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Edited Transcript of KPT.TO earnings conference call or presentation 7-Nov-19 1:30pm GMT

Q3 2019 KP Tissue Inc Earnings Call

Mississauga Nov 16, 2019 (Thomson StreetEvents) -- Edited Transcript of KP Tissue Inc earnings conference call or presentation Thursday, November 7, 2019 at 1:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Dino J. Bianco

KP Tissue Inc. - CEO

* Mark Holbrook

KP Tissue Inc. - CFO

* Mike Baldesarra

KP Tissue Inc. - Director of IR

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Conference Call Participants

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* Hamir Patel

CIBC Capital Markets, Research Division - Director of Institutional Equity Research & Paper and Forest Products Analyst

* Paul C. Quinn

RBC Capital Markets, Research Division - Analyst

* Sean Steuart

TD Securities Equity Research - Research Analyst

* Zachary Evershed

National Bank Financial, Inc., Research Division - Analyst

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Presentation

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Operator [1]

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Good morning, ladies and gentlemen. Thank you for standing by. Welcome to KP Tissue Third Quarter 2019 Results Conference Call. (Operator Instructions)

Before turning the meeting over to management, I would like to remind everyone that this conference is being recorded on Thursday, November 7, 2019. I will now turn the conference over to Mike Baldesarra, Director, Investor Relations. Please go ahead.

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Mike Baldesarra, KP Tissue Inc. - Director of IR [2]

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Thank you, operator, and good morning, ladies and gentlemen. My name is Mike Baldesarra, I'm the Director of Investor Relations at KP Tissue Inc. The purpose of the conference call is to review the financial results of the third quarter 2019 for Kruger Products L.P., which I'll refer to as KPLP going forward.

With me this morning is Dino Bianco, the Chief Executive Officer of KP Tissue and Kruger Products L.P.; and Mark Holbrook, the Chief Financial Officer of KP Tissue and Kruger Products L.P.

The following discussions and responses to questions contain forward-looking statements concerning the company's activities. Forward-looking statements involve known and unknown risks and uncertainties, which could cause the company's annual results or actual results to differ materially from those in the forward-looking statements. Investors are cautioned not to rely on these forward-looking statements. The company does not undertake to update these forward-looking statements except if required by applicable laws.

There's a page at the beginning of the written presentation, which contains the usual legal cautions, including as to forward-looking information, which you should be aware of.

I'd like to point out that the figures expressed in today's call are in Canadian dollars, unless otherwise stated.

The press release reporting our Q3 2019 results were published this morning and will be accessible from our website at kptissueinc.com. Please be aware that our MD&A will be posted on our website and will also be available on SEDAR. Finally, I ask that during the call to refer to the presentation we've prepared to accompany these discussions, which is also available on our website. (Operator Instructions)

Thank you for your cooperation. Ladies and gentlemen, I'll now turn the call over to Dino Bianco, our CEO. Dino?

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Dino J. Bianco, KP Tissue Inc. - CEO [3]

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Thank you, Mike. Good morning, everyone, and thank you for joining us on today's call. Let's start with a review of our financial performance for the third quarter.

We are very pleased with our results. We posted solid revenue growth with an increase of 6%, driven by the benefits of price increases across all business segments and higher sales volumes. By geography, U.S. sales increased by $11 million or 9.2%, and Canadian sales grew by $7.9 million or 3.9%.

Adjusted EBITDA totaled $44 million, an increase of 35.3% over last year. Our EBITDA improvement was driven by price increases across all business segments, the favorable impact of lower fiber costs, the positive impact of higher sales volumes and the benefits of our OpEx program. Our strong EBITDA growth reflects the benefit of our focus on fixing the fundamentals of the business.

