Q3 2023 Culp Inc Earnings Call

Speaker 1: I.

Speaker 2: Good morning and welcome to the Calt Inc. 3rd Court of fiscal year 2023 earnings conference call.

Speaker 2: All participants will be in a listen only mode today.

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Speaker 2: After today's presentation, there will be an opportunity to ask questions.

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Speaker 2: Please note that the event is being recorded today.

Speaker 2: I would now like to turn the conference over to Drew Anderson. Please go ahead.

Speaker 3: Thank you. Good morning and welcome to the Culp Conference call to review the company's results for the third quarter of fiscal 2023.

Speaker 3: As we start, let me state that this morning's call will contain forward-looking statements about the business, financial condition, and prospects of the company.

Speaker 3: Overlooking statements or statements that include projections, expectations, or beliefs about future events or results, or otherwise are not statements of historical fact.

Speaker 3: The actual performance of the company could differ materially from that indicated by the forward-looking statements because of various risks and uncertainties.

Speaker 3: These risks and uncertainties are described in our regular SEC filing, including the company's most recent filing on Form 10K and Form 10Q.

Speaker 3: Additional risks and uncertainties that we do not presently know about or that we currently consider to be immaterial, may also affect our business operations and financial results.

Speaker 3: Your caution not to place undue reliance on forward-looking statements made today, and each such statement speaks only as up today. We undertake no obligation to update or revise forward-looking statements.

Speaker 3: In addition, during this call, the company will be discussing non- GAAP financial measurements. A reconciliation of these non- GAAP financial measurements to the most directly comparable GAAP financial measurements is included in the tables to the press release, included as an exhibit to the company's 8K filed yesterday and posted on the company's website at call.com. A slide presentation with supporting some financial information is...

Speaker 2: today are Kim Bowling, Chief Financial Officer, and Void Chumley, President of our Pol ??? estavam.

Speaker 4: A few housekeeping items. First, I want to let you all know that Tommy Bruno, president of our mattress fabrics business, is unable to join us on the call today. And he is traveling and working on the business. But we do plan to have him join us next quarter.

Speaker 4: Also want to point out that we have not posted our usual investor presentation or capital allocation strategy deck on our website.

Speaker 4: As we are preparing a new, refreshed investor presentation and improvement roadmap, which we expect to share within the next few weeks.

Speaker 4: Lastly, I want to quickly thank our 1400 employees around the world for their dedication and hard work over these challenging times.

Speaker 4: Our culture at Colp is special and we are really proud of our associates. We are also grateful to have been awarded the HARTS award from the Dallas Market Center and Accessories Resource Team with nomination from the International Textile Alliance. We are honored to be recognized for our HART based leadership.

Speaker 4: After that, Ken will review the financial results for the quarter, and I'll then take our Denver review, our business outlook for the fourth quarter, and one of them takes some questions.

Speaker 4: So when we think about the third quarter, there are really three major themes.

Speaker 4: Number one, current week demand within the two industries we service. Number two is our focus on maintaining a strong balance sheet and managing our cash position.

Speaker 4: that's an op-ed and results for the quarter reflect a continued weakness in the domestic mattress and residential home furnishings industries, especially related to unit volume.

Speaker 4: With sales at these levels, it is a very tough environment for Colp to thrive, despite our market gains.

Speaker 4: We are a unit driven company and in the absence of solid furniture embedding units being sold within the industry, it is challenging for us to run our facilities and manage our supply chain efficiently.

Speaker 4: and that are definitely pressuring demand.

Speaker 4: But it goes deeper than that for Colt and the impacts are different by business segment.

Speaker 4: Our Pulse Tree Fabric segment is experienced that it continued lag in residential business due to high inventory levels that are still being worked through and managed at manufacturers and retailers.

Speaker 4: We expect that could take a few more months to normalize. On our matches fabric segment, this does seem to be called an Attemporary Industry Malays. With some reports of mattress unit sales currently down as much as 25%. Within this tough demand backdrop, we are controlling what we can control and managing

Speaker 4: Now let me turn to theme two, which is continuing to manage a strong balance sheet and manage our cast position.

Speaker 4: This is one of the main things we can control, and I'm very pleased with our management teams and both of our businesses for their diligence in maintaining our solid financial position. We have done an excellent job with inventory reduction, with a favorable cash impact of $18.2 million.

Speaker 4: since the end of the third quarter of last fiscal year. We have also managed to counts receivable effectively by improving our terms with key customers and navigating three major bankruptcies without any material impacts.

Speaker 4: Additionally, we have generated positive cash flow for the first nine months of the fiscal year, a significant improvement compared to last year, and we now expect to end this fiscal year with a cash level comparable to the end of last fiscal year.

Speaker 4: This is outstanding cash management and preservation in the space of very challenging times. Importantly, we also have no outstanding debt and we have entered into a new asset based revolving credit facility that enhances our liquidity position if we ever need it. We fully recognize that management have caught strong balance heat.

Speaker 4: is paramount to our future success. The third key theme for us, both for the quarter, and as we look ahead, is the business transformation underway in call-pum fashion, our master's fabric segment.

Speaker 4: This certainly falls within the scope of areas we can control, and we recognize that CHF MATRA's fabric is the business that needs our most immediate attention.

Speaker 4: This is where we believe the majority of our value exists and what we think is our best opportunity for growth from current levels.

Speaker 4: Our CHF mattress fabric business is executing a transformation plan in every facet of the business, from processes to people. This business possesses a rich history, with an excellent reputation and a strong double platform.

Speaker 4: While our market position remains solid, we have struggled through extremely volatile demand periods over the last two years and we have needed better cost control and pricing as well as better overall discipline.

Speaker 4: We are in the process of transforming those areas among others under the leadership of New Division President Tommy Bruno and we believe that engaging in this holistic business improvement strategy will position us to emerge even stronger when conditions normalize. I am overwhelmingly pleased with a new leadership under time.

Speaker 4: We have already made excellent progress with getting to write people in the right places, including new managers and sales, customer service, operations and manufacturing.

Speaker 4: We are focusing on production efficiency, quality management, and balancing our product mix to proper volume skews and study run schedules.

Speaker 4: We have an intensive focus on improving our operational excellence. We are also noting now some raw material price improvement. Although as we previously disclosed, we are still lagging somewhat in our price cost structure for existing products.

Speaker 4: Some good news is we are winning new business and gaining market position and our new opportunities are priced in line with current market costs.

Speaker 4: It was also very encouraging to see the activity level at the January Las Vegas market. The industry has previously been in a cycle of deferring new product introductions, which affects our unit volume.

