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spk00: day and thank you for standing by welcome to the unifies fourth quarter fiscal 2021 conference call at this time all participants are in a listen only mode after the speaker's presentation there will be a question and answer session to ask a question during the session you will need to press star 1 on your telephone please be advised that today's conference is being recorded if you require any further assistance please press star zero. I would now like to hand the conference over to your speaker today, A.J. Egger. Please go ahead.
spk07: Thank you, Dawn, and good morning, everyone. On the call today is Al Carey, Executive Chairman, Eddie Engel, Chief Executive Officer, and Craig Creatore, Chief Financial Officer. During this call, management will be referencing a webcast presentation that can be found at unified.com and by clicking the conference call link. Management advises you that certain statements included in today's call will be forward-looking statements within the meaning of the federal securities laws. Management cautions that these statements are based on current expectations, estimates, and or projections about the markets in which Unify operates. These statements are not guarantees of future performance and involve certain risks that are difficult to predict. Actual outcomes and results may differ materially from what is expressed, forecasted, or implied by these statements. You are directed to the disclosures filed with the SEC on Unified's Forms 10Q and 10K regarding various factors that may impact these results. Also, please be advised that certain non-GAAP financial measures, such as adjusted EBITDA, adjusted EPS, adjusted working capital, and net debt may be discussed on this call. I will now turn it over to Al Carey.
spk05: Thank you, AJ, and good morning, everyone, and thanks for joining our call this morning. Our performance for Q4 of 2021 was very good. It was a good finish to fiscal 2021 for our team at Unify, and it gives us optimism about our fiscal 2022. Revenues continued the growth momentum that we had at the end of Q3. And when you take a look at Q3 and Q4 combined, we're confident that we have the momentum to give us a strong revenue performance for 2022. And Eddie and Craig will take you through the details on that in a few minutes. EBITDA was strong again in Q4, and we ended the fiscal year of 2021 at almost $65 million, which is quite a bit better than we forecasted for Q4 and for the full year. Interestingly, our debt, cash, inventory levels, and our overall balance sheet is probably as good a shape as any time in recent history. So overall, we feel like we're entering the new fiscal year in a very good position. I'd like to provide you with three important trends that are emerging for our business for 2022. The first one is environmental sustainability will be a driving force in our business. Our reprieve sales were up 30% for the quarter. Now, that's a bit of a funny comparison with the pandemic, but it's up 16% versus 2019 quarter. And product hang tags are up 60%. And we continue to see our customers taking aggressive actions that are going to allow them to achieve their 2025 sustainability goals for apparel. And this bodes very well for Reprieve. The second thing that's an emerging trend is that our regional focus is working. Our three regional businesses, North America, Asia, and Brazil, are quite different. And we have tactics and strategies that are different in each of those. And they're beginning to show promise. North America profitability is very definitely improving. and this is going to continue to be a big priority for us going forward. Asia had an all-time record revenue performance in Q4, and they show signs of full recovery from the pandemic, and we're forecasting a strong growth for Asia in 2022. And then finally, Brazil had an excellent year. They over-delivered Q4, and they also started selling reprieve. And while the sales are minimal at this point, We believe that the consumer in Brazil has an appetite for sustainable apparel, and this could be a very big positive for the future of our Brazil business. Now, the final item I wanted to mention is that we're increasing our capital investment over the next three years so that we can outfit our plants with the first new yarn texturing innovation since the mid-'90s. We've mentioned it before, but the equipment is called EvoCooler, a texturing machine from our supplier Orlikon, which has really great potential. We're going to be able to see significant efficiencies in productivity and energy consumption and operator safety. And Eddie's going to tell you more about it in a few minutes. However, this investment will make us more profitable and give us more plant capacity. And it's going to allow us to be more competitive against import prices in our business. So all in all, a very good quarter. I'm proud of the organization as they've managed through the pandemic. I believe they've shown resiliency and also agility. And I'd say that we're a better organization than we were pre-pandemic. So that gives us some optimism as we enter 2022. So now let me turn the meeting over to Eddie Engel, our CEO, and he'll take you through the highlights of the quarter. Thank you.
