Good day and thank you for standing by. Welcome to the Neenah Q2 2021 Earnings Call. I would now like to hand the conference over to your speaker today, Kyle Anderson, Vice President of Corporate Strategy and Investor Relations. Please go ahead.

Good morning and thank you for joining us on Neenah’s second quarter 2021 earnings call. On the call with me today are Julie Schertell, Chief Executive Officer and Paul DeSantis, Chief Financial Officer. By way of introduction, my name is Kyle Anderson, and Paul and I will be responsible for Investor Relations following the retirement of Bill McCarthy. I’ve been with Neenah in various roles since 2004, and I look forward to working with you in this new capacity. Julie and Paul will discuss recent activities and results as well as share some thoughts on our strategy as we look ahead in the year. We issued a press release covering financial results yesterday afternoon, and hopefully, many of you have had a chance to review that information. As always, actual results could differ from these forward-looking statements due to risks noted on our website and in our SEC filings. Following our prepared remarks, we will open the call for questions. In second quarter, we continued our growth momentum with adjusted earnings of $0.65 per share, excluding $2.41 of unusual costs. In second quarter 2020, the adjusted loss per share of $0.08 excluded $2.90 of such costs. Details of these adjusting items, along with a reconciliation to GAAP amounts, can be found in our press release. With that, I’d like to turn things over to Julie.

Thanks, Kyle and good morning everyone. Second quarter was very active, and we continue to demonstrate strong traction both in terms of operating performance and in executing our strategy. I want to start by highlighting our safety performance. The health and well-being of our employees is our number one value, and I’m proud to say we continue to make solid progress toward a zero injury culture. We reached a new safety milestone for recordable incidents during the quarter. And currently, more than half of our facilities are over 100 days incident-free. Now turning to operating performance, second quarter showed continued top line momentum with near-record quarterly revenue driven by strong organic growth in all categories, especially in Technical Products, where we achieved an all-time record for the quarter. Demand was strong with improving conditions in end markets, share gains and new product placement with key customers. We also successfully completed the ITASA acquisition and initiated both the restarting of an idled asset and the closure of our Appleton facility, driving meaningful value in all cases. As with many companies, we are experiencing near-term challenges from supply chain disruptions and rapidly increasing input costs. We’re continuing to work through these disruptions but expect them to continue throughout the third quarter. During this time, we have effectively been able to gain share due to our ability to quickly commercialize alternative solutions for customers. However, the higher costs are impacting our margins in the short term. We have taken pricing actions across our entire portfolio, and in some cases, multiple times, in order to address the extraordinary level of raw material inflation we are experiencing. The timing of our pricing actions varies by business, but all business lines have either implemented price increases or communicated to customers an increase that will be effective in early 2022. I am confident we will offset these raw material cost increases this year through our volume, price and cost initiatives, and we’ll enter 2022 on a good margin trajectory and with additional pricing actions becoming effective. In addition to our operating performance, we’re clearly focused on advancing our ESG efforts. From an environmental standpoint, we were recently recognized with a focus on energy award for energy efficiency excellence at our largest North American facility. We also welcomed a new member to our Board of Directors, Shruti Singhal. Shruti has a global leadership experience with Dow Chemical and Henkel and is currently the CEO at Chroma Color. We’re pleased to welcome Shruti and believe he will further strengthen our Board. I am encouraged with our execution during the quarter as well as the meaningful progress in activating our long-term strategy which I’ll cover later in this call. Now I’d like to turn it over to Paul to review financials.

Thanks, Julie and good morning everyone. The second quarter was extremely busy for Neenah as we took actions to drive our strategy, including the successful completion of the ITASA acquisition at the beginning of the quarter, which resulted in $33 million of sales and accretive EBITDA margins in the high teens. Synergy realization is on track. From a cash earnings perspective, the business contributed about $0.15 per share for the quarter. We announced the closure of the Appleton facility, which is expected to result in annual savings of $7 million to $8 million beginning in the fourth quarter of this year. We began to see unprecedented raw material cost increases, as expected, and we continue to respond with pricing. In some of our businesses, we have announced multiple price increases as we work to offset the rapidly evolving input cost environment. We announced the restart of our production line in Neenah, Wisconsin as a result of the success of our Fine Paper and Packaging team’s efforts to drive volume. We committed $13 million of capital for our new coater to support our recently acquired release liner business as we continue to see the growth we had expected in a location that was a Greenfield less than 3 years ago. And we refinanced our debt at favorable terms to support our acquisition and reduce cash costs. Sales reached $269 million, up $108 million from last year’s pandemic-influenced second quarter and up $42 million from the first quarter of this year. This quarter’s results include $33 million from the ITASA acquisition. Technical Products sales were a record $180 million, up 79% from last year and up 24% sequentially from the first quarter. Fine Paper and Packaging sales were $90 million for the quarter, up 48% from last year and up 10% sequentially…

