Intertape Polymer Group Inc.

Thank you, and good morning, everyone. Welcome to IPG's 2019 third quarter conference call.

Joining me is Jeff Crystal, our CFO. Before we begin this morning, it's important to recognize the significance of the day on behalf of IPG, I'd like to thank all those that gave the ultimate sacrifice as well as all our veterans that have served and continued to serve on this Veterans Day and Remembrance Day.

During the call, we will make reference to our earnings presentation that you can download from the Investor Relations section of our website. It was another strong quarter.

Revenue was up more than 5%, adjusted EBITDA increased more than 22% to $47 million, and our adjusted EBITDA margin reached 15.7%. From a top line perspective, the growth was driven by our acquisitions as well as strong performance within water-activated tape and protective packaging due to increase demand.

We described the business as a GDP plus growth profile, posts the benefits of our recent acquisitions and capital investments with the plus component coming primarily from e-commerce. Based on what we saw during the third quarter and our end markets, there are select pockets of weakness and demand, but it is not broad base.

While this impacted our organic growth, which Jeff will address and I'll read through of volume mix, that impact was modest, we remain confident in the GDP plus growth trajectory of our business. Based our results year-to-date, the remaining time to meet our original outlook and our current view of end market demand, this morning, we updated our outlook for fiscal 2019 with revenue coming down and adjusted EBITDA moving to the top end of the range.

Revenue in 2019 is now expected to be between $1,150 million to $1,165 million which represents 10% growth year-over-year at the midpoint of the range. Adjusted EBITDA for 2019 is now expected to be between $170 million and $174 million which is at the top end of the original range and the midpoint representing 22% growth year-over-year.

We have proactively implemented a series of measures to position us as a world-class, low-cost manufacturer that is competitive in the market, independent of the macroeconomic environment. First, we spent the past two years plus investing in the business in the form of capital and processes.

During 2017 and '18, we invested more than $160 million in total CapEx, building three new greenfield facilities and making new investments at existing client. Year-to-date 2019, our CapEx is $39 million which is in-line with a range of $45 million to $55 million we expect for the full year.

In our view these levels are appropriate for ongoing maintenance and selected strategic investments. We also believe that we can maintain our asset base at $15 million to $20 million in CapEx for a two to three year period on our existing footprint if required.

Second, as some of you heard it at our Investor Day in June, we've also invested in our Intertape performance system, creating a structured culture of continuous improvement. It engages everyone at the plant in the success of the plant, operate safely and efficiently, driving out waste, improving performance and quality our company-wide initiatives, not top down ones.

The improvement at the plant level as a result of both the CapEx and our Inetrtape performance system, and most importantly, the commitment of our dedicated team members are clearly having an impact. Plant performance remains strong in Q3 and remains so into Q4.

Third, last year, we restructured our capital stack with the bond offerings to provide greater flexibility and cost certainty moving forward. The bond offering enables us to be offensive, if opportunities present themselves in the market to consolidate smaller players or acquire strategic assets that strengthen our product bundle.

It also serves as a defensive strategy by providing greater flexibility on our primary covenant related to the second secured credit facility. These proactive initiatives have put us in a great position to be competitive today, tomorrow and in the longer term, in our key end market of tape, films protected packaging and woven products.

That's what we've accomplished. So, when we focused on today to drive value in the business, we are at a stage based on our recent investments and acquisitions where execution is our primary focus.

In our case, successful execution can be broken into two key areas, strengthening our product bundle and operational excellence. Why are we continuously looking to strengthen our product bundle, let me give you an example.

Our ecommerce customers are expanding both geographically and with new packaging offered offerings. Our existing bundle led by water-activated tape offers our customers a comprehensive suite of e-commerce consumer products from carton sealing tapes to shrink film for ship-in-your-own container to protective packaging solutions.

