What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2024-08-08 compared with 2024-05-14 · 100 added, 93 removed, 262 unchanged (42% of the section changed)

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

For a description of our significant accounting policies and an understanding of the significant factors that influenced our performance during the three and six months ended March 31, 2024, this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” (hereafter referred to as “MD&A”) should be read in conjunction with the condensed consolidated financial statements, including the related notes, appearing in Part I, Item 1 of this Quarterly Report on Form 10-Q, as well as our Annual Report on Form 10-K for the fiscal year ended September 30, 2023 (the “2023 Form 10-K”).

For a description of our significant accounting policies and an understanding of the significant factors that influenced our performance during the three and nine months ended June 30, 2024, this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” (hereafter referred to as “MD&A”) should be read in conjunction with the condensed consolidated financial statements, including the related notes, appearing in Part I, Item 1 of this Quarterly Report on Form 10-Q, as well as our Annual Report on Form 10-K for the fiscal year ended September 30, 2023 (the “2023 Form 10-K”).

Note about Forward-Looking Statements

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On November 30, 2023, CRO acquired certain assets and assumed certain liabilities of Johnson Floor & Home ("Johnson"), a floor covering retailer and installer serving residential and commercial customers through locations in Tulsa, Oklahoma and Joplin, Missouri.

On May 24, 2024, CRO entered into an asset purchase agreement with the original Seller of Johnson under which the original Seller agreed to purchase certain assets and assume certain obligations acquired by CRO under the original asset purchase agreement.

Flooring Manufacturing Segment

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Our Steel Manufacturing segment is comprised of Precision Industries, Inc.

(“Precision Marshall”), its wholly-owned subsidiary The Kinetic Co., Inc.

(“Kinetic”), and Precision Metal Works, Inc.

(“Precision Marshall”), and its wholly-owned subsidiaries, The Kinetic Co., Inc.

(“Kinetic”), CSF Holdings, LLC (“Central Steel”), and Precision Metal Works, Inc.

Precision Marshall is the North American leader in providing and manufacturing, pre-finished de-carb free tool and die steel.

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Deluxe Alloy Plate, Deluxe Tool Steel Plate, Precision Ground Flat Stock, and Drill Rod.

With over 5,000 distinct size grade combinations in

stock every day, Precision Marshall arms tool steel distributors with deep inventory availability and same day shipment to their place of business or often ships direct to their customer saving time and handling.

With over 5,000 distinct size grade combinations in stock every day, Precision Marshall arms tool steel distributors with deep inventory availability and same day shipment to their place of business or often ships direct to their customer saving time and handling.

On June 28, 2022, Precision Marshall acquired Kinetic.

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Kinetic employs approximately 100 non-union employees.

On July 20, 2023, we acquired PMW.

On July 20, 2023, Precision Marshall acquired PMW.

Founded nearly 76 years ago in 1947 in Louisville, Kentucky, PMW manufactures and supplies highly engineered parts and components across 400,000 square feet of manufacturing space.

PMW offers world-class metal forming, assembly, and finishing solutions across diverse industries, including appliance, automotive, hardware, electrical, electronic, medical products, and devices.

On May 17, 2024, we acquired Central Steel.

Founded in 1969 in Chicago, Illinois, Central Steel is a manufacturer of specialized fabricated metal products.

Central Steel offers over 2,300 unique products to more than 500 customers.

Its extensive product line, primarily for data centers, includes cable racks, auxiliary framing, hardware, insulation products, and network bays.

On June 10, 2024, Kinetic acquired certain assets and assumed certain liabilities of Midwest Grinding.

Founded in 1961 in Milwaukee, Wisconsin, Midwest Grinding is a grinding house dedicated to precision Blanchard and specialty surface grinding of small to extra-large capacity.

Corporate and Other Segment

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Accordingly, Adjusted EBITDA should be considered in addition to, but not as a substitute for, net income, cash flow provided by operating activities, and other measures of financial performance prepared in accordance with GAAP.

As companies often define non-GAAP financial measures differently, Adjusted EBITDA, as calculated by the Company, should not be compared to any similarly titled measures reported by other companies.

