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spk10: Ladies and gentlemen, thank you for standing by. Welcome to Intertape Polymer Group's Q1 2021 conference call. During the call, all participants will be in a listen-only mode. Afterwards, we will conduct a question and answer session. In order to maximize the efficiency of this event, the question period will be open to financial professionals only. At that time, those with questions should press star followed by the number one on their telephone keypad. If at any time during the conference you need to reach an operator, please press star followed by zero. Joining me from the company, I have Intertape Polymer Group's Chief Executive Officer, Greg Yule, and Chief Financial Officer, Jeff Crystal. I would like to caution all participants that in response to your questions and in our prepared remarks today, we will be making forward-looking statements which reflect management's beliefs and assumptions regarding future events based on information available today. You are 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. Please see slide 2, titled Safe Harbor Statement, for a further discussion. During this call, we may also be referring to certain non-GAAP financial measures as defined under the SEC rules. A reconciliation of the non-GAAP financial measures to the most directly comparable GAAP measures is available at our website at www.itape.com. Please note that all dollar amounts are in U.S. dollars unless otherwise noted. I would like to remind everyone that this conference is being recorded today, May 12, 2021, at 10 a.m. Eastern Time. And we'll now turn the call over to Greg Yule. Mr. York, please go ahead.
spk00: Thank you and good morning, everyone. Welcome to IPG's 2021 first quarter conference call. Joining me is Jeff Crystal, our CFO. During the call, we will make reference to our earnings presentation that you can download from the investor relations section of our website. We've continued to experience strong demand through the course of the first quarter and into the second quarter. This is a continuation of the demand trend we've seen since last June and through the back half of 2020. This demand, together with rising price environment, which I'll address in a moment, set the stage for another strong quarter for us. Revenue was up 24% to $346 million. Adjusted EBITDA was up 59% to $60 million. And despite the inflationary input price environment, we maintained an adjusted EBITDA margin of 17.4%, which is nearly a 400 basis point improvement from the same period last year. Our business is structurally different than it was five years ago. We deployed CapEx in 2017 and 2018 into our highest growth categories, which is now deriving accretive growth. Our growth in e-commerce fulfillment market has diversified our business and provided us access to a high growth market where we are growing with customers around the globe. We made strategic acquisitions that strengthened our product bundle, providing consolidation opportunities and offering the ability to vertically integrate our supply chain to capture value from multiple points. We improved our capital structure and prioritized debt repayment to the point where our total leverage ratio is now 2.3 times. These initiatives have improved both our margin and free cash flow profile significantly to the point where our outlook for 2021 for free cash flow is 80 to 100 million at the same time as we're investing $100 million in CapEx, which is very different than 2017 and 2018 where free cash flow was $6.8 million and $15 million respectively with less capex. We are executing across the business. Our employees have managed through the pandemic with a focus on health and safety, respecting one another and looking to return home at the end of the day the same way they arrived, healthy and safe. The job they've done since last March has been just tremendous, producing essential goods that support the needs of our customers and end users through the course of the pandemic. The plants continue to operate effectively and efficiently, and the commitment of our supply chain team, our sales team, and our customer support team has been outstanding through this challenging period. We saw growth across every major product category in Q1 compared to the same period last year. This growth continues to be led by products that serve the e-commerce market, including water-activated tape, dispensing machines, protective packaging, and films. At the same time, we're seeing strong growth in our Wovens category that primarily serves building construction where activity remains high. Based on third-party industry estimates and market intelligence, we are confident that the share gains made by e-commerce retailers is sustainable into the long term. Industry estimates report the pandemic pulled forward two to five years of demand into the e-commerce market. Three-quarters of the global retail professional respondents to a Euromonitor survey expect that the pandemic has led to a permanent channel shift to e-commerce. So while e-commerce is expected to return to a more normalized growth rate than it experienced pre-pandemic, at those levels it is still growing significantly faster than the overall