Unifi (NYSE:UFI) reported third-quarter financial results on Wednesday. The transcript from the company's third-quarter earnings call has been provided below.

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Summary

Unifi reported improved results due to cost reduction efforts, plant closure completions, and product line optimization, which have enhanced profitability and cash generation.

The company's strategic focus remains on product innovation, including textile-to-textile recycling and expanding beyond apparel, which is expected to drive future revenue growth.

Despite geopolitical challenges and tariff uncertainties, Unifi expects profitability improvements and is positioning itself for consistent top-line growth as global economic conditions stabilize.

The Americas segment showed a positive gross profit for the first time in a while due to footprint consolidation and cost management, while Brazil saw strong sales in March, benefitting from favorable pricing and cost dynamics.

Management highlighted continued operational improvements, a focus on sustainable solutions, and efforts to manage the impact of global trade complexities, with a positive outlook for future quarters.

Full Transcript

OPERATOR

Good morning and thank you for attending UNIFI's third quarter fiscal 2026 earnings conference call. During this call, management will be referencing a webcast presentation that can be found in the Investor relations section of unifi.com. Please familiarize yourself with page two of that slide deck for cautionary statements and non GAAP measures. 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. Our speakers are listed on page three of today's presentation and include Al Carey, Executive Chairman Eddie Engel, Chief Executive Officer AJ Ecker,, Chief Financial Officer. I will now turn the call over to Al Carey. Please turn to page four of the presentation.

Al Carey (Executive Chairman)

Thank you. Good morning everyone and thanks for joining our call. We're pleased to report that our year long effort to reduce our cost base and improve cash generation is providing results. As a matter of fact, we're a bit ahead of expectations for Q3. AJ is going to take you through the full story in a few minutes, but Here are the three top headlines. The Madison plant closure is complete. Number two the much improved efficiencies in our current plant and three we've optimized our product lines and SKUs so that we don't have products that contribute no profit to our lineup. These actions set us up for improved profitability, especially as revenues begin to pick up and we're able to see higher levels of capacity utilization. There was one area that did not see a reduction in costs over the last 12 months and that was the work that we're doing on product innovations. These products will provide revenue growth for the future, so they're very important. We have begun to get traction with our customers on these products and that will move us into a very important priority right now, which is to begin to commercialize these innovations. The innovations are first textile to textile recycling, second, products in categories that are outside of apparel and provide higher profitability and third, products with performance benefits that customers and consumers are currently looking for. Eddie is going to take you through the full story on that in just a minute. The textile industry has still plenty of headwinds, especially as our customers navigate around the tariff complexities and the oil prices. We believe those headwinds will diminish and our profits will improve even in the current environment that we're in right now. I'd like to say one last thing and turn it over to Eddie. We are very proud of our team, the executives, the managers and the frontline employees as well over the last 12 to 15 months. It's been a rough road, but the team has worked through the challenges collaboratively. There really is a special resiliency about the people from UNIFI and their loyalty has been very evident throughout this entire time frame. So we are grateful for their big efforts over the last several months and we're looking forward to returning to growth. So now I'd like to turn the speaker speaking over to Eddie and AJ who will provide you with the full story.

Eddie Engel (Chief Executive Officer)

Thank you. Thanks Al. And as Al just noted, this really was a stronger quarter for Unifi and it clearly highlights the benefits of the actions we've taken to realign our cost structure and optimize our operations and improve the conversion margins through portfolio management and of course targeted pricing that Al has inferred. We've kept our inventories flat, spend was managed with discipline, and the margin improvement that you see in the numbers in part reflects this strong operational progress. We are a significantly more resilient business today and despite geopolitical headwinds, we have managed our balance sheet very effectively. Structural changes to our customer contracts combined with faster commercial decision making have positioned us well to be able to respond more proactively to today's market conditions. I'm going to call the Turn the call over to AJ now to walk you through the financial details for the quarter and then I'll come back in shortly to discuss our near term priorities, our innovation progress and what lies ahead for Unifi.

