Unifi, Inc. (UFI) Q1 2022 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by. And welcome to the Unifi’s First Quarter Fiscal 2022 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] I would now like to hand the conference over to your speaker for today, A.J. Eaker, Vice President of Finance. Thank you. Please go ahead.

Thank you, Jay, 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, everybody. Thanks for joining the call this morning, as we’ll be discussing Unifi’s first quarter performance for fiscal 2022. So, I’ll start with a couple of broad themes for the first quarter, then I’m going to turn it over to Eddie Ingle, our CEO, and then Craig Creaturo, who is our CFO, and they’ll give you the performance review, then we’ll go to Q&A. So, the first quarter results are very good. Looking at it from both, year-ago comparisons and then to go back to two years ago comparison pre-COVID, revenues were up 39% and versus two years ago, they were up 9%, so, the pre-COVID timeframe. EBITDA grew 119% versus year ago this quarter -- this year, and then up 62% versus two years ago. So, both give us a strong start for fiscal 2022. In fact, it gives us confidence to firm up our full year guidance, and increase it modestly, even after considering the impact of some of these micro -- macro headwinds that we’re looking at right now, such as labor, raw material increases and supply chain challenges. So, Craig and Eddie will take you through those details in the next few minutes. But, here are four trends that we’re seeing coming out of the first quarter. The first one is the diversity of our geographic portfolio which is a strong positive for us. So, this quarter, Brazil and Asia had very strong Q1. North America came in right about what we forecasted, but they could have done better. Labor shortages in the U.S. kept us from producing to demand, and we expected that that headwind’s probably going to persist through quarter two. And then, the second half of the year, we expect to see some improvement in that trend. Then, I think you can expect North America to start contributing more to our growth. The second trend coming out of the first quarter was REPREVE sales growth continues to build. So, if you look at REPREVE sales versus year-ago first quarter, was up 39%. And then, from two years ago, pre-COVID, it was up 27%. I think, customers right now are continuing to step up their commitment to recycled materials in apparel and footwear and auto. And we’ve had numerous positive customer wins over the last quarter. The third trend is productivity and the investment in EvoCooler technology in our operation will provide strong long-term productivity. And we’ll begin seeing a little bit of that in the fourth quarter of this fiscal year. The production on the current small scale that we rolled out is meeting our expectations in terms of efficiency and output. And the fourth trend is labor. And labor in the U.S. is a challenge right now. Our manufacturing and HR teams have been working on the obvious fixes such as labor rate and benefits to make sure that we remain competitive in the marketplace. However, they discuss that -- they discovered several longer term solutions by conducting frontline employee roundtables in our plants. We’ve asked our employees what can we do to make their jobs more fulfilling and to keep them with us for a longer time. And they’ve come up with several very interesting improvements that are pragmatic and they’re being implemented, everything from the quality of training and the amount of training to changing the way that the work gets done. We sometimes forget I think that the employees that are closest to the action can solve problems probably better than anyone else in the company. So, we’ll share more of this with you in the upcoming quarters. So, all-in-all a good start for the fiscal year. There’s still a great deal of work to do, but we’re optimistic about the outlook. So, at this point, let me turn it over to our CEO, Eddie Ingle, for a continuation of the presentation.

