Good morning, and welcome to the Flexsteel Industries first quarter fiscal year 2024 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 touchtone phone. To withdraw from the question queue, 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 Operating Officer and Interim Chief Financial Officer for Flexsteel Industries. Please go ahead. Thank you, and welcome to today's call to discuss Flexsteel Industries' first quarter fiscal year 2024 financial results. Our earnings release, which we issued after market close yesterday, Tuesday, October 31st, is available on the investor relations section of our website at www.flexsteelindustries.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 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, 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 GAAP to non-GAAP measures. With that, I will turn the call over to Jerry Dittmer. Jerry? Good morning, and thank you for joining us today. I am pleased to share with you our first quarter fiscal year 2024 results. While our industry faces challenging business conditions and several of our publicly traded peers have seen double-digit sales decreases in the recent quarter, we have leveraged our growth initiatives to offset these challenges and deliver sales within 1% of the prior year quarter. This year-over-year sales comparison is adversely impacted by the elimination of ocean freight surcharges, which reduced revenue by approximately $7 million compared to the prior year quarter. In the prior year, we used this surcharge mechanism to pass through a higher cost of ocean container delivery, which were significantly inflated due to supply chain issues. Container delivery costs normalized throughout the last fiscal year, and we subsequently eliminated this surcharge. Excluding the $7 million impact from this ocean freight surcharge elimination, sales growth related to unit volume and product mix was a robust 6.8%, reflecting our strong sales execution and the momentum of our growth initiatives. Our ability to drive growth in a difficult industry environment reinforces that we are competing well and gaining share. In addition, we continue our focus on operational efficiency and cost savings, which propelled a gross margin of 19.5% in the first quarter, compared to 16% in the same quarter of the prior year. This margin expansion helped fund additional investment in growth initiatives while still delivering improved operating income of $1.9 million, compared to $0.4 million in the same quarter of the prior year. We expect the business environment in the near term to remain challenged. The industry is arguably already in a recession, as consumers have shifted discretionary spending to experience-based expenditures like travel and entertainment, and away from higher priced hard goods like appliances, electronics, and home furnishings. The list of headwinds working against the economy and consumer spending continues to grow. High interest rates and mortgage rates, rising fuel prices, geopolitical concerns, U.S. government uncertainty, student loan payment restart, shrinking pandemic savings, and rising credit card debt. Despite these external challenges, our team isn't deterred and remains intensely focused on profitably growing our business in fiscal year 2024. We enter the second quarter with positive momentum and are confident in our ability to grow sales, both compared to last year and the first quarter, while also improving gross and operating margins over the first quarter. Our strategies are working. We'll continue to innovate, drive expedient and relevant new product development, and build strong brands. Regardless of demand uncertainties, we remain aggressive in identifying new growth opportunities while prudently managing costs and investing for future growth and profit enhancement. I'll now turn the call over to Derek to discuss our strategic initiatives and financial results, as well as our outlook for quarter two, 2024. I'll be back at the end of the call with some closing comments on what we see ahead. Thank you, Jerry, and good morning, everyone. Like Jerry, I'm confident in the outlook for our business, while cognizant of the near-term headwinds we may face. At the recent October market in High Point, North Carolina, we held numerous encouraging conversations with customers, suppliers, and others in the industry. I'll share a few highlights of the quarter, what we took away from High Point Market, and how they shape our view of the remainder of the fiscal year. First, we debuted our new showroom at the October market, along with 36 new product groups. Our sales team was energized and excited to take customers and suppliers through the new showroom, which provided an excellent showcase for both our current and new product lines. The feedback from customers was extremely positive. Many noted that the traffic and energy levels were exceptionally strong in our showroom compared to others they visited, which gives us encouragement that we are competing well and differentiating through our focus on innovation and new products. Second, on past calls, I have mentioned that Zecliner, our new sleep solution recliner, has been a big success. Through the first quarter, we have over 760 retailers that have placed the product on their floors, with even more committing to initial placement orders at