q3 2017 earnings call presentation - intertape polymer group · earnings call q3 2017 presentation...

2017 Third Quarter Earnings Call Presentation

November 13, 2017

Earnings Call Q3 2017 Presentation 2

Safe Harbor Statement Certain statements and information included in this presentation constitute "forward-looking information" within the meaning of applicable Canadian securities legislation and "forward-looking statements" withinthe meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (collectively, "forward-looking statements"), which are made in relianceupon the protections provided by such legislation for forward-looking statements. All statements other than statements of historical facts included in this presentation, including statements regarding the CapstonePartnership, including its principal purpose, the timing and amount of cash consideration, and the construction of a greenfield manufacturing facility; expectations regarding the Powerband and Cantech Acquisitions;the upcoming dividend payment; expected 2017 capital expenditures; additional capacity to be added to the Midland, North Carolina facility; expected 2017 manufacturing cost reductions; the effective tax rateand income tax expenses and revenue; and the Company's fourth quarter and full year 2017 outlook, may constitute forward-looking statements. These forward-looking statements are based on current beliefs,assumptions, expectations, estimates, forecasts and projections made by the Company's management. Words such as "may", "will", "should", "expect", "continue", "intend", "estimate", "anticipate", "plan", "foresee","believe" or "seek" or the negatives of these terms or variations of them or similar terminology are intended to identify such forward-looking statements. Although the Company believes that the expectationsreflected in these forward-looking statements are reasonable, these statements, by their nature, involve risks and uncertainties and are not guarantees of future performance. Such statements are also subject toassumptions concerning, among other things: business conditions and growth or declines in the Company's industry, the Company's customers' industries and the general economy; the anticipated benefits from theCompany's manufacturing facility closures and other restructuring efforts; the anticipated benefits from the Company’s acquisitions; the anticipated benefits from the Company’s capital expenditures; the qualityof, and market reception for, the Company's products; the Company's anticipated business strategies; risks and costs inherent in litigation; the Company’s ability to maintain and improve quality and customerservice; anticipated trends in the Company's business; anticipated cash flows from the Company’s operations; availability of funds under the Company’s Revolving Credit Facility; the Company's ability to continueto control costs; the impact of the increase in raw material prices as a result of major storms; external competitive and supply chain pressures; and expected strategic and financial benefits from the Company'songoing capital investment and mergers and acquisitions programs. The Company can give no assurance that these statements and expectations will prove to have been correct. Actual outcomes and results may,and often do, differ from what is expressed, implied or projected in such forward-looking statements, and such differences may be material. You are cautioned not to place undue reliance on any forward-lookingstatement.

For additional information regarding important factors that could cause actual results to differ materially from those expressed in these forward-looking statements and other risks and uncertainties, and the assumptionsunderlying the forward-looking statements, you are encouraged to read "Item 3. Key Information - Risk Factors," "Item 5. Operating and Financial Review and Prospects (Management's Discussion & Analysis)"and statements located elsewhere in the Company's annual report on Form 20-F for the year ended December 31, 2016 and the other statements and factors contained in the Company's filings with the Canadiansecurities regulators and the US Securities and Exchange Commission. Each of these forward-looking statements speaks only as of the date of this presentation. The Company will not update these statementsunless applicable securities laws require it to do so.

