Q2 2014 Quarterly Earnings Call Presentation August 6, 2014
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" within the 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 reliance upon 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 Company's revenue from new products, the Company's upcoming dividend payment, the update on the South Carolina Project, including the related expected capital expenditures, net earnings impacts, and timing, the Company's expected capital expenditures for 2014, the Company's expected manufacturing cost reductions for 2014, and the Company's 2014 third quarter and full year 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 expectations reflected 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 to assumptions 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 quality, and market reception, of 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 customer service; anticipated savings from the Company's manufacturing plant rationalization initiatives; anticipated cash flows from the Company s operations; availability of funds under the Company s Asset-Based Loan facility; and the Company's ability to continue to control costs. 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. Readers are cautioned not to place undue reliance on any forward-looking statement. 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 assumptions underlying 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, 2013 and the other factors contained in the Company's filings with the Canadian securities 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 statements unless 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 as a Percentage of Revenue, Adjusted Net Earnings, Adjusted Earnings per Share, Operating Profit Before Manufacturing Closures and Manufacturing Closure Costs and Other. The Company believes such non-gaap financial measures improve the transparency of the Company s disclosures, and improves the period-to-period comparability of the Company s results from its core business operations. As required by applicable securities legislation, the Company has provided definitions of these non-gaap measures contained 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 Financial Presentations. You are encouraged to review the related GAAP financial measures and the reconciliation of non-gaap measures to their most directly comparable GAAP measures set 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. 2
Q2 2014 Highlights Revenue of $202.9 million, a $9.5 million or 4.9% increase compared to Q2 2013 Average selling price, including the impact of product mix, increased approximately 3% Volume increased approximately 2% Gross profit of $44.1 million, a $1.8 million or 4.2% increase compared to Q2 2013 Increase in the spread between selling prices and higher raw material costs Increased sales volume and net manufacturing cost reductions Partially offset by approximately $0.8 million of duplicate overhead costs incurred to support the South Carolina Project Gross margin was 21.7% in Q2 2014 and 21.8% in Q2 2013 Unfavorable mix variance and duplicate overhead costs Partially offset by net manufacturing cost reductions and an increase in the spread between selling prices and higher raw material costs Adjusted EBITDA of $29.5 million, a $1.2 million or 4.1% increase compared to Q2 2013 Higher gross profit 3
Revenue Analysis (In millions of US dollars) Year-over-year Sequential Year-to-date Revenue Revenue Revenue Q2 2013 $193.5 Q1 2014 $199.9 Q2 YTD 2013 $390.2 Volume effect 3.4 Volume effect (2.0) Volume effect (2.2) Price/Mix 6.0 Price/Mix 5.0 Price/Mix effect 14.9 Q2 2014 $202.9 Q2 2014 $202.9 Q2 YTD 2014 $402.9 Change 4.9% Change 1.5% Change 3.3% 4
New Products New Products as a % of Total Revenue Q2 2014 ~18% Q1 2014 ~17% Total 2013 ~18% Total 2012 >15% Total 2011 >10% Beyond 2014, short to medium-term goal will be approximately 20% of total revenue from new products Notes: New products include all products introduced over the previous five years The percentage of revenue from new products has begun leveling off, reflecting a more aggressive product introduction cycle that started five years ago 5
