Clearwater Paper Corporation (CLW) CEO Arsen Kitch on Q2 2022 Results - Earnings Call Transcript

Clearwater Paper Corporation (NYSE:CLW) Q2 2022 Earnings Conference Call August 2, 2022 5:00 PM ET

Company Participants

Sloan Bohlen - Investor Relations

Arsen Kitch - President and Chief Executive Officer

Mike Murphy - Chief Financial Officer

Conference Call Participants

Adam Josephson - KeyBanc Capital Markets

Mark Wilde - BMO Capital Markets

Paul Quinn - RBC Capital Markets

Operator

Good day, and thank you for standing by. Welcome to the Clearwater Paper 2Q '22 Earnings Call. [Operator Instructions]

I will now turn the conference over to Sloan Bohlen, Investor Relations. Please go ahead.

Sloan Bohlen

Thank you, Sarah. Good afternoon, and thank you for joining Clearwater Paper's second quarter 2022 earnings conference call. Joining me on the call today are Arsen Kitch, President and Chief Executive Officer; and Mike Murphy, Chief Financial Officer.

Financial results for the second quarter of 2022 were released shortly after today's market close, along with the filing of our 10-Q. You will find a presentation of supplemental information, including a slide providing the company's current outlook posted on the Investor Relations page of our website at clearwaterpaper.com.

Additionally, we will be providing certain non-GAAP information in this afternoon's discussion. A reconciliation of the non-GAAP information to comparable GAAP information is included in the press release and in the supplemental information provided on our website.

Please note Slide 2 of our supplemental information covering forward-looking statements. Rather than rereading this slide, we are going to incorporate it by referencing to our prepared remarks.

And with that, let me turn the call over to Arsen.

Arsen Kitch

Good afternoon, and thank you for joining us. Please turn to Slide 3. We had an outstanding second quarter that came in at the top end of our outlook range.

On a consolidated basis, we reported net sales of $526 million, which were 30% higher than prior year. Adjusted net income was $19 million, and adjusted EBITDA was $63 million. Let me share a few highlights.

Strong paperboard demand continued, and prices increased. Tissue demand was also strong as consumers turn to private brands to help offset the impact of inflation. We successfully renewed key tissue customer agreements that were expiring this year and captured price increases.

Inflation remains a headwind across most of our input costs, particularly in pulp, fiber, chemicals, energy and freight. In addition to price increases, we continue to improve our operating performance, which mitigated the impact of rising costs.

We reduced net debt by $68 million in the quarter, and almost $100 million in the first 6 months of the year. And as a result, we achieved our debt leverage target. And finally, we repurchased $4 million worth of shares with $26 million remaining on the authorization.

With that, let's discuss some additional details about both of our businesses. Please turn to Slide 4 for a few comments on our Paperboard business. The industry continued to experience strong demand across its end markets with higher SBS pricing as reported by RISI.

Since the beginning of 2021, RISI has reported price increases for the U.S. market that totaled $450 per ton. $250 of that was in 2021 and $100 in the first quarter of 2022 and another $100 in the second quarter of 2022.

As a reminder, it typically takes us up to 2 quarters for price changes to be reflected in our financials. It is also worth noting that our portfolio includes additional grades and price mechanisms that are not reflected in RISI.

While perceived economic uncertainty is impacting consumer behavior, we continue to see strong backlogs across our business. June orders remained strong as demand continued to outstrip supply. We will discuss the outlook for both of our businesses later in our prepared remarks.

Now please turn to Slide 5 for some additional comments on our Tissue business. We're seeing increased demand for private branded tissue products as consumers are becoming more value oriented. Private branded share of the tissue market climbed to over 35% in June, which is an all-time high.

We shipped 12.6 million cases in the second quarter considerably higher than the 10.2 million cases shipped in the second quarter of last year and 600,000 cases higher than the first quarter of this year.

I mentioned previously that over half of our tissue volume was up for renewal this year. Our sales team has done a wonderful job working closely with our customers to renew and extend key agreements, while securing new volume. In addition, the team has done a great job implementing previously announced price increases to help offset inflation.

With these moves, we have substantially reduced renewal risk in 2022 and 2023, and while positioning our business for success in the years to come. As discussed in previous quarters, both of our businesses continue to see substantial inflation.

In addition to price increases, we continued our focus on improving our operating and supply chain performance. That focus on pricing and productivity is helping to offset the inflationary headwinds that we cannot control.

