DULUTH HOLDINGS INC. The following discussion and analysis of the financial condition and results of our operations should be read in conjunction with the financial statements and related notes ofDuluth Holdings Inc. included in Item 1of this Quarterly Report on Form 10-Q and with our audited financial statements and the related notes included in our Annual Report on Form 10-K for the fiscal year endedFebruary 3, 2019 ("2018 Form 10-K").
The three and nine months of fiscal 2019 and fiscal 2018 represent our 13 and
39-week periods ended
Unless the context indicates otherwise, the terms the "Company," "Duluth,"
"Duluth Trading," "we," "our," or "us" are used to refer to
Forward-Looking Statements
This Quarterly Report on Form 10-Q contains "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995 that are subject to risks and uncertainties. All statements other than statements of historical or current facts included in this Quarterly Report on Form 10-Q are forward-looking statements. Forward looking statements refer to our current expectations and projections relating to our financial condition, results of operations, plans, objectives, strategies, future performance and business. You can identify forward-looking statements by the fact that they do not relate strictly to historical or current facts. These statements may include words such as "anticipate," "could," "estimate," "expect," "project," "plan," "potential," "intend," "believe," "may," "might," "will," "objective," "should," "would," "can have," "likely," and other words and terms of similar meaning in connection with any discussion of the timing or nature of future operating or financial performance or other events. For example, all statements we make relating to our estimated and projected earnings, revenue, costs, expenditures, cash flows, growth rates and financial results, our plans and objectives for future operations, growth or initiatives, strategies or the expected outcome or impact of pending or threatened litigation are forward-looking statements. All forward-looking statements are subject to risks and uncertainties, including the risks and uncertainties described under Part I, Item 1A "Risk Factors," in our 2018 Form 10-K and otherSEC filings, which factors are incorporated by reference herein. These risks and uncertainties include, but are not limited to, the following: our ability to maintain and enhance a strong brand image; our ability to successfully open new stores; effectively adapting to new challenges associated with our expansion into new geographic markets; generating adequate cash from our existing stores to support our growth; the inability to maintain the performance of a maturing store portfolio; the impact of changes in corporate tax regulations; identifying and responding to new and changing customer preferences; the success of the locations in which our stores are located; our ability to attract and retain customers in the various retail venues and locations in which our stores are located; competing effectively in an environment of intense competition; our ability to adapt to significant changes in sales due to the seasonality of our business; price reductions or inventory shortages resulting from failure to purchase the appropriate amount of inventory in advance of the season in which it will be sold; increases in costs of fuel or other energy, transportation or utility costs and in the costs of labor and employment; failure of our information technology systems to support our current and growing business, before and after our planned upgrades; and other factors that may be disclose in ourSEC filings or otherwise. Moreover, we operate in an evolving environment, new risk factors and uncertainties emerge from time to time and it is not possible for management to predict all risk factors and uncertainties, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statement. We qualify all of our forward-looking statements by these cautionary statements.
We undertake no obligation to update or revise these forward-looking statements, except as required under the federal securities laws.
Overview
We are a growing lifestyle brand of men's and women's casual wear, workwear and accessories sold exclusively through our own omni-channel platform. The direct segment, consisting of our website and catalogs, offers products nationwide and represented 51.4% and 52.7% of our consolidated net sales for the three and nine months endedNovember 3, 2019 , respectively, and 56.1% and 58.8% of our consolidated net sales for the three and nine months endedOctober 28, 2018 , respectively. In 2010, we added retail to our omni-channel platform with the opening of our first store. Since then, we have expanded our retail presence, and as ofNovember 3, 2019 , we operated 55 retail stores and three outlet stores. Net sales for our retail segment represented 48.6% and 47.3% of our consolidated net sales for the three and nine months endedNovember 3, 2019 , respectively and 43.9% and 41.2% of our consolidated net sales for the three and nine months endedOctober 28, 2018 , respectively. We offer a comprehensive line of innovative, durable and functional products, such as our Longtail T® shirts, Buck NakedTM underwear, Fire Hose® work pants, and No-Yank® Tank, which reflect our position as the Modern, Self-Reliant American Lifestyle brand. Our brand has a heritage in workwear that transcends tradesmen and appeals to a broad demographic for everyday and on-the-job use. 20
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From our heritage as a catalog for those working in the building trades, Duluth Trading has become a widely recognized brand and proprietary line of innovative and functional apparel and gear. Over the last decade, we have created strong brand awareness, built a loyal customer base and generated robust sales momentum. We have done so by sticking to our roots of "there's gotta be a better way" and through our relentless focus on providing our customers with quality, functional products.
