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,~~September 30, 2022

☐ 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 ~~April 29,~~October 28, 2022, there are ~~29,778,711~~29,301,879 shares of the registrant’s common stock, par value of $0.001 per share, outstanding.

Table of Contents

LL FLOORING HOLDINGS, INC.

Quarterly Report on Form 10-Q

For the quarter ended ~~March 31,~~September 30, 2022

TABLE OF CONTENTS

Table of Contents

PART I
FINANCIAL INFORMATION

Item 1. Financial Statements.

LL Flooring Holdings, Inc.
Condensed Consolidated Balance Sheets
(Unaudited, in thousands)


	March 31,		December 31,		September 30,		December 31,
	2022		2021		2022		2021
Assets
Current Assets:
Cash and Cash Equivalents	$	56,071	$	85,189	$	6,051	$	85,189
Merchandise Inventories		318,574		254,385		365,622		254,385
Prepaid Expenses		10,549		9,160		11,200		9,160
Other Current Assets		12,793		11,094		16,673		11,094
Total Current Assets		397,987		359,828		399,546		359,828
Property and Equipment, net		99,365		96,926		100,555		96,926
Operating Lease Right-of-Use Assets		125,747		119,510		124,531		119,510
Goodwill		9,693		9,693		9,693		9,693
Net Deferred Tax Assets		11,179		11,336		11,285		11,336
Other Assets		6,659		8,599		6,209		8,599
Total Assets	$	650,630	$	605,892	$	651,819	$	605,892

Liabilities and Stockholders’ Equity
Current Liabilities:
Accounts Payable	$	91,109	$	63,464	$	62,103	$	63,464
Customer Deposits and Store Credits		69,314		67,063		48,877		67,063
Accrued Compensation		7,605		10,128		7,592		10,128
Sales and Income Tax Liabilities		5,070		4,297		3,887		4,297
Accrual for Legal Matters and Settlements		32,527		33,611		22,881		33,611
Operating Lease Liabilities - Current		33,730		33,060		34,293		33,060
Other Current Liabilities		26,404		20,717		25,073		20,717
Total Current Liabilities		265,759		232,340		204,706		232,340
Other Long-Term Liabilities		5,714		4,268		6,965		4,268
Operating Lease Liabilities - Long-Term		102,654		97,163		100,861		97,163
Credit Agreement		—		—		69,000		—
Total Liabilities		374,127		333,771		381,532		333,771

Commitments and Contingencies

Stockholders’ Equity:
Common Stock ($0.001 par value; 35,000 shares authorized; 30,702 and 30,536 shares issued and 29,228 and 29,113 shares outstanding, respectively)		31		31
Treasury Stock, at cost (1,474 and 1,423 shares, respectively)		(146,147)		(145,337)
Common Stock ($0.001 par value; 35,000 shares authorized; 30,743 and 30,536 shares issued and 28,686 and 29,113 shares outstanding, respectively)						31		31
Treasury Stock, at cost (2,057 and 1,423 shares, respectively)						(153,284)		(145,337)
Additional Capital		228,959		227,804		230,918		227,804
Retained Earnings		193,660		189,623		192,622		189,623
Total Stockholders’ Equity		276,503		272,121		270,287		272,121
Total Liabilities and Stockholders’ Equity	$	650,630	$	605,892	$	651,819	$	605,892

See accompanying notes to condensed consolidated financial statements

Table of Contents

LL Flooring Holdings, Inc.
Condensed Consolidated Statements of ~~Income~~Operations and Comprehensive (Loss) Income
(Unaudited, in thousands, except per share amounts)

Three Months Ended

March 31,

2022

2021

Net Sales

Net Merchandise Sales

244,271

250,043
Net Services Sales

34,761

33,407
Total Net Sales

$
279,032

$
283,450
Cost of Sales

Cost of Merchandise Sold

147,419

142,010
Cost of Services Sold

27,534

25,848
Total Cost of Sales

174,953

167,858
Gross Profit

104,079

115,592
Selling, General and Administrative Expenses

99,025

102,487
Operating Income

5,054

13,105
Other Income

(15)

(769)
Income Before Income Taxes

5,069

13,874
Income Tax Expense

1,032

3,252
Net Income and Comprehensive Income

$
4,037

$
10,622

Net Income per Common Share—Basic

$
0.14

$
0.37
Net Income per Common Share—Diluted

$
0.14

$
0.36

Weighted Average Common Shares Outstanding:

Basic

29,145

28,943
Diluted

29,417

29,547

Three Months Ended

Nine Months Ended

September 30,

2022

2021

2022

2021

Net Sales

Net Merchandise Sales

229,204

240,802

731,044

750,388

Net Services Sales

39,617

41,427

115,766

116,675

Total Net Sales

268,821

282,229

846,810

867,063

Cost of Sales

Cost of Merchandise Sold

142,041

144,307

449,987

442,914

Cost of Services Sold

31,198

32,721

90,412

90,626

Total Cost of Sales

173,239

177,028

540,399

533,540

Gross Profit

95,582

105,201

306,411

333,523

Selling, General and Administrative Expenses

99,692

93,165

300,804

291,767

Operating (Loss) Income

(4,110)

12,036

5,607

41,756

Other Expense (Income)

646

830

(252)

(Loss) Income Before Income Taxes

(4,756)

12,018

4,777

42,008

Income Tax (Benefit) Expense

(982)

3,239

1,778

10,618

Net (Loss) Income and Comprehensive (Loss) Income

(3,774)

8,779

2,999

31,390

Net (Loss) Income per Common Share—Basic

(0.13)

0.30

0.10

1.08

Net (Loss) Income per Common Share—Diluted

(0.13)

0.30

0.10

1.06

Weighted Average Common Shares Outstanding:

Basic

28,668

29,082

28,859

28,984

Diluted

28,668

29,455

29,010

29,494

See accompanying notes to condensed consolidated financial statements

Table of Contents

LL Flooring Holdings, Inc.
Condensed Consolidated Statements of Stockholders’ Equity
(Unaudited, in thousands)


											Total
	Common Stock			Treasury Stock			Additional		Retained		Stockholders'
	Shares	Value		Shares	Value		Capital		Earnings		Equity

June 30, 2021	29,063	$	30	1,392	$	(144,788)	$	225,287	$	170,536	$	251,065
Stock-Based Compensation Expense	—		—	—		—		1,349		—		1,349
Release of Restricted Shares	26		—	—		—		—		—		—
Common Stock Repurchased	—		—	15		(290)		—		—		(290)
Net Income	—		—	—		—		—		8,779		8,779
September 30, 2021	29,089	$	30	1,407	$	(145,078)	$	226,636	$	179,315	$	260,903

June 30, 2022	28,680	$	31	2,053	$	(153,244)	$	230,086	$	196,396	$	273,269
Stock-Based Compensation Expense	—		—	—		—		832		—		832
Release of Restricted Shares	6		—	—		—		—		—		—
Common Stock Repurchased	—		—	4		(40)		—		—		(40)
Net Loss	—		—	—		—		—		(3,774)		(3,774)
September 30, 2022	28,686	$	31	2,057	$	(153,284)	$	230,918	$	192,622	$	270,287

Total

Common Stock

Treasury Stock

Additional

Retained

Stockholders'


Shares

Value

Shares

Value

Capital

Earnings

Equity

December 31, 2020

28,911

$
30

1,318

$
(142,977)

$
222,628

$
147,925

$
227,606
Stock-Based Compensation Expense

—

—

—

—

1,230

—

1,230
Exercise of Stock Options

3

—

—

—

41

—

41
Release of Restricted Shares

111

—

—

—

—

—

—
Common Stock Repurchased

—

—

55

(1,375)

—

—

(1,375)
Net Income

—

—

—

—

—

10,622

10,622
March 31, 2021

29,025

$
30

1,373

$
(144,352)

$
223,899

$
158,547

$
238,124

December 31, 2021

29,113

$
31

1,423

$
(145,337)

$
227,804

$
189,623

$
272,121
Stock-Based Compensation Expense

—

—

—

—

873

—

873
Exercise of Stock Options

20

—

—

—

282

—

282
Release of Restricted Shares

95

—

—

—

—

—

—
Common Stock Repurchased

—

—

51

(810)

—

—

(810)
Net Income

—

—

—

—

—

4,037

4,037
March 31, 2022

29,228

$
31

1,474

$
(146,147)

$
228,959

$
193,660

$
276,503


											Total
	Common Stock			Treasury Stock			Additional		Retained		Stockholders'
	Shares	Value		Shares	Value		Capital		Earnings		Equity

December 31, 2020	28,911	$	30	1,318	$	(142,977)	$	222,628	$	147,925	$	227,606
Stock-Based Compensation Expense	—		—	—		—		3,945		—		3,945
Exercise of Stock Options	6		—	—		—		63		—		63
Release of Restricted Shares	172		—	—		—		—		—		—
Common Stock Repurchased	—		—	89		(2,101)		—		—		(2,101)
Net Income	—		—	—		—		—		31,390		31,390
September 30, 2021	29,089	$	30	1,407	$	(145,078)	$	226,636	$	179,315	$	260,903

December 31, 2021	29,113	$	31	1,423	$	(145,337)	$	227,804	$	189,623	$	272,121
Stock-Based Compensation Expense	—		—	—		—		2,818		—		2,818
Exercise of Stock Options	21		—	—		—		296		—		296
Release of Restricted Shares	123		—	—		—		—		—		—
Common Stock Repurchased	(571)		—	634		(7,947)		—		—		(7,947)
Net Income	—		—	—		—		—		2,999		2,999
September 30, 2022	28,686	$	31	2,057	$	(153,284)	$	230,918	$	192,622	$	270,287

See accompanying notes to condensed consolidated financial statements

Table of Contents

LL Flooring Holdings, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited, in thousands)

Three Months Ended March 31,

2022

2021

Cash Flows from Operating Activities:




Net Income

$
4,037

$
10,622
Adjustments to Reconcile Net Income:

Depreciation and Amortization

4,492

4,664
Deferred Income Taxes Provision

157

27
Income on Vouchers Redeemed for Legal Settlements

(423)

(503)
Stock-Based Compensation Expense

873

1,230
Provision for Inventory Obsolescence Reserves

(110)

26
Gain on Disposal of Fixed Assets

(9)

(30)
Changes in Operating Assets and Liabilities:

Merchandise Inventories

(64,793)

18,002
Accounts Payable

26,037

6,042
Customer Deposits and Store Credits

2,251

6,822
Accrued Compensation

(2,523)

(6,759)
Tariff Recovery Receivable

-

3,008
Prepaid Expenses and Other Current Assets

(2,448)

1,301
Accrual for Legal Matters and Settlements

53

7,698
Other Assets and Liabilities

9,005

(7,655)
Net Cash (Used in) Provided by Operating Activities

(23,401)

44,495

Cash Flows from Investing Activities:

Purchases of Property and Equipment

(5,250)

(4,296)
Proceeds from Disposal of Fixed Assets

61

58
Net Cash Used in Investing Activities

(5,189)

(4,238)

Cash Flows from Financing Activities:

Common Stock Repurchased

(810)

(1,375)
Other Financing Activities

282

41
Net Cash Used in Financing Activities

(528)

(1,334)
Net (Decrease) Increase in Cash and Cash Equivalents

(29,118)

38,923
Cash and Cash Equivalents, Beginning of Year

85,189

169,941
Cash and Cash Equivalents, End of Year

$
56,071

$
208,864

Supplemental disclosure of non-cash operating and financing activities:

Relief of Inventory for Vouchers Redeemed for Legal Settlements

$
714

$
977
Tenant Improvement Allowance for Leases

(665)

(585)


	Nine Months Ended September 30,
	2022		2021

Cash Flows from Operating Activities:
Net Income	$	2,999	$	31,390
Adjustments to Reconcile Net Income:
Depreciation and Amortization		13,723		13,985
Deferred Income Taxes Provision		51		28
Income on Vouchers Redeemed for Legal Settlements		(1,051)		(1,183)
Stock-Based Compensation Expense		2,818		3,945
Provision for Inventory Obsolescence Reserves		742		1,784
Gain on Disposal of Fixed Assets		—		31
Changes in Operating Assets and Liabilities:
Merchandise Inventories		(113,828)		15,683
Accounts Payable		(1,619)		(17,277)
Customer Deposits and Store Credits		(18,186)		8,832
Accrued Compensation		(2,536)		(6,144)
Prepaid Expenses and Other Current Assets		(4,861)		(792)
Accrual for Legal Matters and Settlements		293		7,733
Payments for Legal Matters and Settlements		(8,123)		(101)
Other Assets and Liabilities		5,814		(7,634)
Net Cash (Used in) Provided by Operating Activities		(123,764)		50,280

Cash Flows from Investing Activities:
Purchases of Property and Equipment		(16,787)		(12,276)
Proceeds from Disposal of Fixed Assets		64		58
Net Cash Used in Investing Activities		(16,723)		(12,218)

Cash Flows from Financing Activities:
Borrowings on Credit Agreement		201,000		—
Payments on Credit Agreement		(132,000)		(101,000)
Proceeds from the Exercise of Stock Options		296		64
Common Stock Repurchased		(7,947)		(2,101)
Other Financing Activities		—		(755)
Net Cash Provided by (Used in) Financing Activities		61,349		(103,792)
Net Decrease in Cash and Cash Equivalents		(79,138)		(65,730)
Cash and Cash Equivalents, Beginning of Year		85,189		169,941
Cash and Cash Equivalents, End of Year	$	6,051	$	104,211

Supplemental disclosure of non-cash operating and financing activities:
Relief of Inventory for Vouchers Redeemed for Legal Settlements	$	1,849	$	1,944
Tenant Improvement Allowance for Leases		(1,148)		(1,053)

See accompanying notes to condensed consolidated financial statements

Table of Contents

LL Flooring Holdings, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited, amounts in thousands, except per share amounts)

Note 1. Basis of Presentation

LL Flooring Holdings, Inc., formerly Lumber Liquidators Holdings, Inc., and its direct and indirect subsidiaries (collectively and, where applicable, individually, “LL Flooring” or the “Company”) engage in business as a multi-channel specialty retailer of hard-surface flooring, and hard-surface flooring enhancements and accessories, operating as a single operating segment. The Company offers an extensive assortment ~~direct to the consumer~~of hard-surface flooring including waterproof hybrid resilient, waterproof vinyl plank, solid and engineered hardwood, laminate, bamboo, ~~porcelain~~ tile, and cork, with a wide range of flooring enhancements and accessories to complement. The Company also provides in-home delivery and installation services to its customers. The Company primarily sells to ~~homeowners~~consumers or to Pros on behalf of ~~homeowners~~consumers through a network of store locations in metropolitan areas. At ~~March 31,~~September 30, 2022, the Company’s ~~431~~439 stores spanned 47 states in the United States (“U.S.”). In addition to the store locations, the Company’s products may be ordered, and customer questions/concerns addressed, through both its customer contact center in Richmond, Virginia, and its digital platform, LLFlooring.com.