I will now ask Mike to discuss our second quarter results in more detail.

Mike Murphy

Thank you, Arsen. Please turn to Slide 6. The consolidated company summary income statement shows second quarters for 2022 and 2021. In the second quarter of 2022, our net income was $15 million Diluted net income per share was $0.86. Adjusted net income per share was $1.11. The corresponding segment results are on Slide 7.

Slide 8 is a year-over-year adjusted EBITDA comparison for our Pulp and Paperboard business in the second quarter. We benefited from our previously announced price increases, which were largely offset by higher inflation across most of our spend categories.

You will recall in the second quarter of 2021; we took a major maintenance outage that impacted adjusted EBITDA by $22 million. We had a modest outage in the second quarter of 2022 of $4 million. A net positive impact of the larger outage in 2021 versus the smaller outage in 2022 was $18 million. You can review a comparison of our second quarter 2022 performance relative to the first quarter on Slide 14.

Please turn to Slide 9. We provide a year-over-year comparison for our Tissue business in the second quarter. We implemented previously announced price increases and realized a mixed benefit in the quarter. Our volumes improved versus prior year when the market was experiencing pantry destocking.

Our costs were higher due to inflationary pressures, partially offset by the benefits from the Neenah closure last year. You can review a comparison of our second quarter 2022 performance relative to first quarter on Slide 15.

Slide 10 outlines our capital structure. Our liquidity was $316 million at the end of the second quarter. We reduced net debt by $68 million with our free cash flows in the quarter. We utilized free cash flow to repay our term loan by $30 million, which is now repaid in full and repurchased $5 million of our notes that mature in 2025.

Additionally, we restarted our share buyback program in the second quarter, using approximately $4 million to repurchase around 120,000 shares at an average price of $32.96 per share.

Our net debt to adjusted EBITDA at the end of the second quarter 2022 was 2.2x, and net debt was $500 million, which meets our previously discussed leverage target. We expect to communicate our longer-term capital allocation strategies and priorities as part of our third quarter earnings call.

Slide 11 provides a perspective on our third quarter 2022 outlook with key drivers and some assumptions for the rest of 2022. Our expectations assume that we continue to operate our assets without significant supply chain disruptions. The risk of these disruptions remain elevated, but has decreased since the first quarter.

We want to reiterate that our price realization and inflation will continue to be difficult to predict. Our current expectation for the third quarter is adjusted EBITDA of $64 million to $72 million. The midpoint of the range for the third quarter is $5 million higher than the second quarter adjusted EBITDA of $63 million, but the expectation that previously announced price increases will outpace the freight inflation.

Let me share some expected quarter-over-quarter changes. Previously announced paperboard and tissue price increases are expected to positively impact us during the quarter by $20 million to $28 million in total. Paperboard's impact could be $13 million to $17 million and tissues impact could be $7 million to $11 million. We had a major maintenance outage in paperboard in the second quarter that impacted us by $4 million, and we have none planned in the third quarter.

We expect inflation, particularly in pulp, fiber, chemicals, energy and freight to cost us an additional $18 million to $22 million. We're also experiencing higher labor and other costs.

Let me comment on some of the key operational assumptions for 2022 to provide you with a framework to think about our potential full year performance.

If you previously -- if our previously announced paperboard and tissue prices remain at current levels throughout 2022, we expect a full year benefit of $255 million to $275 million. With $210 million to $220 million in paperboard and $45 million to $55 million in tissue. This represents an increase from our prior guidance based upon continued strength in paperboard and momentum in tissue.

We expect growth in converted tissue volume, but we expect the benefits will largely be offset by higher supply chain costs. Cost inflation, including pulp, fiber, freight, chemicals and energy is expected to be $185 million to $205 million, which is also higher than previous expectations.

We expect labor inflation, net of cost mitigation efforts to be approximately $10 million. In our Paperboard business, planned major maintenance outages are expected to have a similar financial impact us 2021.

In total, our outlook for price realization of previously announced price increases, net of inflation is expected to be approximately $60 million higher in 2022 versus '21. This is reflecting a $15 million increase relative to our previous communicated expectations.

For the full year 2022, we're also anticipating the following: interest expense between $35 million and $37 million, depreciation and amortization between $101 million and $104 million, capital expenditures of around $45 million to $55 million. This is lower than our previously expected long-term capital expenditures as we continue to deal with supply chain and other constraints, effective tax rate between 26% to 27%.

