Q4 2019 Earnings Call
Good morning, ladies and gentlemen, and welcome to the unified fourth quarter 2019 earnings Conference call.
At this time all participants are in a listen only mode. Later, we will conduct a question and answer session and instructions will follow at that time.
If anyone should require assistance during the conference. Please press Star then zero on your Touchtone telephone.
As a reminder, this conference call is being recorded.
I would now like to turn the conference over to your host Mr. AJ Hecker, Vice President of Finance you may begin.
Thank you operator, and good morning, everyone on the call today is al Carey Executive Chairman, Tom Caudle, President and Chief operating Officer, and Chris Martin, Vice President and Treasurer, and interim Chief Financial Officer. During this call management will be referencing a webcast presentation that can be found at unified dotcom and by clicking the fourth quarter Conference call Link management advises you that certain statements included in this today's 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 our projections about the markets in which unify operates these statements are not guarantees of future performance and involve certain risks that are difficult to predict actual outcomes and results may differ materially from what is expressed forecast or implied by these statements. You are directed to the disclosures filed with the SEC on unifies 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 and adjusted working capital may be.
Discussed on this call and non-GAAP reconciliations can be found in the schedules to the webcast presentation.
I will now turn the call over to Al Carey.
Thanks, Jay and good morning, everyone and thanks for joining us today.
I'd like to take a couple of minutes to remind you of some of the high level items that we're focused on here at unified before I hand, the call over to Tom.
The team continues to strive towards its mission of being.
The world's leading innovator in recycled and synthetic yarns.
And the good news is that this quarter, we've seen the playing field in the domestic market start to become more level as the US Department of Commerce recently announced that affirmative preliminary anti dumping determinations.
On imports of polyester textured yarn from China and India.
We're going to continue to monitor the outcomes of these decisions, but we expected to result in some pretty meaningful opportunities for us in the quarters and even the years ahead, and we've really seen some evidence of that very recently and our overall business.
Next we finalized our reductions on the SDMA during the fourth quarter and were pleased with our current run rate of about $51 million a year and I think this better aligns with our operating environment and I'm proud of what the team is accomplishing with no reduction in quality service or our customers.
Lastly in June we announced an upgrade to our texturing capabilities in the Americas to be the exclusive user of the new E F K evil.
Heck string of technology, which is expected to broaden our product portfolio and improve our operational efficiencies in the upcoming years.
Also an update our CFO search.
We're nearing the end of our process and we expect to make a final determination soon.
While working to gain market share.
Investing in our manufacturing excellence globally, keeping a focus on PVA and being the leader in sustainability I feel confident that this coming fiscal year will be a very good one for unified and further our strategic abilities.
And grow revenue and restore profitability.
So with that let me turn it over to Tom.
Thank you Alan good morning.
As we enter a new fiscal year, we expect to see more positive results driven by the organizational changes we've implemented our deliberate cost containment initiatives, a more stable raw material environment and lower levels of competition from imported yarn.
We remain intently focused on our partner innovate and build strategy and continue to execute against it throughout the organization.
As I stated last quarter, our international operations have been fueling our growth.
But with the changing domestic landscape, we are taking the necessary steps to invest in and optimize around maximizing our opportunities in the Americas.
The use of the new Texturing technology is just one example of that.
Moving to the fourth quarter results, you'll see that legacy physical 2019 headwinds persisted and we continue to fight against high volumes of low priced imports, which caused us to miss our topline expectations.
That said.
Our sales reflects strong PVA momentum and for the first time ever PVA revenues now account for over 50% of unify sale.
This is a testament to our commitment to being one of the leading innovators of recycled incent synthetic yarns through offerings on both our repreve improved fiber platform.
We're also seeing some early signs of new volumes and programs in quarter, one fiscal 20.
Due to both our continued commercial efforts across and exciting portfolio of products and the recent trade developments, Let's review a few key performance indicators for the fourth quarter.
First let me point out that we have updated our operating segments as a result of.
The growing scale of our international operations.
