Q3 2021 Unifi Inc Earnings Call
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Ladies and gentlemen, todays conference is scheduled to begin shortly please continue to standby. Thank you for your patience.
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Yeah.
Ladies and gentlemen, thank you for standing by and welcome to the Unifi third quarter fiscal year 2021 conference call.
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I would now like to hand, the conference over to your speaker today, a J Eaker Vice President of Finance. Please go ahead Sir.
Thank you Christina and good morning, everyone on the call today is al Carey Executive Chairman and he Engle, Chief Executive Officer, and Craig <unk>, Chief Financial Officer. During this call management will be referencing a webcast presentation that can be found at unified dot com and by clicking the conference call Link management advises you that certain statements.
Included in todays call will be forward looking statements within the meaning of the federal Securities laws management cautions that these statements are based on current expectations estimates and projections about the markets and what's your Unifi operates these statements are not guarantees of future performance and involve certain risks that are difficult to predict actual outcomes and results may differ.
<unk> from what is expressed forecasted or implied by these statements. You are directed to the disclosures filed with the SEC on Unifi as forms 10-Q, and 10-K regarding various factors that may impact. These results also please be advised that certain non-GAAP financial measures such as adjusted EBITDA adjusted EPS adjusted working capital.
And net debt may be discussed on this call.
I will now turn the call over to Al Carey. Thank.
Thank you a J and good morning, everyone. Thanks for joining us today on our call and I want to get the call started with a few comments about our overall performance for unifies third quarter, and then I'll turn the presentation over to Eddie Ingle and also Craig Korea Tour, who will provide you with the details.
So all in all we had a solid quarter three and stronger than we anticipated and we continued to see a steady recovery from the pandemic Brazil.
And Brazil, and Asia business had very strong sales and gross profit performance.
And whether you look at it versus Q3 of last year or versus the previous quarter.
North American sales saw a year over year growth in March. So we now have all three regions showing solid growth trajectory.
Our EBITDA performance was very positive in Q3, our balance sheet continues to be strong as does net debt and our overall financial performance and really puts us in a position. So that we can invest and growth as we move into the future.
And if you look at Q4, while there's still some uncertainty and the Brazil market and even the U S market with regards to COVID-19.
And even with that we see a path to sequentially improving our sales for Q4, and finishing the fiscal year and a weighted sets us up for a strong 2022.
I'd like to tell you about one positive trend, that's growing and the market that's worth noting.
There's a very definite momentum for sustainable products from consumers and also from our customers. This bodes well for Reprieves future and we can hear this and the discussions that we have with our customers and and their future plans for not only apparel, but also home furnishings footwear and also automotive.
And the customers are increasing their commitments to making products using recycled material and they're actually taking action on those commitments. This quarter three we've seen the repreve hang tags with our co branding partners increased by 80%.
And now that number year to date is 50% so that we can see the trends continuing to strengthen.
For the fiscal year, we expect to end the year at 90 million hang tags on products across the marketplace. So the awareness of our brand is climbing and a very positive way.
As I turn the call over to Eddie Let me just say one other thing the management team at Unifi is now seeing the benefit of being in place and working together for multiple quarters. After what I'd consider to be a fairly good and stable management situation over previous years. This.
And this is now starting to pay dividends and it's become a clear driver of our improved performance and I got to say that I'm very proud of the team and I'm grateful for their resiliency over these last 12 months so with that.
Let me turn it over to Eddie Ingle, our CEO of Unifi.
Thanks, Bill and good morning, everyone and as Al mentioned, our third quarter fiscal 2021, and yourself surpassed our initial expectations and are a testament to our strong global presence and the resilience of both our employees and our business model.
This quarter would not have been possible about the many contributions from our employees and I want to once again, thank all of our team members for their dedication to the business and especially to there to our customers.
And their compliance to the safety measures, we put in place over a year ago has allowed us to maintain low COVID-19 case numbers, while continuing to operate our business effectively and navigate their recovery.
