Ladies and gentlemen, thank you for standing by. Welcome to the Wausau Paper 2014 Third Quarter Financial Results Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will be given at that time.

(Operator Instructions) As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Perry Grueber. Please go ahead..

Thank you, Greg. Good morning, everyone. Thank you for joining us today. I’m pleased to be here this morning with Mike Burandt, our Chief Executive Officer and Sherri Lemmer, our Chief Financial Officer. After our prepared remarks, we look forward to your questions.

This call is being webcast and slides are provided to summarize key elements of our presentation. Your webcast viewer should allow you to download these slides and this morning’s earnings release, both of which are also available from the Investors section of our website at wausaupaper.com.

During this call, we will make forward-looking statements that are subject to known and unknown risks and uncertainties, including those outlined and referenced on Slide 2 of this morning’s presentation. Additionally, our presentation refers to certain non-GAAP financial measures. A reconciliation of these measures to GAAP is provided in the appendix.

And with those formalities out of the way, I’d now like to turn the call over to Mike Burandt, Wausau Paper’s Chief Executive Officer.

Mike?.

Thank you, Perry and good morning to all of you and thank you for joining our Q3 2014 earnings call. Let me start by saying that we're pleased with our third quarter results, but not yet satisfied. I would also like to start by giving you just a few highlights from Q3. We continue to show sequential quarterly improvement in EBITDA.

Our third quarter adjusted EBITDA was $13.8 million versus our guidance or $10 million to $11 million and it represents a 30% increase over Q3 2013, which was $10.6 million.

We had record shipments in Q3 in well over 4.5 million cases, which was a 4% increase over Q3 of '13 and substantially outpaced the away-from-home tissue market segment growth which is growing at the rate of about 2%. In September, we successfully launched our new Alliance high-capacity towel dispenser.

While we are in the very early stages of this launch, we are extremely pleased with the reception by distributors and end users. I am convinced that this positions Wausau for profitable and sustainable future growth. We had strong operational performance as you can see on Slide 6 of the presentation.

In Q2 and Q3 of 2013, we were running our new machine at the utmost mode to prepare for the launch of double nature product portfolio. In Q2 and Q3 of 2014, we're manufacturing to demand of our new product offerings and Sherri will cover this in greater detail in just a few minutes.

We're experiencing continued operational improvement in paper making and converting. Following Sherri's discussion this morning on our third quarter business and financial results, I'll come back and discuss in detail the margin enhancement initiative process we now have in place. And I'll turn it over to Sherri..

Thank you, Mike and good morning. Moving to Slide 8 of the presentation, as Mike mentioned, for the third quarter, we shipped a record number of cases and the all-time highest number of cases in any quarter in our history.

This volume represented a 4% increase over the prior year third quarter and above market growth in both quarter-over-quarter and year-over-year comparisons. Net sales were $95.4 million for the third quarter of this year, compared to $91.7 million in the third quarter of last year.

Looking at EBITDA from continuing operations or earnings before interest, taxes, depreciation and amortization, adjusted for non-recurring items that in the third quarter of 2014 included approximately $1.2 million in a settlement charge related to proxy defense activities and in both the current and prior year third quarters, included settlements for defined benefit pension plans.

We finished the quarter at $13.8 million, compared to last year's $10.6 million and sequentially improved from the second quarter of this year, when we reported $9.9 million of adjusted EBITDA.

Our strategic mix that is the mix of those products that are sold in conjunction with proprietary dispensing systems or that are produced from premium substrates was approximately 49% of total shipments for the third quarter of 2014. For the fourth quarter of this year, we anticipate a strategic mix of approximately 50%.

A key component of strategic mix is represented by our double nature product family. These are products launched in 2013 that are produced with our premium substrate. Quarter-over-quarter double nature shipments improved 25% and have grown 33% in the first nine months of 2014 over the same period of 2013, which included the May 2013 launch.

Another component of our strategic sales mix is represented by our Artisan brand launched in May this year.

