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Unifi Announces Third Quarter Fiscal 2020 Results and Sale of Ownership Interest in Parkdale Joint Venture

Q3 results reflect continued strength and execution of strategic priorities prior to pandemic impacts;

Sale of Parkdale joint venture interest better aligns resources on core innovation and manufacturing of recycled and synthetic yarns;

GREENSBORO, N.C., April 30, 2020 – Unifi, Inc. (NYSE: UFI), one of the world’s leading innovators in recycled and synthetic 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% interest in Parkdale America, LLC (“PAL”) to the existing majority partner, Parkdale, Incorporated (“Parkdale”), in an all-cash transaction for $60.0 million.

“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 & Chief Operating Officer of 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.”

On April 29, 2020, the Company sold its 34% 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% interest in PAL, allowing Parkdale 100% 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.”

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.”

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% 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% 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.

The Company will provide additional commentary regarding its third quarter fiscal 2020 results and other developments during its earnings conference call on May 1, 2020, at 8:30 a.m., Eastern Time. The call can be accessed via a live audio webcast on the Company’s website at http://investor.unifi.com. Additional supporting materials and information related to the call will also be available on the Company’s website.

Unifi, Inc. (NYSE: UFI) is a global textile solutions provider and one of the world's leading innovators in manufacturing synthetic and recycled performance fibers. Through REPREVE^®, one of Unifi's proprietary technologies and the global leader in branded recycled performance fibers, Unifi has transformed more than 19 billion plastic bottles into recycled fiber for new apparel, footwear, home goods and other consumer products. The Company's proprietary PROFIBER™ technologies offer increased performance, comfort and style advantages, enabling customers to develop products that perform, look and feel better. Unifi continually innovates technologies to meet consumer needs in moisture management, thermal regulation, antimicrobial protection, UV protection, stretch, water resistance and enhanced softness. Unifi collaborates with many of the world's most influential brands in the sports apparel, fashion, home, automotive and other industries. For more information about Unifi, visit www.Unifi.com.

Financial Statements, Business Segment Information and Reconciliations of Reported Results to Adjusted Results to Follow

	For the Three Months Ended						For the Nine Months Ended
	March 29, 2020			March 31, 2019			March 29, 2020			March 31, 2019
Net sales	$	170,994		$	179,989		$	520,454		$	529,311
Cost of sales		155,611			166,198			471,963			481,345
Gross profit		15,383			13,791			48,491			47,966
Selling, general and administrative expenses		11,720			11,439			35,208			40,672
Provision for bad debts		580			218			331			381
Other operating (income) expense, net		(62	)		1,359			900			1,218
Operating income		3,145			775			12,052			5,695
Interest income		(173	)		(149	)		(595	)		(448	)
Interest expense		1,231			1,256			3,589			4,078
Equity in earnings of unconsolidated affiliates		(3,526	)		(1,873	)		(1,904	)		(3,126	)
Impairment of investment in unconsolidated affiliate		45,194			—			45,194			—
Loss on extinguishment of debt		—			—			—			131
(Loss) income before income taxes		(39,581	)		1,541			(34,232	)		5,060
Provision for income taxes		1,530			3,070			2,758			3,606
Net (loss) income	$	(41,111	)	$	(1,529	)	$	(36,990	)	$	1,454

Net (loss) income per common share:
Basic	$	(2.23	)	$	(0.08	)	$	(2.00	)	$	0.08
Diluted	$	(2.23	)	$	(0.08	)	$	(2.00	)	$	0.08

Weighted average common shares outstanding:
Basic		18,475			18,394			18,485			18,381
Diluted		18,475			18,394			18,485			18,742

	March 29, 2020			June 30, 2019
ASSETS
Cash and cash equivalents	$	33,393		$	22,228
Receivables, net		86,376			88,884
Inventories		124,146			133,781
Income taxes receivable		589			4,373
Other current assets		18,477			16,356
Total current assets		262,981			265,622
Property, plant and equipment, net		206,993			206,787
Operating lease assets		6,084			—
Deferred income taxes		5,943			2,581
Investments in unconsolidated affiliates		58,854			114,320
Other non-current assets		2,187			2,841
Total assets	$	543,042		$	592,151

