Good morning. And welcome to the Flexsteel Industries Third Quarter 2019 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today’s presentation there will be an opportunity to ask questions. [Operator Instructions] Please also note this event is being recorded. I would now like to turn the conference call over to Ms. Donni Case, Investor Relations for Flexsteel Industries. Ms. Case, the floor is your ma’am.

Thank you, Mike. And welcome to today’s call to discuss Flexsteel Industries third quarter 2019 financial results. Our earnings release which we issued after market close yesterday, Monday April 29th, is available on the Investor Relations section of our website www.flexsteel.com under News and Events. I am here today with Jerry Dittmer, Chief Executive Officer; and Marcus Hamilton, Chief Financial Officer. On today’s call management will provide prepared remarks and then we will open the call to your questions. Before we begin, I would like to remind you that the comments on today’s call will include forward-looking statements which can be identified by the use of words such as estimate, anticipate, expect and similar phrases. Forward-looking statements by their nature, involve, estimates, projections, goals, forecast and assumptions and are subject to risk and uncertainties that could cause actual results or outcomes to differ materially from those expressed in the forward-looking statements. Such risks and uncertainties include, but are not limited to those that are described in our most recent annual report on Form 10-K as updated by our subsequent quarterly reports on Form 10-Q and other SEC filings as applicable. These forward-looking statements speak only as of the day of this conference call and should not be relied upon as prediction 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 the reconciliation of the GAAP to non-GAAP measures. And with that, I’d like to turn the call over to Jerry Dittmer. Jerry?

Thank you for joining us today. As you all know, this is the first conference call that we have held in memorable history. First, we recognize that the third quarter results we reported today are not acceptable. We also don’t think they reflect Flexsteel’s potential once we tackle the operational issues that have distracted us from delivering the outstanding customer experience that is the hallmark of the Flexsteel brand. Marcus will cover all the puts and takes of our financial performance in his remarks. For now, we want to focus on the top priorities of our management team and Board of Directors. Our first priority is improving the customer experience which is a key competitive advantage and a pathway to value creation and growth. Second, by executing on our customer promise, we will become a stronger company capable of generating new levels of profitability. And finally, we are committed to a new era of transparent communications with our investors. At the beginning of the year, I took over the role of CEO with my eyes wide open. I knew that the company had some challenges, which contributed to its recent underperformance and since I have been in the furniture industry for a large part of my career, I was familiar with the headwinds all manufacturers are facing today such as tariff and raw material, and labor inflation. I have spent the first 90 days since joining Flexsteel evaluating everything, the operations, different business lines, facilities and people. Our approach has been to look at Flexsteel with an open mind and with a viewpoint of future growth opportunities. Concurrently, Marcus and I have visited our operations and met with key folks. We have a good team many of whom have been with Flexsteel many years and they want Flexsteel to be…

Thank you, Jerry. And thanks to everyone for joining us on our first earnings call. As Jerry indicated we are not satisfied with the third quarter results nor the trend of our business and are extremely focused on value-added activities to deliver improved results. Let me start with the bottom line. For the third quarter, we reported a net loss of $15.6 million or a $1.97 per diluted share that compares to net income of $3.1 million or $0.39 per diluted share in the prior year quarter. The reported net loss excludes a pre-tax SAP, ERP system impairment charge of $18.7 million and a pre-tax defined benefit plan termination charge of $2.5 million, both of which I will discuss in more detail. Excluding these expenses, we reported adjusted net income of $0.9 million or $0.12 per diluted share, as compared to adjusted net income of $5.5 million or $0.70 per diluted share in the year ago quarter. The adjusted results in the third quarter of 2018 included a pre-tax charge of $3.6 million for the Circular 106 Environmental Remediation Order. Net sales for the quarter were $111.5 million, down 12.1% compared to a year ago, residential sales were down 10.9% and contract sales were down 18.1%. I would like to take a minute and unpack the challenges we have faced to give you more context on our underlying quarter and year-to-date performance in our residential business. Our residential business includes two primary channels of distribution and some unique product attributes. First, our fully assembled case goods and upholstered home furnishings products are sold exclusively under the Flexsteel brand and distributed through traditional retail partners. Conversely, our ready-to-assemble flat packed case goods products are sold exclusively under the Home Styles brand distributed through e-commerce partners and shipped directly to end consumers…

Thank you, sir. [Operator Instructions] And we have a question from JP Geygan of Global Value Investment Corp. Please go ahead.

Hi. Good morning and thank you for your time. There’s a lot of valuable information on this call. I have a few questions. First, I was under the impression that the implementation of a new ERP system was somewhat necessary to facilitate the growth of the business. If you opt not to complete the implementation either partial or complete of the ERP system that you have already selected, how do you plan to adapt your technology infrastructure?

Yeah. This is Jerry. So during our prepared remarks one of the things that we talked about is that we are looking at all our options. Those options could include continuing on the current platform that we have gone on of SAP or looking at other options. We have several other options we are looking at. Our plan is in the next 60 days to make that assessment where they are going to continue on or to look at the other options that are available to us. One of the options that’s not acceptable, we will not stay on our current platform, we will not be able to do that.

Okay. And then what has the reactions of your customers been to the developments with your ERP system from a qualitative basis as you work through these issues?

So we really have only gone live in our e-commerce business, and I guess, the best qualitative measure we have is we did lose some customers. We are in the process now of bringing them back. We are now able to ship, do our EDI, order inventory, et cetera. Most of those are behind us and we are back to our same shipping that we were before we went live. The one thing we are also working through is trying to get some of those customers back, because obviously when you disappoint customers they don’t just come right back. That’s really what we are working through right now.

Great. And then, my final question is, Jerry, you are a few months into the job now, how do you really assess the progress you have made in the state of the business and I’d note that you have brought in a few new hires to I presume help you make some changes?

Yeah. So, I am really excited, I mean, it’s something we came in. We knew we had the opportunity to improve ourselves. There is some low hanging fruit that we are obviously going through. We have changed some management folks out, brought in our first ever CIO. We brought in a new person to head up manufacturing. We have got a new group that’s working with us on some of the other areas of the business. And that’s the other reason we brought in AlixPartners to help us through some of this. We are 30 days through the diagnostic and we are really excited about the future for the company, and we are really excited to look and see what we look like in 12 months to 18 months from now.

Great. Thank you for your time.

Thanks, JP.

[Operator Instructions] I am seeing, well, sorry, no further questions. We will then conclude our question-and-answer session. I would now like to turn the conference call back over to Mr. Jerry Dittmer, Chief Executive Officer, for any closing remarks. Sir?

Thank you. I want to thank our shareholders for their support and patience, as well as thank our dedicated employees for their effort. As we work together to put our business back on a path to profitable growth. I am very enthusiastic and optimistic about capturing the opportunities at Flexsteel we outlined today. Our leadership team and our Board are fully committed to improving our customer experience while unlocking value for our shareholders. As I mentioned earlier, if there is meaningful news, we will share in a timely way and not necessarily wait until the next quarterly conference call. We look forward to continued communication with you on the progress we are making. Once again thank you for participating in today’s call. Thanks.

And we thank you sir and also to the rest of the management team for your time also. Again, the conference call has now concluded. At this time you may disconnect the lines. Thank you. Take care and have a great day everyone.