Culp, Inc.

Good morning, everyone, and welcome to the CULP, Inc. first quarter fiscal 2025 earnings conference call. All participants will be in a listen-only mode. Should you need assistance, please send to a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star and then one on your touch-tone telephones. To withdraw your questions, you may press star and two. Please also note today's event is being recorded. At this time, I'd like to turn the floor over to Drew Anderson. Ma'am, please go ahead.

Thank you. Good morning, and welcome to the CULP conference call to review the company's results for the first quarter of fiscal 2025. As we start, let me state that this morning's call will contain forward-looking statements about the business, financial condition, and prospects of the company. Forward-looking statements are statements that include projections, expectations, or beliefs about future events or results, or otherwise are not statements of historical fact. The actual performance of the company could differ materially from that indicated by the forward-looking statements because of various risks and uncertainties. These risks and uncertainties are described in our regular SEC filings, including the company's most recent filings on Form 10-K and Form 10-Q. Additional risks and uncertainties that we do not presently know about or that we currently consider to be immaterial may also affect our business operations and financial results. You are cautioned not to place undue reliance on forward-looking statements made today, and each such statement speaks only as of today. We undertake no obligation to update or to revise forward-looking statements. In addition, during this call, the company will be discussing non-GAAP financial methods filed yesterday and posted on the company's website at Culp.com. A slide presentation on the company's restructuring plan is also available on the website as part of the webcast of today's call. I will now turn the call over to Yves Culp, President and Chief Executive Officer of Culp. Please go ahead.

