Unifi, Inc. (UFI) Q4 2020 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by, and welcome to the Q4 2020 Unifi, Inc. Earnings Conference Call. [Operator Instructions]. I would now like to hand the conference over to your speaker today, A.J. Eaker, Vice President of Finance. Thank you. Please go ahead.

Thank you, operator, and good morning, everyone. On the call today is Al Carey, Executive Chairman; Eddie Ingle, Chief Executive Officer; Tom Caudle, President and Chief Operating Officer; and Craig Creaturo, Executive Vice President and Chief Financial Officer. During this call, management will be referencing a webcast presentation that can be found at unifi.com and by clicking the fourth quarter conference call link. Management advises you that certain statements included in today's call will be forward-looking statements within the meaning of the federal securities laws. Management cautions that these statements are based on current expectations, estimates and/or projections about the markets in which Unifi operates. These statements are not guarantees of future performance and involve certain risks that are difficult to predict. Actual outcomes and results may differ materially from what is expressed, forecasted or implied by these statements. You are directed to disclosures filed with the SEC on Unifi's Forms 10-Q and 10-K regarding various factors that may impact these results. Also, please be advised that certain non-GAAP financial measures, such as adjusted EBITDA, adjusted net income, adjusted EPS, adjusted working capital and net debt may be discussed on this call. Lastly, please be advised that in -- I'm sorry, in consideration of COVID-19 safety measures, the speakers today are utilizing multiple telephone lines. Efficiency for this call may be impacted. I will now turn the call over to Al Carey.

Well, good morning, everyone, and thanks for joining us. I'm going to -- for my remarks, I'm going to use Slide 3 in the presentation as a bit of a backdrop for my comments. So I'll start by telling you a little bit about the first 3 quarters of fiscal 2020 we feel were progressing extremely well prior to the economic shutdowns from the COVID-19, which happened -- coincided at the beginning of our fourth quarter. And we made very good progress on the 4 big priorities that we identified last summer. Those were terrific growth in our Asian business, which is that asset-light model. And we began to pick up market share and sales in North America due to the anti-dumping regulations that we spoke about quite a bit and finally began to materialize. REPREVE continued to have momentum from our customers since they were very focused on their ESG goals, and we continued our cost reduction measures successfully. So that's the status going into Q4 and at that time was the beginning of the crisis, the pandemic. And the apparel and automotive customers either shut down or was significantly curtailed operations at that time. And then we saw a corresponding significant drop-off in sales, and it negatively impacted our operating income as well. So with all that going on, our team decided, let's control what we can control. And our management team took on the task of protecting our liquidity and also prioritizing cash generation. And I think they did a very good job with both of those. The sale of our share of the Parkdale joint venture allowed us to pay down a significant part of our debt. We generated cash during a quarter of significantly low demand, and we reduced our operating cost and we took down inventory levels. So all of these moves, I believe, are going to set us up for becoming a stronger company once the COVID ends. Now while sales were hit hard, we have seen sequential improvement every single month since March. April was the low point, May improved from April, June better than May, and July was the best and even the first 2 weeks of August have seen another improvement. But it's difficult to accurately forecast how fast things are going to come back as far as the top line goes because of the uncertainties of the pandemic. But we're very confident that we're going to be able to get the top line and profit momentum to return to the momentum that we had through the first 3 quarters of 2020. The last thing I'll say is I feel very good about the strong team that we've developed at Unifi since last summer. Some of you may remember, we went through quite a bit of change. In September, we had Craig Creaturo joining us, and he's doing an excellent job in a short period of time. And Eddie Ingle has joined us on June 15 as our new CEO. And his return to Unifi has been applauded by all of our people. And it's not like we have a new CEO. He has a 30-year background at Unifi, which is really coming in handy already. And with all this going on, Tom Caudle is retiring. He's on the phone with us today. He will be answering some questions, but he's retiring after an exemplary 40-year career at Unifi, but we get a chance to hang on to Tom for some time to take advantage of its experience and wisdom for the next year. So I believe we're very well positioned for the future. And I'll turn it over now to our new CEO, Eddie Ingle, to take you through some of the materials.

