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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


(Mark One)
☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 29, 2024



☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to _____

Commission File Number: 1-10542

UNIFI, INC.

(Exact name of registrant as specified in its charter)


New York		11-2165495
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)

7201 West Friendly Avenue
Greensboro, North Carolina		27410
(Address of principal executive offices)		(Zip Code)

(336) 294-4410

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

     
Title of each class

    Trading Symbol(s)

    Name of each exchange on which registered

    Common Stock, par value $0.10 per share

    UFI

    New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer	☐	Accelerated filer	☒

Non-accelerated filer	☐	Smaller reporting company	☐

		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of November 1, 2024, there were 18,267,203 shares of the registrant’s common stock, par value $0.10 per share, outstanding.

FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, that relate to our plans, objectives, estimates, and goals. Statements expressing expectations regarding our future, or projections or estimates relating to products, sales, revenues, expenditures, costs, strategies, initiatives, or earnings, are typical of such statements and are made under the Private Securities Litigation Reform Act of 1995. Forward-looking statements are based on management’s beliefs, assumptions, and expectations about our future performance, considering the information currently available to management. The words “believe,” “may,” “could,” “will,” “should,” “would,” “anticipate,” “plan,” “estimate,” “project,” “expect,” “intend,” “seek,” “strive,” and words of similar import, or the negative of such words, identify or signal the presence of forward-looking statements. These statements are not statements of historical fact; they involve risks and uncertainties that may cause our actual results, performance, or financial condition to differ materially from the expectations of future results, performance, or financial condition that we express or imply in any forward-looking statement. Factors that could contribute to such differences include, but are not limited to:

•

the competitive nature of the textile industry and the impact of global competition;

•

changes in the trade regulatory environment and governmental policies and legislation;

•

the availability, sourcing, and pricing of raw materials;

•

general domestic and international economic and industry conditions in markets where the Company competes, including economic and political factors over which the Company has no control;

•

changes in consumer spending, customer preferences, fashion trends, and end-uses for the Company’s products;

•

the financial condition of the Company’s customers;

•

the loss of a significant customer or brand partner;

•

natural disasters, industrial accidents, power or water shortages, extreme weather conditions, and other disruptions at one of the Company’s facilities;

•

the disruption of operations, global demand, or financial performance as a result of catastrophic or extraordinary events, including, but not limited to, epidemics or pandemics;

•

the success of the Company’s strategic business initiatives;

•

the volatility of financial and credit markets, including the impacts of counterparty risk (e.g., deposit concentration and recent depositor sentiment and activity);

•

the ability to service indebtedness and fund capital expenditures and strategic business initiatives;

•

the availability of and access to credit on reasonable terms;

•

changes in foreign currency exchange, interest, and inflation rates;

•

fluctuations in production costs;

•

the ability to protect intellectual property;

•

the strength and reputation of the Company’s brands;

•

employee relations;

•

the ability to attract, retain, and motivate key employees;

•

the impact of climate change or environmental, health, and safety regulations;

•

the impact of tax laws, the judicial or administrative interpretations of tax laws, and/or changes in such laws or interpretations; and

•

other factors discussed in “Item 1A. Risk Factors” in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2024 or in the Company’s other periodic reports and information filed with the Securities and Exchange Commission (the “SEC”).

All such factors are difficult to predict, contain uncertainties that may materially affect actual results, and may be beyond our control. New factors emerge from time to time, and it is not possible for management to predict all such factors or to assess the impact of each such factor on the Company. Any forward-looking statement speaks only as of the date on which such statement is made, and we do not undertake any obligation to update any forward-looking statement to reflect events or circumstances after the date on which such statement is made, except as may be required by federal securities laws.

In light of all of the above considerations, we reiterate that forward-looking statements are not guarantees of future performance, and we caution you not to rely on them as such.

UNIFI, INC.

QUARTERLY REPORT ON FORM 10-Q

FOR THE THREE MONTHS ENDED SEPTEMBER 29, 2024

TABLE OF CONTENTS


PART I—FINANCIAL INFORMATION
		Page

Item 1.	Financial Statements	1

	Condensed Consolidated Balance Sheets as of September 29, 2024 and June 30, 2024	1

	Condensed Consolidated Statements of Operations and Comprehensive Loss for the Three Months Ended September 29, 2024 and October 1, 2023	2

	Condensed Consolidated Statements of Shareholders’ Equity for the Three Months Ended September 29, 2024 and October 1, 2023	3

	Condensed Consolidated Statements of Cash Flows for the Three Months Ended September 29, 2024 and October 1, 2023	4

	Notes to Condensed Consolidated Financial Statements	5

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	13

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	21

Item 4.	Controls and Procedures	22

PART II—OTHER INFORMATION

Item 1.	Legal Proceedings	23

Item 1A.	Risk Factors	24

Item 5.	Other Information	24

Item 6.	Exhibits	24

	Signatures	25

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(In thousands, except share and per share amounts)


	September 29, 2024			June 30, 2024
ASSETS
Cash and cash equivalents	$	13,703		$	26,805
Receivables, net		77,885			79,165
Inventories		145,350			131,181
Income taxes receivable		1,355			164
Other current assets		12,923			11,618
Total current assets		251,216			248,933
Property, plant and equipment, net		189,744			193,723
Operating lease assets		8,411			8,245
Deferred income taxes		5,156			5,392
Other non-current assets		12,452			12,951
Total assets	$	466,979		$	469,244

LIABILITIES AND SHAREHOLDERS’ EQUITY
Accounts payable	$	41,250		$	43,622
Income taxes payable		1,510			754
Current operating lease liabilities		2,434			2,251
Current portion of long-term debt		12,153			12,277
Other current liabilities		18,923			17,662
Total current liabilities		76,270			76,566
Long-term debt		119,324			117,793
Non-current operating lease liabilities		6,092			6,124
Deferred income taxes		1,869			1,869
Other long-term liabilities		3,715			3,507
Total liabilities		207,270			205,859

Commitments and contingencies

Common stock, $0.10 par value (500,000,000 shares authorized; 18,257,103 and 18,251,545 shares issued and outstanding as of September 29, 2024 and June 30, 2024, respectively)		1,826			1,825
Capital in excess of par value		71,419			70,952
Retained earnings		251,765			259,397
Accumulated other comprehensive loss		(65,301	)		(68,789	)
Total shareholders’ equity		259,709			263,385
Total liabilities and shareholders’ equity	$	466,979		$	469,244

See accompanying notes to condensed consolidated financial statements.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(Unaudited)

(In thousands, except per share amounts)


	For the Three Months Ended
	September 29, 2024			October 1, 2023
Net sales	$	147,372		$	138,844
Cost of sales		137,914			139,419
Gross profit (loss)		9,458			(575	)
Selling, general and administrative expenses		11,842			11,609
Provision (benefit) for bad debts		312			(209	)
Other operating expense, net		520			54
Operating loss		(3,216	)		(12,029	)
Interest income		(257	)		(581	)
Interest expense		2,507			2,485
Equity in earnings of unconsolidated affiliates		(11	)		(200	)
Loss before income taxes		(5,455	)		(13,733	)
Provision (benefit) for income taxes		2,177			(463	)
Net loss	$	(7,632	)	$	(13,270	)

Net loss per common share:
Basic	$	(0.42	)	$	(0.73	)
Diluted	$	(0.42	)	$	(0.73	)

Comprehensive loss:


	For the Three Months Ended
	September 29, 2024			October 1, 2023
Net loss	$	(7,632	)	$	(13,270	)
Other comprehensive income (loss):
Foreign currency translation adjustments		3,488			(5,540	)
Other comprehensive income (loss), net		3,488			(5,540	)
Comprehensive loss	$	(4,144	)	$	(18,810	)

See accompanying notes to condensed consolidated financial statements.

