Mativ Holdings Inc (MATV) 2017 Q4 法說會逐字稿

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  • Operator

  • Welcome to SWM's Fourth Quarter and Full Year 2017 Earnings Conference Call.

  • Hosting the call today from SWM is Dr. Jeff Kramer, Chief Executive Officer, he's joined by Allison Aden, co-Chief Financial Officer; Andy Wamser, co-Chief Financial Officer and Mark Chekanow, Director of Investors Relations.

  • Today's call is being recorded and will be available for replay later this afternoon.

  • (Operator Instructions) It is now my pleasure to turn the floor over to Mr. Chekanow.

  • Sir, you may begin.

  • Mark Chekanow - Director of IR

  • Thank you, Kim.

  • Good morning.

  • I'm Mark Chekanow, Director of Investor Relations at SWM.

  • Thank you for joining us to discuss SWM's fourth quarter and full year 2017 earnings results.

  • Before we begin, I'd like to remind you that comments included in today's conference call include forward-looking statements.

  • Actual results may differ materially from the results suggested by comments for a number of reasons, which are discussed in more detail in our Securities and Exchange Commission filings, including our quarterly reports on Form 10-Q and our annual report on Form 10-K.

  • Some financial measures discussed during this call are non-GAAP financial measures.

  • Reconciliations of these measures to the closest GAAP measures are included in the appendix of this presentation and the earnings release.

  • Unless otherwise stated, financial and operational metric comparisons are to the prior year period and relate to continuing operations.

  • This presentation and the earnings release are available on the investor relations section of our website, www.swmintl.com.

  • I'll now turn the call over to Jeff.

  • Jeffrey Kramer - CEO and Director

  • Thank you, Mark, and good morning, everyone.

  • Yesterday, we reported our fourth quarter and full-year results with full year adjusted EPS of $3.18 exceeding our guidance of $3.15.

  • Before we go into further detail about the quarter and year, it is important to note that we had a net onetime noncash tax expense of $39.6 million or $1.29 per share related to the recently enacted U.S. tax legislation.

  • This had a substantial impact on our full year GAAP financials, including a fourth quarter GAAP loss per share.

  • Allison will provide more color on taxes later in the call.

  • Regarding our overall results for the year, AMS organic sales growth and the benefits from the Conwed acquisition offset the challenges in our recon business we had assumed when we originally issued our guidance.

  • Specific to the fourth quarter, adjusted EPS was $0.64 a share down from $0.80 in part due to lower organic sales in AMS as customers adjusted year-end inventories following several quarters of strong growth.

  • Concurrently, EP faced a difficult comparison to the prior year's fourth quarter.

  • 2017 free cash flow finished at $90 million, a reduction from the earlier expectation of close to $100 million as we chose to build additional inventory to ensure consistent service levels during our facility consolidation and expansion projects.

  • We expect free cash flow to rebound to more than $100 million in 2018.

  • Shifting to AMS segment results.

  • Excluding the Conwed acquisition, organic sales declined 2% in the fourth quarter but were up 4% for the year.

  • Recall, transportation sales increased rapidly midyear as we expanded our Asian distribution channels for surface protection films.

  • While we saw these customers reduce their year-end inventories during the fourth quarter, we have seen -- since seen a more normal order pattern resume in 2018.

  • Although fourth quarter transportation sales declined, for the full year they grew more than 10%.

  • In filtration, we saw a good quarter growth across most product lines but the full year still finished with a modest decline.

  • We expect filtration sales growth in 2018.

  • In medical, we continue to see gains during the fourth quarter and for the year, medical sales finished up in the 2% to 3% range.

  • Industrial sales were up slightly in the course of the year, up 2% to 3% with particular strength in our small but growing graphics products.

  • Commenting specifically on Conwed, the top line in the quarter benefited from continued momentum in sediment control and construction-related products.

  • These areas were also the best performing products on the [go-forward] basis.

  • Sales of erosion control products grew for the year but were constrained by a fire at one of our customers' plants which cut the supply chain.