Speaker 4: So we were pleased to see many new products and innovations presented at this market featuring Colt Matters Fabrics and Sone Covers that are launching throughout calendar 2023. Looking ahead, we expect all of these elements will be the building blocks for steady sequential improvement in CHF business. Though notably the price of the pace of our improvement.

Speaker 4: will be dictated by overall macro industry demand. We are working diligently to regain profitability in fiscal 2024, and we do expect that THF mattress fabrics will lead that recovery. Regarding our Pulse II Fabrics business, despite the elevated inventory levels affecting demand for our residential fabric products,

Speaker 4: We remain well positioned for the long term, with our scalable global platform and innovative product offerings, including the popular portfolio of Lipsmart Performance products. Our Pulse Tree Fabrics business has generally been more stable over the last two years in market volatility, supported in part by our hospitality contract business over the last year.

Speaker 4: for the long term with our scalable global platform and innovative product offerings, including the popular portfolio of Lipsmart Performance products. Our Pulsery Fabrics business has generally been more stable over the last two years in market volatility, supported in part by our hospitality contract business over the last year, following its recovery from COVID impacts.

Speaker 4: Hospitality contract accounted for approximately 30% of the segment sales for the third quarter. And while this percentage is higher than normal due to lower residential sales, it does reflect the ongoing solid performance of our hospitality contract business, as well as the importance to our overall strategy.

Speaker 4: of product diversification for this segment. We also took some action during the quarter to align our upholstery cut and soap platform in Haiti with current demand trends.

Speaker 4: While this did result in some restructuring charges, we were able to accomplish this adjustment without sacrificing our ability to support customers and grow our cut-in-so business. Kim's going to go into more detail on this and his review of divisional performance, but I'm pleased that we will have a go-forward annualized savings from this action.

Speaker 4: and we will recoup a majority of our prepaid rent costs over time. Also want to be very clear that we still view Haiti as a critical near-shore location for coal.

Speaker 4: We have a strong mattress cover platform running in Haiti, and we expect Haiti to be an important part of the company's future for cutting-zone mattress kit and covers. I'll now turn the call over to Ken who will review the financial results for the quarter.

Speaker 4: And then I'll come back and review the outlook for the fourth quarter of this year. Ken, thanks, Dave. As mentioned earlier on the call, we have posted a slide presentation to our Investor Relations website that covers certain summary financial information. And we will also post a new Investor presentation in the upcoming weeks. Here are the financial highlights of the third quarter. Thank you.

Speaker 4: Net sales are 52.5 million down 34.6 percent compared with the prior year period. The company reported a loss from operations of 7.8 million compared with income from operations of 1.1 million for the prior year period. The loss from operations for the quarter includes 711,000 and restructuring expense relating to the rep.

Speaker 4: for the alluded share compared with net loss of 289,000 or two cents for the alluded share for the prior period.

Speaker 4: Our overall operating performance for the third core was primarily affected by operating inefficiencies due to lower sales and holiday shutdowns affecting both our businesses, operating inefficiencies in our poultry fabric segments cutting soft to still in Haiti, and then our Reed window products business and restructuring charges associated with our poultry fabric segment.

Speaker 4: for the nine month year-to-date period was favorably affected by foreign exchange rates associated with our China operations.

Speaker 4: S&A expense for the quarter was also higher than prior period due mostly to last year's reversal of recruit bonus and accrued stock compensation expense during the period.

Speaker 4: The effective income tax rate for the third quarter of this fiscal year was a negative 3.3 percent compared with 129 percent for the same period of year ago. Our effective income tax rate for the third quarter of this fiscal year was affected by the company's mix of earnings between our U.S. and foreign subsidiaries.

Speaker 4: Our cash income tax payments total 1.9 million for the first nine months of this fiscal year, and we currently expect cash income tax payments of 3.1 million for the entire fiscal 2023 year.

Speaker 4: Importantly, our estimated cash income tax payments for this fiscal year are management's current projections only and can be affected by a variety of factors over the course of the year. Now let's take a look at our business segments.

Speaker 4: For the mattress fabric segment, sales for the third quarter were 24.7 million, down 35.8% compared with last year's third quarter, and down 5.8% compared to quenchedly with the second quarter of this fiscal year. Sales for the quarter were pressured by reduced demand with mattress industry analysis and significant unit contraction.

Speaker 4: The impact of this industry's softness was heightened as matches manufacturers took longer than normal holiday shutdowns, resulting in fewer billing days. Manufacturers and retailers also continued to work to excess inventory delaying the timing of shipments and new product rollouts. Although we did begin...

Speaker 4: They'll roll out some new customer programs near the end of the quarter. These new programs are priced in line with current market cost and we expect to benefit as they expand their cost more sales channels and retail force and as additional new product roll outs launched during this calendar year.

Speaker 4: Operating loss for the quarter was 4.2 million compared with operating income of 364,000 a year ago.

Speaker 4: Our operating performance for the third quarter this year was primarily pressured by operating inefficiencies driven by lower sales volume and how they shut down across both across our matches fabric locations. For the opposed to fabric segment, sales for the third quarter were 27.8 man down 33.5% over the prior year, which was the segment's strongest sales quarterly sales performance since 2006.

Speaker 4: So, quenchedly, sales for the Post-U-Fiber segment were down 13.5% compared with the second quarter of this fiscal year. Sales for the residential Post-U-Fiber products remained under pressure during the quarter by reduced demand, driven by high inventory levels for the residential home purchasing industry.

Speaker 4: This pressure is expected to continue through at least the first quarter of next this year as retailers and manufacturers work through their inventory positions. The man remains solid in our hospitality business during the third quarter with sales for a hospitality contract business accounted for approximately 30% of the opposed to fabric segments total sales.

Speaker 4: Operating also the quarter was 420,000 compared with income from operations of 2.4 million a year ago. Our operating performance for the third quarter of this fiscal year, as compared to the prior year period, was mostly pressured by lower residential sales as well as operating inefficiencies in this segment's Haiti Cut and Soul facility and in its read window products business.

Speaker 4: These pressures were partially all set by a significant more favorable foreign exchange rate associated with this segment's operations in China, as well as lower cost resulting from the restructuring of this segment's cut and sold platform in China during the prior quarter.

Speaker 4: Based on demand trends and customer sentiment, we began a rationalization and consolidation of our Cutsco, a post-requipped platform and Haiti near the end of the third quarter.

