[PART I – FINANCIAL INFORMATION](index=4&type=section&id=PART%20I%20%E2%80%93%20FINANCIAL%20INFORMATION) This section provides the unaudited condensed consolidated financial statements and management's discussion and analysis of the company's financial condition and results of operations [Item 1. Condensed Consolidated Financial Statements](index=4&type=section&id=Item%201.%20Condensed%20Consolidated%20Financial%20Statements) This section presents the unaudited condensed consolidated financial statements for the three and six months ended June 30, 2021, including the Balance Sheets, Statements of Operations, Comprehensive Income, Stockholders' Equity, and Cash Flows, showing significant increases in net sales and net income, alongside a notable decrease in total assets and liabilities due to debt repayment [Condensed Consolidated Balance Sheets](index=4&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) This section presents the company's condensed consolidated balance sheets, highlighting key asset, liability, and equity balances Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2021 | December 31, 2020 | | :--- | :--- | :--- | | **Assets** | | | | Cash and Cash Equivalents | $112,395 | $169,941 | | Merchandise Inventories | $223,907 | $244,409 | | Total Current Assets | $356,927 | $438,152 | | **Total Assets** | **$597,908** | **$674,348** | | **Liabilities & Equity** | | | | Total Current Liabilities | $245,404 | $242,255 | | Credit Agreement | $— | $101,000 | | **Total Liabilities** | **$346,843** | **$446,742** | | **Total Stockholders' Equity** | **$251,065** | **$227,606** | - Total assets decreased primarily due to a reduction in cash and cash equivalents. Total liabilities saw a significant decline following the full repayment of the **$101 million** outstanding on the Credit Agreement[8](index=8&type=chunk)[9](index=9&type=chunk) [Condensed Consolidated Statements of Operations](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) This section details the company's condensed consolidated statements of operations, presenting net sales, gross profit, and net income Statement of Operations Highlights (in thousands, except per share amounts) | Metric | Q2 2021 | Q2 2020 | 6 Months 2021 | 6 Months 2020 | | :--- | :--- | :--- | :--- | :--- | | Total Net Sales | $301,384 | $230,284 | $584,834 | $497,658 | | Gross Profit | $112,730 | $88,292 | $228,322 | $193,263 | | Operating Income | $16,614 | $6,004 | $29,720 | $14,768 | | Net Income | $11,989 | $2,639 | $22,611 | $14,874 | | Diluted EPS | $0.41 | $0.09 | $0.77 | $0.51 | - The company experienced strong year-over-year growth in the second quarter and first half of 2021, with total net sales increasing **30.9%** and net income increasing over **350%** for the quarter[11](index=11&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=10&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) This section outlines the company's condensed consolidated statements of cash flows, categorizing cash movements from operating, investing, and financing activities Cash Flow Highlights for the Six Months Ended June 30 (in thousands) | Cash Flow Activity | 2021 | 2020 | | :--- | :--- | :--- | | Net Cash Provided by Operating Activities | $53,334 | $105,667 | | Net Cash Used in Investing Activities | ($7,378) | ($6,263) | | Net Cash (Used in) Provided by Financing Activities | ($103,502) | $18,363 | | **Net (Decrease) Increase in Cash** | **($57,546)** | **$117,744** | - The primary use of cash in financing activities for the first six months of 2021 was the **$101 million** repayment on the Credit Agreement, contrasting with net borrowings in the same period of 2020[22](index=22&type=chunk) [Notes to Condensed Consolidated Financial Statements](index=11&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) This section provides detailed notes and disclosures that supplement the condensed consolidated financial statements - The company operates as a multi-channel specialty retailer of hard-surface flooring and accessories, with **416 stores** across **47 U.S. states** as of June 30, 2021[25](index=25&type=chunk)[33](index=33&type=chunk) Sales Mix by Major Product Category (Six Months Ended June 30) | Product Category | 2021 % of Sales | 2020 % of Sales | | :--- | :--- | :--- | | Manufactured Products | 46% | 46% | | Solid and Engineered Hardwood | 26% | 28% | | Moldings and Accessories | 15% | 16% | | Installation and Delivery Services | 13% | 10% | - On April 30, 2021, the Company amended its Credit Agreement, extending the maturity to April 2026 and securing more favorable terms. All **$101 million** of borrowings were repaid during the second quarter of 2021, leaving **$128.6 million** of availability[49](index=49&type=chunk)[52](index=52&type=chunk) [Note 7. Commitments and Contingencies](index=12&type=section&id=Note%207.%20Commitments%20and%20Contingencies) This section details the company's various legal proceedings, commitments, and contingent liabilities Accrual for Legal Matters and Settlements (in thousands) | Date | Balance | | :--- | :--- | | January 1, 2021 | $30,398 | | June 30, 2021 | $35,750 | - The company is involved in various legal proceedings, including class action lawsuits related to employment practices, product claims, and investigations into antidumping and countervailing duties[59](index=59&type=chunk) - A **$7 million** liability was accrued in Q1 2021 for a potential settlement in the Mason Lawsuit, alleging violations of the Fair Labor Standards Act[63](index=63&type=chunk) - The company is challenging Section 301 tariffs imposed on certain goods from China and, if successful, may qualify for refunds[95](index=95&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=19&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations.) Management discusses the strong financial performance in Q2 2021, highlighting a 30.9% increase in net sales and a 31.3% rise in comparable store sales, driven by strong pro customer and service demand, while addressing challenges including a 90 basis point decline in gross margin due to higher tariff, material, and transport costs, and ongoing supply chain constraints, noting the company's strong liquidity position with $241 million in total liquidity after repaying all $101 million of its debt [Second Quarter Financial Highlights](index=21&type=section&id=Second%20Quarter%20Financial%20Highlights) This section summarizes the company's key financial performance metrics and achievements for the second quarter - Net sales increased **30.9%** to **$301.4 million**, and total comparable store sales grew **31.3%** versus the prior-year period[107](index=107&type=chunk) - Gross margin decreased by **90 basis points** to **37.4%**, primarily due to higher tariffs, materials, and inbound transportation costs[107](index=107&type=chunk) - Operating margin improved by **290 basis points** to **5.5%**, and diluted EPS increased significantly to **$0.41** from **$0.09** in Q2 2020[107](index=107&type=chunk) - The company repaid all **$101.0 million** of its outstanding debt during the second quarter[107](index=107&type=chunk) [Results of Operations](index=23&type=section&id=Results%20of%20Operations) This section provides a detailed analysis of the company's operational performance, including sales, gross margin, and expenses - Q2 2021 net sales increased by **$71.1 million (30.9%)** YoY, driven by strong pro customer demand and a **106.8%** increase in net service sales as consumer comfort with in-home services returned[119](index=119&type=chunk) - Q2 gross margin decreased to **37.4%** from **38.3%** YoY, reflecting higher costs from tariffs, materials, and transportation, which were partially offset by strategic pricing and sourcing[121](index=121&type=chunk) - SG&A expenses as a percentage of sales improved by **380 basis points** to **31.9%** in Q2 2021, demonstrating significant operating leverage on higher sales volume compared to the cost-reduction actions taken in Q2 2020 due to COVID-19[126](index=126&type=chunk) [Liquidity, Capital Resources and Cash Flows](index=28&type=section&id=Liquidity%2C%20Capital%20Resources%20and%20Cash%20Flows) This section discusses the company's financial liquidity, capital resources, and cash flow management strategies - As of June 30, 2021, the company had total liquidity of **$241.0 million**, comprising **$112.4 million** in cash and **$128.6 million** available under its Revolving Credit Facility[108](index=108&type=chunk)[145](index=145&type=chunk) - Net cash from operating activities was **$53.3 million** for the first six months of 2021[146](index=146&type=chunk) - Capital expenditures for 2021 are expected to be between **$24 million** and **$28 million**, funding **12 to 15** new stores and digital investments[146](index=146&type=chunk) - Merchandise inventories decreased by **$20.5 million** from year-end 2020, primarily due to supply chain constraints and strong sales[149](index=149&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=30&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company is exposed to interest rate risk through its cash investments and variable-rate Credit Agreement; however, as of June 30, 2021, there were no outstanding borrowings under the Credit Agreement, mitigating this risk, and the company does not currently use derivative financial instruments for hedging - The primary market risk is interest rate risk on cash equivalents and potential borrowings under the variable-rate Credit Agreement[153](index=153&type=chunk) - As of June 30, 2021, the company had no outstanding debt, minimizing its exposure to interest rate fluctuations on borrowings[153](index=153&type=chunk) [Item 4. Controls and Procedures](index=30&type=section&id=Item%204.