Ladies and gentlemen, thank you for standing by, and welcome to the Unifi Third Quarter 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. Thank you. 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 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. 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 forecasted 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 net income, adjusted EPS and adjusted working capital and net debt maybe discussed on this call. Lastly, please be advised that in consideration of COVID-19 safety measures, the speakers today are utilizing multiple telephone lines efficiency for this call may be impacted. I will now turn the call over to Al Carey.

Well, good morning, everybody and thanks for joining our call today. I'm going to open up with a few comments about our performance. And then, I'm going to turn it over to Tom and Craig, who will give you more of the specifics of our performance. And then afterwards, we're going to entertain some questions and I'm going to imagine it's going to take a little a longer than normal due to this unusual time that we're operating in right now. So on Q3, I'd say that Q3 was a good one for us. And Craig will point this out in the next few minutes as he presents, but we delivered at or above our forecast on most of our important financial metrics and we generated a significant improvement over last year's Q3 performance. But there were two highlights from the quarter that, I'd like to mention one was that we were pleased to see our U.S. polyester textured yarn sales returned to year-over-year growth, and it's been a long time coming. And it indicates that these trade anti-dumping actions are finally showing up in the marketplace for us. I know, we've spoken to you about this numerous times. But after December, when those antidumping regs were finally put in place we began seeing a positive improvement to our U.S. sales. And then the other thing, we were very excited about was Asia has performed well for six or nine months for us. But when they started the year in January, they were doing terrific. February came with the COVID-19 virus in China. And we didn't anticipate much of a comeback in March, but I would say that it was a remarkable comeback for our team in March. And I really think our asset-light model in Asia served us well…

Thank you, Al, and good morning, everyone. Let's start with a quick business update as outlined on page three of the slide presentation. As Al noted, we started the quarter out strong and saw very positive momentum from the strategic actions that we've taken over those last few quarters. Even our operations in, China, which have been closed for an extended period in the middle of the quarter, came back and made up significant loss trends. However, the economic impacts of the virus across the globe began to hit our volumes in late March. We are all working hard to prioritize the safety of our people, customers and communities as Al said. While our volumes have slowed and some of our assets are underutilized temporarily, many of our facilities continue serving essential markets. But like many companies, our visibility over the near-term is challenged. That doesn't prevent us from thinking proactively and protecting the balance sheet. For example, as outlined on page four we made the strategic decision to divest our 34% ownership of Parkdale America and closed the transaction earlier this week. We received $60 million in cash, improving our net debt by $60 million this week and have applied approximately half of the proceeds to debt retirement. And maintain the other half as cash reserves. We have a very positive relationship with Parkdale and this transaction is a natural evolution of the joint venture. With this, we can focus our full efforts on expanding our leadership position in recycled and synthetic fibers, while providing additional flexibility and liquidity for both long-term opportunities and short-term needs during the pandemic. Moving to slide five. Let's talk about the things we're doing in terms of risk mitigation and safety. Our top priorities are to protect our employees and their families and…

Thank you, Tom and good morning everyone. As Tom noted, our underlying financial results were significantly improved over the prior third quarter and we continued solid momentum leading up to the pandemic. I'll provide more detail on the Q3 performance and then some context around our liquidity position to expand on some of Tom's remarks around the steps we are taking as we deal with the changes to our business environment. On slide 6, we show an overview of operating income. Q3 fiscal 2019 operating income was $0.8 million and Q3 fiscal 2020 operating income was $3.1 million. The $2.3 million increase was generally driven by strong performance from our Polyester, Brazil and Asia segments, combined with less severance charges and foreign currency transaction losses in Q3 fiscal 2020 compared to Q3 fiscal 2019. Below the operating income line, we recorded a $45.2 million impairment charge in connection with selling our investment in Parkdale America joint venture arriving at a net loss of $41.1 million, and a loss per share of $2.23. Excluding the non-cash impairment charge, adjusted net income and adjusted EPS reached $4.1 million and $0.22 respectively. Therefore, on an adjusted basis, overall income performance was $5.6 million or $0.30 per share better than the prior year. Parkdale America's recent nine months performance was $0.8 million lower than the comparable year ago period. And we will discontinue reporting equity income from Parkdale America in fiscal 2021. Now, let's review sales performance by segment on slide 7. Consolidated sales declined 5% and from $180 million in Q3 fiscal 2019 to $171 million in Q3 fiscal 2020. The Polyester segment revenue declined by 6.2%, primarily due to lower average selling prices in connection with lower raw material costs. Nylon segment sales declined 19.6%, due to the step down in volumes…

