Q4 2020 Dixie Group Inc Earnings Call

Good day and welcome to the Dixie Group, Inc, 2000, Twenty's fourth quarter and year end earnings Conference call today's call is being recorded.

At this time for opening remarks, and introductions I would like to turn the call over to the chairman and Chief Executive Officer, Dan Frierson. Thank you Sir Please go ahead.

Thank you, Don and I and welcome everyone to our fourth quarter and year end conference call.

And our Safe Harbor statement is included by reference both to our website and press release.

As we entered 2020 business was beginning to improve and we were excited about celebrating our 100th anniversary as a company.

Over our 100 years, we've experienced many obstacles such as World Wars, the great Depression, and more recently the great recession.

And I've had not endured a pandemic.

Where do you like every company and we're faced with unprecedented issues on virtually every front.

It's difficult to ascertain the total impact of COVID-19 on the results of 2020.

But it is clear that our sales for the year were about $60 million less and plan and the prior year.

The reduction of sales with an operating margin and the mid twenties reduced operating income significantly probably and the $15 million range.

We also faced additional challenges and our operations as a result of continued absences of people due to COVID-19, and its related quarantine requirements.

Despite the unprecedented challenges faced and the COVID-19 pandemic, we were able to improve our operations and further strengthen our balance sheet to better position our company as we enter 2021 with momentum and optimism.

Yeah.

During 2020, where you reduce debt by $10 million.

And our total debt reduction.

Has been $60 million over the last 30 months, we entered into and there's $75 million line of credit and two long term loans totaling $25 million.

These transactions, along with cost reductions and operating efficiencies and 2020.

Allowed us to end the year with borrowing availability of <unk>.

And 43.3 million under our new senior revolving credit facility.

Operational improvements and cost reductions generated higher gross profit margins are.

Our gross profit margin for the year ended December 26, 2020 was 24, 2% compared with 23% and me.

Previous year.

The company had operating income for the third quarter of 2020, a 2.6 million and operating income of one and a half million and in the fourth quarter of 'twenty.

Good morning.

For the year 2020 net sales for the company were 315 million as compared to 374 million and the year 19 2019.

Net loss from the year 2020 was $9 million $208000 compared to a net income of over 15 million and the previous year.

The decline in sales and the loss in 2020 were primarily driven by the impact of the COVID-19 pandemic.

Net income in 2019 was the result of the sale of our facility and Santa Ana, California, which generated a $25 million gain and the fourth quarter of 2019.

On a non-GAAP adjusted basis, the company had a net loss of two and a half million in 2020 and a net loss of $3 9.002 million 19.

Sales for the fourth quarter at $288 6 million were down one seven per cent. The sprite, despite strong residential sales which were up 15%.

After tax income was a loss of 318000 and was reflective of a number of one time costs.

Operating cost and and the cost of refinancing our short term debt and to longer term debt instruments.

Alan will now review, our fourth quarter and 2020 financial results after which I'll comment on current business conditions Alan Thank.

Thank you, Dan and by way of reference.

And 8-K filing is available on our website containing the statement of operations for the fourth quarter results and also our investor presentation, including our non-GAAP information is available on our website at website at Www Dot the Dixie group Dot com.

As Dan discussed and as we've all experienced both personally and professionally in 2020 and was a challenging year.

As a company we are continuing to focus on the safety and welfare of our employees, while working diligently to continue and improve the financial position of the company.

We were encouraged by the recovery and the residential market and the second half of 2020 and we've seen that momentum continue into 2020 one from the residential markets.

During the second half, we were able to improve our gross profit margins through cost reductions operating efficiencies and improvements in quality and waste and our plants.

We also saw a return to profitability at the operating income level, and the third and fourth quarters of 2020.

The financing transactions and we took at the end of October.

And sufficient borrowing availability and improved the composition of our debt through 2020 and we continue to reduce our total debt as Dan mentioned about $10 million, bringing the total debt reduction over the last two and a half years to $60 million.

