Good day, ladies and gentlemen, and welcome to the Unifi Second Quarter 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. [Operator instructions] As a reminder, this conference call is being recorded. I would now like to turn the conference over to James Otterberg, CFO. Sir, you may begin.

Thank you, operator, and good morning everyone. Joining me for the call today is Bill Jasper, our Chairman and Chief Executive Officer; and Roger Berrier, our President and Chief Operating Officer. During this call, we will be referencing a webcast presentation that can be found at unifi.com. The presentation can be accessed by clicking the second quarter conference call link found on our homepage. Before we begin, I need to first advise you that certain statements included on today’s call will be forward-looking statements within the meaning of federal securities laws. Management cautions that these statements are based on current expectations, estimates and/or projections about the markets in which the company operates and other contingent matters. 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. I direct you to the disclosures filed with the SEC in our Form 10-Ks and Form 10-Qs regarding various factors that may impact these results. Also please be advised that certain non-GAAP financial measures, such as adjusted EBITDA, will be discussed on this call and the non-GAAP reconciliation can be found in the schedules to the webcast presentation. Before we get to the financial details for the quarter, I’d like to turn the call over to Roger, who will provide you with an overview of the company’s markets, raw material trends and other important business updates.

Thanks, James and good morning everyone. I'll start this morning with a few brief comments regarding our outlook for our key retail market segments. Retail sales of apparel, which were 3.3% higher in the December 2014 quarter compared to the December 2013 quarter, reflect an overall strong holiday selling period. For the full 2014 calendar year, retail sales of apparel increased 2.1% compared to 2013 and the general consensus among forecasters is that the U.S. economy will continue to grow slightly in 2015, particularly as consumers adjust to lower gasoline prices. One very positive trend for Unifi is that the share of synthetic apparel from all countries is expected to reach 52% for 2014 once full-year data is reported which would mark the first time that the share of synthetic apparel will be greater than cotton apparel. This supports the trends we see in retail as more and more brands are incorporating more performance apparel in their products. The growth of synthetic apparel, particularly from the CAFTA and NAFTA regions is driving our decision to increase our textured polyester yarn capacity in Yadkinville, Madison and El Salvador as we mentioned in previous investor updates. In addition to increasing our capacity, the 12 texturing machines that we will add in these locations will also improve our manufacturing flexibility, including our small production run capabilities which will allow us to support the company’s mix enrichment strategies and handle increasingly complex product mix. We expect to begin the installation of the first set of texturing machines in the third quarter and continue to bring more online throughout the balance of the fiscal year. Looking at other retail markets. On an annual basis, retail sales of home furnishings grew 3% and North American automotive production increased approximately 4% compared to the previous year. Builders…

Thank you, Roger. I will begin the review of our preliminary financial results for the December quarter on Page 3 of the presentation with net sales and gross profit highlights by segment. Net sales increased $2.5 million or 1.6% to $163 million for the December 2014 quarter compared to net sales of $161 million for the prior year quarter. The increase in net sales is attributable to improved volume in all three of the company's reportable segments along with PVA growth within the company's polyester segment. Consolidated sales volume is higher than the prior year quarter, driven by variant increases in each segment. The slight quarter-over-quarter increase in sales volume for our polyester segment was primarily due to the continued success of PVA programs, offset by lower chip sales and the lower average tenure. International segment sales volume increased from the prior year quarter due to volume improvements in Brazil for both manufactured and resale products, despite challenging economic and competitive conditions and higher volumes in China as a result of the rollout of several new sales programs. The quarter-over-quarter price decrease in the nylon segment is mix-driven. The quarter-over-quarter price decrease in the international segment is the result of lower prices in Brazil due to competitive pressure from low-priced imports and lower raw material costs, unfavorable currency translation in Brazil due to the devaluation of the real against the US dollar and lower prices in China due to a lower price sales mix. When reviewing our current quarter gross profit results against the prior year quarter, the company is reporting higher consolidated gross profits as well as higher gross profits for each of our three reportable segments. For Q2 of this fiscal year, gross profit improved to $23.3 million from $18.5 million for the prior year quarter and 14.3%…

Thanks, James. Good morning everyone. I am certainly pleased that the momentum that we built in our first quarter carried over to our December quarter. And looking at the first half of the 2015 fiscal year, the company is ahead of last year on virtually every key measure, including net sales, gross margin, net income and adjusted EBITDA. Our balance sheet remains strong and our ability to generate cash from operations along with our enhanced borrowing capacity continue to provide the foundation to allow us to increase capital spending to pursue profitable growth-related opportunities. We are particularly encouraged by the fact that gross profit for each of our reportable segments increased in the first half of 2015 compared to the prior year period. Our domestic business continues to benefit from the growth in synthetic apparel production in the NAFTA, CAFTA regions which is driving demand for our broad portfolio of fine yarns. Our plans to increase texturing capacity in El Salvador and the U.S. will help us meet the growing supply needs and better service the needs of brands and retailers sourcing from the region. We will also continue to focus on and support the growth of our branded premium value-added products which include improving our asset flexibility, increasing our production capacity for Repreve and exploring the potential for the backward integration into bottle -- plastic bottle processing for Repreve. Despite local economic conditions in both Brazil and China and Brazilian currency devaluation, net sales and gross margin improved in our international operations for both the quarter and the first half. As Roger mentioned, we continue to take a long-term view of both Brazil and China and remain confident that our mix enrichment strategy and focus on differentiated products will drive further improvements over the next several quarters. In terms…

[Operator Instructions] We have a question from Chris McGinnis of Sidoti & Company.

