Intertape Polymer Group Inc.

Thank you and good morning everyone. Welcome to IPG's 2020 fourth quarter and year-end conference call.

Joining me is Jeff Crystal, our CFO. During the call, we will make reference to our earnings presentation that you can download from the Investor Relations section of our website.

2020 was quite a year across a number of fronts, for our families, our communities and our IPG business. It was an outstanding year from a business perspective.

Revenue was up 5% to more than $1.2 billion despite the pandemic. Adjusted EBITDA was up 23% to $211 million.

Adjusted EBITDA margin was up more than 250 basis points to 17.4%, and free cash flow was up 54% to $134 million. The business rebounded incredibly well from the temporary demand depths we experienced in late April and early May during the first wave of the pandemic.

Our team members performed exceptionally well during this period of uncertainty. They demonstrated professionalism to our customers, our suppliers and to one another.

Their emphasis on working safely and servicing our customers insured and uninterrupted supply of the essential products we produced to end users. IPG is structurally different today than what we were in 2016.

The end markets where we are experiencing our strongest demand are the same ones where we've made investments in the past five years. In products like water activated tape, protective packaging, wovens, and films.

The growth in the eCommerce end market is a clear accelerant for the business that we believe will persist after the vaccines are successfully rolled out. ECommerce is now neck and neck with general manufacturing as the two largest end markets that we serve.

In 2020 eCommerce represented 27% of our end market demand and general manufacturing came in at 28%, followed by food and beverage, building construction and retail in that order. Our eCommerce business grew by more than 40% in 2020, which is in line with the largest eCommerce retailer.

Independent third-party reports estimated sales through the eCommerce channel will continue to grow for many years to come at a macro level. The pandemic simply served to pull forward eCommerce adoption and establish a new base from which future growth is expected to continue.

Our exposure to this outsized growth in the eCommerce channel is one of the most significant differences in our business today. This morning, we announced plans to install a new water activated tape line to increase our production to keep pace with this demand growth.

The new line will be installed within our existing plant footprint. We expect installation in late 2021, and commissioning in the first half of 2022.

This investment demonstrates the confidence we have in our demand outlook. With the growth and free cash flow generation we delivered in 2020, we made significant progress on our debt repayment.

Our total leverage is now 2.2x adjusted EBITDA, which is down 7/10 of a turn compared to the end of 2019. Our target is to operate within a range of 2x to 2.5x.

With this balance sheet strength and the growth we're experiencing across multiple product categories, we are investing in organic growth to expand capacity across not only water activated tape, but also in protective packaging, mailers, wovens and films, which represents our highest growth categories. These projects represent low risk near-term opportunities that increase our production capacity in areas where the demand outlook is strong.

They offer shorter-term investment horizons and higher return thresholds than the previous projects that were greenfield in nature. There are no new greenfield projects in this expansion.

In total, we expect to invest approximately $100 million in capital expenditures in 2021, consisting of $70 million in capacity expansion projects, $10 million in digital transformation and cost savings, and the remaining $20 million for regular maintenance. Based on the $70 million in capacity expansion, we expect to generate more than a $100 million in incremental revenue on a run rate basis by the end of 2022, with additional growth in 2023 and beyond.

We expect the after-tax IRR from these capacity expansion projects to be north of 20%. We are able to invest for this growth and expand production capacity, while still generating strong free cash flow in 2021, which is quite different than in 2017 or 2018.

This morning, we announced our outlook for fiscal 2021. We anticipate revenue to be between $1.3 billion and $1.4 billion, which represents growth of 11% at the midpoint of the range.

We anticipate adjusted EBITDA for 2021 to be between $220 million and $240 million, which represents growth of 9% at the midpoint of the range. We anticipate free cash flow of between $80 million to $100 million, which takes into consideration our anticipated total capital expenditures for 2021 of approximately $100 million that I mentioned earlier.

There are few important takeaways from that outlook. We are confident in the growth trajectory of the business.

The business is structurally different today, with the ability to invest in near-term growth projects and maintain strong free cash flow generation. Our revenue and adjusted EBITDA outlook also takes into consideration the significant movement in raw materials we have recently seen, specifically increases in polypropylene prices and - to a lesser extent but still impactful --- polyethylene prices.

We have a track record of effectively managing the spread between raw materials, freight, and selling price across multiple cycles over the course of the last decade. We managed the spread to retain dollar contribution.

