Q4 2019 Earnings Call

Welcome to.

W.M. <unk> fourth quarter and year end 2019 earnings conference call hosting the call today from S. W. EM is dr., Jim Cramer Chief Executive Officer. He is joined by Andrew Wamser, Chief Financial Officer.

Mark Chicken now director of Investor Relations today's call is being recorded and will be available for replay later this afternoon.

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It's now my pleasure to turn the floor over to Mr. checking now Sir you may begin.

Thank you Sandy good morning, more checking out director of Investor Relations SWS. Thank you for joining us to discuss our fourth quarter and yearend 2019 earnings release before we begin I'd like to remind you that the Commons included in todays conference call include forward looking statements actual results may differ materially from the results suggested by these comments for a number of reasons.

Sure I discuss in more detail not securities and Exchange Commission filings, including our quarterly reports on form 10-Q, and our annual report on form 10-K.

Financial measures discussed during this call our non-GAAP financial measures reconciliations of these measures are the closest GAAP measures are included in the appendix of this presentation and the earnings release, unless stated otherwise financial and operational metric comparisons merger. The prior year period and relates to continuing operations. This presentation in the earnings release are available on me.

Mr Relations section of our website www dot SW M. I NPL Dot com I'll now turn the call a region.

Thank you Mark and good morning, everyone.

Yesterday.

We reported fourth quarter and full year 2019 results.

Full year adjusted earnings per share $3.55.

The high end to the guided range, we provided last February.

Sure. It was a positive year with adjusted EPS up 2% and up 5%. If you exclude the nine cents negative currency impacts.

Free cash flow was also strong increasing 16% to 126 million.

This is our second straight year of adjusted EPS and cash flow growth and it was all organic demonstrating our success to transforming SW your way into a more diversified and growing enterprise.

Both segments achieved increase profitability.

Combined DP, an A.M.S. operating profits grew 8%.

We will cover our guidance in more detail shortly but our outlook reflects core business earnings growth of up to 6%.

Before including any expected accretion from our recently announced acquisition.

Hopefully you saw the announcement earlier this week of our pending purchase of true technical film converting businesses <unk> industrial.

We're excited to add these new converting capabilities to M.S. as we will significantly expand the value added solutions that we can offer customers, while bolstering our presence in several existing markets and gaining access to a host of new customers and film technologies.

For the quarter things were largely as expected with adjusted EPS of 80 cents.

Margins were quite healthy across the business, though we did see some disruption of M.S. cells from typical year end customer inventory rebalancing.

Current our four years sales growth.

We also were impacted by our higher quarterly tax rate, which was just a timing issue versus last year's low fourth quarter rate.

Overall, we delivered it our targeted earnings results and look forward to another strong year ahead with continued stability E P and growth in MMS.

At this point.

Before we get further into results I'd like to briefly comment on the Corona virus developments in China.

We are in regular contact with our teams in region.

Continues to be impressed by their resilience and dedication to operating during what are challenging times.

To that and we're pleased to report that our people and facilities have been largely unaffected today and we have resumed operations.

We are closely monitoring the situation and remain in close contact with our people and our customers.

Now shifting to our operating segments.

I am S. achieved 2% organic sales growth for the year, where three per se ex currency.

This was on top of the 6% organic growth in 2018.

Beyond continued growth in our peak protection products for transportation. We also saw excellent performance from our optical films, which are used to reinforce glass in a variety of applications from bulletproof glass for cars to high speed rail windows to switchable privacy glass for aircraft.

Filtration sales also increased for the year water filtration products again, we're driving growth and.

And we expect momentum to continue into Twentytwenty.

The specialty applications in transportation filtration that our product support continued to demonstrate solid fundamental the man's and we haven't made additional investments in 2019 to expand global capacity to keep up with projected growth.

Lastly, we highlight that medical was another could performer in 2019, driven by the finger bandage category.

In addition to capitalizing on solid overall fundamentals, we successfully introduced a new innovative waterproof back in tape that is both reasonable and comfortable on the skin.

During the fourth quarter as mentioned, we did see some customer I, just year and inventories in our transportation and filtration businesses, resulting in a fourth quarter sales decrease of 4%.

