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Text: And I want to get the call started with a few comments about our overall performance for Unifi's third quarter.
So all in all, we had a solid quarter three, stronger than we anticipated, and we continued to see a steady recovery from the pandemic.
Our Brazil and Asia business had very strong sales and gross profit performance.
That's whether you look at it versus Q3 of last year or versus the previous quarter.
North American sales saw a year-over-year growth in March, so we now have all three regions showing solid growth trajectory.
Our EBITDA performance was very positive in Q3.
Our balance sheet continues to be strong as does net debt, and our overall financial performance really puts us in a position so that we can invest in growth as we move into the future.
If you look at Q4, while there's still some uncertainty in the Brazil market and even the U.S. market with regards to COVID.
Even with that, we see a path to sequentially improving our sales for Q4 and finishing the fiscal year in a way that sets us up for a strong 2022.
I'd like to tell you about one positive trend that's growing in the market that's worth noting.
There's a very definite momentum for sustainable products from consumers and also from our customers.
This bodes well for REPREVE's future, and we can hear this in the discussions that we have with our customers and in their future plans for not only apparel but also home furnishings, footwear and also automotive.
Many customers are increasing their commitments to making products using recycled material, and they're actually taking action on those commitments.
This quarter 3, we've seen the REPREVE hang tags with our co-branding partners increase by 80%.
Now that number year-to-date is 50% so that we can see the trends continuing to strengthen.
For the fiscal year, we expect to end the year at 90 million hang tags on products across the marketplace, so the awareness of our brand is climbing in a very positive way.
The management team at Unifi is now seeing the benefit of being in place and working together for multiple quarters after what I'd consider to be a fairly instable management situation over previous years.
This is now starting to pay dividends and has become a clear driver of our improved performance.
I got to say that I'm very proud of the team, and I'm grateful for their resiliency over these last 12 months.
As Al mentioned, our third quarter fiscal 2021 results surpassed our initial expectations and are a testament to our strong global presence and the resilience of both our employees and our business model.
Their compliance to the safety measures we put in place over a year ago has allowed us to maintain low COVID case numbers, while continuing to operate our business effectively and navigate a recovery.
On slide three, we have provided an overview of the quarter.
The business demonstrated another quarter of significant strength, and I'm very happy to report we exceeded pre-pandemic revenue levels.
Q3 revenues were up 10% sequentially and 5% on a year-over-year basis, with solid performance across all segments and geographies.
We generated a 530 basis point improvement in gross margin year-over-year due to the strong results we saw in our Brazil and Asia segments.
Brazil had the strongest segment performance during the third quarter, and momentum in that region continued well past Q2 as improved selling prices and product availability during Brazil's economic recovery led to strong margin performance.
Our Asia segment's also demonstrated strength during Q3 as volumes continued to trend up year-over-year, experiencing a meaningful return to growth.
Our team in Asia has continued to successfully manage cost and improve product mix, allowing for gross margin expansion.
In regards to the U.S. raw material costs and supply chain, the March 2021 quarter was the most volatile period we've seen in quite a few years.
Many people and businesses in Texas experienced harsh weather conditions in February, but we were fortunate that our supply chain remained operational, albeit with surcharges on selected input materials and freight.
Combination with rising petrochemical prices, our raw material costs exhibited a meaningful step-up during the March 2021 quarter.
With those higher costs now in our business, we have been working closely with our customers to ensure that the appropriate selling price adjustments are implemented.
We do expect some margin pressure to occur into Q4 from the inherent lag that occurs during such a process.
However, we do remain confident in our underlying business momentum and our responsiveness in addressing these cost headwinds.
Stepping back to the consolidated business, again, our financial position remains strong and easily supported the two bolt-on acquisitions we completed in the fiscal 2021.
In addition, I am proud of the progress we've made with improving our balance sheet across the globe.
Switching to REPREVE-branded Fiber.
I am pleased to report that momentum remains, comprising 33% of net sales in this Q3 -- in Q3 versus 29% for the year ago quarter.
And as you can see on slide four, the trend remains strong.
Sequentially, REPREVE Fiber was lower than our record Q2 performance, and this is not a concern due to the typical seasonality of the Chinese New Year and the outperformance by Brazil's predominantly virgin platform.
We have several exciting brand highlights to touch on today, starting with our traditional co-branding partnerships which have continued to accelerate.
Realtree launched their new fishing shirts at Walmart, which contained REPREVE and carry the iconic REPREVE green bottle hang tag.
In addition, EleVen, a brand by Venus Williams, launched a women's tennis coat collection that co-brands with REPREVE.