With that in mind, you can see across the high, mid and low points of the outlook ranges that as selling prices rise and we look to retain dollar contribution, margins draw in to some degree. We have already announced price increases to reflect the rising price of raw materials.

As a reminder, once we announced a price increase, it normally takes approximately 60 days to hit our income statement. Based on the current situation, we anticipate approximately 80 basis points of margin pressure on an annualized basis, which has already been taken into consideration in our 2021 outlook metrics of revenue and adjusted EBITDA.

We are preparing to merge from the pandemic in a strong position to deliver continued growth. Sustainability is expected to be a core pillar of our growth strategy as we address the needs of key end markets like eCommerce with sustainable solutions.

Our work to achieve cradle-to-cradle certification on major product categories like water activated tape, films, and membrane structure fabric, demonstrates our commitment to embrace sustainability throughout the organization as well as a product bundle. In the fourth quarter, all of our major product categories outperformed the same period in 2019 from a volume mix perspective.

The demand we are seeing in the first quarter from a sales and order book perspective is a continuation of 2020. Based on the strength of the business, we are investing to expand production capacity at our highest growth verticals.

We consider these projects no brainers. We could stand pat and allow others to address this demand that would certainly not be in the best interest of our shareholders and customers.

Growth opportunities are immediately in front of us, and we believe inaction would limit shareholder returns and jeopardize our ability to support our customers. We have built a global leader in packaging and protective solutions.

These are lower risk capital projects within our existing footprint in areas where we are very comfortable with future demand. We think that is a great opportunity for any company to have.

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

Thank you, Greg. On Page 8 of the presentation, we present an analysis of our revenue for the 2020 fourth quarter and fiscal periods.

Revenue increased 18% to $344.1 million in the quarter, up $52.6 million compared to the same period in 2019. On an annual basis, revenue increased 5% to just over $1.2 billion, up $54.5 million compared to fiscal 2019.

Volume mix was the primary driver of growth in both periods, up 16% and 5% in the quarter and fiscal year respectively. As Greg mentioned, our highest growth product categories in the quarter and the annual period were in the areas where we invested in capex and acquisitions during the past five years, specifically water activated tape, air pillows, mailers and machines.

During the quarter, we also experienced strong growth among a number of our industrial and carton sealing tapes. Essentially, all of our product categories were up in the quarterly period versus the comparable period in 2019, save a couple of nominal categories.

On an annual basis, the most significant underperformers were carton sealing tapes, excluding water activated tapes, as well as some industrial tapes, both the result of effect of COVID-19 on some of the non-eCommerce customer channels. Price positively impacted revenue by 1% in the quarter and we experienced a drag of 1% in the annual period.

The remaining differences in the period are made up of the one acquisition in 2020, Nortech, which we closed in February of 2020, as well as foreign exchange. Turning to Page 9.

Gross margin was 25.7%, up more than 500 basis points in the fourth quarter and 23.8%, up 250 basis points in the annual period compared to the corresponding periods in 2019. The improvements in both periods were primarily due to the increase in spread between selling prices and raw material costs as well as plant performance and the associated operating leverage benefits due to the asset base running at increased capacity.

Adjusted EBITDA increased by 55% to $67.7 million and 23% to $211.1 million in the fourth quarter and fiscal 2020 respectively, compared to the corresponding periods in 2019. The improvements in both periods were primarily due to organic growth in gross profit.

Adjusted EBITDA margin was 19.7%, up more than 460 basis points and 17.4%, up more than 250 basis points in the quarterly and annual periods respectively compared to 2019. These improvements reflect effective management of the spread between the pricing and raw materials and freight as well as plant performance and operating leverage that I mentioned earlier.

We are monitoring the impact of the recent weather-related events in Texas on our supply chain. We carried sufficient inventory of our key resins from the fourth quarter into the first quarter.

Production of key raw materials in Texas is already coming back online in some cases and scheduled to be back up later this month in other cases, according to industry reports. We intend to manage the situation to protect our customers by keeping them in supply, while managing our dollar spread to protect our contribution profit dollars.

For 2021, we expect an effective tax rate in the range of 22% and 27%, excluding the potential impact of changes in the mix of earnings between jurisdictions, as well as any changes resulting from potential U.S. tax legislation that increases rates for 2021.

