Q1 2023 Unifi Inc Earnings Call

November 4, 2022

Yeah.

Great Kevin.

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 'twenty twenty-three Unified Inc earnings Conference call.

All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there'll 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.

J Eaker Vice President of Finance you May begin your conference.

Thank you Devin and good morning, everyone. On this call today is al Carey Executive Chairman, Eddie Ingle, Chief Executive Officer, and Craig creates door 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 unify dot com. Please turn to page two of that slide deck for our cautionary.

Statements 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 <unk> projections about the markets in which Unifi 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 unifies 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 will now turn it over to al Carey and you're right Jamie.

Thank you.

Morning, everybody.

I apologize for my voice I lost it.

Hello.

One has been.

Tough quarter.

221.

A contributing factor in that is the slowdown of retail orders for apparel and thats affecting our volume pretty significantly.

This began in the summer and it continues today.

Retailers are reporting retail inventories on apparel being anywhere from 30% to 30% to 80% above a year ago and therefore, many of them are going to be discounting heavily during the black Friday and the holiday season, and hopefully clear out some of this inventory.

But it's uncertain exactly well hidden ordering patterns will return.

We've been affected just like all of those were involved with the apparel industry.

Our North American volume in July August September was down 20% in Asia, 40%.

As you know Asia does a tremendous amount of business in the U S retail, but also those COVID-19 shutdowns are still affecting our business. So it's going to be kind of difficult to have any kind of reasonable forecast are 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.

Walter Super going on we're not sitting here waiting.

We are working on four very important initiatives that will strengthen our long term business and shore up our profitability even in the short term first one as we have already begun a series of actions to reduce our costs in North America. These actions.

Have a big impact on our long term future, but even in the short term.

First half of this year is going to be very tough on volumes and EBITDA on the second half will show improving volumes with 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.

Second thing we're spending our time on is the Repreve brand.

<unk> seen continued interest from our customers on repreve because they feel it helps to maintain their 2025 sustainability goals, which is only two years away.

We have actions that will pull repreve consumer brand awareness, we have information now.

Awareness on Repreve.

Tony 2% unaided.

I am sorry, 22% aided.

15% automated and that's pretty impressive for a brand that doesn't receive very much A&M spend but in the next few months you will see some significant improvement and the Repreve brand awareness through some of the programs. We've put together a third thing we're spending our time on as we completed a market study with the outside firm.

To identify new segments of business that would improve our long term sales and profits in its call 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 had been working on is the renewable part of our credit facility.

This summer Craig create tour and his team began work on that as they saw some of the business trends occurring and it led to an effort that it will take you through the next few minutes put our credit facility Amendment has been complete and we feel very good about it so all in all.

<unk> is a dilemma.

A bit beyond our control.

However, we think it will be temporary and will be ready to get back to servicing customers immediately but I believe in the say 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 Andy at this point.

Thanks, Al and good morning, everyone. Our first quarter fiscal 2023 results, while disappointing were generally consistent with the expectations. We outlined for you last quarter and reflect the difficult operating environment, we anticipated as we entered fiscal 2023.

Despite the challenging environment, our global business model remains robust and we are well positioned to capitalize when the industry sees a return to normalized demand levels. As you can imagine it's quite a stressful time for our employees and I want to thank them in advance for keeping our heads down and not getting distracted as we move through this environment.

Now turning to slide three for an overview of the quarter. Our net sales for the quarter were 179 $5 million down 8% compared to the first quarter of fiscal 2022.

This decline was driven by lower volumes stemming from a stressed demand environment and volatility across the global markets, but especially in the apparel market. As a reminder, many of the worlds largest brands and retailers, Belgium historic inventory levels in calendar 2022, given the supply chain issues that they had experienced in 2020.

And we've seen deep discounting at retail and online now to rightsize that issue.

These actions led to cancellations and push outs as retailers attempted to destock those excess inventories in global apparel production fab.

Al noted and as we cautioned last quarter. This impacted our start to fiscal 2023, and we are expecting it to negatively impact our second quarter also.

Offsetting some of this volume pressure was stronger pricing in the U S.

The pricing adjustments, we made in July and August proved effective in mitigating the cost pressures we experienced during the June quarter.

Tilting in an improved pricing environment during the September quarter.

