Packaging Corporation of America

Good morning, everyone. Thank you for joining Packaging Corporation of America's third 2024 Earnings Results Conference Call. Your host will be Mark Colzan, Chairman and Chief Executive Officer of PCA. Upon conclusion of his narrative, there will be a question and answer session. I would now like to turn the conference call over to Mr. Colzan. Sir, please proceed when you are ready. Thank you, Jamie.

Thank you, Jamie. Good morning, everyone, and thank you for participating in Packaging Corporation of America's third quarter 2024 earnings release conference call. Again, I'm Mark Holzan, Chairman and CEO of PCA, and with me on the call today is Tom Hasfurther, Executive Vice President who runs our packaging business, and Bob Munday, our Chief Financial Officer. As usual, I'll begin the call with an overview of our third quarter results, and then I'll turn the call over to Tom and Bob who'll provide further details. And then I'll wrap things up, and we'll be glad to take questions later. Yesterday, we reported third quarter net income of $238 million or $2.64 per share. Excluding special items, third quarter 2024 net income was $239 million or $2.65 per share compared to the third quarter of 2023 net income of $185 million or $2.05 per share. Third quarter net sales. were $2.2 billion in 2024 and $1.9 billion in 2023. Total company EBITDA for the third quarter, excluding special items, was $461 million in 2024 and $388 million in 2023. Details of special items for both the third quarter of 2024 and 2023 were included in the schedules that accompanied our earnings press release. Excluding special items, the 60 cents per share increase in third quarter 2024 earnings compared to the third quarter of 2023 was primarily driven by higher volume of 94 cents and prices in mix, 3 cents in the packaging segment, higher volume in the paper segment for 3 cents, lower freight and logistics expenses of 9 cents, lower scheduled outage expenses for 6 cents, and lower interest expense for 5 cents. These items were partially offset by lower prices and mix in the paper segment for 2 cents, higher operating and converting costs, 51 cents, and higher depreciation expense, 5 cents, and other expenses, 2 cents. The results were 20 cents above our third quarter guidance of $2.45 per share, primarily due to higher volume in our packaging and paper segments and higher prices and mix in the packaging segment. Looking at our packaging business, EBITDA excluding special items in the third quarter of 2024 of $446 million with sales of $2 billion resulted in a margin of 22.2% versus last year's EBITDA of $374 million with sales of $1.8 billion and a 21.3% margin. The operational benefits of our capital spending program and the continued great focus and execution by our sales, customer service, mill and corrugated products plant employees continue to deliver impressive results. Setting new all-time quarterly records for container board production, total box shipments and shipments per day, while meeting the service and quality needs of our customers, would not have been possible without a long-term, well-thought-out strategic capital spending plan and the hard work and dedication of our employees. Even with record production, as a result of the strong demand, we were not able to meet our inventory target at the end of the quarter. With some adjustments we made to the DeRidder Mills scheduled outage plans for this year, plus two less corrugated shipping days during the fourth quarter, and with a lighter-than-average schedule in the first half of 2025, we do hope to reach our target by the end of the year. I'll now turn it over to Tom, who will provide further details on container board sales and corrugated business.

Thanks, Mark. The corrugated products demand strengthened throughout the quarter, and as Mark mentioned, resulted in record-breaking performance for our plants. Shipments per day were up 11.1% over last year's third quarter, and total shipments with one additional shipping day were up 12.9%. Versus the second quarter of 2024, shipments per day were up 5.8% and total shipments with one less shipping day were up 4.1%. Outside sales volume of container board was 45,000 tons above last year's third quarter and 7,000 tons above the second quarter of 2024. Prices and mix came in ahead of expectations as implementation of our previously announced price increases for container board and corrugator products was managed very well. Domestic container board and corrugated products prices and mixed together were up 35 cents per share versus the second quarter of 2024 and flat compared to the third quarter of 2023. Export container board prices were up 3 cents per share compared to the second quarter of 2024 and the third quarter of 2023. I'd like to mention that in addition to ensuring our customers' quality and service needs were met during a record-breaking quarter Our employees did not get complacent. Their focus on continuous improvement regarding customer service as well as efficiency, quality, productivity, and optimization improvements across our packaging segment is relentless and drives our industry-leading results. They fully understand that there are always areas that can be improved upon even with record-setting performance. Now I'll turn it back to Mark.