The new reporting segments, our polyester nylon, Brazil and Asia.
Fourth quarter consolidated sales decreased to $179.5 million compared to $181.3 million in the prior year driven by lower volumes in three of our segments.
As well as FX headwinds.
However, when excluding the foreign currency translation impact revenue increased $2.3 million or just over 1%.
Additionally, we grew our full year topline by 4%. Despite the many headwinds we faced throughout the fiscal year with underlying growth of 8% when excluding the impact of foreign currency translation.
We also achieved a 13% increase in PVA sales for the quarter, which again now comprise over half of our consolidated net sales.
However, profitability was primarily pressured by the competitive import issues Weve discussed, which also drove an unfavorable tax rate.
While some issues are outside of our control. We recognize there are certainly we can pull to continue to improve on our profitability.
For example, we achieved our goal of reducing as DNA by around 15% as we move into physical 20 off our prior run rate of $60 million.
This collective effort along with a heightened focus on operational execution across the globe helped us to achieve positive cash flow flow from operations in quarter four and that has also set us up for significant improvements in our operating performance next year.
As we work to revitalize our position in the Americas. We also remain committed to manufacturing excellence high quality products and improved operational efficiencies with a continued focus on innovation and superior already in recycling.
All of this if achieved will help bolster profitability improve our.
Tax rate.
Commercially we continue to increase the adoption of Repreve with our key accounts, including our long standing relationships.
Let me walk through a few examples.
Patagonia is including Repreve throughout backpack lines across our entire equipment line.
Quick silver is expanding beyond bored shores into outdoor wear as well as backpacks.
Defeat International.
Located located nearby and Hickory, North Carolina has been using Repreve and our Sorbtek technology in their Mehta Socs for its sustainability high performance more stir wicking properties.
Of interest defeat has also been supplying sox due to the tour de France.
Rider Julian Allah Felipe and these quick step team performing quite well throughout the event.
Hard rock Cafe recently introduced T shirts made with Repreve.
These these teams have three references to repreve.
Each carries a repreve bottle hang tag.
Repreve is noted on the traditional branded today.
And Repreve is heats the old only inside column.
Lastly in April unify showcased a reprieve mobile tour at Walmart sustainability Soma in Bentonville, Arkansas.
Displaying the repreve recycling process to Wal Mart employees and suppliers.
Walmart has publicly committed to a variety of sustainability goals, including increasing the proportion of recycled polyester content and apparel to 50% by 2025 across its us footprint.
This effort was demonstrated when Walmart introduced new bass force associates that are made a reprieve.
The company's showcase these in June as annual shareholders meeting and featured them in the press.
As momentum continues to build we are excited about the opportunities for repreve and our sustainability partners.
Now, let's walk through some high level segment performance for the last quarter.
First Asia saw as topline increased significantly which was driven by continued growth in PVA, albeit with a lower margin profile.
Brazil experienced a drop in sales due to a highly competitive marketplace.
Unfavorable foreign currency exchange weighed on sales performance in both Asia and Brazil.
The margin pressure, we experienced in the international businesses was driven primarily by sales mix and pricing pressure amir's raw material cost fluctuations.
However, our PVA portfolio continue to drive momentum in to the future.
The polyester business was dampened by the continuation of high levels of yarn, importers, which placed significant pressure on selling prices and profitability of our major polyester product lines.
Nylon, we experienced lower volume due to a customer transitioning certain programs overseas to full garment production.
This volume loss will impact the segment in physical 2020.
But our sales teams are aggressively backfilling that capacity.
During the quarter, our domestic businesses experienced a more tempered raw material environment.
And we are optimistic that this will continue throughout the next fiscal year.
We anticipate a more stable raw material environment in our guidance and we have not seen an indication that we will experience the elevated cost environment was present throughout much of fiscal 2019.
Outside of core operations, our equity affiliates experienced lower profitability as part sales earnings were considerably lower than the fourth quarter of fiscal 2018.