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(Unaudited)

(In thousands)


	Shares		Common Stock		Capital in Excess of Par Value		Retained Earnings			Accumulated Other Comprehensive Loss			Total Shareholders’ Equity
Balance at June 30, 2024		18,252	$	1,825	$	70,952	$	259,397		$	(68,789	)	$	263,385
Options exercised		5		1		32		—			—			33
Stock-based compensation		—		—		435		—			—			435
Other comprehensive gain, net of tax		—		—		—		—			3,488			3,488
Net loss		—		—		—		(7,632	)		—			(7,632	)
Balance at September 29, 2024		18,257	$	1,826	$	71,419	$	251,765		$	(65,301	)	$	259,709


	Shares		Common Stock		Capital in Excess of Par Value			Retained Earnings			Accumulated Other Comprehensive Loss			Total Shareholders’ Equity
Balance at July 2, 2023		18,081	$	1,808	$	68,901		$	306,792		$	(53,891	)	$	323,610
Options exercised		3		—		21			—			—			21
Conversion of equity units		1		—		—			—			—			—
Stock-based compensation		—		—		209			—			—			209
Common stock withheld in satisfaction of tax withholding obligations under net share settle transactions		—		—		(1	)		—			—			(1	)
Other comprehensive loss, net of tax		—		—		—			—			(5,540	)		(5,540	)
Net loss		—		—		—			(13,270	)		—			(13,270	)
Balance at October 1, 2023		18,085	$	1,808	$	69,130		$	293,522		$	(59,431	)	$	305,029

See accompanying notes to condensed consolidated financial statements.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)


	For the Three Months Ended
	September 29, 2024			October 1, 2023
Cash and cash equivalents at beginning of period	$	26,805		$	46,960
Operating activities:
Net loss		(7,632	)		(13,270	)
Adjustments to reconcile net loss to net cash (used) provided by operating activities:
Equity in earnings of unconsolidated affiliates		(11	)		(200	)
Depreciation and amortization expense		6,547			7,026
Non-cash compensation expense		435			212
Deferred income taxes		344			(679	)
Other, net		80			(62	)
Changes in assets and liabilities:
Receivables, net		2,221			4,111
Inventories		(12,851	)		12,608
Other current assets		(1,091	)		2,126
Income taxes		(462	)		(1,148	)
Accounts payable and other current liabilities		(460	)		(3,432	)
Other, net		46			(173	)
Net cash (used) provided by operating activities		(12,834	)		7,119

Investing activities:
Capital expenditures		(2,018	)		(2,937	)
Other, net		—			457
Net cash used by investing activities		(2,018	)		(2,480	)

Financing activities:
Proceeds from ABL Revolver		47,500			31,100
Payments on ABL Revolver		(43,000	)		(27,500	)
Payments on ABL Term Loan		(2,300	)		(2,300	)
Payments on finance lease obligations		(808	)		(713	)
Other, net		(162	)		17
Net cash provided by financing activities		1,230			604

Effect of exchange rate changes on cash and cash equivalents		520			(688	)
Net (decrease) increase in cash and cash equivalents		(13,102	)		4,555
Cash and cash equivalents at end of period	$	13,703		$	51,515

See accompanying notes to condensed consolidated financial statements.

Unifi, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

1. Background

Unifi, Inc., a New York corporation formed in 1969 (together with its subsidiaries, “UNIFI,” the “Company,” “we,” “us,” or “our”), is a multinational company that manufactures and sells innovative recycled and synthetic products, made from polyester and nylon, primarily to other yarn manufacturers and knitters and weavers (UNIFI’s “direct customers”) that produce yarn and/or fabric for the apparel, hosiery, home furnishings, automotive, industrial, medical, and other end-use markets (UNIFI’s “indirect customers”). We sometimes refer to these indirect customers as “brand partners.” Polyester products include partially oriented yarn (“POY”) and textured, solution and package dyed, twisted, beamed, and draw wound yarns, and each is available in virgin or recycled varieties. Recycled solutions, made from both pre-consumer and post-consumer waste, include plastic bottle flake (“Flake”), polyester polymer beads (“Chip”), and staple fiber. Nylon products include virgin or recycled textured, solution dyed, and spandex covered yarns.

UNIFI maintains one of the textile industry’s most comprehensive product offerings that includes a range of specialized, value-added, and commodity solutions, with principal geographic markets in North America, Central America, South America, Asia, and Europe. UNIFI has direct manufacturing operations in four countries and participates in a joint venture with operations in the United States (the “U.S.”).

2. Basis of Presentation; Condensed Notes

The accompanying condensed consolidated financial statements are unaudited and have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information. As contemplated by the instructions of the SEC to Form 10-Q, the following notes have been condensed and, therefore, do not contain all disclosures required in connection with annual financial statements. Reference should be made to UNIFI’s year-end audited consolidated financial statements and related notes thereto contained in its Annual Report on Form 10-K for the fiscal year ended June 30, 2024 (the “2024 Form 10-K”).

The financial information included in this report has been prepared by UNIFI, without audit. In the opinion of management, all adjustments, which consist of normal, recurring adjustments, considered necessary for a fair statement of the results for interim periods have been included. Nevertheless, the results shown for interim periods are not necessarily indicative of results to be expected for the full year. The preparation of financial statements in conformity with GAAP requires management to make use of estimates and assumptions that affect the amounts reported and certain financial statement disclosures. Actual results may vary from these estimates.

All amounts, except per share amounts, are presented in thousands (000s), except as otherwise noted.

The fiscal quarter for each of Unifi, Inc., its primary domestic operating subsidiaries and its subsidiary in El Salvador ended on September 29, 2024. Unifi, Inc.’s remaining material operating subsidiaries’ fiscal quarter ended on September 30, 2024. There were no significant transactions or events that occurred between Unifi, Inc.’s fiscal quarter end and such wholly owned subsidiaries’ fiscal quarter end. The three-month periods ended September 29, 2024 and October 1, 2023 both consisted of 13 weeks.

3. Recent Accounting Pronouncements

Issued and Pending Adoption

In December 2023, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. ASU No. 2023-09 modifies the rules on income tax disclosures to require entities to disclose (i) specific categories in the rate reconciliation, (ii) the income or loss from continuing operations before income tax expense or benefit (separated between domestic and foreign) and (iii) income tax expense or benefit from continuing operations (separated by federal, state, and foreign). The ASU also requires entities to disclose their income tax payments to international, federal, state, and local jurisdictions, among other changes. The ASU is effective for UNIFI's fiscal 2026, with early adoption permitted, and should be applied on a prospective basis, but retrospective application is permitted. UNIFI is currently evaluating the impact on the Company’s disclosures but does not expect this standard will have a material impact on its consolidated financial position, results of operations, or cash flows.

In November 2023, the FASB issued ASU No. 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. ASU No. 2023-07 expands annual and interim disclosure requirements for reportable segments, primarily through enhanced disclosures about significant segment expenses. The ASU is effective this fiscal year for annual reporting and in the first quarter of fiscal 2026 for interim reporting, with early adoption permitted. UNIFI has not adopted this standard. UNIFI is currently evaluating the impact on the Company’s disclosures but does not expect this standard will have a material impact on its consolidated financial position, results of operations, or cash flows.

Based on UNIFI’s review of ASUs issued since the filing of the 2024 Form 10-K, there have been no other newly issued or newly applicable accounting pronouncements that have had, or are expected to have, a material impact on UNIFI’s consolidated financial statements.

