Unifi, Inc. (UFI) Q2 2022 Earnings Report, Transcript and Summary

00:03 Good day, and thank you for standing by. Welcome to Unifi’s Second Quarter Fiscal 2022 Conference Call. At this time, all participants are in listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised today's conference may be recorded. [Operator Instructions] 00:30 I'd now like to hand the conference over to A.J. Eaker, Vice President of Finance. Please go ahead.

00:36 Thank you, Liz 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. 01:01 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, forecast 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. 01:28 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. 01:37 I will now turn the call over to Al Carey.

01:40 Well, thanks, A.J. Good morning, everyone. Thanks for joining this call so that we could cover the Unifi’s second quarter results. I'll begin with an overview of the quarter. And then I'm going to turn it over to Eddie Ingle and Craig Creaturo, who's going -- who will take you through the details of our company's performance in Q2, and then we're going to have a Q&A after that. 01:59 So to get started, let me just say that I'm enthused about our company's growth potential, especially when you look at the 24% revenue growth in this quarter. But I want to say upfront that the under-delivery on profit for the quarter is largely due to U.S. labor shortages in our plants, which has hampered our ability to produce product to the customer demand. We expect that to improve and we'll talk more about this in the next few minutes. 02:26 On the sales front. Our demand for our products continues to be strong in Q2 and it makes it the six consecutive quarter of sequential growth. We're ahead of forecast and we achieved $201 million in sales, which is a milestone for us. The momentum is going to continue for the next two quarters and we feel confident to say that our revenue forecast could now be raised to $800 million in sales for the fiscal year 2022. 02:54 For perspective, you're going to have to go all the way back to 2003 to see the last time, we achieved $800 million in sales at Unifi, so it's a big move forward for us. We also expect the trend to continue beyond fiscal 2022, because we now have all three of our regional geographies with positive topline momentum and REPREVE brand continues to accelerate. So in this last quarter, REPREVE got to 40% of our mix, which is the first time we've achieved that level and the growth on REPREVE was above 30%. 03:26 We also see REPREVE expanding more rapidly into non-apparel products such as footwear, in automotive and industrial, furnishings and PPE. This is something that our team has been working on for about a year and it's coming into reality now and Eddie will talk about that in a little bit. But our retail brands and our customers are really moving forward with using recycled materials, so that they can achieve the sustainability targets in the 2025 goals and their 2030 goals. So it's been a very positive trend for our business. 03:59 Now a key point for this past quarter. Our Unifi’s sales revenue plus 24% versus a year ago, but the performance could have been better. It should have been above 30%, if we had the labor to produce for all the orders that were in hand in the U.S. plants. Now this labor shortage is something that's a macro issue, it's affecting our industry and many industries. It's the whole issue of higher turnover and difficulty hiring and training people fast enough to get them to replace the turnover people. That difficulty also comes with an extra cost and it’s causing inefficiencies in the plant for the time being. And it's also keeping us from producing to the consumer demand. 04:50 This dynamic that I'm speaking about on labor has caused about two-thirds of our $4 million miss for EBITDA in the quarter. The other one-third comes from not getting all of the pricing past the long to cover our costs in Q2. But I can tell you right now that those price increases have happened by January. So will the labor issues improve? And the answer is, yes. Our team has reacted by making sure that we're competitive on wages. We're investing quality training for our new people and we're even experimenting with new methods of managing our front-line teams and all of these things are beginning to work. But it will take a little bit more time as this recent COVID uptick has caused some quarantines in the plants, so that this labor issue will drift into Q3, but should see improvement by the end of Q3 and significant improvement in Q4. 05:48 For example, two weeks ago, we had 100 people in quarantine in the North Carolina plants. This week, we were 70 that should improve as the weeks go on. So we have our work cut out for us on U.S. labor, but we know what to do. We have strong sales momentum in all three geographies Brazil and Asia’s gross profit performance remained strong and REPREVE is now 40% of our mix. 06:12 On labor, we're listening to our frontline employees. We're trying to find out and we make sure that they feel that their jobs are more rewarding and they're proud of where they work. And interestingly, as we do extensive round tables in the plants. If you ask your people, how to accomplish this, they have most of the answers and then you have to act on them. 06:34 So finally, let me just say this, I really like the strong management team that’s assembled here at Unifi. I like the agility that they are demonstrating as we work through all the curve balls that the pandemic has been throwing us over the last two years and because of that, I'm quite certain that we're going to be a stronger company coming out of the pandemic, then we were going into it. 06:54 So with that, let me turn it over to Eddie Ingle, our CEO, who will take you through more of the details of our performance.