Speaker 4: This restructuring aligns our capacity and cost with current demand levels for post-requits, while still allowing us to support our customers and scale for additional capacity if conditions improve.

Speaker 4: The adjustment will be completed during the fourth quarter of this fiscal year and includes terminating a lease and relocating to an existing mattress cover facility. We expect annualized savings of approximately 1.5 million from this initiative and we will recruit 2.4 million in prepaid rent expense over the next six and a half years. Now turn to the balance sheet.

Speaker 4: We reported 16.7 million cash in no outstanding debt as of the end of the third quarter. This compares with 14.6 million cash in investments and no debt as of the end of last fiscal year.

Speaker 4: Casual from operations and free cash flow were 4.6 million and 2.5 million respectively for the first time months of this fiscal year as compared with Casual from operations and free cash flow of a negative 12.4 million and negative 18.5 million respectively for the first time months of last fiscal year.

Speaker 4: Our cash flow from operations and free cash flow during the first time month of this fiscal year were favorably affected by working capital management, namely reductions in inventory. Importantly, since the end of the third quarter of last fiscal year, inventory reduction has contributed 18.2 to the company's cash position. Consistent with our focus on inventory, we are tightly managing our capital spending with emphasis on business credible projects on the financial crisis.

Speaker 4: facility of up to 35 million dollars.

Speaker 4: Bar on availability under this new facility is based on a calculation using certain of the company's accounts receivable and inventory determined on a monthly basis.

Speaker 4: While we do not currently foresee a need to borrow, we are pleased that as compared to our prior facility, this new facility gives us enhanced liquidity and more flexibility with minimal financial covenants as we continue to navigate a difficult environment.

Speaker 4: The company did not pay any dividends during the third quarter of this fiscal year, following the suspension of our quarter cash dividend on our common stock earlier in the year. The company also did not repurchase any shares during the third quarter of this fiscal year, leaving 3.2 million available under our current share repurchase program. Despite the current share repurchased authorization,

Speaker 4: We do not expect any activity during the fourth quarter of this fiscal year, and we remain focused on preserving liquidity and being positioned to support future growth opportunities. With that, I'll turn the call over to you to discuss the general outlook for the fourth quarter of this fiscal year, and then we will take your questions. If? Thank you, Ken. Due to the continued volatility in the macro environment.

Speaker 4: We are providing only limited sequential financial guidance for the fourth quarter of this disc we year We expect next sales for the fourth quarter to be moderately higher as compared to the 52.5 million dollars in next sales for the third quarter of this disc we year Driven largely by strong sales improvement in the mattress fabric segment and Comparable sales performance in the apple street fabric segment

Speaker 4: We expect to consolidate an operating loss for the fourth quarter of this fiscal year that is a meaningfully lower to the $7.8 million operating loss for the third quarter of this fiscal year.

Speaker 4: We also respect our cash position as at the end of the fourth quarter of this discolier to remain comparable to the 14.6 million at the end of last discolier.

Speaker 4: And now I'll know some of you are wondering what we mean by a meaningfully lower operating loss for the fourth quarter, as compared sequentially to the third quarter, and here's what we can say about that.

Speaker 4: We have found these uncertain times that it is very challenging to give precise guidance. What we believe is that we have come off of our bottom and we are starting to improve specifically related to the CHF mattress fabric segment. As mentioned earlier, revenue has been a challenge in the macro environment.

Speaker 4: But we have reason for some optimism as we go forward. We are starting to see the product wins we had previously disclosed, and we believe we are gaining market share in both businesses.

Speaker 4: But the most recovery is in CHF mattress fabrics with new business placed at proper margins and based on actual costing.

Speaker 4: So the pace of our recovery will be dictated by the recovery in the macroenvironment. We expect to improve our business to quenchally and organically be a market position.

Speaker 4: but we need some macro tailwinds for recovery to happen quicker. We are certainly committed to achieving a sustainable sequential improvement and regaining profitability during fiscal 2024.

Speaker 4: Importantly, as we weather the current challenges, we will continue to be laser focused on prudent financial management, with the goal of always maintaining a strong balance sheet.

Speaker 4: especially with regard to ensuring a strategic balance in our working capital. We are optimistic about Cobb's future and we know that financial stability is paramount to our success.

Speaker 2: So with that, we're happy to take some questions. We will now begin the question and answer session.

Speaker 2: To ask a question, you may press star then one in your telephone keypad. If you're using a speaker phone, please pick up your handset before pressing the keys.

Speaker 2: To ask a question, you may press star then one in your telephone keypad. If you're using a speaker phone, please pick up your handset before pressing the keys. To withdraw a question, please press star then two.

Speaker 2: At this time, we will pause this momentarily to assemble our roster. And our first question here will come from Antimedia Levitinsky with Sardine Company. Yes, good morning, gentlemen. And thank you for taking the questions. So first, a nice job with maintaining a solid balance sheet in this difficult operating environment.

Speaker 2: So that's a quick comment for me. As far as my questions, you know, so with the raw material costs, you know, moderating and to just overall, it seems like stabilization is some costs trends. What would you say is your confidence level as far as your ability to maintain pricing at these levels?

Speaker 4: That's a good question Anthony, thank you. We did note that. Thanks for picking up on it. We are, we would be talking about raw materials as there was such an inflationary pressure on us in raw materials over the last couple years. And we did not pass enough price on or we weren't able to and did not. Thailand Government voted a man's personal mistake against by the central federal government, and so we still want to say it.

Speaker 4: get enough price. So we're finally getting to the point with new products where we are able to catch up to that price lag. And historically in our business, there are frequent introductions into the market. And so we can catch up to any raw material.

Speaker 4: swing by introducing new products, but through this last couple years there's just been no intros. Everything's been deferred, so we haven't been able to do that, and we didn't do a good enough job pushing price. So I'm not worried. We don't have price deflation of raw material to the point where we need to be adjusting pricing, but we can finally get on our new products where we can have fair margins.

Speaker 2: of new products, you also talked about some new customer programs as well. I think you mentioned that in your preferred remarks that you saw late in the quarter. So if you could just kind of expand on that, maybe just give us some examples of some of some new customer programs or new product that you're particularly excited about here.

Speaker 4: Yeah, well, I think where I would speak to it, and we're excited about both businesses, but both CHF, mattress fabrics, and CUF, the poultry fabrics have positive trends to their market position. That's for sure. But what we've tried to point to harder in the remarks and the releases where we need to improve certainly in the mattress fabric segment. So, when I speak about that...