Unifi, Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

4. Revenue

The following tables present net sales disaggregated by (i) classification of customer type and (ii) REPREVE® Fiber sales:

Third-Party Manufacturer


	For the Three Months Ended
	September 29, 2024		October 1, 2023
Third-party manufacturer	$	146,219	$	137,620
Service		1,153		1,224
Net sales	$	147,372	$	138,844


	For the Three Months Ended
	September 29, 2024		October 1, 2023
REPREVE® Fiber	$	44,742	$	42,461
All other products and services		102,630		96,383
Net sales	$	147,372	$	138,844

Third-party manufacturer revenue is primarily generated through sales to direct customers. Such sales represent satisfaction of UNIFI’s performance obligations required by the associated revenue contracts. Each of UNIFI’s reportable segments derives revenue from sales to third-party manufacturers.

Service Revenue

Service revenue is primarily generated, as services are rendered, through fulfillment of toll manufacturing of textile products or transportation services governed by written agreements. Such toll manufacturing and transportation services represent satisfaction of UNIFI’s performance obligations required by the associated revenue contracts.

REPREVE® Fiber

REPREVE® Fiber represents UNIFI's collection of fiber products on our recycled platform, with or without added technologies.

Variable Consideration

For all variable consideration, where appropriate, UNIFI estimates the amount using the expected value method, which takes into consideration historical experience, current contractual requirements, specific known market events, and forecasted customer buying and payment patterns. Overall, these reserves reflect UNIFI’s best estimates of the amount of consideration to which the customer is entitled based on the terms of the contracts. Variable consideration has been immaterial to UNIFI’s financial statements for all periods presented.

5. Long-Term Debt

Debt Obligations

The following table and narrative presents the detail of UNIFI’s debt obligations. Capitalized terms not otherwise defined within this Note shall have the meanings attributed to them in the Second Amended and Restated Credit Agreement, dated as of October 28, 2022 (the "2022 Credit Agreement") as amended.


		Weighted Average
	Scheduled	Interest Rate as of			Principal Amounts as of
	Maturity Date	September 29, 2024			September 29, 2024			June 30, 2024
ABL Revolver	October 2027		7.4	%	$	24,200		$	19,700
ABL Term Loan	October 2027		8.1	%		98,900			101,200
Finance lease obligations	(1)		5.2	%		8,591			9,399
Total debt						131,691			130,299
Current ABL Term Loan						(9,200	)		(9,200	)
Current portion of finance lease obligations						(2,953	)		(3,077	)
Unamortized debt issuance costs						(214	)		(229	)
Total long-term debt					$	119,324		$	117,793

(1)

Scheduled maturity dates for finance lease obligations range from March 2025 to September 2028.

ABL Facility and Amendments

On September 5, 2024, UNIFI, Inc. and certain of its subsidiaries entered into a First Amendment to the Second Amended and Restated Credit Agreement (the “First Amendment”) with a syndicate of lenders. The First Amendment primarily (i) permits the sale of a Company-owned real estate asset (consisting of an industrial warehouse building and land acreage) located in Yadkinville, North Carolina with application of the net proceeds to reduce the outstanding ABL Revolver balance, in lieu of the prescribed mandatory prepayment to the ABL Term Loan; (ii) reduces the Maximum Revolver Amount from $115,000 to $80,000; (iii) modifies the definition of the Trigger Level as of any date of determination to the greater of (a) $16,500 and (b) 10% of the sum of (i) the Maximum Revolver Amount plus (ii) the outstanding principal amount of the ABL Term Loan on such date of determination; (iv) increases the range of the

Unifi, Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

Applicable Margin on (a) SOFR-based loans to a new range of 1.50% to 2.00% and (b) Base Rate-based loans to a new range of 0.50% to 1.00%, with such new ranges of Applicable Margin rates becoming immediately effective and continuing until the Company achieves a Fixed Charge Coverage Ratio of 1.05 to 1.00 or better; (v) for a Term Loan Reset, establishes an additional requirement to obtain lender approval; and (vi) modifies certain terms and conditions of the Credit Agreement including, but not limited to, Swing Loans, Letter of Credit sublimits, and costs related to normal course collateral valuations for the ABL Facility.

Subsequent Event

On October 25, 2024, UNIFI entered into a new credit agreement with Wells Fargo Bank, National Association for a $25,000 revolving credit facility (the "2024 Facility"). The maturity date of the 2024 Facility is the earlier of (i) October 28, 2027 and (ii) the termination or refinancing of the 2022 Credit Agreement. The 2024 Facility is deemed unsecured financing for UNIFI, but is collateralized by certain assets pledged by related party Kenneth G. Langone, one of the members of UNIFI's Board of Directors. Borrowings under the 2024 Facility bear interest at a rate of SOFR plus 0.90%. The 2024 Facility contains no additional financial covenants beyond those already in effect for the 2022 Credit Agreement and is subject to a monthly unused line fee of 0.25% on available borrowing capacity. As of the report date, no amounts had been borrowed against the 2024 Facility.

6. Income Taxes

The provision (benefit) for income taxes and effective tax rate were as follows:


	For the Three Months Ended
	September 29, 2024			October 1, 2023
Provision (benefit) for income taxes	$	2,177		$	(463	)
Effective tax rate		(39.9	)%		3.4	%

Income Tax Expense

UNIFI’s provision (benefit) for income taxes for the three months ended September 29, 2024 and October 1, 2023 was calculated by applying the estimated annual effective tax rate to year-to-date pre-tax book income and adjusting for discrete items that occurred during the period.

The effective tax rate for the three months ended September 29, 2024 and October 1, 2023 varied from the U.S. federal statutory rate primarily due to the U.S. generated losses for which UNIFI does not expect to realize a future tax benefit.

During the three months ended October 1, 2023, the Internal Revenue Service (the “IRS”) audit of fiscal years 2014 through 2019 was concluded with a net refund of $1,248. The impact from the audit adjustments to the prior periods was insignificant.

Unrecognized Tax Benefits

UNIFI regularly assesses the outcomes of both completed and ongoing examinations to ensure that its provision for income taxes is sufficient. Certain returns that remain open to examination have utilized carryforward tax attributes generated in prior tax years, including net operating losses, which could potentially be revised upon examination.

Following the conclusion of the IRS audit during the period ended October 1, 2023, UNIFI adjusted the uncertain tax positions for fiscal years 2014 through 2019 that were effectively settled. The impact from releasing the netted uncertain tax position liabilities was insignificant.

7. Shareholders’ Equity

On October 31, 2018, UNIFI announced that the Company's Board of Directors approved a share repurchase program (the “2018 SRP”) under which UNIFI is authorized to acquire up to $50,000 of its common stock. The share repurchase authorization is discretionary and has no expiration date. No shares have been repurchased in fiscal 2023 and 2024 and $38,859 remains available for repurchase.

8. Stock-Based Compensation

On October 31, 2023, UNIFI’s shareholders approved a First Amendment (the "First Amendment") to the Unifi, Inc. Second Amended and Restated 2013 Incentive Compensation Plan (the “2020 Plan”). The 2020 Plan set the initial number of shares available for future issuance (“share reserve”) pursuant to awards granted under the 2020 Plan to 850. The First Amendment increased the remaining share reserve by 1,100. No additional awards can be granted under prior plans; however, awards outstanding under a respective prior plan remain subject to that plan’s provisions.

