Unifi, Inc. (UFI) Q2 2020 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by and welcome to Unifi's Second Quarter 2020 Conference Call. At this time, all participant lines are in a listen-only mode. After the speaker’s presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions] I would now like to hand the conference over to your speaker today Mr. A.J. Eaker, Vice President of Finance. Please go ahead sir.

Thank you, operator, and good morning, everyone. On the call today is Al Carey, Executive Chairman; Tom Caudle, President and Chief Operating Officer; and Craig Creaturo, 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 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, adjusted working capital, and net debt maybe discussed on this call. I will now turn the call over to Al Carey.

Thanks, A.J. and thank you all for joining us today. I'm pleased to report that the final determinations for antidumping and countervailing duties were finally reached in December, and as expected associated duties are being assessed on imports of polyester textured yarn from both China and India. And as you've heard us discussed in the past, subsidized imported yarns have flooded our domestic market in recent years. So we welcome these announcements as they are critical steps in advancing our efforts to compete on a level playing field. We've already seen a pickup in demand on these specific product line as we entered the third quarter and we're excited about the opportunities we have in our local markets to regain market share and to grow our top line, especially as we enter fiscal 2021. During the second quarter, we are able to achieve solid sales performance and profitability gains across most of our operations with the exception of the Nylon segment and our Parkdale joint venture. Q2 showed sequential improvement in our trends as we turn around our business at Unifi. However, the recovery is a bit uneven and we still have work to do. Price realization and Nylon business need work and we're taking actions to improve our overall performance. We're pleased to see SG&A cost decrease on a year-over-year basis and the team also maintained significant cash flow improvement. This performance validates our strategy of focusing on our core competencies, revitalizing the Americas and also aligning our cost structure. We're very encouraged with the trends on sales volume, cash generation, cost control and our Asian business right now. Additionally, there is broad momentum at the customer and also at the consumer level for environmental sustainability, which bodes well for free. We're disappointed in the Nylon business that it was much lower than we had anticipated and Tom is going to walk you through some more of those details, but we remain committed to this segment as our customers continue to see Unifi as a full-service textile provider. And Nylon plays a critical role in our go-forward innovation efforts. We're going to continue to develop programs that leverage all of our assets and deliver the highest performance for our customers, and we remain well positioned to drive further year-over-year growth in the second half, and we're encouraged with the overall business momentum. I'm going to turn the call over to Tom right now for a high-level discussion of our company's performance during the second quarter. Tom?

