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Edited Transcript of LIVE earnings conference call or presentation 14-May-19 8:30pm GMT

Q2 2019 Live Ventures Inc Earnings Call

LAS VEGAS May 30, 2019 (Thomson StreetEvents) -- Edited Transcript of Live Ventures Inc earnings conference call or presentation Tuesday, May 14, 2019 at 8:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Jon Isaac

Live Ventures Incorporated - President, CEO & Director

* Virland A. Johnson

Live Ventures Incorporated - CFO & CAO

* Wes Godfrey

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Presentation

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Operator [1]

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Good day, everyone, and welcome to today's Live Ventures quarterly call. (Operator Instructions) Please note, today's call may be recorded. I'll be standing by should you need any assistance.

And on today's call, we have the President and CEO of Live Ventures, Jon Isaac; as well as Wes Godfrey, CEO of Marquis Industries.

It is now my pleasure to turn the call over to Virland Johnson, CFO of Live Ventures.

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Virland A. Johnson, Live Ventures Incorporated - CFO & CAO [2]

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Thank you. Good afternoon, and welcome to the Live Ventures Incorporated Second Quarter Fiscal Year 2019 Conference Call. This afternoon, the company filed its Form 10-Q for the second quarter ended March 31, 2019 for fiscal year 2019 with the SEC. This filing can be found on our website, www.liveventures.com, in the Investor Relations section as well as on the SEC website at www.sec.gov.

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 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 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 for joining our call today for our second quarter fiscal year 2019. During our call today, we will briefly cover our company's operating and financial results for the year, and then answer your questions at the end of our comments.

The 6 months' results include a full quarter of ApplianceSmart results versus 1 day's results in the same period last fiscal year. The company reported quarterly revenue of $46.9 million, representing a decrease of 10% over the same period last fiscal year, and second quarter fiscal year 2019 earnings per basic share of $0.25.

For the quarter, gross profit was $18.6 million, which was down 5.1% over the same period last fiscal year.

In addition, our operating income was $2 million compared to the same period last fiscal year of $4.1 million. The net income -- and net income was $0.473 million compared to $1.9 million same period last fiscal year.

For the quarter, our gross profit percentage was up to 39.7% and operating income margin percent was down to 4.4%. This compares to the same period prior fiscal year when our gross profit margin percent was 37.7% and operating income margin was 7.8%.

Cost of new products, sales levels and mix of products negatively affected gross margins realized in the year for both Vintage and ApplianceSmart.

ApplianceSmart has been lagging operationally. We are of the opinion operations begin to turn around late in the quarter and are looking forward to positive operational results going forward.

Interest expense decreased to $1.5 million for the second quarter from $1.8 million for the same period prior fiscal year due to pay down and revolving interim debt and refinance of Vintage's mezzanine debt.

As of March 31, 2019, the company reported approximately $3.3 million of cash on hand, plus an additional $13.9 million of available credit under the company's consolidated revolving lines of credit.

Net cash provided from operating activities for the 6 months ending March 31, 2019 was $7 million.

Stockholders’ equity increased to 42 -- $41.2 million.

Total liabilities decreased by $11.7 million for the 6 months fiscal year 2019.

For additional financial information and details, I invite you to review our press release filed this morning and view our SEC filings on either our website or the SEC's website.

Thank you very much in advance for your participation on this call, and your continued interest in Live Ventures. At this time, Jon, I and Wes will take your questions. Thank you.

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Questions and Answers

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Operator [1]

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(Operator Instructions)

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Jon Isaac, Live Ventures Incorporated - President, CEO & Director [2]

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Thank you, everyone, for joining the call today. We're happy to see that you are taking an interest in our company, and we're pleased to have you today. As our press release and our 10-Q will mention that we had a pretty solid quarter. Year-over-year revenues were down, yes, but there is -- if you read the quote provided by Virland, there are some reasonings as to why our net income was down for the quarter.

Let's take a call from [Joseph,] and then we can continue. The question, sorry, from [Joseph.]

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Unidentified Analyst, [3]

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Just about ApplianceSmart. Can you give us some color on why you think that it's turned the corner? What you think the positives are going forward for that division, please?

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Jon Isaac, Live Ventures Incorporated - President, CEO & Director [4]

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Virland, why don't you answer that question?

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Virland A. Johnson, Live Ventures Incorporated - CFO & CAO [5]

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Okay. One, margins are improving, mainly because of a focus on out-of-box product versus in-box product, selling more of that as opposed to in-box. And we've significantly cut expenses in the February, March time frame, such that -- and we've also consolidated some stores that were not performing as well into stores that have been performing quite well. So those are the major reasons for our optimism.

