Q4 2025 KP Tissue Inc Earnings Call

February 18, 2026

Speaker #1: Good morning and welcome to KP Tissue's fourth quarter 2025 results conference call. Note that today's call is being recorded for replay. All participants are currently in listen-only mode.

Operator: Good morning, and welcome to KP Tissue's Q4 2025 results conference call. Note that today's call is being recorded for replay. All participants are currently in listen-only mode. Following the presentation, we will conduct a question-and-answer session. Instructions will be provided at that time for you to queue up for questions, and if at any time you have difficulties hearing the conference, please press Star followed by zero for operator assistance. I will now turn the call over to Doris Grbic, Director of Investor Relations. You may begin your conference.

Speaker #1: Following the presentation, we will conduct a question-and-answer session. Instructions will be provided at that time for you to queue up for questions. And if at any time you have difficulties hearing the conference, please press star followed by 0 for operator assistance.

Speaker #1: I will now turn the call over to Doris Gerbik, Director of Investor Relations. You may begin your conference.

Speaker #2: Thank you, operator. Good morning, everyone, and thank you for joining us to review Kruger Products' fourth quarter 2025 financial results. With me this morning is Dino Bianco, the CEO of KP Tissue and Kruger Products, and Michael Keyes, the CFO of KP Tissue and Kruger Products.

Doris Grbic: Thank you, Operator. Good morning, everyone, and thank you for joining us to review Kruger Products' Q4 2025 financial results. With me this morning is Dino Bianco, the CEO of KP Tissue and Kruger Products, and Michael Keays, the CFO of KP Tissue and Kruger Products. Today's discussion will include certain forward-looking statements. Actual results could differ materially from these forward-looking statements due to known and unknown risks and uncertainties. A list of risk factors can be found in our public filings. In addition, today's discussion will include certain non-GAAP financial measures. The reconciliation of these non-GAAP financial measures to the most comparable GAAP measure can be found in our MD&A. The press release reporting our Q4 2025 results was published this morning and will be available on our website at kptissueinc.com. The financial statements in MD&A will also be posted on our website and on SEDAR+.

Speaker #2: Today's discussion will include certain forward-looking statements. Actual results could differ materially from these forward-looking statements due to known and unknown risks and uncertainties. A list of risk factors can be found in our public filings.

Speaker #2: In addition, today's discussion will include certain non-GAAP financial measures. The reconciliation of these non-GAAP financial measures to the most comparable GAAP measure can be found in our MD&A.

Speaker #2: The press release reporting our Q4 2025 results was published this morning, and will be available on our website at kptissue.com. The financial statements and MD&A will also be posted on our website and on Cedar Plus.

Speaker #2: The investor presentation to accompany today's discussion can be found in the investor relations section of our website. I will now turn the call over to our CEO, Dino Bianco.

Doris Grbic: The investor presentation to accompany today's discussion can be found in the Investor Relations section of our website. I will now turn the call over to our CEO, Dino Bianco. Dino?

Speaker #2: Dino?

Speaker #3: Thank you, Doris. Good morning, everyone, and thank you for joining us for our fourth quarter and full-year earnings call for fiscal 2025. 2025 proved to be a strong year across many areas of our business, marked by share gains and revenue growth, strong margins, and greater profitability, along with enhanced operational efficiency and an improved safety record.

Dino Bianco: Thank you, Doris. Good morning, everyone, and thank you for joining us for our Q4 and full year earnings call for fiscal 2025. 2025 proved to be a strong year across many areas of our business, marked by share gains and revenue growth, strong margins and greater profitability, along with enhanced operational efficiency and an improved safety record. We are particularly pleased revenue growth was well diversified both in Canada, leveraging our leadership position in this mature market, and in the US, which is our growth engine for future years. In the Q4 of 2025, our momentum culminated with Adjusted EBITDA growing more than 25% year-over-year to generate a run rate above CAD 80 million for a second consecutive quarter.

Speaker #3: We are particularly pleased revenue growth was well-diversified both in Canada leveraging our leadership position in this mature market and in the US, which is our growth engine for future years.

Speaker #3: In the fourth quarter of 2025, our momentum culminated with adjusted EBITDA growing more than 25% year over year to generate a run rate above $80 million for a second consecutive quarter.

Speaker #3: In addition, expanded insourcing of paper from our Schubrick expansion project improved the margins of our way from home segment and overall business. Going forward, we intend to build on this solid foundation to deliver growth in 2026 and beyond.

Dino Bianco: In addition, expanded insourcing of paper from our Sherbrooke expansion project improved the margins of our Away-From-Home segment and overall business. Going forward, we intend to build on this solid foundation to deliver growth in 2026 and beyond. Now, let's take a closer look at the quarterly numbers on slide 6. Revenue improved nearly 4% in the fourth quarter of 2025, mainly driven by higher sales volume in both our consumer and Away-From-Home businesses. Revenue in Canada grew 5.1% in the fourth quarter, while US sales rose 2.2% year-over-year. It should be noted that our US segment was facing a high comparable, with revenue up almost 20% in Q4 last year.

Speaker #3: Now let's take a closer look at the quarterly numbers on slide 6. Revenue improved nearly 4% in the fourth quarter of 2025, mainly driven by higher sales volume in both our consumer and away-from-home businesses.

Speaker #3: Revenue in Canada grew 5.1% in the fourth quarter, while US sales rose 2.2% year over year. It should be noted that our US segment was facing a high comparable with revenue up almost 20% in Q4 last year.

Speaker #3: However, we're very pleased with the incremental growth year-over-year in the U.S. market, as our annual growth rate was 8.2%. In terms of profitability, adjusted EBITDA increased 26% year-over-year to reach $84.2 million.

Dino Bianco: However, we're very pleased with the incremental growth year-over-year in the US market, as our annual growth rate was 8.2%. In terms of profitability, Adjusted EBITDA increased 26% year-over-year to reach CAD 84.2 million. The strong growth in Adjusted EBITDA can be attributed to higher sales volume and improved productivity at our manufacturing sites, along with lower pulp costs and freight rates. These factors were partially offset by a number of items that Michael will provide more details on in his financial review. On slide 7, I would like to highlight our revenue growth of 7.5% and Adjusted EBITDA increase of 20.2% in fiscal 2025. Following three consecutive years of profitable growth, we head into 2026 with strong momentum and are well positioned for further growth.

