Intertape Polymer Group Inc.

Greg Yull – Chief Executive Officer Jeff Crystal – Chief Financial Officer

Michael Doumet – Scotiabank Ben Holton – RBC Capital Gavin Fairweather – Cormark Ben Jekic – GMP Securities Neil Linsdell – Industrial Alliance Securities

Thank you, operator and good morning everyone. Welcome to Intertape's 2017 first quarter conference call.

Joining me is Jeff Crystal, our CFO. After our comments, Jeff and I will be happy to answer any questions you may have.

During the call, we will make reference to our earnings presentation that you can download from the Investor Relations section of our website. Turning to Page 3 of our presentation, results for the first quarter were in line with our guidance and we are very pleased with the performance of our operations as a whole.

When compared to Q1 2016 revenue increased by 8.5% to $207.1 million. The increase in revenue was primarily due to additional revenue from the Powerband acquisition and an increase in average selling price, including the impact of product mix.

Gross margin increased to 23.7% from 21.5%. The increase was primarily due to an increase in spread between selling prices and raw material costs and $2.1 million in South Carolina Flood Insurance Proceeds.

Adjusted EBITDA increased 23.5% to $29.7 million, which was primarily due to an increase in gross profit, partially offset by higher SG&A. On Page 4 as expected, capital expenditures in the first quarter of $22.1 million were significantly higher than the prior year.

About half of these expenditures were related to the construction of our new Midland, North Carolina manufacturing facility. As well as our other major initiatives are progressing as planned both in terms of timeline and expenditure levels.

Our capital expenditures for the current fiscal year are still expected to be between $75 million and $85 million. Turning to Page 5, during the first quarter we achieved manufacturing cost reductions of $4.8 million compared to $3 million last year.

For 2017, we still anticipate manufacturing cost reductions between $10 million and $12 million. Finally, on June 30, 2017 we will pay a quarterly cash dividend of $0.14 per common share payable to shareholders of record on June 15, 2017.

At this point, I'll turn the call over to Jeff, who will provide you with additional insight into the financials. Jeff?

Thank you, Greg. I would now like to refer you to Page 6 of the presentation.

Revenue totaled $207.1 million for the first quarter of 2017, a $16.3 million or 8.5% increase from $190.8 million in 2016. The increase was primarily due to additional revenue of $7.1 million from the Powerband acquisition and increase in average selling price including the impact of product mix, mainly due to a favorable product mix in the woven and tape product categories.

And the non-recurrence of the South Carolina commissioning revenue reduction recorded in the first quarter of 2016. These impacts were partially offset by a decrease in sales volume, primarily due to a decrease in demand for certain tape products.

Revenue for the first quarter of 2017 decreased sequentially by $2.8 million, or 1.3%, from $209.9 million in the fourth quarter of 2016 and mainly due to a decrease in sales volume of approximately 6.2% or $13.1 million. We believe that the decreased sales volume was primarily due to seasonality in carton sealing tape product offerings.

This was partially offset by an increase in average selling price including the impact of product mix of approximately 4.9% which had a favorable impact of approximately $10.3 million primarily derived from a favorable product mix in the tape and woven product categories. Turning to Page 7, gross profit totaled $49.1 million for the first quarter of 2017, an increase of 19.6% from $41.1 million a year ago.

Gross margin was 23.7% in the first quarter of 2017 and 21.5% in 2016. Gross margin increased primarily due to an increase in the spread between selling prices and raw material costs, and the South Carolina Flood Insurance Proceeds recorded in the first quarter of 2017.

On a sequential basis, gross margin decreased from 25.6% in the fourth quarter of 2016, primarily due to a reduction in the amount of South Carolina Flood Insurance Proceeds recorded, partially offset by improvement in self-funded medical and workers’ compensation claims experience. SG&A increased to $26 million for the first quarter of 2017, compared to $23.4 million last year.

The increase was primarily due to additional SG&A in 2017 from the Powerband acquisition, an increase in variable compensation expense and an increase in advisory and other costs associated with mergers and acquisitions activity. For the first quarter of 2017, the effective tax rate increased to 26.8% from 24% a year ago, primarily due to a change in the mix of earnings between jurisdictions.

IPG net earnings totaled $13.5 million for the first quarter of 2017, a $3.9 million increase from $9.5 million in 2016, primarily due to an increase in gross profit partially offset by an increase in SG&A. Adjusted EBITDA totaled $29.7 million for the first quarter of 2017, a 23.5% increase from $24 million in 2016.

