PART I – FINANCIAL INFORMATION Item 1. Condensed Consolidated Financial Statements and Supplementary Data Presents the unaudited condensed consolidated financial statements as of June 30, 2022, including key statements and explanatory notes Condensed Consolidated Balance Sheets Total assets grew to $641.3 million, driven by a $104.4 million inventory increase funded by cash reduction and new debt Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Assets | | | | Cash and Cash Equivalents | $5,032 | $85,189 | | Merchandise Inventories | $358,804 | $254,385 | | Total Current Assets | $389,790 | $359,828 | | Total Assets | $641,260 | $605,892 | | Liabilities & Equity | | | | Accounts Payable | $88,954 | $63,464 | | Credit Agreement | $15,000 | $0 | | Total Liabilities | $367,991 | $333,771 | | Total Stockholders' Equity | $273,269 | $272,121 | | Total Liabilities and Stockholders' Equity | $641,260 | $605,892 | Condensed Consolidated Statements of Income and Comprehensive Income Q2 2022 profitability declined sharply, with net income falling 77.2% to $2.7 million on slightly lower sales Q2 2022 vs Q2 2021 Income Statement (in thousands, except per share) | Metric | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | | :--- | :--- | :--- | | Total Net Sales | $298,957 | $301,384 | | Gross Profit | $106,750 | $112,730 | | Operating Income | $4,663 | $16,614 | | Net Income | $2,736 | $11,989 | | Net Income per Share—Diluted | $0.09 | $0.41 | Six Months 2022 vs 2021 Income Statement (in thousands, except per share) | Metric | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :--- | :--- | :--- | | Total Net Sales | $577,989 | $584,834 | | Gross Profit | $210,829 | $228,322 | | Operating Income | $9,717 | $29,720 | | Net Income | $6,773 | $22,611 | | Net Income per Share—Diluted | $0.23 | $0.77 | Condensed Consolidated Statements of Cash Flows Net cash used in operations was $76.0 million in H1 2022, a reversal from prior year, mainly due to a large inventory build-up Cash Flow Summary for Six Months Ended June 30 (in thousands) | Cash Flow Activity | 2022 | 2021 | | :--- | :--- | :--- | | Net Cash (Used in) Provided by Operating Activities | $(75,982) | $53,334 | | Net Cash Used in Investing Activities | $(11,564) | $(7,378) | | Net Cash Provided by (Used in) Financing Activities | $7,389 | $(103,502) | | Net Decrease in Cash and Cash Equivalents | $(80,157) | $(57,546) | - The significant use of cash in operations was mainly due to a $106.0 million investment in merchandise inventories, compared to a $17.6 million source of cash from inventories in the prior year17 Notes to Condensed Consolidated Financial Statements Notes detail the business model, accounting policies, share repurchases, credit facility, and significant legal contingencies - The company operates as a single segment, multi-channel specialty retailer of hard-surface flooring with 437 stores in 47 U.S. states as of June 30, 202220 Sales Mix by Product Category (Six Months Ended June 30) | Product Category | 2022 % of Sales | 2021 % of Sales | | :--- | :--- | :--- | | Manufactured Products¹ | 48% | 46% | | Solid and Engineered Hardwood | 24% | 26% | | Moldings and Accessories | 15% | 15% | | Installation and Delivery Services | 13% | 13% | ¹Includes engineered vinyl plank, laminate, vinyl and tile. - In February 2022, the board authorized a $50.0 million share repurchase program; during Q2 2022, the company repurchased 571,332 shares for $7.0 million, with $43.0 million remaining40 - The company has a $200 million Revolving Credit Facility maturing in April 2026; as of June 30, 2022, $15 million was outstanding, with $181.9 million available4649 - The company is subject to various legal proceedings, including antidumping and countervailing duties (AD/CVD) on wood flooring from China, which resulted in a $1.1 million liability in Q2 2022567881 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Management analyzes Q2 2022 performance, highlighting decreased sales and margins due to cost pressures and softer consumer demand Second Quarter Financial Highlights Q2 2022 saw a 0.8% net sales decrease, a 3.1% comparable store sales decline, and significantly compressed