Executive Summary

Q3 2021 delivered net sales of $168.5M (+7.6% YoY), but profitability deteriorated: net loss of $29.7M and adjusted EBITDA loss of $17.9M, driven by ~$21M inflation (raw materials and freight) outpacing pricing; AFI entered Q4 with an elevated ~$67M backlog to support near-term sales .
Management enacted the most comprehensive pricing actions in company history effective Nov 1, targeting approximately $15M per quarter of profitability improvement once fully implemented by Q2 2022; customer-level profitability reviews and exits are underway .
Liquidity stood at ~$76.8M at 9/30/21 (cash $14.9M), and ABL/Term Loan amendments added minimum monthly availability covenants ($32.5M for Nov; $25.0M thereafter) and weekly borrowing base reporting; ABL availability was ~ $57M at quarter-end and ~$63.3M of debt was reclassified to short term .
Cost controls included curtailed capex and SG&A with October furlough/headcount reductions expected to save ~$4M; FY2021 capex is now expected at ~ $25M with similar levels in 2022; container shipments are expected to rise >25% in Q4 to alleviate supply constraints .
Stock-reaction catalysts: the pricing reset and covenant relief, plus backlog conversion and improved sourcing logistics; risks include persistent inflation and raw-material supply constraints through 2022 as highlighted by management .

What Went Well and What Went Wrong

What Went Well

Strong demand across regions with net sales +7.6% YoY and ~$67M backlog carried into Q4; “we continue to see strong demand for our products, carrying an order backlog of approximately $67 million into the fourth quarter” — CEO .
Pricing actions: “the most comprehensive pricing actions in the company’s history… expected to generate approximately $15 million of profitability improvement per quarter once fully implemented” — CEO; freight surcharges and simplified pricing introduced .
Product momentum: new launches resonated — “17% of our North American sales were made up of new products” and new agreements with large national hotel brands; Quick Ship momentum continues from Q2 .

What Went Wrong

Inflationary shock: cumulative inflation added ~$21M YoY in Q3 (PVC costs more than doubled since Jun 2020) and freight remained elevated, overwhelming price increases and compressing margins .
Supply chain disruptions: lower-than-expected deliveries of sourced materials and port congestion delayed Q3 orders into Q4; manufacturing faced raw-material availability constraints .
SG&A normalization pressured P&L: Q3 SG&A rose to $41.7M (vs $37.7M YoY) from expanded sales force and marketing, partially offset by lower IT/consulting and facility costs .

Financial Results

Year-over-Year (Q3 2020 vs Q3 2021)

Metric	Q3 2020	Q3 2021
Net Sales ($USD Millions)	$156.6	$168.5
Operating Income (Loss) ($USD Millions)	$(10.1)	$(28.8)
Net Income (Loss) ($USD Millions)	$(11.7)	$(29.7)
Diluted EPS ($USD)	$(0.53)	$(1.34)
Adjusted EBITDA ($USD Millions)	$2.8	$(17.9)
Adjusted EBITDA Margin (%)	1.8%	(10.6)%
SG&A ($USD Millions)	$37.7	$41.7

Sequential (Q2 2021 vs Q3 2021)

Metric	Q2 2021	Q3 2021
Net Sales ($USD Millions)	$168.1	$168.5
Diluted EPS ($USD)	$(0.89)	$(1.34)
Adjusted EBITDA ($USD Millions)	$(3.5)	$(17.9)
Adjusted EBITDA Margin (%)	(2.1)%	(10.6)%
SG&A ($USD Millions)	$39.5	$41.7
Liquidity ($USD Millions)	~$91.6	~$76.8
Net Debt ($USD Millions)	$44.7	$59.2

KPIs and Operating Items

KPI	Q2 2021	Q3 2021
Backlog ($USD Millions)	—	~$67
ABL Availability at period-end ($USD Millions)	—	~ $57
Cash & Equivalents ($USD Millions)	$14.6	$14.9
Free Cash Flow ($USD Millions)	$(7.9)	$(13.9)
CapEx ($USD Millions)	$4.1	$5.0
Net Debt ($USD Millions)	$44.7	$59.2
Pricing recoveries (EBITDA impact, $USD Millions)	—	~ $9 recovery vs higher costs
Inflation impact (EBITDA headwind, $USD Millions)	—	~ $21
Manufacturing productivity (YoY, $USD Millions)	—	~$3 benefit
New products (% NA sales)	—	17%
Expected container shipments (Q4 vs prior)	—	>25% increase
Minimum availability covenant (monthly, $USD Millions)	—	$32.5M (Nov), then $25.0M monthly

Note: AFI did not provide explicit segment financials; commentary cited NA, China, Australia growth and product-line trends (LVT, Quick Ship) .

Guidance Changes

Metric	Period	Previous Guidance	Current Guidance	Change
Pricing actions profitability improvement	Q4 2021–Q2 2022	n/a	~ $15M per quarter when fully implemented by Q2 2022	Raised (introduced)
CapEx	FY 2021	n/a	~ $25M expected; similar level in 2022	Maintained/clarified
SG&A/cost actions	Near term	Normalizing spend in Q2	Curtail SG&A; Oct furlough/headcount reductions → ~$4M annual savings	Lowered
Monthly minimum availability covenant	Nov 2021 onward	n/a	$32.5M for Nov; $25.0M per month thereafter	New covenant
Residential sheet at big box	Ends Q1 2022	n/a	Discontinuation with minimal EBITDA impact	Portfolio change

No explicit revenue/EPS margin guidance was provided for Q4/FY .