Thank you, Al, and good morning everyone. Our second quarter results came in mostly as expected with overall sales, operating income and adjusted EBITDA improving on a year-over-year basis. We also had some meaningful accomplishments this quarter with REPREVE products continuing to lead our sales growth. Additionally, cash flow generation through that first half was meaningfully higher year-over-year continuing the positive momentum we had in the first quarter as our cost structure continues to improve. As Al also mentioned, we finished the quarter with positive news from the U.S. International Trade Commission, finalizing antidumping and countervailing duty rates. These duty rates are generally consistent with the preliminary rates whereas imports from China are assessed 97% on higher duties on top of existing import duties and imports from India at rates of 18% and higher. This represents a culmination of a significant time and resource commitment from Unifi, and it is important to note that we spent approximately $2 million in outside counsel fee over the 15-month process. While costs were significant we believe this was necessary for Unifi to be able to compete appropriately in the U.S. market for polyester textured yarn. We have already begun to see an initial uptick in orders and believe that we have the ability to recapture a minimum of $20 million in sales on an annualized basis as we enter fiscal 2021. That said, recapturing the lost business will take time to ramp up and thus for the second half of fiscal 2020, we have factored in only $5 million. With our continued focus on a fair competitive environment, we are closely monitoring whether polyester textured yarn from China or India is being shipped through third-party countries and then entering the U.S. market. Additionally, on the regulation front, I think it is important to note that in mid-January, the Phase one China deal was signed by the President. At this point, the White House has decided to maintain early section 301 tariffs at 25% including those on Chinese fibers yarns and textile inputs. Textile machinery and parts are also included in this category. For the time being, we do not anticipate the Phase one deal to generate changes that have any significant impact to Unifi. Now turning to second quarter results. While results were very favorable on a year-over-year comparison, global pricing pressures along with lower-than-anticipated demand in certain U.S. products cause results to come in just below our expectations for the quarter. Total sales volumes increased 18% on a year-over-year basis during the second quarter. A result of strong sales from our free branded products primarily in Asia. While the volume increase was meaningful, we saw a less favorable sales mix and lower average selling prices, especially due to lower Nylon volumes. And while the margin pressure we experienced in the international business was driven by our sales mix and pricing pressure amidst raw material cost fluctuations, our portfolio continues to drive momentum in Asia, a testament to the level of quality and desirability that our REPREVE platform offers. As I said before, the current business environment in the Americas remains challenging and evolving, but we are confident that we have the ability to recapture market share in the U.S. with the new duties in place and hope to build incremental volume as the year progresses. On the commercial and innovation front, the opportunity for evolving technology that bring value to circular initiatives is critical for our customers and our planning. Our commitment to REPREVE and sustainability remains strong as we continue to innovate across our portfolio. One example is how we are now working with IBM research and have entered into a memorandum of understanding regarding their chemical recycling technology. IBM research novel technology VolCap leverages volatile and recoverable catalyst that acts as a molecular sorter, allowing for optimal filtration and separation of contaminant as well as our color removal. We are energized to provide expertise and development insights regarding many aspects of this technology including feedstock, recycling and melt extrusion to bring an emerging technology to scale to meet global demand. Next a few commercial examples of recent adoptions with emphasis on growth driven by our Asian segment. The original Dockers, Alpha Khaki Pant is using our TruTemp365 technology and their all-season tech was stretched and continue to expand at retail. Free country is producing more sustainable products and has converted over 75% of their free cycle jackets to REPREVE-based insulation. PVA [ph] which is under the Dockers umbrella adopted REPREVE and all screen behind the plush lining and multi styles including the classic slipper, mini-flop high-low and Kids' Classic II shoes. O'Neill is expanding REPREVE offering in snow and swimwear for 2020. The jackets and bibs in the O'Neill blue line and the HyperFree Board Shorts will be made with REPREVE. Patagonia's latest series of sustainable garments for the season feature REPREVE in the shale and linings of the new recycled high-power fleece down jacket. We are excited about the opportunity for REPREVE and our sustainability partners as momentum continues to build. Now I'll walk through our segment performance for the second quarter. Let's start with our largest segment Polyester. We are pleased with the progress this segment has been making with raw material costs moving in our favor this quarter, optimizing our manufacturing base and capturing synergies from previously acquired companies, we are able to double gross margin year-over-year. The segment sales mix was partially offset by lower demand in our higher-margin industrial automotive products as the overall automotive industry has seen some softer U.S. textile demand. Moving to our now second largest segment Asia. We again continue to see meaningful top line expansion and opportunity, although we are currently seeing more growth in lower-margin products in Asia, this region has been flourished and has been a bright spot for us with an enormous market share available. We have made progress to better position and optimize our supply chain, including a new strategic partner in Southeast Asia, which we expect will allow us to realize cost benefits for margin improvement. Current actions are expected to materialize in July 2020. Brazil was impacted by difficult market conditions and pricing pressure, which led to softness in sales and profitability. Fortunately, the economic and political conditions in Brazil seem to be moving in the right direction. We anticipate this will serve as a catalyst for a second half of the year, which we will monitor the economic climate carefully as the year progresses. The Nylon industry in the U.S. has experienced a continued movement towards Asian sourcing. Our Nylon business experienced a difficult quarter as the segment saw lower sales volume and consistently lower fixed cost absorption. Two of our largest customers moved certain programs offshore. And consequently, we saw an impact to our Nylon business during calendar 2019. The team has been working very hard to backfill some of this lost volume and because global consumer demand for Nylon continues to grow at a modest rate, the pipeline remains solid. We continue to believe in our Nylon business in those assets which remain a critical component of our innovation and development efforts. While this business will remain challenging for another few quarters, we continue to believe in the long-term opportunities and we will build this business back to a leading position. Lastly, during the quarter, our Parkdale joint venture saw a significant setback with weaker leverage and lower margin pull-through. Parkdale continues to be an investment that we value and in the past has been a meaningful contributor to cash generation. For example, the $10.4 million distribution last quarter allowed us to meaningfully reduce our leverage and put us in a strong capital position. To conclude, the second quarter results reflect some strong improvements in our core business and continued cash flow momentum. With just a few shortfalls in Nylon and certain other pockets, we remain optimistic on the road ahead and come away from the quarter feeling encouraged. I will now pass the call to Craig.

