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Edited Transcript of CLW earnings conference call or presentation 24-Oct-19 9:00pm GMT

Q3 2019 Clearwater Paper Corp Earnings Call

SPOKANE Oct 29, 2019 (Thomson StreetEvents) -- Edited Transcript of Clearwater Paper Corp earnings conference call or presentation Thursday, October 24, 2019 at 9:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Linda K. Massman

Clearwater Paper Corporation - President, CEO & Director

* Robert G. Hrivnak

Clearwater Paper Corporation - Senior VP of Finance, CFO & Principal Accounting Officer

* Robin S. Yim

Clearwater Paper Corporation - VP of IR

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Conference Call Participants

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* Adam Jesse Josephson

KeyBanc Capital Markets Inc., Research Division - Director and Senior Equity Research Analyst

* Clyde Alvin Dillon

Vertical Research Partners, LLC - Partner

* Paul C. Quinn

RBC Capital Markets, LLC, Research Division - Analyst

* Roger Neil Spitz

BofA Merrill Lynch, Research Division - Director and High Yield Research Analyst

* Steven Pierre Chercover

D.A. Davidson & Co., Research Division - MD & Senior Research Analyst

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Presentation

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Operator [1]

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Welcome to Clearwater Paper Corporation's Third Quarter 2019 Earnings Conference Call. As a reminder, this call is being recorded today, October 24, 2019.

I would now like to turn the conference over to Ms. Robin Yim, Vice President, Investor Relations of Clearwater Paper. Please go ahead.

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Robin S. Yim, Clearwater Paper Corporation - VP of IR [2]

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Thank you, Daniel. Good afternoon, and thank you for joining Clearwater Paper's Third Quarter 2019 Earnings Conference Call. Joining me on the call today are Linda Massman, President and Chief Executive Officer; and Bob Hrivnak, Chief Financial Officer.

Financial results for the third quarter were released shortly after today's market close. You will find a presentation of supplemental information, including an updated outlook slide, providing the company's current outlook as to certain costs, price mix, shipment volume and other factors for the fourth quarter of 2019, 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 information 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, 2018, and our quarterly filings on Form 10-Q 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.

Linda Massman will begin today's call with a brief review of the third quarter, followed by the Q3 financial results from Bob Hrivnak. Then Linda will conclude our prepared remarks with an update on our strategic projects, followed by an overview of the business environment and our outlook for the fourth quarter, and then we'll open the call for the question-and-answer session.

Now I'll turn the call over to Linda.

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Linda K. Massman, Clearwater Paper Corporation - President, CEO & Director [3]

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Thank you, Robin. Hello, everyone, and thanks for joining us today. I am pleased to share with you that we had a good third quarter with solid execution across the company. We are making good progress towards ramping our expanded tissue operations and we saw continued strong performance from our Pulp and Paperboard operation.

Adjusted EBITDA for the quarter came in at $31 million, which was on the high end of our outlook range for the third quarter. Our net sales of $445 million included strong growth in retail tissue due to expanded business with new and existing customers. This was partially offset by paperboard shipments returning to more normalized levels after record-breaking shipments and net sales achieved in the second quarter.

We are managing our strategic capital projects to completion. The new Shelby facility is progressing well, and we are servicing customers from this facility. We're still building our production capability and are currently producing in the range of 50% to 60% of capacity. This keeps us on target for reaching the full production run rate by mid-2020.

We had successful planned major maintenance outages at both of our mills, Lewiston, Idaho in the third quarter, and we just completed the Cypress Bend, Arkansas outage in October. As a result, we are not planning to schedule any major maintenance outages in 2020, with the next major maintenance scheduled in 2021. I will provide a more detailed update on our strategic projects and outlook for the fourth quarter later in my prepared remarks.

Now I'll turn the call over to Bob.

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Robert G. Hrivnak, Clearwater Paper Corporation - Senior VP of Finance, CFO & Principal Accounting Officer [4]

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Thank you, Linda. Q3 was a solid quarter from a financial performance perspective as we delivered $31 million of adjusted EBITDA, which was on the high end of our outlook range.

Before I get to the specifics of our third quarter 2019 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 information posted on our website.

For the third quarter of 2019, both items totaled approximately $2.8 million of pretax expense, which includes $1.4 million of nonoperating pension and other postretirement benefit costs, $1 million of reorganization-related expenses, and $400,000 of mark-to-market adjustment of directors' equity-based compensation.

So with that, let's discuss our results for the quarter. A summary of consolidated GAAP results is shown on Slide 18, and non-GAAP adjusted results are shown on Slide 19 of our supplemental slide deck.

Our third quarter net sales came in at $445 million, down 1.5% from the second quarter of 2019. Growth in retail tissue shipment volumes were offset by the return to normalized paperboard shipment volumes.

Third quarter adjusted gross profit of $26 million or a 5.9% margin, declined by 3.4 points from the second quarter. This was mainly due to the planned major maintenance outage at Lewiston and higher depreciation. On the positive side, we saw lower input cost for external pulp and energy.

Adjusted SG&A was $28 million or 6.2% of third quarter net sales, which is up $1 million from Q2. This resulted in an adjusted operating loss of $1 million and adjusted EBITDA of $31 million or 6.9% of net sales.

Net interest expense of $13 million was up $2 million compared to Q2, due to lower capitalized interest.

Turning to taxes. Our Q3 effective tax rate was 44% versus 115% in the second quarter. Tax-effected items in the second quarter of 2019 had a greater impact on a percentage basis of Q2 pretax book income of $2.9 million compared to Q3 pretax loss of $19.7 million. As we stated in our last earnings call, our annual outlook for the effective tax rate could be highly sensitive to changes in estimates of pretax earnings and other adjustments, including federal and state credits.

Third quarter 2019 GAAP net loss was $11 million or $0.66 per share, and, on an adjusted basis, a net loss of $8 million or $0.50 per share, which was below our outlook range for Q3 of $0.24 to $0.39 loss per share, due to higher-than-expected depreciation. This compares to Q2 adjusted net loss of $400,000 or $0.02 loss per share.

Noncash expenses in the third quarter of 2019, included $32 million of depreciation and amortization, an increase of approximately $3 million from Q2 '19, $3 million of total equity-based compensation, and approximately $1 million of noncash pension and retiree medical expense.

