Unifi, Inc. New

Good morning. My name is Devin, and I will be your conference operator today. At this time, I would like to welcome everyone to the Q1 2023 Unify, Inc. earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star, then the number one on your telephone keypad. If you would like to withdraw your question, again, press star, and then the number one, on your telephone keypad. Thank you. A.J. Eaker, Vice President of Finance, you may begin your conference.

Thank you, Devin, and good morning, everyone. On the call today is Al Carey, Executive Chairman, Eddie Engel, Chief Executive Officer, and Craig Creatore, Chief Financial Officer. During this call, management will be referencing a webcast presentation that can be found in the investor relations section of our website at unifi.com. Please turn to page two of that slide deck for our cautionary statement. Management advises you that certain statements included in today's call will be forward-looking statements within the meaning of the federal securities laws. Management cautions that these statements are based on current expectations, estimates, and or projections about the markets in which Unify operates. These statements are not guarantees of future performance and involve certain risks that are difficult to predict. Actual outcomes and results may differ materially from what is expressed, forecasted, or implied by these statements. You are directed to the disclosures filed with the SEC on Unified's Forms 10-Q and 10-K regarding various factors that may impact these results. Also, please be advised that certain non-GAAP financial measures, such as adjusted EBITDA, adjusted EPS, adjusted working capital, and net debt, may be discussed on this call. I'll now turn it over to Al Carey.

Thank you, AJ. Good morning, everybody. I apologize for my voice. I lost it, so... I'll tell you, quarter one has been a tough quarter, and it's been due to one big contributing factor, and that is the slowdown of retail orders for apparel, and that's affecting our volume pretty significantly. This began in the summer, and it continues today. Retail is reporting retail inventories on apparel being anywhere from 30% to 80% above a year ago. and therefore many of them are going to be discounting heavily during Black Friday and the holiday season and hopefully clear out some of this inventory. But it's uncertain exactly when normal ordering patterns will return. We've been affected, just like all of those who were involved with the barrel industry. Our North American volume in July, August, September was down 20%, and Asia 40%. As you know, Asia does a tremendous amount of business in U.S. retail, but also those COVID shutdowns are still affecting our business. So it's going to be kind of difficult to have any kind of reasonable forecast or guiding with this uncertainty. However, I think it's logical to assume that the volume trend improves after the holidays and we'll be prepared to move rapidly. Well, while this has been going on, we're not sitting here waiting. We're working on four very important initiatives that will strengthen our long-term business and will shore up our profitability, even in the short term. First one is we've already begun a series of actions to reduce our costs in North America. These actions are going to have a big impact on our long-term future, but even in the short term. The first half of this year is going to be very tough on volumes and EBITDA. The second half will show improving volumes but strong EBITDA, and that's because of the cost actions we're taking and also because of the benefit of raw material costs that are going down. The second thing we're spending our time on is the Reprieve brand. We're seeing continued interest from our customers on Reprieve because they feel it helps them attain their 2025 sustainability goals, which by the way is only two years away. We have actions that will build Reprieve consumer brand awareness. We have information now that says our brand awareness on Reprieve is 22% unaided. I'm sorry, 22% aided, 15% unaided. And that's pretty impressive for a brand that doesn't receive very much A&M spend. But in the next few months, you'll see some significant improvement in the Reprieve brand awareness through some of the programs we've put together. The third thing we're spending our time on is we completed a market study with an outside firm to identify new segments of business that would improve our long-term sales and profits, and it's called Beyond Apparel. The sub-segments that look like they'll have the most fruit to bear is auto, industrial, and home. And while this is a long-term initiative, there are several opportunities that are very likely to manifest in this fiscal year. And then the final item we've been working on is the renewal for our credit facility. This summer, Craig Creatore and his team began work on that as they saw some of the business trends occurring, and it led to an effort that he'll take you through in the next few minutes, but our credit facility amendment has been complete, and we feel very good about it. So all in all, volume is a dilemma. It's a bit beyond our control, However, we think it'll be temporary and we'll be ready to get back to servicing customers immediately. But I believe in the saying, don't let a crisis go to waste. The programs I spoke about just a minute ago are definitely going to make us a stronger company in the near future. So I'll turn it over to Eddie at this point.