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    Michael Hughes • S.A. Advisory

    Michael Hughes is a Managing Director at S.A. Advisory specializing in financial restructuring and distressed asset management for middle-market companies. He has led advisory engagements for notable firms such as Bank of America, Wells Fargo, and GE Capital, demonstrating a strong track record in debt restructuring and turnaround solutions. With over three decades in the industry, Michael began his career at Foothill Capital and held senior roles at Heller Financial and Korea First Bank before joining S.A. Advisory in 1994. He is a registered investment banker with FINRA and holds Series 7 and Series 63 securities licenses.

    Michael Hughes's questions to Dixie Group Inc (DXYN) leadership

    Michael Hughes's questions to Dixie Group Inc (DXYN) leadership • Q4 2024

    Question

    Michael Hughes of S.A. Advisory inquired about the hard surfaces business, specifically its import sources, exposure to tariffs, and the ability to pass on costs. He also asked for details on the Q4 inventory write-down, the timeline for achieving $10 million in cost savings, the feasibility of the new credit facility's $9 million EBITDA covenant, and potential for further inventory reductions. Hughes concluded by asking about tariff impacts on the soft surfaces business and clarifying the available liquidity under the new credit facility.

    Answer

    Executive Daniel Frierson stated that very little product is imported from China, with sourcing focused on Thailand, Cambodia, and Vietnam, which would face a 10% tariff. He believes the industry will pass on these costs. CFO Allen Danzey detailed the Q4 inventory write-down, noting a $1.3 million reserve increase to facilitate moving excess inventory. Frierson confirmed the company is already near its $10 million cost-saving run rate. Danzey expressed confidence in meeting the $9 million EBITDA covenant due to non-recurring 2024 costs and new savings initiatives. He also clarified that the $12.2 million in liquidity includes a required $6 million excess, leaving $6.2 million available.

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    Michael Hughes's questions to Dixie Group Inc (DXYN) leadership • Q2 2024

    Question

    Michael Hughes inquired about the second-half SG&A outlook following 2024 product launch completions, the progress on the $10M-$12M cost savings plan, the sustainability of Q2's 28% gross margin, the performance of the hard surfaces business, the incremental nature of the new $1.8M sublease income, and the cash CapEx forecast for the rest of the year.

    Answer

    CFO Allen Danzey explained that while sampling expenses are spread out, cash flow will improve in the second half as spending was front-loaded. CEO Daniel Frierson noted that 35-40% of this year's cost savings have been achieved, with a smaller program planned for next year. Danzey confirmed the current gross margins are sustainable at these volumes, driven by cost initiatives and consolidation. Frierson acknowledged the hard surfaces business was down 15-20%. Regarding the sublease, Danzey clarified that roughly $800,000 of the $1.8M is incremental income. He also projected back-half cash CapEx to be minimal, around $1M-$1.5M for maintenance.

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