Unifi Announces Second Quarter Fiscal 2017 Results
Second Quarter and Year-to-Date Fiscal 2017 Highlights
- Volume, measured by pounds sold, increased by more than 10% for the second quarter and first six months of fiscal 2017 compared to the second quarter and first six months of fiscal 2016, driven by the strength of the international premium value-added ("PVA") portfolio;
- Gross margin increased to 14.3% for the second quarter of fiscal 2017, compared to 14.0% for the prior fiscal year second quarter, and increased to 14.5% compared to 13.4%, for the year-to-date periods of fiscal 2017 and 2016, respectively;
- Operating income increased to
$9.0 million for the second quarter of fiscal 2017, up from$8.6 million for the prior fiscal year second quarter, and increased to$21.6 million compared to$18.3 million , for the year-to-date periods of fiscal 2017 and 2016, respectively; - Net income for the second quarter and fiscal six month period was
$4.6 million and$14.0 million , respectively. Net income includes a year-over-year decline in earnings fromParkdale America, LLC ("PAL") of$0.3 million for the quarter and$1.4 million for the six month period, as well as a$1.7 million loss on a non-core divestiture for both periods; - Adjusted Net Income, which excludes the loss on a non-core divestiture, was
$0.6 million less than the prior fiscal year quarter and$0.8 million higher than the prior fiscal year six month period; and - Term loan principal reset to
$100 million under the existing credit facility, enhancing liquidity and financial flexibility.
"We are pleased with another quarter of solid results, as strong performance internationally counterbalanced headwinds in the domestic market, driven by weak retail sales and elevated inventory levels," said
Mr. Caudle concluded, "As we look forward, we continue to see attractive international growth opportunities. We also believe that our collection of technologically advanced assets in the U.S. positions our domestic business to thrive over the mid-term, as our customers seek a speed-to-market advantage that imports cannot offer. Lastly, we continue to invest in product innovation and brand relationships to expand our growing PVA and REPREVE® portfolio."
Second Quarter Fiscal 2017 Operational Review
Net sales were
The Company divested its 60% interest in
Net income of
Adjusted EBITDA was
Foreign currency translation in the second quarter resulted in an increase to net sales of
Net debt was
First Six Months of Fiscal 2017 Operational Review
Net sales were
Net income was
Adjusted Net Income and Adjusted EPS, both excluding the loss from the sale of the investment in Renewables, grew to
Foreign currency translation resulted in an increase to net sales of
Second Quarter Fiscal 2017 Earnings Conference Call
The Company will provide additional commentary regarding its second quarter fiscal 2017 results and other developments during its earnings conference call on
About
Financial Statements and Reconciliations to Adjusted Results to Follow
CONDENSED CONSOLIDATED BALANCE SHEETS |
||||||||
(Unaudited) |
||||||||
(in thousands) |
||||||||
December 25, 2016 |
June 26, 2016 |
|||||||
ASSETS |
||||||||
Cash and cash equivalents |
$ |
28,490 |
$ |
16,646 |
||||
Receivables, net |
76,854 |
83,422 |
||||||
Inventories |
109,772 |
103,532 |
||||||
Other current assets |
16,574 |
8,292 |
||||||
Total current assets |
231,690 |
211,892 |
||||||
Property, plant and equipment, net |
197,528 |
185,101 |
||||||
Investments in unconsolidated affiliates |
115,841 |
117,412 |
||||||
Other non-current assets |
5,785 |
11,037 |
||||||
Total assets |
$ |
550,844 |
$ |
525,442 |
||||
LIABILITIES AND SHAREHOLDERS' EQUITY |
||||||||
Accounts payable and other current liabilities |
$ |
53,412 |
$ |
61,522 |
||||
Current portion of long-term debt |
14,153 |
13,786 |
||||||
Total current liabilities |
67,565 |
75,308 |
||||||
Long-term debt |
119,843 |
107,805 |
||||||
Other long-term liabilities |
21,261 |
15,384 |
||||||
Total liabilities |
208,669 |
198,497 |
||||||
Total Unifi, Inc. shareholders' equity |
342,175 |
325,031 |
||||||
Non-controlling interest |
— |
1,914 |
||||||
Total shareholders' equity |
342,175 |
326,945 |
||||||
Total liabilities and shareholders' equity |