I guess, just to start off maybe with the lower kind of input costs due to the decline in oil, maybe just talk about that in terms of – do you see a benefit in the gross margin in the quarter you just had and I guess how does it impact your topline going forward? Can you maybe just dig into that a little bit more?

Chris, hey, good morning. This is Roger. I’ll answer part of that and then certainly James, Bill can jump in and answer the other part. During the quarter we started to see a decline in our raw material costs that we referenced. If you look at how we flow the raw materials through our operations, certainly our work-in-process and also our inventory, it takes around 60 days for us to run that fully through our operation and out to our customers. So as we started seeing some of that lower raw material costs -- if you look at our cost of goods sold, we didn't see all that come through into the quarter and then certainly we started reacting as I mentioned in January to lower prices to make sure that we continue giving a good value, good pricing, competitive pricing to our customers.

Yes, I guess, Chris, the only thing I'd add to that – this is Bill – with regard to your revenue question, certainly since raw material is such a large part of our costs, as we do adjust pricing to take into account, the lower raw material prices, it usually will have an impact on our revenue bringing it down somewhat. However we don't expect our margins to be affected and would expect actually margins to remain the same.

60 days is the push from the customer, or is it more of just the competitive landscape to make you bring your prices down instead?

Yes, it’s definitely push from our customers. They are getting pressures today from brands and retailers. We are getting calls directly from brands and retailers that know us very well today because of our connection with them, with our premier value-added products. So there's a lot of pressure out there today for the lower prices. People see that oil is dropping significantly and they know that, that's related to our raw materials and they're asking for the relief. And we’ll certainly look at the timing of what’s happening with our inventories and our processes. We also look at the value that we’re bringing to the market and reacting accordingly.

I guess maybe just talking about the expansion capacity, what’s your utilization rate, if I am thinking about that way, in the region itself at the moment and how quickly with the capacity you’re expanding, can you ramp that up or how long of a window do you have until you fill that?

So when we look at our capacity utilization today, typically the third and fourth quarter which we just started the third quarter as our stronger quarters for apparel and we’re running close to a 100% utilization today. Now if you look over the last two or three years, the denier, that we quote in denier which is sort of the weight of the polyester, the garments at retail have been getting lighter and lighter. So our average denier has dropped which requires us to run more spindles to produce the same amount of volume or pounds. So we’re adding machinery spindles to keep up with the drop in denier to generate the same amount of volume. In addition to that, we’re seeing volume opportunities as brands and retailers have moved programs into CAFTA and they are talking to us about over the next one to three years moving additional programs into CAFTA and they're asking us -- they will need more volume from us and they want to see us making that investment which we’re making that investment in communicating not only to our customers but we’re also communicating to the brands and retailers that we are making the investment, we are ordering the machines and they see us putting in the machines and it gives them confidence to go ahead and look to move these programs back to the region. So as we put these machines in, certainly we expect to start running -- out of the 12 machines, we will definitely start running a big portion of those machines and then over time probably in the next year to 18 months, grow into that additional capacity.

And what's the driving factor behind their move to the region? Is it just – is it sort of like lead times? Maybe just dig into that. Is it –

Yes, they are seeing the benefit of certainly CAFTA and getting more comfortable with the production in CAFTA. And actually CAFTA is making more investments in the region to produce more of the complicated type garments. For the last 4, 5 years people look at CAFTA as very simple make, simple garments, simple T-shirt type production and they had the more complex, complicated apparel type garments in Asia or overseas. The investment that’s taking place now in CAFTA is allowing some of those more medium to complex garments to move back to the region. So speed to market, working capital is extremely important but also as the new investments take place, making sure those investments can make those little more complex garments is the key to getting more of these programs back.

I guess to move on to the international operation, it’s nice to see a rebound there. Is it more of the -- your initiative to put the PVA that you're seeing that rebound in Brazil?

Yes, I think we’re continuing to work on our mix enrichment strategy in Brazil. As I think we commented before that it’s a longer-term play when you talk about the development cycle of getting mix enrichment and PVA into these programs. I think the benefit that we saw this fiscal year for the first six months that James was talking about is with the devaluation of the Brazilian real against the US dollar, there’s so many imports coming into Brazil. The currencies allowed us to be more competitive with domestic production against these imports and that’s allowed us to increase local produced volumes and compete a little better against the imports. So that's sort of the short-term pickup, but certainly the longer-term view that we mentioned that we’re excited about is seeing some of the traction and the foundation that we’re laying for this mix enrichment strategy, we can see that, that’s going to payoff too.