The increase was also primarily due to an increase in gross profit, partially offset by an increase in SG&A. As you will note on Page 12, we had cash and loan availability under our revolving credit facility of $111.3 million as of March 31, 2017 compared to $158.2 million as of December 31, 2016.

Cash flows from operations decreased in the first quarter of 2017 by $9.3 million to an outflow of $10.6 million from an outflow of $1.3 million in 2016, primarily due to changes in working capital. Free cash flow decreased in the first quarter of 2017 by $21.9 million to negative $32.7 million from negative $10.8 million in 2016, primarily due to higher capital expenditures.

Net debt as of March 31, 2017 was $201.2 million, an increase of $42.3 million compared to December 31, 2016. We ended the first quarter of 2017 with a debt to trailing 12 month adjusted EBITDA ratio of 1.6 compared to 1.5 in Q4 2016.

Days sales outstanding decreased to 40 in the first quarter of 2017 from 41 last year. Trade receivables increased $1.9 million to $92 million as of March 31, 2017 from $90.1 million as of December 31, 2016, primarily due to an increase in the amount of revenue invoiced later in the first quarter of 2017 as compared to later in the fourth quarter of 2016.

Days inventory decreased to 62 in the first quarter of 2017 compared to 65 in 2016. Inventories increased by $9.9 million to $113.3 million as of March 31, 2017 from $103.5 million as of December 31, 2016, primarily due to an increase in raw material purchases, including pre-buys as well as planned seasonal inventory build.

Greg will now provide further details on our outlook. Greg?

Thanks Jeff. Moving on to Page 13, we have our annual outlook for 2017, which remains unchanged from the guidance we provided in March.

We expect gross margins for 2017 to be between 23% and 24%. Adjusted EBITDA is expected to be between $127 million and $137 million.

Manufacturing cost reductions for 2017 are expected to be between $10 million and $12 million and total capital expenditures for 2017 are expected to be between $75 million and $85 million. We expect a 25% to 30% effective tax rate for 2017.

Cash taxes paid in 2017 are expected to be approximately half of the 2017 income tax expense. This excludes the potential impact of significant tax reform legislation and changes in the mix of earnings between jurisdictions.

In regards to our Q2 2017 results, we expect revenue in the second quarter of 2017 to be greater than in the second quarter of 2016. However, both gross margin and adjusted EBITDA are expected to be lower than in the second quarter of 2016, primarily due to the positive impact of the South Carolina Flood Insurance Proceeds recorded in the second quarter of 2016.

In conclusion, we continue to make significant progress on our previously announced capital expenditure projects, which are expected to be on time and on budget. Despite some headwinds we are facing in terms of higher raw material prices as well as the continued efforts to recover lost sales related to the South Carolina Flood, we remain comfortable with our annual guidance.

This completes my presentation. At this point, Jeff and I are open to any questions.

Operator?

Hi, good morning, guys.

Good morning.

Good morning, Michael.

First question, I’m little surprised to see gross margins increase on the back of increased spread between selling prices and raw materials. So it's polyethylene and polypropylene up in the quarter.

Can you explain that dynamic and its sustainability?

Well, I think from impact I think you're going to see a lot of the P&L impact of that in Q2. I think a lot of it was purchased in Q1 and hits the P&L in Q2.

So the polypropylene that we’ve seen, the polyethylene that we’ve seen, there’s probably some in Q1 but there's a fair amount of its going to go through in Q2. And just on that topic, we look and see in both of those areas.

We see them unraveling, they’ve already started to unravel. Polypropylene has started to unravel it ended up going up approximately $0.20 a pound to already down $0.06 or $0.07 a pound.

And we expect to continue to see that but we still have high cost inventory that needs to be used in our – on the P&L.

Okay, so that’s captured in the inventory or the higher price inventory, could you maybe comment on the competitive response in the pass-through potentials of higher prices?

So when we think of on the polyethylene side, which the order of magnitude the increases have been less, the film area has been typically pretty well versed in passing those on. So that’s been a good position on the polyethylene side, that as well will probably started coming down here in the next 30 or 60 days.

A lot of new capacity comes on stream. On the polypropylene side which namely gets consumed in our tape area and ECP area.

The tape side because of its short-term nature, I don’t think increases are going to be passed on because I think in the period of three months we're going to be back to where we started. On our woven product side, we've put some price increases in to cover that polypropylene.

