Cascades Inc.

We are also updating the expected delivery timing of our objectives from the end of the third quarter to early 2027. Although interest in the assets remains healthy, prevailing market conditions and the terms available for certain transactions have not aligned with our value expectations. In July 2026, we extended the maturities of the GreenPak and Cascades credit facilities by one year to 2029 and 2030 respectively. We also extended the maturity of our $260 million U.S. dollar term loan originally maturing in December 2027 to July 2031. These transactions were completed on the same financial terms. Financial ratios and information regarding maturities are detailed on slide 21. Additional information and analysis can be found on slide 25 through 33 of the presentation. With that, I will turn the call back to Hugues for a few closing remarks before we open the line for questions. Hugues?

Thank you, Allan. Provide our outlook for Q3 on slide 22. Including the potential impact of the announced tariffs, we expect sequential improvement in our consolidated results. This is driven by seasonally higher volume and ongoing selling price increase initiatives in both packaging and tissue. Supported by our ongoing profitability improvement program, we now expect annual run rate adjusted EBITDA to exceed 600 million during the second half of 2026. The implementation of previously announced selling price increases in both packaging and tissue is progressing as planned. In packaging, demand for paper rolls remain very strong. Earlier this week, we announced additional price increases of $110 per ton on liner board and white paper grades, and $140 per ton on medium. These new prices will become effective on September 8th. We expect to begin seeing a positive impact from these increases in the fourth quarter of 2026. On July 20th, the U.S. administration announced new tariffs on a number of products imported into the United States. We are conducting an assessment of the potential impact on our operations. Based on information currently available, certain tissue and packaging products exported to the United States could be subject to the announced 50% tariff. While this represents a notable development, we believe the potential impact is manageable. Assuming the tariff remains in effect as announced, and considering the benefits of our current mitigation plans, the financial impact will not represent more than 5% of our adjusted EBITDA run rate. In addition to the direct effect of this announcement, some customers whose products are subject to these tariffs may experience weaker demand or reduced production levels, which could affect volumes in certain segments. Based on current assessment and communication actions underway, we remain confident in our ability to successfully manage these challenges. This confidence reflects the significant work completed over the past several quarters to make CASCAD a more resilient and agile organization. As we indicated last quarter, our focus has been on navigating near-term market pressures while advancing the initiative that will strengthen our performance over time. During the quarter, we continue to make progress in improving operational and commercial execution and enhancing customer service levels. Our profitability improvement initiative continues to deliver results following the $30 million of benefits realized in 2025 We estimate that a further $25 million has been captured thus far in 2026. Our asset monetization objective is also progressing well, with $163 million realized against our $230 million target. Although some transactions are taking longer than anticipated, this reflects our disciplined approach to ensuring we maximize value from these asset sales. We continue to prioritize debt reduction to reinforce financial flexibility and position Cascades for future growth. With that, we'll now open the line for questions. Operator?

Merci. Si vous désirez poser une question, veuillez s'il vous plaît composer l'étoile suivie du 1 sur votre clavier téléphonique. Et si vous voulez retirer votre question, composez étoile suivie du 2. Thank you. If you would like to ask a question, simply press star then number one on your telephone keypad. And if you would like to withdraw from the queue, please press star followed by two. And if you have a question, please, again, if you have a question, please press star then one on your telephone keypad. One moment please while we compile the Q&A roster. And your first question will be from Hamed Abdallah at National Bank of Canada. Please go ahead.

Yeah, good morning and thanks for taking my question. The first thing would be the comment around the 3Q packaging EBITDA guidance of $135 to $140 million implies another sequential improvement here. Can you help us bridge what's going to be driving that in terms of volumes and the realization of the March-April price increases and how you're planning to offset some of the cost inflation that you're seeing?

Yes, Ahmed, thank you for your question. So basically, when you look at the third quarter for packaging, from a seasonality standpoint, give you an example like harvesting season in some of the regions where we have operation, we have a busier season in the third quarter. We are doing the price increases previously announced. If you remember, we had two and we had a minus 20 earlier in the year. So the net impact of that is going to help support some of the additional profitability. And then we have some inflation costs. If you look even this week, we had the OCC prices moving up $5 in all of the regions where we operate. So when we take the global of that, we also take into account a slight volume risk from the economy. I mean, we're still in a pretty unstable environment. But we feel that the second half of the year, so in the third quarter being a very strong one, will give us like a run rate that's going to support overall the company on over 600 million.

