Flexsteel Industries, Inc.

Good morning and welcome to the Flex Steel Industries second quarter fiscal year 2025 earnings 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 touch tone 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 Mike Ressler, Chief Financial Officer for Flex Steel Industries. Please go ahead.

Thank you and welcome to today's call to discuss Flex Steel Industries second quarter fiscal year 2025 financial results. Our earnings release, which we issued after market closed yesterday, Monday, February 3rd, is available on the investor relations section of our website at www.flexsteel.com under news and events. I'm here today with Derek Schmidt, 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 using 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 and 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 gap 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 Derek Schmidt. Derek?

Good morning, and thank you for joining us today to discuss our second quarter results. We continued our strong momentum from the first quarter, delivering sales growth, of 8.4% compared to the prior year quarter, which exceeded the top end of our guidance range and represents our fifth consecutive quarter of mid-single to low double-digit year-over-year growth. In addition, we continue to expand our operating margin and deliver strong, positive free cash flow, which allowed us to pay off our remaining bank debt and begin accumulating cash. While overall industry demand remains soft, many of our retail partners were encouraged by improved traffic trends and sales close rates during the recent holiday season, which provides optimism that demand declines may have bottomed and the industry could be positioned to start growing again, albeit modestly, in calendar 2025. Feedback from our recent participation at the Las Vegas market last week further reinforced my confidence in our ability to continue growing. Retailer appointments were up 18% versus the prior year's market. Engagement with top 100 retailers was especially strong, and overall retailer response on new products we launched last October continued to be very positive, and new placements for those new products continues to ramp. As we've demonstrated over the past 15 months, we can deliver attractive, profitable growth and gain share even in challenging industry conditions. As it relates to our sales growth, I'm especially encouraged because our growth was broad-based. We solidly grew in our core markets while simultaneously delivering growth in all our new and expanded market initiatives, which includes Zcliner, Flex, Charisma, big box sales distribution, and case goods product. It's the breadth of our growth drivers in our business that gives me strong confidence in our ability to continue our growth trajectory despite lackluster industry growth prospects near term. I largely attribute our continued success to our exceptional talent and continued investments in product development, innovation, customer experience, and marketing. I'm also especially pleased with our progress driving meaningful year over year profitability improvement. Operating margin was 6.1% in the quarter, up compared to 4.6% in the prior year quarter, and represents our sixth consecutive quarter of year over year adjusted operating margin improvement. The levers driving our consistent profit improvement are unchanged and working effectively, and include sales growth leverage, strong operational execution and productivity, and product portfolio management. As we look forward to the remainder of our fiscal year 2025, our current outlook for the industry and broader economy remains moderately positive, although any major policy changes from the new Trump administration could have a meaningful and potentially adverse impact on our industry and company and could materially change our outlook. More specifically, changes in tax, immigration, regulation, and trade policies could be inflationary, which would create additional pressures on consumer spending and likely postpone reductions in mortgage rates and a recovery in housing. Additionally, higher tariffs could be very disruptive given the high percentage of furniture that is currently imported into the U.S. Even for U.S. furniture manufacturers, there remains a meaningful amount of product inputs like fabric, leather, mechanisms, and switches that originate from outside the U.S. and would be subject to higher tariffs. Near term, tariffs are the most significant risk, and we're working multiple plans to mitigate the risk. Since the pandemic, we've made significant strides in building supply chain agility and resilience to maneuver potential challenges like this. and those efforts continue. Today, our primary tariff exposures reside in Vietnam and Mexico. Vietnam production supports roughly 50% of our current revenue and our Mexican operations supports almost 40% of sales. The executive orders announced this weekend to implement 25% tariffs on Mexico and Canada introduced significant uncertainty and could materially change our business outlook given our sizable operations in Mexico. The current situation is dynamic, and the magnitude of the profit and free cash flow impact on our business is dependent on the ultimate amount and duration of tariffs. To mitigate these risks, we have and will continue to identify new sources of high quality supply in countries with lower tariff risk. We also are broadening the amount of product that can be dual sourced from multiple countries, provide additional agility. While reconfiguring our global supply chain in response to major tariffs would not be easy or fast, and tariffs could inevitably have a material impact to margins in the short term, I do feel confident that we are as well prepared as any of our competitors to swiftly optimize our network in response to such a reality. Additionally, if it becomes evident that the likely duration of new tariffs will be extensive, we will need to consider taking additional pricing, but only after contemplating the potential impact of such pricing on both consumer demand and our competitive position. In summary, we are executing well on what we can control, continue to wisely invest in key enablers to drive long-term growth, and remain confident and our strategies and ability to deliver growth exceeding the industry, barring a highly disruptive external event. We're encouraged by our earnings momentum and believe that continued sales growth could drive meaningful operating leverage and margin expansion long-term. The business environment is dynamic right now, but that has been true for the better part of my five-year tenure at FlexDeal. And as a result, we've learned as a company to prepare for and be highly adaptive to new situations. I'll be back momentarily to share my thoughts on our outlook. With that, I'll turn the call over to Mike, who will give you some additional details on the financial performance for the second quarter and the financial outlook for the third quarter. Mike?