LL Flooring — Proxy Contest (June 2024)
56 slides from LL Flooring's proxy contest presentation, Jun 13, 2024
Slide 1: The Urgent Case for Change at LL Flooring
The urgent case for CHANGE AT June 13, 2024 EXHIBIT 2
Slide 2: Table of Contents
TABLE OF CONTENTs SECTION I Executive Summary SECTION II The Urgent Case for Change Failed Strategy Severe Value Erosion Staggering Underperformance Misaligned & Entrenched Board / Management Flawed Sale Process Ineffective Company Slate SECTION III Our Nominees / Plan
Slide 3: Section I – Executive Summary
Section I – Executive summary
Slide 4: Why are we here?
Source: Capital IQ as of June 7, 2024. Nancy Taylor was appointed to the Board of Lumber Liquidators on April 1, 2014. Why are we here? Years of mismanagement and value destruction by LL’s Board of Directors have resulted in staggering operational losses and A GOING CONCERN OPINION LL’s stock price
Slide 5: Who is F9?
As a result of LL’s alarming value erosion, F9 is compelled to protect its investment and committed to restoring LL to its once-prominent leadership position in the industry Who is f9? F9 Investments is a private investment Firm WITH A MAJOR PRESENCE IN THE BUILDING PRODUCTS, HOME IMPROVEMENT AND HO
Slide 6: History between Tom Sullivan and LL Flooring
history between tom Sullivan and ll flooring Founding Lumber Liquidators In 1994, Tom Sullivan, a building contractor at the time, began purchasing excess wood and wood flooring from other companies and reselling it from a trucking yard in Stoughton, MA Over the next two years, Tom started working d
Slide 7: The Current LL Board's Legacy of Destruction
the Current LL Board’s legacy of destruction In contrast, F9’s nominees have a proven track record of successfully operating LL and similar businesses in the home improvement / décor industry and a deep understanding of the strategic issues that LL is facing Extreme Value Erosion: Leading to NEGATIV
Slide 8: F9's Highly Qualified Nominees
F9’s highly qualified nominees We assembled a slate with the experience, expertise and ownership mentality required to deliver the long-term, value-enhancing change that LL Needs Thomas D. Sullivan Founder and Former CEO and Chairman of Lumber Liquidators Proven track record of successfully operatin
Slide 9: F9's Plan
F9’s Plan F9 will work collaboratively with LL’s Board to replicate its proven formula for success and implement changes necessary to reverse LL’s extended history of poor financial performance F9’s plan will incorporate Operational, Financial and Strategic initiatives to best position LL for succes
Slide 10: Section II - The Urgent Case for Change
Section II - The urgent case for change
Slide 11: Failed Strategy: Stale strategic vision with unchanged initiatives
Re-wording text does not constitute new initiatives, and regardless of how the strategy is communicated, the Board and management’s execution has clearly yielded catastrophic results Stale strategic vision with unchanged initiatives Little-to-no change in LL’s strategic plan since 2019 September 201
Slide 12: Repeated history of overpromising and underdelivering
Revisions Failures Repeated history of overpromising, Revising and underdelivering across initiatives Store Count Growth Margin Improvement Sales Growth 2018 Plan From 2017 – 2018, management emphasized “goal of 500 stores by 2022” Dennis Knowles, 10/30/18 Entered 2024 with only 437 stores after clo
Slide 13: Failed rebranding led to lack of awareness
Failed rebranding Led to lack of awareness Source: Company SEC filings, Capital IQ and U.S. Absolute Google Search Volume via Google Trends (trends.google.com) as of June 7, 2024. Lumber Liquidators announced its name change to LL Flooring on August 7, 2020. In the last 5 years, the maximum weekly s
Slide 14: Unfounded strategic optimism despite share price declines
unfounded Strategic optimism Despite consistent & drastic Share price declines Source: Capital IQ and other publicly available information as of June 7, 2024. $1.62 5/5/21: “We will continue to pursue gross margin rate mitigation strategies and disciplined expense management to optimize profitabilit