Artisan manufactured from our most premium 100% recycled content at more substrate is designed to compete with the most premium products in the away-from-home market and is uniquely positioned to be the only true premium product that is 100% recycled. The Artisan product family is displacing our legacy virgin-based DublSoft product offering.

While shipments of DublSoft were historically limited and relatively flat, prior to the launch of Artisan, sales of this combined category have continued to increase since the launch, resulting in a 20% improvement in shipment volume in the third quarter of 2014 over the same quarter last year.

As mentioned, we finished the third quarter of 2014 with adjusted EBITDA of $13.8 million, representing sequential improvement in our business from the second quarter's $9.9 million of adjusted EBITDA.

Adjusted EBITDA in the second quarter excluded cost associated with Board composition change and control event and a separation cost incurred as a result of the change in leadership.

Contributing to the improvement quarter to quarter was approximately $1.1 million in selling price and mix improvements with each contributing about half of the improvement. The actual selling price improvement is a result of the previously announced July 1 price increase.

As about 50% of our business is trough contracts that renew at various times, we expect to see continued improvement in actual selling price over the next couple of quarters. Sales volume improved 4.5% over the second quarter, contributing about $900,000 to results.

From an operational perspective, we did execute the planned maintenance outage at our Middletown, Ohio facility that was noted in our second quarter release of earnings. The cost of the outage was approximately $1.7 million in line with our earlier expectations of about $1.5 million.

The team at Middletown did an exceptional job planning and completing the outage.

Despite this charge overall operational results added $1.4 million added $1.4 million quarter-over-quarter and reduced selling, general and administrative cost added $500,000 due to reduced legal and advisory expenses incurred in the third quarter versus the second quarter.

The majority of this reduction is related to proxy advisory costs that were down from the second quarter about $500,000. We have excluded the one-time settlement charge of approximately $1.2 million related to proxy defense activities from our EBITDA to arrive at adjusted EBITDA.

Our year-over-year comparison of earnings per share is provided on Slide 13. Last year adjusted earnings per share for the third quarter and the first nine months were an adjusted net loss of $0.02 and $0.14 per share respectively.

While the mix of products sold has improved in 2014 versus the prior year periods, 2014 has been impacted by declines in average net selling price due to competitive pricing pressure. As I indicated on the prior slide, we are beginning to see actual selling price improvement since our July 1 price increase.

Quarter-over-quarter and year-over-year above market shipment growth has contributed in that earnings per share by $0.01 and $0.03 in the quarter and nine month comparison respectively.

And finally improved operational efficiency and cost containment efforts including selling, general and administrative cost have added favorably to net earnings per share. All elements combined result in 2014 third quarter adjusted net earnings per share of $0.01 and year-to-date adjusted net loss of $0.11 per share.

In the third quarter, we refinanced the debt of our company including a $175 million term loan and a $50 million revolving credit facility. As of September 30, the revolving credit facility was undrawn.

Given our improving EBITDA performance and other initiatives that Mike will discuss in a moment, we believe our available borrowing capacity is adequate for working capital and other resource needs.

Before I turn it back to Mike, Wausau Paper has continued to make step change improvement to financial results as we've progressed through the ramp up of our new operational platform and launch of new products and we expect to continue to deliver bottom line improvement, finishing the year with adjusted EBITDA in the range of $15 million to $16 million in the fourth quarter compared to $11.6 million recorded in the same quarter of last year.

Mike?.

Okay. Thanks Sherri. So first to look at our outlook for Q4 compared to Q3, we expect continued modest improvement in pricing, while shipments will be flat sequentially, we will again outpace the industry growth rate in Q4 over Q4 last year. We experienced modest increase in waste paper pricing and we expect continued operational improvement.

This leads as Sherri said, to EBITDA guidance range of $15 million to $16 million, which will be a minimum of 29% improvement versus Q4 of 2013. So we feel good about Q4. I want to take a few minutes to discuss our marginal enhancement initiatives or the MEI process for delivering sustainable earnings growth for Wausau Paper.