Thanks, Tom. Looking at our paper segment, EBITDA excluding special items in the third quarter was $43 million with sales of $159 million or a 27.0% margin compared to the third quarter of 2023 EBITDA of $35 million and sales of $158 million or a 22.4% margin. Previously announced price increases were implemented as planned with average prices in mix up 2% versus second quarter 2024 levels and down 2 percent versus the third quarter of 2023. Volume, which exceeded forecast levels, had very good back-to-school shipments and strong printing and converting demand. Volume was up 4 percent versus the third quarter of 2023 and was 5 percent above the second quarter of 2024. Mill operations were managed very well with excellent machine efficiencies and material usage, especially with chemicals and energy. And now I'll turn it over to Bob for more financial details.

Thanks, Mark. Cash provided operations during the quarter totaled $327 million, with free cash flow of $180 million. The more significant cash payments during the quarter included capital expenditures of $147 million, common stock dividends totaled $112 million, $77 million for federal and state income tax payments, and $26 million for pension and other post-employment benefit contributions. We ended the quarter with $841 million of cash, including marketable securities, and our liquidity on September 30th was approximately $1.2 billion. Lastly, our planned annual maintenance outage expense for this year has changed slightly due to the adjustments made to the durator meal outage that Mark referred to earlier. The third quarter outage impact was 17 cents per share or 3 cents unfavorable to our previous guidance. And the new estimate for the fourth quarter is 29 cents per share or 4 cents favorable to our guidance. The total estimate for the year is 87 cents per share. I'll now turn it back over to Mark.

Thanks, Bob. Looking ahead as we move from the third and into the fourth quarter, we expect demand in our packaging segment to remain strong with corrugated shipments per day continuing to strengthen and slightly higher container board volume. However, total shipments for the corrugated business will be impacted by two less shipping days and the recent hurricane damage to the strawberry crops in Florida. With current container board inventory below our target levels, We will also attempt to build some inventory prior to year-end. We expect continued realization from the previously announced price increases and higher export prices, although with a seasonally less rich mix compared to the third quarter. In our paper segment, shipments will be lower versus the seasonally stronger third quarter, while prices and mix should be fairly flat. Operating and converting costs are expected to increase, driven by higher seasonal energy costs and chemical costs. Scheduled outage costs are estimated to be $0.12 per share higher than the third quarter, and depreciation expense should be slightly higher also. Considering these items, we expect fourth quarter earnings of $2.47 per share. With that, we'd be happy to entertain any questions, but I must remind you that some of the statements we've made on the call constituted forward-looking statements. The statements were based on current estimates, expectations, and projections of the company and and do involve inherent risks and uncertainties, including the direction of the economy and those identified as risk factors in our annual report on Form 10-K and in subsequent quarterly reports on Form 10-Q filed with the SEC. Actual results could differ materially from those expressed in the forward-looking statements. With that, Jamie, I'd like to open up the call for questions, please.

Ladies and gentlemen, at this time, we'll begin that question and answer session. To ask your question, you need to press star and then one. To withdraw your question, you need to press star and two. We'll pause momentarily to assemble the roster. First question, please. Our first question today comes from George Stappos from Bank of America. Please go ahead with your question.

Hi, everyone. Good morning. Thanks for taking the question, and congratulations on the progress so far. So gentlemen, I guess the first question I had, standard, can you talk a bit about where bookings and billings are to start the fourth quarter with whatever adjustment you want to make either per workday or actual? And if you could shade or provide some color in terms of what end markets or product lines are seeing the most or least traction. Second question I had for you, And you talked about it last quarter and certainly you had favorable results versus your guidance. Can you talk about how whatever growth you're getting incrementally in the brown market, so to speak, is impacting your overall mix and sort of any implications for the outlook for earnings and EBITDA growth for the future?

