Welcome. We appreciate you joining us for this WTR Insights conference session with Culp, Inc. I'm Doug Lane, Managing Director of Consumer at Water Tower Research, and it's great to be with you. Today, we're joined by Iv Culp, President and CEO, and Mary Beth Hunsberger, COO. Thank you for spending time with us today. A quick reminder before we start, Culp, Inc.'s safe harbor statements are available in the latest investor presentation that can be found on the homepage of its investor relations website. Additionally, this discussion may not be reproduced or transcribed without written consent from Water Tower Research. We welcome your questions throughout today's conversation. Please submit them through the chat, and we'll do our best to address them in a follow-up email or in our follow-up management series report. If you would like to request a meeting with Culp, Inc., you can do so through the conference portal, and we'll attempt to accommodate. With that, let's begin. Iv, for those of us who might be new to this story, well, not me, but for those of us who are joining us that might be new to this story, please give us an overview of what Culp, Inc. does, and how does it fit into the overall home furnishing sector? Well, thank you, Doug, and first I'd just say it's a pleasure to speak with you, and we appreciate the opportunity to update all the latest activities at Culp. Maybe for summary, I'd say Culp is a 54-year-old company with family roots. Since the 1980s, we've been publicly traded. We operate in two core segments, mattress fabrics and upholstery fabrics. In both segments, we produce and market decorative products that we sell to manufacturers of both bedding and furniture. We don't only sell fabrics. We also cut and sew our products into covers and kits to add further value to our customers and to reach a wider base of manufacturers. We are passionate about product design and innovation, and we are very strategic in how and where we operate production and sourcing operations. We're anchored with USA production in North Carolina, but we are diligent in supporting our customers with global options to manage supply risk and costs. We just get this industry. We've been doing it for a long time, and we're well respected within the broader industries. We have a family feel to how we operate, but we have the reach and professionalism of a global public company. Lastly, I guess I'd say in the last couple years through the tumultuous macro environment, we have focused on scaling our business and building a platform to be successful in the current demand cycle while also being prepared to grow. We have been aggressively working to share resources across the company and keep our attention on both segments but with streamlined operations. I'm really happy, Doug, that we have Mary Beth on the call today, too. Mary Beth is our Chief Operating Officer, and she is leading a lot of our restructuring effort and driving operations all the way through financial results. I'm excited she's here, and I'm hoping we'll get some good comments from her as well. Yes, welcome, Mary Beth. I think this is the first time you've joined us on one of these podcasts, Fireside Chat Conference, so welcome. Yes, Doug. Thank you. I'm really glad to be here. We will be talking about cost, that's for sure. Yes. In the meantime, let's get the tariff question out of the way. You have a global supply chain, as you mentioned, Iv, and you're in the home furnishings industry, so managing tariffs has been a big focus over the past year. Where do we stand today with regards to tariff mitigation as well as potential tariff recovery following the recent Supreme Court decision on the IEEPA tariffs? Yeah. Gosh, Doug, it'd be fun if there was a day we weren't talking about that as a main subject, but without any doubt, tariffs have been a major story for our industry and really probably any industry over the last year. The pace of tariff change, and I'd probably even call it just haphazard nature that some of this was done, has created a lot of challenge. On one hand, I'll confidently tell you that I believe we have the preferred platform in our fabric and sewn cover space to navigate tariffs. As I mentioned in the opening, we have a very strategic global supply chain. We have operating and sourcing capabilities in five countries, and we are fueled by our robust USA platform. We can service customers in a lot of different ways with volume capacity and cost management in mind. I guess to think of it like as an onshore, nearshore, and offshore capability, and this is certainly an advantage for us versus our competition. On the other hand, the way tariffs were implemented the last year was a lot to overcome. Basically, tariffs rose at such a pace that we couldn't pass on price quick enough. We lagged implementation to cover the cost increases from tariffs, and that was a pressure on us. The pace and rate change was pretty much unmanageable for a bit. The good news, I guess, is that we are now neutralized with our costing and pricing to the current tariff rates. Because of our varied global supply chain, again, we can be aggressive