently.

Great. Thanks Rodney. We have a question. Operator do you want to introduce the person asking is Eathon. Can we open the line to Eathon please?

[Operator Instructions] Eathon your line is open to ask a question.

Hi. I was hoping you guys could give us an update on the refinancing or what you have seen with the Capitala loan and what is your sort of your vision as how it's going to play out?

We knew that this question would come up. As we mentioned on the last call we are -- it is in the works I believe that it is mature and it should have consumed with the caveat of course that the disclosure that anything can happen of course there's no guarantees, but we are very confident that you will see something soon about the refinance at the Vintages level. And I pay off hopefully of capital very soon.

Okay, great. And I guess to the extent that you can is there any additional color as to what from your views are prolonging the discussions and is there anything that sort of changed between when you guys had expected it to close in Q1 versus today?

I think Ethan to answer the question these mezzanine financings are difficult. They involve a lot of due diligence. In this one specifically, there was a quality of earning study they had to be done by an outside adviser. The process is going actually quite well. It's just that the due diligence is extensive. And as you go through the process, there are questions that have to be answered of course. But I firmly believe as Jon has indicated that we're near the end of the poll here. And I think it'll get done here very shortly again with the caveat that there are no guarantees, but things are moving along quite well.

We also have anything hopefully in the next few weeks so go head.

It appears there are no further questions.

Can you talk about if there has been any stock repurchases and it appears that some of the amount of money that was in the cash available when the revolver has decreased from last quarter. If you could talk about that.

Sure. I think again we have been making additional payments on our debt specifically with Capitala. We're starting to see some increase in our business activity so the revolvers are a little bit higher than what they were in the prior quarter, which is a little understandable but our term debt is definitely lower. So I think that really addresses it I mean a $1 million here there is just operating right now, but we've actually made a lot of progress in reducing our Capitala debt in advance of this anticipated refinancing. So right now that's our focus. That's the direction that we're moving quickly in terms of getting this thing executed timely.

In terms of buybacks we had been opportunistic if you see on the press release one of the bullet points we have a 1,962,000 of outstanding common shares versus the year prior to almost 100,000 shares more. So we've built shares the reduction was all as a result of repurchases.

And since year end we've actually repurchased another $377,000 worth of shares.

Right. I believe our -- if I looked at it recently I believe our average repurchase price was around $10 somewhere in that range. So we're -- all of our repurchases have been in our opinion opportunistic and they are all in the money. And we just established a new repurchase program as I mentioned we announced it in February and will continue to buy shares if when we can and whenever management I believe that the price is fair. And of course whenever we're not in possession of any material non public information. The company exercises that rule of course we have to abide by securities regulations. So it's not just insiders and board members and management, but also the company itself. So keep looking at our filings and we'll try to keep shareholders updated as frequently as we can.

One of the other things is actually the advance rate on the Vintage line from Texas Capital does fluctuate depending on inventory levels in the time of year. So there can be as much as $750,000 to $1 million fluctuation rate on our available line on the revolver. So that does affect some of that stuff.

That's true. We have a seasonal advance rate with Texas Capital Bank at our Vintage level. So towards calendar Q4 you will see that availability-- it increases drastically because of our deal with them. Obviously holiday season, Rodney and his team we buy millions of dollars worth of inventory at that time. So we have more higher borrowing base. I think Phillip you had a question and we stay you off.

No problem. I know in the filings there was a time limit to the waivers that the Capitala loan existed. Can you just speak to in terms of the extensions that were given for different waivers for that loan with regards to refinancing and being able to refinance that debt?

Phillip that's a very good question. First off we are in communication with Capitala all the time. And we're continuing to perform on our loan. They tend to -- our covenant situations occur technically just as a result of our filings in terms of the data. So to answer your questions are we in covenant right now? The answer is no. As we've disclosed previously, Capitala and the company are working to refinance the indebtedness as quickly as possible. And that's where it's at right now.

And Capitala is very well aware of our refinancing efforts and they're up to date on a weekly basis as to where we are in the process. They understand the new lender will have quality of earning studies and other advisors that are doing their due diligence. So from that standpoint we're in -- we have a very good relationship with our existing lender and the new lender. And hopefully all this will be behind us very soon.

We have a question from David.

Hey, guys. Just a one questions but first a comment I was on business in the Oklahoma City area this week. And stopped into for the first time to a couple of different Vintage Stock Stores. And I want you to know that I was just extremely impressed by the amount of customers in there. The staff, how courteous they were. So congratulations to you guys and Ronnie for that. And then the question is the new management teams at Marquis are they are they in from the inside at Marquis.

Some --good question, some yes and others know, some were hired from competitors and some were from within. And so we're just finalizing the management structure in the next few days. And as soon as we have something we will make an announcement and update keep everyone apprise of it, but some were from outside some more from inside, but I can assure you they were all hand-picked and they all come from the industry and they are a phenomenal team that I think will add a tremendous amount of value.

Okay, thank you. And Jon you talked about losing a customer by getting another customer?

Yes. From what we've heard at Marquis there was a loss of a customer on the synthetic turf line. They decided to take the process in-house and the company has secured another customer to replace that volume. Any other questions. We will keep it open for another 30 seconds, if not we will reconvene in about three months. Keep it open for 30 seconds.

Since there are no questions we will take the call to close and we'll be speaking to you again in about 90 days or so for our Q3 earnings release. Thank you very much for attending and for your participation.

This does conclude today's conference. You may disconnect your line at any time.