Good morning, and welcome to the Flexsteel Industries' Third Quarter Fiscal Year 2021 Earnings Results Conference Call. All participants will be in a listen-only mode. Please note, this event is being recorded. I would now like to turn the conference over to Derek Schmidt, Chief Financial Officer and Chief Operating Officer for Flexsteel Industries. Please go ahead.

Thank you and welcome to today's call to discuss Flexsteel Industries' third quarter fiscal year 2021 financial results. Our earnings release, which we issued after market closed yesterday, Monday, April 26th, is available on the Investor Relations section of our website at www.flexsteel.com, under News & Events. I am here today with Jerry Dittmer, President and Chief Executive Officer. On today's call, we will provide prepared remarks, and then we'll open the call to your questions. Before we begin, I would like to remind you that the comments on today's call will include forward-looking statements, which can be identified by the use of words such as estimate, anticipate, expect and similar phrases. Forward-looking statements, by their nature, involve estimates, projections, goals, forecasts and assumptions and are subject to risks and uncertainties that could cause actual results or outcomes to differ materially from those expressed in forward-looking statements. Such risks and uncertainties include, but are not limited to, those that are described in our most recent annual report on Form 10-K as updated by our subsequent quarterly reports on Form 10-Q and other SEC filings as applicable. These forward-looking statements speak only as of the date of this conference call and should not be relied upon as predictions of future events. Additionally, we may refer to non-GAAP measures, which are intended to supplement, but not substitute, for the most directly comparable GAAP measures. The press release available on the website contains the financial and other quantitative information to be discussed today as well as a reconciliation of the GAAP to non-GAAP measures. And with that, I'll turn the call over to Jerry Dittmer. Jerry?

