UFI - Earnings call transcript Q1 2020

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Operator

Ladies and gentlemen, thank you for standing by and welcome to the First Quarter 2020 Unifi, Inc. Earnings Conference Call. At this time, all participant lines are in a listen-only mode. After the speaker’s presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today’s conference is being recorded. Instructions]. [Operator

like Eaker, conference and Vice Please ahead, now speaker to Investor hand go A.J. today, President sir. to would over the your Relations. I of Finance

A.J. Eaker

morning good and operator you, Thank everyone.

Chief Al call the Chairman; President Craig and Vice today Creaturo, our Chief Operating On Carey, Financial and Officer; Officer. is Tom Executive Caudle, Executive President A. and

Call you by webcast be found can certain this management clicking First in will During the that today’s call, advises of will within be presentation be Federal link. Quarter included statements forward-looking Conference unifi.com, Securities laws. that the referencing and Management the a call, at meaning statements

not based projections involve and of risks cautions what these in may future that operates. markets certain Management forecast predict. to from statements. are materially results expectations, is are estimates implied Unifi and on expressed, about statements Actual or guarantees the differ these and outcomes or are performance which that difficult statements current by These

to discussed the various factors the You’re EBITDA, capital webcast regarding and schedules debt SEC please results. as impact these measures non-GAAP Forms may reconciliations be found call, be such and XX-K disclosures Also, Unifi’s be working financial the directed may in adjusted that and that on certain XX-Q filed this presentation. adjusted with advised non-GAAP net on can the to

over Carrey. call Al to turn the I will now

Al Carey

us good and today. joining A.J. morning, Thanks, for to everyone. want you I thank

sales on opportunities. our begin business the to delivered and and forward, results on our underlying right that capture quarter first move focusing the profit to positive to Our expectations their sign things we’re and

fulfill we’re aligning see vision recycled competencies, revitalizing improvements as in of structure, we’re our we world’s the is to achieved Americas the one its to that focusing our on core better innovators year-over-year we’re Unifi progress pleased synthetic The leading cost and and making and yarns. that continue to significant validate

determinations industry our end and duties timing and XXXX. the quarters. reshape set calendar over is the next injury of opportunities subsidization We few the are including is be to and and developments, recent the provide by of antidumping dumping trade The final countervailing to meaningful believe expected of unchanged

provide we’ll when you appropriate. So with updates

Lastly, new that for experience Officer. will His the and very Vice we strategic Financial team’s a future set and and President position Creaturo, Chief group our leaders Executive we’re Craig welcome growth. that have excited skill Craig, the of focus. of senior our with complement feel we to his company well rounded operational addition best And

a level company’s Now I’ll turn for high first Tom the performance discussion during of quarter. the Tom? the call to over

Tom Caudle

Al, you, Thank and good morning, everyone.

said, Al expected, profitability, momentum domestic operations. quarter improvement of into year. remainder significant the week underlying despite We to As first less and carrying in of in sales one as fiscal the sales the forward volume this for came look exhibiting

the Other in of cost quarter a from branded continuation and environment REPREVE US. positives included cost a more products, our strong containment raw material during performance favorable specifically PVA the portfolio, initiatives

momentum as growth significant challenging improvement product our evolving, incremental consolidated year is Continuing on a from platform. XX% for and hope While REPREVE the the we current last business of quarter, PROFIBER is testament in our sales. believe and to sales environment trend we now both our innovative Americas unfolds. to The the foresee and PVA still account build the offering

improvement domestic to to with leaner as in rate, the manage our stronger structure which operating ability through tax cost to a line Notably, our performance. flow This helped an to us our the income saw to a cash better afforded capital priorities. see best bottom improved also expected growth our layered operating top I’m fuel flows, line. pleased improvement as significant

maintained. business to beyond, in optimal position As is areas and to continue our will we year our we navigate this of invest competitive fiscal ensure

