Unifi, Inc. New

Good morning, and thank you for attending Unify's first quarter fiscal 2026 earnings conference call. Today's conference is being recorded, and 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. Speaker for today's call include Al Carey, Executive Chairman, Eddie Engel, Chief Executive Officer, A.J. Ecker, Chief Financial Officer. During this call, management will be referencing a webcast presentation that can be found in the investor relations section of unifi.com. Please familiarize yourself with page two of that side deck for cautionary statements and non-GAAP measures. I will now turn the call over to Al Carey.

Thank you. Good morning, everybody, and thank you for joining us today. Listen, I'll get started with a few comments. And to start out, I'd say our unified business had a challenging quarter. However, I'd like to spend a few minutes to explain what unusual obstacles occurred in quarter one. I think it'd be helpful for those of you that follow our company to understand that this quarter had two primary challenges. One is beyond our control, and one is within our control, but it's temporary. So let's start out with the first item, which is what is beyond our control. Most of you have probably read about this in our industry. The majority of our customers place orders for goods that will get them through the holiday season, but they ordered them just before the tariffs went into effect in April. Then since April, orders have been extremely light, and only for goods that are absolutely necessary. And this seems to be consistent across our industry, not just the Unify issue. This has had a significant impact on our sales revenues, particularly in Asia and also in Central America. And it's going to affect sales probably for another eight weeks. So it will take us through our quarter two. This is as best as we can determine. But most of our customers, retailers, and brands have communicated to us that they expect to return to some level of normal ordering in January. And if not, we have a plan to deal with that. One positive development that we are keeping an eye on is that the sales growth of a pile remains solid at a plus 5% versus a year ago, and inventory is declining pretty significantly. So ordering should follow. So that's topic one. Topic two, what is within our control? I think I mentioned this on the last call. We closed our Madison facility in June. We moved out of that volume. We took it from Madison to Yadkinville, our bigger facility, which added 40% to their capacity. The transition required us to hire many people, train them, moving equipment, and incenting employees to stay working in Madison until we shut down. so that we didn't miss out on business and kept our service up with our customers. We've had increased costs because of these transitions, but I will tell you that we've taken actions, you'll hear more about them today, to put our costs back on track. And while you don't see it in our Q1 results, we are now seeing it in our October operating results, which is the first month of the quarter, the new quarter. And you can expect that these transition costs are now fully complete. for our company. The third item I wanted to mention is that we really have resized our company's cost model. We now have resized the operating cost to fit this new level of revenue, this new low level of revenue, so that we can be profitable even at the lower levels. So we've taken some new cost reductions, headcount reductions, and price actions that are now complete as of last week. These actions will allow us to deliver improved cash flow and EBITDA, and the performance will step up as we move from quarter two through quarter four. Then, when the revenues do improve, and they will improve, we will see much, much better leverage on our fixed costs as a total company. Now, AJ will take you through how our net debt is being reduced and our cash flow improves with these changes. And I'd like to mention that last but not least, we have a plan on improving revenue growth with our efforts at beyond apparel products, which we've been talking about for quite some time. Topics such as military segment, carpet, resin sales, and packaging. All these products are relatively new to our business with better margins than the base. There have been a lot of work going on meeting qualifications for these projects. That's the one thing we probably didn't realize is how long it will take to qualify, but there's Lots of work being done and orders are now coming in. Our efforts on the reprieve innovation and textile take-back are gaining a high level of interest from customers. They will see progress in the second half of calendar 2026. So in summary, despite the obstacles we faced in quarter one, I'd say our team was agile in taking action that will make us a more profitable company and deal with these tariff uncertainties. While our comeback has taken longer than I would have liked, we have used this adversity to take additional actions fairly quickly and to be more sure of our ability to generate profits and cash flow, even as the market has periodic downturns in the future. So now let me turn it over to Eddie Engel, our president and CEO, who will take you through the actions that went on during this quarter.

