Clearwater Paper Corporation

During the conference, please press the star zero. I would now like to turn the conference over to Sloan Bolin, Investor Relations. Please go ahead.

Thank you. Good afternoon, and thank you for joining Clearwater Papers' third quarter 2021 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 third quarter 2021 were released shortly after today's market closed, along with the filing of our 10-Q. 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 and 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 Arsene.

Good afternoon, and thank you for joining us today. Please turn to slide three. As you saw from our press release, our financial performance exceeded our expectations for the third quarter. On a consolidated basis, the company reported net sales for $450 million, adjusted net income of $9 million, and adjusted EBITDA of $50 million. A few highlights to mention. Our paperboard business continued to see strong demand. Based on that demand, we implemented previously announced price increases across our SBS portfolio. As per our expectations, we saw improving trends in tissue orders and shipments. We completed the last of our major maintenance outages for the year at a Cypress Bend, Arkansas mill. We also completed the closure of the high-cost MENA tissue mill and our exit from the away-from-home tissue segment. We saw accelerating inflation across both of our businesses, particularly in energy, chemicals, wood fiber, and transportation, as pulp reached its peak and started to ease. And finally, we maintained ample liquidity of $270 million at quarter end and reduced net debt by another $7 million. As noted during previous quarters, we remain focused on our top priorities during COVID, the health and safety of our people, and safely operating our assets to serve as customers. We're monitoring the latest trends and are adjusting protocols and policies to keep our people safe. Let's discuss some additional details about both of our businesses. Please turn to slide four for a few comments on our paperboard business. The industry continues to experience strong backlogs, even with a higher SPS pricing that has been reported by Fast Markets Recy, a third-party industry publication. We have benefited from these industry dynamics and previously announced price increases. Since the beginning of this year, Fast Market Cerise has reported price increases for the U.S. market that total $250 per ton in folding carton and cub stock. This includes a $50 per ton increase in October for both grades. We'll continue to see strong demand from our folding carton customers and a recovery in the food service segments. We're also pleased with the reception of our sustainability-focused brands of Nebo Cup and Reimagine folding carton. Both are helping our customers differentiate themselves in the market. It typically takes us a couple of quarters for price changes to be fully reflected in our financials. It is also worth noting that our portfolio includes additional grades and price mechanisms that are not reflected in receipts reporting. We will discuss the estimated impact of our previously announced pricing to our 2021 financials later in our comments. Finally, we completed a planned maintenance outage at our Cypress Bend, Arkansas mill during the third quarter. The financial impact from this outage to our adjusted EBITDA was $5 million. My thanks to the team for completing the outage on time and on budget. Please turn to slide five with some additional comments on our tissue business. We continue to operate in a difficult market environment. As previously discussed, COVID led to significant volatility in tissue demand and retailer behavior in 2020 and 2021. With that said, let me provide you with our point of view on the overall market. In North America, we view tissue demand as being approximately 10 million tons, with annual demand growth of 1% to 2%, slightly exceeding population growth. Pre-COVID, the market was about two-thirds at home and one-third away from home. Using that math, the at-home market is 6 to 7 million tons, of which approximately two-thirds is branded and one-third is private branded. We operate in the private branded market, which is approximately 2 million tons and has grown more quickly than the branded market. In terms of the retailer environment, club and mass merchandisers have gained share at the expense of traditional grocers over the years. As a reminder, we have greater exposure to grocery than the overall market. In terms of supply, tissue capacity additions have primarily targeted the private branded space, with capacity growth exceeding demand growth. Due to this, we believe that private branded manufacturers will operate at depressed capacity utilization levels in the next several years. Let me share some context pertaining to demand trends that we witnessed in the first nine months of the year. Consumers started to return to a more normal lifestyle in the first half of the year as vaccines were becoming available and restrictions lessened. This led to a reduction of at-home tissue purchases and destocking of consumer pantries. Based on IRI market data, consumer purchases, measured in dollars, bottomed out in March. Due to these consumer trends, retailers were faced with higher inventories in the first quarter and into the second quarter. In response, they reduced orders to manage their inventories. Based on RSEI data, retailer shipments of finished goods bottomed out in April. This is largely consistent with our order patterns. We observed demand recovery at the retailer level throughout the third quarter. There was a demand uptick in August related to the emergence of the Delta variant that led to higher orders than we anticipated. September order patterns returned to more normal levels, but we observed another uptick in orders in late October. This volatility is a reminder of the unpredictable nature of our market during COVID. Let me provide some additional detail on our tissue volume trends. We shipped 12.3 million cases in the third quarter, a 21% increase from the 10.2 million cases shipped in the second quarter. This was a bit higher than our guidance of 10% to 15% growth, partly driven by the August demand uptick. We expect demand to be flat in the fourth quarter relative to the third quarter, but there's a high degree of uncertainty in consumer and retailer behavior as we head into the holidays. We will continue to selectively take asset downtime as needed to manage inventories and our cost structure, particularly while pull prices are at elevated levels. With that, I'll turn it over to Mike to discuss our third quarter results. Thank you, Arson.