| -●
| leveraging our vertically integrated structure. |
We have completed a major transformation of our product offerings, having refreshed over 70% of our entire product line over the past three years. In the past 12 months, we further strengthened our offerings with new products featuring a modern perspective on classic designs. Our contract sales, including sales to GSA, hospitality and commercial businesses, continue to grow and GSA has become one of our ten largest customers. Our internet sales, while still a low percentage of our consolidated sales, are growing at a rate that continues to out-pace our brick and mortar design centers. We measureassess the performance of our design centerswholesale and retail segments based on total net sales and writtenon a comparable period basis. We also measure wholesale orders booked on a comparable period basis. Comparable design centers are those which have been operating for at least 15 months,Wholesale orders booked reflect new orders placed with our wholesale segment from all sales channels, including relocated design centers provided the original and relocated design center location had been operating for at least 15 months on a combined basis. During the first three months of operations of newly opened design centers, written orders are booked, but minimal net sales are achieved through the delivery of products. Design centers we acquire fromour retail segment, independent retailers are includedand contract customers. Wholesale orders booked vary depending upon a variety of factors, including our product offerings, store openings, shifts in comparable design center sales in their 13th full month of Ethan Allen-owned operations. The frequency of our promotional events as well as the timing of holidays, promotional events and the endtiming and extent of those events can also affectour realization of the costs and benefits of our numerous strategic initiatives, including the recent transition to a membership model, among other things. As a result of these factors, comparability of our wholesale orders booked during any period to period comparison may be affected.
ETHAN ALLEN INTERIORS INC. AND SUBSIDIARIES Introduction of Membership Model – In October 2019 we introduced the Ethan Allen Member Program, an exclusive membership program providing our customers a given period. Our internationalnew way to make furnishing their home easier and more affordable. For an annual fee of $100, the Ethan Allen Member Program offers special members-only pricing, free shipping and white glove in-home delivery, and in our United States design centers, access to preferred financing plans. We believe that transitioning our business from a promotional to membership model will benefit our customers, enhance our brand and enable our team of about 1,500 North American interior designers and vertically integrated operations to operate more efficiently in order to improve our operating margins. The Member Program allows our interior designers to create design solutions that best satisfy the customer’s needs using our entire selection of product offerings at special member savings, as compared to our promotional model which focused on just those items that were on sale. The Member Program was launched in October with a strong advertising campaign utilizing direct mail, television and digital mediums. Specifically, we believe some of the benefits of the membership model will include: | ● | Improved customer experience – our interior design professionals can now work with customers based on their timeline and project deadlines, as opposed to our prior promotional calendar. We believe this has the potential to lead to larger overall sales transactions for individual customer design projects. |
| ● | Improved operational costs – the volume of sales, orders and shipments in our business under the prior promotional model was characterized by large spikes in customer orders based upon promotional events followed by lower orders and sales after the end of an event. This buying pattern also affected numerous other aspects of our business, including retail staffing and costs to service the increased number of customers during peak sales events. Likewise, significant fluctuations in sales had downstream implications for our manufacturing and production, shipment to the distribution centers and final delivery to customers. All of these aspects of our operations are experiencing improved efficiencies as a result of the membership model whereby sales are more evenly distributed throughout the year compared to the prior model. |
During this initial year of transition into the Member Program, we expect net sales are composedand related operating income to be negatively impacted due to the selling cycle with members being longer without the urgency created by promotional deadlines, the reduction of our wholesale segment sales to independent retailersdelivery fee revenue and our retail segment sales to consumers through the Company operated international design centers.timing of recognizing membership fees over a one-year period. Fiscal 2019 Third2020 Second Quarter in Review – - Improved gross margin, cost containment withinOur vertical structure continues to provide strong operating leverage that allows us to consistently return value to our expensesshareholders through our regular quarterly dividend, periodic special cash dividends and a lower effective tax rate helped increase our diluted earnings per share inrepurchases. During the three monthssecond quarter ended MarchDecember 31, 2019, we paid $5.6 million in cash dividends and repurchased 545,727 shares, representing 2.1% of our outstanding shares. We were pleased with the favorable customer response to $0.30, upthe Ethan Allen Member Program, which launched in October 2019. As expected, sales and operating income during the second quarter were negatively impacted during the transition period as we moved from $0.09 in thea promotional to a membership model. While our wholesale orders, which reflects sales through all our channels, decreased 21.8% from a year ago, third quarter. An increase of 1.5% for retailwe realized sequential improvement in orders each month during the second quarter, with October reflecting a decrease to the prior year, November reflecting a lesser decrease and December orders increasing year over year. As the Member Program continues to gain momentum, we have a strong marketing program planned, starting with a direct mail magazine being distributed in January 2020 to 2.5 million households. Consolidated net sales was partly offset by a decrease of 8.9% for wholesale net sales. Consolidated international net sales for the three months ended March 31, 2019 decreased 30.2% primarily11.5% due to lower wholesale sales and a 12.2% decrease in China and made up 6.6% of our consolidatedretail net sales compared with 9.3% in the prior year period. Gross profit grew by $1.7 million or 1.7% in the current year third quarter compared with the same period a year ago, driven by a 200-basis point expansion in our gross margin.sales. For the three months ended MarchDecember 31, 2019, gross margin was 55.3%55.9%, up from 53.3%55.2% a year ago, due to improved retail and wholesale gross margin coupled with a change in the retail sales mix relative to total sales, which was 78.1% compared with 75.5% in the comparable prior year period.margin. Operating expenses, in the three months ended March 31, 2019 decreased by $5.1 million, or 5.5%, representing 49.3% as a percentage of sales, increased to 50.6% compared with 51.2%47.0% a year ago. The primary driver of lowerago primarily due to net sales decreasing 11.5% while operating expenses was a reduction in national television advertising costs partially offset by higher retail occupancy and selling expenses.declined 4.8%. The effective income tax rate was 24.8%23.5% in the current quarter compared with 31.2% in the prior25.1% a year due to tax law changes resulting from the Tax Act.ago. ETHAN ALLEN INTERIORS INC. AND SUBSIDIARIES Key Operating Metrics A summary of our key operating metrics is presented in the following table ($ in millions, except per share amounts). | | | Three months ended