spk02: Thanks, Al. And good morning, everyone. As Al pointed out, we are pleased with our performance during the fourth quarter of fiscal 2021. And as the numbers show, we built on momentum from Q3 to deliver a better than previously forecasted fourth quarter. Strength across all segments resulted in fourth consecutive sequential increase in quarterly net sales. Right now, COVID-19 continues to be an obstacle that we have to pay attention to. However, our current momentum is setting us up to be able to deliver on our fiscal 2022 targets. Before I speak to the quarter, I want to take a moment to celebrate Unify and the great people that represent our company. This year marks our company's 50th year anniversary, and I could not be prouder of what UniFi employees have accomplished throughout those 50 years. I want to thank our employees, past and present, for their dedication to the business, and I'm grateful to be surrounded and supported by such a talented team. Now, when I rejoined UniFi a year ago, I was clear that the cornerstone to UniFi's future growth was sustainability. Today, I stand by that comment. and our innovation culture will enable us to expand into additional end markets and grow the exposure and leadership position of Reprieve. Unify remains well positioned to be the partner of choice for global brands seeking to meet their sustainability targets in a transparent, trusted, and traceable fashion. Now for the quarter. Slide three shows an overview of our performance during the period. The business performed above expectations in the fourth quarter and further reflected the resilience of our global business model. Quarterly revenues were up over 100% year-over-year and up 3% when compared to both fiscal 2019's fourth quarter or fiscal 2021's third quarter. Performance in Q4 was underpinned by strength across all segments, particularly, though, Asia and Brazil. Once again, Brazil outperformed with strong pricing driving its gross margin above 30%, compensating somewhat for the lower volumes due to local lockdowns within their market. Asia also had another strong quarter and achieved its highest quarterly sales volume on record. Lastly, the polyester segment recovered further as demand in the U.S. continued to normalize. This strong segment performance was against a backdrop of upward pressure from raw material and other cost increases that we reacted to as we moved through the quarter. On the subject of costs, Nearly every business is seeing the impact of inflationary pressures, especially in North America where volatility in labor, freight, and other inputs is testing the resolve of many companies, including ourselves at Unify. In the U.S., automotive demand has been impacted by global semiconductor shortages, which trickle down to automotive fabric production and, of course, yarn demand. However, this phenomenon has been offset by strong recovery momentum in other end markets. Again, we are pleased with the results of the polyester segment in light of all the difficult dynamics facing manufacturers today. Our conversations with customers remain positive and forward-looking as we all work together to mitigate the temporary impacts of inflation. Turning to the supply chain and U.S. raw material costs during the quarter, operating efficiencies and focused execution partially offset inflationary pressures, particularly for recycled raw material inputs. For example, from January to June 2021, our input costs to produce recycled plastic bottle flake increased significantly and well above the increases in virgin inputs. While these recent increases are expected to pressure the September 2021 quarter, we are focused on pricing actions to mitigate the impacts on our margins. As we look forward, we remain committed to managing our price-cost relationship. We've been actively engaged with customers to ensure the appropriate selling price adjustments are in place to offset rising raw material costs for recycled and other inputs. While we anticipate some short-term margin pressure, we are confident in our underlying business momentum and responsiveness to addressing these cost headwinds. Turning back to review the consolidated business, our adjusted EV performance was positive and above forecast in Q1, increasing significantly from the fourth quarter of fiscal 2019, which, as you know, was not impacted by the pandemic like fiscal 2021. Our financial health remains a top priority, and that emphasis can be seen by the progress we've made to further strengthen what was already a very strong balance sheet. As demonstrated by the two bolt-on transactions we completed in fiscal 2021, our balance sheet serves as a catalyst for future growth opportunities that we see as profitable and value-add, During last quarter's conference call, I had shared that our ongoing trade petitions involving textured polyester yarns were continuing to progress. In May 2021, the US Department of Commerce announced preliminary duty rates against four countries, Indonesia, Malaysia, Thailand, and Vietnam. Investigations should conclude by January 2022 and are expected to provide benefits to sales volumes and resulting cost absorption for the polyester segment for an extended time period thereafter. As seen on slide four, the demand for our Reprieve branded fiber continues to grow, comprising 38% of net sales in fourth quarter this year. For fiscal 2021, we shipped nearly 97 million Reprieve hang tags, a year-over-year increase of 60%. So, moving to brand updates, we have several exciting highlights, and this includes Ralph Lauren announced a sustainable offering as the official outfitter of Team USA at the ongoing