Thank you, Tom and good morning, everyone. As Tom noted, our operational results were significantly improved over the prior year second quarter and we have achieved another strong quarter of cash flow performance. I'll review the key drivers of our performance in my discussion today. And I would like to begin with an overview of Q2, as we experienced several positive financial changes over the prior year second quarter. We will begin on Slide 3 of the conference call presentation. Overall for Q2, gross profit increased in connection with a more favorable raw material cost environment in the U.S., which was partially offset by the nine-month shortfall and global competitive pricing pressures. Our cost reduction efforts flow through as a comparable benefit to SG&A, but we experienced three notable headwinds in operating income. First, an unfavorable foreign currency transaction losses generated a comparable decline of $800,000 from Q2 2019 to Q2 2020. This resulted from comparably weaker exchange rates in both Brazil and Asia. As a reminder, a strong Brazilian real is generally positive for our Brazil business while a strong U.S. dollar is generally positive for our Asian business but neither of those occurred this quarter. Next we commenced a wind down plan for our Sri Lanka sales and sourcing operation and recorded the associated severance and exit costs of approximately $400,000. And the last impact to operating income involved a legal fees associated with the trade petitions. We expected the finalization of those petitions to generate a $500,000 expense in our third quarter fiscal 2020 but the favorable resolution in December 2019 triggered that expense to be to apply to Q2 2020. This does not impact our full year view of fiscal year 2020. Over the course of the trade petition activity, we have undertaken in fiscal 2019 and 2020, we have spent a total of $2 million on these activities. The performance shortfall from Parkdale accounted for $1.6 million, of the $1.8 million negative change in unconsolidated affiliate and Q2 of fiscal year 2019 had $2 million of tax credits that did not repeat in the current quarter. Excluding the tax benefit in the prior year, underlying net income improved by $1.2 million despite the Parkdale shortfall and by more than $2 million when the Parkdale shortfall is ignored. Our expectations for the fiscal year 2020 effective tax rate remained significantly improved over fiscal year 2019. And our latest forecast places the full year rate at 23% or less, which is consistent with our rate in the first half of fiscal year 2020. 55% effective tax rate applied in Q2 FY 2020 is associated with a lower amount of taxable U.S. earnings. Net income and earnings per share of Q2 of fiscal year 2020 were $409,000 and $0.02 respectively. Moving to Slide 4 of the webcast presentation, I will review sales highlights by segment. Consolidated net sales increased 1.1% with significant volume growth in Asia that was partially offset by the volume decline we experienced in the Nylon segment. Polyester segment sales decreased 3.5%. Pricing was impacted by the lower raw material cost environment in the second quarter, but we are encouraged as we see the front edges of our trade initiatives materializing with returning textured yarn customers. As we mentioned last quarter, automotive and industrial products have been slow due to softer demand impacting polyester sales mix. Nylon sales decreased 24.6% as a result of a large customer transitioning certain programs overseas. In Brazil, sales volumes increased 3.2% despite competitive and economic pressures, while declining raw material costs and foreign currency exchange drove down pricing. Sales results for the Asia segment continued their strong performance as volumes increased 53.6% despite uncertainty in global trade and international competition. Sales of REPREVE products led the way in Asia, as we continue to attract quality brand programs and maintain a leadership position in the recycled market. The REPREVE platform remains a growth engine of our Asia strategy, as it continues to be validated. Moving on to gross profit on Slide 5. Consolidated gross