Graphic Packaging Holding Company (GPK) Earnings Call Transcript & Summary

Hello, and welcome to today's Graphic Packaging First Quarter 2023 Earnings Call. My name is Bailey, and I'll be the moderator for today's call. [Operator Instructions] I would now like to pass the call over to our host, Melanie Skijus, Head of Investor Relations. Melanie, please go ahead.

Good morning, and welcome to Graphic Packaging Holding Company's First Quarter 2023 Earnings Call. Joining us on our call today are Mike Doss, the company's President and CEO; and Steve Scherger, Executive Vice President and CFO. To help you follow along with today's call, we will be referencing our first quarter earnings presentation, which can be accessed through the webcast and also on the Investors section of our website at www.graphicpkg.com. Before I turn the call over to Mike, let me remind you that today's press release and the presentations made by our executives include forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. These statements are subject to risks and uncertainties that could cause actual results to differ materially from our expectations and projections. These risks and uncertainties include, but are not limited to, the factors identified in the release and in our filings with the Securities and Exchange Commission. With that, let me turn the call over to Mike.

Thank you, Melanie. Good morning, everyone, and thank you for joining us on the call today. Graphic Packaging is off to a great start, 2023. We continue to advance our proven strategy centered around running a different race as we build our leadership in fiber-based consumer packaging. Our strategy is focused on driving growth by executing differentiated strategic capital investments and enhancing long-term partnerships with customers while expanding consumer packaging expertise and innovation capabilities. During the first quarter, strong execution by our global team enabled us to deliver on this strategy, create value for customers and shareholders while positioning the business for the future. Let's start with this quarter's key highlights on Slide 3. [ A met a ] challenging macroeconomic backdrop, we drove continued net organic sales growth and margin expansion during the first quarter. This performance is a testament to the resiliency of our business model as well as the strong and growing consumer demand for renewable, recyclable fiber-based packaging. As part of our differentiated strategy, we continue investing to capitalize on this clear consumer preference by building new capabilities and driving innovation. As we will discuss in further detail, our recycled paperboard investment in Kalamazoo is exceeding expectations, and we are making progress to build upon our distinctive competitive advantage with new mill in Waco, Texas. Importantly, we're not the only ones investing in response to the consumer preference for more sustainable packaging, leading brands and manufacturers recognize this consumer trend and the solution our new capabilities and innovations can provide. We are pleased to announce today that Chick-fil-A is going to market later this month with our new highly insulated double-wall fiber-based cup as a potential long-term solution for their beverage program. This is the latest example of the significant opportunity for us within the foodservice space. Given our strong start to the year and confidence in the path ahead, we are raising our full year EBITDA guidance by $100 million to $1.9 billion at the midpoint of the range and updating other guidance metrics as a result. In 2019, we established our original Vision 2025 goals. With the increased outlook for 2023 we are providing today, we are on track to achieve those original targets 2 years early and have a clear path to meet the enhanced Vision 2025 financial goals we announced in February of 2022 at our Investor Day in New York. Slide 4 captures our key financial metrics for the first quarter. Sales increased 9% to over $2.4 billion driven primarily by positive pricing and organic sales growth. Adjusted EBITDA of $484 million grew at a faster pace and sales as our margin expanded by 430 basis points to 20%. This represents a new high for adjusted EBITDA margin and provides further confidence in achieving our Vision 2025 financial goals. Taken together, our strong sales and EBITDA performance led to adjusted earnings per share of $0.77, an increase of 60% versus the prior year quarter. As we deliver on our near-term financial goals, we are continuing to invest in new capabilities to build on the strong performance in the future. Most notably, we are making considerable progress on our CRB platform optimization, which is detailed on Slide 5. Our new K2 machine in Kalamazoo results in Graphic Packaging operating the world's lowest production cost, highest quality coated recycled paperboard mill. The largest capital investment we have made to date, K2 came to life in early 2022, as we successfully ramped production on the machine. Now that we are fully ramped, the capability of K2 is exceeding our expectations in several ways. First is quality. We are now capable of producing a new innovative, higher-quality CRB grade that meaningfully expands opportunities for the substrate and our network overall. I will elaborate more on this exciting development in the moment. Second is yield. We now expect K2 to deliver 550,000 tons of annual production compared to the 500,000 tons we previously announced. And finally, financial benefits. We had previously announced the investment would drive approximately $130 million of incremental annual EBITDA improvement over 3 years. I'm pleased to report that we now expect to reach that target in only 2 years of full year ahead of schedule. The outstanding execution of