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| 8-K - 8-K - DIXIE GROUP INC | a8koctoberinvestorpresenta.htm |
October 2016
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
• 2010 Residential “soft products” growth strategy
• 2012 New Masland Contract management – performance tile strategy
• 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 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
• 14% of sales
– Top 100 carpet customers
• 28% 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
• “Existing-home sales eased up
in August for the second
consecutive month despite
mortgage rates near record
lows as higher home prices
and not enough inventory for
sale kept some would-be
buyers at bay."
• "While recent data from the
U.S. Census Bureau shows
that household incomes rose
strongly last year, home prices
are still outpacing incomes in
many metro areas because of
the persistent shortage of new
and existing homes for sale.
Without more supply, the U.S.
homeownership rate will
remain near 50-year lows."
Lawrence Yun
Chief Economist
National Association of Realtors
September 22, 2016
Residential and Commercial
Fixed Investment
7
Rebound in
residential
activity
Commercial
activity is
down
We expect
2016 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
2015 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) $ 3,200 29.5% 3,929 19.1%
Mohawk (MHK) $ 2,653 24.5% 4,585 22.3%
Engineered Floors (Private) $ 540 5.0% 540 2.6%
Interface (TILE) $ 520 4.8% 520 2.5%
Beaulieu (Private) $ 504 4.6% 524 2.6%
Dixie (DXYN) $ 419 3.9% 419 2.0%
Imports & All Others $ 3,016 27.7% 10,009 48.9%
U.S. Carpet & Rug Market $ 10,852 100% 20,526 100.0%
Dixie versus the Industry
TTM Q3 2016 U.S. Carpet & Rug
Market of $10.2 billion
10 Source: Floor Focus and Dixie Group estimate
Residential
54%Commercial
46%
High- End
Residential
66%
High- End
Commercial
34%
TTM Q3 2016 Dixie sales
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 2016
Dixie Group High-End Residential Sales
All Brands
RetailerDesigner
Mass Merchant
Builder
Commercial
Specialty - OEM
15
Sales by Channel for TTM Q3 2016
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 26% 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 32% 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
– Calibre Luxury Vinyl Tile
21
Hospitality
Corporate
Education
Store
Planning
Gov't
Health Care
Other
22
Sales by Channel for TTM Q3 2016
Channels: Interior Design Specifier and Commercial End User
Dixie Group Sales
$ in millions
$331 $321
$283
$205
$231
$270 $266
$345
$407
$422
$396
2006 2008 2010 2012 2014 2016
Annualized
Net Sales
(millions)
23 Includes Atlas Carpet Mills since March 2014 and Burtco since September 2014
Sales & Operating Income
$ in millions
24 Note: Non-GAAP reconciliation starting on slide 28
Y 2007 Y 2008 Y 2009 Y 2010 Y 2011 Y 2012 Y 2013 Y 2014 Y 2015 YTD 2016
Net Sales 321 283 203 231 270 266 344 407 422 295
Net Income (Loss) 6.2 (31.5) (42.2) (4.7) 1.0 (0.9) 5.3 (1.4) (2.4) (2.6)
Non-GAAP Adjusted Op. Income 16.7 1.5 (8.4) (1.0) 5.1 3.5 16.4 4.7 4.9 1.3
Non-GAAP Adjusted EBITDA 29.7 15.5 5.3 10.3 14.5 13.2 26.5 17.7 19.0 11.5
Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016 Q3 2016
Net Sales 107.9 109.0 104.6 95.9 110.0 108.9 107.8 89.2 105.3 100.3
Net Income (Loss) (0.6) (0.2) (5.2) (2.5) 0.5 0.1 (0.5) (4.8) 1.7 0.5
Non-GAAP Adjusted Op. Income 2.8 3.4 (0.6) (1.9) 3.1 1.9 1.9 (4.4) 3.8 1.9
Non-GAAP Adjusted EBITDA 6.1 6.8 2.8 1.7 6.7 5.5 5.1 (0.9) 7.1 5.3
Change Year over Year Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016 Q3 2016
Net Sales 24.3 19.1 9.2 10.8 2.0 (0.1) 3.2 (6.6) (4.6) (8.6)
Net Sales % Change 29.1% 21.2% 9.6% 12.7% 1.9% -0.1% 3.1% -6.9% -4.2% -7.9%
Net Income (Loss) (2.3) (1.6) (6.8) (7.1) 1.1 0.3 4.7 (2.3) 1.2 0.5
Non-GAAP Adjusted Op. Income (1.9) (1.3) (4.5) (1.0) 0.2 (1.5) 2.6 (2.5) 0.8 0.1
Non-GAAP Adjusted EBITDA (1.0) (0.7) (3.5) (0.4) 0.6 (1.2) 2.3 (2.7) 0.4 (0.2)
Note: 2011 had and 2016 will have 53 operating weeks, all other periods had 52 operating weeks
Current Business Conditions
2016 Initiatives
• We continue to see lower costs through our quality initiatives.
