Melinda Whittington - President, Chief Executive Officer Bob Lucian - Chief Financial Officer.

Good morning ladies and gentlemen and welcome to the La-Z-Boy Fiscal 2022 Second Quarter Conference Call. At this time, all participants have been placed on a listen-only mode, and we will open the floor for your questions and comments after the presentation. It is now my pleasure to turn the floor over to your host, Kathy Liebmann.

Ma'am, the floor is yours..

Thank you, Matt and good morning everyone. Thank you for joining us to discuss our fiscal 2022 second quarter results. With us this morning are Melinda Whittington, La-Z-Boy’s President and Chief Executive Officer, and Bob Lucian, Chief Financial Officer.

Melinda will open and close the call, and Bob will speak to segment performance and the financials midway through. We’ll then open the call to questions.

Slides will accompany this presentation and you may view them through our webcast link, which will be available for one year, and a telephone replay of the call will be available for one week beginning this afternoon.

Before we begin the presentation, I’d like to remind you that some statements made in today’s call include forward-looking statements about La-Z-Boy’s future performance and other matters. Although we believe these statements to be reasonable, our actual results could differ materially.

The most significant risk factors that could affect our future results are described in our annual report on Form 10-K. We encourage you to review those risk factors, as well as other key information detailed in our SEC filings.

Also, our earnings release is available under the News and Events tab on the Investor Relations page of our website, and it includes reconciliations of certain non-GAAP measures which are also included as an appendix at the end of our conference call slide deck.

With that, I’d like to now turn over the call to Melinda Whittington, La-Z-Boy’s President and Chief Executive Officer.

Melinda?.

Thanks Kathy and good morning everyone. Yesterday afternoon, following the close of market, we reported our fiscal '22 second quarter results, delivering very strong sales growth, as well as solid margin progress since Q1.

We are delivering on plan and controlling the controllables, even in these times of significant widespread global supply chain disruption. Across the La-Z-Boy enterprise we delivered all-time record high sales of $576 million, with sales 29% ahead of the pre-pandemic fiscal '20 second quarter.

Our business is much larger today than pre-pandemic and we believe our momentum is sustainable. We are poised to grow on this base of nearly $2.1 billion in trailing 12 months sales.

Also as expected, operating margins improved sequentially, as our delivered sales for the quarter reflected pricing and surcharge actions taken to offset unprecedented rising raw material costs. All in all, we are pleased with the momentum and growth we are experiencing during these challenging times.

Looking forward, demand continues to be strong across the enterprise and our backlog remains at all time highs, even as we continue to increase capacity to service our customers and consumers. During Q2 of last year, businesses were just reopening and consumers are resuming furniture purchases.

At the time, written same-store sales for the La-Z-Boy Furniture Galleries network were unusually strong, up 34%. Off that base, written same-store sales for the La-Z-Boy Furniture Galleries network decreased 6% in the fiscal '22 second quarter.

However, comparing this quarter to the pre-pandemic fiscal '20 second quarter written same-store sales for the La-Z-Boy Furniture Galleries network increased an impressive 26% for a compounded annual growth rate of 12% across the two years.

Similarly, while written same-store sales for our company owned Retail segment decreased 7% versus the unusual prior year period, written sales increased at a compounded annual growth rate of 12% across the last two years.

For Joybird, primarily an e-commerce business, it continued its strong growth trajectory, accelerating to write 56% more business this Q2 than in last year's second quarter and delivering an extremely impressive compounded annual growth rate of 40% across the last two years.

As we focus on addressing this strong ongoing demand and accumulated backlog, we continue to make strategic investments to increase capacity and improve capabilities, and are producing more units than ever to serve its customers..

As we mentioned last quarter, where possible, our procurement team is significantly increasing inventory for key components to minimize disruption. We're also working to diversify our supply chain with multiple sources in various geographies, to protect against continued supply chain volatility..

