Q3 2020 Earnings Call

Good morning, and welcome to the Flexsteel Industries third quarter fiscal year 2020 earnings conference call today. All participants will be in a listen-only mode. Should you need assistance during today's conference. Please signal for 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 than one on your touchtone phone to withdraw your question, please press * then two, please note that today's event is being recorded at this time. I would like to turn the conference over any case investor relations for flexible Industries, please go ahead.

Thank you and welcome to today's call to discuss Flexsteel Industries fiscal year 2020 Financial results our earnings release which we issued after market close. Yes, Thursday, Tuesday, April 28th is available on the investor relations section of our website ww.w under news and events. I am here today. She's executive officer and Eric Schmidt Chief Financial and Chief Operating Officer on today's call management will provide prepared remarks and then we'll 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 by the use of the word such as estimate anticipate wage act and settle their 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 birth

Sales 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 Android or 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 management 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 a Reconciliation of the gaap to non-gaap measures and with that. I'll turn the call over to Jerry Dittmer Jerry.

Good morning, and thank you for joining us.

Today the world has greatly changed since they spoke with you last quarter at that time. We were deep in the process of level setting our business to focus on the future growth since then no one could have predicted the severity of covid-19 on our customers are company and the international economy.

Before I discuss the impact of covid-19 on our third quarter results. I want to introduce Derek Schmidt who recently joined Flexsteel as Chief Financial and Chief Operating Officer.

Derek and I worked together for seven years of age and I so I know first-hand is tremendous range of public company experience that spans Finance Treasury and investor relations is also a proven leader and driving profitable growth through optimizing Supply chains service levels and inventory management in addition. He has a passion for identifying and developing Talent which is so important to the future of our company. I am very confident that Derek will make a significant contribution to Flexsteel. He is the right person at the right time to move our strategic plan forward.

Regarding third-quarter results. It's no surprise that they fell short of our initial expectations. We were already dealing with lower demand due to the Tariff impact on pricing them mid-march a majority of our retail store customers were shuttered by coronavirus regulations, even before the pandemic spread Art Van which accounted for 3% of total net sales announced its bankruptcy as a result of these challenges net sales declined 11% to ninety nine million versus 112,000 your every year and resulted in net operating loss of 66 cents per share.

Derek will go into more detail in the third quarter. So now I will focus on our response to covid-19 first and foremost. Our goal was to protect our employees as best. We could try following all the safety precautions outlined by the CDC like many companies Across the Nation. Our corporate headquarters is relatively empty with most people working remotely from home. We also took Swift action to mitigate our operational and Financial Risk and we had to make some difficult decisions starting with compensation reductions the base salary of all company officers was temporarily reduced by 25% and non-executive employees was salaries above 150,000 took a 20% pay cut until further notice our board of directors also had a temporary 50% reduction of cash compensation.

Our 401K match was suspended effective June one through the end of the calendar year.

The hardest yet necessary measure was a temporary layoff of employees in the shutdown of all our North American manufacturing facilities due to the sharp decline in demand jobs provided welfare benefits through the month of May to employee impacted by the layoffs and expect our manufacturing plants to start production this week or next month. We have no line of sight if and when these operations will return to pre-k covid-19 production levels are distribution centers in Kansas, California, and Indiana will remain open to service our valuable customers during this challenging time. Finally. We permanently closed are Lancaster Pennsylvania distribution center and located this work to other distribution centers.

We are continuing to

Take and ship retail and online orders from existing inventory and we are still placing orders with our overseas vendors for our best selling products to ensure there is inventory on hand when sales returns.

To reset the cost structure and lower volume and manage cash flow. We are eliminating all non-essential expenses and capital expenditures and we are negotiating with vendors to extend payment terms. We drew down fifteen million under the terms of our revolving credit line to increase liquidity and strengthen our financial position.

