LIVE VENTURES Inc

Previous wording

For a description of our significant accounting policies and an understanding of the significant factors that influenced our performance during the three months ended December 31, 2023, this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” (hereafter referred to as “MD&A”) should be read in conjunction with the condensed consolidated financial statements, including the related notes, appearing in Part I, Item 1 of this Quarterly Report on Form 10-Q, as well as our Annual Report on Form 10-K for the fiscal year ended September 30, 2023 (the “2023 Form 10-K”).

Current wording

For a description of our significant accounting policies and an understanding of the significant factors that influenced our performance during the three and six months ended March 31, 2024, this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” (hereafter referred to as “MD&A”) should be read in conjunction with the condensed consolidated financial statements, including the related notes, appearing in Part I, Item 1 of this Quarterly Report on Form 10-Q, as well as our Annual Report on Form 10-K for the fiscal year ended September 30, 2023 (the “2023 Form 10-K”).

Previous wording

On October 13, 2023, Flooring Liquidators acquired certain assets and assumed certain liabilities of CRO, a floor covering retailer and installer serving residential and commercial customers throughout Northwest Arkansas.

Current wording

On October 13, 2023, Flooring Liquidators acquired certain assets and assumed certain liabilities of Carpet Remnant Outlet, Inc. ("CRO"), a floor covering retailer and installer serving residential and commercial customers throughout Northwest Arkansas.

Previous wording

On November 30, 2023, CRO acquired certain assets and assumed certain liabilities of Johnson, a floor covering retailer and installer serving residential and commercial customers through locations in Tulsa, Oklahoma and Joplin, Missouri.

Current wording

On November 30, 2023, CRO acquired certain assets and assumed certain liabilities of Johnson Floor & Home ("Johnson"), a floor covering retailer and installer serving residential and commercial customers through locations in Tulsa, Oklahoma and Joplin, Missouri.

Previous wording

On July 1, 2022, Live acquired certain assets and intellectual property of Better Backers, a Georgia corporation, which was accomplished through an Asset Purchase Agreement.

Current wording

On July 1, 2022, Live acquired certain assets and intellectual property of Better Backers, Inc., a Georgia corporation, which was accomplished through an Asset Purchase Agreement.

Previous wording

Cost of revenue as a percentage of revenue was 69.1% for three months ended December 31, 2023 as compared to 68.2% for the three months ended December 31, 2022. The increase was primarily attributable to the acquisition of PMW, which historically has generated lower margins, as well as a decrease in margins in our Steel Manufacturing segment as a whole due to decreased production, partially offset by the acquisition of Flooring Liquidators, which historically has generated higher margins.

Current wording

Cost of revenue as a percentage of revenue was 70.1% for three months ended March 31, 2024 as compared to 65.3% for the three months ended March 31, 2023. The increase was primarily attributable to the acquisition of PMW, which historically has generated lower margins, as well as a decrease in margins in our Steel Manufacturing segment as a whole due to decreased production due to a slow down in sales, partially offset by an increase in margins in our Flooring Manufacturing segment due to increased sales of Harris Flooring Group® brands, which generates higher margins.

Previous wording

General and Administrative expenses increased by 89.6% to approximately $27.9 million for the three months ended December 31, 2023, as compared to the three months ended December 31, 2022. The increase is primarily due to the acquisitions of Flooring Liquidators and PMW during fiscal 2023.

Current wording

General and Administrative expenses increased by 31.9% to approximately $29.8 million for the three months ended March 31, 2024, as compared to the three months ended March 31, 2023. The increase is primarily due to the acquisitions of Flooring Liquidators and PMW during fiscal 2023.

Previous wording

Sales and marketing expense increased by 83.9% to approximately $5.1 million for the three months ended December 31, 2023, as compared to the three months ended December 31, 2022, primarily due to increased compensation for sales personnel acquired as part of the acquisition of the Harris Flooring Group® brands from Q.E.P, and increased convention and trade show activity in our Flooring Manufacturing segment, as well as the acquisition of Flooring Liquidators.

Current wording

Sales and marketing expense increased by 60.5% to approximately $6.5 million for the three months ended March 31, 2024, as compared to the three months ended March 31, 2023, primarily due to expanding the sales force in connection with the acquisition of the Harris Flooring Group® brands from Q.E.P, increased convention and trade show activity in our Flooring Manufacturing segment, as well as the acquisition of Flooring Liquidators.

Previous wording

Interest expense, net, increased by approximately $2.1 million for the three months ended December 31, 2023, as compared to the three months ended December 31, 2022, primarily due to increased debt balances related to the acquisitions of Flooring Liquidators and PMW, and to fund operations, and increased interest rates during the period.

Current wording

Interest expense, net, increased by approximately $925,000 for the three months ended March 31, 2024, as compared to the three months ended March 31, 2023, primarily due to increased debt balances related to the acquisitions of Flooring Liquidators and PMW, and to fund operations, and increased interest rates during the period.

