Good morning, ladies and gentlemen, and welcome to GreenFirst's third quarter of 2025 results conference call. Please note that all lines are muted to prevent any background noise. During this conference call, GreenFirst representatives will be making certain statements about future financial and operational performance, business outlook, and capital plans. These statements may contain forward-looking information or forward-looking statements within the meaning of Canadian securities law. Such statements involve certain risks, uncertainties, and assumptions which may cause GreenFirst's actual or future results and performance to be materially different from those expressed or implied in these statements. Additional information about these risks, factors, and assumptions is included in GreenFirst's MD&A and annual AIF, which can be accessed on the company website or through SEDAR Plus. After the speaker's remarks, there will be a question-and-answer session. Please submit your questions through the online portal. I will now pass it over to Joel Fournier to begin the management presentation.
Thank you very much, Joanne, and good morning, everyone, and welcome to our Q3 2025 earnings call. I'm Joel Fournier, the Chief Executive Officer of GreenFirst. Today, I'm joined by Peter Ferrante, our CFO, and Michel Lessard, our President. We ended up the quarter with a negative EBITDA of $47.2 million. However, the loss is mainly due to selected adjustments. First, we had a $33.8 million duty adjustment related to an underpayment from AR6 for duty paid in 2023. The second item is we recorded an NRV provision of $8.2 million as market dropped sharply from $508 per thousand for a foot in July, right down to $420 by the end of September. The third item is we had to take a downtime at our Shapiro mill to install the new saw line, and this impacted the results by $4.6 million.
Without those three adjustments, GreenFirst would have been close to break-even EBITDA for the quarter. I just want to mention that the Shapiro downtime is now behind us, and we're commissioning, and we're going through the commissioning of the new line right now. We expect to see the full benefit the first quarter of 2026. All those adjustments mentioned affected our cost of goods sold negatively as well. That said, excluding the NRV and the downtime impact we had during the quarter to install mainly the line at Shapiro, our cost per unit would have been better than the previous quarter. On a positive note, SG&A remained on target at $32 per thousand board feet in Q3, which is below both last year and our year-to-date average.
Another factor that affected us in the quarter was the increase in the duty rate in mid-August, which went up to 35.16% for all export through the United States. The increase in duty, along with the uncertainty around potential new tariffs during the quarter, created some hesitation with our customers. As a result, our sales volume declined to 93 million board feet compared to 109 million in Q2. This lower sales volume also reflects a reduction in production, as Q2, as some people recall, was a record quarter for output, while Q3 was impacted by the installation of the new saw line at Shapiro. As of Q3, we have not paid any new tariff. However, for Q4, we are now subject to a 10% tariff on U.S. export from Canada.
This follows Section 232 from the United States Administration, which resulted in the 10% tariff, a measure that is currently being challenged in court. Finally, from the recently announced federal government support as it related to Canadian company impacted by both duty and tariff, GreenFirst is exploring how this new program will help our business going forward. I would like to give to people some highlights: Q3 2025 versus Q2 2025. From a sales volume perspective, like we already mentioned, we ended up at 93 million versus 109 compared to Q2, and it was impacted by market uncertainty and lower production due to the installation of the line at Shapiro. From a production perspective, we were lower. We finished the quarter with 90 million MFBM versus Q2 at 116. The main reason for the lower production is what I said.
It's because we installed a new saw line at Shapiro, and we had to take some downtime to do the installation. In addition to that, we did have also small downtime at Hearst and caps casing maintenance-related. Due to market uncertainty, we could not have had a better timing to install the new saw line at Shapiro. If people recall, we mentioned that we wanted to do capital expenditure off-cycle, so we did not have a better time to install the line at Shapiro this quarter because the market was not good. On the quality side, we continue to see improvement in our wood quality versus 2024, as our product mix keeps improving. NRV, we did increase significantly from Q2 to Q3. Q2, we had a provision of $400,000 in Q2, and in Q3, this went up to $8.2 million.