At the end of the third quarter are cash and Investments totaled 62.5 million while our liquidity position is strong. We are prepared to aggressively preserve cash to effectively navigate an extended period of economic uncertainty and slow down as always our board of directors reviews are dividend on a quarterly basis and will continue to assess our dividend policy considering the current economic environment and Company's cash requirements with a history of 313 consecutive payouts wage committed to dividends over the long term.

The actions I just laid out are playing across businesses worldwide as companies hunker down for the duration of the pandemic. The big question is what's next and Flexsteel. It means I'm celebrating plans around our business transformation. We have Clarity and how we will best position the company for long-term profitable growth and create value for our shareholders and the current economic slowdown due to the coronavirus has provided us an opportunity to move boldly to realize our vision.

We have announced our intent to exit the recreational vehicle seating and remaining Hospitality business that we have determined are no longer strategic to the future of the company and cannot deliver an adequate Financial return.

By exiting these non-core businesses, we will sharpen our organizational focus on growing those business platforms that strategically fit with our core competencies and have the greatest potential for long-term profitable growth namely residential home furnishings e-commerce and workspace Solutions.

To provide additional context on our business reprioritization efforts the seating segment of Class A RVs, which we are exiting has a market size less than 100 million and had already entered a cyclical decline prior to covid-19 as 2019 Class A RV shipments dropped by more than 24% from 2018. Furthermore wage is estimated to decline substantially faster and twenty-twenty as a result of the current pandemic in comparison. The Home Furnishings Market is extremely large at $115 billion is highly fragmented and offers opportunities for Flex deal to differentiate are offering as well as providing attractive long-term growth potential.

because of

Significant profit in sales growth potential within our home furnishings business. We have deployed multiple initiatives to improve our competitive positioning and accelerate our growth

We are tailoring our product assortment to become more relevant to the market while cutting off low-performing items and concentrating on our most profitable in the high demand offering off on the operational side. We are heavily focused on ways to reduce our complexity in our process is to both improve the customer's experience and expand profitability.

While our home furnishings business will be adversely impacted in the short-term by customers to our closing on the bright side are home Styles business for the e-commerce channel is robust, which stores closed people are actively buying furniture online to the extent that we exceeded our e-commerce plan for the quarter this reinforces. My confidence that e-commerce is the big opportunity for Flexsteel and a couple of ways. The quality of our products in our price points is outstanding customers will not suffer a disappointing experience with Flex Seal products in this college graduation expanding relationships with our e-commerce partners and attracting new ones.

For a brick-and-mortar customers we're working with them to build out their critically needed e-commerce capability as part of this endeavor. We are actively working with them to properly display off on their website to generate online volume over time. I think this on-line business can grow to be as significant part of our business through there more Woodland Ecommerce Channel expertise. We can be a valuable partner to our store customers as they reshape the way they do business in the future.

We are firmly placing a stake in the ground that flex-fuel can become the go-to resource for furniture sold online in our price category. As I mentioned last quarter. We are hard at work designing new product introductions using customer insights and building a strong pipeline of exciting new furniture to bring to Market.

Regardless of the disruption of our industry from terrorists to the pandemic we have reason to look ahead optimistically. We are pushing out the boundaries of opportunity while streamlining our operations and footprint. We expect to come out of this crisis more Nimble more flexible and more competitive now turn the call over to Derek to discuss our financial and operational results in detail page.

Thank you, Jerry in good morning. I also shared Jerry's enthusiasm that Flex still has considerable opportunity head and I am very excited to be part of the team for the quarter net sales decreased 11.4% to ninety eight point eight million dollars or a decline of approximately four million dollars from the second quarter exiting the commercial office and custom jobs in Hospitality product classmate coupled with softness in the RV business accounted for or five point five million dollars declined from the third quarter last year our residential products group package delivered disappointing third-quarter results will sales off 5.7% driven mostly by the 25% tariff impact on volume and to a lesser degree from widespread customer Store Club that started in mid-march, as of today. The majority of our retail customers stores remain closed until covid-19 health and safety regulations are lifted.

We anticipate this will have an adverse.