Thanks, Al, and good morning, everyone. As Al mentioned, our first quarter fiscal 2022 results surpassed our initial expectations. And the strong results reflect the flexibility of our global business model, our strong presence in each region, and the hard work and dedication of each and every one of our employees who, as we like to say at Unifi, are working today for the good of tomorrow. We continue to be grateful for the daily contributions our employees make to our company and to our customers. Their commitment to Unifi has allowed us to continue operating a strong business while navigating the recovery. So, I thank them for that. On slide 3, we provide an overview of the quarter. And as Al said, we are executing very well, driving growth and proving out how resilient our business model has become. Q1 revenues were up 6% sequentially, slightly ahead of expectations, and up 39% on a year-over-year basis. Alongside our focus on meeting customers’ expectations, the growing demand for our core products and product lines in each region contributed to the increased revenues, which of course naturally translated into significant year-over-year profit growth. Despite Q1 exceeding our initial expectations, we had to navigate several cost headwinds and input constraints. Hiccups in the supply chain from global logistics stoppages and domestic labor shortages placed even more pressure on each business segments. Despite these difficulties, our team’s quick actions ensured no meaningful disruptions to our lines of business. I’ll breakdown our execution as well as some of the challenges we faced during Q1 by region. In Brazil, the volatility remains post the regional shutdowns that impacted our business in April and May period. In fiscal Q1, the volatility in the market was driven by the rise in freight costs from China, the uncertainty in the exchange rate and the rising cost of textured yarn in Asia, all of which has increased the local market price for textured yarn. The situation has been compounded by inflation concerns, which are increasing at a pace not seen in several years. Early indications are, this may have some impact on demand. However, this may actually result in customers consuming more locally produced yarns, which would help us gain market share. This is something that will remain on our radar as we move through the rest of the fiscal year. And we will keep you updated on this. Despite all of this, as you can see, we had another excellent quarter in Brazil. In the U.S. and Central America during the quarter, we continued the process of catching up with raw material and other cost increases through proactive selling price adjustments. We have additional work to do in this area. As we can already see that polyester and nylon raw material prices are rising as a result of the recent increase in crude oil prices. While this is a very painful process, it is something our customers are facing too. And like us, they’re having to pass on their input cost increases to their customers. And the U.S. specifically, like many other businesses, also faced labor challenges. We see this as an opportunity to become a federal employer and are allocating more resources into training and retention. Fortunately, the elimination of the federal subsidy at the beginning of September has once again brought more people into the workforce, and we’re taking advantage of that. It should be noted that the impacts of COVID are still being felt, primarily in our manufacturing plants, resulting in us having to quarantine a number of employees. Unfortunately, we have also lost a few of our employees to the virus, and our thoughts go out to their families and friends. Lastly, we have experienced a few delays in the supply [Technical Difficulty] extended lead times of certain products, but nothing that has truly disrupted the business. And in Asia, we experienced a very positive start to quarter. We continued sales increases in our REPREVE brand and other value added products. As you’re aware, there are some concerns at the Chinese central government level around energy consumption and air pollution levels, and this placed some pressure on the business at the very end of the quarter. We are seeing minor caution from customers and suppliers who are battling COVID lockdowns and energy costs. This situation remains volatile and introduces some uncertainty for the short term. We do expect to overcome these challenges in the next few months as the demand is usually strong, leading up to the Lunar New Year, which this year is at the very beginning of February. Now, turning back to the consolidated business. It’s great to see the progress we have made towards our fiscal 2022 and longer term goals in the face of these multiple headwinds. We remain committed