Tile Shop(TTSH) - 2022 Q3 - Quarterly Report

PART I. FINANCIAL INFORMATION Financial Statements Financials show asset growth, increased sales and net income, but a significant drop in operating cash flow Consolidated Balance Sheets Total assets grew to $361.0 million driven by higher inventory, while liabilities rose due to increased long-term debt Consolidated Balance Sheet Highlights (in thousands) | Account | September 30, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $12,423 | $9,358 | | Inventories | $121,481 | $97,175 | | Total Current Assets | $152,845 | $127,082 | | Total Assets | $360,983 | $340,758 | | Liabilities & Equity | | | | Total Current Liabilities | $103,127 | $97,713 | | Long-term debt | $30,400 | $5,000 | | Total Liabilities | $239,248 | $218,534 | | Total Stockholders' Equity | $121,735 | $122,224 | Consolidated Statements of Operations Net sales and net income increased for both the third quarter and the nine-month period ending September 30, 2022 Statement of Operations Summary (in thousands, except per share data) | Metric | Q3 2022 | Q3 2021 | Nine Months 2022 | Nine Months 2021 | | :--- | :--- | :--- | :--- | :--- | | Net sales | $97,154 | $92,240 | $307,230 | $280,517 | | Gross profit | $64,612 | $62,949 | $202,476 | $193,560 | | Income from operations | $5,503 | $3,158 | $20,017 | $17,680 | | Net income | $3,823 | $2,175 | $14,250 | $12,966 | | Diluted EPS | $0.08 | $0.04 | $0.28 | $0.25 | Consolidated Statements of Comprehensive Income Comprehensive income for the nine-month period rose to $14.2 million, slightly impacted by currency translation losses Comprehensive Income (in thousands) | Metric | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | | :--- | :--- | :--- | | Net income | $14,250 | $12,966 | | Other comprehensive (loss) income | $(87) | $12 | | Comprehensive income | $14,163 | $12,978 | Consolidated Statements of Stockholders' Equity Stockholders' equity slightly decreased to $121.7 million due to share repurchases largely offsetting net income - For the nine months ended September 30, 2022, key activities affecting stockholders' equity included $14.3 million in net income, $1.6 million in stock-based compensation, and $15.5 million used for repurchases of common stock[20] Consolidated Statements of Cash Flows Operating cash flow significantly declined to $7.2 million due to inventory increases, while financing activities provided cash Cash Flow Summary (in thousands) | Activity | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | | :--- | :--- | :--- | | Net cash provided by operating activities | $7,185 | $44,390 | | Net cash used in investing activities | $(10,340) | $(8,933) | | Net cash provided by (used in) financing activities | $8,771 | $(821) | | Net change in cash | $5,541 | $34,647 | Notes to Consolidated Financial Statements Notes detail revenue disaggregation, a new $75 million credit facility, and a recently completed share repurchase program - The company is a specialty retailer with 143 stores in 31 states as of September 30, 2022[26] Revenue Disaggregation by Product Category (Nine Months Ended Sep 30) | Product Category | 2022 | 2021 | | :--- | :--- | :--- | | Man-made tiles | 50% | 47% | | Natural stone tiles | 25% | 28% | | Setting and maintenance materials | 15% | 14% | | Accessories | 7% | 8% | | Delivery service | 3% | 3% | - On September 30, 2022, the company entered into a new Credit Agreement providing a $75.0 million revolving line of credit through September 2027; as of that date, $30.4 million was outstanding[42][47] - In August 2022, the Board authorized a $30 million share repurchase program; through September 30, 2022, the company repurchased 4.1 million shares for $15.5 million[78] - Subsequent to the quarter end, in October 2022, the company completed its share repurchase program, having acquired a total of 7.8 million shares for $30.2 million[79] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses sales growth driven by pricing, margin pressure from costs, and macroeconomic headwinds - The business is impacted by macroeconomic factors including supply chain challenges, inflation, the Russia-Ukraine conflict, and higher fuel costs; a deceleration in comparable store sales growth has been observed[87][88] Comparable Store Sales Growth | Period | 2022 | 2021 | | :--- | :--- | :--- | | Three months ended Sep 30 | 5.3% | 12.8% | | Nine months ended Sep 30 | 9.5% | 14.9% | - Q3 2022 gross margin rate decreased to 66.5% from 68.2% in Q3 2021, primarily due to increased product costs from vendor price increases and higher international freight rates[101] - Adjusted EBITDA for Q3 2022 was $12.2 million (12.6% of sales), compared to $10.4 million (11.3% of sales) in Q3 2021[116] Quantitative and Qualitative Disclosures About Market Risk No material changes in primary market risk exposures were reported since the 2021 fiscal year-end - There have been no material changes in the company's primary risk exposures or management of market risks from those disclosed in the 2021 Form 10-K[133] Controls and Procedures Disclosure controls and procedures were deemed effective, with no material changes to internal controls during the quarter - The Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective as of September 30, 2022[134] - There were no changes in internal control over financial reporting during the quarter that have materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[135] PART II. OTHER INFORMATION Legal Proceedings Ongoing legal matters are not expected to have a material adverse effect on the company's financial condition - The company is party to lawsuits and claims in the normal course of business, but management does not expect the outcomes to have a material adverse effect on its financial condition[136] Risk Factors Economic risks, including inflation and rising interest rates, are highlighted as potential adverse factors - A key risk factor is the potential adverse impact of economic conditions, including inflation (at its highest since 1981), rising interest rates, and weakness in the U.S. housing market, which could decrease consumer discretionary spending[138] Unregistered Sales of Equity Securities and Use of Proceeds A $30 million stock repurchase program was approved in August and completed in October 2022 - A stock repurchase program of up to $30.0 million was approved on August 16, 2022[140] Share Repurchases (September 1-30, 2022) | Metric | Value | | :--- | :--- | | Total Shares Purchased | 4,124,106 | | Average Price Paid per Share | $3.71 | | Shares Purchased as Part of Program | 4,055,176 | | Approx. Value Remaining in Program (as of Sep 30) | $14,552 (in thousands) | - The company completed the share repurchase program subsequent to the end of the quarter in October 2022[140] Defaults Upon Senior Securities This section is not applicable to the company Mine Safety Disclosures This section is not applicable to the company Other Information Four entities or individuals beneficially own over 5% of common stock, with the largest holding at 18.9% Beneficial Ownership >5% (as of Oct 31, 2022) | Name of Beneficial Owner | Percent | | :--- | :--- | | Peter J. Jacullo III, Director | 18.9% | | Peter H. Kamin, Chairman of the Board | 15.6% | | Cannell Capital LLC | 7.1% | | Savitr Capital LLC | 6.2% | Exhibits This section lists all exhibits filed with the Form 10-Q, including key corporate and financial documents