07:01 Thanks, Al and good morning, everyone. Our second quarter fiscal 2022 EBITDA results were lower than forecasted just three months ago. However, the revenue momentum we are seeing in several key areas provides us with a lot to be optimistic about going forward. We're also seeing volume growth across several market segments and this is encouraging. However, the quarter didn't come without its challenges. In particular, labor and input costs in the U.S. and Omicron is certainly added unforeseen pressures for our management team and our employees. 07:33 With that in mind, I think it's important for me to take a moment to say thank you to all our employees globally for their contributions, resilience and hard work as we navigate through -- towards a full recovery, while continuing to grow our business and deliver goods to our customers. I’m proud to be part of this company because of the work each of you do on a daily basis. 07:54 And moving into the slides, we will begin on Slide 3 with an overview of the quarter. As you can see, our revenue and volume growth was very positive and is in large part a sign of the continued demand for sustainable materials. Q2 revenues were up 23.7% on a year-over-year basis, which was ahead of our expectations and the outlook we provided last quarter. We talk a lot about improving customer experience at Unifi, and I can tell you it is difficult when you cannot meet the demands of the market. 08:21 By our estimate, had we not had the labor issues in the U.S., we could have potentially added another $5 million to $10 million in revenue during the quarter. And while there is a certain level of confidence within Unifi that we can better service to customer in the second half of our fiscal year, there are several challenges domestically that continue to weigh in the Polyester Segment. 08:38 During the quarter, performance was negatively impacted by inflationary pressures from labor and input costs outpacing our pricing levels. In the U.S., our most significant challenges in labor, as Al had mentioned and filling the open positions that strong growth has opened up for us remain the primary focus today. 08:58 We are doing the right things as an employer and continue to allocate additional resources towards training and retention. We have implemented new and improved training programs that we feel will lead to better results and reduce labor turnover. But there is a learning curve and it naturally takes time for workers to progress and gain the operating knowledge acquired to run the various machines in the manufacturing plants. 09:19 We do expect our current pool of trainees that started in Q2 to continue to increase their productivity and the contributions to be reflected in Q4. Further, our HR team is doing a great job at marketing to our local communities, the open positions we have today. And the expectation is that we are back fully openings with new talent over the next few quarters. 09:41 Lastly, we're opening up new overtime related opportunities for our most seasoned personnel. With all that said, of course, it should be mentioned that the escalation of COVID-19 has created additional short-term labor constraints for us in our manufacturing plants with up to 5% of our plant workforce currently in quarantine up from last month's number of less than 2%. This is, excuse me, this is creating additional pressure on our domestic labor situation. But as a country and a global community and as I talked to other CEOs in our industry, it seems that we are all facing the same challenges. We will continue to prioritize safety and our employees' health at the highest level, and eagerly await the time when the Omicron impact is behind us. 10:22 As we look forward, we expect U.S. labor challenges continue into the third quarter, but believe the situation should incrementally improve as we move to Q4 and into Q1 of fiscal year 2023. In recent quarters, we've been proactive in resetting prices to customers to keep up the increasing cost of raw materials. Now, with the inflation that we've seen in other areas of the business, we've had to institute additional price increases at the beginning of January. This was driven primarily by labor and other durable materials in the Polyester and Nylon segments. These increases should generate significant margin recovery as we move forward. 11:00 From a market segment perspective, we are seeing an uptick in the Denim markets in Brazil and is expected accruing off in the home furnishings and mattress market there. Our Asian business was stronger than normal in Q2 as apparel and shoe production in Vietnam opened up, the energy shortage in China subsided and the timing of the Lunar New Year being almost two weeks earlier than last year push demand into our fiscal year, -- first fiscal quarter two. 11:24 We saw a volume uptick in the U.S. and Central America, driven primarily by the demand for quick turn apparel and sock programs. Our automotive business was slower than normal in both Brazil and the U.S. due to the ongoing reduction in the production of light-duty cars and trucks. 11:42 So moving to Slide 4, let's talk about REPREVE. Our market awareness continues to grow and our customers' commitment to sustainable products is clearly expanding. As a result, REPREVE Fiber represented 40% of our sales mix during the quarter for the first time, an indication of the strong demand and growing momentum it is experiencing. Specifically, the H&M Circular Design Story collection launched in December, a sustainable initiative that focus on forward thinking design and innovative materials with circularity in minds. 12:15 The collection features REPREVE Our Ocean in multiple items including the puffer jackets and asymmetric dress, Kodak slim blazer, pleated shorts and suit vests (ph). Continuing with our momentum in Europe, German Retailer, Tom Tailor, launched a new Denim as part of their B part sustainable products collection, including Alexa skinny jeans, in addition to the existing line of jackets, scarves and slim shorts. 12:40 Next, Costco placements are continuing to grow across dry release (ph), space layers, Kirkland Signature socks and even more Denim. Outside of the apparel market to De Novo brands has expanded REPREVE into CAJA chairs, which is in the top three of market share in camping and sideline seating. We're excited about the breadth of REPREVE and the brand placements that continue to expand. 13:03 Now stepping back into the overall business. Our operating environment remains healthy outside of the U.S. labor tightness and we have seen no significant disruptions to our operations despite the Omicron spike. Customer demand has been strong across all segments. We believe our supply chain partners and our competitors are also experiencing the same headwinds that we've mentioned today. Our performance through these challenges makes us even more optimistic about what we can do during normal business conditions. 13:34 Financial performance in Brazil and Asia business segments remains solid and reflect the agility of the respective management teams and reacting to the ever-increasing changes in the marketplace. On a positive note, in the U.S., the installation and productivity for our new eAFK Evo cooler machines are meeting our high expectations, and the impact of the increased efficiency should be notable beginning in Q4 and beyond. 13:59 I'll close with a quick update on our current trade actions before handing the call over to Craig. In November 2021, the U.S. International Trade Commission determined that the U.S. textile industry has been severely impacted by imports from certain countries. As a result, the Commerce Department finalized antidumping duties on all subject imports in December 2021. Accordingly, we continue to look forward to an annual step up in sales for polyester moving forward. 14:30 With that, I will turn the call over to Craig. Craig?

