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Tile Shop(TTSH) - 2021 Q4 - Annual Report
2022-03-03 22:07
Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K ☒ Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the fiscal year ended December 31, 2021 or ☐ Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from to Commission File Number: 001-35629 TILE SHOP HOLDINGS, INC. (Exact name of registrant as specified in its charter) Delaware 45-5538095 (State or other jur ...
Tile Shop(TTSH) - 2021 Q4 - Earnings Call Transcript
2022-03-03 17:06
Financial Data and Key Metrics Changes - The company reported fourth quarter revenue of $90.2 million, the highest level of fourth quarter sales in its history, contributing to a full year revenue of $370.7 million, establishing a new annual sales record [5][29] - Comparable store sales increased by 10.3% during the fourth quarter and 13.8% for the year, primarily driven by an increase in the average ticket [23] - Gross margin for the fourth quarter was 66.1%, reflecting a 210 basis point sequential decline from the third quarter due to cost pressures [26][29] - Net income for the fourth quarter increased by $400,000, with diluted earnings per share at $0.04, while net income for the year more than doubled, resulting in diluted earnings per share of $0.29 [29] Business Line Data and Key Metrics Changes - The company plans to focus on improving performance within its existing 143 store footprint and will not open new stores in 2022, instead prioritizing financial improvements in underperforming stores [9][10] - The average sales per store increased from $2.3 million in 2020 to $2.6 million in 2021, indicating a positive trend in store performance [25] Market Data and Key Metrics Changes - The company has made progress in securing inventory delivery from vendors, reducing back orders to levels more in line with historical norms, with an inventory balance of $97 million at year-end [10] - Cost pressures across the supply chain have been noted, with international shipping rates still higher than historical levels, leading to necessary price increases [11][12] Company Strategy and Development Direction - The company is enhancing its IT systems to improve customer experience and operational efficiency, with a focus on retail execution, supply chain management, and team development [7][16] - The strategy includes diversifying suppliers and adjusting prices to mitigate cost pressures while expanding pro installation products and luxury vinyl tile (LVT) offerings, which may have lower gross margins but are expected to generate incremental gross profit [27][59] Management's Comments on Operating Environment and Future Outlook - Management anticipates that inflationary pressures will subside in the long term, and the actions taken will help ease current cost pressures [12] - The company remains optimistic about maintaining strong sales momentum into 2022, with improved inventory levels and reduced back orders [56] Other Important Information - The company declared a special dividend of $0.65, resulting in a cash outflow of $32.9 million during the fourth quarter [31] - Capital expenditures for 2022 are anticipated to be between $13 million and $18 million, focusing on store remodels, technology investments, and maintaining distribution centers [31] Q&A Session Summary Question: Discussion on price increases and their adequacy - Management indicated that price increases in Q4 were made in response to ongoing cost pressures, and they feel comfortable with the adjustments made [35][36] Question: Customer reception to price increases - There has been minimal pushback from customers regarding price increases, as the retail environment is experiencing similar pressures across the board [37] Question: Update on Pro business trends - The Pro business has been strong, with increased accounts driven by the Pro market manager program, reflecting robust demand in the remodeling sector [39] Question: Plans for store remodels and relocations - The company is actively remodeling stores but has no immediate plans for new store openings, focusing instead on improving existing store performance [41] Question: Details on IT initiatives - Management elaborated on the new ERP system and its potential to enhance customer and employee experiences, with a focus on automation and efficiency [45][46] Question: Clarification on asset impairment charges - Asset impairment charges are not added back into adjusted EBITDA [48] Question: CapEx guidance and allocation - CapEx is typically divided into thirds for technology, remodels, and other initiatives, with a focus on achieving a two-year payback on significant remodels [53][55] Question: Sales momentum in Q1 - Management confirmed strong sales momentum has continued into Q1, with improved inventory levels and reduced back orders [56] Question: Impact of lower margin products on traditional tile sales - Management assured that the introduction of lower margin products like LVT has not cannibalized traditional tile sales, as they cater to different customer needs [58][59] Question: Feedback on capital allocation strategy - Management appreciated the feedback regarding potential share buybacks as a means to enhance shareholder value [60][64]
Tile Shop(TTSH) - 2021 Q3 - Earnings Call Transcript
2021-11-05 22:26