A summary of our financial results is as follows:
· Net sales have increased year-over-year for 39 consecutive quarters through
· Net sales in fiscal 2019 third quarter increased by 12.2% over the prior year
third quarter to
fiscal 2019 increased by 12.1% over the first nine months of the prior year to
· Net income of
year third quarter net loss of
months of fiscal 2019 of
months net income of
· Adjusted EBITDA of
prior year third quarter Adjusted EBITDA of
the first nine months of fiscal 2019 decreased by 4.7% over the first nine
months of the prior year to
· We opened three new stores in fiscal 2019 third quarter, adding approximately
47,000 of gross square footage; and
· Our retail stores have achieved and are expected to continue to achieve an
average payback of less than two years.
We expect that the pace of capital outlays will moderate going forward and into
2020 as we rebalance our business model to focus on driving greater returns on
the capital invested and growing our operating earnings and positive free cash
flow. We plan to continue opening stores in new markets, but will likely plan
for expanding square footage by 30% to 40% less than we have over the last 3
years. We believe the capital deployed for systems and infrastructure will also
moderate as much of the investments needed to scale and support our growing
business is in place now. As such, the expense associated with these investments
is fixed and should allow for greater operating leverage in net earnings.
See "Reconciliation of Net Income to EBITDA and EBITDA to Adjusted EBITDA"
section for a reconciliation of our net income to EBITDA and EBITDA to Adjusted
EBITDA, both of which are non-U.S. GAAP financial measures. See also the
information under the heading "Adjusted EBITDA" in the section "How We Assess
the Performance of Our Business" for our definition of Adjusted EBITDA.
Our business is seasonal, and as a result, our net sales fluctuate from quarter
to quarter, which often affects the comparability of our results between
quarters. Net sales are historically higher in the fourth quarter of our fiscal
year due to the holiday selling season.
With a focus on profitability we are pursuing several strategies to continue our
growth, including building brand awareness to continue customer acquisition,
continuing retail expansion at the pace described above, selectively broadening
assortments in certain men's product categories and growing our women's
business.
How We Assess the Performance of Our Business
In assessing the performance of our business, we consider a variety of financial and operating measures that affect our operating results.
Net sales reflect our sale of merchandise plus shipping and handling revenue
collected from our customers, less returns and discounts. Direct sales are
recognized upon shipment of the product and retail sales are recognized at the
point of sale. We also use net sales as one of the key financial metrics in
determining our annual bonus compensation for our employees.
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--------------------------------------------------------------------------------Table of Contents Gross Profit Gross profit is equal to our net sales less cost of goods sold. Gross profit as a percentage of our net sales is referred to as gross margin. Cost of goods sold includes the direct cost of purchased merchandise; inventory shrinkage; inventory adjustments due to obsolescence, including excess and slow-moving inventory and lower of cost and net realizable reserves; inbound freight; and freight from our distribution centers to our retail stores. The primary drivers of the costs of individual goods are raw material costs. Depreciation and amortization are excluded from gross profit. We expect gross profit to increase to the extent that we successfully grow our net sales. Given the size of our direct segment sales relative to our total net sales, shipping and handling revenue has had a significant impact on our gross profit and gross profit margin. Historically, this revenue has partially offset shipping and handling expense included in selling, general and administrative expenses. We have experienced declines in shipping and handling revenues, and this trend is expected to continue. Declines in shipping and handling revenues may have a material adverse effect on our gross profit and gross profit margin, as well as Adjusted EBITDA to the extent there are not commensurate declines, or if there are increases, in our shipping and handling expense. Our gross profit may not be comparable to other retailers, as we do not include distribution network and store occupancy expenses in calculating gross profit, but instead we include them in selling, general and administrative expenses.
