Good morning, and welcome to the Graphic Packaging Third Quarter 2025 Earnings Call. [Operator Instructions] It is now my pleasure to turn the floor over to your host, Mark Connelly, Senior Vice President of Investor Strategy and Development. The floor is yours.

Good morning. We have with us today Mike Doss, President and Chief Executive Officer; Steve Scherger, Executive Vice President and Chief Financial Officer; and Chuck Lischer, Senior Vice President and Chief Accounting Officer. During this call, we will reference our third quarter 2025 earnings presentation available through this webcast and on our website at www.graphicpkg.com. Today's presentation will include forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. These statements are subject to risks and uncertainties that could cause actual results to differ materially from our expectations and projections. These risks and uncertainties include, but are not limited to, the factors identified in today's press release and in our SEC filings. Now let me turn the call over to Mike.

Thank you, Mark, and good morning and good afternoon. Thank you for joining our call today. I want to start by taking a moment to acknowledge the enormous contributions that Steve Scherger has made over the past decade as Graphic Packaging's Chief Financial Officer. As announced last month, Steve has decided to leave Graphic Packaging to take on a new challenge. He has stayed with us through this week to close the books on our third quarter, and I appreciate that. Steve was my partner in the development and execution of our business transformation from the acquisition of International Paper's consumer business and more than a dozen acquisitions to our Kalamazoo and Waco investments. His impact on the team we have built and the culture we have created at Graphic Packaging will shape our company for years to come. I will miss his counsel. I'm pleased to introduce Chuck Lischer, who Steve hired in 2019 as our Chief Accounting Officer. Chuck will take on the new role of Interim Chief Financial Officer. Chuck has been a key member of our leadership team and involved in every major decision Steve and I have made. We are fortunate to have someone with Chuck's deep knowledge stepping in as we pivot from Vision 2025's investment to Vision 2030's free cash flow. Now let's turn to the quarter. Graphic Packaging sales were $2.2 billion. Adjusted EBITDA was $383 million, adjusted EBITDA margin was 17.5% and adjusted EPS was $0.58. While the challenges of a stretched consumer and the impact on grocery volumes is well chronicled, we are focused on what we can control. We executed well in the quarter, made progress on costs and reduced inventory. Meanwhile, our innovation platform continues to open up new markets for paperboard packaging, once again allowing us to…

[Operator Instructions] And the first question today is coming from Ghansham Panjabi from Baird.

I guess, first off, just wanted to congratulate Steve. I wish him the best for the future. Obviously, a great run at the company and look forward to your next role. So congrats again. So my first question, Mike, just kind of looking back at 3Q, did the end markets track pretty much what you thought, but the difference was just the share shift because of the bleach board conversion? And related to that, why would that dynamic change near term, barring some sort of inflection higher in volumes?

Ghansham, it's Steve. Just thank you for those very kind words, and I'll let Mike jump into the response here in a moment. But it has been just a phenomenal opportunity over the last 10 years. I want to thank Mike personally, just a phenomenal partnership, a true opportunity to work hand-in-hand with him, which has been just a wonderful and honorable experience. Probably looking ahead, though, as excited for the business as it could be if you look out now with the investments that have been made, Waco coming to life, above cost of capital returns out into the future, the business is incredibly well positioned for success going forward and the cash flow inflection that's happening as we sit here on this call with you today is outstanding. So my thanks to Mike personally for all that we did together and look forward to what lies ahead as well. So thanks for that, Mike.

Thank you, Steve. It's been a real honor. To your question, Ghansham, in terms of expectations in the quarter versus the results we realized, first, I want to clarify there was no share loss for us there. That was really a function of customer purchasing patterns. And when you look at their volumetric performance through second quarter and into third quarter and the third quarter material that's been released so far by a handful of our larger customers, it shows we're actually outperforming their overall volumetric performance, and that's really a function of our innovation. Our innovation in the quarter was another $52 million, roughly 2%. So that's helping us kind of outperform some of the challenges that they're seeing in terms of their volumetric performance.

Okay. And then in terms of -- with all the dynamics that are occurring, do you still feel confident with the Waco EBITDA contribution specific to next year? Or does that depend on some of the dynamics in the marketplace that are taking place at this point?

