Neptune Insurance Holdings Inc. (NP) Q4 2017 Earnings Report, Transcript and Summary

Hello, everyone, and welcome to the Neenah Fourth Quarter and Full Year 2017 Earnings Conference Call. [Operator Instructions]. Please note, this event is being recorded. I would now like to turn the conference over to Bill McCarthy, Vice President, Investor Relations. Sir, please go ahead.

Thank you. Good morning, and thanks for joining the Neenah 2017 Fourth Quarter Earnings Conference Call. John O'Donnell, our Chief Executive Officer; and Bonnie Lind, our Chief Financial Officer, are here with me and will be discussing business and financial results in detail. Following our prepared remarks, we'll open up the call for questions. We released earnings yesterday afternoon reporting fourth quarter GAAP earnings per share of $1.10 and adjusted earnings per share of $1.06. Both of these numbers benefited from the U.S. Tax Cuts and Jobs Act. GAAP earnings reflected a net $0.35 per share tax benefit, while adjusted earnings had a $0.27 per share tax benefit. Bonnie will talk in more detail about the current and future impacts from changes in the tax law later in the call. Revenues were a fourth quarter record, went by double-digit Technical Products organic growth and further boosted by our November 1 acquisition of Coldenhove. Operating income in the quarter was negatively impacted by recent steep increases for pulp and freight costs as well as nonrecurring costs of around $3 million in Technical Products for acquisition purchase accounting and timing of our annual planned maintenance down in Germany. We report adjusted earnings when we will improve understanding of results and comparability between periods. A detailed reconciliation of these non-GAAP measures is included in our press release. Finally, our comments today include forward-looking statements. Actual results could differ from these statements due to the uncertainties and risks that we've outlined on our website and in our SEC filings. I would now like to turn things over to John.

Thanks Bill, and good morning, everyone. Finally, I will go through fourth quarter results. So let me take a few minutes to recap of the year and some of the key accomplishments. Starting with Technical Products, certainly, the largest achievement last year was a successful start-up of our filtration operation in Appleton, Wisconsin. We now have what we believe to be the best, most-advanced transportation filtration asset in the world. While higher cost rate and start-up are expected, they were greater than originally planned and negatively impacted our results. As we entered 2018, we continue to qualify new grades and customers and are confident that this investment will deliver the future profitable growth and attractive returns that we expect. We also completed 2 very attractive acquisitions last year. First, in August, we purchased a U.S. laminating asset to support our double-digit growth in premium packaging. This has been a seamless and well-received addition, providing us with the capacity and capabilities to support growth of our paper gift cards for years to come. These cards are prepared by customers seeking a more environmentally responsible position and stand out with distinctive printing and design options. On November 1, we acquired Coldenhove, a leader in digital transfer media. I have been extremely pleased with the integration and quality of the team that joint Neenah. As a reminder, Coldenhove is based in the Netherlands and has annual sales of $45 million and EBITDA of approximately $6 million. Combined with our existing smaller heat transfer business, we now have a leading 30% share in a digital transfer market that we sized around $200 million. Coldenhove has proven to be a great fit in our broader Technical Products footprint and our teams are already developing additional opportunities to accelerate ourselves and profits in Europe. Turning to Segment results. Technical Products had a stellar year. Organic sales were up an impressive 7% and as planned, we increased our presence in targeted categories that represent attractive, long-term growth opportunities. Looking at each of our operating segments. Within Technical Products, overall sales of performance materials grew 9%, revenues for backings, our largest performance materials category, increased 7%, as we grow sales and share outside of the U.S. In Labels, sales increased by 20%, as we expanded our market reach with new customers in the United States. Turning to filtration. Sales were up 6%, despite constrained transportation filtration capacity in Europe. In addition to maximizing our mix of high-value transportation products out of Germany, sales and nontransportation filtration grades grew by almost 15%, with large gains in industrial filters and glass. In Fine Paper & Packaging, the commercial print market remains decline and while our commercial print volumes did decline, I'm pleased to note that our team, again, tenaciously overcame market pressures and grew total sales by 1%. This was championed by a 17% gain in packaging and another record year in retail, as we further broadened our market reach in that channel. Simply stated, we continue to execute our strategy to ultimately transform Fine Paper into an organically growing business by expanding in premium packaging. As successful as we were executing top line growth strategies, our bottom line did not reflect that success. In addition to the added costs as we ramped up our U.S. filtration business, we experienced steep increases in both input and freight costs, especially late in the year. Pricing and cost reduction efforts did not have a time to fully offset this negative affect in calendar 2017. As a result, we're taking additional actions to overcome this cost, just as we have in the past. I will talk more about this later in the call. But we'll now turn it over to Bonnie to review fourth quarter results.