We are encouraged by our pricing position, despite the benefits being muted by what we see as temporary lower demand levels and we will continue to navigate the fluid macro environment with agility.

Actions to protect our margin profile when necessary.

From a cost perspective, we saw a decline both virgin raw materials and recycled bottles, which occurred during the first quarter.

Specifically <unk> costs have normalized to much more reasonable levels.

Our expectation is that both energy prices.

And the geopolitical situation will remain volatile. However, we hope that it will not be necessary to take pricing actions. During this December quarter. We've.

We've worked hard to establish our strength in the U S and now we are working hard to alleviate temporary cost and volume challenges.

Some of our proactive measures include reducing overall labor hours labor incentives and retention programs.

<unk> non critical travel and expense activity.

Decreasing discretionary spending for advertising marketing and recruiting efforts.

Prioritizing growth and high capital return capital expenditures and lowering raw material purchases, while continuing to take advantage of opportunities.

And we are continuing to push hard in each area of cost savings. These measures will help offset the profitability pressures we are experiencing today, while not sacrificing the underlying strength of the business for future recovery and growth.

Turning more specifically to Brazil and Asia.

<unk> has continued to perform well, but we expect that segments will be battling competitive imports over the next few months.

Entities in China, and India have been gunned pricing their exports much more aggressively placing downward pressure on selling prices in the Brazil market.

For our Asia segment that demand snapshot is very similar to the U S.

Product demand has weakened following high inventories in the supply chain.

And the market is awaiting signals from brands and retailers for renewed ordering patterns.

We are still seeing selected impacts from continued COVID-19 related lockdowns in China.

Turning to slide four which offers a long term view of our pre fiber we believe our long term positive momentum with the Repreve brand remains intact with strong customer adoptions and co branding and $23 5 million Repreve hang tags sent to brand customers during the first quarter.

Repreve fiber products comprised 27% of net sales for the first quarter and were negatively impacted by the demand disruptions I mentioned earlier.

Particular, our Asia segments, which sells mostly repreve fiber products was adversely impacted by pandemic related lockdowns, followed by demand disruptions from brands and retailers.

Once the commercial environment normalizes in Asia and to go with supply chain stabilizes.

We fully expect Repreve sales to bounce back to the <unk>.

Prior levels of sales mix fairly quickly.

Slide five demonstrates our expectations for the quick recovery of Repreve.

We continued to see Repreve momentum build with the launch of new co branded products from quick silver J crew, all Saint <unk> and <unk> during the quarter.

Brands recognize that consumers and Gen Z in particular now expect sustainable options from their favorite brands.

This is also evidenced by the growing popularity of our green bottle hang tags as we ship more hang tags in the Americas in Q1, FY 'twenty three than in any previous quarter.

The <unk> brand partners are an essential component of our brand story during.

During the quarter, we executed social media partnerships with Guy Harvey Igloo in Teva men, Duca, Tom shoes, and Zulu and deeper.

We have several exciting partnerships planned for the upcoming months.

On the activation front, we remain excited about our partnership with both season, we are working closely with executive directors from six college football games to promote sustainability initiatives. We are also gearing up for our bowl bans social media campaign that kicks off later this calendar year as collegiate football team secure the <unk>.

Six wins required to play in a bowl game.

The partnership with Q&A at the end of the season with our mobile <unk> activation at a leading college football Bowl game on mobile tour continues to educate consumers and partners alike.

Benefits of Repreve through a diverse mix of events.

On the beach be fronts. The mobile tour attended Love Sex annual store manager Conference manager first in Las Vegas, and the Surf Expo trade show in Orlando.

From a consumer perspective, the mobile tour Peter College football games on both U S coast incur.

Increasing awareness remains a key focus we renovated our repreve website in early October and the new clean look of the site is designed to resonate with both <unk> and <unk> audiences.

This refined style is also evident across our social media platforms.

Additionally, we have retained a new PR firm and are actively focused on securing both trade and consumer media coverage for both Unifi and Repreve. This.

This investment will pay dividends in the upcoming months and quarters.

Q2 is already off to a strong start from a marketing perspective with several social media partnerships in October including quick silver the M&A and men do come in addition to product launches from both Brooks and Calvin Klein.