14:34 Thank you, Eddie and good morning, everyone. As Al Eddie and A.J. mentioned, there were a lot of positive elements in the just completed quarter and we are focused on the specific actions being taken to improve our North American labor challenges. Demand for our products continues to grow at a very high level and our management team is focused on growing our business for the future. 14:56 I'll summarize the financial performance from the quarter as follows. We were able to achieve revenue performance ahead of our expectations, while the U.S. labor and employee cost challenges that Eddie and Al described dampened our ability to convert the strong revenue into similarly strong profitability. That profitability shortfall also unfavorably impacted our effective tax rate, because the step down and overall U.S.-based earnings did not allow us to fully benefit from certain U.S. tax attributes. 15:29 Let's turn to Slide 5 of the webcast presentation. Consolidated net sales increased 23.7% from $162.8 million to $201.4 million, continuing the trend of sequential sales growth since the pandemic began two years ago. The just completed quarter represents our sixth consecutive quarter of increased revenues and the first time, we have exceeded $200 million in quarterly revenues in over eight years. 15:59 For the Polyester Segment, the single-digit volume increase could have been better but was muted by the labor challenges Eddie mentioned earlier. The price and mix change demonstrates the selling price adjustments that have been made over the past several months in response to rising input costs, although, we have not fully normalized the portfolio for today’s cost left. 16:20 In Asia, the sales volume growth demonstrates new and existing programs that continue to be successful on the REPREVE platform, while higher pricing associated with raw material cost was offset by a greater mix of the lower priced products. In Brazil, year-over-year price levels followed market dynamics as this segment continues to exhibit strength in holding prices and market position, driving a price mix benefit of 33.3%, although lower volumes were the result of a comparatively strong quarter in the prior year. Nylon exhibited stability with much higher sales, production volumes and pricing levels to continue its fiscal 2022 recovery. 17:07 Turning to Slide 6 for the quarterly gross profit. For Polyester Segments $10.5 million decline in gross profit and weaker gross margin percentage are attributable to the labor and input cost headwinds. We attributed approximately two-thirds of the gross margin decline for this segment to the labor issues and approximately one-third to the input cost increases combined with the normal lag for customer pricing changes. We look forward to this segment quickly recovering in calendar 2022 from recent pressures. 17:40 The Asia segments volume growth led to a $2.0 million improvement in gross profit as that segment continues its strong year-over-year growth trajectory remains a significant component of the global commercial model. In Brazil, we've maintained much of our recently captured strength, demonstrated by a decline in gross margin from the exceptionally high 32.9% to a still very strong 27%. (ph) Despite the headwind, we pressured our U.S. operations. We are pleased with the combined Brazil and Asia double-digit percentage increase in both sales and gross profit. That great performance is even more prominent in the six months comparison on Slide 7 and 8. 18:24 Slide 7 shows the consolidated six month sales increase at 30.6% versus the year ago period lifted by a healthy combination of volume, pricing and mix across our segments. 18:37 Slide 8 provides a gross profit overview for the six month comparison. Shown here, the Polyester segment was pressured by the previously discussed headwinds. The Asia segment exhibited an increase in gross margin with recent mix and efficiency gains. And the Brazil segments exceptional performance is highlighted with a $4.9 million increase in gross profit. 19:02 Moving on to Slide 9, which provides a brief update to our balance sheet and capital allocation priorities. We ended the second quarter with zero borrowings on our ABL revolver, which had an availability of $69 million as of December 26, 2021. Under our balanced approach to capital allocation, we expect to continue to invest in the business to drive innovation in organic growth, maintain a strong balance sheet and remain opportunistic with share repurchases and/or M&A opportunities. 19:33 As noted on this slide and as we described in the press release, we spent $1.2 million to report -- to repurchase 51,500 shares under the previously announced share repurchase program. Before I pass the call back to Eddie, I will remind everyone that Unifi will be hosting an Investor Day event next month, February 16 at our manufacturing facilities in North Carolina. We look forward to interacting with the investment community by providing an opportunity to hear from several members of our leadership team under the backdrop of our world-class facilities. For those who can't attend in person, we will also webcast the event. 20:09 I'll now pass the call back to Eddie to take us through the last slide of the presentation and make some final comments.