Olympics. Athletes will wear jackets made with Reprieve during the closing ceremony parade scheduled for this upcoming Sunday. Additionally, Girl Scouts of the USA are launching new uniforms made from 40% Reprieve fiber. This new initiative is Girl Scout USA's first stride to becoming a brand that offers sustainable recycled polyester features in their uniforms. Next, TOMS has added a new line of shoes to their Earthwise collection that features Reprieve Our Ocean. prominently telling the Reprieve story on the interior of the footwear, as well as through a variety of outbound medium. Notable recent home goods placements include Brentwood Home and several mattresses made from Euro Colchones, a luxury mattress brand in Brazil. I'm also excited to note that Reprieve made a Virgin flight recently. With the use of our Reprieve flame-retardant fiber, Under Armour designed a 3D knit structure for the seating fabric in the Virgin Galactic Spaceship Unity, accompanying the crew well above the Earth's surface. I'll conclude our update on Reprieve with our latest achievement that we've announced in a press release last week. Reprieve received its HIG Materials Sustainability Index scores, demonstrating that our brand's global warming potential is meaningfully better than conventional alternatives. And we're proud that consumers and brands can rely on another level of assurance and transparency in knowing that their use of Reprieve continues to support their conscious and sustainable actions. The HIG Materials Sustainability Index score certainly shows, as our vision states, that we are working today for the good of tomorrow. We usually cover the outlook commentary from the earnings release a bit later in my prepared remarks. However, today I'd like to take a moment on the fiscal year 2022 guidance we have given around our expected level of capital spending. We continue to be very encouraged by the initial results of investments we have made in new yarn and texturing machinery at our Americas facilities. We are planning to continue these investments during fiscal year 2022, resulting in an elevated level of capital spending. These investments are necessary to meet what we expect will be continued demand for our virgin and recycled products in future periods. As we progress through fiscal year 2022, we expect to be able to share more details on our progress during this important capital equipment upgrade period. With that, I will turn the call over to Craig. Craig?
spk03: Thank you, Eddie, and good morning, everyone. Like the rest of the team, I am pleased with our fourth quarter and full-year fiscal 2021 results and our ability to navigate the complexities of this recovery with a reasonable and responsive business model. Because of these strong results, we're generating some exciting momentum for the future. As we look at the financial details today, I will be brief on year-over-year commentary due to the drastic difference in the respective economic circumstances. but I will spend a bit more time in the underlying drivers of the business and what factors are driving momentum for the future. I will begin with a high-level overview of profitability before moving into the slide presentation. As expected, operating income and adjusted EBITDA increased significantly from the pandemic-suppressed Q4 of fiscal 2020. More impressive is the greater than 100 percent increase in operating income over the two-year period. from Q4 fiscal 2019 to Q4 fiscal 2021, along with the 60% increase in adjusted EBITDA for the same timeframe. This strong Q4 fiscal 2021 performance helped us to produce significantly better earnings per share in fiscal 2021, despite some volatility in the tax rate during the economic recovery. Specifically, I'll review the non-operating item that was recorded in the just completed quarter, the recovery of non-income taxes in Brazil. We wanted to make sure investors understand the positive impact to our business, both historically as well as in the future, so I'll be providing some additional context. For more than 10 years, many companies in Brazil, including Unifi, challenged the constitutionality of certain items subject to taxes that fund social programs referred to as PIS cofinance taxes. which have driven a double taxation situation when combined with other taxes paid in that country. In May 2021, Brazil's Supreme Court ruled in favor of the taxpayers, and businesses like ours have effectively awarded future credits for the ongoing routine PIS cofinance payments. Accordingly, we recorded a $9.7 million benefit to reflect the credits relating to prior years that are available to be taken against future non-income tax filings. And this benefit is reduced by $3.3 million in tax expense. The benefit has been removed from our adjusted EBITDA and adjusted EPS calculations as they are not related to the current year underlying operations and stretch back a total of 10 years. This matter did not impact cash at our balance sheet date. However, this item will be positive to our cash position as we utilize the tax credits in the future, and this will be positive to both net sales and cash as this issue has been effectively eliminated from future periods. Now let's turn to slide five for a quick net sales overview. Consolidated net sales increased to $184.4 million, achieving the sequential quarter increase from Q3 fiscal 2021 of 3%, which was the high end of our expectations for the quarter. Of course, sales eclipsed Q4 2020 by more than 100 percent, which marked the most difficult quarter for Unified during the COVID-19 pandemic. Recovery in all our segments is easily seen on this slide five. Slide six provides