Good morning, everyone. Welcome to Unifi's Third 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 Tom Caudle, President and Chief Operating Officer, Al Carey, Executive Chairman 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 third 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 Tom Caudle.

Thanks, A.J. Good morning everyone, and thank you for joining us today. In our third quarter, we continued to fight against many of the same challenges that we saw during the first half of fiscal 2019, including high-volume, low-priced imports, elevated raw material costs and execution shortfalls in our core polyester and nylon businesses. In this difficult environment, we saw sales growth across all three of our reporting segments, thanks in part to an additional shipping week in our North American operations but our bottom line performance was disappointing. Big picture. We are focused on our partner innovate and build strategy, and we remain well positioned to deliver superior service to our customers and to capitalize on our significant market position. That being said, we recognize the need for organizational realignment and have taken swift action to transition to a leaner, more agile structure having deep roots in operational excellence and a proven understanding of our core business. We believe we have made the right strategic decisions that will establish a more profitable structure for the business moving forward, and we remain excited about our global opportunity due to continued growth of PVA products. I'd like to reiterate our strategy hasn't changed, but we have renewed our focus on controlling costs and solidifying our core business in North and Central America. Both Al Carey, our new Executive Chairman, and I helped craft the strategy and believe the underlying drivers of our business remain strong. I will go into more detail shortly on the additional cost containments steps that we're taking to shore up bottom line, but let's first review a few key performance indicators for the quarter. Revenue for the third quarter hit $180 million compared to $165.9 million for the third quarter of fiscal 2018. When excluding the impact…

Thank you, Tom. And good morning, everyone. As Tom noted results this period are disappointing, but we have and are taking meaningful action to reduce costs across the business. I will dive into the drivers of our performance in my discussion today and will begin on Slide three of the webcast presentation, where you can see a high level overview of net income. Moving from left to right, net income declined from $0.2 million in the third quarter of fiscal 2018 to a net loss of $1.5 million in the third quarter of fiscal 2019. For this bridge, we've applied a 30% tax rate to the items noted to increase the relevance of this analysis and presented separately the impact of the significant change in the effective tax rate, which I will explain in a few moments. A material increase in net sales was driven by the fact, as described by Tom earlier, notably the additional shipping week due to the timing of our holiday shut down period having a favorable impact on the number of shipping days in the third quarter of fiscal 2019 along with continued growth of our PVA product sales mostly in Asia. However, the pressures that we experienced across our business units drove a meaningful decrease in our gross margins, and we are unable to maintain the level of gross profit that we have hoped to achieve. I'll discuss the margin bridge on the following slide. Next, operating expenses decreased by approximately $1.3 million on an after-tax basis. This decrease primarily reflects bonus and equity compensation forfeitures in connection with recently announced executive departures along with the benefit of foreign currency changes. Stronger earnings, more equity affiliates provided an improvement to net income of approximately $900,000 on an after-tax basis. This was primarily due to…

Thanks, Chris. I wanted to take a moment to discuss what I’ve seen in the short time that I’ve been part of the Unifi organization in the Executive Chairman position. As a board, we recognized that several changes needed to be made to get our performance moving in the right direction, and several important changes have now been made, and we expect that those moves will allow us to see a sequential improvement in our business in the upcoming quarters. First, we've made several new executive assignments, which should be very good for our performance and for the morale of the organization as well. The new management structure, I believe, is streamlined and simpler. We have tremendous confidence in Tom Caudle, who is a seasoned Unifi veteran over several decades. He and our team have the know-how to put us on good performance track. Second, our organization is now focused on both important priorities, driving our exciting REPREVE business to new heights and also driving our important core business, which is required for the overall company performance, and I think innovation on both will be extremely important priority for us. And then finally, we have taken cost reductions mostly in SG&A, and I think this is going to give us some flexibility in our P&L and give us a more appropriate-sized SG&A for the size of a company that we are. So I'd say that we're optimistic. We're optimistic that with these changes, we're going to see a gradual improvement in our operating income, EBITDA and EPS in the months to come. So now I'd like to turn this over to the operator to open it up for questions.