Now I'll discuss the segment results. The Consumer Products results that I will be referring to can be found on Slides 6 and 20 of the supplemental materials. Net sales were $229 million for the third quarter of 2019, up $4 million or 1.9% compared to the second quarter. The improved top line results were primarily due to a 5.4% growth in converted case shipments resulting from expanded business with new and existing customers.

Consumer Products operating loss in the third quarter of 2019 was $4.4 million versus an operating loss of $5.1 million in the second quarter. This was mainly due to higher retail shipment volumes and favorable pulp cost, partially offset by higher depreciation. As a result, Consumer Products adjusted EBITDA of $15 million was up from $12 million in Q2 2019. The adjusted EBITDA margin was 6.4% compared to 5.5% in Q2.

Now turning to the Pulp and Paperboard division. The results that I will be referring to can be found on Slides 7 and 20 in the supplemental materials. For the third quarter of 2019, Pulp and Paperboard generated net sales of $217 million and shipped 215,000 tons. Net sales were down 4.8% versus the second quarter, as paperboard shipments returned to more normal run rates from the record level set in the second quarter.

Pulp and Paperboard's operating income for the third quarter of 2019 was $17 million or 7.9% of net sales compared to $34 million or 14.8% of net sales in the second quarter. Third quarter operating income was impacted by $19 million of planned major maintenance expense at the Lewiston, Idaho mill, partially offset by a $3 million decrease in maintenance at the Arkansas mill. Other positive impacts at our Idaho mill include lower natural gas prices and electricity cost and lower external pulp prices. This resulted in paperboard's third quarter EBITDA and margin of $28 million and 13%, respectively.

Now turning to the balance sheet. Cash capital expenditures were $17 million in the third quarter of 2019, and $126 million year-to-date. Our total cash CapEx for 2019 is expected to come in at the high end of the range previously provided of approximately $130 million to $140 million. We had $58 million of short-term debt outstanding under the $250 million ABL facility. Long-term debt outstanding at September 30 was $875 million, which includes a $300 million of 7-year Term Loan B and $575 million of fixed rate senior notes. We ended the quarter with a total leverage ratio of 5.7x last 12 month's adjusted EBITDA. As we said last quarter, Q3 is expected to be the high water mark for net debt. In the fourth quarter, we expect to see a modest decline in total leverage.

With regard to our liquidity, we ended the third quarter with $8 million of unrestricted cash. During the third quarter, we used $31 million of cash from operations. Working capital was a $48 million net use of cash, primarily due to a significant reduction in trade accounts payable and timing of interest payments on the bonds, offset by a $20 million reduction in receivables and inventory.

This concludes my remarks, and I will now turn the call back over to Linda.

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Linda K. Massman, Clearwater Paper Corporation - President, CEO & Director [5]

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Thank you, Bob. Let me now bring you up to date on our strategic projects, provide a brief update on the market environment and conclude with our outlook for the fourth quarter.

I am pleased with our progress as we ship product and service customers from our new Shelby facility. We are making both ultra and conventional products in Shelby that are meeting customer quality expectations. As I mentioned, we are ramping production and currently producing at approximately 50% to 60% of capacity, which is in line with reaching the full production run rate by mid-2020. Following that, we expect to reach the full shipment run rate in 2021 and see the full year benefit in 2022. Until we reached full production run rate, keep in mind that production costs will continue to be elevated.

We have a historically strong customer mix of premium retailers and are a meaningful supplier to most of them. We have continued to gain new customer volume and retain existing customers, albeit in a highly competitive environment given recent capacity additions. This is demonstrated by year-over-year growth of 8% in revenues and 11.6% in case shipments.

Private label continues to gain share, and we positioned to benefit from this positive trend, given our leadership position that is indicative of our service and product quality capabilities.

Regarding the continuous pulp digester project in Lewiston, Idaho, we remain on schedule to install and implement the catalyst by the end of the year.

Turning to our view of the market environment for each of our businesses and starting with the North American tissue market. The IRI panel data estimated in dollar terms reflects positive momentum for private brands. First, the total tissue market grew approximately 5.5% year-over-year. Second, private brands grew 11.3% versus 3% for national brands over the same period. Third, private brands ended the second quarter with 31.5% market share compared to 29.8% a year ago. And the data continues to point to strong consumer acceptance and growing preference for private brand products, especially in the ultra-quality category. Private brand growth in the ultra segment continues to outpace total category growth for bath tissue and paper towels.

RISI's forecast for net new tissue capacity from 2019 through 2021 for the North American market has been lowered by 33,000 tons to 365,000 tons, resulting from the announced closure of another supplier's paper machine in Crossett, Arkansas. Over the long term, the total new capacity averages out to approximately 122,000 tons per year, and we believe in line with 1% to 1.5% tissue demand growth per annum.

Assuming all that capacity comes online as scheduled, plus net imports and using RISI's estimate for demand in North America, the demand to North American capacity ratio in 2021 is forecasted to be approximately 98%. While there have been no recent announcements of capacity additions, if that were to occur, we estimate that the earliest any new capacity could come online is early 2022.

Turning to North American paperboard. RISI's outlook for the remainder of 2019 is a balanced market. According to AF&PA, as of the end of the third quarter, the industry operating rate was 92.7% compared to 95.3% a year ago, and relatively unchanged from the second quarter operating rate of 92.8%.

Industry backlogs reported by RISI are 4.6 weeks and 4.5% lower than backlogs a year ago. At the end of the second quarter, RISI reported industry backlog of approximately 5 weeks.

We believe the food service segment of the industry is positioned to benefit from the trend to boxboard away from polystyrene and single-use plastics. The longer-term trend for bleached board remains positive as consumer products companies continue to look for more environmentally sustainable packaging alternatives.

Now to our fourth quarter 2019 outlook compared to the third quarter of 2019. We expect consolidated net sales to be down 1% to 2% sequentially due to seasonality in paperboard; consolidated adjusted operating margin to be in the range of 2.5% to 4.5% due to several key variables. First, maintenance is expected to be $11 million to $12 million lower, as the major maintenance outage at our Cypress Bend, Arkansas mill will range in cost from $6 million to $7 million. Second, we expect cost to improve up to $3 million due to lower raw material costs. And last, we expect our annual tax rate benefit to be approximately 34%. We expect this to result in adjusted EBITDA in the range of $38 million to $46 million and adjusted net earnings per share ranging from a net loss per share of $0.15 to fully diluted net earnings per share of $0.27.

