Good day. Thank you for standing by. Welcome to the fourth quarter 2022 Tile Shop Holdings Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you'll need to press star one one on your telephone. You'll then hear an automated message advising your hand is raised. To withdraw your question, please press star one one again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Mark Davis, Vice President of Investor Relations and Chief Accounting Officer. Please go ahead. Thank you, operator. Good morning to everyone, and welcome to The Tile Shop's fourth quarter and full year earnings call. Joining me today are Cabell Lolmaugh, our Chief Executive Officer, and Karla Lunan, our Chief Financial Officer. Certain statements made during the call today constitute forward-looking statements made pursuant to and within the meaning of the Safe Harbor Provisions of the Private Securities Litigation Reform Act from 1995 as amended. Such forward-looking statements are subject to both known and unknown risks and uncertainties that could cause actual results to differ materially from such statements. Those risks and uncertainties are described in our earnings press release issued earlier and in our filings with the SEC. The forward-looking statements made today are as of the date of this call, and we do not undertake any obligation to update these forward-looking statements. Today's call will also include certain non-GAAP measurements. Please see our earnings release for a reconciliation of those non-GAAP financial measures, which has also been posted to our company website. With that, let me now turn the call over to Cab. Thanks, Mark. Good morning, everyone, thank you for joining us today. Starting with the positive, in 2022, our company achieved our highest level of annual revenue in our 37-year history, we're able to accomplish this milestone without opening any new stores during the year. This milestone was made possible by the steps we've taken to improve inventory levels and execution across our store base in 2022. We've made significant progress, however, in the fourth quarter, we've battled macro headwinds that contributed to lower levels of traffic in our stores and a modest decrease in comparable store sales. While the top-line results for the quarter fell short of our goals, there are a number of positive developments I'm seeing in the business. First, we're able to successfully launch our expanded line of LVT products during the fourth quarter. We've seen a nice response from our associates and our customers following the launch. As you know, we have been observing LVT for the past few years as our higher-end customers gradually accepted LVT as a viable option for their flooring needs. We believe this is due to advancements made in LVT product quality since it was first introduced. Our test of LVT earlier in the year went well. Since the full launch in October, we have continued to see customers choosing to purchase tile with LVT in the same order. We believe that we have an opportunity to grow ticket averages by cross-selling LVT to customers who are already in our stores to purchase tile. Additionally, we believe the addition of LVT gives us the opportunity to reach new customers who chose to shop elsewhere when LVT products were not available in our stores. As a reminder, LVT and other resilient flooring were projected to be approximately 30% of all industry-wide hard surface flooring sales in the U.S. in 2022. While we're just getting going, I'm pleased with the initial results and believe our LVT lines will be a key catalyst for growth in 2023. Moving to new store growth. We're on track to open two new stores in 2023. We expect one to open this summer and one in the second half of the year. Our operational teams are actively working to refine our new store opening procedures to ensure our 2023 store openings are positioned to deliver strong results. The third area I'd like to address is our supply chain. Over the last 18 months, we've seen increases in prices from our suppliers in response to rising energy, labor, and other inflationary cost pressures. These pressures were compounded by elevated international freight rates. In response to these cost pressures, we took steps to implement selective pricing adjustments across our assortment, particularly during the first half of 2022. In addition, during the second half of the year, we've tried to stay ahead of this by building stock levels in our more popular SKUs ahead of announced price increases from our suppliers. Given the macro headwinds, we took a more conservative approach to raising prices during the second half of 2022. This conservative approach, combined with increasing inventory costs, contributed to the 200 basis point sequential decline in gross margin rates between the third and fourth quarters. On a positive note, international freight rates have started to come down, which should help us as we move through 2023. Additionally, we've made great progress working with our network of suppliers to identify alternative sources for a number of our products at a lower cost. In January, I had the opportunity to travel with our purchasing team to visit suppliers across Asia who are partnering with us on our resourcing effort. I was impressed by the quality of the products we inspected on our trip and encouraged to see firsthand examples of SKUs we'll be adding to our assortment at a much lower cost when