Thank you for standing by. And welcome to the Clearwater Paper Third Quarter 2024 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]. Thank you. I would now like to turn the call over to Mr. Sloan Bohlen, Investor Relations. You may begin.

Thank you, Rob. And good afternoon, and thanks everyone for joining Clearwater Paper's third 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 third 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. And with that, let me turn the call over to Arsen.

Thank you for joining us today and good afternoon. Given our recent strategic announcements, I'm going to start my comments with a few highlights for the third quarter and then spend the bulk of my time discussing our industry fundamentals, our strategy and what you can expect from us in the long run. Sherri will then cover our third quarter results, as well as our financial outlook, including initial expectations for 2025. Let's start with a few highlights. We had a very good third quarter overall, delivering $64 million of adjusted EBITDA. This was in the middle of our guidance range of $58 million to $68 million. We would have been above the high end of the range without the approximately $5 million of negative impact from Hurricane Helene, which affected our Augusta, Georgia paperboard facility, as well as the Shelby, North Carolina tissue mill. The Augusta facility was down for roughly six days, but there was no significant damage to our equipment. As you saw in our press release last Friday, we closed on the sale of our tissue business on November 1. As a reminder, we sold this business to Sofidel for $1.06 billion. We expect to net approximately $850 million in cash from the sale after taxes and other customer expenses. And we used the proceeds to pay down all our outstanding credit facilities. We retained our 2028 notes with an outstanding principal balance of $275 million and a rate of 4.75%. Finally, our board approved $100 million share repurchase program. We intend to buy back shares when they trade at a sufficient discount to what we believe to be our inherent value. Now let's turn to an overview of our strategy. With the sale of the tissue business, we're transforming Clearwater into a premier paperboard packaging…

Thank you, Arsen. As Arsen mentioned earlier, we had a very good third quarter with adjusted EBITDA at $64 million. The impact from Hurricane Helene was around $5 million. Without the hurricane, we would have been above the high end of our guidance range of $58 million to $68 million. Paperboard delivered $42 million of adjusted EBITDA in the third quarter, up from $11 million in the second quarter, but down from $53 million last year. Sequential results improved with one additional month of Augusta operations and lower major maintenance outage impact. Year-over-year results were down largely due to market pricing. Demand recovery continues with AF&PA reporting industry SBS shipments up 2.4% in Q3 of this year versus the prior quarter and up 2.5% year-to-date 2024 versus 2023. Our customers are also telling us that they are optimistic about growth in 2025. While we believe that a recovery is underway, industry shipments remain below pre-COVID levels with the continued recovery expected into 2025 and 2026. Tissue delivered $41 million of adjusted EBITDA in the third quarter, flat versus the second quarter and up slightly versus last year. The team again delivered strong operating performance offsetting pulp headwinds. Shipments grew as private brands continue to gain share hitting 38% in the third quarter. As a reminder, we will have one month of Tissue results in our fourth quarter, after which we'll be reporting on a paperboard only business. Let's now turn to our outlook for the fourth quarter as compared to the third quarter. With only one month of Tissue in the fourth quarter, we expect to have $25 million to $30 million less adjusted EBITDA due to the sale of that business. We have a major maintenance outage planned in Augusta in the fourth quarter, which we estimate will cost…

Thank you, Sherri. Let me let me summarize where we are today. We're pleased that we closed on the sale of our Tissue business, which has allowed us to significantly deleverage our balance sheet. With the sale of Tissue, we're strengthening our position as a premier independent supplier of paperboard packaging products to North American converters. We have a well invested asset base and a strong reputation for service and quality. We have a strong history of supporting our independent customers regardless of market conditions, and we're committed to helping them win. We continue to strengthen the sustainability of both the products we produce and how we produce them. We're optimistic about the medium to long-term prospects for our industry and our company. As a result, we expect strong margins and cash flows through the cycle and aim to strategically deploy capital to create long-term shareholder value. Finally, I'd like to thank all our people for their efforts to remain focused on operating safely and providing excellent service to our customers during this time of transition. I'd like to especially thank our Tissue team for building an outstanding business and managing through this time of change. With that, we'll open it up to your questions.