As we look at market pulp prices, NBSK and eucalyptus prices in Canadian and U.S. dollars have come off their peaks from late 2018 and have been on a downward trend. In Q3, NBSK pulp prices declined sequentially by just over 10% compared to Q2 and by 14% compared to last year in Canadian dollars. The trend was similar for BEK or eucalyptus, which was down 20% in Canadian dollars over last year.

We expect market pulp prices to remain in a similar range through Q4. However, based on industry forecasts, pulp prices have bottomed out and will likely trend upwards as we move into 2020.

We are pleased to update you on our TAD Sherbrooke facility. As you can see on Slide 7, construction is progressing well, and the site is expected to be fully closed by winter. At this stage, we're starting to receive some equipment and machinery. The facility leadership team is currently undergoing training in our other operations with the objective to be fully ready for a smooth ramp-up.

In addition, we have started the recruitment of hourly workers. And once fully operational, the facility will have approximately 180 employees. We continue working on detailed brand plans to see how best to use the facility's output. And in parallel, we're also starting to review product specs with new and existing customers across North America.

Turning to our OpEx program. We're very pleased with the progress made relative to our time line and our established goals. We saw some tangible benefits from the OpEx program this quarter as we are able to reduce costs related to outsourcing. Until TAD Sherbrooke comes on stream in 2021, we will likely face the ongoing challenge of capacity constraints across our network, making the OpEx program even more critical.

The initial focus of the OpEx program was on our 2 core facilities and key assets within those facilities. At this stage, we're rolling the program to our other facilities and other key assets across the network. Our OpEx program will focus going forward to drive asset reliability, strengthen our planned talent strategy and reduce waste while increasing capacity. We believe that the financial benefits from our various initiatives will continue to build over time, and we expect continued cost savings of $15 million to $20 million on a run rate basis by the end of 2020. We'll update you more where we stand on this during our year-end results call.

Finally, I want to remind everybody, the OpEx program is a transformational operations journey and an integral part of our culture going forward. The sustainability of this program is critical to better manage our capacity and to reduce our cost base across our North American footprint.

Let me now turn to our Away-from-Home business. We're pleased to have seen sequential improvement on AFH and further progress is expected in upcoming quarters. Our Q3 adjusted EBITDA improved by $1.1 million over Q2. When compared to last year, we were able to reduce the losses by $1.6 million. This reflects an improvement in our AFH manufacturing network and the benefits of new pricing, which we implemented in both Canada and the U.S. earlier this year.

The lower fiber costs were also favorable for both periods. We saw some positive pricing impact on our Q3 results and the benefit due to the timing of our contract renewals will continue into Q4.

North American AFH demand continues to be very strong and we are managing this increased demand within a capacity-constrained network. As we look forward, AFH will continue to be affected by some market outsourcing costs and price competitiveness. However, our cost structure initiatives and our pricing should drive further improvement in results as we complete 2019 and move into 2020.

Lastly, on our branded business, we continue to be the leader in the Canadian tissue category. But we are not happy with our share performance. Our goal is to create sustainable long-term share growth, which we will achieve by focusing on several levers, in particular, improving our product quality, increasing our innovation, bigger consumer-relevant promotions, such as the NHL, increasing our brand investment and continuing to strengthen our customer partnerships. We believe with these actions, we will start to see our shares strengthen in the coming quarters and over the long term.

With that, I will now turn the call over to Mark, who will review our quarterly results.

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Mark Holbrook, KP Tissue Inc. - CFO [4]

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Thank you, Dino, and good morning, ladies and gentlemen. Before reviewing our third quarter results, let me remind you that Kruger Products adopted the new IFRS 16 leases accounting standard effective January 1, 2019, using the full retrospective approach. Under this approach, all comparative information has been restated to reflect the adoption of IFRS 16. Note that IFRS 16 lease accounting had no effect on revenue or net income.

For adjusted EBITDA, IFRS 16 had a full year positive impact of $16 million for 2018. And for Q3 2018, the positive impact was $4.3 million.