Results of Operations Three Months Ended March 31, 2024 and 2023

The following table sets forth certain statement of income items and as a percentage of revenue, for the three months ended March 31, 2024 and 2023 (in $000’s):

As companies often define non-GAAP

financial measures differently, Adjusted EBITDA, as calculated by the Company, should not be compared to any similarly titled measures reported by other companies.

Results of Operations Three Months Ended June 30, 2024 and 2023

The following table sets forth certain statement of income items and as a percentage of revenue, for the three months ended June 30, 2024 and 2023 (in $000’s):

Three Months Ended

March 31, 2024 Three Months Ended

March 31, 2023

June 30, 2024 Three Months Ended

June 30, 2023

Revenue % of Total

Selected Data

Revenues $ 118,626 $ 91,122

Cost of revenues 83,159 70.1 % 59,514 65.3 %

Revenue $ 123,878 $ 91,516

Cost of revenue 86,833 70.1 % 59,347 64.8 %

General and administrative expenses 30,062 24.3 % 23,226 25.4 %

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The following table sets forth revenue by segment (in $000’s):

For the Three Months Ended March 31, 2024 For the Three Months Ended March 31, 2023

For the Three Months Ended June 30, 2024 For the Three Months Ended June 30, 2023

Retail-Entertainment $ 16,503 13.3 % $ 18,009 19.7 %

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The following table sets forth gross profit earned by segment and gross profit as a percentage of total revenue for each segment (in $000’s):

For the Three Months Ended March 31, 2024 For the Three Months Ended March 31, 2023

For the Three Months Ended June 30, 2024 For the Three Months Ended June 30, 2023

Profit % of Total Revenue Gross

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Total Gross Profit $ 37,045 29.9 % $ 32,169 35.2 %

Revenue increased approximately $27.5 million, or 30.2%, to approximately $118.6 million for the quarter ended March 31, 2024, compared to revenue of approximately $91.1 million in the prior year period.

The increase is primarily attributable to the acquisitions of PMW, which was acquired during the fourth quarter of fiscal year 2023, and Flooring Liquidators, which was acquired during the second quarter of fiscal year 2023 which collectively added approximately $29.6 million, as well as an increase of approximately $3.8 million in revenue in the Flooring Manufacturing segment.

Revenue increased approximately $32.3 million, or 35.4%, to approximately $123.9 million for the quarter ended June 30, 2024, compared to revenue of approximately $91.5 million in the prior year period.

The increase is primarily attributable to the acquisitions of PMW, which was acquired during the fourth quarter of fiscal year 2023, and Central Steel, which was acquired in May 2024, which collectively added approximately $21.1 million, an increase of approximately $9.5 million in the Flooring Retail segment, as well as an increase of approximately $3.8 million in the Flooring Manufacturing segment.

The increase was partially offset by decreased revenue of approximately $2.2 million in the Company’s other business segments due to general economic conditions.

Cost of Revenue

Cost of revenue as a percentage of revenue was 70.1% for three months ended March 31, 2024 as compared to 65.3% for the three months ended March 31, 2023.

The increase was primarily attributable to the acquisition of PMW, which historically has generated lower margins, as well as a decrease in margins in our Steel Manufacturing segment as a whole due to decreased production due to a slow down in sales, partially offset by an increase in margins in our Flooring Manufacturing segment due to increased sales of Harris Flooring Group® brands, which generates higher margins.

Cost of revenue as a percentage of revenue was 70.1% for three months ended June 30, 2024 as compared to 64.8% for the three months ended June 30, 2023.

The increase was primarily attributable to the acquisition of PMW, which historically has generated lower margins, as well as a decrease in margins in our Steel Manufacturing segment as a whole due to decreased production related to a slowdown in sales, partially offset by an increase in margins in our Flooring Manufacturing segment due to increased sales of Harris Flooring Group® brands, which generates higher margins.

General and Administrative Expense

General and Administrative expenses increased by 31.9% to approximately $29.8 million for the three months ended March 31, 2024, as compared to the three months ended March 31, 2023.

The increase is primarily due to the acquisitions of Flooring Liquidators and PMW during fiscal 2023.

General and Administrative expenses increased by 29.4% to approximately $30.1 million for the three months ended June 30, 2024, as compared to the three months ended June 30, 2023.