profit increased from $14.2 million to $15.7 million, while the associated margin increased from 8.4% to 9.2%. We are pleased with this improvement and with aid from the raw material cost environment in the U.S., we were able to overcome shortfalls in Nylon. Looking at this from a segment perspective, Polyester primarily benefited from a more favorable raw material cost environment with a doubling of gross profit in terms of dollars and as a percentage of sales. Nylon primarily experienced weaker fixed cost absorption due to lower revenues and its margin rate declined from 9.0% to 0.3%. Brazil faced competitive pressures during a declining cost environment, generating a gross margin decrease from 18.2% to 16.4%. Lastly, Asia's sales mix included significant shift in staple fiber sales, which currently carry a lower margin profile, as these products are used to seize new programs and initiate further customer development. As a result, Asia gross margin declined from 12.7% to 11.5%. However, as Tom mentioned earlier, we are constantly evaluating more efficient and effective supply chain solutions for our operations. We are making progress on one of multiple improvements to the sourcing of recycled raw materials for our Asian operations. Moving on to Slide 6. We present equity affiliates. Pre-tax earnings from equity affiliates decreased by approximately $1.8 million from Q2 2019 to Q2 2020. Parkdale's results primarily reflect lower operating leverage during a period of elevated costs. There were no equity affiliate distributions in the second quarter, but we did receive a $10.4 million distribution from Parkdale in the first quarter of fiscal year 2020. Slide 7 covers debt and cash highlights. We ended the December 2019 period at $129.3 million in debt, while net debt was $92.1 million, a 13% improvement or reduction from June 2019. At December 29, 2019 our weighted average interest rate was 3.2%. As for the rest of the balance sheet, our working capital position reflects the typically elevated levels that are consistent with a routine December shutdown period. Additionally, our cash position indicates continued solid cash generation by our foreign operations. Before opening up for questions, Slide 8 details our guidance that was contained in today's press release. I'll take a moment to provide some context, as we've decided to adjust our expectations to reflect a few things that occurred during the quarter. We continue to expect significant growth in Asia to fuel the 10% to 13% growth in sales volume, but translation into net sales growth is now expected to be offset by additional headwinds we have experienced in the Nylon segment, lower demand for automotive and industrial products and the current foreign currency environment. While we are expecting anti-dumping results to have a moderate positive impact in the short-term, this will take some time to take hold and we expect to see a more substantial tailwind in fiscal year 2021. Thus we've slightly reduced our fiscal 2020 sales expectations to come in closer to fiscal year 2019 levels between $700 million and $715 million. Our outlook for sales does anticipate some moderate market share restoration on our polyester business from the completed trade initiatives, but the majority of that benefit ramps up in fiscal year 2021. And while gross profit will likely continue to be pressured by the short-term issues we've noted in Nylon in Brazil, our recovery efforts in polyester, growth in Asia, and meaningfully better SG&A cost structure will still provide significant growth over the fiscal year 2019 for operating income, net income, and adjusted EBITDA. Lastly, we have lowered our capital expenditures estimate from $25 million to $23 million based on the timing of certain projects. We have reduced our expectations for our effective tax rate to now be 23% or lower. Again, we are pleased with the significant improvements over fiscal year 2019 and we look forward to fiscal 2020 providing a platform to grow in market share, expand our innovative portfolio, and leverage our unmatched supply chain for further global growth. We will now open up the line for questions.