However, recall that in last year's fourth quarter amorous sales were up 9%, which set up a challenging fundamental comparison.

On a positive note.

I am not segment adjusted operating margin source significant improvement in segment operating profits were up 20% in 2019.

In addition to the higher sales, we saw the benefits of efficiency projects as well as lower resin costs following a challenging 2018.

Of note fourth quarter margins and Proppants, we're still up year on year, despite the sales softness.

In addition to strong financial results, we continue to progress our key strategic priorities.

We have increased our global capacity in transportation film with several new international production lines and are now serving this fast growing market for multiple sites offering our customers unmatched global service capabilities.

We also continue to expand our water filtration capacity and capabilities.

In 2019, we began ramping up sales of a water filtration paper product to our existing customers in this industry and expect acceleration of these sales into 2020.

Lastly, as always we are executing ways to improve our cost structure without disrupting our growth or customer service.

These efforts were quite evident in the margin expansion in 2019, and we continue to look at improvement projects across the business.

Moving to engineered papers full sales decreased 5%, but were down only 2% ex currency.

I would trend all year has been strong price mix Neely offsetting lower volumes.

While price benefits were component of some contracts reset early in the year recouping hardwood pulp cost from 2018.

Our mix benefit was the more significant contributor.

Strong focus on our highest value products remains a priority and effective component of our multi prong strategy to offset industry attrition.

As a percentage of our total volume.

Well IP and other cigarette papers as well as wrapper and binder products increase versus last year.

While non tobacco papers contracted as planned.

Industry attrition in the U.S. was elevated versus long term historical trends due mostly to increase prevalence of vaping products, but that impacts seems to be moderating.

Well difficult to predict we generally believe attrition peaked in mid 2019 and could moderate in 2020.

From an opioid perspective, the key takeaway is that we delivered stable profits for the third consecutive year.

Despite lower sales operating profits were up slightly as we continued to take steps to reduce cost and improve efficiencies. The second component of our strategy to offset industry headwinds.

From a margin standpoint, we did see expansion is price mix and lower costs in both benefited us after a challenging year for pulp in 2018.

We note that Walpole did trend lower throughout the year, we did not begin seeing PNM benefits until the second half.

Specifically on the fourth quarter trends largely mirrored the full year.

Like M.S. there were some isolated cases of some inventory drawdowns as certain customers plan changes in their supply chains.

We had previously commented earlier this year, that's some of the relative strength of L. IP sales in the U.S. will likely due to some inventory builds and these will unwind in the third and fourth quarters.

Regarding our 2019 strategic priorities. We believe we continued to gain incremental share in key products and we continue to work with our wrapper and binder customers to keep that category momentum going.

Our heat not burn sales picked up in the fourth quarter, and we look forward to higher volumes from customers rolling out new products and 2020.

Lastly, we have begun developing and test marketing some other unique products.

Working with several independent players, we have prototype proprietary ham and cocoa based materials.

These products, which we have presented a trade shows and our with several customers for testing ranged from Philip prop Philip products through wrappers and binders for small cigars.

Well these products are in the early stages and we want to be measured in how we talk about them. We are excited about the innovations we have achieved and our customers enthusiasm gives us optimism, but these new fibers will meet a growing demand for niche products.

I'll now turn the call over to Andy.

Thank you, Jeff I'll now review our financial results.

For the full year 2019.

Mess sales increased 2%.

Approximately 3% ex currency to $477 million.

Operating profits for the segment grew 20% or 14 million to nearly $86 million.

This growth was driven by 270 basis points of margin expansion to 18%.

Organic sales growth, particularly in some of our higher value products combined with cost reduction initiatives and lower resin costs drove improved profitability.

Polypropylene prices trended lower through most of the year.

No they seem to have stabilized at current levels.

At present, we do not expect much volatility from resin in the near term.

Resin costs have swung the results in both directions over the past two years, but for context, our two year operating profit CAGR is just over 6% on 4% sales growth those metrics both reflect organic growth.

For the fourth quarter Amex sales declined 4% to $104 million versus the exceptional 9% growth during last year's fourth quarter.