%20Controls%20and%20Procedures) Management, including the CEO and CFO, evaluated the company's disclosure controls and procedures and concluded they were effective as of June 30, 2021, with no material changes to internal control over financial reporting occurring during the quarter - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of the end of the quarter[155](index=155&type=chunk) - There were no changes in internal control over financial reporting during the quarter that materially affected, or are reasonably likely to materially affect, these controls[155](index=155&type=chunk) [PART II – OTHER INFORMATION](index=31&type=section&id=PART%20II%20%E2%80%93%20OTHER%20INFORMATION) This section presents other required information, including legal proceedings, risk factors, equity sales, and filed exhibits [Item 1. Legal Proceedings](index=31&type=section&id=Item%201.%20Legal%20Proceedings) This section refers to Note 7 of the condensed consolidated financial statements for detailed information regarding the company's ongoing legal matters and contingencies - For detailed information on legal proceedings, refer to Note 7, "Commitments and Contingencies," in Part I, Item 1 of this report[156](index=156&type=chunk) [Item 1A. Risk Factors](index=31&type=section&id=Item%201A.%20Risk%20Factors) There are no material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K for the year ended December 31, 2020 - The company directs investors to review the risk factors discussed in its Annual Report on Form 10-K for the year ended December 31, 2020[157](index=157&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=31&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) During the quarter ended June 30, 2021, the company did not repurchase any shares as part of its publicly announced programs; however, it did repurchase 19,025 shares in connection with the net settlement of vested restricted shares - No shares were repurchased under publicly announced programs during the second quarter of 2021[159](index=159&type=chunk) - The company repurchased **19,025 shares** at an average price of **$23.04** to satisfy tax withholding obligations related to the vesting of restricted stock awards[159](index=159&type=chunk) [Item 6. Exhibits](index=31&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed as part of the quarterly report, including CEO and CFO certifications pursuant to the Sarbanes-Oxley Act and financial statements formatted in XBRL - The exhibits filed with this report include certifications from the Principal Executive Officer and Principal Financial Officer as required by Sections 302 and 906 of the Sarbanes-Oxley Act of 2002[162](index=162&type=chunk)[163](index=163&type=chunk)[164](index=164&type=chunk)

Financial Data and Key Metrics - Net sales increased by 6% to $283.5 million in Q1 2021 compared to Q1 2020, driven by a 4.7% increase in merchandise sales and a 16.8% increase in service sales [28] - Comparable store sales increased by 6.9% in Q1 2021, reflecting strong demand for home improvement projects and growth in the installation business [6][28] - Operating income rose to $13.1 million in Q1 2021, up from $8.8 million in Q1 2020, with adjusted operating income increasing to $14.4 million or 5.1% of net sales [8][31] - Adjusted gross profit improved to $109 million in Q1 2021, with gross margin at 38.5%, down 80 basis points from Q1 2020 due to tariff impacts [16][29] - Net income decreased to $10.6 million in Q1 2021 from $12.2 million in Q1 2020, primarily due to a one-time tax benefit in 2020 [33] Business Line Performance - Installation sales accelerated year-over-year, with growth rates improving sequentially from Q4 2020, driven by strong demand for installation services [11][28] - Pro customer sales remained flat year-over-year, but the company saw higher sales and orders per pro through its trial, scale, and retention programs [13] - Web sales increased by over 70% year-over-year, driven by improvements in the digital platform and mobile app engagement [14] Market Performance - The company opened three new stores in Q1 2021, expanding into new and existing markets, with plans to open 12-15 new stores in 2021 [25][38] - Inventory constraints due to supply chain disruptions resulted in an estimated $8-9 million in lost sales in Q1 2021, similar to Q4 2020 [29][45] Strategic Direction and Industry Competition - The company is focused on four strategic pillars: people and culture, improving the customer experience, driving traffic and transactions, and improving profitability [9][17] - Efforts to diversify sourcing away from China have reduced the percentage of goods sourced from China to 23% in Q1 2021, mitigating tariff impacts [16][55] - The company is investing in digital marketing and rebranding efforts, with a focus on the LL Flooring brand to enhance customer awareness and consideration [16][20] Management Commentary on Operating Environment and Outlook - Management highlighted strong demand for home improvement projects, supported by favorable housing market trends and consumer savings [22] - Supply chain disruptions, including container shortages and domestic lumber constraints, are expected to persist through Q2 2021, with improvements anticipated in the second half of the year [22][45] - The company is cautiously monitoring consumer spending trends as the economy reopens, particularly the potential shift from home improvement to travel and leisure [24] Other Important Information - The company settled two employment litigation matters in April 2021, resulting in a $7.7 million liability accrued in Q1 2021 [30] - Liquidity improved significantly, with $209 million in cash and cash equivalents at the end of Q1 2021, up from $23 million a year ago [35][36] - The company amended its credit agreement, reducing interest expenses and extending the maturity date to April 2026 [37] Q&A Session Summary Question: Supply chain issues and their impact on sales and marketing [43] - Supply chain constraints, including container shortages and domestic lumber availability, are expected to persist through Q2 2021, with improvements anticipated in the second half of the year [44][45] - Marketing spend has been optimized for digital channels, aligning with the company's rebranding efforts [46][47] Question: Moderation in top-line growth in Q1 2021 [49] - The moderation in growth was influenced by a leap year sales event in 2020, severe winter weather in February 2021, and inventory constraints [51] Question: Tariff impacts on gross margins [52] - Tariffs are expected to continue impacting gross margins, but the company is mitigating these effects through pricing strategies and alternative sourcing [53][55] Question: Underlying demand trends and gross margin outlook [56][59] - Strong demand for home improvement projects is expected to continue, but the company is monitoring potential shifts in consumer spending as the economy reopens [57][58] - Gross margins will face pressure from higher transportation and raw material costs, but the company plans to offset these through pricing and promotion strategies [60][62] Question: Pro customer sales and product mix trends [66][70] - Pro customer sales are expected to grow as the company strengthens its value proposition and improves the Pro online experience [67][69] - Consumers are opting for higher ASP products, particularly in premium segments like solid wood and vinyl [71][72]

Lumber Liquidators Holdings, Inc. (NYSE:LL) Q4 2020 Earnings Conference Call March 1, 2021 8:00 AM ET Company Participants Julie MacMedan - Investor Relations Charles Tyson - President and Chief Executive Officer Nancy Walsh - Chief Financial Officer Conference Call Participants Laura Champine - Loop Capital Markets Brian Nagel - Oppenheimer Seth Basham - Wedbush Securities Peter Keith - Piper Sandler Operator Good morning, ladies and gentlemen and welcome to the Lumber Liquidators Fourth Quarter and Full Y ...