On slide three we have provided an overview of the quarter the business demonstrated another quarter of significant strength.
And I'm very happy to report, we exceeded pre pandemic revenue levels.
Q3 revenues were up 10% sequentially and 5% on a year over year basis with solid performance across all segments and geographies.
We generated a 530 basis point improvement and gross margin year over year due to the strong results, we saw and our Brazil and Asia segments.
Brazil had the strongest segment performance during the third quarter and momentum in that region continued world class Q2, and improved selling prices and product availability during Brazil's economic recovery, that's a strong margin performance.
Our Asia segments also demonstrated strength during Q2 Q during Q3 as volumes continue to trend up year over year <unk>.
Experiencing a meaningful return to growth.
Our team and Asia has continued to successfully manage costs and improve product mix, allowing for gross margin expansion.
And in regards to the U S raw material cost and supply chain. The March 2021 quarter was the most volatile period, we've seen and quite a few years.
Many people and businesses and Texas experienced harsh weather conditions and February but we were fortunate that our supply chain remained operational, albeit with surcharges on selected input materials and freight.
Combination with rising petrochemical prices.
Our raw material costs exhibited a meaningful step up during the March 2021 quarter.
With those higher costs and now and our business, we have been working closely with our customers to ensure that the appropriate selling price adjustments are implemented.
We do expect some margin pressure to occur into Q4 from the inherent lag that occurs during such a process. However, we do remain confident confident and our underlying business momentum and our responsiveness and investing these cost headwinds.
Stepping back to the consolidated business again, our financial position remains strong and easily supported the two bolt on acquisitions, we completed in the fiscal 2021.
In addition, and I'm proud of the progress we've made with improving our balance sheet across the globe.
Switching to Repreve branded fiber I am pleased to report that momentum remains comprising 33% of net sales in this Q3.
And Q3 versus 29% for the year ago quarter.
And as you can see on slide four the trend remains strong.
Sequentially Repreve fiber was lower than our record Q2 performance and this is not a concern due to the typical seasonality of the Chinese new year and the outperformance by Brazil is predominantly version platform.
We have several exciting brand highlights and touch on today, starting with our traditional co branding partnerships, which have continued to accelerate.
Real trading launched their new fishing shirts at Walmart, which contained repreve and carry the iconic repreve green bottle hang tag.
In addition, 11 a brand by Venus Williams launched a women's tennis coat collection that co brands with Repreve.
These launches represent and extension of repreve into broader sporting goods categories.
And the home goods category, we continue to win new business and launched several programs this quarter.
Our customer marinas carpets, and Turkish producer and retailer of carpeting launched a line of carpeting made from Repreve and.
And additionally in the U S earlier.
Oh leaves Acme to launched ambient renew and new line of eco friendly window coverings, using repreve and the face and PVC.
From a marketing and media perspective, we had a remarkable few months working with various partners to promote repreve and sustainability benefits for them and of course for society.
For example, you may have caught the TV ads that feature Repreve during the Phoenix Open golf tournament.
Created by the newly rebranded W. M.
And for me known as waste managements.
W. M as a major supplier of bailed recycled plastic bottles used in our U S Bothell, Washington facility.
And announced in February that they will be outfitting their staff with uniforms made from Repreve via our customers Aramark and Santos.
In addition to being our customer W. M is working on additional rebounding campaigns, which will continue to repeat your repreve and unify and sepsis dziedzic sustainable partner, who enables recycling.
W and we will continue to air 32nd commercials on National television and that feature how unifies U S based manufacturing transforms recycled plastics.
It also mentioned that through our partnership with Al two brands and Pepsi's sponsorship of the Super Bowl halftime show T shirts made with Repreve were provided a surprise for pepsi's social media followers.
And March our sponsorship of the Pact trial and teen Green resulted in additional television advertising on the Pac 12 network and E. S. P M with circular economy stories and explain how we take bottles from member University campuses and transform them into well known branded apparel that can be purchased from their university bookstores.