Thank you. Good morning, everyone. I will start today reviewing results for each of our segments and then cover a few corporate items, including the impacts from the recent change in U.S. tax laws. Starting with Technical Products. We have another strong quarter with sales of $127 million, up 22% and organic sales up 15%, after excluding $7.5 million from Coldenhove. While improved pricing and currency translation from a stronger Euro helped, the primary driver of the growth was volume-driven increases across most product categories. Filtration sales increased 16% as we continue to optimize our mix, ramp up and deliver double-digit growth in nontransportation filtration products. Performance materials, organic sales grew 13%, led by backings with strong market demand and increased sales of products in Asia. And Labels, which benefited from increased demand for our harsh environment products. Operating income of $11 million was down from $12 million in 2016. And 2017 results included $3 million of cost for one-time purchase accounting related to the Coldenhove acquisition and timing differences for our annual German filtration down, which occurred in the third quarter last year. Without these one-time costs, profit would have increased by around $2 million. Volume growth, higher net selling prices, improved manufacturing efficiencies and lower restructuring and integration costs more than overcame increased costs for the U.S. filtration ramp ups and input costs. Turning next to Fine Paper & Packaging. Revenues of $104 million were up slightly compared to last year. A higher priced mix and growth in premium packaging and retail sales helped offset lower commercial print volumes. Operating income of $14 million fell from $17 million last year. The biggest impact was due to increased pulp and freight cost, which combined were up almost $3 million. As we mentioned last quarter, a new regulation has resulted in driver shortages and significant increases in our volume held rates. Lastly, while down for the year, SG&A costs were higher in the quarter due to timing of marketing expenditures. Turning to corporate items. Selling, general and administrative expenses $25.6 million was above an unusually low quarter, last year of $20.4 million. The increase includes SG&A acquired with Coldenhove and SG&A added to support the new U.S. transportation filtration business as well as expenses related to timing and sales growth. In 2018, we expect to maintain our SG&A efficiency below 10% sales, with quarterly spending of approximately $26 million. Unallocated corporate SG&A was $5.5 million, down from $6.6 million in the prior year. On an adjusted basis, costs were approximately $4.5 million in both periods. In 2018, we expect unallocated corporate costs of approximately $5 million per quarter. Net interest expense was $3.2 million in 2017, compared to $2.8 million in 2016. Costs were lower in 2016 as we capitalized the portion of interest related to our investment and filtration and due to higher interest rates and additional short-term debt in 2017 to finance the Coldenhove acquisition. Okay, now on to the hot topic of the day, taxes. I will talk first about the fourth quarter and then cover expected ongoing benefits from U.S. tax law changes. Our tax rate in the fourth quarter was negative 19% compared to an expected full year rate in the upper 20s. The primary reason for the negative rate was enactment of the U.S. Tax Cuts and Jobs Act, which help generate a one-time reduction in tax expense of $6 million or $0.35 per share. The 2 large pieces that comprise this amount were a $10 million benefit from the remeasurement of