EDGAR 10-K Filing

Company CIK: 1723866
Filing Year: 2021
Filename: 1723866_10-K_2021_0001564590-21-013373.json

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ITEM 1. BUSINESS
Item 1. Business.
Company Overview
Select Interior Concepts, Inc. (collectively with all of its subsidiaries, “SIC,” the “Company,” “we,” “us” and “our”) is an installer and nationwide distributor of interior building products with market positions in residential interior design services.
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 17 design centers, our designers work closely with homebuyers in the selection of a broad array of interior products and finishes, including flooring, cabinets, countertops, wall tile, 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 leading market positions in the selection and importation of natural and engineered stone slabs for kitchen and bathroom countertops and specialty tiles through our Architectural Surfaces Group (which we refer to as “ASG”) operating segment. ASG sources natural and engineered stone from a global supply base, and markets these materials through a national network of distribution centers and showrooms at 21 different locations. In addition to serving the new residential and commercial construction markets with these materials, we also distribute them to the repair and remodel (which we refer to as “R&R”) market.
Our History
The SIC platform originated in September 2014, when affiliates of Trive Capital Management LLC (which we refer to as “Trive Capital”) acquired RDS, which in turn acquired the assets of PT Tile Holdings, LP (which we refer to as “Pinnacle”) in February 2015, and 100% of the equity interests in Greencraft Holdings, LLC (which we refer to as “Greencraft”) in December 2017. RDS then acquired the assets of Summit Stoneworks, LLC (which we refer to as “Summit”) in August 2018, 100% of the equity interests in T.A.C. Ceramic Tile Co. (which we refer to as “TAC”) in December 2018, and acquired the assets of Intown Design, Inc., Intown Granite of Charlotte, Inc., and Granitec, LLC, (collectively, “Intown”) in March 2019.
Affiliates of Trive Capital also formed a consolidation platform in the stone countertop market by acquiring 100% of the equity interests in Architectural Granite & Marble, LLC in June 2015, which in turn acquired the assets of Bermuda Import-Export, Inc. (which we refer to as “Modul”) in July 2016, 100% of the equity interests in Pental Granite and Marble, LLC (which we refer to as “Pental”) in February 2017, and the assets of Cosmic Stone & Tile Distributors, Inc. (which we refer to as “Cosmic”) in October 2017, and these acquired businesses were combined to form ASG. ASG then acquired the assets of Elegant Home Design, LLC (which we refer to as “Bedrock”) in January 2018, the assets of NSI, LLC (which we refer to as “NSI”) in March 2018, and the assets of The Tuscany Collection, LLC (which we refer to as “Tuscany”) in August 2018.
November 2017 Restructuring Transactions
In November 2017, Select Interior Concepts, Inc. and the former equity holders of RDS and ASG completed a series of restructuring transactions (collectively, the “November 2017 restructuring transactions”) pursuant to which Select Interior Concepts, Inc. acquired all of the outstanding equity interests in each of RDS and ASG, including all of their respective wholly-owned subsidiaries. Following the November 2017 restructuring transactions, Select Interior Concepts, Inc. became a holding company that wholly owns RDS and ASG.
Residential Design Services
RDS enters into exclusive service agreements with homebuilders at the beginning of certain new community development projects to provide them with a single-source solution for the design center operations, consultation, sourcing, fulfillment, and installation phases of the homebuilding process. At our design centers, our design staff work directly with homebuyers to help them achieve their design, styling, and product needs, leveraging our web-based preference analysis and proprietary software system to enable real-time pricing of interior options.
During the initial design phase of a new residential development, RDS often assists builders with upfront planning of design elements and interior options. These alternatives then become the standard packages and design options which are the basis from which the new homebuyer makes upgrade selections. During the initial construction phase, RDS offers a full suite of interior customization options to homebuyers in its design centers, providing the opportunity to upgrade to higher priced options that are not part of the homebuilder’s standard package. These upgrades result in higher revenue and profitability for both RDS and the homebuilder, who shares in the incremental revenue from any upgrades. RDS also provides installation services, ensuring that the finished product meets the homebuyer’s specifications.
RDS’ collection of design options enables homebuyers to customize their homes with high quality interior finishes and provides homebuilders with a single partner to handle the majority of the interior design elements in a new home. RDS offers numerous interior surface categories which includes flooring, cabinets, countertops and wall tile.
Architectural Surfaces Group
Our ASG segment imports and distributes natural and engineered stone slabs, as well as tile, through 21 strategically positioned showrooms and warehouse locations across the United States. Our stone slabs include marble, granite, porcelain and quartz, for use as kitchen and bathroom countertops, and our tiles consist of ceramic and porcelain for flooring, backsplash, and wall tile applications. We provide our services throughout markets in the Northeast, Southeast, Southwest, Midwest, Mountain West, and West Coast regions of the United States and offer a targeted merchandising strategy, including displaying our products in customer-oriented showrooms that cater to professional interior designers and architects as well as homeowners. Our product lines are tailored to the specific geographic regions that we serve.
We have relationships with a wide array of stone slab quarries, manufacturers and distributors around the world and offer our customers a broad and consistent selection of high-quality stone slabs from a global supply chain.
Competition
Our markets are highly fragmented and competitive. We face competition from large home improvement stores, national and regional interior surface retailers and distributors, and independent design centers. Some of our competitors are organizations that are larger, are better capitalized, have operated longer, have product offerings that extend beyond our product suite, and have a more established market presence with substantially greater financial, marketing, personnel, and other resources than we have. In addition, while we believe that there is a relatively low threat of new internet-only entrants due to the nature of our products, the growth opportunities presented by e-commerce could outweigh these challenges and result in increased competition.
Suppliers
We purchase materials from both domestic and foreign suppliers. We have relationships with qualified suppliers who allow us to access products in a timely and efficient manner and have not historically experienced significant disruption in supply of the products we purchase. In some instances, we have agreements with our suppliers, but these agreements are generally terminable by either party without notice or on limited notice. Many of our suppliers also offer us favorable terms based on the volume of our purchases.
Backlog
For our RDS segment, backlog represents the transaction price for contracts for which work has not been performed and excludes unexercised contract options and potential modifications. Backlog is not a guarantee of future revenue as contractual commitments may change. There can be no assurance that backlog will result in revenue within the expected timeframe, if at all. We estimate our backlog was $548.7 million as of December 31, 2020 and $574.3 million as of December 31, 2019.
Customer Concentration
There were no customers that accounted for over 10.0% of total net revenue for the year ended December 31, 2020 or 2019. For the year ended December 31, 2018, the Company recognized revenue from one customer which accounted for 11.4% of total net revenue. There were no customers that accounted for 10.0% or more of total accounts receivable, as of December 31, 2020 or 2019.
Cyclicality and Seasonality
Our businesses are both cyclical and seasonal based on the homebuilding industry in the markets we serve. Because of the timing of installation of our major product lines, which are mainly installed near the end of the construction process, as well as overall housing seasonality for our RDS segment, our sales activity for the RDS segment is normally weighted toward the second half of the calendar year.
Homebuilding-based businesses are also generally cyclical. Our financial performance will be impacted by economic changes nationally and locally in the markets we serve. The building products supply industry is dependent on new home construction and subject to cyclical market pressures. Our operations are subject to fluctuations arising from changes in supply and demand, national and international economic conditions, labor costs, competition, government regulation, trade policies, and other factors that affect the homebuilding industry such as demographic trends, interest rates, single-family housing starts, employment levels, consumer confidence, and the availability of credit to homebuilders, contractors and homeowners.
After the dramatic recession that ran from 2007 to 2009, there have been over ten years of relatively steady growth. While we believe that the underlying fundamentals of demand for new housing units and residential investment are indicative of continued growth into the future, there can be no assurance that macroeconomic or other factors will not change unexpectedly and cause a downturn in housing construction.
Human Capital
We employ approximately 1,300 employees serving in 53 distinct locations across the nation. These employees perform a number of functions, from supply, delivery, and installation of our products to administrative and back office roles to ensure the business functions as efficiently as possible. Our employees are integral to our business and its success, as many have specialized knowledge concerning building products, techniques, supply chain, and in many instances, trade-specific knowledge such as flooring, carpentry, or countertop installation that allows our Company to successfully perform. A key focus and objective for the Company is that we attract and retain highly qualified individuals while fostering an unwavering commitment toward inclusion and diversity. To this end, the Company offers competitive pay, health and wellness benefits, and employee development and training programs. Additionally, over the last year, the Company has developed and deployed a management training program which aims to identify, train, and promote employees and prospective employees with demonstrated leadership potential and business acumen to further enhance the Company’s talent base. The program will place trainees in varying positions in the business for 3-month terms over the course of a year, followed by a capstone project and presentation to the Company’s senior leadership. The intent of the program is to develop the skills and business understanding of each of the Managers-in-Training (“MIT”), resulting in a formal job offer at the end of the program.
Finally, employee safety remains one of the Company’s highest priorities. In this regard, the Company has an on-going safety training program, conducts regular safety assessments, and has created a multi-disciplinary COVID-19 Response Team to address safety concerns presented by the recent novel coronavirus pandemic. Because our operations were deemed essential to the critical infrastructure, a large portion of our workforce continued operating in place throughout the COVID-19 pandemic. Recognizing this fact, and as evidence of the Company’s focus on safety, the Company made several significant operational adjustments to address potential safety concerns. This included modifying attendance policies to allow many employees to work remotely, implementation of daily self-assessments to safeguard our employees working on job sites or in the office, requiring face coverings to be worn in all locations, providing access to personal protective equipment and limiting domestic and international travel.
We are proud of our employees and continue to make significant investments and review measures to promote diversity, and attract and retain talented employees, while ensuring a safe workplace at each of our operating sites.
Executive Officers
See Item 10. Directors, Executive Officers of the Registrant, and Corporate Governance.
Government Regulation
We are subject to various federal, state and local laws and regulations applicable to our businesses generally in the jurisdictions in which we operate, including those relating to employment, import and export, public health and safety, work place safety, product safety, transportation, zoning, and the environment. We operate our businesses in accordance with standards and procedures designed to comply with applicable laws and regulations, and we believe that we are in compliance in all material respects with such laws and regulations.
Insurance and Risk Management
We use a combination of insurance policies specific to particular purposes to provide us with protection against potential liability for workers’ compensation, general liability, product liability, director and officers’ liability, employer’s liability, property damage, auto liability, and other casualty and property risks. Changes in legal trends and interpretations, variability in inflation rates, changes in workers’ compensation and general liability premiums and deductibles, changes in the nature and method of claims settlement, benefit level changes due to changes in applicable laws, insolvency of insurance carriers, and changes in discount rates could all affect ultimate settlements of claims. We evaluate our insurance requirements on an ongoing basis to ensure we maintain adequate levels of coverage.
Legal Proceedings
From time to time, we are involved in various lawsuits, claims and other legal proceedings that arise in the ordinary course of business. While the outcomes of these matters are generally not presently determinable, we do not believe that any of these proceedings, individually or in the aggregate, would be expected to have a material adverse effect on our financial position, results of operations or cash flows.
Intellectual Property
We possess proprietary knowledge and software programs, as well as registered trademarks that are important to our businesses. We make, and will continue to make, efforts to protect our intellectual property rights; however, the actions taken by us may be inadequate to prevent others from using similar intellectual property. In addition, third parties may assert claims against our use of intellectual property and we may be unable to successfully resolve such claims.
Available information
Our internet website address is www.selectinteriorconcepts.com. Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act are available free of charge through our website as soon as reasonably practicable after we electronically file them with or furnish them to the SEC. Our Code of Business Conduct and Ethics and the charters of the Audit, Compensation, and Nominating and Corporate Governance Committees of our Board of Directors are also posted on our website. Each of these documents is also available in print to any stockholder who requests it.

