Fund Performance - Longleaf Partners Small-Cap Fund returned 2.03% in Q3 2025, underperforming the Russell 3000's 8.18% and the Russell 2000's 12.39% [1] Clearwater Paper Corporation Overview - Clearwater Paper Corporation (NYSE:CLW) is a bleached paperboard manufacturer with a market capitalization of $286.12 million, closing at $17.84 per share on December 01, 2025 [2] - The stock experienced a one-month return of -2.03% and a 52-week loss of 33.78% [2] Investment Insights on Clearwater Paper Corporation - Clearwater Paper was a detractor for the fund in Q3 2025 due to management's indication of weaker demand in the solid bleached sulfate (SBS) paperboard market amid economic uncertainty [3] - The SBS market is currently oversupplied and below mid-cycle levels, which poses challenges for the company [3] - Management is considering reallocating capacity to different substrates and has a history of effective capital allocation [3] - Factors such as competitor closures, tariffs on European imports, and recent foreign exchange movements could help balance the market [3] - Share repurchase remains an attractive option as the business trades at a low single-digit multiple of growing mid-cycle free cash flow [3] Hedge Fund Interest - Clearwater Paper Corporation is not among the 30 most popular stocks among hedge funds, with 20 hedge fund portfolios holding the stock at the end of Q3 2025, down from 23 in the previous quarter [4] - While Clearwater Paper has potential, certain AI stocks are viewed as offering greater upside potential with less downside risk [4]

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Core Insights - The industry is currently facing low utilization rates, projected to be below the normalized cross-cycle average of 90% to 95%, leading to a supply-demand imbalance of over 500,000 tons. This situation is unsustainable, prompting expectations for a medium to long-term rebalancing of supply and demand [1][20]. - The company reported an adjusted EBITDA of $18 million for Q3, significantly up from $26 million in the same period last year, driven by fixed cost reductions and increased shipment volumes [4][15]. - A non-cash impairment of goodwill amounting to $48 million was recorded, primarily due to a decline in market capitalization compared to book value [14][15]. - The company is exploring a project to add CUK swing capacity to one of its SBS machines, with an estimated capital requirement of $50 million and a projected return of over 20% [10][11]. Industry Overview - The industry is experiencing margin pressure due to low utilization rates, with forecasts indicating a potential net capacity reduction of approximately 350,000 tons by 2026, which could improve utilization rates above 90% [1][20]. - Competitors are ramping up new SPS capacity, potentially adding 10% to the industry's supply, which could further lower utilization rates to the low 80% range by year-end [2]. - The current oversupply is primarily in SBS, but it is affecting other paperboard substrates, with historical pricing correlations observed between SBS, CUK, and CRB [6][7]. Financial Performance - Year-to-date adjusted EBITDA from continuing operations reached $87 million, up from $26 million last year, attributed to fixed cost reductions and additional months of results from the Augusta facility [4][15]. - Net sales for the quarter were $399 million, reflecting a 1% year-over-year increase, driven by a 3% rise in paperboard shipment volumes [14][15]. - The company generated $34 million in cash from operations during the quarter, maintaining a strong balance sheet with a net leverage ratio of 2.7 times and available liquidity of $455 million [16]. Future Outlook - For Q4, the company expects adjusted EBITDA between $13 million and $23 million, anticipating slightly lower paperboard shipments due to seasonality [17]. - Initial assumptions for 2026 include projected revenue of $1.45 to $1.55 billion and a capacity utilization rate in the mid-80% range, with capital expenditures estimated at $65 to $75 million [18][19]. - The company aims to achieve over $20 million in working capital improvements, primarily in inventory, with expectations to start seeing results in the second half of next year [19][39].

