Please standby. Good day, ladies and gentlemen and welcome to the Culp's Third Quarter 2021 Earnings Conference Call. Today's call is being recorded. And at this time, for opening remarks and introduction, I'd like to turn the call over to Ms. Dru Anderson. Please go ahead.

Thank you. Good morning, and welcome to the Culp conference call to review the company's results for the third quarter of fiscal 2021. 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. 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 to 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 either 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 or in the slide presentation with supporting summary financial information that is also available on the company's website as part of the webcast of today's call. I'll now turn the call over to Iv Culp, President and Chief Executive Officer. Please go ahead, sir.

Thank you and good morning. Thank you very much 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 are Ken Bowling, our Chief Financial Officer; and Boyd Chumbley, our President of Upholstery Fabrics. I’ll begin the call with some opening comments. And Ken will then review the financial results for the quarter. I'll then update you on the strategic actions in each of our operating segments. And after that, Ken will review our fourth quarter fiscal 2021 business outlook. And of course, we'll then be happy to take your questions. Okay. So we're energized by our financial performance for the third quarter of fiscal 2021. These results reflect strong growth in sales and operating performance compared to the prior-year period, as well as exceptional execution of our product-driven strategy and the continued resilience of our robust global platform. These results would not have been possible without the hard work and perseverance of our dedicated team of associates around the world. Their determination and diligence, including strict adherence to safety protocols to help minimize the spread of COVID-19 have enabled us to continue operating our business with minimal disruption, while also meeting the rapidly changing needs of our customers. We're tremendously grateful for their tireless efforts and unwavering commitment to operational excellence during this unprecedented time. We're encouraged by the performance of both our Mattress Fabrics and Upholstery Fabrics segments during the quarter. Our growth in both segments was driven by a combination of strong demand for our products and the benefits of market share gains from product innovation. As consumers have remained focused on the home environment, our diversified manufacturing and sourcing capabilities, along with our service supply chain, have allowed us to effectively service the increased demand from both new and existing customers. Our design and innovation emphasis, along with our strengthening virtual and digital marketing services, are helping us gain greater market share in both businesses as we are winning additional placements in brick-and-mortar retail and in online e-commerce channels. In addition to our positive momentum in sales and operating performance, our cash flows and balance sheet also remained strong, and we ended the quarter with $51.8 million in total cash and investments with no outstanding debt. While we're pleased with this cash position going into the fourth quarter of fiscal 2021, it is important to note that our cash will be affected by our strategic investments in working capital and planned capital expenditures, which will be more robust during the fourth quarter. In addition, our fourth quarter expenditures will include the recent acquisition of the remaining 50% ownership interest in our Haiti cut and sew operation. These strategic investments are important for us to bolster our supply chains and our efficiencies in preparation for what we expect will be a strong fiscal 2022. We’re also pleased to announce our board of directors has reinstated our share repurchase program, which was previously suspended in April 2020 due to pandemic-related uncertainties. While our primary focus with our capital allocation strategy remains investment for organic growth and maintaining our regular quarterly dividend, we do believe it is important to have the ability to acquire shares at opportunistic price points. Looking ahead, we're very optimistic regarding the ongoing strength of industry demand trends and we believe our business will continue with solid performance during the fourth quarter of fiscal 2021 and extending into fiscal 2022. We're also pleased with the recent acquisition of the remaining 50% ownership interest in our Haiti sewn mattress cover platform, which has proven to be an ideal nearshore location for this growing business. The dataset of this strategic investment comes from enhancing the capacity of its operation, which has always been set up as a pure manufacturing center to support our domestic sales growth and promote our fabric to sewn cover model. We have a preferred supply chain for our mattress covers utilizing cold fabric in an onshore, nearshore and offshore strategy. When evaluating expectations for the fourth quarter, it is critical to understand that the full impact of this year's shutdowns for the Chinese New Year holiday affects us entirely in the fourth quarter, as compared to other years when the timing of the holiday is split between Q3 and Q4. Sequentially, as compared to our third quarter performance, this was a significant pressure for Upholstery Fabrics, as we effectively lose three to four weeks of production and sales. We do expect further near-term pressures in the form of currency fluctuations in China, as well as continued constraints on our customers' supply chain for foam and other non-fabric components, which could delay their scheduled delivery of our fabric orders. We're learning of more potential firm shortages for our customers in both furniture and mattresses, and we understand this could temporarily mute our anticipated revenue growth in Q4. Also, while raw material and commodity costs have remained relatively stable for the first nine months of fiscal year, we do expect some increase in these costs, as well as increased freight costs to affect our businesses in the near-term. Notably, we're announcing price increases in both divisions during the fourth quarter to help mitigate the ongoing pressures just mentioned. Nevertheless, we're confident in our ability to withstand these headwinds, and we believe we'll deliver solid results in the fourth quarter in preparation for a strong fiscal 2022 year. We're especially excited about our Mattress Fabric segment, which is expected to continue its strong rebound in Q4. We're well positioned for growth and look forward to opportunities ahead for both our business segments with continuing opportunities to capture market share. I'll now turn the call over to Ken, who will review the financial results for the quarter.

