Unifi Inc Q1 FY2022 Earnings Call

Ladies and gentlemen, thank you for standing by. And welcome to Unifi's First Quarter Fiscal 2022 Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. I would now like to hand the conference over to your speaker for today, A.J. Eaker, Vice President of Finance. Thank you. Please go ahead.

Thank you, Jay, and good morning, everyone. On the call today is Al Carey, Executive Chairman; Eddie Ingle, Chief Executive Officer; and Craig Creaturo, Chief Financial Officer. During this call, management will be referencing a webcast presentation that can be found at unifi.com and by clicking the conference call link. Management advises you that certain statements included in 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/or projections about the markets in which 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 materially from what is expressed, forecasted or implied by these statements. You are directed to the disclosures filed with the SEC on Unifi’s 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 you, A.J., and good morning, everyone. I appreciate you joining the call today, where we will review Unifi’s performance for the first quarter of fiscal 2022. I’ll start with a few key themes from this quarter before handing it over to Eddie Ingle, our CEO, and Craig Creaturo, our CFO, who will provide more details on our performance before we move into the Q&A session. The results for the first quarter are very strong. Compared to last year, revenues increased by 39%, and versus two years ago, they improved by 9%, reflecting our pre-COVID performance. EBITDA saw a growth of 119% compared to last year, and a 62% increase relative to two years ago, which gives us a solid start for fiscal 2022. Consequently, we are confident enough to adjust our full-year guidance modestly, despite facing macro challenges such as labor shortages, rising raw material costs, and supply chain issues. Craig and Eddie will elaborate on these aspects shortly. There are four trends emerging from the first quarter worth noting. Firstly, our diverse geographic portfolio is a significant advantage. Both Brazil and Asia reported strong performance in Q1, while North America met our forecasts but had the potential for better results. Labor shortages in the U.S. hindered our ability to meet demand, and we anticipate this challenge to continue through the second quarter, with expectations of improvement in the latter half of the year. Secondly, REPREVE sales are growing steadily, with a 39% increase compared to last year and a 27% rise compared to two years ago. Customers are increasingly committed to using recycled materials in apparel, footwear, and automotive sectors, leading to several positive customer wins this past quarter. The third trend is focused on productivity; our investment in EvoCooler technology is expected to enhance long-term productivity, with some initial improvements anticipated in the fourth quarter. So far, our small-scale rollout has met our efficiency and output expectations. Lastly, labor remains a challenge in the U.S. Our manufacturing and HR teams are addressing this through competitive labor rates and benefits, but they have also identified longer-term solutions by engaging in discussions with frontline employees about making their jobs more fulfilling. They have proposed several practical improvements regarding training quality and workflow processes. It’s important to remember that employees who are closest to the work often have the best insights for solving issues. We will provide updates on these initiatives in future quarters. Overall, it’s been a solid start to the fiscal year. Though there’s much work ahead, we remain optimistic about our outlook. Now, I’ll turn the call over to our CEO, Eddie Ingle, for the next part of the presentation.