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December 31, | | | | | 2019 | | | % of Sales | | | 2018 | | | % of Sales | | | 2019 | | | % of Sales | | | 2018 | | | % of Sales | | | 2019 | | | % of Sales | | | 2018 | | | % of Sales | | | 2019 | | | % of Sales | | | 2018 | | | % of Sales | | Net sales | | $ | 177.8 | | | | | | | $ | 181.4 | | | | | | | $ | 562.8 | | | | | | | $ | 561.2 | | | | | | | $ | 174.6 | | | | | | | $ | 197.2 | | | | | | | $ | 348.5 | | | | | | | $ | 384.9 | | | | | | Gross profit | | $ | 98.4 | | | | 55.3 | % | | $ | 96.7 | | | | 53.3 | % | | $ | 308.7 | | | | 54.9 | % | | $ | 304.8 | | | | 54.3 | % | | $ | 97.5 | | | | 55.9 | % | | $ | 108.9 | | | | 55.2 | % | | $ | 191.3 | | | | 54.9 | % | | $ | 210.3 | | | | 54.6 | % | Adjusted gross profit(1) | | | $ | 97.9 | | | | 56.1 | % | | $ | 108.9 | | | | 55.2 | % | | $ | 195.8 | | | | 56.2 | % | | $ | 210.3 | | | | 54.6 | % | Operating income | | $ | 10.7 | | | | 6.0 | % | | $ | 3.9 | | | | 2.1 | % | | $ | 38.6 | | | | 6.9 | % | | $ | 33.0 | | | | 5.9 | % | | $ | 9.2 | | | | 5.3 | % | | $ | 16.1 | | | | 8.2 | % | | $ | 27.8 | | | | 8.0 | % | | $ | 27.9 | | | | 7.3 | % | Adjusted operating income(1) | | | $ | 9.5 | | | | 5.4 | % | | $ | 16.4 | | | | 8.3 | % | | $ | 21.7 | | | | 6.2 | % | | $ | 28.2 | | | | 7.3 | % | Net income | | $ | 8.0 | | | | 4.5 | % | | $ | 2.6 | | | | 1.4 | % | | $ | 29.0 | | | | 5.2 | % | | $ | 24.9 | | | | 4.4 | % | | $ | 7.1 | | | | 4.1 | % | | $ | 12.2 | | | | 6.2 | % | | $ | 21.2 | | | | 6.1 | % | | $ | 21.0 | | | | 5.5 | % | Adjusted net income(1) | | | $ | 7.3 | | | | 4.2 | % | | $ | 12.4 | | | | 6.3 | % | | $ | 16.6 | | | | 4.7 | % | | $ | 21.3 | | | | 5.5 | % | Diluted EPS | | $ | 0.30 | | | | | | | $ | 0.09 | | | | | | | $ | 1.08 | | | | | | | $ | 0.90 | | | | | | | $ | 0.26 | | | | | | | $ | 0.45 | | | | | | | $ | 0.79 | | | | 0.2 | % | | $ | 0.78 | | | | | | Net cash provided by operating activities | | $ | 12.8 | | | | | | | $ | 20.9 | | | | | | | $ | 44.3 | | | | | | | $ | 35.1 | | | | | | | Capital expenditures | | $ | 2.0 | | | | | | | $ | 4.1 | | | | | | | $ | 7.0 | | | | | | | $ | 9.1 | | | | | | | Adjusted diluted EPS(1) | | | $ | 0.27 | | | | | | | $ | 0.46 | | | | | | | $ | 0.62 | | | | 0.2 | % | | $ | 0.79 | | | | | | Cash flow from operating activities | | | $ | (0.0 | ) | | | | | | $ | 7.0 | | | | | | | $ | 23.4 | | | | | | | $ | 31.5 | | | | | |
(1) | Refer to the Reconciliation of Non-GAAP Financial Measures section within this MD&A for the reconciliation of U.S. GAAP to adjusted key financial metrics. |
ETHAN ALLEN INTERIORS INC. AND SUBSIDIARIES A summary of changes from the applicable periods in the preceding fiscal year is presented in the following table. | | | Three months ended | | | Nine months ended | | Three months ended | | | Six months ended | | | | | March 31, | | | March 31, | | | | December 31, | | | December 31, | | | | | 2019 | | | 2018 | | | 2019 | | | 2018 | | | | 2019 | | | 2018 | | | 2019 | | | 2018 | | Net sales | | | (2.0 | %) | | | 0.5 | % | | | 0.3 | % | | | (1.3 | %) | | | | (11.5 | %) | | | (0.7 | %) | | | (9.5 | %) | | | 1.4 | % | Gross profit | | | 1.7 | % | | | 2.4 | % | | | 1.3 | % | | | (1.3 | %) | | | | (10.4 | %) | | | 1.0 | % | | | (9.0 | %) | | | 1.1 | % | Adjusted gross profit(1) | | | | (10.1 | %) | | | 1.0 | % | | | (6.9 | %) | | | 1.1 | % | Operating income | | | 175.5 | % | | | (1.2 | %) | | | 17.1 | % | | | (16.2 | %) | | | | (42.9 | %) | | | (8.0 | %) | | | (0.3 | %) | | | (4.0 | %) | Adjusted operating income(1) | | | | (42.2 | %) | | | (4.6 | %) | | | (23.1 | %) | | | (4.7 | %) | Net income | | | 205.0 | % | | | 14.6 | % | | | 16.5 | % | | | 1.6 | % | | | | (41.9 | %) | | | (18.0 | %) | | | 0.8 | % | | | (5.6 | %) | Adjusted net income(1) | | | | (41.2 | %) | | | (15.2 | %) | | | (22.1 | %) | | | (6.3 | %) | Diluted EPS | | | 233.3 | % | | | 12.5 | % | | | 20.0 | % | | | 2.3 | % | | | | (40.0 | %) | | | (16.7 | %) | | | 1.3 | % | | | (2.5 | %) | Net cash provided by operating activities | | | (38.7 | %) | | | (20.4 | %) | | | 26.3 | % | | | (34.7 | %) | | | Capital expenditures | | | (50.8 | %) | | | 7.3 | % | | | (23.4 | %) | | | (39.6 | %) | | | Adjusted diluted EPS(1) | | | | (41.3 | %) | | | (13.2 | %) | | | (21.5 | %) | | | (3.7 | %) | Cash flow from operating activities | | | | (100.1 | %) | | | 302.3 | % | | | (25.7 | %) | | | 122.4 | % |
(1) | Refer to the Reconciliation of Non-GAAP Financial Measures section within this MD&A for the reconciliation of U.S. GAAP to adjusted key financial metrics. |
The components of consolidated net sales and operating income by business segment is presented in the following table ($ in millions). | | | Three months ended
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December 31, | | | | | | | | | 2019 | | | 2018 | | | 2019 | | | 2018 | | | 2019 | | | 2018 | | | % Chg | | | 2019 | | | 2018 | | | % Chg | | Net Sales: | | | | | | | | | | | | | | | | | | Net sales | | | | | | | | | | | | | | | | | | | | | | | | | | Wholesale segment | | $ | 108.4 | | | $ | 118.9 | | | $ | 334.1 | | | $ | 348.5 | | | $ | 91.9 | | | $ | 107.7 | | | | (14.6 | %) | | $ | 193.2 | | | $ | 225.7 | | | | (14.4 | %) | Retail segment | | | 138.9 | | | | 136.9 | | | | 442.7 | | | | 431.5 | | | | 139.1 | | | | 158.5 | | | | (12.2 | %) | | | 276.4 | | | | 303.7 | | | | (9.0 | %) | Elimination of intersegment sales | | | (69.5 | ) | | | (74.4 | ) | | | (214.0 | ) | | | (218.8 | ) | | | (56.4 | ) | | | (69.0 | ) | | | | | | | (121.1 | ) | | | (144.5 | ) | | | | | Consolidated net sales | | $ | 177.8 | | | $ | 181.4 | | | $ | 562.8 | | | $ | 561.2 | | | $ | 174.6 | | | $ | 197.2 | | | | (11.5 | %) | | $ | 348.5 | | | $ | 384.9 | | | | (9.5 | %) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Operating income (loss): | | | | | | | | | | | | | | | | | | Operating income (loss) | | | | | | | | | | | | | | | | | | | | | | | | | | Wholesale segment | | $ | 13.1 | | | $ | 7.9 | | | $ | 36.2 | | | $ | 37.0 | | | $ | 5.7 | | | $ | 8.8 | | | | (35.0 | %) | | $ | 22.7 | | | $ | 23.1 | | | | (2.1 | %) | Retail segment | | | (1.7 | ) | | | (2.9 | ) | | | 0.1 | | | | (6.3 | ) | | | (0.1 | ) | | | 3.3 | | | | (104.1 | %) | | | 1.4 | | | | 1.8 | | | | (18.4 | %) | Elimination of intercompany profit (a)(1) | | | (0.7 | ) | | | (1.1 | ) | | | 2.3 | | | | 2.3 | | | | 3.6 | | | | 4.0 | | | | | | | | 3.8 | | | | 3.0 | | | | | | Consolidated operating income | | $ | 10.7 | | | $ | 3.9 | | | $ | 38.6 | | | $ | 33.0 | | | $ | 9.2 | | | $ | 16.1 | | | | (42.9 | %) | | $ | 27.8 | | | $ | 27.9 | | | | (0.3 | %) |
| (a)(1)
| Represents the change in wholesale profit contained in Ethan Allen-operated design centerthe retail segment inventory existing at the end of the period. |
A summary by business segment changes from the applicable periods in the preceding fiscal year is presented in the following table.ETHAN ALLEN INTERIORS INC. AND SUBSIDIARIES
| | | Three months ended
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March 31, | | | | | 2019 | | | 2018 | | | 2019 | | | 2018 | | Wholesale segment: | | | | | | | | | | | | | | | | | Net Sales | | | (8.9 | %) | | | 7.3 | % | | | (4.1 | %) | | | 2.8 | % | Operating Income | | | 64.6 | % | | | (18.5 | %) | | | (2.1 | %) | | | (8.5 | %) | Backlog | | | (22.1 | %) | | | 69.7 | % | | | (22.1 | %) | | | 69.7 | % | | | | | | | | | | | | | | | | | | | Retail segment: | | | | | | | | | | | | | | | | | Net Sales | | | 1.5 | % | | | (3.6 | %) | | | 2.6 | % | | | (4.2 | %) | Comparable design center revenue | | | 0.5 | % | | | (4.2 | %) | | | 1.4 | % | | | (5.1 | %) | Total written orders | | | 1.4 | % | | | 2.6 | % | | | (0.6 | %) | | | (0.4 | %) | Comparable design center written orders | | | 0.4 | % | | | 1.6 | % | | | (1.9 | %) | | | (1.3 | %) | Operating Income | | | 42.4 | % | | | 60.4 | % | | | 101.3 | % | | | (51.9 | %) | Backlog | | | (11.9 | %) | | | 13.6 | % | | | (11.9 | %) | | | 13.6 | % |
The following table shows selected design center location information. | | | Fiscal 2019 | | | Fiscal 2018 | | | Fiscal 2020 | | | Fiscal 2019 | | | | | Independent | | | Company- | | | | | | | Independent | | | Company- | | | | | | | Independent | | | Company- | | | | | | | Independent | | | Company- | | | | | | | | | retailers | | | operated | | | Total | | | retailers | | | operated | | | Total | | | retailers | | | operated | | | Total | | | retailers | | | operated | | | Total | | Retail Design Center location activity: | | | | | | | | | | | | | | | | | | | | | | | Retail Design Center activity: | | | | | | | | | | | | | | | | | | | | | | | | | | Balance at July 1 | | | 148 | | | | 148 | | | | 296 | | | | 155 | | | | 148 | | | | 303 | | | | 158 | | | | 144 | | | | 302 | | | | 148 | | | | 148 | | | | 296 | | New locations | | | 17 | | | | 1 | | | | 18 | | | | 11 | | | | 2 | | | | 13 | | | | 9 | | | | 5 | | | | 14 | | | | 13 | | | | 1 | | | | 14 | | Closures | | | (3 | ) | | | (8 | ) | | | (11 | ) | | | (6 | ) | | | (3 | ) | | | (9 | ) | | | (8 | ) | | | (6 | ) | | | (14 | ) | | | (1 | ) | | | (4 | ) | | | (5 | ) | Transfers | | | (1 | ) | | | 1 | | | | - | | | | - | | | | - | | | | - | | | | (1 | ) | | | 1 | | | | - | | | | (1 | ) | | | 1 | | | | - | | Balance at March 31 | | | 161 | | | | 142 | | | | 303 | | | | 160 | | | | 147 | | | | 307 | | | Balance at December 31 | | | | 158 | | | | 144 | | | | 302 | | | | 159 | | | | 146 | | | | 305 | | Relocations (in new and closures) | | | - | | | | 1 | | | | 1 | | | | - | | | | - | | | | - | | | | 1 | | | | 4 | | | | 5 | | | | - | | | | 1 | | | | 1 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Retail Design Center geographic locations: | Retail Design Center geographic locations: | | | | | | | | | | | | | | | | | | | | | | Retail Design Center geographic locations: | | | | | | | | | | | | | | | | | | | | | | United States | | | 41 | | | | 136 | | | | 177 | | | | 47 | | | | 141 | | | | 188 | | | | 36 | | | | 138 | | | | 174 | | | | 42 | | | | 140 | | | | 182 | | Canada | | | - | | | | 6 | | | | 6 | | | | - | | | | 6 | | | | 6 | | | | - | | | | 6 | | | | 6 | | | | - | | | | 6 | | | | 6 | | China | | | 102 | | | | - | | | | 102 | | | | 88 | | | | - | | | | 88 | | | | 104 | | | | - | | | | 104 | | | | 98 | | | | - | | | | 98 | | Other Asia | | | 11 | | | | - | | | | 11 | | | | 12 | | | | - | | | | 12 | | | | 11 | | | | - | | | | 11 | | | | 11 | | | | - | | | | 11 | | Europe | | | 1 | | | | - | | | | 1 | | | | 6 | | | | - | | | | 6 | | | | 1 | | | | - | | | | 1 | | | | 1 | | | | - | | | | 1 | | Middle East | | | 6 | | | | - | | | | 6 | | | | 7 | | | | - | | | | 7 | | | | 6 | | | | - | | | | 6 | | | | 7 | | | | - | | | | 7 | | Total | | | 161 | | | | 142 | | | | 303 | | | | 160 | | | | 147 | | | | 307 | | | | 158 | | | | 144 | | | | 302 | | | | 159 | | | | 146 | | | | 305 | |
