PR Newswire | Jan 27, 2021 04:30PM EST

01/27 15:30 CST

Unifi Announces Significantly Improved Second Quarter Fiscal 2021 ResultsStronger than expected performance and focused execution drives one of the best quarterly margin and profitability performances over the last decade GREENSBORO, N.C., Jan. 27, 2021

GREENSBORO, N.C., Jan. 27, 2021 /PRNewswire/ --Unifi, Inc. (NYSE: UFI), one of the world's leading innovators in recycled and synthetic yarns, today released operating results for the second quarter of fiscal 2021, which ended December 27, 2020.

Second Quarter Fiscal 2021 Overview

* Net sales were $162.8 million, a decrease of 4.0% year-over-year, but an increase of 15.0% sequentially from the first quarter of fiscal 2021. * Revenues from REPREVE(r) Fiber products represented 37% of consolidated net sales, a new quarterly record. * Gross profit was $25.9 million, a 66% increase year-over-year, while gross margin was 15.9% of net sales, an increase of 670 basis points year-over-year, despite the year-over-year decline in sales, influenced by the strong performance from the Brazil Segment. * Net income was $7.5 million, or $0.40 of diluted earnings per share ("EPS"), and reflected the best quarterly earnings performance since June 2018, up from net income of $0.4 million and EPS of $0.02 year-over-year. * Adjusted EBITDA1 was $19.2 million, the highest quarterly achievement since June 2016 and the best fiscal second quarter in more than ten years. * Operating cash flows were $11.8 million, improving sequentially from $7.9 million generated in the first quarter of fiscal 2021. * On December 27, 2020, debt principal was $92.9 million while cash and cash equivalents were $83.3 million, resulting in Net Debt1 of $9.6 million, the lowest level for the Company in more than 20 years. * After the close of the fiscal second quarter, the Company completed a strategic acquisition of the nylon assets of Fiber and Yarn Products, Inc. ("FNY"); financial terms were not disclosed and did not impact second quarter fiscal 2021.

1 Adjusted EBITDA and Net Debt are non-GAAP financial measures. The schedules included in this press release reconcile each non-GAAP financial measure to its most directly comparable GAAP financial measure.

Eddie Ingle, Chief Executive Officer of Unifi, said, "Second quarter fiscal 2021 results reflected stronger than expected performance across each of our key geographies and reinforced the resilience of our global business model. We delivered significant sequential net sales improvement in each of our segments. Most impressive is the year-over-year improvement in our gross margin, especially with the record set by the Brazil Segment. The team has been diligently positioning our business to capitalize on industry recovery as we near normal demand levels. Additionally, we have been able to sustain many of the efficiencies implemented during the beginning of the pandemic, which have begun to positively impact our long-term profitability and inventory levels as sales volumes returned. The demand for sustainable solutions continues to grow, and we remain intently focused on leveraging our strong global operations and solid financial position to drive momentum for sustainable, long-term growth."

Second Quarter Fiscal 2021 Compared to Second Quarter Fiscal 2020

Net sales were $162.8 million, compared to $169.5 million, while consolidated sales volumes increased by 1.0% due to agility and responsiveness during demand recovery in Brazil. The net sales decline resulted from lower selling prices in connection with lower raw material costs and unfavorable foreign currency translation.

Gross profit increased to $25.9 million from $15.7 million in the second quarter of fiscal 2020, primarily due to an improvement in sales mix, raw material and pricing stability, and recent manufacturing efficiency gains. Each segment achieved higher-than-anticipated performance, led by a 32.9% gross margin for the Brazil Segment.

Operating income for the second quarter of fiscal 2021 was $13.1 million, compared to $2.6 million, primarily due to the $10.2 million, or 65.6%, increase in gross profit. Operating income for the second quarter of fiscal 2021 includes certain benefits: (i) the record profitability performance for the Brazil Segment; (ii) raw material and pricing stability; and (iii) lack of discretionary spending due to continued travel restrictions and limitations.

Net income was $7.5 million, or $0.40 per share compared to $0.4 million, or $0.02 per share.

