Q1 2021 Unifi Inc Earnings Call

Pandemic. To set ourselves up for a better long-term business when we come out of the Cove it we pay down our net debt to a record level. Our cash position is strong. We've reduced inventories, but I'd say we've right-sized our inventories. We began placing are Innovative evil cooler equipment and we brought in a new CEO Eddie Engle. Although I'd say Eddie is not New Jersey had a thirty year career with unified before he came back and forth you may recall for the last 18 months or so. We've had quite a bit of management turnover with the addition. We've now completed an entire reset of our leadership team at unifying and I feel that each member on the team is not only the right person for the job, but they're also highly motivated and working well together. So I'm optimistic about our progress and quarter one and as I look out over quarter to but we still have a great deal of work to do and there's still a fair amount of uncertainty in the environment. They're operating wage.

So it makes it difficult to forecast with any level of precision. So all considered I believe our industry is recovering nicely and we're slightly ahead of that pace of our industry. So I I leave quarter one with a positive feeling right now. So for more detail on our performance for q1, let me turn it over to our CEO Thursday to provide you with more highlights and good morning. Everybody. Is that one patient's we're all proud of our first quarter fiscal 2021 results and believe we are well-positioned for the fiscal year.

Reflecting on the pandemic. I want you again thank all of our employees for their dedication to the business and our customers to date their safety measures have allowed us to maintain Lode KO kase numbers while continuing to operate our business and navigate to recovery. Well, I'm fly three, we provided an overview of the quarter on a sequential quarter basis Revenue rebounded sharply from the birth of fiscal 2020 the blood say that the business improved as we went through the quarter.

our strongest

Any performance during the first quarter was in Brazil as a region experienced a fantastic rebound resulting in the highest quarterly sales volumes on record.

What are volumes still good growth from the fourth quarter of fiscal 2020 the team there also did a great job managing their costs and improving the product mix allowing for gross margin expansion pack.

The beginning of the quarter of Central American operation in El Salvador restarted and is now running at full capacity interestingly as we ramped up operations. We saw additional growth and convergence and branded options for reprieve branded product in the region supply chain that we've talked about in the past that predominately feeds the US market.

I stayed in the last quarter of called. We looked towards returning to growth on a year-over-year basis like fiscal twenty one year end. And the first quarter is providing solid romantic for this aspiration wage. I'd like now to give you a little more detail on performance of our end markets and our segments for the first quarter.

Each market recovery has been slightly ahead of our expectations with automotive and Industrial markets hovering around 15 to 25% below pre pandemic levels.

Why we continue to provide solutions for the personal protective equipment Market or PPE as it's known are volumes are at a lower level from earlier in the year and we expect revenues from this end Market to taper off at the time demek receipts.

And I'm pleased to say as I had mentioned earlier that to October. We haven't seen any negative developments in our major regional markets categories.

Funniest a second experience strong demand and Order flow compared to the fourth quarter of 2020. But of course over on a year-to-year basis volume of lower while the pandemic has created uncertainties. It is also driven us to continue to focus on improving revenues and exploring new business opportunities. Also, please say that raw materials remain stable for the segment Thursday. We believe that the short-term Outlook remains unchanged

Given our leading Market position and the volume levels in the first quarter. It is naturally allowed us to absorb a much greater level of fixed costs when compared to the June quarter, which has contacted our profitability positively really cheap sales and market share growth compared to both the recent June quarter and more importantly the prior-year.

Out of all of our segments is the only thing the strongest recovery with record sales volumes in the first quarter and made the demand in certain the uncertainty in Brazil over the last six months competitive importers of Texas yesterday arms reduce their inventory of stocks our business remain committed to the customer experience and we were ready to serve when demand recovered quicker than expected in the region off accordingly. We were able to absorb market share previously held by competitive importers maximize facility utilization and capitalize on the situation going forward. We will work to log on to our market share games.

within the region

Visibility as in many areas is restricted for the remainder of the fiscal year outside of Brazil. The Asia segment is also recovering nicely the segment experience solid pull through the existing and new customer programs resulting an improvement over the fourth quarter of 2020, but more importantly getting us closer to pre pandemic levels.

