Business Overview and History
1847 Holdings LLC (EFSH) is a holding company that specializes in acquiring and managing a diverse portfolio of small to medium-sized businesses headquartered in North America. With a focus on overlooked, deep value investment opportunities, the company has strategically assembled a collection of subsidiaries across various industries, positioning itself as a unique investment proposition in the middle market space.
1847 Holdings was founded in 2013 with the goal of identifying and acquiring undervalued companies that possess strong fundamentals and growth potential. The company's approach is to leverage its operational expertise and financial resources to transform these businesses and unlock their full value for its shareholders. 1847 Holdings specifically targets businesses with an enterprise value of less than $50 million across various industries.
The company's first major acquisition came in May 2020 when its subsidiary 1847 Asien Inc. acquired Asiens Appliance, Inc., a California-based provider of appliance sales, delivery, installation, and repair services. Asiens Appliance had been in business since 1948, serving the North Bay area of Sonoma County. However, in February 2024, 1847 Holdings made the strategic decision to divest Asiens Appliance, transferring its assets to an assignee in trust for the benefit of its creditors. This move allowed the company to streamline its operations and focus on its other core business segments.
In September 2020, 1847 Holdings expanded its portfolio with the acquisition of Kyles Custom Wood Shop, Inc., an Idaho-based custom cabinetry maker that had been serving contractors and homeowners in the Boise area since 1976. This acquisition marked the beginning of the company's 1847 Cabinet segment.
In March 2021, the company further diversified its holdings by acquiring Wolo Mfg. Corp. and Wolo Industrial Horn Signal, Inc., both New York-based companies that design and sell horn and safety products for the automotive and industrial markets. These acquisitions were made through the company's subsidiary, 1847 Wolo Inc.
Later in 2021, on October 8, 1847 Cabinet expanded its operations by acquiring High Mountain Door Trim Inc. and Sierra Homes, LLC dba Innovative Cabinets Design. Both Nevada-based companies specialize in finished carpentry products and services, as well as custom cabinetry and countertops, further strengthening the company's presence in the cabinet and carpentry sector.
Most recently, on February 9, 2023, 1847 Holdings acquired ICU Eyewear Holdings, Inc. and its subsidiary ICU Eyewear, Inc., a California-based distributor of reading glasses, sunglasses, and other eyewear products. This acquisition was made through the company's subsidiary, 1847 ICU Holdings Inc. However, in 2024, the company announced the sale of ICU Eyewear's assets, which resulted in the elimination of approximately $4.2 million in debt from its balance sheet.
Financials
Financial Performance and Ratios
Despite the challenges faced during the divestiture of Asiens Appliance and the sale of ICU Eyewear's assets, 1847 Holdings has demonstrated resilience in its financial performance. As of the latest 10-Q filing in 2024, the company reported quarterly revenue of $30.41 million, representing a slight increase of approximately 4% compared to the previous quarter.
The company's gross profit for the second quarter of 2024 was $6.7 million, a 14.2% year-over-year increase from the $5.9 million reported in the same period of 2023. This improvement in gross profitability can be attributed to the company's efforts to optimize operations and enhance cost efficiencies across its subsidiaries.
However, 1847 Holdings' net loss for the second quarter of 2024 was $4.91 million, compared to a net loss of $3.36 million in the same period of 2023. This increase in net loss can be partially attributed to impairment charges related to goodwill and intangible assets, as well as higher interest expenses and amortization of debt discounts.
For the most recent fiscal year (2023), 1847 Holdings reported total revenue of $68.68 million. The company experienced a net loss of $30.01 million for the year. Operating cash flow (OCF) was negative $7.54 million, and free cash flow (FCF) was negative $7.78 million.
Liquidity
Despite the net loss, the company's financial ratios suggest a mixed picture. The current ratio, which measures the company's ability to meet its short-term obligations, stood at 0.43 as of the second quarter of 2024, indicating potential liquidity concerns. The quick ratio, a more stringent measure of liquidity, was 0.25, suggesting the company may face challenges in quickly converting its assets into cash to cover its short-term liabilities.
The company's debt-to-equity ratio, a measure of financial leverage, was -1.40 as of December 31, 2023, indicating a highly leveraged capital structure. This high level of debt relative to equity could limit the company's financial flexibility and increase its vulnerability to economic downturns or other adverse events.
As of June 30, 2024, the company had a cash balance of $800,990. The available credit line was not disclosed in the provided information.
Segment Performance
1847 Holdings operates through three reportable business segments:
1. Retail and Eyewear Segment: This segment provides a wide variety of eyewear products, including non-prescription reading glasses, sunglasses, blue light blocking eyewear, sun readers, and outdoor specialty sunglasses. It also sells personal protective equipment like face masks and select health and personal care items. For the six months ended June 30, 2024, revenues from this segment were $6.97 million, accounting for 23% of total revenues. The cost of revenues for this segment was $4.42 million, or 63.4% of segment revenues.
2. Construction Segment: This segment provides finished carpentry products and services, including doors, door frames, base boards, crown molding, cabinetry, bathroom sinks and cabinets, bookcases, built-in closets, fireplace mantles, windows, and custom design and build of cabinetry and countertops. Revenues from the construction segment were $20.56 million for the six months ended June 30, 2024, representing 68% of total revenues. The cost of revenues for this segment was $11.77 million, or 57.2% of segment revenues.
3. Automotive Supplies Segment: This segment provides horn and safety products, including electric, air, truck, marine, motorcycle, and industrial equipment, as well as vehicle emergency and safety warning lights for cars, trucks, industrial equipment, and emergency vehicles. For the six months ended June 30, 2024, revenues from this segment were $2.88 million, accounting for 9% of total revenues. The cost of revenues for this segment was $1.89 million, or 65.7% of segment revenues.
The company also has a corporate services segment that includes general corporate services provided to the three operating segments, as well as costs associated with executive management, financing activities, and other public company-related expenses. This segment does not generate any revenue.
Outlook and Risks
1847 Holdings has provided limited guidance regarding its future outlook. The company's management has highlighted its efforts to optimize operations and improve cost efficiencies across its subsidiaries. However, the company's high level of debt and potential liquidity concerns could pose significant risks to its long-term sustainability.
Furthermore, the company's diversified portfolio of businesses exposes it to various industry-specific risks, including supply chain disruptions, labor shortages, and changing consumer preferences. The divestiture of Asiens Appliance and the sale of ICU Eyewear's assets also demonstrate the company's willingness to make strategic decisions to streamline its operations, which could introduce additional risks and uncertainties.
The company does not disclose geographic segment information, likely due to its small-cap status and focus on the US market. Additionally, no major scandals, short seller reports, or CEO departures were disclosed in the available information.
Conclusion
1847 Holdings' strategy of acquiring and managing a diverse portfolio of middle market businesses has resulted in a unique investment proposition. The company's history of strategic acquisitions, coupled with its efforts to optimize operations and enhance profitability, suggest a proactive approach to value creation. However, the company's high leverage, potential liquidity concerns, and industry-specific risks could pose significant challenges to its long-term success. Investors should carefully consider these factors when evaluating the company's investment merits.
The company's performance across its three main segments – Retail and Eyewear, Construction, and Automotive Supplies – shows varying levels of profitability and contribution to overall revenue. The Construction segment appears to be the strongest performer, contributing the largest share of revenue with a relatively lower cost of revenues compared to the other segments.
As 1847 Holdings continues to navigate the challenges of managing a diverse portfolio of businesses, its ability to improve operational efficiency, manage debt, and capitalize on growth opportunities within its various segments will be crucial in determining its future success and financial stability.