economy. The new adopters that started buying goods online during the pandemic have broadened the addressable market for the major e-commerce retailers. The omnichannel approach by retailers and the emphasis on e-commerce are aspects of society that the pandemic has actually changed for the better in our view. The composition of our product bundle positions us both to benefit from the changes in consumer behavior as e-commerce gains more and more market share from bricks and mortar, as well as to benefit from the broader economic recovery in more industrial markets like building construction, general manufacturing, and transportation. The macro demand we are seeing in the market remains strong. Demanded date in Q2 has been a continuation of Q4 and Q1. Our order book, which offers approximately four weeks of visibility, remains robust. At the same time, the upward pressure on raw material pricing that we've experienced since late 2020 has been unprecedented. In a rising price environment, we manage the business to protect the dollar spread between selling prices and the cost of raw materials and freight, and we are doing our job through 2021 to date. From a pure math standpoint, as prices increase and we retain the same dollar spread, margins will draw in slightly. In this environment, we believe it's worthwhile to review a few of the core tenets of how we manage our price strategy and how changes flow through our income statements. We utilize an at-will pricing strategy for the vast majority of our customer relationships, which is a fairly common structure in the markets we participate in. One of the reasons this approach is common is the high degree of variable cost in our cost base. On a percentage of cost of goods sold on a dollar basis, approximately 60% are raw materials and approximately 6% to 7% is freight. The recent changes in resin recent price changes in resins, specifically polyethylene and polypropylene, have moved to such an extent and so quickly that the competitive environment has had to react more quickly than it usually is the case. In a normal scenario, a price increase would be announced and customers would be given 30-day notice. In the current environment, we are seeing price increases announced with a seven-day notice period, and manufacturers are stipulating conditions that only normal purchasing volumes will be accepted in the interim to avoid inventory stockpiles with large orders at the lower price points. In isolation, if only one or two players in the market approach the price increases in this manner, it wouldn't work as customers would switch providers. In the current environment, with the economic recovery gaining traction, demand has been so strong that the market has accepted the rapid cycle of price increases. as customers are looking to fulfill orders from their end users. In our case, we have managed to effectively cover the price increases and retain our dollar contribution as evidenced by our gross margin for Q1 of 23.9% and adjusted EBITDA margin of 17.4. Once a price increase is implemented, it typically takes approximately 30 days to flow through our income statement. So there is a lag between price increases and capturing that margin. When we announced our outlook for 2021 in March, we mentioned we expected approximately 80 basis points of margin pressure on an annualized basis for 2021 as a result of managing to the dollar contribution and not to the specific margin level. That pressure won't hit all four quarters equally. It's an annualized view. As an example, we saw some pressure in Q1 and we expect to see some additional pressure in Q2. However, our expectation is that the margin profile remains intact. While pricing remains high, the market has so far effectively managed through the temporary supply shortages that were a result of the weather event in Texas and the interruption of the petrochemical supply chain. Which brings us to our outlook. This morning, we were updating our forecast for the full year 2021 based on our results to date and the strong demand and pricing dynamics we were seeing in the markets. We've adjusted our full year 2021 revenue range to 1.375 billion to 1.45 billion, an increase of almost 5% at the midpoint of the range compared to the outlook we shared in March. On adjusted EBITDA, we've increased the full year 2021 range to 235 to 250 million, an increase of just over 5% at the midpoint of the range we shared in March. At these levels, The implied adjusted EBITDA margin remains approximately 17% across the low, mid, and high ends of the range. This represents a significant step up from the historical adjusted EBITDA margin profile of the business in the last five years. The largest driver of the margin improvement over these historical levels are the leverage from our asset utilization and our past investment in our highest growth product categories like water-activated tape, films, and wovens. With the investments we announced on our March call for 2021 in high-return near-term projects, we believe that we are well-positioned to meet customer demand with our diverse product bundle and world-class low-cost manufacturing base. With that, I'll turn the call over to Jeff to review the financials. Jeff? Thank you, Greg.