Thank you. [Operator instructions] And our first question comes from the line of Chris McGinnis with Sidoti & Co.

Good morning. Thanks for taking my questions.

Good morning, Chris.

It's something to start off with just on the trade petitions. And can you maybe just talk a little bit about when do you expect the timing to come through, and given the language that you released today? Will that be later in the year? Or are they retroactive now? And if we can start there and then maybe move into once those duties are implied, how competitive is UFI versus those prices?

Chris, we filed our original petition in October of 2018. And since that time, we've experienced significant increase in imports coming into the country. Based on those increased levels of the imports coming into the U.S., we filed a critical circumstance case which was possibly ruled on by the Department of Commerce. And then effective on the 29th of this week, they also gave a positive ruling on countervailing duties on China and India as well. The duty rates or the countervailing duty rates were substantial. They were 32% on most of the Chinese producers, and some of the ones that did not comply or cooperate were very, very high rates, some are exceeding 450%. Also, India was included in the ruling, which came out somewhere between 7% and 20%, depending on the suppliers. The ultimate ruling on the anti-dumping will not take place until the end of June. So we won't know the exact impact, but we do feel like that the impact will have a positive impact on our ability to compete with those imports on a more level-playing field going forward. And they also will be retroactive for 90 days from those preliminary rulings.

Right. So that'll go back into the end of January?

That's correct.

Okay. I know it's obviously recent, but has there been any change in the rate from the latest data that you have? More in your favor of the imports coming in or it's really…

You mean as part of the imports?

Yes.

It's too early to tell. We don't anticipate a lot of the impact in our fourth quarter. We would expect to have a bigger influence going into fiscal 2020 and then going forward.

Thanks. That's very helpful. And then just quickly one last question and I'll jump back in the queue. But can you talked about maybe the growth of PVA year-over-year and then also REPREVE year over year?

We normally don't talk about REPREVE specifically, but our growth of PVA quarter three, as a percent of sales, our PVA portfolio was about 47%. The year-to-date numbers were about 45%. And then we are still on track at achieving the growth goals in those categories that we've set forth.

Okay. Thanks very much. Good luck in Q4. I’ll jump back in queue.

Thank you, Chris.

Thank you. And our next question comes from the line of Daniel Moore with CJS Securities. Your line is now.

Good morning. Appreciate for taking the questions.

Good morning, Daniel.

Thank you. Tom, I wanted to start with the focused drill down on the international side, specifically gross margins. Understand that the FX was maybe a 200 basis point or so, plus or minus, impact on gross margins, but help us kind of bridge the debt -- the rest of the delta. I understand the import pressures, obviously, importing -- impacting North America, and it's central to some extent, but help us understand what's going on with international and where do you expect those margins to be as we get out into fiscal 2020?

Dan, I appreciate the question. I'll let Chris go into the details. And if you have a further question about the business, then we'll jump in after he finishes.

Hey, Dan, this is Chris. International margins declined about 680 basis points from 20.5% to 13.7%. I'd say about two-thirds of that was from lower conversion margin, driven primarily by raw material cost pressure. Specifically, inventory costs were moderately impacted by the October costs spike that we've spoken about on previous calls, and competitive pressures impacted the lower price portions of the portfolio as well. The remaining one-third came primarily from a weaker sales mix and the competitive pressures that we've come up against. So we do continue to see volume growth in Asia with strong filament sales, and we'll continue to work on improving our raw material costs sourcing and our cost management efforts. So that's the international segment for margins.

Okay. And maybe update us on ability to pass through raw material price increases. Obviously, it's been a sustained march higher for a long period of time. So it makes a little harder and a little longer to catch up, but are you still putting through price increases? And over what time frame do you think it'll take to get some of those back if you don't get input cost relief?