deferred tax liabilities and a $4 million one-time charge on unrepatriated foreign earnings that will be payable over the next 8 years. Of the $0.35 per share benefit, $0.27 was a result of our 2017 activities, as we accelerated tax appreciation of U.S. filtration assets and purposefully took additional actions to accelerate deductions at the higher 2017 tax rate. The remaining $0.08 per share was due to remeasurement of prior period balances or one-time items, and we excluded those from 2017 adjusted earnings. While there were parts of U.S. tax laws still being clarified, at this point we expect our 2018 book tax rate to be around 23%. As a reminder, since we benefited from the added $0.35 per share in 2017, we don't expect to see any meaningful year-on-year change in earnings due to the tax law change in 2018. From a cash flow perspective, because of our existing prior period R&D credits, we've been in pretty favorable cash tax position and the new tax rate should provide an additional ongoing benefit of about $3 million to $5 million annually. We have no offshore cash so changes in law regarding repatriation don't impact us going forward. We currently expect to consumer prior period R&D credits over the next 2 years, at which point cash and book tax rate will start to convert. While the change in the text law won't change our cash deployment priorities, where organic investments and value adding M&A remain our top choices, it will make U.S. investment choices, like our recent filtration, operations more attractive and it will help strengthen our financial position. Cash from operations in the quarter was $18 million, about equal to 2016, while capital spending of $15.5 million was down from $19 million. Post employment benefit plans and pension funding remain in great shape. In 2018, we expect cash outreach for these plans to be around $17 million, slightly below 2017 and $6 million higher than related expense. For the full year, free cash flow was $57 million in 2017, which is up $10 million from 2016 as reduced capital spending offset the impacts of lower operating income and an increase investment in working capital. Working capital increased in 2017 with sales growth, start-up of the new filtration operations and to help bridged Fine Paper service levels in the first year with 1 less paper machine. We expect to improve efficiencies in this area as we go through 2018. Capital spending of $43 million in 2017 was in the middle of our targeted range of 3% to 5% of sales. We expect spending in 2018 to be similar, with about 1/3 of spending on maintenance capital and the rest on projects that drive growth or deliver cost savings. That at year-end was $255 million and cash was just under $5 million. Debt increased $34 million in the fourth quarter of 2017 to finance our acquisition of Coldenhove. Debt currently consists of $175 million of bonds that are due in 2021, with a fixed rate at 5.25% and the remainder and short-term borrowings at a variable rate, slightly below 3%. In total, debt-to-EBITDA remains below 2x, and we continue to have plenty of borrowing capacity. As we've said, our strategy is to increase these organic growth rates, while maintaining an attractive double-digit return on capital and returning a meaningful part of our cash flow to shareholders. In 2017, we continued to invest organically, completed 2 value-added acquisitions and increased our dividend at a double-digit rate for 8th consecutive time. With our substantial cash flow generation and strong balance sheet, we're well positioned in 2018 to continue successfully executing this strategy. With that, I will turn it back to you, John.