Financial Data and Key Metrics Changes - The company reported record third-quarter sales of $92.2 million, marking the highest level of sales in its history for this quarter, driven by a 12.8% increase in comparable store sales [6][22] - Gross profit for the third quarter was $62.9 million, with a gross margin of 68.2%, reflecting a 30 basis point improvement year-over-year but a 90 basis point decline sequentially [24][25] - Net income increased to $2.2 million from $1.9 million in the same quarter of the previous year, while adjusted EBITDA decreased to $10.4 million from $11.1 million [29][30] Business Line Data and Key Metrics Changes - The company has seen strong demand for home improvement products, contributing to the increase in sales and average ticket size [22] - Online sales remain below 5% of total orders but are experiencing growth as the e-commerce platform evolves [10][22] Market Data and Key Metrics Changes - Customer deposits for future product deliveries remained elevated at $16.2 million, slightly down from $16.5 million in the previous quarter, indicating strong order bank maintenance [23] Company Strategy and Development Direction - The company is focusing on retail execution, enhancing the online customer experience, and managing supply chain challenges [8][9][11] - Plans for 2022 include no new store openings in the first half, with a focus on improving existing store performance and supply chain visibility [18][19] Management's Comments on Operating Environment and Future Outlook - Management acknowledged ongoing supply chain challenges and cost pressures but expressed confidence in their ability to manage these issues [14][15] - The company anticipates that sourcing challenges will persist into 2022 but remains optimistic about meeting customer needs [14][19] Other Important Information - The Board of Directors declared a special dividend of $0.65 per share, payable on December 3, reflecting the company's strong cash position [32] - The company ended the quarter with a cash balance of $44.3 million and no debt [31] Q&A Session Summary Question: Inquiry about gross margin recovery timeline - Management indicated that while they aim to return to historical gross margins above 70%, current global supply chain uncertainties make it difficult to provide a specific timeline [36][37] Question: Clarification on SG&A expenses - Management confirmed that the $700,000 asset impairment charge was not added back to adjusted EBITDA, impacting the reported numbers [38][39] Question: Discussion on special dividend versus store investment - Management explained that while they are returning capital to shareholders, they also plan to invest in store remodels and maintain cash for future growth opportunities [58][60] Question: E-commerce revenue contribution and future expectations - E-commerce currently accounts for less than 5% of total sales, but management is optimistic about its growth potential and plans to continue investing in this area [10][93] Question: Performance of luxury vinyl plank sales - Management reported positive sales results for luxury vinyl plank, indicating plans to continue monitoring and expanding this product line [100][101]
Tile Shop(TTSH) - 2021 Q3 - Quarterly Report
2021-11-04 20:49
PART I. FINANCIAL INFORMATION [Financial Statements](index=3&type=section&id=Item%201.%20Financial%20Statements) Net sales increased to $280.5 million and net income to $13.0 million for the nine months ended September 30, 2021, with total assets at $360.9 million [Consolidated Balance Sheets](index=3&type=section&id=Consolidated%20Balance%20Sheets) Total assets increased to $360.9 million as of September 30, 2021, driven by higher cash and equity, while liabilities remained stable Consolidated Balance Sheet Highlights (in thousands) | Account | Sep 30, 2021 (unaudited) | Dec 31, 2020 (audited) | Change | | :--- | :--- | :--- | :--- | | **Assets** | | | | | Cash and cash equivalents | $44,264 | $9,617 | +$34,647 | | Inventories | $76,697 | $74,296 | +$2,401 | | Total Current Assets | $141,611 | $104,654 | +$36,957 | | Total Assets | $360,864 | $342,690 | +$18,174 | | **Liabilities & Equity** | | | | | Total Current Liabilities | $88,475 | $76,804 | +$11,671 | | Total Liabilities | $207,786 | $203,628 | +$4,158 | | Accumulated deficit | ($6,521) | ($19,487) | +$12,966 | | Total Stockholders' Equity | $153,078 | $139,062 | +$14,016 | [Consolidated Statements of Operations](index=4&type=section&id=Consolidated%20Statements%20of%20Operations) Net sales increased to $92.2 million in Q3 2021 and $280.5 million for the nine months, with net income surging to $13.0 million Statement of Operations Summary (in thousands, except per share data) | Metric | Q3 2021 | Q3 2020 | 9 Months 2021 | 9 Months 2020 | | :--- | :--- | :--- | :--- | :--- | | Net sales | $92,240 | $81,492 | $280,517 | $243,501 | | Gross profit | $62,949 | $55,304 | $193,560 | $165,673 | | Income from operations | $3,158 | $2,901 | $17,680 | $3,701 | | Net income | $2,175 | $1,914 | $12,966 | $4,656 | | Diluted EPS | $0.04 | $0.04 | $0.25 | $0.09 | [Consolidated Statements of Comprehensive Income](index=5&type=section&id=Consolidated%20Statements%20of%20Comprehensive%20Income) Comprehensive income for Q3 2021 was $2.2 million, increasing to $13.0 million for the nine-month period ended September 30, 2021 Comprehensive Income (in thousands) | Period | 2021 | 2020 | | :--- | :--- | :--- | | **Three Months Ended Sep 30** | | | | Net income | $2,175 | $1,914 | | Comprehensive income | $2,175 | $1,949 | | **Nine Months Ended Sep 30** | | | | Net income | $12,966 | $4,656 | | Comprehensive income | $12,978 | $4,677 | [Consolidated Statements of Stockholders' Equity](index=6&type=section&id=Consolidated%20Statements%20of%20Stockholders%27%20Equity) Total stockholders' equity increased to $153.1 million by September 30, 2021, primarily due to $13.0 million in net income - The accumulated deficit decreased from **($19.5 million)** at the end of 2020 to **($6.5 million)** as of September 30, 2021, due to the **$13.0 million** in net income earned during