In conclusion, we're now developing plans focused on internal execution to ensure we are well-positioned to improve operational performance and generate cash flow to delever our balance sheet.

And with that, we will now take your questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question comes from Paul Quinn with RBC Capital Markets.

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Paul C. Quinn, RBC Capital Markets, LLC, Research Division - Analyst [2]

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Just maybe start on the paperboard side. Just you cited RISI's backlog numbers. What are the backlogs at Clearwater? And what is that on a year-over-year basis, up or down?

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Linda K. Massman, Clearwater Paper Corporation - President, CEO & Director [3]

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Yes. I would say we usually don't, in fact, we don't disclose our specific backlogs, but we just tend to follow industry backlog trends, I think is a fair statement.

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Paul C. Quinn, RBC Capital Markets, LLC, Research Division - Analyst [4]

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So you're saying your backlogs are consistent with what you're seeing in RISI? Or you just don't want to disclose it?

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Linda K. Massman, Clearwater Paper Corporation - President, CEO & Director [5]

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Yes. No, the trends are consistent.

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Paul C. Quinn, RBC Capital Markets, LLC, Research Division - Analyst [6]

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Okay. Trends are consistent. And then just I'm kind of confused on what's going on with pulp right now. I've got some guys that see prices picking in Q4, and then I've got others that expect continuous weakness. And just wondering what your expectation for how long this pulp pricing tailwind will benefit you guys, and whether that 270,000 tons that you purchase includes the expansion at Lewiston or not.

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Linda K. Massman, Clearwater Paper Corporation - President, CEO & Director [7]

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Yes. So the 270,000 tons includes the expansion. And also, with regard to the pulp market, I don't really have a strong prediction for you. We're reading probably very similar information that you are. We're grateful for some of the pulp price declines, but we are seeing different indications depending on what type of pulp you're talking about, whether it's softwood or hardwood.

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Paul C. Quinn, RBC Capital Markets, LLC, Research Division - Analyst [8]

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Okay. And then just on the, I guess Shelby 2, I think, Linda, in your comments, you mentioned that it's going to run full mid-2020. And then I think on Slide 8 here we've got full shipment run rate expected 2021. What's the 6-month delta between those?

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Linda K. Massman, Clearwater Paper Corporation - President, CEO & Director [9]

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Yes. So the full production is when we're actually producing what we expect the targeted production off the machine. And then selling through the shipment run rate would be the 6-month time frame.

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Paul C. Quinn, RBC Capital Markets, LLC, Research Division - Analyst [10]

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Okay. Got it. That's helpful. And then just lastly, any update on Lewiston's labor issue?

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Linda K. Massman, Clearwater Paper Corporation - President, CEO & Director [11]

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Yes. So the company has presented its best and final contract offer to our Lewiston labor union. And this week is when they are voting on the contract, and we should know an outcome at the end of this week.

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Operator [12]

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And our next question comes from Adam Josephson with KeyBanc Capital Markets.

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Adam Jesse Josephson, KeyBanc Capital Markets Inc., Research Division - Director and Senior Equity Research Analyst [13]

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One more on pulp. So it was a pretty substantial benefit sequentially in 3Q, $4.5 million. And in the 4Q slide deck, you have other costs of a 0 to $3 million sequential benefit.

I'm just wondering how much more pulp savings you have sequentially and into next year just based on what you've seen with pulp prices and based on how your contracts are structured.

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Robert G. Hrivnak, Clearwater Paper Corporation - Senior VP of Finance, CFO & Principal Accounting Officer [14]

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Okay. Yes. So let me talk about this. So when you evaluate pulp prices, you need to take into account the price ceilings that we have in our contracts. So just to give you some background, external pulp prices were flat for us as of the end of Q3 on a year-over-year basis because our 2018 pulp contracts had these price ceilings or inflationary caps. And certainly, at the beginning of the year, the pricing in those contracts gets readjusted.

So while we benefited from lower pulp prices in 2019 on a year-over-year basis, we are actually flat year-to-date. So just to give you some additional context, year-to-date on a year-over-year basis, pulp prices are down about 7% to 10%. But from the high water mark in Q4 of 2018, pulp prices are down about 15% to 20% through the end of September this year. So given the structure of our contracts, we're not yet at the crossover point. So hopefully that was helpful.

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Adam Jesse Josephson, KeyBanc Capital Markets Inc., Research Division - Director and Senior Equity Research Analyst [15]

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Can you just explain it? So I guess I'm not exactly sure what you're saying then in terms of the implications sequentially into 4Q and thereafter.

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Robert G. Hrivnak, Clearwater Paper Corporation - Senior VP of Finance, CFO & Principal Accounting Officer [16]

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Yes. So I mean if pulp prices continue to go down, our contracts will be reset and then we would enjoy the benefits in the future. So the [trend] is favorable.

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Adam Jesse Josephson, KeyBanc Capital Markets Inc., Research Division - Director and Senior Equity Research Analyst [17]

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But if they stay -- right. But if they stay flat from where they are today, Bob, you're saying there are no more sequential benefits to come?

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Linda K. Massman, Clearwater Paper Corporation - President, CEO & Director [18]

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Adam, maybe I'll try to explain it. So as we experience increasing pulp costs through 2018, there's accumulation of escalating cost. In 2019, until the savings on pulp cross over that cumulative headwind, we won't see a year-over-year benefit. But it's still benefiting us because pulp prices are coming down. So going into 2020, if that were to hold, you should see a benefit.

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Robert G. Hrivnak, Clearwater Paper Corporation - Senior VP of Finance, CFO & Principal Accounting Officer [19]

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Right.

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Adam Jesse Josephson, KeyBanc Capital Markets Inc., Research Division - Director and Senior Equity Research Analyst [20]

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Got it. Okay. And just one more on 2020, on that topic. So maintenance is going to be $25 million lower next year because you now have eliminated your planned maintenance outage at Lewiston next year. And you talked about the Lewiston pulp optimization saving to Shelby expansion. And you have your run rate savings targets for Lewiston and then obviously the EBITDA target for Shelby.

Can you just talk about just the puts and takes for next year as you see it? Thus far, you $25 million lower maintenance. Presumably, you have, based on your run rate, X amount of Lewiston savings, X amount of Shelby EBITDA, et cetera. Can you just help me with any of that to the extent you can?