Also during the quarter, we continued to return value to shareholders with a dividend payment and $15 million in share repurchases, bringing our total cash returned to shareholders in the first half of the year to $64 million across dividends and share repurchase..

Also during the quarter, we continued to return value to shareholders with a dividend payment and $15 million in share repurchases, bringing our total cash returned to shareholders in the first half of the year to $64 million across dividends and share repurchase..

Importantly, as we manage the current operational challenges across the business, we're also addressing the long-term with our work on Century Vision, our winning strategy for growth through our Centennial anniversary in 2027 and beyond. As I noted last quarter, Century Vision includes three key pillars.

The first is to leverage and reinvigorate the La-Z-Boy brand. This includes leveraging the La-Z-Boy comfort message, a renewed focus on aging down the core consumer, and accelerating our omni-channel offering.

Today our marketing platform featuring Kristen Bell, excuse me, has been successful in driving brand recognition, including young, including among younger consumers who say the La-Z-Boy brand is relevant to them. Our objective is to build on this sentiment.

And last month we produced a new series of commercials that showcase how La-Z-Boy's range of products meet our consumers needs.

At the same time, throughout the course of Century Vision, we will expand the vibrant La-Z-Boy Furniture Galleries store base to approximately 400 locations across North America and we'll strengthen the entire network through remodels and relocations, with some 30 projects on tap for this fiscal year.

While the purchase journey may start digitally, our consumers like to visit our stores to shop, providing us with a great opportunity to deliver the flagship La-Z-Boy Furniture Galleries store experience. Most importantly, our goal is to connect with consumers along their purchase journey through multiple means, whether that's online or in person.

With respect to company owned stores, we've become very successful running our Retail business where we benefit from the integrated wholesale-retail margin. We continue to acquire independent La-Z-Boy Furniture Galleries stores to round out our portfolio where it makes sense for us and the dealer.

We recently signed an agreement to purchase five stores in the Alabama and Tennessee markets from a retiring dealer that will be accretive as we quickly and seamlessly integrate them into our portfolio when we close the transaction later in the third quarter.

The second pillar of Century Vision relates to Joybird, where we have a sustainably profitable direct-to-consumer model and exciting and relevant brands with significant potential.

We are fueling Joybird to drive disproportionate profitable growth through an increase in digital marketing spend to drive awareness and customer acquisition, ongoing investments in technology and expansion of product assortment, and additional small format urban stores in high traffic areas.

We are excited to open a new store in LA this month, and have an additional store slated to open by the end of this fiscal year. In markets where we have Joybird small format stores, we consistently see a geo lift in the online sales, demonstrating the appeal of an omni-channel model across all brands and retail formats.

We also recently opened a virtual store at Joybird's LA headquarters for online shoppers to chat, call and video conference into a dedicated retail environment, which has proven to be very successful, both in terms of consumer satisfaction and closing sales.

And the third pillar of Century Vision is to leverage and enhance our enterprise capabilities to support the growth of our consumer brands, as well as enable the potential for tack-on acquisitions that can benefit from our supply chain expertise and accelerate the La-Z-Boy Incorporated growth story.

Strengthening digital capabilities across the entire La-Z-Boy enterprise and improving the agility of our supply chain, so that it can more broadly support all our customer brands, will be key focus areas moving forward.

All in, as we execute Century Vision, we expect to grow the topline higher than industry averages and deliver double-digit operating margins. We are proud of our near term results and excited for our future. Now let me turn the call over to Bob to review the results for the quarter.

Bob?.

Thank you, Melinda and good morning everyone. As a reminder, we present our results on both a GAAP and non-GAAP basis. We believe that non-GAAP presentation better reflects underlying trends and performance of the business.

Our fiscal '22 second quarter non-GAAP results exclude a $0.02 per share charge related to purchase accounting for acquisitions in prior periods and a $0.06 per share gain related to our business realignment, primarily due to a sale and leaseback of our facility, which are detailed in our press release and in the tables and the appendix section of our conference call slides.