spk03: On page 7 of the presentation, we present an analysis of our revenue for the first quarter of 2021. Revenue was $345.6 million, an increase of more than 24% compared to the same period in 2020. Volume mix accounted for 20% of the increase compared to last year. As Greg mentioned, every major product category was up in the quarter, with the primary drivers coming from water-activated tape, protective packaging, films, wovens, and dispensing machines. We also saw strong growth in certain carton sealing tapes. Prices positively impacted revenue by 3% in the quarter, with the remainder coming from foreign exchange impact. Turning to page 8, gross margin was 23.9% in the first quarter, an improvement of more than 260 basis points compared to the same period in 2020. Greg called out the primary drivers of the margin improvement earlier. Specifically, one, effective management of the spread between selling prices and raw materials and freight costs, and two, favorable plant performance driven by the leverage we are getting on our assets across our manufacturing base. Adjusted EBITDA improved 59% to $60.3 million from $38 million in the same period last year. The improvement was primarily driven by the margin drivers I mentioned earlier, spread management and increased scale providing leverage on both fixed costs and the investments we made in our high-growth product categories. We delivered this growth while keeping our SG&A expense in line with last year, excluding share-based compensation expense. Cash flows from operating activities decreased by 11.8 million to an outflow of 28.9 million in the first quarter compared to the same period in 2020. The change is primarily due to working capital changes and an increase in federal income taxes paid. The working capital changes relate primarily to increased inventory, due to increased demand and raw material price increases, including pre-purchases, as well as share-based compensation settlements. Free cash flows were negative 38.2 million in the quarter, down 13.7 million compared to the same period of 2020. The change was primarily due to the working capital changes and taxes paid I just mentioned. Our outlook for the expected effective tax rate has been adjusted to 25 to 30% for the full year 2021, which is an increase from the 22 to 27% range we announced in March. The adjustment is mainly due to an unfavorable mix of earnings between jurisdictions. The range excludes any rate increases that may arise from U.S. tax legislation. We continue to expect cash taxes to be approximately 10% greater than income tax expense due to less availability of tax attributes and loss carry forwards that were available in 2020, as well as the impacts of bonus depreciation previously taken. We finished the first quarter with $351.1 million in cash and loan availability. Our total leverage ratio at the end of the first quarter, which includes the unsecured debt, was 2.3 times. Our secured net leverage ratio, which is our most important loan covenant, came in at 1.4 times, which is well within its limit of 3.7 times. The investments we have made in CapEx and acquisitions have structurally changed the business, resulting in an improved margin profile and stronger cash flow. We believe that both of these attributes are sustainable moving forward. Now I'll turn it back over to Greg for his closing thoughts.
spk00: Greg? Thanks, Jeff. It was a great quarter. The strong demand we experienced in the back half of 2020 continued into the first quarter, and now we see more of the same into the second quarter to date. We are seeing growth across all major product categories, Our e-commerce growth is in line with the growth of the largest e-commerce players in the market. The investments and the acquisitions we've made over the last five years have structurally changed the business. We've managed through this first year of the pandemic and come out stronger, having paid down debt and delivered strong free cash flow. We've managed the increases in raw material prices and effectively covered the spread on a dollar contribution basis between selling prices and raw materials and freight. We are investing this year in high-return, near-term capacity expansion projects in our highest growth categories to keep pace with demand. We've met these challenges and opportunities while at the same time looking to future longer-term opportunities. Earlier this summer, we expect to publish our third annual sustainability report. It expands on the progress we have made by increasing our disclosure on how we manage the business. We continue to certify major products under the cradle-to-cradle certification. Since our last call, our acrylic tape and hot melt tape, which are primarily used for carton sealing, have achieved the cradle-to-cradle certification. We have invested in sustainability, certifying products, and attracting talent to lead our initiatives because we see it as a long-term growth driver for the business. Our product bundle offers customers a broad variety of choice to ensure we meet the evolving demands of customers and end users. The diversity of both our end markets and our product offering, as well as the essential nature of our products, have been the core to the underlying performance of the business. We provide essential packaging and protective products for the economy. We've made a series of investments to build a world-class, low-cost manufacturing base that can compete effectively in any market cycle. We are focused on executing our strategy to deliver for customers, end users, and shareholders, building a global leader in packaging and protective packaging solutions. I'd like to thank our employees. It has been a challenging year for everyone, and these challenges still continue. I could not be more proud of how they've conducted themselves and the level of commitment to the organization they've demonstrated. It's truly tremendous. With that, I'll turn the call back to the operator to open up the question and answer period. Thank you.
spk10: Certainly. At this time, as a reminder, if you would like to ask a question, please press star, then the number one on your telephone keypad. We'll pause for just a moment to compile the Q&A roster. Your first question comes from the line of Michael Dumain from Scotiabank. Your line is open.
