CULP - NYSE

Good day, and welcome to the Culp, Inc. Fourth Quarter Fiscal 2023 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Dru Anderson. Please go ahead.

Thank you. Good morning, and welcome to the Culp conference call to review the company's results for the fourth quarter and fiscal 2023 year. 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 forward-looking statements because of various risks and uncertainties. These risks and uncertainties are described in our regular SEC filings, including the company's most recent filings on Form 10-K and Form 10-Q. 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. You are cautioned not to place undue reliance on forward-looking statements made today and each such statement speaks only as of 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 measurements is included in the tables to the press release, included as an exhibit to the company's 8-K 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 Mr. Iv Culp, President and Chief Executive Officer of Culp. Please go ahead, sir.

Thank you, Dru, and good morning, and thank you for joining us today. I would like to welcome everyone to the Culp quarterly conference call with analysts and investors. With me on the call are Ken Bowling, our Chief Financial Officer; Boyd Chumbley, President of our Upholstery Fabrics Business and Tommy Bruno, President of our Mattress Fabrics business. I will begin the call with some opening comments, including a discussion of key points from topics for the quarter and priorities as we look ahead. After that, Ken will review the financial results for the quarter and the full year. I will then review our business outlook for the first quarter of fiscal 2024 and we will then take your questions. So when we think about the current state of our business, we are furthering the themes we discussed last quarter and expanding them with a few important points that illustrate where Culp, Inc. is today. First, we are encouraged by our sequential and year-over-year improvement for the quarter, despite ongoing demand softness within the two industries we service. Second, we reemphasize our unwavering focus on maintaining a strong balance sheet and managing our cash position. And third, we are excited by the ongoing comprehensive transformation within our CHF Mattress Fabrics business. Regarding our quarterly results, our sales and operating performance reflected solid improvement both sequentially and year-over-year and both in dollars and units, even as demand remained soft in the mattress and residential home furnishings industries. The strong sequential improvement in our Mattress Fabrics segment was driven by the rollout of new customer programs during the period. As we have been commenting for some time now, these new programs are priced in line with current costs and are expected to grow this segment's market position in fiscal 2024. The Culp Home Fashions business is also seeing some benefit from improvement in operational efficiencies and cost reduction initiatives across our locations, and I will expand on this more shortly. For the Upholstery Fabrics segment, demand remained solid in our hospitality contract business. Our residential fabrics business also improved in Q4, due to a seasonal pickup following third quarter shutdowns for the Chinese New Year holiday as well as a $1 million non-recurring payment related to newly negotiated terms with a cut and sew customer. These new terms are in connection with reduced market demand for cut and sew and upholstery kits. And the related rationalization of our international upholstery cut and sew platforms to align with current demand levels. Importantly, we believe this is a positive outcome for both Culp and for our customer and our ongoing business relationship remains solid. Fiscal 2023 was a tough year with much volatility in the macroenvironment the pressure demand in both of our business segments. The shift in consumer spending trends following the pandemic stay-at-home surge, inflationary pressures affecting consumer spending, and high inventory levels at residential furniture manufacturers and retailers are all factors that are out of our control. But we are pleased to have ended the year with sequential and year-over-year improvement in our quarterly sales and operating results. This reflects some of the initiatives we've undertaken internally to manage our business and control what we can control and we believe we have recovered from the bottom and repositioned our business towards stabilization and an early recovery next fiscal year, especially in our Mattress Fabrics segment. We do understand the pace of our improvement could be affected by recovery in the overall macroenvironment and to state, but even in an ongoing tough demand backdrop, we expect continued and sustainable progress in improving our operating results. Our market position is solid and we believe macro