LIABILITIES AND SHAREHOLDERS’ EQUITY
Accounts payable	$	40,862		$	41,796
Accrued expenses		15,347			16,849
Income taxes payable		5,841			569
Current operating lease liabilities		1,709			—
Current portion of long-term debt		14,112			15,519
Total current liabilities		77,871			74,733
Long-term debt		118,827			111,541
Non-current operating lease liabilities		4,481			—
Other long-term liabilities		8,029			6,185
Deferred income taxes		5			6,847
Total liabilities		209,213			199,306

Commitments and contingencies

Common stock		1,845			1,846
Capital in excess of par value		61,080			59,560
Retained earnings		335,971			374,668
Accumulated other comprehensive loss		(65,067	)		(43,229	)
Total shareholders’ equity		333,829			392,845
Total liabilities and shareholders’ equity	$	543,042		$	592,151

	For the Nine Months Ended
	March 29, 2020			March 31, 2019
Cash and cash equivalents at beginning of period	$	22,228		$	44,890
Operating activities:
Net (loss) income		(36,990	)		1,454
Adjustments to reconcile net (loss) income to net cash provided by (used in) operating activities:
Equity in earnings of unconsolidated affiliates		(1,904	)		(3,126	)
Distributions received from unconsolidated affiliates		10,437			1,380
Depreciation and amortization expense		17,685			17,242
Impairment of investment in unconsolidated affiliate		45,194			—
Non-cash compensation expense		2,510			2,758
Deferred income taxes		(10,029	)		(190	)
Other, net		(171	)		(459	)
Inventories		2,126			(13,409	)
Other changes in assets and liabilities		3,247			(7,167	)
Net cash provided by (used in) operating activities		32,105			(1,517	)

Investing activities:
Capital expenditures		(14,971	)		(19,199	)
Other, net		35			9
Net cash used in investing activities		(14,936	)		(19,190	)

Financing activities:
Proceeds from long-term debt		79,000			113,300
Payments on long-term debt		(79,606	)		(107,708	)
Payments of debt financing fees		—			(720	)
Common stock repurchased		(1,994	)		—
Other, net		(492	)		(744	)
Net cash (used in) provided by financing activities		(3,092	)		4,128

Effect of exchange rate changes on cash and cash equivalents		(2,912	)		(413	)
Net increase (decrease) in cash and cash equivalents		11,165			(16,992	)
Cash and cash equivalents at end of period	$	33,393		$	27,898

	For the Three Months Ended				For the Nine Months Ended
	March 29, 2020		March 31, 2019		March 29, 2020		March 31, 2019
Polyester	$	89,767	$	95,745	$	261,212	$	281,665
Nylon		20,567		25,563		57,853		76,159
Brazil		21,060		25,110		66,094		76,257
Asia		38,621		32,571		132,496		92,014
All Other		979		1,000		2,799		3,216
Consolidated	$	170,994	$	179,989	$	520,454	$	529,311

Gross profit details for each reportable segment of the Company are as follows:

	For the Three Months Ended				For the Nine Months Ended
	March 29, 2020		March 31, 2019		March 29, 2020		March 31, 2019
Polyester	$	7,032	$	4,804	$	21,487	$	15,917
Nylon		333		2,312		1,557		6,488
Brazil		3,416		2,776		11,005		13,603
Asia		4,583		3,841		14,382		11,697
All Other		19		58		60		261
Consolidated	$	15,383	$	13,791	$	48,491	$	47,966

The reconciliations of the amounts reported under U.S. generally accepted accounting principles (“GAAP”) for Net (loss) income to EBITDA and Adjusted EBITDA are as follows:

	For the Three Months Ended						For the Nine Months Ended
	March 29, 2020			March 31, 2019			March 29, 2020			March 31, 2019
Net (loss) income	$	(41,111	)	$	(1,529	)	$	(36,990	)	$	1,454
Interest expense, net		1,058			1,107			2,994			3,630
Provision for income taxes		1,530			3,070			2,758			3,606
Depreciation and amortization expense ⁽¹⁾		6,014			5,535			17,499			17,015
EBITDA		(32,509	)		8,183			(13,739	)		25,705

Equity in earnings of PAL		(3,336	)		(1,409	)		(1,324	)		(2,154	)
EBITDA excluding PAL		(35,845	)		6,774			(15,063	)		23,551

Impairment of investment in unconsolidated affiliate ⁽²⁾		45,194			—			45,194			—
Facility shutdown costs ⁽³⁾		—			—			383			—
Adjusted EBITDA	$	9,349		$	6,774		$	30,514		$	23,551

The tables below set forth reconciliations of (i) (loss) income before income taxes (“Pre-tax (Loss) Income”), provision for income taxes (“Tax Impact”) and net (loss) income (“Net (Loss) Income”) to Adjusted Net Income (Loss) and (ii) Basic Earnings Per Share (“Basic EPS”) to Adjusted EPS. Rounding may impact certain of the below calculations.