to support customers with options. Again, our strong U.S. platform is a fantastic asset. Last thing, because I know you'll ask me, Doug, about tariffs, is that we are actively pursuing refunds on IEEPA tariffs after the Supreme Court ruling. We are well-informed on this, the steps we need to take procedurally, and the systems we need to be in line for this. As we said on the last earnings call, we believe we're entitled to $6 million-$7 million in recoverable IEEPA tariffs. We don't think there's much question as to whether we are owed this refund, but we are following close with the uncertainty around it and especially the timing for that recoverability. Yeah, no question the timing's going to be difficult to predict. You also had a separate issue with Haiti, if I remember right. What was the story with Haiti? Yeah, that's true. I guess that's what gives us a lot of confidence, Doug, in this, is that Haiti is a whole different situation. There was the HOPE/HELP Act, which is a duty-free protection for Haiti. That expired temporarily through a previous government shutdown, got reinstated, so we were able to claim back the duty portion of Haiti shipments through the same ACE system that government's using, and those refunds have already processed. We're very confident in the system and what needs to be done to claim refunds, and we're just waiting for the opening on the IEEPA side. Well, it's nice to hear some good news on the tariff front anyway. Yeah, for sure. While we're on the macros, let's talk about supply chain. The heightened tensions in the Middle East are really disrupting global supply chains, and it's more than just oil. How is it impacting Culp? I'm thinking, Doug, I'll let Mary Beth touch on this one because I think she is very close to how we're thinking about costs through our supply chain. Mary Beth, do you want to take that one? Sure. Yeah, I'd love to. Like Iv said about tariffs, unfortunately, we're talking about something like this instead of more positive, but we are accustomed to deep macro challenges the last few years. This conflict in Iran is really just the latest in headwinds. We are carefully analyzing the impact of rising oil prices. We'll see that first on our raw materials, such as polyester yarns. We're also monitoring freight rates, packaging supplies, all the sorts of downstream things that can be impacted. Fortunately, our supply chain does allow us some natural offsets and pivoting and some hedges against this cost risk. This is another situation that really could force our hand to pass along pricing. We certainly don't want to do that, but that depends largely on the length of the conflict. Really even beyond that is the equally concerning impact that this has on the consumer. We really don't need to see any more reason for a consumer to delay a purchase. I believe in both upholstery and mattress industries, and many other discretionary spend industries will probably experience softness until there's some end in sight or some type of resolution to the conflict. Just continue to manage day by day. Yeah, no, that makes sense. There's bound to be some impact on consumer sentiment here for sure. Beyond the tariff mitigation that we talked about earlier, you've also been working hard to reduce costs, taking other actions to improve the economics of the business really over the past couple of years. Mary Beth, can you talk about some of these actions and where are we in that process today? I could talk for a long time about this. I'll try to hit the highlights, but it's a really great question, and I'm really proud of the work we've done over the last 18-24 months to really tailor the organization to become cost-effective in our current environment. Internally, we call it Project Blaze, so we're really just blazing new trails and thinking about different ways to work. It's been all about streamlining operations while setting the stage for future growth. It's been really important that we be able to keep that in mind as well. I'll hit a few highlights for you. I'm proud of these accomplishments. We've definitely put a focus on our 600,000 sq ft facility in Stokesdale, North Carolina. We own this facility and really creating what we call the mega facility, where we've consolidated distribution for all of our product lines and for manufacturing for window treatments under the same roof that already housed our bedding manufacturing and distributions. Now it's all together in this really state-of-the-art facility. This allowed us to really leverage our skilled tenured leadership across all of these activities. We can flex labor across departments based on demand for different product lines. It's, of course, relieved us of several leases in facilities that we were leasing. The majority of that work was completed in January. We're looking forward to enjoying the benefits of that this calendar year and to come. Another one I wanted to mention was a really big change to our organizational structure. We changed from a divisional organization to a functional organization as part of Project Blaze, and we did that in about May of 2025, where we previously