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Ladies and gentlemen, thank you for standing by. Welcome to Intertape Polymer Group's Fourth Quarter 2018 Conference Call and Webcast. [Operator Instructions] Your speakers for today are Greg Yull, CEO; and Jeff Crystal, CFO.I would like to caution all participants that in response to your questions and in 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. The company undertakes no duty to update this information, including its earnings outlook, even though its situation may change in the future. You are, therefore, cautioned not to 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.An extensive list of these risks and uncertainties are identified in the company's annual report on Form 20-F for the year ended December 31, 2018, and subsequent statements and factors contained in the company's filing with the Canadian Securities Regulators and the U.S. Securities and Exchange Commission.During this call, we may also be referring to certain non-GAAP financial measures as defined under the SEC rules, including adjusted EBITDA; adjusted EBITDA margins; trailing 12-month adjusted EBITDA; leveraging ratio; adjusted net earnings and free cash flows. A reconciliation of the non-GAAP financial measures to the most directly comparable GAAP measures is available at our website at www.itape.com and are included in its filings, including the MD&A filed today.Please note that variance ratios and percentage changes referred to during this call are based on unrated numbers, and all dollar amounts are in U.S. dollars unless otherwise noted. I would like to remind everyone that this conference is being recorded today, Wednesday, March 13, 2019, at 10:00 a.m. Eastern Time.I will now turn the call over to Greg Yull. Mr. Yull, please go ahead, sir.
Thank you, operator, and good morning, everyone. Welcome to IPG's 2018 fourth quarter and year-end conference call. Joining me is Jeff Crystal, our CFO. After our comments, Jeff and I will be happy to answer any questions you may have.During the call, we'll make reference to our earnings presentation that you can download from the Investor Relations section of our website.It was a good quarter. Revenue was up more than 21% and adjusted EBITDA was up 8% compared to the same period last year. Closing out the year, we exceeded $1 billion in sales, up 17% from 2017 and recorded adjusted EBITDA of almost $141 million, each of which met our guidance range for 2018. We are building a business position as a global leader in packaging and protective solutions.During the period, we continue to execute on our key strategies, strengthening our product bundle, expanding geographically and driving improvements in our operations. During Q4, we completed the Maiweave transaction, which I'll address in a moment, and we successfully completed a $250 million senior unsecured notes offering, which further strengthens our capital structure in a historically low rate environment. And subsequent to the end of the quarter, we commissioned our new second water-activated tape line in the Midland facility.Our primary objectives for 2019 are #1, to complete our 2 major capital projects in India during the first half of 2019 on time and on budget. Continued integration of our recent acquisitions to drive synergies, both revenue and costs, specifically at Cantech, Polyair and Maiweave. And with the improved cash flow resulting from the completion of our significant CapEx, pay down debt.Moving to Slide 5, you can see the significant level of CapEx we've deployed in the last 2 years, totaling a $161 million, which effectively doubled the rate of our CapEx investments in the prior periods. This capital program was part of our strategy to expand geographically, leveraging lower cost raw materials in Asia, build capacity in fast-growing markets like e-commerce and to improve our competitiveness by investing in our world-class, low-cost asset base.To put this in perspective, we have invested approximately $65 million at 3 facilities consisting of the second water-activated tape line in Midland and in India at our carton sealing tape plant and our woven products facility. That capital has been invested and will make a more meaningful contribution to our results in the second half of calendar 2019 into 2020.With the completion of this intensive CapEx program, fiscal 2019 marks a return to a normalized rate of investment for us of between $40 million to $60 million, which we expect will be in the $45 million to $55 million range in 2019. This range includes the final investments to complete the 2 facilities in India. As a reminder, we also retain the flexibility to lower our annual capital expenditures even further should the situation require it. We can maintain operations with an investment of $15 million to $20 million annually for a couple of years if necessary. However, our target is to continue to invest in our asset base to retain and further improve our competitive position.As a project update, in February, we announced we successfully commissioned the second water-activated tape line in Midland. The project came in on schedule and on budget. The total capital invested at the end of 2018 was $13.4 million with minimal remaining capital expenditures expected in 2019. The second line doubles our capacity at the Midland facility, which is important as the first line is at capacity. This investment