We believe that telling these stories will enhance repreve equity and brand awareness and the broader consumer market.
Our momentum continues to build and partnerships such as these have propelled.
<unk> growth.
This quarter, we hit a milestone of 25 billion bottles recycled into Repreve. This.
And this growth led us to congratulate our valued customers who drove us to this point with the announcement of our fourth annual champions of sustainability Awards in March.
These awards celebrate and bought a cat milestones achieved by our customers as well as newcomers and partners and innovation.
Now turning to our operating segment performance during the third quarter I will provide some high level commentary on each segment before Craig takes you through more specific details.
Polyester came in a little lower on a year over year basis, and the shortfall can be attributed to last year's ramp up and demand is antidumping volumes drove stronger utilization and sales trends just prior to the impact of COVID-19.
That said over the last nine months.
And the polyester segment has shown strength achieving.
Achieving a gross margin of 10% during the pandemic versus eight 2% and the prior pre pandemic comparable period.
The Asia segment delivered another strong quarter as business conditions continue to improve and net sales surpassed pre pandemic levels.
Volumes in Asia were up significantly and benefited from pulled through on new and existing customer programs.
And Brazil as Al noted had another record setting quarter and beat our own internal forecast.
Similar to the outperformance we experienced in the region during the first and second quarter. Our unique market position has continued to allow us to take market share that was previously held by competitive and borders.
Our team and Brazil and continues to do great work and it's been able to capture even more and fulfill demands.
We will work to hold onto our market share gains within the region, but note that the COVID-19, Lockdowns that lasted from late March into April are expected to impact volumes in the June 2021 quarter.
With that said as Brazil works its way out of the recent spike in COVID-19 cases, and the country's retail environment opens back up in the coming months, we anticipate that volume will ramp back up to normal levels. During the first quarter of our new fiscal year.
And lastly, the nylon segment performance met our expectations for the quarter, reflecting a balanced sales level.
And before I pass the call over to Craig I will simply remind everyone that our ongoing trade petitions involving textured polyester yarn imported from four countries, Indonesia, Malaysia, Thailand, and Vietnam continue as expected. We anticipate further determinations will be published and the next two months with that I will turn the call over to Craig.
Correct.
Thank you Eddie and good morning, everyone like the rest of the team I am pleased with our third quarter fiscal 2020, one results and our ability to navigate the complexities of this recovery with a regional and responsive business model.
Because of these strong results, we were able to return to our quarterly comparative discussions on a year over year basis, which is something that we had not been able to do for the past several quarters.
I will begin with a quick overview of profitability before moving on to slide five.
Operating income and adjusted EBITDA were up significantly from Q3 fiscal 2020.
The increase is primarily attributable to the gross profit outperformance by Brazil.
Aided by robust results from Asia.
Operating income and adjusted EBITDA and the just completed quarter included two specific expense items that are worthy of additional commentary.
First we recognized the remaining fiscal 2020, one maximum bonus expense in Q3 of fiscal 2020 one due to the overall outperformance of unifies adjusted EBITDA from our consolidated business.
As such we recorded approximately $2 $4 million of expense and the just completed quarter that was originally anticipated for the fourth quarter of fiscal year, 2020 one.
And this additional expense approximately two thirds affected SG&A expense and the other one third effective cost of sales.
Second as our installation of new.
E F K Evo texturing machines, and Yankee Bill North Carolina and continues to ramp up we disposed of some older machinery with remaining book value generating and noncash loss of $2 $5 million and this third quarter.
This was included in other operating expense and the income statement and was not added back to our calculation of adjusted EBITDA.
Now, let's turn to slide five four and net sales growth.
Consolidated net sales increased to 178 $9 million up four 6% and $171.0 million and Q2 fiscal 2020.
For the polyester segment prior period sales volumes were boosted by the Finalization of anti dumping trade tension petitions against China, and India and combinations with customers accelerating purchases and February 2020, and.
And in anticipation of April.
March 2020 Lockdowns.