On a consolidated basis, fiscal '22 second quarter sales increased 25% to a record $576 million versus the prior year quarter, and increased sequentially from the fiscal '22 first quarter, reflecting continued strong demand and ongoing capacity increases, as well as the effects of pricing and surcharges.

Compared with the pre-pandemic fiscal '20 second quarter, sales were 29% higher for a compounded annual growth rate of about 14% over the last two years. Consolidated GAAP operating income increased $54 million versus the prior year period and non-GAAP operating income increased to $52 million.

Consolidated GAAP operating margin was 9.4% and non-GAAP operating margin was 9% up sequentially from the first quarter. GAAP diluted EPS was $0.89 for fiscal '22 second quarter versus $0.75 in the prior year quarter. Non-GAAP diluted EPS was $0.85 in the current year quarter versus $0.82 in last year's quarter.

My comments from here will focus on our non-GAAP reporting unless specifically stated otherwise. I will now review our results by segment. Demand for product across all businesses remained strong.

Starting with our Wholesale segment, delivered sales for the quarter grew 28% to $439 million compared with the prior year period, and increased 12% sequentially from Q1. Compared with the pre-pandemic fiscal 22nd quarter, sales were 25% higher for a compounded annual growth rate of 12%.

Non-GAAP operating margin for the Wholesale segment was 9.1% versus 12.2% in last year's second quarter, primarily reflecting higher raw material and freight costs, start-up costs for new facilities, and labor challenges, partially offset by pricing and surcharges, fixed costs leverage on higher volume, and lower marketing spend as a percentage of sales.

All-in we were pleased with the results and the progress made sequentially from the first quarter operating margin of 4.7%. Turning to the Retail segment, for the quarter delivered sales increased 19% to $192 million. Delivered same-store sales increased 17% versus the year ago quarter.

Compared with the pre-pandemic fiscal '20 second quarter delivered sales increased 30% for a compounded annual growth rate of 14%. Again, demonstrating the strength of the La-Z-Boy brand, and our Furniture Galleries store system in this environment, as well as ongoing strong execution at the store level with sales metrics positive across the board.

Non GAAP operating margin increased to a second quarter record of 12.5% versus 9.4% in the prior year quarter, driven primarily by fixed costs leverage on the higher delivered sales volume, as well as expense management. Sales for Joybird, which are reported in corporate and other increased 37% to $40 million versus the prior year quarter.

On a two-year basis, compared with the pre-pandemic fiscal '20 second quarter, delivered sales increased an impressive 93% for a compounded annual growth rate of 39%.

Reflecting the momentum Joybird is building in the direct-to-consumer marketplace as we continue to acquire customers and strengthen brand awareness through new digital marketing channels. For the quarter, Joybird increased both its web and in-store traffic, conversion and average ticket.

Joybird is sustaining profitability and with a focus on accelerating disproportionate growth we will continue to invest in Joybird marketing to drive broader brand awareness and customer acquisition.

Pulling all of this together, consolidated non-GAAP gross margin for the entire company for the fiscal '22 second quarter decreased 500 basis points versus the prior year quarter, primarily driven by significant increases in raw material and freight costs, start-up costs associated with the expansion of our manufacturing capacity, and labor challenges in our wholesale businesses.

These items were partially offset by pricing and surcharges in our wholesale business. Consolidated non-GAAP SG&A as a percentage of sales for the quarter decreased 280 basis points, primarily reflecting fixed costs leverage and the higher sales volume, mainly in our Retail segment, as well as lower marketing spend as a percentage of sales.

Our effective tax rate on a GAAP basis for the fiscal '22 second quarter was 26.6% versus 26% in the second quarter of fiscal '21. Our effective tax rate varies from the 21% federal statutory rate, primarily due to state taxes. We expect our effective tax rate for the full fiscal '22-year to be between 25.5% and 26.5%.

