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 March 31, 2024

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 May 03, 2024, there are 30,657,355 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 MARCH 31, 2024

TABLE OF CONTENTS

		Page
	PART I - FINANCIAL INFORMATION	2
Item 1.	Consolidated Financial Statements and Supplementary Data	2
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	16
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	26
Item 4.	Controls and Procedures	26
	PART II - OTHER INFORMATION	27
Item 1.	Legal Proceedings	27
Item 1A.	Risk Factors	27
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	27
Item 3.	Defaults Upon Senior Securities	28
Item 4.	Mine Safety Disclosures	28
Item 5.	Other Information	28
Item 6.	Exhibits	29
	Signatures	30

1

PART I

FINANCIAL INFORMATION

Item 1. Financial Statements.

LL Flooring Holdings, Inc.

Consolidated Balance Sheets (Unaudited)

In Thousands

	March 31,			December 31,
	2024			2023
Assets
Current Assets:
Cash and Cash Equivalents	$	5,968		$	8,772
Merchandise Inventories, Net		248,271			265,290
Prepaid Expenses		7,889			5,658
Other Current Assets		9,167			8,473
Total Current Assets		271,295			288,193
Property and Equipment, Net		99,518			100,490
Operating Lease Right-of-Use Assets		146,713			141,210
Other Assets		5,568			5,681
Total Assets	$	523,094		$	535,574
Liabilities and Stockholders’ Equity
Current Liabilities:
Accounts Payable	$	50,686		$	67,195
Customer Deposits and Store Credits		41,926			39,468
Accrued Compensation		6,043			6,915
Sales and Income Tax Liabilities		2,273			2,103
Accrual for Legal Matters and Settlements		14,321			15,344
Operating Lease Liabilities - Current		32,083			31,815
Other Current Liabilities		27,279			24,382
Total Current Liabilities		174,611			187,222
Other Long-Term Liabilities		8,332			8,391
Operating Lease Liabilities - Long-Term		121,668			116,651
Credit Agreement		89,000			66,000
Total Liabilities		393,611			378,264
Commitments and Contingencies
Stockholders’ Equity:
Common Stock ($0.001 par value; 35,000 shares authorized; 31,389 and 30,983 shares issued and 29,118 and 28,849 shares outstanding at March 31, 2024 and December 31, 2023, respectively)		31			31
Treasury Stock, at cost (2,271 and 2,134 shares, respectively)		(153,877	)		(153,617	)
Additional Capital		238,251			236,848
Retained Earnings		45,078			74,048
Total Stockholders’ Equity		129,483			157,310
Total Liabilities and Stockholders’ Equity	$	523,094		$	535,574

See accompanying notes to consolidated financial statements

2

LL Flooring Holdings, Inc.

Consolidated Statements of Operations and Comprehensive Loss (Unaudited)

In Thousands, Except Per Share Data

	Three Months Ended March 31,
	2024			2023
Net Sales
Net Merchandise Sales	$	164,715		$	210,497
Net Services Sales		23,775			30,201
Total Net Sales		188,490			240,698
Cost of Sales
Cost of Merchandise Sold		96,711			128,397
Cost of Services Sold		20,606			24,301
Total Cost of Sales		117,317			152,698
Gross Profit		71,173			88,000
Selling, General and Administrative Expenses		98,565			101,185
Operating Loss		(27,392	)		(13,185	)
Other Expense		1,526			1,159
Loss Before Income Taxes		(28,918	)		(14,344	)
Income Tax Expense (Benefit)		52			(3,759	)
Net Loss and Comprehensive Loss	$	(28,970	)	$	(10,585	)
Net Loss per Common Share—Basic	$	(1.00	)	$	(0.37	)
Net Loss per Common Share—Diluted	$	(1.00	)	$	(0.37	)
Weighted Average Common Shares Outstanding:
Basic		28,896			28,717
Diluted		28,896			28,717

See accompanying notes to consolidated financial statements

3

LL Flooring Holdings, Inc.