the K2 ramp is a testament to the great work and dedication of our Kalamazoo team. Additionally, the success of the investment provides us with the expertise and confidence to continue to strategically invest to redefine the fiber-based consumer packaging landscape as we are doing in Waco. We announced the Waco investment less than 3 months ago, and we have already made meaningful progress excavating the site, ordering equipment, completing the foundation and recruiting key employees. We remain on track to meet our previously communicated time line, including the startup of the machine in the first quarter of 2026. Taken together, these investments help us meet the increased demand for CRB at an unmatched cost compared to our competitors. The investments in Kalamazoo and Waco will allow us to optimize our network further by closing higher-cost mills while still expanding capacity strategically over time. Due to the better-than-expected production from K2, we have decided to close our CRB mill in Tama, Iowa during the second quarter earlier than we had previously anticipated. Among every cycle paperboard mills, Tama has the smallest capacity and the highest cash production cost per ton. As closure advances our strategy to simplify our paperboard network while strategically expanding capacity and lowering cost. Factoring in both Waco and planned mill closures, our optimized mill network will net approximately 5% more capacity than we currently have today with flexibility to adjust capacity in line with demand. As I mentioned a moment ago, our CRB investments don't simply deliver cost and production advantages. They enable us to make an entirely new grade to the highest quality coated recycled paperboard available. By utilizing K2 state-of-the-art technology, we can produce the new grade of recycled paperboard with enhanced appearance and performance characteristics as well as superior economics. The improved quality expands the breadth of our opportunities for CRB-based packaging to new consumer end markets that have historically only been served by virgin substrates such as FBB or SBS or other materials. Slide 6 illustrates a few examples of where we expect CRB to play over time. In short, we expect to see CRB and more products and consumer experiences. We're in the early innings and are currently conducting trials of our higher-quality CRB grades. We look forward to sharing more on these opportunities in the coming year as part of our ongoing innovation story. The adoption of CRB for certain packaging applications historically requiring virgin fiber will enable continued substrate optimization across our mill network. This is important as it brings up merging capacity in our other mills to capture growing global demand without the need for additional capital investments. Our CRB investments in paperboard great innovation are clear examples of what I mean by running a different race. We are creating opportunities for ourselves and for our customers to deploy fiber-based consumer packaging options in places where that simply hasn't been possible in the past. This is a key factor in driving not only the depth of our customer relationships, but also our growth and performance. Slide 7 is a great example of innovation at our virgin substrates and the enormous opportunity to replace packaging created from nonrenewable resources, not as widely recycle as fiber-based packaging. Illustrated on this slide is our proprietary highly insulated double-wall fiber-based cup solution developed as an outstanding alternative to the foam cup. Our new cup boasts a number of features that centered apart from others available at quick service restaurants, providing consumers into Go Cup solution that sweats less is more durable and has enhanced insulation properties. Delivering added appeal to consumers are the improved sustainability features. The result is a better beverage experience for the consumer. Chick-fil-A is the largest quick service chicken restaurant chain in the United States and an existing graphic packaging customer. Today, we are announcing an expansion of that relationship with the launch of our proprietary cup innovation in Chick-fil-A locations from California to Maryland. Stage 1 of that launch is focused on approximately 10% of the customers' restaurant footprint. Over time, our innovation can be a potential long-term solution for Chick-fil-A's beverage program, including the ability to work in both cold and hot beverages. Driving innovation with industry leaders like Chick-fil-A is a great example of how leading brands are investing to transition towards more sustainable packaging solutions and how we are partnering with them to effectively manage that transition. While progress has been made to transition away from foam and plastic, Americans still use roughly 45 billion of these cups each year. Consumers are calling for a change in an environment with less waste. Our customers are looking for us to help. We believe our new insulated cup innovation has tremendous potential to win and what we estimate is a $2 billion addressable foam and plastic cup market in the U.S. To put that in different terms, our $2 billion addressable market opportunity equates to roughly 600,000 tons of SBS paperboard demand. We are uniquely positioned to service this demand by leveraging our integrated platform as our customers meet the call from consumers. Our CRB mill project underway at Waco, with its enhanced cleaning and separation system will provide increased cup recycling capabilities. We look forward to partnering with QSR customers like Chick-fil-A on enhanced cup recycling programs in support of a move to a more circular economy. And with that, I'll turn the call over to Steve to provide more detail on the quarter's financials.