Okay, thanks. Just turning over to your manufacturing cost reductions, we’ve seen a pretty good chunk realized in this quarter alone, I think it’s up to 40% of full year guidance.

And just given TaraTape synergies are included and as well as the South Carolina project in that number for the year. And I'm assuming additional cost saving projects and we are also ongoing, would it be fair to say there is potential upside to that number?

I would say from my perspective there is. But I would caution everyone, we had a good quarter Q1 all around operationally, we had a good quarter in Blythewood and we are still in the midst of ramping up that second masking tape product and stencil within Blythewood.

So there is a possibility of having some inefficiencies as we move through the year that we didn't have in Q1. But certainly if Q2 shows up like Q1, there’s certainly upside there.

Okay, great. I mean I was kind of pass on but maybe just a follow-up.

You did start to answer that question but can you update us on the ramp up and the sales recovery of both the stencil and masking tape supply foot?

So the easiest one first on the stencil side, we are commercial on approximately 85% of the styles of product that we sell. The other 15% right now we're at the very beginning of the commercialization process we are out with customers with products.

And we've seen our sales ramp up nicely there. I mean we're still a long way from run rates that we're at prior to the flood.

But certainly there's a clean line of sight there and we feel good about where we are. On the masking tape side, we still are not commercial on the second masking tape type.

However, we are in the early stages of customer trialing, we've gone through our trialing/ testing protocol and we feel confident about that. But until we get feedback from customers, we don’t know whether we have a product that's ready for the market.

But certainly all signs are encouraging right now and again we are out with that product with customers around the world testing it so feedback should be happening fairly shortly.

Okay, perfect. Thank you, Greg.

Good morning, guys.

Good morning, Ben.

Good morning, Ben.

Looking at that $4.8 million in cost savings that you did realize in the quarter, is there any way to break out kind of what Blythewood savings were there I know in the past couple of quarters we've seen fairly consistent sequential improvement there. Has that continued?

Yes, that’s continued. I mean, we are not breaking out the number but certainly its meeting our expectations in terms of exceeding the amount that we did the previous quarter.

Okay, great. Thinking about the $2.1 million of insurance offsets that you called out in gross profit, did that flow through to EBITDA and net income or where there offsetting cost that netted that out?

So I mean it flows through but at the end of the day, we're still suffering from some of the flood impact. I mean it’s primarily the lost sales that we're still experiencing as well as the additional manufacturing cost of producing that masking tape in Marysville, Michigan facility.

So there are cost but at this point like we sort of discussed in the last couple of quarters. At this point, we obviously aimed to recover those – reduce those costs and increase the sales but we have been calling out the flood impact.

And the other issue there is that even the lost sales is starts to become a fuzzier and fuzzier number the further and further away you get from the actual flood. But yes, there are lost sales and some additional cost that are offsetting that $2.1 million.

Okay. And then thinking forward to Q2 guidance, can you frame the directionality of gross margin and adjusted EBITDA, if you were to back out the flood insurance costs from Q2 2016 so kind of a cleaner apples-to-apples picture?

Yes. I mean we haven't done so I mean certainly like we discussed I mean you have $4.5 million affecting the gross profit and EBITDA of the insurance proceeds last year.

But certainly that will not be recurring this year in Q2. If you back that out beyond that we're not giving any additional guidance there, as Greg mentioned we may see some pressure on margins just related to the higher raw material costs that will flow through in the next quarter but that’s about as much as I can say at this point.

Okay, thanks, Jeff. The higher – one last question if I can.

The higher raw material costs should that be kind of a one quarter blip in Q2 assuming polypropylene and polyethylene do fall off kind of the last quarter?

Yes, I think that's I mean I can't tell I mean it might carry into the first month of Q3. But clearly right now especially in polypropylene, we’ve already seen that come off quite a bit.

And with the polyethylene there’s a lots of capacity on here in the latter part of 2017. So yes, I would – it’d be a fair assumption to say that that’s Q2 issue.

Great. Thanks, I’ll pass the line.

All right, thanks Ben.

Hi, there good morning.

Good morning.

Hi, Gavin.

Just to focusing on the input cost again I think you talked most about the North American market. I remember in the Q4 there were some issues with butyl acrylate in Asia and impact in the Powerband operations, curious for your take on any changes in that market and just how Powerband is tracking versus your expectations?

So Powerband operationally has been significantly impacted by the rise of butyl acrylate in Asia. And we started to see some tempering there but it’s very minimal.

