Clearwater Paper(CLW) - 2023 Q4 - Earnings Call Transcript

Financial Data and Key Metrics Changes - The company reported net sales of $513 million and adjusted EBITDA of $63 million for Q4 2023, significantly higher than the previous year's fourth quarter [11][26] - Net income for Q4 2023 was $17.6 million, with an adjusted net income per diluted share of $1.35, compared to $107.7 million net income for the full year [26][30] - The adjusted EBITDA margin improved to nearly 17% in Q4 2023, driven by higher pricing and lower input costs [25][27] Business Line Data and Key Metrics Changes - The tissue business saw adjusted EBITDA more than double from $18 million in Q4 2022 to $46 million in Q4 2023, with a margin of 17% [11][29] - The paperboard business delivered $37 million of adjusted EBITDA in Q4 2023, with a 15% margin, impacted by lower sales prices and natural gas disruptions [11][28] Market Data and Key Metrics Changes - Tissue demand remained strong, with private brand market share at 36%, while paperboard demand was soft, with shipments down 9% for the year [12][14] - Utilization rates for the tissue industry were reported at about 94% in Q4, indicating a healthy supply-demand balance [14] Company Strategy and Development Direction - The company aims to build a scaled, high-performing paperboard business, with the Augusta acquisition expected to add significant scale and growth capacity [7][10] - The company plans to evaluate strategic options for its tissue business while focusing on cash flow generation and deleveraging [10][20] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about a gradual recovery in paperboard demand starting in Q1 2024, with a more meaningful recovery expected in the second half of 2024 [18][24] - The company anticipates adjusted EBITDA in the range of $53 million to $63 million for Q1 2024, despite a $13 million negative impact from severe weather [31][54] Other Important Information - The company reduced net debt by $32 million in Q4 2023, totaling almost $450 million since 2020 [12][30] - The Augusta acquisition is expected to contribute $140 million to $150 million of adjusted EBITDA by the end of 2026, with a peak leverage ratio anticipated between 3.5 times and 4 times post-acquisition [8][9] Q&A Session Summary Question: Can you provide more details on the cost synergies expected from the Augusta acquisition? - Management indicated that the bulk of synergies will come from volume, expecting the facility to be utilized at 70% to 80% in 2024, with a long-term goal of 95% utilization [37][46] Question: What are the assumptions behind the utilization projections for the Augusta facility? - Management noted that the projections are based on the book of business being acquired and the expected demand from converters in North America [62] Question: What impact did the severe cold weather event in January have on the business? - The event caused an estimated $13 million in negative impact due to equipment damage and downtime [54][70]