We are especially excited about our new women's activewear collaboration with Asics that launched in early October with.

With a comprehensive campaign that included digital social in store and public relations and just last week, we announced a strategic relationship with material science leader <unk> creators of salience to introduce <unk> with Repreve.

Starting with Repreve has the infrared properties of science backed <unk> infrared technology, and the sustainability footprint of reprieve from apparel and sportswear to upholstery fabric and more.

With that I will now turn the call over to Craig Craig.

Thank you Eddie and good morning, everyone. The quarter. We just completed was full of challenges it stemmed from reduced demand by retailers and brands that are pushed out orders and delayed programs.

Unexpected development led to volume weakness in the Americas, driving significant margin pressure and lower than expected profitability.

Outside of the short term disruption, we believe the underlying demand for our products remains strong and our management team is focused on controlling costs and remain nimble as we continue to pursue our long term.

Turning to slide six of the webcast presentation here.

Here, we will begin the review of our reportable segment performance for.

For the Americas segment at two 9% decrease in revenues demonstrates the positive impact of robust pricing efforts, we highlighted throughout the last several quarters.

Set by lower volumes in connections with brand and retailer demand flow through.

In Brazil, which faced new mark fewer market demand headwinds in the just completed quarter demonstrated a more normalized level of strong revenue performance.

The double digit volume growth of 16, 6% is indicative of our strong presence in the region and the demand for our innovative products.

In Asia sales volumes were challenged by recent Covid lockdowns and the overall market demand pressures, while pricing and mix remained strong.

We still expect that the continued interest in sustainable yarns, and our ability to support the local customer and the customer demand will allow for robust underlying revenue performance when the short term disruptions subside.

Turning to slide seven for the quarterly gross profit overview.

Consolidated gross profit decreased from $26 1 million to.

266.

$1 million.

With gross margin declining from 13, 3% to three 7%.

The Americas segment's decline in gross profit and weaker gross margin percentage were attributable to the shortfall in product demand and the associated impact on fixed cost absorption.

We have maintained a strong workforce during these difficult times as we believe that demand will return in the near future and that drove some cost inefficiencies in our facilities.

However, we expect that the additional training and investments in our people will pay future dividends when volume returns and.

In Brazil, the gross profit and margin rate demonstrated the expected normalization that we have discussed in prior quarters and.

And the gross margin of 17, 5% is more indicative of the historical rate for this segment.

The Asia segment maintained a strong gross margin profile with a high proportion of repreve products, albeit at a lower sales level due to the constrained demand.

Our asset light model continues to prove to be a good choice for the Asia region.

Moving on to slide eight which provides a brief update on our balance sheet and capital allocation priorities.

We ended the first quarter of fiscal year, 2023, with $54 $5 million borrowed against our ABL.

$62 $5 million borrowed against our term loan as.

As we described in our earnings release, we completed the refinancing of our asset based lending facility on October 28 2022.

As presented on slide nine among other benefits this new facility increases our borrowing capacity from 2 million to $230 million.

The significant majority of our short term outstanding borrowings into the expanded term loan.

Continues the favorable borrowing rate structure and overall loan flexibility that has been in place for seven years.

The maturity date to October 2027.

And provides helpful liquidity during the current period of demand softness.

I would like to say, thank you to our banking partners Wells Fargo Bank Bank of America first National Bank of Pennsylvania for their support of unified with the new credit facility and I would like to thank the unified financing legal groups for their efforts on this activity.

Under our balanced approach to capital allocation, we expect to continue to invest in the business to drive innovation and organic growth maintain a strong balance sheet and remain opportunistic with share repurchases and or M&A prospects.

As a reminder, $38 $9 million remains available for repurchases under the current share repurchase program.

Lastly, I'll spend a moment reviewing the tax rate.

As the demand pressures drove weakness in the Americas segment gross profit our U S earnings decline.

A lower profitability levels create greater sensitivity and the effective tax rate calculation.

The negative tax rate for the quarter reflects expense incurred for profitable foreign operations, while evaluation allowance fully offsets the assumed benefit on U S losses.

Now I'll pass the call back to Eddie to take us through the last slides in the presentation and make some final comments Eddie thanks.

Thank you Craig before the turn the call over to our Q&A session lets turn to slide 10 of the presentation to discuss our outlook and expectations for the second fiscal quarter.