The increase is primarily due to the acquisition of PMW during fiscal 2023, as well as increased expenses in our Flooring Retail segment.

Sales and Marketing Expense

Sales and marketing expense increased by 60.5% to approximately $6.5 million for the three months ended March 31, 2024, as compared to the three months ended March 31, 2023, primarily due to expanding the sales force in connection with the acquisition of the Harris Flooring Group® brands from Q.E.P, increased convention and trade show activity in our Flooring Manufacturing segment, as well as the acquisition of Flooring Liquidators.

Sales and marketing expense increased by 73.0% to approximately $5.9 million for the three months ended June 30, 2024, as compared to the three months ended June 30, 2023, primarily due to expanding our sales force in connection with the acquisition of the Harris Flooring Group® brands, increased convention and trade show activity in our Flooring Manufacturing segment, as well as increased sales force in our Retail Flooring segment.

Interest Expense, net

Interest expense, net, increased by approximately $925,000 for the three months ended March 31, 2024, as compared to the three months ended March 31, 2023, primarily due to increased debt balances related to the acquisitions of Flooring Liquidators and PMW, and to fund operations, and increased interest rates during the period.

Results of Operations Six Months Ended March 31, 2024 and 2023

The following table sets forth certain statement of income items and as a percentage of revenue, for the six months ended March 31, 2024 and 2023 (in $000’s):

For the Six Months Ended March 31, 2024 For the Six Months Ended March 31, 2023

Interest expense, net, increased by approximately $750,000 to $4.3 million for the three months ended June 30, 2024, as compared to the three months ended June 30, 2023, primarily due to increased debt balances related to the acquisition of PMW, and for our Retail Flooring segment, and to fund operations, and increased interest rates during the period.

Results of Operations Nine Months Ended June 30, 2024 and 2023

The following table sets forth certain statement of income items and as a percentage of revenue, for the nine months ended June 30, 2024 and 2023 (in $000’s):

For the Nine Months Ended June 30, 2024 For the Nine Months Ended June 30, 2023

Revenue % of Total

Statement of Income Data:

Revenues $ 236,219 $ 160,108

Cost of revenues 164,425 69.6 % 106,556 66.6 %

Revenue $ 360,097 $ 251,624

Cost of revenue 251,258 69.8 % 165,903 65.9 %

General and administrative expenses 87,565 24.3 % 60,443 24.0 %

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The following table sets forth revenue by segment (in $000’s):

For the Six Months Ended March 31, 2024 For the Six Months Ended March 31, 2023

For the Nine Months Ended June 30, 2024 For the Nine Months Ended June 30, 2023

Total Revenue Net

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The following table sets forth gross profit earned by segment and gross profit as a percentage of total revenue for each segment (in $000’s):

For the Six Months Ended March 31, 2024 For the Six Months Ended March 31, 2023

For the Nine Months Ended June 30, 2024 For the Nine Months Ended June 30, 2023

Profit % of Total Revenue Gross

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Total Gross Profit $ 108,839 30.2 % 0.302249116210354 $ 85,721 34.1 %

Revenue increased approximately $76.1 million, or 47.5%, to $236.2 million for the six months ended March 31, 2024, as compared to the prior year period revenue of $160.1 million.

The increase is primarily attributable to the acquisitions of PMW and Flooring Liquidators, which collectively added $81.4 million, as well as an increase of approximately $6.7 million in revenue in the Flooring Manufacturing segment.

Revenue increased approximately $108.5 million, or 43.1%, to $360.1 million for the nine months ended June 30, 2024, as compared to the prior year period revenue of $251.6 million.

The increase is primarily attributable to the acquisitions of PMW and Flooring Liquidators, which collectively added $110.2 million, as well as an increase of approximately $10.5 million in the Flooring Manufacturing segment.

The increase was partially offset by decreased revenue of approximately $12.2 million in the Company’s other business segments due to general economic conditions.

Cost of Revenue

Cost of revenue as a percentage of revenue was 69.6% for six months ended March 31, 2024 as compared to 66.6% for the six months ended March 31, 2023.

Cost of revenue as a percentage of revenue was 69.8% for nine months ended June 30, 2024 as compared to 65.9% for the nine months ended June 30, 2023.

