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. [Operator Instructions] I'd now like to turn the call over to Sloan Bohlen, Investor Relations. Sloan?

Thank you, Greg. Good afternoon, and thank you for joining Clearwater Paper's Third Quarter 2025 Earnings Conference Call. Joining me on the call today are Arsen Kitch, President and Chief Executive Officer; and Sherri Baker, Senior Vice President and Chief Financial Officer. Financial results for the third quarter of 2025 were released shortly after today's market close. 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 2 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 Arsen.

Thank you, and good afternoon, everyone. Let me begin with a summary of our third quarter performance highlights. We delivered adjusted EBITDA of $18 million, which is towards the high end of our guidance range of $10 million 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 4 incremental months of Augusta results included in our P&L. 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 3 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 million 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 AF&PA 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 SBS capacity, which may add up to 10% of additional supply to the industry.…

Thank you, Arsen. Let's start by reviewing our financial performance in the third quarter in more detail. Net sales were at $399 million, up 1% year-over-year, driven by a 3% increase in paperboard shipment volumes partially offset by lower market pricing. Net loss from continuing operations was $54 million or $3.34 per diluted share, primarily due to a $48 million noncash impairment of goodwill. This noncash impairment represents all of our remaining goodwill. Most of this goodwill was accumulated through the acquisition of Manchester Industries in 2016. The impairment was driven by the decline in our market capitalization as compared to the increase in our book value, which was driven by the gain from divestiture of our tissue business late last year. Adjusted EBITDA was at $18 million towards the higher end of our guidance range of $10 million to $20 million. We saw improved cost performance due to our fixed cost reduction initiative, which more than offset lower pricing and higher input costs. SG&A as a percent of sales was at 6.2% at the lower end of our targeted range of 6% to 7% of net sales. We believe that this is at the lower end of our industry benchmark, demonstrating our commitment to running a lean, cost-effective company. Let's now turn to our balance sheet and capital allocation. We generated $34 million in cash from operations during the quarter and approximately $3.5 million in free cash flows. Our net leverage ratio is at 2.7x, and we have ample available liquidity of $455 million. While our leverage ratio has increased due to the current industry down cycle, our aggregate debt level has remained stable as we continue our focus on maintaining a strong balance sheet. We also repurchased $2 million of shares, bringing our total to $20 million against…

Thank you, Sherri. While we're navigating a challenging industry environment, we remain confident in the long-term fundamentals of the paperboard market and our ability to generate strong returns. We have high-quality assets that are geographically well positioned to serve independent customers, and we intend to maintain our market share. We believe that paperboard packaging has strong demand fundamentals as consumers and customers continue to seek sustainable and renewable packaging solutions. We have a strong balance sheet with manageable debt levels and more than $450 million in liquidity, positioning us to weather this current downturn. In an environment where utilization rates returned to 90% to 95%, we expect to achieve cross-cycle adjusted EBITDA margins of 13% to 14%, resulting in free cash flow conversion of 40% to 50% or over $100 million in free cash flow per year, assuming $1.8 billion to $1.9 billion in net sales. Let me conclude my remarks by thanking our people for their efforts to remain focused on operating safely and providing excellent service to our customers. I would also like to thank our customers for putting their trust in us and our shareholders for their continued interest. With that, we'll open it up to your questions.

[Operator Instructions] And it looks like our first question today comes from the line of Sean Steuart with TD Cowen.

Arsen, I want to start with the decision to hold the CUK swing capacity project. I gather, given a pretty strong return profile for that project, this is more around wanting to hit balance sheet targets. Assuming that's correct, can you give us a sense of where you would like to see leverage ratios get to or free cash flow profile for the overall company improved to before you would greenlight that project?

Yes. Good question. So you're right. I think it's a good -- it's likely a good project but we're putting that decision on hold. It would take more than 2 years for us to deliver cash flow from this project, which means we'd have to finance it through debt. And right now, we need to prioritize maintaining a strong balance sheet and focusing on running our SBS mills and defending our market share. We said previously, we're targeting a leverage ratio in the 1% to 2% range. EBITDA margins cross cycle 13%, 14%. So we'll revisit this decision later. In today's market environment at today's prices, it is a very attractive return, but we have to revisit it in the future and see what those conditions look like and see if we need to update our assumptions.

Okay. Understood on that front. And then with respect to your view on the market outlook for SBS, I gather a lot of this is based on what RISI is forecasting in terms of forthcoming capacity closures. According to their forecast, we would need to see those announcements soon. I guess I'm wondering on your perspective of industry willingness to make these -- to take these initiatives to rebalance the market and the extent to which you're seeing any import relief at this point as tariffs take hold and if that's helping at the margin at all?