dedicated teams for both upholstery and bedding, and we had dedicated teams for each. It just made sense at this time to consolidate and form functional teams that support the business, really irrespective of product lines. This was a really great process that I went through with Iv and my counterpart, Tommy Bruno. We even changed roles to support this structure, Tommy and I did. We were previously Division Presidents, and we reorganized our teams into operations under me and commercial activities under Tommy. That really allows each of us to laser focus on what the company needs right now to be profitable. All of these changes I've just described and many, many others, we've been able to, in turn, reduce SG&A costs in areas like staffing, consulting, warehousing support, and many others. Again, those were all largely completed at the end of our Q3. Those big ones that I just mentioned, plus our transformation in our Canada facility the year prior, in total, we've taken about $20 million worth of costs out of our operating model. You notice I didn't mention anything about equipment or upgrades or really maintaining our wonderful facility. All of that is still there and ready to ramp up as quickly as the industry levels dictate. Our mega plant, our mega facility, our distribution center, our leadership teams, and our flexible workforce are ready to go when the business is back. No, that makes sense. It is a lot of work and a lot of restructuring that's been going on there. Now, you're out of Canada now, right? You don't have anything in Canada from a facility standpoint? Correct. Yep. That's correct. Okay. Doug, I think we just listened to Mary Beth's list of things, and there's more, just our change and trying to not be so concerned about making Upholstery Fabric or Mattress Fabric, which are important. We call on both markets aggressively, but we make fabrics, and we're going to do it with the best supply chain and the best people, and the best process regardless. I think we're thinking very streamlined, and I'm very proud of the work she's done, and she's leading. It's going to make a difference to us as we go forward. As a part of this restructuring process, as comprehensive as it was, you had to prepare for it because your business had to operate all the time that you're going through all these cost-cutting and moving around and what have you. We're seeing now, I think in the last couple of quarters, heightened inventory markdowns, and they've had an impact to margins. They're non-cash, but they do impact your adjusted EBITDA performance. Can you explain a little bit about what's behind the inventory markdowns, and do you expect them to be an ongoing pressure to margins, moving forward? Yeah. I'm also going to pivot that one to Mary Beth because she's living that story, Doug, and I think you're right. You said it right. I'll let her answer the question and tell you how we're going to manage it looking ahead. That has been a pressure, for sure. Yeah. It has, and if you think about part of our value to our customers, it's the ability to build and hold stock for them to support their manufacturing pipeline. We're a critical partner in their supply chain, and they count on us to do that. As we did make changes to reorganize our company and to change our platform where needed, we've done a lot in the last two years. We moved our damask woven lines from our own plant in Canada that we just mentioned to our partner in Turkey. Not only that, we've had major tariff disruptions. We've had a few tough times for our customers with some bankruptcies, et cetera. Needless to say, it's difficult to manage the inventory perfectly through so many uncertainties. Yes, as part of our changes in the environment, we've experienced some aging of goods as a result of holding the stock to support our customers through these challenging two years. It is what it is. We have this now, but we are laser-focused on the sell-through of these goods. We want to turn them into cash as quickly as possible. We've made phenomenal progress through our commercial team in the last few months. Also through our reorganization, we have our inventory management now consolidated in one group, so we can keep an eye on all the various moving parts of inventory in our company. We certainly believe the worst of the issue is what's hitting us now, and we look forward to some more normalized aging levels in the future. Again, to be clear, these aren't write-offs. These are just accounting markdowns. This is very marketable inventory, right? Oh, correct. Yeah. Very sellable, very marketable. Yes. Doug, I think one thing that I'm encouraged about, none of us are happy about the over inventory position. It does allow us to move it, and we can focus with cash. Through our transition, which has been extensive, we have not disappointed the consumer or our customer, I guess. We've met deliveries, we've done major transition, major shutdowns, major moves of production equipment, and we have serviced. That's a positive nod to the situation, but we certainly are over-stocked today, and we'll manage that, but atleast we didn't have customer fall