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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.

(Exact name of registrant as specified in its charter)

_____________________________

Delaware  

45-5538095

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)

14000 Carlson Parkway

 

Plymouth, Minnesota 

55441

(Address of principal executive offices)  

(Zip Code)

(763) 852-2950 

(Registrant’s telephone number, including area code)

_____________________________

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

None

N/A

N/A

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. x Yes    ¨ No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). x Yes    ¨ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

¨

Accelerated filer

¨

Non-accelerated filer

x

Smaller reporting company

x

Emerging growth company

¨

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ¨ Yes    x No

As of May 3, 2021, there were 51,925,262 shares of the registrant’s common stock, par value $0.0001 per share, outstanding.

 

 


TILE SHOP HOLDINGS, INC.

Table of Contents

 

Page

PART I. FINANCIAL INFORMATION

Item 1.

Financial Statements

3

Consolidated Balance Sheets

3

Consolidated Statements of Income

4

Consolidated Statements of Comprehensive Income

5

Consolidated Statements of Stockholders’ Equity

6

Consolidated Statements of Cash Flows

7

Notes to Consolidated Financial Statements

8

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

16

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

22

Item 4.

Controls and Procedures

22

PART II. OTHER INFORMATION

Item 1.

Legal Proceedings

23

Item 1A.

Risk Factors

23

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

24

Item 3.

Defaults Upon Senior Securities

24

Item 4.

Mine Safety Disclosures

24

Item 5.

Other Information

24

Item 6.

Exhibits

27

Signatures

28

 

2


PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

  

Tile Shop Holdings, Inc. and Subsidiaries

Consolidated Balance Sheets

(dollars in thousands, except per share data)

March 31,

December 31,

2021

2020

(unaudited)

(audited)

Assets

Current assets:

Cash and cash equivalents

$

35,933

$

9,617

Restricted cash

655

655

Receivables, net

3,015

2,975

Inventories

70,972

74,296

Income tax receivable

6,631

8,116

Other current assets, net

7,921

8,995

Total Current Assets

125,127

104,654

Property, plant and equipment, net

94,769

99,035

Right of use asset

127,395

132,374

Deferred tax assets

5,454

5,341

Other assets

1,219

1,286

Total Assets

$

353,964

$

342,690

Liabilities and Stockholders' Equity

Current liabilities:

Accounts payable

$

16,803

$

15,382

Income tax payable

167

93

Current portion of lease liability

29,440

27,223

Other accrued liabilities

43,268

34,106

Total Current Liabilities

89,678

76,804

Long-term debt

-

-

Long-term lease liability, net

116,357

122,678

Other long-term liabilities

3,573

4,146

Total Liabilities

209,608

203,628

Stockholders’ Equity:

Common stock, par value $0.0001; authorized: 100,000,000 shares; issued and outstanding: 51,932,704 and 51,701,080 shares, respectively

5

5

Preferred stock, par value $0.0001; authorized: 10,000,000 shares; issued and outstanding: 0 shares

-

-

Additional paid-in capital

158,545

158,556

Accumulated deficit

(14,190)

(19,487)

Accumulated other comprehensive loss

(4)

(12)

Total Stockholders' Equity

144,356

139,062

Total Liabilities and Stockholders' Equity

$

353,964

$

342,690

See accompanying Notes to Consolidated Financial Statements.

3


Tile Shop Holdings, Inc. and Subsidiaries

Consolidated Statements of Income

(dollars in thousands, except per share data)

(unaudited)

Three Months Ended

March 31,

2021

2020

Net sales

$

92,084

$

94,279

Cost of sales

27,898

29,324

Gross profit

64,186

64,955

Selling, general and administrative expenses

57,278

62,361

Income from operations

6,908

2,594

Interest expense

(168)

(848)

Income before income taxes

6,740

1,746

(Provision) benefit for income taxes

(1,443)

1,756

Net income

$

5,297

$

3,502

Income per common share:

Basic

$

0.11

$

0.07

Diluted

$

0.10

$

0.07

Weighted average shares outstanding:

Basic

50,105,825

49,842,072

Diluted

51,056,798

49,842,072

See accompanying Notes to Consolidated Financial Statements.

