10-K: 1847 Holdings LLC Reports Full Year 2023 Results, Navigates Complex Market Conditions

1847 Holdings LLC's 2023 annual report reveals a year of strategic acquisitions and operational adjustments amidst a challenging economic landscape.

Summary

• 1847 Holdings LLC's annual report for 2023 shows a net loss of $31.6 million, with cash used in operations totaling $7.5 million.
• The company's revenue reached $68.7 million, a significant increase from $48.9 million in 2022.
• The construction segment saw a 25% revenue increase, while the retail and appliances and automotive supplies segments experienced revenue declines of 16% and 30% respectively.
• The company acquired ICU Eyewear in the first quarter of 2023, which contributed $15.5 million in revenue for the year.
• The company recorded goodwill and intangible asset impairments of $14.6 million.
• The company's management believes that current working capital and additional financing will be sufficient to fund operations for at least one year, but additional funds are required to execute the business plan.

Sentiment

Score: 4

Explanation: The document presents a mixed picture with strong revenue growth offset by significant losses and a going concern warning. The company is actively raising capital, but faces significant challenges.

Positives

• The company's total revenue increased significantly year-over-year.
• The construction segment experienced substantial growth.
• The acquisition of ICU Eyewear added a new revenue stream.
• The company's management believes that current working capital and additional financing will be sufficient to fund operations for at least one year.

Negatives

• The company reported a significant net loss of $31.6 million for 2023.
• The retail and appliances and automotive supplies segments experienced revenue declines.
• The company recorded $14.6 million in impairments of goodwill and intangible assets.
• The company's auditors have issued a going concern opinion on the audited financial statements.

Risks

• The company may not be able to effectively integrate acquired businesses.
• The company faces competition for businesses that fit its acquisition strategy.
• The company may not be able to successfully fund future acquisitions.
• The company may change its management and acquisition strategies without shareholder consent.
• The company may not be able to generate sufficient cash flow from its businesses to make distributions to shareholders.
• The company's loans with third parties contain terms that could materially adversely affect its financial condition.
• The company has identified material weaknesses in its internal control over financial reporting.
• The company's business is subject to seasonal and other periodic fluctuations.
• The company relies on a limited number of suppliers for key products and raw materials.
• The company is subject to various federal, state and local laws and governmental regulations.

Future Outlook

The company plans to continue focusing on acquiring businesses and intends to identify, perform due diligence on, negotiate and consummate platform acquisitions of small businesses in attractive industry sectors. The company also plans to limit the use of third-party acquisition leverage.

Management Comments

• Management believes, based on our operating plan, that current working capital and current and expected additional financing is sufficient to fund operations and satisfy our obligations as they come due for at least one year from the financial statement issuance date.
• Management believes additional funds are required to execute our business plan and our strategy of acquiring additional businesses.

Industry Context

The company operates in a fragmented market for small business acquisitions, which presents both opportunities and challenges. The company's strategy is to acquire businesses at attractive prices and improve their performance through operational improvements and add-on acquisitions.

Comparison to Industry Standards

• According to GF Data, in 2022 platform acquisitions with enterprise values greater than $50.0 million commanded valuation premiums 30% higher than platform acquisitions with enterprise values less than $50.0 million (8.6x to 9.3x trailing twelve month adjusted EBITDA versus 6.5x to 7.1x trailing twelve month adjusted EBITDA, respectively).
• The company believes it will be able to acquire small businesses for multiples ranging from three to six times EBITDA.
• The company competes with numerous competitors in its primary markets, with reputation, price, workmanship and services being the principal competitive factors.
• The company primarily competes with other specialty builders in its markets, such as Franklins, Western Idaho, and to a lesser extent against national retail chains such as Home Depot and Lowes.
• The company believes that it is the only OTC eyewear supplier in the U.S. to have meaningful penetration in all significant retail channels including grocery, specialty, office supply, pharmacy, and outdoor sports stores.
• The company's primary competitors in the appliance market include big box retailers, such as Home Depot, Lowes and Costco; specialty retailers, such as TeeVax, Ferguson and Premier Bath and Kitchen; and online marketplaces, such as Amazon.
• The company's current competitors in the automotive supplies market are FIAMM, Grote, Peterson Manufacturing Company, ECCO, Vixen Horns, HornBlasters and Klienn.

Related Party Transactions

• The company has a management services agreement with 1847 Partners LLC, which is controlled by the company's CEO.
• The company has offsetting management services agreements with its subsidiaries.
• The company has a related party promissory note with Stephen Mallatt, Jr. and Rita Mallatt, who are officers of Kyles.

Stakeholder Impact

• Shareholders face the risk of dilution from future equity offerings.
• Shareholders may not receive cash distributions sufficient to cover taxes on their share of the company's taxable income.
• Employees may be affected by changes in the company's operations and financial condition.
• Customers may be affected by changes in the company's product offerings and service levels.
• Suppliers may be affected by changes in the company's purchasing practices.

Next Steps

• The company plans to continue focusing on acquiring businesses.
• The company intends to identify, perform due diligence on, negotiate and consummate platform acquisitions of small businesses in attractive industry sectors.
• The company plans to limit the use of third-party acquisition leverage.

Key Dates

Keywords

acquisitions, small businesses, financial performance, revenue growth, operating loss, debt financing, equity financing, management fees, profit allocation, going concern, internal controls, supply chain, eyewear, construction, automotive, appliances