Previous wording

Revenue increased approximately $48.6 million, or 70.5%, to approximately $117.6 million for the three months ended December 31, 2023, as compared to the corresponding prior year period. The increase is primarily attributable to Flooring Liquidators and PMW, both of which were acquired after the first quarter of fiscal year 2023, as well as an increase of approximately $2.8 million in the Flooring Manufacturing segment. The increase was partially offset by decreased revenues of approximately $6.2 million in our other businesses.

Current wording

Revenue increased approximately $76.1 million, or 47.5%, to $236.2 million for the six months ended March 31, 2024, as compared to the prior year period revenue of $160.1 million. The increase is primarily attributable to the acquisitions of PMW and Flooring Liquidators, which collectively added $81.4 million, as well as an increase of approximately $6.7 million in revenue in the Flooring Manufacturing segment. The increase was partially offset by decreased revenue of approximately $11.9 million in the Company’s other business segments due to general economic conditions.

Previous wording

Revenue for the three months ended December 31, 2023 decreased by approximately $2.7 million, or 11.5%, as compared to the prior year, primarily due to reduced consumer demand and a shift in sales mix toward used products, which generally have lower ticket sales with higher margins. The shift in sales mix also contributed to the increase in gross margin to 56.0% for the quarter ended December 31, 2023, compared to 52.5% for the prior year period. Operating income for the quarter ended December 31, 2023, was approximately $3.1 million, compared to operating income of approximately $3.7 million for the prior year period.

Current wording

Retail-Entertainment segment revenue for the quarter ended March 31, 2024 was approximately $16.8 million, a decrease of approximately $2.3 million, or 12.2%, compared to prior year period revenue of approximately $19.2 million. Revenue decreased primarily due to reduced consumer demand and a shift in sales mix toward used products, which generally have lower ticket sales with higher margins. The shift in sales mix also contributed to the increase in gross margin to 58.4% for the quarter ended March 31, 2024, compared to 55.5% for the prior year period. Operating income for the quarter ended March 31, 2024 was approximately $1.8 million, compared to operating income of approximately $2.3 million for the prior year period.

Previous wording

Revenue for the three months ended December 31, 2023 increased by approximately $15.4 million, or 85.5%, as compared to the prior year period. The increase is primarily due to increased revenues of approximately $18.3 million at The Kinetic Co., Inc. and PMW, partially offset by a $2.9 million decrease in our other Steel Manufacturing business. This decrease is primarily due to reduced customer demand as a result of general economic conditions. The gross margin was 15.8% for the quarter ended December 31, 2023, compared to 24.4% for the prior year period. The decrease in gross margin is primarily due to the acquisition of PMW, which has historically generated lower margins and decreased margins in the Steel

Current wording

PMW, partially offset by a $2.9 million decrease in the Company’s other Steel Manufacturing business. The gross margin was 14.3% for the quarter ended March 31, 2024, compared to 28.4% for the prior year period. The decrease in gross margin is primarily due to the acquisition of PMW, which has historically generated lower margins, as well as an overall decrease in margins in the Steel Manufacturing segment due to reduced production efficiencies as a result of lower demand. Operating income for the quarter ended March 31, 2024 was approximately $0.9 million, compared to operating income of approximately $2.8 million in the prior year period.

Previous wording

Revenue for the three months ended December 31, 2023 increased by approximately $2.8 million, or 10.6%, as compared to the prior year period. The gross margin was 22.0% for the quarter ended December 31, 2023, compared to 17.6% for the prior year period. The increase in revenue and gross margin is primarily due to the buildup of the sales force as a result of the acquisition of the Harris Flooring Group® brands in the fourth quarter of fiscal year 2023. Operating income for the year ended December 31, 2023, was approximately $0.95 million, compared to operating income of approximately $0.75 million for the prior year.

Current wording

Revenue for the six months ended March 31, 2024 was approximately $63.4 million, an increase of approximately $6.7 million, or 11.7%, compared to the prior year period revenue of approximately $56.8 million. The gross margin was 23.9% for the six months ended March 31, 2024, compared to 21.1% for the prior year period. The increase in revenue and gross margin are primarily due to increased sales associated with the acquisition of the Harris Flooring Group® brands in the fourth quarter of fiscal year 2023. Operating income for the six months ended March 31, 2024 was approximately $2.9 million, compared to operating income of approximately $3.2 million for the prior year period.

Previous wording

Revenues for the three months ended December 31, 2023 decreased by $1.2 million, or 93.2%, as compared to the prior year period. The decrease was primarily due to the closure of SW Financial in May 2023. Operating loss for the quarter ended December 31, 2023, was approximately $1.6 million, compared to a loss of approximately $1.3 million in the prior year.

Current wording

Revenue for the six months ended March 31, 2024 decreased by approximately $2.0 million. The decrease was primarily due to the closure of SW Financial in May 2023. Operating loss for the six months ended March 31, 2024 was approximately $4.1 million, compared to a loss of approximately $3.7 million in the prior year period.