Good morning and thank you for joining us today. Despite ongoing industry challenges related to supply chain, we executed well and delivered on continued strong demand for home furnishing products during our third quarter. We reported net sales growth of 20% to 118.4 million in the current quarter compared to 98.8 million in the prior year quarter, an organic sales growth of 33% compared to the prior year quarter with growth in virtually all product categories. Sales results in home furnishing products sold through retail stores were especially strong with year-over-year growth of 34% in the quarter. We are competing very well, gaining retail placements and taking market share. Year-over-year order growth for retail sales was a phenomenal 131% in the third quarter. This builds on the strong year-over-year order growth momentum from the second quarter of 49% and the first quarter of 60%. Even more encouraging, third quarter orders grew 22% sequentially from an already strong order performance in the second quarter. This positive momentum gained traction throughout the third quarter as total company orders in March set a monthly historical record high for our home furnishings business. As a result, our backlog for retail sales finished the third quarter at a record level of $140 million, up 314% from the prior year. I'm proud of our team's performance and remain confident in our ability to sustain this growth momentum going forward despite the myriad of supply chain challenges facing the industry, which I'll elaborate on later. Sales in our home styles product which are sold through e-commerce channels, also had strong performance with growth of 23% versus prior year. E-commerce continues to be a key strategic growth area for the company and we are investing aggressively in new digital capabilities and product innovation to expand our business in this channel. Our near-term outlook for the market remains bullish. The economy is building momentum, employment conditions are improving, and the recent government stimulus has infused additional consumer spending. Based on these macroeconomic conditions and what we are hearing from customers, we expect overall consumer demand for home furniture to likely remain strong through the bulk of the calendar year of 2021. In the near-term, our biggest obstacle to achieving our full sales growth potential is overcoming the global supply chain challenges which our entire industry is currently battling. The biggest supply chain impediments, which we face right now are material availability, namely foam, and the ocean container availability and transit speed. Let me first start with the shortage of foam, which is having a crippling impact on the furniture industry, as well as in many other industries, including automotive. We've been fighting foam shortages since last fall due to the imbalance between strong consumer demand and available materials. Until recently, we've been effectively managing the foam allocation situation by leveraging multiple strategic suppliers, improving forecasting to suppliers, and utilizing alternative specifications were acceptable. However, the recent harsh weather that caused a deep freeze in Louisiana and Texas, where most of the key chemical inputs for foam are produced has significantly aggravated the material shortage. Unlike some furniture manufacturers who are forced to temporarily shut down operations in recent weeks due to the foam shortage, we have been able to keep our manufacturing plants running and stable, albeit at reduced levels due to proactive planning. However, the worsening situation with foam has constrained our production and unfortunately for furniture consumers has extended lead times for manufactured product. Despite our longer lead time, we are still at advantage versus our competitive alternatives in the market. The second big supply chain challenge is availability of ocean containers, which has been an issue for almost a year. The shipping industry is still trying to catch up with demand, but the mixture of low container inventories, congestion at U.S. ports, and increasing consumer demand due to economic recoveries in the U.S. and Europe have extended the shortages, which are expected to continue. As a reminder, roughly 65% to 70% of our sales are derived from products that are sourced globally. So the container shortage has an outsized impact on our business. That said, we have taken aggressive steps to navigate the challenging environment to keep containers flowing as best as possible. We've doubled the number of carriers we utilize and expanded our network of freight forwarders. We are also leveraging our supplier’s networks, pursuing alternative container routes and ports, and trans-loading shipments. While the container situation remains highly fluid, it did improve in March and as a result, we had a significant amount of inbound inventory in the ocean at the end of the third quarter, which gives us optimism with our ability to score higher sales late in our fourth quarter and to start our fiscal year 2022. Given the shortages in ocean containers and key materials, it's not surprising that we are seeing cost inflation, but the magnitude and frequency of these cost increases is unprecedented and unlike anything I've experienced in recent history. Ocean container rates remain more than three times higher than rates prior to COVID-19 and have spiked recently close to historical highs. Costs on several key materials in our home furnishings products have risen by as much as 60% to 100% with substantial cost increases realized specifically in the third quarter. While we attempt to pass cost increases to the markets whenever reasonably possible, there is an inherent lag between when we realized cost inflation versus price increases. This cost price lag is putting considerable pressure on our gross margins in the near-term. It's not clear if and when these cost pressures may subside, but we remain agile in our pricing and vigilant with our cost controls. In response, we are prudently managing discretionary SG&A expenditures to partially offset the gross margin pressures until price realization catches up to cost increases. In summary, these supply chain challenges are frustrating as they are limiting our near sales potential and more importantly, our ability to provide exceptional service to our customers. But our team is doing an exceptional job at problem solving the situation and seeking alternatives to best support our customers wherever they can. Our sales team is hungry to grow the business and we are sprinting to ramp up capacity in all areas of our supply chain to support aggressive, profitable growth. I remain confident in our ability to deliver strong sales growth and financial results longer-term. Now I will turn the call over to Derek to discuss our financial and operational results, and I'll be back with some closing comments on what we see ahead.