The process involves analyzing all aspects of our company from sourcing to making, to servicing and to selling. There are no sacred cows here. We spend about eight weeks of intense diagnostics and analysis. Through the systematic process, we have identified EBITDA enhancements of at least $30 million that we will achieve over the next 18 months.

It encompasses all paper machines, every converting line. It includes our warehousing operations and transportation. It includes procurement. It includes our product portfolio from the number of SKUs we manufacture to every cost associated with getting the product to our distributors and end users, all the costs.

We've indentified the issues and are developing plans and strategies to address them. It includes the entire dispenser program from handling dispensers to subsidizing dispensers. The process includes 29 different yet collaborative teams, which involves 95 team members, consisting of both internal and external resources.

We've established a booking and tracking process to ensure we deliver on our commitments. We've a Steering Committee, which consists of myself, Matt Urmanski and Sherri. We've appointed a director of this process who is focused full time. He has only one responsibility. He reports to us on the status and progress of each and every initiative.

He in turn has team leaders who direct and manage each of these identified initiatives. The focus, the communication and the commitment is intense. We have a confident team and it starts with me. So as I said, we're pleased, but not satisfied. The purpose of the MEI process is to bring the new focus and process to the way we manage Wausau Paper.

This is not one-time initiative. This gives us the confidence of growing the company profitably for years to come. As we leave Q3, I would like to reflect on a few observations. Our selling price is up roughly 2% since July 1.

We expect to see continuous but modest improvement in pricing, driven by the market price increase, but more importantly driven by mix shift to premium higher margin products. Our adjusted EBITDA has gone from 7.3% in Q1 to 11.1% in Q2 to 14.4% in Q3. We expect to be in the 16% to 17% range in Q4.

We expect to finish 2014 with capital spend of approximately $23 million and dispenser spend of approximately $20 million, both lower than originally estimated.

Our intent for the next year will be to limit capital spending to $10 million to $13 million, closer to maintenance level spends and whole dispensers at $21 million, while at the same time, increasing dispenser placements by 10%. We expect adjusted EBITDA in 2014 in the $44 million to $45 million range, which is about a 22% increase versus 2013.

So in closing, I would simply say, Wausau is improving and we will continue to do so and more importantly we have a plan. Thank you..

All right, Greg. We're ready for questions..

(Operator Instructions) And at this time there are no questions. Oh, you have a question now. That question comes from the line of Dan Jacome from Sidoti & Co. Please go ahead..

Good morning, guys.

How are you?.

Good morning, Dan..

Good job, good job.

Just wondering, did you break out the volume or case growth in the strategic versus support categories? I may have missed that?.

So the overall shipments that we had, our strategic mix was about 49%..

Okay. And then did you say in the current quarter, you guys are -- where are you in the current quarter? You're tracking ahead or currently..

Q4 we would expect or anticipate to be at about 50%..

Okay. But what about just overall trends in terms of -- in terms of volume should occur in the quarter versus 3Q in the month..

Volume in Q4 versus Q3?.

Yes I am just thinking about like October and November where you're tracking..

It will be flat to Q3's volume..

Okay.

And then I notice, can you drill down a little more on the sort of the change in the cadence of it sounds like your CapEx, can you talk about that and then did you change at all, I guess your longer term ROIC targets if I think -- if I remember correctly were in the mid teens?.

So let me just start with the capital spend. So we've obviously just completed a pretty large infusion of capital into our business and as we work through this next year, we would expect to again be above that, I would call it $10 million to $13 million range, which is closer to our maintenance level of spend.

And again as Mike talked about we have the MEI initiatives that we'll be working through as well. So we would anticipate our spend to be about half of what we had spent in 2014 as we look at 2015..

Got you. Okay. And then kind of a qualitative question, can you talk a little bit about the sort of acceptance you're getting on the new -- I know you’ve had a lot of new product launches in the last quarter or two, anything there would be helpful..