leverages the investment we made in the first line. As a reminder, we invested $48 million to invest the first line, including the new building construction. We made that investment because it met our investment hurdle of 15% IRR.The second line provides the same level of capacity at a much lower capital cost. You can see the leverage I'm referring to here. The footprint of the site and the design of the facility also allow for additional expansion if necessary. However, expansion of the facility itself would be required to add new lines.This investment demonstrates our confidence in the e-commerce market. We believe our unique product bundle is well positioned to serve the needs of the major e-commerce retailers. Water-activated tape is our key offering today, but our other carton sealing tapes and related dispensing equipment, protective packaging offering, stretch film as well as our shrink wrap, which addresses the needs of ship-in-its-own container programs each strengthening our offering.Last month, we were in India. We were able to see firsthand the progress in each of our new facilities there. Both projects remain on schedule and on budget to be commissioned in the first half of 2019. We've hired the staff and continue our training program with them. Some of whom who have been trained in North America as well as our facilities in India. We're pleased with the progress at both the Capstone woven product and Powerband carton sealing tape facilities.As I mentioned earlier, successfully commissioning and then moving on to scaling and optimizing production are key objectives for us. These facilities are not simple light switches. They do not turn on and operate at optimal levels immediately. Time lines vary by project, but generally speaking, our larger investments can take up to 12 to 18 months to reach optimal efficiency.We are also working to fill an order book for these 2 facilities. We intend to baseload initial production at the woven products facility with some of our less complex products currently being sourced from third parties. The Maiweave acquisition also provides us an opportunity to vertically integrate some of the material they were procuring from third parties.At the carton sealing tape facility, we are base loading initial volumes with a portion of Cantech production and we believe an opportunity exists to introduce product into the European market from this facility. In each case, we are taking advantage of lower cost raw materials in Asia to improve our competitive position. We intend to provide the market additional updates as the 2 new facilities come online. That's where we stand on the new projects front.Moving on to our recent acquisitions and our integration progress. In December, we announced the acquisition of Maiweave, a former competitor in the woven products market. Its products are used in applications such as grain and salt pile covers, pit and pond liners, shelter fabrics, outdoor media and lumber mill packaging. Maiweave has a strong position in the southeast United States, serving the building construction industry, which is a region of the country where we do not have a significant footprint. The acquisition provides additional scale to support growing demand in woven products. We are also able to backward integrate materials Maiweave was formerly buying from third parties to our new woven facility in India, which generates benefits to both business lines. We are very comfortable executing on the Maiweave acquisition. It is in our wheelhouse, given our track record of success of earlier bolt-on acquisitions like Better Packages and TaraTape.On the Cantech front, we completed the closure of the Johnson City facility earlier this year. Production of carton sealing tapes from that facility was moved to other facilities in late 2018. With the closure, we continue to execute on our cost synergies of that acquisition in line with our target. We expect the closure to contribute $1.5 million to $2 million in additional cost savings annually through lower overhead costs and improved utilization at other facilities. We also completed the implementation of our ERP system earlier this year, which we expect will give us the visibility and control over the operations to optimize efficiencies, to drive costs down and service levels up. We expect the total annual synergies from Cantech to be between $3.5 million and $6 million by the end of calendar 2019.On the protective packaging solutions, we continue to execute on our integration plan. The Polyair acquisition was highly strategic from our standpoint, as protective packaging was the last remaining category that we were missing in our product bundle. By bringing Polyair into the offering, it opens up their access to our larger distributors that require vendor scale to sell them product. On its own, Polyair was slightly undersized to meet these thresholds at various distributors. But as part of IPG, we are better positioned to market their product to these large distributors over time. On the revenue side, we're seeing some early success cross-selling protective packaging into our existing network as well as selling IPG products in the Polyair customer base. The sales team integration is progressing well. It is an active initiative within the company and senior management is involved. On the cost front, we're pleased with the progress to date and we'll continue to deliver