Thank you, Jerry, and good morning, everyone. Third quarter net sales were $118.4 million, up $19.6 million or 20%, compared to $98.8 million in the prior year period. Our sales results were at the high end of our $105 million to $120 million guidance range despite the myriad of supply chain issues faced in the quarter, which Jerry highlighted earlier. We saw increases in both our home furnishing products sold through retail stores of $26.5 million or 34.4% and products sold through e-commerce of $2.8 million or 23.4%. The sales increases were partially offset by the decline of $9.7 million due to the exit of our vehicle and hospitality product lines during the fourth quarter of fiscal 2020. Excluding these exited products, our organic growth was 33%. From a profit perspective, we reported a fiscal third quarter net income of $4.9 million or $0.67 per diluted share compared to a net loss of $5.3 million or minus $0.66 per diluted share in the prior year quarter. The reported net income included a $500,000 pre-tax restructuring expense. Excluding this item, the third quarter non-GAAP adjusted net income was $5.2 million or $0.72 per diluted share, as compared to a non-GAAP adjusted net loss of $1.3 million, or minus $0.16 per diluted share in the third quarter last year. Please see the non-GAAP disclosure included in the earnings release for a detailed reconciliation of GAAP to non-GAAP adjusted net income. Turning to gross margin as a percent of net sales in the third quarter, it was 19.5%, which was slightly below the low end of our guidance range of 20% to 21.5% due to the significant and unanticipated cost inflation realized in the quarter. However, gross margin was significantly higher versus a reported 14% in the prior year quarter. That 550 basis point year-over-year improvement in gross margin was primarily due to restructural cost reductions, operational efficiencies, fixed cost leverage due to higher sales volume as compared to the prior year quarter, and lower inventory reserves due to demand. The surge in ocean container rates, coupled with material wage and transportation inflation, pressured margins in the third quarter, which were similar themes during the second quarter. We have taken pricing actions to mitigate the cost increases. Selling, general, and administrative or SG&A expenses decreased $3.8 million to $16.3 million, which was below our guidance range of $17 million to $18 million as we prudently managed administrative costs to partially offset the impact of cost inflation on gross margins. Our SG&A spending in the quarter was also significantly less compared to $20.1 million in the prior year quarter. SG&A as a percent of net sales in the quarter was 13.8%, compared to 20.4% in the prior year quarter. The 660 basis point decline compared to the prior year quarter was driven by a 350 basis point decline, specifically due to higher bad debt expense in the prior year quarter, primarily related to a customer bankruptcy, with the remaining decline due to cost leverage gained from higher sales. Turning to income taxes, during the quarter we reported a tax expense of $1.5 million or an effective rate of 23.9% compared to a tax benefit of $3 million in the prior year quarter, or an effective tax rate of 35.9%. The effective tax rate for the remainder of the year is expected to be between 25% and 26%. Now moving on to the balance sheet, we ended the quarter with a strong cash balance of $17 million and no outstanding balance on our $25 million line of credit. Our working capital, defined as current assets minus current liabilities at March 31, 2021, was $121 million compared to $128.4 million at June 30, 2020. The decline in working capital was due to a decrease in cash of $31.2 million, primarily due to $28.5 million for share repurchases, a decline in other current assets of $8.3 million, primarily due to a tax refund, a decline of $11.7 million in assets held for sale, and a $4.1 million increase in trade payables partially offset by a $12 million increase in trade receivables, and a $38.9 million increase in inventory. As it relates to inventory, the vast majority of this increase is related to goods that were in transit at the end of the quarter. Capital expenditures for the nine months ended March 31, 2021 were approximately $2 million. During fiscal 2021, we anticipate spending between $2.5 million and $3 million for capital expenditures, and believe we have adequate working capital to meet these requirements. Now onto our restructuring update; the company incurred $500,000 of restructuring expense primarily for ongoing facility and transition costs. We anticipate total restructuring expense for fiscal year 2021 to be roughly $3 million to $3.5 million. We currently have two facilities held for sale, one in Starkville, Mississippi and the other one in Harrison, Arkansas. We expect ongoing facility costs for these two locations to be in the range of $50,000 to $60,000 per month. Now looking forward, guidance for the fourth quarter is a bit challenging, due to the uncertain conditions related to foam availability, ocean standard shortages, and extended container transit times due to port and railway congestion, all which Jerry noted earlier. The unpredictability of continued cost inflation, including container rates in the fourth quarter further compounds the forecast’s variability. All of these items remain fluid and could have a material impact on both sales and gross margin dollars. That said, our best estimate for the fourth quarter sales is between $120 million and $135 million with the increased availability of foam and timely receipts of sourced product promotion containers being the largest determinants between the high and low end of this range. Gross margins are expected to remain under significant pressure from cost inflation and are forecasted in the range of 18.5% to 20% with material cost increases, ocean freight rates, and the quantity of containers shipped in the quarter being the primary determinants of that range. SG&A guidance for the fourth quarter is expected to be between $16.5 million and $17.5 million as we continue to aggressively manage discretionary spending while also funding strategic growth investments in new product development, digital capabilities, and supply chain resources. Adjusted operating income margins are expected in the range of 5% to 6% for the fourth quarter and will be modestly strained in the near-term as we work through the lag between cost inflation and increased price realization, which Jerry previously discussed. We remain confident in our ability to improve adjusted operating income margins in fiscal year 2022 once inflationary pressures and supply chain conditions stabilize. Now I'll turn the call back over to Jerry to share his perspectives on our outlook.

