Good afternoon. My name is Briana, and I will be your conference operator today. At this time, I would like to welcome everyone to the Clearwater Paper First Quarter 2024 Earnings Conference Call. [Operator Instructions] I would now like to turn the conference over to Sloan Bohlen, Investor Relations. Please go ahead.

Thank you, Briana. Good afternoon, and thank you for joining Clearwater Paper's First Quarter 2024 Earnings Conference Call. Joining me on the call today are Arsen Kitch, President and Chief Executive Officer; and Sherri Baker, Senior Vice President and Chief Financial Officer. Financial results for the first quarter of 2024 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 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 2 of the 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 Arsen.

Good afternoon, and thank you for joining us today. As you saw from our press release, we had a great first quarter driven by the continued outstanding performance of our tissue business and lower input costs. We also generated strong cash flows and reduced our net debt by an additional $33 million during the quarter. This resulted in 1.38 times leverage ratio at the end of the quarter. Slide 3 of our supplementals provides a summary of our consolidated results. We reported net sales of $496 million and adjusted EBITDA of $62 million, which is at the higher end of our expectations. Our tissue business drove the improvement by more than doubling its adjusted EBITDA from $19 million in the first quarter of last year to $46 million this year. Our paperboard business delivered $34 million of adjusted EBITDA in the first quarter at a margin of 14%, even as the business was significantly impacted by a severe weather event that disrupted our Lewiston operations in January. Let me share a few highlights with you. Tissue demand remained strong and we saw an improvement in customer demand for paperboard with higher order entry and growing backlogs. Pricing for paperboard decreased by 11% as compared to a year ago, which reflects market conditions and pricing trends as reported by RISI. Both businesses experienced favorable input costs as compared to the first quarter of 2023, particularly in wood fiber, pulp, energy, and freight. We estimate that the Lewiston weather event impacted us by $15 million to $17 million during the quarter, primarily in our paperboard business. We repurchased $1 million of our stock with a goal of offsetting shareholder dilution due to employee stock grants. Finally, we have made significant progress on our planned acquisition of the Augusta, Georgia Paperboard manufacturing facility…

Thank you, Arsen. Let's cover our financial performance in the first quarter by turning to Slide 6. The summary income statement shows our first quarter results for 2024 and 2023. In the quarter, we earned net income of $17 million, net income per diluted share of $1.02, and adjusted net income per diluted share of $1.43. As Arsen noted, the quarter was negatively impacted by the January weather event at our Idaho paperboard facility. Despite that headwind, our consolidated results came in at the higher end of our expectations for the quarter and we believe we are well positioned for a strong 2024. Our corresponding segment results can be seen on Slide 7. As noted, our consolidated adjusted EBITDA came in at the higher end of our guidance range, but slightly below last year and the previous quarter. Adjusted EBITDA margins remain stable at around 12%. As we turn to Slide 8, we can see the year-over-year comparison of adjusted EBITDA for our paperboard business. The segment produced $34 million of adjusted EBITDA at a margin of 14%. On a year-over-year basis lower sales prices negatively impacted results, which was partially offset by lower input cost. The impact of volume between periods was heavily influenced by the downtime caused by the severe weather event in January. Slide 13 in the appendix shows a sequential comparison of the first quarter of this year to the fourth quarter of last year. It reflects a negative price and mix impact, relatively stable volumes and lower cost. On Slide 9, we bridge the year-over-year comparison of adjusted EBITDA for our tissue business. We saw some price erosion due to index pricing mechanisms tied to pulp in the first quarter of 2024 versus 2023. We continued to benefit from lower input costs as well as…

Thanks Sherri. I'm pleased with our first quarter performance and remain optimistic about our prospects for the full year as we see signs of recovery in paperboard market conditions and continued strength in tissue. I'm also looking forward to completing the Augusta acquisition and welcoming the Augusta team to Clearwater Paper. As I mentioned on our last call, our long-term objective is to build a scaled and diversified paperboard business that meets the needs of our converter customers. The Augusta acquisition is a big strategic step for Clearwater Paper and we intend to continue to opportunistically look at other paper assets as we execute our strategy. We will also continue to evaluate the feasibility of investing in our existing assets to broaden our product offering. While we look at additional opportunities in the long run, our near-term focus is on capturing value from the Augusta acquisition, generating cash flows, and deleveraging our balance sheet. We have a proven track record of deleveraging and expect to be back to our cross-cycle target of 2.5 times by the end of 2026. Let me wrap by thanking our people for a strong start to 2024. We delivered a strong quarter, even as we managed through some very difficult operating conditions caused by the weather event at our Lewiston facility during the quarter. And as always, I would also like to thank our customers and shareholders for their continued support and for placing their trust in us. With that, we will end our prepared remarks and take your questions.

Thank you. [Operator Instructions] Your first question comes from Matthew McKellar with RBC Capital Markets. Please go ahead.