Thanks, Iv. As mentioned earlier on the call, we have posted slide presentations to our Investor Relations website that cover key performance measures. We've also posted our capital allocation strategy. I also want to note that as a result of the sales of eLuxury during the fourth quarter of last year, the financial results for the Home Accessories segment are excluded from the reported financial performance of our continuing operations and presented as a discontinued operation in our consolidated financial statements. Here are the financial highlights for the third quarter. Net sales was $79.3 million, up 15.8% compared to the prior-year period. Both divisions had a strong sales performance for the quarter. Iv will go into more detail on divisional operation performance in a moment. On a pre-tax basis, the company reported income from continuing operations of $3.1 million, which included $1 million in other expense related mostly to foreign exchange rate fluctuations associated with our operations located in China, compared with pre-tax income from continuing operations of $2.7 million for the prior-year period, which included $282,000 in other expenses. Notably, the foreign exchange charges included in the other expense line item for both the third quarter and the first nine months of this fiscal year are mostly non-cash and are mostly offset by income tax-deductible foreign exchange losses associated with our China operations. The current quarter was affected by the unfavorable foreign exchange rate fluctuations I just mentioned, as well as higher SG&A expenses due primarily to increased incentive compensation costs, offset somewhat by lower T&E and marketing expenses mostly associated with the Upholstery Fabric segments. On a percent of sales basis, total SG&A came in at 12.4% compared to 12.9% for the same period a year-ago. Net income from continuing operations was $2.1 million or $0.17 per diluted share for the third quarter, compared with net income from continuing operations of $1 million or $0.08 per diluted share for the prior-year period. The effective income tax rate for the third quarter of this fiscal year was 28.8% compared to 60% for the same period a year-ago. The decrease in the company's effective income tax rate for the third quarter of this fiscal year is mostly due to income tax-deductible foreign exchange losses associated with our operations in China. Additionally, the 60% effective tax rate for the third quarter of the prior fiscal year was adversely affected by the global intangible low tax income or GILTI tax assessed on foreign earnings for that quarter, which no longer applies due to an exemption under the U.S. Treasury regulations enacted during our first quarter of this fiscal year. As a reminder, the company's effective income tax rate is impacted over the fiscal year by the mix and timing of actual earnings from our U.S. operations and our foreign subsidiaries located in China and Canada, which have higher income tax rates as compared to the U.S. Federal rate. Looking ahead to the rest of this fiscal year, we estimate that our consolidated effective income tax rate for the fourth quarter will be in a 30% to 35% range based on the facts we know today. Trailing 12-months adjusted EBITDA as of the end of the third quarter of this fiscal year was $11.8 million or 4.4% of sales. Now let's take a look at our business segments. For the Mattress Fabrics segment, sales were $38.6 million, up 15.1% compared to last year's third quarter. Operating income for the quarter was $3.3 million compared with $1.8 million a year-ago, with an operating income margin of 8.5% compared with 5.3% a year-ago, an increase of 320 basis points. Our improved operating performance for the third quarter primarily reflects higher sales offset somewhat by unstable China foreign exchange rate fluctuations for mattress covers, and our customer supply chain constraints resulting from non-fabric components. For the Upholstery Fabrics segment, sales for the third quarter were $40.7 million, up 16.4% over the prior-year. Operating income for the quarter was $3.9 million compared with $3 million a year-ago, with an operating income margin of 9.5% compared with 8.7% a year-ago. Our improved operating performance for the third quarter primarily reflects the significant increase in sales for our residential business and lower SG&A costs due to cost containment in the marketing and T&E areas, offset somewhat by unstable foreign exchange rate fluctuations and sales mix. Here are the balance sheet highlights. We reported $51.8 million in total cash and investments and no outstanding borrowings as of the end of the third quarter, up from $38.7 million net cash position as of the end of last fiscal year. For the first nine months of this fiscal year, we incurred $4.3 million of capital expenditures and spent $3.9 million on regular quarterly dividends. We also generated cash flow from operations of $21.7 million and free cash flow of $17.1 million for the first nine months of this fiscal year compared with negative cash flow from operations of $519,000 and negative free cash flow of $4.7 million for the prior-year period. This year-over-year improvement reflects higher earnings and a focused attention on working capital management during the first nine months of this fiscal year. While we're very pleased with our fortified balance sheet going into the fourth quarter, it is important to note that our cash position will be affected by our strategic investments in working capital, planned capital expenditures and the acquisition of the remaining 50% ownership interest in our Haiti cut and sew operations during this period. On March 2, 2021, the Board of Directors reinstated the company's share repurchase plan, which was previously suspended last April, due to the economic uncertainty related to the COVID-19 pandemic. The company did not repurchase any shares during the third quarter of this fiscal year, leaving the full $5 million available on the share repurchase program approved by the board in March 2020. With that, I'll turn the call back over to Iv.

