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spk00: 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.
spk02: 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.
spk01: 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.
spk02: Please turn to slide six. The Consolidated Company Summary Income Statement shows third quarter 2021, the third quarter 2020, and the first nine months of each year. In the third quarter 2021, our net income was $2 million, diluted net income per share was 11 cents, and adjusted net income per share was 55 cents. The adjustments incorporate the impacts from the Neenah Mill closure as well as other adjustments. The impact of the NENA closure activities in the quarter was $5.4 million, which was related to severance and related expenses. Corresponding segment results are on slide seven. Slide eight is a year-over-year adjusted EBITDA comparison for our pulp and paper board business in the third quarter. We benefited from our previously announced price increases and a mild improvement with similar sales volumes as last year. Our costs were impacted by $5 million of major maintenance outage expenses and higher inflation and maintenance expenses. You can review a comparison of our third quarter 2021 performance relative to second quarter 2021 performance on slide 14 in the appendix. Please turn to slide nine, where we provide a year-over-year comparison of the third quarter in tissue. Price and mix were a limited part of the story for tissue. Our sales of converted product in the third quarter were 12.3 million cases, representing a unit decline of 15% versus prior year. Our production of converted product in the quarter was 11.4 million cases, or down 25% versus the prior year. Please note that we largely exited the away-from-home tissue segment in the third quarter of this year, which historically represented 3% to 4% of our overall case volumes. While inflation pressure was significant, the action that we took at NENA helped offset some of the higher costs that we faced. You can review a comparison of our third quarter 2021 performance relative to second quarter of 2021 on slide 15 in the appendix. We also have finished other operational and financial data on a quarterly basis on slide 16 for both businesses. Slide 10 outlines our capital structure. Our liquidity was $270 million at the end of the third quarter. During the third quarter, we reduced net debt by $7 million. Maintenance financial cabinets do not present a material constraint on our financial flexibility, and we do not have near-term debt maturities. We continue to target a net debt to adjusted EBITDA ratio of 2.5 times, which we expect to achieve by 2023. Slide 11 provides a perspective on our fourth quarter and full year 2021 outlook with key drivers. Our expectations assume that we continue to operate our assets without significant COVID-related disruptions. As previously discussed, demand visibility in tissue, as well as inflation expectations, have and will continue to be unpredictable. With that said, our expectation for the fourth quarter is adjusted EBITDA of $48 to $56 million. Let me walk you through the buildup to that range from our third quarter adjusted EBITDA of $50 million. Previously announced SPS prices is expected to positively impact us during the quarter by $7 to $9 million, which is helping to offset inflation. Raw material and freight cost inflation is expected to negatively impact us by $7 to $12 million. There are no planned major maintenance outages, which will benefit us given the $5 million Q3 outage. Tissue shipments are expected to be flat while we take additional asset downtime to manage inventories. We are expected to achieve the full run rate benefit of the Nina Mill closure, which we previously stated as being more than $10 million annualized. If we take actuals for the first nine months and add our expectations for the first quarter, we expect adjusted EBITDA of $167 million to $175 million for the full year 2021. We wanted to comment on some of the key drivers for 2021 relative to 2020. We are expecting continued positive impact from previously announced SPS price increases, which are expected to result in year-over-year benefits of $53 to $55 million. In our paper board business, planned major maintenance outages are expected to reduce our earnings for 2021 compared to 2020 by $27 million. Our guidance for 2022 planned major maintenance outages is on slide 20. We expect to have additional major maintenance outages in 2023, and we'll provide an update when we refine our estimates. Our current view is that our tissue volume decline year over year will be slightly above 20%, which is not adjusted for the impact of our exit from the away-from-home business. In total, from 2020 to 2021, input cost inflation, including bulk packaging, energy and chemicals, as well as freight, is expected to be 80 to 85 million relative to our previous estimate of 60 to 70 million. Increasing energy, chemicals and wood fiber prices drove our inflation expectations higher. While pulp pricing has started to decrease, we do not expect for that to have a material impact on our financials until early next year. The Neenah Mill recently generated negative adjusted EBITDA. By closing the site, we'll avoid those losses and lower our overall cost structure by producing our retail volume at other lower-cost sites. These actions are helping us to fully realize the benefits of the Shelby North Carolina Mill investment. In total, the benefit from the Neenah closure is expected to exceed $10 million annually. For the full year 2021, we're also anticipating the following. Interest expense between $36 and $38 million. Depreciation and amortization between $104 and $107 million. Capital expenditures of approximately $42 to $47 million, which is lower than our prior guidance and historical average of around $60 million, excluding extraordinary projects. And our effective tax rate is to be 26 to 27%. Let me turn the call back over to Harsin.