Speaker #3: The strong growth in adjusted EBITDA can be attributed to higher sales volume and improved productivity at our manufacturing sites, along with lower pulp costs and freight rates.

Speaker #3: These factors were partially offset by a number of items that Michael will provide more details on in his financial review. On slide 7, I would like to highlight our revenue growth of 7.5% and adjusted EBITDA increase of $20.2% in fiscal 2025.

Speaker #3: Following three consecutive years of profitable growth, we head into 2026 with strong momentum and are well-positioned for further growth. On slide 8, average pulp prices in Canadian dollars varied between a decline of 6.6% to an increase of 3.3% in the fourth quarter of 2025 compared to the previous quarter.

Dino Bianco: On slide 8, average pulp prices in Canadian dollars varied between a decline of 6.6% to an increase of 3.3% in Q4 2025 compared to the previous quarter. On a year-over-year basis, average prices for NBSK and BEK declined 7.3% and 5.3%, respectively. Moving forward into 2026, industry analysts continue to expect pulp prices to trend upwards over the year... Let's move to our operations slide on page 9, slide 9. Production rates for our paper machine and converting operations remained positive in Q4, helping us exceed our targets for the full year. At Memphis, our renewed asset strategy, focused on producing premium products, drove robust sequential improvements across both paper machine and converting lines.

Dino Bianco: On slide 8, average pulp prices in Canadian dollars varied between a decline of 6.6% to an increase of 3.3% in Q4 2025 compared to the previous quarter. On a year-over-year basis, average prices for NBSK and BEK declined 7.3% and 5.3%, respectively. Moving forward into 2026, industry analysts continue to expect pulp prices to trend upwards over the year. Let's move to our operations slide on page 9, slide 9. Production rates for our paper machine and converting operations remained positive in Q4, helping us exceed our targets for the full year. At Memphis, our renewed asset strategy, focused on producing premium products, drove robust sequential improvements across both paper machine and converting lines.

Speaker #3: On a year-over-year basis, average prices for NVSK and NBK declined 7.3% and 5.3%, respectively. Moving forward into 2026, industry analysts continue to expect pulp prices to trend upwards over the year.

Speaker #3: Let's move to our operations slide on page 9, slide 9. Production rates for our paper machine and converting operations remain positive in the fourth quarter.

Speaker #3: Helping us succeed in our targets for the full year. At Memphis, our renewed asset strategy focused on producing premium products drove robust sequential improvements across both paper machine and converting lines.

Speaker #3: As well, our new state-of-the-art converting line in Memphis remains on track for startup in early Q2 2026. In terms of our newly proposed project in the Western United States, we're in the process of firming up the location, project scope, and financial details of the new TAD facility, which is slated to open in 2028.

Dino Bianco: As well, our new state-of-the-art converting line in Memphis remains on track for startup in early Q2, 2026. In terms of our newly proposed project in the Western United States, we're in the process of firming up the location, project scope, and financial details of the new TAD facility, which is slated to open in 2028. We anticipate making a detailed announcement in the first half of 2026. Finally, we're proud to report that we achieved record safety results across our manufacturing assets in 2025, with several sites achieving key milestones throughout the year. Let's turn to our brand support on slide 10. During the fourth quarter, we continued developing equity building campaigns behind Cashmere, Sponge Towels, Bonterra, and Scotties to reinforce these brand names with our consumers. Cashmere Bathroom Tissue was recently featured in a full episode of Project Runway Canada Design Challenge.

Speaker #3: We anticipate making a detailed announcement in the first half of 2026. Finally, we're proud to report that we achieved record safety results across our manufacturing assets in 2025 with several sites achieving key milestones throughout the year.

Speaker #3: Let's turn to our brand support on slide 10. During the fourth quarter, we continued developing equity-building campaigns behind Kashmir, Sponge Towels, Bonterra, and Scotty's to reinforce these brand names with our consumers.

Speaker #3: Kashmir bathroom tissue was recently featured in a full episode of Project Runway Canada Design Challenge. We are pleased with the exposure our Kashmir brand received from this televised event.

Dino Bianco: We are pleased with the exposure our Cashmere brand received from this televised event. Also, during Q1, we also initiated a Scott for Scotties activation with Toronto Raptors star, Scottie Barnes. That campaign featured a playful stunt on social media, in which the NBA basketball star changed his name to Scotties, with an S, to promote our facial tissue brand across Canada. Limited edition Scotties Barnes boxes were also released in December as part of this promotion. In addition, we recently unveiled the sixth edition of the Kruger PRO Big Assist program, which has made hockey more accessible to Canadian families through CAD 1 million in donations to date. The program is highlighted in a parent assist new TV commercial airing during CBC's broadcast of the Olympic Winter Games, Milano Cortina 2026.

Speaker #3: Also, during the fourth quarter, we initiated a Scott for Scotty's activation with Toronto Raptors star Scottie Barnes. The campaign featured a playful stunt on social media in which the NBA basketball star changed his name to Scotty's with an S.

Speaker #3: to promote our facial tissue brand across Canada. Limited edition Scotty's Barnes boxes were also released in December as part of this promotion. In addition, we recently unveiled a sixth edition of the Krueger Big Assist program, which has made hockey more accessible to Canadian families through $1 million in donations to date.

Speaker #3: The program is highlighted in a parent-assist new TV commercial airing during CBC's broadcast of the Olympic Winter Games Milano Cortina 2026. The ad recognizes and celebrates the dedication and sacrifice of minor hockey parents across the country.