Thank you, Bonnie. As I mentioned at the beginning of the call, I'm encouraged by our progress to improve Neenah's organic growth rate and how our business has delivered impressive top line growth in 2017. In 2018, demand should be helped by strengthening global economies, and we're also well positioned to take advantage of the unique benefits of our recent organic investments and acquisitions. Currency translation also appears to be in our favor. As a reminder, in the quarter, the translation impact of every $0.05 difference is about $2.5 million in sales, $0.5 million of EBIT. While these are positive items, we're also faced with a number of meaningful short-term challenges. As Bonnie mentioned, distribution costs escalated sharply in the back half of the year, striking companies comply with new regulation to monitor driven. This has especially impacted Fine Paper where we have unfriendly freight and currently pay for shipping on the majority of customer orders. Given the structural nature of this regulatory change, it's likely to take us a year to fully overcome these costs. We have been implementing process and program changes to help us offset some of the rising freight costs, while still maintaining service levels to our customers. Without these improvement activities, distribution costs are projected to be at least $5 million above last year, with most of the impact fell in the first half of the year. Secondly, pulp prices, which were projected to decline towards the end of 2017, have continued to rise instead. Forecasts are now for decline in 2018. When that happens, there is no question that will be from a record high as we're seeing prices from the first quarter continue to increase. While forecasts are continually changing, current expectations are that pulp cost in 2018 could be up as much as $10 million year-over-year with the largest impact, again, in the first half of the year, and Fine Paper absorbing about 2/3 of that headwind. As I said before, each of our businesses have demonstrated the ability to offset input costs increases over time. That hasn't changed and our teams are taking appropriate actions to address the current escalating costs. In Fine Paper & Packaging, we increased prices in late 2017 and recently announced additional pricing activities with the second quarter effective date. We expect these announcements to deliver enough revenue to offset the higher pulp costs. In addition to the pricing initiatives just described, we'll take a hard look at our product portfolio and manufacturing footprint to ensure we examine all opportunities to optimize costs asset loadings. And we'll continue to aggressively manage marginal business. As a reminder, each of our businesses is also committed to deliver cost savings to offset other inflationary impacts. Bottom line, our Technical Products business clearly has a great deal of momentum, while Fine Paper & Packaging has some significant near-term cost challenges. We still expect both segments to target historical mid-teen EBIT margins. In Fine Paper, when input costs are very low, like they were in 2016, margins tend to be at the higher end of the mid-teens. And when they're escalated, as they are now, we live in the lower end until improvement efforts are realized. Before closing, I would like to provide an update on progress on our U.S. transportation filtration business. First and most importantly, these assets have demonstrated the capability to make the high-performing products our customers are asking for, and we believe it will do so with the world-class cost structure. In 2017, we've intentionally incurred costs in demand in order to ensure our teams were trained and ready as customer qualifications progressed. In hindsight, we incurred greater costs than we were overprepared as qualifications of taking longer than we originally anticipated. With that said, we're qualifying new grades each quarter and continue to have the strong support of our customers. Market demand for transportation filtration remains healthy and with our tight capacity in Germany, we're fortunate to have made the investment when we did. Looking to 2018, we expect capacity from Appleton to provide sales growth of approximately $15 million to $20 million and support our historically high single-digit growth rate in transportation filtration. At this point, we've already qualified 60% of the Appleton products required to satisfy those added sales. In 2018, with growing sales year-over-year comparisons will improve. But we'll continue to generate losses until breakeven volumes are reached. As communicated before, we're targeting to enter 2019 at those breakeven levels. So to wrap up, we entered 2018 with sound market positions and good growth catalysts led by Technical Products. Our life would certainly be easier without some of these significant near-term cost pressures. We're taking the necessary actions in the market and at our sides to address them, just as we've done in the past. Cash flow should increase significantly in 2018, as we improve working capital efficiencies, enjoy the U.S. tax rate and maintain disciplined capital spending levels. Our balance sheet is in great shape, providing us the flexibility to effectively execute our asset plans and continue to pursue attractive acquisitions, as M&A remains an important part of our growth story. Finally, our recent corporate name change underscores our evolutionary journey to become a faster-growing specialty materials company. We look forward to sharing our future successes with you as we remain focused on strategy execution and creating value for our shareholders. Thank you, for your interest. And I will now open the call for questions.

