Intertape Polymer Group Inc

TSX:ITP

Earnings Call Transcript

[Operator]

Ladies and gentlemen, thank you for standing by. Welcome to Intertape Polymer Group's Second 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 only be making forward-looking statements, which reflect management's beliefs and assumptions regarding future events based on the information available today. The company undertakes no duty to update this information, including the earnings outlook, even though the situation may change in the future.You are, therefore, 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. 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, 2017, and subsequent statements and factors contained in this company's filings with the Canadian Securities Regulators and the U.S. Securities and the 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 margin; trailing 12 months adjusted EBITDA; leverage ratio; 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 also note that variance, ratio and percentage changes referring -- referred to during this call are based on unrounded numbers, and all dollar amounts are in US dollars unless otherwise noted.I would like to remind everyone that this conference is being recorded today, Monday, August 13, 2018, at 10 a.m. Eastern Time. And I will now turn the call over to Greg Yull. Mr. Yull, please go ahead, sir.

[Gregory A. C. Yull, CEO, President & Non]

Thank you, operator, and good morning, everyone. Welcome to IPG's 2018 Second Quarter 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 will make reference to our earnings presentation that you can download from the Investor Relations section of our website.I'll start on Page 3. It was a strong quarter. In comparison to the same period last year, revenue was up almost 19%. Adjusted EBITDA was up more than 11%. We completed the Airtrax transaction, refinanced and expanded our credit facility and acquired Polyair. The Polyair acquisition marks our first major move into the protective packaging space with a quality product offering that expands our product bundle and brings with it an established customer base.I'll address the acquisition in more detail in a moment. First, I would like to take a step back and describe how we think about our business and where we believe we are going. On Page 8, our vision is to be a recognized -- be recognized as a global leader in packaging and protective solutions. We've established clear targets for the business by 2022, which are to reach $1.5 billion in revenue, $225 million in adjusted EBITDA and 15% adjusted EBITDA margins.These targets require both organic growth from our base business as well as growth through acquisitions. We are in the midst of an extensive capital investment plan at specific facilities that supports our organic growth. Polyair is the sixth and largest acquisition that we've made since 2015. With our capital investments and strategic acquisitions, we believe we are positioning the company for long-term growth, and at the same time, remaining agile in the market and able to respond to competitive challenges and other variables like volatility in raw material cost.Our focus is on securing low-cost assets, operating them efficiently, and delivering high-quality products to our customers and distributors. We're investing in and acquiring assets that we believe will provide continued growth to the company and improve our competitiveness in key segments of the market in North America, like protective packaging and water-activated tape.Based on our experiences, customers and distributors are attracted to simpler, straightforward relationships. They want to deal with fewer vendors and buy more from each of them if the price and performance are right. They're looking for credible partners with scale and breadth. That is also the rationale behind our strategy to strengthen our product bundle. We want to offer our established base of distributors and end-user customers, a more streamlined method to procure a wide array of quality, low-cost packaging and protective solutions. In order to strengthen our product bundle, we've invested in existing facilities to ensure we're as efficient as possible and prudently building out our capacity for products where we believe demand is growing.On Page 9, you can see that we've invested nearly $35 million in CapEx so far this year. This includes the work that is underway at our 2 projects in India: the Capstone facility, which is highlighted on Page 10; and the Powerband facility on Page 11. Both projects are on budget and on schedule to commence operations in the first half of 2019. The expansion of our Midland operation is highlighted on Page 12. This is the second phase of the project that essentially doubles our production capacity at the Midland facility for water-activated tape that is used in our growing e-commerce vertical.We expect the new line to be operating in the first quarter of