Good morning, everyone. Welcome to Unifi's Second 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, Chief Executive Officer; Tom Caudle, President and Chief Operating Officer; and Chris Smosna, Vice President, Treasurer and Interim Chief Financial Officer. During this call, management will be referencing a webcast presentation that can be found at unifi.com and by clicking the second 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, 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 Kevin Hall.

Thanks, A.J., and good morning, everyone, and thank you for joining us today. During the second quarter, we faced the highest Polyester raw material costs in calendar 2018, coupled with significant regional market pressures. As a result, we experienced a tough operating environment that further weighed down our performance. We did see some revenue growth from our International segment, but it was muted by shortfalls in the Americas. Our miss in the Americas was primarily due to a few factors. One less shipping week in the North and Central American region due to the timing of our seasonal shutdown. The recent spike in global polyester raw material costs, which also contributed to a softer demand environment, continued competitive pressures in the Americas with demand softness and a weaker sales mix. While each of these factors separately impacted our profitability, the combined impact was even more profound. We remain focused on growing the top line and expanding profitability to drive long-term shareholder value. Leveraging both our PVA and core non-PVA platforms, we are confident in our Partner, Innovate, and Build Strategy to achieve success. Our PVA sales reached 47% of consolidated sales for the quarter. We continue to believe that the investments we're making to drive long-term growth across the globe are important and are working, but need to focus diligently on competing both internationally and domestically. I'll start with an overview of the quarter and then Chris Smosna, our Interim CFO will share more granular details on our financial performance. As we talked about in our first quarter earnings call in October, we had already seen the spike in our raw material costs beginning in September and they continued to rise and peaked in early October. By November, we had begun to see a pullback in those costs, but we…

Thank you, Kevin. And good morning, everyone. As Kevin noted results this period are disappointing. I will dive into the drivers of our performance in my discussion today and we'll begin on Slide 3 of the webcast presentation where you can see a high level overview of net income. Moving from left to right, net income declined from $11.8 million in the second quarter of fiscal 2018 to $1.2 million in the second quarter of fiscal 2019. In the prior second quarter, we recorded the tax benefit of $3.8 million due to tax optimization actions and correspondingly the company's ability to reverse the valuation allowance on certain historical net operating losses. Additionally, the impacts of implementing tax reform in December 2017 led to a $4.5 million remeasurement of our deferred tax balances and a $1.7 million provisional charge for the tax on deemed repatriation of foreign earnings. These items combined to reflect the $6.6 million net tax benefit in the prior year second quarter. In the current year second quarter, optimization actions allowed us to recognize the $2 million tax benefit relating to tax returns from prior fiscal years. Both items are presented here separately as they are less relevant to our ongoing tax rate. As we move to the remaining items in this bridge, note that each our tax affected at a 25% tax rate which approximates the prior year tax rate when excluding the $6.6 million of benefits described earlier. With no material increase in net sales from the fiscal 2018 second quarter, the next impactful item was a decline in comparable gross margin and I'll provide a margin bridge on the following slide. Next, operating expenses, including SG&A increased approximately $500,000 on an after tax basis when excluding the benefits of foreign currency changes. Strong earnings from…

Thank you, Chris. I would like to provide some color around the outlook for the remainder of fiscal 2019 and then we will open it up for your questions. Looking to the rest of fiscal 2019, we are adjusting our outlook to account for the full results from the second quarter and the macro environment we are still experiencing. We will - while we believe our strategy is the right one and we'll deliver profitable growth as the raw material and demand environment stabilize, there's work to do. We expect revenues to finish the year at mid single digit percentage growth range. For our second half margin profile, we do not expect to recapture all of loss margin from the recent raw material cost increases, as the difficult regional competitive dynamics will remain for the foreseeable short term, especially as we defend our competitive position on our regional commodity business. So the second half of 2019 is expected to improve over both the recent first half and versus fiscal 2018 second half and thus we expect fiscal 2019 operating income between $19 million and $23 and adjusted EBITDA between $42 million and $46 million. Our expectations are for capital expenditures of approximately $25 million for the year and an effective tax rate in the mid 40% range and they have not changed. From an investor's point of view, it is critical to again reiterate that our strategy to partner, innovate and build with our high quality programs remains a top priority. At the same time, we are renewing our focus on our commodity business to ensure that we maintain our significant market position in the North and Central America regions and support our significant asset base and abilities to drive innovation and sustainability for our regional and global customers. Our current products and those that we are developing can help our customers innovate with the solutions that today's consumer’s desire which in turn will help them improve their top line opportunities. So we will remain focused on positioning our business for the long-term growth and executing our strategy, while we simultaneously enhance our short term returns. We will now open the lines for your questions. Operator?