Hudson shows, our to highlighting in and talk well is x promoting and company on from that Kate online. REPREVE on retail stores social Nature New national Kate made bottles. line recycled media sustainable in as been initiatives, commercial plastic as York brand, flagship was Hudson’s has branding released Happy the Moving on

closely to Stanford work PAC-XX commercial Nike we with of and yarn, Second, PAC-XX, producing website the the highlights in recycled on the plastic commercial bookstore. circular merchandise Nike social in performance apparel, The University develop retailing the economy, and recycled REPREVE, to channels. network, and nationally Stanford airing Nike Stanford XX-second a bottles recycling and media REPREVE how partner facilitate

we’ve customer variations great had exciting busy the during another we XXX REPREVE with event. Shanghai, and remained over several the exhibiting of meetings Lastly, showing at in Intertextile event

update Turning Brazil the our for reporting to growth result to first to the everyone over I’d a our walkthrough we remind operating the made international Nylon, and of a quarter segment of The as performance Polyester, segments segments of last of quarter, operations. are; like our Asia.

branded PVA continue companies. leading world’s products again sales with resonate in bright notably Asia, spot portfolio our to REPREVE our as of the where

benefited of significant growth Asia portfolio a doubling doubling First, both and and with chip the from driven of dollars, volume of revenue board across these a near sales of by fiber. stable

and and led this sales and in economic softness environment quarter. competitive Polyester softness driven certain saw such as sales profitability markets Brazil’s to in Automotive. by Industrial lower However,

trade affected playing in historic we of fourth XXXX. the quarters fiscal field negatively of subside with the program was the year, were after Nylon prior lost and a to levels from of the the rest Looking the in imports experienced quarter still challenging that revenues determinations. quarter final normalizing experienced the believe fiscal will

fiscal levels REPREVE future. segments’ hope from pleased the positive a we Our US neutral a sales on environment lost will more normalized the nylon hope like a the see material that that are volume to throughout trend our teams possibly help year. working in we the a raw backfilling innovations new solidify quarter to return Overall, are first benefited and segment and more positive to or

during quarter. of operations, lower the Looking our operating core outside equity saw affiliates our profitability

a of Unifi distribution provided Parkdale $XX.X million. that encouraged very were we However,

net benefited Parkdale quarter. that partnering in the with by We end this As debt an distribution a strategic evidenced steadfast to the as the the the us providing we past, stated levels our Parkdale. to of in applied in cash goes remained decision was historically, quarter. meaningful has This our cash investment as of reduction debt

Before Craig to search here new a on and are to the financial to move bring we were like to we for our also Unifi. welcome and team I’d during the on We at Craig review, board. thorough patient CFO pleased

the of work excited see operations. at and experience Craig here and very culture team and XX-plus businesses We to for an with and We’re to leverage Unifi. a great and as accounting global with finance his is leader executive complex manufacturing years him teams strong addition

to I call will pass the now Craig.

Craig Creaturo

Thank Tom, everyone. good and you, morning,

Tom the cash begin noted, as the met As year. significant short generated revenue a like to quarter. of begin I our overview results drivers strong would key our and review and in to I’ll of momentum fiscal performance the my with performance today profitability expectations discussion flow

QX reduction to Overall XXXX, benefit efforts SG&A. a cost for fiscal as our flowed through comparable

QX improvement of rate, to on to and pre-tax of QX Parkdale XX% XXXX significant effective of shortfall allowed a than While resulted doubling net a $X.X quarter decreasing XXXX. from the pressure million, performance income in the from fiscal from fiscal Then our fiscal profit gross XX% less and tax in EPS the income XXXX. for $XXX,XXX first

see X and sales to by segment. Slide Moving you gross of profit presentation, three can the highlights webcast

profit related segment charged Asia certain gross our a segment the to includes by expenses the segment. Polyester As effect technology of the reminder,

gross the are for on presented segment, for as each XXXX XXXX on change, amounts Asia Such segment results the Slide and segment have for fiscal to and the quarter to reflect revised to been as cost full this by profit are for benefit of shown sales comparability X cost results impacting XX. a thereby recorded a sales this Slide Fiscal year Polyester charge segment. segment of

decreased of nearly one sales net with Consolidated volume in significant operations. Asia growth sales week for X.X% less overcame that domestic

of sales one larger less segment sales which exhibits Automotive one volume lower demand the a the in XX.X%, segments. of Polyester XX.X% of declined transitioning as customer market Industrial result overseas. decline week sales, sales, programs decreased Nylon combined a plus with and of from certain week less customers For X.X%

