Welcome to Clearwater Paper Corporation's Third Quarter 2016 Earnings Conference Call. As a reminder, this call is being recorded today, October the 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, Lettice. Good afternoon and thank you for joining Clearwater Paper's third 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 third quarter were released shortly after today's market close. You will find a copy of the presentation of supplemental information, including an updated outlook slide providing the company's current outlook as to certain costs, pricing, shipment, production and other factors for the fourth 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 quarters ended, March 31 and June 30, 2016, as well as our earnings release and supplemental information. Any forward-looking statements are made only as of 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 third quarter and Linda Massman will provide an overview of the business environment and our outlook for the fourth 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. Before I get to our third quarter 2016 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 press release and supplemental slides posted on our website. For the third quarter of 2016, those items netted to a $2 million pre-tax expense and are comprised of $3.5 million of pension settlement expense associated with the re-measurement of the salary pension plan due to lump-sum payouts that occurred in Q3 and approximately $0.5 million in costs associated with the closed Long Island, New York facility. All of that is partially offset by a $2 million benefit, resulting from the release of an escrow account related to the Q4 ‘14 sale of the specialty note. So with that, let's get to the results. The third quarter adjusted EBITDA came in at the high-end of the guidance range we provided on our Q2 earnings call. Getting to the specifics, our third quarter net sales came in at $435 million. That is down 30 basis points versus the second quarter and just under our outlook of flat to up 1%. Increased retail sales volume in consumer products was more than offset by lower paperboard shipment volumes and the full effect of the April RISI price watch price decrease. On the consumer side of the business, we saw increased sales volume from several of our top five customers in a mix shift from parent roles to retail. Versus Q3 2015, net sales were down 160 basis points. Higher consumer products sales volumes were more than…

Thank you, John. Hello, everyone and thank you for joining us today. As John discussed, our third quarter results were at the high-end of our outlook for the quarter. Revenues were essentially flat and our adjusted operating margin of 2.7% and adjusted EBITDA of $34 million were on the high-end of our outlook ranges. Below our third quarter results compared to Q2 were primarily due to the planned major maintenance outage at our Lewiston, Idaho plant, which is done as a regular part of operations every 18 months. Based on that schedule, the next Lewiston mill outage is due in the first quarter of 2018. However, since we will be shutting down the mill to go live with the pulp digester, me have decided to pull the major maintenance from Lewiston from Q1 ‘18 into the third quarter of 2017 to coincide with that shut down. As a reminder, our Arkansas mill has its biannual outage scheduled for Q2 of 2017. I would like to thank our Lewiston team for bringing the mill back online quickly after it suffered an unexpected electrical power outage in July. Thanks to their hard work, our customers did not suffer any service interruption in the third quarter. I’d also like to add that in September, the company was recognized as the pollution prevention champion by the Idaho Department of Environmental Quality for a successful effort to reduce emissions and waste at the Lewiston mill. Since 2012, we have reduced water consumption by 1 million gallons per day, which is equivalent to the daily water consumption of over 2500 average American households. Energy consumption has been reduced by 20 megawatt, equal to the amount of energy used by 20 households for a month and solid waste has been reduced by 40,000 tons each year, which…

[Operator Instructions] Thank you. Our first question comes from the line of Paul Quinn of RBC Capital Markets. Your question please.

Just a couple of questions on paperboard side, you had that $3.5 million power outage at Lewiston. What was behind that, and is that something that you expect to repeat going forward?

No, it was a power failure with the utility company and it should be a discrete event.

Any recourse on trying to claim that money back?

We did have the insurance claim in business interruption for 5 million. So if you're asking about the remaining delta, we’ll look into it but I wouldn't count on anything.

So is the simple way to look at that is it cost you about $8.5 million and then you got $5 million back, so the net is $3.5 million?

Yes.

And then, it looks like the pricing in paperboard was down $20 quarter over quarter, and it seems like it is just a lag effect from the April drop. What are you expecting for the balance of the year, and how do you - are you sort of - it sounded like you were describing that as balanced market. Do you expect any price weakness going into Q4 besides mix change?

I think just mix change is what we primarily see. What we’re seeing is a relatively stable market, I mean no doubt it’s challenging but I think we’re feeling pretty confident going into the fourth quarter, talking with our customers about the balance of this year and next year. I don't think we are seeing anything overly concerning in fact I think we look forward to hopefully a better year next year.

And then, flipping over to the tissue side, definitely noticing this growth in private label slowing, although you guys are outgrowing the private-label space in total. But kind of surprised to see those two machine ads in ‘18 that you referenced. I was sort of expecting one, but I didn't expect both. Is that a little bit of a surprise to you?

I don't know if I would call it a surprise, I mean clearly we didn't know what was planned for the Ohio site. But typically with any kind of Greenfield site, the more machines you can have on on-site, the more productive it can be. So I wouldn’t say it caught us by complete surprise but it wasn’t something that was in the RISI forecast that we were counting on. Keep in your mind the market does still remain very balanced even with those two machines through the end of ’18, so that's a good sign.

And the positive way of looking at that, I mean those are smart operators, there must be something in the US market that’s going to make that investment.