the first nine months of 2021[21](index=21&type=chunk) [Consolidated Statements of Cash Flows](index=8&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) Net cash from operations was $44.4 million for the nine months ended September 30, 2021, with increased investing and decreased financing activities Cash Flow Summary (in thousands) | Cash Flow Activity | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :--- | :--- | :--- | | Net cash provided by operating activities | $44,390 | $57,347 | | Net cash used in investing activities | ($8,933) | ($1,315) | | Net cash used in financing activities | ($821) | ($56,278) | | **Net change in cash** | **$34,647** | **($223)** | [Notes to Consolidated Financial Statements](index=9&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) Notes detail the company's tile retail business, COVID-19 supply chain risks, revenue composition, and a declared special dividend - The company operates **143 stores** in **31 states** and considers the ongoing COVID-19 pandemic an uncertainty that could materially impact future financial results, particularly through supply chain disruptions and labor supply[28](index=28&type=chunk)[31](index=31&type=chunk) Revenue Disaggregation by Product Category (Q3 2021 vs Q3 2020) | Product Category | Q3 2021 | Q3 2020 | | :--- | :--- | :--- | | Man-made tiles | 49% | 46% | | Natural stone tiles | 27% | 29% | | Setting and maintenance materials | 14% | 14% | | Accessories | 7% | 9% | | Delivery service | 3% | 2% | - As of September 30, 2021, the company had no borrowings outstanding on its **$100 million** revolving line of credit and had **$97.6 million** available for borrowing[49](index=49&type=chunk) - On November 4, 2021, the Board of Directors declared a special dividend of **$0.65 per share**, payable on December 3, 2021[82](index=82&type=chunk) - The company continues to purchase significant amounts of product from Nanyang and Tile Style, vendors associated with a former employee and relative of a former executive, with purchases totaling **$6.2 million** from Nanyang and **$2.1 million** from Tile Style in the first nine months of 2021[80](index=80&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=17&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Q3 sales increased 13.2% due to strong demand, improving gross margin, and rising SG&A expenses as operations normalized, while liquidity remains strong - The COVID-19 pandemic continues to impact the business through supply chain disruptions, including product shortages and cost inflation, leading the company to adjust pricing in response[91](index=91&type=chunk) - A special dividend of **$0.65 per share** was approved on November 2, 2021, and declared on November 4, 2021, to be paid on December 3, 2021[100](index=100&type=chunk) Comparable Store Sales Growth | Period | 2021 | 2020 | | :--- | :--- | :--- | | **Three months ended Sep 30** | 12.8% | (6.5)% | | **Nine months ended Sep 30** | 14.9% | (8.3)% | [Results of Operations](index=21&type=section&id=Results%20of%20Operations) Net sales increased 13.2% in Q3 2021 due to comparable store sales, with gross margin improving and SG&A expenses rising from normalized operations - The increase in Q3 2021 SG&A expenses of **$7.4 million** was largely due to the resumption of normal business operations, including a **$1.7 million** increase in staffing costs, a **$1.1 million** increase in variable compensation, and a **$0.7 million** asset impairment charge[110](index=110&type=chunk) - The gross margin rate for Q3 2021 increased to **68.2%** from **67.9%** in Q3 2020, driven by better pricing and improved customer delivery collection rates, which offset higher product costs[109](index=109&type=chunk) - For the nine months ended Sep 30, 2021, interest expense decreased to **$0.5 million** from **$1.6 million** in the prior year period, due to lower outstanding debt[116](index=116&type=chunk) [Non-GAAP Measures](index=23&type=section&id=Non-GAAP%20Measures) Adjusted EBITDA for Q3 2021 was $10.4 million, increasing to $40.5 million for the nine-month period, with pretax return on capital employed improving to 13.9% Adjusted EBITDA Reconciliation (in thousands) | Metric | Q3 2021 | Q3 2020 | 9 Months 2021 | 9 Months 2020 | | :--- | :--- | :--- | :--- | :--- | | Net income | $2,175 | $1,914 | $12,966 | $4,656 | | Adjustments | $8,232 | $9,210 | $27,521 | $24,454 | | **Adjusted EBITDA** | **$10,407** | **$11,124** | **$40,487** | **$29,110** | - Pretax Return on Capital Employed for the trailing twelve months ending September 30, 2021 was **13.9%**, a significant improvement from **(0.4)%** for the same period ending in 2020[123](index=123&type=chunk) [Liquidity and Capital Resources](index=24&type=section&id=Liquidity%20and%20Capital%20Resources) The company maintains strong liquidity with $44.3 million in cash and $97.6 million available credit, supporting increased capital expenditures for growth - As of September 30, 2021, the company had **$44.3 million** in cash and cash equivalents and **$97.6 million** available for borrowing on its revolving line of credit[124](index=124&type=chunk)[125](index=125&type=chunk) - Capital expenditures increased to **$8.9 million** for the nine months ended September 30, 2021, up from **$1.3 million** in the prior-year period, due to investments in one new store, one relocation, store remodels, and IT assets[128](index=128&type=chunk) - Working capital increased to **$53.1 million** at September 30, 2021, from **$27.9 million** at December 31, 2020, primarily due to the increase in cash and cash equivalents[134](index=134&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=26&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company reported no material changes in its primary market risk exposures or the management of those risks since its Annual Report on Form 10-K for the fiscal year ended December 31, 2020 - There have been no material changes in the company's primary risk exposures or management of market risks from those disclosed in the 2020 Annual Report on Form 10-K[140](index=140&type=chunk) [Controls and Procedures](index=26&type=section&id=Item%204.