PotlatchDeltic Corporation

Good morning. My name is Lindsay, and I will be your conference operator today. At this time, I would like to welcome everyone to the Potlatch-Delta 3rd Quarter 2020 conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star then the number 1 on your telephone keypad. If you would like to withdraw your question, press the pound key. Thank you. I would now like to turn the call over to Mr. Jerry Richards, Vice President and Chief Financial Officer, for opening remarks. Sir, you may proceed.

Good morning and welcome to Potlatch Delta's third quarter 2020 earnings conference call. With me in the room are Mike Covey, Chairman and Chief Executive Officer, and Eric Kremers, President and Chief Operating Officer. This call will contain forward-looking statements. Please review the warning statements in our press release, on the presentation slides, and in our filings with the SEC concerning the risks associated with these forward-looking statements. Also, please note that a reconciliation of non-GAAP measures can be found on our website at www.potlatchdeltic.com. I'll now turn the call over to Mike for some comments, and then I will cover our third quarter results and our outlook.

Thank you, Jerry, and good morning. A historic third quarter spotlights the power of Potlatch Delta's leverage to lumber prices. Timberlands and wood products, as well as the total company, all established new quarterly EBITDA records this quarter. Although lumber prices are currently declining from unprecedented highs, we expect fourth quarter EBITDA will be higher than third quarter's $135 million. As a reminder, we expect to close a large Minnesota conservation sale in the fourth quarter. We also believe that strong housing fundamentals point to a solid outlook for lumber pricing. I want to thank our employees whose outstanding execution in all three businesses drove our strong quarterly results. This includes their continued focus on operating safely during this challenging time. Safety remains our top priority and managing the risks presented by the COVID pandemic requires continued diligence. Our wood products business generated $82 million of adjusted EBITDA in the third quarter. We ran as much overtime as we could in our sawmills to meet strong customer demand, and our St. Mary's and Warren sawmills both set quarterly shipping records. Overall, our lumber shipments exceeded the top end of the range that we provided on last quarter's earnings call by 11 million board feet. We ended the third quarter with a lumber order file that extends into early November. While it will be down sequentially, we expect wood products adjusted EBITDA to remain well above trend levels in the fourth quarter. Our timberlands business harvested 1.7 million tons in the quarter, which is a quarterly record. Given that about 70% of our Idaho saw log deliveries are indexed to lumber prices on about a six-week lag basis, we expect our Idaho timberlands adjusted EBITDA will remain strong in the fourth quarter. Saw log pricing remains relatively flat across our southern markets, with little change expected anytime soon. In our real estate business, we continue to expect that the sale of approximately 72,000 acres in Minnesota to the Conservation Fund for about $48 million will close in the fourth quarter. In addition, sales activity in our Chanel Valley master plan community in Little Rock has fared better than we expected when the COVID pandemic began, and we expect to sell approximately 130 residential lots for the year. Looking ahead, housing fundamentals are stronger than at any point since the great financial crisis. This sets the stage for continued growth in lumber demand. U.S. single family housing starts continued to increase through the summer and exceeded 1.1 million units in September. That's single family alone. This was a 9% increase from August and is up 22% compared to last year. Single family starts are important to lumber demand because each single family home utilizes three times more lumber than does a multifamily start. Many industry experts believe that the new residential construction is on the cusp of a multi-year boom. Massive underbuildings since the great financial crisis, record low inventories of homes for sale, historically low mortgage rates, and millennials entering their prime home buying years all set the stage. U.S. housing permits at 1.55 million units in September Homebuilder confidence at an all-time high and September order growth of 49% reported by four homebuilders last week all suggest that housing construction will remain robust in the near term. Additionally, a shift from urban to suburban living appears to be positively affecting housing demand. The repair and remodel segment is also expected to continue to grow. That view is supported by the age of U.S. housing stock, which is now 42 years on average, high levels of home equity, and the work-from-home trend. The random-lengths framing lumber composite peaked at $955 per thousand board feet in September, or 64% higher than the prior nominal peak, which was reached in June of 2018. The record high prices reflected industry inventory drawdowns at the beginning of the COVID crisis, combined with strong demand and COVID-related operating disruptions. Now the long order files stretch into a seasonably weaker part of the year. The pace of new lumber orders has slowed down, and as expected, lumber prices have begun to retreat. That said, underlying lumber demand remains strong, and lumber inventories are estimated to be at the low end of their historic range. The strong housing and repair and remodel outlook coupled with the limited announced lumber supply increases suggests that lumber prices should settle at attractive levels. We are very optimistic about the setup heading into the 2021 building season. Switching now to capital allocation for a minute, we returned $96 million to shareholders in the form of dividends and share repurchases so far this year. We are committed to growing the dividend sustainably, which we've increased 116% since 2012. Discretionary mill capital projects represent some of our highest potential returns. We recently added $14 million of new projects to the slate with a weighted average IRR of about 35%. We plan to complete these attractive projects over the next 18 months. Creev acquisitions represent the third leg of our capital allocation priorities. We are interested in acquiring timberlands, mills, or a combination of the two near our current operating areas. We recently published our inaugural environmental, social, and governance report in September. Potlatch Celtic has a strong ESG story, and we're committed to do our part to mitigate climate change and continue our legacy of responsibility across the ESG spectrum. We look forward to updating you regularly on our progress in this area. To wrap up my comments, business conditions remain good. We expect to report strong results for the fourth quarter as well. ByLatch Delta is well positioned to take advantage of favorable industry fundamentals, and our strong liquidity and low leverage provide a high degree of flexibility as we seek to maximize shareholder value. I'll now turn it back to Jerry to talk about the third quarter and our outlook.