First Citizens BancShares, Inc.

Good morning and thank you for standing by. Welcome to the Stella Jones second quarter 2023 earnings call. At this time, all participants are in listen-only mode. Following the presentation, we will hold a question and answer session. To queue up for questions by phone, please press star 1. A moderator will contact you. If anyone has any difficulties hearing the conference, please press star 1 for operator assistance at any time. I would like to remind everyone that this conference call is being recorded on Wednesday, August 9th, 2023. Please note that comments made on today's call may contain forward-looking information, and this information by its nature is subject to risk and uncertainties. Actual results may differ materially from views expressed today. For further information on these risks and uncertainties, please consult the company's relevant filings on CDAR. These documents are also available in the Investor Relations section of Stella Jones' website at www.stella-jones.com. We have also prepared a corresponding presentation, which we encourage you to follow along during this call. I'll now pass the call over to Eric Vachon, President and Chief Executive Officer of Stella Jones. Eric.

Thank you, Shirley. Good morning, everyone, and thank you for joining us today. With me on today's call is Silvana Travolini, Senior Vice President and Chief Financial Officer of Stella Jones. Earlier this morning, we issued a press release reporting our results for the second quarter of 2023. Along with our MDMA, it can be found in the Investor Relations section of our website at www.stella-jones.com as well as on SEDAR. As a reminder, all figures expressed on today's call are in Canadian dollars unless otherwise stated. I'm pleased with our financial and operating results in the second quarter, which reflected the upward momentum brought on by the rising demand of our infrastructure-related products. It provides a good start to our 2023-2025 outlook, which was updated at our inaugural Investor Day in May. We delivered strong second quarter results, fueled by ongoing organic growth, all while setting the stage for the accelerating demand across North America, particularly for utility poles. We did this not only through continuous investments in our network, but also by pursuing acquisitions that support our growth and help us ensure we deliver predictable consistency and quality in serving our customers. The company has recently made notable additions to its network. In the quarter, we acquired the Southern Yellow Pine pole peeling and drying assets of Balfour Pole Company for a consideration of $15 million U.S. Located in Georgia, Balfour's operations are situated in an area where we have an established presence, and this acquisition will help drive cost and operational efficiencies for our utility pole business. In July, we acquired the wood utility pole manufacturing business of Baldwin Pole and Piling for $48 million U.S. Baldwin is a storied business with a record of producing quality SYP pole products for its local utility customers. Its Alabama and Mississippi facilities expand our capacity to supply growing demand while optimizing the overall efficiency of our network, which now counts 45 treating facilities in North America. I would like to welcome the 80 new employees from Balfour and Baldwin who joined the Stella Jones team in the last few weeks. Accretive acquisitions such as Balfour, Baldwin, and Industries completed earlier this year remain a key area of growth potential for our business as we continue to seek opportunities that complement our network. We are also pleased to highlight the commissioning of our pole peeling facility in Durant, Mississippi, which opened on June 1 and is now fully operational. You can see the significant footprint of the facility on the current slide of the accompanying presentation. As we scale up to better cater to expected demand acceleration, this facility, strategically located in the southeastern United States, will help maximize our treating capacity in this area. In the second half of the year, a second pole peeling facility in the southeast region will be commissioned and we will begin work on the planned capacity expansion to increase our Douglas fir network, all in line with our growth CAPEX plan. Through a combination of strategic capital investments, acquisitions and ongoing organic growth, we have built a strong infrastructure product business. Our customers recognize the quality of our work, ability to adjust to their needs, and the strong distribution capabilities we offer. We work in collaboration with our customers to best understand their requirements, and over time, we have expanded and innovated our product offerings accordingly. As our customers' needs evolve, they seek strategic partners that can support their projects and assure product readiness when and where they need it, which we proudly deliver. Now let's turn to the business dynamics of each of our key product categories. Our utility pole product category continued its course of strong performance. Market demand remained robust. All while sales volumes were lower in the quarter, we continued to project and work to serve as the accelerated demand growth for utilities. As we turn our focus to customers' long-term projects and to agreements structured to support growth, we are adapting to best meet the rising demand into the future. With our expansive network, vast resources, and enhancing production capacity, we have the mechanisms in place to support the expected volume growth ahead of us. Railway tie sales were also up in the second quarter, benefiting from continued price increases passed on to customers. Inventory constraints shifted our focus to fulfilling long-term commitments, and we are pleased to see a continued trend of dry Thai inventory growing stronger month over month. We are confident that the current level of untreated Thai will allow us to not only continue to honor our long-term commitments, but also service the strong non-Class I market demand in the upcoming quarters. Lastly, for residential lumber, we saw healthy demand in Q2, which reflected our ability to supply product consistently to big box retailers and maintain a loyal customer base. Halfway through 2023, our residential lumber product category is performing in alignment with our guidance for annual results. With that, I will now turn it over to Silvana to provide a more detailed overview of our second quarter financial results. Silvana?

