Good morning, and thank you for attending Unifi, Inc.'s second quarter fiscal 2025 earnings conference call. Today's conference is being recorded, and all lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. Speakers for today's call include Al Carey, Executive Chairman, Eddie Ingle, Chief Executive Officer, and A.J. Eaker, Chief Financial Officer. During this call, management will be referencing a webcast presentation that can be found in the Please familiarize yourself with page two of the slide deck for cautionary statements and non-GAAP measures. I will now turn the call over to Al Carey. Please go ahead.

Thank you very much. Thanks for joining everyone for our call today on the second quarter of fiscal 2025. I'm going to provide a few of the key headlines regarding our quarter and our second half of fiscal year outlook. And then as usual, Eddie Ingle and A.J. Eaker will provide the actual performance in more detail and talk about the actions that we're taking at Unifi, Inc. Let me start by telling you that the Q2 revenues were very similar to the previous few quarters and a little less than we had projected. And this continuation of sluggish sales has been with us and the entire textile industry for some time in both North America and in Asia. But I will tell you that we are finally seeing some green shoots. Beginning in January, I'd say for the last six weeks, we have seen an improvement in our revenue trends and our customers are more optimistic about demand and improved inventories coming out of the holiday season. I think they would describe the holiday season as solid. This should allow us to show up with a stronger half two performance in our overall numbers versus half one, which is what we had talked about a while back. During this quarter, we made a decision, a very important decision, to close one of our three plants in the US. However, we will lose no sales. The production will transition to other facilities that we have that have capacity in North America. Now this move is going to improve our fixed cost utilization, which has been a challenge. It's also going to improve our profitability for North America. We will then sell the plant and allow us to reduce our debt. Now we're encouraged with the momentum on two top line…

Thanks, Al. And as Al just mentioned, our results for the quarter were slightly below our outlook due to a lower than expected sales that impacted our business in both the Americas and Asia. Despite this short-term setback, we continue to remain optimistic about the remainder of calendar year 2025 and beyond as we already are beginning to see an increase in customer orders and interest for some of our recently announced beyond apparel initiatives and REPREVE fiber products. I'm going to touch on in greater detail shortly. Before I go into the details of our results for the quarter, I would first like to discuss our recent efforts to optimize our America's business. As many of you are aware, we announced earlier this week that we have taken steps to consolidate our manufacturing operations with the closing and future sale of our Madison, North Carolina manufacturing facility. Closing of the Madison facility is an important strategic decision that will allow Unifi, Inc. to become a stronger and more efficient company as we exit the current calendar year. By consolidating this facility, we will be able to improve our cost structure and operational performance without any customer disruption or loss of current production capacity. A.J. will provide greater details on the financial implications of the sale of the facility later on in the call. But this proactive step optimizes our business and makes Unifi, Inc. a leaner and more profitable organization. That will ultimately enable us to better serve our customers. This decision to close Madison was a particularly difficult decision for me personally, as it was a place where I gained a lot of valuable experience as a general manager early on in my career. And I'd like to acknowledge the work that the employees put into making this…

Thank you, Eddie. Despite a difficult environment during the quarter, we continue to make great progress towards positioning our business for future growth and profitability. To ensure we track to our goals, our focus remains on keeping our variable expenses across both production and administrative functions low, which will help create both cost savings and increased profits that we will reinvest in the key areas of our business that will enhance our revenue performance and drive margin expansion, including beyond apparel initiatives and innovation. Transitioning to our financial results on slide eight, you'll see our consolidated financial highlights for the quarter. Consolidated net sales for the quarter were $138.9 million, up 1.4% year over year. The increase in net sales on a year-over-year basis was primarily driven by continued improvement efforts in the Americas and growth in Brazil but was offset by lower sales in Asia. Turning to slide nine. In the Americas segment, net sales were up 3% compared to the prior year, due to the traction from our recent sales growth initiatives, despite the unfavorable weather impacts to the Southeast US, causing a miss of a couple million sales dollars. Slide ten displays our Brazil segment highlights, which demonstrate our continued strength in that region with robust sales levels. Brazil's margin rate reflects both the positivity of improved value-added mix but the normalization of raw material costs and pricing dynamics. On slide eleven, our Asia segment saw net sales decline by approximately 7% year over year as the sales mix and pricing dynamics in the region remain difficult, particularly in China. I'll now briefly discuss our balance sheet on slide twelve. We're pleased to have reduced cash burn in the second quarter, with improvement on both a year-over-year and sequential basis. This is aided by our strict cost…