conditions will stabilize and excess inventory will fully flush through the supply chain at some point. If that occurs, we are extremely well-positioned and we expect stronger results. Now I'll shift to the second point, which is our unwavering commitment to maintain a strong balance sheet and to manage our cash position. This is one of the main things we have some control over, regardless of business conditions and I'm very pleased with the management team for its diligence in maintaining our solid financial position this year. We ended the year with a higher cash position than the prior year, with $21 million in cash and no outstanding borrowings. We did an excellent job with inventory reductions throughout the year with a favorable cash impact of $21.1 million since the end of the third quarter of last fiscal year. We also managed accounts receivable effectively by improving our terms with key customers and navigating three major bankruptcies without any impact. Additionally, we generated positive cash flow from operations and free cash flow for the fiscal year of $7.8 million and $6.9 million respectively, a significant improvement compared to last year's negative cash flow from operations of negative $17.4 million and negative free cash flow of $24.3 million. This is a $31 million turnaround in free cash flow. Outstanding cash management during challenging times and I can't thank our associates enough. Importantly, we continue to have no outstanding debt and our recent asset based revolving credit facility enhances our liquidity position should we ever need it. We fully recognize the management of Culp's strong balance sheet is a critical initiative and allows us to focus on investing in and optimizing our global manufacturing platform and to support our focus on growing profitable sales. The third important point both for the quarter and as we look ahead is the ongoing business transformation underway in Culp Home Fashions, which is our Mattress Fabrics segment. As we've commented before, this certainly falls within the scope of areas we can control. And we believe CHF improvement is our best opportunity for growth from current levels. Our Culp Home Fashions business is executing a comprehensive business transformation plan, laying the foundation for steady sequential improvement under the leadership of Division President, Tommy Bruno, along with a restructured management team. This transformation plan focuses on long-term improvement in every facet of the business including quality, sales, marketing and operational processes, supply chain optimization, employee engagement and organizational management structure. Tommy and the CHF management team are relentlessly focused on operational excellence, leading the team and improving production efficiency and quality management, as well as balancing our product mix to proper volumes and steady run schedules. We have made excellent progress with getting the right personnel in the right places and laying the building blocks for sustainable improvement in fiscal 2024. The bedding industry is soft and this slowness may remain for some period, but we can still improve our performance through improved operations. Assuming our sales volumes in the upcoming fiscal year did not fall materially below last year, we would expect to see significant progress with steady sustainable improvement in CHF. We are planting seeds for the future of this business and as macro conditions strengthen, we will further see the benefit of this transformation. Our CHF market position is solid and we are growing with new program placements. We are also optimistic about additional planned program launches during this calendar year although the timing of those launches could swing among quarters. Pivoting now to CULP Upholstery Fabrics. Despite industry softness, this segment remains well-positioned for the long-term with our scalable global platform and innovative product offerings, including our popular portfolio of LiveSmart performance products and some new product technologies. We also expect this segment will benefit in fiscal 2024 from improved inventory management, a solid hospitality contract business, improvement in our Read Window business and a rationalized cut and sew platform. We are also diligently managing our global platform within Culp Upholstery Fabrics, as we look to provide options within our supply chain for both fabrics and cut and sewn kits. Customer service is a hallmark for Culp and a diversified platform provides improved risk management and a more stable supply base. Of note, our hospitality contract business accounted for 32% of segment sales for the fourth quarter. And now 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 its importance to our overall strategy of product diversification for the segment. 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 outlook for the fourth quarter of this fiscal year.