Thank you, Ken. Let me start with the Mattress Fabrics business. We're very pleased by the strong growth and sales and operating performance for the Mattress Fabrics segment during the third quarter, which is historically our most challenging quarter due to seasonality within the Mattress industry and holiday shutdowns in certain of our locations. Our significant increase in sales, 15% year-over-year compared to the prior-year period was driven by an ongoing consumer focus on the at-home experience. And we also benefited from market share gains across a diversified group of new and existing customers. The strength and flexibility of our global manufacturing and sourcing operations in the United States, Canada, Haiti, Asia and Turkey enabled us to support current demand and serve the needs of our Mattress Fabrics and cover customers. In addition, we believe the domestic mattress industry and, in turn, our business began to realize some benefits during the quarter from the preliminary anti-dumping duties imposed in October 2020 by the U.S. Department of Commerce on mattress imports from seven countries. We're cautiously optimistic that this tailwind will continue from the fourth quarter of fiscal 2021 and beyond. We remain especially pleased with the growth in our sewn mattress cover business and the ongoing consumer acceptance of the boxed bedding trend in both e-commerce and traditional retail outlets. We continue to work collaboratively with new and existing customers to develop fresh, innovative products, utilizing our fabric to cover expertise. We're also excited about our recent strategic investment to acquire the remaining 50% ownership interest in our sewn mattress cover joint venture in Haiti, which was completed at the beginning of the fiscal 2021 fourth quarter. By gaining full ownership of the Haiti platform, we have increased our flexibility and enhanced our capacity to meet growing customer demand, while also maintaining certain commitments to our previous joint venture partner through a supply agreement. As we look to the fourth quarter and beyond, we're excited about our enhanced digital project management platform, which allows us to work with customers from concept ideation and 3D mapping to product lifecycle management and final merchandising. These digital and IT competencies support our front-end design capabilities, exceptional service and speed to market. We also remain focused on developments in product innovation, including expanding our specialty finish options. Finally, our increased fabric capacity in North America resulting from our investment in additional equipment will also be available during the fourth quarter, further enhancing our ability to meet the rapidly changing needs of our customers. Barring additional shutdowns or greater-than-expected disruption in our customers' supply chain for raw materials other than fabric, we believe we're well positioned to increase market share during the fourth quarter of fiscal 2021. We have a compelling business model, supported by innovative products, creative designs, dedicated service and an efficient global platform. Now I'll turn to the Upholstery Fabrics segment. We were especially encouraged by the better-than-expected growth in our Upholstery Fabrics sales for the third quarter, 16% year-over-year. This growth reflects a significant increase in our residential business compared to the prior-year period, partially offset by lower sales of our hospitality business, which remained under some pressure due to pandemic-led disruptions that continue to affect the travel and leisure industries. The increased demand in our residential Upholstery Fabrics business was fueled by a strong consumer focus on the home. We also benefited from the success of our product innovation strategy including the continued popularity of our LiveSmart product portfolio, which has remained aligned with consumer preferences by focusing on cleanability, ease of maintenance, sustainability and antimicrobial technology. In addition to our LiveSmart flagship brand, we now have LiveSmart Evolve, LiveSmart Outdoor, and LiveSmart Ultra fabric lines, and we recently launched LiveSmart Barrier Plus, which features enhanced moisture protection and cleanability as another offering in our LiveSmart brand’s evolution. These LiveSmart performance fabrics are important drivers of our growth in the residential business. Our residential business also continues to benefit from our robust platform in Asia, including our expanded cut and sew capabilities in Vietnam and our stable long-term supplier relationship. The strength and flexibility of this platform allow us to respond quickly to meet increased demand from our customers and grow our market share. The backlog in our residential Upholstery business remains historically strong, reflecting the favorable demand trends for this business. Looking ahead, as mentioned, the full impact of shutdown for the Chinese New Year holiday within the month of February does cause some expected pressure. We do expect the solid performance in our residential Upholstery business to continue. Of course, absent additional pandemic-related shutdowns or material disruption in our customers' supply chain; we're confident in our ability to meet that demand. And we're also cautiously optimistic that these vaccine rollouts will continue, and pent-up demand for travel and leisure activities will ultimately benefit our hospitality business although the timing of this return still remains somewhat uncertain. Ken will now discuss the general outlook for the fourth quarter of this fiscal year, and we will then take some questions.

