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Note: I have written about Live Ventures (LIVE) previously, investors should see this as an update to my earlier articles on the company
Live Ventures (LIVE) stock price has continued to channel since the crash experienced in early August as Live Ventures, CEO Jon Isaac and former CFO Virland Johnson were charged by the SEC. Since then Live Ventures has had positive developments in its underlying business, however no real positive movement in its share price. This is due to the impending SEC litigation which continues to hold back the stock. I maintain a cautious ‘buy’ stance, reinforced by the quality of last quarters results.
Q1 Results prove impressive
Live Ventures delivered revenues of $75.2 million in Q1, a 20.3% increase year-on-year while net income came in at $6.5 million, an increase of 24% over the previous year. The fact net income growth came in ahead of revenue growth is already displaying the profitability benefits that LIVE will see as it scales up operations and expands its network in each operating segment.
$3.68 million of the overall revenue increase was actually related to the consolidation of Salomon in June. Removing these revenues still shows a record quarter for LIVE, with revenues growing 2.5% QoQ and still beating previous record results of $71 million in Q2 last year. Considering how much of a blow-out last year was performance wise, to deliver these results amid significant economic turbulence is evidence that last years results weren’t a ‘flash in the pan’. Some investors doubted how enduring LIVE’s previous performance actually was and the start to FY22 is evidence that 2021 provided an inflection point for the company to kick on and continue to pursue growth.
Looking more specifically at each operating segment, Steel manufacturing (Precision Marshall) saw the most material increase in revenues of 27% to $12.3 million, which materially increased net income (+1048%) to $1.6 million. At this point, this business provides some of the most exciting prospects for LIVE, due the operating leverage it possesses and the ability of it to contribute to future earnings growth. This is another case where LIVE has made meaningful investments and changes to subsidiaries that have lead to large progression in financial performance.
Flooring (Marquis Industries) and Retail (Vintage Stock) also delivered growth of 17.2% and 8.8% respectively. Pleasingly Marquis reported operating income growth of 11%. In previous quarters Marquis had actually experienced margin pressures and even reported a decline in operating income in Q3 even though revenues had increased quite substantially – a move back to income growth is really positive.
Non-current Long term debt stands at $40.3 million at the end of the quarter, slightly up from $37 million at the end of Q4. Since LIVE still produces plenty of cash from operating activities ($4.2 million), hopefully over the coming quarters management will once again look to pay down debt and deleverage the balance sheet. $17 million of long-term debt is due in the next year. Though at this time they continue to plough money into the purchase of property and equipment ($3.07 million). LIVE’s debt/equity ratio of 0.625 remains manageable due to the large operating cash flow generation.
SEC Overhang
Considering the above and the fact LIVE trades on an annualized fwd P/E of 4.28x and EV/EBITDA of 5.4x, it may seem surprising that the stock still hasn’t obtained a significant reprice. However this lack of movement can be completely related to the SEC Investigation overhang.
While Live Ventures looks materially undervalued on most metrics, if the SEC come out successful with the charges and removes Jon Isaac from the board this will have large ramifications for the company. As mentioned previously, Jon Isaac quite literally is Live Ventures. He is the man that spearheaded the acquisitions and unlocked large shareholder value over the last year and owns half of the company. Losing him would create a precarious future for LIVE under new management and the potential conflicts of interest that could arise from that. Nonetheless, LIVE still has significant assets on its balance sheet and a diverse base of strong operating subsidiaries that shouldn’t go unnoticed.
There have been some updates regarding the SEC investigation disclosed in SEC filings:
On October 1, 2021, the Company, filed a motion with the court to dismiss the complaint. The SEC filed its response opposing the motions on November 1, 2021. The defendants filed their reply responses to the SEC’s opposition on November 15, 2021. The motions to dismiss are now under submission and the court has not yet scheduled a hearing date. Pursuant to the automatic stay of proceedings under the Private Securities Litigation Reform Act, all discovery has been stayed pending the motions to dismiss.
At this point its predominantly just back and forth between LIVE and the SEC and will take a long time before the results of this legal dispute are seen.
2022 prospects
Moving into 2022 Live Ventures prospects remain strong. The Steel industry as a whole remains buoyant moving into the new year amid shortages – putting Precision Marshall in a good position to flourish over the coming quarters.
Likewise, a booming US housing market continues to benefit carpeting provider Marquis Industries, with that demand likely to continue into the future as the total inventory of homes on the market dipped below 300,000 nationwide in early January. Of course due to the small size of both Marquis and Precision, macro trends won’t directly relate to relatively minute these businesses. Nonetheless it helps set up the general performance we may see across the year.
Vintage on the other hand may face some headwinds. Primarily related to significant inflation risk with CPI data coming in at 7.5% last week, the fastest annual rise for 40 years. This generally negatively affects consumer discretionary companies like Vintage Stock. On the other hand however, mass reopening’s and a move to more normal living in 2022 should benefit physical stores such as Vintage Stock. The company clearly remains confident with three new stores opened in Q4.
Conclusion
On the whole, fundamentally LIVE remains undervalued and offers plenty of reasons for the market to be upbeat in 2022. However the SEC overhang can’t and won’t be dismissed until removed, leaving the future of the company on a knife edge. I still hold my position and ‘buy’ stance, though I remain on cautious footing.
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