Thank you, sir. [Operator Instructions] Our first question will come from the line of Chris McGinnis with Sidoti & Company. Your line is now open.

Good morning. Thanks for taking my question.

Good morning, Chris.

Morning. Just kind of digging into the pricing pressure a little bit. Is that more of just a slowdown in purchasing by customers and just a simple supply - supply and demand issue you expect with higher volumes that we will get past that, you know, the kind of the current price environment?

Hey, Chris. Let me - I think there's a couple of factors that played into the quarter. And as you say, there's things that we're leaning to as we go forward. You know, if we dial back and go - as we headed into Q2, we had that huge spike in our costs. And you know I think, we'd been chasing increasing costs for a year and I think on any kind of a sustained movement like that all times that have ended in a crescendo if you will, on [indiscernible]. You know we experienced it in September and October, and we had a pretty big move up in the cost. And so if you overlay that, our quarter two is always - is our lowest demand quarter. I mean, one of the reasons for that is we sell a lot into apparel, footwear, and if you think of the calendar year they sell a lot, starting a calendar year, starting the new sets you go into back to school, then you load in for holiday and then as you come into that quarter two, you're really - you're coming to an end of the holiday build and you're starting to look and you search for the following year. This year, the retailers and the brands went into the holiday season pretty strong actually. I think you know, as we looked into some of the results, they had good inventory positions, they mostly had strategies to win versus e-commerce on being in stock and you know, being where the consumer wanted them to buy and it was a good start to the holiday season. With this cost increase and as we went into our quarter two, we definitely saw a reduction in a lot of the retail brand demand going…

I appreciate that color. Also and if you answer this and I didn't understand it, I appreciate - you know, just wondering around existing contracts and how those were priced in a more competitive environment. Does that impact you or can you maybe just dig into that a little bit as this is kind of a little bit of a newer nuance to the story?

You mean like in the index pricing?

Yeah, exactly.

Yeah. So the way to think of index pricing that we said it’s – it’s done on a quarterly basis, it's like a quarterly average. And so you know, when you get these moves up like we were chasing, you're always kind of averaging - catching up to that average if you will. So you know, in this environment as we went into the second quarter, we have that huge move up. Those average costs were above where our average pricing was at. They've kind of started to come back down now, so they're averaging back down a little bit. As I said, we're kind of getting into a good price to cost ratio right now where we need to be. We never did really fully recover that full two-month spike because of some of these dynamics. It just happened so quickly, up and so quickly down, so that was one of the things that hurt us. I might be - so that will be there, but as we look go forward our index pricing looks like - it's going to be in a pretty good place.

Okay. And so that's the driving factor I guess for the current contracts you have in place, say with like a [indiscernible] or something like that…

Yeah…

And then take a pricing, okay…

So if you think about what we're pricing now, where indexes are as I said, the prices - the cost kind of came back down to where they're matching where our pricing is.

Okay. So you wouldn't see competitive pressures on that would you? Since you're already in on the program, is that – that’s where I was trying to get at, I apologize.

Yeah. So that's always going to be partly demand, we’ll always have pressures. But you know that's going to be part demand driven too, that's why I'm glad that the seasonal demands are moving back up.

Thanks very much, I appreciate. I'll jump back in queue.

All right. Thank you.

