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| 8-K - 8-K - DIXIE GROUP INC | a8knovemberinvpres.htm |
November 2017
Investor Presentation
Contact:
Jon Faulkner
CFO
The Dixie Group
Phone: 706-876-5814
jon.faulkner@dixiegroup.com
Exhibit 99.1
Forward Looking Statements
The Dixie Group, Inc.
• Statements in this presentation which relate to the future, are subject to risk
factors and uncertainties that could cause actual results to differ materially
from those indicated in such forward-looking statements. Such factors include
the levels of demand for the products produced by the Company. Other
factors that could affect the Company’s results include, but are not limited to,
raw material and transportation costs related to petroleum prices, the cost
and availability of capital, and general economic and competitive conditions
related to the Company’s business. Issues related to the availability and price
of energy may adversely affect the Company’s operations. Additional
information regarding these and other factors and uncertainties may be found
in the Company’s filings with the Securities and Exchange Commission.
• General information set forth in this presentation concerning market
conditions, sales data and trends in the U.S. carpet and rug markets are
derived from various public and, in some cases, non-public sources. Although
we believe such data and information to be accurate, we have not attempted
to independently verify such information.
2
Dixie History
• 1920 Began as Dixie Mercerizing in Chattanooga, TN
• 1990’s Transitioned from textiles to floorcovering
• 2003 Refined focus on upper- end floorcovering market
• 2003 Launched Dixie Home - upper end residential line
• 2005 Launched modular tile carpet line – new product category
• 2007 Launched wool products in Masland & Fabrica – high-end designers
• 2012 Purchased Colormaster dye house – lower cost
• 2012 Purchased Crown rugs – wool rugs
• 2013 Purchased Robertex - wool carpet manufacturing
• 2014 Expanded and realigned manufacturing to increase capacity
• 2014 Purchased Atlas Carpet Mills – high-end commercial business
• 2014 Purchased Burtco - computerized yarn placement for hospitality
• 2016 Completed restructuring of manufacturing facilities
• 2017 Entered the hard surface market in Calibre & Stainmaster LVT 3
Dixie Today
• Commitment to brands in the upper-
end market with strong growth
potential.
• Diversified between Commercial and
Residential markets.
• Diversified customer base (TTM Basis)
– Top 10 carpet customers
• 17% of sales
– Top 100 carpet customers
• 31% of sales
4
5
Dixie Group Drivers
What affects our business?
The market dynamics:
• Residentially
• The market is driven by home sales and remodeling.
• New construction is a smaller effect.
• Dixie is driven by the wealth effect.
• The stock market and consumer confidence.
• Commercially
• The market is driven by remodeling of offices,
schools, retail and hospitality as demonstrated by the
investment in non-residential fixed structures.
• Dixie is driven by upper-end remodeling in offices,
retail remodeling, higher education, and upper-end
hospitality that primarily involves a designer.
New and Existing Home Sales
Seasonally Adjusted Annual Rate
6
New 1,000 Existing 1,000
Source: National Association of Realtors (existing) and census.gov/newhomesales
3,000
3,500
4,000
4,500
5,000
5,500
6,000
250
300
350
400
450
500
550
600
650
700
750
800
Jan '13 Jan '14 Jan '15 Jan '16 Jan '17
• “Nearly two-thirds of
renters currently
believe now is a good
time to buy a home, but
weakening affordability
and few choices in their
price range have made
it really difficult for
more aspiring first-time
buyers to reach the
market.”
