Clearwater Paper Corporation

Gentlemen, thank you for standing by and welcome to the Clearwater Papers second quarter 2020 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 on your telephone. If you require any further assistance, please press star 0. I would now like to hand the conference over to your host today, Investor Relations, Mr. Shalom Bowen, thank you. Please go ahead.

All right, thank you. Good afternoon, and thank you for joining Clearwater Papers' second quarter 2020 earnings conference call. Joining me on the call today are Arson Kitsch, President and Chief Executive Officer, and Mike Murphy, Chief Financial Officer. Financial results for the second quarter of 2020 will be released shortly after today's market close, or were released shortly after today's market close, You will find a presentation of supplemental information, including a slide providing the company's current outlook, which is posted on the industrial relations page at our website, clearwaterpaper.com. Additionally, we will be providing certain non-GAAP financial information in this afternoon's discussion. A reconciliation of the non-GAAP information to comparable GAAP information is included in the press release or in the supplemental information provided on our website. Please note slide two of our supplemental information covering forward-looking statements. Rather than rereading this slide, we are going to incorporate it by reference into our Prepare for March. With that, let me turn the call over to Arson.

Good afternoon, and thank you for joining us today. Please turn to slide three. As you saw from our press release, Clearwater Paper had an outstanding quarter driven by continued strength in our tissue business, stability in paperboard, and excellent operational execution. On a consolidated basis, the company reported net sales for the second quarter of $480 million and adjusted EBITDA of $79 million, which represents growth of approximately 6% and 78% respectively over last year. Our consumer products division drove results with both higher sales and production volumes to meet increased tissue demand. Lower input costs, particularly in pulp, were also a tailwind on a year-over-year basis. Together with our customers, we were able to rationalize our SKU operating, which increased throughput to meet elevated demand. Our supply chain team worked closely with customers to fulfill orders with a depleted inventory position after the consumer-driven pantry loading in March. I will speak in more detail to industry conditions in a minute, and Mike will provide some additional context on operating leverage in his comments. Another important update in the quarter, is that we are at full production run rate for our new Shelby paper machines, which is on target with our mid 2020 expectation. We remain on track to achieve the full benefits of the Shelby investment, which include achieving full run rate on converting equipment, increased sales and supply chain benefits by the end of 2021. Overall, we continue to realize the benefits from the Shelby investment and are utilizing the resulting free cash flows to deliver a balance sheet and increase value for equity holders. Our paper board division produced a stable quarter in Q2, managing through uneven end market segments. Our backlogs were above seasonal averages at the beginning of the quarter, but are now in line with previous years. In the second quarter, we used the free cash flows generated to reduce our net debt by $100 million and increased liquidity to $264 million. As a quick side note, both Mike and I have enjoyed meeting investors and analysts over the past few months, and we appreciate the warm welcome that we have received. We appreciate your feedback, your time, and your interest in our story, and we look forward to our future conversations. On slide four, as I noted last quarter, we continue to focus on our top two priorities, the health and safety of our employees, and the relationships we have with our customers. I'm proud to say that our strong operational execution continues to take care of both. We're continuing to operate with appropriate safeguards against COVID, including temperature checks, sanitation practices, social distancing guidelines, face covering requirements, remote work, travel restrictions, and enhanced benefits. We successfully focused on business continuity and customer service and did not experience any material disruptions in the quarter. I want to commend and thank our employees for their commitment to taking care of each other and our customers and persevering through a challenging period to deliver exceptional results. Our efforts and risk mitigation strategies are making a real difference in helping to reduce the risk of COVID at our sites.