Live Ventures Incorporated (LIVE) Q3 2018 Earnings Report, Transcript and Summary

Good day, everyone, and welcome to the Live Ventures' Quarterly 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 the conference is being recorded. It is now my pleasure to turn the conference over to Chief Financial Officer of Live Ventures', Virland Johnson. Please go ahead, sir.

Good afternoon, and welcome to the Live Ventures Incorporated third quarter call for 2018. Earlier today the company filed its Form 10-Q for the third fiscal quarter ended June 30, 2018 with the SEC. This filing will be found on our Web site www.live-ventures.com in the Investor Relations section as well as on the SEC Web site at www.sec.gov. My name is Virland Johnson, Chief Financial Officer of Live Ventures and joining me today is Jon Isaac, Chief Executive Officer of Live Ventures. 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 Web site or 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 to everyone joining us today for our third fiscal quarter 2018 call. I would also like to express my appreciation to our management and associates of Live Ventures for another great 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 third fiscal quarter 2018. The company reported record quarterly revenue of $54.7 million representing an increase of 32.1% over the same period last year, and quarterly earnings per basic share of $1.05. Hard surface products revenue continues to grow up over 34.7% year-over-year. Hard surface products gross profits were up 55% year-over-year due to increased sales efforts. For the quarter, gross profit was $18.8 million, which is up 10.7% from the same period of fiscal 2017. In addition, our operating income was $0.9 million compared to the same period last year of $5.4 million. Net income was $2.1 million compared to $2.1 million in the same period last year. For the quarter, margins for gross profit were down to 24.5% and operating income 1.6%. This compares to the prior year margins for gross profit of 41.1% and operating income of 13.0%. Cost of new product, sales levels, and mix of products negatively affected gross margins realized in the quarter for both Vintage and ApplianceSmart. In the quarter, the company finalized its price -- purchase price allocation and fair value assessment regarding the ApplianceSmart acquisition in late December 2017. The final bargain purchase gain, net of deferred tax incurred was $7.4 million. Several operating adjustments had to be made in the quarter to cost of revenue and SG&A. Of approximately $2.5 million in connection with recording the final purchase price adjustment and opening values. Tax reform reduced the corporate income tax rate for the company, but for the nine months ended June 30, 2018 we recorded an additional $2.3 million of tax expense due to deferred tax asset revaluation. As of June 30, 2018, the company reported approximately $2.3 million of cash on hand plus an additional $7.2 million of available credit under the company's revolving lines of credit. Net cash provided from operating activities for the first six months was $9.7 million, an increase of 38.4% or $2.7 million. Stockholders’ equity increased approximately 17.6% to $39.5 million over our year-end September 30, 2017. On June 7, 2018, the company successfully refinanced its Captiala term debt facility with a new term debt facility provided by Comvest at favorable interest rates already disclosed. The company also negotiated a revised Texas Capital Bank revolving facility with an improved interest rate. In connection with the refinancing, the company charged-off $742,000 in unamortized debt issuance cost as interest expense. For additional financial information and details I invite you to review our press release distributed this afternoon and view our SEC filings on either our Web site or SEC's Web site. 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 then we welcome any questions that you may have.

Thank you. Thank you all for being on this call. We are excited about our operating results. Virland, thank you for the summary. I think we've had an outstanding quarter, another record-breaking quarter as it relates to revenues and operations and shareholders' equity. We see that it is steadily rising and that's what really pleases us as management. I’ve had a few people reach out to me with questions regarding what really were the earnings of the quarter? We've had some non-cash adjustments, some were positive and some were negative. This is the quick summary as some were positive and some were negative. The positive ones were related to ApplianceSmart and Virland can speak in more detail to that. And the negative one was related to the debt issuance cost related to Vintage stock as you all know. On June 7 or June 8, we closed the new financing with Comvest which replaced Capitala. So some of the costs that were related to the Capitala debt issuance back in November 2016 had to be accelerated. So we took a charge there and that charge was largely offset by the gain that we experienced at ApplianceSmart. So the two were almost awash, I think. It contributed a net positive to our bottom line by a little bit maybe couple hundred thousand dollars or something, and that’s really what happened. We -- perhaps, we can open it up to anyone who has any questions, hopefully just quick summary helps as to what we did operationally this quarter. Anyone has questions?