Lumber Liquidators Holdings, Inc. (NYSE:LL) Q3 2020 Results Conference Call November 2, 2020 8:00 AM ET Company Participants Danielle O'Brien - IR Charles Tyson - President and CEO Nancy Walsh - CFO Conference Call Participants Laura Champine - Loop Capital Markets David McGregor - Longbow Research Simeon Gutman - Morgan Stanley Brian Nagel - Oppenheimer Seth Basham - Wedbush Securities Peter Keith - Piper Sandler Operator Good morning, ladies and gentlemen, and welcome to the Lumber Liquidators Third Quart ...

Table of Contents 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, 2020 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 Lumber Liquidators Holdings, Inc. (Exact name of registrant as specified in its charter) | --- | --- | --- | | ...

Financial Data and Key Metrics Changes - In Q2 2020, net sales were $230 million, a decrease of 20.2% compared to the previous year, with comparable store sales down 21.3% primarily due to reduced demand related to COVID-19 [26][27] - Gross profit decreased by $14 million to $88 million, while gross margin rate increased by 280 basis points to 38.3% compared to 35.5% in Q2 2019 [27][28] - Adjusted operating income was $6.5 million, a $2.9 million increase compared to the previous year, driven by enhanced gross margin and diligent expense management [30][31] Business Line Data and Key Metrics Changes - Merchandise sales declined by 16.2%, and service sales (installation) saw a larger decline of 46.6% due to COVID-19 impacts [26] - DIY sales showed relative strength, while installation and pro sales were weaker, attributed to consumer reluctance to have outsiders in their homes [15][26] - Web sales grew approximately 180% year-over-year, accounting for about 15% of total sales in the quarter [8][26] Market Data and Key Metrics Changes - Stronger demand was observed in the South and Mid-Atlantic regions, while California, New York, and New Jersey showed weaker trends [15] - The company noted a renewed focus on home improvement projects among consumers, creating opportunities for the industry [16] Company Strategy and Development Direction - The company is focused on executing its transformation plan, which includes improving customer experience, driving traffic and transactions, and enhancing profitability [11][22] - A new strategic pillar related to people and culture has been introduced to foster a diverse and inclusive workplace [17][18] - The company plans to launch a new digital platform in early Q4 to enhance user experience and e-commerce capabilities [20] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's ability to navigate the challenges posed by COVID-19 while maintaining a focus on liquidity and flexibility [36][40] - The company is not providing annual financial guidance due to uncertainty surrounding the pandemic but remains optimistic about future performance [39] Other Important Information - Inventory at the end of Q2 was $249 million, down $55 million from the previous year, with a focus on managing inventory to support liquidity [32] - The company ended the quarter with $101 million in outstanding debt, unchanged since the previous quarter [33] Q&A Session Summary Question: What are the quarter-to-date sales trends? - Management noted that while Q2 saw significant impacts from COVID-19, there was an encouraging trend in sales as the quarter progressed, particularly in June [44][45] Question: Can you comment on gross margin outlook? - Management indicated that gross margin improvements are expected to continue, but the impact of potential tariff expirations is uncertain [46][47] Question: What consumer behavior is reflected in the customer count and average sale? - Management explained that the decline in average sale was influenced by a mix shift from installation services, which had a significant impact on average ticket size [52] Question: What is the status of the extended store format initiative? - Management stated that the rollout of extended store formats has been paused for strategic evaluation, focusing on profitability and market type [57][58]

[PART I – FINANCIAL INFORMATION](index=4&type=section&id=PART%20I%20%E2%80%93%20FINANCIAL%20INFORMATION) This section presents the company's unaudited condensed consolidated financial statements and management's discussion and analysis of financial condition and results of operations [Item 1. Condensed Consolidated Financial Statements](index=4&type=section&id=Item%201.%20Condensed%20Consolidated%20Financial%20Statements) This section presents the unaudited condensed consolidated financial statements, including balance sheets, statements of operations, comprehensive income (loss), stockholders' equity, and cash flows, along with detailed notes explaining the basis of presentation, significant accounting policies, and specific financial items [Condensed Consolidated Balance Sheets](index=4&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) This section provides a snapshot of the company's financial position, detailing assets, liabilities, and stockholders' equity at specific reporting dates Condensed Consolidated Balance Sheets (Unaudited, in thousands) | Assets / Liabilities and Stockholders' Equity | June 30, 2020 | December 31, 2019 | | :-------------------------------------------- | :------------ | :---------------- | | **Assets** | | | | Cash and Cash Equivalents | $126,737 | $8,993 | | Merchandise Inventories | 248,722 | 286,369 | | Tariff Recovery Receivable | 18,285 | 27,025 | | Total Current Assets | 429,333 | 359,113 | | Total Assets | $664,480 | $596,009 | | **Liabilities and Stockholders' Equity** | | | | Accounts Payable | $68,516 | $59,827 | | Customer Deposits and Store Credits | 55,492 | 41,571 | | Accrual for Legal Matters and Settlements Current | 62,786 | 67,471 | | Credit Agreement | 101,000 | 82,000 | | Total Liabilities | 487,520 | 434,759 | | Total Stockholders' Equity | 176,960 | 161,250 | | Total Liabilities and Stockholders' Equity | $664,480 | $596,009 | - **Cash and Cash Equivalents** increased significantly from **$8,993 thousand** at December 31, 2019, to **$126,737 thousand** at June 30, 2020[5](index=5&type=chunk) - **Merchandise Inventories** decreased from **$286,369 thousand** to **$248,722 thousand** during the period[5](index=5&type=chunk) [Condensed Consolidated Statements of Operations](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) This section outlines the company's financial performance over specific periods, presenting net sales, cost of sales, gross profit, operating income, and net income (loss) Condensed Consolidated Statements of Operations (Unaudited, in thousands, except per share amounts) | Metric | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :-------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net Sales | $230,284 | $288,567 | $497,658 | $554,787 | | Cost of Sales | 141,992 | 186,080 | 304,395 | 358,689 | | Gross Profit | 88,292 | 102,487 | 193,263 | 196,098 | | SG&A Expenses | 82,288 | 103,864 | 178,495 | 200,896 | | Operating Income (Loss) | 6,004 | (1,377) | 14,768 | (4,798) | | Income (Loss) Before Taxes | 4,862 | (2,445) | 12,744 | (7,156) | | Income Tax Expense (Benefit)| 2,223 | 411 | (2,130) | 624 | | Net Income (Loss) | $2,639 | $(2,856) | $14,874 | $(7,780) | | EPS—Basic | $0.09 | $(0.10) | $0.52 | $(0.27) | | EPS—Diluted | $0.09 | $(0.10) | $0.51 | $(0.27) | - **Net Sales** decreased by **20%** for the three months ended June 30, 2020, compared to the same period in 2019, and by **10.3%** for the six months ended June 30, 2020[8](index=8&type=chunk) - The company reported a **Net Income of $2,639 thousand** for the three months ended June 30, 2020, a significant improvement from a **Net Loss of $(2,856) thousand** in the prior year period[8](index=8&type=chunk) [Condensed Consolidated Statements of Comprehensive Income (Loss)](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Income%20(Loss)) This section details the company's comprehensive income or loss, including net income (loss) and other comprehensive income (loss) items like foreign currency translation adjustments Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited, in thousands) | Metric | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :-------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net Income (Loss) | $2,639 | $(2,856) | $14,874 | $(7,780) | | Foreign Currency Translation Adjustments| 227 | (309) | 272 | (192) | | Total Other Comprehensive Income (Loss) | 227 | (309) | 272 | (192) | | Comprehensive Income (Loss) | $2,866 | $(3,165) | $15,146 | $(7,972) | - **Comprehensive Income** for the three months ended June 30, 2020, was **$2,866 thousand**, a positive shift from a **loss of $(3,165) thousand** in the prior year[10](index=10&type=chunk) [Condensed Consolidated Statements of Stockholders' Equity](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Stockholders'%20Equity) This section tracks changes in the company's equity over time, reflecting impacts from net income, stock-based compensation, and share transactions Condensed Consolidated Statements of Stockholders' Equity (Unaudited, in thousands) | Item | April 1, 2020 | June 30, 2020 | | :------------------------------------ | :------------ | :------------ | | Total Stockholders' Equity, April 1, 2020 | $173,334 | | | Stock-Based Compensation Expense | 846 | | | Exercise of Stock Options | 36 | | | Common Stock Repurchased | (122) | | | Translation Adjustment | 227 | | | Net Income | 2,639 | | | Total Stockholders' Equity, June 30, 2020 | | $176,960 | - **Total Stockholders' Equity** increased from **$173,334 thousand** at April 1, 2020, to **$176,960 thousand** at June 30, 2020, primarily due to net income and stock-based compensation[11](index=11&type=chunk)[12](index=12&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=10&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) This section categorizes cash inflows and outflows from operating, investing, and financing activities, illustrating changes in the company's cash position Condensed Consolidated Statements of Cash Flows (Unaudited, in thousands) | Cash Flow Activity | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :-------------------------------------- | :----------------------------- | :----------------------------- | | Net Cash Provided by (Used in) Operating Activities | $105,667 | $(14,092) | | Net Cash Used in Investing Activities | $(6,263) | $(8,843) | | Net Cash Provided by Financing Activities | $18,363 | $23,426 | | Net Increase in Cash and Cash Equivalents | $117,744 | $1,162 | | Cash and Cash Equivalents, End of Period | $126,737 | $12,727 | - **Net cash provided by operating activities** significantly improved to **$105,667 thousand** for the six months ended June 30, 2020, compared to net cash used of **$(14,092) thousand** in the prior year[15](index=15&type=chunk) - The company experienced a **net increase in cash and cash equivalents of $117,744 thousand**, ending the period with **$126,737 thousand**[15](index=15&type=chunk) [Note 1. Basis of Presentation](index=11&type=section&id=Note%201.%20Basis%20of%20Presentation) This note describes the company's business operations, the basis for preparing the financial statements, and the significant impact of the COVID-19 pandemic on its performance - Lumber Liquidators Holdings, Inc. operates as a multi-channel specialty retailer of hard-surface flooring and related accessories, serving homeowners and contractors through **422 stores** in **47 U.S. states** and **8 stores in Canada**, a customer relationship center, and its website LLFlooring.com[17](index=17&type=chunk)[26](index=26&type=chunk) - The **COVID-19 pandemic** significantly impacted Q2 2020, leading to the temporary closure of up to **56 stores** and reduced hours for others, with comparable store sales down **21.3%** for the quarter, improving from a **30% decline** through May 23[20](index=20&type=chunk)[21](index=21&type=chunk)[93](index=93&type=chunk) - By early July, **98% of stores** were fully open, with less than **10** operating by appointment only, and only one store remaining closed since the pandemic's onset[21](index=21&type=chunk)[22](index=22&type=chunk)[93](index=93&type=chunk) [Note 2. Summary of Significant Accounting Policies](index=13&type=section&id=Note%202.%20Summary%20of%20Significant%20Accounting%20Policies) This note details the key accounting principles and methods used in preparing the financial statements, including inventory valuation, revenue recognition, and lease accounting - **Merchandise inventories** are valued at the lower of cost or net realizable value using the weighted average cost method, with approximately **46%** of the company's product sourced from China in 2019, exposing it to supply chain risks, including those from COVID-19[24](index=24&type=chunk) - The company has an **$18 million Tariff Recovery Receivable** as of June 30, 2020, related to retroactive exclusions from Section 301 tariffs on certain flooring products imported from China, with payments expected by the end of 2020[25](index=25&type=chunk) Customer Deposits and Store Credits Activity (Unaudited, in thousands) | Item | Three Months Ended June 30, 2020 | Six Months Ended June 30, 2020 | | :---------------------------------------- | :------------------------------- | :----------------------------- | | Customer Deposits and Store Credits, Beginning Balance | $(37,836) | $(41,571) | | New Deposits | (264,473) | (545,326) | | Recognition of Revenue | 230,284 | 497,658 | | Sales Tax included in Customer Deposits | 14,862 | 31,543 | | Other | 1,671 | 2,204 | | Customer Deposits and Store Credits, Ending Balance | $(55,492) | $(55,492) | Sales Mix by Major Product Category | Product Category | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Manufactured Products | 49% | 41% | 46% | 41% | | Solid and Engineered Hardwood | 27% | 29% | 28% | 30% | | Moldings and Accessories and Other | 15% | 17% | 16% | 17% | | Installation and Delivery Services | 9% | 13% | 10% | 12% | | Total | 100% | 100% | 100% | 100% | - The company adopted a practical expedient for lease concessions due to COVID-19, resulting in a **$5.4 million current liability** and **$0.4 million long-term liability** for deferred payments as of June 30, 2020[36](index=36&type=chunk) [Note 3. Stockholders' Equity](index=17&type=section&id=Note%203.%20Stockholders'%20Equity) This note provides details on the components of stockholders' equity, including common stock, additional paid-in capital, and retained earnings, along with per-share data Net Income (Loss) per Common Share (Unaudited) | Metric | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :-------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net Income (Loss) | $2,639 | $(2,856) | $14,874 | $(7,780) | | Weighted Average Common Shares Outstanding—Basic | 28,831 | 28,692 | 28,776 | 28,669 | | Net Income (Loss) per Common Share—Basic | $0.09 | $(0.10) | $0.52 | $(0.27) | | Net Income (Loss) per Common Share—Diluted | $0.09 | $(0.10) | $0.51 | $(0.27) | - The company has approximately **$14.7 million** remaining under its **$150 million** common stock repurchase authorization but has not repurchased shares under this program in over three years[40](index=40&type=chunk) [Note 4. Stock-based Compensation](index=19&type=section&id=Note%204.%20Stock-based%20Compensation) This note outlines the company's stock-based compensation plans, including activity for stock options and restricted stock awards, and related expense recognition Stock Option and Restricted Stock Award Activity (Unaudited, in thousands) | Item | Stock Options | Restricted Stock Awards | | :------------------------------------ | :------------ | :---------------------- | | Options Outstanding/Nonvested RSAs, January 1, 2020 | 693 | 911 | | Granted | 197 | 451 | | Options Exercised/RSAs Released | (3) | (200) | | Forfeited | (271) | (225) | | Options Outstanding/Nonvested RSAs, June 30, 2020 | 616 | 937 | - The company granted **94,591 performance-based RSAs** with a fair value of **$0.9 million** during the six months ended June 30, 2020, contingent on achieving specific financial metrics and relative total shareholder return over a three-year period[41](index=41&type=chunk) [Note 5. Credit Agreement](index=19&type=section&id=Note%205.%20Credit%20Agreement) This note details the company's credit facilities, including amendments to the revolving credit facility, outstanding balances, and available liquidity - On April 17, 2020, the company amended its Credit Agreement, temporarily increasing the **Revolving Credit Facility from $175 million to $212.5 million** until August 30, 2020, and increasing interest margins and unused commitment fees[42](index=42&type=chunk)[44](index=44&type=chunk) - As of June 30, 2020, **$76 million** was outstanding under the Revolving Credit Facility (average interest rate **3.50%**) and **$25 million** under the FILO Term Loan (interest rate **4.75%**), with **$59 million** of availability remaining under the Revolving Credit Facility[44](index=44&type=chunk)[46](index=46&type=chunk) [Note 6. Income Taxes](index=21&type=section&id=Note%206.