Clearwater Paper Corp (CLW) 2022 Q1 法說會逐字稿

Good day. My name is Emma, and I will be your conference operator today. At this time, I would like to welcome everyone to the Clearwater Paper's First Quarter 2022 Earnings Conference Call. (Operator Instructions) Thank you. Sloan Bohlen, Investor Relations, you may begin your conference.

Thank you, Emma. Good afternoon and thank you for joining Clearwater Paper's First 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 first 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 reference into our prepared remarks.

With that, let me turn the call over to Arsen.

Good afternoon and thank you for joining us today. Please turn to slide 3. As you saw from our press release, we had an outstanding first quarter that exceeded our original expectations. On a consolidated basis, we reported net sales of $488 million, which was 15% higher than prior year. Adjusted net income was $18 million and adjusted EBITDA was $59 million. A few highlights to mention. Strong paperboard demand continued and prices increased. Tissue demand was stable, while prices increased. Inflation continued to be a headwind across most of our input costs, particularly pulp, chemicals, energy and freight.

We continue to focus on offsetting inflation with price increases and better operating performance in both businesses. And finally, we reduced net debt by $31 million in the quarter. As a result of our strong first quarter performance and our improved outlook for the year, we're now anticipating achieving our debt leverage target sooner than anticipated and are resuming our previously authorized share buyback program. The program has approximately $30 million remaining. 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 continues to experience strong demand across various end markets, even with higher SBS pricing as reported by RISI. Since the beginning of 2021, RISI reported price increases for the U.S. market that totaled $400 per ton. $250 of that was in 2021, $100 in the first quarter of 2022 and an additional $50 per ton in April 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's reporting.

We will discuss the estimated impact of pricing later in our comments. Please turn to slide 5 for some additional comments on our Tissue business. Demand was stable and we believe they were beyond the impact of COVID, barring the effects of any future waves. We're starting to see signs of inflation and economic uncertainty to impact consumer buying patterns. As an example, private branded share climbed to a high of 34.5% in Q1, which we believe is an indication that consumers are prioritizing value to offset inflation. We will follow these trends closely in the coming quarters. Our shipments were in line with industry trends. We shipped 12 million cases in the first quarter, higher than the 11.7 million cases shipped in the first quarter of 2021, which included approximately 400,000 cases of away-from-home sales, a business which we have exited.

Sales were slightly down from the 12.4 million cases, which we sold in the fourth quarter. We entered 2022 with what we believe to be the right inventory levels after carefully managing production in 2021. As a result, we were able to achieve good capacity utilization during the quarter. Improved pricing and better fixed cost absorption led to adjusted EBITDA for CPD that more than doubled versus the fourth quarter. Both of our businesses continued to experience substantial inflation across most cost categories.

In addition to price increases, we continue to focus on improving operating and supply chain performance to maintain margins. Our operating performance improved versus previous periods despite the well-known supply challenges. Our focus on internal initiatives is delivering and helping offset some of the headwinds that we cannot control. We will discuss the impacts of these later during our call.

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

Thank you, Arsen. Please turn to slide 6. The consolidated company summary income statement shows first quarter for 2022 and 2021. In the first quarter of 2022, our net income was $17 million. Diluted net income per share was $0.97 and adjusted net income per share was $1.03. 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 first quarter. We benefited from our previously announced price increases, which were partly offset by higher inflation across most of our spend categories.

Please recall that we were impacted by a freezing weather event in the first quarter of last year that did not repeat in 2022. This was partly offset by a capital project installation and related maintenance outage in this quarter. In total, the Paperboard business delivered adjusted EBITDA of $60 million. You can review a comparison of our first quarter 2022 performance relative to fourth quarter on slide 14 in the Appendix. Please turn to slide 9, where we provide a year-over-year comparison for our Tissue business in the first quarter. We implemented previously announced price increases and realized some mix benefit in the quarter.

Our volume improved versus prior year when the market was experiencing COVID pantry destocking. You can review a comparison of our first quarter '22 performance relative to our fourth quarter on slide 15 in the Appendix. Slide 10 outlines our capital structure. Our liquidity was $283 million at the end of the first quarter. We reduced net debt by $31 million with our free cash flow in the quarter. We utilized free cash flow to reduce our term loan balance to $30 million. Maintenance financial covenants do not present a material constraint on our financial flexibility, and we do not have any near-term debt maturities.