We do hope to see improved performance from Parkdale in fiscal 2020, as they continue to be a prominent supplier to the domestic textile market and had generating meaningful cash flow and the most recent six month period.
I'd now like to provide a quick update on the status of the trade petitions that we filed in October 2018, and recent developments.
Please turn with me to slide three of our webcast presentation for a visual.
As previously discussed these petitions alleged that dumped and subsidized imports of polyester textured yarn from China, and India have caused material injury to the U.S. textile industry.
In the months after our petitions were filed we saw a significant spike in imports from China.
We believe this surge in imports was due to efforts to stockpile imported yarn.
Before preliminary duties were imposed.
Accordingly, we received affirmative critical circumstances determination from the department of Commerce on April 19th.
And on April 29.
Commerce announced preliminary countervailing duties for Chinese and Indian import.
Specific to China, the preliminary countervailing duties or 32% and applied retroactive to the 90 days preceding the date its duties were announced.
Then on June 26, Commerce announced affirmative preliminary anti dumping determinations, the imports of polyester textured yarn from China, and India are being unfairly sold below their fair value.
Specific to China. These preliminary anti dumping duties out another 65% of the cost of imported yarn, which brings the amount of duties above 100%.
Including the normal.
Course duties in place today.
Following these preliminary announcements the investigation process will continue through the remainder of calendar 2019, we expect final determinations of dumping subsidization and Andrew to be made by the end of December 2019.
I'll now pass the call to our interim CFO , Chris Mozza to go into more detail on our financial results Chris.
Thank you Tom and good morning, everyone. As Tom noted sales results. This period were below our expectations, but our profitability and cash flow are exhibiting momentum that we hope to carry into fiscal 2020.
Our initiatives are taking hold and certain corrective actions are helping to produce meaningful change across the business.
I will dive into the drivers of our performance in my discussion today and will begin on slide four of the webcast presentation, where you can see a high level overview of net income.
Moving from left to right net income declined from $10.8 million in the fourth quarter of fiscal 2000 $18 million to $1 million in the fourth quarter of fiscal 2019, and you will note that of this decline approximately $6 million or more than 30 cents of EPS was driven by income tax.
First the prior year fourth quarter included a $3.4 million tax benefit, resulting from the reversal of an uncertain tax position.
For the remaining items in the bridge, we have applied a 30% tax rate to the items noted to increase the relevance of this analysis and presented separately the impact of the significant change in the effective tax rate, which I will explain in a few moments.
The pressures that we experienced across our operating segments drove a meaningful decrease in our gross margins and we were unable to reach a similar level of gross profit as was achieved in the prior year fourth quarter I'll discuss the margin bridge on the following slides.
Next operating expenses decreased by approximately $2.1 million on an after tax basis.
This decrease primarily reflects the step down in our compensation expenses as the fourth quarter of the prior year included a fully loaded overhead structure.
However, our fourth quarter included $900000 of severance charges on an after tax basis directly related to our cost reduction plans, helping to reset our SGN a run rate.
Then as Tom mentioned earlier weaker earnings from Parkdale contributed to approximately $800000 of less income or around four cents of EPS.
Lastly from a tax perspective, the overall decline in domestic earnings created an unfavorable mix of foreign earnings taxed at higher rates.
This combined with our inability to take advantage of specific tax credits offsetting the U.S. taxation of certain income earned overseas had an unfavorable impact on our effective tax rate.
Due to our lower pre tax income in the fourth quarter the amount of tax expense recognized significant significantly impacted the effective tax rate.
Looking forward to increasing our domestic earnings has the potential to meaningfully improve our effective tax rate and we've noted that in our guidance, which I will detail in a moment.
Moving to slide five we have provided a bridge for gross margin.
As Tom noted earlier growth in our international operations has necessitated the shift to four reportable segments polyester nylon, Brazil and Asia.
Our presentation and disclosures now include the Asia, and Brazil segments reported separately, formerly combined is international.
Simultaneously our segment gross profit now includes consideration for certain technology related expenses charged by the polyester segment to the Asia segment.