Speaker 4: I'm not trying to minimize the poultry fabrics roll in this. They've just been more stable where we're seeing the growth from current levels as in mattress fabrics. What got us pretty pumped up was the Las Vegas market. And if you went back to our last couple of earnings calls, I've been speaking to...

Speaker 4: product positioning that we know we're winning both on traditional betting retailers and betting the box mattress cover customers for us But the rollouts kept getting delayed so in some cases things that were due to launch last January of 2022 got deferred to the summer and then got deferred again to January of 2023 So at the market most recent Las Vegas market finally a lot of the things we had been building to start the ship and we're starting to have success

Speaker 4: building and shipping those items to our customer. And there's more planned throughout this year. I feel like the industry is doing quite a bit of catch up of putting new products into the market. And again, that's traditional betting and betting box. So across the board, we know it's not gonna happen overnight. We know things have to be staggered. And again, like keep pointing to the pace of the industry tailwind will help us immeasurably. So.

Speaker 2: We're going to we're going to organically grow our position and our share But we need some lift in the macro side and we know we'll come at some point where We're going to grow and we can grow faster with some pull through so I hope that helps Yeah, absolutely and hopefully that momentum from the biggest market continues at the high point market for you Now I may have missed a sick it did you comment on as far as the growth rate for the hospitality segment?

Speaker 2: Gotcha. Okay. All right. And then, you know, last question, you know, so, so, you know, can you talk about the CapEx, you know, obviously Being down because you're looking to conserve cash. So Just just wondering, you know, how much of Of that what has been are you deferring to next year? I mean, you know, typically You guys spend, you know, somewhere around six to seven million dollars or at least last couple of years You've done that type of CapEx finding so yeah, how much

Speaker 4: as much as we can, as much as we could, and we continue to address that in the fourth quarter. I think looking ahead, we've always said maintenance catbacks is in that four to five million dollar range. We're in the process now of looking at those projects for next year and prioritizing, but at the same time, we've made it clear to the divisions that

Speaker 4: You know, they need to, they need to earn and they need to be in a position where being able to justify those capex. But at the same time, we also agree and understand that we have to maintain the equipment. So that's going to be a delicate balance as we go in the next year. Daudet. All right. Well, thank you very much and best of luck. Thank you, Anthony. Have a great day. And our next question will come from Rexford Henderson with Water Tower Research. Please go ahead.

Good morning and thanks for taking my call. Let me add my congratulations about your balance sheet management. It's really gratifying to see that in such a difficult environment. I had some questions. If you mentioned that you were aiming to get back to profitability in fiscal 2024, can you clarify that a little bit in terms of, do you mean that for the four year or for specific period later in the year? And what basis are you thinking about that profitability on the EBIT line, on the EBIT line, or in net income? Well, Rex, great question. Thanks for calling that out. We talked kind of.

all our sequential improvement in those quarters.

And then I would have every expectation that we should be moving towards break even and then to some profitability later in the year. That's how we look at it. And Ken, I don't know if you want to tell him how we look at that more. No, it's ice on a what we've been gotten to operate and income so much. Yeah, no, that's that's exactly right. I mean, as we look at as we head into 24, I mean, we understand it's going to take the continued some time to get to that profitability. But we're looking at the second half of the year where we break through and our profit where it even level.

And so that's just going to take some time. And so, you know, we're not guiding right now for the profitability of the year, but we're saying is that by, in that time, by certain time FY24, we will be profitable on an EBIT level. And Rex said, I'll just say, I mean, that that's what we think. I would love it if there would just be some, some lift in the business that could help us go faster with the sales reductions that we're dealing with that come so much from the macro environment. It just makes it challenging. We are buying our time because we know when that gets normalized.

It can happen for us faster. So it's not even us to think that's gonna happen and to try to predict it, but man, it should be fun if it will go a little quicker. Yeah, that's me sure. Let me ask a little bit more about the master, master's service business, which has been, you know, showing and operating loss in the last, this year so far. So, and you're transforming that business and getting some efficiencies and new product and some better pricing through those new products. How much volume, you know, where do the, where does the line cross in terms of?

volume in that business to get make this segment profitable? How much additional volume are you gonna need? And you know, kind of when and can you give me some guidance on what it takes to get that business back to profitability? And on the top line. Good question. And that and you're picking right up on it. That's the business that we recognize carries so much value for us as a company and that has a great history. And all these things that we need to get back to. And we're making incredible improvements every day under the leadership of Tommy Bruno. His knowledge of all facets of the business are making a big difference. What I think that what we're doing, there's so much operational excellence being driven through that personnel.

efficiency, quality, costing, pricing, all of those things are getting better. So we're lowering our break even revenue rate. We definitely are. We have some tailwinds, finally with cost, not continuing to rise. So we can, we won't take as much volume to turn proper, as it would have, you know, through COVID and through the inflationary pressures.

quality, costing, pricing, all of those things are getting better. So we're lowering our break even revenue rate. We definitely are. We have some tailwinds, finally with cost not continuing to rise. So we can, we won't take as much volume to turn proper, as it would have, you know, through COVID and through the inflationary pressures. Um.

I don't know if we can talk about a line where that breaks, but it's definitely, we're more profitable. We don't have to get all of our profit and volume anymore. We can get profit through operations, and we're going to prove that we can do that, and then having some sales will just help us push it further. But yeah. I hope that helps you a little bit. Okay. That's useful. So what I'm hearing is, I don't need to model, I don't need to look at, it sales volumes equivalent to 2019, 2020, or going back to even 2022 in order to get back there. Some level below that, you think you can get back to profitability.

Yeah, Rex, this can't, that's exactly right. With all the enhancements we've made, we'll be able to on a comfortable basis, we'll be able to get back there with less activity than before. So that's, again, all the different projects we've got going on right now, that's leading to that ability to not need as much as before. But, just say again, Rex, it's really good questions. We don't, as we look out 12, 24 months, we don't think they're sales pressure. We have a lot of room to run with our sales level from where we are today.

We've been at levels considerably higher than this and we can go back to those Obviously again, I keep saying that we just need we're gonna do it organically It'll be faster if we can get some support from just general conditions But we're not trying to run the business at a lower level. We want to go back to those levels, but It's so hard to predict Okay, all right and I guess you know, this is something we you know, we've talked about in the past But you know, can you kind of recap what you're seeing in China with the workforce and an operating environment there? Are you comfortable or you've seen any imminent risk to your operations in China at all kind of give us some confidence that things are going smoothly there

Sure, Rex, this is Boyd, and I'll touch on a couple of points related to China. First of all, certainly saw some positive impacts from the change in the China COVID policy that took place in December , both for our associates and our supply chain. This resulted in less disruption and uncertainty that came from that chain. So that was very positive. And then of course, we've just come through the Chinese New Year period, which is normally closed business at this time. But we have seen a, you know, from all aspects that the supply chain has returned and is functioning normally at this point coming back from the holiday. So we're pleased with that.

