Flexsteel: Earnings Press Release, Dated January 25, 2021

The following excerpt is from the company's SEC filing.


20201231 Press Release Exhibit 99.1


Flexsteel Industries, Inc. Reports Fiscal

Second

Quarter 2021 Results

Dubuque, Iowa –

January 25

– Flexsteel Industries, Inc. (NASDAQ:FLXS)

(“Flexsteel” or the “Company”), one of the largest manufacturers, importers and online marketers of furniture products in the United States,

today reported

second

quarter

fiscal

2021 financial results.

Highlights for the

Quarter Ended

December 31

, 2020

Net sales increased

% to $1

millio n compared to $10

million in the prior year quarter

Organic net

, excluding discontinued Vehicle Seating and Hospitality product lines,

increased by

Record

retail home furnishings

backlog of $

as of

December 31, 2020

, driven by strong year-over-year order growth of 49% in the second quarter

Gross margin increased to 2

% compared to

% in the prior year quarter

GAAP net income per diluted

share of $

net loss of

Non-GAAP

share of $0.

in the prior year quarter

Share repurchases of $

.0 million during the quarter

GAAP to non-GAAP reconciliations follow the financial statements in this press release.

Management Commentary

“Despite ongoing challenges from COVID-19, we

executed

well and delivered on strong demand for home furnishing products during our second quarter as we reported sales growth of 16% and organic sales growth of 26% compared to the prior year quarter, with growth in virtually all product categories,” said Jerry Dittmer, President and CEO of Flexsteel Industries.

“We enter the third quarter with strong sales momentum and a record high backlog.  Global supply chain disruptions remain a significant near-term challenge due to constrained ocean container availability and material and labor shortages, but we are investing aggressively to expand our supply chain capabilities and inventories to best support our customers and the robust consumer demand for furniture.  We recently signed a new building lease in Juarez, Mexico for an additional manufacturing plant which will add incremental manufacturing capacity in late third quarter. I remain confident in our ability to profitably grow the company in 2021 while accelerating strategic investments to drive long-term profitable growth and improve our customers’ experience.”

Operating Results for the

Net sales were $1

million for the first quarter compared to net sales of $10

million in the prior year quarter, an increase of

%. The increase was driven by home furnishing products sold through retail stores of $

million, or

.8%, versus the prior year quarter and an increase in homestyles

products sold through e-commerce channels of $

%, versus the prior year quarter. The increases in retail and e-commerce channels were partially offset by a decline of $

million versus

the prior year quarter, due to the Company’s exit of the Vehicle Seating and Hospitality product lines during the fourth quarter of fiscal 2020.

The Company reported net

income of $

million or $

share for the quarter ended

, 2020, compared to net

per diluted share in the prior year quarter. The reported net income

for the quarter ended December 31, 2020,

included

$1.3 million pre-tax bad debt expense due to the bankruptcy of a customer,

million pre-tax restructuring expense primarily for facility closures as part of the previously announced comprehensive transformation program,

a pre-tax gain of $

million due to the sale of the Company’s

Dubuque, Iowa and Lancaster, Pennsylvania

facilities. Excluding these

items (see attached non-GAAP disclosure), the Company reported adjusted net income of $

million, or $0.

per diluted share, as compared to adjusted net

quarter of fiscal year 2020.

Gross margin as a percent of net sales increased 4

0 basis points to 2

% compared to 1

% for the prior year

490 basis points

increase in gross margin was primarily due to structural cost reductions, operational efficiencies

fixed cost leverage due to higher sales volume as compared to the prior year quarter

, and a decline the Company’s inventory reserve due to strong demand, which resulted in sales of previously reserved products

Selling, general and administrative (SG&A) expenses

creased $

million as compared to $1

quarter of fiscal 2020.

As a percentage of net sales, SG&A was 1

quarter of fiscal 2021 compared to 17.

% of net sales in the prior year quarter.

SG&A expenses in the current year quarter included a $1.3 million bad debt expense due to

customer bankruptcy. The

bps decline

cost leverage gained from higher sales, reductions in non-essential spending in response to COVID-19, and lower depreciation expense due to assets being held for sale, partially offset by a 110 bps increase related to a $1.3 million bad debt expense due to a customer bankruptcy during the quarter ended December 31, 2020.

The Company reported tax expense

million, or an effective rate of

quarter compared to a $

million tax

benefit

, or an effective rate of 2

Restructuring and COVID-19 Update

During the quarter, the Company incurred $

million of restructuring expense primarily due to

on-going facility and transition costs as part of the Company’s previously announced comprehensive transformation program. The Company expects to incur a total of approximately $2.5

to $3.0

million in restructuring expenses during fiscal 2021.