The following table provides information as of September 29, 2024 with respect to the number of securities remaining available for future issuance under the 2020 Plan, as amended:


Authorized under the 2020 Plan	850
Plus: Share reserve increase from the First Amendment	1,100
Plus: Awards expired, forfeited, or otherwise terminated unexercised	220
Less: Awards granted to employees	(1,106	)
Less: Awards granted to non-employee directors	(204	)
Available for issuance under the 2020 Plan	860

Unifi, Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

9. Earnings Per Share

The components of the calculation of earnings per share (“EPS”) are as follows:


	For the Three Months Ended
	September 29, 2024			October 1, 2023
Net loss	$	(7,632	)	$	(13,270	)
Basic weighted average shares		18,255			18,084
Net potential common share equivalents		—			—
Diluted weighted average shares		18,255			18,084
Excluded from the calculation of common share equivalents:
Anti-dilutive common share equivalents		478			590
Excluded from the calculation of diluted shares:
Unvested stock options that vest upon achievement of certain market conditions		333			333

The calculation of EPS is based on the weighted average number of Unifi, Inc.’s common shares outstanding for the applicable period. The calculation of diluted EPS presents the effect of all potential dilutive common shares that were outstanding during the respective period, unless the effect of doing so is anti-dilutive.

10. Commitments and Contingencies

Collective Bargaining Agreements

While employees of UNIFI’s Brazilian operations are unionized, none of the labor force employed by UNIFI’s domestic or other foreign subsidiaries is currently covered by a collective bargaining agreement.

11. Related Party Transactions

Related party balances and transactions are not material to the condensed consolidated financial statements and, accordingly, are not presented separately from other financial statement captions.

There were no related party receivables as of September 29, 2024 and June 30, 2024.

Related party payables for Salem Leasing Corporation consisted of the following:


	September 29, 2024		June 30, 2024
Accounts payable	$	403	$	464
Operating lease obligations		251		301
Finance lease obligations		2,043		2,374
Total related party payables	$	2,697	$	3,139

The following were the Company’s significant related party transactions:


		For the Three Months Ended
Affiliated Entity	Transaction Type	September 29, 2024		October 1, 2023
Salem Leasing Corporation	Payments for transportation equipment costs and finance lease debt service	$	1,161	$	1,209

Unifi, Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

12. Business Segment Information

UNIFI defines operating segments as components of the organization for which discrete financial information is available and operating results are evaluated on a regular basis by UNIFI’s chief executive officer, who is the chief operating decision maker (the “CODM”), in order to assess performance and allocate resources. Characteristics of UNIFI which were relied upon in making the determination of reportable segments include the nature of the products sold, the internal organizational structure, the trade policies in the geographic regions in which UNIFI operates, and the information that is regularly reviewed by the CODM for the purpose of assessing performance and allocating resources.

UNIFI's three reportable segments are organized as follows:

•

The operations within the Americas Segment exhibit similar long-term economic characteristics and primarily sell into an economic trading zone covered by the United States-Mexico-Canada Agreement and the Dominican Republic-Central America Free Trade Agreement to similar customers utilizing similar methods of distribution. These operations derive revenues primarily from manufacturing synthetic and recycled textile products with sales primarily to yarn manufacturers, knitters, and weavers that produce yarn and/or fabric for the apparel, hosiery, automotive, home furnishings, industrial, medical, and other end-use markets principally in North and Central America. The Americas Segment consists of sales and manufacturing operations in the U.S., El Salvador, and Colombia.

•

The Brazil Segment primarily manufactures and sells polyester-based products to knitters and weavers that produce fabric for the apparel, automotive, home furnishings, industrial, and other end-use markets principally in Brazil. The Brazil Segment includes a manufacturing location and sales offices in Brazil.

•

The operations within the Asia Segment exhibit similar long-term economic characteristics and sell to similar customers utilizing similar methods of distribution primarily in Asia and Europe. The Asia Segment primarily sources synthetic and recycled textile products from third-party suppliers and sells to yarn manufacturers, knitters, and weavers that produce fabric for the apparel, automotive, home furnishings, industrial, and other end-use markets principally in Asia and Europe. The Asia Segment includes sales offices in China, Turkey, and Hong Kong.

UNIFI evaluates the operating performance of its segments based upon Segment (Loss) Profit, which represents segment gross (loss) profit plus segment depreciation expense. This measurement of segment profit or loss best aligns segment reporting with the current assessments and evaluations performed by, and information provided to, the CODM.

The accounting policies for the segments are consistent with UNIFI’s accounting policies. Intersegment sales are omitted from segment disclosures, as they are (i) insignificant to UNIFI’s segments and eliminated from consolidated reporting and (ii) excluded from segment evaluations performed by the CODM.

Selected financial information is presented below:


	For the Three Months Ended September 29, 2024
	Americas			Brazil		Asia		Total
Net sales	$	86,283		$	34,310	$	26,779	$	147,372
Cost of sales		87,661			26,373		23,880		137,914
Gross (loss) profit		(1,378	)		7,937		2,899		9,458
Segment depreciation expense		5,410			741		17		6,168
Segment Profit	$	4,032		$	8,678	$	2,916	$	15,626


	For the Three Months Ended October 1, 2023
	Americas			Brazil		Asia		Total
Net sales	$	81,573		$	29,909	$	27,362	$	138,844
Cost of sales		88,953			27,742		22,724		139,419
Gross (loss) profit		(7,380	)		2,167		4,638		(575	)
Segment depreciation expense		5,497			840		—		6,337
Segment (Loss) Profit	$	(1,883	)	$	3,007	$	4,638	$	5,762

The reconciliations of segment gross profit (loss) to consolidated loss before income taxes are as follows:


	For the Three Months Ended
	September 29, 2024			October 1, 2023
Americas	$	(1,378	)	$	(7,380	)
Brazil		7,937			2,167
Asia		2,899			4,638
Segment gross profit (loss)		9,458			(575	)
Selling, general and administrative expenses		11,842			11,609
Provision (benefit) for bad debts		312			(209	)
Other operating expense, net		520			54
Operating loss		(3,216	)		(12,029	)
Interest income		(257	)		(581	)
Interest expense		2,507			2,485
Equity in earnings of unconsolidated affiliates		(11	)		(200	)
Loss before income taxes	$	(5,455	)	$	(13,733	)

There have been no material changes in segment assets during fiscal 2025.

Unifi, Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

13. Investments in Unconsolidated Affiliates

Included within Other non-current assets are UNIFI’s investments in unconsolidated affiliates: U.N.F. Industries, Ltd. (“UNF”) and UNF America LLC (“UNFA”).

U.N.F. Industries, Ltd.

In December 2023, UNIFI dissolved its interest in UNF under an agreement whereby UNIFI agreed to pay the former joint venture partner $2,750 and recorded it as an associated contract termination cost within Restructuring costs on the Condensed Consolidated Statements of Operations and Comprehensive Loss. UNIFI made a payment to the former joint venture partner of $1,200 in the second quarter of fiscal 2024 and the remaining $1,550 was paid in the third quarter of fiscal 2024. Accordingly, the balance sheet information presented below as of September 29, 2024 does not include any amounts related to UNF.

UNF America LLC

Raw material and production services for UNFA are provided by Nilit America Inc. under separate supply and services agreements. UNFA’s fiscal year end is December 31, and it is a limited liability company located in Ridgeway, Virginia. UNFA is treated as a partnership for its income tax reporting.

In conjunction with the formation of UNFA, UNIFI entered into a supply agreement with UNF and UNFA whereby UNIFI agreed to purchase all of its first quality nylon POY requirements for texturing (subject to certain exceptions) from either UNF or UNFA. The supply agreement has no stated minimum purchase quantities and pricing is typically negotiated every six months, based on market rates. As of September 29, 2024, UNIFI’s open purchase orders related to this supply agreement, all with UNFA, were $1,465.

