Good morning and welcome to the Neenah First Quarter 2019 Earnings Conference Call. All participants will be in listen-only mode. (Operator Instructions) Please note this event is being recorded. I would now like to turn the conference over to Bill McCarthy. Sir please go ahead.

Thank you and good morning. On the call today with me are John O'Donnell,our Chief Executive Officer; and Bonnie Lind, Chief Financial Officer. John and Bonnie will comment on financial results for the first quarter and our progress against key initiatives. And after these prepared remarks we'll open up the call for questions.

First let me cover a couple of items impacting reporting this year. We sold our manufacturing plant in Brattleboro, Vermont at year end. This mill produced mostly office file folders along with packaging and other products and had annual sales of around $30 million, approximately $24 million was reported in fine paper and packaging with the remaining $6 million in the other segment.

Revenue comparisons versus 2018 will be lower this year because of the sale of the mill, although it will have a positive impact on our bottom line. Excluding Brattleboro products, we had about $16 million of remaining revenues in the other segment. Following the sale, we integrated this $16 million of business into technical products and are reporting it in that segment for both 2018 and 2019.

Therefore in 2019, we will not report anything in our other segment. Although 2018 will continue to reflect the discontinued Brattleboro grades. Yesterday afternoon we released earnings reporting consolidated first quarter revenues of $240 million, excluding impacts from the Brattleboro sale and currency. Sales were down 5% from the prior year. Mostly a result of weaker global economies and market conditions.

Earnings per share were $0.69, which compared to $0.95 in the first quarter of 2018. There were no adjusting items in 2019 and in 2018 adjusted earnings excluding $0.09 per share for an increase in tax estimates following the U.S. tax law change and for a pension settlement loss. Detail on these adjusting items along with the reconciliation to comparable gap figures can be found in our press release.

I'll end by noting that our comments today may include forward-looking statements and that actual results could differ from these statements due to uncertainties and risks outlined in our website and in our SEC filings.

Thanks Bill. Good morning. I mentioned on our call in February that we expected the first quarter to be the most challenging one of the year and that appears to be the case. Let me take a few minutes to cover some of the key drivers impacting results in the quarter. First, as anticipated input costs are finally declining off their record levels. In the first quarter they were almost $8 million higher year-on-year and we were able to offset $6 million of this through pricing. I'm extremely pleased with the actions our teams have taken to successfully implement pricing initiatives that will completely offset both input cost increases that were uncovered last year as well as those anticipated for this year. Additional benefits from our actions will be realized as the year progresses. Second, we saw weaker demand in many of our global technical products markets, as economies in Europe and Asia slowed and customers ordered cautiously. These lower volumes negatively impacted manufacturing cost efficiencies and fixed costs absorption.

Finally, due to a weaker euro in 2019, currency negatively affect the results in the quarter by about $6 million on the top line and $1 million on the bottom line. In addition to previously mentioned pricing initiatives, the softer economic environment has our teams very focused on the efficiency of our operations including aggressively managing costs and optimizing our assets. Taking a step back from current business conditions, from a longer term perspective our growth catalysts remain in place. Infiltration, qualification of new grades on our U.S. asset is proceeding, which -- and should help deliver above market top line growth this year of around $15 million.

Our commitment to invest in this growing business should allow us to continue to grow 7% to 8% a year in line with our historical performance and more than two times the market growth rate. Digital transfer and premium packaging also remain meaningful growth opportunities. So in summary even though the year started with a few near-term challenges, some anticipated, some not, with the actions that our teams are taking I'm confident of our ability to improve the top line and margins as we go forward.

I'll talk more about our outlook later in the call, but at this point we'll turn things over to Bonnie to cover first quarter financial results in detail.

Thanks John. Hello everyone. I'll first review results for each of our business segments and then wrap up with a few comments on corporate items. So let me begin with technical products. Sales were $140 million in the quarter compared with $154 million in 2018. A weaker euro accounted for almost half of this decline as technical products has 60% of sales outside the U.S. On a constant currency basis sales were down 5% reflecting weaker market demand that we partly offset with increased selling prices and a higher value mix.

