Intertape Polymer Group Inc.
Q2 2021 Earnings Call Transcript

Published:

  • Operator:
    Ladies and gentlemen, thank you for standing by. Welcome to Intertape Polymer Group's Q2 2021 Conference Call. Joining me from the company, I have Intertape Polymer Group's Chief Executive Officer, Greg Yull; and Chief Financial Officer, Jeff Crystal. I'd like to caution all participants that in response to your questions and 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 as they 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 2 titled Safe Harbor Statement for a further discussion. During this call, we may also be referring to certain non-GAAP financial measures as defined under the SEC rules. A reconciliation of the non-GAAP financial measures to the most directly comparable GAAP measures is available on our website at www.itape.com. Please also note that all dollar amounts are in the U.S. dollars, unless otherwise noted. I'd like to remind everyone that this conference is being recorded today, August 11, 2021 at 10
  • Greg Yull:
    Thank you, and good morning, everyone. Welcome to IPG's 2021 second 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. It was an outstanding quarter with strong demand across all our major product categories. Revenue was $377 million, up 41% from the depths of the pandemic last year. Adjusted EBITDA was $65.7 million, up 60%. Based on our confidence in the business and its strong and sustainable cash flow profile, this morning, we announced an increase to our dividend of 8% on an annualized basis, bringing it to $0.17 per share or $0.68 on an annualized basis per common share. The demand trend in the third quarter remains strong at this stage of August. We typically have approximately 3 to 5 weeks of forward visibility, and our core -- current order book is as strong as it's ever been. Today, we are focused on 3 key elements to drive near-term performance. Number one, protecting the dollar contribution spread between selling price and cost of raw materials and freight in an inflationary environment. Number two, securing sufficient supply to ensure we can meet customer demand across our product bundle. In this market, we are not just having to pay more for raw materials, but we need to ensure we can source them. Number three, efficiently operating our manufacturing assets to ensure optimal capacity is maintained, which includes the health and safety of our team and assets. We are executing across each of these 3 parameters. The team across sales, customer support, supply chain management and operations has performed exceptionally well to deliver these results. Demand was strong during the quarter across all of our key product verticals. We also saw growth all -- across all our key product categories. The growth was led by films, wovens, carton sealing tapes, water-activated tape, dispensing machines, protective packaging and industrial tapes. You can see the influence of some of the hardest hit categories in Q2 of 2020, which were up significantly on a year-over-year basis in Q2 2021. However, even our e-commerce vertical, which was up approximately 40% in fiscal 2020, continued to show double-digit growth in Q2 despite a much tougher comparison to the strength we saw through the initial lockdowns in Q2 of 2020. We continue to experience strong demand into the third quarter across key categories, where we have made investments in CapEx and acquisitions, like water-activated tape, protective packaging, wovens and carton sealing tape. We expect e-commerce to remain a growth driver for us. We sell into a broad range of players in the e-commerce market, while growth through the pandemic reached 40% or more for the largest e-retailers, that lever -- level is obviously not sustainable. However, many small and large retailers have invested hard dollars in their e-commerce channel over the course of the past 18 months and they expect a return on those investments. So we don't expect them to turn off the channel. In addition, e-commerce retailers have accelerated their penetration into a broader range of demographic groups, which should act as a tailwind to the ongoing share gains of the e-commerce versus brick-and-mortar retail for the years ahead. We continue to expect growth in our e-commerce vertical well above GDP in the low to mid-teens based on third-party forecast that cover the coming years ahead. We have strengthened our product bundle with the acquisition of Nuevopak, a manufacturer that designs and develops a range of machines to provide void fill and cushioning protection packaging solutions. Nuevopak was already a strategic supplier, so this acquisition extends our footprint up the value chain, capturing the value of its dispensing machine and the paper void fill conversion, as well as securing supply for these important inputs. We believe the Nuevopak acquisition positions us to sell to a broad range of e-commerce customers and strengthens the sustainability profile of our product bundle. While its contribution in the current fiscal year will be relatively modest, we believe that our scale and customer relationships set us up to deliver accretive growth with this new addition to our product bundle. We believe sustainability will be a long-term driver in the packaging and protective market. We are investing in both new products that offer sustainability benefits for customers like curbside recyclable products, as well as certifying our existing products with a Cradle to Cradle Certification. During the second quarter, we published our annual sustainability report. The report expands on our prior work. It highlights our progress and includes increased