KP Tissue Inc.

good morning ladies and gentlemen thank you for standing by welcome to the KP tissue second quarter 2023 earnings conference call at this time all participants are in listen-only mode following the presentation we will conduct a question and answer session to join the question queue you may press star then one on your telephone keypad should you need assistance during the conference call you may signal an operator by pressing star then zero Before turning the meeting over to management, I would like to remind everyone that this conference call is being recorded today, Thursday, August 10th, 2023. I would now like to turn the call over to Mike Baldessara, Director, Investor Relations. Please go ahead.

Thank you, operator, and good morning. Ladies and gentlemen, my name is Mike Baldessara. I'm the Director, Investor Relations of KP Tissue, Inc. The purpose of the conference call is to review the financial results of the second quarter of 2023 for Kruger Products, Inc., which I'll refer to as Kluber Products going forward. With me this morning is Dino Bianco, the Chief Executive Officer of KP Tissue and Kluber Products, and Mark Holbrook, the Chief Financial Officer of KP Tissue and Kluber Products. The following discussions and responses to questions contain forward-looking statements concerning the company's activities. Forward-looking statements involve known and unknown risks and uncertainties, which could cause the company's actual results to differ materially from those in the forward-looking statements. Investors are cautioned not to rely on these forward-looking statements. The company does not undertake to update these forward-looking statements except if required by applicable laws. There's a page at the beginning of the written presentation which contains the usual legal cautions, including as to forward-looking information, which you should be aware of. I'd like to point out that the figures expressed in today's call are in Canadian dollars unless otherwise stated. The press release reporting the Q2 2023 results were published this morning and will be accessible from our website at kptissueinc.com. Please be aware that our MD&A will be posted on our website and will also be available on CDAR. Finally, I would ask that you, during the call, to refer to the presentation we prepared to accompany these discussions, which is also available on the website. We'd also appreciate that during the Q&A period for you to limit your questions to two. Thank you for your collaboration, ladies and gentlemen. I'll now turn the call over to Dino Bianco, our CEO. Dino? Thank you, Mike.

Good morning, everyone, and thank you for joining us for our second quarter earnings call. We are pleased that margin recovery, along with improved sales volume and a better mix in our consumer business, generated strong adjusted EBITDA in the second quarter of 2023. Ongoing cost management initiatives, including productivity gains and cost controls, also contributed to increasing profitability. In addition, our away from home segment delivered a fourth consecutive quarter of positive adjusted EBITDA to maintain its growth momentum. As a result, our financial performance in the second quarter normalized versus a more challenging market and operating environment in the same period last year. On a sequential basis, revenue and adjusted EBITDA continue to improve with solid incremental growth. Looking ahead to the second half of 2023, we anticipate an increasingly favorable landscape as input costs trend downwards, Tad Sherbrooke and the Sherbrooke Expansion Project continue to ramp up production capacity to meet customer demand, and margins are restored to their pre-pandemic levels. Now let's take a look at our quarterly numbers on slide six. Revenue increased 17.3% to $466.3 million in the second quarter of 2023 on the strength of selling price increases across all segments and regions in 2022. A favorable sales mix and higher sales volume in our consumer segment, as well as positive foreign exchange impact on U.S. dollar sales. Revenue in Canada rose 10.8% year-over-year in the second quarter, while in the U.S. it grew 27.1%, as the market benefited from strong volume from both our consumer and AFH segments. Adjusted EBITDA was up 365.8% year-over-year to $55 million in the second quarter, off a low 2022 base due to several factors, including selling price increases, favorable sales mix and higher sales volume, Memphis plant operations improvement, and lower freight rates. These factors were partially offset by inflation on manufacturing costs, higher warehousing, and SG&A expense, and an unfavorable foreign exchange impact. On slide 7, pulp average prices in Canadian dollars decreased double digits in the second quarter of 2023 from the previous quarter, while year-over-year prices declined to a lesser extent. NVSK and VEK average prices fell 8.9% and 11.4% year-over-year in Q2 2023. And based on industry analysis, pulp prices are near or at the bottom of the price cycle. Let's move on to our Sherbrooke operations and expansion on slide 8. TADS Sherbrooke continues to perform well, surpassing production expectations on the paper machine and converting. Both our facial line scheduled to launch late in the fourth quarter and our paper machine slated for the end of 2024 are still tracking to plan, but we are keeping a close eye on supply chain and inflationary pressures. I'm also pleased to report that the startup of our most recent converting line, which was started up in Q1 2023, was the fastest of all our Sherbrooke converting lines due to OpEx learnings, staff maturity, and artificial intelligence implementation. As we look to the new facial line and paper machine, the hiring process is progressing well and we are continuing to onboard employees to manage those lines. Turning to our Memphis operations on slide nine, we have maintained our focus on TAD manufacturing for both converting and paper machine assets after the shutdown of our LDC assets earlier in the year. The new facial tissue line, which was recently strengthened with digital twin AI tools to optimize productivity, continues to exceed its ramp up curve. Sales volume and the cost structure have also improved at Memphis during the last two quarters, while employee turnover has stabilized following the shutdown of the legacy operations. Now let's pivot to brand support on slide 10. As indicated last quarter, we plan on reinvesting in our brands to recover share in 2023. Q2 2023 marketing was focused on multi-brand activities highlighted by the NHL Bring Home the Stanley Cup promotion that offered three pairs of VIP experiences to winning participants for the Stanley Cup finals. Other key marketing activities during the quarter included our Made in Canada drive to support the positioning of our Canadian brands, the successful launch of the second chapter of our unapologetically human campaign entitled Love is Messy, the release of new Scotty's house and home designs in facial tissue. And finally, we continue to make strategic shopper investments behind white cloud at key accounts in the US. Moving to slide 11, the data presented is taken from Nielsen. It shows market share performance over a 52-week period ended June 17, 2023. The data reflects that Kruger product share has incrementally improved from the previous quarter, particularly for bathroom tissue and paper towels. We're seeing improvement in our branded products driven by pricing stability in the marketplace and a return to a more normalized promotion agenda at retail. Looking at away from home on slide 12, volume strength reflects market recovery and accelerated growth at some key customers. As mentioned earlier, this business delivered a fourth consecutive quarter of positive adjusted EBITDA in Q2 2023, as we are seeing structural signs that this profitability is sustainable. However, we will keep monitoring the potential impact of any economic slowdown on this business. I will now turn the call over to Mark.