UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2022
or
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number: 001-33767
LL Flooring Holdings, Inc.
(Exact name of registrant as specified in its charter)
Delaware | 27-1310817 |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
4901 Bakers Mill Lane Richmond, Virginia | 23230 |
(Address of Principal Executive Offices) | (Zip Code) |
(800) 366-4204
(Registrant’s telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class: | Trading Symbol: | Name of exchange on which registered: | ||
Common Stock, par value $0.001 per share | LL | New York Stock Exchange |
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 of 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes ☐ No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ Yes ☐ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act:
☐ Large accelerated filer | ☒ Accelerated filer | ☐ Non-accelerated filer | ☐ Smaller reporting company | ☐ Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒ No
As of October 28, 2022, there are 29,301,879 shares of the registrant’s common stock, par value of $0.001 per share, outstanding.
LL FLOORING HOLDINGS, INC.
Quarterly Report on Form 10-Q
For the quarter ended September 30, 2022
TABLE OF CONTENTS
Page | ||
2 | ||
Condensed Consolidated Financial Statements and Supplementary Data | 2 | |
Management’s Discussion and Analysis of Financial Condition and Results of Operations | 15 | |
27 | ||
27 | ||
27 | ||
27 | ||
27 | ||
28 | ||
28 | ||
28 | ||
28 | ||
28 | ||
30 |
1
Item 1. Financial Statements.
LL Flooring Holdings, Inc.
Condensed Consolidated Balance Sheets
(Unaudited, in thousands)
September 30, | December 31, | |||||
| 2022 |
| 2021 | |||
Assets | ||||||
Current Assets: | ||||||
Cash and Cash Equivalents | $ | 6,051 | $ | 85,189 | ||
Merchandise Inventories | 365,622 | 254,385 | ||||
Prepaid Expenses | 11,200 | 9,160 | ||||
Other Current Assets | 16,673 | 11,094 | ||||
Total Current Assets | 399,546 | 359,828 | ||||
Property and Equipment, net | 100,555 | 96,926 | ||||
Operating Lease Right-of-Use Assets | 124,531 | 119,510 | ||||
Goodwill | 9,693 | 9,693 | ||||
Net Deferred Tax Assets | 11,285 | 11,336 | ||||
Other Assets | 6,209 | 8,599 | ||||
Total Assets | $ | 651,819 | $ | 605,892 | ||
Liabilities and Stockholders’ Equity | ||||||
Current Liabilities: | ||||||
Accounts Payable | $ | 62,103 | $ | 63,464 | ||
Customer Deposits and Store Credits | 48,877 | 67,063 | ||||
Accrued Compensation | 7,592 | 10,128 | ||||
Sales and Income Tax Liabilities | 3,887 | 4,297 | ||||
Accrual for Legal Matters and Settlements | 22,881 | 33,611 | ||||
Operating Lease Liabilities - Current | 34,293 | 33,060 | ||||
Other Current Liabilities | 25,073 | 20,717 | ||||
Total Current Liabilities | 204,706 | 232,340 | ||||
Other Long-Term Liabilities | 6,965 | 4,268 | ||||
Operating Lease Liabilities - Long-Term | 100,861 | 97,163 | ||||
Credit Agreement | 69,000 | — | ||||
Total Liabilities | 381,532 | 333,771 | ||||
Commitments and Contingencies | ||||||
Stockholders’ Equity: | ||||||
Common Stock ($0.001 par value; 35,000 shares authorized; 30,743 and 30,536 shares issued and 28,686 and 29,113 shares outstanding, respectively) | 31 | 31 | ||||
Treasury Stock, at cost (2,057 and 1,423 shares, respectively) | (153,284) | (145,337) | ||||
Additional Capital | 230,918 | 227,804 | ||||
Retained Earnings | 192,622 | 189,623 | ||||
Total Stockholders’ Equity | 270,287 | 272,121 | ||||
Total Liabilities and Stockholders’ Equity | $ | 651,819 | $ | 605,892 | ||
See accompanying notes to condensed consolidated financial statements
2
LL Flooring Holdings, Inc.
Condensed Consolidated Statements of Operations and Comprehensive (Loss) Income
(Unaudited, in thousands, except per share amounts)
Three Months Ended | Nine Months Ended | |||||||||||
September 30, | September 30, | |||||||||||
2022 |
| 2021 |
| 2022 |
| 2021 | ||||||
Net Sales | ||||||||||||
Net Merchandise Sales | $ | 229,204 | $ | 240,802 | $ | 731,044 | $ | 750,388 | ||||
Net Services Sales | 39,617 | 41,427 | 115,766 | 116,675 | ||||||||
Total Net Sales | 268,821 | 282,229 | 846,810 | 867,063 | ||||||||
Cost of Sales | ||||||||||||
Cost of Merchandise Sold | 142,041 | 144,307 | 449,987 | 442,914 | ||||||||
Cost of Services Sold | 31,198 | 32,721 | 90,412 | 90,626 | ||||||||
Total Cost of Sales | 173,239 | 177,028 | 540,399 | 533,540 | ||||||||
Gross Profit | 95,582 | 105,201 | 306,411 | 333,523 | ||||||||
Selling, General and Administrative Expenses | 99,692 | 93,165 | 300,804 | 291,767 | ||||||||
Operating (Loss) Income | (4,110) | 12,036 | 5,607 | 41,756 | ||||||||
Other Expense (Income) | 646 | 18 | 830 | (252) | ||||||||
(Loss) Income Before Income Taxes | (4,756) | 12,018 | 4,777 | 42,008 | ||||||||
Income Tax (Benefit) Expense | (982) |
| 3,239 | 1,778 | 10,618 | |||||||
Net (Loss) Income and Comprehensive (Loss) Income | $ | (3,774) | $ | 8,779 | $ | 2,999 | $ | 31,390 | ||||
Net (Loss) Income per Common Share—Basic | $ | (0.13) | $ | 0.30 | $ | 0.10 | $ | 1.08 | ||||
Net (Loss) Income per Common Share—Diluted | $ | (0.13) | $ | 0.30 | $ | 0.10 | $ | 1.06 | ||||
Weighted Average Common Shares Outstanding: |
|
|
|
| ||||||||
Basic |
| 28,668 |
| 29,082 |
| 28,859 | 28,984 | |||||
Diluted |
| 28,668 |
| 29,455 |
| 29,010 | 29,494 | |||||
See accompanying notes to condensed consolidated financial statements
3
LL Flooring Holdings, Inc.
Condensed Consolidated Statements of Stockholders’ Equity
(Unaudited, in thousands)
Total | |||||||||||||||||||
Common Stock | Treasury Stock | Additional | Retained | Stockholders' | |||||||||||||||
| Shares |
| Value |
| Shares |
| Value |
| Capital |
| Earnings |
| Equity | ||||||
June 30, 2021 | 29,063 | $ | 30 |
| 1,392 | $ | (144,788) | $ | 225,287 | $ | 170,536 | $ | 251,065 | ||||||
Stock-Based Compensation Expense |
| — | — | — | — | 1,349 | — |
| 1,349 | ||||||||||
Release of Restricted Shares |
| 26 | — | — | — | — | — |
| — | ||||||||||
Common Stock Repurchased |
| — | — | 15 | (290) | — | — |
| (290) | ||||||||||
Net Income |
| — | — | — | — | — | 8,779 |
| 8,779 | ||||||||||
September 30, 2021 |
| 29,089 | $ | 30 |
| 1,407 | $ | (145,078) | $ | 226,636 | $ | 179,315 | $ | 260,903 | |||||
June 30, 2022 |
| 28,680 | $ | 31 |
| 2,053 | $ | (153,244) | $ | 230,086 | $ | 196,396 | $ | 273,269 | |||||
Stock-Based Compensation Expense |
| — | — | — | — | 832 | — | 832 | |||||||||||
Release of Restricted Shares |
| 6 | — | — | — | — | — | — | |||||||||||
Common Stock Repurchased |
| — | — | 4 | (40) | — | — | (40) | |||||||||||
Net Loss |
| — | — | — | — | — | (3,774) | (3,774) | |||||||||||
September 30, 2022 |
| 28,686 | $ | 31 |
| 2,057 | $ | (153,284) | $ | 230,918 | $ | 192,622 | $ | 270,287 | |||||
Total | |||||||||||||||||||
Common Stock | Treasury Stock | Additional | Retained | Stockholders' | |||||||||||||||
| Shares |
| Value |
| Shares |
| Value |
| Capital |
| Earnings |
| Equity | ||||||
December 31, 2020 | 28,911 | $ | 30 |
| 1,318 | $ | (142,977) | $ | 222,628 | $ | 147,925 | $ | 227,606 | ||||||
Stock-Based Compensation Expense |
| — | — | — | — | 3,945 | — |
| 3,945 | ||||||||||
Exercise of Stock Options |
| 6 | — | — | — | 63 | — |
| 63 | ||||||||||
Release of Restricted Shares |
| 172 | — | — | — | — | — |
| — | ||||||||||
Common Stock Repurchased |
| — | — | 89 | (2,101) | — | — |
| (2,101) | ||||||||||
Net Income |
| — | — | — | — | — | 31,390 |
| 31,390 | ||||||||||
September 30, 2021 |
| 29,089 | $ | 30 |
| 1,407 | $ | (145,078) | $ | 226,636 | $ | 179,315 | $ | 260,903 | |||||
December 31, 2021 |
| 29,113 | $ | 31 |
| 1,423 | $ | (145,337) | $ | 227,804 | $ | 189,623 | $ | 272,121 | |||||
Stock-Based Compensation Expense |
| — | — | — | — | 2,818 | — | 2,818 | |||||||||||
Exercise of Stock Options |
| 21 | — | — | — | 296 | — | 296 | |||||||||||
Release of Restricted Shares |
| 123 | — | — | — | — | — | — | |||||||||||
Common Stock Repurchased |
| (571) | — | 634 | (7,947) | — | — | (7,947) | |||||||||||
Net Income |
| — | — | — | — | — | 2,999 | 2,999 | |||||||||||
September 30, 2022 |
| 28,686 | $ | 31 |
| 2,057 | $ | (153,284) | $ | 230,918 | $ | 192,622 | $ | 270,287 | |||||
See accompanying notes to condensed consolidated financial statements
4
LL Flooring Holdings, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited, in thousands)
Nine Months Ended September 30, | ||||||
2022 |
| 2021 | ||||
Cash Flows from Operating Activities: |
|
|
| |||
Net Income | $ | 2,999 | $ | 31,390 | ||
Adjustments to Reconcile Net Income: |
|
| ||||
Depreciation and Amortization |
| 13,723 |
| 13,985 | ||
Deferred Income Taxes Provision |
| 51 |
| 28 | ||
Income on Vouchers Redeemed for Legal Settlements | (1,051) | (1,183) | ||||
Stock-Based Compensation Expense |
| 2,818 |
| 3,945 | ||
Provision for Inventory Obsolescence Reserves | 742 | 1,784 | ||||
Gain on Disposal of Fixed Assets |
| — |
| 31 | ||
Changes in Operating Assets and Liabilities: |
|
| ||||
Merchandise Inventories |
| (113,828) |
| 15,683 | ||
Accounts Payable |
| (1,619) |
| (17,277) | ||