the October market. Notably, we have seen repeat orders in excess of 60% from retailers who initially placed the product, demonstrating strong adoption by consumers. We also recently engaged an independent third party to conduct a sleep study of individuals who don't regularly sleep in a bed. The study compared their experience sleeping in their regular recliner, chair, or sofa over a four-week period, to sleeping in a Zecliner over the same time period. Analyzing over 700 nights of sleep, this study found that Zecliner significantly improved perceived sleep among people who originally slept at least part of the night on a different recliner, chair, or sofa. The study results also showed that 95% of individuals felt Zecliner was a better solution than other products they used in the past, and 84% felt Zecliner helped improve their sleep. These results show the strength and potential of our products in this category, and we plan to expand our marketing using these study results. In addition, at the October market, we introduced an extension to our line with Zofa, a sleep solution Zofa. We plan to continue to innovate and expand offerings in the sleep solution space. Third, we continue to expand the distribution of Flex, our modular seating line, to traditional brick-and-mortar retailers, where it is placing well. We also launched several differentiated functional pieces to the Flex line at October market, including a technology hub, storage center, pet bed, and a sleep kit. We will continue innovating and expanding this platform to drive future growth as well. Finally, we continue to grow our big box distribution, notably with Costco through Costco.com. Revenue generated through this customer contributed to the 10.7% growth in e-commerce sales in the quarter. In addition, we recently expanded our marketing effort through our first Costco in-store roadshow event to showcase our Flex modular furniture collection. We have several more of these events scheduled throughout the remainder of the fiscal year, and look forward to using these in-store events to further our brand awareness and customer reach. The positive energy from our interactions at market and the success of our strategic initiatives provides us confidence that we are well-positioned to navigate the choppy near-term industry conditions and deliver sales and profit growth for the fiscal year. With that, I'll now give you some additional details on the financial performance for the first quarter and the outlook for the second quarter of fiscal year 2024. For the quarter, net sales were $94.6 million, within our guidance of $92 million-$100 million, provided during our fourth quarter fiscal 2023 earnings call. As Jerry noted earlier, sales growth related to unit volume and mix, which excludes ocean freight surcharges, was a strong 6.8% in the quarter, and we feel we have sustainable growth momentum in both the retail and e-commerce channels. From a profit perspective, the company delivered operating income of $1.9 million, or 2% of sales in the first quarter, which was within our guidance range of 1%-3%. Moving to the balance sheet and statement of cash flows, the company ended the quarter with a cash balance of $3 million, working capital of $118.3 million, and a balance on our revolving line of credit of $33 million. Working capital and our debt balance did increase from the fourth quarter due to a reduction in payables and the normal timing of several large annual payments occurring at the beginning of our fiscal year. Going forward, we expect inventory reduction and profit improvement to be meaningful sources of cash in fiscal year 2024 to aggressively pay down debt. Looking forward, sales guidance for the second quarter is between $94 million and $100 million, which represents sales growth of 1%-7%. Similar to the first quarter, year-over-year net sales comparisons will be unfavorably impacted by the elimination of ocean freight surcharge revenue of approximately $4 million. Excluding the ocean freight surcharge impact, growth related to unit volume and mix is then forecasted between 5% and 12%, reflecting the strong momentum of our growth initiatives and continued share gains. Regarding profitability, we expect second quarter gross margin to improve from the first quarter, with a forecasted range of 19.6%-20.6%. We expect gross margins to grow throughout the fiscal year, with expected sales growth and continued realization of our cost savings and operational efficiency initiatives. We continue to prudently manage SG&A spending while investing in our growth initiatives and expect SG&A costs between $16 million and $17 million for the quarter, similar to the first quarter. We are projecting operating income as a percent of sales in the range of 2%-4% for the second quarter and expect operating income margins to improve throughout the year in parallel with forecasted gross margin improvement. The most significant drivers of variability in the second quarter guidance range continue to be consumer demand and competitive pricing conditions, both of which will be shaped by macroeconomic factors. Regarding our cash flow outlook, working capital is expected to be a major source of cash flow in the second quarter and full year, as we anticipate inventories to steadily decline throughout the year. Near-term priorities for cash remain