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ITEM 1A. RISK FACTORS
Item 1A. Risk Factors.
Our business, results of operations, and financial condition are subject to numerous risks and uncertainties. In connection with any investment decision with respect to our securities, you should carefully consider the following risk factors, as well as the other information contained in this report and our other filings with the SEC. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also impair our business operations. Should any of these risks materialize, our business, results of operations, financial condition and future prospects could be negatively impacted, which in turn could affect the trading value of our securities. You should read these Risk Factors in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Item 7 and our consolidated financial statements and related notes in Item 8.
Business and Industry Risks
The COVID-19 pandemic has adversely affected, and we expect it to continue to adversely affect, our business, financial condition, and results of operations.
The COVID-19 pandemic has adversely impacted economic activity and conditions worldwide, including workforces, liquidity, capital markets, consumer behavior, supply chains, and macroeconomic conditions, which in turn has materially impacted our business. While we expect the COVID-19 pandemic to continue to impact our business in the near term, particularly in regions where we derive a significant amount of our revenue or profit or where our suppliers and customers are located, the extent and duration of the continued effects of the COVID-19 pandemic on our business and results of operation is unknown and will depend on future developments, which are highly uncertain and outside our control. These developments include the scope, duration and severity of the pandemic (including the possibility of further surges or variations of COVID-19), the timing and efficacy of the vaccination program in the U.S., further actions taken by governmental authorities, including future stimulus programs, in response to the pandemic and changing consumer and supplier behavior. It is also possible that the pandemic and its aftermath will lead to a prolonged economic slowdown or recession in the U.S. economy. The current COVID-19 pandemic has impacted and may continue to impact our industry and cause disruptions to our operations, including as a result of decreased demand for our products and services or disruption to our supply chain, all of which could materially and adversely affect our business, financial condition and results of operations.
While we have taken significant precautions to ensure the health and safety of our team members and customers throughout the pandemic, our operations could be disrupted if any of our employees or employees of our suppliers or customers were suspected or confirmed of having COVID-19 or other illnesses and such illness required us or our suppliers or customers to quarantine some or all such employees or disinfect our locations. Also, a number of our administrative employees are working remotely. Remote working may heighten cybersecurity, information security and operational risks and affect the productivity of our employees.
The COVID-19 pandemic has caused, and may continue to cause disruptions in our supply chain. The inability of our suppliers to meet our supply needs in a timely manner or our quality standards could cause delays to delivery date requirements of our customers. Such failures could result in the cancellation of orders, customers’ refusal to accept deliveries, a reduction in purchase prices, and ultimately, termination of customer relationships, any of which could have a material adverse effect on our business, financial condition, results of operations and liquidity. In that case, we may be required to seek alternative sources of materials or products. Although we believe that we can manage our exposure to these risks, we cannot be certain that we will be able to identify such alternative materials or sources without delay or without greater cost to us. Our inability to identify and secure alternative sources of supply in this situation could have a material adverse effect on our ability to satisfy customer orders. While we have largely been able to manage these supply chain disruptions to date, there is no guarantee that we will be able to do so in the future.
We also have faced, and will continue to face, business interruptions as a result of the COVID-19 pandemic. While only some of our locations were temporarily closed in the states or counties where construction activities were temporarily prohibited or where more broad business closures were mandated, we could be adversely affected if government authorities impose further mandatory closures, seek voluntary closures or impose restrictions on our operations. Even if such measures are not further implemented and a virus or other disease does not spread significantly, the perceived risk of infection or health risk may adversely affect our business and operating results.
We cannot predict the duration or scope of the COVID-19 pandemic or when or how our business, financial conditions and results of operations will be impacted by it, including as a result of the recent deterioration in the U.S. economy and any related impact on the residential homebuilding industry, and based on the duration and scope, such impact could be material. Historically, in times of an economic recession, new home construction in the United States has slowed considerably. Any significant downturn in new home construction as a result of the economic impact of the COVID-19 pandemic could have an adverse effect on our business, financial condition and results of operations.
To the extent the COVID-19 pandemic adversely affects our business, financial conditions and results of operations, it may also have the effect of heightening many of the other risks described in this “Risk Factors” section.
The industry in which we operate is dependent upon the U.S. residential homebuilding industry, repair and remodel activity, the economy, the credit markets, and other important factors, many of which are beyond our control.
The building products supply and services industry in the United States is highly dependent on new home construction and the R&R market, which in turn are dependent upon a number of factors, including interest rates, consumer confidence, employment rates, wage rates, foreclosure rates, housing inventory levels, housing demand, the availability of land, local zoning and permitting processes, the availability of construction financing, skilled construction labor and the health of the economy and mortgage markets. Unfavorable changes in demographics, credit markets, consumer confidence, health care costs, housing affordability, housing inventory levels, a weakening of the national economy or of any regional or local economy in which we operate and other factors beyond our control could adversely affect consumer spending, result in decreased demand for homes and adversely affect our businesses.
We also rely on home R&R activity. High unemployment levels, high mortgage delinquency and foreclosure rates, lower home prices, limited availability of mortgage and home improvement financing, and significantly lower housing turnover may restrict consumer spending, particularly on discretionary items such as home improvement projects, and affect consumer confidence levels leading to reduced spending in the R&R end market. Furthermore, with even a slight decline in the economy, nationally or in any of the markets in which we operate, consumer preferences and purchasing practices and the strategies of our customers may adjust in a manner that could result in changes to the nature and prices of products demanded by the end consumer and our customers and could adversely affect our businesses and results of operations.
A significant portion of our, and in particular RDS’s, business is in the state of California. A slowdown in the economy or a decline in homebuilding activity in California, or the occurrence of a natural disaster, could have a disproportionately negative effect on our business, financial condition, operating results, and cash flows.
A significant portion of RDS’s business is in the state of California. In 2020 and 2019, we derived approximately 36% and 39%, respectively, of our consolidated net revenue, and RDS derived approximately 50% and 52%, respectively, of its net revenue, from customers in California, and we expect this trend to continue in the future. As such, we are more susceptible to adverse developments in California than competitors with more diversified operations or if RDS had a more geographically diverse business. A slowdown in California’s economy, including as a result of the COVID-19 pandemic and government responses thereto, a decline in the state’s homebuilding activity, or the occurrence of a natural disaster within the state, such as an earthquake, wildfire, drought or mudslide, all of which could be made worse by climate change, or civil disturbance, could have a disproportionately negative effect on our business, financial condition, operating results and cash flows.
Our businesses are cyclical and significantly affected by changes in general and local economic conditions.
The building products supply and services industry is subject to cyclical market pressures. Demand for our products and services is highly sensitive to general and local economic conditions over which we have no control, including changes in (i) the number of new home and commercial building construction starts, (ii) the production schedules of our homebuilder customers, (iii) short- and long-term interest rates, (iv) inflation, (v) employment levels and job and personal income growth, (vi) housing demand from population growth, household formation and other demographic changes, (vii) availability and pricing of mortgage financing for homebuyers and commercial financing for developers of multi-family homes and subcontractors, (viii) consumer confidence generally and the confidence of potential homebuyers in particular, (ix) U.S. and global financial and political system and credit market stability, (x) private party and government mortgage loan programs and federal and state regulation, oversight and legal action regarding lending, appraisal, foreclosure and short sale practices, (xi) federal and state personal income tax rates and provisions, including provisions for the deduction of mortgage loan interest payments, real estate taxes and other expenses, (xii) federal, state and local energy efficiency programs, regulations, codes and standards, or (xiii) general economic conditions in the markets in which we compete.
Unfavorable changes in these conditions could adversely affect consumer spending, result in decreased demand for homes, and adversely affect our businesses generally. Any deterioration in economic conditions or increased uncertainty regarding economic conditions could have a material adverse effect on our businesses, financial condition, results of operations, and prospects.
The building products supply and services industry is seasonal and affected by weather-related conditions.
Our industry is seasonal. Seasonal changes and other weather-related conditions can adversely affect our businesses and operations through a decline in both the use of our products and demand for our services. Although weather patterns affect our operating results throughout the year, our first and fourth quarters have historically been the most adversely affected by weather patterns in some of our markets, causing reduced construction activity. To the extent that severe weather conditions, such as unusually prolonged cold conditions, hurricanes, severe storms, earthquakes, floods, fires, droughts, other natural disasters or similar events occur in the markets in which we operate, construction or installation activity could be reduced, delayed or halted and our businesses may be adversely affected. Furthermore, climate change could increase the frequency and severity of these weather events.
In addition, the levels of fabrication, distribution, and installation of our products generally follow activity in the construction industry, which typically occurs in the spring, summer and fall. Warmer and drier weather during the second half of the year typically result in higher activity and revenue levels during those periods. Markets in which we operate that are impacted by winter weather, such as snow storms and extended periods of rain, experience a slowdown in construction activity during the beginning and the end of each calendar year, and this winter slowdown contributes to traditionally lower sales in our first quarter.
Our industry and the markets in which we operate are highly fragmented and competitive, and increased competitive pressure may adversely affect our businesses, financial condition, results of operations, and cash flows.
The building products supply and services industry is highly fragmented and competitive. We face significant competition from local, regional and national building materials chains, design centers, fabricators, and subcontractors, as well as from privately-owned single-site enterprises. Competition varies depending on product line, type of customer and geographic area. Any of these competitors may (i) foresee the course of market development more accurately than we do, (ii) offer products and services that are deemed superior to ours, (iii) have the ability to produce or supply similar products and services at a lower cost, (iv) install building products at a lower cost, (v) develop stronger relationships with suppliers, fabricators, homebuilders, and other customers in our markets, (vi) develop a superior network of distribution centers in our markets, (vii) adapt more quickly to new technologies, new installation techniques, or evolving customer requirements, or (viii) have access to financing on more favorable terms than we can obtain. As a result, we may not be able to compete successfully with our competitors. If we are unable to compete effectively with our existing competitors or new competitors enter the markets in which we operate, our financial condition, results of operations, and cash flows may be adversely affected.
We are exposed to warranty, casualty, construction defect, contract, tort, employment and other claims, and legal proceedings related to our businesses, the products we distribute, the services we provide, and services provided for us by third parties.
In the ordinary course of business, we are subject to various claims and litigation. Any such claims, whether with or without merit, could be time consuming and expensive to defend and could divert management’s attention and resources. As a subcontractor, we are regularly subject to construction defect claims on various housing tracts. We may not always be able to successfully defend or be excused from the lawsuits related to these claims and could be subject to substantial losses.
We are also from time to time subject to casualty, contract, tort and other claims relating to our businesses, the products we have distributed in the past or may in the future distribute, and the services we have provided in the past or may in the future provide, either directly or through third parties. If any such claim were adversely determined, our financial condition, results of operations, and cash flows could be adversely affected if we were unable to seek indemnification for such claims or were not adequately insured for such claims.
In addition, we are exposed to potential claims arising from the conduct of our employees, builders and their subcontractors, and third-party installers for which we may be liable. We and they are subject to regulatory requirements and risks applicable to general contractors, which include management of licensing, permitting and quality of third-party installers. If we fail to manage these processes effectively or provide proper oversight of these services, we could suffer lost sales, fines and lawsuits, as well as damage to our reputation, which could adversely affect our businesses and results of operations.
Product shortages, loss of key suppliers or failure to develop relationships with qualified suppliers, our dependence on third-party suppliers and manufacturers, or the development of alternatives to distributors in the supply chain, could adversely affect our businesses, financial condition, results of operations, and cash flows.
Our ability to offer a wide variety of products to our customers is dependent upon our ability to obtain adequate product supply from manufacturers and other suppliers. Generally, our products are obtainable from various sources and in sufficient quantities to meet our operating needs. However, the loss of, or a substantial decrease in the availability of, products from our suppliers or the loss of key supplier arrangements could adversely impact our businesses, financial condition, results of operations, and cash flows. In prior downturns in the housing industry, manufacturers have reduced capacity by closing plants and production lines within plants. Even if such capacity reductions are not permanent, there may be a delay in manufacturers’ ability to increase capacity in times of rising demand. If the demand for products from manufacturers and other suppliers exceeds the available supply, we may be unable to source additional products in sufficient quantity or quality in a timely manner and the prices for the products that we install could rise. These developments could affect our ability to take advantage of market opportunities and limit our growth prospects.
Our ability to continue to identify and develop relationships with qualified suppliers who can satisfy our high standards for quality and our need to access products in a timely and efficient manner is a significant challenge. Our ability to access products also can be adversely affected by the financial instability of suppliers, suppliers’ non-compliance with applicable laws, tariffs and import duties, supply disruptions, shipping interruptions or costs, and other factors beyond our control, including disruptions related to the COVID-19 pandemic. The loss of, or a substantial decrease in the availability of, products from our suppliers or the loss of key supplier arrangements could adversely impact our financial condition, results of operations, and cash flows.
Although in some instances we have agreements with our suppliers, these agreements are generally terminable by either party without notice or on limited notice. Many of our suppliers also offer us favorable terms based on the volume of our purchases. However, the failure by our suppliers to continue to supply us with products on favorable terms, commercially reasonable terms, or at all, could put pressure on our operating margins or have a material adverse effect on our financial condition, results of operations, and cash flows.
In addition, our larger customers, such as homebuilders, fabricators, and dealers, could begin purchasing more of their product needs directly from manufacturers, which would result in decreases in our net sales and earnings. Our suppliers could invest in infrastructure to expand their own sales forces and sell more products directly to our customers, which also would negatively impact our businesses. These changes in the supply chain could adversely affect our financial condition, results of operations, and cash flows.
A material disruption at one of our suppliers’ facilities or loss of a supplier relationship could prevent us from meeting customer demand, reduce our sales and negatively affect our overall financial results.
Any of the following events could cease or limit our or our suppliers’ operations unexpectedly: fires, floods, earthquakes, hurricanes, on-site or off-site environmental incidents or other catastrophes; utility and transportation infrastructure disruptions; labor difficulties; other operational problems; war, and acts of terrorism; pandemics, including the COVID-19 pandemic, and other global health crises; or other unexpected events. Any downtime or facility damage at our suppliers could prevent us from meeting customer demand for our products or require us to make more expensive purchases from a competing supplier. If our suppliers were to incur significant downtime, our ability to satisfy customer requirements could be impaired, resulting in customers seeking products from other distributors as well as decreased customer satisfaction and lower sales and operating income. In addition, a loss of a supplier relationship could harm our operations. Because we purchase from a limited number of suppliers, the effects of any particular shutdown or facility damage or loss of a supplier relationship could be significant to our operations.
In addition, our suppliers’ inability to produce or procure the necessary raw materials to supply finished goods to us may adversely impact our results of operations, cash flows, and financial position.
If we fail to qualify for supplier rebates or are unable to maintain or adequately renegotiate our rebate arrangements, our gross margins and income could be adversely affected.
Many of our products, such as flooring, tile and finish carpentry, are purchased pursuant to rebate arrangements that entitle us to receive a rebate based on the volume of our purchases. Such arrangements generally require us to purchase minimum quantities in certain geographies or product categories and result in higher rebates with increased quantities of purchases. These rebates effectively reduce the cost of our products and we manage our businesses to take advantage of these programs. When assessing the desirability of acquisitions, we consider the effects of such acquisitions on our ability to qualify for rebates. Rebate arrangements are subject to renegotiation with our suppliers from time to time. In addition, consolidation of suppliers may result in the reduction or elimination of rebate programs in which we participate. If we are unable to qualify for these rebates, are unable to renew rebate programs on desirable terms or are unable to obtain the expected rebate benefits of our acquisitions, or a supplier materially reduces or stops offering rebates, our costs could increase and our gross margins and income could be adversely affected.
Changes in product mix or the costs of the products we install can decrease our profit margins.
The principal building products that we distribute and install have been subject to price changes in the past, some of which have been significant. Our operating results for individual quarterly periods can be, and have been, adversely affected by a delay between when building product cost increases are implemented and when we are able to increase prices for our products and services, if at all. Our supplier purchase prices often depend on volume requirements. If we do not meet these volume requirements, our costs could increase and our margins may be adversely affected. In addition, while we have been able to achieve cost savings through volume purchasing and our relationships with suppliers, we may not be able to continue to receive advantageous pricing for the products that we supply, which could have a material adverse effect on our financial condition, results of operations, and cash flows.
Our profitability is also impacted by the mix of products that we install and sell. Recent trends indicate more of our homebuilder customers are moving to entry- to mid-level homes with fewer upgrades. There can be no assurance that the current product mix will continue, and any shift to options with lower profit margin could adversely impact our businesses, financial condition, results of operations, and cash flows.
Political and economic uncertainty and unrest in foreign countries where our suppliers are located could adversely affect our operating results.
A significant number of our suppliers are located in foreign countries and therefore, we are subject to risks and uncertainties associated with changing economic and political conditions in these or other foreign countries in which we source, or in the future may source, any of our products, such as (i) increased import duties, tariffs, trade restrictions, and quotas, (ii) work stoppages, (iii) economic uncertainties (including inflation), (iv) adverse foreign government regulations, government control, or sudden changes in laws and regulations, (v) wars, fears of war, and terrorist attacks, (vi) pandemics, including the COVID-19 pandemic, and other global crises, and (vii) organizing activities and political unrest.
We cannot predict if, when, or the extent to which, the countries in which we source our products will experience any of the above events. Any event causing a disruption, delay or cessation of imports from foreign locations would likely increase the cost or reduce the supply of products available to us, and cause us to seek alternative sources for our products, which may only be available on less advantageous terms, and would adversely affect our operating results.
The importation of building materials into the United States could expose us to additional risk.
A significant portion of the building materials that we distribute and/or install come from foreign jurisdictions outside North America. Such materials may be imported because they may not be available for domestic purchase in the United States or because there may be a shortfall of inventory available locally. Despite our efforts to ensure the merchantability of these products, such products may not adhere to U.S. standards or laws. In addition, pricing of these products can be impacted by changes to the relative value of the U.S. dollar over the applicable foreign currency in the long-term, which could negatively impact our margins. Importation of such building materials could subject us to greater risk, including currency risk, and lawsuits by customers or governmental entities.
We may be unable to effectively manage our inventory and working capital as our sales volume increases or the prices of the products we distribute fluctuate, which could have a material adverse effect on our businesses, financial condition, and results of operations.
We purchase certain materials, including wood and laminate flooring, natural and engineered stone, and tile for wall and flooring applications, from manufacturers or quarries, which are then sold to customers as an installed product or as a prefabricated and installed product. We must maintain and have adequate working capital to purchase sufficient inventory to meet customer demand. Due to the lead times required by our suppliers, we order products in advance of expected sales. As a result, we are required to forecast our sales and purchase accordingly. In periods characterized by significant changes in economic growth and activity in the commercial and residential construction and home R&R end markets, it can be especially difficult to forecast our sales accurately. We must also manage our working capital to fund our inventory purchases. Excessive increases in the market prices of certain products can put negative pressure on our operating cash flows by requiring us to invest more in inventory. In the future, if we are unable to effectively manage our inventory and working capital as we attempt to expand our
businesses, or if we make changes to how we manage our payments to suppliers, our cash flows may be negatively affected, which could have a material adverse effect on our businesses, financial condition, and results of operations.
We are subject to significant pricing pressures from homebuilders, contractors, fabricators, dealers and other customers.
Large homebuilders, contractors, fabricators, and dealers have historically been able to exert significant pressure on their outside suppliers and distributors to keep prices low in the highly fragmented building products supply and services industry. In addition, continued consolidation in the residential homebuilding industry and changes in builders’ purchasing policies and payment practices could result in even further pricing pressure. For example, there has been a recent trend of large publicly-traded homebuilders acquiring other large homebuilders, which increases their market share and buying power. Our homebuilder customers may be acquired by other homebuilders that we do not currently have relationships with, which may make it difficult for us to maintain our current market share and margins. A decline in the selling prices of the products we distribute and the services we provide could adversely impact our operating results. To the extent that our inventory at the time was purchased at higher costs, this could result in lower margins. Alternatively, due to the rising market price environment, our suppliers may increase prices or reduce discounts on the products we distribute and we may be unable to pass on any cost increase to our customers, thereby resulting in reduced margins and profits.
The loss of any of our significant customers or a reduction in the quantity of products they purchase could affect our financial health.
Our ten largest customers generated approximately 30% of our consolidated net revenue for the year ended December 31, 2020. No one customer generated more than 10% of our consolidated net revenue for the year ended December 31, 2020. We cannot guarantee that we will maintain or improve our relationships with these customers or that we will continue to supply these customers at historical levels.
Continued consolidation among homebuilders could also result in a loss of some of our present customers to our competitors. The loss of one or more of our significant customers or deterioration in our existing relationships with any of our customers could adversely affect our financial condition, results of operations, and cash flows. Furthermore, our customers are not required to purchase any minimum amount of product from us. Should our customers purchase the products we distribute or install in significantly lower quantities than they have in the past, or should the customers of any business that we acquire purchase products from us in significantly lower quantities than they had prior to our acquisition of such business, such decreased purchases could have a material adverse effect on our financial condition, results of operations, and cash flows.
RDS’s customers may be affected by shortages in labor supply, increased labor costs or labor disruptions, which could have a material adverse effect on our financial condition, results of operations, and cash flows.
Our customers require a qualified labor force to build homes and communities, and we require a qualified labor force to install our products in those homes. Access to qualified labor and subcontractors by our customers and us may be affected by circumstances beyond their or our control, including (i) shortages of qualified trades people, such as flooring, tile and cabinet installers, carpenters, roofers, electricians and plumbers, especially in key markets, (ii) changes in immigration laws and trends in labor force migration, and (iii) increases in subcontractor and professional services costs.
Labor shortages can be further exacerbated if demand for housing increases. Any of these circumstances could also give rise to delays in the start or completion of, or could increase the cost of, building homes. Such delays and cost increases would also have an effect on our ability to generate sales from homebuyers and could have a material adverse effect on our businesses, financial condition, results of operations, and cash flows.
Our backlog estimates for our RDS segment may not be accurate and may not generate expected levels of future revenue or translate into profits.
Our backlog estimates of potential future revenue for our RDS segment require substantial judgment and are based on a number of assumptions, including management’s current assessment of customer contracts that exist as of the date the estimates are made and the expected revenue to be derived from sales related to remaining housing
lots to be fulfilled under existing service agreements for active residential developments. A number of factors could result in actual revenue being less than the amounts reflected in our estimates, such as upgrade rates or upgrade amounts being lower than expected, or modification or cancellation of contracts by homebuilders. Actual rates and amounts may differ from historical experiences used to estimate potential future revenue. Accordingly, there can be no assurance that we will actually generate the specified revenue or that the actual revenue will be generated within the estimated period. If such revenue fails to materialize, we could experience a reduction in revenue and a decline in profitability, which could result in a deterioration of our financial position and liquidity.
We may not timely identify or effectively respond to consumer needs, expectations or trends, which could adversely affect our relationship with customers, the demand for our products and services and our market share.
It is difficult to accurately predict the products and services our customers will demand. The success of our businesses depends in part on our ability to identify and respond promptly to changes in demographics, consumer preferences, expectations, needs and weather conditions, while also managing inventory levels. In general, the products we sell are affected by style trends, customer preferences and changes thereto. Failure to identify timely or effectively respond to changing consumer preferences, expectations, and building product needs could possibly result in obsolete or devalued inventory, and adversely affect our relationship with customers, the demand for our products and services, and our market share.
The success of our businesses depends, in part, on our ability to execute on our growth strategy, which includes opening new branches and pursuing strategic acquisitions.