Throughout the region we saw enrichment in the product mix lead to improved gross margins demand in this segment is tied to North American and Western European retail sales, which due to the accelerated math online sales is expected to continue to improve as we move through the fiscal year. Of course. This is all dependent on the US and Western European economies and the service entrance.

And not on segments performed near our expectations and our remain optimistic about its long-term performance and place in our portfolio is not a surprise to us that the recovery this segment has been the slowest of all our segment and we were met committed to developing and commercializing new products that we have revitalized this segment.

Looking at our business from a product perspective. I'm very pleased to share that you're the first quarter the pre fiber products 35% of Consolidated sales compared to 31% during the same time last year. I compared to 28% in the June 2020 quarter.

The first quarter increase in the pre-sales can be largely attributed to our efforts of bringing Sustainable Solutions to Brands looking to fulfill their commitments towards more sustainable practices and an ever-expanding portfolio of sustainable products.

With the proliferation of e-commerce shopping consumers can more readily evaluate a product based on sustainability consumers can also gain a better understanding of the product story as there is far more realistic online vs. In-store.

Perhaps even more importantly sustainability related keywords on fashion products has grown exponentially and Marketplace see retailers have created new internal platforms to help them and identify sustainable product.

We are working with our customers who produced the most advantageous co-branding activation possible to help market and identify merchandise as sustainable growth. Thereby creating awareness for both reprieved and our customers products. We have many examples of these co-branding programs such as in the apparel space where Hollister has launched print graphic hoodies and sweatpants with our logos visible undergarments just to say Adam is promoting your premium and they're girls denim line and also have future expansion plans Paramount are well-known work where brand has received new photos with reprieve contents.

In Europe Turkish Prime Tenchi and retailed bornia are touting a variety of items across categories containing reprieve in Italy a couple recalls on Deck has added reprieved to a variety of their iconic active or lines and danish Footwear brand angle is promoting sustainable garments by touting its inclusion of reprieve across several others product interesting me postal purchase and for rent.

Several accessory brands are promoting with Walter just released a line of soft-sided rebranded coolers Fitbit has expanded into woven wristbands made from across their Versa sent and charged portfolios.

And it should be no.

Okay, that Nixon has launched the first reprieve are open collaboration in their H2O me a bag line as the first North American brand to user privar ocean invariable Friends facts during the quarter. We saw our China market returns to in-person trade shows with participation in intertextile Shanghai where we large too important wage Innovative products for free polyester and wrap reflex ration for buy components threat John's here in the US just last week at the High Point Furniture Market wage. When is the largest Furniture Market Gatherings that exists in our backyard right here in North Carolina, we distributed the reprieve mobile tour at the end person High Point Furniture Market, and I was honored to deliver a keynote speech on the topic that's near and dear to my heart sustainability in textiles as stated in the previous quarter's called with the right Market consolidation opportunities. Come along we're going to take the time.

evaluate them

seven saying that supporting our portfolio is even more earlier this month. We acquired the air jet texturing assets of texturing Service LLC or what we call TSI. This transaction is a step forward in our efforts to capitalize m&a activity mistakes of our core competencies. We're both on Acquisitions are favorable.

We expect the additional markets and customers gain from this acquisition will complement our existing portfolio. Well and falls right in giving that we already have our own history in the air jet stream.

TSI primarily services non-apparel and markets. So this acquisition provides us for some segments diversification as well on this call. We will not be discussing any specific Financial details of either the transaction for how much TSI would increase our sales volume and revenue as this transaction had no impact to the just-completed quarter.

Our financial position continues to strengthen with the quiddity levels in excellent shape and proud of the strides. We have made in improving our balance sheet and remain committed to improving and maintaining good financial help with that. I'm going to turn the call over to Craig. Thank you. Thank you and good morning everyone like the rest of the team. I am pleased with our first quarter of fiscal 2021 results in a building to maintain favorable cash and liquidity positions. There's plenty of work remaining in fiscal 2021 as a business continues its path to recovery and Beyond but our position of strength is already on this Thursday.