Thanks, Mike, and good morning. Turning to Slide 8 and the key financial highlights for the first quarter. As Mike mentioned, it was a great start to the year. Net sales increased 9% year-over-year to over $2.4 billion, driven by positive pricing execution and 1% net organic sales growth partially offset by planned lower open market paperboard sales and foreign exchange impact. As you can see on the right side of the slide, our sales performance benefited from the diversity of our portfolio. Our food, beverage and consumer markets, which together represent approximately 80% of our portfolio, increased sales 8% year-over-year. The food service market which represents approximately 20% of our portfolio, grew by 13% compared to the prior year period. Adjusted EBITDA was $484 million, of $134 million over Q1 last year. The 38% year-over-year increase was driven by price execution, organic sales growth and net performance. We're very pleased to see adjusted EBITDA margins at nearly 20% during the quarter, consistent with our goal for Vision 2025. Adjusted EPS continued to expand, growing 60% year-over-year to $0.77. As a reminder, our sales and EBITDA waterfalls are available for reference in the appendix of today's presentation. Liquidity remains very strong at over $1.2 billion. Our paperboard integration rate increased to 75% during the quarter up 200 basis points from the prior year period. Meanwhile, we are pleased that our backlog and operating rates remain healthy. Our backlogs were down slightly to 6 weeks across all substrates. This level is more in line with historic norms and supports our growth while allowing us to provide exceptional service to our customers. Operating rates across the business remained high in the mid-90s in the first quarter. We continue to return cash to shareholders, consistent with our balanced capital allocation approach. During the quarter, we paid a quarterly dividend of $0.10 per share totaling $31 million. We also repurchased $28 million of shares to offset dilution related to long-term incentive compensation. Slide 9 features our current guidance targets for 2023. Given our strong start and outlook for the balance of the year, we are pleased to be in a position to increase our 2023 guidance for adjusted EBITDA by $100 million to $1.9 billion at the midpoint of our guidance range. As a result, we have also increased expectations for adjusted EPS by $0.20 to a range of $2.70 to $3.10, and updated our year-end net leverage ratio target to be at or below 2.5x. We are also reiterating our guidance for sales and cash flow. Robust cash flow generated from our business this year will result in further pay down of debt while providing flexibility for continued investment in the business. Turning to Slide 10. You can see the substantial progress we have made since announcing our original Vision 2025 goals in 2019 and as Mike already noted, the improved 2023 guidance we are announcing today puts us on track to achieve our original Vision 2025 financial goals 2 years early. We remain confident in the path ahead and our ability to achieve our enhanced Vision 2025 financial goals provided last year. Thank you for your time this morning. With that, let's turn the call back to the operator to begin the question-and-answer session. Operator?

[Operator Instructions] Our first question today comes from the line of Ghansham Panjabi from Baird.

Could you just start off by giving us more detail on what you exactly saw across the major verticals that you have exposure towards breakdown between foodservice, packaged food, beverage and also if there's any notable divergence across your 2 major geographies. I'm just asking because there's a lot going on with inventory destocking and so on.

It's Steve. Just to start that. I think if you look at our organic sales growth, the 1%, we saw continued organic sales growth in Europe, which was driven by the innovation engine that we have there. We saw growth again in our foodservice platform and all that was partially offset by a very slight decline in kind of the core food, beverage and consumer businesses in the Americas. So as we've seen in the past, the portfolio held up extremely well. Some positives. And then obviously, some of the places that destocking, as you mentioned, we're not immune to, but it's very small and a slight decline in the Americas for food, beverage and consumer.

Got it. Perfect. And then for my second question, obviously, a very, very strong year in 2023 from an earnings standpoint. And I know it's incredibly early, but as we think about our earnings outlook for 2024, should we expect productivity to be in the vicinity of what you're projecting for this year? And at this point, do you foresee a path for earnings growth in 2024 despite -- to be up despite what will be a very difficult comparison.

Yes. No, Ghansham, I'll start, and then Mike can add some additional color. Obviously, you said it well, it's very early as we finished the first quarter. But as we look out to 2024, we would expect our model to continue to advance forward. We would expect to see 100 to 200 basis points of organic sales growth that we can earn on. And we would expect very strong productivity again in 2024. We'll have our normal $50 million to $70 million of productivity we would expect that we would always have line of sight to but it is noteworthy. We would expect to have less both planned and unplanned maintenance downtime next year as we look at it based upon some of the unplanned downtime that we've had here in the first quarter as well as less planned downtime next year. So to your question, yes, productivity should be on the high end of our historical norms. And then overall, the balance sheet will be in a great spot. Obviously, if we continue to take that down, interest costs would move down relative to EPS or the balance sheet will be in a place that drives strategic optionality. I don't know, Mike, do you want to add anything to that?