So in general, Rex, I'd say that the plot chain is functioning well. We are continuing to diversify our global platform and we'll stay focused on continuing to do that. As you know, we have diversified to Vietnam, to Haiti. We have some diversification taking place in Turkey. So we fully intend to expand in those other locations and have steps in the works now to do that and we'll be doing that more aggressively in this next fiscal year. So that's while China is, you know, performing well and not anticipating issues.

Still think it's prudent for our business overall to continue on a diversification path as we know have started. All right. Well, thank you for taking my call again and good luck. Thank you, Rick. Hey, thanks. This concludes our question and answer session. I'd like to turn the conference back over to you. We've called for closing remarks. Thank you, operator. And again, thanks to everyone for your participation and your interest in call. We look forward to updating you on your progress on our progress. Next quarter.

this overall to continue on a diversification path as we know have started. All right. Well, thank you for taking my call again and good luck. Thank you, Rex. How great. This concludes our question and answer session. I'd like to turn the conference back over to you. We've called for closing remarks. Thank you, operator. And again, thanks to everyone for your participation and your interest in call. We look forward to updating you on your progress on our progress. Next quarter. Have a great day.

The conference has now concluded. Thank you very much for attending today's presentation. You may now disconnect your lines. Thank you very much. Thank you very much.

I I have.

Signoy Conference Specialist by pressing the star key followed by zero.

After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. Please note that this event is being recorded today. I would now like to turn the conference over to Drew Anderson. Please go ahead. Thank you.

Thank you. Good morning and welcome to the Culp Conference call to review the company's results for the third quarter of fiscal 2023.

As we start, let me state that this morning's call will contain forward-looking statements about the business, financial condition, and prospects of the company. Forward-looking statements are statements that include projections, expectations, or beliefs about future events or results, or otherwise are not statements of historical fact.

The actual performance of the company could differ materially from that indicated by the floor looking statements because of various risks and uncertainties. These risks and uncertainties are described in our regular SEC filing, including the company's most recent filing on Form 10K and Form 10Q.

Additional risks and uncertainties that we do not presently know about or that we currently consider to be immaterial may also affect our business operations and financial results. Your caution not to place undue reliance on forward-looking statements made today and each such statement speaks only as up today. We undertake no obligation to update or revise forward-looking statements. In addition, during this call, the company will be discussing non- GAAP financial measurements. A reconciliation of these non- GAAP financial measurements to the most directly comparable GAAP financial measurement is included in the table to the press release.

Included as an exhibit to the company's 8K filed yesterday and posted on the company's website at Culp.com. A slide presentation with supporting summary financial information is also available on the company's website as part of the webcast of today's call. I will now turn the call over to IVCulp, President and Chief Executive Officer of Culp. Please go ahead, sir. Good morning, and thank you for joining us today. I would like to welcome you to the Culp quarterly conference call with analysts and investors. With me on the call today, I am Ken Bowling, Chief Financial Officer and Boyd Chumley, President of our Pulse Tree Fabrics Business.

It is an exhibit to the company's 8K file yesterday and posted on the company's website at colp.com. A slide presentation with supporting some financial information is also available on the company's website as part of the webcast of today's call. I will now turn the call over to IVCOLP, President and Chief Executive Officer of COLP. Please go ahead, sir. Good morning, and thank you for joining us today. I would like to welcome you to the co quarterly conference call with analysts and investors. With me on the call today, Erkin Bowling, Chief Financial Officer, and Boyd Chumley, President of our Pulse Street Fabrics Business. A few housekeeping items.

First, I want to let you all know that Tommy Bruno, President of our mattress fabric business, is unable to join us on the call today. And he is traveling and working on the business, but we do plan to have him join us next quarter. Also want to point out that we have not posted our usual investor presentation or capital allocation strategy deck on our website, as we are preparing a new, refreshed investor presentation and improvement roadmap, which we expect to share within the next few weeks. Lastly, I want to quickly thank our 1400 employees around the world for their dedication and hard work over these challenging times. Our culture at Colt is special and we are really proud of our associates. We are also grateful to have been awarded the Hearts Award from the Dallas Market Center and accessories resource team with nomination from the International Textile Alliance. We are honored to be recognized for our heart-based leadership. I'll now begin the call with some open accounting comments, including a discussion of key themes for the quarter and priorities as we look ahead. After that, Ken will review the financial results for the quarter.

And I'll then take our, then review our business outlook for the fourth quarter and when then take some questions. When we think about the third quarter, there are really three major themes. Number one, current week demand within the two industries we service. Number two is our focus on maintaining a strong balance sheet and managing our cash position. And number three, the transformation within our CHF mattress fabric business. Regarding theme one on the demand side, our sales and profit and results for the quarter reflect a continued weakness.

in the domestic mattress and residential home furnishings industries, especially related to unit volume. With sales at these levels, it is a very tough environment for Culp to thrive, despite our market gains. We are a unit driven company, and in the absence of solid furniture and betting units being sold within the industry, it is challenging for us to run our facilities and manage our supply chain efficiently.

There is certainly much to complain about regarding macro conditions and inflationary pressures affecting consumer spending. Those are things that are out of our control and that are definitely pressuring demand. But it goes deeper than that for Culp and the impacts are different by business segment. Our upholstery fabric segment has experienced a continued lag in residential business due to high inventory levels that are still being worked through and managed at manufacturers and retailers.

We expect that could take a few more months to normalize. On our Matches Fabric segment, we expect that could take a few more months to normalize.

This business seems to be caught in a temporary industry malaise, with some reports of mattress unit sales currently down as much as 25%.

Within this tough demand backdrop, we are controlling what we can control in managing our business, including making strategic adjustments and working to expand our market position.

We believe the Slack will come out of the supply chain at some point, and macro conditions will stabilize. When that occurs, we are extremely well positioned and expect much better results. Now let me turn to theme 2, which is continuing to manage a strong balance sheet and manage our cast position.

This is one of the main things we can control, and I'm very pleased with our management teams in both of our businesses for their diligence in maintaining our solid financial position. We have done an excellent job with inventory reduction with a favorable cash impact of $18.2 million since the end of the third quarter of last fiscal year.

