Live Ventures Inc (LIVE) 2017 Q3 法說會逐字稿

Good day, everyone, and welcome to today's Live Ventures Third Quarter Call. (Operator Instructions) Please note, this call may be recorded. I will be standing by should you need any assistance. And it is now my pleasure to turn the conference over to CFO of Live Ventures, Mr. Virland Johnson. Please go ahead, sir.

Thank you. Good afternoon, and welcome to the Live Ventures Incorporated Fiscal Third Quarter 2017 Conference Call. Earlier today, the company filed its Form 10-Q for the third fiscal quarter ended June 30, 2017, with the SEC. This filing can 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. My name is Virland Johnson, Chief Financial Officer. And joining me today is Jon Isaac, Chief Executive Officer. 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 website or may be requested directly from the company.

Forward-looking statements are made as of today's date, and we do not undertake the obligation to update any forward-looking statements made during today's call.

Thank you to everyone joining us today for our third fiscal quarter 2017 call. I would also like to express my appreciation to our management and associates of Live Ventures for yet another outstanding 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 2017. The company reported quarterly revenue of $41.4 million, representing an increase of 106.9% over the same period last year and quarterly earnings per basic share of $1.4. For the quarter, gross profit was almost $17 million, which is up 233.3% from the same period of fiscal 2016. In addition, our operating income was almost $5.4 million compared to the same period last year of $1.1 million, a 409.2% improvement. And net income was $2.13 million. For the quarter, margins for gross profit were 41.1%. Operating income was 13.0%. As compared to the prior year, margins for gross profit were 25.5% and operating income was 5.3%.

As of June 30, 2017, the company reported approximately $4.3 million of cash on hand, plus an additional $9.8 million of available credit under the company's revolving lines of credit. Net cash provided from operating activities for the quarter was $3.6 million and year-to-date through June 30, 2017, was $8.8 million. Working capital as of June 30, 2017, was approximately $32.2 million.

Stockholders' equity increased approximately 5.5% to $32.6 million over the prior quarter and 34.8% year-to-date through June 30, 2017. For additional financial information and details, I invite you to review our press release distributed this morning and view our 10-Q filing on either our website or the SEC's website. Our focus remains on seeking the best acquisition opportunities and growing our existing portfolio of companies while minimizing our cost of capital and enhancing shareholder value. 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 and I welcome any questions that you may have.

(Operator Instructions) And we can take our first question from [Laura Engel].

So you mentioned just seeking active acquisition prior to as far as this being in discussions or is there any other detail you can give us as far as that there's really anything on the table at this point or Letters of Intent? Any more details on that progress as far as what we might see the rest of the year?

We generally do not comment about possible acquisitions that have not been announced previously. We are looking at several transactions, but we have -- we're not at a point to disclose that at this time.

Okay. And then, just in general, looking at numbers quarter-over-quarter as opposed to year-over-year, just with everything that's going on. As far as gross margins, there's a slight dip over the previous quarter. Is there anything that happened in this quarter specifically? Reading the detail, a lot's announced, but anything specific that would carry forward? Or as far as looking forward, are these kind of the levels we should expect now that the company's been 1 unit for few quarters now?

We believe that these are comparable levels that you should see going forward. There's going to be some up and down based on mix of product and the margin of those products that are sold. But we feel this is pretty consistent going forward. Jon has some items that he'd like to cover.

This is Jon. Just had a few points that I broke down that would love to share with our shareholders or prospective shareholders. On the Vintage Stock side, the company had a record month in terms of profitability in the month of June. There was 1 store that was affected by a severe tornado in the Tulsa, Oklahoma side, and it will probably be a total loss. So management is looking at another store that would probably be opened not too far away from that store. But the good thing is, most importantly, nobody got hurt. Secondly, it was one of the smaller stores. I think it was 4,000 or less than 5,000 square feet in size. And then, three, we have very, very good insurance coverage, and that is going to cover for potential losses or business losses, et cetera. So that store was definitely affected. And it's also in the news, you guys can search for it. On the refinance side, again, we are still working very hard on reducing our cost of capital. We think that once we are successful in finding the right partner for this that we would add about $1 of earnings per basic common share. This is our estimate, but this is not final yet, but we will keep shareholders updated on that. Again, on the Vintage Stock side, in the past few weeks, we've released the corporate video, and we've put this on our website. And I encourage all shareholders who -- you haven't seen the video yet, please do so, it'll really enlighten you as to the operations. It will give you a chance also to meet Mr. Rodney Spriggs, an interview with him, and it will give you an insight to a lot of the stores that we have in the Midwest. Is There any questions coming up? I'll just keep going?

