Unifi Announces Third Quarter Fiscal 2020 Results And Sale Of Ownership Interest In Parkdale Joint Venture

GREENSBORO, N.C. — April 30, 2020 — Unifi Inc., a producer of recycled and man-made yarns, today released operating results for the third quarter of fiscal 2020 ended March 29, 2020, and announced the April 29, 2020, completed sale of its 34-percent interest in Parkdale America LLC to the existing majority partner, Parkdale Inc., in an all-cash transaction for $60 million.

Third Quarter Fiscal 2020 Overview

  • Net sales of $171.0 million decreased 5.0 percent, compared to $180.0 million for the third quarter of fiscal 2019.
  • Revenues from premium value-added (PVA) products represented 52 percent of consolidated net sales.
  • Gross margin was 9.0 percent, compared to 7.7 percent in the third quarter of fiscal 2019.
  • Operating income was $3.1 million, compared to $0.8 million in the third quarter of fiscal 2019.
  • Net loss of $41.1 million and basic earnings per share (EPS) of ($2.23), which includes the impact of a $45.2 million impairment charge in connection with the company’s sale of its 34-percent interest in PAL, compares to the third quarter of fiscal 2019’s net loss of $1.5 million and EPS of ($0.08).
  • Adjusted Net Income* of $4.1 million and Adjusted EPS of $0.22, which exclude the impairment charge for PAL, increased compared to the third quarter of fiscal 2019’s Adjusted Net Loss and Adjusted EPS of $1.5 million and ($0.08), respectively.
  • Adjusted EBITDA*, which excludes the impairment charge for PAL, increased to $9.3 million, compared to $6.8 million in the third quarter of fiscal 2019.
  • Operating cash flows for the nine months ended March 29, 2020 improved to $32.1 million, continuing the positive momentum from the first half of fiscal 2020, compared to a use of operating cash flows of $1.5 million for the nine months ended March 31, 2019.
  • The company repurchased $2.0 million of its common stock under a previously announced program.
  • On April 21, 2020, the company announced Edmund Ingle was named CEO, effective July 1, 2020.
  • Due to the uncertainty of the duration and severity of the COVID-19 pandemic, the company has suspended its fiscal 2020 outlook.

“The first ten weeks of our fiscal third quarter were strong and consistent with our expectations as our trade actions and overall strategy were generating significant momentum,” said Tom Caudle, president and COO, Unifi. “However, the impacts of the pandemic on global demand began materializing at the end of the March 2020 quarter, which have placed pressure on many of our customers and the pipeline.”

Sale of 34-Percent Interest in Parkdale America LLC

On April 29, 2020, the company sold its 34-percent interest in PAL to the majority owner, Parkdale, for $60.0 million in cash. Proceeds have been used to reduce leverage and increase cash reserves on the balance sheet during the fourth quarter of fiscal 2020. In connection with the sale, the company recorded a $45.2 million impairment charge in the third quarter of fiscal 2020.

Caudle commented, “We are pleased to have reached a mutually beneficial agreement whereby Parkdale has acquired Unifi’s 34-percent interest in PAL, allowing Parkdale 100-percent ownership of the entity that has been a producer of cotton and synthetic yarns for the textile and apparel industries since its formation in 1997. Parkdale has been the driver of the business and operational decisions of PAL since its inception, and this transaction is a natural evolution of our joint venture relationship. We thank Parkdale for being such a great business partner and look forward to continued business activities in the future, even with Parkdale becoming the single owner of PAL. For Unifi, this transaction will allow us to focus our efforts on expanding our global leadership in recycled and synthetic fibers while strengthening our balance sheet and improving our leverage profile.”

Liquidity Update and Risk Mitigation Initiatives

  • As of March 29, 2020 cash and cash equivalents were $33.4 million and debt principal was $133.7 million, totaling Net Debt of $100.3 million.
  • On April 29, 2020, the company sold its 34-percent interest in PAL for $60.0 million cash, which will lower Net Debt and reduce leverage during the fourth quarter of fiscal 2020.
  • Capital expenditure levels have been reduced while prioritizing safety and maintenance.
  • Raw material pricing remains at low levels, which aids short-term working capital and liquidity.
  • Manufacturing operations have been strategically reduced to support critical businesses and manage working capital.