Thanks. Despite the current supply chain challenges, we are very encouraged by our strong sales and order performance and are working feverishly to expand capacity in all areas of our supply chain operations. As noted last quarter, we signed a new building lease in Juarez, Mexico for an additional manufacturing plant which is ready to start production once foam availability improves. Production capacity at the new facility will quickly ramp up throughout the remainder of the calendar year as material availability stabilizes and new workers are trained. Most of our strategic global suppliers are also ramping up their capacity and are committed to supporting Flexsteel’s growth ambitions in fiscal year 2022 and beyond. Additionally, we're in the midst of a consultant engagement intended to help us expand our global supply base, diversify our sourcing country exposure, and build a more resilient supply chain. From a logistics view, we are finalizing plans to expand our DC network to support growth in both our retail and e-commerce sales. We've also recently partnered with a leading transportation management company to manage our dedicated transportation fleet while expanding our capacity and improving our customer experience. While increasing supply chain capacity is paramount to our supporting growth, we also continue to invest strategically in our business to improve our customer experience, expand our digital and e-commerce capabilities, build our brand, and drive product innovation relevant to the market. Most recently, we recruited a new member to our leadership team in the role of Vice President and General Manager of e-commerce. This position will be instrumental in accelerating growth in our e-commerce channel and building the foundational capabilities necessary to compete and win in this space, including digital marketing, merchandising, and sales analytics. The future of the company is promising and I remain confident in our ability to create value for our customers, employees, partners, and shareholders. With that, we will open up the call to your questions.

Our first question comes from Sandy Mehta from Evaluate Research.

Yes, good morning. Congratulations on a very strong quarterly result. There's a lot of news throughout the U.S. of people leaving cities, big cities, fleeing the cities to move to the suburbs. And I would imagine people moving from cities would have a lot of purchasing power if they're moving to homes in the suburbs. Could you comment on what is your sense of the longevity of this housing and furniture upcycle beyond this year, do you think that this upcycle and bullish environment has legs for another two, three years? Thank you.

Yeah, Sandy this is Jerry. We absolutely do. As you know, anytime there is movement in households, whether it's new construction, people move to a new home, etc., it is a furniture event, which is great for us. And all you have to do is look and see what's happening with the major home builders out there and what's happening in pricing with homes, availability of homes. I think this thing has legs for quite some time and is that one year, is that five years we don't know that. But we do feel that this is much more than just a six-month run. And we're very encouraged by what we're seeing.

Our next question comes from Mike Hughes with SGF Capital. Please go ahead.

Good morning. Thanks for taking my questions. First, on pricing. Assuming that there are no additional price increases, which I know is a big assumption, but just assume that for a second. How long will it be until you get back to your target margins? And as part of that question, can you kind of delineate between the freight surcharges where they are as far as catching up to where they need to be and then just kind of pricing on the base business?

To address your question, you need to differentiate between the products sourced and those manufactured domestically. On the sourcing side, we have about $35 million worth of goods, roughly 900 containers, currently in transit. Once they arrive, we can process them quickly, and that will allow us to realize the ocean freight surcharges. If material and ocean container rates remain stable, we anticipate that our surcharges and pricing for sourced goods will align with costs around July. On the manufacturing side, we have a significant backlog of $140 million related to manufactured goods, which have longer lead times. We expect to align our pricing with cost increases for manufactured goods by September or October. Currently, sourced goods account for about two-thirds of our business, so we believe we will be in a better margin position in the first quarter of next year, assuming no further cost inflation. However, it is challenging to predict when we might experience a more stable period regarding material and finished goods costs, as we continue to face weekly cost increases. Nonetheless, we are optimistic that conditions will stabilize, enabling us to return to a gross margin range of 21% to 22% early in fiscal year 2022.

Okay, would that translate into an operating margin of 7% to 8%? Is that the target?

Exactly.

Okay, and where are your lead times now on the manufactured side?

Yeah, so depending on the product, I mean, we can be anywhere between 20 weeks to 24 weeks.

Okay. And then, on the Mexican operations. Last week, the Mexican Congress passed a Bill that would effectively outlaw the use of staffing firms outside of your core business. And I think the President is slated to sign it or has already signed it into law, to you staffing, what's the situation in your Mexican plants?