I think that's right. Ghansham, if you look at the fine point we put on guidance, having our debt-to-EBITDA ratio down at 2.5x or below during the end of the year while we're investing in Waco. We've got a tremendous amount of optionality as we go into 2024 to continue to deploy capital in a way that benefits shareholders and customers.

Okay, fantastic. And congrats on the Chick-fil-A launch as well.

The next question today comes from the line of Cleve Rueckert from UBS.

Just a couple of brief ones for me because story is pretty clear at this point. I guess to start, can you maybe give us some more color on what's driving that $100 million increase in EBITDA at the midpoint of the guidance, you didn't take revenues up. So something on the margin. Is that really just the productivity you're getting out of K2, is there some input cost there? What's kind of driving that change?

Yes, Cleve, it's Steve. I'll be glad to do that. If you kind of look through the guidance, the incremental $100 million is primarily driven by an improvement overall to our price execution. We took the midpoint of that up $50 million and we took the midpoint of our inflation guide down $50 million. So the net of that is the $100 million overall. The Kalamazoo positive is driving incremental productivity. It was offset by the first quarter unplanned downtime that we had at West Monroe. Those 2 negate out to roughly 0. So the net improvement is the improvement in overall price cost.

Got it. Okay. That's very clear. And then just quickly following up on the sort of the longer-term vision 2025. I guess the area that maybe you've got some work to do on is in the integration side. I'd just be curious if you can get to that 90% plus integration level with your existing platform or if the strategic options that you opened the door to discussing a second ago would be sort of an area of focus downstream in terms of integration.

Yes, Cleve, thanks for the question. I think if you go back to 2018 and really look at it on a combined basis when we acquired the Consumer Packaging business from International Paper. Our combined integration rate at that time was 62%. And we just announced this quarter that we increased 200 bps over where we finished last year. We're now at 75%. So we've made tremendous progress really over the last 5 years along those lines. And as you know, that's been a combination of both inorganic, some tuck-under acquisitions that we've done as well as our organic growth, which is 3-year stack coming into this year, it was roughly 10%, and we continue to grow here in the quarter. So it's going to be a combination of both of those things. But if you just kind of wind the clock forward is and supply agreements that we talked about at the end of the last year unwinds, we'll be pushing towards 80% by the end of this year as we head into 2024. So our confidence is high that we'll be in that range and be heading towards 90% over the next couple of years.

The next question today comes from the line of George Staphos from Bank of America.

Thanks for the details, and congratulations on the progress so far this year. I guess the first question on CRB and broadening the application that CRB can get into, including some food end markets. Can you explain how you're getting around the food contact issues with recycled material in the substrate? Is there anything that you need to add that would ultimately take away from the sustainability of that package? And I have a follow-on.

Yes. Thanks, George. I appreciate the opportunity to talk a little bit about that new grade, which, by the way, we're going to call Rainier as we put in the materials there. And the reason for that is if you look at the appearance properties to that particular grade paper that we're going to manufacture. The brightness and the smoothness are substantially similar to SBS grade. So when we think about that grade and how we're going to position in the marketplace, it will compete for some food applications, for sure both here and Canada. But the real area that we believe we can push that is in some of the health and beauty, pharmaceuticals, anything that has a bottle or a blister pack that's kind of encapsulated with carton. Historically, those have been upper end products. And so by definition, they were packaged in SBS, and we did some of that as well. But now that we've got a CRB that can compete with [ CRB sheet ] that can compete with the [indiscernible] properties there, we see a lane there that's quite leveraged that over time that we're going to continue to find ways to penetrate. And so that's really where our focus is going to be with that particular grade. We've got some other grades that we're able to make in Kalamazoo that have high sizing that can work well in Frasers. As you know, we've got the ability to make a grade that can package beverage. That's really what that slide was trying to point out is that you're going to see more CRB in more places. And it's a couple of hundred dollar a ton advantage over SBS, when you look at it, what it is. And so you can imagine customers if they can get the appearance capabilities, there's a lot of interest there. So we'll be in trials here in the second quarter, in a pretty heavy way. Our focus initially on Kalamazoo was to take the cost off. Now we committed that we would do that. As you heard Steve saying in his prepared remarks, we're on track to deliver the $130 million of EBITDA improvement 1 year early. So now our focus has turned to how do we take advantage of what is a very unique formation back end or front end of the machine, our calendar capabilities, our coding capabilities, which really no one else except for else have in North America here, and we've got in Kalamazoo and Waco as well. So that's what we're doing.

