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Executives

Keith R. Schroeder - Chief Financial Officer, Principal Accounting Officer and Secretary

Robert A. Snyder - Chief Executive Officer, President and Executive Director

Analysts

Marco Rodriguez - Stonegate Securities Inc., Research Division

John Nobile - Taglich Brothers, Inc., Research Division

Gunnar Hansen - Sidoti & Company, LLC

John H. Curti - Singular Research

Michael Taglich

Orchids Paper Products (TIS) Q4 2012 Earnings Call February 7, 2013 10:00 AM ET

Operator

Good morning, and welcome to the Orchids Paper Products' Fourth Quarter and Full Year 2012 Financial Results Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Mr. Keith Schroeder, Chief Financial Officer of Orchids Paper Products. Please go ahead, Sir.

Keith R. Schroeder

Thank you, operator. Good morning, and thank you to everyone for attending our Fourth Quarter 2012 Earnings Conference Call. My name is Keith Schroeder, I'm the CFO. I'm here today with Bob Snyder, our President and CEO.

The agenda for our call today will begin with my review of the quarterly and full year results. Mr. Snyder will then provide an update on key performance areas and initiatives in the company. After that discussion, we'll be happy to address any questions that you might have.

And with that, I would like to inform you that statements made during this conference call, other than those that refer to past events and results, are forward-looking statements and are made pursuant to the Safe Harbor provisions in the Securities Reform Act of 1995. Such statements involve risks and uncertainties that may cause actual results to differ materially from those set forth during this discussion. Among other things, these risks and uncertainties include the risks and assumptions described in Item 1A and Item 7 of our Form 10-K for the year ended December 31, 2011 (sic)

[2012]. We operate in an environment that involves numerous known and unknown risks and uncertainties that could materially affect our operations. We assume no obligation to update or supplement forward-looking statements that may become untrue because of any future events.

First, I will start with a few bits of information. For the full year of 2012, we achieved record net sales for both converted product and total net sales. Net sales of converted products were $90.5 million, an increase of 10% over the $81.9 million we reported for 2011. Our total converted product case shipments were just over 7 million cases, another new record, and were 10% higher than the 2011 total of 6.4 million. Total net sales were $100.8 million, an increase of 3% over the $97.8 million in the prior year.

Our net income for the full year of 2012 was $9.3 million, an increase of $3.1 million or 49%, compared to the $6.2 million of net income in 2011. Our diluted earnings per share for the full year of 2012 were $1.18 per share, compared with $0.80 per share in the prior year. For the fourth quarter of 2012, our earnings per share were $0.28 per share, compared with $0.35 per share in the prior year quarter. We estimated our effective tax rate at the end of 2012 to be 30.9%, which is higher than the 30% we estimated at the end of the last 9-month timeframe.

As a result, our EPS for the fourth quarter of 2012 was negatively affected by $0.02 per share. In the fourth quarter of 2011, earnings per share were positively affected by $0.03 per share, due to the change in our estimated effective tax rate. As a result, the earnings per share comparison, excluding the effective tax rate changes, was $0.30 per share in 2012, as compared to $0.32 per share in 2011.

And now for some additional information. The total net sales for the fourth quarter of 2012 were $24 million, which was a decrease of 6% from the $25.7 million of net sales in the same period of 2011. A $2 million decrease in converted product net sales was slightly offset by a $380,000 increase in parent roll sales. The lower year-over-year converted product sales was primarily due to promotional activity by certain of our customers in the 2011 quarter that did not repeat in the current year quarter.

As discussed in our last conference call, the new business wins that we disclosed in October of last year were not expected to have a material effect on Q4 shipments, as these shipments were expected to begin, for the most part, in the first quarter of 2013.

Tonnage shipments of converted product for the fourth quarter were lower than the prior quarter by about 10%, while net selling prices per ton were up about 2%. For the full year period, as previously mentioned, converted product net sales increased 10% when compared to the prior year timeframe. Our fourth quarter sales levels were under expectations. This shortfall was primarily driven by a particularly soft month in the middle of the quarter, which negatively affected our earnings. Shipments rebounded nicely in the month of December and the current month of 2013. And the year 2013 is off to a very strong start and within our expectations.

Converted product tonnage shipments were up about 12% in the year-over-year comparison, while net selling prices per ton were lower by about 1%. For the full year period, parent roll sales were lower due to increased parent roll requirements to meet the higher converted product sales. Our gross profit for the full year of 2012 was $22.6 million, an increase of $6.6 million or 41% over the prior year period. Our gross profit margin improved to 22.4% in 2012, compared to 16.3% in 2011. The margin improvement is due to lower fiber prices, with favorable mix shift to higher margin converted product business from lower margin parent roll business and lower per unit converting production costs. These factors were somewhat offset by higher maintenance repair cost in the paper manufacturing operation.