next year. These are important investments that stand to improve our competitiveness and strengthen our product bundle either through low-cost production or production scale. We are often asked about the return profile of our CapEx. We invest in projects targeting return levels at least 15% on an IRR basis. But these are complex operations, and they aren't light switches that turn on the moment they're installed. Time lines vary by project, but generally speaking, our larger investments can take up to 24 months to construct and commission and 12 to 18 months to reach optimal efficiency.At the same time, we're expanding our product bundle with strategic acquisitions like Polyair, which is shown on Page 13. As background, we've been interested in Polyair for a number of years. Polyair initiated a formal sale process earlier this year, and we're extremely pleased with the successful outcome for us. Polyair is a strong competitor in the protective packaging market, offering primarily bubble cushioning, foam, mailers and air pillow systems. Their offering complements our existing product bundle. The acquisition provides cross-selling opportunities to our existing customers and distributors as well as opportunities for us to market our offerings to their established customer base.They've built a strong industrial brand and share our commitment to low-cost, quality products and superior customer service. They've also built a significant position in the e-commerce vertical, which is obviously a key market for us with our water-activated tape and other packaging products.E-commerce growth continues to outpace growth in the overall economy. We are confident that protective packaging stands to benefit from this growth as merchandise's often shipped in unfilled cartons that require protective packaging to ensure any potential damage is limited. Our footprint in e-commerce is one of the primary reasons we've been interested in Polyair's business for few years. We estimate their adjusted EBITDA to be approximately $14 million for fiscal 2018. We estimate deal and integration cost will be approximately $2 million and between $3 million or $4 million, respectively, with the majority of integration costs expected to be recognized in 2019 and 2020.We expect the Polyair acquisition to be accretive to IPG earnings in 2019, excluding integration cost and non-cash purchase price accounting adjustments. We expect to deliver synergies from revenue and cost reductions. We also anticipate a reasonable level of organic growth in their business based on their e-commerce focus and their recent performance. Overall, we estimate that Polyair can achieve adjusted EBITDA of approximately $20 million to $22 million by 2021 from their business, which equates to a post-transaction valuation multiple of approximately 7x.With Polyair being our sixth acquisition since the start of 2015, we believe we are demonstrating a track record of acquiring assets that consolidate our position in a vertical or complement our existing offering.Looking back, Better Packages completed our -- complemented our water-activated tape business. We've since more than doubled the EBITDA we purchased on that transaction, mainly through leveraging cost -- cross-selling opportunities. TaraTape built-out our filament and pressure-sensitive business. We have more than tripled the EBITDA on this deal through rationalization. Powerband and Airtrax each provide a lower cost manufacturing base for certain packaging tape products and other woven businesses, allowing us to sell products more competitively in North America and Europe. And Cantech strengthened our position in industrial and specialty tape by adding new products, brands and cost-synergy opportunities.We continue to drive efficiencies in these businesses. Subsequent to the end of the second quarter, we announced to our employee base at the Cantech manufacturing facility in Johnson City, Tennessee that we will be closing the facility and transitioning its capacity to other facilities in the IPG network, which is discussed on Page 13. The closure is scheduled for the first half of next year. We expect the closure to generate cost savings of between $1.5 million to $2 million annually due to a smaller footprint and improvements in utilization at other factories.These expected savings will be incremental to those we have already announced, bringing the total expected annual synergies from that transaction to $3.5 million to $6 million by the end of 2019. We also expect to record a onetime upfront charge in the third quarter of approximately $6 million, mainly for noncash impairment of property, plant and equipment as well as inventory. We estimate total cash cost for this facility closures is -- of approximately $2.5 million will be incurred over the next 2 years. At this point, I'll turn the call over to Jeff, who will provide you with additional insight into the financials. Jeff?