Our net-debt-to-adjusted EBITDA at the end of the first quarter 2022 was 3.1x. We continue to make progress on our targeted net-debt-to-adjusted-EBITDA ratio of 2.5x which we now expect to achieve this year. Effective after this earnings announcement, we have decided to resume repurchases under our existing share buyback program, which has $29.8 million outstanding. As we approach our target leverage ratio, we expect to begin communicating our longer-term capital allocation strategies and priorities.

Slide 11 provides a perspective on our second 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 COVID-related or other supply chain-related disruptions. While supply chain issues manifested themselves as higher costs during recent quarters, there are concerns about certainty of supply of raw materials that may not be solved by paying higher prices or using substitutes and could impact production or ability to ship products in a timely fashion.

We want to reiterate that our price realization and cost inflation will continue to be difficult to predict. Our current expectation for the second quarter is adjusted EBITDA of $54 million to $64 million. The midpoint of the range for the second quarter is similar to the first quarter adjusted EBITDA of $59 million, with price increases largely offsetting inflation with the following details. Previously announced paperboard and tissue pricing are expected to positively impact us during the quarter by $12 million to $16 million in total.

Paperboard's impact could be $10 million to $12 million and tissues impact could be $2 million to $4 million. We expect volumes to increase in paperboard. We expect continued inflation, particularly in fiber, chemicals, energy and freight to cost us an additional $14 million to $17 million. We want to comment on some of the key operational assumptions for 2022 to provide you with a framework to think about our potential performance. If our previously announced paperboard and tissue prices remain at current levels throughout 2022, we would expect a full year benefit of $200 million to $230 million with $170 million to $190 million in paperboard and $30 million to $40 million in tissue.

This represents an increase from our prior guidance based upon continued strength in paperboard and some momentum in tissue pricing. We expect growth in converted tissue volume, but the benefits will largely be offset by higher supply chain costs. We do have new contractual wins and are working through our renewals later in the year. Cost inflation, including pulp, fiber, freight, chemicals and energy is expected to be $150 million to $170 million, which is also significantly higher than previous expectations.

We also expect some labor inflation, net of cost mitigation efforts, which we estimate to be a $10 million headwind. In our Paperboard business, planned major maintenance outages are expected to have a similar financial impact as in 2021. In total, our outlook for price realization from previously announced increases, net of inflation is $45 million at the midpoint and reflects a $20 million improvement relative to our prior estimates for the year. We'd like to reiterate that volatility in our markets has also increased.

For the full year 2022, we're also anticipating the following: interest expense between 35 and $37 million, depreciation and amortization between 101 and $104 million, capital expenditures of approximately $60 million to $70 million, in line with our historical average, excluding extraordinary projects and some projects that have moved out of 2021 to 2022 due to some timing issues. We and our vendors continue to experience some supply chain issues, which may cause further delays and our effective tax rate to be 26% to 27%, which is an increase from past expectations as a result of a state income tax law change, and we expect to be a cash taxpayer in 2022.

In last quarter's earnings call, we mentioned that we have a larger than normal maintenance outage in 2023 at our Lewiston mill to address our recovery boiler screen tubes, which are at the end of their useful life. Our major maintenance outage EBITDA impact estimates for 2023 remain unchanged on slide 20. The replacement will also require additional capital expense, which will likely exceed $30 million. The timing of this outage may also be impacted by the availability of supplies and contract labor. We look forward to updating you on timing, cost and capital later this year.

Let me turn the call back over to Arsen.

Thanks Mike. Our ability to offset inflationary pressures is key to our success in 2022. 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're starting to see some progress. We implemented a tissue price increase late last year and announced another price increase on April 1 of this year, which we're currently implementing.

In addition to these price increases, we're also desheeting our products to offset inflation. We expect that these actions will have an annualized run rate benefit in the mid- to high-single digits with a full implementation by the third quarter. As I mentioned last quarter, we have some significant tissue customer agreements up for renewal in 2022. We're focused on these renewals as well as pursuing new volume opportunities. Our discussions with key customers are progressing, and we also experienced new wins that should improve our sales volumes later this year.

We will continue to update you on our progress. Finally, there was a capacity reduction announcement in the tissue industry. RISI has reported the facility to be closed has 154,000 tons of conventional tissue capacity. 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 flow generation, we're focused on commercial, operational and supply chain improvements in both of our businesses.