Thanks, Al, and hello, everybody. I'm very excited to be rejoining Unifi at such a pivotal and an unusual time for the company. And in the short time that I've been in the office, I've already settled back into an organization that, obviously, I know so well and have quickly reconnected with the leaders and my friends and colleagues. It's almost like coming back home. I'm very grateful for the supportive handover of the reins by Tom and his continued support for me as a CEO of the company. Over the last couple of months, I'm asked by many people, why did I return? And I returned to Unifi, basically, because of my steadfast belief in its people, its innovative mindset and in the core value to everything we do here at Unifi is for the good of tomorrow. Among other things, prior to leaving Unifi, I was heavily involved in the process of introducing and growing our signature performance fiber, REPREVE. And today, more than ever, I believe sustainability is the cornerstone of Unifi's future growth. And our innovative culture -- it makes us the partner of choice for leading global brands around the world who are seeking to meet their own sustainability goals. At Unifi, we take pride in our efforts to eliminate waste and wasted resources, and we'll continue to invest in expanding the reach of our innovative, sustainable solutions. Now while this pandemic has created much uncertainty, I'm confident in one of Unifi's core strengths, and that is the ability to adapt. Over the 30 years I've spent with the company, I've seen our people adjust to changing markets and very difficult circumstances and in every instance rise to the occasion. Time and time again, our people have proven their resiliency and adjusted to evolving market dynamics. And history shows that after every crisis, we come out stronger. And it is because our people are flexible, nimble and have learned, like I said, how to adapt. Now you can see from our Q4 results, which Craig will describe in detail next, that the COVID-19 pandemic resulted in a 52% drop in sales. However, we see this as a temporary situation, and there are many reasons why. First, the consumers are rapidly adapting to the new normal and in certain end markets are ignoring the pandemic and utilizing their new cash reserves to buy big ticket items. A prime example of this is the bounce back in the U.S. car sales, which were down around 35% in April and 5% in May, but June 2020 sales beat June 2019 sales. So during this period, the automobile inventories grew and then quickly dropped to normal levels as a result of the closure of plants. And we hope that these are signs of stabilization in the industry, but of course, we will continue to monitor these developments with our customers. In addition, in this market, we are seeing a renewed interest in some of our new innovative yarns made with REPREVE, as each automobile company tries to differentiate themselves in the market. This is very much driven by innovation and the disruption caused by the electric vehicle markets, where new brands have shown that things can change in the auto industry much faster than anybody ever thought possible. And that surprisingly is translating into new demand for sustainable offerings with a plus 1 performance or a static benefit. Through this crisis, Unifi has been able to deliver on the most arduous of performance requests incorporated into our REPREVE yarns, and I'm pleased to note that already in July we've experienced an increase in our pounds sold into the automotive market. Okay. The second point I'd like to make is that consumers are finding new ways to buy products, especially in the sports apparel and comfort wear, with most retailers and brands reporting record online sales. We have seen from the financial results of the leading sports and apparel brands that they, too, had a difficult June quarter. However, there is sentiment around a rapid recovery of that sales volume. At the beginning of July, we restarted our operations in El Salvador and once again began servicing the reopened branded apparel Central American markets from that facility. We also saw the demand both in China and Brazil beginning to claw their way back towards pre-COVID levels. And we're assuming that this is driven by the brands beginning to fill the supply chains as the consumer basically gets back to business. The third point I want to make is in the area of personal protective equipment or PPE. In the U.S., there's a drive to build a stockpile of PPE, some of which was led by the U.S. government. However, much of it was also driven by the private sector. While the first round of government programs are coming to an end in the production cycle, there are additional bids being offered to the market as we speak. And we are expecting our customers to win many of these programs, which should, in turn, benefit Unifi. From the April to July period, just to give you a bit of color, we estimate that 10% to 15% of our North and Central America revenues were coming from some form of public or private PPE programs, which is up from an estimated 2% to 3% pre-COVID. Fourth point that has been a commercial focus of ours is the Nylon business. The Nylon business was impacted more severely than our Polyester business. However, we did see some bright spots in the PPE market also. Many of the protective reusable masks sold in the market have been made using Nylon, and we were quickly able to supply that new markets. We also saw some benefit in the medical markets that our textured Nylon and covered Nylon yarns go into. It comes as no surprise that our ladies hosiery business slowed down considerably during the quarter as social gatherings were reduced, weddings canceled and many of the opportunities to wear ladies hosiery disappeared. This was offset in part by an increase in our sock markets. And in July, we have seen a slight increase for some of the apparel and footwear markets Nylon business sells into. Now looking back several years, as the Nylon market declined, some would say the Nylon and apparel market has been starved of innovation. However, there's a growing interest in our REPREVE Nylon offering, both in the U.S. and in Asia. And I believe this is an indication of the consumer and brands remembering the softness and strength of Nylon yarns that make them an ideal next to skin product. The last point that I want to cover is around the consumer experience. For the April through June period, when our customers were the most fearful of the health of their business, their employees and their customers, we stood by them. And our team delivered a customer experience that was second to none. I'm proud of our people for not getting distracted and letting our own equally different environments impact how we treated our customers. And for that, I'd like to publicly thank them. Like most companies, our visibility beyond the near term, that being the next 1 to 2 months, remains restricted. We are focused on controlling what is within our ability. And as Al has already pointed out, naturally, we have reduced costs where possible, ensuring we have ample liquidity as well as a strong balance sheet to weather these uncertainties. Visibility of volumes for our Q2 and Q4 period is narrow. But based on the recent uptick in volumes that we're seeing and the published reports from some of the brands, along with the belief that a vaccine could be available in the next 6 to 9 months, we see no reason why our run rate for revenue and profitability should not return to normal pre-COVID levels by the end of our fiscal 2021. We do expect it to be a steady uphill climb as we move through the fiscal year, but we have the right balance sheet to protect us, should the demand slip for some reason through this terrible event. And with that, I'll turn the call over to Craig. Thank you.