I'll now ask you to turn to Slide 13, which reviews our financial performance for the third quarter. Revenues were up 6% to $369.4 million in the third quarter compared to $348.6 million for the same period last year. Adjusted EBITDA increased by $11.5 million to $44 million from $32.5 million in Q3 of last year, and increased sequentially by $12.5 million from $31.5 million in Q2 of 2019. From a margin perspective, adjusted EBITDA increased to 11.9% from 9.3% last year and increased from 8.6% in Q2 2019.

In the third quarter of 2019, we recorded net income of $10.5 million compared to $4.2 million last year. The increase was primarily due to higher adjusted EBITDA and a decrease in interest expense, partially offset by restructuring costs, an unfavorable change in the amortized cost of partnership units' liability, higher income tax expense and unfavorable FX.

In the quarterly segmented view on Slide 14, Consumer revenue increased by 5.5% year-over-year to reach $305.1 million. In the Away-from-Home segment, revenue rose by 8.2% to $64.3 million. Consumer segment adjusted EBITDA increased by $8.7 million to $46 million and adjusted EBITDA margin increased from 12.9% to 15.1%. For the Away-from-Home segment, adjusted EBITDA improved by $1.6 million to a loss of $1.9 million. And adjusted EBITDA margin stood at negative 2.9% versus negative 5.9% for the previous year.

On Slide 15, we review Q3 2019 revenue over Q3 2018, which was up by $20.8 million or 6%. The increase was primarily attributable to price increases across all business segments in 2019 and higher sales volumes.

By geography, Canadian sales increased by $7.9 million or 3.9%. And in the U.S., sales grew by $11.1 million or 9.2%. Mexican operations also saw their sales increase by $1.8 million or 7.6%. With regard to our Mexico business, on September 20, we sold our shares in our subsidiary, Grupo Tissue de Mexico or GTM. The sale of shares in GTM resulted in net proceeds of $5.1 million in U.S. dollars.

Following the sale, KPLP will no longer recognize revenue and costs related to Mexico. Instead, we will receive an annual commission in each of the next 3 years on sales previously associated with GTM. As this is an outsourced low contribution business, the net impact on the adjusted EBITDA going forward is not significant.

On Slide 16, we provide further insight into our Q3 2019 adjusted EBITDA, which increased year-over-year by $11.5 million or 35.3% to $44 million. Gross margin for the quarter also increased from 10.7% to 14.2%. The increase in adjusted EBITDA was driven by a combination of factors, including price increases across all business segments, the favorable impact of lower pulp prices, higher sales volume and the benefits from the OpEx program. These elements were partially offset by an unfavorable sales mix, the cost of outsourced manufacturing, an increase in maintenance spending and higher SG&A costs.

For a sequential perspective, let's turn to Slide 17, where we compare Q3 2019 to Q2 2019 revenue. Quarter-over-quarter revenues increased by $3.7 million or 1%. The Consumer segment increased by 1.8%, whereas Away-From-Home decreased by 2.6%, reflecting the typical seasonality over Q2, partially offset by a growing traction of AFH selling price increases. By region, the revenue increased in Canada by $5 million or 2.4%. And in the U.S., revenue decreased by $1.3 million or 1%.

On Slide 18, Q3 adjusted EBITDA increased sequentially by $12.5 million or 39.7% compared to Q2, and gross margin improved from 10.9% to 14.2%. The increase in adjusted EBITDA was mainly driven by favorable pulp and other fiber prices, Away-From-Home price increases, higher consumer sales volume and benefits from the OpEx program.

I'll now turn to our balance sheet and financial position on Slide 19. Our cash position was $82.4 million as of the end of Q3 2019, down from $115.4 million at the end of Q2. The Q3 cash position includes the TAD Sherbrooke facility, initial financing proceeds net of spending on the project, which had a net cash balance of $32.2 million at the end of Q3. Overall net debt at the end of Q3 stood at $514 million, up $23.5 million from $490.5 million at the end of Q2 2019.