We have also managed the counts receivable effectively by improving our terms with key customers and navigating three major bankruptcy without any material impacts. Additionally, we have generated positive cash flow for the first nine months of the fiscal year, a significant improvement compared to last year, and we now expect to end this fiscal year with the cash level comparable to the end of last fiscal year.

This is outstanding cash management and preservation in the space of very challenging times. Importantly, we also have no outstanding debt and we have entered into a new asset based revolving credit facility that enhances our liquidity position if we ever need it.

We fully recognize that management of Culp's strong balance sheet is paramount to our future success. The third key theme for us, both for the quarter and as we look ahead, is the business transformation underway in Culp Home Fashion's our mattress fabric segment. This certainly falls within the scope of areas we can control.

And we recognize that CHF Mattress Fabrics is the business that needs our most immediate attention. This is where we believe the majority of our value exists and what we think is our best opportunity for growth from current levels. Our CHF Mattress Fabrics business is executing a transformation plan in every facet of the business, from processes to people.

This business possesses a rich history with an excellent reputation and a strong global platform. While our market position remains solid, we have struggled through extremely volatile demand periods over the last two years, and we have needed better cost control and pricing as well as better overall discipline. We are in the process of transforming those areas among others under the leadership of the

thinking and experience in the mattress industry.

In Tommy's short time with CHF and as reflective in our numerous recent announcements to trade publications and on our social media channels, we have already made excellent progress with getting to write people in the right places, including new managers and sales, customer service, operations and manufacturing. We are focusing on production efficiency.

quality management, and balancing our product mix to proper volume skews and study run schedules. We have an intensive focus on improving our operational excellence. We are also noting now some raw material price improvement, although as we previously disclosed, we are still lagging somewhat in our price cost structure for existing products.

Some good news is we are winning new business and gaining market position and our new opportunities are priced in line with current market costs. It was also very encouraging to see the activity level at the January Las Vegas market. The industry has previously been in a cycle of deferring new product introductions which affects our unit volume. So we were pleased to see many new products and innovations presented at this market.

industry demand. We are working diligently to regain profitability in fiscal 2024 and we do expect that CHF mattress fabrics will lead that recovery.

Regarding our Pulse 2 Fabrics business, despite the elevated inventory levels affecting demand for our residential fabric products, we remain well positioned for the long term, with our scalable global platform and innovative products offerings, including the popular portfolio of Lipsmart Performance products. Our Pulse 2 Fabrics business has generally been more stable over the last two years in the market volatility.

supported in part by our hospitality contract business over the last year Following this recovery from COVID impacts hospitality contract accounted for approximately 30% of the segment sales for the third quarter

And while this percentage is higher than normal due to lower residential sales, it does reflect the ongoing solid performance of our hospitality contract business, as well as the importance to our overall strategy of product diversification for this segment.

We also took some action during the quarter to align our upholstery cut and soap platform in Haiti with current demand trends. While this did result in some restructuring charges, we were able to accomplish this adjustment without sacrificing our ability to support customers and grow our cut and soap business. Ken is going to go into more detail on this and his review of divisional performance.

But I'm pleased that we will have a go-forward annualized savings from this action and we will recoup a majority of our prepaid rent costs over time. I also want to be very clear that we still view Haiti as a critical nearshore location for coal. We have a strong mattress cover platform running in Haiti and we expect Haiti to be an important part of the company's future for cut and sewn mattress kits and covers.

I'll now turn the call over to Ken who will review the financial results for the quarter and then I'll come back and review the outlook for the fourth quarter of this fiscal year. Ken? Thanks, Dave. As mentioned earlier on the call, we have posted a slide presentation to our investor relations website that covers certain summary financial information and we will also post a new investor presentation in the upcoming weeks.

Here are the financial highlights of the third quarter. Net sales are 52.5 million down 34.6 percent compared with the prior year period. The company report allows from operations of 7.8 million can pair with income from operations of 1.1 million for the prior year period.

The loss of operations for the quarter includes 711,000 in restructuring expense relating to the rationalization of the opposing fabric savings cut and so platform and Haiti that it mentioned earlier. I'll comment more detail on the visual sales and operating performance in a moment, including more on this rationalization. Net loss of the third quarter was 9,000 or 73 cents per deluded share compared with net loss of 289,000 or two-

charge is associated with our poultry fabric segment. Overall performance for the third quarter was also affected by 1.1 man and other expense up from 322,000 for the prior period.

due primarily to unfavorable foreign exchange rates associated with our operations in China. Notably, performance for the nine month year-to-date period was favorably affected by foreign exchange rates associated with our China operations.

SG&A expense for the quarter was also higher than prior period due mostly to last year's reversal of recruit bonus and accrued stock compensation expense during the period. The effective income tax rate for the third quarter of this fiscal year was a negative 3.3% compared with 129% for the same period a year ago. Our effective income tax rate for the third quarter of this fiscal year was affected by the company's mix of earnings between our U.S. and Florence, Virginia.

of the year. Now let's take a look at our business segments.

For the mattress fabric segment, sales for the third quarter were $24.7 million, down 35.8% compared with last year's third quarter, and down 5.8% compared sequentially with the second quarter of this fiscal year.

Sales of the portal were pressured by reduced demand with mattress industry analysis, respecting significant unit contraction.

The impact of this industry's softness was heightened as matches manufacturers took longer than normal holiday shutdowns, resulting in fewer billing days. Manufacturers and retailers also continued to work to access inventory delaying the timing of shipments and new product rollouts. Although we did begin...

They'll roll out some new customer programs near the end of the quarter. These new programs are priced in line with current market cost and we expect to benefit as they expand across more sales channels and retail stores and as additional new product roll outs launched during this calendar year. Operating loss for the quarter was 4.2 million compared with operating income with 364,000 a year ago. Our operating performance for the third quarter this year was primarily pressured by operating inefficiencies written by

of this fiscal year.

Sales for the residential post-UFABIC products remained under pressure during the quarter by reduced demand, driven by high inventory levels for the residential home furnishings industry. This pressure is expected to continue through at least the first quarter of next-exit a year as retailers and manufacturers work through their inventory positions.

Demand remains solid in our hospitality business during the third quarter with sales for our hospitality contract business accounting for approximately 30% of the upholstered fabric segment's total sales. Operating loss for the quarter was $420,000 compared with income from operations of $2.4 million a year ago.

