Welcome to the Unifi, Inc. Third Quarter Earnings Conference Call. [Operator Instructions]. I would now like to turn the conference over to James Otterberg, CFO. You may begin.

Thank you, Latoya and good morning, everyone. Joining me for the call today is Bill Jasper, our Chairman and Chief Executive Officer and Roger Berrier, our President and Chief Operating Officer. During this call, we will be referencing a webcast presentation that can be found at Unifi.com. The presentation can be accessed by clicking the third quarter conference call link found on our homepage. Before we begin, I need to first advise you that certain statements included on today's call will be forward-looking statements within the meaning of federal securities laws. Management cautions that these statements are based on current expectations, estimates and/or projections of the markets in which the company 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, forecasted or implied by these statements. I direct you to the disclosures filed with the SEC in our Form 10-Qs and Form 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 EPS will be discussed on this call and non-GAAP are reconciliations can be found on the schedules to the webcast presentation. Before we get to the financial details for the quarter, I would like to turn the call over to Roger, who will provide you with an overview of the company's markets, raw material trends and other business updates.

Thanks, James and good morning, everyone. I will start this morning with a few brief comments regarding our outlook for our key retail market segment. Retail sales in each of our key segments increased in the March 2015 quarter, compared to the prior year March quarter with approximately gains of 2% in apparel, 4% in furnishings and 6% in automotive. However, retail sales in the March quarter compared to the December quarter were flat to slightly lower in each of our segments with poor weather in January and February having a negative impact, as well as the belief that cautious consumers have been more focused on using the savings from lower fuel prices to improve their household finances instead of spending them at retail. However, many economists are projecting a rebound in consumer spending in the spring and are estimating annualized increases in consumer spending of approximately 2%. Now turning to the company's sales for the March quarter, we continue to see strength in our textured polyester volume based on continued growth in the NAFTA and CAFTA regions, as well as an increase in demand for our premier value-added yarns which includes REPREVE, our recycled yarn. The production of synthetic apparel in the region continues to grow at an average of 5% to 6% annually as more brands and retailers are choosing to source their products in the Western Hemisphere. We anticipate this trend will continue into the foreseeable future. As we announced earlier this month, we're increasing our polyester texturing capacity in the United States and Central America to support the growing demand in the region and we will continue to make the necessary investments to provide additional capacity as may be needed in the future to service the growing number of customers sourcing from this region. In addition…

Thank you, Roger. I will begin the review of our preliminary financial results for the March quarter on page 3 of the presentation with net sales and gross profit highlights by segments. Net sales decreased $6.3 million or 3.6% to $171 million for the March 2015 quarter compared to net sales of $177 million for the prior year quarter. The decrease in net sales is primarily attributable to the devaluation of the Brazilian real, partially offset by improved textured polyester and international segment sales volumes. Consolidated sales volume is slightly higher than the prior year quarter, driven by increases in the nylon and international segments, offset by a decrease in the polyester segment. Our polyester segment was unfavorably impacted by lower chip and dye sales, partially offset by higher textured polyesters. International segment sales volume increased from the prior year quarter, due to improvements in Brazil for our manufactured products and higher volumes in China as a result of our success with several new programs and the company's transitioning of certain sales programs from its U.S. operations to China. The quarter-over-quarter price decrease in the nylon segment is mix driven. The quarter-over-quarter price decrease in the international segment is a result of slightly lower local currency prices in Brazil, due to declining raw material prices and unfavorable currency translation in Brazil, due to the devaluation of the real against the dollar. When reviewing our current quarter gross profit results against the prior year quarter, the company is reporting higher consolidated gross profits, as well as higher gross profits for the polyester and international segments. For Q3 of this fiscal year, gross profit improved to $22.3 million from $19.8 million for the prior year quarter and 13.1% of net sales versus 11.2% for the prior year quarter. Gross profit in the…