Backings are most economically sensitive business supporting industrial tape and abrasives markets accounted for the majority of the sales decline. With roughly two-thirds of sales outside the U.S., but most of our production here in the U.S., a strong dollar has reduced export competitiveness. In abrasives this was especially true for Asian markets where we have a strong presence. In tape as mentioned in February, volume is pressured during periods of market weakness and high input costs as customers with available capacity internalize volume on their assets. Transportation filtration sales showed no growth on a constant currency basis as weaker conditions in Asia and in Europe are largest market offset 70% growth in U.S. shipments. Operating income of $11.3 million was $6 million below the prior year. The major drivers were lower sales and related manufacturing costs inefficiencies particularly under absorb fixed costs as we reduced operating scheduled to control inventories and match production with demand. Benefits of higher selling prices and more favorable mix and reduced SG&A, and distribution costs helped to offset almost $4 million of higher input costs and $1 million of negative currency impacts.

Turning next to fine paper and packaging, revenues of $100 million were down $12 million from the prior year. Half of this decline was due to the sale of Brattleboro and the remainder reflected ongoing commercial print market pressures partly offset by higher selling prices. Operating income of $12 million was down $1 million from the first quarter of 2018, mostly due to $4 million of higher input costs that were not fully offset yet with prices in the quarter. Fine Paper has the biggest relative exposure to pulp costs and our price activities will more than overcome higher pulp prices for the full year. Results also reflected benefits from actions taken to lower SG&A spending and from the Brattleboro divestiture.

Looking to corporate item, consolidated SG&A expenses $25 million down from $27 million in 2018. The decrease was due to reduced spending, timing of expenditures and lower expense following the sale of Brattleboro. Unallocated corporate SG&A was $5.8 million in 2019 and compared with $6.2 million in the prior year, which included a pension settlement charge of $800,000.

Given normal variability both SG&A and unallocated corporate costs were in line with previously communicated quarterly guidance of $26 million and $5 million respectively. As our teams carefully manage SG&A spending this year, we've reduced our full year outlook by $4 million to $25 million per quarter for the remainder of the year. Quarterly interest expense of $3.2 million was slightly below $3.3 million in the prior year primarily due to lower debt in 2019 as we pay down debt throughout last year.

On to taxes our booked tax rate in 2019 of 17% compared with 22% in the prior year. Both periods included small adjustments to tax provisions. This year there was a favorable adjustment following completion of a German tax audit. And in 2018 we recorded an unfavorable adjustment related to the U.S. tax law change. We continue to expect our consolidated booked tax rate to be no more than 22% to the 22% we previously guided and our cash tax rate should remain in the mid teens for the next few years, as we consume prior period R&D credits.

Our pension retirement plans remain well funded as a result of previous actions and plan returns, pension cash contributions will drop by $6 million to around $10 million this year. Expense for all retirement benefit plans is expected to be about $3 million less than cash payments for these plans.

Historically the first quarter is low for cash generation as receivables grow with sales, we replenish inventories and we settle prior year incentive programs. First quarter 2019 operating cash flow of $3 million with about $5 million below last year, primarily due to lower earnings. Capital spending in the first quarter was purposefully managed to $4 million down 50% from the first quarter of 2018. For the full year will control spending to around 3% of sales at the lower end of our targeted range. Our teams are focused on capital efficiency while still investing in projects that support our growth strategies or deliver attractive cost savings.

Turning to our balance sheet that was $246 million at the end of the quarter down from $272 million a year ago. The majority of our debt is comprised of $175 million of U.S. notes due in 2021 and all of our debt is now pre-payable without penalties or fees. I'll close with a comment on capital deployment priorities. As always we seek to invest where we get the highest returns. Looking first at organic investments, where added growth capacity or capability provide an attractive return. Over the past five years we've also substantially raised our dividend. With the latest increase in March, we're in line with targeted payout ratios and we'll prioritize use of surplus cash to pay down debt to further enhance our flexibility and borrowing capacity as well as for opportunistic share repurchases.