Specifically manufacturing technology processes and product expertise developed by the polyester segment are charged to the Asia segment, where those benefits support significant sales and operational activities.
The amounts are recorded as a benefit to cost of sales for the polyester segment and a charge to cost of sales for the Asia segment, thereby impacting gross profit for each segment.
This change is reflected in both our fiscal 2018, and 2019 segment results and therefore Theres no difference in the comparison of Q4 2018 in Q4 2019.
Accordingly, both our Q4 2018 in Q4 2019 segment results now reflect the transition to four segments and the update to segment profitability that reflects the benefits being provided to the Asia segment from development and support activities originating from the polyester segment.
Consolidated gross margin was 10.2% for the fourth quarter of fiscal 2019 compared to 13.2% for the fourth quarter fiscal 2018.
The decrease in gross margin was primarily driven by competitive pressures across our product portfolio, which contributed to lower fixed cost absorption and a weaker sales mix.
The polyester segment was adversely impacted by competitive pressures from yarn imports into the us contributing to a weaker sales mix and lower fixed cost absorption.
However, we did experience some moderate raw material cost relief that aided gross profit.
While we continue efforts to re strengthen our domestic market position import data reaffirms the importance of our trade petitions.
The nylon segment experienced the revenue loss from a large customer that Tom described earlier and this adversely impacted fixed cost absorption costs and a decrease in the gross margin rate.
Turning to Brazil, while we experienced a comparatively lower raw material cost environment pricing and competitive pressures worked against our higher cost inventory position in the midst of a weaker economic environment driving on favorability and the gross margin rate.
For the Asia segment disproportionate growth of lower margin products like chip and staple fiber led to a weaker sales mix.
While we are proud of the sales growth in Asia, we are continuing our efforts toward mix enrichment.
These segment dynamics combined to generate a decline in overall gross margin of 300 basis points, causing weaker gross profit versus the prior year fourth quarter.
Slide six shows the sales and gross profit highlights for the fourth quarter total segment net sales decreased $1.7 million or 1% after approximately $4 million of foreign exchange pressure in comparison to the fourth quarter of fiscal 2018.
For polyester segment sales, which declined 8.5% the volume decline of 13% exhibits the heightened levels of competitive imports into the U.S.
However, the timing of raw material cost movements drove favorability in pricing when compared to the fourth quarter of fiscal 2018.
Nylon sales decreased 17.6% as a result of a customer transitioning certain programs overseas and the continued trend of weaker category demand for certain nylon products.
In Brazil sales volumes were just 2% lower despite competitive and economic pressures, while the benefit from higher local pricing was muted by foreign currency translation.
Sales results for the Asia segment continued to be a bright spot and volumes increased 67% despite uncertainty in global trade and international competition.
Sales of Repreve products led the way in Asia, as we continue to attract quality brand programs and maintain a leading position in the recycled market. The PVA portfolio remains a growth engine as our growth strategy continues to be validated.
For gross margin performance, we covered the significant items on the previous slide.
Looking at it from a segment perspective, polyester was primarily impacted by lower fixed cost absorption and weaker sales mix, resulting from the competitive pressure described earlier, partially offset by moderate raw material relief as a result, polyester gross margin fell 100 basis 20 basis points from 10.1% to 8.9%.
Nylon experienced weaker fixed cost absorption and its margin rate declined from 11.6% to 6.4%.
Brazil faced competitive and economic pressures, along with higher raw material costs and inventory during that during a declining cost environment generating a gross margin declined from 23.1% to 18.7%.
And lastly, Asia sales mix included significant chip and staple fiber sales, which currently carry a lower margin profile. As these products are used to seed new programs and initiate further customer development as a result, Asia gross margin declined from 15.7% to 9.8%.
Moving on to slide seven we present equity affiliates pre tax earnings decreased approximately $1.1 million from Q4 2018 to Q4 2019.
Parkdale results, primarily reflect lower operating leverage during a period of elevated costs.
Of note Parkdale has generated meaningful cash flow since December 2018.