Hey, George, it's Tom. I'll take that question. First of all, on a per-day basis, our bookings and billings are up just a little over 8% versus 23%. So we continue to be in a very nice growth mode. The end markets involve a little bit about your question regarding growth and mix as well. So let me talk about the growth first. and where we're seeing some end markets that are growing more than perhaps others. And probably the biggest difference that we're seeing right now is that the e-com area across the board, and of course I've mentioned many times that we have a lot of e-commerce customers and that a lot of our customers got into e-com a number of years ago, that segment continues to grow nicely. And, you know, that's evidence by anything you see out there data-wise regarding, you know, big box stores and some of this other stuff. And so, you know, a lot of online shopping. And then, on the other hand, some of that graphics mix, you know, which is POP-related, point-of-purchase displays and things like that, those are pretty flat. So we've got, you know, one area growing quite nicely and another area that's been pretty flat over the last few years. And, you know, it's the same thing as we talked about in the past because of consumer spending and because of kind of where consumers are right now. The durables certainly haven't performed as well as the non-durables, at least from our segments of business that we have. So hopefully that gives you enough understanding of kind of where we are and what we're seeing.

Tom, that's great. I guess my last one, I'll turn it over. Can you talk a little bit about what the crop damage might mean to you in terms of volume? And, you know, as you look out to next year, do you need to ramp any investment, whether it's working capital capex, to keep the growth going? that you'd like to have, you know, looking out to 25, given how tough the comparisons are? Thanks and good luck.

Yeah, George, that's a great question. Number one is, it's a little unknown how severe the crop damage is going to be. It's spotty all over the state of Florida. And of course, that's a very big market for us. So we anticipate that What would traditionally be a full crop that would come in during the fourth quarter is now going to come in at the end of the fourth quarter and bleeding into the first quarter of next year because they're going to have to do a lot of replanting. All those plants were quite young, so that's what caused a lot of the damage. And relative to CapEx and investments, as I've said many, many times, we invest where the customers need us to invest. And we're continuing to do that. One of the commentary I said about our employees and what a great job all of our associates have done is because we've had a lot of capital projects going on while we've had this surge in demand. And they've done just an unbelievably great job of making sure that we serviced our customers the way they need to be serviced with the quality products that they demand.

In keeping in line with that commentary, George, as we said on the July call, this year we will have worked on at least 60 major projects within our box plant system with new corrugators, major corrugator rebuilds, new converting lines. As we announced in July, we're heavily engaged at this point in building out the new operations in Glendale, Arizona that will start up early next year. And then just going forward, and we'll talk about this more in the January call, but we've got plans on the books to build out a couple of new big plants over the next two and a half, three years also. But we will continue the pace of reinvestment in these plants. This has been the – it's driven the capability to be where we are today. We said this on the call, I believe, in July. If you include this year's capital spending – Over the last five years, we would have spent $2 billion just on the box plant system, recapitalizing and building out some new plants. And in many cases, in almost all cases, we've either quadrupled or increased even over that the capability of these box plants to produce quality packaging for the customers. And so we're not going to let up on that momentum that we have. That's what gives us the ability to grow and take care of our customers.

Understood. Thanks so much.

Next question, please.

Our next question comes from Mike Roxland from Truist. Please go ahead with your question.

Thanks, Mark, Tom, Bob, for taking my questions, and congrats on a really good quarter.

Thanks, Mike. Thanks. Appreciate it, Mike.

You know, your volumes continue to outpace the industry and your nearest peers. How should we think about your volumes and when growth should normalize? Is that something that should occur early next year, second half of next year, or could this even play out longer given the ongoing self-help and restructuring that your larger peers are going through?

Mike, we plan to take advantage of every opportunity we get where we can profitably grow our revenue. And I think right now we're able to perform in a way that is very desirable for A lot of our customers, certainly most of our growth comes within our existing customers, and then, you know, we get opportunities outside of that as well. But, you know, they happen to be looking for something we're able to deliver, and I think those opportunities will remain. Now, there's no question that starting next year, the comps are going to get tougher. You know, we made a big jump this year, but, you know, we, you know, Our key objective is profitable revenue growth, and we'll continue to go down that path, and I'm very confident of it, especially given the fact that, as I've mentioned many times, our capital expenditures are not a build it and hope they will come. It's we do it based on what our customers have asked us to do, and that provides us a lot of opportunities and efficiencies as well.

