Good day, ladies and gentlemen, and thank you for standing by. Welcome to the Pactiv Evergreen, Inc. Fiscal Third Quarter 2020 Earnings Conference Call. [Operator Instructions]. I'll now turn the call over to Pactiv Evergreen..

Thank you, operator. Before we begin, please visit the Events section of the company's Investor Relations website at www.pactivevergreen.com and access the company's supplemental earnings presentation. Management's remarks today should be heard in tandem with reviewing this presentation.

Before we begin our formal remarks, I need to remind everyone that our discussions today will include forward-looking statements. These forward-looking statements are not guarantees of future performance. And therefore, you should not put undue reliance on them.

These statements are also subject to numerous risks and uncertainties that could cause actual results to differ materially from what we expect. We refer all of you to our recent SEC filings for a more detailed discussion of the risks that could impact our future operating results and financial condition.

Lastly, during today's call, we will discuss non-GAAP financial measures, which we believe can be useful in evaluating our performance.

The presentation of this additional information should not be considered in isolation or as a substitute for results prepared in accordance with GAAP, and reconciliations to comparable GAAP measures are available in our earnings release.

On the call today, we have John McGrath, Chief Executive Officer; and Michael Ragen, Chief Operating Officer and Chief Financial Officer. With that, let me turn the call over to John McGrath.

John?.

Foodservice, servicing customers such as McDonald's and Sysco; Food Merchandising, where we provide packaging solutions to customers like Walmart and Perdue; and Beverage Merchandising, providing packaging and equipment to our partners like Danone and Florida's Natural. In each of these segments, we hold leading share positions in most categories.

Additionally, 65% of our sales come from products that are made from recycled, recyclable or renewable materials, and our products are mainly U.S.A. We serve growing recession-resilient end markets.

We provide the broadest range of products, including things like food containers, cups, plates, trays, cutlery and beverage cartons made from fiber, resin and aluminum. We also have strong, deep and long-standing relationships with winning distributors, restaurant chains, supermarkets and food and beverage processes.

Most of our business is on 3- to 5-year contracts, and we typically have raw material pass-throughs. We have a network of 58 manufacturing plants and 8 mega warehouses that are well invested and are in strategic locations to service our customers. And we are committed to sustainability in everything we do. Please turn to Slide 9.

Let's look at each of our segments in greater detail, beginning with Foodservice. Year-to-date 2020, our Foodservice segment had net revenues of $1.4 billion and $170 million of adjusted EBITDA. The products we sell in this segment allow consumers to eat and drink fresh food and beverages anywhere, any time.

Customers include restaurants like Burger King and Chick-fil-A and foodservice distributors, such as Sysco and US Foods. In this segment, our breadth and depth of product offering makes us a one-stop shop for our customers, which, coupled with our national footprint, improve service and create significant entry barriers.

Whether it's on-premise dining or takeout and delivery of food and beverages, we make the products that our customers and consumers want. Moving to Food Merchandising. Year-to-date 2020, our Food merchandising segment had net revenue of $1 billion and $186 million of adjusted EBITDA.

Products in this segment enable fresh food to be displayed in supermarkets like Whole Foods and Albertsons or packaged at food processors like Tyson or Campbell's. Think about going into a supermarket and walking around the perimeter of the store. You'll find our products in the meat, egg, produce, bakery, deli and prepared foods departments.

We are well positioned to capture the consumer trends around increased fresh food consumption. And we are benefiting from the recent shifts to more food being prepared and consumed at home. Finally, Beverage Merchandising. Year-to-date 2020, our Beverage Merchandising segment had net revenue of $1.1 billion and $112 million of adjusted EBITDA.

We are the #1 integrated global producer of highly decorated fresh beverage cartons and provide a one-stop shop system from cartons to filling machinery.

Our vertical integration, coupled with our technical support, creates the lowest-cost solution and unrivaled service for our customers like Silk and Tropicana, while ensuring their production facilities operate seamlessly. This allows us to continue to capture growing demand for almond, soy and organic milk, healthy juices and liquid food products.

