Good morning, and welcome to Mercer International's Third Quarter 2025 Earnings Conference Call. On this call today is Juan Carlos Bueno, Mercer's President and Chief Executive Officer; and Richard Short, Mercer's Chief Financial Officer and Secretary. I will now hand the call over to Richard.

Thanks, Michelle. Good morning, everyone. Thanks for joining us today. I will begin by touching on the financial and operating highlights of the third quarter before turning the call to Juan Carlos to provide further color into the markets, our operations and our strategic initiatives. Also, for those of you that have joined today's call by telephone, there is presentation material that we have attached to the Investors section of our website. But before turning to our results, I would like to remind you that we will be making forward-looking statements in this morning's conference call. According to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, I'd like to call your attention to the risks related to these statements, which are more fully described in our press release and in the company's filings with the Securities and Exchange Commission. This quarter, our EBITDA was negative $28 million, including a $20 million noncash inventory impairment, a decrease from negative EBITDA of $21 million in the second quarter. One of the key drivers of our results was negative pressure on pulp pricing and demand from global economic and trade uncertainty. We had lower sales realizations for both softwood and hardwood pulp, which negatively impacted EBITDA by roughly $15 million, and was also a key factor behind our noncash inventory impairment charge. In the third quarter, our pulp segment had negative quarterly EBITDA of $13 million, while the solid wood segment had negative EBITDA of $9 million. Additional segment disclosures are available in our Form 10-Q, which can be found on our website and that of the SEC. Third quarter average published prices for NBSK and NBHK pulp decreased across all our markets compared to the second quarter. This decrease was due to weakened demand caused by a…

Thanks, Rich. This quarter's operating results were disappointing, mainly due to trade uncertainty, which created significant industry headwinds such as China increasing its paper exports to Europe, thus negatively impacting European paper producers. The economic uncertainty created by tariffs and trade disputes is negatively impacting demand for both paper and lumber. Another factor this quarter was the $200 price gap between hardwood and softwood pulp, which incentivizes certain customers to use more hardwood in their furnish. In spite of these factors, demand for softwood pulp has been steady, but weak hardwood pricing is holding softwood prices down despite strong overall softwood fundamentals. In addition, the ongoing trade disputes are putting downward pressure on the U.S. dollar, which negatively affects our operating results. This U.S. dollar weakness increased our operating costs by almost $11 million compared to Q2. While these uncontrollable factors create significant macroeconomic headwinds for our business, we continue to focus on the things we can control. In this sense, we have made good progress on our mill reliability, and our cost control initiatives are gaining traction. As a reminder, in the second quarter, we launched a company-wide program aimed at identifying $100 million in cost savings and profitability improvement opportunities by the end of 2026 when compared with 2024. We have named this program One Goal One Hundred. Currently, we expect to achieve $30 million of cost and reliability-related savings by the end of 2025. This initiative also includes targeting working capital reductions of $20 million, as well as $20 million in CapEx reductions relative to our previous 2025 guidance. A significant part of the One Goal One Hundred program relates to reliability improvements that, combined with additional cost savings expected to be realized next year, gives us high confidence that we will reach our $100 million target…

Please stand by. We are experiencing a technical difficulty. Please stand by. Pardon me. This is your host. Please stand by. Your conference will resume momentarily. Thank you for your patience. Your conference will resume momentarily. Richard, I see that you have rejoined. Are you able to hear me, sir?

Yes.

Yes.

Okay. Sir, you may proceed.

Thank you, Michelle. Apologies for the disconnect. We don't know exactly what happened. So I'll repeat the last statement. Looking ahead, we expect to see some modest NBSK price improvements late in Q4 and into Q1 of 2026 as the impact of the announced European NBSK curtailments impact Chinese port stock and the impact of delisting of low-quality Russian pulp from Shanghai Futures Exchange is realized. Despite the recent announcement of trade deals, the global trade landscape continues to be unclear. We expect this trade uncertainty will persist at least through the near term, likely keeping commodity prices subdued. However, we remain optimistic that once trade clarity returns, markets will begin to normalize. In total, our pulp production was flat at almost 460,000 tonnes compared to Q2. As part of our objective to keep all of our pulp mills running reliably, we planned major maintenance shutdowns at all mills throughout the year. Our Q4 shut schedule has [indiscernible] down for 18 days, or about 36,000 tonnes. Our lumber production was down slightly relative to Q2 by about 4% due to maintenance that was scheduled at our Friesau mill. Overall, we are pleased with our lumber production. And even though the ramp-up of our Torgau mill incremental lumber capacity has been slower than anticipated, we do expect to realize the increased annual capacity rate of about 100,000 cubic meters of dimensional lumber, or roughly 65 million board feet, by the end of the year. Pulp fiber costs were essentially flat relative to Q2. In Germany, reduced demand for pulp logs pushed fiber prices down modestly, while in Canada, costs were up slightly due to increased logistic costs. However, on the sawlog side, reduced supply due to limited harvesting pushed our fiber costs up as expected compared to Q2. Looking ahead to…

[Operator Instructions] The first question comes from Sean Steuart with TD Cowen.

