PotlatchDeltic Corporation

Good morning. My name is Paula, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Potlatch-Delphic third 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, simply press star one again. 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.

Thank you, Paula. Good morning, everyone, and welcome to Potlatch Deltics Third Quarter 2021 Earnings Conference Call. Joining me on the call is Eric Kramers, Potlatch Deltics 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 third quarter results and our outlook.

Thank you, Jerry. Our consolidated EBITDA was $107 million in Q3, down from our record quarterly EBITDA of $275 million in Q2. Although we experienced a significant drop in lumber prices, it was still an excellent quarter for the company. To provide context, Q3 EBITDA is the highest quarterly amount that we have generated prior to the lumber price run that began in 2020. That statement includes 2018 when our quarterly EBITDA peaked at 102 million. We are encouraged by recent lumber price trends as lumber prices appear to have found the bottom during Q3 and are now moving higher. Our wood product segment generated $27 million of EBITDA in the third quarter. Importantly, the segment's focus on improving safety performance was evident this quarter. Six out of seven mills had zero recordable incidents during Q3, and all our mills were incident-free in August and September. As discussed on last quarter's earnings call, we had a fire at our Ola, Arkansas sawmill on June 13th. Nobody was injured, and the damage was limited to the large log primary breakdown machine center. insurance will cover the cost of restoring operations at the mill along with lost profits above a two million dollar deductible we decided to purchase new replacement equipment demolition and construction work is well underway and we are scheduled to receive the new large log line equipment by the end of q2 of next year and we expect to complete the installation in q3 In the meantime, we restarted the small log line this month and we anticipate ramping up to produce approximately 30 million board feet on an annual basis until the large log line restarts. As a reminder, OLA had an annual capacity of 150 million board feet prior to the fire. Our plywood business is performing exceptionally well and we continue to 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 EBITDA $76 million in Q3, nearly even with the record EBITDA of $77 million last quarter. Our average saw log price of $191 per ton in Idaho is the second highest on record. This 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 managing fire risk this summer, which resulted in our losses being limited to less than $1 million after salvage operations. In the south, weather has constrained logging activity this year, resulting in our harvest volume being lower than planned. We experienced extreme winter weather in the first quarter, and it has been unusually wet in the second and third quarters. The resulting shortage of saw logs has caused the price of southern pine saw logs to increase. Our southern team is working hard to mitigate the harvest shortfall. In addition to the weather-related risk, we continue to expect that our southern saw log harvest will be approximately 200,000 tons below our annual harvest plan due to the Yola sawmill fire. Our real estate segments EBITDA declined in the third quarter, as expected. Demand for residential lots in Chennault Valley remains strong, and we continue to see good interest in commercial and rural acreage. We will provide more color on the fourth quarter earnings call, but 2022 is shaping up to be another strong year for real estate. Turning to lumber prices, Random Lengths has reported higher lumber spot prices eight weeks in a row since the market bottomed in late August. The latest framing lumber composite price of $575 per thousand board feet is $186 or 48% higher than the August 27th composite price. Furthermore, lumber futures have also increased sharply since the summer. The November contract is currently well above $600 per thousand board feet and the last prices for 2022 contracts were well above $700 at yesterday's close. Housing-related fundamentals that drive demand in our business remain robust. Seasonally adjusted U.S. housing starts at 1.56 million units in September were 7% higher than September 2020 and are near the 2021 average. It appears that supply chain challenges continue to govern the pace of construction, as the U.S. Census Bureau reported that there were 1.45 million housing units under construction at the end of September. That figure includes single and multifamily units, and it is not seasonally adjusted. Homebuilder confidence remains very strong with the NAHB Homebuilder Index at 80 this month. Low interest rates, a shortage of homes, and the large millennial demographic cohort all continue to underpin our view that housing is set up for a multi-year boom. Lumber takeaway in the repair and remodel market returned to healthy levels after Labor Day, and our business is growing in this market segment. Long-term fundamentals remain positive, including the age of U.S. housing stock, which is now 42 years on average, high levels of home equity, and the fact that remote work continues to be a common practice. On the supply side, higher costs, a tight labor market, and equipment supplier bottlenecks govern the pace of new lumber capacity. Fiber availability across Western Canada and the Western U.S., and a shortage of truck drivers are also constraints. Overall, the fundamentals that drive our business remain favorable, and we continue to expect that lumber prices will remain structurally higher than long-term historical averages. Our leverage to lumber strategy is perfectly situated to continue to drive strong financial performance. Turning to capital allocation, returning cash to shareholders remains a top priority. We expect to pay a special dividend of $3 to $5 per share in December. In addition, our board typically evaluates our regular annual dividend, which is currently $1.64 per share per year, in the fourth quarter. Our strong financial position provides a solid platform as we consider additional investments in our existing mills and accretive acquisitions. We are interested in acquiring timberlands, mills, or a combination of the two near our current operating areas. Turning to environmental, social, and governance reporting, we are focused on quantifying scope theory greenhouse gases, climate risks, and opportunities across the business, and evaluating our greenhouse gas reduction opportunities. We plan to publish our third annual ESG report next May and our first climate and carbon report later in 2022. Populatch Delta is a leader in sustainable forest management, and we are committed to environmental and social responsibility and responsible governance. To wrap up my comments, Potlatch's Deltic strategy is well aligned with 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 third quarter results as well as our outlook. Thank you, Eric.