The e-commerce market continues to grow at double digit rates far exceeding the conventional brick-and-mortar retail market. At the same time, packaging requirements continue to evolve as the largest e-commerce player in the market increases the standards as part of its move to reduce waste, improve sustainability, and efficiently meet the consumers expectation for one-and two-day delivery.

Packaging has to offer value to the seller, the fulfillment company and to the consumer whether it'd be corrugated with tape closure or film and protective solutions, a product that arrived damage as a major headwind for the profitability of both the seller and the fulfillment. We believe there are opportunities to expand within our leading e-commerce customers as they expand geographically, serving their needs in new regions with water-activated tape and other products within our bundle.

We also believe there are opportunities to provide our e-commerce customers with a more sustainable protective solution that are curbside recycle, which eliminate waste and still allowed products to arrive undamaged. Ensuring our product bundle provides a broad offering that includes paper and plastics with the attributes of sustainability, such as the increasingly important attributes of recyclable material is a critical element of our long-term success.

We are working to strengthen our product bundles through both innovation and acquisitions with world-class, low-cost offerings that provide value to our e-commerce customers. As it relates to the acquisition market, valuations remain high.

We will remain disciplined and we will not chase targets, but we believe we've proven their tuck-in acquisitions like Better Packages and Maiweave; and strategic acquisitions like Polyair, that can contribute to our margin dollar in an expeditious fashion. We also believe that in a down market, there will be opportunities for stronger players to add scale by consolidating assets.

Another main element of our execution is operational excellence. This can encompass a range of activities including the faking performance of the plant that I mentioned earlier, but this morning I will focus on just two, successfully integration our recent acquisitions and optimizing our recent CapEx investments.

Acquiring an asset or putting capital on the ground is only the front end of the process. We are delivering on our integration of Cantech, Polyair and Maiweave.

On Cantech, the cost synergies achieved since the acquisition are proceeding in line with our expectations. On Polyair, we're benefiting from cost synergies as well as increasingly from revenue synergies.

The cost aspect started earlier and remains the primary driver of the benefits today, but we are pleased with the improvement on the revenue side, since our last call, and we are seeing tangible progress on that front. On Maiweave, the business continues to perform well.

We provided an update on our last call, and we were ahead of expectations and that remains the case. On the capital projects, the new Indian carton sealing tape facility has now completed the commissioning process.

The team is working to optimize the run rate of facility and build an order book. Based on improved production rates in North America that we've achieved on the same product lines and the pace at which sales are ramping in Europe, we do not anticipate a material contribution from this facility in 2020.

The Indian wovens product business is performing extremely well, it's producing quality product at a cost that makes our woven manufacturing assets in North America much more valuable. We're working through higher cost inventory source from third-party suppliers.

It is material that we have now backwards integrated into the Indian business. During the past 12 months, we made a conscious decision to take share in the North American woven products market despite the need to use higher cost inputs material in order to benefit from our Indian supply chain on a go forward basis.

The combination of our two original woven products plant, the Maiweave acquisition and Indian assets put us in a great position to improve the margin profile of our woven products business to the legacy IPG standard. At this point, I'd like to turn the call over to Jeff who will provide you additional insight into the financial results.

Jeff.

Thank you, Greg. On Page 11 of the presentation, we presented analysis of our revenue for the third quarter.

Revenue increased 5% to 293.6 million compared to the same period in 2018. The $14.5 million increase was primarily due to a $19.1 million impact from the Polyair and Maiweave acquisitions.

As Greg mentioned earlier, this increase was partially offset by the impact of our volume and mix, which was minus 1.6% or 4.5 million. Price effect increased by 0.2% of 0.6 million, and foreign exchange negatively impacted the top line by minus 0.2% or 0.6 million.

The positive drivers within volume and mix in the quarter were water-activated tape and protective packaging. The positive impact of these categories was offset by certain industrial tape and equipment products, which were lower.