Our net debt to trailing 12-month adjusted EBITDA ratio is now at 4.2x. That's down from 4.4x at the end of Q2 2019. Looking forward, the TAD Sherbrooke facility will result in the total company leverage increasing as spending on the project occurs over the next year and into 2021.

I would also like to highlight that on September 19, we concluded an agreement to increase our senior credit facility from $200 million to $250 million with a 4-year term. Furthermore, we were able to amend the covenants providing us with more flexibility. As a result, our total liquidity position has significantly improved as we move forward.

I'll conclude my section by reviewing the CapEx on Slide 20. Year-to-date CapEx totaled $117.4 million, including $96.7 million for the TAD Sherbrooke facility.

Looking at full year 2019, we expect our regular CapEx to be similar to 2018 in the $25 million to $35 million range. The TAD Sherbrooke CapEx is now forecast to be between $190 million to $200 million, and this provides a total CapEx range for fiscal 2019 of $215 million to $235 million.

Thank you for your attention, and I'll turn the call back over to Dino.

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Dino J. Bianco, KP Tissue Inc. - CEO [5]

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Thanks, Mark. Let me turn to Slide 21, as I conclude my prepared remarks. Our strong Q3 results clearly reflect our focus on business fundamentals, combined with a more favorable cost environment. Going forward, we will be focusing on several initiatives. We will continue to drive growth on our top line in all our businesses and geographies. Despite capacity constraints, we've been able to generate solid top line growth in the past few quarters. Our OpEx program should help us drive more capacity in our network. And then clearly, with TAD Sherbrooke coming on board, we'll make a step change in our capacity. We will build our leadership position in the marketplace and gradually regain market share in Canada over the long-term by increasing our brand investment. We will closely work in collaboration with retailers and with our partners to achieve this. We'll restore profitability in all our businesses, including Away-From-Home as we adapt pricing to offset any increased input costs and continue to focus on having a more efficient and capable supply chain network.

As mentioned, the TAD Sherbrooke facility will provide much-needed ultra-premium capacity. We'll continue to build our organizational capacity and culture for the future. As for our quarterly guidance, we expect adjusted EBITDA for Q4 2019 to be in the range of Q3 2019 and significantly higher than Q4 2018.

In conclusion, we are fully confident that we have the right vision and strategies to move KP Tissue forward as a North American tissue leader.

Thank you for your time today and your attention. And at this point, Mark and I will be very happy to answer any questions that you may have.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Your first question comes from the line of Hamir Patel, CIBC Capital Markets.

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Hamir Patel, CIBC Capital Markets, Research Division - Director of Institutional Equity Research & Paper and Forest Products Analyst [2]

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Do you know -- you rolled out Cashmere Select a few months ago to compete with the private label. Can you speak to maybe what portion of your Canadian retail business that comprises? And how do margins compare on Select to the regular products?

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Dino J. Bianco, KP Tissue Inc. - CEO [3]

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Yes. So good question, Hamir. As you know, we have a segment approach already on our Cashmere business. We have our base product, the premium product and the viral care product, an ultra product, 3-ply. So this was just -- it made sense in the pricing environment that we're seeing with prices moving up in the marketplace to offer a version of Cashmere that had credentials and quality of cashmere and the softness at a more realistic price for consumers, given the changes that have been going on.

So we launched that product late in Q2, started to have some activity as we came through September into October. So the initial response has been positive. It's early stages, if you will. But we see that as a part of our portfolio. I don't know if it will ever be a big part, but it does provide another choice for consumers who want the cashmere quality along the product range.

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Hamir Patel, CIBC Capital Markets, Research Division - Director of Institutional Equity Research & Paper and Forest Products Analyst [4]

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Great. That's helpful. And just when I look at the market share figures, it looks like kind of the cost of market leadership. You've lost some share in -- on bath tissue and towels. How much of that you think is just due to the pricing dynamics this year? And are there any sort of competitive forces that maybe require more innovation to fix that share loss?