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q for interim financial reporting pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). In the opinion of management, all adjustments (consisting of normal and recurring adjustments except those otherwise described herein) considered necessary for a fair presentation have been included in the accompanying condensed consolidated financial statements. However, they do not include all of the information and footnotes required by U.S. generally accepted accounting principles (“GAAP”) for complete financial statements. Therefore, the interim condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes included in the Company’s annual report filed on Form 10-K for the year ended December 31, 2021.

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

Note 2. Summary of Significant Accounting Policies

Fair Value of Financial Instruments

The carrying amounts of financial instruments such as cash and cash equivalents, accounts payable and other liabilities approximates fair value because of the short-term nature of these items. The carrying value of the revolving credit facility approximates fair value due to the variable rate of interest.

Merchandise Inventories

The Company values merchandise inventories at the lower of cost or net realizable value. The method by which amounts are removed from inventory is weighted average cost. All of the hardwood flooring purchased from vendors is either prefinished or unfinished, and in immediate saleable form. The Company relies on a select group of international and domestic suppliers to provide imported flooring products that meet the Company’s specifications. Both international and domestic inventory is subject to increased cost as a result of inflation. The Company is subject to risks associated with obtaining products from abroad, including disruptions or delays in production, shipments, supply chain, delivery or processing, including due to the COVID-19 pandemic.

Included in merchandise inventories are tariff-related costs, including Section 301 tariffs on certain products imported from China in recent years. The Company has deployed pricing, promotion, and alternative country sourcing strategies to mitigate tariff-related costs and improve gross margin. The Company continues to monitor the market to inform its pricing and promotional strategies.

Table of Contents

Recognition of Net Sales

The Company generates revenues primarily by retailing merchandise in the form of hard-surface ~~and porcelain~~ flooring and accessories. Additionally, the Company expands its revenues by offering services to deliver and/or install this merchandise for its customers; it considers these services to be separate performance obligations. The separate performance obligations are detailed on the customer’s invoice(s) and the customer often purchases flooring merchandise without purchasing installation or delivery services. Merchandise and services sales occur through the Company’s network of ~~431~~439 stores across the U.S., a customer contact center, and its digital platform, LLFlooring.com. The Company’s agreements with its customers are of short duration (less than a year) and as such the Company has elected not to disclose revenue for partially satisfied contracts that will be completed in the days following the end of a period as permitted by GAAP. The Company reports its revenues exclusive of sales taxes collected from customers and remitted to governmental taxing authorities, consistent with past practice.

Revenue is based on consideration specified in a contract with a customer and excludes any sales incentives from vendors and amounts collected on behalf of third parties. The Company recognizes revenue when it satisfies a performance obligation by transferring control over a product to a customer or performing services for a customer. Revenues from installation and freight services are recognized when the delivery is made or the installation is complete, which approximates the recognition of revenue over time due to the short duration of service provided. The price of the Company’s merchandise and services is specified in the respective contract and detailed on the invoice agreed to with the customer including any discounts. The Company generally requires customers to pay a deposit, equal to approximately half of the retail sales value, when ordering merchandise not regularly carried in a given location or not currently in stock. In addition, the Company generally does not extend credit to its customers with payment due in full at the time the customer takes possession of merchandise or when the service is provided. Customer payments and deposits received in advance of the customer taking possession of the merchandise or receiving the services are recorded as deferred revenues in the accompanying condensed consolidated balance sheet caption “Customer Deposits and Store Credits.”

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


	Three Months Ended March 31,				Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021		2022		2021
Customer Deposits and Store Credits, Beginning Balance	$	(67,063)	$	(61,389)	$	(58,427)	$	(67,731)	$	(67,063)	$	(61,389)
New Deposits		(300,970)		(310,459)		(276,235)		(304,604)		(884,551)		(935,576)
Recognition of Revenue		279,032		283,450		268,821		282,229		846,810		867,063
Sales Tax included in Customer Deposits		17,155		17,541		15,980		16,936		51,152		52,708
Other		2,532		2,646		984		2,949		4,775		6,973
Customer Deposits and Store Credits, Ending Balance	$	(69,314)	$	(68,211)	$	(48,877)	$	(70,221)	$	(48,877)	$	(70,221)

Subject to limitations under the Company’s policy, return of unopened merchandise is accepted for 90 days, subject to the discretion of the store manager. The amount of revenue recognized for flooring merchandise is adjusted for expected returns, which are estimated based on the Company’s historical data, current sales levels, and forecasted economic trends. The Company uses the expected value method to estimate returns because it has a large number of contracts with similar characteristics. The Company reduces revenue by the amount of expected returns and records it within “Other Current Liabilities” on the condensed consolidated balance sheet. In addition, the Company recognizes a related asset for the right to recover returned merchandise and records it in the “Other Current Assets” caption of the accompanying condensed consolidated balance sheet. This amount was ~~$1.4~~$1.3 million at ~~March 31,~~September 30, 2022. The Company recognizes sales commissions as incurred since the amortization period is less than one year.

Table of Contents

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,								Three Months Ended September 30,								Nine Months Ended September 30,
	2022				2021				2022			��	2021				2022				2021
Manufactured Products ¹	$	134,639	48	%	$	132,093	46	%	$	128,213	48	%	$	129,543	46	%	$	405,654	48	%	$	401,373	46	%
Solid and Engineered Hardwood		69,035	25	%		76,195	27	%		62,838	23	%		69,090	24	%		203,785	24	%		220,887	26	%
Installation and Delivery Services										39,617	15	%		41,427	15	%		115,766	14	%		116,675	13	%
Moldings and Accessories and Other		40,597	15	%		41,755	15	%		38,153	14	%		42,169	15	%		121,605	14	%		128,128	15	%
Installation and Delivery Services		34,761	12	%		33,407	12	%
Total	$	279,032	100	%	$	283,450	100	%	$	268,821	100	%	$	282,229	100	%	$	846,810	100	%	$	867,063	100	%

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

Cost of Sales

Cost of sales includes the cost of products sold, including tariffs, the cost of installation services, and transportation costs from vendors to the Company’s distribution centers or store locations. It also includes transportation costs from distribution centers to store locations, transportation costs for the delivery of products from store locations to customers, certain costs of quality control procedures, warranty and customer satisfaction costs, inventory adjustments including obsolescence and shrinkage, and costs to produce and ship samples, which are net of vendor allowances.

The Company offers a range of limited warranties for the durability of the finish on its prefinished products to its services provided. These limited warranties range from 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 of ~~$0.9~~$1.0 million at ~~March 31,~~September 30, 2022, was recorded in “Other Current Liabilities” on the accompanying condensed consolidated balance sheet. The Company seeks recovery from its vendors and third-party independent contractors of installation services for certain amounts paid.

Vendor allowances mostly consist of volume rebates and are accrued as earned, with those allowances received as a result of attaining certain purchase levels accrued over the incentive period based on estimates of purchases. Volume rebates earned are initially recorded as a reduction in merchandise inventories and a subsequent reduction in cost of sales when the related product is sold. Reimbursement received for the cost of producing samples is recorded as an offset against cost of sales.

Note 3. Stockholders’ Equity

Net (Loss) Income per Common Share

The following table sets forth the computation of basic and diluted net (loss) income per common share:


	Three Months Ended				Three Months Ended				Nine Months Ended
	March 31,				September 30,				September 30,
	2022		2021		2022		2021		2022		2021
Net Income	$	4,037	$	10,622
Net (Loss) Income					$	(3,774)	$	8,779	$	2,999	$	31,390
Weighted Average Common Shares Outstanding—Basic		29,145		28,943		28,668		29,082		28,859		28,984
Effect of Dilutive Securities:
Common Stock Equivalents		272		604		—		373		151		510
Weighted Average Common Shares Outstanding—Diluted		29,417		29,547		28,668		29,455		29,010		29,494
Net Income per Common Share—Basic	$	0.14	$	0.37
Net Income per Common Share—Diluted	$	0.14	$	0.36
Net (Loss) Income per Common Share—Basic					$	(0.13)	$	0.30	$	0.10	$	1.08
Net (Loss) Income per Common Share—Diluted					$	(0.13)	$	0.30	$	0.10	$	1.06

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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		Three Months Ended		Nine Months Ended
	March 31,		September 30,		September 30,
	2022	2021	2022	2021	2022	2021
Stock Options	373	111	633	222	448	167
Restricted Shares	239	109	503	280	365	100

Stock Repurchase Program

~~In February of~~During the nine months ended September 30, 2022, the Company’s board of directors raised its authorization for the repurchase of up to ~~$50~~$50.0 million of the Company’s common ~~stock.~~stock, and the Company resumed its share repurchase program. The Company ~~did 0t purchase any~~made cash payments of $7.0 million to repurchase 571,332 shares under ~~this~~the share repurchase authorization during the ~~three~~nine months ended ~~March 31,~~September 30, 2022. There remains $43.0 million outstanding under the share repurchase authorization.

Outside of the share repurchase program, during the nine months ended September 30, 2022, the Company repurchased $0.9 million, or 63,261 shares, of its common stock through the net settlement of shares issued as a result of the vesting of restricted shares.

Note 4. Stock-based Compensation

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


		Restricted Stock		Restricted Stock
	Stock Options	Awards	Stock Options	Awards
Options Outstanding/Nonvested RSAs, December 31, 2021	625	631	625	631
Granted	169	393	175	400
Options Exercised/RSAs Released	(20)	(147)	(21)	(168)
Forfeited	(25)	(29)	(60)	(100)
Options Outstanding/Nonvested RSAs, March 31, 2022	749	848
Options Outstanding/Nonvested RSAs, September 30, 2022			719	763

The Company granted a target of 94,621 performance-based RSAs with a grant date fair value of $1.5 million during the ~~three~~nine months ended ~~March 31,~~September 30, 2022 and a target of 47,768 performance-based RSAs with a grant date fair value of $1.1 million during the ~~three~~nine months ended ~~March 31,~~September 30, 2021. The performance-based RSAs in both years were awarded to certain members of senior management in connection with the achievement of specific key financial metrics that will be measured over separate respective three-year periods and which will vest at the end of each respective three-year period if the respective performance conditions are met. In addition, the number of 2020 performance-based awards that will ultimately vest is also contingent upon the results of a relative total shareholder return multiple by the end of year ~~three.~~three, the 2022 fiscal year. The Company assesses the probability of achieving these metrics on a quarterly basis. For these awards, the Company recognizes the fair value expense ratably over the performance and vesting period. These awards are included above in RSAs Granted.

Under the Company’s equity incentive plan, the Company’s non-employee directors are compensated with an annual RSA grant. The amount of outstanding nonvested RSAs granted to non-employee directors was 43,139 and 18,306 shares at ~~both March 31,~~September 30, 2022 and December 31, ~~2021.~~2021, respectively. The Company also maintains the Outside Directors Deferral Plan under which each of the Company’s non-employee directors has the opportunity to elect annually to defer certain fees (which are payable in cash or in shares of Common Stock with a vesting period of at least one year) until departure from the board. A non-employee director may elect to defer up to 100% of his or her fees and have such fees invested in deferred stock units. Deferred stock units must be settled in common stock upon the director’s ~~departure from the board. There were 202,413 and 177,448 deferred stock units outstanding at March 31, 2022 and December 31, 2021, respectively.~~

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departure from the board. There were 234,401 and 177,448 deferred stock units outstanding at September 30, 2022 and December 31, 2021, respectively.