Customer Deposits and Store Credits |
| (18,186) |
| 8,832 | ||
Accrued Compensation | (2,536) | (6,144) | ||||
Prepaid Expenses and Other Current Assets |
| (4,861) |
| (792) | ||
Accrual for Legal Matters and Settlements |
| 293 |
| 7,733 | ||
Payments for Legal Matters and Settlements | (8,123) | (101) | ||||
Other Assets and Liabilities |
| 5,814 |
| (7,634) | ||
Net Cash (Used in) Provided by Operating Activities |
| (123,764) |
| 50,280 | ||
Cash Flows from Investing Activities: |
|
| ||||
Purchases of Property and Equipment |
| (16,787) |
| (12,276) | ||
Proceeds from Disposal of Fixed Assets |
| 64 |
| 58 | ||
Net Cash Used in Investing Activities |
| (16,723) |
| (12,218) | ||
Cash Flows from Financing Activities: |
|
| ||||
Borrowings on Credit Agreement | 201,000 | — | ||||
Payments on Credit Agreement | (132,000) | (101,000) | ||||
Proceeds from the Exercise of Stock Options | 296 | 64 | ||||
Common Stock Repurchased |
| (7,947) |
| (2,101) | ||
Other Financing Activities |
| — |
| (755) | ||
Net Cash Provided by (Used in) Financing Activities |
| 61,349 |
| (103,792) | ||
Net Decrease in Cash and Cash Equivalents |
| (79,138) |
| (65,730) | ||
Cash and Cash Equivalents, Beginning of Year |
| 85,189 |
| 169,941 | ||
Cash and Cash Equivalents, End of Year | $ | 6,051 | $ | 104,211 | ||
Supplemental disclosure of non-cash operating and financing activities: |
|
| ||||
Relief of Inventory for Vouchers Redeemed for Legal Settlements | $ | 1,849 | $ | 1,944 | ||
Tenant Improvement Allowance for Leases | (1,148) | (1,053) | ||||
See accompanying notes to condensed consolidated financial statements
5
LL Flooring Holdings, Inc.
(Unaudited, amounts in thousands, except per share amounts)
Note 1. Basis of Presentation
LL Flooring Holdings, Inc., formerly Lumber Liquidators Holdings, Inc., and its direct and indirect subsidiaries (collectively and, where applicable, individually, “LL Flooring” or the “Company”) engage in business as a multi-channel specialty retailer of hard-surface flooring, and hard-surface flooring enhancements and accessories, operating as a single operating segment. The Company offers an extensive assortment of hard-surface flooring including waterproof hybrid resilient, waterproof vinyl plank, solid and engineered hardwood, laminate, bamboo, tile, and cork, with a wide range of flooring enhancements and accessories to complement. The Company also provides in-home delivery and installation services to its customers. The Company primarily sells to consumers or to Pros on behalf of consumers through a network of store locations in metropolitan areas. At September 30, 2022, the Company’s 439 stores spanned 47 states in the United States (“U.S.”). In addition to the store locations, the Company’s products may be ordered, and customer questions/concerns addressed, through both its customer contact center in Richmond, Virginia, and its digital platform, LLFlooring.com.
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q for interim financial reporting pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). In the opinion of management, all adjustments (consisting of normal and recurring adjustments except those otherwise described herein) considered necessary for a fair presentation have been included in the accompanying condensed consolidated financial statements. However, they do not include all of the information and footnotes required by U.S. generally accepted accounting principles (“GAAP”) for complete financial statements. Therefore, the interim condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes included in the Company’s annual report filed on Form 10-K for the year ended December 31, 2021.
The condensed consolidated financial statements of the Company include the accounts of its wholly owned subsidiaries. All intercompany transactions have been eliminated in consolidation.
Note 2. Summary of Significant Accounting Policies
Fair Value of Financial Instruments
The carrying amounts of financial instruments such as cash and cash equivalents, accounts payable and other liabilities approximates fair value because of the short-term nature of these items. The carrying value of the revolving credit facility approximates fair value due to the variable rate of interest.
Merchandise Inventories
The Company values merchandise inventories at the lower of cost or net realizable value. The method by which amounts are removed from inventory is weighted average cost. All of the hardwood flooring purchased from vendors is either prefinished or unfinished, and in immediate saleable form. The Company relies on a select group of international and domestic suppliers to provide imported flooring products that meet the Company’s specifications. Both international and domestic inventory is subject to increased cost as a result of inflation. The Company is subject to risks associated with obtaining products from abroad, including disruptions or delays in production, shipments, supply chain, delivery or processing, including due to the COVID-19 pandemic.
Included in merchandise inventories are tariff-related costs, including Section 301 tariffs on certain products imported from China in recent years. The Company has deployed pricing, promotion, and alternative country sourcing strategies to mitigate tariff-related costs and improve gross margin. The Company continues to monitor the market to inform its pricing and promotional strategies.
6
Recognition of Net Sales
The Company generates revenues primarily by retailing merchandise in the form of hard-surface flooring and accessories. Additionally, the Company expands its revenues by offering services to deliver and/or install this merchandise for its customers; it considers these services to be separate performance obligations. The separate performance obligations are detailed on the customer’s invoice(s) and the customer often purchases flooring merchandise without purchasing installation or delivery services. Merchandise and services sales occur through the Company’s network of 439 stores across the U.S., a customer contact center, and its digital platform, LLFlooring.com. The Company’s agreements with its customers are of short duration (less than a year) and as such the Company has elected not to disclose revenue for partially satisfied contracts that will be completed in the days following the end of a period as permitted by GAAP. The Company reports its revenues exclusive of sales taxes collected from customers and remitted to governmental taxing authorities, consistent with past practice.
Revenue is based on consideration specified in a contract with a customer and excludes any sales incentives from vendors and amounts collected on behalf of third parties. The Company recognizes revenue when it satisfies a performance obligation by transferring control over a product to a customer or performing services for a customer. Revenues from installation and freight services are recognized when the delivery is made or the installation is complete, which approximates the recognition of revenue over time due to the short duration of service provided. The price of the Company’s merchandise and services is specified in the respective contract and detailed on the invoice agreed to with the customer including any discounts. The Company generally requires customers to pay a deposit, equal to approximately half of the retail sales value, when ordering merchandise not regularly carried in a given location or not currently in stock. In addition, the Company generally does not extend credit to its customers with payment due in full at the time the customer takes possession of merchandise or when the service is provided. Customer payments and deposits received in advance of the customer taking possession of the merchandise or receiving the services are recorded as deferred revenues in the accompanying condensed consolidated balance sheet caption “Customer Deposits and Store Credits.”
The following table shows the activity in this account for the periods noted:
Subject to limitations under the Company’s policy, return of unopened merchandise is accepted for 90 days, subject to the discretion of the store manager. The amount of revenue recognized for flooring merchandise is adjusted for expected returns, which are estimated based on the Company’s historical data, current sales levels, and forecasted economic trends. The Company uses the expected value method to estimate returns because it has a large number of contracts with similar characteristics. The Company reduces revenue by the amount of expected returns and records it within “Other Current Liabilities” on the condensed consolidated balance sheet. In addition, the Company recognizes a related asset for the right to recover returned merchandise and records it in the “Other Current Assets” caption of the accompanying condensed consolidated balance sheet. This amount was $1.3 million at September 30, 2022. The Company recognizes sales commissions as incurred since the amortization period is less than one year.