  • We expect these sales to pick back up in 2018 as infrastructure investments and highway development remain robust and the channel debottlenecks next to meet pent up demands.

  • The AMS legacy site closure plan remains on cause -- on course for phase completion in 2018.

  • Execution of this action should solidify the achievement of our $10 million run rate synergy goal later this year.

  • Regarding segment operating profits, fourth quarter margins were down due to lower organic sales, however, for the full year we saw over 200 basis points of adjusted margin expansion from organic sales growth, favorable mix and the addition of Conwed.

  • For context, AMS segment margins have increased about 400 basis points from the mid-13% level in 2015.

  • Switching to Engineered Papers.

  • Fourth quarter results were generally as expected though the comparison to last year was challenging.

  • Recall during the fourth quarter of 2016, we delivered particularly high profitability due to a combination of positive factors resulting in elevated margins.

  • That said, fourth quarter 2017 sales were up 2% for the gains attributable to favorable currency movements, which more than offset 1% volume decline.

  • Segment volume was driven by lower recon products with the traditional RTL decline, partially offset by the Heat-not-Burn ramp up and wrapper and binder volume growth, trends we have seen consistently throughout 2017.

  • Full year 2017 sales were down 2% on a 3% volume decline, which was driven by lower recon volumes as we expected and total cigarette paper volumes contracted in line with smoking attrition.

  • These declines were partially offset by nontobacco volume growth.

  • Lastly, as we've noticed on recent calls, contractually lower LIP royalties have negatively impacted sales and margins throughout 2017.

  • On a separate note, during the fourth quarter, we received a favorable ruling in our LIP patent infringement litigation in Europe.

  • For legal reasons, we cannot provide further detail at this point and we will continue to provide updates as appropriate.

  • Regarding execution of our EP segment priorities, Heat-not-Burn tobacco sales continued to increase during the fourth quarter as the market continues to show positive movement.

  • As we have noted in our earnings call, this product represents a unique opportunity to help offset some of the ongoing headwinds of the tobacco industry.

  • However, it remains in the early stages with much of the global adoption story yet to play out.

  • We will continue positioning SWM as the supplier of choice for reconstituted tobacco products used in these devices.

  • Leveraging our dedicated teams with significant technical expertise, strong relationships across the industry and available capacity.

  • I will now turn the call over to Allison.

  • Allison Aden - CFO & Executive VP of Finance

  • Thank you, Jeff.

  • I'll now review our financial results starting with AMS segment performance.

  • In the fourth quarter, AMS sales increased 52% to $99 million due to the Conwed acquisition.

  • Organic sales declined 2% due to lower transportation film sales.

  • Adjusted operating margin was 13.4% of sales, down 200 basis points.

  • The quarterly margin contraction resulted from soft organic sales.

  • For the full year, sales increased 54% to $433 million driven by the addition of Conwed and 4% organic sales growth.

  • Adjusted operating margin was 17.5% of sales, up 230 basis points, driven by organic sales growth and the addition of Conwed in related synergies.

  • For the Engineered Paper segment, fourth quarter sales were up 2% despite a 1% volume decline.

  • Favorable currency movements drove the sales increase more than offsetting lower LIP royalties, while price and mix were net neutral.

  • Adjusted operating margin was 21.8% in line with the full-year margin but down 480 basis points versus the prior year quarter, due primarily to lower traditional RTL volume, lower LIP pricing and royalties and reduced overhead absorption.

  • Also, pulp costs were unfavorable compared to last year.

  • As Jeff mentioned, the margin decline was magnified by a difficult year-over-year comparison.

  • The fourth quarter of 2016 adjusted margin of nearly 27% was the highest quarterly [segment] margin in recent years.

  • For the full year, sales decreased 2% due to the 3% volume decline.

  • Consistent with fourth quarter results, price and mix were net neutral for the year and favorable currency more than offset the decreased royalties.

  • Adjusted operating margin was 22.1% of sales, down 330 basis points.