Thank you, Eddie, and good morning, everyone. Like the rest of the team, I am excited to have Eddie at Unifi and look forward to growing the business together. As Eddie noted, and as we forecasted in our call on May 1, 2020, the COVID-19 pandemic has had a significant impact to demand around the globe and for the textile industry and especially apparel. In this environment of stifle demand, our U.S. operations are challenged by lower fixed cost absorption, but our model in Asia proved strong through its agility. Al and Eddie provided a great overview of fiscal 2020, and I would like to add just a few thoughts. Our efforts in fiscal 2020 were focused on improvements over fiscal 2019, which included a lower SG&A run rate, a better raw material cost environment and the first signs of success from our recent trade actions. Fiscal 2020 was shaping up to be a great year from an income statement perspective until demand and economic activity dropped quickly due to the COVID-19 pandemic. Despite the pandemic headwinds, we generated significant operating cash flows in both the fourth quarter and the full year of fiscal 2020. We then drove down net debt even further with our divestiture of the Parkdale America business. Although we described this transaction in our last earnings conference call, it closed during the fourth quarter and is reflected in this quarter's financial results. Let's walk through that transaction briefly on Slide 5. We received $60 million in cash, improving our net debt by the same amount in Q4, and we applied approximately half of the proceeds directly to debt paydown. The proceeds from this transaction allowed us to eliminate all borrowings on our ABL revolver. With this transaction completed, we can focus our full efforts on expanding our leadership position in recycled and synthetic Polyester and Nylon fibers, while providing additional flexibility and liquidity for both long-term opportunities and short-term needs during this pandemic. While our joint venture relationship with Parkdale Incorporated has ceased after 22 years, we continue to have other business interactions with Parkdale Incorporated. On Slide 6, I will provide an update on our liquidity position. Compared to the end of fiscal 2019, our liquidity position has improved substantially, as noted by the following: the ABL revolver balance was reduced to zero; total debt principal fell below $100 million; cash and cash equivalents rose to $75 million; revolver availability was $56 million; and we have not requested any changes or concessions to our debt covenants or repayment terms. This all results in a net debt position below $25 million, a level unseen in many years, and liquidity in excess of $100 million. After strong operating cash flow generation and the Parkdale divestiture on June 28, 2020, approximately 54% of our $75 million of cash were held by our domestic operations. This improved from 0% at the end of fiscal 2019. This provides us reserves for weathering the rest of the economic uncertainty surrounding the pandemic. Now I'll turn to Slide 7 of the presentation and review the net sales performance for the fourth quarter. Consolidated net sales declined from $179.5 million in Q4 fiscal 2019 to $86.1 million for Q4 of fiscal 2020, a 52.1% decrease, almost entirely a result of stifle demand for textile products related to pandemic. Polyester segment experienced a revenue decline of 46.2%, primarily attributable to lower volume, including a price and sales mix decline of 16%. The average selling price decline primarily follows the year-over-year decline in Polyester raw material costs. The Asia segment experienced a revenue decline of 49.7%, of which 50.8% was attributable to lower sales volume. However, it had strong pull-through on settlement programs during the fourth quarter, driving a sales mix benefit despite lower Polyester raw material costs. The Brazil segment experienced a stark decline in economic activity during the June 2020 quarter, along with heavy foreign exchange pressures, generating an overall revenue decline of 72.8%. Lastly, the Nylon segment experienced a 56.6% revenue decline. We note that both the Nylon segment and the Polyester segment benefited from fabric face mask and gown production from many customers. However, this PPE demand was not enough to offset the decline in overall global apparel. On Slide 8, we will discuss gross profit performance. Consolidated gross loss of $9.5 million in the fourth quarter of fiscal 2020 was due to a significant decline in demand, which led to weak fixed cost absorption for our capital-intensive operations in the U.S. and Brazil. Conversely, the Asia segment demonstrated strength and agility in that region, contributing positive gross profit. Even though we quickly took numerous actions during the just completed quarter, including rolling production curtailments in the U.S. and Brazil as well as temporary and permanent human power reductions, these actions could not overcome the full financial impact of volume reductions. The Polyester segment was impacted the most from COVID-19 as it is the largest and most asset-intensive segment. When production volume declined to levels we experienced in Q4, some costs can no longer be allocated to inventory. Therefore, cost of sales increased at a higher per unit rate compared to a normal production period. The Polyester segment accordingly reported a gross loss of $9.4 million. The Asia segment showed strength in the quarter. Although sales volumes were significantly reduced, the segment experienced a richer sales mix with greater filament pull-through. The Asia segment achieved gross profit of $2.3 million. For the Brazil segment, margins decreased as demand fell with the local economy, and gross profit was $0.2 million. Lastly, the Nylon segment was impacted similarly to the Polyester segment as the low sales volumes in Q4 did not allow for adequate fixed cost absorption resulting in a gross loss of $2.5 million. I will now pass the call back to Eddie to discuss our transition to reporting REPREVE fiber sales on Slide 9, along with our assumptions for fiscal 2021 on Slide 10.