SG&A, as already mentioned, we continue to be better than our announced $40 per thousand target last year, and we ended up the quarter with $2.9 million in SG&A expense. In terms of cash position, at the end of the quarter, our excess liquidity improved from $22 million from last year, Q3, to $27 million this year. The company continues to manage the cash tightly. I would like to discuss a little bit—I mentioned the line at Shapiro a couple of times. I would like to discuss a little bit about our capital expenditure and continuous improvement plan. The previously announced $50 million for phase I capital invested program aimed to improve company cost structure. GreenFirst is proceeding only with selected strategic projects. As communicated in Q1 and Q2 this year, the main focus has been the installation of the new saw line at Shapiro.
While the downtime of the mill impacted Q3 results to install the line, it was necessary to complete the installation at the optimal time when market conditions were low. It's not good to install a new saw line when the market is very good because it will increase your loss. In addition, we installed a new planer mill and completed a major upgrade to the boiler and cogeneration plant at Shapiro Sawmill. These projects are now in the ramp-up phase, and we are already showing promising results in terms of revenue and cost improvement so far. Subsequent to quarter end, starting mid-October, the Shapiro line started up, and we are making steady progress each week. In the most recent Sunday shift last week, we processed 2,000 logs in a single shift, which is in line with the ramp-up target.
The cogent and the boiler modification had already seen an increase in drying capacity by around 10%, and the new planer mill is incrementally increasing production every single week. We expect the saw line to be fully commissioned by the end of December, and we will be ready when the market turns around. Overall, we have committed to invest approximately $28 million at the Shapiro site to improve the site. These projects are expected to improve mill profitability with a payback period of under three years. Once completed, the mill will be well on its way to become a top quartile operation. We are planning to organize an investor tour in Q2 2026 with a focus on seeing the new saw line in Shapiro in operation. We will share more details to the exact date very shortly.
We will continue to focus on factors within our control and pursue opportunities to improve the business by focusing on continuous improvement. I would like to talk a little bit about market. Q3 market was a challenging quarter. Some customers, because of all the uncertainty, adopted a very cautious approach in response to the recent duty increase and the uncertainty around U.S. tariffs during the quarter, which are now in effect in Q4 this year. Our sales volume, as already mentioned, was 93.3 million MFBM, a decrease of 17 million compared to the previous quarter. The lower sales volume was mainly due to broader market headwinds and downtime at the Shapiro mill that translated into lower production or less finished goods available to sell. While housing starts fell below expectations, we continue to see strong pull-through for lumber from our key home-centered customers.
In August, total housing starts in Canada reached 1.3 million units, down 8.5% from July and 6% from August last year. Recent interest rate reductions are encouraging, but they did not materially impact Q3. On the capacity side, several curtailment announcements were made during Q3, mostly taking effect into Q4 this year. Around 50 sawmills will be impacted, removing approximately 400 million-500 million MFBM from the North American market. With this announcement, we anticipate a positive movement in terms of sales volume. This is a significant drop in capacity in North America. Pricing conditions were challenging as well, with Western Bay's price falling from $508 per thousand at the start of the quarter down to $420 at the end of September. Despite all those challenges, there remains a major underbilled situation in both the U.S. and Canada.
As announced in the previous quarter, the Canadian federal government has introduced measures to increase housing starts to 500,000 units per year, which should support lumber demand going forward. GreenFirst is well-positioned to capitalize on these initiatives from the government. For Q4, however, we remain cautious in our forecast, anticipating only modest price increases driven by recently announced competitor curtailment. In the short term, we expect demand to remain relatively flat, while capacity decrease should help balance the market a little bit. On a positive note, we had development shortly after quarter end in October regarding the government's support for Kap Paper. In addition to this announcement, we received interest from other chip customers to increase the volume. So those two news really helped the residue situation. Finally, I would like to say that GreenFirst will remain committed to continuous improvements as a core strategy to enhance business performance.
At the same time, we will maintain a prudent and disciplined approach to cash management to ensure the company is well-positioned to navigate potential economic headwinds and emerging market challenges. I will pass over to you, Peter, for the financial section. Thank you.
Thank you, Joel, and good morning to everyone. Please refer to our cautionary language regarding forward-looking information in our Q3 2025 management discussion and analysis. The company reported a net loss of $57.4 million in the third quarter of 2025, with an Adjusted EBITDA of - $47.2 million on total revenues of $70.2 million, excluding the $39.6 million adjustment resulting from the finalization of duty rates in relation to 2023 duties paid, which includes both a $33.8 million in duty liability and a $5.9 million in related interest. Net loss would have been $17.7 million, and Adjusted EBITDA would have been - $13.4 million.