spk01: Thanks, Mike. It has certainly been an interesting year with robust SPS market conditions, significant inflationary headwinds, and volatility in tissue demand. As we mentioned previously, we believe that supply and demand drive near to medium-term pricing and margins. Our paperboard business is benefiting from these dynamics, while tissue remains challenged. I'm proud of how our people have managed these challenges and opportunities. We're committed to a strong finish in 2021 and positioning Clearwater Paper for future success. For the last couple of quarters, I spoke about performance improvement efforts focused on our core operations in the medium to long term. These efforts are well underway and are aimed at offsetting inflationary and competitive pressures that we face in our industry. It is important for us to invest in these efforts to maintain and grow our cash flows in the longer run. We're encouraged by the work to date as we start moving from planning to execution and believe that we are well positioned to combat margin compression in the next several years. Let me remind you why I think these businesses are well positioned in the long run. For our paper board division, we believe that the key strengths of this business are the following. First, we operate well-invested assets with a geographic footprint, enabling us to efficiently service our customers. First, we have a diverse customer base which serves end markets that have largely stable demand. Second, not being vertically integrated enables us to focus on independent customers with unparalleled service and quality commitment. Third, we believe through product and brand development the business is well positioned to take advantage of trends towards more sustainable packaging and food service products. our paperboard business has demonstrated an ability to generate good margins and solid cash flows. Our consumer products division is a leader within the growing private branded tissue market. From our vantage point, we believe the key strengths of this business are the following. First, we have a national footprint with an ability to supply a wide range of product categories and quality tiers, which is an attractive sales proposition to our customers. Our expertise in manufacturing, supply chain, and transportation is a key differentiator. Second, there are long-term trends away from branded products to private brands. Private branded tissue share in the US rose to over 30% recently, up from 18% in 2011. While these trends are impressive, we're still a long way from where many European countries are, in which private brands represent over half of total tissue share. Lastly, Tissue is an economically resilient and an essential need-based product. Historically, demand has not been negatively impacted by economic uncertainty. We're optimistic that this business will generate meaningful cash flows over the long run. We are committed to improving our business to be successful both in the near and long term. And I firmly believe that we will come out of 2021 a better and stronger operation than where we started. In addition, in addition to appropriately sustaining our asset base, our capital allocation plan is focused on paying down debt and improving our cost structure and operating performance. As Mike mentioned earlier, with this plan, we will achieve our near-term target leverage ratio of 2.5x by 2023. Our long-term capital allocation prioritizes maintaining a strong and flexible balance sheet with a focus on shareholder value. we will share additional perspectives on our long-term capital allocation prioritization when we reach our near-term leverage ratio target. In closing, I would like to thank our people for all that they do to keep our operations running safely and efficiently and for servicing our customers. I also want to thank our shareholders for their continued support. With that, we will end our prepared remarks and take your questions.
spk00: Thank you. At this time, I would like to remind everyone, in order to ask a question, please press star 1 on your telephone keypad. Again, that is star 1 to ask a question. We have your first question from Adam Josephson with KeyBank. Your line is open.