Our long-term business strategy depends in part on increasing our sales and growing our market share through opening new branches, including through our greenfield initiatives, and strategic acquisitions. A significant portion of our historical growth has occurred through acquisitions, and our business plan provides for continued growth through acquisitions in the future. We are presently evaluating, and we expect to continue to evaluate on an ongoing basis, a variety of possible acquisition transactions, including both smaller and larger acquisitions. We cannot predict the timing of any contemplated transactions, and there can be no assurances that we will identify suitable acquisition opportunities or, if we do identify such opportunities, that any transaction can be consummated on acceptable terms. If such transactions are consummated on acceptable terms, we may not be able to successfully integrate the acquired business into our existing business or may not be able to do so in a timely, efficient and cost-effective manner. Our inability to complete the integration of new businesses in a timely and orderly manner could increase costs and lower profits. In addition, our recent growth and our acquisition strategy have placed, and will continue to place, significant demands on our management’s time, which may divert their attention from our businesses, and may lead to significant due diligence and other expenses regardless of whether we pursue or consummate any acquisition. Failure to identify suitable transaction partners and to consummate transactions on acceptable terms, as well as the commitment of time and resources in connection with such transactions, could have a material adverse effect on our businesses, financial condition, and results of operations. Additionally, we may not be able to finance acquisitions through acceptable financing terms or at all.
We may not be able to expand into new geographic markets, which may impact our ability to grow our businesses.
We intend to continue to pursue our growth strategy to expand into new geographic markets for the foreseeable future. Our expansion into new geographic markets may present competitive, distribution and other challenges that differ from the challenges we currently face. In addition, we may be less familiar with the customers in these markets and may ultimately face different or additional risks, as well as increased or unexpected costs, compared to those we experience in our existing markets. We may also be unfamiliar with the labor force in these markets and may have difficulty finding and retaining necessary skilled or qualified workers on acceptable terms, or at all. Expansion into new geographic markets may also expose us to direct competition with companies with whom we have limited or no past experience as competitors. Furthermore, some of our customer and supplier agreements may restrict the markets where we are able to distribute certain products, and these limitations could negatively impact our ability to achieve success in new markets. To the extent we rely upon expanding into new geographic markets and do not meet, or are unprepared for, any new challenges posed by such expansion, our future sales growth could be negatively impacted, our operating costs could increase, and our businesses, operations, and financial results could be negatively affected.
We occupy many of our facilities under long-term non-cancellable leases, and we may be unable to renew our leases at the end of their terms.
Many of our facilities and distribution centers are located on leased premises. Many of our current leases are non-cancellable and typically have initial terms ranging from one to 12 years, and most provide options to renew for specified periods of time. If we close or idle a facility, we would most likely remain committed to perform our obligations under the applicable lease, which would include, among other things, payment of the base rent, insurance, taxes and other expenses on the leased property for the balance of the lease term. In some circumstances when idling a facility, we may attempt to sublease a facility to assist in partially offsetting these non-cancellable lease costs. The inability to terminate leases when idling a facility or exiting a geographic market can have a significant adverse impact on our financial condition, results of operations, and cash flows.
In addition, at the end of the lease term and any renewal period for a facility, we may be unable to renew the lease without substantial additional cost, if at all. In addition, we may not be able to secure a replacement facility in a location that is as commercially viable as the lease we are unable to renew and we may incur substantial costs with respect to such a replacement facility. Additionally, the net revenue and profit, if any, generated at a relocated facility may not equal the net revenue and profit generated at the existing one.
Natural or man-made disruptions to our facilities may adversely affect our businesses and operations.
We currently maintain a broad network of distribution facilities throughout the United States. Any widespread disruption to our facilities or those of our suppliers resulting from fire, earthquake, weather-related events, an act of terrorism or any other cause could damage a significant portion of our facilities and inventory and could materially impair our ability to distribute our products to customers. We could incur significantly higher costs and longer lead times associated with distributing our products to our customers during the time that it takes for us to reopen or replace a damaged facility. In addition, any shortages of fuel or significant fuel cost increases could disrupt our ability to distribute products to our customers. Disruptions to the national or local transportation infrastructure systems, including those related to a domestic terrorist attack, may also affect our ability to keep our operations and services functioning properly. If any of these events were to occur, our financial condition, results of operations, and cash flows could be materially adversely affected.
The implementation of new initiatives related to our operating software systems and related technology could disrupt our operations, and these initiatives might not provide the anticipated benefits or might fail.
We have made, and we plan to continue to make, significant investments in our operating software systems and related technology. These initiatives are designed to streamline our operations to allow our employees to continue to provide high quality service to our customers, while simplifying customer interaction and providing our customers with a more interconnected purchasing experience. The cost and potential problems and interruptions associated with the implementation of these initiatives, including those associated with managing third-party service providers and employing new web-based tools and services, could disrupt or reduce the efficiency of our operations. In the event that we continue to grow, there can be no assurance that we will be able to keep up, expand or adapt our IT infrastructure to meet evolving demand on a timely basis and at a commercially reasonable cost, or at all. In addition, our new and upgraded technology might cost more than anticipated or might not provide the anticipated benefits, or it might take longer than expected to realize the anticipated benefits or the initiatives might fail altogether. Because the success of our growth strategy depends in part on our IT infrastructure, problems with any related initiatives may adversely affect our businesses, operations, and results of operations.
We are subject to cybersecurity risks, and a disruption or breach of our IT systems could adversely impact our businesses and operations.
We rely on the accuracy, capacity and security of our IT systems, some of which are managed or hosted by third parties, and our ability to continually update these systems in response to the changing needs of our businesses. We have incurred costs and may incur significant additional costs in order to implement security measures that we feel are appropriate to protect our IT systems. Our security measures are focused on the prevention, detection and remediation of damage from computer viruses, natural or man-made disasters, unauthorized access, cyberattacks and other similar disruptions. Despite our security measures, our IT systems and infrastructure may be vulnerable to
attacks by hackers or breached due to employee error, malfeasance or other disruptions. Any attacks on our IT systems could result in our systems or data being breached or damaged by computer viruses or unauthorized physical or electronic access, which could lead to delays in receiving inventory and supplies or filling customer orders, and adversely affect our customer service and relationships. Such a breach could result in not only business disruption, but also theft of our intellectual property or other competitive information or unauthorized access to controlled data and any personal information stored in our IT systems. To the extent that any data is lost or destroyed, or any confidential information is inappropriately disclosed or used, it could adversely affect our competitive position or customer relationships. In addition, any such access, disclosure or other loss of information could result in legal claims or proceedings, damage our reputation, and cause a loss of confidence in our businesses, products and services, which could adversely affect our businesses, financial condition, profitability, and cash flows.
As cyber-attacks become more sophisticated generally, we may be required to incur significant costs to strengthen our systems from outside intrusions and/or maintain insurance coverage related to the threat of such attacks. While we have implemented administrative and technical controls and taken other preventive actions to reduce the risk of cyber incidents and protect our IT, they may be insufficient to prevent physical and electronic break-ins, cyber-attacks, or other security breaches to our computer systems.
RDS’s business and results of operations are significantly dependent on the availability and skill of subcontractors.
We engage subcontractors to perform the installation of the products that we sell to our customers. Accordingly, the timing and quality of our installations depends on the availability and skill of our subcontractors. While we believe that our relationships with subcontractors are good, we generally do not have long-term contractual commitments with any subcontractors, and we can provide no assurance that skilled subcontractors will continue to be available at reasonable rates in our markets. The inability to contract with skilled subcontractors at reasonable rates and on a timely basis could have a material adverse effect on our business, results of operations, and financial condition.
Moreover, despite our quality control efforts, we may discover that our subcontractors have failed to adhere to proper construction practices or improperly installed materials in the homes of our customers. The adverse costs of satisfying our warranty and other legal obligations in these instances may be significant and we may be unable to recover the costs of warranty-related repairs from subcontractors, suppliers and insurers, which could have a material impact on our business, results of operations, and financial condition.
If any of RDS’s subcontractors are characterized as employees, we would be subject to employment and withholding liabilities.
We structure our relationships with our subcontractors in a manner that we believe results in an independent contractor relationship, not an employee relationship. An independent contractor is generally distinguished from an employee by his or her degree of autonomy and independence in providing services. A high degree of autonomy and independence is generally indicative of a contractor relationship, while a high degree of control is generally indicative of an employment relationship. Although we believe that our subcontractors are properly characterized as independent contractors, tax or other regulatory authorities may in the future challenge our characterization of these relationships. If such regulatory authorities or state, federal or foreign courts were to determine that our subcontractors are employees, and not independent contractors, we would be required to withhold income taxes, to withhold and pay social security, Medicare and similar taxes, and to pay unemployment and other related payroll taxes. We would also be liable for unpaid past taxes and subject to penalties. As a result, any determination that these subcontractors are employees could have a material adverse effect on our business, financial condition, and results of operations
Financial and Liquidity Risks
We may use additional leverage in executing our business strategy, which may adversely affect our businesses.
As of December 31, 2020, the principal amount of our total indebtedness was approximately $170.7 million, consisting of (i) $9.9 million under the SIC revolving credit facility, (ii) $152.8 million under the ASG term loan, and (iii) $8.1 million of vehicle and equipment loans and capital leases. Additionally, as of December 31, 2020, there was also $0.6 million of outstanding letters of credit. We had the ability to access approximately $67.4 million of unused borrowings available under the SIC revolving credit facility as of December 31, 2020, and, as part of our growth strategy, we may incur a significant amount of additional debt in the future. Our existing indebtedness is recourse to us and we anticipate that future indebtedness will likewise be recourse. If new debt is added to our current debt levels, the related risk that we now face could intensify.
Our board of directors will consider a number of factors when evaluating our level of indebtedness and when making decisions regarding the incurrence of new indebtedness, including the purchase price of assets to be acquired with debt financing, the estimated market value of our assets and the ability of particular assets, and our company as a whole, to generate cash flow to cover the expected debt service. As a means of sustaining our long-term financial health and limiting our exposure to unforeseen dislocations in the debt and financing markets, we currently expect to remain conservatively capitalized; however, our charter does not contain a limitation on the amount of debt we may incur and our board of directors may change our target debt levels at any time without the approval of our stockholders.
Incurring a substantial amount of debt could have important consequences for our businesses, including (i) making it more difficult for us to satisfy our obligations with respect to our debt or to our trade or other creditors, (ii) increasing our vulnerability to adverse economic or industry conditions, (iii) limiting our ability to obtain additional financing on acceptable terms, or at all, to fund capital expenditures and acquisitions, particularly when the availability of financing in the capital markets is limited, (iv) requiring a substantial portion of our cash flows from operations for the payment of interest on our debt and reducing our ability to use our cash flows to fund working capital, capital expenditures, acquisitions, and general corporate requirements, (v) limiting our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate, and (vi) placing us at a competitive disadvantage to less leveraged competitors.
We cannot assure you that our businesses will generate sufficient cash flow from operations or that future borrowings will be available to us through capital markets financings or under our credit facilities or otherwise in an amount sufficient to enable us to pay our indebtedness, or to fund our other liquidity needs. We cannot assure you that we will be able to refinance any of the indebtedness that we will incur on commercially reasonable terms, or at all. In addition, we may incur additional indebtedness in order to finance our operations or to repay our indebtedness. If we cannot service our indebtedness, we may have to take actions such as selling assets, seeking additional debt or equity or reducing or delaying capital expenditures, strategic acquisitions, investments and alliances. We cannot assure you that any such actions, if necessary, could be effected on commercially reasonable terms, or at all, or on terms that would be advantageous to our stockholders or on terms that would not require us to breach the terms and conditions of our existing or future financing arrangements.
Our current financing arrangements contain, and our future financing arrangements likely will contain, restrictive covenants relating to our operations.
Our current financing arrangements contain, and the financing arrangements we enter into in the future likely will contain, covenants (financial and otherwise) affecting our ability to incur additional debt, incur liens, make certain investments, sell our shares, reduce liquidity below certain levels, make distributions to our stockholders and otherwise affect our operating policies. The restrictions contained in our financing arrangements could also limit our ability to plan for or react to market conditions, meet capital needs or make acquisitions or otherwise restrict our activities or business plans. If we fail to meet or satisfy any of these covenants in our financing arrangements, we would be in default under these arrangements, and our lenders could elect to declare outstanding amounts due and payable, terminate their commitments, require the posting of additional collateral and enforce their respective interests against existing collateral. In addition, our financing arrangements may contain cross-default provisions. As a result, if we default in our payment or performance obligations under one of our financing arrangements and, in some cases, if the amount due thereunder is accelerated, other financing arrangements, if any, may be declared in default and accelerated even though we are meeting payment and performance obligations on those other arrangements. If this occurs, we may not have sufficient available cash to pay all amounts that are then due and payable under our financing arrangements, and we may have to seek additional debt or equity financing, which may not be available on acceptable terms. If alternative financing is not available, we may have to curtail our investment activities and/or sell assets in order to obtain the funds required to make the accelerated payments or seek ways to restructure the loan obligations. If we default on several of our financing arrangements or any single significant financing arrangement, it could have a material adverse effect on our businesses, prospects, liquidity, financial condition, and results of operations.
Interest expense on debt we will incur may limit our cash available to fund our growth strategies.
Our current financing arrangements have, and any additional debt we subsequently incur may have, a floating rate of interest. Higher interest rates could increase debt service requirements on our current floating rate debt and on any floating rate debt we subsequently incur, and could reduce funds available for operations, future business opportunities or other purposes. If we need to repay debt during periods of rising interest rates, we could be required to refinance our then-existing debt on unfavorable terms or liquidate one or more of our assets to repay such debt at times which may not permit realization of the maximum return on such assets and could result in a loss. The occurrence of either or both of such events could materially and adversely affect our cash flows and results of operations.
We may require additional capital in the future and may not be able to secure adequate funds on terms acceptable to us.
The expansion and development of our businesses may require significant capital, which we may be unable to obtain, to fund our capital expenditures, operating expenses, working capital needs, and potential strategic acquisitions. In accordance with our growth strategy, we may opportunistically raise additional debt capital to help fund the growth of our businesses, subject to market and other conditions, but such debt capital may not be available to us on a timely basis, or at all, to meet our cash requirements. Further, our capital requirements may vary materially from those currently planned if, for example, our revenue does not reach expected levels or we have to incur unforeseen capital expenditures and make investments to maintain our competitive position. If this is the case, we may require additional financing sooner than anticipated or we may have to delay or abandon some or all of our development and expansion plans or otherwise forego market opportunities.
To a large extent, our cash flow generation ability is subject to general economic, financial, competitive, legislative and regulatory factors and other factors that are beyond our control, including as a result of the COVID-19 pandemic. We cannot assure you that our businesses will generate cash flow from operations in an amount sufficient to enable us to fund our liquidity needs. As a result, we may need to refinance all or a portion of our debt on or before its maturity or obtain additional equity or debt financing. We cannot assure you that we will be able to do so on favorable terms, if at all. Any inability to generate sufficient cash flow, refinance our debt or incur additional debt on favorable terms could adversely affect our financial condition and could cause us to be unable to service our debt and may delay or prevent the expansion of our businesses.
A significant decline in the general economy or the new home construction or R&R markets, and/or a deterioration in expectations regarding the homebuilding market, could cause us to record significant non-cash impairment charges, which could negatively affect our earnings and reduce stockholders’ equity.
A significant decline in the general economy or the new home construction or R&R markets, and/or a deterioration in expectations regarding the homebuilding market, could cause us to record significant non-cash, pre-tax impairment charges for goodwill or other long-lived assets, which are not determinable at this time and which could negatively affect our earnings and reduce stockholders’ equity. In addition, as a result of our acquisition strategy, we have recorded goodwill and may incur impairment charges in connection with prior and future acquisitions. If the value of goodwill or other intangible assets is impaired, our earnings and stockholders’ equity would be adversely affected.
Organizational and Structural Risks
Our amended and restated bylaws provide that the state and federal courts located within the State of Delaware will be the exclusive forum for certain legal actions between the Company and its stockholders, which could increase costs to bring a claim, discourage claims or limit the ability of the Company’s stockholders to bring a claim in a judicial forum viewed by the stockholders as more favorable for disputes with the Company or the Company’s directors, officers or other employees.
Our amended and restated bylaws provide that unless the Company consents in writing to the selection of an alternative forum, the state and federal courts located within the State of Delaware will be the sole and exclusive forum for any (i) derivative action or proceeding brought on our behalf, (ii) action asserting a claim of breach of a fiduciary duty owed by any of our directors, officers or other employees to us or our stockholders, (iii) action asserting a claim arising pursuant to any provision of the DGCL, (iv) civil action to interpret, apply, enforce or determine the validity of the provisions of our charter or our bylaws, or (v) action asserting a claim governed by the internal affairs doctrine. The choice of forum provision may increase costs to bring a claim, discourage claims or limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with the Company or the Company’s directors, officers or other employees, which may discourage such lawsuits against the Company or the Company’s directors, officers and other employees. Alternatively, if a court were to find the choice of forum provision contained in the Company’s amended and restated bylaws to be inapplicable or unenforceable in an action, the Company may incur additional costs associated with resolving such action in other jurisdictions. The exclusive forum provision in the Company’s amended and restated bylaws will not preclude or contract the scope of exclusive federal or concurrent jurisdiction for actions brought under the federal securities laws including the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or the Securities Act of 1933, as amended (the “Securities Act”), or the respective rules and regulations promulgated thereunder.
We are an “emerging growth company” and, as a result of the reduced disclosure and governance requirements applicable to emerging growth companies, our Class A Common Stock may be less attractive to investors.
We are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012 (which we refer to as the “JOBS Act”), and we are eligible to take advantage of certain exemptions from various reporting requirements applicable to other public companies but not to emerging growth companies, including, but not limited to, a requirement to present only two years of audited financial statements in the registration statement for the emerging growth company’s initial public offering of common equity securities, an exemption from the auditor attestation requirement of Section 404 of the Sarbanes-Oxley Act of 2002 (which we refer to as the “Sarbanes-Oxley Act”), reduced disclosure about executive compensation arrangements pursuant to the rules applicable to smaller reporting companies, no requirement to seek non-binding advisory votes on executive compensation or golden parachute arrangements and not being required to comply with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding a supplement to the auditor’s report providing additional information about the audit and the financial statements. We have elected to adopt these reduced disclosure requirements. Although under the JOBS Act we are exempt from such disclosure requirements, we are required, among other things, to maintain internal control over financial reporting and to report any material weaknesses in such internal control. If we are unable to maintain effective internal control over financial reporting or if, in the future, we identify other control deficiencies or material weaknesses in our accounting and financial reporting processes, or if our independent registered public accounting firm is unable to express an opinion as to the
effectiveness of our internal control over financial reporting, investors may lose confidence in the accuracy and completeness of our financial reports and the market price of our Class A Common Stock could be negatively affected, and we could become subject to litigations or investigations by the SEC, the Nasdaq Stock Market or other regulatory authorities, or derivative or securities lawsuits from shareholders, which could require additional financial and management resources.
Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a Securities Act registration statement declared effective or do not have a class of securities registered under the Exchange Act are required to comply with the new or revised financial accounting standards. In addition, Section 107 of the JOBS Act provides that an “emerging growth company” can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised financial accounting standards. An emerging growth company can therefore delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected to use the extended transition period for complying with new or revised accounting standards under Section 102(b)(2) of the JOBS Act. This election allows us to delay the adoption of new or revised accounting standards that have different effective dates for public and private companies until those standards apply to private companies. As a result, our financial statements may not be comparable to companies that comply with public company effective dates.
Operation on multiple Enterprise Resource Planning (which we refer to as “ERP”) information systems may negatively impact our operations.
We are highly dependent on our information systems infrastructure to process orders, purchase materials, track inventory, ship products in a timely manner, prepare invoices to our customers, maintain internal controls, produce financial data, and otherwise carry on our businesses in the ordinary course. Our RDS segment is continuing to implement a system that will further enhance its ability to scale rapidly. While we believe we have the experience, skill and management abilities, as well as access to the necessary experts and consultants, to plan and execute these projects without significant disruption to our businesses, ERP implementations and conversions are very complex and inherently subject to risks and uncertainty. There is no assurance that the projects will succeed or that failures in the design, programming, software or implementation of these projects will not cause significant disruption to our businesses. Such a disruption could cause project cost overruns, which may be significant, losses in revenue, increases in operating costs, and reduced customer satisfaction, all of which would lead to a decline in profitability over the short term and possibly the long term. In addition, as the Company continues to pursue inorganic growth opportunities through acquisitions, our ability to integrate newly acquired businesses onto our existing ERP systems is critical to maximizing the value and realizing the synergies of those newly acquired businesses into our existing segments.
General Risks
A trading market for our Class A Common Stock may not be sustained and our Class A Common Stock prices could decline.
Although our Class A Common Stock is currently listed for trading on the Nasdaq Capital Market under the symbol “SIC,” an active trading market for the shares of our Class A Common Stock may not be sustained. Accordingly, no assurance can be given as to (i) the likelihood that an active trading market for shares of our Class A Common Stock will be sustained, (ii) the liquidity of any such market, (iii) the ability of our stockholders to sell their shares of Class A Common Stock, or (iv) the price that our stockholders may obtain for their Class A Common Stock.
In addition, the securities markets in general and our Class A Common Stock have experienced price and volume volatility over the past year. The market price and volume of our Class A Common Stock may continue to experience fluctuations not only due to general stock market conditions but also due to government regulatory action, tax laws, interest rates and a change in sentiment in the market regarding our industry, operations or business prospects. In addition to the other risk factors discussed in this section, the price and volume volatility of our Class A Common Stock may be affected by (i) actual or anticipated variations in our quarterly operating results, (ii) changes in market valuations of similar companies, (iii) adverse market reaction to the level of our indebtedness, (iv) additions or departures of key personnel, (v) actions by stockholders (vi) speculation in the press or investment
community, (vii) negative publicity regarding us specifically or our businesses generally, (viii) general market, economic and political conditions, including an economic slowdown or dislocation in the global credit markets, (ix) our operating performance and the performance of other similar companies, (x) changes in accounting principles, (xi) passage of legislation or other regulatory developments that adversely affect us or the building products supply and services industry, or (xii) inaccurate or unfavorable research or reports about the Company published by securities or industry analysts, or the cessation of coverage or regular reports by such analysts.
If an active market is not maintained, or if our Class A Common Stock continues to experience price and volume volatility, the market price of our Class A Common Stock may decline.
Changes in legislation and government policy may have a material adverse effect on our businesses in the future.
Dynamic changes in legislation and government policy may have a material adverse effect on our business. Specifically, with the new Biden presidential administration, proposed legislation and regulatory changes could have a material impact on us including, but not limited to, modifications to international trade policy and increased regulation. Furthermore, existing tariffs imposed on goods imported from abroad that are used in our businesses may be removed by executive order or expanded upon the action of President Biden. Similarly, the uncertain geopolitical relationships between the United States and other countries, including India, Turkey, Spain, Vietnam, the European Union, and China could result in additional disruptions impacting the operations of the Company.
In addition, actions before the U.S. Department of Commerce (which we refer to as the “DOC”) and the U.S. International Trade Commission (which we refer to as the “ITC”) continue to present risk to the operations of the Company. A risk exists that additional future actions before the ITC and DOC could disrupt the operations of the Company.
We are currently unable to predict the extent of the changes to existing legislative and regulatory environments relevant to our businesses, or how those and potential future changes would impact our businesses. To the extent that such changes have a negative impact on us or the industries we serve, including the imposition of additional duties or tariffs discussed above or otherwise, these changes may materially and adversely impact our businesses, financial condition, results of operations, and cash flows.
We depend on key personnel and our inability to continue to attract and retain highly skilled employees could adversely affect our businesses.
Our success depends to a significant degree upon the contributions of certain key personnel and other members of our management team, each of whom would be difficult to replace. Further, the process of attracting and retaining suitable replacements for key personnel whose services we may lose would result in transition costs and would divert the attention of other members of our senior management from our existing operations. The loss of services from key personnel or a limitation in their availability could materially and adversely impact our businesses, prospects, liquidity, financial condition and results of operations.
In addition, in executing our growth plan, we must attract and retain highly qualified personnel. We have, from time to time, experienced, and we expect to continue to experience, difficulty in hiring and retaining employees with appropriate qualifications, such as build tradesmen for finish carpentry and for installation of tile, flooring and cabinets. Many of the companies with which we compete for experienced personnel have greater resources than us. If we fail to attract new personnel or fail to retain and motivate our current personnel, our businesses and future growth prospects could be adversely affected.
Furthermore, the employment agreements we have with many of our senior level executives contain severance obligations which may require us to pay significant amounts of severance compensation to such employees upon the termination of their employment under certain circumstances.

