Flexsteel Industries, Inc.

Good day and welcome to the Flex Steel Industries 3rd Quarter Fiscal Year 2026 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 1 on a touch-tone phone. To withdraw your question, please press star then 2. 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' third quarter fiscal year 2026 financial results. Our earnings release, which we issued after market closed yesterday, Monday, April 20th, is available on the investor relations section of our website at www.flexfield.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 that 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 findings 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. And with that, I'll turn the call over to Derek Schmidt.

Derek? Good morning, and thank you for joining us today. As we reflect on our third quarter performance, we are operating in an environment that continues to be increasingly uncertain and dynamic. Over the course of the quarter, we saw a meaningful shift in demand patterns driven by a combination of factors, including severe weather early in the quarter, and more recently, heightened macroeconomic uncertainty stemming from the conflict in the Middle East. These conditions have impacted consumer confidence, increased volatility of financial markets, and contributed to rising energy costs, all of which are influencing both demand and our cost structure. Against this backdrop and a strong prior year comparison, we delivered relatively stable year-over-year sales performance in the quarter and maintained solid operating margins of approximately 7%. While our year-over-year growth moderated this quarter, I'm encouraged by how our teams continue to execute and manage the business with discipline. Our results reflect the progress we've made building a more resilient operating model. one that allows us to respond quickly to changing conditions while maintaining focus on long-term value creation. Importantly, our underlying growth drivers remain intact. Our strategic accounts, new product introductions, and health and wellness category all continue to perform well during the quarter, although at more moderate growth levels than we've experienced in recent periods. This gives us confidence that while near-term demand is under pressure, the foundational elements of our growth strategy are working. Demand trends were uneven throughout the quarter. January and February were impacted by unusually severe weather across several regions. In March, we saw a more noticeable slowdown in orders as macroeconomic uncertainty increased. Overall, orders were down approximately 2.4% in the quarter, and we continue to see variability in consumer traffic and purchasing behavior. Retail partners are responding cautiously, managing inventory levels closely, and taking a more measured approach to replenishment. From a profitability standpoint, we continue to benefit from the operating discipline and productivity improvements we've implemented over the past several years. However, we are beginning to see cost pressures increase. particularly related to higher fuel and energy costs stemming from the developments in the Middle East. These pressures are impacting domestic transportation costs immediately and are expected to expand to ocean freight and product costs later in the fourth quarter and into the first quarter of fiscal year 2027. As we consider potential actions to mitigate these impacts, including pricing and cost initiatives, We are being thoughtful given the current sensitivity of the consumer and the broader demand environment. Compounding near-term supply pressures is at fire last month at a large chemical factory in Texas that is hindering production of polyol, a key chemical used in the production of foam for upholstered furniture. Not only is this further elevating prices on this key furniture input, but most North American foam manufacturers are now on allocation from chemical suppliers for polyol, which could lead to product shortages and extended manufacturing lead times for furniture as soon as May. In addition to these supply chain and macroeconomic pressures, the tariff environment remains highly fluid and uncertain. We are closely monitoring potential new tariffs being pursued by the administration and how they may interact with existing Section 232 tariffs on upholstery furniture. There is also uncertainty around future trade negotiations, including USMCA, which could impact our operations and sourcing in Mexico. These factors represent additional variables that could influence both demand and our cost structure in future periods. As we look ahead, we do expect near-term conditions to remain challenging, Demand is likely to remain uneven, and we currently anticipate fourth quarter sales to be relatively flat with prior year levels and operating margins similar to third quarter performance. The duration and severity of these challenges will depend on how macroeconomic conditions, geopolitical events, and trade policy evolve. That said, our strategy and focus remain unchanged. We are operating with agility maintaining disciplined cost control, and continuing to invest in the capabilities that support our long-term growth strategy. These include investments in consumer insights, innovation, product development, marketing, and customer experience, areas that we believe are critical to sustaining share gains over time. We believe our strong balance sheet and improved operating model positions us well to navigate this period of uncertainty while continuing to strengthen our competitive position and drive long-term shareholder value. And with that, I'll turn the call over to Mike, who will give you some additional details on the financial performance for the third quarter and our financial outlook.