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Operator: Good morning, and welcome to KP Tissue's Fourth Quarter 2025 Results Conference Call. Note that today's call is being recorded for replay. [Operator Instructions]. I will now turn the call over to Doris Grbic, Director of Investor Relations. You may begin your conference.
Doris Grbic: 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 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 and MD&A will also be posted on our website and on SEDAR. 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?
Dino Bianco: 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 in 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 U.S., which is our growth engine for future years. 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. In addition, expanded in-sourcing a 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 U.S. sales rose 2.2% year-over-year. It should be noted that our U.S. segment was facing a high comparable with revenue up almost 20% in Q4 last year. 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. 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 3 consecutive years of profitable growth, we head into 2026 a 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. 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 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 the fourth quarter, 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. 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 projects 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 are 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, SpongeTowels, 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. We are pleased with the exposure our Cashmere brand received from this televised event. Also during the fourth quarter, we also initiated a Scott for Scotties activation with Toronto Raptors Star, Scotty Barnes. The campaign featured a playful stunt on social media, which the NBA basketball star changes named 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 solution. In addition, we recently unveiled the sixth edition of the Kruger Big Assist program, which has made hockey more accessible to Canadian families through $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. The ad recognizes and celebrates the dedication and sacrifice of minor hockey parents across the country. Also airing during the CBC's broadcast is Kruger BigAssist content series, which shines a light on 12 Canadian hockey icons, both men and women, representing Team Canada at the Winter Olympics. And finally, we expanded support on Scotties seasonal cubes in the fourth quarter with the release of the Toronto Maple ease, Montreal Canadian and holiday Qube formats. Let's turn to Slide 11, where the data presented is taken for 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. 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. And likewise, we grew share by 130 basis points on the paper towel category, raising our total to 25.3%. This was driven by our Maiden 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 over year in the fourth quarter on higher volume, but decreased sequentially due to seasonality. Similarly, profitability improved compared to the fourth quarter last year, highlighted by a healthy 11% adjusted EBITDA margin but declined from the previous quarter. As mentioned earlier, the network in-sourcing of paper contributed AFH's greater profitability on a year-over-year basis in the fourth quarter. Also the launch of Cashmere, Scotties and Titan 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.
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 $84.2 million on sales of $560.1 million in the quarter, representing a strong year-over-year adjusted EBITDA growth of 26%. 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. These items were partially offset by increased income from noncontrolling interest of $4.7 million, higher income tax expense of $3.8 million as well as higher interest and other finance costs of $1.6 million. In our quarterly segmented view on Slide 14, revenue from our 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 U.S. In our Away-from-Home segment, revenue improved 1% year-over-year to $87.8 million. This increase was also due to slightly higher sales volume in both Canada and U.S. 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 2 points over the same period last year. 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. The margin more than doubled year-over-year to 11%, partially driven by the expected benefit of in-sourcing our paper supply post Sherbrooke extension, as Dino mentioned, and sequentially, the AFH adjusted EBITDA decreased $0.7 million from Q3 2025. 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. On a geographic basis, revenue in Canada grew $15 million or 5.1% year-over-year, while the U.S. 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. 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 costs. 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 $1 million sequentially or 0.2%, primarily due to lower U.S. sales volume. Geographically, revenue in Canada increased by $5 million or 1.7% while the U.S. revenue declined by $6 million or 2.3%. It's worth noting that Q3 is historically our strongest volume quarter, making the decrease in U.S. sale largely a timing effect this quarter. 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 warehousing costs, increased marketing expenses, greater manufacturing overhead costs and lower U.S. sales volume. 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. 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 $1.741 billion, a decrease of $9.4 million sequentially, reducing the net debt by $55.7 million. Our leverage ratio also declined to 3.1x compared to 3.4x in Q3 2025, demonstrating further a commitment to strengthening our balance sheet. To conclude my section, we will review capital expenditures on Slide 20. 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 million 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.