Thanks, Al, and good morning, everyone. As Al mentioned, our first quarter fiscal 2022 results surpassed our initial expectations. And the strong results reflect the flexibility of our global business model, our strong presence in each region, and the hard work and dedication of each and every one of our employees who, as we like to say at Unifi, are working today for the good of tomorrow. We continue to be grateful for the daily contributions our employees make to our company and to our customers. Their commitment to Unifi has allowed us to continue operating a strong business while navigating the recovery. So, I thank them for that. On slide 3, we provide an overview of the quarter. And as Al said, we are executing very well, driving growth and proving out how resilient our business model has become. Q1 revenues were up 6% sequentially, slightly ahead of expectations, and up 39% on a year-over-year basis. Alongside our focus on meeting customers’ expectations, the growing demand for our core products and product lines in each region contributed to the increased revenues, which naturally translated into significant year-over-year profit growth. Despite Q1 exceeding our initial expectations, we had to navigate several cost headwinds and input constraints. Hiccups in the supply chain from global logistics stoppages and domestic labor shortages placed even more pressure on each business segment. Despite these difficulties, our team’s quick actions ensured no meaningful disruptions to our lines of business. I’ll breakdown our execution as well as some of the challenges we faced during Q1 by region. In Brazil, the volatility remains post the regional shutdowns that impacted our business in the April and May period. In fiscal Q1, the volatility in the market was driven by the rise in freight costs from China, the uncertainty in the exchange rate and the rising cost of textured yarn in Asia, all of which has increased the local market price for textured yarn. The situation has been compounded by inflation concerns, which are increasing at a pace not seen in several years. Early indications are, this may have some impact on demand. However, this may actually result in customers consuming more locally produced yarns, which would help us gain market share. This is something that will remain on our radar as we move through the rest of the fiscal year. And we will keep you updated on this. Despite all of this, as you can see, we had another excellent quarter in Brazil. In the U.S. and Central America during the quarter, we continued the process of catching up with raw material and other cost increases through proactive selling price adjustments. We have additional work to do in this area. As we can already see that polyester and nylon raw material prices are rising as a result of the recent increase in crude oil prices. While this is a very painful process, it is something our customers are facing too. And like us, they’re having to pass on their input cost increases to their customers. And the U.S. specifically, like many other businesses, also faced labor challenges. We see this as an opportunity to become a federal employer and are allocating more resources into training and retention. Fortunately, the elimination of the federal subsidy at the beginning of September has once again brought more people into the workforce, and we’re taking advantage of that. It should be noted that the impacts of COVID are still being felt, primarily in our manufacturing plants, resulting in us having to quarantine a number of employees. Unfortunately, we have also lost a few of our employees to the virus, and our thoughts go out to their families and friends. Lastly, we have experienced a few delays in the supply chain. However, we do not anticipate any meaningful disruptions to the business. In Asia, we experienced a very positive start to the quarter. We continued sales increases in our REPREVE brand and other value added products. As you’re aware, there are some concerns at the Chinese central government level around energy consumption and air pollution levels, and this placed some pressure on the business at the very end of the quarter. We are seeing minor caution from customers and suppliers who are battling COVID lockdowns and energy costs. This situation remains volatile and introduces some uncertainty for the short term. We do expect to overcome these challenges in the next few months as the demand is usually strong, leading up to the Lunar New Year, which this year is at the very beginning of February. Now, turning back to the consolidated business. It’s great to see the progress we have made towards our fiscal 2022 and longer term goals in the face of these multiple headwinds. We remain committed to maintaining a solid financial position. Our current balance sheet provides a strong backbone for us to execute on growth-focused capital allocation priorities. Beyond the financials, we continue to observe a growing number of customers shifting their commitments to making products using recycled material. During the first quarter, we shipped more than 23 million hangtags to brand customers. You will note that on slide 4 products made with REPREVE fiber comprised 37% of consolidated net sales, increasing from 36% in the first quarter of fiscal 2021. This growth is regional, and is primarily in our Asia, U.S. and Central American revenues. Our REPREVE momentum into new textile sectors and multiple brand adoptions across Europe has been very strong. Last month, TenCate Protective Fabrics, a traditional workwear, an industrial textile company from the Netherlands, began marketing its Tecapro line of workwear, using REPREVE Inhibit, taking REPREVE further beyond traditional fashion textiles and into protective wear. This is the first time our multifunctional REPREVE Inhibit value-added combination is being used in flame-retardant workwear to add a sustainable twist to a highly durable product. TenCate chose REPREVE Inhibit for quality, reliability, reputation, traceability and transparency. We have been excited to help them tell the sustainable and flame retardant story through a variety of co-marketing mediums. REPREVE’s strength in the Turkish market continues with a new line of denim by Mavi Jeans. Mavi Jeans launched a nationwide TV commercial that showcases their adoption of recycled polyester in the new line of jeans. Other recent adoptions by European brands include French brands Jules and the German brands, Marc O’Polo, Joop and Street One, owned by CBR Fashion Group. One of Inditex’s brands, Massimo Dutti has continued to roll out products using REPREVE Our Ocean. In the U.S., we continue to see strong co-marketing in the men’s wear segment. Haggar has launched a new line of suit separates in a variety of fits under the name Smart Wash REPREVE suits. I know from talking to employees and having direct conversations with them, it’s a proud moment when they walk into Kohl’s or JCPenney or go online and see this iconic U.S. brand shout out the sustainability story based on REPREVE. Going outside of the apparel market, our placements in the global homes goods sector continue with a new launch of several Sealy mattresses in Canada that feature REPREVE. Now, turning to our operating segment performance during the first quarter, I will provide some high-level comments before Craig walks you through more specific details. Strength in our polyester and nylon segments persisted in the first quarter and benefited from strong sales momentum with robust customer demands. Our commercial and manufacturing teams have done a tremendous job navigating the headwinds I mentioned previously, and we remain optimistic about the sales mix and pricing dynamics going forward for this segment. The Asia segment demonstrated another strong quarter and volumes increased due to pull through on new and existing customer programs. Shutdowns and uncertainty in Vietnam and Southeast Asia have not impacted us perhaps as much as other companies since it’s a smaller part of that business. While we do anticipate some soft spots in China, based on new temporary shutdown mandates related to managing energy levels there, businesses are still running, and the demand for sustainable yarns has never been higher. I’m confident that the team’s continued focus on meeting the ever-increasing sustainability and value-added demands of their customers would help us weather these challenges. As mentioned by their financial performance, the Brazilian team has continued to do an exceptional job. During the first quarter, the strong price mix performance increased sales over 50% from a year ago quarter, driving more than 100% increase in gross profit dollars. Looking forward, we continue to anticipate a degree of moderation in profit from this region with the full year gross margin settling just below 20%. Before I turn the call over to Craig, I will provide a brief update on our current trade actions. Last week, the U.S. Department of Commerce announced its final determinations that imports of polyester textured yarn from Indonesia, Malaysia, Thailand and Vietnam are being unfairly sold below their fair value in the U.S. The final antidumping duty deposit rates range from 2% to 56%, and are currently in effect. The next step in these trade cases will be the U.S. International Trade Commission’s final determination, which is scheduled for November 30th. With that, I will pass the call over to Craig. Thank you.

