UNIFI, Inc. — Form 10-Q Summary
Period clarification: Although the request identifies “2019 Q3,” this filing covers the quarter ended March 29, 2020 (UNIFI fiscal 2020 third quarter) and the nine months then ended. Comparatives are the quarter and nine months ended March 31, 2019. Dollar amounts below are USD millions unless stated otherwise.
Business context and reporting period
UNIFI manufactures and sells polyester and nylon products, including recycled products such as REPREVE, to yarn manufacturers, knitters and weavers. Its reportable segments are Polyester, Nylon, Brazil and Asia. The quarter comprised 13 weeks; the current nine-month period comprised 39 weeks versus 40 weeks in the prior-year comparison.
Financial performance and liquidity
| Metric | Q3 FY2020 | Q3 FY2019 | Nine months FY2020 | Nine months FY2019 |
|---|---|---|---|---|
| Net sales | $170.994 | $179.989 | $520.454 | $529.311 |
| Gross profit / margin | $15.383 / 9.0% | $13.791 / 7.7% | $48.491 / 9.3% | $47.966 / 9.1% |
| Operating income | $3.145 | $0.775 | $12.052 | $5.695 |
| Net income (loss) | $(41.111) | $(1.529) | $(36.990) | $1.454 |
| Basic EPS | $(2.23) | $(0.08) | $(2.00) | $0.08 |
| Operating cash flow | — | $32.105 | $(1.517) |
- Sales declined 5.0% in the quarter and 1.7% year to date. Management reported higher consolidated sales volumes, offset by lower average selling prices, product mix, currency effects and weak Nylon sales. REPREVE-led Asia growth supported results; PVA products were 52% of quarterly sales and 54% of nine-month sales.
- The quarter’s $45.194 impairment of the PAL investment drove the reported net loss. Excluding this charge, company-reported adjusted net income was $4.083 million for the quarter and $8.204 million year to date; adjusted EBITDA was $9.349 million and $30.514 million, respectively. These are non-GAAP measures.
- Segment performance varied: quarterly Polyester segment profit rose to $11.333 million, Nylon fell to $0.804 million, Brazil increased to $3.837 million and Asia rose to $4.583 million. For the nine months, Nylon segment profit fell 62.5% to $3.022 million; Asia rose 23.0% to $14.382 million.
- Cash and equivalents were $33.393 million at March 29, 2020, versus $22.228 million at June 30, 2019. Working capital was $185.110 million. Operating cash flow improved by $33.622 million year over year, helped by affiliate distributions and lower cash tied up in inventory; capital expenditures were $14.971 million.
- Total debt principal was $133.711 million, including $30.900 million drawn on the revolver and $90.000 million on the term loan; net debt was $100.318 million. ABL availability was $47.793 million. Most cash ($33.046 million of $33.393 million) was held by foreign subsidiaries, while the debt was domestic.
Material changes, outlook and risks
- PAL disposition: UNIFI recorded the $45.194 million impairment after negotiating a sale of its 34% PAL interest. The sale closed April 29, 2020 for $60 million cash. A related credit agreement amendment permits proceeds to repay the revolver and allows remaining proceeds to be retained subject to conditions.
- COVID-19: Management said the pandemic had not materially harmed results through the reported quarter, but subsequent demand declines led to reduced production and temporary shutdowns at UNIFI’s El Salvador facilities. It expected adverse effects for the remainder of fiscal 2020 and at least the first half of fiscal 2021; duration and magnitude were unknown. The company reduced planned spending and discretionary costs and said it expected adequate liquidity under its then-current assumptions.
- Fiscal 2020 capital spending was estimated at approximately $19 million, including about $4 million in the fourth quarter, with safety and maintenance prioritized. This was an estimate, not a guarantee.
- Other risks include textile competition and trade policy, raw-material and energy price volatility, foreign-exchange movements, customer concentration or program changes, and the ability to service debt and maintain liquidity. Final U.S. trade duties on polyester textured yarn imports from China and India were cited as a competitive-relief measure.
- The filing reported compliance with credit agreement covenants and $47.793 million of revolver availability. The fixed-charge coverage ratio was 0.94:1.00; the filing states the covenant applies if availability falls below the $23.750 million trigger level.
Important facts for investors to verify
- Confirm the PAL sale proceeds’ use, revolver repayment and remaining cash availability after the April 29 closing and credit agreement amendment.
- Track post-quarter sales, production and cash flow against management’s COVID-related outlook, particularly the El Salvador shutdown and expected fiscal 2021 impact.
- Monitor ABL availability relative to the $23.750 million trigger, covenant status, debt maturities and the concentration of cash in foreign subsidiaries.
- Assess whether Nylon demand and customer program losses stabilize, and whether Asia’s REPREVE/PVA growth and trade duties translate into sustained margins.
- Distinguish GAAP losses from management’s non-GAAP adjusted results and evaluate the assumptions behind those adjustments.