reducing debt, resourcing new innovations, and funding modest capital expenditures, mainly related to cost savings projects and continued modernization of IT systems. We expect debt levels at the end of fiscal 2024 in the range of $0 million-$15 million. For the second quarter, we expect capital expenditures between $1.5 million-$2 million. The effective tax rate for fiscal 2024 is expected to be in the range of 29%-32%. Now I'll turn the call back over to Jerry to share his perspectives on our outlook. Thanks. While we expect business conditions to be choppy in the near term, I am confident that we are taking the right steps to secure profitable growth, and our long-term growth outlook remains promising. We are well positioned to successfully deliver improved earnings and an even stronger balance sheet over the remainder of fiscal year 2024. With that, we'll open the call to your questions. Operator? We will now begin the question-and-answer session. To ask a question, you may press star, then one on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw from the question queue, please press star then two. The first question is from Anthony Lebiedzinski of Sidoti. Please go ahead. Good morning, and thank you for taking the questions. So, you know, I thought it was helpful that you guys provided the impact of freight surcharges for first quarter of last year, and that you gave an indication about the second quarter. So as we look beyond the second quarter, as far as the second half of last year, was there anything meaningful as to call out as far as freight surcharges, or was it less of an issue? If you could just remind us about that. Yeah, Anthony, it's Derek. So it dissipates throughout the year. So for the third quarter, the impact of the surcharges would be a little less than $3 million, and in the fourth quarter, it's a little less than $1 million. So we unwind those ocean freight surcharges gradually throughout the year, hence why you see a decrease in the year-over-year impact to revenue. Got it. Thanks, Derek. And then, you know, in terms of the growth initiatives, can you perhaps maybe quantify how much that impacted your first quarter sales results and, as far as your outlook for the balance of the year, just, you know, looking to get more clarity about, you know, how much is, you know, Flex, Zecliner, and big box expansion helping you guys? Yeah, I know it, the color I can provide, Anthony, is, I prefer not to give you exact numbers, but the growth initiatives were a substantial factor in terms of our growth. If you were to take those out, I mean, our business would probably be down, not as large as certainly our external kind of peers, but it would be down probably in the high single digit, low double digit range. So really, the growth initiative, the good thing is, the growth initiatives are working. We're building momentum, and we believe, again, there's room for the revenue from those growth initiatives to continue to expand, which we believe at this time will allow us to grow every single quarter here, year-over-year, for the remainder of the year. The other piece of that too, Anthony, is we continue to come out with more line extensions and more of these growth initiatives are gonna also help us in the future. You might remember at market, both Flex and Zecliner, there are additional SKUs and products that we brought out to enhance those even more. Got it. Yeah, yeah. And certainly, you know, the new showroom looked pretty good as well. So as far as the gross margin improvement, you know, certainly nice job there as well. And, you know, it sounds like you expect, you know, continued improvement there. So I mean, you know, given the overall improvements to the business, I mean, as we look out beyond fiscal 2024, you know, I mean, can we get to, you know, I mean, what's your sense as to, like, where gross margins could go to, assuming, of course, a normalized demand environment? Yeah, I think certainly our target to end the year would be closer to 21%. So exit this year closer to a 21% gross margin, and then continue to kind of grow the top line and leverage fixed cost to expand that into fiscal year 2025. All right. That's very helpful. And then, you know, in terms of SG&A dollars, so those were up around 13%, looks like, for so this quarter here. So and I know you gave guidance for Q2 as well. But then, you know, kind of, you know, looking beyond that, I mean, I know you guys are investing in your growth initiatives, but I guess it longer term, I mean, you know, how fast will, you know, those expenses grow? I mean, what is your outlook for that? Yeah, I would, I would expect, Anthony, for the remainder of the year for SG&A, quarterly SG&A to kind of be within that $16 million-$17 million range per quarter. I think as we think about fiscal year 2025, I would expect SG&A to grow at a lower rate than the overall top line. So we would expect to leverage, you know, fixed costs, including SG&A investments, kind of going forward. So there is more investment there to be had to continue to propel the top line, but it would grow at a rate lower than our overall top line in future years. All right. Well, sounds good. That's all I have. I'll pass it on to others. Well, thank you very much, and best of luck. Thanks, Anthony. The next question is from Budd Bugatch of Water Tower