For the three quarters ended September 27th, 2025, reported a loss for the third quarter, a loss of $66.1 million, along with an Adjusted EBITDA of - $47.3 million on total revenues of $226.6 million. Net loss and Adjusted EBITDA both impacted negatively by the finalization of duty rates in relation to 2023 duties paid, as was just explained. Revenue decreased by 17% quarter- over- quarter compared to Q2 2025, driven by a decrease in shipments of approximately 17 million board feet, or 15%, resulting from a volatile lumber market experiencing macroeconomic headwinds such as elevated interest rates, labor shortages, and geopolitical uncertainty. In addition, revenues were negatively impacted by a price decrease of $17 per million board feet, or 2%, reflecting a drop in benchmark prices in the back half of Q3 2025.
Year-to-year volatility is likely to continue with higher duty rates on Canadian lumber to the US, along with Section 232 tariffs totaling 45%. Sales of chips and other by-products dropped by $1.1 million- $5.3 million versus $6.5 million in Q2 of 2025. This was due to lower volume of sales and a drop in average selling price. For the third quarter ended September 27th, 2025, the company reported cost of sales of $75.6 million compared to $80.1 million for the second quarter ended June 28th, 2025, a decrease of approximately $5 million, or 6%. This decrease in cost of sales was primarily driven by a 15% decrease in shipment volumes, offset by the downtime of the installation of the Shapiro large log line and selected other downtimes and curtailments.
Additionally, in the current period, the company recorded a provision for the net realizable value of inventory of approximately $8.2 million related to decreases in benchmark prices. Lumber production for the third quarter of 2025 was 91 million board feet compared to 160 million board feet in the second quarter of 2025. This decrease, primarily attributable to the reductions in production experienced during the period, is in relation to the capital project installation at Shapiro, which are expected to return to normal levels in Q4 of 2025 with increased production in Q1 2026. During the third quarter of 2025, the amount of duties levied on our shipments of softwood lumber into the U.S. totaled $8.9 million, which is up $700,000 from the second quarter of 2025.
Although shipments to the U.S. were down $12.6 million during the quarter versus the prior quarter, duties paid on shipments did not decrease as much since our duties rates rose from 14%- 35% starting August 2025. In addition, during the third quarter of 2025, we recorded a $33.8 million duty liability related to the finalization of the countervailing duty and anti-dumping rates by the United States Department of Commerce following Administrative Review 6 for the 2022 duty period. Selling, general and administrative expenses for the third quarter of 2025 totaled $3 million compared to $4.6 million in the second quarter of 2025. This decrease is primarily attributable to non-cash expenses recorded during the second quarter.
The combination of these factors during the third quarter of 2025 resulted in a negative EBITDA of $47.2 million, or $13.4 million excluding the duty liability discussed previously, versus a - $5.2 million in the prior quarter. Under the amended and restated credit agreement, the company's maximum borrowing capacity under the revolving portion of the credit facility is $60 million, and the equipment financing portion is $25 million. The company has made net borrowings of $19 million on a year-to-date basis ended September 27, 2025, against the revolving portion of the credit facility. Of this $19 million, $6.5 million was drawn during this quarter. As of September 27th, 2025, there were $14.1 million of outstanding letters of credit issued, which reduces the amounts available to be drawn under the revolving credit facility. As such, approximately $27 million was still available to be drawn.
Additionally, the company had a net aggregate amount of $11.6 million drawn under the equipment financing portion of the credit facility in the form of a term loan, and an additional $13.4 million was available to be drawn. As a company, we continue to manage our liquidity through the volatile lumber markets and harvesting season, which requires significant investments in raw materials. We do this prudently by maintaining tight inventory management at the mill level, supplemented by drawdowns against our asset-based lending facility to cover seasonal expenses. Our lending facility, which was amended and extended through September 2028, is secured by borrowings against our inventory and receivables. As a result of higher levels of inventory, those help support our credit facility during the harvesting season. This concludes my remarks, and I will pass it over to Joel.