Thank you. [Operator Instructions] And our first question comes from Chris McGinnis with Sidoti & Company. Your line is open.

Good morning. Thank you for taking my questions. Maybe we could start just with China and kind of the current situation there. Could you maybe just walk through any kind of current issues maybe that could be a positive for you, how you see it playing out maybe impacting your business positively or negatively? Thanks.

Chris this is Tom. I mean we continue to be really encouraged by our business in Asia. It continues to grow and expand. We've talked many times about the product mix and how it affects the overall margin, but we're growing the chip and flake are in staple fiber -- our chip and staple fiber at a much accelerated rate over what we are the higher value film products. So, the margins are a little depressed. But as we've said before, we are cultivating a Malaysian source of raw materials that's going to help us improve the margins on a longer term basis. We probably won't see the effect of that until we are early in 2021. So, we continue to be encouraged. Many opportunities to expand our business and it's a sort of very good growth platform for REPREVE. So, that's kind of where we are.

Sure. And just in relation to kind of a coronavirus and impact on businesses in the region though. Would you -- do you think that that could be a positive for you off hand? Are you seeing anything that input coming your way is that kind of start to impact businesses?

Chris we really don't know. We're asset-like. So, we don't think we'll be substantially impacted by the situation. There have been some announced extended downtime but at this point in time we don't think it's going to be positive or negative to our business situation over there. That changes we'll kind of monitor and let people know as we go forward.

Chris we have no assets on the ground in China, so we won't have any factory shutdowns or any kind of lost shipping days. But I don't know, we're going to dig through that in the next day or two and we'll get a little better handle on it. If I were to bet slightly positive but nothing significant but probably no negative.

Okay. Thanks for that. And then just one last one just around the anti-dumping, I think you mentioned I mean in annual sales is what you think you lost out and you should be able to recapture that over time?

Yes. The end of the year brought the final decision by the International Trade Commission. So, China is at 97%-plus, India is at 18%-plus on a duty -- on anti-dumping rate. We've seen very significant decline in imports from China and a meaningful decline in the imports from India. So, we're very encouraged by what we see. We're continuing to monitoring other countries to see if some of that -- those imports have moved around a bit, but we saw increases in our demand or recycle product at the end of our second quarter and we're encouraged by what we see going into the third and fourth quarter. So, we think we don't get to where we thought we would be.

I wouldn't want to project off of five weeks, but we very definitely have seen a pickup in our U.S. sales or shipments in the last five weeks.

Okay. Thanks. I'll jump back in queue. Thank you for taking my questions.

Thanks Chris.

Thank you. Our next question comes from Daniel Moore with CJS Securities. Your line is open.

Al, Tom, Craig good morning. Thanks for taking the question.

Hi, Dan.

Good morning, Dan.

I wanted to talk a little bit about the mix. You just alluded to it in detail Tom, so I appreciated. PVA continues to grow now up over 50% of revenue. As you look out over the next four to eight quarters, do you expect chip and flake and staple fiber to continue to outpace higher margin yarn sales and, sort of, PVA products with more benefits if you will? When do we expect that mix to maybe turn a little bit more favorable over the longer term?

Dan the opportunity for chip and staple fiber are so much greater than what the filament is in Asia. We think it's going to continue. So our focus is going to be on improving the supply chain for those products to improve margin, but there's a lot of demand for filament as well and we're going to continue to grow higher value. Really it is just -- it's a situation and the demand for the particular type of products and chip and staple fiber is just outweighing the filament growth. So we're going to remain vigilant and focusing on our supply chain to improve the margins on the lower end of those products.

Is it right to say that the focus will be on continued gross profit dollar growth at least in Asia for the next couple of years?

I think that's fair to say.

Okay. And then shifting gears to Nylon, maybe elaborate on plans or steps you might take to backfill some of that lost revenue? Do you see the trend to offshoring continuing beyond the current customer too? And if it does, are there steps you can take in terms of capacity reduction cost reduction, rationalization. More detail there would be great?

Dan, Nylon has been a very important sector for us for many years. It has been declining year-over-year. We had a couple of customers shut some facilities during the last quarter but we -- it's a very important product line for us. We still have REPREVE Nylon, which we can expand and grow with. We're expanding with other customers and other opportunities that we're talking about and some of them will come to fruition over the course of the third and fourth quarter. We remain committed to growing and getting that business back on track and we think that possibility exist with the -- through our innovation pipeline. And so our customer base that we're working with today.

