Unifi, Inc. (UFI) Q3 2021 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by, and welcome to the Unifi Third Quarter Fiscal Year 2021 Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised, that today's conference is being recorded. [Operator Instructions] I would now like to hand the conference over to your speaker today, A.J. Eaker, Vice President of Finance. Please go ahead, sir.

Thank you, Christel, and good morning, everyone. On the call today is Al Carey, Executive Chairman; Eddie Ingle, Chief Executive Officer; and Craig Creaturo, Chief Financial Officer. During this call, management will be referencing a webcast presentation that can be found at unifi.com and by clicking the 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 the 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 EPS, adjusted working capital and net debt may be discussed on this call. I will now turn the call over to Al Carey.

Thank you, A.J., and good morning, everyone. Thanks for joining us today on our call. And I want to get the call started with a few comments about our overall performance for Unifi's third quarter. And then I'll turn the presentation over to Eddie Ingle and also Craig Creaturo, who will provide you with the details. So all in all, we had a solid quarter three, stronger than we anticipated, and we continued to see a steady recovery from the pandemic. Our Brazil and Asia business had very strong sales and gross profit performance. That's whether you look at it versus Q3 of last year or versus the previous quarter. North American sales saw a year-over-year growth in March, so we now have all three regions showing solid growth trajectory. Our EBITDA performance was very positive in Q3. Our balance sheet continues to be strong as does net debt, and our overall financial performance really puts us in a position so that we can invest in growth as we move into the future. If you look at Q4, while there's still some uncertainty in the Brazil market and even the U.S. market with regards to COVID. Even with that, we see a path to sequentially improving our sales for Q4 and finishing the fiscal year in a way that sets us up for a strong 2022. I'd like to tell you about one positive trend that's growing in the market that's worth noting. There's a very definite momentum for sustainable products from consumers and also from our customers. This bodes well for REPREVE's future, and we can hear this in the discussions that we have with our customers and in their future plans for not only apparel but also home furnishings, footwear and also automotive. Many customers are increasing their commitments to making products using recycled material, and they're actually taking action on those commitments. This quarter 3, we've seen the REPREVE hang tags with our co-branding partners increase by 80%. Now that number year-to-date is 50% so that we can see the trends continuing to strengthen. For the fiscal year, we expect to end the year at 90 million hang tags on products across the marketplace, so the awareness of our brand is climbing in a very positive way. As I turn the call over to Eddie, let me just say one other thing. The management team at Unifi is now seeing the benefit of being in place and working together for multiple quarters after what I'd consider to be a fairly instable management situation over previous years. This is now starting to pay dividends and has become a clear driver of our improved performance. I got to say that I'm very proud of the team, and I'm grateful for their resiliency over these last 12 months. So with that, let me turn it over to Eddie Ingle, our CEO of Unifi.