Consolidated Statements of Stockholders’ Equity (Unaudited)

In Thousands

For the Three Months Ended March 31, 2024 and 2023
																Total
	Common Stock					Treasury Stock					Additional		Retained			Stockholders’
	Shares		Par Value			Shares		Value			Capital		Earnings			Equity
December 31, 2022		28,695	$	31			2,063	$	(153,331	)	$	231,839	$	177,542		$	256,081
Stock-Based Compensation Expense		—		—			—		—			1,051		—			1,051
Release of Restricted Shares		103		—			—		—			—		—			—
Common Stock Repurchased		—		—			55		(231	)		—		—			(231	)
Net Loss		—		—			—		—			—		(10,585	)		(10,585	)
March 31, 2023		28,798		31			2,118	$	(153,562	)	$	232,890	$	166,957		$	246,316
December 31, 2023		28,849	$	31			2,134	$	(153,617	)	$	236,848	$	74,048		$	157,310
Stock-Based Compensation Expense		—		—			—		—			1,403		—			1,403
Release of Restricted Shares		269		(0	)		—		—			0		—			—
Common Stock Repurchased		—		—			137		(260	)		—		—			(260	)
Net Loss		—		—			—		—			—		(28,970	)		(28,970	)
March 31, 2024		29,118	$	31			2,271	$	(153,877	)	$	238,251	$	45,078		$	129,483

See accompanying notes to consolidated financial statements

4

LL Flooring Holdings, Inc.

Consolidated Statements of Cash Flows (Unaudited)

In Thousands

	Three Months Ended March 31,
	2024			2023
Cash Flows from Operating Activities:
Net Loss	$	(28,970	)	$	(10,585	)
Adjustments to Reconcile Net Loss:
Depreciation and Amortization		4,761			4,669
Deferred Income Taxes (Benefit) Provision		—			(3,836	)
Income on Redeemed Vouchers for Legal Settlements		(377	)		(253	)
Stock-Based Compensation Expense		1,404			1,051
Provision for Inventory Obsolescence Reserves		746			572
(Gain) Loss on Disposal of Fixed Assets		(6	)		—
Changes in Operating Assets and Liabilities:
Merchandise Inventories		15,647			23,574
Accounts Payable		(18,438	)		8,045
Customer Deposits and Store Credits		2,458			2,793
Prepaid Expenses and Other Current Assets		(2,925	)		1,826
Accrued Compensation		(872	)		(2,641	)
Accrual (Payment) for Legal Matters and Settlements		(20	)		—
Other Assets and Liabilities		2,903			934
Net Cash (Used in) Provided by Operating Activities		(23,689	)		26,149
Cash Flows from Investing Activities:
Purchases of Property and Equipment		(1,861	)		(4,741	)
Other Investing Activities		6			—
Net Cash Used in Investing Activities		(1,855	)		(4,741	)
Cash Flows from Financing Activities:
Borrowings on Credit Agreement		93,000			66,000
Payments on Credit Agreement		(70,000	)		(91,000	)
Common Stock Repurchased		(260	)		(231	)
Net Cash Provided by (Used in) Financing Activities		22,740			(25,231	)
Net Decrease in Cash and Cash Equivalents		(2,804	)		(3,823	)
Cash and Cash Equivalents, Beginning of Period		8,772			10,800
Cash and Cash Equivalents, End of Period	$	5,968		$	6,977
Supplemental Disclosure of Non-Cash Operating and Financing Activities:
Cash paid for interest	$	1,823		$	1,163
Relief of Inventory for Vouchers Redeemed for Legal Settlements	$	626		$	412
Tenant Improvement Allowance for Leases		—			(66	)

See accompanying notes to consolidated financial statements

5

LL Flooring Holdings, Inc.

Notes to Consolidated Financial Statements (Unaudited)

Note 1. Basis of Presentation

LL Flooring Holdings, Inc. ("LL Flooring" or "Company") engages in business as a multi-channel specialty retailer of flooring, and 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. In addition, the Company also began offering carpet during 2023. The Company also provides in-home delivery and installation services to its customers. The Company primarily sells to consumers or to flooring focused professionals such as flooring installers, remodelers, and small to medium home builders ("Pros") on behalf of consumers through a network of store locations in metropolitan areas. As of March 31, 2024, the Company’s 435 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 or concerns addressed, through both its customer contact center in Richmond, Virginia, and its digital platform, LLFlooring.com (information contained on or connected to our website is not incorporated by reference in this report and should not be considered part of this or any other report that we file with or furnish to the Securities and Exchange Commission ("SEC")).