[Operator Instructions]. And our first question comes from Jon Tanwanteng with CJS Securities.

Did I hear you correctly, you said you expect price increases to -- I think, offset the import price increases, was there a time line attached to that or degree a coverage. I know, over time you to, but maybe in this case a little bit different?

Right. Different from 2017 where most of the cost impacts hit us at the end of the year. We believe that first half of this year where most of the costs are going to impact us. The price increases that I referenced were announced at the end of the year and the beginning of January and then one affected in the second quarter. So my expectation in this year is that especially in the Fine Paper side that I will be able to offset the input costs that they incur in this calendar year.

Okay. So with pulp increasing $10 million in 2018 versus, I guess, what you thought maybe 3 or 6 months ago, you will be able to catch up and offset that by the end of 2018?

Yes, that's my belief, yes.

Yes.

Great. And it looks like Labels and Backings were a bright spot in the quarter. Just with regards to your capacity constraints, do you have the capacity continue to grow at that pace? Or is that a different business and filtration is kind of on a different line of those in those items?

It's completely different asset base from our filtration, but we do have capacity to continue growth in backings. Label is the real damage we put in Label is our coding and we acquired a significant coding with the FiberMark acquisition a couple of years ago as well. So did a long runway for their innovation.

Okay, great. And then just on the qualification is taking longer at the Wisconsin line. What's going on there? Is there something special going on? Or just the customers taking longer than expected? Any color on what's happening there is a change?

Yes, I would say this is the first filtration asset that we've installed. So optimism got in the way of practicality here. In the sense that we built the base sheet that needs the specifications, our customer then built a filter that has to be their specifications and then they provided it to the end consumer or automobile manufacturing to meet their specifications. At any point in time, it can pass the first two and get kicked out and come all the way back to the beginning. And I think it's the appreciation of the fact that it has to work completely through that chain that's taking longer for us, not just producing a great sheet on our assets. The good news is that the longer a qualification is just a great reminder of how strong of a barrier of entry there is in this transportation filtration business. I mentioned also, Jon, that and we expect $15 million, $20 million this year. I would be very disappointed if we're going to see incremental improvement quarter-over-quarter. I will be very disappointed if we didn't at least improve by $1 million each quarter as we work through 2018. So we're on a good path. And I mentioned in my prepared remarks that 60% of our grades to qualify, while 100% of what we need in the first quarter's qualify. So we're staying ahead of our existing, and I think we are in a good place right now.

Great. That's very helpful. And just to clarify, I think the comment was you expect to breakeven in 2019. That's a change, right. I think it was either last quarter or last half of '18 you expected that previously?

Yes. I said -- yes previously, I have been saying at the end of '18, but then I realized on the feedback that I have gotten from multiple people that I was -- I think I was being acute on the wording. I don't think it is much of a major change, just a little delay maybe 3 months from where we were originally looking 3 months to 4 months from that piece. But that's why I was more explicit saying entering '19 in that breakeven mode.

Our next question comes from Dan Jacome with Sidoti & Company.

Just staying on the Appleton. You said you have a 100% of the customers that you need for the first quarter of '19 qualified, was that correct? And if that is the case, why--

No, it's '18. I'm just saying that there is -- we have to say 6, 9 months out in front of this. And when I say 60% of the year, what I was trying to make sure that I had real quality that we're golfing every quarter, but we're not qualifying anybody now for first quarters anticipated volumes. We're qualifying for third and fourth quarters to volumes.

Okay. So just to be clear, the change in the breakeven timing is just that small kind of three months stretch the entire qualification process, is that what it is?

Yes. I think the breakeven, and I introduced that and I clearly didn't do a good job communicating that earlier, but some people perceived that was going to be breakeven when we came into 2018 and our communication was really in the towards the end of 2018.

The whole year 2018 would have been breakeven.

But definitely with the improvements will happen each and every quarter through 2018 and will be at that capacity level when we roll into 2019.

Okay. That helps. And then on the truck and freight logistics costs, why is that -- I think it's going to take two years to update or fully enter rearview mirror. Can you explain that a little bit more in terms of what's happening and why so long? I'm not an expert in that area, so I was just curious.

That's very fair. The impact as much as $5 million. We've got change a lot of the processes and programs to do that. If we're able to reduce our costs faster than that, it will be less than two years. I was pretty emphatic on the previous questions that we will recover input costs this year. It's not totally no, because we have when I say we have four stops on average for every load, small quarters are very profitable, but they require quick turns. And so we have internalized completely what the impact to us and I loved it, get it all done in this year. We're working to do that. But I didn't want to have an expectation that something this semi-structural out there that was going to be able to be passed through and priced.