spk09: Hey, good morning, guys. Fantastic quarter. Morning. Morning. Thanks. First question, just on a dollar basis, volume growth was higher in Q1 than it was in Q3 and Q4 of last year. That's surprising for, you know, what typically is a seasonally weaker quarter. So I'm assuming, again, all end markets were firing in all cylinders. But did you get a sense that there was any pull forward that happened in the quarter?
spk00: Yeah. So, you know, obviously we implemented quite a bit of price increases in the quarter, Michael, and You know, we were much more diligent just because of circumstances as it relates to pre-buys on the way through. So historically, I would say that these price increases and the ability of customers to pre-buy at lower prices and build inventory was somewhat diminished on a historical basis. Hard to know that exactly, but certainly... We managed that just because we had to through that process of the speed and the size of these increases. So if it continues historically, I mean, we should see a build through the year, but we're not calling for that now because there are quite a few moving parts in there.
spk09: Got it, Greg. Thank you. And then To get a clarification on the comment relating to maintaining the Q1 sales momentum into Q2, and I'm assuming the sales momentum is sustained through the quarter, is the right way to think about it that we should get, say, a 15% to 20% positive comp, or that the growth, again, the 15% to 20% would be incremental to the reversing declines of Q2 of last year?
spk03: Yeah, I'm not sure I completely understand. But, you know, basically, I mean, look, we expect to see, obviously, the same momentum as we're seeing going through Q1 into Q2. We're seeing the same thing. So you're definitely going to see a big, it's an easy comp versus Q2 of last year, of course. But, I mean, we can't give you the exact numbers around that. So I'm not sure if I'm answering your question exactly. Maybe this gets to it, Michael.
spk00: You know, our order demand in Q2 at this point is very similar to where we were in Q1. Okay.
spk09: I guess the question is, you know, do we get the growth that we saw in Q1 plus kind of the negative comp last year, right? So presumably even higher than, you know, where Q1 is on a year-over-year basis. And it sounds like potentially. Okay.
spk03: Yeah, I mean, you know, you've got a couple of moving parts in there, right? Because you've got the businesses that were tremendously down last year. So obviously that's going to be the part that's an easy comp. And I agree with you, like you're going to have the growth over, call it a normal quarter from last year, you know, versus this year. And then you'll have the abnormal growth because of the COVID impact. But then you also have the e-commerce, which had the full effect in Q2, right, last year. So that is a tougher comp. for Q2 that in Q1 we really didn't have much of an impact of that.
spk09: Okay. No, that's helpful. And then one last, any way you can help us better pin down Q2 gross margins, you indicated that we should expect an 80 basis point margin compression for the year, which again is kind of reflective of, you know, the higher prices and higher input costs. You mentioned that some of that was reflected in Q1 and more will be recognized in Q2. Based on that thinking, should we expect less than 80 basis points of margin compression quarter of a quarter? Is that correct?
spk03: I mean, all we could say is basically that Q2 should be the full effect because all these price increases that have gone into effect you know, happen. I mean, certainly some happened last year and into Q1. So you're going to see more of an effect of that in Q2, which will put a little bit more pressure on the margin. Okay.
spk09: No, thanks for the caller. Great quarter, guys. All right. Thanks.
spk10: Your next question comes from the line of Walter Spracklin from RBC Capital Markets. Your line is open.
spk01: Thanks very much, operator. Good morning, everyone. So just on the price increases and the differentiation, and Greg, you did a great job kind of explaining, you know, at-will pricing versus contractual, you know, pass-through index mechanical pricing. And my question there then is, let's say, as is generally expected, that resin prices come back down perhaps in the near term. Is there an opportunity because you're not tied to any index that might automatically bring your price down? Is there an avenue here where because demand still is strong and everyone's kind of behaving, can you hold on to pricing even if resin prices are coming down?
spk00: Yeah, I think there are circumstances that we can do that. I mean, certainly in that kind of environment, as you know, The adverse happens on the margin side too, so your margin should go up, but certainly that spread that I referenced between sell price and raw materials has the opportunity to increase in that kind of environment. Okay, that's good.
spk01: Let me move on to your water-activated tape segment. I know oftentimes when we ask the question of potential new entrants, you always highlighted that the market in aggregate was still, even though growing rapidly for you historically, was still too small. You mentioned, Greg, in your prepared remarks that we pulled forward years of that growth. Is there any evidence that new entrants are starting to peek into this market now that it's growing so much and might look at taking a step in or or are you still in the same kind of competitive advantage that you had historically?