Lawrence Yun
Chief Economist
National Association of
Realtors
October 20, 2017
Residential and Commercial
Fixed Investment
7
Rebound in
residential
activity
Commercial
activity is
flat
We expect
2017 to
continue the
rebound of
residential
fixed
investment
as a percent
of GDP
The Industry as
compared to The Dixie Group
8
Source: U.S. Bureau of Economic Analysis and Company estimates
2016 U.S. Flooring Manufacturers
9
Source: Floor Focus Carpet includes sales of carpet as broadloom, modular tile and rugs
Flooring includes sales of carpet, rugs, ceramic floor tile, wood, laminate, resilient and rubber
Carpet & Rug Leaders
Carpet $
in millions Carpet %
Flooring $
in millions Flooring %
Shaw (Berkshire Hathaway) $ 3,136 29.5% 3,983 19.2%
Mohawk (MHK) $ 2,621 24.6% 4,892 23.6%
Engineered Floors (Private) $ 659 6.2% 659 3.2%
Interface (TILE) $ 498 4.7% 498 2.4%
Beaulieu (Bought by EF 11-2017) $ 449 4.2% 479 2.3%
Dixie (DXYN) $ 394 3.7% 394 1.9%
Imports & All Others $ 2,876 27.0% 9,809 47.4%
U.S. Carpet & Rug Market $ 10,633 100.0% 20,714 100.0%
Dixie versus the Industry
TTM Q3 2017 U.S. Carpet & Rug
Market of $10.5 billion
10 Source: Floor Covering Weekly and Dixie Group estimate
TTM Q3 2017 Dixie sales
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Carpet Growth
Dixie Market Share in Dollars and Units
11
Industry Positioning
The Dixie Group
• Strategically our residential and
commercial businesses are driven by
our relationship to the upper-end
consumer and the design community
• This leads us to:
– Have a sales force that is attuned to
design and customer solutions
– Be a “product driven company”
with emphasis on the most beautiful
and up-to-date styling and design
– Be quality focused with excellent
reputation for building excellent
products and standing behind what
we make
– And, unlike much of the industry,
not manufacturing driven
12
Residential Market Positioning
The Dixie Group
13
BROADLOOM RESIDENTIAL SALES
T
O
T
A
L
M
A
R
K
E
T
:
S
Q
U
A
R
E
Y
A
R
D
S
OR
S
AL
E
S
DO
L
L
A
R
S
ESTIMATED TOTAL WHOLESALE MARKET
FOR CARPETS AND RUGS:
VOLUME AND PRICE POINTS
Positioning of Dixie Brands by Price Point Segment
Dixie Home Fabrica
INDUSTRY
AVERAGE
PRICE/ SQ YD
$0 $14 $21 $28 $35 $42 $49
Note: Industry average price is based on sales reported through industry sources.
Excerpt from KSA Study dated May 2004, Titled "KSA Assessment of Dixie's Residential and Contract Carpet Businesses", commissioned by The Dixie Group, Inc.
$8
Masland
FOCUSED NATIONAL SUPPLIER IN THE UPPER
END OF THE SOFT FLOOR COVERING MARKET
Dixie Group High-End Residential Sales
All Residential Brands
Masland
Dixie
Home
Fabrica
14
Sales by Brand for TTM Q3 2017
Dixie Group High-End Residential Sales
All Brands
Retailer
Designer
Mass
Merchant
Builder
Commercial
Specialty -
OEM
15
Sales by Channel for TTM Q3 2017
The company believes that a significant portion of retail sales also involve a designer
• Well-styled moderate to upper priced
residential broadloom line
– Known for differentiated pattern
and color selection
• Dixie Home provides a “full line” to
retailers
– Sells specialty and mass merchant
retailers
• Growth initiatives
– Stainmaster® Tru Soft TM Fiber
Technology
– Stainmaster® PetProtect ® Fiber
Technology
16
• Leading high-end brand with
reputation for innovative styling,
design and color
• High-end retail / designer driven
– Approximately 24% of sales
directly involve a designer
– Hand crafted and imported rugs
• Growth initiative
– Stainmaster® TruSoft™ Fiber
Technology
– Stainmaster® PetProtect ® Fiber
Technology
– Wool products in both tufted and
woven constructions
17
• Premium high-end brand
– “Quality without Compromise”
• Designer focused
– Approximately 31% of sales directly
involve a designer
– Hand crafted and imported rugs
• Growth initiatives
– Stainmaster® TruSoft™ Fiber
Technology
– Fabrica Permaset dyeing process
“unlimited color selection in wool”
18
Commercial Market Positioning
The Dixie Group
• We focus on the “high-end specified
soft floorcovering contract market”
• Our Atlas brand
– Designer driven focused on the