Debt principal was $92.9 million on December 27, 2020, compared to $129.3 million on December 29, 2019. Cash and cash equivalents increased to $83.3 million on December 27, 2020, up from $37.2 million on December 29, 2019, resulting in Net Debt of $9.6 million compared to $92.1 million, respectively. The favorable cash and liquidity positions on December 27, 2020 benefited from the $60.0 million of proceeds from the April 2020 sale of the Company's minority interest in Parkdale America, LLC ("PAL"), while generating operating cash flows during the COVID-19 pandemic.

Year-To-Date Fiscal 2021 Compared to Year-To-Date Fiscal 2020

Net sales were $304.3 million for the first six months of fiscal 2021, compared to $349.5 million. Gross margin was 13.3% for the first six months of fiscal 2021, compared to 9.5%. Operating income was $16.0 million for the first six months of fiscal 2021, compared to $8.9 million. Net income was $10.9 million for the first six months of fiscal 2021, compared to $4.1 million.

After the close of the fiscal second quarter, the Company acquired certain nylon assets of FNY to enhance and expand the Company's existing nylon yarn portfolio. Financial terms were not disclosed and did not impact second quarter fiscal 2021.

Outlook

Because of the continued global economic impact and uncertainty associated with the COVID-19 pandemic, the Company's outlook for the third quarter of fiscal 2021 is limited to the following expectations:

* Net sales trends continue to improve sequentially, including sales of REPREVE(r) Fiber, with net sales returning to the pre-pandemic level of the March 2020 quarter; and * Adjusted EBITDA improves by a low double-digit percentage from the pre-pandemic level of the March 2020 quarter by maintaining the underlying business momentum that has occurred in fiscal 2021, with consideration for the following factors that are expected to differ from the December 2020 quarter: * Continued strong performance by the Brazil Segment, albeit tempered from the record setting December 2020 quarter; * Unfavorable seasonal domestic shutdown impacts to gross profit for the Polyester and Nylon Segments; * Unfavorable impact of the Chinese New Year holiday for the Asia Segment; and * Raw material cost pressures due to recent increases in petroleum prices.

For full year fiscal 2021, the Company expects $22.0 to $24.0 million of capital expenditures, excluding acquisition-related amounts.

Update on Recent Trade Developments

Following antidumping and countervailing duties applied to imports of polyester textured yarn from China and India in January 2020, similar imports from Indonesia, Malaysia, Thailand, and Vietnam surged in calendar 2020, replacing the subject imports from China and India.

In December 2020, the United States International Trade Commission ("USITC") determined that there is a reasonable indication of material injury from imports of polyester textured yarn from Indonesia, Malaysia, Thailand, and Vietnam, which are allegedly sold in the U.S. at less than fair value.

As a result of the USITC's affirmative determinations, the U.S. Department of Commerce will continue its investigations of imports of polyester textured yarn from Indonesia, Malaysia, Thailand, and Vietnam, with its preliminary antidumping duty determinations expected in the second quarter of calendar 2021.

Second Quarter Fiscal 2021 Earnings Conference Call

The Company will provide additional commentary regarding its second quarter fiscal 2021 results and other developments during its earnings conference call on January 28, 2021, at 8:30 a.m., Eastern Time. The call can be accessed via a live audio webcast on the Company's website at http://investor.unifi.com. Additional supporting materials and information related to the call will also be available on the Company's website.

About Unifi

Unifi, Inc. (NYSE: UFI) is a global textile solutions provider and one of the world's leading innovators in manufacturing synthetic and recycled performance fibers. Through REPREVE(r), one of Unifi's proprietary technologies and the global leader in branded recycled performance fibers, Unifi has transformed more than 23 billion plastic bottles into recycled fiber for new apparel, footwear, home goods and other consumer products. The Company's proprietary PROFIBER(tm) technologies offer increased performance, comfort, and style advantages, enabling customers to develop products that perform, look, and feel better. Unifi continually innovates technologies to meet consumer needs in moisture management, thermal regulation, antimicrobial protection, UV protection, stretch, water resistance, and enhanced softness. Unifi collaborates with many of the world's most influential brands in the sports apparel, fashion, home, automotive, and other industries. For more information about Unifi, visit www.Unifi.com.