Thanks, Al. I'm going to start with an overview of the first quarter, so please turn to slide number four. As Al noted, our results for the first quarter came in below our expectations as we continue to be impacted by softer ordering patterns that are directly related to the recent tariff and trade uncertainties. Many of our global customers have continued to methodically slow down their ordering patterns until they are better able to formulate a strategy to handle this current tariff landscape, which remains highly fluid. While we're disappointed that the customers are being cautious, the holiday season should bring apparel inventories down to relatively low levels, and thus we believe we should build revenue momentum at the beginning of calendar 2026. Now along those lines, I think it's important to offer a few updates on the current trade environment and the key markets that we currently operate in. In the Americas, while the short-term remains challenging, the mid- and long-term outlook seems to be improving. The reality is many brand and partners of ours are starting the process of moving some of their production programs to Central America in calendar 2026. While more clarity on the global tariff situation will be needed, we are actively working with these retailers to highlight the fact that if they use our U.S. yarn during their production in Central America, they can receive much of the 10% reciprocal tariff back as all of our Central American supply chain is U.S.-based. In Asia, brands are also reassessing where they need to move the final assembly step of their supply chain. While there continues to be some uncertainty in terms of which country will end up being the most favorable, our model remains asset light. And as we've noted many times in the past, we continue to see immense opportunity in Asia once trade pressures begin to subside, given that the majority of the world's polyester is still produced from China-based assets. In Brazil, We continue to see relative demand stability and feel highly confident in the long term growth potential of the textured polyester yarn market. However, we are still seeing some dumping pressure from Asia based companies whose Asia based demand has dried up. The textured polyester industry has filed an anti-dumping case with the Brazilian government and they are going through the evaluation process right now. If successful, it would help alleviate some of the short term headwinds we are seeing in the region. However, that process will take until the end of our fiscal year to get a final resolution. So stepping back a little bit and looking at the big picture, the tariff and trade situation has hurt all of our business segments in the near term. But they may, in fact, offer the America segment even greater support in the long term. Given the short-term uncertainty, it was important to further align our cost structure and improve our ability to drive greater profits and cash flow in fiscal 2026. The first step was the implementation of a cost restructuring program that was executed right after the Q1 quarter close. AJ will provide more details on the financial impact of this program, but these cost restructuring efforts reduced our headcount and brought down hours in some of our facilities as we wait for demand to recover. Implementing these actions are not something that we take lightly, but we do believe that it was a necessary step for us to help deal with the financial headwinds we are currently facing and achieve improved financial results. We've done this while keeping the manufacturing footprint and capacities of the America business segment intact. As the fiscal year progresses and revenues pick up, we will continue to be very selective about where we add back costs. And the second step we took during the September quarter was to communicate to customers inflation and tariff related price increases. This increase in pricing will help drive a partial uplift to our financial results in Q2 and will be fully visible in our third fiscal quarter financial results. Turning now to our specific performance, during the first quarter of fiscal 2025, we reported $135.7 million in consolidated net sales, which was down 7.9%. In the America segment, we experienced a year-over-year decline, primarily due to reduced sales volumes stemming from trade uncertainty and some productivity shortfalls caused by our continued efforts to consolidate our US yarn manufacturing operations. These transition costs are now complete. In our Brazil segment, We are continuing to see stable demand for our products, but as I noted earlier, our results during the period were impacted due to import pricing pressures from some dumping in the region and slightly lower sales volumes. With that said, we still see strong fundamentals in Brazil's textured polyester market, which we believe will help drive further improved financial performance in the second half of the fiscal 2026. In our Asia segment, sales continue to remain weak as trade negotiations drag on. As we've noted, on our previous earnings call, our fixed cost profile in the region remains low and our asset line model can be applied in many other countries. And thus we will continue to adapt to the short term and we'll be ready as global trade conditions shift and or normalize. Turning now to slide five for an update on reprieve. During the first quarter, reprieve fiber represented 29% of sales, down 1% point from the previous year due to trade policy impacting ordering patterns. Despite this impact, we are seeing some green shoots for our reprieve polyester resin, which performed well during the period. And we're cautiously optimistic that this momentum in resin will continue throughout the remainder of fiscal 2026. These reprieve resin sales are part of the Beyond Apparel business growth in the US. Moving now to slide six to highlight some of our recent innovation efforts. We are building up the momentum from recent global product launches. During the last quarter, we had announced the global product launch of our new offering under the Amy platform for sustainable odor control, Amy Peppermint, and our updated offerings of Thermaloop Insulation and Reprieve Take Back. Both of these circular products are now offered with 100% textile fabric waste inputs. On slide seven, you can see the first co-branded placements of our Thermaloop insulation products with outdoor power leaders Marmot and Lafuma. Both brands have launched jackets incorporating on-garment co-branding hang tags and call-outs on e-commerce. Meanwhile, Reprieve Our Ocean was featured in a co-branded Instagram social media reel created in collaboration with Rain Rebel. The content effectively engaged audiences across both Europe and the U.S., serving as a compelling piece of brand storytelling using our Reprieve Our Ocean filament yarn in their rain ponchos made from 22 post-consumer recycled plastic bottles that are Ocean Cycle certified. which means they are removed from the ocean-bound environments in developing countries, lacking the formal infrastructure for waste management and recycling. Further, these customer validations were complemented by the announcement of recent award recognition as leaders in sustainable textile solutions. Our thermal loop installation received an honorable mention from Fast Company's Innovation by Design Awards in the sustainability and circular design category. standing alongside renowned companies like Google, Hayworth, and Phillip Hume. The reprieve brand platform was awarded as a finalist for the Digiday Greater Goods Awards, which honors brands addressing critical social and environmental challenges. And before I return the call over to AJ, I want to quickly mention that we are continuing to see positive momentum in our Beyond the Power initiatives in carpet, military, and packaging applications. So far, the government shutdown hasn't hampered sales much in the military market, but we hope to see that situation resolved reasonably quickly to keep our momentum here. We continue to believe that the sales from these initiatives will become a meaningful contributor to our financial and revenue growth in the second half of fiscal 2026. With that, I would now like to pass the call over to AJ to discuss our financial results for the quarter.