spk02: Arson and Mike, good afternoon. Good afternoon, Adam. Good to talk to you. Adam? Mike, I think you mentioned you're expecting 7 to 9 million of SPS price benefits sequentially. Can you talk about just on a full year basis, you know, at this point, investors are obviously starting to think about next year. And so just in annual terms, you produce 800,000 tons a year of SPS. You mentioned $250 a ton of cumulative price increases in the third quarter and October. You mentioned an up to two-quarter lag in implementation. Can you help me with how much of your SBS business is tied to that index that you referenced that's up $250 a ton in the last few months? And based on that and based on the lags that you mentioned, what investors should expect in terms of the potential EBITDA benefit next year, given all that information? Sure, Adam. I'll give you my best shot. And then if you have clarifying questions, please add to it. So in terms of the business itself, you're right, approximately 800,000 tons a year. We talk about a quarter to a third of the business has contracts tied to the fast markets receipt publication. The majority of the business will follow along with those price increases or decreases that we sell on the spot market, but it's just not 100%. So we'll have certain grades that aren't aligned with those price factors and then certain other issues where you won't get 100%, but you'll get pretty close to that. If you take your math of, you know, call it $250 per ton on the 100,000 tons, yes, you can get the $200 million. We'd recommend that you back that off by some amount accounting for the fact that not all of the grade will go along with those price increases. And then what we talked about for this year, we believe that we're going to have 53 to 55 million of the price increases happening here in 2021. The remainder is something that you would put into a model for 2022.
spk01: Adam, and just to clarify something, so RSEI is an index that reports what's taking place in the market. So as Mike mentioned, about a quarter of our volume is tied to the RISI index. The rest is spot market mostly. And that's what RISI reports on and what's already taken place in the market. So it's not as simple as taking $250 times 800,000 tons. There's other grades and there's other pricing mechanisms involved. But the math that Mike walked you through, I think, is largely accurate.
spk02: no i appreciate that i'm just asking because obviously that it's a huge swing factor next year in terms of your ebitda because the maintenance will be flattish i think mike you mentioned you'll get 10 million of annual benefits from the nina closure presuming the tissue market normalizes obviously that could be a benefit and then you have this potentially very significant sbs price benefit so i just thank you for clarifying that because uh it's helpful uh On the tissue side, just to clarify, Nina, we have gotten some of the benefits here in the back half of this year. And I think for your model, you'll want to probe a little bit on inflation as well to make sure that you do that. Yeah, I hear you, Mike. Back to tissue for one moment. Arson, can you just talk about the brief demand spike in August and then in late October? and how the late October spike is informing your view of flat shipments sequentially. In other words, do you expect that strength to hold, or what exactly are you expecting? And why is this – your best guess, why is this happening, these spikes every month or two?
spk01: Yeah, it's a good question. So what we saw in Q3 versus Q2 is our volume was up 20%. If you look at IRI demand, so this is consumer purchases in dollars, it was up about 11%. So the consumer came back and was buying tissue. Again, I think you saw a Delta variant-driven spike in August. and that subsided in September. Now we're seeing another spike of demand coming in late October, early November. It's a little speculative of what's taking place, but I suspect that consumers are hearing about all the supply chain challenges that are out there and some of the shortages that are out there, and I suspect there's another stock-up that's taking place by the consumer as we head into the holidays. And so what happens when the consumer stocks up, retailers carry a few weeks of inventory, they start ordering much heavier to respond to that stock up. And then some manufacturers put retailers on allocation, and then the retailers order more, and the cycle continues until it runs out of steam, and the consumer starts destocking, and we saw what happened in Q2. So I think with October under our belt, with having a good opening day order book into November, we're feeling pretty good about having a good Q4 that's comparable to Q3, although there's been a tremendous amount of volatility even week over week or month over month. But that's our best view right now.
spk02: I appreciate that, Arsene. One more, and then I'll get back in the queue. Mike, back to the inflation issue you mentioned. So You mentioned pulp prices are still elevated for you. Obviously, they've been coming down quite a bit in China and then more recently in the States. Just based on what's happening in that market and what you're seeing with freight, chemicals, energy, et cetera, is it reasonable to assume that the inflation impact next year will be notably different than that which you're expecting this year? Or can you give us any way to perhaps help frame it? Sure, Adam. Thanks for the question. When we looked at our fourth quarter inflation expectations compared to fourth quarter of last year, we're coming in pretty close to about $40 million year over year. So a substantial increase. Energy and chemicals have been the driver of late. We used to talk about the majority of our inflation being pulp-driven. We've since dropped that. Pulp's no longer the majority of the driver here. And so we're seeing some strong inflationary headwinds as we end this year. And the crystal ball is awfully difficult to look at and try to figure out inflation for next year. but we still can be running at a very elevated level like we're seeing here in the fourth quarter. Thanks a lot, Mike. Appreciate it.