Selling, General and Administrative Expenses
Selling, general and administrative expenses include all operating costs not included in cost of goods sold. These expenses include all payroll and payroll-related expenses and occupancy expenses related to our stores and to our operations at our headquarters, including utilities, depreciation and amortization. They also include marketing expense, which primarily includes television advertising, catalog production, mailing and print advertising costs, as well as all logistics costs associated with shipping product to our customers, consulting and software expenses and professional services fees. Selling, general and administrative expenses as a percentage of net sales is usually higher in lower-volume quarters and lower in higher-volume quarters because a portion of the costs are relatively fixed. Our historical sales growth has been accompanied by increased selling, general and administrative expenses. The most significant components of these increases are advertising, marketing, rent/occupancy and payroll costs. While we expect these expenses to increase as we continue to open new stores, increase brand awareness and grow our organization to support our growing business, we believe these expenses will decrease as a percentage of sales over time.
Adjusted EBITDA
We believe Adjusted EBITDA is a useful measure of operating performance, as it
provides a clearer picture of operating results by excluding the effects of
financing and investing activities by eliminating the effects of interest and
depreciation costs and eliminating expenses that are not reflective of
underlying business performance. We use Adjusted EBITDA to facilitate a
comparison of our operating performance on a consistent basis from
period-to-period and to provide for a more complete understanding of factors and
trends affecting our business.
We define Adjusted EBITDA as consolidated net income (loss) before depreciation
and amortization, interest expense and provision for income taxes adjusted for
the impact of certain items, including non-cash and other items we do not
consider representative of our ongoing operating performance. We believe
Adjusted EBITDA is less susceptible to variances in actual performance resulting
from depreciation, amortization and other items.
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Results of Operations
The following table summarizes our unaudited consolidated results of operations
for the periods indicated, both in dollars and as a percentage of net sales.
Three Months Ended Nine Months Ended
November 3, October 28, November 3, October 28,
2019 2018 2019 2018
(in thousands)
Direct net sales $ 61,581 $ 59,827 $ 187,549 $ 186,872
Retail net sales 58,187 46,874 168,426 130,689
Net sales 119,768 106,701 355,975 317,561
Cost of goods sold (excluding
depreciation
and amortization) 54,403 45,730 164,888 138,410
Gross profit 65,365 60,971 191,087 179,151
Selling, general and
administrative expenses 64,037 63,534 196,128 172,075
Operating income (loss) 1,328 (2,563) (5,041) 7,076
Interest expense 1,500 1,583 3,131 3,638
Other income, net 58 3 254 168
(Loss) income before income
taxes (114) (4,143) (7,918) 3,606
Income tax (benefit) expense (203) (1,067) (2,209) 913 Net income (loss) 89 (3,076) (5,709) 2,693 Less: Net (loss) income attributable to noncontrolling interest (93) 74 (256) 157 Net income (loss) attributable to controlling interest$ 182 $ (3,150) $ (5,453) $ 2,536 Percentage of Net sales: Direct net sales 51.4 % 56.1 % 52.7 % 58.8 % Retail net sales 48.6 % 43.9 % 47.3 % 41.2 % Net sales 100.0 % 100.0 % 100.0 % 100.0 % Cost of goods sold (excluding depreciation and amortization) 45.4 % 42.9 % 46.3 % 43.6 % Gross margin 54.6 % 57.1 % 53.7 % 56.4 % Selling, general and administrative expenses 53.5 % 59.5 % 55.1 % 54.2 % Operating income (loss) 1.1 % (2.4) % (1.4) % 2.2 % Interest expense 1.3 % 1.5 % 0.9 % 1.1 % Other income, net - % - % 0.1 % 0.1 % (Loss) income before income taxes (0.1) % (3.9) % (2.2) % 1.1 % Income tax (benefit) expense (0.2) % (1.0) % (0.6) % 0.3 % Net income (loss) 0.1 % (2.9) % (1.6) % 0.8 % Less: Net (loss) income attributable to noncontrolling interest (0.1) % 0.1 % (0.1) % - % Net income (loss) attributable to controlling interest 0.2 % (3.0) % (1.5) % 0.8 %
