Q1 2027 Culp Inc Earnings Call

September 10, 2026

Operator: Good day, and welcome to the Culp, Inc. First Quarter Fiscal 2027 Earnings Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on a touch-tone phone. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Teresa Moore with Finn Partners. Please go ahead.

Speaker #1: Good day, and welcome to the CULP INC first quarter fiscal 2027 earnings conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero.

Speaker #1: After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then 1 on a touchdown phone.

Speaker #1: To withdraw your question, please press star, then 2. Please note this event is being recorded. I would now like to turn the conference over to Theresa Moore with Finn Partners.

Speaker #1: Please go ahead.

Speaker #2: Good morning, and welcome to the CULP conference call to review the company's results for the first quarter of its fiscal 2027 year. As we start, let me state that this morning's call will contain forward-looking statements about the business, financial condition, and prospects of the company.

Teresa Moore: Good morning, and welcome to the Culp conference call to review the company's results for the first quarter of its fiscal 2027 year. As we start, let me state that this morning's call will contain forward-looking statements about the business, financial condition, and prospects of the company. Forward-looking statements are statements that include projections, expectations, or beliefs about future events or results, or otherwise are not statements of historical fact. The actual performance of the company could differ material from that indicated by the forward-looking statements because of various risks and uncertainties. These risks and uncertainties are described in our regular SEC filings, including the company's most recent filing on Form 10-K. Additional risks and uncertainties that we do not presently know about or that we currently consider to be immaterial may also affect our business operations and financial results.

Speaker #2: Forward-looking statements are statements that include projections, expectations, or beliefs about future events or results or otherwise are not statements of historical fact. The actual performance of the company could differ material from that indicated by the forward-looking statements because of various risks and uncertainties.

Speaker #2: These risks and uncertainties are described in our regular SEC filings, including the company's most recent filing on Form 10-K. Additional risks and uncertainties that we do not presently know about or that we currently consider to be immaterial may also affect our business operations and financial results.

Speaker #2: You are cautioned not to place undue reliance on forward-looking statements made today, and each such statement speaks only as of today. We undertake no obligation to update or revise forward-looking statements.

Teresa Moore: You are cautioned to not place undue reliance on forward-looking statements made today, and each such statement speaks only as of today. We undertake no obligation to update or to revise forward-looking statements. In addition, during this call, the company will be discussing non-GAAP financial measurements. A reconciliation of these non-GAAP financial measurements to the most directly comparable GAAP financial measurements is included in the tables to the press release, included as an exhibit to the company's 8-K filed yesterday, and posted on the company's website at www.culp.com. An investor relations presentation is also available on the company's website as a part of the webcast of today's call. I'll now turn the call over to Iv Culp, President and Chief Executive Officer of Culp. Please go ahead, sir.

Speaker #2: In addition, during this call, the company will be discussing non-GAAP financial measurements. A reconciliation of these non-GAAP financial measurements to the most directly comparable GAAP financial measurements is included in the tables to the press release, included as an exhibit to the company's 8-K filed yesterday and posted on the company's website at www.culp.com.

Speaker #2: An investor relations presentation is also available on the company's website as a part of the webcast of today's call. I'll now turn the call over to Ev Culp, President and Chief Executive Officer of CULP.

Speaker #2: Please go ahead, sir.

Speaker #3: Thank you, Theresa. And good morning, and thank you to everyone for joining us today. And for your interest in our company. With me on the call are Ken Bowling, our Chief Financial Officer, and Maribeth Hunsberger, our Chief Operating Officer.

Iv Culp: Thank you, Teresa, and good morning, and thank you to everyone for joining us today and for your interest in our company. With me on the call are Ken Bowling, our Chief Financial Officer, and Mary Beth Hunsberger, our Chief Operating Officer. I will begin the call with some detailed comments. As mentioned in the introduction, we have posted a slide presentation to our website that provides supplemental information for today's discussion. That slide presentation is entitled First Quarter FY27 Supplemental Information. Ken will then review the financial results for the quarter. After that, I'll briefly review our business outlook, and we will take some questions. We view our first quarter performance as indicative of what Culp can achieve on both the top and bottom lines, even in challenging operating environments such as those that continue across the home furnishings industry and the markets we serve.

Speaker #3: I will begin the call with some detailed comments, and as mentioned in the introduction, we have posted a slide presentation to our website that provides supplemental information for today's discussion.

Speaker #3: That slide presentation is entitled "First Quarter: FY27 Supplemental Information." Ken will then review the financial results for the quarter, after that I'll briefly review our business outlook, and we will take some questions.

Speaker #3: We view our first quarter performance as indicative of what CULP can achieve on both the top and bottom lines, even in challenging operating environments, such as those that continue across the home furnishings industry and the markets we serve.

Speaker #3: As we stated in our release, our ability to increase overall sales and profitability year over year during a quarter with one less selling week—and in persistently difficult industry conditions—provides validation to us that our optimized platform and strategies are succeeding.

Iv Culp: As we stated in our release, our ability to increase overall sales and profitability year-over-year during a quarter with one less selling week and in persistently difficult industry conditions provides validation to us that our optimized platform and strategies are succeeding. We have developed valuable resiliency, and we have positioned Culp for success across a broad range of demand scenarios. I'm extremely proud of all of our associates and our leadership team for guiding us through a major restructuring and now a re-energizing of the business. We have successfully executed on many difficult decisions over the last two years in the midst of a trough market, and we are now seeing some solid recovery. Our innovative products are on point. Our supply chain is balanced, and our dedicated employees are second to none.

Speaker #3: We have developed valuable resiliency and we have positioned CULP for success across a broad range of demand scenarios. I'm extremely proud of all of our associates and our leadership team for guiding us through a major restructuring and now a re-energizing of the business.

Speaker #3: We have successfully executed on many difficult decisions over the last two years, in the midst of a trough market. And we are now seeing some solid recovery.

Speaker #3: Our innovative products are on point. Our supply chain is balanced and our dedicated employees are second to none. While we are excited to forge ahead, we are particularly bullish on our prospects as and when business conditions return to greater normalcy.

Iv Culp: While we are excited to forge ahead, we are particularly bullish on our prospects as and when business conditions return to greater normalcy. During the quarter, we increased gross profit by nearly 17% and generated positive adjusted EBITDA, even excluding the benefit of approximately $7 million in IEEPA tariff recoveries recognized during the quarter. This successful improvement is displayed graphically on pages 8 and 9 of the supplemental presentation. Again, these results reflect the cumulative impact of the transformation initiatives we undertook approximately two years ago when we began a comprehensive restructuring of our bedding business and then integrated our formerly separate bedding and upholstery operations into a unified platform. Along the way, we closed and consolidated facilities, exited certain markets, expanded into others, implemented numerous cost reduction initiatives, and we fundamentally reexamined how we operate and go to market.

Speaker #3: During the quarter, we increased gross profit by nearly 17% and generated positive adjusted EBITDA, even excluding the benefit of approximately $7 million in IEPA tariff recoveries recognized during the quarter.

Speaker #3: This successful improvement is displayed graphically on pages 8 and 9 of the supplemental presentation. Again, these results reflect the cumulative impact of the transformation initiatives we undertook approximately two years ago, when we began a comprehensive restructuring of our betting business, and then integrated our formerly separate betting and upholstery operations into a unified platform.

Speaker #3: Along the way, we closed and consolidated facilities, exited certain markets, expanded into others, implemented numerous cost reduction initiatives, and we fundamentally re-examined how we operate and go to market.

Speaker #3: Those efforts required tremendous execution, all while maintaining the high service levels our customers expect. While we recognize there is still work to do, and our results are not yet what we ultimately expect to achieve, in a more favorable operating environment, we are encouraged by the progress, reflected in our performance, and truly grateful for the commitment of our global team in making this transformation successful.

Iv Culp: Those efforts required tremendous execution, all while maintaining the high service levels our customers expect. While we recognize there is still work to do and our results are not yet what we ultimately expect to achieve in a more favorable operating environment, we are encouraged by the progress reflected in our performance and truly grateful for the commitment of our global team in making this transformation successful. A summary of all these restructuring actions is covered on pages 5 through 7 of the supplemental deck. I'd like to spend a moment discussing the tariff recoveries recognized during this quarter. We were pleased to realize these recoveries, particularly given the significant impact those tariffs had on prior year's results. As Ken Bowling will discuss in more detail, we elected to deploy the full amount of these recoveries to further strengthen our balance sheet.

Speaker #3: A summary of all these restructuring actions is covered on pages 5 through 7 of the supplemental deck. I'd like to spend a moment discussing the tariff recoveries recognized during this quarter.

Speaker #3: We were pleased to realize these recoveries, particularly given the significant impact those tariffs had on prior years' results. As Ken will discuss in more detail, we elected to deploy the full amount of these recoveries to further strengthen our balance sheet, combined with our ongoing success in lowering and managing our inventory levels.

Iv Culp: Combined with our ongoing success in lowering and managing our inventory levels, this contributed to a significant improvement in our financial position. We ended the quarter approximately $3 million in net debt, roughly a 70% reduction from our position at the end of fiscal 2026. Looking ahead, we remain focused on disciplined working capital management and continued debt reduction with the goal of returning to a net cash position this fiscal year. Our ability to achieve this level of progress on the balance sheet while simultaneously delivering year-over-year growth in revenue and profitability in challenging market conditions is further testament to the effectiveness of our strategic initiatives and the strong execution of our team. Additional information regarding our balance sheet and capital structure can be found on page 10 of the supplemental presentation.

