1847 Holdings LLC (NYSE:EFSH) is a diversified acquisition holding company focused on identifying and acquiring overlooked, deep-value investment opportunities in middle market businesses. With a strategic vision and disciplined execution, the company has navigated a transformative journey over the past several years, positioning itself for sustained growth and shareholder value creation.

Business Overview and Company History

Incorporated in 2013, 1847 Holdings was founded with the goal of acquiring and managing a portfolio of small to medium-sized businesses across various industries. The company specifically targets businesses with an enterprise value of less than $50 million, headquartered in North America. This unique approach centers on identifying overlooked investment opportunities that possess strong cash earnings potential but are currently undervalued by the market.

1847 Holdings offers investors an opportunity to participate in the ownership and growth of a portfolio of businesses that have traditionally been owned and managed by private equity firms, private individuals or families, financial institutions, or large conglomerates. The company seeks to acquire controlling interests in small businesses that operate in industries with long-term macroeconomic growth opportunities, positive and stable earnings and cash flows, minimal threats of technological or competitive obsolescence, and strong management teams largely in place.

In 2020, 1847 Holdings took a significant step forward in its growth strategy with the acquisition of Kyles Custom Wood Shop, Inc., a leading custom cabinetry maker serving contractors and homeowners in the Boise, Idaho area since 1976. This was followed by the 2021 acquisitions of Wolo Mfg. Corp. and Wolo Industrial Horn Signal, Inc., designers and manufacturers of horn and safety products for the automotive, marine, motorcycle, industrial equipment, and emergency vehicle markets.

The company's portfolio continued to expand in 2021 with the acquisition of High Mountain Door Trim Inc. and Sierra Homes, LLC dba Innovative Cabinets Design, further strengthening its presence in the custom cabinetry and countertops industry. These strategic moves have enabled 1847 Holdings to build a diversified platform of businesses with strong cash flow generation capabilities.

Financial Performance and Key Metrics

Financials

Over the past three fiscal years, 1847 Holdings has demonstrated steady revenue growth, with annual figures reaching $68.68 million in 2023, $48.93 million in 2022, and $30.66 million in 2021. However, the company's net income has fluctuated, with losses of $30.01 million in 2023, $10.16 million in 2022, and $3.30 million in 2021.

For the most recent quarter (Q3 2024), revenue increased by 1.7% year-over-year to $4.76 million. This growth was primarily attributed to an increase in new multi-family projects and higher average customer contract values in the construction segment, as well as improved supply chain relationships with manufacturers in the automotive supplies segment. However, inventory challenges within the supply chain to meet customer demands continue to persist.

The company reported a net income of $2.81 million for Q3 2024, marking a significant improvement from the previous year. Operating cash flow for the fiscal year 2023 was negative $7.54 million, while free cash flow stood at negative $7.78 million.

Liquidity

The company's liquidity position has been a point of focus, with cash and cash equivalents standing at $1.52 million and restricted cash of $8.70 million as of September 30, 2024. 1847 Holdings has maintained a working capital deficit of $5.85 million, highlighting the need for continued financial management and strategic initiatives to improve its solvency.

Key financial ratios reveal a mixed picture, with a current ratio of 0.70, a quick ratio of 0.66, and a debt-to-equity ratio of -1.50 as of September 30, 2024. These metrics suggest potential challenges in managing short-term obligations and a highly leveraged capital structure, though the company's recent strategic actions aim to address these concerns.

Business Segments

1847 Holdings LLC operates in two primary business segments: Construction and Automotive Supplies.

Construction Segment:

This segment specializes in designing, building, and installing custom cabinetry and countertops. For the nine months ended September 30, 2024, revenues from the Construction segment increased by 5% to $8.56 million compared to the prior year period. Cost of revenues increased by 5.9% to $4.08 million, while personnel costs rose by 30.6% to $2.92 million due to increased headcount. General and administrative expenses remained relatively flat, increasing by 6.5% to $1.24 million. As a percentage of Construction revenues, cost of revenues was 47.7%, personnel costs were 34.2%, and general and administrative expenses were 14.5% for the period.