Well the reception, as a matter of fact, we're leaving here to go to the ISSA Convention in Florida where we're right now and we're getting very good response particularly from the alliance dispenser and it just launched in September, but the reception we're getting from distributors is exceptionally good.

As we track, our proprietary products are growing very nicely and so we're -- I feel pretty good about this..

Okay. And then lastly I guess you guys were at the [indiscernible] conference and I unfortunately could not attend.

Were you able to meet with investors there? I was just kind of wondering -- curious as to the sort of general tone or what people were thinking?.

Yes, we met with several and the general tone was fairly -- it was favorable. They like the improvement that they are seeing at Wausau. They had their frustrations like everybody has, but these people were being quite decent about this saying okay, we're giving you time and patience because we see improvements coming.

And we're starting to build some credibility..

Okay. Good. I appreciate that. Good luck with the quarter..

Thanks Dan..

Your next question comes from the line of Mike Roxland from Bank of America. Please go ahead..

Thanks for taking my questions and congrats on a very good quarter.

Mike can you go into some more detail, some of the initiatives you're pursuing to improve performance in your mills and converting facilities? I think you provided it at a very high level, but can you go into some more details specifically what you're looking to do? What you're looking to accomplish? And then just want to get your sense from you as to your confidence in the $30 million of EBITDA being achieved over the last 18 months because if I recall, assume your predecessors also laid out goals too in terms of EBITDA enhancement and some of the goals seemed a little bit lofty at times.

So what really gives you confidence that you are going to be able to achieve this incremental $30 million?.

All right. That's a good question Mike and let me start by saying the process that we've gone through to get here. This is not my initiative. This is the company's initiative driven by people who are believing in it. So this isn’t a top down driven process.

So the number that we've arrived at, we believe we've very confident -- we've identified we think its higher number, that's not what we're giving out.

So we think very good about the $30 million that we're putting out and because we've gone through this diagnostic and analytical process of identifying everything, paper machines, converting lines, SKUs that we offer, whole procurement process, the way we handle dispensers, the way we subsidize dispensers, we've taken apart every converting line we've got.

So we've gone detail on roller towel and folded towels and bathroom tissues. We're going into the paper machines looking at energy usage, water consumption, chemicals, the whole nine yards, looking at de-inking operations to every aspect of and say what is it that we're doing, while we're not adding value or that we can absolutely reduce our cost.

The people on the lines have identified these opportunities, not me. That's why we all feel more confident about this. And in fact, this isn’t some number that we've just manufactured. This is something that the people have work hard at identifying the opportunities and they feel very good about it as there’s trying to find it.

So I get to report on it okay, which is the good part. This is the easy job. The tough job are those people that are doing and they're the ones who signed up. So I feel very confident about reporting our capability of achieving these enhancement initiatives very confident about the number..

Got it, thank you for the color. And what are some of the costs that are associated with these initiatives? So you mentioned you’re on a team there and I think you said 29 teams who are exploring things you’ve have a Director now in place whose sole focus is to focus on these initiatives.

So can you give us a sense $30 million of incremental EBITDA what are the costs and how long are those costs expected to being cleared by the company?.

Lot of the costs will be very short term for example; we’re running paper trials with different basis ways in different modes across different converting lines. That’s a one-time thing and we then identify the efficiency benefit of the cost reduction benefit and there’s going to be a cost of running the paper trial. And so, we'll identify that.

The amount of money that we’re arriving at is a number that we think we will achieve after realizing any of the cost. What we don’t know in this number, but I don’t expect it to be large at all because I think that we’ve fully capitalized our self from an assets standpoint.

There could be some very modest capital needs if it means something or doing something to retro for the converting line that will increase the speed and the throughput or something to a wrapper. Or there will be modest capital that we covered in our $10 million to $13 million that we talked about of CapEx.

So I wouldn’t expect any further capital requirements beyond what we’re projecting to spend. There will be some cost that each time we do one of these things we’ll identify it, but don’t expect the cost to be large and they are not ongoing, they’re short term one-time hits..