We're doing this through an intense focus on internal improvement efforts and capital investments to maintain and improve the cost position of our assets. We believe that these actions will continue to demonstrate a compelling free cash flow story for our investors. Our current capital allocation focus remains the reduction of our net debt to improve financial flexibility. We demonstrated this by reducing our net debt by nearly $300 million in the last 2 years. This has allowed us to improve our liquidity and largely pay down our term loan.

As we mentioned previously, given our size and the cyclicality of our business, we believe that our target leverage ratio of 2.5x is a good point from which to communicate longer-term capital priorities. These priorities will include a balanced and opportunistic approach to return capital to our shareholders, possible M&A, profitable CapEx and further deleveraging. As mentioned earlier in the call, we're moving forward with the resuming share buyback under our existing program. This decision reflects our improved outlook for the business and robust cash flow generation.

We look forward to communicating a more comprehensive capital allocation planned with you later in the year. 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. In particular, I would like to thank our team for coming up with clever solutions to some very challenging supply chain issues to continue running our assets and service our customers. I also want to thank our shareholders for their continued support and our customers for choosing us.

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

(Operator Instructions) Your first question today comes from the line of Adam Josephson with KeyBanc Capital Markets.

A few questions for you. One is just on your guide -- the change in your guidance, so your price cost spread expectations have improved by $20 million. I just want to confirm that, that is really everything that's changed in terms of your full year outlook? And relatedly, of the pricing improvement of $85 million, how much is paperboard versus tissue? I assume the vast majority is paperboard, but any information you can give me there would be helpful.

Adam, it's Mike. Thanks for the questions. So on part one of the question, yes, the price less cost improvement, we're expecting $20 million for the year. Really in our first quarter relative to the midpoint, we were better by $7 million. Most of that was price mix. So the remainder of the year is in total, $20 million. When we look at the SBS pricing guide that we gave at the end of last year, it was $110 million to $120 million. We're now in the $170 million to $190 million area.

And tissue pricing, we had guided previously in the $10 million to $20 million. We're now in the $30 million to $40 million. When we talked about inflation, this is raw material input and freight, not labor. Our inflation was 90 to 100 at the end of last year. It's now $150 million to $170 million. So those are the components that go into and an improved outlook as it relates to that priceless input cost number.

That's perfect. A couple of others. Have your cash flow expectations changed at all with this improved EBITDA outlook or not necessarily because inflation is taking a bite out of working capital?

Yes. I think, Adam, on the margin, our cash flow expectations are improving. We haven't guided to cash flow publicly. But yes, we're seeing an uptick in terms of our cash flow expectations.

And Adam, 2 things that were mentioned on the call as well as, as we expect to get to our target leverage ratio a bit quicker than we initially expected. And we're also resuming our share repurchase program. So as our outlook has improved and our cash flow generation is robust we can do both.

I appreciate that Arsen. On the comment you made, Arsen, about the reduction of about 150,000 tons of conventional tissue capacity, can you just frame for us how consequentially you think that is in the grand scheme of things, just given the supply-demand imbalance that you've referenced in the private label tissue industry previously? How far does this closure go in alleviating that problem just to give us some perspective?

Adam, it's a difficult question to answer. It's approximately 150,000 tons of capacity. We don't know how much of that capacity was actually operating. It's also hard to tell how much of that capacity was in the private branded space versus the branded space. If you look at the total market and you assume it's a 3.5 million, 4 million conventional ton market, both branded and private branded, it's somewhere in the low to mid-single digit percentages. But it really depends on how much of that mill was operating and how much of that capacity was going towards the private branded market.

If you look at total capacity changes over the last several years between 100,000 tons and 170,000 tons per year has been added. If you look at this announcement this year, it's essentially flat to down a bit. And next year we're expecting to see 70,000 more tons of capacity being added. So, certainly it makes a difference in terms of the overall balance and the additions versus the closures that are taking place.

One other tissue-related question. You mentioned indications that consumer buying behavior is being affected by inflation. And you referenced private brand market share rising to now above 34%. Can you just give us some frame of reference for what it's been historically, what you've seen in previous such periods of either recessions or just your real income decline? Just give us some frame of reference for previous such periods and where private label share is now compared to historical levels, etcetera? And what that means for you, I assume that's good for you. But also, just how -- what do you think that means for Clearwater, if this were to continue?

It's a great question. I'd say historically we would expect inflationary or recessionary environments to drive higher private branded growth. Although if you look over the last 10 plus years, private brands have gone from 20% -- around 20% share to now at 34% share. And most of that time we've seen very strong economic conditions around the U.S. But we certainly saw bump here over the last 3 months with share moving from, call it, 33% at the end of last year to about 34.5% at this year. We are clearly looking at various consumer trends that are taking place.