7
In total, the Company offers hundreds of different flooring products; however, no single flooring product represented a significant portion of its sales mix. By major product category, the Company’s sales mix was as follows:
1 Includes engineered vinyl plank, laminate, vinyl and tile.
Cost of Sales
Cost of sales includes the cost of products sold, including tariffs, the cost of installation services, and transportation costs from vendors to the Company’s distribution centers or store locations. It also includes transportation costs from distribution centers to store locations, transportation costs for the delivery of products from store locations to customers, certain costs of quality control procedures, warranty and customer satisfaction costs, inventory adjustments including obsolescence and shrinkage, and costs to produce and ship samples, which are net of vendor allowances.
The Company offers a range of limited warranties for the durability of the finish on its prefinished products to its services provided. These limited warranties range from to 100 years, with lifetime warranties for certain of the Company’s products. Warranty reserves are based primarily on claims experience, sales history and other considerations, including payments made to satisfy customers for claims not directly related to the warranty on the Company’s products. Warranty costs are recorded in cost of sales. The related reserve of $1.0 million at September 30, 2022, was recorded in “Other Current Liabilities” on the accompanying condensed consolidated balance sheet. The Company seeks recovery from its vendors and third-party independent contractors of installation services for certain amounts paid.
Vendor allowances mostly consist of volume rebates and are accrued as earned, with those allowances received as a result of attaining certain purchase levels accrued over the incentive period based on estimates of purchases. Volume rebates earned are initially recorded as a reduction in merchandise inventories and a subsequent reduction in cost of sales when the related product is sold. Reimbursement received for the cost of producing samples is recorded as an offset against cost of sales.
Note 3. Stockholders’ Equity
Net (Loss) Income per Common Share
The following table sets forth the computation of basic and diluted net (loss) income per common share:
Three Months Ended | Nine Months Ended | |||||||||||
September 30, | September 30, | |||||||||||
2022 |
| 2021 |
| 2022 |
| 2021 | ||||||
Net (Loss) Income | $ | (3,774) | $ | 8,779 | $ | 2,999 | $ | 31,390 | ||||
Weighted Average Common Shares Outstanding—Basic |
| 28,668 |
| 29,082 |
| 28,859 |
| 28,984 | ||||
Effect of Dilutive Securities: |
|
|
|
|
|
|
|
| ||||
Common Stock Equivalents |
| — |
| 373 |
| 151 |
| 510 | ||||
Weighted Average Common Shares Outstanding—Diluted |
| 28,668 |
| 29,455 |
| 29,010 |
| 29,494 | ||||
Net (Loss) Income per Common Share—Basic | $ | (0.13) | $ | 0.30 | $ | 0.10 | $ | 1.08 | ||||
Net (Loss) Income per Common Share—Diluted | $ | (0.13) | $ | 0.30 | $ | 0.10 | $ | 1.06 | ||||
8
The following shares have been excluded from the computation of Weighted Average Common Shares Outstanding—Diluted because the effect would be anti-dilutive:
Three Months Ended | Nine Months Ended | |||||||
September 30, | September 30, | |||||||
| 2022 |
| 2021 |
| 2022 |
| 2021 | |
Stock Options | 633 | 222 | 448 | 167 | ||||
Restricted Shares | 503 | 280 | 365 | 100 | ||||
Stock Repurchase Program
During the nine months ended September 30, 2022, the Company’s board of directors raised its authorization for the repurchase of up to $50.0 million of the Company’s common stock, and the Company resumed its share repurchase program. The Company made cash payments of $7.0 million to repurchase 571,332 shares under the share repurchase authorization during the nine months ended September 30, 2022. There remains $43.0 million outstanding under the share repurchase authorization.
Outside of the share repurchase program, during the nine months ended September 30, 2022, the Company repurchased $0.9 million, or 63,261 shares, of its common stock through the net settlement of shares issued as a result of the vesting of restricted shares.
Note 4. Stock-based Compensation
The following table summarizes share activity related to employee stock options and restricted stock awards (“RSAs”):
|
| Restricted Stock | ||
Stock Options | Awards | |||
Options Outstanding/Nonvested RSAs, December 31, 2021 |
| 625 |
| 631 |
Granted |
| 175 | 400 | |
Options Exercised/RSAs Released |
| (21) | (168) | |
Forfeited |
| (60) | (100) | |
Options Outstanding/Nonvested RSAs, September 30, 2022 |
| 719 | 763 |
The Company granted a target of 94,621 performance-based RSAs with a grant date fair value of $1.5 million during the nine months ended September 30, 2022 and a target of 47,768 performance-based RSAs with a grant date fair value of $1.1 million during the nine months ended September 30, 2021. The performance-based RSAs in both years were awarded to certain members of senior management in connection with the achievement of specific key financial metrics that will be measured over separate respective three-year periods and which will vest at the end of each respective three-year period if the respective performance conditions are met. In addition, the number of 2020 performance-based awards that will ultimately vest is also contingent upon the results of a relative total shareholder return multiple by the end of year three, the 2022 fiscal year. The Company assesses the probability of achieving these metrics on a quarterly basis. For these awards, the Company recognizes the fair value expense ratably over the performance and vesting period. These awards are included above in RSAs Granted.
Under the Company’s equity incentive plan, the Company’s non-employee directors are compensated with an annual RSA grant. The amount of outstanding nonvested RSAs granted to non-employee directors was 43,139 and 18,306 shares at September 30, 2022 and December 31, 2021, respectively. The Company also maintains the Outside Directors Deferral Plan under which each of the Company’s non-employee directors has the opportunity to elect annually to defer certain fees (which are payable in cash or in shares of Common Stock with a vesting period of at least one year) until departure from the board. A non-employee director may elect to defer up to 100% of his or her fees and have such fees invested in deferred stock units. Deferred stock units must be settled in common stock upon the director’s
9
departure from the board. There were 234,401 and 177,448 deferred stock units outstanding at September 30, 2022 and December 31, 2021, respectively.
Note 5. Credit Agreement
The Company has a credit agreement (the “Credit Agreement”) with Bank of America, N.A. and Wells Fargo Bank, N.A. (the “Lenders”). On April 30, 2021, the Company entered into a Second Amendment to the Credit Agreement (the “Second Amendment”) with the Lenders. The execution of the Second Amendment, among other things, terminated the FILO Term Loans and converted those commitments to the Revolving Credit Facility. The total size of the Credit Agreement remained at $200 million, and the Company has an option to increase the Revolving Credit Facility to a maximum total amount of $250 million. The maturity date of the Credit Agreement was extended to April 30, 2026.
The Revolving Credit Facility is secured by security interests in the Collateral (as defined in the Credit Agreement), which includes substantially all assets of the Company including, among other things, the Company’s inventory and credit card receivables, and the Company’s East Coast distribution center located in Sandston, Virginia. Under the terms of the Credit Agreement, the Company has the ability to release the East Coast distribution center from the Collateral under certain conditions.
The Second Amendment decreased the margin for LIBOR Rate Loans (as defined in the Second Amendment) to a range of 1.25% to 1.75% over the applicable LIBOR Rate with respect to revolving loans (as defined in the Second Amendment) depending on the Company’s average daily excess borrowing availability, a decrease of 1.25% from rates prior to the Second Amendment. As previously stated, the FILO Term Loans were terminated by this Second Amendment. The amendment decreased the LIBOR Rate Floor from 1.00% to 0.25%. The Second Amendment also decreased the unused commitment fee of 0.50% per annum to 0.25% per annum on the average daily unused amount of the Revolving Credit Facility during the most recently completed calendar quarter. The weighted average interest rate applicable to the Company’s Revolving Credit Facility for the nine months ended September 30, 2022 was 4.6%.
The Credit Agreement contains a fixed charge coverage ratio covenant that becomes effective only when specified availability under the Revolving Credit Facility falls below the greater of $17.5 million or 10% of the Revolving Loan Cap (as defined in the Credit Agreement).
Except as set forth in the Second Amendment, all other terms and conditions of the Credit Agreement remain in place.
As of September 30, 2022, there was $69.0 million outstanding under the Revolving Credit Facility. The Company had $3.2 million in letters of credit which reduces its availability. As of September 30, 2022, there was $127.8 million of availability under the Revolving Credit Facility.
Note 6. Taxes
The Company calculates its quarterly tax provision pursuant to the guidelines in Accounting Standards Codification ("ASC") 740-270 "Income Taxes." Generally, ASC 740-270 requires companies to estimate the annual effective tax rate for current year ordinary income. The estimated annual effective tax rate represents the best estimate of the tax provision in relation to the best estimate of pre-tax ordinary income or loss. The estimated annual effective tax rate is then applied to year-to-date ordinary income or loss to calculate the year-to-date interim tax provision and is adjusted for discrete items that occur within the period.
For the three months ended September 30, 2022, the Company recognized income tax benefit of $1.0 million, which represented an effective tax rate of 20.6%. For the three months ended September 30, 2021, the Company recognized income tax expense of $3.2 million, which represented an effective tax rate of 27.0%. The lower effective tax rate in the current period primarily reflects the greater impact of permanent items on the pretax ordinary loss.
10
For the nine months ended September 30, 2022, the Company recognized income tax expense of $1.8 million, which represented an effective tax rate of 37.2%. For the nine months ended September 30, 2021, the Company recognized income tax expense of $10.6 million, which represented an effective tax rate of 25.3%. The higher effective tax rate in the current period primarily reflects the greater impact of permanent items on the lower pretax ordinary income.