Turning to cash, year-to-date we generated $15 million in cash from operating activities. We ended the period with $297 million in cash and no debt and held $31 million in investments to enhance returns on cash.

Year-to-date, we invested $59 million and higher inventory levels to protect against supply chain disruptions and support increased production and delivered sales.

We also spent $33 million in capital year-to-date, primarily related to improvements to our retail stores, plant upgrades at our manufacturing distribution facilities, new upholstery manufacturing capacity in Mexico and technology upgrades.

As a note, last month we entered into a new five-year $200 million unsecured revolving credit facility, which replaced our $150 million ABL facility. The new facility has a $100 million accordion feature allowing us to expand our borrowing capacity to support future growth.

It also provides the option to request to extend the term, beyond five years for two additional periods of one year each. Borrowings under the facility may be used for general corporate purposes and working capital. As of today, we have no borrowing against the facility.

Regarding cash return to shareholders, during the quarter, we continued to buy back shares, spending $15 million repurchasing more than 400 thousand shares of stock in the open market, leaving 8.6 million shares in our existing authorized share repurchase program. Year-to-date, we have returned $51 million to shareholders via share repurchase.

We also paid $6.6 million in dividends to shareholders in the second quarter, and subsequent to quarter end, demonstrating its confidence in the company's long-term growth prospects, the Board of Directors increased the regular quarterly dividend, by 10% to $16.05 per share.

As we look to the future, from a capital allocation perspective, over the long-term, we will target to invest roughly half of operating cash flow, back into the business via CapEx and M&A, and return the remainder to shareholders via dividends and share repurchases.

Before turning the call back to Melinda, let me highlight several important items for the remainder of fiscal 2022. As noted, demand trends are strong across the business and remain significantly higher than pre-pandemic levels.

With a high backlog and plans for a continued increase in capacity, as new assembly cells come online, we expect a strong year of shipments. Accordingly, we expect a continued increase in production capacity, particularly in Q4. Raw material and freight costs remain high, and global supply chain disruptions continue.

Industry experts predict it will take multiple quarters before we see resolution of the West Coast shipping backups. Electronic chip shortages continue, which impact our power furniture.

Across multiple areas, we expect to face continued supply chain disruptions, with respect to having all component parts available to finished units and complete orders, particularly for our company owned Retail segment, which tends to disproportionately sell our higher end products.

Given the COVID related shutdown at Vietnam, we expect our casegoods business to experience a significant, temporary decline in sales, and margin in the third quarter, reflecting a delay in shipments, as manufacturing facilities restart there and product gets on the water.

Finally, we will continue to monitor the escalating freight environment to determine if further pricing action is needed. Pulling all of this together, we are actively managing supply inputs and recognize that we will likely continue to experience uncertainty and disruption for the foreseeable future, particularly in the third quarter.

Quarterly trends will also be impacted by our third and fourth quarters, containing 12 and 14 production weeks respectively, compared to 13 production weeks in our second quarter. Recall fiscal 2022 will include 53-weeks of results.

Taking all of these factors into consideration, we expect sales and margin in Q3 to be similar to Q2 and expect sales and margin to accelerate in the fourth quarter, to enable consolidated La-Z-boy results to finish the fiscal year with a full-year, non-GAAP operating margin at or near double-digits.

Finally, as we make investments in the business to strengthen the company for the future, including work related to our Century Vision strategy, we expect capital expenditures to be in the range of $75 to $85 million for fiscal '22.

Spending will support updating our La-Z-boy Furniture Galleries stores, updates to our plans and distribution facilities in Neosho, Missouri, new upholstery manufacturing capacity in Mexico, and investments and technology solutions across the organization. And now, I will turn the call back to Melinda..

Thanks Bob. I'm extremely proud of our organization, and our business partners for delivering these strong results in very challenging times. The team is doing a great job navigating the uncertain environment and is setting us up for strong business growth as we move forward, both, in the near-term and as we execute our Century Vision.