to maintaining a solid financial position. And our current balance sheet provides a strong backbone for us to execute on growth-focused capital allocation priorities. Beyond the financials, we continue to observe a growing number of customers shifting their commitments to making products using recycled material. During the first quarter, we shipped more than 23 million hangtags to brand customers. You will note that on slide 4 products made with REPREVE fiber comprised 37% net sales -- consolidated net sales, increasing from 36% in the first quarter of fiscal 2021. This growth is regional, and is primarily in our Asia, U.S. and Central American revenues. Our REPREVE momentum into new textile sectors and multiple brand adoptions across Europe has been very strong. Last month, TenCate Protective Fabrics, a traditional workwear, an industrial textile company from the Netherlands, began marketing its Tecapro line of workwear, using Inhibit -- taking REPREVE Inhibit, taking REPREVE further, beyond traditional fashion textiles and into protective wear. This is the first time our multifunctional REPREVE Inhibit value-added combination is being used in flame-retardant workwear to add in a sustainable twist to a highly durable product. TenCate chose REPREVE Inhibit for quality, reliability, reputation, traceability and transparency. And we’ve been excited to help them to tell the sustainable and flame retardant story through a variety of co-marketing mediums. REPREVE’s strength in the Turkish market continues, with a new line of denim by Mavi Jeans. Mavi Jeans launched a nationwide TV commercial that showcases their adoption of recycled polyester in the new line of jeans. Other recent adoptions by European brands include French brands Jules and the German brands, Marc O’Polo, Joop and Street One, owned by CBR Fashion Group. One of Inditex’s brands, Massimo Dutti has continued to roll out products using REPREVE Our Ocean. In the U.S., we continue to see strong co-marketing in the men’s wear segment. Haggar has launched a new line of suit separates in a variety of fits under the name Smart Wash REPREVE suits. I know from talking to employees and having direct conversations with them, it’s a proud moment when they walk into Kohl’s or JCPennys or go online and see this iconic U.S. brand shout out the sustainability story, just based on REPREVE. Going outside of the apparel market, our placements in the global homes goods sector continues, with a new launch of several Sealy mattresses in Canada that feature REPREVE. Now, turning to our operating segment performance during the first quarter, I will provide some high-level comments before Craig walks you through more specific details. Strength in our polyester and nylon segments persisted in the first quarter and benefited from strong sales momentum with robust customer demands. Our commercial and manufacturing teams have done tremendous job navigating the headwinds I mentioned previously, and we remain optimistic about the sales mix and pricing dynamics going forward for this segment. The Asia segment demonstrated another strong quarter and volumes increased due to pull through on new and existing customer programs. Shutdowns and uncertainty in Vietnam and Southeast Asia have not impacted us perhaps as much as other companies, since it’s a smaller part of that business. While we do anticipate some soft spots in China, based on new temporary shutdown mandates related to managing energy levels there, businesses are still running, and the demand for sustainable yarns has never been higher. I’m confident that the team’s continued focus on meeting their ever increasing sustainability and value-added demands of their customers would help us weather these challenges. As mentioned by their financial performance, the Brazilian team has continued to do an exceptional job. During the first quarter, the strong price mix performance increased sales over 50% from a year ago quarter, driving more than 100% increase in gross profit dollars. Looking forward, we continue to anticipate a degree of moderation in profit from this region with the full year gross margin settling just below 20%. Before I turn the call over to Craig, I will provide a brief update on our current trade actions. Last week, the U.S. Department of Commerce announced its final determinations that imports of polyester textured yarn from Indonesia, Malaysia, Thailand and Vietnam are being unfairly sold below their fair value in the U.S. The final antidumping duty deposit rates range from 2% to 56%, and are currently in effect. The next step in these trade cases will be the U.S. International Trade Commission’s final determination, which is scheduled for November 30th. With that, I will pass the call over to Craig. Thank you.