[Jeffrey Crystal, Chief Financial Officer]

Thank you, Greg. I would now like to refer you to Page 16 of the presentation, where we present an analysis of our revenue for the second quarter of 2018. Second quarter revenue increased by almost 19% to $249.1 million from $210.2 million in the same period last year. The $38.9 million increase was primarily due to both revenue from acquisitions and organic revenue growth, including price, product mix and volume.On a sequential basis, revenue increased 5% as a result of the price increases in certain tape and film categories and a favorable product mix in certain tape categories.Volume increased overall by 2% in the quarter compared to the same period last year. There is a clear delineation in our volume between Powerband acrylic carton-sealing tape and the rest of the business. Keep in mind that acrylic tape is our lowest price tape product sold relative to our other offering. The impact of volume fluctuations in this product line can, therefore, affect the volume disproportionately compared to its impact on revenue and profit dollars.Excluding Powerband, sales volume grew just over 7% compared to the same basis last year. The most significant drivers of this growth were directly related to recent investments, such as in water-activated tape and stretch foam. Our woven business also experienced strong volume growth in the quarter.Turning to Page 17. Gross profit increased 15% to $54.5 million in the second quarter from $47.4 million the same period last year. Gross margin was 21.9% in the second quarter compared to 22.5% in the same period last year, primarily due to the Cantech and Airtrax acquisitions not included in the base period.This was partially offset by the spread between selling prices and combined raw material and freight costs. Excluding the impact of the acquisitions, gross margin was 22.7%. On a sequential basis, gross profit increased by 8% and gross margin improved by 60 basis points. The improvement in gross margin is primarily due to the spread between selling prices and combined raw material and freight costs. This increase was partially offset by an increase in plant-related operating costs. SG&A expense decreased by 4% to $27.6 million in the second quarter compared to $28.7 million in the same period last year. The reduction was primarily due to lower share-based compensation and lower M&A costs, which were partially offset by increases in variable compensation, the addition of Cantech SG&A and employee costs related to growth initiatives.Adjusted EBITDA increased by 11% to $34.6 million for the second quarter compared to $31.1 million for the same period last year. The $3.5 million improvement was primarily due to increases in gross profit and the adjusted EBITDA contributed from the Cantech acquisition.On Page 24, you can see cash flows from operating activities increased by $7.9 million to $27.5 million in the second quarter compared to $19.6 million in the same period last year. The improvement is primarily due to an increase in gross profit and a decrease in cash taxes, mainly as a result of a U.S. tax refund related to the Tax Cuts and Jobs Act in the U.S. The improvement in cash flows from operating activities positively impacted our free cash flows, which increased by $11.9 million to $11.1 million in the second quarter compared to negative $0.8 million in the same period last year.The company had total cash and loan availability of $271.9 million as of June 30, 2018, compared to $186.6 million as of December 31, 2017. The increase in cash and loan availability was primarily due to incremental capacity available under the new credit facility.During the second quarter, we successfully refinanced and increased our credit facility to $600 million with a new 5-year term from the previous $450 million facility that was due to expire in November 2019. The new facility consist of a $200 million term loan and a $400 million revolving credit facility. As Greg mentioned, we closed the Polyair acquisition on August 3, which used approximately $146 million of our capacity under the credit facility. At the end of the third quarter and taking into account the pro forma impact of the Polyair acquisition, we expect our leverage ratio to be approximately 3.2 compared to 2.1 at the end of the fourth quarter of 2017.We are comfortable at this level for now, given that it's below our credit facility limit of 3.5x. And as we generate cash flow, we'll continue to apply a portion of it to pay down debt just as we have over the course of the past year.As we mentioned in our last quarterly update, we expect to see a significant reduction in capital expenditures in 2019 to a range of approximately $40 million to $60 million, as we will be completing our most significant capital projects.This should enable us to generate free cash flow at a much greater rate than in 2017 and 2018, where capital expenditures have been at all-time highs. Day sales outstanding were essentially unchanged at 41 days in the second quarter compared to 42 days in the first quarter of 2018. Trade receivables increased $6.5 million to $113.1 million as of June 30, 2018, from $106.6 million as of December 31, 2017, primarily due to an increase in the amount and timing of revenue invoiced later in the second quarter of 2018 as compared to later in the fourth quarter of 2017.Days inventory increased slightly to 70 in the second quarter of 2018 from 67 in the first quarter of 2018. Inventories increased by $23 million to $151.2 million as of June 30, 2018, up from $128.2 million as of December 31, 2017. The change is primarily due to an increase in production, including the utilization of completed capacity expansion projects as part of our planned inventory build in anticipation of higher expected sales and the scheduled annual maintenance shutdowns planned at certain facilities in the third quarter as well as the increase in raw material costs that I referenced earlier.Greg will now provide the company's outlook. Greg?

[Gregory A. C. Yull, CEO, President & Non]

Thanks, Jeff. With this morning's announcement, we are revising our outlook for revenue and adjusted EBITDA, on Page 25, to include the impact of the Polyair acquisition. These expectations are excluding any significant fluctuations in selling prices caused by unforeseen volatility in raw material prices. We now anticipate revenue growth in 2018 to be between 16% and 18%, and adjusted EBITDA to be between $140 million to $150 million. We also expect revenue and adjusted EBITDA in the third quarter of 2018 to be greater than in the same period last year. We are executing a strategy to deliver long-term value for our shareholders, strengthening our product bundle by investing in our facilities and operations to drive efficiencies and acquiring businesses that consolidate our position or complement our offerings in growth markets or with key distributors.We appreciate the support and commitment that our investors have demonstrated, and I look forward to updating you on our progress. With that, I'll turn the call back to the operator to open up the question-and-answer period. Thank you.