Dino Bianco: Thank you, Michael. Please turn to Slide 22 for my closing comments, which reflects sustained momentum from the last 3 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 U.S. 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. 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. And 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 the first quarter 2026, where we expect adjusted EBITDA to be in a similar range of Q4 2025. We'd be happy now to take your questions.
Operator: [Operator Instructions]. First, we will hear from Ahmed Abdullah at National Bank of Canada.
Ahmed Abdullah: On the CapEx raise, does that include any preparatory spend for the TAD project?
Michael Keays: Good morning, Ahmed. Yes, 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 million to $70 million this year. Line 11, which is the previously announced project would be anywhere from $25 million 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.
Ahmed Abdullah: Okay. And you highlighted the U.S. 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 distribution wins, promos, or any other trends that you can highlight would be helpful.
Dino Bianco: Yes, it's Dino. Yes, 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 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.
Ahmed Abdullah: Okay. That's helpful. And just on volume versus price mix for the quarter. Is there any comments 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?
Michael Keays: 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.
Operator: Next question will be from Hamir Patel at CIBC Capital Markets.
Hamir Patel: We're seeing pulp list prices heading higher here in 2026. Are you considering additional consumer tissue price hikes or de-sheeting in either Canada or the U.S.?
Dino Bianco: Yes, Hamir. Good morning. 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 -- 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 pulp predictions are just at their forecast. We'll watch the market and be ready to react accordingly if and when it does go up according to our pricing model.
Hamir Patel: Fair enough. And when we look at it prices for North America, how should we think about actual realized costs. Because I know that 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?
Dino Bianco: Yes. I don't know if I quote to 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 can quote to you what it is this year relative to last year probably I'll give you a wide range. It's probably in the 40% to 60% range. And then you have a discount. There is a wide range there. I mean we focus on -- honestly, we focus on our landed cost which moves 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.
Hamir Patel: Okay. That's fair enough. And just 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?
Dino Bianco: Yes. Look, you asked me this question about 5 years ago. I think I said, I think we can get to 10%. And we have. And I'd 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. The team has done a great job. Certainly, in-sourcing papers helped, 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 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.
Operator: Next question will be from Sean Steuart at TD Cowen.
Sean Steuart: A couple of 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.
Dino Bianco: Yes, 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 in the first half. So really, the big 3 are working -- and we've been working tirelessly with a couple of communities, but one in particular, around solidifying the and incentives, operational plan, labor stats, et cetera. 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. The second area is making sure we've got all our permitting in place, 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 2 months, and we should be in a position to make an announcement, as I said, in the first half.
Sean Steuart: 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 threshold you're managing around for this project as you speak with your lending -- your lenders on this project going forward?
Michael Keays: Yes, 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 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. 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 then our experience over the last few years to be able to get this project across the finish line.
Operator: [Operator Instructions]. Next, we will hear from Frederic Tremblay at Desjardins.
Frederic Tremblay: Question on in-sourcing paper in AFH. Have 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 that we've seen the full margin benefit from paper in-sourcing in AFH?
Dino Bianco: Yes. I think it will be stable for a period of time. It depends on the use, we grow before the new paper machine comes on board with the TAD project. Because even though that won't necessarily be AFH, it will reset the network again. 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 last year. It will 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 in the market in certain quantities when needed.
Frederic Tremblay: Okay. And then switching to the new U.S. facility. You mentioned earlier on the 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? Is it mainly going to support your current client base? Or are you targeting an expansion of the customer base with that facility?
Dino Bianco: Yes. I mean that's a great question. We represent customers either in whole or part that 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 the Western U.S. business. So may there be new customers, I think at the -- 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.
Operator: 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.
Dino Bianco: Thank you. Before I conclude, as 2025 has come to a successful end for a 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. As I 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. 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. 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. Thank you.
Michael Keays: Thank you.
Operator: Thank you, sir. Ladies and gentlemen, this does 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.