UNIFI’s raw material purchases under this supply agreement consisted of the following:


	For the Three Months Ended
	September 29, 2024		October 1, 2023
UNFA	$	3,689	$	3,126
UNF		—		—
Total	$	3,689	$	3,126

As of September 29, 2024 and June 30, 2024, UNIFI had accounts payable due to UNFA of $1,403 and $2,197.

UNIFI has determined that UNF was, and UNFA is, a variable interest entity and has also determined that UNIFI has been the primary beneficiary of these entities, based on the terms of the supply agreement. As a result, these entities should be consolidated with UNIFI’s financial results. As (i) UNIFI purchases substantially all of the output and all intercompany sales would be eliminated in consolidation, (ii) the entity balance sheets constitute 5% or less of UNIFI’s current assets and total assets, and (iii) such balances are not expected to comprise a larger portion in the future, UNIFI has not included the accounts of UNF and UNFA in its consolidated financial statements and instead is accounting for these entities as equity investments. The financial results of UNF and UNFA are included in UNIFI’s consolidated financial statements with a one-month lag, using the equity method of accounting and with intercompany profits eliminated in accordance with UNIFI’s accounting policy. Other than the supply agreement discussed above, UNIFI does not provide any other commitments or guarantees related to UNFA. As of September 29, 2024 and June 30, 2024, UNIFI’s investment in UNFA was $1,599 and $1,603, respectively.

Condensed balance sheet and income statement information for UNIFI’s unconsolidated affiliates (including reciprocal balances) are presented in the tables below.


	September 29, 2024		June 30, 2024
Current assets	$	5,954	$	5,758
Non-current assets		453		458
Current liabilities		3,208		3,009
Non-current liabilities		—		—
Shareholders’ equity and capital accounts		3,199		3,207

UNIFI’s portion of undistributed earnings		1,540		1,544


	For the Three Months Ended
	September 29, 2024			October 1, 2023
Net sales	$	4,210		$	4,741
Gross profit		515			638
(Loss) income from operations		(8	)		196
Net (loss) income		(8	)		165
Depreciation and amortization		7			14

Distribution received		—			—

Unifi, Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

14. Supplemental Cash Flow Information

Cash payments for interest and taxes consist of the following:


	For the Three Months Ended
	September 29, 2024		October 1, 2023
Interest, net of capitalized interest of $38 and $62, respectively	$	2,368	$	2,443
Income tax payments, net		2,558		1,633

Cash payments for taxes shown above consist primarily of income and withholding tax payments made by UNIFI in both U.S. and foreign jurisdictions, net of refunds.

Non-Cash Investing and Financing Activities

As of September 29, 2024 and June 30, 2024, $772 and $879, respectively, were included in accounts payable for unpaid capital expenditures. As of October 1, 2023 and July 2, 2023, $1,084 and $1,137, respectively, were included in accounts payable for unpaid capital expenditures.

During the three months ended September 29, 2024 and October 1, 2023, UNIFI recorded non-cash activity relating to finance leases of $0 and $1,633, respectively.

Unifi, Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

15. Other Financial Data

Select balance sheet information is presented in the following table.


	September 29, 2024			June 30, 2024
Receivables, net:
Customer receivables	$	79,089		$	80,050
Allowance for uncollectible accounts		(3,036	)		(2,713	)
Reserves for quality claims		(835	)		(745	)
Net customer receivables		75,218			76,592
Banker's acceptance notes		1,632			1,326
Other receivables		1,035			1,247
Total receivables, net	$	77,885		$	79,165

Inventories:
Raw materials	$	57,696		$	49,391
Supplies		12,206			12,160
Work in process		8,696			8,994
Finished goods		70,122			64,449
Gross inventories		148,720			134,994
Net realizable value adjustment		(3,370	)		(3,813	)
Total inventories	$	145,350		$	131,181

Other current assets:
Assets held for sale (1)	$	3,798		$	3,781
Vendor deposits		3,579			2,633
Prepaid expenses and other		2,554			2,133
Value-added taxes receivable		2,454			2,510
Contract assets		538			561
Total other current assets	$	12,923		$	11,618

Property, plant and equipment, net:
Land	$	1,904		$	1,897
Land improvements		16,409			16,409
Buildings and improvements		162,840			162,414
Assets under finance leases		18,030			18,030
Machinery and equipment		653,378			650,901
Computers, software and office equipment		25,744			25,464
Transportation equipment		10,755			10,710
Construction in progress		3,350			3,319
Gross property, plant and equipment		892,410			889,144
Less: accumulated depreciation		(694,857	)		(688,086	)
Less: accumulated amortization – finance leases		(7,809	)		(7,335	)
Total property, plant and equipment, net	$	189,744		$	193,723

Other non-current assets:
Recovery of taxes	$	5,794		$	5,543
Grantor trust		2,147			2,942
Investments in unconsolidated affiliates		1,599			1,603
Intangible assets, net		655			682
Other		2,257			2,181
Total other non-current assets	$	12,452		$	12,951

Other current liabilities:
Payroll and fringe benefits	$	8,978		$	7,140
Utilities		2,612			2,861
Incentive compensation		1,798			1,450
Deferred revenue		1,500			1,504
Property taxes, interest and other		4,035			4,707
Total other current liabilities	$	18,923		$	17,662

Other long-term liabilities:
Nonqualified deferred compensation plan obligation	$	2,175		$	2,008
Uncertain tax positions		1,161			1,109
Other		379			390
Total other long-term liabilities	$	3,715		$	3,507

(1) Assets held for sale as of September 29, 2024 relates to a warehouse located in Yadkinville, North Carolina. On October 30, 2024, this property was sold for $8,100 resulting in a net gain of approximately $4,300.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following is management’s discussion and analysis of certain significant factors that have affected UNIFI’s operations, along with material changes in financial condition, during the periods included in the accompanying condensed consolidated financial statements. A reference to a “note” in this section refers to the accompanying notes to condensed consolidated financial statements. A reference to the “current period” refers to the three-month period ended September 29, 2024, while a reference to the “prior period” refers to the three-month period ended October 1, 2023. Such references may be accompanied by certain phrases for added clarity. The current period and the prior period each consisted of 13 weeks.

Our discussions in this Item 2 focus on our results during, or as of, the three months ended September 29, 2024 and October 1, 2023, and, to the extent applicable, any material changes from the information discussed in the 2024 Form 10-K or other important intervening developments or information. These discussions should be read in conjunction with the 2024 Form 10-K for more detailed and background information about our business, operations, and financial condition.

Discussion of foreign currency translation is primarily associated with changes in the Brazilian Real (“BRL”) and changes in the Chinese Renminbi (“RMB”) versus the U.S. Dollar (“USD”). Weighted average exchange rates were as follows:


	For the Three Months Ended
	September 29, 2024		October 1, 2023
BRL to USD		5.55		4.89
RMB to USD		7.17		7.25

All amounts, except per share amounts, are presented in thousands (000s), except as otherwise noted.

Overview and Significant General Matters

UNIFI focuses on delivering products and solutions to direct customers and brand partners throughout the world, leveraging our internal manufacturing capabilities and an enhanced global supply chain that delivers a diverse range of synthetic and recycled fibers and polymers. Our strategic initiatives include (i) leveraging our competitive advantages to grow market share in each of the major geographies we serve, (ii) expanding our presence in non-apparel markets with additional REPREVE® products, (iii) advancing the development and commercialization of innovative and sustainable solutions, and (iv) increasing brand awareness for REPREVE®. We have increased our focus on sales opportunities beyond traditional apparel customers and continue to drive innovation throughout our portfolio to further diversify the business and enhance gross profit. We believe our strategic initiatives will increase revenue and profitability and generate improved cash flows from operations.