In Brazil, increased global their strong and despite results XXX.X%, volumes despite Asia trade drove segment the pricing. competition. economic X.X% raw for material competitive while costs and lower, international sales performance as and continued declining volumes uncertainty were down pressures, Sales

products the leading a way maintain REPREVE in in engine recycled and as position continues we programs brand of quality Asia, The Sales lead attract PVA as strategy our market. to continue a validated. the growth to be Asia remains portfolio

with along profit half competitive Slide higher margin were of profit, on gross $XX.X Asia. consolidated to pricing of from XX.X% in in X, and the the Brazil to most attributable decline that associated million Moving is $XX.X pronounced Overall proportion decreased to primarily X.X%. by declined million sales the Asia, from at to pressures bottom gross a

raw by offset partially cost the material environment favorable was in decrease US. The more a

at benefited X.X%. this a raw by X.X% points segment more from material cost to Looking basis margin from environment, increasing from XXX gross primarily Polyester a perspective, favorable

fixed to with faced declining and along Nylon XX.X% gross costs X.X% X.X%. economic a higher XX.X%. declined environment, weaker and cost Brazil due to a to absorption decline margin material generating margin primarily revenues, rate from from experienced lower its as inventory pressures cost competitive raw during

further staple are lower Lastly, a Asia customer see new which used profile, significant products sales fiber mix to as and sales initiate these and chip included carry margin currently development. programs

from XX.X% to Asia result, declined As a gross X.X%. margin

margin. we X, Slide On an gross of overview present

Brazil profit in gross points, consolidated the that Asia from stem first performance a combined segments the four relief, the Polyester; competitive prior and see decline overall segment of segment material quarter. sales gross raw Polyester generate weaker present changes costs and in resulting mix to reportable profile. of challenged lift that Asia. overall each basis dynamics XXX while margin we Nylon; by can year and We to These Here pressures the our gross Brazil; in help versus the margin, gross margin benefited

results on we distributions provided Equity earnings the million from during Parkdale Moving elevated quarter QX QX primarily decreased costs. period affiliates. all to $X.X X, mentioned to XXXX Tom Parkdale’s totaled Pre-tax lower approximately a of present earlier. as leverage XXXX. affiliates’ operating $XX.X in by equity reflected Slide million,

capital and June improvement covers highlights. our sales At million sheet balance XXth, was approximately XXXX, Adjusted XX% of expectations XXth, $XXX was percentage working within working both X adjusted September September working and and from liquidity a as XXXX. of XX, was and an $XXX was XXXX Slide range capital million. approximately capital

million We Revolver was was from debt, increased availability average our XXXX. ended the at weighted liquidity June while XXXX, total At interest rate and million increased $XX.X a $XX.X XX, XX% million, million. $XXX to approximately reduction debt September net X.X%. in XX, period $XX to

guidance our original of is reaffirmation in questions, in earnings today’s X XXXX. a up opening which was guidance that contained or Before for details published Slide release, August

open With that, now for questions. up will line we the

Operator

line of & Company. McGinnis the from [Operator comes Our Chris with Instructions] first question Sidoti

Your line is now open.

Chris McGinnis

Hi. existing being new off along maybe Asia, or other Nice my of, and questions. Can is to quarter thanks has straight margin? just relationships Good you can for the relationships built offerings maybe Thanks. growth it expansion you are of in taking morning. it or the these REPREVE start maybe is some higher REPREVE with and a makeup with then talk

Tom Caudle

is this Chris, Tom.

As REPREVE. we’ve talked a of business before, Asia’s is portion large

partners, really the We mill this well filament of stellar team flake expanding with in has new chip, there to region. new And out new continue REPREVE done results. we’re offering applications for and very new the quarter, seek of a during pleased or we, and the as supply customers partners and job chain as over

Chris McGinnis

coming touch you. next antidumping positive some on, kind that year? from thank to point? you And the tariffs expect just And to the haven’t right, see this you of positive to when at from you then changes would All impact did a maybe possibly the seen that say

Tom Caudle

forward. We And we have impact first strategy far been the but the be experienced our that – see We and second weaker was like of inquiries, impact we half has built the would first started to going through felt minimal. more the kind in so the quarter way half.