The Asia segment exhibited a return to pre pandemic momentum with continued underlying demand from Repreve driving segment revenue growth of 25, 5%.
And Bill segment maintained its position of market strength and.
Adjusting prices to accommodate movements and global pricing dynamics.
And competition.
Driving 22, 1% revenue growth inside of a much weaker Brazilian real and then one year ago.
And.
And the nylon segment was essentially flat to the prior year with a shift and sales mix. After the first three months of impact from the recently completed fiber and yarn acquisition, which was a positive contributor to both revenue and profitability for this segment.
Slide six provides an overview of gross profit.
Exhibiting the 66% increase and gross profit and 530 basis point increase in gross margin from Q3 fiscal 2020 to Q3 fiscal 2021.
Gross profit for the polyester segment increased $190000 as the shortfall in sales volume was more than offset by and improved sales mix.
The Asia segment was able to increase gross profit by $2 $6 million or 290 basis points from and improved sales mix and supply chain efficiencies.
And Brazil, we were able to triple gross profit from $3 $4 million to $10 $6 million and achieved a record gross margin of 41, and 2% due to higher pricing levels underpinned by a strong market position.
The nylon segment was essentially flat in comparison to Q3 of fiscal 2020.
Slide seven and eight in crude and net sales overview and gross profit overview, respectively for the nine months ended March 2021 versus March 2020.
Those two slides exhibit the momentum that we have addressed elsewhere on this call as our dynamic global business model has been able to capture opportunities during this business recovery.
Moving onto the balance sheet on slide nine stability, and our debt and liquidity positions as demonstrated by and maintaining diligence around working capital components and generating cash flows while completing two bolt on acquisitions during this fiscal 2020 one.
Great progress recently on our net debt metrics, we continue to have zero borrowings on our ABL revolver, which had and availability of $63 million as of March 28 2021.
And unifies commended to financial health has allowed us to leverage our strong balance sheet during 12 months challenged by the global pandemic.
We will continue to allocate capex to new U K F K Evo texturing technology and the Americas.
Under our balanced approach to capital allocation, we will continue to invest and the business to drive innovation and organic growth.
We maintain a strong balance sheet and remain opportunistic with share repurchases and M&A opportunities.
And now I'll turn the call back to Eddie to take us through the last slides of the presentation and make some final comments.
Thank you Craig.
I'll conclude with slide 10 of the presentation and provide some context around our expectations for the fourth quarter of fiscal 2021.
You'll note we were able to include more detailed forecast information and we have been able to provide and the past couple of quarters as our business visibility continues to return to let me say more normal levels.
The third quarter's strong performance supports the expectation we laid out earlier in the fiscal year that we would see incremental progress and net sales trends throughout fiscal 2020 one we.
We are encouraged by recent sales trends and our Repreve and other value added products and expect recent strength to continue.
This sustained business momentum the company anticipate sales volumes to increase and June 2021 court and net sales to improve sequentially from the March 2021 quarter by approximately 1% to 3%.
Its adjusted EBITDA for the fourth quarter of fiscal 2021 is expected to be and the range of 12 million and $14 million and includes our current expectations for the following.
The pandemic uncertainty, especially following a quarter of record performance from the Brazil segments.
Raw material cost increases that occurred in the March 2021 quarter that will adversely impact gross profit for the June 2021 quarter due to the inherent lag and responsive selling price adjustments.
But those impacts.
Really upset by a lack of incentive compensation expense due to the full recognition during the first nine months of fiscal 2021.
Lastly, we expect and effective tax rate of between 45, and 55% and given the momentum from the third quarter or fourth quarter Capex should.
Should fall.
And the range of $10 million to $12 million.
I believe our strong performance during the just completed quarter affects the resiliency of our global business model and what we can achieve under normal market conditions.
Going forward, we continue to focus on managing our costs and selling prices and working capital to drive gross margin improvement.
Using our innovation to partner with global brand leaders interests, and sustainable products and and efforts to diversify and grow our portfolio.
