Scotts Liquid Gold-Inc. Reports 2020 Results | Financial Buzz

Scotts Liquid Gold-Inc. Reports 2020 Results

Scott’s Liquid Gold-Inc. (OTC: SLGD) today announced operating results for the year ended December 31, 2020.

President and Chief Executive Officer Mark Goldstein stated, “In 2020, we took significant steps to transform and grow our business for the long term. I am proud of the job the team did on its execution of these important strategic initiatives, as well as how the team responded to pandemic driven challenges.

“In addition to outsourcing our production and moving to an asset-light model, in 2020 we fully integrated our newly acquired Kids-N-Pets Brands and also added Biz and Dryel to our family of high-quality, high-value brands. We battled severe raw material and container delays throughout the second half of the year. Our improved gross margins helped offset lower sales, which resulted from these supply chain issues, as well as from lower store traffic and work from home trends.

“Our 2020 results and profitability were negatively impacted by planned charges related to our supply chain transition and acquisition expenses. We also incurred impairment expenses in the fourth quarter as lower second half sales and supply chain shortages prevented us from utilizing raw materials before their expiration.

“We continue to experience supply chain delays for raw materials and containers, as well as overall production slippage from the recent severe winter weather. Despite those headwinds, we are optimistic about improved results for 2021, as well as our longer-term strategy. We see strong opportunities for growth in our Alpha, Kids N Pets, and Liquid Gold brands, as well as further cost efficiencies once supply chains stabilize. Execution on this strategy will drive stronger cash flow generation and shareholder value.”

Chief Financial Officer and Director Kevin A. Paprzycki added, “Given the supply chain and production challenges we continue to face in 2021, we proactively worked with our financial partner UMB to negotiate additional flexibility with our loan covenants for the year. We are greatly appreciative of UMB’s support as we work through these pandemic and weather-related supply issues.”

In February, our shareholder rights plan expired and the board determined not to renew it.

Net Sales

Net sales increased during 2020 due to our Kids N Pets, Biz and Dryel acquisitions, but a decent portion of the benefit from those transactions was offset by COVID-related impacts. Decreased foot traffic in stores selling our hair and skin care products, work-from-home trends impacting dry shampoo and drying cleaning usage, and supply chain shortages and delays leading to missed distribution opportunities, hindered our full net sales growth potential.

Net Loss

Our net loss of $1.5 million was primarily driven by significant impairments of our raw materials, increased intangible asset amortization associated with recent acquisitions, one-time expenses incurred in conjunction with our acquisitions and outsourcing transition, and COVID-related supply chain issues. These were partially offset by the acquisition of new high-quality, high-value brands that have proved to be strong additions to our portfolio.

Cash Flow

We had improvement in our operating cash flow primarily driven by the reduction of finished goods inventory we had built up for our supply chain transition. Our Kids N Pets, Biz, and Dryel acquisitions, as well as decreased production costs associated with outsourcing, also contributed to our increased cash flow.

On March 26, 2021, we amended our Loan Agreement with UMB with the First Amendment to Loan and Security Agreement (“First Amendment”) to provide additional covenant flexibility as a result of pandemic related supply chain issues. The First Amendment is effective as of December 31, 2020. The Company’s fixed charge coverage ratio, applicable for the months ending August 31, 2021 through December 31, 2021, on a trailing 12-month basis, and net equity covenant targets were modified and the interest rate for both our revolving credit facility and term loan will increase by 2.0%. The interest rate increase will remain until we have a consecutive three-month period of no defaults or events of default and our fixed charge coverage ratio is greater than or equal to 1.20 to 1.00. Finally, the First Amendment provided minimum cumulative cash flow after debt service amounts for each monthly year-to-date period from January 1, 2021 through July 31, 2021.

About Scott’s Liquid Gold-Inc.

Scott’s Liquid Gold-Inc. develops, markets, and sells high-quality, high-value household and personal care products nationally and internationally to mass merchandisers, drugstores, supermarkets, hardware stores, e-commerce retailers, other retail outlets, and to wholesale distributors. Over the last 65+ years we have developed a reputation for delivering products that consumers know and trust.

Our flagship product, Scott’s Liquid Gold® Wood Care, is a leader in its category and is known for bringing life back to and protecting all types of natural wood surfaces. Our Kids N Pets® brands are award winning, safe, stain and odor removing products targeted toward households with children and pets. Our newly acquired Biz and Dryel are top performing laundry care products, with Biz being a top stain removing laundry additive, and Dryel being the market leader in at-home dry cleaning.