Speaker #3: This contributed to a significant improvement in our financial position. We ended the quarter at approximately $3 million in net debt, roughly a 70% reduction from our position at the end of fiscal '26.

Speaker #3: Looking ahead, we remain focused on disciplined working capital management and continued debt reduction, with the goal of returning to a net cash position this fiscal year.

Speaker #3: Our ability to achieve this level of progress on the balance sheet, while simultaneously delivering year-over-year growth in revenue and profitability in challenging market conditions, is further testament to the effectiveness of our strategic initiatives and the strong execution of our team.

Speaker #3: Additional information regarding our balance sheet and capital structure can be found on page 10 of the supplemental presentation. Our betting business was a major contributor to the success this quarter, growing sales by more than 13% despite continued weakness in overall industry demand and the impact of one fewer shipping week compared to the prior year period.

Iv Culp: Our bedding business was a major contributor to the success this quarter, growing sales by more than 13%, despite continued weakness in overall industry demand and the impact of one fewer shipping week compared to the prior year period. Based on the market data available to us, we believe our growth materially outpaced the broader industry trend from both a unit and dollar volume perspective. When compared with industry shipment data published by the International Sleep Products Association, which is included on page 20 and 21 of our presentation, our bedding top line is particularly compelling. As we look ahead, there continues to be considerable discussion across the industry about the timing and magnitude of a recovery in bedding demand following the last several years of depressed conditions.

Speaker #3: Based on the market data available to us, we believe our growth materially outpaced the broader industry trend from both a unit and dollar volume perspective.

Speaker #3: When compared with industry shipment data published by the International Fleet Products Association, which is included on page 20 and 21 of our presentation, our betting top line is particularly compelling.

Speaker #3: As we look ahead, there continues to be considerable discussion across the industry about the timing and magnitude of a recovery in bedding demand following the last several years of depressed conditions.

Speaker #3: ISPA's latest forecast continues to point to modest shipment growth beginning in calendar year 2027. And we generally share the view that the industry is at or near the point where a more normalized replacement cycle could begin to Matrix replacement activity in the US has remained below historical levels for an extended period, and that's shown on page 22 of our supplemental deck.

Iv Culp: ISPA's latest forecast continues to point to modest shipment growth beginning in calendar year 2027, and we generally share the view that the industry is at or near the point where a more normalized replacement cycle could begin to emerge. Mattress replacement activity in the US has remained below historical levels for an extended period, and that's shown on page 22 of our supplemental deck. We believe that dynamic suggests there may be some pent-up demand that drives market improvement over time. However, I will note that a meaningful acceleration in unit demand will likely require stronger consumer confidence and a corresponding increase in discretionary spending to drive traffic into mattress retail stores. Against this challenging backdrop, we are particularly encouraged by the performance of our bedding business and its double-digit sales growth over the last two quarters.

Speaker #3: And we believe that dynamic suggests there may be some pent-up demand that drives market improvement over time. However, I will note that a meaningful acceleration in unit demand will likely require stronger consumer confidence and a corresponding increase in discretionary spending to drive traffic into mattress retail stores.

Speaker #3: Against this challenging backdrop, we are particularly encouraged by the performance of our bedding business and its double-digit sales growth over the last two quarters.

Speaker #3: We believe this reflects our strategic investments over the past several years to strengthen our US manufacturing platform, while also expanding the flexibility and scale of our nearshore and offshore production capabilities.

Iv Culp: We believe this reflects our strategic investments over the past several years to strengthen our US manufacturing platform while also expanding the flexibility and scale of our nearshore and offshore production capabilities. This diversified global manufacturing strategy, balanced over five geographies, continues to resonate with customers as they navigate an evolving trade and tariff landscape and look for dependable sourcing solutions. We believe our broad range of manufacturing options, combined with the certainty they provide, has differentiated us in the market and positioned us for more growth as demand ultimately improves and that replacement cycle gains momentum. From a product perspective, our sewn mattress cover category remains an important growth driver during the quarter and serves as a strong example of how our product development efforts and diversified manufacturing are working together to create value.

Speaker #3: This diversified global manufacturing strategy, balanced over five geographies, continues to resonate with customers as they navigate an evolving trade and tariff landscape, and look for dependable sourcing solutions.

Speaker #3: We believe our broad range of manufacturing options, combined with the certainty they provide, has differentiated us in the market and positioned us for more growth as demand ultimately improves and the replacement cycle gains momentum.

Speaker #3: From a product perspective, our sewn matrix cover category remains an important growth driver during the quarter and serves as a strong example of how our product development efforts and diversified manufacturing are working together to create value.

Speaker #3: As we have expanded beyond traditional knitted fabrics, we have simultaneously invested in the infrastructure and expertise necessary to efficiently produce other products, such as quilted sewn covers, through our nearshore and offshore platforms.

Iv Culp: As we have expanded beyond traditional knitted fabrics, we have simultaneously invested in the infrastructure and expertise necessary to efficiently produce other products, such as quilted sewn covers, through our nearshore and offshore platforms. This combination has helped shield us from some of the macro unit erosion and created an attractive solution for our sewn cover customers seeking both innovation and supply chain flexibility. It has also enabled us to deepen a number of strategic customer relationships and gain share with key accounts. Innovation also remains a core component of our long-term growth strategy. Performance fabrics have been a significant driver of growth within our bedding business for many years, and we continue to invest in developing differentiated products that address evolving consumer preferences. During the quarter, we completed testing on several promising new cooling technologies that we expect to incorporate into our product line in the near term.

Speaker #3: This combination has helped shield us from some of the macro unit erosion and created an attractive solution for our sewn cover customers seeking both innovation and supply chain flexibility.

Speaker #3: And it has also enabled us to deepen a number of strategic customer relationships and gain share with key accounts. Innovation also remains a core component of our long-term growth strategy.

Speaker #3: Performance fabrics have been a significant driver of growth within our betting business for many years, and we continue to invest in developing differentiated products that address evolving consumer preferences.

Speaker #3: During the quarter, we completed testing on several promising new cooling technologies, that we expect to incorporate into our product line in the near term.

Speaker #3: We look forward to introducing these new developments later this year and anticipate strong customer interest as the market continues to emphasize products that combine comfort, performance, and temperature management benefits.

Iv Culp: We look forward to introducing these new developments later this year and anticipate strong customer interest as the market continues to emphasize products that combine comfort, performance, and temperature management benefits. For additional context, we have included a timeline highlighting our key product innovation milestones over many years on page 17 of the supplemental presentation. Overall, we remain encouraged by the trajectory of our bedding business and the progress we have made since implementing our restructuring initiatives. We believe the business is well positioned to benefit from an eventual improvement in macroeconomic conditions and a normalization of industry demand trends. Importantly, our current manufacturing footprint provides meaningful capacity for growth, and we believe we can support higher unit volumes with relatively modest incremental costs. As a result, we expect future revenue growth to translate into enhanced operating leverage and improved profitability.

Speaker #3: For additional context, we have included a timeline highlighting our key product innovation milestones, over many years on page 17 of the supplemental presentation. Overall, we remain encouraged by the trajectory of our betting business and the progress we have made since implementing our restructuring initiatives.

Speaker #3: We believe the business is well positioned to benefit from an eventual improvement in macroeconomic conditions and a normalization of industry demand trends. Importantly, our current manufacturing footprint provides meaningful capacity for growth.

Speaker #3: And we believe we can support higher unit volumes with relatively modest incremental costs. As a result, we respect future revenue growth to translate into enhanced operating leverage and improved profitability.

Speaker #3: Turning to our upholstery business, we were encouraged by our performance during the quarter. Sales were largely comparable to the prior-year period, despite a shorter selling period and continued softness within residential furniture, which remains the largest in-market for our upholstery business.

Iv Culp: Turning to our upholstery business, we were encouraged by our performance during the quarter. Sales were largely comparable to the prior year period, despite a shorter selling period and continued softness within residential furniture, which remains the largest end market for our upholstery business. Equally important, we were able to maintain relatively stable gross profit margins despite the challenging demand environment. We believe this reflects the benefits of the actions we took last year to streamline our cost structure and integrate our operations, which have enhanced the consistency of our upholstery business in a manner similar to bedding. In the residential channel, we are pleased with our placement rates, but we believe a sustained recovery there will depend on broader improvement in macroeconomic conditions. Trends in housing activity and mortgage rates remain particularly important variables, given their influence on consumer confidence and discretionary spending on home-related purchases like furniture.

Speaker #3: Equally important, we were able to maintain relatively stable gross profit margins despite the challenging demand environment. We believe this reflects the benefits of the actions we took last year, to streamline our cost structure and integrate our operations, which have enhanced the consistency of our upholstery business in a manner similar to betting.

Speaker #3: In the residential channel, we are pleased with our placement rates, but we believe a sustained recovery there will depend on broader improvement in macroeconomic conditions.

Speaker #3: Trends in housing activity and mortgage rates remain particularly important variables, given their influence on consumer confidence and discretionary spending on home-related purchases like furniture.

Speaker #3: We have included some macro trend data that we believe impacts our upholstery business in the posted presentations on pages 23 through 27. From a diversification perspective, we continue to invest in expanding our customer relationships in Asia and other international markets.