Although subject to uncertainties related to COVID-19 pandemic and potential disruption in our customer supply chains, we're encouraged by the execution of a product-driven strategy and continued strength and demand in our home furnishing products as well as opportunities for market share growth. We expect sales and operating income for the fourth quarter of this fiscal year to be dramatically improved compared to the prior-year period. The fourth quarter of last year was materially affected by global shutdowns related to the COVID-19 pandemic. We expect our net sales for the fourth quarter to be approximately 40% higher compared to the prior-year period, with increases in Mattress Fabrics sales expected to be moderately higher than this percentage and the increase in Upholstery Fabrics business expected to be moderately lower than this percentage. Notably, as Iv mentioned earlier, operating performance for the Upholstery Fabrics segment is being affected by the timing of holiday shutdowns for the Chinese New Year holiday, which fall entirely in the company's fourth quarter. Recognizing this impact, consolidated operating income is expected to be in the range of $1.2 million to $1.7 million for the fourth quarter. This compares to an $18 million operating loss from continuing operations for the fourth quarter of last fiscal year, which included $13.7 million in asset impairment charges. Excluding these charges, the adjusted operating loss from continuing operations for the fourth quarter last fiscal year was $4.3 million. Based on current expectations, including the $4 million investment and additional knit machines for our Mattress Fabrics business that we mentioned on previous calls, capital expenditures for this fiscal year, together with the recently completed work for investment in our Haiti operations are now expected to be in the $9 million to $10 million range. Depreciation and amortization are expected to be approximately $10.5 million in this fiscal year. With that, we'll now take your questions.

Thank you. And we'll go first to Budd Bugatch of Water Tower Research.

Good morning, Ken. Good morning, Iv. Congratulations on a good quarter and your navigation. Can you hear me, okay?

Yes, sir. Good morning, Budd.

Good morning, Budd.

Good morning. Congratulations to you and your team for navigating during this unusual pandemic time. You've done a terrific job. And of course, obviously, my first thought and I'm sure your families and your team members should stay well and ultimately get vaccinated. And you've addressed a lot of this during your script and I just want you to go maybe for me, I'm getting questions on the seasonality difference this year versus last year and maybe the year before, which is maybe the more telling comparison between the third quarter and the fourth quarter. Can you kind of put it in framing as to what's most important? Is the Chinese New Year the most important thing in Upholstery, the most impacted? You've also got the issue was weather affecting the foamers in the middle part of the country, you've got anti-dumping that seems to actually have lowered the amount of imports so far. So there are a whole lot of dots that are going on and maybe you can connect them and put them in well within rank order for us?