This presentation contains certain non-GAAP financial measures as defined under applicable securities legislation, including Adjusted EBITDA, Adjusted EBITDA Margin, Free Cash Flows, Trailing Twelve Month(“TTM”) Adjusted EBITDA and Leverage Ratio. The Company has included Adjusted EBTDA and Adjusted EBITDA Margin because it believes that they allow investors to make a more meaningful comparisonbetween periods of the Company’s performance, underlying business trends and the Company’s ongoing operations. The Company further believes these measures may be useful in comparing its operatingperformance with the performance of other companies that may have different financing and capital structures, and tax rates. Adjusted EBITDA excludes costs that are not considered by management to berepresentative of the Company’s underlying core operating performance, including certain non-operating expenses, non-cash expenses and non-recurring expenses. In addition, adjusted EBITDA is used bymanagement to set targets and is a metric that, among others, can be used by the Company’s Compensation Committee to establish performance bonus metrics and payout, and by the Company’s lenders and investorsto evaluate the Company’s performance and ability to service its debt, finance capital expenditures and acquisitions, and provide for the payment of dividends to shareholders. The Company has included LeverageRatio because it believes that it allows investors to make a meaningful comparison of the Company’s liquidity level. In addition, leverage ratio is used by management in evaluating the Company’s performancebecause it believes that it allows management to monitor the Company's liquidity level and evaluate its capacity to deploy capital to meet its strategic objectives. The Company has included free cash flows becauseit is used by management and investors in evaluating the Company’s performance and liquidity. As required by applicable securities legislation, the Company has provided definitions of these non-GAAP measurescontained in this presentation, as well as a reconciliation of each of them to the most directly comparable GAAP measure, on its website at http://www.intertapepolymer.com under “Investor Relations” and “Eventsand Presentations” and “Investor Presentations”. You are encouraged to review the related GAAP financial measures and the reconciliation of non-GAAP measures to their most directly comparable GAAP measuresset forth on the website and should consider non-GAAP measures only as a supplement to, not as a substitute for or as a superior measure to, measures of financial performance prepared in accordance with GAAP.

Variance, ratio and percentage changes in this presentation are based on unrounded numbers. All dollar amounts are in US dollars.


Q3 2017 Highlights (as compared to Q3 2016)• Revenue increased 17.9% to $243.4 million

• primarily due to additional revenue from the Cantech and Powerband Acquisitions(1), an increase in average selling price, including the impact ofproduct mix, and an increase in sales volume from certain tape products.

• Gross margin decreased to 20.9% from 21.7% • primarily due to the dilutive impact of the Cantech Acquisition resulting mainly from non-cash purchase price accounting adjustments and certain

manufacturing production inefficiencies occurring mainly in older facilities.

• Net earnings attributable to Company shareholders (“IPG Net Earnings”) increased $13.0 million to $19.2 million • primarily due to (i) a decrease in selling, general and administrative expenses (“SG&A”) mainly due to a decrease in share-based compensation

driven primarily by the change in fair value of cash-settled awards, (ii) a decrease in manufacturing facility closures, restructuring and other relatedcharges, and (iii) an increase in gross profit.

• Adjusted EBITDA(2)(3) increased 15.9% to $32.4 million • primarily due to an increase in gross profit and additional adjusted EBITDA from the Powerband and Cantech Acquisitions, partially offset by an

increase in variable compensation resulting from an improvement in expected operating results.

• Cash flows from operating activities increased $4.0 million to $24.1 million primarily due to an increase in gross profit, partially offset by a decreasein cash flows from working capital items

• Free cash flows(3) decreased by $12.3 million to negative $4.7 million primarily due to an increase in capital expenditures, partially offset by anincrease in cash flows from operating activities

(1) “Powerband Acquisition” refers to the acquisition by the Company of 74% of Powerband Industries Private Limited (doing business as “Powerband”) on September 16, 2016. "CantechAcquisition" refers to the acquisition by the Company of substantially all of the assets of Canadian Technical Tape Ltd. (doing business as “Cantech”), which includes the shares of CantechIndustries Inc., Cantech's US subsidiary, on July 1, 2017

(2) The Company has modified its definition of adjusted EBITDA to also exclude advisory fees and other costs associated with mergers and acquisitions activity, including due diligence, integrationand certain non-cash purchase price accounting adjustments ("M&A Costs"). Prior period amounts have been conformed to the new definition of adjusted EBITDA.

(3) Non-GAAP financial measure. Please see the “Safe Harbor Statement” for an explanation of the Company’s use of this measure and a cross-reference to a reconciliation to its most directlycomparable GAAP measure.


Q3 2017 Highlights (as compared to Q2 2017)

• Revenue increased 15.8% to $243.4 million• primarily due to additional revenue from the Cantech Acquisition, increase in sales volume and increase in average

selling price, including the impact of product mix.

• Gross margin decreased to 20.9% from 22.5% • primarily due to the dilutive impact of the Cantech Acquisition resulting mainly from non-cash purchase price accounting

adjustments.

• IPG Net Earnings increased $9.0 million to $19.2 million• primarily due to a decrease in SG&A and an increase in gross profit, partially offset by an increase in income tax expense.