You know, Mike, what Tom just said about the comps, don't forget last year's fourth quarter, I think we were up probably 5.5% to 6% last year's fourth quarter over the prior year's fourth quarter. So the 8% he's calling up is over a very big comp. So, again, if you also look back over the last 20 years, PCA has a track record of significantly outgrowing our customers on the packaging side significantly. year over year, decade after decade. And we intend on continuing that trend.

Gotcha. That's great, Colin. It sounds like, you know, Mark Tom, basically you just said that you could probably outgrow your peers probably at a faster rate than you had historically given some of the moving pieces that are happening in the industry.

You know, I don't want to, Mike, I don't want to, you know, really compare ourselves to our competitors because, We just basically stay focused on what our opportunities are, and we stay focused on our customers and what their demands are. And that takes us forward. Gotcha.

Then one quick follow-up. Just, Mark, you said you put out a teaser. You mentioned some new plans you're looking to build out over the next few years. You mentioned more details in January. Anything you could share with us now on those new plans, particular regions, and markets, anything you could share regarding what you're looking to accomplish in with those new box prints over the next two to three years?

No. We'll give you more details in January.

Perfect. Sounds great. Thanks a lot, guys.

Thanks. Next question, please.

Our next question comes from Gabe Hyde from Wells Fargo. Please go ahead with your question.

Mark, Tom, Bob, good morning, and congrats on the good quarter. Morning, Gabe. Thank you. I wanted to dig in a little bit on a comment you made about a lighter maintenance out of schedule in H125, marrying that up with, again, comments about having a little bit of difficulty, seemingly, rebuild inventories. And, of course, that's a function of the performance. But it seems like to us in the outside world, I mean, maybe that's a little bit of marginal contribution on the production side, I don't know, 50,000 tons or something like that. Two part questions. One is, can you give us a sense for maybe the swing, um, H1 versus H2 on the maintenance outage? And second, uh, you know, Mark, you guys have been really diligent about investing in the system and the business you've talked about before, um, being okay, being over integrated. Um, but you're seemingly kind of hitting red line right now in terms of your ability on, on the, on the court or container board side, excuse me. Um, how long could you buy more paper in the open market or, or maybe some thoughts there in terms of what the plan could be?

Gabe, I think you asked 10 questions in that one question. Um, first of all, as far, as far, as far as, as far as the outage schedule, um, where are we calling it later for next year? Don't forget, we had that massive, uh, annual outage at Jackson to, uh, finish up the, uh, the last phase of rebuild work at Jackson. That was about 40 some odd days worth of effort. And, uh, And then just the learning curve through the springtime to get the machine up where we wanted it to be. But for the 2025 year, we won't have those types of outages at any of our mills. But frankly, we're planning on just the normal routine annual outages. We take the mills down, clean, inspect, routine boiler work, turbine work, machine efforts. So it ought to be a significantly lighter year in that regard without calling out a lot of details. But that's what we were implying in that. As far as the container board supply into the market, never underestimate us. We have long-term plans on how we will take care of our customers after the discussion that we have internally every day. So I'm confident that for the next few years, we're going to be in a really great place to grow and take care of our customers' needs. That's all I want to say about that.

Okay. And then I guess maybe, Bob, you didn't mention any sort of share repurchase, $851 million, I think, on the balance sheet, but just good leverage position. What opportunities do you see for the capital on a go-forward basis?

Well, Mark may be the better one to answer that, Gabe, but as you know, we always evaluate how we allocate capital, looking for the biggest return for the shareholders and what makes sense for our strategic capital spending plans. And that's, again, and be as opportunistic as we can with our share repurchases. So, Mark, unless you have something different, I think that's how we'll continue.

Yeah, I think if you look at our capital spend, you know, this year we called out, I think the original number was $470 million. And then when we identified the opportunity down in the Phoenix area, which is specifically Glendale, That number went up, plus we saw some other opportunities within some of the plans for new corrugators and some converting lines. So the call-out for the rest of the year, I believe, is up closer to $700 million right now. It's $680-some-odd million as we sit here. But these are going into high return, very, very valuable, accretive opportunities within the system. And we've got a runway and a portfolio of those opportunities we're going to continue to take advantage of. But frankly, that's the best use of our excess cash right now. And I do believe our investors tend to agree and they do support the way we handle our cash. I would agree with that. Thank you, guys. Good deal. Next question.