Our cartons are typically found in the fresh milk and juice cases of the supermarket as well as in schools, hospitals and other institutional settings. Please now turn to Slide 10. At Pactiv Evergreen, environmental, social and governance are not just words on a page. They are guiding principles in everything we do.

65% or $3.4 billion of our 2019 revenue was from products that are made from recycled or renewable materials or that are recyclable at the end of use. Our goal is to be at 100% by 2030. Additionally, we have reduced our greenhouse gas emissions by 10% over the last 5 years.

Our #1 priority is to ensure a safe and accommodating work environment for our employees. Our industry-leading safety metrics, measured as a rate per 100 employees, demonstrates that we are 2 to 3x better than our peer group in all categories.

From a governance standpoint, the majority of our Board of Directors, including our Chairman, are independent. Additionally, we have implemented leader development programs to ensure we develop our high-performing talent for future assignments. I will now turn it over to Mike for a detailed financial review..

Thanks, John. Moving to Slide 12. Looking at our third quarter 2020 financial performance, net revenue for the quarter was $1.195 billion versus $1.306 billion in the same period last year, a decline of 8%.

This was expected with the decline due to the impact of the COVID-19 pandemic and lower pricing, mainly due to lower raw material costs passed through to customers. Key impacts were in our Foodservice and Beverage Merchandising segments, both mostly due to the effects of COVID-19. I will talk to each segment on the next slide.

Adjusted EBITDA for the quarter was $173 million versus $177 million in the same period last year, a decline of 2%. Adjusted EBITDA was below prior year due to higher manufacturing costs, driven by the timing of planned mill outages. Lower volume, driven by the impacts of the COVID-19 pandemic.

And lower pricing, partially offset by favorable raw material costs net of lower cost passed through customers, favorable logistics costs and lower employee-related costs. Free cash flow, defined as adjusted EBITDA less CapEx was favorable to the same period last year. Whilst adjusted EBITDA was down, this was more than offset by lower CapEx.

We have previously talked about our mill outages. In late September and early October, we successfully completed a cold mill outage in our Canton, North Carolina mill.

During the outage, we did have a fire that caused a 1-day delay in start-up and will increase operating costs by $5 million in Q4 2020 as we implemented workarounds for the fire-affected part of the mill. Tragically, 2 contractors lost their lives in the fire. Our condolences to the families of these contractors.

We have also combined our Pine Bluff, Arkansas, October outage with the already scheduled January outage, shifting costs of $7 million to $8 million from 2020 to 2021. Moving to Slide 13.

In Q3, our Foodservice segment saw net revenues down 13% versus the same period last year due to the impact of COVID-19 on volumes and lower pricing due to passed through of lower raw material cost to customers.

Adjusted EBITDA for the segment was down 9% versus same period last year, due to lower sales volume due to the impact of COVID-19 and higher manufacturing costs, partially offset by lower raw material costs and lower logistics costs. Adjusted EBITDA margin in this segment improved from 16% in third quarter 2019 to 17% this quarter.

In Q3, our Food Merchandising segment revenues were up 1% versus same period last year due to favorable pricing, partially offset by lower cost passed through to customers, unfavorable foreign currency impact and lower volume.

Adjusted EBITDA for the segment was up 29% versus same period last year due to favorable material costs, net of lower cost passed through to customers, partially offset by lower sales volume. Adjusted EBITDA margin in this segment improved from 16% in third quarter 2019 to 20% this quarter.

In Q3, our Beverage Merchandising segment revenues were down 10% versus same period last year due to lower sales volume and lower pricing due to the impact of the COVID-19 pandemic.

Adjusted EBITDA for the segment was down 47% versus same period last year due to lower pricing and lower sales volume due to the impact of the COVID-19 pandemic and increased manufacturing costs due to planned mill outages in the current year quarter.

These items were partially offset by lower raw material costs, driven by wood supply as markets have returned to historical normalized levels from prior year weather-related increases and lower employee-related expenses. Adjusted EBITDA margin in this segment declined from 11% in third quarter 2019 to 7% this quarter, mostly due to outage timing.

Moving to Slide 14. John earlier touched on our net loss from continuing operations for the quarter at a loss of $143 million. There are numerous significant and/or unusual items in the period that are not necessarily representative of underlying operational performance.