Okay. And lastly for me maybe just talk about -- expand on the guideposts that you're seeing that give you confidence that as it relates to the anti-dumping tariffs and polyester in North America specifically it sounds like fiscal 2021 you expect to see a larger benefit. Just the conversations or anecdotes or data points that you're seeing that give you that confidence? Thanks.

I think, we feel comfortable in the $5 million mark that we've publicly stated and I think we are also comfortable with recapturing over time, getting to $20 million of sales that we've said as well. So I think we're on track to be exactly where we publicly stated we want to be in there over time.

And in the U.S. we -- when it first was announced back in July. We were waiting to see what would happen in the business. We thought we'd see a positive improvement in the U.S. sales. And nothing really happened. Then it got to be the fourth calendar quarter of last year fall. We saw a little tick up in the business. And then towards the end of the quarter, we saw a little better tick up in the business but once the December 12 announcement was made and I think some of these low priced inventories have probably work themselves through the market. We've seen let's say the last week of December and all of January strong sales improvement, a significant improvement of what we were doing. So we are in the negative column before. Now we're in the positive and I would expect that to continue but I don't know how big. And -- but if I look at back over the anti-dumping on things like staple fiber several years ago, it was a slow build and then it finally took off. I'm hoping that we see that same thing.

It’s helpful. And I'll sneak one more in if I may. Parkdale, obviously, a little bit of a decline year-over-year in terms of the impact on the income statement. Are those assets still generating significant positive free cash flow at least through the first half of the year fiscal 2020? And any changes in your view or thoughts regarding potential strategic alternatives for that investment?

Dan this is Craig. I mean Parkdale definitely has come into a period where they've had some elevated costs. They've had some challenges I think with the cotton crop they continue to operate that business in a really good manner, but they've come up with some obstacles that definitely are different than last year and you're definitely seeing that as you're pointing out in our portion of their earnings. We feel like still a very good investment for us very good strategic partner for us. And really we're continuing to believe in them to continue to make improvements to the business. So no changes anticipated there.

Thanks for the color.

Thank you. Our next question comes from Marco Rodriguez with Stonegate Capital. Your line is open.

Good morning. Thank you for taking my questions.

Good morning.

I was wondering if you can talk a little bit more about some of the pressures you guys have been seeing this last quarter, you specifically brought out international pricing pressures. And I believe you used some verbature in your prepared remarks about the competitive levels being kind of described as aggressive. Can you maybe go into a little bit more color as far as what are the dynamics you're kind of seeing out there the drivers, if this is specific to maybe a region or a particular competitor? Any sort of color around those would be very helpful.

No. Mark, this is Tom. We knew when we file the anti-dumping suite on the international front that there would be some movement around the region and Southeast Asia. Certainly, we've seen an uptick in volume and some lower prices come into our -- into the North America region from Vietnam from Malaysia from Thailand and we are monitoring those volumes. We think because of capacity they will flatten out over time. And everything will normalize and we'll get the benefit out of the antidumping which we anticipated. But if not we always have the option of initiating more action against countries for anti-dumping as well.

I'd also Marco throw in on Central America. Our -- it's gotten very competitive in that market and we've decided to protect our market share. And our sales are up 26%, volume sales. And I think there's an opportunity to not be quite as aggressive. But I think we're working on getting the right pricing in that market.

Got it. And then talking about your guidance here looking at what sort of is implied on the numbers if I'm doing my math right looks like for fiscal '20 it's about a 10.5% gross profit margin give or take a few basis points. Can you maybe talk a little bit about how you see that progressing into the second half of your fiscal '20?

Yes. I think you're right on Marco. I think we're expecting the full year gross margin to be probably just a little bit higher than 10% in total. We do think we'll see some benefit here in Q3 to some of the actions that we've talked about including the anti-dumping, but then we really feel like and seasonally it usually is our strongest quarter that Q4 probably will show quite a bit more growth and we're expecting to be noticeably above that 10% average for the full year in Q4.

That's helpful. And then maybe if you can talk a little bit more about the capital allocation priorities you guys have. I know you talked about a slight reduction in your CapEx just based on some timing aspects but if you can maybe talk about the priorities you see in the next 12 months that would be helpful?