$ |
550,844 |
$ |
525,442 |
CONDENSED CONSOLIDATED STATEMENTS OF INCOME |
||||||||||||||||
(Unaudited) |
||||||||||||||||
(in thousands, except per share amounts) |
||||||||||||||||
For the Three Months Ended |
For the Six Months Ended |
|||||||||||||||
December 25, 2016 |
December 27, 2015 |
December 25, 2016 |
December 27, 2015 |
|||||||||||||
Net sales |
$ |
155,155 |
$ |
156,336 |
$ |
315,124 |
$ |
318,501 |
||||||||
Cost of sales |
133,025 |
134,523 |
269,447 |
275,704 |
||||||||||||
Gross profit |
22,130 |
21,813 |
45,677 |
42,797 |
||||||||||||
Selling, general and administrative expenses |
12,868 |
12,419 |
24,278 |
23,249 |
||||||||||||
(Benefit) provision for bad debts |
(95) |
559 |
(462) |
1,172 |
||||||||||||
Other operating expense, net |
319 |
206 |
249 |
60 |
||||||||||||
Operating income |
9,038 |
8,629 |
21,612 |
18,316 |
||||||||||||
Interest income |
(183) |
(166) |
(329) |
(329) |
||||||||||||
Interest expense |
914 |
816 |
1,606 |
1,800 |
||||||||||||
Loss on sale of business |
1,662 |
— |
1,662 |
— |
||||||||||||
Equity in loss (earnings) of unconsolidated affiliates |
367 |
(303) |
(473) |
(3,163) |
||||||||||||
Income before income taxes |
6,278 |
8,282 |
19,146 |
20,008 |
||||||||||||
Provision for income taxes |
1,924 |
2,088 |
5,650 |
6,028 |
||||||||||||
Net income including non-controlling interest |
4,354 |
6,194 |
13,496 |
13,980 |
||||||||||||
Less: net loss attributable to non-controlling interest |
(237) |
(270) |
(498) |
(509) |
||||||||||||
Net income attributable to Unifi, Inc. |
$ |
4,591 |
$ |
6,464 |
$ |
13,994 |
$ |
14,489 |
||||||||
Net income attributable to Unifi, Inc. per common share: |
||||||||||||||||
Basic |
$ |
0.25 |
$ |
0.36 |
$ |
0.78 |
$ |
0.81 |
||||||||
Diluted |
$ |
0.25 |
$ |
0.35 |
$ |
0.76 |
$ |
0.78 |
||||||||
Weighted average common shares outstanding: |
||||||||||||||||
Basic |
18,128 |
17,823 |
18,045 |
17,872 |
||||||||||||
Diluted |
18,442 |
18,457 |
18,391 |
18,503 |
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS |
||||||||
(Unaudited) |
||||||||
(in thousands) |
||||||||
For the Six Months Ended |
||||||||
December 25, 2016 |
December 27, 2015 |
|||||||
Cash and cash equivalents at beginning of year |
$ |
16,646 |
$ |
10,013 |
||||
Operating activities: |
||||||||
Net income including non-controlling interest |
13,496 |
13,980 |
||||||
Adjustments to reconcile net income including non-controlling interest to net cash provided by operating activities: |
||||||||
Equity in earnings of unconsolidated affiliates |
(473) |
(3,163) |
||||||
Distributions received from unconsolidated affiliates |
1,500 |
2,947 |
||||||
Depreciation and amortization expense |
9,731 |
8,676 |
||||||
Loss on sale of business |
1,662 |
— |
||||||
Deferred income taxes |
5,335 |
5,266 |
||||||
Other, net |
785 |
1,187 |
||||||
Changes in assets and liabilities |
(14,740) |
(13,501) |
||||||
Net cash provided by operating activities |
17,296 |
15,392 |
||||||
Investing activities: |
||||||||
Capital expenditures |
(19,343) |
(27,419) |
||||||
Other, net |
(180) |
1,396 |
||||||
Net cash used in investing activities |
(19,523) |
(26,023) |
||||||
Financing activities: |
||||||||
Proceeds from long-term debt |
79,700 |
109,965 |
||||||
Payments on long-term debt |
(68,504) |
(83,071) |
||||||
Common stock repurchased and retired under publicly announced programs |
— |
(6,211) |
||||||
Other, net |
3,224 |
536 |
||||||
Net cash provided by financing activities |
14,420 |
21,219 |
||||||
Effect of exchange rate changes on cash and cash equivalents |
(349) |
(1,184) |
||||||
Net increase in cash and cash equivalents |
11,844 |
9,404 |
||||||
Cash and cash equivalents at end of period |
$ |
28,490 |
$ |
19,417 |
RECONCILIATIONS OF REPORTED RESULTS TO ADJUSTED RESULTS |
|||||||||||||||
(Unaudited) |
|||||||||||||||
(in thousands) |
|||||||||||||||
EBITDA and Adjusted EBITDA |
|||||||||||||||
The reconciliations of the amounts reported under U.S. generally accepted accounting principles ("GAAP") for Net income attributable to Unifi, Inc. to EBITDA and Adjusted EBITDA are as follows: |
|||||||||||||||
For the Three Months Ended |
For the Six Months Ended |
||||||||||||||
December 25, 2016 |
December 27, 2015 |