reporting as we embrace sustainability across the organization as one of our core strategic pillars and long-term growth opportunities. To meet customer demand, we are expanding production capacity across multiple products. These are high-value strategic products, including a new water-activated tape line and additional capacity for films, wovens and protective categories. As a result -- as an update, we've invested approximately $25 million to-date of the $100 million in growth and maintenance CapEx budgeted for fiscal 2021. We fully intend to commit the entire $70 million budgeted for capacity expansion, but there is a possibility that some of these expenditures may slip into early 2022. This should not affect the timing of the realization of the $100 million in incremental revenue on a run rate basis that we expect in place by the end of 2022 and with additional revenue upside beyond 2022. Moving on to the supply landscape. Prices remain volatile and sourcing supply remains challenging. At the time of the Q1 call, I commented that we thought raw material prices had peaked and the third-party forecast inform that outlook. Since May, we've continued to see upward pressure on raw materials. Third-party forecast now expect the current elevated pricing to persist through the end of calendar 2021. To manage these pressures, we've implemented more than 30 individual price increases across various product lines since the beginning of 2021. In a normal environment, these price increases would take approximately 60 days to hit our income statement, consisting of a 30-day notification period for a price increase and then another 30 days to realize the revenue. Given the high demand environment and the rapid price changing in raw materials, the market is accelerating this process in certain cases, such that we are seeing shorter notification periods for price increases, and we're also seeing the market be more aggressive in limiting the amount of pre-buying during the notice period to normal levels to prevent stockpiling lower cost products. Given the high demand levels and the production capacity restraints across the competitive landscape, the dynamics of the market have been and continue to be disciplined. As a result, in this past periods of volatile raw material prices, we effectively managed to cover the dollar contribution spread between the selling prices and the combined raw material and freight cost increases. As we expected in this inflationary period, the simple math of this pricing strategy dictates as the raw material prices rise and we protect the dollar contribution, our margins narrow slightly. Despite this impact, we maintained our adjusted EBITDA margin at 17.4% in Q2, which is a 210 basis point improvement from the same period last year. For the remainder of fiscal 2021, we expect the math of higher pricing and protecting the dollar contribution to impact margins by approximately 150 basis points compared to what they would have been had prices remained steady with what we saw at the end of 2020. This impact has already been included in our updated guidance, which I will address in a moment. Paying for inputs is one thing, but securing sufficient supply has also been a challenge. Our supply chain team has been managing this very effectively. They've kept us in product and we've built raw material inventory during Q2 to both ensure we have sufficient supply and mitigate higher pricing. This strategy has impacted our free cash flows as we are now using more working capital. However, when pricing and supply constraints ease, we expect these working capital levels to unwind and generate higher free cash flows in future periods. We view this as a timing issue and a responsible strategy to ensure we meet the demand in the near-term. It is not a permanent level of working capital required to run the business, a permanent new level. Based on the performance of the business to-date, our order book and the current outlook for demand, as well as the persistence of higher selling and raw material prices, we are updating our outlook for the remainder of 2021. We expect revenue for the full year of 2021 of between $1.425 billion to $1.5 billion, which represents 21% growth over 2020 at the midpoint of the range. On adjusted EBITDA, for the full year 2021, we expect between 245 and $255 million, which represents growth of more than 18% over fiscal 2020 at the midpoint of the range as we continue to protect the dollar spread. We expect free cash flows of between $70 million to $80 million in fiscal 2021, which is a reduction from what we communicated in May due to the impact that increased demand, supply chain constraints and higher selling price -- prices and raw material prices have on working capital. However, as I mentioned, we expect to unwind working capital as pricing and supply constraints ease and capture that free cash flow in future periods. The business is in a great position to perform in the second half of 2021 and beyond. We are effectively managing the raw material challenges. We've covered on price and maintain supply in the face of ongoing strong demand. We are allocating capital in key product categories where we're experiencing our highest growth. We're bringing new production capacity online in both the second half of 2021 and to a greater extent, in 2022, which will fuel our continued organic growth in the future. The capabilities of our team to manage these dynamics is extremely impressive. As the individual responsible for tracking their progress, I could not be more proud of how they performed since March of 2020. With that, I'll turn it over to Jeff to review the financials. Jeff?