AJ Ecker (Chief Financial Officer)

AJ thank you Eddie and good day everyone. I'll start off by discussing our consolidated financial highlights for the quarter on Slide 4. Consolidated net sales for the quarter were in line with our expectations, down 11% year over year, but up 7% sequentially. Our markets continue to be impacted by geopolitical events as well as trade and tariff related uncertainties. Consolidated Gross profit was $9.1 million and gross margin was 7% during the period, compared to a gross loss of $0.4 million and gross margin of negative 0.3% for the prior year period. SG&A was $11.2 million during the quarter, a 9% improvement from one year ago, while adjusted EBITDA during the period was $4 million, a nearly $9 million improvement on a year over year basis. These stronger results during the quarter, as Eddie and Al mentioned, reflect serious operational improvements both on the cost and efficiency side that we have implemented over the last several quarters now translating into real results. Turning now to Slide 5 in the Americas, net sales were down 16% as the region continues to face volume headwinds. Despite the lower sales during the quarter, we did generate gross profit of $3.6 million in that segment. This is the first time we've been able to deliver positive gross profit in the Americas for some time now, which further highlights the benefits of footprint consolidation and cost actions we have taken to improve our domestic operational efficiency. Slide 6 displays our Brazil segment, which saw net sales increase by $1 million and gross profit decline just slightly by $0.2 million. Overall, the performance in Brazil during the period was solid due to a particularly strong March with both volume and pricing contributing. This March for Brazil was our best sales volume month on record because of cost and price dynamics where the scales tipped in our favor. While this dynamic may normalize soon, we expect to see robust results in the fourth quarter for Brazil. On Slide 7, our Asia segment, net sales and gross profit declined to 22.6 million and $2.7 million respectively, primarily due to lower sales volumes associated with the tariff uncertainties and pricing dynamics in the region. Margins have continued to hold up well in Asia given the asset light model we employ there, and we did see some momentum in the region improve during March, which we are hopeful will continue. Slide 8 outlines our improving balance sheet and capital structure. During the third quarter we generated $7.2 million of free cash flow, bringing year to date free cash flow to $20.5 million. The positive free cash flow in the third quarter was a major beat against our expectations as we were originally anticipating that we would experience some cash burn during this quarter, but thanks to our operational improvements and diligence, we experienced a nice increase in cash flow generation. CapEx for the quarter came in at just 800,000 and our CapEx on a year to date basis was $3.9 million, a 50% decline compared to the prior year period. As we continue to closely manage all spending, net debt was reduced to $68 million, a stark improvement from recent levels and our working capital remains balanced, healthy and lower due to our leaner operations in the US this significant improvement to our balance sheet and capital structure was directly attributable to to the hard work that our whole team has executed across the globe over the last few years. We aligned our costs, consolidated our footprint and drove improved efficiencies, all of which have helped us establish a more efficient manufacturing base in the U.S. looking at the fourth quarter, we do anticipate a moderate increase in working capital to accommodate a modest increase in sales and the higher cost raw materials purchased. Thus far, we estimate between 4 million and $7 million of working capital impact to the fourth quarter, which will obviously fluctuate in terms of amount and duration based on current geopolitical events. This concludes my financial review and I'll now pass the call back to Eddie.

Eddie Engel (Chief Executive Officer)

