Unifi, Inc. New

Good morning and thank you for attending Unifi's third quarter fiscal 2025 earnings conference call. Today's conference is being recorded and all lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. The speakers for today's call include Al Carey, Executive Chairman, Eddie Ingle, Chief Executive Officer, AJ Ecker, Chief Financial Officer. During this call, Management will be referencing a webcast presentation that can be found in the investor relations section of Unify.com. Please familiarize yourself with page two of that slide deck for cautionary statements and non-GAAP measures. I will now turn the call over to Al Carey. Please go ahead.

Thank you. Well, good morning, everyone, and thank you for listening in on our call today. I started off by telling you about over the last few months, We've been working on several initiatives to rationalize our assets and improve our profitability for our North American business. And the work is in flight right now as we speak. It will be completed by the end of our fiscal year, which is the end of June. So we're coming down the homestretch for another eight weeks. The work includes, let me list five things to tell you about. One is we're closing our Madison, North Carolina facility in mid-June. And we've been moving the assets out of Madison into our other North Carolina facility in Yadkinville and in our facility in El Salvador, Central America. And they will pick up all of the volume that Madison has been doing. So we're going to see a much improved capacity utilization in these plants very quickly. The second item I wanted to mention is we are removing all the costs from the Madison facility. It's quite a big facility at 950,000 square feet. And we're making additional cost savings in the rest of our North American operation business. And those projects are completed by the end of June and will show up in the new fiscal year as savings. Our third activity is the sale of the Madison facility, and that's expected to close soon. And that will provide us with proceeds that are going to allow us to make a significant improvement in our balance sheet and to retire some debt. The fourth item I want to mention was we're seeing an improvement in demand in North America in general, but especially in the Central American region. And there are several large brands and retailers that have begun to move production into Central America even before all these tariff discussions began. It seems like a good place to offshore and also to have a closer supply chain to the U.S., So now with the tariff situation that's going on, it's an even more compelling decision, and it provides some geographic facility for these brands and retailers and a little data point that's worth looking at. I wouldn't make any promises on this, but more than 50% of our business in Central America recently has been reprieved. So this bodes well for the future. I would say we can expect something in that range or possibly better as we move forward. This is dependent on the new customer orders that come in from that geography. And then the final one I'll mention is we continue to work on innovation, innovation that is very profitable for our business. And we have traction in both of the areas that we've been spending time on, and you should see that revenue start to pick up into the new fiscal year. In North America, we've mentioned before, the product's outside of apparel categories. And most notably, we've really got traction on military wear and also on carpet. So these orders are coming in now, and they're going to build momentum, and it's very positive for us as the margins are quite better than they are in our base business. And then in Asia, we have these reprieve innovations that have been gaining traction. Small right now, but going to be bigger into the new fiscal year and beyond. And that's especially for these products that fall into the circularity segment, such as textile take-back and thermal loop insulation. The circularity is a concept that is very, very interesting to young consumers and therefore to our customers. And we're going to speak about this more in the upcoming quarters. So both the reprieve innovation and the outside of barrel business are starting to pick up, but they have favorable margins. And they'll also be a great opportunity to grow our business and unify down the road. So that's a summary. We're optimistic. The work we've been doing shows some real light at the end of the tunnel. And I believe that it's going to give us the opportunity to return to growth and also to have solid economics beginning in the new fiscal year. So with that, let me turn it over to Eddie and AJ. They'll now be taking you through the real meat of our Q3 presentation. And then there'll be further discussion about our overall business. So, AJ.