Dino Bianco: The ad recognizes and celebrates the dedication and sacrifice of minor hockey parents across the country. Also airing during the CBC broadcast is Kruger Big Assist content series, which shines a light on 12 Canadian hockey icons, both men and women, representing Team Canada at the Winter Olympics. Finally, we expanded support on Scotties seasonal cubes in the Q4, with the release of the Toronto Maple Leafs, Montreal Canadiens, and Holiday Cube formats. Let's turn to slide 11, where the data presented is taken from Nielsen, and shows Kruger Products' branded market share in Canada over a 52-week period, ending December 27, 2025. The numbers reflect incremental growth year-over-year for Kruger Products in bathroom tissue, which is a highly competitive product category.

Speaker #3: Also airing during the CBC broadcast is Krueger Big Assist content series, which shines a light on 12 Canadian hockey icons, both men and women, representing Team Canada at the Winter Olympics.

Speaker #3: Finally, we expanded support on Scotty's seasonal cubes in the fourth quarter with the release of the Toronto Maple Leafs Montreal Canadiens and Holiday Cube formats.

Speaker #3: Let's turn to slide 11, where the data presented is taken from Nielsen and shows Krueger products branded market share in Canada over a 52-week period ending December 27, 2025.

Speaker #3: The numbers reflect incremental growth year over year for Krueger products in bathroom tissue, which is a highly competitive product category. Also, in terms of facial tissue, we increased share by 130 basis points from the same period last year to reach 46.3% share of the Canadian market.

Dino Bianco: Also, in terms of facial tissue, we increased share by 130 basis points from the same period last year to reach 46.3% share of the Canadian market. These share gains were driven by new innovations and continued support behind our market-leading Scotties brand, as I previously mentioned. Likewise, we grew share by 130 basis points on the paper towel category, raising our total to 25.3%. This was driven by our Made in Canada promotions, leveraging our dual marketing strategy for both high quality and base-level towels, as well as expanding our product portfolio with new formats and sizing options for consumers. Looking at our away from home segment on Slide 12, revenue increased moderately year-over-year in Q4 on higher volume, but decreased sequentially due to seasonality.

Speaker #3: These share gains were driven by new innovations and continued support behind our market-leading Scotty's brand as I previously mentioned. And likewise, we grew share by 130 basis points on the paper towel category, raising our total to 25.3%.

Speaker #3: This was driven by our Made in Canada promotions, leveraging our dual marketing strategy for both high-quality and base-level towels, as well as expanding our product portfolio with new formats and sizing options for consumers.

Speaker #3: Looking at our away-from-home segment on slide 12, revenue increased moderately year over year in the fourth quarter on higher volume, but decreased sequentially due to seasonality.

Speaker #3: Similarly, profitability improved compared to the fourth quarter last year, highlighted by a healthy 11% adjusted EBITDA margin but decline from the previous quarter. As mentioned earlier, the network insourcing of paper contributed AFH's greater profitability on a year-over-year basis in the fourth quarter.

Dino Bianco: Similarly, profitability improved compared to Q4 last year, highlighted by a healthy 11% Adjusted EBITDA margin, but declined from the previous quarter. As mentioned earlier, the network insourcing of paper contributed AFH's greater profitability on a year-over-year basis in Q4. Also, the launch of Cashmere, Scotties, and Titan in Away From Home are already showing strong performance in this market. And finally, we continue to monitor the AFH market environment, given ongoing economic uncertainty. I will now turn the call over to Michael.

Speaker #3: Also, the launch of Kashmir Scotty's and Titan in away-from-home are already showing strong performance in this market. And finally, we continue to monitor the AFH market environment given ongoing economic uncertainty.

Speaker #3: I will now turn the call over to Michael.

Speaker #4: Thank you, Dino, and good morning, everyone. Please turn to slide 13 for a summary of our financial performance for the fourth quarter of 2025.

Michael Keays: Thank you, Dino, and good morning, everyone. Please turn to slide 13 for a summary of our financial performance for the fourth quarter of 2025. As Dino mentioned, we generated an adjusted EBITDA of CAD 84.2 million on sales of CAD 560.1 million in the quarter, representing a strong year-over-year adjusted EBITDA growth of 26%. Net income totaled CAD 23.4 million in Q4 2025, compared to a net loss of CAD 13.7 million in the fourth quarter of 2024. The year-over-year increase is due to a favorable foreign exchange difference of CAD 29.7 million and a higher adjusted EBITDA of CAD 17.4 million.

Speaker #4: As Dino mentioned, we generated an adjusted EBITDA of 84.2 million on sales of 560.1 million in the quarter. Representing a strong year-over-year adjusted EBITDA growth of 26%.

Speaker #4: Net income totaled 23.4 million in Q4 2025 compared to a net loss of 13.7 million in the fourth quarter of 2024. The year-over-year increase is due to a favorable foreign exchange difference of 29.7 million, and a higher adjusted EBITDA of 17.4 million.

Speaker #4: These items were partially offset by increased income from non-controlling interests of 4.7 million, higher income tax expense of 3.8 million, as well as higher interests and other finance costs of 1.6 million.

Michael Keays: These items were partially offset by increased income from non-controlling interests of CAD 4.7 million, higher income tax expense of CAD 3.8 million, as well as higher interest and other finance costs of CAD 1.6 million. In our quarterly segmented view on slide 14, revenue from our consumer business grew 4.3% year-over-year to CAD 472.3 million, and this increase was driven by higher sales volume, both in Canada and the US. In our away-from-home segment, revenue improved 1% year-over-year to CAD 87.8 million. This increase was also due to slightly higher sales volume in both Canada and US.

Speaker #4: In our quarterly segmented view on slide 14, revenue from our Kasuba consumer business grew 4.3% year over year to $472.3 million, and this increase was driven by higher sales volume both in Canada and the US.

Speaker #4: In our away-from-home segment, revenue improved 1% year over year to $87.8 million, and this increase was also due to slightly higher sales volume in both Canada and the US.

Speaker #4: The consumer adjusted EBITDA in the fourth quarter totaled 78.1 million, compared to 64 million in Q4 2024. With a margin of 16.5% representing an improvement of two points over the same period last year.