Impact on our sales through the balance of the fiscal year on a positive note are ready to assemble Furniture, which is sold under the home Styles brand in distributed primarily through the e-commerce Channel reported sales up 37.1% in the quarter continuing its strong growth trajectory for the nine-month. Our e-commerce Channel grew 19.1% off turning briefly to contract performance. We are on track to complete the wind down of the remaining custom-designed Hospitality orders by the end of this fiscal year as Jerry noted earlier. We now intend to agent the remaining Hospitality business as well vehicle seating products also contributed to the sales decline down 14% in the quarter and down 14% Year-to-date the RV Tri especially the premium Class A motorhome category that Jerry described may not recover any time soon post covid-19 as we have previously mentioned the customized dead.

Factor of RV products is complex. It must meet strict Regulatory Compliance requirements in requires specialized engineering support.

after considerable review we have determined that vehicle seating is no longer a strategic fit for the company and it does not present attractive long-term growth and profitability potential relative other businesses, which are cortaflex deals future as such we intend to exit vehicle seating in order to focus our resources on higher Financial return businesses, the specific timing and Associated Financial impacts of these business exits will be determined in the fourth quarter and subsequently communicated once known

In the third quarter gross margin as a percent of net sales declined 510 basis points to 14% vs 1919.1 percent in the prior year quarter month as part of our customer and product profitability initiative. We executed a SKU rationalization on a residential product sold through retail stores, which resulted in an inventory valuation adjustment in margin contraction in the quarter of approximately 240 basis points breaking down the remaining margin compression. Approximately 140 basis points can be attributed wage mix 130 basis points is associated with increased cost to improve lead times in the customer experience 110 basis points is due to foreign currency exchange. In fact offset by favorable labor and material costs of 120 basis points.

We believe that effectively managing the product lifecycle rationalizing products by cutting off the tail and simplifying our product offering our a key to long-term and sustainable product Home Improvement.

Selling General and administrative or sg&a expenses decreased 2.8 million or 12% to 20.1 million dollars as compared to third quarter of fiscal 2019. The decrease in sg&a was primarily driven by three million dollars of current-year restructuring savings and lower expenses on reduce volume. This expense reduction was partially offset by an increase of four point 1 million dollars in bad debt primarily from a customer bankruptcy and one-time expense of half a million dollars associated with CFO Severance costs sg&a was further reduced due to a one-time two and half million dollar non-cash expense taken in the comparable period last year related to the termination and settlement of a defined benefit plan.

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The bottom line we reported a net loss of 5.3 million dollars or $0.66 per diluted share compared to a net loss of 15.6 million dollars or $1,000.97 per diluted share in the third quarter last year. The reported net loss included three unusual items first, two point four million dollars of tax restructuring exchange primarily for facility closures professional fees and employee termination costs as part of the previously-announced comprehensive transformation program. Second half a million for CFO Severance in third three million dollars related to a gain on disposal of assets excluding these items the company reported in adjusted net loss of three point, six million dollars or $0.45 per diluted share as compared to an adjusted net income of $8 or $0.10 per month.

To to share in the third quarter of 2019. Please refer to the non-gaap disclosure included in our third fiscal third-quarter earnings, press release for more information on the calculation of net loss reported a tax benefit of three million dollars during the third quarter compared to a tax benefit of 4.5 million dollars in the prior-year quarter of effective tax rate of 35.9% turning to the balance sheet working capital defined as current assets minus current liabilities was $122,000 as of March 31st compared to one hundred eighteen point two million dollars as of June 30th 2019.

The increase in working capital was primarily due to an increase in cash of 25.3 million dollars resulting from the sale of a Riverside California facility and from a draw on our revolving lines of credit partially offset by an eighteen point six million dollar decline in inventory due to inventory management and SKU rationalization activities other notable factors impacting working capital included an increase in other current assets of three million dollars a decrease in restructuring liability of 5.2 million dollars a 3.9 million dollar decline in a trade receivables and an increase in accounts payable of four point six million dollars.