And we would assume private branded share would improve. We're also looking at product mix to consumers' trade down quality tiers. Do they trade down between pack sizes and what happens in the channels between club grocery and dollar channels? So we're -- it's a bit too early to tell how this potential inflationary environment is going to impact private branded trends. But certainly the earlier read as the share has bumped up pretty quickly here in the last 3 months.

For us as we've said before, we're more heavily weighted towards the grocery channel and the dollar channel than the rest of the industry. So for us, it's going to be how those channels do in this market environment is going to drive our fortunes. More broadly speaking, I think we will see stronger demand for private branded share as capacity additions slow like they appear to be slowing, we could see a better supply and demand position industry in the coming years.

And just one last question for Arsen. So we just talked about tissue's economic sensitivity or lack thereof. Can you talk about SBS in that same context? I know there are many end markets for SBS. Some are more economically sensitive than others. How would you frame for us how SBS demand has held up in previous economic downturns and how is that informing your view of what is most likely to happen to SBS demand over the next year? Were we to go into some kind of economic contraction?

So, Adam, it's Mike, I'll chime in there. I think historically we've talked about SBS as having about 2/3 of the demand that we see is economically resilient. The other third might be exposed to economic cycles. We're not a converter, so we don't have perfect visibility into all the end markets. I think where we sit now, the SBS market is in an oversold position and so I'm not sure that there's a fair comparison to let's say the 2007, 2008 time horizon. I suspect that we've got to as an industry a stronger order book, a stronger backlog than we did call it a dozen years or so ago.

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

I wanted to start just by tease another comment Arsen made in the course of his comments and that was about kind of raw material supply chain risks and that may be rippling to you in terms of your production ability. Can you put a little more color on that?

Yes. So what we are challenged with and I think the industry's challenge with right now is just truly managing through the supply chain of key inputs. So for example, Mark, chemicals right? So as you know in this space there is quite a few specialty chemicals required to run our assets. And those chemicals, a lot of times the components come from overseas. So, we're -- I think the industry overall is beginning to be challenged in terms of ensuring continuity of supply. We managed through it and I think we've been pretty creative in doing so. But we wanted to call it out as an issue that we're facing and we assume the industry facing in total. And I'm just using chemicals as an example.

I mean, is there a particular chemical Arsen that's -- you see particular -- you see a keen risk with?

Nothing in particular. There is a number of specialty chemicals. I would say, the issue is also in places like pulp, right? You had price of pulp has gone up and it's really more driven by the transportation issues than underlying demand issues. So, it's ensuring the right flow of pulp from key suppliers up in Latin America or in Canada as well due to some of the transportation bottlenecks that exist. I think it's across the board. We're managing through them. And I think it's one of our strengths as a business just to manage through those types of disruptions. But that's certainly something we're facing right now.

Okay. And then secondly, you flagged some contractual wins so far this year, but you also noted that you've got a lot of stuff in negotiation right now. Is it possible to get a sense of just at this point in the year where you're at in terms of both wins and retention versus what you would have considered your baseline?

So, let's start with the wins. So these are primarily wins with existing customers where we're expanding distribution of our products. If you were to -- I'll estimate, if nothing else changes in the business, this should be a north of a 5% increase in our baseline volume later in the year. So, we've had some nice wins with customers. But as I mentioned on the previous call, up to half of our business is up for renewal this year and those conversations are continuing.

As you may imagine, given all the supply chain disruptions, those conversations are a bit different than they have been in previous years. And I think we're emphasizing the importance of stability of supply and the capabilities that we bring to the table to ensure that we can get product on the shelves on the tissue side. So, we're working through those and we'll update you later in the year as we -- as those draw to a conclusion.

Okay. And that's -- like, I've never seen a period with more price hikes, particularly over in the SBS market. Can you just walk us through sort of cadencing on both SBS and tissue hikes? You mentioned a couple of around the tissue hikes as well, but just give us some sense of how we should expect this to roll through?

Sure. So, Mark, I think there's greater clarity on the paperboard front where Fastmarkets RISI publishes their indices. And what we talk about there is it takes typically 2 quarters to achieve the vast majority of those benefits. And from a modeling standpoint, those indices aren't perfectly representing the product. So, order of magnitude, maybe 75%, 80% of that you'll see impacting our top line.