  • Jeff Crystal:
    Thank you, Greg. On Page 9 of the presentation, we present an analysis of our revenue for the second quarter of 2021. Revenue was $376.7 million, an increase of 41% compared to the same period in 2020. Volume mix accounted for 27% of the increase compared to last year. As Greg mentioned, every major product category was up in the quarter with the primary drivers coming from films, wovens, carton sealing tapes, water-activated tape, dispensing machines and protective packaging. Price positively impacted revenue by 12% in the quarter with the remainder coming from foreign exchange impact. The price impact was due to the multitude of price increases implemented to ensure we maintain our dollar spread. Turning to Page 10. Gross margin was 23.7% in the second quarter, an improvement of approximately 240 basis points compared to the same period in 2020. The primary drivers of the margin improvement were favorable product mix driven by continued growth of our e-commerce-related products and the recovery of many other margin accretive industrial products compared to last year and effective management of the spread between selling prices and raw material and freight costs. Adjusted EBITDA improved 60% to $65.7 million from $41 million in the same period last year. The improvement was primarily driven by the margin drivers I mentioned earlier, product mix and spread management. Cash flows from operating activities were $22.2 million in the second quarter compared to $40.5 million in the same period in 2020. The change is primarily due to working capital changes, including higher inventory at higher prices to ensure supply in this high demand supply-constrained environment and an increase in federal income taxes paid, partially offset by the increase in gross profit. This compares to COVID-19 related declines in demand and conservative working capital management strategies implemented in 2020 in response to that uncertainty. Free cash flows were $6.4 million in the quarter compared to $35.3 million in the same period in 2020. The change was primarily due to the working capital changes I just mentioned, as well as higher capital expenditures. We finished the first quarter with $487.1 million in cash and loan availability. Our total leverage ratio at the end of the second quarter, which includes the unsecured debt was 2.2x. In June, we issued $400 million in new senior unsecured notes that bear interest at 4.375% and used that -- the proceeds to redeem the $250 million 2018 senior unsecured notes, which carried a 7% interest cost. We also entered into a new $600 million credit facility that replaces the prior one. In doing so, we have extended the term to June 2026 and gain greater flexibility with a more favorable covenant structure and slightly better pricing and a $300 million accordion feature, if needed. The investments we have made in CapEx and acquisitions have structurally changed the business, resulting in improved margins and a strong cash flow profile. We believe that both of these attributes are sustainable moving forward. Now I'll turn it back over to Greg for his closing thoughts. Greg?
  • Greg Yull:
    Thanks, Jeff. It was an outstanding quarter. We continue to experience strong demand for the second quarter and now into the third quarter. Our order book remains strong as it's ever been. We are seeing growth across all major product categories. We've managed the price increases and supply restraints on a raw materials front and effectively covered the spread on a dollar contribution basis. We are executing on our CapEx projects to expand production capacity in key categories. We strengthened our product bundle with the acquisition of Nuevopak, which supports our e-commerce business and IPG's sustainability profile. We improved our capital structure with the refinancing of the credit facility, new notes issuance and early redemption of the existing notes. This structure provides us with greater flexibility and the dry power to execute on growth -- our growth strategy. The diversity of both our end markets and our product offering, as well as the essential nature of our products have been core to the underlying performance of the business. The business is structurally different today than it was 5 years ago. We are focused on executing our strategy to deliver for all of our stakeholders, building a global leader in packaging and protective solutions. With that, I'll turn the call back to the operator to open up for question-and-answer period. Thank you.
  • Operator:
    Your first question comes from the line of Michael Doumet with Scotiabank.
  • Michael Doumet:
    Another great quarter. My first question is on the implied second half expectations. And if I use the mid-cycle, sorry, the midpoint of your EBITDA guidance, you're essentially implying that second half EBITDA will be in line with that of the first half and that's not typically the seasonality. So could you explain maybe the dynamics that you're guiding to, and whether or not we should be interpreting the guide, is there being some element of conservatism still baked in?