Thanks, Craig. We spend a great deal of time educating everyone on the value of REPREVE and how it aligns with so many sustainability goals present today. As stated earlier, I was integral in bringing REPREVE to life with the team more than a decade ago and spent much of my prior time at Unifi establishing the brand, the supply chain and its growth. But in an effort to better align our reporting of sales growth for REPREVE, we are transitioning from reporting the proportion of premium value-added or PVA sales as a percentage of consolidated revenue to reporting the proportion of a pre-fiber sales as a percentage of consolidated revenue. As you know, Unifi has long been a textile fibers leader. And reporting a pre-fiber sales allows for better tracking against our goal of growing the global share of REPREVE using apparel and other end markets. Slide 9 provides the current and historical view of a pre-fiber and PVA sales percentages. Now turning to Slide 10 of the presentation. As we look ahead, it is important to understand that the medium to longer-term underlying fundamentals that drive our business remain in place. Barring no significant government shutdowns driven by a rise or resurge in pandemic activities, we believe that the near term should exhibit the following. Certainly, we will have pressure on immediate sales and profitability given the slow rate of recovery in our core end markets. Quarterly growth to be in line with most of our end markets. We do anticipate quarter-over-quarter sequential improvement in our results for fiscal 2021 and working capital to naturally increase as the recovery takes hold. Looking past the pandemic and more long term, we believe sustainability is here to stay and the current environment will accelerate these trends as a younger generation demands accountability. We expect REPREVE to grow globally as companies work to meet existing and new sustainability goals. We already support the world's leading progressive brands, and we continue to have daily conversations with potential new customers that recognize the immediacy of the situation and the benefits of REPREVE. As Craig mentioned, our recent trade actions are currently in place and should provide benefits to sales volumes and cost absorption in the U.S. for an extended period of time. We believe the sum total of these concepts should fuel a return to growth by the end of fiscal 2021. I'm incredibly proud to be back at Unifi and look forward to leading this company towards achieving its growth potential. We have the right team, the right focus and the right footprint in place to drive long-term growth and shareholder value. And I'm looking forward to taking advantage of the opportunities that lie ahead for all of us. Thank you. Randy, we will now open the lineup for questions.