fashion oriented market space
• Our Masland Contract brand
– Broad product line for diverse
commercial markets
• Our Masland Hospitality brand
– Custom products for the hospitality
industry
• Our Masland Residential sales force
– Sells “main street commercial”
through retailers 19
• Atlas is our premium
commercial brand
• Dedicated to serving the
architect and designer needing
finer goods
• Focus is on the corporate
market through high fashion
broadloom and modular carpet
tile offerings
• With state-of-the-art tufting
machines Atlas can quickly
manufacture both custom and
running line products
20
• Upper-end brand in the specified
commercial marketplace
– Corporate, End User, Store Planning,
Hospitality, Health Care,
Government and Education markets
• Designer focused
• Strong national account base
• Growth initiatives
– Masland Contract Modular Carpet
Tile
– Masland Hospitality using
“computerized yarn placement”
technology
– Calibré Luxury Vinyl Tile
21
Hospitality
Corporate
Education
Store
Planning
Gov't
Health Care
Other
22
Sales by Channel for TTM Q3 2017
Channels: Interior Design Specifier and Commercial End User
Dixie Group Sales
$ in millions
23
331 321
283
205
231
270 266
345
407
422
397
410
0
50
100
150
200
250
300
350
400
450
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 TTM
Q3 2017
Net Sales
Sales & Operating Income
$ in millions
24 Note: Non-GAAP reconciliation starting on slide 27
Y 2007 Y 2008 Y 2009 Y 2010 Y 2011 Y 2012 Y 2013 Y 2014 Y 2015 Y 2016
TTM
Q3 17
Net Sales 321 283 203 231 270 266 344 407 422 397 410
Net Income (Loss) 6.2 (31.5) (42.2) (4.7) 1.0 (0.9) 5.3 (1.4) (2.4) (5.3) (2.8)
Operating Income 16.7 (28.5) (45.4) (2.6) 5.7 1.8 8.9 (5.2) 2.0 (3.4) 1.7
Non-GAAP Adjusted Op. Income 16.7 1.5 (8.4) (1.0) 5.1 3.5 16.4 4.7 4.9 (2.0) 1.3
EBITDA 29.2 (14.7) (32.1) 8.4 14.8 11.2 18.7 16.9 15.9 10.0 13.1
Non-GAAP Adjusted EBITDA 29.7 15.5 5.3 10.3 14.5 13.2 26.5 17.7 19.0 11.5 13.0
Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017 Q3 2017
Net Sales 95.9 110.0 108.9 107.8 89.2 105.3 100.3 102.6 97.5 107.2 102.7
Net Income (Loss) (2.5) 0.5 0.1 (0.5) (4.8) 1.7 0.5 (2.7) (0.6) 1.1 (0.6)
Operating Income (2.7) 2.2 1.3 1.2 (5.8) 3.4 1.9 (2.9) 0.6 3.2 0.8
Non-GAAP Adjusted Op. Income (1.9) 3.1 1.9 1.9 (4.4) 3.8 1.9 (3.3) 0.6 3.2 0.8
EBITDA 0.9 5.8 4.9 4.4 (2.4) 6.8 5.3 0.3 3.8 5.1 4.0
Non-GAAP Adjusted EBITDA 1.7 6.7 5.5 5.1 (0.9) 7.1 5.3 0.0 3.8 5.2 4.0
Current Business Conditions
2017 Initiatives
• We have consolidated our two commercial brands, Masland Contract and
Atlas, under one management, sharing operations in marketing, product
development and manufacturing but maintaining distinct sales forces.
• We announced our Profit Improvement Program, with a charge in the
fourth quarter of approximately $775 thousand but savings in 2018 of
over $3 million.
• We are taking advantage of the opportunities created in the west coast
market with added retailer and builder penetration and increased service
flexibility with the acquisition of the Porterville, CA yarn facility.
• Masland Contract has launched both the new Calibré and Quiet Down
luxury vinyl flooring product lines.
• We have placed over 1,200 displays of Stainmaster PetProtect® luxury
vinyl flooring through our Masland and Dixie Home residential brands.
• The fourth quarter has started off upbeat with our floorcovering sales up
11% over the first 5 weeks as compared to this same time in 2016.
25
Non-GAAP Information
27
Use of Non-GAAP Financial Information:
The Company believes that non-GAAP performance measures, which management uses in evaluating the Company's business, may provide users of the
Company's financial information with additional meaningful bases for comparing the Company's current results and results in a prior period, as these
measures reflect factors that are unique to one period relative to the comparable period. However, the non-GAAP performance measures should be
viewed in addition to, not as an alternative for, the Company's reported results under accounting principles generally accepted in the United States.