Okay, that's helpful. And you were clear in noting your expected impact from the tariffs if they stand at no more than 5% of adjusted EBITDA. Can you help us parse out how you get to that level? What's the actual full gross impact? How much netting you're expecting to do for mitigation? And what are some kind of the mitigation efforts that you've kind of considered against these tariffs?

Yeah, great question. If you recall, last year, we had a similar situation where there were tariffs on basically all of the products going from Canada to the United States. Back then, we shared with the market that we were putting a task force together to make sure that we have a great understanding on the potential risk. Back then, it was tariffs and it was counter-tariff. So this time, our teams were pretty ready. We have a good plan on these things now. The devil is in the details on this potential tariff implementation later this month. Some of the tissue products, most of the products don't have tariffs on the 50% recent announcement. But they really went with tariff codes. So we really went back to all of the details and the products we ship. I'll give you an example for clarity. In URB, the small rows have tariffs, the big rows don't. So we really went in depth to see what the potential impact was. We looked at how we can switch production Canada to Canada, US to US. The mitigation plan that we have is not something that's going to take 6 to 12 months to implement. It doesn't get implemented all the first week, but it's a rather quick implementation. As far as the growth versus the net, we're not sharing that information yet. But we're tracking really the details and what the U.S. administration wants to include, exclude, understanding that this is a couple weeks from now and that may evolve over time.

And if I may add, Hugues, if it drags on a longer time period, there's other initiatives that will certainly review and take action.

Okay, that's helpful. I'll pass the line.

Thank you. Thank you.

Next question will be from Hamir Patel at CIBC Capital Markets. Please go ahead.

Hi, good morning and congrats on a strong quarter. Hugo, it looked like you gained market share in container board in the quarter with a strong close to 6% shipment growth year over year. Can you comment on what you've been seeing in Q3 so far and I know it sounded like you said you've announced 110 online or 140 on Medium. Is there any reason why most of the... Thank you very much.

The second quarter versus the first. If you recall in the first quarter, we had discussions on onboarding new customers. We've really put lots of focus and the teams did a great job in making sure that contracts that we already had in hands were well executed. So that's a good uplift on our box volume. So it's something that we'll continue to see. Then we depend on seasonality, which the third quarter is a good quarter for a cascade in the regions where we have operations and customers. So we see so far a market that continues to show what we saw in Q2. That being said, I think we all know that the geopolitical might evolve from the cost inflation standpoint to your comment on inflation. We're seeing a tailwind on fuel costs right now, which we didn't see during the whole second quarter, but that may change. So we're reviewing our strategy on delivering to our customers to make sure that we have more resilience and that we minimize the impact on transportation costs as much as we can. Then I separate rolls versus boxes. We're extremely, extremely tight in rolls. The demand on rolls exceeds what we can ship. So that drove the latest price increase that we announced earlier this week. And as far as do we see the full benefit or not the full benefit, we continue to push on our costs to go down. We saw this week OCC price going up $5. So that has an impact. But we also see So the net of that that we're going to start seeing in the fourth quarter will be really a spread between what OCC price is doing. And OCC is not behaving the same way in all regions. So we don't expect a big push on cost, on fiber, and on fuel. Well, that will depend on the geopolitical situation around the globe.

Okay, no, fair enough. But I mean, it seems like if this price hike goes through, it's a very significant tailwind for cascades. So, you know, if you are then generating significantly higher free cash flow next year, when you think about in that sort of environment, are there other larger growth CapEx projects that might then advance? Just thinking about whether you need to increase your integration rate and container board or, you know, start to plan for... More advanced tissue technology, just given some of the industry developments.

Yeah, so what we've been sharing is we're really building a plan for optionality. What you just mentioned are a few of the options that we have. The focus remains on getting that debt level down to the 2.5 to 3. From the uplift on the cash flow generation that you talk about, I agree with your statement where There's more tailwinds with us right now than what we saw earlier this year. And if we go back to the first quarter, we had a pretty low cash flow generation in the first. We were confident to get back to the 600 million run rate in the second half. And now we're confident to exceed that. And obviously, that's before the implementation of the price increase that we announced this week.

Great. And Hugo, it looks like, I mean, Bear Island seems like it's basically running full from a volume standpoint now at 95%. Where is it on the profitability ramp-up? If it's 95% of production in terms of sort of, you know, steady-steady, but how far along is it?

Yeah, I mean, a few comments on Bear Island and there are probably a few employees on this call from Bear Island. First of all, great job from the Bear Island team. They went through significant changes in work and their great commitment. We ran at 95% for the full quarter, and our month of July was better than the average of the second quarter, sorry. Our month of July was even better. The focus is on cost. As you know, we don't share profitability per mil, but I can tell you that we're very pleased with the financial results of Bear Island right now.