Michael Keays: The consumer adjusted EBITDA in the fourth quarter totals CAD 78.1 million, compared to CAD 64 million in Q4 2024, with a margin of 16.5%, representing an improvement of 2 points over the same period last year. On a sequential basis, the consumer-adjusted EBITDA remains stable from Q3 2025. For our away from home business, adjusted EBITDA amounted to CAD 9.7 million, compared to CAD 4.6 million in Q4 2024. The margin more than doubled year-over-year to 11%, partially driven by the expected benefit of insourcing our paper supply post Sherbrooke expansion, as Dino mentioned, and sequentially, the AFH adjusted EBITDA decreased CAD 0.7 million from Q3 2025.

Speaker #4: On a sequential basis, the consumer adjusted EBITDA remained stable from Q3 2025. For our away-from-home business, adjusted EBITDA amounted to 9.7 million, compared to 4.6 million in Q4 2024.

Speaker #4: The margin more than doubled year over year to 11%, partially driven by the expected benefit of insourcing our paper supply post-Sherberg expansion, as Dino mentioned, and sequentially, the AFH adjusted EBITDA decreased 0.7 million from Q3 2025.

Speaker #4: Moving on to slide 15, we show our consolidated revenue for Q4 2025, which improved 3.8% year over year to 560.1 million, on the strength of higher sales volume across both segments.

Michael Keays: Moving on to slide 15, we show our consolidated revenue for Q4 2025, which improved 3.8% year-over-year to CAD 560.1 million, on the strength of higher sales volume across both segments. On a geographic basis, revenue in Canada grew CAD 15 million or 5.1% year-over-year, while the US revenue rose for CAD 5.5 million or 2.2%. On slide 16, we provide details of our year-over-year profitability. The adjusted EBITDA increased CAD 17.4 million to CAD 84.2 million, resulting in a margin of 15% compared to 12.4% for the same period last year. The year-over-year increase was driven by the higher sales volume, favorable productivity at our manufacturing sites, lower pulp prices, and a reduced freight cost.

Speaker #4: On a geographic basis, revenue in Canada grew $15 million, or 5.1% year over year, while US revenue rose $5.5 million, or 2.2%. On slide 16, we provide details of our year-over-year profitability. The adjusted EBITDA increased $17.4 million to $84.2 million, resulting in a margin of 15% compared to 12.4% for the same period last year.

Speaker #4: The year-over-year increase was driven by the higher sales volume, favorable productivity at our manufacturing sites, lower pulp prices, and a reduced freight cost. These items were partially offset by higher manufacturing overhead costs and increased SG&A expenses.

Michael Keays: These items were partially offset by higher manufacturing overhead costs and increased SG&A expenses. Now, let's turn to slide 17, where we compare Q4 revenue to Q3. Revenue decreased slightly by CAD 1 million sequentially or 0.2%, primarily due to lower US sales volume. Geographically, revenue in Canada increased by CAD 5 million or 1.7%, while the US revenue declined by CAD 6 million or 2.3%. It's worth noting that Q3 is historically our strongest volume quarter, making the decrease in US sales largely a timing effect this quarter. On slide 18, the adjusted EBITDA in the fourth quarter dropped by CAD 1.5 million or 1.8%, driven by higher SG&A expenses, elevated freight and warehousing costs, increased marketing expenses, greater manufacturing overhead costs, and lower US sales volume.

Speaker #4: Now let's turn to slide 17, where we compare Q4 revenue to Q3. Revenue decreased slightly by 1 million, sequentially, or 0.2%, primarily due to lower US sales volume.

Speaker #4: Geographically, revenue in Canada increased by 5 million or 1.7%, while the US revenue declined by 6 million or 2.3%. It's worth noting that Q3 is historically our strongest volume quarter, making the decrease in US sale largely a timing effect this quarter.

Speaker #4: On slide 18, the adjusted EBITDA in the fourth quarter dropped by 1.5 million or 1.8%, driven by higher SG&A expenses, elevated freight and warehouseing costs, increased marketing expenses, greater manufacturing overhead costs, and lower US sales volume.

Speaker #4: These factors were partially offset by the reduced pulp price, bringing the adjusted EBITDA margin to a comparable level to Q3 at 15%. Turning to our balance sheet and financial position on slide 19, our cash position continued to improve, reaching 196.1 million at the end of the fourth quarter, up from 149.1 million at the end of Q3 2025.

Michael Keays: These factors were partially offset by the reduced pulp price, bringing the Adjusted EBITDA margin to a comparable level to Q3 at 15%. Turning to our balance sheet and financial position on slide 19, our cash position continued to improve, reaching CAD 196.1 million at the end of the fourth quarter, up from CAD 149.1 million at the end of Q3 2025. The increase was primarily due to the higher Adjusted EBITDA, and a decrease in working capital at the end of the year. Long-term debt at quarter end stood at CAD 1,074.1 million, a decrease of CAD 9.4 million sequentially, reducing the net debt by CAD 55.7 million.

Speaker #4: The increase was primarily due to the higher adjusted EBITDA and a decrease in working capital at the end of the year. Long-term debt at quarter end stood at 1,074.1 million, a decrease of 9.4 million sequentially, reducing the net debt by 55.7 million.

Speaker #4: Our leverage ratio also declined to 3.1 times, compared to 3.4 times in Q3 2025, demonstrating further a commitment to strengthening our balance sheet. To conclude my section, we will review capital expenditures on slide 20.

Michael Keays: Our leverage ratio also declined to 3.1 times compared to 3.4 times in Q3 2025, demonstrating further our commitment to strengthening our balance sheet. To conclude my section, we will review capital expenditures on slide 20. Our CapEx for Q4 2025 totaled CAD 33.4 million, and for the full fiscal year, CapEx totaled CAD 78 million. For 2026, we have raised our CapEx range to be between CAD 100 and 120 million, which includes some spending for the new converting line in Memphis and other strategic projects as previously shared. Thank you for joining us this morning, and I'll now turn the call back to Dino.

Speaker #4: Our capex for Q4 2025 totaled 33.4 million, and for the full fiscal year, capex totaled 78 million. For 2026, we have raised our capex range to be between 100 and 120 million, which includes some spending for the new converting line in Memphis, and other strategic projects, as previously shared.

Speaker #4: Thank you for joining us this morning, and I'll now turn the call back to Dino.