Results of Operations Second Quarter ended December 31, 2019compared withSecond Quarter ended December 31, 2018 Consolidated net sales were $174.6 million, a decrease of 11.5% compared to the same prior year period. Net sales decreased by 14.6% for our wholesale segment and by 12.2% for our retail segment. Net sales in the second quarter ended December 31, 2019 were negatively impacted as a result of our ongoing transition from a promotional to a membership model as evidenced by a 21.8% decrease in wholesale orders, which led to lower wholesale shipments. In addition, there was a $4.2 million decrease in international sales primarily related to lower sales in China and Canada due to a challenging global economy. Wholesale net sales decreased 14.6% to $91.9 million primarily due to a 45.1% decrease in sales to China and a 24.6% decline in sales to our North American retail network. Partially offsetting these declines was growth in contract sales, which grew 66.9% year over year. The year over year increase in contract sales was attributable to continued growth in sales from the United States government General Services Administration (“GSA”) contract. Wholesale orders booked, which represents orders booked through all of our channels, was down 21.8% compared with the second quarter last year. Wholesale orders from China declined 69.3% from a year ago mainly due to global economic uncertainty. Excluding orders from China, our total wholesale orders decreased 17.9%, which was primarily the result of the transition to the membership model. Retail net sales from Ethan Allen operated design centers decreased by $19.4 million, or 12.2%, to $139.1 million. There was a 12.3% decrease in net sales in the United States, while net sales from Canadian design centers decreased 11.8%. These decreases were primarily due to the transition to the membership model combined with softer order trends as consumers have been cautious with discretionary spending. There were 144 Company operated design centers at the end of the second quarter of fiscal 2020, compared to 146 in the prior year period as we continue to relocate and open new locations while closing older locations. Gross profit decreased 10.4% to $97.5 million compared with the prior year period due to lower sales volumes in both our wholesale and retail segments combined with a change in product mix, partially offset by improved gross margins. Retail sales, as a percentage of total consolidated sales, was 79.7% in the current year second quarter compared with 80.4% a year ago, which change in mix negatively impacted our consolidated gross margin. Our fiscal 2020 gross margin improved to 55.9%, up from 55.2% in the prior year, primarily due to retail gross margin increasing from improved retail price optimization and wholesale gross margin expansion due to realizing efficiencies from our previously announced restructuring initiatives. Restructuring charges of $0.4 million negatively impacted our consolidated gross margin by 20 basis points. ETHAN ALLEN INTERIORS INC. AND SUBSIDIARIES Results of OperationsOperating expense
For an understanding of the significant factors that influenced our performance for the three and nine months ended March 31, 2019 and 2018, respectively, the following discussion should be read in conjunction with the consolidated financial statements and related notes presented in this Quarterly Report on Form 10-Q ($ in millions, except per share amounts). Unless otherwise noted, all comparisons in the following discussion are from the three- or nine-month period ended March 31, 2019s decreased to the comparable prior fiscal year three- or nine-month period.
Third Quarter ended March 31, 2019compared withThird Quarter ended March 31, 2018
Consolidated net sales for the quarter of $177.8 million compared with $181.4 million for the same prior year period, a decrease of 2.0%. Sales decreased by 8.9% for our wholesale segment, which were partly offset by a 1.5% increase in our retail segment. There was a 30.2% decrease in international sales in our combined retail and wholesale segments, which we believe is related to the economic uncertainty surrounding current international trade disputes.
Retail net sales for the quarter of $138.9 million compared with $136.9 million for the prior year period, an increase of 1.5%. Comparative retail net sales increased 0.5%. There were 142 Company-operated design centers during the quarter, down from 147 in the prior year period. There was a 1.9% increase in sales in the U.S., while sales from the Canadian design centers decreased 9.6%. Total written business (new orders booked) increased 1.4%, with an increase in the U.S. and a decrease in Canada. Comparable design center written business in the quarter increased 0.4% in total.
Wholesale net sales for the quarter of $108.4 million compared with $118.9 million for the prior year period, a decrease of 8.9%. The lower net sales were primarily due to a reduction in sales to our North American retail network. The prior year quarter net sales benefitted from delayed shipments during the first half that had begun shipping during the quarter. Contract sales increased for the current year quarter while international sales, especially to China, decreased.
Gross profit for the quarter of $98.4 million compared with $96.7 million for the prior year period, an increase of 1.7%, with an increase in our retail segment and a decrease in our wholesale segment. A price increase earlier in fiscal 2019 improved gross profit, while lower wholesale sales volume negatively impacted gross profit. Gross margin for the quarter was 55.3% compared with 53.3% in the prior year period. Retail sales as a percent of total consolidated sales were 78.1% for the quarter compared with 75.5% in the prior year quarter, increasing our consolidated gross margin.
Operating expenses for the quarter of $87.7$88.3 million, or 49.3%50.6% of net sales, decreased $5.1 million compared with $92.8$92.7 million, or 51.2%47.0% of net sales, for the prior year period. The 5.5%4.8% decrease was primarily due to lower nationalretail selling costs and lower general and administrative costs partially offset by higher wholesale advertising costs. Retail selling expenses decreased due to warehouse and delivery expenses decreasing, along with other reduced variable selling expenses, from the 12.2% reduction in retail net sales. General and administrative expenses decreased primarily due to lower wholesale compensation costs coupled with lower depreciation, occupancy costs and regional management charges within the retail segment. Wholesale selling costs increased due to television advertising costs of $6.4 million. The prior year quarter also reflected a reduction in expenses due toduring the reversal of $1.5 million in accrued incentive compensation.quarter.
Operating income for the quarter of $10.7totaled $9.2 million, or 6.0%5.3% of net sales, compared with $3.9$16.1 million, or 2.1%8.2% of net sales, for the prior year period.second quarter. The primary causes for the increasedecrease in operating income was driven by the benefit of higher11.5% decline in consolidated net sales, which negatively impacted gross profit by 10.4% combined with a decrease in the retail/wholesale product mix and higher selling costs from television advertising spend. These decreases were partially offset by improved expense management and a reductiongross margin improvement, which rose 70 basis points year over year. Wholesale operating income decreased 35.0% to $5.7 million compared with $8.8 million for the prior year period primarily due to the decrease in national television advertising costs.net sales. Retail operating income for the quarter loss was a loss of $1.7$0.1 million compared with a lossoperating income of $2.9$3.3 million for the prior year period. The higher operating income and improvedOperating margin in the current quarter was driven primarily by the improved sales and gross margin in the current year period. Wholesale operating income for the quarter of $13.0 million compared with $7.9 million for the prior year period. The increase was largelydecreased 220 basis points due to higherthe 12.2% reduction in net sales partially offset by improved gross margin and lower advertising costs as discussed above.a 4.5% decrease in operating expenses.