Yes, thank you, Budd. That's good, very good questions. And I would first start and thank you for recognizing our people, our associates for just extraordinary efforts. And I mean, everyone’s started so many times, just unprecedented times, we can't be more grateful for their efforts, resilience, tenacity. However, you want to say it, that our people have demonstrated during this period. We're very proud, very proud to be where we are and would not have been possible without everyone's efforts. So thanks for recognizing that that means a lot. Looking at the comparison to Q3 and Q4. First of all, both quarters are significantly better than last year. So whatever that’s worth, we're very happy with that. And then you're picking up on a lot of really good points. It's not a fair or even an appropriate comparison to look at Q4 sequentially to Q3. And to your question of ranking those, and as we have mentioned in the script, the full effect of the Chinese New Year shutdown impacted Culp Upholstery Fabrics fully in the fourth quarter. Nearly primarily in February, will impact the fourth quarter, mainly in February. In a case like this, we can lose three to four weeks of production and sales in one quarter. So we've seen this in previous years, it's not really abnormal, better for us when the Chinese New Year timing spreads over Q3 and Q4 with Upholstery hitting all in one quarter. Also, generally speaking, this is really an all Culp Upholstery Fabrics impact; with Culp Home Fashions are expected to be consistent sequentially. There are also some factors I would say today that that's the number one factor the Chinese New Year timing. But there also are some other things, freshness in Q4. Of course, we're watching the currency close and we'll deal with that, with our price adjustments. And now, raw material allocation primarily, we mentioned it can mute our sales somewhat in Q4. We think we built some of that in but we have to be there if that's more significant than we might think. All that being said, our belief and expectation is for really solid Q4, and a strong start to fiscal year 2022. So we're excited about the business and excited about the market share growth.

Thank you for that. And this is just lastly it's pretty much a February event for Chinese New Year that's pretty much older. And we don't see any effectiveness for next year right now except when we get to the third and fourth quarter again, we have to figure out where Chinese New Year is, is that the way to look at it?

Yes, that's right. Yes, that's right, Budd. I mean, we're starting to see the mills, we don't take nearly as long as the Chinese New Year shutdown at some of our supplier and partner mills do. So they're all starting to come back on stream this week. So yes, that's pretty much a February event.

Okay. Your balance sheet is impressive. But at the end of the quarter with over $50 million of liquidity and no debt. Can you talk about the fact that you've taken it looks like about $6 million, $5 million to $6 million worth of CapEx that you're going to spend in the fourth quarter that's right to expect it, right?

Yes, Budd, CapEx and the investment in Haiti, yes.

Okay. And then you'll have the information that will appear in a separate line, which will be reflected in the acquisition line?

Pardon.

The Haiti acquisition will show up on a separate line and the cash flow separate?

Yes, we're working all that out. But yes, that will be handled. But I just wanted to make sure that everybody knew in addition to our CapEx, we have that investment as well.

So and just can you peg where you think cash winds up at the end of the fourth quarter wearables, what do you think that will be at the end of the fiscal year?

Yes, that's a great question. While we don't provide specific guidance on that, I can say that based on our investments in the fourth quarter, we plan to utilize some of the cash we had at the end of the third quarter. Our goal has always been to strengthen our cash position enough to respond to investments, whether they are similar to this, opportunities, or potential acquisitions in the future. We will be using some cash in the fourth quarter, but we expect to maintain a strong position as we head into fiscal year 2022. We just need to get these investments behind us. Overall, we are optimistic about our prospects and anticipate our cash position will be solid at year-end.

For next year, will we require a similar amount of cash for capital expenditures? What is your best estimate today? I understand it may change and opportunities may arise, but is there a figure we can use to model CapEx for next year?

In a typical year without additional opportunities for equipment or investment, we estimate that maintenance capital expenditures would be in the range of $5 million to $7 million.