[Operator]

[Operator Instructions] Our first question comes from the line of Michael Doumet with Scotiabank.

[Michael Doumet, Analyst]

So higher input prices have been a hot topic amongst investors to say the least. You recognized a sequential improvement in the price cost gap this quarter. I'm just wondering if you can talk about how much is left in terms of recapturing that margin spread either in percentage terms or any other way that you can provide insights there?

[Jeffrey Crystal, Chief Financial Officer]

We can't really comment on that. I mean, I'll be giving guidance for Q3, which we haven't given. But basically, like we said in our main announcement, we had instituted some price increases that came into effect in April. And we certainly saw a nice uptick in margins in April. And although prices of raw materials, certainly polypropylene, were higher in the quarter, so certainly that was offset somewhat by that. And as we discussed, we certainly expect that, that dynamic of being able to go out and get increases as long as it's supported by the competitive environment, it should not be an issue. So that's -- so certainly we will be adjusting that as we need to.

[Michael Doumet, Analyst]

Okay. Maybe just trying to get a sense if the improvement or if you're expecting an improvement maybe not as it relates to Q3, but sort of going to the end of 2018, I mean, you've talked about higher polypropylene price. I'm just wondering if your pricing momentum is maybe a little bit stronger than the cost momentum going forward?

[Jeffrey Crystal, Chief Financial Officer]

I don't think we can give you a look at that. But one thing I would say just connected to margin is, when you think of our margin right now and, as Jeff called it out, we're certainly facing margin pressures just with our acquisitions. And as we further integrate those acquisitions and take costs out, like we're doing in Cantech, I think, that has a material impact on margins going forward.

[Michael Doumet, Analyst]

Okay. [Now that's true] but it's helpful anyways. And maybe just turning to the EBITDA contribution from acquisitions, it was a little bit lower this quarter than in the prior quarters. So maybe just help parse that out and whether if that impact came from Cantech or from Airtrax, which was also closed in the quarter?

[Jeffrey Crystal, Chief Financial Officer]

So certainly, Cantech had a -- I wouldn't call it a great quarter. When we purchased that business and a lot of these businesses, they tend to be fairly lumpy quarter-to-quarter. And a lot of order timing within Cantech -- certainly, we had a couple operational issues in plants during the quarter. Moving forward, we feel really good about hitting our business case there. We're raising the guidance on synergies in that business, and we saw a nice rebound in July so far in the Cantech business.

[Michael Doumet, Analyst]

Okay, perfect. And maybe just one last question before I turn it over. Any way you can size up the revenue decline at Powerband for us? I'm assuming the impact of volumes was partial offset by the -- like an increase in price mix there. So any update there as well as any update on the overall competitive environment?

[Gregory A. C. Yull, CEO, President & Non]

Yes, so there too, we feel like there -- it's mostly a question of order timing. And we've articulated this in the past when we're dealing with that type of business. Certainly, it can affect our volumes somewhat materially, even though you're talking about low revenue per unit type of volume and certainly lower profitability as well, especially, considering it's coming from the Powerband business. But we feel that, that quarter, in particular, were some timing-related effects. If we look at the first quarter, we were actually somewhat up a little bit in volume in Powerband. And so we hope to see that recover into the third quarter and fourth quarter.

[Jeffrey Crystal, Chief Financial Officer]

And in Powerband during the quarter, we also went through a bit of a transition with our customer base in the U.S. So we feel like we're through that transition and that affected some of the order timing on a year-over-year basis.

[Operator]

Our next question comes from the line of Neil Linsdell with Industrial Alliance.

[Neil Linsdell]

If we go back to Slide 8 and look at the strategy and if I look at that between the geographic footprint, the product offering and the operational synergies cost-savings, can you talk about the strategy in relation to the goal that you set for 2022 as far as how each one is going to contribute? And the puts and takes thinking about you might have a geographic expansion in certain areas, where you can get lower margins, but you'll get the higher revenue. And, specifically, how all those things come together to get you the profitability improvement or those margin targets?