Income tax expense for the quarter totaled $2.6decreased to $2.2 million compared with $1.2 million.$4.1 million a year ago due to the $7.0 million decrease in income before income taxes. Our effective tax rate was 24.8%23.5% in the current year second quarter compared with 31.2%25.1%. The effective tax rate of 24.8%23.5% primarily includes a provision for income tax on the current quarter’s taxable income, including federal, state and local taxes tax expense on the establishment and maintenance of a valuation allowance on Canadian deferred tax assets, and tax and interest expense on uncertain tax positions, partially offset by the reversal of various uncertain tax positions. The prior fiscal year ago second quarter effective tax rate of 25.1% primarily includes tax expense on that quarter’s taxable income, re-measurementtax expense on cancelations and exercises of deferred tax assets and liabilities as a result of the Tax Act,stock options and tax and interest expense on uncertain tax positions, partially offset by the reversal of various uncertain tax positions. Net income for the quarter of $8.0was $7.1 million compared with $2.6$12.2 million for the prior year period, which resulted in $0.30$0.27 per diluted share compared with $0.09$0.45 in the prior year period. Adjusted diluted EPS of $0.27 in the current year second quarter represents a decrease of 41.3% over the prior year second quarter adjusted diluted EPS of $0.46. This decrease was primarily from sales and operating income being negatively impacted during the quarter as we move from a promotional to membership model combined with retail consumers being cautious with discretionary spending. Six Months ended December 31, 2019 compared with Six Months ended December 31, 2018 Consolidated net sales were $348.5 million, a decrease of 9.5% or $36.4 million compared with the same prior year period. Net sales decreased by 14.4% within our wholesale segment and by 9.0% in our retail segment. There was an $8.8 million decrease in international sales primarily related to lower sales in China and Canada due to a challenging global economy. Net sales to China were 47.4% lower in the current year compared with the same period last fiscal year. Softer order trends from consumers and the ongoing transition from a promotional sales model to a membership model negatively impacted our fiscal 2020 net sales. Wholesale net sales decreased 14.4% to $193.2 million. The lower net sales were primarily due to a decline in sales to China and to our North American retail network combined with the impact from the transition to the membership model, which caused decreases in orders and subsequent shipments within our case goods, upholstery and home accents product lines. Partially offsetting these declines was growth in contract sales, which grew 64.8% year over year. The year over year increase in contract sales was attributable to continued growth in sales from the GSA contract. Wholesale orders booked during fiscal 2020 was down 10.5% compared with the same period last fiscal year. Wholesale orders from China declined 53.8% from a year ago mainly due to the imposition of tariffs by China and the economic uncertainty surrounding the international trade disputes. Excluding orders from China, our total wholesale orders decreased 7.5%, primarily as the result of the transition to the membership model. These decreases were partially offset by continued growth in our contract business, including the GSA contract. ETHAN ALLEN INTERIORS INC. AND SUBSIDIARIES Nine Months Ended March 31, 2019Compared with Nine Months Ended March 31, 2018
Consolidated net sales year-to-date of $562.8 million compared with $561.2 million for the same prior year period, an increase of 0.3%. Sales increased by 2.6% in our retail segment, which were partially offset by a 4.1% decrease in our wholesale segment. There was a 28.1% decrease in international sales in our combined retail and wholesale segments, which we believe is related to the economic uncertainty surrounding current international trade disputes.
Retail net sales year-to-date of $442.7from Ethan Allen operated design centers decreased by $27.4 million, compared with $431.5 million for the prior year period,or 9.0%, to $276.4 million. There was an increase of 2.6%. Comparative retail8.9% decrease in net sales increased 1.4%.in the United States and a 11.3% decrease in Canada. These decreases were primarily due to softer order trends as consumers have been cautious with discretionary spending combined with the shift to the membership model. There were 142 Company-operated144 Company operated design centers duringat the end of the period, down from 147two less than the 146 in the prior year period. There was a 3.6% increase in sales in the U.S., while sales from the Canadian design centers decreased 20.0%. Total written business (new orders booked) decreased 0.6%, with a decrease in both Canada and the U.S. Comparable design center written business year-to-date decreased 1.9% in total. Wholesale net sales year-to-date of $334.1 million compared with $348.5 million for the prior year period, a decrease of 4.1%. During the previous year, wholesale segment sales were at elevated levels as the shipping delays and the high backlogs from the first quarter were mostly caught up in the second quarter. This year the wholesale segment backlog levels returned to more normal levels. Lower international sales, especially to China, partially offset by increased contract sales, also contributed to the sales decrease.
Gross profit year-to-date of $308.7decreased 9.0% to $191.3 million compared with $304.8 million for the prior year period up 1.3%, with an increase in our retail segment and a decrease indue to declines within both our wholesale segment. Consolidated gross margin year-to-date was 54.9% compared with 54.3%. A price increase earlier in fiscal 2019 improvedand retail segments. Wholesale gross profit while lower wholesale sales volumewas negatively impacted gross profit.by lower sales volume. Retail sales, as a percentpercentage of total consolidated sales, was 78.7% year-to-datewere 79.3% in fiscal 2020 compared with 76.9%78.9% in the prior fiscal year, period, increasingwhich mix favorably impacted our year-to-date consolidated gross margin. Our fiscal 2020 adjusted gross margin improved to 56.2%, up from 54.6% in the prior year. Restructuring charges negatively impacted our fiscal 2020 consolidated gross margin by 130 basis points. Operating expenses year-to-date of $270.1decreased to $163.5 million, or 48.0%46.9% of net sales, decreased $1.8 million compared with $271.9$182.4 million, or 48.4%47.4% of net sales, for the prior year period. The $1.8 million10.4% decrease from the prior year was primarily due to a $6.5gain of $11.5 million reductionfrom the sale of the Passaic property during the first quarter of fiscal 2020. In addition to the gain on the sale, operating expenses were lower in national television advertising expenses partially offset by increased logistics (freight,fiscal 2020 due to lower retail depreciation expense and lower wholesale distribution and warehouse) costs from a lower volume of $2.4 million.shipments. Operating income year-to-date of $38.6totaled $27.8 million, or 6.9%8.0% of net sales, compared with $33.0$27.9 million, or 5.9%7.3% of net sales, for the prior year period. The primary causes for the 17.1% increase inAdjusted operating income were increased domestic retailin the first half of fiscal 2020, which excludes the $11.5 million gain on the sale of the Passaic property and $5.0 million of other restructuring charges, was $21.7 million, a decrease of 23.1% compared to last year. The adjusted operating income decrease was driven by the 9.5% decline in consolidated net sales and lower nationalcombined with higher selling costs from television advertising costs partially offset by reduced sales in wholesale and increased variable logistics costs. Retail operating income year-to-date of $0.1 million compared with a loss of $6.3 million for the prior year period. The improved operating income was driven primarily by the improved domestic sales in the current year period partially offset by lower international operating income.spend.
Wholesale operating income year-to-date of $36.2decreased 2.1% to $22.7 million compared with $37.0$23.1 million for the prior year period. The decrease was due to the 14.6% decrease in net sales and higher selling costs partially offset by the $11.5 million gain on the sale of the Passaic property. Adjusted wholesale operating income decreased 29.5% largely due to lower third quartersales volume and television advertising spend. Retail operating income was $1.4 million, or 0.5% of net sales in the current period compared with $1.8 million for the prior year period. A higher gross margin rate and increased distribution costs partiallylower depreciation were offset by a reduction in national television advertising expenses.lower sales. Income tax expense year-to-date totaled $9.7was $6.7 million compared with $8.0$7.0 million for the priora year period.ago. Our effective tax rate was 25.0%24.1% in the periodcurrent year first half compared with 24.4%25.0%. The effective tax rate of 24.1% primarily includes a provision for income tax on the current fiscal year primarily includes tax expense on the fiscal year’s taxable income including federal, state and local taxes, tax expense on the establishment and maintenance of a valuation allowance on Canadian deferred tax assets, and tax and interest expense on uncertain tax positions, partially offset by the reversal of various uncertain tax positions. The year ago effective tax rate for the prior fiscal yearof 25.0% primarily includes tax expense on that fiscal year’s taxable income, the tax benefit lostexpense on the cancelationcancelations and exercises of stock options and tax and interest expense on uncertain tax positions, partially offset by tax benefits from the re-measurement of deferred tax assets and liabilities as of result of the Tax Act, the vesting of restricted stock units, and the reversal of various uncertain tax positions. Net income year-to-date of $29.0was $21.2 million compared with $24.9$21.0 million for the prior year period, an increase of 16.5%. Thiswhich resulted in net income$0.79 per diluted share year-to-date of $1.08 compared with $0.90, an increase$0.78 in the prior year period. The gain on the sale of 20.0%.the Passaic property partially offset with other