I'd like to start just asking a couple of questions around your guidance. I know you spoke to the idea that you'd provide more information with coming quarters. But can you give us a sense of how we should expect maintenance CapEx at Augusta to sort of trend on a run rate basis? And then to any degree you could quantify the partial insurance recovery for the event at Lewiston? That would also be helpful, thanks.

Let me start with the Augusta question and then Sherri will take the insurance question. So, at this point we are looking forward to closing here very shortly and once we get in there, we'll have a much better idea of how these fits into Clearwater and the financials. So, it's a little premature for us to be providing any kind of guidance for balance of the year around Augusta. But I think we'll provide more information in upcoming quarters.

So Matt, of the $15 million to $17 million, that was the full impact that we saw in Q1, that is the full amount of the claim. We do have a $4 million deductible and we expect to see some partial recovery in the second quarter. So that process is still ongoing with the insurance carrier, but we do expect to see some funds flow within the second quarter.

Maybe shifting over next to tissue pricing. It looked like prices slipped a bit quarter-over-quarter. Can you just clarify at all whether that was a mix issue or if you saw some compression on a like-for-like basis? And then how are you expecting pricing to trend, I guess, go forward here given that operating rates seem pretty solid and that we have rising pulp prices, which could maybe support taking some price as well?

We'll avoid commenting on future pricing. But in terms of just sequential, the slight drop that we saw, it's really largely around that about a quarter of our volume is under contract, that's partially tied to a RISI pulp index. I know pulp prices are going up, but just the way it's measured, pulp prices were coming down through most of last year. So, I think the bulk of that price decrease that we're seeing is related to that. I think the rest can be chalked up to some mix issues. I think tissue market conditions remain strong, utilization rates are high. We're operating really well and I think you saw that in our quarterly EBITDA results.

May be sticking with pulp prices, can you just remind us is it still fair to think of there as being about a three-month lag in terms of how that flows through to your results? And then given that rising trend, is it still fair to think that you're expecting your leverage to peak out debt 3.5 to 4 times following the Augusta acquisition?

Yes, I think 90 days is -- three months is a good rule of thumb kind give or take just the way pulp moves through our manufacturing process and inventory. So, if you look at pulp prices, they have increased sequentially quarter-over-quarter. And they just, I think just now if you just look at the indices have arrived to where they were on average in 2023. So, there are some interesting timing trends. Pulp prices were falling through 2023. I think they hit their bottom somewhere in that Q3 time range and then they started slowly creeping back up and obviously a greater impact here in the first quarter. If you look at softwood versus hardwood, you know this, Matthew, there have been a number of closures in softwood in North America. I think that's tightening up capacity. I think in the long run, if you look at hardwood and you look at the forecasts that are out there beyond the next couple of quarters, they indicate a lower hardwood, especially eucalyptus pulp prices as capacity comes online globally.

And then on your second piece, Matt, the expectation is still that there would be a peak leverage between that 3.5 and 4 times. That is still correct.

May be one on your cost of fiber more generally. We've seen a few softwood lumber mill closures in Montana over the past few months here. Do you expect any impact to your cost of residuals for Lewiston? I would expect that's probably outside your procurement radius, but just wanted to confirm.

I don't have those numbers at the tip of my fingers. But generally speaking, I think you're right. So, in the Northwest it's largely a residual market where higher operating rates at the lumber mills are beneficial to us and in the Southeast it's a whole log market. So, I don't have specific information around some of the impact of some of the closures that we've seen. But just overall, I think we expect in total across the company, we expect wood to be a net positive this year versus last year, especially in the first half of this year versus the first half of last year. So that's across Arkansas and Idaho, we expect for wood to be a good guy.

May be just focusing in on the paperboard market a little bit, it sounds like that market is firming up and you're seeing better trends there. Can you talk about what you may be seeing to start Q2 and maybe call it any pockets of strength and weakness by end market that you might be seeing?

No specific comments on end markets. I think we're seeing a nice recovery happening and you saw in the AF&PA data utilization rates were up. Shipments were up in Q1 versus Q4. So, we're seeing those same trends and customers have positive outlooks here for the balance of 2024. We're expecting at this point, from where we sit to be running full for balance of the year. We do have a major outage which will have some impact on our production. But outside of that, our expectation is to run full this year for the remainder of the year.

And maybe last one from me and please correct me if I'm wrong. But I think your collective bargaining agreement at Cypress Bend for hourly employees would expire in July. Can you talk about that event and tone of discussions you've been having so far and maybe what we should expect, just given a sort of general inflationary environment for labor?

I think I'll stay away from commenting on expectations. I think generally speaking, we have very good relationship with our unions, and I think we're looking forward to a good constructive dialogue as we have had historically in Arkansas.

That's all from me. I'll turn it back. Thanks.

Seeing no further questions at this time, this will conclude today's conference call. Thank you all for your participation.