Note 5. Credit Agreement

The Company has a credit agreement (the “Credit Agreement”) with Bank of America, N.A. and Wells Fargo Bank, N.A. (the “Lenders”). On April 30, 2021, the Company entered into a Second Amendment to the Credit Agreement (the “Second Amendment”) with the Lenders. The execution of the Second Amendment, among other things, terminated the FILO Term Loans and converted those commitments to the Revolving Credit Facility. The total size of the Credit Agreement remained at $200 million, and the Company has an option to increase the Revolving Credit Facility to a maximum total amount of $250 million. The maturity date of the Credit Agreement was extended to April 30, 2026.

The Revolving Credit Facility is secured by security interests in the Collateral (as defined in the Credit Agreement), which includes substantially all assets of the Company including, among other things, the Company’s inventory and credit card receivables, and the Company’s East Coast distribution center located in Sandston, Virginia. Under the terms of the Credit Agreement, the Company has the ability to release the East Coast distribution center from the Collateral under certain conditions.

The Second Amendment decreased the margin for LIBOR Rate Loans (as defined in the Second Amendment) to a range of 1.25% to 1.75% over the applicable LIBOR Rate with respect to revolving loans (as defined in the Second Amendment) depending on the Company’s average daily excess borrowing availability, a decrease of 1.25% from rates prior to the Second Amendment. As previously stated, the FILO Term Loans were terminated by this Second Amendment. The amendment decreased the LIBOR Rate Floor from 1.00% to 0.25%. The Second Amendment also decreased the unused commitment fee of 0.50% per annum to 0.25% per annum on the average daily unused amount of the Revolving Credit Facility during the most recently completed calendar quarter. ~~As of March 31, 2022, had~~The weighted average interest rate applicable to the ~~Company borrowed, the~~Company’s Revolving Credit Facility ~~would have carried an interest rate subject to~~for the ~~terms stated directly above.~~nine months ended September 30, 2022 was 4.6%.

The Credit Agreement contains a fixed charge coverage ratio covenant that becomes effective only when specified availability under the Revolving Credit Facility falls below the greater of $17.5 million or 10% of the ~~Combined~~Revolving Loan Cap (as defined in the Credit Agreement).

Except as set forth in the Second Amendment, all other terms and conditions of the Credit Agreement remain in place.

As of ~~March 31,~~September 30, 2022, there was ~~0 amount~~$69.0 million outstanding under the Revolving Credit Facility. The Company had ~~$3.0~~$3.2 million in letters of credit which reduces its availability. As of ~~March 31,~~September 30, 2022, there was ~~$175.3~~$127.8 million of availability under the Revolving Credit Facility.

~~Note~~ 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,~~September 30, 2022, the Company recognized income tax ~~expense~~benefit of $1.0 million, which represented an effective tax rate of ~~20.4%~~20.6%. For the three months ended ~~March 31,~~September 30, 2021, the Company recognized income tax expense of ~~$3.3~~$3.2 million, which represented an effective tax rate of ~~23.4%~~27.0%. The lower effective tax rate in the current period primarily reflects the greater impact of permanent items on the pretax ordinary loss.

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For the nine months ended September 30, 2022, the Company recognized income tax expense of $1.8 million, which represented an effective tax rate of 37.2%. For the nine months ended September 30, 2021, the Company recognized income tax expense of $10.6 million, which represented an effective tax rate of 25.3%. The higher effective tax rate in the current period primarily reflects the greater impact of permanent items on the lower ~~pre-tax~~pretax ordinary income.

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uncertain. The Company intends to maintain this valuation allowance on its deferred tax assets until there is sufficient evidence to support the realizability of those deferred tax assets.

In February 2022, the Company received sales tax and use tax assessments from the Commonwealth of Virginia covering part of 2014 through 2017. The Company believes there are some factual errors, is disputing this assessment, and will defend itself vigorously in this matter. Given the uncertainty of the final resolution, the Company cannot reasonably estimate the loss or range of loss, if any, that may result from this action and therefore no specific accrual has been made related to this. Any losses could, potentially, have a material adverse effect, individually or collectively, on the Company’s results of operations, financial condition and liquidity.

Note 7. Commitments and Contingencies

The following chart shows the activity related to the Balance Sheet “Accrual for Legal Matters and ~~Settlements”.~~Settlements.” The matters themselves are described in greater detail in the paragraphs that follow the chart.


Litigation Matter Description		December 31, 2021 Accrual for Legal Matters and Settlements - Current		Accruals		Settlement Payments		Vouchers Redeemed		March 31, 2022 Accrual for Legal Matters and Settlements - Current			December 31, 2021 Accrual for Legal Matters and Settlements - Current		Accruals		Settlement Payments		Vouchers Redeemed		September 30, 2022 Accrual for Legal Matters and Settlements - Current
MDL	$	10,656	$	—	$	—	$	(464)	$	10,192	¹	$	10,656	$	—	$	—	$	(1,231)	$	9,425	¹
Gold		14,885		—		—		(673)		14,212	¹		14,885		—		—		(1,670)		13,215	¹
Mason		7,000		—		—		—		7,000			7,000		129		(7,129)		—		—
Other Matters		1,070		53		—		—		1,123			1,070		164		(993)		—		241
	$	33,611	$	53	$	—	$	(1,137)	$	32,527		$	33,611	$	293	$	(8,122)	$	(2,901)	$	22,881

Litigation Matter Description		December 31, 2020 Accrual for Legal Matters and Settlements - Current		Accruals		Settlement Payments		Vouchers Redeemed		March 31, 2021 Accrual for Legal Matters and Settlements - Current			December 31, 2020 Accrual for Legal Matters and Settlements - Current		Accruals		Settlement Payments		Vouchers Redeemed		September 30, 2021 Accrual for Legal Matters and Settlements - Current
MDL	$	14,000	$	—	$	—	$	(1,479)	$	12,521		$	14,000	$	—	$	—	$	(2,781)	$	11,219
Gold		16,000		—		—		—		16,000			16,000		—		—		(346)		15,654
Mason		—		7,000		—		—		7,000			—		7,000		—		—		7,000
Other Matters		398		698		(23)		—		1,073			398		733		(101)		—		1,030
	$	30,398	$	7,698	$	(23)	$	(1,479)	$	36,594		$	30,398	$	7,733	$	(101)	$	(3,127)	$	34,903

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

Employment Cases

Mason Lawsuit

In August 2017, Ashleigh Mason, Dan Morse, Ryan Carroll and Osagie Ehigie filed a purported collective and class action lawsuit in the United States District Court for the Eastern District of New York on behalf of all current and

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former store managers, store managers in training, and similarly situated current and former employees (collectively, the “Mason Putative Class Employees”) alleging that the Company violated the Fair Labor Standards Act (“FLSA”) and New York Labor Law (“NYLL”) by classifying the Mason Putative Class Employees as ~~exempt.~~exempt (the “Mason matter”). The alleged violations include failure to pay for overtime work. The plaintiffs sought certification of the Mason Putative Class Employees for (i) a collective action covering the period beginning three years prior to the filing of the complaint (plus a tolling period) through the disposition of this action for the Mason Putative Class Employees nationwide in connection with FLSA and (ii) a class action covering the period beginning six years prior to the filing of the complaint (plus a tolling period) through the disposition of this action for members of the Mason Putative Class Employees who currently are or were

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employed in New York in connection with NYLL. The plaintiffs did not quantify any alleged damages but, in addition to attorneys’ fees and costs, the plaintiffs seek class certification, unspecified amounts for unpaid wages and overtime wages, liquidated and/or punitive damages, declaratory relief, restitution, statutory penalties, injunctive relief and other damages.

In November 2018, the plaintiffs filed a motion requesting conditional certification for all store managers and store managers in training who worked within the federal statute of limitations period. In May 2019, the magistrate judge granted plaintiffs’ motion for conditional certification. On January 6, 2021, the magistrate judge ruled in favor of a motion by the Company to exclude from the Mason Putative Class the claims of 55 opt-in plaintiffs who participated in a prior California state class-action settlement that released all claims arising from the same facts on which the Mason matter is based.

In April 2021, the Company entered into a Memorandum of Understanding (“Mason MOU”) with counsel for the lead plaintiffs in the Mason matter. Under the terms of the Mason MOU, the Company ~~will~~agreed to pay up to $7.0 million to settle the claims asserted in the Mason ~~matter on behalf~~matter.

In the first quarter of all Mason Putative Class Employees who (i) opted-in to the collective action (“Collective Members”) and (ii) are currently or were employed in New York and did not previously file an opt-in notice to participate in the collective action (the “New York Non Opt-Ins”). The New York Non Opt-Ins will have an opportunity to file an opt-in notice to participate in the settlement. To the extent that a New York Non Opt-In does not subsequently file such a notice, then the amount apportioned to that claim shall revert to the Company. Subsequent to the end of the quarter,2022, the court gave final approval to the ~~settlement described above.~~settlement. As a result of the final approval, the Company ~~will pay~~paid $7.0 million, plus an additional $0.1 million in taxes, in the second quarter of 2022 to a court appointed administrator who ~~will handle~~handles distribution to the plaintiffs. ~~In addition, any~~Any checks issued to the Collective Members and the New York Non Opt-Ins which are not cashed by March 1, 2023, will revert to the Company. As of March 31, 2022, the Company had a $7.0 million liability; the Company accrued the liability during the first quarter of 2021 when the Mason MOU was signed. The Company included those amounts in “Mason” in the chart above.

Savidis Lawsuit

OnIn April 9, 2020, LL Flooring was served with a lawsuit filed by Tanya Savidis, on behalf of herself and all others similarly situated (collectively, the “Savidis Plaintiffs”). Ms. Savidis filed a purported class action lawsuit in the Superior Court of California, County of Alameda on March 6, 2020, on behalf of all current and former LL Flooring employees employed as non-exempt employees. The complaint alleges violation of the California Labor Code including, among other items, failure to pay minimum wages and overtime wages, failure to provide meal periods, failure to permit rest breaks, failure to reimburse business expenses, failure to provide accurate wage statements, failure to pay all wages due upon separation within the required time, and engaging in unfair business practices (the “Savidis matter”). On or about May 22, 2020, the Savidis Plaintiffs provided notice to the California Department of Industrial Relations requesting they be permitted to seek penalties under the California Private Attorney General Act for the same substantive alleged violations asserted in the Complaint. The Savidis Plaintiffs seek certification of a class action covering the prior four-year period prior to the filing of the complaint to the date of class certification (the “California Employee Class”), as well as a subclass of class members who separated their employment within three years of the filing of the suit to the date of class certification (the “Waiting Time Subclass”). The Savidis Plaintiffs did not quantify any alleged damages but, in addition to attorneys’ fees and costs, seek statutory penalties, unspecified amounts for unpaid wages, benefits, and penalties, interest, and other damages.

In December 2020, the Company began contacting individuals who constitute the Savidis Plaintiffs and offered individual settlements in satisfaction of their claims. In April 2021, the Company entered into a Memorandum of Understanding (“Savidis MOU”) with counsel for the lead plaintiffs in the Savidis matter. Under the terms of the Savidis MOU, the Company ~~will~~agreed to pay $0.9 million reduced by a credit of $0.1 million for amounts already paid to the individuals who accepted the Company’s prior settlement offer. ~~The Company accrued an additional $675~~ thousand related to this matter in the first quarter 2021. In October 2021, notices were mailed to class members advising them of the settlement. Class members who do not exclude themselves from the settlement and who did not receive an individual settlement payment will automatically receive a payment. In January 2022, the Court provided final approval of the ~~settlement and~~settlement. In April 2022, the Company ~~anticipates that~~paid $0.8 million to a court appointed administrator who handles the ~~Settlement Administrator will mail checks~~distribution to the class members who did not opt out of participating in the ~~settlement~~settlement. Settlement checks were mailed to class members in May 2022, and the ~~second~~Company expects the Court to dismiss the matter during the fourth quarter of 2022.

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~~Visnack Lawsuit~~

On June 29, 2020, Michael Visnack, on behalf of himself and all others similarly situated (collectively, the “Visnack Plaintiffs”) filed a purported class action lawsuit in the Superior Court of California, County of San Diego, on behalf of all current and former store managers, and others similarly situated. The Complaint alleges violation of the California Labor Code including, among other items, failure to pay wages and overtime, wage statement violations, meal and rest break violations, unpaid reimbursements and waiting time, and engaging in unfair business practices (the “Visnack matter”). The Visnack Plaintiffs seek certification of a class period beginning September 20, 2019, through the date of Notice of Class Certification, if granted. The Visnack Plaintiffs did not quantify any alleged damages but, in addition to attorneys’ fees and costs, they seek unspecified amounts for each of the causes of action such as unpaid wages and overtime wages, failure to provide meal periods and rest breaks, payroll record and wage statement violations, failure to reimburse expenses and waiting time, liquidated and/or punitive damages, declaratory relief, restitution, statutory penalties, injunctive relief and other damages.