[Operator Instructions]. And your first question comes from the line of Dan Moore with CJS Securities.

It's actually Lee Jagoda for Dan. So just starting, can you walk us through on both the Polyester side and maybe on the Asia side, just the cadence of volume declines and the improvement you saw in April, May and June and maybe now into July? And then just following up on that. How far below pre-pandemic levels from a volume standpoint are we in July versus, again, prior?

Yes, I'll take that question, Lee. Thank you. As Al said in his script, we did see significant shortfall in revenue in April. That was our worst month. And as we went into May, it improved. In June, it improved. And of course, we've seen an improvement in July. So every month since April, we've seen a significant improvement. And it's been across the board. I can point to the 3 regions that we sell into. I'll start with Brazil because that was down the most, 73%, as Craig pointed out. We're seeing that business bounce back to, I wouldn't say normal levels, but much closer to normal levels than we'd expected. And for a simple reason and that the volatility in the exchange rates scared off some of the traders, and we were being locally able to supply the increase in demand that occurred when the retail environment opened back up. In Asia, particularly in China, it's past the pandemic, and business there has returned back to normal. And that's why you saw our gross profit much stronger there than any other region. And we're seeing the volumes. Of course, they are down, but they are also coming back. And July is significantly better than June in that region also. When I turn to the U.S., we have 2 parts of that business. We have the U.S. and we have Central America. As I said in my statement, Central America -- much of Central America was shut down throughout the April, May, June period. And we saw in July a huge increase in our revenues there. And it's been driven from our facility out of Central America. We have been shipping some yarn down to Central America from the U.S. But with our El Salvador plant opening back up again and the demand opening up as the supply chain needed to be filled for the power brands down there, you saw a big bounce back. So hard to give you an exact number. But if we -- I would say, going into August, we expect August to be slightly better than July and don't really have much visibility yet in September, but certainly, it's positive. Thank you. I hope that answers your question.

It's very helpful. Just -- and just following up on that. Assuming that August does shape up incrementally better than July and I guess, for ease of discussion, let's assume that volumes in September stay around the August level, is that enough volume to get you back to EBITDA breakeven or above? Or do you still need improvement to absorb more of those fixed costs?