Capital expenditures for the nine months ended March 31st, 2020 were three point three million dollars. We estimate a capex range of 3.6 million to 4.1 million for the full fiscal year the company currently maintains twenty million dollars on a revolvers of which 3.7 million remained available at March 31st, 2020 now operator place in the call for questions.

We will now begin the question-and-answer session to ask a question. You may press * then 1 on your touchtone phone. If you are using a speaker phone, please pick up your handset before pressing the keys. If at anytime your question has been addressed and you would like to a dry it, please press * then two at this time. We will pause momentarily to assemble our roster.

Today's first question comes from JP with Keegan. Please proceed.

Hey, good morning, Jerry and Derek welcomes pleasure to make your acquaintance curious. You made some took some decisive during the quarter to deal with covid-19. How many of these actions were contemplated in your restructuring plan? And after these actions? Where does this leave you with your restructuring plan?

Yeah, good morning, J P. None of these items that we took action on were in our previous restructuring plan. Our plan is to take our previous restructuring along with these current actions and during our fourth quarter. We will review all them and come out with with a new range in our restructuring right now. We're Thirty one point four million in our current restructuring with a range that we had of 48 to $53 million these current actions along with the things we were contemplating will be reviewing them.

Got it understood. Thank you curious about your decision to exit your RV and Hospitality businesses at this particular time and exactly what that means if you liquidate them or if you'll sell the business as a unit why you made the decision to do this at this particular time what sort of proceed if any you expect what sort of cost savings you would expect and how you plan to deploy any Capital. All right. Yeah. It's like you had nine questions. They're JP bulb Google atom. Basically. The first thing is, you know, we we decided to make the decision now the markets that the company serves in these businesses were already and it's cyclical decline. There's a greatly accelerated obviously in this new environment indication for the market is Adam and within the recreational vehicle and the hospitality industries will not return to prepay endemic levels.

Near midterm given this decision has been made to focus fully on the home furnishings work space and e-commerce business. We thought this was the best time to do it. We also felt it was best to do for our employees and suppliers and customers is it's it's the right time to let them know that we've we're going to do that as far as any proceeds or or things like that. It's just too early for us to really know those things. I mean, we have no idea how well what the duration of this pandemic is going to be. It's it's going to be tough. If not impossible right now to estimate the length and magnitude of that. So we will look as we go forward and see, you know, these buildings if we wind up not selling any of these businesses we obviously will go about and and walk forward with wrapping up the the operations there and then selling the facilities at a later time. We do not currently know what those values valuations would be especially in this uncertain time.

We would fully expect though to quantify those financial impact.

In the fourth quarter and and subsequently communicate those once known as Jerry mentioned we felt consistent with our organizational values. It was most important that we communicate to our employees and our customers off or intend to exit and we will be working with both our employees customers and suppliers over the coming days to figure out how we effectively ramp down the operation.

And and and we will be open and willing to explore any and all opportunities to took to monetize the business.

Recognizing that we live in uncertain times. Do you have some sort of goal for the the time and that disposal timing now mean anything we'd say would we really would have no facts based right now with the pandemic going on. So the timing of that I mean it during said our plan is to start off as early as today going through all that and hopefully have a good estimate for all that here in the fourth quarter. Our plan would not be to dispose of any properties in a fire sale or anything like that at this particular time. So we're hoping to wrap at least have better knowledge as as this goes forward here over the next over the rest of this quarter.

Okay, and then finally, can you please elaborate on what capex was postponed? If that will be pushed into fiscal 2021 and any effects that will have on the business office. Thank you. Yeah, not really. So there was a little bit postponed. It was really more around modernizing a few of our of our facilities and that and it was stuff that were very easily able to push out the major ones that we had. You can tell by the amounts when we only had you know, three four million there in total. There was not a whole lot. We we already done a lot of things from our standpoint that we're comfortable with and the money's we did spend there sure were mostly related to our Dublin, Georgia plant.

Great. Thank you for your time.

Thanks, JP.

The next question comes from John of Pinnacle, please proceed.

