Good morning. Welcome to the IDEAS Conference. I'm Sandy Martin. I work for Three Part Advisors, and next up we've got Flexsteel Industries, Nasdaq-traded, ticker FLXS. Today we've got the President and CEO, Derek Schmidt, and the CFO, Mike Roesler, and I'll hand it off to Derek. All right. Good morning, everyone. Quick question: how many of you are relatively unfamiliar with Flexsteel and are really looking to use this just to understand who we are and... Most of you? Okay. All right. That just it gives me good context as we go through this kind of presentation. Also, let's keep this informal, so as Mike and I are going through this presentation, if you've got questions, raise your hand. So stop me at any point in time, as we go through this. And then we will leave ample time at the end here to open it up for other questions. Okay. So, to give you a really quick overview of who we are, what we do, so we are in residential furniture, solely in residential furniture, and if you go back and you do any research on Flexsteel, we used to be in a whole bunch of other industries. We used to do RV seating, we used to do healthcare, hospitality, commercial office. When the pandemic hit, we took that as an opportunity here to really rethink where we're advantaged, where we have core competencies, and we exited all those other businesses to focus solely on residential furniture, because that's where we believe we are advantaged to win and where we can earn attractive return on capital. So to put it in perspective, furniture is a really fragmented industry. So even at $413 million, that's where we finished our last year of revenue, we're in the top 10 U.S. manufacturers of furniture. So it gives you just, if you think about who's the biggest, it would be Ashley, it would be La-Z-Boy. You know, after that, it really drops off. So a heavily fragmented industry. We've been around for 131 years. So strong legacy, and a lot of history. Currently, today, we've got about 1,500 employees. I would say the vast majority of those are actually in our Mexico manufacturing facilities. As I'll go through, you know, a little bit later, we've got three facilities down in Juárez, Mexico. We're headquartered in Dubuque, Iowa. We've got a unique kind of what I'll call a supply chain model, so about 50% of what we sell, we actually make in North America. The other 50%, we source kind of globally, and what we learned during the pandemic, 'cause at that time, this mix was probably closer to 70% sourced, 30% manufactured. Pandemic hit, you're all aware of the supply chain challenges that we had, and so strategically, we've moved this to become more diverse and more resilient, today than we were several years ago, so let me describe our product, how we go to market, where we sell. I'll start with product. So we are a whole home solution provider. So if you think about every home in your, in your house, and the furniture that you have, we have that product somewhere in our portfolio. That said, where our leadership position is, is squarely in the living room, living room, family room, you know, et cetera. We're a leader in power motion furniture. So this is our core. You can see, if you split it out, 83% of our revenue comes in that primary living area. So the opportunity for us is not only continue to grow in the primary living areas, but we are under index, under penetrated, and we have a right to win in these other spaces in the home. So as we think forward, that is one of the key growth opportunities for Flexsteel. So you see bedroom, dining, storage, outdoor, and we've actually, there's not a room in your house called health and wellness, but it is a category that we believe is attractive, it's growing, and we are driving innovation to differentiate ourselves in that space. How we go to market? So the company name is Flexsteel, and Flexsteel is one of the brands in our portfolio, but we go to market through multiple brands and sub-brands. Each one is tuned and tailored to a specific targeted consumer segment. So we believe that is a better way to go to market, to make sure that each of these brands, again, you've got targeted consumer needs and a unique value proposition to meet those needs better than anybody else. So I'll start on the, actually on the top right and work my way down. Flexsteel is our flagship brand. It is a premium brand that our value proposition is attractive furniture with exceptional comfort, quality, durability, and the story around that value proposition is based upon innovation. We have a unique seating system that's patented. We call it the Blue Steel Spring. It's completely different than anything else that you'll find in the market, and over that hundred and thirty years, we've built up the story and our brand around our durability and comfort based upon that. We don't compete at the low end. This is a premium price product and targets mass market, but mass market of consumers who are willing to pay a little bit more to sit in something that's really comfortable and that's gonna last, and they don't have to worry about quality issues. We've got two sub-brands under Flexsteel, one called Flex. How many of you are familiar with Lovesac? Okay, Lovesac is, you know, it's modular furniture, very much kinda directed towards maybe what I'll call younger consumers. Flex is our solution for that market. It's at regular prices 20% below Lovesac. It's more comfortable, better quality, has a sustainability story, it's easier to assemble through patented kind of an assembly system. We're ramping up. We just launched this over the last year or two years, so we're just early in our ramp-up here, excited about the possibilities, but this is, again, part of the market that we haven't competed in, and I think we've got a superior solution. Zecliner is another sub-brand. We did research about two years ago and found