The Company has a valuation allowance recorded against certain of its net deferred tax assets of $2.4 million as of September 30, 2022, and December 31, 2021, because the jurisdiction and nature of the assets makes realization of these deferred tax assets uncertain. The Company intends to maintain this valuation allowance on its deferred tax assets until there is sufficient evidence to support the realizability of those deferred tax assets.
In February 2022, the Company received sales tax and use tax assessments from the Commonwealth of Virginia covering part of 2014 through 2017. The Company believes there are some factual errors, is disputing this assessment, and will defend itself vigorously in this matter. Given the uncertainty of the final resolution, the Company cannot reasonably estimate the loss or range of loss, if any, that may result from this action and therefore no specific accrual has been made related to this. Any losses could, potentially, have a material adverse effect, individually or collectively, on the Company’s results of operations, financial condition and liquidity.
Note 7. Commitments and Contingencies
The following chart shows the activity related to the Balance Sheet “Accrual for Legal Matters and Settlements.” The matters themselves are described in greater detail in the paragraphs that follow the chart.
Litigation Matter Description | December 31, 2021 Accrual for Legal Matters and Settlements - Current | Accruals | Settlement Payments | Vouchers Redeemed | September 30, 2022 Accrual for Legal Matters and Settlements - Current | ||||||||||
MDL | $ | 10,656 | $ | — | $ | — | $ | (1,231) | $ | 9,425 | 1 | ||||
Gold | 14,885 | — | — | (1,670) | 13,215 | 1 | |||||||||
Mason | 7,000 | 129 | (7,129) | — | — | ||||||||||
Other Matters | 1,070 | 164 | (993) | — | 241 | ||||||||||
$ | 33,611 | $ | 293 | $ | (8,122) | $ | (2,901) | $ | 22,881 | ||||||
Litigation Matter Description | December 31, 2020 Accrual for Legal Matters and Settlements - Current | Accruals | Settlement Payments | Vouchers Redeemed | September 30, 2021 Accrual for Legal Matters and Settlements - Current | ||||||||||
MDL | $ | 14,000 | $ | — | $ | — | $ | (2,781) | $ | 11,219 | |||||
Gold | 16,000 | — | — | (346) | 15,654 | ||||||||||
Mason | — | 7,000 | — | — | 7,000 | ||||||||||
Other Matters | 398 | 733 | (101) | — | 1,030 | ||||||||||
$ | 30,398 | $ | 7,733 | $ | (101) | $ | (3,127) | $ | 34,903 |
| 1 | The remaining accrual will be fulfilled by redeeming vouchers as discussed below. |
Employment Cases
Mason Lawsuit
In August 2017, Ashleigh Mason, Dan Morse, Ryan Carroll and Osagie Ehigie filed a purported collective and class action lawsuit in the United States District Court for the Eastern District of New York on behalf of all current and
11
former store managers, store managers in training, and similarly situated current and former employees (collectively, the “Mason Putative Class Employees”) alleging that the Company violated the Fair Labor Standards Act (“FLSA”) and New York Labor Law (“NYLL”) by classifying the Mason Putative Class Employees as exempt (the “Mason matter”). The alleged violations include failure to pay for overtime work.
In April 2021, the Company entered into a Memorandum of Understanding (“Mason MOU”) with counsel for the lead plaintiffs in the Mason matter. Under the terms of the Mason MOU, the Company agreed to pay up to $7.0 million to settle the claims asserted in the Mason matter.
In the first quarter of 2022, the court gave final approval to the settlement. As a result of the final approval, the Company paid $7.0 million, plus an additional $0.1 million in taxes, in the second quarter of 2022 to a court appointed administrator who handles distribution to the plaintiffs. Any checks issued to the Collective Members and the New York Non Opt-Ins which are not cashed by March 1, 2023, will revert to the Company.
Savidis Lawsuit
In April 2020, LL Flooring was served with a lawsuit filed by Tanya Savidis, on behalf of herself and all others similarly situated (collectively, the “Savidis Plaintiffs”). Ms. Savidis filed a purported class action lawsuit in the Superior Court of California, County of Alameda on March 6, 2020, on behalf of all current and former LL Flooring employees employed as non-exempt employees. The complaint alleges violation of the California Labor Code including, among other items, failure to pay minimum wages and overtime wages, failure to provide meal periods, failure to permit rest breaks, failure to reimburse business expenses, failure to provide accurate wage statements, failure to pay all wages due upon separation within the required time, and engaging in unfair business practices (the “Savidis matter”).
In December 2020, the Company began contacting individuals who constitute the Savidis Plaintiffs and offered individual settlements in satisfaction of their claims. In April 2021, the Company entered into a Memorandum of Understanding (“Savidis MOU”) with counsel for the lead plaintiffs in the Savidis matter. Under the terms of the Savidis MOU, the Company agreed to pay $0.9 million reduced by a credit of $0.1 million for amounts already paid to the individuals who accepted the Company’s prior settlement offer. In January 2022, the Court provided final approval of the settlement. In April 2022, the Company paid $0.8 million to a court appointed administrator who handles the distribution to the class members who did not opt out of participating in the settlement. Settlement checks were mailed to class members in May 2022, and the Company expects the Court to dismiss the matter during the fourth quarter of 2022.
Antidumping and Countervailing Duties Investigation
The Company is subject to antidumping (“AD”) and countervailing duties (“CVD”) for certain imports of multilayered wood flooring from China. The Company’s multilayered wood flooring imports from China accounted for approximately 3% of its flooring purchases in 2021.
At the time of import, the Company makes deposits at the then prevailing rate. This rate is subsequently reviewed to establish the final rate. When rates are declared final by the United States Department of Commerce (“DOC”), the Company accrues a receivable or payable depending on where that final rate compares to the deposits it has made. The Company and/or the domestic manufacturers can appeal the final rate for any period. Because of the length of time for finalization of rates as well as appeals, any subsequent adjustment of AD and CVD rates typically flows through a period different from those in which the inventory was originally purchased and/or sold.
Results by period for the Company are shown below. The “Total AD/CVD Receivable/Liability Balance as of September 30, 2022” represents the amount the Company would receive or pay (net of any collections or payments) as the result of subsequent adjustment to rates whether due to finalization by the DOC or because of action of a court based on appeals by various parties. It does not include any initial amounts paid for AD or CVD in the current period at the in-effect rate at that time.
The Company recorded net interest expense related to antidumping of $0.05 million for the nine months ended September 30, 2022 compared to net interest income of $1.8 million for the nine months ended September 30, 2021. The
12
amounts for both years are included in “Other Expense” on the condensed consolidated statements of income. The estimated associated interest payable and receivable for each period is not included in the table below but is included in the same financial statement line item on the Company’s condensed consolidated balance sheet as the associated liability and receivable balance for each period.
| 1 | The fourth and fifth annual antidumping review periods have been settled and are no longer included on the chart above. |
| 2 | In the first quarter of 2022, pursuant to the Court of International Trade (“CIT”) order on appeal the DOC recalculated the final rates for the first annual review period at 0.0%. As a result, the Company recorded an additional $0.2 million receivable with a corresponding reduction of cost of sales during the first quarter of 2022. |
| 3 | In the second quarter of 2020, on appeal the DOC offered to reduce the rate for the second annual review period to 3.92% from 13.74%. The reduced rate was accepted by the CIT in the fourth quarter of 2020, and the Company reversed $3.9 million of its $4.1 million liability, with a corresponding reduction of cost of sales. |
| 4 | In the third quarter of 2020, on appeal the DOC offered to reduce the rate for the third annual review period to 0.0% from 17.37%. The reduced rate was accepted by the CIT in the first quarter of 2021, and the Company reversed the entire $4.7 million liability, with a corresponding reduction of cost of sales, and recorded a $1.8 million receivable and favorable adjustment to cost of sales for deposits made at previous preliminary rates. |
| 5 | In the third quarter of 2019, the DOC issued the final rates for the sixth annual review period at 42.57% and 0% depending on the vendor. As a result, the Company recorded a liability of $0.8 million with a corresponding reduction of cost of sales during the year ended December 31, 2019. The Company received payments during 2019 for its vendor with a final rate of 0.0% and the remaining balance of $0.5 million as of June 30, 2021 was included in other current assets on the condensed consolidated balance sheet. The vendors with a final rate of 42.57% are under appeal and the balance of $1.5 million as of September 30, 2022 was included in other long-term liabilities on the condensed consolidated balance sheet. |
| 6 | In the fourth quarter of 2021, the DOC issued a final rate of 0.0% for the seventh annual review period. The final rate is currently under appeal. |
| 7 | In the fourth quarter of 2021, the DOC issued a final rate of 0.0% for the eighth annual review period. The final rate is currently under appeal. |
| 8 | In the second quarter of 2022, the DOC issued the final rate for the ninth annual review period at 39.27%. As a result, the Company recorded a $1.1 million liability with a corresponding increase in cost of sales during the second quarter of 2022. The final rate is currently under appeal. |
13
| 9 | In the second quarter of 2018, the DOC issued the final rates for the fifth annual review period at 0.11% and 0.85% depending on the vendor. As a result, in the second quarter of 2018, the Company recorded a receivable of $0.1 million for deposits made at previous preliminary rates, with a corresponding reduction of cost of sales. |
| 10 | In the third quarter of 2019, the DOC issued the final rates for the sixth annual review period at 3.1% and 2.96% depending on the vendor. As a result, the Company recorded a liability of $0.4 million with a corresponding reduction of cost of sales during the year ended December 31, 2019. As of September 30, 2022, the remaining liability balance was $38.3 thousand. |
| 11 | In the fourth quarter of 2020, the DOC issued the final rate 20.75% for the seventh annual review period. As a result, the Company recorded a liability of $1.7 million with a corresponding increase to cost of sales during the year ended December 31, 2020. The final rate is currently under appeal. |
| 12 | In October 2021, the DOC issued the final rate of 6.13% for the eighth annual review period. As a result, in October 2021 the Company recorded a $0.3 million liability with a corresponding increase in cost of sales. The final rate is currently under appeal. |
| 13 | In the second quarter of 2022, the DOC issued the final rates for the ninth annual review period at 3.36% and 9.85% depending on the vendor. As a result, the Company recorded a liability of $0.1 million with a corresponding increase in cost of sales in the second quarter of 2022. The final rate is currently under appeal. |
Litigation Relating to Bamboo Flooring
In 2019, the Company finalized a settlement agreement to resolve claims related to Morning Star bamboo flooring (the “Gold Litigation”). Under the terms of the settlement agreement, the Company contributed $14.0 million in cash (the “Gold Cash Payment”) and provided $16.0 million in store-credit vouchers, for an aggregate settlement of up to $30.0 million. Cash and vouchers, which generally have a three-year life, were distributed by the administrator in 2021. The Company will monitor and evaluate the redemption of vouchers on a quarterly basis. The Company’s current expectation is that recipients bargained for this compensation as part of the settlement and therefore will redeem their voucher for product as intended.