a quick overview of gross profit and follows the net sales recovery. For polyester, this slide demonstrates the significance of volume throughput and our focused execution on price management in North and Central America. In addition, robust recovery in Asia and another exceptional quarter in Brazil helped to drive our consolidated gross margin to 14.9%. Slide 7 and 8 include a net sales overview and gross profit overview, respectively, for fiscal 2020 versus fiscal 2021. These two slides exhibit the momentum that we have addressed elsewhere on this call as our dynamic global business model has been able to capture opportunities during the business recovery, especially in our Asia and Brazil segments. In addition to the year-over-year analysis, we've chosen to present some sales and gross profit comparisons for the two-year period that excludes the COVID-19 pandemic on Slides 9 and 10. For the two-year period comparison, the following items are noteworthy for net sales on Slide 9. Polyester segment sales are generally flat as a result of the short-term production constraints that are impacting the U.S. today. Asia segment sales increased 32 percent, consistent with our growth strategy and strong demand in that region for reprieve product. In Brazil, sales decreased 12 percent, primarily due to devaluation of the Brazilian real and the impact of local country pandemic restrictions on product demand in April 2021. Moving on to the two-year period comparison for gross profit on slide 10, the following items are noteworthy. The polyester segment gross margin increased from 8.9 percent to 12.2 percent, demonstrating focused execution in terms of sales mix, pricing, cost management, and efficient production. We are proud of this segment achieving double-digit margin in what is still a difficult environment. The Asia segment gross margin increase from 9.8% to 13.2% demonstrates an improved sales mix and better cost management for a growing portfolio of innovative and sustainable products. The Brazil segment gross margin increase from 18.7% to 36.3% demonstrates the significant market position achieved in the just completed quarter underpinned by exceptional performance and strong pricing. Moving on to the balance sheet on slide 11, stability in our debt and liquidity positions is demonstrated by maintaining diligence around working capital components in the face of rising input costs while generating strong cash flows globally. All of our team's great work in fiscal 2021 set another record low net debt level of $8.6 million shown on this slide. We continue to have zero borrowings on our ABL Revolver, which had an availability of $66 million as of June 27, 2021. Unify's commitment to financial health has allowed us to leverage our strong balance sheet during the more than 12 months challenged by the global pandemic. We will continue to allocate capital expenditures to new EAFK evotexturing technology in the Americas. Under our balanced approach to capital allocation, We expect to continue to invest in the business to drive innovation and organic growth, maintain a strong balance sheet, and remain opportunistic with share repurchases and or M&A opportunities. I will now turn the call back to Eddie to take us through the last slides of the presentation and make some final comments. Eddie?
spk02: Thank you, Craig. I will conclude with slide 12 of the presentation and provide some context around our expectations for fiscal 2022. Our performance throughout fiscal 2021, and most recently during the fourth quarter, reinforces our belief that there's a structural change in our markets and sustainability is here to stay. We are encouraged by recent sales trends in our reprieve and other value-added products, and we expect the recent strength to continue. While the exceptional gross margin performance of the Brazil segment is not expected to continue at the levels achieved in fiscal 2021, there is much to look forward to. We expect to maintain much of the underlying business momentum that was captured and restored during fiscal 2021 while navigating the existing inflationary pressures. We anticipate that the Asia segment and polyester segment will generate modest profitability growth over fiscal 2021. Sales volume growth and continued momentum for reprieve in fiscal 2022 is expected to drive a net sales increase of 10% or more. Operating income and adjusted EBITDA are expected to be broadly consistent with fiscal 2021 levels. The effective tax rate is expected to fall between 35% and 40%. And we will continue to invest in organic growth in the Americas, driving our capital expenditures estimate between $40 and $45 million for fiscal 2022, primarily comprised of new yarn texturing machinery, along with approximately $10 to $12 million of routine annual maintenance. To conclude, I am proud of our team's performance during a year challenged by the pandemic and global uncertainty. Our strong results during the fourth quarter and fiscal year demonstrate the strength of our resilient global business model and our potential under normal economic conditions. We have the right team and workforce in place to drive long-term growth and shareholder value. Going forward, we will continue to focus on partnering with global brand leaders that want to position themselves using sustainable products. innovating and positioning the business to drive long-term organic growth, diligent cost and price management initiatives to protect and improve gross margin, and maintaining the strength of our balance sheet to act opportunistically on further organic growth and strategic M&A. We will now open the line for questions. Thank you.