Thanks, Craig. I'd like to wrap up my prepared remarks today with a few big picture thoughts. It is important to understand that the medium to longer-term underlying fundamentals that drive our business are still in place. Many industries are going to be reshaped by this pandemic experience. I think our industry will be as well, but in a positive way. Sustainability is here to stay. We already support the world's leading progressive brands and we continue to have daily conversations with potential new customers that know they need to catch up with their competitors. The world today is difficult, but one of the positives that has emerged is the spirit of community. We strongly believe that this collective spirit that gets us through these hard times is going to further accelerate sustainability trend. Our innovative performance fibers are the underlying input for some of the largest multinational consumer brands, Unifi's diverse, global operations and growing asset-light model allow the business to be agile and less capital intensive. Our business is sound, resilient and more adaptable to demand shifts from many of our competitors. We have built a strong reputation over 50 years of meeting our diverse customer needs across the world. As a result we remain confident in our leadership team and our business model as these inherent strengths will provide the business long-term stability and growth. Looking past the pandemic, we are optimistic with the recovery we have seen to date in our Asian business as the region emerged from the severe restrictions necessitated by COVID-19 outbreak. We are encouraged to see China's manufacturing begin to recover and our supply chain remains strong and nimble. We are continuously monitoring developments as we take the learnings we've seen in that region and look to leverage that for other affected areas as they reopen. We are evaluating different scenarios across the region to ramp up production carefully as demand returns. Each region will require thoughtful execution, but we are confident in the restoration of demand in the future for Unifi. The third quarter results reflect the underlying strength of our business. We remain committed to providing our customers with their needs, while ensuring the safety of our workforce. The leadership team and I are committed to taking the necessary steps to navigate these near-term headwinds. We have a clear focus with the right strategy in place and a strong balance sheet to guide us through these uncertain times. We will now open up the line for questions.

[Operator Instructions] Your first question comes from Chris McGinnis from Sidoti & Company.

Good morning. Thanks for taking my questions and nice quarter. And Tom, I know we get your wisdom for about another year, but I just want to say congratulations on the upcoming retirement. And thanks for all the help over the years.

Thank you, Chris. I appreciate it. We appreciate your support.

Thank you. So just to I think, think about the business and with the disruptions across the businesses and closures on the state levels as we're starting to see some states open up, how are you -- can you maybe just talk about the conversations you're having with your end customers as we're starting to see things maybe resume or get back to normal? And can you just maybe provide a little bit of insight on that on that part of the market? Thanks.

Yes, Chris. This is Tom. We really have very strong relationships with our customers and during these uncertain times, we are communicating with them on a daily basis, just so that we don't overproduce and build inventory. It's just there's not been a lot of cancellation of orders, but I would say there have been more deferrals and they've been pushed out during uncertain times. But we're not getting a lot of surprises right now because we are communicating, I'd say over-communicating with our customer base right now. So that we're all in lockstep as we move forward.

Okay. And then just maybe your thoughts around -- does this change the supply chain at all in maybe move it to one region over another longer term. Can you just maybe give your thoughts around that? I know you have a flexible supply chain, but maybe longer term does this change, maybe positive as it comes back maybe more in North America? Just your outlook or your thoughts around that?

I would say currently the U.S. and Central America region is probably a little stronger just because of PPE demands and some of the things that we're supporting our government needs in the healthcare industry and military and first responders. But I think when retail comes back, we'll see China crank up again and we expect good things for our overall business around the globe.

Okay. Thank you, I will jump back in the queue. Appreciate it.

Your next question comes from Daniel Moore from CJS Securities.

Craig, good morning, congrats again on solid certainly results in a tough environment. And Tom I echo my sentiments. I'm sorry you have to deal with this for another four quarters, but congrats.

That's no other problem Dan. I appreciate it.

Number one even if maybe you want to -- I know you probably want to stay away from hard and fast numbers but even directionally in terms of volumes if we look across the segments Poly Nylon, Asia Brazil maybe rank -- order the kind of the volume declines that we've seen so far in the quarter? And any color as to progress in terms of opening back up and how you see those -- which of those might turn the spigots back on earlier rather than later, would be helpful. I know that's a lot.

Dan, other than Central America all of our plants are open for business and they are all operating at varying levels of demand right now. So -- and if that answers your question?

Yes. I mean, obviously to the extent that you have any additional color as far as order of magnitude of volume declines, would be helpful. If not I'll go to the next one.

Dan, this is Craig. I might be able to just add some additional details there. I mean in the U.S. we -- as Tom mentioned our facilities are up and running. We are continuing to serve the areas where there's more critical demand. That's definitely in the medical area, personal protection those types of areas. Obviously, other parts of the business, the traditional apparel and auto are slower. In Brazil for instance, we are running, but we are definitely facing lower demand levels in that country. And in China after what is kind of a borderline road come back that we had here in Q3 that business is up operational and our business there is doing well. However, we are suspecting and sensing and seeing slowdown because the ultimate end customers of a lot of the China production are the U.S. and in Europe. And with both of those markets being slower in most of the areas that we service we're seeing slower production there. So I would just kind of reiterate that as Tom mentioned really only our El Salvador operation has been shut down -- has been shut down for the last several weeks. We're currently unsure exactly when that will come -- be allowed to come back online. That's a government-mandated shutdown in that country. We -- maybe as early as later this month in May, but we're not exactly sure.