margins Q2 2022 Key Performance Indicators | Metric | Q2 2022 | Change vs. Q2 2021 | | :--- | :--- | :--- | | Net Sales | $299.0M | -0.8% | | Comparable Store Sales | -3.1% | N/A | | Gross Margin | 35.7% | -170 bps | | Adjusted Gross Margin (non-GAAP) | 36.1% | -130 bps | | Operating Margin | 1.6% | -390 bps | | Adjusted Operating Margin (non-GAAP) | 2.0% | -360 bps | | Diluted EPS | $0.09 | -$0.32 | | Adjusted EPS (non-GAAP) | $0.13 | -$0.28 | Results of Operations Weaker consumer demand drove a 0.8% sales decline, while higher costs compressed gross margin and operating income - Net sales for Q2 2022 decreased 0.8% to $299.0 million, with comparable store sales down 3.1%, attributed to lower consumer spending partially offset by record sales to Pro customers106107 - Gross margin for Q2 2022 decreased by 170 basis points to 35.7%, primarily due to a collective impact of more than 1,000 basis points from higher material and transportation costs108 - SG&A expenses for Q2 2022 increased by $6.0 million to $102.1 million, driven by investments for long-term growth, higher advertising, and personnel costs111 Liquidity, Capital Resources and Cash Flows Total liquidity stood at $187 million, with operating cash flow used for inventory build-up and capital expenditures - Total liquidity was $187 million as of June 30, 2022, consisting of $5.0 million in cash and $181.9 million in availability under the Revolving Loan130 - Net cash used in operating activities was $76.0 million for the first six months of 2022, largely due to a $106.0 million increase in inventory purchases130 - The company plans for $23 million to $25 million in capital expenditures for 2022, which includes opening 20 to 22 new stores131 Item 3. Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk exposure is interest rate fluctuations on its variable-rate credit facility - The company is exposed to interest rate risk from its variable rate borrowings; with $15 million outstanding, a hypothetical 1% rate increase would increase annual interest expense by $150,000139 Item 4. Controls and Procedures Management confirms the effectiveness of disclosure controls and procedures with no material changes to internal controls during the quarter - Based on an evaluation as of the end of the quarter, the Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures were effective140 - No changes in internal control over financial reporting occurred during the quarter that materially affected, or are reasonably likely to materially affect, internal controls140 PART II – OTHER INFORMATION Item 1. Legal Proceedings Information regarding legal proceedings is incorporated by reference from Note 7 in the condensed consolidated financial statements - Details on legal proceedings are provided in Note 7 to the condensed consolidated financial statements141 Item 1A. Risk Factors There are no new risk factors presented in this report, with reference made to the 2021 Annual Report on Form 10-K - The company directs investors to review the risk factors detailed in its Form 10-K for the year ended December 31, 2021142 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company repurchased 571,332 shares for $7.0 million in Q2 2022, with $43.0 million remaining under the buyback program Share Repurchase Activity for Q2 2022 | Period | Total Shares Purchased | Average Price Paid per Share | Total Purchased in Program | Max Value Remaining in Program | | :--- | :--- | :--- | :--- | :--- | | April 2022 | 106,000 | $14.13 | 106,000 | $48,506,000 | | May 2022 | 465,000 | $11.83 | 571,000 | $43,000,000 | | June 2022 | 0 | N/A | 571,000 | $43,000,000 | | Total | 571,000 | $12.25 | 571,000 | $43,000,000 | Item 3. Defaults Upon Senior Securities None reported - None145 Item 4. Mine Safety Disclosures None reported - None145 Item 5. Other Information None reported - None145 Item 6. Exhibits Lists exhibits filed with the Form 10-Q, including compensation agreements and required officer certifications - Exhibits filed include Restricted Stock Unit and Award Agreements for non-employee directors, and Sarbanes-Oxley Section 302 and 906 certifications148
LL Flooring (LL) - 2022 Q2 - Quarterly Report