And maintaining our strong financial position and strong balance sheets to expand our opportunities to further organic growth and.
And strategic M&A.
We will now open up the line for questions. Thank you.
And as a reminder to ask a question. Please press star one to withdraw your question press the pound key.
Please limit yourself to one question and one follow up one.
One moment for your first question.
Your first question.
It comes from the line of Chris Mcginnis with Sidoti and company.
Thanks, and nice quarter.
If we could start off just on the raw material you know what's changed since I think the last time, we've seen your fire and a pretty volatile period of raw material.
Can you just talk maybe a little bit about maybe the strength and relationship with the customer base.
The Big thing is the areas, where <unk> grown to a bigger percentage of sales does that change there.
And the positioning to get price increases through quicker can you just talk a little bit about your thoughts around the increases and and how easy can pass it along.
And yes, Chris Thanks for the question.
We have experienced like we said a significant raw material increases that were on and we weren't and suspecting this but I think what happened and Texas really highlighted for a lot of people some of the difficulties with some of the supply chains and Fortunately we werent.
Impacted from a supply chain point of view, but from a raw material point of view, we do traditionally lag increases we gave our customers a time.
Time to adjust there and what we're doing is no different from and all of our competitors, but I do I do believe that securing this Q4.
Tommy reach out of Q4, most of the raw material increases that we.
And have to pass onto our customers due to raw materials will have been implemented there'll be some residual that would be what happened and the beginning of.
Our new fiscal year due to the index and that we have with some of our customers, but I think the environment is everybody knows raw material prices are going up there is inflation and.
It's a natural take from our customers, albeit they they don't like it and and we don't like passing it on but we are we are managing to get them and I think on the Repreve side.
And that is because we have had increased demand in the region and particularly in the U S and Central America, we certainly people to understand that.
Bill.
The strength of our brands and because of the tightness and.
And this and the market for recycled products and I.
And we're able to get the full increase there during this quarter. Thank you.
Great and thanks for that info.
And I guess, just to stay home and Repreve and it sounds very successful huxley and and seems to be ramping up.
Can you just talk about the changes and the conversations you are having is just be the.
And the environment being pushed by the consumer where are you seeing the biggest kind of.
Request as you start to.
See this increase in demand.
Come in from on the sustainable side.
But really and as you said it is driven by the consumer, but what I think the big point.
0.2 is the brands that service to consumers. They are recognizing that the consumer wants this and we're and the right. We're in the sweet spot to be able to deliver that globally growth here and in Asia.
So the if you look at the Nike's, New sustainability report that there the commitments, they're making Oran and sustainable products. If you look at Walmart and.
And so whether it's a big brand or a big retailer everybody's out there declaring our sustainability targets and a lot of that is due to the inputs.
And polyester is a perfect product and because it can be recycled and and is recycled and very high rates around the world and you know with our Repreve brand that has transparency and traceability and gives that Brian comfort and we are the natural go to <unk>.
Company to supply that sustainability needs and Chris.
Chris This is al Gary I, just wanted to add to eddies answer it.
Can't be precise on this but sometime around August and September as we've moved through COVID-19.
Appeared that the momentum went up for environmental sustainability pretty significantly and we start seeing that the discussions went up also just one observation and some of the key leaders and these retailers and brands are.
And our millennials, they're starting to get to that stage of their careers, where they're taking over pretty big roles and these companies and they're starting to get close to the 2000 and twenty-five commitments at some of these companies have in terms of the amount of recycled material. They include and their products. So if you have a goal by 2025, you Gotta get moving now.
Otherwise you missed the goal and I don't think any of those companies want to do that.
Sure and I appreciate that thanks, and I'll jump back in queue alright, Thanks for taking my question.
Your next question comes from the line of Daniel Moore with C. J S Securities.
Yes. Thank you. Good morning, just really quickly Thomas you are on the call and if this does mark your last call and official capacity Unifi just thank you for all the help over the years and and particularly your candor and straightforward approach its been really excellent to work with you and refreshing. So thank you.