I do want to note that our cash flows after capital expenditures achieved in the first half of the year were $106 million. While we do not provide specific cash flow guidance, we're not expecting to achieve these levels in the second half of the year due to the following timing-related issues.

Net working capital benefited from some timing issues that generated a positive cash flow of $20 million in the first half. This will reverse in the second half. We expect to spend approximately $20 million more in capital in the second half of the year versus the first half. And our total cash taxes are expected to be $50 million higher in the second half.

Let me turn the call back over to Arsen.

Arsen Kitch

Thanks, Mike. We previously mentioned a larger than normal major maintenance outage planned for 2023 at our Lewiston mill to address our recovery boiler screen tubes, which are at the end of their useful life. While it's still possible that the outage may occur in 2023, we now believe that the more likely timing is 2024. That outage is expected to require a capital expense approaching $40 million and an estimated adjusted EBITDA impact of $30 million. We expect to make the final timing decision in the fourth quarter of this year.

We intend to provide you with further updates on outages for 2023 and 2024 and during our year-end earnings call. Our ability to offset inflationary pressures is key to our success. We have successfully offset these pressures in our Paperboard business with a combination of previously announced price increases and operating improvements.

While we have not been able to fully offset inflation in our Tissue business, we have made progress on increasing prices and reducing the cost of our products. We expect that these pricing actions in tissue will have an annualized run rate benefit above $70 million. We also made great progress in our customer agreements in tissue that position us for success for the next several years.

As I conclude my prepared remarks, I wanted to emphasize some of our key priorities for Clearwater Paper shareholder value creation. Our free cash flow generation is essential for shareholder value creation. To drive cash flows, we're focused on commercial, operational and supply chain improvements. We believe that these actions will continue to demonstrate a compelling free cash flow story for our investors.

We have used that free cash flow to rebuild our financial flexibility, which is critical in building a resilient business that can take advantage of opportunities as they're presented regardless of market conditions.

While we achieved our target leverage ratio during the second quarter, we anticipate revisiting our target given the rising cost of debt and the uncertainty in the economic outlook.

As Mike noted, we intend to discuss our capital allocation plan and priorities during our third quarter earnings call. These priorities will be anchored by continued performance improvement and capital expenditures and will likely include a balanced and opportunistic approach to return capital to shareholders, further deleveraging and possible M&A.

In closing, I would like to thank our people for all that they do to keep our operations running safely and efficiently and for servicing our customers. I also want to thank our shareholders for their continued support and our customers for placing their trust in us.

With that, we will end our prepared remarks and take your questions.

Question-and-Answer Session

Operator

[Operator Instructions] Your first question comes from the line of Adam Josephson of KeyBanc Capital Markets.

Adam Josephson

Thank you. Mike, forgive me if I missed, I wasn't able to listen to all of your prepared comments, but it looks like your price cost expectation for the year has improved by $15 million at the midpoint of the price mix and inflation ranges you gave, I don't think your labor inflation expectations change, but please correct me, if I'm wrong. Are there any components of that those full year numbers that I might have missed?

Mike Murphy

No. Adam, you have it correct that our labor expectations still $10 million higher year-over-year, and that was what we commented on last quarter. And relative to that price, call it, cost inflation differential that improved by $15 million versus the last time we spoke in the first quarter. Obviously, product prices are -- have moved up a little bit more than the input inflation that we've seen.

Adam Josephson

And should we assume, just on that same topic, Mike, that as you think about next year, albeit it's still early days that you would have some in effect left over a price/cost benefit going into next year in your SBS business? And if so, can you help give us some rough order of magnitude of what that could look like?

Mike Murphy

Adam, I'm going to stay away from commenting on 2023. I hope I will point to the fact that we're -- in Arsen's comments, we have not yet recovered the inflation that we've seen on the tissue side of the business. So we've got a little more work to do relative to what we've experienced over the past 18 months. So there is again, some more work to do to recover that margin.

Adam Josephson

I appreciate that. And on that topic, can you talk about the renewal of those key tissue agreements? And on what kind of terms you were able to renew those agreements and how that fits into this price cost recovery that you're talking about next year in your Tissue business?