Yes.

Also, I want to remind everyone that on the Vintage Stock side, Rodney and his team have opened 10 stores since November 1, so a lot of expenses -- we accrued a lot of expenses this year as a result of those. To the extent that we don't open again another 10 stores soon, which we won't, not at that level at least, that number should look better going forward. So we're looking forward to the upcoming holiday season which would, hopefully, generate a good amount of cash flow for us. On the Marquis Industries side -- and I'm just going to keep talking unless -- until we see a question pop up, I'm looking at the screen here. On the Marquis Industries side, the company also achieved a record month in the month of June in terms of sales, the highest recorded revenues in any month ever at Marquis. We have on order a new extrusion line that is expected to be delivered next month. We've been waiting about a year for this new line to arrive at our lines. And so that's going to increase our extrusion capacity by about 50%, 5-0, to about 15 million pounds per year of extrusion. The new extrusion, and our estimates internally, our management estimates, that the new extrusion line will add about $0.50 in earnings per basic common share or about a $1 million a year in our estimates. The company is continually experiencing growth and is looking for ways to further increase its margins. There may be further opportunities next year to acquire yet another extrusion line because we are constantly adding capacity. And that's very good news because the product is in high demand at the Marquis side. We have 2 questions that popped up. Maybe, we'll take one. Operator?

Yes, we can go next to [Daniel Demora].

I was just wondering, why do you think the stock price is pretty much just bouncing around? The only activity that is going on is when Mr. Jon Isaac buys stock, so that's the only time that really goes up.

That's a good question for which we don't have a real scientific answer for. I mean, we don't obviously have control of what happens in the stock price. Today, we saw that it would go up based on record sales and record financials, but it went down. So what we have better control of is how we perform as a company and where we invest your money, shareholders' money to maximize every dollar that we have. So it's management's beliefs and policy that, in the long term, our stock price should rise congruent with our earnings and the growth in our balance sheet. So we don't look at the stock price every day, every hour, every minute, but we hope that, in time, that the stock price will reflect our performance. So -- Carl?

We can go next to [Carl Veritridge].

I'm sure you must make your own kind of like personal judgment what the stock should be based on your actual performance. Now of course, that's a very, very unbinding estimate. But you guys are investors, and you see the performance. And where do you think -- what I consider fairly good reports, where do you think the stock should be? Or where do you think a year ago where the stock price should be if you had a performance like this? So what number do you kick around where you should be right now if the market would react reasonably?

Sure, that's a good question. That answer is part art, part science. I mean, it's a very -- if you ask 3 people, you might get 4 different answers as to where the stock price should be. But if you look at comparables or companies, I mean I don't know of any company that traded at a P/E of 2. And if there are, please e-mail us and let us know, so we can buy out there stock if we can. So do I think it's undervalued? Personally, yes. That's why you see me buying stock in the open market personally. And that's why the company has been aggressive in buying back its stock as well. And on that subject, I mean we bought 79,000 shares since the inception of our repurchase program through July of 2017 at an average price of $10.27. And it's our belief that those repurchases are, by far, the best use of capital at the current moment. And we fully intend on continuing to buy our shares when the market presents us with these types of opportunities. And in the last couple of months, we've gotten lucky in finding large blocks of shares that were available to us on the offer. So at one point, I think it was 24,000 shares, another time, 20,000 shares. We don't know who's selling them to us, we don't really care if it's a hedge fund or a short or whoever it may be. We were lucky, and we bought those. We called our broker, and we were able to make those purchases. If you want some interesting facts, our stock price last year on this date was $12.30 split-adjusted. Our book value back then was $21 million. And that's after we had recorded our $12 million deferred tax asset on our books. Since last year at this time, the company's shareholders' equity increased by over 53%, yet our stock price has decreased. We see this stock price to earnings or stock price to growth in our equity as an anomaly. It's an opportunity to pile on more of something that's great. The buyback benefits the remaining shareholders as they will enjoy a greater piece of their earnings in future months, future quarters. And again, to put things into perspective, our stockholders' equity per basic common share is $16.22 as of the end of June, and our stock price today was around $11.50. So that's why management sees this as an opportunity to buy back stock. That answered your question?

Yes.

And we can go next to [Luigi Raveto].

