[Management View]
Clearwater Paper reported a $54 million net loss from continuing operations in Q3 2025, primarily due to a $48 million non-cash goodwill impairment. The company achieved $18 million in adjusted EBITDA, at the upper end of guidance, driven by a 3% increase in paperboard shipment volumes. Management emphasized strategic cost reductions, achieving $50 million in annualized savings, exceeding initial targets.

[Outlook]
For Q4, Clearwater Paper anticipates adjusted EBITDA between $13 million and $23 million, with seasonally lower shipments. The 2026 revenue outlook is projected at $1.45 billion to $1.55 billion, with a focus on inventory reductions to improve working capital by over $20 million.

[Financial Performance]
Year-over-year, net sales increased by 1%, driven by higher shipment volumes but offset by lower market pricing. The company generated $3.5 million in free cash flow and maintained a net leverage ratio of 2.7 times.

[Q&A Highlights]
Question 1: Arsen, I want to start with the decision to hold the CUK swing capacity project. 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?
Answer: The CUK swing capacity project is on hold to prioritize balance sheet strength. We target a leverage ratio in the 1-2% range and cross-cycle EBITDA margins of 13-14%. The project offers attractive returns at current prices, but we will revisit it based on future market conditions.

Question 2: With respect to your view on the market outlook for SBS, are you seeing any import relief as tariffs take hold?
Answer: RISI forecasts a 350,000-ton capacity reduction, which we hope will rebalance the market. European imports are down approximately 10% year-to-date, indicating potential import relief. Tariffs and a weakening dollar are increasing costs for importers, which may benefit domestic suppliers.

Question 3: Can you provide additional perspective on where you saw incremental strength versus expectations in Q3, particularly in food service?
Answer: Q3 saw strong food service sales due to seasonal demand and import relief, particularly in paper plates. Our team effectively filled capacity, contributing to the quarter's strength.

Question 4: What are the main factors contributing to the wide range in Q4 EBITDA guidance?
Answer: The range is influenced by seasonality, energy costs, and production variability. Energy costs are weather-dependent, and production changes can significantly impact earnings due to absorption effects.

Question 5: Can you share more about the working capital improvements of $20 million to $26 million?
Answer: Improvements will primarily come from inventory reductions, expected in the second half of next year. This will involve a trade-off between fixed cost absorption and cash flow.

[Sentiment Analysis]
Analysts expressed cautious optimism, focusing on strategic cost management and market dynamics. Management maintained a pragmatic tone, emphasizing balance sheet strength and market adaptability.

[Quarterly Comparison]
| Metric | Q3 2025 | Q3 2024 |
|-----------------------------|---------|---------|
| Net Sales | $399M | $395M |
| Adjusted EBITDA | $18M | $10M |
| Net Loss from Operations | $54M | $30M |
| Free Cash Flow | $3.5M | $2M |

[Risks and Concerns]
Key risks include persistent margin pressure, seasonally lower Q4 volumes, and variable energy costs. The industry faces oversupply challenges, particularly in SBS grades, with recovery dependent on capacity reductions and trade policy shifts.

[Final Takeaway]
Clearwater Paper navigates a challenging market environment with strategic cost reductions and a focus on maintaining balance sheet strength. While the company faces industry oversupply and margin pressures, management remains confident in long-term market fundamentals and the potential for improved utilization rates. The decision to defer the CUK swing capacity project underscores a cautious approach to capital allocation amid current market conditions.