As of September 30, 2022, the remaining accrual related to these matters was $13.2 million for vouchers. As $1.7 million of vouchers were redeemed during the first nine months of 2022, the Company relieved the accrual for legal matters and settlements for the full amount, relieved inventory at its cost, and the remaining amount -- the gross margin for the items sold of $0.6 million was recorded as a reduction in “Selling, General and Administrative Expenses” (“SG&A”) on the condensed consolidated statement of operations. The Company included those amounts in “Gold” in the chart above.
Litigation Related to Formaldehyde-Abrasion MDLs
In 2018, the Company entered into a settlement agreement to resolve claims related to Chinese-manufactured laminate products (the “Formaldehyde-Abrasion MDL”). Under the terms of the settlement agreement, the Company funded $22.0 million in cash and provided $14.0 million in store-credit vouchers for an aggregate settlement amount of $36.0 million to settle claims. Cash and vouchers, which generally have a three-year life, were distributed by the administrator in the fourth quarter of 2020. The Company will monitor and evaluate the redemption of vouchers on a quarterly basis. The Company’s current expectation is that recipients bargained for this compensation as part of the settlement and therefore will redeem their voucher for product as intended.
As of September 30, 2022, the remaining accrual related to these matters was $9.4 million for vouchers. As $1.2 million of vouchers were redeemed during the first nine months of 2022, the Company relieved the accrual for legal matters and settlements for the full amount, relieved inventory at its cost, and the remaining amount -- the gross margin for the items sold of $0.5 million was recorded as a reduction in “Selling, General and Administrative Expenses” (“SG&A”) on the condensed consolidated statement of operations. The Company included those amounts in “MDL” in the chart above.
Section 301 Tariffs
Since September 2018, pursuant to Section 301 of the Trade Act of 1974, the United States Trade Representative (“USTR”) has imposed tariffs on certain goods imported from China over four tranches (“Lists”).
14
Products imported by the Company fall within Lists 3 and 4a for which tariffs range from 10% to 25%. On September 10, 2020 several importers of vinyl flooring filed a lawsuit with the Court of International Trade (“CIT”) challenging the Section 301 tariffs under Lists 3 and 4a. The Company has also filed a companion case at the CIT challenging the legitimacy of the USTR’s actions. On April 1, 2022 the CIT remanded the matter back to the USTR to explain its process for considering objections to the 301 tariffs and to reply to the CIT by June 30, 2022. Based on a USTR request, this deadline was extended to August 1, 2022. On August 1, 2022 the USTR filed its remand comments as well as a request to supplement the record. On September 14, 2022, the Company filed their response to the USTR’s August 1, 2022 remand determination pursuant to the CIT April 1, 2022 order. The USTR has until October 28, 2022 to address the Company’s response. The ruling will rest with the CIT upon review of the USTR’s remand. The Company is unable to predict the timing or outcome of the ruling by the USTR and/or CIT. If these appeals are successful, the Company should qualify for refunds on these Section 301 tariffs.
Other Matters
The Company is also, from time to time, subject to claims and disputes arising in the normal course of business. In the opinion of management, while the outcome of any such claims and disputes cannot be predicted with certainty, its ultimate liability in connection with these matters is not expected to have a material adverse effect on the Company’s results of operations, financial position or liquidity.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Cautionary Note Regarding Forward-Looking Statements
This report includes statements of the Company’s expectations, intentions, plans and beliefs that constitute “forward-looking statements” within the meanings of the Private Securities Litigation Reform Act of 1995. These statements, which may be identified by words such as “may,” “will,” “should,” “expects,” “intends,” “plans,” “anticipates,” “believes,” “thinks,” “estimates,” “seeks,” “predicts,” “could,” “projects,” “potential” and other similar terms and phrases, are based on the beliefs of the Company’s management, as well as assumptions made by, and information currently available to, the Company’s management as of the date of such statements. These statements are subject to risks and uncertainties, all of which are difficult to predict and many of which are beyond the Company’s control. These risks include, without limitation, the impact on us of any of the following:
| ● | reduced consumer spending due to inflation, higher interest rates, and consumer sentiment; |
| ● | our advertising and overall marketing strategy, including anticipating consumer trends; |
| ● | a sustained period of inflation impacting product costs; |
| ● | transportation availability and costs; |
| ● | inability to execute on our key initiatives or such key initiatives do not yield desired results; |
| ● | our, and our suppliers’, compliance with complex and evolving rules, regulations, and laws at the federal, state, and local level; |
| ● | potential disruptions to supply chain related to forced labor and other trade regulations; |
| ● | inability to hire and/or retain employees; |
| ● | obtaining products from abroad, including the effects of the COVID-19 pandemic and tariffs, delays in shipping, as well as the effects of antidumping and countervailing duties; |
| ● | inability to staff stores due to the COVID-19 pandemic and the overall pressures in the labor market; |
| ● | the outcomes of legal proceedings, and the related impact on liquidity; |
| ● | the impact of the war in Ukraine on transportation costs and the Company’s European suppliers; |
| ● | reputational harm; |
| ● | disruptions due to cybersecurity threats, including any impacts from a network security incident; |
| ● | inability to open new stores, find suitable locations for new stores, and fund capital expenditures; |
| ● | managing growth; |
| ● | damage to our assets; |
| ● | disruption to our ability to distribute our products, including due to severe weather; |
15
| ● | operating an office in China; |
| ● | managing third-party installers and product delivery companies; |
| ● | renewing store, warehouse, or other corporate leases; |
| ● | having sufficient suppliers; |
| ● | product liability claims, marketing substantiation claims, wage and hour claims, employment classification claims and other labor and employment claims; |
| ● | maintaining optimal inventory for consumer demand; |
| ● | availability of suitable hardwood, including due to disruptions from the impacts of severe weather; |
| ● | sufficient insurance coverage, including cybersecurity insurance; |
| ● | access to and costs of capital; |
| ● | the handling of confidential customer information, including the impacts from the California Consumer Privacy Act and other applicable data privacy laws and regulations; |
| ● | management information systems disruptions; |
| ● | alternative e-commerce offerings; |
| ● | competition; |
| ● | impact of changes in accounting and regulatory guidance, including implementation guidelines and interpretations related to Environmental, Social, and Governance (“ESG”) matters; |
| ● | internal controls; |
| ● | stock price volatility; and |
| ● | anti-takeover provisions. |
Information regarding risks and uncertainties is contained in the Company’s reports filed with the SEC, including the Item 1A, “Risk Factors,” section of this quarterly report and the Form 10-K for the year ended December 31, 2021.
This management discussion should be read in conjunction with the financial statements and notes included in Part I, Item 1. “Financial Statements” of this quarterly report and the audited financial statements and notes and management discussion included in the Company’s annual report filed on Form 10-K for the year ended December 31, 2021.
Overview
LL Flooring is one of the leading specialty retailers of hard-surface flooring in the U.S. with 439 stores as of September 30, 2022. Our Company seeks to offer the best customer experience online and in stores, with more than 500 varieties of hard-surface floors featuring a range of quality styles and on-trend designs. Our online tools also help empower customers to find the right solution for the space they’ve envisioned. Our extensive selection includes waterproof hybrid resilient, waterproof vinyl plank, solid and engineered hardwood, laminate, bamboo, tile, and cork, with a wide range of flooring enhancements and accessories to complement. Our stores are staffed with flooring experts who provide advice, Pro partnership services and installation options for all of our products, the majority of which is in stock and ready for delivery. Our vision is to be customers’ first choice in hard-surface flooring by providing the best experience, from start to finish. We offer a wide selection of high-quality, locally stocked products and the accessible flooring expertise and service of a local store, with the scale, omni-channel convenience and value of a national chain. We plan to leverage this advantage to differentiate ourselves in the highly fragmented flooring market.
