Thank you. Good morning, and welcome to the Culp conference call to review the company's results for the fourth quarter and fiscal 2021. 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 materially 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 filings on Form 10-K and 10-Q. 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 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 either the tables to the press release included as an exhibit to the company's 8-K filed yesterday and posted on the company's Web site at culp.com, or in the slide presentation with supporting summary financial information that is also available on the company's Web site as part of the webcast of today's call. I will now turn the call over to Iv Culp, President and Chief Executive Officer of Culp. Please go ahead, sir.

Good morning, and thank you all for joining us today. I would like to welcome you to the Culp quarterly conference call with analysts and investors. With me on the call today are Ken Bowling, our Chief Financial Officer; and Boyd Chumbley, President of our Upholstery Fabrics business. I will begin the call with some opening comments, and Ken will then review the financial results for the quarter and the full year. I will then update you on the strategic actions in each of our operating segments. And after that, Ken will review our first quarter and fiscal 2022 full year business outlook. We will then be happy to take your questions. We are pleased to have delivered a strong fourth quarter with dramatic sales growth across both our divisions and consolidated operating income in line with expectations. Despite some ongoing headwinds, we ended a tumultuous year with strength and momentum. Demand remained strong during the quarter as consumer focus on the home continued in our robust global platform, utilizing our manufacturing and sourcing capabilities across six countries and our long term supplier relationships, enabled us to service the surge in demand for fabric and sewn covers from both new and existing customers. For the full year, we overcame tremendous adversity to deliver strong growth in sales and operating performance compared to the prior year. Our company's solid foundation, stable supply chain and spirit of innovation, helped us to successfully weather the initial pandemic related downturn in our business at the end of last fiscal year and capitalize on market share opportunities throughout fiscal 2021. The exceptional execution by both divisions during the challenging operating environment strengthened our customer relationships, and generated positive momentum to start fiscal 2022. In addition to our improved sales and operating performance, our cash flow…

Thanks, Iv. As mentioned earlier on the call, we have posted slide presentations to our Investor Relations Web site that cover key performance measures. We have also posted our capital allocation strategy. As a reminder, we present our results on both a GAAP and non-GAAP basis. We believe the non-GAAP presentation better reflects performance of the business as we compare our financial results among comparable financial periods. A reconciliation of the non-GAAP adjustments to the most directly comparable GAAP measurement is included in the tables in our press release and in the tables at the back of the summary financial presentation on our Web site. Here are the financial highlights for the fourth quarter. Net sales were $79.1 million, up 67% compared to the prior year period. Both the business had a strong sales performance for the quarter. Iv will go into more detail on divisional operational performance in a moment. The company reported income from continuing operations of $1.6 million compared with a loss of continuing operations of $18 million for the prior year period, which included $13.7 million in noncash asset impairment charges. Non-GAAP net income from continuing operations for the fourth quarter was $1.4 million or $0.11 per diluted share, which excludes an $819,000 gain on bargain purchase associated with our fourth quarter acquisition of the remaining 50% ownership interest in our former unconsolidated joint venture located in Haiti as well as $742,000 in certain income tax adjustments for the quarter. This compares with a non-GAAP net loss from continuing operations of $5.3 million or $0.43 per diluted share for the prior year period, which excludes $13.7 million in noncash asset impairment charges and $2.8 million in income tax expense. The current quarter was affected by operating inefficiencies incurred in connection with servicing the surge in demand…