Total equity affiliate distributions in the quarter totaled $1.3 million, while the year to date amount is $2.6 million.
Slide eight covers balance sheet highlights at June Thirtyth, working capital was approximately $191 million and adjusted working capital was approximately $180 million.
Adjusted working capital as a percentage of sales was 24.9% driven primarily by higher inventory stocks and subdued domestic sales.
We ended the period at $128 million in debt principal net debt was approximately $106 million, while revolver availability remained above $61 million and total liquidity remained above $83 million.
I'll remind you that we amended the credit facility in December 2018, and we were able to extend the maturity date to 2023 and generate an average step down in interest of 25 basis points.
Additionally, using swaps that terminate in May 2022, we have effectively fixed LIBOR at approximately 1.9% on $75 million of our debt principle.
At June 2019, our weighted average interest rate was 3.4%.
Consistent with our October 2018 announcement $50 million remains available for share repurchases.
Before opening up for questions I would like to outline our guidance and related assumptions for fiscal 2020.
We have experienced considerable headwinds and missed expectations this year and while our progress in growing revenue remained solid reversing our bottom line performance as our top priority.
I will start with several positive indicators that lead to optimism in fiscal 2020 and beyond.
First the customer adoptions from our innovative and sustainable portfolios are significant and new program negotiations are constant.
We are seeing the global markets and momentum continues add onto this the positive preliminary determinations from our recent trade petitions and our renewed commercial focus in the Americas.
Each of these items should help to stabilize our competitive position beginning in fiscal 2020.
Next our recent SGN egg cost reductions provide a much better foundation for higher profitability, and we expect raw material headwinds to temper, providing for more normalized conditions on top of increased production volumes.
These represent the primary components, leading to continued sales growth and a significant expected increase in profitability from fiscal 2019 to fiscal 2020.
Specifically, we expect sales volume growth in the high single digit percentage range with Asia, leading the way that should drive a revenue increase in the mid single digit percentage range.
Next fiscal 2019 operating income included significant raw material headwinds and severance charges that weighed on profitability.
Therefore operating income for fiscal 2020 is expected to double and arrive in the range of $22 million to $27 million.
This will drive a significant increase in adjusted EBITDA to a range of $47 million to $52 million.
Consistent with our focus on investing and revitalizing the Americas, our capex expectation of $25 million includes the initial purchase of new EOP, Kate Evo texturing machines, along with other targeted machinery and equipment improvements, which will allow us to best serve our markets.
Lastly, a significant growth in domestic earnings should lead to a meaningful decrease in our effective tax rate, which we expect to fall in the mid 20% range in fiscal 2020.
In summary fiscal 2019 was a difficult year and we believe our corrective actions are setting the stage for a much better fiscal 2020, we remain optimistic about the steps we've taken and the opportunities that lie ahead.
We will now open up the line for questions.
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And our first question comes from the line of Chris Mcginnis with Sidoti and company. Your line is open.
Good morning, Thanks for taking my questions.
Good morning, Chris.
You guys commented on you're starting to see some positive.
I guess momentum our lease syndication.
From the some of the new tariffs and the penalties. There can you just talk a little bit about how thats changing how you expect that to change kind of the environment and what are the other options.
Customers have.
That maybe wouldn't benefit you or how do you not pod come come out positive out of this I guess that if you don't mind walking us through that thank you.
No Chris.
We are starting to see momentum.
As a result of the anti dumping.
Petition.
The we we've actually seen some orders get book now.
And we can we expect to see continued improvement throughout the quarter in this fiscal year.
I guess, we would say.
It is kind of what is meeting expectations or are.
Is looking the same as we would have expected that to happen.
You know customers that have been in borders in DM borders.
Who have been selling these products from India and Asia from China.
Our also looking for other alternatives to.
To offset.
The loss of.
The use of the yarn from predominantly from China and India.
And our look in Malaysia, and Indonesia Vietnam.
In other places and.
That's one of the reason that you see this delay the event that the volume do not did not come all at once or most of the preliminary anti dumping.