Juan Carlos, I appreciate all the points on cost savings initiatives, working capital reductions and lower CapEx. Wondering if you can give some perspective on thinking around potential asset sales to expedite deleveraging on the balance sheet. Anything under consideration? And can you give us a sense of the scale?

Absolutely, Sean. Yes, we've been looking at this in detail for the last few months. At this point, we're not at liberty to disclose anything. We do recognize, however, that the current market environment is not ideal for us for divestitures.

Okay. And on the broader softwood pulp market, it's an extended trough. Mill inventories still look really high. We're closer to the bottom [indiscernible]. Can you give perspective on how much capacity you think needs to be taken out permanently to right-size the industry to what demand will normalize to over the next few years?

Yes, Sean, it's a very good question, not easy to answer with a precise number. We do see -- we have seen along the year several mills curtailing and curtailing for extended period of time. We know about a few in Finland specifically that were down for probably more than 6 months of the year. And while those are important steps, they do not end up making the impact or having the impact as an announcement of a full closure will have as they are obviously temporary situations. We do think that given how long this trough has been and even though we do believe that we're, as you said, in the bottom of the price curve, there should be closures of pulp mills. We wouldn't be surprised if either some of the Finnish mills or the Canadian mills that have bigger situations or bigger problems to deal with access to fiber would be going belly-up. The situation in Canada is obviously very complicated in the back of the additional tariffs. We've seen the announcements of several closures of sawmills, which -- as we already know and have said, that puts pressure on fiber on a market that is already tight on fiber, particularly in BC. I think that gains a significant -- very strong significance. So we see those conditions in BC at least deteriorating significantly with the introduction of these tariffs and additional countervailing duties. As we said, in the case of Celgar, because of our location and because of our strategy, the fact that we're less dependent on that BC fiber gives us that edge. But obviously, that's not the case for many others in the interior of the province. So yes, again, in Germany, we have the advantage of having a forest around us. And even though the costs are going up, it's still fiber that we can access and have assets that are very competitive and they can still make money in these conditions, different from the Finnish mills or the Swedish mills that are facing very, very high wood costs in their normal traditional fiber baskets.

And the next question will come from Sandy Burns with Stifel.

I'm hoping you could talk a little bit more about the substitution issues that you mentioned this quarter. I mean, it's certainly been an ongoing issue for the industry. Would you say, the increase, is it more region-specific or end user specific? And maybe tied into that also, at what differential do you think that substitution then may abate?

Yes, Sandy, very good question. As you well said, substitution has been going on for several years now. This is not a new concept. This is not something that we have not seen before. That's part of the growth that we all see in hardwood is on the back of substitution. And yes, that's a reality and has been with us for several years. What is probably different this time around is that over the past few years, I think everybody has -- or paper producers of all kinds have taken their furnace to what they believe would be their limits on taking advantage of those price differentials between the 2 fibers. Now, as that differential has grown significantly and well above what we've seen in previous years, then that kind of puts it to another level and another test of, okay, we thought we've done everything. Can we do anything more? And I think that's what we've seen happening not only in Europe, we've seen that happening in China as well, where that price differential of $200 per tonne would allow them to -- would allow some of the producers to say, okay, well, now we're going to use less softwood and add more chemicals. Or now that, again, there's a lot of capacity out there with machines running slowly, then that gives them the opportunity also to reduce the amount of softwood naturally. So those additional measures of adding chemicals or doing -- or taking things beyond the limits is what we see with this $200 price. Now, it does have an impact, and we've discussed this with certain customers. It does have an impact on the end quality of the product. So there's limits to that. If you think about a paper towel that you buy, traditionally,…

And I guess, related to that, whether Mercer or other NBSK producers like just further discounted NBSK to close the gap and then at least get the volume, although at much lower margins?