Chris McGinnis

comment a the the QX, just if a is Okay, is there for level thank can the just on quick remainder ones, Thanks. little levels forward of that going bit two sustainable in about year? SG&A then any changes you there – And the you. or

Craig Creaturo

in to this Yeah, quarter, SG&A match get across think and business took us objectives. company Craig. Yeah, the reflecting to better happy is to that Chris came levels, I profile the the point that to our actions where get structure revenue we’re definitely for that’s our with the

around be the We rate are so still year. or full thinking will we run fiscal that $XX million for

go published We SG&A today. the included some investments will guidance see that we further that that in in as guidance on, quarters was but

Chris McGinnis

that’s correct? distribution that in one that’s from right, I and something size you if quick while of on first that a I’m Do received time if as just that a think sustainable you dividend. remember on then you received and the Okay the large PAL a PAL, level that a

Craig Creaturo

distribution. was great Yeah, that it a

You’re we correct that of magnitude. that saw has been a while something since that

put know this debt definitely quarter. definitely good a use. factor and you reducing That have big both to debt for We it for is us net

So that. we’re very thankful for

we that that us know exhausted Parkdale, one quarter. You glad that in that and glad the from did not dividends have are could we to come just come that during the future completed but that came in

Chris McGinnis

thanks Great, good I’ll luck jump QX. for questions. and my back queue taking in in

Al Carey

Chris. Thanks,

Tom Caudle

Thanks, Chris.

Operator

you. Thank

question next of Daniel Moore with comes from Securities. Our the line CJS

now is line open. Your

Daniel Moore

questions. Thanks gentlemen. taking morning, for the Good

Al Carey

Dan. morning, Good

Tom Caudle

Good morning, Dan.

Daniel Moore

of changing on story exceptional to on starting Wanted growth more you price? first also bit Asia to give growth more anything a perhaps terms there. is Are the of being great. the verification gain what’s follow-up Tom us Can on know traction? one, little really terms obviously a color Any color, if in more there you would be you aggressive hold little on really in

Tom Caudle

Well as is lower the staple outpacing I relevant with we end notoriety filament lower market of much continues with than at be chip rate fiber filament to the staple REPREVE as and think you as and brands retailers, although far of chip. growing fiber are and growth, know the a certainly

applications. were it’s grade and you – But for we our higher out people and is opportunities and – most know chip as REPREVE people as well need even recycled than last are we’re seeking seeking partners supply expect well, we to new call over chain see other the our the as in lower end. some out mentioned time, on improvement or on before mill I’ve even and And margin

Al Carey

environmental closer thing either this have they’ve work companies is, I getting or is that commitments the made to are with One now brands, retail those Hey, sustainability. many on that Dan noticed Al. of we

the So going supplied retailers of XXXX of doubt in percentage of them some apparel many There’s you materials. big are on see their up stepping these or that’s that’s XXXX Asia. be no by recycled that have commitments to and from

a will after we be innovation share at that some our over us relatively in our of business. margin. will make we there, have And the innovation the up And aggressively so small point, help business going – future

Daniel Moore

helpful. Very

Tom Caudle

And also there’s keep mind. to in thing another

We are asset-light in Asia.

is a we to So can move positive at any any our and that sale results. volume benefit margin

Daniel Moore

the XX% overall Taking volume down indeed. Understood, revenue back, week a fewer but step despite growth. you had slightly, know, obviously one

versus So to versus in pricing, mix? really order and just maybe materials, color it prices? in be of possible terms lower is it material the that Is would of through rank of just of to on then terms or color pressure great. competitive number mix give raw a one, you pass impact Just any raw know

Craig Creaturo

is Craig. this Dan Yeah,

that out Nylon week comments one track I think some right to there. pretty by general tried impact. impacted you’re we definitely There impacted the and that’s Polyester point big our on prepared a in were sales, what and were both think I specifically, was less

math, we’re mean, it’s saying less because X% difference roughly the week. or of one about do of I X% a that you If

pretty was that two for So significant those units.