The best is yet to come for La-Z-Boy Incorporated, as we deliver profitable growth and long-term value for all stakeholders. We thank you for your time this morning and I'll turn the call back to Kathy..

Thank you, Melinda. We'll begin the question-and-answer period now. Matt, please review the instructions for getting into the queue to ask questions..

Certainly. Your first question is coming from Bobby Griffin from Raymond James. Your line is live..

Good morning, everybody. Thank you for taking my questions..

Good morning, Bobby..

I guess first, I wanted to just touch on maybe the last comments about the guide, and it will kind of intertwine with what's going on in Vietnam. It looks like if you kind of do deliveries per week of production, being similar in 3Q sales would imply, the production, the weekly delivery stepping-up a little bit, sequentially.

So, maybe can you just talk about that sightline and the confidence in being able to get the weekly delivered revenue per week of production to step-up a little bit sequentially, and then, update us on what is going on there in Vietnam, understanding different capacity challenges with COVID and shutdowns, but is it opening back up now and good confidence in what's going on there, and all that around them?.

Thanks, Bobby. On the sequential growth of our business on a production week basis, we continue to bring online new cells in our Mexico facilities, and continue to work on increasing production on U.S. plants.

And despite only having 12-weeks of production in Q3, our expectation is we'll be able to get out the same amount of sales and that's how we've been planning and we've been working against and that's why we're providing those comments. The Vietnam piece is one that we've been watching very, very closely.

It's been down since sometime in July, it is now starting to come up that our biggest challenge is the fact that, everything that we had ordered from them in July is all pretty much gone. We received that and we're now shipping that out. It's going to take a while to fill up that supply chain and start getting product on the water coming over here.

And that's why during Q3, we expect to see some pressure on the casegoods business and on our overall business as it relates to paying for that product, paying for the freight before it comes over and not being able to actually realize the sales until later in the quarter and into Q4..

Okay, and then Bob to that point, I mean, do you find that customers mostly, that's casegoods products usually people are ordering a combination of products.

So, are you just able to just subset and say, hey look, certain products will be delivered in 10-weeks, certain products are going to be delivered in 16 weeks, because there's that lull in getting the casegoods over from Vietnam? Is that how it's getting handled with the customer?.

It's certainly about communication. We also did a pretty good job of getting ahead of some of this, as things were starting to shut down again, investing in some inventory.

So, we've been able to maybe stave-off some of that, some of that lull knowing that things were shutting down and be able to provide price a little bit longer than maybe some businesses have been able to. And then get ahead of being able to restart that chain as quickly as possible.

And as you said, communicate on timelines, so that people, you know, our goal may be in these crazy times, you can't deliver as quickly as you'd like, but you can at least communicate to what the realities are and deliver on those..

Okay, and then my second question is kind of on the comments of cash flow generation, and 50% back into business and 50% to the shareholders, clearly, investments in inventory, and then the COVID benefit last year impacted the current trailing cash flow from operations.

But if we go back before that, and we think about some of the working capital metrics of La-Z-Boy, are those working capital metrics, still the right range to use when, we think about getting back out into a normal environment.

So, we look at, what, that business historically kind of generates on the balance sheet from a cash flow perspective and that's like a good proxy to take forward when you think about your 50/50 split and distribution cash flow..

Yes, Bobby, they are absolutely. The one challenge will be okay, so when is that go back to there, Bob? And that's really a function of what happens with the economy. What happens with consumer demand and those types of things, but yes, over time we will revert back to what you saw before..

Okay, yes, I wasn't going to make you predict when normal was quite yet Bob..

Don't worry, I wasn't going to, can’t even try to..

And then, when did you reference the acquisition in the UK, just maybe any quick comments on the current acquisition environment either for independent independent galleries or bolt-ons like that UK acquisition?.

Yes.