---

ITEM 1B. UNRESOLVED STAFF COMMENTS
Item 1B. Unresolved Staff Comments.
None.

---

ITEM 2. PROPERTIES
Item 2. Properties.
We have 53 distinct locations, each of which is leased. Our corporate headquarters are located at 400 Galleria Parkway, Suite 1760, Atlanta, Georgia 30339.
The locations and uses of our top 20 branches, which comprise approximately 84% of our net revenue, are as follows:
Location
Segment
Purpose
Anaheim, CA
RDS
Design Center / Office / Warehouse
Atlanta, GA
RDS
Office / Fabrication / Warehouse
Austin, TX
ASG
Showroom / Distribution / Office / Warehouse
Buda, TX
RDS
Office / Fabrication / Warehouse
Denver, CO
ASG
Showroom / Distribution / Office / Warehouse
Elkridge, MD
RDS
Design Center / Office / Warehouse
Escondido, CA
RDS
Design Center / Distribution / Office / Warehouse
Fairfield, CA
RDS
Office / Warehouse
Livermore, CA
RDS
Design Center / Distribution / Office / Warehouse
Los Angeles, CA
ASG
Design Center / Office / Warehouse
Manassas, VA
RDS
Design Center / Office / Warehouse
New Brunswick, NJ
ASG
Showroom / Distribution / Office / Warehouse
Oklahoma City, OK
ASG
Showroom / Distribution / Office / Warehouse
Phoenix, AZ
RDS
Design Center / Office / Warehouse
Portland, OR
ASG
Showroom / Distribution / Office / Warehouse
Sacramento, CA
RDS
Office / Warehouse
Seattle, WA
ASG
Showroom / Distribution / Office / Warehouse
Simi Valley, CA
RDS
Office / Warehouse
Sun Valley, CA
ASG
Showroom / Distribution / Office / Warehouse
Tacoma, WA
ASG
Showroom / Distribution / Office / Warehouse

---

ITEM 3. LEGAL PROCEEDINGS
Item 3. Legal Proceedings.
From time to time, we are involved in various lawsuits, claims and other legal proceedings that arise in the ordinary course of business. While the outcomes of these matters are generally not presently determinable, we do not believe that any of these proceedings, individually or in the aggregate, would be expected to have a material adverse effect on our financial position, results of operations or cash flows.

---

ITEM 4. MINE SAFETY DISCLOSURE
Item 4. Mine Safety Disclosures.
Not applicable.
PART II

---

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Market Information
Our Class A Common Stock is traded on the Nasdaq Capital Market under the ticker symbol “SIC.” The range of high and low sale prices of our common stock as reported by the Nasdaq is set forth in the table below:
1st Qtr
2nd Qtr
3rd Qtr
4th Qtr
Fiscal Year 2020
High
$
9.40
$
4.70
$
7.25
$
8.00
Low
$
1.25
$
1.61
$
3.31
$
6.05
Fiscal Year 2019
High
$
14.73
$
14.00
$
13.76
$
13.10
Low
$
7.25
$
9.95
$
10.57
$
8.80
Holders
On March 1, 2021, there were 249 stockholders of record of our Class A Common Stock.
Dividends
We have never paid any cash dividends on our capital stock and have no current plans to pay any cash dividends. Our current policy is to retain any earnings for future use in our business.
Securities Authorized for Issuance Under Equity Compensation Plans
The information regarding securities authorized for issuance under equity compensation plans will be set forth in our 2021 Proxy Statement under the heading “Securities Authorized for Issuance under Equity Compensation,” which is incorporated herein by reference.
Unregistered Sales of Equity Securities and Use of Proceeds
The following table provides information regarding the repurchase of our common stock for the three months ended December 31, 2020:
Period
Total
Number of
Shares
Purchased(1)
Average
Price Paid
per Share
Total Number of
Shares Purchased
as Part of Publicly
Announced Plans
or Programs
Maximum Number
of Shares That May
Yet be Purchased
Under the Plans
or Programs
October 1, 2020 - October 31, 2020
13,205
$
7.06
-
-
November 1, 2020 - November 30, 2020
7.66
-
-
December 1, 2020 - December 31, 2020
-
-
-
-
Total
13,707
$
7.08
-
-
(1)
Represents shares surrendered to the Company by employees to satisfy tax withholding obligations arising in connection with the vesting of 44,322 shares of restricted stock awarded under our 2017 Plan.
Performance Graph
The graph below compares the cumulative total returns of our Class A Common Stock with that of the Nasdaq Composite Index, Russell 2000 Index and the S&P Small Cap 600 Index, for the period commencing on August 16, 2018 (the date our Class A Common Stock commenced trading on the Nasdaq Capital Market) and ending on December 31, 2020. All values assume an initial investment of $100 on August 16, 2018 and reinvestment of
dividends. Following the commencement period of August 16, 2018, the data on the graph represents month-end values based on the last trading day of each month. The comparisons are based on historical data and are not indicative of, nor intended to forecast, the future performance of our Class A Common Stock.
Comparison of Cumulative Total Return
among Select Interior Concepts, Inc., Nasdaq Composite Index, Russell 2000 Index,
and S&P Small Cap 600 Index

---

ITEM 6. SELECTED FINANCIAL DATA
Item 6. Selected Financial Data.
The following table summarizes certain financial data for the periods presented:
Year Ended December 31,
(in thousands, except share data)
Statements of Operations Data:
Total revenue, net
$
554,025
$
610,373
$
489,757
$
352,952
Gross profit
135,209
164,074
133,454
103,889
Gross margin
24.4
%
26.9
%
27.2
%
29.4
%
Income from operations
$
3,382
$
19,258
$
12,097
$
6,162
Total other expense, net
16,209
10,753
13,583
14,189
Income (loss) before provision (benefit) for income taxes
$
(12,827
)
$
8,505
$
(1,486
)
$
(8,026
)
Provision (benefit) for income taxes
(2,974
)
1,521
3,320
Net income (loss)
$
(9,853
)
$
6,984
$
(2,475
)
$
(11,346
)
Balance Sheet Data (end of year):
Cash, cash equivalents and restricted cash
$
2,974
$
5,002
$
6,362
$
5,547
Accounts receivable, net
67,881
63,419
63,601
45,284
Inventory
98,982
104,741
108,270
87,629
Total assets
405,008
420,275
416,014
320,246
Accounts payable
47,246
42,734
37,265
38,491
Accrued expenses and other current liabilities
20,353
16,661
27,620
19,840
Line of credit
9,623
21,871
36,706
19,269
Long-term debt, net of current portion and financing fees
134,526
141,299
142,442
86,897
Total liabilities
250,817
259,000
267,320
172,159
Stockholders' equity
154,191
161,275
148,694
148,088
Supplemental Financial Data:
Cash provided by (used in):
Operating activities
$
20,604
$
30,955
$
12,212
$
(8,367
)
Investing activities
(3,258
)
(24,641
)
(80,624
)
(118,836
)
Financing activities
(19,374
)
(10,674
)
72,227
128,024
Net income (loss) per common share:
Basic
$
(0.39
)
$
0.28
$
(0.10
)
$
(0.22
)
Diluted
$
(0.39
)
$
0.27
$
(0.10
)
$
(0.22
)
Weighted average number of common shares outstanding:
Basic
25,337,249
25,296,955
25,634,342
25,614,626
Diluted
25,337,249
25,431,677
25,634,342
25,614,626