Alan Eddie provided a great overview of the first quarter and I would like to add just a few spots on pages four and six of the webcast presentation. We compared our net sales and gross profit performance the just-completed quarter to the pandemic impacted fourth quarter of fiscal 2020 Eddie shares the relevant highlights and his comments on pages five and seven of the presentation our traditional year-over-year comparison of q1. This'll 20-21 to q1 fiscal 2024 net sales and gross profit is shown the Broadband that except for Brazil the year-over-year volume shortfalls are impacting our results why we could go through the normal commentary the general answer of having lower sales activities would be the reason for this so we will skip that analysis for this order and hopefully the sales gap for December for the December 2020 quarter will be small enough to return to a normal more meaningful compact.

some commentary

One item for the just-completed quarter that is worth discussing is the effective tax rate. Our tax rate was more typical in the prior-year at around 16% of expense. But for the just completed that we benefited from a favorable discreet item related to the recent legislation around the high tax Global intangible low tax income concept commonly referred to as guilty driving a point seven million dollar discreet benefit. This tax rate changed between. Allowed net income and EPS to remain quite similar from q1 fiscal 2022 Q5 physical twenty twenty-one.

Eight of the webcast presentation. I will discuss the balance sheet highlights.

The graph presented here provides the trend of net debt and the components debt principal and cash. We need to see the significant progress. We have made and strengthening and maintaining our liquidity position beginning with the onset of the pandemic and continuing with diligent balance sheet manage management during the first quarter of recovery.

We continue to have zero borrowings on rapl revolver with availability of approximately fifty six seven point six million dollars and we have not requested any changes or concessions to age or repayment terms.

A cash position and current credit facility continues to provide us with the ability to maintain a balanced approach to Capital allocation prioritizing investments in business and growth opportunities supported by debt reduction and share repurchases at the appropriate time are now turn the call back to Eddie to take us to the last slide of the presentation and make some final comments Eddie Murphy Craig. I'll turn to slide 9 to the presentation to provide some context around our next three quarters of fiscal 2021 before opening up for two and in the first quarter strong performer our confidence that will continue to see incremental progress during fiscal 20-21. We anticipate profitability will follow the expected to sales Trends considering any routine seasonality for sales and expensive or this is the human we don't see any economic shutdowns related to the band demek in our core regents.

Sales have a pre and value-added products are expected to continue recent growth rates and that's percentage of our Consolidated sales.

Last name given the momentum from the first quarter. We also believe our annual cap expand will fold in the range of 22 to perhaps twenty-five million dollars.

I believe our first quarter is a great indication of what we can achieve once our markets return to normal. We will continue to focus on managing our costs and working capital using our Innovation and Technology platforms to drive portfolio growth and partnering with brand leaders that look towards providing sustainable products for the remainder of the year. We will continue to keep our people safe while not forgetting to investing their development. So the long-term we can continue to play on the positive Financial open momentum as the recovery unfolds will now open up the line for questions. Thank you.

If you would like to ask an audio question, please press star.

One on your telephone keypad again. That's star one to ask an audio question. Please hold while we compiled the Q&A roster.

Your first question comes from a line of Chris McGinnis. What's the Odeon company? Good morning. Thanks for taking my questions and next quarter. So congrats I get to start off with maybe just on the volume increase for 1224 to you know, do you think there's some pent-up demand that that may be playing into that or is that what this more of a back to normal order pattern? How do you feel about that? And then you just talk about you know this change in in terms of demand for her. And and the the conversations you're having those increased under provision in in what do you think? They're driving back home?

Is there I think you know, there is demand that is being fulfilled to fulfill to replace the depleted inventory that's occurred. So I am also seeing an increase especially in areas like Central America where they're preparing for the Christmas season, so we know that the quick-turn supply chain and Central America allows the brand in the US money to fulfill the market demand very very quickly compared to China. We're still seeing logistic issues come from China that don't affect us but it does affect the apparel supply chain and also in the autistic markets, you know that business is coming back very nicely and that's a significant part of our business.