Scott’s Liquid Gold-Inc. also owns Neoteric Cosmetics, a personal care company with a rich history of offering products that deliver high-quality, proven results that customers expect. Neoteric’s personal care products are embraced and respected by both medical professionals and consumers alike and include brands such as Alpha® Skin Care, Prell®, and Denorex®. Neoteric Cosmetics is also the proud American specialty channel distributor for Batiste Dry Shampoo.

SCOTT’S LIQUID GOLD-INC. & SUBSIDIARIES

Consolidated Statements of Operations

(in thousands, except per share data)

 

 

Year Ended

 

December 31,

 

2020

 

2019

Net sales

$

30,272

 

 

$

28,450

 

Cost of sales

 

17,090

 

 

 

17,537

 

Impairment of inventories

 

876

 

 

 

107

 

Total cost of sales

 

17,966

 

 

 

17,644

 

Gross Profit

 

12,306

 

 

 

10,806

 

Gross Margin

 

40.7

%

 

 

38.0

%

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

Advertising

 

702

 

 

 

792

 

Selling

 

7,831

 

 

 

5,903

 

General and administrative

 

4,724

 

 

 

4,486

 

Intangible asset amortization

 

1,195

 

 

 

634

 

Impairment of property and equipment

 

107

 

 

 

342

 

Total operating expenses

 

14,559

 

 

 

12,157

 

Loss from operations

 

(2,253

)

 

 

(1,351

)

 

 

 

 

 

 

 

 

Interest income

 

3

 

 

 

93

 

Interest expense

 

(345

)

 

 

(22

)

Gain on sale of equipment

 

 

 

 

110

 

Other income

 

350

 

 

 

 

Loss before income taxes

 

(2,245

)

 

 

(1,170

)

Income tax benefit

 

694

 

 

 

513

 

Net loss

$

(1,551

)

 

$

(657

)

 

 

 

 

 

 

 

 

Net loss per common share

 

 

 

 

 

 

 

Basic

$

(0.12

)

 

$

(0.05

)

Diluted

$

(0.12

)

 

$

(0.05

)

Weighted average shares outstanding

 

 

 

 

 

 

 

Basic

 

12,635

 

 

 

12,442

 

Diluted

12,635

 

 

12,442

 

SCOTT’S LIQUID GOLD-INC. & SUBSIDIARIES

Consolidated Balance Sheets

(in thousands, except par value amounts)

 

 

December 31,

 

 

December 31,

 

2020

 

 

2019

 

 

 

 

 

 

 

 

Assets

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

Cash and cash equivalents

$

5

 

 

$

1,094

 

Accounts receivable, net

 

4,512

 

 

 

2,695

 

Inventories

 

3,988

 

 

 

7,841

 

Income taxes receivable

 

535

 

 

 

705

 

Property and equipment held for sale

 

 

 

 

500

 

Prepaid expenses

 

596

 

 

 

368

 

Other current assets

 

112

 

 

 

71

 

Total current assets

 

9,748

 

 

 

13,274

 

 

 

 

 

 

 

 

 

Property and equipment, net

 

18

 

 

 

124

 

Deferred tax asset

 

784

 

 

 

556

 

Goodwill

 

5,280

 

 

 

3,230

 

Intangible assets, net

 

14,703

 

 

 

8,719

 

Operating lease right-of-use assets

 

2,985

 

 

 

188

 

Other assets

 

38

 

 

 

 

Total assets

$

33,556

 

 

$

26,091

 

 

 

 

 

 

 

 

 

Liabilities and Shareholders’ Equity

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

Accounts payable

$

1,799

 

 

$

1,809

 

Accrued expenses

 

296

 

 

 

422

 

Current portion of long-term debt

 

1,000

 

 

 

 

Operating lease liabilities, net of current portion

 

249

 

 

 

197

 

Other current liabilities

 

67

 

 

 

 

Total current liabilities

 

3,411

 

 

 

2,428

 

 

 

 

 

 

 

 

 

Long-term debt, net of current portion and debt issuance costs

 

4,521

 

 

 

 

Operating lease liabilities, net of current

 

3,032

 

 

 

19

 

Other liabilities

 

127

 

 

 

27

 

Total liabilities

 

11,091

 

 

 

2,474

 

 

 

 

 

 

 

 

 

Shareholders’ equity:

 

 

 

 

 

 

 

Preferred stock, no par value, authorized 20,000 shares; no shares issued and outstanding

 

 

 

 

 

Common stock; $0.10 par value, authorized 50,000 shares; issued and outstanding 12,618 shares (2020) and 12,462 shares (2019)

 

1,262

 

 

 

1,246

 

Capital in excess of par

 

7,633

 

 

 

7,250

 

Retained earnings

 

13,570

 

 

 

15,121

 

Total shareholders’ equity

 

22,465

 

 

 

23,617

 