On December 14, 2020, the court ruled in favor of a motion by the Company to compel arbitration for Michael Visnack under the existing agreement between the Company and Mr. Visnack. The court declined to outright dismiss the putative class claims but stayed the putative class claims and Private Attorneys General Act claims pending arbitration. The court denied plaintiff’s request to conduct discovery. In the first quarter of 2021, the Company received notice that Mr. Visnack has filed an arbitration claim, which the Company intends to defend. Mr. Visnack is a Collective Member of the Mason Putative Class and will have the opportunity to decide whether to participate in the Mason settlement and release his claims against the Company, in which case he would be removed as the lead Plaintiff in the Visnack matter. In December 2020, the Company began contacting individuals who constitute the purported class in the Visnack matter and has offered individual settlements in satisfaction of their claims. To the extent individuals accepted these settlement offers, they have released the Company from the claims and been removed from the purported class. As of March 31, 2021, the Company had reached agreement with a portion of the purported class incurring less than $50 thousand in fees, taxes, and other costs. The Company included those amounts in “Other Matters” in the chart above.

The Company is evaluating the Visnack Putative Class Employees' claims and intends to defend itself vigorously in this matter. Given the uncertainty of litigation, the preliminary stage of the case and the legal standards that must be met for, among other things, class certification and success on the merits, the Company cannot estimate the reasonably possible loss or range of loss, if any, that may result from this action and therefore no accrual has been made related to this. Any such losses could, potentially, have a material adverse effect, individually or collectively, on the Company’s results of operations, financial condition and liquidity.

Antidumping and Countervailing Duties Investigation

The Company is subject to antidumping (“AD”) and countervailing duties (“CVD”) for ~~its~~ certain imports of multilayered wood flooring from China. The Company’s multilayered wood flooring imports from China accounted for approximately 3% of its flooring purchases in 2021.

At the time of import, the Company makes deposits at the then prevailing rate. This rate is subsequently reviewed to establish the final rate. When rates are declared final by the United States Department of Commerce (“DOC”), the Company accrues a receivable or payable depending on where that final rate compares to the deposits it has made. The Company and/or the domestic manufacturers can appeal the final rate for any period. Because of the length of time for finalization of rates as well as appeals, any subsequent adjustment of AD and CVD rates typically flows through a period different from those in which the inventory was originally purchased and/or sold.

Results by period for the Company are shown below. The ~~column labeled “March 31, 2022~~“Total AD/CVD Receivable/Liability ~~Balance”~~Balance as of September 30, 2022” represents the amount the Company would receive or pay (net of any collections or payments) as the result of subsequent adjustment to rates whether due to finalization by the DOC or because of action of a court based on appeals by various parties. It does not include any initial amounts paid for AD or CVD in the current period at the in-effect rate at that time.

The Company recorded net interest expense related to antidumping of $0.05 million for the nine months ended September 30, 2022 compared to net interest income of $1.8 million for the nine months ended September 30, 2021. The

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The Company recorded net interest income related to antidumping of $0.07 million for the three months ended March 31, 2022 compared to net interest income of $1.8 million for the three months ended March 31, 2021. The amounts for both years are included in “Other Expense” on the condensed consolidated statements of income. The estimated associated interest payable and receivable for each period is not included in the table below but is included in the same financial statement line item on the Company’s condensed consolidated balance sheet as the associated liability and receivable balance for each period.


Antidumping					Antidumping
Review Period¹	Period Covered	Rates at which Company Deposited	Final Rate	March 31, 2022 Receivable/Liability Balance	Period Covered	Rates at which Company Deposited	Final Rates		Other Current Assets		Other Assets		Other Current Liabilities		Other Long-Term Liabilities
Antidumping
1	May 2011 through November 2012	6.78% and 3.3%	0.0%²	$1.5 million receivable²	May 2011 - Nov 2012	6.78% / 3.3%	0%²	$	1,526	$	-	$	-	$	-
2	December 2012 through November 2013	3.30%	3.92% ³	$0.2 million liability³	Dec 2012 - Nov 2013	3.30%	3.92%³		-		-		(205)		-
3	December 2013 through November 2014	3.3% and 5.92%	0.0%⁴	$1.8 million receivable⁴	Dec 2013 - Nov 2014	3.3% / 5.92%	0%⁴		1,821		-		-		-
6	December 2016 through November 2017	17.37% and 0.00%	42.57% and 0.0%⁵	$0.5 million receivable $1.5 million liability⁵	Dec 2016 - Nov 2017	17.37% / 0.00%	42.57% / 0.0%⁵		503		-		-		(1,464)
7	December 2017 through November 2018	0.00%	0.0%⁶	NA	Dec 2017 - Nov 2018	0.00%	0%⁶		-		-		-		-
8	December 2018 through November 2019	0.00%	0.0%⁷	NA	Dec 2018 - Nov 2019	0.00%	0%⁷		-		-		-		-
9	December 2019 through November 2020	0.00%	0.0%⁸	NA	Dec 2019 - Nov 2020	0.00%	39.27%⁸		-		-		-		(1,137)
			Included on the Consolidated Balance Sheet in Other Current Assets	$3.8 million
			Included on the Consolidated Balance Sheet in Other Current Liabilities	$0.2 million
Total AD Receivable/Liability Balance as of September 30, 2022					Total AD Receivable/Liability Balance as of September 30, 2022			$	3,850	$	-	$	(205)	$	(2,601)
			Included on the Consolidated Balance Sheet in Other Long-Term Liabilities	$1.5 million
Countervailing	Countervailing				Countervailing
1&2	April 2011 through December 2012	1.50%	0.83% / 0.99%	$0.2 million receivable
Review Period					Period Covered	Rates at which Company Deposited	Final Rates		Other Current Assets		Other Assets		Other Current Liabilities		Other Long-Term Liabilities
1 & 2					April 2011 - Dec 2012	1.50%	0.83% / 0.99%	$	-	$	243	$	-	$	-
3	January 2013 through December 2013	1.50%	1.38%	$0.04 million receivable	Jan 2013 - Dec 2013	1.50%	1.38%		-		37		-		-
4	January 2014 through December 2014	1.50% and 0.83%	1.06%	$0.02 million receivable	Jan 2014 - Dec 2014	1.50% / 0.83%	1.06%		-		16		-		-
5	January 2015 through December 2015	0.83% and 0.99%	Final at 0.11% and 0.85%⁹	$0.07 million receivable⁹	Jan 2015 - Dec 2015	0.83% / 0.99%	0.11% / 0.85%⁹		73		-		-		-
6	January 2016 through December 2016	0.99% and 1.38%	Final at 3.10% and 2.96%¹⁰	$0.04 million liability¹⁰	Jan 2016 - Dec 2016	0.99% / 1.38%	3.10% / 2.96%¹⁰		-		-		(38)		-
7	January 2017 through December 2017	1.38% and 1.06%	20.75%¹¹	$1.7 million liability¹¹	Jan 2017 - Dec 2017	1.38% / 1.06%	20.75%¹¹		-		-		-		(1,651)
8	January 2018 through December 2018	1.06%	6.13%¹²	$0.3 million liability¹²	Jan 2018 - Dec 2018	1.06%	6.13%¹²		-		-		-		(287)
9	January 2019 through December 2019	0.00%, 0.85%, 2.96%	5.50% / 15.71%¹³	NA	Jan 2019 - Dec 2019	0.00% / 0.85% / 2.96%	3.36% / 9.85%¹³		-		-		-		(81)
			Included on the Consolidated Balance Sheet in Other Current Assets	$0.07 million
			Included on the Consolidated Balance Sheet in Other Assets	$0.3 million
			Included on the Consolidated Balance Sheet in Other Current Liabilities	$0.04 million
			Included on the Consolidated Balance Sheet in Other Long-Term Liabilities	$2.0 million
Total CVD Receivable/Liability Balance as of September 30, 2022					Total CVD Receivable/Liability Balance as of September 30, 2022			$	73	$	296	$	(38)	$	(2,019)

1	The fourth and fifth annual ~~anti-dumping~~antidumping review periods have been settled and are no longer included on the chart above.

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In the first quarter of 2022, pursuant to ~~CIT~~the Court of International Trade (“CIT”) order on appeal the DOC recalculated the final rates for the first annual review period at 0.0%. As a result, the Company recorded an additional $0.2 million receivable with a corresponding reduction of cost of sales during the first quarter of 2022.

In the second quarter of 2020, on appeal the DOC offered to reduce the rate for the second annual review period to 3.92% from 13.74%. The reduced rate was accepted by the CIT in the fourth quarter of 2020, and the Company reversed $3.9 million of its $4.1 million liability, with a corresponding reduction of cost of sales.

In the third quarter of 2020, on appeal the DOC offered to reduce the rate for the third annual review period to 0.0% from 17.37%. The reduced rate was accepted by the CIT in the first quarter of 2021, and the Company reversed the entire $4.7 million liability, with a corresponding reduction of cost of sales, and recorded a $1.8 million receivable and favorable adjustment to cost of sales for deposits made at previous preliminary rates.

In the third quarter of 2019, the DOC issued the final rates for the sixth annual review period at 42.57% and 0% depending on the vendor. As a result, the Company recorded a liability of $0.8 million with a corresponding reduction of cost of sales during the year ended December 31, 2019. The Company received payments during 2019 for its vendor with a final rate of 0.0% and the remaining balance of $0.5 million as of June 30, 2021 was included in other current assets on the condensed consolidated balance sheet. The vendors with a final rate of 42.57% are under appeal and the balance of $1.5 million as of ~~March 31,~~September 30, 2022 was included in other long-term liabilities on the condensed consolidated balance sheet.

6	In the ~~first~~fourth quarter of ~~2020,~~2021, the DOC issued a ~~preliminary~~final rate of 0.0% for the seventh annual review period. The final rate is currently under appeal.

7	In ~~April~~the fourth quarter of 2021, the DOC issued a ~~preliminary~~final rate of 0.0% for the eighth annual review period. ~~The DOC issued a final of 0.0% in October 2021.~~ The final rate is currently under appeal.

In the ~~fourth~~second quarter of ~~2021,~~2022, the DOC issued ~~a preliminary~~the final rate ~~of 0.0%~~ for the ninth annual review ~~period.~~period at 39.27%.As a result, the Company recorded a $1.1 million liability with a corresponding increase in cost of sales during the second quarter of 2022. The final rate is currently under appeal.

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In the second quarter of 2018, the DOC issued the final rates for the fifth annual review period at 0.11% and 0.85% depending on the vendor. As a result, in the second quarter of 2018, the Company recorded a receivable of ~~$0.07~~$0.1 million for deposits made at previous preliminary rates, with a corresponding reduction of cost of sales.

In the third quarter of 2019, the DOC issued the final rates for the sixth annual review period at 3.1% and 2.96% depending on the vendor. As a result, the Company recorded a liability of $0.4 million with a corresponding reduction of cost of sales during the year ended December 31, ~~2019~~.2019. As of ~~March 31,~~September 30, 2022, the remaining liability balance was ~~approximately $40~~$38.3 thousand.

In the fourth quarter of 2020, the DOC issued the final rate 20.75% for the seventh annual review period. As a result, the Company recorded a liability of $1.7 million with a corresponding increase to cost of sales during the year ended December 31, 2020. The ~~Company appealed this~~ final rate ~~during the first quarter of 2021.~~is currently under appeal.

In October 2021, the DOC issued the final rate of 6.13% for the eighth annual review period. As a result, in October 2021 the Company recorded a $0.3 million liability with a corresponding increase in cost of sales. The ~~Company appealed this~~ final rate ~~during the first quarter of 2022.~~is currently under appeal.

In the ~~fourth~~second quarter of ~~2021,~~2022, the DOC issued ~~preliminary~~the final rates ~~of 5.5% and 15.71%~~ for the ninth annual review ~~period. If~~period at 3.36% and 9.85% depending on the ~~preliminary rates remain at 5.5% and 15.71%,~~vendor. As a result, the Company ~~will record~~recorded a liability of ~~$0.2~~$0.1 million with a corresponding increase in cost of sales in the ~~period in which the ruling~~second quarter of 2022. The final rate is ~~finalized.~~currently under appeal.

Litigation Relating to Bamboo Flooring

In 2019, the Company finalized a settlement agreement to resolve claims related to Morning Star bamboo flooring (the “Gold Litigation”). Under the terms of the settlement agreement, the Company contributed ~~$14~~$14.0 million in cash (the “Gold Cash Payment”) and provided ~~$16~~$16.0 million in store-credit vouchers, for an aggregate settlement of up to ~~$30~~$30.0 million. Cash and vouchers, which generally have a three-year life, were distributed by the administrator in 2021. The Company will monitor and evaluate the redemption of vouchers on a quarterly basis. The Company’s current expectation is that recipients bargained for this compensation as part of the settlement and therefore will redeem their voucher for product as intended.