Thanks, Al, and good morning, everyone. As Al mentioned, our third quarter fiscal 2021 results surpassed our initial expectations and are a testament to our strong global presence and the resilience of both our employees and our business model. This quarter would not have been possible without the many contributions from our employees, and I want to once again thank all of our team members for their dedication to the business and especially to our customers. Their compliance to the safety measures we put in place over a year ago has allowed us to maintain low COVID case numbers, while continuing to operate our business effectively and navigate a recovery. On slide three, we have provided an overview of the quarter. The business demonstrated another quarter of significant strength, and I'm very happy to report we exceeded pre-pandemic revenue levels. Q3 revenues were up 10% sequentially and 5% on a year-over-year basis, with solid performance across all segments and geographies. We generated a 530 basis point improvement in gross margin year-over-year due to the strong results we saw in our Brazil and Asia segments. Brazil had the strongest segment performance during the third quarter, and momentum in that region continued well past Q2 as improved selling prices and product availability during Brazil's economic recovery led to strong margin performance. Our Asia segment's also demonstrated strength during Q3 as volumes continued to trend up year-over-year, experiencing a meaningful return to growth. Our team in Asia has continued to successfully manage cost and improve product mix, allowing for gross margin expansion. In regards to the U.S. raw material costs and supply chain, the March 2021 quarter was the most volatile period we've seen in quite a few years. Many people and businesses in Texas experienced harsh weather conditions in February, but we were fortunate that our supply chain remained operational, albeit with surcharges on selected input materials and freight. Combination with rising petrochemical prices, our raw material costs exhibited a meaningful step-up during the March 2021 quarter. With those higher costs now in our business, we have been working closely with our customers to ensure that the appropriate selling price adjustments are implemented. We do expect some margin pressure to occur into Q4 from the inherent lag that occurs during such a process. However, we do remain confident in our underlying business momentum and our responsiveness in addressing these cost headwinds. Stepping back to the consolidated business, again, our financial position remains strong and easily supported the two bolt-on acquisitions we completed in the fiscal 2021. In addition, I am proud of the progress we've made with improving our balance sheet across the globe. Switching to REPREVE-branded Fiber. I am pleased to report that momentum remains, comprising 33% of net sales in this Q3 -- in Q3 versus 29% for the year ago quarter. And as you can see on slide four, the trend remains strong. Sequentially, REPREVE Fiber was lower than our record Q2 performance, and this is not a concern due to the typical seasonality of the Chinese New Year and the outperformance by Brazil's predominantly virgin platform. We have several exciting brand highlights to touch on today, starting with our traditional co-branding partnerships which have continued to accelerate. Realtree launched their new fishing shirts at Walmart, which contained REPREVE and carry the iconic REPREVE green bottle hang tag. In addition, EleVen, a brand by Venus Williams, launched a women's tennis coat collection that co-brands with REPREVE. These launches represent an extension of REPREVE into broader sporting goods categories. In the home goods category, we continue to win new business and launched several programs this quarter. Our customer, Marina's carpets, a Turkish producer and retailer of carpeting, launched a line of carpeting made from REPREVE. And additionally in the U.S., Rollease Acmeda launched Ambient Renew, a new line of eco-friendly window coverings using REPREVE in the place of PVC. From a marketing and media perspective, we had a remarkable few months working with various partners to promote REPREVE's sustainability benefits for them and, of course, for society. For example, you may have caught the television ads that feature REPREVE during the Phoenix Open Golf tournament, created by the newly rebranded WM, formerly known as Waste Management. WM is a major supplier of bailed recycled plastic bottles used in our U.S. bottle washing facility and announced in February that they will be outfitting their staff with uniforms made from REPREVE via our customers, Aramark and Cintas. In addition to being our customer, WM is working on additional rebounding campaigns, which will continue to feature REPREVE and Unifi as a strategic sustainable partner who enables recycling. WM will continue to air 30-second commercials on national television that feature how Unifi's U.S.-based manufacturing transforms recycled plastics. It also mentioned that through our partnership with L2 Brands and Pepsi's sponsorship of the Super Bowl halftime show, t-shirts made with REPREVE were provided a surprise for Pepsi's social media followers. In March, our sponsorship of the Pac-12 Team Green resulted in additional television advertising on the Pac-12 network and ESPN, with circular economy stories that explain how we take bottles from many university campuses and transform them into well-known branded apparel that can be purchased from their university bookstores. We believe that telling these stories will enhance REPREVE equity and brand awareness in the broader consumer market. Our momentum continues to build and partnerships such as these have propelled REPREVE's growth. This quarter, we hit a milestone of 25 billion bottles recycled into REPREVE. This growth led us to congratulate our valued customers who drove us to this point, with the announcement of our fourth annual Champions of Sustainability Awards in March. These awards celebrate bottle cap milestones achieved by our customers as well as newcomers and partners and innovation. Now, turning to our operating segment performance during the third quarter. I will provide some high-level commentary on each segment before Craig takes you through more specific details. Polyester came a little lower on a year-over-year basis, and the shortfall can be attributed to last year's ramp-up in demand as antidumping volumes drove strong utilization and sales trends just prior to the impact of COVID-19. That said, over the last nine months, the Polyester segment has shown strength, achieving a gross margin of 10% during the pandemic versus 8.2% in the prior pre-pandemic comparable period. The Asia segment delivered another strong quarter as business conditions continued to improve and net sales surpassed pre-pandemic levels. Volumes in Asia were up significantly and benefited from pull-through on new and existing customer programs. With Brazil, as Al noted, had another record-setting quarter and beat our own internal forecast. Similar to the outperformance we experienced in the region during the first and second quarter, our unique market position has continued to allow us to take market share that was previously held by competitive importers. Our team in Brazil continues to do great work and has been able to capture even more unfulfilled demand. We will work to hold on to our market share gains within the region, but note that the COVID-19 knockdowns that lasted from late March into April are expected to impact volumes in the June 2021 quarter. With that said, as Brazil worked its way out of the recent spike in COVID-19 cases and the country's retail environment opens back up in the coming months, we anticipate that volumes will ramp back up to normal levels during the first quarter of our new fiscal year. Lastly, the Nylon segment performance met our expectations for the quarter, reflecting a balanced sales level. Now before I pass the call over to Craig, I will simply remind everyone that our ongoing trade petitions, involving textured polyester yarn imported from four countries: Indonesia, Malaysia, Thailand and Vietnam continue as expected. We anticipate further determinations will be published in the next two months. With that, I will turn the call over to Craig. Craig?