Thank you Bonnie. As I mentioned at the start of the call, this quarter was expected to be our most challenging with disproportionate impacts from input costs and currency. This was magnified by weaker market conditions and we are acting accordingly. Our teams have implemented significant price initiatives and while Q1 resulted in about $2 million of input costs that were temporarily unrecovered, we'll over deliver through our pricing activities in Q2, and then start to see more meaningful benefits from these actions in the second half of the year as pulp prices come down. We expect to deliver $25 million in price this year, which will address $10 million of higher input costs remaining from 2018 as well as $15 million of anticipated increases this year. We're also taking actions to carefully control spending. These include aforementioned reductions in SG&A expenditures as well as disciplined management of cash outlays. At the same time our manufacturing teams are focused on trimming costs and improving efficiencies and we're seeing the fruits of their labor and improved yields and lower operating waste.

Our top line should improve as the year progresses with a continued ramp up of (inaudible) capacity in the full, impacts of price increases. While the second half of this year will include annual maintenance downs and seasonal slowing, as a result of our actions we'll also expect to improve margins exiting 2019 in a significantly improved condition. From a longer term perspective, I'm encouraged by the fact that our winning strategy and consistency in execution has allowed us to build a strong track record of capital efficient growth.

While it's clear that recent financials have been pressured by the ramp up of our filtration capacity investments, unprecedented cost -- input cost increases and softer global demand, we're making meaningful progress toward improving our results by focusing on actions -- our actions on value adding initiatives that are under our control. These efforts will complement our continued pursuit of growth opportunities in targeted markets like filtration, digital transfer and packaging.

Bonnie touched on our cash generation and capital deployment priorities and we'll continue to invest where we add the most value and enjoy the best returns. Given the external environment, we'll remain disciplined with any M&A opportunities as we continue to explore additions that add long term value while still allowing us to maintain a responsible balance sheet. Finally, many of our investors describe themselves as long term and understand that, as we emerge from this temporary challenging period, we'll be better positioned to deliver on our mission to drive attractive top and bottom line growth. We remind each other every day that our shareholders expect and deserve value from their investments in Neenah and fully intend to deliver on that promise.

Thank you. We will now begin the question-and-answer session. (Operator Instructions) And our first question comes from Jon Tanwanteng with CJS. Please go ahead.

Have you been seeing any sort of recovery all heading to April and May? When do you start seeing light at the end of the tunnel in terms of demand?

We see glimmers, but from our demand standpoint, I don't know when the markets are going to recover. The pressures that we're seeing, I mean I take great solace in the fact that we still are projecting a $50 million growth in our filtration and we're still projecting that we'll be able to deliver that 7% to 8% growth in filtration overall. The category that's really faces the predominant of the pressures are backing category, which has clearly been our most economically sensitive category overall.

So I can't tell you when that's going to happen if you will. That's why we're so focused on the things that we can control today then prove the overall financial results. We do know, we're not in a competitively disadvantaged position and we also understand that we're in categories that customers manage in their inventory. So we do believe it'll be coming back and we just need to be prepared for when it does.

Yes, every day I hope that they've made all the adjustments that they need. It's going to be based on their view of what the future holds, Jon. So, as the economies pick up, they'll restore. So, in these times of change, they really take more risk on inventory, which actually puts more pressure on us to respond. And I think the team's doing a good job managing our distribution costs. We're able even in the quarter to make improvements on distribution costs with that as well. I'm optimistic, but you know that's my nature.

Okay great. Thank you. And then just going back to your your comments on filtration growth and your confidence in that $15 million, 7% to 8%, just giving automaker sales volumes are now worldwide, down year-over-year, the first four months of the year, did you see any risk to that at all or is it still more the miles driven versus new auto sales that really drives the results in filling up in facility?

Yes for us it's still a miles driven. Of course, any projection has risk associated with that, but I feel very good as we talked about the -- in the U.S. we had a 70% increase in our revenues from that standpoint. So the impact that we're feeling infiltration really is more where we have a lot of capacity in some of those -- in some of those economies. But we got a 14-year or 13-year track record that demonstrates that this is a fairly consistently improving business. So I feel pretty confident in that product category.