No, thank you for that. Look, I'm very confident in Waco's ramp-up in delivering the $80 million that we talked about. And obviously, there's another $80 million behind that. By way of reminder, the first $100 million of that -- those savings was really a function of the mill closures, Middletown, which was closed at the end of May, as you know, and now we formally announced our East Angus facility in Quebec will close by year-end. So that's all in line. Relative to the total impact of that in 2026, we have to see kind of what the volumes look like as we go into 2026. I mean if volumes are largely flat year-on-year, that's a different outcome than when they're down 2%. So if they're down a little bit next year, then we will need to look at our Kalamazoo K1 machine, and we'll run that in a way that allows us to optimize operating our K2 machine in Kalamazoo, which is our most efficient and Waco, which will be our most efficient paperboard manufacturing facility. And if we do need to toggle a little bit, we can take some downtime on our K1 machine, and we're able to do that at a very reasonable cost.

Your next question is coming from George Staphos from BofA.

Appreciate the details. Also want to make a quick shout out to Steve. Really important drivers, as you mentioned, Mike, of what Graphics become the last 10 years and really thank -- want to thank him for all the support he's had given us all on this phone, both in terms of our industry research and our research on graphics. So Steve, thanks so much. In terms of my questions, you mentioned, Mike, the opportunity perhaps to further improve productivity and the like. And that's my phrasing, not necessarily yours. What opportunity do you think you have? How important is that in terms of Waco and the commercial opportunities and to some degree, the commercial challenges now that you're facing in the market to getting to that $80 million plus? How much of that additional cost reduction, SG&A and so on is required? Or would it be additive? And then I had a follow-on.

I think the big part of that, my confidence in the $80 million on the Waco ramp-up for '26 is very high, George. I mean the facility, as I said in my prepared comments, has come up a little faster than we even expected. We're very happy with what we see so far. So that's there. I think the bigger question is around our visibility and what the end-use markets are doing as we head into 2026. And as I said in my prepared comments, what we're really going to focus in on the things that we can control. So we've got some unusual competitive activity going on right now, as I mentioned, around bleached paperboard. We don't necessarily control that. We don't necessarily control what the overall volumetric performance of our customers are. They're working very heavily on that. You hear and read about the things they're trying to do to get their businesses going in the right direction. So we're obviously cheering for them. But in the meantime, we've got a number of levers that we can pull to really make sure that we operate the business as efficiently and effectively as possible. And those kind of in order are -- first thing is CapEx is going to revert back to a more normalized level to 5% or below. That's going to generate in excess of $350 million of free cash flow just by that. And ultimately, even though, as you well know, we've got a very low cost structure here, we're looking at every cost, SG&A and plant costs that really allow us to make sure that we don't impact customer service levels -- but given some of the realities we've got going on in the market, we've got to challenge all those things. And we're doing that stuff internally here. So we'll continue to do that. And ultimately, taking a look at our inventory situation, you've seen we've released -- had a capital release so far this year of about $30 million. We expect upwards of another $20 million here in Q4. And as we go into next year, that will be another area we're really looking at hard because with Waco and Kalamazoo online, if you think about it, we now have 5 very well-capitalized paperboard manufacturing facilities. And that gives us a unique perspective to be able to look at our overall system, look at our supply chains, take a step back and really make sure that we're challenging kind of where we're at and what we can do. So those are the levers that we really have in our control. That's how I'm thinking about it. As I mentioned to Ghansham, if we need to take a -- to manage our supply and demand on our coated recycled paperboard as Waco really ramps up quick, we can toggle our K1 machine. We're able to do that and we're able to do it cost effectively.

My other question, just more of an end market question. So foodservice, I think from the chart was one of the end markets that wasn't doing as well for you in the quarter. Foodservice has been kind of an interesting market from our observations, right? You've had fast casual not doing so well, but quick service has been picking up some steam. What kind of trends were you seeing into the fourth quarter? And to the extent the customers can know and you can share, you might be limited in either ability, what do you think -- ability to talk about it, what do you think is the outlook for foodservice there? And if that picks up, it's actually a relatively higher-margin end market for you?

