Good morning, everyone. Welcome to Unifi's Fourth Quarter Conference Call. Leading today's call is A.J. Eaker, Vice President, Finance and Investor Relations. A.J.?

Thank you, operator, and good morning, everyone. On the call today is Kevin Hall, Chairman and Chief Executive Officer; Tom Caudle, President and Chief Operating Officer; and Jeff Ackerman, Executive Vice President and Chief Financial Officer. During this call, management will be referencing a webcast presentation that can be found at unifi.com and by clicking the fourth quarter 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, forecast 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 working capital, adjusted net income and adjusted EPS 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 Kevin Hall.

Thanks, A.J., and good morning, everyone, and thank you for joining us today. Last year, our goal was to further establish Unifi as the global leader in innovative recycled and synthetic textile solutions. Throughout fiscal 2018, we diligently invested in building our brand, our technologies, our partnerships and our organization to solidify the foundation for long-term sustainable growth. Let's start with a discussion of our fourth quarter highlights, where we see our strategy materializing. Our fourth quarter results came in as expected with excellent growth in our top line. This completed a year where we were able to deliver sales growth in each of our 4 quarters, something that hasn't happened in the last 6 years. For the fourth quarter, our sales growth of 5.9% from the prior year period was carried by the strength of our premium value-added product portfolio, as total PVA sales grew roughly 16% compared to the prior year period and represented approximately 45% of consolidated sales. On an annual basis, I am proud to add that PVA revenue exceeded $300 million for fiscal 2018. The strong PVA performance was a key contributor to our international sales growth, which was up 19% in the fourth quarter compared to the prior year period. This all leads to further progress against our goal of recycling 20 billion plastic bottles by 2020. On that front, I'm pleased to announce that we recently surpassed the 12 billion plastic bottle mark, a very meaningful milestone. Given our top line performance and initiatives to counter the recent rise and acceleration of raw material costs, we were able to make some progress on normalizing profitability, even as significantly higher raw material costs remained a substantial headwind. Crude oil prices were 50% higher in the fourth quarter of 2018 compared to the end of…

Thank you, Kevin, and good morning, everyone. As Kevin noted, results for the quarter were in line with the expectations that we discussed on our last call. We outlined our plan to reignite our growth last year through strategic investments, and we were pleased to see those investments contribute to solid top line growth. Further, in the quarter, we were able to recapture some of the short-term profitability we had lost in Q3 due to higher raw material costs. However, the cost of raw materials still remain high, and the environment in the region continues to be difficult. We have made progress, but achieving cost efficiencies, implementing price adjustments and enriching our sales mix to improve margin remain ongoing areas of focus. I'll get into more details on the drivers of our performance in my discussion today and share some of our progress on improving results. Throughout my discussion, I will be referencing the presentation that is available as part of the webcast and published on our website. Please turn to Slide 3, where we have provided a bridge for net income and diluted EPS. Consolidated net sales were $181.3 million, a solid 5.9% increase from Q4 2017. Sales were driven by an overall increase in volume, led by worldwide PVA product sales. Gross margin came in at 13.2%, which was down from 16% in Q4 2017. In the prior year fourth quarter, our margins experienced the benefit of a declining raw materials cost environment, wherein this quarter, our margins remain pressured by high raw material costs, which, in combination with a highly competitive regional environment, puts pressure on our customer pricing. Consistent with our outlook on last quarter's call, gross margin did increase more than 300 basis points sequentially from Q3 '18. We talked last quarter about our customer…

Thanks, Jeff. For fiscal 2018, we set fairly aggressive goals for a company that hadn't seen strong top line growth in several years. We added talent to our high-performance team around the globe and are driving a culture focused on profitable growth. I am more excited today about our global opportunity than when I started a year ago, as I can see the differences we are making. Our current products and those that we are developing can provide our customers with innovative solutions that today's consumers desire, which, in turn, will help them improve their own results and impacts. We will remain focused on positioning our business for long-term profitable growth by executing on our strategic growth plan while also further developing our productivity initiatives. I'm also pleased to announce that we will be hosting an Investor Day on November 15 in New York City, where we will have the opportunity to talk long-term targets and share more detail on our strategic plan. We hope to see many of you there in person. Please keep an eye out for more information to come. With that, we'll open the lines up for your questions. Operator?

[Operator Instructions] And our first question comes from Chris McGinnis from Sidoti.

Just, I guess, touching on just the price increases for maybe 2019. Just looked at the -- I would have thought that you would have seen a little bit more pricing benefit in Q4. Is that just timing-related? And I guess, when you think about the expectation for next year, how much price is built into that forecast?