%20Controls%20and%20Procedures) Disclosure controls and procedures were deemed ineffective as of September 30, 2021, due to ongoing material weaknesses from the 2019 ERP system implementation - Disclosure controls and procedures were deemed not effective as of September 30, 2021, due to two material weaknesses related to the 2019 ERP system implementation[141](index=141&type=chunk)[142](index=142&type=chunk) - The material weaknesses involve ineffective design of controls over the ERP implementation (data conversion, integrity, training) and ineffective IT general controls (user access, segregation of duties, change management)[142](index=142&type=chunk) - The company is continuing to take steps to remediate the material weaknesses, but they will not be considered fully remediated until the new controls have operated effectively for a sufficient period[142](index=142&type=chunk) PART II. OTHER INFORMATION [Legal Proceedings](index=26&type=section&id=Item%201.%20Legal%20Proceedings) The company is involved in routine legal proceedings, but management anticipates no material adverse effect on financial results or position - The company is involved in routine legal proceedings but believes their outcomes will not materially impact its financial condition[144](index=144&type=chunk)[145](index=145&type=chunk) [Risk Factors](index=27&type=section&id=Item%201A.%20Risk%20Factors) A new risk factor highlights potential adverse impacts from federal COVID-19 vaccination or testing mandates on employee retention and hiring - A new risk factor has been identified concerning the OSHA regulation requiring COVID-19 vaccination or weekly testing for employees[147](index=147&type=chunk) - The company warns that this mandate could result in employee attrition and difficulty satisfying labor needs, which could adversely affect future revenues, costs, and profit margins[147](index=147&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=27&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) In Q3 2021, the company acquired 27,943 shares through tax withholdings on vested restricted stock and repurchases under agreements - In Q3 2021, the company acquired **27,943 shares**, including withholding **15,311 shares** to satisfy tax obligations on vested restricted stock and repurchasing **12,632 shares** at par value under restricted stock agreements[148](index=148&type=chunk)[149](index=149&type=chunk) [Other Information](index=28&type=section&id=Item%205.%20Other%20Information) This section details beneficial ownership of common stock as of November 1, 2021, identifying five stockholders with over 5% ownership 5% Stockholders as of November 1, 2021 | Name of Beneficial Owner | Percent of Ownership | | :--- | :--- | | Peter J. Jacullo III, Director | 16.5% | | Peter H. Kamin, Chairman of the Board | 13.2% | | Cannell Capital LLC | 6.1% | | Savitr Capital LLC | 5.3% | | Philotimo Fund, LP and affiliates | 5.0% | [Exhibits](index=30&type=section&id=Item%206.%20Exhibits) This section lists all exhibits filed with the Form 10-Q, including corporate governance documents, equity plans, and certifications [Signatures](index=31&type=section&id=Signatures) The report is duly signed and authorized by Cabell H. Lolmaugh, Chief Executive Officer, and Nancy DiMattia, Chief Financial Officer, on November 4, 2021
Tile Shop Holdings (TTSH) Investor Presentation - Slideshow
2021-08-23 18:55
1 I NV E S T O R P R E S E NTAT I O N A u g u s t 2 0 2 1 C a b e l l L o l m a u g h C E O M a r k D a v i s V P I R & C A O Forward looking statements and non-GAAP information Forw ard Looking Statements These slides and accompanying oral presentation contain "forward looking statements" w ithin the meaning of the "safe harbor" provisions of the United States Private Securities Litigation Reform Act of 1995. Forward-looking statements may be identified by the use of words such as "anticipate", "believe", ...
Tile Shop(TTSH) - 2021 Q2 - Earnings Call Transcript
2021-08-07 20:54
Tile Shop Holdings, Inc. (NASDAQ:TTSH) Q2 2021 Results Conference Call August 5, 2021 9:00 AM ET Company Participants Mark Davis - VP of IR and Chief Accounting Officer Cabell Lolmaugh - President and CEO Nancy DiMattia - SVP and CFO Conference Call Participants Jeff Moore - Burr Oak Capital Jon Hollander - CAG David Kanen - Kanen Wealth Management Operator Good day, and thank you for standing by, and welcome to the Q2 2021 Tile Shop Holdings Conference Call. [Operator Instructions] Please be advised that t ...
Tile Shop(TTSH) - 2021 Q2 - Quarterly Report
2021-08-05 20:31
UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2021 OR ¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from – to – Commission file number: 001-35629 _____________________________ _____________________________ FORM 10-Q _____________________________ (Mark One) TILE SHOP HOLDINGS, INC. (Ex ...
Tile Shop(TTSH) - 2021 Q1 - Quarterly Report
2021-05-07 20:26
UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 _____________________________ FORM 10-Q _____________________________ (Mark One) x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2021 OR ¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from – to – Commission file number: 001-35629 _____________________________ TILE SHOP HOLDINGS, INC. (E ...