• Adjusted EBITDA increased 4.3% to $32.4 million• primarily due to an increase in gross profit and additional adjusted EBITDA from the Cantech Acquisition, partially offset

by an increase in variable compensation resulting from an improvement in expected operating results.

• Cash flows from operating activities increased $4.5 million to $24.1 million primarily due to an increasein gross profit and cash flows from working capital items

• Free cash flows decreased by $3.9 million to negative $4.7 million primarily due to an increase in capitalexpenditures, partially offset by an increase in cash flows from operating activities


Q3 2017 YTD Highlights (as compared to Q3 2016YTD)• Revenue increased 10.3% to $660.7 million

• primarily due to additional revenue from the Powerband and Cantech Acquisitions and an increase in average selling price,including the impact of product mix.

• Gross margin decreased to 22.3% from 23.0% • primarily due to stronger manufacturing capacity utilization in the first nine months of 2016 and the dilutive impact of the

Cantech Acquisition resulting mainly from non-cash purchase price accounting adjustments, partially offset by thefavourable impact of the Company’s manufacturing cost reduction programs.

• IPG Net Earnings increased $13.5 million to $42.9 million• primarily due to (i) an increase in gross profit, (ii) a decrease in manufacturing facility closures, restructuring and other

related charges, and (iii) a decrease in SG&A.

• Adjusted EBITDA increased 8.7% to $93.9 million• primarily due to an increase in gross profit and additional adjusted EBITDA from the Powerband and Cantech Acquisitions,

partially offset by an increase in employee related costs to support growth initiatives in the business.

• Cash flows from operating activities decreased $10.1 million to $33.1 million primarily due to a largerincrease in cash outflows from working capital items, partially offset by an increase in gross profit

• Free cash flows decreased by $45.7 million to negative $38.3 million primarily due to an increase in capitalexpenditures and a decrease in cash flows from operating activities


Cantech Acquisition & Capstone Partnership Cantech Acquisition on July 1, 2017• Cantech contributed revenue of $15.9 million and a net loss of $0.8 million in the third quarter of 2017. The net loss was primarily due

to non-cash purchase price accounting adjustments.

• The Cantech integration process, although in its early stages, is currently proceeding as planned.

Capstone Partnership• On June 23, 2017, the Company established a partnership, Capstone Polyweave Private Limited (doing business as “Capstone”), with the

non-controlling shareholders of Capstone, who are also the shareholders and operators of Airtrax Polymers Private Limited (doingbusiness as “Airtrax”). Airtrax manufactures and sells woven products that are used in various applications, including applications in thebuilding and construction industry.

▪ The Company has contributed $10.2 million in total to Capstone as of September 30, 2017.

▪ The shareholders of Airtrax have agreed to arrange a contribution in kind to Capstone of the net assets attributed to Airtrax’sexisting woven product manufacturing operations, which are estimated to have a value of approximately $12 million. Thelegal process to make the contribution of the net assets has begun and is expected to be completed in the first half of 2018.

• The majority of the Company’s total cash consideration, of approximately $13 million over a six to twelve month period from June 23,2017, is intended to be used by Capstone toward the construction of a greenfield manufacturing facility in India ("Capstone GreenfieldProject").

▪ This project has begun and capital expenditures year-to-date total $7.7 million.▪ Total project cost is expected to be approximately $30 million (which is expected to be funded in part by the Company's cash

consideration and in part by debt financing) and commercial operations are expected to commence in the first half of 2019.


Capital Expenditures

Revisedfrom thepreviouslystatedrange of$75-85million.

All strategic initiatives are currently proceeding as planned both in terms of timeline and expenditure levels.

100

90

80

70

60

50

40

30

(In

mill

ions

ofU

Sdo

llars

)

Q3 2016 YTD FY 2016 Q3 2017 YTD FY 2017 (F)

35.8

50.0

71.4

85-90


Capital ExpendituresMidland, North Carolina

• Greenfield facility for water-activated tape capacity expansion.

• Approximately $46 million totalproject spend as of September 30,2017.

• Production has begun and is rampingup to full capacity in the fourthquarter, as planned.

• Additional capacity planned andestimated to be completed by thebeginning of 2019.

◦ Expected additional investmentof approximately $13.5 million.