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Linda K. Massman, Clearwater Paper Corporation - President, CEO & Director [21]

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Yes. So we'll, as part of our 4th quarter update, usually provide some outlook going into 2020. So we'll definitely have a more comprehensive update on the next call.

But you did pick up on a number of the larger items. Of course, we also talked about pulp and which direction you think that's going to go on a go-forward basis into 2020. Of course, we also have the pricing environment and the competitive environment in both tissue and paperboard, as we said in our prepared remarks. We definitely see a very competitive environment in tissue, albeit we're holding our own and attracting new business and retaining our current customers. And RISI has called for a relatively stable paperboard market. So those are two other factors.

And then maybe the other big factor, just thinking on my feet here, would be CapEx, and that comes in to a more normalized range for us going into 2020.

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Adam Jesse Josephson, KeyBanc Capital Markets Inc., Research Division - Director and Senior Equity Research Analyst [22]

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Right. Just, Bob, a couple on balance sheet and cash flow. So working cap was, I think it was about a $45-ish million drag, and you attributed it to the reduction in accounts payable and the timing of interest payments on the bonds.

Can you just help me a bit more with was that what you were expecting working capital to be? It was a little kind of worse than what we had. And then, and why the reduction in payables?

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Robert G. Hrivnak, Clearwater Paper Corporation - Senior VP of Finance, CFO & Principal Accounting Officer [23]

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Yes. So basically, we went through a major refinancing move to the ABL structure. So through the financing activities, we were in a position where we increased our liquidity. So then management made a decision with respect to payables to change the timing to ensure that we make faster payments to our valued customers. So the customer relationships are very important to us.

Another factor, as you're thinking about your model through the end of the year, we've also eliminated our accounts receivable factoring programs because we're moving to -- again, the ABL has a lower cost structure than factory. So we're going to change our outlook for working capital. I think previously we communicated that there would be about a $20 million drag year-over-year for the full fiscal year. And we've updated our outlook. We believe the impact now will be about a $50 million to $60 million drag. And the key drivers there would be, again, movement away from factoring and also timing of our payables.

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Adam Jesse Josephson, KeyBanc Capital Markets Inc., Research Division - Director and Senior Equity Research Analyst [24]

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I appreciate that, Bob. And so if working cap's going to be a $50 million, $60 million drag this year, just based on the fact that you're eliminating factoring, what impact should that have on next year? Should we assume flattish working cap or perhaps another drag or maybe even a [SARS]? Can you just help me a little bit there?

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Robert G. Hrivnak, Clearwater Paper Corporation - Senior VP of Finance, CFO & Principal Accounting Officer [25]

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Yes. So Adam, I think what we will do on the Q4 call is address our outlook for next year. But I think we're getting back to a more normalized level based on previous years.

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Adam Jesse Josephson, KeyBanc Capital Markets Inc., Research Division - Director and Senior Equity Research Analyst [26]

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Okay. Just one last one on your leverage. So you're at 5.7 at quarter end. You said it'd be down a touch in 4Q. So by year-end, maybe it'll be at 5.5, 5.6. Any thoughts as to how you think that will trend next year, Bob, just based on your early thoughts about EBITDA, CapEx, working cap, et cetera, just how much lower you would expect that to go from, call it 5.6 at year-end?

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Robert G. Hrivnak, Clearwater Paper Corporation - Senior VP of Finance, CFO & Principal Accounting Officer [27]

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Okay. So yes. I'm not going to give specific targets, but I can give you a framework on how to think about next year and the future, yes.

So if you go back and review our historical performance and say you focus on 2016 to 2018, so on a pro forma basis, we generated slightly north of $100 million of free cash flow per year on average under the assumption that CapEx would be $60 million a year. And that's our investment target per year for the foreseeable future.

However, the numbers that I just shared don't reflect the more recent challenging and competitive pricing and cost environment in CPD. They also don't include the full benefits from our strategic CapEx projects. And it's also important to note when you focus on 2020, we're not planning a major maintenance outage.

So there are certainly a number of other factors that would impact our projected cash flow for 2020. And our plan is to discuss this more during our year-end call.

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Operator [28]

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Our next question comes from Steve Chercover with D.A. Davidson.

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Steven Pierre Chercover, D.A. Davidson & Co., Research Division - MD & Senior Research Analyst [29]

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Hopefully, this is an easy one. What was it that pushed depreciation up by $3 million in Q3 and that will pull it back down by the same amount in Q4?

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Robert G. Hrivnak, Clearwater Paper Corporation - Senior VP of Finance, CFO & Principal Accounting Officer [30]

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Yes. So basically we had a slight increase to depreciation expense in Q3. This was primarily due to accounting adjustments related to our fixed assets. So companies generally do a routine annual fixed asset cleanup work, and this adjustment to depreciation resulted from that. So the adjustment in total is not material to the company and we view it as just a slight increase for the quarter.

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Steven Pierre Chercover, D.A. Davidson & Co., Research Division - MD & Senior Research Analyst [31]

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So is $28 million probably a decent run rate going forward now that Shelby's up and running?

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Robert G. Hrivnak, Clearwater Paper Corporation - Senior VP of Finance, CFO & Principal Accounting Officer [32]

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I think so, yes. Yes, Shelby, the annual run rate for Shelby should be around $17.5 million.

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Steven Pierre Chercover, D.A. Davidson & Co., Research Division - MD & Senior Research Analyst [33]

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Okay. Thanks for that. And then with respect to Lewiston and the new catalyst being implemented by the end of the year, so, first of all, any down time or maintenance associated with that changeover? I mean do you have to purge or flush out any systems?

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Linda K. Massman, Clearwater Paper Corporation - President, CEO & Director [34]

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Yes. So Steve, we've done all the maintenance, major maintenance we're going to do in Lewiston we've completed already this year. So it is just a matter of receiving the catalyst and implementing it into the system.

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Steven Pierre Chercover, D.A. Davidson & Co., Research Division - MD & Senior Research Analyst [35]

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Okay. So that's what we dealt with in Q3?

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Linda K. Massman, Clearwater Paper Corporation - President, CEO & Director [36]

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[Yes].

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Steven Pierre Chercover, D.A. Davidson & Co., Research Division - MD & Senior Research Analyst [37]

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Okay. And I mean, is it a step function change, the $25 million to $30 million? Or is there any kind of ramp as that catalyst is functional?