Thank you, Eddie, and good morning, everyone. Like the rest of the team, I’m very pleased with our first quarter fiscal 2022 operating results, and wish to thank our employees for all their efforts and achievements in the just completed quarter. Beginning with our consolidated results, we were able to achieve revenue and gross profit performance ahead of our initial expectations for the quarter from the August 2021 earnings release. And we generated significant increases in operating income, earnings per share, and adjusted EBITDA when compared to the first quarter of fiscal 2021. The remainder of our financial statement metrics were generally consistent with our expectations as it relates to overall SG&A spending, our effective tax rate and the amounts outlaid for capital expenditures and working capital associated with our investments in the business and our strong sales performance. Turning to slide 5 of the webcast presentation, consolidated net sales increased 38.5% from $141.5 million to $196 million, primarily due to business recovery we have seen over the last five quarters of sequential sales growth. For the polyester segment, the single digit volume change was muted partially by the labor pool challenges, Al and Eddie mentioned earlier. The pricing mix change demonstrates the selling price adjustments that have been made over the last several months in response to rising input costs. Although we have not fully normalized the portfolio for today’s cost levels. In Asia, the sales volume growth again demonstrates new and existing customer programs that continue to be successful on the REPREVE platform, while higher pricing associated with raw material costs was offset by a greater mix of lower priced products. In Brazil, momentum surrounding higher pricing and market share continued to benefit revenues as pricing was up over 50%, driving a significant change in quarterly revenues for that segment. And nylon exhibits stability with much higher sales and production volumes to start off fiscal 2022. Turning to slide 6, polyester demonstrated significant gross profit and margin improvement, despite labor and efficiency challenges in the current environment and some pricing lags. The gross margin increase of 260 basis points is very commendable under today’s circumstances. The Asia segment’s volume growth led to a $2.4 million improvement in gross profit as that segment continues its strong year-over-year growth trajectory and remains a significant component of the global commercial model. In Brazil, our agility against competition and commitment to deliver high value to the market allowed us to maintain strong pricing levels and market share, double gross profit and driving margin improvement of 910 basis points. Lastly, from a segment performance perspective on slides 7 and 8, we’ve included a two-year GAAP comparison for enhanced understanding of this just completed quarter’s performance. Slide 7 shows the consolidated sales increase of 8.9% from the same quarter two years prior, lifted by a healthy combination of volume, pricing and mix across our segments. Slide 8 provides a gross profit overview for the two-year comparison. Shown here, the polyester segment exhibited strength against the previously discussed headwinds, the Asia segment exhibited a 430 basis-point increase in gross margin with recent mix and efficiency gains, and the Brazil segment exceptional performance is highlighted with a comparable doubling of gross profit. Again, we are pleased with the progress made across our portfolio over the last several quarters. Moving on to slide 9, which provides a brief update on our balance sheet and capital allocation priorities. We continue to have zero borrowings on our ABL revolver, which had an availability of $74 million as of September 26, 2021. Under our balanced approach to capital allocation, we expect to 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. Before I pass the call back to Eddie, I’m pleased to announce that Unifi will be hosting an Investor Day event in February 2022. The event will be hosted by our leadership team at our manufacturing facilities in North Carolina. We believe it’s important for our investors to explore our world class facilities firsthand. For those who can’t attend in person, we will webcast the event. More details will be released on this event in the near future. I’ll now pass the call 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 remainder of the fiscal year. You will note from the earnings release that we increased our fiscal 2022 outlook, and the great start from Q1 gives us confidence in our team’s ability to achieve our targets. However, doing so will mean continuing to remain nimble as we navigate the numerous market dynamics. These include inflationary pressures, particularly related to the cost of recycled inputs, energy shortages in Asia that have resulted in temporary slowdown for several of our customers and suppliers, uncertainty related to the continued impact of the pandemic and ongoing labor pool constraints in the U.S. Again, our team has done a tremendous job navigating all these headwinds, and I believe they will continue to do so. We will keep a close eye on all of these issues as we progress through each quarter. Looking forward, we are excited by recent trends in our REPREVE and other value added products. Our expectations remain positive on these developments and will continue to be driven by our innovation and commercial teams, and we anticipate them to grow long-term. Our strong performance during the first quarter reflects our regional focus, global commercial model, innovation pipeline, and the upside potential each has even when stressed with challenges in the broader market. For the second quarter that ends in December 2021, we expect net sales to range between $185 million and $190 million. And after consideration for a seasonally higher SG&A level, some normalization of Brazil segment profitability and recent increases in oil prices, we expect to achieve an adjusted EBITDA between $14 million and $15 million. For the full year fiscal 2022, we expect sales to surpass $750 million, representing a 12% or more increase from fiscal 2021’s revenues. We expect adjusted EBITDA to grow from the fiscal 2021 level and a range between $65 million and $67 million. And our effective tax rate guidance remains in the range of 35% and 40%, while our capital expenditures will range between $40 million and $44 million. We will continue to focus on partnering with global brands and retail leaders, who want to position themselves using sustainable products. As stated on previous calls, we believe the importance and demand for sustainability will only grow, and consumer behavior attests to that. We’ve remained dedicated to innovating and repositioning the business to drive long-term organic growth. We will now open the lines for questions.