Three Months Ended
Net Sales Net sales increased$13.1 million , or 12.2%, to$119.8 million in the three months endedNovember 3, 2019 compared to$106.7 million in the three months endedOctober 28, 2018 , driven by gains in both direct and retail segment of$1.8 million , or 2.9% and$11.3 million , or 24.1%, with gains across the majority of product categories and in both our men's and women's business. Our website visits increased 5% in the three months endedNovember 3, 2019 compared to the three months endedOctober 28, 2018 . Direct net sales growth continues to remain strong in our store markets, outpacing the growth achieved in markets without a store presence. The increase in retail net sales was driven by new stores with 58 stores as ofNovember 3, 2019 compared to 43 stores as ofOctober 28, 2018 , partially offset by existing stores. 23 --------------------------------------------------------------------------------
Table of Contents Gross Profit Gross profit increased$4.4 million , or 7.2%, to$65.4 million in the three months endedNovember 3, 2019 compared to$61.0 million in the three months endedOctober 28, 2018 . As a percentage of net sales, gross margin decreased 250 basis points to 54.6% of net sales in the three months endedNovember 3, 2019 , compared to 57.1% of net sales in the three months endedOctober 28, 2018 . The decrease in gross margin rate was primarily attributable to a decrease in product margins due to additional global promotions, coupled with recent clearance activity.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased$0.5 million , or 0.8%, to$64.0 million in the three months endedNovember 3, 2019 compared to$63.5 million in the three months endedOctober 28, 2018 . Selling, general and administrative expenses as a percentage of net sales decreased 600 basis points to 53.5% in the three months endedNovember 3, 2019 , compared to 59.5% in the three months endedOctober 28, 2018 . The increase in selling, general and administrative expenses was attributable to an increase of$2.2 million in general and administrative expenses, an increase of$0.9 million in selling expenses and a decrease of$2.6 million in advertising and marketing costs. As a percentage of net sales, general and administrative expenses decreased 50 basis points to 22.1% in the three months endedNovember 3, 2019 , compared to 22.6% in the three months endedOctober 28, 2018 . The 50 basis point decrease was primarily attributable to leverage gained from a higher mix of retail sales. As a percentage of net sales, selling expenses decreased 110 basis points to 15.4% in the three months endedNovember 3, 2019 , compared to 16.5% in the three months endedOctober 28, 2018 , primarily due to gained efficiencies at both the distribution center and call center. As a percentage of net sales, advertising and marketing costs decreased 440 basis points to 16.0% in the three months endedNovember 3, 2019 , compared to 20.4% in the three months endedOctober 28, 2018 . The 440 basis point decrease in advertising and marketing costs as a percentage of net sales was primarily attributable to lower catalog circulation and advertising leverage gained from a higher mix of retail sales.
Income Tax Benefit
Income tax benefit was$0.2 million in the three months endedNovember 3, 2019 , compared to$1.1 million in the three months endedOctober 28, 2018 . Our effective tax rate related to controlling interest for the three months endedNovember 3, 2019 was impacted by discrete items related to stock-compensation activity. Our effective tax rate related to controlling interest was 25% for the three months endedOctober 28, 2018 .