Thank you, Eddie, and good morning, everyone. Like the rest of the team, I’m very pleased with our first quarter fiscal 2022 operating results, and wish to thank our employees for all their efforts and achievements in the just completed quarter. Beginning with our consolidated results, we were able to achieve revenue and gross profit performance ahead of our initial expectations for the quarter from the August 2021 earnings release. We generated significant increases in operating income, earnings per share, and adjusted EBITDA when compared to the first quarter of fiscal 2021. The remainder of our financial statement metrics were generally consistent with our expectations as it relates to overall SG&A spending, our effective tax rate and the amounts outlaid for capital expenditures and working capital associated with our investments in the business and our strong sales performance. Turning to slide 5 of the webcast presentation, consolidated net sales increased 38.5% from $141.5 million to $196 million, primarily due to business recovery we have seen over the last five quarters of sequential sales growth. For the polyester segment, the single-digit volume change was muted partially by the labor pool challenges, Al and Eddie mentioned earlier. The pricing mix change demonstrates the selling price adjustments that have been made over the last several months in response to rising input costs. Although we have not fully normalized the portfolio for today’s cost levels. In Asia, the sales volume growth again demonstrates new and existing customer programs that continue to be successful on the REPREVE platform, while higher pricing associated with raw material costs was offset by a greater mix of lower priced products. In Brazil, momentum surrounding higher pricing and market share continued to benefit revenues as pricing was up over 50%, driving a significant change in quarterly revenues for that segment. And nylon exhibits stability with much higher sales and production volumes to start off fiscal 2022. Turning to slide 6, polyester demonstrated significant gross profit and margin improvement, despite labor and efficiency challenges in the current environment and some pricing lags. The gross margin increase of 260 basis points is very commendable under today’s circumstances. The Asia segment’s volume growth led to a $2.4 million improvement in gross profit as that segment continues its strong year-over-year growth trajectory and remains a significant component of the global commercial model. In Brazil, our agility against competition and commitment to deliver high value to the market allowed us to maintain strong pricing levels and market share, double gross profit and drive margin improvement of 910 basis points. Lastly, from a segment performance perspective on slides 7 and 8, we’ve included a two-year GAAP comparison for enhanced understanding of this just completed quarter’s performance. Slide 7 shows the consolidated sales increase of 8.9% from the same quarter two years prior, lifted by a healthy combination of volume, pricing and mix across our segments. Slide 8 provides a gross profit overview for the two-year comparison. The polyester segment exhibited strength against the previously discussed headwinds, the Asia segment exhibited a 430 basis-point increase in gross margin with recent mix and efficiency gains, and the Brazil segment exceptional performance is highlighted with a comparable doubling of gross profit. Again, we are pleased with the progress made across our portfolio over the last several quarters. Moving on to slide 9, which provides a brief update on our balance sheet and capital allocation priorities. We continue to have zero borrowings on our ABL revolver, which had an availability of $74 million as of September 26, 2021. Under our balanced approach to capital allocation, we expect to continue to invest in the business to drive innovation and organic growth, maintain a strong balance sheet, and remain opportunistic with share repurchases and M&A opportunities. Before I pass the call back to Eddie, I’m pleased to announce that Unifi will be hosting an Investor Day event in February 2022. The event will be hosted by our leadership team at our manufacturing facilities in North Carolina. We believe it’s important for our investors to explore our world class facilities firsthand. For those who can’t attend in person, we will webcast the event. More details will be released on this event in the near future. I’ll now pass the call to Eddie to take us through the last slides of the presentation and make some final comments.