Thanks, Al. This is Eddie. Before I begin my prepared remarks, I'd like to recognize Tom Cottle, who died last Friday after a protected illness. He was a true Unified champion who built a 40-year-plus career at Unified, rising success. to become the president and COO before his retirement in June 2021. He was a loved and respected leader of Unify in the textile industry and will be missed by all. So on behalf of all those at Unify and many other industry leaders, I'd like to take the time to pass on our deepest condolences to his wife, Anne, and his family. And turning back to the call, as Al just mentioned, our results for the quarter were in line with our expectations. driven primarily by improved performance in our America segment due to the positive traction we have experienced with our Beyond Apparel and Reprieve Fiber initiatives and the ongoing recovery, as Al mentioned, of our business in Central America. Before I dive deeper into the dry reserve results, I'd like to start by providing an update on both our U.S. manufacturing transition that we announced back in February and the ongoing situation in tariffs. We recently announced that we have entered into a real estate purchase and sale agreement to sell our Madison, North Carolina manufacturing facility for $53.2 million, which will help reduce our outstanding debt and enhance our financial position once finalized. AJ will provide greater details on the sale and the cost of this transition shortly, but we are very pleased with this outcome, particularly with how quickly we were able to reach an agreement. This sale marks a significant step in our efforts to optimize our business and improve our balance sheet. The Madison facility has been operating below capacity for an extended period of time now, and with the planned ceasing of operations set for mid-June, our remaining yarn facilities in North and Central America will begin operating at much higher levels of capacity. This improvement in utilization is anticipated to meaningfully enhance our liquidity and margin performance without having to sacrifice any sales volume or ability to grow over the next few years. As we have previously noted, we will continue to consider additional steps to improve both the strength of our balance sheet and our financial performance to ensure that we remain well positioned to pivot to growth in the near future. Turning now to what the recent tariff announcements will mean for our business. While there continues to be a fair amount of uncertainty regarding how this tariff situation will play out, there are several areas of our business that could benefit and others that could be negatively impacted. For instance, in our America segment, we do believe that if the tariffs on China and some other nations stay in place, our business in the U.S. will be poised to benefit from the improved competitive environment given the increased cost of importing garments and textile-related goods. Furthermore, Our recent efforts to adjust our footprint and maximize the value of our remaining facilities in the Americas put Unify in a great position to capitalize on a potential increase in demand. In Brazil, in the medium term, we do not anticipate that we'll see any meaningful volume impact from the tariffs, given that our commercial activities take place within the country of Brazil. While there is a possibility that near-term dumping in the region could increase as a result of the heightened tariffs on Asia related countries, we do believe that our strength and value added positioning in Brazil should help mitigate the large majority of that risk. As for our Asia business, the impact of the recent tariffs continues to remain uncertain. If the current tariff levels remain in place, we do anticipate that our results in the region could be negatively impacted. That said, as many of you know, we operate an asset light model in the region and in multiple countries in Asia. We are working on several options to mitigate risk as we gain more certainty on the path forward and determine which levers to pull. To sum up, while the global tariff situation remains very fluid, we are monitoring the situation closely and believe that we'll see some pushes and pulls which we hope would end up being net neutral to positive for us over the next few years. Transitioning now to an overview of the quarter on slide four. During the third quarter of fiscal 2025, we reported $146.6 million in consolidated net sales, which were slightly down compared to the prior year period, primarily due to the less favorable sales mix and lower sales volumes in the Asia segment and foreign currency impacts. In the America segment, we saw an increase in net sales during the quarter compared to the previous year, driven by our Beyond Apparel initiatives and the continued positive momentum in Central America. Our Brazil segment has continued to perform well due to an overall stable to strong market for textured polyester, despite some pricing pressures from inbound Chinese goods and foreign currency impacts. We expect that this trend will continue in the fourth quarter. As anticipated, our Asia segment results experienced a seasonal impact from the Chinese New Year in February and continued macroeconomic pressures. As I noted earlier on the call, we're monitoring the tariff environment on a daily basis and we'll make adjustments to maximize our results once we have more clarity. Turning now to slide five for an update on reprieve. During the third quarter, reprieve represented 31% of sales and they were in line with the previous year as we continue to experience the impact of macroeconomic pressures in China. we continue to believe that we'll see improvement in our reprieve fiber business during fiscal 2026 as our recently announced reprieve take-back filament yarn and Thermalube products begin to gain traction with our customers. Moving now to slide six to highlight some of our recent marketing efforts. A standout of these efforts was the global launch of Integrate, the industry's most comprehensive multifunctional sustainable yarn that we unveiled at the Premier Vision Paris trade show. where it drew strong industry interest. We also broadened the impact of Reprieve Take Back, our circular recycling solution. This quarter, it was featured in Walmart's Joy Spun Socks and Faraday's All Day Short and was promoted through their online and social media campaigns. In April, we launched Reprieve with Ciclo, a technology that helps to reduce microplastic fiber pollution by enabling synthetic yarns to break down more like a natural fiber. Also, our co-branding strategy has continued to strengthen, with key partners including H&M, Bass Pro Shops, Marmot, and Poodle & Blonde highlighted Reprieve products across their channels. As an example, Bass Pro Shops is highlighting Reprieve signage in all 163 of their stores and is also promoting the line digitally. During Earth Month, We honored brand partners through our long-running Reprieve Champions of Sustainability initiative. Winners included Nike, Target, Walmart, Polartec, and Techsong, with special recognition to New Balance, Swanee's, Marmot, Malibu Sea, and many others. One of this year's winners, Marmot, plans to debut a Thermaloop insulated product in the fall and winter of 2025, which we're obviously very excited about. As we moved through the quarter, Our media presence grew with broad coverage and high-profile outlets, including CNN Underscored, Harper's Bazaar, and Sports Illustrated Swimsuit, generating strong brand visibility. Finally, over the past few months, we also received several significant accolades, such as reprieve being recognized by Fast Company for its textile-to-textile recycling efforts. Our Thermaloop product won multiple awards for circular innovation, including Just Style Excellence Award and the Seal Sustainable Product Award. UniFi was named one of Newsweek's most responsible companies and recognized by USA Today as one of America's climate leaders for 2025. Furthermore, the Association of Plastic Recyclers honored UniFi with the Recycling Technology Leadership Award. These milestones and awards underscore the recognition our commitment to innovation, circularity, and sustainability leadership is getting in the marketplace. With that, I would like to pass the call over to AJ to discuss our financial results for the quarter.