As Jeff mentioned in addition to this already challenging comparison several customers pared back year end inventories.

However, we still increased operating profits by nearly a half million dollars to 15.8 million.

Which equated to about 90 basis points of margin improvement.

For engineered papers full year 2019 sales finished down 5% to 546 million, but were impacted by weak euro.

Absent currency impacts sales were down 2%, which reflects a 10% volume decline and includes the planned exits of lower margin printing impact and packaging papers.

The volume decrease was mostly offset by 8% positive price and mix effect.

Segment margins expanded by 130 basis points to 22.6%.

From the positive price mix shifts and lower costs, which drove a slight increase in operating profit dollars.

We improved our efficiencies and cost structure and similar to amas benefited from lower input costs.

Well energy costs remained higher for the year, we did see the benefits of lower wood pulp costs, which flow to our piano during the second half of 2019.

We highlight that this is the third consecutive year of operating profit stability for each segment.

As we continued to deliver annual operating profit in the low hundred and $20 million range.

We also think it is worth noting that 2019 segment profits reflect a 4 million hit from currency otherwise segment Opie would've been up 4% for the year.

For ERP fourth quarter sales declined 4% to 135 million were down 2% absent currency impacts.

Price mix provided a positive 11% benefit.

It's nearly offset the 12% volume decline.

Segment profit increased 15% with over 400 basis points of margin expansion from favorable mix and lower costs.

Going forward, we would expect less volatility on one pulp prices than what we've seen over the past two years.

As well as a tighter band on volume declines and price mix offsets.

While we understand there's a natural focus on volumes.

We continue to manage the business for profitability.

And believe the profit stability that we've demonstrated in recent years validates our strategy as a positive result, and the tobacco industry.

We intend to continue this strategy and we'll use the lower volume base as an opportunity to our new fixed costs and pair back capacity.

We've taken some actions this past year.

Continue those efforts in 2020.

[noise] unallocated expenses increased 13 million for the year to 49.5 million.

Three components of that increase were higher deferred compensation expenses versus 2018.

The plan to IP investments that we signaled at the outset of the year.

As well as some corporate development costs related to his strategic projects during the year.

Regarding deferred comp. We're currently evaluating program changes that might minimize potential volatility going forward.

For a historical perspective, our unallocated costs were in the low $40 million range for several years.

Excluding deferred comp expenses, our 2019 unallocated costs were about 47 million.

This increase reflects typical inflation.

Some organizational investments to support growth.

And several million dollars Viking investments, we made this past year.

Bottom line, we expect a reduction in unallocated expenses in 2020.

For the quarter unallocated costs were up largely to the reasons just discussed.

On a consolidated basis sales were 1.02 billion down 2% for the year or flat ex currency.

Adjusted operating profits were about 160 million.

Up approximately 1%, but ex currency would've been up 4%.

Furthermore, if we also exclude the impact of the year over year change and noncash deferred compensation expense of 5 million.

Oh, p. would've been up 7%.

For the for the fourth quarter consolidated sales were down 4% or 3% ex currency and adjusted operating profit was down 2%, the 31.5 million, but essentially flat ex currency.

Despite this currency drag the combined opie growth of Amat, and ERP was 4.6 million, representing 11% growth in the quarter.

Shifting to consolidated earnings full year GAAP earnings per share was $2.76 versus $3 in six cents in 2018.

There were several large items between the two periods that skew this comparison, which are detailed in our press release.

For adjusted EPS, We finished 2019 at $3.55 in the high end of our guided range of 340, 360, which we issued at the beginning of 2019.

We're pleased to finish in the high end of that range, despite a weaker than expected euro and the unpredictable deferred compensation expenses.

Working in our favor where raw material costs of our build better than what we add assumed.

The rest of the positive performance was it relates to strong operational execution, and a slightly better tax rate and originally expected.

Overall, adjusted EPS increased 2%, excluding the currency impact on EPS of nine cents would've increased 5%.

For the fourth quarter adjusted EPS was 80 cents down from 87 cents last year as EAP NMS profit growth were offset by higher quarterly tax rate and increased unallocated expenses.

