Culp, Inc.

Good morning and welcome to Culp Incorporated third quarter 2022 earnings conference call. All participants will be in listen-only mode. If you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. Please note that this event is being recorded. I'd like to turn the call over to Ms. Drew 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 2022. 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 the tables to the press release included as an exhibit to the company's 8K filed yesterday and posted on the company's website at CULP.com. A slide presentation with supporting summary financial information is also available on the company's website as part of the webcast of today's call. With that, I will now turn the call over to Yves Culp, President and Chief Executive Officer. Please go ahead, sir.

Thank you so much, Drew, and good morning, and thank you for joining us today. I would like to welcome you to the Culp quarterly conference call with analysts and investors. With me on the call today are Ken Bolling, our Chief Financial Officer, and Boyd Chumley, the President of our Upholstery Fabrics business. I will begin to call some opening comments and objectives, and Ken will then review the financial results for the quarter. I will then briefly update you on strategic actions specific to each of our operating segments. And after that, Ken will review our fourth quarter and fiscal 2022 business outlook, and then we will be pleased to take your questions. As expected, the third quarter was significantly challenged by a convergence of factors that affected our performance. Sales were generally in line with expectations, despite being tempered somewhat in our mattress fabrics business. And they did reflect stable demand for our products as compared to the third quarter of last year. We also saw some impact from the pricing actions we've taken. As compared to the same pre-pandemic period two years ago, sales for the quarter were up nicely at approximately 17%. However, profitability for the quarter was pressured more than expected, particularly in our mattress fabrics business. Despite headwinds, the fundamentals of our business remain solid, and we have the financial strength to support our business in the current environment. In each of our segments, we continue to execute our product-driven strategy with an emphasis on design creativity, innovation, and servicing the evolving needs of our customers. Our diversified global platform and robust supply chain have enabled us to consistently meet our customer delivery commitments in the face of numerous challenges, and we are well positioned to capitalize on planned new programs and expanding market opportunities. Notably, we opened our third Haiti facility during the third quarter, which will allow us to expand our near-shore capacity for cut and sewn upholstery kits and to complement our already strong sewn mattress cover business and also to support future growth and build supply chain resiliency. We have also made considerable investments in our business during the past nine months, including this new cut and sew facility in Haiti, a new innovation campus in High Point, North Carolina, and a higher inventory balance to protect against supply chain disruption. That inventory balance and those expenditures also support our valued customers and to get ahead of rising raw material costs. As a result of these strategic investments, our cash position has declined during fiscal 2022, but we now expect our cash position to stabilize during the fourth quarter. Importantly, while it's always our intent and desire to grow our revenues and profits, we understand that we are facing an uncertain demand and cost environment. We will be laser focused on generating cash and keeping our expense structure in line with whatever revenue backdrop might arise. Looking ahead, we have a number of focused initiatives for the fourth quarter and continuing into fiscal 2023. Our first objective is to grow sales and specifically focusing on our mattress fabrics division in doing so. Our mattress fabrics business is seeing significant planned new placements that we have won with customers and we are waiting for them to roll out. The timing for new product rollouts by our customers would normally have been in our third quarter, or at the start of the calendar year. But we have seen some customer delays, and we now expect these launches will commence this summer. We have opportunities for sales growth in both mattress fabrics and sewn covers, but we especially look to rebound sales in our sewn cover business, where inventory of our customers has delayed the timing of new orders. We are also reorganizing our sales effort and our sales team within our mattress fabrics business to continue leveraging our reimagined 3D rendering service to develop a more tailored and much more personal sales relationship with our customers and offering enhanced speed to market. We are also effectively utilizing the talent of our brand experience managers and the expertise of our service personnel and our global platform to secure new opportunities. We also have an amazing location at our new design and innovation center at Congon Yards in High Point. The design teams from our various businesses are collaborating, and for the first time in years, we are presenting all of our products in the same show space. Customers across our divisions have been raving about the atmosphere and the opportunities for development, and we believe we will continue to see success from this location. We also have the ISPA trade show next week. This is the first real mattress trade show in four years, and we will be featuring an express line of fabrics, offering a curated, quick-ship option to further champion our global service capability and flexibility. We will also debut new collections focusing on sustainability and luxury in both aesthetics and technical performance, encompassing development and fabric-forming processes. New innovation with excellent service is paramount for the future, and we are executing on both. In our upholstery fabrics business, we will continue marketing the strength of our LiveSmart portfolio of products, offering performance, ease of cleaning, durability, and sustainability. We remain very excited about our LiveSmart brands and their acceptance in the marketplace. We will also continue pushing, and we are optimistic about the recovery of our hospitality business as consumers return to the office and hotels begin to renovate again for travelers. In tandem with a plan for increasing sales, we will also work to maximize our efficiency and optimize our global platforms. Proper customer service is equally as important as building sales, and we have re-established through these uncertain times that the supply chain flexibility and redundancy are critical. Our multi-country platform, offering production and sourcing capabilities in six countries, USA, Canada, China, Haiti, Vietnam, and Turkey is vital to our success and allows us to meet our customers where they are and how they want to do business with us. In both businesses, we have competitive advantages with our global presence to service our customers, and we have proven it throughout the last year with an excellent service record. As we look ahead, the heavy lifting in establishing these platforms is complete, and we are going to be more strategic to balance output from all facilities as we meet demands. A balanced product mix across our global platform is critically important to overall profitability. As I already commented, our most recent enhancement is our new Haiti operation for cut-and-sew upholstery kits, and that is now operational, and we are growing the capabilities of this facility every week. This is our third building in Haiti, again with two existing facilities for cut-and-sew mattress covers already in operation. Another objective and a top priority is our emphasis on managing and stabilizing our solid cash position. And as mentioned, we will work to achieve this regardless of the industry environment. Notably, we continue to maintain a strong balance sheet with solid liquidity. We will continue following our formalized capital allocation strategy, which is available on our website. We will utilize and strategically reduce our investment in inventory, to generate sales, and to protect us from macro disruptions and or cost pressure. We will continue to control our corporate overheads and SD&A costs just as we have done this fiscal year. We have already made significant capital expenditures in recent years, and we do not anticipate major needs in the near term. We will aggressively manage costs overall in response to the industry environment. Overall, we remain diligently focused on maintaining balance sheet strength and continuing to reward our shareholders with our regular quarterly dividends. Although we do expect the current pressures to continue near term, we are certainly working to mitigate these challenges with the initiatives I just mentioned, as well as other actions, including additional price increases taking effect in both of our businesses during the fourth quarter to help further offset rising costs. We are seeing some improvement in labor conditions, and we are intentionally focused on retaining existing and newly trained employees. We also expect to see a more normalized product mix in our mattress fabrics business during the fourth quarter. I remain very optimistic about Culp's future as we continue to demonstrate the competitive strength of our innovative product offerings in diversified global platforms. We look forward to the opportunities ahead to deliver long-term profitable growth and value for our shareholders. And lastly, I just want to thank our dedicated employees around the world for their resiliency and their commitment to the long-term success of Culp. Their spirit is inspiring to me, and I'm proud to be part of their team. I also want to celebrate the completion of our first global giving initiative, aptly named Share the Love. In February, all of Culp's worldwide facilities participated to support their local communities and those in need. A special thank you to our employees for contributing in such a meaningful way. With that, I'll now turn the call over to Ken, who will review the financial results for the quarter.