---

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following information should be read in conjunction with Item 6. “Selected Financial Data” above and the accompanying consolidated financial statements and related notes included in this Annual Report.
The following discussion may contain forward-looking statements that reflect our plans, estimates, and beliefs. Our actual results could differ materially from those discussed in these forward-looking statements. Factors that could cause or contribute to these differences include those factors discussed below and elsewhere in this Annual Report, particularly in the sections entitled “Special Note Regarding Forward-Looking Statements and Information” and “Risk Factors” included elsewhere in this Annual Report.
Overview
Select Interior Concepts, Inc. (collectively with all of its subsidiaries, “SIC,” the “Company,” “we,” “us” and “our”) is an installer and nationwide distributor of interior building products with market positions in residential interior design services. 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 17 design centers, our designers work closely with homebuyers in the selection of a broad array of interior products and finishes, including flooring, cabinets, countertops, wall tile, and related interior items, primarily for newly constructed homes. We then coordinate the ordering, fulfillment and installation of many of these interior product categories to provide 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 leading market positions in the selection and importation of natural and engineered stone slabs for kitchen and bathroom countertops and specialty tiles through our other operating segment, Architectural Surfaces Group (which we refer to as “ASG”). ASG sources natural and engineered stone slabs from a global supply base and markets these materials through a national network of 21 distribution centers and showrooms. In addition to serving the new residential and commercial construction markets with these materials, we also distribute them to the repair and remodel (which we refer to as “R&R”) market.
Operating Segments
We have defined each of our operating segments based on the nature of its operations and its management structure and 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.
Architectural Surfaces Group
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.
Material Costs
The materials that we distribute and install are sourced through a wide array of quarries, manufacturers, and distributors located in North America, South America, Europe, Africa and Asia. As demand for these products continues to grow with housing demand, we expect that we may be subject to cost increases from time to time. There is no guarantee that our relationships with our customers will be such that we can pass these increases on to our customers. Affordability issues in new residential construction could temper our homebuilder customers’ ability to raise their prices, which could in turn limit our ability to increase prices to compensate for increases in our costs of materials. We believe, however, that over the long term, these same forces affecting housing prices would also limit our suppliers’ ability to increase prices, which would help us maintain our margins.
Labor Costs
Installation labor is a significant component of our aggregate labor force of approximately 1,300 employees. There is no guarantee that we will be able to attract the type and quality of skilled labor that we need in sufficient quantities to accomplish our growth plans. Correspondingly, we expect that tight labor markets will continue to lead to upward pressure on wages and could impact our gross profit margin and overall profitability negatively.
We believe, however, that our scale will continue to give us the ability to provide steady work, an attractive benefits package, and a beneficial work environment, particularly as compared to our smaller competitors. Over time, we expect that the combination of these factors will gradually increase our relative advantage over smaller and less sophisticated competitors.
Selling, General and Administrative Costs
We incur costs related to the operation and administration of our businesses that are reported as period expenses separately from Cost of Goods Sold. These expenses include, but are not limited to, project management, customer service, human resources, accounting, information technology, general management, public company costs, and others. These costs will likely continue to grow as our businesses grow, but we believe that, overall, they will grow more slowly than the rate at which our gross profit grows due to improved utilization rates of these resources and the fact that we have implemented and intend to continue to implement scalable technology and process improvements that increase the efficiency of our operations.
Non-GAAP Measures
In addition to the results reported in accordance with United States generally accepted accounting principles (which we refer to as “GAAP”), we have provided information in this Report relating to EBITDA, Adjusted EBITDA, and Adjusted EBITDA margin. We have provided definitions below for these non-GAAP financial measures and have provided tables to reconcile these non-GAAP financial measures to the comparable GAAP financial measures.
We believe that these non-GAAP financial measures provide valuable information regarding our earnings and business trends by excluding specific items that we believe are not indicative of the ongoing operating results of our businesses, providing a useful way for investors to make a comparison of our performance over time and against other companies in our industry.
We have provided these non-GAAP financial measures as supplemental information to our GAAP financial measures and believe these non-GAAP measures provide investors with additional meaningful financial information regarding our operating performance and cash flows. Our management and board of directors also use these non-GAAP measures as supplemental measures to evaluate our businesses and the performance of management, including the determination of performance-based compensation, to make operating and strategic decisions, and to allocate financial resources. We believe that these non-GAAP measures also provide meaningful information for investors and securities analysts to evaluate our historical and prospective financial performance. These non-GAAP measures should not be considered a substitute for or superior to GAAP results. Furthermore, the non-GAAP measures presented by us may not be comparable to similarly titled measures of other companies.
EBITDA is defined as consolidated net income (loss) before interest, taxes and depreciation and amortization. Adjusted EBITDA is defined as consolidated net income (loss) before (i) interest expense, (ii) income tax expense (benefit), (iii) depreciation and amortization expense, (iv) equity-based compensation expense, and (v) other costs that are deemed to be transitional in nature or not related to our core operations, including employee related reorganization costs, purchase accounting fair value adjustments, acquisition and integration related costs, other non-recurring costs, integration and savings initiatives costs, facility closures and divestitures, legal settlements, strategic alternatives costs, and other non-operating costs. Adjusted EBITDA margin is calculated as a percentage of our net revenue. EBITDA, Adjusted EBITDA, and Adjusted EBITDA margin are non-GAAP financial measures used by us as supplemental measures in evaluating our operating performance.
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.
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.
Results of Operations
Year Ended December 31, 2020 Compared to Year Ended December 31, 2019
Net Revenue. For the year ended December 31, 2020, net revenue decreased by $56.3 million, or 9.2%, to $554.0 million, from $610.4 million for the year ended December 31, 2019. Net revenue for the years ended December 31, 2020 and 2019 is adjusted for the elimination of intercompany sales of $2.0 million and $3.0 million, respectively.
In our RDS segment, net revenue decreased by $36.1 million, or 9.8%, to $332.5 million for the year ended December 31, 2020, from $368.6 million for the year ended December 31, 2019. The decrease was due in part to volume declines in the Eastern Region, primarily attributable to the COVID-19 pandemic, divestiture and discontinuation of certain ancillary product lines, as well as product mix shifts in certain markets resulting from the increase of entry- to mid-level homebuilding and multi-family work as a percentage of our project activity in our markets. Stay at home orders, particularly in the second quarter and early part of the third quarter heavily impacted our business with new safety measures and restrictions lowering productivity at RDS job sites. RDS design center activity was also limited due to lockdowns and customer and employee concerns relating to in-person interaction. The decline in organic volume was partially offset by increased sales from the acquisition of Intown in March 2019.
In our ASG segment, net revenue decreased by $21.2 million, or 8.7%, to $223.6 million for the year ended December 31, 2020, from $244.8 million for the year ended December 31, 2019. This decrease was due to a decrease in volume of all products sold. The decrease in overall volume, which peaked in the second quarter, was primarily due to the COVID-19 pandemic. Stay at home orders heavily impacted our business in Washington. ASG showrooms were limited to appointment only sales. Additionally, our fabricator customers were unable to execute in-residence installations due to stay at home orders at many of our locations combined with homeowner concerns about the pandemic. Sales were also impacted by the closure of two branches. Volume decreases were partially offset by increases from price/mix, most of which came from sales of quartz products.
Cost of Revenue. For the year ended December 31, 2020, cost of revenue decreased by $27.5 million, or 6.2%, to $418.8 million, from $446.3 million for the year ended December 31, 2019. Cost of revenue for the year ended December 31, 2020 and 2019 is adjusted for the elimination of intercompany sales of $2.0 million and $3.1 million, respectively.
In our RDS segment, cost of revenue decreased by $14.0 million, or 5.2%, to $255.9 million for the year ended December 31, 2020, from $269.8 million for the year ended December 31, 2019. This was primarily associated with the decrease in sales for the year ended December 31, 2020.
In our ASG segment, cost of revenue decreased by $14.6 million, or 8.1%, to $165.0 million for the year ended December 31, 2020, from $179.5 million for the year ended December 31, 2019. This was primarily associated with the decrease in sales for the year ended December 31, 2020.
Gross Profit and Margin. For the year ended December 31, 2020, gross profit decreased by $28.9 million, or 17.6%, to $135.2 million, from $164.1 million for the year ended December 31, 2019. For the year ended December 31, 2020, gross margin decreased by 2.5 percentage points to 24.4%, from 26.9% for the year ended December 31, 2019.
In our RDS segment, gross margin decreased by 3.8 percentage points to 23.0% for the year ended December 31, 2020, from 26.8% for the year ended December 31, 2019. This decrease is primarily due to unabsorbed fixed costs on our lower revenue base during the year and an unfavorable change in product mix.
In our ASG segment, gross margin decreased by 0.5 percentage points to 26.2% for the year ended December 31, 2020, from 26.7% for the year ended December 31, 2019, primarily due to unabsorbed fixed costs on our lower revenue base during the year and a slight decline in product margin.
SG&A Expenses. For the year ended December 31, 2020, SG&A expenses decreased by $13.0 million, or 9.0%, to $131.8 million, from $144.8 million for the year ended December 31, 2019. SG&A expenses as a percentage of net revenue were 23.8% and 23.7% for the years ended December 31, 2020 and 2019, respectively.
In our RDS segment, SG&A expenses decreased by $6.2 million to $75.0 million for the year ended December 31, 2020, from $81.2 million for the year ended December 31, 2019. This decrease was related to furloughs, savings from position eliminations, lower sales commissions and other cost reduction initiatives.
In our ASG segment, SG&A expenses decreased by $6.0 million to $39.4 million for the year ended December 31, 2020, from $45.4 million for the year ended December 31, 2019. This decrease was related to furloughs, savings from position eliminations, lower sales commissions and other cost reduction initiatives.
The remaining $0.9 million of the decrease in SG&A expenses was primarily the result of a decrease in equity-based compensation costs, partially offset by an increase in professional services fees related to improvements in strategic sourcing, organizational design and productivity, insurance programs, and facility footprint optimization initiatives.
Depreciation and Amortization. For the year ended December 31, 2020, depreciation and amortization expenses decreased by $1.3 million, or 5.3%, to $22.9 million, from $24.2 million for the year ended December 31, 2019.
In our RDS segment, depreciation and amortization expenses decreased by $1.3 million, or 10.2%, to $11.6 million for the year ended December 31, 2020, from $12.9 million for the year ended December 31, 2019, which was primarily due to certain RDS customer list intangibles that fully amortized during third quarter 2019, partially offset by additional assets in-service, including the new ERP system at RDS.
In our ASG segment, depreciation and amortization expenses remained consistent at $11.2 million for the years ended December 31, 2020 and 2019.
Interest Expense. For the year ended December 31, 2020, interest expense decreased by $2.7 million, or 15.4%, to $14.6 million, from $17.2 million for the year ended December 31, 2019. This decrease is primarily due to decreased interest rates during the year as well as lower borrowings.
Income Taxes. For the year ended December 31, 2020, we recognized an income tax benefit of $3.0 million, a decrease of $4.5 million from income tax expense of $1.5 million for the year ended December 31, 2019. The decrease in income taxes is due primarily to the decrease in pre-tax income in 2020 compared to 2019.
Net (Loss) Income. For the year ended December 31, 2020, net income decreased by $16.8 million to a $9.9 million loss, from $7.0 million of income for the year ended December 31, 2019.
Adjusted EBITDA. For the year ended December 31, 2020, Adjusted EBITDA decreased by $19.7 million to $40.2 million from $59.9 million for the year ended December 31, 2019, primarily as a result of the factors discussed above.
For the Year Ended December 31,
(in thousands)
Consolidated net income (loss)
$
(9,853
)
$
6,984
Income tax expense (benefit)
(2,974
)
1,521
Interest expense
14,568
17,220
Depreciation and amortization
22,867
24,157
EBITDA
24,608
49,882
Equity-based compensation
2,796
5,740
Purchase accounting fair value adjustments
-
(6,029
)
Acquisition and integration related costs
1,401
2,862
Employee related reorganization costs
2,995
1,762
Other non-recurring costs
-
2,776
Integration and savings initiatives costs
2,974
-
Facility closures and divestitures
2,117
-
Legal settlements
-
Strategic alternatives costs
1,541
2,880
Other non-operating costs
-
Adjusted EBITDA
$
40,198
$
59,873
Adjusted EBITDA Margin. For the year ended December 31, 2020, Adjusted EBITDA margin decreased to 7.3%, from 9.8% for the year ended December 31, 2019, primarily as a result of the factors discussed above.
Year Ended December 31, 2019 Compared to Year Ended December 31, 2018
Net Revenue. For the year ended December 31, 2019, net revenue increased by $120.6 million, or 24.6%, to $610.4 million, from $489.8 million for the year ended December 31, 2018. Net revenue for the years ended December 31, 2019 and 2018 is adjusted for the elimination of intercompany sales of $3.0 million and $2.6 million, respectively.
In our RDS segment, net revenue increased by $100.2 million, or 37.3%, to $368.6 million for the year ended December 31, 2019, from $268.4 million for the year ended December 31, 2018. The increase was primarily due to the acquisitions of Summit, TAC, and Intown, which accounted for $104.1 million of the growth in RDS revenue. During the year, revenue from organic sales decreased $3.9 million as we continue to face softening in the Southern California housing market of the Western region, which is our largest market.
In our ASG segment, net revenue increased by $20.8 million, or 9.3%, to $244.8 million for the year ended December 31, 2019, from $224.0 million for the year ended December 31, 2018. The increase was due to the acquisitions of Bedrock, NSI, and Tuscany, which collectively accounted for $8.0 million of ASG growth, with the remainder of the growth of $12.8 million in our ASG segment attributable to increased revenue from organic volume, price and product mix and new locations started in 2018.
Cost of Revenue. For the year ended December 31, 2019, cost of revenue increased by $90.0 million, or 25.3%, to $446.3 million, from $356.3 million for the year ended December 31, 2018. Cost of revenue for the year ended December 31, 2019 and 2018 is adjusted for the elimination of intercompany sales of $3.1 million and $2.5 million, respectively.
In our RDS segment, cost of revenue increased by $75.3 million, or 38.8%, to $269.8 million for the year ended December 31, 2019, from $194.5 million for the year ended December 31, 2018. The acquisitions of Summit, TAC and Intown were primarily responsible for this increase, contributing $74.6 million. The remaining increase of $0.8 million is due to additional costs in the organic business.
In our ASG segment, cost of revenue increased by $15.2 million, or 9.2%, to $179.5 million for the year ended December 31, 2019, from $164.3 million for the year ended December 31, 2018. This was partially due to the acquisitions of Bedrock, NSI, and Tuscany, which contributed $5.8 million of the increase, with the remaining increase due to costs associated with organic growth.
Gross Profit and Margin. For the year ended December 31, 2019, gross profit increased by $30.6 million, or 22.9%, to $164.1 million, from $133.5 million for the year ended December 31, 2018. For the year ended December 31, 2019, gross margin decreased by 0.3 percentage points to 26.9%, from 27.2% for the year ended December 31, 2018.
In our RDS segment, gross margin decreased by 0.7 percentage points to 26.8% for the year ended December 31, 2019, from 27.5% for the year ended December 31, 2018. This decrease is due to an unfavorable product mix primarily due to entry- to mid-level homebuilding comprising a larger share of project activity in our markets.
In our ASG segment, gross margin remained consistent, increasing by only 0.1 percentage points to 26.7% for the year ended December 31, 2019, from 26.6% for the year ended December 31, 2018, due to the non-recurrence of non-cash inventory expenses that were recorded in the prior year, offset by higher supply chain related costs and lower margin sales in the full year 2019.
SG&A Expenses. For the year ended December 31, 2019, SG&A expenses increased by $23.5 million, or 19.3%, to $144.8 million, from $121.4 million for the year ended December 31, 2018.
In our RDS segment, SG&A expenses increased by $21.6 million to $81.2 million for the year ended December 31, 2019, from $59.6 million for the year ended December 31, 2018. This increase was primarily related to the acquisitions of Summit, TAC, and Intown.
In our ASG segment, SG&A expenses decreased by $2.3 million to $45.4 million for the year ended December 31, 2019, from $47.7 million for the year ended December 31, 2018. This decrease was due to one-time non-recurring expenses related to the Bedrock and Tuscany acquisitions, and expenses related to the opening of new locations incurred during the year ended December 31, 2018.
The remaining $4.2 million of the increase in SG&A expenses was related to an increase in the amount of equity-based compensation awarded in 2019 in the amount of $3.1 million, as well as other overhead costs at the corporate level that were in place for a full year in 2019 compared to only a partial year in 2018.
Depreciation and Amortization. For the year ended December 31, 2019, depreciation and amortization expenses increased by $3.7 million, or 17.9%, to $24.2 million, from $20.5 million for the year ended December 31, 2018.
In our RDS segment, depreciation and amortization expenses increased by $3.3 million, or 33.9%, to $12.9 million for the year ended December 31, 2019, from $9.6 million for the year ended December 31, 2018, which was primarily due to depreciation and amortization associated with the assets acquired in the Summit, TAC, and Intown acquisitions.
In our ASG segment, depreciation and amortization expenses increased by $0.3 million, or 3.0%, to $11.2 million for the year ended December 31, 2019 from $10.8 million for the year ended December 31, 2018, which is primarily due to amortization associated with the Tuscany acquisition.
Interest Expense. For the year ended December 31, 2019, interest expense increased by $5.8 million, or 50.7%, to $17.2 million, from $11.4 million for the year ended December 31, 2018. This increase is primarily due to the borrowings associated with funding the TAC and Intown acquisitions offset by lower interest rates.
Income Taxes. For the year ended December 31, 2019, we recognized income tax expense of $1.5 million, an increase of $0.5 million from income tax expense of $1.0 million for the year ended December 31, 2018. The increase in income taxes is due primarily to the increase in pre-tax income in 2019 compared to 2018.