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Linda K. Massman, Clearwater Paper Corporation - President, CEO & Director [38]

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I would expect a ramp. Again, it's a new piece of equipment for us; it's somewhat difficult to predict. But generally speaking, when something like this is implemented there's always learning curves and things that need to get adjusted as we progress. So I would expect some sort of a ramp.

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Steven Pierre Chercover, D.A. Davidson & Co., Research Division - MD & Senior Research Analyst [39]

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Okay. And I think Adam tried to get at this. But with respect to the ramp at Shelby, the exit rate, we use the midpoint, is $60 million in 2021. Do you think you'll get a third or a half next year? How would you like us to think of that?

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Linda K. Massman, Clearwater Paper Corporation - President, CEO & Director [40]

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Yes. I think we'll comment on that in the fourth quarter call when we have another quarter under our belt and another quarter of operating the equipment there. But I think, suffice to say, we feel good about where we are, running currently at 50% to 60% production run rate versus our target, and on track. It keeps us on track to getting to our full run rate by mid-2020. And so with another quarter, we should be able to give a little bit better indication of that.

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Steven Pierre Chercover, D.A. Davidson & Co., Research Division - MD & Senior Research Analyst [41]

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Okay. And then hopefully I can even articulate this. But in your earnings bridges, pulp was in the slides, then it was out, now it's back in. So was the $3 million benefit, first of all, to tissue, was that anticipated in your Q3 guidance?

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Linda K. Massman, Clearwater Paper Corporation - President, CEO & Director [42]

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Yes.

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Robert G. Hrivnak, Clearwater Paper Corporation - Senior VP of Finance, CFO & Principal Accounting Officer [43]

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Yes, that would have been baked into our outlook.

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Steven Pierre Chercover, D.A. Davidson & Co., Research Division - MD & Senior Research Analyst [44]

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Okay. And I guess it's up to us to make our assumptions going forward.

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Robert G. Hrivnak, Clearwater Paper Corporation - Senior VP of Finance, CFO & Principal Accounting Officer [45]

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Yes.

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Steven Pierre Chercover, D.A. Davidson & Co., Research Division - MD & Senior Research Analyst [46]

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And then kind of the same thing on Pulp and Paperboard. Presume the outside pulp sales, to the extent there are any, would have been reflected in price mix, but then you've got a benefit of $1.5 million. So I was a little confused there.

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Linda K. Massman, Clearwater Paper Corporation - President, CEO & Director [47]

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Yes. Outside pulp sales are de minimis at best. So nothing that needs to be modeled or worried about.

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Steven Pierre Chercover, D.A. Davidson & Co., Research Division - MD & Senior Research Analyst [48]

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So the $1.5 million that we see on Slide 7 benefit from pulp, I guess where does that come from? Or is that...

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Robert G. Hrivnak, Clearwater Paper Corporation - Senior VP of Finance, CFO & Principal Accounting Officer [49]

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So you're looking at...

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Linda K. Massman, Clearwater Paper Corporation - President, CEO & Director [50]

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Slide 7.

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Steven Pierre Chercover, D.A. Davidson & Co., Research Division - MD & Senior Research Analyst [51]

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Slide 7.

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Linda K. Massman, Clearwater Paper Corporation - President, CEO & Director [52]

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Yes, lower external pulp prices in Idaho.

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Robert G. Hrivnak, Clearwater Paper Corporation - Senior VP of Finance, CFO & Principal Accounting Officer [53]

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Right.

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Steven Pierre Chercover, D.A. Davidson & Co., Research Division - MD & Senior Research Analyst [54]

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So why would that be a benefit?

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Robert G. Hrivnak, Clearwater Paper Corporation - Senior VP of Finance, CFO & Principal Accounting Officer [55]

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That would be outside pulp purchases.

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Steven Pierre Chercover, D.A. Davidson & Co., Research Division - MD & Senior Research Analyst [56]

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That you're buying to put into the bleached board?

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Robert G. Hrivnak, Clearwater Paper Corporation - Senior VP of Finance, CFO & Principal Accounting Officer [57]

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Right.

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Linda K. Massman, Clearwater Paper Corporation - President, CEO & Director [58]

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Yes.

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Steven Pierre Chercover, D.A. Davidson & Co., Research Division - MD & Senior Research Analyst [59]

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Got it.

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Robert G. Hrivnak, Clearwater Paper Corporation - Senior VP of Finance, CFO & Principal Accounting Officer [60]

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Yes.

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Operator [61]

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(Operator Instructions) Our next question comes from Chip Dillon with Vertical Research.

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Clyde Alvin Dillon, Vertical Research Partners, LLC - Partner [62]

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My first question has to do with -- I appreciate you -- it was mentioned that leverage would come down slightly in the fourth quarter. And I just didn't know if you would -- I know your net debt ended the third quarter it looks like here, at, I don't know, around $915 million.

Do you expect that to come -- that raw net debt number to come down? Not debt. Actually $917 million. Will that come down? Or will it be just because EBITDA would be up? Which actually looks like it's going to be down. So I would have to assume that based on your guidance because you did 47 a year ago.

So I guess my question is, you are telling us that debt or at least cash will build. How much would that likely be?

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Robert G. Hrivnak, Clearwater Paper Corporation - Senior VP of Finance, CFO & Principal Accounting Officer [63]

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Yes. So let me walk you through this because this can be a little bit complicated. There's the net leverage ratio and then there's net debt.

So basically for Q4, we expect to see a modest decline in our net debt or our total leverage, however you want to look at it. And we've actually started paying down our ABL in Q4.

But also in Q4, if you focus on the net leverage ratio, we're expecting that to stay flat or potentially have a modest decline. And the reason for the slight difference, a component of this calculation is the last 12 months adjusted EBITDA.

So basically, if you look at last year, Q4 of last year, we came in at the high end of our outlook range for Q4 of 2019. So this is the reason why we might potentially stay flat in terms in that leverage ratio.

But you're spot on. We're focused on solid, predictable execution and driving strong operating cash flow. And one of our top priorities is to pay down our debt. So this is going to continue into the future.

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Clyde Alvin Dillon, Vertical Research Partners, LLC - Partner [64]

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Got you. And is $60 million or $65 million sort of a good number to use for CapEx next year?