[Gregory A. C. Yull, CEO, President & Non]

Look, I think, as I said in my conference call, we're focused primarily within the North American channel right now. And our expansion globally has been around securing low-cost world-class assets to support our bundle strategy within North America, both within our tapes and films business and our woven products groups. So I think from a global footprint perspective, the 4 plants that we'll have in India plus the Portuguese operation plus a converting operation in Germany cover a lot of what we wanted to get accomplished when we rolled out this strategy. As it relates to protective solutions, certainly, when we think of the acquisition of Polyair and integrated that into our business and into our bundle, those 2 are definitely connected. That would be probably our biggest product segment that we were looking at from an expansion perspective. So I feel like the heavy lifting is accomplished there. On the operational excellence side, that's just a never-ending pursuit of continuous improvement through disciplined lean manufacturing in all of our facilities. So it's hard to articulate and we don't give guidance on how that each area drives the goal's piece. But what we do say is certainly for us to reach those goals we need a balance between organic growth, which is a lot of the CapEx that we're initiating right now or in the midst of completing right now, and M&A as we continue to pursue M&A opportunities.

[Neil Linsdell]

Okay, fair enough. And as we look at some of these projects that are coming on. There seems to be a lot of stuff with India with Midland that's going to be happening in early next year, 2019. Are we -- I know you're not giving guidance yet, but would there be anything expected as far as significant step-ups in revenue or efficiencies, once all these things kind of come into play beyond what, I guess, you've already talked about?

[Gregory A. C. Yull, CEO, President & Non]

Yes. I mean, we haven't given guidance for 2019. But what we have said is that we certainly expect sort of outsized growth on the top line going into next year and as well as going into 2020 where we'll have basically the full effect of all these projects hitting our top and bottom line. So certainly, we do expect an impact on both because like we said from the perspective of Capstone, let's say, that is taking us into a much lower and competitive cost on the woven side of the business, but it also enables us to go out and get revenue that -- opportunities that we've just never been able to access with our cost structure. The Powerband one is somewhat similar on the tape side, and it's also going to provide us a platform to grow some products that we're somewhat constrained on in capacity in North America. So we certainly see them as both cost and growth drivers. And then, obviously, Midland, I would say is more of a growth driver than a cost driver. Our expansion in Midland, which would be doubling the capacity there, I mean, obviously, we've been seeing outsized growth in water-activated tape going through that e-commerce channel, so that will continue to support that growth there. I think that gives you a little bit more color.

[Neil Linsdell]

No, that's good. And maybe lastly, I just wanted to touch on what you were talking about as far as a lot of your customers -- and I appreciate there's going to be multinationals, are looking to work with fewer suppliers and get more products. So if you look at the expansion that you've done, say on the e-commerce side, which has been very impressive. Is that an area or how are you continuing to, I guess, develop your product lines to be able to address these desires by your customers? And how -- if you can tell us anything about how the sales channel is working to be able to pull all these products together and work them into the offering for these clients?

[Gregory A. C. Yull, CEO, President & Non]

Well, I think before the Polyair acquisition, I think it was pretty easy to tie in a lot of these sales channels, sales groups to customers both at a distributor level and at an end user level. Certainly, with Polyair, mostly because they're a different business. It's a different ERP system. Where we're focusing a lot on right now is, Intertape has some inherent product lines that we feel -- and these are product lines within protective packaging that we feel we can get significant leverage with the experienced Polyair sales groups. So we're right now focused on integrating those products within Polyair. We're certainly taking our time as we line up at significant end users, specifically around e-commerce to make sure that we've got a unified approach to those customers. And I think that will develop more and more as we move along in the integration. I mean, we're still very early in the integration. I think we're 10 days in at this point after the close, but we're very active in that integration right now. And I think that's where the biggest opportunity is.