Thank you. And our next question will come from line of Daniel Moore with CJS Securities. Your line is now open.

Thank you. And good morning. Let me drill down a little bit more when you describe increased competitive pressures in the region. So is Brazil specifically in the captive [ph] region. Are you seeing new entrants? Is there something going on the supply side, as well as, you know a little bit of demand pressure?

Yeah. Thanks, Dan. So let me start with Brazil. Brazil continues to be a good market for us. Its volatile. We have a strong leadership team down there. And you know, we always talk about Brazil being volatile and it definitely was in Q2. You know, it was an environment where they had our currency fluctuations, they were hit hard by effect. They had their different political environment situation going on there. It's calm down, going into Q3. So that's good. But we definitely were impacted by FX and some movement there and some of the impacts on our gross margin. Less so - I guess as you kind of bring it all the way down total EBITDA because there were actually some impacts on the SG&A side of it, but it was clearly an impact on our gross margin side. We are cautiously optimistic there. As we go forward, the team feels like they have the plans in place and it is much - you know, it's a different environment right now, knock on wood [ph] hopefully it stays there. When you look at this region, we do have strong competition in Central America. We have a few tax [ph] coming online in Honduras. At the same time you do have more brands still talking about more business in that region. And so we still believe that there's going to be a great opportunity to partner with them and move more REPREVE based our product offerings to them in that region. So we need to do both. We got to compete on the commodity side to run the assets down there, as we start to increase the mix towards REPREVE. And we think that's going to be the right long-term strategy. North America you know, it was just a tough demand environment here and I think in that you got more people buying spot and on these imports and you know, again we're approaching that differently. We've got a - it's still the same premise, which is we've got to get very, very close to each of our customers. We've got to partner with them. And we've got to know what they need and when they need it. So even on our commodity side of our business it's about high quality, it's about speed and it's about getting products to them in a way - in a better way than they'd be able to get out on the open market. So those are the things we're focused on. We've got – the only thing I would like to add Dan as we've really worked on getting strong local leadership in each of our regions. And so that would include in Central America we got a much strengthened team there and we're really going to push to make sure that we own these local markets.

Got it. And then my follow up, you may have answered some of it there Kevin, but you know in terms of being or competing more aggressively on the commodity side of the business, beyond you know simply price, some of those levers that you are thinking about so that you can pull?

Yeah. So a big part of what we do is high quality speed. You know, if you think about some of these large commitments that need to get made on some of these seasonal deals, is large production and you know, there is a value to making sure that you're getting that delivered into their supply chains in a high quality dependable way. So we're going to make sure we partner with those customers to get that done.

Got it. One more and I'll jump back. But if we think about the guidance for the remainder of the year at least on an EBITDA front, looking at some pretty healthy growth year-on-year in terms of H2 in the 10% to 30% range, maybe just talk about your visibility and comfort and what gives you confidence in that type of growth on a year-over-year basis?

Yeah, I think the two macro pieces right now are seasonal demand coming back into place and right now we're not - we're not chasing increasing costs. You know, we're at a place where that is kind of come down and we're matched where we need to be. So that's really what we're looking at Chris, I don know if you have anything else to add?

Yeah, I would just say Kevin about the favorable index pricing rolling in the second half will help you know, that one quarter lag and overall improved sales and production volumes from the seasonality that typically lifts our second half will drive improvement.

Got it. Appreciate the color.

Thank you. [Operator Instructions] And our next question will come from the line of Marco Rodriguez with Stonegate Capital. Your line is now open.

Good morning, guys. Thank you for taking my questions. I have a quick follow up on one of the prior questions there in terms of the competitive environment. I just kind of want to dig down a little bit more. I'm trying to follow through some things here. The overall cost environment for you guys, the raw material costs supposedly should impact most of the players the same way. I understand the import aspect, but I'm just trying to understand here from North America region and Central America. Is there an issue with just your competitiveness in terms of the cost structure or sales aspects? I'm just trying to kind of understand that a little bit better.