And so the $13 million of EBITDA is a net number? Is it that I hear that correctly in terms of that you baking in some of the costs that you intend to incur?.

Yes..

Okay, what have you’ve incurred thus far?.

In terms of cost?.

Yeah, exactly..

Very little, almost nothing..

But you’ve gone through this, I mean you've said you've employed outside firms in terms of analyzing the mill for you know so what is that I mean how is it going to cost?.

Are you talking about the specialties?.

Yeah exactly, if it is all just the in aggregate cost whether internal or external that you’ve incurred to try to analyze that the mills and really do this deep level analysis of the overall company?.

The outside resources that we’ve used are resources that are not expensive, but they are very effective.

There are people that I have known frankly in the industry, that are coming as converting engineers or process engineers those costs are pretty insignificant when you look at the cost of employing a major consulting firm to commit and to go through this process.

The advantage of this, so the people that I have brought in are people that have gone through this process in former companies including myself. So we did not have to have an awful lot of outside resources to organize it, structure it and get it going.

We also had people inside this company that had gone through a similar process up in Middletown who are familiar with the structure and the discipline of going through this in terms of the ideation, in terms of the analysis and the diagnostics.

So the outside cost probably in the terms of may be $20,000 that we spent in outside consultancy fees since we started the process and that’s going to be insignificant going forward due, the more that we are training and developing our own people as team leads then we don’t need those outside recourses..

Got you, and then, you know talking about the new dispenser products they are sort of gaining traction, I'm wondering if you could just talk about the margin potential all of those new dispensers versus your existing products.

Obviously that seems to you know with the Alliance products as you mentioned on to the last caller and also in your prepared remarks that it’s gained significant market acceptance.

So can you talk about the potential upside from what is your perspective with these new products if they have continued to rollout versus your existing products?.

Well those dispensers take the proprietary manufactured product. Those products carried a a substantially larger margin. I don’t want to get into a lot of detail in case I've got some competitors listening on the call.

But if you looked at a support product that was going through a non proprietary dispensed product versus one going through a dispensed proprietary product, the margin difference is going to be about four to one..

So significant..

Yes..

Got it, well listen, you did a great job this quarter and good luck with the initiatives, looking to see continued progress out of you guys..

Thank you..

Thanks Mike..

Your next question comes from the line of Steven Ranieri from Alee Capital. Please go ahead..

Hi Mike. Nice job so far. Can you talk a little bit more about CapEx in 2015? You talked about range of expectations that it's $10 million to $13 million which is about half of the amount of CapEx that you are going to turn out to spend this year.

I'm wondering if you can explain how that reduction can and will play out?.

Well this year what we're doing is obviously paying for the new converting lines for the top line and so that's part of that $20 million plus in 2014. We don’t have that next year. That's fully paid for. So a lot of the previous decisions of CapEx were coming through in 2014.

So as we looked at 2015 we're saying okay that's all done, now we don’t need it. We have no major Cap expenses coming.

We've looked at anything that we thought might add we might have to do and still we don’t have to do those, and so we said okay, we got a little go back to a normal level of maintenance spending and we've gone through that, through a lot of detail. We're very comfortable with the level that we've got.

So it's catching up now or getting caught up after all the CapEx has been spent on the previous investment so we've made it..

And so you are confident that you have a lot of runway now with the existing capital plan?.

Yes, we are..

Okay and let me ask you about the alliance expense a little bit and maybe you could give us some examples of the kind of opportunities that's opening up for the company, you know maybe some potential types customers? And obviously it seems like it is a really innovative product, but may be some examples would help?.

Again Steve, I don’t want to give away too much here, because we're about to go into a meeting a whole bunch of other competitors and we'll be showing our dispenser. So but here is the bottom line of that dispenser particularly Alliance dispenser and think about it in this fashion.

Here is the dispenser that holds two 1000 foot rolls versus 1800 competing dispenser. There is a huge cost and huge savings to the end user. So you'd say that's a big deal. It automatically feeds the second roll. This is going to play very well in high capacity wash rooms. So airports, casinos, it's going to play hot very well in classy office buildings.