The Company defines Adjusted Gross Profit as Gross Profit plus manufacturing integration expenses of new or expanded operations, plus acquisition
expense related to the fair market write up of inventories, plus one time items so defined (Note 1)
The Company defines Adjusted S,G&A as S,G&A less manufacturing integration expenses included in selling, general and administrative, less direct
acquisition expenses, less one time items so defined. (Note 2)
The Company defines Adjusted Operating Income as Operating Income plus manufacturing integration expenses of new or expanded operations, plus
acquisition expense related to the fair market write up of inventories, plus facility consolidation and severance expenses, plus acquisition related
expenses, plus impairment of assets, plus impairment of goodwill, plus one time items so defined. (Note 3)
The Company defines Adjusted Income from Continuing Operations as net income plus discontinued operations net of tax, plus manufacturing
integration expenses of new or expanded operations, plus facility consolidation and severance expenses, plus acquisition related expenses, plus
impairment of assets, plus impairment of goodwill, plus one time items so defined , all tax effected. (Note 4)
The Company defines Adjusted EBIT as net income plus taxes and plus interest. The Company defines Adjusted EBITDA as Adjusted EBIT plus
depreciation and amortization, plus manufacturing integration expenses of new or expanded operations, plus facility consolidation and severance
expenses, plus acquisition related expenses, plus impairment of assets, plus impairment of goodwill, plus one time items so defined. (Note 5)
The Company defines Free Cash Flow as Net Income plus interest plus depreciation plus non-cash impairment of assets and goodwill minus the net
change in working capital minus the tax shield on interest minus capital expenditures. The change in net working capital is the change in current assets
less current liabilities between periods. (Note 6)
The Company defines Non-GAAP Earnings per Share (EPS) as the Adjusted Operating Income less Interest and other expense, tax adjusted at a 35% rate,
and divided by the number of fully diluted shares. (Note 7)
The Company defines Net Sales as Adjusted as net sales less the last week of sales in a 53 week fiscal year. (Note 8)
Non-GAAP Information
Non-GAAP Gross Profit Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017 Q3 2017 2015 2016
Net Sales 89,234 105,316 100,297 102,606 97,541 107,187 102,650 422,484 397,453
Gross Profit 19,506 28,242 25,831 21,846 25,161 28,426 24,857 106,231 95,425
Plus: Business integration expense - - - - - - - - -
Plus: Amortization of inventory step up - - - - - - - - -
Non-GAAP Adj. Gross Profit (Note 1) 19,506 28,242 25,831 21,846 25,161 28,426 24,857 106,231 95,425
Gross Profit as % of Net Sales 21.9% 26.8% 25.8% 21.3% 25.8% 26.5% 24.2% 25.1% 24.0%
Non-GAAP Adj. Gross Profit % of Net Sales 21.9% 26.8% 25.8% 21.3% 25.8% 26.5% 24.2% 25.1% 24.0%
Non-GAAP S,G&A Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017 Q3 2017 2015 2016
Net Sales 89,234 105,316 100,297 102,606 97,541 107,187 102,650 422,484 397,453
Selling and Administrative Expense 23,666 24,320 23,774 25,223 24,481 25,261 24,044 100,422 96,983
Plus: Business integration expense - - - - - - - - -
Less: Acquisition expenses - - - - - - - - -
Non-GAAP Adj. Selling and Admin. Expense 23,666 24,320 23,774 25,223 24,481 25,261 24,044 100,422 96,983
S,G&A as % of Net Sales 26.5% 23.1% 23.7% 24.6% 25.1% 23.6% 23.4% 23.8% 24.4%
Non-GAAP S,G&A as % of Net Sales (Note 2) 26.5% 23.1% 23.7% 24.6% 25.1% 23.6% 23.4% 23.8% 24.4%
28
29
Non-GAAP Operating Income Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017 Q3 2017 2015 2016
Net Sales 89,234 105,316 100,297 102,606 97,541 107,187 102,650 422,484 397,453
Operating income (loss) (5,840) 3,403 1,916 (2,894) 628 3,179 767 1,990 (3,415)