Thanks, Ken. I will begin with the mattress fabrics business. We were energized by significant growth and top line performance for the mattress fabrics segment during the fourth quarter. Our increase in sales of 84% year-over-year compared to the prior year period, as well as our top line growth for the full fiscal year of 20% year-over-year was driven by the ongoing consumer focus on the home environment and market share gains across a diversified group of new and existing customers, including further growth in our sewn mattress cover business. Our fabric to cover model as well as our onshore, nearshore and offshore supply chain strategy is preferred. The strength and flexibility of our global manufacturing and sourcing operations in the US, Canada, Haiti, Asia and Turkey, enabled us to support strong demand trends and serve the needs of our mattress fabric and cover customers during the fourth quarter and throughout fiscal 2021. We also continue to benefit from our innovation focus and our virtual design capabilities, including our re.imagined Culp Home Fashions 3D rendering services, which allowed us to strengthen our position with customers and capitalize on market share opportunities. In addition, we believe the domestic mattress industry, and in turn, our business continue to realize some benefits during the fourth quarter from the preliminary antidumping duties imposed in October 2020 by the US Department of Commerce on mattress and imports from seven countries. We are cautiously optimistic that this tailwind will continue during fiscal 2022. As we look ahead into fiscal 2022, we are excited about the expanding depth and expertise of our team with additional engineering and innovation development experience. The importance of mattress product performance has grown exponentially in recent years and we believe this added knowledge is an important factor in maintaining the competitive advantage.…

Although subject to uncertainties, we are encouraged by the execution of our product driven strategy and the continued strength of demand for home furnishing products, as well as our expanding market share reach. We expect sales for the first quarter of fiscal 2022 to increase approximately 20% compared to the prior year period, and we expect our consolidated operating income for the quarter to be significantly improve as compared to the prior year period and as compared to the fourth quarter of fiscal 2021. For the full fiscal 2022 year, we expect net sales to continue to increase moderately and consolidated operating income to increase significantly as compared to fiscal 2021. Notably, our expectations for the first quarter and full fiscal 2022 year are based on information that is available at the time of this webcast presentation and reflects certain assumptions by management regarding our business and trends. The outlook assumes there will be no further pandemic related shutdowns and no material changes in freight and raw material costs, foreign currency exchange rates, recent consumer trends or other circumstances beyond the company's control. Additionally, based on current expectations, capital expenditures for fiscal 2022 are expected to be in the $9 million to $10 million range. Our capital investments will focus on our ongoing strategy of maintenance CapEx, centered in our mattress fabrics business, as well as spending in our upholstery fabrics business with investments in Read Windows and our new Haiti startup. At the corporate level, CapEx spending will include implements in IT infrastructure and security, as well as our new innovation campus in High Point, North Carolina. Depreciation and amortization is expected to be approximately $7.5 million to $8 million for fiscal 2022. With that, we'll now take your questions.

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Congratulations on a strong quarter and nice rebound. A couple of questions, if I could. You talked -- you showed that really good sales growth. Can you give us some feeling of how that's going to continue going forward and what gives you that confidence?

As we talked about in the release, I think I commented we mentioned both in the script and in the printed release, it's a dramatic sales increase we saw in Q4. And I think about that, certainly, and admittedly, it's against a weaker quarter last year. And we have continued -- or continuing to see focus on the home as a safe place, and many consumers are seeing home as a worthy place for upgraded spend. So that's good for our business. Our pandemic backlogs at our customers are strong. And really all of our customers are seeing strong backlogs, which create significant tailwinds for us. But it's more than that, if I think going forward both businesses that we touched on a lot are flourishing innovation in products and processes. That means new products, new developments, it means cut and sew development around the world. It's a robust sales mix that's really, I think, growing our market penetration in both mattress fabrics and upholstery fabrics. So we see a strong year. And I guess it's important, we are forecasting a moderate sales growth for all of 2022 but that's on a backdrop of significant sales growth last year. So we absorbed the growth we've had and now we're going to continue growing, which gives us quite a bit of optimism.

Well, let's drill down a little bit into that. You talked about 20% in the first quarter. How does that split out between Culp home fashions and Culp upholstery fabrics? How do you -- are they about equal in terms of rate of growth or is it one better than the other in your crystal ball?

I think when you look at the first quarter, I think there's a little bit more upward trend for upholstery fabrics as compared to mattress fabrics. Both of them are doing quite well, but I think as we go into the first quarter, there's a little bit more growth opportunity for upholstery fabrics as compared to mattress.

And then both of them relatively moderate going forward in Q2, 3 and 4?

Exactly, yes. I think -- yes, I think by the end of the year, you kind of pan out to a nice moderate increase for both of them.

And for Reed, you talked about being more more positive, and I think everybody can kind of understand that. Are you seeing any green shoots early on in hospitality that gives you some comfort there?

