Neptune Insurance Holdings Inc (NP) 2014 Q2 法說會逐字稿

Good morning. My name is Bernard and I will be your conference operator today. At this time, I would like to welcome everyone to the Neenah Paper second-quarter 2014 earnings conference call. (Operator Instructions) As a reminder, ladies and gentlemen, this conference is being recorded today, August 7, 2014.

Thank you. I will now turn the call over to Mr. Bill McCarthy, Vice President of Financial Analysis and Investor Relations. Please go ahead, sir

Okay. Good morning, everyone, and welcome to Neenah's 2014 second-quarter earnings call. We released earnings yesterday afternoon and also posted backup data and an updated presentation in the investor relations section of our website.

This morning, after I recap a few headlines, John O'Donnell, our Chief Executive Officer; and Bonnie Lind, our Chief Financial Officer, will discuss our activities and financial results in detail. As usual, following these prepared remarks, we'll open up the call for questions.

At the risk of sounding like a broken record, I'll start off noting that in this past quarter, we in fact broke a number of records. Consolidated net sales were a record $230 million, up 9% from a year ago. Operating income of $25.9 million and earnings per share of $0.88 each grew approximately 15% to record levels.

This performance was supported by both business units, as fine paper achieved record sales and profits and technical products was just 1% short of record levels, which they achieved in the first quarter. Our adjusted earnings were $0.90 per share and this excluded costs of $0.02 for restructuring and our recent acquisition.

Last year, adjusted earnings in the second quarter were $0.80 and excluded $0.03 for debt refinancing, restructuring integration costs, and a pension settlement charge. Adjusted earnings are provided to aid in comparability between periods, but are a non-GAAP measure and are reconciled to corresponding GAAP figures in our press release.

Finally I'll remind everyone that our call today contains forward-looking statements. Risks and uncertainties that could cause actual results to differ materially from these statements are outlined both in our SEC filings and in the Safe Harbor disclaimer on our website.

And with that, I'd like to turn things over to John.

Thanks, Bill. As you heard, our team has delivered impressive results in the quarter, with strong topline growth driven by 7% increase in volume and earnings that grew at a double-digit pace.

Our competitive position remains strong and we are capturing share and expanding in new markets, while never losing our focus on improving costs and operational efficiencies. We generated $32 million of free cash flow in the quarter, and with our strong balance sheet, we paid for the acquisition of Crane's nonwovens filtration business on July 1 with available cash.

As usual, I will first provide an update on progress against our strategic priorities, including the recent acquisition, before turning things over to Bonnie to gush over financial results. First, we are continuing to expand our meaningful positions in core specialty markets. With the Crane acquisition, filtration now represents almost half of our technical product sales.

In the second quarter, our core transportation filtration business continued to perform well, with sales up 4% and EBIT growing 11%. In addition to solid performance in Europe, our largest market, international sales grew by double digits and continue to represent an attractive growth opportunity.

As a result, we remain committed to increasing our presence in meaningful geographies to support our global customers with the innovative high-performance products we are known for. The Crane acquisition represents another step in this direction, providing an initial footprint in North America.

I also want to recognize the good performance of our technical backings business, where sales were up 9%, led by strong growth in North America. These specialized backings for tape and abrasives grew as we gained share with existing customers and expanded our product portfolio.

As Bill mentioned, fine paper delivered a record quarter and under the strong leadership of this business continues to find ways to overcome a challenging market, consistently delivering strong topline results and meaningful cash flows with very attractive margins and returns on capital.

While I'm pleased with the quarter, it's the longer-term performance of this business that I think has been more impressive. Over the past few years, fine paper has grown organically by around 1% annually. In addition, we built on this performance with some very valuable acquisitions.

I'm excited by what this team is able to do and find it remarkable that the unique -- and unique that a segment with paper in its name can deliver this kind of performance while it continues to reinvent its future. Contributing to fine paper's results has been a rapid growth in premium packaging. Sales of these products grew by more than 30% in both the first and second quarters.