At this point, we believe it's a short-lived phenomenon as capacity comes on stream for butyl acrylate I mean a lot of that was caused by two plant issues as it relates the suppliers of butyl acrylate. So that continues to manifest itself in our results right now.

Okay, the rest of my questions have been asked. Thank you.

Thanks Gavin.

Good morning, most of my questions have been asked but I do have one and that is you often have talked about – sort of future high return products that you may or may not announce. I'm guessing that is if memory service referring to a couple of facilities that you mentioned before.

What’s the current mindset – should we be expecting something in 2017 some announcements or is that a future theme?

Well, we really can't comment on that. But as we sit here right now, we've got a lot of high return projects going on and between the end of 2017 and into 2018 come on stream most of those as you know are new capacity between our plant in Midland, shrink film operation in Portugal, film expansion in Utah, film expansion in Danville, Virginia and also a specialty tape operation.

So for now that's all that we have that we've disclosed as it relates to high return projects of magnitude.

Okay, perfect. Thank you.

Hey, good morning.

Hi, Neil.

I just wanted to check on your comments regarding increased or the costs of M&A activities is this for projects which already completed or is this all looking for new acquisitions?

This is ongoing activity so this is basically has to do with managing our pipeline of opportunities.

Okay, how is that pipeline?

Busy, and busy as you can see.

Any specific areas of the world…

We can’t comment on that but we can certainly say that we are looking at opportunities both domestically and internationally. But it’s certainly been a busy pipeline at this point.

Okay. And just on you mentioned some of the CapEx as far as the capital programs.

You didn't mention the India can you mention anything about how that's progressing?

Yes, so all the projects right now are on budget, on time and that's the Indian project is at the end of 2018 – second half of 2018. We have as you know two, three film operations and three tape projects going on right now.

And they are all trending well. They are all on budget, all on time.

Okay. And the capacity expansion in – that was supposed to be done I think by the middle of this year?

For India that line is up and running right now, the coating line that is in the existing facility.

Okay, great. And just any commentary you mentioned the possibility of changes, is there anything that you've seen so far and concerns about NAFTA order taxes or income taxes that you can comment as far as are you making any kind of preparations or contingencies?

It's certainly a moving target, certainly when we look at situations were modeling, tax scenarios as well on top of it so we've added that to our process. But it's so hard to determine where they're going to end up.

I mean its all going to place better. But certainly in our discussions and again our modeling whether it's border-adjusted tax whatever it is we are throwing that into the modeling, the What-If scenarios.

But beyond that we're not really doing too much.

Okay, fair enough. Thanks guys.

Thank you.

Okay, now I’m on. So you highlighted, just going back to Neil’s question on the advisory fees.

Any other associated costs with M&A, could you break that out just in terms of either materiality or amount and maybe just give us a sense if that's expected to continue throughout the year?

Well, I can't give you a breakdown of the amount I haven’t disclosed that but obviously it was a big enough driver to disclose that – but obviously it was a big enough driver to put in the MD&A. And certainly, as we’ve said I mean our pipeline has been active we hope that will continue to be active.

But again the issue we constantly are facing is challenges amongst getting people to the end, getting people to the table, getting valuations that make sense. But in the meantime, we're certainly working hard on looking at different opportunities both domestically and internationally and that is driving some of these costs.

So I would say I would expect that to continue through the year but again that could drop very quickly, you should think fall off the table.

Okay, thanks. And just maybe a follow-up there too, so nice bump up in revenues on pricing mix that's a change from either year-over-year or even sequentially.

I think you flagged out favorable mix on woven and tapes, could you just maybe comment a little bit further on what exactly is driving that and again on just to the sustainability of that number?

Well, some of its being driven by some pickup on the stencil side. So stencil has to be a higher ASP product so as we ramp up sales there, we are certainly seeing some positive effects on our mix.

As Greg mentioned as well there has been some price pass-throughs in the film side, so you get some of the price there and some of the mix there. So those are the couple other things I can highlight for you.

We’ve seen when you look year-over-year, when you look sequentially there's actually a multitude of different items causing that so I wouldn't really call out one in particular. But there's probably a multitude making that amount.

Okay. Perfect.

Appreciate the shorter MD&A guys too. Thanks a lot.

Our pleasure.

Thank you very much for participating in today’s call. We are holding our Annual Meeting of Shareholders in Toronto on June 7.

So we hope to see you there if not we look forward to speaking to you again following the release of our second quarter results in August. Have a great day.

Thank you.