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Jon Isaac, Live Ventures Incorporated - President, CEO & Director [6]

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We -- the management at Live have been very actively involved with that division. I'd like to say that our other divisions have sort of been on autopilot, but ApplianceSmart, as I like to say, was in the intensive care unit for some time.

But we've managed to identify which stores were not performing well. We've been able to exit some of them. Other ones, we're negotiating with landlords on getting out of them.

And then, of course, the mix that Virland spoke about, obviously, our margins are much, much greater on the out-of-box units. So we've shifted and we've seen drastic changes in numbers, just very recently. And we hope that -- in this quarter that it's really -- would have turned the corner. We've now -- how many stores do we have now?

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Virland A. Johnson, Live Ventures Incorporated - CFO & CAO [7]

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Nine.

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Jon Isaac, Live Ventures Incorporated - President, CEO & Director [8]

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We have 9 stores. When we first acquired ApplianceSmart, we had double the amount of stores. So you can see the consolidation that we've done. We would rather own a company that's smaller but profitable and healthy than a company that is much larger with big revenues to -- in order to woo Wall Street. That's not what we're trying to do. What we care about really is the bottom line.

So does that answer your question? Or do you have any other ones?

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Unidentified Analyst, [9]

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Yes. No. That gives me some good information. I appreciate it. I'm all set.

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Jon Isaac, Live Ventures Incorporated - President, CEO & Director [10]

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We do have a special guest today, Mr. Wes Godfrey. He runs our carpet division in Georgia. He's been with the company for -- he's been the CEO of the company -- of Marquis for some time now. And if anyone has questions, you're welcome to ask any time. Just press -- what do they have to do, moderator?

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Operator [11]

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(Operator Instructions)

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Jon Isaac, Live Ventures Incorporated - President, CEO & Director [12]

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(Operator Instructions) In the meantime maybe we'll turn it over to Wes. Wes, maybe you can introduce yourself to our shareholders and give us a little bit of -- a 30,000-foot view of what's going on in Georgia.

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Wes Godfrey, [13]

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Thanks, Jon. You said, I've been with Marquis, I've been CEO since July of last year, and we've had a record fiscal 2019 so far, so a real positive year going. Gross profits are up 15% through Q1 for this first half of the year, 17% overall. So really healthy growth. Our mix has been improving as well.

We've exited a synthetic turf yarn business and just really a low-margin, low-profit business and really grown our sales in the floor covering side, which is a more healthier, more profitable business for us. And we're seeing hard-surface driving a lot of that growth. So I guess, we're manufacturing our own carpet, but the hard-surface side is a little bit nerve-racking with the tariffs that are coming forward. But we're working our way through that as we speak, and managing to reduce the impact of those. Tariffs have gone from 10% to 25%, so...

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Jon Isaac, Live Ventures Incorporated - President, CEO & Director [14]

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So Wes, you experienced a strong quarter despite the tariff issues that's going on politically, right?

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Wes Godfrey, [15]

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That's correct. I mean, we've really been able to -- through some mix improvement, selling more flooring through our specialty retail partners versus some big box and getting out of that low-margin turf business has really helped the bottom line.

And even despite the 10% tariff that we received, we're -- hard-surface as a category for us through the year is up 26%. So it's a healthy, growing business. So we'll just have to see and mitigate the impact from this next round. And hopefully, it's not going to be too significant.

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Jon Isaac, Live Ventures Incorporated - President, CEO & Director [16]

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For everyone's information, Marquis Industries, as a subsidiary, performed better than last year. So year-over-year there is an uptick in sales. Vintage was flat to maybe a little bit on the small decline, very negligible.

The majority of the decline in our revenues -- I'm sure this is something on everyone's mind, why did we decrease from $52 million to $46 million in the quarter. I believe most of it, 90-plus percent of that decrease is really attributable to ApplianceSmart. And as I've mentioned, we would rather have a smaller and leaner and meaner company than have lots of stores with -- that are not performing optimally. So the majority of the decrease was as a result of ApplianceSmart.

Any other questions?

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Jon Isaac, Live Ventures Incorporated - President, CEO & Director [17]

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Let's take a question from [Joe. Joseph?]

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Unidentified Analyst, [18]

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Yes. As long as there aren't other questions, I may as well throw another one out there. I saw you bought back shares, and I just wondered how you think about looking for new acquisitions versus buying back shares. And if you would give us some ideas about that?

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Jon Isaac, Live Ventures Incorporated - President, CEO & Director [19]

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Well, we're looking at any and all opportunities. I mean, what we primarily do here is try to allocate the capital that we have as efficiently as possible. But right now, I mean, we're trading at around 1/3 of book value. I would encourage anyone listening to, if they know any company that's trading at these types of valuations, please let me know where they are. We would love to see them.

So we are buying back shares as aggressively as we can. Of course, we have to abide by Securities rules, 10B-18. So we can't just arbitrarily buy whatever we want in a given day. But on many days, provided we're not in a blackout period, we're buying the maximum that we legally can.