there and be units think pointed know, I lot other and was just that on you so share Brazil. runway it take specifically area decided to mentioned to now that then we And are pricing we really a Asia an then seen, in And some know, a aggressive you as amplifies competitive we to of being pressures and we’ve have Tom aggressive the in pricing. that’s bit we’ve what

that those looking think segment, all the within a I I but each story bit those probably each at little are you’re think So different for. main really – together. factors a components It’s it’s of

Al Carey

color a Dan that. And, little on just more

That’s four of and the miss very I that explain. at in I to way caused on million gets at increases in three geographies, feel material businesses we $X.X to think like geographies. profit look it all gross So is – million be competitive, different need complicated to the had us raw Brazil $X.X look it Brazil. that have our to otherwise,

we very at, strong business but a Asia, Then share. call America we’re gaining our low where and and I you is have look Central it, share,

spend So business. go points we’re willing to get couple share of to a that

the and going the the in talked that offset that the with but by small hope we to months. they’re uncertainty North from experiencing Automotive see product we some up then they’re business customers, in fairly to explaining our in margin And Industrial, amount of as is the China-US picked first by in year that’s US, next improve America negotiations trade antidumping part sales and on the it, couple a it high actually tough were we in of of this the and of category a and

Daniel Moore

lastly, out year portfolio, within the to moving just mix point to is Very to there shift within again but question, helpful. you when the parts you PVA know, it’s difficult the staple got I you you or to chip see point? Is know And at color. of or the margins challenging PVA for gross and inflection for this margins lot be know, including again of a PVA would improve a fiber. two kind Thanks say that just expect start an

Tom Caudle

in PVA it program just and and we driver and innovation Yeah, and in actual currently all believe the things get XX in up have take innovation. and months XX to to get that That’s to fruition that to the REPREVE portfolio some margins we retail. for months about instances, future our it is innovation. come these running And pipeline an

Al Carey

for And positive. of year our the sales the is balance forecast margin for

Tom Caudle

– Just positive

Al Carey

here. from Going

Daniel Moore

Very thank good. much. you color – Appreciate Good very the progress.

Al Carey

Thank Dan. you,

Operator

you. Thank

Markets. Our with from Marco of comes next Capital question the Rodriguez Stonegate line

open. now is line Your

Marco Rodriguez

guys. you questions. for Thank morning Good my taking

Al Carey

Marco. morning, Marco. Hey, Good

Marco Rodriguez

of mix. margin Hey, kind the specific questioning, on and follow-up I to going here of the line to Asia was the

in higher a maybe what the you and has of provide versus if color terms your PVA little mix towards more more margined Just product? the chip bit been shift can driving filament wondered

Tom Caudle

in category Tom. One the that filament is Marco, keep the much, this to staple category. is mind, larger than thing much

side So just the ago, – in the chip the there and two years it wanting one developed are REPREVE more so able were more span to are that was that fiber we’ve many or three those is product chip, not in staple Asia are be and the mean and and on just we opportunities the under reasons. and I and people REPREVE primary brand, sale to also

Marco Rodriguez

And you if can innovation little month margins guess into sort how month had terms impacts would to down the that’s expect pipe least that put a what already chip I should the in margins from to talk Can stabilized bit help bit timeframe talk on comments XX a started more guess that a to coming higher. you be the in might of not of at sort little about some increasing you where I then today maybe able or timeframe your of maybe a you’ve that and XX progress and for stable Asia? side fiber that be we products gross

Tom Caudle

to strategy. it build Well goes think the I and partner, innovate back

are outside materials. we cost on China of on chain the supply working know, You raw for position a better

We’re expanding the working the past. that stronger – just we in that and customers months, building XX next new on things months to with market haven’t on in XX retailers and on brands innovation working relationships will here come and with with customers the potentially and

is operation. Asia of all better to that margins us better So a our lead going results in culmination think to we and