  • Adjusted corporate Unallocated expenses decreased by 7% and 2% for the fourth quarter and full year respectively, declining as a percent of total sales.

  • This decrease is due to lower consulting fees and our continued focus on cost control.

  • On a consolidated basis, fourth quarter sales increased 19% but were up 1%, excluding Conwed, and down 2% excluding both Conwed and currency benefits.

  • Fourth quarter adjusted operating profit margin was 12.5%, down 310 basis points.

  • For the full year, sales increased 17% but were flat excluding Conwed and down 1% excluding both Conwed and currency benefits.

  • Full year adjusted operating profit margin was 16%, down 110 basis points.

  • Shifting to consolidated earnings.

  • We recorded a fourth quarter 2017 GAAP loss of $0.89 per share.

  • The loss was due to the $1.29 per share of net onetime tax expense resulting from the implementation by the U.S. Tax Act.

  • Fourth quarter adjusted EPS was $0.64, down from $0.80 in the prior year.

  • For the full year, GAAP EPS was $1.12, with the onetime tax expense driving the significant impact.

  • The full year adjusted EPS of $3.18 exceeded our guidance of $3.15.

  • Now I would like to provide some context for the recently passed U.S. tax legislation and its impact on SWM.

  • As mentioned, we incurred $1.29 per share of net onetime noncash tax expense in the fourth quarter 2017.

  • The total incremental net tax imposed by the implementation of the Tax Act was $48.7 million, or $1.59 per share and was driven by a repatriation tax on undistributed earnings of non-U.

  • S. subsidiaries.

  • The company will elect to pay this transition tax, partially offset by the utilizations in credits over 8 years as permissible under the new act.

  • The initial annual payment in 2018 is expected to be about $3 million and will offset a portion of the cash benefits of a lower U.S. rate.

  • We also revalued our net deferred tax liability as a result of lower projected tax rates.

  • This resulted in a $9.1 million or $0.30 per share benefit.

  • Excluding the net impact of these onetime tax items, our effective tax rate would've been approximately 26% in the fourth quarter and 30% for the full year 2017.

  • Currency translation had a $0.05 positive impact on fourth quarter EPS and a positive $0.04 impact on the full year EPS.

  • In relation to our 2017 guidance, our results were generally in line with our expectations as we outlined at the beginning of the year.

  • The most significant element was the anticipated accretion from the Conwed acquisition, which was essentially offset by expected declines in traditional RTL.

  • We had also anticipated higher taxes in certain European jurisdictions, lower LIP royalties and the interest expense impact of an interest rate hedge to fix a portion of our floating rate debt.

  • These factors played out as anticipated.

  • The most significant headwind we faced in achieving our guidance was the shortfall in the Chinese recon JV which was expected to deliver additional growth.

  • As we have discussed on previous calls, we are tempering our expectations going forward as we work with our JV partners to drive better performance in a challenging supply demand environment.

  • Now shifting to cash flow and liquidity.

  • 2017 free cash flow was $90 million, about 10% below 2016, while operating cash flow of $131 million was up slightly versus prior year.

  • Total CapEx increased by $10 million to $41 million.

  • About 1/2 of this increase was related to the addition of Conwed and the remainder of the increase stems from growth projects across the business, including the new film line and modification to our legacy paper line to make specialty filtration products.

  • We also made investments in our AMS manufacturing operations, moving into an upgraded and expanded facility in China and preparing for a U.S. site closure, both of which required relocating some equipment.

  • We have previously communicated that 2017 free cash flow was expected to approach the $99 million we generated in 2016, however, to ensure consistent customer service during our planned facility move, we built the inventories in the fourth quarter.

  • Thus, we ended the year at higher levels than originally planned.

  • This higher inventory balance show higher working capital balances impacting free cash flow.

  • Consistent with expected EPS growth in 2018, we anticipate 2018 free cash flow to increase to more than $100 million.

