Flexsteel Industries, Inc.

Good day and welcome to the Flexco Industries first quarter fiscal year 2022 earnings results conference call. All participants will be in a 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, this 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.

Thank you, and welcome to today's call to discuss Flex Steel Industries' first quarter fiscal year 2022 financial results. Our earnings release, which we issued after market closed yesterday, Monday, October 25th, is available on the Investor Relations section of our website, www.flexsteel.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, and 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 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, 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 gap to non-gap measures. And with that, I will turn the call over to Jerry Dittmer. Jerry?

Good morning, and thank you for joining us today. In spite of continued global supply challenges, we executed well during the quarter and delivered strong year-over-year sales growth of 30.8% and solid profit results, which were in line with our guidance. I'm very encouraged by our sales performance. We delivered stellar growth in both shipments and orders in fiscal year 2021, and we continue that momentum into fiscal year 2022. Our near-term outlook for the market remains positive. The economy remains strong despite growing concerns about inflation and global supply chain disruptions. Consumer spending appears healthy and trends in new housing, geographical migration, and generational shifts are all positive catalysts for the long-term home furnishings growth. Both our retail and e-commerce customers remain relatively bullish on business conditions, although inflationary pressures, including higher ocean freight costs, present some risk of dampening consumer demand. While our growth outlook is promising, we are battling a multitude of significant global supply chain headwinds faced by many industries, including home furnishings. These challenges are pressuring near-term margins and creating choppiness in our profit results for the first half of fiscal 2022, which we expected. Ocean container rates have climbed to historical highs given large imbalances between supply and demand, and we anticipate rates will remain elevated through the first half of calendar 2022 or potentially longer. While we take appropriate actions to pass along these increased costs to the market if we can, consumer price sensitivity and a lag in price realization are creating pressure on gross margins near term. Second, Ancillary charges associated with ocean containers, such as demurrage and detention, have escalated to unreasonable levels. The lack of truck drivers and warehouse workers available to pick up, unload, and return containers combined with minimal free days from shipping carriers have intensified these ancillary charges. However, our team is agile and executing multiple plans to manage these margin pressures. And as a result, we expect profit margins to improve sequentially each quarter throughout fiscal 2022. Material availability, specifically for polyfoam, has been a significant constraint in ramping up North American manufacturing capacity, but conditions are improving and we expect daily manufacturing production to gradually increase throughout the rest of the fiscal year to support both a reduction in our backlog and an increase in sales. Supplier production capacity in Asia, specifically in Vietnam, has been strained recently due to the spread of the COVID-19 Delta variant. Production in parts of southern Vietnam plummeted for the better part of August and September due to the COVID-19 shutdowns. And the impact of the reduced output will likely be felt by the industry in the November to January timeframe when container receipts drop precipitously due to the lower Vietnam production. We have been aggressively and strategically building our inventory positions over the past few quarters as a source of competitive advantage. As a result of this strategic investment, our in-stock position and service levels have improved significantly at a time when the industry will likely be stressed for inventories in the coming months, given the shutdown of furniture production in Vietnam. In summary, these supply chain challenges are frustrating, but our team views this as an opportunity to gain additional market share during a period of industry disruption. Our operations team is agile and quickly pivots as necessary to effectively maneuver through a supply chain environment that is continuously changing. Our sales and marketing teams are relentless in their pursuit of exceptional customer service and new business, and our product team is accelerating new product development and category expansion. I'm excited about our future and 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.