Thanks, Iv. As mentioned earlier on the call, we have posted a slide presentation to our Investor Relations website that covers certain summary financial information. We've also posted our updated Investor Presentation. Here are the financial highlights for the fourth quarter. Net sales were $61.4 million, up 7.9% compared with the prior year period. The company reported a loss from operations of $4 million as compared with a loss of operations of $5.4 million for the prior year period and a loss from operations of $7.8 million for the third quarter of this fiscal year, which included $711,000 in restructuring expense. I'll comment in more detail on divisional sales and operating performance in a moment. Net loss for the fourth quarter was $4.7 million, or $0.38 per diluted share compared with a net loss of $6 million, or $0.49 per diluted share for the prior year period. Our overall operating performance for the fourth quarter as compared to the prior year period was positively affected by higher sales in both divisions. It was also affected by improved margins on new products, improvement in operating efficiencies and lower overhead costs in our Mattress Fabrics segment during the quarter, as well as a receipt of a non-recurring customer payment as Iv discussed earlier, lower inventory markdowns, lower overhead costs in our Upholstery Fabrics segment during the quarter and a favorable product mix. The lower overhead costs in our Mattress Fabrics segment during the quarter related to the restructuring and rationalization of this segment's cut and sew mattress cover platform in North Carolina initiated during the second quarter of this fiscal year. The lower overhead costs in our Upholstery Fabrics segment during the quarter related to the restructuring and rationalization of this segment's cut and sew platforms initiated earlier in this fiscal year. The improvement in operating performance for the fourth quarter as compared to the prior year period was partially offset by higher SG&A expense in the Upholstery Fabrics segment and unallocated corporate, due mostly to higher incentive compensation expense during the period. For the full fiscal year, net sales were $234.9 million, down 20.3% compared to the previous year. Loss from operations for the full fiscal year was $28.5 million compared with income from operations of $678,000 for the prior year. The loss from operations of this fiscal year includes $9.9 million related to certain inventory impairment charges, losses from inventory close-out sales, inventory markdowns and restructuring expense and related charges during the period. Net loss for the full fiscal year was $31.5 million, or $2.57 per diluted share compared with a net loss of $3.2 million or $0.26 per diluted share for the prior year. The effective income tax rate for the fourth quarter of this fiscal year was a negative 20.6% compared with a negative 4.4% in the same period a year ago. The effective income tax rate for the full fiscal year of 2023 was a negative 11% compared with a negative 888% for the prior fiscal year. Our effective income tax rate for the fourth quarter and for the full fiscal year was impacted by the company's mix of earnings between our U.S. and foreign subsidiaries, with an operating loss in the U.S., while China and Canada generated income that was taxed at higher rates as compared to the U.S. Our cash income tax payments totaled $2.3 million for this fiscal year and we currently expect cash income tax payments of $2.5 million for the next fiscal year. Importantly, our estimated cash income tax payments for fiscal 2024 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. For the Mattress Fabrics Segment, sales for the fourth quarter were $30.7 million, up 3.1% compared with last year's fourth quarter and up 24.3% compared sequentially with the third quarter of this fiscal year. The improvement in sales was driven mostly by the rollout of new customer programs despite a difficult industry demand environment during the quarter. Importantly, these new programs are priced in line with current cost and we expect a benefit as they expand across more sales channels and retail floors and as additional new product rollouts -- new product rollout launches during the calendar year. Operating loss for the quarter was $2.5 million compared with an operating loss of $2.9 million a year ago and an operating loss of $4.2 million in the previous quarter. Our operating performance for the fourth quarter of this year as compared both sequentially and to the prior year period was favorably affected by higher sales, better margins on new products, improvement in operating efficiencies and lower costs resulting from the restructuring and rationalization of the segment's mattress cover platform in North Carolina initiated during the second quarter of this fiscal year. For Upholstery Fabrics segment, sales for the fourth quarter were $30.7 million, up 13.1% over the prior year period, which was adversely affected by COVID-related shutdowns in China during the quarter. Sequentially, sales were up 10.4% compared to the third quarter of this fiscal year. Sales for our residential products improved sequentially as compared to the third quarter due to a seasonal pickup in demand following shutdowns in the Chinese New Year holiday, which fell entirely within the third quarter of this year. Sales were also positively affected by a receipt of the $1 million non-recurring payment Iv mentioned earlier relating to the newly negotiated terms with a cut and sew customer. Demand remained solid in our hospitality contract business during the fourth quarter with sales for this business accounted for approximately 32% of the Upholstery Fabrics segment's total sales. Income from operations for the quarter was $1.6 million compared with a loss of operations of $116,000 a year ago. Our operating performance for the fourth quarter of this year as compared with both sequentially and the prior year period was positively affected by higher sales, including the $1 million non-recurring payment I mentioned above as well as favorable product mix, lower inventory markdowns and lower overhead costs resulting from the restructuring of this segment's cut and sew platforms during earlier periods. These factors were partially offset by higher incentive compensation expense during the period due to this segment's significant contribution to the company's free cash flow for this fiscal year. Now, I'll turn to the balance sheet. We reported $21 million in total cash and no outstanding debt as of the end of this fiscal year. This compares with $14.6 million in total cash and no outstanding debt as of the end of last fiscal year. Cash flow from operations and free cash flow were $7.8 million and $6.9 million respectively for this fiscal year as compared with cash flow from operations and free cash flow of a negative $17.4 million and negative $24.3 million respectively for last fiscal year. Our cash flow from operations and free cash flow during the 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 $21.1 million for the company's cash position. Additionally, consistent with our focus on inventory, we tightly managed our capital spending during the year with an emphasis in our business critical projects only. Capital expenditures were $2.1 million for the year compared with $5.7 million for last fiscal year. Based on current expectations, capital spending for fiscal 2024 is projected to be in the range of $4 million to $6 million and will center mostly on maintenance CapEx and projects focused on improving quality and efficiency in our Mattress Fabrics business. Depreciation for fiscal 2024 is expected to be approximately $7 million. With respect to liquidity, as of the end of fiscal 2023, we had $47.8 million, consisting of $21 million in total cash and $26.8 million in borrowing availability under our asset-based domestic credit facility. Borrowing availability under this facility is based on a calculation using certain of the company's accounts receivable and inventory determined on a monthly basis. The company did not pay any dividends during this fiscal year following the suspension of our quarterly cash dividend on our common stock early in the year. The company also did not repurchase any shares during this fiscal year, leaving $3.2 million available under our current share repurchase program. Despite the current share repurchase authorization, we do not expect any activity during the first quarter of fiscal 2024 as we remain focused on preserving liquidity and being in a position to support future growth opportunities. With that, I will turn the call back over to Iv.