efficiencies as we consolidate our procurement of raw materials and implement our continuous improvement operating processes.We have also taken action to accelerate the backwards integration of select material Polyair was buying from third parties. Supplying the material from internal resources will improve our cost base in the business. For 2019, Polyair generated approximately $13 million in adjusted EBITDA on a pro forma basis and we are committed to hitting our targeted range of approximately $20 million to $22 million by 2021 consisting of both revenue and cost synergies. Overall, 7 months into our integration plans with Polyair, I'm pleased to report that we are very comfortable in what we have purchased in terms of the people, the products and the plants. We are very excited about the long-term potential of protective packaging as part of the IPG bundle.On the operational efficiency front, we are seeing positive results at our plants. Earlier in 2018, we made some leadership changes within our operations team, assigning accountability to new individuals, both at the corporate level and at specific plants, who brought a higher level of focus to the individual plants, especially in North America. These changes have been producing results from an efficiency and cost perspective. The scale and complexity of our typical plant makes rapid change difficult. It's like docking a large ship. It takes time to get to 0 speed. But we are pleased with the results to date and the positive momentum we're carrying into 2019.As a recap, we have a clear action plan ahead of us in 2019. Complete our large projects in India, and together with the second line in Midland, have those significant investments start contributing to our results later in 2019. Continue to execute on the integration of our recent acquisitions and use the flexibility we have with the completion of the significant CapEx program and resulting improved free cash flow position to pay down debt.At this point, I'll turn the call over to Jeff who will provide you with additional insight into the financial results. Jeff?
Thank you, Greg. On Page 10 of the presentation, we presented analysis of our revenue for the 2018 fourth quarter and fiscal period. Revenue increased more than 21% to $287.7 million. The $50.3 million increase was primarily due to the Polyair and Airtrax acquisitions, which contributed more than 15% of the increase as well as an increase in average selling price, which includes the impact of product mix and taken together, contributed almost 3% of the increase.On an annual basis, revenue increased more than 17% to $1,053,000,000 compared to fiscal 2017. The increase includes a 10% contribution from the Cantech, Polyair and Airtrax transactions as well as an increase in average selling price, including the impact of product mix, which contributed more than 5%.Excluding acrylic carton sealing tape, sales volume increased 3% in 2018 compared to 2017, and increased more than 4% in the fourth quarter of 2018, compared to the corresponding periods in 2017. The impact of significant volume changes in the acrylic carton sealing tape product line impacts the sales volume disproportionately compared to its impact on revenue dollars since the acrylic tape is a lower-priced product line. We are seeing above-average growth in water-activated tape, stretch film and lumber wrap, which are product categories we supported with capacity improvements to our strategic CapEx program.Turning to Page 11, gross margin was 19.7% and 20.8% in the fourth quarter and fiscal 2018, respectively, compared to 22.8% and 22.4% in the corresponding periods in 2017. The change in the quarterly period was primarily due to product mix, including higher volumes of certain tapes that are lower on the spectrum than our overall tapes margin as well as the impact of our Polyair and Airtrax acquisitions that were below our corporate average margin. These pressures were partially offset by improvements in our operations at the plant level.Adjusted EBITDA increased by 8% to $38.5 million and almost 9% to $140.9 million in the fourth quarter and fiscal 2018, respectively, compared to the corresponding periods in 2017. The improvement in the quarterly period was primarily due to the Polyair acquisition as well as the decrease in SG&A expense as a result of a decrease in employee-related costs related to discretionary employee benefit contributions. These improvements were partially offset by lower gross profit.The effective tax rate was 6.8% for the fourth quarter compared to negative 13.2% in the same period in 2017. The change is primarily due to the non-recurrence of a favorable onetime adjustment resulting from the U.S. Tax Cuts and Jobs Act, which was partially offset by the lower U.S. corporate tax rate in the 2018 period.Cash flows from operating activities were $70.2 million and $90.8 million in the fourth quarter and fiscal 2018, respectively, compared to $59.3 million and $92.1 million in the corresponding periods in 2017. The improvement in the quarterly period was primarily a timing-related issue due to a greater increase in accounts payable and accrued liabilities resulting from the timing of payments near the end of fourth quarter 2018, compared to 2017, partially offset by an increase in inventories.Free cash flows were $52 million and $15 million in the fourth quarter and fiscal 2018, respectively, compared to $45.3 million and $6.8 million in the corresponding periods in 2017. The nearly 15% improvement in the quarterly period was primarily due to an increase in cash flows from operating activities, partially offset by increased capital expenditures.As Greg mentioned earlier, we expect to see a significant reduction in capital expenditures in 2019 to a range of approximately $45 million to $55 million. As you can see on Slide 13, we expect this to significantly improve our ability to generate free cash flow compared to 2017 and 2018, and we intend to prioritize a portion of that cash towards repayment of debt. As I mentioned on the third quarter call, we completed a $250 million offering of 7% senior unsecured notes due in 2026. The offering provided us greater flexibility in our capital structure, along with the opportunity to lock in a fixed rate amid a historically attractive interest rate environment. We used the net proceeds from the offering to prepay a portion of our borrowings outstanding under the $600 million credit facility and to pay related fees and expenses as well as for general corporate purposes.As a result of the senior unsecured note offering and the paydown of our credit facility, our secured net leverage ratio, which is the ratio relevant to our loan covenants is now 1.6x. Our total leverage ratio, including the unsecured and secured debt is 3.3x. Interest expense was $6.7 million and $17.1 million in the fourth quarter and fiscal 2018, respectively, compared to $2.5 million and $7.2 million in the corresponding periods in 2017. These increases are both due to our higher debt level and higher average cost of debt, including the impact of our senior unsecured notes. The same factors are expected to result in a higher run rate interest expense in 2019 of approximately $32 million.As a result of the senior unsecured note offering and the portion repaid on our credit facility, the company had cash and loan availability of $393.9 million as of December 31, 2018, compared to $186.6 million as of December 31, 2017. I'd like to speak to the 2019 outlook for effective tax rate in cash taxes before turning it back to Greg for the remainder of the company's outlook. As a result of proposed regulations associated with the U.S. Tax Cuts and Jobs Act, we anticipate that certain tax benefits related to foreign intercompany debt will no longer be available, thereby increasing the effective tax rate for 2019 to between 25% and 30%, excluding the potential impact of changes in the mix of earnings between jurisdictions. We expect cash taxes to be approximately 2/3 of the income tax expense in 2019. We're in the process of evaluating different options to mitigate the impact of these proposed regulations, but the outcome is uncertain at this time. As we utilize any remaining tax assets over time, we expect cash taxes paid to normalize closer to the effective tax rate.Greg will now provide the company's outlook. Greg?
Thanks, Jeff. With this morning's announcement, we're establishing our outlook for 2019 revenue and adjusted EBITDA. These expectations exclude any significant fluctuations in selling prices caused by unforeseen volatility in raw material prices.We anticipate revenue in 2019 to be between $1.18 billion and $1.22 billion, representing growth of 14% at the midpoint of the range. We anticipate adjusted EBITDA in 2019 to be between $164 million and $174 million. We expect adjusted EBITDA to be proportionately higher in the second, third and fourth quarters of the year due to the effort -- effects of normal seasonality. Our adjusted EBITDA guidance range includes the impact of new prescribed accounting guidance, where we are required to capitalize operating lease rent expense. In order to assist you in an apples-to-apples comparison, we are providing the related rent expense for fiscal 2018, which was $4.6 million as well as what we expect -- what we're expecting for rent expense for fiscal 2019 before the change of between $6 million to $7 million. Excluding the favorable impact of the lease accounting guidance, our adjusted EBITDA guidance range represents growth of approximately 15% at the midpoint of the range.In closing, during the course of 2018, we added scale, expanded our geographical footprint, strengthened our product bundle, drove efficiencies across our operations and made significant investment in our asset base to further improve our competitive position in the market. We are investing in high growth markets like e-commerce and we are acquiring assets like Polyair and Maiweave that we believe will provide continued accretive growth to the company. We are executing a strategy to deliver long-term value for our shareholders. We appreciate the support, commitment that our investors have demonstrated through our 2-year capital investment program, and I look forward to updating you on our progress. With that, I'll turn the call back to the operator to open up for the question-and-answer period. Thank you.
[Operator Instructions] Your first question comes from the line of Michael Doumet from Scotiabank.
So looks like you guys are entering 2019 with reversing inflationary pressures -- resins, especially polypropylene prices are well off compared to where they were in Q4. I know you guys managed that quite well last year. But I just want to get a sense for how much of, call it, the potential spread recaptures is baked into your guidance?