Thank you, Eddie, and good morning, everyone. Like the rest of the team, I am pleased with our third quarter fiscal 2021 results and our ability to navigate the complexities of this recovery with a regional and responsive business model. Because of these strong results, we are able to return to our quarterly comparative discussions on a year-over-year basis, which is something that we have not been able to do for the past several quarters. I will begin with a quick overview of profitability before moving on to slide five. Operating income and adjusted EBITDA were up significantly from Q3 of fiscal 2020. The increase is primarily attributable to the gross profit outperformance by Brazil, further aided by robust results from Asia. Operating income and adjusted EBITDA in the just completed quarter included two specific expense items that are worthy of additional commentary: first, we recognized the remaining fiscal 2021 maximum bonus expense in Q3 of fiscal 2021 due to the overall outperformance of Unifi's adjusted EBITDA from our consolidated business. As such, we recorded approximately $2.4 million of expense in the just completed quarter that was originally anticipated for the fourth quarter of fiscal year 2021. Of this additional expense, approximately 2/3 affected SG&A expense and the other 1/3 affected cost of sales. Second, as our installation of new eAFK Evo texturing machines in Yadkinville, North Carolina continues to ramp up. We disposed of some older machinery with remaining book value, generating a noncash loss of $2.5 million in this third quarter. This was included in other operating expense in the income statement and was not added back to our calculation of adjusted EBITDA. Now, let's turn to slide five for net sales. Consolidated net sales increased to $178.9 million, up 4.6% from $171.0 million in Q3 of fiscal 2020. For the Polyester segment, prior period sales volumes were boosted by the finalization of antidumping trade petitions against China and India, in combinations with customers accelerating purchases in February 2020 and in anticipation of April and March 2020 lockdowns. The Asia segment exhibited a return to pre-pandemic momentum with continued underlying demand from REPREVE, driving segment revenue growth of 25.5%. The Brazil segment maintained it's position of market strength, adjusting prices to accommodate movements in global pricing dynamics and competition, driving 22.1% revenue growth in spite of a much weaker Brazilian real than one year ago. The Nylon segment was essentially flat to the prior year with a shift in sales mix after the first three months of impact from the recently completed Fiber and Yarn acquisition, which was a positive contributor to both revenue and profitability for this segment. Slide six provides an overview of gross profit, exhibiting the 66% increase in gross profit and 530 basis point increase in gross margin from Q3 fiscal 2020 to Q3 fiscal 2021. Gross profit for the Polyester segment increased $190,000 as the shortfall in sales volume was more than offset by an improved sales mix. The Asia segment was able to increase gross profit by $2.6 million or 290 basis points from an improved sales mix and supply chain efficiencies. In Brazil, we were able to triple gross profit from $3.4 million to $10.6 million and achieved a record gross margin of 41.2% due to higher pricing levels underpinned by a strong market position. The Nylon segment was essentially flat in comparison to Q3 of fiscal 2020. Slides seven and eight include a net sales overview and gross profit overview, respectively, for the nine months ended March 2021 versus March 2020. Those two slides exhibit the momentum that we have addressed elsewhere on this call as our dynamic global business model has been able to capture opportunities during this business recovery. Moving on to the balance sheet on slide 9. Stability in our debt and liquidity positions is demonstrated by maintaining diligence around working capital components and generating cash flows while completing two bolt-on acquisitions during this fiscal 2021. Great progress recently on our net debt metric, we continue to have 0 borrowings on our ABL revolver, which had an availability of $63 million as of March 28, 2021. Unifi's commitment to financial health has allowed us to leverage our strong balance sheet during 12 months challenged by the global pandemic. We will continue to allocate CapEx to new eAFK Evo texturing technology in the Americas. Under our balanced approach to capital allocation, we will continue to invest in the business to drive innovation and organic growth, maintain a strong balance sheet and remain opportunistic with share repurchases and M&A opportunities. I will now turn the call back to Eddie to take us through the last slides of the presentation and make some final comments.