In the year-over-year comparison, our fiber cost were lower by about $5 million. Converted production costs were favorably affected by the cost absorption effect of the higher volumes and improved efficiencies. Maintenance repair cost on paper manufacturing operation were higher in 2012 by approximately $822,000. As discussed in the third quarter call, maintenance and repair cost returned to more normal levels in the fourth quarter, and we expect that trend to continue in 2013. Our gross profit for the fourth quarter of 2012 was $5.4 million, which is relatively flat with the $5.6 million reported for the same period of 2011. As a percent of net sales, our gross margin improved to 22.6% in the fourth quarter of 2012 from 21.8% in the same period of the prior year.

Lower fiber cost and lower repair maintenance cost, being partially offset by the lower converted product sales and higher converted product production costs, were the primary reason for the improved margins in 2012. Fabric costs were lower in the fourth quarter of 2012 by approximately $1 million when compared to the prior year quarter. Maintenance and repair cost in paper manufacturing lowered by approximately $300,000 in the current year quarter. Converted product production costs were higher due to the result in effect on cost absorption of fixed costs from matching production of converted products with the lower sales.

I'll now provide a little flavor on the fiber market. Recycled fiber prices dropped in the first 2 months of the fourth quarter and stabilized in the final month of the quarter. We have experienced some strengthening in our recycled fiber costs so far in 2012 -- 2013, excuse me, as prices have increased about $10 per ton in both January and February.

Selling, general and administrative expenses in the fourth quarter of 2012 were in line with expectations, which were slightly higher than those experienced in the prior year quarter. As a result of the lower sales in the current year quarter, SG&A expense, as a percent of net sales, increased to 8.4%, compared to 7.4% in the prior year.

I would now like to turn your attention to the balance sheet and cash flow. Total debt outstanding, as of December 31, 2012, was $16.2 million. When netted against our cash and short-term investments of $10.7 million, our net debt was $5.5 million. There are no amounts outstanding under our revolving credit agreement as of the end of the quarter. At the end of the year, our funded debt-to-EBITDA ratio was 0.75 to 1, and our debt service coverage ratio was 3.56 to 1.

For the full year period in 2012, we generated cash from operations of approximately $17.5 million. This was comprised primarily of cash earnings which were partially offset by increased inventory levels to support the increased converted product sales. Our capital expenditures for 2012 amount to approximately $6.8 million.

During 2012, we made principal payments of $1.2 million and returned $6.4 million in cash dividends to our shareholders. We expect the capital expenditures for the full year of 2013 to be approximately $10 million, comprised approximately of $5 million of base capital and $5 million of improvement projects. The major improvement projects included an upgrade of towel lines, improved product flexibility and increased output and it targets [ph] improved fiber yield.

I will now turn the call over to Bob.

Robert A. Snyder

Thanks, Keith. I'm Bob Snyder. It's great to speak with you again. We are very pleased to announce record sales achievements in both converted product and total net sales for the full year of 2012. This result is the reflection of the continued success of our new product development and marketing efforts, which are allowing us to successfully penetrate the mid- and premium-tier markets. 2012 was a good year on an operational front as well. Our paper machines produced just under 57,000 tons, which established a new production record.

In converting, our efficiencies improved in 2012 over 2011, helping lower our production cost per unit by about 5%. The 7 million cases of product ships in 2012 were also a new record. Our previously announced new business gain, 1.1 million cases, are progressing in line with expectations. As previously discussed, the 1.1 million cases of the new business started shipping primarily in January 2013, providing a solid start to 2013, as our shipments in January set a new monthly record. The new business is proceeding according to expectations and we expect it to be fully reflected in our first quarter shipment levels. We have secured additional business, which we expect to start shipping by the beginning of the third quarter of -- of this year, which will raise our annualized case shipment rate -- run rate to approximately 9 million cases, and a full-year shipments are expected to be approximately 8.7 million cases. The market for new business remains very active, and we are optimistic about our chances to gain additional business prior to year end.

Our new product quality, along with our best-in-class customer service, continues to provide substantial business opportunities for our organization.Our sales trends have been very positive and our expectation for future sales are that we will continue to be -- continue this positive trend. This hopefully [ph] will continue to move us farther down the path of utilizing all of our papermaking capacity and our converting operation, thereby maximizing our profit margins and continues to move us closer to fully utilizing our converting capacity.