To supplement the financial measures prepared in accordance with U.S. generally accepted accounting principles (GAAP), the Company uses the following non-GAAP financial measures: (i) Adjusted Gross Profit; (ii) Adjusted Gross Margin; (iii) Adjusted SG&A; (iv) Adjusted SG&A as a Percentage of Net Sales; (v) Adjusted Operating (Loss) Income; (vi) Adjusted Operating (Loss) Margin; (vii) Adjusted Other Expense (Income); (viii) Adjusted Other Expense (Income) as a Percentage of Net Sales; (ix) Adjusted (Loss) Earnings; and (x) Adjusted (Loss) Earnings per Diluted Share. These non-GAAP financial measures should be viewed in addition to, and not in lieu of, financial measures calculated in accordance with GAAP. These supplemental measures may vary from, and may not be comparable to, similarly titled measures by other companies.
16
The non-GAAP financial measures are presented because management uses these non-GAAP financial measures to evaluate our operating performance and, in certain cases, to determine incentive compensation. Therefore, we believe that the presentation of non-GAAP financial measures provides useful supplementary information to, and facilitates additional analysis by, investors. The presented non-GAAP financial measures exclude items that management does not believe reflect our core operating performance, which include store closures, regulatory and legal settlements and associated legal and operating costs, and changes in antidumping and countervailing duties, as such items are outside of our control due to their inherent unusual, non-operating, unpredictable, non-recurring, or non-cash nature.
Third Quarter Financial Highlights
| ● | Net sales of $268.8 million decreased $13.4 million, or 4.8%, from the third quarter of 2021, primarily due to continued lower consumer spending versus last year, which more than offset just under double-digit growth in sales to Pro customers. |
| ● | Comparable store sales decreased 7.3% from the third quarter of 2021. The year-over-year decrease in comparable store sales primarily reflected the same drivers as the change in net sales. |
| ● | Gross margin and adjusted gross margin (a non-GAAP measure) of 35.6% decreased 170 basis points as a percentage of sales compared to the same period last year, primarily reflecting significantly higher material and transportation costs (collectively up more than 800 basis points) that the Company was able to partially mitigate through pricing, promotion and alternative country/vendor sourcing strategies. |
| ● | SG&A expense as a percentage of net sales of 37.1% increased 410 basis points compared to the third quarter of last year. Adjusted SG&A expense (a non-GAAP measure) as a percentage of net sales of 37.1% increased 400 basis points compared to the third quarter of last year, primarily driven by investments to support the Company’s long-term growth, continued investment in customer facing and distribution center personnel, and deleverage on lower net sales. |
| ● | Operating margin of (1.5%) decreased 580 basis points compared to the third quarter of last year. Adjusted operating margin (a non-GAAP measure) of (1.6%) decreased 570 basis points compared to the third quarter of last year, primarily reflecting increased SG&A as a percentage of net sales and lower gross margin. |
| ● | Loss per diluted share of $0.13 decreased $0.43 compared to the third quarter of last year. Adjusted loss per diluted share (a non-GAAP measure) of $0.14 decreased $0.42 compared to the third quarter of last year. |
| ● | During the third quarter, the Company opened two new stores, bringing total store count to 439 as of September 30, 2022. |
Other Items
Liquidity and Credit Agreement
As of September 30, 2022, we had liquidity of $133.9 million, consisting of excess availability under our Credit Agreement of $127.8 million, and cash and cash equivalents of $6.1 million. This represents a decrease in liquidity of $93.3 million from December 31, 2021, reflecting the Company’s goal to rebuild inventories in 2022 following COVID-19 related supply chain constraints. During the first nine months of the year, the Company rebuilt its inventory by more than $111.2 million.
In February 2022, the Company’s board of directors raised its authorization for the repurchase of up to $50.0 million of the Company’s common stock from the previous $14.0 million authorized. In April 2022, the Company resumed its share repurchase program. The Company has repurchased $7.0 million under that program, underscoring its confidence in its long-term net sales and profitability growth.
We believe that cash flows from operations, together with cash on hand, and the availability under our Credit Agreement will be sufficient to meet our obligations, fund our settlements, operations, anticipated capital expenditures, and potential share repurchases for the next 12 months. We prepare our forecasted cash flow and liquidity estimates based on assumptions that we believe to be reasonable but are also inherently uncertain. Actual future cash flows could differ from these estimates.
17
Impact of Macroeconomic Environment
We continue to navigate uncertainty in the macroeconomic environment related to inflation, higher interest rates, lower existing home sales, a shift in COVID-19 spend from home remodeling to travel and entertainment, and economic and employment uncertainty. We anticipate material and transportation costs to remain inflated, exacerbated by the war in Ukraine, throughout 2022. We are also monitoring the impact of inflation on consumer purchasing trends as it could affect our prices, demand for our products, our sales and our profit margins.
Section 301 Tariffs
The Company’s financial statements have been impacted by Section 301 tariffs on certain products imported from China in recent years. The tariffs flow through the income statement as the product is sold. The Company has deployed strategies to mitigate tariffs and improve gross margin, primarily through adjusting its pricing and promotion strategies and alternative country sourcing. During the third quarter of 2022, the Company reduced the percentage of merchandise receipts subject to Section 301 tariffs to 16% from 22% during the third quarter of 2021.
As discussed in Item 1, Note 7 to the condensed consolidated financial statements, the Company is unable to predict the timing or outcome of the ruling by the USTR and/or CIT. If these appeals are successful, the Company should qualify for refunds on these Section 301 tariffs.
18
Results of Operations
We believe the selected sales data, the percentage relationship between net sales and major categories in the condensed consolidated statements of operations and the percentage change in the dollar amounts of each of the items presented below are important in evaluating the performance of our business operations.
% Improvement | ||||||||||
% of Net Sales | (Decline) in | |||||||||
Three Months Ended September 30, | Dollar Amounts | |||||||||
2022 |
| 2021 |
| 2022 VS 2021 |
| |||||
Net Sales | ||||||||||
Net Merchandise Sales | 85.3 | % | 85.3 | % | (4.8) | % | ||||
Net Services Sales | 14.7 | % | 14.7 | % | (4.4) | % | ||||
Total Net Sales | 100.0 | % | 100.0 | % | (4.8) | % | ||||
Gross Profit | 35.6 | % | 37.3 | % | (9.1) | % | ||||
Selling, General, and Administrative Expenses | 37.1 | % | 33.0 | % | 7.0 | % | ||||
Operating (Loss) Income | (1.5) | % | 4.3 | % | (134.1) | % | ||||
Other Expense | 0.2 | % | 0.0 | % | 3,488.9 | % | ||||
(Loss) Income Before Income Taxes | (1.8) | % | 4.3 | % | (139.6) | % | ||||
Income Tax (Benefit) Expense | (0.4) | % | 1.2 | % | (130.3) | % | ||||
Net (Loss) Income | (1.4) | % | 3.1 | % | (143.0) | % | ||||
% Improvement | ||||||||||
% of Net Sales | (Decline) in | |||||||||
Nine Months Ended September 30, | Dollar Amounts | |||||||||
2022 |
| 2021 |
| 2022 VS 2021 |
| |||||
Net Sales | ||||||||||
Net Merchandise Sales | 86.3 | % | 86.5 | % | (2.6) | % | ||||
Net Services Sales | 13.7 | % | 13.5 | % | (0.8) | % | ||||
Total Net Sales | 100.0 | % | 100.0 | % | (2.3) | % | ||||
Gross Profit | 36.2 | % | 38.5 | % | (8.1) | % | ||||
Selling, General, and Administrative Expenses | 35.5 | % | 33.7 | % | 3.1 | % | ||||
Operating Income | 0.7 | % | 4.8 | % | (86.6) | % | ||||
Other Expense (Income) | 0.1 | % | (0.0) | % | (429.4) | % | ||||
Income Before Income Taxes | 0.6 | % | 4.8 | % | (88.6) | % | ||||
Income Tax Expense | 0.2 | % | 1.2 | % | (83.3) | % | ||||
Net Income | 0.4 | % | 3.6 | % | (90.4) | % | ||||
Three Months Ended | Nine Months Ended | |||||||||||||
September 30, | September 30, | |||||||||||||
2022 |
| 2021 |
| 2022 |
| 2021 | ||||||||
SELECTED SALES DATA | ||||||||||||||
Average Sale1 | $ | 1,850 | $ | 1,625 | $ | 1,799 | $ | 1,530 | ||||||
Comparable Stores (Decrease) Increase2 |
| (7.3) | % |
| (4.5) | % |
| (4.6) | % |
| 9.8 | % | ||
Transaction Count Decrease3 | (21.1) | % | (23.5) | % | (19.4) | % | (9.4) | % | ||||||
Average Retail Price per Unit Sold Increase4 |
| 13.4 | % |
| 6.8 | % |
| 12.7 | % |
| 7.9 | % | ||
Number of Stores Open, end of period |
| 439 |
| 422 |
| 439 |
| 422 | ||||||
Number of Stores Opened in Period, net |
| 2 |
| 6 |
| 15 |
| 12 | ||||||
Number of Stores Relocated in Period5 |
| — |
| — |
| 1 |
| — | ||||||
| 1 | Average sale is defined as the average invoiced sales order, measured quarterly, excluding returns as well as transactions under $100 (which are generally sample orders or add-on/accessories to existing orders). |
19
| 2 | A store is generally considered comparable on the first day of the thirteenth full calendar month after opening. |
| 3 | Transaction count is calculated by applying the average sale to total net sales at comparable stores. |
| 4 | Average retail price per unit (square feet for flooring and other units of measures for moldings and accessories) sold is calculated on a total company basis and excludes non-merchandise revenue. |
| 5 | A relocated store remains a comparable store as long as it is relocated within the primary trade area. |
Net Sales
Third quarter 2022 net sales of $268.8 million decreased $13.4 million, or 4.8%, versus the third quarter of 2021. Net merchandise sales and net service sales decreased 4.8% and 4.4%, respectively, over the same period in 2021.