And very interesting the Upholstery and Home Furnishings Market is also returning as people we all have stories where people are renovating their homes buying new homes, or just kind of looking at the same old furniture and that is driving an increase in that demand in that segment for us. Also, in fact Brazil. That was where we saw this the largest increase in wage in the home furnishing sector. So I think all that is plays very well into our reprieve and if you somehow consumers are connecting this month issue the pandemic issue with climate change and are trying to do something of a sustainability point of view. They're much more conscious today at what they're buying and it's been driven by the Millennials and gen Z and so they're gravitating towards buying Sustainable Solutions sustainable products, and I think that's where

And the brands are also seeing a lot of benefit by co-branding with our priests. Thank you Chris. This is Melinda said that it seems that in the first part of the COVID-19 say to the middle of the summer. Not much discussion about sustainability and I even thought I wonder if they'll be a decline in the interest in sustainability. And then I say late summer into right now with significant increase in the discussions were having with the big Brands and the and the big customers. I think they take their sustainability Target very seriously now and they realized we can play a role in in their accomplishment of those objectives. The other thing I've noticed is as you start looking at the executives who run the important jobs and some of these companies their money or their the the early edge of the Millennials and these young people take their jobs very seriously when it comes to improving the sustainability.

That's great.

And especially congrats on getting starting to get more co-branding. Uh, you know, I think that's something that people I'm looking forward to for a long time. So congrats on that would work just a jump in on on that box or just two quick questions left just on Brazil, you know, I know volatility in the currency kind of plays into demand Trends there. How are you going to approach that business a little bit differently than say maybe in the past so that that does not happen, you know is it's all totally comes back into that.

Well, I don't think we could do anything from a currency perspective. But what we are focused on is that we saw this in the last quarter is really committing to servicing our customers that are very very high level. You know, we were there and the Importer stopped servicing that market significantly the Imports I think in Brazil went down about 35% over that time. And the local customers had to look to us to service that demand. So what is really highlighted was is maybe there's an opportunity to expand expand our operations there or up to running that operation a little bit more intensely and having buildings more inventory slightly to service that market. But definitely we had given customers a reason to pause and rethink about importing versus buying domestically great. Thank you. And then just one last question just on the gross gross margin Improvement.

How much is that is a factor of the cost savings versus maybe better utilization and you just might be talking about for utilization is at the moment, you know any quicker on that wage.

Chris this is Craig the gross profit Improvement. Definitely benefited from The Rebound in the utilization for sure. That was a very significant piece of of the gross. Margin that we definitely have had a fair amount of cost control actions and items that help as well. But the largest piece of that was was the recovery in the volume levels and I think again just that's being careful about cost that we've added into the business. We've been very very careful on that over the last several quarters even pre pandemic. I think with the volume increases. We we got a nice night. Check in the in the gross. Margin we do have we do have some room to grow and as we sat we think we will continue through the rest of this fiscal year seeing higher levels of activity if what we're seeing in October it's going to continue to to try and we will start to use up some of the additional capacity we have in our facilities. We do not feel like we're dead.

Thinking strange. We feel like we should be able to hit the recovery nicely with the capabilities. We have put I'll jump back into but thanks for taking my questions and good luck and Q2.

Your next question comes from the line of Daniel more with c j s security. Good morning gentlemen. Thanks for taking the questions.

I mean maybe just a little more color on the Cadence of volume or Revenue in you know, I guess both polyester as well as Asia interests of the sequential Improvement July August September and now went to October. What do you over your declines look like in October for those two segments?

Then we really as we stated in the commissary really since that low point in April we've seen the Gap clothes each month as we're comparing the the current month in June to the comparable month in calendar 2019. Um for us the the gap for uh for October was the smallest that has changed. It's definitely noticeably smaller than the you know, twenty 20% or so that we were off for the whole quarter and we're starting to now get into the kind of struggling to hover around the wage or a single digits as far as percentage off. So that's where it's been trending. It's been pretty radical during that whole period of time there hasn't been one month that there was a sudden, you know, huge change. It's just been this nice steady incremental change progressing to to now what is starting to be a more reasonable Gap from our performance from last year.

Very helpful and and just to clarify. I know it's not guidance per se but your commentary going forward and and based on that Trend it certainly sounds like you expect sequential Improvement both top-line and bottom-line obviously borrowing any you know, major Resurgence of covet excetera. But as we as we go forward, that's true. We we should be thinking about sequential progress in both from fiscal q1.