Thank you, Craig. I will conclude with slide 10 of the presentation and provide some context around our expectations for the fourth quarter of fiscal 2021. You will note we were able to include more detailed forecast information than we have been able to provide in the past couple of quarters, as our business visibility continues to return to, let me say, more normal levels. The third quarter's strong performance supports the expectation we laid out earlier in the fiscal year that we will see incremental progress in net sales trends throughout fiscal 2021. We are encouraged by recent sales trends in our REPREVE and other value-added products and expect recent strengths to continue. With this sustained business momentum, the company anticipates sales volumes to increase and June 2021 quarter net sales to improve sequentially on the March 2021 quarter by approximately 1% to 3%. Adjusted EBITDA for the fourth quarter of fiscal 2021 is expected to be in the range of $12 million and $14 million and includes our current expectations for the following: pandemic uncertainty, especially following a quarter of record performance from the Brazil segment; raw material cost increases that occurred in the March 2021 quarter that will adversely impact gross profit for the June 2021 quarter due to the inherent lag in responsive selling price adjustments, with those impacts partially offset by a lack of incentive compensation expense due to the full recognition during the first nine months of fiscal 2021. Lastly, we expect an effective tax rate of between 45% and 55%. And given the momentum from the third quarter, our fourth quarter CapEx should fall in the range of $10 million to $12 million. I believe our strong performance during the just completed quarter reflects the resiliency of our global business model and what we can achieve under normal market conditions. Going forward, we continue to focus on managing our costs, selling prices and working capital to drive gross margin improvement, using our innovation to partner with global brand leaders interested in sustainable products in an effort to diversify and grow our portfolio, and maintaining our strong financial position and strong balance sheet to expand opportunities through further organic growth and strategic M&A. We will now open up the line for questions. Thank you.

[Operator Instructions] Your first question comes from the line of Chris McGinnis with Sidoti & Company.

It was a nice quarter. If we could start off just on the raw material. A lot's changed since, I think, the last time we've seen Unifi in a pretty volatile period of raw material. Can you just talk maybe a little bit about maybe the strength and the relationship with the customer base? I think the big thing is REPREVE growing to a bigger percentage of sales. Does that change the positioning to get price increases through quicker? Can you just talk a little bit about your thoughts around the increases and how easy you can pass it along?

Yes, Chris, thanks for the question. We have experienced, like we said, significant raw material increases that we weren't suspecting this, but I think what happened in Texas really highlighted for a lot of people, some of the difficulties with some of the supply chains. Fortunately, we weren't impacted from a supply chain point of view. But from a raw material point of view, we do traditionally lag increases. We give our customers time to adjust. What we're doing is no different from all of our competitors. But I do believe that during this Q4 -- by the time we reach out of Q4, most of the raw material increases that we have to pass on to our customers due to raw materials will have been implemented. There will be some residual that will be -- will happen in the beginning of our new fiscal year due to the indexing that we have with some of our customers. But I think the environment is everybody knows raw material prices are going up. There is inflation and it's a natural take from our customers, albeit they don't like it and we don't like passing it on, but we are managing to get from that. I think on the REPREVE side, that is because we've had increased demand in the region, particularly in the U.S. and Central America, we -- certainly, people understand that because of the strength of our brands and because of the tightness in the market for recycled products, we're able to get the full increase there during this quarter. Thank you.

Great, thanks for that. And I guess just to stay on REPREVE, it sounds very successful, obviously, and seems to be ramping up. Can you just talk about the changes of the conversations you're having? Is it just the environment being pushed by the consumer? Where are you seeing the biggest kind of, I guess, request as you start to see this increase in demand come in from -- on the sustainable side?

Well, as you said, it is driven by the consumer. But what, I think, the big point is the brands that service the consumers, they are recognizing that the consumer wants this. And we're in the right -- we're in the sweet spot to be able to deliver that globally, both here and in Asia. So if you look at the Nike's new sustainability report that the commitments they're making around sustainable products. If you look at Walmart, so whether it's a big brand or a big retailer, everybody is out there declaring sustainability targets. And a lot of that is due to the inputs. And polyester is a perfect product because it can be recycled and it is recycled at a very high rate around the world. And with our REPREVE brand, that has transparency and traceability and gives that brand comfort, we are the natural go-to company to supply that sustainability needs.