The operating environment and demand trends, we are seeing both domestically and internationally within the apparel markets are expected to remain fluid for the rest of the calendar year.

As major brands apparel brands and retailers continue to deal with the inventory destocking measures and the timing of apparel production with demand recovery remains uncertain.

Visibility remains constrained, but we expect to see a similar operating environment in the second quarter. Then we expect to see a recovery take hold in the second half of fiscal 2023.

This is in line with prior trends during sharp macro environmental disruption, where we have historically seen two quarters of demand impact and then have bounced back strongly as inventories need to be rebuilt.

But given these short term challenges we believe it is prudent to temporarily shift our guidance to a 40 basis and to be regained some visibility and can make better predictions under an annual approach.

For the second quarter of fiscal 2023, we expect net sales to be 10% to 15% lower than what we reported in Q1 of fiscal 2023. Additionally.

Additionally, our expectation is that pressures on fixed cost absorption will drive lower profitability in the Americas, leading to another quarter of unfavorable EBITDA.

While the current operating environment is challenging the long term growth potential of unify has not changed and we remain optimistic about our future and our position as a global sustainable fiber leader.

Again as inventory levels diminish and demand stabilizes, we expect to see our revenue and profitability accelerate in the second half of the fiscal year. We are pleased to have the additional liquidity afforded by our amended credit facility and we will maintain our strong balance sheet to act opportunistically on growth initiatives as we remain well positioned and focus.

I'm being the sustainability partner of choice to brands across the Globe. We will now open the line for questions.

Okay.

At this time I would like to remind everyone in order to ask a question Press Star then the number one on your telephone keypad.

Our first question comes from Daniel Moore with CJS Securities.

Thank you good morning, thanks for taking the questions.

Let me start with some of the cost reduction actions can you maybe give a little bit more color and quantify the cost savings from some of those actions.

Whether those are temporary or some are more permanent in nature.

Thanks for the question.

Yes, the cost reduction actions are predominantly temporary because we do see this business bounce back.

We are taking for example, we're taking.

Any shutdowns at our Christmas period, and we're also going to take some plant shutdowns.

Thanks, giving holiday, we have pushed out quite a number of.

Activities to later on the year or perhaps into 2024.

So while much of these cost savings.

We will be implemented in Q2 and some into Q3, we do expect the impact to predominantly benefit us in Q3. Thank you.

Got it helpful.

Reprieves you mentioned, obviously some of the momentum with.

New partners to hang tags revenue.

Declined about 33% or so.

I understand the inventory challenges obviously just.

Just kind of.

Reassure it gives what gives you confidence that.

You are maintaining.

Not continuing to grow share in the Asia region.

Yes, it's a great question.

What started out as a slowdown.

In the market because of Covid lockdowns back in the middle of March of last year that extended really through the middle of May and into June .

Turning out into turned also into a slowdown in the orders from the U S brands in the European brands.

And as we went through the quarter. It seems that there was.

A really strong initiative by these brands to just cut back on all of their orders and push out orders.

We know this to be true.

They can cut.

<unk> can't go on forever at some point the brands have to start restocking their inventories as we said on the call.

There is a high expectation that's during the holiday season, there'll be a lot of discounting and as they move through their inventory, we will be seeing orders return in Asia, either before the Chinese new year shortly.

Shortly thereafter.

And got it sorry go ahead I'm sorry, we don't expect any we don't expect any demand for <unk> to change as we as that bounce back happens.

Okay.

And then on the credit facility, obviously proactive.

Just.

Tell us what the covenants are there.

If any in terms of leverage ratios or any other things we might be thinking about on the amended facility. Thank you.

Dan the covenants or the same as the facility expired, which is there is one fixed charge coverage ratio covenant, but its a springing covenant so as long as our excess availability.

It seems the trigger level, which we have plenty of headroom on that now theres really no issues compliance why so really very similar to the facility we just.

Replace.

Got it. Thank you for the color I'll jump back with any follow ups.

Thanks, Dan.

Our next question comes from Anthony <unk> with Sidoti <unk> Company.

Good morning, and thank you for taking the questions.

So just wondering given the current.

We can meet the demand.

NAND environment.