General and Administrative Expense

General and Administrative expenses increased by 54.5% to approximately $57.5 million for the six months ended March 31, 2024, as compared to the six months ended March 31, 2023.

General and administrative expenses increased by 44.9% to approximately $87.6 million for the nine months ended June 30, 2024, as compared to the nine months ended June 30, 2023.

The increase is primarily due to the acquisitions of Flooring Liquidators and PMW during fiscal 2023.

Sales and Marketing Expense

Sales and marketing expense increased by 70.0% to approximately $11.6 million for the six months ended March 31, 2024, as compared to the six months ended March 31, 2023, primarily due to expanding the sales force in connection with the

acquisition of the Harris Flooring Group® brands from Q.E.P, increased convention and trade show activity in our Flooring Manufacturing segment, as well as the acquisition of Flooring Liquidators.

Sales and marketing expense increased by 71.0% to approximately $17.4 million for the nine months ended June 30, 2024, as compared to the nine months ended June 30, 2023, primarily due to expanding our sales force in connection with the

acquisition of the Harris Flooring Group® brands, increased convention and trade show activity in our Flooring Manufacturing segment, as well as the acquisition of Flooring Liquidators.

Interest Expense, net

Interest expense, net, increased by approximately $3.0 million for the six months ended March 31, 2024, as compared to the six months ended March 31, 2023, primarily due to increased debt balances related to the acquisitions of Flooring Liquidators and PMW, and to fund operations, and increased interest rates during the period.

Results of Operations by Segment for the Three Months Ended March 31, 2024 and 2023

For the Three Months Ended March 31, 2024 For the Three Months Ended March 31, 2023

Interest expense, net, increased by approximately $3.8 million for the nine months ended June 30, 2024, as compared to the nine months ended June 30, 2023, primarily due to increased debt balances related to the acquisitions of Flooring Liquidators and PMW, and to fund operations, and increased interest rates during the period.

Results of Operations by Segment for the Three Months Ended June 30, 2024 and 2023

For the Three Months Ended June 30, 2024 For the Three Months Ended June 30, 2023

Retail-Entertainment Retail-Flooring Flooring

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Retail-Entertainment Segment

Retail-Entertainment segment revenue for the quarter ended March 31, 2024 was approximately $16.8 million, a decrease of approximately $2.3 million, or 12.2%, compared to prior year period revenue of approximately $19.2 million.

Retail-Entertainment segment revenue for the quarter ended June 30, 2024 was approximately $16.5 million, a decrease of approximately $1.5 million, or 8.4%, compared to prior year period revenue of approximately $18.0 million.

Revenue decreased primarily due to reduced consumer demand and a shift in sales mix toward used products, which generally have lower ticket sales with higher margins.

The shift in sales mix also contributed to the increase in gross margin to 58.4% for the quarter ended March 31, 2024, compared to 55.5% for the prior year period.

Operating income for the quarter ended March 31, 2024 was approximately $1.8 million, compared to operating income of approximately $2.3 million for the prior year period.

The shift in sales mix also contributed to the increase in gross margin to 57.9% for the quarter ended June 30, 2024, compared to 54.7% for the prior year period.

Operating income for the quarter ended June 30, 2024 was approximately $1.3 million, compared to operating income of approximately $1.5 million for the prior year period.

Retail-Flooring Segment

The Retail-Flooring segment consists of Flooring Liquidators, which was acquired in January 2023.

Revenue for the quarter ended March 31, 2024, was approximately $32.0 million, an increase of approximately $11.3 million, or 54.2%, compared to prior year period revenue of approximately $20.8 million.

The increase is due to the acquisition of Flooring Liquidators in the second quarter of fiscal year 2023 and the acquisitions of CRO and Johnson by Flooring Liquidators during the first quarter of fiscal year 2024.

The gross margin for the quarter ended March 31, 2024 was 36.5%, compared to 37.3% for the prior year period.

Operating loss for the quarter ended March 31, 2024 was approximately $3.0 million, compared to an operating loss of approximately $0.2 million for the prior year period.

The increase in operating loss was primarily due to temporary inefficiencies associated with the acquisitions of CRO and Johnson in the current period.