Thanks for that question. I think the -- you said it well. I mean the fast casual is definitely under pressure. I mean, last week, you had Chipotle release. I won't go through all the comments, but the CEO really talked about the 25- to 35-year-old consumer, unemployment levels being higher, disposable income being lower. And in his words, that was driving them back into the grocery store. And again, I think that's a worthwhile comment to make, and I bring it up because, as you know, we've built our portfolio to move with the consumer. So if that shift happens, given we're in every aisle of the grocery store, we actually are okay. We do see that trend around more of the QSR impact, which makes sense given the price points of QSR versus fast casual, and we're there. And we also think that we've got a number of innovation ideas that we're working with those customers that ultimately will allow us to continue to earn a place at the table and grow our volumes. So that's how we're thinking about that dynamic.

Do you think it grows, Mike, next year, I guess, just to draw a bow on it or tie a bow on it?

I'd like to believe so. But again, George, it's just difficult for me to talk about demand. I mean I think about a quarter, our customers have a hard time doing it. If it does for us, it will be most likely because of innovation.

Your next question is coming from Matt Roberts from Raymond James.

Steve, I'll echo everybody else's thanks. Appreciate your comments and all the time over the years. And if you want to get a RISI comment on this last question, I'll cede the floor to you. But maybe on the competitive price pressure on SBS and CUK on CRB, I apologize if I missed it. How much of a drag was that in 4Q? How long are you expecting it to last? And while I believe your SBS is mostly cup stock, are you able to sell incremental SBS or CUK similar to your competitors at the expense of CRB given that price spread? Or how has your own sales mix by paper types changed in this environment? Or do you expect any shift in 2026? Any incremental color on how the tons from Waco layer in over 2026 and that impacts your mix would be helpful.

Yes. Thanks, Matt. So I'm going to address the SBS, CRB, CUK comments. We've had a fair amount of inbound in that, as you can imagine, over the last week or so. So the first thing you need to know and you see it in our volumes, we have not lost any share. And we're going to be very focused on making sure we don't lose any share because of that, if you think about it, you've got a product in making SBS and we make it. We've got a mill that does it Texarkana. We know the cost structure on that. It's much more expensive to make than coated recycled paperboard. So from our standpoint, we would never substitute SBS for CRB given the cost advantage we have. And in fact, it's lower cost to make CRB, coated recycled paperboard than it is to make bleached paperboard. So the margin profile, just simple arithmetic there in terms of what that looks like. And again, we're operating that mill and we operate Kalamazoo and Waco. And what I'll tell you is that the CapEx requirements of a virgin paperboard manufacturing facility are 4x what they are coated recycled paperboard facility. That is, again, part of the decision we made when we invested so heavy in Kalamazoo and in Waco because of that phenomenon. So over the medium to long term, we're highly confident that we can continue to not only protect our share but win share from bleached because the cost of capital returns start to get in the way there. And ultimately, that's something that needs to find its own level. There's -- I think RISI in their last article or so talked about 500,000 tons of excess bleach capacity in the North American market. We'd agree with that, if not a little bit more. So that's got to be dealt with. That's really not something that Graphic will deal with. As you know, our focus is on package sales, make cartons, we make wraps, we make cups. We sell value-added packaging. 95% of everything we do is in that area. So from our standpoint, and I mentioned this in my prepared comments, most of this was on the package price and not on the actual paperboard level itself, which makes sense, given the dynamic we saw and what you saw happen with pricing in the quarter. We're confident in our ability to, over time, not only protect our share, but continue to grow it with the high-quality, low-cost material we have coming out of our coated recycled platform. So hopefully, that gives you a little bit of color on how we're thinking about it.

Certainly. Really appreciate it, Mike, as always. And maybe I could squeeze one quick follow-up in. On the cash flow for next year, any flexibility in terms of the CapEx number you said, I think, 5% of sales or lower. Any growth projects that you could potentially defer and bring that 5% in any lower or any other cash costs associated with the ramp-up?

Yes. It's -- we're looking at all that as you'd expect, and we'll dial that in next time we talk to you, we'll give you a little bit clear view into kind of what that looks like for 2026, obviously. But it's a good question and something we're looking at all the time. But what I'm very confident is the $350 million of inflection that will occur year-on-year.

Your next question is coming from Charlie Muir-Sands from BNP.

Just firstly, on Waco, can you just give some clarification around the phasing. You've obviously guided the start-up costs of the $65 million to $75 million. Have they been largely incurred now? Or do they step up sequentially into the fourth quarter? And how should we be thinking about those in this year versus next year? I mean effectively, is the step-up reversal of those plus the $80 million? Or would that be double counting? That's the first question.