The question that I would ask, and you probably pretty much answered the gentleman over there, which is we need the spine to buy this. I mean, I buy all I can at this price because there is an opportunity, like you just mentioned before, that it's a lifetime opportunity for the company because, as we know, we have a book value, about $16 per share, so anything we buy below that price, I suggest, especially the company, to grab all we can and to storage for the equity of the stockholder, which I'm buying at the market anything I can because, like I said, it's fantastic, fantastic price. Unbelievable. I think it's an opportunity that is almost incredible that what we can see. It's just one time over a lifetime. I'm 61 years old, and I haven't seen it quite a bit like a company like you mentioned at 2x. And like you said, show me a company that is trading at 2 and then I can buy it, we have it the right here, so we can buy all we can, and I appreciate it, all the job you did. So the question is...

Thank you for your...

And that's why we believe exactly in what you said, and that's why we're buying back stock in our own company. There's no secret, we've put it out. We've announced it many times. And we firmly believe that, in the long term, common sense will prevail, and people will realize what we're doing. And it might take some time, but I think, eventually, we'll win. So...

Another question. I would like to know if you have any update on this little problem of the class action that we have, if you have any updated on the...

Yes, I have a few points, I'll go over them. We'll take another question, but I will go over after we go through the few questions. I haven't outlined them, but I'm going just go over it.

We can take our next question from [Philip Stillman].

Could you just speak to the reason, I'm just looking at the 10-K, for the drop in earnings per share from 2016 to 2017 for the 3 and 9 months?

Yes. I think the major reason for the drop is last year, we released the deferred tax asset valuation. That is the central reason for the decrease. Again, investors that have been with the company for a while know that last year, that major release of a deferred tax valuation occurred because we were making money, and it looked like we were going to continue to make money. And it seemed to be the right thing to do. Looking back, it was clearly the right thing to do. And that is the central issue as to why the earnings are down versus last year.

If you remove the one-time add-on that we did last year, our earnings about doubled. The absolute, about $12.5 million, I think we did about $13-point-something million. So that leaves about $1 million. We've done about double that this year. It's about 100% increase year-over-year when you exclude...

If you exclude that.

Yes, ballpark.

And we can go next to [Peter Rodriguez].

I had a question about the CapEx spending, about how much of it that you spent so far this year. I think, cumulatively, it's been like a little bit close to almost $8 million. How much of that roughly spent on expanding for new operations versus repairing and replacing existing operations?

Most of the CapEx has to do with our Marquis operation. And it's a blend, I'm not going to say that it's all new capacity. But there is additional capacity that has been added similar to what Jon referred to previously in terms of the extrusion that will be added later this year. There is enhanced capacity as well as replacement of older machines that were in place. Don't have exact numbers, but it's both.

But would you say like 50-50? Or 80-20?

I would probably say more 60-40: 60% replacement; 40% expansion.

And you expect all that new equipment to go into place this quarter?

All of it is in place, with the exception of the additional extrusion line.

If we expanded the building in Marquis, Mr. Tim Bailey and his team, we had a -- we built an addition -- a large addition to the extrusion facility in the Georgia area to accommodate not only this extrusion line but future extrusion lines. In fact, I had a call this morning with Mr. Bailey and the new extrusion line that is set to come in, in September, will definitely almost guarantee to decrease our cost of goods sold in that operation which should drop about $0.50 in basic common shares. But we've also discussed further expansion into more extrusion lines because it would drop COGS even more. So there's still questions on this, and there's other opportunities in which we can expand Marquis by investing in some growth CapEx.

Okay, great. And another question I had was about the [capitality] debt. How much did you guys pay down in debt this quarter? And how much do you plan to pay down in debt for the rest of the year?

We pay a principal payment of $500,000 a quarter.

$750,000.

Is it $750,000?

We pay about $0.25 million a month in reduction in the debt.

It's paid quarterly.

It's paid quarterly.

Yes, it's paid quarterly.

And that's about $0.25 million a month.

But did you guys make any prepayments in addition to your quarterly requirement?

We've been paying down principal as agreed upon in the loan agreements. We have the -- as you see, we have about $4 million or more in cash on our balance sheet. We also have about $9.8 million, I believe, Virland mentioned in availability. We have some liquidity, we have options. So we're just evaluating different options that we have. We're looking at other ways to reduce cost of capital. So we'll definitely keep shareholders up to speed on what's going on in that front. But it's definitely one of our top 1 or 2 projects that we're working on.

And I guess, my last question would be about the lawsuit which you said you were going to give us some more information. Just if you can maybe give us some kind of estimate as to how much that's costing or any expectations with regards to the cost.