Update on South Carolina Project Startup Issues Encountered unexpected production startup issues Issues are being resolved but resulted in incremental capital expenditures, higher duplicate overhead costs and minor production delays Capital Expenditures Q2 2014 capital expenditures of $5.5 million Full Year 2014 capital expenditures are expected to total between $24 and $29 million Total capital expenditures are expected to be between $52 and $54 million, up from prior guidance of $44 to $46 million Total capital expenditures of approximately $39 million have been spent since inception to the end of June 2014 Net Earnings Impact Expect duplicate overhead costs of operating both the old and new plants involved in the South Carolina Project from the beginning of the second quarter of 2014 until the expected completion in the first half of 2015 will be $4 to $7 million. Prior guidance was between $2 and $5 million Q2 2014 manufacturing closure costs of $0.9 million primarily related to workforce retention and equipment relocation costs Project Start / End Dates Production started last week Project expected to be completed in the first half of 2015 6
Capital Expenditures (In millions of US dollars) Expected range Expenditures for 2014, including the South Carolina Project, are expected to total $39 to $44 million excluding any new potential high-return projects that may arise. Prior guidance was $31 to $35 million. 7
Manufacturing Cost Reductions (1) (In millions of US dollars) Expected range Manufacturing cost reductions are expected to total $14 to $16 million in 2014. Prior guidance was $16 to $20 million. (1) Approximate values 8
Dividend and Share Repurchase Announcements Dividend Increased the annualized dividend by 50% from $0.32 to $0.48 per share Declared a dividend of $0.12 per common share payable on September 30, 2014 Share Repurchases On July 7, 2014, the Board of Directors and the Toronto Stock Exchange approved the Company s application to make a normal course issuer bid ( NCIB ) to repurchase for cancellation up to 2,000,000 common shares by July 9, 2015 9
Summary Q2 2014 Results (In millions of US dollars) (1) Q2 2013 Q1 2014 Q2 2014 Q2 14 vs. Q2 14 vs. Q2 13 Q1 14 Revenue 193.5 199.9 202.9 4.9% 1.5% Gross profit 42.3 42.7 44.1 4.2% 3.2% Gross margin 21.8% 21.4% 21.7% (14 bps) +35 bps SG&A 20.2 19.0 20.6 1.7% 8.3% Research expenses 1.6 2.1 1.7 5.0% (19.6%) Adjusted EBITDA 28.3 26.7 29.5 4.1% 10.6% Adjusted EBITDA % 14.6% 13.3% 14.5% (11 bps) +120 bps Operating profit before mfging closures 20.5 21.6 21.8 6.6% 0.8% Mfging. closure costs and other 0.9 1.4 1.0 10.4% (26.2%) Operating profit 19.5 20.3 20.8 6.5% 2.7% Finance costs 2.3 1.2 1.2 (46.0%) 4.2% Income tax expense 2.1 7.4 7.5 249% 0.2% Net earnings EPS, fully diluted Adjusted net earnings Adjusted EPS, fully diluted 15.1 11.6 12.1 (19.9%) 4.1% 0.25 0.19 0.19 (21.2%) 3.2% 18.3 11.8 14.5 (20.7%) 23.3% 0.30 0.19 0.23 (22.0%) 22.2% (1) Excluding EPS 10
Adjusted EBITDA Q2 2014 over Q2 2013 (In millions of US dollars) 11
Adjusted EBITDA Q2 2014 over Q1 2014 (In millions of US dollars) 12
Adjusted EBITDA Q2 YTD 2014 over Q2 YTD 2013 (In millions of US dollars) 13
Summary Q2 2014 Results (In millions of US dollars) (1) Cash and loan availability Cash flow from operations before working capital Working capital items Cash flow from operations Total debt Debt to TTM Adjusted EBITDA Q2 14 Q2 14 Q2 2013 Q1 2014 Q2 2014 vs. Q2 vs. Q1 51.6 56.9 55.7 7.9% (2.1%) 25.8 25.6 27.0 5.0% 5.9% (6.6) (20.7) (8.9) 19.1 4.9 18.2 (4.9%) 273% 157.3 149.1 144.9 (7.9%) (2.8%) 1.6 1.4 1.4 (17.3%) (3.9%) DSO 40 42 41 1.9% (1.8%) Days inventory 58 57 61 4.7% 7.7% (1) Excluding ratios, DSO and days inventory 14
Total Debt to TTM Adjusted EBITDA Total Debt 15
Outlook Financial Metric Outlook Q3 2014 Revenue Growth Up 2%-4% over Q3 2013 Q3 2014 Gross Margin Approximately 19% (1) Q3 2014 Adjusted EBITDA Between $27 and $29 million (2) Total SC Project Duplicate Overhead Costs $4-$7 million (up from $2-$5 million) Full Year 2014 Cash Taxes Less than $5 million (unchanged) (3) Full Year 2014 Effective Tax Rate Approximately 40% (unchanged) (3) Full Year 2014 Capital Expenditures $39-$44 million (up from $31-$35 million) Full Year 2014 Manufacturing Cost Reductions $14-$16 million (down from $16-$20 million) (1) Includes anticipated South Carolina Project duplicate overhead costs of $1.2 million and a pension charge of approximately $2.0 to $2.5 million related to the settlement of the pension plan of the Brantford, Ontario manufacturing facility that closed in 2011. (2) Includes anticipated South Carolina Project duplicate overhead cash costs of $0.9 million. The Brantford Pension Charge will not impact adjusted EBITDA. (3) Unchanged from guidance provided in the Company s 2013 Annual Report. 16
Industrial Packaging Marine & Composites HVAC Building & Construction Geo Membrane Structured Fabrics Automotive Aftermarket Aerospace 17