Our next question comes from Mark Weintraub from Speedport Research Partners. Please go ahead with your question.

Thank you. Congrats on another great quarter. So just maybe a little bit following up along the lines of container board production, et cetera, and opportunities to increase. Where were you in terms of operates in the third quarter? Were you pretty full out? Was Wallula up and running full in the third quarter?

Yes, all the mills were up and running. Last year, if you'll recall, we brought Wallula back up, and then in January I think we finished the startup of Wallula with the complete startup of the mill. So essentially we've run Wallula full out this year. And then, again, don't forget, though, we had the big shutdown at Jackson, so that was a big disruption there. And so, but as you could expect, we never sit still. We're always working on optimization opportunities at all of the mills. And so these will continue. But I think the good news is that we continue to run in a very effective, very efficient manner of taking advantage of our assets and then planning out into the future years where tons of I should say container board will come from to supply the customer's needs on the corrugated side. And I'm very confident we've got a good plan for the next few years.

Understood. And are there potentially significant internal Jackson-type opportunities, or is it more at least internally going to be smaller projects across the board perhaps?

It's a combination. We've got a few projects identified right now, quite frankly. We've got, you know, some paper machines in the system that time goes by pretty quickly. Counts Mill received the lion's share of capital spending in the 1990s and the early 2000s. You know, that's 25 years ago. And so we've got opportunities to look at counts number one machine as an example and really do some things to that machine to get good incremental capability out of that. Valdosta is another example of a machine that has incremental opportunity. And then depending on how much capital you want to spend in the future years, in terms of adding another paper machine if we had to in the future years. But right now for the next few years, we're in a very good place on how we take care of the customers with the container board supply.

Right. And just because it deserves a little attention, the paper segment did phenomenally in the quarter. The EBITDA margins, I guess it's now just I-Falls and that's always been a great facility for you. How much of it is that everything that's now going through I-Falls versus what else might have been going on that you basically, at least based on my numbers, were as strong as you've ever been margin-wise in the paper segment?

I believe we had one quarter a couple of years ago that was at the same 27% level and But no, you know, we have eye falls. It's the one mill. It's, you know, it's producing, you know, close to the 500,000 tons a year of uncoated free sheet production. That's a blend of the converting grades and probably 75% of that is cut size for a copy machine type paper. But that mill is hitting on all eight cylinders and it's been a great place and well capitalized and great management, great employees. So we rationalized that paper business as we were converting the Boise assets, and we're in a good place with the market, and we'll just continue to take advantage of that.

I appreciate it. One last real quick one. I think you mentioned $0.87 for maintenance outage this year. If I heard you right, you're saying that might be lower next year. What would normal be for annual maintenance outages?

Uh, yeah, Mark, it's, you know, normal, normal. I don't know. You know, this year, obviously with, with Jackson, you know, included in that it was, you know, higher, higher than normal, but yeah, we anticipate and Mark sort of, sort of touched on it earlier with, you know, just incremental volume next year. If you just look at, at it from a, from a change in our outage schedule this year to next year, you know, right now at a high level, you know, there's probably close to a hundred thousand tons of, of, of additional production next year. So, um, Using that as sort of a way to get at what's normal would take that off of the 87 cents, and that's probably the good ballpark. Okay, super.

Appreciate it. Thank you. Thank you. Next question, please.

Our next question comes from Phil Lang from Jefferies. Please go ahead with your question.

Hey, guys. Congrats on another strong quarter. You're certainly lapping tougher year-over-year comps, but operating costs stepped up noticeably. Any color, Bob, I guess, perhaps what you're seeing where it's a little bit more elevated? And are you starting to see that level off? And then I think you guys called out how, you know, Jackson and maybe some of the inefficiencies, some shutdowns, you know, was a drag this year. When we kind of look at the 2025, could this flip and be a good guy?