During the quarter, the Company completed the sale of

its facilities located in Dubuque, Iowa, and Lancaster, Pennsylvania, resulting in total net proceeds of $15.7 million and a total gain of $5.2 million.

continued to see

improvement in business conditions

during the second quarter

as retailers have reopened, however, there are

supply chain challenges faced by the furniture industry due to labor shortages in Asia, limited availability of ocean containers, and inflationary pressures in key materials. Due to the uncertainties around COVID-19, the Company continues to evaluate the impact of COVID-19 and will take necessary actions to reduce spend and preserve cash.

Liquidity

The Company ended the quarter with a cash

balance of $3

million and working capital (current assets less current liabilities) of $12

million, and no

outstanding balance on its $25.0 million secured line of credit.

Capital expenditures for the

months ended

, 2020 were $0.

million. For the full fiscal year 2021, capital expenditures are estimated to be in the range of $

.0 million to $

Conference Call and Webcast

The Company will host a conference call and webcast at 8:00 a.m. Central Time (9:00 a.m. Eastern Time) on Tuesday,

January 26

, to discuss its quarterly financial results. Analysts and investors may participate in the question-and-answer session. The call can be accessed via telephone at 866-777-2509 (domestic) or 412-317-5413 (international) and requesting to be connected with the Flexsteel conference call. Additionally, interested parties can listen to a live webcast of the call in the Investor Relations section of the Company’s website at

https://ir.flexsteel.com/

. An archived version of the webcast will be available in the same location shortly after the live call has ended. The

quarter fiscal 2021 press release will be available at

after the market close on

Monday

January 25

Flexsteel is enabling investors to pre-register for the earnings conference call so that they can expedite their entry into the call and avoid the need to wait for a live operator. In order to pre-register for the call,

investors can visit

https://dpregister.com/sreg/10150978/e0320153d6

and enter their contact information. Investors will then be issued a personalized phone number and

pin to dial into the live conference call. Individuals can pre-register any time prior to the start of the conference call.

A recorded replay can be accessed through

February 2

by dialing 877-344-7529 (domestic) or 412-317-0088 (international); Replay access code: 101

About Flexsteel

Flexsteel Industries, Inc. and Subsidiaries (the “Company”) is one of the largest manufacturers, importers and online marketers of furniture products in the United States. Product offerings include a wide variety of upholstered furniture such as sofas, loveseats, chairs, reclining and rocker-reclining chairs, swivel rockers, sofa beds, convertible bedding units, occasional tables, desks, dining tables and chairs and bedroom furniture. A featured component in most of the upholstered furniture is a unique steel drop-in seat spring from which the name “Flexsteel” is derived. The Company distributes its products throughout the United States through its ecommerce channel and direct sales force.

Forward-Looking Statements

Statements, including those in this release, which are not historical or current facts, are “forward-looking statements” made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. There are certain important factors that could cause our results to differ materially from those anticipated by some of the statements made herein. Investors are cautioned that all forward-looking statements involve risk and uncertainty. Some of the factors that could affect results are the cyclical nature of the furniture industry, supply chain disruptions, litigation, the effectiveness of new product introductions and distribution channels, the product mix of sales, pricing pressures, the cost of raw materials and fuel, retention and recruitment of key employees, actions by governments including laws, regulations, taxes and tariffs, the amount of sales generated and the profit margins thereon, competition (both U.S. and foreign), credit exposure with customers, participation in multi-employer pension plans, the impact of the COVID-19 pandemic and general economic conditions. For further information regarding these risks and uncertainties, see the “Risk Factors” section in Item 1A of our most recent Annual Report on Form 10-K.

For more information, visit our web site at

http://www.flexsteel.com

FLEXSTEEL INDUSTRIES, INC. AND SUBSIDIARIES

CONDENSED CON

SOLIDATED

BALANCE SHEETS (UNAUDITED)

(in thousands)

December 31,

June 30,

ASSETS

CURRENT ASSETS:

Cash and cash equivalents

33,296 


48,197 


Trade receivables, net

46,317 


32,217 


Inventories

92,024 


70,565 


Other

12,496 


18,535 


Assets held for sale

666 


12,329 


Total current assets

184,799 


181,843 


NONCURRENT ASSETS:

Property, plant and equipment, net

40,251 


43,312 


Operating lease right-of-use assets

9,463 


8,683 


1,299 


3,421 


TOTAL ASSETS

235,812 


237,259 


LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES:

Accounts payable - trade

27,842 


27,747 


Accrued liabilities

30,634 


25,715 


Total current liabilities

58,476 


53,462 


LONG-TERM LIABILITIES

8,929 


8,292 


Total liabilities

67,405 


61,754 


168,407 


175,505 


TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY

CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

(in thousands, except per share data)