Financial Statements, Business Segment Information and Reconciliations of Reported Results to Adjusted Results to Follow

CONDENSED CONSOLIDATED STATEMENTS OF INCOME(Unaudited)(In thousands, except per share amounts)

For the Three Months Ended For the Six Months Ended

December 27, 2020 December 29, 2019 December 27, 2020 December 29, 2019

Net sales $ 162,776 $ 169,511 $ 304,281 $ 349,460

Cost of sales 136,842 153,846 263,786 316,352

Gross profit 25,934 15,665 40,495 33,108

Selling, general and administrative 12,625 12,508 23,989 23,488 expenses

Benefit for bad debts (259) (258) (1,146) (249)

Other operating expense, net 476 854 1,654 962

Operating income 13,092 2,561 15,998 8,907

Interest income (187) (212) (312) (422)

Interest expense 833 1,101 1,704 2,358

Equity in (earnings) loss of (130) 756 (223) 1,622 unconsolidated affiliates

Income before income taxes 12,576 916 14,829 5,349

Provision for income taxes 5,112 507 3,933 1,228

Net income $ 7,464 $ 409 $ 10,896 $ 4,121

Net income per common share:

Basic $ 0.40 $ 0.02 $ 0.59 $ 0.22

Diluted $ 0.40 $ 0.02 $ 0.58 $ 0.22

Weighted average common shares outstanding:

Basic 18,465 18,499 18,456 18,490

Diluted 18,732 18,772 18,729 18,745

CONDENSED CONSOLIDATED BALANCE SHEETS(Unaudited)(In thousands)

December 27, 2020 June 28, 2020

ASSETS

Cash and cash equivalents $ 83,321 $ 75,267

Receivables, net 83,124 53,726

Inventories 111,489 109,704

Income taxes receivable 9,283 4,033

Other current assets 10,282 11,763

Total current assets 297,499 254,493

Property, plant and equipment, net 199,884 204,246

Operating lease assets 8,082 8,940

Deferred income taxes 2,425 2,352

Other non-current assets 5,108 4,131

Total assets $ 512,998 $ 474,162

LIABILITIES AND SHAREHOLDERS' EQUITY

Accounts payable $ 38,786 $ 25,610

Accrued expenses 20,331 13,689

Income taxes payable 6,467 349

Current operating lease liabilities 1,685 1,783

Current portion of long-term debt 13,683 13,563

Total current liabilities 80,952 54,994

Long-term debt 78,621 84,607

Non-current operating lease liabilities 6,538 7,251

Other long-term liabilities 11,010 8,606

Deferred income taxes 1,004 2,549

Total liabilities 178,125 158,007

Commitments and contingencies

Common stock 1,848 1,845

Capital in excess of par value 63,972 62,392

Retained earnings 326,620 315,724

Accumulated other comprehensive loss (57,567) (63,806)

Total shareholders' equity 334,873 316,155

Total liabilities and shareholders' equity $ 512,998 $ 474,162

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS(Unaudited)(In thousands)

For the Six Months Ended

December 27, 2020 December 29, 2019

Cash and cash equivalents at beginning of period $ 75,267 $ 22,228

Operating activities:

Net income 10,896 4,121

Adjustments to reconcile net income to net cash

provided by operating activities:

Equity in (earnings) loss of unconsolidated affiliates (223) 1,622

Distributions received from unconsolidated affiliates - 10,437

Depreciation and amortization expense 12,187 11,610

Non-cash compensation expense 1,816 1,837

Deferred income taxes (1,700) (878)

Other, net (25) (64)

Changes in assets and liabilities (3,225) (50)

Net cash provided by operating activities 19,726 28,635

Investing activities:

Capital expenditures (6,035) (8,335)

Other, net (925) 60

Net cash used by investing activities (6,960) (8,275)

Financing activities:

Proceeds from long-term debt - 41,100

Payments on long-term debt (6,725) (46,085)

Other, net (64) (70)

Net cash used by financing activities (6,789) (5,055)

Effect of exchange rate changes on cash and cash equivalents 2,077 (323)