Current Economic Environment

The challenging environment for textile production and demand has adversely impacted our consolidated sales and profitability. In addition, the following pressures have been present: (i) the impact of inflation on consumer spending and (ii) elevated interest rates for consumers and customers, including the impact on the carrying costs of customer inventories. UNIFI will continue to monitor these and other aspects of the current environment and work closely with stakeholders to ensure business continuity and liquidity.

While we recognize the disruption to global markets and supply chains caused by the conflicts in Ukraine and the Middle East, we have not been directly impacted. Indirectly, we recognize that additional or prolonged impacts to the petroleum or other global markets could cause further inflationary pressures to our global raw material costs or additional unforeseen adverse impacts.

Input Costs and Global Production Volatility

Despite lowered input and freight costs and a marginally more stable labor pool recently, global demand volatility and uncertainty continued into fiscal 2025. The threat of recession and global tensions continue to create uncertainty. Such existing challenges and future uncertainty, particularly for rising input costs, labor productivity, and global demand, could worsen and/or continue for prolonged periods, materially impacting our consolidated sales, gross profit, and operating cash flows. Also, the need for future selling price adjustments in connection with inflationary costs could impact our ability to retain current customer programs and compete successfully for new programs in certain regions.

Key Performance Indicators and Non-GAAP Financial Measures

UNIFI continuously reviews performance indicators to measure its success. These performance indicators form the basis of management’s discussion and analysis included below:

•

sales volume and revenue for UNIFI and for each reportable segment;

•

gross (loss) profit and gross margin for UNIFI and for each reportable segment;

•

net loss and diluted EPS;

•

Segment (Loss) Profit, which equals segment gross (loss) profit plus segment depreciation expense;

•

unit conversion margin, which represents unit net sales price less unit raw material costs, for UNIFI and for each reportable segment;

•

working capital, which represents current assets less current liabilities;

•

Earnings Before Interest, Taxes, Depreciation and Amortization (“EBITDA”), which represents net loss before net interest expense, income tax expense, and depreciation and amortization expense;

•

Adjusted EBITDA, which represents EBITDA adjusted to exclude, from time to time, certain other adjustments necessary to understand and compare the underlying results of UNIFI;

•

Adjusted Net Loss, which represents net loss calculated under GAAP, adjusted to exclude certain amounts which management believes do not reflect the ongoing operations and performance of UNIFI and/or for which exclusion may be necessary to understand and compare the underlying results of UNIFI;

•

Adjusted EPS, which represents Adjusted Net Loss divided by UNIFI’s diluted weighted average common shares outstanding;

•

Adjusted Working Capital, which equals receivables plus inventories and other current assets, less accounts payable and other current liabilities; and

•

Net Debt, which represents debt principal less cash and cash equivalents.

EBITDA, Adjusted EBITDA, Adjusted Net Loss, Adjusted EPS, Adjusted Working Capital, and Net Debt (collectively, the “non-GAAP financial measures”) are not determined in accordance with GAAP and should not be considered a substitute for performance measures determined in accordance with GAAP. The calculations of the non-GAAP financial measures are subjective, based on management’s belief as to which items should be included or excluded in order to provide the most reasonable and comparable view of the underlying operating performance of the business. We may, from time to time, modify the amounts used to determine our non-GAAP financial measures. When applicable, management’s discussion and analysis includes specific consideration for items that comprise the reconciliations of its non-GAAP financial measures. We believe that these non-GAAP financial measures better reflect UNIFI’s underlying operations and performance and that their use, as operating performance measures, provides investors and analysts with a measure of operating results unaffected by differences in capital structures, capital investment cycles, and ages of related assets, among otherwise comparable companies.

Management uses Adjusted EBITDA (i) as a measurement of operating performance because it assists us in comparing our operating performance on a consistent basis, as it removes the impact of items (a) directly related to our asset base (primarily depreciation and amortization) and/or (b) that we would not expect to occur as a part of our normal business on a regular basis; (ii) for planning purposes, including the preparation of our annual operating budget; (iii) as a valuation measure for evaluating our operating performance and our capacity to incur and service debt, fund capital expenditures, and expand our business; and (iv) as one measure in determining the value of other acquisitions and dispositions. Adjusted EBITDA is a key performance metric utilized in the determination of variable compensation. We also believe Adjusted EBITDA is an appropriate supplemental measure of debt service capacity because it serves as a high-level proxy for cash generated from operations and is relevant to our fixed charge coverage ratio.

Management uses Adjusted Net Loss and Adjusted EPS (i) as measurements of net operating performance because they assist us in comparing such performance on a consistent basis, as they remove the impact of (a) items that we would not expect to occur as a part of our normal business on a regular basis and (b) components of the provision for income taxes that we would not expect to occur as a part of our underlying taxable operations; (ii) for planning purposes, including the preparation of our annual operating budget; and (iii) as measures in determining the value of other acquisitions and dispositions.

Management uses Adjusted Working Capital as an indicator of UNIFI’s production efficiency and ability to manage inventories and receivables.

Management uses Net Debt as a liquidity and leverage metric to determine how much debt would remain if all cash and cash equivalents were used to pay down debt principal.

Review of Results of Operations

Three Months Ended September 29, 2024 Compared to Three Months Ended October 1, 2023

Consolidated Overview

The below tables provide:

•

the components of net loss and the percentage increase or decrease over the prior period amounts, and

•

a reconciliation from net loss to EBITDA and Adjusted EBITDA, and

following the tables is a discussion and analysis of the significant components of net loss.

Net Loss


	For the Three Months Ended
	September 29, 2024						October 1, 2023
				% of Net Sales						% of Net Sales			% Change
Net sales	$	147,372			100.0		$	138,844			100.0			6.1
Cost of sales		137,914			93.6			139,419			100.4			(1.1	)
Gross profit (loss)		9,458			6.4			(575	)		(0.4	)	nm
SG&A		11,842			8.0			11,609			8.4			2.0
Provision (benefit) for bad debts		312			0.2			(209	)		(0.2	)	nm
Other operating expense, net		520			0.4			54			—		nm
Operating loss		(3,216	)		(2.2	)		(12,029	)		(8.6	)		(73.3	)
Interest expense, net		2,250			1.5			1,904			1.4			18.2
Equity in earnings of unconsolidated affiliates		(11	)		—			(200	)		(0.1	)		(94.5	)
Loss before income taxes		(5,455	)		(3.7	)		(13,733	)		(9.9	)		(60.3	)
Provision (benefit) for income taxes		2,177			1.5			(463	)		(0.3	)	nm
Net loss	$	(7,632	)		(5.2	)	$	(13,270	)		(9.6	)		(42.5	)

nm = not meaningful

EBITDA and Adjusted EBITDA (Non-GAAP Financial Measures)

The reconciliations of the amounts reported under GAAP for Net loss to EBITDA and Adjusted EBITDA were as follows:


	For the Three Months Ended
	September 29, 2024			October 1, 2023
Net loss	$	(7,632	)	$	(13,270	)
Interest expense, net		2,250			1,904
Provision (benefit) for income taxes		2,177			(463	)
Depreciation and amortization expense (1)		6,504			6,988
EBITDA		3,299			(4,841	)

Other adjustments (2)		—			—
Adjusted EBITDA	$	3,299		$	(4,841	)

(1)

Within this reconciliation, depreciation and amortization expense excludes the amortization of debt issuance costs, which are reflected in interest expense, net. However, within the accompanying Condensed Consolidated Statements of Cash Flows, amortization of debt issuance costs is reflected in depreciation and amortization expense.

(2)

For the periods presented, there were no other adjustments necessary to reconcile Net loss to Adjusted EBITDA.