[Jeffrey Crystal, Chief Financial Officer]

Yes. And, I think also, when we think about e-commerce, I mean, protective packaging was, like Greg mentioned earlier, probably the biggest leg of the stool that we were missing, in terms of things that were somewhat closer, in terms of relation to the product lines that we already sell because when we think about the packaging in a fulfillment center in e-commerce, we basically have a pretty strong offering there in terms of breadth of products around that. There, certainly, could be a couple of more that are a little further fetched from what we're actually participating in today. So when we think of targeting e-commerce, we sort of -- we do think of that in terms of what they're using on that pac table. And then, obviously, going through our distributors, we're trying to think of okay, number one, how can we pull through that volume through distributors through these relationships, through these e-commerce customers, so like Amazon being a large one. How can we pull through the volume through distribution and certainly, how can we also help our distributors keep their process moving efficiently in terms of being able to order a bundle of products that they can turn quickly into cash in their inventory. So it sort of all works together in terms of a strategy.

[Operator]

Our next question comes from the line of Maggie MacDougall with Cormark.

[Maggie Anne MacDougall, Director of of Institutional Equity Research]

So just wondering if you could talk to in either broad or maybe not so broad terms, how you look at your operational expense lines, in particular, as you move through the back half of this year and into next year, where you've got a number of projects completing and some integrations likely getting some good momentum? Just trying to get a sense as to what kind of additional OpEx you may be carrying at present? And how you see that developing over the next couple of years?

[Jeffrey Crystal, Chief Financial Officer]

Yes. I mean, like we said, I mean, we certainly beefed up on the OpEx side and in terms of supporting all these growth initiatives and projects. So there is no question we have beefed up over the last few years. We certainly still see a lot of runway here in terms of executing on these projects. As we said a lot of this comes online in 2019 and then obviously you got to support the growth, again, in terms of getting those cost savings as well as growing your revenue. So I would say that at this point we don't expect any major shift there, but since you're asking, at this point, I think it's going to really depend on sort of what develops after that. And, obviously, the other part that's always uncertain is the M&A piece, right. So we've certainly set up a structure internally to support the M&A integration, which in the case of Polyair, we talk about going for another couple of years, certainly, until we hit our target there. And then, obviously, we still have some work to do on Cantech and Powerband as well as Capstone. So in that case, we certainly need headcount and need people to support those integrations as well as any other deals that may come down the line, which we couldn't predict today. So I wouldn't expect any major changes there.

[Operator]

Our next question comes from the line of Ben Jekic with GMP Securities.

[Ben Jekic]

On a similar note, I wanted to ask about the gross margin. And just maybe elaborate a little bit on what factors are playing out there like one is, obviously, the acquisitions and the costs. Could you maybe, again, without slipping into guidance, give at least some directional sense of at what point will be -- at least the gross margin side of the equation optimized? And then when is it just going to be the costs that are going to impact that metric? And how should...

[Gregory A. C. Yull, CEO, President & Non]

I think on the acquisitions, I think, we've got a clear path within the Cantech business to get them to a level of Intertape -- historical Intertape gross margins. I think that's a combination of, as you know, raw material savings, synergies. Certainly, with Johnson City taking a rooftop out, certainly, drives a significant margin improvement. So I mean I think, we've got a clear line of sight there. I think on the Powerband situation, as I said before, that's going to be longer term. But I do think that will work itself out over time. And again, in that business, we're seeing a pretty good integrated at least EBITDA margin on that business. I won't comment on the gross margin, but certainly, on an integrated EBITDA margin perspective, on a consolidated basis that business looks good. Certainly, as we look through Polyair, again, that business is a less capital-intensive business than our historical business, number 1. Number 2 is, we see a pathway to improve the margins there as it relates to cost takeout operational efficiencies and just pure leverage on the volume side.

[Operator]

And our next question comes from the line of Walter Spracklin with RBC.

[Walter Noel Spracklin, Analyst]

I guess, my first question would be on CapEx. I know that's an area of sensitivity on the part of many investors, and your indication for next year that it will come down. I guess, you guys are firm enough in your -- and I got 2 questions on that. First of all, you're far enough towards the end of those projects to give with comfort that, that CapEx budget and plan that you had in place is playing out that way that we do expect that to come down? And second question is with the Polyair acquisition, I noted, there was no -- you brought your EBITDA numbers up and you didn't have any changes to your CapEx plan, which would suggest that there hasn't been much need for any major expenditure on the Polyair facilities. Can you confirm that, that's the case? And also whether there'll be any onetime costs associated with the Polyair acquisition that haven't come in the year results yet?