We certainly have started seeing an improvement in the order rates and the backlogs building in the hospitality area, started seeing that in fourth quarter, but certainly believe that we'll be progressively seeing some better business as we go forward into this year. As travel has begun to return and I think expectations would be that travel will be a driver of some more robust sales in that hospitality segment as we go through this year.

A couple of other things on the sales growth. ChillSense looks like an interesting innovation. Do you have an exclusive on that? How are you doing that? And that being in mattress fabrics, I don't remember a sustainability innovation in mattress fabrics. It seems to me that the first one. So that's actually pretty exciting. Have you had some early wins in that fabric amongst some of your mattress customers?

We definitely believe company-wide we think post pandemic, there will be a continued focus on sustainability offerings. So we're working really hard on that. We've had tremendous success with LiveSmart Evolve on the upholstery fabric side of the business. And I think jointly, we had our press release recently, we've already with our offerings, we've already saved like 63 million bottles, water bottles. So we're thrilled with that. There is some mattress development already in there. We are using some generic, I say generics, some recyclable products in our mattress fabric offerings, but ChillSense is another step, adding sustainability and also cooling. And obviously, cooling has been a story in the mattress business for some time. And to be able to provide both of those things, the performance product plus sustainability, we think, is a real win for the business. It's a partnership, just like Evolve, we use Unifi REPREVE. ChillSense also uses Unifi REPREVE which is a great partner of ours. And we do have an exclusive lead on ChillSense for a period of time to get that launched to the market. So with their marketing efforts and ours, we think ChillSense will be a strong candidate for top of mattress. We're quite excited about that.

I know that I'm going to get [Technical Difficulty] clients. The one issue that [Technical Difficulty] focus on are mattress margins. And with an 84% growth in revenues, I can understand how active you had to be during the quarter and with all that was going on both outside of the home furnishing world, but even in the home furnishings world with foam and other kinds of disruptions, I'm sure that had an impact. Can you give us a feel of where margins will go going forward and what gives you comfort to be able to say that?

Well, let me just -- Budd, just a little bit just to explain more, which we covered in the release. It was an extraordinary sales lift on the mattress fabric side, 84%, and we're proud to have absorbed it, although we admitted to some inefficiencies in doing so. So we had and are having market share wins and we wanted to serve that first and foremost. So to gain that business, we had to react immediately and not always optimize in our best manufacturing geography. So yes, we're pressured for currency, freight material pricing, and all that had a lag with our own price increase. So our price increase is now effective for the whole fiscal year, starting May 1, and we've guided significant margin improvement for the whole fiscal year. And Ken, you may want to add to that or any color to…

No, that's exactly right. I mean we did get pressure in the fourth quarter and we've got the price increase in effect. And so we are seeing or expecting some significant improvement as we go in the first quarter and beyond, especially in the mattress fabric side.

And we've always said our mattress fabric business, our expectation is to be a double digit operating income margin business. So our expectation for 2022 is to start approaching that. We're not going to commit to getting there in Q1 or immediately, but that's our target.

Just a few modeling questions, if I could. Your tax rate, you gave us between 30% and 35% to use for Q1, Ken. How do we think about the whole year? And is there much -- can you -- is your crystal ball give us any feeling of what you should look at any of the quarters specifically?

Budd, I'd say that's good for Q1 and the rest of the year based on the facts we know today. As I said in the prepared remarks, our tax rate can be affected by the mix of income between the US and China and Canada. But based on what we see today, we feel good about that. Of course, what comes out of Washington will depend on the future. We don't think that will affect our fiscal year. We don't think so, but we'll wait and see. But right now, I think 30% to 35% would be good for Q1 and the rest of the year.

And as we look at currency, the fourth quarter, you had the $819,000 gain, the other part of that bucket was $150-some thousand. Was that all currency? Was that an all currency impact or what was the currency impact in the fourth quarter and what does that look like going forward? I know that's a tough one to call.

You mean in other expense for the quarter?

Yes, sir.

