PART I - FINANCIAL INFORMATION Item 1. Consolidated Financial Statements and Supplementary Data The consolidated financial statements for Q1 2024 detail financial position, operations, and cash flows, highlighting a widened net loss and substantial going concern doubt Consolidated Balance Sheets As of March 31, 2024, total assets decreased to $523.1 million, total liabilities increased, and stockholders' equity declined Consolidated Balance Sheet Highlights (in thousands) | Account | March 31, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Total Current Assets | $271,295 | $288,193 | | Merchandise Inventories, Net | $248,271 | $265,290 | | Total Assets | $523,094 | $535,574 | | Total Current Liabilities | $174,611 | $187,222 | | Credit Agreement | $89,000 | $66,000 | | Total Liabilities | $393,611 | $378,264 | | Total Stockholders' Equity | $129,483 | $157,310 | Consolidated Statements of Operations and Comprehensive Loss For Q1 2024, the company reported a net loss of $29.0 million, a significant increase from the prior year, driven by a 21.7% decline in net sales Q1 2024 vs Q1 2023 Performance (in thousands, except per share data) | Metric | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Total Net Sales | $188,490 | $240,698 | | Gross Profit | $71,173 | $88,000 | | Operating Loss | $(27,392) | $(13,185) | | Net Loss | $(28,970) | $(10,585) | | Net Loss per Share—Diluted | $(1.00) | $(0.37) | Consolidated Statements of Cash Flows In Q1 2024, the company used $23.7 million in cash from operating activities, a sharp reversal from Q1 2023, leading to a net decrease in cash Cash Flow Summary (in thousands) | Cash Flow Activity | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Net Cash (Used in) Provided by Operating Activities | $(23,689) | $26,149 | | Net Cash Used in Investing Activities | $(1,855) | $(4,741) | | Net Cash Provided by (Used in) Financing Activities | $22,740 | $(25,231) | | Net Decrease in Cash | $(2,804) | $(3,823) | Notes to Consolidated Financial Statements The notes highlight a significant 'going concern' issue due to liquidity shortfalls, with management planning a sale-leaseback to mitigate this risk - The company has identified conditions that raise substantial doubt about its ability to continue as a going concern for at least one year from the financial statement issuance date19 - Management's plan to alleviate the going concern issue is to execute a sale-leaseback transaction for its Sandston distribution center, which is expected to provide sufficient funding to meet obligations and avoid covenant breaches2021 Sales Mix by Product Category (Q1 2024 vs Q1 2023) | Category | Q1 2024 Sales (in thousands) | % of Total | Q1 2023 Sales (in thousands) | % of Total | | :--- | :--- | :--- | :--- | :--- | | Manufactured Products | $89,270 | 47% | $120,832 | 50% | | Solid and Engineered Hardwood | $46,906 | 25% | $55,808 | 23% | | Moldings, Accessories & Other | $28,539 | 15% | $33,857 | 14% | | Installation & Delivery Services | $23,775 | 13% | $30,201 | 13% | | Total | $188,490 | 100% | $240,698 | 100% | - As of March 31, 2024, the company had $89.0 million outstanding under its Revolving Credit Facility with $57.3 million of availability remaining. The fixed charge coverage ratio covenant has not been triggered47 - A full valuation allowance of $42.9 million was recorded on the company's net deferred tax assets as of March 31, 2024, due to a cumulative three-year loss position50 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes the 21.7% sales decline to macroeconomic factors, while focusing on strategic initiatives and cost savings amidst ongoing going concern issues Executive Summary The company is navigating a difficult macroeconomic environment by focusing on five key strategic initiatives and implementing cost-saving measures - The company is executing five strategic initiatives: growing the Pro business, driving customer engagement via CRM, increasing brand awareness, driving product innovation (including carpet), and ensuring a consistent customer experience72 - Cost structure review initiated in 2023 has achieved $17.7 million in savings, with $4.4 million realized in Q1 202474 Results of Operations Net sales fell 21.7% in Q1 2024, leading to a significantly higher operating loss and net loss per share, despite a GAAP gross margin increase Selected Sales Data Changes (Q1 2024 vs Q1 2023) | Metric | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Comparable Store Net Sales | (21.5)% | (15.4)% | | Transaction Count | (18.5)% | (19.6)% | | Average Sale | $1,714 | $1,767 | GAAP vs. Non-GAAP Gross Margin