Sure. I think for us we're continuing to be thoughtful on the capital expenditures. We've talked about the larger projects the EVO coolers detection machines that we have that are coming in. Our current forecast anticipates that we will start to spend some dollars in FY 2020 for those the first wave of those machines and then the bulk of that cloying out in FY 2021. We feel like we're investing in the right areas, the right strategic areas, the right maintenance areas. So we feel that $23 million forecast for the year is a very comfortable level for us. We're also anticipating being able to continue to reduce debt or specifically net debt. We've seen a nice reduction in that 13% reduction in the last 6 months. We feel like we'll be continuing to invest a bit in our working capital, especially as we build in Q3 and then on to Q -- that strong Q4 that we're anticipating. However we think that continuing the capital investments capital expenditure investments plus paying down the debt really that's the main prioritizations right now.

Got it. And last quick question if I might. You called out again second quarter in a row here the industrial and automotive market, in terms of their kind of weakness there. Maybe if you can just talk a little bit about anecdotally what you're hearing from those clients? What their sort of expectations are for the remainder of calendar year 2020?

I think the -- in general the automotive industry saw a slowdown during our first and second quarter of our fiscal year. GM -- we're still a strike during that period. Some others announced reduction of models and what have you so. So, I think the industry as a whole saw a slowdown during the period and we are watching what's going to happen in the third and fourth quarters, but we may see a little bit of an uptick, but we don't expect total recovery from where we were before that all that took place in our third and fourth quarters.

Got it. Thanks a lot, guys. I appreciate your time.

Yes. I thought, before I turn over to A.J. to close it up, I just thought I would make a little bit broad comment on so how I see the business moving forward and why we have optimism. So, if you think back about this time last year, we were in a tough spot on many fronts. And I really think the best way I would describe the business in the last two quarters is sequential improvement. And I'd say that, the sequential improvement will continue in quarters three and quarter four and are continuously moving forward a little bit. And -- but the recovery has been uneven with a few surprises. So, I don't want to diminish those. But here's what I would say as far as positives. The sales volume is very positive on many fronts. And I'm particularly encouraged with the overall U.S. business, let's call it the last five or six weeks. So, it looks like the antidumping is finally starting to hit. I don't want to project so much positive on five weeks, but it appears that that's a trend that we can definitely see improving. And if you look at our revenue, which was weak at 1.1%, if you took out the Nylon, it was actually up 6%. So, I'm feeling a little better about our overall trends there. The other thing that our board puts a big focus on is cash generation and cost controls and I'll tell you both of those are in a very good spot and I expect it to continue. Our Asia business is very fast growing. And over the last several, let's call it two months, I think as ESG becomes such an important part of the economy and so much discussion about it in the news in the press, I think it's beginning to have a positive impact on REPREVE. And I hear more and more positive discussions with our customers about REPREVE and their interest on our innovation on REPREVE such as in Nylon and ocean plastic. Opportunities definitely price realization and I'd look at it in two different ways there. Price realization in Asia, price realization in Central Americas, where we need to put some efforts and there are two different plans, but those plans are in place and I expect some improvement. And then Nylon and I would expect we have several ideas on Nylon. I think, they'll really materialize towards the end of this fiscal year. And I think, we'll start anniversarying the departure of the plants that shut down, but we intend to keep Nylon as part of our overall portfolio because our customers see us as a full textile company not a partial. And so we're compelled to work on this Nylon thing, but that's it overall. I mean that's the way I'm looking at the business. We've been working hard. I think we're making a lot of progress. We still have a lot of work to do though. But -- so that -- I feel very -- all of us sitting here feel very positive about where we're heading for the second half of the year. So, with that let me turn it over to A.J. for the close.

Thank you everyone for participating today. Our next earnings release for the third fiscal quarter ending March 29, 2020 is tentatively scheduled for Wednesday, April 29, 2020 with a conference call to follow that same day at 8:30 a.m. Eastern Time. Thank you for joining today's call.

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