fiscal 2020 restructuring activities and corporate actions increased diluted EPS by $0.17. Adjusted diluted EPS of $0.62 in the current year represents a decrease of 21.5% over the prior year. Reconciliation of Non-GAAP Financial Measures To supplement the financial measures prepared in accordance with generally accepted accounting principles in the United States, or U.S. GAAP, we use non-GAAP financial measures, including adjusted gross profit and margin, adjusted operating income, adjusted retail operating income and margin, adjusted wholesale operating income and margin, adjusted net income, and adjusted diluted earnings per share. The reconciliations of these non-GAAP financial measures to the most directly comparable financial measures calculated and presented in accordance with U.S. GAAP are shown in tables below. These non-GAAP measures are derived from the consolidated financial statements but are not presented in accordance with U.S. GAAP. We believe these non-GAAP measures provide a meaningful comparison of our results to others in our industry and our prior year results. Investors should consider these non-GAAP financial measures in addition to, and not as a substitute for, our financial performance measures prepared in accordance with U.S. GAAP. Moreover, these non-GAAP financial measures have limitations in that they do not reflect all the items associated with the operations of the business as determined in accordance with U.S. GAAP. Other companies may calculate similarly titled non-GAAP financial measures differently than we do, limiting the usefulness of those measures for comparative purposes. ETHAN ALLEN INTERIORS INC. AND SUBSIDIARIES Despite the limitations of these non-GAAP financial measures, we believe these adjusted financial measures and the information they provide are useful in viewing our performance using the same tools that management uses to assess progress in achieving our goals. Adjusted measures may also facilitate comparisons to our historical performance. The following tables below show a reconciliation of non-GAAP financial measures used in this filing to the most directly comparable U.S. GAAP financial measures. (Unaudited) | | | | | | | | | | | | | | | | | | | | | | | | | (In thousands, except per share data) | | Three months ended | | | | | | | Six months ended | | | | | | | | | December 31, | | | | | | | December 31, | | | | | | | | | 2019 | | | 2018 | | | % Chg | | | 2019 | | | 2018 | | | % Chg | | Consolidated Adjusted Gross Profit / Gross Margin | | | | | | | | | | | | | | | | | | | | | | GAAP Gross profit | | $ | 97,521 | | | $ | 108,860 | | | | (10.4 | %) | | $ | 191,315 | | | $ | 210,310 | | | | (9.0 | %) | Adjustments (pre-tax) * | | | 389 | | | | - | | | | | | | | 4,529 | | | | - | | | | | | Adjusted gross profit * | | $ | 97,910 | | | $ | 108,860 | | | | (10.1 | %) | | $ | 195,844 | | | $ | 210,310 | | | | (6.9 | %) | Adjusted gross margin * | | | 56.1 | % | | | 55.2 | % | | | | | | | 56.2 | % | | | 54.6 | % | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Consolidated Adjusted Operating Income / Operating Margin | | | | | | | | | | | | | | | | | | | | | | GAAP Operating income | | $ | 9,204 | | | $ | 16,128 | | | | (42.9 | %) | | $ | 27,845 | | | $ | 27,927 | | | | (0.3 | %) | Adjustments (pre-tax) * | | | 284 | | | | 297 | | | | | | | | (6,144 | ) | | | 297 | | | | | | Adjusted operating income * | | $ | 9,488 | | | $ | 16,425 | | | | (42.2 | %) | | $ | 21,701 | | | $ | 28,224 | | | | (23.1 | %) | | | | | | | | | | | | | | | | | | | | | | | | | | | Consolidated Net sales | | $ | 174,574 | | | $ | 197,152 | | | | (11.5 | %) | | $ | 348,495 | | | $ | 384,937 | | | | (9.5 | %) | GAAP Operating margin | | | 5.3 | % | | | 8.2 | % | | | | | | | 8.0 | % | | | 7.3 | % | | | | | Adjusted operating margin * | | | 5.4 | % | | | 8.3 | % | | | | | | | 6.2 | % | | | 7.3 | % | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Consolidated Adjusted Net Income / Adjusted Diluted EPS | | | | | | | | | | | | | | | | | | | | | | GAAP Net income | | $ | 7,086 | | | $ | 12,190 | | | | (41.9 | %) | | $ | 21,192 | | | $ | 21,030 | | | | 0.8 | % | Adjustments, net of tax * | | | 214 | | | | 224 | | | | | | | | (4,639 | ) | | | 224 | | | | | | Adjusted net income | | $ | 7,300 | | | $ | 12,414 | | | | (41.2 | %) | | $ | 16,553 | | | $ | 21,254 | | | | (22.1 | %) | Diluted weighted average common shares | | | 26,612 | | | | 26,923 | | | | | | | | 26,681 | | | | 26,932 | | | | | | GAAP Diluted EPS | | $ | 0.27 | | | $ | 0.45 | | | | (40.0 | %) | | $ | 0.79 | | | $ | 0.78 | | | | 1.3 | % | Adjusted diluted EPS * | | $ | 0.27 | | | $ | 0.46 | | | | (41.3 | %) | | $ | 0.62 | | | $ | 0.79 | | | | (21.5 | %) | | | | | | | | | | | | | | | | | | | | | | | | | | | Wholesale Adjusted Operating Income / Operating Margin | | | | | | | | | | | | | | | | | | | | | | Wholesale GAAP operating income | | $ | 5,730 | | | $ | 8,821 | | | | (35.0 | %) | | $ | 22,658 | | | $ | 23,136 | | | | (2.1 | %) | Adjustments (pre-tax) * | | | 284 | | | | 74 | | | | | | | | (6,292 | ) | | | 74 | | | | | | Adjusted wholesale operating income * | | $ | 6,014 | | | $ | 8,895 | | | | (32.4 | %) | | $ | 16,366 | | | $ | 23,210 | | | | (29.5 | %) | | | | | | | | | | | | | | | | | | | | | | | | | | | Wholesale net sales | | $ | 91,889 | | | $ | 107,658 | | | | (14.6 | %) | | $ | 193,218 | | | $ | 225,730 | | | | (14.4 | %) | Wholesale GAAP operating margin | | | 6.2 | % | | | 8.2 | % | | | | | | | 11.7 | % | | | 10.2 | % | | | | | Adjusted wholesale operating margin * | | | 6.5 | % | | | 8.3 | % | | | | | | | 8.5 | % | | | 10.3 | % | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Retail Adjusted Operating Income / Operating Margin | | | | | | | | | | | | | | | | | | | | | | Retail GAAP operating income | | $ | (135 | ) | | $ | 3,311 | | | | (104.1 | %) | | $ | 1,429 | | | $ | 1,752 | | | | (18.4 | %) | Adjustments (pre-tax) * | | | - | | | | 223 | | | | | | | | 148 | | | | 223 | | | | | | Adjusted retail operating income * | | $ | (135 | ) | | $ | 3,534 | | | | (103.8 | %) | | $ | 1,577 | | | $ | 1,975 | | | | (20.2 | %) | | | | | | | | | | | | | | | | | | | | | | | | | | | Retail net sales | | $ | 139,101 | | | $ | 158,508 | | | | (12.2 | %) | | $ | 276,367 | | | $ | 303,722 | | | | (9.0 | %) | Retail GAAP operating margin | | | (0.1 | %) | | | 2.1 | % | | | | | | | 0.5 | % | | | 0.6 | % | | | | | Adjusted retail operating margin * | | | (0.1 | %) | | | 2.2 | % | | | | | | | 0.6 | % | | | 0.7 | % | | | | |
* Adjustments to reported U.S. GAAP financial measures including gross profit and margin, operating income and margin, net income, and diluted EPS have been adjusted by the following: |
ETHAN ALLEN INTERIORS INC. AND SUBSIDIARIES (Unaudited) | | Three months ended | | | Six months ended | | (In thousands) | | December 31, | | | December 31, | | | | | 2019 | | | 2018 | | | 2019 | | | 2018 | | Inventory write-downs and manufacturing overhead costs | | $ | 389 | | | $ | - | | | $ | 4,529 | | | $ | - | | Adjustments to gross profit | | $ | 389 | | | $ | - | | | $ | 4,529 | | | $ | - | | | | | | | | | | | | | | | | | | | | Restructuring charges, including inventory write-downs (wholesale) | | $ | 211 | | | $ | 74 | | | $ | 4,982 | | | $ | 74 | | Gain on sale of Passaic, New Jersey property (wholesale) | | | - | | | | - | | | | (11,497 | ) | | | - | | Other professional fees incurred (wholesale) | | | 73 | | | | - | | | | 223 | | | | - | | Retail acquisition costs and other restructuring charges (retail) | | | - | | | | 223 | | | | 148 | | | | 223 | | Adjustments to operating income | | $ | 284 | | | $ | 297 | | | $ | (6,144 | ) | | $ | 297 | | Adjustments to income before income taxes | | $ | 284 | | | $ | 297 | | | $ | (6,144 | ) | | $ | 297 | | Related income tax effects (1) | | | (70 | ) | | | (73 | ) | | | 1,505 | | | | (73 | ) | Adjustments to net income | | $ | 214 | | | $ | 224 | | | $ | (4,639 | ) | | $ | 224 | |
(1) | Calculated using a tax rate of 24.5% in both periods presented. |
Liquidity At MarchDecember 31, 2019, we held cash and cash equivalents of $25.7$28.3 million compared with $22.4$20.8 million at June 30, 2018.2019. Our principal sources of liquidity include cash and cash equivalents, cash flow from operations and amounts available under our credit facility. Cash and cash equivalents aggregated to 4.6% of our total assets at December 31, 2019, compared with 7.3% of our total assets a year ago and 4.1% at June 30, 2019. Our cash and cash equivalents increased $7.5 million during the Facility.first six months of fiscal 2020 due to net cash provided by operating activities of $23.4 million and proceeds from the sale of our Passaic property of $11.7 million, partially offset by $10.7 million in dividend payments, $8.2 million in share repurchases and $8.0 million of capital expenditures. A summary of net cash provided by (used in) operating, investing, and financing activities for the ninesix months ended MarchDecember 31, 2019 and 2018 is provided below (in millions): | | | Nine months ended | | | Six months ended | | | | | March 31, | | | December 31, | | | | | 2019 | | | 2018 | | | 2019 | | | 2018 | | Cash provided by (used in) operating activities | | | | | | | | | | | | | | | | | Net income plus other non-cash items | | $ | 44.6 | | | $ | 40.7 | | | $ | 23.7 | | | $ | 31.7 | | Non-cash operating lease cost | | | | 16.2 | | | | - | | Restructuring payments | | | | (5.0 | ) | | | - | | Change in working capital | | | (0.3 | ) | | | (5.6 | ) | | | (11.5 | ) | | | (0.2 | ) | Total provided by operating activities | | $ | 44.3 | | | $ | 35.1 | | | $ | 23.4 | | | $ | 31.5 | | | | | | | | | | | | | | | | | | | | Cash provided by (used in) investing activities | | | | | | | | | | | | | | | | | Proceeds from disposal of fixed assets, including sale of Passaic property | | | $ | 12.4 | | | $ | - | | Capital expenditures | | $ | (7.0 | ) | | $ | (9.1 | ) | | | (8.0 | ) | | | (5.0 | ) | Acquisitions, net of cash acquired | | | | (1.3 | ) | | | - | | Other investing activities | | | 0.1 | | | | 0.5 | | | | 0.1 | | | | 0.1 | | Total (used in) investing activities | | $ | (6.9 | ) | | $ | (8.6 | ) | | Total provided by (used in) investing activities | | | $ | 3.2 | | | $ | (4.9 | ) | | | | | | | | | | | | | | | | | | | Cash provided by (used in) financing activities | | | | | | | | | | | | | | | | | Borrowings on revolving credit facility | | $ | 16.0 | | | $ | - | | | Payments on borrowings and capital lease obligations | | | (8.4 | ) | | | (14.3 | ) | | Payment of cash dividends | | | (41.9 | ) | | | (24.3 | ) | | $ | (10.7 | ) | | $ | (10.1 | ) | Repurchase of company stock | | | - | | | | (1.1 | ) | | Repurchase of common stock | | | | (8.2 | ) | | | - | | Other financing activities | | | 0.2 | | | | 0.2 | | | | (0.2 | ) | | | (0.1 | ) | Total (used in) financing activities | | $ | (34.1 | ) | | $ | (39.5 | ) | | $ | (19.1 | ) | | $ | (10.2 | ) |