Our adjusted EPS quarterly tax rate was 15.8% up significantly from 4.9% in last year's fourth quarter.

Which was very low as we trued up to our full year rate.

This increase represented approximately a nine cents hits to adjusted EPS versus the fourth quarter 2018.

Our full year adjusted EPS tax rate finished 2019 at 19.3%.

Up slightly from 18.1% in 2018, representing approximately five cent impact to adjusted EPS.

Recall that our adjusted EPS tax rate excludes non-GAAP adjustments to pre tax income and their associated tax impacts.

And is the normalized rate implied by our adjusted EPS.

2019 free cash flow was very strong at 126 million up 16%.

Capex was approximately 34 million for the year up 4 million, but slightly below the 35 million to 40 million guided range.

Some of this under spending will flow into our 2020 cat Capex plans.

From a leverage perspective for the terms of our credit facility.

We finished 2019 at 2.1 times net debt to adjusted EBITDA down from 2.5 times at year end 2018.

We reduced net debt by nearly 90 million during the year and have our full 500 million credit revolver Undrawn to fund future investments, including our pending acquisition.

Switching now to our 2020 guidance.

Spec adjusted EPS to be the and the range of $3 in 50 cents to $3.75.

Implying growth of up to 6% compared to 2019.

This range equates to a gap range of $2.74 due to their hours and 99 cents.

I wanted to be clear that this guidance does not include expected accretion from that pending tetra and try and acquisition as it has not yet closed thus our guidance is only related to the base business.

Our guidance incorporates a continuation of the segment trends we saw in 2019.

Lets stability and ETP profits in growth and HMS profits.

On the unallocated expenses, we would expect a reduction of several million dollars to approximately 45 million.

Regarding Capex, we project to be in the 40 million to 45 million range and despite that increase we still expect another year of free cash flow exceeding 100 million.

For modeling purposes, we expect to our effective average interest rate to be approximately 5% on our total debt.

Additionally, we forecast the jvs to contribute about 2 million of net income.

Which we again project to be backend loaded and an adjusted EPS tax rate one to two points higher than the 2019 rate of 19.3%.

Regarding seasonality, while much can change throughout the year at this point, we would expect our second and third quarters to remain our highest EPS quarters, followed by the fourth quarter and then the first.

This is consistent with our 2019 pattern.

Now back to Jack to review that Tegra and try acquisition.

Thanks, Andy.

In a good in addition to good performance in the base business in 2019, and a positive outlook for 2020.

We were pleased to announce our next acquisition earlier this week.

Okay, and try and our carve outs of a private equity owned company and we are excited to bring their complimentary set of technologies and capabilities to SWS.

We expect to close the transaction toward the end of the first quarter with the purchase price of 155 million subject to typical closing adjustments.

Combined these two businesses have approximately $100 million of annual sales and EBITDA margins of about 16%.

Two preface my comments in copy out the Q in a recession I would reiterate that we do not yet own these businesses and thus may be somewhat limited with certain responses other than clarifications of what we have already disclosed.

In short Tegra and try and are compelling adjacent seized for HMS and a natural expansion of our capabilities.

These companies have a broad set of technical film converting capabilities, which pair well with our extrusion technologies as we can now offer customers a more comprehensive suite of solutions.

In addition to bringing new capabilities the acquisition will increase our presence in many of our existing end markets give us access to new markets and customers and expand our expertise to a wider range of films and other substrates.

Overtime, we believe there are actionable sales synergies, we can also deliberate together.

To summarize the financial impact.

We will be using our credit revolver to fund the full purchase which would bring our pro forma net leverage to about 2.7 times, representing only a minor increase from where we began 2019.

After the incremental interest expense, we expect the deal to add approximately 10 cents to adjusted EPS in 2020.

This assumes three quarters of ownership as well as roughly $2 million of transaction and integration expenses in the first year.

Normalizing for these two items, we believe the acquisition adds more like 20 cents of annualized EPS with potential to exceed that over time with growth in sales synergies.

For our usual practice the transaction and integration expenses, which are cash will be included in our adjusted EPS.