So speak to a couple of things, the UK acquisition was a matter of, that had been a long-term supplier for our business and it became available, and was a great opportunity for us to really shore up our supply for our International for a very meaningful piece of our International business and we believe there'll be some synergies for that over time.

We've also always talked about opportunistically when -- if and when dealers are interested in selling their businesses and they fit in well to our portfolio, we would look at those. And so we just announced and we'll close to Q3, but we just announced the stores of Alabama and one in Tennessee, so that investment will go there.

And then we continue to look for, to your point, more of the opportunistic items. But, the non-furniture gallery opportunistic will be more spread out and probably longer term as we continue to work on our own capabilities and be ready to make the most out of anything we do..

Thank you so much for answering my questions and best of luck here in the remainder of the calendar year..

Thanks, Bobby..

I appreciate your time..

Thank you. Your next question is coming from Brad Thomas from KeyBanc Capital Markets. Your line is live..

Hi, good morning, Melinda, Bob and Kathy, and congrats on the strong results here..

Hi, Brad..

I wanted to -- absolutely well deserved. I wanted to ask a little bit more about the cadence of the written business and obviously, when you look at the comparison and that cadence of the business on a two-year basis, and a three-year basis, it really does stand out that this is particularly tough comparisons for you here.

Trends did accelerate on a two and three-year basis.

But I guess I was hoping to see if there was any more color you could give us around, if perhaps there had been some pull forward of orders into the prior quarter due to price increases, or any changes and how promotional you were being because there's limited inventory? Just how we should think about what the run rate is of sort of the underlying demand here and then what lever is going forward, you may be pulling to keep pushing demand and capitalizing on the environment?.

Yes, I'll start and then Bob can certainly add in. I think, to your point of is there anything particularly unusual in the quarter? No, I think overall demand, the level at which we're writing continues to be incredibly strong certainly, versus pre-pandemic kind of levels.

I think the one thing that trying to think about comparisons, if you go back to the base period a year ago, because we were more or less shut down, and a lot of our retailers were more or less shut down for that Q1 and really just coming back from the worst of the pandemic closures, Q2 had a disproportionately heavy quarter.

So that was just when we were seeing the beginning of sort of this surge towards focus on home and nesting. And so, I think that quarter that had 30%, kind of 34% I think for that if I'm remembering right for the entire Furniture Galleries network kind of lift in Q2 last year.

So I think that might be the -- more the unusual quarter, if you will, that might have almost had two quarters of demand in this new world. But beyond that getting on to this year, we're just, we're quite pleased with the fact that we continue to write at very strong levels, and believe we can continue to sustain that..

Sorry, go ahead, Bob..

Just written sales in Q2 in absolute dollars were consistent in Q2 versus Q1. So we didn't see a drop off in consumer demand. Again, it's against a base that was completely distorted due to COVID.

And that's why we gave the two-year look of a 12% compounded annual growth rate, which we believe is a very strong indication of a healthy business, a healthy and growing business..

Got it, that's helpful Bob, thank you. And, Melinda question we've asked pretty regularly is just around pricing and how the consumer has responded to the price increases you put through.

Can you just give us an update again on kind of how much prices are tracking up for you? And you know what data or analysis you've been able to do to make sure that that's still going to be palatable and we're not going to be seeing material push backs here?.

Yes, at this point, since pre-pandemic, with the pricing we took over the summer, we're up like most in our industry up into the high teens in overall pricing. And, there's no doubt there is an elasticity to that. But that pricing is all out there in the market now and again reflected in kind of these written orders that you're seeing today.

So thus far, the consumer continues to be interested in investing in their home..

That's really helpful. Thanks so much..

All right. Thanks, Brad..

Thank you. Your next question is coming from Anthony Lebiedzinski from Sidoti. Your line is live..

Good morning and thank you for taking the questions and certainly impressive results for the quarter.

