Q1 2021 Intertape Polymer Group Inc Earnings Call
[music].
Ladies and gentlemen, and thank you for standing by and welcome to entertain polymer group's Q1 2021 conference call. During the call all participants will be in a listen only mode. Afterwards, we will conduct a question and answer session in order to maximize the efficiency of this event. The question period will be open to financial professionals.
The only at that time, those with questions should press star followed by the number one on the their telephone keypad. If at any time during the conference you need to reach and operator. Please press star followed by zero.
Joining me from the company I of Energy polymer Group, Chief Executive Officer, Greg Hill, and Chief Financial Officer, Jeff Crystal.
I would like to caution all participants the dinner response to your questions and then of our prepared remarks today, we will be making forward looking statements, which reflect management's beliefs and assumptions regarding future events based on information available today.
You are cautioned to not place undue reliance on these forward looking statements that's day.
There are not a guarantee of future performance and are subject to a number of risks and uncertainties that could cause actual results to differ materially from those expected.
Please see slide two titled Safe Harbor statement for a further discussion.
During this call we may also.
I'll be referring to certain non-GAAP financial measures as defined under the S. E. T rules, a reconciliation of the non-GAAP financial measures to the most directly comparable GAAP measures is available at our website at www Dot I tape dot com.
Please note that all dollar amounts are in U S dollars unless otherwise noted I would like to remind everyone that this conference is being recorded today May 12, 2021 at 10, a M. Eastern time and will now turn the call over to Greg you. All would you. Please go ahead.
Thank you and good morning, everyone welcome to Ipg's 2021 first quarter 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.
We've continued to experience strong demand through the course of the first quarter and into the second quarter. This is the continuation of the demand trend trend we've seen since last June and through the back half of 2020.
And this demand together with rising price environment, which I'll address and a woman set the stage for another strong quarter for us.
Revenue was up 24% to $346 million adjust.
Adjusted EBITDA was up 59% to $60 million and despite.
The inflationary input price environment, we maintained and adjusted EBITDA margin of 17, 4%, which is nearly a 400 basis point improvement from the same period last year.
Our business is structurally different than it was five years ago we'd.
We deployed Capex, and 2017, and 2018, and where our highest growth categories, which is now driving accretive growth.
Our growth and e-commerce fulfillment market has diversified our business and provided us access to a high growth market, where we are growing with customers around the globe.
We made strategic acquisitions that strengthened our product bundle, providing consolidation opportunities and offering the ability to vertically integrate our supply chain to capture value from multiple points.
We improved our capital structure and prioritize debt repayment to the point, where our total leverage ratio is now two three times.
These initiatives have have improved both our margin and free cash flow profile significantly to the point, where our outlook for 2020 one for free cash flow is $80 million to $100 million at the same time, as we're investing $100 million and Capex, which is very different and 2017 and 2018.
And we're free cash flow was $6 8 million and $15 million, respectively with less capex.
We are executing across the business.
Our employees of manage through the pandemic with a focus on health and safety respecting one another and looking to return home at the end of the day the same way they arrived healthy and safe.
The job they've done the since last March has been just tremendous producing of essential goods and support the needs of our customers and end users through the course of the pandemic. The plants continue to operate effectively and efficiently and the commitment of our supply chain team our sales team and our customers customer support team has been outstanding.
And through this challenging period.
We saw growth across every major product category in Q1 compared to the same period last year. This growth continues to be led by products and serve the e-commerce market, including water activated tape dispensing machines protective packaging and films at the same time, we're seeing strong growth and our woven category. The primarily serves the.
A link construction where activity remains high and.
Based on third party industry estimates and market intelligence, we are confident that the share gains made by E. Commerce retailers is sustainable into the long term.
Industry estimates report the pandemic pulled forward two to five years of demand into the e-commerce market.
Three quarters of the global retail professional respondents two of Euro monitor survey expect that the pandemic has led to a permanent channel shift to e-commerce.
So while e-commerce is expected to return to a more normalized growth rate than the experienced pre pandemic.
And at those levels it is still growing significantly faster than the overall economy the.
The new adopters that started buying goods online during the pandemic have broaden the addressable market for the major e-commerce retailers, the omni channel approach by retailers and the emphasis on E. Commerce are aspects of society that the pandemic has actually changed for the better and our view.