  • From a leverage perspective, for the terms of our credit facility, we were at 3x net debt-to-adjusted EBITDA at the end of 2017, up from 2x at year-end 2016, driven by the increase in debt at the closing of the Conwed acquisition in January.

  • Absent unusual circumstances or potential acquisitions, we expect to continue to pay down debt in 2018.

  • Now back to Jeff.

  • Jeffrey Kramer - CEO and Director

  • As we look to 2018, our guidance for adjusted EPS is a range from $3.30 to $3.45.

  • The overarching theme is that expected organic sales growth in AMS and further synergy realization are projected to more than offset the tobacco driven headwinds in engineered paper.

  • We expect smoking attrition trends in our key markets will be the primary influence on EP results, while anticipated Heat-not-Burn growth offers an offset to traditional RTL declines.

  • This is an exciting inflection point for SWM as our outlook reflects projected increases and consolidated sales, operating profits, earnings and free cash flow.

  • This growth outlook is the culmination of several years of strategic portfolio rebalancing with AMS reaching the scale necessary to position us for sustainable organic growth.

  • For 2018, we anticipate the reduced effective rate on the U.S. portion of our earnings, net of the impact to certain previously available deductions, will yield a few hundred basis point reduction in our effective tax rate from the normalized 30% rate in 2017.

  • We caution, however, that the interpretation and application of this new tax legislation may evolve throughout the year, hence potentially impacting our financial results and cash flows.

  • Our strategic priorities remain essentially unchanged for 2018.

  • In AMS, our primary focus areas are to drive accelerated organic sales growth and realize the benefits of our scaled platform.

  • The center piece of this optimization plan is the legacy AMS site closure but we continue to pursue other actions to improve and grow our operations, including manufacturing and productivity improvements and segment wide R&D and product development collaboration.

  • As noted, we will continue to make growth-focused capital investments where they advance our strategy, such as our first international surface protection film line located in our U.K. facility and our expanded AMS facility in China.

  • These investments and others to come represent the benefits of AMSs' increasing scale as we are able to leverage existing overseas assets to help internationalize our business.

  • In Engineered Papers, we continue to strategically manage capacity and costs and look to grow share to offset market pressures.

  • As mentioned, Heat-not-Burn remains the product development focus and we plan to build upon our strong customer relationships and innovation capabilities to support the potential growth in this innovative product line.

  • Before wrapping up with closing remarks, I'd like to thank Allison for her hard work over the past few years, particularly her role in the Argotec and Conwed integrations and leadership of our tax team through a demanding 2017 year-end process.

  • As announced several weeks ago, Allison will be stepping down, following a carefully planned transition to our new CFO, Andrew Wamser.

  • They are both currently serving as co-CFOs through March 1 at which point Andy will take over sole responsibility.

  • Andy has an investment banking and corporate finance background, mostly in the industrial space, and we look forward to his leadership contributions.

  • Andy?

  • Andrew Wamser

  • Thank you, Jeff.

  • I'm very excited to be joining SWM, particularly at this point in the company's transformation and to be partnering with Jeff and the rest of the team to help execute on the business plan.

  • The company's transformation to date demonstrates the commitment to drive value and create sustainable growth, while I've only been at the company for a short period of time, I've been exceptionally impressed with the team and I'm excited about the prospects for the business in the horizon.

  • I'm also looking forward to partnering with Mark to tell the SWM story and to developing relationships with our analysts and investors in the months ahead.

  • Jeffrey Kramer - CEO and Director

  • Thanks, Andy.

  • In closing, 2017 was a year of significant developments for SWM.

  • The addition of Conwed to AMS increased our scale and created opportunities to drive optimization synergies across our growth platform, not only with respect to our manufacturing footprint but also from realigned commercial organizations.

  • Another important milestone is that our total nontobacco sales reached more than 50% for the first time in the company's history.

  • Our tobacco operations continue to generate attractive margins and cash flows but as we look longer term, the continued expansion of AMS is a critical component of our ongoing transformation into a diversified and growing specialty materials company.