We definitely think from a revenue perspective. We are we are anticipating continued progress there. We do have danced and seasonality and some other things that will impact both in December quarter. Also in the March quarter. I think the other thing to Note 2 is we will we have them pretty limited on a lot of the discretionary spending customers as types of activities during this quarter and we are starting now to see some of that actually pick up and we have anticipated in forecasted that that will continue to pick up Eddie and I are both mentioned something about the brand kind of Engagement that's needed. And yes, we've been doing a lot of that via conference calls and and consumes and things like that, but there is a bit of pent-up demand where we may have quite a bit of demand that we want to get out and we'd be seeing this customer so that will increase a bit. I think that will put some some extra dollars into the sg&a line items going forward dead.

But overall we are expecting again. The broader team is that continues Improvement, especially on the top line. And again, we'll have some seasonality over the next couple of quarters or so. Go ahead. Yeah, just a little more color on that that as we speak to customers and Brands. They're very bullish on the Christmas season. So I think their their confidence in a Commerce platforms and is a fair amount of apparel business being done on e-commerce as we go into the Christmas season, then what happens after Christmas. I'm not sure if you know with with any level of precision, but listen, I'm optimistic of what I'm hearing from the apparel people.

Understood. Okay. Yep, please. Yeah.

I think was in China, you know because of the supply chain there. It's servicing now the March April. For what it makes and we're seeing continued growth and adults. I mean most of what they sell is actually reprieve. So we're seeing continued adoption by a different brands and that's really impacting the growth rate in in China and its deadly going back to pre pandemic levels that we as we mentioned. We're not expecting that to change and it's really driven. Like I said earlier, it's the Western European and in your friends may be confident in what they expect to sell in the March 8th. Based on what we're seeing in China. Thank you Eddie. That's great. That's helpful polyester. Are you starting to see more practical benefit from tariffs and trade activity or is it simply too difficult to separate that from the sort of covet?

Going into the Q3 last year. We did see an improvement in our in our demand for these dating displacing import and of course code would took the wind out of our sails today. We are seeing a Resurgence in Return of some of that business coming back and we do believe as we go through the next three quarters of that will returned to us as customers. Not only enjoy, uh, the fact that we're we have products to sell that is compliant, but also the fact of Quick Service and we have good payment terms and we have very very good quality. So we are seeing that product line product mix come back and but it's been it has been slow, but we definitely expect to see that as we move through the next few quarters. Thank you.

Perfect, maybe one or two more. I'll jump out Brazil. You give pretty good color, you know, obviously it sounds like the recovery is extend wage. Well beyond just the core apparel Market, but just maybe a little more color on the what's driving that turn around and the sustainability of it from your perspective.

So traditionally we have been very apparel focus in Brazil. We also have a line of goods that go into Home Furnishings wage and like the rest of the world people seem to be focusing on their their home environments, whether it's converting some of their home into work space or making their home more comfortable spending more time in there. And that's definitely it's it's pretty interesting. We can absolutely see the Home Furnishing whether it's going into curtains or bedding or upholstery wage at home has been a step change in that market in Brazil and we we don't see that that changing the short-term. So we've been right there ready on the apparel side.

Yeah, because of the exchange rates change.

It's also made the power producers domestically in Brazil more competitive. So we're seeing that there is more production of apparel being made in that country than there had been a it's a year ago, and they're the local producers overpowered the more competitive with the apparel Imports and we're more competitive with our yards because our local costs are off. All right cheaper than they had me in the past. So we are very excited about what's happening in Brazil. And as I said earlier, we do see an opportunity to perhaps expand our Market wage long-term.

Thank you.