Tissue, it's a bit more challenged because we don't have that third-party index. You heard us talk about late last year that we were implementing price increases. Those are flowing through to our customers here, largely tail end of the first quarter into the second quarter. We also undertook some desheeting activities that are starting to impact us here in the second quarter through the rest of the year and then on April 1, we took action again in terms of an additional price increase and that's going to take us a little bit of time to implement. Arsen, do you want to add on to that?

No Mark, if you look at tissue, we're expecting year-over-year $30 million, $40 million impact from pricing as well as desheeting. So that's a -- that's not an annualized number, that's an actual improvement year-over-year and I also said that we should expect to see a mid- to high-single digit pricing revenue improvement in tissue on an annualized basis as well. So hopefully that provides a bit more context on tissue.

Okay, all right. And then finally Arsen, you and Mike have been pretty vocal about the industry structure challenges. I'm just curious. I mean, we're definitely having these conversations in the investment community, but within the industry and in industry management, you get a sense that there is more discussion of that topic today than there was say 12 months ago.

No Mark, I think we'll stay away from commenting on industry chatter. I think we will reiterate, as I think we continue to believe that consolidation is needed to improve to improve scale and returns in our business. As you know, the industry has a large number of family-owned businesses and they likely have different set of expectations than we do as a public company. So really not clear how or whether consolidation will occur or can occur but it's certainly something that we think is needed.

(Operator Instructions) Your next question again comes from the line of Adam Josephson with KeyBanc Capital Markets.

Can one of you just address the paperboard share gain issue? We've heard from other producers and from Fastmarkets RISI that paperboards taking share from plastic, even though there's been one prominent example of a fast food chain moving in the opposite direction of late. So can you just talk about the degree to which you are experiencing that shift from plastic to paperboard? And just give us some examples that we'd be familiar with in our daily lives just so we kind of better understand where this shift is actually happening?

So Adam, thanks for the question. In terms of the shift, I'd say it's at the moment not clear given the supply chain issues and given that I think the SBS industry's sold out. And so I think you have people, customers who are ultimately just trying to source, let's say, a cup, whether it's paper or plastic they just need to get a cup on the shelf for foodservice. So I don't think at this juncture that we have really good data to say what is that share gain? I think if we were to be in a market where there's some opportunity for SBS capacity to be sold through that we could potentially see some better evidence of those share gains.

So have there been any notable examples in the last, I don't know, 12 months or so, Mike, that you can think of or it's not readily apparent?

I think that you have that active dialogue, Adam, but I'd hesitate to comment on it because I think we have a lot of our converter customers saying, if you can only give us more board, we can pull it through, especially on the food service side.

Adam, looking at the longer run, I think what's important for us is to continue to innovate and bring products to the market beyond this time that are relevant. So, as you look at our post-consumer recycle content, some of the coating innovation that we've rolled out, I think we have a good pipeline of products that will ultimately, as we get through this time we'll have a strong demand in the market, right? And we're seeing that and if we could sell more, we could make more at this point.

There's a couple other. Mark mentioned in your previous comments about the private label tissue industry's need for more consolidation. Have any of the recent, the capacity reduction you referenced, the slowing pace of capacity additions, the shift toward private brand, at least in the last couple of months. Have those events changed your thinking at all or your thoughts really unchanged from 3 months ago in any meaningful way?

I think we still believe that consolidation is needed. If you look at the capacity that's been added over the last number of years, outpacing demand growth, I think we are perhaps a bit more optimistic as we look out over the next several years in terms of the supply and demand balance with private branded share growing and maybe the capacity additions slowing and even potentially some slowdown of imports due to some of the supply chain issues that are taking place. But it hasn't fundamentally changed our perspective.

And just one last one. Speaking of industry structures, as Mark was mentioning earlier, there has been this unprecedented wave of SBS price increases over the past year and few months. And coincidentally or not, there was a major capacity addition announced. Now it won't hit until, I guess 2025 that the first wave of it. But do you think industry returns have reached a point at which they are incenting new capacity? And is that affecting how you're thinking about putting more capital into that business? Why or why not?

Hey, Adam. It's Mike. I think it's a good question. I think we take a longer term view on what's going to play out here in paperboard. And as we're looking at capital allocation, we can't assume that whatever is happening today in 2022 is going to persist for the next decade. And so, we'll see how things play out. And obviously, we had a competitor who made that announcement. There may be others who make a similar sort of announcement. We don't know. That would just be speculation.

