Unifi, Inc. New

Good morning, everyone. Thank you for attending Unify's first quarter fiscal 2024 earnings conference call. We do apologize for the technical difficulties and the late start, but we will be quick and hope to answer your questions as quickly as possible. Today's conference is recorded, and you have the speakers for today as Al Carey, Executive Chairman, Eddie Engel, Chief Executive Officer, and myself, A.J. Ecker, Interim Chief Financial Officer and Treasurer. During this call, we'll reference a webcast presentation that can be found on the investor relations section of Unifi.com. Please familiarize yourself with page two of that slide deck as I turn the call over to Al Carey.

Okay, thank you, AJ. Good morning, everybody. Thanks for joining the call this morning. I'll start by sharing some thoughts on the quarter and then discuss how we're managing through this challenging environment we're in right now, but also how we're preparing for what we think will be a much better calendar 2024. After that, I'll turn it over to Eddie Engel, our CEO. If you look at our results, It was a tough quarter from a sales and a profitability standpoint, as once again, we're impacted by these persistent high levels of apparel inventory at retail and also a slower consumer demand. But the big issue for us is the lack of orders to our plants, and that's the primary issue. While there are signs of inventory levels that are nearing a bottom across the industry, this destocking process that we've talked about in the U.S. for quite some time has moved at a slower pace than we expected. And I believe based on our feedback from customers and also public disclosures by others that are in our sector, the majority in industry would say the exact same thing. One thing we've heard from our customers is that while brands and retailers are showing encouraging progress towards the destocking and the inventories are getting actually back to right about pre-pandemic levels, Some retailers have taken a more conservative approach as they plan for the upcoming orders and they've instructed their buyers to place smaller, more frequent orders than they have in the past in an effort to preserve cash while the interest rates are where they are. We're beginning to see that now. All that being said, inventory levels are declining and at some point the apparel industry has to stock back up to start to normalize and it looks like that would be after the holidays. During a time like this, it's very important for our organization to focus on things that we can control, and we're doing that. And I would tell you that our team's morale is good and our heads are down and we're working hard. But those things that we're focused on are preserving cash and managing inventories closely as well as CapEx. We're managing our costs tightly. We are gaining market share in the U.S. as our number one competitor has exited the market. We're gaining traction with new customers in the segment called Beyond Apparel. We have several new categories that we're moving forward on. Additionally, we have some very interesting innovations on Reprieve which will contribute to our long-term growth. We would like to tell you more about that as soon as we have a little bit more details in the future. We're going to keep executing against the things in our control in this difficult environment. We believe the future of sustainability only gets bigger with the consumer as time goes on, and this bodes well for our reprieve business, and we see the business getting substantially better in 2024 calendar year. So that's my piece. I'd like to turn it back over to Eddie Engel, our CEO.

Thanks, Al, and good morning, everyone. As Al highlighted, first quarter results came in below our expectations as conditions across the apparel industry have continue to create difficult circumstances for our business. And while it's been challenging for us the last several quarters, we believe we're nearing the bottom of this destocking situation, and we're optimistic that the industry will begin its recovery in the first half of calendar 2024. In the meantime, we will continue to be nimble in managing our operations, navigating this environment, and adapting as necessary. But at the same time, remaining positioned to meet the current and future needs of our customers. I'm pleased to note that we were able to generate positive free cash flows and a significant increase over recent periods while facing the macro headwind. Now turning to slide three for an overview of the quarter. Continuation of weak demand levels led to lower than expected revenue and EBITDA performance during the quarter. In the first quarter, we recorded 138.8 million in net sales, marking an 8% sequential decrease compared to the fourth quarter of 2023. During the quarter, we made a focused effort to recapture customer interest in Central America, spending time re-engaging with customers. Now, based on these efforts and new competitive dynamics, we expect to gain market share in the Americas in the coming quarters. From a competitive standpoint in the Americas, one of our direct competitors in the region, Accra, A Mexico-based production plant and subsidiary of Altec recently announced it was shutting down its operations. As a result, meaningful volumes are in our sights. We expect to capture a large portion of that opportunity. We project that we'll start to see the benefit of this as we move through the first half of calendar 2024, once the inventory from the closure has been flushed out of the market. Additionally, in the Americas, we continue to secure new orders for what we are calling beyond apparel. in non-apparel markets such as mattresses, soft flooring, and more. In Brazil, we are experiencing record volumes and currently operating at 90 plus percent capacity utilization. However, our profitability has been negatively impacted due to the continued margin pressures resulting from Chinese competitors dumping import volumes due to weak demand in their local market, which is causing us to stay at lower pricing levels. Our pricing positions should start to improve once China's operating environment occurs. Our overall profitability has been temporarily hampered by some pricing adjustments we've made to align lower raw material input costs. To help mitigate these pricing pressures, we've been deliberate with our actions to optimize our operations and maximize the productivity of our resources. This includes aligning labor and manufacturing resources to meet the needs of the current demand environment, protect margins, and boost efficiency. Our continued focus on controlling costs across the business is evidenced by our positive cash flow generation during the quarter, despite the challenging profitability landscape. We remain committed to controlling costs and discipline capital management going forward in order to maintain a healthy balance sheet, while ensuring we're strategically positioned to meet the recovery in demand levels in an efficient manner. It's important to note that we will continue to invest our resources to develop new innovative products as we believe Our innovation capabilities are essential to our growth potential and the expansion of our brand into new categories, especially as it relates to our strong Reprieve platform. Turning to slide four to discuss Reprieve and marketing. During the first quarter, Reprieve represented 31% of sales, marking a sequential quarter and year-over-year increase as a percentage of net sales. Reprieve sales continue to be negatively impacted by the ongoing economic environment in China, and the overall slowdown in apparel productivity. We remain confident in the demand for sustainable fibers and believe that as China begins to recover, we will see a rebound of Reprieve as a branded leader in the space. On the marketing front, our focus remains on elevating our flagship brand, Reprieve, through a mix of B2B and B2C initiatives. Leveraging our brand partners is vital as evidenced by marketing partnerships with Tom's, Volcom, O'Neill, and Lovesac, among others, during the quarter. On the B2B front, we exhibited at a number of trade shows globally over the quarter, where our interest in our cutting-edge textile take-back remains very, very strong. Providing our mill partners with the marketing support they need to tell the reprieve story is also critical. And as we move through Q2, we will continue to build on our established momentum with a new mix of partnerships combined with new product launches. I will now pass the call over to AJ to discuss the financial results.