While the combined effect of volume and mix was price was negative in the quarter is much less pronounced than what we are seeing amongst our peers and the industry in the Q3 reporting period. We continue to see growth in the areas of the business where we have made strategic investment, specifically water-activated tapes and protective packaging.

We believe our investments in these product categories will continue to deliver positive momentum. Turning to Page 12, gross margin was up 127 basis points to 21.8% in the third quarter compared to the same period in 2018.

The improvement is primarily due to the increase in spread between selling prices and combined raw materials and freight cost, which was partially offset by the dilutive impact of the Maiweave acquisition, which we acquired in a lower-margin profiled in the IPG-based business. Adjusted EBITDA increased by more than 22% to $46 million in the third quarter compared to the same period in 2018.

This improvement was primarily due to; one, the organic growth and gross profit; two, the Polyair and Maiweave acquisitions; and lastly, the favorable impact of operating lease payments totaling $1.8 million that were capitalized in the third quarter of 2019, in accordance with a new lease accounting guidance implemented on January 1, 2019. The effective tax rate was 25.3% for the third quarter compared to 18.8% in the same period in 2018.

This result is in line with our expectations and guidance going forward. The change in the tax rate is primarily due to the elimination of certain tax benefits as a result of the U.S.

Tax Cuts and Jobs Act related to intercompany debt and the non-recurrence of a net federal tax benefits associated with a discretionary pension contribution made in the third quarter of 2018. Cash flows from operating activities improved by $35.3 million to $48.4 million in the third quarter compared to the same period in 2018.

This improvement was primarily result of a smaller increase in accounts receivable as a result of the timing of revenue invoiced in the third quarter of 2019 as compared to the same period in 2018, the non-recurrence for a discretionary pension contribution in the third quarter '18 and an increase in gross profits. As a reminder, our business normally has a natural seasonality as we built inventory in the first half of the year in advance of both the higher volume third and fourth quarter periods from a retail activity perspective as well as our planned factory maintenance schedule, which occurs from earlier midyear.

In the fourth quarter, that built unravels with a seasonal nature of higher retail activity. Free cash flow is improved by $48.8 million to $39 million in the third quarter compared to the same period in 2018.

The improvement was primarily due to the decrease in capital expenditures, which Greg referenced earlier, as our strategic CapEx program winds down and an increase in cash flows from operating activities. It also includes the favorable impact of operating lease payments totaling 1.8 million as I referenced earlier in accordance with the new lease accounting guidelines.

As Greg referenced earlier, our unsecured note offerings in late 2018 enabled us to lower our secure net leverage ratio, which is now 1.7 times. The secured net leverage ratio is the most important ratio that is relevant for our covenants therefore we view it as the highest priority.

Our total leverage ratio including the unsecured debt decreased to 3.2 times down from 3.5 times in the sequential period. As a reminder, during the quarter we amended our credit facility to account for the associated impact of new lease accounting guidance.

The amendment increased since secured net leverage ratio covenants threshold 20 basis points to 3.7 times and decrease the interest coverage ratio covenants threshold 25 basis points to 2.75 times. As Greg mentioned earlier, our highest priority for capital allocation at this stage is debt repayment.

We expect to continue to repeat debt in the fourth quarter as the seasonality of the business unwinds and throws off more cash, which would drive down the leverage ratios even further. Now I'll turn the call back over to Greg for his closing thoughts.

Greg?

Thanks, Jeff. In closing, we continue to execute on our vision to be a global leader in packaging and protective solutions.

We've made significant investments in our assets based during the past two years. Today, we're focused on strengthening our product bundling and continuing our pursuit of operational.

We believe more run way exists to drive operational efficiencies, both across our legacy assets and our recent acquisitions to reduce waste, disciplined adherence to processes, and the continued engagement of our dedicated team on performance. We've taken proactive measures to ensure the business is competitive, independent of the macroeconomic environment, building a world class, low cost manufacturing base, producing products of value for our end markets.

We are executing a strategy to deliver long term value for our shareholders. With that, I'll turn the call back to the operator to open up the question and answer period.

