FLEXSTEEL INDUSTRIES INC

Previous wording

The following table has been prepared as an aid in understanding the Company’s results of operations on a comparative basis for the three months ended September 30, 2024 and 2023. The amounts presented are percentages of the Company’s net sales.

Current wording

The following table has been prepared as an aid in understanding the Company’s results of operations on a comparative basis for the three and six months ended December 31, 2024 and 2023. The amounts presented are percentages of the Company’s net sales.

Previous wording

Net sales were $104.0 million for the quarter ended September 30, 2024, compared to net sales of $94.6 million in the prior year quarter, an increase of 9.9%. The increase was driven by higher sales in home furnishings products sold through retail stores of $11.0 million, or 13.3%, led by unit volume increases and product mix. Sales of products sold through e-commerce channels decreased by ($1.6) million, or (13.3%), compared to the first quarter of the prior year. Lower sales in the e-commerce channel were driven by softer consumer demand.

Current wording

Net sales were $108.5 million for the quarter ended December 31, 2024, compared to net sales of $100.1 million in the prior year quarter, an increase of 8.4%. The increase was driven by higher sales in home furnishings products sold through retail stores of $9.2 million, or 10.3%, led by unit volume increases, freight surcharges, and product mix. Sales of products sold through e-commerce channels decreased by ($0.8) million, or (7.1%), compared to the second quarter of the prior year. Lower sales in the e-commerce channel were driven by softer consumer demand.

Previous wording

Home furnishings backlog was $61 million as of the quarter ended September 30, 2024, an increase of 27.1% compared to $48 million in the prior year quarter.

Current wording

Home furnishings backlog was $77 million as of the quarter ended December 31, 2024, an increase of 40.0% compared to $55 million in the prior year quarter.

Previous wording

Gross margin as a percent of net sales for the quarter ended September 30, 2024, was 21.5%, compared to 19.5% for the prior year quarter, an increase of 200 basis points (“bps”). The 200-bps increase was primarily due to sales growth leverage, supply chain cost savings and product portfolio management.

Current wording

Gross margin as a percent of net sales for the quarter ended December 31, 2024, was 21.0%, compared to 21.9% for the prior year quarter, a decrease of 90 basis points (“bps”). The 90-bps decrease was primarily due to ocean freight charge increases partially offset by cost savings initiatives.

Previous wording

Selling, general and administrative (“SG&A”) expenses decreased ($0.2) million to $16.3 million in the first quarter ended September 30, 2024, as compared to $16.5 million in the prior year quarter. As a percentage of net sales, SG&A was 15.7% in the quarter ended September 30, 2024 compared to 17.4% of net sales in the prior year quarter. The 170-bps decrease was due to leverage on higher sales and structural cost savings, partially offset by investments in growth initiatives for the quarter ended September 30, 2024.

Current wording

Selling, general and administrative (“SG&A”) expenses decreased ($1.3) million to $16.1 million in the second quarter ended December 31, 2024, as compared to $17.4 million in the prior year quarter. As a percentage of net sales, SG&A was 14.9% in the quarter ended December 31, 2024 compared to 17.3% of net sales in the prior year quarter. The 240-bps decrease was due to leverage on higher sales and structural cost savings, partially offset by investments in growth initiatives for the quarter ended December 31, 2024.

Previous wording

Net income was $4.1 million, or $0.74 per diluted share for the quarter ended September 30, 2024, compared to net income of $0.8 million, or $0.14 per diluted share in the prior year quarter.

Current wording

Net income was $9.1 million, or $1.62 per diluted share for the quarter ended December 31, 2024, compared to net income of $3.1 million, or $0.57 per diluted share in the prior year quarter.

Previous wording

Income tax expense was $1.9 million, or an effective rate of 31.0% for the quarter ended September 30, 2024, compared to an income tax expense of $0.6 million, or an effective rate of 44.2% during the quarter ended September 30, 2023. For the quarter ended September 30, 2024, the effective tax rate differs from the statutory tax rate of 21% primarily due to state taxes and the impact of foreign operations.