Lee, this is Craig. I think Eddie probably framed it up pretty well. I think we see what's ahead of us for the next few weeks. I think the wildcard in that is the September, but again, all signs continuing to point positively. We definitely feel like we will make significant strides forward relative to the quarter we just completed, which, again, was a combination of, obviously, the lower sales. But as we mentioned, both in the script and also in the release today, taking on some of those additional costs and not being able to absorb them or put them into inventory. So we think that will continue at these lower rates, at least through the -- we believe, through the end of the calendar year. But we definitely will make progress. And I think it will really come down to that last month of the quarter, figuring out where we shake out and how good of an improvement over this quarter Q1 of FY '21 is.

Okay. Fair enough. One more for me, and I'll hop back in here. Just Eddie, from more of a strategic high-level perspective. Once the pandemic kind of gets past us and we get back to some sense of normalcy, what are the things on your list of things that you plan to do differently or better than predecessors to make this thing a better business?

Thanks for that question. Let me answer that by, first of all, telling you a bit about who I am. I am a numbers guy, but I'm not here on this call to talk about the numbers. Craig does a fantastic job at that. I'd like to describe 3 different points. I do have a growth mindset. I wasn't brought back in to maintain the business. So you will see over the coming years as we look to the future, certainly, the opportunity to grow, we're going to take any opportunities we find. And much of those opportunities will be organic, or there may be some M&A down the road. But first of all, I'd like to stress, we are a company that's going to grow. The second point is that innovation is at the core of Unifi. We are a technical company. We're a curious company. And my mindset fits in with that. We've seen our business grow, not because we're growing commodities, but we're growing technical solutions and giving solutions to our customers. And the last point I'd like to make for me personally is people development. Companies say people make the difference. And in our company, it certainly is true. And we will be investing in our people in the coming years to make sure they reach their full potential. And all those 3 things, growth, innovation, people development, is all going to be focused on 1 thing, and that is for the good of tomorrow, as we like to say at Unifi. We want to grow this business. We want to do it in a profitable way, value creation and give value to our customers, and we're going to do that through the team that we have. Thank you.

[Operator Instructions]. Your next question comes from the line of Marco Rodriguez with Stonegate Capital.

I was wondering if you guys can talk a little bit about some of the strategically reduced cost that you maybe have taken out here in this last quarter. If you can maybe talk through where those costs kind of came out by segment would be helpful.

Sure. Good question, Marco. I think it really was a combination of several things. I think there were some both temporary costs that needed to be taken out. As we talked about, we were able to do some rolling outages as customer demand dictated at various sites. We have the benefit of -- we did not need to really completely shut down any sites here in the U.S. We were able to take that more strategically, piece by piece, group by group, department by department, line by line and think about it that way. And really, it's a credit to not only our management for being able to pull that off but our workforce to be flexible in that regard. We did have to make some permanent headcount reductions as well. And we just feel like that was necessary for the level of business that we were at. A lot of discretionary reductions as well, obviously, doing the things that we needed to do to protect the balance sheet and to reduce discretionary spending. Some of those happened naturally because people weren't traveling as much. Some of them took more effort and bring some discretionary things around. And I would say, finally, we also then -- I know it's not an expense -- direct expense item. But we also took a more conservative approach to our capital spending during this just completed quarter. We had -- we did invest in areas we needed to, but we really kept those focused on maintenance and safety items. And not only did that help us as we ended FY 2020 that sets us up nicely for not having a lot of the projected capital that we noted in the press release that for FY '21, the $22 million. It is definitely more in the second half of the year rather than the first half. I'm going to ask Tom Caudle to add some comments to that from -- for a better answer, Marco. So go ahead, Tom.

Marco, we will be careful as well that we did not impair our ability to service our customers through these efforts. But we did -- we took out significant costs across all areas of the company and were able to maintain all of our facilities here in the U.S. running and able to meet our customer needs. We were very fortunate in that regard. And we feel very proud of the fact that we were here to service our customers throughout this pandemic situation in our fourth quarter.