I had a couple of other follow-ons on that, but I'll say it for the off-line. I guess the other question I had. So again, I think so far, not many companies that we track had organic revenue growth in this quarter. Having said that, the -- at least from our math, the organic revenue you put up was a little bit under 1%. 0.6%, 0.7%, nothing to sneeze at, but a little bit below what you've been targeting can you talk about whether there were any variances that were bit surprising to you in terms of your key end markets, maybe going back a little bit to Ghansham's question and kind of what the exit rate is into 2Q relative to that 100 to 200 basis points. And relatedly, whether or not we're in a recession, it's obviously a tougher environment out there. Is there anything else that you're rolling out of the playbook as we go through the next couple of years to prepare for this sort of volume uncertainty that a lot of companies are dealing with.

Yes. So I'll start by saying, look, we were really pleased with our performance in Q1 as it relates to volume when you compare it against kind of the rest of the packaging world, we showed positive growth. And it's really a testament to our diversified end-use market participation strategies that we've rolled out, how we built the company. You heard Steve talk about both Europe and Foodservice Group. Foodservice was quite strong. And you'd expect it to be with unemployment at 3.6% and people wanting mobility and convenience. We expect that to continue to be the case. There was a little destocking in the Americas side of the business. As Steve said, we're not immune to that. But what you have to remember for most of the products that we package, they've got an expiration date, they've got a born on date. And so those things have to be used within a pretty defined period of time. So we're not as quite as exposed as maybe some industrial segments are along those lines. So that actually gives us confidence that we'll continue to find ways to find out 100 to 200 basis points over the medium to long term. And if you look at how we exited Q1 and into Q2, I'd say it's substantially similar to what we saw in Q1.

Our next question today comes from the line of Kieran De Brun from Mizuho. Please ensure you are unmuted locally.

Sorry about that. I was on mute, I apologize. It seems like pricing is still trending better even though commodity prices are actually coming down. So, can you just talk a little bit more about how we think about that relationship into the back half of the year? And if we see raw subside further how -- and I know it's preliminary, but maybe how we should think about that into 2024.

Yes. Kieran, it's Steve, you touched on it. I mean price execution in Q1 was very good, very contractual as we've committed a lot of the changes in overall terms and conditions and the relationships that we've established with our customers short, medium and long term. Obviously, given that we haven't -- don't have any incremental new increases in the marketplace, you'll see some step down on the pricing, as you would expect, $230 million, we'll step down into the ones and then down into the under $100 million to kind of get that path towards $500 million, the roll-through obviously wouldn't be of substance as you kind of roll into 2024 because most of it would have been realized. That being said, overall inflation, commodity input cost inflation while lower than the original expectations we established at the beginning of the year are still net inflationary. And so it's pretty neutral in terms of the pricing implications of that overall across the portfolio. And so to your question, as we kind of roll it in 2024, we'll continue to be extremely mindful of monitoring inflation and making price adjustments as needed to offset inflation if we continue to see it come through the business. So that part of the model wouldn't at all expect to be changed as we march through '23 and into '24.

Great. And then maybe just one quick follow-up and this was discussed a little bit before, but clearly, you're generating strong cash. You have a very strong liquidity position. So how do we think about capital deployment priorities as we go into '24? I mean specifically, if you were to think about M&A or any investments along those lines. And I think it was discussed like is it focused on integration? Or are there any places where you want to see further growth or it's geographic or in terms of health and beauty or some other areas where you maybe have a little bit less exposure.

Yes. Thanks Kieran. So look, our focus in '23 is really to make sure that we are at or below the 2.5x lever. And you heard Steve talked about that in his prepared remarks. So that's our focus this year. For '24, we'll continue to run a balanced capital allocation process like we've been doing for really the last 5 to 7 years that there's a variety of levers we can pull there. And we do those to maximize shareholder value. And the good news for us is we're going to have a lot of cash to be able to do that with in terms of what we're generating as debt balances continue to go down. And we're able to do that even with what we're doing in Waco. So we're quite excited about it.

The next question today comes from the line of Mark Weintraub from Seaport Research.