Revenue for the quarter ended June 30, 2024, was approximately $37.0 million, an increase of approximately $9.5 million, or 34.7%, compared to prior year period revenue of approximately $27.4 million.

The increase is primarily due to increased revenue in Flooring Liquidator's builder design and installation segment, EBS, and the acquisitions of CRO and Johnson by Flooring Liquidators during the first quarter of fiscal year 2024.

The gross margin for the quarter ended June 30, 2024 was 36.6%, compared to 37.8% for the prior year period.

Operating loss for the quarter ended June 30, 2024 was approximately $1.5 million, compared to operating income of approximately $1.0 million for the prior year period.

The increase in operating loss was primarily due to temporary inefficiencies associated with the acquisitions of CRO and Johnson.

Flooring Manufacturing Segment

Revenue for the quarter ended March 31, 2024 was approximately $34.2 million, an increase of approximately $3.8 million, or 12.7%, compared to prior year period revenue of approximately $30.3 million.

The gross margin was 25.6% for the quarter ended March 31, 2024, compared to 24.2% for the prior year period.

Revenue for the quarter ended June 30, 2024 was approximately $31.3 million, an increase of approximately $3.8 million, or 14.0%, compared to prior year period revenue of approximately $27.4 million.

The gross margin was 24.7% for the quarter ended June 30, 2024, compared to 23.3% for the prior year period.

The revenue and gross margin increases are primarily due to increased sales associated with the acquisition of the Harris Flooring Group® brands in the fourth quarter of fiscal year 2023.

Operating income for the quarter ended March 31, 2024 was approximately $2.0 million, compared to operating income of approximately $2.4 million for the prior year.

Operating income for the quarter ended June 30, 2024 was approximately $1.9 million, compared to operating income of approximately $2.0 million for the prior year.

Steel Manufacturing Segment

Revenue for the quarter ended March 31, 2024 was approximately $35.5 million, an increase of approximately $15.6 million or 78.2%, compared to the prior year period revenue of approximately $19.9 million.

The increase is primarily due to increased revenue of approximately $18.3 million at PMW, partially offset by a $2.9 million decrease in the Company’s other Steel Manufacturing businesses.

The gross margin was 14.3% for the quarter ended March 31, 2024, compared to 28.4% for the prior year period.

The increase is primarily due to increased revenue of approximately $18.3 million at

PMW, partially offset by a $2.9 million decrease in the Company’s other Steel Manufacturing business.

The gross margin was 14.3% for the quarter ended March 31, 2024, compared to 28.4% for the prior year period.

Revenue for the quarter ended June 30, 2024 was approximately $39.0 million, an increase of approximately $20.6 million or 112.1%, compared to the prior year period revenue of approximately $18.4 million.

The increase is primarily due to increased revenue of approximately $19.2 million at PMW, which was acquired during July 2023, and approximately $1.9 million at Central Steel, which was acquired during May 2024, partially offset by a $0.5 million decrease in the Company’s other Steel Manufacturing businesses.

The gross margin was 15.8% for the quarter ended June 30, 2024, compared to

29.2% for the prior year period.

The decrease in gross margin is primarily due to the acquisition of PMW, which has historically generated lower margins, as well as an overall decrease in margins in the Steel Manufacturing segment due to reduced production efficiencies as a result of lower demand.

Operating income for the quarter ended March 31, 2024 was approximately $0.9 million, compared to operating income of approximately $2.8 million in the prior year period.

Operating income for the quarter ended June 30, 2024 was approximately $1.4 million, compared to operating income of approximately $2.7 million in the prior year period.

Corporate and Other Segment

Revenue for the quarter ended March 31, 2024 was approximately $0.1 million, a decrease of approximately $0.8 million, or 90.8%, compared to the prior year period revenue of approximately $0.9 million.

The decrease was primarily due to the due to the closure of SW Financial in May 2023.

Operating loss for both quarters ended March 31, 2024 and March 31, 2023 was approximately $2.4 million.

Results of Operations by Segment for the Six Months Ended March 31, 2024 and 2023

For the Six Months Ended March 31, 2024 For the Six Months Ended March 31, 2023

Revenue for the quarter ended June 30, 2024 was approximately $0.1 million, a decrease of approximately $0.1 million, or 63.1%, compared to the prior year period revenue of approximately $0.2 million.