Thank you AJ and as you've just heard from AJ in quite a bit of detail, we are continuing to see the benefits of our operational improvements and the business is demonstrating improved resilience and flexibility in what I would consider an ever changing business environment. So let's turn to slide 9 for an overview of our priorities going forward. As we look ahead, our focus continues to remain on returning Unified to long term growth and enhanced profitability. In order to achieve this goal, we are keeping our efforts focused on four key areas. First, we will continue to build on the operational improvements that we've implemented and ensure we don't lose any of the enhancements to the businesses that we have made. At the same time, we will continue to invest in our capabilities and technologies and reinforce and scale our platform of sustainable solutions. Next, we have a culture built around innovation and as Al mentioned, we haven't given up those efforts and new product developments will continue to invest and resources necessary to advance the customer adoption of our innovative solutions to support future growth. And finally, we are focused on making sure we do everything we can to navigate the current trade and geopolitical environment that is creating some challenges for us. We are also maintaining a sharp focus on positioning the business to drive more consistent top line growth. As some of these global economic headwinds subside, it is good to see some momentum in a number of our innovative initiatives, especially in the US with what we have called Beyond Apparel. You've heard us talk a lot about the potential we are seeing for our Beyond Apparel business, and while Q3 was still a work in progress, we are seeing real commercial success in Q4. Moving on to slide 10, a key highlight for the last quarter was the global launch of Luxel, a new yarn technology that delivers the look and feel of linen while adding performance benefits like moisture management, wrinkle resistant and odor control. It's made with Repreve recycled polyester, including a minimum of 30% textile to textile recycled contents with our Repreve Take Back. Luxel is designed to help brands reduce environmental impact while maintaining the look and feel of linen with easy care. The innovation can be used in a wide range of applications from footwear, apparel and home goods, and Luxel is just another example of how we at Unified have continued to develop yarn technologies that can replicate the performance of natural fibers and enhance the technical performance beyond what nature can actually provide. And in our military and tactical markets, much of the success we are seeing is centered around our Fortison brand. We are seeing success here because we offer enhanced strength nylon yarns in natural white, all with color embedded into the yarns, and in addition, these products can be made with Repreve nylon as a base polymer. These advancements that we have made in this market with the performance promise backed up by Unified's Quality Systems alongside a sustainable offering are finally starting to move into the serious commercialization stage. So alongside the beyond apparel, growth of military and tactical carpeting is getting more traction and packaging has continued to perform well. With volumes growing in both these markets too, we expect to see further growth in the periods ahead. In Asia, we are beginning to see more activity in both Repreve take back our textile to textile fiber platform and Thermaloop, our innovative circular insulation product. In a couple of quarters, I expect to be able to discuss openly which additional brands and retailers have been adopting these offerings and once they themselves go public. Turning to Slide 11 in February we released our fiscal year 2025 sustainability snapshot highlighting progress in scaling our Repreve recycled materials platform and advancing sustainable manufacturing. We announced a new goal to recycle 65 billion plastic bottles by 2030 and updated other established goals such as converting the equivalent of 1.5 billion T shirts worth of textile waste into Repreve products. The sustainability Snapshot, as we call it, really helps telegraph to the brands and retailers how serious we are about helping them meet their sustainability targets and of course, how committed we are at UNIFI to product innovation and building out our already substantial sustainable product portfolio. Turning to Slide 12 in April, which is recognized globally as Earth Month, we celebrated our partners through our Champions of Sustainability program, announcing the winners of our 9th Annual Repreve Champions of Sustainability Awards, recognizing brands and mills who are advancing circularity and responsible manufacturing across the textile industry. This year's program introduced new Textile Waste awards to spotlight partners accelerating circular solutions, reinforcing our commitment to scaling recycled and traceable materials globally. And since the event was held in our main U.S. manufacturing location in Yadkinville, North Carolina, we gave those who attended a view into the production of Repreve Take Back and the process. Moving to slide 13 for an overview of our outlook and how we anticipate sustaining our financial momentum for the fourth quarter. We expect to see our Brazil segment benefit financially from the supply chain dynamics that currently exist in the market, and we'll be able to leverage the long supply chain to our advantage in the coming months. In the Asia segment, there is an expectation that we will see increased adoption and resulting revenues from our technologies and circular solutions. The Americas segments should improve in terms of volumes and revenues primarily from pricing actions and our value added beyond the power portfolio, however, we are still facing some demand challenges with our underlying business significantly or specifically in Central America to wrap up. We are encouraged by the progress that we have made, which is now being reflected in our financial results. Our business is in a stronger position today than it has been in some time and we are continuing to remain focused on ensuring that our operational enhancements translate into sustained financial improvement that will help create value for our shareholders and Before I hand the call over to the operator, I'd like to acknowledge that the improvements to the business was a team effort and I want to take the opportunity to thank each of the teams in the regional businesses for their hard work and efforts.