Previous wording

The following table presents a reconciliation of net income to Adjusted EBITDA for the three months ended December 31, 2023 (in 000's):

Current wording

The following table presents a reconciliation of net income to Adjusted EBITDA for the three and six months ended March 31, 2024 and 2023 (in 000's):

Previous wording

As of December 31, 2023, we had total cash on hand of approximately $5.6 million and approximately $39.4 million of available borrowing under our revolving credit facilities. As we continue to pursue acquisitions and other strategic transactions to expand and grow our business, we regularly monitor capital market conditions and may raise additional funds through borrowings or public or private sales of debt or equity securities. The amount, nature, and timing of any borrowings or sales of debt or equity securities will depend on our operating performance and other circumstances; our then-current commitments and obligations; the amount, nature and timing of our capital requirements; any limitations imposed by our current credit arrangements; and overall market conditions.

Current wording

As of March 31, 2024, we had total cash on hand of approximately $4.5 million and approximately $31.5 million of available borrowing under our revolving credit facilities. As we continue to pursue acquisitions and other strategic transactions to expand and grow our business, we regularly monitor capital market conditions and may raise additional funds through borrowings or public or private sales of debt or equity securities. The amount, nature, and timing of any borrowings or sales of debt or equity securities will depend on our operating performance and other circumstances; our then-current commitments and obligations; the amount, nature and timing of our capital requirements; any limitations imposed by our current credit arrangements; and overall market conditions.

Previous wording

We had working capital of approximately $81.8 million as of December 31, 2023, as compared to working capital of approximately $85.0 million as of September 30, 2023; a decrease of approximately $3.2 million. The decrease is primarily due to increases in accrued liabilities and the current portion of operating lease obligations, and a decrease in prepaid expenses of approximately $8.6 million, partially offset by decreases in accounts payable, and increases in accounts receivable, inventories, and cash of approximately $5.3 million.

Current wording

We had working capital of approximately $79.0 million as of March 31, 2024, as compared to working capital of approximately $85.0 million as of September 30, 2023; a decrease of approximately $6.0 million. The decrease is primarily due to increases in accrued liabilities, the current portion of long-term debt, and the current portion of operating lease obligations, and a decrease in income taxes receivable, partially offset by decreases in the current portion of notes payable to related parties and accounts payable, and an increase in accounts receivable.

Previous wording

The Company’s cash, as of December 31, 2023, was approximately $5.6 million compared to approximately $4.3 million as of September 30, 2023, an increase of approximately $1.3 million. Net cash provided by operations was approximately $7.9 million for the three months ended December 31, 2023, as compared to net cash provided by operations of approximately $6.3 million for the three months ended December 31, 2022. The increase was primarily due to increases in accrued liabilities, depreciation and amortization expense, and allowance for obsolete inventory, partially offset by an increase in accounts receivable and decrease in deferred income tax liabilities.

Current wording

The Company’s cash, as of March 31, 2024, was approximately $4.5 million compared to approximately $4.3 million as of September 30, 2023, an increase of approximately $0.2 million. Net cash provided by operations was approximately $2.1 million and $14.2 million for the six months ended March 31, 2024 and 2023, respectively. The decrease was primarily due to decreases in net income and deferred income tax liabilities, and an increase in accounts receivable, partially offset by increases in depreciation and amortization expense, reserve for inventory obsolescence and income taxes payable.

Previous wording

Our cash flows used in investing activities of approximately $3.2 million for the three months ended December 31, 2023 consisted of the acquisitions of CRO by Flooring Liquidators, and Johnson by CRO, and purchases of property and equipment. Our cash flows used in investing activities of approximately $1.3 million for the three months ended December 31, 2022 consisted of purchases of property and equipment.

Current wording

Our cash flows used in investing activities of approximately $4.9 million for the six months ended March 31, 2024 consisted of the acquisitions of CRO by Flooring Liquidators, and Johnson by CRO, and purchases of property and equipment. Our cash flows used in investing activities of approximately $36.8 million for the six months ended March 31, 2023 consisted of purchases of property and equipment.

Previous wording

Our cash flows used in financing activities of approximately $3.4 million during the three months ended December 31, 2023 consisted of payments on notes payable of approximately $1.8 million, purchases of treasury stock and payments for finance leases of approximately $900,000, and net payments under revolver loans of approximately $750,000.

Current wording

Our cash flows used in financing activities of approximately $3.0 million during the six months ended March 31, 2024 consisted of net borrowings under revolver loans of approximately $7.7 million, payments on notes payable of approximately $3.4 million, proceeds from related parties of $1.0 million, purchases of treasury stock and payments for finance leases of approximately $0.4 million, and payments of related party notes payable of $0.6 million.

Previous wording

Our cash flows provided by financing activities of approximately $3.2 million during the three months ended December 31, 2022 consisted of proceeds from notes payable of approximately $5.7 million, partially offset by payments of notes payable and financing leases of approximately $1.8 million, and purchases of treasury stock and net borrowings under revolver loans of approximately $670,000.

Current wording

Our cash flows provided by financing activities of approximately $22.2 million during the six months ended March 31, 2023 consisted of proceeds from notes payable of approximately $5.7 million, partially offset by payments of notes payable and financing leases of approximately $1.8 million, and purchases of treasury stock and net borrowings under revolver loans of approximately $670,000.