 

4


Tile Shop Holdings, Inc. and Subsidiaries

Consolidated Statements of Comprehensive Income

(dollars in thousands)

(unaudited)

Three Months Ended

March 31,

2021

2020

Net income

$

5,297

$

3,502

Currency translation adjustment

8

(16)

Other comprehensive income (loss)

8

(16)

Comprehensive income

$

5,305

$

3,486

See accompanying Notes to Consolidated Financial Statements.

5


Tile Shop Holdings, Inc. and Subsidiaries

Consolidated Statements of Stockholders’ Equity

(dollars in thousands, except per share data)

(unaudited)

Common stock

Shares

Amount

Additional
paid-in
capital

Retained
earnings
(deficit)

Accumulated
other
comprehensive
income (loss)

Total

Balance at December 31, 2019

50,806,674

$

5

$

156,482

$

(25,518)

$

(70)

$

130,899

Issuance of restricted shares

669,609

-

-

-

-

-

Cancellation of restricted shares

(79,297)

-

-

-

-

-

Stock based compensation

-

-

566

-

-

566

Tax withholdings related to net share settlements of stock based compensation awards

-

-

(79)

-

-

(79)

Foreign currency translation adjustments

-

-

-

-

(16)

(16)

Net income

-

-

-

3,502

-

3,502

Balance at March 31, 2020

51,396,986

$

5

$

156,969

$

(22,016)

$

(86)

$

134,872

Balance at December 31, 2020

51,701,080

$

5

$

158,556

$

(19,487)

$

(12)

$

139,062

Issuance of restricted shares

322,024

-

-

-

-

-

Cancellation of restricted shares

(90,400)

-

-

-

-

-

Stock based compensation

-

-

592

-

-

592

Tax withholdings related to net share settlements of stock based compensation awards

-

-

(603)

-

-

(603)

Foreign currency translation adjustments

-

-

-

-

8

8

Net income

-

-

-

5,297

-

5,297

Balance at March 31, 2021

51,932,704

$

5

$

158,545

$

(14,190)

$

(4)

$

144,356

 

See accompanying Notes to Consolidated Financial Statements.

6


Tile Shop Holdings, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

 (dollars in thousands)

(unaudited)

Three Months Ended

March 31,

2021

2020

Cash Flows From Operating Activities

Net income

$

5,297

$

3,502

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization

7,194

8,215

Amortization of debt issuance costs

76

149

Impairment charges

-

2,155

Non-cash lease expense

6,155

5,868

Stock based compensation

592

566

Deferred income taxes

(113)

4,456

Changes in operating assets and liabilities:

Receivables

(40)

(839)

Inventories

3,324

11,325

Other current assets, net

1,064

223

Accounts payable

1,580

(2,772)

Income tax receivable / payable

1,558

(6,249)

Accrued expenses and other liabilities

3,427

(3,707)

Net cash provided by operating activities

30,114

22,892

Cash Flows From Investing Activities

Purchases of property, plant and equipment

(3,202)

(645)

Net cash used in investing activities

(3,202)

(645)

Cash Flows From Financing Activities

Payments of long-term debt and financing lease obligations

-

(79,160)

Advances on line of credit

-

53,600

Employee taxes paid for shares withheld

(603)

(79)

Net cash used in financing activities

(603)

(25,639)

Effect of exchange rate changes on cash

7

(11)

Net change in cash, cash equivalents and restricted cash

26,316

(3,403)

Cash, cash equivalents and restricted cash beginning of period

10,272

9,919

Cash, cash equivalents and restricted cash end of period

$

36,588

$

6,516

Cash and cash equivalents

$

35,933

$

5,701

Restricted cash

655

815

Cash, cash equivalents and restricted cash end of period

$

36,588

$

6,516

Supplemental disclosure of cash flow information

Purchases of property, plant and equipment included in accounts payable and accrued expenses

$

161

$

15

Cash paid for interest

238

833

Cash paid for income taxes, net

-

22

See accompanying Notes to Consolidated Financial Statements. 

7


Table of Contents

Tile Shop Holdings, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(unaudited)

Note 1: Background

Tile Shop Holdings, Inc. (“Holdings,” and together with its wholly owned subsidiaries, the “Company”) was incorporated in Delaware in June 2012.

The Company is a specialty retailer of natural stone and man-made tiles, setting and maintenance materials, and related accessories in the United States. The Company manufactures its own setting and maintenance materials, such as thinset, grout, and sealers. The Company’s primary market is retail sales to consumers, contractors, designers and home builders. As of March 31, 2021, the Company had 143 stores in 31 states and the District of Columbia, with an average size of approximately 20,000 square feet. The Company has distribution centers located in Michigan, New Jersey, Oklahoma, Virginia and Wisconsin. The Company also has a sourcing office located in China.

