Clearwater Paper Corporation

Ladies and gentlemen, thank you for standing by and welcome to the Clearwater Paper 4Q20 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 this 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 speaker today, Sloan Bolin, Investor Relations. Thank you. Please go ahead.

Thank you, Mariana. Good afternoon, and thank you for joining Clearwater Papers' fourth quarter 2020 earnings conference call. Joining me on the call today are Arsene Kitsch, President and Chief Executive Officer, and Mike Murphy, Chief Financial Officer. Financial results for the fourth quarter of 2020 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, posted on the investor relations page of our website at clearwaterpaper.com. Additionally, we will be providing certain non-GAAP 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 prepared remarks. 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 another outstanding quarter driven by strength in both our tissue and paperboard businesses and excellent operational execution. On a consolidated basis, the company reported net sales for the fourth quarter of $453 million and adjusted EBITDA of $72 million, which represents growth of approximately 4% and 38%, respectively, over the fourth quarter of last year. A few business highlights to mention. Our tissue business drove results with both higher sales and production volumes year over year to meet volatile demand, which exceeded our expectations. Our production in the quarter was similar to our sales. Our paperboard business delivered strong performance as well. Our backlogs are robust, which contributed to our decision to announce a price increase of $50 per ton across our SBS portfolio starting on February 2nd. In the fourth quarter, we used the free cash flows generated to reduce net debt by an additional $58 million. On slide four, as I noted over the previous quarters, we remain focused on our top priorities during COVID, the health and safety of our people, and safely operating our assets to service our customers. Our efforts and risk mitigation strategies are making a difference in helping to reduce the risk of COVID at our sites. Our human resources and manufacturing leadership teams are doing an exceptional job of proactively monitoring the health of our workforce and ensuring that we have the proper staffing levels in place. Our people's diligence to date has been key to our success and will continue to be so. As a recognition of the work by our entire team during this challenging time, we've paid out a one-time discretionary bonus of $1,000 in November to over 2,800 of our people. We're also strongly encouraging all our people to get the COVID vaccine with a $200 incentive. I would like to express my deepest gratitude to our entire team for their extraordinary efforts and perseverance through this challenging time. As we start to see the benefits from a broader vaccine rollout, I want to encourage maintaining high levels of vigilance until COVID is under control and behind us. I will now share what we saw for both the tissue and paperboard businesses in the fourth quarter. Let's start with our consumer products division on slide five. As we had previously noted, at-home tissue demand was volatile during the quarter. New waves of the pandemic caused significant spikes in demand mid-November through mid-December. While we originally anticipated demand at or below levels that we saw in the fourth quarter of 2019, we were reminded of how unpredictable demand can be for essential products during this time. Mike will expand further on demand patterns in the fourth quarter during his comments. Our team and customers are doing a great job working through this volatility, and we benefited from higher than anticipated sales and production volumes in the fourth quarter. Our industry view remains largely the same, which I'll summarize in a few key points to provide some context. First, recall that the market for tissue in the US is traditionally two-thirds at home and one-third away from home, with limited manufacturing production capability to swing between the two. As consumers have been more homebound, there has been a shift towards at-home consumption. Demand swings have and will continue to be driven by consumer behavior. Our expectation is that as COVID vaccines are administered and infection rates decrease, that we will see a shift back to away from home consumption, which we expect will negatively impact us as we're primarily focused on the at-home market. With that said, it is unclear if there will be a lasting impact on consumer behavior in a post-COVID environment. Second, while it is too early to discern private branded share trends, we continue to note that paper towel demand is tracking ahead of the overall tissue category while facial demand is lagging. Private brands have had a good track record of gaining share relative to branded products over the past decade, a trend that we would expect to continue. We will continue to monitor these trends in the coming months and quarters due to the continued uncertainty in consumer demand associated with COVID. Third, as we noted in previous quarters, SKU rationalization has occurred, aiding additional production. We believe that lower SKU counts benefit both retailers and manufacturers like us. While we have seen some customers desiring a recovery of SKUs, we do not anticipate SKU counts to go back to pre-COVID levels in the near to medium term. Our tissue results in the fourth quarter were robust. We shipped 13.9 million cases, which was up around 5.3% compared to the fourth quarter of 2019. This was a positive surprise driven by a spike in consumer demand that started prior to Thanksgiving and lasting for a few weeks. sales were down 4.2% relative to the third quarter of 2020. As we mentioned on our third quarter earnings call, we exited several customers to reduce complexity and improve our network, which impacted the fourth quarter results and is expected to impact first quarter 2021 results as well. We are encouraged by our pipeline of sales for the remainder of 2021. Please turn to slide six so that I can share a few comments on our paperboard business. As you recall, we estimate that approximately two-thirds of paperboard demand is derived from products that are more recession resilient, and one-third is driven by more economically sensitive or discretionary products. Our folding card customers, especially those with concentrations in food or healthcare packaging, continue to see strong demand. And our food service customers, especially those with concentrations in quick service restaurants and away from home dining, continue to see weaker demand. We're pleased with the market reception of our sustainability-focused brands of Nouveau Cup and Remagine Folding Carton. Both are playing a meaningful role in our favorable market position. We're encouraged by our solid performance in the quarter and continued strong demand for our products. We made an announcement last week about the natural gas curtailment in Arkansas that caused us to temporarily suspend production in Cypress Bend. Natural gas deliveries were curtailed to the point where we could no longer operate. We are now back up and running thanks to the tremendous efforts by our team to protect our assets from significant damage due to the cold weather. We estimate that the cost associated with a weather event across our paperboard system including lost production, repairs, and spikes in natural gas prices, could impact us in the first quarter by approximately $6 to $8 million. We continue to experience the same fundamental supply and demand dynamics that led us to announce a $50 per ton price increase in January. Demand remains robust, and our backlogs have grown since beginning of the year. Price increase implementation has begun, and we expect that it will take several more months to fully implement the increase. With that, I'll turn it over to Mike to discuss our fourth quarter results.