Thanks, Chris. This is Kevin. And I'll take the beginning of that, then I hand it off to Jeff. So first of all, I would say that through the quarter, we're really proud of our teams because getting pricing is never easy, but they've been out working across aggressively on it, and we actually made some good progress in the quarter. We got more work to do. And as Jeff has talked in the past, with our index pricing, it lags a little bit. So we see ourselves still working and focused on this over the next quarter or 2, but we're making good progress on it. I would say, overall, the one thing that is a benefit is that more people are, I think, recognizing the challenge of rising costs across the different conversations versus when we were first out there we were kind of early in, and they were very, very tough conversations. So the overall environment is a little bit better, but we're making really good progress. So Jeff?

Yes, Chris, it's Jeff. Just on top of what Kevin said, I think as we looked at going through the quarter, we definitely saw an uptick in our raw material costs from Q3. We saw -- you saw that probably just in the rising price of oil. And so as Kevin mentioned, we're still chasing after that a little bit. We did make the sequential improvement as we talked about. And our assumptions now are that those raw material costs will -- well, albeit at an elevated price, will start to stabilize because it's just hard to predict anything other than that. And so if it stays fairly close to the current levels, we should be able to deliver on the guidance that I mentioned.

Okay. And then, I guess, just thinking about the operating margin targets for the next year. Is that -- I would have thought that would be a little bit higher. I'm just wondering, is the gross margin still maybe a little lower? Or is there more investment on the SG&A side? I know [indiscernible] you've been doing a little bit of work there as well.

Yes, Chris. So let me just maybe touch on kind of the key points around our guidance. So our objective is always to try and grow the earnings faster than the sales. And as I mentioned, we're expecting mid-single-digit sales growth and earnings growth kind of in the mid- to high single digits. And here's maybe something you might not be thinking about, is that with the -- on the revenue side, we are going to be facing an 8% to 10% headwind on the International business, and that's because of how much the renminbi and the Brazilian real had weakened. So that's about an 8% to 10% headwind just on the international business. So still strong growth, U.S. dollars, but even stronger growth on a local currency basis. On the gross profit, we expect slight expansion in the Poly business as we get more efficient and pricing starts -- sorry, raw material costs start to stabilize. That will be partially offset by some continued pressure on Nylon. And then we're facing a 100 basis point headwind on the International business due to a loss of some import credits associated with the weakening in the Brazilian real. So that was 90 days ago or was not something that was anticipated. And then thinking about SG&A, if you look at the fourth quarter and just kind of consider that more or less the run rate, that's kind of how you get to the SG&A numbers. Those are the building blocks for our guidance.

And our next question comes from Dan Moore from CJS Securities.

Congrats on the UNC Sustainability Award, and go, Tar Heels. Gross margin, if you look at sequentially, Q3 to Q4 improved 300 bps. Is it possible just to break that out between kind of volume, fixed cost absorption, price increases flowing through and mix?

Sure. Let me just tick through those for you, Dan. So the -- sequentially, from the third quarter of this year, our Polyester margins improved about 360 basis points. And if I just kind of tick through the items in, really, order of significance, the largest, for sure, was the improved leverage on just the higher sales and better efficiencies that we saw. And then the other, the next point would be the cost that we incurred in the third quarter associated with the holiday startup and some upgrade costs that we talked about on the last call that totaled $1.2 million, that was probably the second factor that we didn't have to anniversary that or we didn't see those types of expenses in the quarter. So we benefited from that. And then finally, some progress on pricing, but as I was just mentioning, that is -- that was an item where we're still chasing a bit because of the rising raw material costs. Nylon was really improvement on our mix and a little bit of improvement on higher volumes. And then International was up 70 basis points sequentially. That was primarily better mix in Asia and a little bit of a headwind on -- in Brazil on our currency and exchange rates.

That's great. Perfect. Next, the fiscal '18 guide, a little bit of margin improvement. Is it fair to assume that somewhat back second half-weighted if we think about the tenor of the year given oil and PET prices have continued to move higher here?

Yes, for sure. Thanks, Dan, for bringing that up. The first quarter is going to be very a difficult comp for us. We had, as you said, the lowest oil prices of the year then -- and then after that, we were really chasing things. So things will definitely be more back-end-loaded.

