Flexsteel Industries, Inc.

Good morning and welcome to the Flex Steel Industries third quarter fiscal year 2020 earnings conference call. Today, all participants will be in a listen-only mode. Should you need assistance during today's conference, please signal for a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your touch-tone phone. To withdraw your question, please press star then two. Please note that today's event is being recorded. At this time, I would like to turn the conference over to Donnie Case, Investor Relations for Flexteel Industries. Please go ahead.

Thank you, and welcome to today's call to discuss Flexteel Industries' third quarter fiscal year 2020 financial results. Our earnings release, which we issued after market closed yesterday, Tuesday, April 28th, is available on the Investor Relations section of our website, www.flexteel.com under news and events. I am here today with Jerry Dittmer, Chief Executive Officer, and Derek Schmidt, Chief Financial and Chief Operating Officer. On today's call, management will provide prepared remarks and then we'll open the call to your questions. Before we begin, I would like to remind you that the comments on today's call will include forward-looking statements which can be identified by the use of the words such as estimate, anticipate, expect, and similar phrases. Forward-looking statements by their nature involve estimates, projections, goals, forecasts, and assumptions and are subject to risk and uncertainties that could cause actual results or outcomes to differ materially from those expressed in the forward-looking statements. Such risks and uncertainties include but are not limited to those that are described in our most recent annual report on Form 10-K, as updated by our subsequent quarterly reports on Form 10-Q and other SEC filings as applicable. These forward-looking statements speak only as of the date of this conference call and should not be relied upon as predictions of future events. Additionally, management may refer to non-GAAP measures which are intended to supplement but not substitute for the most directly comparable GAAP measures. The press release available on the website contains the financial and other quantitative information to be discussed today, as well as the reconciliation of the GAAP to non-GAAP measures. And with that, I'll turn the call over to Jerry Dittmer. Jerry?