While still a small part of the fine paper portfolio today, around 10% of sales, we see opportunities for significant growth as we expand our offerings and leverage our technical capabilities to make high-quality media for customers who value image.

Our focus is on end use vertical markets, like jewelry, electronics, cosmetics, and alcohol. Valuable products in small packages. And we believe these represent an addressable market of about $300 million.

Our second priority is to increase our presence and scale in growing strategic categories that value our core capabilities through efficient capital investments and value-adding M&A. To do this, we'll continue to invest in fast-growing defensible markets with a bias towards performance-oriented technical products.

Many products in these markets utilize wet laid nonwovens technology, which uses synthetic fibers in manufacturing instead of wood pulp. We currently make wet laid nonwovens in two of our German facilities. And with the recent acquisition, we are excited to add a US footprint.

Let me talk about that next. We acquired Crane's filtration business 37 days ago on July 1. As a reminder, this business has sales approaching $50 million and is expected to be around $0.20 per share accretive on an ongoing basis. Results of this business will be included in our technical products segment.

This acquisition is a strong strategic fit and brings new technologies and product development capabilities that we can leverage with our European filtration business to unlock and act on new growth opportunities. Almost two-thirds of the Crane business is membrane carrier for advanced water filtration products, principally reverse osmosis.

We are the clear leader in the market's two biggest geographies, the US and China, which have been growing in line with our expectation for filtration, which is around two times GDP. We are well positioned to participate in future growth, with key technologies, strong customer relationships, and sufficient capacity resulting from productivity improvements and capital investments.

The other third of our business is also in attractive growth markets, with highly technical products used for environmental, energy management, and thermoacoustical insulation. These products include solar panels, wired cable insulation, media used in chemical filtration and separation, heat shields, battery separators -- just to name a few.

The integration is going very smoothly and feedback has been very positive from customers, suppliers, and our new employees. As our third acquisition in three years, we have confidence in our integration planning and execution and know that this is where value can be lost if it's not done well. We expect integration activities and associated costs to be complete by year end.

Even though we are busy near term with integration activities, we're most excited about the potential this business brings when combined with our German filtration operation. There is already been numerous interactions between our research and business teams and both have come away enthused about the opportunities to advance our wet laid nonwovens capabilities and develop new products and customer solutions, both for existing markets and for markets new to Neenah.

While current plans are not to make transportation filtration in these facilities, the acquisition establishes and on-the-ground filtration presence in North America, an important initial step and a key component of our growth strategy for filtration.

Turning back to our strategic priorities -- last but not least, we intend to deliver attractive returns to shareholders with a meaningful cash component. Good returns should follow good results, especially if they are delivered consistently and with no surprises.

You've heard me refer to this in previous calls as making the doughnuts. The hard work of our team is clearly evidenced in what they accomplished this last quarter -- growing earnings and cash flows coupled with disciplined capital management and cash deployment should support a rising share price and the ability to increase cash returns to shareholders.

In May, we announced our fourth dividend increase in the past 18 months and we've more than doubled our quarterly dividend since 2012. We also renewed our share buyback program, which provides another way of returning cash to shareholders and allows us to take advantage of buying opportunities.

So to wrap up, our businesses are performing very well, with record financial results driven by volume growth in core markets, boosted by success in targeted niches. The recent acquisition adds a new growth platform to our filtration business and we look forward to fully integrating it into Neenah, taking full advantage of the growth opportunities we see in new products and with key strategic customers.

With our sizable cash flow generation and strong balance sheet, we remain in an enviable position that allows us to pursue these multiple avenues to create value for our shareholders.

And with that, I'll turn things over to Bonnie to review financial results for the quarter.

Thanks, John. As you've heard, our consolidated financial results were driven by terrific performance in both business segments. I'll start with technical products. Sales were $117 million, up 10% compared with prior-year sales of $106 million.

Higher volumes accounted for 8% of the growth, with the remainder due to favorable currency translation partly offset by slightly lower net prices. Impressive growth was seen across all categories, as sales of filtration and backing products each grew 9% and specialties gained 13%.