Who are now so.
It will all balance out with time.
We have the.
The rate build into our.
2020.
Forecast and budget so.
We are we are optimistic theres more not only have we booked some orders, but the activity.
Around.
Quoting.
Has increased pretty substantially and.
And we expect to have experienced positive results going in.
To this year.
Great and then Stuart.
A possibility I know, it's it's I guess from my understanding it's largely on lower ends of the commodity business is there an ability to maybe.
Bringing the PVA products were or is it just that you know just a commodity business overall.
Can you maybe.
That makes that a little bit about that opportunity and congratulations on getting an over 50%.
Thank you Ed.
What we're talking about on the on the anti dumping.
Side is predominantly the lower end of the market.
There is no there is always the opportunity I guess for somebody to find us pliers somewhere you might be able to produce a product that would be considered PVA or some PVA, but we don't expect that to be any.
Anything of consequence.
In the Big scheme.
Okay.
The other and then just.
This is Alan Chris getting the volumes back in our plants will end up helping us improve our profitability and gross margins. So that volume is critical to us even if it is primarily commodity line on yet.
Sure, Yes knives didn't last year, there was an opportunity maybe a selling opportunity for you to.
Great.
Upgrading to the PVA.
And then just two more questions one just on the operating income range for for 2020.
What gets you to the low end markets you to the high end just in terms of your thought process as you look out the year. Obviously I know you are now coming off in 2019, we got a long way to go.
It's a pretty good range. So just wondering if you could elaborate on that as well.
Yes. This is Chris.
The operating income guidance that we gave between $22 million to $27 million.
Which is 100% growth in fiscal 19 is primarily being driven by improved gross profit.
The trade positions are expected to lead to increased volumes that will lead to better fixed cost absorption.
And where to stabilize raw material cost environment, which will help on pricing as well.
And and also in addition, both index and non index pricing has caught up domestically.
On top of that we're focused on all aspects of continuous improvement in our operations to reduce our costs from procurement to manufacturing processes to new technology.
So all that we do think is going to lead to better operating income as we go into fiscal year 20.
The range is a little bit wide, but that's just because of some of the uncertainty that we have around the.
Volumes that were going to get from that the impact of anti dumping and how those volumes come in across the year.
But we are confident in the guide that we provided Chris I would like to make one point as well.
You know some of these programs these commodity programs when they do come back to the region may very well.
Get quoted was with some PVA, our repreve products as well.
That is a real possibility so we could grow PVA in some segments as a result as well.
And Chris is out we have very cautiously put in the plan.
Pickup in volume from the anti dumping because we don't know how fast it will come in.
Other experiences with anti dumping shows that its very gradual and in the case of our business.
There is a tremendous amount of dumping between October of last year and all the way into the first quarter. This year, we even found customers buying low priced imports all the way up to about three weeks ago. So we're just trying to be cautious on.
How much volume we get quick we have a very gradual expectation that takes us through the balance of the year.
No I appreciate that color and then and then just one quick question on the S. unit costs for the quarter.
1.3, or 1.1 million severance cost.
Should we back that out and thinking about.
The cost for Sina in Q4.
And that would bring you under the 50 51 run rate I guess for 2020.
Can you maybe just talk about maybe the cadence for.
2020.
Actually Matt Thanks.
Yes. This is Chris we think yesterday.
For fiscal 2000 equal will be around that $51 million range. We did have the $1.4 million severance charge, which was actually reflected in the other.
Expense.
And we you know thats, obviously going to reduce our ASG M&A in 20, as we won't have that expense going forward.
Did require small reduction our workforce.
We're also taking measures to cut non critical expenses certain professional fees can fall, so consulting fees TNT et cetera, and all that we think will lead to a more agile expense structure and better position us for the future and benefit our bottom line.
So.
We saw a little bit north of $52 million for fiscal year 19, we think we can improve a little bit on that.
Great. Thanks for the time today, and if you look at Q1.
Thank you Chris Thanks, Chris.