Current wording

Income tax expense was $4.5 million, or an effective rate of 25.3%, during the six months ended December 31, 2024, compared to income tax expense of $1.6 million in the prior-year six-month period, or an effective tax rate of 30.1%. The effective tax rate for the six months ended December 31, 2024, was primarily impacted by state taxes and the impact of foreign operations.

Previous wording

Working capital (current assets less current liabilities) on September 30, 2024, was $98.3 million compared to $95.0 million on June 30, 2024. The $3.3 million increase in working capital was primarily due to a decrease in payroll and related liabilities of $5.9 million, a decrease in accounts payable of $1.0 million, and a decrease in other current liabilities of $0.3 million offset by an increase in cash of $1.0 million and a decrease in net trade receivables of $4.8 million. Refer to discussion of working capital changes below, under Net cash provided by (used in) operating activities. Capital expenditures were $0.4 million during the three months ended September 30, 2024.

Current wording

Working capital (current assets less current liabilities) on December 31, 2024, was $98.2 million compared to $95.0 million on June 30, 2024. The $3.2 million increase in working capital was primarily due to a decrease in accounts payable of $5.1 million, a decrease in payroll and related liabilities of $4.6 million, and an increase in other current liabilities of $0.6 million offset by an increase in other current assets of $7.2 million, an increase in cash of $7 million, and a decrease in net trade receivables of $7.9 million, a decrease in inventories of $5.5 million and a decrease in assets held for sale of $1.7 million. Refer to discussion of working capital changes below, under Net cash provided by operating activities. Capital expenditures were $1.3 million during the six months ended December 31, 2024.

Previous wording

For the three months ended September 30, 2024, net cash provided by operating activities was $2.4 million, primarily due to a decrease in trade receivables of $4.8 million, net income of $4.1 million, adjustments for non-cash items including stock-based compensation of $1.1 million and depreciation of $0.9 million, and a decrease in inventory of $0.7 million offset by a decrease in accrued liabilities of $6.0 million, an increase in other current assets of $1.8 million, a decrease in accounts payable of $1.0 million and a decrease of other assets and liabilities of $0.4 million.

Current wording

For the six months ended December 31, 2024, net cash provided by operating activities was $9.1 million, primarily due to an increase in net income of $13.2 million, adjustments for non-cash items including a pre-tax gain on sale of assets of $5 million, stock-based compensation of $2.1 million, depreciation of $1.9 million, and a decrease in inventory of $5.5 million offset by an increase in trade receivables of $7.9 million, an increase in accrued liabilities of $4.9 million, a decrease in other current assets of $3.6 million, an increase in accounts payable of $5.4 million and a decrease of other assets and liabilities of $0.2 million.

Previous wording

For the three months ended September 30, 2023, net cash used by operating activities was $1.8 million, primarily due to a decrease in accrued liabilities of $4.5 million, a decrease in accounts payable of $3.7 million, a decrease in other current assets of $2.8 million, and a decrease in other assets of $1.4 million partially offset by an increase in trade receivables of $6.7 million, an increase in inventory of $1.3 million, net income of $0.8 million, and adjustments for non-cash items including depreciation of $0.9 million and stock-based compensation of $0.9 million.

Current wording

For the six months ended December 31, 2023, net cash provided by operating activities was $17.2 million, primarily due to a decrease in inventory of $16.8 million, a decrease in trade receivables of $6.9 million, net income of $3.8 million, and adjustments for non-cash items including depreciation of $1.9 million, stock-based compensation of $1.8 million, and deferred income taxes of $0.1 million partially offset by an increase in other assets of $5.3 million, a decrease in accounts payable of $5.0 million, an increase in other current assets of $2.1 million, and a decrease in accrued liabilities of $1.7 million.

Previous wording

For the three months ended September 30, 2024, net cash provided by investing activities was $0.7 million due to proceeds from corporate owned life insurance proceeds of $1.1 million, offset by capital expenditures of $0.4.