One just quick clarification. So you've obviously raised EBITDA guidance by $100 million EPS, also nice raise there. You didn't make an adjustment to the adjusted cash flow, I apologize if I missed it, but why no adjustment there?

Yes, Mark, it's Steve. We're really just providing ourselves with good flexibility primarily focused on Waco. The project is off to an outstanding start. We've got $1 billion to invest over the next 3 years. As Mike mentioned in his prepared remarks, we're off and running. So we're just giving ourselves some flexibility that if we keep that project on track and in steady state, there might be a little more CapEx that would take us to the high end of the range there. The more EBITDA we earn, we've got a little bit of cash taxes. So we're just really being appropriate around some flexibility. Obviously, debt paydown is job one this year. We're on that path into the mid-4s roughly on the debt balance, which will drive the leverage below 2.5x. But we're just trying to give ourselves some flexibility on Waco. We really like the start we're off to. We're investing. The weather has been good. And so we're just giving ourselves flexibility on the potential timing of the cash investment there. So nothing to change of substance other than a positive around off to a good start in Waco.

Got it. And so it's just you'd be moving the spend forward. It's not that the spend on Waco would be more.

That's correct. As Mike mentioned, we're on track no change to the $1 billion. It's just about the timing of the spend.

Right. And I just wanted to just hone in a bit on the open market sales. And I realize that your strategy is really focusing on the organic volume growth, and you're doing a terrific job there. But maybe just give us a little bit more color on what's going on in that part of your business and how much of that is export versus domestic? And how you are tactically working through that part of your business in the environment that we currently are facing.

Yes. Thanks, Mark, appreciate the question. From our standpoint, our export open market sales are very, very small. So we'll start with that. And really, as you seen us do over the last really 5 years is we're systematically doing a strategic retreat from certain parts of the open market, North American open market paperboard segments because we need those tons to run our own business as it continues to grow. And so you saw that on the waterfalls there in all likelihood, you'll see it again in quarter 2 because Q1 and Q2 last year were pretty strong quarters, basically anything that was available was sold. And so from our standpoint, we're being very thoughtful in terms of how we use those tons and they're really focused to help us grow our own -- converting a tough business and ultimately take care of long-term customers that we've got on the open market side. So that's what we're doing.

The next question today comes from the line of Mike Roxland from Truist Securities.

Congrats on a very good quarter. Just on -- I want to get a sense, Mike, from you in terms of how do you think about your portfolio on a go-forward basis? So obviously, you built out Kalamazoo, it's ahead of expectations. You're building out Waco right now. Is this something that we should expect to be ongoing so that after you done with Waco, maybe we should expect another capital spend period where you build out -- there's another CRB mill low-cost efficient? And then basically, that's something you're going to keep doing on a go-forward basis. And similarly, are there any significant enhancements that we should expect from you with respect to both SBS and with CUK?

Michael, can you repeat the last part of the question, I want to make sure I have it.

Sure. So sorry about that, Mike. Just I want to know in addition to what you're doing in terms of CRB optimization, or are there any other significant enhancements we should expect from you guys on SBS and CUK.

Got it. Thanks for the question. As I talked about in my prepared comments, and I appreciate you calling it out is what we're really excited about here and graphic is kind of when we exit the Waco startup, we're going to have 6 world-class mills to the make CRB to the make CUK and to make SBS. So we've got the redundancy. We've got the cost structure we like. They're very focused on what they do with the mill. Strong leadership teams and very large, well-capitalized complexes like we've got there. And the net on adding Waco, as I said in my comments, allows us to have roughly 5% additional tons, so call it, 200,000 tons across the 4 million, 4.5 million ton network. So if you think about that, what we're really excited about is we're going to be able to kind of shift substrates around within that 6 mill system within the substrates to really help us grow our business. And so we believe actually that CapEx requirements into those mills in the CUK and the SBS mills will actually be less because we're going to be able to open up additional tons in order to balance off the CRB side. So that's really one of the reasons why we did what we did in Waco too because it frees up those tons that we'll then be able to use. And so what we'll look to do at those mills is cost reduction projects that structure to take out carbon, take out input costs because we're going to have the tons already that we need to run and operate to grow our business.

Yes. Mike, it's Steve. Just to add to that, as we've talked from a modeling -- long-term modeling perspective, once we are in beyond Waco here over that 3-year period of time, we can see CapEx moving back down into that 5% sale type range similar to historical that allows us to maintain the assets at a very high level and support that 100 to 200 basis points of growth.