Total liabilities and shareholders’ equity

$

33,556

$

26,091

 

SCOTT’S LIQUID GOLD-INC. & SUBSIDIARIES

Consolidated Statements of Cash Flows

(in thousands)

 

 

Year Ended

 

December 31,

 

2020

 

2019

Cash flows from operating activities:

 

 

 

 

 

 

 

Net loss

$

(1,551

)

 

$

(657

)

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

 

 

 

 

 

 

 

Depreciation and amortization

 

1,430

 

 

 

796

 

Stock-based compensation

 

332

 

 

 

149

 

Deferred income taxes

 

(229

)

 

 

(322

)

Gain on sale of equipment

 

 

 

 

(110

)

Impairment of equipment

 

107

 

 

 

342

 

Impairment of inventories

 

876

 

 

 

107

 

Change in operating assets and liabilities, net of the effects of acquisitions:

 

 

 

 

 

 

 

Accounts receivable

 

(1,817

)

 

 

352

 

Inventories

 

4,256

 

 

 

175

 

Prepaid expenses and other assets

 

(323

)

 

 

178

 

Income taxes receivable

 

170

 

 

 

(197

)

Accounts payable, accrued expenses, and other liabilities

 

331

 

 

 

(134

)

Total adjustments to net loss

 

5,133

 

 

 

1,336

 

Net cash provided by operating activities

 

3,582

 

 

 

679

 

 

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

 

Acquisitions

 

(10,529

)

 

 

(5,583

)

Proceeds from sale of property and equipment

 

500

 

 

 

110

 

Purchase of internal-use software

 

 

 

 

(286

)

Purchase of property and equipment

 

(17

)

 

 

(101

)

Cash paid for leasehold improvements

 

(484

)

 

 

 

Reimbursement for leasehold improvements

 

433

 

 

 

 

Net cash used in investing activities

 

(10,097

)

 

 

(5,860

)

 

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

 

Proceeds from revolving credit facility

 

16,995

 

 

 

4,000

 

Repayments of revolving credit facility

 

(13,573

)

 

 

(4,000

)

Proceeds from term loan

 

3,000

 

 

 

 

Repayments of term loan

 

(417

)

 

 

 

Proceeds from PPP loan

 

600

 

 

 

 

Repayment of PPP loan

 

(600

)

 

 

 

Payments for debt issuance costs

 

(646

)

 

 

 

Proceeds from exercise of stock options

 

67

 

 

 

43

 

Net cash provided by financing activities

 

5,426

 

 

 

43

 

 

 

 

 

 

 

 

 

Net decrease in cash and cash equivalents

 

(1,089

)

 

 

(5,138

)

 

 

 

 

 

 

 

 

Cash and cash equivalents, beginning of period

 

1,094

 

 

 

6,232

 

Cash and cash equivalents, end of period

$

5

 

 

$

1,094

 

 

 

 

 

 

 

 

 

Supplemental disclosures:

 

 

 

 

 

 

 

Cash paid during the period for interest

$

183

 

 

$

22

 

Note Regarding Forward-Looking Statements

This news release may contain “forward-looking statements” within the meaning of the federal securities laws that are intended to qualify for the Safe Harbor from liability established by the Private Securities Litigation Reform Act of 1995. “Forward-looking statements” generally can be identified by the use of forward-looking terminology such as “assumptions,” “target,” “guidance,” “strategy,” “outlook,” “plans,” “projection,” “may,” “will,” “would,” “expect,” “intend,” “estimate,” “anticipate,” “believe,” “potential,” or “continue” (or the negative or other derivatives of each of these terms) or similar terminology.

Forward-looking statements convey our expectations, intentions, or forecasts about future events, circumstances, or results. All forward-looking statements, by their nature, are subject to assumptions, risks, and uncertainties, which may change over time and many of which are beyond our control. You should not rely on any forward-looking statement as a prediction or guarantee about the future. Actual future objectives, strategies, plans, prospects, performance, conditions, or results may differ materially from those set forth in any forward-looking statement. Some of the factors that may cause actual results or other future events or circumstances to differ from those in forward-looking statements are described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020 and the Company’s subsequent Quarterly Reports on Form 10-Q and other periodic reports filed with the Securities and Exchange Commission. Any forward-looking statement made by us or on our behalf speaks only as of the date that it was made. We do not undertake to update any forward-looking statement to reflect the impact of events, circumstances, or results that arise after the date that the statement was made, except as required by applicable securities laws. You, however, should consult further disclosures (including disclosures of a forward-looking nature) that we may make in any subsequent filings with the Securities and Exchange Commission.

Contacts

Investor Relations Contact:

Kevin Paprzycki, CFO

303.576.6032