Iv Culp: We have included some macro trend data that we believe impacts our upholstery business in the posted presentations on pages 23 through 27. From a diversification perspective, we continue to invest in expanding our customer relationships in Asia and other international markets. While these regions currently represent a relatively modest portion of our upholstery business, we believe they offer attractive long-term opportunities. Our established manufacturing platform in China, combined with our operational capabilities in Vietnam and our global sourcing network, provides us with the flexibility to serve customers across multiple geographies. Over time, we believe these capabilities can help diversify our upholstery revenue and create additional growth opportunities. We were also pleased to see improving conditions in our hospitality and commercial upholstery fabric markets during the quarter, with both verticals delivering year-over-year growth.

Speaker #3: While these regions currently represent a relatively modest portion of our upholstery business, we believe they offer attractive long-term opportunities. Our established manufacturing platform in China, combined with our operational capabilities in Vietnam and our global sourcing network, provides us with the flexibility to serve customers across multiple geographies.

Speaker #3: Over time, we believe these capabilities can help diversify our upholstery revenue, and create additional growth opportunities. We were also pleased to see improving conditions in our hospitality and commercial upholstery fabric markets during the quarter.

Speaker #3: With both verticals delivering year-over-year growth, we believe these areas present attractive opportunities as we move through the year, especially as travel activity, hospitality spending, and commercial project development continue to normalize.

Iv Culp: We believe these areas present attractive opportunities as we move through the year, especially as travel activity, hospitality spending, and commercial project development continue to normalize. An important aspect of these markets is that many customers operate under established brand and performance standards that suppliers must meet to qualify. Those qualification requirements can create meaningful competitive advantages for Culp and support longer-term customer relationships. As a result, we remain focused on supplying both fabric and window treatment products to these end markets. Product innovation is also a key long-term growth factor for our upholstery strategy. Performance fabrics continue to be an essential component of any comprehensive upholstery line, and we are committed to staying ahead of emerging trends and technology in this category.

Speaker #3: An important aspect of these markets is that many customers operate under established brand and performance standards. That suppliers must meet to qualify. Those qualification requirements can create meaningful competitive advantages for CULP, and support longer-term customer relationships.

Speaker #3: As a result, we remain focused on supplying both fabric and window treatment products to these end markets. Product innovation is also a key long-term growth factor for our upholstery strategy.

Speaker #3: Performance fabrics continue to be an essential component of any comprehensive upholstery line, and we are committed to staying ahead of emerging trends and technology in this category.

Speaker #3: In connection with Project Blaze, and the integration of our formerly separate divisions into a unified CULP-branded platform, one of our objectives has been to more efficiently and effectively leverage the brand equity we have built through decades of product innovation, quality, and customer service.

Iv Culp: In connection with Project Blaze and the integration of our formerly separate divisions into a unified Culp-branded platform, one of our objectives has been to more efficiently and effectively leverage the brand equity we have built through decades of product innovation, quality, and customer service. Our LiveSmart technology used in upholstery fabric is a good example of how we have successfully created brand recognition with customers through differentiated performance benefits. Building on that success, we are currently developing a broader family of branded performance products designed to strengthen customer and consumer awareness and loyalty across our upholstery and bedding businesses. While we are not yet ready to share all the details, we believe these initiatives represent a meaningful opportunity to further differentiate and streamline our product portfolio, enhance the value of the Culp brand, and drive long-term growth. We look forward to providing additional updates as these programs progress.

Speaker #3: Our LiftSmart technology used in upholstery fabric is a good example of how we have successfully created brand recognition, with customers through differentiated performance benefits.

Speaker #3: Building on that success, we are currently developing a broader family of branded performance products, designed to strengthen customer and consumer awareness, and loyalty across our upholstery and betting businesses.

Speaker #3: While we are not yet ready to share all the details, we believe these initiatives represent a meaningful opportunity to further differentiate and streamline our product portfolio, enhance the value of the CULP brand, and drive long-term growth.

Speaker #3: We look forward to providing additional updates as these programs progress. As a final comment on our overall business, we are optimistic about our momentum entering the second quarter, and believe our lower cost structure and global footprint position us for continued success in this low-demand environment, while supporting the acceleration and profitability as conditions improve.

Iv Culp: As a final comment on our overall business, we are optimistic about our momentum entering the Q2 and believe our lower cost structure and global footprint position us for continued success in this low-demand environment while supporting the acceleration and profitability as conditions improve. In addition, we believe our pricing is currently aligned with the tariff environment, and we are confident in our commercial growth strategies under the leadership of our consolidated Chief Commercial Officer, Tommy Bruno. However, the trade landscape remains dynamic and can change quickly. As a result, we expect tariff-related trade policy to remain an important market consideration and a potential source of disruption going forward. Before I turn the call over to Ken, I want to update you on our succession plans for his Chief Financial Officer role.

Speaker #3: In addition, we believe our pricing is currently aligned with the tariff environment, and we are confident in our commercial growth strategies under the leadership of our consolidated chief commercial officer, Tommy Bruno.

Speaker #3: However, the trade landscape remains dynamic and can change quickly. As a result, we expect tariff-related trade policy to remain an important market consideration, and a potential source of disruption.

Speaker #3: Going forward, before I turn the call over to Ken, I want to update you on our succession plans for his Chief Financial Officer role.

Speaker #3: As we announced back in January, Ken has been planning to retire from the CFO role, but kindly offered to stay with us during 2026 to facilitate an effective transition of his responsibilities to a successor we may identify.

Iv Culp: As we announced back in January, Ken has been planning to retire from the CFO role, but kindly offered to stay with us during 2026 to facilitate an effective transition of his responsibilities to a successor we may identify. I want to again extend our gratitude to Ken for all he has achieved throughout his almost 30 years with Culp, and for both his leadership and loyalty throughout his tenure. Ken leaves some big shoes to fill, and we are grateful he has agreed to stay with Culp through December to help with the smooth transition to his successor, who I am excited to announce is Mary Beth Hunsberger, who is with us on the call today.

Speaker #3: I want to again extend our gratitude to Ken for all he has achieved throughout his almost 30 years with CULP, and for both his leadership and loyalty throughout his tenure.

Speaker #3: Ken leaves some big shoes to fill, and we're grateful he has agreed to stay with CULP through December, to help with a smooth transition to his successor.

Speaker #3: Who I'm excited to announce is Mary Beth Hunsberger, who is with us on the call today. Many of you will recall that when we were digesting Ken's decision to retire earlier this year, we began to focus on our chief financial officer role, and the context of our Project Blaze integration initiative, and its emphasis on change across our company, intended to drive efficiencies where practical.

Iv Culp: Many of you will recall that when we were digesting Ken's decision to retire earlier this year, we began to focus on our Chief Financial Officer role in the context of our Project Blaze integration initiative and its emphasis on change across our company intended to drive efficiencies where practical. Through that lens, we established a plan for Mary Beth to begin working closely with Ken with the goal of immediately taking a more active role in some of the operational and FP&A functions of the CFO role. Based on the success of that collaboration, as well as Mary Beth's acumen and invaluable knowledge of our business, we are excited to take the next step of appointing Mary Beth to succeed Ken as our Chief Financial Officer, effective 14 September 2026. Mary Beth will also retain the operational oversight responsibilities of her current role with us.

Speaker #3: Through that lens, we established a plan for Mary Beth to begin working closely with Ken, with the goal of immediately taking a more active role in some of the operational and FP&A functions of the CFO role.

Speaker #3: Based on the success of that collaboration, as well as Mary Beth's acumen in invaluable knowledge of our business, we are excited to take the next step of appointing Mary Beth to succeed Ken as our chief financial officer effective September 14, 2026.

Speaker #3: Mary Beth will also retain the operational oversight responsibilities of her current role with us. Mary Beth joined us at CULP several years ago as president of what was then our CULP Upholstery division, and subsequently moved into the chief operating officer role in May ’25.

Iv Culp: Mary Beth joined us at Culp several years ago as President of what was then our Culp Upholstery division, and subsequently moved into the Chief Operating Officer role in May 2025. Before Culp, she spent substantial time in financial leadership roles, including several years with Tempur Sealy, a key customer of ours now known as Somnigroup, and a variety of accounting and executive roles, including CFO, COO, and President of multinational furniture companies. We are very excited to have Mary Beth take on this financial leadership role and also continue to drive operational excellence across our global platform. We believe it is a natural fit for her skill set and experience, and she will help drive even greater connectivity amongst our executive team.

Speaker #3: Before CULP, she spent substantial time in the financial leadership roles, including several years with Tempra Sealey, a key customer of ours now known as Somni Group, and a variety of accounting and executive roles.

Speaker #3: Including CFO, COO, and president of multinational furniture companies. We are very excited to have Mary Beth take on this financial leadership role, and also continue to drive operational excellence across our global platform.

Speaker #3: We believe it is a natural fit for her skill set and experience, and she will help drive even greater connectivity among our executive team.

Speaker #3: And again, we're extremely grateful to Ken for agreeing to serve in the CFO role through this official transition, and to stay on in the consulting capacity through the end of the calendar year.

Iv Culp: Again, we are extremely grateful to Ken for agreeing to serve in the CFO role through this official transition and to stay on in a consulting capacity through the end of the calendar year. Lastly, as a final note to our celebration of all these moves, I would like to wish Ken a happy birthday. With that, I will turn the call over to Ken.

Speaker #3: Lastly, as a final note to our celebration of all these moves, I would like to wish Ken a happy birthday. With that, I'll turn the call over to Ken.