Great. I was under the impression that you're using the one key distributor for the Fine Paper segment, and then I know you have some independent operators. So I'm just going to understand where this near-term headwind. Is it on the smaller truckers that you guys use? Or is it coming from that larger partner of yours?

That's fair. Let me see those two things apart. First, the cost impact is definitely impacting smaller carriers much greater, requirement to automate and the local carrier. So from a customer standpoint, we have one national player and actually, we have others that are continuing to grow. So that might be what you're using the customers, they don't carry our freight for us. We provide products to them, from that standpoint. So in regards to this cost, it's really we use third-party carriers. And it's the impact in the costs to them. We've seen our freight costs go up double-digit rates.

There is no way to transfer. I mean, this is a silly question, but there is no way to transfer some of that volume to the larger distributor. Is that even possible or am I just not seeing it?

No. That's a great question. The impact should some of those cost be bored by the marketplace. Do we need to structurally change how we go-to-market because our margins can't support this higher level of cost. It just was introduced really predominantly in the fourth quarter. That's exactly what we're doing. We are really taking a hard look and saying, okay, recently business announced changes in the order size, doubling the size of the order that was required, increasing the cost of stopovers that are making us unfriendly that's causing the higher costs. And we're looking at every option. While you describe us a hub-and-spoke with customers that's on the table. So we're going everything to freight.

Okay. That's encouraging. And then what on the digital transfer market now that you have a quarter under your belt. Have you learned anything new about that market you might want to share with us that might be compelling or what have you kind of media?

Yes, I think every time you make an acquisition you get a little surprise somewhere. This one it's is a positive surprise. Market is very strong product capability. Our ability to come into the U.S. and looking hard at whether go direct or distributors, we got good upsides. And then that, obviously, puts a manufacturing facility in Europe that might give us new opportunities for other products in Europe. We're seeing a high single-digit growth rate in that business, the principal markets and no negative surprise. So that's all.

Our next question comes from Brendan Munson with Buckingham Research Group.

Can you give us a little more color on what you're seeing in terms of end-market demand? It sounds like transfer media has surprised the upside. Are you seeing any other surprising areas of strength or spend that kind of more generally what's the sense of supply demand in go to these markets?

Okay. I think from a supply and demand, the market that has the largest growth we've historically done a transportation filtration. And we've been constrained in that. We grew our filtration business 6% last year, but we weren't able to do that in all transportation filtration, but many of the other categories. So that's one that why there is a lot of energy on getting our customers qualified. And that's why they're also motivated to make sure that they qualify. So that's probably the biggest supply and demand issue from a capacity, supply side. On the demand side, our Fine Paper business continues to be in secular decline, pressured by 4% to 5% a year, but it seems to able to grow packaging at double-digit rates, and that's offseted in the year. In Performance Materials side, so I did a supply constraints and filtration, but I got a new asset coming, demand, challenges and secular declining Fine Paper, but offsetting that with premium packaging growth. And then, I guess, since I have done 3 here, our Performance Material business strong backings, but strong capabilities, and we've got the ability to support that growth and Coldenhove where we just acquired has plenty of capacity to support that future growth as well. So I think that surrounded the business pretty well there.

Okay. Switching gears here to the transportation filtration business. You've got a nice position in Europe clearly and you now have a solution in placed to better serve the U.S. market that's ramping. Can you about your ability to serve Asia and maybe how you think about the different options for growing your presence in a more meaningful fashion there?