Arsen Kitch

Thanks for the question, Adam. So I'll stay away from commenting on specific customer agreements or pricing. But what I mentioned last quarter, a couple of quarters ago, is that more than half of our business was up for renewal this year. And we focused on extending and renewing those agreements. There's still some work, some few details to work through, but we expect to significantly reduce our renewal risk in '22 and '23. And for us to have well below normal renewal in the next 12 to 18 months.

We also successfully expanded our volume with some customers. So I think that's very positive news for us as we head into next year. I think one of the comments that I made is -- if you look at our pricing actions on a year-to-date basis, if you take a full annual run rate, it's approaching $70 million.

So we're recognizing $45 million to $55 million this year versus last year. And on a full run rate basis, it's a $70 million improvement. So we've made good headway both on pricing, volume as well as extending customer agreements. So it's a great job by our sales team.

Adam Josephson

Kudos to you guys. And just one last one for me. You mentioned the SBS, the cumulative price increases of $450 a ton. When you look at folding carton, that's about 45%, a cumulative 45% price increase since the beginning of last year, it's a pretty extraordinary price increase even compared to other paper grades such as containerboard, kraft paper, I mean boxboard really stands out. And we've seen erosion in these other paper markets as the economy has weakened, I'm sure you're well aware of that.

Do you have any reason to think that boxboard is somehow distinct from the other paper grades whose prices have also moved up over the past 2 years, albeit not to the same extent as SBS and other boxboard grades? Just talk about that dynamic if you can?

Arsen Kitch

Yes. Certainly, we're seeing some economic uncertainty as everyone else is. Our order books remain very strong and our outlook for balance of the year is very strong as well. What I can tell you is today; we can sell more than we're producing. And so that remains -- I think if you look at the SBS market, it's used more towards consumer packaging and food service. So food, pharmaceuticals, cosmetics, and we believe for that to be approximately 2/3 recession resilient.

The food service market certainly struggled during COVID, but has rebounded as consumers are shifting from, call it, e-commerce and buying goods to services and experiences. So don't know exactly what's going on in the other markets. What I can tell you is what we're seeing is strong demand continues. Food service has certainly -- has been recovering over the last year or so. So we're seeing a strong market, but we're certainly watching it for any signs of change.

Operator

Your next question comes from the line of Mark Wilde with BMO Capital Markets.

Mark Wilde

Yes. I wondered, Arsen, if it's possible to just provide us with a little more granularity around what you're seeing on your kind of key inputs right now. And also labor, particularly as we move forward here, if you have any major contracts coming up?

Arsen Kitch

So let me start and then Mike can fill in some of the blanks that I may have missed.

If you look across our cost categories, pulp is up, that's -- everyone knows that it's up probably north of 30% for us year-over-year. Wood is up. Energy is up and that trend is -- that trend seems to be worsening with the global issues that are taking place. Chemicals are up, freight is up.

So in total, I think last quarter, we were probably seeing around a 15% input cost inflation. We're probably pushing 20% at this point in total. So we're seeing that across the board.

Now I think on freight, we're starting to see some hints of moderation and easing. In terms of pulp, it's anyone's guess. But in terms of freight and potentially in some cost areas, we're starting to see what appears to be the peak and some easing.

On the labor side, we don't have any agreements coming up here in the near-term, but that's certainly something we'll -- as they come up, we'll be looking at those closely and seeing what needs to be done to make sure that we have the right workforce operating our assets.

Mark Wilde

Okay. And just on pulp, Arsen. I did see that [Indiscernible] dropped the price in China just in the last day or 2, and there have been some stories about pulp pricing starting to show some cracks here in North America. Would you care to provide any kind of further comments on that?

Arsen Kitch

I think the pace of increases has slowed. So I suppose that's good news. NBSK softwood, it appears to have peaked. I still think there's some logistics and strong underlying demand supporting eucalyptus out of Latin America. But there is new capacity coming online in the next 12 to 18 months.

We try to forecast pulp. We haven't been very successful at it. If you look at some of the external forecasts, they are expecting easing -- some easing in the second half, but I think we've all been wrong here for the last number of quarters in terms of pulp forecast.

Mark Wilde

Yes. Well, I've been trying to do that for 35 years, and I haven't had much luck.

Can you also give us a sense just on the price side of just when we move kind of sequentially from kind of second quarter to third quarter, what we might expect in terms of your tissue realizations?

Mike Murphy

So Mark, good question. So we commented in the prepared remarks that for tissue, we thought that we'd be up $7 million to $11 million quarter-over-quarter. So that's second quarter to third quarter.