compared to the price of similar items purchased in late 2022. It will take some time for the newly resourced products to make their way into the assortment. I believe the success we're having in this area will position the company to maintain a strong overall margin profile. I'd also like to take a moment and touch on our retail excellence initiative. Over the last two years, we have focused on eliminating distractions and improving core execution in our stores. We delayed initiatives such as growing stores so we could focus our efforts on developing our teams. Our focus areas including training on design, leadership, inventory best practices, and customer engagement. These efforts have translated into improvement in sales to our pros, higher conversion rates, lower discretionary discounting, and a decrease in inventory losses. While we've made great progress, our work here is never done, and we'll continue to focus on the details and providing exceptional service to every customer who walks through our doors. Before I close, I'd like to take a moment to thank the Tile Shop team. As mentioned earlier, we set an annual sales record in 2022. Our success would not be possible without the energy and passion you bring to your job every day. I look forward to continuing to build on our success in 2023. I'll now hand the call over to Karla to walk us through the financial results for the fourth quarter and the full year. Karla? Thanks, Cabby. Good morning, everyone. Fourth quarter sales at comparable stores decreased by 2.8% when compared to the fourth quarter of 2021. The decrease in sales revenue was due to decreased unit volume, which was partially offset by an increase in our average ticket value. For the full year, we set an annual sales record with $394.7 million of revenue. Sales at comparable stores increased by 6.5% due to an increase in average ticket that was partially offset by a decrease in unit volume. The gross margin rate during the fourth quarter was 64.5%. We continued to see elevated levels of inventory receipts at higher price points throughout the fourth quarter. In the first half of 2022, we effectively used price increases to offset some of the increase in inventory costs. We did not use that lever nearly as much during the second half of the year. The increase in inventory costs, combined with a more conservative approach to adjust prices, was the primary driver for the 200 basis point sequential decrease in gross margin from the third quarter to the fourth quarter in 2022. For the full year, our gross margin rate decreased by 270 basis points from 68.3% in 2021 to 65.6% in 2022. The decrease in margin rate was primarily due to rising product costs that outpaced the rate of price increases that were passed on to our customers during 2022. Fourth quarter 2022 selling, general, and administrative expenses decreased by $2.8 million from 2021. The decrease was largely attributable to a $3.7 million decrease in compensation costs due to lower levels of annual incentives and variable compensation. For the full year, selling general and administrative costs increased $3.8 million due to an $8.2 million increase in wages and benefits, primarily due to higher staffing levels that was partially offset by a $6.5 million decrease in bonuses due to lower annual incentives and sales bonuses. Our marketing expenses increased by $2.1 million, and our IT related expenses increased by $1.4 million in 2022 when compared to 2021. These increases were partially offset by a $2.2 million decrease in depreciation expense. Net income was $1.5 million during the fourth quarter of 2022, and adjusted EBITDA was $8.9 million. Our adjusted EBITDA margin rate decreased by 60 basis points to 10.2% during the fourth quarter of 2022, largely due to a decrease in gross margin. For the full year, net income increased $900,000 to $15.7 million. Adjusted EBITDA during 2022 was $49.6 million, which was in line with the $50.3 million of adjusted EBITDA generated in 2021. Our adjusted EBITDA margin rate decreased by 100 basis points for the year to 12.6%. Full year earnings per share increased by $0.03 from $0.29 in 2021 to $0.32 in 2022. Moving to our capital allocation, we completed our $30 million share repurchase program during the fourth quarter. In total, we repurchased and retired 7.8 million shares for $30.2 million, inclusive of brokerage commissions for an average share price of $3.87 per share. We financed a large portion of the share repurchase by drawing on our line of credit. We felt using our revolver was prudent given our stock price. I will share more thoughts about our debt shortly. Turning to the balance sheet, our inventory increased by $23.8 million to $121 million at the end of 2022 as compared to the beginning of the year. This increase was driven by carrying higher inventory levels as well as an increase in inventory costs throughout the year. We made a meaningful investment in inventory over the last year. We believe that this investment has us well positioned to maintain sufficient in-stock levels to serve our customers while we work through initiatives to resource portions of our assortment to lower cost suppliers. As of the end of the quarter, we had $45.4 million outstanding on our line of credit. The $15 million sequential increase in debt from the third quarter of 2022 was largely due to the share repurchase activity that took place during the fourth