Speaker #1: Thank you, Michael. Please turn to slide 22 for my closing comments, which reflects sustained momentum from the last three years of profitable growth. We are finalizing details for a new TAD tissue plant in the Western United States that will better serve our fast-growing US business with ultra-premium tissue products, which is slated to open in 2028.

Dino Bianco: Thank you, Michael. Please turn to slide 22 for my closing comments, which reflects sustained momentum from the last three years of profitable growth. We are finalizing details for a new TAD tissue plant in the Western United States that will better serve our fast-growing US business with ultra-premium tissue products, which is slated to open in 2028. We will continue managing our margins and navigating through volatile economic conditions. We are investing in our operations to enhance efficiency and support growing capacity, all the while keeping our people safe. We intend to continue to build market share across our brand portfolio on a long-term basis. As mentioned on many calls, our away from home business has built a sustainable business model and is well positioned to maintain this positive momentum going forward.

Speaker #1: We will continue managing our margins and navigating through volatile economic conditions. We are investing in our operations to enhance efficiency and support growing capacity all the while keeping our people safe.

Speaker #1: We intend to continue to build market share across our brand portfolio on a long-term basis. And as mentioned on many calls, our away-from-home business has built a sustainable business model and is well positioned to maintain this positive momentum going forward.

Speaker #1: And of course, we will continue to build a foundation of our organization through capabilities that will enhance our adaptability and resilience in years to come.

Dino Bianco: Of course, we will continue to build the foundation of our organization through capabilities that will enhance our adaptability and resilience in years to come. Finally, let's turn to our outlook for Q1 2026, where we expect adjusted EBITDA to be in a similar range of Q4 2025. We'd be happy now to take your questions.

Speaker #1: Finally, let's turn to our outlook for the first quarter 2026, where we expect adjusted EBITDA to be in a similar range of Q4 2025.

Speaker #1: We'd be happy now to take your questions.

Speaker #3: Thank you, sir. Ladies and gentlemen, if you have any questions at this time, please press star followed by a one on your touchscreen phone.

Operator: Thank you, sir. Ladies and gentlemen, if you have any questions at this time, please press star followed by one on your touch-tone phone. You will then hear a prompt that your hand has been raised. Should you wish to withdraw from the polling process, please press star followed by two. If using a speakerphone, you will need to lift the handset first before pressing any keys. Please go ahead and press star one now if you have any questions. First, we will hear from Ahmed Abdullah at National Bank of Canada. Please go ahead.

Speaker #3: You will then hear a prompt that your hand has been raised. Should you wish to withdraw from the polling process, please press star followed by 2.

Speaker #3: And if using a speakerphone, you will need to lift the handset first before pressing any keys. Please go ahead and press star one now if you have any questions.

Speaker #3: First, we will affirm Ahmed Abdullah at National Bank of Canada. Please go ahead.

Speaker #4: Yeah, good morning. Thanks for taking my question. On the capex raise, does that include any preparatory spend for the TAD project?

Zachary Evershed: Yeah, good morning. Thanks for taking my question. On the CapEx raise, does that include any preparatory spend for the TAD project?

Ahmed Abdullah: Yeah, good morning. Thanks for taking my question. On the CapEx raise, does that include any preparatory spend for the TAD project?

Speaker #5: Morning, Ahmed. Yeah, it would include a small amount for the TAD project, mainly first-year expenses, which will be still fairly low for 2026. Our base capex will be anywhere from 50 to 70 million this year.

Michael Keays: Morning, Ahmed. Yeah, it would include a small amount for the TAD project. Mainly, you know, first-year expenses, which will be still fairly low for 2026. Our base CapEx will be anywhere from CAD 50 to 70 million this year. Line 11, which is a previously announced project, would be anywhere from CAD 25 to 35 million. So that leaves a very small amount that could be expected for the TAD 3 project, at least in the first year, but nothing significant.

Speaker #5: Line 11, which is a previously announced project, would be anywhere from 25 to 35 million. So that leaves a very small amount that could be expected for the TAD3 project, at least in the first year, but nothing significant.

Speaker #4: Okay. Thanks for that. And you highlighted the US as your growth engine. What are the share trends that you're seeing there? And kind of what's driving that for you?

Sean Steuart: Okay, thanks for that. You highlighted the US as your growth engine. What are the share trends that you're seeing there, and kind of what's driving that for you? Is it, you know, distribution wins, promos, or any other trends that you can highlight would be helpful?

Ahmed Abdullah: Okay, thanks for that. You highlighted the US as your growth engine. What are the share trends that you're seeing there, and kind of what's driving that for you? Is it, you know, distribution wins, promos, or any other trends that you can highlight would be helpful?

Speaker #4: Is it distribution wins, promos, or any other trends that you can highlight would be helpful?

Speaker #1: Yeah, it's Dino. Yeah, it's our growth engine because we're relatively a small player there, and we have been supporting some key customers. And those customers continue to grow.

Dino Bianco: Yeah, that's, you know, it's our growth engine because we're relatively a small player there, and we have been supporting some key customers. And those customers continue to grow, and every time we pick up new distribution, could be a new customer or new warehouses of an existing customer, it has a fairly multiplier impact on our growth rate, given our smaller base there. So we see that as, you know, a great growth opportunity with existing assets that we have. And then, of course, when the new asset comes on board in a few years, that will continue to fuel the growth and continue to serve our growing customers.

Speaker #1: And every time we pick up new distribution, it could be a new customer or a new warehouse of an existing customer. It has a fairly multiplier impact on our growth rate, given our small base there.

Speaker #1: So we see that as a great growth opportunity with existing assets that we have and then, of course, when the new asset comes on board in a few years, that will continue to fuel the growth and continue to serve our growing customers.

Speaker #4: Okay. Thanks. That's helpful. And just on volume versus price mix for the quarter, is there any comment you can give us there on any impact from price that helped you in the quarter, or is it purely we can assume 100% volume-driven?

Sean Steuart: Okay, thanks. That's helpful. And just on volume versus price mix for the quarter, is there any comment you can give us there on any impact from price that helped you in the quarter, or is it purely we can assume 100% volume driven?