Yes. That is definitely one way of looking at it or you’ve got good competitors coming into your markets, which is also - could be looked at as problematic. In terms of - the last question I had was just in terms of capacity adds for yourselves. Do you - at some point down the road, you can increase your integration right here. What does that look like in terms of additional production for you guys? At some point do you see that happening in the near term?

We haven't really talked a lot about what our future strategic plans are, but I think the best way to characterize it is, today we are growing nicely with our customers, we see continued growth with our customer base. As, Shelby was our last addition of paper capacity and ultimately we are filled out on ultra capacity. So we’ll just keep our eye on the market and what our customers’ growth needs are and consider what our alternatives are to make sure we can take care of our customers going forward.

Thank you. Our next question comes from the line of James Armstrong of Vertical Research Partners. Your question please.

First one is just a little modeling question. The pension settlement expense, was that all on the corporate line or was that spread between the segments? I'm just trying to figure out where that actually hit the P&L.

It is all in the corporate line.

All on the corporate line. Perfect. And then, additionally, on the Long Island closure -

Hey Jim, I just want to make sure that you count for adjusted purposes, we did adjust that out.

Yes. For adjusted, I did it out; I just wasn't sure if it was spread between the segments. And then, on the Long Island closure, when did that cost start to fall off?

Pretty...

I think at the end of ‘17.

End of ‘17.

Okay. So it will be there... It shouldn't change much between then, right?

No.

And then, more strategically, could you - with your backlogs, could you help us put a bound on how much lower volumes are going to be in the fourth quarter versus the third quarter? Just trying to get a range around that.

I’d look more at kind of our history of seasonality, we have been as low as 180,000 and last year I think we were at 200,000. So I think if you look at kind of the frequency, you’re more often towards the lower end of the range than the higher end of the range but that's kind of what it can do.

So similar - yes, that makes sense. And then, in tissue, could you go over the mix of what you’re selling to consumer versus parent roles and if that’s moved more towards or away from the parent role?

So Q3 definitely was a richer mix on retail case side. That can move quarter to quarter depending on circumstances. The objective would be to have more cases - retail cases the better.

And then, lastly, could you update us or have you decided or planned your CapEx expenditure in 2017? Could you help us with a range around that?

While we have talked in terms of our previous strategic plan and so I’ll just reference back to our prior public statements in regard and 2017 should be pretty similar from the total CapEx spend as 2016.

Thank you. Your next question comes from the line of Antony Young of Macquarie. Your question please.

I think you guys referenced some market share numbers in the 2Q versus the Q3, and I think you are up to 33.9 versus 32.7. Did you have another big win on the quarter, or is that supplying more material to your existing customer base?

We had some shipping around of customers but I would say it’s more of growth in our top five account was more of a factor than any big win.

And then, just so we can get a feel for share buybacks in the fourth quarter, you gave your CapEx number. What portion of that is growth versus discretionary?

CapEx?

Yes.

For the year - I think we said for the year we are going to be at 60 million of maintenance CapEx and for the balance 90-ish million will be the strategic capital.

[Operator Instructions] Our next question comes from Dan Jacome of Sidoti & Company. Your question please.

Sorry if I missed it, it sounds like $4 million of the high-end of your 2016 EBITDA guidance. Was that correct?

Last quarter, when we gave a range for the year of 210 to 220, our range now is 210 to 215.

Sorry if I missed it again, what's the number one kind of driver behind that?

Paperboard pricing.

Paperboard pricing. Okay. That is what I thought. Yes, I am not too surprised by the headwinds there. I was maybe a little caught off-guard by the tissue outlook for revenue for the coming - for the fourth quarter, and it sounds like you guys aren't getting more share on the retail side, less parent roles. So I would have thought that that would have helped you on the revenue side. So can you just help clarify that for me? I know it is a long question, but can you just clarify that for me?

Yes. On the tissue side, I wouldn't necessarily think of it given end market dynamics, there is some seasonality in the fourth quarter whereas you typically do see some decrease in the fourth quarter and it has a lot to do with all the promotions by the brand.

And then, I hate to put you on the spot, but have you guys - how are you guys thinking about paperboard pricing for 2017? I mean, is it too soon or are you going to maybe comment on that in the next quarter?

Yes, our next quarter will likely put a better outlook together for ‘17 but I did say earlier on the call that we think the balance of the year, the pressure is really more around mix less on price and in talking with our customers and looking at demand trends and we’re feeling pretty confident about 2017. So knock on wood, we hope it is a better year than ‘16.

And then, lastly, I was just wondering if you guys - more curiosity if you guys were tracking the Kroger news and any potential acquisition they might do in the pharmacy side, if that were to get through. Have you guys thought about that at all or is that maybe not want to discuss that now?

I just say they were always in discussions with our customers, I don't know that we would be privy to any of their strategic plans per se, but I guess they stand ready and able to grow whenever they need to need to do so.

Yes. I would have thought, if that goes through, that could help you. I mean, if you were to - it could help you, right?

Absolutely.

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

Thank you. We appreciate your time and look forward to finishing another great year while getting ready for 2017. Thank you for joining us today and for your continued interest in Clearwater Paper. And then on a final note, we will be at the Bank of America Merrill Lynch Leverage Finance conference in December and we hope to see you there.

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