Average ticket increased 13.8%, primarily reflecting higher merchandise average ticket. The higher merchandise average ticket was driven primarily by pricing and promotion strategies as well as favorable product mix, reflecting the launch of our new Duravana performance flooring brand.
Comparable store sales for the third quarter of 2022 decreased 7.3% from the third quarter of 2021. Comparable store sales for the nine months ended September 30, 2022 decreased 4.6% from the same period in 2021. The decline in comparable store sales was due primarily to continued lower consumer spending versus last year, which more than offset just under double-digit growth in sales to Pro customers. The year-over-year decrease in consumer sales reflected continued pressures on consumer discretionary spending from inflation, higher interest rates, lower existing home sales, a shift in COVID-19 spend from home remodeling to travel and entertainment, and economic and employment uncertainty.
During the third quarter of 2022, the Company opened two new stores bringing the total store count to 439 as of September 30, 2022.
Net sales for the nine months ended September 30, 2022 decreased 2.3% from the nine months ended September 30, 2021. Net merchandise sales and net service sales decreased 2.6% and 0.8%, respectively, over the same period in 2021.
Gross Profit
Gross profit decreased 9.1% in the third quarter of 2022 to $95.6 million from $105.2 million in the comparable period in 2021, and gross margin decreased 170 basis points to 35.6% in the third quarter of 2022 from 37.3% in the third quarter of 2021. Adjusted gross margin (a non-GAAP measure) of 35.6% decreased 170 basis points compared to the same period last year, primarily reflecting significantly higher material and transportation costs (collectively up more than 800 basis points) that the Company was able to partially mitigate through pricing, promotion and alternative country/vendor sourcing strategies.
Gross profit decreased 8.1% in the first nine months of 2022 to $306.4 million from $333.5 million in the comparable period in 2021 and gross margin decreased 230 basis points to 36.2% in the first nine months of 2022 from 38.5% in the first nine months of 2021. For the first nine months of 2022, the Company reported an unfavorable $1.0 million impact from antidumping duty rate changes, compared to income of $6.6 million in the prior-year period. Excluding these items as shown on the table that follows, adjusted gross margin (a non-GAAP measure) of 36.3% decreased 140 basis points compared to the same period last year, primarily reflecting significantly higher transportation and material costs (collectively up more than 1,100 basis points) that the Company was able to partially mitigate by pricing, promotion and alternative country/vendor sourcing strategies.
20
We believe that the following items set forth in the table below can distort the visibility of our ongoing performance and that the evaluation of our financial performance can be enhanced by use of supplemental presentation of our results that exclude the impact of these items.
| 1 | Represents antidumping expense associated with applicable prior-year shipments of engineered hardwood from China. |
Selling, General and Administrative Expenses
SG&A expense for the third quarter of 2022 increased $6.5 million to $99.7 million, or 37.1% of sales, compared to $93.2 million, or 33.0% of sales, in the third quarter of 2021. Adjusted SG&A (a non-GAAP measure) for the third quarter of 2022 was $99.8 million, compared to $93.5 million in the third quarter of 2021. As a percentage of sales, adjusted SG&A increased 400 basis points, to 37.1% of sales, compared to 33.1% for the third quarter in 2021, which is primarily driven by investments to support the Company’s long-term growth, continued investment in customer facing and distribution center personnel, and deleverage on lower net sales. During the third quarter, we also implemented cost savings measures including a moderate reduction of headcount and a delayed cadence of hiring at our corporate office.
SG&A expense for the first nine months of 2022 increased $9.0 million to $300.8 million, or 35.5% of sales, compared to $291.8 million, or 33.7% of sales, in the first nine months of 2021. SG&A in the first nine months of 2022 and 2021 included certain costs related to legal matters and settlements. Excluding these items as shown in the table that follows, adjusted SG&A (a non-GAAP measure) for the first nine months of 2022 was $301.0 million, compared to $284.0 million in the first nine months of 2021. As a percentage of sales, adjusted SG&A (a non-GAAP measure) increased 270 basis points, to 35.5% of sales, compared to 32.8% for the first nine months in 2021, reflecting the same drivers as the quarter. The Company redeemed $2.9 million and $3.1 million of MDL and Gold vouchers during the first nine months of 2022 and 2021, respectively, and relieved the accrual for legal matters and settlements for the full amount, relieved inventory at its cost, and the remaining amount -- the gross margin for the items sold of $1.1 million in 2022 and $1.2 million in 2021 -- was recorded as a reduction in SG&A expense.
21
We believe that the following items set forth in the table below can distort the visibility of our ongoing performance and that the evaluation of our financial performance can be enhanced by use of supplemental presentation of our results that exclude the impact of these items.
| 2 | The 2022 amount represents insurance recovery related to the Gold Litigation recorded in the third quarter of 2022. The 2021 amounts represent the charge to earnings for the Mason and Savidis matters in the first quarter of 2021 and a $0.4 million insurance recovery related to the MDL matter in the third quarter of 2021. These items are described more fully in Item 1, Note 7 to the condensed consolidated financial statements. |
| 3 | Represents charges to earnings related to our defense of certain significant legal actions during the period. This does not include all legal costs incurred by the Company. |
Operating (Loss) Income and Operating Margin
Operating loss was $4.1 million for the third quarter of 2022 compared to operating income of $12.0 million for the third quarter of 2021. Adjusted operating loss (a non-GAAP measure) in the third quarter of 2022 was $4.3 million, down $15.9 million from operating income of $11.7 million in the prior-year period. As a percentage of net sales, adjusted operating margin (a non-GAAP measure) for the third quarter of 2022 was (1.6)%, down 570 basis points from 4.1% in the third quarter of 2021, which reflected the increased selling, general and administrative expenses and decreased gross margin as described in the above sections.
Operating income was $5.6 million for the first nine months of 2022 compared to $41.8 million for the first nine months of 2021. Adjusted operating income (a non-GAAP measure) in the first nine months of 2022 was $6.4 million, down $36.5 million from the $42.9 million for the prior-year period. As a percentage of net sales, adjusted operating margin (a non-GAAP measure) for the first nine months of 2022 was 0.8%, down 420 basis points from 5.0% in the first nine months of 2021, which reflected the increased selling, general and administrative expenses and decreased gross margin as described in the above sections.
22
We believe that the following items set forth in the table below can distort the visibility of our ongoing performance and that the evaluation of our financial performance can be enhanced by use of supplemental presentation of our results that exclude the impact of these items.
1,2,3 See the Gross Profit and SG&A sections above for more detailed explanations of these individual items.
Other Expense (Income)
In the third quarter of 2022, we had other expense of $0.6 million compared to other expense of $18.0 thousand for the third quarter of 2021. Adjusted other expense (a non-GAAP measure) was $0.6 million for the third quarter of 2022, which is an increase of $0.6 million compared to the third quarter of 2021 driven by interest expense on borrowings under our Credit Agreement compared to no borrowings during the prior period.
The Company had other expense of $0.8 million for the first nine months of 2022 compared to other income of $0.3 million for the comparable period in 2021. While both years included interest on borrowings on our Credit Agreement, during the second quarter of 2021, the Company repaid all borrowings under our Credit Agreement, minimalizing interest expense for the first nine months of 2021.
Adjusted other expense (a non-GAAP measure) was $0.8 million for the first nine months of 2022, which is a decrease of $0.8 million compared to the first nine months of 2021 due to the interest impact related to antidumping adjustments. Adjusted Other Expense reflects favorable adjustments of $1.7 thousand and $1.8 million in 2022 and 2021 for the reversal of interest expense associated with an antidumping duty rate refund.
23
We believe that the following item set forth in the table below can distort the visibility of our ongoing performance and that the evaluation of our financial performance can be enhanced by use of supplemental presentation of our results that exclude the impact of these items.
| 4 | Represents the interest income impact of certain antidumping adjustments related to applicable prior-year shipments of engineered hardwood from China. |
Provision for Income Taxes
The Company calculates its quarterly tax provision pursuant to the guidelines in Accounting Standards Codification ("ASC") 740-270 "Income Taxes." Generally, ASC 740-270 requires companies to estimate the annual effective tax rate for current year ordinary income. The estimated annual effective tax rate represents the best estimate of the tax provision in relation to the best estimate of pre-tax ordinary income or loss. The estimated annual effective tax rate is then applied to year-to-date ordinary income or loss to calculate the year-to-date interim tax provision and is adjusted for discrete items that occur within the period.
For the three months ended September 30, 2022, the Company recognized income tax benefit of $1.0 million, which represented an effective tax rate of 20.6%. For the three months ended September 30, 2021, the Company recognized income tax expense of $3.2 million, which represented an effective tax rate of 27.0%. The lower effective tax rate in the current period primarily reflects the greater impact of permanent items on the pretax ordinary loss.
For the nine months ended September 30, 2022, the Company recognized income tax expense of $1.8 million, which represented an effective tax rate of 37.2%. For the nine months ended September 30, 2021, the Company recognized income tax expense of $10.6 million, which represented an effective tax rate of 25.3%. The higher effective tax rate in the current period primarily reflects the greater impact of permanent items on the lower pretax ordinary income.