Thanks, Ken. Due to the continued volatility in the macroenvironment, we have provided only limited financial guidance for the first quarter of fiscal 2024. We expect consolidated net sales for the first quarter to be slightly lower compared to the first quarter of fiscal 2023, due mostly to the current softness in the Residential Home Furnishings industry, as well as some slowing of demand and the timing of additional new program launches in the Mattress Fabrics segment. We expect a consolidated operating loss for the first quarter of fiscal 2024. This is the range of negative $3.5 million to negative $4 million, a solid improvement compared to the $4.7 million operating loss for the prior year period. Now I know there are some questions about the expected slight decline in sales for the first quarter and here's how we've discussed that. There continues to be weakness in the Residential Home Furnishings industry, which makes it a challenging revenue environment. Yes, our hospitality contract business continues to look favorable. But the residential slowness is overweighing that. Also, remember that our fourth quarter sales for our residential Upholstery Fabrics business were possibly affected by seasonality and a one-time payment that won't recur in the first quarter. On the mattress fabric side, while there is still overall malaise in the industry, we expect to continue to benefit from the launch of planned new programs for our customers. This is a business that we have won and it is scheduled to launch during calendar 2023, but the timing of those launches could swing between quarters and we tried to account for that in our quarterly guidance. Importantly, and I want to highlight this once more, even with the forecasted decline in sales for the first quarter, we are still expecting a solid improvement in operating performance, reflecting the internal operational improvements we are making. As we commented, we expect to improve our business sequentially and organically via market position during fiscal 2024 with a return to quarterly operating profit during the year. However, the pace of our improvement is dictated by the recovery in the macroenvironment and we need some macro tailwinds for recovery to happen quicker. Lastly, 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, especially with regard to ensuring a strategic balance in our working capital. We are optimistic about Culp's future and we know the financial stability is paramount to our success. So with that, we'll be happy to take some questions.