Automotive Supplies Segment: This segment provides horn and safety products for various vehicles and equipment. Revenues from the Automotive Supplies segment increased by 9.3% to $3.83 million for the nine months ended September 30, 2024. Cost of revenues increased by 14.3% to $2.47 million, outpacing revenue growth. Personnel costs decreased by 3.6% to $676,000 due to revised compensation policies, while general and administrative expenses decreased by 6.0% to $660,772. As a percentage of Automotive Supplies revenues, cost of revenues was 64.4%, personnel costs were 17.6%, and general and administrative expenses were 17.2% for the period.

Strategic Initiatives and Operational Improvements

In 2024, 1847 Holdings undertook several transformative initiatives to position the company for long-term success. The company divested its Asiens Appliance and ICU Eyewear businesses, eliminating $4.2 million in debt from its balance sheet. Additionally, the successful sale of its High Mountain Door & Trim division for more than double the original purchase price provided a significant cash infusion and demonstrated the company's ability to enhance the value of its assets.

To further strengthen its financial position, 1847 Holdings completed a $11.1 million public offering in October 2024, which allowed the company to retire $6.9 million in outstanding debt. This strategic move, coupled with the aforementioned divestitures, has helped to improve the company's liquidity and reduce its overall leverage.

In November 2024, 1847 Holdings announced the acquisition of CMD Inc., a leading cabinetry, millwork, and door manufacturer based in Las Vegas. This transaction, valued at approximately $18.75 million, represents a highly accretive addition to the company's portfolio, with CMD reporting unaudited revenue of $33.1 million and net income of $10.4 million for the trailing twelve months ended September 30, 2024.

The acquisition of CMD, combined with the company's continued focus on operational improvements and cost optimization, is expected to drive further revenue growth and profitability in the coming years. 1847 Holdings has projected net income of $1.3 million in 2025, with anticipated acceleration to $5.0 million in 2026, marking a significant milestone in the company's transformation.

Risks and Challenges

While 1847 Holdings has made considerable strides in executing its strategic initiatives, the company continues to face several risks and challenges that investors should be aware of:

1. Leverage and Liquidity Concerns: The company's highly leveraged capital structure and working capital deficit pose potential challenges in managing short-term obligations and funding future acquisitions or operations.

2. Integration and Execution Risks: The successful integration of acquired businesses and the execution of operational improvements are crucial to the company's long-term success. Failure to effectively integrate or drive anticipated synergies could impact financial performance.

3. Competitive Landscape: 1847 Holdings operates in industries with strong competition, which could pressure margins and hinder the company's ability to maintain or grow market share.

4. Regulatory and Compliance Risks: As a publicly traded company, 1847 Holdings is subject to various regulatory requirements and compliance obligations, which could result in increased costs or legal liabilities if not properly managed.

5. Supply Chain Challenges: The company continues to face inventory challenges within its supply chain, particularly in the Automotive Supplies segment, which may impact its ability to meet customer demands effectively.

6. Goodwill Impairment: The company recorded a goodwill impairment of $679,170 during the three and nine months ended September 30, 2024, which may indicate potential challenges in maintaining the value of its acquired assets.

Conclusion

1847 Holdings has embarked on a transformative journey, demonstrating its ability to identify and acquire undervalued businesses with strong cash earnings potential. The company's recent strategic initiatives, including divestitures, debt reduction, and the acquisition of CMD Inc., have positioned it for a return to profitability and sustainable growth.

By leveraging its diversified portfolio, operational expertise, and disciplined approach to capital allocation, 1847 Holdings aims to continue creating value for its shareholders. The company's focus on its Construction and Automotive Supplies segments, coupled with its efforts to streamline operations and improve financial performance, provides a foundation for future growth.

While challenges remain, including supply chain issues and the need to further strengthen its liquidity position, the company's resilience and commitment to executing its strategic vision suggest a promising path forward in the years to come. As 1847 Holdings continues to navigate the complexities of its markets and integrate its acquisitions, investors will be closely watching for signs of sustained profitability and improved operational efficiency across its business segments.