Yeah, we do. This is Jerry, we do currently use a staffing organization to help us. This is something that's been out there for quite some time. It's one we're working with them. There's a lot of nuances to the Bill and there's a lot of different ways that we're going to work with them going forward. And if they need to become our employees, that's obviously an option that's out there also. But we're well aware of that and are working through that currently.

And the plan, Mike, is we feel good about the plant, so we don't anticipate any disruption whatsoever in our production facilities down there.

If you bring the employees in house, do you have as much flexibility and then also, what does it do to your costs, I assume in house the employees from hourly rate, you're not paying the markups so they might actually go down?

The way we think about it, Mike is effectively we're going to have to structure the arrangement differently, to comply with the new government regulations. But the economics should not change materially. And we don't see necessarily our flexibility with the workforce changing materially either.

Okay, one other detailed question for you. It looks like the operating lease assets increased to 28.5 million versus 9.5 million last quarter sequentially. What was that increase?

Yeah, there was two things Mike. One, so we've got three plants now down in Juarez, so our main building, we renewed the lease for another 10 years on that. And then we just signed a lease for the new plant, the third building down there for 10 years. So that increase relates to the new lease and the renewed lease for those two buildings.

I see. Thank you very much.

Thank you.

Our next question comes from Jeff Geygan from Global Value Investment Corp. Please go ahead.

Hey good morning, gentlemen. Thanks for taking my questions.

Good morning.

You mentioned that your lead times extended to 20 to 24 weeks, what would be more typical?

Much more typical would be in that four to six week range.

Your backlogs at record 140 million, presumably that’s because of some of your competitors going idle, is the character of those orders firm or can they be canceled without penalty?

So it's really nice our competitors a lot of that right now really has to do with foam. That's the biggest thing that's driving it right now is foam and other raw materials. And yes, they can be canceled. We had something we track literally every day we see. Right now we've seen very few cancellations. One of the reasons is that there's really not another place to go. In the industry we're all kind of in the same boat right now. If you went and looked at our competitors' lead times, they're at or even much farther out. So it's not unfortunate, but really a lot of it's dealing with us just being able to get the raw materials.

I see. Thanks. You mentioned you're improving your digital capabilities. Can you discuss that a little bit further and possibly tie in your new VP of e-commerce and what his or her objectives will be?

Yeah, so Jeff as you know, the way we think about digitization is probably threefold. One, it starts with having really, really great content. So a big part of our investment here in the near term is going to be enhancing our content, both for our Flexsteel brand as well as homestyles. The second piece of the digitization and transformation is around making sure that we've got the right platforms. So right now we're in the works of overhauling our Flexsteel website. We overhauled our homestylesfurniture.com website last fall. We also released a new Flexsteel app. We're in the process right now of taking that app, customizing it for our retail sales associates. So that literally as they're walking through the retail floor, they've got their iPad, they've got the Flexsteel app, they've got pricing integrated, they can show their consumers real time, products draped in different fabrics with different pillows. They can rotate it 3D. We're starting to work on integrating virtual reality into that. And I think the third part of the model is engagement, how do you take the content, how do you take the right platforms, and engage consumers. And we are in really productive positive discussions with all the major software players kind of within our industry of making sure that they can take our content and our tools and quickly distribute them and integrate them with our retailer system. So that's our plan in terms of kind of near-term digitization efforts. In terms of our new Vice President and General Manager of e-commerce, he's got several key objectives. One is to start to build foundational e-commerce capabilities to take Flexsteel and our business to the next level. And so that's building digital marketing, building merchandising, building the analytics arm both to understand what consumers want out in the market. But then understand how we can use pay-per-click and social media and other things effectively to go after driving increased demand. Wayfair and Amazon are two of our largest customers when it comes to e-commerce. And we've got strategic initiatives to substantially grow with both of those customers that are part of this key objectives as well. And then at some point here, we are going to venture into direct-to-consumer in a more significant way. Near-term goals though are to continue to expand our relationship with Wayfair, Amazon, HomeDepot.com, our existing kind of B2C players and build the underlying capabilities so that we can successfully launch into D to C in a meaningful way in the future.