Thanks, Paul. As we wrap up the call, I wanted to provide some additional comments on how we are executing our strategy and positioning Neenah for long-term value creation. We are focused on building our business into one that rewards shareholders by consistently growing the top line at around 5% annually, achieving mid-teen operating margins, earning returns above our cost of capital and generating significant cash flow. Our success starts with growth. And we have 4 targeted platforms to fuel our growth: filtration media, specialty coatings, engineered materials and imaging and packaging. These platforms provide a framework that creates focus and guides resource allocations, investment decisions, innovation and M&A efforts. Further, this approach offers ways to extend the business while remaining aligned with Neenah’s core strengths, including our asset and technical capabilities and material science know-how. Using these four growth platforms as a backdrop, let me provide a few examples of recent progress and successes which are good indicators of how we’re building for future growth through our strong innovation process, organic investments and M&A activities. First, our filtration business was up almost 11% from 2019 levels, following a record performance in Q1 of this year. We continue to focus on innovative high-efficiency solutions and extending beyond transportation filtration. As such, we recently launched our NeenahPure air filtration portfolio. Utilizing proprietary technology, we created a premium solution for HVAC and air purifier elements for both commercial and residential use. Our electrostatically charged media can reach efficiencies of up to 99.9%, the highest level available in the marketplace. With strong macro trends focused on air quality, this is an important new part of our portfolio. Second, we continue to build our specialty coatings platform with our most recent efforts centered on the ITASA acquisition and growth in release liners. ITASA is…

Your first question comes from the line of Jon from CJS Securities. Your line is open.

Hi, good morning everyone. Thank you for taking my question.

Good morning, Jon.

Good morning.

I wanted to start with the paper segment. It seems to have recovered pretty nicely and I think a little bit ahead of schedule. Any thoughts on the trends from here? I think you had previously called out 90% is kind of the full recovery for that business. Is there more upside now that we’re a little bit ahead of schedule?

Jon, that is a business that when business comes, it comes not necessarily linearly but in chunks. And so we saw some nice new business in our packaging part of that portfolio as well as in consumer products, and commercial print has recovered pretty much as we expected. I would say in regards to the prior communications, around 90% of pre-COVID levels, we’re still expecting to recover at that level. But we will see a little bit of fluctuation. The start-up of the asset that we announced really is to support that demand path as well as provide flexibility and surge capacity for us.

Okay, great. Thank you for that color. Also just in terms of things potentially happening earlier than expected, it sounds like you’re going to catch up to the cost inflation by Q4. I had previously remembered you saying you would take until next year. Is that in fact the case now and maybe you were able to pull in all that pricing action compared to what you might have thought of earlier?

Yes. Let me start with that one, Jon, and then Paul will feel free to add anything that I may miss. Pricing, we’ve taken pricing with all of our customers or we’ve communicated with customers about pricing actions that will be effective early 2022. So I think from a timing standpoint, what we’ve talked about and what Paul mentioned was we expect about $7 million to $8 million of incremental inflationary costs in Q3 versus Q2, and we expect to recover about half of that amount in Q3. For the entire year, we’re still expecting north of $30 million of inflationary cost increases in our raw materials, including freight. And we expect to recover more than half of that, but not all of it in 2021. As you know, we get quicker recovery in Fine Paper and Packaging, and then we have annual agreements in our filtration business. So those agreements, we’ve had those conversations, there is plans in place, but they don’t become effective until early 2022.

And Jon, just to add a little bit to that, so we think that in the third quarter, like we talked about, $7 million to $8 million, of which we will be able to offset half, so incremental to the second quarter. And I think what we said in the fourth quarter is we expect to start making traction again and narrowing the gap between the pricing and the raw materials inputs. But like Julie said, we expect to offset about half directly with pricing and then the rest with our other actions for the full year.

Got it. That’s helpful. Okay, and just wondering how much – excuse me, how much the Appleton facility contributes until it winds down. I guess that full, I guess, the $20 million to $25 million revenue reduction. I know it’s still cost, but just in terms of on the revenue side?

It will be about quarter of that each quarter. So we will – we are ramping down with customer orders throughout Q3 and running out with customers. Some of the Appleton business, we are transitioning to other assets. So it’s about – in the fourth quarter, I would expect about quarter of that $25 million that we won’t see for Appleton and about quarter of the benefit as well.

Okay, great. And then finally, Julie, you mentioned the Neenah operating system improvements. Just is there any quantification on how much more you’re saving this year or is it just to make the acceleration, spreading out to different plants and getting there sooner?