We are acquiring 15 knit machines this year, which is a significant investment. Additionally, we have the capacity to add more knit machines next year if necessary.

Sure, Budd, this is Iv. We have space allocated, and it’s easy for us to expand capacity in several locations. Whether we decide to do it will depend on various factors, but I think Ken has had concerns, and cash balance hasn't been one of them. We feel confident in our position, and from what I understand, we feel great. We have the ability to pursue more strategic initiatives if we choose to. We like our position and believe we've accomplished a lot. If opportunities arise, we'll be ready to take advantage of them.

Am I right, Ken that we've seen a little bit of stretch out in terms of engaged sales of receivables?

Yes, we have. It's been a while. Our days sales outstanding are lower than they were at the end of last year, but they have increased slightly from Q2 mainly because our customers are paying based on net terms. I want to emphasize that we are very pleased with how our customers are paying as agreed. This is positively impacting our cash position. Our credit team has done an excellent job collaborating with our customers, and we have seen great results there.

And that's been a real strength to our cash position is timely receipts.

You've made significant innovations over the past few years; LiveSmart was an excellent addition. I believe you've built on that with several other programs, and cut and sew has become a more crucial aspect of mattresses. Can you share any upcoming initiatives you're excited about? I understand that some information may be sensitive due to competition.

Yes, good question. Budd, that's, you hit on a couple really good ones and you're right throughout innovation and design are critical pieces and I believe we're flourishing in both businesses. You said in Upholstery, we're thrilled with the success of LiveSmart. We now have cleanable, sustainable, we have antimicrobial protection for the fabric and we have waterproof options. So that LiveSmart portfolio is really on trend with consumers demand for performance fabrics. On the Mattress side, we do also have some specialty finishes in development. And we're really excited about the sewn cover platform. That just gives us that helps us to innovate from fabric to cover. So we're not just stuck to the patterns anymore, and we get a greater content share of finished mattress. I guess new things we're excited about, there's definitely going to be a more technical story push for antimicrobial fabrics, and we believe a much stronger push and sustainability. We just know that's going to be a major focus in the pandemic. I also think both businesses another way of thinking of innovation, we're really pleased with our digital and virtual presentation capability. And I think it's going to pay big dividends, helping to streamline and then learn from new business. I think it's worth saying I'm probably getting a little outside of your question here, but really excited about this diversity of our customer base. We have more solid, more diverse customer base than we've had in a while, in both services from high end to low end, from traditional to e-commerce, from import to domestic and of course from fabric to sewn cover or sewn upholstery. And then, just one more thing, we're optimistic about the recovery in our hospitality businesses. As the world gets better, we know that that business has some room to recover. So all that comes I'm excited about a lot of things, but certainly very excited about our future.

I don't recall many details regarding your situation, but it seems you have a lot going on right now. For my last question, which should be straightforward, regarding tax and currency, you mentioned a tax effect. Generally, you're not paying any cash taxes, right? What is the cash impact of what you're paying? Also, how do you anticipate currency will affect the fourth quarter if current rates remain stable? What do you expect for the fourth quarter?

Well, let me talk about cash taxes first. I mean, right now, obviously we're paying the cash taxes in Canada and China. We paid very little cash tax in the U.S. There's just a very small amount. And that's really for the foreseeable future, the way we're structured. As far as foreign exchange, we have seen a little bit of weakening in the RMB this past month. Not a lot, but it certainly has slowed down. So if that stays calm, or stable throughout the quarter, then the effects really around the world will be far less than they were in the first nine months. So we're hoping that's the case. So far, so good. We're one month into the quarter almost. And it's been pretty calm. But it all depends on where that rate moves for the next three months.

And it's all the currency RMB or is there the Canadian dollar and any Vietnamese currency impact or elsewhere?

No, Vietnamese right now, but yes, Canadian. We do have Canadian exposure, but not nearly as to the extent that we have the RMB exposure.

Okay. All right. Well, that does it for me. Thank you and good luck for the quarter and for the beginning of next year.

Thank you, Budd.

Thanks, Budd.

