MERCER INTERNATIONAL INC. Q2 FY26 Results

Our pulp sales realizations remained steady this quarter, as continued economic uncertainty delayed market recovery. Our second quarter results were also weighed down by rising European fiber costs, driven by regional supply shortages and intense competition for sawmill residuals from energy producers. As a result, we recognized a non-cash impairment of $29.0 million primarily against pulp and fiber inventory. In response to ongoing economic uncertainty and weak market conditions, we have been actively evaluating strategic alternatives and are proactively taking steps to enhance our liquidity and strengthen our balance sheet. As previously announced, our existing special committee of independent directors continues to oversee, review, and evaluate the development and implementation of potential alternatives to improve our capital structure. To assist in these matters, we have engaged advisors to review strategic alternatives and broader financing initiatives. As part of this process, we have entered into discussions with holders of our 2028 and 2029 senior notes, as well as other stakeholders across our capital structure, regarding potential financing and other liquidity-enhancing transactions. These discussions remain ongoing and we continue to evaluate a range of alternatives with the objective of achieving a comprehensive solution that supports our long-term business plan. No agreement has been reached with any stakeholder group, and there can be no assurance the discussions referenced above will result in any particular transaction or that any transaction, if pursued, will be completed. We continue to pursue our "One Goal One Hundred" program and remain confident that we will achieve our targeted $100 million in cost savings and operational efficiencies by year end. With $13.0 million in cost savings realized this quarter, we have achieved a total of approximately $54.0 million since its launch in April 2025. The program is part of our broader initiatives to improve our balance sheet and preserve cash, including efforts to reduce capital expenditures and optimize working capital. Like many industry participants, Mercer Torgau has been impacted by global economic uncertainty and heightened raw material and energy costs. To address these dynamics, the facility has taken various comprehensive measures to enhance operations, including the installation of new scanning technology to increase production of higher-value, on-grade dimensional lumber and expand exports to the U.S. It also recently announced additional strategic actions designed to align its capacity and operational profile with market conditions. These include a reduction in its workforce and adjustments to its product portfolio. An initial reduction of approximately 100 contractor positions was completed in July 2026, and Mercer Torgau expects an overall workforce reduction of approximately 350 positions as the initiative is completed in stages through the second quarter of 2027. Looking ahead, ongoing geopolitical conflicts, including in the Middle East and Ukraine, are expected to exert inflationary pressures on fiber, freight and other production costs for our pulp and solid wood segments. While direct tariff impacts have been immaterial to date, we continue to monitor events as indirect impacts reshape global supply dynamics. On the supply-side, we are starting to see responses to prevailing market conditions, supporting our current expectation of more balanced markets toward the end of 2026. As economic headwinds and geopolitical volatility persist, our immediate priorities are managing costs, maintaining our liquidity, and optimizing our capital structure. The proactive steps we are taking have the goal of strengthening our balance sheet and positioning us to capitalize as market conditions improve.