Financial Data and Key Metrics Changes - Adjusted EBITDA for Q3 2025 was $18 million, at the high end of the guidance range of $10 million-$20 million, with year-to-date adjusted EBITDA from continuing operations at $87 million, up from $26 million in the same period last year [4][14] - Net sales reached $399 million, a 1% increase year-over-year, driven by a 3% increase in paperboard shipment volumes, partially offset by lower market pricing [13][14] - Net loss from continuing operations was $54 million, or $3.34 per diluted share, primarily due to a $48 million non-cash goodwill impairment [13][14] - The company generated $34 million in cash from operations and approximately $3.5 million in free cash flows during the quarter [15] Business Line Data and Key Metrics Changes - The company successfully completed all three planned major maintenance outages for 2025, with the Lewiston outage costing $24 million and the Augusta outage costing $16 million [4][5] - Fixed cost reduction initiatives are tracking to around $50 million in savings for the year, exceeding the original estimate of $30 million-$40 million [5] Market Data and Key Metrics Changes - The industry is facing margin pressure due to low utilization rates, projected to be in the low 80% range by year-end, significantly below the normalized average of 90%-95% [7] - RISI forecasts a net capacity reduction of approximately 350,000 tons in the first half of 2026, which could drive utilization rates above 90% [8][18] Company Strategy and Development Direction - The company is exploring adding CUK swing capability to one of its SBS machines, with an estimated capital requirement of $50 million and a projected return of over 20% [11][12] - The company aims to maintain its market share and defend its SBS mills while focusing on a strong balance sheet [19] Management's Comments on Operating Environment and Future Outlook - Management remains optimistic about the long-term fundamentals of the paperboard market, citing strong demand for sustainable packaging solutions [19] - The company expects adjusted EBITDA for Q4 2025 to be between $13 million and $23 million, anticipating slightly lower paperboard shipments due to seasonality [16][18] Other Important Information - The company has ample available liquidity of $455 million and a net leverage ratio of 2.7x, indicating a stable debt level despite the current industry down cycle [15] - The company repurchased $2 million of shares, bringing the total to $20 million against a $100 million authorization [15] Q&A Session Summary Question: Decision to hold the CUK swing capacity project - Management confirmed the decision to hold the project is due to prioritizing a strong balance sheet and market conditions, targeting a leverage ratio in the 1%-2% range [23] Question: Market outlook for SBS and import relief - Management noted that while RISI forecasts a capacity reduction, it is uncertain how the industry will respond, but there are signs of reduced European imports [25] Question: Maintenance schedule for 2026 - Management indicated that costs for maintenance in 2026 would be similar to 2025, with schedules to be finalized and shared in February [27] Question: Incremental strength in shipments and product categories - Management observed strong performance in food service and noted that import relief may be contributing to stronger demand [33] Question: Variability in Q4 guidance - Management highlighted that energy costs and production levels would significantly impact Q4 earnings, with production changes having a substantial effect on earnings [36]

Financial Data and Key Metrics Changes - Adjusted EBITDA for Q3 2025 was $18 million, at the high end of the guidance range of $10 to $20 million, with year-to-date adjusted EBITDA from continuing operations at $87 million, up from $26 million in the same period last year [4][14] - Net sales reached $399 million, a 1% increase year-over-year, driven by a 3% increase in paperboard shipment volumes, partially offset by lower market pricing [13][14] - Net loss from continuing operations was $54 million, or $3.34 per diluted share, primarily due to a $48 million non-cash goodwill impairment [13][14] - The company generated $34 million in cash from operations and approximately $3.5 million in free cash flows during the quarter [15] Business Line Data and Key Metrics Changes - The company successfully completed all three planned major maintenance outages for 2025, with costs of $24 million for the Lewiston outage and $16 million for the Augusta outage [4][5] - Fixed cost reduction initiatives are tracking to around $50 million in savings for