Our operating performance for the third quarter of this fiscal year as compared to the prior year period was mostly pressured by lower residential sales as well as operating inefficiencies in this segment's Haiti Cut and Sew facility and in its reed window products business. These pressures were partially offset by a significantly more favorable foreign exchange rate associated with the

We can't platform it, Haiti, through the end of the third quarter.

This restructuring aligns our capacity and costs with current demand levels for post-requits, while still allowing us to support our customers and scale for additional capacity if conditions improve. The adjustment will be completed during the fourth quarter of this fiscal year and includes terminating and release and relocating to an existing mattress cover facility.

We expect annualized savings of approximately 1.5 men from this initiative and we will recruit 2.4 men in prepaid rent expense over the next six and a half years. Now turn to balance sheet. We reported 16.7 million cash in no outstanding debt as of the end of the third quarter. This compares with 14.6 million cash in investments and no debt as of the end of last fiscal year. John Ford??.

Casual from operations and free cash flow were 4.6 million and 2.5 million respectively for the first nine months of this fiscal year as compared with Casual from operations and free cash flow of a negative 12.4 million and negative 18.5 million respectively for the first nine months of last fiscal year. Our Casual from operations and free cash flow during the first time month of this fiscal year were favorably affected by working capital

expenditures through the first through the third quarter of this fiscal year, 1.6 million can pay with 5.3 million for the same period last year.

For the full fiscal year, we expect capital expenditures to be in the range of 2.5 million, 2.8 million. We also completed the closing of a new three-year asset base revolving credit facility of up to $35 million. Barrow and availability under this new facility is based on a calculation used in certain of the company's accounts receivable and inventory determined on a monthly basis. While we do not currently foresee a need to borrow, we are pleased that as compared-

leaving 3.2 men available under our current share repurchase program. Despite the current share repurchased authorization, we do not expect any activity during the fourth quarter of this fiscal year, and we remain focused on preserving liquidity and being positioned to support future growth opportunities.

With that, I'll turn the call over to you to discuss the general outlook for the fourth quarter of this fiscal year, and then we will take your questions. If Thank you, Ken

Due to the continued volatility in the macro environment, we are providing only limited sequential financial guidance for the fourth quarter of this disc we year. We expect next sales for the fourth quarter to be moderately higher as compared to the $52.5 million in next sales for the third quarter of this disc we year, driven largely by strong sales improvement in the mattress fabric segment.

and comparable sales performance in the upholstery fabric segment. We expect to consolidate an operating loss for the fourth quarter of this fiscal year that is meaningfully lower than the $7.8 million operating loss for the third quarter of this fiscal year.

We also respect our cash position as at the end of the fourth quarter of this discreere to remain comparable to the 14.6 million at the end of last discreere.

And now I'll know some of you are wondering what we mean by a meaningfully lower operating loss for the fourth quarter, as compared to quencially to the third quarter. And here's what we can say about that.

We have found these uncertain times that it is very challenging to give precise guidance. What we believe is that we have come off of our bottom and we are starting to improve specifically related to the CHF mattress fabric segment. As mentioned earlier, revenue has been a challenge in the macro environment, but we have reason for some optimism as we go forward.

We are starting to see the product wins we had previously disclosed, and we believe we are gaining market share in both businesses. But the most recovery is in CHF mattress fabrics, with new business placed at proper margins and based on actual costing. So the pace of our recovery will be dictated by the recovery in the macro environment.

We expect to improve our business sequentially and organically via market position, but we need some macro tailwinds for recovery to happen quicker. We are certainly committed to achieving this sustainable, sequential improvement and regaining profitability during fiscal 2024. Importantly, if we weather the current challenges,

We will continue to be laser focused on prudent financial management, with the goal of always maintaining a strong balance sheet.

especially with regard to ensuring a strategic balance in our working capital. We are optimistic about COPS future and we know that financial stability is paramount to our success.

With that, we will be happy to take some questions. We will now begin the question and answer session. To ask a question, you may press star, then one on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw a question, please press star, then two. At this time, we will pause this momentarily to assemble our roster.

Our first question will come from Anthony with the company. Please go ahead.

Yes, good morning gentlemen and thank you for taking the questions. So first, nice job with maintaining a solid balance sheet in this difficult operating environment. So that's a quick comment from me. As far as my questions, so. Arnoldre andkay darkened que there are quite a few responses and I'll start with swings first everyone council members weathers wen

With the raw material costs moderating and to just overall, it seems like stabilization and some costs trends. What would you say is your confidence level as far as your ability to maintain pricing at these levels? That's a good question, Anthony. Thank you. We did.

we weren't able to and did not get enough price. So we're finally getting to the point with new products.

where we are able to catch up to that price lag. And historically in our business, there's frequent introductions into the market. And so we can catch up to any raw material swing by introducing new products. But through this last couple of years, there's just been no intros. Everything's been deferred, so we haven't been able to do that. And we didn't do a good enough job pushing price.

So, I'm not worried. We don't have price deflation of raw material to the point where we need to be adjusting pricing, but we can finally get on our new products where we can have fair margins in the market. So, you know, we just have been really pushing towards new products getting launched and we're finally glad to see it happen because we've at least neutralized a standard cost, which is terrific. Got it. Okay, yeah. Thanks for that explanation, Ive. So, yeah, sounds like you're optimistic about the future.

HF, mattress fabrics, and CUF, a poultry fabric tab.

positive trends to their market position. That's for sure. But what we've tried to point to harder in the remarks and the release is where we need to improve.

certainly is in the mattress fabric segment. So when I speak about that, I'm not trying to minimize the poultry fabrics roll in this. They've just been more stable where we're seeing the growth from current levels is in mattress fabrics. And what got us pretty pumped up.

was the Las Vegas market. And if you went back to our last couple of earnings calls, I've been speaking to product positioning that we know we're winning both on traditional betting retailers and betting the box, mattress cover customers for us, but the rollouts kept getting delayed. So in some cases, things that were due to launch last January of 2022 got deferred to the summer and then got deferred again to January of 2023.

So at the market, most recent Las Vegas market, finally, a lot of the things we had been building to start the ship and we're starting to have success building and shipping those items to our customer. And there's more planned throughout this year. I feel like the industry is doing quite a bit of catch-up of putting new products into the market. And again, that's traditional betting and bet and box. So across the board, we know it's not going to happen overnight. We know things have to be staggered.

And again, like to keep pointing to the pace of the industry tailwind will help us immeasurably. So we're going to organically grow our position and our share. But we need some lift in the macro side. And we know we'll come at some point. Where?