Net (Loss) Income. For the year ended December 31, 2019, net income increased by $9.5 million to $7.0 million, from a net loss of $2.5 million for the year ended December 31, 2018.
Adjusted EBITDA. For the year ended December 31, 2019, Adjusted EBITDA increased by $5.5 million to $59.9 million from $54.4 million for the year ended December 31, 2018, primarily as a result of the factors discussed above.
For the Year Ended December 31,
(in thousands)
Consolidated net income (loss)
$
6,984
$
(2,475
)
Income tax expense
1,521
Interest expense
17,220
11,468
Depreciation and amortization
24,157
20,487
EBITDA
49,882
30,469
Equity-based compensation
5,740
2,626
Purchase accounting fair value adjustments
(6,029
)
2,109
Acquisition and integration related costs
2,862
5,018
Employee related reorganization costs
1,762
1,807
Other non-recurring costs
2,776
8,326
IPO and public readiness costs
-
4,066
Strategic alternatives costs
2,880
-
Adjusted EBITDA
$
59,873
$
54,421
Adjusted EBITDA Margin. For the year ended December 31, 2019, Adjusted EBITDA margin decreased to 9.8%, from 11.1% for the year ended December 31, 2018, primarily as a result of the factors discussed above.
Liquidity and Capital Resources
Working capital is the largest element of our capital needs, as inventory and receivables are our most significant investments. We also require funding for acquisitions, to cover ongoing operating expenses, and to meet required obligations related to financing, such as lease payments and principal and interest payments.
Our capital resources primarily consist of cash from operations and borrowings under our revolving credit facilities, capital equipment leases, and operating leases. As our revenue and profitability have improved, we have used increased borrowing capacity under our revolving credit facilities to fund working capital needs. We have utilized capital leases and secured equipment loans to finance our vehicles and equipment needed for both replacement and expansion purposes.
As of December 31, 2020, we had $3.0 million of cash and cash equivalents and $67.4 million of available borrowing capacity under our revolving credit facilities. Based on our positive historical cash flow, our ability to effectively manage working capital needs, and available borrowing capacity, we believe that we have sufficient funding available to finance our operations.
Financing Sources; Debt
SIC Credit Facility
In June 2018, the Company and certain of its subsidiaries entered into an amended and restated loan, security and guaranty agreement, dated as of June 28, 2018, which was amended on December 11, 2018, July 23, 2019 and August 19, 2019 (which we refer to as the “SIC Credit Facility”), with Bank of America, N.A. The SIC Credit Facility is used by the Company, including both RDS and ASG, for operational purposes. Pursuant to the SIC Credit Facility, the Company has a borrowing-base-governed revolving credit facility that provides for borrowings of up to
an aggregate of $100 million (after it was increased by $10 million through the amendment entered into on August 19, 2019).
All revolving loans under the SIC Credit Facility are due and payable in full on June 28, 2023, subject to acceleration upon certain conditions.
The Company is required to meet certain financial and nonfinancial covenants pursuant to the SIC Credit Facility. The Company was in compliance with all financial and nonfinancial covenants as of December 31, 2020.
As of December 31, 2020, $9.9 million of indebtedness was outstanding under the SIC Credit Facility. The Company also had $0.6 million of outstanding letters of credit under the SIC Credit Facility at December 31, 2020.
Term Loan Facility
On February 28, 2017, AG&M and Pental, as the borrowers, entered into a financing agreement, as amended, with third party lenders (which we refer to as the “Term Loan Facility”), which initially provided for a $105.0 million term loan facility. The Term Loan Facility was amended in June 2018 to define the borrowers as Select Interior Concepts, Inc. and its subsidiaries. The Term Loan Facility was subsequently amended in December 2018 to increase the borrowing capacity to $174.2 million and in July 2019 to amend certain covenants. On August 19, 2019, the Term Loan Facility was further amended, resulting in an adjusted rate of interest payable on borrowings under the Term Loan Facility.
All term loans under the Term Loan Facility are due and payable in full on February 28, 2023, subject to acceleration upon certain conditions.
The Company is required to meet certain financial and nonfinancial covenants pursuant to the Term Loan Facility. The Company was in compliance with all financial and nonfinancial covenants as of December 31, 2020.
As of December 31, 2020, approximately $152.8 million of indebtedness was outstanding under the Term Loan Facility.
Vehicle and Equipment Financing
We have used various secured loans and leases to finance our acquisition of vehicles and equipment. As of December 31, 2020, approximately $8.1 million of indebtedness was outstanding under vehicle and equipment loans and capital leases.
Historical Cash Flow Information
Working Capital
Inventory and accounts receivable represent approximately 73% of our tangible assets as of December 31, 2020, and accordingly, management of working capital is important to our businesses. Working capital (defined as current assets less current liabilities, excluding debt and cash) totaled $113.1 million at December 31, 2020, compared to $113.4 million at December 31, 2019. Working capital levels have remained consistent primarily due to the increase in accounts receivable and unbilled amounts, offset by a decrease in inventory and an increase in accounts payable.
In our RDS segment, for the year ended December 31, 2020, working capital increased by $11.2 million to $45.9 million, compared to $34.7 million for the year ended December 31, 2019. This increase is primarily due to the increase in accounts receivable and contract assets, offset by an increase in accounts payable.
In our ASG segment, for the year ended December 31, 2020, working capital decreased by $13.0 million to $66.7 million, compared to $79.7 million for the year ended December 31, 2019. This decrease was largely due to decreases in inventory and accounts receivable.
Cash Flows Provided by Operating Activities
Net cash provided by operating activities was $20.6 million and $31.0 million for the years ended December 31, 2020 and 2019, respectively. Net income (loss) was $(9.9) million and $7.0 million for the years ended December 31, 2020 and 2019, respectively.
Adjustments for noncash expenses included in the calculation of net cash provided by operating activities, including amortization and depreciation, changes in deferred income taxes and other noncash items, totaled $28.2 and $23.1 million for the years ended December 31, 2020 and 2019, respectively. Changes in operating assets and liabilities resulted in net cash provided of $2.2 million and $0.9 million for the years ended December 31, 2020 and 2019, respectively.
Cash Flows Used in Investing Activities
For the year ended December 31, 2020, cash flow used in investing activities was $3.3 million, due to capital expenditures for property and equipment, net of proceeds from disposals. For the year ended December 31, 2019, cash flow used in investing activities was $24.6 million, with $11.5 million resulting from our investments in acquisitions, $1.0 million for the indemnity payment related to the Bedrock acquisition, and $3.0 million for the escrow payment related to the Greencraft acquisition. Capital expenditures for property and equipment, net of proceeds from disposals, totaled $9.1 million.
Cash Flows Used in Financing Activities
Net cash used in financing activities was $19.4 million and $10.7 million for the years ended December 31, 2020 and 2019, respectively.
For the year ended December 31, 2020, we made principal payments of $1.1 million on term debt. During the year ended December 31, 2020, aggregate net payments on the SIC Credit Facility were $12.3 million and payments on notes payable and capital leases were $3.2 million. We also received $0.4 million in an ERP financing transaction and purchased $0.9 million of treasury stock.
For the year ended December 31, 2019, we borrowed an additional $11.5 million in term debt to fund the Intown acquisition and made principal payments of $1.9 million, for a net increase in term debt of $9.6 million. We also received $2.7 million in an ERP financing transaction. During the year ended December 31, 2019, aggregate net payments on the SIC Credit Facility were $14.9 million and payments on notes payable were $1.9 million. We also classified $5.8 million of the total $8.0 million Greencraft earn-out payment as a financing activity, as this was the fair value of the contingent liability accrued at purchase.
Contractual Obligations
In the table below, we set forth our enforceable and legally binding obligations as of December 31, 2020. Some of the amounts included in the table are based on management’s estimates and assumptions about these obligations, including their duration, the possibility of renewal, anticipated actions by third parties, and other factors. Because these estimates and assumptions are necessarily subjective, our actual payments may vary from those reflected in the table.
Payments due by period
(in thousands)
Total
Less than 1
year
1 to 3
years
3 - 5
years
More than 5
years
Long-Term Debt Obligations(1)
$
152,914
$
16,902
$
136,012
$
-
$
-
Capital Lease Obligations(2)
8,789
3,042
3,985
1,262
Operating Lease Obligations(3)
47,712
15,444
22,232
6,938
3,098
Purchase Obligations(4)
630,444
86,500
224,023
319,921
-
Total
$
839,859
$
121,888
$
386,252
$
328,121
$
3,598
(1)
Long-term debt obligations include principal payments on our term loans as well as our notes payable. Long-term debt obligations presented do not include interest due or fees on the unused portion of our revolving letters of credit or financing fees associated with the issuance of debt. The interest rate assessed at December 31, 2020 on the Term Loan Facility, which comprises all of the balance with the exception of $0.1 million, was 7.5%.
(2)
Capital lease obligations include minimum lease payments on capital leases for vehicles and equipment purchased.
(3)
We lease certain locations, including, but not limited to, corporate offices, warehouses, fabrication shops, and design centers. For additional information, see Note 11-Commitments and Contingencies to our consolidated financial statements included in this Annual Report.
(4)
These amounts take into account a contract with a supplier of engineered stone on an exclusive basis in certain states within the United States. As part of the terms of the exclusive right to distribute the products provided under the contract, we are obligated to take delivery of a certain minimum amount of product from this supplier. If we fall short of these minimum purchase requirements in any given calendar year, we have agreed to negotiate with the supplier to arrive at a mutually acceptable resolution. There are no financial penalties to us if such commitments are not met; however, in such a case, the supplier has reserved the right, under the contract, to withdraw the exclusive distribution rights granted to us. The amount of the payment is estimated by multiplying the minimum quantity required under the contract by the average price paid in 2020. See Note 11-Commitments and Contingencies to our condensed consolidated financial statements included in this Report for a further discussion of these minimum purchase requirements.
In addition to the contractual obligations set forth above, as of December 31, 2020, we had an aggregate of approximately $9.9 million of indebtedness outstanding under the SIC Credit Facility.
Off-Balance Sheet Arrangements
As of December 31, 2020, with the exception of operating leases that we typically use in the ordinary course of business, we were not party to any material off-balance sheet financial arrangements that are reasonably likely to have a current or future effect on our financial condition or operating results. We do not have any relationship with unconsolidated entities or financial partnerships for the purpose of facilitating off-balance sheet arrangements or for other contractually narrow or limited purposes.
Critical Accounting Policies and Estimates
Management’s discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of our consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. Certain accounting policies involve judgments and uncertainties to such an extent that there is a reasonable likelihood that materially different amounts could have been reported using different assumptions or under different conditions. We evaluate our estimates and assumptions on a regular basis. We base our estimates on historical experience and various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of our assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates and assumptions used in preparation of our consolidated financial statements.
Revenue Recognition
The Company’s revenue derived from the sale of imported granite, marble, and related items, primarily in our ASG operating segment, is recognized at a point in time when control over a product is transferred to a customer. This transfer occurs primarily when goods are picked up by a customer at the branch or when goods are delivered to a customer location.
The Company’s contracts with its home builder customers within our RDS operating segment are usually short-term in nature and will generally range in length from several days to several weeks. The Company’s contracts related to multi-family and commercial projects are generally long-term in nature. We recognize revenue from both short-term and long-term contracts for each distinct performance obligation identified over time on a percentage-of-completion basis of accounting, utilizing the output method as a measure of progress, as we believe this represents the best measure of when goods and services are transferred to the customer.
Revenue is measured at the transaction price, which is based on the amount of consideration the Company expects to receive in exchange for transferring the promised goods or services to the customer. The transaction price will include estimates of variable consideration, such as any returns and sales incentives. Applicable customer sales taxes, when remitted, are recorded as a liability and excluded from revenue on a net basis.
In the fourth quarter of 2019, the Company adopted ASU 2014-09, the new accounting standard under ASC Topic 606, using the modified retrospective method as of January 1, 2019.
Cost of Revenue
RDS’s cost of revenue is comprised of the costs of materials and labor to purchase and install products for our customers.
ASG’s cost of revenue primarily consists of purchased materials, sourcing fees for inventory procurement, and freight costs.
RDS and ASG also include payroll taxes and benefits, workers’ compensation insurance, vehicle-related expenses and overhead costs, including rent, depreciation, utilities, property taxes, repairs and maintenance costs in the cost of revenue.
Our cost of revenue is reduced by rebates provided by suppliers in the period the rebate is earned.
Accounts Receivable
Accounts receivable are recorded at net realizable value. We continually assess the collectability of outstanding customer invoices; and if deemed necessary, maintain an allowance for estimated losses resulting from the non-collection of customer receivables. In estimating this allowance, we consider factors such as: historical collection experience, a customer’s current creditworthiness, customer concentrations, personal guarantees, credit insurance, age of the receivable balance both individually and in the aggregate and general economic conditions that may affect a customer’s ability to pay. We have the ability to place liens against a significant amount of RDS customers in order to secure receivables. Actual customer collections could differ from our estimates. At December 31, 2020 and 2019, the allowance for doubtful accounts was $0.5 million and $0.8 million, respectively.
Inventories
Inventories consist of stone slabs, tile and sinks, and include the costs to acquire the inventories and transport the respective inventories to its location. Inventory also includes flooring, cabinets, doors and trim, glass, and countertops, which have not yet been installed, as well as labor and related costs for installations in process. Inventory is valued at the lower of cost (using the specific identification and first-in, first-out methods) or net realizable value.
Intangible Assets
Intangible assets consist of customer relationships, trade names and non-compete agreements. We consider all our intangible assets to have definite lives and such intangible assets are amortized on the straight-line method over the estimated useful lives of the respective assets or on an accelerated basis based on the expected cash flows generated by the existing customers as follows:
Range of estimated
useful lives
Weighted average
useful life
Customer relationships
2 years - 15 years
10 years
Trade names
3 years - 11 years
8 years
Non-compete agreements
Life of agreement
4 years
Business Combinations
We record business combinations using the acquisition method of accounting. Under the acquisition method of accounting, identifiable assets acquired and liabilities assumed are recorded at their acquisition date fair values. The excess of the purchase price over the estimated fair value is recorded as goodwill. Changes in the estimated fair values of net assets recorded for acquisitions prior to the finalization of more detailed analysis, but not to exceed one year from the date of acquisition, will adjust the amount of the purchase price allocable to goodwill. Measurement period adjustments are reflected in the period in which they occur.
Goodwill
Goodwill represents the excess of the cost of an acquired entity over the fair value of the acquired net assets. We account for goodwill in accordance with FASB ASC topic 350, Intangibles-Goodwill and Other Intangible Assets, which among other things, addresses financial accounting and reporting requirements for acquired goodwill and other intangible assets having indefinite useful lives. ASC topic 350 requires goodwill to be carried at cost, prohibits the amortization of goodwill and requires us to test goodwill for impairment at least annually. We test for impairment of goodwill annually during the fourth quarter or more frequently if events or changes in circumstances indicate that the goodwill may be impaired. Events or changes in circumstances which could trigger an impairment review include a significant adverse change in legal factors or in the business climate, an adverse action or assessment by a regulator, unanticipated competition, a loss of key personnel, significant changes in the manner of our use of the acquired assets or the strategy for our overall business, significant negative industry or economic trends, or significant underperformance relative to expected historical or projected future results of operations. We identified RDS and ASG as reporting units and determined each reporting unit’s fair value substantially exceeded such reporting unit’s carrying value. There were no impairment charges related to goodwill for the years ended December 31, 2020 and 2019.
Equity-based compensation
We account for equity-based awards by measuring the awards at the date of grant and recognizing the grant-date fair value as an expense using either straight-line or accelerated attribution, depending on the specific terms of the award agreements over the requisite service or performance period, which is usually equivalent to the vesting period.
Income Taxes
The provision for income taxes is accounted for under the asset and liability method prescribed by ASC 740 (Topic 740, Income Taxes). Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, operating losses and tax credit carryforwards. Deferred tax assets and liabilities are measured using the enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period the tax rate changes are enacted.
We recognize the tax benefit from an uncertain tax position only if it is more likely than not the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such positions are then measured based on the largest benefit that has a greater than 50% likelihood of being realized upon settlement.
On December 22, 2017, the Tax Cuts and Jobs Act (which we refer to as the “Tax Act”) was adopted into law. The Tax Act makes broad and complex changes to the Internal Revenue Code of 1986, including, but not limited to, (i) reducing the U.S. federal corporate tax rate from 35% to 21%; (ii) eliminating the corporate alternative minimum tax (“AMT”) and changing how existing AMT credits are realized; (iii) creating a new limitation on deductible interest expense; and (iv) changing rules related to uses and limitation of net operating loss carryforwards created in tax years beginning after December 31, 2017.
Our policy is to recognize interest and/or penalties related to all tax positions as income tax expense. To the extent that accrued interest and penalties do not ultimately become payable, amounts accrued will be reduced and reflected as a reduction of the overall income tax provision in the period that such determination is made. We have recognized less than ($0.1) million in combined interest and penalties related to uncertain tax positions for the year ended December 31, 2020. We recognized $0.4 million in combined interest and penalties related to uncertain tax positions for the year ended December 31, 2019.
Recent Accounting Pronouncements
See Note 1 - Organization and Business Description to our audited consolidated financial statements included in this Annual Report for a description of recent accounting pronouncements issued.