ETHAN ALLEN INTERIORS INC. AND SUBSIDIARIES Cash Provided by (Used in) Operating Activities -. Year-to-date cash of $44.3 million was provided by operating activities an increasewas $23.4 million, a decrease of $9.2 million. This was largely$8.1 million from the year ago period primarily due higherto lower net income combined with $5.0 million in restructuring payments made in connection with our previously announced optimization of manufacturing and an improvementlogistics activities. Restructuring payments included $2.4 million in ourseverance, $1.3 million of manufacturing overhead costs and $1.3 million of other exit and relocation costs. The change in working capital compared with last year as fiscal 2018 experienced a significant inventory increasewas primarily due to support the order backlog. Working capital items consisttiming of current assets (accounts receivable, inventories, prepaid and other current assets) less current liabilities (customer deposits, payables,accounts payable and accrued expenses and other current liabilities).combined with lower retail customer deposits partially offset by improved inventory management. As a result of the adoption of ASU 2016-02, we now report non-cash operating lease costs as a non-cash adjustment to reconcile net income while our monthly lease payments are reported as a reduction to operating lease liabilities within working capital. Cash Provided by (Used in) Investing Activities. -Year-to-date $6.9cash of $3.2 million of cash was used inprovided by investing activities a decreasedue to cash proceeds of $1.7 million. Capital$12.4 million received from the sale of the Passaic property and other manufacturing equipment, partially offset by capital expenditures decreased $2.1of $8.0 million and $1.3 million from the prior year and related primarily to retail design center improvements. We anticipate that cashacquisitions. Cash paid to acquire design centers from operations will be sufficient to fund future capital expenditures. Effective July 1, 2018, and further describedour independent retailers in Note 3 toan arm’s length transaction totaled $1.3 million during the consolidated financial statements included under Part I, Item 1first six months of this Quarterly Report on Form 10-Q, the Company considers restricted cash asfiscal 2020 compared with none a component of cash and cash equivalents as presented on its consolidated statement of cash flows. Previously the net change in restricted cash was considered an investing activity. Prior periods have been reclassified to conform to current year presentation.ago. Cash Provided by (Used in) Financing Activities. - Year-to-date $34.1cash of $19.1 million was used in financing activities which is $5.4 million less cash used than the $39.5compared with $10.2 million of cash used duringin the first nine months of fiscal 2018.prior year comparable period. The decreaseincrease year over year was primarily due to share repurchases and a $13.2 million payment on10.5% increase in our regular quarterly cash dividend per share. Cash dividends increased to $0.21 per share in the previously outstanding term loan insecond quarter of fiscal 2018, partially offset by a net borrowing on the Facility of $8.02020 and totaled $10.7 million in the current year. During the current fiscal year to date period we paid dividends of $41.9 million compared with $24.3$10.1 million in the prior year to date period. In November 2018, we declared a $1.00 per share special cash dividend, which was paid in January 2019, in addition to the regular quarterly dividend of $0.19 per share, also paid in January 2019.year. We have continuously paid regular quarterly dividends for every quarter since 1996 and we expect to continue to do so as economic conditions and liquidity permit. We repurchased 545,727 shares under our existing share repurchase program during the first six months of fiscal 2020 at an average price of $18.38 per share. We believe that our cash flow from operations, together with our other available sources of liquidity including the Facility,credit facility, will be adequate to make all required debt payments, to permit anticipated capital expenditures, and to fund working capital and other cash requirements. As of March 31, 2019, we had working capital of $97.7 million compared with $93.2 million at June 30, 2018, an increase of $4.5 million, or 4.8%. The Company had a current ratio of 1.77 to 1 at March 31, 2019 and 1.77 to 1 at June 30, 2018. ETHAN ALLEN INTERIORS INC. AND SUBSIDIARIES
In addition to using available cashsufficient to fund changes in working capital, necessary capital expenditures, acquisition activity, the repayment of debt and the payment of dividends the Company has been authorized by our board of directors to repurchase our common stock from time to time, either directly or through agents, in the open market at prices and on terms satisfactory to us. During the nine months ending March 31, 2019 and 2018 there were no share repurchases, respectively.other cash requirements.
Capital Resources Capital Expenditures - Capital expenditures in the third quarterfirst half of fiscal 20192020 were $2.0$8.0 million, compared with $4.1$5.0 million in the prior year period. CapitalIn fiscal 2020, approximately 71% of our total capital expenditures of $1.3 million, or 64%, were primarily related to retailopening new and relocating design centers in desirable locations, updating existing design center improvements.presentations and floor plans and opening new home delivery service centers. The remaining 29% was primarily capital expenditures incurred in connection with our optimization project as we convert the Old Fort, North Carolina facility into a distribution center and expand our existing Maiden, North Carolina manufacturing campus. We have no material contractual commitments outstanding for future capital expenditures. Capital Needs - During December 2018 we entered into a five-year, $165 million senior secured revolving credit facility, which amended and restated the previously existing facility. To partially fund the special cash dividend paid to shareholders in January 2019, we borrowed $16.0 million from the Facility. By March 31, 2019, we had repaid $8.0 million of the total borrowed from cash generated from operating activities. For a detailed discussion of our debt obligations, and timing of our related cash payments see Note 8 to the consolidated financial statements included under Part I, Item 1 of this Quarterly Report on Form 10-Q. Letters of Credit - At both MarchDecember 31, 2019 and June 30, 2018,2019, there was $6.2$5.8 million and $6.1 million, respectively, of standby letters of credit outstanding under the Facility.revolving credit facility. Total availability under the Facility was $150.8$126.4 million at MarchDecember 31, 2019 and $108.8$158.9 million at June 30, 2018.2019. At both MarchDecember 31, 2019 and June 30, 2018,2019, we were in compliance with all the covenants under the Facility.revolving credit facility. Share Repurchase Program We may from time to time make repurchases in the open market and privately negotiated transactions, subject to market conditions, including pursuant to our previously announced repurchase program. There were no share repurchasesWe repurchased 545,727 shares under the program during the first ninesix months of fiscal 2019.2020 at an average price of $18.38 per share. At MarchDecember 31, 2019, we had a remaining Board authorization to repurchase 2,518,0461,972,319 shares of our common stock pursuant to our program. On January 13, 2020, the Board of Directors of the Company authorized an increase in the aggregate share repurchase authorization under our existing multi-year share repurchase program (the “Share Repurchase Program”) to 3,000,000 shares. Contractual Obligations Fluctuations in our operating results, the degree of success of our accounts receivable collection efforts, the timing of tax and other payments, as well as necessary capital expenditures to support growth of our operations will impact our liquidity and cash flows in future periods. The effect of our contractual obligations on our liquidity and capital resources in future periods should be considered in conjunction with the factors mentioned here. As of June 30, 2018,2019, we had total contractual obligations of $184.2$207.0 million, of which $176.0$169.9 million related to our operating lease commitments. With the exceptionUpon adoption of the additional borrowings of $16.0 million underASU 2016-02, we recognized these operating lease liabilities on our renewed Facility, of which we had repaid $8.0 million by March 31, 2019, as described in the Capital Resources – Capital Needs section of this MD&A, thereconsolidated balance sheet. There were no newother material changes in our contractual obligations during the first ninesix months of fiscal 2019.2020. ETHAN ALLEN INTERIORS INC. AND SUBSIDIARIES Dividends In JanuaryOctober 2019 we paid a $1.00$0.21 per share special cash dividend, in addition to the regular quarterly dividend of $0.19 per share.dividend. On January 28,November 13, 2019, our Board of Directors approved a regular quarterly dividend of $0.19$0.21 per share. The cash dividend of $5.1$5.6 million was paid on April 25, 2019,January 23, 2020, to common stockholders of record at the close of business on April 11, 2019.January 9, 2020. Future cash dividends will depend on our earnings, capital requirements, financial condition and other factors considered relevant by us and is subject to final determination by our Board of Directors. Off-Balance Sheet Arrangements and Other Commitments and Contingencies Except as indicated below, weWe do not utilize or employ any off-balance sheet arrangements, including special-purpose entities, in operating our business. As such, we do not maintain any (i) retained or contingent interests, (ii) derivative instruments (other than as specified below), or (iii) variable interests which could serve as a source of potential risk to our future liquidity, capital resources and results of operations.