the year, exceeding the original estimate of $30 to $40 million [5] Market Data and Key Metrics Changes - The company noted that a competitor is ramping up new SBS capacity, potentially adding up to 10% additional supply to the industry, which could lead to utilization rates dropping to the low 80% range by year-end [6][7] - Current industry oversupply is primarily limited to SBS, but it is impacting other paperboard substrates, with pricing correlations historically observed between SBS, CUK, and CRB [9][10] Company Strategy and Development Direction - The company is exploring adding CUK swing capability to one of its SBS machines, with an estimated capital requirement of approximately $50 million and a projected return of over 20% [11][12] - The company remains focused on defending its SBS market share and maintaining a strong balance sheet, with a target leverage ratio in the 1 to 2 times range and cross-cycle EBITDA margins of 13 to 14% [19] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the long-term fundamentals of the paperboard market, emphasizing the demand for sustainable and renewable packaging solutions [19] - The company expects adjusted EBITDA for Q4 2025 to be between $13 to $23 million, anticipating slightly lower paperboard shipments due to seasonality [16][18] Other Important Information - The company repurchased $2 million of shares, bringing the total to $20 million against a $100 million authorization [15] - Initial assumptions for 2026 include revenue of around $1.45 to $1.55 billion and a capacity utilization rate in the mid-80% range [17] Q&A Session Summary Question: Decision to hold the CUK swing capacity project - The decision to hold the project is due to prioritizing a strong balance sheet and focusing on running SBS mills, with a target leverage ratio in the 1 to 2 times range [23] Question: Market outlook for SBS and import relief - Management is hopeful for a net capacity reduction of 350,000 tons in the first half of 2026, with some signs of reduced European imports [25] Question: Maintenance schedule for 2026 - The cost for maintenance in 2026 is expected to be similar to 2025 levels, with specific schedules to be finalized and communicated in February [27] Question: Incremental strength in shipments and product categories - The company saw strength in food service sales, with optimism from customers and potential import relief contributing to stronger demand [33] Question: Working capital improvements for 2026 - The target for working capital improvements of $20 million will primarily focus on inventory reductions, expected to be achieved in the second half of the year [39]

Financial Data and Key Metrics Changes - Adjusted EBITDA for Q3 2025 was $18 million, at the high end of the guidance range of $10 to $20 million, with year-to-date adjusted EBITDA from continuing operations at $87 million, up from $26 million in the same period last year [4][13] - Net sales reached $399 million, a 1% increase year over year, driven by a 3% increase in paperboard shipment volumes, partially offset by lower market pricing [13] - Net loss from continuing operations was $54 million, or $3.34 per diluted share, primarily due to a $48 million non-cash goodwill impairment [13][14] - The company generated $34 million in cash from operations during the quarter and approximately $3.5 million in free cash flows, with a net leverage ratio of 2.7 times and available liquidity of $455 million [15] Business Line Data and Key Metrics Changes - The company successfully completed all three planned major maintenance outages for 2025, with the Lewiston outage costing $24 million and the Augusta outage costing $16 million [4][5] - Fixed cost reduction initiatives are tracking to around $50 million in savings for the year, exceeding the original estimate of $30 to $40 million [5] Market Data and Key Metrics Changes - The industry is facing margin pressure due to low utilization rates, projected to be in the low 80% range by year-end, significantly below the normalized cross-cycle average of 90 to 95% [6] - RECI forecasts a net capacity reduction of approximately 350,000 tons in the first half of 2026, which could drive utilization rates above 90% [7][18] Company Strategy and Development Direction - The company is exploring adding coated unbleached kraft (CUK) swing capability to one of its solid bleached sulfate (SBS) machines, with an estimated capital requirement of approximately $50 million and a projected return of over 20% [11][12] - The company remains focused on defending its SBS market share and preserving the strength of its balance sheet, with plans to revisit the