Part I Business Overview The company is a U.S. specialty retailer of natural stone and man-made tiles, operating 142 stores, with a strategic focus on employee investment, retail execution, supply chain, and assortment management - Tile Shop Holdings, Inc. is a specialty retailer of natural stone and man-made tiles, setting, and maintenance materials in the U.S.10 - As of December 31, 2022, the company operated 142 stores in 31 states and the District of Columbia10 Key Financial Metrics | Metric | 2022 ($ million) | 2021 ($ million) | 2020 ($ million) | | :----- | :----- | :----- | :----- | | Net Sales | 394.7 | 370.7 | 325.1 | | Income from Operations | 22.6 | 20.6 | 6.4 | | Total Assets (as of Dec 31) | 345.8 | 340.8 | N/A | - The 2023 strategic plan focuses on 'People First' (employee investment), 'Focused Retail Execution' (store productivity), 'Supply Chain' (efficiency and transparency), and 'Assortment Management' (differentiated product range)192021 Product Category Sales Mix | Product Category | 2022 (%) | 2021 (%) | | :--------------- | :--- | :--- | | Man-made tiles | 51 | 48 | | Natural stone tiles | 25 | 28 | | Setting and maintenance materials | 15 | 14 | | Accessories | 7 | 8 | | Delivery service | 2 | 2 | Product Sourcing by Continent | Continent | 2022 (%) | 2021 (%) | | :-------- | :--- | :--- | | North America | 34 | 27 | | Europe | 37 | 37 | | Asia | 24 | 30 | | South America | 4 | 4 | | Africa | 1 | 2 | - As of December 31, 2022, the company had 1,387 employees, with 1,233 full-time, none unionized39 Risk Factors The company faces diverse risks including intense competition, economic downturns, supply chain vulnerabilities, human capital challenges, regulatory compliance, cybersecurity threats, and stock ownership volatility - Intense competition in the highly fragmented retail tile industry, with low barriers to entry, could limit growth and profitability52 - Economic factors such as inflation, housing market weakness, decreased consumer spending, and reduced access to third-party financing could adversely affect financial performance6163 - Reliance on foreign suppliers increases risks related to long lead times, work stoppages, shipping delays, product quality, geopolitical instability, trade restrictions, tariffs, and currency exchange rates848586 - Failure to protect the integrity and security of customer information from cyber-attacks or security incidents could disrupt business, harm reputation, and lead to litigation or penalties102103 - Suspension of quarterly dividends and completion of stock repurchase programs mean appreciation in stock price may be the only method to realize a return on investment109 Unresolved Staff Comments There are no unresolved staff comments from the SEC regarding the company's filings - There are no unresolved staff comments114 Properties As of December 31, 2022, the company operated 142 leased stores and owned four regional distribution/manufacturing facilities, with its headquarters attached to a store - As of December 31, 2022, the company operated 142 leased stores across 31 states and D.C., with an average size of 20,000 square feet115 - The company owns four regional facilities for distribution and manufacturing in Wisconsin, Michigan, Virginia, and Oklahoma116 - A distribution facility in Dayton, New Jersey, is leased and measures 163,000 square feet116 Legal Proceedings The company is involved in various legal proceedings, but management does not anticipate a material adverse effect on financial results from ultimate liabilities - The company is involved in various legal proceedings, but management does not expect the ultimate liability to have a material adverse effect on financial results118 - Liabilities for probable and estimable losses from legal proceedings are recorded and adjusted quarterly118 Mine Safety Disclosures The company has no disclosures related to mine safety - No mine safety disclosures are applicable120 Part II Market for Common Equity and Stockholder Matters The company's common stock trades on Nasdaq, with 44.4 million shares outstanding as of February 2023, and a $30.0 million share repurchase program completed in 2022 - The company's common stock is traded on Nasdaq under the symbol 'TTSH'122 - As of February 27, 2023, there were approximately 391 holders of record and 44,363,205 shares of common stock outstanding122123 Dividends Paid Per Share | Year | Dividend Per Share ($) | | :--- | :--------------------- | | 2021 | 0.65 (special cash dividend) | | 2022 | 0.00 | - A $30.0 million share repurchase program was approved in August 2022 and completed in October 2022, repurchasing 7.8 million shares at an average price of $3.87 per share126129 Stock Performance Comparison (Indexed to $100) | Date | Tile Shop Holdings, Inc. ($) | S&P SmallCap 600 ($) | Dow Jones U.S. Furnishings Index ($) | | :----------------- | :----------------------- | :--------------- | :------------------------------- | | Dec 31, 2017 | 100.00 | 100.00 | 100.00 | | Dec 31, 2018 | 58.81 | 90.25 | 56.57 | | Dec 31, 2019 | 18.79 | 109.07 | 76.64 | | Dec 31, 2020 | 47.82 | 119.51 | 78.00 | | Dec 31, 2021 | 80.37 | 149.71 | 101.31 | | Dec 31, 2022 | 49.37 | 123.63 | 67.57 | Selected Financial Data This section presents a five-year summary of key financial data, highlighting trends in net sales, net income, debt, gross margin, and comparable store sales, with the impact of ASC 842 adoption Five-Year Selected Financial Data (in thousands, except per share