I was wondering if you could provide more details about the supply chain constraints your customers are experiencing. I don't think you've mentioned the foam delays or raw material inflation. Can you rank where you're seeing the most significant constraints and share any additional insights? Also, if possible, what are you hearing about when these constraints might be resolved?

Yes, thank you, Marco. This is Iv. I'll share my thoughts on this. We are not experts in supply chain management, but we do have a good understanding of our fabric supply chains. However, there are external factors affecting our customers that we are learning about daily. Looking back to COVID-19, our business experienced growth for several quarters. While we haven’t been perfect, our supply platforms have been stable, and we have met most of the demand. We haven’t faced significant material shortages for our production. There have been some price increases in raw materials like yarn, and we are currently hedged against those. We're also seeing increases in freight costs, which is why we plan to implement price hikes in both of our businesses in Q4. More specifically, there have been shortages of components for our customers' furniture and mattresses. A significant issue today is the strain on the supply chain due to increased demand, compounded by the freeze affecting the power grid in Texas, which has halted much of the chemical production necessary for our sewn products. This situation is concerning for supply, though we believe it's a short-term issue. It's uncertain whether it will last two to three weeks, four to six weeks, or even longer. We are receiving various allocation requests from customers. While we are ready to ship fabric, a delay on their end for other components could slow us down. We have already accounted for some of this in our Q4 estimates, but we need to monitor the situation. We believe it’s a short-term impact that won’t extend beyond Q4, but we are not experts on this matter and will need to keep an eye on developments.

Got it. And then you mentioned that you have or you're going to put through price increases, I'm assuming that's for obviously both segments, can you just kind of confirm has that price increase already gone through?

Those have been announced now or in the process or have been announced. So in our Upholstery business, the price increases will be on written orders, new written orders, not on orders that have already been received. And on the Mattress Fabrics side, it will be on all distributable orders in a future date, business varies differently that way, but they're both being announced and will take effect in the fourth quarter.

Got it, understood. And then kind of shifting gears, in your prepared remarks, you mentioned market share gains and you listed out a few different reasons that are kind of helping you guys attain those gains, if maybe you can rank them in regard to kind of where you're seeing the most success right now?

Okay. Yes, thank you, Marco, it’s a good question. And we'll try to put some color around why we see it. So I think first, and this probably isn't the most important today, but it has been in over the last six months, we're winning market share because of having strong stable supply chains, we're outperforming in delivering products and we have a great global model in both businesses. I say the higher rank thing now today, it's our innovation and design are flourishing. We're just seeing just nice patterns and pretty colors, but its performance at the top of our LiveSmart portfolio, and further development with some covers in both businesses. That's probably top of the list today. And then right under that is we just have a very broad range of customers now in both businesses, it's definitely more robust than the years past. That’s more actual customers, and it's more channels that our product has gone into. So we're seeing our process place, whether it be new national line rollout for 2021 or if it's people rolling our products into areas where supply has been vacated. And we just have great belief that our market share trend is going to continue by in Q4 and also in 2022.

Understood. And then you guys in the past have mentioned and you did as well on this call, but the end consumers really kind of focused on comforting their home. And that's sort of helping drive some of the level of demand that you guys have seen here recently. The backend is starting to kind of get rolled out here and then you'll possibly return to normalcy, sometime by maybe fall or winter later this year. How are you guys kind of thinking about how consumer demand might evolve?

Yes, it's also a good question, Marco. Certainly, you're totally right. And everyone in our space has talked about the lift we've had from just a strong impetus on home being a safe place, and wanting to update your home, if you're going to entertain more in your home, then we have definitely seen a trend of consumers wanting to update that. I think we look at it, our business is always kind of thinking about options for what's coming at us. And it's really good positivity for us as we think ahead, we have a strong backlog in our Upholstery business, which is great. We know we're winning market share, we see ourselves placing on new rollouts. If travel and leisure get more popular, we're poised to capitalize on that with the recovery in the hospitality. We have expectations; we assume more stimulus will be coming into the market. So that's going to provide, I think more opportunities for us to sell products and then just get on more diverse customer base and having more customers to sell to is a very, very positive trend. I think it's important for you to know, Marco. We've definitely been buoyed by the strong demand for home. But there's much more under the surface of that that's going to drive our business next year. It's much more fundamental, the fundamentals of the business are strong. So really whatever but who knows what's coming, right, who would have expected what we face and who knows what we'll face in the future, but we're excited about the prospects we have.