Thanks, James and good morning, everyone. I will be focusing my comments today on providing an update on the company's strategies to increase shareholder value that we outlined in our Investor Day presentation last November. These strategies are to increase sales and profitability, enrich our product mix, focus on recycling and sustainability initiatives and drive operational excellence. To begin, I am pleased with our sales and profitability for both the March quarter, as well as the first nine months of the fiscal year. We continue to capitalize on the growth of synthetic apparel produced in that NAFTA and CAFTA regions which has driven volume increases in our textured polyester business. Our decision to increase polyester texturing capacity in our U.S. and Central American operations sends a strong message to the entire supply chain and to brands and retailers looking to increase our move programs to the region. That message is Unifi is committed to the region and that we will make all the necessary investments to service customers who choose to source their products in the Western Hemisphere. We're also pleased with the improvements in the performance metrics in both Brazil and China for the quarter, particularly gross margin in Brazil and operating profit for both. Sales of our premier value-added products are growing at the upper end of our expected range and are showing strong growth on a year-over-year basis. Product mix enrichment is at the core of our strategies and we remain confident that our focus on differentiated products will drive further improvements in our domestic and international businesses over the next several quarters. The company will continue to support and invest in innovation and R&D efforts that helped lead to the development of new products and technologies and that contribute to our mix enrichment strategy. We also…

[Operator Instructions]. The first question is from Marco Rodriguez of Stonegate Capital Partners. Your line is open.

Just a real quick kind of housekeeping item. I was wondering if you might be able to break out the revenues for the segments.

Yes. I'll do it. If you give me a second, I will read them.

Okay. And then, maybe I can just ask my next question here. I believe in your prepared remarks a couple of different times you guys were talking about raw material prices declining and I think you put out an overall decline by 15%. I'm assuming that is year over year. Is that correct?

No, that was our quarter-over-quarter

Quarter-over-quarter. Got it. And then, can you kind of give us a sense, maybe kind of quantify, from a gross margin percentage point, what sort of an impact did that have if we were to normalize that raw material cost there?

It is a contributing factor for the improvement in our gross margin period over period, but it is not the single largest contributor in those periods when you consider the improvements in the sales volume of the textured polyester products and the PVA products growing at the high end of our targeted range, along with the improvements overseas and the international segment that Bill and Roger referenced. But the specific dollar amounts or the percent is not a number that we quantify.

All right. Then, maybe, can you rank those items that you just discussed here as far as the top one in terms of adding to your gross margin down to the lowest one, if you will?

I would think that the improvement in our textured -- from a regional perspective, so the domestic business plus El Salvador being regional textured business would be one of the largest, along with the continued growth of PVA at the high end of our range with the declining raw material environment, being in that group.

Okay. And then, in terms of the overall CapEx spend and the new recycling facility, can you give us a sense as far as how we should be thinking about the spend over the next, let's say four to five quarters in terms of timing?

Yes. We laid out back in November our plans to spend over the three fiscal years, as Bill mentioned, $115 million. We're just now starting to finalize some of those plans and we wanted to update our investors. So the timelines that I described, we need to expand the rebuilding of the recycling center first. That will take six to eight months. Then we will start expanding the machinery mid-2016. So, as we wind down the fiscal year 2015 and move into our fiscal year 2016. We will see more capital being spent in fiscal year 2016 than we have seen in fiscal year 2015, as we implement the bottle processing plant and the expansion to our recycling center. When we look at our fiscal years, based on the timing, I mentioned that both these projects will be mid-2016 calendar year. So they could straddle our fiscal years when you break it down into CapEx per fiscal year.

Just trying to get a sense as far as the spend on a quarterly basis, whether it is going to be top-heavy in any particular quarter or first half of a year or second half of a year. Any kind of sense you can provide there?

Picturing most of those projects as construction projects here in the United States that can go out from six to eight to 12 months, I would say that there is not any one particular quarter where a project will overwhelm that quarter spend as a relation to the project in total. So I would spread it evenly across the timelines that Roger described earlier.