Just wanted to maybe touch on the.
North America first poly it flipped to positive growth in March I think I heard do you expect that to continue into Q2 and beyond particularly given kind of easier pandemic related comps.
And any further color update on the trade dispute progress would be helpful.
Thanks, Dan.
And sure Tom and I appreciate that comment.
Regarding North America, we are continuing to see growth and demand.
And.
And we do see this continuing in Q4, and then and beyond and and the beyond and part is is definitely related to the antidumping and issues that we took place.
That we initiated back in December we will get a preliminary ruling sometime in late may sometime in early June and that will we think be the impetus to further accelerate the growth of volume and North America kick.
Particularly in the U S.
Very helpful and.
I mean, maybe just dig into Brazil, a little bit you know kind of been boom to bust back to boom.
As the COVID-19 crisis is the.
Is it limited and competition is that a big factor and and margin profile. The big margin gains number one and number two just how do we think about how system, what's kind of a realistic sustainable gross margin level.
You know longer term basis.
Yeah, I think there's two questions and windows on the volume side and yes, the retail environment did get.
Get constrained and late.
And late March and then into into April and.
We are seeing the retail farm and open up and that is giving.
Giving us confidence that the volumes as we.
And this quarter. This April through June period, the volumes, we expect to return to normal margins were exceptional and as you know and you.
That was pretty boom boom, and we do believe that it would come back to the normal margin range, but because the volumes will be up there. The total gross profit in the business will be.
And forwards are something that we will be quite good.
Pleased with.
Okay and just.
Last housekeeping, what's driving the tax rate in Q4, and you know.
What's and expectations for a more normalized rate and so we think about fiscal 'twenty two.
Yeah I think.
Dan for Q4, we've got a mix of earnings U S and internationally, we are catching a bit of a higher rate because of more tax on the guilty Ah hi, techs are here and in this nine month period that we just completed we're also expecting that in June as well.
We're not able to use as much foreign tax credits as we have and the past.
Periods as well so that's driving the bit of a higher rate going forward, we think that'll normalize a little bit really the key for that is as we continue to improve the profitability and in the U S that has an overall balancing ore blending impact that's favorable to unify and that will push down the rate a little bit more and long term. So as we look out longer term.
And it'll be a more reasonable rate and that kind of large rate that we're expecting from Q4.
Alright, congrats momentum and look.
Forward here and more shortly thank you.
Thank you.
As a reminder to ask a question. Please press star one.
Your next question comes from the line of Marco Rodriguez with Stonegate capital.
And good morning, everybody. Thank you for taking my questions.
Good morning, and Marco good morning.
And I was wondering if you could kind of follow back up on Brazil here.
And I know last quarter well this quarter, obviously, you had very good performance and last quarter also as well.
And believe on the last call we were kind of talking about this performance and you know there was some expectation that you'd have some sort of a competitive response.
And this quarter and that doesn't seem to have sort of played out the way. Maybe you were anticipating maybe if you can kind of share some color in terms of and what's sort of going on with competitive dynamics and that market that I guess sort of allowed you guys to.
Could perhaps just spectacular performance once again here in Brazil.
And Marc and thanks for the question and this is Eddie.
Yeah. It was a remarkable quarter and it did surprise us and I think the team down there just very agile and really know how to react and certain market conditions and so.
The biggest market biggest competitor, we have and that market, our imports and with the volatility of the currency and we did and the uncertainty of the pandemic and.
We did see the opportunity to gain market share against these imports and against one other local competitor down there and so we do think we can maintain our market share.
Hum.
Going past this current and Q4 and April to June period, where there is a slowing in demand and so.
So we expect to see volumes bounce back to the.
And the recent normal and our new fiscal years starting in July so.
And the agility of that team and their ability to capture both margin and volume growth has been it has been something that.
They've been prepared for it and they've been working on for quite some time and at the time was right for them to take action and to come.
From to the fronts and and and.
And.
And really make a big dent in our and our EBITDA and way beyond that we had thought so bottom line is we expect to continue to keep our market share and be able to and.