Slide 15: If you invested $100 in LL Flooring five years ago
If you invested $100 in LL Flooring Five Years ago . . . . . . It would be worth ONLY $15 today, while the same investment in LL’s Proxy peer group would be worth $196 $15 $133 $187 $185 $196 LL (a) (a) Peers Source: Capital IQ as of June 7, 2024. Note: Excludes dividends / dividend reinvestment. Pe
Slide 16: LL has significantly underperformed its proxy peer group
Ll has significantly underperformed its Proxy peer Group and the broader market While its proxy peers and the market as a whole have created significant value for shareholders, LL has generated substantial shareholder losses year-to-date -58%, the past year -65%, three years -93% and five years -85%
Slide 17: Industry-low valuation
20.0 x 23.0 x 14.9 x 11.8 x 7.0 x 5.4 x 3.8 x NM Industry-low valuation EV / CY2023 Revenue Peer Group Median: 1.8x EV CY23 Revenue ($ in millions) EV / CY23 EBITDA Source: Capital IQ and Company SEC filings as of June 7, 2024. Note: Reflects Peer Group identified by LL in their 10-K for the period
Slide 18: Going concern opinion
going concern opinion LL Recently announced a going concern due to inability to maintain compliance with its debt covenants Excerpt from Form 10-Q Filed on May 8, 2024: “The Company had cash and cash equivalents of approximately $6.0 million, $89.0 million outstanding under the Revolving Credit Faci
Slide 19: Sales have decreased significantly since 2017
sales have decreased significantly since 2017 ($ in millions) -2.1% CAGR Store Count (a) Source: Company SEC filings, earnings releases and investor presentations as of June 7, 2024. Reflects store count as reported at the end of each fiscal year. Calculated as total Net Sales divided by store count
Slide 20: Comparable store sales have lagged proxy peers
Comparable store sales have significantly lagged proxy peers Trailing 3-Year Average Comparable Store Sales Growth vs. Peer Group (a) Peer Group Median: 4.0% Source: Company SEC filings, earnings releases and investor presentations as of June 7, 2024. Note: Reflects Peer Group identified by LL in th
Slide 21: Negative adjusted EBITDA with significant margin decline since 2020
negative adjusted EBITDA with significant margin decline since 2020 Source: Company SEC filings as of June 7, 2023. Note: Reflects Adjusted EBITDA excluding non-recurring and extraordinary items identified by LL, which include antidumping adjustments, store closure costs, HTS classification adjustme
Slide 22: Continued store expansion has damaged margins
11 21 11 6 15 18 3 1 1 5 15 1 -- 8 10 20 6 -9 14 18 -5 Continued store expansion has Damaged Margins Source: Company’s SEC filings as of June 7, 2024. Reflects store count as reported at the end of each fiscal year. (a) Stores Closed New Stores Net Change Addition of 27 net new stores in from 2020 –
Slide 23: Only company in proxy peer group with negative EBITDA margin
Only company in proxy Peer group with negative EBITDA Margin Source: Capital IQ and Company SEC filings as of June 7, 2024. Note: Reflects Peer Group identified by LL in their 10-K for the period ending December 31, 2022. Figures represent Adjusted EBITDA as reported in the Company’s SEC filings for
Slide 24: Recent SG&A pressure and operating inefficiency
Recent SG&A pressure & operating inefficiency +1,800 bps increase Source: Company SEC filings, earnings releases and investor presentations as of June 7, 2024. Note: Reflects adjusted SG&A margin excluding non-recurring and extraordinary items identified by LL, which include costs related to legal m
Slide 25: Weak cash position leaves company in precarious state
Weak cash position driven by imprudent strategy leaves company in precarious state Poor Performance in Recent Quarters . . . . . . And High Capex . . . . . . Despite Inventory Sell-Off . . . . . . Resulted in Significantly Negative Free Cash Flow (a) . . . . . . And Need for Revolver Drawdown . . .