And so I will briefly walk through this reconciliation of net income to adjusted EBITDA and free cash flow. For third quarter 2020, our loss from continuing operations was $143 million. We had income tax expense of $42 million, which includes a $105 million noncash tax valuation allowance for deferred interest deductions.

The increase in the valuation allowance reflects the reassessment of the recoverability of our deferred interest deductions following the distribution of GPC in September 2020. Depreciation and amortization was $73 million. Net interest expense was $87 million. Foreign exchange losses on cash were $42 million.

This was mostly due to currency movements on our large U.S. dollar cash deposits. Until shortly before the IPO, the holding company was domiciled in New Zealand. And therefore, New Zealand dollars was the base currency. The holding company's domicile is now the United States. Goodwill impairment charges were $6 million.

These relate to impairment of the remaining CSI South America business. Loss on sale of business and noncurrent assets, $1 million. Noncash pension income, $18 million. Operational process engineering-related consultancy costs, $3 million. Related party management fee, $44 million.

Following the IPO, we are no longer charged the related party management fee. Restructuring, asset impairment and other related charges, $14 million.

This includes a noncash impairment charge of $11 million related to the remaining CSI South America business, bringing the total noncash charges relating to classifying the business as held for sale to $17 million for the quarter. Strategic review and transaction-related costs, $24 million.

These costs represent costs incurred for strategic reviews of our businesses as well as costs related to our IPO that cannot be offset against the proceeds of the IPO. Unrealized gain on derivatives of $1 million and other $1 million, providing for an adjusted EBITDA of $173 million.

Capital expenditures were $69 million provided for free cash flow of $104 million. Further details on each of these items are provided in our Form 10-Q. Moving to Slide 15. COVID-19 continues to have an impact on our business, most notably in our Foodservice and Beverage Merchandising segments.

Each segment is experiencing revenue and associated manufacturing absorption impacts and increased costs related to employee pay support and safety. Due to the impact of the pandemic, in Q3, our Foodservice segment saw a revenue reduction of $54 million and adjusted EBITDA reduction of $26 million versus same period last year.

Whilst year-to-date, the segment has seen revenue reduction of $179 million and adjusted EBITDA of $88 million. In Q3, our Food Merchandising segment saw a revenue reduction of $5 million and no adjusted EBITDA impact versus same period last year.

Whilst year-to-date, the segment has seen revenue reduction of $17 million and adjusted EBITDA of $6 million. In Q3, our Beverage Merchandising segment saw revenue reduction of $40 million and adjusted EBITDA reduction of $21 million versus same period last year.

Whilst year-to-date, the segment has seen revenue reduction of $88 million and adjusted EBITDA of $52 million. We continue to focus on the safety of our employees and the markets and products that will thrive during and post COVID-19. Moving to Slide 16.

Our strategic investment program is a 4-year $661 million program that commenced in 2018 and focuses on growth CapEx for capacity expansion and the launch of sustainable products. Productivity CapEx, most notably our automation.

Integrated supply chain, factory asset intelligence and other cost savings initiatives and onetime equipment reliability and facilities improvements. We continue to invest in our strategic investment program, having spent $450 million of the $661 million to date. And we'll continue to invest through 2020 and 2021.

We expect to see 2- to 2.5-year annualized benefits from the program, having to date realized $101 million of annualized adjusted EBITDA benefit to date. To be clear, we look at the annualized adjusted EBITDA benefit from a 2-year payback project as half of the investment. Moving to Slide 17.

This is a conceptual picture of our future adjusted EBITDA growth potential. Our strategic investment program is represented in the 5 buckets on the slide. Through third quarter 2020, we have invested $450 million in growth and productivity CapEx and have realized $101 million of annualized benefit to date.

In Q4 2020 and full year 2021, we expect to invest a further $211 million in growth and productivity CapEx. So we have or expect to invest a total of $661 million in growth and productivity CapEx in our 4-year strategic investment program, from which we expect 2- to 2.5-year paybacks overall.

We believe that we have a well-defined path to substantial EBITDA growth and margin expansion. In addition, there is a potential for bolt-on M&A. Moving to Slide 19. For full year 2020, we expect full year revenues between $4.71 billion and $4.755 billion. We expect adjusted EBITDA between $615 million and $630 million.