When it comes to acquisitions, we look at anything and everything, of course. And we always have deals in the works. This is always my answer. They always ask me what deals -- are you buying something? We always have deals that we are "chasing". And once we find something that's good, we'll be ready. We have the know-how, stability to finance companies, and we've done very well historically.

If you even look at our debt level, if you -- our debt-to-equity ratio, we have $90 million in total liabilities and $42 million of equity. That's a debt-to-equity ratio of 2.1, which is pretty healthy. Our loan with Comvest has decreased substantially, and we've -- by the end of next month, we would have paid down about 1/3 of the total Term Loan in just a 12-month period. So we are very aggressively paying down the higher-cost debt.

This loan with Comvest used to be a $30 million loan. Today, we're sitting at $18 million. And if you look at our numbers that -- we have an excess cash flow suite. That number will be down to $16 million in the next week or so. So that's a pretty substantial reduction in liabilities there.

So we believe that our numbers will continue to improve. We're very focused on the bottom line. And of course, our shareholders equity is very important. In our press release, you will notice that our basic -- we're at $21.59 per common share. This is where our stockholders equity today stands, and we're trading at below $7.

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Virland A. Johnson, Live Ventures Incorporated - CFO & CAO [20]

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Book value.

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Jon Isaac, Live Ventures Incorporated - President, CEO & Director [21]

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Book value or stockholders equity, yes, at $21.59 per basic common share. So -- and we've acquired 43,000 shares -- 43,347 shares since the beginning of October, I guess, our fiscal year. In just the last few months, our liabilities have decreased by about $12 million, almost $12 million, from $102 million down to $90 million, while improving our bottom line.

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Virland A. Johnson, Live Ventures Incorporated - CFO & CAO [22]

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It's staggering, so good.

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Jon Isaac, Live Ventures Incorporated - President, CEO & Director [23]

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Any other questions?

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Operator [24]

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(Operator Instructions)

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Jon Isaac, Live Ventures Incorporated - President, CEO & Director [25]

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Let's take a call from -- a question from [David.]

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Unidentified Analyst, [26]

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I had a question from -- really, this is maybe just to refresh my memory. A long time ago, you had done something with your shares, I don't know, maybe saying you couldn't sell. So that's the difference between the basic and the diluted shares, correct?

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Jon Isaac, Live Ventures Incorporated - President, CEO & Director [27]

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Yes. We have a Series B, I decided to restrict my stock in December 2016. So all of -- the majority of my shares, other than the ones that I bought on the open market and I've bought, I believe, on 25 or plus occasions in our filed Form 4s. Those are free trading, but I've never sold any of them, but yes -- so on a fully diluted basis, I believe, there's 214,000 shares of Series B. I can't remember the conversion ratio, I think it's 5:1 or 6:1. But either way, yes, so my shares are still restricted for 5 years from December '16. So takes us to December 2021.

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Operator [28]

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(Operator Instructions)

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Jon Isaac, Live Ventures Incorporated - President, CEO & Director [29]

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We had a call from [John.]

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Unidentified Analyst, [30]

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Going back to the favorite aspect of the challenges on ApplianceSmart, I don't know if you saw the article today in the Wall Street Journal about the impact of tariffs on appliances. It was an article about Whirlpool and the problems they're having. I think, knowing a little bit about the operations, out-of-the-box product may be not as impacted as new products in the appliance business.

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Jon Isaac, Live Ventures Incorporated - President, CEO & Director [31]

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Yes. I have not read the article, but I do get the Wall Street Journal daily and I will look for it. I will look for it. I appreciate it, you bringing this to our attention.

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Virland A. Johnson, Live Ventures Incorporated - CFO & CAO [32]

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We are clearly aware of that, [John.] And that's, again, another reason for the shift in product mix.

New appliances, especially appliances manufactured overseas are subject to tariffs. They are subject to a number of things that could be adverse to the business. And so, one, out-of-box product is more profitable. Two, we're positioned better to sell it to our customer base and that's really what our customers are looking for. And so we're going to do everything we can to mitigate any tariff increases or price increases from the core manufacturers. But the focus right now is on out-of-box product and enhance margin.

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Operator [33]

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(Operator Instructions)

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Jon Isaac, Live Ventures Incorporated - President, CEO & Director [34]

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Got another 10 seconds. If there's no questions, we'll end the call.

Thank you, everyone, for your participation. And we look forward to speaking with you in about -- in our next Q, in about 3 months. Thank you very much.

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Virland A. Johnson, Live Ventures Incorporated - CFO & CAO [35]

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Thank you.

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Operator [36]

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And this does conclude today's call. Thank you, everyone, for your participation. You may disconnect at any time. And have a great day.