Other Significant Items

• The Company’s call option on all of the shares owned by the minority shareholders ofPowerband triggered on July 3, 2017

• Executed a binding term sheet on July 4, 2017• As of November 10, 2017, no shares have been purchased by the Company under this

agreement as the parties continue to work through the exit provisions stipulated in the termsheet

• Normal course issuer bid renewed for twelve-month period starting July 17, 2017• 4,000,000 common shares may be repurchased for cancellation • 487,300 common shares have been repurchased and cancelled for a total purchase price of

approximately $7 million as of November 10, 2017

• Quarterly cash dividend declared • On November 10, 2017, the Board of Directors declared a quarterly cash dividend of $0.14

per common share payable on December 29, 2017 to shareholders of record at the close ofbusiness on December 15, 2017


Q3 2016 to Q3 2017 Q2 2017 to Q3 2017Q3 2016 YTD to

Q3 2017 YTDBeginning 206.6 210.2 598.9Volume effect 3.9 1.9% 8.6 4.1 % (3.8) (0.6)%Price/Mix effect 9.3 4.5% 8.4 4.0 % 22.9 3.8 %Acquisitions (1) 22.4 10.9% 17.1 8.2 % 34.9 5.9 %Other 1.2 0.6% (0.8) (0.4)% 7.8 1.2 %Ending 243.4 17.9% 243.4 15.8 % 660.7 10.3 %

Revenue Analysis(In millions of US dollars)

(1) Results for Powerband reflected beginning on the date acquired, September 16, 2016. Results for Cantech reflected beginning on the date acquired, July 1,2017.


Q3 2017 Q3 2016Q3 2017 vs

Q3 2016 Q2 2017Q3 2017 vs

Q2 2017Revenue 243.4 206.6 17.9 % 210.2 15.8 %Gross profit 50.9 44.9 13.4 % 47.4 7.4 %Gross margin 20.9% 21.7% (82 bps) 22.5% (165 bps)SG&A (2) 18.8 27.3 (31.3)% 28.7 (34.6)%IPG Net Earnings 19.2 6.3 207.8 % 10.2 88.7 %IPG EPS, fully diluted 0.32 0.10 214.8% 0.17 88.8%Adjusted EBITDA 32.4 28.0 15.9% 31.1 4.3 %Adjusted EBITDA Margin (3) 13.3% 13.6% (23 bps) 14.8% (147 bps)Effective tax rate 25.6% 16.3% +925 bps 28.3% (270 bps)

Summary Q3 2017 Results(In millions of US dollars) (1)

(1) Excluding earnings per share (“EPS”).(2) SG&A in the second and third quarter of 2017 and third quarter of 2016 includes $4.0 million, $(8.2) million and $2.4 million in share-based compensation

expense (benefit) and $2.6 million, $0.6 million and $0.8 million in M&A Costs, respectively.(3) Non-GAAP financial measure. Please see the “Safe Harbor Statement” for an explanation of the Company’s use of this measure and a cross-reference to a

reconciliation to its most directly comparable GAAP measure.


30

25

20

15

10

5

0

Q3 2016 Gross profit SG&A Mfg Closure Costs Income tax expense Other Q3 2017

6.3

6.0

8.6

6.1

(5.4)

(2.4)

19.2

IPG Net Earnings Q3 2017 over Q3 2016(In millions of US dollars)


(In millions of US dollars)

50

40

30

20

10

0

Q3 2016 Gross profit SG&A Other Q3 2017

28

8.6

(3.4) (0.8)

32.4

Adjusted EBITDA Q3 2017 over Q3 2016


30

25

20

15

10

5

0

Q2 2017 Gross profit SG&A Income tax expense Other Q3 2017

10.2

3.5

9.9

(2.7)(1.7)

19.2

IPG Net Earnings Q3 2017 over Q2 2017(In millions of US dollars)


50

40

30

20

10

0

Q2 2017 Gross profit SG&A Other Q3 2017

31.1

5.9

(4.1) (0.5)

32.4

Adjusted EBITDA Q3 2017 over Q2 2017(In millions of US dollars)


60

50

40

30

20

10

0

Q3 2016 YTD Gross profit SG&A Mfg facilityclosures

Income taxexpense

Other Q3 2017 YTD

29.4

9.63.5

9.3

(5.7)(3.2)