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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
Interest Rate Risk
We borrow from lenders using financial instruments such as revolving lines of credit, term loans, and notes payable. In many cases, the interest costs we incur under these agreements is calculated using a variable rate that will fluctuate with changes in a published short-term market interest rate index, such as LIBOR. Accordingly, there is no guarantee as to what our interest payments and expense will be in the future. In an economic environment where short term rates (under one year) may increase or continue to increase at any time, there can be no assurance that interest rates will not be higher in the future and have an adverse effect on our financial soundness. At December 31, 2020, we had outstanding variable rate borrowings of approximately $162.6 million. Assuming the current level of borrowing under the variable rate debt facilities, a hypothetical one-percentage point increase (decrease) in interest rates on our variable rate debt would increase (decrease) our annual interest expense by approximately $1.6 million.
For variable rate debt, interest rate changes generally do not affect the fair value of the debt instrument, but do impact future earnings and cash flows, assuming other factors are held constant. We did not utilize swaps, forward or option contracts on interest rates or commodities, or other types of derivative financial instruments during the years ended December 31, 2020, 2019, and 2018. We have not entered into and currently do not hold derivatives for trading or speculative purposes.
The United Kingdom’s Financial Conduct Authority has announced the intent to phase out the use of LIBOR by the end of 2021. If LIBOR is discontinued, we may need to renegotiate the terms of certain of credit instruments which utilize LIBOR as a benchmark in determining the interest rate, to replace LIBOR with the new standard that is established. As a result, we may incur incremental costs in transitioning to a new standard, and interest rates on our current or future indebtedness may be adversely affected by the new standard. There is currently no definitive information regarding the future utilization of LIBOR or any particular replacement rate. As such, the potential effect of any such event on our cost of capital cannot yet be determined, but we do not expect it to have a material impact on our consolidated financial condition, results of operations, or cash flows.
Foreign Currency Exchange Rate Risk
We purchase materials from both domestic and foreign suppliers. While predominantly all of the suppliers receive payments in U.S. dollars and, as such, we are not currently exposed to foreign currency exchange rate risk,
there can be no assurance that the payments to suppliers in the future will not be affected by exchange fluctuations between the U.S. dollar and the local currencies of these foreign suppliers.