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Robert G. Hrivnak, Clearwater Paper Corporation - Senior VP of Finance, CFO & Principal Accounting Officer [65]

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We said $60 million. Basically, the split would be $50 million of maintenance CapEx and $10 million of strategic.

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Clyde Alvin Dillon, Vertical Research Partners, LLC - Partner [66]

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Okay. And then on the Lewiston project, I know the expected adjusted EBITDA benefit from everything is $25 million to $35 million.

And can you tell us how much we've seen already and, therefore, how much more should we get from the catalyst project?

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Robert G. Hrivnak, Clearwater Paper Corporation - Senior VP of Finance, CFO & Principal Accounting Officer [67]

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Yes. So basically, we started receiving benefits from the [L-top] back in 2018. So we had about $10 million of cost savings primarily related to energy and chemical cost. So our forecast for 2019 is to achieve the same level of benefits. So basically $10 million per year.

So then, once the catalyst is installed and calibrated, our view is, then we would achieve the additional benefits. We've provided a range for that of $15 million to $25 million.

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Clyde Alvin Dillon, Vertical Research Partners, LLC - Partner [68]

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Okay. Got you. So the 10 is not -- it's not like 10 plus 10. It's like 10 in each of '18 and '19 and then it jumps up to 25 to 35. So that can be pretty meaningful next year then.

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Robert G. Hrivnak, Clearwater Paper Corporation - Senior VP of Finance, CFO & Principal Accounting Officer [69]

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Right. Well, in total, right.

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Clyde Alvin Dillon, Vertical Research Partners, LLC - Partner [70]

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Okay. So I mean, I'm not trying to pin you down. But you're saying, just so I understand you, there's 15 to 25 from that, there's the 25, which I know will reverse in '21 from the lower maintenance costs. And then there's the other moving pieces that we talked about as we think about next year. Is that fair?

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Linda K. Massman, Clearwater Paper Corporation - President, CEO & Director [71]

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Yes.

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Robert G. Hrivnak, Clearwater Paper Corporation - Senior VP of Finance, CFO & Principal Accounting Officer [72]

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That's right.

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Linda K. Massman, Clearwater Paper Corporation - President, CEO & Director [73]

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And we'll be more clear about that on the fourth quarter call, which is when we typically provide more color around that.

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Clyde Alvin Dillon, Vertical Research Partners, LLC - Partner [74]

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Okay. And the question about on the factoring situation, have you always factored and now you're not factoring your receivables? And is the reason because -- I know rates are low -- because you've had to collateralize those receivables somewhere else? Which I guess even though you may not be factoring them, they have to sit on your balance sheet?

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Robert G. Hrivnak, Clearwater Paper Corporation - Senior VP of Finance, CFO & Principal Accounting Officer [75]

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Yes. So basically, the factoring program started because we needed additional liquidity. But since we've revamped our capital structure, we've been able to phase out that program because the ABL revolver is priced very attractively. So I don't know if that answers your question.

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Clyde Alvin Dillon, Vertical Research Partners, LLC - Partner [76]

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Yes. I think it does, yes. Got you. And then lastly, when you think about -- I know you gave us -- and by the way, thank you for giving us this maintenance schedule. That's very helpful.

As we think about '21 and '22, do you see anything that would require your CapEx to go much above that $60 million level? In other words, do you have a boiler that needs a lot of work, let's say in '21 or '22? Or is it reasonable to say that adjusting for inflation that you can stay at that level in '21 and '22 to achieve the deleveraging you're talking about?

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Robert G. Hrivnak, Clearwater Paper Corporation - Senior VP of Finance, CFO & Principal Accounting Officer [77]

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Yes. So I think the maintenance schedule that we provided in the supplementals, that's our most likely outlook based on the information that we have today.

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Linda K. Massman, Clearwater Paper Corporation - President, CEO & Director [78]

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Yes. And Chip, I would just tell you that our objective is to generate cash to pay down debt. And in order to do that, we said we would stay within the limits of the $60 million of CapEx as we work to delever the balance sheet.

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Clyde Alvin Dillon, Vertical Research Partners, LLC - Partner [79]

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And so just so I'm clear. So you don't know of any need to spend much above that through '22? Not that you won't because I know life changes.

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Linda K. Massman, Clearwater Paper Corporation - President, CEO & Director [80]

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Right, stuff comes up.

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Clyde Alvin Dillon, Vertical Research Partners, LLC - Partner [81]

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But you're saying at this point you don't see a piece of equipment that's so big that has to be replaced that would knock that materially higher?

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Linda K. Massman, Clearwater Paper Corporation - President, CEO & Director [82]

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That's correct.

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Operator [83]

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Our next question comes from Roger Spitz with Bank of America.

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Roger Neil Spitz, BofA Merrill Lynch, Research Division - Director and High Yield Research Analyst [84]

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So in the answer to the reduction of the payables, your first comment was that, if I heard it correctly, you just wanted to reduce or pay faster your payables with your customers. I guess if I heard that correctly, why did you make that decision? Obviously, that's a big bite into your cash flow and your cash position.

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Robert G. Hrivnak, Clearwater Paper Corporation - Senior VP of Finance, CFO & Principal Accounting Officer [85]

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Yes. So basically our view is we want to maintain a good relationship with our vendors and we want to pay to meet the terms that we've agreed to contractually. So that's our intent.

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Roger Neil Spitz, BofA Merrill Lynch, Research Division - Director and High Yield Research Analyst [86]

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I mean I guess what I would read into that was maybe that during the last few quarters where things were a little more stressed, if you will, you were moving the terms out, and then you're bringing it back into where they really ought to have been. Is that a fair read?

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Robert G. Hrivnak, Clearwater Paper Corporation - Senior VP of Finance, CFO & Principal Accounting Officer [87]

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Yes. I think the way I would frame it is we want to maintain good relationships with our vendors and suppliers.

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Roger Neil Spitz, BofA Merrill Lynch, Research Division - Director and High Yield Research Analyst [88]

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Okay. I'm going to ask a few on factoring just to make sure I understand it. Your Q isn't out yet, so I'm looking at your 2-Q. And the way I read it on Page 9 -- I recognize you probably don't have the Q in front of you. But the factoring says 16.9. Should we assume that as of June 30, that 16.9 of factored receivables was deconsolidated from your balance sheet? Is that the way to read that?