Speaker #1: Thanks for the kind words, Eve. I appreciate that. And thank you for your leadership and support. On a personal note, this is my 78th earnings call, spanning almost 20 years as CULP CFO.

Ken Bowling: Thanks for the kind words, Iv. I appreciate that, and thank you for your leadership and support. On a personal note, this is my 78th earnings call, spanning almost 20 years as Culp CFO. It has certainly been an honor and a privilege to serve as CFO during that time. Admittedly, it has been an eventful ride with good and rewarding times, but also times when we had to overcome some significant headwinds. Looking ahead, I have never been more confident in Culp’s future, and I am excited for Mary Beth as she takes on the CFO role. I know she will do a great job, and I am totally committed to supporting her and the full executive team in this transition. Now on to the financial highlights for the first quarter.

Speaker #1: It has certainly been an honor and a privilege to serve as CFO during that time. Admittedly, it has been an eventful ride, with good and rewarding times, but also times when we had to overcome some significant headwinds.

Speaker #1: Looking ahead, I have never been more confident in CULP's future, and I'm excited for Mary Beth as she takes on the CFO role. I know she will do a great job, and I'm totally committed to supporting her and the full executive team in this transition.

Speaker #1: Now on to the financial highlights for the first quarter. Net sales for the first quarter, which as Eve mentioned, included one last week this time around, were $54 million, compared to $50.7 million in the prior year period.

Ken Bowling: Net sales for the first quarter, which as Iv mentioned, included one last week this time around, were $54 million, compared to $50.7 million in the prior year period. The increase was driven primarily by the double-digit sales growth in our bedding segment. Gross profit for the quarter was $15.4 million, or 28.5% of sales, compared to prior year period gross profit of $7.2 million, or 14.3% of sales. A key driver in the improvement were the one-time benefits from the IEEPA tariff expense recoveries, but the refunds were certainly not the whole story. Higher sales and the cost and efficiency benefits flowing from our recently completed restructuring and integration actions were also significant contributing factors. Excluding the tariff recoveries, gross profit for the first quarter was $8.4 million, or 15.6% of sales, which is an approximately 17% increase over the prior year period.

Speaker #1: The increase was driven primarily by the double-digit sales growth in our betting segment. Gross profit for the quarter was $15.4 million, or $28.5% of sales, compared to the prior year period gross profit of $7.2 million, or $14.3% of sales.

Speaker #1: A key driver in the improvement were the one-time benefits from the IEPA tariff expense recoveries, but the refunds were certainly not the whole story.

Speaker #1: Higher sales and the cost and efficiency benefits flowing from our recently completed restructuring and integration actions were also significant contributing factors. Excluding the tariff recoveries, gross profit for the first quarter was $8.4 million, or 15.6% of sales, which is approximately a 17% increase over the prior year period.

Speaker #1: SG&A expenses for the first quarter were favorably down to $8.7 million, or 16.1% of sales, compared to $9.1 million, or 18% of sales, in the prior year period, reflecting the benefits of our restructuring actions.

Ken Bowling: SG&A expenses for the first quarter were favorably down to $8.7 million, or 16.1% of sales, compared to $9.1 million or 18% of sales in the prior year period, reflecting the benefits of our restructuring actions. Operating income for the quarter was $6.7 million or 12.4% of sales, compared with operating income of $1.6 million or 3.2% of sales in the prior year period, with tariff recoveries, higher sales, and better operating leverage from lower costs and enhanced efficiencies driving the improvement. Excluding tariff recoveries, non-GAAP operating loss for the quarter was -$271,000, a significant improvement from a non-GAAP operating loss of -$1.9 million in the prior year period. Net income for the first quarter was $6 million or $0.47 per diluted share, compared with a net loss of -$231,000 or a negative $0.02 per diluted share in the prior year period.

Speaker #1: Operating income for the quarter was $6.7 million, or $12.4% of sales, compared with operating income of $1.6 million, or $3.2% of sales, in the prior year period, with tariff recoveries, higher sales, and better operating leverage, with lower cost and enhanced efficiencies driving the improvement.

Speaker #1: Excluding tariff recoveries, non-GAAP operating loss for the quarter was $271,000, a significant improvement from a non-GAAP operating loss of $1.9 million in the prior year period.

Speaker #1: Net income for the first quarter was $6 million, or $0.47 per diluted share, compared with a net loss of $231,000, or negative $0.02 per diluted share in the prior year period.

Speaker #1: EBITDA adjusted for the impacts of stock-based compensation, non-cash foreign exchange charges, certain insurance and legal recovery proceeds, and the benefit of the tariff expense recovery was $566,000 for the first quarter, compared to a negative $938,000 in the prior year period.

Ken Bowling: EBITDA adjusted for the impacts of stock-based compensation, non-cash foreign exchange charges, certain insurance and legal recovery proceeds, and the benefit of the tariff expense recovery was $566,000 for the first quarter, compared to a negative $938,000 in the prior year period. This year-over-year increase reflects our improved operating performance during the quarter, driven mostly from continuing momentum in our Bedding segment. Our effective income tax rate for the first quarter was 12.7%, compared with 120.3% for the same period a year ago, and was impacted by our mix of earnings between the US, which benefited from the tariff expense recovery and our foreign subsidiaries.

Speaker #1: This year-over-year increase reflects our improved operating performance during the quarter, driven mostly by continued momentum in our bedding segment. Our effective income tax rate for the first quarter was 12.7%, compared with 120.3% for the same period a year ago, and was impacted by our mix of earnings between the U.S., which benefited from the tariff expense recovery, and our foreign subsidiaries.

Speaker #1: Notably, last year's 120% tax rate was due to a significantly lower, as compared to this fiscal year, consolidated pre-tax income of $1.1 million, generated from the sale of our Canadian facility, partially offset by a U.S. pre-tax loss derived in large part from our restructuring actions.

Ken Bowling: Notably, last year's 120% tax rate was due to a significantly lower, as compared to this fiscal year, consolidated pre-tax income of $1.1 million generated from the sale of our Canadian facility, partially offset by a US pre-tax loss derived in large part from our restructuring actions. Importantly, as of the end of last fiscal year, we had approximately $95 million in US federal net operating loss carryforwards with related future income tax benefits of approximately $20 million. Now turning to our reporting segments. For the Bedding segment, sales for the first quarter were $31.8 million, up 13.2% compared with last year's first quarter sales of $28 million, despite having one less week of selling activity this time around. As Iv spoke to earlier, our bedding markets continue to be pressured by low industry demand and challenges from consumer spending and housing market trends.

Speaker #1: Importantly, as of the end of the last fiscal year, we had approximately $95 million in U.S. federal net operating loss carryforwards, with related future income tax benefits of approximately $20 million.

Speaker #1: Now turning to our reporting segments. For the betting segment, sales for the first quarter were $31.8 million, up 13.2% compared with last year's first quarter sales of $28 million, despite having one last week of selling activity this time around.

Speaker #1: As Eve spoke to earlier, our betting markets continued to be pressured by low industry demand and challenges from consumer spending and housing market trends. So, we were pleased to be able to continue our trend of winning share in key target areas and achieve this level of top-line growth in our betting business.

Ken Bowling: We were pleased to be able to continue our trend of winning share in key target areas and achieve this level of top-line growth in our bedding business. Our restructured bedding manufacturing platform drove gross profit of $4.3 million or 13.6% of sales, which is a significant improvement from the prior year period's gross profit of $2.9 million, or 10.5% of sales. This increase was primarily driven by higher sales and efficiency gains. Notably, the Bedding segment gross profit improvement does not factor in the benefit of any tariff expense recoveries allocated to this segment. For the Upholstery segment, sales for the first quarter were $22.2 million, down slightly from the $22.6 million in the prior year period. But when you consider the shorter quarter and selling period this time around, upholstery sales were generally comparable year over year.

Speaker #1: Our restructured bedding manufacturing platform drove gross profit of $4.3 million, or 13.6% of sales, which is a significant improvement from the prior year period's gross profit of $2.9 million, or 10.5% of sales.

Speaker #1: This increase was primarily driven by higher sales and efficiency gains. Notably, the betting segment gross profit improvement does not factor in the benefit of any tariff expense recoveries, allocated to this segment.

Speaker #1: For the upholstery segment, sales for the first quarter were $22.2 million, down slightly from $22.6 million in the prior-year period. However, when you consider the shorter quarter and selling period this time around, upholstery sales were generally comparable year over year.

Speaker #1: Our upholstery markets continued to be pressured by softness in the home furnishings industry and corresponding weakness in the residential upholstery channel. Gross profit in the upholstery segment was $4.1 million, or 18.6% of sales, compared with gross profit of $4.3 million, or 18.9% of sales, in the prior year period.

Ken Bowling: Our upholstery markets continue to be pressured by softness in home furnishings industry and corresponding weakness in the residential upholstery channel. Gross profit in the upholstery segment was $4.1 million, or 18.6% of sales, compared with gross profit of $4.3 million or 18.9% of sales in the prior year period. On a positive note, the slight decline was driven largely by comparable sales, and we are encouraged to see fairly consistent upholstery margins despite the industry softness. Let me turn to the balance sheet. We reported $10.2 million total cash and $13.3 million in outstanding debt as of the end of the first quarter, which equates to a net debt position of $3.1 million.

Speaker #1: On a positive note, the slight decline—I'm sorry, the slight decline was driven largely by comparable sales, and we were encouraged to see fairly consistent upholstery margins despite the industry softness.