Thanks for taking my question and welcome to your dark. Thank you. I was just curious in terms of the customer base stores are currently closed but we're hearing news about furniture change starting to reopen there was a major chain in the South that announced publicly. They were going to start to reopen their stores and I was just curious for your customer base what news you're hearing from them in pockets of geography or however, you want to describe it their intentions of reopening. Yeah good question and it's one of a Lancer but realizing that we're seeing different states open up, you know, you've seen Georgia, Mississippi. We've seen Ohio. We've also seen some states open up immediately go back and close. What we're seeing right now is in round numbers about 30 to 40 per-cent of our retailers are in some way shape or form trying to open page.

Backup, we have no idea. You know what the

Topics going to be or anything like that if there's pent-up demand Etc. A lot of that is a good thing about a lot of furniture stores. You can social distance which is going to help as they open back up and well we're starting to see it more in the areas of you know, less dense population, which is what we're seeing right now. We haven't seen any major openings in any of the major major cities this point, but we are encouraged at least see some place to start to open a little bit and we think this is going to take at least the next month as they start to do this and then of course, the bigger question would be when the customer comes back and of course, that's the question that none of us can answer. Right? Sure. Okay, that's encouraging. What's the health of the reserve tables right. Now, you mentioned the bankruptcy of the Arts. And are you getting pushed back from customers in terms of delaying payments or forbearance or Thursday?

Nothing like that regarding the receivables actually were pleasantly surprised that collections have been relatively strong. Give a given the financial impact too many of our customers. Is this environment? We did proactively extend payment terms to help them through this dispatch, but most are are prioritizing Flexsteel thousands of their payment stream were monitoring it closely. But as I said, we've been pleasantly surprised at the collections cash flow thus far but given the uncertainty of the both the duration a magnitude of how long this is going to go. We'll see if we run in the any other customer bankruptcy. So time will tell okay, this is Jerry. The other thing on that too would be dead. We have a a lot of our customers. We've been with for a long long time where I'm a hundred twenty seven year old company and we have a lot of really great Partners almost without question every month.

Have been working with a very very closely and the same thing with our suppliers and and that's been a big help for us. So we're encouraged. Of course. We don't know. You know, what course what what male look like now but so far as directed we've been very encouraged. Okay, great. You mentioned suppliers. It seems like the terrorists are still an issue here. And I know we've talked about this in the past in terms of migrating or changing the product specifics to make the product more competitive. When do you think tires are going to be less of an issue in terms of sourcing? Well the the way we're doing me we of course have no control over when Tara, you know, if they're here forever or what the percentage will be. So what we've done is we have lowered our exposure in China to where it was close to fifty percent is now a little bit under 25% which is really the way we've been handling it and will continue to bring that exposure down.

as

As other parts of the world are able to ramp up for us. It's been a big help. So that's really the way we're going to do it since we have no control over it is just to continue to move our products. We moved back to you know, Canada Mexico the United States a different, you know to Vietnam different parts of Southeast Asia and will continue to do that. But do you think China will continue to decline

Oh, I that you're out you're out of my scope now. Well in in terms of if you're asking about our exposure over the long term, we expect it to decline. I mean, we still have a couple major product groups that were in the process of transitioning now and as we start to think about our new product development and launching is new products, we will not be launching any of those new products in China unless absolutely necessary. So over over a period of time we absolutely expect our Chinese China exposure to go down. Okay and which projects are you transitioning out of China at this point? Yeah, most of them right now our sofas and recliners in our motion furniture.

Okay, good. I guess the last one for me is you said you're going to evaluate the next stage of the restructuring and probably have that completed by June. Will you make a separate announcement of your findings and in June or will we wait until the year-end results in August or whenever they found out what we really don't know that yet. It's good question. As soon as we know it we will put something out. It could be take us to full fourth-quarter to do that. A lot of it's going to depend on what really happens here and how long the pandemic continues into what severity but as soon as we know stuff and her feel confident about it. We will come out with that information obviously pits. Material is known before the quarter will will will announce that. Okay, that would be helpful. Thank you very much. Thank you.