Okay, that's helpful. And just a final question, Hugo, on the tissue side, I know there's sort of an announcement of some new NTT technology coming to market. I know there's a bunch of sort of older school TADs being built, and I think Kimberly Clark is doing some work on some novel fiber technology. You know, how do you think longer term about how you position

The work that's been done in tissue for the last few years is really to position ourselves as a supplier of choice for the private brands. It's working really well. We have a good reputation, good growth. That really gives us options in the future if we want to increase our capacity. Demand on these projects go with population growth. I mean, in North America, clearly, there's kind of a break here on population growth, but we don't see that as being a long-term trend. And you look at the age of assets within the industry versus the new projects, there's room for new projects in tissue. And that's one of the options that we have as our debt level goes down.

Okay. And just thinking about, I know when you... When you think about technology-wise to compete with TAD, what would be your approach longer term?

We think there's room for conventional tissue, and you look at the value proposition for the consumer. There's room for TAD for some specific products, but there's also room for conventional, so we are a conventional producer of tissue. We're good at it, so we'll continue to optimize that to remain the supplier of choice. We don't have in our cars right now 10 machines of equivalent technology. Fair enough.

That's all I had. I'll turn it over. Thanks.

Next question will be from Sean Stewart at TD Cowen. Please go ahead.

Thanks. Good morning. A few questions. I want to follow up on that last question that Hamir asked around CapEx optionality. And, you know, I guess between tissue expansion projects longer term or converting capacity on the packaging side, would one rank over the other in terms of priority for Cascade?

I mean, we're going to go for best value. Right now, the focus, you know, we have a clear sighted view with getting to the 2.53 times debt ratio on debt to EBITDA. We are looking at those options. It's not options that we've decided that we will publicly share. But we're not waiting to be there to start looking at our options. So we have clear view. But it's really at the end of the day, it's going to be on a return for our shareholders, what makes the most sense. The thing that we have going for us is both segments are delivering good improvements. Both segments have good reputation with our customers. And both segments also have a positive growth trend in the projects that we do. and our sustainability story, both in tissue and packaging, are well above the industry average from an offering that we have for the consumer. So we have choice and we'll take the time to make sure what makes the most sense for our shareholders, understanding that we don't have to say or decide today whether it's going to be one, the other or both.

Thanks for that detail. The non-core asset sale program, you're sticking with the total dollar value. You're extending the timeframe a little bit into early next year. And I'm wondering if you can square that up. I mean, it feels like there might be some friction on value, your perceived value versus what might be out there in the market. How do you square up holding the overall dollar figure and just pushing up the timeframe if potentially some buyers are... are resisting a little bit. Maybe I'm over-reading into it, but if you can give us some additional context there, it would be appreciated.

Yeah, no, great question. I reinforce the 2.30. It's a question of timing. We will reach the 2.30, but sometimes you have to play time to see what you want to do. As I shared with our shareholders before, When you focus on a number, you need to be working on a bigger number. So I'm very comfortable with the 230. Now, we'll play with the timing to make sure that we get the fair value for the assets that we feel are not strategic and they're not moving the needle for a cascade. That being said, we still have a good line of sight to achieving the 230. And sometimes it's just a matter of a bit more time. Our initial target was end of the year of 2026. And then we said, well, we'll be more aggressive, push a bit the envelope to the third quarter. But now it's kind of cost benefit, right? I mean, we think a bit more time will give us more cash. And in the macro economy like today, cash is king. So we really want to get the debt level down and we want to get the fair value. and we're not being overly optimistic on the fair value. So it's not a question of that's what we think it's worth and that we're just kind of way overestimating this. We're very comfortable with the two-thirds.

Thanks for that. One last one for me. You had very good volume momentum in the second quarter year over year. You touched on that. The industry also grew year over year. I'm trying to gauge... How much of that might have been buyers getting ahead of proposed price increases versus sustained demand pull? Are you continuing to see good momentum? I know seasonally Q3 is always strong, but even on a year-over-year basis, is that momentum continuing into the third quarter?

Yeah, so, I mean, you know, like, let me split tissue and packaging here on that question. In tissue... We don't think that's happening. I mean, we go on the retail business where we have a continuous deal with our customers. There might be a bit of that, but that would not be a material number on the way from home, let's say. And then on packaging, on rolls, it's so tight that even if people wanted to get ahead of that, we wouldn't be able to overship versus what we see in the ongoing order files that we have. and on the box, it's more a seasonal thing that this quarter will have more volume than the previous just from its seasonality. So it becomes from a materiality, it becomes small numbers when people are doing that. So it's not an area of concerns for us.