out that 7% of U.S. adults cannot or do not sleep regularly in their bed every night, and that's for a host of reasons. It could be everything from sleep apnea, to acid reflux, to, like me, hey, I snore too loud, and my wife kicks me out every once in a while. And these individuals end up sleeping either in their recliner or on their couch, none of which was ever built to sleep comfortably in for eight hours a night. So, Zecliner is really the first sleep chair that was specifically designed around meeting this market need, really, that was unaddressed, and we're having early success there. Charisma is a step down from Flexsteel. This was meant to reach a more attainable price point with a more modern aesthetic to go after a younger consumer. Okay? We didn't feel like we could extend the Flexsteel brand down that far without tainting kind of the brand image, so Charisma is a new brand that we've launched to enter this new segment, target a new consumer, and we're having early success there. And lastly, Homes tyles is our brand, which is primarily sold online through Amazon, Wayfair. It's ready-to-assemble furniture, high quality. Again, so there's a theme at every one of these price points again, we've got a consistent advantage around quality, comfort, and kind of durability. So that's the Flexsteel portfolio. So let's talk about how we go to market: channels and customers. And there's really four buckets here. So I'll start left to right here. Independent retailers. So for those of you who live in Chicago or are familiar with Chicago, Darvin's is a big customer. Abt Electronics. So we've got about five or six kind of major retailers here in Chicagoland that we do business with. That's what we describe as traditional independent furniture retail. And this, historically, this has been our base, so about, you see, 82%-86% of our current revenues flow through this channel. It's an important channel for us. We've got over 1,400 retail relationships nationwide. You actually won't find too many manufacturers that have this breadth of distribution geographically across the U.S., so it is one of our strength's core competencies. At the same time, we know that there are a lot of other places that consumers, both today and the future, want to buy furniture beyond just traditional retail. We are extending our footprint in these other channels, and there's three of them here. E-tail. So again, I mentioned Homes tyles brand. Historically, we've sold that through Amazon, Wayfair, HomeDepot.com, Overstock.com. We are starting now to sell our other brands, that I just went through, in e-commerce channels. Okay? So we're extending the portfolio. Big box. If you go to Costco, Sam's, you go to Home Depot, there are such a variety of big box retailers that carry furniture. We are now developing relationships with those big box retailers that we believe our brand resonates with. So the biggest on this list is Costco. So we've been doing business with them for now 12-18 months. The relationship is going well. Their CEO has specifically called out in their investor presentations the relationship with Flexsteel, because they value our brand. So again, we're stepping into this relationship. We think it can be significant and profitable. We're also very cognizant of returns, and so we're stepping into it at a pace that we believe we can learn and make sure, again, we've got sustainable profitability there. And then there's a host of other retailers that we're nurturing relationships with. And then lastly, direct-to-consumer. You'll see on here, it's less than 1% of our business today. We are honing and developing capabilities because we believe, especially for younger consumers, this is a channel that they value and they want to shop in. The challenge here is, there's not too many companies that compete in this space that actually make money. It's really expensive to acquire customers. This is probably... I'll talk in a little bit about we are an acquisitive company. We've got a balance sheet to go after acquisitions. This is where I could see a smaller acquisition fitting into our long-term strategy, direct-to-consumer company. Okay, so that's our sales distribution. Leadership team got an experienced team. I've been with the company for four and a half years, started out as CFO, COO, president. Mike's been with the company 17 years. So again, a lot of furniture experience, and I'd say about two-thirds of the individuals on this page are new within the last five years. So it's a good blend of new perspectives outside of Flexsteel, as well as several members that bring legacy experience. Our operations, so we've got seven locations. The bigger, lighter blue are our distribution centers, so Pennsylvania, Indiana, Kansas, and then you see the lighter blue are pool points. So we've got the capabilities to efficiently serve every state, every zip code, kind of in the U.S. From a manufacturing standpoint, if you look at the dark blue circle, that's Juárez. We've got three plants down there. We've been operating in Mexico for over 13 years with success. We also own or have a facility in Mexicali, which is right on the border of California. We're currently subleasing that, but it's available for us as a strategic asset, if and when we need that capacity to support than where we're currently at, with minimal to no investment, okay? So when we get to talking about the profit momentum and profit potential of the business, it's, we don't have high CapEx. We can continue to grow here substantially in the near term, without any major investments. Supply chain. I mentioned that we've got this 50-50 mix between manufacturing and global sourcing. Today, it's mainly in Asia, predominantly Vietnam. But we are actively working to diversify our supply chain in other areas of the world, to make sure whether it's a pandemic or something