Welcome to Clearwater Paper Corporation's Second Quarter 2016 Earnings Conference Call. As a reminder, this call is being recorded today, July 21, 2016. I would now like to turn the conference over to Ms. Robin Yim, Vice President, Investor Relations of Clearwater Paper. Please go ahead.

Thank you, Danielle. Good afternoon and thank you for joining Clearwater Paper's second quarter 2016 earnings conference call. Joining me on the call today are Linda Massman, President and Chief Executive Officer; and John Hertz, Chief Financial Officer. Financial results for the second quarter were released shortly after today's market close. You will find a presentation of supplemental information, including an updated outlook slides providing the company's current expectations and estimates for an adjusted EBITDA range for the third quarter and the full year of 2016 and certain costs, pricing, shipment, production and other factors for the third quarter of 2016 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 or in the supplemental material provided on our website. I would like to remind you that this presentation contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 as amended. These forward-looking statements are based on current expectations, estimates, assumptions, and projections that are subject to change, and actual results may differ materially from the forward-looking statements. Factors that could cause actual results to differ materially include those risks and uncertainties described from time to time in our filings with the Securities and Exchange Commission including our Form 10-K for the year-ended December 31, 2015, and Form 10-Q for the quarter ended, March 31, 2016, as well as our earnings release and supplemental information. Any forward-looking statements are made only as this date, and the company assumes no obligation to update any forward-looking statements. John Hertz will begin today's call with a review of the financial results for the second quarter and Linda Massman will provide an overview of the business environment and our outlook for the third quarter of 2016. And then we'll open up the call for the question-and-answer session. Now I'll turn the call over to John.

Thank you, Robin. Q2 was a great quarter for the company. We delivered $66 million or 15.2% of adjusted EBITDA margins which was above the high end of our outlook range of $64 million and just above our target model EBITDA margin of 15%. In addition, adjusted EPS reached a record high of $1.37. Before I get into the details of our second quarter results, I'd like to preface my comments by stating that throughout the rest of my remarks, I will be distinguishing between GAAP and non-GAAP or adjusted results. The adjusted results exclude certain charges and benefits that we believe are not indicative of our core operating performance. The reconciliation from GAAP to adjusted results is provided in the supplemental slides posted on our website. For the second quarter of 2016 those items totaled approximately $4 million of pretax expense and are comprised of an approximate $3.5 million charge related to the mark-to-market adjustments to our outstanding directors' common stock unit and a $500,000 charge associated with the closed Long Island New York facility. So with that let's get to our results. Our second quarter net sales came in at $437 million. That is about flat with the first quarter and below the low end of our outlook of up 1% to 3%. Our richer product mix in tissue was offset by lower shipment volumes in paperboard. The strong dollar continues to put pressure on the export of commodity grade paperboard from the U.S. and we are competing with that incremental supply that is staying in North America. Versus Q2 2015, net sales were down 1.8% due primarily to a 5% year-over-year decline in SPS pricing and a 3% decline in volume resulting from lower than expected SPS shipments. That was partially offset by an improved product mix…

Thanks, John. Hello, everyone, and thanks for joining us today. I am pleased to report an outstanding quarter with results that were comfortably above the high end of our adjusted EBITDA and adjusted operating margin outlook for the quarter, along with a record high adjusted EPS of $1.37. I would also like to add that in May, Clearwater Paper was a recipient of the 2016 Rainforest Alliance Standard-Setter Award for Excellence in Advancing Sustainability and Climate Goals. I'm pleased with the work our team has done and to be recognized for our commitment to protect our forest and our environment. Our Consumer Products business continued to improve into the second quarter, retail and converted case shipment volumes picked up and we ship product to a new customer. More importantly, operating efficiency and profitability gains held through the second quarter and the quarterly CPD adjusted EBITDA margins ticked up to 13.4% and remains the highest in more than three years. For the Pulp and Paperboard business, shipment volumes were affected by global currency impacts and as expected pricing in the second quarter declined by about 40 basis points from Q1. Our PPD backlogs have improved and are stable and tracking slightly above levels for the same period last year. We continue to see price pressure as the strong U.S. dollar has negatively impacted the SPS export market. We have made excellent progress with our strategic capital investments in the second quarter. The multiyear pulp digester and optimization project remains on schedule and within budget. The excavation and foundation are completed in a new 1,000 ton high density storage just for pulp stock is nearing completion. Our engineering team periodically inspects the digester vessels under construction and confirm that this is progressing within specification and on schedule. Regarding warehouse automation our Shelby,…

[Operator Instructions]. And our first question comes from Paul Quinn from RBC Capital Markets. Your line is open.

Yes, thanks, and good afternoon.

Hi, Paul.