quarter. We expect we will be able to use cash generated by operations to reduce our debt balance in future quarters. As we look to 2023, we have maintained our policy of not providing revenue, adjusted EBITDA or EPS guidance. Here are some things to think about for models. Average diluted shares should be around 45 million. The tax rate for 2023 should be around 26%. We anticipate CapEx for 2023 will be $15 million-$20 million. This includes the two new stores in 2023, one store relocation, maintenance CapEx for our existing 142 stores, five distribution centers, and our corporate CapEx, which supports our store portfolio. With that, Cabby and I are happy to take any questions. As a reminder, to ask a question, please press star one one on your telephone. Our first question comes from the line of Mark Smith with Lake Street. Mark, your line is now open. Hey, guys. A couple quick questions for you here. Can you discuss just the demand trends that you saw during the quarter, kind of how it shifted, and then just give us a reminder of kind of seasonality that's typically built in? Absolutely, Mark. This is Cab. Thanks for the question. You know, seasonality, fourth quarter is typically a little bit lower than some of our other quarters due to the holidays, due to, you know, winter in the north, northeast and Midwest. You know, we expect that. What we did see is our traffic, our retail traffic began to slide a bit when compared to pro. Our pro sales were strong, and we continue to do well in the pro sector. Retail was noticeably low. We saw that in our stores as well. When we saw traffic going down in our stores, we really focused on execution and our conversion rates and ticket averages and things of that nature. That's what I saw in the trends in the fourth quarter for sure. Perfect. You gave some good detail on kind of LVT, kind of long term, what the expectations are. Can you talk about just maybe it's still way too early, but just kind of how it's gone initially and what kind of the demand looks like for that product? Yeah, absolutely. Like you said, we're in our infancy here with our launch. You know, people are now just becoming aware that we have this line. We are happy with our initial results. You know, we're falling into a few commercial deals. We're, we're getting more pros transitioned into our stores and our line of LVP. It's gonna take a while to ramp, but initial results are solid. Perfect. Then just inventory, you know, up quite a bit year-over-year. Looks like sequentially it's still held up, pretty well. Just talk about your comfort level with this and, you know, as you look in the rearview mirror, you know, do you still feel good about the policy that you had of kind of pre-buying before you saw some price increases? Then just kind of the timing to move this inventory to a maybe a more normalized level? Absolutely. Yeah, I am happy with what we did in the past to get the inventory to our DCs to avoid some of those price increases. When we import, like we do, it takes a long time, so we have to, you know, order early for spring selling season and to be stocked for, you know, when we know traffic will be increasing. It's important that we have high inventory, but we're a little too high at this point, so we're focused on bringing it down. We have a lot of initiatives in place to reduce our inventory. Again, I know we did the right thing. We made the right decision to get it there. I'm confident that we are well stocked and able to service every customer at this point walking through our doors. Perfect. And then I just wanna look lastly just at cost a little bit here. Just G&A was a bit lower than we've kind of expected during the quarter. Maybe talk about, you know, how sustainable it is. Sounds like you had $3.5 million or so in incent comp that was down, but maybe talk about whatever you can for, you know, expectations on G&A going forward. Right. Good morning, Mark, this is Karla. Thanks for the question. As far as SG&A, you know, we did have some decreases this year that were related to our incentive comp structure and a large portion of it is variable, that is directly related to our results. As our results improve, we do expect that portion of the SG&A, we do want to pay that because we do pay on performance, that's something we're watching very closely. Additionally, we always watch our SG&A very closely within, you know, each of the departments to make sure that we are actively, you know, making investments that make sense, that we are rewarding our employees, but at the same time, we're being very mindful of not overspending in certain areas and things like that. It is something we're watching closely. We do expect, it to, you know, increase just because if our performance holds true to what we want in 2023 and we meet our goals, we will be paying out those incentives next year. Okay. The last question for me, just looking at cash flow. You know, it looks like you're in a pretty decent position that we could see some maybe better cash from operations just with changes in working capital here in 2023, but we are seeing CapEx come up a little bit. You know, maybe, you know, any additional insights you can give us on the cash flow and then abilities to kind of service and pay down that debt. At the same time, just talk about kind of dry powder that you have and your ability to kind of grow and maybe use that balance sheet if you needed to