And we expect capital expenditures related to our continuing operations for the full year to be between $240 million and $280 million. I'll now pass it back to John for closing comments..

Thanks, Mike. This concludes our prepared remarks, and we will now open the line for questions..

[Operator Instructions]. Our first question comes from the line of Anthony Pettinari with Citi..

John, in Foodservice, is it possible to say how demand trended over the 3 months of the quarter and maybe into October, November? And have you seen or do you anticipate any kind of customer destocking in 4Q in preparation of maybe further lockdowns or restrictions in the U.S.? And can you just remind us how much visibility you have into the demand pipeline there? How far ahead are customers placing orders?.

Yes. So thanks for the question, Anthony. So mainly, we don't have large outlook or visibility into demand. Our customers order very frequently, either weekly or several times a week. So we get to see demand in real-time.

I'd say right now, through the first half of Q4, demand across all segments, for that matter look very similar to the demand that we would have seen in any segment in Q3.

And for Foodservice, in particular, I think that was your first question, Anthony, we would have seen that demand in Foodservice pretty consistent throughout the three months of Q3..

Okay. That's helpful. And then if I look at decremental margins on volume declines, it looked like it was up 30% in 3Q and maybe in a similar range for the year.

When we think about incremental margins next year as you get a volume recovery, presumably, I mean, is that 30% sort of an accurate number to use? And could that increase as cost savings flow through? Is there upside there? Any kind of sense you can give us on incremental margins going forward in '21?.

Yes. I think the COVID recovery is number one. Number two, across each segment, we're introducing new products. So I think we'll see a benefit there. We've talked about the increase from -- that we're going to get from the integration of Evergreen.

So that's taking Evergreen products and using the board or the paper for things that we can convert and sell on the Foodservice or Food Merchandising side. There's the continued half of our strategic investment program. You would have seen $101 million through the program's inception, with $45 million coming in the first 3 quarters.

I would expect -- fully expect that to continue and that we will continue to realize benefits there. So I think, besides just the COVID volume recovery, there are other EBITDA improvement levers..

Our next question comes from the line of Ghansham Panjabi with Baird..

This is actually Tom Digenan on for Ghansham.

So could you start by touching on how you see price costs evolving in 4Q and then into 2021, just in context of higher sequential resin prices lately?.

So if you look historically at all of our businesses, we have a large majority of our sales of our revenue on some kind of contractual pass through. Meaning that raw materials go up, we increase our price to those contracted customers. Raw materials go down, we pass the raw materials through.

For our noncontracted business, we go out with general market price increases. So for instance, here in early Q4, we would have went out with a market price increase to cover, not only the raw material component, but also the freight and other incremental cost components that we would see. So I would expect -- raw materials are always going to move.

They're going to move up, they're going to move down. We have a history of recovering. Also, we hedge the lag, which is a difference between the time the raw material goes up and the time we can actually pass through. We hedge that period in many of the commodities that we use to make our products.

So although not a perfect hedge, it does give us some cover, some insulation, if you will, between the time raw material moves and the time we actually move our price and recover..

That's helpful.

And then just following up on that, could you just remind us of the portion of your business that's contract versus noncontract? And then separately, within Beverage Merchandising, can you provide some more color on the expected margin progression over the coming quarters just in context of the planned outages?.

Yes. So in Foodservice and Food Merchandising, roughly 75% to 80% of all of that business is on some kind of contract with pass through. In Beverage Merchandising, half of the Beverage Merchandising business would be cartons, the beverage cartons. And around 80% of that business is on pass-through.

The second part of that business is board and paper sales, and about 40% of our board and paper sales are on some kind of contractual pass-through. And finally, the last piece of business, which is -- represents around 20%, which is the paper segment, that's priced at market. So there is no contractual pass-through..

Our next question comes from the line of George Staphos with Bank of America..

I just wanted to piggyback on the earlier question. I don't think that you talk to what we should expect on the progression of Beverage Merchandising margins.