We are seeing benefits from improved global economic conditions as well as from share gains in many categories, as we expand our geographic presence and capture new business. Excluding $0.5 million for restructuring costs, operating income was almost $14 million, up 15% from $12 million in the second quarter of last year.

Higher income resulted primarily from our sales growth, as manufacturing costs were relatively flat year on year. Year to date, our growth -- with growing sales and better operating performance, profit margins have improved by 40 basis points, continuing the longer-term improvement trend we've seen in this segment.

Turning to fine paper, sales in the quarter were $107 million, an all-time record, and up 7% compared with $100 million last year. Like technical products, sales growth was driven by higher volumes, with shipments up 6%.

Volume growth resulted from gains in our core premium name brands, growth in digital and international sales, and a 35% increase in premium packaging. We are now supplying packaging media for a number of well-known consumer products as well as have greater penetration in labels as we expand beyond wine into other areas, such as the craft beer segment.

In addition, sales reflect our expanded line of products following last September's distribution agreement with Gruppo Cordenons that brought complementary new products and added capabilities to grow in packaging. Operating income at fine paper was $17.3 million, up 12% compared with $15.5 million last year.

The higher income in 2014 resulted primarily from increased sales, but also from higher selling prices and over $1 million of lower SG&A due mostly to timing of advertising expenditures. Combined, these benefits offset higher manufacturing costs, including more than $1 million of higher input costs, mostly for pulp.

Unallocated corporate costs were $4.5 million in the quarter compared with $4.2 million last year. In 2014, costs included $200,000 related to the Crane acquisition, and in 2013 there was $700,000 for debt refinancing and a pension settlement charge. Excluding these items, corporate costs increased in the quarter primarily due to the timing of expenses.

Over the past few years, unallocated corporate cost has averaged around $4 million per quarter. Consolidated SG&A, which includes corporate expense, was $20.4 million, up from $19.2 million in 2013 due mostly to the timing of corporate costs.

Our SG&A efficiency has improved as we've grown and this year, SG&A as a percent of sales has averaged 8.8%, down from 9.4% in 2013. The Crane acquisition will add approximately $5 million annually to our SG&A expense, including approximately $1 million for non-cash amortization of intangibles.

Moving to a few corporate P&L items, net interest expense of $2.9 million declined from $3.1 million last year as a result of lower average interest rates following the refi of our senior notes that we did in May of 2013. The effective tax rate in the second quarter was 35%, up slightly from 34% last year. For 2014, we expect to remain at or around this 35%.

As we previously communicated, we expect to increase cash tax payments in 2015 after our federal NOLs are fully used. As of June, remaining federal NOLs were just under $20 million. These future higher tax payments should not significantly impact our overall cash flow, however, as our US pension plan is well funded and we expect to reduce pension contributions by a like amount.

In the second quarter, cash from ops was $37 million, up almost $10 million from last year. This increase resulted from higher earnings and working capital efficiencies. Our teams have continued to make progress in improving inventory efficiencies, but we also benefited from timing of certain payments in the second quarter, which is likely to reduce third quarter cash flow by a few million dollars.

As I previously mentioned, our US pension plan is in great shape as a result of actions we've taken to fund and derisk the plan over the last few years. This year, pension contributions are expected to be around $21 million and cash payments for all pension and OPEB plans are expected to be $13 million more than expense.

Capital spending was $4.8 million in the quarter compared to $5 million last year. On a year-to-date basis, free cash flow was $43 million, more than twice last year's level. While we don't expect to maintain this pace in the second half due to seasonality and annual maintenance downs, this performance underscores the very strong cash flow capability of our businesses.

This year, we've used cash flows to pay dividends, reduce debt, and build cash in anticipation of the acquisition. In the second quarter, we reduced debt by $12 million and added almost $15 million of cash. On July 1, we used $72 million of cash on hand to purchase Crane's filtration business.

Just a reminder, this purchase price reflected around $8 million of value we expect to realize from future cash tax benefits. Following the acquisition, our balance sheet remains very strong, with debt to EBITDA well below our targeted range of 2 to 3 times.