Let me comment on kind of where we are for raw materials and then Jeff can comment on the guidance side. So certainly polypropylene and polyethylene have dropped pretty significantly over the last kind of 90 days. Certainly, we're seeing it show up on our P&L. It's kind of counter to where we were in 2018 with large increases. Certainly, we managed that on the way down as prudently as we can. Pretty hard to predict how that's going to end up because it could turn pretty quickly as well. But it's nice for 2019 to be starting with some tailwinds as it relates to kind of input costs. Certainly, we've seen some costs in paper increase, we've seen some in some hydrocarbons and other associated products, I'll let Jeff touch on the piece in the guidance.
Yes, I know, in terms of what we're including for next year, I mean, we have baked in a little bit of that, but in reality, like we said before, we managed to is that spread and we try to keep that spread consistent. And the issue is that, that as we all know, we may have some tailwinds right now, but that could turn into headwinds shortly thereafter. And as we all know, our pricing is at will. So that's why for us when we think about our guidance, we're not looking at a huge pickup and expecting that to be in there for the balance of the year and looking at really protecting our spread dollars.
But it's a positive, definitely.
Positive at this point, yes.
Okay. That's great color. And maybe just to get a little bit more out of the guidance, you're looking for revenue growth of 14% to midpoint and on adjusted EBITDA growth, you're adjusting for the leases, you're looking for a 15% growth at the midpoint in 2019. I expect the 3 greenfields that start this year as well as Polyair and Maiweave to be slightly dilutive to margins as far as 2019 is concerned, where should we be looking for, call it, margin expansion opportunities just because EBITDA is growing at a faster pace than revenue this year?
Yes. Certainly, I would say that, that makes a lot of sense. I mean, certainly when you think of margin expansion, I mean, obviously the spread, we just talked about, should we benefit from some of these [ decreasing ] raw materials, that could be one. Certainly, our plants are certainly performing really well going into the end of last year into the beginning of this year and that was something that was through the -- certainly the first half or maybe through -- the first 3 quarters of the year was somewhat of a drag on our profitability. So that certainly could be a driver this year and improve profitability. And then some of the synergies that we're going to be recognizing on the acquisition, so you think about Cantech, we just closed the Johnson City facilities, and we expect to pick up $1 million -- $1.5 million to $2 million there. We have additional synergies that we expect to realize on Cantech by the end of the year, you probably won't have a full year run rate in those things, but certainly, we expect to end the year with some expansion there. And then, on the Polyair side, like we said in the script -- in the call, is that we've -- we're working on accelerating some of that vertical integration, some of those cost synergies in the Polyair business, so that's another expansion opportunity.
Okay, great, helpful. And maybe if I can tack on one quick follow-up, I know there are other callers, but with your existing product portfolio, should we expect gradual increase in margin, call it up to 15% in line with your 2022 guidance rate as the integration and the ramp of greenfields mature?
Yes, absolutely. So from our perspective, when we look at kind of what's happening to our margin on the EBITDA line, a lot of that has to do with the acquisition. So as we kind of work through these cost synergies and certainly get some leverage on the top line, the expectations for these acquisitions to line up to kind of where Intertape historically has been, which is 15%.
Your next question comes from the line of Damir Gunja from TD Securities.
Just thinking about your ultimate production from India, how much of that can go to the U.S. versus Europe? I just was thinking about some of the recent trade tensions that are starting to come up there.
Yes. It's a good question. So just starting with the tape plant. That tape plant in the business case has product going into Canada, product going into the U.S. and product going into Europe. So those are kind of the 3 buckets that we're looking at. Obviously, with those trade tensions, the U.S. part is the portion that would be hit or affected by it, and we would kind of adjust appropriately. But there's 2 other locations that drive a fair amount of the business plan there. And then, on the Capstone plant, we have quite a bit of woven product business within Canada. So we're typically sending product into both Canada and the U.S. So there is some kind of buffer there as it relates to the order of magnitude coming into the U.S. And then the other thing with Capstone as well is most of our large competitors, if not all, are in India and we believe that, that will be an industry issue that we'll have to deal with collectively. So I think we'll just kind of play that out as we move along as this further develops.