I'm sorry, go ahead, Arsen, go ahead.

I think overall as what we said last time is, there's -- the industry is -- demand is exceeding supply right now. And there is a shift from plastic to paper that's a longer term trend. Demand is growing. So there is natural demand growth that we think -- I think we said this last time, it could be between 400,000 tons and 800,000 tons by the end of the decade. And so, I think we remain positive on the industry, but certainly we're looking at the various changes that are on the horizon and making sure that we're well positioned to whatever happens.

Completely understood. And just one last one, in terms of cap allocation, so you're going to be able to resume repurchases, you're expecting to hit your leverage target earlier than you previously did by year end, all of which is good. And can you just update us on when you plan to come out with some, I guess, strategic plan in terms of what your next big move might be in terms of cap allocation, once you hit that 2.5 times level and you think that you will remain there or perhaps go even lower than and you'll be in a position to do something of consequence?

Yes, I think we'll be mentioning it as we approach that target, that we'll communicate a more a more comprehensive plan and we said we'll achieve that target by year end. So, I would assume in the next several quarters we'll communicate a longer term capital allocation strategy. I think it's going to include things like further deleveraging. It's going to include things like return of capital to shareholders. As you know, M&A is something that's, it's difficult to plan for. We're obviously going to be open to it if it enhances and creates value and if it doesn't, then we won't. But it will be a combination of a few things that will likely include, deleveraging, returning capital, continue to invest in our assets and looking over the horizon for potential M&A opportunities.

Your next question comes from the line of Paul Quinn with RBC Capital Markets.

Just want to follow up on one of Mark's questions on, Arsen, the tissue contracts that you talked about half of them being up this year, we've gone through one quarter. Did you make any progress on that or are they still in negotiation? I just want to clarify.

Yes, there's still negotiations. I think there's several of them and they're spread out throughout the year. So, there's some active negotiations that we're engaged in and there's some negotiations we'll have later in the year. So, those have not been concluded and we'll communicate those hopefully in the next couple of quarters.

Okay. So, based off that schedule, we'll get an update next quarter on that?

Potentially, potentially, I mean obviously, we'd like to get some of these concluded and behind us, but many times we're at the mercy of our customers.

Okay. And then, just staying with tissue, as we went through COVID, a lot of tissue companies, yourselves included, were able to reduce the amount of SKUs that you had and really sort of I guess get rid of those less profitable SKUs. And I'm just wondering, now that hopefully fingers, toes crossed that we're through COVID, what's the level of SKUs that you're currently selling your customers now relative to pre-COVID levels?

Good question. So, we did a couple of things through COVID. The first piece is, you're right, as we significantly reduced SKUs. The second piece is we exited some smaller customers that had lots of SKUs that just didn't make sense for us. I would say some SKUs have come back as COVID is behind us, but we're certainly below where we're at before COVID. I think our customers saw the benefit of fewer SKUs and so had we. So we're probably somewhere between where we were at pre-COVID and where we were during COVID. So, we were still -- we're certainly seeing the benefits of fewer SKU stores as well.

Okay. And then just so we're on the paperboard side that the 2023 large outage list and the screen tube replacement, what's the expected cost on that?

Yes. I think we have -- there's 2 components to it. One is the capital and one is as an operating component for the outage. So, the capital that will likely exceed $30 million and the outage is -- total outage for next year, we're estimating at this stage, $30 million to $40 million.

So, on the outage, we have 2 outages going on next year. One is for Cypress Bend and, Paul, we haven't broken that one out, but that's going to be the smaller of the 2 and then the remainder is going to be Lewiston. The total is $35 million to $40 million and it's a larger than normal outage just because we're going to have to pick the pulp mill down for a much longer period of time to do the work on screen tubes.

Yes. No, go ahead.

I think one piece to notice is given some of the challenges in getting supplies and contractors, the timing of that could change. So, we could push it. We could push it if we're not comfortable with a screen tube replacement next year, we may push it, but we at this stage, we haven't finalized that. So, we'll communicate that later in the year.

Okay, understood. And then just sticking with Lewiston, can you remind us what's going on with your digester there? Is it operating at sort of full capacity?

It is. It's been operating for several years. I think what we said several years ago is we didn't get the full benefits of that capital project, but the digester itself is operating very well.

Thank you. At this time, we show no further questions in the queue. That concludes today's call. We appreciate your interest in Clearwater Paper. Have a good evening.