Whereas the noncash purchase accounting expenses associated with acquisitions will be excluded.

At this point hopefully you have been able to review the slides that accompany our acquisition press release and have a clear understanding of how these two businesses complement HMS.

Together, they bring a host of converting capabilities, ranging from slitting sheeting, and laminating to die cutting and packaging.

In short the significantly improve our ability to deliver products to our customers in various configurations and formats across multiple segments.

Also the materials Trecora entry on handle our diverse set of films and other substrates broadening our technical expertise to new materials and new customers.

Secular and try it also diversified with respect to their end markets.

The largest presence is in medical with a focus on diagnostic strip tests that for example are used in glucose monitoring for diabetes.

They also have a solid business in digital printing and graphics and area, where we currently play but have a limited product set and commercial reach.

This transaction offers access to new customers and potential to cross sell across our combined product set and customer base.

From a high level strategic perspective.

Core principle is that they are focused on high value applications, where they deliver critical components to their customers that support key performance features in there and products.

This theme aligns perfectly with SWS.

Our culture and approach to delivering value to customers through highly collaborative partnerships are well aligned and we expect our new team members will integrate smoothly into SWS.

We look forward to welcoming the team aboard in the coming weeks.

So in closing.

I just want to reiterate some key takeaways regarding our business fundamentals.

2019 overall results were positive as we grew EPS and our two operating segments delivered strong operating profit growth of 8%.

We are building our track record of growth for HMS and stability in the MP NDP.

We believe this balance mix of growth and high cash flow create a powerful financial profile.

This strong cash generation supports a robust dividend to investors enables internal investments and allows us to de lever the balance sheet and maintain comfortable leverage ratios as we grow.

In recent years, we have executed well on our organic growth plans acquisition integration and synergy delivery met or exceeded our financial commitments to the investment community and most important taking the steps necessary to support continued strong performance in 2020.

And beyond.

We appreciate your continued interest and support.

That concludes our remarks and Cindy please open the lines for questions.

As a reminder to ask a question. Please press star one on your telephone.

Your first question comes from Steven check our from Davidson. Please.

Please go ahead. Thank you.

Thanks, Good morning, everyone.

Hey, Steve so.

The first question is on the Tegra and try at deal, which looks down from both the strategic and financial perspective. So how is how international's the current business and how easy is it two expanded across your footprint.

Yes, so good question Stephen.

So this is another example of something that we are particularly excited about as the business is currently a focus mostly in the North American region, and as you know and many of our acquisitions previously one of the benefits we've been able to do with to leverage our global presence to be able to internationalized those businesses and so we.

I think there'll be opportunities to do that as well that is not the core reason for us investing in the properties, but it's a nice upside for us.

Okay and the obligatory question on Krona virus, it's good to know that your facilities appear safe, but you know how might impact either your end markets or your supply chain.

Yeah. So we've been monitoring it quite quite closely we're really blessed to have a very strong local leadership team and they've actually been speaking to all our customers throughout the region on a on a direct basis to really get a sense of what's happening on the grounds.

Right now our plants are up and running we're not yet at full capacity, but we're getting there quickly. There's some limitations on how quickly some of our employees come can come back from the Chinese new year holidays, but we're meeting all orders at this time.

Filtration business, we have high confidence of where we are I mean, the product line in our customer demand for the quarter.

Surface protection is holding up but we may see some weakness or some impact in this business. If this continues.

So it's a little bit hard to have that crystal ball, but for the first quarter, we seem to be in a good position, but things change daily on the ground and so we're monitoring and almost daily basis.

And maybe more.

Sorry go ahead, maybe and maybe just to add to that what I would say is no our expectation right now that any sort of sales softness that we would have a potential sales softness that we would have in the first quarter.

Maybe on the film side could be made after the balance of the year, but.

It's in line, what sort of our guidance that we're talking about and our 2019 pattern where.

Our second third quarters will be the strongest follow the fourth and then and then the first.

Gotcha, Okay, and then one of the other observations about krona virus is is that it's particularly lethal to all men.

Primarily because they're just they're smokers so.

You guys are still kind of in the business any observations or implications from that perspective.