We expect cash taxes to be approximately 10% higher than income tax expense due to less availability of tax attributes and loss carryforwards, as well as the impact of bonus depreciation previously taken. Cash flows from operating activities were $88.6 million, up 21% in the quarterly period and $179.6 million, up 33% in the annual period compared to the corresponding periods in 2019.

Free cash flows were $63.8 million in the fourth quarter, unchanged from the same period in 2019 due to the increased capacity related CapEx in the fourth quarter of 2020 that we announced on the third quarter call. CapEx totaled $25 million and $46 million in the fourth quarter and annual periods respectively.

In the annual period, free cash flow increased 54% to $133.8 million compared to fiscal '19, the improvement in the annual period primarily due to the increase in gross profit. Keep in mind that we typically experienced business seasonality to show negative free cash flow in the first quarter and the majority of cash flows from operating activities and free cash flows are generated in the second half of the year.

Our secured net leverage ratio decreased to 1.1x at the end of 2020, well below the covenant of 3.7x. The secured debt leverage ratio is the most important ratio that is relevant to our covenants, that - we view it as the highest priority.

Our total leverage ratio, including the unsecured debt, decreased to 2.2x, down 1.5 turn from 2.7x in the sequential period. As Greg mentioned, with our strong balance sheet position and the demand we are experiencing, the business is in a great position to deliver organic growth.

We remain open to potential acquisitions that strengthen our product bundle in our growth markets or provide consolidation opportunities where we can apply our buying power and our expertise and operational efficiency. However, our primary focus today is executing on the demand immediately in front of us to grow organically.

I'll turn it back over to Greg for his closing thoughts. Greg?

Thanks, Jeff. It was essentially one year ago today that the onset of the pandemic began to change the way we live and work.

In many ways, it feels a lot longer than just one year. Our team and business has performed exceptionally well.

As the vaccine rollout continues, we are excited about the position of the business and the growth opportunities in front of us. The growth in the eCommerce channel disproportionately benefits us, given our high market share in product categories we sell into, like water activated tape.

The demand resilience of our other end markets in the second half of 2020 and now into 2021 gives us confidence in our ability to grow our films and woven product categories. The business is structurally different today with the investments and acquisitions we've executed since 2016.

We have a world-class, low-cost manufacturing asset base. Our margin profile is stronger and sustainable.

Our free cash flow generation is stronger and our balance sheet is in great shape. Our 2021 outlook demonstrates the confidence we have in the business to continue to perform.

We are executing a strategy to deliver long-term value for our shareholders. I'd like to thank our employees.

2020 and even 2021 to-date, have certainly been a challenge. I believe better days are ahead.

I'm proud of how our team has conducted themselves and the level of commitment to the organization they have demonstrated, it's truly tremendous. With that, I'll turn the call back to the operator to open up the question-and-answer period.

Thank you.

Great quarter, again. So just the first question on guidance.

If I look at your Q3 and your Q4, you generated an average adjusted EBITDA of about $65 million per quarter. On the other hand, at the upper end of your 2021 EBITDA guide, you expect to generate an average quarterly EBITDA of $60 million.

So just trying to reconcile the two. I mean, obviously, appreciating the seasonality, I want to maybe just get your take on how much of this has to do with either higher resins, potentially tough second half comps or just a healthy amount of conservatism?

Yes. No, it's good question.

So, I mean, basically, the way we look at it, I mean, obviously, there are certain things like we discussed last year, when you look at the two quarters and some stuff that we saw as headwinds coming into this year, one being some costs coming back into the business. So things that were deferred last year or put on the shelf, we'll come back into it.

So you'll see some additional costs. And as that flow through somewhat in SG&A, as well as some of the cost of sales, so that's one reason.

The other part is like we discussed is that rising raw material environment. So that is going to impact us to some degree.

I mean, that's something we are working really hard to cover, but there could be some temporary impacts. And again, the uncertainty around what that's going to look like throughout the year, the uncertainty around some of the impacts, those short-term impacts of the Texas storm.

So some of that we baked in some conservatism took account for some of those things. So those will be the really the two biggest kind of impacts that you're going to see in there to account for that.

But overall, I mean, I think at the end of the day, what's tough for us is some of these uncertainties related to COVID, and how everything's going to roll out once the vaccines are in place, what does demand look like in that back half of the year? And then what do resins do and what does that look like?