Ahmed Abdullah: Okay, thanks. That's helpful. And just on volume versus price mix for the quarter, is there any comment you can give us there on any impact from price that helped you in the quarter, or is it purely we can assume 100% volume driven?

Speaker #5: Well, there would be 100% volume-driven, Ahmed, for this quarter. No specific price impact as Pulp has been fairly stable or a slight decline in the quarter.

Michael Keays: That would be 100% volume driven, Ahmed, for this quarter. No, no specific price impact, as pulp has been fairly stable or a slight decline in the quarter.

Speaker #4: Okay. I'll jump back in the queue. Thank you for me.

Sean Steuart: Okay. I'll take... I'll jump back in the queue. Thank you very much.

Ahmed Abdullah: Okay. I'll take. I'll jump back in the queue. Thank you very much.

Speaker #3: Thank you. Next question will be from Hermia Patel. At CIBC Capital Markets. Please go ahead.

Operator: Thank you. Next question will be from Amir Patel at CIBC Capital Markets. Please go ahead.

Operator: Thank you. Next question will be from Hamir Patel at CIBC Capital Markets. Please go ahead.

Hamir Patel: Hi, good morning. Dino, we're seeing pulp list prices heading higher here in 2026. Are you considering additional consumer tissue price hikes or desheeting in either Canada or the US?

Speaker #6: Hi. Good morning. Dino, we're seeing Pulp list prices heading higher here in 2026. Are you considering additional consumer tissue price hikes or decheating in either Canada or the US?

Speaker #1: Yeah, Amir, good morning. One thing we built over the last few years is a very robust pricing model. For our businesses, both on the branded well, branded away-from-home and our private label supply, we always look at a bundle of inputs, not just Pulp.

Dino Bianco: Yeah, Amir, good morning. You know, one thing we've built over the last few years is a very robust pricing model for our businesses, both on the branded... Well, branded away from home and our private label supply. We always look at a bundle of inputs, not just pulp. We look at obviously energy, labor, freight, labor, and other inflation. And we use that to determine whether we should go up, when we should go up, or whether we should go down. So we'll just let it go through that model. I can't... You know, pulp predictions are just that, they're forecasts. We'll watch the market and be ready to react accordingly if and when it does go up according to our pricing model.

Speaker #1: We look at, obviously, energy, labor, freight labor, other inflation. And we use that to determine whether we should go up, when we should go up, or whether we should go down.

Speaker #1: So, we'll just let it go through that model. I can't—pulp predictions are just that; they're forecasts. We'll watch the market and be ready to react accordingly if and when it does go up according to our pricing model.

Speaker #6: Okay. Fair enough. And Dino, when we look at list prices for North America, how should we think about actual realized costs? Because I know the historically, we see the sort of discount-off list increase every year.

Hamir Patel: Okay, fair enough. And Dino, when we look at list prices for North America, how should we think about actual realized costs? Because I know historically, we see list, the sort of discount off list increase every year. So what was that sort of discount factor for 2026 for the industry?

Speaker #6: So, what was that sort of discount factor for 2026 for the industry?

Speaker #1: Yeah, I don't know if I caught you. As you said, it's a big number, and it seems to grow a couple of percentage points each year.

Dino Bianco: Yeah, I don't know if I quote you. As you said, it's a big number, and it seems to grow a couple of percentage points each year. I don't know if I could quote to you what it is this year relative to last year. It's probably in... I'll give you a wide range. It's probably in the 40 to 60 range, and then, you know, as a discount, there, there is a wide range there. I mean, we focus on... Honestly, we focus on our landed cost, you know, which moves in directionally with the list, but we just focus on what is our landed cost of pulp. And we believe that to be common to market, and we will then use that as our input to determine any pricing action we need to take.

Dino Bianco: Yeah, I don't know if I quote you. As you said, it's a big number, and it seems to grow a couple of percentage points each year. I don't know if I could quote to you what it is this year relative to last year. It's probably I'll give you a wide range. It's probably in the 40-60 range, and then, you know, as a discount, there, there is a wide range there. I mean, we focus on honestly, we focus on our landed cost, you know, which moves in directionally with the list, but we just focus on what is our landed cost of pulp. And we believe that to be common to market, and we will then use that as our input to determine any pricing action we need to take.

Speaker #1: I don't know if I could quote to you what it is this year relative to last year. It's probably I'll give you a wide range.

Speaker #1: It's probably in the 40 to 60 range. And as a discount, there is a wide range there. I mean, we focus on, honestly, we focus on our landed cost, which moves in directionally with the list, but we just focus on what is our landed cost of Pulp.

Speaker #1: And we believe that to be common to market. And we will then use that as our input to determine any pricing action we need to take.

Speaker #6: Okay. Fair enough. And just a last question I had here on the away-from-home side. It looks like margins there have been over 10% for the last three quarters in a row.

Hamir Patel: Okay, fair enough. And just a last question I had here. On the away-from-home side, it looks like margins, they've been over 10% for the last 3 quarters in a row. Should we think of that as kind of a consistently double-digit margin business going forward?

Speaker #6: Should we think of that as kind of a consistently double-digit margin business going forward?

Speaker #1: Yeah. Look, you asked me this question about five years ago, I think. I said I think we can get to 10%. And we have.

Dino Bianco: Yeah, look, you asked me this question about five years ago, I think. I said, "I think we can get to 10%," and we have. And, you know, I'd also say it's a sustainable business model. It isn't just a one-off, we got lucky. So I really believe it's, you know, this is the model that we run. The team has done a great job. Certainly, insourcing papers help, but we've got better OEs on our operations. We've got a stronger pricing model. We've got a better mix of premium products, a really robust growth in the United States. So a lot of things going well in that business, which I believe, you know, will it be 10% every quarter? I don't know.

Speaker #1: And I also say it's a sustainable business model. It isn't just a one-off. We got lucky. So I really believe this is the model that we run.

Speaker #1: The team's done a great job. Certainly, insourcing papers help, but we've got better OEEs on our operations. We've got a stronger pricing model. We've got a better mix of premium products, a really robust growth in the United States.