As of ~~March 31,~~September 30, 2022, the remaining accrual related to these matters was ~~$14.2~~$13.2 million for vouchers. As ~~$0.7~~$1.7 million of vouchers were redeemed during the first ~~three~~nine months of 2022, the Company relieved the accrual for legal matters and settlements for the full amount, relieved inventory at its cost, and the remaining amount -- the gross margin for the items sold of ~~$0.2~~$0.6 million was recorded as a reduction in “Selling, General and Administrative Expenses” (“SG&A”) on the condensed consolidated statement of operations. The Company included those amounts in “Gold” in the chart above.

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On September 9, 2021, Larry and Kathy Fluharty filed a purported class action lawsuit in the United States District Court for the Eastern District of Arkansas alleging substantially the same allegations as the Gold Litigation, for a class period beginning March 16, 2019 to present (the “Fluharty Litigation”). Subsequent to the end of the quarter, the Company reached a settlement of the Fluharty Litigation. The amount of the settlement is not material to the Company’s results of operations for the quarter.

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~~$22.0 million in cash and provided ~~$14~~$14.0 million in store-credit vouchers for an aggregate settlement amount of ~~$36~~$36.0 million to settle claims. Cash and vouchers, which generally have a three-year life, were distributed by the administrator in the fourth quarter of 2020. The Company will monitor and evaluate the redemption of vouchers on a quarterly basis. The Company’s current expectation is that recipients bargained for this compensation as part of the settlement and therefore will redeem their voucher for product as intended.

As of ~~March 31,~~September 30, 2022, the remaining accrual related to these matters was ~~$10.2~~$9.4 million for vouchers. As ~~$0.5~~$1.2 million of vouchers were redeemed during the first ~~three~~nine months of 2022, the Company relieved the accrual for legal matters and settlements for the full amount, relieved inventory at its cost, and the remaining amount -- the gross margin for the items sold of ~~$0.2~~$0.5 million was recorded as a reduction in “Selling, General and Administrative Expenses” (“SG&A”) on the condensed consolidated statement of operations. The Company included those amounts in “MDL” in the chart above.

~~Canadian Litigation~~

On or about April 1, 2015, Sarah Steele (“Steele”) filed a purported class action lawsuit in the Ontario, Canada Superior Court of Justice against the Company. In the complaint, Steele’s allegations include strict liability, breach of implied warranty of fitness for a particular purpose, breach of implied warranty of merchantability, fraud by concealment, civil negligence, negligent misrepresentation and breach of implied covenant of good faith and fair dealing relating to the Company’s Chinese-manufactured laminate flooring products. Steele did not quantify any alleged damages in her complaint, but seeks compensatory damages, punitive, exemplary and aggravated damages, statutory remedies, attorneys’ fees and costs. On March 23, 2022 the Steele matter was dismissed for delay.

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”).

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Products imported by the Company fall within Lists 3 and 44a for which tariffs range from 10% to 25%. On September 10, 2020 several importers of vinyl flooring filed a lawsuit with the ~~CIT~~Court of International Trade (“CIT”) challenging the Section 301 tariffs under Lists 3 and 4.4a. The Company has also filed a companion case at the CIT challenging ~~Section 301 tariffs it has paid.~~the legitimacy of the USTR’s actions. On April 1, 2022 the CIT remanded the matter back to the USTR to ~~reconsider~~explain its ~~decisions in light of~~process for considering objections to the ~~ruling~~301 tariffs and to reply to the CIT by June 30, 2022. Based on a USTR request, this deadline was extended to August 1, 2022. On August 1, 2022 the USTR filed its remand comments as well as a request to supplement the record. On September 14, 2022, the Company filed their response to the USTR’s August 1, 2022 remand determination pursuant to the CIT April 1, 2022 order. The USTR has until October 28, 2022 to address the Company’s response. The ruling will rest with the CIT upon review of the USTR’s remand. The Company is unable to predict the timing or outcome of the ruling by the USTR and/or CIT. If these appeals are successful, the Company should qualify for refunds on these Section 301 tariffs.

Other Matters

The Company is also, from time to time, subject to claims and disputes arising in the normal course of business. In the opinion of management, while the outcome of any such claims and disputes cannot be predicted with certainty, its ultimate liability in connection with these matters is not expected to have a material adverse effect on the Company’s results of operations, financial position or liquidity.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Cautionary Note Regarding Forward-Looking Statements

This report includes statements of the Company’s expectations, intentions, plans and beliefs that constitute “forward-looking statements” within the meanings of the Private Securities Litigation Reform Act of 1995. These statements, which may be identified by words such as “may,” “will,” “should,” “expects,” “intends,” “plans,” “anticipates,” “believes,” “thinks,” “estimates,” “seeks,” “predicts,” “could,” “projects,” “potential” and other similar terms and phrases, are based on the beliefs of the Company’s management, as well as assumptions made by, and information currently available to, the Company’s management as of the date of such statements. These statements are subject to risks and uncertainties, all of which are difficult to predict and many of which are beyond the Company’s control. These risks include, without limitation, the impact on us of any of the following:

●

reduced consumer spending due to inflation, higher interest rates, and consumer sentiment;

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our advertising and overall marketing strategy, including anticipating consumer trends;

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a sustained period of inflation impacting product ~~cost and consumer spending;~~costs;

●

transportation availability and costs;

●

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

●

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

●

potential disruptions to supply chain related to forced labor and other trade regulations;

●

inability to hire and/or retain employees;

●

obtaining products from abroad, including the effects of the COVID-19 pandemic and tariffs, delays in shipping, as well as the effects of antidumping and countervailing duties;

●

~~having sufficient inventory for consumer demand;~~

●

~~reduced consumer spending due to last year’s significant government stimulus;~~

●

inability to staff stores due to the COVID-19 ~~pandemic;~~

●

pandemic and the ~~impact of~~overall pressures in the ~~war in Ukraine on the Company’s European suppliers and transportation costs;~~labor market;

●

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

●

~~reputational harm;~~the impact of the war in Ukraine on transportation costs and the Company’s European suppliers;

●

~~obligations under various settlement agreements and other compliance matters;~~reputational harm;

●

disruptions due to cybersecurity threats, including any impacts from a network security incident;

●

inability to open new stores, find suitable locations for new stores, and fund ~~other~~ capital expenditures;

●

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

●

managing growth;

●

damage to our assets;

●

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

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operating an office in China;

●

managing third-party installers and product delivery companies;

●

renewing store, warehouse, or other corporate leases;

●

having sufficient suppliers;

●

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

●

product liability claims, marketing substantiation claims, wage and hour claims, employment classification claims and other labor and employment claims;

●

maintaining optimal inventory for consumer demand;

●

availability of suitable hardwood, including due to disruptions from the impacts of severe weather;

●

sufficient insurance coverage, including cybersecurity insurance;

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access to and costs of capital;

●

the handling of confidential customer information, including the impacts from the California Consumer Privacy Act and other applicable data privacy laws and regulations;

●

management information systems disruptions;

●

alternative e-commerce offerings;

●

~~our advertising and overall marketing strategy, including anticipating consumer trends;~~

●

competition;

●

impact of changes in accounting and regulatory guidance, including implementation guidelines and interpretations related to Environmental, Social, and Governance (“ESG”) matters;

●

internal controls;

●

stock price volatility; and

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●

anti-takeover provisions.

Information regarding risks and uncertainties is contained in the Company’s reports filed with the SEC, including the Item 1A, “Risk Factors,” section of this quarterly report and the Form 10-K for the year ended December 31, 2021.

This management discussion should be read in conjunction with the financial statements and notes included in Part I, Item 1. “Financial Statements” of this quarterly report and the audited financial statements and notes and management discussion included in the Company’s annual report filed on Form 10-K for the year ended December 31, 2021.

Overview

LL Flooring is one of the leading specialty retailers of hard-surface flooring in the U.S. with ~~431~~439 stores as of ~~March 31,~~September 30, 2022. Our Company seeks to offer the best customer experience online and in stores, with more than 500 varieties of hard-surface floors featuring a range of quality styles and on-trend designs. Our online tools also help empower customers to find the right solution for the space they’ve envisioned. Our extensive selection includes waterproof hybrid resilient, waterproof vinyl plank, solid and engineered hardwood, laminate, bamboo, ~~porcelain~~ tile, and cork, with a wide range of flooring enhancements and accessories to complement. Our stores are staffed with flooring experts who provide advice, Pro partnership services and installation options for all of our products, the majority of which is in stock and ready for delivery. Our vision is to be customers’ first choice in hard-surface flooring by providing the best experience, from start to finish. We offer a wide selection of high-quality, locally stocked products and the accessible flooring expertise and service of a local store, with the scale, omni-channel convenience and value of a national chain. We plan to leverage this advantage to differentiate ourselves in the highly fragmented flooring market.

To supplement the financial measures prepared in accordance with U.S. generally accepted accounting principles (GAAP), the Company uses the following non-GAAP financial measures: (i) Adjusted Gross Profit; (ii) Adjusted Gross Margin; (iii) Adjusted SG&A; (iv) Adjusted SG&A as a ~~percentage~~Percentage of ~~net sales;~~Net Sales; (v) Adjusted Operating (Loss) Income; (vi) Adjusted Operating (Loss) Margin; (vii) Adjusted Other ~~Expense;~~Expense (Income); (viii) Adjusted Other Expense (Income) as a ~~percentage~~Percentage of ~~net sales;~~Net Sales; (ix) Adjusted (Loss) Earnings; and (x) Adjusted (Loss) Earnings per Diluted Share. These non-GAAP financial measures should be viewed in addition to, and not in lieu of, financial measures calculated in accordance with GAAP. These supplemental measures may vary from, and may not be comparable to, similarly titled measures by other companies.

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The non-GAAP financial measures are presented because management uses these non-GAAP financial measures to evaluate our operating performance and, in certain cases, to determine incentive compensation. Therefore, we believe that the presentation of non-GAAP financial measures provides useful supplementary information to, and facilitates additional analysis by, investors. The presented non-GAAP financial measures exclude items that management does not believe reflect our core operating performance, which include store closures, regulatory and legal settlements and associated legal and operating costs, and changes in antidumping and countervailing duties, as such items are outside of our control due to their inherent unusual, non-operating, unpredictable, non-recurring, or non-cash nature.

~~First~~Third Quarter Financial Highlights

●

Net sales of ~~$279.0~~$268.8 million decreased ~~1.6% compared~~$13.4 million, or 4.8%, from the third quarter of 2021, primarily due to ~~the same period~~continued lower consumer spending versus last year, ~~as record~~which more than offset just under double-digit growth in sales to Pro ~~customers and a 4.1% increase in net services sales partially offset a decrease in homeowner sales.~~customers.

●

~~Total comparable~~Comparable store sales decreased ~~3.6% versus~~7.3% from the ~~same period last year~~third quarter of 2021. The year-over-year decrease in comparable store sales primarily reflected the same drivers as the change in net sales.

●

Gross margin and adjusted gross margin (a non-GAAP measure) of ~~37.3%~~35.6% decreased ~~350~~170 basis points as a percentage of sales compared to the same period last year, ~~Adjusted Gross Margin (a non-GAAP measure) of 37.2% decreased 130 basis points compared to the same period last year,~~ primarily reflecting significantly higher ~~transportation~~material and ~~material~~transportation costs (collectively up more than ~~1,000~~800 basis points) that the Company was able to ~~largely~~partially mitigate bythrough pricing, promotion and alternative country/vendor sourcing strategies.

●

SG&A expense as a percentage of net sales of ~~35.5% decreased 70~~37.1% increased 410 basis points compared to the ~~first~~third quarter of last year. Adjusted SG&A expense (a non-GAAP measure) as a percentage of net sales of ~~35.5%~~37.1% increased ~~210~~400 basis points

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compared to the ~~first~~third quarter of last year, primarily ~~due~~driven by investments to ~~increased investment in~~support the Company’s long-term growth, ~~strategies, including new stores and Pro initiatives, as well as~~ continued investment in ~~customer-facing~~customer facing and distribution center ~~personnel.~~personnel, and deleverage on lower net sales.

●

Operating margin of ~~1.8%~~(1.5%) decreased ~~280~~580 basis points compared to the ~~first~~third quarter of last year. Adjusted operating margin (a non-GAAP measure) of~~1.7%~~(1.6%) decreased ~~340~~570 basis points compared to the ~~first~~third quarter of last ~~year.~~year, primarily reflecting increased SG&A as a percentage of net sales and lower gross margin.

●

~~Diluted EPS~~Loss per diluted share of ~~$0.14~~$0.13 decreased ~~$0.22~~$0.43 compared to the ~~first~~third quarter of last year. Adjusted ~~Earnings~~loss per ~~Diluted Share~~diluted share (a non-GAAP measure) of ~~$0.13~~$0.14 decreased ~~$0.21~~$0.42 compared to the ~~first~~third quarter of last year.

●

During the ~~first~~third quarter, the Company opened ~~seven~~two new stores, bringing total ~~stores~~store count to ~~431~~439 as of ~~March 31,~~September 30, 2022.