Thank you for the details. Have you disclosed the percentage of your sales coming from Wayfair?

We have not, but they are a very significant customer for us.

Appreciate it. In light of these investments in people and resources, what does your new product pipeline look like today and will that be substantially different in the future?

Yes, this is Jerry. Jeff, it will be and really we've got a great team. In fact, we just opened up an innovation center in our headquarters just a few miles from our headquarters that encompasses both our Flexsteel home furnishings and our e-commerce product. And there's a lot of different areas whether it's outdoor, whether it's taking a sofa that can be a flat pack, or it's a sofa that could also go through the home furnishing channel. A lot of different things for a lot of different product categories. We're pretty excited about it. We've really enhanced that group. We've got three to four more product managers than we've had in the past. We've got several new designers, and you're getting a lot of spirited innovation out of our new innovation center. So it's going to be pretty exciting as we go forward.

Great. And last question with regard to your investment in additional capacity. Is that a reflection of needing more capacity or in fact that you're bringing some of your further far production closer to home I would think that might be Asian based?

In the near term, Jeff, we are focusing on supporting our growth ambitions for both next year and the future. This area is a significant part of our business that we want to grow substantially, so we require that capability and additional capacity.

Great, appreciate it. Good luck, guys.

Great, thanks Jeff.

Our next question comes from Bud Bagach, a Private Investor. Please go ahead.

Yes. Good morning. And thank you for taking my questions. Just I'd like to talk about foam a little bit. The issue with foam has been out there for a little bit of time because of the freeze in the south. Are we seeing any relief in that kind of on a daily or weekly basis?

Yeah, so it's probably the foam situation, but then most severe over the last two, to three, four weeks. So we are seeing a little bit of light at the end of the tunnel. Our suppliers, especially our major supplier down in kind of Mexico has committed to increasing our allocation here in the coming weeks. And we're hopeful that even potentially maybe by July or mid-summer, we can be up to 100%. So we're getting a little bit of relief. That said, I think that the reality of the situation is fluid day by day, week by week. So a lot of it has to do with where demand is. But I think we're hopeful that things will improve here in the near-term.

And how much of your sourcing of foam is concentrated with one supplier or how many do you have?

We have a multitude of suppliers.

But you said you had one that was concentrated I thought.

That supports our Juarez facility, primarily our Juarez facility.

I see. And of the $140 million backlog which is truly just eye popping and worrisome I would think, how much of it is upholstery, how much of it is that 20 to 24 weeks of supply?

Yeah, I would estimate roughly about half.

I see, so that's typically a four-week commitment to your dealers.

Four to six. Our intent though Bud is, I mean, once foam availability improves, that third facility that we're bringing up in Juarez, the equipment is installed, utilities are installed, we're training higher and incremental workers. So we feel pretty confident that we can ramp that thing up fairly quickly, assuming that foam is available, that will be the critical enabler for us to work down that manufactured backlog fairly quickly in the latter part of the year.

I got you. And Derek if so if half of it is in upholstery then the other half is in, and you said, I thought 45% was in overseas goods, did I get that number right and is much of that homestyles?

No, a lot of it is related to the Flexsteel brand of product. It's motion products, like recliners. We're performing exceptionally well in those categories. Jerry and I have been at pre-market down in High Point this week, and the activity has been truly impressive. I strongly believe we are gaining placements on retail floors and taking market share. We're placing a lot of large orders with key customers. The good news is that we have a record number of containers on the water, and we have written a significant amount of purchase orders for suppliers in the second half.

Hey Bud, this is Jerry. So if you think about the inventory that Derek mentioned that's on the water, that's all sold inventory. We have inventory we can get in here we'll turn it around as best we can. But of course, supply chain from Asia to the port to trucking it across the country, etc., railing across every piece of that has a cog in it right now. But the exciting part of it is as we get that in and we think it's going to take a few more months for some of that to bust through, we have a tremendous amount more coming on the water too. Inventory is one of the key places we're going to continue to use our capital and we're pretty excited about what's all coming down.