The accompanying unaudited 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 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 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 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, 2023.

The consolidated financial statements of the Company include the accounts of its wholly owned subsidiaries. All intercompany transactions have been eliminated in consolidation.

Liquidity and Going Concern

Pursuant to the requirements of the Financial Accounting Standards Board's Accounting Standards Codification ("ASC") Topic 205-40, Presentation of Financial Statements - Going Concern, management must evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the Company's ability to continue as a going concern for one year from the date these financial statements are issued. This evaluation does not take into consideration the potential mitigating effect of management's plans that have not been fully implemented or are not within control of the Company as of the date the financial statements are issued. When substantial doubt exists under this methodology, management evaluates whether the mitigating effect of its plans sufficiently alleviates substantial doubt about the Company's ability to continue as a going concern. The mitigating effect of management's plans, however, is only considered if both (1) it is probable that the plans will be effectively implemented within one year after the date that the financial statements are issued, and (2) it is probable that the plans, when implemented, will mitigate the relevant conditions or events that raise substantial doubt about the entity's ability to continue as a going concern within one year after the date that the financial statements are issued.

The Company had cash and cash equivalents of approximately $6.0 million, $89.0 million outstanding under the Revolving Credit Facility, a net loss of $29.0 million, and $57.3 million of borrowing availability under the Credit Agreement for the quarter ended March 31, 2024. The Company’s ability to continue as a going concern is dependent on its ability to generate sufficient sales, profitability, and liquidity to meet the Company's obligations and maintain the minimum borrowing availability to prevent triggering its fixed charge coverage ratio covenant. Under terms of the Credit Agreement, the fixed charge coverage ratio is only required 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). The Company believes that its projected levels of liquidity will not be sufficient to maintain compliance with this covenant in the fourth quarter of 2024. These conditions raise substantial doubt regarding our ability to continue as a going concern for a period of at least one year from the date of issuance of these unaudited consolidated financial statements.

To alleviate these conditions, management plans to sell and enter into a sale leaseback transaction for its Sandston distribution center, which, as a result, met the criteria for held for sale after the balance sheet date. Proceeds from the sale leaseback

6

transaction are expected to be sufficient to fund the Company's operations and prevent triggering its fixed charge coverage ratio covenant for a period of at least twelve months subsequent to the issuance of these unaudited consolidated financial statements.

The accompanying unaudited consolidated financial statements of the Company have been prepared assuming the Company will continue as a going concern. The going concern basis of presentation assumes that the Company will continue in operation one year after the date these financial statements are issued and will be able to realize its assets and discharge its liabilities and commitments in the normal course of business. This also means that the accompanying unaudited consolidated financial statements do not include any adjustments that might result from the outcome of the uncertainties described above, which could be material.

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 approximate 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. 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 trade restrictions. Also included in merchandise inventories are tariff-related costs.

Inventory for the Company's soft surface offerings is also recorded at the lower of cost or net realizable value and is removed from inventory at weighted average cost. The Company does not maintain carpet inventory in stock. Instead it relies on the logistics and distribution capabilities of its single source supplier to deliver inventory to the installers who install the Company's carpet product for its customers. All purchases made via purchase order are recorded as inventory when shipped from the suppliers location and the Company obtains control of the inventory.

Recognition of Net Sales

The Company generates revenues primarily by retailing merchandise in the form of hard-surface flooring, carpet, 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. Sales occur through the Company’s network of stores 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. 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

7

of the merchandise or receiving the services are recorded as deferred revenues in the accompanying consolidated balance sheet caption "Customer Deposits and Store Credits."