Thank you, Drew, and good morning, and thanks to everyone for joining us today. I would like to welcome you to the quarterly conference call with analysts and investors. With me on the call are Ken Bolling, our Chief Financial Officer, Mary Beth Hunsberger, President of our Upholstery Fabrics business, and Tommy Bruno, the President of our Mattress Fabrics business. Today I will begin the call with some detailed comments. And as mentioned in the introduction, we have posted an updated slide presentation to our investor relations website that covers information related to our restructuring plan, which I will refer to today. Ken will then review the financial results for the quarter. And after that, I'll briefly discuss our business outlook for the second quarter of fiscal 25. And we will then take some questions. Before starting, I would first like to express our sympathy to the family of Bud Bugach, on his recent passing. Bud was a friend to many of us personally, and certainly to Colt. We appreciated Bud's coverage for close to 40 years, and we learned much from him about the larger furniture industry. Bud's talents, expertise, and heart were unique, and we will miss him. We look forward to a continuing relationship with Water Tower Research, and we appreciate their handling of a tough situation. So, turning to our first quarter, our sales results reflected strong sequential improvement as compared to last quarter, with mattress fabric sales up 9 percent and upholstery fabric sales up 19.7 percent. While we continue to experience challenge macro industry conditions, our sequential sales growth was better than expected, and year-over-year consolidated sales were flat despite the overall industry weakness. These impressive sales results are largely driven by our improving market position in both businesses. Our innovative styling, our dedicated and talented personnel, and our diverse and robust global supply chain are all factors in growing our market share. We have discussed previously that we believe our most recent quarter, or Q4 of FY24, was the bottom point for our sales levels. and we are pleased to see this growth in our first quarter. As we look beyond Q1, we believe the impact of our new placements will allow us to recover at a faster rate than market recovery. Our upholstery fabric segment delivered a significant improvement in operating income, both year-over-year and sequentially, with 6 percent operating margins for the quarter. The strategic actions we have taken in this segment are working. as we've reduced our cost structure while maintaining and enhancing our ability to grow sales. And we are able to reach normalized margins quicker, even in this pressured macro environment. The actions we have taken over the last year have lowered our manufacturing costs, which give us confidence to navigate our business through a variety of environments. But it also provides upside with improving macro conditions. Additionally, there are several other factors supporting the solid improvement in upholstery fabrics for both residential and hospitality. First, we have a strong Asia platform utilizing our tenured China operations along with developing strategic relationships and capabilities for fabrics as well as cut and sewn kits in Vietnam and also other regions. Also, our talented design and innovation team has continued to deliver superior offerings in recent seasons. We have repeated solid residential placements from High Point and Las Vegas furniture markets, and we are looking forward to releasing another on-trend and innovative residential product line for the Interwoven Textile Fair in November. Additionally, our hospitality and commercial segment is performing well, representing 33% of our upholstery business fabrics for Q1. Our hospitality fabrics have been refreshed with new patterns and colors, and we are encouraged by new opportunities and strong margins. And our reed window business has solid growth potential, including new roller shade production capacity that we established in our existing Burlington, North Carolina location at the tail end of Q1. Lastly, for Culp Upholstery Fabrics, I'd like to recognize Boyd Chumley for his recent retirement after 40 years of exemplary service. We are thankful for Boyd's many years of dedicated leadership and we are pleased to have his ongoing support for strategic discussion and actions. But we are equally excited to welcome Mary Beth Hunsberger to our executive team and to our call today. Mary Beth has already brought much benefit to Culp and her strong background in finance, global operations, and brand marketing brings fresh perspectives to our solid upholstery business. Turning now to Colpone Fashions, our mattress fabric segment. As expected, Q1 operating performance for this segment was pressured by manufacturing inefficiencies, primarily related to our significant restructuring activity. While this negatively and disproportionately affected operating performance for the quarter, our use of cash was minimal, with our net cash position only $560,000 lower as compared to the end of fiscal 24. Additionally, both segments reduced inventory from the end of the fiscal 24, despite the strong sequential increase in sales. We have an intense focus on managing working capital, including inventory, accounts receivable, and accounts payable, all of which benefited us in Q1. I was very pleased to see both businesses post strong sequential sales increases along with reduced inventories. We are also encouraged by the progress of our mattress fabrics restructuring actions. As we discussed last quarter, we announced a wide-ranging restructuring plan in early May with a primary focus on our mattress fabric segment. The announced adjustments, once fully implemented, will enable us to operate more efficiently and profitably with a lower level of fixed costs and without limiting our ability to grow the business. While mattress fabrics operating results are being pressured by these restructuring actions in the first half of the year, especially in the first quarter, we believe we are on schedule to deliver the targeted outcomes from the restructuring plan, including a consolidated return to near break-even adjusted EBITDA in the second quarter and a return to positive consolidated adjusted operating income in the third quarter. Mattress fabrics improvement is the critical catalyst to our consolidated recovery. As we rationalize our capacity, reduce fixed costs, and increase efficiency, we expect to make significant improvements to our financial results even without typical sales growth from a macro market recovery. This point is illustrated mathematically in a hypothetical example on page six of our posted updated restructuring deck. Our mattress fabrics restructuring is a comprehensive undertaking that impacts people, plant consolidations, equipment relocation, and process improvements. But with it, we are successfully lowering our cost structure despite weak demand, and we look forward to meeting our stated objectives. We are thankful for our dedicated employees and the leadership of Tommy Bruno and his team as they execute our plan to return to profitable operating results post-restructuring. I also want to emphasize that we are grateful for the support we have received from our valued customers and suppliers during this process, and we are confident that the strength of these relationships are helping to drive our recovery. It is our goal to transition and consolidate our operating facilities effectively without disruption to any program or any customer. The scale and scope of our mattress fabrics restructuring cannot be overstated. It's a dynamic process, but one that will be accretive. We are dramatically enhancing our business platform in the current environment, and with our growing market position, driven by innovation and styling, along with improving operational activities and best-in-class manufacturing and sourcing capabilities, we believe we are very well positioned for the future. I'd also again just remind everyone that we've updated our restructuring slide deck that is posted on the investor relations page. As we've discussed before, this slide deck is to help illustrate the details of our restructuring plan, including the actions being taken and the expected financial impact. Since we announced this restructuring plan on May 1st, we have completed the consolidation of our Haiti sewn mattress cover operation, which is located on the northeast border of the Dominican Republic. and we have already reduced our cost and established steady run schedules. This platform serves as an important piece of our mattress fabrics cut and sew supply chain for near shore capacity. We have also completed the rationalization of our upholstery fabrics finishing operation in China, delivering more efficient operations and reduced costs. The consolidation of our North American mattress fabrics operation is well underway. including the phase wind-down and closure of our manufacturing facility in Canada, and the planned relocation of some knitting and finishing equipment to our facility in North Carolina. Also, we are making excellent progress in transitioning our damask weaving business to a sourcing model, primarily with one of our long-term, dedicated manufacturing partners. We are encouraged by the pace of these transitions, and we expect both will be largely completed by the end of our fiscal Q2. We've also listed for sale and are actively marketing and showing our Canadian facility, and we intend to exit and sell that facility in the second half of our fiscal year. But, of course, the timing of that will be dependent on the market and interest for the building. More details of the actions and a general timeline can be found on page four of the updated restructuring deck. Beyond this comprehensive restructuring, our expectation is to return to positive, consolidated, adjusted operating income, excluding restructuring and related charges sometime in the third quarter of fiscal 25. Our plan estimates $10 to $11 million in annualized cost and productivity savings from the restructuring, mostly via the mattress fabrics division, but we are expecting close to $1 million in annualized savings from reductions within unallocated corporate and shared services. Based on the restructuring activities that have been completed, along with updated estimates on those that remain underway, we now expect to incur total restructuring related charges of $5.1 million, of which $3 million are now expected to be cash charges. We expect most of these charges will be incurred in the first half of fiscal 25. We also anticipate funding approximately $2 million of the cash cost with proceeds from the sale of excess manufacturing equipment and proceeds from a building lease termination in Haiti. And we currently expect approximately $9 to $10 million of after-tax proceeds from the sale of our Canadian facility. A cash and liquidity update is shown on slide five of the updated restructuring slide deck. The expected benefit of our restructuring actions on both profitability and liquidity is evident. This is all, again, assuming no lift in market demand. So looking ahead and summarizing, we are encouraged by one, our solid and improving market position in both businesses. Two, our consistently profitable upholstery fabrics business. Three, expected further improvement in our hospitality fabrics and reed window businesses. And fourth, the steady progress we are making to restructure our mattress fabrics business, which we believe is setting us up for a strong future in that business. We anticipate macro industry conditions may remain pressured during fiscal 25, although we also believe there is some stabilizing of industry trends. Market dynamics have been pressured for some time, so we are pleased to see some demand consistency. Admittedly, it can be difficult to decipher the catalyst for demand, as we believe a good portion of our sequential revenue increase is due to our improving market position, and we expect that to continue. We are thinking the toughest macro conditions are behind us, but even if they are not, we believe the restructuring adjustments we have made in both businesses will allow us to perform well in the current depressed environment. Specifically, operational improvements in mattress fabrics, as we discussed, are critical to our consolidated recovery, and we were encouraged to see some improvements beginning to materialize late in Q1, and we expect this trend to continue throughout the year. Again, we anticipate the strategic actions we are taking will position us for a return to profitability at current demand levels and further growth opportunities as market conditions improve. So with that, I'll now turn the call over to Ken, who will review the financial results for the quarter, and then I'll review the outlook we are providing as we look ahead to second quarter of fiscal 2025. Thanks, Yves.