Tile Shop(TTSH) - 2020 Q4 - Annual Report
2021-03-11 21:44
Part I [Business](index=3&type=section&id=ITEM%201.%20BUSINESS) Tile Shop Holdings, Inc. is a specialty retailer of natural and man-made tiles, operating 142 stores with a focus on productivity and customer experience - The company operates as a specialty retailer with **142 stores** in **31 states** and the District of Columbia, with an average store size of approximately **20,000 square feet**[8](index=8&type=chunk) Financial Performance (2018-2020) | Year | Net Sales (in millions) | (Loss)/Income from Operations (in millions) | | :--- | :--- | :--- | | 2020 | $325.1 | $6.4 | | 2019 | $340.4 | $(1.4) | | 2018 | $357.3 | $18.1 | Net Sales by Product Category (2020 vs. 2019) | Product Category | 2020 (%) | 2019 (%) | | :--- | :--- | :--- | | Man-made tiles | 46 | 47 | | Natural stone tiles | 29 | 29 | | Setting and maintenance materials | 14 | 13 | | Accessories | 9 | 10 | | Delivery service | 2 | 1 | - The company's 2021 strategic plan focuses on improving in-store productivity, enhancing the online customer experience, and optimizing supply chain and assortment management[18](index=18&type=chunk)[19](index=19&type=chunk)[20](index=20&type=chunk) - As of December 31, 2020, the company had **1,149 employees**, with **1,097** being full-time, and none are represented by a union[35](index=35&type=chunk) [Risk Factors](index=7&type=section&id=ITEM%201A.%20RISK%20FACTORS) The company faces material risks from the COVID-19 pandemic, intense competition, foreign supplier reliance, and un-remediated internal control weaknesses - The COVID-19 pandemic has materially and adversely affected business operations, sales, and supply chains, with store traffic and sales decreasing by approximately **50%** in early Q2 2020[48](index=48&type=chunk)[50](index=50&type=chunk) - Two material weaknesses in internal control over financial reporting, related to the 2019 ERP system conversion and IT general controls, were not remediated as of year-end 2020[74](index=74&type=chunk)[112](index=112&type=chunk) - The company faces significant competition from a fragmented market with low barriers to entry, including national home centers, specialty retailers, and online competitors[33](index=33&type=chunk)[56](index=56&type=chunk) - The company's common stock was voluntarily delisted from Nasdaq in November 2019 and now trades on the OTC Pink Market, with a relisting application submitted in March 2021[113](index=113&type=chunk) - A significant portion of products are sourced from foreign suppliers, with the top ten accounting for **52%** of tile purchases in 2020, exposing the company to various risks[30](index=30&type=chunk)[86](index=86&type=chunk) [Unresolved Staff Comments](index=19&type=section&id=ITEM%201B.%20UNRESOLVED%20STAFF%20COMMENTS) The company reports that there are no unresolved staff comments - Not applicable[124](index=124&type=chunk) [Properties](index=19&type=section&id=ITEM%202.%20PROPERTIES) The company operates 142 leased stores across 31 states and owns four distribution and manufacturing facilities - The company operates **142 leased stores** with an average size of approximately **20,000 square feet**[125](index=125&type=chunk)[126](index=126&type=chunk) - The company owns **four distribution and manufacturing facilities** and leases one additional distribution facility[126](index=126&type=chunk) [Legal Proceedings](index=19&type=section&id=ITEM%203.%20LEGAL%20PROCEEDINGS) The company is involved in various legal proceedings, including a significant derivative and class action lawsuit settled in 2020 for $12.0 million - A derivative and class action lawsuit filed in November 2019 was settled in October 2020, establishing a **$12.0 million** fund paid by the company's insurers[130](index=130&type=chunk) [Mine Safety Disclosures](index=20&type=section&id=ITEM%204.%20MINE%20SAFETY%20DISCLOSURES) The company reports no mine safety disclosures - None[131](index=131&type=chunk) Part II [Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=21&type=section&id=ITEM%205.%20MARKET%20FOR%20THE%20REGISTRANT%27S%20COMMON%20EQUITY%2C%20RELATED%20STOCKHOLDER%20MATTERS%20AND%20ISSUER%20PURCHASES%20OF%20EQUITY%20SECURITIES) The company's common stock trades on the OTC Pink Market after Nasdaq delisting, with dividends suspended and stock repurchases cancelled - The company's common stock was voluntarily delisted from Nasdaq in November 2019 and now trades on the OTC Pink Market under the symbol **"TTSH"**[133](index=133&type=chunk) - The quarterly cash dividend program was suspended and the stock repurchase program was cancelled in October 2019[117](index=117&type=chunk)[136](index=136&type=chunk) Quarterly Stock Price (OTC Pink Market, 2020) | Period | High ($) | Low ($) | | :--- | :--- | :--- | | Q1 2020 | 2.08 | 0.10 | | Q2 2020 | 1.74 | 0.55 | | Q3 2020 | 2.89 | 1.22 | | Q4 2020 | 4.73 | 2.75 | [Selected Financial Data](index=22&type=section&id=ITEM%206.