We're going to grow and we can grow faster with some pull through so I hope that helps Yeah, absolutely and hopefully that momentum from the biggest market continues at the high point market for you Now I may have missed this again. Did you comment on as far as the growth rate for the hospitality segment? Just wondering how that's fair than the quarter

last year.

Gotcha. Okay. All right. And then last question. So can you talk about the CAPEX? I'll just say being down because you're looking to conserve cash. So just wondering how much of that has been, are you deferring to next year? I mean, you know, typically...

You guys spend somewhere around $6 to $7 million. So at least last couple of years you've done that type of cat-back spending. So how much of the cat-backs you think you'll need to catch up with our fiscal 24 or fiscal 25? Yeah, and that's a great question. I mean, obviously this year we have been focused on preserving...

I think looking ahead, we've always said maintenance capex is in that $4 to $5 million range. We're in the process now of looking at those projects for next year and prioritizing, but at the same time, we've made it clear to the divisions that they need to earn and they need to be in a position where being able to justify those capex.

But at the same time, we also agree and understand that we have to maintain the equipment. So that's going to be a delicate balance as we go in the next year. Douded. All right. Well, thank you very much and best of luck.

Thank you, Anakin. Have a great day. And our next question will come from Rex Fern Henderson with Water Tower research. Please go ahead. Good morning, and thanks for taking my call. Let me add my congratulations about your balance sheet management. It's really gratifying to see that in such a difficult environment.

I had some questions. If you mentioned that you were aiming to get back to profitability in fiscal 2024, can you clarify that a little bit in terms of, do you mean that for the full year or for specific periods later in the year? Well, I'm not directly Jeffahl on my point of view.

What basis are you thinking about that profitability? On the EBITD line or in net income? Rex, great question. Thanks for calling that out. We talked over and over about sequential improvement. We know we're digging.

digging out of a hole in some ways. And yeah, we would love to have profitability further.

for the whole year. We would love that. But again, some of it's going to depend on what kind of tailwind we can get in just general demand. We're going to manage our margins and our sales better this year. No question. And we're going to grow our market position. We need some tailwind. So I think the way I'm looking at it is we know the first half of the year is not likely to rebound in a great way.

but we can control our sequential improvement in those quarters. And then I will have every expectation that we should be moving towards breakeven and then to some profitability later in the year. It's how we look at it. And Ken, I don't know if you wanna tell them how we look at that more. No, I just wanna, we've been guiding to operating income so much. Yeah, no, that's exactly right. I mean, as we look at, as we head into 24, I mean, we understand it's gonna take the continued some time to get to that profitability, but.

We're looking at the second half of the year where we break through in our profit-a-weight at even level. And so that's just going to take some time. And so, you know, we're not guiding right now for the profitability of the year, but what we're saying is that by certain time in FY24, we will be profitable at an even level. And so, you know, we're going to be profitable at an even level.

at the second half of the year where we break through and are profitable at an EBIT level. And so that's just going to take some time. And so, you know, we're not guiding right now for the profitability of the year, but we're saying is that by, in that time, by certain time in FY24, we will be profitable in an EBIT level. And Rex, I'll just say, I mean it.

That's what we think. I would love it if there would just be some lift in the business that could help us go faster with the sales reductions that we're dealing with that come so much from the macro environment. It just makes it challenging. We are buying our time.

because we know when that gets normalized, it can happen for us faster. So it's not even us to think that's going to happen and to try to predict it, but man, it would sure be fun if it would go a little quicker. Yeah. That's true.

Let me ask a little bit more about the math and the service business, which has been showing and operating lots in the last this year so far. So, and you're transforming that business and getting some efficiencies and new product and some better pricing through those new products. How much volume?

Where does the line cross in terms of volume in that business to make this segment profitable?

How much additional volume are you going to need and kind of when and can you give me some guidance on What it takes to get that business back to profitability and offline?

Good question and you're picking right up on it. That's the business that we recognize, carries so much value for us as a company and that.

has a great history and all these things that we need to get back to. And we're making incredible improvements every day under the leadership of Tommy Bruno. His knowledge of all facets of the business are making a big difference. What I think that what we're doing, there's so much operational excellence being driven through that personnel.

efficiency, quality, costing, pricing, all of those things are getting better. So we're lowering our break even revenue rate. We definitely are. We have some tailwinds, finally with cost, not continuing to rise. So we can, we won't take as much volume to turn proper, as it would have, you know, through COVID and through the inflationary pressures.

I don't know if we can talk about a line where that breaks, but it's definitely, we're more profitable. We don't have to get all of our profit and volume anymore. We can get profit through operations, and we're going to prove that we can do that, and then having some sales will just help us push it further. I hope that helps you a little bit. Thank you.

Okay, that's useful. So what I'm hearing is, I don't need to look at sales volumes equivalent to 2019, 2020, or going back to even 2022 in order to get back there. Some level below that you think you can get back to profitability. Yeah, Rex, this can't, that's exactly right. With all the enhancements.

their sales pressure. We have a lot of room to run with our sales level from where we are today. We've been at levels considerably higher than this, and we can go back to those. Obviously, again, I keep saying that we just need, we're gonna do it organically. It'll be faster if we can get some support from just general conditions.

But we're not trying to run the business at a lower level. We want to go back to those levels, but it's so hard to predict. Okay. All right. And I guess, you know, this is something we talked about in the past, but, you know, can you kind of recap what you're seeing in China with the workforce and an operating environment there? Are you comfortable or you've seen any imminent risk to your operations in China? Yeah.

at all, kind of give us some confidence that things are going smoothly there. Sure Rex, this is Boyd and I'll touch on a couple of points related to China. First of all, certainly saw some positive impacts from the change in the China COVID policy that took place in December .

both for our associates and our supply chain. This resulted in less disruption and uncertainty that came from that chain. So that was very positive. And then of course we've just come through the Chinese New Year period, which is normally closed business at this time.

that the blockchain is functioning well. We are continuing to diversify our global platform and we'll stay focused on continuing to do that. As you know, we have diversified to Vietnam, to Haiti. We have some diversification taking place in Turkey.

So we fully intend to expand in those other locations and have steps in the works now to do that and we'll be doing that more aggressively in this next fiscal year. So that's, while China is performing well and not anticipating issues.

This concludes our question and answer session. I'd like to turn the conference back over to the call for closing remarks.

Thank you, operator, and again, thanks to everyone for your participation and your interest in call. We look forward to updating you on our progress next quarter. Have a great day. The conference is now concluded. Thank you very much for attending today's presentation. You may now disconnect your lines. Thank you very much.