Got you, okay. And on the resins piece, you highlighted, just to make sure I heard it right, 80 basis points of margin pressure already accounted for in your 2021 guide?

Yes, so that's basically just the math, right. So that's where we believe we're going to cover and essentially, you just have the same profit dollars on a higher revenue number.

So like we said I mean in our guidance at the midpoint, we're at around 17%. Without that, we'd probably be closer to 18%.

Got you, okay. And then the second question on CapEx, I mean thanks for the commentary there.

Just in terms of what to expect on projects and timing, you've obviously had strong revenue growth in 2020. Meanwhile, your CapEx has pared back quite a bit due to COVID.

Should be the 2021 CapEx or sort of a catch-up here. I guess the bigger picture question here is, should investors of Intertape is essentially a growth company or will the company eventually look to step back and maybe go into harvest mode post 2021?

So, I think with the visibility we see right now, certainly growth is a key component of a go-forward strategy here. And as we commented on the e-commerce growth that we experienced in 2020, we just don't have the capacity installed to handle that kind of volume, and even growing off of that base.

So, we feel really confident about our growth prospects, certainly into the next couple of years tied to that capital. And as we move further through this year on a go-forward basis, the hope is that we continue to see that kind of growth and continue to have the ability to deploy capital into those markets that are growing at that rate.

And the other comment I would make as well on those projects is, we commented on the fact that the IRR is above 20%. And those projects are all in-house in our current facilities.

Got you. Those are good paybacks.

Thank you.

Thank you.

Good morning guys. Congrats on a good result.

Thank you.

Just with regards to the $100 million of incremental revenue from the growth projects, would that be effectively already pre-sold type of demand? Or is that you're just expecting based on the number of units you can, you will be able to produce post investment?

So, some of it is pent-up demand that we currently have, I mean, some of the products that we're refilling capacity that we're putting in, we're currently outsourcing. So there's a small piece of that, the balance would go into our expected growth rates into that business.

So certainly not pre-sold per se. But we have good line of sight in those areas, most of that capital certainly is going into e-commerce.

And we believe we've got good line of sight on forecasting out in that area.

Okay, great. And then when we look at the 40% growth in e-commerce, is there is it fairly consistent across all the protective packaging as well as water activated tapes, or is there one product that's significantly outsized?

Well, I think from a dollar perspective, just leaving aside percentages for a sec, from a dollar perspective, our biggest exposure there is on the tape category. On a percentage basis though, we saw higher growth percentages in other product categories into e-commerce namely in our films area, and our protective packaging area.

So the percentages in those areas are certainly much higher than the tape category.

Got you. And then one last one, some of the more traditional industrial manufacturing aerospace type end-markets.

How much upside remains from a reopening trade there? Would you say or have you kind of normalized in your order book already?

Yes, I mean I'd say in some of the industries that are more under pressure, certainly there could be some more upside there. As things start to recover, we could see some favorability.

Once, people are able to travel again and things can pick back up, we would expect to see something there. I don't know how much of a needle mover that's going to be at this point.

But certainly, we've seen some recovery in a lot of our end-markets, I'd say probably transportation has been the laggard. But again, it's not a huge percentage of our revenue.

Got you. All right.

Thanks very much guys.

Thank you.

Thank you. Good morning, guys.

Good morning.

Good morning.

I just wanted to focus in a little bit on the gross margin. You gave some good color definitely the full-year expectation that it's down 80 basis points is helpful.

Is it safe to assume that that pressure would be like the pressure would be felt more acutely in Q1, just because of the extreme raw material inflation that we've seen with the inflation, with the gross margin headwinds sort of beginning to dissipate as the year progresses?

I would put it more on the first half, probably more impactful in the second quarter. We do from an expectation on raw materials, just as we progress through the year.

Certainly, we're at peak now. Specifically around the resin front, we expect to see some tempering on that price front, cost front, sometime in May, June timeline.

So we'll see that on our P&L within 60 days after that. So I think it's a first half right now with the way we look at it.

Okay, that's helpful. And have you seen any specific supply disruptions?

Or is it more just the inflation that you're dealing with? Like, do you have any inputs that have completely come offline?

And you've actually had disruptions in accessing that supply?