Now I will turn the call back over to the operator for questions.

Question-and-Answer Session

Operator

[Operator Instructions] The first question will come from Marco Rodriguez of Stonegate Securities.

Marco Rodriguez - Stonegate Securities Inc., Research Division

I had a quick follow-up in regard to the decline year-over-year in the converted products. If I heard you correctly, it was your end customers that were having promotions that led to the decline, is that -- did I catch that correctly?

Robert A. Snyder

What I think you -- no, you have a misunderstanding, I think. In 2011, there were some promotions that didn't repeat in 2012.

Marco Rodriguez - Stonegate Securities Inc., Research Division

And those promotions were by the end customer of your products, correct?

Robert A. Snyder

That would be right. That would've been increased sales in 2011 from a promotion, that went across all the DCs [ph].

Marco Rodriguez - Stonegate Securities Inc., Research Division

Okay, perfect. And then just -- if you could give us a little bit of a flavor here, I'm just wondering, what sort of insight you might have from your end customers in regard to those types of activities that might give you a little bit of forewarning going forward?

Robert A. Snyder

I think what this is, is more about stable rather than promotional business. You have to think of promotional opportunities as opportunistic, and really, the sales that we're talking about are basic -- not promotional per se, they're basically pretty standard sales.

Marco Rodriguez - Stonegate Securities Inc., Research Division

Okay. And then maybe you can also help me understand something; perhaps I'm just misunderstanding something. But I believe that in Q3, you had discussed about 150,000 new cases from business, that I was anticipating, was going to hit in Q4, yet it seems like case volume was flat sequentially. Can you talk a little bit about that?

Robert A. Snyder

The volume was really -- as far as the starting volume, is really starting in the first quarter of this year.

Marco Rodriguez - Stonegate Securities Inc., Research Division

Okay. And then just a bit -- another clarification on a 9 million case annualized run rate from new business, that starts in Q3? Or is there a ramp between today and Q3?

Robert A. Snyder

It'll be phased in, but it should be fully phased in by then.

Marco Rodriguez - Stonegate Securities Inc., Research Division

Can you discuss a little bit how that ramp's going to look?

Robert A. Snyder

Well, it usually takes some time during that time period from that business of getting -- working with the customer as far as artwork and that type of thing, but it usually takes a couple of months. It could be even longer. But 2 to 3 months, and that's why we say it'll be phased in by that time.

Marco Rodriguez - Stonegate Securities Inc., Research Division

Okay, do you expect more of a hockey stick then, as the volumes increase when they hit that annualized run rate in Q3?

Robert A. Snyder

No, I think it'll be a phase in, but fully operational by then.

Marco Rodriguez - Stonegate Securities Inc., Research Division

Okay. Got it. And then last quick question. What was the percentage of revenues that were into the mid-tier market? And then, if you could provide some additional color on how your efforts are kind of progressing there.

Robert A. Snyder

Well, let me do it this way. Let's take the first month of -- January of this year. And let's look at it from that viewpoint. And quite honestly, the run rate that we have sustained in that record was basically what you would think as the annualized run rate of about 8.11, which is what we've been telling you. Now in that month, we've said that 32% of the volume would've been mid-tier type products. And otherwise, if you were to annualize that run rate, it would be about 2.6 million cases. And then with the -- some of the other business gains we were talking about that will be phased in here in the near term, that's about another 80,000, 90,000 cases of business, which when you get done with it, would put you at about a 3.6 million case annualized run rate of mid-tier and higher-tier products.

Operator

Our next question will come from John Nobile of Taglich Brothers.

John Nobile - Taglich Brothers, Inc., Research Division

I just want to get back into the fourth quarter numbers as far as the cases that were shipped. I know you said that they're really starting in 2013, however, I know the original part of that 1.1 million cases was approximately 700,000 cases annually, and that was supposed to start in Q3, and really show up in the whole second half of 2012. So I was just curious, if you could shed some light onto why these orders might have been postponed, really almost half a year?

Robert A. Snyder

I don't see it as being postponed. I think from the time that we brought up the fact of knowing that we're going to get the business. And we're replacing another vendor; they usually have to work that vendor out as we get our artwork put in. I think your -- your timing is, I believe, John, is a little off or a misunderstanding of what was said. At the same time, we -- to get it fully implemented really took the fourth quarter of getting that done and getting the other suppliers out of the stores and us in.