Chris, this is Al. I just wanted to add to Eddie's answer. I can't be precise on this but sometime around August and September, as we moved through COVID, it just appeared that the momentum went up for environmental sustainability pretty significantly. When we started seeing that, the discussions went up. Also, just one observation is some of the key leaders in these retailers and brands are millennials. They're starting to get to that stage of their careers where they're taking over pretty big roles in these companies. And they're starting to get close to the 2025 commitments that some of these companies have in terms of the amount of recycled material they include in their products. So if you have a goal by 2025, you got to get moving now; otherwise, you miss the goal and I don't think any of those companies want to do that.

Sure. And I appreciate that. Thank you very much.

Your next question comes from the line of Daniel Moore with CJS Securities.

Yes, thank you. Good morning. Just really quickly, Tom, if you are on the call and if this does mark your last call in official capacity at Unifi, just thank you for all the help over the years, and particularly, your candor and straightforward approach. It's been really excellent to work with you and refreshing, so thank you. Just want to maybe touch on the North America first. Poly flipped to positive growth in March, I think I heard. Do you expect that to continue into Q2 and beyond, particularly given kind of easier pandemic-related comps? And any further color or update on the trade dispute progress would be helpful.

Thanks, Dan. I'm sure Tom will appreciate that comment. Regarding North America, we are continuing to see growth in demand. And we do see this continuing in Q4 and then -- and beyond. And the beyond part is definitely related to the antidumping initiatives that we took place that we initiated back in December. We'll get a preliminary ruling sometime in late May, sometime early June, and that will, we think, be the emphasis to further accelerate the growth of volume in North America, particularly in the U.S.

Very helpful. And maybe just dig into Brazil a little bit. It's kind of been boom to bust to back to boom. Is the COVID crisis -- is the -- is it limiting competition? Is that a big factor in margin -- the big margin gains, number one? And number two, just how do we think about how -- what's kind of a realistic sustainable gross margin level on a longer-term basis?

Yes. I think there's two questions and one is on the volume side. And yes, the retail environment did get constraints late March and then into April. We are seeing the retail environment open up, and that is giving us confidence that the volumes as we -- and this quarter, this April through June period, the volumes we expect to return to normal. Margins were exceptional, as you know and that was pretty boom boom-ish. And we do believe that it will come back to the normal margin range. But because the volumes will be up there, the total gross profit in the business will be, going forward, something that we'll be quite pleased with.

Okay. And just last housekeeping; what's driving the tax rate in Q4? And what's an expectation for a more normalized rate as we think about fiscal '22?

Yes. I think, Dan, for Q4, we've got a mix of earnings, U.S. and internationally. We are catching a bit of a higher rate because of more tax on the GILTI high tax here in this nine month period that we just completed. We're also expecting that in June as well. We're not able to use as much foreign tax credits as we have in the past periods as well, so that's driving a bit of a higher rate. Going forward, we think that will normalize a little bit. Really, the key for that is as we continue to improve the profitability in the U.S., that has an overall balancing or blending impact that's favorable to Unifi, and that will push down the rate a little bit more in the long term. So as we look out longer term, it will be a more reasonable rate than that kind of large rate that we're expecting for Q4.

All right, congrats. Momentum looks forward, more surely.

Thank you.

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

Good morning, everybody. Thank you for taking my question. I was wondering if you could kind of follow back up on Brazil here. I mean, the last quarter -- well, this quarter, obviously, you had very good performance and last quarter also as well. And I believe on the last call, we were kind of talking about this performance, and there was some expectation that you'd have some sort of a competitive response in this quarter. That doesn't seem to sort of played out the way maybe you were anticipating. Maybe if you can kind of share some color in terms of what's sort of going on with competitive dynamics in that market that, I guess, sort of allowed you guys to have spectacular performance once again here in Brazil.

Good morning, Marco.

Good morning.