That's great.

Thanks very much for the context. I'll pass it on.

Ladies and gentlemen, Again, if you would like to ask a question, please press star then number one on your telephone keypad. Next question will be from Matthew McKellar at RBC Capital Markets. Please go ahead.

Good morning. Thanks for taking my questions. First for me, slide seven in your materials notes the continued strategic conversion toward greater use of eucalyptus over MBSK. Could you tell us just a bit more about this initiative? How far along are you in the process and how do you think about the cost savings and any of their impacts from the continued conversion? Thank you.

Yeah. So, you know, if you go, if you were to step back a few years today, we made significant progress. And our strategy is really to have flexibility over the type of thought we use, understanding that Thank you very much. The 150 to 175 over time. It's really like tactical investment to make sure that we provide ourselves for more flexibility. And we still have upside on more eucalyptus. On the cost-saving initiatives, that really depends on what the spread is. Our strategy is really to be up to speed to what the prices are, our options. We have strategic agreements for some volume of fiber that we use. We want to stay ahead of the game there all the time as fiber moves fast. There's more capacity in Asia today. We don't see, from a eucalyptus standpoint, the supply is there. It's available. On the softwood, it's a bit more restricted where new capacity is not something that we feel is going to happen. Understanding there's a few projects in Canada on trying to restart some assets. But over time, we feel that we really need to get more and more flexibility to use all kinds of fiber to make sure that we optimize the spread between the different options.

Great. Thanks for all that detail. And I'll follow up with sort of a related question here in that you've called out mixed paper as being or becoming a viable alternative to reduce production costs with how costs have trended here. I know that's something you discussed at Bear Island, but can you remind us how far you can flex your overall mill systems inputs as it relates to using mixed paper in place in OCC? Thank you.

Yeah, so mixed paper, we've been on and off at Bear Island on mixed paper as we were focusing on getting the uptime and the speed and the quality was the priorities of the operation. We can get quite a bit of mixed paper. We're not using it all the time. Again, it depends on the spread. It's more an opportunity right now that's something that's already in our cost structure. We've been focusing on using better grades to get the machine to the 95% to 100%. So the upside, we could probably use between 15% and 25%, but we're not at these numbers today. And these targets may evolve depending on the cost spread between the different type of fiber and also the difference in actual quality that we see between mix and the other number 11 grade OCC.

Great, thanks very much. I'll turn it back.

Next question comes from Ryan Fox at Bloomberg. Please go ahead.

Good morning and congratulations on a good quarter. I'm wondering if you can remind us what percentage of your customers are contractually tied to liner board prices?

It's approximately 75%.

I know you can't comment about what competition is doing as far as this price increase, but can you give us any color about how you got to $100 a ton or what this next increase is going to be? I mean, a third increase in one year is kind of, I'll say unprecedented. We've only seen it a few times and just curious how you are portraying that to customers.

Yeah, I mean, we're not going to provide much detail on the strategy and how we get to a number. What I can say on unprecedented tree price increases in the same year, I have a list of unprecedented things that happened over the last 12 months. When you look at the profitability of cascades with the cost of having assets like we have, I mean, we're getting into a trend that's acceptable for a shareholder. So You know, there were tremendous cost inflation, unprecedented cost inflation in many of the categories of items that we use. So our responsibility is that, I mean, it's to our employees and to our customer, is to have a sustainable product offering to them. So in order to do that, you know, you need to have profitability within your business so that they can rely on you for the long term. And you look at the margins, like we just got above the 15% mark. We're below 9% on tissue. So we're really adjusting our pricing to the reality of the economy. And maybe for the first time, instead of being behind, we're getting on pace. We're not even getting ahead of pace, as far as I'm concerned. We're just getting on pace from a profitability standpoint.

And if I'm seeing this properly in the slide deck, your integration, vertical integration rate is around 51%, is that what I saw?

Yes, it's 50%, 50%, yeah, 50% something on a consolidated basis, but we have a partnership as well, so then it increases with partnership to the 70% mark.

I gotcha. Those vertical alignments are great. All right, that's all I got. Thank you.

Thank you.

Thank you. There are no further questions at this time. Monsieur Simon, please continue.

Thank you, operator. Before we end the call, I'd like to thank all of the Cascade employees for their hard work and commitment. Their efforts continue to drive our progress that we're making, and you've seen that from our second quarter results. Health and safety and execution, they will remain our highest priorities. and we're pleased with the progress we've achieved this year. And lastly, I want to reinforce the fact that high-quality execution is critical in a fast-moving economy. Thank you.

Thank you.