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Robert G. Hrivnak, Clearwater Paper Corporation - Senior VP of Finance, CFO & Principal Accounting Officer [89]

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I think that's...

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Linda K. Massman, Clearwater Paper Corporation - President, CEO & Director [90]

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[He shortened that].

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Robert G. Hrivnak, Clearwater Paper Corporation - Senior VP of Finance, CFO & Principal Accounting Officer [91]

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Yes. Right.

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Roger Neil Spitz, BofA Merrill Lynch, Research Division - Director and High Yield Research Analyst [92]

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Okay. And I know you've talked about [facing on] the number. Your Q isn't out yet. What was that number in September if it wasn't 0, because it was gone at September 30?

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Robert G. Hrivnak, Clearwater Paper Corporation - Senior VP of Finance, CFO & Principal Accounting Officer [93]

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I'm sorry. I didn't -- missed the first part of the question. Regarding what? The...

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Roger Neil Spitz, BofA Merrill Lynch, Research Division - Director and High Yield Research Analyst [94]

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For September 30, what was that outstanding deconsolidated number, if not 0, if you happen to have it?

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Robert G. Hrivnak, Clearwater Paper Corporation - Senior VP of Finance, CFO & Principal Accounting Officer [95]

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I think it's 0.

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Roger Neil Spitz, BofA Merrill Lynch, Research Division - Director and High Yield Research Analyst [96]

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We can look at the Q, too.

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Robert G. Hrivnak, Clearwater Paper Corporation - Senior VP of Finance, CFO & Principal Accounting Officer [97]

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Yes.

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Roger Neil Spitz, BofA Merrill Lynch, Research Division - Director and High Yield Research Analyst [98]

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You got rid of the program. That was a $30 million program.

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Robert G. Hrivnak, Clearwater Paper Corporation - Senior VP of Finance, CFO & Principal Accounting Officer [99]

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We eliminated -- yes. We eliminated certain programs that we had because we moved to the ABL structure.

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Roger Neil Spitz, BofA Merrill Lynch, Research Division - Director and High Yield Research Analyst [100]

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Got it. So that program, this $30 million factoring program, that is gone.

The paragraph just at the bottom of that in the Q-2 suggests that you then entered, subsequent to June 30, an additional program. It actually almost sounds like a supply chain financing, except the fact that it's not under the supply chain financing paragraph, it's under the account purchase agreement.

When you say subsequent to June 30, you entered into another arrangement with a third-party financial intermediate, is that a separate factoring program than the $30 million program that you got rid of?

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Linda K. Massman, Clearwater Paper Corporation - President, CEO & Director [101]

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Roger, that's related to a customer program where we can take advantage of supply chain financing from a customer.

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Roger Neil Spitz, BofA Merrill Lynch, Research Division - Director and High Yield Research Analyst [102]

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Okay. So that actually refers to the supply chain. Because the next paragraph down which under the heading supply chain financing, is that one and the same, you have a supply chain financing program that you've implemented?

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Linda K. Massman, Clearwater Paper Corporation - President, CEO & Director [103]

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It's a similar program. It depends on which side of the equation you're on. In this particular case, it'd be a program with our customer.

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Robert G. Hrivnak, Clearwater Paper Corporation - Senior VP of Finance, CFO & Principal Accounting Officer [104]

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Right.

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Roger Neil Spitz, BofA Merrill Lynch, Research Division - Director and High Yield Research Analyst [105]

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Okay. And then the supply chain financing, which in the Q-2 it's actually referring back to December 2018 for some reason. But it says $20.8 million. But then it says that's on your balance sheet.

Is your supply chain financing actually on balance sheet and not deconsolidated?

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Linda K. Massman, Clearwater Paper Corporation - President, CEO & Director [106]

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Yes. That's also been unwound. And because of the terms and conditions in which we agreed, some of that ended up on the balance sheet as debt.

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Roger Neil Spitz, BofA Merrill Lynch, Research Division - Director and High Yield Research Analyst [107]

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Okay. So I'm just trying to figure out what your total, quote/unquote, debt [life] is. Should we assume since you entered into this $30 million facility, factoring facility in or about June 2018 that the only thing that's really been deconsolidated is that anything outstanding under your $30 million factoring facility and that any other things such as supply chain financing or any other arrangements, have all been on balance sheet?

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Linda K. Massman, Clearwater Paper Corporation - President, CEO & Director [108]

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Yes. I think you can look at our debt balances when the Q comes out, and that will be inclusive of debt. I think that's a fair way to look at it. And you'll see in the details that there are 0 balances on supply chain financing and factoring.

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Robert G. Hrivnak, Clearwater Paper Corporation - Senior VP of Finance, CFO & Principal Accounting Officer [109]

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That's right.

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Roger Neil Spitz, BofA Merrill Lynch, Research Division - Director and High Yield Research Analyst [110]

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Okay. I got it. And if I can move on from there. Thank you very much for the amount of raw materials you purchase in the presentation.

Regarding the polyethylene purchase, is that used -- do you purchase that more to coat the inside of your cup stock? Or is that polyethylene film that you use to package your tissue? Or is that both?

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Linda K. Massman, Clearwater Paper Corporation - President, CEO & Director [111]

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It's the coating for cup stock.

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Roger Neil Spitz, BofA Merrill Lynch, Research Division - Director and High Yield Research Analyst [112]

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Okay. And is that more -- maybe not terribly important. So just more curiosity on my part. Is that more LLDPE or LDPE or a mix? Or do you not know because it's not important as much for your company as it might be for things I'm thinking about?

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Linda K. Massman, Clearwater Paper Corporation - President, CEO & Director [113]

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Yes, it's low density.

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Roger Neil Spitz, BofA Merrill Lynch, Research Division - Director and High Yield Research Analyst [114]

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Low density, okay. And lastly, I think you've said that most or all of Shelby 2 tissue is contracted out, if I recall that correctly. Does that mean that most all of your tissue is contracted out of your machines?

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Linda K. Massman, Clearwater Paper Corporation - President, CEO & Director [115]

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No, I think that would be not the way to think of it. So we said that of the expected benefits related to Shelby, roughly half would be optimization of our existing network and half would be incremental volume. And then of the incremental volume, we said that about half was already committed to by existing customers, roughly.