As we've indicated, dividends are an important part of our cash deployment strategy. We recently announced the second dividend increase for 2014, with a 13% increase effective in September. The new dividend represents annual cash of around $18 million and a payout ratio of 36% when based on 2013 net income. As our earnings and cash flow continue to grow, we expect to move toward our targeted yield of at least 3%.

With that, I'll turn things back to you, John.

Thank you, Bonnie. I'll provide a few thoughts and reminders regarding the second half of the year and then wrap up with some summary comments. In general, the global economic environments improved, which helped support demand for our products.

Our market positions are strong and we are growing share in key categories and expanding in profitable adjacent markets and geographies. So while we are well positioned, there are a few items to keep in mind for the second half.

First, we are seasonally slower, particularly in technical products, where historically sales in the back half of the year are only 48% of the full year. Based on year-to-date sales, this will represent a change of about $15 million to $20 million.

In fine papers, the seasonality impacted us much less. However, we may see a one-time reduction in sales this year as certain large customers move forward with their mergers and consolidate their inventories. The bottom line is a larger variation due to seasonality.

In addition to reduced profit contribution from lower sales and added holiday downtime, we schedule our annual maintenance downs in the second half of the year. As is typical, most of our downs will again occur in the third quarter.

However, there are a few moving parts. First, we'll have an additional cost for one mill down in 2014 that did not occur in 2013. Second, the annual down at our German filtration mill is being shifted from the third to the fourth quarter and will also be extended in order to complete a project to increase quality and capacity on our largest machine.

This project has an attractive return on investment and the extended down will not result in any lost sales or impact customer service. It will not cause us to exceed our 2014 capital spending forecast of $30 million.

So to summarize, we expect third quarter costs for maintenance downs to be around $3 million, roughly the same as last year. Because of the filtration project, cost of downs in the fourth quarter will be approximately $2 million higher than last year.

The current acquisition will be included in technical products starting in the third quarter. This business has similar seasonal pattern to our existing technical products business and, as we've said, margins should be comparable. However, one-time cost of at least $2 million this year will largely offset any bottom-line contribution in the second half of this year.

Lastly, we don't see any major changes in input costs in the third quarter versus the second. Energy has moderated from the first quarter spike in the US, but remains high year on year and pulp prices have continued to remain stubbornly high.

We've implemented selling price increases for most categories this year and as usual, expect to offset changes in input costs over time through market pricing activities and cost efficiencies.

So with that, let me wrap up. Our businesses are very healthy and our teams delivered an outstanding second quarter. We are aligned with leading blue-chip customers who are winning in their markets. Many of these customers are global and looking for us to increase our participation with them as we expand beyond our home base.

We are continuing to invest in brands and capabilities. We're leveraging our fine paper know-how and reputation to grow in premium packaging. We continue to support growth in filtration and the acquisition brings new wet laid nonwoven technologies for us to further expand our platform, especially in North America.

Efforts to reduce costs and improve efficiencies are never-ending and our teams are continually pursuing ways to enhance our competitive position. Finally, we remain disciplined in how we manage and deploy our capital through attractive organic investments, value-adding M&A, and meaningful direct cash returns to our shareholders.

It's the commitment of our teams and their ability to execute successfully that delivers the consistently good results we report to you each quarter. Thank you for your interest this morning.

And at this point, I'd like to open up the call to any questions.

(Operator Instructions) Steve Chercover.

So we don't really know how many tons of paper you produce. But I was just wondering if you could tell us how many tons of pulp you buy. And if in fact there is a decline in market pulp prices, how that might benefit you.

We buy about 230,000 tons, roughly, of pulp from that -- if you look, about half of it is in the fine paper business, which is predominantly the hardwood portion and softwood in the technical products side.

And the fine paper side of the business, we move -- prices move up very -- in small increments, if you will, because there tends to be a stickiness in that business. So we do not to reduce pricing with pulp in that business, predominantly out of inventory and branded.

On the technical side of the business, there is about one-third of our business that has escalators and would move with any type of price movement overall.