  • Since joining SWM, I've been assessing our strong global operations, products and end markets and long-term strategy.

  • We believe we have the right strategic direction overall with a strong global franchise underscored by our commitment to delivering highly engineered specialty materials to our customers, fostering collaborative partnerships with them and focusing on operational excellence.

  • I consider the strategic transformation progress in recent years a significant organizational accomplishment.

  • And our view is that Phase I of transformation is complete.

  • We have rebalanced the portfolio with AMS, now a scaled growth platform, which we will continue to expand through a combination of organic growth investments and potential acquisitions intended to broaden our end markets, customer base and technologies.

  • We appreciate your continued interest and support.

  • That will concludes our remarks.

  • Kim, please open the lines for questions.

  • Operator

  • (Operator Instructions) Your first question comes from the line of Daniel Jacome from Sidoti & Company.

  • Daniel Andres Jacome - Research Analyst

  • Couple of questions here.

  • I think you said medical is doing very strong in AMS.

  • Can you give us a little color on that?

  • What exactly is driving it?

  • What trends are you seeing?

  • What products?

  • Technologies?

  • Jeffrey Kramer - CEO and Director

  • Yes, a lot of our products -- we are big in wound care and formation of finger bandages, et cetera, and we continue to have very close collaborative relationships with our end-use customers, they continue to grow.

  • There's a new product line coming out called Sports strip that we're a large component of that is making major gains in the marketplace.

  • So it's a sum total of a lot of little pieces, it's no one single overarching trend.

  • I think we're just well positioned in that marketplace.

  • Daniel Andres Jacome - Research Analyst

  • Okay.

  • Makes sense from what I've read.

  • What about surface protection?

  • I know in last couple of quarters a lot of nice movement, I think it was in Asia, what are you seeing most recently?

  • Anything to comment on there?

  • Jeffrey Kramer - CEO and Director

  • Yes, I think the underlying trend continues to be the same as we indicated.

  • One of the goals of the AMS division is to continue to internationalize our division.

  • We've opened up an expanded supply chain in Asia and that product market is very successful there.

  • You saw we had a little bit of weakness in the fourth quarter and that's really because a lot of that channel was growing very rapidly in the second and third quarters and they did a little bit of industry -- inventory rebalancing, which is typical for many companies at the end of the fourth quarter.

  • And then we're seeing those trends continue.

  • So we remain positive on that, I don't know if we can see the same double-digit year-on-year growth due to the very strong performance that we had this year.

  • But we're very optimistic about this product line overall.

  • Daniel Andres Jacome - Research Analyst

  • I think in the past you said that surface protection area can grow 5% to 7%, is that still a reasonable projection?

  • Jeffrey Kramer - CEO and Director

  • Yes, I think that's in the regional projection.

  • There might be little bit of upside in that, again, it's an early stage adoption.

  • So we're excited about what we're seeing.

  • Daniel Andres Jacome - Research Analyst

  • Okay, got it.

  • And then I wanted to ask you about highway construction just given what Conwed plastics does.

  • And then I think I'm not an expert in this arena but there were some changes on the politics side about infrastructure spending, I think picking up over the next couple of years under our new President.

  • Have you -- do you have any line of sight on that?

  • Or am I kind of, overreacting to that?

  • Jeffrey Kramer - CEO and Director

  • You have as much line of sight as we do into our political system.

  • So I'm not going to try to comment on what people are saying but we are optimistic on infrastructure.

  • It's clear that the long term trend in the country is that we need to reinvest in highways and things of that nature.

  • So I'm more optimistic that I think the country is going to realize the need to continue to do that.

  • Daniel Andres Jacome - Research Analyst

  • Okay.

  • And last 2 small questions, I think you mentioned LIT royalty litigation, there was some change there but you can't say too much, any high-level views you could supply on the Q&A here?

  • Jeffrey Kramer - CEO and Director

  • No.

  • It's got this litigation, we're really cautious.

