Gabrial Hajde: I appreciate it, gentlemen. Thank you.
Michael Doss: Thank you.
Operator: Our next question comes from Kieran de Brun from Mizuho. Your line is open.
Kieran de Brun: Hey, good morning. Yes, a lot of the questions have been answered, but just to touch again on kind of the capital deployment priorities, I guess as we look out towards 2025, if I just got to look at that adjusted EBITDA and sales range, it implies to may not so much on the sales front, but on the EBITDA front implies that there might be some room there at the midpoint or even towards the higher end for M&A. So, where do you think about adding capabilities in the future if there is kind of that focus on, bolt-on acquisitions or even larger M&A? Thank you.
Michael Doss: Thanks for the question, Kieran. So one of the things that Steve and I are both happy about is we head into 2023, a bit of an uncertain macro to say the least. If you have self-help things that you can work on, what a great thing for a CEO and a CFO to have and to be able to align your organization around and we’ve got that. We’ve got the continued ramp up in Kalamazoo, that’s going to deliver another $50 million this year of ongoing savings as Steve has outlined. We’ve got synergies and growth that we can drive with our AR Packaging acquisition. And ultimately, of course, our teams will be getting busy now, down in Waco. So these are things that we control and we can execute on. And our track record around execution is really, really high as you know.
And so, we like that. And so as we’ve said before, and we’ll continue to say, I mean our bar for any M&A is, is extremely high, given some of the things that we’re working on internally. Having said that, we don’t always get to control when something would come to market. And so there are certain things obviously we would take a look at, but it’s going to have a really, really high bar, given the other priorities that we’ve got in front of us and the ability to really improve our EBITDA through our own actions over the next two to three years. So that’s kind of how we think about that. And as Steve has said, we’re going to pay down another $500 million worth of debt roughly here this year. If you take a look at what that looks like, our debt ratio goes 2.5x.
We like how we’re positioning this company not just into the future, but in 2023, so the optionality we will have, we’ll continue to grow and then it’ll expand as we go into 2024 and 2025. But, again, we like our internal self-help story, and that’s where we’re going to spend our focus here unless something very compelling would come along. And as we’ve said, it’d have to have an incredibly high bar.
Stephen Scherger: Yes. And Kieran to Mike’s point, big part of that high bar is integration and that’s we look out over the next several years, that’s where we can really drive value moving that integration up towards 90%. So that’s a big part of the bar, if you will, that we set around return expectations for anything we would assess.
Kieran de Brun: Great. Thank you.
Michael Doss: You bet.
Operator: We now turn to Mike Roxland from Truist Securities. Your line is open.
Michael Roxland: Thanks. Mike, Steve, Melanie. Appreciate taking the questions. Nowhere approaching, we’re over the hour here, but just one quick one on the Waco acquisition. If you just look at some of your initial estimates on cost and EBITDA, it seems like there’s, that Waco is yielding a lower return than Kalamazoo based on those initial EBITDA generation and the cost kind of spend. Can you help us frame what’s driving that lower return at the outset, and is that primarily due to the fact you’re dealing with the Greenfield versus Brownfield?
Michael Doss: Well, I’ll start with the absolute answer in terms of the increase some of the increased costs is a function we have to build the infrastructure. So wastewater treatment in Power Island, those kinds of things, we’ve got to construct. And as we said, Michael, we’re actually going to have enhanced capabilities here too, both in terms of our pulping capabilities and our ability to generate our own electricity within the mill. But the overall returns is a ratio. If you think about what we spent in Kalamazoo and what the public talked about spending in Kalamazoo, it’s substantially similar.
Michael Roxland: Okay. And just quickly on Texarkana, can you remind us what the metrics are you’re looking at to determine whether to proceed with a potential conversion of that mill, particularly given all the capacity that has been announced at the start here domestically? I remember you mentioned that you postponed the conversion because it would take about 90 days of downtime. Obviously not partly favorable in line of current tight supply demand, but just wondering if that’s something that’s on your radar as well, given the capacity additions that are targeted for the U.S.
Michael Doss: Yes. So as we’ve talked publicly about Michael, we’ve got, we looked at projects to do FBB, we looked at projects to expand our CUK capacity. We looked at this project to expand our CRB capacity. Obviously today in the near term we’re talking about CRB, for all the reasons I’ve already outlined, I won’t recover those points. But having said that, we’ve got good projects on both those different substrates over time, we see a need for those. Right now, our focus is going to be on CRB. I’ll tell you that our Texarkana mill is quite busy because that machine that took downtime that you’re referencing correctly. So that was during the pandemic when your food service volumes were down substantially. And of course, since, the reopening here in the U.S. and all through last year and into January here, our food service business is accelerating in terms of volumes and growth.
And so we need those tons coming out of that mill now. And ultimately, that’s how we’re thinking about that.
Michael Roxland: Thank you.
Michael Doss: You bet.
Operator: Next question comes from Cleve Rueckert from UBS. Your line is open.
Cleveland Rueckert: Hey. Good morning, everybody. Thanks for sneaking me in here past the hour. Appreciate it. My thought is follow-up something on something you said or I thought I heard you said in your prepared remarks. Like you said, I think the CRB cost advantage exceeds other substrates or the potential cost advantage in CRB. Did I hear that right? Maybe could you expand on that a little bit?
Stephen Scherger: Yes, Cleve. It’s Steve, I’ll start. I think what we were articulating there is that there’s a unique opportunity that we began with K2 and that exists with Waco for very distinctive and substantial cost to produce differences with CRB. When you compare these investments to the other capabilities in the industry, our own remaining and others. Whereas in virgin substrates, that level of difference tends to be smaller, whether you’re making a current investment or maintaining your assets. So there’s a unique competitive differentiation of substrates with CRB that is larger than you would see, being capable or being captured with virgin paperboard investments, I think is what we were articulating there.
Michael Doss: Right. And so if you look at that cash cost curve that’s in the slide, Cleve, what Steve is referencing is that advantage is much larger on CRB that you saw the same cash cost curve for SBS, which, if you can go get the Fisher curve, the low, if you look at North America between the lowest cost and the highest cost on SBS, it’s within a $50 bill. And so our advantage is going to be when this is done, $135 a ton. So that’s the substantial nature of it that we’re talking about.
Cleveland Rueckert: Yes. I just wanted to make sure that point was clear. And then Mike, I really liked your point earlier about the lower capital intensity of recycled grain versus virgin
Michael Doss: So it’s really true, sorry.
Cleveland Rueckert: Yes, no, it’s a great point. And then there’s one quick follow up. We’re talking more about integration now and vertical integration, and I’m just wondering, if you guys could quantify a little bit for us what it means to go from 73% to 90% integration, what that does for you in other areas of your business just as a reminder. And then maybe just remind us what the restricting factor is on integration. In other markets we kind of think of the downstream as being the restriction, but I think Mike, you were talking about you’d buy, a 1 million tons of paper every year. So, and maybe it’s, it’s really just this upstream investment that, that enables that integration? And that’s it for me. Thank you.