We'll now go to Anthony Lebiedzinski of Sidoti & Company.

Yes, good morning and thank you for taking the question. So first of all, just wanted to follow-up as far as the backlog is concerned, is there way that you can talk about the strength of that backlog, maybe perhaps quantify what you're seeing there with the backlog?

Yes, sure Anthony, I'm going to pivot this to Boyd, but first, I want to mention that our businesses are different in that regard. In our Upholstery segments, Boyd will discuss later; we do receive written orders that contribute to a strong backlog. In our mattress sector, we operate more on a forecast model, and we're building to a forecast that appears to be very robust. I'll let Boyd provide more details specifically about the backlog in our Upholstery segment.

Yes, Anthony. The backlog position still remains today at significantly higher levels than at this point last year. We've really seen that remain somewhat consistent over these last couple of quarters with backlogs well above the prior-year levels. Incoming orders continue to outpace the same period last year as well. So we still see strength from both the standpoint of very good backlogs and the pace of orders coming in. So that seems to stay very steady. I think it supports us well for the coming quarters, so yes, that seems we're in very good position.

Got it, okay. Thank you for that. And then as far as the price increases, that's where you're looking to put in place to offset higher costs. I mean, will those fully offset the higher costs or will there be some lag by the time you're able to capture the higher prices?

Yes, sir, Anthony. Well, I think mostly so, yes, we were doing that with an expectation what we think is going to cover it generally in full.

Yes, Anthony, this is Ken. We've looked at all the different components and each division is different. It's not a global type same. So each division has looked at their facts and circumstances and adjusted their prices accordingly.

Got it, thank you very much. And then Iv, you talked about being sad about the diversity of your customer base. Just wondering when you look at the decent results here, can you talk about the sales increases that you've captured? Just wanted to see if you can bifurcate this was from new customers versus existing customers. So if you can give us some more color about that?

Yes, a significant part of our growth comes from the success of our Sewn Mattress Cover business. For a long time, we have been a reliable and innovative fabric supplier primarily to furniture manufacturers, especially in the bedding sector. With the rise of e-commerce brands, our platforms in the U.S., Haiti, and Asia, along with our ability to design and innovate fabric covers, are attracting many new brands. The fastest-growing segment of our business is mattress covers, but it's challenging to separate this growth from fabric sales, as they support each other. Mattress covers are becoming a more substantial part of our business, but they also contribute to fabric use. As for the upholstery side, we are well-equipped to serve large customers due to our strong supply chain, and we can meet high demand. We're now expanding into various categories, from promotional to high-end products, capturing market share with e-commerce furniture brands. Overall, it feels like we have more channels in both segments to promote our fabrics and covers, which is beneficial for both.

And the hospitality business is all different?

And of course, the hospitality business is a whole another lane to our Upholstery business, where normally we feel good about where that business can be sometime in the fiscal year 2022, we think travel and leisure will come back and will come back strong.

Got it, okay, thanks for that. And then last question for me. So I know you're stepping up your investments, as far as your CapEx and the Haiti joint venture, but longer-term looking into fiscal 2022 beyond, how do you prioritize your cash flow priorities?

Yes, Anthony, this is Ken. In the past, we have shared our capital allocation strategy on our website to provide investors with insight into our thinking. Our primary focus is to invest in our business for organic growth through working capital and capital expenditures. We also aim to remain debt-free for as long as possible and maintain a consistent dividend growth. These are our top priorities for capital allocation, regardless of the year. As we approach a new year, our focus will remain the same as it was this year, carrying that focus into the next year.

And with that, we had no other questions. I'd like to turn the call back over to our presenters for any additional or closing comments.

Thank you, Operator. And again, thanks to everyone for your participation and your interest in Culp. We certainly look forward to updating you on our progress next quarter. Have a great day.

And with that, ladies and gentlemen, that does conclude today's call. We'd like to thank you again for your participation. You may now disconnect.