Net income (loss)
Net income was
Nine Months Ended
Net Sales Net sales increased$38.4 million , or 12.1%, to$356.0 million in the nine months endedNovember 3, 2019 compared to$317.6 million in the nine months endedOctober 28, 2018 , driven by an increase in both direct and retail segment of$0.7 million , or 0.4% and$37.7 million , or 28.9%, with gains across the majority of product categories and in both our men's and women's business. Our website visits increased 10% in the nine months endedNovember 3, 2019 compared to the nine months endedOctober 28, 2018 . The increase in retail net sales was primarily attributable to the same factors discussed above for the three months endedNovember 3, 2019 compared to the three months endedOctober 28, 2018 . Gross Profit Gross profit increased$11.9 million , or 6.7%, to$191.1 million in the nine months endedNovember 3, 2019 compared to$179.2 million in the nine months endedOctober 28, 2018 . As a percentage of net sales, gross margin decreased 270 basis points to 53.7% of net sales in the nine months endedNovember 3, 2019 , compared to 56.4% of net sales in the nine months endedOctober 28, 2018 . The decrease in gross margin rate was primarily attributable to a decrease in product margins due to additional clearance activity and global promotions, coupled with a slight decrease in shipping revenues. 24 --------------------------------------------------------------------------------
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Selling, General and Administrative Expenses
Selling, general and administrative expenses increased$24.1 million , or 14.0%, to$196.1 million in the nine months endedNovember 3, 2019 compared to$172.1 million in the nine months endedOctober 28, 2018 . Selling, general and administrative expenses as a percentage of net sales increased 90 basis points to 55.1% in the nine months endedNovember 3, 2019 , compared to 54.2% in the nine months endedOctober 28, 2018 . The increase in selling, general and administrative expenses was attributable to an increase of$18.8 million in general and administrative expenses and$5.1 million in selling expenses. As a percentage of net sales, general and administrative expenses increased 310 basis points to 22.9% in the nine months endedNovember 3, 2019 , compared to 19.8% in the nine months endedOctober 28, 2018 . The 130 basis point increase was primarily attributable to an increase in occupancy and equipment cost due to growth in the number of retail stores and an increase in depreciation expense due to investments in technology and corporate facilities. As a percentage of net sales, selling expenses decreased 20 basis points to 15.5% in the nine months endedNovember 3, 2019 , compared to 15.7% in the nine months endedOctober 28, 2018 , primarily due to leverage gained from a higher mix of retail sales. As a percentage of net sales, advertising and marketing costs decreased 200 basis points to 16.7% in the nine months endedNovember 3, 2019 , compared to 18.7% in the nine months endedOctober 28, 2018 . The 200 basis point decrease in advertising and marketing costs as a percentage of net sales was primarily attributable to lower catalog circulation and advertising leverage gained from a higher mix of retail sales.
Income Tax (Benefit) Expense
Income tax benefit was$2.2 million for the nine months endedNovember 3, 2019 , compared to income tax expense of$0.9 million in the nine months endedOctober 28, 2018 . Our effective tax rate related to controlling interest was 29% for the nine months endedNovember 3, 2019 , which benefited from current quarter discrete items, compared to 27% for the nine months endedOctober 28, 2018 .
Net (Loss) Income
Net loss was$5.5 million , in the nine months endedNovember 3, 2019 compared to net income of$2.5 million in the nine months endedOctober 28, 2018 , primarily due to the factors discussed above.
Reconciliation of Net Income to EBITDA and EBITDA to Adjusted EBITDA
The following table presents reconciliations of net income to EBITDA and EBITDA to Adjusted EBITDA, both of which are non-U.S. GAAP financial measures, for the periods indicated below. See the above section titled "How We Assess the Performance of Our Business," for our definition of Adjusted EBITDA. Three Months Ended Nine Months Ended November 3, 2019 October 28, 2018 November 3, 2019 October 28, 2018 (in thousands) Net income (loss) $ 89 $ (3,076) $ (5,709) $ 2,693 Depreciation and amortization 6,529 3,118 15,934 8,187 Interest expense 1,500 1,583 3,131 3,638 Amortization of build-to-suit operating leases capital contribution 94 - 573 - Income tax (benefit) expense (203) (1,067) (2,209) 913 EBITDA $ 8,009 $ 558 $ 11,720 $ 15,431 Stock based compensation (747) 447 282 1,305 Adjusted EBITDA $ 7,262 $ 1,005 $ 12,002 $ 16,736 As a result of the factors discussed above in the "Results of Operations" section, Adjusted EBITDA increased$6.3 million to$7.3 million in the three months endedNovember 3, 2019 compared to$1.0 million in the three months endedOctober 28, 2018 . As a percentage of net sales, Adjusted EBITDA increased 520 basis points to 6.1% of net sales in the three months endedNovember 3, 2019 compared to 0.9% of net sales in the three months endedOctober 28, 2018 . 25 --------------------------------------------------------------------------------
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As a result of the factors discussed above in the "Results of Operations" section, Adjusted EBITDA decreased$4.7 million to$12.0 million in the nine months endedNovember 3, 2019 compared to$16.7 million in the nine months endedOctober 28, 2018 . As a percentage of net sales, Adjusted EBITDA decreased 190 basis points to 3.4% of net sales in the nine months endedNovember 3, 2019 compared to 5.3% of net sales in the nine months endedOctober 28, 2018 .