Thank you. [Operator Instructions] Our first question comes from the line of Chris McGinnis of Sidoti & Company. Your line is open.

Good morning. Thanks for taking my questions, and nice quarter. Just maybe to start, just with the guidance, can you just walk through, I guess -- obviously you’re seeing inflationary pressures around raw materials and labor. But, I guess, when you look at, even from this quarter, you just posted, can you just talk about the step-down in the profitability and then also, I guess, timing of when you think you can get that pricing through? And then, the second question just related to that is, just with the increase in REPREVE pricing, are you seeing any pushback in terms of adoption? Thanks.

Sure. Yes. Chris, I think -- this is Craig. For the full year, we were very pleased to move that full year guidance up, part of that is built on what we’re seeing -- or what we saw, what were able to achieve in the first quarter, but also a refined look at the balance of the last three quarters of the fiscal year. So, we are pleased to be able to do that. For the upcoming second quarter, we do continue to expect a return to normal profitability or closer to normal profitability for our Brazil segment. That has been included in our forecast. As we said in the intro to the forecast in the press release, we do have some headwinds that are out there. We’re fortunate that the supply chain issues and challenges that many companies have faced really did not impact us during the first quarter, but we know that’s out there. We do have some continued cost challenges and cost changes that we are moving on and cost adjustments, pricing adjustments with our customer, that’s out there as well. And we know seasonally that December quarter usually is a little bit lighter of quarter. It does include a normal shutdown period that will happen right at the very last week of our fiscal quarter by the way the calendar breaks this year. So, I think we were able to give some specific guidance on sales and adjusted EBITDA for the quarter. And we feel like we’ve taken into consideration the headwinds and tailwinds that we are seeing in the market today. On the REPREVE part, I’m going to Eddie answer that part of your question.

Yes. I think, Chris, the question is both around pricing and then also REPREVE pricing. And generally speaking, it’s the U.S. where we have the challenges around the price adjustments that are necessary. We do have quite a bit of our business that our index, so we generally will lag in a quarter as the raw materials increase, especially in our polyester segment. But, I’ve been actually very pleased with the speed at which we’ve been able to make these adjustments, but we are still lagging. It’s going to take a couple of months for all of those price increases to get through the system. As I said on the call earlier, it is a very painful process. A lot of our business, especially in Central America is a power based, and these programs that our customers take -- in the past, they’ve made price commitments for quite some time. But, we are making the different decisions and we are passing on these raw materials and cost increases as necessary, but it will take us a few more months to get it all through. On the REPREVE pricing, that’s been a bit more challenging an aversion because of the cost, especially in the U.S., of bale bottles has gone up much faster than the virgin raw materials. But we are getting our price increases margins being squeezed a little bit right now. But, as we move through this quarter, we expect that to fully be realized, any cost increases that we need.

Next question comes from the line of Daniel Moore of CJS Securities.

I wonder if it’s possible to quantify the impact of -- you mentioned labor shortages on the polyester revenue. And was there any measurable corresponding margin impact given lower absorption in the quarter?

I would say it’s difficult to quantify. I will say that we have baked the cost increases into our model. It’s interesting, as both Al and I talked about, it’s a new world for employees right now and it’s a new world for employers. And we’ve realized that we’ve been lacking some of our training efforts. So, we are going to spend more money on training, retention. We feel like our benefits and pay package are appropriate. And so, our job is at the HR level and manufacturing levels to be the employer of choice in the areas that we work in North America. And I don’t think it’s an easy task. It’s not going to be something to change overnight, but certainly we’re on the right track. But the costs that are built into our model are there. So, I don’t think we’re going to see any surprises in Q2 for them.

Helpful. And maybe can you provide a little bit more color on -- you mentioned in press release moderate headwinds in poly from import competition. And related to that, in terms of the tariff impact, do you still expect to achieve a full $20 million revenue benefit, either in fiscal ‘22 or on a run rate?

Yes, on a run-rate in fiscal ‘22, we do expect to see that. We are -- as this process has gone through, we had our hearing a few weeks ago and as we said, the final determination will be November 30th. We are expecting to pick up that volume as described in the full calendar 2022. So, no issues there. Something we were a bit disappointed that one of the specific importers from one country had a low rate, 2%, but on average, it’s going to be somewhere around the 16%. So, we feel good that it’s going to make a difference and gets us back on a fair playing field.