  • It's just the comment that we have been defending our technology, our LIP technology is something that we think is very innovative.

  • It's one of our large cost customers we actually have a loyalty licensing agreements in and so this reflects another customer -- another competitor that we have been just defending our technology about and had a favorable court appearance just recently.

  • Daniel Andres Jacome - Research Analyst

  • Favorable, okay.

  • Then that was favorable.

  • And then last question, manufacturing improvements, I think you talked a little bit about that.

  • Can you give us a little bit more details there?

  • What exactly are you going to do?

  • Jeffrey Kramer - CEO and Director

  • Well, yes.

  • One of the things that we have is a strong area of focus on operational excellence in our EP side, and that's something that we are now embedding even greater into our AMS side.

  • So we formed it into a fully integrated operations division.

  • We're optimizing around some of our sites that we're closing some and moving other operations, and doing that by combining with the best practices and our Lean 6 sigma activities I think we'll be able to continue to drive efficiencies and that's going to be one of our key focuses for the coming years actually.

  • Operator

  • Your next question comes from the line of Steve Chercover from Davidson.

  • Steven Pierre Chercover - MD & Senior Research Analyst

  • Wanted to start with AMS and specifically films, which performed quite well in 2017, but tailed off in the fourth quarter and you indicated that was a inventory destocking situation but do you expect resumption of low double-digit growth in films in the current year?

  • Jeffrey Kramer - CEO and Director

  • Yes, we still are very optimistic in our film business.

  • And we've already seen orders rebound in January to what we are considering more expected levels.

  • So that's why we feel the fourth quarter slowdown was really inventory adjustments from what we've seen.

  • Steven Pierre Chercover - MD & Senior Research Analyst

  • Cool, thank you, Jeff.

  • And sticking with AMS, the [process] filtration should be fairly easy this year as well, so do you expect the replacement cycle is going to pick up?

  • Or when might that happen?

  • Jeffrey Kramer - CEO and Director

  • Yes, so we've seen the last 2 years a little bit weaker on our RO side, which is the large desalinization plants and our customers continue to tell us that the replacement cycle is starting to come back and that there's been some approvals for new large scale capital, particularly in the Middle East and may be some over in Asia.

  • So we're hoping that picks up.

  • Actually our process filtration, which is non-water liquids, if you think about it has actually been pretty strong and then we have a small air filtration business that showed a little weakness but that was primarily due to one customer and moving to a different technology.

  • So we're expecting that business to grow in 2018.

  • Steven Pierre Chercover - MD & Senior Research Analyst

  • I mean sounds like couple of major metropolises in both Brazil and South Africa are at crisis level so hopefully maybe you can help?

  • Jeffrey Kramer - CEO and Director

  • Well, yes, the problem they face, by the way, I think that's why positive on this because the long-term trends I think continues to favor these types of technology.

  • The problem is you can't build them at the last second and that's basically what South Africa is facing.

  • The desalinization plant that they actually are building is not coming online in time and they're probably going to need more.

  • So hopefully, we'll see those trends and we are well-positioned with the key end-use suppliers so hopefully, they'll start see their order books increase and that will flow backwards with us.

  • Steven Pierre Chercover - MD & Senior Research Analyst

  • Yes, obviously, that's big opportunity.

  • Okay, switching gears to tobacco, if I could.

  • Can you tell us how much HNB revenue you guys did in Q4 and is there any reason it shouldn't see continued growth in 2018?

  • Jeffrey Kramer - CEO and Director

  • Yes, what I can share is I think the growth has been faster than what we have planned in terms of our operating plan but with that said, I think we continue to caution.

  • This still remains a small part of our RTL, overall RTL business.

  • So it's in the 5% to 10% range right now.

  • So it's just still early enough in this development process that it's really hard for us to forecast how it's going to grow.

  • The key thing I think to say is that we are the innovation partner of choice for anybody who's building Heat-not-Burn technology-based on RTL.