%20Income%20Taxes) This note provides information on the company's income tax expense or benefit, effective tax rates, and the impact of tax legislation like the CARES Act Income Tax Expense (Benefit) and Effective Tax Rate (Unaudited) | Period | Income Tax Expense (Benefit) | Effective Tax Rate | | :-------------------------- | :--------------------------- | :----------------- | | Three Months Ended June 30, 2020 | $2.2 million | 45.7% | | Three Months Ended June 30, 2019 | $0.4 million | (16.8)% | | Six Months Ended June 30, 2020 | $(2.1) million | (16.7)% | | Six Months Ended June 30, 2019 | $0.6 million | (8.7)% | - The **CARES Act**, enacted March 27, 2020, resulted in an income tax benefit of **$4.8 million** for the first six months of 2020, which has been fully collected[50](index=50&type=chunk) - The company maintains a **full valuation allowance of $27 million** against its net deferred tax assets, intending to keep it until sufficient evidence supports its reversal[53](index=53&type=chunk) [Note 7. Commitments and Contingencies](index=23&type=section&id=Note%207.%20Commitments%20and%20Contingencies) This note discloses the company's various legal and regulatory commitments and contingencies, including class action lawsuits and antidumping duty investigations - The **Gold Litigation** (bamboo flooring) settlement, preliminarily approved, involves **$14 million in cash** and **$14 million in store-credit vouchers** (potential additional **$2 million**), with a remaining accrual of **$27 million** as of June 30, 2020[54](index=54&type=chunk)[56](index=56&type=chunk) - The **Formaldehyde-Abrasion MDLs** (Chinese laminates) settlement of **$36 million** (**$22 million cash**, **$14 million vouchers**) was upheld on appeal, with **$21.5 million** accounted for as a deposit for legal settlement[57](index=57&type=chunk)[165](index=165&type=chunk) - Multiple employee classification lawsuits (Mason, Savidis, Visnack) are ongoing, alleging labor code violations, and the company disputes these claims and cannot reasonably estimate potential losses, thus no accruals have been made[65](index=65&type=chunk)[70](index=70&type=chunk)[72](index=72&type=chunk) Antidumping and Countervailing Duties (AD/CVD) Investigation Status (Unaudited) | Review Period | Period Covered | Rates at which Company Deposited Antidumping | Final Rate Antidumping | June 30, 2020 Receivable/Liability Balance | | :------------ | :---------------------------- | :------------------------------------------- | :--------------------- | :----------------------------------------- | | 1 | May 2011 – Nov 2012 | 6.78% and 3.3% | 0.73% | $1.3 million receivable | | 2 | Dec 2012 – Nov 2013 | 3.30% | 3.92% | $4.1 million liability | | 3 | Dec 2013 – Nov 2014 | 3.3% and 5.92% | 17.37% | $4.7 million liability | | 6 | Dec 2016 – Nov 2017 | 17.37% and 0.0% | 42.57% and 0.00% | $0.5 million receivable, $1.5 million liability | | 7 | Dec 2017 – Nov 2018 | 0.00% | Pending (Preliminary 0.0%) | NA | | **Countervailing Duties** | | | | | | 1&2 | April 2011 – Dec 2012 | 1.50% | 0.83% / 0.99% | $0.2 million receivable | | 6 | Jan 2016 – Dec 2016 | 0.99% and 1.38% | 3.10% and 2.96% | $0.04 million liability | | 7 | Jan 2017 – Dec 2017 | 1.38% and 1.06% | Pending (Preliminary 24.61%) | NA | - The company recorded net interest expense related to antidumping of **$0.1 million** for the six months ended June 30, 2020[78](index=78&type=chunk)[191](index=191&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=34&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on the company's financial performance and condition for the quarter and six months ended June 30, 2020, detailing the impact of the COVID-19 pandemic, key financial results, operational changes, liquidity management, and inventory trends [Cautionary Note Regarding Forward-Looking Statements](index=34&type=section&id=Cautionary%20Note%20Regarding%20Forward-Looking%20Statements) This note advises readers that the report contains forward-looking statements subject to various risks and uncertainties, including economic conditions and legal proceedings - The report contains forward-looking statements subject to risks and uncertainties, including the impact of the **COVID-19 pandemic** on the economy, housing market, consumer spending, supply chain, and employee safety[86](index=86&type=chunk) - Other key risks include legal proceedings, new laws and regulations (tariffs), reputational harm, cybersecurity threats, inability to open new stores, managing growth, transportation costs, and supplier disruptions[86](index=86&type=chunk)[87](index=87&type=chunk) [Overview](index=36&type=section&id=Overview) This section provides a high-level description of the company's business as a specialty retailer of hard-surface flooring and its use of non-GAAP financial measures for performance evaluation - Lumber Liquidators is a leading specialty retailer of hard-surface flooring in North America, offering a complete purchasing solution through **422 stores**, a call center, and websites[89](index=89&type=chunk) - The company uses non-GAAP financial measures (Adjusted Gross Profit, Adjusted Gross Margin, Adjusted SG&A, Adjusted Operating Income, Adjusted Earnings, Adjusted EPS) to evaluate core operating performance, excluding items like regulatory/legal settlements and changes in antidumping/countervailing duties[91](index=91&type=chunk)[92](index=92&type=chunk) [Impact of COVID-19 Pandemic on Our Business](index=38&type=section&id=Impact%20of%20COVID-19%20Pandemic%20on%20Our%20Business) This section details the significant operational and financial impacts of the COVID-19 pandemic on the company, including store operations, sales, and liquidity management - Q2 2020 operations were significantly affected by COVID-19, leading to varied operating models (fully open, curbside-pickup, online) and safety measures, with **comparable store sales down 21.3%** for the quarter[93](index=93&type=chunk) - The company leveraged digital capabilities, expanded online samples, and extended customer support hours, leading to increased web traffic[94](index=94&type=chunk) - Measures to increase financial flexibility included temporary furloughs and salary reductions, cost reductions, inventory management, deferring payments, and pausing new store openings, with all furloughed employees invited back by late June[95](index=95&type=chunk) - **Liquidity improved by $55 million** in Q2 2020, reaching **$186 million** as of June 30, 2020, comprising **$127 million cash** and **$59 million credit availability**[96](index=96&type=chunk) [Executive Summary](index=40&type=section&id=Executive%20Summary) This section provides a concise overview of the company's key financial highlights for Q2 2020, including net sales, gross margin, operating income, and liquidity Q2 2020 Key Financial Highlights (Unaudited, in millions, except per share amounts) | Metric | Q2 2020 (GAAP) | Q2 2019 (GAAP) | YoY Change (GAAP) | Q2 2020 (Adjusted) | Q2 2019 (Adjusted) | YoY Change (Adjusted) | | :-------------------------- | :------------- | :------------- | :---------------- | :----------------- | :----------------- | :-------------------- | | Net Sales | $230 | $288.6 | (20%) | - | - | - | | Comparable Store Sales | (21.3%) | - | - | - | - | - | | Gross Profit | $88 | $102 | (14%) | $88.3 | $101.7 | (13%) | | Gross Margin | 38.3% | 35.5% | +2.8 pp | 38.3% | 35.2% | +3.1 pp | | SG&A Expense | $82 | $103.9 | (21%) | $81.8 | $98.1 | (17%) | | Operating Income (Loss) | $6 | $(1.4) | NM | $6.5 | $3.6 | +$2.9 | | Net Income (Loss) | $2.6 | $(2.9) | +$5.5 | $3 | $0.82 | +$2.2 | | Diluted EPS | $0.09 | $(0.10) | +$0.19 | $0.10 | $0.03 | +$0.07 | - As of June 30, 2020, **liquidity was $186 million**, comprising **$127 million in cash and cash equivalents** and **$59 million in Credit Agreement availability**[106](index=106&type=chunk) [Results of Operations](index=42&type=section&id=Results%20of%20Operations) This section analyzes the company's financial performance across key operational metrics, including net sales, gross profit, and selling, general, and administrative expenses [Net Sales](index=43&type=section&id=Net%20Sales) This section analyzes the company's net sales performance, including comparable store sales, average