And then, I wasn't able to write this down, but you did mention that you were going to be with the new recycling facility there in your current location, you're going to be adding, I think you said, about 85 heads. Can you quantify what the additional operating expenses will see there or from a cost of sales perspective?

Well, that relates to our new bottle processing facility that we're updating today. We have on previous calls talked about our investigation to backward integrate into the bottle processing facility. And, with that new operation being a $28 million investment, that will create 85 jobs that will be absorbed into the new operation, not any existing operation.

Right. So you're going to have an additional 85 people working at that particular plant. Is that what I understand?

Yes. With no revenues and backward integration feeding our current recycling.

Right. Okay. And then, just so -- are all those jobs -- is that going to be an SG&A item or is that going to be in cost of sales?

That would be in our cost of goods sold. I will read aloud the revenue -- net sales by reportable segments. So polyester for the current quarter was approximately $98 million, nylon approximately $41 million and our international segment $31 million against the comparative numbers of respectively, $104 million, $39 million and $34 million. And for the year-to-date period, the polyester segment net sales of $282 million against the comparative of $286 million with the nylon segment reporting sales of $124 million against a comparative of $119 million and the international segment which includes both Brazil and China, reporting for the year-to-date period $101 million against a comparative of $100 million.

[Operator Instructions]. The next question is Chris McGinnis of Sidoti Capital. Your line is open.

I guess just to start off, obviously, there is a lot in the preamble. I think you talked about, obviously the lighter tenure. So if I am looking at the poly number for the quarter, it sells down on the volume side. Is that the reflection of the lighter tenure?

I think James mentioned that our polyester texturing volumes were up in the quarter. We had some other business units as James mentioned in his preamble around our dyed yarn and chip sales volume that were down for the quarter.

Got you. All right. So the volumes were up, in itself, obviously, all right. Great. And then I guess I know it has been a while since you talked about the REPREVE renewables and I have seen the press talking about adding acres. Just wondering how that would play through for you guys in the following years and the out years as you look at that investment? And how does that translate to earnings and I know it is far away, but maybe just some dynamics about the investment itself.

Yes, Chris. This is Bill. We're certainly optimistic about opportunities in the poultry bedding markets. I think there is a question right now as to how we would go about investing in acres going forward, whether that would be the company itself or bringing in potentially other investors for those specific projects. So it is really kind of up in the air right now. I think it is reasonable to say that there is going to be a significant increase in the number of acres we're going to plant next year and probably even more of a significant increase in the coming years. The question as to how we're going to fund that and whether it would be the company or other funding is really up in the air right now and to be determined. I think, realistically, we expect to see -- we had about $400,000 in revenue last year. We expect about $1 million in revenue next year. It is still a very, very small business and not material to the company, but I think if you look at out years, the income and revenue potential could be quite high or it could be very, very small. It is still pretty much an embryonic business.

Sure. And then, just quickly, I remember -- I think it was a couple of years ago -- the $500 million market on the animal bedding side in the U.S., is that the potential market at least?

Honestly, I don't recall the exact number, but it is in that range.

Just turning to the core operations, back to it, the new expansion you put in earlier this month, how long does that take to begin to start generating revenue for you and how long does it fully scale?

Yes. We just announced last month that we need to start installing some additional capacity. We're about 50% of the way through that as we speak and we should be completed by June -- in a couple of months. So that is just incremental capacity, as we mentioned, adding capacity for the growth in CAFTA and also that lighter menu mix that we mentioned.

And is that fully spoken for already? Obviously, I think the volumes there are improving pretty dramatically.

Yes. I mean, with the growth that we referenced, those machines are running. Typically, you see our third and fourth quarters being a little more strong from a volume standpoint. So we're certainly in the season now where those machines as they come online, they are running.

All right. And then, just thinking about your current capacity utilization now and I think Roger or maybe it was Bill who talked about the ability to still continue to drive margin expansion through the mix enrichment. How much are you switching out today in terms of lower margin work for the higher margin?