We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from Anthony Lebiedzinski with Sidoti & Company. Please go ahead.

Good morning, and thank you for taking the questions. And first, congratulations on being able to maintain a strong balance sheet despite the difficulties in the business. So I guess, first question here, Iv, you talked about the comprehensive transformation and operational improvements that are underway at the CHF. So just -- I guess, if you could put this in baseball terms, what inning are we in actually as far as these operational improvements?

Yeah. Thank you, Anthony. I'm going to let Tommy speak to that a little bit, because he is executing this plan with speed as fast as we can go. And I just want to thank you for saying hello, first of all and thank you for the comments on the balance sheet. That is a big deal to us, and I'm glad you recognize that improvement. I'm really happy with how the CHF transformation is going. He would be going better if the market was better. But Tommy, I'll let you comment some if you want to -- where you see you are in the process and where you have left to execute.

Yeah. Sure. Thanks for the question, Anthony. From my point of view, I would say that we're in the middle innings getting towards the later innings. So we've established a good foundation. We've brought in a really good team to manage the transformation plan. And we have a good structure that is going to inform all of our activities and how we execute them. So I think now it's just a matter of getting through them as quickly as possible and in a way that drives the most financial benefit and long-term benefit.

And Anthony it is interesting that you have started with the comments on the balance sheet because some of what Tommy needs to do is, do some maintenance CapEx and be sure that we have equipment that's up to par for the speed we want to run and the techniques we want to operate through our platform. So the fact that our balance sheet is in a position to do some capital spending to support his transformation, they do go hand-in-hand.

Got you. Okay. Understood. Okay. And then, I know you guys also talked about in the past about increased collaboration with the new innovation center. Have you been able to see that or do you think there is more to come in terms of just having the two segments to do more?

Yeah. I certainly believe Anthony for most of Culp's history or recent history, we've intentionally operated those two businesses separately and they have two very strong leadership teams. But we are recognizing all the time that there are technologies and strategies and platform locations that work for both businesses. So we don't ever want to lose the personalities of the business, but we do want to share ideas and best practices where we can. The innovation center was sort of step one, and having our teams operate there concurrently with customers and watching our customers realize the different product lines that we're in, whether it'd be bedding, furniture, residential, commercial, it's been fantastic. I think our people enjoy being together, our customers like the atmosphere that provides and that's been a nice -- as expected, a nice boost to the business.

Terrific. Okay. Sounds great. So switching gears to the upholstery side. So you called out the demand being solid in the hospitality and contract business. So I guess two part question there. So first, are you getting more business from current clients or are you actually getting new client wins or maybe both? And then, the second part of that question is, are you seeing any signs of any slowdown in that sub-segment of the business?

Yes, Anthony. This is Boyd. And as to the first question, I'd say, the strength of the business, there is some contribution both from existing customers as the continuing to benefit from the shift in consumer spending to travel and experiences. It's certainly benefiting that segment and really all customers in that segment. So a lot of the strength and the solid incoming order and backlog position we have is related to existing customers, but we certainly are seeing new customer contributions in that as well. So it's really both fronts are contributing overall. And to this point, no, for your second part of your question, we're really not seeing any signs of any downturns in that segment yet. As you know, those orders and backlogs do have a longer timeframe for completion and installation. So we've got a pretty good backlog carrying out over a number of months at this point and really not seeing yet any signs of slowdown there. It remains very solid.

Okay. Got you. Okay. Thanks a lot. And then, last question, in terms of product pricing, what is your confidence level in terms of being able to continue to price products properly to reflect your own current costs?

I feel very confident in that, Anthony. And it's just -- maybe it's confidence compared to where we were. We did talk a lot in this last fiscal year, which was a tough year, about always being behind the eight ball in terms of catching the cost. We just -- things were going up on us faster than we can pass them through. Upholstery did a better job than mattress fabrics on that. And it's not a management thing, the industry allowed us a different outcome. We didn't -- we just didn't keep pace on the mattress side. As we've gotten to the point now where so much of our business feels like it needs to be remerchandised and that's coming from retailers and customers wanting their freshened floors, we're able to have a lot of new introductions that set at proper margin. And it sounds, obvious, but we just weren't -- we weren't getting fair margins on some of the business that was lingering. So now as we launch new things they just come -- it comes at a better prospect. So I don't feel -- it's always a competitive business. We're used to that for our entire history. But we have improving costs and we have new products with new technologies that we can price fairly. So I don't -- it's a competitive business, but I am not worried about price pressure for us.

That's great to hear. Well, thank you very much and best of luck.

Thank you, Anthony.

Thank you.

The next question comes from Rex Henderson with Water Tower Research. Please go ahead.

Good morning. Thanks for taking my call. And I want to offer my congratulations to the whole executive team and to Tommy in particular for showing some progress in CHF, that's encouraging. I was particularly focused on the gross margin line which turned positive for the first time in a while. And my questions start there, I think. The gross margin was positive this quarter, but not very strongly yet. And I'm just wondering kind of where you are in the process of getting -- how many SKUs are there that are still negative margin products and how long is it going to take to get to the point where the entire lineup is making money for you?