sale value, and sales mix by product category Selected Sales Data (Unaudited) | Metric | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :-------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Average Sale | $1,209 | $1,405 | $1,284 | $1,354 | | Comparable Store Sales (Decrease) (%) | (21.3%) | (0.1%) | (11.6%) | (0.4%) | | Number of Stores Open, end of period | 422 | 415 | 422 | 415 | | Number of Stores Opened in Period, net | 2 | 2 | 3 | 2 | | Customers Invoiced (% change to prior year) | (7.3%) | (2.5%) | (6.4%) | (0.3%) | - **Net sales decreased by $58 million (20%) to $230 million** in Q2 2020, with **comparable store sales down 21.3%** due to COVID-19, though performance improved sequentially[111](index=111&type=chunk) - **Manufactured products grew from 41% to 49% of sales** in Q2 2020, driven by vinyl, while net services sales decreased **47%** due to COVID-19's impact on installations[111](index=111&type=chunk) [Gross Profit](index=45&type=section&id=Gross%20Profit) This section details the company's gross profit and adjusted gross profit, analyzing the factors influencing gross margin, such as tariff exclusions and product mix Gross Profit and Adjusted Gross Profit (Unaudited, in thousands) | Metric | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :-------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Gross Profit, as reported (GAAP) | $88,292 | $102,487 | $193,263 | $196,098 | | % of Sales (GAAP) | 38.3% | 35.5% | 38.8% | 35.3% | | HTS Classification Adjustments | — | (779) | — | (779) | | Adjusted Gross Profit (non-GAAP) | $88,292 | $101,708 | $193,263 | $195,319 | | Adjusted % of Sales (non-GAAP) | 38.3% | 35.2% | 38.8% | 35.2% | - **Adjusted Gross Margin increased by 309 basis points to 38.3%** in Q2 2020, driven by margin enhancement efforts, Section 301 tariff exclusions, supply chain efficiency, and a higher mix of manufactured products[114](index=114&type=chunk) - The company recorded a **$27 million receivable** in Q4 2019 related to tariff exclusions, with **$9 million collected** through H1 2020, and expects to receive the remaining payments by year-end[116](index=116&type=chunk) [Selling, General and Administrative Expenses (SG&A)](index=45&type=section&id=Selling,%20General%20and%20Administrative%20Expenses%20(SG%26A)) This section examines the company's selling, general, and administrative expenses, highlighting changes in advertising, payroll, and legal costs SG&A and Adjusted SG&A (Unaudited, in thousands) | Metric | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :-------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | SG&A, as reported (GAAP) | $82,288 | $103,864 | $178,495 | $200,896 | | % of Sales (GAAP) | 35.7% | 36.0% | 35.9% | 36.2% | | (Recovery) Accrual for Legal Matters and Settlements | (500) | 4,750 | (500) | 4,575 | | Legal and Professional Fees | 995 | 1,017 | 1,788 | 2,995 | | Adjusted SG&A (non-GAAP) | $81,793 | $98,097 | $177,207 | $193,326 | | Adjusted % of Sales (non-GAAP) | 35.5% | 34.0% | 35.6% | 34.9% | - **Adjusted SG&A decreased by $16 million (17%)** in Q2 2020, primarily due to lower advertising expense, reduced payroll and benefits (including temporary salary reductions), and lower transaction-related costs[101](index=101&type=chunk)[117](index=117&type=chunk)[120](index=120&type=chunk) [Operating Income (Loss) and Operating Margin](index=47&type=section&id=Operating%20Income%20(Loss)%20and%20Operating%20Margin) This section analyzes the company's operating income and margin, reflecting the combined impact of sales, cost of sales, and SG&A expenses Operating Income (Loss) and Adjusted Operating Income (Unaudited, in thousands) | Metric | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :-------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Operating Income (Loss), as reported (GAAP) | $6,004 | $(1,377) | $14,768 | $(4,798) | | % of Sales (GAAP) | 2.6% | (0.5%) | 3.0% | (0.9%) | | Adjusted Operating Income (non-GAAP) | $6,499 | $3,611 | $16,056 | $1,993 | | Adjusted % of Sales (non-GAAP) | 2.8% | 1.2% | 3.2% | 0.3% | - **Operating income was $6 million** in Q2 2020, a significant improvement from an **operating loss of $1.4 million** in Q2 2019, driven by gross margin enhancement and diligent expense management[102](index=102&type=chunk)[124](index=124&type=chunk) [Other Expense](index=48&type=section&id=Other%20Expense) This section details other expenses incurred by the company, primarily focusing on interest expenses related to borrowings - **Other expense was $1.1 million** for both Q2 2020 and Q2 2019, primarily reflecting interest on borrowings under the Credit Agreement[127](index=127&type=chunk) [Provision for Income Taxes](index=48&type=section&id=Provision%20for%20Income%20Taxes) This section discusses the company's income tax provision, effective tax rate, and the impact of tax legislation on its financial results Income Tax Expense (Benefit) and Effective Tax Rate (Unaudited) | Period | Income Tax Expense (Benefit) | Effective Tax Rate | | :-------------------------- | :--------------------------- | :----------------- | | Three Months Ended June 30, 2020 | $2.2 million | 45.7% | | Three Months Ended June 30, 2019 | $0.4 million | (16.8)% | | Six Months Ended June 30, 2020 | $(2.1) million | (16.7)% | | Six Months Ended June 30, 2019 | $0.6 million | (8.7)% | - The income tax benefit for the six months ended June 30, 2020, included a **$4.8 million benefit from the CARES Act**[129](index=129&type=chunk)[131](index=131&type=chunk) - The company applies the actual year-to-date effective tax rate for the current-period tax provision due to economic disruption from COVID-19 impacting reliable annual effective tax rate estimates[128](index=128&type=chunk) [Diluted Earnings per Share](index=50&type=section&id=Diluted%20Earnings%20per%20Share) This section presents the company's diluted earnings per share, both on a GAAP and adjusted non-GAAP basis, reflecting profitability per share Diluted Earnings per Share (Unaudited) | Metric | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :-------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net Income (Loss) per Diluted Share (GAAP) | $0.09 | $(0.10) | $0.51 | $(0.27) | | Adjusted Earnings (Loss) per Diluted Share (non-GAAP) | $0.10 | $0.03 | $0.55 | $(0.10) | - **Adjusted Earnings per Diluted Share increased to $0.10** in Q2 2020 from **$0.03** in Q2 2019, and to **$0.55** for H1 2020 from **$(0.10)** in H1 2019[133](index=133&type=chunk)[134](index=134&type=chunk) [Seasonality](index=51&type=section&id=Seasonality) This section describes the typical seasonal fluctuations in the company's net sales, noting the impact of the COVID-19 pandemic on these historical trends - The company typically experiences higher net sales in spring and fall due to home remodeling, and lower sales in winter and hot summer months, though COVID-19 has affected these historical trends[137](index=137&type=chunk) [Liquidity and Capital Resources](index=51&type=section&id=Liquidity%20and%20Capital%20Resources) This section discusses the company's strategies for managing liquidity and capital, including cash position, credit availability, and capital expenditure plans - Key actions to manage liquidity during COVID-19 included renegotiating the Credit Agreement, altering store models and staffing, adjusting advertising, managing inventory, negotiating vendor terms, implementing temporary salary reductions, and pausing new store openings[138](index=138&type=chunk) - As of June 30, 2020, principal liquidity sources were **$127 million in cash and cash equivalents** and **$59 million in Revolving Loan availability**, totaling **$186 million**[139](index=139&type=chunk) - The **$104 million increase in cash** from March to June was driven by credit amendment borrowings (**$37M**), inventory sell-through (**$21M**), customer deposit growth (**$18M**), payment deferrals (**$9M**), tariff receivable collections (**$9M**), operations (**$9M**), and tax refunds (**$5M**)[141](index=141&type=chunk) - Capital expenditures for H1 2020 were **$7.2 million**, including four new store openings, with plans to reduce capital expenditures from original 2020 plans, and a small number of new store openings dependent on demand and liquidity[142](index=142&type=chunk) [Merchandise Inventories](index=53&type=section&id=Merchandise%20Inventories) This section provides an overview of the company's merchandise inventory levels, detailing changes due to