So I mean, I guess, it's my job as a paper analyst to have an opinion on pulp. And it seems like we might get a little bit of a tailwind on the hardwood side, which would benefit fine paper.

Yes, we've been waiting for that.

Yes, well, I know some guys who have been waiting for it for 12 of the last 4 quarters. So --

Right, right, so --

Yes, go ahead, John.

And Steve -- sorry -- that's why it's really important that our results aren't directly attributable to the input costs changes, because we know that pulp goes up until it comes down again. I think what's unique in Neenah is that our intention is to always overcome that with price and mix activities to keep our margins fairly stable.

Yes, it sounds like the opportunity in premium packaging is actually quite exciting. Do you have a sense of what your share of that, at $300 million addressable market, might be?

Well, about 10% of our business right now is in that premium packaging. So about $40 million. And we said that addressable market about $300 million. So I can do the math, but I know you -- it's about 15%.

Perfect, thanks for that granularity. And then switching gears into filtration, it looks like Italy is tipping back into recession and there's a lot of risk in all of Europe. Any chance that would impact your auto filtration?

Well, the majority of our demand is not in that market, but it is in Germany. We have three facilities in Germany. Obviously, a core economic environment will put pressure on all of our businesses.

We like to believe that our transportation filtration business, since it's 30% to OEM and 70% to aftermarket, that that consumption will continue, whether it's new cars or not and has historically been relatively recession-proof, the Great recession as the only exclusion. But obviously, it doesn't help us from that piece of it, but I'm not overly concerned about their ability to continue to drive improvement in that business.

Great. And then I think Crane has two facilities in Pittsfield. Is there a reason that there are two? Are there any chances to exact any efficiencies?

Yes, you know, our whole focus with that business is to continue to grow it. So that's not one I would think about being in consolidation. One of the facilities has two machines in it. The other one has one machine in it, with room for incremental growth, if we need to have that incremental growth.

So they are about a quarter-mile from each other and that's almost right next door, as far as some of these facilities go. So no, I think our focus is going to be on continued growth into that. And I would also suggest these are not real capital-intensive capacity additions in this business as well. So that's another positive thing from a growth aspect.

Perfect. And the final one, will you call out the $2 million in integration expenses as one time in nature?

Yes, we will.

Okay. Thanks for that, Bonnie, and thanks for your answers, John.

Jon Tanwanteng, CJS Securities.

Congrats on a very strong quarter. And again, just really nice fine paper margins there. I'm just wondering what the sustainable components of that were and maybe some more detail on how we should think about that, heading into your seasonal maintenance period, I mean, I know you touched on the input prices, but maybe more on the mix and other factors.

Sure. On the fine paper margins, if you've followed us -- I know you have for some time -- you know that they have been sustainable. Midteens margins. These are very strong.

And I think it's really the value of consolidated market, the brand leader in the consolidated market from that standpoint, and in their image focus versus more commodity focus of transferring data. So midteen margins are very sustainable in that business.

As you look to the third quarter, I'll give you a little color again. I've tried to talk about some of the moving pieces and I really want you to just get to the answer, which is costs in the third quarter for maintenance downs will be about the same as they were last year, which is a typically about $3 million impact.

But there is an incremental maintenance down in the fourth quarter, tied to a value-adding capacity addition of filtration, and that's going to impact it by $2 million. In regards to mix, all of our fine paper businesses are predominantly out of inventory. So we'll move through there.

And we're managing our technical products businesses, the downs, to ensure there are no interruptions in any of the customer demand from that standpoint. So you shouldn't see dramatic topline impact, other than what happens with our customers.

Now, if our customers -- and many do -- take their downs in the third quarter and holidays in the third quarter so their consumption is lower, which is what's driving our seasonality. So expect a seasonally slower back half, no impact to topline, $3 million maintenance in third quarter, $2 million in incremental in the fourth quarter.

Okay, that's very helpful. And then just on the Crane business. Are there seasonal downs in that segment at all?