The composition of our product bundle positions us both to benefit from the changes and consumer behavior as e-commerce gains more and more market share from bricks and mortar as well as to benefit from the broader economic recovery and more industrial markets like building construction and general manufacturing and transportation.
The macro demand, we're seeing and the market remains strong demand to date and Q2 has been a continuation of Q4 and Q1, our order book, which offers approximately four weeks of visibility remains robust.
At the same time, the upward pressure on raw material pricing that we've experienced since late 2020 has been unprecedented.
And of rising price environment, we manage the business to protect the dollar spread between selling prices and the cost of raw materials and freight and.
And we were doing our job through 2020 one to date.
From a pure math standpoint, as prices increase and we retain the same dollar spread margins will draw and slightly.
And this environment, we believe it's worthwhile to review a few of the core tenants of how we manage our price strategy and how changes flow through our income statement.
We utilize and that will pricing strategy for the vast majority of our customer relationships, which is fairly.
Is a fairly common structure and the markets we participate in.
One of the reasons. This approach is common is the high degree of variable cost and our cost base on a percentage of cost of goods sold on a dollar basis of approximately 60% of raw materials and approximately 6% to 7% is freight.
The recent changes and resin.
Recent price changes and resin and specifically polyethylene and polypropylene have moved to such an extent and so quickly that the competitive environment has had to react more quickly than it usually is the case.
And then and a normal scenario of price increase would be announced and customers would get be given 30 day notice.
And the current environment, we are seeing price increases announced with the seven day notice period and manufacturers are stipulating conditions that only normal purchasing volumes will be accepted and the interim to avoid inventory stockpiles with large orders at the lower price points and.
Isolation, if only one or two players and the market approach the price increases in this manner. It wouldn't work because customers would switch providers and the current environment with the economic recovery gaining traction demand has been so strong that the market has accepted the rapid cycle of price increases as customers are looking to fulfill orders from there and.
Users.
And our case, we have managed to effectively cover the price increases and retain our dollar contribution as evidenced by our gross margin for Q1 of 23, 9% and adjusted EBITDA margin of 17 four.
What's the price increases implemented it typically takes approximately 30 days to flow through our income statement. So there is a lag between price increases and capturing that margin when we announced our outlook for 2020. One in March we mentioned, we expected approximately 80 basis points of margin pressure on an annualized basis for 2021 as a result.
And of managing to the dollar contribution and not to the specific margin level that.
And that pressure won't hit all four quarters equally it's an annualized view as an example, we saw from pressure in Q1, and we expect to see some additional pressure in Q2. However, our expectation is that the margin profile profile remains intact, while pricing remain high the market has so far effectively manage through the.
The temporary supply shortages that were result of the weather event, and Texas and the interruption of the petrochemical supply chain.
Which brings us to our outlook. This morning, we are updating our forecast for the full year 2021 based on our results to date and the strong demand and pricing dynamics, we are seeing and the market.
We've adjusted our full year 2021 revenue range to $1, three seven and $5 billion to 1.4 of 5 billion and increase of almost 5% at the midpoint of the range compare to the outlook we shared in March.
On adjusted EBITDA, we've increased the full year, 2020, one range to $2 $35 million to $250 million and increase of just over 5% at the midpoint of the range we shared in March.
At these levels the implied adjusted EBITDA margin remains approximately 17% across the low mid and high ends of the range. This represents a significant step up from the historical adjusted EBITDA margin profile of the business and the last five years.
The largest driver of the margin improvement over the historical levels or the leverage from our asset utilization and our past investments and our highest growth product categories like water activated tape films and the woven.
With the investments, we announced on our March call for 'twenty, and 'twenty, one and high return near term projects. We believe that we're well positioned to meet customer demand with our diverse product bundle and world class low cost manufacturing base with that I'll turn the call over to Jeff to review the financials Jeff.
Thank you Greg on page seven of the presentation. We present, an analysis of our revenue for the first quarter of 2021.
Revenue was $345 $6 million and increase of more than 24% compared to the same period and 2020.
Volume mix accounted for 20% of the increase compared to last year as Greg mentioned every major product category was up and the quarter with the primary drivers coming from water activated tape protective packaging films woven and dispensing machines.
We also saw strong growth and certain carton sealing tapes.