  • Jeff Crystal:
    Yes. So I think those points are all valid. And I think for us, certainly, what we're seeing today in the business is strength. Like Greg mentioned in his prepared remarks, the demand profile that we're seeing so far is strong. We're covering our spread. We feel good about the second half. At the same time, of course, as we all know, there's uncertainties around COVID impacts, supply chain constraints. There's just a multitude of factors and a lot of moving parts going on. So what I would tell you is that we are certainly cushioning ourselves for some of those potential impacts. So could it turn out better, yes, it could turn out better. Certainly, I think if things work out the way they've been working out, well, we could end up at the high end of our range.
  • Michael Doumet:
    And then I guess on the margin profile, again, second half, the implication there, again, using your guidance is that it would be lower than your Q2, and again, I acknowledge the fact that you've indicated there is some conservatism, but just wanted to clarify that sort of the peak pressure in terms of price/cost spread and margin. Is that in Q2 or does that peak in Q3 just in terms of pressure?
  • Greg Yull:
    So where we sit right now, Michael, we believe that's going to peak in Q3 with where we are with raws. And certainly, as I've mentioned in my remarks, from a May perspective, we expected at that point to be at peak and that ended up not to be factual. So we continue to see a run up. So we're continuing to experience, I would say, peak from a buy perspective is kind of July, August in many of the categories. So that will flow through our P&L in the third quarter.
  • Michael Doumet:
    Perfect. And then maybe one last one on capital allocation. You've raised your dividend. I see that you've reinitiated the NCIB. Your shares trade at 7.5x on my numbers for next year, obviously, but it's presumably cheaper than a lot of deals that you're looking at. So just wondering what the commitment level is to the NCIB and maybe how you're thinking about servicing value?
  • Greg Yull:
    So as we sit here today, certainly, the highest return for the company continues to be investing organically in growth CapEx and areas like that. Certainly, on the NCIB, it's a discussion that we continue to have at the Board level, and our position really hasn't changed as it relates to being opportunistic there. We've been quiet, as you know, for the past couple of years in that area. And certainly, on a go-forward basis, we'll have to see where the stock price settles out and reevaluate on a go-forward basis. But I don't really have a change or we don't have a change of our position as we sit here today relative to where we were last quarter.
  • Operator:
    Your next question comes from the line of Stephen MacLeod with BMO Capital.
  • Stephen MacLeod:
    I just had a question about just sort of the growth trends you saw on a category basis, understanding that a lot of the dynamics have to do with how different categories performed last year, but I just noticed that protective packaging was sort of low on the list. And I'm just curious, is that related to potentially some shifts you're seeing in demand or is it really just related to kind of year-over-year growth gyrations?
  • Greg Yull:
    I would -- and Jeff can add on here. So in that protective products category, there's kind of two different main categories of protective packaging there. There's a system-based protective packaging, which is our pillow machines, aerospace, things of that nature. And then there's the more traditional bubble, foam, things of that nature. And if you split that category apart, where the lower growth ended up in that category is on the more legacy products, the bubble and the foam area. And on the systems side, we saw good growth because that's tied to some higher growth areas. And that's something that doesn't surprise us as we sit here today, like, that didn't come off as something that was a big miss for us from that perspective, because the key part of that business for us is in that systems approach of the machine and the consumable and tying back into that Nuevopak acquisition, that's the future of the business. The future of the business is not the legacy bubble and foam area.
  • Stephen MacLeod:
    And that makes total sense. Just turning to Nuevopak, which is an interesting acquisition. Does Nuevopak give you a broader customer range or is it really about broadening the product opportunities?
  • Greg Yull:
    So I think it's a little of both. So certainly, it gives us broader product offerings when we think of our position in North America and our ability to take that product into our existing customers, whether that's distribution or end users. So certainly, that's a key part, and certainly here it ties us in very nicely with sustainability. And then when we look at opportunities within Europe, they have a position in Europe. It's not material, but certainly, there's opportunity there from a customer perspective to broaden our customer penetration with that product and other products within the protective space and packaging space. So it does open up some customers within Europe. There's a little bit in Asia as well, but I would say that Europe would be first and foremost. And as we all know, when you think of sustainability and where we are country by country or continent by continent, certainly, Europe is further ahead than the U.S., specifically around needs for sustainable packaging and certainly making a significant move to paper as opposed to plastic in that area.
