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Edited Transcript of LIVE earnings conference call or presentation 14-May-18 9:00pm GMT

Q2 2018 Live Ventures Inc Earnings Call

LAS VEGAS May 22, 2018 (Thomson StreetEvents) -- Edited Transcript of Live Ventures Inc earnings conference call or presentation Monday, May 14, 2018 at 9:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Jon Isaac

Live Ventures Incorporated - President, CEO & Director

* Rodney Spriggs

Live Ventures Incorporated - President & CEO of Vintage Stock, Inc.

* Virland A. Johnson

Live Ventures Incorporated - CFO & CAO

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Presentation

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Operator [1]

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Good day, everyone, and welcome to the second fiscal quarter earnings call. (Operator Instructions) Please note the call may be recorded. (Operator Instructions) It is now my pleasure to turn the conference over to CFO, Virland Johnson. Please go ahead, sir.

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

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Thank you. Welcome and good afternoon to Live Ventures Inc. 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 21, 2018.

This filing will 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. when filed.

Today joining me is Jon Isaac, Chief Executive Officer. Please note that some of the comments 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 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 -- thanks to everybody joining us today for our second fiscal quarter 2018 call. I would also like to express my appreciation to our management 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 second fiscal quarter 2018. The company reported record quarterly revenues 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 the revenue and operating results. ApplianceSmart, our newest acquisition, contributed positive operating income for the quarter and it is included in 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, a 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 late 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 in 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 6 months was $6.6 million. Stockholders' equity increased approximately 10.6% to $37.1 million over our year-end September 30, 2017.

Our general and administrative expenses were higher this quarter and 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 Capitala 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 made available either on our website or on the SEC's 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 you may have at the end of his comments.

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Jon Isaac, Live Ventures Incorporated - President, CEO & Director [3]

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This is Jon. We are very pleased with the quarter. First of all, thank you, 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 $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 Mr. Rodney Spriggs, who is the CEO and President of Vintage Stock, our larger 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 someone can ask a question.

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Operator [4]

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(Operator Instructions)

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Jon Isaac, Live Ventures Incorporated - President, CEO & Director [5]

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So at all of our -- ApplianceSmart has also contributed to our financials this quarter. As you know, we acquired ApplianceSmart at the end of calendar 2017. So all financials have been consolidated with ApplianceSmart. At the Vintage level, we opened 1 store that we mentioned a couple of weeks ago in another press release. In February, we announced a new buyback program, $10 million, that came into effect in February. At the Marquis level, one of the primary reasons why SG&A was 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 3 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 -- the -- anyone has questions, please feel free to ask. In the meantime, I will pass the mic, so to speak, to Rodney, Maybe Rodney can provide us with a brief update on the pulse of how your operations are going.

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Rodney Spriggs, Live Ventures Incorporated - President & CEO of Vintage Stock, Inc. [6]

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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 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 1.5 weeks now. And it has come out of the gate fairly decent. We're happy with where that's at. We also negotiated 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 effort and energies in that over the last 6 months or so. So I think everybody is looking forward to a conclusion to that. And we also have other locations out there we are looking at. There is also Nintendo of America, which came out with the Switch Nintendo system for the home console market. It 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 have actually been in short supply for most retailers, but they just made an announcement that they are rereleasing the original NES Mini at the end of June. So hopefully we've been working with Nintendo to secure additional higher allocations for that when it does rerelease. The Super NES Mini will also continue to be going out through the end of this year is what they are saying currently.

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Questions and Answers

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Jon Isaac, Live Ventures Incorporated - President, CEO & Director [1]

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Thanks, Rodney. We have a question. Operator, do you want to introduce the person asking -- [Ethan], can we open the line to Ethan, please.

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Operator [2]

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[Ethan], your line is open to ask your question.

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Unidentified Participant, [3]

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I was hoping you guys could give us an update on the refinancing, what you guys were seeing there with the Capitala loan and what your sort of vision is for how it's going to play out?