Thank you, A.J. Let's now turn to slide thirteen to discuss our forecast for the third quarter of fiscal 2025. For the third quarter, we are expecting net sales and adjusted EBITDA to increase. We expect capital expenditures to be around $5 million to $6 million due to the transition of the production out of the Madison facility. Transitioning to slide fourteen, we will discuss our guidance for fiscal 2025. We're updating our outlook for fiscal 2025, which now includes net sales to be in line with fiscal 2024 as we expect our second half of fiscal 2025 to improve over the corresponding first half. Profitability metrics are expected to improve year over year while second half fiscal 2025 underlying profit generation will be partially offset by US manufacturing transition costs. And we expect capital expenditures to range between $14 million and $16 million, which includes the costs related to the transition activities. Moving on to slide fifteen, you will see our updated key strategic priorities that we are focused on for the remainder of fiscal 2025. We are always exploring opportunities to optimize our business, which is highlighted by the proactive manufacturing consolidation measures we discussed today. That will enhance our operating efficiency, lower fixed costs, improve profitability, and further strengthen our balance sheet. As we look ahead to the second half of fiscal 2025, our focus will continue to remain on investing in innovation products in both our REPREVE fiber platform and beyond apparel products, that will help improve our product mix and grow our customer base. We believe that commitment to implementing cost-saving initiatives and making strategic investments in innovation and high-growth opportunities has positioned us well to drive value for all of our stakeholders. With that, we would now like to open the line for questions. Thank you.

Thank you. At this time, I would like to remind everyone in order to ask a question, press star then the number one on your telephone keypad. We will pause for just a moment to compile the Q&A roster. Your next question comes from the line of Anthony Lebedzinski from Sidoti and Company. Please go ahead.

Good morning, everyone, and thank you for taking the questions. Guess, you know, first for the quarter, you know, it's certainly nice to see the sales and gross margin improvements in the Americas and Brazil segments. I know you guys talked about higher sales volumes in both of these and had good pricing in Brazil. So you know, just just wondering, is the higher sales coming most from existing clients or or did you were you already able to pick up some some new clients or maybe we just a combination of both. Just wanted to get a better sense as to the sales volume drivers in those two key segments.

Yeah. In the Brazil segment, thanks for the question, Anthony. In the Brazil segment, we are seeing it across the board with existing clients. The market for textured polyester continues to grow over the quarter, you know, outside the normal holiday period, we ran our plants pretty full, and we saw an increase in demand across all segments. I would say maybe in particular, there was the pilot segment did perform exceptionally strong, including the denim sector, which is a very, very big part of our business down there. As it relates to the US, I think the way I would describe that is Central America really was the stock performance as far as growth as we went through the year. Through the quarter. And, you know, we started at calendar 2024. It was very challenging, but we ended it on a high spot. And again, we're seeing some activity with brands continuing to support Central America, and I think perhaps maybe was in light of the pending tariffs that were taking place, we're not exactly sure yet. How the brands are reacting, but that seems to be the indicator for us in that area.

But one other comment, Anthony. This is Al. Some of these beyond apparel items like military and the carpet, they're just hitting now.

But that's great to hear. Yeah. So so that that sounds like you guys are seeing some green shoots, which is definitely reassuring. So, yeah, as far as the opportunity for carpet and the military, and I'm sure you guys are working on others as well. But, you know, as far as maybe talk to us maybe about, like, what you see as that potential from those markets and as far as timing, it sounds like you should pick up some business in the second half of this fiscal year, but maybe just, you know, if you could provide some additional color as far as how you see that maybe in fiscal 2026.

Yeah. So I'd really like I'd like to sort of turn it to calendar 2025. Yeah. We did see at the tail end of our calendar 2024 in our Q2 fiscal 2025. We saw some activity. As we go through this next twelve months, we are expecting to see growth in both of these market segments on a sequential basis. We're actually installing some additional capacity in our fiscal Q4 to meet the growth that goes beyond the existing capacity in some of the technologies that we have. So as we go through this calendar 2025, you can expect us to give more details around revenues from these two businesses, but more importantly, it's the exactly we're seeing in these two product lines comes from the fact we're able to make products that are performing better than the incumbents, and that gives us comfort that the investments we're making over time and capital are going to pay out. We're quite confident. Actually, we're very confident about that as we move through this calendar year. Thank you.

Thanks for that. And just switching to Asia. So I know you said that you expect a similar performance in Q3 versus what you've seen here recently. But the you know, historically, that business has performed better both sales and gross margin. So when would be when do you think it's reasonable to assume that that piece of your business gets back to more or less, you know, historical trends?