spk00: We have your next question from Mike Wild with BMO Capital Markets. Your line is open.
spk02: Good evening, Arson. Good evening, Mike.
spk00: Good evening.
spk02: Mike, I wonder if it's possible for you to just help us put a little finer point on the roll through of these SPS hikes in terms of what we might expect in the fourth quarter. And then also, if you could just address the issue of sort of how you're reading the market right now. I think one of the two larger players in the market was out late last week with yet another $50 loss. So, Mark, thanks for the question. We do think quarter over quarter that the price increase is going to be about $7 to $9 million better off in the fourth quarter versus the third quarter. And so that's what we're currently expecting today, and obviously a sizable increase year over year, a number just north of $25 million year over year. Yeah, okay. So I guess that works out to about $35,000 to $45,000 at times, using 200,000 times as a quarterly base. Yeah, for the incremental improvement quarterly.
spk01: And, Mark, I think your broader question about what's happening in the SBS market, I think we're still seeing even with these price increases, demand is outstripping demand. our ability to supply. So we're continuing to try to service our existing customers. We're allocating volume. We're delaying capital projects into next year to maximize production. I think the market remains very strong as we head into the fourth quarter. You know, we'll talk more about next year in a few months, but the market remains, you know, very robust and very strong. Okay.
spk02: Just one more on SBS. Is there any scenario that you could see over the next two or three years, let's say, where you could see yourselves making any further investments in the packaging business?
spk01: It's a good question. Investments in SBS capacity come in very large increments of dollars. So we haven't talked about our capital allocation in a lot of detail. What we have talked about is making small to medium-sized investments to improve our our operations and efficiency. SBS investments in capacity that are, you know, material are pretty significant. There's certainly opportunity for us to get additional capacity through manufacturing creep, through some smaller projects, but any material increments come at pretty significant capital investments.
spk02: Okay. That's understood. And then I wonder, finally, from my side, Arsene, Your comments in the preamble about the prospects for oversupply in the private label consumer tissue market being something that we have to live with for a number of years, any thoughts on how the industry does any more than just kind of grow its way out of that situation?
spk01: It's a difficult question to answer. If you look at the last several years, while the capacity additions appear to be balanced with broader demand across all the 10 million tons, they're disproportionately aimed at this market, and they're outpacing that demand growth. Uh, so it, to me, it becomes a, an economic question for, for, for, for the industry. Um, and is, uh, you know, what happens with, with higher cost assets? You saw us, um, you saw us taking out, um, higher cost capacity that was no longer economically viable. Um, so it, it is, it is difficult to predict what others are going to do. We we've done, uh, we've done what makes sense for us in terms of, in terms of reducing, uh, reducing our high cost capacity that was no longer economically viable. Okay, I'll turn it over.
spk00: We have your next question from Paul Quinn with RBC Capital Markets. Your line is open.
spk02: Yeah, thanks, guys. Good afternoon. Good afternoon. Maybe I'd start on the consumer product side. Just... You know, you guys, ever since I started covering you, you've been weighted to the grocery store side. Just wondering over the last five years, you know, how much movement you've done to, you know, some of these areas that are growing, you know, to groceries detriment.
spk01: Yeah, we've done quite a bit of movement. You know, we were north of three quarters grocery. We're still more than half grocery, but we've made some substantial inroads into mass and to club. Over the years, there's more to go. We're still overweight in grocery. And if you look at just recent data that's out there, if you look at private branded tissue purchases, if you just take the top three players in the market, and all three of them are in club or mass. They now represent somewhere around 65% of all private branded tissue purchases. So we're still more weighted towards grocery, but that's certainly something we're working on to make sure that we're aligned with where the growth is taking place.
spk02: Okay, and then just sticking with that theme of growth, I mean, you've just shut down Nina, but you've also had this successful and very well-timed startup at Shelby II. When is it time to look at Shelby III or another machine for you guys at some point down the road, given the long lead time on ordering equipment?
