Mercer International, Inc. Q3 FY2024 earnings call

Financial Highlights - Q3 operating EBITDA totaled $50 million vs Q2's $30 million, driven by fewer planned major maintenance downtime but offset by unplanned events, FX movements, and weaker hardwood prices. - Pulp segment EBITDA $55M, Solid Wood segment -$2M. - Softwood pulp sales realizations $814 per ton in Q3 vs $811 in Q2; North American NBSK list price up $65 to $1,762 per ton. Hardwood prices in China down due to new capacity, Q3 sales realizations $632 per ton, down $69 from Q2. ### Operational - Torgo synergies: ~$5M realized in Q3, expect $8M by year end. Restarted Torgo lumber expansion and Spokane sorting line projects. - Pulp markets: Softwood demand steady, expect upward pricing pressure late Q4/early Q1 2025; hardwood pricing at floor with supply-demand tightness. - Unplanned downtime: 12 days in Q4 at Peace River Mill; lessons learned from incidents to avoid repetition. - Solid Wood: Mass timber order file $33M, strong Q3 results, but lumber/pallet prices weak. Pallets weak in Europe, but heating pallets up in Q4. - Fiber costs: Flat for pulp, slight increase in solid wood in Q4; pulp fiber costs stable, solid wood slight increase. - Lignin pilot plant: Ramp-up proceeding as planned.

The pulp segment contributed quarterly EBITDA of $55 million. The Solid Wood segment had quarterly EBITDA of negative $2 million. Pulp sales volumes in the third quarter were 449,000 tons, with roughly 85% being softwood pulp. Total production volume in Q3 was 416,000 tons, down slightly from Q2. For the solid wood segment, realized lumber prices decreased slightly, with lower prices in the U.S. market mostly offset by higher prices in Europe. Lumber production in Q3 was 122 million board feet, up 10% from Q2, while lumber sales volumes were 109 million board feet, down 7% from Q2.

• Pulp: Softwood demand expected to remain steady midterm, creating upward pricing pressure late Q4/early Q1 2025; hardwood pricing at floor with supply-demand tightness driving price difference vs softwood. - Solid Wood: Q4 lumber pricing expected to moderately improve in U.S. and European markets due to stronger demand and reduced supply; mass timber order file $33M with growth potential. - CapEx: 2025 CapEx expected similar to 2024 range ($95-$120M), prioritize maintenance/safety; Celgar to take 17-day shut in Q1 2025 for wood room project tie-ins.

• Unplanned downtime at mills negatively impacting production and EBITDA. - Foreign exchange movements affecting operating income. - Weak hardwood prices and economic conditions impacting lumber/pallet demand. - Potential trade tariffs from U.S. election affecting lumber shipments. - Port strike in BC posing disruption risk, but contingency plans in place.

Q: Richard Short asked about broader deleveraging targets and non-core asset sales given modest free cash flow prospects.

A: Juan Carlos Bueno stated focus on debt reduction, expecting improved EBITDA next year, Sentinel sale in progress.

Q: Sean Stewart asked about U.S. election impact on tariffs and strategy for European lumber shipments.

A: Juan Carlos Bueno said they monitor tariffs, shift lumber volumes to Europe, expect interest rate drop to boost demand.

Q: Matthew McKellar asked about mass timber competition and rate relief needed.

A: Juan Carlos Bueno said mass timber market growing 20%+ annually, order book $33M, waiting for rate relief to boost projects.

Q: Cole Hathorn asked about European lumber market strength and fiber costs.

A: Juan Carlos Bueno said UK lumber demand up, fiber costs flat in Canada/Germany with different dynamics.

Q: CJ Baldoni asked about BC port strike implications.

A: Juan Carlos Bueno said prepared with contingency plans for alternative logistics.