Yeah. Thank you for the question, Rex. For us, we are working diligently on the SKU rationalization process that we've talked about previously. I would estimate that over the next quarter or two that we would be worked through on all of the SKUs that aren't productive for us. We're having those conversations daily. And as Iv mentioned, a lot of the new programs that we're launching and as they phase in and become a larger part of our mix, as we rationalize out the lower profitability items and get the newer programs launched, we expect steady improvement in not only our top line, but we expect that to follow through on the bottom line as well.

Okay. Great. So a couple of quarters to get to a more reasonable number. That's really -- that's encouraging.

Rex, just to make a point, I'm sure you are fully aware of this. I mean, it would be -- an option would be just to stop selling those items, but that's not a responsible supplier. We need to phase these out through the right process to our customers and support our customers for the long-term, which we always will do and make that transition in the most expedient way we can, but we can't rush it. We just need to make it happen over a hopefully a short period.

Okay. The press release and in your comments, you also mentioned operating efficiencies. Can you quantify that a little bit? What's going on in terms of operating efficiencies in CHF?

Yeah. Rex, it's Ken. I think that that's obviously one of the focuses that we've had. We've had issues with labor, getting the right mix of labor, that part of the challenge the has calmed down. So we're getting more consistent labor there. I mean that's been a focus. Obviously, the -- rightsizing the business, getting the right run rates and unit cost in line there. So those have all been concurrent high priorities as we've gone through the last several months. And I know Tommy, that's been your focus or is your focus now, going forward. So it's hard to quantify. It's just we've got a number of initiatives that we're working on. And as Iv said, we are confident that over time our operating performance will reflect those.

Rex, if we were ranking the most important thing to us to return profitability, the new volume at proper margin is first. So that's the first thing. And then the operational improvements are right behind it. And that's inclusive also improved costing of materials, freight costs and things like that, that are starting to help. So it's operating better in addition to better costing. But really the main driver is going to be volume and new programs.

Okay. Actually, Ken, touched on another question I had and that is, earlier you talked about you had some labor turnover and labor inefficiencies. Do you feel like that's fully behind you or is there still progress to be made on that front?

I think, Rex, it's certainly better than it was. We went through a period of time where it was just difficult to retain anyone. I would say today and Tommy can comment, because he has the most U.S. employees, we aren't having a problem finding workers anymore, but there is still some challenge in retaining workers. I mean we aren't -- the jobs we offer are -- their hard jobs. There are long hours and there is got to be some skilled labor there. So much better. Now, we've got a lot of attention focused on retaining those people. Is that fair, Tommy? Is that what you're seeing?

Yeah. We're able to recruit effectively and we're working very hard on employee engagement and retention.

Okay. All right. And finally, I want to turn my attention to CUF, in the home furnishings business. You mentioned that there's down -- I think you mentioned, some downstream inventory issues. Can you give us any color on how you see it, where that stands and how long you think that's going to take to clear? Do you have any visibility on that?

Yeah, Rex. This is Boyd. And I would say to a large degree those downstream inventories had been cleared and addressed, certainly in much lower levels of inventory in the pipeline at the retailer and manufacturer level than there has been over the course of the last number of months in the year. So that situation has greatly improved. We are now seeing more of the -- the true consumer purchases at retail are now triggering, ordering of fabrics to us on a more regular basis there. So a lot of that inventory position has been addressed. But there is probably still some pockets in some various areas, but to -- on a macro level that’s been significantly reduced and not as big a factor to our incoming phase of orders as it has been in the past couple of quarters.

Okay. Sounds incur, a little bit of encouragement there. Okay. Thank you for taking my questions, and I'll pass it on to the next guy.

Thank you, Rex.

Thanks, Rex.

This concludes our question-and-answer session. I would like to turn the conference over to Iv Culp for any closing remarks.

Thank you, operator. And again, thanks to everyone for your participation and your interest in Culp. We look forward to updating you on our progress next quarter.