Well, if you remember, we were just getting killed all throughout the year. I think I said in Q3, we had -- in other expense, we had been hitting like $1.5 million of noncash. Actually in the fourth quarter, February and March actually flipped back around and weakened only to strengthen in April to pretty much wipe it out. So when you look at Q4, we actually were favorable somewhat, that's why the other expense was more normal as compared to the other quarters. I'd say going forward, since our fiscal year, the rate has strengthened a little bit. I think it's maybe weakened a little bit. So I don't know, Budd, it's one that really depends on what's going on -- I mean there's interest rate talk out there and what happens with the dollar and all that. So right now, we're just -- and even the -- we get reports from various banks and they're all over the place. So we're hoping that it will stay steady for where it is today, so we can plan accordingly. But we'll just have to wait and see.

And last for me, capital expenditures of $9 million to $10 million, how does that break out quarter-by-quarter?

It's pretty consistent when you look at, it maybe a little bit front loaded as we look at the year, whereas last year it was more back loaded. But I would say a little bit front loaded as compared to kind of a spread evenly over the year.

Because I didn't know if Haiti would get us more of the capital expended there or if a new design center would change the cadence of that?

Yes, I mean that's definitely projects that would cause the first half to be higher.

Well, thank you very much for the guidance for the quarter, and it was good to see a little bit more of an outlook for the full year. I think that's somewhat new for you all and I hope you all continue to do that and continue to update us on that as the quarters and the year progresses. But nice performance, and thank you very much.

We will now take our next question from Anthony Lebiedzinski at Sidoti & Co.

Actually, first, let me just follow up about the new facility in Haiti. Do you guys have an expected as far as the cost of new facility and how much of your upholstery business you think will come out of that facility this fiscal year?

We are really excited about the opportunity for Haiti for upholstery kits. But it is important to note that we're really strong with our Asian platform. Haiti is not intended to replace that. It's a complement, but I want to pivot to Boyd and let him talk a bit more about it because he's champion this for us, but it is really important to note that it's not -- it means to be a replacement, it's to get us an offshore and a nearshore strategy.

Just as Iv has said here, we believe that establishing an upholstery cut and sew facility in Haiti really does establish our overall global platform for cut and sewn upholstery and gives us a nearshore option to complement the already strong Asia platform that we have. And of course, it does provide some risk mitigation as well. But it's also enabling us to handle the increased demand for cut and sew that we're experiencing as part of the overall demand surge that we're seeing in the upholstery fabrics business. So in terms of just your question of how much of our business for this fiscal year, it will be -- the operation is not starting up until late second quarter and then there will be a scale up. So it's not going to be a significant portion for this fiscal year but we will start seeing output. And part of it is growth output coming from that Haiti operation during the fiscal year.

And as far as cost, I mean, is there anyway you guys could quantify that or is that anything significant to think of as far as the cost of getting that facility up and running?

Yes, it's really two components. It's the cost of the lease of the facility, and then you've got some CapEx, which is part of the CapEx plan that I described earlier. So we don't disclose that but it's not significant, but it's an investment that we feel is, over time, certainly be a nice payback and one that we can put behind us in the first year and get rolling.

And then could you quantify the extent of the price increases that you've in place for May 1st and then how that will impact margins in the first quarter?

We don't really disclose that. I think that what we've strived to do is by forecasting a significant improvement in Q1, obviously, those price increases are in effect on both sides. And so that's certainly helping our performance in the first quarter and beyond. But it's the price increases that were strategically done to overcome currency, freight and raw material changes that we knew as of the time of the price increase.

And a couple of more questions for me, as far as labor availability and costs. I mean, what are you guys seeing there with respect with ongoing operation and with respect to your customers as well?

I think the cost that we think about that we're seeing the most impact today is probably freight. I believe that we've, at least for now, offset most of our material increases with our price increases. We're watching currency closely. Freight is one that we're experiencing some rising costs with. And then to your point, labor in the US is definitely a challenge for us, too. And we do have some jobs we're trying to fill, which is why though that we're so bullish on our global platform, because we have options in each business where we're not in any shortage of supply of our products. So we can meet the demand. And we talk about meeting the demand with strength and that's how we look at it, but it does mean we need to flex our muscles globally more and just be able to offset any labor challenges we may have here. We are doing enormous efforts to our human resource department to engage our employees more to look at tweaks to jobs where we need to adjust pay rates and everything we can to make sure we're staffed well. I wouldn't call it any major concern but we do want to keep our eyes on that labor ball at least in the short term.