Speaker #1: Now let me turn to the balance sheet. We reported $10.2 million in total cash and $13.3 million in outstanding debt as of the end of the first quarter, which equates to a net debt position of $3.1 million.

Speaker #1: This is roughly a 70% reduction in net debt compared to $10.9 million as of the end of the last fiscal year, and was driven primarily by our decision to utilize the full amount of tariff recoveries received during the quarter to reduce our U.S. debt, along with the success of our efforts to reduce inventory levels in recent periods.

Ken Bowling: This is roughly a 70% reduction in net debt compared to $10.9 million as of the end of last fiscal year, and was driven primarily by our decision to utilize the full amount of tariff recoveries received during the quarter to reduce our US debt, along with the success of our efforts to reduce inventory levels in recent periods. We are extremely encouraged by our progress and strength in our balance sheet in recent periods, and I would like to thank the team for all the great work done in this effort. As Iv will touch on more in a moment, we plan to continue to prioritize debt reduction and are focused on potentially eliminating all debt entirely other than the amount of borrowing to take advantage of opportunities at preferred rates in China, and to maintain flexibility in managing our worldwide cash position amongst volatile macro trends.

Speaker #1: We are extremely encouraged by our progress in strengthening our balance sheet in recent periods, and I'd like to thank the team for all the great work done in this effort.

Speaker #1: As Eve will touch on more in a moment, we plan to continue to prioritize debt reduction and our focus on potentially eliminating all debt entirely over other than the amount of borrowings to take advantage of opportunities that preferred rates in China and to maintain flexibility in managing our worldwide cash position amongst volatile macro trends.

Speaker #1: Our liquidity breakdown and other supporting information are covered on page 10 in our investor presentation. Cash flow from operations increased to $8.1 million for the first quarter, from cash used in operations of $695,000 in the prior year period.

Ken Bowling: Our liquidity breakdown and other supporting information are covered on page 10 in our investor presentation. Cash flow from operations increased to $8.1 million for the first quarter, from cash using operations of $695,000 in the prior year period, with the improvement primarily driven by the tariff expense recovery, operating cost efficiencies, as well as favorable working capital trends. Free cash flow increased to $7.8 million for the first quarter compared to the negative free cash flow of $874,000 in the prior year period. Adjusted for capital expenditures and other items, free cash flow increased to $8 million for the first quarter from $311,000 in the prior year period. For some time now, generating free cash flow has been among our highest priorities, along with reducing debt and a key focus throughout all areas of our company, and we are pleased to see the substantial progress in this area.

Speaker #1: With the improvement primarily driven by tariff expense recovery, operating cost efficiencies as well as favorable working capital trends. Free cash flow increased to $7.8 million for the first quarter compared to negative free cash flow of $874,000 in the prior year period.

Speaker #1: Adjusted for capital expenditures and other items, free cash flow increased to $8 million for the first quarter, from $311,000 in the prior-year period.

Speaker #1: For some time now, generating free cash flow has been among our highest priorities. Along with reducing debt and a key focus throughout all areas of our company, and we're pleased to see this substantial progress in this area.

Speaker #1: Capital expenditures were $314,000 for the first quarter, up slightly from $179,000 in the prior year period as we continued to closely manage capital spending on projects targeting operating efficiency gains.

Ken Bowling: Capital expenditures were $314,000 for the first quarter, up slightly from $179,000 in the prior year period, as we continue to closely manage capital spending on projects targeting operating efficiency gains. We expect capital spending for fiscal 2027 to be in the $2.5 million range as we continue to spend only as necessary. Our liquidity as of the end of the first quarter was $29.4 million, consisting of $10.2 million in cash and $19.2 million in borrowing availability under our US and China credit facilities. Additionally, with respect to liquidity, I note that we own our US manufacturing and distribution hub in Stokesdale, North Carolina, and the net book value for the land, building, and building improvements comprising that asset as of the end of the first quarter was approximately $12 million, with an estimated market value of around $40 million.

Speaker #1: We expect capital spending for fiscal 2027 to be in the $2.5 million range, as we continue to spend only as necessary. Our liquidity as of the end of the first quarter was $29.4 million, consisting of $10.2 million in cash and $19.2 million in borrowing availability under our U.S. and China credit facilities.

Speaker #1: Additionally, with respect to liquidity, I note that we own our US manufacturing and distribution hub in Stokesdale, North Carolina, and the net book value for the land, building, and building improvements comprising the asset as of the end of the first quarter was approximately $12 million, with an estimated market value of around $40 million.

Speaker #1: Our net book value per share as of August 2, 2026, was $4.26, and our tangible book value per share as of August 2, 2026, was $4.24.

Ken Bowling: Our net book value per share as of 2 August 2026 was $4.26, and our tangible book value per share as of 2 August 2026 was $4.24. Finally, before I turn the call over to Iv one last time to discuss our updated outlook, I would like to extend a sincere thank you to all my friends and colleagues at Culp and adjacent to Culp, both past and present over the last almost 30 years. It has been a true pleasure to work with such a wonderful group of people and to serve such a great organization. I will miss you all in my retirement, but Culp will be in great hands going forward with Mary Beth. With that, turn it back over to Iv.

Speaker #1: Finally, before I turn the call over to Eve one last time to discuss our updated outlook, I'd like to extend a sincere thank you to all my friends and colleagues at Culp and adjacent to Culp, both past and present, over the last almost 30 years.

Speaker #1: It's been a true pleasure to work with such a wonderful group of people and to serve such a great organization. I'll miss you all in my retirement, but Culp will be in great hands going forward with Mary Beth.

Speaker #1: With that, turning it back over to Eve.

Speaker #2: Thank you, Ken. We certainly wish you all the best, and you will truly be missed. As we indicate in our press release, due to the macroeconomic uncertainty, fluid global trade environment, and related matters, we continue to see that we are providing only limited forward guidance at this time.

Iv Culp: Thank you, Ken. We certainly wish you all the best, and you will truly be missed. As we indicate in our press release, due to the macroeconomic uncertainty, fluid global trade environment, and related matters we continue to see, we are providing only limited forward guidance at this time. Please note that our guidance is based on information available as of today and reflects certain assumptions regarding our business. We do expect to see consistent sequential sales volumes in Q2 with some growth over the prior year period and to continue to outpace bedding industry revenue trends in what we anticipate to remain a pressured demand environment for home furnishings.

Speaker #2: Please note that our guidance is based on information available as of today and reflects certain assumptions regarding our business. We do expect to see consistent, sequential sales volumes in the second quarter, with some growth over the prior year period.

Speaker #2: And to continue to outpace bedding industry revenue trends in what we anticipate will remain a pressured demand environment for home furnishings. We also expect the operational benefits of our recent integration and platform optimization initiatives, along with our recent pricing and strategic actions, to drive break-even operating income for the second quarter.

Iv Culp: We also expect the operational benefits of our recent integration and platform optimization initiatives, along with our recent pricing and strategic actions, to drive break-even operating income for Q2, which would be a significant improvement from the comparable year period in what remains tough operating conditions. We also expect accelerating adjusted EBITDA results for Q2. As Ken indicated, we will continue to prioritize debt reduction and free cash flow generation and expect to continue improving our net debt position throughout Q2, while maintaining some strategic borrowings under our China credit facilities to both maintain flexibility and leverage preferred interest rates. With that, we will now take your questions.

Speaker #2: Which would be a significant improvement from the comparable year period. What remains tough operating conditions. We also expect accelerating adjusted EBITDA results for the second quarter.

Speaker #2: As Ken indicated, we will continue to prioritize debt reduction and free cash flow generation, and we expect to continue improving our net debt position throughout the second quarter.

Speaker #2: While maintaining some strategic borrowings under our China credit facilities, to both maintain flexibility and leverage preferred interest rates. With that, we will now take your questions.

Speaker #3: We will now begin the question and answer session. To ask a question, you may press star, then 1 on your touchstone phone. If you are using a speakerphone, please pick up your handset before pressing the keys.

Operator: We will now begin the question and answer session. To ask a question, you may press star then 1 on your touch-tone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw the question, please press star then 2. Our first question comes from Linda Bolton Weiser with Water Tower Research. Please go ahead.

Speaker #3: If at any time your question has been addressed and you would like to withdraw the question, please press star, then 2. Our first question comes from Linda Bolton Weiser with Water Tower Research.

Speaker #3: Please go ahead.

Speaker #4: Yes, hello. Thank you. Well, congratulations to Ken on a long and terrific career, and best of luck to you in your retirement. And congratulations to Mary Beth on her new role.

Linda Bolton Weiser: Yes. Hello. Thank you. Well, congratulations to Ken on a long and terrific career, and best of luck to you in your retirement. Congratulations to Mary Beth on her new role. And happy birthday, Ken, as well.

Speaker #4: And happy birthday, Ken, as well.

Speaker #1: Oh, thank you. Appreciate that. Thank you very much.

Iv Culp: Oh, thank you. Appreciate that. Thank you very much.

Ken Bowling: Oh, thank you. Appreciate that. Thank you very much.

Linda Bolton Weiser: Actually, maybe I could start out with just a question for Mary Beth, because I know that she spearheaded the integration of your two segments and all of the restructuring that was done. Maybe she could comment on if there is any substantial action still to go here in FY2027 or if pretty much all the substantial actions were completed in FY2026. Then maybe her view on how the restructuring has contributed to the competitiveness of the company. Thanks.

Speaker #4: Actually, maybe I could start out with just a question for Mary Beth, because I know that she spearheaded the integration of your two segments and all of the structuring that was done.