Thank you very much, Peter. I want to thank everyone for joining the call. We will now answer any questions that have come through. Thank you.
Thank you. Ladies and gentlemen, as a reminder, should you have any questions, you may submit your question using the Q&A pod through your online portal.
Hello, this is Joel here. We have one question. Could you share the company perspective on the recently announced increase in duty and additional tariffs? I will let Michel Lessard, our President, answer that question.
Thanks, Joel. You know, for sure, it's not good news to have a 10% tariff in addition to the 35.16% duties that we're already paying and that you mentioned also previously. Also, the other thing is we don't know yet what will happen with the other 10% that has been announced by President Trump in reaction to the publicity made by the province of Ontario.
On that, we believe that it will not impact the industries part of CUSMA, such as GreenFirst is part of. That being said, we're hoping that the lumber industry will be in the top priority of Prime Minister Carney in his discussion with President Trump. We hear our Prime Minister talking about steel, aluminum, cars, energy, but not enough about the lumber industry. We have to continue to work with his team, with the premier, also Prime Minister, and also with the province of Ontario. They need to be sensitive about also the situation of the lumber industry. For sure, we'll continue to push on them also to get the best salesmen and outcome also for the company as soon as possible. In the meantime, we continue to explore different market opportunities.
Okay. Hi, this is Joel again. We have two questions that are similar here. The first one is, could you provide some insight into current demand level and pricing? The other question is, the company reported both a drop in sales and production versus the previous quarter. Can you talk a little bit more what's behind that? I will answer those two questions. The first one, overall, Q3 pricing was slightly lower than Q2. We started the quarter with a strong and continued to experience a significant decline between July and September. Prices were good at the beginning of the quarter, and then it was a steady decline through the quarter. The uncertainty related to tariffs and a high interest rate in the U.S. have had a negative impact on demand. However, the recent announcement from the Federal Reserve to reduce interest rates was encouraging.
With that said, we did not see a significant impact on lumber demand in Q3 yet. We shipped, like I said earlier, 93 million FBM in the quarter. This volume was largely driven by our long-term relationship with key home-centered customers, which we believe will minimize demand uncertainty and will bring more stability for the company. In fact, we're looking to continue to grow that business. At the same time, the sales were lower than the previous quarter, mainly due to downtime. In particular, the Shapiro line, the Shapiro mill, in order to install the new large log line that will bring more benefit shortly. There's still a significant shortage in new housing built in North America, which should provide more demand for lumber in the upcoming month. In regards to the second question, so I'll continue here and answer it as well.
The drop in sales was due to lower lumber demand driven mainly by uncertainty surrounding higher duty rate and potential US tariff that is now in place in Q4. In addition to the market uncertainty during the third quarter, the lower sales volume was impacted by lower production, again, mainly driven by the, like I said, the Shapiro mill for the installation of the new line. The good news is that we continue to grow our sales with Bigbox Store, like I mentioned, and we had a record quarter in Q3 reflecting the long-term partnership. Okay. We do have another question here. In terms of your liquidity, we noticed that the outstanding letters of credit have increased compared to the previous quarter, which appeared to negatively impact your excess liquidity. Can you provide some additional context? I will let Peter or CFO to answer that question.
Yes. Thanks, Joel. Yeah, the increase comes from the annual requirement to place 30 bonds equal to 10% of the upcoming year's anticipated duty payments. As you know, duty rates have increased to approximately 35% for the upcoming period. Everybody knows in today's environment, many certified bond companies also request to put a letter of credit to support the certified bond, which was the case for us. In the interim, we are working with various financial institutions with regards to how we can obtain support for these letters of credit, hoping that we could increase our excess liquidity positions.
Hi, this is Joel again. Yeah, we do have another question. Can you provide an update on the CapEx related to the Shapiro large log line? I will answer this question. Like I already mentioned, as always, we're taking a prudent approach with our CapEx expenditure.
We did finish installing the large log line at Shapiro, the new planer mill, and the refurbished cogeneration plant at our Shapiro sawmill. We are currently in ramp-up mode, and everything is moving along as expected. We're expecting the combination of these projects to have a positive impact on the mill profitability profile going forward. The large log line will increase production, reduce cost, and will bring great benefit overall to the company, EBITDA. As an added benefit, we are closely working to get part of the project financed by the provincial government to reduce cost of the total project. We do have another question here. Can you explain a little bit more about the feasibility study for the torrefied pellet and by-products for pulp producers plant that will help the residue situation potentially? I will let Michel answer the question.