CUK investment decision in the future [12][23] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the long-term fundamentals of the paperboard market, emphasizing the demand for sustainable and renewable packaging solutions [19] - The company expects adjusted EBITDA for Q4 2025 to be between $13 to $23 million, anticipating slightly lower paperboard shipments due to seasonality [16] Other Important Information - The company repurchased $2 million of shares, bringing the total to $20 million against a $100 million authorization [15] - Initial assumptions for 2026 include revenue of around $1.45 to $1.55 billion and capital expenditures of $65 to $75 million [17] Q&A Session Summary Question: Decision to hold the CUK swing capacity project - The decision to hold the project is based on prioritizing a strong balance sheet and maintaining a leverage ratio in the 1 to 2% range, with a focus on running SBS mills [22][23] Question: Market outlook for SBS and import relief - The company is cautiously optimistic about market rebalancing and has observed a 10% decrease in European imports year to date, indicating potential import relief [24][25] Question: Maintenance schedule for 2026 - The maintenance costs for 2026 are expected to be similar to 2025 levels, with specific schedules to be finalized and communicated in February [26][27] Question: Incremental strength in shipments and product categories - The company noted strong performance in food service sales, with optimism from customers and potential import relief contributing to demand [31][32] Question: Working capital improvements for 2026 - The target for working capital improvements of over $20 million will primarily focus on inventory reductions, expected to be achieved in the second half of the year [36][38]

Financial Performance & Outlook - Clearwater reported Net Sales from continuing operations of $399 million in Q3 2025, a 3% increase compared to Q3 2024 and a 6% increase compared to Q2 2025[10] - The company experienced a Net Loss from continuing operations of $54 million in Q3 2025, which includes a non-cash goodwill impairment of $45 million[10, 11] - Adjusted EBITDA from continuing operations was $178 million with a margin of 4%, towards the higher end of the guidance range[10, 11] - Q4 2025 Adjusted EBITDA is projected to be between $13 million and $23 million, influenced by seasonality and a major maintenance outage at the Augusta, GA mill costing approximately $16 million[15] - For FY 2026, revenue is projected to be $145 billion to $155 billion, with a capacity utilization rate in the mid-80% range[15] Strategic Initiatives & Industry Trends - The company is targeting Adjusted EBITDA margins of 13% to 14% across the paperboard industry cycle, aiming for a 40-50% Adjusted EBITDA to free cash flow conversion rate, or over $100 million per year[5] - Clearwater is focused on reducing its fixed cost structure by $30 million to $40 million in 2025, with current tracking suggesting savings of approximately $50 million[5] - The company is exploring options to expand its product offering, including post-consumer recycled content, compostable plates, lightweight folding carton, poly-free coatings/barriers, unbleached paperboard grade (CUK), and recycled paperboard grade (CRB)[7] - Industry trends indicate a modest shipment growth expected in 2025 and a demand growth of approximately 3% projected for 2026[8] - Bleached paperboard net exports are expected to improve in 2025, with imports forecasted to decrease by approximately 4% and exports forecasted to decrease by approximately 2% compared to 2024[8]

Financial Performance - Net sales increased by 1% to $399.0 million for the quarter ended September 30, 2025, and by 17% to $1,169.0 million for the nine months ended September 30, 2025, driven by higher sales volume despite market-driven price decreases [76]. - Adjusted EBITDA from continuing operations decreased by 15% to $17.8 million for the quarter and increased by 229% to $87.4 million for the nine months compared to the same periods in 2024 [75]. - Gross margin decreased to 5% for the quarter ended September 30, 2025, from 8% in the same quarter of 2024, while gross margin for the nine months increased to 8% from 6% [75]. - Cost of sales increased by 5% to $380.3 million for the quarter and by 14% to $1,070.6 million for the nine months ended September 30, 2025, primarily due to the inclusion of Augusta operations [80]. - Selling, general and administrative expenses decreased by 22% for the quarter and by 11% for the nine months ended September 30, 2025, attributed to planned cost reduction efforts [83][84]. Market