spk00: At this time, if you do have a question, please press star, then the number 1 on your telephone keypad. Again, if you have a question, please press star, then the number 1 on your telephone keypad. We have a question from the line of Dan Moore with CJS Securities.
spk01: Hi, good morning. It's Pete Lucas for Dan. You touched on it in your prepared remarks, but if you could just kind of expand on your outlook for growth and margins for fiscal 22 by segment, starting with Polyester International. I know you said in Brazil you don't expect those margins to continue, but finally kind of touch on the outlook also for nylon.
spk02: Thank you, Pete. This is Eddie. The growth that we do expect, we expect growth in volume across all of our business units. And it'll be growth in revenue and in volume. The revenue growth will be partly as a result of the growing cost of raw materials that we're passing on. But as we said on the call, we do expect the overall global growth rate to be 10% plus over fiscal 2021. From a margin perspective, we do expect to see some pressure. If we take all of the business units together, the global margin will drop. primarily because the Brazil margins that we're currently experiencing are not expected to continue. But we are focused on ensuring that the margins in Brazil are as good as they can be, but specifically in Asia and the U.S., we are under pressure, but we do expect to maintain decent margins in those two areas.
spk01: Helpful, thanks. Next one on the tariffs, you touched on that coming to be a benefit starting in January. Do you expect to achieve the full $20 million revenue benefit in fiscal 22, or is that more of a run rate benefit you expect to reach sometime during the fiscal year?
spk02: That's more of a run rate benefit. And as we said, we're installing new equipment, so we'll be ready from a machine capacity perspective. But we do expect that to ramp up as we move through the second half of our fiscal year.
spk01: Great. And the last one for me, with a lot of new entrants and emerging companies focused on recycling plastics, do you see the potential for increased demand and competition for bale bottles as an input? And what are you doing to ensure that you have enough supply?
spk02: Yeah, that's a question I'd like to answer. really target specifically to the U.S. In Asia, we do not have any issues at all. But in the U.S., there is certainly increased competition, especially from the beverage companies who are trying to put more recycled content into their containers. And in some states, there's legal requirements to do that, such as California. So we are seeing increased pressure. We haven't had a shortage of bottles, but we are having to pay a lot more for the bottles than we had just six months ago. And we are, as we go through the next quarter or so, we are passing on those cost increases. So the supply is not an issue, but certainly the cost of those vail bottles has been problematic for us. And of course, it's never easy to pass on price adjustments to customers, but I think they see what's going on right now.
spk01: Very helpful. Thanks, and congrats again on the quarter. Thank you. Thanks, Pete.
spk00: Your next question comes from the line of Gus Richard with Northland.
spk04: Yes, thanks for taking my question. I just wanted to focus on Asia for a second. Vietnam is shut down, and they are a big producer of apparel and footwear, and I was wondering if that was causing any perturbations in your business there.
spk02: Thanks for the question. You know, most of our business in Asia is in China, but we do have some business as we've talked about in the past in Vietnam. This is certainly something we're paying attention to as in our script. We know that COVID is not over. We're not sure exactly how it's going to impact Q1 of this new fiscal year. And it's really sort of only sort of lifted its ugly head just a few weeks ago. But we're paying attention to it. I don't think it's something that overall is going to impact our Q1 results, however.
spk04: Okay. And then on the new texturing equipment that you're putting in your facility, is that a productivity or is it enhancing the product or both? Could you give a little color there?
spk02: Yeah, I guess there's three reasons for doing this. One, it's going to give us more capacity, which we will need as we capture some import replacement business due to the anti-dumping initiatives that are going on. But it's also, as Al pointed out in his comments, we know that it's going to be more productive from a speed point of view, but also it reduces the resources from an energy and labor perspective, and it is safer than existing equipment, which we're very pleased about. And then lastly, we are very confident that we'll be able to make some products on this new equipment, new innovative products that we haven't been able to make on the existing equipment that we've had. Our existing equipment is 25-plus years old, and this is a great opportunity for us to develop new products, new innovative products on this equipment. Thank you.
spk04: Got it. And then the last one for me is... You know, it seems like globalization is moving a bit in reverse, and I was just wondering, are you seeing any brands or new customers starting up businesses in North America that would, you know, shift, you know, revenue more to North America?