Price is positively impacted revenue by 3% and the quarter with the remainder of coming from foreign exchange impact.
Turning to page eight gross margin was 23, 9% and the first quarter and improvement of more than 260 basis points compared to the same period and 2020.
Greg called out the primary drivers of the margin improvement earlier, specifically, one effective management of the spread between selling prices and raw materials and freight costs and two favorable plant performance driven by the leverage we are getting on our assets across our manufacturing base.
Adjusted EBITDA improved 59% to $60 3 million from 38 million and the same period last year.
The improvement was primarily driven by the margin drivers I mentioned earlier spread management and increased scale, providing leverage on both fixed costs and the investments, we made and our high growth product categories. We.
We delivered this growth while keeping our SG&A expense in line with last year, excluding share based compensation expense.
Cash flows from operating activities decreased by $11 8 million to an outflow of $28 9 million and the first quarter compared to the same period and 2020 the.
The change is primarily due to working capital changes and an increase and federal income taxes paid.
The working capital changes relate primarily to increase the inventory due to increased demand and raw material price increases, including pre purchases as well as share based compensation and settlements.
Free cash flows were negative $38 2 million and the quarter down $13 7 million compared to the same period of 2020. The change was primarily due to the working capital changes and taxes paid I just mentioned.
Our outlook for the expected effective tax rate has been adjusted to 25% to 30% for the full year 2021, which is an increase from the 22% to 27% range, we announced in March.
The adjustment is mainly due to and unfavorable mix of earnings between jurisdictions. The range excludes any rate increases that may arise from U S tax legislation.
We continue to expect cash taxes to be approximately 10% greater than income tax expense due to less availability of tax attributes and loss carryforwards that were available and.
And 2020 as well as the impact of bonus depreciation previously taken.
We finished the first quarter with $351 1 million and cash and loan availability. Our total leverage ratio at the end of the first quarter, which includes the unsecured debt was two three times.
Our secured net leverage ratio, which is our most important loan covenant and came in at one four times, which is well within the limit of three seven times.
The investments, we have made and capex and acquisitions of structurally changed the business, resulting in an improved margin profile and strong cash flow. We believe that both of these attributes of our sustainable moving forward now I'll turn it back over to Greg for his closing thoughts Greg. Thanks, Jeff There was a great quarter and the strong demand we experienced and.
The back half of 2020 continued into the first quarter and then we see more of the same into the second quarter to date.
We are seeing growth across all major product categories. Our ecommerce growth is in line with the growth of the largest e-commerce players and the market the.
The investments and the acquisitions, we've made over the last five years of structurally changed in the business.
We've managed through this first year of the pandemic and come out stronger having paid down debt and delivered strong free cash flow.
We manage the increases in raw material prices and effectively cover of the spread on a dollar contribution basis between selling prices and raw materials and freight.
We are investing this year and high return near term capacity expansion projects and our highest growth categories to keep pace with demand.
We've met these challenges and opportunities while at the same time looking to to future longer term opportunities earlier.
Earlier this summer we expect the publish our third annual sustainability report it expands on the progress we've made by increasing our disclosure on how we manage the business.
We continue to certify major products under the cradle to cradle certification since our last call our acrylic tape and hot melt tape, which are primarily used for carton sealing have achieved the cradle to cradle certification.
We have invested and the sustainability certifying products and attracting talent to lead our initiatives because we see it as the long term growth driver for the business are.
Our product bundle offers customer a broad variety of choice to ensure we meet the evolving demands of customers and end users the.
The diversity of both our end markets and our product offering as well as the essential nature of our products have been the core to the underlying performance of the business, we provide essential packaging and protective products for the economy we.
We've made a series a series of investments to build a world class low cost manufacturing base that can compete effectively in any market cycle.
We are focused on executing our strategy to deliver for customers and users and shareholders building a global leader building, a global leader and packaging and protective packaging solutions I'd like to thank our employees it has been.
And a challenging year for everyone and these challenges still continue I.
Could not be more proud of how they have conducted themselves and the level of commitment to the organization they've demonstrated its truly tremendous with that I'll turn the call back to the operator to open up the question and answer period. Thank you.
Certainly at this time and as a reminder, if you would like to ask a question. Please press Star then the number one on your telephone keypad, we will pause for just a moment of chicken and follow the Q&A roster.