Thank you. Amy?

I was wondering if you could get a little bit more granular on the M&A expense this quarter and this year as well. I mean, you heard about $8.5 million last year, close to $8 million this year, would you just out of your EBITDA.

Any way you can break that up in terms of what those costs were as it relates to integration of the deals that you've done and maybe expenses related to deals that you're looking for?

Yes, I mean, we haven't broken it down, but what I can tell you is like in the quarter, for example, in Q3, we did some significant reorganization activity within the Polyair business to integrate the sales team. So a lot of that cost on the integration side was related to the severance related to termination of certain people within that organization, as a result of not needing as many people with a combined organization.

So that would be a big item in there certainly for Q3, but I would say the majority of the cost that you're seeing within the M&A costs even year-to-date would be primarily integration versus due diligence than other types of upfront costs.

So when you complete the integration of the recent deals, like what's their run rate number?

Well, I mean, basically, it all depends, right. Because it all depends on other deals we're working on because once you complete the integration, essentially that integration portion would be essentially zero.

And like I said, the majority of that expense this year is that, so it all depends on our deal activity after that.

Yes. So Michael, when I look at Q3 of this year, there is certainly a big slug there of the reorganization of our go-to-market, especially around our customer facing group as we integrated Polyair.

Certainly, when I think of expenses like that on a go forward basis on the integration side, they're going to be de minimis with what we have right now in play. I mean, because that's a big, I mean basically, you had two sales forces out there calling on the same customers, right.

So, certainly, as we move forward, we recognize a need that we don't need to do that. And certainly, we needed to maximize on our bundle of products approach to our customers.

Okay. No, that's helpful.

And then maybe just changing lines of question here, you lowered the revenue guidance, but you raised the EBITDA guidance. Can you talk about what drove that dynamic?

Presumably, you're seeing better margins in certain lines of the business. Just talk to that a little bit, please?

So, we feel really good about where the business is right now. We feel really good operationally.

We're seeing growth in -- and as we mentioned in the key areas that we deployed capital over the past two, two and half three years, and the manufacturing combination of the operational efficiency, the ability to manage that cost price spread as well, have led to favorable margin profile of where we are.

Okay. And anything in the quarter as it relates to mix or price cost or plant performance that particularly stood out in the quarter that we shouldn't be sort of looking for it to flow into subsequent quarters?

Well, I think like what we've seen in the quarter, I mean as you know we lowered our guidance on the revenue side, so we saw some softness in the couple of categories being the industrial tape, which we have talked about before in our equipment business as well. There was some softness as well as some order timing.

So, we just basically expect those trends to affect our full year and that’s why we took down the guidance, but we're not expecting anything that’s probably new.

Sure. But anything particularly strong on the margin this quarter that maybe you shouldn't repeat itself next quarter?

Not that we see right now.

I just wanted to just circle around a little bit on the organic revenue growth profile. I mean, I'm wondering if you could just give a little bit more color around the specific areas where you're seeing some weakness if that weakness has accelerated, what you think it's potentially related to?

And then on the flip side, similarly, where you're seeing strength in the organic growth side? And obviously, the water-activated tapes in protective packaging businesses.

But whether you're seeing those growth rates accelerate or change at all from what you've seen previously?

Yes. So, I mean, easy one is on the positive side.

Certainly, water-activated tape is continued to perform, again driven by e-commerce. Certainly, from a seasonal perspective, you are getting to peak season here, back end of Q3 and Q4.

So, continuing to seeing growth there driven by e-commerce side of things and the mix of product, we have in that channel. And certainly on the protective packaging side as well, we've actually ended off the quarter, very strong, there going in Q4 a lot on the system side and we talked about the Polyair business.

And the fact that, there is a move from more than traditional brick-and-mortar products like for example bubble, foam, things like that back into systems where you installed -- have installed equipment at the customer and you're basically shipping sheet or roll the film where they inflate on the site by air pulls and bubble and so forth. So, we're certainly seeing some strength there, again driven by e-commerce, driven by that shift into the systems related product.