The following table shows the activity in this account for the periods noted:

	Three Months Ended March 31,
	2024			2023
	(in thousands)
Customer Deposits and Store Credits, Beginning Balance	$	(39,468	)	$	(43,767	)
New Deposits		(203,556	)		(259,164	)
Recognition of Revenue		188,490			240,698
Sales Tax included in Customer Deposits		11,337			14,616
Other		1,271			1,057
Customer Deposits and Store Credits, Ending Balance	$	(41,926	)	$	(46,560	)

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 number of expected returns and records it within "Other Current Liabilities" on the consolidated balance sheet. The sales return reserve was $1.6 million and $1.7 million on March 31, 2024 and December 31, 2023, respectively. 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 consolidated balance sheet. This amount was $0.8 million and $0.9 million on March 31, 2024 and December 31, 2023, respectively. The Company recognizes sales commissions as incurred since the amortization period is less than one year.

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:

	Three Months Ended March 31,
	2024				2023
	(in thousands, except percentage data)
Manufactured Products1	$	89,270	47	%	$	120,832	50	%
Solid and Engineered Hardwood		46,906	25	%		55,808	23	%
Moldings and Accessories and Other2		28,539	15	%		33,857	14	%
Installation and Delivery Services		23,775	13	%		30,201	13	%
Total	$	188,490	100	%	$	240,698	100	%

1.Includes engineered vinyl plank, laminate, vinyl and tile.

2.Includes carpet.

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 one 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 was $0.3 million and $0.5 million on March 31, 2024 and December 31, 2023, respectively, and recorded in "Other Current Liabilities" on the accompanying consolidated balance sheets. The Company seeks recovery from its vendors and third-party independent contractors of installation services for certain amounts paid.

8

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.

Accounting Pronouncements Not Yet Adopted

In November, 2023, the FASB issued Accounting Standards Update ("ASU") No. 2023-07, "Segment Reporting (Topic 280) Improvements to Reportable Segment Disclosures" which expands annual and interim disclosure requirements for reportable segments, primarily through enhanced disclosures about significant expenses. The updated standard is effective for annual periods beginning in fiscal 2024 and interim periods beginning in the first quarter of fiscal 2025. Early adoption is permitted. The Company is currently evaluating the effect of adopting this ASU.

In December, 2023, the FASB issued ASU No. 2023-09 "Income Taxes (Topic 740): Improvements to Income Tax Disclosures" which requires two primary enhancements of 1) disaggregated information on a reporting entity's effective tax rate reconciliation, and 2) information on income taxes paid. For public business entities, the new requirements will be effective for annual periods beginning after December 15, 2024. The guidance will be applied on a prospective basis with the option to apply the standard retrospectively. Early adoption is permitted. The Company is currently evaluating the effect of adopting this ASU.

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 March 31,
	2024			2023
	(in thousands, except per share data)
Net Loss	$	(28,970	)	$	(10,585	)
Weighted Average Common Shares Outstanding—Basic		28,896			28,717
Effect of Dilutive Securities:
Common Stock Equivalents		—			—
Weighted Average Common Shares Outstanding—Diluted		28,896			28,717
Net Loss per Common Share—Basic	$	(1.00	)	$	(0.37	)
Net Loss per Common Share—Diluted	$	(1.00	)	$	(0.37	)

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 March 31,
	2024		2023
Stock Options		439		649
Restricted Shares		1,971		832

Stock Repurchase Program

In February 2012, the Company’s board of directors adopted an authorization for the repurchase of up to a total of $50.0 million of the Company’s common stock, which it increased by $50.0 million in each of November 2012 and January 2014. As of February 2022, the Company had purchased approximately $135.3 million common stock with $14.7 million remaining under this authorization, and the board of directors further increased this authority by an additional $35.3 million for a total authorization to repurchase up to $50.0 million of the Company’s common stock on the open market or in private transactions. As of March 31, 2024, there remains $43.0 million outstanding under the share repurchase authorization, which does not have an expiration date. The Company did not repurchase any shares under the authorization during the three months ended March 31, 2024 or March 31, 2023.

9

The timing and amount of any share repurchases under the authorization will be determined at the Company's discretion and based on market conditions and other considerations. Share repurchases under the authorizations may be made through open market purchases or pursuant to pre-set trading plans meeting the requirements of Rule 10b5-1 under the Securities Exchange Act of 1934. The program does not obligate LL Flooring to acquire any particular amount of its common stock, and the repurchase program may be suspended or discontinued at any time at the Company’s discretion.