• We have completed our facility consolidation plan.
• We completed the consolidation of our west coast coater operations,
lowering cost and streamlining our operations.
• We are decreasing our cost structure in response to lower demand.
• Our carpet sales over the first four weeks of the fourth quarter are
down high single digits as compared with the same period last year. We
believe the entire floorcovering industry has been impacted by lower
levels of consumer expectations and political uncertainty.
• The soft floorcovering market has been down all year versus last year.
• We have launched a new luxury vinyl tile line through our Masland
Contract business. This complementary line of products will improve
our product offering to the design community as we offer a complete
solution to the specified commercial design community.
25
Outlook for 2016
• Masland Contract is launching the Calibre High Performance LVT
flooring line.
• The combination of Masland Contracts Calibre LVT Collection,
Custom Rug capabilities, Modular & Broadloom signature styles and
Customs, make Masland Contract a producer that can be a complete
solution for the commercial specifier to create beautiful and high
performance interiors.
• In the residential market our Dixie Home, Masland and Fabrica brands
provide a ‘good, better, best’ to consumers looking for unique, quality
carpets and rugs.
• Our investment in tufting technology allows us to provide distinctive
products to support the success of flooring dealers and interior
designers. Each brand speaks to the customer and addresses their
personal tastes, whether traditional, transitional or urban modern.
26
Non-GAAP Information
28
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 loss from 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 in 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)
29
Non-GAAP Information
Non-GAAP Gross Profit 2009 2010 2011 2012 2013 2014 2015 Q1 2016 Q2 2016 Q3 2016
Net Sales 203,480 231,322 270,110 266,372 344,374 406,588 422,484 89,234 105,316 100,297
Gross Profit 52,105 56,651 65,506 65,372 85,569 95,497 106,231 19,506 28,242 25,831
Plus: Business integration expense - - - 1,383 4,738 445 - - - -
Plus: Amortization of inventory step up - - - - 367 606 - - - -
Non-GAAP Adj. Gross Profit (Note 1) 52,105 56,651 65,506 66,755 90,674 96,548 106,231 19,506 28,242 25,831
Gross Profit as % of Net Sales 25.6% 24.5% 24.3% 24.5% 24.8% 23.5% 25.1% 21.9% 26.8% 25.8%
Non-GAAP Adj. Gross Profit % of Net Sales 25.6% 24.5% 24.3% 25.1% 26.3% 23.7% 25.1% 21.9% 26.8% 25.8%
Non-GAAP S,G&A 2009 2010 2011 2012 2013 2014 2015 Q1 2016 Q2 2016 Q3 2016
Net Sales 203,480 231,322 270,110 266,372 344,374 406,588 422,484 89,234 105,316 100,297