Well, I think your first question, Phil, you know, to answer that, you know, we said, you know, on the last quarter's call and, you know, it played out that way that, you know, sequentially cost we didn't see a lot of increase, you know, obviously sort of somewhat stable, slightly higher, but obviously at a very high level with all of the inflation that's been going on for several quarters. You know, if you're referring to year over year, you have to keep in mind that third quarter of last year, we did not run Wallula, and we did this year. So this year we brought in, you know, our highest cost direct variable mill along with a lot of indirects and things that you don't incur when you're shut down, you bring that on and, you know, there's probably close to $30 million of cost just for that alone, third quarter this year versus last.

Okay. And when you think about 2025 with all that kind of level set, and as you kind of pointed out, you're starting to see that level off, could that operating cost be a good guy next year?

I mean, we'll have to see. Obviously, you know, keep in mind, you know, the first quarter was always you'll see a big jump because you know, as we talk about every year with sort of the reload of a lot of the fringes and benefits on the salary side of things. You have, you know, increases that go into effect, you know, in that first quarter, you know, so you'll expect to jump, you know, for that reason alone, fourth to first. But right now, obviously, we don't get too far ahead of ourselves regarding guidance, but, you know, hopefully if We don't see a lot of costs going down, but hopefully they have moderated for a while for the next few quarters, and that would bode well for us next year.

Okay. And just some of the big inputs, OCC has come down a little bit, NRG has been a little more favorable. Anything else to call out in terms of costs that you're seeing, good or bad, trend-wise?

No, like I said, other than the two you mentioned, things seem to be fairly somewhat stable right now, Phil.

Okay, that's great. And when we think about your three key price mixes, you kind of pointed out was better than we expected, I think a little better than you anticipated as well. Was that more mix or is that more box price realization coming through perhaps a little quicker than you expected? In the fourth quarter, you know, per your guidance, you pretty much have all the box price increases fully implemented by now?

Phil, this is Tom. Relative to the box price increase, you know, I'm going to remind everybody here because there was some discussion about this earlier. You know, we have a very disciplined approach to our box price increase, and we do it by customer, by item, and we track every single one of them and make sure that they get implemented properly. And the timing of that hasn't changed. It's the same timing we've always gone through. We will have the lion's share of it through the third quarter. We will have some tracking into the fourth quarter and actually a couple of contracts that trigger annually. So we'll have it pretty much implemented certainly by the end of the fourth quarter. And that certainly has had an impact. And I think our mix, we've done a very, very good job of, as this mix has changed a little bit, figuring out how to produce that very effectively and efficiently, and that's helped us as well.

And, Tom, these annual contracts triggering, did that trigger in 3Q or did that trigger in the fourth quarter? I just want to make sure I understand that comment.

The couple of annual ones are on a calendar year, so they'll trigger at January 25th.

Gotcha. Okay. Thank you. Appreciate all the color.

Yep. Thank you. Next question.

Our next question comes from Anthony Petinari from Citigroup. Please go ahead with your question.

Good morning. Morning. Tom, you talked about growth and maybe some business wins in e-commerce. And I'm curious, you know, historically, PCA has been really virgin weighted, but you have the ability to swing into recycled. Is this new business like a bit more, you know, recycled based than your existing business? And as you think about adding maybe some incremental improvements, tons or de-bottlenecking, you know, over the next few years, do you think about the kind of virgin versus recycled mix maybe differently than you would have five, 10 years ago, or just kind of wonder if you can comment on that and maybe just that industry trend in the U S whether that, you know, the kind of mix in the lightweight recycled has really taken hold or maybe it's overhyped or how you're positioned there.

Anthony, we really, you know, we, we look at whatever, the performance is that any customer needs. And we have done, as we've talked about in the past, we've done some significant things in the mills to put us in a much better position to be able to run even lightweights and things like that. And that's been important to us. Now, we don't take that directly to any particular market or anything like that. We just are able to now react very well to whatever the customer needs and whatever their demands are, and we're able to do it on a performance basis that is most important. And that really has always set us apart from the recycled industry, the 100% recycled boards, and I think gives us somewhat of a competitive advantage. But again, we're not purposeful about taking a particular grade or anything like that to the market. we actually work the other way and do whatever the customer needs and meet those needs.