spk02: Yeah, I mean, I think where we're really seeing growth and a shift in supply chains is in Central America. This pandemic has been a shock to all of us, and the logistics coming from Asia, not just are very costly, but it's also very time-consuming. So what might have taken four weeks is now taking eight weeks to get across. And so that builds up the working capital constraint for these brands. And we are hearing from many brands that they want to put more business through the Central America supply chain. particularly in the US, we're not seeing a huge amount, but I do think we'll see some impact going forward, but I can't be as specific as I can in Central America.
spk04: Okay, and would you service that from Brazil or from your North America plan?
spk02: North America, because there's what's called a yarn forward rule. If somebody makes a garment in Central America, if it's made from US components or local components, it comes back into the U.S. duty-free, so there's a real advantage from a tax perspective, duty perspective, to make garments in Central America, which offsets some of the higher costs that might be otherwise associated with making it here versus in Asia.
spk04: Perfect. Thank you so much. Congratulations on the quarter. Thanks. Thanks, Gus.
spk00: Your next question comes from the line of Ryan Dennis Savage with the DOTI.
spk08: Hi, guys. Congrats on the quarter, first off. Just a couple questions for me. Within the sales guidance range for the full year, how much pricing considered into that, given the raw material environment, and is that embedded, and is there more to come in that?
spk03: Ryan, we did anticipate in that initial guidance for 22, yes, we took into consideration the current level of pricing that we're seeing. As we've noted, it has been on the uprise here, especially as of late. I think we took into consideration what was happening now. We didn't try to project past what we're seeing in the current day, but the current level of pricing and what we're seeing here is reflected in that guidance.
spk08: Thanks for that. And just one more on Reprieve. Can you talk about the conversations you guys are having with clients and the ability to expand the raw material environment? Does that change the conversation at all? And also, does the recent H-I-G-G MSI scores help you guys compete in the marketplace?
spk02: I'll answer the second question first. I mean, the Higgs Sustainability Index is something we've worked on for a long time. One of the big... one of the big attractiveness about Unifi is that we're transparent, we're traceable, and we're, because of our fiber pin technology. What this does is add another level of comfort to the brand that when they buy from Unifi that we are helping them become more sustainable. So it's easy for us to say, you know, we're good, we're better than Virgin, or we're better than some of the other recycled polyester and yarns out there but when a third party says that it just gives them more comfort and again as we said before our job is to help brands become more sustainable we also want to help them do it in a very in a way that's very trusted and that gives them a lot of a lot of trust I'm not sure about your first question but I think was about the expansion of the raw materials are the ways to get all the raw materials in the u.s. beyond their bottles you know we are we aren't working as we mentioned some of the other culture for on increasing our textile take-back program. So as we get more and more interest from the brands and they develop some collection systems, we do believe we'll be able to take textiles and put it back into, say, black yarns, which will help them increase their sustainability story, too. The recycling rate in the U.S., we do expect to increase. When failed bottled pricing goes up significantly, as it has done, it's going to attract more people to increase collections We have a great partnership with Waste Management, and they are very focused in different communities in increasing recycling rates. Nonprofits like the Recycling Partnership, they are also very focused on increasing the amount of curbside collection available to American communities. Today we're still around 50% collection rates, 50% access to curbside recycling in America, and there's a big initiative to increase that. And then you have states like Maine that just passed an EPR ruling that really is going to require companies who are putting plastic onto the market to help create the recycling infrastructure to make that happen. So we see a lot of upside in the collection rates over the next few years because as the price point has become more attractive and as legislation gets put in place, it will put more product onto the marketplace. Thank you.
spk08: Thanks for that. And then just one more for me, a quick one. Can you just provide some color on the texturing machines, and when will we see benefits from this project, if you could give some color on that? Or if we'll see benefits in 2022. My apologies.
spk03: No, that's a good question. Yeah, as we've mentioned, we're really in the initial stages of getting those first machines into our operations. Really, we'll continue on that during the first half of FY22. Okay. And it won't be really until the back end of FY22 that we'll start to see some benefit, even though we will continue that machine installation even into that period as well. So really for the first quarter and second quarter of FY22, we'll continue to be in installation ramp-up mode. We'll start to see some additional benefit for that really in the back half of FY22.