42.9

IPG Net Earnings Q3 2017 YTD over Q3 2016YTD(In millions of US dollars)


120

100

80

60

40

20

0

Q3 2016 YTD Gross profit SG&A Other Q3 2017 YTD

86.4

12.9

(4.4) (0.9)

93.9

Adjusted EBITDA Q3 2017 YTD over Q3 2016YTD(In millions of US dollars)


Summary Q3 2017 Results (In millions of US dollars) (1)

Q3 2017 Q3 2016Q3 2017 vs Q3

2016 Q2 2017Q3 2017 vs Q2

2017Cash and loan availability 161.7 116.7 38.5 % 179.2 (9.8)%

Cash flow from operating activities beforeworking capital 26.9 19.9 34.9 % 23.7 13.4 %Working capital items (2.8) 0.2 (1410.3%) (4.1) 32.6%Cash flow from operating activities 24.1 20.1 19.7 % 19.6 23.0 %

Free Cash Flow (4.7) 7.6 (162.2)% (0.8) (490.3)%

Net debt (2) 301.4 200.5 50.3 % 283.2 6.5 %TTM Adjusted EBITDA (3) 129.5 111.9 15.8 % 125.1 3.5 %Leverage ratio (3)(4) 2.5 1.8 35.0% 2.3 5.9%

DSO (5) 44 42 5.5% 41 7.8%Days inventory (6) 59 63 (6.6%) 64 (8.4%)

(1) Excluding ratios, DSO and days inventory.

(2) Borrowings, current and non-current, less cash.

(3) Non-GAAP financial measure. Please see the “Safe Harbor Statement” for an explanation of the Company’s use of this measure and a cross-reference to a reconciliation to its most directly comparable GAAPmeasure.

(4) Borrowings, current and non-current, divided by trailing twelve month (“TTM”) adjusted EBITDA.

(5) “DSO” represents Days Sales Outstanding and is calculated as Ending trade receivables divided by Revenue per day.

(6) Days inventory is calculated as Cost of sales per day divided by Average inventory.


OutlookThe Company's expectations for the fiscal year and fourth quarter of 2017 are as follows:

• Fiscal year 2017 gross margin is now expected to be between 22% to 22.5%, which is lower than the previously stated range of 22.5% to 23%, due primarilyto the impact of non-cash purchase price accounting adjustments related to the Cantech Acquisition.

• Fiscal year 2017 adjusted EBITDA has been revised to be between $126 to $130 million from the previously stated range of $120 to $127 million, to reflectthe new definition of adjusted EBITDA which excludes M&A Costs. These M&A Costs totalled $5.3 million in the first nine months of 2017.

• As a result of strong year-to-date performance in the Company's manufacturing cost reduction program, fiscal year 2017 manufacturing cost reductionsare now expected to exceed the previously stated range of $10 to $12 million.

• Due primarily to the progress on the Capstone Greenfield Project, fiscal year 2017 capital expenditures are now expected to be between $85 and $90million, an increase from the previously stated range of $75 to $85 million.

• The effective tax rate for 2017 is still expected to be 25% to 30%, however, given the current mix of earnings between jurisdictions, cash taxes paid in2017 are now expected to be approximately a third of the income tax expense in 2017 (previously expected to be approximately half), excluding the potentialimpact of any significant tax reform legislation and further changes in the mix of earnings between jurisdictions.

• Revenue in the fourth quarter of 2017 is expected to be greater than in the fourth quarter of 2016.

• Gross margin in the fourth quarter of 2017 is expected to be greater than in the fourth quarter of 2016, excluding the positive impact of the South CarolinaFlood Insurance Proceeds in the fourth quarter of 2016.

• Adjusted EBITDA in the fourth quarter of 2017 is expected to be greater than in the fourth quarter of 2016, excluding the positive impact of the SouthCarolina Flood Insurance Proceeds in the fourth quarter of 2016. Adjusted EBITDA in the fourth quarter of 2016 has been revised to $35.6 million, toreflect the new definition of adjusted EBITDA which excludes M&A costs. These M&A Costs totalled $0.3 million in the fourth quarter of 2016.


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