Obviously, when hardwood prices are that low, it puts a cap on softwood. When you think about a year ago, what everybody was talking about was that the softwood market was very tight and that there was no reason for softwood prices to deteriorate because it was just very, very tight. Then we got into a situation where hardwood continued to drop -- continue to drop and it pulls softwood down naturally. So I think that's a big element of the whole equation. It doesn't pull it completely down, and that's why the gap increases so much because there's some resilience in pulp. Otherwise, it would fall just as hardwood falls. It maintains certain value in it, and that's why that gap increases to $200 precisely because there's that inherent value in the softwood fiber. So we do feel that obviously, it's independent decisions on producers, whether they want to sacrifice price for volume. We have our own policy on it, and we know that we can sell everything that we produce. We have very good relationship with customers for many, many years, and that gives us that confidence and doesn't put us in a situation where we're forced to do things that we shouldn't be doing from a price perspective. So yes, that's about that.

Okay. And maybe a last one for me, shifting gears on the liquidity front, you mentioned asset sales. Any other liquidity-enhancing actions you could be considering? And I know, on the last call, in terms of minimum liquidity, you felt it was a long way from being uncomfortable. How are you feeling about it now? Have you maybe had to start discussions with banks about maintaining liquidity during this rough period for the company and industry?

Yes. We've started some of those discussions. We started discussions. For example, we have revolving facilities that are due in '27 that need to be renewed. We've started those conversations, and those are going very well. There's no reason to believe that we won't be able to renew those if we decide to go for that. Also, looking at the senior notes coming in '28 and '29, there's still runway for them, but we're not necessarily waiting for all that runway to expire. We're acting upon those things. So yes, we're looking at all the things that we have to do preemptively so that we don't let time go by and take us by surprise. We know that it's a complicated market that we're dealing with. We know that asset divestitures is part of the options that are out there. As I mentioned before, anybody would say today that probably the conditions are not the best for you to go out and try to sell something. Nonetheless, obviously, we look at options and are actively working on things, looking at what can be done on that end. But in the meantime, it's all about reducing the other things that we can reduce that are significant, focusing on working capital, and there's good progress that we've made. Same thing on CapEx. There's still room for us to reduce CapEx and focus basically on maintenance and leave some of those growth projects for later. So yes, there's things that we can do other than the usual cost reductions that are obviously in full motion already since the second quarter.

And the next question will come from Hamir Patel with CIBC Capital Markets.

Juan Carlos, you indicated looking at reducing CapEx. What do you -- for 2026, what sort of range of CapEx outcomes that you could see?

Hamir, it's Rich. We're sort of starting around $75 million, but we're looking to see if we can reduce that as well. So that's probably the ballpark we're going to play in for next year.

Great. And then, I guess, related to that, how should we think about the planned shuts for 2026? And is there any sort of maybe room to stretch some of those out?

Yes. In fact, for example, in 2026, we won't have a shut in Stendal. Stendal is under an 18-month cycle, an 18-month cycle that we're actually reviewing whether it could be a 2-year cycle. We were actually thinking about that for this particular year, but we decided to keep the 18 months. Otherwise, we wouldn't be having a shutdown right now. So, that is good news for 2026, no shutdown in Stendal. On the other mills, Celgar is on an 18-month shutdown. And Peace River, we're looking to also moving a little bit beyond the traditional 12 months that we have for that mill. So yes, we're stretching things on shutdowns for next year.

And the next question will come from Matthew McKellar with RBC Capital Markets.

Just one for me. How would you describe the industry supply-demand balance in North American mass timber right now? And with recent changes in capacity and the demand inflection we're seeing, what are your expectations for how that trends into 2026?

Thank you, Matthew. As I was mentioning, or we were mentioning before, we're pretty excited about how we see mass timber developing. The amount of project inquiries, the amount of biddings that we're participating that I already talked about is very encouraging. Probably the biggest element there, and I think it's of incredible significance, is the AI data centers and all the transformative AI investments that are coming through. To give you some order of magnitude, when you think about the hyperscalers, I'm talking about the Googles, the Amazons, the Metas, those companies, the Amazons, their plan for the next 4 years includes a $2.6 trillion investment in construction of data centers. So this is a massive amount of business that is going to come into North America. I don't think that right now, there is capacity installed that would be able to not even get close to serving the demand that will be coming. When we see the actions from other competitors, we see already the addition of some capacity coming next year, which will be very well absorbed with the market growing -- if you think for a minute, our own results, we were going to be moving from $50 million -- let's say, let's call it, $60 million this year to $130 million next year of sales. And we're going to be doing second shift now in one of our mills and probably in one of our other assets as well during the course of the year. It just proves that there is an incredible demand that we will need to serve, and we all would need to shape up and do our best. Keep in mind, and this is important, over the last couple of years, as Europe has been more mature and those mills in…

[Operator Instructions] The next question comes from Cole Hathorn with Jefferies.