Hey just couple of questions, one on the Arkansas boiler reimbursement, maybe if you could give us a little bit more background, I wasn't expecting that, I'm not sure whether you are expecting that or is this on your insurance proceeds?

No, it's not insurance, so it was back in the 2013 timeframe, we had a fairly significant project to improve both the emission standards as well as the efficiency of the Arkansas boiler. That did not go great and in fact things kind of got worse before worse than they were before we did the project and we're having to spend incremental money on chemicals and such just to kind of limp along until we fix all that in last year when we were down in Arkansas. And that was about $10 million to $12 million of call it incremental cost that we incurred over the 2013 to 2015 timeframe. We -- I don't know if we recall that we typically highlighted that in our quarterly calls or the bridges. So we were able to get some of that back in kind of negotiations with the supplier and we've got $3 million back which wasn't the full amount but it was better than zero.

Okay. So we do not expect any more money coming back from that?

No.

Okay. And then just on the Lewiston power outage that $4 million to $5 million hit, you expect in Q3, is that insured?

So we do have business interruption insurance and that's something that we've already been in contact with the provider and it's something that we will obviously pick that when we get it but it's - we got to work through the process first.

Is there a expected timeline on that?

It could be by the end of third quarter and I don't know if -- it's kind of again tied between right by the end of the third quarter and may be early part of fourth quarter.

Okay. And it looks like you had really good operating results in the quarter just wondering, just turning to strategic investments, pretty impressed with the improvements on the operations just wondering it -- from where we sit anyways it looks like the warehouse, warehouse automation is a little bit slower than we anticipated. Is that your expectation as well?

Well, when we got into the, we expected to be kind of fully humming on warehouse automation as we left the first quarter in Shelby. But it was a little bit more complicated than we thought in the finished goods warehouse. And so much of Q2 was getting that nailed where we thought we would just be flying on it and so that's probably why you're seeing less than may be what you expected in the second quarter.

Okay. And then just lastly just on in the paperboard markets I think Linda you referenced RISI's expectation for some potential headwinds in the back half of the year, is that your expectation as well?

I think we're still seeing price competition, so I wouldn't rule it out. I'm not sure if it gets continued increasing impact from competitive pressure but I think it's at least remains stable.

You mentioned just backing up I guess exports in out of North America, what about import pressure is, have you seen continued increase in imports into North America?

I think those have been relatively stable or at least immaterial from our perspective. We do see some obviously we're seeing some ivory board out west and Scandinavian board out east but I wouldn't call any of that impact substantial from what we can see and I think you know the overall sentiment for us with regard to the SPS market is it's performing consistently with what we have been talking for the last couple of quarters and seems relatively stable.

Great and great result. Thanks so much. That's all I had.

Thanks, Paul.

Thank you. And our next question comes from Steve Chercover from D. A. Davidson. Your line is open.

So my first question is with respect to the 10.7 growth in retail tons and consumer products. I mean how does that reconcile with the guidance in Q1 that suggested that volumes be down 2% to 4%?

Well, in total it's going to be down but when you break it out between retail and parent rolls, you had a mix shift into retail. So you had retail up which is good from an ASP and margin standpoint, parent rolls down and in total from a volume standpoint I think we are relatively stable.

Okay got it. Okay, so that -- so this is a good development.

Yes.

And so far as you are selling the finished product as opposed to parent?

Right in perfect world we'd have 100% retail cases and no parent rolls but [indiscernible] parent rolls.

Understood. Okay, moving to Slide 9, where your -- I guess this is for the total market private labels 24% and brands are 76%. For some reason I thought that the private label market was about a third. I thought it's like a third; two-thirds private label branded so maybe I'm conflating your share of private label with that overall private label?

So Steve I think whether you measure that based on case volume or retail dollars you get a different answer. We're given it based on dollars that's the 24%, if you did case volume I think that's where you get the 33%.

Okay, got it. Okay thanks. And then a couple other pieces of clarification. First of all that $3 million reimbursement obviously it's -- we're glad you got it. I'm just wondering why that was incorporated into your adjusted EBITDA. I mean I would think that's non-operating.

Well I mean that. So, so we incurred incremental cost associated with that that flowed through our P&L in the 2013 to 2015 timeframe, we look at this as we just got some of that back. We didn't adjust out the incremental cost when they're happening, so I don't know why you adjust out when you get some of it back.

All right. And then on Page 19 and 20, you have given us third quarter EBITDA guidance of $20 million to $35 million and full year of $210 million to $220 million. Was there a corresponding slide for the full year back in Q1, it seems to me that full year EBITDA might have come down by $10 million or $15 million despite being at the top end of the range in the second quarter?

