Clearwater Paper Corp Q3 FY2026 earnings call

• Operational Disruptions at Augusta Mill: Experienced significant electrical and mechanical failures in late September/October affecting pulp, power, and recovery areas. These disruptions impacted shipment volumes and production but were partially offset by insurance proceeds.
• Insurance Recoveries: Received the fourth and final representation and warranty (RWI) insurance payment of $17.5 million, bringing total recoveries to $73 million against a $105 million policy limit related to the Augusta acquisition.
• Debt Refinancing: Completed a debt refinancing transaction extending maturities to 2031. Used proceeds from a new $275 million term loan to redeem 2020 notes and replaced ABL/term revolver with a new $200 million revolving facility. Effective interest rate is 8.25%.
• Price Increases: Fully implemented the first announced $60/ton price increase, contributing nearly $8 million in Q3. Progressing on the second $60/ton increase. The first increase is expected to yield >$70 million in annual benefit.
• Product Portfolio Expansion: Launched 'Circa' CRB offering in partnership with Green Paper; initial feedback positive. Trialing new CUK product from Cypress Bend mill; formal launch planned by year-end. Targeting 20-30% of addressable CUK demand (300k-400k tons).
• Industry Conditions: SBS shipments up 6% YTD through Q2. Industry operating rates estimated above 90% by year-end due to supply curtailments. Imports resilient despite tariffs/costs.
• Leadership Change: Senior Vice President and CFO Sherri Baker announced her departure for a new opportunity.

The transcript does not provide a breakdown of financial performance by specific product segment (e.g., SBS, CUK, CRB) in absolute terms or revenue contribution percentages. The company reports consolidated Net Sales of $385 million and Adjusted EBITDA of $24 million for the quarter.

• Q4 2026 Adjusted EBITDA: Expected to be $10–20 million, reflecting seasonality, operational challenges at Augusta, and maintenance costs at Cypress Bend.
• Full Year 2026 Revenue: Assumed to be roughly $1.5 billion with flat to slightly higher shipment volumes.
• Full Year 2026 Maintenance Costs: Direct major maintenance outage costs estimated at $27–29 million, driven by Lewiston and Cypress Bend. Augusta’s annual outage is deferred to Jan 2027 ($12–15M) with potential additional downtime in Q2/Q3 2027 ($7–10M).
• Full Year 2026 Free Cash Flow: Expects to generate positive free cash flow, supported by EBITDA, $50M insurance recoveries, working capital reduction, and tax refunds, offset by CapEx of $55–60 million.
• SG&A Expense: Expected to remain well below the target range of 6–7% of net sales.

• Augusta Mill Operational Risks: Unidentified asset conditions and inaccurate representations during the sale have led to ongoing mechanical/electrical failures, requiring significant additional capital investment and causing production downtime.
• Conflict-Related Cost Inflation: Higher transportation and chemical costs due to the Middle East conflict are impacting margins, with an estimated total impact approaching $30 million in 2026.
• Tariff Exposure: While current imports/exports are largely exempt, Canadian tariffs could impact future procurement and shipping of paperboard.
• Capital Intensity: Need for substantial capital expenditure to restore Augusta to normal production capability and expand Cypress Bend capabilities.

Q: Analyst asked about the ultimate size and timing for the new CUK product line at Cypress Bend, noting management mentioned adding 50-100k tons by year-end. / A: Management clarified that Cypress Bend has one paper machine designed to swing between SBS and CUK campaigns. They aim for 100% utilization (approx. 300k+ tons capacity). Ramp-up timing is uncertain until market reception is confirmed, but independent converters are eager for a third supplier. The goal is to fill open capacity rather than expand total tonnage immediately.

Q: Analyst inquired if there are other recourse options beyond the exhausted RWI insurance policy regarding Augusta's performance and asset issues. / A: Management stated they have recovered $73M of the $105M limit and are done with the RWI policy. They will review all facts and options related to the acquisition but provided no further details on additional legal or financial recourse. The focus remains on capital investments to restore mill performance.

Q: Analyst asked for clarification on the variance in maintenance expenses between 2026 and 2027, specifically if the increase was almost entirely due to Augusta. / A: Management confirmed the variance is almost entirely attributable to Augusta. The 2026 maintenance spend was lower because the Augusta outage was pushed to 2027. Next year's maintenance is estimated around $50 million, including $12-15M for Augusta in Q1 and another $7-10M in Q2/Q3, plus similar costs for Lewiston and Cypress Bend.

Q: Analyst sought to understand the pricing benefit trajectory for 2027, asking how much incremental upside would result from the first and second price increases being fully recognized. / A: Management noted the first $60/ton increase provides ~$70M annualized benefit. For 2027, this first increase alone should deliver $50-55M upside. If the second $60/ton increase is fully recognized and rolled through customer agreements by year-end, it could add another $30-40M in 2027, totaling significant pricing uplift.