Current wording

For the six months ended December 31, 2024, net cash provided by investing activities was $6.5 million due to proceeds from the sale of Dublin of $6.7 million, and corporate owned life insurance proceeds of $1.1 million, offset by capital expenditures of $1.3 million.

Previous wording

For the three months ended September 30, 2023, net cash used in investing activities was $1.4 million due to capital expenditures.

Current wording

For the six months ended December 31, 2023, net cash used in investing activities was $3.1 million due to capital expenditures.

Previous wording

For the three months ended September 30, 2024, net cash used in financing activities was $2.1 million, due to payments on the line of credit of $104.1 million partially offset by proceeds from the line of credit of $102.9 million and dividends paid of $0.9 million.

Current wording

For the six months ended December 31, 2024, net cash used in financing activities was $8.6 million, due to payments on the line of credit of $207.1 million partially offset by proceeds from the line of credit of $202 million, shares withheld for tax payments on vested shares and options exercised of $2.1 million, dividends paid of $1.8 million, and proceeds from issuance of common stock of $0.1 million.

Previous wording

For the three months ended September 30, 2023, net cash provided by financing activities was $2.7 million, due to proceeds from the line of credit of $101.3 million partially offset by payments on the line of credit of $96.6 million, dividends paid of $0.9 million, $0.6 million for tax payments on employee vested restricted shares netted with proceeds from the issuance of common stock, and $0.5 million for purchases of company stock..

Current wording

For the six months ended December 31, 2023, net cash used in financing activities was $14.2 million, due to payments on the line of credit of $190.9 million partially offset by proceeds from the line of credit of $180.5 million, dividends paid of $1.7 million, $1.4 million paid for purchases of company stock, and $0.7 million paid for tax payments on employee vested restricted shares netted with proceeds from the issuance of common stock.

Previous wording

On April 18, 2022, the Company, as the borrower, entered into a first amendment to the September 8, 2021, Credit Agreement (“First Amendment to the Credit Agreement”), with the Lender and the lenders thereto. The amendment to the Credit Agreement changed the definition of the term ‘Payment Conditions’ and further defined default or event of default and the calculation of the Fixed Charge Coverage Ratio.

Current wording

On April 18, 2022, the Company, as the borrower, entered into a first amendment to the Credit Agreement (“First Amendment to the Credit Agreement”), with the Lender and the lenders thereto. The amendment to the Credit Agreement changed the definition of the term ‘Payment Conditions’ and further defined default or event of default and the calculation of the Fixed Charge Coverage Ratio.

Previous wording

Subject to certain conditions, borrowings under the Credit Agreement initially bore interest at LIBOR plus 1.25% or 1.50% per annum. On May 24, 2023, the Company entered into a second amendment to the Credit Agreement ("Second Amendment to the Credit Agreement") with the Lender to transition the applicable interest rate from LIBOR to Secured Overnight Financing Rate ("SOFR"). Effective as of the date of the Second Amendment to the Credit Agreement, borrowings under the amended Credit Agreement bear interest at SOFR plus 1.36% to 1.61%, or an effective interest rate of 6.68%, on September 30, 2024.

Current wording

Subject to certain conditions, borrowings under the Credit Agreement initially bore interest at LIBOR plus 1.25% or 1.50% per annum. On May 24, 2023, the Company entered into a second amendment to the Credit Agreement ("Second Amendment to the Credit Agreement") with the Lender to transition the applicable interest rate from LIBOR to Secured Overnight Financing Rate ("SOFR"). Effective as of the date of the Second Amendment to the Credit Agreement, borrowings under the amended Credit Agreement bear interest at SOFR plus 1.36% to 1.61%, or an effective interest rate of 5.82%, on December 31, 2024.

Previous wording

As of September 30, 2024, there was $3.6 million outstanding under the Credit Agreement, exclusive of fees and letters of credit.

Current wording

As of December 31, 2024, there were no outstanding borrowings under the Credit Agreement, exclusive of fees and letters of credit.