spk00: Yeah, we haven't seen any movement in that regard. And again, I think it's still important, even though the growth is still there and it's still high. We have a very high percentage of market share in that area, as you know. So the total size of the market might not be that attractive to people, but certainly it's very big for us because of that high market share that we have.
spk01: Okay, that's fantastic. Those are both my questions. Thank you very much. Thank you.
spk10: Your next question comes from the line of Stephen McLeod from BMO Capital Markets. Your line is open.
spk08: Thank you. Good morning, guys. Morning. Morning. I just wanted to – I know you talked a little bit about the end markets and you saw sort of broad strength across all categories, but I was wondering if you could just give a little bit of color around how you saw – some of the non e-commerce markets trending, you know, coming out of Q4 and into Q1.
spk00: So, you know, in the, in the general manufacturing area, certainly we saw really good growth, uh, and certainly a rebound in that area. Our, our Wovens business really performed well, um, you know, exceeding our expectations, um, as it relates to kind of budgetary forecasted levels. Um, The retail side continues to perform well. Some of that has to do with do-it-yourself work that's happening in the construction business. So we pretty much saw a broad increase there. Certainly, probably the transportation side lags a bit to good growth in that area as well. So we've seen a rebound in all of our end markets from where we were.
spk08: Okay, that's great. That's what I would have expected. And then maybe just thinking about the pace of revenue growth through the year. You gave some good color around Q2. Would you expect that price increases will have already been reflected for the most part by the time you get to the back half of the year? I guess maybe that's another way. Would you expect, based on what you know today, for price increases to positively impact that positive pricing impact in the back half of the year, or is that largely isolated to the first half of the year from what you can see now?
spk00: I would expect when I think of the year, and I commented on this in Q4, is the first half is going to be pressured, right, as we've articulated just from the math perspective.
spk08: and then and then when you move forward there should be a sequential margin improvement with all the information that we know now if it plays out that way okay okay i see so you know just just when you so first half margins you've mentioned pressured you know but you put up 260 basis points in improvement in the first in q1 Are you expecting to see similar, like maybe not similar magnitude, but are you also expecting to see some of those margin offsets positively impacting margins in Q2?
spk03: Yeah, so we're going to continue to see some of the stuff that we've talked about from a structural change standpoint. So that's going to play out through the year. But of course, like we said, with these higher sell prices and preserving the spread dollars, we'll see that compression, that compress on that side. So that's why we're not seeing the margins we saw, call it in Q4. That's the main reason, right? So, but yeah, you're still going to see outsized margins versus what we've historically have been at.
spk08: Yeah. Okay. Okay, that's great. That's very helpful. Thank you. Thank you.
spk10: Your next question comes from the line of Hamir Patel from CIBC Capital Markets. Your line is open.
spk07: Hi, good morning. Greg, could you comment on the magnitude of price increases you're seeing in Q2?
spk00: From a raw material perspective or from an end user perspective?
spk07: I guess for both.
spk00: Yeah, so I would summarize in the raw material side that certainly some products we think have peaked and will start coming down, namely Polypropylene, polyethylene just increased a price increase, just implemented a price increase just a little while ago. We expect that to hold for a bit and see some tempering in the second half of the year in both of those categories. On the adhesive front, namely in the hydrocarbon area, we are continuing to see increases in that area. And we believe as we sit here today, we've covered those increases. As it relates to end users, just because of the amount of products that we have and the channels we have, the company has implemented almost 20 price increases in the first quarter in varying product lines and varying channels. So certainly we've been pretty active there. As we move through Q2, if we continue to see movement upwards in certain raw material inputs, we expect to implement further price increases to cover that spread in dollars. You know, as we sit here now, and I think about it sequentially from a pricing perspective, you know, week to week, which is the way we manage pricing effectivity, you know, certainly we continue to see that pricing effectivity on a percentage basis increase as we move through May.
spk07: Great. Thanks. That's helpful. And I just want to ask about, you know, given the demand growth that you're seeing from e-commerce, Do you think your own capacity growth initiatives, at least for the next two quarters, can keep up with the demand if it stays elevated here?