Marco, thanks for the question. This is Eddie. Yes, it was a remarkable quarter and it did surprise us. I think the team down there is just very agile and really know how to react in certain market conditions. And so the biggest competitor we have in that market are imports. And with the volatility of the currency and with the uncertainty of the pandemic, we did see the opportunity to gain market share against these imports and against one other local competitor down there. So we do think we can maintain our market share going past this current Q4, April through June period, where there is slowing in demand. So we expect to see volumes bounce back to the recent normal in our new fiscal year starting in July. So, the agility of that team and their ability to capture both margin and volume growth has been something that they've been prepared for. They've been working on for quite some time, and the time is right for them to take action and to come to the front and really make a big dent in our EBITDA way beyond what we had thought. So bottom line is we expect to continue to keep our market share and be able to maintain that position. Thank you.

Understood. And then on REPREVE, obviously, you've been getting some very nice momentum there, a lot of excellent marketing and co-branding with your customers. Just kind of wondering, when you look at your approach to this market and the co-marketing you have with your brands, if you could maybe share anything you might have learned over the past 12 months that maybe are sort of changing or helping drive additional marketing efforts with your brands. And then if you can, over the next 12 months, maybe sort of paint the picture as far as what sort of, I guess, for lack of a better word, end market applications you kind of see as biggest drivers for the growth of REPREVE.

Thank you. Yes, what we've learned, I guess, is life goes on even during the pandemic. And we were able to continue to build these relationships with companies like WM and Disney, for example, which we talked in the last call. We do know that we were unable to put a lot of our marketing efforts physically out there. We have the mobile -- REPREVE mobile tour that goes -- traditionally gone from place to place physically to celebrate REPREVE and a sustainable story of our brands that we service. So that was sort of off the roads. This year coming up, we will be doing a lot more physical events and -- but at the same time, the social media platforms that are out there, we see them as being very, very useful to the cause. And as Al had mentioned, the driver of sustainability is occurring from these younger generation. And the younger generation is very social media-savvy, and we will be utilizing those platforms a lot more in the coming 12 months. And the question around where do we see the growth; we do see growth in automotive. We do see growth in apparel, of course, but also in home. This is an area that we've begun to focus on more closely. And myself did made a presentation to the furniture market, global furniture market here in High Point and was very well received, and we've had a lot of traction from that. The supply chain takes a while to transition over to sustainable products, but definitely in home furnishings, we'll see nice momentum in the coming 12 months along with automotive.

Understood. Thank you very much, Eddie. I appreciate it.

Your next question comes from the line of Gus Richard with Northland.

Yes, thanks for taking my question. Just on the supply side on REPREVE, these relatively low recycle rates for PET plastic. And I'm just wondering in your supply chain in that product, do you have constraints if demand continues to grow at a rapid pace? What do you need to do to make sure you can fulfill the demand?

Thanks for that question, Gus. Of course, we sell REPREVE globally. In the U.S., they are certainly lower than desired recycling rates. I think the latest estimate is 28% to 29% of bottles get recycled. Of course, in Asia, in China predominantly where we have a lot of our business. They're up into the 85%, 90% recycling rates due to the informal collection systems that are in place and the value relative to some of this working income. I think on the U.S. side, we are a little bit concerned. But again, we are -- we have a brand that grants a lot of power. And so companies like Waste Management, if bottles do get tight, they'd prefer to sell the bottle to a company like Unifi and REPREVE that can bring those bottles back into meaningful end uses. So, I do think the U.S. will grow the collection rates as the demand for recycled bottles grows. It's a very market-driven environment, so we do expect the very poor recycling rates of 28% to grow in the coming years. And the fact that it is so low here in the U.S., we see it as an opportunity. So if it wasn't 90%, there'd probably be more concerns.

Got it. And internally, do you need to add manufacturing capacity to handle that product or just any other CapEx requirements for it?

Right now, we don't. We are going to expand our CapEx spend, obviously, in the coming years. And some of that will be based on the circular economy, Textile Takeback, fabric to fabric markets. But from a REPREVE course, REPREVE res, we do not need to expand right now our assets for that to meet that supply.

Got it. Thank you so much.

Thank you, Gus.

Thank you.

We have no further questions. I will now turn the call back to management for closing remarks.

Thanks, everyone for participating today. Our next earnings release for the fourth fiscal quarter ending June 27 is tentatively scheduled for Wednesday, August four after the close of the market, with a conference call to follow the next morning, Thursday, August 5, at 8:30 A.M. Eastern Time. Thanks, again, for joining today's call.

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