Speaker #4: Maybe she could comment on if there are any substantial actions still to go here in FY27, or if pretty much all the substantial actions were completed in FY26.

Speaker #4: And then maybe her view on how the restructuring has contributed to the competitiveness of the company. Thanks.

Speaker #5: Hey, Linda. Great, great questions. Thank you for those. And happy birthday to Ken. I'll throw that in there. One more time. Yes, I've definitely been working hard along with our teams on the restructuring the last year or two, and while the physical initiatives are much completed, there is plenty of opportunity for continuing to harmonize processes, procedures, really fine-tuning and honing in on some of our efficiencies.

Mary Beth Hunsberger: Hey, Linda. Great question. Thank you for those, and happy birthday to Ken. I would throw that in there one more time. Yes. I have definitely been working hard along with our teams on the restructuring the last year or two, and while the physical initiatives are much completed, there is plenty of opportunity for continuing to harmonize processes, procedures, really fine-tuning and honing in on some of our efficiencies. So yes, while the bulk of the financial and physical changes are done, there are still improvements to be made, and we will continue to work on those. I would say the Project Blaze initiative, as we called it internally, it really has helped us become very nimble. I would say between myself and our Chief Commercial Officer, Tommy Bruno, we have a really tight connection between our sales and operations teams, and that really allows us to meet our customers' needs very nimbly.

Speaker #5: So yes, while the bulk of the financial and physical changes are done, there are still improvements to be made, and we'll continue to work on those.

Speaker #5: And I would say the blaze initiatives, as we called it internally, really has helped us become very nimble. I would say between myself and our chief commercial officer, Tommy Bruno, we have a really tight connection between.

Mary Beth Hunsberger: I would say the Project Blaze initiative, as we called it internally, it really has helped us become very nimble. I would say between myself and our Chief Commercial Officer, Tommy Bruno, we have a really tight connection between our sales and operations teams, and that really allows us to meet our customers' needs very nimbly. I am really pleased about that.

Speaker #5: Sales and operations teams, and that really allows us to meet our customers' needs very nimbly. I'm really pleased about that.

Mary Beth Hunsberger: I am really pleased about that.

Iv Culp: Linda, if I could just tack on to Mary Beth's comments. I think a really good question you asked her, and I am so encouraged by her answer and just how we think about the business. Her taking the step of having oversight as the CFO and then also maintain oversight of operations is really a natural fit, and all the things she is talking about are so encouraging to us because we can drive it from the top through the operations and support the commercial strategy. It really has streamlined our business, and we just have a lot of While she is right, the platform restructuring is finished, there is so much left for us to do. That was a good question and good feedback.

Speaker #2: Linda, if I can just tack on to Mary Beth's comments, I think it really good question. You asked her and I'm so encouraged by her answer and just how we think about the business.

Speaker #2: Her taking the step of having oversight as a CFO, and then also maintaining oversight of operations, is really a natural fit. All the things she's talking about are so encouraging to us because we can drive it from the top through the operations and support the commercial strategy.

Speaker #2: So it really is streamlined our business, and we just have a lot of while she's right, the platform restructuring's finished, there's so much left for us to do.

Speaker #2: So that was a good question and good feedback.

Speaker #4: Great. Thank you. Also, in terms of your commentary on each of the businesses, I guess it was interesting to hear about some cooling innovation, some technology or something coming in betting.

Linda Bolton Weiser: Great. Thank you. Also, in terms of your commentary on each of the businesses, I guess it was interesting to hear about some cooling innovation, some technology or something coming in bedding. That sounds kind of exciting. Can you give a little more information on that? Can you give the rough timing as when we might see new products in that area?

Speaker #4: So that sounds kind of exciting. Can you give a little more information on that? And can you give the timing—the rough timing—of when we might see new products in that area?

Speaker #2: Yeah, certainly. I'm happy to take that one. And as we've been through the tough demand cycle that we harp on so frequently and that the industry continues to talk about, the way we're finding opportunities to grow our business is through some innovation.

Iv Culp: Yeah, certainly. I am happy to take that one. As we have been through the tough demand cycle that we harp on so frequently and that the industry continues to talk about, the way we are finding opportunities to grow our business is through some innovation, and not being so focused on volume, low-end units, thinking about performance and functions of fabrics and end uses that will drive consumer interest. In bedding, for a long time, the story has been cooling, and temperature management is just important to a good night's sleep, and we see that across the industry. We have always done it, and it is part of our mix, but I think we have some new technologies with some key players that are going to really drive some success. We are not ready to launch it, but it is this calendar year, Linda.

Speaker #2: And not being so focused on volume or low-end units, but thinking about performance and functions of fabrics and end uses that will drive consumer interest. So, in bedding, for a long time, the story has been it's just important to a good night's sleep.

Speaker #2: And we see that across the industry. We've always done it, and it's part of our mix, but I think we have some new technologies with some key players that are going to really drive some success.

Speaker #2: So we're not ready to launch it, but it's this calendar year, Linda. So fall towards winter, towards a early launch for a mattress line in the new year.

Iv Culp: So fall towards winter, towards early launch for the mattress line in the new year. It is around the corner, and we will be excited to share more about that as we know it. But just the backdrop of that question is performance features are table stakes for fabrics these days, whether it is bedding or upholstery. So we are constantly looking for innovative stories that will help drive market growth.

Speaker #2: So, it's around the corner, and we'll be excited to share more about that as we know it. But just as the backdrop to that question, performance features are table stakes for fabrics these days, whether it's bedding or upholstery.

Speaker #2: So we're constantly looking for innovative stories that will help drive market growth.

Speaker #4: Great, thank you. And just in terms of your top-line performance in the quarter, I mean, really, it was quite impressive in both segments.

Linda Bolton Weiser: Great. Thank you. Just in terms of your top-line performance in the quarter, really it was quite impressive in both segments. I think with bedding, we kind of understand that it is maybe a little closer to the macro recovery cycle. But I am curious in upholstery, it was sort of flattish, I guess you said, adjusting for the week issue, the one last week. How sustainable do you think that is in upholstery? Do you think that can continue to be flat to up, or is it still going to be kind of choppy on the upholstery side?

Speaker #4: I think with betting, we kind of understand that it's maybe a little closer to the macro recovery cycle, but I'm curious, in upholstery, it was sort of like flattish, I guess you said, adjusting for the week issue, the one last week.

Speaker #4: How sustainable do you think that is in upholstery? I mean, do you think that can continue to be flat to up, or is it still going to be kind of choppy on the upholstery side?

Speaker #2: Well, we look at you had a good question there. You're thinking about the businesses in the right way. We look at them slightly different on the macro trend side.

Iv Culp: Well, you had a good question there. You are thinking about the businesses in the right way. We look at them slightly different on the macro trend side. I know your question is mostly about upholstery, but I will just say for bedding, when you say the macro recovery is closer, I will clean that up just a little bit and say the trends are not supportive of the business. The macro trends are not helping. But people want to sleep better, and they want to feel better when they wake up. So there is a more natural replacement cycle that we believe is active in that segment. It has been a long time, that replacement cycle is due. So while the macro trends aren't helping, I think there is some replacement trend, and I think our position in that space is strong.

Speaker #2: And I know your question is mostly about upholstery, but I'll just say for bedding, when you say the macro recovery is closer—I’ll clean that up just a little bit and say the trends are not supportive of the business.

Speaker #2: The macro trends are not helping. But there is people want to sleep better, and they want to feel better when they wake up. So there's a more natural replacement cycle that we believe is active in that segment.

Speaker #2: It's been a long time that replacement cycle is due. So while the macro trends aren't helping, I think there is some replacement trend, and I think our position in that space is strong.

Speaker #2: And I think we have good strategies and we're winning share in that segment. So that's what's supporting our growth. On the upholstery side, it's a much more fragmented market.

Iv Culp: I think we have good strategies, and we are winning share in that segment. So that is what is supporting our growth. On the upholstery side, it is a much more fragmented market. It is a big space. Furniture can be more deferrable, in my view, than mattress. So consumer confidence trends and housing starts and any kind of housing data is going to hold back furniture in our view. But again, we are doing the right things. We are innovating the right performance products. We are trying to sell the top players in the business. Our placement rate is strong. So I feel good about residential to be relatively consistent. The other kind of secret weapon we have within upholstery is a really good hospitality and commercial fabric business. So we are not tied only to residential.

Speaker #2: It's a big space. Furniture can be more deferrable in my view than mattress. And so consumer confidence trends and housing starts and any kind of housing data is going to hold back furniture in our view.

Speaker #2: But again, we're doing the right things. We're innovating the right performance products. We are trying to sell to the top players in the business. Our placement rate is strong.

Speaker #2: And so I feel good about residential to be relatively consistent. The other kind of secret weapon we have within upholstery is a really good hospitality and commercial fabric business.

Speaker #2: So we're not tied only to residential. We can also do things across that space, and we just design for both industries and believe it gives us some hedge—one can support the other. And so I feel consistent about upholstery.

Iv Culp: We can also do things across that space. We just design for both industries and believe it gives us some hedge. One can support the other. I feel consistent about upholstery. I am looking for better growth in bedding, but I feel consistent about our upholstery trends as well. That is generally positive.

Speaker #2: I'm looking for better growth in betting, but I feel consistent about our upholstery trends as well. So that's generally positive.