Just wondering if you guys could quantify perhaps the costs or the startup costs for the new facilities, how much of a drag was that on the margin?.

We're not quite specifically calling out the basis point drag on the margin on that. That's been it's changed and it's morphing over there, over the period as new ones come online and then the old ones get more efficient, et cetera. So our preference right now is not to provide that information..

It will be hard to ice what that number was honestly ..

Okay, that's fine. No worries there. So just curious, so once you have all the manufacturing capacity open, you're about to open another facility in Mexico, I believe in January.

So just wondering how much capacity will you have once everything is fully operational? And then I guess the second part of that question is that when demand perhaps normalizes at some point, and what is your ability to flex that down if needed..

By the time, by the end of this fiscal year, there was -- was that final plant will be up and running, it still won't be at the efficiencies we expect. And we'll continue to see the efficiencies down in Mexico improve, as the folks down there get better and better at making the furniture.

That capacity is going to enable us to works begin to work against our backlog. Right now, with all the work we're doing increasing our capacity, we're just holding the backlog. We're not really making any cuts into it. And if you recall, we're in this six to seven month range, as it relates to how far behind we are.

So the capacity that we're adding is expected and once we get this additional capacity in the code that's going in this quarter, as well as next quarter and gets up to speed, then we'll be able to start working down that backlog that we've got, which will enable us to see stronger sales than what we currently are showing right now.

And that's why we're talking about an acceleration of sales into Q4, which will eventually get into Q1 and Q2 of next fiscal year as well. The question regarding what happens when things return to normal? You'll have to tell me what normal is.

Right now we're in a position where we've got a very large backlog and the market appears to be, I wouldn't say stabilizing, but it's not dropping off. It's sustaining the gains that it's got, that it has so we're going to need that capacity to be able to continue to service that business.

And in addition, the work that we're doing is part of Century Vision, we will see a higher growth rate over our overall business. We'll use that capacity to manage that growth rate.

And that said, if for some reason, there is some something that happens out there that sees demand drop, we have the ability relative to as we've talked before about reducing overtime, reducing work shifts, or weekend shifts and things like that to moderate the capacity. We see attrition in our plants all the time. It's difficult work.

So there's opportunities to naturally slowdown production if that's required. That's not what our plan is. Our plan is to continue to grow our business. But that's -- our capacity is in such a place that going down is probably easier than going up..

It's always been important with our business to keep in mind this is an artesian process where this final assembly of furniture is really done by people's hands, and so it makes it a little more challenging to put like a per unit on the capacity side of things, because it's really you can drive efficiencies, you can drive extra shifts, it's all about the people.

But it's also -- it also, as Bob said is a great opportunity -- for makes it, it is easier to decrease your capacity than it is to increase your capacity in many ways, because it's just, you could always take advantage of natural attrition if you needed to..

Got it, okay. And then just as to kind of follow up, as far as the production capacity, I mean, what would you say is your ability to hire and retain workers and whether there's a big difference between U.S.

and Mexico?.

We've had to be agile, no doubt. So our, biggest plants the lion's share of our manufacturing for the vast majority of our business, which is U.S. based, is in U.S. and we're making, and we've made significant investments over the last couple of years in those U.S. plants, including an entire revamp, remodel of our Neosho, Missouri plant.

At the same time, right now for expansion to meet this capacity -- expansion of capacity to meet this demand, we are finding more opportunity for hiring in Mexico right now. So a lot of the near-term expansion has been more Mexico driven as we've called out..

Got it, okay. All right. Well, I think that's all I had. Thank you and best of luck going forward..

Thank you..

Thank you, Anthony..

Thank you. There are no further questions in the queue. I will now hand the conference back to management for closing remarks. Please go ahead..

Thank you, everybody for listening to our call today. If you have further questions, please give me a call, I will be available. Have a great day..

Thank you ladies and gentlemen. This concludes today's event. You may disconnect at this time and have a wonderful day. Thank you for your participation..