Your first question comes from the line of Michael <unk> from Scotiabank. Your line is open.
Hey, good morning, guys fantastic quarter earnings.
Thanks.
First question just on the on the dollar basis volume growth was higher in Q1 than it was in Q3 and Q4 of last year, that's surprising for where typically the seasonally weaker quarter. So I'm, assuming the all end markets were firing on all cylinders, but did you get a sense. If there was any pull forward that happened in the quarter.
Yeah. So you know obviously, we implemented quite a bit of price increases in the quarter, Michael and Hao.
We were much more diligent just because of circumstances as it relates to pre buys on the way through.
So historically I would say that these price increases and the ability of customers to pre buy at lower prices and build inventory with somewhat diminished on the historical basis.
Hard to heart and know that exactly but certainly.
We manage that.
Just because we had two through through that process of of the speed and the size of these increases so.
And if it continues historically I mean, we should see of build through the year, but we're not calling for that now.
Because there are quite a few moving parts and there.
Got it great. Thank you and then to get the clarification on the comment relating to you maintaining the Q1 sales momentum into Q2 and I'm, assuming the sale of momentum of sustained through the quarter.
Is the right way to think about it we should get a 16% to 20% of positive comp or that the growth again, and the 16% to 20% would be incremental to the reversing the declines of Q2 of last year.
Yeah.
Yeah and not.
Not sure I completely understand but.
Basically I mean look we expect to see obviously the same momentum as we're staying going through Q1 into Q2, we're seeing the same thing.
And so you're definitely going to see a big and it's.
And easy comp versus Q2 of last year of course, I mean, we can't give you the the exact numbers around that.
So I'm not sure if I'm answering your question exactly maybe maybe this gets to it Michael.
Our order demand and Q2 at this point is very similar to where we were in Q1.
Okay I guess the.
Question is you know.
Do we get the growth that we saw in Q1.
Kind of the the negative comp last year, so presumably the higher but.
Q1 is on the year over year basis.
And it sounds like potentially.
Yeah, I mean, you got a couple of moving parts and there right because you've got the businesses that were tremendously down last year. So obviously, that's going to be the part that's an easy comp and I agree with you like youre going to have the growth over call. It a normal quarter from last year versus this year and then you'll have the the abnormal growth because of the.
But the impact, but then you also have the e-commerce, which had the full effect in Q2, right and last year. So that that that is a tougher comp for Q2 than in Q1, and we really didn't have much of an impact of that.
No that's helpful and then one last.
Any way you can help us and.
Better pinned down Q2 gross margin you indicated.
The other we should expect and 80 basis point margin compression for the year, which again is kind of reflective of the.
The higher prices and higher input costs.
And you mentioned that some of that was reflected in Q1 and more will be recognized in Q2 based on that thinking should we expect the less than 80 basis points of margin compression quarter over quarter is that correct.
I mean, all we can say is basically that Q2 should be the the full effect because all of these price increases that have gone into effect.
And certainly some happened last year and into Q1.
So you're going to see more of an effect of that and Q2.
Which will put a little bit more pressure on the margin.
Okay.
No. Thanks for the color group.
At quarter guys Alright.
Alright. Thanks.
Your next question comes from the line of Walter Spracklen from RBC capital markets. Your line is open and thanks very much operator.
Good morning, everyone.
So just on the price increases and the differentiation and Greg you did a great job kind of explaining.
Well pricing versus contractual.
Cash through index mechanical pricing and my question. There then is lets say as as is generally accept expected that resin prices.
Come back down perhaps.
And the near term is there an opportunity because you are not tied to any.
Index.
Automatically bring your price studies there is there is Europe.
Avenue here, where because demand is strong and.
And everyone's kind of behaving can you hold onto pricing, even if resin prices are coming down.
And I think there are circumstances that we can do that I mean, certainly and that kind of environment as you know.
The adverse happens on the margin side too. So your margin should go up but certainly that spread that I referenced between sell price and raw materials has the opportunity to increase and that kind of environment.
Okay.
That's good.
Let me move on to.
Your water activated tape.
Segment, I know oftentimes when we asked the question of potential new entrants you always highlighted that.
The market in aggregate was still even though growing rapidly for you historically were still too small you mentioned, Greg and your in your prepared remarks that we've pulled forward years of that growth is there any evidence that new entrants are starting to.