Outside of the share repurchase program, the Company repurchased $0.3 million, or 137.3 thousand shares, of its common stock through net settlement of restricted share awards that vested during the three months ended March 31, 2024.

Note 4. Stock-based Compensation

The following table summarizes share activity related to employee stock options and restricted stock awards ("RSAs"):

	Stock Options			Restricted Stock Awards
	(in thousands)
Options Outstanding/Nonvested RSAs, December 31, 2023		451			2,220
Granted		—			—
Options Exercised/RSAs Released		—			(414	)
Forfeited		(21	)		(72	)
Options Outstanding/Nonvested RSAs, March 31, 2024		430			1,734

The Company granted zero performance awards during the three months ended March 31, 2024 and a target of 61.8 thousand performance awards with a grant date fair value of $0.3 million during the three months ended March 31, 2023. The performance awards in 2023 were awarded to certain members of senior management in connection with certain market conditions. All performance awards will cliff vest if the respective performance conditions are met at the end of the respective 3-year service periods. 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 service and vesting period. These awards are included above in RSAs granted.

The Company’s non-employee directors are compensated with an annual RSA grant, which is made under the Company's equity incentive plan. The amount of outstanding nonvested RSAs granted to non-employee directors was 166.7 thousand on both March 31, 2024 and December 31, 2023. 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 approximately one year). 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 in either a lump sum or up to five annual equal payments following a director's departure from the board. There were 404.0 thousand and 377.7 thousand deferred stock units outstanding at March 31, 2024 and December 31, 2023, respectively.

Stock-based compensation expense attributable to the Company's share-based equity awards was $1.4 million and $1.1 million for the three months ended March 31, 2024 and 2023, respectively. Stock-based compensation expense attributed to share-based equity awards issued under the Incentive Plan is recognized on a straight-line basis over the terms of the respective awards and is included in "Selling, General and Administrative Expenses" on the Company's consolidated statements of operations and comprehensive loss.

Note 5. Credit Agreement

On December 27, 2022, the Company entered into a Waiver and Third Amendment to the Credit Agreement (the "Amendment") with Bank of America, N.A. ("the "Bank") and Wells Fargo Bank, National Association ("Wells" and, collectively with the Bank, the "Lenders") and the Bank in its capacity as administrative agent and collateral agent (in this capacity, the "Agent") and Wells as syndication agent. The Amendment, among other things, (i) changed the rate under the Credit Agreement for borrowings from a LIBOR-based rate to a Term SOFR-based rate (as defined in the Amendment), subject to certain adjustments specified in the Amendment and (ii) provided a waiver of a technical event of default under the Credit Agreement related to providing notice to the Lenders of the Company’s name change from Lumber Liquidators Holdings, Inc. to LL Flooring Holdings, Inc. Except as set forth in the Amendment, all other terms and conditions of the Credit Agreement remain in place.

10

The Credit Agreement contains a Revolving Credit Facility of up to $200.0 million subject to the conditions under the Revolving Borrowing Base, and the Company has an option to increase the Revolving Credit Facility to a maximum total amount of $250.0 million. The Credit Agreement has a maturity date of 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 Amendment defines the margin for Term SOFR Rate Loans (as defined in the Amendment) as a range of 1.25% to 1.75% over the applicable Term SOFR Rate with respect to revolving loans depending on the Company’s average daily excess borrowing availability. The unused commitment fee is 0.25% per annum based 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 three months ended March 31, 2024 was 7.0%.

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).

As of March 31, 2024, there was $89.0 million outstanding under the Revolving Credit Facility. The Company had $7.6 million in letters of credit which reduces its availability. As of March 31, 2024, there was $57.3 million of availability under the Credit Agreement, which represents a decrease of $52.1 million from $109.4 million of availability as of December 31, 2023. Given the availability at March 31, 2024, the fixed charge coverage ratio covenant has not been triggered.

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 March 31, 2024, the Company recognized an income tax expense of $0.1 million, which represented an effective tax rate of (0.2)%. For the three months ended March 31, 2023, the Company recognized income tax benefit of $3.8 million, which represented an effective tax rate of 26.3%. The change of effective tax rate is a result of the establishment of a full valuation allowance in the quarter ended June 30, 2023.