%20SELECTED%20FINANCIAL%20DATA) This section presents a five-year summary of the company's financial data, including 2020 net sales of $325.1 million and net income of $6.0 million Selected Financial Data (2018-2020, in thousands) | Metric | 2020 ($) | 2019 ($) | 2018 ($) | | :--- | :--- | :--- | :--- | | Net sales | 325,057 | 340,351 | 357,254 | | Gross profit | 221,525 | 236,119 | 251,339 | | Income (loss) from operations | 6,376 | (1,357) | 18,138 | | Net income (loss) | 6,031 | (4,463) | 10,442 | | Total assets | 342,690 | 399,814 | 297,630 | | Total debt | 0 | 63,000 | 53,000 | | Net cash from operating activities | 65,596 | 38,563 | 18,170 | Reconciliation of Net Income (Loss) to Adjusted EBITDA (2018-2020, in thousands) | Line Item | 2020 ($) | 2019 ($) | 2018 ($) | | :--- | :--- | :--- | :--- | | Net income (loss) | 6,031 | (4,463) | 10,442 | | Interest expense | 1,874 | 3,792 | 2,690 | | (Benefit) provision for income taxes | (1,529) | (674) | 5,158 | | Depreciation & amortization | 31,336 | 33,546 | 28,396 | | Stock based compensation | 2,241 | 2,645 | 2,669 | | **Adjusted EBITDA** | **39,953** | **34,846** | **49,355** | - Comparable store sales declined by **5.6%** in 2020, following a **4.6%** decline in 2019[141](index=141&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=24&type=section&id=ITEM%207.%20MANAGEMENT%27S%20DISCUSSION%20AND%20ANALYSIS%20OF%20FINANCIAL%20CONDITION%20AND%20RESULTS%20OF%20OPERATIONS) [Overview and COVID-19 Impact](index=25&type=section&id=Overview%20and%20COVID-19%20Impact) The COVID-19 pandemic significantly impacted 2020 operations, leading to cost-saving measures, full debt repayment, and a Nasdaq relisting application - In response to the pandemic, the company reduced SG&A expenses by cutting workforce, reducing store hours, and curtailing advertising[160](index=160&type=chunk) - The company deferred rent payments, resulting in a **$2.1 million** deferred rent balance as of December 31, 2020, and deferred **$2.7 million** in employer social security taxes[161](index=161&type=chunk)[162](index=162&type=chunk) - Cost-saving measures enabled the company to conserve cash and fully repay its outstanding debt in 2020[163](index=163&type=chunk) - On March 1, 2021, the Board authorized an application to relist the company's common stock on Nasdaq[166](index=166&type=chunk) [Results of Operations](index=28&type=section&id=Results%20of%20Operations) For 2020, net sales decreased by 4.5% to $325.1 million, gross margin declined, and SG&A expenses decreased, leading to improved operating income Year-over-Year Performance Comparison (2020 vs. 2019) | Metric | 2020 (Millions) | 2019 (Millions) | Change (Millions) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Net Sales | $325.1 | $340.4 | $(15.3) | (4.5) | | Gross Profit | $221.5 | $236.1 | $(14.6) | (6.2) | | SG&A Expenses | $215.1 | $237.5 | $(22.3) | (9.4) | | Income (Loss) from Operations | $6.4 | $(1.4) | $7.7 | N/A | - The decrease in 2020 net sales was primarily due to a **5.6%** decrease in comparable store sales, driven by weaker store traffic from COVID-19[172](index=172&type=chunk) - The gross margin rate declined from **69.4%** in 2019 to **68.1%** in 2020, primarily due to a higher mix of freight delivery services and increased inventory write-downs[173](index=173&type=chunk) - The effective tax rate was **(34.0%)** in 2020, compared to **13.1%** in 2019, primarily due to the CARES Act allowing net operating loss carryback[177](index=177&type=chunk) [Liquidity and Capital Resources](index=30&type=section&id=Liquidity%20and%20Capital%20Resources) The company's liquidity is supported by $9.6 million cash and a $100 million credit facility, with no outstanding debt and increased operating cash flow - As of December 31, 2020, the company had **$9.6 million** in cash and no outstanding borrowings on its revolving line of credit, with **$97.6 million** available[187](index=187&type=chunk)[190](index=190&type=chunk) Cash Flow Summary (2018-2020, in thousands) | Cash Flow Activity | 2020 ($) | 2019 ($) | 2018 ($) | | :--- | :--- | :--- | :--- | | Net cash provided by operating activities | 65,596 | 38,563 | 18,170 | | Net cash used in investing activities | (1,968) | (26,390) | (34,143) | | Net cash (used in) provided by financing activities | (63,329) | (8,622) | 14,931 | - Capital expenditures were significantly curtailed to **$2.0 million** in 2020, with **$12 million to $15 million** projected for 2021[194](index=194&type=chunk)[198](index=198&type=chunk) [Critical Accounting Policies and Estimates](index=32&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) The company's critical accounting policies involve significant estimates for revenue recognition, inventory valuation, property impairment, and income taxes - Key estimates include the allowance for sales returns, which was **$5.0 million** as of December 31, 2020[202](index=202&type=chunk) - Inventory is valued at the lower of cost or net realizable value, with reserves for shrinkage and obsolescence totaling **$0.6 million** as of December 31, 2020[203](index=203&type=chunk) - Long-lived assets are evaluated for impairment, with a **$2.2 million** charge recorded in 2020 related to underperforming stores[205](index=205&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=33&type=section&id=ITEM%207A.