Peak into this market now that it's growing so much and and Mike might look at might look at taking a step in or are you still and the same kind of competitive advantage that you had historically.
Yeah, we haven't seen any any movement and in that regard and and again I think it's still important even though the growth is still there and its still high we have of very high percentage of market share and that area as you know.
So the total size of the market might not be that attractive to people, but certainly it's very big for us because of that high market share that we have.
Okay. That's fantastic those are both of my questions. Thank you very much.
And <unk>.
Your next question comes from the line of Stephen Macleod from BMO capital markets. Your line is open.
Thank you and good morning, guys. Good morning. Good morning, just I just wanted to and I know you talked a little bit about the.
And markets and you saw sort of broad strength across the across all categories, but I was wondering if you can just give a little bit of color around how you saw some of the non E. Commerce markets trending you know coming out of Q4 and into Q1.
So you know and.
And the general manufacturing area, certainly we saw really good growth and certainly a rebound in that area are woven business really performed well.
Exceeding our expectations.
As it relates to kind of budgetary forecasted levels.
The retail side continues to perform well some of that has to do with do it yourself.
Work, that's happening in the construction business.
So we pretty much saw abroad.
Increase there.
Certainly probably the transportation side lags a bit to relative to those other segments, but certainly we saw good growth in that area as well. So so we've seen a rebound in all of our end markets.
And from where we were.
Okay. That's that's great that's what I would've expected.
And then and then maybe just thinking about.
The the pace of revenue growth through the year.
And some good color around Q2.
Would you expect that price increases will have already been reflected for the most part.
And at the time, you get to the back half of the year like.
Maybe asked another way would you expect based on what you know today for price increases to positively impact.
The positive pricing impact and the back half of the year or or is that largely isolated to the first half of the year from what you can see now.
I would expect when I when I think of the year, you know and I commented on this and Q4 is the first half is going to be pressure great is as as we've articulated just from the math perspective and.
And then and then when you move forward there should be.
Our sequential margin improvement with all of the information that we know now if it plays out that way.
Okay, Okay I see.
So just just wondering so first half margins you've mentioned pressured.
Put up 260 basis points of improvement and the first and Q1.
Or are you expecting to see similar maybe not similar magnitude, where you're also expecting to see some of those margin offsets positively impacting margins in Q2.
Yeah. So we're going to continue to see some of the stuff that we've talked about from a structural change standpoint, so that's going to play out through the year, but of course like we said with these higher salt prices and preserving the the spread dollars, we'll see that compression and fact compressed on that side.
So that's why we're not seeing the margins we saw call it in Q4.
I mean, the reason right, so, but yeah, youre still going around the outsized margins versus what we've historically had been at.
Yeah, Okay. Okay. That's great. That's very helpful. Thank you.
Thank you.
Your next question comes from the line of <unk> Patel from CIBC capital markets. Your line is open.
Hi, good morning.
Greg could you comment on the on the magnitude of price increases youre seeing in Q2.
From a raw material perspective or from a and user perspective.
I guess.
Both.
Yes, so I would I would summarize and the raw material side that certainly some products. We think have peaked and will start coming down, namely polypropylene polyethylene just increase the price increase.
Just implemented price increase just a little while ago, we expect that the hold for a bit and see some tempering in the second half of the year and both of those categories.
He's a front.
Namely in the hydrocarbon area, we are continuing to see increases in that area.
And the and.
And we believe as we sit here today, we cover those increases as it relates to end users just because of the amount of products that we have and the and the channels we have the <unk>.
Company has implemented almost 20 price increases in the first quarter.
And varying product lines and varying channels.
So certainly we've been pretty active there as.
And as we move through Q2, if we continue to see movement upwards in certain raw material inputs, we expect to implement further price increases to.
To cover that spread and dollars.
As we sit here now.
And I think about it sequentially from a pricing perspective.
Week to week, which is the way, we manage pricing and activity.
Certainly we continue to see that pricing effectivity on the percentage basis increase.
As we move through May.
Great. Thanks, that's helpful and just wanted to ask you about you know given the demand growth that you're seeing from E. Commerce do you think your own capacity growth initiatives at least for the call. It. The next two quarters can keep keep can keep up with the with the demand if it stays stays elevated here.