Very good and maybe one more just in terms of capital allocation, you know, as far as m&a is concerned what are some of the other end markets outside of apparel that you intend to that that text drink service will help you help you attack and you know, are you seeing more opportunities to redeploy Capital in terms of m&a, you know over the next few years. Thanks. Take part of that question. Maybe Craig wants to add to it TSI as we set on the call is is

Has a market focus on the market that is very different to our traditional are detection business. We sell a lot of protection business that goes to your peril or military most of the products 5% of the product said t s I was selling was into non-apparel non-military into younique specialty end-users when you are jets extra yarn, it makes it much stronger and resilient home and it was interesting to see their portfolio. Once we acquired their business and it is going to be very very complimentary but it's non-apparel non-military and very very special T and uses which gives us a little bit of a margin uptick compared to the traditional narrative section products. So we may end up expanding that business further down, but that's to be determined once we

Get our teeth into the to the business but Craig. Yeah, and and then I'll just add to that the the m&a yes were you know, we're interested in finding businesses that are you know, a good strategic fit for younified that that can take advantage of the significant facility and infrastructure that we have and and if they're of good values as well and and we and we like it when there is and Market diversity such as t s is providing to us. So really working all those together that's kind of what's of interest to us. And you know, we continue to be active as opportunities are out there. But you know, we're pleased with the CSI acquisition and you know, we'll be able to give you more details on that as we integrate that business during this quarter.

Okay, perfect. That's a lot for me. Just Echo. It's exciting to see the acceleration in the co-branding opportunity. So look forward to more to come. Thanks for thanks for the call. Thanks. Thanks. I hope you dance dance.

Next question comes from the line of Marco Rodriguez with Stonegate capital.

Good morning, everyone. Thank you for taking my questions. Hey, I wanted to kind of follow up on a on a couple of questions that I've already been asked specifically on the gross margins. Am I I understand the sequential improvements in the volume and the drivers there, but I'm I'm curious that maybe you can talk a little bit more about that year every year kind of comparison, but you still obviously had lower volumes compared to last year. Same quarter yet margins across most of your segments were were much much greater example as well as nylon you have about half the the sales but a commensurate or same gross margin level wage. I've heard the commentary returns utilization picking up and and some cost savings, but it maybe you can discuss that a little bit more detail. Maybe put more buckets there or if there any sort of dead

One-time items that really kind of help help the the gross. Margin. This quarter would be helpful.

I think Marco I think in addition to that slide. I think the year-over-year sales comparison probably on Slide Five is helpful as well too long. I think you see a couple of things when you when you look at that chart you do see the skill of the volume decreases. Yes, but I think also too we're we have that. We got taken quite a bit of activity from from to one of FY 2020 which was a period where we were not actively taking costs out of business and not making a lot of actions there. We we get a lot of that into two in to 3 during during the pandemic even in this just-completed quarter. So I think that's really dead. We talked a little bit about the volume increasing or the you know, the the the rebound that we've seen and being able to tackle that without adding a lot of additional resources beyond what we already have.

Ready, so I think that's part of the theme as well too mostly though. It's really just that utilization better utilization. There are some individual, uh, you know, Market changes and mix changes Blended in there, but the broader team continues to be the increase in utilization. How did you want to add to that one thing we were very diligent and taking out costume to $4 and some of that has obviously as you can tell sold over into q1, we will continue to focus on cost reduction but as our business expands and as a reprieve you expand we will not be supporting our customers in Our Brands by sending a little bit more and marketing as as crediting earlier. So we're always going to be conscious of how we spend money and we close same time. I'm not going to be afraid to support the brands and retailers who are who believe in our

Yes.

Okay, and so as the year progresses in terms of the kind of whatever quote unquote guidance that you're providing with a sequential Improvement sandwich have some year-over-year growth by the end of the fiscal 21 on the gross margin perspective. Just kind of given what you've done to take some costs out. How long have you guys reset a normalized gross margin environment for you guys. Once you do hit a normalized sales environment or are those going to have to be kind of put back in place of support the growth and support your your your customers?

Yeah, I think it's more I think we're now entering into a bit of a more normalized. Margin area. I think you know, there's some psychological benefits of having that gross margin above that 10% level and we're we're proud that we achieve that in a in a still recovering. Just this past quarter, you know, we think that that Marco is is really an issue Target for us again takes a lot of hard work from a lot of people and a lot of different areas, but we believe that that's that's still a very good basis for us to be working towards. I think it's a lot of small incremental steps. It's getting up there not some revolutionary thing that's happening. But we are on the right right track. And again, I think the the margin profile that we had this quarter wage should be a should be a decent proxy for what we're expecting for the rest of the year. It wasn't, you know, drastically. Hi drastically low versus where we expected to be the rest of the year.