  • So we still remain positive but again I don't -- it's small but fast growing and I think it's going to be something that is going to be attractive for us and help offset some of the pressures we see in our traditional business for years to come but again, I'm just a little bit more cautious than others in how I forecast that.

  • Steven Pierre Chercover - MD & Senior Research Analyst

  • You kind of anticipated my next question, which was where are we in the lifecycle of Heat-not-Burn.

  • Are we still qualification testing?

  • Or is it becoming commercial?

  • Jeffrey Kramer - CEO and Director

  • Well it is commercial.

  • So there are sales around the world but if you think about it from the PMIs and BATs of the world, they would say this is very early on in their process.

  • They're test marketing in a number of cities.

  • I think they're trying to tweak their formulas to the different tastes around the world and were still applying for approvals in various parts of the world.

  • So I think it's very early in the lifecycle but everything continues to be positive from what I've seen and what I've spoken with our customers about.

  • Steven Pierre Chercover - MD & Senior Research Analyst

  • Okay, and then finally just one more big picture question and I'll get back in queue.

  • So balance sheet is now at 3x leverage I know that if I'm not mistaken, 2.5x is the target.

  • Just wondering if you achieve that perhaps by midyear, you're getting close, do you have acquisition teams that are shaking the bushes to find the next target?

  • Or if the right acquisition was to present itself right now, could you pull the trigger?

  • Jeffrey Kramer - CEO and Director

  • Yes, so just a couple of things.

  • So I just want to emphasize two things, one is our main focus right now is demonstrating the organic growth and getting those synergies that we are -- had promised the investment community this year.

  • So that's our primary focus.

  • Now with that said, we are always looking at what's out there in the marketplace and looking at ways that we can grow our product lines and grow our positions but it's all around our strategies, so we'll take hard looks at that.

  • We've shown that we can handle leverage rates in the 3% to 3.5%.

  • So it's not necessarily our goal to get back down to 2%, but we're going to keep paying down debt and keep our powder dry and if the right opportunity comes along, we'll look hard at it.

  • I think that's going to be a component of our strategy going forward.

  • Operator

  • (Operator Instructions) Your next question comes from the line of Dan Jacome from Sidoti & Company.

  • Daniel Andres Jacome - Research Analyst

  • Hi, just a quick follow-up, following on Steve's, good question on the M&A landscape, I was just wondering if you saw an opportunity that was attractive and that had a nice growth rate on the revenue profile, will you be willing to look at that for an acquisition even if there was slightly lower, say EBITDA margin versus what you've acquired in the past.

  • And I'm just asking because what you've done so far in last couple of years has been pretty impressive and then consistent too, in terms of growth rates on revenue and then the high teens EBITDA margin.

  • Is that still kind of your M&A cookbook or has anything changed?

  • Jeffrey Kramer - CEO and Director

  • Yes, we have a pretty big M&A cookbook in terms of how we look at things.

  • So the first screen that we always do is, strategically, does it fit into what we do today and does it add value to us?

  • So that's always going to be the first screen.

  • And what we do today are not commodity level products, so higher margins tend to come with specialty and niche applications and those are the things we tend to favor.

  • I don't have though, a specific target cut off specifically on the margin returns for the businesses.

  • It really plays into what we think we could do with them once we get them.

  • And our target is always going to be around that 20% margin, is where we want to get things.

  • And so you see right now with AMS, we're moving across that stream, we are at 17.5% now and we've gone up about 300 to 400 points since we've owned these things.

  • That's going to be the typical model, so the things I buy might not have those margins but that would be the expectation that we'll be able to move them for a variety from R&D or efficiencies or other synergies.

  • Operator

  • (Operator Instructions) There are no further questions at this time.

  • I turn the call back over to the presenters.

  • Jeffrey Kramer - CEO and Director

  • Okay.

  • Well, thank you, everybody.

  • I appreciate you listening to the SWM story.

  • We're excited about where we're going and I appreciate you taking the time to join us today.

  • Operator

  • Ladies and gentlemen, this concludes today's conference call.

  • You may now disconnect.