Speaker #4: Yes. Thank you. Very helpful. So just moving to margins a little bit, your gross margin in the quarter was up both year over year and sequentially, excluding the tariff refund.

Linda Bolton Weiser: Yeah, thank you. Very helpful. Just moving to margins a little bit. Your gross margin in the quarter was up both year-over-year and sequentially, excluding the tariff refund. So really nice gross margin. How should we think about the sustainability of that gross margin going forward in each of the two businesses?

Speaker #4: So really nice gross margin. How should we think about the sustainability of that margin gross margin going forward in each of the two businesses?

Speaker #2: Linda, thank you for the question. I'm going to pivot that one to Mary Beth also to answer.

Iv Culp: Linda, thank you for the question. I am going to pivot that one to Mary Beth also to answer that.

Speaker #3: Yeah. Good question, Linda. I'm so proud of our improvements on gross margin, particularly on the betting side and they are largely the result of the initiatives we've discussed at length over the last few calls.

Mary Beth Hunsberger: Yeah, good question, Linda. I am so proud of our improvements on gross margin, particularly on the bedding side, and they are largely the result of the initiatives we have discussed at length over the last few calls. So, those are very sustainable. As we mentioned in your first question, we continue to work on synergies, efficiencies. We continue to work on machine efficiency, off quality results, all sorts of metrics that we are measuring to continue to expand that margin into the future, particularly on the bedding. So we are feeling very strong, and we know that is a really important part of our return to a greater profitability level.

Speaker #3: So, those are very sustainable, and as we mentioned in your first question, we continue to work on synergies, efficiencies, and we continue to work on machine efficiency, off-quality results— all sorts of metrics that we're measuring.

Speaker #3: To continue to expand that margin into the future, particularly on the betting. So we're feeling very strong and we know that that's a really important part of our return to a greater profitability level.

Speaker #4: Okay, great. And then your cash flow was very strong in the quarter, again, even excluding the tariff refund aspect of it. And your inventory was down both sequentially, I think, and year over year.

Linda Bolton Weiser: Okay, great. Your cash flow was very strong in the quarter, again, even excluding the tariff refund aspect of it. Your inventory was down, both sequentially, I think, and year over year. What is the outlook for just general working capital performance going forward and inventory in particular, and how that contributes to cash flow performance?

Speaker #4: What is the outlook for kind of just general working capital performance going forward and inventory in particular? And how that contributes to cash flow performance?

Speaker #2: Yeah. Hey, Linda. This is Ken. You're right. First quarter was very strong. I mean, the team has did a great job on inventory reduction.

Ken Bowling: Yeah. Hey, Linda. This is Ken. You are right. Q1 was very strong. The team did a great job on inventory reduction. We had a little bit of offset on some lower AP, but all in all, great reduction there. Going forward, as we said in our prepared remarks, we are going to keep laser-focused on working capital, AR, AP, inventory, and try to generate as much cash flow as we can, keeping that in check. Another thing, we have talked about CapEx spending, controlling that. The main focus, as Iv said, we are going to do everything we can to get our net debt down to continue to get it to as close or maybe to a net cash positive later on in the year. That is going to be our total focus.

Speaker #2: We had a little bit of offset on some lower AP, but all in all, great reduction there. And so, going forward, as we said in our prepared remarks, we're going to keep a laser focus on working capital—AR, AP, inventory—and try to generate as much cash flow as we can, keeping that in check.

Speaker #2: Another thing, we've talked about capex spending, controlling that. The main focus is, if said, we're going to do everything we can to get our net debt down to continue to get it to as close or maybe to a net cash positive later on in the year.

Ken Bowling: The main focus, as Iv said, we are going to do everything we can to get our net debt down to continue to get it to as close or maybe to a net cash positive later on in the year. That is going to be our total focus. Every area is under scrutiny, operations, working capital, every area to get to that goal of getting to an ultimate net cash positive position.

Speaker #2: And so that's going to be our total focus. But every area is under scrutiny—operations, working capital—to get to that goal of getting to an ultimate net cash positive position.

Ken Bowling: Every area is under scrutiny, operations, working capital, every area to get to that goal of getting to an ultimate net cash positive position.

Speaker #4: Okay. And but then I think you commented on keeping your some of your Chinese debt because of the attractive interest rates. Is that debt we're seeing at the end of the first quarter, is that all of the Chinese debt, or is there still a little bit of domestic that you still might pay down in future quarters?

Linda Bolton Weiser: Okay. I think you commented on keeping some of your Chinese debt because of the attractive interest rates. Is that debt we are seeing at the end of Q1, is that all of the Chinese debt, or is there still a little bit of domestic that you still might pay down in future quarters?

Speaker #2: No. We were able to pay down all of our U.S. debt in the first quarter, which was at a higher interest rate. And so, as we said, we're maintaining a certain level of China debt because it's just giving us the flexibility.

Ken Bowling: No, we were able to pay down all of our US debt in the Q1, which was at a higher interest rate. As we said, we are maintaining a certain level of China debt because it is just giving us the flexibility. The interest rate is extremely low and we have several banks in China that we work with, and so that gives us that flexibility to renew the agreement as needed and just be able to protect the bank line in the US. No, the $13.3 million is all China.

Speaker #2: The interest rate is extremely low, and we've got several banks in China that we work with. So that gives us the flexibility to renew the agreement as needed.

Speaker #2: And just be able to protect the bank line in the U.S. But no, the 13.3 is all China.

Speaker #1: And Linda, I've been really proud of Ken's management of our financial stability and maintaining that China debt while we don't need it and probably won't need it as we look ahead.

Iv Culp: Linda, I have been really proud of Ken's management of our financial stability and maintaining that kind of debt. While we do not need it, and probably will not need it as we look ahead, it just feels smart to us to keep it in the macro volatility in the world. We have some global cash flow needs as we transition from our different operating geographies, and to have a very low interest rate borrowings that are actually a positive arbitrage for us, just seems smart. So our focus is going to be on net cash. Out of debt will not be as important to us because we want that strategic debt, but net cash position should be the metric we will be driving at.

Speaker #1: It just feels smart to us to keep it in the macro volatility in the world. I mean, we have some global cash flow needs as we transition from our different operating geographies, and to have very low interest rate borrowings that actually have positive arbitrage for us.

Speaker #1: Just seems smart. So our focus is going to be on net cash. We won't be on out of debt, won't be as important to us because we want that strategic debt.

Speaker #1: But net cash position should be the metric we'll be driving at.

Linda Bolton Weiser: Thanks. That makes sense. Finally, I guess, just kind of thinking out a little bit, assuming we get some recovery in sort of the housing and other macro-related factors, and you have got your new lower cost structure, you are going to get some very good leverage, good earnings, a really much better even cash flow in future years. Have you thought about how you might put to use that free cash flow that you might see in the out years? Are your thoughts towards share repurchase or maybe reinstating a dividend? Maybe you could give us your thoughts on that.

Speaker #4: Thanks. That makes sense. And then finally, I guess, just kind of thinking out a little bit, assuming we get some recovery in sort of the housing and other macro-related factors, and you've got your new cost structure lower cost structure, you're going to get some very good leverage good earnings really much better even cash flow in future years.

Speaker #4: Have you thought about how you might put to use that free cash flow that you might see in the out years? Are your thoughts towards share repurchase or maybe reinstating a dividend?

Speaker #4: Maybe you could give us your thoughts on that.

Speaker #2: Yeah. That's a good question, Linda. We think about it all the time and I can't wait to have that decision to make. Because it would be if you look at our history of our company, over many years, we've had we've done all those things.

Iv Culp: Yeah, that is a good question, Linda. We think about it all the time, and I cannot wait to have that decision to make. Because if you look at our history of our company, over many years, we have done all those things. We have purchased stock when it makes sense. We have had dividends for periods of time. We have looked at strategic ways to grow the business. All those would be in scope for us at the right time. Not to sound like a basketball coach or something, we are just keeping our head on the next game, and we want to just get out of this, any net debt position. Our number one goal is to get to net cash, and when we have a better situation to think about the things you mentioned, all of them will be on the table.

Speaker #2: We've purchased stock when it makes sense. We've had dividends for periods of time. We've looked at strategic ways to grow the business. All those would be in scope for us at the right time.

Speaker #2: But we, just not to sound like a basketball coach or something, we just keep our head on the next game and we want to just get out of this net debt position.

Speaker #2: Our number one goal is to get to net cash. And when we have a better situation to think about the things you mentioned, all of them will be on the table.

Speaker #2: So I'm just not ready to get there yet, but it's in the back of our heads for sure.

Iv Culp: Just not ready to get there yet, but it's in the back of our heads for sure.

Speaker #4: Okay. That makes sense. Well, that's all the questions I had. Thank you very much for letting me ask all those questions. Thanks.

Linda Bolton Weiser: Well, that's all the questions I had. Thank you very much for letting me ask all those questions. Thanks.

Linda Bolton Weiser: Okay, that makes sense. Well, that's all the questions I had. Thank you very much for letting me ask all those questions. Thanks.

Speaker #2: Thank you, Linda. Appreciate you.

Iv Culp: Thank you, Linda. Appreciate you.

Speaker #3: Our next question comes from Anthony Lebedzinski with Sedotia and Company. Please go ahead.

Operator: Our next question comes from Anthony Lebiedzinski with Sidoti & Company. Please go ahead.

Speaker #5: Good morning. Thank you for taking the questions. Certainly, it's great to see the improved top and bottom line results. And let me echo Linda's comments with best wishes for you, Ken, and Mary Beth.