Okay great. And then just to your comments on moderating input prices, I know that you mentioned in the past quarter that you thought you will be able to recover those input price increases. With prices coming in a little bit more, does that give you more cushion, a little bit more ability to actually make more back than you thought you would have been able to?

So ,we've announced all the price increases that are fully implemented. So I can at least feel confident when I talk about the $25 million of price recovery to what we're projecting today, the $10 million from last year is real. We were able to cover two-thirds of that, but we have about a third of that outstanding. For this year our projection is that it will have a $15 million headwind. If it improves our expectation across most of the categories is that there'll be a slight margin enhancing effort. Because as I've talked about pricing strategies in the past, filtration is an annual and Fine Paper has more of a list cost sticky element to it. We do have businesses that will have escalators and they tend to lag when pricing goes down over time. Those categories and technical products might have some give back to them.

Okay great. And then finally from the capital allocation priorities that you have, where are you seeing the most relative risk adjusted return right now for excess cash?

Always organic investments. So cash reduction is one of our highest returns. I don't know if you all are noticing, Bonnie is very quiet, that's a financial question.

Organic, right. The cost savings are always the best. And then growth capital is pretty -- our returns for that are pretty consistent with what we see in M&A, we like all of that. Debt reduction is always a good one. And as interest rates are going up, it's worth more. That's pretty much our priority then we want to make sure that we keep an attractive return to our shareholders.

Thanks and good morning. And I hope my questions aren't too similar John, but you did use the word past -- increases were in the past tense. So when were they effective? Evidently, we're gonna see most of the benifits going forward?

Yes. So we've had -- I say in the past that we've had multiple increases last year. So they'll be lapping especially in the Fine Paper. I think they had three increases. A number of the technical products were negotiated customer by customer as they work through the fourth quarter of the larger point in time, might be filtration really which was implemented at the beginning of the first quarter of this year. So as you may recall when we talked about this last year and our ability to recover, we recovered a significant portion Fine Paper, but since filtration were annual contracts we had to wait to the beginning of the first quarter before we could actually pass through those price increases.

So Steve, John mentioned $25 million selling price and we expect it to be split pretty evenly by quarter.

And then with respect to the soft global market conditions, is it mainly infiltration or can you elaborate on the product lines and then have you seen the volumes recover in real time or at present so that the cost allocation starts to improve?

Yes, so a couple of things in regard to that. It wasn't just primary filtration, it was backing we've probably had the disproportionate impact on that. And if you say do you have more optimism after April than you did in January, and I do to that end, but not able to -- I don't guide on that growth and nor would I have the ability to see what's going to happen through May and through June, but again I would say overall it's -- I think we've we've hit the bottom of the demand associated with inventory reductions by our customers and we're probably closer to real actual market demand, which should be improving.

Okay. And then finally, I don't know if you want to tackle this one, but between the cost management initiatives and the pricing moves, do you expect that for the full year you'll be able to get back to an earnings growth trajectory despite the soft start?

Yes. As I mentioned in the prepared remarks that we are expecting an improving financial results as we work our way through the year from that standpoint with those two initiatives, but we're talking about pricing initiatives, which I believe I have a great handle on and a good perspective of what's happened --

Yes, we feel good about the stuff we control. But the volume, we did not anticipate the volume softness in the first quarter. We didn't think Europe and Asia would be that weak. So, while we control, we feel good about.

And then the magnitude of the pulp change. So, we've made some assumptions about the future. I believe the things that we can control we're headed in the right direction. My expectation always is for improving financial results. What we haven't done is we have not made significant changes to our existing capacity today based on these economies and that's obviously, those are future choices, but those are are much bigger choices as we move forward. Our focus is to keep everybody employed where we can drive good returns and that's what we said today.