For the fiscal year, 2020, our net sales were 316 million barrels and 15, 7% from the $375 million and net sales from the prior year of 2019 from.

And lots of product sales were down 37%, while the industry, we believe with that and a lot of 20 percentile range.

And despite the encouraging recovery and the second half of the year, our residential product sales on the full year were down 13, 6%, while the industry. We believe was down and a mid single digit.

Our gross profit margin for the year was $24 two per cent of net sales a strong improvement over the 2019 margin of 23% and.

And gross profit improvement in 'twenty, and 'twenty became particularly evident and the second half of the year as volume began to improve and we began.

Benefiting from expense reductions enacted in response to the COVID-19 crisis quality improvement and waste production as well as overall operating efficiencies and our plans.

Selling and administrative costs and 2020 ended at $75 7 million or $8 $1 million below those of 2019.

The reduction in selling and administrative expenses was primarily the result of cost saving initiatives implemented as a result of the COVID-19 pandemic.

These initiatives included reduction and samples and marketing expenses reduced travel.

Reductions in payroll expense as the job eliminations and temporary pay reductions as well as other expense reductions.

During the year, we incurred $1 $4 million net of restructuring expenses related to our profit improvement plan.

Expenses were primarily related to workers comp claims from terminated employees and one of our closed facilities, we also incurred $2 $4 million and excess of severance and by that thing related to our COVID-19 response plan.

We ended the year with an operating loss of $2 $9 million compared to other operating income of $21 $3 million from 2019.

2019 operating income at about.

$25 $1 million gain on the sale of our facility and Santa Ana, California.

As mentioned earlier, we had positive operating income and the third and fourth quarter of 2020.

We had and operating income of $2 6 million and one 5 million and Q3 and Q4, respectively.

Also as mentioned earlier, our total bit decrease of $10 2 million was from the end of prior year to the end of the car 2020 year.

Reduction during the year was primarily driven by earnings and working capital changes most significantly reduction of inventories, which were reduced by $10 $1 million during the year.

Turning to our balance sheet at the end of December 2020 net receivable increased 578000, and it was prior year the increase in receivables as a result of higher sales volume and the month of December 2000, and 'twenty as compared to the same period and two.

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Capital equipment acquisitions, including those funded by cash and financing was $3 $1 million over the year.

Depreciation and amortization during the year was $10 7 million.

Anticipate our capital expenditures for 2020 wanted to be approximately $500 per.

Ratios and amortization of approximately $10 million.

At quarter end, our borrowing availability under our long term credit agreement was $43 $3 million.

And at this time and I'll turn it back over to Dan for further comment.

Thank you Alan.

And knowing where the COVID-19 pandemic would lead we implemented our continuity plan to maintain the health and safety of our associates and preserve cash and minimize the impact on our customers.

And minimized and prevent cases of COVID-19 exposure and our facilities, we've taken measures aimed at sanitation and safety, including large scale COVID-19 testing.

Detore temperature checks prior to starting work requirements to wear mask one.

Unable to maintain social distancing and deep cleaning and sanitation.

We limited travel for our associates all of our associates implemented work from home options, where appropriate limited physical contact with our customers.

We reduced our running schedules and our facilities to below demand to maintain order flow to our customers while simultaneously.

They initially reducing inventories to align them with lower customer demand and preserve cash and.

Also to preserve cash we place large percentage of our associates either on rotating layoff or furlough, we implemented approximately $14 million and spending reductions for the current year. These.

These reductions include deferring maintenance when possible reduced capital expenditures and instituting select job eliminations and temporary salary reductions, we deferred new product introductions and reduced sample and marketing expenses.

We work with suppliers lenders and landlords to extend payments and the second quarter not knowing.

What's the impact of Covid would be we.

We've taken advantage of deferral of payroll related taxes under the cares act as well as deferring payments into our defined contribution retirement plan.

Our management team worked together to implement our continuity plan, which has resulted in and improve operating results. Today. We are operating with 100 fewer people than we were a year ago or about 8%.