We may, from time to time in the ordinary course of business, provide guarantees on behalf of selected affiliated entities or become contractually obligated to perform in accordance with the terms and conditions of certain business agreements. The nature and extent of these guarantees and obligations may vary based on our underlying relationship with the benefiting party and the business purpose for which the guarantee or obligation is being provided. The only such program in place at both March 31, 2019 and June 30, 2018 was for our consumer credit program as further described below. ETHAN ALLEN INTERIORS INC. AND SUBSIDIARIES
Ethan Allen Consumer Credit ProgramForeign Currency - The terms and conditions of our consumer credit program, which is financed and administered by a third-party financial institution on a non-recourse basis to Ethan Allen, are set forth in an agreement between the Company and that financial service provider (the “Program Agreement”) which was last amended effective January 2014. Any independent retailer choosing to participate in the consumer credit program is required to enter into a separate agreement with that same third-party financial institution which sets forth the terms and conditions under which the retailer is to perform in connection with its offering of consumer credit to its customers (the “Retailer Agreement”). We have obligated ourselves on behalf of any independent retailer choosing to participate in our consumer credit program by agreeing, in the event of default, breach, or failure of the independent retailer to perform under such Retailer Agreement, to take on certain responsibilities of the independent retailer, including, but not limited to, delivery of goods and reimbursement of customer deposits. Customer receivables originated by independent retailers remain non-recourse to Ethan Allen. The Program Agreement will terminate on July 31, 2019, and the Company will utilize a substitute program upon termination. While the maximum potential amount of future payments (undiscounted) that we could be required to make under this obligation is indeterminable, recourse provisions exist that would enable us to recover, from the independent retailer, any amount paid or incurred by us related to our performance. Based on the underlying creditworthiness of our independent retailers, including their historical ability to perform satisfactorily in connection with the terms of our consumer credit program, we believe this obligation will expire without requiring funding by us. To ensure funding for delivery of products sold, the terms of the Program Agreement also contain a right for the financial services provider to demand from us collateral at a variable rate based on the volume of program sales if we do not meet a covenant regarding minimum working capital or tangible net worth. At both March 31, 2019 and June 30, 2018, we were in compliance with such covenant.
Product Warranties - Our products, includingForeign currency exchange risk is primarily limited to our caseoperation of Ethan Allen operated retail design centers located in Canada and our manufacturing plants in Mexico and Honduras, as substantially all purchases of imported parts and finished goods upholsteryare denominated in U.S. dollars. The financial statements of these foreign locations are translated into U.S. dollars using period-end rates of exchange for assets and home accents, generally carry explicit product warrantiesliabilities and average rates for the period for revenues and expenses. Translation gains and losses that extend up to twelve yearsarise from translating assets, liabilities, revenues and expenses of foreign operations are provided based on terms that are generally acceptedrecorded in accumulated other comprehensive (loss) income as a component of shareholders’ equity. Foreign exchange gains or losses resulting from market changes in the industry. All our domestic independent retailers are required to enter into and perform in accordance with the terms and conditionsvalue of a warranty service agreement. We record provisions for estimated warranty and other related costs at time of sale based on historical warranty loss experience and make periodic adjustments to those provisions to reflect actual experience. On rare occasions, certain warranty and other related claims involve matters of dispute that ultimately are resolved by negotiation, arbitration or litigation. In certain cases,foreign currencies did not have a material warranty issue may arise which is beyondimpact during any of the scope of our historical experience. We provide for such warranty issues as they become known and are deemed both probable and estimable. It is reasonably possible that, from time to time, additional warranty and other related claims could arise from disputes or other matters beyond the scope of our historical experience. The Company’s product warranty liability totaled $1.4 million at March 31, 2019 compared with $1.5 million at June 30, 2018.periods presented in this Quarterly Report on Form 10-Q.
Significant Accounting Policies and Critical Accounting Estimates We describe our significant accounting policies in Note 1,3, Summary of Significant Accounting Policies, of the notes to our consolidated financial statements included in our 20182019 Annual Report on Form 10-K. We discuss our critical accounting estimates in Management’s Discussion and Analysis of Financial Condition and Results of Operations in our 20182019 Annual Report on Form 10-K. We implemented ASC 606ASU 2016-02 in the first quarter of fiscal 2019.2020. There have been no other changes in our significant accounting policies or critical accounting estimates during the first ninesix months of fiscal 20192020 from those disclosed in our 20182019 Annual Report on Form 10-K. Refer to Note 4,6, Revenue RecognitionLeases, for further details on the adoption of ASC 606.ASU 2016-02. Recent Accounting Pronouncements See Note 3, Recent Accounting Pronouncements, to the consolidated financial statements included under Part I, Item 1 of this Quarterly Report on Form 10-Q for a full description of recent accounting pronouncements, including the expected dates of adoption. Business Outlook With our vertical enterprise well-positioned, we maintain a cautiously optimistic outlook. We continue to strengthen our talent across the Company. We believe our network of professionally trained interior design professionals differentiate us from our competitors. We are continuing our marketing focus on providing fresh and relevant product offerings, enhancing the projection of our design centers and deploying effective advertising across various mediums. We will also continue to leverage the use of technology combined with personal service within our retail network and online through ethanallen.com. We continue to strengthen our vertically integrated structure from the concept of idea, to engineering, to manufacturing, to retail and logistics. We intend to maintain strongour manufacturing capabilities in North America, which we believe is a long-term competitive advantage that will allow us to advance our objectives of maintaining fast order delivery, exceptional quality and improving capacity, to ship stocked and custom made-to-order items more quickly, which in turn willorder to allow us to grow our business. Having refreshed over 70% of our products in the last three years, our current product offerings are fresh and relevant. ETHAN ALLEN INTERIORS INC. AND SUBSIDIARIES The Company also maintains its overall dedication to ethical and accountable business practices. Our marketing programs continue to be strengthened with messaging focused on our stylish products, qualitycorporate social responsibility commitments include the areas of environmental sustainability and service offerings. We expect to continue to maintain a targeted advertising program utilizing various advertising mediums during the remainder of fiscal 2019 as we broaden the reach of our messaging to drive more traffic to our design centers and to ethanallen.com. Our network of professionally trained interior design professionals differentiate us significantly from our competitors. We continue to strengthen the level of service, professionalism, and interior design competence, as well as to improve the efficiency of our retail operations.community connections. We believe that over time, we will continuethese commitments create value for our stockholders and help position us to benefit from (i) continuous repositioning ofcontinuously improve business performance. Our strategy focuses our retail network, (ii) frequent new product introductions, (iii) newefforts on those areas most significant to our business, including health and innovative marketing promotionssafety, environmental stewardship, community and effective use of targeted advertising media,stakeholder engagement, human rights and (iv) continued use of the latest technology combined with personal service from our interior design professionals.transparency. Our 2019 Corporate Responsibility Report is available at www.ethanallen.com/corporate-responsibility.
We expect the home furnishings industry to remain extremely competitive with respect to both the sourcing of products and the wholesale and retail sale of those products for the foreseeable future. Domestic manufacturers continue to face pricing pressures because of the lower manufacturing costs on imports, particularly from Asia. While we also utilize overseas sourcing for approximately one quarter25% of our products, we choose to differentiate ourselves by maintaining a substantial North American manufacturing base, the majority of which is located in the United States. This structure enablesis designed to enable us to leverage our vertically integrated structure to our advantage. We continue to believe that a balanced approach to product sourcing, which includes our own North American manufacturing of approximately 75% of our product offerings coupled with the import of other selected products, provides the greatest degree of flexibility, lower inventory levels, and short lead times and is the most effective approach to ensuring that acceptable levels of quality and service are maintained. WithWe believe our vertical enterprise well positioned, we maintain a cautiously optimistic outlook. Our retail strategyMember Program will continue to gain momentum, which will be complimented by a strong marketing program, starting with its focus on (i) providing relevant product offerings, a wide array of product solutions,direct mail magazine being distributed in January 2020 to 2.5 million households. This will be further supported by various other marketing channels including local television in select markets and superior interior design solutions through our large staff of interior design professionals, (ii) continuing strong advertisingdigital and marketing campaigns to get our message across and to continue broadening our customer base, (iii) the opening of new or relocated design centers in more prominent locations, and encouraging independent retailers to do the same, (iv) leveraging the use of technology and personal service within our retail network and online through www.ethanallen.com, and (v) further expansion internationally. We believe this strategy provides an opportunity to grow our business.social marketing.
