Clearwater Paper Corporation

Hello, everyone. Thank you for joining us and welcome to the Clearwater Paper fourth quarter and full year 2025 earnings conference call. After today's prepared remarks, we will host a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. To withdraw your question, press star one again. I will now hand the call over to Sloan Bolin, Investor Relations. Please go ahead.

Thank you so much. Good afternoon, and thank you for joining Clearwater Papers' fourth quarter and full year 2025 earnings conference call. Joining me on the call today are Arsene Kitsch, President and Chief Executive Officer, and Sherry Baker, Senior Vice President and Chief Financial Officer. Financial results for the fourth quarter of 2025 are 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 the investor relations page of 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 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. With that, let me turn the call over to Arsene.

Good afternoon, and thank you for joining us today. 2025 was a transformational year for Clearwater Paper. It was our first full year operating as a paperboard-focused business, and I'm pleased with how well our team executed, even as we faced a challenging industry environment. Let me provide a brief recap of our 2025 performance. We successfully completed the integration of the Augusta Mill and the separation of our tissue business, both ahead of schedule. Net sales increased by 12% year over year, driven by a 14% increase in shipments, primarily from operating the Augusta Mill for a full year. Adjusted EBITDA was $107 million, an improvement of $71 million versus the prior year, driven by exceptional cost control and execution. We completed all three major maintenance outages in 2025 on schedule with total direct costs of $50 million, marking a significant improvement in execution and cost versus 2024. We delivered more than $50 million in fixed cost reductions, including $16 million in SG&A savings, which should improve our long-term earning potential as our industry recovers. SG&A declined to 6.5% of net sales, down from 8.4% in 2024, which we believe positions us as an industry leader on this metric. We repurchased $17 million worth of shares during the year, with 79 million remaining under our authorization. And importantly, we maintained a strong balance sheet, ending the year with more than 400 million in liquidity. Looking ahead, we will continue to evaluate our options and alternatives to maintain financial flexibility and optimize capital allocation, including refinancing our 2020 notes, which go current in August of 2027. Let me spend the next few minutes discussing current industry dynamics and the actions that we're taking to position us for return to cross-cycle margins and cash flows. Sherry will then review our financial results in more detail. including our first quarter outlook and key assumptions for 2026. I will then conclude with remarks on our shareholder value proposition. Let's start with our industry. Paperboard continues to face challenging supply and demand dynamics, particularly in SBS. We believe that there are three factors that are driving this imbalance. First, demand recovery for packaging has not materialized as expected. Industry shipments of SBS were largely flat year over year, based on the latest AFNPA data, and down in CRB and CUK. CPG and QSR volumes remain lackluster, pressured by inflation, economic uncertainty, and the likely impact of GLP-1 drugs on consumption. While demand for SBS is relatively flat, a competitor added more than 500,000 tons of new capacity in 2025, representing approximately a 10% increase in industry supply. As a result, Industry operating rates decreased to the low 80% range by the end of 2025, leading to pricing and margin pressure. At these margin levels, we do not believe that Clearwater can produce the cash flows and returns that are necessary to reinvest in these types of capital-intensive assets in the long run. We also believe that these dynamics are beginning to impact other paperboard substrates, as there is meaningful overlap in end-use applications. Today, SVS is priced lower on a per ton basis than CUK, even though SVS has higher manufacturing costs and a superior print service. SVS is also priced lower on a per score foot basis versus CRV, since a heavier weight CRV is required to replicate the performance characteristics of SVS. We are aware of CPG customers that are actively moving their business from CRV to SVS. a trend that we expect to continue at these price levels. Let me briefly discuss the most recent RSEI reported price movements in SBS and the impact on our business. RSEI reported a $100 per ton decrease in their SBS folding card index during the fourth quarter. From our vantage point, this change did not accurately reflect industry pricing, as the price declined by an average of only $21 per ton from Q3 to Q4, and not $100 per ton. While we disagree with RSEI's latest reported decrease, we're faced with a $50 million price headwind as a result. After the Augusta acquisition, approximately 40% of our volume is now tied to the RSEI folding carton index, while 10% is tied to the RSEI cup index. In total, including the latest fourth quarter RSEI index change, we're faced with an approximately $70 million pricing headwind in 2026 versus 2025. While the most recent fourth quarter pricing movements were negative, RSEI is projecting a recovery in both SBS operating rates and pricing in 2026. Specifically, RSEI is projecting operating rates to improve to 90% with a price increase of $60 per ton in 2026 and a total of $130 per ton by the end of 2027. If these projections were to hold, our margins would improve by more than 10% and get us back towards cross cycle returns and cash flows. As I mentioned previously, this is a supply driven downturn that is unsustainable. Specifically, we believe that supply now exceeds demand by about 400 to 500,000 tons, resulting in industry operating rates being around 10% below historical norms. We believe that this is a temporary condition and that a combination of three factors will drive an improvement in the supply and demand balance and get us back to cross-cycle margins and cash flow. First, SPS demand is forecasted to grow in 2026, and we should benefit from substitutions. Second, imports are forecasted to decrease by 8% in 2026, while exports increase by 5%. And third, RSEI has forecasted a net capacity reduction of 180,000 tons in 2026. With all these changes, RSEI is forecasting industry operating rates to approach 90% by year end. And we believe that these factors will accelerate an improvement in industry conditions going forward. While the industry environment remains challenging, we're focused on controlling the controllables and assessing our options. We continue to focus on running efficiently, reducing costs, and maintaining share with our longstanding strategic customers. Second, we recently announced a price increase to our customers of $60 per ton in our cup grades and $50 per ton for all of the products. These increases are necessary to offset the cumulative impact of inflation over the last several years and to enable us to continue to invest in our assets. These increases impact approximately 50% of our volume that is not tied to the receipt price index. The remaining 50% of our volume will move as industry pricing is reflected in the receipt price index. Lastly, we plan to balance Clearwater's supply with demand in 2026, which may include extended curtailments on our assets and variabilizing our costs whenever possible. In addition, We will look at our manufacturing assets to determine what actions we can take to reduce our costs further and improve our margins and cash flow. Let me wrap up with a few comments in our strategic efforts to diversify our product portfolio. We believe that these efforts will deepen our relationships with our converter customers and allow us to sell incremental volume. We are preparing to launch Velora, a new lightweight paper board product line, in the second quarter. This brand incorporates mechanical pulp in the middle layer and is designed to compete with FBB, which represents approximately 10% of North American bleached paperboard demand. We have completed the engineering feasibility for a CUK investment at our Cypress Bend facility with a cost now estimated at 60 million with a 12 to 18 month execution timeline. We believe that annual CUK supply is roughly 2.5 million tons in North America, of which 3,000 to 400,000 tons is currently sold to independent converters. With this investment, we believe that we can capture approximately 100,000 to 150,000 of these tons. The remaining 200,000 tons of capacity at Cypress Bend would provide flexibility to meet bleached paperboard demand or target additional unbleached products, such as white tops. We believe that this project offers an attractive return and enhances our ability to manage through market cycles. We have not made the final decision on this project at this point. In addition, we're continuing to evaluate external options to add CRB to our portfolio, further diversifying our end market exposure. With that, I'll turn the call over to Sherry to walk through our fourth quarter and full year financial results, along with our first quarter outlook and full year assumptions.