20:16 Thank you, Craig. Before we conclude today's call, I'd like to finish with Slide 10 of the presentation and discuss our outlook and expectations for the second half of the fiscal year. As disclosed in our earnings release, we have issued guidance for the remainder of the fiscal year and we remain confident in achieving these targets, despite near-term challenges in Q3. As we've highlighted on this call, our revenue numbers have exceeded our expectations, leading us to increase our previous top line outlook for the fiscal year 2022. 20:47 Still, we must continue to work through all of the global uncertainties including ongoing labor pool constraints in our domestic segments, the Omicron Variant and the impact of the pandemic, and the inflationary pressures on packaging and supply costs. We anticipate uncertainties in the near term, but are confident in our workforce, as well as a new trainings that’s in place to better prepare our staff. Despite these uncertainties, our strong revenue performance from the second quarter supports our belief in continuous improvement throughout fiscal 2022. 21:18 For the full year fiscal 2022, we expect sales to reach $800 million or more, an increase of 20% from fiscal year 2021 revenues. Given this quarter's profitability results, we've adjusted our fiscal 2022 EBITDA forecast slightly lower, but we believe our recent pricing initiatives will help us make up a fair amount of the recent challenges. Our CapEx outlook remains consistent with the first quarter and should be fall in the range of $40 million to $44 million. Sustainability remains a key area of focus of our business and we are pleased to see the demand increase for recycled products as awareness around the market of sustainable products continues to grow. 21:57 Knowledge around the importance of sustainable products continues to be moving markets on a global scale. We look forward to continuing our path of long-term organic growth through our global business model and aim to capture the necessary demand for more environmentally conscious materials. 22:14 We will now open the line for questions.

22:18 [Operator Instructions] Our first question comes from Chris McGinnis with Sidoti.

22:35 Hi. Good morning. Thanks for taking my questions. And obviously, a nice quarter on top line obviously understand the pressures on the bottom line. I guess just to dig in a little bit more on the pricing and raw material inflation. Can you -- did I hear you right that as for January price increase that you will be on par with where the pricing is now? And how do you see pricing play out over the next -- maybe 12 months and then maybe can you also discuss a little bit more around the labor? It sounded like it may be more personnel versus mandates. Can you just dig into the issue around that labor and how hard it spent to maybe retain labor or find labor?

23:17 Yeah. Two questions. Thanks for those, Chris. On the pricing side, you've been on these calls for many years and you've heard over the years that we've lagged generally speaking as prices go up and we -- these are slow to give a pricing as raw materials drop. We have -- I mean, raising prices over the last nine months, 10 months and we took the step to basically catch-up all of the pricing that was necessary at the beginning of January. And so we do believe, it's been difficult for our customers. It is difficult for our sales team, but those prices have been passed on effective January 3. And you will see us going forward to be more reactive as raw material costs go up and other inputs cost go up in the future. 24:10 Jumping to the labor side of things, it's -- Q2 was very dramatic as you can see from the margins and it was a result of what happened over this from a catching up to us. We had been working as well on changing how we approach the hiring, how we approach the training. And that big initiative was really implemented mid-Q2 and that's why we're confident saying, as we move to Q3 and Q4 our labor situation is going to be much improved. We don't think the labor shortage -- we were expecting a big bump up in applicants at beginning of September when a lot of the benefits we're at full enough, we didn't see that, but that wasn't really an impact on our business. I think it was just the fact that across the country and North Carolina included people just they've saved up enough money. We're not sure what it was, but we are totally approaching how we are onboarding employees, how we are training our employees and how we are interacting our employees. We've got good pay rates. We've got good operations. We've got clean workplaces. So it's a matter of us and which is what we're doing improving on our training and our retention plans. I hope that answered your question.