Very good. Maybe one or two more, just that input cost. Obviously, this is very, very remarkable period in terms of sharp and sustained prices in oil. If they were to reverse course, given the pricing actions you’ve taken, would you expect to get most of those back, and just us what percentages is on index? Just wondering if you could see any potential benefit over time there.

Yes. I think we’ve changed our pricing model over the last seven, eight months, we’ve had to. And because of the increase in input costs beyond the raw materials, I don’t think we’re going to get back to the prices we had before or the margins we had before. We’re going to -- generally speaking, as raw materials go down, we have to give up some of that cost, but we won’t be able to give up all of those prices -- increases that we have because of the fact that costs are basically higher and talking specifically here in the U.S. So, I don’t see us having to give back all of those. And I do think there’s an opportunity for us to gain some margin as the crude recedes, if it should do so. We are seeing crude in record highs the last week or so. But who knows how long it’s going to stay up there. And that increase in crude is translating into higher petrochemical costs. And we are going to have to push through some more price adjustments in this quarter for virgin polyester.

And then, just talk about, you mentioned, everybody kind of looks at the oil prices, we don’t see the bale bottles as much, but availability, still feel pretty comfortable with availability there. And obviously, you’re doing an exceptional job of pushing the price increases through. But just talk about what you’re seeing on that front?

Yes. On the bale bottle side, again in the U.S., we haven’t had issues getting bottles. We had to pay for them. But we haven’t had a supply issue at all. We generally keep enough inventory to where we give ourselves enough cushion to where maybe there’s a week where there’s some bad weather or some logistics issues we’re recovered. So, we’re not going to worry about the supply of bale bottles right now.

Okay. And lastly, for me, it sounds like the initial adoption of EvoCooler is going really well. Maybe talk about that and what that can do from you -- for you from margin and labor efficiency standpoint, as we look out beyond the next few quarters?

Yes. It’s a little early to describe that. We will be -- I think, as we get a solid phase of machines in place, we’ll be describing what benefit that’s going to be in more detail. But, all I can say is that, you put in new technology and sometimes you have to push very hard to make that technology work. I will say that we’re very pleased with what we’ve purchased. I’m very confident that it’s going to bring a lot of benefit to us we move through the fiscal year. Especially, as Al mentioned, in Q4, we’ll have enough machines that we will be able to really confirm what we think we’re seeing right now, but very confident in the technology.

Next question comes from the line of Gus Richard of Northland.

I was wondering if you could talk a little bit about sort of the exposures you have in Asia in terms of customer locations and places where the people you work with manufacture, which countries are you most sensitive to?

Much -- most of our business today, so -- in our Asia segment is in China. And while there have been these cutbacks in production because there’s some energy cuts by region and by city, we’ve been able to work through that. That hit us at the very end of September. So, it wasn’t really impacting Q1. In Q2, the first two weeks of October maybe saw some slowdowns a bit. But, we are still confident that as we go through this quarter and as the Chinese government does increase -- the pricing for energy, which brings more people back into producing energy and as more coal plants are starting back up, because it’s worth their while, we do see the energy issue abating as it goes through the quarter. So for us, it is mainly about China. Like Vietnam is a part of our business, but Vietnam seems to be now back to normal production levels. It’ll take a couple of weeks now for the all employees to come back. But, we do see that issue, that was COVID related, not energy related in Vietnam, going away. So, for us again, China, but we don’t see any issues there right now.

Okay. And it is primarily the energy going blackouts that are impacting you and not the COVID lockdowns that keep on popping up in China?

Yes. The COVID lockdowns really are impacting our customers who are trying to get stuff out of the country. A lot of the COVID shutdowns were at the ports, and that’s where we saw the sort of backlog happening.

Got it. Thank you. And then, just shifting to Brazil for a second. Could you give me a sense of what the percentage of REPREVE in Brazil is, what part of the mix is there?

Yes. As we said before, Brazil is at the very early stage of building its REPREVE business. We’re excited about what we’re seeing in the marketplace, some of the big brands service the U.S. and Western Europe are starting to get sort of pressure from their customers down there in Brazil. It’s a tiny part of our business right now, but we are going to build up business and invest in the marketing down there and pushing that. In fact, it won’t be a push. It would more be a pull for us as we move through the next few years. But, it’s a tiny part of the business right now. So, lots of opportunity. That’s how we see it.