I think maybe add to that, I think we hit our run rate in terms of that price realizations for our tissue price increases towards the end of the third quarter. And so that's when we'll be hitting that $70 million annualized benefit.

Mark Wilde

Okay. And Arsen, I'm just curious in the Tissue business, we've spent the last couple of years talking about overcapacity in tissue. And I just noticed that the biggest of your competitors is putting $0.5 billion into a mill that really used to make just commercial tissue and it looks like they're going to invest in a TAD machine, and it looks like it's going to be aimed at the consumer market.

So just any thoughts on that situation and why in the face of would have been pretty disappointing returns across much of the tissue sector, we're still seeing such huge capital investments?

Arsen Kitch

I'll stay away from commenting on specific actions. I think what you're seeing is additions and subtractions by some players. If you look at the macro, the macro picture, if you look at '19 and '20, there was north of 150,000 tons added primarily in the private branded space. If you look at the net additions in '21, there were, give or take, 60,000, 65,000 tons in '22, they're forecasted to be net-net about 19,000 tons, and there are some announcements out there for '23 and '24.

But it appears to be that in total, there is a slowing of additional capacity being added. And I suspect it's harder to justify from a return perspective and that is getting more expensive. And so that may be having an impact on the market -- on the industry.

Operator

[Operator Instructions] Your next question comes from the line of Paul Quinn with RBC Capital Markets.

Paul Quinn

And just a question on your Tissue business and the renewal of these customer contracts. I mean, it looks like there was a lot of capacity came out of the tissue and North American tissue market in the first half of the year, but there's a lot of capacity that's going to be started up in the second half of the year.

Were you guys like knowing that volume coming into the -- especially in the second half of the year, did you get ahead of -- on those contract renewals just so you wouldn't run into competition from these new mills starting up?

Arsen Kitch

I think with these renewals as they come up, we start negotiating them on a normal time frame. We just had an unusually large number of renewals this year given how the contracts or how the agreements fell out.

So we started negotiating and we got to -- we're getting to a good place. We're getting to a good place with our largest customers. I think they are -- what they're looking at is what their value is reliable supply, quality and service, especially in these -- during these times. And I think we've delivered.

We've delivered on that promise over the last several years, and I think they're recognizing that. So I'm very pleased with the progress that we've made in a challenging environment to get these agreements in place while implementing price increases.

Paul Quinn

Okay. So I think previously, you said that typically, you have 25% of your contracts up for renewal this year was heavier with over 50%. Given the renewals, and it sounds like you've extended some of them. Are you going to expect a similar pattern like next year, kind of 25%, 25% and then another 50%? Or have you more or less normalized the renewals on a year-over-year basis?

Arsen Kitch

I think as we finalize the last few details on these agreements, I think what I would expect to see is lower renewals in '22 and '23. And we've also -- thoughtfully as we're working through these renewals, try to stagger them so we don't have increased risk in any particular year. But if you look over the next 18 months between this year and 2023, we should see less than normal renewal risk than we typically see.

Paul Quinn

That's great. And then just on the recovery boiler pushing that off and -- potentially pushing that off into 2023. Is that going to have a production impact on the asset facility?

Arsen Kitch

We're still working through that. And I think -- initially, we thought we may do it in '23. At this point, the most likely scenario is 2024. But we'll know more at the end of this year as we do a major outage in Lewiston. And then we'll have definitive timing coming out of that. So certainly, when we take an outage to do the repair work, there will be downtime as part of our normal major maintenance outage.

Mike Murphy

And Paul, on the production front, it will impact our pulp production at the mill. We'll provide you greater updates as we get closer to nailing down the timing for the outage.

Operator

Your next question is a follow-up from Adam Josephson with KeyBanc Capital Markets.

Adam Josephson

I appreciate it. Arsen, 1 obligatory recession question for you. So in the event of one, I would think you'd benefit in tissue given this ongoing move toward private label and the fact that pulp prices are historically high and are likely to come down perhaps quite dramatically in a recession.

On the other hand, in SBS, you mentioned that 2/3 of the -- your sales or industry sales or to what you consider recession-resistant end markets. But obviously, the fact that industry prices are up 45% in 1.5 years would suggest that pricing is pretty cyclical in that business.

So how would you frame your profit sensitivity to a recession in light of all those variables and whatever others come to mind?