Speaker #1: So, a lot of things are going well in that business. Will it be 10% every quarter? I don't know. There's still volatility in the business, but I think, long-term, this is a business that should be in the low double digits.

Dino Bianco: There's still volatility in the business, but I think long term, this is a business that should be in the low double digits.

Speaker #6: Okay. Great. Thanks, Dino. That's all I had. I'll turn it over.

Hamir Patel: Okay. Great. Thanks, Dino. That's all I had. I'll turn it over.

Speaker #1: Thank you, Amir.

Dino Bianco: Thank you, Amir.

Speaker #3: Next question will be from Sean Stewart at TD Cowen. Please go ahead.

Operator: Next question will be from Sean Stewart at TD Cowen. Please go ahead.

Speaker #7: Thanks. Good morning, everyone. Dino, a couple of questions on the TAD project coming. I guess we're going to get details in the coming months.

Sean Steuart: Thanks. Good morning, everyone.

Dino Bianco: Hi.

Sean Steuart: Dino, a couple questions on the TAD project coming. I guess we're gonna get details in the coming months, but what are the remaining hurdles, milestones that need to be addressed before you make the final decision, whether it's site location or project scope? Maybe we'll start there.

Sean Steuart: Dino, a couple questions on the TAD project coming. I guess we're going to get details in the coming months, but what are the remaining hurdles, milestones that need to be addressed before you make the final decision, whether it's site location or project scope? Maybe we'll start there.

Speaker #7: But what are the remaining hurdles, milestones that need to be addressed before you make the final decision, whether it's site location or project scope?

Speaker #7: Maybe we'll start there.

Speaker #1: Yeah, it's a great question, Sean. And it's exactly the right question because it is really activity-based that will determine when we make the decision versus time.

Dino Bianco: Yeah, it's a great question, Sean, and it's exactly the right question because it is really activity-based, that will determine when we make the decision versus time. But we're assuming those activities will be concluded in time for us to make an announcement, you know, in the first half. So really, the big three are working, and we've been working tirelessly with a couple of communities, but one in particular, around solidifying any incentives, operational plan, you know, labor stats, et cetera. So we've been working through that. We hope to get that finalized in the coming weeks. There's, you know, the community is very anxious, and so are we, to get that resolved. The second area is making sure we've got all our permitting in place.

Speaker #1: But we're assuming those activities will be concluded in time for us to make an announcement in the first half. So really, the big three are working, and we've been working tirelessly with a couple of communities, but one in particular around solidifying any incentives, operational plan, labor stats, etc.

Speaker #1: So, we've been working through that. We hope to get that finalized in the coming weeks. The community is very anxious, and so are we, to get that resolved.

Speaker #1: The second area is making sure we've got all our permitting in place. Construction permits, air permits, etc. So we're well ahead on that. And then the big one is making sure that we've got our project financing secured, which we are working actively with our lenders on that.

Dino Bianco: You know, construction permits, air permits, et cetera. So we're well ahead on that. And then the big one is making sure that we've got our project financing secured, which we are working actively with our lenders on that. So I believe the conclusion of those three things will happen over the next month to two months, and we should be in a position to make an announcement, as I said, in the first half.

Speaker #1: So I believe the conclusion of those three things will happen over the next month to two months, and we should be in a position to make an announcement, as I said, in the first half.

Kasia Kopytek: Okay, thanks, Dino, for that. And then following on that, Michael, you guys have been comfortable taking leverage ratios higher through previous big CapEx initiatives. Can you speak to any thresholds you're managing around for this project, as you speak with your lenders on this project going forward?

Speaker #7: Okay, thanks, Dino, for that. And then, following on that—Michael, you guys have been comfortable taking leverage ratios higher through previous big CapEx initiatives.

Speaker #7: Can you speak to any thresholds you're managing around for this project as you speak with your lending lenders on this project going forward?

Speaker #5: Yeah. Sean, obviously, we wouldn't get back to a situation where we were in 2021, 2022 with this project. And our balance sheet is a much stronger position today than it was also at the beginning of our last few projects, whether it's the first TAD in Sherbrooke or the Sherbrooke expansion.

Michael Keays: Yeah, Sean, obviously, we wouldn't get back to a situation where we were, like, in 2021, 2022, with this project. And our balance sheet is in much stronger position today than it was also at the beginning of our last few projects, whether it's the first TAD in Sherbrooke or the Sherbrooke expansion. So, the leverage ratio could get back above 4 during a short period of time, but we would expect to be able to maintain an acceptable ratio of between 4 and 5, so during that construction period, if not below. So, I think we'll take a prudent approach here, based on what we know today and our experience over the last few years, to be able to get this project across the finish line.

Speaker #5: So the leverage ratio could get back above 4 during a short period of time, but we would expect to be able to maintain and acceptable ratio of between the 4 and 5 during that construction period, if not below.

Speaker #5: So I think we'll take a prudent approach here based on what we know today and our experience of the last few years, to be able to get this project across the finish line.

Speaker #7: That's great. Okay. That's all I have for now. Thanks very much.

Kasia Kopytek: That's great. Okay, that's all I have for now. Thanks very much.

Speaker #1: Thank you.

Dino Bianco: Thank you.

Speaker #3: Ladies and gentlemen, a reminder to please press star one on your telephone keypad should you have any questions. Thank you. Next, we will hear from Frédéric Tremblay at Desjardins.

Operator: Ladies and gentlemen, a reminder to please press star one on your telephone keypad should you have any questions. Thank you. Next, we will hear from Frederic Tremblay at Desjardins. Please go ahead.

Speaker #3: Please go ahead.

Speaker #7: Thanks. Good morning.

Frédéric Tremblay: Thanks. Good morning.

Speaker #1: Good morning.

Dino Bianco: Morning.

Frédéric Tremblay: Just a question on insourcing and insourcing paper in AFH. Do you feel like there's more to do there, or have you reached the maximum quantity that you can get internally for that? Do you feel like, you know, we've seen the full margin benefit from paper insourcing in AFH?

