Q3 2020 Dixie Group Inc Earnings Call

It's come to Alan Thanks.

Thank you Dan as Dan.

Dan mentioned earlier, our net sales for the third quarter of 2020 $85.9 million, which was down 10% from the third quarter of 2019.

We were at $95.4 million.

Gross profit for the quarter was 25.9% of net sales this was a significant improvement.

The end of the prior quarter the reduction during the quarter was primarily driven by earnings and working capital changes most significantly reductions in inventory.

Year over year that has decreased $50 $2 million when compared to the third quarter of 2019. The decrease in that year over year is primarily the result of the sale of our California facility in the fourth quarter of 2019, as well as better use of working capital.

Diluted earnings per share from continuing operations was six cents.

Looking at our balance sheet at the end of September net receivables increased six $7 million during the quarter.

The increase in receivables as a result of higher sales volume in the third quarter as compared to the prior quarter, which was heavily impacted by the COVID-19 crisis inventory.

Inventory decreased $3 million in the third quarter of 2020, compared with the second quarter imbalance.

During the third quarter, we continued our focus on improvements in working capital, including inventory turnover.

Capital equipment acquisitions, including that is funded by cash in finance things was 403000 in the third quarter of 2020, depreciation and amortization during the quarter was $2.8 million.

We anticipate capital expenditures for 2020 to be approximately $3.5 million and a depreciation and amortization total of approximately $10.6 million.

At quarter, and the borrowing availability under a longterm credit agreement was $25.3 million.

But as Dan mentioned subsequent to quarter and we entered into an agreement for a new five year senior credit facility of $75 million and also closed on too long term fixed asset back loans and the total of $25 million at.

At the close of the credit facility agreement on October 30th of borrowing availability was $45 million current availability of funds is $46.7 million.

Our envision six six now on program consent due to significant growth and build momentum in the market.

This program offers beautifully.

Sometimes with the durability and the performance of nylon type six six at price points, which compete effectively and todays market.

Envision six six has become our primary growth platform in soft surfaces, and we're planning for another significant expansion of this product family in 2021.

I wasn't that hard surface segment continued performing exceptionally well for the third quarter.

Growing significantly in both the luxury vinyl flooring and engineered hardwood categories.

Within our Truecar brand to new innovations made a notable impact tricor and GT is an SBC product, which utilizes an innovative locking system.

To deliver realistic drought lines on our authentic tile and stone visuals.

This innovation saves money time, and eliminates many disruptions associated with the traditional ceramic tile replacement projects.

Crude core XXL, a double dip is PC offering with 18 beautiful friendship visuals.

Oversize planks, including seven by 72, nine by 72, and 10 about 84 inches.

Yes.

Or is the widest longest reaching core plank on the market today and with the clean visuals and on trend colors. These products gain immediate traction during the third quarter.

Our commercial business continues to be add back back 19 in the third quarter sales of our commercial products were down 41% on a year over year basis.

The stream, we believe it was down close to 25% for the same time periods.

We believe the recovery will be overcome and not as dominant as president of the market recovery.

Our focus in terms of market segments on the senior living multifamily and non lodging hospitality market segments.

The living series lost this year produce focused on public space opportunities in these market segments has generated numerous specifications and we will be launching additional product. This year focused on the flooring in these market segments.

We are hearing to both body fat Bell.

No.

Correct.

It's been as great as overall.

We are experiencing acceptance in sales growth and our new non PVC.

Backing on our modular tile products.

This product offers a non PVC alternative very high recycle content that can be used in high relative humidity conditions.

Looking at the fourth quarter, and where we are today, we have returned to profitability in the third quarter with a gross profit of 25.9% compared to 22.1% a year ago.

Commercial business continues to be adversely impacted back overnight seen we've seen no change in the fourth quarter Bayer.

The commercial business currently represents about 15% of our sale.

To mitigate the impact of the slope commercial business were utilizing some of our commercial business assets.

Helps support the growth of our residential business.

Residential continues to gain momentum for October orders sales are up up a low mid teens.

Compared to a year ago we.