Net increase in cash and cash equivalents 8,054 14,982

Cash and cash equivalents at end of period $ 83,321 $ 37,210

BUSINESS SEGMENT INFORMATION(Unaudited)(In thousands)

Net sales details for each reportable segment of the Company are as follows:

For the Three Months Ended For the Six Months Ended

December 27, 2020 December 29, 2019 December 27, 2020 December 29, 2019

Polyester $ 76,696 $ 82,750 $ 145,772 $ 171,445

Asia 44,692 47,918 82,415 93,875

Brazil 24,253 20,862 46,859 45,034

Nylon 16,008 17,084 27,037 37,286

All Other 1,127 897 2,198 1,820

Consolidated $ 162,776 $ 169,511 $ 304,281 $ 349,460

Gross profit details for each reportable segment of the Company are as follows:

For the Three Months Ended For the Six Months Ended

December 27, 2020 December 29, 2019 December 27, 2020 December 29, 2019

Polyester $ 10,895 $ 6,660 $ 15,527 $ 14,455

Asia 6,528 5,517 11,106 9,799

Brazil 7,977 3,430 12,590 7,589

Nylon 395 46 1,060 1,224

All Other 139 12 212 41

Consolidated $ 25,934 $ 15,665 $ 40,495 $ 33,108

RECONCILIATIONS OF REPORTED RESULTS TO ADJUSTED RESULTS(Unaudited)(In thousands)

EBITDA and Adjusted EBITDA

The reconciliations of the amounts reported under U.S. generally acceptedaccounting principles ("GAAP") for Net income to EBITDA andAdjusted EBITDA are as follows:

For the Three Months Ended For the Six Months Ended

December 27, 2020 December 29, 2019 December 27, 2020 December 29, 2019

Net income $ 7,464 $ 409 $ 10,896 $ 4,121

Interest expense, net 646 889 1,392 1,936

Provision for income taxes 5,112 507 3,933 1,228

Depreciation and amortization expense ^(1) 6,016 5,863 12,068 11,485

EBITDA 19,238 7,668 28,289 18,770

Equity in loss of PAL - 837 - 2,012

EBITDA excluding PAL 19,238 8,505 28,289 20,782

Severance ^(2) - 383 - 383

Adjusted EBITDA $ 19,238 $ 8,888 $ 28,289 $ 21,165

Within this reconciliation, depreciation and amortization expense excludes the amortization of debt issuance costs, which are reflected in interest(1) expense, net. Within the condensed consolidated statements of cash flows, amortization of debt issuance costs is reflected in depreciation and amortization expense.

In the second quarter of fiscal 2020, UNIFI commenced a shutdown plan for its(2) operations in Sri Lanka. The adjustment primarily reflects accrued severance and exit costs.

Adjusted Net Income and Adjusted EPS

The tables below set forth reconciliations of (i) income before income taxes ("Pre-tax Income"), provision for income taxes ("Tax Impact") and net income ("Net Income") to Adjusted Net Income and (ii) Diluted Earnings Per Share ("Diluted EPS") to Adjusted EPS. Rounding may impact certain of the below calculations.

For the Three Months Ended December 27, 2020 For the Three Months Ended December 29, 2019

Pre-tax Tax Net Diluted Pre-tax Tax Net Diluted Income Impact Income EPS Income Impact Income EPS

GAAP results $ 12,576 $ (5,112) $ 7,464 $ 0.40 $ 916 $ (507) $ 409 $ 0.02

Severance ^(1) - - - - 383 (80) 303 0.02

Adjusted results $ 12,576 $ (5,112) $ 7,464 $ 0.40 $ 1,299 $ (587) $ 712 $ 0.04

Weighted average common shares outstanding 18,732 18,772

For the Six Months Ended December 27, 2020 For the Six Months Ended December 29, 2019

Pre-tax Tax Net Diluted Pre-tax Tax Net Diluted Income Impact Income EPS Income Impact Income EPS

GAAP results $ 14,829 $ (3,933) $ 10,896 $ 0.58 $ 5,349 $ (1,228) $ 4,121 $ 0.22

Severance ^(1) - - - - 383 (80) 303 0.02

Adjusted results $ 14,829 $ (3,933) $ 10,896 $ 0.58 $ 5,732 $ (1,308) $ 4,424 $ 0.24

Weighted average common shares outstanding 18,729 18,745

In the second quarter of fiscal 2020, UNIFI commenced a shutdown plan for its(1) operations in Sri Lanka. The adjustment primarily reflects accrued severance and exit costs.