No I think I think we all have to be very capital I don't think anybody knows.

At all what the implications are where walk who who lives in who die is in this kind of a situation and I've lived through this before because I was living in Asia. During the Sars epidemic. So I'd be very cautious about it typically people who are impacted by corona virus or things like the flu et cetera tell we tend to be more elderly and have others.

Medical problems, but I don't think anybody is aware of any connection at this particular point I think everything speculation at this point.

And just to add one reminder, is think about bend the impact for us financially what I would say is our ERP business as you recall, it's very.

You asked and European centric, so you know.

The sales into China are very fairly limited and we just have those two jvs, which contributed with that we are guidance is about 2 million on net income in the back end of year.

Got you okay.

Switching gears wee bit.

When would the purchase accounting expenses associated with the establishment of amas diminish or go away or in other words, when his gap and operating earnings is going to kind of converge.

Well as we continue to make acquisitions, we're going to continue to see this.

As we continue to do more M&A as we expect the I think we'll always have this convergence. So I think some people look at on a GAAP basis. Some people look at on a non-GAAP. What we're focused more on just on the adjusted EPS numbers, but we can follow up with a bridge for you in terms of.

Where we are to date and then when we finalized the numbers for tech or try and let me close at them, we can walk everyone through it.

Okay last question I promise.

So that's all my.

The best My knowledge, you guys still don't have a stock repurchase authorization.

And I'm not saying it should be at the top capital allocation hierarchy.

I think it's a good tool to having your toolbox when you have surplus capital do you want to send a signal.

About your view of intrinsic value and with the stock at 33 box and we.

We.

The deal looks great.

But.

You know when when the stock gets dislocated like I think it was recently.

Yeah, and you can eliminate a dividend that's the same yield is your as your debt do you guys reconsider or is it something the board's talking about.

Well.

Let me give you a couple of perspectives on this.

I would say that were somewhat surprised in terms of where the share price has performed above over the past actually not somewhat.

Surprise in terms of how the share price has performed the past couple of months on really no news.

You know, it's Jeff has said in his closing remarks, we've consistently.

Met or exceeded the promise as we've made whether on synergy targets or on forward guidance for the past couple of years.

I think 2018, we were very focused on making sure. We delivered those are the synergies related to conduit and you saw that you saw some of those this year. So no as we as a management team and I think as a board we always have to say, we got to earn the right to do the next deal.

Hi Tech right try and what we thought we did earn the right. We think we found frankly are a great deal.

That being said you know for 2019, we did look at a number of transactions and they kind of range than in size.

And this deal I think we end the year at 2.7 times on on our sorry, as we close this will be about 2.7 times on a on a net debt basis, we think the balance sheet isn't a healthy position. So after you know this deal closes like we always do I think we'll take a fresh look at our capital allocation process.

I think as you pointed out it's clear to say that M&A will still continue to be our primary focus, but you know share repurchase and also an.

Additional investments into the businesses as part of that so I think it's fair to say well take a fresh look at everything.

Alright, Thanks, Andy Thanks, Jeff.

Sure.

Your next question comes from Chris Mcginnis from Sidoti Company.

Good morning, Thanks for taking my questions.

Sure Chris Chris.

I just want to start just on the Q4 you talk about the inventory rebalancing are you starting to I know I know Q4 last year was very strong are you just maybe starting to see at least in Q1, I know trends pick up in Q2, but you know.

Maybe normalization in the trends for the segments that were maybe a little bit weaker in the quarter.

Yes, just on these inventory rebalancing question. So I just want to emphasize this nothing extraordinary so it's nothing out of the ordinary.

If you think about our approach to our business with our key strategic customers. We approach it as a value added supplier and people think about that usually if the types of materials, but it also involves the actions you can do around the supply chain and so you'll hear us talk about the competitive advantage our global supply chain has so we work.

Very closely with our customers to be able through naval those jointly to manage supply change et cetera. So that is just something that you know sometimes in the fourth quarters. It goes one way or goes the other we've just seen it in some of our markets, but it happens in both the ERP and the A.M. best side, and it's just something that I think actually.

As a value creation competitive advantage for us.

Thanks.