Outlook - The company expects sales volumes to decline in the fourth quarter due to seasonality, while anticipating increased energy costs [90]. - The paperboard sales price decreased by 2.7% to $1,160 per short ton for the quarter and by 3.8% to $1,176 per short ton for the nine months [77]. Acquisitions and Agreements - The company acquired a paperboard manufacturing facility in Augusta, Georgia, for a total purchase price of approximately $710.6 million, effective May 1, 2024 [94][95]. - The company is negotiating a new union agreement for the Lewiston, Idaho facility, which may incur retroactive wage increases upon ratification [91]. - The company submitted claims for losses related to alleged breaches of representations and warranties from the Augusta acquisition, with a policy limit of $105 million for representation and warranty insurance [96]. Regulatory and Tax Impacts - In 2025, the U.S. implemented a universal baseline tariff of 10% on imports from nearly all trading partners, with an additional 25% tariff on certain imports from Canada and Mexico, but the company does not expect a significant impact on fiscal 2025 results [92]. - The One Big Beautiful Bill Act (OBBBA) was signed into law on July 4, 2025, making permanent key elements of the Tax Cuts and Jobs Act, but it did not materially impact the company's consolidated financial statements for Q3 2025 [93]. Cash Flow and Financing - Net cash flow used in operating activities for the nine months ended September 30, 2025, was $7.3 million, a decrease from $96.5 million in the same period of 2024, primarily due to lower operating performance following the divestiture of tissue operations [99]. - Net cash flows provided by investing activities for the nine months ended September 30, 2025, were $86.0 million, down from $791.8 million in the same period of the prior year [100]. - The company expects cash paid for capital expenditures in 2025 to be approximately $85 million to $90 million [101]. - During the nine months ended September 30, 2025, net cash provided by financing activities was $33.5 million, with $72.0 million borrowed and $18.0 million repaid on the ABL [102]. - As of September 30, 2025, the company had $213.9 million availability under the ABL Credit Agreement, utilizing $57.7 million of that amount [104][107]. - The company was in compliance with the covenants associated with the ABL Credit Agreement as of September 30, 2025, and expects to remain compliant based on current financial projections [107]. Impairments - Goodwill impairment of $48.0 million was recorded for both the quarter and nine months ended September 30, 2025 [75]. Production Metrics - Paperboard shipments increased by 3.1% to 324,198 short tons for the quarter and by 18.6% to 918,399 short tons for the nine months ended September 30, 2025 [77].

Core Viewpoint - Clearwater Paper Corporation reported a strong third quarter performance, achieving net sales of $399 million, driven by higher shipment volumes and effective cost reduction efforts, despite a significant net loss primarily due to a non-cash goodwill impairment charge [3][4]. Overall Results - For Q3 2025, net sales were $399 million, up from $393 million in Q3 2024, with a net loss from continuing operations of $54 million, or $3.34 per diluted share, compared to a net loss of $11 million, or $0.64 per diluted share in Q3 2024 [3][4]. - The increase in net loss was largely attributed to a $48 million non-cash goodwill impairment charge, influenced by a decline in market capitalization [3][4]. - Adjusted EBITDA from continuing operations was $18 million for Q3 2025, down from $21 million in Q3 2024, affected by maintenance outages and reduced sales prices, although offset by higher sales volumes and lower input costs [3][4]. Sales Volumes and Prices - Sales volumes reached 324,198 tons in Q3 2025, a 3% increase from 314,320 tons in Q3 2024, while the average net selling price for paperboard decreased by 3% to $1,160 per ton [5][6]. - For the first nine months of 2025, net sales totaled $1.2 billion, up from $997 million in the same period of 2024, with a net loss of $56 million, or $3.47 per diluted share, compared to a net loss of $54 million, or $3.27 per diluted share in the first nine months of 2024 [4][5]. Company Outlook - The company noted that the SBS market remains oversupplied, impacting the broader consumer paperboard market, but expressed optimism about recovery while focusing on cost reduction and maintaining market share [8]. - Clearwater Paper aims to achieve nearly $50 million in fixed cost reductions in 2025, exceeding its initial target of $30 to $40 million [5][8].