Adjusted Net Loss and Adjusted EPS (Non-GAAP Financial Measures)

For the current period and the prior period, there were no adjustments necessary to reconcile Net loss to Adjusted Net Loss or Adjusted EPS.

Net Sales

Consolidated net sales for the current period increased by $8,528, or 6.1%, while consolidated sales volumes increased 7.7%, compared to the prior period. Net sales in the current period were higher primarily due to improved sales volumes in each of the reportable segments, along with favorable pricing in Brazil. Despite these sales volume improvements, volumes remain depressed, particularly in the Americas and Asia Segments as a result of continued weak global demand.

Consolidated weighted average sales prices decreased 1.6% which partially offset the volume increase. The decrease in sales prices was primarily attributable to sales mix and lower average selling prices in Asia and the Americas Segment, together with unfavorable foreign currency translation effects from the weakening of the BRL versus the USD within our Brazil Segment.

REPREVE® Fiber products for the current period comprised 30%, or $44,742, of consolidated net sales, compared to 31%, or $42,461, for the prior period.

Gross Profit (Loss)

Gross profit for the current period increased to $9,458 from a gross loss of $(575) in the prior period. Gross profit increased primarily due to (i) increased sales volumes, (ii) variable cost saving initiatives, (iii) improved productivity, and (iv) higher conversion margins. However, gross profit continues to be unfavorably impacted by weak fixed cost absorption in the Americas Segment, where utilization and productivity remain below historical averages due to depressed demand.

•

For the Americas Segment, gross profit increased primarily due to (i) higher sales volumes, (ii) higher conversion margins, and (iii) variable cost management efforts.

•

For the Brazil Segment, gross profit increased primarily due to (i) improved selling prices, (ii) higher sales volumes from market share gains, and (iii) lower material input costs due to lower costed inventories at the beginning of the quarter.

•

For the Asia Segment, gross profit decreased primarily due to lower conversion margins from a weak demand environment.

SG&A

SG&A did not change meaningfully from the prior period to the current period, nor did the change include any significant offsetting impacts.

Provision (Benefit) for Bad Debts

The current period and prior period provision reflect no material activity.

Other Operating Expense, Net

The current period and the prior period include foreign currency transaction losses (gains) of $489 and $(33), respectively, with no other meaningful activity.

Interest Expense, Net

Interest expense, net increased primarily due to lower interest income in the current period, associated with lower global cash balances.

Equity in Earnings of Unconsolidated Affiliates

There was no material activity for the current period or the prior period.

Income Taxes

Provision (benefit) for income taxes and the effective tax rate were as follows:


	For the Three Months Ended
	September 29, 2024			October 1, 2023
Provision (benefit) for income taxes	$	2,177		$	(463	)
Effective tax rate		(39.9	)%		3.4	%

The effective tax rate is subject to variation due to a number of factors, including variability in pre-tax book income; the mix of income by jurisdiction; changes in deferred tax valuation allowances; and changes in statutes, audit settlement, regulations, and case law. Additionally, the impacts of discrete and other rate impacting items are more pronounced when loss before income taxes is lower.

The decrease in the effective tax rate is primarily attributable to a decrease in the valuation allowance on deferred tax asset balances adjusted by the IRS audit of tax years 2014 through 2019, which was concluded during the prior period. The impact of this on comparative results is heightened by a smaller loss before income taxes in the current period.

Net Loss

The improvement in net loss was primarily attributable to increased gross profit, partially offset by foreign currency transaction losses, higher interest expense, net, and higher income tax expense.

Adjusted EBITDA (Non-GAAP Financial Measure)

Adjusted EBITDA increased primarily attributable to increased gross profit, partially offset by foreign currency transaction losses.

Segment Overview

Following is a discussion and analysis of the revenue and profitability performance of UNIFI’s reportable segments for the current period.

Americas Segment

The components of Segment Profit (Loss), each component as a percentage of net sales, and the percentage increase or decrease over the prior period amounts for the Americas Segment, were as follows:


	For the Three Months Ended
	September 29, 2024						October 1, 2023
				% of Net Sales						% of Net Sales			% Change
Net sales	$	86,283			100.0		$	81,573			100.0			5.8
Cost of sales		87,661			101.6			88,953			109.0			(1.5	)
Gross loss		(1,378	)		(1.6	)		(7,380	)		(9.0	)		(81.3	)
Depreciation expense		5,410		6.3				5,497			6.7			(1.6	)
Segment Profit (Loss)	$	4,032			4.7		$	(1,883	)		(2.3	)	nm

Segment net sales as a percentage of consolidated amounts		58.5	%					58.8	%
Segment Profit (Loss) as a percentage of consolidated amounts		25.8	%					(32.7	)%

The change in net sales for the Americas Segment was as follows:


Net sales for the prior period	$	81,573
Increase in sales volumes		6,692
Change in average selling price and sales mix		(1,982	)
Net sales for the current period	$	86,283

The increase in net sales for the Americas Segment from the prior period to the current period was primarily attributable to higher sales volumes, partially offset by a lower-priced sales mix. Both periods were unfavorably impacted by the continued weak global textile demand environment.

The change in Segment Profit (Loss) for the Americas Segment was as follows:


Segment Loss for the prior period	$	(1,883	)
Change in underlying unit margins and sales mix		6,069
Change in sales volumes		(154	)
Segment Profit for the current period	$	4,032

The increase in Segment Profit for the Americas Segment from the prior period to the current period was primarily attributable to higher conversion margins primarily due to improved variable cost management efforts. Segment Profit for the Americas Segment continues to be negatively impacted by a lower proportion of fiber sales volumes. As fiber products carry a higher selling price and allocation of production costs versus Chip and Flake, lower fiber production drives weaker fixed cost absorption and adversely impacts gross profit and gross margin.

Brazil Segment

The components of Segment Profit, each component as a percentage of net sales, and the percentage increase or decrease over the prior period amounts for the Brazil Segment, were as follows:


	For the Three Months Ended
	September 29, 2024					October 1, 2023
				% of Net Sales					% of Net Sales		% Change
Net sales	$	34,310			100.0	$	29,909			100.0		14.7
Cost of sales		26,373			76.9		27,742			92.7		(4.9	)
Gross profit		7,937			23.1		2,167			7.3	nm
Depreciation expense		741			2.2		840			2.8		(11.8	)
Segment Profit	$	8,678			25.3	$	3,007			10.1		188.6

Segment net sales as a percentage of consolidated amounts		23.3	%				21.5	%
Segment Profit as a percentage of consolidated amounts		55.5	%				52.2	%

The change in net sales for the Brazil Segment was as follows:


Net sales for the prior period	$	29,909
Increase in average selling price and change in sales mix		4,952
Increase in sales volumes		3,007
Unfavorable foreign currency translation effects		(3,558	)
Net sales for the current period	$	34,310

The increase in net sales for the Brazil Segment from the prior period to the current period was primarily attributable to (i) higher average selling prices due to increasing raw material costs and (ii) an improvement in sales volumes from market share gains, partially offset by unfavorable foreign currency translation effects from the weakening of the BRL versus the USD.

The change in Segment Profit for the Brazil Segment was as follows:


Segment Profit for the prior period	$	3,007
Increase in underlying unit margins		5,722
Increase in sales volumes		303
Unfavorable foreign currency translation effects		(354	)
Segment Profit for the current period	$	8,678

The increase in Segment Profit for the Brazil Segment from the prior period to the current period was primarily attributable to (i) higher conversion margins and (ii) an increase in sales volumes discussed above, partially offset by unfavorable foreign currency translation effects. We continue to prioritize innovation and differentiation to improve our portfolio and competitive position in Brazil.