Three Months Ended

Six Months Ended

119,106 


102,949 


224,345 


203,297 


Cost of goods sold

94,728 


86,899 


177,152 


170,026 


24,378 


16,050 


47,193 


33,271 


18,911 


18,088 


33,086 


35,563 


Restructuring expense

863 


5,067 


2,244 


11,071 


Gain on disposal of assets due to restructuring

(5,229)


(26)


(5,881)


(18,967)


Operating income (loss)

9,833 


(7,079)


17,744 


5,604 


Other income

162 


107 


211 


Income (loss) before income taxes

9,995 


(6,972)


17,955 


5,797 


Income tax provision (benefit)

1,545 


(1,588)


5,626 


1,630 


Net income (loss)

8,450 


(5,384)


4,167 


Weighted average number of common shares outstanding:

7,246 


7,944 


7,475 


7,936 


Diluted

7,495 


7,681 


8,146 


Earnings (loss) per share of common stock:

1.17 


(0.68)


1.65 


0.53 


1.13 


1.61 


0.51 


CONDENSED CONSOL

DATED STATEMENTS OF CASH FLOWS (UNAUDITED)

OPERATING ACTIVITIES:

Adjustments to reconcile net income to net cash (used in) provided by operating activities:

Depreciation

2,687 


4,930 


Deferred income taxes

2,110 


(13)


Stock-based compensation expense

1,983 


Change in provision for losses on accounts receivable

1,335 


(178)


Change in reserve for VAT receivable

(943)


Gain on disposition of capital assets

(5,858)


Changes in operating assets and liabilities

(25,520)


8,471 


Net cash (used in) provided by operating activities

(10,934)


779 


INVESTING ACTIVITIES:

Net proceeds from sales of investments

Proceeds from sale of capital assets

18,527 


19,652 


(663)


(1,814)


Net cash provided by investing activities

17,864 


17,839 


FINANCING ACTIVITIES:

Dividends paid

(1,535)


(3,485)


Treasury stock purchases

(20,013)


Proceeds from issuance of common stock

40 


Shares withheld for tax payments on vested restricted shares

(323)


(67)


Net cash used in financing activities

(21,831)


(3,531)


(Decrease) increase in cash and cash equivalents

(14,901)


15,087 


Cash and cash equivalents at beginning of period

22,247 


Cash and cash equivalents at end of period

37,334 


NON-GAAP DISCLOSURE (Unaudited)

The Company is providing information regarding adjusted

net sales, adjusted

and adjusted diluted earnings

per share of common stock, which are not recognized terms under U.S. Generally Accepted Accounting Principles (“GAAP”) and do not purport to be alternatives to

or diluted earnings

per share of common stock as a measure of operating performance. A reconciliation of

adjusted net sales,

per share of common stock is provided below. Management believes the use of these non-GAAP financial measures provide investors useful information to analyze and compare performance across periods excluding the items which are considered by management to be extraordinary or one-time in nature. Because not all companies use identical calculations, these presentations may not be comparable to other similarly titled measures of other companies.

Reconciliation of GAAP net sales to non-GAAP adjusted net sales

The following table sets for

the reconciliation of the Company’s reported GAAP net sales to the calculation of non-GAAP adjusted net sales for the three

and six

and 201

$ change

% change

Reported GAAP Net sales

16,157 


15.7% 


Less: discontinued product lines

8,025 


(8,025)


-100.0%

Non-GAAP Net sales

94,924 


24,182 


25.5% 


21,048 


10.4% 


19,125 


(19,125)


184,172 


40,173 


21.8% 


Represents the exit of the Company’s Vehicle Seating and Hospitality product lines.

The following table sets forth the reconciliation of the Company’s reported GAAP net income

to the calculation of non-GAAP adjusted net income

and six

Reported GAAP net income (loss)

Bad debt expense

1,314 


Inventory impairment related to restructuring

206 


Tax impact of above adjustments

465 


(1,154)


714 


2,162 


Remeasurement of deferred tax assets and valuation allowance

2,112 


Non-GAAP net income (loss)

5,908 


(1,471)


12,877 


(1,361)


Effective tax

used to calculate the three months ended

, 2019

, respectively

Effective tax of 31.3% and 28.1% used to calculate the six months ended December 31, 2020 and December 31, 2019, respectively.

per share of common stock to non-GAAP adjusted

Reported GAAP diluted earnings (loss) per share

0.12 


0.64 


0.29 


1.36 


0.18 


0.17 


0.01 


0.03 


(0.70)


(0.77)


(2.33)


0.06 


(0.15)


0.09 


0.27 


Non-GAAP diluted earnings (loss) per share

0.79 


(0.19)


1.68 


(0.17)


% used to calculate the three months ended

, respectively.

INVESTOR CONTACT:

Derek Schmidt, Flexsteel Industries, Inc.

563-585-8383

investors@flexsteel.com

The above information was disclosed in a filing to the SEC. To see the filing, click here.

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