spk01: I think first things first, I think we're sticking with our theme of paying down our debt and generating cash flows. That's our priority. We have capacity available to sell. So to your point, if you look at last year, we peaked at about 60 million cases a quarter of sales. If you do back of the envelope, that would apply 64, 65 million cases of capacity. We removed approximately 10 million with an ENA closure, but that still implies capacity in the mid-50s in terms of cases. We are probably going to be, if you do the math in our prepared remarks, we'll be somewhere in that 46, 47 million cases in 2021. So we still think there is another 10 plus percent of capacity that we can sell through to get to utilization rates somewhere in the mid-90s.
spk02: Paul, I'd also add it's a pretty highly fragmented manufacturer market out there as well. And I think we'd have to really challenge ourselves, you know, is it better to build versus to buy and to consolidate? And I think there's probably a lot of good reasons to think about that tradeoff and something that as we approach our leverage ratio, we'll have to challenge ourselves with. Okay. And thanks for the color on the maintenance schedule at the back of the deck. Just wondering how you're thinking about 23 and if you could remind us what that curiosity is for maintenance at both Cypress Bend and Lewiston. We are going to have a major maintenance outage in 2023, which we commented on in the prepared remarks. Paul, we don't have an estimate for you today. When we have a more refined estimate, we'll certainly share that with you and the investment community. Okay. And then just lastly, just on pulp, I mean, I understand you've got some costs, inflation and energy and chemicals, just what everybody else has seen as well, but pulp costs. look like they should come down in a material way. Am I correcting assumption that you're still sort of consuming about 300,000 tons of outside pulp a year and and so that could be material tailwind in in 22.
spk01: You're right, we consume about three 300,000. Most of that is hardwood or eucalyptus. You know, if you look at what's happened since the end of last year into middle of this year, if you look at the Recy index on eucalyptus, I mean, it's up 460 bucks a ton. or about 50%. The last couple of months, I think we've seen about a $50 easing. So for $460 up and $50 down, I think there's still ways to go for this to be a more reasonable market for us. But in terms of the forecast that are out there and what we're anticipating is a continued easing into next year, which should benefit us. Important reminder, it takes us several months for pulp pricing to work its way through our P&L. Just in terms of how our inventory cycles work between pulp, paper, and converted cases, it takes about 90 days for those price decreases to work their way through our P&L.
spk02: Great. Thanks for the help. Best of luck.
spk00: We have your next question from Adam Josephson with KBank. Your line is open.
spk02: Carson, Mike, thanks a lot for taking my follow-ups. Mike, any update on PIEMF? I know that the new administration was looking into potentially some changes that could affect PIEMF. Any update there? And how does your PIEMF exposure factor into your thinking about hitting that 2.5 times leverage ratio by 23 and how much financial flexibility you'll have at that point given your exposure to this pension fund? Great, Adam. Thanks for the question. So as some of you know, PIAF is our multi-employer pension plan that we're party to. There's good disclosure in our 10-K. Earlier this year, the American Recovery Plan Act was passed, which was intended to provide some financial relief to some of the more troubled multi-employer pension plans that are out there. Adam, I think since that plan is passed, They're still working through the rules in terms of who can apply and how you can apply for these funds. Our expectation is that PIEMP will apply for the funds. I do think that PIEMP is probably lower on the priority list for the PPGC in terms of receiving applications. So this is something that we're closely monitoring. And as soon as we get the disclosure that PIEMP has applied for the funds, we will let our investors know. So I think that answers the first part of the questions that you have. In terms of the second part, we don't believe that we owe the AFD associated with time. It's not factored into our 2.5 times leverage target. That target is more a function of our net debt to, let's call it, through the cycle or average EBITDA. So that's what we're focused on when we communicate the 2.5 times leverage ratio target. I appreciate that. Like just a few others. The capex reduction. What was that related to? I think came down by about 10 million from last quarter, and it's obviously going to be below your normalized level. It is below our normalized level. What we'd say there is we're a smaller company, so things will be episodic. This year is coming in a little bit lighter than we thought. Arsene had mentioned in his comments earlier this year we made the determination to move one of our outages into the first quarter. This is a head box project that we have that will actually produce a little bit of incremental volume. Also, I think what we're finding