Research. Please go ahead. Good morning, Jerry and Derek, and congratulations on a good quarter. I had a couple of questions. I know that, it's the sales growth in dollars were 6.8%, excluding the freight surcharge on an apples-to-apples basis, but on a units basis, you talked about units and mix. Can you give us an idea on units, how that growth was? Like, for example, upholstery seats, how did that grow year-over-year? Yeah, the way we think about the product categories, Bud, manufactured, kind of stationary and sourced soft seating are probably our largest categories. They encompass almost about 90% of our sales. So to give you some perspective on units, our sourced soft seating business and units was up 13.7% year-over-year, and manufactured stationary was up 3.7%. So we feel good about both of those numbers, and I think they're reflective of the fact that we're competing well in the market and gaining share. And the manufactured growth is where you would get leverage on cost of goods sold. Is that the way to think about that? The sourced product is primarily variable costing. Primarily, I mean, there's two ways to think about it. Certainly we'd be leveraging our fixed cost structure related to our plants, but we also have three distribution centers, and so the way I think about, you know, growing our sourced business, that does leverage the fixed costs of our distribution network as well. Okay, thank you. That gets me into the cost of goods sold and the composition of it. I think, if I remember right, and correct me if I'm wrong, because my memory is old, like I am, and failing. You had talked about a couple of years ago, maybe getting gross margins into that 20% range, and that kind of was the target. And if I look back historically, I think the largest, the highest gross margin percentage that I see going back five or six years ago, particularly for that second quarter, was, like, about 22.6%, and for the end of the year, maybe close to 23%. Is that the high water mark? Where are you looking to, and how do you get there? So first of all, when you look back four or five years ago, you have to remember that the composition of our business was much different then than it is today. Recall that we exited hospitality, healthcare, commercial office, RV seating. Those businesses, many of those businesses had a higher gross margin, but they also had a significant SG&A load. And so the split between gross margin and SG&A as a percent of sales has changed because of that mix. So the historical comparisons aren't the best benchmark. That said, going forward, you know, we've talked about, you know, our aspiration is to get gross margins up in that 22%-23% range. I think with continued top-line growth, with prudent management of our fixed cost structure, and continued cost savings, we have a path to get there, you know, over the next several years. Okay. And MLO or the components of cost of goods sold, how should we think about that? Materials, particularly in the manufactured, somewhere around 50%, labor 10%, and the balance between overhead and distribution and transportation. How do you get there? Yeah, you're not probably too far off, but, you know, materials, it's a little bit difficult because on the sourced side, we're buying finished goods, so I don't have visibility in terms of the breakout between materials, labor, overhead for our sourced business. But in general, you know, materials, 50%-60%, you're right. Labor and overhead, kind of in that 20%-25% range, and then logistics, about 15%. And the logistics would impact primarily. I mean, not primarily, but the sourced goods would be primarily a logistics hit to cost of goods sold. You bring the inventory in, and you add the logistics cost to the inventory, and it works its way through as it's sold. Is that the way to think about that? And that's where you get the leverage. No, the inbound costs, so container costs and then drayage for sourced goods into our DC, those are all capitalized parts of the finished costs. So when I talk about logistics, that 15%, that is the cost of outbound shipments to our customers as well as our distribution centers, and then any inter-plant, inter-DC kind of transfer costs as well. Gotcha. Okay, that's very helpful. Another for me on the sales, you talked about Costco, and the sales lift of 6.8%. How much of that was due to Costco for the quarter, and what's the, how much is due to maybe gaining... You're competing well, so that would tell me you're gaining new accounts, so can you look at sales that way? Yeah. If I decompose the 6.8% growth, Costco probably made up about 2.5% of that. So take that away, we still feel like we're competing really well in our core business, within, you know, our traditional retailers. Of that 4, 3, how much is same location or same customer, and how much would be new customer? There's not a lot of new customers. Okay. For the most part, I mean, where we're driving penetration is with our largest, most strategic retailers who we believe are gonna be the winners in the future, within the business, and that's really where we're gaining share. Okay. The other place that we're gaining the share is obviously with the Zecliner and the Flex and other things like that, and those enhanced product lines. Those are the other things that are driving a lot of that. So, so that's new