Thank you. Our next question comes from the line of Daniel Moore with CJS Securities. Your line is open.
Good morning, gentlemen, thanks for the time and taking the questions.
Hi, there I wanted to start with mix.
Continue to shift toward PVA products.
I mean, obviously up over 50% now also.
We continue to shift toward more of the lower margin entry level chip and staple fiber.
I guess, what does your guidance for 20 imply in terms of progress moving up the value chain.
Toward more value added higher margin PVA product and are you seeing any tangible.
Of those new wins or is there a higher percentage that's higher value added higher.
Margin when do we expect mix to turn more favorable for you.
Dan This is Tom I think you see in the numbers that China is driving a substantial amount of the of the PVA volume growth.
We are growing the bottom end of that business more and more.
Staples.
One of them and the opportunities continue to be.
Very strong in Asia.
And as well as improving environment.
Here in the U.S. in Central America.
The.
Was the.
Key item.
He will help us improve margins in Asia is going to be improving the supply chain over there and were very optimistic about what we're doing over there in that regard that will help us in very near term to get those margins to a better place.
Hey, Chris this is.
Chris again, just want to clarify on the SG day question that the severance expenses recorded in other expense and not SDMA and by incurring the severance it will reduce our go forward rate. So I did want to clarify on that as well.
Dan does that answer your question helpful, Yes, but the.
Yeah, I guess shifting gears a little bit.
Can you talk maybe about the proprietary texturing equipment, you expect to install this year.
What are the maybe a little bit more color and incremental capabilities and competitive differentiation.
And do you see any disruptions or can you simply build enough inventory.
During the installation process.
The.
The last texturing technology, we thought.
Of any magnitude Dan was in the mid nineties.
The reason, we really Havent spent a lot of money to upgrade there has not been.
Anything substantially changed in that technology since then.
Better than what we had this ebo cooler technology is actually a step change in technology.
It is.
It increases our flexibility.
The speed at which we can operate and process fibers the quality levels.
That we obtain from from running like fiber zone on these machines.
We are it really is.
It's also the technology is something that we can integrate into our own.
Management systems and all the automation we have in place. So it is just going to supplement all the other.
Things that we do.
So we are excited about it.
We will be installed until beginning the latter part of this fiscal year going forward.
And we're and we're also changing out this technology.
Through.
Through that time period, and we will not be disruptive and we also have exclusivity from three years of signing this agreement those purchase.
In the Americas, with an opportunity to buy more and lengthen that exclusivity as well which gives us.
I would say a substantial advantage.
Very helpful and last for me I would like to move but one of the point that we are doing all is within that $25 million capex spend that we've we've talked about year over year.
Understood helpful.
And last for me is obviously the guidance is predicated on quota, Steve stable raw material environment in which.
Has presented challenges in the recent past so can you give us a sense of what oil price range or other raw material price ranges copper contemplated in the guide.
And has anything changed in terms of your approach your methodology versus maybe prior years. Thank you.
Yes. This is Chris generally speaking, though the price of oil that we kind of have baked into our guidance is about $60 million to $65 million.
Yes, sorry $1 per barrel.
So so we have that baked in.
We are in a stable raw material cost environment, and we feel we don't see any indicators going into fiscal 20.
That there's going to be any kind of increase or run off like we experienced from fiscal 18 through the first two quarters of fiscal 19, So we feel pretty good about the environment that we find ourselves in.
Got it helpful and I will sneak one more in you mentioned good momentum into Q1.
How do we think about the cadence of guidance.
Is the kind of revenue and EBITDA growth that you're expecting.
For Q1 similar to the full year.
Or is it maybe a little bit more of a ramp as the year goes on thanks.
It's a ramp up as the year goes on.
Our fourth quarter is typically the strongest.
But but Q1.
Q2, Q3 will be a slight increase and then going into Q4, which will be stronger.
Got it thank you again for the color.
Thank you thanks, Chris Dan.
Thank you and our last question comes from Marco Rodriguez with Stonegate capital. Your line is open.