John Nobile - Taglich Brothers, Inc., Research Division

And the Q4 converted product numbers, as far as cases or tonnage, what was that exactly?

Robert A. Snyder

Could you come back at that again, please?

John Nobile - Taglich Brothers, Inc., Research Division

Yes, in the fourth quarter, the converted product tonnage at what cases, either/or? Actually, if you have both, that would be great.

Robert A. Snyder

Keith?

Keith R. Schroeder

John, this is Keith. The cases we shipped in Q4 were right at 1.7 million, just a tad under Q3. Oh, and there's really one thing I want to go back on your first question. What we had talked about in the last call, is that the 1.1 million cases was going to be really for 2013. We did expect a bit of that to start in Q4 of 2012, but wouldn't fully implemented until this year.

John Nobile - Taglich Brothers, Inc., Research Division

I thought that was the 400,000 cases, the second part of that order that was supposed to be really fully met -- fully implemented in 2013, some of it in 2012. But the original 700,000 case order, which was mentioned in Q2, I thought was supposed to start, at least it was said, would be starting in the third quarter. That's why I was surprised to see the fourth quarter numbers as low as they were.

Robert A. Snyder

Got it.

John Nobile - Taglich Brothers, Inc., Research Division

And on the fourth quarter again, 1.7 million cases, I could do the math, but if you have that as far as tonnage is concern?

Robert A. Snyder

Total tons was 12,600. Converted product was about 10.4 -- 10,400.

John Nobile - Taglich Brothers, Inc., Research Division

Oh, 10.4 converted. And 1.7 million is...

Robert A. Snyder

10,400, yes.

John Nobile - Taglich Brothers, Inc., Research Division

1.7 million is actual converted cases, obviously?

Robert A. Snyder

Yes.

John Nobile - Taglich Brothers, Inc., Research Division

Okay. Now the additional new business you mentioned that it will bring it to about 9 million case run rate, I just wanted to get the particulars as far as that new business alone, what are we looking at, for that alone, in cases in tonnage?

Robert A. Snyder

Well, cases would be 9, right? Okay.

John Nobile - Taglich Brothers, Inc., Research Division

But, no, that's total; the total business. But just for that additional business, what are we looking at?

Robert A. Snyder

Oh, that's around 700,000 cases, I think, that's about right. 700,000 cases on an annualized basis, John.

John Nobile - Taglich Brothers, Inc., Research Division

Right, 700,000 annualized. So it's a significant order, obviously. And if I could just ask you to convert the tonnage while we're on the call?

Robert A. Snyder

Usually about 160 cases per ton.

John Nobile - Taglich Brothers, Inc., Research Division

Okay. So 160 cases a ton, I could do the math. Now, if I could just get into -- I know you'd break up gross margins just as a total converted in parent rolls. But if you could shed some light just onto the converted product margins and the parent roll separately, I'd appreciate that.

Robert A. Snyder

Well, I think the way to look at it going forward, when you do the math on the additional tonnage that we're going to consume and converting with all of these new business, the amount of parent roll tons that we'll sell in 2013 is going to be very small, okay? So what you then want to look at is the effect of all the additional converted product business on our overall margin for 2013, as you know. And as you know from the work that's [indiscernible], there's a lot of fixed cost in the operation. So what will happen is that when the -- as this new business picks up, there's a significant amount of fixed converting overhead, which does not go up, and a significant amount of administrative overhead, which does not go up. So the margins we'll make on this new incremental business will be a lot more than the margins on our overall business for 2012.

John Nobile - Taglich Brothers, Inc., Research Division

Okay. But I'm just hoping to get more an actual number, say, even if you were to break out on the year or for the fourth quarter, what the converted product gross margins might have been.

Robert A. Snyder

We don't get in that level of detail, John. But I think if you go through your work, you can figure it out pretty quickly.

John Nobile - Taglich Brothers, Inc., Research Division

Okay. And just one final question. I know the tax rate was just a little bit off from what you had previously said. But in the 2013, what are we looking at for an estimated tax rate?

Keith R. Schroeder

For now, John, what you should use is a full 34% on federal and none for state, okay? And then when we put out our Q1 information, we'll have the -- we'll have a better rate. But at this point, we do anticipate the rate going up just a bit.

John Nobile - Taglich Brothers, Inc., Research Division

Okay, so no tax rates or incentives currently estimated for 2013?

Keith R. Schroeder

It'll be small.

Operator

[Operator Instructions] The next question will come from Gunnar Hansen of Sidoti.