Other Items

Liquidity and Credit Agreement

As of ~~March 31,~~September 30, 2022, we had liquidity of ~~$231~~$133.9 million, consisting of excess availability under our Credit Agreement of ~~$175~~$127.8 million, and cash and cash equivalents of ~~$56~~$6.1 million. This represents ~~an increase~~a decrease in liquidity of $4$93.3 million from December 31, ~~2021. The~~2021, reflecting the Company’s goal to rebuild inventories in 2022 following COVID-19 related supply chain constraints. During the first nine months of the year, the Company rebuilt its inventory ~~balance~~ by more than ~~$60 million during the quarter.~~$111.2 million.

In February of 2022, the Company’s board of directors raised its authorization for the repurchase of up to ~~$50~~$50.0 million of the Company’s common stock from the previous ~~$14~~$14.0 million ~~authorized,~~authorized. In April 2022, the Company resumed its share repurchase program. The Company has repurchased $7.0 million under that program, underscoring its confidence in its long-term net sales and profitability growth.

We believe that cash flows from operations, together with cash on hand, and the availability under our Credit Agreement will be sufficient to meet our obligations, fund our settlements, operations, ~~share repurchases, and~~ anticipated capital expenditures, and potential share repurchases for the next 12 months. We made substantial progress in rebuilding inventory in the first quarter of 2022 including what is prepaid and in-transit. As this inventory is received into our distribution centers and stores, we will continue to work to optimize our inventory levels. We prepare our forecasted cash flow and liquidity estimates based on assumptions that we believe to be reasonable but are also inherently uncertain. Actual future cash flows could differ from these estimates.

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Impact of Macroeconomic Environment

We continue to navigate uncertainty in the macroeconomic environment related to inflation, ~~consumer spending, global supply chain disruptions,~~higher interest rates, lower existing home sales, a shift in COVID-19 spend from home remodeling to travel and a challenging labor market. During the second quarter of 2020 we limited our inventory purchases as a direct result COVID-19. Supply chain disruption on replenishment kept inventory below our targeted level during 2021. As a result, we believe we could have captured more sales in 2021entertainment, and ~~the first quarter of 2022 if our inventories had been higher. While our supply chain teams have done an excellent job this quarter to bring in new inventory~~economic and ~~allocate it effectively across our stores, we~~employment uncertainty. We anticipate ~~the supply chain to continue~~material and transportation costs to remain ~~constrained,~~inflated, exacerbated by the war in Ukraine, throughout 2022, limiting inventory availability and increasing transportation and material costs. Supply chain constraints include international container access, congestion in major ports, a shortage of domestic truckers, and increased fuel costs, as well as sporadic COVID-19 related shutdowns.2022. We are also monitoring the impact of inflation on consumer purchasing trends as it could affect our prices, demand for our products, our sales and our profit margins.

Section 301 Tariffs

The Company’s financial statements have been impacted by Section 301 tariffs on certain products imported from China in recent years. The tariffs flow through the income statement as the product is sold. The Company has deployed strategies to mitigate tariffs and improve gross margin, primarily through adjusting its pricing and promotion

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strategies and alternative country sourcing. During the ~~first~~third quarter of 2022, the Company reduced the ~~percent~~percentage of merchandise receipts subject to Section 301 tariffs to 16% from ~~23%~~22% during the ~~first~~third quarter of 2021.

As discussed in Item 1, Note 7 to the condensed consolidated financial statements, the Company is unable to predict the timing or outcome of the ruling by the USTR and/or CIT. If these appeals are successful, the Company should qualify for refunds on these Section 301 tariffs.

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Results of Operations

We believe the selected sales data, the percentage relationship between net sales and major categories in the condensed consolidated statements of operations and the percentage change in the dollar amounts of each of the items presented below are important in evaluating the performance of our business operations.


																% Improvement
										% of Net Sales						(Decline) in
										Three Months Ended September 30,						Dollar Amounts
										2022			2021			2022 VS 2021
Net Sales
Net Merchandise Sales											85.3	%		85.3	%		(4.8)	%
Net Services Sales											14.7	%		14.7	%		(4.4)	%
Total Net Sales											100.0	%		100.0	%		(4.8)	%
Gross Profit											35.6	%		37.3	%		(9.1)	%
Selling, General, and Administrative Expenses											37.1	%		33.0	%		7.0	%
Operating (Loss) Income											(1.5)	%		4.3	%		(134.1)	%
Other Expense											0.2	%		0.0	%		3,488.9	%
(Loss) Income Before Income Taxes											(1.8)	%		4.3	%		(139.6)	%
Income Tax (Benefit) Expense											(0.4)	%		1.2	%		(130.3)	%
Net (Loss) Income											(1.4)	%		3.1	%		(143.0)	%

							% Improvement									% Improvement
	% of Net Sales						(Decline) in			% of Net Sales						(Decline) in
	Three Months Ended March 31,						Dollar Amounts			Nine Months Ended September 30,						Dollar Amounts
	2022			2021			2022 VS 2021			2022			2021			2022 VS 2021
Net Sales
Net Merchandise Sales		87.5	%		88.2	%		(2.3)	%		86.3	%		86.5	%		(2.6)	%
Net Services Sales		12.5	%		11.8	%		4.1	%		13.7	%		13.5	%		(0.8)	%
Total Net Sales		100.0	%		100.0	%		(1.6)	%		100.0	%		100.0	%		(2.3)	%
Gross Profit		37.3	%		40.8	%		(10.0)	%		36.2	%		38.5	%		(8.1)	%
Selling, General, and Administrative Expenses		35.5	%		36.2	%		(3.4)	%		35.5	%		33.7	%		3.1	%
Operating Income		1.8	%		4.6	%		(61.4)	%		0.7	%		4.8	%		(86.6)	%
Other Expense		(0.0)	%		(0.3)	%		(98.0)	%
Other Expense (Income)											0.1	%		(0.0)	%		(429.4)	%
Income Before Income Taxes		1.8	%		4.9	%		(63.5)	%		0.6	%		4.8	%		(88.6)	%
Income Tax Expense		0.4	%		1.1	%		(68.3)	%		0.2	%		1.2	%		(83.3)	%
Net Income		1.4	%		3.7	%		(62.0)	%		0.4	%		3.6	%		(90.4)	%


	Three Months Ended						Three Months Ended						Nine Months Ended
	March 31,						September 30,						September 30,
	2022			2021			2022			2021			2022			2021
SELECTED SALES DATA
Average Sale¹	$	1,695		$	1,415		$	1,850		$	1,625		$	1,799		$	1,530
Comparable Stores (Decrease) Increase²		(3.6)	%		6.9	%		(7.3)	%		(4.5)	%		(4.6)	%		9.8	%
Transaction Count (Decrease) Increase³		(23.3)	%		2.5	%
Transaction Count Decrease³								(21.1)	%		(23.5)	%		(19.4)	%		(9.4)	%
Average Retail Price per Unit Sold Increase⁴		10.3	%		4.7	%		13.4	%		6.8	%		12.7	%		7.9	%

Number of Stores Open, end of period		431			412			439			422			439			422
Number of Stores Opened in Period, net		7			2			2			6			15			12
Number of Stores Relocated in Period⁵		—			—			—			—			1			—

1	Average sale is defined as the average invoiced sales order, measured quarterly, excluding returns as well as transactions under $100 (which are generally sample orders or add-on/accessories to existing orders).

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2	A store is generally considered comparable on the first day of the thirteenth full calendar month after opening.

3	Transaction count is calculated by applying the average sale to total net sales at comparable stores.

4	Average retail price per unit (square feet for flooring and other units of measures for moldings and accessories) sold is calculated on a total company basis and excludes non-merchandise revenue.

5	A relocated store remains a comparable store as long as it is relocated within the primary trade area.

Net Sales

~~First~~Third quarter 2022 net sales of ~~$279.0~~$268.8 million decreased ~~$4.4~~$13.4 million, or ~~1.6%~~4.8%, versus the ~~first~~third quarter of 2021. Net merchandise sales ~~decreased 2.3%, partially offset by a 4.1% increase in~~and net service sales ~~(install~~decreased 4.8% and ~~freight). The~~

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~~increase~~4.4%, respectively, over the same period in ~~net service sales primarily reflects the Company’s continued execution on its strategy to improve the installation and delivery consumer experience.~~2021.

Average ticket increased ~~19.8%~~13.8%, primarily reflecting ~~a greater mix of net services sales which grew to 13% of net sales from 12% in the first quarter of 2021, as well as~~ higher merchandise average ticket.The higher merchandise average ticket was driven primarily by pricing and promotion strategies as well as favorable product mix, ~~which primarily reflected a greater mix of hardwood flooring and~~reflecting the launch of our new Duravana performance flooring brand.

Comparable store sales for the ~~first~~third quarter of 2022 decreased ~~3.6%~~7.3% from the ~~first~~third quarter of 2021. ~~The Company reported record~~Comparable store sales ~~to Pro customers and an increase in net services sales, however, it also experienced a 23.3% decrease in transaction count compared to~~for the nine months ended September 30, 2022 decreased 4.6% from the same period in ~~2021,~~2021. The decline in comparable store sales was due primarily ~~reflecting the decrease~~to continued lower consumer spending versus last year, which more than offset just under double-digit growth in sales to ~~homeowners. Macroeconomic factors impacting homeowner~~Pro customers. The year-over-year decrease in consumer sales ~~transactions included~~reflected continued pressures on consumer discretionary spending from inflation, higher interest rates, lower existing home sales, a shift in ~~consumer spending~~COVID-19 spend from home remodeling to travel and ~~leisure this year compared to stimulus~~entertainment, and ~~nesting spending in the first quarter of 2021, continued supply chain constraints,~~economic and ~~significant store closures due to a COVID-19 variant.~~employment uncertainty.

During the ~~first~~third quarter of 2022, the Company opened ~~seven~~two new stores bringing the total store count to ~~431~~439 as of ~~March 31,~~September 30, 2022.

Net sales for the nine months ended September 30, 2022 decreased 2.3% from the nine months ended September 30, 2021. Net merchandise sales and net service sales decreased 2.6% and 0.8%, respectively, over the same period in 2021.

Gross Profit

Gross profit decreased ~~10.0%~~9.1% in the ~~first~~third quarter of 2022 to ~~$104.1~~$95.6 million from ~~$115.6~~$105.2 million in the comparable period in 2021, and gross margin decreased ~~350~~170 basis points to ~~37.3%~~35.6% in the ~~first~~third quarter of 2022 from ~~40.8%~~37.3% in the third quarter of 2021. Adjusted gross margin (a non-GAAP measure) of 35.6% decreased 170 basis points compared to the same period last year, primarily reflecting significantly higher material and transportation costs (collectively up more than 800 basis points) that the Company was able to partially mitigate through pricing, promotion and alternative country/vendor sourcing strategies.

Gross profit decreased 8.1% in the first ~~quarter~~nine months of 2022 to $306.4 million from $333.5 million in the comparable period in 2021 and gross margin decreased 230 basis points to 36.2% in the first nine months of 2022 from 38.5% in the first nine months of 2021. For the first ~~quarter~~nine months of 2022, the Company reported ~~a favorable $0.2~~an unfavorable $1.0 million impact from ~~anti-dumping~~antidumping duty rate changes, compared to income of $6.6 million in the prior-year period. Excluding these items as shown on the table that follows, ~~Adjusted Gross Margin~~adjusted gross margin (a non-GAAP measure) of ~~37.2%~~36.3% decreased ~~130~~140 basis points compared to the same period last year, primarily reflecting significantly higher transportation and material costs (collectively up more than ~~1,000~~1,100 basis points) that the Company was able to partially mitigate by pricing, promotion and alternative country/vendor sourcing strategies.

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We believe that the following items set forth in the table below can distort the visibility of our ongoing performance and that the evaluation of our financial performance can be enhanced by use of supplemental presentation of our results that exclude the impact of these items.


	Three Months Ended								Three Months Ended								Nine Months Ended
	March 31,								September 30,								September 30,
	2022				2021				2022				2021				2022				2021
	$		% of Sales		$		% of Sales		$		% of Sales		$		% of Sales		$		% of Sales		$		% of Sales

	(dollars in thousands)								(dollars in thousands)								(dollars in thousands)
Gross Profit/Margin, as reported (GAAP)	$	104,079	37.3	%	$	115,592	40.8	%	$	95,582	35.6	%	$	105,201	37.3	%	$	306,411	36.2	%	$	333,523	38.5	%

Antidumping Adjustments¹		(241)	(0.1)	%		(6,566)	(2.3)	%		—	—	%		—	—	%		977	0.1	%		(6,566)	(0.8)	%

Adjusted Gross Profit/Margin (non-GAAP measures)	$	103,838	37.2	%	$	109,026	38.5	%	$	95,582	35.6	%	$	105,201	37.3	%	$	307,388	36.3	%	$	326,957	37.7	%

1	Represents antidumping expense associated with applicable prior-year shipments of engineered hardwood from China.

Selling, General and Administrative Expenses

SG&A expense for the ~~first~~third quarter of 2022 ~~decreased $3.5~~increased $6.5 million to ~~$99.0~~$99.7 million, or 37.1% of sales, compared to $93.2 million, or 33.0% of sales, in the third quarter of 2021. Adjusted SG&A (a non-GAAP measure) for the third quarter of 2022 was $99.8 million, compared to $93.5 million in the third quarter of 2021. As a percentage of sales, adjusted SG&A increased 400 basis points, to 37.1% of sales, compared to 33.1% for the third quarter in 2021, which is primarily driven by investments to support the Company’s long-term growth, continued investment in customer facing and distribution center personnel, and deleverage on lower net sales. During the third quarter, we also implemented cost savings measures including a moderate reduction of headcount and a delayed cadence of hiring at our corporate office.