or wanted to. Right. Yeah, we do feel we have a strong balance sheet and cash flow we're seeing very strong already. We do expect to pay down that debt throughout 2023. We have plans to do so. So far we're able to execute on those plans. I'll let Cab speak about the dry powder left in the business. We are very excited about our plans for growth this year and feel that we're able to fund that appropriately. Yeah, Mark, with some of the cash and capital we have, we wanna focus back on the business. We took a few years off from growth. You know, we wanted to really focus on execution, especially in times like this. You know, if your traffic's down, but you can raise your conversion, right? You can lower your discounting, you can raise your ticket average. These are things that make us confident that we can really continue to flourish in tough times. Now it's time to grow. We're gonna take some of that cash and build back some teams and get our store growth machine running. We've signed a lease already. We've got another one that we wanna do by the end of the year and invest in other areas of the business as well. We're being very responsible fiscally with what we got, and we're phasing it in. Slow as she goes, but we're moving in the right direction for sure. Excellent. Thank you, guys. Yeah. Thanks, Mark. As a reminder, to ask a question, that is star one one. Our next question comes from the line of David Kanen, private investor. David, your line is now open. Good morning. Thanks for taking my questions. First question is in regards to LVT. Do you expect with that starting to ramp, that we will grow at some point this year-over-year in revenue, but more importantly, gross profit dollars? You know what, David? It's still pretty early. When we talk about, you know, we're looking at traffic levels, the environment we're seeing in housing right now, that's the goal, right? We want to grow revenue and profit dollars, and there's a lot of different irons in that fire to get our margin back right now, LVT just being one of them. It's tough to say this early, but that's ultimately the goal. Yes. Okay. In terms of the comp, you know, low, low single digit decline, how much of that was traffic versus price? Can you give us a sense as to the lift we got from taking price increases and how much percentage-wise traffic was down or volume down? Right. Yeah. It's pretty much all traffic, David. We balance our pricing real close. We watch the market, we watch the competitors, we're not gonna price ourselves out of the market. We know there's traffic declines pretty much across the industry. Again, back to the focus on execution. We're gonna do better with the customers coming through our door. We're being very strategic as we increase pricing, you know, if we want to, throughout 2023. A few here, a few there, being strategic not to impact traffic any more than it is. It's a healthy balance, but it's something we watch every day. What was free cash flow for Q4, and how much debt did you pay down? In the fourth quarter, we actually took out because that's when we completed our share repurchase program. We were taking out debt in Q4. Okay. What was free cash flow for Q4, though? Excluding the repurchase of shares, just cash flow from operations, excuse me, less CapEx or property, you know, plant equipment. Yeah. We'll have to... We don't have that number, immediately available. Okay. Nor would... Okay. I mean, when you file the K, I could probably back into it. Yep. Last question. Well, actually two more questions. My apologies for monopolizing. You called out freight, transportation costs coming down. Could you just quantify on a quarterly basis what the savings will be year-over-year? Is it a seven-figure amount? That's hard to quantify right now, David. I mean, as we received containers heavily in the fourth quarter, you know, from all over the world, looking at that cost structure with international freight, it will be significant, but I cannot give you a figure at this point. Okay. Then, you know, you guys were very aggressive in repurchasing shares, I applaud that. Few companies really understand, you know, the value of capital allocation and share repurchases, I commend you guys for that. Is there a level in debt where you're comfortable? I mean, I know right now there is no buyback, but is there a level where we could potentially expand it, and where you guys are comfortable with current business trends maintaining that debt level? There definitely is a level that we're comfortable with, and that's one of the things that we're working through. We're actively managing the cash flow. We are reviewing it and looking at our growth plans very carefully to make sure that it's a balanced approach. Could you take on comfortably, could you take on more debt and potentially expand the buyback? That's what I'm driving at. Yes. Okay. We believe we can. All right. Thanks. Thanks, guys. Good luck. Thanks, David. Appreciate it. As a reminder, if you'd like to ask a question at this time, that is star one one. I'm showing no further questions in queue at this time. I'd like to turn the call back to Mark Davis for closing remarks. Thank you for listening to our earnings conference call. We anticipate filing our Form 10-K later today. Thank you for your interest in The Tile Shop. Have a great day. This concludes today's conference call. Thank you for participating. You may now disconnect.