Today's next question comes from various hours of salaries value, please proceed.

Good morning, and thank you all for taking my questions. I first want to start by saying that I am very relieved to see you all taking such decisive actions to whether this crisis especially taking a 25% pay cut across the executive team as well as reductions for the board and employees. I definitely wish that a lot more companies would follow your example and do the right thing here because that's what's going to get you through this. But first off how much flexibility do we have to cut pay further, especially on the executive life if need be and what kind of impact would this have on our cash flow, you know, I'll attempt to answer that and and I think the answer the question is broader just an exact compensation as you can appreciate do the unknown duration of the pandemic and resulting economic impact. It's it's almost impossible to determine what our normal run rate is this point but dead

Please be assured that we're running multiple businesses.

Ariel's and we're monitoring sales demand and taking proactive aggressive actions and efficiently scalar operations to make sure that Flexsteel can endure and recover this and so if if divorce and should dissipate further, I think we are prepared to take multitude of different actions across the various expensive areas within our business to adjust our cost structure.

Thank you following the layoffs that you mentioned in your manufacturing. Do you see any risks in having an adequate Workforce returned when the time comes to eventually reopen and Juice production? That's a good question. I mean it's very much an unknowing. Obviously. The good news right now is if there is any for those employees the government programs are helping them a lot when we're we're happy that those programs are out there that they can use them as far as them coming back. We have brought back one of our plans starting this Monday and we're off to get folks to come back. I guess a good part for our standpoint is that there are probably a lot of jobs they can go to right. Now. Most of our people were are pretty ecstatic to be able to come back to work, So we started one plant. We're going to start another one up this coming Monday and we're doing the call back. So right now we've seen workers coming back and then and we're hoping that what will continue

All right. Well, that's definitely good to hear that. This question is for Derrick or hit. The sales doesn't really look all that bad cuz we're what was it at 11% year-over-year decline on this based on this quarter. How how do those sales look for say the month of April?

Yeah, the what I can tell you about April looks much slower than what we saw at the tail-end of of mid-march. I mean if you think about when the shelters in place really him broadly, it wasn't really until the the mid month. And so we didn't see sales decline until the kind of tail end now it's difficult, you know to determine where we go from here. But I mean what we're seeing in terms of orders are at about right now are about 20 to 25% of our normal run rate. Now what we're hearing from the retail channel is a fair amount of optimism, but April sales certainly are much much worse than than March. So you you sat down to twenty to twenty-five percent of what they typically that's what we're currently seeing. Now again, we're cautiously optimistic that as the retail store is open up that will see that pickup. We are seeing really good momentum and re-birth

Commerce business as well, which is encouraging.

Right. All right. Thanks for that. What kind of market research have you all done regarding say shifting consumer Trends and enhancing your competitive advantage.

So what we've been doing is we have ongoing research that we do with been most interesting about it is as we've really been doing it more to our product portfolios and what our product portfolio Page look like coming out of this what the consumer is going to be looking at there's consumer changes, of course, a lot of that research right now is happening real-time because the shifts are happening real-time a lot of his people just don't know but we've got a a fair amount that we're doing with our like I said with our product and our our Marketing Group is doing a lot of that research right now working with our customers and then working off to was look at what the work workplace Trends are going to look like going in the Home Trends are going to look like of the future.

Okay, and what would you describe that competitive Advantage as?

What what feels competitive Advantage is? Yeah. Yeah. So it's a flexi Advantage there is that we have a very very broad product portfolio month. We hit most rooms of the house and we hit various places in in a workplace and we have the ability to scale fairly quickly, It's a size of our furniture or from the sourcing standpoint we Source in from everywhere from South East Asia to Mexico to Canada in other places plus manufacturer here in the US we have ability to to you know adapt fairly quickly to what those consumer Trends would be and that's probably one of our biggest competitive advantages. I think the other thing that I'll build upon what Jerry said the the brand has a lot of power both with the consumer and the channel I was really surprised actually coming into the organization just how well recognized wage.