Dan, as you've been involved in this business and seeing the effect of raw material increases, there is a lag effect. And as of the end of quarter three, we feel like that we are pretty even with raw material with our pricing, although, we've had a continual price increase scenario all the way into October, November when we had a very steep decline. And it just -- that lag effect has taken place. We've been behind the eight ball. But if raw material will stabilize in the range where they are today, we feel like we are in a good place going -- moving forward.

Got it. And then shifting gears to the cost savings and G&A reduction initiatives, thank you for the color and quantification there. Can you talk maybe about the major buckets or areas of cost reduction? Are you taking a different approach to marketing as it relates to that at all? And are there any other offsets or investments that are planned that might offset some of that savings?

Hey Dan, this is Chris again. Yes, as we spoke about on the call, the SG&A for the first half of fiscal 2019 was on that $60 million run rate when you normalize for certain items. And we are targeting about a 15% reduction of that $60 million run rate by the time we enter fiscal 2020. And the process really began in March with the recently announced departure of two executives, which benefited our Q3, due primarily to the forfeitures of share-based compensation and variable-based compensation. So that was one piece of it. We also made a small reduction to our general and administrative workforce which was -- that took place in Q4, and we're continuing to work on cutting non-critical expenses, certain professional fees, consulting fees, T&E, etc., those types of items. So we believe this will all lead to a leaner and more agile expense structure, which will better position us for the future and benefit our bottom line. But we are being careful not to inhibit our ability to grow or service our customers and make sure that our marketing efforts are where they need to be.

And Dan, I would add to that. I mean, we are going to continue our strategy of partner, innovate and build strategy. We certainly are going to be more aggressive competing on our -- and trying to gain share on our regional base business, which will improve our cost leverage on our regional assets. Our PVA and innovation efforts are paramount to our success going forward, so we're not going to let up there and we're not -- although we've reduced our spend, we are not going to let up on our marketing efforts either. So I mean, we just were outspending what we could afford, and we've taken the appropriate action to be more competitive, and we're ready to move forward in a competitive environment.

Helpful. And then I'll speak one more, if I may. And it's piggybacking of the last question, and obviously, it's challenging. But given the level of spikes in imports, is it possible to put a range or quantify the impact on your margin? If we look at the March quarter that -- and the decline in polyester, primarily North American margins, how much of that relates to -- would you guestimate relates to import pressure and just trying to get a feel for what ultimately the impact of relief could look like?

Dan, I think you would be very premature to making guestimates in that regard. I mean, the file for our preliminary ruling on the anti-dumpings has not even come down yet. So I would much rather wait and see once we see some results to making any projections going forward.

Got it. I do have couple of more, but I would jump back in queue. Thank you.

Thank you, Dan.

Thank you. And our next question comes from the line of Marco Rodriguez with Stonegate Capital. Your line is now open.

Good morning. Thank you for taking my questions.

Good morning, Marco.

Hey, I was wondering if you could talk a little bit more on the management structure here. You guys are talking about having a leaner, meaner, more agile structure. It sounds like you're looking for a new CFO, but not a new CEO. If you can just talk a little bit about the thought process behind that; and then just also kind of want to follow up on the prior question on the cost savings. Were there additional mid-level management changes? Or it sounded like it was kind of all other just rank and file individuals that kind of helped with the 15% reduction down the plans

Marco, I will --

Hey, Marco, this is -- go ahead, Tom. I'll take the first.

Yes. I was going to say I'll defer to you to answer the first part of the question anyway.

Okay. So Marco, this is Al. This is my first time on the calls, nice to hear from you. So I would tell you that I think there was a real opportunity to take out some high-level executive pay and then SG&A, I think that was a good opportunity for us, given the size of the company we are. I also think there was an opportunity to balance out the management team. In other words, have a few more players that have a long-range understanding of the business, the base and the core business, not just the REPREVE business. So I think we have that balanced approach, and I'm very impressed with some of the young executives that we've just put in place and promoted into positions. I just had a board meeting yesterday, and I feel like they did an exceptional job of laying out the future in the next several quarters. I think on the CFO search, we're going to continue that. We're getting close. And as far as the CEO search, we're going to put that on hold and probably put it off. I think that between myself and Tom, we can run the business at -- I was on the board before, but I was still in my role as the head in North America for PepsiCo, but I've now officially tomorrow retired from that. So I've a great deal of time to spend on this business. But I have an optimistic feel for how we're going. But I'd say it's mostly at the top level and then in the middle, I'd just say pruning is not a big deep cut into the organization.