Yes, so we feel good about getting through this year certainly there's areas in the product lines that we're going to be sourcing material from the outside to supplement our own capacity and.
And that's why we feel really strongly about our investment and the Capex side. This.
And this year and.
And certainly seen the cash flows from those next year.
So I think I think we're in good shape to make it through this year at these elevated rates.
Typically in our business specifically around e-commerce, it's somewhat seasonal seasonal and we're continuing to build inventory to handle Q3, Q4 volumes and that area.
Great. Thanks, Thats, all I had I'll turn it over.
Your next question comes from the line of David Ocampo from <unk> Securities. Your line is open.
Hey, good morning, everyone. Good morning.
And I just wanted to circle back on your capital projects here.
And when we think about them they are expected to be margin accretive and above your normal return thresholds and as we head into 2022 are there any other low hanging fruit projects that you can generate these outsize returns are or should we expect.
Future capital projects to go back down to your 15% hurdle rate.
Yeah, and I just I just referenced certainly my comments on the Q4 call certainly it's our hope that we continue to have opportunities to deploy capital.
These kind of return metrics.
So I think it's too preliminary to comment on that certainly certainly if we see an opportunity with those kind of returns I mean, we're going and we're going to continue to execute on it but at this time I have no update on that.
Okay and.
And then just a quick one here and it's sort of been a while since we talked about nor Tac.
That side of the business now generating the returns that you expected when you first acquired the business and as I know.
And the machine sales were a little bit slow and COVID-19, but may have picked up since then and just wanted some color on that.
Yes, it's still lagging from from where we expect it to be at this point, certainly COVID-19 had a huge impact and that business and we've commented before that the co.
All of it probably had the largest impact on that business of any of our businesses. I mean, it's not a very large business as you know I think.
From a size perspective, it would be.
Very small.
We have as we've worked through the last six months put some management teams and their.
And certainly we're seeing a lot of order activity.
And new orders come into that facility and I expect that business to continue to perform or to perform.
And an increased level as we move through 2021 that business is lumpy.
And typically most of those businesses are.
But certainly with where we are with our order backlog and that business I expect the second half of this year for.
And for that business to perform significantly better than where it has and the last several quarters.
That's perfect. Thanks.
Okay.
Your next question comes from the line of Roger Spitz from Bank of America of your line is open.
Thanks, and good morning.
Hi, Thank 2020, one and working capital will be and inflow or outflow of it and to what extent.
Yes.
It's certainly with these the raw material prices, if they continue to remain elevated and.
And that's going to be somewhat of a drag we saw a little bit of that and Q1.
With regards to the inventory prices being higher so so really that I think that's going to depend on where raw materials go.
But if we see some some I guess the easing up of that through the year, you and you may not see such a big impact by the end of the year, that's what items.
Okay by the way.
On March 31st.
How much was revolver drawn and what was Europe.
And the ability under the revolver.
Yes, I believe we had availability of 351 million and I believe in total and.
In terms of drawn.
And get that for you.
Hum.
And.
Okay.
So maybe you guys thoughts and your next question and I'll get back to you on short order.
Of.
And as Charlie for 2020 of your Capex budget and thinking about 'twenty two.
Guidance from thinking about 2022 of Capex.
Should we think of it a lot closer to the maintenance level from 2021 or is it closer to the.
The $100 million that we saw in 2021 guidance.
So.
I can't say I can't say right now Roger I think I think from from our perspective.
Certainly it's going to be above the maintenance level.
And it's our hope that we have opportunities to continue to invest organically and the business, but I think it's too early to kind of comment on <unk>.
And 2022 Capex at this point.
And then on your on your other on your other question. So we were using about $235 million on the total of $600 million facility.
On the Tuttle from some of them okay. Thank you.
Okay.
Your next question comes from the line of Ben <unk> from Pi Financial Your line is open.
Good morning, I have two quick questions, Greg one of them is and I'm sorry, if it was repeated but you mentioned the metric.
I think 60% of costs were a raw material and and then that you mentioned free as well and I didn't catch some of those details.
Yeah. So from a cost of goods sold 60 per cent of raw materials, and approximately 6% to 7% our freight.
So when you think of us managing our cost increases and that's where we've seen the largest cost increases on the raw materials side, obviously and also on the freight side and.