And then the related question I had, there's a fairly wide EBITDA range for the fourth quarter, despite the fact that you have pushed out, I think, you said $7 million to $8 million of spending from Beverage Merchandising mill outages into '21 despite the fact that you've said the business is more or less steady at the rates that you saw in the third quarter.

So what is causing the relatively wide range on EBITDA? And again, if you can talk to the Beverage Merchandising EBITDA progression, that would be helpful. And I had a follow-on..

Sure.

Mike, do you want to take that one?.

Yes. So in terms of the wide range and the Beverage Merchandising margins, I think the best way to think about this is, yes, there's sort of $7 million to $8 million pushed out into Q1 around the mill outage of Pine Bluff.

The second piece, though, is from the fire, we had this -- the fire in Canton during the outage, there's more or less an offset in Q4 because we've got workarounds as we restore that part of the plant. So yes, those 2 things through Q4 essentially, offset each other.

And so what we're expecting to see in sort of the mill cost is net-net in Q4 to be flat from the outage less the cost of the fire impacts. Having said that, we're ramping up out of the outage in Canton. And that's been a little slower than where we expected, but -- so there is some lag there.

And then the other piece in Beverage Merchandising is that paper markets, a bit depressed and paper volumes are a bit depressed. So net-net-net, we're expecting Beverage Merchandising to be a little bit down on what we've sort of talked about in the past, George, and offsets in the other parts of the other segments..

Okay. So I guess then, if -- more or less, it sounds like sequentially Beverage Merchandising is flat in EBITDA because whatever pickup you would have gotten from the fire, you're now losing as your ramping up this next outage and they're offsets as well, as you mentioned, Mike.

Where then does the swing factor show up in terms of the -- again, not trying to be too fine point on this, but the $170 million to $185 million, is it volumes in Foodservice? Is it volumes in Beverage -- excuse me, in Food Merchandising in terms of -- so where is that variation coming? Or are you just trying to be conservative because, hey, who the heck knows, we're still in the middle of pandemic.

I'm just trying to get a sense of what's in there. I mean it's in line with our forecast, but I'm just trying to get a sense of what's in your model and your thoughts..

Yes. I think, look, in Foodservice, we have been a little bit ahead of where we thought in over the last little while, just a little, and same with in Food Merchandising. So we're expecting that to continue for those ones to be a little bit ahead -- those two segments. And it's all -- it's just small pieces that were slightly ahead.

And then, as I said, Beverage Merchandising is a bit down and so net-net-net, we're expecting to be more or less where we said we'd be when we discussed this through the IPO process..

Okay. And then my last question, I'll turn it over. And my sense is you did around $20 million of benefit, if I did my math correctly, on SIP in the third quarter.

So if you're at $45 million or $46-ish million in year-to-date versus where you were at the 6-month period, $20 million or so, can you correct or affirm that number? And where did these SIP benefits come from in terms of the various buckets?.

Yes. Your numbers are more or less correct there, George. The benefits are coming across more or less all pieces there. So as I go through the different pieces, the business growth where -- our new product and material innovations, we're continuing to launch new products. We're starting up new lines in terms of capacity expansions.

And so we're seeing benefits there. Automation continues at pace. Digital transformation is only a small increment year-to-date, but we are -- we did see a small benefit there. And then the integrated supply chain program is really, really ramping up. And we're really starting to see the benefits of that. So that's a big piece of it..

Our next question comes from the line of Mark Wilde with Bank of Montreal..

Yes, few questions. First, just in Food Merchandising, you had a really good quarter from a margin perspective. It sounded like, some of that was price cost.

I wonder if you could just help us think about where you expect that margin to be going forward and whether there's some give-back in terms of price cost?.

Do you want me to take that, John?.

Yes. Go ahead and take. Then I'll add in..

Yes. So in our Food Merchandising business, so there was -- in our -- we sell a lot of products, consumer products. And there was a change to the methodology in terms of how we price those this time last year with RCP. So essentially, we moved -- we went to an all-in price as opposed to a direct cost-plus logistics, price.

So net-net-net, those things are favorable there. The second thing is, we're filling a lot more sort of higher-margin products and particularly around protein. That's really favorable for us. And so we are seeing benefits from margin improvement there.