Reconciliation (in thousands) | Metric | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Gross Profit (GAAP) | $71,173 (37.8%) | $88,000 (36.6%) | | Vinyl Charges (Recovery)/Cost | $(1,304) | $2,138 | | Adjusted Gross Profit (non-GAAP) | $69,869 (37.1%) | $90,138 (37.5%) | GAAP vs. Non-GAAP Operating Loss Reconciliation (in thousands) | Metric | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Operating Loss (GAAP) | $(27,392) (-14.5%) | $(13,185) (-5.5%) | | Adjustments (Vinyl Charges, Legal Fees) | $(1,304) | $2,418 | | Adjusted Operating Loss (non-GAAP) | $(28,696) (-15.2%) | $(10,767) (-4.5%) | GAAP vs. Non-GAAP Net Loss Per Share Reconciliation | Metric | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Net Loss per Diluted Share (GAAP) | $(1.00) | $(0.37) | | Adjusted Loss per Diluted Share (non-GAAP) | $(1.04) | $(0.31) | Liquidity, Capital Resources and Cash Flows Total liquidity was $63.3 million as of March 31, 2024, with projected insufficiency addressed by a planned sale-leaseback to mitigate going concern issues - Total liquidity was $63.3 million as of March 31, 2024, consisting of $6.0 million in cash and $57.3 million in excess availability under the Credit Agreement98 - The company believes its projected liquidity will be insufficient to maintain compliance with its fixed charge coverage ratio covenant in Q4 2024, raising substantial doubt about its ability to continue as a going concern102 - Management's plan to alleviate the going concern issue is to sell and lease back its Sandston, VA distribution center. Proceeds are expected to be sufficient funding to fund operations and prevent triggering the covenant for at least twelve months103 Merchandise Inventory Levels (in thousands) | Date | Total Merchandise Inventories | | :--- | :--- | | March 31, 2024 | $248,271 | | December 31, 2023 | $265,290 | | March 31, 2023 | $307,738 | Item 3. Quantitative and Qualitative Disclosures about Market Risk The company's primary market risk exposure is to interest rate fluctuations due to its variable-rate borrowings, with no current hedging in place - The company is exposed to interest rate risk from its variable rate borrowings. A hypothetical 1% increase in interest rates on the $89.0 million outstanding debt would increase annual interest expense by $0.9 million115 Item 4. Controls and Procedures Management concluded that the company's disclosure controls and procedures were effective as of March 31, 2024, with no material changes to internal controls - Based on an evaluation as of the end of the quarter, the CEO and CFO concluded that the company's disclosure controls and procedures were effective116 - No changes in internal control over financial reporting occurred during the quarter that materially affected, or are reasonably likely to materially affect, internal controls116 PART II - OTHER INFORMATION Item 1. Legal Proceedings This section refers to Note 7 of the financial statements for information on ongoing legal proceedings and related contingencies - Information regarding legal proceedings is incorporated by reference from Note 7, "Commitments and Contingencies", in the financial statements118 Item 1A. Risk Factors A significant risk factor highlights substantial doubt about the company's ability to continue as a going concern if mitigation plans are unsuccessful - A new risk factor highlights that conditions and events have raised substantial doubt about the company's ability to continue as a going concern119 - There is a risk that management's plans to alleviate the going concern issue, such as the sale-leaseback transaction, may be unsuccessful, which could force the company to delay or reduce capital expenditures and strategic initiatives120 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds During Q1 2024, the company repurchased 137,338 shares for $0.3 million related to vested restricted share awards, separate from its main repurchase program - The company did not repurchase any shares under its publicly announced repurchase authorization during Q1 2024. $43.0 million remains available under this program123 - The company repurchased 137,338 shares for $0.3 million in connection with the net settlement of vested restricted share awards, which is separate from the main repurchase program39124 Item 5. Other Information No directors or officers adopted or terminated a Rule 10b5-1 trading arrangement or a non-Rule 10b5-1 trading arrangement during the first quarter of 2024 - No directors or officers adopted or terminated a Rule 10b5-1 trading arrangement during the quarterly period125
LL Flooring (LL) - 2024 Q1 - Quarterly Report