Flexsteel Industries, Inc.

Good morning and welcome to the Flex Steel Industries fourth quarter and fiscal year 2021 earnings conference call. All participants will be in listen-only mode. Should you need assistance, please signal 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 touchtone phone. To withdraw your question, please press star then two. Please note, today's event is being recorded. I would now like to turn the conference over to Derek Schmidt, Chief Financial Officer and Chief Operating Officer for Flex Steel Industries. Please go ahead, sir.

Thank you, and welcome to today's call to discuss Flex Steel Industries' fourth quarter and fiscal year 2021 financial results. Our earnings release, which we issued after market closed yesterday, Monday, August 23rd, is available on the Investor Relations section of our website, www.flexdeal.com under News and Events. I am here today with Jerry Dittmer, President and Chief Executive Officer. On today's call, we will provide prepared remarks and then we will 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 words such as estimate, anticipate, expect in similar phrases. Forward-looking statements by their nature involve estimates, projections, goals, forecasts, and assumptions, and are subject to risks and uncertainties that could cause actual results or outcomes to differ materially from those expressed in 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, we 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 will turn the call over to Jerry Dittmer. Jerry?

Jerry Dittmer Good morning, and thank you for joining us today. Despite ongoing industry challenges related to supply chain, we executed well and delivered on continued strong demand for home furnishing products during our fourth quarter. We reported net sales growth of 110 percent to $136.2 million in the current quarter compared to $64.8 million in the prior year quarter and organic sales growth of 123 percent compared to the prior year quarter with growth in virtually all product categories. Comparisons versus prior year. are heavily skewed because of the impact of COVID-19 in the prior year quarter when retail stores shut down and e-commerce transactions soared. Year-over-year comparisons aside, I'm very encouraged by the double-digit sequential growth delivered in the quarter versus the third quarter in both our retail and e-commerce channels. Retail orders in the fourth quarter remained robust growing 118% above prior year and 76% above the fourth quarter in fiscal 2019, which was unaffected by COVID-19. We feel that we are competing well and gaining market share. We've been building growth momentum throughout fiscal 2021 and finished the year strong. Looking back, fiscal 2021 was a year of significant challenges for all of us both personally and professionally. I'm especially proud and grateful of our team of dedicated employees who fought through these challenges. Their resilience in the face of numerous obstacles presented by COVID-19 and unprecedented global supply chain disruptions was outstanding. Even with these hurdles, our team delivered record sales of home furnishings products and a record adjusted earnings per share of $2.99. At the same time, we made notable strides in advancing our strategic agenda and building a resilient foundation for long-term profitable growth. We strengthened talent and culture, including the addition of three new executive team members to accelerate our success in e-commerce, new business development, and global supply chain operations. We continue to modernize our systems and processes and successfully upgraded our SAP system and converted our financial systems to SAP without any disruption to the business. We took meaningful steps to expand our supply chain capacity by developing new partnerships to support both our domestic and global transportation, adding an additional manufacturing plant in Juarez, Mexico, and broadening our global supply chain base. We strengthened our digital capabilities and launched our first direct-to-consumer website, www.homestyles-furniture.com, and relaunched our FlexDeal website, www.flexdeal.com, with an improved user experience and significant digital assets. We also reinforced our commitment to meaningfully improve our customers' experience by creating a dedicated executive role and team to accelerate this initiative. Our near-term outlook for the market remains bullish. The economy is strong, although the recent global surge in COVID-19 cases could be a disruptor to the positive economic momentum. Employment conditions are improving and consumer spending appears healthy. Based on these macroeconomic conditions and what we are hearing from customers, we expect overall consumer demand for home furnishing, to likely remain strong through the bulk of the calendar year 2021. While our growth outlook is promising, there are a multitude of significant global supply chain headwinds, which we are navigating in the short term, that may create choppiness in our first half profit results for fiscal 2022. First, ocean container availability has improved in recent months, but ocean container rates have continued their relentless climbs. Containers from Vietnam and China to our largest U.S. distribution center, which previously cost $3,000 to $4,000 before COVID-19, rose to $10,000 in May and subsequently surged to $20,000 levels in August. Containers coming from Thailand and Indonesia are now surpassing $22,000. While we take appropriate actions to pass along these increased costs to the market if we can, There is an inherent time lag in price realization, which we expect to put material pressure on gross margins near term. Second, ancillary charges associated with ocean containers, such as demurrage and detention, are escalating to unreasonable levels. The significant reduction in free days allowed by shipping lines has been further exasperated by the unavailability of labor. The lack of truck drivers and warehouse workers available to pick up unload and return containers combined with minimal free days have intensified ancillary charges. Railways are clogged and rail yards are full which only further strains our ability to return containers. Third, material availability specifically for polyfoam remains constrained and it's not clear if we'll see significant improvement before calendar year 2022. Fourth, the recent resurgence of COVID-19, led by the spread of the Delta variant, has unknown and potentially substantial consequences. Extended shutdowns related to COVID-19 in Asia could bring a halt to the flow of source products for the industry. Similar events in the U.S. could be highly disruptive to our manufacturing and distribution operations. Fifth and lastly, cost inflation remains a prominent risk. we realized major cost increases last fiscal year in virtually all of our materials and finished goods, as well as labor and domestic transportation. Continued imbalances between supply and demand for these resources may continue to exert upward pressure on cost. In response to all these factors, we continue to prudently manage discretionary SG&A expenditures to partially offset the gross margin pressures until price realization catches up to the cost increases and supply chain disruptions are alleviated. In summary, these supply chain challenges are frustrating, but our team isn't deterred by these variables impacting our industry, which we view as transitory. The agility of our company to rapidly respond to changing external conditions is a strength and one we will continue to leverage to gain share, even in times of industry disruptions. I remain confident in our ability to deliver strong sales growth and financial results longer term. Now I'll turn the call over to Derek to discuss our financial and operational results, and I'll be back with some closing comments on what we see ahead.