Okay. That's good color. Appreciate that. Maybe just a second one from me. How should we think about the production ramp rate, I guess, your expansion in Midland sort of when you would foresee getting to full capacity, would that be a later '19 event or into 2020?
Yes. I mean, I think that's really going into a longer period into 2020 than 2019. Like we said in the first line we put in there, we were basically sold out almost the day we started that thing up. So we needed it to satisfy demand in the fourth quarter of 2017. Whereas the second line, we knew putting it in -- obviously we're putting it in with the expectations of growth, and that coming from e-commerce, certainly. We knew that, that was going to be a longer period of time, but we don't expect it to be a very long period of time with that level of growth, but it certainly won't be full by the end of the year.
And can you disclose sort of revenue run rate once it's fully up and running for that second line?
Yes. We haven't talked about revenue.
Your next question comes from the line of Neil Linsdell from Industrial Alliance Securities.
We talked about e-commerce being something that's obviously very interesting for you guys with Midland and everything like that. Can you kind of quantify your exposure into e-commerce? And does it really focus around the protective packaging product or how do you think about your e-commerce exposure?
Well, I think from our perspective as it relates to product line specifically, I think we present opportunity into the channel where we provide the broad breadth of products. And when you think of e-commerce and shipping, you think of shipping in a box, we provide the water-activated tape and dispensers for that environment. And then you think of shipping in a mailer, we provide that product as well. And then you think of where we are with some of these Vendor Flex programs within Amazon as they develop further their ship-in-own container, there is shrink wrap involved, their opaque shrink film, and we can cover that as well. So I think we're well positioned from a product offering perspective, as they further develop their supply chain moving forward. Certainly, from our perspective, as we've communicated before, it is our highest growth area of the company and we're aligning resources both assets and people around that to maximize it -- maximize on it as best we can.
And I think with regards to like the percentage of our business, I mean, as we said in the past, a lot of our sales go through industrial distributors so -- and we don't get point-of-sale data, so it's very tough for us to say exactly how much goes into each channel, which is part of why we don't disclose that. So we don't have a clear picture of exactly how much of our revenue is in e-commerce. But we certainly know some of the big customers where we do have direct relationships and none of those customers represent anything above 10%, so just to give an idea. But it's not -- it's not something that I would say, and I'd said this before, that it's a very large percentage of our revenue [ at this point. ]
Okay. Fair enough. And just when you look at the bundling strategy as you try to own the packing table, how far are you in your development of that, say what inning are we in as far as completely getting everything you can out of that strategy?
Well, I think with the addition of Polyair, I think we're quite early in that game. When we think of the product line extensions that we brought into the protective packaging that Polyair did not have access to before we acquired them, I think we're early in that bundle approach, especially with the new protective packaging product line.
Okay. Fair enough. And then, just maybe lastly, when you talked about the CapEx numbers that we're looking at as a lot of these investments have come down, how much are you really looking at, any kind of small greenfields just expanding your footprint to maybe be closer to some of your expanding clients or your expanding client base?
Yes. We really have no plans on a smaller kind of greenfield at this point. I think we're well positioned. As our customers move to other geographical areas, that could be an opportunity for us. But I think the way we would enter into those markets is more from a light manufacturing perspective or even just a distribution center perspective as we follow our customers around the world.
Okay. So notwithstanding any acquisitions, just optimizing everything that you've been doing over the last few years?
Correct, yes.
Your next question comes from the line of Walter Spracklin from RBC.
I'd like to start with your guidance on the revenue side. Just you did have a bit of a mix effect in the 2018 growth. I'm just wondering if when we look at, I guess, price and mix, it was up over 5%. Mix generally tends to normalize. Are you expecting a continued impact from mix into 2019 now? Or would we see that, that number come down to some kind of core price growth rate?