Okay, very good. We've historically supported Asia out of our European facility, and we'll support some of that out of our U.S. facility. We typically play transportation filtration in the very high end of performance. So we hadn't decided to place the facility at Asia as of yet. If we move into Asia, you would have to support the economics. The U.S., we were able to repurpose an asset made coming in here a lot easier. Today, with the capacity that we have, we can support 5 years of growth at 8% growth and a lot of that is in Asia. So we don't want to overeat in our share in the U.S. We want to come in an orderly fashion and will continue to support our Asian growth right for some time out of our U.S. asset.

Our next question comes from Kurt Yinger with D.A. Davidson.

Just starting off in papers. Obviously, you have the price increases in the market, but just given the pulp and transportation costs sort of accelerating. I mean, do you expect prices to be enough to sort of sequentially improve margins in the first half of the year or will it be more of the back half type story?

Without a doubt, the first half of the year is going to fill much more pressure than the back half. And I believe that, and I'm confident about that, that sounds better than believe, I'm confident that the pricing activity that we have in the marketplace and our historical pulp pricing, existing forecast now for pulp. And right now, the expectations is it will drop precipitously in the back half. Obviously, that helps the margins in that business dramatically. On transportation filtration, we've got -- it's going to take a variety of changes, whether the process oriented, the customers sharing some of that burden, us changing the way that we go to market to really work on that. We're working on that. Those changes all year long. So I would see us mitigating that more as we go through the year where price increases are all announced to happen in the first half of the year.

Okay. That's helpful. And then, I guess, sticking along the same line you touched on a bit. But when we look at Technical Products, I would assume the seasonality then is going to be a bit different than normal to where maybe it's almost switched in the back half of the year from a profitability standpoint will be actually better than the first half just given the Appleton asset?

Yes, it's fair to say that the Appleton asset will ramp up all year long and you're exactly right. Our Technical Products seasonality was strongest first and the weakest in the fourth. So I haven't done the math to see if completely 10%, but it's definitely going to take edges off both ends to that. We also anticipate pulps a big input costs, especially for our performance materials business as well, and it's going to feel some of that profitability hit earlier in the year versus the later part of the year as well. So I think that will help up more back half profitability issue as well.

Okay. That's right. And then just to recap sort of the expectations, I mean, it sounds like $15 million to $20 million in sales growth from Appleton and you would expect the core business to continue to grow in the mid-to-high single digits and then you also have Coldenhove there any other big sort of pieces there from sort of top line growth perspective in Technical Products?

Yes, I expect transportation filtration to grow in that high single-digit. We've historically done 8. I expect that, and that's going to be supported from the Appleton. So we push the core business on Appleton. I'm going to have a hard time teasing these apart. But I would say transportation filtration will grow at an 8% rate, if you will. And then when you look at Coldenhove, we have that business for two months. So I expect another 4% for Technical Products growth to happen for Coldenhove. So when we look at those two big pieces of one driven by organic investment and by an acquisition, we expect double-digit growth in Technical Products next year.

And then last question. Just looking at the balance sheet, I mean, outside of acquisition opportunities, are there any bigger type investments -- organic investments that you're looking at? Or any areas that are particularly interesting at this point?

We've mentioned on previous calls that actually 3% to 5% of our overall sales is really the capital -- organic capital spend that. We believe given this opportunity to make the improvements in the cost reductions as well as support some of our organic growing businesses, we're going to be in that range. And I think Bonnie mentioned that in her prepared remarks. What's exciting to us inside of that $40 million to $50 million CapEx might not be excited, but definitely investing in growth opportunities there. There are no large asset plans like our U.S. transportation filtration in the near future for any major organic or repurposing of any asset.

This concludes our question-and-answer session. I like to turn the conference back over to Bill McCarthy for any closing remarks.

Okay. Thank you, everyone, for your interest today. I'd like to note that we will be participating at the Rock Conference in Southern California on March 12 and 13 and at Sidoti's Conference in New York City at the end of the March. In the interim, please feel free to reach out to me if you have any further questions. Thanks.

The conference is now concluded. Ladies and gentlemen, thank you for attending today's presentation. You may now disconnect.