[Operator Instructions]

Some of the events that happened over the quarter, at Marquis Industries, we appointed Wes Godfrey as the CEO. Mr. Tim Bailey and Mr. Heckman are still part of the team for another few months. They are with us on a transitionary period until the end of the year. And Wes is doing a great job at running the operations at Marquis. When we acquired Marquis about three years ago, we signed a three-year employment contract with management then, and in June, we marked our three year anniversary of our acquisition of Marquis. So we are very excited about the changes and we hope that operationally Wes and his team will do a great job at growing the company. At ApplianceSmart, we opened three new stores. They were actually replacement of other stores that were either too expensive or underperforming. One is in Rochester, Minnesota; San Antonio, Texas; and new Columbus, Ohio. So three new stores there, [indiscernible] '18, but this should hopefully help with the bottom line. What we had been very excited about and what took a lot of our time and effort and energy was the refinance of the Capitala loan that happened -- that closed in June. So we’re excited about that. Comvest has been a great partner. That transaction alone, we think will add about maybe a couple million dollars a year to To the bottom line and interest savings, so Comvest has been very good to work with. And -- I might want to mention that the transaction with Comvest closed the first week of June which really -- which means that we only saw a reduction in interest expense only on the last third of the quarter. So we’ve only closed this deal about three weeks prior to the end of the fiscal quarter. So the management believes that on a going-forward basis, what’s -- on a full quarter basis we will -- we should see even better results on the Vintage side from an interest expense perspective. Another little bit, another point on Vintage. On the last nine months year-over-year, we are experiencing an increase in sales over the last nine months. We’ve had one bulk sale that happened last year that didn’t happen this year, so we expect that we should see a few more of those hopefully in the next six months to a year. But from a stores perspective, nine months -- over nine months we’re seeing an increase of $3 million in sales. Anything that comes to mind, well, we don’t have any questions. It means that we probably did a good job summarizing everything. We have issued no shares to date for the fiscal year. So in the last nine months, you will see in the 10-Q we’ve issued no shares. We have published the 10-Q, and I believe today is the deadline for lots and lots of public companies, so I think that the SEC, maybe there's a backlog which is why there's maybe a delay in seeing it on sec.gov. But we definitely have pushed the button on our end and we should -- it should be live pretty soon. You want to talk a little bit about the …?

I think the -- in addition to the refinancing efforts and obviously the additional tax costs we’ve borne this year, the other things that the investors I think should probably focus on is that we have large retail operations now, and mix and volume have a lot to do with our profitability going forward. We are going to be transitioning our ApplianceSmart operation more to out of box as opposed to in-box product, both from an inventory perspective and from a selling perspective. So that process is already underway to help and continue to raise profit levels for the company. For Vintage, it's a little bit more difficult to make large-scale changes in terms of mix, but used continues to be very strong. But the area that was lacking this quarter as compared to the prior year was bulk sales. And we only -- we had one bulk sale last year, and no bulk sales so far this year, but we do anticipate them in the coming quarters. We are also always on the lookout for acquisitions. As you know predominantly this is how we grow. So we're always looking at new ones. If anyone has anything, we have a form on our Web site for shareholders or anyone, any seller to fill out, and we'd love to see if there's any new opportunities out there, and our plan is to continue to look for acquisitions and make acquisitions as a company. Over the last few months, we've chosen to allocate some of the capital we have to the refinance of Vintage stock. We -- management believes that that would be the most efficient use of capital. So we could have done other things with it. We could have bought another company or bought back our stock, but we chose to reserve that money really for the refinance of Capitala term loan. And that's as we will see, we hope that this will work out very favorably for the company reducing our interest expense.

Are there any questions out there at all?

[Operator Instructions]

Jackie?

Hi, how are you all?

How are you Jackie?

I’m good well. I’m doing well. Hey, Jon, if you could walk me through real quick, and I may -- I had to drop for a second, so I may have missed it. The one-time bargain basement gain was -- according to press release was – is it $3.6 million and that was all in this quarter, is that correct?

JT, that was the additional gain. The total gain is $7.4 million. Initially when we acquired ApplianceSmart we were very conservative in our valuation and purchase price allocation -- that purchase price allocation is now final. You have typically 1-year from purchase to be able to make that determination and between us and our appraisers and auditors, we finally completed that process in this quarter and we're going to -- there was a resulting adjustment to that gain upwards upon completion. So you will see that the details in the Q as to how that was determined and arrived at. But the marginal gain was about $3.4 million this quarter with the overall gain being right at $7.4 million net of deferred income tax.

But the net for the quarter, Virland, from what I understand was about a plus $1 million.

Net of other adjustments that occurred in the operating expense area.

So for ApplianceSmart only, from what I understand, and please correct me, Virland, there were some positive adjustments and negative adjustments the net of which was plus $1 million for the quarter.

On a net basis, yes.

On a net basis.

Okay.

And then that was mostly washed by the charge that we took related to the Vintage refinance.

[Indiscernible] yes, correct.