Well, a big part of this quarter Marco really was overall demand in the region both North America and in Central America just went really low. And so that you know, that was something that we're going to have to deal with. We are - we do have to watch our costs. We have to manage on our cost side very aggressively and we're going to have to do that in both Central America and North America, as well as Brazil and Asia. I mean, we don't actually get a pass from that anywhere. Moving into more differentiated yarns is going to be critical. We've talked about that. You know, I think getting into more REPREVE is going to be critical for that. The nice thing there is I think what you're going to hear over the next six to 12 months is more and more brands making a commitment. So we've - we're positioning ourselves to be able to supply that in all regions including in Central America at a cost competitive way and as brands want to move into more REPREVE. So a lot of work to do. We've got to continue to focus on costs. But you know, it's one of things that I think we'll always have to do as we move forward. Again, Chris do you have anything else that would add.

No, I think that covered it.

All right.

I guess what I'm still trying to kind of understand here is, is your cost structure perhaps a little bit less favorable to you guys in the North in the Americas or is there a kind of lack of focus on this commodity assets because you're obviously geared more towards the PVA moving that for a long-term perspective?

Yeah, so Marco, you know, I think we've talked with in the past, we do have very aggressive imports here and aggressive pricing on them. So we do have - we do face that. Again, they tend to be more spot and oriented, but in certain situations they're able to pick up business. And so where people really want to partner on big run, we need to be able to compete versus that. But you know, but the imports are an issue that we have. Central America with [indiscernible] taxes coming on, they are very cost competitive, they are a low cost competitor there. And we'll have to play that very sharply. But again in a seasonal down demand environment we think we can do that. And right things look pretty good.

Got it. Understood. And then also if you could maybe talk a little bit on the working capital aspects, just kind of looking at your inventory here its been kind of accelerating year-over-year for the last few quarters versus your sales growth, obviously understand some of the impacts on sales growth. But if you can talk a little bit about that elevation down inventory levels and how that sort of is going to be impacted in the second half of the year?

Yeah. Hey, Marco. This is Chris. You know, just the working capital increased from about $152 million in June to $176 million in December. And as you noted a big piece of that was inventory. So going through the back half of the year we expect adjusted working capital to remain relatively flat or maybe even down a little bit as reductions in inventory due to anticipated lower raw material cost and a converted effort to lower on-hand inventory levels will be offset by an increase in accounts receivable due to the expected increase of sales that typically occurs in the second half of the year with the seasonality. So that's kind of where we see things going.

Got you. And last, so just a quick housekeeping item here. I'm not sure if I missed this on the call, but did you give a percentage of your total sales on PVA and growth rate?

Yeah. The total sales for the quarter were 47% and the growth rate you know, without the FX impact is or sorry, with the FX impact is about 2% to 3%.

Got you. Thanks a log guys. I appreciate your time.

Thank you.

Thank you. And we have follow up questions coming from line of Daniel Moore with CJS Securities. Your line is now open.

Thank you, again. If I might ask just a little more granularity from the – on the guidance front in terms of SG&A what are your expectations for growth or dollars back half the year and are there any initiatives marketing otherwise that may be pulling back a little bit on just given the difficulty in environment right now?

Yeah. We expect small improvement in SG&A as we look for opportunities to reduce unnecessary spending. But the growth rate will be fairly stable in the back half and just down slightly.

Got it. And then you touched on inventory, maybe just quickly on Parkdale. What do you see in there? And you know, if that's driving the improvement in environment or net income and how sustainable is that as we look at the back half?

Yeah. So if you at the Parkdale results they actually had their spike in raw cost in the second quarter of the calendar year, our fourth quarter. So if you looked at April, May, June time period is where they really had their strong win [ph] up in cotton. So it's come back down. Things look good. As long as it stays there I would expect that they're going to have good performance.

Got it. Thank you.

Thank you. And I'm showing no further questions at this time. Ladies and gentlemen, thank you for your participation on today's conference. This does conclude our program and we may all disconnect. Everybody have a wonderful day.