My apologies if I don't hit this properly. I'm having a difficult time hearing you. I think your question was around the phasing of the onetime costs associated with Waco, which is outlined in the materials to be $65 million to $75 million. Assuming that was your question, the phasing of that is like a 2/3 this year, 1/3 2026. And if I didn't get it right, please come back.

Great. Hopefully, you can hear me. Can you also give us an update on the progress in selling your PaceSetter Rainier premium CRB. Are you achieving specific price premium for that now? And then one final piece is, can you just talk about the deleverage that you're expecting in the fourth quarter to get to the 3.5 to 3.7x net debt to EBITDA at year-end?

Yes. Thanks for that. So I'm going to address the question around Rainier first, and then I'll cover the leverage. Listen, on Rainier, it's a great product. And one of the great things we have is we've got the most modern cleaning systems in both Kalamazoo and in Waco that give us tremendous competitive advantage over anybody else in the North American market. We've got curtain coaters on all 3 of our paper machines that give us the ability to really have brightness that approaches bleached paperboard levels. Now Rainier is actually used -- it's one of the tools we're using to make sure we don't lose any share as we're competing against the SBS guys. Now ultimately, that does have some margin impact. The pricing we would expect to get is a little lower, as you would appreciate because they're lowering their packaged prices to compete with CRB. So that's something we have to work our way through, but we have the levers to pull and we have the capabilities to do it. So I really am happy that we've got that great in our portfolio of mix. And relative to year-end leverage, yes, we've got a range of 3.5 to 3.7 for year-end numbers in terms of overall debt. That's really a function of a little bit of reduced EBITDA number, as you can imagine, and the fact that we wanted to be opportunistic to buy back some shares this year given the dislocation. We talked to our Board about that and given the ultimate inflection of free cash flow that will happen here in 2026, that made sense to do. And as I said in my prepared comments, as we go into 2026 with that free cash flow, we'll be looking to delever as well as return cash to shareholders in a way that makes sense and drives long-term shareholder value.

Charlie, this is Mark. You'll recall that Q4 is typically a positive free cash quarter for us. And so that will help us get that leverage down to the range we're looking for.

Your next question is coming from Gabe Hajde from Wells Fargo.

Steve, pleasure working with you. I had a question about working capital and cash flow as well into next year. Steve, can you help us with some of the AR factoring that's been done or reverse factoring? Just give us a sense for what that looks like and maybe how that will be managed into 2026?

Mark, why don't you handle that question, if you would?

Yes, Mark -- we'll let Mark handle it. This is Steve. The question is around AR finance, accounts receivable financing. There won't be any material changes year-over-year relative to that in terms of the expectations of where we would be at the end of '25 versus '26. That's not really an enabler for cash flow in '26. As Mike mentioned in his comments, the '26 cash flow enablement is really about reduced CapEx, reduced inventory levels, also some managing of SG&A costs. Those are going to be the levers that will be pulled to drive cash flow, that confidence in the $700 million to $800 million. So it won't be around -- it won't be about accounts receivable programs being materially different. And just to clarify, Gabe, CapEx this year running $850 million, $450 million next year. So that delta is $400 million cash flow inflection.

Okay. And then unfortunately, I feel like there's still some confusion around the start-up costs, the $65 million to $75 million. Can you give us a little bit more specificity around if that's capitalized interest costs, if those are kind of, I'll call them, wasted tons, but rolling test tons off and recycling them through. And if I heard you right, Mike, there's $65 million to $75 million this year, and that reduces down to $35 million next year, so for a net positive of $30 million. And again, is that -- is that the same as the $80 million that we're talking about in terms of contribution from the investment?

Okay. So there's a number of things to unpack there. The $80 million EBITDA run rate. So that's on the EBITDA line into next year. The $65 million to $75 million, and this is -- we've talked about this a number of quarters now, are the onetime costs, cash costs associated with the start-up of the machine. Charlie's question was what's the phasing of that? Of that $65 million to $75 million, 2/3 of that in this year, 1/3 of it is in next year. And I'm going to ask Chuck Lischer to give a little bit of detail on the breakdown of that just high-level buckets so that you kind of understand what we're talking about there, Gabe.