Anthony Lebiedzinski: Good morning. Thank you for taking the questions. Certainly great to see the improved top and bottom line results. Let me echo Linda's comments with the best wishes to you, Ken, and Mary Beth, and happy birthday as well to you, Ken, also.

Speaker #5: And happy birthday as well to you, Ken, also.

Speaker #2: Thank you. I appreciate that.

Iv Culp: Thank you, Anthony. I appreciate that.

Ken Bowling: Thank you, Anthony. I appreciate that.

Speaker #5: You're on the all right. So I do realize that there was one last week of revenue. So there was a little bit of noise in the quarter, I guess.

Anthony Lebiedzinski: Sure enough. All right. I do realize that there was one less week of revenue, so there was a little bit of noise in the quarter, I guess. But can you just talk about pricing and unit volumes in both segments and how they impacted the reported revenue?

Speaker #5: But can you just talk about pricing and unit volumes in both segments, and how they impacted the reported revenue?

Speaker #2: Yeah. Anthony, good question. I think Mary Beth will be the best one to talk about that a little bit. But you're hitting on the two main things.

Iv Culp: Yeah, Anthony, good question. I think Mary Beth will be the best one to talk about that a little bit, but you are hitting on the two main things. For us to get the improving GP is coming from the operational improvements and from very strategic pricing. We have said for a long time, we needed to get pricing to match the cost level. That sounds funny, and it sounds obvious, and why wouldn't you do that? But with the volatility that has been in the market over tariffs and the trade landscape, and just how much pressure, almost in a haphazard manner, was coming at us every day, it took us a minute to get the pricing normalized.

Speaker #2: I mean, for us to get the improving GP is coming from the operational improvements and from very strategic pricing. And we've said for a long time we needed to get pricing to match the cost level.

Speaker #2: And that sounds funny. It sounds obvious. And why wouldn't you do that? But with the volatility that's been in the market over tariffs and the trade landscape, and just how much pressure almost in a haphazard manner was coming at us every day, it took us a minute to get the pricing normalized.

Speaker #2: So now, I feel like I don't know if we can put a percentage to it, Mary Beth—if it's how much is operational improvement, how much is pricing—but both have mattered extensively.

Iv Culp: Now I feel like, I do not know if we can put a percentage to it, Mary Beth, of how much is operational improvement, how much is pricing, but both have mattered extensively to the recovery.

Speaker #2: To the recovery.

Speaker #3: For sure. And as we think about top line, especially embedding I can assure you that a 13% increase over prior year isn't all price.

Mary Beth Hunsberger: For sure. As we think about top line, especially in bedding, I can assure you that a 13% increase over prior year is not all price. There is a definite unit component to that. We have seen expansion of a number of programs that we service, and it is a blend of both. I do not have exact figures off the cuff here, but what we are pleased to know is that while, yes, we have right-sized our price, a lot of our quarterly performance was unit-driven as well.

Speaker #3: There is a definite unit component to that. We've seen expansion of a number of programs that we work that we service and so it is a blend of both.

Speaker #3: So don't have exact figures off the cuff here, but what we're pleased to know is that while yes, we have right sized our price, a lot of our quarterly performance was unit driven as well.

Speaker #2: And we did note, Anthony, in the prepared remarks no one should sleep on the fact no pun intended that our mattress cover business is really a nice add to our bedding segment.

Iv Culp: We did note, Anthony, in the prepared remarks, no one should sleep on the fact, no pun intended, that our mattress cover business is really a nice add to our bedding segment. Covers, while may not be as many units as a pure knit fabric, come with generally a higher price than a standard knit, and we are really doing well with a lot of nice cover placements. That has given us some shield to the macro trend as well.

Speaker #2: Covers, while may not be as many units as appear in knit fabric, come with generally a higher price than a standard knit. And we're really doing well with a lot of nice cover placements.

Speaker #2: So that's given us some shield to the macro trend as well.

Anthony Lebiedzinski: Mm-hmm. That is very helpful color. Just wondering if you have picked up some meaningful new customers, or is the growth more or less coming from existing customers? How do I think about that?

Speaker #5: That's very helpful color. I'm just wondering if you've picked up some meaningful new customers, or is the growth more or less coming from existing customers?

Speaker #5: How do I think about that?

Iv Culp: Well, Anthony, if you think about the bedding segment, it is pretty consolidated and maybe getting more so. So there are not a lot of customers that we do not know of that we can go win new business. But for sure, it is winning better placements with those winning customers or a new part of their business. So I would say it is new products with existing customers, would be the best way I would speak to it. We sort of know the market upwards and backwards, and there is nothing really new that we need to go chase.

Speaker #2: Anthony, if you think about the bedding segment, it's pretty consolidated and maybe getting more so. So there's not there aren't a lot of customers that we don't know of that we can go win new business.

Speaker #2: But for sure, it's winning better placements with those, winning customers or a new part of their business. So I would say it's new products with existing customers.

Speaker #2: That would be the best way I would speak to it. We sort of know the market upwards and backwards, and there's nothing really new that we need to go chase.

Anthony Lebiedzinski: Right.

Speaker #2: We'd just like to have more share with the biggest players. That's kind of how we have to think about it.

Iv Culp: We would just like to have more share with the biggest players. That is kind of how we have to think about it.

Speaker #5: That makes sense. Okay. And then just looking at your slide deck, slide I'm sorry, slide 16, you talk about the upholstery business. You're targeting performance products to be about 40% of total and you're targeting hospitality to be about 30% of total.

Anthony Lebiedzinski: That makes sense. Okay. Looking at your slide deck, slide 16, you talk about the upholstery business. You are targeting performance products to be about 40% of total, and you are targeting hospitality to be about 30% of total. So where are you now in terms of that penetration for both of those metrics and what is the timeframe as to when you think you can get to those numbers?

Speaker #5: So where are you now in terms of that penetration for both of those metrics and what's the timeframe as to when you think you can get to those numbers?

Speaker #2: Yeah. Anthony, I would say those are sort of minimum thresholds for us. The first part, the 40% of performance products, and I mentioned and maybe I was talking with Linda, or maybe it was some prepared remarks.

Iv Culp: Yeah, Anthony, I would say those are sort of minimum thresholds for us. The first part, the 40% of performance products, and I mentioned, and maybe it was talking with Linda, or maybe it was in prepared remarks, performance fabrics are table stakes, and that is just part of the business. So I would say we have already met the threshold there and would expect performance features and upholstery to be even more share than that. On the hospitality contract side, we are over that threshold.

Speaker #2: Performance fabrics are table stakes. And that's just part of the business. So I would say we've already met the threshold there. And would expect performance features in upholstery to be even more share than that.

Speaker #2: And on the hospitality contract side, we're over that threshold. If residential were to get better, the percentages would work itself differently. But today, we're striding even higher than that target in the hospitality contract view.

Anthony Lebiedzinski: Okay.

Iv Culp: If residential were to get better, the percentages would work itself differently, but today we are striding even higher than that target in hospitality contract view. So we are beating both those metrics today.

Speaker #2: So we're beating both those metrics today.

Speaker #5: That's great to hear. Okay. And lastly for me, do you expect to get any additional tariff refunds or do you think this is it for now?

Anthony Lebiedzinski: That is great to hear. Okay. Lastly from me, do you expect to get any additional tariff refunds, or do you think this is it for now?

Iv Culp: Anthony, we have received what we thought we were due.

Iv Culp: Anthony, we have received what we thought we were due. There is more litigation on some of the recent round of tariffs. To me, that is a little bit of noise. I have already stated that I think we have our pricing in line with current costs, and that includes current tariffs. We do not have any active litigation or any significant focus, but call me tomorrow and the answer might be different. So we just wait to see the rules of the game, and I think we are playing the game better than we have in a long time. So, we are encouraged about that.

Speaker #2: Anthony, we have received what we thought we were due. And there's more litigation on some of the recent round of tariffs. To me, that's a little bit of noise.

Iv Culp: There is more litigation on some of the recent round of tariffs. To me, that is a little bit of noise. I have already stated that I think we have our pricing in line with current costs, and that includes current tariffs. We do not have any active litigation or any significant focus, but call me tomorrow and the answer might be different. So we just wait to see the rules of the game, and I think we are playing the game better than we have in a long time. So, we are encouraged about that.

Speaker #2: I've already stated that I think we have our pricing in line with current costs, and that includes current tariffs. We don't have any active litigation or any significant focus.

Speaker #2: But call me tomorrow and the answer might be different. So we'll just wait to see the rules of the game. And I think we're playing the game better than we have in a long time.

Speaker #2: So we're encouraged about that.

Speaker #5: Understood. Well, thank you very much, and best of luck.

Anthony Lebiedzinski: Understood. Well, thank you very much, and best of luck.

Speaker #2: Thank you, Anthony.

Iv Culp: Thank you, Anthony.

Operator: This concludes our question and answer session. I would like to turn the conference back over to Iv Culp for any closing remarks.

Speaker #3: This concludes our question and answer session. I would like to turn the conference back over to Ive Colp for any closing remarks.

Speaker #2: Thank you, Bailey. And again, thank you to everyone for your participation and your interest in CULP. We look forward to updating you on our progress next quarter.

Iv Culp: Thank you, Bailey. Again, thank you to everyone for your participation and your interest in Culp. We look forward to updating you on our progress next quarter. Have a great day.

Speaker #2: Have a great day.

Operator: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.