I understand your concern, and thank you for sharing it. My final question is about cost increases. Can you specify which components are driving these increases? I know there are several, but which ones are the major contributors, particularly regarding foam and steel?

Everywhere Bud. I mean, plywood prices are up 120% from pre-COVID levels, foam is up well over 60%, steel is up. I mean, fabric there aren't too many components that haven't seen significant inflation and it's not just again domestic materials, but we've gotten at least three in some cases four price increases from our globally sourced suppliers as well.

And what cost actions or pricing actions have you taken so far, how could you quantify that?

Yeah, we've taken I want to say, all together, probably eight or nine different price increases since COVID. So we're trying to be as agile and fluid. When we get the price increases, we pass along wherever we reasonably can. We're just dealing with the lag between when we pay for the material and finish good costs, and when we can actually realize those price increases to our customers.

And can you quantify the percentage of your price increase on a consolidated basis?

I mean, it's between depending on the product category between probably 10% and 20%.

Okay, well, that's eye popping Derek, you might want to drop a note to Chairman Powell, about the permanency of inflation. Thanks so much.

Our next question is a follow-up from Mike Hughes with SGF Capital. Please go ahead.

Thanks for taking my follow ups. You just alluded to lumber inflation, which is well chronicled, can you just speak to just lumber availability, is that an issue at all?

Right now, we're not having any availability issues with lumber. Plywood, we've got several sources for it and it's really at this point, if you're willing to pay, you can get it. But as you know, you are seeing lumber throughout the whole housing and every other parts of the economy too, but availability is there at this point.

And like we've taken steps to look for alternative sources in South America, etc. So I think our team has done a really good job of trying to diversify the sources wherever we can or where the specification meets our requirements.

Okay, and then turning to your Asian sources, what are their supply chains look like as far as availability of foam and other raw materials?

Yeah, the material availability is less of an issue, especially as it relates to foam. Because the foam situation here domestically, has a lot to do with the storms that hit Texas, Louisiana back in February. Now that said, I mean, material availability over in Asia is being simply constrained by the imbalance of strong demand and supply. Where our factories over there are challenged is really from a labor perspective. But cut and sow operation typically is the bottleneck. It's a labor intensive piece of their overall process. And so, finding the labor, training the labor has been probably their bottleneck in terms of the ramp up.

Okay. And then you did a really good job of containing SG&A this quarter versus your internal plan. What are the areas that you were able to pull back so quickly into the quarter?

I think it's not just one thing. I commend our team for recognizing the cost inflation and pressures and understanding the need for more prudent cost management. There are expenses we can postpone for three to six months without impacting the business. We've been careful about travel and other costs. We must prioritize our recruiting efforts to ensure we are focusing on filling the most critical roles while postponing hiring for less critical positions. So, it's not just one factor; it's an overall effective approach to cost control on our part.

Okay. And then do you have a share count as of today or very recently?

I do not. And actually, I know where you're going with the question, Mike. In terms of kind of share repurchase activity, what I can tell you is kind of on a go forward basis when you keep the share repurchase plan active, we will be opportunistic in terms of purchases when the stock is at a significant discount to our intrinsic value. That said, we are going to continue to think about reprioritizing capital to support our growth ambitions. So even though inventory is up pretty significantly, we're going to continue to invest in inventory. I think we're going to continue to look at infrastructure expansion, whether it's manufacturing or distribution, and there's going to be more prioritization of capital in those areas than say share repurchases going forward.

Okay, that makes sense. Actually, do you have the March 31 share count by any chance?

Yeah I do. Give me a second Mike. Its pointed up here. Yeah, basic shares outstanding as of March 31st were 6,875,000.

Okay. Okay. So as of today, I guess you're right on the bubble as far as potentially being added back to the Russell 2000 this year, so we'll see what happens. Thanks for all your time. I appreciate it.

You bet. Thanks, Mike.

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

In closing, I would like to thank all our Flexsteel employees for their outstanding performance and service during the third quarter. I'd also like to thank you for participating in today's call. Thank you for your questions today and please reach out for any additional ones. We look forward to updating you on the next call. Thanks, everybody. We really appreciate your time today.

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