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Dino J. Bianco, KP Tissue Inc. - CEO [5]

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Yes. Again, good question, Hamir. It is one that we -- all the good things we're doing, there's one we are not happy with. But I view share growth as a long-term game. It's easy to get short-term share. You can discount your product and rent it for a while. But as quickly as you get it, you lose it. So I really believe in building share for the long term.

Obviously, having pricing a value -- that is a value for the brand is important. So we got to make sure that our pricing is right. But it also ties into other things like having the right quality, having the right brand positioning, having the right investment, the right communication and obviously, the right execution in the marketplace. So that -- those are all long-term measures. I would say, what's happened, and I've been involved in commodity businesses before. When prices start to go up in the marketplace because of commodity cost inputs, there's always a shock, pricing shock, to the market, to the consumer and to retailers. And what tends to happen is activity starts to back off because nobody wants to go out of the new prices. Consumers aren't used to the new price and are still waiting for the old price. So they don't buy as much or pantry load. So there's a long adjustment period that has to take place on behavior as you go through that.

So one of the reasons we launched Select was to make sure that we didn't create a gap -- too much of a gap, relative to private label or other value brands. So we want to make sure we have that angle covered. And I see our pricing metrics getting back in line to where they should be once -- now that pricing is stabilizing in the marketplace. So pricing will settle. Quality will improve. Investment will be increasing. Obviously, the NHL program will be ramped up, et cetera. So I think we're doing all the right things and we should start seeing this turn around soon.

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Operator [6]

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Your next question comes from the line of Sean Steuart, TD Securities.

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Sean Steuart, TD Securities Equity Research - Research Analyst [7]

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A couple of questions. It looks like you've slowed your CapEx guidance for Sherbrooke this year. Can you give us some detail on what's driving that reduced spend? And presumably, you make up for that in 2020 ahead of the launch. But some of the factors contributing to that revised guidance.

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Mark Holbrook, KP Tissue Inc. - CFO [8]

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Sean, on the TAD2, the Sherbrooke facility, the construction and the equipment sourcing is going well and according to plan. So really, what we're seeing is really a lower CapEx spend due to timing of payments. It's not really anything related to the overall program. So we're expecting to see a significant increase in spending in Q4. And as well, we're -- going forward into next year where spending is very heavy in Q1.

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Sean Steuart, TD Securities Equity Research - Research Analyst [9]

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Got it. Second question. You're guiding to flat EBITDA sequentially for Q4. That's normally a seasonally soft quarter for you guys. How much of the resilience this year is further fiber reductions, price hikes going through, further benefits of the OpEx program? Are you able to sort of break down those buckets to what's contributing to the resilience in results this year?

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Dino J. Bianco, KP Tissue Inc. - CEO [10]

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Yes. Why don't I take a shot at it, Sean. We are guiding to essentially flat to Q3 and Q4. I would say, there has been some seasonality in this business. But the last few years has thrown that out of whack because of all the pricing that got taken. So you just have to keep that in mind as you think about seasonality. We took pricing in late 2017 and in late 2018, so that had some dynamics on our performance in those quarters as pricing is moving through.

As far as the -- what's driving -- what will drive Q4. It's the same story that's driving Q3. We continue to expect strong top line growth across all our segments. The OpEx program continues to ramp up as we move through each month. Our margin structure around pricing in pulp, we expect that to stay within the range that it is today. We expect AFH to continue its journey of turning around. And all the things that it's been doing are getting better. It's still outsourcing some product, and we'll see that continuously diminish over time. So I think a lot of the factors that are present in Q3 will continue to play its way through into Q4.

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Operator [11]

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Your next question comes from the line of Paul Quinn of RBC.