Slide 26: Continued disappointment in Q1 2024
Continued disappointment in q1 2024 Year-over-Year Sales Growth (Q1 2024 vs. Q1 2023) (a) Source: Company SEC filings, earnings releases and investor presentations as of June 7, 2024. Note: Reflects Peer Group identified by LL in their 10-K for the period ending December 31, 2022. Sorted from highes
Slide 27: High management turnover reflects leadership instability
high Management turnover during the past seven years reflects leadership instability Denotes active in year Source: Company SEC filings as of June 7, 2024. Following Chasity Grosh’s resignation on August 7, 2023, Robert Madore was appointed Chief Accounting Officer, in addition to his role as EVP, C
Slide 28: Top executives highly compensated regardless of performance
Top executives are Highly Compensated regardless of financial performance ($ in millions) Total Compensation for Top 5 Executives vs. Adjusted EBITDA Margin (a) (b) (c) Source: Company SEC filings as of June 7, 2024. Includes total annual compensation for Dennis Knowles (former CEO) for 2017 – 2019
Slide 29: Negligible management / Board skin in the game
Negligible management / Board skin in the game Ll’s Board maintains significantly less ownership than Peers, WITH AVERAGE Board MEMBER OWNERSHIP LESS THAN A THIRD OF its PEER GROUP Board MEMBER AVERAGE Source: Capital IQ and Company SEC filings as of June 7, 2024. Reflects Compensation Peer Group id
Slide 30: Inverse relationship between Board compensation and performance
Inverse relationship between Board compensation and performance $138 $189 $189 $154 $151 $198 $203 Average Compensation per Director Total Director Compensation (a) vs. Share Price ($ in thousands) Source: Company SEC filings as of June 7, 2024. Note: Total Director Compensation figures exclude name
Slide 31: Significant Board compensation despite low enterprise value
significant Board Compensation despite Low Enterprise Value Source: Capital IQ and Company SEC filings as of June 7, 2024. Note: Figures exclude named executive officers. Reflects Compensation Peer Group identified by LL in their preliminary proxy statement as of May 20, 2024. Represents average dir
Slide 32: A classified Board and poor corporate governance
A Classified Board and poor corporate governance Only ~10.9% of the companies in the S&P 500 have a classified Board structure (a) Classified Boards are considered poor governance as they reduce director accountability since not all directors are up for reelection each year Other examples of LL’s po
Slide 33: Questioning the level playing field and bias against F9
We question the level playing field and direct bias against F9 as a credible bidder Illegitimate strategic review & sale process Limited transparency Uneven playing field for bidders Disturbing pattern of rejecting premium bids with visibility into deteriorating business Bidders reducing bid prices
Slide 34: Failed sale process
Failed sale process Between January 2023 and Now, LL was unable to finalize a sale of the business, despite numerous offers with prior-day premiums as high as 100%+ F9 Live Ventures Party A Party B Party C On 3/1/23, LL sent a rejection letter to Party A, noting that if Party A were to significantly
Slide 35: Letter from investment consortium supporting F9 offer
Dear Ms. Taylor and Mr. Tyson: I am writing on behalf of an investment consortium that I lead to strongly encourage the Board of Directors of LL Flooring Holdings, Inc. to seriously consider the offer made on May 26, 2023 by F9 Investments, LLC and Cabinets to Go, LLC (collectively, the “F9 Group”)
Slide 36: Other shareholders agree: Donovan S Royal's notice of exempt solicitation
other shareholders Agree Donovan S Royal’s Notice of exempt solicitation (Intro & conclusion) On May 24, 2024 Introduction: The Proponent, Donovan S Royal, who has more than a decade of experience in the flooring industry, is concerned about the deteriorating financial position, and recently disclos
Slide 37: Other shareholders agree: Donovan S Royal's rebuttal
other shareholders Agree Donovan S Royal’s rebuttal to LL statements regarding corporate governance and Board On June 4, 2024 The filer, Donovan S Royal, a large shareholder with an ownership stake in the company greater than any of the current officers and directors currently employed by LL Floorin
Slide 38: Company slate analysis
Legacy of LL Value Destruction 98% decline in stock price since being appointed to the Board (a) History of Performance Issues Poor financial and strategic results at prior roles Failure to Maintain Fiduciary Duty Failure to appropriately consider acquisition offers that would have proved extremely
Slide 39: Chairperson Nancy Taylor: history of poor performance