else, the one thing we know is that there is gonna continue to be substantial disruption in our global supply chain, and we're taking the right steps to make sure, again, we can adapt to whatever those situations are. Because we had the strength of our supply chain, we actually outperformed our competitors during the pandemic. So we're cognizant around making sure that we're leveraging this as a competitive advantage. Our vision... I'll flip this. This actually might- Mike, this must be our larger presentation. Okay. So I'm gonna flip through some of this. So, point of differentiation. If you're familiar with other furniture companies, you'll hear, you know, some companies are all about design, aesthetics. Some other companies are about exceptional value, low end of the market. If you go into a furniture store, and you're not familiar with furniture, it all looks the same. It's really difficult to differentiate in this industry. We are putting a flag in the ground that we are gonna separate ourselves using innovation. Right? The Blue Steel Spring is our legacy form of innovation. I described for you, the products Flex and Zecliner, and the innovation that we are continuing to invest substantially around innovation. That's how we're gonna separate ourselves from the sea of sameness in this industry, and how we're gonna provide a superior value for our consumers and command a premium price. So that's our strategy around differentiation. Mike, I'm gonna hit these, and I'll turn it over to you on the financials. So growth drivers. So if I were to show you a view of the industry sales over the last seventeen months, furniture retail sales, I'd show you a chart with a whole bunch of red bars. The industry right now has been in the doldrums. 17 consecutive months of year-over-year declines. We just announced our third consecutive quarter of mid to high single digits, and we just guided for our next quarter, 5%-10% growth. Because we are making the investments that we've made around innovation, consumer research, marketing, talent, we're seeing the dividends from those investments, and we are growing in an industry that currently is declining. And what I'm encouraged most by is so I kinda shared with you some of our initiatives to expand into new markets. Our core business is actually growing. And on top of that, we're actually seeing the growth from these new initiatives like Flex, like Zecliner, like Charisma. So I think we've got a substantial kinda model here going forward. So growth drivers, we're gonna continue to gain share in our existing markets, and that's gonna come from new product development. We're also aligning with who we believe are the winners long term. We've got 15 strategic accounts. It's companies like Nebraska Furniture Mart, Raymour & Flanigan, Jordan's, Living Spaces. We are aligning with these customers. We're giving them a superior customer experience, and big part of the reason why we're outgrowing is because we are aligning with these, and we're providing them a differentiated experience. At the same time, we're taking Flexsteel to new markets where we're under-penetrated today. So if you think about, you know, some of the charts I shared earlier, today, the Flexsteel brand predominantly appeals to a demographic that probably looks a lot like, you know, us in this room. The reality is, we've got to pivot, and we have to develop parts of our business that appeal to younger generations, and we've got a multi-pronged strategy there. I took you through sales distribution. 85% or so goes through traditional retail. There's a lot of other places we need to be, and so we're expanding our sales distribution. And then product categories. Remember, about 85% of what we do is kind of in that primary living space, and there's all these other spaces that we can go after. And then, and then again, where we're gonna continue to invest to strengthen our differentiation: consumer research, innovation, and marketing. Today, because we go through traditional furniture retailers, a lot of our marketing has been through the trade. Where we're investing is now we're building the brand directly with consumers. We wanna make sure, again, this younger generation understands who Flexsteel is and, and what we stand for. So consumer segments, here's how we're repositioning the portfolio. If you just look at from a demographic standpoint, you see where Flexsteel plays today. You see where these potential newer brands kinda fit. So again, we're making investments to be relevant to younger consumers. At some point, too, you see this at the very last line, this mid-price, modern lifestyle brand. There's another acquisition that would make sense for us to fit into the portfolio here. Again, different strategy to go after younger consumers. We talked about sales distribution, our core business today, independent retailers, and all that light blue in terms of how we're expanding to make sure, again, we're in all the places that consumers wanna buy furniture, both today and the future. We talked about our core from a category standpoint and where we're expanding: bedroom, dining, storage, outdoor, and then health and wellness. We talked a little bit about innovation. So again, Flex Innovation here. I talked about this. This is kind of the equivalent of Lovesac. We've got patented technology here. We've got sustainable fabrics. We've got a sleep kit. We've got a variety of different hubs that we believe provide superior functionality and modularity versus solutions out there. We just need to continue to invest in marketing to make sure that the awareness is out there with consumers around this solution. Zecliner, I talked about this again. This was an outcome of investment around consumer research. Finding a need in the market that was completely unaddressed and finding a unique solution to create a sleep