So moving forward, whilst we will continue to see benefits out of protein, year-on-year, the RCP difference will -- that finishes at the end of October, so you won't see as much benefit there, but we should still see stronger EBITDA margins in total. Because as an all-in comparison, we're a lot stronger across the board in that particular segment..

Okay.

The second question I had was just around Beverage Merchandising, and if you could just talk a little bit about the -- both pricing and volume in that business? And whether this COVID resurgence is having any impact on the portion of that business that goes like into school milk programs?.

Yes, great question, Mark. So let me look at it by the pieces of Beverage Merchandising. So to your point, cartons overall are doing well. Our business in Asia is very robust. And our sales of cartons to the processors for plant-based milk substitutes, juices and liquid food products are up nicely.

That is, however, to your point, being offset by school milk. The -- so I would say, school milk as a category for us is probably down 30%, 35%. And that's very reflective of the school closures.

Also, on the liquid packaging board side, the second part of that business, liquid packaging board and cup stock, so liquid packaging board is down because the folks we sell liquid packaging board to are also in the business of making school lunch cartons. So that's in line with what we're seeing, obviously.

And then on the cup stock pieces of the business, we would see a similar offset or a similar downturn in our Foodservice paper cup business, reflective of people not commuting in the morning, people not stopping, getting that morning cup of coffee. So we're seeing a downside there.

On the paper side, we're just seeing across both coated groundwood and uncoated free sheet, we're seeing really significant volume impairment. And the price is getting a lot more competitive as obviously competitors vie for what's left or the smaller amount of demand that's out there for those products.

Again, on the offset, we are working on ways to take that paper and make other products out of it, and we're gaining some success there..

Okay. Last one for me.

I just wondered, Mike, just general, in a broad sense, with the strategic investment program, can you talk a little bit about how you think about, how much of that -- it can really be sustained over time in the form of improved EBITDA? And how much of that might ultimately just be the price of staying competitive? Because your competitors are doing a lot of the same things, trying to improve their supply chain, take out costs..

Well, look, we're -- I think there are two different things, really. I think we have the adds here in terms of the cost takeout, the new products, those sort of things. And I feel, I really do think, for the most part, this is additive. Competition will always be there.

And so -- does some of it -- is there offsets elsewhere that other people are doing things? I guess so. I don't -- I'm not aware of anyone doing something as large as what we're doing, but there's always going to be competition in our markets..

Yes. And I would add, again, if you look at the components of the program, to Mike's point, we're adding a significant amount of capacity in those machine centers that are constrained or that are getting constrained due to demand. So that, we believe, we're adding capacity. We have the demand. And so I believe that stays.

I think the new product introductions, certainly, a lot of these are new-new to the market. I got to believe those for the most part stay. Automation gets people out of the plants. So we're not going to have people back in the plant. So that benefit that we get in automation will stay.

Our integrated supply chain, where the 2 biggest components are transportation management system and our warehouse management system, we're doing better procuring freight with this tool, there's no doubt about it, despite freight rates being up.

And from a warehousing standpoint, the last 3 months, we've seen about a 16% productivity bump in our throughput queue -- and our work in our warehouses. So yes, I mean, other people can certainly improve systems, but I'm looking at the -- we're not planning on giving any of that benefit up anytime soon.

And then the factory asset intelligence is we're just in the infancy of that. We're ramping up. We're putting these tools in more of our facilities.

But the ability to understand how our production is moving in real time and the ability to make corrections, I mean, we've already seen in the plants that has been installed in for a while, we've seen -- in our North Carolina facility -- Mooresville, North Carolina, we've seen a 7% productivity increase directly attributed to the factory asset intelligence.

So although there might be some slippage, I think these are all programs that are going to continue to give us a significant competitive advantage going forward..

Our next question comes from the line of Roger Spitz with Bank of America..

First, can you give us pro forma September 30 cash, that's pro forma for the October refinancing? And/or what was cash yesterday, please?.

Look, the pro forma net debt, I can tell you, like -- and our 10-Q gives you a bit more information on this. But our gross debt is about $4.07 billion. And we're also going to pay down a little bit more in October -- sorry, in November. So we'll be about $4 billion of gross debt. At 30th of September, we were about $3.4 billion of net debt.

