Forward-Looking Statements
This Quarterly Report on Form 10-Q (which we refer to as this "Report") contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and, as such, may involve known and unknown risks, uncertainties and assumptions. Forward-looking statements relate to expectations, beliefs, projections, forecasts, future plans and strategies, anticipated events or trends, and similar expressions concerning matters that are not historical facts. Some of the forward-looking statements may be identified by the use of words such as "anticipate," "believe," "estimate," "intend," "could," "should," "would," "may," "seek," "plan," "might," "will," "expect," "predict," "project," "forecast," "potential," "continue," and other forms of these words or similar words or expressions or the negatives thereof. Forward-looking statements are based on historical information available at the time the statements are made and are based on management's reasonable belief or expectations with respect to future events. These forward-looking statements are subject to risks, contingencies, and uncertainties that are beyond our control. Further, new factors emerge from time to time that may cause our business not to develop as we expect, and it is not possible for us to predict all of them. Forward-looking statements should not be read as a guarantee of future performance or results, and will not necessarily be accurate indications of the times at or by which such performance or results will be achieved. Forward-looking statements speak only as of the date on which they are made and the Company undertakes no obligation to update any forward-looking statement to reflect future events, developments or otherwise, except as may be required by applicable law.
These forward-looking statements are found at various places throughout this Report and include information concerning possible or assumed future results of our operations, including statements about potential acquisition or merger targets; business strategies; future cash flows; financing plans; plans and objectives of management; the ongoing impact of the COVID-19 pandemic; any other statements regarding future acquisitions, future cash needs, future operations, business plans and future financial results, and any other statements that are not historical facts.
These forward-looking statements are based on currently available information
and our current assumptions, expectations and projections about future events.
You should not rely on our forward-looking statements. These statements are not
guarantees of future performance and are subject to future events, risks and
uncertainties - many of which are beyond our control, dependent on the actions
of third parties, or currently unknown to us - as well as potentially inaccurate
assumptions that could cause actual results to differ materially from our
expectations and projections. These risks and uncertainties include, but are not
limited to, those described in our Annual Report on Form 10-K for the fiscal
year ended
Forward-looking statements speak only as of the date they are made, and we do
not undertake to update these statements other than as required by law. You are
advised, however, to review any further disclosures we make on related subjects
in our periodic filings with the
Overview
Through our Residential Design Services (which we refer to as "RDS") operating segment, we serve national and regional homebuilders by providing an integrated, outsourced solution for the design, consultation, sourcing, distribution and installation needs of their homebuyer customers. Through our design centers, our consultants work closely with homebuyers in the selection of a broad array of interior products and finishes, including flooring, cabinets, countertops, wall tile, finish carpentry, shower enclosures and mirrors, and related interior items, primarily for newly constructed homes. We then coordinate the ordering, fulfillment and installation of many of these interior products to provide a streamlined experience for the homebuyer. With our design centers and our product sourcing and installation capabilities, we enable our homebuilder customers to outsource critical aspects of their business to us, thereby increasing their sales, profitability, and return on capital.
We also have market positions in the selection and importation of natural and
engineered stone slabs for kitchen and bathroom countertops and specialty tiles
through our
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Recent developments relating to the outbreak of the coronavirus pandemic ("COVID-19")
In
While the pandemic continues to impact our business through logistics disruptions and some cost inflation, we are beginning to see signs of increased sales activity, as well as industry growth with robust housing starts in addition to a strengthening repair and remodel market. We continue to rationalize costs, tightly manage working capital, and leverage technology to generate additional efficiencies in our business, as well as to implement other cost-saving measures. We will continue to closely monitor the COVID-19 recovery efforts throughout 2021, although the ultimate extent to which COVID-19 impacts our business, results of operations, liquidity and financial condition will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the pace of recovery from the outbreak.
Operating Segments
We have defined each of our operating segments based on the nature of its operations, its management structure and its product offerings. Our management decisions are made by our Chief Executive Officer, whom we have determined to be our Chief Operating Decision Maker. Our two reportable segments are described below.
Residential Design Services
RDS, our interior design and installation segment, is a service business that provides design center operation, interior design, product sourcing, and installation services to homebuilders, homeowners, general contractors and property managers. Products sold and installed by RDS include flooring, countertops, cabinets, and wall tile. New single-family and multi-family construction are the primary end markets, although we intend to explore growth opportunities in other markets, such as the R&R market.