During the year, we were able to decrease selling and administrative costs through headcount reductions and lower spending.

Operationally, we've experienced significant improvement and quality waste reduction and cost at the same time, we're able to maintain superior customer service and outperformed and many of our competitors and this area.

In addition to the cost and operational improvements, we were able to strengthen our balance sheet as Alan has covered.

The abrupt decline of over 50% in sales and April was certainly a shock to our system.

But we've been pleased with the recovery and the residential market.

Benefiting from strong trends and new home construction existing home sales are residential segment saw business competition conditions continue to improve through the year.

As many flooring retailers emerged from the COVID-19 downturn and an increasing number of consumers began home improvement projects.

We're continuing our fiber diversification strategy as well by significantly expanding our envision 66 offering with over 20, new styles across all brands. This program offered beautiful designs with the durability and performance of nylon and type six six and price points.

And compete effectively in today's market.

And vision 606 has become our primary growth per.

Platform and soft surfaces, and we are planning for another significant expansion of this product.

Residential order entry and sales have continued to improve since the second quarter and.

And ended the year very strong with orders and shipments were up 15% and the fourth floor.

Our residential business continues to gain market share, which it has since 2010.

Since then and the market share has more than doubled and the residential business has been profitable every year as it was in 2020.

Now represents over 80% of our total volume.

In 2021, where again investing in new products talent and new technology.

On the surface side, we're excited to showcase technique, our latest tufting technology with six new nylon and walk qualities and Maslin and fabric.

This innovation delivers beautiful patterns through precise yarn placement and.

And control at each needle.

And I heard surface programs grew significantly for the year and with true core and fabric award programs pacing well ahead of the hard surface market.

We continued to invest and product innovation and our true core prime ex <unk>.

X and X X L.

Widest longest rigid core clinical and the market.

And true core IGT integrated Grout technology, Tal visual with the grout line and engineered into the locking system.

We also invested in talent with the addition of eight salespeople dedicated to hard surface and key markets across the country and we'll be adding more dedicated how our service people and 2021.

Also in 2021, we will expand our true core Prime program with 12, new visuals.

And our fabric of Wood program, we've developed a new display system to accommodate it.

Spansion of this program with new colors board sizes and price points.

We expect to double our fabric of wood placements and the market and 2021. It has been exceptionally well received.

Our commercial business.

And the commercial market continues to be adversely impacted by COVID-19.

Sales for the year were down more than 35% from the previous year.

We're beginning to see improvement, we believe the recovery will be longer coming and not as dynamic as the residential market recovery.

Our commercial business is excited about one of the most unique innovations and our modular carpet tile offering.

Sustainer is now the standard for backing on orders.

Sustain a modular tile backing system is a PVC and polyurethane free cushion.

Oh boy.

Backing with very high recycled content.

The product is breathable enabled to be installed and environments up from 99% relative humidity and with a very high ph.

Product provides the cushion and backing benefits and increased underfoot comfort and comfort.

Comfort appearance retention and sound absorption.

Recently, we have experienced increasing cost pressure relative to our raw materials and other cost inputs. So we have increased prices for both residential and commercial carpet products and the 5% range.

Our floor covering sales through the first nine weeks of the quarter our.

And low single digits versus strength at the same time and 2020, but orders are up mid single digits.

Our residential sales and orders are up double digits and the commercial orders on a weekly basis are better than the second third and fourth quarters of last year.

As the quarter has progressed order entry has continued to improve both sequentially sequentially and compared to last year for both residential and commercial products.

And as the economy has gained momentum.

The COVID-19, pandemic and 2020 presented challenges and ways Dixie has not experienced in its history of over 100 years.

We responded first with regard to the safety of our employees and second to protect the operations and financial strength of our company, while continuing to service our customer.

We're proud to emerge as a stronger company we're.

And we're looking forward to the year of 2021 is an opportunity to move fast the difficulties of last year.