And then last question for me here. So you talked about the effect of research just in hospitality. Can you talk about the margins that you have in hospitality versus residential piece of that business?

Typically, in that segment of our business that does carry somewhat higher margins, so that will be an assist to us as we see the hospitality business start to come back from the impacts of the pandemic. But yes, just in general, that business does carry somewhat higher margins than our other business.

We will now take our next question from Marco Rodriguez at Stonegate Capital Markets.

Most of the big topics have been discussed already and answered. So just a couple of quick follow-ups. Wondering if you guys can maybe talk a little bit more about the new product line with the prefabric. Can you just maybe discuss the fact or the genesis of that? I understand that you work with that supplier for some time. But just kind of how do product launch come about and what are sort of the expectations you're thinking about in terms of that line?

We've had such great success with LiveSmart Evolve on the upholstery side. And so when we --coming out of the pandemic in our recent Showtime and furniture market, we're just seeing continued interest in that product line. So it was fairly natural for us to start thinking about how we could get that sustainability story more branded on the mattress side. Now back to LiveSmart Evolve and upholstery, what's special about that is its performance story, offering enhanced cleanability, plus sustainability. So on the mattress up we wanted to find that performance pas well and so we have a cooling story plus sustainability. And the reason cooling is so important is just in our business today on the mattress side, we do a lot of work with cooling mattress fabrics, whether they be very special high tech cooling yarns n or face change materials that we apply to finish. And so having this with Unifi REPREVE is a more economical way of applying cooling, it's inherent in the yarn so it's no treatment, and then it also adds a sustainability story. So we think it's right at the heart of what consumers are paying attention to. And we're trying to get more active with our branding on the mattress side as well, and we think this is a really nice win. We're just launching it. We're only in the beginning phases of rolling in the market. But we think with our exclusive lead, we can have some fun with this later this year.

And then in terms of the supply chain disruptions that are nonfabric related. I know we've discussed this for a few quarters here now and there's obviously the expectation that it continues here in the near term as far as a potential headwind. Can you maybe kind of give us a sense as far as your best estimate or best read as far as when that sort of normalize, if you will?

I think I'm going to speak for a minute on the mattress side, and I'll let Boyd make some comments on the upholstery side to be sure he gives you the full expert opinion. I think what I hear mostly for the mattress side of the business, it gets better every week and every month. So I think our biggest challenge there has been some thumb allocation that our customers have been wrestling with and we hear it gets better every month. So I think within late this quarter or our second quarter, I think our expectation is to be more normal there with supply will be good for that side of the business. Boyd, you may speak to what you're seeing from upholstery side?

I think it's very similar, Iv, on the upholstery side of the business. Also here that there is steady improvement in terms of availability that's occurring. So I think the expectations there are as well that by the end of the quarter, there will be considerable improvement there, maybe not completely resolved but certainly a lot of improvement throughout the quarter.

And then in terms of your expectations for cash flow from operations for the fiscal year. Can you kind of give us a sense as far as how that's going to ramp, and is there an expectation that you're going to build cash this year?

I think when you look at -- we've got the significant increase in earnings, which will help the working capital, I think, from the standpoint of where we are with respect to inventory. Obviously, we want to make sure that we have enough inventory on hand to meet our customer needs. So that will be a focus. I think as far as CapEx, the uses of cash on the CapEx side, we are increasing our CapEx this year as compared to last. So I would say right now based on what we know, we'll probably, based on the projections, our cash will be pretty consistent this time next year versus now based on what we know today. So I would look at it that way with the increased CapEx. Of course, we'll continue paying the dividend and those factors and so I would say pretty consistent year-over-year.

Thank you. So that is all the questions that we have at the moment. So I would like to turn the call back over to the speakers for any additional or closing remarks.

Thanks, operator. 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. Have a good day.

This concludes today's call. Thank you for your participation. You may now disconnect.