Well, certainly it's been a very busy time, the last six weeks dealing with supply chain and people offline, we've had most chemical companies or plastics companies declare Force majeure, most are back-up operational, as we sit here today. There's still some offline.

Certainly we've seen tightness in supply. From an inventory perspective, we really started building inventory from a raw material perspective in Q4, namely in the resin side, polypropylene, polyethylene, and carry that through to the beginning of this year prior to the storms in Houston.

I would still say that supply disruption is a possibility. It has been minimized, I believe dramatically over the last week, from our perspective, and we believe that we're going to be able to carry through, but things are going to get tight, for sure.

Okay, thanks for that color. And then maybe just finally, you mentioned leverage has come down nicely.

And you mentioned a little bit about acquisitions. Can you give a little bit of color around what kind of targets you'd potentially be looking at with respect to end-markets?

Is it safe to assume that it would largely be e-commerce focused? Or is there more opportunity beyond that?

Yes, so our focus really hasn't changed much as it relates to M&A. I mean we're certainly still looking at product lines that can differentiate ourselves, both from a technology perspective and a margin perspective in areas that primarily are bolt-on acquisitions at this point where we believe we can take someone's product and put it into our platform and supercharge the growth of that product into that vertical.

Not to say that there's no further opportunity to do consolidation within the industry, because I believe there are, but certainly our primary focus is to look at companies that have technology or differentiated products and, in some cases, disruptive products that we believe we can put into our platform and really supercharge the top line growth.

Okay, that's great. Thank you so much guys.

Thank you.

Thanks, operator. Good morning, everyone.

Good morning.

So my question is about your capacity now and how much capacity you're bringing on in the e-commerce side, your guidance is suggesting you can approach double-digit here growth in revenue in 2021, would you consider yourself then to be kind of at a capacity level, that growth from that point on will really come from the expansion and that we might see a slowdown in that growth rate? Or do you have plenty of capacity to grow again in 2022, if the demand would warrant such that when your capacity comes online call it later in 2022 or into '23 that you wouldn't have to kind of turn away business in the interim?

We think that I mean the projects that we're investing in now, I mean a lot of that will come online sort of mid-way or into 2022 with really the benefits starting to hit that back half or back end of 2022. So certainly, we see a runway to grow with that capacity well into 2023 and even into 2024.

So I think, those investments will certainly propel us to a level where we're not turning away business per se. But of course, if we continue to see double-digit expansions in e-commerce, I mean, there's going to be a point - where there's going to be a point where you want to invest again, right, and where you're going to have to expand again.

But certainly these are certainly going to de-block or unblock a lot of constraints we have now and really help us grow through the next couple of years.

And my second question is, how much do you have runway to grow with your existing customer in terms of market share of their tape demand, I would ask it differently Amazon, what percentage of their total tape is water activated tape with your product? And therefore could you grow share with that company?

And then how much more run or how much more opportunity would you have to develop new customers that are on the e-commerce side that would also look to your water activated tape product in a much larger way?

So good question. So not to be customer specific, but when we look at e-commerce, and individual customers within e-commerce, we're definitely selling a bundle of products and services into those accounts.

And when you think of market share as it relates to the specific tape products, a lot of that share gain will be outside of North America. So around the world, whether that's Europe, Asia, South America, so there's still opportunity there.

But there's a lot of opportunity within that segment to broaden the product offering. And we've done so this year, I made reference to on the percentage growth areas of other product lines much higher than our tape product lines.

So that would be within stretch protective packaging. And then when you start looking at potential for things such as Kirby Mailer, which is a curbside recyclable mailer, certainly opportunities within that perspective as well.

And then I'd also remind everyone that that within that segment, we also provide a pretty extensive service program, where we have service techs within the facilities servicing equipment, not just our equipment but equipment within those facilities. And that just puts us closer to the customer and much more in tune to the customer.

So the product offering within that segment is pretty broad. And I think there are still opportunities to take share in the tape category specifically.

In North America, I think that's going to be more of a growth strategy as e-commerce takes share of the retail spend.

That's a good point. Maybe Greg, could you even ballpark it for us on an industry without getting customer specific but is water activated tape as a percentage of total all e-commerce boxes that come at people's doors?

I mean is it 10%, is it 50% just a ballpark it for us to give some of the - if it is a superior product which obviously some of your customers believe it to be, it gives us a good line of sight as to how much growth is embedded if it grows in customer adoption?