	For the Three Months Ended March 29, 2020												For the Three Months Ended March 31, 2019
	Pre-tax (Loss) Income			Tax Impact			Net (Loss) Income			Basic EPS			Pre-tax Income		Tax Impact			Net Loss			Basic EPS
GAAP results	$	(39,581	)	$	(1,530	)	$	(41,111	)	$	(2.23	)	$	1,541	$	(3,070	)	$	(1,529	)	$	(0.08	)
Impairment of investment in unconsolidated affiliate ⁽¹⁾		45,194			—			45,194			2.45			—		—			—			—
Adjusted results	$	5,613		$	(1,530	)	$	4,083		$	0.22		$	1,541	$	(3,070	)	$	(1,529	)	$	(0.08	)

Weighted average common shares outstanding											18,475											18,394

	For the Nine Months Ended March 29, 2020												For the Nine Months Ended March 31, 2019
	Pre-tax (Loss) Income			Tax Impact			Net (Loss) Income			Basic EPS			Pre-tax Income		Tax Impact			Net Income			Basic EPS
GAAP results	$	(34,232	)	$	(2,758	)	$	(36,990	)	$	(2.00	)	$	5,060	$	(3,606	)	$	1,454		$	0.08
Impairment of investment in unconsolidated affiliate ⁽¹⁾		45,194			—			45,194			2.44			—		—			—			—
Adjusted results	$	10,962		$	(2,758	)	$	8,204		$	0.44		$	5,060	$	(3,606	)	$	1,454		$	0.08

Weighted average common shares outstanding											18,485											18,381

Certain non-GAAP financial measures included herein are designed to complement the financial information presented in accordance with GAAP. These non-GAAP financial measures include Earnings Before Interest, Taxes, Depreciation and Amortization (“EBITDA”), Adjusted EBITDA, Adjusted Net Income (Loss), Adjusted EPS and Net Debt (together, the “non-GAAP financial measures”).

The non-GAAP financial measures are not determined in accordance with GAAP and should not be considered a substitute for performance measures determined in accordance with GAAP. The calculations of the non-GAAP financial measures are subjective, based on management’s belief as to which items should be included or excluded in order to provide the most reasonable and comparable view of the underlying operating performance of the business. We may, from time to time, modify the amounts used to determine our non-GAAP financial measures.

We believe that these non-GAAP financial measures better reflect Unifi’s underlying operations and performance and that their use, as operating performance measures, provides investors and analysts with a measure of operating results unaffected by differences in capital structures, capital investment cycles and ages of related assets, among otherwise comparable companies.

Management uses Adjusted EBITDA (i) as a measurement of operating performance because it assists us in comparing our operating performance on a consistent basis, as it removes the impact of (a) items directly related to our asset base (primarily depreciation and amortization) and (b) items that we would not expect to occur as a part of our normal business on a regular basis; (ii) for planning purposes, including the preparation of our annual operating budget; (iii) as a valuation measure for evaluating our operating performance and our capacity to incur and service debt, fund capital expenditures and expand our business; and (iv) as one measure in determining the value of other acquisitions and dispositions. Adjusted EBITDA is a key performance metric utilized in the determination of variable compensation. We also believe Adjusted EBITDA is an appropriate supplemental measure of debt service capacity, because it serves as a high-level proxy for cash generated from operations. Equity in earnings of PAL is excluded from Adjusted EBITDA because such results do not reflect our operating performance.

Management uses Adjusted Net Income (Loss) and Adjusted EPS (i) as measurements of net operating performance because they assist us in comparing such performance on a consistent basis, as they remove the impact of (a) items that we would not expect to occur as a part of our normal business on a regular basis and (b) components of the provision for income taxes that we would not expect to occur as a part of our underlying taxable operations; (ii) for planning purposes, including the preparation of our annual operating budget; and (iii) as measures in determining the value of other acquisitions and dispositions.