Got it, very helpful then switching here to Brazil in your prepared remarks. You guys have talked about obviously trying to you took some share in the quarter in Europe to look to basic kind of hold that share going forward and you did discuss, um, you know, the strategies in terms of you increasing your customer support services and your levels they're just wondering if there are any sort of strategies or or implementations. You'll be looking at the kind of hold that chair as you go through the fiscal year, but in the short-term, we will be probably having a simple thing to have a shorter Christmas shut down till we can build inventories to be ready for the rebounding in January. We normally have an extended shutdown and we will take this opportunity to replenish the regular finished goods inventory that we have that's not a simple sort of basis long-term longer than that. We are looking at what else we can do to provide more support to that market wage.

And which we are not available yet to close. Thank you.

Understood and and in last quick question here Alan your prepared remarks you had outlined for different goals or accomplishments that you guys have done here. Year-to-date are trying to 12 months. But then you also mentioned the fact that you obviously have some more work to do and I was wondering if maybe you can kind of elaborate on that and then be a next 12-24 months. What are those specific goals or targets or or objective? You guys are looking to accomplish, you know mentioned a couple of the video keeps jumping from work color. I would say, uh, we have more work to do meaning that getting the sales back to your you know year ago three pandemic levels and I think that we see it in in division. We just can't tell exactly when it's going to come back as we don't know what kind of you know some bumps in the road from the pandemic, but overall we feel pretty good about it. Some of the things we need to work on. I would call it getting out and selling our line of reprieve to customers in a month.

Progressive fashion, you know to take advantage of this interest in the environmental sustainability and then to bring some of the Innovations aligned like this reprieve.

Nylon and reprieve ocean plastic. I think have great potential customers are interested. So that's an opportunity to sell Innovation. I think the placement of these evil coolers it's early days, but we're very very impressed with what these machines can do for us in terms of cost reduction and you'll will have more to talk about the end of the next quarter. So those are two things that we're working on it and the other thing which is a soft side is the development of our team, you know for the last 18 months. We've been replacing managerial Talent. We've been putting senior leadership in place. We're at a point now where we dive back into the deeper into the company and start to develop our young people. We have a great group of young people in this organization that are passionate about environmental sustainability and we've just begun to put some let's call it Talent Development programs in place for these folks. I'm very optimistic about that part of the business even though it's a soft part of the business.

It pays dividends down the road.

Yeah, I just had one thing basically out of said most of what I would have said but I think as a group most of our sales teams are zoomed out as often and they're ready to get back and get face-to-face with the customers and we have just recently begun inviting customers into our site obviously taking all the safety protocols and we know that young people into our facilities. It makes a difference whether they're friend or direct customers and it just brings that physical connection back. But obviously we have to be very careful. We don't offer an extensive tours of a used to but it's not getting face-to-face with a customer would make a difference so and network we're doing more and more of that. Thank you all zoomed out. I agree with that.

Well, that's great. Thank you guys for the color. I really do appreciate the time.

Yep. Thank you. Thank you. Thank you.

If you would like to ask a question, please press star one on your telephone keypad. Again, that's star one to ask an audio question.

Your next question comes from the line of Samantha Handley with keybanc Capital Market.

Good morning, everyone. Thanks for taking our questions and congrats on the quarter our first question Hi. How are you? First can you talk about the growth opportunities you see for reprieve either picking up new customers or expanding your relationship with existing?

Yeah, you never has been a long journey and we started back in 2007 and you know as we've said many times before it started with just a couple of customers who believed in sustainability as a brand the first customer brand that we worked with was not easy and as we knows them as they you know, their core is sustainability.

and

And we were talking about just you know several years ago. It didn't seem to resonate with many many customers or friends. But today fast-forward, you know, six months after the pandemic has has thoughts on global. We are seeing more and more thoughtfulness around how can each company deal with the sustainability efforts and money. You know, it's like I said earlier it is odd that somewhat odd that people are relating this pandemic with what's happening going on with climate change and what's happening with themselves as a month and when people couldn't get things in the store, they they were finding things were scarce. It was the first time probably a lot of people in the US have experienced especially they the Millennials and the year is expected Shorty's, you know, even if they go online, sometimes it takes time to get the product cuz it's not actually in stock so all of this