December 25, 2016 |
December 27, 2015 |
||||||||||||
Net income attributable to Unifi, Inc. |
$ |
4,591 |
$ |
6,464 |
$ |
13,994 |
$ |
14,489 |
|||||||
Interest expense, net |
716 |
641 |
1,246 |
1,462 |
|||||||||||
Provision for income taxes |
1,924 |
2,088 |
5,650 |
6,028 |
|||||||||||
Depreciation and amortization expense |
4,830 |
4,151 |
9,396 |
8,392 |
|||||||||||
EBITDA |
12,061 |
13,344 |
30,286 |
30,371 |
|||||||||||
Equity in loss (earnings) of Parkdale America, LLC |
745 |
381 |
431 |
(1,584) |
|||||||||||
EBITDA excluding Parkdale America, LLC |
12,806 |
13,725 |
30,717 |
28,787 |
|||||||||||
Key employee transition costs |
— |
637 |
— |
637 |
|||||||||||
Loss on sale of business |
1,662 |
— |
1,662 |
— |
|||||||||||
Adjusted EBITDA |
$ |
14,468 |
$ |
14,362 |
$ |
32,379 |
$ |
29,424 |
|||||||
Note: Amounts presented in the reconciliations above may not be consistent with amounts included in the Company's condensed consolidated financial statements due to the impact of the non-controlling interest in Repreve Renewables, LLC ("Renewables"). Any such inconsistencies are insignificant. |
Adjusted Net Income and Adjusted EPS |
|||||||||||||||||||||||||||||||
The reconciliations of Income before income taxes, Net income attributable to Unifi, Inc. ("Net Income") to Adjusted Net Income and Basic Earnings Per Share ("Basic EPS") to Adjusted EPS are detailed in the tables below. Excluding the GAAP results in the tables below, amounts reported under the Net Income columns are generally calculated by applying the statutory tax rate of the jurisdiction for which the amount relates, or, when no impact to Income before income taxes exists, amounts represent components of the respective period's provision for income taxes. |
|||||||||||||||||||||||||||||||
For the Three Months Ended December 25, 2016 |
For the Three Months Ended December 27, 2015 |
||||||||||||||||||||||||||||||
Income Before Income Taxes |
Tax Impact |
Net Income |
Basic EPS |
Income Before Income Taxes |
Tax Impact |
Net Income |
Basic EPS |
||||||||||||||||||||||||
GAAP results |
$ |
6,278 |
$ |
— |
$ |
4,591 |
$ |
0.25 |
$ |
8,282 |
$ |
— |
$ |
6,464 |
$ |
0.36 |
|||||||||||||||
Key employee transition costs |
— |
— |
— |
— |
637 |
(223) |
414 |
0.02 |
|||||||||||||||||||||||
Loss on sale of business |
1,662 |
— |
1,662 |
0.09 |
— |
— |
— |
— |
|||||||||||||||||||||||
Adjusted results (1) (2) (3) (4) |
$ |
7,940 |
$ |
— |
$ |
6,253 |
$ |
0.34 |
$ |
8,919 |
$ |
(223) |
$ |
6,878 |
$ |
0.38 |
|||||||||||||||
Weighted average common shares |
18,128 |
17,823 |
|||||||||||||||||||||||||||||
For the Six Months Ended December 25, 2016 |
For the Six Months Ended December 27, 2015 |
||||||||||||||||||||||||||||||
Income Before Income Taxes |
Tax Impact |
Net Income |
Basic EPS |
Income Before Income Taxes |
Tax Impact |
Net Income |
Basic EPS |
||||||||||||||||||||||||
GAAP results |
$ |
19,146 |
$ |
— |
$ |
13,994 |
$ |
0.78 |
$ |
20,008 |
$ |
— |
$ |
14,489 |
$ |
0.81 |
|||||||||||||||
Key employee transition costs |
— |
— |
— |
— |
637 |
(223) |
414 |
0.02 |
|||||||||||||||||||||||
Loss on sale of business |
1,662 |
— |
1,662 |
0.09 |
— |
— |
— |
— |
|||||||||||||||||||||||
Adjusted results (1) (2) (3) (4) |
$ |
20,808 |
$ |
— |
$ |
15,656 |
$ |
0.87 |
$ |
20,645 |
$ |
(223) |
$ |
14,903 |
$ |
0.83 |
|||||||||||||||
Weighted average common shares |
18,045 |
17,872 |
(1) |
Adjusted Net Income represents Net income attributable to Unifi, Inc. calculated under GAAP, adjusted for the approximate after-tax impact of certain events or transactions referenced in the reconciliation which management believes do not reflect the ongoing operations and performance of the Company. |
(2) |
Adjusted EPS represents Adjusted Net Income divided by the Company's basic weighted average common shares outstanding. |
(3) |
For the three and six months ended December 25, 2016, the Company incurred a loss on the sale of its investment in Renewables of $1,662. There is no tax impact for this transaction as the loss is non-deductible. |
(4) |
For the three and six months ended December 27, 2015, the Company incurred key employee transition costs of $637, before tax, for transactions in the United States. The Company estimates the tax benefit of these costs was $223, using a 35% tax rate, with no significant deferred tax components. |