We've talked about this before in industrial tape, certainly seeing a little softness there, into some of the international market. Again back in the masking tape, international has certainly been a headwind for us for some periods now and some of those products.

And on the top line, you see the impact. But from a bottom line perspective, those are not very profitable products, so not a big inapt there which may actually help our margin in some cases.

We're also seeing a little bit of softness in the auto aftermarket channel as well. This is again in masking tape, so certainly seen that and we've seen that over the lot number of quarters and see that continuing as well.

We've talked in the past about this retail product that we had sold through a retail channel that was a large item from a mixed perspective that impacted us positively in '18. And '19 has been somewhat of a drive, so it's been a tough comp.

Looking year-over-year that was less of an impact, although still an impact in the quarter; year-to-date that would be a pretty big driver as well, that we're seeing there. I knew, I mentioned earlier on the equipment side like we discussed on the call, I mean, there is some softness in that demand through back end of the year, but that's a lot to do as well with some order timing and setting up a new installation.

So, I'm not sure that will, that's something that might be shortlist.

I would say also that the trend over the past two quarters is a relatively the same and we don't see a big change over the past few quarters because a lot of the stuff we called out in Q2 as well.

And then just on Polyair, you mentioned you're seeing some sort of -- beginning to see some more revenue synergies. You made a beginning, you certainly highlighted it.

Are those new relative to the last quarter? And I guess, could you also provide some examples of what you're seeing in terms of revenue synergies that are in addition to the cost side for Polyair?

So, certainly in the quarter, we saw some good growth, as Jeff mentioned in the Polyair business, mostly around our systems business, as opposed to kind of the bricks and mortars business, as Jeff refer to. Lot of that has to do with access, as we've discussed before to our distribution mates that Polyair did not have access to.

And also more importantly, into end users that we had a relationship with other products that were able to leverage and have system sales go in. We've seen a very nice growth rate on, in the paper side on paper voice sell, certainly we seen that drives some very nice growth as we move into the latter part of the year and think that that'll continue to grow as we move into 2020.

So it's a combination, just answer your questions combination of both access and distribution, and also being able to leverage our prior relationship with end users of legacy entertain with the Polyair product line into those end users specifically.

And then just finally, I just wanted to come back to the M&A cost that you had in the quarter, $3.9 million. So is it fair to understand that once all the acquisitions are fully integrated, that should effectively run down to zero?

Yes, I mean, you still have something in there, if we're doing any due diligence or have some upfront costs, but those are typically not as large as what you're seeing it integration. So, it would be de minimis.

Looking at the negative 1.6% volume and mix, how much of that was volume? And do you expect that to be recouped in Q4?

Yes, we don't split that out anymore. And that's because it gets very muddy when you start trying to put that out, because you could have some, for example, like when you have increases in volume, for example, our acrylic carton sealing tape which is selling at a very low sales price, you can get a nice off in volume, and that's all set completely by mix, negative next.

So, we don't break that out anymore. In terms of Q4, I mean, we haven't given any guidance, but I think you've got the annual guidance and we do expect, some softness and some of the areas that we've seen.

But we also expect in Q4 to see our traditionally higher volume quarter within especially the retail side. So, you think of ecommerce products going in there water-activated tape protective packaging for films and so forth.

So certainly still expecting to see the growth there, certainly offsetting any weakness in these areas.

That's helpful. And in terms of the adjustments for manufacturing facility closures and restructuring, do you see a lot of that remain for the end of the year?

There'll be some, I mean, you'll see some hits Q4, not I wouldn't be a large amount, though. And that’s related to the closure of our Montreal facility, the Cantech plant.

So, most of that would be behind us.

Yes, most of it behind us.

And then looking forward, would that also trend to a run rate of zero?

Yes, absolutely.