Yes, listen, we're not going to comment on what our competitors may or may not do. You're right, RISI is forecasting a first half net capacity reduction of 350,000 tons. So they're assuming a turn in the market. We're certainly hoping for that, but we're planning for tomorrow looking like today. From an import perspective, it's still a bit early to tell. But as we look at European imports July year-to-date, they're down, I believe, approximately 10%. So I think you're starting to see some cracks in the import balance into North America between a 15% tariff and a weakening dollar, absorbing 20% or 30% of additional costs for an importer into North America, I think, is getting harder and harder. And for domestic customers, I think they're looking for more reliable, stable domestic supply. So we're optimistic that this will be a tailwind for us as we head into 2026.

Okay. Just one last one, maybe for Sherri. You went through a bunch of 2026 metrics that you're targeting. Do you have an initial view on what the maintenance schedule is going to look like? And I appreciate you're smoothing this out now with a more regular schedule across the mill platform. Can you give us a perspective on the cadence of anticipated closures in 2026? And are we safe to assume that the overall expense that you're targeting would be similar to 2025 levels?

Yes. So I'll answer the second part first. You should expect the cost to look very similar to what we see in '25. So I would start there. We're still finalizing the schedules for next year, so we'll be able to come out and tell you exactly which facilities and which quarters probably by our February call. And then we'll highlight if there's any overlap in consistencies if we change the quarters.

Sean, maybe one more comment on that. We had our Lewiston outage in late Q2. So it was in August with Augusta in October. Doing an outage in the middle of summer is pretty challenging from just a heat perspective. So we are looking at potentially moving out that outage into earlier in the summer, maybe late Q2 just to make it a safer, more manageable outage. So we're still finalizing those details, but that is the potential for us to have the Lewiston outage a bit earlier in the year, which would mean that we would have 2 Lewiston outages within a 12-month period potentially. But we'll share that with you in February.

Our next question comes from the line of Matthew McKellar at RBC.

First, shipments in the quarter were solidly ahead of where you sort of guided to. It looks like food service sales are pretty healthy, but could you provide some maybe additional perspective on where you saw the incremental strength versus your expectations as of late July? And if you could provide any other broader commentary around relative strength or weakness you're seeing conditions across liquid packaging, folding carton, food service, that would be great.

I think summertime is normal seasonality uptick for food service. We certainly saw some nice strength in food service. And our team is doing a really nice job of competing vigorously in the market and filling out our capacity. I think we've had some optimism from some of our food service customers. I think you may be seeing some import relief helping on things like paper plates that is helping some of our paper plate customers see stronger demand. So I think those are some of the -- I think those are some of the variables that came into play in Q3.

Okay. That's great. And I guess just following up on the second part of that, any other comments around kind of weakness you're seeing into Q4 or strength relatively between those kind of product categories?

I think Q4 is seasonally a little weaker than Q3, and it's typically in food service. Just the seas of the summer season is over. So we're expecting A little bit of seasonality decline as we head into Q4. And I think, as Sherri mentioned, we'll also see a few percentage points less of production as we head into Q4 versus Q3 that we will have some absorption impact in that, as we stated in the last earnings call, absorption is a meaningful component of our P&L. And if you do the math, it could be upwards of $500 a ton of absorption with production changes. So I think that's part of the reason why Q4 is flat versus Q3 as I think it's -- we'll see some impact of absorption.

Okay. And just kind of pulling on that string. It's a fairly large range for guidance on EBITDA in Q4, considering you're through the maintenance. Is it mostly seasonality of demand and maybe energy costs that would take you to the top or the bottom of that range? Do you maybe even see any risks around I guess, the government shutdown and the supplemental nutrition assistance program? What else would you be watching for in terms of variability within that range?

I think energy is right. We did bake in some energy into Q4 versus Q3, but it's very much weather dependent. And some of our -- one of our mills at least is more susceptible to bigger swings in energy prices than the other mills just due to its location. So I think part of it is energy, part of it is just production. 1,000 tons of production is worth upwards of $500,000. And for those folks that spend time in paper mills know that 1,000 tons plus or minus in any given week or given month is a rounding error, but it has a pretty substantial impact on our earnings. So I think it's the nature of being a paperboard focused business with 3 mills.

Okay. Fair enough. And last for me. Just the working capital improvement of $20 million to $26 million. Can you just share a little bit more about how you plan to achieve that? It sounds like it's mostly inventory, but also the timing of when you'd expect to reach that target?

Yes. It will be primarily in inventory. I think you'll see us start to work those pieces down in the second half of next year. So that would be the timing of when I would be looking to achieve those estimates.

And I think back to the production comment, this year, I think we probably built a little bit of inventory and we'll be reducing inventory next year to free up some working capital. So there will be a trade-off between fixed cost absorption and just cash coming off the balance sheet. So there'll be some trade-off as we head into next year. And we'll provide a bit more context on this in the coming quarters.

[Operator Instructions] All right. Ladies and gentlemen, that does conclude today's call. Thank you so much for joining us today, and you may now disconnect.