chair. We're gonna continue to invest in that consumer research, find similar insights, and then come up with and develop proprietary solutions to address those needs. With that, I'm gonna turn it over to Mike. He's gonna talk about kind of the investment thesis, what we're seeing in certainly the industry, our financial performance, and where we see the company going forward. Mike? All right, so there's kind of five main components to the investment thesis. Number one, a compelling long-term industry outlook. Number two, the cash flow. And then lastly, very disciplined capital allocation. So I'm gonna first touch on kind of our industry outlook. Near-term industry remains very challenged. As you can see in the chart, retail furniture sales have been down, as Derek mentioned, for it's actually up to 17 consecutive months. But if you look at the other chart, you can see our sales performance. We've been able to deliver three consecutive quarters of year-over-year sales growth, and we're guiding sales growth both in Q1 and growth at 2%-6% in fiscal year 2025. For operating margin expansion potential, in fiscal year 2024, we were able to more than double our operating margin, and we know that we're gonna be able to continue to expand margins into fiscal year 2025 and beyond. There's kinda three primary drivers to how we're gonna expand our margin. Number one, Derek mentioned investments in talent in SG&A. We've also made substantial investments in our supply chain talent. We've got very strong leaders within our manufacturing, logistics and distribution, and our sourcing operations, and their teams are executing very well, and they're delivering substantial cost savings, and we believe that that momentum is sustainable in the future. Driver number two for operating margin expansion is, we have a very large emphasis on bringing new products to market that have much better margin profiles than legacy products. So as we continue to bring new products to market that have better margin profiles, a larger percentage of our sales are made up of new products, and it's gonna overall expand the margin profile for the company, and then lastly, operating leverage. So, you know, Derek mentioned we have 30 to, you know, 25%- 30% capacity within our network, so we can support substantial sales growth with very minimal additive fixed costs. Jumping to cash flow generation. So we mentioned one of the other aspects of our business that's very low capital intensive. So our capital expense runs less than 1% of sales on the annual basis. So as you mentioned, we're gonna be able to generate very, very strong free cash flow, support our sales growth with very minimal capital investments required in the near term. The last thing I'll touch on here around capital allocation is we've got a proven track record of returning capital to shareholders. So we returned nearly, you know, over $90 million of capital to shareholders over the past five years. And as we think ahead to the future around our capital allocation strategy, we would anticipate, you know, allocating 70% of our cash flow generation back into our growth initiatives and returning 30% of our capital to shareholders. As we think about short term, we're in a position where we'll be out of debt within three to six months, and we'll begin to get into a cash accumulation position, where we'll be able to look for opportunities to reinvest back in the business, and in the event that we're not able to find an investment opportunity that you know yields a return on investment that's above our cost of capital, we will look for ways to return capital to shareholders, as we've done in the past, so looking longer term, we're very confident in our strategies to continue to grow our business, improve our operating margin through increased scale leverage, continuous cost savings, and then, as I mentioned, the disciplined product portfolio management. We've got a very bright future at Flexsteel. We're excited. We got a lot of positive growth momentum, and we've got a leadership team that's committed to winning. So with that, we appreciate your time, and we'll open the call to questions. So maybe I'll make a couple closing comments. So from an investor perspective, so I would expect that the industry, for at least the next twelve months, is gonna continue to be at the doldrums. We are committing to continuing to grow, you know, despite some industry challenges. So I would expect the industry to be flat to down 10% in the next twelve months. And we're committed to continuing to grow. However, when you start to look at the long-term prospects, for our industry, there's a bunch of pent-up demand in housing. And so at some point, industry demand for furniture will turn around, and I think the midterm catalyst is really a recovery in housing. So hopefully, knock on wood, Fed keeps on lowering interest rates, mortgage rates come down, hopefully, price appreciation in key kind of markets for housing goes down, and we actually start to see maybe it's 12 months, 18 months, 24 months, a nice recovery in housing. That is gonna bode really well for furniture. And we've already shared with you, we are doing well, we're growing, we're improving profitability, we're generating cash right now in difficult industry conditions, and we believe that we're gonna be primed to succeed when the industry gets some tailwinds here. What questions can we answer? Yes, sir. What's the history of your stock buybacks? I'll give you a little bit of history. So I joined the company four and a half years ago as CFO. Prior to that, there was never any share buybacks. Our stock was significantly undervalued. We had excess cash, and so I actually turned on the share buyback program. So as Mike shared with you, we've repurchased. To give you some context, when I started with the company, we had 8.3 million shares