And then last one for me. In terms of the adjustment downwards on your revenue guidance, how are you feeling about your $1.5 billion revenue target at this point?

At this point, I mean, not different. I mean, again, in the short term, we brought down the guidance a little bit.

But when we look at 1.5 billion, we feel the same as we felt before we still say that , we'll need some M&A to get to that point, and certainly still believe in the growth and that we're seeing in the areas that we've love to. So I would say the same at this point.

Can you provide some detail on the organic growth in e-commerce across product lines, particularly in Polyair and water-activated, please?

Well, I think we can't disclose exactly what it was. But when we saw in the space, we saw good growth, double digit growth in that segment on a quarter over quarter basis, and we expect it to the end you see that kind of growth on a go forward.

I'm not going to separate between Polyair and legacy Intertape product. So, when I say that, I mean holistically all of the products into the channel.

Okay, that's great. Thanks.

And how does the Company or how does the margins compare with company average?

Yes, I mean, in all those product lines at or above. It's not dilutive to our margin profile.

I was wondering if you could just elaborate a bit on what your plans are for the Indian carton sealing tape facility. I said that in the MD&A, I think something to the extent that you're looking at ways to, I guess, essentially optimizing investment there because the dynamics have changed, so if you just comment on that, that'd be great?

Yes, so I mean, basically, when we look at that investment, the big change is just the time factor that it will take us to ramp up. So, we're diligently working on getting sales from specifically out of Europe, due to some of the major product productivity initiatives that we've completed here in Virginia.

We don't need that capacity in North America as we originally planned. We're also diligently working on new product innovations through that facility to try to utilize those assets to make other products that they're well served to accomplish.

So, we're ramping that effort up. But again, as I called out in the conference call note, we expect that to be a slower ramp.

And then just generally, I think on the IR day presentation there is no progress update given around your various acquisition integration and other capital projects that you've been doing. And I’m wondering, if we could get a bit of an update on power band?

It's been a little while since there's been discussion on that one. So I’m curious where that’s now?

So, really no change there, I mean, like we discussed, the paradigm several times that we were still seeing somewhat lower than average margins their again still due to the competitive dynamics within that product line. So, again, we've seen a little bit of easement on the raw material side, so that helped a little bit.

But then on the flipside of that, you had some tariff related items impact some of those product lines in India, which offset some of that, so more of the same as what would say.

Okay and just moving on to the woven product line and the investment you have made there. It sounds as though things are ramping nicely.

Was the facility able to contribute much to your Q3? Or do you think it's going to be a more significant margin contributor in the upcoming quarters?

Yes, it's going really, really nicely there. So, yes, there were some contribution in Q3, but again, it sort of being hit by some of the higher cost raw material that we initially purchase from our third party supplier that’s the working its way through the system and we will continue to.

But we do expect that more substantial impact in Q4, even more so into 2020 as we eat through all of that inventory.

And so last question. On the organic growth piece, you mentioned some small pocket of softness in the market.

I’m wondering, if your thoughts are that those are perhaps more maybe trade related because of uncertainty that some different business is maybe feeling due to the conditions that we had over the last year or two? Or if you think it's just something else entirely or maybe competitive in nature or otherwise?

Well, look from what we see externally with other people in related fields and we're seeing kind of the same -- we're actually even more drop-off on the organic side significantly. It's hard for us to articulate whether that’s something that is trade related or not, but certainly were seeing it from an industry perspective, and actually seeing it more dramatically from some of the people in the same space as we are.

Do you think that may provide you with some consolidation opportunities in some of those product lines?

Yes, look, I think in situation not part of why we developed our capital structure the way we did, is it's good on the offensive side and defensive side as well, so certainly that could create opportunities on a go forward basis.

And just remind me, the seasonality in our working capital, is that inventory related through Q4 or is it accounts receivable?