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Item 8. Financial Statements and Supplementary Data.
The information required by this Item is incorporated herein by reference to the financial statements set forth in Item 15 (Exhibits, Financial Statement Schedules) of Part IV of this Annual Report.

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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
None.

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ITEM 9A. CONTROLS AND PROCEDURES
Item 9A. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
Our management, including our Chief Executive Officer and Chief Financial Officer (which we refer to as, together, the “Certifying Officers”), evaluated the effectiveness of our disclosure controls and procedures, as defined by Rules 13a-15(e) and 15d-15(e) under the Exchange Act, as of December 31, 2020. Based on the evaluation of our disclosure controls and procedures, our Certifying Officers concluded that our disclosure controls and procedures were effective as of December 31, 2020
Changes in Internal Control over Financial Reporting
There was no change in our internal control over financial reporting identified in connection with the evaluation required by Rule 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Management’s Report on Internal Controls Over Financial Reporting
We are responsible for establishing and maintaining internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act). Because of its inherent limitations, internal control over financial reporting is not intended to provide absolute assurance that a misstatement of our financial statements would be prevented or detected. Our management, including our Certifying Officers, conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on their assessment, our Certifying Officers concluded that our internal control over financial reporting was effective as of December 31, 2020 to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external reporting purposes in accordance with U.S. generally accepted accounting principles.
This Annual Report on Form 10-K does not include an attestation report of our registered public accounting firm due to an exemption established by rules of the SEC for emerging growth companies as defined in the JOBS Act.

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ITEM 9B. OTHER INFORMATION
Item 9B. Other Information
On March 10, 2021, AG&M and Pental entered into that certain Tenth Amendment to Financing Agreement (the “Tenth Amendment”) with the financial institutions party thereto, as lenders, and Cerberus Business Finance, LLC, as agent for the lenders, which further amends the Term Loan Facility. The Tenth Amendment, among other things, increases the Leverage Ratio (as defined in the Term Loan Facility) required to be satisfied for each fiscal quarter ending on or after March 31, 2021 from 3.75:1.00 to 4.00:1.00.
PART III

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ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Item 10. Directors, Executive Officers of the Registrant and Corporate Governance
The information required by this Item will be set forth in our definitive proxy statement (which we refer to as our “2021 Proxy Statement”) to be filed in connection with our 2021 Annual Meeting of Stockholders (which Proxy Statement will be filed with the SEC within 120 days of December 31, 2020). The information required by this Item to be contained in our 2021 Proxy Statement under the headings “Election of Directors,” “Executive Compensation” and “Section 16(a) Beneficial Ownership Reporting Compliance” is incorporated herein by reference.
Our Code of Business Conduct and Ethics is available in the “Investors-Corporate Governance-Governance Highlights-Governance Documents” section of our website located at www.selectinteriorconcepts.com. To the extent required by applicable rules of the SEC and the Nasdaq Stock Market, we intend to disclose on our website any amendments to, or waivers from, any provision of our Code of Business Conduct and Ethics that apply to our Company's directors and executive officers, including our principal executive officer, principal financial officer or controller, or persons performing similar functions.

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ITEM 11. EXECUTIVE COMPENSATION
Item 11. Executive Compensation
The information required by this Item will be set forth in our 2021 Proxy Statement under the heading “Executive Compensation,” which information is incorporated herein by reference.

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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information required by this Item will be set forth in our 2021 Proxy Statement under the heading “Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters” and “Equity Compensation Plan Information,” which is incorporated herein by reference.

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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Item 13. Certain Relationships and Related Transactions, and Director Independence
The information required by this Item will be set forth in our 2021 Proxy Statement under the heading “Related Transactions and Director Independence” which information is incorporated herein by reference.

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ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
Item 14. Principal Accountant Fees and Services
The information required by this Item will be set forth in our 2021 Proxy Statement under the heading “Fees Paid to Our Independent Registered Accounting Firm,” which information is incorporated herein by reference.
PART IV

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ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
Item 15. Exhibits, Financial Statement Schedules.
(a) The following documents are filed as part of this Annual Report on Form 10-K: Exhibits.
1. Financial Statements. The following financial statements of the Company are included in a separate section of this Annual Report on Form 10-K commencing on the page numbers specified below:
Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Changes in Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
2. Financial Statements Schedules. See “Schedule I - SIC’s Condensed Parent Company Only Financial Statements” beginning on page.
3. Exhibits. The following exhibits are either filed herewith or incorporated herein by reference:
Exhibit
Number
Description
3.1
Amended and Restated Certificate of Incorporation of the Company (incorporated by reference to Exhibit 3.1 to the initial filing of the Company’s Registration Statement on Form S-1 (File No. 333-226101), filed with the SEC on July 9, 2018).
3.2
Amended and Restated Bylaws of the Company (incorporated by reference to Exhibit 3.2 to Amendment No. 1 to the Company’s Registration Statement on Form S-1 (File No. 333-226101), filed with the SEC on July 25, 2018).
4.1*
Description of Securities
10.1 †
2017 Incentive Compensation Plan (incorporated by reference to Exhibit 10.1 to the initial filing of the Company’s Registration Statement on Form S-1 (File No. 333-226101), filed with the SEC on July 9, 2018).
10.2 †
2019 Incentive Compensation Plan (incorporated by reference to Appendix A of the Company’s Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934 filed with the SEC on April 5, 2019).
10.3 †
Employment Agreement, dated as of July 27, 2020, by and between the Company and Patrick Dussinger (incorporated by reference to Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended on September 30, 2020, filed with the SEC on November 5, 2020).
10.4 †
Employment Agreement, dated as of August 17, 2018, by and between the Company and Nadeem Moiz (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed with the SEC on August 17, 2018).
10.5 †
Employment Agreement, dated as of June 8, 2020, by and between the Company and L.W. Varner, Jr. (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended on June 30, 2020, filed with the SEC on August 6, 2020).
10.6 †
Employment Agreement, dated as of October 22, 2018, by and between the Company and Shawn Baldwin (incorporated by reference to Exhibit 10.8 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2020, filed with the SEC on March 12, 2020).
10.7 †
Form of Indemnification Agreement between the Company and each of its directors and executive officers (incorporated by reference to Exhibit 10.7 to the initial filing of the Company’s Registration Statement on Form S-1 (File No. 333-226101), filed with the SEC on July 9, 2018).
10.8 †
Amendment to Employment Agreement, dated as of July 12, 2019, by and between the Company and Shawn Baldwin (incorporated by reference to Exhibit 10.7 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2019, filed with the SEC on August 8, 2019).
10.9 †
Amendment to Employment Agreement, dated as of July 12, 2019, by and between the Company and Nadeem Moiz (incorporated by reference to Exhibit 10.6 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2019, filed with the SEC on August 8, 2019).
10.10 †
Form of Time-Based Restricted Stock Unit Agreement for use with the 2017 Incentive Compensation Plan (incorporated by reference to Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended on September 30, 2020, filed with the SEC on November 5, 2020).
10.11 †
Form of Performance-Based Restricted Stock Unit Agreement for use with the 2017 Incentive Compensation Plan (incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended on September 30, 2020, filed with the SEC on November 5, 2020).
10.12 †
Board Designee Agreement dated November 21, 2019 by and between Select Interior Concepts, Inc. and B. Riley Financial, Inc. (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed with the SEC on November 22, 2019).
10.13 †*
Second Amendment to Employment Agreement, dated as of June 30, 2020, by and between the Company and Nadeem Moiz.
10.14 †*
Second Amendment to Employment Agreement, dated as of June 30, 2020, by and between the Company and Shawn Baldwin.
10.15 †*
Separation Agreement, dated as of June 8, 2020, by and between the Company and Tyrone Johnson.
10.16 †*
Separation Agreement, dated as of June 8, 2020, by and between the Company and Kendall Hoyd.
10.17
Amended and Restated Loan, Security and Guaranty Agreement, dated as of June 28, 2018, by and among the Company and the Company’s subsidiaries party thereto, as borrowers and obligors, as applicable, and Bank of America, N.A., as lender (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2018, filed with the SEC on September 6, 2018).
10.18
Financing Agreement, dated as of February 28, 2017, among Architectural Granite & Marble, LLC and Pental Granite and Marble, LLC, as borrowers, the financial institutions party thereto as lenders, and Cerberus Business Finance, LLC, as agent for the lenders (incorporated by reference to Exhibit 10.14 to the initial filing of the Company’s Registration Statement on Form S-1 (File No. 333-226101), filed with the SEC on July 9, 2018).
10.19
First Amendment to Financing Agreement, dated as of November 22, 2017, among Architectural Granite & Marble, LLC and Pental Granite and Marble, LLC, as borrowers, the financial institutions party thereto as lenders, and Cerberus Business Finance, LLC, as agent for the lenders (incorporated by reference to Exhibit 10.15 to the initial filing of the Company’s Registration Statement on Form S-1 (File No. 333-226101), filed with the SEC on July 9, 2018).
10.20
Second Amendment to Financing Agreement, dated as of December 29, 2017, by and among Architectural Granite & Marble, LLC and Pental Granite and Marble, LLC, as borrowers, the financial institutions party thereto, as lenders, and Cerberus Business Finance, LLC, as agent for the lenders (incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2018, filed with the SEC on September 6, 2018).
10.21
Third Amendment to Financing Agreement, dated as of June 28, 2018, by and among Architectural Granite & Marble, LLC and Pental Granite and Marble, LLC, as borrowers, the financial institutions party thereto, as lenders, and Cerberus Business Finance, LLC, as agent for the lenders (incorporated by reference to Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2018, filed with the SEC on September 6, 2018).
10.22
Fourth Amendment to Financing Agreement, dated as of August 31, 2018, by and among Architectural Granite & Marble, LLC and Pental Granite and Marble, LLC, as borrowers, the financial institutions party thereto, as lenders, and Cerberus Business Finance, LLC, as agent for the lenders (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K, filed with the SEC on September 7, 2018).
10.23
Fifth Amendment to Financing Agreement, dated as of December 31, 2018, by and among Architectural Granite & Marble, LLC and Pental Granite and Marble, LLC, as borrowers, the financial institutions party thereto, as lenders, and Cerberus Business Finance, LLC, as agent for the lenders (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K, filed with the SEC on January 4, 2019).
10.24
Sixth Amendment to Financing Agreement, dated as of July 15, 2019, by and among Architectural Granite & Marble, LLC and Pental Granite and Marble, LLC, as borrowers, the financial institutions party thereto, as lenders, and Cerberus Business Finance, LLC, as agent for the lenders (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2019, filed with the SEC on August 8, 2019).
10.25
Second Amendment to Amended and Restated Loan, Security, and Guaranty Agreement, dated as of July 23, 2019, by Select Interior Concepts, Inc., and subsidiaries, as borrowers, and Bank of America, N.A. as lenders (incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2019, filed with the SEC on August 8, 2019).
10.26
Seventh Amendment to Financing Agreement, dated as of August 19, 2019, by and among Architectural Granite & Marble, LLC and Pental Granite and Marble, LLC, as borrowers, the financial institutions party thereto, as lenders, and Cerberus Business Finance, LLC, as agent for the lenders (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed with the SEC on August 21, 2019).
10.27
Third Amendment to Amended and Restated Loan, Security and Guaranty Agreement, dated as of August 19, 2019, by and among Select Interior Concepts, Inc. and each of its subsidiaries, as obligors, and Bank of America, N.A., as lender (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K, filed with the SEC on August 21, 2019).
10.28
Eighth Amendment to Financing Agreement, dated as of February 7, 2020, by and among Architectural Granite & Marble, LLC and Pental Granite and Marble, LLC, as borrowers, the financial institutions party thereto, as lenders, and Cerberus Business Finance, LLC, as agent for the lenders (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed with the SEC on March 19, 2020).
10.29
Ninth Amendment to Financing Agreement, dated as of April 8, 2020, by and among Architectural Granite & Marble, LLC and Pental Granite and Marble, LLC, as borrowers, the financial institutions party thereto, as lenders, and Cerberus Business Finance, LLC, as agent for the lenders (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed with the SEC on April 13, 2020).
10.30*
Tenth Amendment to Financing Agreement, dated as of March 10, 2021, by and among Architectural Granite & Marble, LLC and Pental Granite and Marble, LLC, as borrowers, the financial institutions party thereto, as lenders, and Cerberus Business Finance, LLC, as agent for the lenders.
21.1*
Subsidiaries of Select Interior Concepts, Inc.
23.1*
Consent of Independent Registered Public Accounting Firm
31.1*
Certification of Principal Executive Officer pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*
Certification of Principal Financial Officer pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1*
Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2*
Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS
Inline XBRL Instance Document.
101.SCH
Inline XBRL Taxonomy Extension Schema Document.
101.CAL
Inline XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF
Inline XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB
Inline XBRL Taxonomy Extension Label Linkbase Document.
101.PRE
Inline XBRL Taxonomy Extension Presentation Linkbase Document.
Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)
*
Filed herewith.
†
Management contract or compensatory plan or arrangement.