The decrease was primarily due to the closure of SW Financial in May 2023.

Operating loss for the quarter ended June 30, 2024 was approximately $1.9 million, compared to an operating loss of approximately $1.8 million in the prior year period.

Results of Operations by Segment for the Nine Months Ended June 30, 2024 and 2023

For the Nine Months Ended June 30, 2024 For the Nine Months Ended June 30, 2023

Retail-Entertainment Retail-Flooring Flooring

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Retail-Entertainment Segment

Retail-Entertainment segment revenue for the six months ended March 31, 2024 was approximately $37.4 million, a decrease of approximately $5.0 million, or 11.9%, compared to the prior year period revenue of approximately $42.5 million.

Retail-Entertainment segment revenue for the nine months ended June 30, 2024 was approximately $53.9 million, a decrease of approximately $6.5 million, or 10.7%, compared to the prior year period revenue of approximately $60.4 million.

The decrease in revenue is primarily due to reduced consumer demand and a shift in sales mix toward used products, which generally have lower ticket sales with higher margins.

The shift in sales mix also contributed to the increase in gross margin to 57.1% for the six months ended March 31, 2024, compared to 53.8% for the prior year period.

Operating income for the six months ended March 31, 2024 was approximately $5.0 million, compared to operating income of approximately $6.0 million for the prior year period.

The shift in sales mix also contributed to the increase in gross margin to 57.3% for the nine months ended June 30, 2024, compared to 54.0% for the prior year period.

Operating income for the nine months ended June 30, 2024 was approximately $6.3 million, compared to operating income of approximately $7.5 million for the prior year period.

Retail-Flooring Segment

The Retail-Flooring segment consists of Flooring Liquidators, which was acquired in January 2023.

Revenue for the six months ended March 31, 2024 was approximately $66.4 million, an increase of approximately $45.6 million, or 219.5%, compared to the prior year period revenue of $20.8 million.

Revenue for the nine months ended June 30, 2024 was approximately $103.3 million, an increase of approximately $55.1 million, or 114.3%, compared to the prior year period revenue of $48.2 million.

The gross margin for both of the six months ended March 31, 2024 and March 31, 2023 was 37.3%.

Operating loss for the six months ended March 31, 2024 was approximately $2.9 million, compared to an operating loss of approximately $0.2 million for the prior year period.

The gross margin for the nine months ended June 30, 2024 was 37.0%, compared to 37.6% for the prior year period.

Operating loss for the nine months ended June 30, 2024 was approximately $4.4 million, compared to operating income of approximately $0.8 million for the prior year period.

The increase in operating loss was primarily due to temporary inefficiencies associated with the acquisitions of CRO and Johnson in the current period.

Flooring Manufacturing Segment

Revenue for the six months ended March 31, 2024 was approximately $63.4 million, an increase of approximately $6.7 million, or 11.7%, compared to the prior year period revenue of approximately $56.8 million.

The gross margin was 23.9% for the six months ended March 31, 2024, compared to 21.1% for the prior year period.

Revenue for the nine months ended June 30, 2024 was approximately $94.7 million, an increase of approximately $10.5 million, or 12.5%, compared to the prior year period revenue of approximately $84.2 million.

The gross margin was 24.2% for the nine months ended June 30, 2024, compared to 21.8% for the prior year period.

The increase in revenue and gross margin are primarily due to increased sales associated with the acquisition of the Harris Flooring Group® brands in the fourth quarter of fiscal year 2023.

Operating income for the six months ended March 31, 2024 was approximately $2.9 million, compared to operating income of approximately $3.2 million for the prior year period.

Operating income for the nine months ended June 30, 2024 was approximately $4.8 million, compared to operating income of approximately $5.2 million for the prior year period.

Steel Manufacturing Segment

Revenue for the six months ended March 31, 2024 increased approximately $31.0 million or 81.7% to approximately $68.8 million, as compared to the prior year period revenue of $35.8 million.

The increase is primarily due to increased revenue

of approximately $35.8 million at PMW, partially offset by a $4.8 million decrease in the Company’s other Steel Manufacturing businesses.

The gross margin was 15.0% for the six months ended March 31, 2024, compared to 26.5% for the prior year period.