Valued the brand is in multiple parts of kind of the industry. I think the the second thing is we've got very Broad and diverse distribution. So what's on the retail level Thursday? We we're touching twelve hundred different kind of retailers nationally were aligned with all the major retailers and I think we've got an opportunity to given that choice of broad portfolio some more deeply penetrate different channels and and and and kind of broaden our reach

And I and I think we've got the operational flexibility to either manufacture domestically to Outsource to have consistent quality regardless of the of the source of our projects.

All right. Thank you.

As a reminder. If you do have a question, please press * then 1 our next question comes from Michael with Madison.

Good morning guys, and I want to Echo the the previous callers comments on the steps you've taken to adjust executive compensation and directors compensation. It is absolutely wage. The right thing to do your 8K That You released back in in earlier, April 13th. You mentioned you were reviewing the dividends the the press release you put down last night made no mention of it. But you you referred to it in your comments today considering you are taking on a large amount of debt relative to History Month. Um, you know, it would be a shame that that that is going to be used to pay a dividend. When I think we all would re you need as much flexibility as possible. You haven't spelled out what you'll do, but when will you spell that out and and presumably you're going to cut it? Can you talk about what you're thinking about right now?

Dress that, you know as Jerry mentioned, you know, our board of directors reviews are dividend on a quarterly basis and will continually assess our dividend policy considering both the current economic environment in our cash payments. There has not been a decision made by the board yet to change the dividend in the short-term or long-term, but I think it's fair to assume that it will be an important topic of discussion when the board meets your next June what I will tell you though that we've got a strong history of over three, you know, three hundred consecutive payouts and we're committed to dividends over the long term. So we're aggressively managing cash. We will continue to deploy Capital effectively and and and we'll do what's in the best interest of both the company and our shareholders long-term.

When is your next scheduled payment to shareholders remind me see our next board meeting is in early June so it'd be probably the end of June early. July wage have the date right here with me. So that's that's fine. So but there isn't one between now and and then basically there is not. Okay. Wonderful and you thank you for your comments off your borrowing capacity at the moment. What additional conversations have you had with your lenders about any additional flexibility wage? Obviously, I think you most of your borrowing is unsecured are your borrowers open to doing more and do you have covenants do your covenants prevent you from from taking on some different additional debt during this time to to to give you some stability.

What I can tell you is that we are in very productive discussions with all of our banks regarding extending those lines as well as expanding them.

And would that be on an unsecured or are you or are you considering a secured lending as well? Yeah, it's it's really not appropriate for me to comment and details but just be assured that we're having like I said productive discussions with all of our banks at the moment.

You mentioned an update on the manufacturer between sourced from China being did I hear 25% is the the number you gave our sales exposure off-kilter Celtics Burger. Is that pro forma for the the movements you're making and recliners in motion Furniture such as that 25% account for what you're currently expect to move away from China in the in the motion Furniture recliners. Yeah it it's fairly perspective of what we what we project here in the next I'd say three months.

So the 25% is including the decline in the recliners in motion Furniture. Yeah, I mean, we only have a we've we've actually transitioned a large majority of the products that could be transitioned. We just have a couple groups that are still in in that process.

Okay, but once that process is complete you'll expect it to be about twenty-five percent, correct? And then over time there's just there is a a natural limitation mom how much we can move out of China because of capability gaps in other countries. But again as we start to look at new product launches and manage their own portfolio for the long term, we will certainly try to diversify our country risk.

That's very helpful. And you gave some really interesting outlook for what's happening in April the 20 to 25% order run-rate. Does that include New York e-commerce business as well or is that strictly to the hard-line retail customer base? That's all in for the business. What I can tell you is that had a very strong third-quarter and e-commerce and we're continuing to see that build so strong momentum there.