Yes. It's really tough to break out mix and price in our forecast just given a lot of moving parts between different channels, different customers, different product lines. At this point, certainly what could play with our mix certainly is when we think about, for example, our acrylic tape, so this year, you see in the revenue table that we discussed there, our growth numbers are actually higher, excluding that tape. So we actually saw a decreased volume in that tape when you look at the periods that were presented here. So that could certainly play with your revenue line. We talked about, in the past, we had a retail product that we saw some positive growth in 2018 versus 2017 that gave us a positive mix. That's likely to stabilize. So it's tough to say though at this point how much mix will play a part in our 2019 number, but certainly, we've seen that, that fluctuate, and again, it's tough to predict.
But you made an assumption for it in your guidance, though, right?
Yes. We have done our best to do that, but again, it's not something we want to break out because it's something that, again, can be quite variable. So we look -- we obviously look at different ranges when you look at volume and mix and price and we factor all that into our guidance.
Okay. Okay. Moving to the EBITDA line. You have had a number of adjustments to your core EBITDA or your base EBITDA, reported EBITDA, I guess, associated with manufacturing, closures, restructuring and other as well as M&A. Anything in those 2 line items that is embedded in your 2019 guidance for EBITDA?
No. So that would exclude all those items the same way that our actual excludes them.
So your -- so 2019 when reported should not have any adjustments associated with those or at least when we're comparing it to the guidance you're providing on either M&A costs or any of the other restructuring?
Yes. Our adjusted EBITDA definition excludes those items. So we...
They will be excluded.
So we will have M&A costs hit our P&L in 2019, both related to -- mainly related to integration at this point of our acquisitions. In terms of closure, we did mention that we will still have some closure costs hitting the P&L related to the Johnson City closure of about $1.4 million, that will sort of spread over mostly 2019 and into -- a little bit into 2020. So those costs will be excluded from our adjusted EBITDA. So that's not impacting that $164 million to $174 million number.
Okay. And you said $1.4 million for the closures. Any sense of what your M&A costs that you're looking at for next year based on the M&A that you've done.
Yes. We haven't provided any guidance on that. I mean, it's not a huge number, that's what I would tell you.
Okay, fine. Okay, your long-term targets that you put out there, any change to those since -- now that we're going into 2019, would you make any adjustments to those longer-term EBITDA targets that you put out there in revenue?
No, no.
No. At this point, I mean, we feel pretty good. I mean, when we look at what we have ahead of us, at this point, we don't believe we would get to those numbers just with what we have. We still think that it would take a couple of bolt-on acquisitions to get us there. But certainly we...
You've quantified that in the past -- about how much do you think you would need in additional revenue and EBITDA from acquisitions to get to those 2022 targets?
Yes. We don't want to disclose that, no.
Okay, all right. You mentioned optimization; obviously, it takes time. Roughly, where are you in that? If you were to ballpark a percentage, are we 50% there, are we 75% there -- if you were to kind of just frame all of your optimization together in 1 bucket of the new facility expansions that you referenced?
Yes. So I think, I mean, when you think about Midland, we're much further along. I mean, I'm not [ including ] our operation there given that, that went live in kind of -- in Q3 and Q4 '17. When we think about our other Indian operations, I mean, there we are at the very, very early stages of just starting up machinery, right? So that's going to still be a while. Like we said, there is more like 12 to 18 months kind of period of optimizing that production once you've commissioned, right? So we're in the process of commissioning, which we hope -- we expect to be done by the end of Q2 in the first half and then we expect that to be optimized over the next, call it, 12 to 18 months.
Okay. Last questions on the acquisition environment and your appetite for them given your current capital structure. Can you describe the climate? Is it -- are price expectations on the sellers getting better or worse? Are there any particular target areas you are looking at either geographically or by product line? And again, where -- what would be your appetite given your current leverage situation?
I think as we mentioned in last quarter's conference call, we've certainly seen expectations of sellers continue to either stay at high levels or even higher historical levels. And there has certainly been a disconnect between kind of public market trading multiples and certainly what these acquisitions would go for. So I think our approach here is pretty prudent. We're not going to chase anything, and I think there's still opportunities to continue to execute on acquisitions that look like a Maiweave or something of that nature. And we'd be very comfortable doing that both from an execution perspective, but just as importantly, from a value creation perspective, and we don't think that those kind of acquisitions have attracted multiples that just put us out of the range. So I don't know if that answers your question, but certainly bolt-ons, we are still very interested in.