25:39 And Chris, I just -- for one more in here, the actual turnover rates have improved as we get to the end of the calendar year. And the trainees have been retained better than we've been doing in the past. So we feel like we're making some progress and then bad luck when the COVID comes back in and we have all these quarantines in the month of January. Now, the good news is they seem to be coming back. Very optimistic because we asked employees, what they needed and we've taken those costs. They’re in we've spent the money. And now we, if we could just get our turnover rate back to where it needs to be those costs get absorbed into the business quite handily. So I'm optimistic, but it's been a difficult one.

26:26 Great. I really appreciate the insight. And then just a question on Asia and that growth, obviously been phenomenal for a long time and it sounds like with the guidance for $800 million or there is even more behind that. Can you just talk about maybe your order book and how that's playing out and is all the demand large -- largely related to REPREVE? Thanks.

26:46 Well, as you saw, we had a record REPREVE percentage at 40%. That is a big part of our growth. There is growth, of course because of the price point management we've been doing. Price adjustments we've been making over the last several months. But I think more importantly, the volume growth that we saw in Asia, which is predominantly REPREVE really reflected the market sentiment around sustainable products. Every quarter, we go by, we add more and more brands jumping on to the safety and security and trustedness of the REPREVE brands. And I think that's what's reflected in. And you'll see in Brazil, there will be growth in Q4 from a volume perspective. You’ll see in the U.S. growth in Q4 also, so we are expecting volume growth as we move through the remaining part of our fiscal year, as well as upside on the pricing side.

27:50 Great. Thanks for taking my questions and I'll jump back in queue.

27:54 Thank you.

27:55 Thanks, Chris.

27:58 Our next question comes from Daniel Moore with CJS Securities.

28:05 Sorry about that. Thank you. Good morning and thanks for taking the questions. Wanted to maybe just follow up on that last train of thought, which is the 30% growth you saw in REPREVE in the quarter. Any more detail in terms of price versus volume and similar, same question for the 20% plus expected revenue growth for fiscal ’22?

28:29 Yeah. So if you look at where a lot of the volume growth was, it was in Asia and the volume growth was in line with the revenue growth and it was mainly because -- we are just adopting more programs and is across the platform of products that we have. We've grown out the product portfolio in Asia beyond our normal textured yarn to stable fiber to many of the different types of products. And it's reflective of the interest that the market has in REPREVE and we're really excited about that because we see that, that momentum is going to continue on throughout the fiscal year. Of course, the Chinese New Year, the New Year is coming up, and that happens every year of course, but we're certainly seeing growth as we move through Q3 pass the Lunar New Year and into Q4 in China. 29:22 And like I said the -- in Brazil, we are expecting volume growth in Q4. And interestingly enough I think we're going to -- even though we've started out from a small base in Brazil, we're going to double our revenue sales -- our REPREVE revenue in Brazil year-over-year in that region. So we're excited about that. And then in the U.S. once again our labor situation improved by Q4, we will be producing more pounds. Our expectation is, we'll be producing more pounds and a lot of those pounds will be REPREVE.

29:56 This is an anecdote. But Dan, Walmart has begun to work on these recycled materials quite a bit and we just had an announcement that they passed the $1 billion bottle mark, but it's amazing the kind of tonnage they can do because they went from a fairly low on that scale to all the way to a billion bottles and they could get to 2 billion bottles if they decided to put their shoulder behind this. So it's just one little indicator, but an important one.

30:24 Got it. That's helpful. And obviously, you've been more aggressive, you've had to be in terms of pricing to try to protect margins as input cost increase and now labor challenges and inflationary pressures. Maybe just talk about the conversations with customers, so you're seeing any more push back after several rounds of price increases in this more significant one in January?