Okay, that's helpful, and that makes a lot of sense. On inventories, you talked about, you know, you plan to build inventory in 3Q ahead of the October deritter outage, but you talked about inventories kind of still below target levels. I just want to make sure I understand, like, is that really driven just by stronger than expected demand, or were there any other operational issues, technical issues that led to that kind of shortfall relative to maybe earlier expectations on inventories?

Yeah, I mean, it was driven by demand. We did not expect to see the kind of growth this year that we have experienced. And we've been talking about building inventory all year, and we've not yet succeeded in coming anywhere near close to where we should be. And so In some ways, though, it's not a bad place to be. With the lower inventories, it keeps everybody on their toes, and that's not a bad place to be. Everybody knows how critical every minute of machine production is to the system, so everybody's fully engaged.

Okay. That's very helpful. I'll turn it over.

Thank you. Any other questions, please?

At this time, once again, if you would like to ask a question, please press star and then 1. To withdraw your question, you may press star and 2. And our next question comes from Charlie Nearestan from BMP Paribas. Please go ahead with your question.

Yes, good morning. Thank you very much for taking my questions. I've just got one remaining, actually. You touched a little bit on it earlier, but just in terms of the strength of volumes, sequentially and particularly quarter on quarter, could you share any insight as to whether that is in particular coming from existing clients, existing business, or... existing clients, new business, or indeed new clients. I appreciate we haven't obviously got the industry data yet or your peers haven't reported either. I just want to get some color around where that incremental growth is coming from, you think.

Charlie, I will tell you that number one is it comes from our existing customers and growing within our existing customers. That's our primary target, but we have We have been fortunate enough to add other clients as well. And, you know, that's played very important because I think that our reputation we have in the marketplace is such that, you know, customers really do recognize the value you bring when you produce a quality product and you actually deliver it when you say you're going to be there.

Okay. Thank you.

Thank you. Any other questions, please?

And our final question today comes from Ryan Fox from Bloomberg. Please go ahead with your question.

Good morning, guys. Can you maybe elaborate a little bit more about the higher operating costs and converting costs? I think you had mentioned the majority of that may have come from Arlula, but that may have only attributed to maybe two-thirds of that. Just curious to see what else was hanging out there.

Yeah, Ryan. Obviously, the other... pretty much is higher OCC costs versus last year. That's a large number. And then labor and benefits would be another component. And those things that don't get talked about a lot, that are part of building rentals, professional fees, all the outside service costs, they incur higher costs as well, and they pass those on to us on a lot of fronts. Insurance, taxes, you know, a lot of those types of things, that would be the other component.

Got it. And I guess lastly, seems like a record quarter for container board production, almost 1.3 million tons. How much more do you have available per quarter kind of theoretically?

We won't get into that. Just suffice it to say that we've got plenty of capability to take care of our customers for the next few years.

Excellent. Thank you very much.

Thank you.

Any other questions? We do have a follow-up question from George Stappos from Bank of America. Please go ahead with your follow-up.

Hi, guys. A quick one. Thanks for letting me sneak in to the extent that you can comment. If we think about the next two years and you had a stack rank where you do expect to be able to get the paper to serve the growth, and we think about three or four categories of You know, existing optimization and productivity across your mills, like you said, with counts and Valdosta, conversions or outside purchases, how would you stack rank those in terms of how you'll supply the paper? Thanks, guys, and good luck in the quarter.

You know, for the next year, it will be just optimizing what we currently have. And then over the next few years, it's doing some bigger projects within our systems. And so, again, we've got a good runway for the next few years that we've already thought out here.

Thank you, Mark.

Okay. With that, I believe, if there are any more questions, we've got time. But, Jamie, is anybody else out there?

Mr. Coltan, I see there are no more questions at this time. Do you have closing comments?

Yep. Thank you for joining us today. I really appreciate everybody's time and look forward to talking with you at the end of January when we review the full year 2024 and the fourth quarter. Have a good rest of the day and a great holiday season. Thank you.

Ladies and gentlemen, with that, we'll conclude today's conference call and presentation. We do thank you for joining. You may now disconnect your lines.