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

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We knew that this question would come up. As we mentioned on the last call, it is in the works. I believe that it is mature and it should happen soon with the caveat, of course, 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 the payoff, hopefully, of Capitala very soon.

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Unidentified Participant, [5]

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

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Virland A. Johnson, Live Ventures Incorporated - CFO & CAO [6]

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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 earnings study that had to be done by an outside adviser. The process is going actually quite well. It's just 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 as indicated, that we're near the end of the pull here. And I think it will get done very shortly, again, with the caveat that there are no guarantees, but things are moving along quite well.

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Jon Isaac, Live Ventures Incorporated - President, CEO & Director [7]

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We hope to have something, hopefully, in the next few weeks.

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Operator [8]

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(Operator Instructions) It appears there's no further questions.

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Jon Isaac, Live Ventures Incorporated - President, CEO & Director [9]

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We have 1 question, which is from [Phillip].

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Unidentified Participant, [10]

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Quick question. 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 in the revolver has decreased from last quarter. And if you can talk about that?

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Jon Isaac, Live Ventures Incorporated - President, CEO & Director [11]

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Sure. I think, again, we have been making additional payments on our debt, specifically, with Capitala. We are 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, $1 million here or 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 are moving quickly in terms of getting this thing executed timely.

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Virland A. Johnson, Live Ventures Incorporated - CFO & CAO [12]

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In terms of buybacks, we had been opportunistic. If you see in the press release, one of the bullet points, we have 1,962,000 outstanding common shares versus the year prior, almost 100,000 shares more. So we have -- those shares, the reduction was all as a result of repurchases.

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Jon Isaac, Live Ventures Incorporated - President, CEO & Director [13]

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And since herein, we have actually repurchased another 377,000 worth of shares.

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Virland A. Johnson, Live Ventures Incorporated - CFO & CAO [14]

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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're all in the money. And we just established a new repurchase program. As I mentioned, we announced it in February. And we'll continue to buy shares when we can and whenever management believes that the price is fair. And of course, whenever we are not in possession of any material nonpublic information. The company exercises that rule, of course, we have to do it 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 will try to keep shareholders updated as frequently as we can.

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Rodney Spriggs, Live Ventures Incorporated - President & CEO of Vintage Stock, Inc. [15]

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

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

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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 -- a higher borrowing base. And I think, [Phillip], you had a question and we cut you off.

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Unidentified Participant, [17]

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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?

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Jon Isaac, Live Ventures Incorporated - President, CEO & Director [18]

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[Phillip], that's a very good question. First off, we are in communication with Capitala all the time, and we are continuing to perform on our loan. They tend to -- out-of-covenant situations occur technically just as a result of our filings in terms of the data. So to answer your question, 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.

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Virland A. Johnson, Live Ventures Incorporated - CFO & CAO [19]

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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 earnings studies and other advisers that are doing their due diligence. So from that standpoint, we are 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.

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Operator [20]

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(Operator Instructions)

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

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We have a question from [David].

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Unidentified Participant, [22]

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Just one question 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 wanted 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 Rodney for that. And then the question is, the new management team at Marquis, are they from the inside at Marquis?

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Virland A. Johnson, Live Ventures Incorporated - CFO & CAO [23]

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Good question. Some yes and others no. 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 apprised of it, but some were from outside, some were 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 tremendous amount of value.

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Unidentified Participant, [24]

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

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

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Yes. From what we've heard from Marquis, there was a loss of a customer on the synthetic turf line. We decided to take the process in-house. And the company has secured another customer to replace that volume. Any other questions? We'll keep it open for another 30 seconds. If not, we'll reconvene in about 3 months. Keep it open 30 seconds.

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Operator [26]

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(Operator Instructions)

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

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Since there are no questions, we will take the call to a close, and we will 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.

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Virland A. Johnson, Live Ventures Incorporated - CFO & CAO [28]

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Thank you.

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Operator [29]

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