Going little deeper into the (inaudible) business. Everything I was reading last week on digital transfer and all the sublimation papers, it looked pretty more compelling than I previously anticipated. Just wondering first what are you seeing demand trajectory in the textile printing end markets and perhaps other end markets that Neenah sells into? And then I had a couple of follow up questions on the same subject.

I am sorry. Yes, just on Coldenhove and then what trend you're seeing? Any call outs for the digital heat transfer sublimation end markets and products?

Yes, when we made that Coldenhove acquisition, we said that's a category we believe grew in high single digits, 5% to 7%. I think that's where we've sized that at. And that's still our expectation going forward. Some of the markets like our -- we have a big position in Italy that has been pressured in the near term, but I still believe the long term characteristics of this category easily fit with inside that.

The other benefit is combining our heat transfer products with our digital transfer products and expanding geographically, which we are just now implementing as well. So I would suggest to you that digital transfer papers, it's the technology that's driving the growth above the market from that standpoint and we're running well ahead of what we had projected in regards to that and our future opportunity comes with it as markets recover -- that are important to these we can expand globally with our combined portfolio.

Okay. How much capital does that Coldenhove business need? Is there like a certain maintenance CapEx level or is it minimal?

Yes, there's -- each of -- the good news is that when we acquired the business that had significant amount of unused capacity. So in regards to growth capacity that's not going to be overly burdensome from that standpoint. From a maintenance capital standpoint, every facility -- manufacturing facility has an element of it. So I don't think they stand out as particularly onerous or efficient in regards to the maintenance capital. And just a reminder Bonnie said in the call that our CapEx this year is going to be on the lower end of our range 3% or roughly near that $30 million and about a third of that is our sustaining capital and Coldenhove is one of the 16 facilities we have. So it's not overwhelming.

Okay. That's helpful. And the last one same topic. This is just more to satisfy my curiosity, can this capacity -- can it do micro run and does it do anything in tension fabric display? That was it.

Yes. So that -- just a reminder, that digital transfer paper -- we carry the ink and I think as far as the product that we're making shorter runs, It's when our product gets carried to the application or the digital printing where the micro run. That's actually the intention of the product is to make short runs, unique and tailored and minimize the amount of inventories required from a long run standpoint. So that's really the next step down the chain for us. So good news for us is that we can have the much longer runs if you will.

Okay. That was my question just wondering if you had exposure to that sort of niche corner of the market, which what I've been reading is really all types of runs, but especially on the micro, but I think the answer was yes, is that right?

Yes, the digital is the preferred and coming technology our products are suited to deliver the answer for digital products. So, yes we're not the only part of the process.

Okay. That was my question. I just feel like some of the the results in that business are being kind of masked by other things, but that's compelling. Okay. Thank you.

Specifically in your prepared remarks Bonnie, youmay have talked a little bit about the 2021 note, so you're about two years away from (inaudible). There's no call premium. I'm guessing, but I just want you to confirm is that something you'd like to kind of deal with in the next year or so. So that doesn't show up as current pay on your balance sheet, just any thoughts about how you're thinking about that would be super helpful.

Yes, we we don't like for our debt to go current. So we will be thinking about it. Don't have any plans right now to call them, but I can't say that we wouldn't.

Okay. And would you guess as you think about market pricing, is another -- if you were to refi would you refi with another bond or would you look at the bank loan market? How do you think maybe some of the options to refi that?

There's just so many variables that go into that. You know, we said our priority use of cash is organic growth and acquisitions. So I think depending on what we -- how much cash we needed that would be a big driver in how we chose to finance it. So we did recently upsize our revolving credit facility. I think it's about to 225 on that, a lot of that capacity is available. We do like the bond. We like having unsecured debt that's termed out. So we kind of carefully watch our mix between fixed and floating, long and short.

I'm showing no further questions, this concludes our question and answer session. I'd like to turn the conference back over to Bill McCarthy for any closing remarks.

Sure. Thank you all for joining us today. Neenah will be presenting next week at the Oppenheimer Industrial's Conference in New York and at the Deutsche Bank Conference in Chicago in early June. We hope to see some of you there and as always please feel free to reach out to me if you have any questions. Thank you.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.

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