Are you able to are you confident that you'll be able to hold your pricing or are you seeing perhaps euro costs since Q4.

On the discounts is just wondering about your confidence level.

And your ability to hold pricing steady.

It's a great question.

We've spent a lot of time and effort getting to the price point, we need to over.

Over the last really 12 months, we are going to we are under pressure too.

Manage prices down, but we are doing our very best to make sure that we stay.

Strong and maintain the margins that are appropriate to the raw materials.

Cost that we have in place.

Okay Gotcha, Okay, and then in terms of your <unk>.

Capex spending plans.

I know you gave guidance for your quarter.

The current quarter as far as to just thinking about the rest of the year and next year are you still I assume youre still on target to finish the completion of the rollout of the <unk>.

<unk> extreme machines to just kind of.

Sure.

Okay.

Wondering as Capex should come down next year because of that.

Thank you for depression, we.

We've certainly cut back.

All of the Capex programs that we can move outs with the exception of some.

Some issues have maybe potentially from a maintenance point of view or certainly on the any safety initiatives, we have any capex centered around safety, we've not pushed out.

The Evo spending currently is ongoing but as you can imagine we are evaluating.

As we move forward.

The timing of that but right now no decisions have been made about that.

Got it Okay and then.

I think last quarter, you guys talked about.

There would be some inventory write downs in the quarter.

Did I Miss that or was that something that was was that a meaningful here in the quarter that you just reported.

Yeah, So Anthony is that those.

<unk>.

Those write downs and that did have an impact on the business the bigger impact for us really was the lack of volume, especially here in Americas.

And we have been pulling back quite a bit on the amount of raw material. We have been purchasing so as our demand has gone down we have been pretty quick to react and reduce those purchases. So yes, we've now buying at lower prices.

That impact will really not help us didnt help us much in this.

Just completed quarter will help us a little bit as we head into December end and beyond so.

Yes, it was.

Definitely we have been purchasing inventory at higher levels, we had to adjust that we are we have adjusted that.

Fortunately, though.

That inventory is flowing out slower than we expected and slower than we historically have because of this demand.

Demand softness so yesterday that did have an impact on our financials. This past quarter, we'll do so that was factored into our guidance for the December quarter as well.

Gotcha and then my last question.

You mentioned at the beginning of your prepared remarks about the.

Navigate market studies done.

Sure.

Some segments beyond apparel.

So in terms of.

We're looking at auto industrial home, which one do you think out of the ones that shoe sided which ones you think will have.

The closest.

Yes.

Impact in terms of.

The impact on your business I mean.

Out of these.

When do you think we will have we will see the impact sooner rather than later.

Yes.

As we looked at those three different segments. We think home is the one that will give us the quickest.

Jim.

<unk>.

We are.

Adding some programs right now and then.

A lot of the reason for that is because of the quick decision, making that that market can take place, whereas the automotive it takes a long time to get those programs in place et cetera.

Awesome.

That is the one we're focusing on right now thank you.

Got it okay. Thank you and best of luck.

Thanks Anthony.

There are no further questions at this time with that said conclude the Q1 2023 unify inks.

Earnings Conference call. Thank you for attending today's presentation you may now disconnect.

Okay.

Yes.

[music].

Yes.

Sure.

Okay.

Yes.

[music].

Good morning, My name is Devon, 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 speakers' remarks, there will be a question and answer session. If you would like to ask a question. During this time.

Simply press the Star then the number one on your telephone keypad.

If you would like to withdraw your question again press Star and then another one on your telephone keypad.

A J Eaker Vice President of Finance you May begin your conference.

Thank you Devin and good morning, everyone and thank all today is al Carey Executive Chairman, Eddie Ingle, Chief Executive Officer, and Gregory <unk>, 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 unify dot com. Please turn to page two of that slide deck for our cautionary.

Working capital and net debt may be discussed on this call I will now turn it over to Al Carey <unk> Ray J D.

Good morning, everybody.

I apologize for my voice I lost it.

No.

CT warrant.

A tough quarter.

And two to one.

Big contributing factor and that is the slowdown of retail orders for apparel and thats affecting our volume pretty significantly.

This began in the summer and it continues today.

Retailers are reporting retail inventories on apparel being anywhere from 30% to 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 warhead ordering patterns will return.