Got you. Okay and Virland, if all this -- you’ve got spelled out in the Q, I guess, I haven't been able to access the Q yet, so …

They’re.

Right. Okay. Thanks, guys.

Thank you.

Thank you.

Thank you. [Operator Instructions]

On the Vintage stock side, we’ve launched a brand new Web site completely e-commerce and with the latest bells and whistles in terms of technology. We're very excited about that. The old Web site was a little bit dated and we think that this should hopefully work out much better for Vintage. So we’re excited to have launch this vintagestock.com. I believe Vintage is on track to opening one or two stores or at least we’re looking at a couple of stores over the next few months, so that should hopefully help as well boosting sales and boosting everything else. We are excited to be looking at other opportunities. If there's anything, please reach out to us on our Web site. We are committed to -- we are very excited and very committed to bringing value to shareholders. I guess our next call will be towards the end of the year, which will be around the 10-K -- for the 10-K.

10-K, yes. Right. So if there's no other questions -- maybe we will open up to 20 seconds, 30 seconds, if there's no questions we can end the call.

[Operator Instructions]

Question from Brendon.

Yes, hi, guys. Can you hear me?

Yes.

Okay, cool. Thanks. Thanks for taking the call. I’ve got two questions that I know quite a few others at least have similar questions. The first one was already answered when you just talked about moving Vintage stock over to a full e-commerce Web site. I think that’s obviously a tremendous idea because my question is, do you see any pressure from the trend in music and movies switching towards streaming as opposed to going into stores and buying that, obviously I think with moving to e-commerce, you’ve addressed that. And so my second question is, this stock as a company, this is like a Vintage value play and it appears on a lot of value screen. So I'm always wondering why there's not more upward and aggressive momentum behind the share price? I know that a lot of it has to do with the Investor Relations, maybe isn't being as fully developed, but is there any reason why you guys think the stock hasn't received any momentum going forward given the recent great performance?

When it comes to question about Vintage, Rodney -- Mr. Rodney Spriggs would have been better to answer this, but just from what I understand and from -- I speak to him regularly, streaming has been around for quite a while. It's not something that started a few months ago. So, obviously, there's always people that want to go streaming, but there's actually a lot of positive momentum that -- there's always good and bad. For example, toys have been picking up I know at Vintage as a result of Toys "R" Us closing down. We’ve also seen more CDs because I know another large retailer stopped carrying CDs, so we're seeing an uptick in those categories.

Got it.

Regarding the stock price, it's -- we really don't know what -- again, I mentioned this before, we don’t look at the stock and judge it on a day by day basis. We're really focused on the shareholders equity, and we know that the stock price and time should follow our operational performance and that's what really we’re focused on. So why it went down today and or went up two days ago or a month ago, really we don't know. I can tell you that operationally we're doing -- this was a record-breaking quarter and I think we’re stronger today as a company than we ever have, yet our stock price was much higher in the past. So I really don't know. But we do know that over time the stock price should go in the right trajectory. And if it doesn’t, and I mentioned this again in the past, it may be a greater opportunity for us a company to buyback our shares and we've done that aggressively in the past. So I think this is a heads I win, tails they lose kind of a thing.

Yes.

And you know we're -- again, if our stock price was 3x where it is today, it wouldn't change anything. We’re still focused on bringing shareholder value and growing the company and I'm excited as to where the company will be not just this quarter or next quarter, but in a year and 5 years and in 10 years.

Yes, got it.

So we’ve a very mid to long-term view.

Yes, I really appreciate that, that long-term focused. And I will hop off, if anybody else has any call. Thanks, guys.

Thank you.

Thank you. [Operator Instructions]

One thing we didn’t touch on was the -- that we’ve cash -- I mean although the balance sheet shows what couple million dollars of cash, one thing that shareholders should know or potential shareholder should know is, although we carry a small amount of cash on our balance sheet, that is really not the liquidity that’s available to us. So our managers at Marquis and at Vintage use any excess cash to pay down our revolving lines of credit. The reason we do that, of course, is to reduce our interest cost. But we do that because this is what’s best really for the company for shareholders. We could easily play accounting games and the day before the quarter we can show $10 million, $15 million of cash if we wanted to, but this is not what we’re focused on doing. We want to do is, we really do what's best for shareholders and -- so although it does show $2.2 million of cash on our balance sheet, as you see on the -- in the 10-Q, there's a lot more available to us once the right acquisition comes across and we wish to close on another transaction. So with that I see no more questions. Thank you for your participation and for listening in. And we will schedule another call towards the end of the year for our annual report. Thank you very much.

Thank you.

This does conclude today’s program. You may disconnect your line at any time and have a wonderful day.