Got it. Very helpful. And then I was wondering if maybe you can discuss a little bit some of the dynamics between the retail customers. Presumably, obviously, it was a very difficult quarter for everybody involved, just given the fact that a lot of the brick-and-mortar places were shut. And people were pausing maybe some of their spending. Obviously, it sounds like that is starting to come back for you guys. But just kind of wondering, based on the conversation you're having with your clothing retailers, how is the pricing situation kind of looking? Are they trying to extract more pricing pressures from you guys? Or are you -- obviously you're willing to work with them because they are your important clients? Just any sort of color around the pricing dynamics would be helpful.

Yes, I'll take that call. Thank you -- the question. It is interesting. Much of the retail environment was shut down during the period of April, May. It started to coming back open in June for many states in the U.S. And of course, China opened up much before that. And Brazil started opening up in July. So the -- at the same time, as I said in the script, as all of us did, we shop more online, and that sort of opened up some of the opportunities to consume also. But going back to the question on pricing. We have actually not had a lot of pricing pressure right now. People have been really, really supportive of each other in this environment. And I'm sure it's going to happen. Just right now, everybody's focused on making sure that they get the product they need, when they need it, more than anything else. And we -- as Tom said, we've been there to support them. But the pricing pressure has not been an issue right now. Thank you.

Got it. And then maybe, Eddie, if you can maybe talk about -- I mean, I understand that you've been there just for a little bit of time, and I heard your answer to the prior question in terms of your -- sort of your background, your outlook. But are there any things that you might be looking at from a sales and marketing position to maybe do something differently when marketing REPREVE?

Yes. Thanks for the question. We've been on the REPREVE journey for over a decade now. And one of the things that keeps on coming up and it's come up actually with more veracity in the last couple of months, and that is around the circular economy. And you will see us invest in developing solutions, circular solutions for the brands, so they can take more of their product and put it back into the system. We've had a Textile Takeback Program for quite some time. And I expect if we can develop that further, it will add another layer of defensibility to the REPREVE brand and also provide another much needed solution for the brands. So you'll hear more about that. I won't go into too much detail, but expect that down the road. I hope that answers your question.

Yes. That's helpful. And last quick question. Just from a cash flow perspective for fiscal '21, can you maybe kind of walk us through your expectation and assumptions for cash flow from ops and then maybe free cash flow?

Yes. I think we are -- Marco, we realize that we did take a lot of cost out of the business, especially in the second half of FY 2020. We will need to fund the recovery of our customers by increasing our investment in working capital and specifically in accounts receivable. So we expect that to grow as the sales growth returns. We are continuing to keep up our focus and vigor around keeping our inventory levels at a better level. And we think we've achieved a lot, and we have some room to improve yet as we enter into FY '21. I think it's a period where we are going to continue to be careful with working capital investments, broadly speaking, and I think, overall, we're expecting it to be a good cash flow period. It's a period that we are -- as we look out into FY '21, at least on the near-term horizon, we don't see any sea bumps that would need us to take advantage of additional liquidity or credit that we have. We like the position that we have. We like having nothing borrowed on the revolver. And at least in our early view, it looks like at least for the next few quarters, at least, we should be able to keep that. So I think you can expect us to continue to generate good working capital. We're very, very [Technical Difficulty] in FY '20 with generating $53 million of cash flow from operations, keeping the capital spending at a reasonable level. So I think we're looking at all those factors and expecting that we should continue some of the good trajectory that we exited after '21 we should have as we go into FY '20 -- FY '21. And should -- FY '21, we should continue some of the good things that we did in FY '20.

[Operator Instructions]. And there are no further questions. At this time, I would now like to turn the call back over to management for closing remarks.

Thank you, Randy. With no further questions, we would like to thank everyone for participating today. Our next earnings release for the first quarter fiscal of September -- that ends September 27, 2020, is tentatively scheduled for Monday, October 26, 2020, after the market close, with a conference call to follow the next morning, Tuesday, October 27, 2020, at 8:30 Eastern Time. Thank you for joining today's call.

This concludes today's conference call. You may now disconnect.