Gunnar Hansen - Sidoti & Company, LLC

A lot of the questions have already been answered, but just for clarification purposes, could you run me through, Keith, what the year-over-year decline in fiber cost kind of helped you out, contributed there in the -- I guess for the full year, as well as the fourth quarter?

Keith R. Schroeder

Sure. Fiber cost for the full year '12 versus '11 was down about $5 million, okay? And then in the quarter-over-quarter, it was down about $1 million, okay?

Gunnar Hansen - Sidoti & Company, LLC

Okay. And the outlook just kind of in the first quarter, you said it's increased slightly or...

Keith R. Schroeder

Yes, it's actually not that big. We had a -- roughly a $10 per ton increase in those -- the first 2 quarters of this year. And we had to do a lot of work with various folks that look into this, right, in the fiber market, we used it with their services. We do anticipate both recycled fiber and [indiscernible] costs going up this year. We're anticipating around, let's say, a $25 per ton increase in the second quarter, and then another $25 per ton increase in the third quarter. And then on the craft side of the equation, about $100 of ton over the full course of this year. Now, how much it actually goes up, hard to say, right? But that is what we think.

Gunnar Hansen - Sidoti & Company, LLC

And I guess, just with some of the greater expansion on the mid-tier products, what's kind of the breakdown in terms of the recycled versus the crafts side?

Keith R. Schroeder

Let's see, I think our -- Gunnar, [indiscernible] had the craft percentage, as we continue to add more mid-tier business, will hit around 10% or 15%, let's say, 15%.

Gunnar Hansen - Sidoti & Company, LLC

Of total products?

Keith R. Schroeder

Yes. Yes, that's what we have.

Gunnar Hansen - Sidoti & Company, LLC

Okay. And I guess, just kind of going back to parent roll sales. Obviously, cannibalizing some of the parent roll sales for internal use. Maybe just kind of give us a little bit more color in terms of how those parent roll sales would kind of progress for '13 here?

Keith R. Schroeder

Gosh, our parent roll sales we have forecast for '13 -- I don't have that number exactly right in front of me. But they're going to be incredibly low; I mean, you're talking probably $5 per ton.

Gunnar Hansen - Sidoti & Company, LLC

Okay.

Robert A. Snyder

By the time we reached the 9 million case run rate, somewhere around 9 million to 9.5 million, we think that you'd have -- you'd be using all your paper, right?

Operator

And our next question will come from John Curti of Singular Research.

John H. Curti - Singular Research

I had a question on the maintenance and repair cost, up about $820,000 for the year, and I think you've said they kind of returned to normal in the fourth quarter. How much of that $822,000 increase occurred in the fourth quarter, if any? Or did they actually go back the other way and actually decline?

Robert A. Snyder

They declined in the fourth quarter, and those costs were pretty heavy maintenance we were doing in the paper mill side of the business.

John H. Curti - Singular Research

Now some of the CapEx that you're doing in 2013 will address some of that?

Robert A. Snyder

No, no. This maintenance cost was basically maintenance regarding to the operation of that equipment at the time, and that is behind us.

John H. Curti - Singular Research

So none of the CapEx is being used to replace some of that equipment?

Robert A. Snyder

No, that's correct.

John H. Curti - Singular Research

I just wanted to double check on the expected amount of shipments of converted products for this upcoming year. Did you say 8.7 million cases?

Robert A. Snyder

That's how we'll average out, we think.

John H. Curti - Singular Research

Average out.

Robert A. Snyder

That will be the average for the year, we think.

Keith R. Schroeder

It will be the full year round, John.

Robert A. Snyder

Yes, the full year. Not on the run rate, but on the full year.

John H. Curti - Singular Research

Okay, full year.

Robert A. Snyder

The run rate improves as we go later into year as the business gets implemented.

John H. Curti - Singular Research

Okay. But it sounds like...

Robert A. Snyder

And there's additional business out there that is -- we may find that we pick up more business, at least we're hopeful that, that may happen.

John H. Curti - Singular Research

But it sounds like you're first -- right off the bat in the first quarter, there's going to be a pretty step-up from the fourth quarter of '12?

Keith R. Schroeder

Yes, John. What -- well, usually, what we're expecting is the rate in Q1 and Q2 is around 8.2% or so for the -- on a full-year rate, okay? And then you get into Q3, then you would expect the rate to be around 9% on the full year rate. Does that help?