SG&A expense for the first nine months of 2022 increased $9.0 million to $300.8 million, or 35.5% of sales, compared to ~~$102.5~~$291.8 million, or ~~36.2%~~33.7% of sales, in the first ~~quarter~~nine months of 2021. SG&A in the first ~~quarter~~nine months of 2022 and 2021 included certain costs related to legal matters and settlements. Excluding these items as shown in the table that follows, ~~Adjusted~~adjusted SG&A (a non-GAAP measure) for the first ~~quarter~~nine months of 2022 was ~~$99.0~~$301.0 million, compared to ~~$94.7~~$284.0 million in the first ~~quarter~~nine months of 2021. As a percentage of sales, ~~Adjusted~~adjusted SG&A (a non-GAAP measure) increased ~~210~~270 basis points, to 35.5% of sales, compared to ~~33.4%~~32.8% for the first ~~quarter~~nine months in 2021, ~~which is primarily due to increased investment in growth strategies, including new stores and Pro initiatives,~~reflecting the same drivers as ~~well as continued investment in customer-facing and distribution center personnel.~~the quarter. The Company

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redeemed ~~$1.1~~$2.9 million and ~~$1.5~~$3.1 million of MDL and Gold vouchers during the first ~~three~~nine months of 2022 and 2021, respectively, and relieved the accrual for legal matters and settlements for the full amount, relieved inventory at its cost, and the remaining amount -- the gross margin for the items sold of ~~$0.4~~$1.1 million in 2022 and ~~$0.5~~$1.2 million in 2021 -- was recorded as a reduction in SG&A expense.

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	Three Months Ended								Three Months Ended								Nine Months Ended
	March 31,								September 30,								September 30,
	2022				2021				2022				2021				2022				2021
	$		% of Sales		$		% of Sales		$		% of Sales		$		% of Sales		$		% of Sales		$		% of Sales

	(dollars in thousands)²								(dollars in thousands)								(dollars in thousands)
SG&A, as reported (GAAP)	$	99,025	35.5	%	$	102,487	36.2	%	$	99,692	37.1	%	$	93,165	33.0	%	$	300,804	35.5	%	$	291,767	33.7	%

Accrual for Legal Matters and Settlements³		—	—	%		7,675	2.7	%
Legal and Professional Fees⁴		—	—	%		148	0.1	%
(Recovery) Accrual for Legal Matters and Settlements²										(150)	(0.1)	%		(400)	(0.1)	%		(150)	(0.0)	%		7,275	0.8	%
Legal and Professional Fees³										—	—	%		43	0.0	%		—	—	%		470	0.1	%
Sub-Total Items above		—	—	%		7,823	2.8	%		(150)	(0.1)	%		(357)	(0.1)	%		(150)	(0.0)	%		7,745	0.9	%

Adjusted SG&A (a non-GAAP measure)	$	99,025	35.5	%	$	94,664	33.4	%	$	99,842	37.1	%	$	93,522	33.1	%	$	300,954	35.5	%	$	284,022	32.8	%

2	~~Amounts may not sum due~~The 2022 amount represents insurance recovery related to ~~rounding.~~

~~This amount represents~~the Gold Litigation recorded in the third quarter of 2022. The 2021 amounts represent the charge to earnings for the Mason and ~~Savidas~~Savidis matters ~~recorded~~ in the first quarter of 2021 ~~which~~and a $0.4 million insurance recovery related to the MDL matter in the third quarter of 2021. These items are described more fully in Item 1, Note 7 to the condensed consolidated financial statements.

43	Represents charges to earnings related to our defense of certain significant legal actions during the period. This does not include all legal costs incurred by the Company.

Operating (Loss) Income and Operating Margin

Operating ~~income~~loss was ~~$5.1~~$4.1 million for the ~~first~~third quarter of 2022 compared to ~~$13.1~~operating income of $12.0 million for the third quarter of 2021. Adjusted operating loss (a non-GAAP measure) in the third quarter of 2022 was $4.3 million, down $15.9 million from operating income of $11.7 million in the prior-year period. As a percentage of net sales, adjusted operating margin (a non-GAAP measure) for the third quarter of 2022 was (1.6)%, down 570 basis points from 4.1% in the third quarter of 2021, which reflected the increased selling, general and administrative expenses and decreased gross margin as described in the above sections.

Operating income was $5.6 million for the first ~~quarter~~nine months of 2022 compared to $41.8 million for the first nine months of 2021. Adjusted ~~Operating Income~~operating income (a non-GAAP measure) in the first ~~quarter~~nine months of 2022 was ~~$4.8~~$6.4 million, down ~~$9.6~~$36.5 million from the ~~$14.4~~$42.9 million for the prior-year period. As a percentage of net sales, ~~Adjusted Operating Margin~~adjusted operating margin (a non-GAAP measure) for the first ~~quarter~~nine months of 2022 was ~~1.7%~~0.8%, down ~~340~~420 basis points from ~~5.1%~~5.0% in the first ~~quarter~~nine months of 2021, which reflected the increased selling, general and administrative expenses and decreased gross margin as described in the above sections.

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	Three Months Ended										Three Months Ended									Nine Months Ended
	March 31,										September 30,									September 30,
	2022					2021					2022					2021				2022					2021
	$		% of Sales			$			% of Sales		$		% of Sales			$		% of Sales		$		% of Sales			$		% of Sales

	(dollars in thousands)²										(dollars in thousands)									(dollars in thousands)
Operating Income, as reported (GAAP)	$	5,054	$	1.8	%	$	13,105	$	4.6	%
Operating (Loss) Income, as reported (GAAP)											$	(4,110)		(1.5)	%	$	12,036	4.3	%	$	5,607		0.7	%	$	41,756	4.8	%

Gross Margin Items:
Antidumping Adjustments¹		(241)		(0.1)	%		(6,566)		(2.3)	%		—		—	%		—	—	%		977		0.1	%		(6,566)	(0.8)	%
Gross Margin Subtotal		(241)		(0.1)	%		(6,566)		(2.3)	%		—		—	%		—	—	%		977		0.1	%		(6,566)	(0.8)	%

SG&A Items:
Accrual for Legal Matters and Settlements³		—		—	%		7,675		2.7	%
Legal and Professional Fees⁴		—		—	%		148		0.1	%
(Recovery) Accrual for Legal Matters and Settlements²												(150)		(0.1)	%		(400)	(0.1)	%		(150)		(0.0)	%		7,275	0.8	%
Legal and Professional Fees³												—		—	%		43	0.0	%		—		—	%		470	0.1	%
SG&A Subtotal		—		—	%		7,823		2.8	%		(150)		(0.1)	%		(357)	(0.1)	%		(150)		(0.0)	%		7,745	0.9	%

Adjusted Operating Income/Margin (a non-GAAP measure)	$	4,813	$	1.7	%	$	14,362	$	5.1	%
Adjusted Operating (Loss) Income/Margin (a non-GAAP measure)											$	(4,260)		(1.6)	%	$	11,679	4.1	%	$	6,434		0.8	%	$	42,935	5.0	%

^1,2,3,41,2,3 See the Gross Profit and SG&A sections above for more detailed explanations of these individual items.

Other Expense (Income)

In the ~~first~~third quarter of 2022, we had other ~~income~~expense of ~~$15~~$0.6 million compared to other expense of $18.0 thousand for the third quarter of 2021. Adjusted other expense (a non-GAAP measure) was $0.6 million for the third quarter of 2022, which is an increase of $0.6 million compared to the third quarter of 2021 driven by interest expense on borrowings under our Credit Agreement compared to no borrowings during the prior period.

The Company had other expense of $0.8 million for the first nine months of 2022 compared to other income of ~~$769 thousand~~$0.3 million for the comparable period in 2021. While both years included interest on borrowings on our Credit Agreement, during the second quarter of 2021, the Company repaid all borrowings under our Credit Agreement, minimalizing interest expense for the first ~~quarter~~nine months of 2021.

Adjusted ~~Other Expense~~other expense (a non-GAAP measure) was ~~$69 thousand~~$0.8 million for the first ~~quarter~~nine months of ~~2021,~~2022, which is a decrease of ~~$1.0~~$0.8 million compared to the first ~~quarter~~nine months of 2021 ~~driven by~~due to the ~~repayment~~interest impact related to antidumping adjustments. Adjusted Other Expense reflects favorable adjustments of ~~all outstanding debt during~~$1.7 thousand and $1.8 million in 2022 and 2021 for the ~~second quarter~~reversal of ~~2021.~~interest expense associated with an antidumping duty rate refund.

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We believe that the following item set forth in the table below can distort the visibility of our ongoing performance and that the evaluation of our financial performance can be enhanced by use of supplemental presentation of our results that exclude the impact of these items.


	Three Months Ended								Three Months Ended								Nine Months Ended
	March 31,								September 30,								September 30,
	2022				2021				2022				2021				2022				2021
	$		% of Sales		$		% of Sales		$		% of Sales		$		% of Sales		$		% of Sales		$		% of Sales

	(dollars in thousands)⁵								(dollars in thousands)								(dollars in thousands)
Other Income, as reported (GAAP)	$	(15)	(0.0)	%	$	(769)	(0.3)	%
Other Expense (Income), as reported (GAAP)									$	646	0.2	%	$	18	0.0	%	$	830	0.1	%	$	(252)	(0.0)	%

Interest impact related to antidumping adjustment⁶		(84)	(0.0)	%		(1,841)	(0.6)	%
Interest Impact Related to Antidumping Adjustments⁴										—	—	%		—	—	%		(2)	(0.0)	%		(1,841)	(0.2)	%
Sub-Total Items above		(84)	(0.0)	%		(1,841)	(0.6)	%		—	—	%		—	—	%		(2)	(0.0)	%		(1,841)	(0.2)	%

Adjusted Other Expense/Adjusted Other Expense as a % of Sales (a non-GAAP measure)	$	69	0.0	%	$	1,072	0.4	%	$	646	0.2	%	$	18	0.0	%	$	832	0.1	%	$	1,589	0.2	%

5	~~Amounts may not sum due to rounding.~~

64	Represents the interest income impact of certain antidumping adjustments related to applicable prior-year shipments of engineered hardwood from China.

Provision for Income Taxes

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The Company has a valuation allowance recorded against certain of its net deferred tax assets of $2.4 million as of ~~March~~September 30, 2022, and December 31, ~~2022~~2021, because the jurisdiction and nature of the assets makes realization of these deferred tax assets uncertain. The Company intends to maintain this valuation allowance on its deferred tax assets until there is sufficient evidence to support the realizability of those deferred tax assets.

Net (Loss) Income per Diluted Share

Net loss per diluted share was $0.13 for the three months ended September 30, 2022, compared to net income per diluted share of $0.30 for the three months ended September 30, 2021. Adjusted loss per diluted share was $0.14 for the three months ended ~~March 31,~~September 30, 2022, compared to ~~$0.36~~net income per diluted share of $0.29 for the three months ended ~~March 31,~~September 30, 2021. ~~Adjusted Earnings Per Diluted Share~~

Net income per diluted share was ~~$0.13~~$0.10 for the ~~three~~nine months ended ~~March 31,~~September 30, 2022, compared to ~~$0.34~~$1.06 for the ~~three~~nine months ended ~~March 31,~~September 30, 2021. Adjusted earnings per diluted share was $0.12 for the nine months ended September 30, 2022, compared to $1.05 for the nine months ended September 30, 2021.

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We believe that each of the items below can distort the visibility of our ongoing performance and that the evaluation of our financial performance can be enhanced by use of supplemental presentation of our results that exclude the impact of these items.


	Three Months Ended				Three Months Ended				Nine Months Ended
	March 31,				September 30,				September 30,
	2022		2021		2022		2021		2022		2021

	(in thousands)²				(in thousands)				(in thousands)
Net Income, as reported (GAAP)	$	4,037	$	10,622
Net Income per Diluted Share (GAAP)	$	0.14	$	0.36
Net (Loss) Income, as reported (GAAP)					$	(3,774)	$	8,779	$	2,999	$	31,390
Net (Loss) Income per Diluted Share (GAAP)					$	(0.13)	$	0.30	$	0.10	$	1.06

Gross Margin Items:
Antidumping Adjustments¹		(178)		(4,852)		—		—		719		(4,846)
Gross Margin Subtotal		(178)		(4,852)
Gross Margin (Loss) Subtotal						—		—		719		(4,846)

SG&A Items:
Accrual for Legal Matters and Settlements³		—		5,672
Legal and Professional Fees⁴		—		109
(Recovery) Accrual for Legal Matters and Settlements²						(110)		(295)		(110)		5,369
Legal and Professional Fees³						—		32		—		347
SG&A Subtotal		—		5,781		(110)		(263)		(110)		5,716

Other Income Items:
Antidumping Adjustments Interest⁶		(62)		(1,360)
Other Income Subtotal		(62)		(1,360)
Other Expense (Income) Items:
Interest Impact Related to Antidumping Adjustments⁴						—		—		(1)		(1,359)
Other Expense (Income) Subtotal						—		—		(1)		(1,359)

Adjusted Earnings	$	3,797	$	10,190
Adjusted Earnings per Diluted Share (a non-GAAP measure)	$	0.13	$	0.34
Adjusted (Loss) Earnings					$	(3,884)	$	8,516	$	3,607	$	30,901
Adjusted (Loss) Earnings per Diluted Share (a non-GAAP measure)					$	(0.14)	$	0.29	$	0.12	$	1.05

^{1,2,3,4,5,61,2,3,4} See the Gross Profit, SG&A and Other Expense (Income) sections above for more detailed explanations of these individual items. These items have been tax affected at the Company’s ~~federal~~ incremental rate, which was ~~26.3%~~26.4% for the 2022 period and ~~26.1%~~26.2% for the 2021 period.