Yeah. As we said on the call, you know, this quarter is impacted by the Chinese New Year. As we go into Q4, we are expecting to see meaningful improvements in the revenues out of that business. And the forecast deal for calendar 2025 is to see growth as we move throughout the year. Again, talking about tariffs in that section, the US government and China have not really resolved their differences in that space. But the increased tariff of ten percent is not as impactful as it would have been for Mexico and Canada. So we're not expecting right now to see demand drop off. In fact, we're expecting demand to still increase as we get the benefit of our Vapride take-back innovation and our return loop products.

Gotcha. Okay. Alright. So as it relates to tariffs, certainly, realize it still remains a dynamic situation, but assuming that Canada and Mexico get resolved and there's a sort of a long-term pause or permanent pause, and then China has a ten percent tariff. What tariffs overall, you know, given that you are a largely US manufacturing company, would tariffs be a net positive, you think, for the company? Or any sort of way to frame that that would certainly would be helpful.

Got it. It's really uncertain because it depends on the level of tariffs and what products are put on. There's a lot of dialogue around, and we hear this from our involvement with the textile organization, but in Mexico, they are trying to defend their textile market. And maybe textiles would get carved out between Mexico and the US as something to protect for both sides. There's a lot of fabrics made here shipped to Mexico. I do think Central America is an area that will pick up because of this threat of the tariffs. Because it hasn't as yet been mentioned in, you know, the three countries in Northern Central America have been described as being prone to getting tariffs at least for now. I think that's going to help us. And the other part of the tariffs was the de minimis ruling, which is a loophole that allows goods to come into the US that are worth less than eight hundred dollars. There's still a lot of energy around fixing that loophole by the governments, and we'll see how that plays out. That could be a big positive for us.

Interesting, Anthony, is that we have a number from the government that approximately one and a half billion in sales have come in through the de minimis in the last calendar year. So if that were to move in any positive direction, it'd be very positive for us.

Understood. Okay. Yeah. So, surely, it does seem like there is some potential movement, I guess. So I guess we'll see what happens there. Now as far as the Madison, North Carolina facility closure, I'm not sure if you're prepared yet to give a specific number, but maybe just ballpark us estimate. You know, once this transition is completed, how much could we talk about as far as annual cost savings with now Unifi, Inc. running fewer facilities in the US?

Thanks, Anthony. It's A.J. Good question. Good morning. Like I said, a lot of good years out of the Madison facility, and we saw the utilization there fall significantly recently. So this decision was tough but important for the future for us. Bringing that facility offline will obviously improve a lot of the fixed cost base that we have as well as overall labor man hours. We'll be able to move a lot of production into our Yaggenville facility where we have more automation and really a better facility to handle the overall volume and some more efficiency there. Not looking to disclose the actual number that we're targeting at this point, but we'll certainly provide that as we've gathered all the details and complete that consolidation, but we are expecting some material savings from reducing the operations in that facility. Quick update on the overall facility itself as well. The tax value there is right around $29 million or so. And the book value on that facility for us is right around $9 million. So we do expect that to be a favorable move for us from a balance sheet perspective.

That that's very helpful. Okay. Alright. Well, you know and then as far as other facilities. So I know you guys also sold a warehouse. So as you look at your properties, do you think there could be some additional opportunities perhaps to optimize the overall structure, or you think you're kind of more or less kind of tapped out as far as opportunities in terms of just just as a role in your facilities and properties?

Thanks, Anthony. A.J., again, this is certainly going to be a big move for us that will be very important over the next several months. And take a lot of detailed time. So we're focused very heavily on this move right now. As I mentioned in the prepared remarks, we'll continue to look at opportunities. There's nothing to highlight at this point, but I'll remind the audience also that when we did sell that warehouse, that was about two hundred and fifty thousand square feet with a decent amount of land and achieved greater than thirty dollars a square foot on that sale. So we were quite pleased with that and hoping to have a very positive sale as well for the Madison facility. But specific to your question, we'll continue to look at what makes sense, see how all of the consolidation efforts play out. Look forward to those savings and then continue to find opportunities.

Gotcha. Okay. And my last question, I guess, you know, so so far as just to follow-up on the Madison facility, what's the square footage of that property?

Sure. The building itself is in excellent condition, high ceilings, and right around nine hundred and fifty thousand square feet. It also has a significant land buffer and the land and surrounding areas are in great condition as well.

Got it. Alright. Well, that's all sounds good. Well, thank you very much, and best of luck.

Great. Thanks so much, Anthony. Thank you, Anthony.

That ends our Q&A session, and we appreciate your participation. Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.