Selling and Administrative Expense 60,542 57,362 60,667 63,489 76,221 93,182 100,422 23,666 24,320 23,774
Plus: Business integration expense - - - - (1,706) (1,429) - - - -
Less: Acquisition expenses - - - (318) (350) (789) - - - -
Non-GAAP Adj. Selling and Admin. Expense 60,542 57,362 60,667 63,171 74,164 90,964 100,422 23,666 24,320 23,774
S,G&A as % of Net Sales 29.8% 24.8% 22.5% 23.8% 22.1% 22.9% 23.8% 26.5% 23.1% 23.7%
Non-GAAP S,G&A as % of Net Sales (Note 2) 29.8% 24.8% 22.5% 23.7% 21.5% 22.4% 23.8% 26.5% 23.1% 23.7%
Non-GAAP Operating Income 2009 2010 2011 2012 2013 2014 2015 Q1 2016 Q2 2016 Q3 2016
Net Sales 203,480 231,322 270,110 266,372 344,374 406,588 422,484 89,234 105,316 100,297
Operating income (loss) (45,390) (2,570) 5,668 1,815 8,855 (5,236) 1,990 (5,840) 3,403 1,916
Plus: Acquisition expenses - - - 318 350 789 - - - -
Plus: Amortization of inventory step up - - - - 367 606 - - - -
Plus: Business integration expense - - - 1,383 6,616 1,874 - - - -
Plus: Facility consolidation expense 4,091 1,556 (563) - - 5,514 2,946 1,413 403 -
Plus: Impairment of assets 1,459 - - - 195 1,133 - - - -
Plus: Impairment of goodwill 31,406 - - - - - - - - -
Non-GAAP Adj. Operating Income (Loss) (Note 3) (8,434) (1,014) 5,105 3,516 16,384 4,681 4,936 (4,427) 3,806 1,916
Operating income as % of net sales -22.3% -1.1% 2.1% 0.7% 2.6% -1.3% 0.5% -6.5% 3.2% 1.9%
Adjusted operating income as a % of net sales -4.1% -0.4% 1.9% 1.3% 4.8% 1.2% 1.2% -5.0% 3.6% 1.9%
29
Non-GAAP Information
Non-GAAP Income from Continuing Operations 2009 2010 2011 2012 2013 2014 2015 Q1 2016 Q2 2016 Q3 2016
Net income (loss) as reported (42,241) (4,654) 986 (927) 5,291 (1,402) (2,426) (4,767) 1,677 534
Less: (Loss) from discontinued, net tax (382) (280) (286) (275) (266) (2,075) (148) (10) 62 (39)
Income (loss) from Continuing Operations (41,859) (4,374) 1,272 (653) 5,557 673 (2,278) (4,757) 1,615 573
Plus: Business integration expense - - - 1,383 6,616 1,874 - - - -
Plus: Facility consolidation expense 4,091 1,556 (563) - - 5,514 2,946 1,413 403 -
Plus: Amortization of inventory step up - - - - 367 606 - - - -
Plus: Acquisition expenses - - - 318 350 789 - - - -
Less: Gain on purchase of business - - - - - (11,110) - - - -
Plus: Impairment of assets 1,459 - - - 195 1,133 - - - -
Plus: Impairment of goodwill 31,406 - - - - - - - - -
Plus: Tax effect of above (14,043) (591) 214 (646) (2,861) 453 (1,119) (537) (153) -
Plus: Prior years tax credits and val. allowance - - - - - - - - - -
Non-GAAP Adj. (Loss) / Inc from Cont. Op's (Note 4)(18,946) (3,409) 923 402 10,224 (68) (451) (3,881) 1,865 573
Adj diluted EPS from Cont. Op's (1.54) (0.27) 0.07 0.03 0.80 (0.00) (0.03) (0.25) 0.12 0.04
Wt'd avg. common shares outstanding - diluted 12,331 12,524 12,623 12,638 12,852 14,382 15,536 15,600 15,783 15,744