Speaker #7: It's a question on insourcing and insourcing paper and AFH. Do you feel like there's more to do there, or have you reached the maximum quantity that you can get internally for that?

Speaker #7: Do you feel like we've seen the full margin benefit from paper insourcing in AFH?

Speaker #1: Yeah. I think we'll be stable for a period of time. Depends how fast we grow. Before the new paper machine comes on board with the TAD project, because even though that won't necessarily be AFH, it'll reset the network again.

Dino Bianco: Yeah, I think we'll be stable for a period of time. It depends how fast we grow before, you know, the new paper machine comes on board with the TAD project. Because even though that won't necessarily be AFH, it'll reset the network again. I think we're gonna be okay. There may be, there may be times when we might have to buy on the market, but nowhere near, you know, being a structural part of that business like it was of the last few years. It'll be more tactical as we need paper or unique types of paper. So I don't see it as being a major thing, but I still see us needing to buy paper on the market in certain quantities when needed.

Dino Bianco: Yeah, I think we'll be stable for a period of time. It depends how fast we grow before, you know, the new paper machine comes on board with the TAD project. Because even though that won't necessarily be AFH, it'll reset the network again. I think we're going to be okay. There may be, there may be times when we might have to buy on the market, but nowhere near, you know, being a structural part of that business like it was of the last few years. It'll be more tactical as we need paper or unique types of paper. So I don't see it as being a major thing, but I still see us needing to buy paper on the market in certain quantities when needed.

Speaker #1: I think we're going to be okay. There may be times that we might have to buy on the market, but nowhere near being a structural part of that business like it was of the last few years.

Speaker #1: It'll be more tactical as we need paper or unique types of paper. So I don't see it as being a major thing, but I still see us needing to buy paper on the market in certain quantities when needed.

Speaker #7: Okay. And switching to the new call supporting growth of existing customers and targeting new customers as well. Do you have a bit of color on your expectations for customer mix on this new facility?

Frédéric Tremblay: Okay, and switching to the new US facility, you mentioned earlier on the call, you know, supporting growth of existing customers and targeting new customers as well. Do you have a bit of color on your expectations for customer mix on this new facility? Is it mainly gonna support your current client base, or are you targeting an expansion of the customer base with that facility?

Frédéric Tremblay: Okay, and switching to the new US facility, you mentioned earlier on the call, you know, supporting growth of existing customers and targeting new customers as well. Do you have a bit of color on your expectations for customer mix on this new facility? Is it mainly going to support your current client base, or are you targeting an expansion of the customer base with that facility?

Speaker #7: Is it mainly going to support your current client base, or are you targeting an expansion of the customer base with that facility?

Speaker #1: Yeah, I mean, that's a great question. We represent customers either in whole or in part that are over 70% of the ACV of customers in the United States.

Dino Bianco: Yeah, I mean, that's a great question. We represent customers, either in whole or in part, that are over 70% of the ACV of customers in the United States. So there are some customers we're not in, but we think we have a wide enough base. And given the fact that this facility will be in the Western United States, I think it gives us a great opportunity to service the western divisions and warehouses of those existing customers, who are also growing significantly in the west. So it lines us up quite well with existing customers and their growth and maybe an underserved area being their Western US business. So may there be new customers? I think at the, you know, on the margin, yes.

Speaker #1: So there are some customers we’re not in, but we think we have a widened-up base. And given the fact that this facility will be in the western United States, I think it gives us a great opportunity to service the western divisions and warehouses of those existing customers who are also growing significantly in the West.

Speaker #1: So it lines us up quite well with existing customers and their growth and maybe an underserved area being their western US business. So may there be new customers?

Speaker #1: I think, on the margin, yes, but the way we built our model, we will be able to satisfy the output of that facility with our existing customers and the growth from those existing customers.

Dino Bianco: The way we built our model, we will be able to satisfy the output of that facility with our existing customers and the growth from those existing customers.

Speaker #7: Great. That's all I had. Thank you.

Frédéric Tremblay: Great. That's all I had. Thank you.

Speaker #3: Thank you. And at this time, we have no other questions registered, so I would like to turn the call back over to Dino Bianco.

Operator: Thank you. At this time, we have no other questions registered, so I would like to turn the call back over to Dino Bianco.

Speaker #1: Thank you. Before I conclude, as 2025 has come to a successful end for conclusion for our business, I really want to thank our 3,000 employees across North America for the amazing work that they are doing to drive these results and set up our company for continued success.

Dino Bianco: Thank you. Before I conclude, you know, as 2025 has come to a successful and for conclusion for our business, you know, I really want to thank our 3,000 employees across North America for the amazing work that they are doing to drive these results and set up our company for continued success. As I said on the call, it, you know, we had certainly had strong financials, but also strong safety, strong share growth, capability building operational performance. There's lots going on in the business, all moving in the right direction. And as important as it is in delivering our current results, we're setting ourselves up for future success. So I'm so proud of everything we have accomplished. On that note, I also want to thank all of you on the call today.

Speaker #1: As I've said on the call, we certainly had strong financials, but also strong safety, strong share growth, capability, building, operational performance, there's lots going on in the business all moving in the right direction.

Speaker #1: And it's important as it is in delivering our current results, we're setting ourselves up for future success. So I'm so proud of everything we have accomplished.

Speaker #1: On that note, I also want to thank all of you on the call today. We look forward to speaking with you again following the release of our first quarter results for 2026.

Dino Bianco: We look forward to speaking with you again following the release of our first quarter results, for 2026. So thank you. Have an amazing day. Thanks.

Speaker #1: So thank you and have an amazing day. Thanks.

Speaker #7: Thank you.

Michael Keays: Thank you.

Speaker #3: Thank you, sir. Ladies and gentlemen, this does be conclude your conference call for today. Once again, thank you for attending. And at this time, we do ask that you please disconnect your lines.

Operator: Thank you, sir. Ladies and gentlemen, this does conclude your conference call for today. Once again, thank you for attending. At this time, we do ask that you please disconnect your lines. Enjoy the rest of your day.

Q4 2025 KP Tissue Inc Earnings Call

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