We've been affected just like all of those were involved with the apparel industry.

Our North American volume in July August September was down 20% in Asia, 40%.

As you know Asia does a tremendous amount of business in U S. Retail, but also those COVID-19 shutdowns are still affecting our business. So it's going to be kind of difficult to have any kind of reasonable forecast towards 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.

Walter.

Going on we're not sitting here waiting.

We are working on four very important initiatives that will strengthen our long term business and shore up our profitability EBIT in the short term.

First one is we've already begun a series of actions to reduce our cost in North America. These actions.

Have a big impact on our long term future, but even in the short term.

First half of this year is going to be very tough on volumes and EBITDA second half will show improving volumes with 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.

Second thing we're spending our time on is the Repreve brand.

<unk> seen continued interest from our customers on repreve because they feel it helps to maintain their 2025 sustainability goals, which is only two years away.

We have actions that will pull repreve consumer brand awareness, we have information now.

The awareness on Repreve.

22% unaided.

I'm, sorry, 22% aided.

15% needed and that's pretty impressive for a brand that doesn't receive very much A&M spend but in the next few months Youll see some significant improvement and the Repreve brand awareness through some of the programs. We've put together a third thing we're spending our time on is we completed the market study with an outside firm.

To identify new segments of business that would improve our long term sales and profit 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 renewable part of our credit facility. This.

This summer Craig create tour 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 the next few minutes put our credit facility Amendment has been complete.

We feel very good about it so all in all.

<unk> is a dilemma, it's a bit beyond our control. However, we think it will be temporary and will be ready to get back to servicing customers immediately but I believe in the say 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 Andy at this point.

Thanks Al.

Good morning, everyone. Our first quarter fiscal 2023 results, while disappointing were generally consistent with the expectations. We outlined for you last quarter and reflect the difficult operating environment, we anticipated as we entered fiscal 2023 despite.

Despite the challenging environment, our global business model remains robust and we are well positioned to capitalize on the industry receives a return to normalized demand levels. As you can imagine it's quite a stressful time for our employees and I want to thank them in advance for keeping our heads down and not getting distracted as we move through this environment.

Turning to slide three for an overview of the quarter. Our net sales for the quarter were 179 $5 million down 8% compared to the first quarter of fiscal 2022.

This decline was driven by lower volumes, which stem from a stressed demand environment and volatility across the global markets, but especially in the apparel market. As a reminder, many of the worlds largest brands and retailers buildup of historic inventory levels in calendar 2022 given.

Given the supply chain issues that they had experienced in 2021.

And we've seen deep discounting at retail and online now to rightsize that issue.

These actions led to cancellations and push outs as retailers attempted to destock those excess inventories in global apparel production film.

As al noted and as we cautioned last quarter. This impacted our start to fiscal 2023, and we are expecting it to negatively impact our second quarter also.

Offsetting some of this volume pressure was stronger pricing in the U S. The pricing adjustments, we made in July and August proved effective in mitigating the cost pressures we experienced during the June quarter, resulting in an improved pricing environment during the September quarter.

We are encouraged by our pricing position, despite the benefits being muted by what we see as temporary lower demand levels and we will continue to navigate the fluid macro environment with agility.

Taking action to protect our margin profile when necessary.

From a cost perspective, we saw a decline both virgin raw materials and recycled bottles, which occurred during the first quarter, specifically <unk> costs have normalized to much more reasonable levels.

Our expectation is that both energy prices and the geopolitical situation will remain volatile. However, we hope that it will not be necessary to take pricing actions. During this December quarter.

We've worked hard to establish our strength in the U S and now we are working hard to alleviate temporary cost and volume challenges.

Some of our proactive measures include reducing overall labor hours labor incentives and retention programs.

<unk> non critical travel and expense activity.

Decreasing discretionary spending for advertising marketing and recruiting efforts.

Prioritizing growth and high capital return capital expenditures and lowering raw material purchases, while continuing to take advantage of opportunities.

Now turning more specifically to Brazil and Asia.

<unk> has continued to perform well, but we expect that segments will be battling competitive imports over the next few months.

Entities in China, and India have been gunned pricing their exports much more aggressively placing downward pressure on selling prices in the Brazilian market.

For our Asia segment, the demand snapshot is very similar to the U S.