We along with the industry have implemented a price increase in the fourth quarter.

Provided good operational performance and our manufacturing facility venue to see major improve.

Cost quality waste served.

Through operational improvements, we've been able to reduce head count, 6% this year and 26% last three.

Again, Weve refinanced the company with loan maturities going from just over a year to five and 25.

We no longer have any goodwill or intangibles on our balance.

And we announced the 2.9 million stock repurchase authorization as well as have reduced debt in the last 12 months over $50 million at.

At this time, we will open up the meeting to questions.

At this time, we would be happy to open up the conference call to questions.

If you would like to ask a question. Please press star one on your telephone keypad.

Confirmation Todd will indicate your line is that the question queue you.

You May press star two if he would like to remove your question from a Q.

For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key.

One moment, please while we poll for questions.

Our first question comes from Barry Blake with J.H. Darby a company. Please go ahead.

Hi, Dan that was an excellent quarter congratulations on that I have a few questions certainly.

Certainly Barry first I have the first question is you outperform.

Outperformed pretty much the industry I'm looking at Armstrong and they had a terrible quarter compared T. The quarter that you had I realize that mix is a little different but maybe you can comment on.

Why the rest of the industry is doing so poorly in and the difference between you and them.

Barry I again, I'm, there's no great comparable no other company that's exactly configured the way we are but I think basically were in the high end residential business with a smaller commercial business. The commercial business. It continues to be challenged.

At the high end residential business has grown nicely.

And you know if somebody had told me we're going to walk everybody in this country in their house for two or three months and then we're going to let them loose and they're going to want to go out and buy carpet I would have thought they were you were crazy.

But that's what's happened.

And it's an exciting environment, it's a growing.

Part of the business.

And I think you will see that continue as the housing statistics, both home resales and housing starts.

And.

I continue to improve and are at all time highs. So we see the residential business.

Particularly in the higher end.

Growing very nicely.

[noise] well with these competitors and and this their stock price is dropping.

Yeah are you, considering possibly any consolidations or acquisitions at this time.

Barry are quite honestly, obviously with everything that we have been doing our focus has been pretty inward and for the last couple of months not knowing what the real impact of Cove It would be.

And Reconfiguring our balance sheet.

Having accomplished all this I, yes, I think we will continue looking at opportunities as they may arise.

[noise]. My last question is you see some government loans I'm not sure I'd like to what they were and how much of that did you have and how much is under forgiveness under the forgiveness program.

The bonds that we have secured under the U.S.D.A. thick asset backed loans that we spoke about which is the $25 million the two loans.

Total together.

I was under the U.S.D.A. program not directly into the forgiveness program or the cares Act.

Please.

It is the U.S.D.A. program and bags for them.

So I just I mean, just fun to give 'em horns. It all has to be paid back at some point in time.

Various areas no forgivable <unk>.

No. They don't want it was actually our with the American State Bank out of Oklahoma, and the greater Nevada credit Union out of Nevada.

Through a U.S.D.A. program, where we have facilities that are in rural or unit.

Yes, they can get today simply provide as much services to the banks on the loan that they are.

Phones that are pre payable by us over the term of the loan period.

Okay, well, thank you very much.

Thank you Barry.

Our next question comes from Barry Gardiner with Citi Staples. Please go ahead.

Good morning, folks I guess pardon me very cool.

Well first of all I wanted to personally wish my congratulations seems to fall <unk>, John that you guys announced last night will be.

No rotating into a consulting role.

I, just I think as an investor in somebody's sort of dealt with him obviously still going be appointing company right. He had seen incredible easily seen someone that's made it very easy to access the companies I wouldn't say that first secondly, congratulations on given given seeking guidance it out.

Do you feel like equally hmm. So it is a spike of covidien, albeit a crazy things thrown away you mentioned the residential business you see a shining point essentially on the hiring.

The sales mix as it relates to distribution channel changing this time around me are you seeing good well actually I did a week to week.

No I think they make you can see where it's like you know contractors and or they do so I never see typically sell through.

Barry we haven't seen a major change in our.

Nick to customers as you know we have thousands thousands of retail for.