Their seasonality of their top line probably mirrors really close to our technical products business. At 52% to 48%. As far as planned maintenance downs, there are no planned maintenance downs for the rest of this year. And then we'll -- obviously since they are part of the family as of July 1, we'll communicate the implications to any maintenance downs next year as we get closer to the third quarter.

Okay, great. And then on the business itself, can you discuss maybe the opportunities it creates, both maybe quantify the potential for cost or sales synergies with the existing technical products and maybe the potentials of platform for future M&A here in the US.

Sure. A few things. First, we are 37 days in from that standpoint. So it's relatively new to us. So I think the -- but what isn't new to us is the technologies were attractive. Their markets are meaningful. And the growth opportunity really with our German businesses is where we see the biggest opportunity.

These technologies -- again, 100% synthetic, typically polyester in our RO filtration or glass fibers in our Crane mat businesses are incremental to our German facility's capabilities. And we found that the combination of moldable technologies, whether it's a filtration base sheet and a melt blown to create a unique attribute, we found that the Crane technologies will add incremental opportunities for our German substrates as well, and meet new market solutions for the existing customers that we have.

Good relationship in our transportation filtration business. You'll notice I didn't quantify anything there for you, and that's on purpose. It's really -- for us, this was a growing business. Brought new technologies. It initiated a footprint into the US, which we believe is a good growth opportunity for our future.

And we wasted no time in having our R&D teams -- it was actually on the eighth day, which sounds a bit biblical, but we had our German teams in our Pittsfield facilities working with the R&D teams there.

Okay, that's great color. And just one more quick one. In terms of M&A preference going forward, and I know you're still integrating Crane here, but are you more focusing on leveraging that as a technical platform domestically or are you focusing more on the packaging space, given the growth opportunity there?

You know, if we find the right opportunity that leverages it, that's ideally what -- when we are looking, we are being very selective when we're looking at acquisitions. We're not looking to totally add onto something that we can't leverage in a more meaningful way. Especially in filtration and our filtration bias.

The fact that it's a US platform for us is another key advantage there. So I don't want to say that we are specifically looking to leverage it. Nor do I suggest that we aren't in that regards.

From an M&A standpoint, the best way to think about, for us, is defensible markets, performance materials, bias towards filtration, bias towards the US. I think that's the best way to think about it.

Great. Thanks very much again.

Dan [Ducome], Sidoti & Company.

I see you are selling some of the retail fine paper brands in Costco. And I was just kind of wondering just kind of big picture, are Costco and sort of Walmart, I know they are not huge businesses, but just wondering, are those meeting your expectations or any granularity there?

Yes, so just to remind that our retail business is a pretty meaningful business, about $90 million overall from that standpoint. Any distribution you can get with Walmart and any of the retail channels that are winning, like you mentioned Costco as well -- those are very important for us.

We've had a lot of success recently in that business as well. I wouldn't forget the ones that like Amazon and others, you know, that aren't brick and mortar, but we are growing very, very well with them as well. So it's clearly a growth opportunity for us and we are very pleased. Again, it's a meaningfully sized business for us and a new channel we haven't been in.

Okay, great, good to hear. I guess turning to technical products, what -- you mentioned there was -- what exactly is going to be the symbiosis, I guess, in between sort of auto in Germany and then the water filtration in the US? It sounds like you're not going to be doing any water filtration out of Germany, right?

Yes, there's not going to be that direct link of transportation filtration out of our water filtration facilities and vice versa. It's really the combination of technologies. A majority of the products that we build in our Neenah technical materials or from the Crane facilities are unique to customers and they are really designed in with end use capabilities.

It's taking advantage of the knowledge that exists there and the knowledge in the Germans to create a defensible unique solution, too. And as I said before, an existing market, more desirably, to a new market for us as well. We believe we've got good solutions to some of the existing markets.

Okay, good, good. And I guess staying there, I guess one of your transportation filtration competitors reported this weekend they had very good numbers and they are also raising prices. Looks pretty aggressively.

But you guys are growing faster than them, but also raising prices. I'm just kind of wondering if you can even speak to that, sort of what is giving you guys sort of the edge right now?