Thank you, Craig. I will conclude with slide 10 of the presentation and provide some context around our expectations for the remainder of the fiscal year. You will note from the earnings release that we increased our fiscal 2022 outlook, and the great start from Q1 gives us confidence in our team’s ability to achieve our targets. However, doing so will mean continuing to remain nimble as we navigate the numerous market dynamics. These include inflationary pressures, particularly related to the cost of recycled inputs, energy shortages in Asia that have resulted in temporary slowdown for several of our customers and suppliers, uncertainty related to the continued impact of the pandemic and ongoing labor pool constraints in the U.S. Again, our team has done a tremendous job navigating all these headwinds, and I believe they will continue to do so. We will keep a close eye on all of these issues as we progress through each quarter. Looking forward, we are excited by recent trends in our REPREVE and other value-added products. Our expectations remain positive on these developments and will continue to be driven by our innovation and commercial teams, and we anticipate them to grow long-term. Our strong performance during the first quarter reflects our regional focus, global commercial model, innovation pipeline, and the upside potential each has even when stressed with challenges in the broader market. For the second quarter that ends in December 2021, we expect net sales to range between $185 million and $190 million. And after consideration for a seasonally higher SG&A level, some normalization of Brazil segment profitability and recent increases in oil prices, we expect to achieve an adjusted EBITDA between $14 million and $15 million. For the full year fiscal 2022, we expect sales to surpass $750 million, representing a 12% increase or more from fiscal 2021’s revenues. We expect adjusted EBITDA to grow from the fiscal 2021 level and to be in a range between $65 million and $67 million. Our effective tax rate guidance remains in the range of 35% and 40%, while our capital expenditures will range between $40 million and $44 million. We will continue to focus on partnering with global brands and retail leaders, who want to position themselves using sustainable products. As stated on previous calls, we believe the importance and demand for sustainability will only grow, and consumer behavior attests to that. We’ve remained dedicated to innovating and repositioning the business to drive long-term organic growth. We will now open the lines for questions.

Thank you. Our first question comes from the line of Chris McGinnis of Sidoti & Company. Your line is open.

Good morning. I appreciate you taking my questions and congratulations on a strong quarter. To start, could you elaborate on your guidance? It seems you’re experiencing inflationary pressures related to raw materials and labor. Looking at this quarter's results, can you explain the decline in profitability and when you anticipate being able to implement pricing adjustments? Additionally, regarding the increase in REPREVE pricing, are you encountering any resistance to its adoption? Thank you.

For the full year, we were very pleased to increase our guidance. This change reflects our achievements in the first quarter and a revised assessment of the remaining three quarters of the fiscal year. We're confident about this adjustment. In the second quarter, we expect our Brazil segment to return to or come closer to normal profitability, which is included in our forecast. As mentioned in our press release, we are aware of some headwinds. Fortunately, the supply chain challenges that impacted many companies did not affect us in the first quarter, but they remain a concern. We are addressing ongoing cost challenges and making necessary pricing adjustments with our customers. Typically, the December quarter is a bit slower due to a normal shutdown period that occurs during the last week of the fiscal quarter this year. We have provided specific guidance on sales and adjusted EBITDA for the quarter, considering the headwinds and tailwinds present in the market. I'm going to let Eddie address the REPREVE pricing aspect of your question.

Yes. I think the question relates to both pricing and REPREVE pricing. Generally, we face challenges with price adjustments in the U.S. A considerable portion of our business is indexed, so we often see a lag in a quarter as raw material costs increase, particularly in our polyester segment. However, I am pleased with how quickly we've been able to implement these adjustments, even though we are still lagging. It will take a couple of months for all the price increases to fully work through the system. As mentioned earlier, this is a difficult process. Much of our business, especially in Central America, relies on a power-based model, and our customers have traditionally made long-term price commitments. We are making different decisions now and are passing on raw material and cost increases as necessary, but it will take a few more months to complete this process. Regarding REPREVE pricing, it has been more challenging due to the rising costs in the U.S. for bale bottles, which have increased more rapidly than the virgin raw materials. We are managing to implement our price increases, though margins are a bit squeezed at the moment. However, as we progress through this quarter, we expect to fully incorporate any necessary cost increases.