spk00: Yeah, so we feel good about getting through this year. Certainly, there's areas in the product lines that we're going to be sourcing material from the outside to supplement our own capacity. And that's why we feel really strongly about our investment in the CapEx side. this year, and certainly seeing the cash flows from those next year. So I think we're in good shape to make it through this year at these elevated rates. Typically in our business, specifically around e-commerce, it's somewhat seasonal, and we're continuing to build inventory to handle Q3, Q4 volumes in that area. Great.
spk07: Thanks. That's all I had. I'll turn it over.
spk10: Your next question comes from the line of David Ocampo from Cormark Securities. Your line is open.
spk02: Good morning, everyone. Morning. I just wanted to circle back on your capital projects here. You know, when we think about them, they're expected to be margin accretive and above your normal return thresholds. But as we head into 2022, are there any other low-hanging fruit projects that you can generate these outsized returns or should we expect, you know, future capital projects to go back down to your 15% hurdle rate.
spk00: Yeah. And I just, I just referenced certainly, you know, my comments on the Q4 call, you know, certainly it's our hope that we continue to have opportunities to deploy capital at these kind of return metrics. So I think it's too preliminary to comment on that. Certainly, certainly if we see an opportunity with those kinds of returns, I mean, we're going to, we're going to continue to execute on it, but at this time I have no update on that.
spk02: Okay. And then just a quick one here. It's sort of been a while since we talked about NordTech. Is that side of the business now generating the returns that you expected when you first acquired the business? As I know, you know, the machining sales were a little bit slow in COVID, but may have picked up since then. Just wanted to come around that.
spk00: Yeah, it's still lagging from where we expected to be at this point. Certainly COVID had a huge impact in that business. And we've commented before that The COVID probably had the largest impact on that business of any of our businesses. I mean, it's not a very large business, as you know. I think, you know, from a size perspective, it would be very small. We have, as we've worked through the last six months, put some management teams in there. And certainly we're seeing... a lot of order activity and new orders come into that facility. And I expect that business to continue to perform or to perform in an increased level as we move through 2021. That business is lumpy, as typically most of those businesses are. But certainly with where we are with our order backlog in that business, I expect the second half of this year for that business to perform significantly better than where it has in the last several quarters.
spk02: That's perfect. That's my cue. Thanks.
spk10: Your next question comes from the line of Roger Spitz from Bank of America. Your line is open. Thanks, and good morning.
spk04: Do you think 2021 working capital will be an inflow or outflow, and to what extent?
spk03: Yes, I mean, certainly with these raw material prices, if they continue to remain elevated, that's going to be somewhat of a drag. We saw a little bit of that in Q1 with regards to inventory prices being higher. So really, I think that's going to depend on where raw materials go. But if we see some, I guess, easing up of that through the year, you may not see such a big impact by the end of the year. That's what I would have to say.
spk04: Okay. By the way, on March 31st, how much was revolver drawn and what was your availability under the revolver?
spk03: Yes, I believe we had availability of $351 million, I believe, in total. In terms of drawn, let me get that for you. Yeah, so we had, sorry, I'll, if you guys ask the next question, I'll get back to you on that. Sure.
spk04: I know you, it's really for 2022 CapEx, but in thinking about 22, guidance, but in thinking about 2022 CapEx, should we think of it a lot closer to the maintenance level from 2021, or is it closer to the, you know, the $100 million that we saw in 2021 guidance?
spk00: So, you know, I can't say right now, Roger. I think from our perspective, you know, certainly it's going to be above the maintenance level. And, you know, it's our hope that we have opportunities to continue to invest organically in the business. But I think it's too early to kind of comment on 2022 CapEx at this point.
spk03: And then on your other question, so we were using about $235 million on the total $600 million facility. On the total facility. Okay, thank you.
spk10: Your next question comes from the line of Ben Jekic from PI Financial. Your line is open.
spk06: Good morning. I have two quick questions. Greg, one of them is, and I'm sorry if it was repeated, but you mentioned a metric, I think 60% of costs were raw material, and then you mentioned freight as well, and I didn't catch some of those details.
spk00: Yeah, so from a cost of goods sold, 60% are raw materials, and approximately 6% to 7% are freight. So when you think of Us managing our cost increases, that's where we've seen the largest cost increases on the raw material side, obviously, and also on the freight side. And the combination of that is what we utilize to manage our dollar spread between sell price and cost.