Caudle continued: “This pandemic quickly changed the global dynamic, and we have responded with immediate and meaningful mitigation efforts. First, we have and will continue to prioritize the health and safety of all of our employees around the globe, which includes restricting travel, maintaining diligent sanitation and disinfection practices, and encouraging social distancing. We have also taken steps to significantly fortify our cash position and strengthen our balance sheet. The path ahead will be challenging, but the proactive, strategic steps we took in 2019 and 2020 have significantly improved our financial flexibility and position. Further, we have seen a positive lift from our domestic trade actions, while our Asian operations quickly resumed in March 2020. Lastly, the combination of our diverse global operations, growing asset light model, and support of many essential businesses is expected to provide a solid level of base commerce for Unifi.”

Caudle concluded, “We are working with our customers on a daily basis to meet their shifting demand needs in this environment. I am proud of Unifi’s opportunity to participate in the supply chain for personal protective equipment necessary for our first responders, healthcare personnel, and military.  As we look beyond fiscal 2020 and these uncertain times, we remain optimistic about our ability to rebound quickly and return to long-term growth. We have the right strategy in place and we will remain committed to our values and to constant innovation. These priorities are resonating with our customers as they work to meet their sustainability goals. I have great confidence in our global workforce, brand-name customer base, suppliers and communities. Together we can navigate these near-term issues and return to long-term growth.”

Third Quarter Fiscal 2020 Compared to Third Quarter Fiscal 2019

Net sales were $171.0 million, compared to $180.0 million, driven by lower polyester raw material costs, lower nylon volumes and unfavorable foreign currency translation. Lower polyester raw material costs led to lower average selling prices across the Polyester, Asia and Brazil segments, while lower Nylon volumes resulted from the previously communicated demand declines for North American supply chains, and unfavorable foreign currency translation was driven by weakening of the Brazilian Real. Despite a significant shutdown in China during the coronavirus outbreak in that country, the Asia segment was able to recover quickly and restore its continued sales growth, with a 28-percent increase in sales volumes led by REPREVE®-branded products.

Gross profit increased to $15.4 million, from $13.8 million, primarily attributable to a more favorable sales mix and raw material environment for the Polyester and Brazil segments, along with continued sales growth in Asia. This increase was partially offset by lower Nylon sales volumes, competitive pricing pressures and unfavorable foreign currency translation impacts in Brazil.

Operating income increased to $3.1 million, compared to $0.8 million, and benefited from the increase in gross profit and more favorable foreign currency transaction impacts in Asia.

Net loss was $41.1 million, compared to a net loss of $1.5 million, and EPS was ($2.23), compared to ($0.08). In connection with the April 29, 2020 sale of the company’s 34-percent interest in PAL, an impairment charge of $45.2 million was recorded in the third quarter of fiscal 2020. Adjusted Net income and Adjusted EPS, which exclude the impairment charge, were $4.1 million and $0.22, respectively.

Adjusted EBITDA, which excludes the $45.2 million impairment charge, increased to $9.3 million, compared to $6.8 million, consistent with the increase in operating income.

Net Debt was $100.3 million at March 29, 2020, compared to $105.8 million at June 30, 2019. Cash and cash equivalents increased to $33.4 million at March 29, 2020, up from $22.2 million at June 30, 2019, benefiting from international cash generation. Net Debt is a non-GAAP financial measure. The schedules included in this press release reconcile Net Debt.

*Adjusted Net Income (Loss), Adjusted EPS and Adjusted EBITDA are non-GAAP financial measures. The schedules included in this press release reconcile the non-GAAP financial measures to net (loss) income, the most directly comparable GAAP financial measure.

Posted May 1, 2020

Source: Unifi Inc.