And you think your current situation allows for continued -- for you to pursue acquisitions or would you say they're on hold until you get your leverage level at a certain acceptable rate -- more acceptable rate?
Well, I guess, what I'm saying is as we sit right now, I think continuing on executing on acquisitions that look like Maiweave will continue.
And keep in mind, [ I mean, ] when we talk about these bolt-ons, I mean, like Maiweave, I mean, we have been working on almost 2 years.
It took us 2 years to do it.
So -- and I could say the same for the others. So, we're consistently looking in the market. We're consistently speaking to people. It's tough to say when some of these deals can even materialize or whether they'll materialize. So we will continue to work on that and see where that goes.
[Operator Instructions] Your next question comes from the line of Ben Jekic from GMP Securities.
The first one, I think it was asked. I will probably ask it in a different way. Given that your gross margin has been lower in this quarter because of the mix of Polyair and the other additions, is it fair to say that the higher EBITDA margin based on your guidance is going to come more from the OpEx side than from the gross margin side, i.e., should we model kind of lower gross margin but higher operating profit? Is that a fair assessment?
So you mean in terms of like that SG&A will go down, but that margins will not go up. Is that what you mean?.
Yes.
No. I think -- I think for us, I mean, when we think of the path forward this year, I mean, like in the first -- I think Michael Doumet mentioned about some of the drags on our margin this year and some of the upsides that I mentioned. But I think with those upsides, we hope to see some improvement there on the gross margin line. So I think we can get some leverage there with the integration on the M&A side, taking out some costs, which we've already done and continue to do, along with some of the hopefully tailwinds that continue on the raw material side and then our plants performing quite a bit better than they did in the prior year. So, I mean, I think we've got some tailwinds in some of these areas that we hope to see continuing. So I would expect that margins can pick up. I mean, at this point, on our SG&A lines, certainly, we've beefed up there over the last number of years. We don't expect any significant increases there, but at the same time, we need that cost base to support the growth we are trying to achieve right now.
Okay. And in terms of SG&A, I think in the past you were asked this question, but in terms of SG&A and share compensation costs, can you qualitatively at least suggest like if the stock improves 10% during the quarter, how much of a bump would we see on the SG&A line?
Yes. We haven't disclosed the exact like dollar amount. I don't think -- I don't think -- I mean, a 10% bump. There will be some impact for sure, but certainly, it takes quite a bit for there to be a material impact there, and I think really what's difficult is when you have a period especially when you look year-over-year and you have 1 period where the stock goes down and 1 period where the stock goes up, that's where you see very significant fluctuations and the stock would just go up, call it, slowly over time, and you're not going to see a big variation period-over-period.
Right. And my last question is if I could just ask you to repeat, there were a few factors that were excluded from the EBITDA guidance. I think you said there was M&A cost and some restructuring. Could you repeat that?
Yes, so that's -- that's just our typical definition of adjusted EBITDA. So if you look in our adjusted EBITDA non-GAAP measures section, you'll see that even our actual numbers exclude M&A costs and exclude manufacturing closures. So it's the same thing for our guidance, it's measured on the same basis.
Your next question comes from the line of Zachary Evershed from National Bank Financial.
So looking at some of the containerboard players, they saw a big e-commerce surge in 2015 and 2017, but it looks like there was less of a lift in 2018. Does that match what you're seeing in your end markets? I know that there is a little bit of muddied waters issue from the distributors, but to the best of your ability.
I don't have the data from prior years, but I would say that 2018 kind of met our expectations for growth within the channel. I mean, it was up well above double-digit.
And can you comment on the progress of the Utah shrink film project?
Yes. So that project basically is being completed this quarter, early this year. So as you'll see in our MD&A, we have about $1 million or $2 million to complete that project. That should be basically live by the end of this quarter.
[ Beauty. ] And then, finally, on the strong volumes that we saw, Q4 '17 was also quite strong, do you think that you're getting more seasonality introduced or less over time with the acquisition?
I think more as it relates to especially the leaning towards e-commerce.
Mr. Yull, there are no further questions at this time. I will now turn the call back over to you. Please continue with your presentation or closing remarks.
Thank you for participating in today's call. We look forward to speaking with you, again, following the release of our first quarter 2019 results in May. Thank you.
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