Seasonality

Our net sales fluctuate slightly as a result of seasonal factors, and we adjust merchandise inventories in anticipation of those factors, causing variations in our build of merchandise inventories. Generally, we experience higher-than-average net sales in the spring and fall, when more home remodeling activities are taking place, and lower-than-average net sales in the winter months and during the hottest summer months. These seasonal fluctuations, however, are minimized to some extent by our national presence, as markets experience different seasonal characteristics. Those historical trends have been and continue to be affected by supply chain constraints and the COVID-19 pandemic.

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Liquidity, Capital Resources and Cash Flows

Our strong balance sheet and liquidity provide us with the financial flexibility to fund our growth initiatives and position LL Flooring for long-term success. ~~We had cash and cash equivalents of $56.1 million and no outstanding debt at March 31, 2022.~~

Our principal sources of liquidity at ~~March 31,~~September 30, 2022 were ~~$56.1~~$6.1 million of cash and cash equivalents on our balance sheet and ~~$175.3~~$127.8 million of availability under our Revolving Loan. As of ~~March 31,~~September 30, 2022, there was noa $69.0 million outstanding balance on our Revolving Loan.

Our net cash flows used in operating activities were ~~$23.4~~$123.8 million during the ~~first three~~nine months ofended September 30, 2022, which was primarily the result of purchases of inventory ($~~64.8~~113.8 million), ~~partially offset by increased accounts payable~~redemption of customer deposits and store credits ($~~26.0~~18.2 million), and ~~net income~~payments for legal matters and settlements ($~~4.0~~8.1 million).

Through the ~~three~~nine months ended ~~March 31,~~September 30, 2022, net cash flows used in investing activities included ~~$5.2~~$16.8 million in capital expenditures for store rebranding, opening ~~seven~~15 new stores and investments in digital. For 2022 we currently expect capital expenditure investments of ~~$28~~$20 million to ~~$32~~$22 million, ~~as our business results support~~including the opening of ~~20 to 25~~18 new stores and the continuation of the investing activities described above.

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On April 30, 2021 we entered into a Second Amendment to the Credit Agreement to extend the maturity date to April 30, 2026, convert the FILO Term Loan into the Revolving Credit Facility, decrease the margin for LIBOR Rate Loans, and reduce the LIBOR floor, which is described more fully in Item 1, Note 5 to the condensed consolidated financial statements.

~~Our focus on liquidity since the onset of the COVID-19 pandemic in March 2020 has allowed us to build a strong position~~The Company continues to navigate uncertainty in the ~~continuing~~macroeconomic environment related to inflation, higher interest rates, lower existing home sales, a shift in COVID-19 ~~environment,~~spend from home remodeling to travel and ~~our business continues to generate solid cash flow. We are monitoring the current macroeconomic conditions, including the increasing cost~~entertainment, and economic and employment uncertainty. As of ~~transportation and~~September 30, 2022, we have rebuilt inventory by more than $111.2 million after an extended period of supply chain ~~disruptions and the impact of COVID-19, including the potential impact of variants.~~constraints. We believe that cash flows from operations, together with cash on hand, and the liquidity under our Credit Agreement will be sufficient to meet our obligations, fund our settlements, operations, ~~stock repurchases, and~~ anticipated capital expenditures, and potential share repurchases for the next 12 months. We made substantial progress in rebuilding inventory in the first quarter of 2022 including what is prepaid and in-transit. As this inventory is received into our distribution centers and stores, we will continue to work to optimize our inventory levels. We prepare our forecasted cash flow and liquidity estimates based on assumptions that we believe to be reasonable but are also inherently uncertain. Actual future cash flows could differ from these estimates.

Merchandise Inventories

Merchandise inventories at ~~March 31,~~September 30, 2022 increased ~~$64.2~~$111.2 million from December 31, 2021 primarily due to increased purchases ~~in an effort~~ to replenish inventory to ~~more optimal levels.~~support the Company’s strategy to place inventory close to its customers and to support new stores, as well as, to a lesser extent, inflation. The Company believes that it has rebuilt a solid mix of quality flooring inventory that is largely evergreen in nature. We consider merchandise inventories either “available for sale” or “inbound in-transit,” based on whether we have physically received and inspected the products at an individual store location, in our distribution centers or in another facility where we control and monitor inspection.

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Merchandise inventories and available inventory per store in operation were as follows:


	As of March 31,		As of December 31,		As of March 31,		As of September 30,		As of December 31,		As of September 30,
	2022		2021		2021		2022		2021		2021

	(in thousands)						(in thousands)
Inventory – Available for Sale	$	266,228	$	197,927	$	198,924	$	334,808	$	197,927	$	190,985
Inventory – Inbound In-Transit		52,346		56,458		26,480		30,814		56,458		34,013
Total Merchandise Inventories	$	318,574	$	254,385	$	225,404	$	365,622	$	254,385	$	224,998

Available Inventory Per Store	$	618	$	467	$	483	$	763	$	467	$	453

Available inventory per store at ~~March 31,~~September 30, 2022 was higher than at December 31, 2021 and ~~March 31, 2021. The~~September 30, 2021 due to the same drivers as the increase in ~~available inventory was primarily driven~~merchandise inventories, partially offset by ~~efforts to replenish inventory to a more optimal level.~~the opening of new stores.

Inbound in-transit inventory generally varies due to the timing of certain international shipments and certain seasonal factors, including international holidays, rainy seasons, and specific merchandise category planning. ~~Due to supply chain difficulties, international shipment times have lengthened.~~

Critical Accounting Policies and Estimates

Critical accounting policies are those that we believe are both significant and that require us to make difficult, subjective, or complex judgments, often because we need to estimate the effect of inherently uncertain matters. We base our estimates and judgments on historical experiences and various other factors that we believe to be appropriate under the circumstances. Actual results may differ from these estimates, and we might obtain different estimates if we used different assumptions or conditions. We have had no significant changes in our Critical Accounting Policies and Estimates since our annual report on Form 10-K for the year ended December 31, 2021.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk.

Interest Rate Risk.

~~We are~~The Company can be exposed to interest rate risk ~~through the investment~~because of our cash and cash equivalents. Our policy is to invest our cash in short-term investments with maturities of three months or less. Changes in interest rates affect the interest income we earn, and therefore impact our cash flows and results of operations. Borrowings under our Credit Agreement are exposed to interest rate risk due to the variable rate borrowings under the credit facility. To the extent the Company borrows at LIBOR, financial results are subject to changes in the market rate of ~~the facility, and~~interest as well as the expected transition from the LIBOR reference rate in 2022. As of ~~March 31,~~September 30, 2022, we had ~~no amount~~$69.0 million outstanding under our Credit ~~Agreement. The Company’s incremental borrowing~~Agreement, which carried a weighted average interest rate ~~was 1.5%. At this rate, each $1~~of 4.6% repayable at any time. A hypothetical 1% increase in interest rates would cause an increase of $0.7 million ~~borrowed would cost~~of annual interest if outstanding for the ~~Company $15 thousand in annual interest.~~full year.

We currently do not engage in any interest rate hedging activity. However, in the future, in an effort to mitigate losses associated with interest rate risks, we may at times enter into derivative financial instruments, although we have not historically done so. We do not, and do not intend to, engage in the practice of trading derivative securities for profit.

Item 4. Controls and Procedures.

Evaluation of disclosure controls and procedures. Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined under Rule 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the quarter ended ~~March 31,~~September 30, 2022. Based on this evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that the Company's disclosure controls and procedures were effective as of ~~March 31,~~September 30, 2022.

~~Table of Contents~~

Changes in Internal Control over Financial Reporting. There has been no change in our internal control over financial reporting that occurred during the most recent quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II
OTHER INFORMATION

Item 1. Legal Proceedings.

Information with respect to this item may be found in Note 7, “Commitments and Contingencies”, to the condensed consolidated financial statements in Item 1 of Part I, which is incorporated herein by reference.

Item 1A. Risk Factors.

In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, Item 1A, “Risk Factors,” in our annual report on Form 10-K for the year ended December 31, 2021, which could materially affect our business, financial condition or future results.

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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

The following table presents our share repurchase activity for the quarter ended ~~March 31,~~September 30, 2022 (in thousands, except per share amounts):


			~~Total Number~~	~~Maximum Dollar Value~~
			~~of Shares~~	~~of Shares That May Yet~~
			~~Purchased as~~	~~Be Purchased as~~
	~~Total Number~~	~~Average~~	~~Part of Publicly~~	~~Part of Publicly~~
	~~of Shares~~	~~Price Paid~~	~~Announced~~	~~Announced~~
~~Period~~	~~Purchased~~¹	~~per Share~~¹	~~Programs~~	~~Programs~~
~~January 1, 2022 to January 31, 2022~~	—	—	—	—
~~February 1, 2022 to February 28, 2022~~	—	—	—	—
~~March 1, 2022 to March 31, 2022~~	—	—	—	—
~~Total~~	—	—	—	—


		��		Total Number		Maximum Dollar Value
				of Shares		of Shares That May Yet
				Purchased as		Be Purchased as
	Total Number		Average	Part of Publicly		Part of Publicly
	of Shares		Price Paid	Announced		Announced
Period	Purchased²		per Share²	Programs		Programs¹
July 1, 2022 to July 31, 2022	—		—	—		43,000
August 1, 2022 to August 31, 2022	—		—	—		43,000
September 1, 2022 to September 30, 2022	—		—	—		43,000
Total	—	$	—	—	$	43,000

In February 2022, the Company’s board of directors raised its authorization for the repurchase of up to $50.0 million of the Company’s common stock. In April 2022, the Company resumed its share repurchase program. The Company made cash payments of $7.0 million to repurchase 571,332 shares under the share repurchase authorization during the second quarter of 2022. There remains $43.0 million outstanding under the share repurchase authorization.

2	We also repurchased ~~50,974~~3,963 shares of our common stock, at an average price of ~~$15.89,~~$10.23, in connection with the net settlement of shares issued as a result of the vesting of restricted shares during the quarter ended ~~March 31,~~September 30, 2022.

In February of 2022, the Company’s board of directors raised its authorization for the repurchase of up to $50 million of the Company’s common stock. The Company did not begin repurchasing shares until April 2022.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

None.

Item 5. Other Information.

None.

~~Table of Contents~~

Item 6. Exhibits.

The exhibits listed in the following exhibit index are furnished as part of this report.

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EXHIBIT INDEX


Exhibit
Number		Exhibit Description
10.1		LL Flooring Holdings, Inc. Amended Outside Directors Deferral Plan (filed herewith).
31.1		Certification of Principal Executive Officer of LL Flooring Holdings, Inc. pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2		Certification of Principal Financial Officer of LL Flooring Holdings, Inc. pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1		Certification of Principal Executive Officer and Principal Financial Officer of LL Flooring Holdings, Inc. pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101		The following financial statements from the Company’s Form 10-Q for the quarter ended ~~March 31,~~September 30, 2022, formatted in Inline XBRL: (i) Condensed Consolidated Balance Sheets, (ii) Condensed Consolidated Statements of Operations ~~(iii) Condensed Consolidated Statements of~~and Comprehensive ~~Loss, (iv)~~(Loss) Income, (iii) Condensed Consolidated Statements of Stockholders’ Equity, ~~(v)~~(iv) Condensed Consolidated Statements of Cash Flows, and ~~(vi)~~(v) Notes to Condensed Consolidated Financial Statements

104		Cover Page Interactive Data File (embedded within the Inline XBRL document)

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


		LL FLOORING HOLDINGS, INC.
		(Registrant)

Date: ~~May 3,~~November 1, 2022	By:	/s/ Nancy A. Walsh
		Nancy A. Walsh
		Chief Financial Officer (Principal Financial Officer)

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		Page

	PART I – FINANCIAL INFORMATION	2

Item 1.	Condensed Consolidated Financial Statements and Supplementary Data	2

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	1715

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	2627

Item 4.	Controls and Procedures	2627

	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	2728

Item 3.	Defaults Upon Senior Securities	2728

Item 4.	Mine Safety Disclosures	2728

Item 5.	Other Information	2728

Item 6.	Exhibits	28

	Signatures	2930