Okay, good afternoon, everyone. Welcome back to Sidoti's March conference. It's my honor to welcome Clearwater Paper Company, ticker CLW, in our last slot for the first day of the conference. This afternoon, we are lucky enough to get to hear from the company's President and CEO, Arsen Kitch, as well as the company's Chief Financial Officer, Sherri Baker. We're gonna give them about 20 minutes to go through the presentation, after which time I'm gonna open it up for Q&A. If you do have any questions, please feel free to type those into the box during the 20-minute presentation, and I'll get to as many as I can, time permitting. Please join me in welcoming Clearwater, and with that, Arsen, I'm gonna hand it over to you.
Fantastic. Thank you, and thanks for joining us. Thanks for joining us today. As Daniel mentioned, we'll spend 15-20 minutes going through some materials, and leave plenty of time for Q&A. So let's jump to the overview slide, please. So Clearwater Paper, we're about a $2 billion, $2.1 billion revenue company. About $281 million of EBITDA in 2023. We have two businesses under our umbrella. One is a paperboard, a paperboard business, a paperboard packaging business. We produce bleached paperboard, and we'll talk more about that here in a few minutes. The other business is our consumer products business, which is a private branded tissue, a tissue producer.
Both businesses have a well-invested national footprint that is largely focused on domestic U.S. customers. So our asset footprint is domestic, and the vast majority of our business is also in North America, and specifically in the U.S. We recently announced a planned acquisition of Graphic Packaging's Augusta paperboard facility, and we'll talk more about that later on. We also talked about looking at strategic options for our tissue business as we look to grow in paperboard. Both businesses are inherently sustainable. They're fiber-based products that support the circular economy.
So both businesses are on trend, especially in our paperboard business, as customers and consumers are looking to for more sustainable alternatives in their products. So let's jump to the next slide and talk a little bit more about sustainability. So a few areas to mention here. Our products are inherently sustainable. That being said, we are innovating, and we have several products where we've introduced recycled fiber content into our cup stock, as well as folding carton stock, up to 30% or 35% post-consumer recycled material. We're also working on alternative barriers to polyethylene in our cup stock as well. So that's on the product line.
In terms of, in terms of emissions reduction, we committed to about a 30% reduction in Scope One and Two emissions by 2030, and we are developing and executing a strategy to get there. And finally, you know, we source our fiber from sustainable sources. We've been one of the leaders historically in this space, and we believe in the importance of responsible sourcing and forest certification programs. So there's, I think there's a great sustainability story in this industry, and in particular, at Clearwater Paper. Let's jump to the next slide, and Sherri's gonna walk through some of our more recent results.
Thank you, Arsen, and good afternoon, everyone. So you'll see that we had a very strong year of performance in 2023. We generated just over $2 billion of revenue, which is split roughly equal between our two businesses. Our Adjusted EBITDA growth of $54 million was really driven by our tissue business, which actually doubled their EBITDA from 2022. Within our paperboard business, we did see softer demand in 2023, driven by continued destocking in the overall industry. As a result, you also saw the prices were trending lower in the back half of 2023 as a result, but we did a really solid job of balancing out supply and demand as a result of that. Despite what we're seeing from soft demand in the industry, we do expect paperboard demand to recover in the back half of 2024.
Within tissue, demand continued to be strong in 2023, and you'll see that private brands also continued to perform very well within the segment. We saw the benefit of higher pricing, higher shipments, and production, along with lower input costs, specifically in freight, and we're operating really well, and we're also seeing capacity in the industry is balanced. We generated very strong cash flow in the year, $117 million in 2023, and we continue to use this free cash flow to both invest in the business and pay down debt. And as you'll see, since 2020, we've actually paid down $450 million of debt. If you'll turn now to the next slide, you'll see we have a very strong balance sheet as a result of this performance.
So our focus has been on deleveraging, and we ended the year just under 1.5x levered, and this actually enabled us to enter into the agreement to purchase the Augusta mill from Graphic Packaging. After the close, we expect leverage to peak somewhere between 3.5x-4x , but our goal would be to get back down to our targeted leverage ratio of 2.5x by 2026. We expect to fund the Augusta acquisition with $490 million of new secured debt, and the remainder will come from additional draws on our existing credit facilities and cash on hand. You'll also see that we repurchased 450,000 shares at an average price of $33 a share.