Eddie Engel (Chief Executive Officer)

With that, let's open the line for questions.

OPERATOR

Operator we will now begin the question and answer session. If you would like to ask a question, please press Star one to raise your hand to withdraw your question, press Star one. Again, we ask that you pick up your handset when asking a question to allow for optimum sound quality if you are muted locally, please remember to unmute your device. Please stand by while we compile the Q and A roster. Your question from the line of Anthony debidzinki with Sidoti. Your line is open. Please go ahead.

Anthony debidzinki

Good morning everyone and thanks for taking the questions. And yes, certainly nice to see the improvement in the earnings results and also the pretty good cash flow in the quarter as well. So first just can you talk about pricing versus unit volumes in 3Q and how that might change in the fourth quarter here given the increased input costs and some of the supply chain dynamics, I think Brazil is probably the one where you would probably see the most in terms of pricing actions. But just wondering if you could comment on the quarter that you just reported plus also give some more details about the pricing and volume dynamics that you may anticipate here in the fourth quarter.

AJ Ecker (Chief Financial Officer)

Sure Anthony, it's AJ A bit of a mixed bag so I'll try to go slow on some of that and ask Eddie to help as well. But if we start from a year over year perspective, we have the majority of decline in the Americas is volume based. There's some price and mix in there, but predominantly volume. When we look at Brazil, their year over year movement again Q3 versus Q3 was predominantly price. That was based on a lot of the competitive activity, lower prices coming from imported product and third in Asia year over year, we did have a larger pricing impact versus volume impact as well. So now when we look sequentially Q3 to Q4 like you asked, we do see generally flat volumes in the Americas, but certainly some pricing as we've had to make some responsive pricing actions. Given the movement in petrochemical markets in Brazil, we will also see meaningful pricing increase, but also a bit of volume. And in Asia we see a mix of volume and price there again partly with petrochemical related inflation and partly with some of the recovery that we mentioned beginning with the month of March in Asia headed into Q4. And I'll ask Eddie to add on any more there.

Eddie Engel (Chief Executive Officer)

Yes, he's covered most of it. I just want to add one specific thing around the velocity of the pricing. We are in a situation today where much of our pricing is more of our pricing is order to order and not index like it had been in the past. So we are able to react more responsibly. We are being careful, of course, to talk to customers and being responsible suppliers. But it has been because of the nature of the raw materials and the speed at which they've increased, we've had to react faster than we normally do. So during the quarter four especially by the time we exit, we expect to be caught up on any raw material increases, unfortunately, that we have to pass on.

Anthony debidzinki

Gotcha. Thank you both. Okay, so just to clarify, you expect the pricing actions to essentially fully offset any of the cost headwinds that you are seeing at the moment?

Eddie Engel (Chief Executive Officer)

Right. I think there'll be a little bit of lag in the US but primarily most of the cost increases will be passed on as we move through this quarter. And we're seeing that already. Gotcha.

Anthony debidzinki

Okay, yeah, thanks for clarifying that, Eddie. Okay. And then you know, just in terms of the Asia segment that you highlighted, that you expect improved adoption of innovative and sustainable platforms, can you give, you know, some additional details in regards to that? And then, you know, as far as some of the new products that you have talked about, you know, which, you know, which one do you think has like the most potential as far as to. To make a difference in terms of the sales contributions?

Eddie Engel (Chief Executive Officer)