And benefit from the continued expectations of a strong residential market.

Hi.

And growing with differential floor covering products.

And I don't at this time, we would like to open up.

Meeting to questions. Thank.

Thank you ladies and gentlemen, the floor is now open for questions. If you would like to ask a question. Please press star one on your telephone keypad at this time.

A confirmation tone will indicate your line is and the question queue. You May Press Star two if you like.

Here's a question from the queue for participants using speaker equipment, and it may be necessary and pick up your handset before.

The Star Keys.

And once again that is star one to register questions at this time.

Our first question today is coming from.

Barry Gertner of improv and proverb. Please go ahead.

Hi, how are you good morning.

Good questions.

And.

Just two quick questions for you first one on the operating business.

Many times.

The Comparables are Mohawk and <unk> and some other ones.

And just kept an eye on wine and general for this past quarter.

Sales at Mohawk.

Overall were up like 9% quarter over quarter, whereas here. It seems like it was I think you said 88.

Six or something like that versus 80 592 is there can you speak to sort of the disparity or if you felt that there was.

And how you feel the company did versus the broader market on a topline basis for the quarter.

Barry Let me take a crack at that residential and we were up and the fourth quarter about 15%.

Actually we were down dramatically.

Our backlog had run down and.

And order entry was very slow and in the second third and fourth quarters that order entry has improved significantly and the first quarter.

But.

200, and stretched a bit.

The revenue.

Go ahead.

That makes sense I understand that.

Totally understood and.

It was a commercial commercial was just black box and essentially a black hole.

Hospitality and whatnot.

Right and.

And I thank God.

Which segments of commercial you were in our particularly our hospitality and residential excuse me and retail areas were dramatically at all.

Understood and one more question for you guys I appreciate it.

Congrats on the refinancing and I think it's.

Excellent and efficiency in terms of.

Re doing debt structure and take it.

And just.

And the ability there and if it.

I think it was in the Wells Fargo and.

Bank of America, where the prior lenders so yes in the.

14th and credit Amendment.

Lenders had offered the ability for.

Dixie to buy the real estate interest from income groups and I was wondering if.

I did see that.

Company had paid down that part.

And as part of the broader refinancing.

Does the company.

Have a skew towards.

And real estate now that it is not pledged as collateral where not all the plants are pledged as collateral under the new credit facility.

Let me make a comment and then I Wanna Island to address that but our current revolver term is with fifth third.

It includes only inventories and receivables.

And we did.

Other real estate and equipment and.

And the.

Merit with American State and Nevada credit on the $25 million term loans, which.

One is $10 million the other.

And <unk>.

And do you want to comment further on and exactly as Dan said, we didn't move.

And.

Assets around and a different law the agreement and.

There is still some room under some of our assets are not falling under the law and agreements that we put in place. However, we're very.

Happy with the transactions that took place at the end of October It did put us and a strong position from a bar and availability, we do not see.

No immediate need to be accessing those funds will make the best decisions.

Opportunities become available.

But our focus has been certainly reducing our debt and we will continue with that mindset as we go forward and again, making the best decisions around the opportunities that are in front of us.

Thank you too much al and thank you Dan and once again, congrats on getting your refinancing you're done and I think it's going to be massively accretive to the business going forward to best of luck and Stacey.

Thank you Barry and we agree with you there.

Thank you at this time I would like to turn the floor back over to Mr. Frierson for any additional or closing comments.

Got it. Thank you very much we appreciate all of you being with US on the year end conference call.

Obviously 2020 and was a most unusual year that we will all remember forever.

But I think the good news is we have have made it through 2020, we have refinanced the company and ask.

Really much stronger than we've ever been before operationally much stronger than we've ever been and business in 2021, as all particularly the residential business is off to a great start. Thank you very much and see you next quarter.

Ladies and gentlemen, thank you for your participation and interest and the Dixie Group you may disconnect. Your lines of log off the webcast at this time and have a wonderful day.

Yeah.

Okay.

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