buying patterns, supply chain, and cost management Merchandise Inventories (Unaudited, in thousands) | Inventory Category | June 30, 2020 | December 31, 2019 | June 30, 2019 | | :-------------------------- | :------------ | :---------------- | :------------ | | Inventory – Available for Sale | $227,418 | $254,812 | $267,089 | | Inventory – Inbound In-Transit | 21,304 | 31,557 | 36,611 | | Total Merchandise Inventories | $248,722 | $286,369 | $303,700 | | Available Inventory Per Store | $539 | $608 | $644 | - **Merchandise inventories decreased by $38 million** from December 31, 2019, due to reduced buying in response to lower activity volumes and delays in shipments from Asia, both impacted by COVID-19[144](index=144&type=chunk) - The decrease in available inventory compared to June 30, 2019, was largely due to lower average cost of inventory from tariff exclusions, improved country-of-origin sourcing, and cost-out negotiations[145](index=145&type=chunk) - The company anticipates average inventory to be in the range of **$280 million to $300 million** by year-end, including expected COVID-19 effects[145](index=145&type=chunk) [Cash Flows](index=53&type=section&id=Cash%20Flows) This section analyzes the company's cash flows from operating, investing, and financing activities, explaining the drivers behind changes in cash and cash equivalents - **Net cash provided by operating activities was $106 million** for H1 2020, primarily driven by a **$36 million inventory reduction**, **$15 million net income**, **$14 million increase in customer deposits**, and **$10 million in tariff recovery receivables**[147](index=147&type=chunk) - **Net cash used in investing activities was $6.3 million** for H1 2020, mainly for purchases of property and equipment related to new store openings and IT initiatives[148](index=148&type=chunk) - **Net cash provided by financing activities was $18 million** for H1 2020, primarily from net borrowings on the Credit Agreement[149](index=149&type=chunk) [Critical Accounting Policies and Estimates](index=55&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) This section confirms that there have been no significant changes to the company's critical accounting policies and estimates since its last annual report - There have been no significant changes in the company's Critical Accounting Policies and Estimates since its annual report on Form 10-K for the year ended December 31, 2019[150](index=150&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=55&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This section outlines the company's exposure to market risks, specifically interest rate risk and exchange rate risk, and its current approach to managing these risks [Interest Rate Risk](index=55&type=section&id=Interest%20Rate%20Risk) This section details the company's exposure to interest rate fluctuations through its variable-rate borrowings and short-term cash investments - The company is exposed to interest rate risk through short-term cash investments and variable-rate borrowings under its Credit Agreement, with **$76 million outstanding** on the Revolving Credit Facility and **$25 million** on the FILO Term Loan as of June 30, 2020[151](index=151&type=chunk) - The company does not currently engage in interest rate hedging activities but may consider derivative financial instruments in the future to mitigate losses[152](index=152&type=chunk) [Exchange Rate Risk](index=55&type=section&id=Exchange%20Rate%20Risk) This section describes the company's exposure to foreign currency exchange rate fluctuations from its limited international transactions - Less than **two percent** of the company's revenue, expense, and capital purchasing activities are transacted in foreign currencies (Euro, Canadian dollar, Chinese yuan, Brazilian real)[153](index=153&type=chunk) - The company does not currently engage in exchange rate hedging but may use derivative instruments in the future to hedge foreign currency exposures[154](index=154&type=chunk) [Item 4. Controls and Procedures](index=55&type=section&id=Item%204.%20Controls%20and%20Procedures) This section reports on the effectiveness of the company's disclosure controls and procedures and any changes in internal control over financial reporting [Evaluation of Disclosure Controls and Procedures](index=55&type=section&id=Evaluation%20of%20Disclosure%20Controls%20and%20Procedures) This section confirms management's conclusion regarding the effectiveness of the company's disclosure controls and procedures as of the reporting date - Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of June 30, 2020[155](index=155&type=chunk) [Changes in Internal Control over Financial Reporting](index=55&type=section&id=Changes%20in%20Internal%20Control%20over%20Financial%20Reporting) This section states that there have been no material changes in the company's internal control over financial reporting during the most recent quarter - There has been no change in the company's internal control over financial reporting during the most recent quarter that has materially affected, or is reasonably likely to materially affect, its internal control over financial reporting[156](index=156&type=chunk) [PART II – OTHER INFORMATION](index=57&type=section&id=PART%20II%20%E2%80%93%20OTHER%20INFORMATION) This section provides additional information not covered in the financial statements, including legal proceedings, risk factors, and other required disclosures [Item 1. Legal Proceedings](index=57&type=section&id=Item%201.%20Legal%20Proceedings) This section provides detailed updates on various legal proceedings, including class action lawsuits related to bamboo flooring and Chinese laminate products, employee classification matters, and ongoing antidumping and countervailing duties investigations [Litigation Relating to Bamboo Flooring](index=57&type=section&id=Litigation%20Relating%20to%20Bamboo%20Flooring) This section details the status of the Gold Litigation, a class action lawsuit concerning defective bamboo flooring, including settlement terms and accruals - The **Gold Litigation**, a class action lawsuit concerning defective Morning Star bamboo flooring, has a finalized settlement agreement for up to **$30 million** (**$14 million cash**, **$14 million store-credit vouchers**, plus potential **$2 million**), with preliminary approval granted and a final approval hearing scheduled for September 24, 2020[157](index=157&type=chunk) - As of June 30, 2020, the remaining accrual for these matters was **$27 million**, included in 'Accrual for Legal Matters and Settlements Current' on the balance sheet[157](index=157&type=chunk) [Litigation Relating to Chinese Laminates](index=59&type=section&id=Litigation%20Relating%20to%20Chinese%20Laminates) This section provides updates on class action lawsuits related to Chinese-manufactured laminate flooring, including the Formaldehyde-Abrasion MDLs and Canadian litigation [Formaldehyde-Abrasion MDLs](index=59&type=section&id=Formaldehyde-Abrasion%20MDLs) This section details the settlement and appeal status of class action lawsuits concerning formaldehyde and abrasion issues in Chinese laminate flooring - The **$36 million settlement** (**$22 million cash**, **$14 million store-credit vouchers**) for class actions regarding Chinese-manufactured laminate flooring (Formaldehyde MDL and Abrasion MDL) was upheld on appeal, with the court reconsidering attorney's fees[162](index=162&type=chunk)[163](index=163&type=chunk)[164](index=164&type=chunk)[165](index=165&type=chunk) - The company has accounted for **$21.5 million** of the cash payment as a deposit for legal settlements, and no liability is accrued related to the appeals[165](index=165&type=chunk) [Canadian Litigation](index=61&type=section&id=Canadian%20Litigation) This section describes a purported class action lawsuit in Ontario, Canada, related to Chinese-manufactured laminate flooring and the company's stance on potential losses - A purported class action lawsuit in Ontario, Canada, filed by Sarah Steele, alleges various claims related to Chinese-manufactured laminate flooring, and the company believes a loss is possible but cannot reasonably estimate the amount[167](index=167&type=chunk) [Employee Classification Matters](index=61&type=section&id=Employee%20Classification%20Matters) This section provides updates on ongoing employee classification lawsuits, including Mason, Savidis, and Visnack, alleging labor code violations [Mason Lawsuit](index=61&type=section&id=Mason%20Lawsuit) This section details the Mason class action lawsuit, alleging misclassification of store managers and FLSA/NYLL violations, with ongoing discovery - The **Mason class action lawsuit** alleges FLSA and NYLL violations for misclassifying store managers as exempt, with discovery extended to March 31, 2021, due to COVID-19 complications, and the company disputes the claims and cannot reasonably estimate potential losses[168](index=168&type=chunk)[171](index=171&type=chunk)[172](index=172&type=chunk) [Savidis Lawsuit](index=63&type=section&id=Savidis%20Lawsuit) This section describes the Savidis class action lawsuit in California, alleging various Labor Code violations for non-exempt employees - The **Savidis class action lawsuit**, filed in California, alleges various California Labor Code violations for non-exempt employees, and the company disputes the claims and cannot reasonably estimate potential losses[173](index=173&type=chunk)[174](index=174&type=chunk) [Visnack Lawsuit](index=63&type=section&id=Visnack%20Lawsuit) This section outlines the Visnack class action lawsuit in California, alleging Labor Code violations for store managers, with the company evaluating claims - The **Visnack class action lawsuit**, filed in California, alleges California Labor Code violations for store managers, and the company is evaluating the claims and intends to defend vigorously, unable to estimate potential losses[175](index=175&type=chunk)[176](index=176&type=chunk)[177](index=177&type=chunk) [Antidumping and Countervailing Duties Investigation](index=65&type=section&id=Antidumping%20and%20Countervailing%20Duties%20Investigation) This section details the company's involvement in ongoing antidumping and countervailing duties investigations on multilayered wood flooring from China - The company is involved in ongoing antidumping (AD) and countervailing duties (CVD) investigations on multilayered wood flooring from China, with appeals pending for various review periods[178](index=178&type=chunk)[181](index=181&type=chunk) Antidumping and Countervailing Duties (AD/CVD) Investigation Status (Unaudited) | Review Period | Period Covered | Rates at which Company Deposited Antidumping | Final Rate Antidumping | June 30, 2020 Receivable/Liability Balance | | :------------ | :---------------------------- | :------------------------------------------- | :--------------------- | :----------------------------------------- | | 1 | May 2011 – Nov 2012 | 6.78% and 3.3% | 0.73% | $1.3 million receivable | | 2 | Dec 2012 – Nov 2013 | 3.30% | 3.92% | $4.1 million liability | | 3 | Dec 2013 – Nov 2014 | 3.3% and 5.92% | 17.37% | $4.7 million liability | | 6 | Dec 2016 – Nov 2017 | 17.37% and 0.0% | 42.57% and 0.00% | $0.5 million receivable, $1.5 million liability | | 7 | Dec 2017 – Nov 2018 | 0.00% | Pending (Preliminary 0.0%) | NA | | **Countervailing Duties** | | | | | | 1&2 | April 2011 – Dec 2012 | 1.50% | 0.83% / 0.99% | $0.2 million receivable | | 6 | Jan 2016 – Dec 2016 | 0.99% and 1.38% | 3.10% and 2.96% | $0.04 million liability | | 7 | Jan 2017 – Dec 2017 | 1.38% and 1.06% | Pending (Preliminary 24.61%) | NA | - The company recorded a net **$0.1 million of interest expense** related to antidumping duties during the three months ended June 30, 2020[191](index=191&type=chunk) [Other Matters](index=69&type=section&id=Other%20Matters) This section states management's belief that other routine claims and disputes are not expected to materially affect the company's financial results or position - Management believes that the ultimate liability from other claims and disputes arising in the normal course of business is not expected to have a material adverse effect on the company's results of operations, financial position, or liquidity[192](index=192&type=chunk) [Item 1A. Risk Factors](index=69&type=section&id=Item%201A.%20Risk%20Factors) This section supplements previously disclosed risk factors with a focus on the ongoing and potential adverse impacts of the COVID-19 pandemic on the company's business, including supply chain disruptions, operational restrictions, and economic downturn effects [Impact of COVID-19 Pandemic on Our Business](index=69&type=section&id=Impact%20of%20COVID-19%20Pandemic%20on%20Our%20Business) This section details the significant risks posed by the COVID-19 pandemic, including supply chain disruptions, economic downturn, and operational challenges - The **COVID-19 pandemic** has disrupted and may continue to disrupt the company's supply chain, employee work effectiveness, and store operations, potentially leading to delivery delays, order cancellations, and adverse financial effects[193](index=193&type=chunk) - The widespread health crisis has caused an economic downturn and spike in unemployment, negatively affecting demand for products, and the company is working with partners to reduce contractual obligations and obtain concessions[194](index=194&type=chunk) - The extent of COVID-19's impact is highly uncertain and depends on future developments, including the pandemic's spread, severity, and governmental responses, with potential impacts not fully recoverable[194](index=194&type=chunk)[195](index=195&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=71&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) This section details the company's share repurchase activity for the quarter ended June 30, 2020, and the status of its publicly announced stock repurchase programs Share Repurchase Activity for the Quarter Ended June 30, 2020 (in thousands, except per share amounts) | Period | Total Number of Shares Purchased | Average Price Paid per Share | | :-------------------------- | :------------------------------- | :--------------------------- | | April 1, 2020 to April 30, 2020 | — | — | | May 1, 2020 to May 31, 2020 | — | — | | June 1, 2020 to June 30, 2020 | — | — | | Total | — | — | - The company repurchased **16,151 shares of common stock** at an average price of **$7.37** for the net settlement of shares issued from restricted stock vesting during Q2 2020[196](index=196&type=chunk) - The publicly announced stock repurchase programs, with **$14.7 million** remaining authorization, are indefinitely suspended to evaluate long-term customer demand and assess operational estimates[196](index=196&type=chunk) [Item 3. Defaults Upon Senior Securities](index=71&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) This section confirms that there were no defaults upon senior securities during the reporting period - There were no defaults upon senior securities[197](index=197&type=chunk) [Item 4. Mine Safety Disclosures](index=71&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This section states that there are no mine safety disclosures to report - There are no mine safety disclosures[197](index=197&type=chunk) [Item 5. Other Information](index=71&type=section&id=Item%205.%20Other%20Information) This section indicates that there is no other information to report - There is no other information to report[197](index=197&type=chunk) [Item 6. Exhibits](index=71&type=section&id=Item%206.%20Exhibits) This section lists all exhibits filed as part of the Form 10-Q report, including key agreements, certifications, and financial statements in XBRL format - Key exhibits include the First Amendment to Fourth Amended and Restated Credit Agreement, a Severance Agreement with Charles E. Tyson, certifications from the Principal Executive and Financial Officers (Sections 302 and 906 of Sarbanes-Oxley Act), and XBRL formatted financial statements[198](index=198&type=chunk) [Signatures](index=74&type=section&id=Signatures) This section contains the official signatures certifying the accuracy and completeness of the report, including the signing officer and date - The report was signed on August 4, 2020, by Nancy A. Walsh, Chief Financial Officer of Lumber Liquidators Holdings, Inc[200](index=200&type=chunk)

Lumber Liquidators (NYSE:LL) Q1 2020 Results Conference Call May 28, 2020 8:30 AM ET Company Participants Paul Taaffe - IR Nancy Taylor - Chairperson Charles Tyson - President and CEO Nancy Walsh - CFO Conference Call Participants John Baugh - Stifel Laura Champine - Loop Capital Markets Simeon Gutman - Morgan Stanley Seth Basham - Wedbush Securities Bobby Friedner - Piper Sandler Operator Good morning, ladies and gentlemen, and welcome to Lumber Liquidators First Quarter 2020 Earnings Conference Call. As a ...