ETHAN ALLEN INTERIORS INC. AND SUBSIDIARIES
Item 3. Quantitative and Qualitative Disclosures About Market Risk In the normal course of business, we are exposed to market risks relating to fluctuations in interest rates and foreign currency exchange rates that could impact our financial position and results of operations. Interest Rate Risk Interest rate risk exists primarily through our borrowing activities. We utilize United States dollar denominated borrowings to fund substantially all our working capital and investment needs. Short-term debt, if required, is used to meet working capital requirements and long-term debt is generally used to finance long-term investments. There is inherent rollover risk for borrowings as they mature and are renewed at current market rates. The extent of this risk is not quantifiable or predictable because of the variability of future interest rates and our future financing requirements.
For floating-rate obligations, interest rate changes do not affect the fair value of the underlying financial instrument but would impact future earnings and cash flows, assuming other factors are held constant. Conversely, for fixed-rate obligations, interest rate changes affect the fair value of the underlying financial instrument but would not impact earnings or cash flows.
At MarchDecember 31, 2019, the fair value ofwe did not have any floating-rate debt obligations outstanding under our long-term debt was $8.0 million, which approximated its carrying amount and was determined based on quoted market prices for debt with a similar maturity.revolving credit facility. It is anticipated that the fair market value of ourany future debt under the credit facility will continue to be immaterially affected by fluctuations in interest rates and we do not believe that the value of oursuch debt has beenwould be significantly impacted by current market events. The debt bearsPrevious borrowings under the facility during fiscal 2019 had an interest on the outstanding principal amount at a rate equal to the one-month LIBOR rate of 2.5% plus a spread using a debt leverage pricing grid currently at 1.5%. During the nine months ended March 31, 2019, we recordedThere was no interest expense from borrowings during the first six months of $0.1 million on ourfiscal 2020 as we had no outstanding debt amounts.debt. We currently do not engage in any interest rate hedging activity and we have no intention of doing so in the foreseeable future. Assuming all terms LIBOR Transition LIBOR is the subject of our outstanding long-term debt remained the same, a hypothetical 100 basis point change (uprecent national, international and other regulatory guidance and proposals for reform. These reforms and other pressure may cause LIBOR to disappear entirely or down)to perform differently than in the one-monthpast. It is expected that certain banks will stop reporting information used to set LIBOR at the end of 2021 when their reporting obligations cease. This will effectively end the usefulness of LIBOR and end its publication. The consequences of these developments cannot be entirely predicted but, as noted above, could impact the interest earned on our investments and our interest expense. If LIBOR is no longer available, or otherwise at our option, we will pursue alternative interest rate wouldcalculations in our credit agreement, including the use of the Secured Overnight Financing Rate (SOFR). As of December 31, 2019, the Company had no outstanding borrowings under its existing credit facility and no material exposure to LIBOR, thus we do not believe the discontinuation of LIBOR will have a material effectimpact on our consolidatedfinancial position and results of operations and financial condition. For further information regarding our other risk factors, see Item 7A – Quantitative and Qualitative Disclosures About Market Risk in our 2018 Annual Report on Form 10-K.operations.
Foreign Currency Exchange Risk Foreign currency exchange risk is primarily limited to our operation of Ethan Allen operated retail design centers located in Canada and our manufacturing plants in Mexico and Honduras, as substantially all purchases of imported parts and finished goods are denominated in United States dollars. As such, foreign exchange gains or losses resulting from market changes in the value of foreign currencies have not had, nor are they expected to have, a material effect on our consolidated results of operations. A hypothetical 10% weaker United States dollar against all foreign currencies at MarchDecember 31, 2019 would have had an immaterial impact on our consolidated results of operations and financial condition. We currently do not engage in any foreign currency hedging activity and we have no intention of doing so in the foreseeable future. ETHAN ALLEN INTERIORS INC. AND SUBSIDIARIES Item 4. Controls and Procedures Evaluation of Disclosure Controls and Procedures Under the supervision and with the participation of our management, including the Chairman of the Board and Chief Executive Officer (principal executive officer) and the Executive Vice President Administration and Chief Financial Officer (principal financial officer), we have evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this report. Based on such evaluation, the principal executive officer and principal financial officer have concluded that, as of MarchDecember 31, 2019, our disclosure controls and procedures were effective in ensuring that material information relating to us (including our consolidated subsidiaries), which is required to be disclosed by us in our periodic reports filed withthat we file or submitted tosubmit under the SECExchange Act is (i) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and (ii)is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure. Changes in Internal Control over Financial Reporting There have been no changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the thirdsecond fiscal quarter ended MarchDecember 31, 2019 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. ETHAN ALLEN INTERIORS INC. AND SUBSIDIARIES PART II - OTHER INFORMATION Item 1. Legal Proceedings There have been no material changes during the first ninesix months of fiscal 20192020 to the matters discussed in Part I, Item 3 - Legal Proceedings in our 20182019 Annual Report on Form 10-K. Item 1A. Risk Factors There have been noWe operate in a changing environment that involves a number of risks that could materially and adversely affect our business, financial condition, operating results or cash flows. The Company has described, in its 2019 Annual Report on Form 10-K, the primary risks related to its business and securities, and periodically updates those risks for material changes during the first nine monthsdevelopments. For a detailed discussion of fiscal 2019certain risks that affect our business, refer to the risk factors identified in section Item IA1A – Risk Factors in our 20182019 Annual Report on Form 10-K.
The information presented below updates, and should be read in conjunction with, the risk factors and information disclosed in our Form 10-K. Except as presented below, there have been no material changes from the risk factors associated with our business as previously disclosed in our 2019 Annual Report on Form 10-K. We are undertaking a significant business initiative with the launch of the Ethan Allen Member Program. If this initiative is not successful, it may have a negative impact on our results of operations. In October 2019 we transitioned from a promotional to a membership model, by introducing the Ethan Allen Member Program, which is designed to provide a range of benefits to our customers in return for payment of an annual membership fee. We introduced the Ethan Allen Member Program as an alternative to prior practices involving numerous short-term promotional event-driven programs. There can be no assurance that certainty as to how our customers may react to this program over time or how it will affect our financial results from quarter to quarter. Item 2. Unregistered Sales of Equity Securities and Use of Proceeds Items 2(a) and (b) are not applicable as there have been no unregistered sales of equity securities. (c) Issuer Purchases of Equity Securities The following table provides a month-to-month summary of the share repurchase activity during the three months ended MarchDecember 31, 2019: Period | | Total number of shares purchased(1) | | | Average price paid per share | | | Total number of shares purchased as part of publicly announced plan or programs(2) | | | Maximum number of shares (or approximate dollar value) that may yet be purchased under the plans or programs(2) | | October 2019 | | | — | | | $ | — | | | | — | | | | 2,518,046 | | November 2019 | | | — | | | $ | — | | | | — | | | | 2,518,046 | | December 2019 | | | 545,727 | | | $ | 18.38 | | | | 545,747 | | | | 1,972,319 | (3) | Total | | | 545,727 | | | | | | | | 545,747 | | | | | |
Period(1)
| Shares were purchased under our existing multi-year share repurchase program. |
(2) | Total number of
shares purchased
| | | Average price
paid per share
| | | TotalRepurchases may be made from time to time in the open market and privately negotiated transactions, subject to market conditions. No minimum number of shares purchased as part of
publicly announced
plans or programs
| | | Maximum number of
shares (or approximate
dollar value)to be repurchased has been fixed. There is no timeframe to complete the repurchase program and it is expected that may
yetshare repurchases will be purchased undermade using existing and future cash generated by operations.
the plans or programs
| | January 2019
| | | - | | | $ | - | | | | - | | | | 2,518,046 | | February 2019
| | | - | | | $ | - | | | | - | | | | 2,518,046 | | March 2019
| | | - | | | $ | - | | | | - | | | | 2,518,046 | | Total
| | | - | | | | | | | | - | | | | | |
(3) | On January 13, 2020, the Board of Directors of the Companyauthorized an increase in the total authorization of our multi-year existing share repurchase program to 3,000,000. |
On April 24, 2018, our Board of Directors approved an increase to the share repurchase program authorizing us to repurchase up to approximately 3,000,000 shares. There is no expiration date on the repurchase authorization and the amount and timing of future share repurchases, if any, will be determined by our officers at their discretion, and as permitted by securities laws, covenants under existing bank agreements and other legal requirements, and will be based on a number of factors, including an evaluation of general market and economic conditions and the trading price of the common stock. The share repurchase program may be suspended or discontinued at any time without prior notice.
ETHAN ALLEN INTERIORS INC. AND SUBSIDIARIES Item 3. Defaults Upon Senior Securities None. Item 4. Mine Safety Disclosures Not applicable. Item 5. Other Information None. ETHAN ALLEN INTERIORS INC. AND SUBSIDIARIES
Item 6. Exhibits The following documents are filed as exhibits to this report: ETHAN ALLEN INTERIORS INC. AND SUBSIDIARIES SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. | ETHAN ALLEN INTERIORS INC. | | | | (Registrant) | | (Registrant)
| | | |
| | | | Date: April 29, 2019February 4, 2020 | BY: /s/ | /s/ M. Farooq Kathwari | | | M. Farooq Kathwari | | Chairman, President and Chief Executive Officer | | (Principal Executive Officer) |
| Date: April 29, 2019
| BY: /s/ Corey Whitely
| | | | | | | | | | | | | | | Date: February 4, 2020 | BY: | /s/ Corey Whitely | | | Corey Whitely | | | | Executive Vice President, Administration Chief Financial Officer and Treasurer | | | | (Principal Financial Officer) | |
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