[Gregory A. C. Yull, CEO, President & Non]

Yes, so as it relates to kind of the overall company's guidance for next year of $40 million to $60 million CapEx, we're pretty comfortable with that number. We don't have a full look right now of what Polyair will be consuming as it relates to CapEx in 2019, but we feel like we have enough room within that guidance, at this point, with what we know, right. Again, we're 7 days or 10 days in the close here and, certainly, actively pursuing that. I think it's also really important to realize that in the last 2 years, as it relates to CapEx, we basically built 3 greenfield sites, right. And that's the consumption of the CapEx and that's the time line that we referred to, that it takes 2 years to get a lot of these operations up and running. And then another period of time to get them to run rates. So when I think about it, and I think about historical CapEx, we have no plans right now to build a new plant, right, which is the biggest consumer of CapEx historically.

[Walter Noel Spracklin, Analyst]

Okay. And turning over to resin and transport prices. Clearly, there's been some discussion on to what extent these can be built into contracts. When they're, in contract, how well they hold? Can you talk about how much of your exposure you consider to be covered through commodity price increase factors built into your contracts? And how difficult will it be to include some that haven't been? I'm referring to transportation costs here, in terms of your customer's willingness or your ability to provide or push through a price increase of that manner?

[Gregory A. C. Yull, CEO, President & Non]

So I think, on the contractual obligation, certainly, we have some contracts there. Most of our product, as you know, was at will pricing. And I think when you look historically at the business, we've done a good job of managing, certainly, the raw material side. But, certainly, so far this year the freight side, freight's up double digits at this point. And when you think of kind of our spread right now when we manage it, we include freight in that cost, in that raw material sale price spread at this point. And I don't think like from our perspective, some of our end users are on formulas, if you will. But our business primarily and our industry works off of a lot of at will pricing. And that presents opportunities too.

[Walter Noel Spracklin, Analyst]

Okay. And lastly, you noted the Polyair integration upside in the EBITDA that you can generate longer-term once the acquisition's fully integrated. You pointed to a number of past experiences, which were successful. Is there anything about this one that you see is going to introduce some different challenges than you had in prior acquisitions that are absolutely crucial to hitting the numbers that you're looking at? Or is it kind of very similar, and therefore, can we see the risk to those EBITDA targets as being fairly low, given they're so similar to the integration efforts you made in past acquisitions?

[Gregory A. C. Yull, CEO, President & Non]

Yes, I mean, in this case, obviously, it's a different business. So that, obviously, is probably the biggest thing that, for us, introduces a risk is understanding the protective packaging business. And when we do have -- we have had some small -- very small participation in that business. But again, this is a whole other scale. It certainly going to test some of our theories with regards to the product bundle, and so forth. But in terms of the actual execution, I mean, there's not -- it's a very similar deal, I would say, to what we did with Better Packages, although on a much larger scale. Given that you're trying to bundle products together through -- primarily, through the distribution network and, obviously, trying to target the e-commerce side. So we were very successful at doing that with better packages and we certainly see synergy here. And of course, we did a lot of due diligence around this through our commercial studies and understanding the way distributors and end users value these products going through the channel as well as ours, and certainly, as a bundle as to what value they would put on that. So we feel pretty good about it, but of course, it is a new business for us. So I would say that would be part of the risk and then, obviously, there is just the day-to-day of trying to integrate reporting, trying to integrate people, culture, but nothing in particular that we would say is a real red flag in terms of risk that something wouldn't succeed. And we don't see this deal as more or less risky really than the ones we've done. Certainly, not the ones in North America anyway.

[Walter Noel Spracklin, Analyst]

Just curious, was Amazon part of that due diligence?

[Gregory A. C. Yull, CEO, President & Non]

Yes, indirectly.

[Operator]

Mr. Yull, there are no further questions at this time. I'll now turn the call back over to you for your closing remarks.

[Gregory A. C. Yull, CEO, President & Non]

I'd like to thank, everyone, for participating in today's call. So have a great day. Thank you.

[Operator]

This concludes today's conference. Please note the replay of this call can be accessed as of 1 p.m. today EDT at [phone] or internationally at [phone]. And then reference ID #3878158. Enjoy your day.