Executive Summary

Net sales rose to $168.1M (+15.5% YoY; +12.9% QoQ) but profitability deteriorated: GAAP diluted EPS was $(0.89) and adjusted diluted EPS was $(0.79), with adjusted EBITDA at $(3.5)M and margin of (2.1%) .
Cost inflation (raw materials and freight) and supply chain disruptions (container shortages, temporary line shutdowns) drove COGS to 87.4% of sales and lifted SG&A to $39.5M; management announced a third price increase effective August 15 to offset continuing headwinds .
Liquidity stood at $91.6M with net debt of $44.7M; free cash flow was $(7.9)M in Q2 as working capital and inflation pressures weighed on cash from operations .
Strategic catalysts: Quick Ship program delivered $5M sales in Q2 (highest quarter to date), hospitality entry (first sales for Rest & Refuge), and expanded U.S. manufacturing and diversified sourcing (Vietnam, Malaysia) to improve resilience .
Wall Street consensus (S&P Global) for Q2 2021 EPS/Revenue was unavailable; use prior periods for trajectory analysis. Estimates context below.

What Went Well and What Went Wrong

What Went Well

Quick Ship momentum: “sales over $5 million in the second quarter, marking our highest quarter to date… and the fourth sequential quarter of growth” .
Product innovation and commercial traction: new PVC‑free MedinPure and three LVT collections (Biome, Terra, Coalesce), with adoption and positive reviews aiding commercial mix .
Hospitality channel entry: “we have received our first few orders and fulfilled them in the second quarter” with five dedicated reps and a pipeline of additions over 12 months .

What Went Wrong

Supply chain/freight shocks: temporary Asian factory/border closures, multi‑week port delays, shipping costs “at times… 9x” normal; raw material disruptions caused temporary line shutdowns .
Inflation outpaced pricing: management now sees full‑year inflation at $60–$65M versus prior $30–$35M expectation, pressuring margins into H2’21 and likely into 2022 .
Cost structure up: SG&A increased to $39.5M (vs. $30.3M prior year) from sales force expansion, advertising, and normalization of staffing; COGS rose to 87.4% of net sales vs. 83.0% prior year .

Financial Results

Metric	Q4 2020	Q1 2021	Q2 2021
Net Sales ($USD Millions)	$143.9	$148.9	$168.1
Operating Income (Loss) ($USD Millions)	$(32.7)	$27.8	$(18.3)
Net Income (Loss) ($USD Millions)	$(32.4)	$27.2	$(19.5)
Diluted EPS ($USD)	$(1.48)	$1.23	$(0.89)
Adjusted Diluted EPS ($USD)	$(1.37)	$(0.38)	$(0.79)
Adjusted EBITDA ($USD Millions)	$(14.5)	$(7.6)	$(3.5)
Adjusted EBITDA Margin (%)	(10.1%)	(5.1%)	(2.1%)
Gross Profit ($USD Millions)	$7.9	$19.9	$21.2
SG&A ($USD Millions)	$40.6	$38.1	$39.5

KPIs

KPI	Q2 2021
Free Cash Flow ($USD Millions)	$(7.9)
Cash from Operations ($USD Millions)	$(3.9)
Capital Expenditure ($USD Millions)	$4.1
Liquidity ($USD Millions)	~$91.6
Net Debt ($USD Millions)	$44.7
Quick Ship Sales ($USD Millions)	~$5.0

Segment/Channel Highlights (qualitative where numeric not disclosed)

Area	Q4 2020	Q1 2021	Q2 2021	Trend
North America Residential	Strength in remodel; outpaced commercial	Residential demand improving; national accounts lumpy	Strong demand; big‑box slowing vs other outlets; distributor change in Midwest	Improving but mixed by channel
North America Commercial	Project delays (COVID)	Flat; ABI improvement; double‑digit commercial global revenue YoY	Demand exceeded projections; healthy mix; Quick Ship uptake	Recovering
International (China, Australia)	—	Strong recovery drove growth	Continued increases vs prior year	Improving

Guidance Changes

Metric	Period	Previous Guidance	Current Guidance	Change
Pricing actions	2021	Two increases announced by Q1	Third price increase announced in late June; effective Aug 15, 2021	Raised
SG&A run‑rate	Remainder of 2021	Higher SG&A expected in 2021 vs 2020	SG&A will be higher in remaining quarters of 2021; +$1.4M sequential increase in Q2	Maintained higher
Capex	Remainder of 2021	~$21M in 2020; ongoing investments	Capex “measured” for remainder of year	Maintained (qualitative)
Supply chain resilience	H2 2021	Diversifying sourcing; Quick Ship launch	Safety stock raised from 16 to 28 weeks; alternative shipping; expect improved service in Q3–Q4 as delayed inventory arrives	Strengthened
Revenue/margins guidance	2021	Expect revenue growth and adjusted EBITDA improvement vs 2020	No specific ranges provided; inflation expected to persist through 2021 and into 2022	Qualitative only