Yes, it's mostly inventory related, certainly accounts receivable would play into that as well because typically December is a slower month. You typically will collect more and build less that month, but it's mainly our inventory and then also some of the timing of your payable too, because there's several payables, they get paid in Q1.

So for example, like annual compensation, commissions things like that, rebates. So, there's a bunch of money that goes out in Q1 related to that as well.

Two quick questions from me. The first one and I'm sorry if this was repeated, but you mentioned that some of the weakness on the volume side came from certain industrial tapes.

So, I was wondering if you can -- to the extent that you can indicate where that is coming from? What were the reasons behind it?

Yes, so not area, the biggest that area on industrial tapes within our masking segment. And within our masking segment; there's two major drivers there, there's the international business that we walked away from that drove the negative volume.

But as Jeff said, it wasn't high margin material. So it actually probably had a positive impact on our margin profile.

And then we basically in North America, seeing the general slowdown in areas where we sell performance masking tapes, or even mid range masking tapes, and that could run the range of kind of transportation related auto aftermarket related. And certainly, mirrors what we've seen from a macro environment in North America at this point.

And the second question is on taxes. You're mentioning here that your tax rate 25 to 35 now eliminate certain I guess tax expenses that you can -- sorry, I'm just trying to read here, that you can utilize some net operating losses so you're not able to do that.

But is that something in the short term or can we expect that in 2020 and thereafter?

Yes, 2020 you're going to see more of the same between the 25% to 30% rate and then that's kind of where we think we're going to fall, this year when exclude that one time tax assessment and into next year, so that should be a pretty normal live number.

So 25% to 30% sort of longer term is still fine. Okay, perfect.

Yes.

So on the bundling, the products as you selling to distributors as you made acquisitions, is there any further synergies and further opportunities for more bundling and more penetration? Are you pretty much maxed out now?

No, I would say that we're in the early innings of that, especially with the acquisition of Polyair. So I would say that's in the early parts of opportunities.

And whether we've restructuring that you're doing as part of that, do you have any ideas is going to be a 12 to 24 month project to get fully integrated?

Well, I mean, luckily, I think as we move into 2020, it'll be our first integration or comp plans and things of that nature as it relates to the internal sales group. And also, the definition of roles and responsibilities will be further defined in the 2020.

I think as it relates to the generation of revenue on a go forward basis, I think that's a thing that's measured over years not months. And certainly we've made some good strides.

So far this year, I expect that trend to definitely increase and be positive in 2020 and moving forward on a go forward basis, but that's measured in years, not month.

And on the acquisition pipeline companies that you're looking at any commentary about how the valuations or competition from private equity is affecting any of the conversations you're having?

Well, I would say, just like we commented last quarter, I would say we're seeing the same kind of dynamic where the expectations on the sell side. The actual transactions on the sell side are being done at elevated multiples, mostly being sold to private equity companies.

And I think from our perspective, I think we've got to take a really prudent disciplined approach to those kind of acquisitions and probably in most cases path on, we even can't chase any kind of acquisition. So, I would say that the environment is very similar to where it has been, but I will also make the comment that would you believe there's still opportunity to execute on M&A in a very prudent fashion on a go forward basis for the Company to create value for our shareholders.

And just lastly, on the specifically on the e-commerce, I'm wondering if there's any opportunity or any timeline that you can give us where you might have to do any kind of expansion of the facilities or additional of production wise?

Can't comment on that, but it would be a great thing to do.

My first question, I guess, is on organic growth. I know it reversed quite significantly.

I think Europe almost around 3% growth in second quarter now kind of in the negative 1.5%-ish in the third quarter. Your guidance is kind of implying flat year-over-year now, so a little bit of a sequential improvement from a negative trend.

Is there anything that -- is that just kind of a placeholder, we'll see how it goes with the competitive environment? Or do you see -- is there anything that gives you confidence that kind of shift more toward negative organic growth is going to reverse?