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Paul C. Quinn, RBC Capital Markets, Research Division - Analyst [12]

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Very strong results. I thought we were conservative in the quarter, but I didn't realize how conservative. With the $44 million in EBITDA, you mentioned even that the mix was unfavorable. Just wondering how much of -- how unfavorable that was for the quarter?

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Mark Holbrook, KP Tissue Inc. - CFO [13]

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Paul, that was relatively small, as you would expect, given that the results were so strong, but it was a factor. So that's the difference between the Canadian business, U.S. business, branded and private label. So it's a mixed calculation.

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Paul C. Quinn, RBC Capital Markets, Research Division - Analyst [14]

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Okay. And then on the positive side, you cited lower freight and pulp costs. How big are those in the quarter? And what's the sustainability of that going forward here?

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Dino J. Bianco, KP Tissue Inc. - CEO [15]

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Well, I think on freight, there's -- let me start with freight. There's 2 things going on. There's a more favorable cost environment in general of freight. And as I do mention in the OpEx slide, we did engage a third-party to help us. We look at our freight structure costs. So I think some of that's market driven and some of that's driven by our initiatives with a third-party to help us lower our cost. So I think that is -- at least the internal part is real and will continue. The marketplace, obviously, it will depend on what happens in the market and the freight cost structure in the marketplace.

As it relates to pulp, obviously, it's after many quarters and years of a difficult pulp environment. We're starting to see that create a little bit of favorability here. And we have now priced, obviously, to cover pulp. The key for us now, quite frankly, will be to watch as pulp plays its way through what happens in the competitive market, making sure that we continue to cover margin, but we continue to make sure we continue to be competitive on our Consumer business, on our AFH business and our U.S. business. So that is the magic. Or the work ahead is to just walk the fine line between pulp movements and competitiveness in the marketplace.

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Paul C. Quinn, RBC Capital Markets, Research Division - Analyst [16]

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Okay. And then just on the Away-From-Home business, you've done some decent work trying to get that back to breakeven? Are we expecting breakeven in Q4? Is that a 2020 event?

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Dino J. Bianco, KP Tissue Inc. - CEO [17]

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I will not go out and say that it will be breakeven in Q4. I will say that it will improve in Q4. I mean, our long-term range is to be at least breakeven and low single-digit EBITDA margins. There's a lot of demand in the marketplace right now. So which is positive, obviously, for the top line, but it's going to strain our network, and that's what hesitates me from saying it's going to -- it will breakeven because we may think we still need to do some outsourcing to meet our customers' needs. So that's a good story. I mean, we're continuing to improve our operations. But as demand gets stronger, it might outrun our ability to supply. But I think it's moving in the right direction, and we're doing the right things on that business.

We are in that business for the long term. We are a leader in Canada. We're growing fast in the U.S. We've had some challenges with our customers on being able to supply the orders, and we apologize for that. We don't like having to be in that position. So we're going -- we're outsourcing. We're doing on -- high-cost freight to get the product out as quickly as we can. So we're doing all the right things of meeting customer need and still trying to make margin and make this business profitable.

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Paul C. Quinn, RBC Capital Markets, Research Division - Analyst [18]

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Okay. And just lastly on overall CapEx on TAD Sherbrooke, that's down to $190 million to $200 million range. It seems to be down $30 million off of the last projection. What's driving that?

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Mark Holbrook, KP Tissue Inc. - CFO [19]

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Paul, what I was mentioning to Sean that as the construction is going along in equipment sourcing, that's all going as we expected. So it's really the timing of payments on those. Nothing that would be considered to be a scheduling issue or anything like that. It's strictly a payment timing.

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Paul C. Quinn, RBC Capital Markets, Research Division - Analyst [20]

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Okay. So what was the original budget for the project?

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Mark Holbrook, KP Tissue Inc. - CFO [21]

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Well, the budget for the project was $575 million overall, and it was spread out over a 2-year period. So we're still on course with that, in terms of total spend as well as the projected timing on when everything will ramp up.