%20QUANTITATIVE%20AND%20QUALITATIVE%20DISCLOSURES%20ABOUT%20MARKET%20RISK) The company is exposed to market risks including inflation, interest rate risk from its credit facility, credit concentration, and foreign currency exchange - The company is exposed to interest rate risk via its credit facility, which uses variable rates including LIBOR, with its planned phase-out noted as a risk[216](index=216&type=chunk) - Foreign currency risk is present due to inventory purchases in Chinese yuan, representing less than **15%** of total inventory purchases in 2020[219](index=219&type=chunk) - The company does not currently engage in any interest rate or foreign currency exchange hedging activities[217](index=217&type=chunk)[220](index=220&type=chunk) [Financial Statements and Supplementary Data](index=34&type=section&id=ITEM%208.%20FINANCIAL%20STATEMENTS%20AND%20SUPPLEMENTARY%20DATA) This section includes the company's consolidated financial statements and auditor's reports, with an unqualified opinion on financials but an adverse opinion on internal controls - Ernst & Young LLP issued an unqualified opinion on the consolidated financial statements for the year ended December 31, 2020[398](index=398&type=chunk) - The auditor issued an adverse opinion on the company's internal control over financial reporting as of December 31, 2020, due to two identified material weaknesses[410](index=410&type=chunk)[411](index=411&type=chunk) - The material weaknesses relate to ineffective design and implementation of controls for the 2019 ERP system conversion and ineffective IT general controls[411](index=411&type=chunk) Consolidated Balance Sheet Highlights (As of Dec 31, 2020) | Account | Amount (in thousands) | | :--- | :--- | | Total Current Assets | $104,654 | | Total Assets | $342,690 | | Total Current Liabilities | $76,804 | | Total Liabilities | $203,628 | | Total Stockholders' Equity | $139,062 | [Changes in and Disagreements with Accountants on Accounting and Financial Disclosure](index=34&type=section&id=ITEM%209.%20CHANGES%20IN%20AND%20DISAGREEMENTS%20WITH%20ACCOUNTANTS%20ON%20ACCOUNTING%20AND%20FINANCIAL%20DISCLOSURE) The company reports no changes in or disagreements with its accountants on accounting and financial disclosure - None[222](index=222&type=chunk) [Controls and Procedures](index=34&type=section&id=ITEM%209A.%20CONTROLS%20AND%20PROCEDURES) Management concluded disclosure controls were ineffective as of December 31, 2020, due to two un-remediated material weaknesses in internal control - Management concluded that disclosure controls and procedures were not effective as of December 31, 2020[224](index=224&type=chunk) - Two material weaknesses related to the 2019 ERP system implementation were not remediated in 2020, leading to an ineffective internal control environment[227](index=227&type=chunk) - The weaknesses include ineffective design and implementation of controls for the ERP system conversion and ineffective IT general controls (ITGCs)[229](index=229&type=chunk) - Ernst & Young, LLP, issued an adverse report on the company's internal control over financial reporting as of December 31, 2020[228](index=228&type=chunk) [Other Information](index=36&type=section&id=ITEM%209B.%20OTHER%20INFORMATION) The company reports no other information - None[232](index=232&type=chunk) Part III [Directors, Executive Officers and Corporate Governance](index=37&type=section&id=ITEM%2010.%20DIRECTORS%2C%20EXECUTIVE%20OFFICERS%20AND%20CORPORATE%20GOVERNANCE) This section details the company's executive officers and Board of Directors, including committee compositions, independence, and the Code of Business Conduct - The Board of Directors is divided into three classes with staggered three-year terms[251](index=251&type=chunk) - The Board has three primary committees: Audit, Compensation, and Nominating and Corporate Governance, with all members determined independent under Nasdaq standards[261](index=261&type=chunk) - The Audit Committee, chaired by an audit committee financial expert, oversees financial reporting, internal controls, and the independent auditor[262](index=262&type=chunk)[264](index=264&type=chunk) - The company has adopted a Code of Business Conduct and Ethics, available on its investor relations website[259](index=259&type=chunk) [Executive Compensation](index=43&type=section&id=ITEM%2011.