Yes, I won't be able to speak to the competitive, but I can speak to ours. What we found especially in transportation filtration is the ability to have innovative solutions to the long-term projects and the flexibility to work with the filter manufacturers to [fulfill] those unique needs.

So we are always looking for new technologies that can bring tomorrow's solution versus yesterday's solution. I think it's that innovation -- we've got a significant R&D facility in Germany. They do a fabulous job of getting out in front of that and I think what makes me most comfortable about it is really earning that share gain with a long runway.

It's not a moment of pricing ecstasy. It's really over time. The pricing increases that we've been able to capture as well is an illustration of the value we are adding during that time period. More than just in some industries, sometimes people raise price because other people are.

I think what we're able to do here is increase the price because we're delivering value for the products, so as costs go up or values increase, we're able to continue to pass that through to the marketplace and recover it for our shareholders.

Got you, got you. And then just two on paper and then one on pulp and I'll jump -- and I'll get off the line. But -- I guess what's the tail on this sort of the premium packaging? If you have 13% market share now and 60% in overall fine paper US, what's a reasonable sort of maturity or penetration rate for just premium packaging or -- what's reasonable?

Yes, what I would suggest to you is that nobody in my groups use reasonable with any of my objectives. But what I would suggest that I wouldn't hook it to the 60%, because you really have a consolidated market versus, but even if you took half of that.

If you took half of that $300 million, there is a $90 million opportunity for us. That would suggest this has got a nice long runway of growth opportunities that I'm very encouraged about our group's ability to go capture that. Now I know, I hope I didn't diminish their enthusiasm, because they'll want to have a higher number than 30%.

No, that addresses my question perfectly and hopefully even more -- you do more than half that, but that would still be pretty incredible.

Yes, it would be great.

And then -- yes. And then I guess just sticking on that, so what's going to be your strategy for the craft beer market, which seems to be sort of in the news every day and pretty exciting.

Right. Well, we are making a lot of progress in capturing a number of new pieces of business. Ideally, I always joke about why do you rob banks? That's where the money is.

So focusing on the market leaders and from a craft beer standpoint is the best place for us to start and where we been making some significant headway. But I agree with you. It is enjoying some nice growth, as are we.

Got you. And then lastly, I guess bringing it back to pulp, I guess the issue would be softwood and your filtration side. So can you remind us just what percent of your technical business is on price adjusters and which is sort of more on negotiated?

Yes, I would view a one-third overall on adjusters and then one-third of it is more on annual type of contracts and then one-third goes with market announcements.

Okay. Appreciate it. Good luck with the rest of the quarter.

Steve Chercover, Davidson.

Just a quick modeling question. So you indicated in technical specialties that you've got $15 million to $20 million of seasonality, which would be less revenue in the second half. But if Crane is running at about $12 million a quarter, is it appropriate just to model kind of flat sales Q1 -- sorry, first half to second half?

I mentioned a little earlier, on one of the other questions, the seasonality probably would be similar to the technical products in the back half, with Crane would be similar from a -- 48% from a demand standpoint.

Even with that, Steve, it probably would be once we add in the acquisition in the back half, it would be probably closer to that flat.

Yes, that's what I was thinking, that your -- we have some -- absent Crane, it would be 52%/48%.

Right. Exactly.

Got it. Okay thanks very much.

Dan [Ducome], Sidoti & Company.

I'm back. I'm just wondering any callouts on the envelope business? I'm not sure if you mentioned it already, but how is that doing?

No, I didn't mention that. First of all, we've talked about that in the past. We made significant gains and headways in that business. It's up slightly -- 3%, I would guess overall.

And that's not a business that has a significant growth rate to it. But we continue to find ways to capture the high end of it. But very nice business for us, been a nice addition to the fine paper business.

So it's mostly like just pricing, right?

Price is a big contributor to it, that's exactly right. More than volume.

Glad to hear it. Thank you.

And there are no further questions at this time.

All right. Well, thank you for your participation and interest in Neenah today. We look forward to updating you on the progress and the results in the future. Thank you.

This concludes today's conference. You may now disconnect.