And cash yesterday was, I don't know, $0.5 billion, around that area. So hopefully, that answers your question..

My other question is just on, can you provide Q1 '20 and Q2 '20 each sales and EBITDA each? And if this was in the prospectus, I apologize. I just didn't see it there. The breakdown, obviously, the 1H totals are in there..

Did you say '21? I'm sorry?.

I'm sorry, for Q1 '20 and Q2 '20 sales and EBITDA as opposed to the 1H '20 sales and EBITDA. We got the 1H. I was just wondering, if you can provide the breakdown of Q1 and Q2 for sales and EBITDA, please..

Yes. The net revenues for Q1 were $1.212 billion. Q2 was $1.107 billion. And then for adjusted EBITDA was $146 million for Q1 and $127 million for Q2..

[Operator Instructions. Our next question comes from the line of Sam McGovern with Crédit Suisse..

Just following up on Roger's question. I was hoping you can give the latest availability under the revolver and just give us a sense in terms of what you're thinking about with regard to debt paydown? How much of it focused on revolver draw versus the 5 1/8 [ph] due 2023..

Sam, so the revolver is undrawn. We've only got -- we only have LCs under that. So the revolver is $250 million. It's undrawn at this point.

The second question, what -- can I just ask you to repeat your second question, please?.

Sorry. Yes. You mentioned that you continue to pay down or expect to pay down in November.

And then given -- going forward to the extent you're paying down, how do you think about pay down on the term loan versus the 5 and 8s due 2023?.

Well, I guess we've never really commented on future payments. The -- we are paying down $70 million on the 5 and 8s. That notice is already out there. So everyone already knows about that. Look, in terms of what we'll pay down next, we'll do it based on what the math tells us, what's the best thing to pay down.

We -- obviously, we've stated to everyone that our -- that paying down debt is our #1 capital allocation priority. So we'll continue to do that, but I can't give any sort of guidelines on timing or anything like that..

Our next question comes from the line of John Babcock with Bank of America..

This is John Babcock on for George Staphos. I just want to ask very quickly. It seems like there was a relatively large range in implied CapEx guidance for the fourth quarter. And I was just wondering if you might be able to talk about the different puts and takes on what's driving that..

Yes, look, what that is, John is, we've got a bunch of large projects. And it all really comes down to when the invoicing is done. And when it's paid and when it's due and all those sorts of things. So we're continuing to spend at pace. But the -- when the actual cash goes out the door is a little difficult to judge right now.

So if it's not in -- if it's not in Q4, it will be in Q4 2020, will be in Q1 2021. So it's not like we're holding back on CapEx or anything like that. We do expect and we've talked about spending somewhere $270 million to $280 million this year. And we're on pace to do that in terms of what we're bolting into the ground.

It's just about the timing of when the cash goes out the door..

Okay.

Might you be able to provide some color on the big projects that you have going on?.

Sure. Well, it's mostly -- there's some capacity -- most of it's around the strategic investment program. There's some capacity pieces there. Then in -- like the business growth and new product and material innovations, we're continuing to add capacity there. Automation program, we continue to add automation throughout our sites.

And then also in the mills, we continue to invest there. And those investments will continue despite the delay in the mill outage to Q1 2021..

Ladies and gentlemen, this concludes our question-and-answer session. I'll turn the floor back to Mr. McGrath for any final comments..

Thank you for participating in this, our first earnings call. I do want to leave you just with one thought for the quarter, I think we did really well from a recovery standpoint versus our lows in Q2. We are on track with our estimates, both for Q3 and for full year. And our SIP is deliberate, and you would have seen $45 million through Q3.

We're in a very fluid environment right now. But I think we are well positioned with our access to markets. And our product and material portfolio to perform in whatever event might happen going forward. I keep telling people, people have to eat and drink and food and beverage has to be packaged.

And we're one of the largest packagers of fresh foods and beverage in North America. So again, I think we're hedged to some extent, by the products and materials. We make our products out of 14 different materials, unlike many of our competitors. So COVID is an impact, no doubt.

We're going to get through COVID, and our business is going to be stronger as a result..

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