29
Non-GAAP Information
Non-GAAP EBIT and EBITDA 2009 2010 2011 2012 2013 2014 2015 Q1 2016 Q2 2016 Q3 2016
Net income (loss) as reported (42,241) (4,654) 986 (927) 5,291 (1,402) (2,426) (4,767) 1,677 534
Less: (Loss) from discontinued, net tax (382) (280) (286) (275) (266) (2,075) (148) (10) 62 (39)
Plus: Taxes (8,870) (2,604) 684 (401) (576) 1,055 (714) (2,415) 451 27
Plus: Interest 5,521 4,124 3,470 3,146 3,756 4,301 4,935 1,324 1,333 1,312
Non-GAAP Adjusted EBIT (Note 5) (45,208) (2,854) 5,426 2,092 8,737 6,029 1,943 (5,848) 3,399 1,912
Plus: Depreciation and amortization 13,504 11,575 9,650 9,396 10,263 12,908 14,120 3,498 3,325 3,410
EBITDA (31,704) 8,721 15,075 11,488 18,999 18,937 16,063 (2,350) 6,724 5,322
Plus: Acquisition expenses - - - 318 350 789 - - - -
Plus: Amortization of inventory step up - - - - 367 606 - - - -
Less: Gain on purchase of business - - - - - (11,110) - - - -
Plus: Business integration expense - - - 1,383 6,616 1,874 - - - -
Plus: Facility consolidation expense 4,091 1,556 (563) - - 5,514 2,946 1,413 403 -
Plus: Impairment of assets 1,459 - - - 195 1,133 - - - -
Non-GAAP Adj. EBITDA (Note 5) 5,252 10,277 14,512 13,189 26,528 17,743 19,009 (937) 7,127 5,322
Non-GAAP Adj. EBITDA as % of Net Sales 2.6% 4.4% 5.4% 5.0% 7.7% 4.4% 4.5% -1.1% 6.8% 5.3%
Non-GAAP Free Cash Flow 2009 2010 2011 2012 2013 2014 2015 Q1 2016 Q2 2016 Q3 2016
Non-GAAP Adjusted EBIT (from above) (45,208) (2,854) 5,426 2,092 8,737 6,029 1,943 (5,848) 3,399 1,912
Times: 1 - Tax Rate = EBIAT (28,029) (1,769) 3,364 1,297 5,417 3,738 1,205 (3,626) 2,107 1,185
Plus: Depreciation and amortization 13,504 11,575 9,650 9,396 10,263 12,908 14,120 3,498 3,325 3,410
Plus: Non Cash Impairment of Assets, Goodwill 32,865 - - - 195 1,133 - - - -
Minus: Net change in Working Capital (23,975) 996 9,589 10,786 17,714 11,546 (1,970) (4,671) (3,330) 927
Non-GAAP Cash from Operations 42,315 8,810 3,425 (93) (1,839) 6,234 17,295 4,543 8,762 3,668
Minus: Capital Expenditures 511 1,761 6,735 4,052 13,257 32,825 12,230 1,218 1,020 1,357
Minus: Business / Capital acquisitions - - - 6,961 1,863 9,331 - - - -
Non-GAAP Free Cash Flow (Note 6) 41,804 7,049 (3,310) (11,106) (16,959) (35,922) 5,065 3,325 7,742 2,311
32
Facility Consolidation Information
Facility Consolidation Plan Summary 2013 2014 2015 Q1 2016 Q2 2016 Q3 2016 2016 Total
Colormaster dryer write off 195 - - - - - - 195
West Coast Facility consolidation - 1,366 202 - - - - 1,568
East Coast Facility consolidation - 4,148 2,016 1,342 398 - 1,740 7,904
East Coast Asset write off - 1,133 - - - - - 1,133
Corporate Office consolidation - - 728 71 5 - 76 804
Total facility consolidation and asset write off 195 6,647 2,946 1,413 403 - 1,816 11,604