Revenue for the nine months ended June 30, 2024 increased approximately $51.6 million or 91.6% to approximately $107.9 million, as compared to the prior year period revenue of $56.3 million.

The increase is primarily due to increased revenue of approximately $55.1 million at PMW, which was acquired during Q4 2023, and $1.9 million at Central Steel, which was acquired during May 2024, partially offset by a $5.4 million decrease in the Company’s other Steel

Manufacturing businesses.

The gross margin was 15.3% for the nine months ended June 30, 2024, compared to 27.4% for the prior year period.

The decrease in gross margin is primarily due to the acquisition of PMW, which has historically generated lower margins, as well as overall decreased margins in the Steel Manufacturing segment due to reduced production.

Operating income for the six months ended March 31, 2024 was approximately $1.9 million, compared to operating income of approximately $4.3 in the prior year period.

Operating income for the nine months ended June 30, 2024 was approximately $3.2 million, compared to operating income of approximately $7.0 million in the prior year period.

Corporate and Other Segment

Revenue for the six months ended March 31, 2024 decreased by approximately $2.0 million.

Revenue for the nine months ended June 30, 2024 decreased by approximately $2.3 million.

The decrease was primarily due to the closure of SW Financial in May 2023.

Operating loss for the six months ended March 31, 2024 was approximately $4.1 million, compared to a loss of approximately $3.7 million in the prior year period.

Operating loss for the nine months ended June 30, 2024 was approximately $6.0 million, compared to a loss of approximately $5.4 million in the prior year period.

Adjusted EBITDA Reconciliation

The following table presents a reconciliation of net income to Adjusted EBITDA for the three and six months ended March 31, 2024 and 2023 (in 000's):

For the Three Months Ended For the Six Months Ended

March 31, 2024 March 31, 2023 March 31, 2024 March 31, 2023

The following table presents a reconciliation of net income to Adjusted EBITDA for the three and nine months ended June 30, 2024 and 2023 (in 000's):

For the Three Months Ended For the Nine Months Ended

June 30, 2024 June 30, 2023 June 30, 2024 June 30, 2023

Net (loss) income $ (2,855) $ 1,060 $ (6,818) $ 4,462

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SW Financial settlement gain — (1,000) — (2,000)

Disposition of SW Financial — 1,697 — 1,697

Acquisition costs 889 66 1,762 1,538

Debt acquisition costs — — 183 —

Disposition of Johnson 301 — 301 —

Other non-recurring charges — — 587 —

Adjusted EBITDA $ 6,123 $ 9,575 $ 19,275 $ 26,300

Adjusted EBITDA¹ for the quarter ended March 31, 2024 was approximately $4.5 million, a decrease of approximately $4.7 million, or 51.5%, compared to the prior year period.

Adjusted EBITDA for the quarter ended June 30, 2024 was approximately $6.1 million, a decrease of approximately $3.5 million, or 36.1%, compared to the prior year period.

The decrease is primarily due to decreases in gross profit and operating income.

Adjusted EBITDA for the six months ended March 31, 2024 was $13.2 million, a decrease of approximately $3.6 million, or 21.4%, compared to the prior year period.

Adjusted EBITDA for the nine months ended June 30, 2024 was $19.3 million, a decrease of approximately $7.0 million, or 26.7%, compared to the prior year period.

The decrease is primarily due to decreases in gross profit and operating income.

Liquidity and Capital Resources

As of March 31, 2024, we had total cash on hand of approximately $4.5 million and approximately $31.5 million of available borrowing under our revolving credit facilities.

As of June 30, 2024, we had total cash on hand of approximately $4.7 million and approximately $29.7 million of available borrowing under our revolving credit facilities.

As we continue to pursue acquisitions and other strategic transactions to expand and grow our business, we regularly monitor capital market conditions and may raise additional funds through borrowings or public or private sales of debt or equity securities.

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Working Capital

We had working capital of approximately $79.0 million as of March 31, 2024, as compared to working capital of approximately $85.0 million as of September 30, 2023;

We had working capital of approximately $57.5 million as of June 30, 2024, as compared to working capital of approximately $85.0 million as of September 30, 2023;

a decrease of approximately $27.5 million.