Liquidity and Capital Resources
General
Our business relies on cash from operating activities and a credit facility as our primary sources of liquidity. OnMay 17, 2018 , we entered into a new credit facility which provides for borrowings of up to$80.0 million on a revolving line of credit and an additional$50.0 million in a delayed draw term loan. The$80.0 million revolving line of credit matures onMay 17, 2023 and we have the option to draw in various amounts on the$50.0 million term loan throughMay 17, 2020 , with a maturity onMay 17, 2023 . Our primary cash needs have been for inventory, marketing and advertising, payroll, store leases, capital expenditures associated with opening new stores, infrastructure and information technology. The most significant components of our working capital are cash, inventory, accounts payable and other current liabilities. We expect to spend approximately$38.0 million in fiscal 2019 on capital expenditures, including a total of approximately$30.0 million to$32.0 million for new retail store expansion and remodels. We expect capital expenditures of approximately$2.0 million and starting inventory of$0.5 million to open a new store. AtNovember 3, 2019 , our net working capital was$108.7 million , including$2.2 million of cash. Due to the seasonality of our business, a significant amount of cash from operating activities is generated during the fourth quarter of our fiscal year. During the first three quarters of our fiscal year, we typically are net users of cash in our operating activities as we acquire inventory in anticipation of our peak selling season, which occurs in the fourth quarter of our fiscal year. We also use cash in our investing activities for capital expenditures throughout all four quarters of our fiscal year. We believe that our cash flow from operating activities and the availability of cash under our revolving line of credit will be sufficient to cover working capital requirements and anticipated capital expenditures and for funding our growth strategy for the foreseeable future.
Cash Flow Analysis
A summary of operating, investing and financing activities is shown in the
following table.
Nine Months Ended
November 3, 2019 October 28, 2018
(in thousands)
Net cash used in operating activities $ (47,624) $ (23,502)
Net cash used in investing activities (24,541)
(46,317)
Net cash provided by financing activities 73,043
65,929
Increase (decrease) in cash and restricted cash $ 878 $
(3,890)
Operating activities consist primarily of net income adjusted for non-cash items that include depreciation and amortization, stock-based compensation and the effect of changes in assets and liabilities. While our cash flows from operations for the nine months endedNovember 3, 2019 is negative, primarily driven by the seasonal nature of our business, we expect cash flows from operations for the full year fiscal 2019 to be positive from operating performance and seasonal reductions in working capital during the fourth quarter of our fiscal year, which is consistent with previous full fiscal years. For the nine months endedNovember 3, 2019 , net cash used in operating activities was$47.6 million , which primarily consisted of cash used in operating assets and liabilities of$57.2 million , net loss of$5.7 million , non-cash depreciation and amortization of$15.9 million and stock based compensation of$0.3 million . The cash used in operating assets and liabilities of$57.2 million primarily consisted of a$85.4 million increase in inventory, primarily due to the building of inventory for our peak season and an increase in the number of retail stores, partially offset by a$29.9 million increase in trade accounts payable due to timing of payments. 26 --------------------------------------------------------------------------------
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For the nine months endedOctober 28, 2018 , net cash used in operating activities was$23.5 million , which consisted of net income of$2.7 million , non-cash depreciation and amortization of$8.2 million and stock based compensation of$1.3 million , offset by cash used in operating assets and liabilities of$35.5 million . The cash used in operating assets and liabilities of$35.5 million primarily consisted of a$44.8 million increase in inventory, primarily due to our sales increase and inventory for the opening of new retail stores during fiscal 2018 and our peak season, which was partially offset by an increase of$19.1 million in trade accounts payable primarily due to timing of payments and an increase of$7.1 million in accrued expenses and deferred rent obligations.