  • Stephen MacLeod:
    And then maybe just finally, following up on the capital allocation question, I'm just curious, you did -- you re -- sort of refinanced some of the high cost debt, increased the dividend, you're active on the buyback. Can you just talk a little bit about like if you were to tier your priorities for excess free cash flow, could you just run through sort of top to bottom of what your priorities look like?
  • Greg Yull:
    So my comments around that are very similar to what they were in May. I think when you look at the capital allocation and the CapEx programs of this year with north of 20% IRR, I still think if there are opportunities like that, that's the best return for shareholders on a go-forward basis. And then working my way down the list, at this point, I still think there's opportunity to deploy capital around M&A, such as opportunities like Nuevopak that gives us a differentiated product with a accretive margin profile and a lot of runway as it relates to opportunities on the top line, and then working our way down to dividends, certainly supporting the dividend with an 8% increase this year and share buybacks. And as I said earlier to the earlier question, the position on the share buybacks continues to be evaluated and will continue to be evaluated. But we really don't have a change in position on that as we sit here today.
  • Operator:
    Your next question comes from the line of Neil Linsdell with iA Capital.
  • Neil Linsdell:
    Yes, definitely congratulations on the quarter.
  • Greg Yull:
    Thanks.
  • Neil Linsdell:
    Just touching on the Nuevopak again. You talked about the clients and the potential there. Is there anything about the footprint or ability to -- would you be collocating any other types of operations there to be able to take advantage of that acquisition?
  • Greg Yull:
    Specifically in Europe?
  • Neil Linsdell:
    Well, I was thinking Europe and China, but sure.
  • Greg Yull:
    So I don't see any complications in that as it relates to sourcing customers or customer conflict -- distribution conflict. Is that --
  • Neil Linsdell:
    No, I'm thinking about -- no, no, I'm thinking about opportunities. Is there any way to really expand on those operations or locations that you're getting?
  • Jeff Crystal:
    I think right now, there's no plan for that. I mean, I think certainly, when we think about the Chinese operation, I mean, it's not -- when you talk about machine assembly facilities are not typically that large. We do have capacity to grow there. And then potentially in Europe, certainly, if there's opportunities, not so much on the machine side, but maybe more on the paper converting or things like that, more the finishing side, maybe there's some opportunity to expand a little more locally there, but that's the extent of it. There's no major -- no major plan there.
  • Neil Linsdell:
    Okay, just wanted to check. And then on sustainability, I mean, we've been talking about this for years, and I remember last Investor Day Plan Tour, you actually had some of your clients coming in to look at what you were doing as far as improving their packaging. As you're continuing to develop that, are you find you're either ahead of or behind your customers or is this a push-pull aspect?
  • Greg Yull:
    I would say our customers when I look back on it and I think about where customers were 5 years ago, I think that's probably the appropriate time frame, their desire for sustainable packaging in their mind, whatever their definition of sustainable packaging is and their willingness to pay a premium for it because in some cases, the cost of premium is definitely much different today than it was 5 years ago. 5 years ago, they were not willing to pay for that attribute, if you will. So certainly, from a customer behavior perspective, that has changed over the past, as I said, 5 years. And certainly, our strategy around that is to take that as an opportunity for us and that's where a lot of our work is from a product development perspective, and frankly and you saw with Nuevopak acquisition strategy as well.
  • Jeff Crystal:
    Yes. And I think it's really a bit of both. When you talk about push-pull, and I think we've tried really hard to become a solutions provider to our customers and working really closely. So when we think of especially our larger end user and distribution customers, we work very closely with them to understand the problems they're facing and trends they're seeing and try to work more in sync with them to understand kind of what the next product need is or next solution need is. So I'd say it's kind of a bit of both and not necessarily one or the other.
  • Neil Linsdell:
    Okay. Would you say you're more trying to sell your new solutions or are you having more demand from the clients still?
  • Greg Yull:
    It varies by product line.
  • Jeff Crystal:
    Yes.
  • Greg Yull:
    And tough to articulate further than that.
