Clearwater Paper Corporation

Thank you for standing by. At this time, I would like to welcome everyone to today's Clearwater Paper third quarter 2025 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you'd like to ask a question during this time, simply press star followed by the number one on your telephone keypad. Once again, star one. And if you'd like to withdraw your question, simply press star one again. Thanks. I'd now like to turn the call over to Sloan Bolin, Investor Relations. Sloan?

Thank you, Greg. Good afternoon, and thank you for joining Clearwater Papers' third quarter 2025 earnings conference call. Joining me on the call today are Arson Kitsch, President and Chief Executive Officer, and Sherry Baker, Senior Vice President and Chief Financial Officer. Financial results for the third quarter of 2025 were released shortly after today's market closed. You will find a presentation of supplemental information, including a slide providing the company's current outlook posted on our investor relations page at our website at clearwaterpaper.com. Additionally, we will be providing certain non-GAAP financial information in this afternoon's discussion. A reconciliation of the non-GAAP financial information to comparable GAAP information is included in the press release and in the supplemental information provided on our website. Please note slide two of our supplemental information covering forward-looking statements. Rather than reading this slide, we'll incorporate it by reference into our prepared remarks. And with that, let me turn the call over to Arsene.

Thank you, and good afternoon, everyone. Let me begin with a summary of our third quarter performance highlights. We delivered adjusted EBIT of $18 million, which is toward the high end of our guidance range of $10 to $20 million. Year-to-date adjusted EBITDA from continuing operations stands at 87 million, up from 26 million during the same period last year. This increase is driven mostly by our efforts to reduce fixed costs and for incremental months of Augusta results included in our P&O. Net sales grew by 2% versus the prior quarter, driven by a 6% increase in shipment volumes, partly offset by lower market-driven pricing. We successfully completed all three of our planned major maintenance outages for 2025. The Lewiston outage was completed in August at a direct cost of 24 million. The Augusta outage was completed in October at a direct cost of 16 million. I'm pleased to report that the execution of our planned major maintenance outages was significantly improved versus prior year. This confirms our belief that an annual cadence delivers generally more manageable and predictable outages. We've also largely captured the run rate benefits of our fixed cost reduction initiatives. These are now tracking to around $50 million in savings for the year, which would exceed our original estimate of 30 to 40 million. These savings are helping us offset some of the margin pressure that we're facing during this industry down cycle. Let's now turn to some commentary on the industry and our key strategic initiatives. While the latest third quarter AFMPA report is not yet available, the trends that we saw in Q2 have largely persisted into Q3. We believe a competitor is continuing to ramp new SPS capacity, which may add up to 10% of additional supply to the industry. Without other changes, this level of new capacity would result in utilization rates in the low 80% range by year end. This will be well below the normalized cross cycle average of 90 to 95% and would result in supply exceeding demand by more than 500,000 tons. These low utilization rates have led to margin pressure resulting in returns that can support investments into our capital intensive industry. This is simply not a sustainable position to be in for the industry, which is why we believe that the industry will rebalance supply with demand in the medium to long term. As we previously discussed, there are several potential paths to this recovery. First, RSEI is forecasting an approximately 350,000 ton net capacity reduction in the first half of 2026, which would drive utilization rates to above 90%. Second, tariffs and a weakening dollar may put pressure on the price of some of the more than 700,000 tons of imports into the U.S., encouraging customers to seek domestic suppliers. And lastly, industry participants may choose to swing capacity to other grades, such as CUK, YTOP, or other non-bleached applications. This could help absorb excess SBS capacity. Without a combination of these supply changes, we believe that it will take more than five years of demand growth to fully absorb the excess capacity that exists today. While the current industry oversupply is primarily limited to SBS, we believe that it is having an impact on the other two paperboard substrates. Each substrate has its own strengths and applications, but there's meaningful overlap between them, presenting substitution opportunities to customers. This is why we believe that pricing has been historically correlated between SBS, CUK, and CRB. Today, CUK is priced $50 per ton higher than SBS, according to RISI, which is not intuitive given SBS' superior print quality and higher bleaching costs. If you look at the 30-year history of this market, it is only in recent years that CUK pricing has exceeded SBS. CRB today is priced $120 per ton lower than SBS, according to RISI, which is a narrower gap than we've seen historically. SBS has superior performance characteristics versus CRB with a higher production cost of more than $200 per ton due to the use of virgin fiber and bleaching. Buying decisions and packaging are driven by several factors, including performance, cost, and sustainability. Most importantly, customers buy paperboard by area or square feet and not tons. To match the strength performance characteristics of SBS, a customer would need to use a heavier weight of CRB, resulting in a price that we estimate to be equal to or higher on a per square foot basis than SBS in today's market. If these trends persist, we believe that CPG and retail customers will look closely at substitutions, which would support higher SBS demand, put a ceiling on CUK and CRB, and return to historical pricing correlations between the three substrates. Let me now shift to some comments on a potential CUK investment that we previously discussed. As a reminder, we're exploring adding CUK swing capability to one of our SBS machines. We have nearly completed the engineering work, and now I can share some additional details on the project. The estimated capital required for the investment is approximately $50 million, with a 12 to 18-month lead time to complete. At today's prices, the project return is estimated to be more than 20%, largely based on trading up lower-end SBS volume to CUK. The returns would be considerably higher if we assume that we're filling up open SBS capacity. Our mill in Cypress Bend, Arkansas is best positioned for this project, given its proximity to customers and access to low cost softwood fiber required for CUK. We estimate that open market demand for CUK is around 3 to 400,000 tons, with potential upside if independent converters had reliable domestic supply. Our goal would be to capture around 100,000 tons of this volume, utilizing about one-third of Cypress Bend's capacity. The remaining two-thirds of the capacity would remain in SBS. We see two upsides to this project. First, there is a strategic benefit to expanding our product portfolio to better serve our converter customers. Second, it would enable us to more fully utilize our network capacity during an SBS industry downturn. We may conclude in the future that this is a good investment, but we're putting a final decision on hold at this time. We remain focused on running all three of our SBS mills, vigorously defending our SBS market share and preserving the strength of our balance sheet. With that, I'll turn the call over to Sherry to discuss our Q3 financial results in more detail, as well as provide an outlook for Q4 and some initial thoughts on 2026.