Earnings Call Themes & Trends

Topic	Previous Mentions (Q4’20 and Q1’21)	Current Period (Q2’21)	Trend
Supply chain and freight	Tariffs, freight cost headwinds; inventory build for Quick Ship	Asia factory/border closures; port delays; container costs up to 9x; temporary line shutdowns	Worsened in Q2; mitigation underway
Pricing/inflation	Price increases effective Jan 2021	Third price increase announced; full‑year inflation now $60–$65M vs $30–$35M prior	Inflation intensifying; more pricing
Product innovation (LVT/Sheet)	MedinPure, LVT refresh; expand LVT capacity	New LVT collections; PVC‑free sheet adoption gaining traction	Continuing momentum
Quick Ship program	Launched; increased capacity utilization	$5M sales in Q2; strongest quarter; 4th sequential growth	Strengthening
Hospitality entry	Hired head of hospitality	First sales; Rest & Refuge in market; adding reps and pipeline products	Early traction
Headquarters/Technical center	HQ move planned; 60% lease savings; opened Technical Center	New HQ opened; ~60% lease cost savings	Implemented

Management Commentary

“We delivered 15.5% top‑line growth… and 12.9% top‑line growth versus the first quarter 2021… while facing a dynamic supply chain and inflationary environment.”
“We announced our third price increase of 2021… and increasing our mix of products manufactured in the United States.”
“We increased our safety stock… raising sourced goods safety stock from 16 to 28 weeks… transportation costs… at times have been 9x what we’re used to seeing.”
“Sales over $5 million in the second quarter, marking our highest quarter to date… Quick Ship program.”
“We recorded our first sale in hospitality… Rest & Refuge… we have 5 dedicated hospitality reps.”

Q&A Highlights

Hospitality build‑out: 5 dedicated reps; first orders fulfilled in Q2; pipeline of two additional products over 12 months to expand offering .
Supply chain resiliency: diversified suppliers (Vietnam, Malaysia) alongside China/Korea; augmented U.S. manufacturing; expect improved service in Q3–Q4 as safety stock arrives .
Inflation outlook: full‑year inflation now $60–$65M; pricing actions will continue into 2022 as needed; cost increases arriving faster than pricing implementation .
Commercial recovery: transactional/light TI work driving Quick Ship; ABI near record high; expectation for improving commercial through H2’21 .

Estimates Context

S&P Global/Capital IQ consensus for Q2 2021 EPS/Revenue/EBITDA was unavailable for AFIIQ at the time of query. We compared results to prior quarters and internal commentary instead [SpgiEstimatesError].
Implication: Absent consensus, sell‑side models likely need higher inflation assumptions, more aggressive pricing cadence, and lower Q3 margin conversion than previously expected given SG&A trajectory and high‑cost inventory recognition in H2’21 .

Key Takeaways for Investors

Pricing power and mix shifts are critical near‑term; the August 15 price increase should partially offset inflation, but expect lagged margin recovery as high‑cost inventory sells through in H2’21 .
Supply chain mitigation (safety stock, diversified sourcing, alt shipping) positions service levels to improve in Q3–Q4—watch for order book conversion and reduced expedites .
Quick Ship and U.S.‑made portfolio are gaining traction and provide a strategic hedge against global logistics disruptions; sustained $5M+/quarter could underpin commercial recovery .
Hospitality entry is a new growth vector; early orders and rep build‑out signal optionality, but timing and brand approvals will govern revenue pacing .
SG&A investment supports transformation but lifts opex near‑term; model higher run‑rate SG&A through 2021 with gradual operating leverage contingent on pricing/mix improvements .
Liquidity (~$91.6M) and net debt ($44.7M) afford execution runway, but free cash flow swung negative in Q2; monitor working capital discipline and capex pacing .
Narrative is shifting from asset monetization (South Gate sale) to operational resilience and commercial mix recovery; near‑term stock catalysts: pricing realization, supply chain normalization, and Quick Ship/hospitality momentum .

Search notes: We read the full Q2’21 8‑K earnings release and financials, the full Q2’21 call transcript, and prior two quarters’ earnings materials. No other AFI press releases were found in June–July 2021 beyond the 8‑K earnings release .

Armstrong Flooring, Inc. (AFIIQ)·Q2 2021 Earnings Summary