Thank you for standing by. My name is Dina, and I will be your conference operator today. At this time, I would like to welcome everyone to the Clearwater Paper’s Second Quarter Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. [Operator Instructions] I would like to turn the call over now to Sloan Bohlen, Investor Relations. Sloan, please go ahead.

Thank you, Dina. Good afternoon, and thank you for joining Clearwater Paper’s second quarter 2023 earnings conference call. Joining me on the call today are Arsen Kitch, President and Chief Executive Officer; and Becky Barckley, Corporate Controller and Interim Chief Financial Officer. Financial results for the second quarter of 2023 were released shortly after today’s market close, 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 in the Investor Relations page on 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 2 of the supplemental information covering the forward-looking statements rather than reread this slide, we are going to incorporate it by reference into our prepared remarks. And with that, let me turn the call over to Arsen.

Good afternoon and thank you for joining us today. As you saw in our press release, we had a great second quarter, which was better than we expected, driven by strong operational execution, lower input costs and improved tissue margins. Slide 3 of our supplementals provides a summary of our consolidated results. We reported net sales of $525 million and adjusted EBITDA of $71 million, which is $8 million higher than the second quarter of last year. Our tissue business drove the improvement by more than doubling its adjusted EBITDA from $19 million in the second quarter of last year to $40 million this year. Let me share a few more highlights with you. Prices increased in both paperboard and tissue as compared to the second quarter of 2022. Lower input costs benefited both of our business as compared to the first quarter of 2023, particularly in fiber, energy and transportation. Operational performance was strong, and we balanced supply and demand to manage our inventories. Tissue private branded share reached an all-time high as consumers continue to look for ways to offset inflation. Our tissue demand remained strong, and we delivered outstanding customer service while improving our supply chain costs. Paperboard demand remained soft as customers reduced their inventories due to slowed consumer spending. And finally, we reduced our net debt by $25 million and repurchased 8 million of shares during the quarter, with $15 million remaining on our buyback authorization. With that overview, let me turn to each of our segments and provide some additional details. Let’s begin with our paperboard business on Slide 4. As we noted last year, demand began slowing late in the fourth quarter of last year with that trend continuing through the second quarter of this year. We believe that this was caused by…

Thank you, Arsen. Please turn to Slide 6. The consolidated summary income statement shows results for the second quarter of 2023 and 2022. In the second quarter of 2023, we recorded net income of $29.7 million, net income per diluted share of $1.75 and adjusted net income per diluted share of $1.74. The corresponding segment results are on Slide 7. The key takeaway is that on a consolidated basis, the business performed well with lower cost, stronger operating performance driving a healthy improvement in profitability. Adjusted EBITDA margin rose to 13.6% in the quarter as compared to 12% last year. Slide 8 is a year-over-year comparison of the segment income and adjusted EBITDA for our paperboard business. On a year-over-year basis higher pricing offset higher cost while lower production volumes impacted cost absorption and our overall cost structure. Slide 14 in the appendix shows the sequential comparison of the second quarter to the first quarter of this year. It reflects a lower sales mix, lower production volumes with flattening costs. Slide 9 is a year-over-year comparison of segment income and adjusted EBITDA for our tissue business. As Arsen discussed, we are benefiting from previously announced price increases, higher volume and lower input costs. It is important to note that significant pulp price increases in 2022 did not impact our financials until the second half of the year, leading to a relatively flat cost comparison between the second quarter of this year to last year. Slide 15 in the appendix shows the sequential comparison of the second quarter to the first quarter of this year. It reflects the significant benefits that we are seeing from lower input costs particularly in pulp, energy and transportation. Slide 10 outlines our capital structure. Our balance sheet remains very strong, and our liquidity improved quarter-over-quarter,…