In 2023, the Company established a valuation allowance on its net deferred tax assets. As of March 31, 2024, the Company has a full valuation allowance of $42.9 million recorded on its net deferred tax assets of $42.6 million. As of March 31, 2024, The Company was in a consolidated cumulative three-year loss position. The Company intends to maintain a valuation allowance on its deferred tax assets until there is sufficient evidence to support the reversal of all or some portion of these allowances. A reduction in the valuation allowance could result in a significant decrease in income tax expense in the period that the release is recorded. However, any adjustments to the Company’s valuation allowance will depend on current year earnings and estimates of future taxable income and will be made in the period such determination is made.

In 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 factual errors, is disputing this assessment, and will defend itself vigorously in this matter. The Company is pursuing an administrative appeal, which was filed on April 15, 2022. Upon careful consideration and examination, the Company computed and recorded a contingent liability for $0.3 million, included in accrued expenses in the Consolidated Balance Sheets. The estimated liability is adjusted upon the payment of sales tax related to the accrual, the changes in state tax laws that may impact the accrual and the expiration of the statute of limitations for open years under review. The liability includes significant judgments and estimates that may change in the future, and the actual liability may be different from our current estimate.

11

Note 7. Commitments and Contingencies

The following chart shows the activity related to current legal matters and settlements accrued. The matters themselves are described in greater detail in the paragraphs that follow the chart.

	December 31, 2023												March 31, 2024
Litigation Matter	Accrual for Legal Matters				Settlement			Vouchers			Vouchers		Accrual for Legal Matters
Description	and Settlements - Current		Accruals		Payments			Redeemed			Expired		and Settlements - Current
	(in thousands)
MDL	$	3,348	$	—	$	—		$	(740	)	$	—	$	2,608
Gold		11,572		—		—			(263	)		—	$	11,309
Other Matters		424		119		(139	)		—			—	$	404
	$	15,344	$	119	$	(139	)	$	(1,003	)	$	—	$	14,321
	December 31, 2022												March 31, 2023
Litigation Matter	Accrual for Legal Matters				Settlement			Vouchers			Vouchers		Accrual for Legal Matters
Description	and Settlements - Current		Accruals		Payments			Redeemed			Expired		and Settlements - Current
	(in thousands)
MDL	$	9,070	$	—	$	—		$	(320	)	$	—	$	8,750
Gold		12,864		—		—			(345	)		—		12,519
Other Matters		225		—		—			—			—	$	225
	$	22,159	$	—	$	—		$	(665	)	$	—	$	21,494

1The remaining accrual will be fulfilled by redeeming vouchers as discussed below.

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 intends for recipients to redeem their vouchers for product, as this compensation was provided as part of the legal settlement and is available for redemption until expiration. The rules on the expiration or escheat of any unused vouchers vary by state, and to the extent any expire unused, they will be terminated in accordance with those respective rules.

As of March 31, 2024, the remaining accrual related to these matters was $2.6 million for vouchers. As $0.7 million of vouchers were redeemed during the three months ended March 31, 2024, the Company reduced 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 $0.3 million was recorded as a reduction in "Selling, General and Administrative Expenses" ("SG&A") on the consolidated statement of operations. The Company included those amounts in "MDL" in the chart above.

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 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 intends for recipients to redeem their vouchers for product, as this compensation was provided as part of the legal settlement and is available for redemption until expiration. The rules on the expiration or escheat of any unused vouchers vary by state, and to the extent any expire unused, they will be terminated in accordance with those respective rules.

12

As of March 31, 2024, the remaining accrual related to these matters was $11.3 million for vouchers. As $0.3 million of vouchers were redeemed during the three months ended March 31, 2024, the Company reduced 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 $0.1 million was recorded as a reduction in SG&A on the consolidated statement of operations. The Company included those amounts in "Gold" in the chart above.

Antidumping and Countervailing Duties Investigation

In October 2010, a conglomeration of domestic manufacturers of multilayered wood flooring ("Petitioners") filed a petition seeking the imposition of antidumping ("AD") and countervailing duties ("CVD") with the United States Department of Commerce ("DOC") and the United States International Trade Commission ("ITC") against imports of multilayered wood flooring from China. This ruling applies to companies importing multilayered wood flooring from Chinese suppliers subject to the AD and CVD orders. The Company’s multilayered wood flooring imports from China accounted for approximately 2.1% of its flooring purchases for the three months ended March 31, 2024.