And we have roughly $7 million of share repurchase authorization left, and we expect to continue to buy back shares to mitigate dilution from share grants to our employees. From a capital spend perspective, we expect to spend roughly $60 million-$70 million to maintain our assets on a regular basis, excluding large projects and the intended acquisition of Augusta. 2024 CapEx will be a little bit higher, roughly in the range of $90 million-$100 million, because that includes two large projects in our paperboard business, which we expect to complete within the year. With that, I'll turn it back over to Arsen to take you into an overview of our paperboard business.
All right. Thanks, Sherri. Let's, let's talk a bit more about, about paperboard and the, and the planned acquisition here. So we, we manufacture a high-quality bleached SBS paperboard. Now, this is part of of the North American paperboard market, which we think is about 10 million tons. And we'll talk more about what, what, what the other parts of that, of that 10 million ton market look like. We are focused on high-end packaging, and we, we're an independent supplier. So we, we service, we service our customers. We're not integrated. We do not compete, we do not compete with our customers.
As I mentioned, just over $1 billion in net sales, 19% Adjusted EBITDA margin last year, and capacity of about 840,000 tons. If we look at our mix of products versus the industry, we are more focused folding carton and food service, while the industry is a bit heavier weighted towards liquid packaging. So think milk cartons would be liquid packaging. In terms of folding carton, as I've talked about before, this is high quality, high definition print surface, pharmaceutical, cosmetics, food. Cup and plate, think hot cups, cold cups, ice cream containers, just paper plates, that's another application. And liquid packaging, which is juice, milk, soup, and so on and forth.
So we're more heavily weighted folding carton in the industry, but we play across all of the primary product segments. Let's jump to the next page and talk a bit more about the industry. So as I mentioned, we think it's about a 10-million-ton industry. There's three substrates in this market. SBS, which is the one that we participate in. Again, high-quality packaging materials. There's a coated recycled boxboard, CRB. That's a recycled paperboard grade. Think cereal boxes. And there is unbleached kraft or CUK. Think about that as beverage carriers, so soda, beer, and so on and forth. There are some imports into the market. They make up roughly 10%.
10% of demand is brought in from overseas, primarily from Europe, and it's a folding boxboard grade of paperboard. Let's jump to the Augusta acquisition on slide 12. So we recently announced our intention to acquire Graphic Packaging's Augusta paperboard facility. And again, our strategy is to strengthen our position as that premier independent supplier of paperboard to North American converters. We think it's a good long-term market. It's a big long-term market. It's growing, and it's well-positioned to capitalize on sustainability trends across various industries. We think this acquisition's spot on for our strategy.
It helps us, you know, strengthen and build that position, and we'll continue to look at other opportunities to support this strategy, and that may include additional substrates that add to our ability to service our customers. The mill, it's about $100 million of EBITDA in 2023. In terms of what we're acquiring, we expect this mill to be EBITDA accretive in the first 12 months, and we're also expecting to achieve $40 million-$50 million of volume and cost synergies by the end of 2026. We've reduced our debt since 2020.
We've been on a deleveraging path since 2020, and we've reduced our net debt and our leverage ratio down to 1.5x by the end of 2023. So we have a proven track record of deleveraging, and our intent is to deleverage from where we expect to land here at when we complete the acquisition back to our target leverage ratio. Let's jump to the next page with a few more details about the mill. It's a $700 million acquisition. It's about 600,000 tons of capacity. We currently have about 800,000 tons, so it increases our capacity by about 70% to about 1.4 million tons.
We expect this business to contribute $140 million-$150 million of annualized EBITDA, Adjusted EBITDA, by the end of 2026. The purchase multiple pre-synergy is about 7x. We think that once we achieve the volume and cost synergies, we'll be approaching 4.5x by the end of 2026. We do believe that the mill is going to be about 70%-80% utilized in 2024, which provides us, you know, upwards of, you know, 150,000 tons of capacity to sell through.
And that's the bulk of the upside and the volume synergies will come from utilizing this mill fully by the end of 2026. So we think this acquisition is highly strategic. We're very pleased. It's a fantastic asset, and just fits our strategy very well. Let's talk about our tissue business on page 15. It's about a billion-dollar business. In 2023, it achieved about a 15% EBITDA margin. We are almost entirely focused on the private branded part of the market, servicing large retailers.
We manufacture primarily at-home products, so things that you would have in your home, as opposed to away-from-home products that you would consume in hotels, and restaurants, and airports, and so on and forth. So we're at home, we're private branded. So if you walk into a retailer, and you pick a product off the shelf, a bath product or a paper towel, there's some chance that we manufactured that actual product. We make a wide variety of products across all product categories, so bath towels, facial napkins, and across all quality tiers, and we have a really good national asset footprint. So we have a good set of assets.