I've got 3 on my side. I'll take them one by one. The first on any items that you're expecting into the fourth quarter around kind of energy rebates and things like that from the German government for kind of energy-consuming industries. I'm just wondering if there's anything that we should be thinking about for your business for the fourth quarter, which might be positive. [Technical Difficulty]

Please stand by. We are experiencing a technical difficulty. Please stand by. Pardon me. This is your host. Please stand by. Your conference will resume momentarily. Richard, I see that you have rejoined. Are you able to hear me?

Yes.

Yes. Sorry, folks.

You may proceed.

Apologies, Cole. I don't know what's happening today, but anyway.

No problem. Let me start again.

Reflection of the markets.

Richard, maybe you could help with one on any rebates or items that we should think about on the energy side in your German business. Is there anything like that we should expect in the fourth quarter?

No, no rebates.

Then, following on, on Germany on the lower -- well, elevated wood costs, you're referring to kind of the sawlog prices. Could you give a little bit of color on what you're seeing on the wood chips on that side?

Absolutely, Cole. On the wood chips, the situation is, right now, the pallets or the biofuels are being sold at pretty good price levels. They're above EUR 300 per tonne. That means that the pallet producers are able to buy wood chips at much higher prices than what we are able to buy. And therefore, they're taking obviously a significant piece of the equation and putting a lot of pressure on us when we go to those same sawmills and ask for our chips. So, that is basically what's creating that increased volatility in prices for wood chips for pulp specifically. It's the impact of wood pallets. That's -- we'll have to wait and see how the winter plays out. If those conditions will persist or if it's a milder winter, those conditions will reverse quickly. We've seen these fluctuations before. We don't see them as structural changes. It's one business taking advantage of a very particular situation.

And then, we've seen West Fraser Timber, unfortunately, closing a sawmill in British Columbia [indiscernible] announcing it yesterday. I'm just wondering how many do you need to see close before you kind of have that tipping point where too many wood chips are removed from the British Columbia market and we see a pulp mill really under pressure?

I think that situation is already there, to be honest with you. Sometimes, I'm astonished by the fact that we haven't heard of any pulp closure because the situation in chip access is incredibly tight. You remember that 2 years ago, we divested Cariboo. We had 50% on Cariboo, together with West Fraser. And the reason for our divestiture from that business was precisely because we didn't see a future there in terms of fiber supply. As I said earlier in the call, it's completely different for Celgar because we have the U.S. as a very significant source that we can play at even higher levels than what we're doing already. So we're very limited to the dependence on British Columbia itself. But that's -- we're probably 1 of maybe 2 sawmills -- 2 pulp mills that have that luxury. The rest are stuck with BC chips. And yes, there's incredible amount of pressure on them already.

And then, I've got a more challenging question, but I've been asked to ask it, around potential financing and government support from Canada, I mean, considering tariffs and industries like the paper and packaging industry in British Columbia that's under pressure. Have you investigated any opportunities to access much lower-cost financing from either the regional or kind of federal government there?

We do a lot of lobbying as part of our industry associations. We are very, very active through the associations, as well as through direct contacts we have with, for example, Minister Parmar or even Premier Eby. So we do have interactions that -- where we bring to the table some of the issues that obviously are important for us. However, be reminded that since we -- most of the efforts that the BC government have put out are in favor of the lumber industry because, obviously, with all the tariff situation, that is the core of the focus. Beyond steel, beyond auto, beyond those things that we know are heavy in those conversations, lumber is the element. And then, that goes into sawmills, of which we have none. So we don't have access to particular credit lines or something that are more geared towards the lumber business, the sawmills that are in very difficult situation. Now, with the counter tariffs adding up, with countervailing duties adding up and now additional tariffs, all these measures that the government have made public, they will benefit, hopefully, some of those sawmill companies. But again, we're not privy to those as our business is not [ through sawmilling ].

I show no further questions in the queue at this time. I would now like to turn the call back to Juan Carlos for closing remarks.

Okay. Thank you, Michelle, and thanks to all of you for joining our call. Rich and I are available, obviously, to talk more at any time. So don't hesitate to call one of us. Otherwise, we look forward to speaking to you again at our next earnings call in February. Bye for now.

This concludes today's conference call. Thank you for participating, and you may now disconnect.