Tough to answer that, Walter. I think when you look at tape, you really need to look at boxes and obviously tape arrived with boxes and it's the amount of packaging that is done within boxes, which would be above definitely 50% of all packages sent out by e-commerce would be in a box.

I don't know if that helps you get to your answer a little bit, but I'd say well over 50% would be in a box.

All right, thank you very much for the time. Appreciate it.

Thank you.

Thank you. And good morning, gentlemen.

Good morning, Scott.

Couple of questions on what you're hearing on the competitive front. Are you hearing a new capacity build in some of your e-commerce products?

I mean, obviously, packing materials like the inflatables and fillers are pretty well-developed markets. But can you talk about the situation water activated tapes?

Yes, we really haven't seen anything in that area, specifically around water activated tapes, certainly there has been some capacity expansions in protective packaging geared towards e-commerce. I won't get into the details there.

But certainly there's been expansion. We've done some, a lot of that having to do with mailers.

And I think you'll continue to see that on a go forward basis. And certainly we plan on participating in that growth in that category.

I understand that 3M exited that market. You're not hearing any chatter, that they're going to assuming that's correct.

You're not hearing any chatter that they're going to re-enter?

No, I don't think they were ever in that business producing product, I think they were sourcing product.

Okay, makes sense. Now, just on the pricing pressures, or the ability to pass through pricing increases over the long-term.

Is there any chatter from customers on pushback? Or is the fact that they're minting it so much that a penny here or there on packaging doesn't matter?

Well, look I mean there's always pushback from an inflationary perspective, I think this situation certainly in my career is quite unique. Certainly raw materials were rising prior to the weather issue in Texas.

So there was pressure on the supply chain within raw materials prior to that. And I think when you look at the amount of production that was offline at one point probably 80%, 90% of production was offline for a period of upwards of two weeks, put a lot of pressure on supply chain.

So then when you move forward to the customer side, it's one of those circumstances that everyone is in that exact position. And it becomes a bit of an issue about supply and less than issue around price.

Not to say that there's not pushback to get price increases, but certainly, we've communicated extensively with our customers around the fact that we believe that we're well positioned to ride through this from a supply perspective, even with pricing pressure. And when you go forward, we expect as I mentioned earlier, certainly on the resin side for things to subside somewhat, I think they'll still level out at above levels we were at in Q4.

But I think you're going to see some reduction in that on the second half certainly of this year.

Thanks. That makes sense.

Final question, are there any product categories that you would think of selling or look at selling to either recycle capital or return capital to shareholders?

Not at this time, nothing that we can disclose.

Perfect. Thanks very much, gentlemen.

Good morning, everyone.

Good morning.

I just wanted to follow-up on Walter's question about capacity utilization. When we think about your manufacturing footprint, can you add or reasonably add more lines based on the square footage that you have or, as we enter 2022 or 2023, you're going to probably have to do another Greenfield?

Certainly, when we look at our plant footprint, our plans have always been to expand existing facilities. So, could be a bit of a Brownfield where we're just blowing out a wall and pouring concrete.

Certainly in the plants that that we've built recently in 2017, '18, we always had the vision of doing that to make sure that we have the land to expand. Certainly in many plants, there are further opportunities to put new capacity within the four walls of the existing building.

And then on top of that, when you look at technology and upgrades to equipment, you have opportunities to deploy capital there on the same footprint braces, you can produce 30%, 40% more products if you swap out the old equipment for a piece of new equipment. So certainly from our perspective, we don't see any need in our next three-to-five-year kind of look for Greenfield's.

So we were comfortable that in many instances, we'll be able to expand capacity within the four walls. And in areas that we can't, we'll be able to do kind of a Brownfield, if you will and move a wall out and add the infrastructure to support that.

That's helpful. And final one here, just following-up again on the capital allocation.

And when I look at your free cash flow numbers, and the EBITDA guidance that you provided, it does look like you guys are going to get under that, but two turn leveraging range that you guys are comfortable with. So how should we think about capital allocation as you trend below two times?

Is that something where you just harvest the cash and wait for an acquisition opportunity? Or do you start returning capital to shareholders?

Yes, certainly from my perspective, the hope is that we continue to see opportunities to deploy capital for organic growth. And we continue to see kind of the trends that we're seeing now.