Got it. And then shifting gears, really interested in, Kevin, your comments around the new khaki pant having SORBTEK and REPREVE right on the tag. In conversations with Under Armour, for example, using the cushioning technology, are you making any progress with customers like that in terms of getting Unifi right out on the tag? And maybe just a little bit of color about what -- your ability and the company's ability to really push branding up front and center in front of the consumers' mind?

Yes, thanks, Dan. Well, you can see with a really strong growth in the International in Q4, there's a lot of programs making their way to market. And what you will see on several of those programs is more branding in-store. And so once it's on the shelf, I will be able to direct attention more to it. But there is really good co-marketing efforts going on. I think a broader recognition of the [ reach ] that you can get with the REPREVE brand as well as calling out the benefits of the technology around thermal or the wicking or the cushioning. So yes, there's more to come there, and that is definitely a focus for us.

Got it. Look forward to seeing those. And then lastly, you talked about trade and tariff. You're prepared to take appropriate actions, and I know it's putting the cart ahead of the horse a little bit, but what type of levers can you pull? And what type of actions might be appropriate if we do experience a little bit more pressure vis-à-vis China on the trade and tariff front?

Yes. So yes, this has really been kind of an interesting one for us to go through, and we're doing the math on this. So far, with the things that are in place, we really weren't seeing a material impact. Now with the announcements in the last 24 hours, we're doing more math, we're taking a look at it. So far, we don't see anything that would be a negative, but we've got to do more math on that. But -- and we'll continue to watch it. I think it's kind of where we're at right now. We don't really see a big negative, but we reserve the right to [ do ] a little bit more math [ on that ].

And our next question comes from Marco Rodriguez from Stonegate Capital Management.

Most of my questions have actually been asked and answered here but just a couple of quick follow-ups. Just first on the pricing aspects, talking about the non-index contracts kind of sounds like, obviously, that -- a little bit more pressure there in terms of pushing through, but am I interpreting your comments that, that's starting to become an easier conversation now just as far as realization and where the prices are?

Yes, Marco, I would say I would never classify the pricing conversations as easy or easier, but they're always tough. But what I would say is I think there's a growing recognition in the conversations that costs have gone up. And when we were first out, there was, I think, a real desire to just push back on that and for that not to be true. But I think now, everybody sees that it's a higher cost environment. And so what -- everybody is working through this now, and I think that's part of our partnership role, is to really work with our customers and figure out how to navigate our higher cost environment.

Got you. And if you could maybe talk about the contracts that are index. Are those -- the pricing all been pushed through for those types of contracts and those customers?

Yes, Marco, it's Jeff. So the index pricing is -- takes place on a 1-quarter lag. So it continues to kind of chase after any kind of changes in costs. So it's -- as I said, it's ongoing and we saw an increase in costs during the quarter, so we'll be a little bit on a lag. And if things stabilize, then starting next quarter, we should be all caught up.

Okay. Understood. Then in terms of the press release you guys had the other day or earlier this week in terms of just kind of the rebranding for your Outdoor Retail Summer Market, I guess, is -- I think is what the headline was, if you can just maybe talk a little bit about that, the genesis of that and what your expectations are in terms of the rebranding.

Yes. So it's really -- the rebranding is consistent with what we have been talking about, by bringing innovation around -- into the marketplace and particularly around sustainability but just improving and offering superior consumer benefits through [indiscernible]. And so we really believe that the whole idea of the true innovation starting in the fiber really captures that. If you want to deliver the superior benefits, it's really important to start at the fiber level. And what Unifi can offer are some technology approaches to that, that have some data around them that shows the benefit delivery. And so that's what -- the kinds of things that we want to do with the new branding is really be able to put out the superior benefit delivery and to be able to help communicate that all the way through to the consumer.

Got you. And so the -- perhaps the elevated costs -- I'm not sure if there are elevated costs for marketing or what have you to push this new branding out. That's already part of your new SG&A run rate at that Q4 number? Or are there other expectations there?

That's all part of it. I mean, obviously, as we grow the PVA business and these programs are successful, we might invest if we see an ROI. But that's where we're at right now. We think we're in a good place.

Got you. And last quick question. The CapEx guidance, if you can maybe talk to how you kind of look at the way that's going to be spent throughout fiscal '19 by quarter.

Yes. At this point, Marco, we're expecting it to be fairly evenly spent. And so as we said, it's $25 million, so basically in line with what we saw in '18. And the types of spending will be very similar to what we did in 2018.

And that does conclude today's question-and-answer session on today's conference. Ladies and gentlemen, thank you for participating on today's call. This does conclude the program. You may all disconnect. Everyone, have a wonderful day.