Net Debt

Reconciliations of Net Debt are as follows:

December 27, 2020 June 28, 2020

Long-term debt $ 78,621 $ 84,607

Current portion of long-term debt 13,683 13,563

Unamortized debt issuance costs 592 711

Debt principal 92,896 98,881

Less: cash and cash equivalents 83,321 75,267

Net Debt $ 9,575 $ 23,614

Cash and cash equivalents

At December 27, 2020 and June 28, 2020, the Company's domestic operations held approximately 60% and 54% of consolidated cash and cash equivalents, respectively.

Non-GAAP Financial Measures

Certain non-GAAP financial measures included herein are designed to complement the financial information presented in accordance with GAAP. These non-GAAP financial measures include Earnings Before Interest, Taxes, Depreciation and Amortization ("EBITDA"), Adjusted EBITDA, Adjusted Net Income, Adjusted EPS and Net Debt (together, the "non-GAAP financial measures").

* EBITDA represents Net income before net interest expense, income tax expense, and depreciation and amortization expense. * Adjusted EBITDA represents EBITDA adjusted to exclude equity in loss of PAL and, from time to time, certain other adjustments necessary to understand and compare the underlying results of UNIFI. * Adjusted Net Income represents Net income calculated under GAAP adjusted to exclude certain amounts. Management believes the excluded amounts do not reflect the ongoing operations and performance of UNIFI and/or exclusion may be necessary to understand and compare the underlying results of UNIFI. * Adjusted EPS represents Adjusted Net Income divided by UNIFI's weighted average common shares outstanding. * Net Debt represents debt principal less cash and cash equivalents.

The non-GAAP financial measures are not determined in accordance with GAAP and should not be considered a substitute for performance measures determined in accordance with GAAP. The calculations of the non-GAAP financial measures are subjective, based on management's belief as to which items should be included or excluded in order to provide the most reasonable and comparable view of the underlying operating performance of the business. We may, from time to time, modify the amounts used to determine our non-GAAP financial measures.

We believe that these non-GAAP financial measures better reflect Unifi's underlying operations and performance and that their use, as operating performance measures, provides investors and analysts with a measure of operating results unaffected by differences in capital structures, capital investment cycles, and ages of related assets, among otherwise comparable companies.

Management uses Adjusted EBITDA (i) as a measurement of operating performance because it assists us in comparing our operating performance on a consistent basis, as it removes the impact of (a) items directly related to our asset base (primarily depreciation and amortization) and (b) items that we would not expect to occur as a part of our normal business on a regular basis; (ii) for planning purposes, including the preparation of our annual operating budget; (iii) as a valuation measure for evaluating our operating performance and our capacity to incur and service debt, fund capital expenditures, and expand our business; and (iv) as one measure in determining the value of other acquisitions and dispositions. Adjusted EBITDA is a key performance metric utilized in the determination of variable compensation. We also believe Adjusted EBITDA is an appropriate supplemental measure of debt service capacity, because it serves as a high-level proxy for cash generated from operations. Equity in loss of PAL is excluded from Adjusted EBITDA because such results do not reflect our operating performance.

Management uses Adjusted Net Income and Adjusted EPS (i) as measurements of net operating performance because they assist us in comparing such performance on a consistent basis, as they remove the impact of (a) items that we would not expect to occur as a part of our normal business on a regular basis and (b) components of the provision for income taxes that we would not expect to occur as a part of our underlying taxable operations; (ii) for planning purposes, including the preparation of our annual operating budget; and (iii) as measures in determining the value of other acquisitions and dispositions.

Management uses Net Debt as a liquidity and leverage metric to determine how much debt would remain if all cash and cash equivalents were used to pay down debt principal.