Good morning, and thank you for joining us today. The world has greatly changed since I spoke with you last quarter. At that time, We were deep in the process of level setting our business to focus on the future growth. Since then, no one could have predicted the severity of COVID-19 on our customers, our company, and the international economy. Before I discuss the impact of COVID-19 on our third quarter results, I want to introduce Derek Schmidt, who recently joined FlexDeal as Chief Financial and Chief Operating Officer. Derek and I worked together for seven years at H&I, so I know firsthand his tremendous range of public company experience that spans finance, treasury, and investor relations. He is also a proven leader in driving profitable growth through optimizing supply chains, service levels, and inventory management. In addition, he has a passion for identifying and developing talent, which is so important to the future of our company. I am very confident that Derek will make a significant contribution to FlexDeal. He is the right person at the right time to move our strategic plan forward. Regarding third quarter results, it's no surprise that they fell short of our initial expectations. We were already dealing with lower demand due to the tariff impact on pricing. Then in mid-March, a majority of our retail store customers were shuttered by coronavirus regulations. Even before the pandemic spread, Artman, which accounted for 3% of total net sales, announced its bankruptcy. As a result of these challenges, net sales declined 11% to $99 million versus $112 million year-over-year and resulted in net operating loss of $0.66 per share. Derek will go into more detail in the third quarter, so now I will focus on our response to COVID-19. First and foremost, our goal was to protect our employees as best we could by following all the safety precautions outlined by the CDC. Like many companies across the nation, our corporate headquarters is relatively empty with most people working remotely from home. We also took swift action to mitigate our operational and financial risk, and we had to make some difficult decisions, starting with compensation reductions. The base salary of all company officers was temporarily reduced by 25% and non-executive employees with salaries above $150,000 took a 20% cut until further notice. Our Board of Directors also had a temporary 50% reduction of cash compensation. Our 401 match was suspended effective June 1 through the end of the calendar year. The hardest yet necessary measure was the temporary layoff of employees and the shutdown of all our North American manufacturing facilities due to the sharp decline in demand. While we provided welfare benefits through the month of May to employees impacted by the layoff and expect our manufacturing plants to start production this week or next month, we have no line of sight if and when these operations will return to pre-COVID-19 production levels. Our distribution centers in Kansas, California, and Indiana will remain open to service our valuable customers during this challenging time. Finally, we permanently closed our Lancaster, Pennsylvania distribution center and relocated its work to other distribution centers. We are continuing to take and ship retail and online orders from existing inventory, and we are still placing orders with our overseas vendors for our best-selling products, to ensure there is inventory on hand when sales return. To reset the cost structure and lower volume and manage cash flow, we are eliminating all non-essential expenses and capital expenditures, and we are negotiating with vendors to extend payment terms. We drew down 15 million under the terms of our revolving credit line to increase liquidity and strengthen our financial position. At the end of the third quarter, our cash investments totaled 62.5 million, While our current liquidity position is strong, we are prepared to aggressively preserve cash to effectively navigate an extended period of economic uncertainty and slowdown. As always, our Board of Directors reviews our dividend on a quarterly basis and will continually assess our dividend policy considering the current economic environment and companies' cash requirements. With a history of 313 consecutive payouts, We are committed to dividends over the long term. The actions I just laid out are playing across businesses worldwide as companies hunker down for the duration of the pandemic. The big question is, what's next? At FlexDeal, it means accelerating plans around our business transformation. We have clarity on how we will best position the company for long-term profitable growth and create value for our shareholders and the current economic slowdown due to the coronavirus has provided us an opportunity to move boldly to realize our vision. We have announced our intent to exit the recreational vehicle seating and remaining hospitality business that we have determined are no longer strategic to the future of the company and cannot deliver an adequate financial return. By exiting these non-core businesses, we will sharpen our organizational focus on growing those business platforms that strategically fit with our core competencies and have the greatest potential for long-term profitable growth, namely residential home furnishings, e-commerce, and workspace solutions. To provide additional context on our business reprioritization efforts, the seating segment of Class A RVs, which we are exiting, has a market size less than 100 million, and had already entered a cyclical decline prior to COVID-19 as 2019 Class A RV shipments dropped by more than 24% from 2018. Furthermore, it is estimated to decline substantially faster in 2020 as a result of the current pandemic. In comparison, the U.S. home furnishings market is extremely large at $115 billion is highly fragmented and offers opportunities for flex steel to differentiate our offering as well as providing attractive long-term growth potential. Because there is significant profit and sales growth potential within our home furnishings business, we have deployed multiple initiatives to improve our competitive positioning and accelerate our growth. We are tailoring our product assortment to become more relevant to the market while cutting off low-performing items and concentrating on our most profitable and high-demand offerings. On the operational side, we are heavily focused on ways to reduce our complexity in our processes to both improve the customer's experience and expand profitability. While our home furnishings business will be adversely impacted in the short term by customer store closings, on the bright side, our home styles business for the e-commerce channel is robust. With stores closed, people are actively buying furniture online to the extent that we exceeded our e-commerce plan for the quarter. This reinforces my confidence that e-commerce is the big opportunity for Flexsteel in a couple of ways. The quality of our products and our price points is outstanding. Customers will not suffer a disappointing experience with Flexsteel products and this counts greatly in expanding relationships with our e-commerce partners and attracting new ones. For our brick and mortar customers, we are working with them to build out their critically needed e-commerce capabilities. As part of this endeavor, we are actively working with them to prominently display Flex Steel on their website to generate online volume. Over time, I think this online business can grow to be a significant part of our business. Furthermore, With our e-commerce channel expertise, we can be a valuable partner to our store customers as they reshape the way they do business in the future. We are firmly placing a stake in the ground that Flexsteel can become the go-to resource for furniture sold online in our price category. As I mentioned last quarter, we are hard at work designing new product introductions using customer insights and building a strong pipeline of exciting new furniture to bring to market. Regardless of the disruption in our industry, from tariffs to the pandemic, we have reason to look ahead optimistically. We are pushing out the boundaries of opportunity while streamlining our operations and footprint. We expect to come out of this crisis more nimble, more flexible, and more competitive. Now I'll turn the call over to Derek to discuss our financial and operational results in detail. Derek?