30:54 Yeah. I think it’s already -- it has been very difficult for our sales team as it has been obviously for our customers. But at the end of the day, I think most of our customers have said, everybody else is doing it. So I think in the past, we've been more reticent to sort of like the bullet and just pass on increases that has happened that has changed. I think the customer is seeing a new Unifi and I think it's not just Unifi is doing that. It's our competitors and it's, there are other suppliers that are out there in the marketplace. So I think this inflation that happens was a shock to our system and we recognize that we have to be responsible and pass those costs on as quickly as possible and we're doing that now. And like I said, it's been painful for us, for our customers, but we're not alone.

31:51 And for the most part of your competitors are following suit that was my follow-up question?

31:55 Yes. They are indeed.

31:58 All right. Last one is, you projected previously $20 million incremental revenue from the tariffs in ‘22, are you seeing early indications of that taking hold and how is your visibility around that today versus maybe six months ago?

32:16 Yeah. We are getting a lot of interest from customers who have traditionally been importing a lot of yarns from overseas. We are taking those calls and we are beginning the process of having the commercial relationships and pricing those items out, and that's when we expect to starting in Q4 to start seeing that volume come through.

32:41 Okay. Very helpful. I'll jump back with any follow-ups.

32:47 Our next question comes from Gus Richard with Northland.

32:51 Yes. Thanks for taking the question. Just wondering, what is the price and availability of recycled PET plastic at this point?

33:06 Yeah. The question, it was interesting. In Q2, it had been slightly lower than what was in our Q1 for various reasons. We are seeing an uptick which is normal for this time of year as the collection rate is reduced and as because of weather and also because people are just drinking less, less water or soft drinks during the colder temperature. So we -- as normal prices are going up for PET, there is pressure on supply. As I said on many calls, we have the ability to buy the materials, we just have to pay more for it, but it's not, it is expected.

33:50 And then just can you give a sense of your cost of goods, what percentage is labor at this point?

33:59 Well, that's -- it depends on the product. We have some products where they're not so labor intensive. And there are some products that are what's -- our challenge has been to make sure we have the right labor, the right place and our installation and we haven't talked about this, but our installation of our Evo eAFK’s as we expand that in our plant in Yadkinville is taking labor pressure off. So that's why we've said on the call in Q4 part of the reason we're seeing, we're expecting less labor pressures because they will have more and more of the Evo eAFK running, which is a more -- has higher productivity levels per person, per pound, per hour. So it’s a different question to answer, but in certain areas, it is a significant part of our cost, but raw materials always remain the largest part of our cost by far.

34:56 Got it. And I'm assuming that the new texturing machines, you’ve meet fewer operators per pound or one operator can manage more systems and then the older versions?

35:14 Yeah. There is higher productivity with the new equipment.

35:17 And then the last one for me, your top line growth. Can you sort of parse out how much of that is pricing and how much of that is volume?

35:31 Yeah. For the -- Gus, for the just completed quarter that we put some details in there on Slide 5 and it does go through and say that in just completed quarter roughly about 8 percentage points of that growth came from volume. The rest of it really came from pricing a little bit of favorability from FX and that's mostly in China because of the strength of their currency, but basically in this just completed quarter the majority of what we saw was from price, but we still saw also a 8% volume increase as well.

36:04 Got it. Thank you. That's it from me.

36:06 Thanks, Gus.

36:09 Our next question comes from Marco Rodriguez with Stonegate Capital.

36:16 Good morning, everybody. Thank you for taking my questions.

36:18 Good morning, Marco.

36:20 Good morning, guys. I have a couple of quick just follow ups. A lot of the questions have been asked and answered, but just kind of circling back on the inflationary pressure as the pricing increases that you've been able to implement and you made some comments to an earlier question about pretty much everyone is in the kind of the same boat, most people are expecting this and everyone's kind of pushing these prices through, but I was wondering, if you could maybe share any sort of anecdotal information may be that you're receiving from your clients perhaps as to what, what sort of this impact of increasing prices is doing to retail demand and what sort of the expectations are there as we look forward in the next few say six months to 12 months?

37:05 We haven't had any of our customer or any, I should probably -- we have had no, very few customers say because of your price increases the demand will drop. We're still seeing very strong demand. I mean we can't predict what's going to happen at 12 months. But today, the price increases has not impacted the demand of our products. And it's because I think there is two reasons, one it is, still a lack of inventory in the supply chain; and two, in the U.S. and in Central America, because of the supply constraints that are going on this, there is a lot more -- we believe the brands are trying to move more business into the region. So they can get quick churn products. So for us, our local -- the fact that we are local in the U.S. and Central America is helping us and it's really, I guess keeping up the demands in the system.

38:01 Got it. Very helpful. And then -- I'm sorry, go ahead.

