Live Ventures Incorporated

Good day, everyone, and welcome to today's Live Ventures Incorporated third quarter earnings call. At this time, all participants are in a listen-only mode. Later, you will have an opportunity to ask questions during the question and answer session. You may register to ask a question at any time by pressing the star and 1 on your touchtone phone. Please note this call may be recorded, and I will be standing by should you need any assistance. It is now my pleasure to turn today's program over to Greg Powell, Director of Investor Relations. Please go ahead.

Thank you, Brittany. Good afternoon, everyone, and welcome to the Live Ventures third quarter fiscal 2022 conference call. I'm here this afternoon joined by John Isaac, our Chief Executive Officer and President, Eric Althoffer, our Chief Operating Officer, and David Barrett, our Chief Financial 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, 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 LiveVentures website. Earlier today, we filed our 10-Q with the SEC. I direct you to our website, www.liveventures.com or www.sec.gov for a copy of this quarter's 10-Q and other historical SEC filings. I will now turn the remainder of our call over to David to walk through our financial performance.

Thank you, Greg, and good afternoon, everyone. Overall, the company delivered a solid third quarter 2022 performance, representing the three months ended June 30, 2022, despite increasing economic headwinds and inflationary pressures. During the third quarter, we continued to execute our multi-pronged capital allocation strategy to maximize shareholder value. Before we jump into the numbers, we should discuss the biggest event of the quarter. At the end of June, our steel manufacturing segment acquired The Kinetic Company, Inc., a 74-year-old Wisconsin-based company. 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. It 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 segment. Now I'll discuss the financial results for the third quarter. Total revenue for the third quarter decreased slightly to $68.3 million, down 1.2% as compared to $69.1 million in the prior year period. Revenue decreased in the retail and flooring manufacturing segments, which was partially offset by increased revenue in the steel manufacturing and corporate and other segments. Flooring segment revenue decreased 6% to $32.2 million as compared to $34.2 million in the prior year period, primarily due to reduced customer demand. Retail segment revenue decreased 11.5% to $19.2 million as compared to $21.7 million in the prior year period. The decrease is primarily due to reduced demand as a result of inflationary factors. Steel segment revenue increased 15% to $15 million as compared to $13 million in the prior year period. The increase in revenue is primarily due to increased sales prices resulting from rising costs. Finally, approximately $1.8 million of the increase in corporate and other segment revenue was due to Solomon & Whitney becoming a consolidating variable interest entity in 2021. Gross profit for the third quarter was $22.3 million, down from $25.1 million in the prior year period. The gross margin percentage for the company decreased to 32.7% from 36.3% in the prior year period. The decrease in the gross margin percentage is primarily due to inflationary pressures, which resulted in an increase from material costs. The flooring segment's gross profit margin decreased to 23.2%, as compared to 28.8% in the prior year period. The decrease is primarily due to increases in raw material costs. The retail segment's gross profit margin decreased slightly to 53.2% as compared to 53.8% in the prior year period. The steel segment's gross profit margin increased to 26.8% as compared to 26.2% in the prior year period. The increase is primarily due to increased sales prices resulting from inflationary pressures. General administrative expenses decreased by 2.8% to approximately $13.4 million for the three months ended June 30, 2022, as compared to the three months ended June 30, 2021, primarily due to decreases in taxes and license costs, legal expenses, and employee variable compensation costs. which were partially offset by costs associated with the acquisition of Kinetic. General administrative expenses as a percent of revenues decreased to 19.6% of revenue as compared to 20% in the prior year period. Sales and marketing expenses for the third quarter were 3.1 million as compared to 3 million in the prior year period. Sales and marketing expenses as a percentage of revenue or 4.5%, as compared to 4.4% in the prior year period. Operating income was $5.9 million for the third quarter, a decrease of $2.4 million, or 28%, as compared to the prior year period. And net income of $3.5 million for the three months ended June 30, 2022, decreased $6.5 million, or 65.1%, as compared to the prior year period. The decrease is permanently attributable to fiscal year 2021 gains on settlements of debts of approximately $5.4 million, including a gain on the payroll protection program loan forgiveness. Diluted EPS for the current quarter was $1.11 per share, a decrease of 63.2% as compared with the prior year period. Adjusted EBITDA for the third quarter of 2022 decreased 9.5%, to $8.8 million as compared to $9.8 million in the prior year period. The decrease in EBITDA is probably due to the decrease in revenue and increase the cost of revenue resulting from inflationary pressures. The reconciliation of adjusted EBITDA has been provided in our earnings release and in the 10-Q. Turning to liquidity, we ended the quarter with cash of $3.6 million and cash availability under our various lines of credit of $32 million for a combined total liquidity of $35.6 million. Net cash provided by operations was approximately $10.8 million for the nine months ended June 30, 2022 as compared to net cash provided from operations of approximately $32.2 million for the nine months ended June 30, 2021. The decrease was primarily due to purchases of inventory and inflationary pressures on raw material. Working capital for the company at the end of the third quarter was $72 million as compared to $33.8 million as of September 30, 2021. The increase is primarily due to net assets received from the acquisition of Kinetic and an increase in inventory. Total assets increased $51 million or 24.1% to $262.8 million as compared to $211.7 million as of September 30, 2021. Cash flows provided by financing activities increased approximately $20.8 million during the nine months ended June 30, 2022, primarily due to proceeds from borrowings under revolver loans and the issuance of notes payable, which was primarily associated with the acquisition of Kinetic. As part of our capital allocation strategy, we may do 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 the quarter, we repurchased 14,160 shares of common stock at an average price of approximately $23.31 per share. Year to date, we have repurchased 79,828 shares of common stock. An average price is approximately $31.67 per share. The company has repurchased 498,298 shares of its common stock for approximately $5.8 million under this program. As of June 30, the company had approximately $4.2 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 shareholders. We'll now take questions from those of you on the conference call. Operator, please open the line for questions.