  • Neil Linsdell:
    Okay. And then just one more from a big picture, years ago, you talked about, you were doing a lot of bundling on your products, obviously, you've expanded your product line since then and you really wanted to own the packing table. Have -- do you think you've achieved everything you could there or is there more to do with the distributors, the packing table, more products and services or so low-hanging fruit already kind of taken care of?
  • Greg Yull:
    No, I think, specifically, when I look at the packing table or think of like the pack-out station, if you will, I think that's going to continue to evolve, and I think products are going to continue to evolve, and the need for equipment and automation end of line solutions is going to continue to evolve. So I think there's a lot more work to be done there. There's a lot more innovation to be had there, and we're positioning the company to be able to benefit from that change as we move forward in automation and sustainable packaging and things of that nature. Because I think, again, I think if you fast forward 5 years from now, in several cases, we're going to be relying much more on automation end of line solutions and much more on sustainable packaging from an end of line solutions perspective as well.
  • Operator:
    Our next question comes from the line of Walter Spracklin with RBC Capital Markets.
  • Ryall Stroud:
    Hi, it's Ryall Stroud on for Walter Spracklin. So my first question, I just wanted to touch on the sequential performance of the e-commerce product lines during Q2. I was wondering if you could give us some more color on how the Q-over-Q growth trended during the quarter and if you've seen any impact at all from retail reopening on demand in these end markets?
  • Jeff Crystal:
    Yes. So I mean, certainly, when we think of the growth quarter-over-quarter and I guess the way I would look at it, and obviously, Q1 was somewhat of an easier comp versus Q2. We continue to see double -- good double-digit growth in Q2. So we continue to see strength quarter-over-quarter. In terms of the reopening, I mean, as we've mentioned in the past, certainly, there is more volume going into brick-and-mortar as things reopen, and we are seeing some evidence of that, some evidence of tapering of growth, but growth is still strong. And I guess that's the point is we're still seeing good growth in the -- in those e-commerce channel, e-commerce products, but also seeing, of course, good growth in the rest of our business. As you know, 70% of our business is not e-commerce, and certainly, the reopening is helping on that end. So we are seeing some tempering in the e-commerce side. Certainly, as you lap the tougher comps versus last year that, that will be -- you won't see that same 40% growth, let's say, we saw in 2020 over 2019, but we expect to see good growth and certainly, the other ones expect to see some outsized growth in the near-term.
  • Ryall Stroud:
    Got it. Got it. That makes plenty of sense. And then my next question, just looking at longer-term growth potential after the current CapEx plan is finished here, how long do you believe that you can sustain current organic growth levels before another round of CapEx might be required?
  • Jeff Crystal:
    Yes. Tough to say. I mean, I think, obviously, a lot's going to depend on sort of where things go post-COVID or is there going to be a post-COVID and what are the trends going to look like there. Certainly, we expect the longer-term trends to continue with growth in e-commerce, outsized growth in e-commerce over GDP. So certainly, that will be what accelerates our growth. We're also continuing to see good growth in our woven side. With the low cost profile we've had, we were expanding there as well and we expect that to add some growth. And so we'll see how that goes as well, but it's tough to say as you move further out. What we've always said is that we're going to be a GDP-plus grower from a longer-term perspective. And so we would still stick by that and say that we certainly expect still some plus from the e-commerce potentially from the wovens as well in the medium-term and then seeing that long-term that GDP-plus growth.
  • Greg Yull:
    And certainly from the perspective of what we're investing this year as I said and we said in the Q1 call as well is we expect additional run rate revenue of plus $100 million in Q4 of next year and then 2023 that even increasing more.
  • Jeff Crystal:
    Yes.
  • Operator:
    Your next question comes from the line of Zachary Evershed with National Bank Finance.
  • Zachary Evershed:
    Congrats on a great quarter.
  • Greg Yull:
    Thanks.
  • Jeff Crystal:
    Thanks, Zach.
  • Zachary Evershed:
    So when raw material and freight inflation starts to taper off, where would you expect your gross margins to settle on a percentage basis?
  • Greg Yull:
    So I'm going to answer that without giving you a number. So when we see things start tempering off from a selling price, on the way down, we're going to protect that dollar spread, right. So you'll see a increase in margin. You should see an increase in gross margin, increase in EBITDA margin. Hard to give you a figure of what that would be. We're calling out right now on second half approximately 150 basis points of pressure there on the margin side. And at the end of Q4, we kind of directionally got to a point where we talked about 17.5 to 18.5 kind of percent EBITDA margin. I mean that was kind of the more normalized range if you would. So hard to say. But again on a falling raw material environment, we would manage that the same, and even in some cases, trying to increase that dollar spread between selling price and raw material costs.