We operate these assets very, very well, and we saw a pretty significant improvement in our profitability from 2022 to 2023, as a result of lower costs, higher pricing, and really good operating performance, and strong demand. So it's a business we know well. It's a business we operate very well. But as I mentioned previously, given our focus on paperboard growth in the Augusta acquisition, w e're gonna explore and evaluate strategic options for our Tissue business. Let's jump to page 16 and just talk a little bit more about the Tissue industry. Again, about a 10-million-ton market, you know, it grows with population, roughly 1%-ish.
Two-thirds of this market is at-home demand. The private branded share has been growing over the years. It's at 36% of demand at the end of 2023. We expect that it will continue to grow in the coming years.
There is, there's a lot of players in this space, and as I've mentioned before on our earnings calls, we think that there is a need and an opportunity for consolidation in this space, given the consolidated nature of the retailers, and the buyers, and the number of suppliers that are out there, and the need for them to have scale, the scale to be able to grow and invest in their businesses, in their businesses to be able to service those large retailers.
You know, that's it, you know, the last few weeks, our strategy has become more clear, with the Augusta acquisition and what we intend to look at or evaluate on the tissue side. So it's a pretty exciting time for Clearwater Paper. We've spent the last several years deleveraging, paying down a lot of debt, getting our balance sheet in really good shape to be able to take advantage of some of these opportunities. And we're at a really interesting point in our existence, in our history, as we look to grow paperboard. That strategy is becoming more clear, and we look at options, and we look at options for our tissue business.
I'm happy, happy to answer any questions that you may have.
Arsen, Sherri, thank you so much for that overview. As a reminder, if you do have any questions, we've got a little bit more time now. Please feel free to type those into the box, and I'll get to as many as we possibly can. Arsen and Sherri, I know you spent a lot of time touching on this, but I just want to give you an opportunity to highlight it further. The company has long been very responsible from a capital allocation standpoint, and then, you know, taking on this new acquisition, and deleveraging being the priority.
Can you just talk a little bit more and highlight your track record, and also, your confidence in the, in the cash flow generating prospects of your business to be able to deleverage, and I believe, get down to the, the 2.5x level by 2026?
Yep. So between, I would say between 2015, 2016, and 2018, 2019, there was a significant amount of capital spent on large projects at Clearwater. We ended up with a meaningful amount of debt on our balance sheet. So at the beginning of 2020, we laid out a strategy of deleveraging, and we laid out a cross-cycle leverage target of about 2.5x . So since 2020, and by the end of 2023, we reduced our net debt by approximately $450 million, and our leverage ratio was slightly below 1.5x.
So we were very disciplined in the way we approached capital allocation, and we were very focused on cash flow generation. And we believe that to be the best way for us to create shareholder values, just by deleveraging and being very smart in how we allocate capital. The other point to add, and maybe Sherri can touch upon this in terms of what our journey is gonna look like in the next couple years from a leverage perspective.
Yeah, so, after the expected close of Augusta, as we talked earlier, we expect to peak somewhere between 3.5x and 4x, getting back down to that 2.5x by 2026, with the potential to accelerate that, if anything were to happen on our tissue side.
Then, Arsen, getting back to an area you know really well, for 2024, obviously in 2023, there were destocking issues in paperboard. Can you just talk a little bit more about your outlook for that segment in 2024 and beyond? And do you think those issues have been resolved and will continue to be resolved moving forward?
Yeah. So if you look over a number of years, we, we believe that the paperboard business is, t here's a cyclicality to it. What we saw between 2022 and 2023 was potentially a couple of outlier years. So 2022, demand was very robust. Demand outstripped our ability to supply. So very strong, very strong market. 2023 was the opposite. And it was, you know, I, I think there was quite a bit of inventory built up throughout the value chain, and the value chain is fairly long in this space.
There's a lot of pools of inventory that got built up in 2022 as we headed into 2023, and then we saw this destocking event in 2023, where industry utilization dropped by roughly 10 points. Shipments dropped double digits. So it was a pretty major outlier, because we do not believe that consumer demand dropped by nearly that amount. So what we think will happen here in 2024 is there'll be some normalization. And what we talked about is we expect some sequential volume growth in paperboard from Q4 to Q1, at least in our business, and more meaningful recovery, you know, in the second half of 2024 and into 2025.