Investing activities consist primarily of capital expenditures for growth related to new store openings, information technology and enhancements for our distribution and corporate facilities.
For the nine months endedNovember 3, 2019 , net cash used in investing activities was$24.5 million and was primarily driven by capital expenditures of$20.9 million for new retail stores and retail store build-out, as well as investments in information technology, and$3.7 million of capital contributions towards our build-to-suit stores.
For the nine months ended
Net Cash Provided by Financing Activities
Financing activities consist primarily of borrowings and payments related to our revolving line of credit and other long-term debts, as well as proceeds from finance lease obligations and principal payments on long term debt by our consolidated variable interest entityTRI Holdings, LLC ("TRI"). For the nine months endedNovember 3, 2019 , net cash provided by financing activities was$73.0 million , primarily consisting of proceeds of$53.9 million , net from our revolving line of credit and proceeds of$20.0 million from our term loan to fund working capital. For the nine months endedOctober 28, 2018 , net cash provided by financing activities was$65.9 million , primarily consisting of proceeds of$65.0 million , net from our revolving line of credit to fund working capital and capital expenditures, and$1.0 million from finance lease obligations in connection with our build-to-suit lease transactions.
Line of Credit
OnMay 17, 2018 , we entered into a new credit agreement and subsequently terminated our Amended and Restated Agreement. The outstanding balance of$27.5 million under the Amended and Restated Agreement was paid off with borrowings under the new credit agreement. The credit agreement is secured by essentially all Company assets and requires that we maintain compliance with certain financial and non-financial covenants, including a trailing twelve month maximum rent adjusted leverage ratio and minimum fixed charge coverage ratio. See Note 3 "Debt and Line of Credit," in the Notes to Condensed Consolidated Financial Statements for further information.
As of
Contractual Obligations
There have been no significant changes to our contractual obligations as
described in our Annual Report on Form 10-K for the fiscal year ended
Off-Balance Sheet Arrangements
We are not a party to any material off-balance sheet arrangements.
Critical Accounting Policies and Critical Accounting Estimates
The preparation of financial statements in accordance withU.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, and expenses, as well as the related disclosures of contingent assets and liabilities at the date of the financial statements. We evaluate our accounting policies, estimates, and judgments on an on-going basis. We base our estimates and judgments on historical experience and various other factors that are believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions and conditions and such differences could be material to the consolidated financial statements. 27
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As of the date of this filing, there were no significant changes to any of the critical accounting policies and estimates described in our 2018 Form 10-K, except as discussed below.
Recently Adopted Accounting Pronouncements
OnFebruary 4, 2019 , we adopted authoritative guidance related to leases using the optional transition method and elected the package of practical expedients. As such, the comparative prior period information has not been restated and continues to be reported under the accounting standards in effect for those periods. Beginning with the first quarter of fiscal 2019, our financial results reflect adoption of the standard. See Note 1 "Nature of Operations and Basis of Presentation," of Notes to Condensed Consolidated Financial Statements included in Part 1, Item 1, of this quarterly report on Form 10-Q for further information regarding recently adopted accounting pronouncements.
Recent Accounting Pronouncements
See Note 13 "Recent Accounting Pronouncements," of Notes to Condensed Consolidated Financial Statements included in Part 1, Item 1, of this quarterly report on Form 10-Q for information regarding recent accounting pronouncements.
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