Translate into resources and carbon Footprints and we're just seeing the brand say I've made commitments now. I'm actually going to follow through and I think that's the way key thing off brands are saying I have to be part of the solution and reprieve is there to help these Brands weather there in upholstery markets are automotive markets or apparel markets or industrial markets. We're seeing interest they want to be part of the solution and it seems like we're right now with the right place at the right time, even though been working on this journey for over thirteen years. Thank you Samantha. I just wanted to add to that. So when when the company first came up with reprieve I would say it took about ten years to get to the $20 billion bottles recycled Mark. So $20 off of that a while back this year will achieve $23 billion. So ten years to get the 20 just one year or two years to get another three. We think by the end of next month.

Will be at 30 billion bottles of give you an in that gives you a little bit of an indicator of the the acceleration.

Yeah, well, that's that's that's pretty something to be proud of. So, do you go along with that regarding sustainable? Fashion is do you think that's something consumers will continue to pay up for even through a recession?

Yes, actually yes I do and we're seeing that and not only is it going to Consumers willing to spend a little bit more money they're actually looking for more sustainable product so the volume that we're we're hearing from the Browns the volume of these sustainable products that they're marketing is actually growing and we're seeing that in the number of hangtags we measured by hangtags that we give out and that is increase from year or a year fiscal 2020 versus fiscal nineteen and I'm seeing in q1 an increase in the Hang tags with distributed Q 1 20 21 verse of 220. So we're we're we're excited about off the ability for us to help friends sell their sustainable story reprieve is transparent and traceable. It's it's third-party certified and it can be trusted is it?

trusted Rams that is

It's very easy for other major brands to it tops. And I think that's what's really driving the the growth the fact it can be trusted and is transparents one of the opportunities we have as many many customers that will say here's a Hager slack made with reprieve and they'll talk about it. There's many customers that use reprieve and don't speak about it. And I think that's one of the challenges as a marketing organization is is to convince some of our other customers to spend more time talking about real brief.

Gotcha. And then my last question is I know you touched on this a bit already, but could you talk a little bit more about if you're off now Partners have given any indications on margins or sales for the upcoming holiday season?

Well, I need to say is that for example in El Salvador? We're running our plan full there and that feeds the US market as a quick turn supply chain. So there is a brand we're having discussions with the friends and they seem to be confidence that it would be a good season and the company mainly because I am seeing their online sales happened earlier than normal. It seems like people you you've all heard it. There is no longer buying season now going into Christmas people know that there are short is a product so they have device so they the whole phenomenon of trying to buy all your presence in December is really being spread out over a longer time. Which gives the

Brian time to react from a supply chain perspective and Central America is perfectly poised perfectly situated to respond to that. I think what we can't tell it was off to some of these brands or retailers. You're very optimistic about their e-commerce ability to you know, get these products to market place for Christmas holidays. What he don't know is what's the store truck going to look like cuz still the majority of the business is done in retail in the bricks-and-mortar. So it's you know, I'm optimistic, but I would not forecast it because we just don't know yet but I here's the bet I would make if consumers are not travelling and they're not taking as many vacations during this holiday season. I think they have more money in their pocket to spend on a parallel.

Yeah, the the big question for us is to 3 and to 4. That's why we haven't given a forecast. We you know, it's we can see this quarter and the supply chain but it's beyond that Beyond Chris Rock Hard to predict but I agree with what I always said is it sure we can all we all have our own stories around fact, we're not traveling. I'm not going out as much so that will translate into a Genesis of hard Goods.

Got it. That was really helpful. Thank you guys and congrats again on a good quarter. Thank you, Samantha.

With no further questions. We'd like to thank everyone for participating today our next earnings release for the second fiscal quarter ending December 27th, 2020 is tentatively scheduled for Wednesday, January 27th. Twenty one after the close of Market with a conference call to follow the next morning, Thursday, January 28th, 2021 at 8:30 a.m. Eastern time. Thanks again for joining today's call back. Thank you.

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