spk06: Oh, perfect. That's great. Thank you. And then my second question, it's a little bit more open-ended question. So we are talking about pricing and this whole environment, but I wanted to ask if there is any impact, and I'm assuming the order variability from end customers is, you know, there's probably ups and downs in production runs. Are there any issues in your, you know, setup costs? Like you've always been like an impeccable operation in that sense. Like have you encountered any challenges in that regard?
spk00: You mean from changeovers and things of that nature?
spk06: Yes. I mean, like, you know, different sizes of production runs and things like that. Like, has there been anything, you know, of any significance there?
spk00: Yeah, I would say, you know, just because of the volume of the orders coming through, I think we're experiencing, in many cases, longer runs, not shorter runs. So I would expect I would expect that to be proven out by data that I haven't seen, but I would expect that operationally, we're seeing longer runs, less changeovers than historically we have. But from an operations perspective, overall, the plants continue to perform well, and we really haven't seen any change in that behavior or those results. Perfect. Thank you very much.
spk10: Your next question comes from the line of Zachary Ebershed from National Bank. Your line is open.
spk05: Good morning. It's actually Thomas calling in for Zach. Most of my questions have been answered, so maybe one quick one. As we observe reopenings to North America, are you concerned about a negative mix shift with brick-and-mortar retail reopenings?
spk03: I mean, what we would say to that, I mean, obviously, you know, we would expect to see growth in the brick and mortar side, which, of course, would benefit, you know, the non-e-commerce parts of our business. So, you know, we could see some tailwinds there. From an e-commerce perspective, there could be a tempering of the growth, but we don't see this growth stopping. I mean, I guess that's the point. We may not see the same level of growth. but we see the growth still being quite outsized versus what the typical GDP growth would be or certainly brick and mortar would be. So for us, I think we might see some tempering of that, but I think that's just temporary in nature. And going forward, certainly all the research reports we read, we expect to see e-commerce continue to take share and grow at an outsized pace in the future.
spk05: All right. That's all I have. Thank you.
spk03: Thank you.
spk10: Once again, if you have questions, please press star, the number one on your telephone keypad. Your next question comes from the line of Michael Dubé from Scotiabank. Your line is open.
spk09: Hey, guys. Thank you for taking the follow-up. Excuse me. I wanted to address the consensus view for Q2. You commented that the sales momentum is continuing into Q2. It sounds like you're maintaining the price-cost spread. Q2 is often seasonally stronger. So is there a reason really on an even a dollar perspective to see such a significant step down from Q1 into Q2?
spk03: Well, I mean, I can't really comment on the consensus. You know, what I would say is that, yes, typically Q2 is a stronger quarter.
spk09: And the price-cost spread has been so far maintained?
spk03: Correct.
spk09: That's what we expect. Okay. Well, that's, that's helpful. Um, okay. And I guess, um, switching over here, I mean, you've done everything right in the last couple of quarters and that's had the, the added benefit of driving leverage ratios down quite substantially. And, you know, despite the capital investments you're making this year and, um, you know, leverage ratios are going to continue to decline. I mean, how do you think about it? I mean, especially where your, your shares are trading, how do you think about sort of balancing out considerations for Sherry purchases or, or eminent?
spk00: Yeah, so I think we've got great runway here organically, as we've discussed in the past. We're still, from a leverage perspective, within that kind of range that we've always wanted to operate between two and two and a half. And I think as we move forward, certainly we continue to evaluate any capital deployment plans, either around you know, organic growth, M&A, dividends, and share repurchases. Certainly we need to see where the stocks settle out here on a go-forward basis. So I really can't comment any further than that outside of it's a discussion that we have at the board level on a frequent basis, and we're going to evaluate all opportunities to increase shareholder value.
spk09: Great. Thanks, Greg.
spk10: There are no further questions. I now turn the call back over to Greg Ewell for closing comments.
spk00: Thank you for participating in today's call. Just a reminder that later today at 12 p.m. Eastern, we'll be holding our virtual annual general meeting. Details can be found on our website at itape.com. We look forward to speaking with you again following the release of our second quarter 2021 results in August. In the meantime, I hope you and your family stay safe and healthy. Thank you.
spk10: That concludes today's conference call. You may now disconnect.
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