spk08: Thanks for that, and congrats on the quarter, guys. Thank you. Thanks.
spk00: Your next question comes from the line of David Silver with CL King.
spk06: Hi, good morning. I had maybe a question about the broader kind of marketing opportunity you have in maybe the current pricing environment. You mentioned rising costs. I mean, I guess all along the supply chain, I'm thinking more along the lines of petrochemical input prices or the oil price. I mean, I personally think $70 crude is just a rest stop on the way to something a little bit higher. But across the cycle, you know... recycled plastics, you know, at some point have to compete with virgin plastics. And in your experience, I mean, in an elevated plastics price environment, is it easier for your company to hit those double-digit growth targets you have or is it harder or, you know, is it kind of a depends, it depends kind of answer? How do you think of your marketing and the demand for your recycled products in a world of elevated prices for the virgin alternatives? Thank you.
spk02: You've got a lot of things in there, David. On the general broad theme around petrochemicals, recycling inputs have followed the virgin inputs. And there's generally a lag sometimes forward leading or not, but what I can say is that there has been a disconnect between those companies who want to use virgin material and those who want to become more sustainable and use recycled products. So right now we are in this moment in time where the recycled inputs have gone beyond the increases in virgin materials. So we saw crude go from $45, which was there for quite a while, up to $70, $75, which is a big increase, but the recycling inputs in the U.S. specifically have increased further. So you have to sort of ask the question about the regions. Is there a disconnect in China? No. Is there a disconnect here in the U.S.? Yes. Are the brands that we're working with staying on their sustainability path? I think I can confidently say yes, they are, and they know this is a temporary situation where the disconnect is so big, but As you know, if you go back to just several years ago, crude was at $100, and we were selling a lot of yarn. And when the higher that crude goes, the easier it is, generally speaking, for the recyclers because the delta between the two narrows. So while it is challenging right now because the delta between the bale bottle pricing and resulting plate costs is greater than normal, at some point there will be an equalization and either Virgin will continue to go up or the recycled costs will go down as more collections occur. So from a marketing perspective, you know, we're marketing to people that want to be sustainable. We're not trying to convince people who are committed to Virgin products to move over. We know there's a a bunch of big brands out there, big retailers out there who are really consciously trying to meet the consumer demand and they're trying to meet those needs of sustainability that their customers are asking for. And the regional focus that we have really helps us because our supply chain, like we talked about earlier, we can make products in Central America, in the US for quick terms, But we can also make products in Asia and recycle content, and there's less pressure over there from a recycled inputs point of view. So I think the motivation to buy in apparel, in home goods and shoes is more and more becoming sustainable focused. So these brands are looking forward to that, and we're going to market towards those brands and actually focus our marketing on their customers so that they can get value from the reprieve marketing that we're putting out there. I hope that helps.
spk06: Yes, it's a lot to unpack there. Thank you. I had a follow-up question maybe on your tax rate. An effective tax rate of between 35% and 40% is what you're guiding to. To me, that's one of the higher rates for the companies in my universe. However, I did notice in the cash flow statement here that there was a deferred income tax benefit for this year. If I was modeling your company going forward, is there a structural difference between your GAAP income tax accrual and a cash tax rate? Is that something that we should be factoring in for the longer term? Maybe just some thoughts on your gap tax rate versus your cash tax rate. Thank you.
spk03: Sure. Dave, that's a good question. Yeah, for cash taxes, we will get the benefit. We will get some continued benefit, specifically, as we mentioned in the call today, some of the changes with the indirect taxes and getting credits that we will utilize over several years. That will continue to push the cash taxes below the overall tax rate. There are some other factors that are in play there as well. But yeah, I would say that we feel like if I gave you a specific number, could you be five percentage points lower when you're ranging your cash taxes? That's probably realistic. So yes, to broadly answer your question, yes, we do feel like we will continue to have some things that have the effective tax rate actually be a bit higher than the actual cash tax rate.
spk06: Okay, great. Thank you very much.
spk00: And I will now turn the call back over to management for closing remarks.
spk07: Thank you, Dawn, and thank you to everyone for listening and participating today. Our next earnings release for the first fiscal quarter ending September 26, 2021, is tentatively scheduled for Monday, October 25, 2021, after the close of the market. with a conference call to follow the next morning, Tuesday, October 26, 2021, at 8.30 a.m. Eastern Time. Thanks again.
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