  • Zachary Evershed:
    And then on that falling raw material environment, given the working capital build, do you have any concerns of getting stuck with high-priced inventory?
  • Greg Yull:
    Certainly, it's a conversation that we've had actively around the company. I don't -- when we look at the dynamics of these markets from a demand supply perspective in the resin area, in the paper area and hydrocarbon area, which are our biggest areas, we don't see a scenario at this point where we're going to see dramatic drops that are very material, right. So we see this stabilizing at a much higher rate than we were in 2020. So we don't see those kind of massive drops in the future. Certainly, if we start seeing that, we will start depleting our inventory and minimize the impact on the way down, but that's not a concern as we sit here right now.
  • Zachary Evershed:
    That's great. And then one last one, a bit more open-ended. Looking forward, you mentioned greater automation and an increased focus on end of line solutions. If you take that trend in combination with increased shipping on container applications, does that give you pause on your total addressable market?
  • Jeff Crystal:
    Not sure we understand, what do you mean by the -- what do you mean by that. Not sure I understand the question.
  • Greg Yull:
    What do you mean by the container?
  • Jeff Crystal:
    Yes.
  • Zachary Evershed:
    Shipping in own containers, so more products.
  • Jeff Crystal:
    Shipping own containers.
  • Zachary Evershed:
    Yes.
  • Greg Yull:
    Look, I think that shipping own containers is only going to affect a certain portion of, specifically in the e-commerce channel. And I think from our perspective, that's still an opportunity for us within those shipped in your own containers to provide packaging solutions to that vendor. So I don't see that as being a dramatic shift on a go-forward basis to our profile right now.
  • Zachary Evershed:
    Thank you very much. I'll turn it over.
  • Jeff Crystal:
    Right, thanks.
  • Operator:
    Your next question comes from the line of Ben Jekic with PI Financial.
  • Ben Jekic:
    Great quarter, guys. I do have two questions in there, maybe just a different way of asking some questions that have already been asked. But in terms of strongest -- strong -- so I'm assuming the strongest performers here, films, wovens, carton sealing tapes, that's just on a percentage basis given the weakness from last year in these products, right?
  • Jeff Crystal:
    Yes, a lot of that would be that.
  • Ben Jekic:
    Okay. And we're all talking about e-commerce and growth in e-commerce. There's obvious other sort of sectors that you're exposed to. Is there any -- like what would be the second sort of most pronounced trend in some of the other sectors that obviously you're benefiting from?
  • Greg Yull:
    I would go back to our woven business and take a look at our woven business going into -- from a vertical perspective, into ag, into building construction, into areas like that, that business is performing exceptionally well, both from a growth perspective, top line perspective and a margin perspective. So that is a growth engine that I look at and foresee a fair amount of runway. As Jeff said, we're doing expansion there right now and we're doing another expansion there next year, and that's all accounted for within our guidance on our CapEx. So that business is performing tremendously well, both top line and bottom line.
  • Ben Jekic:
    Right, okay. And then just a quick question is, when you say the e-commerce low to mid-single digits in terms of growth, is that over the next 3 to 5 years or like what would be the sort of time horizon there?
  • Greg Yull:
    I don't think we said…
  • Jeff Crystal:
    Yes, no, I think we said -- I mean, most research reports that you read are kind of in the double-digit, maybe low double-digit, mid-teens, something like that. So that's more the long-term growth trajectory that we're certainly reading about and certainly, we've seen that over the last number of years, like -- yes. So that's what we were referring to.
  • Operator:
    And there are no further questions at this time. And I would like to turn the call back over to Greg Yull for any closing comments.
  • Greg Yull:
    Thank you for participating in today's call. We look forward to speaking with you again following the release of our third quarter results in November. In the meantime, I hope you and your families stay safe and healthy. Thank you.
  • Operator:
    Ladies and gentlemen, this concludes today's conference call. We thank you for your participation. You may now disconnect.

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