Yes. That's mostly just the operating costs associated with running the facility prior to startup. So as we train the team and bring the team on board to have the facility ready to be up and running. Anything that does not get capitalized is what we've been capturing in that $65 million to $75 million. And yes, that is a multiyear number, not just a single year number, the $65 million to $75 million. The other point on the capitalized interest, that, of course, is something that we do during the period of construction. That will, of course, stop once the asset comes into service. So we won't see capitalized interest again in 2026.

Okay. Or in Q4?

Well, a little bit -- potentially a little bit in Q4 as the asset came in service during Q4. And there's a little bit of continued spend, but -- and then just regular capitalized interest. But for the primary Waco asset, then that would cease.

Your next question is coming from Arun Viswanathan from RBC.

Steve, great working with you. Thanks for all the help and insight over the years and look forward to the next chapter as well. So I guess my question is around maybe initial thoughts on '26 and specifically around Waco, maybe you can just kind of give us some of the assumptions underlying the $80 million EBITDA uplift and if those are still intact. I believe most of those are around cost per ton. But is there any volume component? And then related matter, I guess, do you still feel the same way about '27 as well, another $80 million uplift? Or is that also somewhat volume dependent?

So Arun, I'm going to kind of take a step back and make sure I kind of walk through this again so that I want to make sure that my points are clear here. We're very confident in our ability to deliver $80 million in Waco as it ramps up next year. And then in 2027, there'll be another $80 million. By way of a reminder, that's $160 million in total. $100 million of that, as I mentioned, is focused on kind of the fixed cost of not running Middletown and East Angus. So that will come in there next year. We'll be ramping up. We won't be at full run rate, as I said in my prepared remarks, from a volumetric standpoint for 12 to 18 months, but our confidence level in the $80 million for next year is very high. We had always said that as we kind of brought it online in the outlying years, we need some volumetric growth. That hasn't changed. And the way we're going to deal with that, as I mentioned to George earlier, is we'll toggle between running our K2 machine in Kalamazoo, which is the new one we just operated now for the last 4 years, the Waco mill, those are going to run wide open and we'll service our business on our lowest cost assets, highest quality, lowest cost. We'll use our K1 machine, which is the smaller of the 3 machines to take any downtime that we need to take to make sure that we match our supply and our demand. And of course, we'll be working quickly to make sure that we fill that out. A lot of it depends on kind of our customers' volumetric performance, as I mentioned earlier, if they're able to get back to at least flat volumes in 2026, that's a big deal for us because our innovation has consistently added close to 2% of volume. And so that's really how to think about Waco and how we're planning for '26 and beyond.

Okay. Just on the markets then, it sounds like beverage was a little bit weaker in Q3 and foodservice was as well. Do you expect that to continue to remain weak as you move into Q4 and '26? And maybe you can also comment on some of the other markets, food and household and health and beauty. I guess -- and have you seen any change in innovation sales in those markets? We've been hearing anecdotally that there may be some trade down amongst the consumer packaging companies into traditional substrates, maybe a little bit less willingness to assess the waters with some new innovation-led products. I don't know if that's what you're hearing as well, but maybe you can just comment on what you're seeing on that side.

Yes. I'll start by saying I don't expect to see much change in Q4 versus what we saw in Q3. I mean October started off substantially similar to what we saw in Q3. You get to read our customers' as I do. And as I talked about earlier, fast casual is down a little bit, QSR may be a little better. It's hard for us to know exactly what our customers' volume performance is right now. And I said that in my prepared remarks, given some of the things that they're doing to manage their balance sheets and production schedules around the holidays and so on and so forth. So that's part of why we're being a little bit deliberate in calling that out. As we head into 2026, look, I know every one of these customers as we talk to them all, are very focused on getting their volumetric performance back. They got to grow and they're doing the things that they believe are required to do that. We see a lot of new CEOs. We see a number of restructurings that are going on. We see agitation at different levels. So hopefully, that [indiscernible] itself in volumetric performance as we head into 2026, for sure.