And it came out position. Thank you.
Understood and.
And then on Repreve, obviously, you've been getting some very nice momentum there a lot of excellent marketing and co branding with your customers and just kind of wondering.
When you look at your approach to this market and the co marketing and with your brands and if he can.
B share and anything that you might have learned over the past 12 months that maybe are sort of changing or helping drive additional marketing efforts and with your brands and then if you've seen them over the next 12 months, maybe sort of kind of paint the picture as far as and what sort of I.
And I guess for lack of a better word and market applications, you're going to see as the biggest drivers for the growth of Repreve.
And thank you and if so what we've learned I guess is light goes on and even during the pandemic and we were able to continue to build these relationships with companies like Wm.
And and Disney for example, which we talked and the last call and we do know that we we weren't unable to put a lot of our marketing efforts physically out there and you know we have the mobile <unk> mobile tour that goes and traditionally gone from face to face physically to celebrate repreve and sustainable story of our brands that we.
Service and so that was sort of off the roads. This year coming up we will be giving a lot more physical events and but at the same time, the social media platforms that are out there, we see them as being very very useful to the cause and as al had mentioned that the drivers and sustainability is occurring from these young.
Generation and the younger generation is very social media savvy, and we will be utilizing those platforms a lot more in the coming 12 months and.
And the question around where do we see the growth we do see growth in automotive, we do see growth in apparel.
Apparel of course, but also in and home.
This is an area that we've begun to focus on and more closely and myself did a.
And made a presentation to add at the furniture market.
Global French market here and high point, and very well received and we've had a lot of traction from that.
And it takes a while to transition over to sustainable products, but definitely and home furnishings, and let's see nice momentum in the coming 12 months along with automotive.
Understood. Thank you guys very much from time and really appreciate it.
Q Moore.
Your next question Thomas from the line of Gus Richard with Northland.
Yes, thanks for taking the question.
On the supply side on reprieve this relatively low recycle rates for <unk> plastics.
And I'm just wondering you know.
And your supply chain and that and.
That product.
You know do you have constraints as demand continues to grow at a rapid pace.
What do you need to do to make sure you can fulfill the demand.
Thanks for that question cost of course, we said, we're pretty globally and the.
In the U S. They are certainly lower than desired recycling rates I think the latest estimate is 28% to 29% of bottles get recycled.
And of course and aged.
And in China, and predominant where we have a lot of our business there up into the 85%, 90% recycling rates due to the informal.
And collection systems that are in place and the value relative to somebody's working.
Income I think.
The U S side, we are a little bit concerned, but and again we.
We are we have a brand.
That come and go out of power and so companies like waste management and.
If bottles and you'll get tight and they prefer to sell the bottles to a company like unify and repreve that can bring those bottles back into a meaningful and uses so I do think the U S and.
And we'll grow the collection rates as the demand for recycled bottles grows too.
And so very market driven and environment. So we do expect the very poor recycling rates of 28% to grow and become years and.
The fact that day, so low here.
And the U S. We see it as an opportunity so if it wasn't 90% and probably be more concerns.
Got it and any and internally do you need to add.
Manufacturing capacity to handle that product war.
And just any any other capex requirements for it.
And.
Right now, we don't and we are going to expand our capex spend and obviously in the coming years and some of that will be.
Based on the circular economy textile takeback fabric to to fabric markets, but from a.
Repreve Corp, Repreve RASM, we do not need to extend and expand right now are.
Our assets for them to meet that supply.
Got it.
Alright, Thank you very much.
Yep. Thanks Gus.
We have no further questions and we'll now turn the call back to management for closing remarks.
Thanks to everyone for participating today, our next earnings release for the fourth fiscal quarter ending June 27 is tentatively scheduled for Wednesday August 4th after the close of the market with a conference call to follow the next morning Thursday August 5th at 830, a M. Eastern time, thanks again for joining today.
Carl.
This concludes today's conference call you may now disconnect.
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