These launches represent an extension of REPREVE into broader sporting goods categories.
In the home goods category, we continue to win new business and launched several programs this quarter.
Our customer, Marina's carpets, a Turkish producer and retailer of carpeting, launched a line of carpeting made from REPREVE.
And additionally in the U.S., Rollease Acmeda launched Ambient Renew, a new line of eco-friendly window coverings using REPREVE in the place of PVC.
From a marketing and media perspective, we had a remarkable few months working with various partners to promote REPREVE's sustainability benefits for them and, of course, for society.
For example, you may have caught the television ads that feature REPREVE during the Phoenix Open Golf tournament, created by the newly rebranded WM, formerly known as Waste Management.
WM is a major supplier of bailed recycled plastic bottles used in our U.S. bottle washing facility and announced in February that they will be outfitting their staff with uniforms made from REPREVE via our customers, Aramark and Cintas.
In addition to being our customer, WM is working on additional rebounding campaigns, which will continue to feature REPREVE and Unifi as a strategic sustainable partner who enables recycling.
WM will continue to air 30-second commercials on national television that feature how Unifi's U.S.-based manufacturing transforms recycled plastics.
It also mentioned that through our partnership with L2 Brands and Pepsi's sponsorship of the Super Bowl halftime show, t-shirts made with REPREVE were provided a surprise for Pepsi's social media followers.
In March, our sponsorship of the Pac-12 Team Green resulted in additional television advertising on the Pac-12 network and ESPN, with circular economy stories that explain how we take bottles from many university campuses and transform them into well-known branded apparel that can be purchased from their university bookstores.
We believe that telling these stories will enhance REPREVE equity and brand awareness in the broader consumer market.
Our momentum continues to build and partnerships such as these have propelled REPREVE's growth.
This quarter, we hit a milestone of 25 billion bottles recycled into REPREVE.
This growth led us to congratulate our valued customers who drove us to this point, with the announcement of our fourth annual Champions of Sustainability Awards in March.
These awards celebrate bottle cap milestones achieved by our customers as well as newcomers and partners and innovation.
Now turning to our operating segment performance during the third quarter.
I will provide some high-level commentary on each segment before Craig takes you through more specific details.
Polyester came a little lower on a year-over-year basis, and the shortfall can be attributed to last year's ramp-up in demand as antidumping volumes drove strong utilization and sales trends just prior to the impact of COVID-19.
That said, over the last nine months, the Polyester segment has shown strength, achieving a gross margin of 10% during the pandemic versus 8.2% in the prior pre-pandemic comparable period.
The Asia segment delivered another strong quarter as business conditions continued to improve and net sales surpassed pre-pandemic levels.
Volumes in Asia were up significantly and benefited from pull-through on new and existing customer programs.
With Brazil, as Al noted, had another record-setting quarter and beat our own internal forecast.
Similar to the outperformance we experienced in the region during the first and second quarter, our unique market position has continued to allow us to take market share that was previously held by competitive importers.
Our team in Brazil continues to do great work and has been able to capture even more unfulfilled demand.
We will work to hold on to our market share gains within the region, but note that the COVID-19 knockdowns that lasted from late March into April are expected to impact volumes in the June 2021 quarter.
With that said, as Brazil worked its way out of the recent spike in COVID-19 cases and the country's retail environment opens back up in the coming months, we anticipate that volumes will ramp back up to normal levels during the first quarter of our new fiscal year.
Lastly, the Nylon segment performance met our expectations for the quarter, reflecting a balanced sales level.
Now before I pass the call over to Craig, I will simply remind everyone that our ongoing trade petitions, involving textured polyester yarn imported from four countries: Indonesia, Malaysia, Thailand and Vietnam continue as expected.
We anticipate further determinations will be published in the next two months.
Like the rest of the team, I am pleased with our third quarter fiscal 2021 results and our ability to navigate the complexities of this recovery with a regional and responsive business model.
Because of these strong results, we are able to return to our quarterly comparative discussions on a year-over-year basis, which is something that we have not been able to do for the past several quarters.
I will begin with a quick overview of profitability before moving on to slide five.
Operating income and adjusted EBITDA were up significantly from Q3 of fiscal 2020.
The increase is primarily attributable to the gross profit outperformance by Brazil, further aided by robust results from Asia.
Operating income and adjusted EBITDA in the just completed quarter included two specific expense items that are worthy of additional commentary: first, we recognized the remaining fiscal 2021 maximum bonus expense in Q3 of fiscal 2021 due to the overall outperformance of Unifi's adjusted EBITDA from our consolidated business.