Well this is the first time we've given full year EBITDA guidance. So you wouldn't have seen that in the first quarter. So I don't have a reference point to say whether or not it's come down or not from a public disclosure standpoint.

Yes, because we were aware that Q3 maintenance would be about $14 million higher than Q2 and that was already given in your deck last quarter. So it just seems like that has gotten little bit more onerous.

I think it was because of the shift of the $3 million that John referenced coming from Q2 to Q3 and then we have also included the outage in Idaho in that number as well, the increased number.

Yes. All right, well that's all I had. Thank you.

All right, thanks.

Thank you. And our next question comes from James Armstrong from Vertical Research. Your line is open.

Good afternoon. Thanks for taking my question. First one is on the price mix guidance in tissue. You said that is going to add 5% to 10% impact on adjusted EBITDA, could you go into a little more detail what's actually happening there?

Yes, we're mixing out to more retail versus parent roll is probably the biggest and most substantial change.

Okay. And then how --

And then within retail more of a mixed shift towards ultra tier versus conventional or value.

Okay. And then how much of your total tonnage approximately is still being made in parent rolls, I'm just trying to get a sense of how much more can mix into the retail?

So parent roll is about 40,000 to 50,000 tons per year. Keep in mind some of that is kind of more on the value end of it where and may be it would make sense to turn it into cases but it's less obvious that that quality level than it is at the upper tier.

Okay. So you would expect the mix shift between parent rolls into retail tissues probably almost at the end of the line or do you think that there is a little bit more to go?

No I think a) we think we can grow our converting capacity not with machines but just by increasing our OEs. And then b) I would say at least half of what the 40,000 to 50,000 is good paper that we would like to convert it, we have demand for it.

Okay. That helps and then moving to Paperboard is the price mix guidance just a result of pricing flow through or is the mix deteriorating in some way as well?

It's just price and we're seeing it pretty well.

So mix is more or less stable, perfect. That's all the questions I have. Thank you very much.

All right, thanks Jim.

Thank you. [Operator Instructions]. And our next question comes from Dan Jacome from Sidoti & Company. Your line is open.

Hi how are you?

Hi Dan, how are you?

Good and excellent, I appreciate the time. Just couple of questions here, can you just talk a little bit more about your transportation cost, I think the last time we heard from you, you guys were looking for this to be stable and I think it was a little bit elevated this quarter, I think you mentioned mix, can you just give us some more thoughts on that?

Yes it puts in the consumer side of the business where depending on how we mix out some of our customers are much closer to our converting sites and some of them are further away. So this quarter aligned up where some of the -- the further routes we have to go on.

Okay. So it's not timing and I think you mentioned to that end, you had a new win in the retail channel, if I heard you correctly was that correct?

Correct.

Okay. And would you mind sharing a few words, where it was like in the dollar store, drug store, or grocery, I don't know if you are able to elaborate on that?

Yes, I think at this time our preference is not to elaborate on that but with the customer we're pleased to have and look forward to serving them.

Okay, sounds good. And then lastly is there any update on I think you talked about RISI's forecast for paperboard pricing and its back half, any update on what you were expecting from I think Mesa Group and how much tonnage you think they might be bringing to the U.S. if they do.

Yes, I can comment on that.

Okay.

I think like I said earlier we still see definitely price pressure, price competitiveness but at the same time, the market is relatively stable when it comes to backlogs and holding up okay.

Okay, that's fair. And then I wanted to talk about your I guess EBITDA expectation you're guiding to $220 million for the year and today you comment the high end of $35 million for the third quarter, I guess it would imply you would need to do about $59 million in the fourth quarter and that's what you did last year, if I'm not mistaken. And so can you just may be if you, can provide a little bit more kind of how you're thinking about it the puts and takes of how we get there, is there any kind of do you have any question to that?

Well, I mean we're not going to necessarily give Q4 guidance now. I agree with your math and obviously the biggest data when you go from Q3 to Q4 is we don't have a major outage.

John, the outage associated with Lewiston?

Yes, that's correct, that said.

Did you say that?

Yes.

And the major maintenance.

Okay, that's I appreciate overall strong quarter. Thanks a lot.

Thank you, Dan.

Thank you.

Thank you. Ladies and gentlemen that does conclude our question-and-answer session. At this time, I will like to turn the call over to Ms. Massman for any closing or additional remarks.

Thank you. We completed a strong first half of 2016 and we're excited and focused on the opportunities we have ahead of us to the rest of the year. Thank you for joining us today and for your continued interest in Clearwater Paper. On a final note, we will be at the RBC and KeyBanc Conferences in September and we hope to see you there.

Ladies and gentlemen that does conclude the Clearwater Paper first quarter 2016 earnings conference call. We do appreciate your participation.