Clearwater Paper Corporation

Ladies and gentlemen, thank you for standing by. My name is Carmen and I will be your conference operator today. At this time, I would like to welcome everyone to the Clearwater Paper First Quarter 2025 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one again. Thank you. I would now like to turn the call over to Sloan Bowen, Investor Relations. Go ahead, sir.

Thank you, Carmen. Good afternoon, and thank you for joining Clearwater Papers' first quarter 2025 earnings conference call. Joining me on the call today are Arson Kitsch, President and Chief Executive Officer, and Sherry Baker, Senior Vice President and Chief Financial Officer. Financial results for the first quarter of 2025 were released shortly after today's market close. You will find a presentation of the 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 financial 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 the supplemental information covering forward-looking statements. Rather than reading this slide, we'll incorporate it by reference into our prepared remarks. And with that, let me turn the call over to Arson.

Thank you for joining us today, and good afternoon. I'm going to structure my remarks across three key areas. First, I'll provide a summary of our first quarter results. Next, I'll discuss our perspective on industry conditions and trends. And lastly, I'll provide an update on the key strategic initiatives that we're focused on in 2025 and beyond. I will then turn the call over to Sherry to provide additional details on our first quarter performance as well as our outlook for the second quarter. Let's begin with an overview of our first quarter results. We delivered $30 million of adjusted EBITDA during the quarter, which was at the high end of our guidance range. This was driven by strong operational performance increased production and sales volumes primarily due to the Augusta acquisition and benefits from our cost reduction work. Our net sales increased 46% to $378 million versus the first quarter of last year, driven largely by the Augusta acquisition. We successfully integrated the Augusta mill into our operation and are now working to capture targeted volume and cost synergies by the end of 2026. We took action to reduce our fixed cost structure by eliminating more than 200 positions across the company, representing around 10% of total roles. We're on track to deliver 30 to 40 million of savings this year versus 2024. Finally, we repurchased approximately $11 million of our shares in the first quarter for a total of approximately 15 million since the new $100 million shared buyback authorization in November of 2024. We're off to a great start in 2025 as a paperboard-focused company, and our efforts on managing factors that we can control are paying off as evident in our first quarter results. Maintaining cost discipline and strong operational execution remain our top priorities as we continue to navigate a challenging market environment. Next, I'd like to provide some commentary on market and industry conditions. Let's start with demand. Based on AFMPA data, industry shipments increased by 2% in the first quarter of 2025 versus the first quarter of 2024. Demand is projected to grow by 3 to 5% in 2025 versus 2024 based on various industry publications, which would result in a return to pre-COVID levels of demand by the end of the year. Our customers are optimistic about their order books as retailers and quick service restaurants are focusing on driving volume and foot traffic through promotional activity. Based on those trends, we're expecting around 5% volume growth in sales and production sequentially from the first to the second quarter of this year. Now let's turn to supply. Industry utilization rates improved sequentially in the first quarter of 2025, to 88% versus 84% in the first quarter of 2024. While this is an improvement, our industry remains below a cross cycle average utilization of 90 to 95%. New industry capacity is also expected to be added this quarter, which will increase SBS supply by up to 10% once the asset is fully ramped. Let me provide some commentary on tariffs. All of our production is US based and around 90% of our shipments go to domestic customers. The rest is primarily exported to Japan, Canada and Mexico. Most of our raw materials are US sourced as well, although some chemicals, pulp and energy are imported primarily from Canada. While it is difficult to predict the impact of tariffs on industry dynamics, we believe that we could be a net beneficiary as domestic customers look for more local supply. Approximately 5 to 600,000 tons of bleached paperboard is imported to North America annually, primarily from Europe, making up around 10% of total SBS supply. In addition, based on our estimates, around 200,000 tons of paperboard finished goods are imported annually, primarily from Asia. Some examples of these finished goods imports include plates, cups, and food service containers. If a portion of these imports swings to domestic supply, we could see improvement in industry operating rates, even as new capacities added. Finally, let me provide you with an update on our key strategic initiatives for 2025. As we mentioned previously, our goal is to strengthen our position as a premier independent supplier of paperboard packaging products to North American converters. We believe that today we have a strong position in the industry, along with a geographically advantaged manufacturing footprint with high quality assets. To remain a preferred supplier to our customers, we're investing in product development efforts to broaden our portfolio. These efforts are split into three categories. The first category is compostable food service products, particularly plates. We have BPI certification and expect to be in the market by year end. The second category is lightweight folding carbon products that don't sacrifice print quality and strength. We're looking at various options to deliver against this, including paper machine upgrades and using mechanical pulp in our products. We believe that we will have a solution ready in 2026. The third category is alternative polyfree barrier technologies. We currently have products in the market that meet this need, but they're costly to produce, which limits broader applications. We're continuing to work on additional barrier technologies that can be scaled up in the market at the right cost structure. In addition to these product development efforts, which are largely based on our existing SBS capacity, we're exploring the potential to expand into additional paperboard substrates. These substrates make up approximately 50% of the paperboard market outside of SBS. This translates into around 5 million tons of North American demand. We're evaluating these parts of the market as well as our options to more effectively compete. The first substrate is coated on bleach craft or CUK. A common application for the substrate is beverage carriers. The substrate uses a similar manufacturing process, but without the bleaching that is inherent to SBS. The other substrate is coated recycle board or CRB, which is used in folding carton applications across a number of consumer good categories. We believe that our customer base needs these products to compete effectively with the large integrated players, and we're looking at options to create this capability. Some of these options are capital driven, while others would involve an acquisition. In addition to looking at new product offerings and expanding into additional substrates, we're intensively focused on continuing taking actions to reduce our overall cost structure. We're targeting 30 to 40 million dollars in cost savings in 2025 across SG&A and operations, which we expect to yield 40 to 50 million annual run rate savings. We previously announced that we took a major step in January with a 10% reduction in all positions across the company, eliminating more than 200 positions in salaried and hourly roles. We're also targeting spend reductions in other areas, including contractors, professional services and maintenance, and expect benefits from these initiatives to continue to ramp through the air. Let me conclude by reiterating our view of the industry. We operate in an inherently cyclical industry driven by supply and demand. While we're currently in a down cycle with utilization rates below 90%, we believe this to be a temporary condition until supply and demand come back into balance. A balanced market would see utilization rates between 90% and 95% with an expected EBITDA margin between 13% and 14%. This could translate to more than $250 million of EBITDA with more than $100 million of free cash flow annually. For now, our primary focus is to improve our overall cost structure while providing high-quality products and superior service to our customers. With that, let me turn the call over to Sherry for a more in-depth review of our financials.