On a go forward basis, I think that's the highest return of capital for our shareholders. And certainly, with the time if we could do get below that two times leverage, certainly that's the discussion that we're going to have at the board about capital allocation if we don't see that organic growth from a growth perspective, or capital perspective and or an acquisition.

That's great. That's it for me.

Thank you.

Thank you.

Good morning, everyone. Congrats on the quarter.

Thank you.

So building on your indication that, the odds of supply disruption have come down, but it does remain an outside possibility. If there is a delay and production can't be brought back online in Texas in a timely fashion.

Do you have import options through your global footprint?

Yes, we do. But we have to remember that the supply chain disruption is global right now, right from a shipping ocean freight perspective, as well.

And certainly on the raw material front things are really tight. If there is a disruption, I don't see it as being a long period of time or material as we sit here today.

We certainly in certain adhesives have been tight. But as we sit here this morning, those production facilities are getting back up and running, they might not be running at 100%.

But they're back up and running. And we've seen over the last, in that specific area around adhesives we've seen supply be freed-up somewhat over the past kind of five days.

So I think there is I mean, listen, I think your point around opportunities from Asia and North America is relevant though, because when we look at the assets that we do have in Asia, we do have the ability to produce products here or there, not the full capacity that we would need, but certainly for any temporary disruptions, there could be some support there from a North American facility or an Asian facility.

That really helpful color, thanks. And then can you tell us more about the digital transformation piece of the CapEx budget?

Yes, sure. So what we're doing is and then this is more on to a small extent, a lot, a year, year and a half is looking at digital transformation within our plant operations.

So we've been investing in technology with regards to Artificial Intelligence, some Robotics as well. And really just modernizing the way we manage our business.

And we ran actually a really good pilot of certain Artificial Intelligence technology in our Utah plant. And it's been just a massive success and solving problems that we're just not able to be solved with traditional methods, with disparate systems and big data, right.

So you can imagine you're looking a lot of things and people were just managing this the way they always have. And now with new technology, it's possible to identify trends and issues that were previously just hidden.

So we've already seen some nice cost savings from that pilot. And so we're moving forward with a more mass scale deployment of some of these technologies throughout our plants and expect to see cost savings coming through over the next few years.

So that's the crux of it.

That's interesting. Thanks.

And then on the topic of e-commerce penetration, I think we're on the same page in terms of the pull forward in long-term growth. But do you foresee any directional weakness in e-commerce orders as brick and mortar reopens?

Well, I think when you go forward, certainly the growth rates will slow down on a percentage basis. And we factored that into our forecast.

But I think you're still going to see growth, but it won't be. It will not be at the same level, as we've experienced, certainly this year.

So there will be some movement there from a retail spend perspective. But again, when you think of the adoption rate, I mean you see that the information as well, I think those consumers are going to continue to use that platform.

And I think that platform is going to continue to see growth. And I expect us to participate in that growth on a go forward basis.

Absolutely. And just one more for me.

Are your M&A opportunities abundant, but they just don't make sense on the valuation front? And if that's the case, what's the size of the gap between what you're willing to pay and what transactions are occurring at?

Yes, I think that's hard to answer, because it's a very transaction specific, but there has been and there continues to be challenges around valuation for sure with cheap money out there, competition from private equity, and now you've got these specs out there as well, looking to deploy capital, pretty much anything. So there's no question that valuation is an issue.

And I think that that plays out more when we look at the larger deals, something medium to large is where you'll see typically a competitive process, and people have those kinds of expectations. Like we said, we still believe that we can identify bolt-on acquisitions on the smaller side, like you've seen us doing at reasonable multiples, call it in the mid to high, call it single digits, would be probably the sweet spot.

And then like Greg touched on a couple times, there's also when we look at disruptive technology, disruptive products, things of that nature, companies that might be in a bit of an earlier stage of their growth, and we want to take their products and supercharge that growth. In those cases, obviously, the multiple is less relevant, because you're talking about a company that probably isn't generating a ton of EBITDA but has a ton of room for growth.

So, in those cases again, we have to evaluate case by case but that gives you kind of the landscape of what we're looking at.

Appreciate the answers. Thanks.

I'll turn it over.

All right, thank you.

Thank you for participating in today's call. We look forward to speaking with you again following the release of our first quarter 2021 results in May.

Thank you.