It’s a little of both. I mean we are accelerating and spreading out to additional plants, but we’re also seeing savings come in even higher than we originally estimated. It is a ramp-up, and we do have third parties in place this year helping us implement. So that is offsetting some of the benefits falling directly to the bottom line. As we continue to implement this across our facilities and we have consultants and other folks that are supporting us exit, we will see even greater improvements in the out years from an operating system standpoint.

Okay, great. Thank you.

Thank you, Jon.

Thank you, Jon.

Your next question comes from the line of Chris McGinnis from Sidoti & Company. Your line is open.

Hi, good morning. Thanks for taking my question and congrats on the results.

Good morning. Thank you, Chris.

If we can maybe just start with the inflationary environment, do you see that at all impacting demand for you at all or has that not been an issue since it’s so publicly out there, I guess?

Our demand is very strong across pretty much all of our categories. So it is impacting our cost, and that’s where we’re really seeing it. And that’s a timing issue, just like it has been historically. If you think about our margins, they are going to be compressed in the short-term as we catch up on pricing. They’ll be more immediately recovering in Fine Paper and then it takes us a little bit longer in filtration in some of our Technical Products categories, but we have historically recovered that pricing over time. And we expect to do that again. From a demand standpoint, we’re seeing really strong demand and signals of future demand.

Okay, great. And I think you mentioned market share gains in TP, if I’m correct. Is that – can you maybe just talk about what’s driving that? I’ve been hearing more of supply chain issues leading to maybe more North America-based companies taking that. I know that TP is a little bit more broken up regionally, but can you just talk about those market share gains that you’re talk – you mentioned.

Sure. I think we are seeing a couple of things. When we’re experiencing supply chain disruption, it’s really impacting us from a cost standpoint. We’re juggling around machine schedules we’re managing shorter runs on our assets, things like that. From a demand standpoint, it’s still very strong. And what we’ve been able to do is provide substitute or alternatives from our innovation team who’s really helping us to grow share by providing new formulations for our customers. So if we have a supply constraint with a particular chemical, being able to quickly alternate to a different solution for our customers. And quite honestly, this is giving our customers some additional incentive to make some of those changes with us. So that’s really what’s driven the share gain.

Great. And just two questions on ITASA, I guess just one, with the investment you’re doing, with the $13 million for a new coater, how do you think about that in terms of – is that a – you hit your growth for this year? And how often would you have to add a coater to expand your capacity? How much time this give you before you have to expand given kind of the growth rate there?

Yes. This is an investment that we knew going into the ITASA acquisition that we would be making. And so it’s really exciting for us to be able to continue to invest inorganic growth in the future. And it goes into an existing facility, which I think, as Paul mentioned, was a greenfield facility just a few years ago. That facility is ramping up really strongly. And ITASA has had over 8% growth over their history and record performance, top line and bottom line, in June of this year and really strong demand signals. So, all that to say, this is to meet the expected growth that we have in release liners, and we will continue to evaluate that market for continued growth. I view ITASA as a foundational acquisition that really gives us a strong footprint to build from, whether that’s organic investment or inorganic investment. So you’ll see us continue to grow in this area within our specialty coating platform.

And then you mentioned two large customers in North America. Can you just talk a little bit, are those new customers to ITASA and that’s – using your relationship? Can you just expand a little bit on that? It sounds like early success there?

Sure. It’s a little bit of two things. One of the large customers was an existing Neenah customer. And so our ability to work, cross-pollinate with the ITASA business has been very successful there. Another one is one that the ITASA team has been working on for some time and landed in North America because of the additional capacity and capabilities that are ramping up in the facility in Mexico.

Thanks for taking my questions. Good luck in Q3 and I will jump back in queue.

Thanks, Chris.

Thanks, Chris.

Next is from Jon again from CJS Securities. Your line is open.

Hi, just one more for me, guys. I was wondering if you could just give us a little bit of color on how trends have gone in July, number one, and number two, what your expectations are for August. I know usually, it’s a seasonally down quarter, people go on vacations. But I’m wondering if there is a different expectation this year, just given the state of inventories across a number of industries and then things that are still in high demand.

Yes, Jon, this is Paul. I think what Julie said earlier on the call was really, really important. And that is that we’ve seen very strong demand. And so we like the demand that we’ve seen. And it’s a question of the raw material side of it and the timing on pricing for us. But the top line has been pretty robust.

Okay, thank you.

There are no further questions at this time. Kyle Anderson, please proceed with your closing remarks.

Great and thank you for your time today. To recap, we are aggressively pursuing pricing and other actions to offset near-term raw material impacts over time. We continue to focus on our four growth platforms with disproportionate capital investment, innovation and M&A activities. We’re seeing traction on our strategy to achieve 5% top line and double-digit bottom line growth consistently over time. So we’re looking forward to updating you on our continued progress next quarter. Thanks, and have a nice day.

This concludes today’s conference call. Thank you all for your participation. You may now disconnect.