out. No, it's important to manage your customer service while you're doing all this stuff under the surface, right? For sure. You can't let the customer see all this and be impacted by it. For sure. We talk about the housing cycle, and it is a cyclical business. Really, when you look at your business specifically, we're talking about two cyclical forces here. We've got the housing cycle, which your customers are all involved with, but then you've also got a bedding cycle, which is different than that. How should investors differentiate between those two different cycles? Yeah, I'll take that one, Doug, and that's a good question. You and I have talked about both of those quite a bit, and those are two macro forces that we think a lot about. Outside of general consumer sentiment, which has certainly been challenging, housing is probably as good of a predictor as any in our business. Housing market has been dreadful as of late, and that certainly affects the purchase of furniture. I will tell you, I tend to pay more attention to home sales, like new home sales, than I do housing starts. Basically, we just need people moving, which will fuel a natural desire to upgrade home furnishings. The bedding cycle's a whole another thing. In my 28 years in the business, I've not seen a cycle like this. We're accustomed to ups and downs. That's normal, but it's never extended like it has been. We are in what we think is a historic down cycle, and we do believe the consumer's ready to purchase. The summer selling season is typically ripe for new introductions and promotions at retail, and if we got any consumer sentiment improvement at all, there is upward potential. I do want to be really clear. We aren't predicting that, we aren't forecasting that, and we're managing our business as if the level stays flat. We're committed to structuring our business to be successful in this cycle. Any upside would be really accretive to our profitability, without any question. Yeah, I know. Just recently, one of your customers, Bassett Furniture, reported, and certainly no signs of a cyclical upturn from that report. That was their February quarter, so that's a fairly recent read. From a Culp standpoint, do you see a path to profitability this year, maybe next fiscal year, even without cyclical improvement in the housing market? Well, as I'm touching on it, as we've navigated through our fiscal year 2026, which we're at the very tail end of here, we've been saying that we're making these changes, going through the restructuring, all with the intent of regaining profitability in this current pressured environment. That's been our goal. As we sit now in this last month of our quarter, it's still our goal, and we're pushing to that goal. The current fourth quarter that we're in, of fiscal year 2026, notably will be the first quarter we get a clean look at the vast majority of restructuring costs in the rearview mirror. We're excited about the projects that we've accomplished, that Mary Beth detailed, and we believe we will head into FY 2027 leaner and more aligned. We have commercial and operational activities in sync, and we're driving efficiency effectively. Doug, yes, I am encouraged and cautiously optimistic about FY 2027. I do wish, of course, there was more confidence in the macro demand level, in any kind of return to normalcy of the furniture space. We're executing well, we're getting better, we're winning market share. I do believe all those disciplines get us on a fiscal year 2027 path to profitability. Well, that's encouraging. I think investors would want to hear that because you have to manage to the sales level where you're at, right? Sure. The question is, the flip side then is, what if it does turn? Are you now at a point where you've taken so many costs out of the system that you won't be able to meet elevated demand should the cycle finally turn here? Yeah. This is one Mary Beth is probably chomping to answer, but I'll comment too. That's really the easiest one that we've talked about, and I appreciate it because I do want investors to hear this pretty clearly. No doubt, we've made significant changes to our business and our operating platform. That was very much the right thing to do in this macro environment. Mary Beth commented on it in detail. We are in no way limiting our upside. We have kept the best of the best operating assets, anchored with a world-class platform in North Carolina. We have installed capacity prepared for market improvement. We also have terrific global supply operations and sourcing capabilities that could really handle any demand surge. The key is always planning and logistics, but we have capacity ready to go. Lastly, we have an incredible team filled with professionalism, and the good thing is our people really care. I would certainly welcome demand levels materializing upward. We would take it in a minute. That'd be fantastic, and we're ready for that, Doug. Well, that's good to hear, and it's very encouraging. Iv and Mary Beth, thank you very much for spending time with us today. We appreciate you joining us. Thank you, Doug. Thank you, Doug. We appreciate your time.