Thank you. Next question comes from the line of Marco Rodriguez with Stonegate Capital. Your line is open.

Good morning, everybody. Thank you for taking my questions. I was wondering if maybe -- I may have missed this on the call, and I apologize if you addressed it. But, just kind of given all the supply chain issues that everybody was experiencing, can you sort of talk about what sort of sense you might have as it relates to your orders, if there is -- if you’re seeing any extra ordering from customers, any attempt for them to kind of get ahead of the curve, given the holiday season?

Yes. It’s a good question. Definitely, we are seeing people ordering -- again in the U.S. more yarn than they perhaps need, just to try and make sure they get everything they need. We are being very careful about making sure, if somebody traditionally is taking a certain amount of yarn, we’re only making for them what we know they can actually consume. But, I don’t think overall, I mean, the Christmas season is already done and dusted adjusted from a product manufacturer point of view. Anything we’re seeing now or making now whether it’s in Asia or Brazil or a U.S. is more going to be sold for Q1 of next year, because the supply chain is that long. But, we don’t see in an area really that being an issue.

Got it. Very helpful. And then, kind of circling back on the earlier question on the new texturing equipment, I know it’s still pretty early days. But, just kind of giving some of those -- again, the supply chain issues that are out there, is that on schedule or is anything going to be delayed do you think because again of supply chain issues and just getting the equipment from where you need it from?

I would say that we’re slightly delayed, but nothing that is meaningful. So, I mean, some parts we are having to air freight over, but we’re not -- no, it’s actually -- we’ve been pleasantly surprised with the work that our supplier has done to mitigate the supply chain issues. I think, they’ve been very proactive -- have been very proactive and making sure that we get priority. And obviously this order has been out there for a while, so they’ve been able to schedule containers. And because we’re on the East Coast, I think there is less pressure than there might be if we’re on the West Coast. But right now, we don’t have any meaningful delays in any of the startups of the equipment.

Got it. And then, in terms of the performance that you had during the quarter, obviously, obviously above expectations pretty much across the board. Can you maybe talk a little bit about what surprised you guys the most?

I think, Marco, the continued Brazil performance being higher than what we expected. That’s been a repeating theme that we’ve seen over the last several quarters. We were continued to be -- see very good strength in Asia, especially for REPREVE product. That continued to be ahead of where we expected. We did slightly over achieve where we thought would be profitability in North America. But, I think, it was kind of in that order. I think, Brazil had -- was the most upside versus what we had expected, and then followed by Asia and then followed by North America.

And I’d say, the labor issue is -- it’s not just us, it’s across every industry, it’s across every business that I can think of. But, I would say that it has affected us more in North America than I would have expected.

And that sort of segues into my next question, just on the labor, you had some nice comments in terms of sitting down with your employees and trying to figure out a way that you guys can become the leader or the place to basically work. Can you may be talk a little bit more as far as those additional costs, just kind of give us a sense maybe year-on-year, or versus some normalized environment. What sort of additional costs are going to be necessary that will be kind of a permanent picture of your operating structure going forward?

Yes. Like I said in the call, I don’t think we’re going to have additional cost. In fact, I think we’re going to end up saving money because when we reduce the turnover, our productivity improves. When we improve the training, we get to higher productivity sooner. So, I think actually, in fact, what we’re doing today is going to help our costs long-term rather than hard, to be quite frank about it.

Thank you. There is no further question at this time. And I would like to turn the call over to the management for closing remarks.

Thank you, Jay. And thank you everyone for participating today. Our next earnings release for the second fiscal quarter ending December 26th is tentatively scheduled for Wednesday, January 26th, after the close of market with a conference call to follow the next morning, Thursday, January 27th at 8:30 a.m. Eastern Time. Thanks again for joining the call.

Ladies and gentlemen, this concludes today’s conference call. Thank you for participating. You may now disconnect. Have a great day.