Thank you, Eric, and good morning, everyone. As Eric stated in his remarks, we've had a great start to 2023 with continued strong financial results in the second quarter. Sales in Q2 increased to $972 million, up from $907 million last year. The increase was driven by a 10% organic sales growth of our infrastructure-related businesses, largely explained by pricing gains for utility poles, railway ties and industrial products. This increase was mitigated in part by lower residential lumber sales and lower volumes for utility poles and railway ties. Sales in the quarter also benefited from the contribution of the pole-treating assets acquired from Texas Electric Cooperatives in November last year and the positive effect of currency conversions. Utility pole sales increased to $388 million in the second quarter, compared to $360 million for the same period last year, largely explained by the organic sales growth of 13% and the contribution from the TEC acquisition. The organic growth was driven by higher pricing as sales volumes were down quarter over quarter due to the impact of extreme weather events on our California customers' maintenance activity as well as delayed timing of shipping. We expect the deferred volumes in Q2 to contribute to more sales in the second half of the year. Sales of railway ties rose to $238 million compared to $215 million last year. Organically, sales were up $13 million, or 6%, all attributable to favorable pricing. While Class 1 volumes were up this quarter, overall volumes were down, as we did not have enough treated inventory to service the strong non-Class 1 demand, and this stemmed from the limited fiber supply in 2022. Residential lumber sales of $271 million decreased by $15 million compared to the same period last year. Due to sales were impacted by the lower market price of lumber and the resulting decrease in sales price versus the second quarter of 2022. A large part of this decrease was however mitigated by the solid sales volume in the quarter. So far this year, sales are in line with our expectations. Moving now to profitability. Our EBITDA increased to $175 million in the second quarter, up 14% compared to $154 million in the second quarter of 2022, outpacing the 7% sales growth. This increase was attributable to the expanded margins of our infrastructure-related product categories, largely on account of price increases realized for utility poles. Led by the strong utility pole sales growth and resulting improvement in product mix, our EBITDA margin increased to 18% from 17% in Q2 last year. Following a strong start across our product categories, we now expect the EBITDA margins for 2023 to exceed our 16% objective. Net income in the second quarter was $100 million. up 6% compared to last year, while earnings per share also benefited from the company's ongoing share repurchase program and was up 14% versus the same period in 2022 to $1.72 per share. During the quarter, we used the cash generated from operations of $127 million to invest in our network and expand our utility pole production capacity. which included the acquisition of Balfour's pole peeling and drying assets. We also continued to return capital to shareholders in line with our commitments. So far this year, the company has returned $87 million to its shareholders through dividends of $27 million and share repurchases of $60 million. Since the beginning of the current buyback program in late 2022, we have repurchased 1.5 million shares for $80 million. During the quarter, we continued to build the utility poles inventories to support the strong demand, but it was more than offset by the seasonal decrease in residential lumber inventory. As for the untreated railway tie inventory, it was largely replenished by the end of the first quarter. As we head into the second half of 2023, we have a healthy inventory position that will allow us to service our customers and meet their evolving needs for our products. At Porter End, we had $292 million available under our credit facilities and maintained a solid financial position with a net debt to EBITDA ratio of 2.6 times. Through our consistent cash flow generation and available credit facilities, we can maintain our assets meet working capital requirements, and finance our business plans. Yesterday, our Board of Directors announced a dividend of 23 cents per common share, payable on September 25th, 2023, to shareholders of record at the close of business on September 5th. In conclusion, our robust financial performance allows us to stay on course to achieve our growth plans, all while returning value to our shareholders. With that, I will now turn it back to Eric for his closing remarks.