PotlatchDeltic Corporation

Good morning, my name is May and I will be your conference operator today. At this time, I would like to welcome everyone to the POTLatch Deltic second quarter 2021 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 one 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. Gary Richards, Vice President and Chief Financial Officer, for opening remarks. Sir, you may proceed.

All right. Thank you, May. And good morning and welcome to Potlatch Deltax Second Quarter 2021 Earnings Conference Call. Joining me on the call is Eric Cremers, Potlatch Deltax President and Chief Executive 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 Eric for some comments, and then I will cover our second quarter results and our outlook.

Thank you, Jerry. Lumber prices continued their historic run in the second quarter, driving another quarter of financial performance for the company. Our consolidated EBITDA was $275 million in Q2, which is our fourth consecutive quarter record financial performance. Our wood product segment generated $205 million of EBITDA in the second quarter. To provide context, this amount exceeded wood products EBITDA for full year 2020, which was an annual record itself. As previously announced, we had a fire at our Ola, Arkansas sawmill on June 13th. Fortunately, nobody was injured and the damage was limited to just the large log primary breakdown machine center. Insurance will cover the cost of restoring operations at the mill, along with lost profits above a $2 million deductible. Our team is actively working on demolition and equipment replacement options. Although we have not yet finalized our plans, we are working on restarting the large log line as soon as possible, potentially in late Q1 of next year. It is premature to commit to that schedule as we have not yet finalized the purchase of a replacement line. As a reminder, OLA had an annual capacity of 150 million board feet prior to the fire. Our plywood business continues to perform exceptionally well, and we expect record profitability from this business this year. As we have discussed on prior calls, our industrial-grade plywood is used in big-ticket boats, RVs, truck trailers, and furniture. Demand for these items remains very strong. Our timberland segment earned record EBITDA of $77 million in the second quarter, despite Idaho harvest volumes being at their seasonal low point due to spring breakup. Our average saw log price of $245 per ton in Idaho highlights the value being created by our indexed saw log sales contracts, which are unique in the industry. Our Idaho team did a great job exceeding the harvest plan in the first half of the year, realizing attractive saw log prices and reducing the risk of not meeting our annual harvest plan because of high fire danger. Our southern team did a good job managing through extraordinarily wet weather during the second quarter after dealing with extreme winter weather in the first quarter. We expect that our southern harvest will be approximately 200,000 tons below our annual harvest plan, primarily due to the Ola sawmill fire. Our real estate segments EBITDA declined in the second quarter, as expected, as homebuilders digested over 120 Chenal Valley lots purchased in the prior two quarters. Demand in Chenal remains strong, as evidenced by lot draws thus far in the third quarter, and we continue to see good interest in commercial and rural acreage. Turning to lumber prices, we believe that the steep decline in lumber prices that occurred over the last nine weeks has reached a bottom. Psychology most certainly has played a role over the past couple months, and it is not uncommon for lumber prices to overshoot on the upside as well as the downside. The peak Western SPF price of $1,630 per thousand board feet reported by Random Links for two and better two-by-fours in May was not sustainable. Proports of lower home center lumber demand appears to be a key factor that triggered the price decline. Lumber futures led cash prices down, and the July contract settled at $650 per thousand board feet. Well, the market tone shifted last week. Random Links reported that the price of two-and-better 2x4s increased $55 per thousand board feet in the second half of the week, which is the first increase in nearly nine weeks. Random Links also reported that downward pressure in other western species of lumber and southern yellow pine eased late last week. Nobody wanted to catch a falling knife during the lumber price correction. We believe that reports of sawmill curtailments provided comfort to lumber buyers that their downside risk was limited at current lumber price levels. As a result, lumber futures moved up sharply at the end of last week. The various contracts are in the $600 per thousand board foot range, which suggests that lumber prices could bounce nicely as liquidity returns to the market and lumber buyers replenish lean inventories. housing related fundamentals that drive our business remain robust and fea stated that new residential construction is quote on the cusp of a multi-year boom in a recent set of slides frankly we agree on the demand side new residential construction remains strong with june starts at 1.64 million units on a seasonally adjusted basis permits of 1.6 million units are 23 percent higher than the prior year as well as the 50-year average of 1.5 million units We expect new residential construction will remain very strong due to massive underbuildings since the great financial crisis, record low inventories of home for sale, historically low mortgage rates, and millennials entering their prime home buying years. On that first point, Freddie Mac estimates that the shortage of U.S. single family homes is 3.8 million units, and the National Association of Realtors estimates that the U.S. is underbuilt by 5 to 6 million units. D.R. Horton stated on their earnings call last week that demand remains, quote, extremely robust. Lumber demand in the repair and remodel market declined after Memorial Day as people reacted to high lumber prices that had turned into front-page news. Return to work and discretionary spending shifting to leisure activities likely also played a role. Long-term fundamentals in this segment remain positive, including the age of U.S. housing stock, which is now 42. Economists expect lumber demand in the repair and model segment to continue to grow, and demand has likely just been deferred, not destroyed. On the supply side, higher costs, a tight labor market, and equipment supplier bottlenecks govern the pace of new lumber capacity. Wildfires across the West and a shortage of truck drivers may also create constraints in the near term. Overall, the fundamentals that drive our business remain favorable, and we continue to expect that lumber prices will settle at relatively attractive levels. Our leverage to lumber strategy is perfectly situated to continue to drive strong financial performance for the remainder of 2021 and beyond. Turning to capital allocation, returning cash to shareholders remains a top priority. We continue to expect that we will pay a meaningful special dividend in the fourth quarter. In addition, our board typically evaluates our regular annual dividend, which is currently $1.64 per share, in December. Our strong balance sheet and $891 million of liquidity provide a solid platform as we consider additional investments in our existing mills or accretive acquisitions. We're interested in acquiring timberlands, mills, or a combination of the two near our current operating areas. We published our second environmental, social, and governance report in May, and the report is available on our website. Highlights include disclosures of Scope 2 greenhouse gases, expanded information about our carbon sequestration, and storage and climate-related analysis. Potlatch-Deltic is a leader in sustainable forest management, and we are committed to environmental and social responsibility and to responsible governance. To wrap up my comments, Potlatch-Deltic is very well positioned to take advantage of favorable industry fundamentals, and our strong liquidity and prudent capital allocation strategy positions us to continue increasing shareholder value. I will now turn it over to Jerry to discuss second quarter results and our outlook.