Good morning, guys. Thank you for taking my questions.
Yes.
I wanted to follow up on the on a prior question just on on China and PVA sales.
You had mentioned that.
Key item there for improvement in margins in that particular segment is.
Improving the supply chain out there I was wondering maybe you can kind of walk through some of the details as far as.
What sort of steps need to be taken.
What sort of timeline, you might be thinking about where that can kind of see meaningful improvement.
To talk about Asia specific.
Because we are asset light in Asia. It allows us to be more agile and move our supply chains around as as business.
Necessitates or dictate so.
We are constantly quantifying qualifying new suppliers and it did we are very fortunate to have the flexibility that has the situations change we can move supply chains around where they are more competitive so.
That is.
The crux of it.
Okay. So I guess then the next question.
In regard to that is that the current supply chains had become somewhat inefficient for you. So you just need to find different suppliers is that what I'm understanding.
We as we grow and expand the market is just dictate that we find more more suppliers qualify more suppliers and find more competitive supplier.
Gotcha, Okay and then.
You had mentioned in your prepared remarks.
Some very nice.
Increasing wins from existing clients with PVA adoption.
I was wondering if maybe you can kind of walk through.
A typical case, if you will have a client that decides to increase their use of repreve and PVA products for you.
I mean, obviously decline the customers like that the Patagonia is the world are pretty focused on that sort of a.
A product for their end customers, but just kind of trying to understand a little bit better.
The process at the particular client might be taking to increase their PVA sales over time, how long that typically takes or is that just sort of a and you touched on a few products for a few years.
Any sort of color there would be helpful.
I think with all the brands.
Most of the brands and retailers that are changing and set a specific sustainability goals.
I think repreve is that is the top category that people would be talking about because we are a globally recognized brand with.
Trace ability and credibility we are a public company to stand behind the brand and its also authenticity and.
So I think.
The example would be.
You know not only the Patagonia is a quick silver.
But we've we've actively talked about Walmart and other people that the Ford Motor Company do all the things that we've discussed in the past and.
There are very few brands of retail we aren't having conversations with about.
Repreve and sustainability.
On a global base Marco this is al.
I was just going to say since I've been involved I can see a noticeable pickup in the interest.
On Repreve and I think the reason is that many of these companies have now stated 2025 sustainability goals and they really got to get moving to attain those goals and.
Is picking up as time goes on.
Got it that's helpful. And then last question just kind of more of a housekeeping item with the the changes in terms of reporting for segments.
Breaking out the international into Asia and Brazil.
I don't know if I missed this either in the press release or I didn't see it in the presentation are you going to provide any sort of.
Historical look on how those numbers look maybe in fiscal 1918 or anything of that nature.
Yes. This is Chris when we prepare our financial statements and file our 10-K.
You know, we do we will take that into account so that we have comparative periods and the result.
Okay. So comparative period until the 10-K will show the year over year, just for the annual but not for the quarters.
No we.
For the 10-K doesn't show quarterly performance.
Right, Okay, but you won't publish anything then I guess then for the historical queues and we'll just have to track that as as you.
Publisher queues going forward.
That's correct.
Got it thanks, a lot guys appreciate your time.
Thank you Marco.
Thank you and it looks like we actually do have a follow up from Chris Mcginnis with Sidoti and company. Your line is open.
Okay. Thanks again.
I I just quickly wanted to ask about Parkdale and what's happening there.
I would.
Are they faced with the same issues around maybe a competitive dynamic or.
Or maybe is that industry acting a little bit differently, you may begin to what's happening there and the prophets here. Thank you.
No I think they are seeing some some cost pressures, which is affecting their earnings.
But.
You know there is still a strong operator in the region and in their in their business.
Hopefully they'll have.
Better results in a.
In future periods, but you know they are generating very strong cash flows and.
We continue to.
The Lisa you know say not satisfied but optimistic about their results.
Thanks, I appreciate that.
Thank you and I'm not showing any further questions. So this does conclude the program you may now disconnect everyone have a great day.