Clearwater Paper Corporation

Good afternoon and welcome to Clearwater Paper Corporation's fourth quarter and full year 2022 earnings conference call. All participants are in a listen-only mode. After the speaker's presentation, we will conduct a question and answer session. To ask a question, you'll need to press star followed by the number one on your telephone keypad. As a reminder, this conference call is being recorded. I would now like to turn the call over to Sloan Bolin, Investor Relations. Thank you. Please go ahead.

Thank you, Julianne. Good afternoon, and thank you for joining Clearwater Paper's fourth quarter 2022 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 2022 were released shortly after today's market close, along with the filing of our 10-K. 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 that slide two of our supplemental information covering the forward-looking statements, rather than rereading this slide, we were going to incorporate it by reference into our prepared remarks. And with that, let me turn the call over to Arsene.

Good afternoon, and thank you for joining us today. Please turn to slide three. We had a strong year in 2022, but a challenging fourth quarter due to operational and weather-related issues. We reported net sales of $527 million in the fourth quarter and $2.1 billion for 2022. Adjusted EBITDA was $28 million in the fourth quarter and $227 million for 2022. Let me share a few highlights. Prices increased in both paperboard and tissue during the quarter and the year. Private branded tissue share strengthened as consumers sought to offset inflation. Paperboard demand had a robust year, but moderated late in the fourth quarter due to customers managing inventories and a return to more normal seasonal patterns. While inflation started to moderate, it was still a headwind in the fourth quarter. We completed a major maintenance outage at our Lewiston site, but experienced several operational and weather related issues during the quarter. We reduced net debt by $3 million in the quarter and $108 million in 2022 for a total of $377 million reduction since 2020. And finally, we repurchased $5 million of shares in 2022, but did not buy back shares in the fourth quarter. We have $25 million remaining on our buyback authorization. With that, let's discuss some additional details about both of our businesses. Let's start on slide four with a few comments on our paper board business. Since early 2021, the industry has experienced high operating rates with strong demand. As a result, RECIA reported price increases for the US market that total $500 per ton over the last two years, including a $30 increase in October of 2022. We continue to implement our previously announced price increases in the fourth quarter, And based on that, we expect sequential improvements into early 2023. As a reminder, it typically takes us up to two quarters for price changes to be reflected in our financials. It is also worth noting that our product portfolio includes additional grades and price mechanisms that are not reflected in RSEI's reporting. We experienced a moderation in demand late in the fourth quarter. which we believe was due to customers managing inventories after a strong year and a return to more normal seasonal patterns. Prior to COVID, it was typical to see holiday inventory builds take place earlier in the year with a slowdown in activity during the fourth quarter. Converters have historically used this slower time of the year to reduce inventories and take holiday-related downtime. We believe that we're seeing a return to these more normal patterns as customers are becoming more comfortable with a certainty of supply. From a consumer demand perspective, we believe that Paperboard is economically resilient given the end use of the products. Our portfolio in particular skews more heavily towards consumer applications such as food packaging, pharmaceuticals, and cosmetics. In addition, we expect the shift to paper-based products to continue, and we're optimistic that demand for Paperboard will continue to be healthy. Let's turn to our operating results in the fourth quarter. We completed the major maintenance outage at our Lewiston Mill. The good news is that we believe that we will not need to take the next outage until early 2024. Unfortunately, we experienced several setbacks during the outage and startup that resulted in approximately $5 million of negative impact to paperboard adjusted EBITDA versus our expectations. Additionally, we experienced other operational and weather-related issues, primarily at our Cypress Bend Mill that continued into January. These issues impacted our adjusted EBITDA during the fourth quarter by approximately $19 million. We have now put these issues behind us and are taking the opportunity to capture lessons learned to improve our processes in the future. I appreciate our teams addressing these unexpected challenges under difficult conditions through the holidays. Now please turn to slide five for some additional comments on our tissue business. The underlying performance was strong, and we continue to observe consumers shifting their demand toward private-branded tissue products to help offset the impacts of inflation. Private-branded share of the market continues to climb and is approaching 36% based on IRI panel data. We shipped 13 million cases in the fourth quarter, which was 600,000 cases higher than the fourth quarter of 2021, and exceeded our third quarter shipments of 12.6 million cases. The Lewiston Paperboard Mill outage issues also negatively impacted tissue-adjusted EBITDA by approximately $2 million in the quarter. As we previously mentioned, cost inflation has outpaced price increases in our tissue business over the past two years, leading to margin compression. Our team has focused on recovering margins through cost reduction initiatives and implementing previously announced price increases. We did see higher pricing in the fourth quarter and expect additional sequential price benefits into early 2023. We're encouraged by the trends that we're seeing and expect a continued strengthening of our tissue business this year. I will now ask Mike to discuss our fourth quarter results in more detail.