Al Carey

And time, supply the that we very as our close there’s the the add automotive this of business, last that half. brief know chain partner which then for great meeting, cost. for supply cationic of than is to And more Asia, is second first maybe and for say some you you and potential going for we’re weren’t and but positive of was number it’s applications have new it I’d Marco, free in it the a – here year in some very well the also met with as half when be I’d

Marco Rodriguez

expense on side. Understood. And switching then the gears here

part couple a comments in investments guys terms year. SG&A, the additional On in made the you latter of of some the that of

what maybe current efforts also spent real then those If any didn’t you on just maybe SG&A. timing-wise? expenses of and some bit talk can there or issues are a in Were about timing that the And quarter? get quarter quick little sort

Craig Creaturo

again, do think around year think SG&A continue context up a for all the know, or SG&A Yeah, that’s so. having you I full the the of within that to the of I see that we $XX balance year, will million move slightly,

further There will be investments some in areas. certain

that couple long-term targeted to areas comes marketing give programs very feel some and you be, and to have benefit. worthwhile I in think that also would benefit areas are mind very we that other some us the we short-term both and a know,

to called some And additional really area. current unnecessarily there in be on. unusual spending we held separately or wasn’t so that that back And during that see that we’ll out the nothing quarter needed

So from it perspective. a pretty typical quarter was that

Tom Caudle

feel we job this but a And that. that on continue we that confident future. management, Yeah, million. I won’t watching at say inventory we’ll that to would you opportunities, every than very couple good let the it reducing penny of we XX so we’re spend, marketing we in in a spend got resources have them, doing look $XX there’s to last - get quarter higher costs, also and

Marco Rodriguez

last I question, may. it, quick Got if and

at of impacted next sort from that thought have US unfolds your prepared improvements the kind the commentary there you that of your abate tariff has or in the there US in the seeing would know there earlier driver main impacts comment quarters of market the given a in looking the you confidence or weak of made you’re as called market? domestic you where Poly the couple are other that side and remarks sort that been Autos and anticipating out Industrials the maybe said from things about here that the you’ve and least, and I on side. You for Is Industrials year Auto

Tom Caudle

two there think I No, issues. separate

about people And are specifically America, are we’re we’re we tariffs the tariffs certainly have expanding the – subside, on Central I and because share on down there’s Americas, in today, Central think will there’s hopefully abated, improvement Automotive. here the excited market the our in in once there that as but US feel then capacity, marketplace the in well. we investment see they like definitely regaining is going uncertainty very and what’s going Industrials and will situation And gradual of the America. they affected in

Al Carey

You know visited they mention a that, want quarter. often for in Auto what’s segment. don’t causing to little they’re on and they depressed customers, more with we’ve I know the are, but who don’t first Industrials And the volume in this

And that but Automotive then appear you is It in decline. little in a market, the when reason pinpoint probe there systemic is be for can’t any in it their uncertainty further, seems they it doesn’t to it, and Industrial.

– business we So see their come in that the think they’ll more certainty some back. there’s when believe if they trade, and

Also four the this. few at three definitely we is were know are are That and impact were these having retailers, a on found keeping ones at that, significantly comps sales on of their retail, from I having out inventory and least retailers their these up. are their same or up customers some big in And and down. success inventories that their reducing

So come this in retail for a will an second from the of projection this. being – – this not I’ve on belief see hopefully is around amount, have my we it year. the have don’t quarter, I in this quarter, we’ll if think a fair exact half

Marco Rodriguez

time, your Appreciate guys. That’s great it. color. Got

Tom Caudle

you. Thank

Al Carey

you, Marco. Thank Okay.

Operator

questions And further time. there no at you. this in queue are the Thank

A.J. Eaker

to Sarah. everyone If questions, like no are you, we’d thank for further participating there Thank Okay. today.

XX, that the Eastern Time. tentatively is second earnings fiscal call. today’s at next quarter with Our you the X:XX January Thank December for same day joining AM XX, conference ending for call XXXX, Wednesday, scheduled for release to follow XXXX

Operator

call. today’s for you Ladies participating. Thank and concludes this gentlemen, conference

may disconnect. now You

Unifi (UFI) 29 Oct 192020 Q1 Earnings call transcript