38:08 I was just going to say it, looking at other categories in retail, consumers seem to be willing to pay and take on the new prices across the board. I'm not just talking about apparel or our business. It’s surprising, but we see that continuing for 12 months at least.

38:28 Got it. Very helpful. And then circling around on the demand for REPREVE. You've obviously been the flag bearer, if you will, for the recycling and sustainability aspects of the particular product and it seems to be obviously doing very well and you're getting a lot of high revenue growth rates, the percentage of your revenue is increasing for REPREVE. I would just kind of wondering if maybe you could talk a little bit about what sort of competitive reaction you may have seen given the success that you've had? And if you could maybe talk a little about the current competitive landscape would be helpful.

39:08 Yeah. So REPREVE is an ecosystem. It is recycled inputs, but it's also, as you've heard from us before, it's a trusted product because of the fact that we have fiber print technology a tracer, because of the fact we have our own verification -- new trust verification system that we've just announced. We verify that the fabric or the yarn and now the product that you're making is made from REPREVE. And the fact that we have third-party certification saying yes, this is recycled content and the fact that in the U.S. from the Higgs (ph) report says that our recycled polyester actually even has less carbon footprint than our competitors. All of that together and the fact that we have great service from a brand sales team calling on these retailers and we're able to give the brands collateral to help them co-brands their sustainable story along with REPREVE, that's what makes us different from everybody else and we are very far apart from our competitors. They are just selling recycled Polyester or Nylon yarns.

40:24 Got it. Very helpful. And is there an expectation perhaps I'm just kind of along those lines of thinking, I mean how big of a lead do you think you guys might have in terms of what you're able to provide to your customers versus competitors abilities?

40:41 Well, we just keep investing in our marketing. We keep investing in our co-branding. We keep investing in working on markets that are going beyond our traditional apparel markets. So I think the investment we're making in people to get to new markets and to expand REPREVE is working, both in Asia and in the U.S. So I don't compare us to our competitors who are selling normal recycled products. And I think the differentiator is the entire package that we have.

41:24 Some of these retail brands that are big as they get closer to aiming for their targets for 2025. It come to the realization that they need to make sure they can defend these are actually recycled materials, so they don't want to be green washed and our tracer really helps that case. So I think we end up having a real competitive advantage with the tracer.

41:54 Understood. I appreciate your time. Thanks, guys.

41:59 Thank you.

42:00 Thanks, Marco.

42:03 [Operator Instructions] Our next question comes from David Silver with CL King.

42:12 Yeah. Hi. Good morning. I had kind of several questions mostly on type of follow-up. But first question will be on the antidumping duties decisions that have been made. And I'm just borrowing from my experience with antidumping duty actions in other products for other companies have tracked, but typically takes a long time to get the fine to the final decision. But the final decision usually does impact the trade flows pretty directly. And in the -- in your release, you comment on the $20 million or more annual revenue boost and you cite purely pricing as the source of that, but I think in your comment to previous question, you focused more on incremental demand. So I'm just wondering maybe if you could just take a step back and just talk about how that you believe the final antidumping duty decisions are going to impact the market like what percentage of imports or the total market, that's relevant to Unifi is represented by the four countries mentioned and maybe in addition to pricing, do you, what kind of improvement in volume potential do you see? Thank you.

43:53 Yes. So as we said, we do expect to pick up about $20 million in revenue and efforts are in at a lower price in some of our more commodity type items. So the pricing, the average price is low for those products. What we are seeing is a lot more interest from these companies who either had been buying from an importer distributor or buying directly from the company out of Asia and it's, when you've been used to buying imports for a long-time there is a transition that has to take place. We had, as we talked before, we had anti-dumping cases against India and China, that move this business over a lot of it over to these four countries that we talked about. We are seeing a lot more phone calls come through, a lot more interest in trying to figure out -- what products they should buy from us and at what volumes. And like I said, we are still expecting to get the volume as we move into Q4 of our fiscal year and then beyond that for the rest of the year. From a pricing point of view, like I said, they’re at the lower end of the price range because a lot of them are commodity running, turning on products.

45:10 Okay. Great. And then maybe, I just have a question about the -- I guess I'll call it the cadence of price increases. So it sounds like you've been a little bit trying to catch up with the cost environment and you believe you'll get back fully beginning in January, but I'm just wondering, just in general, if there are other significant moves in costs that you need to recapture like what is the cadence for implementing a price increase and then seeing it fully implemented? Is it -- does it differ by customer or region I mean I'm imagining Brazil they're used to price swings and devaluations and whatnot? It might be different in other markets. So just in general when there is a meaningful price or cost, a cost issue that affects the industry. What is the lag that Unifi typically sees before you can recoup that via a formal price increase?