And my recollection -- yes go ahead.

This is Al Carey. I was just going to add and I would just say that, as you speak to some of the retailers they're waiting to open the stores. When they do, I got to believe that most retailers who want to order and begin the planning of what I'd call the back-to-school in the fall Christmas timeframe. I don't think any retailer wants to be out of stock during that key period of time. So when they do a disproportionate amount of their business. The question will be how do the consumers come back? How fast do they come back? Do they recover their jobs and spend again. So we're kind of watching that, but we're ready to open and get moved. And I would expect that fall Christmas orders start coming in. The Nylon business as you mentioned has been a negative for us because of the -- some of the things that have happened with some of our customers moving offshore. But one of the reasons we stay optimistic about that is, we have an executive focused on getting our Nylon business back through new customers and some new ideas. And the other thing is some of our innovation. We've got two key pieces of innovation. I'm really excited about. One is Nylon. And how do you do a REPREVE, Nylon? And then the other one is the REPREVE Ocean plastic. Those two were getting tremendous interest from our customers before all this happened. And obviously right now they're focused on getting back into business, but I expect those to help us going forward.

That's very helpful. And if my two teenage daughters have anything to say they'll be back in the stores as soon -- sooner rather than later. Maybe just shifting gears the decision to sell Parkdale, but it had always been kind of deemed a strategic -- a nice strategic fit obviously applaud the decision to aggressively raise cash given the uncertainty. It sounds like you feel comfortable with your liquidity position just to remind us, Craig of your total liquidity right now? And any plans to add additional sort of belts and suspenders around that liquidity position?

Yeah. I think it was a good decision that we made. It was really something that we felt -- it's really a logical extension, right? You have a joint venture relationship and you have to you have two parties and really just made sense for one to eventually take over. It's really been a great relationship for Unifi and Parkdale something that spanned over 20 years, and it really just really came together very quickly during this quarter. We -- it does provide us quite a bit of flexibility. In the slide presentation on page 9, we really didn't touch on that in the prepared comments, but we do show the liquidity update where we were at as of the end of March. Obviously, those -- that information is before layering in there the additional proceeds that we got just the other day from the sale of the Parkdale investment. So we feeling like, we're in good shape from that perspective. Definitely the financial performance of the company had been improving. Very significant increases in cash flow for this nine months versus the prior nine months, lots of costs being pulled out of the business appropriate, so prior to even -- us even knowing what the word COVID meant or coronavirus meant. So I think we were doing a lot of the right things at that point. But definitely where we're at now plus some additional auto room that we have from the Parkdale sale transaction, we feel like we're in very good shape from that perspective.

Got it. Central America, as I recall, it being somewhere in the 10-ish, 12-ish percentage of total revenue. Is that ballpark correct?

It's a little lower than that I believe.

Yes.

Okay. So high-single-digit.

Yes.

Yes, exactly.

Got it. Helpful. Lastly for me, I should probably wait until July and let Eddie answer this, but given the addition of the new CEO any -- beyond the sale of Parkdale, any changes in strategic direction you might consider? You touched on Nylon, it sounds like you're excited still excited about that, but maybe just subtle shifts in direction or things that he can add. If you have any color that would be really helpful.

Yes. Sure. And I don't expect us to have a new strategy. The good news is Eddie has been here for 30 years and even up until two years ago. But I think the top priority is going to remain, I think the idea of getting this asset-light Asian business really moving which it seems to be doing and get the North America assets fully utilized by taking advantage of a pickup in the anti-dumping volumes, but also taking advantage of some of these innovations on sustainable products. Those are the two things we got to put a lot of focus on. And I think you'll see Eddie do a lot of what we're already doing. Although I told him bring all your new ideas. I mean I remember when he was here a while back we spent a lot of time on making sure that our inventories were at the appropriate levels. And I think he's going to be able to bring some new thinking to that and help us, because that's an area we could improve on. But I don't expect significant changes in the strategy again it's pretty much what we were talking about when we were together in your conference.

Understood. Okay. Great. Appreciate the color. Stay safe and look forward to the next update. Appreciate it.

Yes. Thank you.

[Operator Instructions] There are no further questions at this time. I would now like to turn the call back over to management.

With no further questions, we'd like to thank everyone for participating today. Our next earnings release for the fourth fiscal quarter ending June 28, 2020 is tentatively scheduled for Wednesday, August 5, 2020 with a conference call to follow the next morning Thursday, August 6, 2020 at 8:30 Eastern Time. Thank you for joining today's call.

Thank you everyone.

Ladies and gentlemen, this does conclude today's conference. You may now disconnect.