I think that's pretty consistent with what the industry, various industry publications and forecasts are showing. So, we believe that this is a very good market in the long run. We think demand will be there. We just need to see this normalization take place here in 2024.
Perfect. Going back to some questions from the audience. And, like, in the industry, do customers tend to bear the brunt of raw material or other input costs increases, or do you have a little wiggle room on, on price hikes? And maybe talking a little bit about how, how industry publications play into that.
Yeah, so a couple of pieces there. So I think in both of our businesses, supply and demand is what drives price. I know that sounds a bit academic, but supply and demand truly drive price. You know, in the long haul, certainly cost changes do have an impact. But there, you know, very few contracts out there are, you know, have cost-plus components baked into them. Some do, but it's relatively atypical. So RISI. So let's talk about the index.
So RISI is the premier publication that reports pricing and forecast pricing. RISI's role is to reflect what has already happened in the market. They're trying to reflect a market reality, which is what you've seen here at the end of 2023 and early 2024, where they've reported some declines in SBS pricing. Now, on the flip side, we do have a portion of our business that is tied to the RISI index, right? So it's customers that want to essentially keep up with market changes and pricing. So there's two elements.
There's the RISI reporting, what's already happened, and some part of the market being tied to the RISI, RISI reporting, which leads to some delays in how pricing impacts our PNL.
Perfect. Thank you so much. I'm gonna try to combine two, 'cause they're both with the Augusta acquisition, and I know you touched on this on the slide a little bit, but, do you have a sense of when you'll observe the first synergies from Augusta? And then how long do you think it'll take to maximize those? I think you said 2026, but I'm not for sure. And then, do you see any more opportunities for industry consolidation that could perhaps improve your pricing position moving forward?
Yeah, so let's take those as two separate questions. So I think that the first one is timing of synergies. We have not been explicit about the sequence and what comes at what point. What I would tell you is the bulk or the majority of the synergies are expected through that volume through increasing utilization of the mill. And we believe that the part of that is gonna be driven by just normal market recovery and part of it is going to be driven by incremental sales.
This is a very good asset, and I think in a normalized market, we believe that this asset should be fully utilized, and we're confident that we'll be able to get there by the end of 2026. From an industry consolidation standpoint, we will look at what fits our strategy in the long run. This is less about consolidation and paperboard, and it's more about can we are there other products or substrates or acquisitions that can help us service our customers better, and have additional products that service our customers. And as I mentioned before, pricing is driven by supply and demand.
You know, we're more focused on having the right set of products for our customers, and if we can service them well, we have the right set of products. We're cost competitive, we think we can earn a good return in this market, and ultimately, the supply and demand is what's gonna set price.
Perfect. We have one final question in the queue, and then I'd like to give you and Sherri an opportunity just to close with any more thoughts you'd, you know, like the investor base that may be new to your story to walk away with today. But this is just on paperboard end markets, any that you see being particularly strong or weak, you know, in the coming year or two?
Yeah. So what we've seen here in the last year or two is strength in food service. So as consumers have come out of COVID, I think there's been lots of folks dining out, traveling, and so on. So we've seen, a nd the industry, I think, generally speaking, has seen more strength on the food service side. And so I think that should continue, especially, as some customers look to continue to move towards paperboard products versus plastic. So I think there could be some continued strength in food service.
I think on the packaging, folding carton side, I think what we're counting on is a continued focus by CPG companies and pharmaceutical companies on making their packaging products more sustainable, and I think we'll be there to deliver the right solutions for those customers. I said historically, this space grows in that very low single digit rate. We do think there's some opportunity for that to accelerate if the plastic to paper substitution accelerates.
Perfect. We've got just a minute or two left. Anything you'd like to just leave the investor base with as we close, the conference on day one?
Yeah, just to emphasize a few things. So Clearwater's has historically been a strong cash flow generator. Over the last four or five years, we've prioritized very disciplined capital allocation, maintaining a strong balance sheet, being prudent in the way we allocate capital. We're at this really interesting pivot point on our strategy with the acquisition of Augusta, looking at options for tissue. So, you know, we think this is an interesting story that has several more chapters at least for us to work through. And so we'll continue to execute well. We'll focus on our balance sheet cash flow generation, and we'll focus on options to grow our paperboard business.
No shortage of things to keep you busy these days then. Well, Arsen and Sherri, from us and from the investor base, thank you so much for your time today and your willingness to go through the presentation, and to answer our questions. For those of you in the audience, thank you for attending and for asking those questions. We appreciate Clearwater's time, and I hope everybody has a wonderful rest of the afternoon. Thanks.