Earnings Call Themes & Trends

Topic	Q1 2021 (Apr 22)	Q2 2021 (Jul 21)	Q3 2021 (Nov 5)	Trend
Supply chain & freight	Winter Storm Uri disrupted plants; marine shipping volatility noted; price actions announced	Container shortages; shipping costs up to 9x; increased safety stock to 28 weeks; alternative shipping explored	Port congestion delayed deliveries; increased expected Q4 shipments >25%	Persistent constraints; incremental mitigation
Raw materials inflation (PVC)	Raw materials and shipping rising; initial pricing actions	Inflation continued; additional price increase announced in June	Inflation added ~$21M YoY; suspension PVC price more than doubled since Jun 2020	Worsening cost pressure
Pricing actions	Dec & late-Q1 price increases; phased Q2–Q3	Third 2021 price increase effective Aug 15	Comprehensive pricing reset Nov 1; freight surcharges; ~$15M/quarter uplift by Q2 2022	Escalating and broadening
Product performance (LVT, Quick Ship)	Launches (Pro, Signature); hospitality “Rest & Refuge” introduced	Quick Ship strongest quarter ($5M); commercial LVT launches (Biome/Terra/Coalesce)	New products = 17% NA sales; hospitality agreements signed	Expanding adoption
Regional trends	China/Australia strength; NA residential stable	Growth across NA/international; commercial recovery	NA growth via price/mix; continued recovery in China/Australia	Broad-based demand
Liquidity & covenants	Net debt reduced post South Gate sale; ample liquidity	Liquidity ~$91.6M; net debt $44.7M	ABL/Term Loan amendments; availability threshold; ABL availability ~$57M; net debt $59.2M	Tighter covenants; adequate liquidity
SG&A / cost actions	SG&A planned to rise with go-to-market	SG&A +$9.4M YoY; expanding sales force/marketing	Curtail capex/SG&A; ~$4M savings from furlough/headcount cuts	Pivot to cost containment

Management Commentary

“We followed-up on our August price increase by announcing the largest set of comprehensive pricing actions in our history… expected to generate approximately $15 million of profitability improvement per quarter once fully implemented” — CEO .
“We negotiated amendments to our Credit and Term Loan facilities, which will provide us financial covenant relief through at least December 31, 2021… reclassified $63.3 million of debt to short term” — CFO .
“Third quarter operating results were hampered by an additional $21 million of inflation when compared to the third quarter of 2020, with pricing initiatives serving to offset approximately 43% of these costs” — Press Release .
“We are pleased to have recently signed additional agreements with several large national hotel brands” — CEO .
“Our new products have done very well… 17% of our North American sales were made up of new products” — CEO .

Q&A Highlights

Pricing reset mechanics: management described a category-by-category repricing post 100% raw-material inflation; customers were “collaborative” and understood the need for a full reset beyond typical 3–6% increases .
Inflation assumptions: company assumes elevated raw-material and shipping costs throughout 2022; suspension PVC price has more than doubled since June 2020; pricing actions are intended to offset but timing and contract terms constrain pace .
Backlog/demand mix: demand remains robust across residential and commercial; improved supply should meet new rigid LVT demand and work down backlog; national hospitality agreements support momentum .
Logistics outlook: expected container shipments to rise >25% in Q4 and target similar increases in Q1 2022 to improve service and availability .

Estimates Context

S&P Global consensus estimates (EPS and Revenue) for AFIIQ Q3 2021 were unavailable due to missing CIQ mapping; as such, results cannot be compared to Wall Street consensus in this report [SpgiEstimatesError: Missing CIQ mapping for ticker 'AFIIQ'].
Where estimates are unavailable, we default to company-reported performance and management commentary .

Key Takeaways for Investors

Near-term margin recovery hinges on execution of the Nov 1 pricing reset (freight surcharges, program repricing) with targeted ~$15M per quarter uplift by Q2 2022; monitor realized price/mix and contract repricing cadence .
Inflation and supply chain remain principal risks; PVC costs and freight stayed elevated into Q4, contributing to ~$21M YoY inflation in Q3 — expect continued pressure through 2022 absent broader relief .
Backlog conversion and logistics are key catalysts: >25% expected shipment increase in Q4 and improving raw-material availability should support sequential sales growth and service improvements .
Liquidity/covenants: new minimum availability thresholds ($32.5M Nov; $25.0M monthly thereafter) and weekly borrowing base reporting tighten discipline; ABL availability ~ $57M at Q3-end supports operations while lender discussions continue .
Cost actions: curtailed capex/SG&A and ~$4M annual savings from headcount measures aim to offset inflation; FY21 capex guided to ~ $25M, with similar levels in 2022 — watch for further reductions if macro worsens .
Strategic positioning: new products (17% of NA sales) and hospitality wins broaden end-market exposure; Quick Ship and US-made LVT offerings provide resilience in a tight global supply chain .
Portfolio pruning: discontinuation of residential sheet at a big box by end-Q1’22 with minimal EBITDA impact reduces low-return volume; track mix and margin implications .

Armstrong Flooring, Inc. (AFIIQ)·Q3 2021 Earnings Summary