46:25 Yeah. Brazil -- and you can see this from our numbers they have been very reactionary to increases and the biggest increase they've had to experience, was around the raw material that inflation has occurred there and they've been very quick to pass on those costs. Asia, again it's been generally speaking as cost increases, we've been able to pass that along and that's why you've seen the margin has been pretty stable there. In fact the margins have increased there as the quality of the product, where the product mix, we're selling has improved in Asia. And then here in the U.S. it’s where it's been much more of a harder process and a longer process to pass on all the increases. In the past, we've generally just talk to our customers around the cost of raw material increases. This last increase was different, because we've not just talk -- we didn't just talk about raw materials. We also talk about the other costs like manufacturing cost, labor and packaging, and oil and all that stuff goes in to make their products. And going forward, you can expect us to be more reactive here in the U.S. and Central America than we have in the past.

47:36 Okay. And then just -- thank you for that. And then just the last one, but regarding your investment in new yarn texturing machinery. Would you say that the equipment is fully installed and commissioned and operating now or where are you on the -- on your in terms of reaching the completion I guess of that investment and upgrade and upgrading program?

48:11 Yeah. We've been installing quick steadily since the beginning of our fiscal year. We will be making -- at our Investor Day in a couple of weeks. We've been giving a lot more detailed information about the timing and the size of that capital investments. So if you can just hang on a couple of weeks there and listen in, David, you'll hear a lot more information about that.

48:33 We are at the very early days right now, David for installing that equipment.

48:39 Got it. Okay. Well, that would be very interesting to see close up then. All right. Thank you very much. I appreciate it.

48:48 Thank you, David.

48:48 Thanks, David.

48:50 Our next question comes from Daniel Moore with CJS Securities.

48:55 Thank you, again. Covered a lot of ground one or two more quick ones. Obviously North American polyester margins have clearly significant room for recovery. Just talk about your confidence in the sustainability of margins you're generating in Asia and Brazil and whether there is still some long-term upside potential there?

49:18 Yeah. In terms of Brazil, over time we've seen the last three quarters, four quarters as we've communicated, reduction in the gross margin there. We've been able to maintain that margin for much longer than we'd expected but it over time in the next couple of quarters, it will return to more normal margins. But as I said, the volume should be increasing in Brazil in Q4 so that will offset the decline in margins. In Asia, we've been very steady. Here in the U.S. and Central America where the challenge has been. We do expect to see a significant recovery in margins beginning this quarter because of the pricing initiatives we've taken. And then as we move through the next six months, as we improve the productivity of the workforce as we get stability in the number of the turnover and the number of new employees and we get that training behind us. We do expect to see margin improve as we improve our productivity. So instant pricing beginning of the quarter and then over the next six months, improvements in our manufacturing costs to increase the margin.

50:28 Helpful. And lastly for me, I mean look forward to more detail on EvoCooler investments and where that will take you? Any more sort of preview around the types of things we made here at the upcoming Analyst Investor Day, not necessarily specific metrics but what type of longer-term targets or goals you might met?

50:51 Yes. It's a good question, Dan. I think really for us, we're continuing to work toward that day as a time for us to really give more details on the strategy of Unifi beyond just the quarter-to-quarter reporting, so that will be a big component of it. Innovation will be a big component of what we're planning to do. We also plan to talk quite a bit about sustainability and how that plays in with REPREVE demand. And in doing that in the context with actually allowing folks to see the facilities and see the EvoCoolers and other machinery that we have specifically in our Yadkinville facility. So we really planned it out to be a pretty thoughtful day as far as giving investors and interested parties more details around who Unifi is, what we're doing and what makes us different.

51:47 All right. Look forward to it. Thanks for the detail and the color.

51:51 Thanks, Dan.

51:52 Thanks, Dan.

51:53 That concludes today's question-and-answer session. I'd like to pass the call back to management for closing remarks.

52:01 Thank you, Liz, and thank you everyone for participating today. Our momentum is clear and we believe we're set up for a strong second half for fiscal ‘22. Our next earnings release for the third fiscal quarter ending March 27 is tentatively scheduled for Wednesday, April 27 after the close of the market. With the conference call to follow the next morning Thursday, April 28 at 8:30 AM Eastern Time. Thanks again for joining today's call.

52:28 This concludes today's conference call. Thank you for participating. You may now disconnect.