I would just add a couple of things -- Arun, I'd just add a couple of things. This is Mark. In the beverage market, typically, you see promotion activity in the fourth quarter, but we also saw some changes in production schedules by our customers, sometimes taking downtime around the July 4 -- that didn't happen to all of our customers this year. Some of that may happen in the fourth quarter. So that adds a little bit of variability. We're also certainly in the food business, continuing to see a lot of unevenness, customers moving from one category to another to try to save money and not so much destocking by the food suppliers, but strategic stocking, as Steve -- as Mike mentioned, in terms of trying to get their year-end numbers and cash where they want it. So a lot of unusual behavior, but no real change in any of the trends.

And just to clarify, so it sounds like you will have the $80 million next year. And then aside from that, it's mainly volume and price that we should be keeping in mind as far as what the drivers are for any kind of EBITDA bridge. Is that correct?

Yes, that's exactly right.

Your next question is coming from Mark Weintraub from Seaport Research.

Steve, for your help over the last few years. So I just wanted to revisit again on Waco, in terms of the ramp, order of magnitude, how much tonnage would you be expecting to produce in 2026?

Yes, Mark, I'm not going to call that out. I mean it's going to be -- as you can think about it, though, we put it into service here in October. It's a 12- to 18-month ramp. So that's pretty quick -- coming up.

For sure. And so let's say we were to assume it's 400,000 to say something. So I guess what I'm just trying to think through is that East Angus is 100,000 tons. Middletown, I think a little less than 200,000, but was down for about half the year, correct me if I'm wrong. So we're talking about like 200,000 tons of replacement board effectively. And so I just -- is the rest because you're bringing down inventory this year? Or maybe if you can just kind of walk through the math on where the Waco tons, what they fill in for? And/or is there a little bit of growth that does just to kind of to meet the full production that you're expecting to have from Waco next year? And that would be super helpful.

Thanks for the question. Here's the math I'm going to walk you through. If you really look at East Angus, which is our facility, it will shut down the end of the year and our Middletown facility, which closed at the end of May and then what others have announced that they're closing, it's 475,000 tons. Waco, of course, adds 550,000 tons to the overall market. So on a net basis there, it's about 75,000 tons of additional capacity that's coming online. I'll tell you this, Mark, I need Waco to come up right now to make sure that I'm able to service my customers. You saw the [ APA ] data. Inventories are down pretty dramatically on CUK and CRB. That's deliberate plan on our behalf here relative to what we did. So we need those funds coming off of the Waco machine to help service our customers and make sure that we take care of our overall demand. Look, you had a good note out earlier this week. You talked a little bit about K2 and Kalamazoo and Waco and balancing that production with our K1 machine. I think you got it pretty right. So I don't have a whole lot more that I think I need to add.

Okay. And I fully appreciate that once everything is reset, we should be at the target levels of profitability. I'm just trying to make sure that I fully understand the transition period though, as we go hopefully into kind of a better 2027 demand environment, et cetera, and everything is sort of kicking into gear. And I guess I'm a little -- I just want to clarify because implicit in what you're saying, and I don't mean to be oppositional anyway here, but implicit in what you're saying is that you basically have gotten a lot of the business from the other capacity that was shut. And I'm not -- or is there something I'm missing? Is it -- again, is it that inventory reduction, which you're doing this year, and therefore, you're not doing it next year. And so that's why -- because those would be pretty big numbers. So just trying to fully understand.

CRB, I think that's fair. We have work to do, in our opinion, with some of the other optionality with some of the other substrates we have and Waco and Kalamazoo help enable that as well relative to our overall supply chain. But I think, like I said, you've got the math pretty well set, and we're going to match our supply and our demand on CRB like we always do, and that swing machine will be our K1 machine in Kalamazoo.

Your next question is coming from Mike Roxland from Truist Securities.

I'll just echo what everybody else has said. Steve, thank you for all your help over the years and wishing you the best of luck in the future. In terms of the '26 free cash flow bridge, obviously, you guys have expressed confidence in the $700 million to $800 million of free cash flow next year. Just trying to get some more color around that because year-to-date, adjusted free cash flow, as you pointed out in your press release, is minus $332 million. So you have a $400 million of CapEx step down. You're looking at a starting point of $68 million in terms of free cash flow. I know you got a $400 million of free cash flow in 4Q due to working capital unwind. But also you are contending with, I think, a higher working capital, cash taxes and interest, but you called out on your call last quarter of about $300 million, $350 million. So can you help me reconcile those moving pieces I just mentioned with the $700 million to $800 million you're still confident you will achieve next year?