Thank you. We will now begin the question-and-answer session. [Operator Instructions]. Your first question comes from the line of Matthew McKellar from RBC Capital Markets. Your line is open.

Hi. Good afternoon. Thanks for taking my questions. Appreciate all the detail of results and congratulations on closing the Tissue sale.

Thank you, Matt.

First, certainly, you talked about potential investments, potentially using more mechanical and recycled pulp consumption, I believe, you arrive at a lighter weight product to compete with folding box board. Can you just provide a bit more color on what these investments would mean in terms of dollars and timelines? And then maybe more broadly speak to what a lighter weight product in the portfolio would mean for your ability to meet customer preferences and potentially drive higher utilization levels of time? Thanks.

Good questions, Matt. So I think there's two questions in there. One is around the scale of these investments. From including these types of additional pulps into our system, I would say these are small-to-medium sized investments. I won't give a specific number out there, but measured in millions of dollars, it's essentially improving our pulpers to make sure that we can add these pulp streams into our paper machines. So these particular projects aren't massive in nature. Folding box board offers a lighter weight product, and it does have some tradeoffs on performance. So it can include up to 30% or more of this mechanical pulp. And we are looking at products that include mechanical pulp, but maintain the quality of SBS. So our goal is to deliver a lighter weight product that matches the current quality and printability of SBS. I hope that helps.

Yes. That's great. And maybe to kind of follow-up on that one. I think there is a comment too about an unbleached product that would potentially compete with CUK. Would this be to take advantage of, I guess, the spread in price that kind of exists between CUK and SBS or you also see CUK as growing faster over time? And then would you have the ability, I guess, to pivot and swing production back and forth potentially between grades?

We're in an exploratory stage on this. There is not much of a CUK supply to the independent market. So we see an opportunity with that offering. Again, we're exploring that grade. It's a way for us to diversify our production mix, especially at some of our facilities where geographically, we may have an advantage. So we're in exploratory stages of that. More on that to come. We just wanted to provide a flavor of the types of things we're looking at.

Okay. Thanks. That's helpful. Maybe just switching gears here on your actions to reduce fixed costs. Could you maybe just provide a bit more color on kind of what the major items might be there and what your expectations are around cadence of those cost savings being realized through either the balance of '24 and probably through '25 in particular, please?

Yes. So what we mentioned is there's two things. We're going to be targeting about a 10% fixed cost reduction and getting SG&A to about 6% of net sales. I'm going to estimate between SG&A and our fixed costs, we're probably $500 million, $600 million of spend. So we're targeting $50 million plus of annualized savings. Again, we're in the planning stages of that, so I don't want to commit to a specific cadence. But fair to say, we want to capture as much of those savings as possible next year, thinking maybe as high as $30 million to $40 million next year of savings that are baked into our 2025 outlook.

Okay. That's helpful. And around your outlook, I think on the last call you talked about maybe potentially taking some price in cup and plate stock. Could you provide any color on how successful that was and what in price improvements, if any maybe embedded in your expectations for Q4 in 2025?

No, Matt. We shy away from commenting on pricing actions and on earnings calls. So we'll stay away from that. I think it's our best. Our expectations are embedded into our Q4 guidance as well as the 2025 outlook. I think what we mentioned is approximately $40 million to $50 million of negative price cost impact next year. So that's between price and cost. And I think that accounts for, what we see as a continued down cycle in SBS.

Okay. Thanks. That's helpful. And last one for me, just on the hurricane and maybe the port strikes. I think you talked about an impact from Helene to your Q3 results. Should we think about there being an impact embedded in your Q4 guide as well? And apologies if I missed that. And then, around the short lived port strikes in the East Coast, do those drive any sort of disruption in the paperboard market that we should be thinking about probably just around Q4 specifically? Thanks.

Yes, Matt. I can answer that. So on the hurricane, the $5 million was specific to the Q3. You're probably looking at another $2 million to $3 million in the fourth quarter, which would be embedded in our guidance, and no impact from any of the labor issues that were going on in the ports. So no impact to us from that.

Okay. Thanks very much. I'll turn it back.

[Operator Instructions]. And there are no further questions. This does conclude today's conference call. Thank you for your participation. You may now disconnect.