Thanks, Joel. As you know, and I mentioned that to the previous calls also, the pulp and paper industry remains pretty challenging with the closure of three major mills over the last two years in Ontario, and also the one in Temiscaming, Quebec, from Rayonier. As such, we continue to look for alternative ways to use also the by-products from our sawmills, and also to enhance the value of them. In other words, we would like to be less dependent on the pulp and paper industry. We completed our first study to install the biochar and also a torrefied pellet plant in Shapiro, and that showed also very good results. We are now proceeding with a deeper analysis to review the business case. At the same time, also, we are looking for the opportunities for each of our sites.
We are also working with the partner and also potential customers with whom we have LOIs in place. We cannot disclose any more details at this time, but we should be able to provide an update during the upcoming quarters.
Hi, we do have another question here. Following the Prime Minister's announcement of the $1.2 billion in federal support program for the softwood lumber industry, does the company anticipate benefiting from this program? I will let Michel, our President, answer the question.
Thanks. Yes, the answer is yes. We are certainly anticipating benefits of this announcement regarding the lumber industry. Mainly for the three following communicated items that have been made on last August 5th by the Prime Minister. The first one is about the $700 million in loan guarantees. The second one is about the $500 million for market diversification.
The third one is about the 500,000 new homes per year over the next decades. For now, we've just received details regarding the loan guarantees program, and we're working to get access to it. Based on the program, a company could get access up to $20 million. It's a very interesting program. For the other ones, we are still waiting for details, but we anticipate that it will be beneficial for us for sure. Again, hoping that we will get these details soon. We are in touch also with the federal government, again, to get access to it as soon as possible.
Okay. We do have two other questions here. I just want to make sure that this is the question. I just want to make sure I understand the duty piece correctly. GreenFirst doesn't have a cash cost expenses for duty.
It's paid by the importer customer. The impact of duty during a quarter should be just lower revenue. The company could have a liability in the future if you flip from overpayment to underpayment. Is that accurate? I will let Peter or CFO to answer that question.
I'll break this answer into pieces. First part of the question with regards to cash expenses for duties. It's actually paid by us. We are the importer intermediate to us. We pay the duties by the time of the quotation. I can answer that question. The company could have a liability in the future if you flip to overpayment. We're currently in a when you look at our administrative review six, we made payments on average of 20% in the first part of the year, followed by 8. When the administrative review six came into play, it came in at 35%. We were in an underpayment situation for administrative review six. We filed the necessary appeals moving forward. Hopefully, I have answered that question.
We do have another question. What would the quarter have looked like if Shapiro was operational? I am trying to determine whether we expect the mill to generate cash next year if lumber prices are the same next year. I will answer that question. First off, if we look at Q3, we had a major one-time adjustment. First off, we recorded a negative EBITDA, but mainly it was due to the $33.2 million duty adjustment, which is non-cash. We also had an NRV provision of $8.2 million. This is one of the biggest NRVs we had with GreenFirst.
Also, the downtime at the line at Shapiro impacted us with $4.6 million. Without the NRV and without the downtime at Shapiro, let's assume we keep running the mill, we would have been very close to break-even EBITDA, which is very encouraging from my perspective. If I think ahead and I think only about the Shapiro mill, we're commissioning the line right now, and the initial results are very promising. We expect, first off, I will answer the first part of the question. If the mill at Shapiro was running during the quarter, our cost would have been below expectation. The downtime that we had at the Shapiro mill did impact our cost as well as the NRV. Without those two items, our cost would have been better this quarter versus last quarter.
Looking ahead, when we're done with the commissioning of the line at Shapiro, in today's market, we believe the mill will be positive cash flow going forward after we're done with those CapEx. Okay. So we don't have any more questions. I would like to thank all the participants on the call, and thank you very much. Have a good day.
Ladies and gentlemen, this concludes our conference call for today. We thank you for participating, and we ask that you please disconnect the line.