Next question comes from the line of Daniel Moore of CJS Securities.

I wonder if it's possible to quantify the impact of labor shortages on the polyester revenue. Was there any measurable corresponding margin impact due to lower absorption in the quarter?

I would say it’s difficult to quantify. I will say that we have baked the cost increases into our model. It’s interesting, as both Al and I talked about, it’s a new world for employees right now and it’s a new world for employers. And we’ve realized that we’ve been lacking some of our training efforts. So, we are going to spend more money on training, retention. We feel like our benefits and pay package are appropriate. And so, our job is at the HR level and manufacturing levels to be the employer of choice in the areas that we work in North America. And I don’t think it’s an easy task. It’s not going to be something to change overnight, but certainly we’re on the right track. But the costs that are built into our model are there. So, I don’t think we’re going to see any surprises in Q2 for them.

Could you provide more details on the moderate headwinds in poly from import competition mentioned in the press release? Additionally, do you still anticipate achieving a full $20 million revenue benefit from the tariff impact, either in fiscal '22 or on a run rate?

Yes, for the fiscal year 2022, we do expect to see that. Recently, we had our hearing, and the final determination will be on November 30th. We anticipate an increase in volume as outlined for the entire calendar year 2022, so we see no issues there. We were slightly disappointed that one specific importer from a particular country had a low rate of 2%, but on average, we expect it to be around 16%. We are optimistic that this will make a significant difference and help restore fair competition.

Very good. Maybe one or two more, just that input cost. Obviously, this is a very, very remarkable period in terms of sharp and sustained prices in oil. If they were to reverse course, given the pricing actions you’ve taken, would you expect to get most of those back, and just us what percentages is on index? Just wondering if you could see any potential benefit over time there.

Yes, we've modified our pricing model over the past seven to eight months due to rising input costs beyond just raw materials. I don’t expect us to return to previous prices or margins. Generally, as raw material costs decrease, we will have to absorb some of those costs, but we won't be able to reverse all the price increases because overall costs remain elevated, particularly in the U.S. Therefore, I don’t anticipate we will need to give back all of those increases. However, there is potential for us to improve our margins if crude oil prices decrease. We've seen crude at record highs recently, but it's uncertain how long that will last. The rise in crude is affecting petrochemical costs, and we will need to implement additional price adjustments this quarter for virgin polyester.

And then, just talk about, you mentioned, everybody kind of looks at the oil prices, we don’t see the bale bottles as much, but availability, still feel pretty comfortable with availability there. And obviously, you’re doing an exceptional job of pushing the price increases through. But just talk about what you’re seeing on that front?

Yes. On the bale bottle side, again in the U.S., we haven’t had issues getting bottles. We had to pay for them. But we haven’t had a supply issue at all. We generally keep enough inventory to where we give ourselves enough cushion to where maybe there’s a week where there’s some bad weather or some logistics issues we’re recovered. So, we’re not going to worry about the supply of bale bottles right now.

Okay. Lastly, it seems that the initial adoption of EvoCooler is progressing very well. Can you discuss that and its potential impact on your margins and labor efficiency as we look beyond the next few quarters?

Yes, it's a bit early to provide a detailed description of that. As we establish a solid phase of machines, we will elaborate on the benefits. What I can say is that introducing new technology often requires significant effort to ensure it operates effectively. I'm very pleased with our purchases and confident they will bring substantial benefits as we progress through the fiscal year. Particularly, as Al mentioned, in Q4, we expect to have enough machines to confirm what we believe we're currently observing, and I'm very confident in the technology.

Next question comes from the line of Gus Richard of Northland.

I was wondering if you could talk a little bit about sort of the exposures you have in Asia in terms of customer locations and places where the people you work with manufacture, which countries are you most sensitive to?

Most of our business in our Asia segment is in China. While there have been cutbacks in production due to energy cuts by region and city, we have been able to manage through that. This issue affected us at the end of September, so it did not impact Q1. In Q2, the first two weeks of October may have experienced some slowdowns, but we remain confident that as we progress through this quarter, and as the Chinese government raises energy prices, which will encourage more energy production, along with the restart of more coal plants, the energy situation will improve. For us, China is the primary focus. Vietnam is also part of our business and has returned to normal production levels, although it will take a couple of weeks for all employees to return. The COVID-related issues in Vietnam are resolving. Thus, our primary concern is China, and we do not anticipate any issues there currently.