Thanks, Becky. I’d like to conclude the call with a brief overview of how we are prioritizing our capital allocation to create shareholder value. Slide 12 is a framework to our approach. Our top priority is sustaining the competitiveness of our assets. We believe that this requires an average of $60 million to $70 million annually, excluding large projects such as the recovery boiler work in Lewiston and the precipitator replacement in Arkansas. Second, we intend to maintain a balance sheet that provides us with financial flexibility. We now have a much stronger balance sheet than we did a few years ago, and we intend to continue to maintain and improve our position. A strong balance sheet provides us with the capacity to take advantage of investment opportunities, including in the potential down cycle. And finally, we will look at various opportunities to create value through return-generating investments, opportunistic acquisitions and returning capital to shareholders. You saw us do that in the second quarter by repurchasing $8 million worth of our shares. We’re going to continue to be disciplined allocators of capital, and we’ll seek the right opportunities to create value across both of our businesses. The team delivered a strong second quarter, and we’re optimistic about our business in the second half of this year. Let me close by thanking our people for all that they do to keep our operations running safely and efficiently. I would also like to thank our customers for placing their trust in us and our shareholders for their continued support. With that, we will end our prepared remarks and take your questions.

Thank you. [Operator Instructions] Your first question comes from Paul Quinn from RBC Capital Markets. Paul, please go ahead.

Yes. Thanks very much. Hey guys. Just maybe start with your Consumer Products segment. The stats for the second quarter came out this morning, it sort of shows pretty lackluster North American tissue production and drop in operating rates. How are you able to, it sounds like your tissue is going ancestor, especially in the second quarter? How are you able to compete the competition right now?

I think our demand is pretty strong and pretty stable. And as I’ve mentioned previously, we have no material contract risks this year. So private branded shares up our – our customers generally speaking are doing well, and I think we’re doing a really good job of supporting them. So we have strong sales, and I think the operating rates in the industry are also fairly – are fairly high, so it’s – for us, at least, our demand is strong and we’re able to support that demand.

Okay. And then slide, I think its 15 shows sort of a sequential improvement in that $15 million drop in cost. Is that all to do with pulp?

A lot of it is pulp. We’re also benefiting from transportation and energy as well in tissues sequentially, but pulp is going to be a big story this year.

Okay. And then Arsen, you mentioned that three-month lag in pulp to really hit the bottom line. So this is really the drop in pulp pricing in Q1 that really comes into factor that $15 million in Q2?

That’s part of the story. So it’s – if we go back on pulp, there’s two important points there, Paul. The first one is pulp peaked in the second half of last year. And as you mentioned, takes us approximately three months for that to flow through our P&L. So actually, if you look at the first half of this year versus the first half of last year, our pulp prices are actually slightly higher, but we’re seeing a meaningful sequential drop in pulp prices.

Okay. And then if I just switch over to the paperboard side. You mentioned the drop in folding carton pricing – next pricing. When you mentioned that your 35% to 40% indexes, is that to that folding carton price? Or is that to another RISI index price?

I think, generally speaking its folding carton and cup. I think those are the two prices that RESI indexes. So we’re depending on the customer and depending on the volume, it’s one of those.

Okay. And then just on the CapEx spread that you’ve got, I suspect the precipitator down in Arkansas is kind of a maintenance type thing, you’re not expected to get any kind of lower costs or benefits as a result of that. What about the recovery biller, any pickup in lower cost going forward?

I think, generally speaking both of these are maintenance types of projects. There’s probably some mild benefits with the precipitator, but we view that as largely a replacement project. We’re replacing something that’s decades old. So there should be some better performance coming out of it and better reliability, but largely we view those as the replacement projects.

Okay. And then the last question I had, just on capital allocation. I mean, it looked like your balance sheet is in great shape when you repurchase a heck a lot more shares than 263 in the quarter?

Paul, as I mentioned in our framework, I think we take an opportunistic approach to our share buybacks. So we’ll we increase our purchases when we see a better value. So we purchased quite a bit – quite a few more shares this quarter than last quarter, but I’ll just leave it at that.

Well, it seems to reckon that given the share price is right about what you purchased the shares in Q2. I suspect you’ve got a clear opportunity in Q3 as well.

Well, we’ll continue to look at that and buy back shares up our operations call.

I see that you do. That’s all I had. Thanks.

Thank you, Paul.

Ladies and gentlemen that concludes today’s call. Thank you all for joining, and you may now disconnect.