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Paul C. Quinn, RBC Capital Markets, Research Division - Analyst [22]

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Okay. So we haven't changed the $575 million, right? It's just basically, we've moved when you're paying around between the periods?

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Mark Holbrook, KP Tissue Inc. - CFO [23]

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Yes, payments to big -- big supply and payments, that's really what's driving it.

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Operator [24]

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(Operator Instructions) Your next question comes from Zachary Evershed of National Bank Financial.

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Zachary Evershed, National Bank Financial, Inc., Research Division - Analyst [25]

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Congrats on the quarter. So we saw a pickup in SG&A spending. Could you dive into how we should think about those costs on a steady-state basis for the business?

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Dino J. Bianco, KP Tissue Inc. - CEO [26]

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Well, as you look at that, I mean, and this will be a bit of a theme as we talk about -- as we look at 2020, is we want to reinvest back in our business. And we want to do it the right way. We want to do it, obviously, as we earn it to reinvest. And a couple of the areas will be in our -- supporting our brands. We think, given the tough economic environment over the last few years. We have not invested enough to support our brands. So we will -- we're looking to see that.

You saw some of that coming through in the quarter. And quite frankly, on the capability side and the people side, looking to add some capability there to make sure we're ready for the future, things like e-commerce, digital, continuous improvement type individuals.

So individuals that will help us make sure that we're not only succeeding today but for the future. And those will be some of the changes we'll be making as we look at the SG&A line. Not just for this year, but as we look going forward.

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Zachary Evershed, National Bank Financial, Inc., Research Division - Analyst [27]

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That's helpful. And you mentioned that the freight network optimization is going well, and you guys got some benefits there. So looking at the OpEx initiative of getting $15 million to $20 million in savings run rate by 2020 on a 1 to 9 inning scale, which inning would you say we're in now?

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Dino J. Bianco, KP Tissue Inc. - CEO [28]

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I'm a hockey guys so I only know 3 periods. I would say we're in the -- so we said the project started in February, and it did. But the first 5 or 6 months was the assessment period. So the savings really didn't start to play their way through until end of Q2, starting to ramp up in Q3. And then, as you can imagine, that ramp-up curve gets -- starts getting steeper as we look at the benefits and as we're proving the benefits out.

And then as we get -- as we start to show that on the critical assets, we roll it out across our other facilities, which we're doing now. So if I look at this, I would say we're early -- we're late in the second period is probably a good way to think about this with a big third period ahead of us on the program.

And then embedded in that is the freight piece, which is part of that project, but being run separately as a separate initiative because it is mostly looking at our distribution network and our cost structure of distributing our product. And I would say that's probably a little further advanced. I mean, we're kind of getting those savings as we expected fairly quickly. So that's kind of a bit of color commentary on those two initiatives.

We stay -- we're staying true to our $15 million to $20 million number that I gave you as a rolling run rate number and feel confident that we will deliver against that.

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Zachary Evershed, National Bank Financial, Inc., Research Division - Analyst [29]

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Understood. One last one for me. The step change that we saw in receivables. Is that related to the sale in Mexico?

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Mark Holbrook, KP Tissue Inc. - CFO [30]

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We would have a change in receivables on the balance sheet. It wouldn't be reflective of Mexico, though. It would be strictly the sales volume that we've seen in the last quarter. As we look at Mexico, we would have received proceeds in Q3.

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Operator [31]

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And at this time, there are no further questions in queue. I'll turn the call over back to you, Mr. Baldesarra, for any closing remarks.

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Dino J. Bianco, KP Tissue Inc. - CEO [32]

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All right. I want to conclude the call by thanking everyone for joining us on the conference call this morning. We look forward to speaking with you again next March following the release of our year-end results. And I thank you, and have a great day.

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Mark Holbrook, KP Tissue Inc. - CFO [33]

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Thank you.