And the combination of that is what we utilize to manage our dollars spread between sell price and costs.
Oh perfect. That's great. Thank you and then my second question, it's a little bit more open and did.
So we are talking about pricing and the school environment, but I wanted to ask if there is any.
The impact and I'm, assuming the order variability of from end customers as you know theres, probably ups and downs and production runs are there any issues and you're set up costs, which you've always been the like and impeccable operation and that sounds like.
Have you encountered any challenges in that regard.
You mean from changeovers and things of that nature.
Yes, so I mean like you.
No.
The <unk>.
Different sizes of production runs and things like that and it has there been anything.
Of any significance there.
I would say.
And just because of the volume of the orders coming through I think we're experiencing and in many cases longer runs and on shorter runs so I would expect.
And would expect that to be proven out by data that I haven't seen but I would expect that the operationally, we're seeing longer runs less changeovers.
And then historically, we have but from a from an operations perspective overall of the plants continue to perform well and we really haven't seen any.
Change in that behavior.
Those results.
Perfect. Thank you very much.
Your next question comes from the line of I'm, sorry from the ever showed from National Bank. Your line is open and.
Good morning, its actually Thomas calling in for Zach most of my questions asked and answered so maybe one quick one.
As a as we observe re openings.
Two of North America are you concerned about a negative mix shift.
And with brick and mortar retail reopening.
I mean, what we would say to that I mean, obviously, we would expect to see growth and the brick and mortar side, which of course would benefit the non e-commerce parts of our business. So we could see some tailwind there from an ecommerce perspective, there could be a tempering of the growth, but we don't see this growth topic I mean, I guess, that's the point and we may not see the same.
Level of growth, but we see the growth still being quite outsized vs.
And what the typical GDP growth would be or or it certainly brick and mortar would be so for us I think we might see some tempering of that but I think that's just temporary in nature and going forward certainly all of the research reports, we read we expect to see E. Commerce continued to take share and grow at it outside of the pace and the future.
Alright, that's all I had thank you.
Thank you.
Yeah.
Once again, if you ask the questions. Please press star one on your telephone Keypad. Your next question comes from the line of Michael debate from Scotiabank. Your line is open.
Hey, guys. Thank you for taking the follow up.
Excuse me I wanted to address the consensus EBITDA for Q2.
You commented that the sales momentum.
<unk> into Q2, it sounds like Youre maintaining the.
The price cost spread.
Q2 is often seasonally stronger so it was the only reason early on and EBITDA dollar perspective to see such a significant step down from Q1 into Q2.
And can't really comment on the consensus you know what I would say is that yes. Typically Q2 is it is the stronger quarter.
And the price cost spread has been so far and maintained.
Correct and so we expect.
Okay.
And that's that's helpful.
Okay, and I guess switching.
Switching over here I mean, you've done everything right and the last couple of quarters and that's had the the.
And the added benefit of driving leverage ratios down quite substantially and despite the capital investments you are making this year and.
And our leverage ratios are going to continue to decline.
How do you think about it I mean, especially where your shares are trading how do you think about sort of balancing out considerations for share repurchases or M&A.
Yes, So I think we've got great runway here organically.
We've discussed and the path, we're still from a leverage perspective within the kind of range that we've always wanted to operate between two and two and a half and I think as as we move forward certainly we continue to evaluate.
Any capital deployment plans either around org.
Organic growth M&A.
Dividends and share repurchases, certainly we need to see where the stocks settle out here on a go forward basis.
So I really can't comment any further than that outside of it.
The discussion that we have at the board level on a frequent.
Basis, and and we're going to evaluate all opportunities to increase shareholder value.
Great. Thanks, Greg.
There are no further questions I'll now turn the call back over to Greg Gould for closing comments.
Thank you for participating in today's call. Just a reminder of that later today at 12 P M Eastern and will be holding a virtual annual general meeting details can be found on our website at <unk> Dot com. We look forward to speaking with you again following the release of our second quarter 2021 results in August and the meantime, I Hope you and your family stay safe and.
And healthy thank you.
That concludes today's conference call you may now disconnect.
[music] and win.
Given the relationship.
And the data.
And.
And then.
And.
And then.
And.
And then.
[music] net.
And then.
And again.
[music].
Okay.
And the deal.
[music].