Yeah. Here in the US on the beyond apparel in Q4, we are expecting to see about a $2 million uplift in the quarter from these beyond apparel initiatives, which is primarily from our military and tactical Fortison programs, our carpeting business and also the packaging business that we have. And these are all margin accretive opportunities for us. And we're especially on the Fortison product we spend a lot of time, we talked a lot about this on the calls and it takes a long time to get traction primarily because it's just such technically a difficult product to make. And then of course the customers are very sensitive to make sure that if they do make a switch that they're switching it to a product that can sustain itself and give them the advantages that we've described to them. We're at the point now where we're getting adoption and I'm very excited about that. I think the volumes potentially overall for the whole market will increase because of what's happening with Iran. But overall we are certainly very positive about that market and where it can bring us in the next few quarters. But specifically in this quarter it's not going to be huge. But we've got commercial programs that we didn't have just a quarter ago. And then in Asia it's a mixture of our thermaloop which most of the insulated jackets are made actually in Asia. So we don't expect to see any of that here in the Americas. And we're starting to get traction. This is the season to make insulation for the fall jacket sales. We have good programs there. We have good programs in our Repreve take back which is our textile to textile and also our technology such as TrueTemp 365 and Sorpt. They're also starting to create traction. So our revenues in Q4 will be up in Asia primarily driven by our technologies. And in Brazil they actually have increased the ratio of value added sales which is in part why the revenues will go up.

Anthony debidzinki

Thanks so much for all that color. So this is more of a kind of a longer term, bigger picture kind of question. But so as we look at the Americas, certainly it's your very asset heavy segment that you have taken out a lot of fixed costs out of the business. So even with lower revenue, you were able to generate much better gross profit here in 3Q. So as the segment recovers at some point, how should the investors think about gross margin potential here in this segment with growth, better revenue that you may see at some point?

AJ Ecker (Chief Financial Officer)

Sure, Anthony, I'll start that and ask Eddie to add any. But we're certainly proud of what was achieved in this third quarter. Again beating expectations on what the team was able to accomplish in terms of getting cash cost out and improving efficiencies in the facilities that remain. From a long term perspective, we certainly want to get back to some of those better levels that were in the around 10 years ago, those margin levels were certainly healthy in the Americas. And with a lot of what Eddie's outlined in terms of new programs, new customer penetration and continued efficiencies and cost management in the Americas, we do see that as a relevant goal and an achievable goal. When those catalysts do hit, I just

Eddie Engel (Chief Executive Officer)

want to add we are very, very careful about our spends more than we ever have been before and it's across every part of the organization. It's a new mindset and all we need is a little bit of volume to really get those margins that AJ was talking about. So we still expect it to come back. Especially in Central America. We're getting the right signals but we're still just waiting patiently. But while we're waiting, we still believe we can manage our spend relative to the revenues that we have to continue to give us a positive gross profit in the Americas.

Al Carey (Executive Chairman)

Anthony, this is Al. This is Al. I'd add one thing to the Central America business. In many conversations with customers, all indications are they're going to use Central America for nearshoring because it's a good option for them to not be so dependent on China and it's also a good option for close-in supply chain. And we're just waiting. I think what's happening in the sourcing organizations of these companies they're trying to determine with the tariffs changing so much is the better deal to buy from the U.S. is there a better option to ship from China? From China to Vietnam over to the Central America? It's going to happen but it's, you know, it's just been very confusing. We're waiting for it to happen. All indications are it will happen.

Anthony debidzinki

Understood the effects for all that color and I guess somewhat of a similar question in regards to Brazil. So obviously the near term picture looks bright there but just looking back over the last few years there has been quite a lot of volatility in the Brazil segment in terms of sales and gross margins. So maybe just if you guys could talk about what's different now other than just the supply chain dynamics. How should we think about the longer term opportunities and challenges beyond the current quarter?

Eddie Engel (Chief Executive Officer)

Thanks for the question, Anthony. The market is still continuing to grow because the population, because of the general economy down there. So we are the only large player down there in the market. We have talked about the dumping that's been going on from Asia into Brazil. With this dynamic higher cost dynamic, we are advantaged a little bit. So we do expect our margins to become a little bit more stabilized. We, like we said on this call, Q4 should be pretty strong. And going forward, we should get back to more normal EBITDA and more normal gross profits in Brazil on that business segment. So it's the dumping is has lessened simply because the Asians appear to be a little bit more constrained from a petrochemical perspective and they are passing those costs on to the market.

Anthony debidzinki

Gotcha. Okay. That's very helpful context. Okay. Well, thank you very much and best of luck.

OPERATOR

Thank you, Anthony. There are no further questions at this time. And this concludes today's call. Thank you for attending. Thank you.

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