As part of its processes in these proceedings, the DOC conducts annual reviews of the AD and CVD rates. In such cases, the DOC will issue preliminary rates that are not binding and are subject to comment by interested parties. After consideration of the comments received, the DOC will issue final rates for the applicable period, which may lag by a year or more. At the time of import, the Company makes deposits at the then prevailing rate, even while the annual review is in process. When rates are declared final by the DOC, the Company recognizes a receivable or accrues a payable depending on where that final rate compares to the deposits it has made. The final rate amounts are not accrued by the Company until the DOC publishes these rates or the Company receives a notice from CBP, as such the rate amounts are not probable or reasonably estimable until that time. The Company and/or the domestic manufacturers can appeal the final rate for any period and, and the DOC can place a hold on final settlement by CBP while the appeals are pending.

The Company as well as other involved parties have appealed many of the final rate determinations. Certain of those appeals are pending and, at times, have resulted in delays in settling the shortfalls and refunds. 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.

The outstanding AD and CVD principal balances are detailed in the table that follows under the corresponding consolidated balance sheet line item. These amounts represent what 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. These amounts do 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 income related to antidumping and countervailing duties of $0.1 million for the three months ended March 31, 2024 compared to net interest expense of $0.2 million for the three months ended March 31, 2023. The amounts for both years are included in other expense on the consolidated statements of operations and comprehensive loss. The estimated associated interest payable and receivable for each period is recorded separately from the principal balance in the respective other current assets, other current liabilities, or long-term liabilities financial statement line item on the Company’s consolidated balance sheet.

13

Antidumping
Review Period	Period Covered	Deposited Rates1	Determined Rates2	Other Current Assets		Other Current Liabilities			Other Long-Term Liabilities
				(in thousands)
1	May 2011 - Nov 2012	6.78% / 3.30%	0.00%4	$	1	$	—		$	—
2	Dec 2012 - Nov 2013	3.30%	3.92% / 49.84%4		—		(327	)		—
3	Dec 2013 - Nov 2014	3.30% / 5.92%	0.00%4		1,819		—			—
4	Dec 2014 - Nov 2015	5.92% / 13.74%	0.00%5		—		—			—
5	Dec 2015 - Nov 2016	5.92% / 13.74% / 17.37%	0.00%5		—		—			—
6	Dec 2016 - Nov 2017	17.37% / 0.00%	42.57% / 0.00%3,4		503		—			(1,464	)
7	Dec 2017 - Nov 2018	0.00%	2.05%6		—		—			(95	)
8	Dec 2018 - Nov 2019	0.00%	0.00%3		—		—			—
9	Dec 2019 - Nov 2020	0.00%	39.27%3		—		—			(1,137	)
Total Principal Balance as of March 31, 2024				$	2,323	$	(327	)	$	(2,696	)
Countervailing
Review Period	Period Covered	Deposited Rates1	Determined Rates2	Other Current Assets		Other Current Liabilities			Other Long-Term Liabilities
				(in thousands)
1 & 2	Apr 2011 - Dec 2012	1.50%	0.83% / 0.99%4	$	26	$	—		$	—
3	Jan 2013 - Dec 2013	1.50%	1.38%4		37		—			—
4	Jan 2014 - Dec 2014	1.50% / 0.83%	1.06%4		16		—			—
5	Jan 2015 - Dec 2015	0.83% / 0.99%	0.11% / 0.85%4		73		—			—
6	Jan 2016 - Dec 2016	0.99% / 1.38%	3.10% / 2.96%4		—		(38	)		—
7	Jan 2017 - Dec 2017	1.38% / 1.06%	14.09%3		—		—			(1,087	)
8	Jan 2018 - Dec 2018	1.06%	6.13%3		—		—			(287	)
9	Jan 2019 - Dec 2019	0.00% / 0.85% / 2.96%	3.36% / 9.85%3		—		—			(81	)
Total Principal Balance as of March 31, 2024				$	152	$	(38	)	$	(1,455	)

1 These are the rates determined by the DOC which the Company deposited at upon import. Multiple rates are listed if the timing of the DOC update to the deposit rate fell within the period, resulting in the remaining deposits for that period to be made at the updated rate.