Okay. And it is primarily the energy going blackouts that are impacting you and not the COVID lockdowns that keep on popping up in China?

Yes. The COVID lockdowns really are impacting our customers who are trying to get stuff out of the country. A lot of the COVID shutdowns were at the ports, and that’s where we saw the backlog happening.

Got it. Thank you. And then, just shifting to Brazil for a second. Could you give me a sense of what the percentage of REPREVE in Brazil is, what part of the mix is there?

Yes. As we said before, Brazil is at the very early stage of building its REPREVE business. We’re excited about what we’re seeing in the marketplace, some of the big brands servicing the U.S. and Western Europe are starting to get pressure from their customers down there in Brazil. It’s a tiny part of our business right now, but we are going to build up business and invest in the marketing down there and pushing that. In fact, it won’t be a push. It would more be a pull for us as we move through the next few years. But it’s a tiny part of the business right now. So, lots of opportunity. That’s how we see it.

Thank you. Next question comes from the line of Marco Rodriguez with Stonegate Capital. Your line is open.

Good morning, everyone. Thank you for taking my questions. I was wondering if I may have missed this earlier in the call, and I apologize if it was addressed. Given the supply chain issues that many are facing, could you share any insights regarding your orders? Are you seeing any increased ordering from customers as they try to get ahead of the curve with the holiday season approaching?

Yes, that's a great question. We are indeed noticing that customers in the U.S. are ordering more yarn than they may actually need, likely in an effort to ensure they have everything they require. We are being cautious to only produce the amount of yarn that we know they will use, based on their historical consumption. However, overall, the Christmas season is already completed from a product manufacturing perspective. The production we are currently doing, whether in Asia, Brazil, or the U.S., is mainly intended for sale in the first quarter of next year, due to the lengthy supply chain. We don’t see this as a significant issue at the moment.

Got it. Very helpful. Circling back to the earlier question about the new texturing equipment, I understand it's still early on. Considering the supply chain challenges out there, is everything on schedule, or do you anticipate any delays due to these issues in getting the equipment where it needs to be?

We are slightly delayed, but it's not significant. We have had to air freight some parts, but we've been pleased with our supplier's efforts to address the supply chain issues. They have been proactive in ensuring we receive priority. Since this order has been in place for some time, they’ve managed to schedule containers effectively. Being on the East Coast also helps reduce pressure compared to if we were on the West Coast. Currently, there are no meaningful delays in starting up the equipment.

Got it. And then, in terms of the performance that you had during the quarter, obviously above expectations pretty much across the board. Can you maybe talk a little bit about what surprised you guys the most?

I think the continued performance in Brazil exceeded our expectations, which has been a consistent trend over the past several quarters. We have also seen strong performance in Asia, particularly with the REPREVE product, which has outperformed our expectations. In North America, we slightly exceeded our anticipated profitability. Overall, Brazil provided the most significant upside compared to our expectations, followed by Asia and then North America.

The labor issue is not unique to us; it's a challenge faced by every industry and business I can think of. However, I would note that it has had a greater impact on us in North America than I anticipated.

And that sort of segues into my next question, just on the labor, you had some nice comments in terms of sitting down with your employees and trying to figure out a way that you guys can become the leader or the place to basically work. Can you maybe talk a little bit more as far as those additional costs, just kind of give us a sense maybe year-on-year, or versus some normalized environment. What sort of additional costs are going to be necessary that will be kind of a permanent picture of your operating structure going forward?

Yes. Like I said in the call, I don’t think we’re going to have additional costs. In fact, I think we’re going to end up saving money because when we reduce the turnover, our productivity improves. When we improve the training, we get to higher productivity sooner. So, I think actually, in fact, what we’re doing today is going to help our costs long-term rather than hard, to be quite frank about it.

Thank you. There is no further question at this time. And I would like to turn the call over to the management for closing remarks.

Thank you, Jay. And thank you everyone for participating today. Our next earnings release for the second fiscal quarter ending December 26th is tentatively scheduled for Wednesday, January 26th, after the close of market with a conference call to follow the next morning, Thursday, January 27th at 8:30 a.m. Eastern Time. Thanks again for joining the call.

Ladies and gentlemen, this concludes today’s conference call. Thank you for participating. You may now disconnect. Have a great day.