Yes, I'm going to focus in on 2026 and give you a little bridge. You have to remember, Michael, and you know this, Q4 is always our big cash quarter. So we'd expect that gap to close dramatically as it always does every year. And as we look at next year, we've got the contribution from Waco. We've already talked about that. And then the bridge is really pretty straightforward. It's around the CapEx reduction, which we've already talked about, which is close to $400 million here, as Mark just mentioned. We've got cost control that we've got at our disposal, both in terms of SG&A as well as things we would do at the plant levels and discretionary spending. And we've got inventory that we're really going to focus in on, too. And like I said, I'm really excited about our new platform with 5 large, well-capitalized paperboard manufacturing facilities that there's more capital release that we can work on, both in terms of roll stock as well as finished goods as we roll into next year. And that's the bridge. And that's what gives me really a high level of confidence in the $700 million to $800 million next year.

So -- I'm sorry, go ahead.

This is Chuck Lischer. I was just going to add that this is one of the areas that I've dug into over the last few weeks, and I share Mike's high level of confidence in this area. He mentioned the levers. We know what they are. We're going to pull them. In addition to that, cash -- federal cash taxes are going to be very favorable for us next year, near zero. And so we know what the levers are. We're ready to pull them, and we have a high level of confidence in the number.

I didn't interrupt you there. So it sounds like last call, you mentioned $300 million, $350 million of interest, cash taxes, working capital. That sounds like that's coming down significantly as well.

We're going to have to take that bridging offline, Michael. Let's do that. Again, I'm focused. And as I said, the levers that we're pulling here in the $700 million to $800 million, we'll help you get your model right that it works, but let's take that offline after the call.

No problem. One quick follow-up. I know we're running out of time here. Just in terms of the 550,000 tons for Waco, I mean, how comfortable are you bringing on that full amount of capacity over the next 12 to 18 months in a market that's depressed? Or are you assuming that we're not going to be in the same place 12 months from now? And so just -- it's a lot of capacity. I understand on a net basis, it's 75,000 tons, I get that. But the market itself, as you pointed out, your competitors are acting irrationally. How would you -- I mean, do you intend to bring this the 550,000 tons in 18 months? Or do you have flexibility to basically push that out further if SBS folding cards does not improve materially in the near term?

We're going to ramp Waco as fast as we can. It's our lowest cost, highest quality mill along with our K2 machine in Kalamazoo. And as I've mentioned a number of times here now, if I need to match my supply and our demand, we'll do it on our K1 machine. So I want to bring it on as fast as we can. It's a great facility. It's going to allow us to compete in markets that, quite frankly, we haven't been able to compete in before. And it's going to help us deal with some of that behavior by some of the bleached board producers in a way that allows us to protect our industry-leading margins. So you want us to do that. It really makes sense to do so. Look, you'd love to bring a brand-new machine on like we brought the K2 machine on -- into a really snug market. But you make a decision, it takes a number of years, in our case, 2.5 years to bring it on. This is what we've got. And we've got a lot of levers to pull and our confidence level is high to deliver the free cash flow next year. And that's really what our focus is.

Next question is coming from Anojja Shah from UBS.

Just one quick one for me. When I think about capital allocation priorities next year, you're going to have a lot of free cash flow. You've talked about deleveraging, of course, share repurchases, CapEx goes down significantly. Is there anything else in there we should be thinking about? Like I don't know, is there room for bolt-on M&A or expansion in international markets? How are you thinking about it?

Look, from my standpoint, it's really 2 things in our priorities. It's delevering our balance sheet, which we've talked about as well as returning cash to shareholders. That's our focus.

That was all the time we have for questions. I would now like to pass the floor back to Mike Doss for closing remarks.

Thank you, operator, and thank you, everyone, for joining us on our call today. With Waco up and running, we have 5 of America's very best paperboard manufacturing facilities, the strongest and most capable global packaging manufacturing network and the world's best packaging innovation team. We are uniquely positioned to deliver exceptional results for our customers and to generate strong, steady cash flow across the next half decade and beyond. I want to thank our employees for their dedication and our stockholders for their confidence in Graphic Packaging. Thank you, and have a great day.

Thank you. This does conclude today's conference call. You may disconnect at this time, and have a wonderful day. Thank you once again for your participation.