And then make on the and Chris maybe just one more thing to add on on that side is I would today.

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Got to look at this business on a two year sort of basis.

The sales performance has been about 4%.

You know the ex currency and we would expect that to continue going forward. So we don't we don't see any the health of the businesses the same as it ever was.

Okay understood thanks for that that color.

And just on the acquisitions this leads to the active with.

You just talked about was there any is there any plus some overlap now or is that one of.

The potential sale synergies office and.

Yeah, you know, we're really excited about this acquisition because it actually meets multiple of our investment criteria. So I think as we discussed in one of the calls.

There are customer overlaps and that's always something that we look for what they're also a large number of new customers and so thats kind of the Optionality. We bring it really is a great complement through many of our technologies, but it overlaps several of the end markets, we always participate in like medical.

Automotive in graphics. So those are really key areas for us and it brings those complimentary skills, which is something we will always looking to add to our sandbox. So on a number of strategic.

Overlaps we're excited about the the joining of these two companies to us.

And.

I know you're not close yes, but.

When with one wants to disclose hopefully I'm just your appetite for more M&A and where would you take the the balance sheet talked about strong. It is obviously even post.

The deal closes.

Yeah.

Yes, no I get your question. So I think we've continued to emphasize we are very disciplined due in the types of acquisitions. We go after hopefully the try ends in tech where acquisition illustrates. Another example of how we continue to emphasize to strategic fits in Optionalities.

Brings we think it's a well valued acquisition, we don't believe we paid an extraordinary price for it and we will continue to look at those types of acquisitions that complement our strategic intent, but again I'm as you've heard throughout the call one of the things that we've been trying to invest in.

Besides to our investment community.

Is that we are focused on organic growth.

And so we're only going to be looking at properties that we believe will help boost that arming the long run and we've been working hard to demonstrate that when we say we are going to be able to deliver to the organic growth we show it.

And just say just additional contacts maybe can't help myself and ties us getting into the leverage numbers as Jeff smiled at me, but.

Pro forma for this deal we will be at 2.7 times.

Net leverage and.

For the terms of our credit facility, we could theoretically go up to four and a half time, we're not saying were going to foreign half times, but we do have that capacity and frankly in an exhibition holiday would give up to five.

That being that being said.

This will close to seven we'd expect to de lever like we did this year.

In terms of continued to reduce the balance sheet and so.

I would expect leverage to I'd ticked down if about the yard and I think our balance sheet hasn't so allows us flexibility.

And then just two quick question, one sounds like you're still benefit on lower pulp prices in the first half.

That's correct.

Yes, so ns and the second half of last year, we did benefit from some of the pulp prices, but if you recall, we do have price adjusters.

That go into effect for this year so.

What we would expect.

A moderate sort of a tailwind, but effectively so thinking that the LP businesses.

Going to be as it has performed last three years.

You know stable.

And looking forward to another fourth year can have on stability.

Great and then just last quickly on the unallocated you talked about that may be coming down.

We went 20 is that more towards that 40 million that you referenced on that for your average.

No. So what I was mentioning about kind of look back historically, if you go back to 2016 17, no. We're not low 40 40 million 40, 40 $142 million range.

Weve gone, we've made significant investments, particularly within IP over the over the past couple of years, we've gone through an ERP implementation upgrading a lot of our systems to support a lot of our growth initiatives. So when you factor in Minnesota IP investments and.

Somebody other strategic projects we've worked on.

The unallocated will be about $45 million, what were but had mentioned and that would be down several million from where we ended the year.

Thanks, very much portfolio.

Good luck in Q1.

Great. Thanks.

There are no further questions at this time.

I would now like to turn the conference back to Dr. Jeffs Kramer.

Thanks, well. Thank you Cindy yes. Thank you Sandy I appreciate that so.

Okay.

I again, or just want to close I think the SW EMS story continues to evolve I continue to be comfortable in our executive team and delivering what we've said I think our performances of positive and I think with the acquisition of tech, where it and try and give us additional flexibility continue our growth.

Journey.

So I look forward to your continued support and we'll talk again in another quarter hopefully with more positive results.

Thank you.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.

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