%20EXECUTIVE%20COMPENSATION) The executive compensation program aligns pay with strategy, with 2020 temporary salary reductions and a modified cash incentive plan based on EBITDA - In response to COVID-19, executive officers took temporary salary reductions in April 2020, including a **20%** CEO salary reduction, reinstated in July 2020[286](index=286&type=chunk)[287](index=287&type=chunk)[288](index=288&type=chunk) Summary Compensation Table for Fiscal 2020 (Named Executive Officers) | Name | Position | Salary ($) | Stock Awards ($) | Non-Equity Incentive Plan Comp ($) | Total ($) | | :--- | :--- | :--- | :--- | :--- | :--- | | Cabell Lolmaugh | CEO & President | 335,417 | 91,716 | 147,734 | 579,950 | | Nancy DiMattia | SVP & CFO | 239,583 | 22,929 | 105,524 | 374,775 | | Mark Davis | VP, Investor Relations & CAO | 176,593 | 11,465 | 61,555 | 254,028 | | Joseph Kinder | SVP, Supply Chain & Distribution | 208,917 | 45,858 | 73,613 | 333,611 | - The 2020 non-equity incentive plan was modified due to COVID-19, resulting in a **$0.9 million** bonus pool and an **84.4%** payout of target for executives[298](index=298&type=chunk)[299](index=299&type=chunk) - The CEO's annual total compensation to median employee compensation ratio was **11.77 to 1** for fiscal year 2020[339](index=339&type=chunk) [Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](index=56&type=section&id=ITEM%2012.%20SECURITY%20OWNERSHIP%20OF%20CERTAIN%20BENEFICIAL%20OWNERS%20AND%20MANAGEMENT%20AND%20RELATED%20STOCKHOLDER%20MATTERS) This section details beneficial ownership of common stock, with executive officers and directors owning approximately 31.2% of outstanding shares - As of March 9, 2021, executive officers and directors as a group beneficially owned approximately **31.2%** of the company's outstanding common stock[363](index=363&type=chunk) Beneficial Ownership of 5% Stockholders | Name of Beneficial Owner | Percent of Ownership (%) | | :--- | :--- | | Peter J. Jacullo III, Director | 16.6 | | Peter H. Kamin, Chairman of the Board | 13.3 | | Robert A. Rucker | 9.8 | | B. Riley Financial, Inc. and affiliates | 8.5 | | Cannell Capital LLC | 6.1 | | Savitr Capital LLC | 5.4 | | Philotimo Fund, LP and affiliates | 5.0 | - As of December 31, 2020, **810,925 securities** remained available for future issuance under the company's equity compensation plans[371](index=371&type=chunk) [Certain Relationships and Related Transactions, and Director Independence](index=59&type=section&id=ITEM%2013.%20CERTAIN%20RELATIONSHIPS%20AND%20RELATED%20TRANSACTIONS%2C%20AND%20DIRECTOR%20INDEPENDENCE) The company discloses related party transactions with vendors Nanyang Helin Stone Co. Ltd and Tilestyling Co. Ltd, totaling $7.6 million in 2020 - The company has significant related party transactions with vendors Nanyang Helin Stone Co. Ltd and Tilestyling Co. Ltd, majority-owned by a former executive's brother-in-law[377](index=377&type=chunk) Payments to Related Party Vendor (Nanyang) | Year | Payments (in millions) | | :--- | :--- | | 2020 | $7.6 | | 2019 | $5.1 | - The Audit Committee reviewed and approved related party transactions, deeming them in the company's best interest due to quality, availability, and pricing[378](index=378&type=chunk) - The Board has determined that a majority of its directors are "independent" as defined by Nasdaq rules[375](index=375&type=chunk) [Principal Accountant Fees and Services](index=60&type=section&id=ITEM%2014.%20PRINCIPAL%20ACCOUNTANT%20FEES%20AND%20SERVICES) This section details fees paid to Ernst & Young LLP, totaling $637,800 in 2020, a decrease from 2019 primarily due to lower audit fees Accountant Fees (Ernst & Young LLP) | Fee Category | 2020 ($) | 2019 ($) | | :--- | :--- | :--- | | Audit Fees | 637,800 | 1,096,000 | | Audit-Related Fees | 0 | 0 | | Tax Fees | 0 | 0 | | All Other Fees | 0 | 61,000 | | **Total** | **637,800** | **1,157,000** | - All audit and non-audit services performed by the independent auditors were pre-approved by the Audit Committee[389](index=389&type=chunk) Part IV [Exhibits, Financial Statement Schedules](index=62&type=section&id=ITEM%2015.%20EXHIBITS%2C%20FINANCIAL%20STATEMENT%20SCHEDULES) This section lists the documents filed as part of the Form 10-K, including consolidated financial statements, schedules, and a comprehensive index of exhibits - This item lists the financial statements, schedules, and exhibits filed with the report, including the auditor's report and various material agreements[392](index=392&type=chunk)[394](index=394&type=chunk) [Form 10-K Summary](index=62&type=section&id=ITEM%2016.%20FORM%2010-K%20SUMMARY) The company indicates that a Form 10-K summary is not applicable - Not applicable[395](index=395&type=chunk)
Tile Shop(TTSH) - 2020 Q4 - Earnings Call Transcript
2021-03-11 17:55
Tile Shop Holdings, Inc. (NASDAQ:TTSH) Q4 2020 Earnings Conference Call March 11, 2021 9:00 AM ET Company Participants Mark Davis - Vice President of Investor Relations and Chief Accounting Officer Cabell Lolmaugh - President and Chief Executive Officer Nancy DiMattia - Senior Vice President and Chief Financial Officer Conference Call Participants David Kanen - Kanen Wealth Management Eric DeLamarter - Half Moon Capital Kunal Mehta - Montana Advisors John Helander - Chesapeake Advisory Operator Ladies and g ...