And then a follow-on to that, is there anything in the pipeline right now that gives you comfort that we will see a movement back to positive organic growth into 2020? To contextualize that question, I mean, most of the industrials that we're covering now are we indicating a negative back half, a challenged front half and then hope for a recovery in the back half, which is where I'm inclined to kind of look at your results, because it's consistent with that?

Or is there a reason I shouldn't because of what you're seeing in your pipeline?

I mean I would say, I think that we're in line in terms of like what you're seeing for the fourth quarter. And certainly in the fourth quarter, we expect to see the growth coming in from our sort of busiest period on the e-commerce side, on the packaging side, so that we expect that will be a good impact there.

Going into next year have to say, I think we're -- like we're saying we're seeing some pockets of weakness. It's not broad based, in terms of what we're seeing.

So it's tough to say like, is that going to be a trend in the next year, or is that something that's going to reverse or stay the same, we don't know. So, it's hard to say whether that assumption would be correct what you said there, but, we're monitoring and we're monitoring it closely.

Okay, fair enough. Back to the M&A cost, obviously, whenever those are excluded from your results, it shines a little bit of a spotlight on them.

So you mentioned that they are -- the restructuring costs are expected to go to zero or close I guess, you said, not a large amount associated with the Montreal facility in the fourth quarter. Are you saying the same for the fourth quarter for M&A costs as well?

Are we expecting to see anything in the fourth quarter? I mean, your prior acquisition was over a year ago now.

So just looking forward to that number, that restructuring costs coming down to zero in the fourth quarter, or should we revisit?

Let Jeff comment on that zero number, but when you think of slugs that went through in Q3. I mean, the biggest slug was that reorganization of our sales force, right, which at the end of the day that's not recurring right because you only do it once.

So that gets us through some of the major integration costs and expectations that we have with the Polyair acquisition we're executing and as would thought we would. We thought we would do this do this integration during 2019 and then have it in place when we start 2020.

And then as it relates to successfully around, plant closure, restructuring around the asset base with a Montreal, plant that’s a closure that we've announced, we haven't announced any other closure. So, certainly, on a trend go forward those are two major things that that will certainly not occur on a go forward basis, but at the end of the day we have to get it done right.

And I would add to that in Q3 I would say that that number would be a heavy numbers, so we defiantly expect that to come down for Q4, given the reorganization and some other activities that happened in the quarter.

So you expect some more M&A costs in the fourth quarter, just not up at the $3.9 million?

Yes, there will be some because again we're still going through certain integration activities, I mean typically what you see is, you could see this going into a little bit into next year but I mean the majority of it was this year, Polyair.

So as we go into next year then, x those items, your margin came in at 14.9%. If we're not going to have any significant contribution or any exclusions from those items in 2020, is it fair to say that your margin, all else equal should be at least 14.9%, given that, that's where it was x items in 2019?

Or is there any reason why your margin would compress in 2020?

There is no other reason, all things being equal on the raw material side as we discussed before.

And then finally, on CapEx, you mentioned, you talked a lot about product bundling and I think you hinted there would be a good thing to spend on. You've been guiding us for CapEx to come down.

It has to $50 million there in the midpoint for this year. Is this new reflection you're providing that might directionally mean that CapEx on a mid-range would go up for next year?

Or was this just kind of saying here is something we're looking at as part of our $50 million envelope for next year?

I would not expect that CapEx number to go up.

Just one quick follow-up. You mentioned the new product innovation and the strengthening of the product bundle.

Is there anything in particular that you're looking to develop to fill a hole in the product line? And would it be possible to acquire that?

Or would it be strictly internal development?

Yes. Certainly, when we think of the new product development, we certainly look at internal generation of those products and acquiring either a company that has it or intellectual property around that.

As we sit here today, we don't have any news in that area specifically around what product, but certainly expect to on a go forward basis.

Thank you for participating in today's call. We look forward to speaking with you again following the release of our fourth quarter of 2019 results in March.

Thank you. Have a nice day.