ASG, our natural and engineered stone countertop distribution segment, distributes granite, marble, porcelain and quartz slabs for countertop and other uses, and ceramic and porcelain tile for flooring and backsplash and wall tile applications. Primary end markets are new residential and commercial construction and the R&R market.
Key Factors Affecting Operating Results
Our operating results are impacted by changes in the levels of new residential construction and of the demand for products and services in the R&R market. These are in turn affected by a broad range of macroeconomic factors including the rate of economic growth, unemployment, job and wage growth, interest rates, multi-family project financing, and residential mortgage lending conditions. Other important underlying factors include demographic variables such as household formation, immigration and aging trends, housing stock and vacant inventory levels, changes in the labor force, raw materials prices, the legal environment, and local and regional development and construction regulation.
Key Components of Results of Operations
Net Revenue. Net revenue at our RDS segment is recognized over time based on the terms of the performance obligations with the homebuilder or other contracted customer. In our ASG segment, net revenue is derived from the sale of our products and is recognized at a point in time when such products have been accepted at the customer's designated location and the performance obligation is completed.
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Cost of Revenue. Cost of revenue consists of the direct costs associated with revenue earned by the sale and installation of our interior products in the case of our RDS segment, or by delivering product in the case of our ASG segment. In our RDS segment, cost of revenue includes direct material costs associated with each project, the direct labor costs associated with installation (including taxes, benefits and insurance), rent, utilities and other period costs associated with warehouses and fabrication shops, depreciation associated with warehouses, material handling, fabrication and delivery costs, and other costs directly associated with delivering and installing product in our customers' projects, offset by vendor rebates. In our ASG segment, cost of revenue includes direct material costs, inbound and outbound freight costs, overhead (such as rent, utilities and other period costs associated with product warehouses), depreciation associated with fixed assets used in warehousing, material handling and warehousing activities, warehouse labor, taxes, benefits and other costs directly associated with receiving, storing, handling and delivering product to customers in revenue earning transactions.
Gross Profit and Gross Margin. Gross profit is net revenue less the associated cost of revenue. Gross margin is gross profit divided by net revenue.
Selling, General and Administrative Expenses. Selling, general and administrative ("SG&A") expenses include overhead costs such as general management, project management, purchasing, sales, customer service, accounting, finance, human resources, depreciation and amortization, information technology, public company costs and all other forms of wage and salary cost associated with operating our businesses, and the taxes and benefits associated with those costs. We also include other general-purpose expenses, including, but not limited to, office supplies, office rents, legal, consulting, insurance, and non-cash stock compensation costs. Professional services expenses, including audit and legal, and transaction costs are also included in SG&A expenses.
Depreciation and Amortization. Depreciation and amortization expenses represent the estimated decline over time of the value of tangible assets such as vehicles, equipment and leasehold improvements, and intangible assets such as customer lists and trade names. We recognize the expenses on a straight-line basis over the estimated economic life of the asset in question, or over the shorter of the estimated economic life or the remaining lease term for leasehold improvements.
Interest Expense. Interest expense represents amounts paid to or which have become due during the period to lenders and lessors under credit agreements and capital leases, as well as the amortization of debt issuance costs.
Income Taxes. Income taxes are recorded using the asset and liability method of accounting for income taxes. Under the asset and liability method, deferred tax assets and liabilities are recognized for the deferred tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those differences are expected to be recovered or settled.
Three Months EndedMarch 31, 2021 Compared to Three Months EndedMarch 31, 2020
Net Revenue. For the three months ended
In our RDS segment, net revenue increased by
In our ASG segment, net revenue increased by
Cost of Revenue. For the three months ended
In our RDS segment, cost of revenue remained consistent at
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In our ASG segment, cost of revenue increased by
Gross Profit and Margin. For the three months ended
In our RDS segment, gross margin increased 1.0 percentage points to 23.0% for
the three months ended
In our ASG segment, gross margin increased 2.7 percentage points to 26.5% for
the three months ended
SG&A Expenses. For the three months ended
In our RDS segment, SG&A expenses decreased by
In our ASG segment, SG&A expenses decreased by
SIC corporate costs increased by
Depreciation and Amortization. For the three months ended
In our RDS segment, depreciation and amortization expenses remained relatively
consistent, increasing by less than
In our ASG segment, depreciation and amortization expenses decreased by
Interest Expense. For the three months ended
Income Taxes. For the three months ended
Net Loss. For the three months ended
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Adjusted EBITDA. For the three months ended
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