Asia Segment

The components of Segment Profit, each component as a percentage of net sales, and the percentage increase or decrease over the prior period amounts for the Asia Segment, were as follows:


	For the Three Months Ended
	September 29, 2024					October 1, 2023
				% of Net Sales					% of Net Sales		% Change
Net sales	$	26,779			100.0	$	27,362			100.0		(2.1	)
Cost of sales		23,880			89.2		22,724			83.0		5.1
Gross profit		2,899			10.8		4,638			17.0		(37.5	)
Depreciation expense		17			0.1		—			—	nm
Segment Profit	$	2,916			10.9	$	4,638			17.0		(37.1	)

Segment net sales as a percentage of consolidated amounts		18.2	%				19.7	%
Segment Profit as a percentage of consolidated amounts		18.7	%				80.5	%

The change in net sales for the Asia Segment was as follows:


Net sales for the prior period	$	27,362
Change in average selling price and sales mix		(1,704	)
Increase in sales volumes		819
Favorable foreign currency translation effects		302
Net sales for the current period	$	26,779

The decrease in net sales for the Asia Segment from the prior period to the current period was primarily attributable to changes in sales mix, partially offset by (a) an improvement in sales volumes compared to the prior period despite continued weak global demand, particularly for apparel and (b) favorable foreign currency translation effects due to the strengthening of the RMB versus the USD.

The change in Segment Profit for the Asia Segment was as follows:


Segment Profit for the prior period	$	4,638
Change in underlying unit margins and sales mix		(1,920	)
Increase in sales volumes		139
Favorable foreign currency translation effects		59
Segment Profit for the current period	$	2,916

The decrease in Segment Profit for the Asia Segment from the prior period to the current period was attributable to a decline in gross margin rate associated with a change in sales mix of REPREVE products, partially offset by (a) the increase in sales volumes and (b) the favorable foreign currency translation effects.

Liquidity and Capital Resources

Note 5, “Long-Term Debt” to the condensed consolidated financial statements includes the detail of UNIFI’s debt obligations and terms and conditions thereof. Further discussion and analysis of liquidity and capital resources follow.

UNIFI’s primary capital requirements are for working capital, capital expenditures, and debt service. UNIFI’s primary sources of capital are cash generated from operations, borrowings available under the 2022 Credit Agreement, and 2024 Facility. For the current three-month period, cash used by operations was $12,834 and, at September 29, 2024, availability under the ABL Revolver was $38,645.

As of September 29, 2024, all of UNIFI’s $131,691 of debt obligations were guaranteed by certain of its domestic operating subsidiaries, while nearly all of UNIFI’s cash and cash equivalents were held by its foreign subsidiaries. Cash and cash equivalents held by foreign subsidiaries may not be presently available to fund UNIFI’s domestic capital requirements, including its domestic debt obligations. UNIFI employs a variety of strategies to ensure that its worldwide cash is available in the locations where it is needed.

The following table presents a summary of cash and cash equivalents, borrowings available under financing arrangements, liquidity, working capital, and total debt obligations as of September 29, 2024 for domestic operations compared to foreign operations:


	Domestic		Foreign		Total
Cash and cash equivalents	$	479	$	13,224	$	13,703
Borrowings available under financing arrangements		38,645		—		38,645
Liquidity	$	39,124	$	13,224	$	52,348

Working capital	$	73,177	$	101,769	$	174,946
Total debt obligations	$	131,691	$	—	$	131,691

Borrowings available under financing arrangements are generally collateralized by receivables and inventory owned in the U.S. and generally constrained by the fixed charge coverage ratio and trigger level prescribed in the 2022 Credit Agreement. Accordingly, not all of such funds are immediately available for use in UNIFI's operations. UNIFI’s primary cash requirements, in addition to normal course operating activities (e.g., working capital and payroll), primarily include (i) capital expenditures that generally have commitments of up to 12 months, (ii) contractual obligations that support normal course ongoing operations and production, (iii) operating leases and finance leases, (iv) debt service, and (v) share repurchases.

Liquidity Considerations

Following the establishment of the 2024 Facility, UNIFI believes its global cash and liquidity positions are sufficient to sustain its operations and to meet its growth needs for the foreseeable future. Additionally, UNIFI considers opportunities to repatriate existing cash to reduce debt and preserve or enhance liquidity. However, further degradation in the macroeconomic environment could introduce additional liquidity risk and require UNIFI to limit cash outflows for discretionary activities while further utilizing available and additional forms of credit.

We do not currently anticipate that any adverse events or circumstances will place critical pressure on our liquidity position or our ability to fund our operations and expected business growth. Should global demand, economic activity, or input availability decline considerably for an even longer period of time, UNIFI maintains the ability to (i) seek additional credit or financing arrangements and/or (ii) re-implement cost reduction initiatives to preserve cash and secure the longevity of the business and operations. Management continues to (i) explore cost savings opportunities and (ii) prioritize repayment of debt in the current operating environment.

When business levels increase, we expect to use cash in support of working capital needs.

The following outlines the attributes relating to our credit facility as of September 29, 2024:

•

UNIFI was in compliance with all applicable financial covenants in the 2022 Credit Agreement;

•

excess availability before the Trigger Level (as defined in the 2022 Credit Agreement) under the ABL Revolver was $20,755;

•

the Trigger Level was $17,890; and

•

$0 of standby letters of credit were outstanding.

In addition to making payments in accordance with the scheduled maturities of debt required under its existing debt obligations, UNIFI may, from time to time, elect to repay additional amounts borrowed under the ABL Facility and 2024 Facility. Funds to make such repayments may come from the operating cash flows of the business or other sources and will depend upon UNIFI’s strategy, prevailing market conditions, liquidity requirements, contractual restrictions within the 2022 Credit Agreement, and other factors.

Liquidity Summary

UNIFI has met its historical liquidity requirements for working capital, capital expenditures, debt service requirements, and other operating needs from its cash flows from operations and available borrowings. UNIFI believes that its existing cash balances, cash provided by operating activities, and credit facility will enable UNIFI to meet its foreseeable liquidity requirements. For its foreign operations, UNIFI expects its existing cash balances, cash provided by operating activities, and available financing arrangements will provide the needed liquidity to fund the associated operating activities and investing activities, such as future capital expenditures. UNIFI believes its operations in Asia and Brazil are in a position to obtain local country financing arrangements due to the operating results of each subsidiary.

Net Debt (Non-GAAP Financial Measure)

The reconciliations for Net Debt are as follows:


	September 29, 2024		June 30, 2024
Long-term debt	$	119,324	$	117,793
Current portion of long-term debt		12,153		12,277
Unamortized debt issuance costs		214		229
Debt principal		131,691		130,299
Less: cash and cash equivalents		13,703		26,805
Net Debt	$	117,988	$	103,494

The increase in Net Debt primarily reflects the increase in inventories and capital expenditures during the current period.

Working Capital and Adjusted Working Capital (Non-GAAP Financial Measure)

The following table presents the components of working capital and the reconciliation of working capital to Adjusted Working Capital:


	September 29, 2024			June 30, 2024
Cash and cash equivalents	$	13,703		$	26,805
Receivables, net		77,885			79,165
Inventories		145,350			131,181
Income taxes receivable		1,355			164
Other current assets		12,923			11,618
Accounts payable		(41,250	)		(43,622	)
Other current liabilities		(18,923	)		(17,662	)
Income taxes payable		(1,510	)		(754	)
Current operating lease liabilities		(2,434	)		(2,251	)
Current portion of long-term debt		(12,153	)		(12,277	)

UNIFI INC 10-Q