PotlatchDeltic Corporation

Good morning. My name is Lisa and I will be your conference operator today. At this time, I would like to welcome everyone to the potlatch Deltic first quarter 2023 conference call. All lines have been placed on mute to prevent any background noise. And 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. And if you would like to withdraw your question, press the star one again. I would now like to turn the call over to Mr. Wayne Waschek, Interim Vice President and Chief Financial Officer for opening remarks. Sir, you may proceed.

Thank you, Lisa. Good morning and welcome to Potlatch Deltics first quarter 2023 earnings conference call. Joining me on the call is Eric Cremers, 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 regarding 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 will turn the call over to Eric for some comments, and then I will review our first quarter results and our outlook.

Thank you, Wayne. We'll start with a few comments about the press release we issued last week, indicating that Jerry Richards is leaving the company to pursue another opportunity with a larger company in a different industry. Jerry was our CFO for 10 years and did a terrific job. Our press release also stated that Wayne Wastechek, our current principal accounting officer, is now our interim CFO. Wayne has been with the company for five years, having joined us from Vail Resorts. Thankfully, we have a deep bench of talent in our finance and accounting departments. We have a search underway and envision filling the CFO position over the coming months. Turning to the first quarter, we reported total adjusted EBITDA of $58 million after the market closed yesterday. Our wood product segment had break-even adjusted EBITDA in the first quarter. Lumber prices found a bottom in January. We are encouraged by the upward trend in lumber prices as we head into a spring building season that has been delayed by winter weather in the northern tier of the country. Also, I am pleased with the team's strong safety performance in the first quarter. As we have discussed on the last two calls, we successfully completed our Ola, Arkansas sawmill rebuild and restarted the large log line in the third quarter of 2022. While the startup phase has taken a bit longer than we had anticipated, we are very happy with the new equipment. The mill's operating run rate has reached its expected annual capacity of 100 million board feet per year. As a reminder, OLA's rebuild significantly lowers the mill's cash cost structure. Last year, we announced a $131 million project to modernize and expand our Waldo, Arkansas sawmill. Activity is currently focused on site prep, with the majority of equipment delivery and installation to come in 2024. The project will increase the mill's annual capacity by 85 million board feet and significantly reduce the mill's cash costs. The existing mill will continue to operate during the project with approximately three weeks of downtime expected in 2024 to tie in the new equipment. Project completion is expected by the end of 2024. Our timberland segment generated adjusted EBITDA of $47 million in the first quarter. We harvested 2.1 million tons, which is higher than planned and is also a company record. Both our teams in the north and the south contributed to that result. Our harvest plan remains unchanged for the full year. Speaking of our southern team, we completed the process of insourcing the management of Ketchmark's timberlands in the first quarter. As a much larger company, we can conduct these same types of activities internally at a much lower cost. In this case, insourcing resulted in a synergy of $3 million per year. Our real estate segment had another solid quarter with adjusted EBITDA of $19 million. On the rural side of the business, we sold 6,900 acres at nearly $2,600 an acre. In development, We sold 24 lots at an average price of $116,000 per lot in our Chenal Valley master plan community in Little Rock. Our team continues to make progress on natural climate solutions opportunities. We are working on a carbon credit project. We are also exploring opportunities to supply mill residuals and or pulpwood to pellet manufacturers. Finally, we have over $100 million of potential future solar land deals and leases in the pipeline. We expect solar opportunities will increase as the team finishes stratifying Ketchmark's acres in the second quarter. As a reminder, we completed our first solar-related rural land sale a year ago. While it will take time for the carbon and pellet efforts to pay off, we are optimistic about overall growth tied to providing natural climate solutions And we believe these efforts will result in higher returns as well as higher timberland values. Shifting to housing, we continue to believe there are strong positive tailwinds over the long term. Our view is based on a fundamental shortage of housing stock due largely to the combination of underbuilding after the great financial crisis and favorable demographics in the form of millennials who have reached prime home buying ages. In our view, the final element needed for housing construction to rebound is lower interest rates. To that end, we are encouraged by the recent easing in mortgage rates. Acknowledging it will take time, we continue to expect that U.S. housing starts will return to levels above the long-term average of 1.5 million units per year once mortgage rates ease further, making homes more affordable. There is also a near record low inventory of existing homes for sale in the U.S., forcing buyers to look at purchasing a new home versus an existing home. New home sales data released just this morning was also favorable. Turning to repair and remodel, which is the largest market segment for lumber demand, the underlying fundamentals continue to be favorable for a variety of reasons. Existing U.S. housing stock remains the oldest in the history of this statistic at 42 years on average. This is important because older homes are significantly smaller than new homes on average. Remote work means people need more space. Older homes typically need more repairs. And higher mortgage rates mean that people are much more likely to stay in their existing homes. Remodeling is a very attractive option for homeowners given strong levels of home equity across the U.S., a robust job market, and the fact that consumer balance sheets remain in good shape. Our home center customer takeaway remains strong, and we continue to be optimistic about lumber demand in the repair and remodel market segment. Moving to capital allocation, our top priority is to grow our regular dividend sustainably. The key to doing so is by increasing our stable cash flows through accretive acquisitions, such as the catchmark merger and the bolt-on timberland transactions that we completed in 2022. We increased our regular dividend 2.3% last December. We also remain committed to repurchasing our shares only when they trade at a significant discount as part of our overall focus on growing shareholder value over time. To that end, we have an active 10b-5-1 share repurchase plan in place. In total, we have $150 million remaining on our $200 million repurchase authorization. We will also continue to carefully balance share repurchases against other capital allocation options like M&A. At the end of the quarter, we had $326 million of cash on the balance sheet and liquidity of $625 million. Our leverage remains low, and our financial strength provides a solid platform to continue growing shareholder value. Regarding environmental, social, and governance, our reporting team is hard at work preparing our fourth annual ESG report, which we plan to publish in May. Recently, we are also one of six finalists for IR Magazine's Best Mid-Cap ESG Reporting Award. Potlatch Delta has a strong ESG story, and we are committed to doing our part to mitigate climate change and continue our legacy of responsibility across the ESG spectrum. To wrap up my comments, Potlatch Delta remains very well positioned with a strong balance sheet and liquidity to continue increasing shareholder value. I will now turn it over to Wayne to discuss our first quarter results and our outlook.