outstanding. Today, we have 5.2. So we've taken, you know, about a third of our float off, and the average price of our repurchases was in the low twenties. Today, the stock's, you know, $41. So again, I would argue that our return of capital in that form has been highly successful. Yes, sir. Follow-up question on that. Some of it's been, you kinda got out of different markets and made some investments, correct? Yep. With your cash generation. Can you walk through why you got out of, say, like hospitality or healthcare or some of the other markets that you kinda were focused on and focused only on the, the residential market? Yep. So the question really was going back to why? Why did we divest? Yeah. Yep. So when the pandemic hit, I'm giving you some context, all these other businesses that we divested, probably at that time represented 20% of our sales, 15%-20% of our sales. They did not generate cash. They were, you know, break even to low ROI. They consumed a significant amount of organizational resources, and the industry outlook or competitive position was relatively negative. Strategically, it did not make any sense for us to continue. I mean, we were better off literally focused on where we believe we were advantaged and where we could earn, you know, attractive returns, and that was in residential furniture. Hence, we'd made the bold move. We walked away from that revenue, we took out structural costs, we simplified the business, and we refocused it, and I think, you know, we're seeing certainly the fruits of those decisions that we made in the last several years. Yes, sir? You referenced a mid-price market and acquisition- Yeah -that might make sense. As you look at the industry as a whole, should this industry be consolidated, or is the challenge that a consolidator would come in, but then some someone would bring some innovation or some other twist, and you just end up with a whole new crop of small startups that would then continue to create the fragmentation of the industry? Yeah. How do you look at that? Yep, so that's actually the question: why is the industry so fragmented, and why hasn't there been a consolidation? There's a long history there, which is there's not necessarily a catalyst to force the consolidation. I think you'd have to either have a private equity company, an activist investor, come in and actually make the bold investments. Right or wrong, this is a legacy industry. Yeah. There's a lot of companies, both retailers and manufacturers, that have seen the cycles, and they're fine. They're fine with, you know, breaking even during the bad times, and they make all their money, during the good times. And so there isn't necessarily a forcing function for retailers to consolidate or manufacturers to consolidate. And, I'll say this, and I don't bid any ill will on anybody: it would actually be really healthy for the industry to stay in the doldrums for the next 12-18 months because there would be retailers that would fall out, and there would be manufacturers that would fall out, and it would be healthy for the industry structure long term to take out capacity. But to your point is, someone's gonna have to come from outside the industry and be the catalyst to drive consolidation, either at the retail level or the manufacturer level. We've looked at, hey, a merger of our equals. It just doesn't make sense. There's enough negative synergies that outweighs the positive. Yep. Other questions? Yeah. I have another question. So, like if you're gonna focus on, like, the residential market, when I look at companies like Williams-Sonoma or RH that have, you know, gross margins that are closer to the 40 kind of category. Obviously, there are a bunch of other soft goods- Yep ... categories and other things around the home. Why are your aspirations, I guess, only in like the mid-twenties kind of on a long-term gross margin profile when there's other retailers that you're seeing- Yep that are higher? So the question was a comparison to Williams-Sonoma and RH, 40% gross margins versus Flexsteel at 20%. RH, Williams-Sonoma are retailers. Flexsteel is a manufacturer. Again, as we explained, we do not go to we do not own our own stores, okay? So we have manufacturer margins. If you look at a Williams-Sonoma, yeah, they've got and an RH. They've got much higher gross margins, but their SG&A looks like this because they have this whole retail footprint that they have to support, and they've got to put all this marketing and selling activity. So it's difficult to compare a pure play manufacturer against a pure play kind of retailer. So just different P&L structure. Does that make sense? Yep. Would you ever wanna go more that route? I mean, you talked a little bit about the direct-to-consumer business and, like, where you're competing against, like, Lovesac now, but also that sort of similar base to the retailer model. So I'm just curious, what is that the direction you're headed, or are you happy to be a manufacturer? In the near term, happy to be a manufacturer. Again, we've got 1,400 retailers that service really, really well. I don't really wanna start a war with 85% of my sales base. That said, if there are specific geographical distributions, specific markets where we cannot align ourselves with the right distribution, that's where it would make sense to partner with someone who understood how to run retail and start a Flexsteel store. But in the near term, again, we're having a lot of success. Our partners, you know, support our brand really well, so there's not an obvious need for us to extend ourselves into retail. Other questions? Time's up. Okay. Your time's up. All right. Here, quickly. Well, as you go into different parts of the house, does the brand name carry? Is there gonna be a lot of marketing investment? The- ... manufacturing? Where- How big of a- Yeah. Where our brand resonates-