Chairperson Nancy Taylor: history of poor performance and missed goals Tredegar Corporation Verso Corporation LL Flooring Source: Company SEC filings, press releases and equity research reports. 2014 EBITDA calculated as Operating Income plus D&A. Reflects adjusted closing share prices on April 1, 2
Slide 40: Douglas Moore: history of mismanagement and bankruptcies
Douglas Moore: history of mismanagement, underperformance and bankruptcies Recently resigned from his positions as Chairman, Chief Executive Officer and President of CleanCore Solutions, a disinfectant technology business unrelated to LL, after the stock fell over 25% (a) following its IPO in April
Slide 41: Ashish Parmar: questionable leadership and inadequate experience
Ashish Parmar: Questionable leadership, Inadequate Experience And Committee failures Outside of 4 years of executive experience at luxury goods company Tapestry, and 3 years of director experience at LL marked by the near total collapse of the business, Parmar has no other relevant management or Boa
Slide 42: Section III – Our Nominees / Plan
Section III – Our Nominees / Plan
Slide 43: The F9 Plan
The f9 plan The F9 nominees will work collaboratively with LL’s Board to instill the discipline & accountability desperately needed to reverse the alarming history of severe value erosion Proven Formula: F9 nominees’ strategy effective in the past (at Lumber Liquidators) and today (at successful rel
Slide 44: F9's Nominees
F9’s nominees Thomas D. Sullivan is a long-time businessman and entrepreneur and has been the sole owner and founder of F9 since 2008. F9 is a private equity company which owns, directly or indirectly, among other enterprises, F9 Brands, LLC (“F9 Brands”), Cabinets To Go, Southwind Building Products
Slide 45: Conclusion / Next Steps
Conclusion / next steps
Slide 46: Chronic underperformance
Source: Capital IQ, Company SEC filings, press releases and other publicly available information as of June 7, 2024. Nancy Taylor was appointed to the Board of Lumber Liquidators on April 1, 2014. Excludes dividends / dividend reinvestment. Peer Group identified by LL in their 10-K for the period en
Slide 47: Vote the GOLD proxy card
If you have any questions, require assistance in voting your GOLD proxy card, or need additional copies of our proxy materials, please contact Campaign Management at the phone numbers listed: 15 West 38th Street, Suite #747 New York, NY 10018 Stockholders Call Toll-Free: (855) 264-1527 Banks and Bro
Slide 48: Appendix
appendix
Slide 49: About Tom Sullivan
About tom sullivan As the founder and former CEO and Chairman of Lumber Liquidators, Tom Sullivan established the largest hardwood flooring retailer in the U.S. Since opening its first outlet in 1996, Lumber Liquidators enjoyed consistent and robust growth under Tom’s leadership By Tom’s exit in 201
Slide 50: Lack of support from sole analyst
Lack of support from Sole analyst “We are keeping our $2 price target and maintaining our Sell rating on LL Flooring after the company reported another quarter of double-digit sales declines. The stock continues to trade lower and is currently -45% YTD vs. the S&P 500 +8%.” “The flooring repair and
Slide 51: Declining sales and profitability
Declining sales and profitability mismanagement has resulted in a -2.1% net sales CAGR from 2017 to 2023 and a -5% Adjusted EBITDA margin in 2023, despite significant sg&A Spend and capital expenditures Source: Company SEC filings, earnings releases and investor presentations as of June 7, 2024. Not
Slide 52: Adjustment Schedule
Source: Company SEC filings, earnings releases and investor presentations as of June 7, 2024. Adjustment Schedule
Slide 53: Steps taken by F9 to date
Acquired ~1.7M shares in the open market from May 12 through May 23, 2023 Filed Schedule 13D on May 25 disclosing the acquired collective ownership of ~2.7M shares, representing ~9.4% ownership of LL, and the intent to explore a possible combination between LL and CTG Sent private letter to LL’s Boa
Slide 54: Steps taken by F9 to date (Cont.)
Steps taken BY f9 to-Date (Cont.) Sent a letter to LL on November 14 containing an all-cash offer to acquire LL for $3.00 per share and a separate letter notifying LL of F9’s intent to nominate three directors to LL’s Board at the 2024 Annual Meeting and requesting LL provide appropriate questionnai
Slide 55: Steps taken by F9 to date (Cont.)
Steps taken BY f9 to-Date (Cont.) May 2024 Sent a letter on May 2 to LL reconfirming intent to nominate three highly-qualified individuals for election Skadden called Dentons on May 12, expressing desire to resolve the proxy contest with a cooperation agreement for LL to nominate Mr. Delves to the B
Slide 56: Disclaimer
DISCLAIMER Except as otherwise set forth in this presentation, the views expressed in this presentation reflect the opinions of F9 Investments, LLC and its affiliates (“F9”) and are based on publicly available information with respect to LL Flooring Holdings, Inc. (“LL” or the “Company”). F9 recogni