data) | Metric (in thousands, except per share data) | 2022 | 2021 | 2020 | 2019 | 2018 | | :----------------------------------------- | :----- | :----- | :----- | :----- | :----- | | Statement of Income Data | | | | | | | Net sales | $394,702 | $370,700 | $325,057 | $340,351 | $357,254 | | Gross profit | $258,937 | $253,130 | $221,525 | $236,119 | $251,339 | | Income (loss) from operations | $22,609 | $20,610 | $6,376 | $(1,357) | $18,138 | | Net income (loss) | $15,703 | $14,774 | $6,031 | $(4,463) | $10,442 | | Earnings (loss) per share | $0.32 | $0.29 | $0.12 | $(0.09) | $0.20 | | Balance Sheet Data (as of Dec 31) | | | | | | | Cash and cash equivalents | $5,948 | $9,358 | $9,617 | $9,104 | $5,557 | | Inventories | $120,952 | $97,175 | $74,296 | $97,620 | $110,095 | | Total assets | $345,822 | $340,758 | $342,690 | $399,814 | $297,630 | | Total debt | $45,400 | $5,000 | $- | $63,000 | $53,000 | | Total stockholders' equity | $108,769 | $122,224 | $139,062 | $130,899 | $146,347 | | Cash Flow Data | | | | | | | Net cash provided by operating activities | $2,715 | $39,691 | $65,596 | $38,563 | $18,170 | | Net cash used in investing activities | $(14,027) | $(11,070) | $(1,968) | $(26,390) | $(34,143) | | Net cash provided by (used in) financing activities | $9,114 | $(28,902) | $(63,329) | $(8,622) | $14,931 | | Other Selected Financial Data (unaudited) | | | | | | | Dividends paid per share | $- | $0.65 | $- | $0.15 | $0.20 | | Adjusted EBITDA | $49,583 | $50,255 | $39,953 | $34,846 | $49,355 | | Adjusted EBITDA margin | 12.6 % | 13.6 % | 12.3 % | 10.2 % | 13.8 % | | Gross margin rate | 65.6 % | 68.3 % | 68.1 % | 69.4 % | 70.4 % | | Operating income (loss) margin | 5.7 % | 5.6 % | 2.0 % | (0.4)% | 5.1 % | | Comparable store sales (decline) growth | 6.5 % | 13.8 % | (5.6)% | (4.6)% | (0.6)% | | Stores open at end of period | 142 | 143 | 142 | 142 | 140 | - The company adopted Accounting Standards Codification ("ASC") 842 on January 1, 2019, requiring recognition of right-of-use assets and lease liabilities on the consolidated balance sheet135 - Adjusted EBITDA and Adjusted EBITDA margin are non-GAAP measures used by management and investors to evaluate financial performance and trends136 Management's Discussion and Analysis Net sales increased by 6.5% to $394.7 million in 2022, while gross margin declined due to rising costs, and liquidity is supported by cash and a $75.0 million credit facility - Net sales increased $24.0 million, or 6.5%, in 2022 compared to 2021, primarily due to an increase in average ticket size driven by higher selling prices160 - The gross margin rate decreased from 68.3% in 2021 to 65.6% in 2022, primarily due to increased product costs outpacing selling price adjustments161 - Selling, general and administrative expenses increased $3.8 million, or 1.6%, in 2022, largely driven by an $8.2 million increase in wages and benefits, partially offset by a $6.5 million decrease in bonuses162 - Inventory balance increased by $23.8 million to $121.0 million as of December 31, 2022, contributing to a $40.4 million increase in the debt balance151 - As of December 31, 2022, $45.4 million was outstanding on the revolving line of credit, with $28.3 million available for borrowing175 Consolidated Cash Flow Summary (in thousands) | Cash Flow Category | 2022 ($ thousands) | 2021 ($ thousands) | 2020 ($ thousands) | | :-------------------------------------- | :----- | :----- | :----- | | Net cash provided by operating activities | $2,715 | $39,691 | $65,596 | | Net cash used in investing activities | $(14,027) | $(11,070) | $(1,968) | | Net cash provided by (used in) financing activities | $9,114 | $(28,902) | $(63,329) | Market Risk Disclosures The company is exposed to market risks including inflation, interest rate fluctuations, credit concentration, and foreign currency exchange, with a 1% interest rate increase potentially decreasing pre-tax earnings by $0.5 million - Inflationary factors such as increases in the cost of products, freight, labor, and energy may adversely affect operating results if selling prices do not increase proportionally200 - The company is exposed to interest rate risk through variable-rate borrowings under its SOFR-based credit facility; a one percentage point increase in interest rates would decrease pre-tax earnings and cash flow by approximately $0.5 million201 - Credit concentration risk primarily consists of cash deposits at financial institutions, with amounts generally in excess of FDIC insurance limits203 - Foreign currency exchange rate risk is not significant, primarily related to its China-based subsidiary and purchases in Chinese yuan (less than 15% of total inventory purchases)204 Financial Statements and Supplementary Data Consolidated financial statements and independent auditor reports are included as a separate section of this report, starting on page 36 - Consolidated financial statements and independent auditor reports are included as a separate section of this report, starting on page 36206 Changes in Accountants and Disclosures There have been no changes in or disagreements with accountants on accounting and financial disclosure - No changes in or disagreements with accountants on accounting and financial disclosure207 Controls and Procedures Management concluded that disclosure controls and internal control over financial reporting were effective as of December 31, 2022, with no material changes during the quarter - The Chief Executive Officer and Chief Financial