Got you and I apologize I kind of missed this. What was the actual aspects for the asset utilization to try and improve that there for the company? And then also kind of in the same vein, if you can talk a little bit about any sort of supply chain improvements that you can make? Any sort of specifics would be helpful.

Marco, clarify that -- if you would clarify that question one more time?

Sure. You guys have talked about and I missed it on your commentary, about something in terms of marketing or push and pull to try and improve the asset utilization of your overall company. I didn't quite catch exactly what that strategy was. And then you've also mentioned here numerous times in terms of the cost-reduction aspects. Obviously, you've got pressures that some of them you can't control, but you talked about, if I'm not mistaking, improving your supply chain so that you can improve some of the costs that are associated with that?

Well, we certainly talked about through these cost-cutting initiatives that we would be more competitive to move forward in a very competitive environment, which we operate. Process improvement is going to become a way of life. We are going to scrutinize all of the raw material supply chains, our internal efficiencies, and we're going to be focusing on and improving all aspects of our business. One of the significant things that we anticipate having a positive effect on all of that is increased volume of our base business based on these trade petitions and the positive rulings. We really don't have any specific numbers to throw out there yet. But as they evolve, we will certainly share the information when we feel comfortable sharing it.

Got you. And last quick question, just kind of want to confirm cash flow from operations for fiscal 2019 kind of looks like, perhaps the expectation is a loss there or a usage?

It's been a usage through first nine months. As we go into the fourth quarter, we're hopeful to generate that -- make that into a positive position, but it is hovering around zero. We're going to have efforts on adjusted working capital. At the end of the quarter, we ended working capital about $178 million, which was a slight increase from December. So, we're going to be actively working on that to try to drive that down, and we'll continue the efforts to bring in cash when we can. And our Q4 is typically a stronger quarter for us. So that stronger performance should also help drive, hopefully, positive cash flow through the end of the year.

Got it. Thanks a lot for your time guys.

Thanks Marco.

Thank you. And it looks like we have a follow-up question from the line of Daniel Moore with CJS Securities. Your line is now open.

Thank you again. A couple at least I'll give just a crack at. Give us a sense for gross margins of the PVA portfolio versus the non-PVA. And I know you haven't necessarily broken those down in the past, but if not, at least maybe the delta or the change in PVA margins year over year versus non-PVA?

Yes. Dan, this is Chris. We don't typically disclose that kind of information. We pretty much limit the discussion to our PVA as a percentage of net sales, which through the -- before the quarter was 47% of consolidated net sales then year to date, it was 45%. I know that's not the answer you're looking for, but we typically keep that pretty tight to the vest.

Understood. I guess what I was trying to get…

Mostly it’s for competitive reasons.

Yes, indeed. I got you. And then the guidance for Q4 $10 million EBITDA in the June quarter, I know it's seasonally a little stronger quarter, but that is -- is that a reasonable sort of baseline or run rate to build off those as you think about fiscal 2020, given the cost-reduction efforts and maybe some of the favorable rulings?

Yes. We believe that we can achieve that guidance in Q4, but we would hope that we could do better than that as we roll into fiscal year 2020. As we get to the next earnings call, we'll provide more guidance on that topic. But we do believe the guidance is achievable.

Got it. And then lastly, and I know this is a little early, but just yet an extra week this quarter, do you have a sense for how fiscal 2020 shapes up for modeling purposes?

Fiscal year 2020 is a 52-week fiscal year. So you can model that, and there will not be an extra week in that fiscal year.

So there will be one less in fiscal Q3 likely relative to this year?

Actually, we had the additional week in Q1. So it will be one less additional week in Q1 of fiscal 2020.

Okay. Thank you.

You're welcome.