So there's just a whole new winner that opens up to us. And the thing it also opens up to us is the fact that we're producing 100% premium recycled product which is also a big deal than putting that through, just proprietary dispenser where the green seal often represents a huge opportunity of healthcare.

And again school system, government buildings, some of the areas that were not open to us because of the premium nature of the sheet and then this dispenser along with the premium sheet offers the opportunity for us to gain new areas of distribution..

So it sounds great, good luck guys, thank you..

Thanks Steve..

Your next question comes from the line of Matt Sherwood from Cooper Creek Partners. Please go ahead..

Hi guys great quarter. Just wanted to sort of understand, obviously you've made some improvements already and you spent some costs already as you said on consultants and so forth.

Just what's the baseline level of EBITDAR profitability or how are you going to look at it that we're adding this 30 million too?.

Well as we, we're going to lay this in. We're going through with all the analysis as I've talked about earlier and then we start taking a look at the timing that this will start affecting our EBITDA.

We're still working on that timing itself and when we grow though our next earnings call in February we will have greater detail in terms of when we think that's going to lay on.

As we look at anything going forward, the plans that we're seeing must mitigate all inflation impacts that we feel we will incur and we're not sure of this continuation program our EBITDA. So as we lay these initiatives all under the impact on our future outlooks.

We're going to lay this out of quarter by quarter basis as we start to look at the timing of when see this happening and we meet with these two team leaders weekly to see exactly when the sling is going to start hitting.

We really give a greater color my intention is to report on this like a report card on a quarterly basis is how well we're doing this, how well we're performing on the initiatives, how much it has impacted that quarter it will impact in the future quarters..

I mean, I guess what I was trying to get at is you're going to do whatever it is 40 something been made 40s in EBITDA this year. But for example from Q2 to Q3 you saw when you were take into the account the main in short you saw about $3 million of sequential improvement in EBITDA jest from operational efficiencies.

It's stuff like that you know part of the 30 or is the 30 all incremental from here?.

Well, part of those happened in Q4 when it will happen in Q4 that is added to on an basis going forward laying in small amounts and I don’t know what small about is here 18 months I think our first half and said okay, this is going to happen over 18 months and this is how we think it's going to apply based on what we think the timing will the timing capabilities are of these hitting our EBITDA.

We are early enough in the stage here' the thing about this. We're confident trims of the process, we're confident in terms of the total lumbar we've got to get ourselves more try confidence films of the timing when this go late. And by the time we have our Q4 earnings call we'll have a much better feel for how this lays into our 2015 outlook..

That's great, now just final question, you know if you achieve these goals, you know you should be doing somewhere around 80 million of EBITDA. You talked about 35 of CapEx and the spare expense a little less than that.

And then maybe say 12 of interest rate as of right now so you should be generating some niece free cash flow given limited tax payments.

What are our priorities for that cash flow as it flows through?.

Well one of our first priorities now is going to be debt reduction. After that we will prioritize what we think is after it, we've got to reduce that after balance sheet..

Yeah. I mean Burandt if you got, you know of you EBITDA grows your debt to EBITDA will be pretty reasonable which minimal free cash flow so be using that still number one priority..

Yeah I think our number one priority right now is to get our balance sheet in order and get our debt reduced..

Great, thank you..

Thanks Matt..

(Operator Instructions) And at this time there are no further questions..

All right thank you very much Greg. We appreciate your taking part in today's discussion. We thank you for your continued support of Wausau Paper. We'd like to mention that we'll be attending the Bank of America U.S. Global Materials Conference in Boston on December 10 and if you can we hope to see you there.

Finally, I'll be available the balance of today and the rest of this week for any follow you might have. Thanks you very much.

Greg?.

Thank you. Ladies and gentlemen this conference will be available for reply after 11 AM Central Time today through November 12. You may access the AT&T teleconference replay system at any time, by dialing 1800-475-6701 and entering the access code 338 494. International participants dial 320 365 3844.

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