Product demand has weakened following high inventories in the supply chain and the market is awaiting signals from brands and retailers for renewed ordering patterns.

We are still seeing selected impacts from continued COVID-19 related lockdowns in China.

Turning to slide four which offers a long term view of our pre fiber we believe our long term positive momentum with the Repreve brand remains intact with strong customer adoptions and co branding and $23 5 million of our pre hang tags sent to brand customers during the first half.

Repreve fiber products comprised 27% of net sales for the first quarter and were negatively impacted by the demand disruptions I mentioned earlier.

Particular, our Asia segments.

Mostly repreve fiber products was adversely impacted by pandemic related lockdowns, followed by demand disruptions from brands and retailers.

Once the commercial environment normalizes in Asia, and the global supply chain stabilizes.

We fully expect repreve sales to bounce back to that.

Prior levels of sales mix fairly quickly.

Slide five demonstrates our expectations for the quick recovery of Repreve.

We continued to see Repreve momentum build with the launch of new co branded products from quick silver J crew, all Saint <unk> and <unk> during the quarter.

Brands recognize that consumers and Gen Z in particular now expect sustainable options from their favorite brands. This is also evidenced by the growing popularity of our green bottle hang tags as we ship more hang tags in the Americas in Q1, FY 'twenty three than in any previous quarter.

The <unk> brand partners are in a central component of our brand story.

During the quarter, we executed social media partnerships with Guy Harvey Igloo in Teva men, Duca, Tom shoes, and Zulu and deeper.

We have several exciting partnerships planned for the upcoming months.

Six wins required to play in a bowl game.

The partnership with Q&A at the end of the season with a mobile <unk> activation at a leading college football Bowl game on mobile tour continues to educate consumers and partners alike about the <unk>.

Benefits of Repreve through a diverse mix of events.

On the beach be fronts. The mobile tour attended Love Sex annual store manager Conference manager first in Las Vegas, and the Surf Expo trade show in Orlando.

From a consumer perspective, the mobile tour I paid a college football games on both U S coast incur.

Increasing awareness remains a key focus we renovated our repreve website in early October and the new clean look of the site is designed to resonate with both <unk> and <unk> audiences.

This refined style is also evident across our social media platforms.

Additionally, we have retained a new PR firm and are actively focused on securing both trade and consumer media coverage for both unifi and reprieve.

This investment will pay dividends in the upcoming months and quarters.

Q2 is already off to a strong start from a marketing perspective with several social media partnerships in October including quick silver the M&A and then do come in addition to product launches from both Brooks and Calvin Klein.

We are especially excited about our new women's activewear collaboration with Asics that launched in early October with.

Starting with Repreve has the infrared properties of science backed <unk> infrared technology, and the sustainability footprint of reprieve from apparel and sportswear to upholstery fabric and more.

With that I will now turn the call over to Craig Craig.

Thank you Eddie and good morning, everyone. The quarter. We just completed was full of challenges that stemmed from reduced demand by retailers and brands that are pushed out orders and delayed programs.

Unexpected development led to volume weakness in the Americas, driving significant margin pressure and lower than expected profitability.

Turning to slide six of the webcast presentation here.

Here, we will begin the review of our reportable segment performance for.

For the Americas segment at two 9% decrease in revenues demonstrates the positive impact of robust pricing efforts, we highlighted throughout the last several quarters.

Set by lower volumes in connections with brand and retailer demand flow through.

In Brazil.

New Mark fewer market demand headwinds in the just completed quarter demonstrated a more normalized level of strong revenue performance.

Double digit volume growth of 16, 6% is indicative of our strong presence in the region and the demand for our innovative products.

In Asia sales volumes were challenged by recent Covid lockdowns and the overall market demand pressures, while pricing and mix remains strong.

We still expect that the continued interest in sustainable yarns, and our ability to support the local customer.

Customer demand will allow for robust underlying revenue performance when the short term disruptions subside.

Turning to slide seven for the quarterly gross profit overview.

Consolidated gross profit decreased from $26 1 million to $6 six.

$1 million with.

With gross margin declining from 13, 3% to three 7%.

The Americas segment decline in gross profit and weaker gross margin percentage were attributable to the shortfall in product demand and the associated impact on fixed cost absorption.