There's the real cost, and then there's the theoretical cost. The real cost of the legal fees is not substantial, less than 6 figures. The other cost is the damage to our reputation or what others think of us and all this. And we're going to seek ways to remedy that, one of which will be to seek sanctions against the lawyers who are causing all of this nonsense. So I can update shareholders on the lawsuit now, I spoke to our class action attorney today. So we're preparing to file a motion to dismiss. And we are highly confident that we will prevail as we did nothing wrong, and we look forward to the opportunity, actually, to be able to show that. We're also going to seek to remedy the harm that was done. One of the ways of which will be to seek sanctions against the lawyers involved in this frivolous lawsuit. As we've stated before, we've done nothing wrong. And those are all false and meritless allegations. And the plaintiffs have no proof of any wrongdoing. There was no promotion involved with our stock. There was no sales of stock by officers, insiders or directors. In fact, officers and directors bought or acquired or purchased shares during their so-called promotion period. Go figure. Their noise about our previous auditors is also meritless but, nonetheless, as you probably know, we've decided to change our independent auditors since then to BDO USA, regarded by many as the #5 accounting firm in the world, with 1,400 global offices in 158 countries. In the meantime, we are continuing to maximize value for shareholders through the purchase of our shares in our company at what to be believe is the low stock price or by reinvesting capital back into our existing companies or paying down debt or making new acquisitions. That's the update that we have. Unfortunately, we have to go through the judicial process of this, but we have a very, very good law firm that is helping us defend this. And once it is done, I'm intent on seeking sanctions against those who harmed us. So...

And we can go next to [David Cockrell].

Like some of the others, I don't really care what the stock price is today. I kind of like it low, and it'll get there. I just had 1 quick question on the goodwill on the balance sheet. I think that I heard previously that, that was from the difference in value of the acquisition of the new store chain versus the valuation of it? How long does that stay on the books?

This stays on the books until it's either impaired or sold. So it stays for quite a while actually, so long as there's that excess value, and it's demonstrated, and we measure it every quarter to see if there's some impairment relative to that value. We do not believe that there's any impairment to that value at this time. I should remind investors that the preliminary price allocation is still just that. And that in our fourth quarter, we will be making an adjustment and truing up fair value of the assets and liabilities as it's acquired in liabilities assumed relative to that acquisition. And there could be some change to goodwill at that time. It'll probably just be within the assets and liabilities and goodwill because there was an excess purchase price. So...

So does that answer question? I mean it'll stay on the books unless things -- the conditions of the company changes, which we don't foresee. The company's doing very well. It is having record quarters year-over-year, month-over-month, mostly, company-wide and, in some months, we're even seeing increases in same-store sales. So a lot of the noise out there about retail going away, I mean we have a very -- a highly profitable company run by an excellent management team, with the help of almost 900 employees and 60 -- or 59 stores -- or 58 stores, somewhere around there, in over 10 states.

I guess, it's 1 less than there was?

Yes, but I think, Rodney has got a plan for that. A couple of days ago I called him, he was in Tulsa, and it's all over the news. But we may even get -- we're actually getting publicity out of it. So it may even help some a little bit.

(Operator Instructions) And we can take our next question from [David Bennetts].

This is [David Bennetts] from [Alpha Advisors Alliance] in New York. And I just have 2 questions. One, really revolves around Netflix. Disney actually just took their license away for streaming, and for Marquis, there is a competitor called Beaulieu who just went out of business. Do you see that as positives to continue to gain market share?

Could you rephrase the question?

Please, yes, can you just ask it again?

Yes, the question is really there's a competitor in the carpet industry called Beaulieu who just went out of business. Is there an opportunity to gain market share for Marquis? And for Vintage Stock, Disney just took away the streaming license from Netflix. Is that also a positive for Vintage?

The short answer is probably -- I mean if there's a competitor in the carpet space that went out of business, then there's probably more market share that we could grab. We have an excellent management team and sales people on the Marquis side. On the Vintage side, I did see the news about Netflix and Disney. And that goes to show that you never know really what happens in this space. We hear every day from people, from shareholders, from partners about Vintage being an outdated model, and Rodney tells me that they've been telling him this for the past 10 years. But he's still showing growth and he's showing very strong financials in his operations, and we don't believe this to be the case. Physical discs are here to stay for at least a while. We don't know how long, but I think it's going to be for many, many years into the future. So I'm sure it's an opportunity for Vintage as well. Do you have other questions?

No, no more questions.

(Operator Instructions) And it appears we have no further questions at this time. I can turn it back over to our speakers.

I have nothing else to say, Virland. I guess, our next call will be at the 10-K?

At the, yes, filing time of the 10-K.

Towards the end of the year?

It's going to be near the New Year, yes.

Okay.

Excellent. All right, so we'll wrap up the call. And if there's no other questions, thank you for attending, and look forward to talking with you very soon at the end of the year.

Thank you.

Thank you.

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