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Operator [116]

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And our next question comes from Adam Josephson with KeyBanc Capital Markets.

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Adam Jesse Josephson, KeyBanc Capital Markets Inc., Research Division - Director and Senior Equity Research Analyst [117]

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Just one more on pulp. Sorry to beat a dead horse on this. And I may have asked this question on a previous call. But Bob, can you talk about how much of a drag pulp was for you when it was up $200, $300 a ton? And I think you may have mentioned $10 million or so. And then how much of a benefit you expect it to be this year? And then how much more you think there will be where that came from, again if you were just a flat-line [pulpier]?

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Robert G. Hrivnak, Clearwater Paper Corporation - Senior VP of Finance, CFO & Principal Accounting Officer [118]

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Okay. So I covered this a little bit earlier. So while we certainly benefited from lower pulp prices in 2019, year-over-year, on a year-to-date basis, we're actually flat because of these price caps. So that's '18 versus '19 year-to-date year-over-year.

So as pulp prices continue to come down, sequentially we will see benefits. But certain contracts, we're not at the crossover point because of these caps.

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Linda K. Massman, Clearwater Paper Corporation - President, CEO & Director [119]

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And Adam, I might just -- you probably know this chart in here. This is probably the easiest place to go. I mean it gets confusing based on the mix of pulp you use and whatnot.

But on Page 16, we have that sensitivity where it says if we see a per-unit change in pulp -- and this is just all grade. Of course, there's a different weighted mix for us. But nonetheless, $20 should equate to about a little over $5 million of EBITDA. That's a really good rule of thumb.

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Adam Jesse Josephson, KeyBanc Capital Markets Inc., Research Division - Director and Senior Equity Research Analyst [120]

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Right. So last year, you had a drag of what? Was it $10 million or so, if memory serves, full year drag from higher pulp?

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Linda K. Massman, Clearwater Paper Corporation - President, CEO & Director [121]

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Yes, that's pretty close.

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Adam Jesse Josephson, KeyBanc Capital Markets Inc., Research Division - Director and Senior Equity Research Analyst [122]

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And it's been flat this year. So presumably you would get something on the order of a $10 million benefit, if not more so next year? Is that the right way to think about it, if it's been no impact to...

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Linda K. Massman, Clearwater Paper Corporation - President, CEO & Director [123]

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I think that's [fair], yes.

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Adam Jesse Josephson, KeyBanc Capital Markets Inc., Research Division - Director and Senior Equity Research Analyst [124]

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Okay. So 10...

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Linda K. Massman, Clearwater Paper Corporation - President, CEO & Director [125]

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Yes. I think that's the way to look at it.

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Adam Jesse Josephson, KeyBanc Capital Markets Inc., Research Division - Director and Senior Equity Research Analyst [126]

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Okay. Just because -- yes. And then, just...

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Linda K. Massman, Clearwater Paper Corporation - President, CEO & Director [127]

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And it's all dependent on prices; but, yes, all things being equal.

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Adam Jesse Josephson, KeyBanc Capital Markets Inc., Research Division - Director and Senior Equity Research Analyst [128]

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Well, I'm just saying if you flat line where it is now, it should be a nice $10 million-plus benefit next year, I would think.

And then just on SBS, Linda. So you had the sappy tons come in earlier this year. You have the GP Crossett tons coming out literally this month. Can you just talk -- I mean, SBS backlogs are -- [operating] are down quite a bit this year, down about 300 basis points as the sappy tons have come in, operating rates are around 92%, 93%.

How much of an impact do you expect the Crossett ton exit to have? And I mean, would you expect a meaningful uptick in backlogs, operating rates next year as a result of that? Because you characterized the market as balanced, even though operating rates have come way down this year. So just a little more thoughts on where you think this market is and where it may be heading, given the capacity shut?

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Linda K. Massman, Clearwater Paper Corporation - President, CEO & Director [129]

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Yes. We agree with RISI as it relates to a relatively balanced market. So some of the tons going out and the tons coming in are relatively balanced. I hate to use that term again, but it's the right way to describe it. I think timing is different, right, because some have come down and others are still coming in. And I think some of these operating rates I believe are difficult to really surmise a lot about the market from because you, of course, had the mill tonnage going out. We took a major down in the third quarter. We know other mills took major downs in the third quarter. So while I can't explain exactly what's going on with those operating rates, I think a stable market is a good way to describe this right now. And [a few] backlogs would generally support that statement.

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Adam Jesse Josephson, KeyBanc Capital Markets Inc., Research Division - Director and Senior Equity Research Analyst [130]

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And so you think the best way to look at the market is the backlogs, not necessarily the operating rates?

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Linda K. Massman, Clearwater Paper Corporation - President, CEO & Director [131]

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I think you look at both and you try to discern what conditions are taking places that might have an influence on either one of those two metrics. And I think we have some explanations for why those operating rates might be lower temporarily. And considering backlogs are relatively stable, I think we're feeling fairly comfortable that this is still a good, solid market, nothing we're overly concerned about.

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Adam Jesse Josephson, KeyBanc Capital Markets Inc., Research Division - Director and Senior Equity Research Analyst [132]

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Yes. And just one last one on tissue. So obviously you announced price increases last year when pulp was skyrocketing. Pulp has since plummeted back to where it was before it started to skyrocket.

What impact is that having on tissue pricing? I mean given how competitive the tissue market is, particularly the conventional market, I would think that prices would naturally come under pressure given the oversupply situation and given that pulp input costs have plummeted. Agree or disagree with that?

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Linda K. Massman, Clearwater Paper Corporation - President, CEO & Director [133]

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Yes, I wish it was that easy. But generally speaking, you would expect some correlation, right? And we did see a positive price move last year that has had a positive impact this year. I'll tell you by no means did that cover the increased input cost we experienced over the last several years. So we are still under water as it relates to the inflationary cost. But you are absolutely right. It's a very competitive market and we have very astute retailers and there are always negotiations taking place around price that aren't always completely tied to commodity cost changes.

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Operator [134]

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

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Linda K. Massman, Clearwater Paper Corporation - President, CEO & Director [135]

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Great. Thank you for joining us today and for your continued interest in Clearwater Paper. And everybody have a great day. Thanks.

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Operator [136]

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Ladies and gentlemen, that does conclude the Clearwater Paper Third Quarter 2019 Earnings Conference Call. We do appreciate your participation.