The Company has a valuation allowance recorded against certain of its net deferred tax assets of $2.4 million as of September 30, 2022, and December 31, 2021, because the jurisdiction and nature of the assets makes realization of these deferred tax assets uncertain. The Company intends to maintain this valuation allowance on its deferred tax assets until there is sufficient evidence to support the realizability of those deferred tax assets.
Net (Loss) Income per Diluted Share
Net loss per diluted share was $0.13 for the three months ended September 30, 2022, compared to net income per diluted share of $0.30 for the three months ended September 30, 2021. Adjusted loss per diluted share was $0.14 for the three months ended September 30, 2022, compared to net income per diluted share of $0.29 for the three months ended September 30, 2021.
Net income per diluted share was $0.10 for the nine months ended September 30, 2022, compared to $1.06 for the nine months ended September 30, 2021. Adjusted earnings per diluted share was $0.12 for the nine months ended September 30, 2022, compared to $1.05 for the nine months ended September 30, 2021.
24
We believe that each of the items below can distort the visibility of our ongoing performance and that the evaluation of our financial performance can be enhanced by use of supplemental presentation of our results that exclude the impact of these items.
1,2,3,4 See the Gross Profit, SG&A and Other Expense (Income) sections above for more detailed explanations of these individual items. These items have been tax affected at the Company’s incremental rate, which was 26.4% for the 2022 period and 26.2% for the 2021 period.
Seasonality
Our net sales fluctuate slightly as a result of seasonal factors, and we adjust merchandise inventories in anticipation of those factors, causing variations in our build of merchandise inventories. Generally, we experience higher-than-average net sales in the spring and fall, when more home remodeling activities are taking place, and lower-than-average net sales in the winter months and during the hottest summer months. These seasonal fluctuations, however, are minimized to some extent by our national presence, as markets experience different seasonal characteristics. Those historical trends have been and continue to be affected by supply chain constraints and the COVID-19 pandemic.
Liquidity, Capital Resources and Cash Flows
Our strong balance sheet and liquidity provide us with the financial flexibility to fund our growth initiatives and position LL Flooring for long-term success. Our principal sources of liquidity at September 30, 2022 were $6.1 million of cash and cash equivalents on our balance sheet and $127.8 million of availability under our Revolving Loan. As of September 30, 2022, there was a $69.0 million outstanding balance on our Revolving Loan.
Our net cash flows used in operating activities were $123.8 million during the nine months ended September 30, 2022, which was primarily the result of purchases of inventory ($113.8 million), redemption of customer deposits and store credits ($18.2 million), and payments for legal matters and settlements ($8.1 million).
Through the nine months ended September 30, 2022, net cash flows used in investing activities included $16.8 million in capital expenditures for store rebranding, opening 15 new stores and investments in digital. For 2022 we currently expect capital expenditure investments of $20 million to $22 million, including the opening of 18 new stores and the continuation of the investing activities described above.
25
On April 30, 2021 we entered into a Second Amendment to the Credit Agreement to extend the maturity date to April 30, 2026, convert the FILO Term Loan into the Revolving Credit Facility, decrease the margin for LIBOR Rate Loans, and reduce the LIBOR floor, which is described more fully in Item 1, Note 5 to the condensed consolidated financial statements.
The Company continues to navigate uncertainty in the macroeconomic environment related to inflation, higher interest rates, lower existing home sales, a shift in COVID-19 spend from home remodeling to travel and entertainment, and economic and employment uncertainty. As of September 30, 2022, we have rebuilt inventory by more than $111.2 million after an extended period of supply chain constraints. We believe that cash flows from operations, together with cash on hand, and the liquidity under our Credit Agreement will be sufficient to meet our obligations, fund our settlements, operations, anticipated capital expenditures, and potential share repurchases for the next 12 months. We prepare our forecasted cash flow and liquidity estimates based on assumptions that we believe to be reasonable but are also inherently uncertain. Actual future cash flows could differ from these estimates.
Merchandise Inventories
Merchandise inventories at September 30, 2022 increased $111.2 million from December 31, 2021 primarily due to increased purchases to replenish inventory to support the Company’s strategy to place inventory close to its customers and to support new stores, as well as, to a lesser extent, inflation. The Company believes that it has rebuilt a solid mix of quality flooring inventory that is largely evergreen in nature. We consider merchandise inventories either “available for sale” or “inbound in-transit,” based on whether we have physically received and inspected the products at an individual store location, in our distribution centers or in another facility where we control and monitor inspection.
Merchandise inventories and available inventory per store in operation were as follows:
Available inventory per store at September 30, 2022 was higher than at December 31, 2021 and September 30, 2021 due to the same drivers as the increase in merchandise inventories, partially offset by the opening of new stores.
Inbound in-transit inventory generally varies due to the timing of certain international shipments and certain seasonal factors, including international holidays, rainy seasons, and specific merchandise category planning.
Critical Accounting Policies and Estimates
Critical accounting policies are those that we believe are both significant and that require us to make difficult, subjective, or complex judgments, often because we need to estimate the effect of inherently uncertain matters. We base our estimates and judgments on historical experiences and various other factors that we believe to be appropriate under the circumstances. Actual results may differ from these estimates, and we might obtain different estimates if we used different assumptions or conditions. We have had no significant changes in our Critical Accounting Policies and Estimates since our annual report on Form 10-K for the year ended December 31, 2021.
26
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Interest Rate Risk.
The Company can be exposed to interest rate risk because of variable rate borrowings under the credit facility. To the extent the Company borrows at LIBOR, financial results are subject to changes in the market rate of interest as well as the expected transition from the LIBOR reference rate in 2022. As of September 30, 2022, we had $69.0 million outstanding under our Credit Agreement, which carried a weighted average interest rate of 4.6% repayable at any time. A hypothetical 1% increase in interest rates would cause an increase of $0.7 million of annual interest if outstanding for the full year.
We currently do not engage in any interest rate hedging activity. However, in the future, in an effort to mitigate losses associated with interest rate risks, we may at times enter into derivative financial instruments, although we have not historically done so. We do not, and do not intend to, engage in the practice of trading derivative securities for profit.
Item 4. Controls and Procedures.
Evaluation of disclosure controls and procedures. Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined under Rule 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the quarter ended September 30, 2022. Based on this evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that the Company's disclosure controls and procedures were effective as of September 30, 2022.
Changes in Internal Control over Financial Reporting. There has been no change in our internal control over financial reporting that occurred during the most recent quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
PART II
OTHER INFORMATION
Item 1. Legal Proceedings.
Information with respect to this item may be found in Note 7, “Commitments and Contingencies”, to the condensed consolidated financial statements in Item 1 of Part I, which is incorporated herein by reference.
Item 1A. Risk Factors.
In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, Item 1A, “Risk Factors,” in our annual report on Form 10-K for the year ended December 31, 2021, which could materially affect our business, financial condition or future results.
27
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
The following table presents our share repurchase activity for the quarter ended September 30, 2022 (in thousands, except per share amounts):
|
|
| Total Number |
| Maximum Dollar Value | |||
of Shares | of Shares That May Yet | |||||||
Purchased as | Be Purchased as | |||||||
Total Number | Average | Part of Publicly | Part of Publicly | |||||
of Shares | Price Paid | Announced | Announced | |||||
Period | Purchased2 | per Share2 | Programs | Programs1 | ||||
July 1, 2022 to July 31, 2022 | — | — | — | 43,000 | ||||
August 1, 2022 to August 31, 2022 | — | — | — | 43,000 | ||||
September 1, 2022 to September 30, 2022 | — | — | — | 43,000 | ||||
Total |
| — | $ | — |
| — | $ | 43,000 |
| 1 | In February 2022, the Company’s board of directors raised its authorization for the repurchase of up to $50.0 million of the Company’s common stock. In April 2022, the Company resumed its share repurchase program. The Company made cash payments of $7.0 million to repurchase 571,332 shares under the share repurchase authorization during the second quarter of 2022. There remains $43.0 million outstanding under the share repurchase authorization. |
| 2 | We also repurchased 3,963 shares of our common stock, at an average price of $10.23, in connection with the net settlement of shares issued as a result of the vesting of restricted shares during the quarter ended September 30, 2022. |
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
None.
Item 5. Other Information.
None.
Item 6. Exhibits.
The exhibits listed in the following exhibit index are furnished as part of this report.
28
EXHIBIT INDEX
Exhibit | ||
Number |
| Exhibit Description |
10.1 | LL Flooring Holdings, Inc. Amended Outside Directors Deferral Plan (filed herewith). | |
31.1 | ||
31.2 | ||
32.1 | ||
101 | The following financial statements from the Company’s Form 10-Q for the quarter ended September 30, 2022, formatted in Inline XBRL: (i) Condensed Consolidated Balance Sheets, (ii) Condensed Consolidated Statements of Operations and Comprehensive (Loss) Income, (iii) Condensed Consolidated Statements of Stockholders’ Equity, (iv) Condensed Consolidated Statements of Cash Flows, and (v) Notes to Condensed Consolidated Financial Statements | |
104 | Cover Page Interactive Data File (embedded within the Inline XBRL document) |
29
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
LL FLOORING HOLDINGS, INC. | ||
(Registrant) | ||
Date: November 1, 2022 | By: | /s/ Nancy A. Walsh |
Nancy A. Walsh | ||
Chief Financial Officer (Principal Financial Officer) | ||
30