In evaluating non-GAAP financial measures, investors should be aware that, in the future, we may incur expenses similar to the adjustments included herein. Our presentation of non-GAAP financial measures should not be construed as indicating that our future results will be unaffected by unusual or non-recurring items. Each of our non-GAAP financial measures has limitations as an analytical tool, and investors should not consider it in isolation or as a substitute for analysis of our results or liquidity measures as reported under GAAP. Some of these limitations are (i) it is not adjusted for all non-cash income or expense items that are reflected in our statements of cash flows; (ii) it does not reflect the impact of earnings or charges resulting from matters we consider not indicative of our ongoing operations; (iii) it does not reflect changes in, or cash requirements for, our working capital needs; (iv) it does not reflect the cash requirements necessary to make payments on our debt; (v) it does not reflect our future requirements for capital expenditures or contractual commitments; (vi) it does not reflect limitations on or costs related to transferring earnings from our subsidiaries to us; and (vii) other companies in our industry may calculate this measure differently than we do, limiting its usefulness as a comparative measure.

Because of these limitations, these non-GAAP financial measures should not be considered as a measure of discretionary cash available to us to invest in the growth of our business or as a measure of cash that will be available to us to meet our obligations, including those under our outstanding debt obligations. Investors should compensate for these limitations by relying primarily on our GAAP results and using these measures only as supplemental information.

Cautionary Statement on Forward-Looking Statements

Certain statements included herein contain "forward-looking statements" within the meaning of federal securities laws about the financial condition and results of operations of Unifi that are based on management's beliefs, assumptions and expectations about our future economic performance, considering the information currently available to management. An example of such forward-looking statements include, among others, guidance pertaining to our financial outlook. The words "believe," "may," "could," "will," "should," "would," "anticipate," "plan," "estimate," "project," "expect," "intend," "seek," "strive" and words of similar import, or the negative of such words, identify or signal the presence of forward-looking statements. These statements are not statements of historical fact, and they involve risks and uncertainties that may cause our actual results, performance or financial condition to differ materially from the expectations of future results, performance or financial condition that we express or imply in any forward-looking statement.

Factors that could contribute to such differences include, but are not limited to: the competitive nature of the textile industry and the impact of global competition; changes in the trade regulatory environment and governmental policies and legislation; the availability, sourcing and pricing of raw materials; general domestic and international economic and industry conditions in markets where Unifi competes, including economic and political factors over which Unifi has no control; changes in consumer spending, customer preferences, fashion trends and end uses for products; the financial condition of Unifi's customers; the loss of a significant customer or brand partner; natural disasters, industrial accidents, power or water shortages, extreme weather conditions and other disruptions at one of our facilities; the disruption of operations, global demand, or financial performance as a result of catastrophic or extraordinary events, including epidemics or pandemics such as the recent strain of coronavirus; the success of Unifi's strategic business initiatives; the volatility of financial and credit markets; the ability to service indebtedness and fund capital expenditures and strategic business initiatives; the availability of and access to credit on reasonable terms; changes in foreign currency exchange, interest and inflation rates; fluctuations in production costs; the ability to protect intellectual property; the strength and reputation of our brands; employee relations; the ability to attract, retain and motivate key employees; the impact of environmental, health and safety regulations; the impact of tax laws, the judicial or administrative interpretations of tax laws and/or changes in such laws or interpretations; the operating performance of joint ventures and other equity method investments; and the accurate financial reporting of information from equity method investees.

All such factors are difficult to predict, contain uncertainties that may materially affect actual results and may be beyond our control. New factors emerge from time to time, and it is not possible for management to predict all such factors or to assess the impact of each such factor on Unifi. Any forward-looking statement speaks only as of the date on which such statement is made, and we do not undertake any obligation to update any forward-looking statement to reflect events or circumstances after the date on which such statement is made, except as may be required by federal securities laws. The above and other risks and uncertainties are described in Unifi's most recent Annual Report on Form 10-K, and additional risks or uncertainties may be described from time to time in other reports filed by Unifi with the Securities and Exchange Commission pursuant to the Securities Exchange Act of 1934, as amended.

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SOURCE Unifi, Inc.