The accompanying Consolidated Financial Statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the rules and regulations for reporting on Form 10-Q. Accordingly, they do not include certain information and disclosures required for comprehensive financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included and are of a normal recurring nature, including the elimination of all intercompany transactions. Operating results for the three months ended March 31, 2021 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2021.

These statements should be read in conjunction with the Consolidated Financial Statements and footnotes included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2020. The accounting policies used in preparing these Consolidated Financial Statements are the same as those described in Note 1 to the Consolidated Financial Statements in such Form 10-K.

Reclassification

Certain amounts in the prior year financial statements have been reclassified for comparative purposes to conform to the presentation for the quarter ended March 31, 2021.  Specifically, the Company elected to change the way it presents cash flows from operating leases in its Statement of Cash Flows.  In the three months ended March 31, 2020, the Company presented the net change in the right of use asset and lease liabilities as other, net within the operating section of the Statement of Cash Flows.  During the third quarter of 2020, the Company determined it would be more appropriate to disaggregate this activity.  The amortization of the right of use assets is now presented as a non-cash lease expense within the operating section of the Statement of Cash Flows.  Lease payments, net of the accretion of lease liabilities, are now presented as a change in accrued expenses and other liabilities within the operating section of the Statement of Cash Flows.

The impact of this change on the Statement of Cash Flows presented as of March 31, 2020 follows:

(in thousands)

Previously Reported

Adjustments

As Revised

Non-cash lease expense

$

-

$

5,868

$

5,868

Changes in operating assets and liabilities:

Accrued expenses and other liabilities

2,973

(6,680)

(3,707)

Other, net

(812)

812

-

Net cash provided by operating activities

22,892

-

22,892

The change in classification had no impact on the Company’s pretax earnings, earnings per share, net cash provided by operating activities or balance sheets in any period.

Impact of COVID-19 Pandemic

In March 2020, the World Health Organization declared the COVID-19 outbreak a global pandemic. COVID-19 has negatively impacted public health and the global economy, disrupted global supply chains, and created volatility in financial markets. The continuing implications of COVID-19 on the Company remain uncertain and will depend on certain future developments, including the duration, scope and severity of the pandemic and the effects of new variants of COVID-19, some of which may be more virulent or transmissible than the initial strain; its impact on the Company’s employees, customers and suppliers; the range and timing of government mandated restrictions and other measures; and the success of the deployment and widespread adoption of approved COVID-19 vaccines and their effectiveness. This uncertainty could have a material impact on the accounting estimates and

8


Table of Contents

Tile Shop Holdings, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(unaudited)

assumptions utilized to prepare the Company’s consolidated financial statements in future reporting periods, which could result in a material adverse impact on the Company’s financial position, results of operations and cash flows.

Recently Adopted Accounting Pronouncements

In the first quarter of fiscal 2021, the Company adopted new accounting requirements related to the measurement of credit losses on financial instruments, including trade receivables. The new standard and subsequent amendments replaced the incurred loss impairment model with a forward-looking expected credit loss model, which will generally result in earlier recognition of credit losses. The Company’s allowance for doubtful accounts represents its estimate of expected credit losses related to its trade receivables. To estimate the allowance for doubtful accounts, the Company leverages information on historical losses, current conditions, and reasonable and supportable forecasts of future conditions. Account balances are written off against the allowance when the Company deems the amount is uncollectible. The adoption of this standard did not have a material impact on the Company’s consolidated financial statements.

 

Accounting Pronouncements Not Yet Adopted

In March 2020, the Financial Accounting Standards Board (FASB) issued guidance providing optional expedients and exceptions to account for the effects of reference rate reform to contracts, hedging relationships and other transactions that reference LIBOR or another reference rate expected to be discontinued. The optional guidance is effective as of the beginning of the reporting period when the election is made through December 31, 2022. The Company is currently evaluating the impact this guidance will have on its consolidated financial statements.

 

Note 2: Revenues

Revenues are recognized when control of the promised goods or services is transferred to the Company’s customers, in an amount that reflects the consideration received in exchange for those goods or services. Sales taxes are excluded from revenues.

The following table presents revenues disaggregated by product category:

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