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Cash Flows from Operating Activities

The Company’s cash, as of March 31, 2024, was approximately $4.5 million compared to approximately $4.3 million as of September 30, 2023, an increase of approximately $0.2 million.

Net cash provided by operations was approximately $2.1 million and $14.2 million for the six months ended March 31, 2024 and 2023, respectively.

The decrease was primarily due to decreases in net income and deferred income tax liabilities, and an increase in accounts receivable, partially offset by increases in depreciation and amortization expense, reserve for inventory obsolescence and income taxes payable.

Our primary sources of cash inflows are from customer receipts from sales on account, factored accounts receivable proceeds, receipts for securities sales commissions, and net remittances from directory services customers processed in the form of ACH billings.

The Company’s cash, as of June 30, 2024, was approximately $4.7 million compared to approximately $4.3 million as of September 30, 2023, an increase of approximately $0.4 million.

Net cash provided by operations was approximately $13.8 million and $26.0 million for the nine months ended June 30, 2024 and 2023, respectively.

The decrease was primarily due to decreases in net income, deferred income tax liabilities, prepaids and other current assets, and trades receivables, partially offset by increases in accrued liabilities, depreciation and amortization expense, and accounts payable.

Our primary sources of cash inflows are from customer receipts from sales on account, factored accounts receivable proceeds, and net remittances from directory services customers processed in the form of ACH billings.

Our most significant cash outflows include payments for raw materials and general operating expenses, including payroll costs and general and administrative expenses that typically occur within close proximity of expense recognition.

Cash Flows from Investing Activities

Our cash flows used in investing activities of approximately $4.9 million for the six months ended March 31, 2024 consisted of the acquisitions of CRO by Flooring Liquidators, and Johnson by CRO, and purchases of property and equipment.

Our cash flows used in investing activities of approximately $36.8 million for the six months ended March 31, 2023 consisted of purchases of property and equipment.

Our cash flows used in investing activities of approximately $18.0 million for the nine months ended June 30, 2024 consisted of the acquisitions of CRO by Flooring Liquidators, Johnson by CRO, Central Steel by Precision Marshall, Midwest Grinding by Kinetic, and purchases of property and equipment.

Our cash flows used in investing activities of approximately $38.7 million for the nine months ended June 30, 2023 consisted of the acquisitions of Flooring Liquidators and Cal Coast Carpets, and purchases of property and equipment.

Cash Flows from Financing Activities

Our cash flows used in financing activities of approximately $3.0 million during the six months ended March 31, 2024 consisted of net borrowings under revolver loans of approximately $7.7 million, payments on notes payable of approximately $3.4 million, proceeds from related parties of $1.0 million, purchases of treasury stock and payments for finance leases of approximately $0.4 million, and payments of related party notes payable of $0.6 million.

Our cash flows provided by financing activities of approximately $22.2 million during the six months ended March 31, 2023 consisted of proceeds from notes payable of approximately $5.7 million, partially offset by payments of notes payable and financing leases of approximately $1.8 million, and purchases of treasury stock and net borrowings under revolver loans of approximately $670,000.

Our cash flows provided by financing activities of approximately $4.6 million during the nine months ended June 30, 2024 consisted of proceeds from failed sales and leaseback transactions of approximately $7.9 million, proceeds from the issuance of notes payable of approximately $2.7 million, net borrowings under revolver loans of approximately $2.0 million, and net borrowings under related party revolver loans of approximately $1.3 million, partially offset by payments on notes payable of approximately $5.1 million, payments for finance leases of approximately $2.5 million, payments of related party notes payable of $0.9 million, and purchases of treasury stock of approximately $860,000.

Our cash flows provided by financing activities of approximately $11.7 million during the nine months ended June 30, 2023 consisted of proceeds from notes payable of approximately $9.9 million, proceeds from related party notes payable of approximately $7.0 million, net proceeds under revolver loans of approximately $3.1 million, partially offset by payments of notes payable, financing leases, seller financing arrangements, debt acquisition costs and taxes paid for net settlement of stock options of approximately $7.3 million, and purchases of treasury stock in the amount of approximately $988,000.

Currently, we are not issuing common shares for liquidity purposes.

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What changed 10-Q

Item 2. Management’s Discussion and Analysis