floor space in existing retailers, but many of those retailers are dedicated to you, right? Correct. That's a good way to look at it. Yeah. Okay. I mean, the other corollary is, I mean, we track the number of placements that we have for every single one of our products, and the number of placements is growing, and we know retail space isn't growing. So again, that would give us another encouraging indication that we're gaining share in retail. That's a great metric. Do you have a percentage that you're willing to share on percentage placement growth? Yeah, it's been, I mean, over the last couple of years, between 5% and 10%, kind of high single-digit. Okay. That's great. And last for me, the receivables look like you're looking like, if my math is right, somewhere around 32 days versus something closer to 40 days at the end of the year. Is the health of your retail base, can you talk a little bit about that? Is that, and are those the right numbers? No, we typically run around, you know, that 30- to kind of 33-day range, so that doesn't typically change. The only thing is, you know, dependent on if we have heavy sales in the last month of the quarter, that will, that will be what skews accounts receivable either up or down. So overall, we're feeling good about the overall quality of credit, and they are obviously, in this uncertain economic time, we're, we're you know, watching, watching credit concerns closely, but feel good about the quality of AR. No concerns or issues there. Okay. And so the delinquencies are not particularly significant? No. Over 30. Okay. No. Great. And 30 is the normal terms? Would that be your normal terms? 30-33. Okay. Yeah, in terms of days. Yeah. Great. But- Thank you very much. Congratulations, and good luck on the balance of this calendar year and the fiscal year. Thanks, Budd. Bye. Again, if you have a question, please press star, then one. The next question is from John Deysher of Pinnacle. Please go ahead. Good morning. Thanks for taking my questions. Looks like a solid quarter. I just have a couple of quick questions. First, what was the backlog at the end of the quarter? Around $48 million. Yeah. So relatively unchanged from where it was at the beginning of the year. Okay, great. Another balance sheet question. I noticed other assets, other current assets are up to $9.2 million. It's been growing, and I'm just curious, what's in that other assets bucket, and why is that increasing? Yeah, the two things, John. Every year, in the first quarter, we prepay our annual insurance, and we also prepay our annual SAP software license. So those two things combined are worth about $2.5 million. So that was the increase in Q1. Okay, so that should come down going forward? Correct. Okay. Yep, and that's our normal cadence. Typically, we pay those in full at the beginning of each fiscal year. Okay, that makes sense. What's the status of the Mexicali plant? I know you haven't opened it. It's a relatively new plant, I think, built within the last couple of years. What's the status of that at this point? Yeah, John, the status right now is with the current environment, we didn't see a need that we'd be moving in there in the short term, so we basically have it leased out at this point in time. And it's something we'll come back and visit every 6-12 months. But for the next year, it's it -- we basically have it leased out about 95%. Okay. And what, the lease is month to month or year to year, or? They're year-to-year with, obviously, with options, and there's two different parties in there. And we'll just really continue to look at our demand and when we'll need it and continue to work with these folks that are leasing it right now. Okay, that's good news. What... When does it roll over? At the end of the year? Different times. One of them rolls out in the fourth quarter, the other one will roll out first quarter next year. Okay, great. I guess, and finally, on the availability, I think the press release said, $27.6 million. That's down pretty substantially from the $45.8 million at the end of the year. What was the reason for that decline in availability? It's largely due to inventory reduction. So, I mean, at its peak, our inventory was over $190 million. Today, it's $120 million. So that line of credit is an asset-backed facility. All right, I've got that. But, you know, inventory was, you know, pretty steady, looking at it over the last four quarters or so, between $110 million and $122 million. And your availability was up, always above $40 million. So it's not clear to me. I mean, the inventory's been about the same. It's not dropped significantly. So why is the availability down so low if inventory's been about the same? I'll have to look at the specific periods and get back to you, which I'm glad to do. Okay. That would be helpful. Thank you. Okay. This concludes our question and answer session. I would like to turn the conference back over to Jerry Dittmer for closing remarks. In closing, I would like to thank all of our Flexsteel employees for their dedication and outstanding performance during the quarter. Thanks to all of you for participating in today's call. Please contact us if you have any additional questions, and we look forward to updating you on our next call. Everybody, have a great day. Thanks. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.