Do you ever get the urge to put on your skis in the middle of July? When the temperature tops 90° are you hitting the stores or browsing the web for ski pants and down-filled jackets?
If so, you are an anomaly. Few consumers think about ski gear during warm weather, which makes Armada Skis both one of the most seasonal businesses on the planet and the poster child for the global economy.
Headquartered in Park City, UT, Armada designs, develops, sells and distributes its branded ski equipment and apparel throughout the U.S., Canada, Europe and Asia. Founded by professional skiers in 2002, Armada is the original athlete-owned, athlete-inspired ski company.
Armada imports skis from Europe and outerwear from Asia. The merchandise retails at select boutique outlets and on the company’s website. Yet the seasonality issue remains. Since you can sell swimwear in January to folks from Vermont who vacation in Florida, it is a year-round product. This is not so for the ski season, which begins when frost fills the air and ends with the robin’s first song.
This factor produces many balls in the air when a company needs to refinance. Several months ago, Armada found itself in that position. The company moved its headquarters from California to Utah and could no longer obtain financing from its current lender, a regional bank. Armada also was missing the loan covenants and was not in the market for a conventional bank loan.
According to Steven Fuscaldo, director of New Business Originations at Stamford, CT-based Siena Lending, an equity financier that was working with the ski company recommended that Armada CEO Erik Snyder call Siena.
“He called me directly,” Fuscaldo recalls. “He had heard that Siena was the right lender. This was a seasonal company that had prior losses. We could structure a deal that could get them into the season and meet their growth goals.”
Armada sent Fuscaldo the primary information required to put together a term sheet.
Birth of a Partnership
“We saw it was a seasonable company,” Fuscaldo says. “The orders are placed to them early in the spring and late winter. They have to meet shipping deadlines.”
This wasn’t Fuscaldo’s first seasonal deal or the first time he worked with an international company, but transporting the merchandise presented other complications. The orders for the skis and outerwear are placed in late winter and early spring. The suppliers in Asia and Europe must be paid before the merchandise is shipped, but Armada’s invoices from its retail outlets are not paid until the end of the season, in January or sometimes later.
A light went on for Fuscaldo. “PO financing was the right vehicle to start the engine,” he says.
Fuscaldo called King Trade Capital, a purchase order finance company based in Dallas, and spoke with Clinton Stanton, who was able to arrange a $4.5 million purchase order finance solution to cover Armada’s in-transit inventory needs.
“This was a highly seasonal business with very uneven cash flows,” Stanton says. “The company needed a complete finance solution that included availability on in-transit inventory and purchase orders that would allow them to purchase goods from multiple suppliers located in Europe and Asia and provide working capital to the company prior to their heavy shipping season.”
While Siena worked to close the ABL facility, King Trade provided a bridge solution that included a structure of lending against in-transit inventory and PO’s.
Creating a Bridge
Working jointly with Armada through the due diligence process, King Trade closed the PO facility in July and provided Armada with the immediate capital it needed while Siena worked to solidify the more permanent working capital facility. In September, Armada received the $7 million ABL facility.
“We provided availability on in-transit inventory and purchase orders,” Stanton says. “The advance rate was equal to 100% of the cost of in-transit goods, well in excess of traditional inventory advance rates. We added availability to cover the cost of freight and duties costs associated with in-transit and utilized a documents-against-payment structure to purchase goods from more than 10 suppliers.”
“We structured a deal that could get them into season and meet their growth goals,” Fuscaldo says of Siena’s role. “The ABL covered the company’s immediate costs and left Armada with enough working capital to pay for extra inventory for reorders.”
Cycle Will Repeat
Going forward, Fuscaldo says the cycle will repeat itself next year, with the King Trade PO financing covering the in-transit merchandise and the ABL providing the working capital. Once the skis and clothing reach the warehouse, Armada repays King Trade and utilizes the ABL facility. By March, the loans are repaid and the cycle can begin again, with Armada in a stronger financial position.
Both Siena and King Trade are pleased they could work together to meet Armada’s needs in a manner that allowed each party to reap the benefits of the deal. “We were proud to provide the bridge that enabled Siena to win the deal,” says Stanton.
No one is happier than Armada CEO Snyder. “Steve had this idea,” Snyder says. “Siena was really thinking outside the box. They did a great job coming up with a solution and creating this partnership instead of leaving it up to me to find a partner.
“I was very happy having a lender help us solve a problem. This process with Siena was unlike any other that I’ve had.”