John H. Curti - Singular Research

Okay. It sounded like, in the fourth quarter, beyond just not -- beyond some of the promotional business not repeating that there was a little bit of softness there, because you said you were a little bit disappointed with the numbers. So I mean, you would've factored in the anticipated lack of follow-through on the promotional business. So what happened there? Was some business --

Robert A. Snyder

Well, November was a soft month. October was good, November was a weak month, and then December came right back in the -- where our expectations were. And this had to do with, evidently, sales within various customers, facilities during that time period.

John H. Curti - Singular Research

Okay, because those customers who were maybe not there in November were back in, in December?

Robert A. Snyder

That's right. So that's -- a lot of times you'll see some softness in the first quarter and the fourth quarter. But this is over and above of what we thought our expectations would be for November. It just -- it is what happened.

John H. Curti - Singular Research

Could you talk a little bit more about the $5 million of CapEx that's going to be beyond the base CapEx in terms of -- I think you were talking about towel lines, improving fiber yields, that type of stuff. What's involved there?

Robert A. Snyder

Well, we're in the rebuild with one of our lines that we have at the facility. To be able to get the flexibility of the line, upgrading at the drive on the line, and to be able to make various products that -- on the line that we can't currently make for our customers, which will aid us well with the direction we're going with these mid-tier products, will give us more flexibility. And the -- as far as improving our yields in the paper mill and our pulping operation, this is about fiber recovery, and about not losing the fibers and recovering them and utilizing them in our papermaking process, which will reduce our cost of fiber, and by not having to use as many fibers to reduce your cost from not wasting fiber, it'll improve the yield of our process.

John H. Curti - Singular Research

And you have converted products packaging capacity of about 12 million cases...

Robert A. Snyder

We would see that the utilization rate is going to be more like 10.5, and then depending on if it's towel or bathroom tissue. And we really see ourselves at around 10.5 as far as being able to keep on time service for an Auto PM [ph] or what have you. And that's really about where we'd be. We think in the third and fourth quarter, at this point, we're a little under 90% of utilization.

John H. Curti - Singular Research

At what point do you start to think about additional capacity, and the construction of additional facilities, buildings and being able to put the lines in?

Robert A. Snyder

We would be considering that now; it'll take 2 -- probably from the time that you buy, about 1.5 year before you put it in. So we'd have those kind of considerations going on now, and thinking that -- those kind of projects through.

John H. Curti - Singular Research

And then what about another papermaking line?

Robert A. Snyder

I think you'd want to have more converting capacity and buy paper for a while and then put a peg machine in sometime down the road, quite of ways down the road, after you've sold out more cases. And the timeline for a new peg machine is about a couple years from the idea that you're going to -- you're ready to buy one or something like that, all right? Assuming you have a permit, even all that kind of thing for your -- for that line, all right?

Operator

[Operator Instructions] And we have a question from Mike Taglich of Taglich Brothers.

Michael Taglich

With regard to the $5 million that you're spending, what do you figure is the return on that over and above what's really for maintenance? What's your ROI on that?

Robert A. Snyder

Return on both of those projects -- they're a little different. One, it's quite short, it gets about 2 years. The other one is about 3 years.

Michael Taglich

All right. So that's really not maintenance, that's really a cost reduction with a payback?

Robert A. Snyder

Improvement. Oh yes, absolutely.

Keith R. Schroeder

That's what we're saying, yes. Yes.

Michael Taglich

Right. That's a different bucket, from a Wall Street standpoint versus -- maintenance is something you really don't get return on.

Robert A. Snyder

We're not the ones calling up the street [ph], Mike.

Operator

And we have a follow-up question from John Curti of Singular Research.

John H. Curti - Singular Research

With respect to the $10 million CapEx, can you kind of give us a timeline of how that might break down by quarter, just roughly?

Keith R. Schroeder

Oh, I don't have it front of me, John. But on the top of my head, it's going to be fairly even. There's a lot of projects that are in the kind of base level that are going on now. So I would spread it out about, oh, pretty evenly each quarter. As I was kind of thinking through -- that the timing -- most of it will be done by the end of the third quarter. So let's say around 80% through the first 3 quarters, fairly split and then the last 20% in Q4.

Operator

I'm showing no additional questions in the queue. This will conclude our question-and-answer session. I would like to turn the conference back over to Mr. Robert Snyder for his closing comments.

Robert A. Snyder

We'd really like to thank everybody who attended our call today. We really appreciate the interest you have in our company. And we hope that the information from today was very helpful. Thank you.

Operator

Thank you. Ladies and gentlemen, the conference has now concluded. We thank you for attending today's presentation. You may now disconnect your lines.

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