Plus: Acquisition expenses - - - - - - - - -
Plus: Amortization of inventory step up - - - - - - - - -
Plus: Business integration expense - - - - - - - - -
Plus: Profit improvement plans 1,413 403 (1) (359) - - - 2,946 1,456
Plus: Impairment of assets - - - - - - - - -
Plus: Impairment of goodwill - - - - - - - - -
Non-GAAP Adj. Operating Income (Loss) (Note 3) (4,427) 3,806 1,915 (3,253) 628 3,179 767 4,936 (1,959)
Operating income as % of net sales -6.5% 3.2% 1.9% -2.8% 0.6% 3.0% 0.7% 0.5% -0.9%
Adjusted operating income as a % of net sales -5.0% 3.6% 1.9% -3.2% 0.6% 3.0% 0.7% 1.2% -0.5%
Non-GAAP Income from Continuing Operations Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017 Q3 2017 2015 2016
Net income (loss) as reported (4,767) 1,677 534 (2,722) (604) 1,103 (558) (2,426) (5,278)
Less: (Loss) from discontinued, net tax (10) 62 (39) (84) (29) (123) (11) (148) (71)
Income (loss) from Continuing Operations (4,757) 1,615 573 (2,638) (575) 1,225 (547) (2,278) (5,207)
Plus: Business integration expense - - - - - - - - -
Plus: Profit improvement plans 1,413 403 (1) (359) - - - 2,946 1,456
Plus: Amortization of inventory step up - - - - - - - - -
Plus: Acquisition expenses - - - - - - - - -
Less: Gain on purchase of business - - - - - - - - -
Plus: Impairment of assets - - - - - - - - -
Plus: Impairment of goodwill - - - - - - - - -
Plus: Tax effect of above (537) (153) 0 136 - - - (1,119) (553)
Plus: Prior years tax credits and val. allowance - - - - - - - - -
Non-GAAP Adj. (Loss) / Inc from Cont. Op's (Note 4) (3,881) 1,865 572 (2,861) (575) 1,225 (547) (451) (4,304)
Adj diluted EPS from Cont. Op's (0.25) 0.12 0.04 (0.18) (0.04) 0.08 (0.03) (0.03) (0.28)
Wt'd avg. common shares outstanding - diluted 15,600 15,783 15,744 15,659 15,673 15,826 15,707 15,536 15,638
30
Non-GAAP EBIT and EBITDA Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017 Q3 2017 2015 2016
Net income (loss) as reported (4,767) 1,677 534 (2,722) (604) 1,103 (558) (2,426) (5,278)
Less: (Loss) from discontinued, net tax (10) 62 (39) (84) (29) (123) (11) (148) (71)
Plus: Taxes (2,415) 451 27 (1,685) (163) (570) (181) (714) (3,622)
Plus: Interest 1,324 1,333 1,312 1,423 1,362 1,357 1,486 4,935 5,392
Non-GAAP Adjusted EBIT (Note 5) (5,848) 3,399 1,912 (2,900) 624 2,012 758 1,943 (3,437)
Plus: Depreciation and amortization 3,498 3,325 3,410 3,282 3,210 3,196 3,213 14,120 13,515
Non-GAAP EBITDA from Cont Op (2,350) 6,724 5,322 382 3,834 5,208 3,971 16,063 10,078
Plus: Acquisition expenses - - - - - - - - -
Plus: Amortization of inventory step up - - - - - - - - -
Less: Gain on purchase of business - - - - - - - - -
Plus: Business integration expense - - - - - - - - -
Plus: Profit improvement plans 1,413 403 (1) (359) - - - 2,946 1,456
Plus: Impairment of assets - - - - - - - - -
Plus: Impairment of goodwill - - - - - - - - -
Non-GAAP Adj. EBITDA (Note 5) (937) 7,127 5,321 23 3,834 5,208 3,971 19,009 11,534
Non-GAAP Adj. EBITDA as % of Net Sales -1.1% 6.8% 5.3% 0.0% 3.9% 4.9% 3.9% 4.5% 2.9%
Management estimate of severe weather (not in above)- - - - - - - - -
Non-GAAP Free Cash Flow Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017 Q3 2017 2015 2016
Non-GAAP Adjusted EBIT (from above) (5,848) 3,399 1,912 (2,900) 624 2,012 758 1,943 (3,437)
Times: 1 - Tax Rate = EBIAT (3,626) 2,107 1,185 (1,798) 387 1,247 470 1,205 (2,131)
Plus: Depreciation and amortization 3,498 3,325 3,410 3,282 3,210 3,196 3,213 14,120 13,515
Plus: Non Cash Impairment of Assets, Goodwill - - - - - - - - -
Minus: Net change in Working Capital (4,671) (3,330) 927 (9,831) 10,906 6,247 11,135 (1,970) (16,905)
Non-GAAP Cash from Operations 4,543 8,762 3,668 11,315 (7,309) (1,804) (7,452) 17,295 28,289
Minus: Capital Expenditures 1,218 1,020 1,357 1,736 3,778 2,733 5,731 12,230 5,331
Minus: Business / Capital acquisitions - - - - - - - - -
Non-GAAP Free Cash Flow (Note 6) 3,325 7,742 2,311 9,579 (11,087) (4,537) (13,183) 5,065 22,958