here, Adam, this year just is tougher to get stuff done in the COVID environment, and I think we saw this last year as well. Yeah, I appreciate that. A couple others for you, Mike. On free cash, anything notable in the fourth quarter versus the first three? In other words, is there a reason to expect a meaningful bulge in cash flow in the fourth quarter based on working capital or otherwise? There are a couple of pushes and pulls. The two things that we've talked about, one, our bond interest payments are made in the first and the third quarter. It's roughly a little bit north of $14 million in each of those quarters and no similar payment in the fourth or second quarter. And then secondly, we do have a repayment of the CARES Act incentive that was on payroll taxes and the payroll tax holiday. That's a little bit north of $5 million. Net the two together is probably a little bit better than – a little bit less than $10 million of cash flow impact quarter to quarter, setting aside our projections, financial results, and other networking capital items. That's great, Mike. Thank you. Yeah. Go ahead. Sorry, go ahead. Last year, I think your free cash was north of $200 million. This year, it looks like it's going to be quite a bit below. Obviously, EBITDA is much lower this year. But can you help me with just what, to the extent there's such a thing as a normalized conversion ratio, what you would expect to convert adjusted EBITDA to free cash flow to on a normalized basis, given that $60 million of CapEx that you talked about? I'm not sure there's an easy rule of thumb, Adam, and have to catch up with you later to walk you through various scenarios. But take what you just saw. You have, I think you're right in highlighting CapEx of close to $60 million. Our cash interest is going to be a little bit below that $36 to $38 million that I mentioned, and then you need to put in a number for cash taxes. Okay. we're going to be a cash taxpayer this year, but to a small amount next year to a larger amount. And then it's whatever assumption you want to put in for working capital. Where you see higher inflation, networking capital becomes a little bit of a drag. And I think that's what we're seeing here in 2021. Yeah, no, I appreciate that. But again, Arson, just one last one for you on SPS. So anything Your business has been quite consistent, really, dating back to last year, even when some of your larger peers were having a much more difficult time in that market, which led, obviously, some of them to either shut capacity or convert it to another box board grade. And then, you know, fast forward a few months, the market is as hot as it's ever been. Obviously, you mentioned prices are going to be up $250 in the span of four or five months. Just can you help Frame, in your mind, what changed so dramatically for the industry over the past year or so? I'm sure some of it was the supply reductions. But just when demand really started booming for the market and consequently why the industry's fortunes seemed to change so dramatically in a pretty short period of time?
spk01: I think I'll set the supply changes aside for a moment. If you look at the end markets that we play in, we are much more heavily weighted towards folding carton and retail cup and plate than the rest of the market. So when COVID first happened, it had a disproportionate impact on food service. and print greats, that is not where the majority of our business is. So our markets and markets remain strong. The rest of the industry's markets weren't quite as strong. Now, since then, some of those markets have come back. And you've also seen some supply disruptions over the last 12 months that were weather-related and other disruptions. And I I think we've done a really good job of managing through those disruptions and minimizing the amount of downtime that we've had across our mills. So, A, I think we have good end markets that have been very favorable through this. And, B, I think we've done a really nice job of operating through some of these COVID and weather challenges that the mills have had across the industries.
spk02: I appreciate that. Actually, just one last one for Mike, just on your guidance. I know it's obviously easy to provide full-year guidance at this point. Should we read the fact that you have that full-year guidance as a sign that you might get back to providing full-year guidance, or is that just something you're doing this quarter, given that it's already 4Q and you don't expect to get in the habit of doing that? No, Adam, this time it just was a function of adding the first three quarters to the fourth quarter. But thanks for the question. Thanks so much, Mike.
spk00: We have your next question from Mark. While your line is open.
spk02: You know, Adam did such a good job. He nailed the two remaining questions I've got. I'm all set. Thank you. Thanks, Mark. Thanks, Mark.
spk00: I'm showing no further questions at this time. Presenters, please continue.
spk02: Thank you for participating in the Clearwater Paper third quarter earnest call. With that, operator, we conclude the call.
spk00: Thank you, sir. Ladies and gentlemen, that concludes today's conference call. Thank you for your participation.
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