And and and again, I'll throw up the caveat the the twenty to twenty-five percent is literally what we're seeing this week things could dramatically change next week. It's it's very easy to predict, you know with with stores starting to to open up how that demand will will bounce back.

Thank you very much. That's those are great responses. Appreciate it.

The next question is a follow-up from John. Please proceed. Hi. Thanks for taking my follow-up. Just curious in the corridor took it back out or RV sales and the remaining Hospitality sales that you're going to forego what how much was that in total of the page ninety nine million or so?

Our RV is about six and half percent in the quarter of our sales.

Okay, how about the yeah, the two combined are right at about 9:40. Yeah, that's exactly right. Sure 9% of the 99 million. Okay and will be the fourth quarter or treat these discontinued lines as discontinued items. In other words at what point are we going to be able to see what the underlying purpose of the remaining businesses or?

Yeah, it is not our intent to well. Let me answer that question in in two parts one at this point as Jerry mentioned earlier. It is under certain in terms of how long the ramp down will take. So we don't have good visibility yet in terms of what the duration of running those businesses will be from what I can tell you from a profitability standpoint these businesses do not contribute materially so you should not expect a I think a substantial change to the p&l the benefit of spinning. These are exiting these businesses is really so that we can focus the organizational energy and our financial investment of those platforms that will provide us the great creative opportunity for profitable growth in the future.

So as soon as soon as we have more clarity.

Around the financial impact of exiting these businesses and the timeline as we stated earlier. We will share that with the external Community. Okay, that's helpful. So it was just to make sure I'm clear it with 9% of this quarter, but the p&l impact was minimal and 1/4. Okay. All right. Good. Thank you.

The next question is a follow-up from Harry's hours. Please proceed.

Taking my follow-up question. I do want to discuss the dividend. I understand that. It's currently under review from the board. But per year. I believe paying that out would work out to about seven million, which is somewhat over 10% of our cash reserves. Do you feel that continuing that dividend would

Have a material effect on our flexibility moving forward say if this crisis goes on for another six months to a year. Yeah. So what what Derek it said, I mean, I won't go back and repeat it off. Basically, we review that dividend every quarter and it is fair to assume that we're going to have a discussion in in June inboard will critically assess what are dividend should be going forward. I can't say there be a decline but I am there's no doubt in my mind that that we will bring that dividend to a lower amount right now. He's he's a very high return because of our stock price. And then with what we need to be doing with how we're trying to conserve cash rest assured. We're going to take a hard look at that. Yeah. I am. I am 100% off with you on that and get on the board for taking that review as I mean as far as just cutting a big check to shareholders.

I mean if if my choice is here were to either continue paying out if some a million dollar dividend in cash or cut that and if I have to return Capital to buy back shares if he's very very depressed levels. I would prefer the letter although I do want to stress that cash conservation is vital. Have you looked at a buy back at all?

So so I think all your points are valid and they are all considerations that the management team and the board will take into consideration when we meet in June and will critically assess and took again your points of view or valid. We just have not had the discussion with our board. And so we cannot provide comment beyond what we've already shared. All right. Thank you. And I do have one last question. How successful. Have you been at renegotiating payment terms with your vendors?

Because if I were a vendor and I were concerned about so much credit worthiness. I would probably be going after the guys with you know, fifty sixty million in cash.

We've been very successful at extending terms with all of our suppliers. And if you look at the balance sheet, our accounts payable was up quarter-over-quarter largely due to extending those terms everyone else comment down.

Can you comment?

Card numbers as far as how far out they've been extended.

The general Raines 60 to 90 days. All right. Thank you.

This ends our question-and-answer session at this time. I would like to turn the conference back over to mr. Jerry Dittmer for any closing remarks.

Thank you for participating in today. It's called we're working hard to transform our company and achieve its full potential. I am confident in our team's ability to execute even the space of these daunting and unprecedented times. We have a clear vision of where we want to go. We are grateful to all our partners for their continued support. We appreciate all the calls questions today. We do. Look forward to updating you on our progress next quarter until then stay safe healthy and sane. Thanks again.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.

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