2 These rates represent the current published weighted average rate after initial review or after finalization of the appeals process, with multiple rates listed if applied to different producers and/or exporters.

3 This is the published weighted average rate determined by the DOC for this period which is currently under appeal and, as a result, the period remains open.

4 This is the final published weighted average rate determined by the DOC after completion of the appeals process. Liquidation instructions have been issued, but CBP has not fully liquidated the entries in this period. As such, the period remains open.

5 This is the final published weighted average rate determined by the DOC after completion of the appeals process. This period of review has been completed and fully liquidated and is now closed.

6 In October 2023, the higher weighted average rate of 2.05% offered by the DOC on appeal was accepted by the CIT for the seventh annual review period. The CVD appeals are still ongoing and entries won't be liquidated until both AD and CVD appeals are final.

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"). 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 ("the plaintiffs") filed a lawsuit with the Court of International Trade ("CIT") challenging the Section 301 tariffs under Lists 3 and 4a and the USTR's actions. The plaintiffs argued that the USTR had not acted within its statutory authority when it modified the original Section 301 determinations on certain goods from China by adding Lists 3 and 4a and that the agency had not demonstrated that it satisfied the procedural requirements of the Administrative Procedure Act. On March 17, 2023, the CIT issued a decision sustaining the List 3 and 4a tariffs. The CIT’s decision was appealed by the plaintiffs to the Court of Appeals for the Federal Circuit ("CAFC") on May 13, 2023. If these appeals are successful, the Company may qualify for refunds on these Section 301 tariffs. At this time, the Company is unable to predict the timing or outcome of the ruling by the CAFC.

14

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.

Note 8. Related Party Transactions

Beginning in the second quarter of 2023, F9 Investments, LLC, has filed a Schedule 13D (and three subsequent amendments) with the SEC indicating beneficial ownership of more than 5% of the Company's voting securities. As of March 31, 2024, the Company leased 29 of its store locations, representing 6.7% of the total number of store leases in operation, from entities controlled by F9 Investments, LLC. Rental expense for the three months ended March 31, 2024 was $0.6 million.

15

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," "assumes," "believes," "thinks," "estimates," "seeks," "predicts," "could," "projects," "targets," "potential," "will likely result," 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 of any of the following:

•our ability to continue as a going concern is contingent upon obtaining sufficient liquidity to fund operations;

•reduced consumer spending due to slower growth, economic recession, inflation, higher interest rates, and consumer sentiment;

•our advertising and overall marketing strategy, including anticipating consumer trends and increasing brand awareness;

•a sustained period of inflation impacting consumer spending;

•our inability to execute on our key initiatives or if such key initiatives do not yield desired results;

•stock price volatility;

•competition, including alternative e-commerce offerings;

•liquidity and/or capital resources changes and the impact of any changes or limitations, including, without limitation, ability to raise new capital, borrow funds and/or renew or roll over existing indebtedness;

•transportation availability and costs, including the impact of the war in Ukraine and the conflict in the Middle East on the Company's European and Asian suppliers;

•disruptions to supply chain and product availability related to forced labor and other trade regulations, including with respect to the Uyghur Forced Labor Prevention Act ("UFLPA");

•inability to hire and/or retain employees;

•inability to staff stores due to overall pressures in the labor market;

•the outcomes of legal proceedings, and the related impact on liquidity;

•reputational harm;

•inability to open new stores with acceptable returns, find suitable locations for our new store concept, and fund other capital expenditures;

•managing growth;

•disruption in our ability to distribute our products, including due to severe weather;

•operating an office in China;

•managing third-party installers and product delivery companies;

•renewing store, warehouse, or other corporate leases;

•maintaining optimal inventory for consumer demand;

•our and our suppliers’ compliance with complex and evolving rules, regulations, and laws at the federal, state, and local level;

•having an overreliance on limited or sole-source suppliers;

16

•damage to our assets;

•availability of suitable hardwood, carpet and other products, including disruptions from the impacts of sev