Yes. I think, as Bill referenced and certainly we have talked a lot about one of our core goals is to continue to produce mix enrichment strategies and products. And, as Bill mentioned, we're on the higher end of our growth for PBA product. And so this is both taking commodity products and moving those into a richer mix product, but also working with new programs that were not introduced as Virgin in the beginning but as those new programs come online, they come online with the REPREVE or a PVA product in the beginning.

And then, maybe just lastly, put you on Parkdale. I know there they are in a CapEx expansion plan. Any idea of when that would be over and then, also, maybe on a pretax basis, what that could mean to UFI?

You are correct. Parkdale is -- America is in the middle of an internal expansion down in Rabun Gap, Georgia, as we have talked about in the past. And it is included within our financials and their 10-K-A. There is acquisition and capital spending for an entity in Mexico. There has also been the conversation about Parkdale America replicating what was done with Hanes brand years ago, now being done with Fruit of the Loom. So those are the three largest projects for Parkdale America. The first is certainly nearing its completion. The second is probably about half way through this acquisition. This happened during the calendar month of March. So I think as we begin to get into speaking from a calendar year perspective, calendar year 2016, Parkdale America will begin to see the benefits of that capital spending and those projects. And those are three examples of their current capital spending that we're very excited about that will begin to increase our share of their pretax income, we believe, above the current run rate beginning in calendar year 2016 and beyond.

And, Chris, as far as making any projections to what the results may be, I think that is kind of difficult right now because the cotton spinning business in this country is kind of in flux. I think the Parkdale management are really, really good at what they do. These projects certainly are going to be beneficial, I think. On the other side, you have got yield in backward integrating into cotton spinning. You have got other cotton spinners announcing capacity coming into the region. So I think it is difficult to project how much benefit we're going to see from these projects, but I think it is safe to say Parkdale is making the right moves at least in our opinion.

And then, lastly, just a last question. On the bottle backward integration, can you maybe just explain -- it is obviously a pretty big chunk of money going out the door for it, can you just walk through what the $28 million gets you in terms of physical facilities itself and how confident you are behind integrating this into your operations?

The $28 million project it will generate $75 million pounds of clear polyester bottle flake. When we talk about our capacity in the recycling center, we're talking about our current capacity is 70 million, growing to 100 million with this next expansion that we talked about earlier. So this is really feeding our operation. So when you look at the growth of REPREVE, when we were in our very earlier stages, we were a merchant buyer of a lot of this material. We did not have the scale to really backward integrate at that time. So we were paying market prices. And within those market prices, there is margins that other suppliers were making from us. We can't really get the quality and some of the efficiencies on a continuous basis that we need to operate effectively and cost-effectively. And so, as we have grown REPREVE, certainly at some point, it was going to make sense for us to seriously consider backward integration. I think now that we have got the scale of REPREVE, the time is right for us to take that backward integration. The technology that has been developed around recycling has really progressed over the last two to three years. So, as we're investing today, we're going to be investing in the latest technology that we think will create a step change in the world of recycling that will offer some advantages to us now versus the supply chain that we're currently buying from. I would look at it in terms of the volume requirements that we have today. We will become more self-sufficient as we backward in.

Sure. And I guess just to follow-up on that, you are going to, obviously, move past the capacity that you are putting in, right? So if you go to that 100 million pounds on the REPREVE, you have the roughly 75 million of the backward integration. How hard is it to increase the size of that capacity?

Well, I think we're comfortable at the 75 million because we have talked about other PVA programs where we recycle other forms of waste, being textile waste, yarn waste. We have talked about take-back programs where we bring back in fabrics and other scraps. So if you look at the 100 million of capacity, a large percentage of that is bottles, but the other percentage of that is waste fabric. So when you add those two components together, you can see that we can feed 100 million pounds with the bottle processing facility and the other forms of waste that we can.

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

Thanks, operator. This is Bill and appreciate everybody's interest in the company. We're very optimistic about the future going forward and look forward to our next call. Thank you.

Thank you. Ladies and gentlemen, this concludes today's conference. You may now disconnect. Good day.