Non-GAAP Financial Measures
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,
- EBITDA represents Net income attributable to
Unifi, Inc. before net interest expense, income tax expense, and depreciation and amortization expense. - Adjusted EBITDA represents EBITDA adjusted to exclude equity in loss (earnings) of
Parkdale America, LLC , key employee transition costs, loss on sale of business and certain other adjustments necessary to understand and compare the underlying results of the Company. - Adjusted Net Income represents Net income attributable to
Unifi, Inc. calculated under GAAP, adjusted to exclude the approximate after-tax impact of certain income or expense items (as well as specific impacts to the provision for income taxes) necessary to understand and compare the underlying results of the Company. Adjusted Net Income excludes certain amounts which management believes do not reflect the ongoing operations and performance of the Company, such as key employee transition costs and loss on sale of business. - Adjusted EPS represents Adjusted Net Income divided by the Company's basic weighted average common shares outstanding.
Adjusted Working Capital represents receivables plus inventory, less accounts payable and accrued expenses, which is an indicator of the Company's production efficiency and ability to manage its inventory and receivables.
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. The Company may, from time to time, modify the amounts used to determine its non-GAAP financial measures.
We believe that these non-GAAP financial measures better reflect the Company'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 cash expenditures on interest are, by definition, available to pay interest, and tax expense is inversely correlated to interest expense, because tax expense decreases as deductible interest expense increases; and depreciation and amortization are non-cash charges. Equity in loss (earnings) of
Management uses Adjusted Net Income 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.
Additionally, EBITDA, Adjusted EBITDA, Adjusted Net Income and Adjusted EPS aim to exclude the impact of the non-controlling interest in Renewables, while the consolidated amounts for Renewables are required to be included in the Company's financial amounts reported under GAAP.
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.
Cautionary Statement on Forward-Looking Statements
Certain statements included herein contain forward-looking statements within the meaning of federal securities laws about the financial condition and results of operations of the Company that are based on management's beliefs, assumptions and expectations about our future economic performance, considering the information currently available to management. The words "believe," "may," "could," "will," "should," "would," "anticipate," "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; 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 the Company competes, including economic and political factors over which the Company has no control; changes in consumer spending, customer preferences, fashion trends and end-uses for products; the financial condition of the Company's customers; the loss of a significant customer; the success of the Company's strategic business initiatives; volatility of financial and credit markets; the ability to service indebtedness and fund capital expenditures and strategic initiatives; availability of and access to credit on reasonable terms; changes in currency exchange, interest and inflation rates; fluctuations in production costs; the ability to protect intellectual property; employee relations; the impact of environmental, health and safety regulations; the operating performance of joint ventures and other equity 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 the Company. 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 the Company'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 the Company with the
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SOURCE
Chris Donovan or Chris Hodges, Alpha IR Group, 312-445-2870, UFI@alpha-ir.com