As such, we recorded approximately $2.4 million of expense in the just completed quarter that was originally anticipated for the fourth quarter of fiscal year 2021.
Of this additional expense, approximately 2/3 affected SG&A expense and the other 1/3 affected cost of sales.
Second, as our installation of new eAFK Evo texturing machines in Yadkinville, North Carolina continues to ramp up.
We disposed of some older machinery with remaining book value, generating a noncash loss of $2.5 million in this third quarter.
This was included in other operating expense in the income statement and was not added back to our calculation of adjusted EBITDA.
Consolidated net sales increased to $178.9 million, up 4.6% from $171.0 million in Q3 of fiscal 2020.
For the Polyester segment, prior period sales volumes were boosted by the finalization of antidumping trade petitions against China and India, in combinations with customers accelerating purchases in February 2020 and in anticipation of April and March 2020 lockdowns.
The Asia segment exhibited a return to pre-pandemic momentum with continued underlying demand from REPREVE, driving segment revenue growth of 25.5%.
The Brazil segment maintained its position of market strength, adjusting prices to accommodate movements in global pricing dynamics and competition, driving 22.1% revenue growth in spite of a much weaker Brazilian real than one year ago.
The Nylon segment was essentially flat to the prior year with a shift in sales mix after the first three months of impact from the recently completed Fiber and Yarn acquisition, which was a positive contributor to both revenue and profitability for this segment.
Slide six provides an overview of gross profit, exhibiting the 66% increase in gross profit and 530 basis point increase in gross margin from Q3 fiscal 2020 to Q3 fiscal 2021.
Gross profit for the Polyester segment increased $190,000 as the shortfall in sales volume was more than offset by an improved sales mix.
The Asia segment was able to increase gross profit by $2.6 million or 290 basis points from an improved sales mix and supply chain efficiencies.
In Brazil, we were able to triple gross profit from $3.4 million to $10.6 million and achieved a record gross margin of 41.2% due to higher pricing levels underpinned by a strong market position.
The Nylon segment was essentially flat in comparison to Q3 of fiscal 2020.
Slides seven and eight include a net sales overview and gross profit overview, respectively, for the nine months ended March 2021 versus March 2020.
Moving on to the balance sheet on Slide 9.
Stability in our debt and liquidity positions is demonstrated by maintaining diligence around working capital components and generating cash flows while completing two bolt-on acquisitions during this fiscal 2021.
Great progress recently on our net debt metric, we continue to have 0 borrowings on our ABL revolver, which had an availability of $63 million as of March 28, 2021.
Unifi's commitment to financial health has allowed us to leverage our strong balance sheet during 12 months challenged by the global pandemic.
We will continue to allocate capex to new eAFK Evo texturing technology in the Americas.
Under our balanced approach to capital allocation, we will continue to invest in the business to drive innovation and organic growth, maintain a strong balance sheet and remain opportunistic with share repurchases and M&A opportunities.
You will note we were able to include more detailed forecast information than we have been able to provide in the past couple of quarters, as our business visibility continues to return to, let me say, more normal levels.
The third quarter's strong performance supports the expectation we laid out earlier in the fiscal year that we will see incremental progress in net sales trends throughout fiscal 2021.
We are encouraged by recent sales trends in our REPREVE and other value-added products and expect recent strengths to continue.
With this sustained business momentum, the company anticipates sales volumes to increase and June 2021 quarter net sales to improve sequentially on the March 2021 quarter by approximately 1% to 3%.
Its adjusted EBITDA for the fourth quarter of fiscal 2021 is expected to be in the range of $12 million and $14 million and includes our current expectations for the following: pandemic uncertainty, especially following a quarter of record performance from the Brazil segment; raw material cost increases that occurred in the March 2021 quarter that will adversely impact gross profit for the June 2021 quarter due to the inherent lag in responsive selling price adjustments, with those impacts partially offset by a lack of incentive compensation expense due to the full recognition during the first nine months of fiscal 2021.
Lastly, we expect an effective tax rate of between 45% and 55%.
And given the momentum from the third quarter, our fourth quarter capex should fall in the range of $10 million to $12 million.
I believe our strong performance during the just completed quarter reflects the resiliency of our global business model and what we can achieve under normal market conditions.
Going forward, we continue to focus on managing our costs, selling prices and working capital to drive gross margin improvement, using our innovation to partner with global brand leaders interested in sustainable products in an effort to diversify and grow our portfolio, and maintaining our strong financial position and strong balance sheet to expand opportunities through further organic growth and strategic M&A.

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q3 sales rose 4.6 percent to $178.9 million.

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