And I guess just one question on Parkdale, you guys mentioned it at the investor day that you expect the investment out of them. Any update on that please?

Well, I guess the update that I would have is they've announced that they have bought the spinning facilities of Fruit of the Loom and are going to go into a supply contract with Fruit of the Loom. So certainly they will be spending some capital there to upgrade those facilities. They purchased the 50% ownership of ITG in their Mexican operation and they are upgrading that plant, actually doubling the capacity of that plant and expect to increase sales in Mexico. In addition to that, they are completing the [Rabun Gap] [ph] plant which is the large plant retrofit that they began about a year ago. So overall they’re spending a considerable amount of capital and we would anticipate seeing the benefits of that in their earnings over the next few years.

[Operator Instructions] The next question is from Eric Pisauro of Regency Group.

I have been on these calls for many years now. And so I was listening when oil ran up. And well, some of you I don't know, if you’re on the management team then, but the story was, oh, we got to take care of our customers, there is a lag. Sure, it hurts now but on the way down, there will be another lag in our favor. But sure enough the modern world, everything is harder and more difficult. The customers push back strongly, they want every penny of benefit. Are things different now with them pushing on this? I hear also fabric is lighter and lighter, hurts volume. I’ve got to ask the obvious question. Surely you’re pushing pricing in that situation like you said you are running it through the machines, producing less volume. Are you being mindful of the pricing on that output?

Yes, I mean I think as we talked about our mix enrichment strategy and looking at the lighter deniers certainly producing -- the lighter deniers falls into part of our mix enrichment strategy. And your comment about historically as raw materials rise we’ve been sort of chasing the price and working with our customers and raising the price as our costs have gone up. Certainly on the way down there is a period in there where there may be some small benefit to us or a period where we are benefiting. But certainly we do have the pressure. And if you look at the overall market demand today, I mean the global demand for polyester is down even though we are experiencing strong demand in CAFTA and NAFTA. There are lot of producers right now, the capacity utilization across the world is different. It’s off today versus in past years when raw materials are going up typically the demand may be a little higher and there’s more competitive landscape out there. So certainly all that comes into play when we’re looking at pricing and market pricing and working with our customers.

This is Bill. I guess what I would add to that is certainly in the past when you look at Unifi 8, 10, 12 years ago, I mean we were primarily a commodity supplier and we were certainly at the mercy of raw materials going up and down as well as at the mercy of Asian imports depending on the capacity demand in Asia and I won’t call it product dumping but certainly selling products from China here at much lower than even the material prices. Part of our PVA strategy and part of our move into value-added products is to become less and less sensitive to those types of pressures. Now certainly a big part of our production still is I won’t say commodity but certainly competes with commodities. But as we continue to grow our PVA and branded products, our expectation would be we’re going to become less sensitive to the commodity pressures we typically have in the past.

That’s great. I applaud that. But let’s say the oil recovers dramatically at some point in not-too-distant future. We won't be whipsawed on our pricing?

No, I mean we're certainly – with the volatility in the market we’re certainly communicating to our customers that, while we’re working with you on pricing and market pricing as raw materials are declining, certainly the reverse of that -- as raw materials go back up or there's a sharp rise or a small steady rise, we will be working with you to correspond the pricing accordingly.

The purchase commitments from our customers, they are not fixed price, they're sort of cost plus?

Well, typically we have two buckets that we work with our customers. One is the index pricing. Some customers want index pricing to raw materials. So in those cases it's pretty much up and down as raw materials vary and we have a fixed conversion fee. That represents a percentage of our business and then the other percentage is market pricing as we compete against our competitors in the market.

Looking at cotton as an alternate product choice for power manufacturers and what's been going on in that market, at some point -- does it no longer matter? Is it simply sort of a style trend that's towards the synthetics as opposed to pricing?

Well, I think certainly pricing is always part of that formula but if you look at also the trends taking place at retail as we mentioned, we have more and more brands that are -- that have been predominantly a cotton type brand, they are looking at the trends at retail and saying I need to incorporate more performance type of garments in my lineup and they are not going from all cotton to all synthetic but certainly if they had 100 SKUs of cotton, they’re putting in 10 SKUs of performance and we’re seeing those opportunities and we’re seeing traditionally those brands that were 100% cotton contact us and looking for innovation, looking for sustainability and we’re working with them on the programs.

And lastly, if I might, with the international operations, are they -- how are they -- are they financed with local debt or US dollar debt?

In both of the operations that roll up international segment, there are no debts, external third-party debt and their growth is funded by local cash. End of Q&A

[Operator Instructions] There are no further questions in queue at this time. I’d like to turn the call back over for closing remarks.

Okay. Thank you, operator. Just to reiterate we’re certainly pleased with our results to date. We anticipate continued improvement as we continue to invest in our operations as well as our premier value-added products. And we certainly appreciate everyone's interest in Unifi. Thank you.

Thank you ladies and gentlemen. This concludes today’s conference. You may now disconnect. Good day.