Arsen Kitch

I think if you look at tissue typically during a recession, you see more growth in the private branded side. But what I would tell you is, if you look at the last 4 or 5 years, actually the last 10 years, you've seen private branded share continue to gain. So this last quarter, we were up to 35%. And in 2019, we were 31%, 32%. So you're seeing this continued march towards more private branded share in the tissue space.

So certainly, during recessions, the private branded tissue demand should do well. At this point, I don't know how the pulp markets react. They're global in nature, so don't know how they react to a recession. But maybe it's fair to say that there should be an easing in terms of costs.

On the paperboard side, the last time we had a major recession was in '08 and '09, and there was a decline in paperboard demand. But fundamentally, what's going to drive that market supply and demand and the supply and demand situation today is fundamentally different than what it was in '08 and '09.

And so supply is continues to be -- demand continues to outpace supply and supply is tight. So as -- if we were to enter a recession, and there was a slowdown in demand, I don't know what impact it would have on our supply and demand picture. But certainly, what we've experienced here over the last 1.5 years has really been driven by supply being fixed and demand far outpacing supply.

So it really depends on how the recession -- packaging, food service, this plastic to paper conversion, so it's pretty hard to tell exactly what happens in this recession and will it look similar to the last one that we have.

Adam Josephson

One question along goes on, Arsen, which is the supply tightness. Can you talk about the FBB import dynamic and the extent to which that has changed during that pandemic because of all the port congestion and the sky-high freight costs and where you potentially see that going?

Arsen Kitch

Yes. I think it's logical to assume that there's been a constraint on imports, and it's been more challenging for converters to rely on FBB that's sitting on a ship coming over from Europe. So certainly, there's been a constraint with FBB.

As logistics ease up and freight eases up, I think we got to -- we will expect to see more of that paper show up on our shores. So that will certainly be an impact once the supply chain is ease up. The question becomes, when do they really ease up? When do those costs go back to where they were before? And what will the Europeans decide to do?

Adam Josephson

Yes. No, absolutely. And on capital allocation, Arsen, you talked about future opportunities, including returning capital, M&A, presumably reinvestment. Just talk about -- I know you're not going there yet, but any preliminary thoughts on what cap allocation opportunities perhaps look most compelling to you at this stage? Is it reinvestment in one of the other businesses? Is it returning cash to shareholders? Any thoughts along those lines appreciating that you plan to communicate more in a matter of months?

Arsen Kitch

Yes. We'll talk more after Q3, but just some preliminary thoughts.

The capital markets have changed, debt costs have increased. So we need to revisit our leverage targets and see if they -- if that 2.5 makes sense. I suspect we'll do further deleveraging in the upcoming several years. We're going to continue to invest in our assets. And frankly, the last couple of years, our capital expenditures have been lower than what our target is. So we need to identify where we have good projects internally to invest in.

Beyond that, I think we'll be opportunistic when it comes to returning and doing share buybacks and so on, but more on that to come after Q3. I mean, it's going to be all of the above, and we'll provide a bit more detail after Q3.

Operator

My apologies. We have a follow-up question from Mark Wilde with BMO Capital Markets.

Mark Wilde

I'm just going to tag along on that question, Adam asked about folding boxboard imports.

I'm just curious, Arsen, the other dynamic other than port congestion is that we've now got a pretty significant drop off in the euro, which would -- to make exports more attractive for those producers.

But if you're a U.S. folding carton customer, how much flexibility do you think they have to kind of toggle back and forth between different suppliers because typically, people that ship tonnage into the U.S. market when the currency is favorable, may not be here when the currency is not favorable. And that would seem to be part of the equation any buyer would have to think about.

Arsen Kitch

Yes. And that's really at the heart of the issue. So if you're an independent converter and you have an agreement or a contract with a large CPG company, you're [specking] out a specific quality and a specific attributes of the Board. So either you make -- you're set up for 1 substrate, right? And so it becomes -- especially if there's not a reliable supply of board coming from Europe, it's hard to go spec in that board into a CPG company knowing that, that supply may not show up next month.

So I think that's been at the heart of the issue. FBB has been here for decades. This is not a new phenomenon in North America. And really the biggest issue has been that reliability of supply comes -- it comes and goes depending on logistics, the strength in the dollar and so on and forth.

Mark Wilde

Okay. That's helpful. Good luck in the back half of the year.

Arsen Kitch

Thank you.

Operator

This concludes the question-and-answer session as well as today's conference call. You may now disconnect your lines.