Officer concluded that disclosure controls and procedures were effective as of December 31, 2022208 - Management concluded that internal control over financial reporting was effective as of December 31, 2022, based on COSO criteria, with an unqualified opinion from Ernst & Young LLP210211 - No material changes in internal control over financial reporting occurred during the quarter ended December 31, 2022212 - Control systems provide only reasonable assurance due to inherent limitations such as human error, circumvention, and management override213 Other Information This section details beneficial ownership of common stock by major stockholders as of February 27, 2023, with Peter J. Jacullo III and Peter H. Kamin as the largest owners - Information on beneficial ownership of common stock by 5% stockholders is provided as of February 27, 2023215 Beneficial Ownership of Common Stock | Name of Beneficial Owner | Number of Shares Beneficially Owned | Percent (%) | | :----------------------- | :---------------------------------- | :------ | | Peter J. Jacullo III, Director | 8,392,568 | 18.9 | | Peter H. Kamin, Chairman of the Board | 6,918,096 | 15.6 | | Fund 1 Investments, LLC | 3,387,190 | 7.6 | | Savitr Capital LLC | 2,770,535 | 6.2 | | Monomoy | 2,531,463 | 5.7 | | Cannell Capital LLC | 2,453,327 | 5.5 | - Calculation of beneficial ownership is based on 44,363,205 shares of common stock outstanding on February 27, 2023217 Foreign Jurisdictions Preventing Inspections This item is not applicable to the company - Not applicable221 Part III Directors, Executive Officers and Corporate Governance Information on directors, executive officers, and corporate governance is incorporated by reference from the Proxy Statement, and the company maintains a Code of Business Conduct and Ethics - Information on directors, executive officers, and corporate governance is incorporated by reference from the Proxy Statement225 - The company has adopted a Code of Business Conduct and Ethics that applies to all officers, directors, and employees, available on its investor relations website225 Executive Compensation Information regarding executive compensation is incorporated by reference from the company's definitive Proxy Statement - Information on executive compensation is incorporated by reference from the Proxy Statement226 Security Ownership and Equity Compensation Plans This section details equity compensation plans as of December 31, 2022, including 558,067 securities issuable upon exercise and 3,864,901 available for future issuance Equity Compensation Plan Information (as of December 31, 2022) | Plan Category | Number of securities to be issued upon exercise of outstanding options, warrants and rights | Weighted average exercise price of outstanding options, warrants and rights ($) | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) | | :------------------------------------------ | :-------------------------------------------------------------------------- | :-------------------------------------------------------------------- | :------------------------------------------------------------------------------------------------------------------------------------ | | Equity compensation plans approved by stockholders | 558,067 | 11.22 | 3,864,901 | | Equity compensation plans not approved by stockholders | - | - | - | | Total | 558,067 | 11.22 | 3,864,901 | - All shares available for future issuance are under the 2021 Omnibus Equity Compensation Plan229 Related Transactions and Director Independence Information on certain relationships, related transactions, and director independence is incorporated by reference from the Proxy Statement - Information on certain relationships, related transactions, and director independence is incorporated by reference from the Proxy Statement233 Principal Accountant Fees and Services Information regarding principal accountant fees and services is incorporated by reference from the company's definitive Proxy Statement - Information on principal accountant fees and services is incorporated by reference from the Proxy Statement231 Part IV Exhibits and Financial Statement Schedules This section lists consolidated financial statements and an Exhibit Index as part of the report, with financial statements incorporated by reference starting on page 36 - Lists the consolidated financial statements (Balance Sheets, Statements of Operations, Comprehensive Income, Stockholders' Equity, Cash Flows, and Notes) as part of the report235 - Includes an Exhibit Index immediately preceding the signature page of this Form 10-K237 Form 10-K Summary This item is not applicable to the company - Not applicable238 Signatures The report is duly signed on behalf of Tile Shop Holdings, Inc. by its Chief Executive Officer, Cabell H. Lolmaugh, on March 2, 2023 - The report is signed by the Chief Executive Officer, Cabell H. Lolmaugh, on March 2, 2023368 Power of Attorney This section grants power of attorney to key officers to sign amendments to the Annual Report on Form 10-K, with various directors and officers signing the report - Grants power of attorney to Cabell H. Lolmaugh, Karla Lunan, and Mark B. Davis to sign amendments to this Annual Report on Form 10-K370 - The report is signed by various directors and officers, including the Chief Executive Officer, Senior Vice President and Chief Financial Officer, and Vice President, Investor Relations, and Chief Accounting Officer372
Tile Shop(TTSH) - 2022 Q4 - Annual Report