We also do participate through the big boxes, and I would say that the <unk>.

Our big box business as you're probably aware decline last year, but that has reached the point, where we're showing favorable comp for that business as we have.

Gotten better placement there. So we don't see any major mix change and let me comment on your comment about John Farmer, John was instrumental in food reconfiguration of our balance sheet.

John has been with us for a long time and Ben It a great help to the company.

He is leave has left but it will stay as a consultant for 18 months with us.

He's going to.

The beep moving on to other things, but that's still a part of Dixie and very connected to so.

Again, he is an extremely helpful.

Uh huh.

We appreciate that immensely and I hope that you will find we're still is available as we work with John Deere and if you have questions. Please call either Allen or me.

Absolutely. Thank you so much and congratulations again on the next quarter and on the next moving to 24 months, so really getting squeezed implemented.

Thank you Barry.

Our next question comes from Derek Lopsided with Hodges capital market management. Please go ahead.

Good morning, all.

Morning Derik.

Can you provide a little bit more color on the improvement in gross margins and is this a level you think that is sustainable going forward.

Derrick.

Again, I pointed out at the end that we have reduced headcount this year by 6% over the last three years, 26%.

We were able to do this because of major improvements in our manufacturing facilities.

As well as automating some functions corporately.

Or administratively so we see these as reductions in cost obviously.

In the plants very directly impacting our gross margins.

We've seen a major improvement in lowering our waste and improving our quality.

And productivity. So we certainly hope and believe these changes are ones that we can build on going fall.

Very good maybe a second question on on just the refinancing of the balance sheet, what kind of interest savings do you foresee.

Yeah on annual basis.

[laughter] well.

Well remember, it's got to be reflective of lower debt as well as Oh.

Interest savings so and it is a moving target because we will be paying off some machinery loans.

During the next year or two.

Yeah, the transaction as well as where.

Good morning. This is obviously, a we had a kind of a rush to the finish line last week.

We intend to secure longer term financing.

At the anymore.

The more secured rate and replacing our revolver and assessing how.

How much would you need to access open revolver over the next year is really going to play into that we do expect this puts us in a much stronger position from a cash availability going forward.

As well as continuing to improve our interest rate expenses.

And then the parameters around the buyback program Oh, what's you're allowed to do on a daily basis. And then then also is there any any restrictions or covenants in that new revolving credit agreement on on the buyback.

There are certain restrictions, but I'll start this is.

Our plan takes that into account.

Okay.

Maybe one well.

Well, maybe two for me if you don't mind, but that's all right Yeah, I'd love to hear a little bit more color on on the relationship with the big box retailer and maybe getting back some more force floor space, how do you know what.

What's been going on on there and then and then the second question would be you know.

What is hard surface in residential t. all today, it's a percentage on where do you think that could go.

We typically do not give the percentage on hard surface I'll address that one.

First we're seeing excellent growth in excess of 50% and our hard surface business looking both at LTC in engineered wood.

Oh, we have achieved significant additional placement.

And our hard surface products with the retail community and this is all for the retail not through the big boxes.

We also.

In addition, we're introducing new products as well and have hired hard surface sales people only.

In certain geographical areas. So we see this as a continued area of significant growth for us as a company.

In terms of the.

Position in the big boxes, we did lose position a little over about a year and a half ago.

They were major changes in the big box configuration, no bar products were taken out, but then again, we were able to regain some position in June of this year that is beginning to have an impact on our sales and as I mentioned.

By late September we were having favorable.

Comps to a year ago with our big box business and that has continued into the fourth quarter and that we think will continue going forward.

Thank you very much for your time and congratulations on the quarter.

Thank you Derek.

With no further questions in queue I will turn the call back to dad fire set for additional or closing remark.

Thank you Stacy and Oh, what a difference a quarter makes we're glad that a at least today, we are in and talk about improve sales.

In the residential business and growth as a company.

I.

Appreciate your being with US today and look forward to meeting with you again next quarter. Thank you.

Ladies and gentlemen that will conclude today's conference. Thank.

Thank you again for your participation.

[noise].