Management uses Net Debt as a liquidity and leverage metric to determine how much debt would remain if all cash and cash equivalents were used to pay down debt principal.

In evaluating non-GAAP financial measures, investors should be aware that, in the future, we may incur expenses similar to the adjustments included herein. Our presentation of non-GAAP financial measures should not be construed as indicating that our future results will be unaffected by unusual or non-recurring items. Each of our non-GAAP financial measures has limitations as an analytical tool, and you should not consider it in isolation or as a substitute for analysis of our results or liquidity measures as reported under GAAP. Some of these limitations are (i) it is not adjusted for all non-cash income or expense items that are reflected in our statements of cash flows; (ii) it does not reflect the impact of earnings or charges resulting from matters we consider not indicative of our ongoing operations; (iii) it does not reflect changes in, or cash requirements for, our working capital needs; (iv) it does not reflect the cash requirements necessary to make payments on our debt; (v) it does not reflect our future requirements for capital expenditures or contractual commitments; (vi) it does not reflect limitations on or costs related to transferring earnings from our subsidiaries to us; and (vii) other companies in our industry may calculate this measure differently than we do, limiting its usefulness as a comparative measure.

Because of these limitations, these non-GAAP financial measures should not be considered as a measure of discretionary cash available to us to invest in the growth of our business or as a measure of cash that will be available to us to meet our obligations, including those under our outstanding debt obligations. You should compensate for these limitations by relying primarily on our GAAP results and using these measures only as supplemental information.

Certain statements included herein contain “forward-looking statements” within the meaning of federal securities laws about the financial condition and results of operations of Unifi that are based on management’s beliefs, assumptions and expectations about our future economic performance, considering the information currently available to management. An example of such forward-looking statements include, among others, guidance pertaining to our financial outlook. The words “believe,” “may,” “could,” “will,” “should,” “would,” “anticipate,” “plan,” “estimate,” “project,” “expect,” “intend,” “seek,” “strive” and words of similar import, or the negative of such words, identify or signal the presence of forward-looking statements. These statements are not statements of historical fact, and they involve risks and uncertainties that may cause our actual results, performance or financial condition to differ materially from the expectations of future results, performance or financial condition that we express or imply in any forward-looking statement.

Factors that could contribute to such differences include, but are not limited to: the competitive nature of the textile industry and the impact of global competition; changes in the trade regulatory environment and governmental policies and legislation; the availability, sourcing and pricing of raw materials; general domestic and international economic and industry conditions in markets where Unifi competes, including economic and political factors over which Unifi has no control; changes in consumer spending, customer preferences, fashion trends and end uses for products; the financial condition of Unifi’s customers; the loss of a significant customer or brand partner; natural disasters, industrial accidents, power or water shortages, extreme weather conditions and other disruptions at one of our facilities; the disruption of operations, global demand, or financial performance as a result of catastrophic or extraordinary events, including epidemics or pandemics such as the recent strain of coronavirus; the success of Unifi’s strategic business initiatives; the volatility of financial and credit markets; the ability to service indebtedness and fund capital expenditures and strategic business initiatives; the availability of and access to credit on reasonable terms; changes in foreign currency exchange, interest and inflation rates; fluctuations in production costs; the ability to protect intellectual property; the strength and reputation of our brands; employee relations; the ability to attract, retain and motivate key employees; the impact of environmental, health and safety regulations; the impact of tax laws, the judicial or administrative interpretations of tax laws and/or changes in such laws or interpretations; the operating performance of joint ventures and other equity method investments; and the accurate financial reporting of information from equity method investees.

All such factors are difficult to predict, contain uncertainties that may materially affect actual results and may be beyond our control. New factors emerge from time to time, and it is not possible for management to predict all such factors or to assess the impact of each such factor on Unifi. Any forward-looking statement speaks only as of the date on which such statement is made, and we do not undertake any obligation to update any forward-looking statement to reflect events or circumstances after the date on which such statement is made, except as may be required by federal securities laws. The above and other risks and uncertainties are described in Unifi’s most recent Annual Report on Form 10-K, and additional risks or uncertainties may be described from time to time in other reports filed by Unifi with the Securities and Exchange Commission pursuant to the Securities Exchange Act of 1934, as amended.