PotlatchDeltic Corporation

Good morning, and welcome to Potlatch Deltics.

Third Quarter, 2023 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 our presentation slides, and in our filings with the SEC regarding the risks associated with these forward-looking statements. Please note that a reconciliation of non-GAAP measures can be found on our website at www.potlatchdeltic.com. I'll turn the call over to Eric for some comments, and then we'll review our third quarter results and outlook.

Thank you, Wayne. Looking at our third quarter results, we reported total adjusted EBITDA of $56 million after the market closed yesterday. These solid results reflect improved financial performance across all of our business segments compared to the second quarter. Our wood product segment suggested EBITDA was $15 million in the third quarter compared to $12 million in the second quarter. Slightly higher average lumber prices were the primary driver of the improved results. We have seen a steady decline in the composite lumber price since peaking in late July. driven by several ongoing headwinds, including higher interest rates, housing affordability challenges, and declining consumer confidence. We believe lumber prices are starting to bottom out as the lumber composite price hovers in the upper $300 per thousand board foot range. We continue to remain optimistic about long-term housing fundamentals that drive demand for our business, but overall macroeconomic concerns remain. For the third quarter, we shipped 276 million board feet of lumber, which was slightly below the volume we shipped in Q2, but 11 million feet more than we shipped in Q3 of last year. We remain focused on executing our capital project plan, including our $131 million project to modernize and expand our Waldo, Arkansas sawmill. We continue to hit our major milestones on the Waldo project, which is on track to be completed by the end of 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. Our timberland segment generated adjusted EBITDA of $42 million in the third quarter compared to $29 million in the second quarter. We harvested 2 million tons in the third quarter, achieving the high end of our Q3 forecast harvest range. Dryer logging conditions combined with good execution by our team resulted in setting a record for quarterly volume in our southern timberlands business. Southern saw log and pulpwood markets remained stable during the third quarter. Our real estate segment contributed $14 million in adjusted EBITDA to our third quarter results. On the rural side of the business, we sold 3,300 acres at over $3,500 per acre. We continue to see strong demand for rural properties at significant premiums to core timberland values. Additionally, our real estate team capitalized on our recent stratification of the Ketchmark Timberlands as nearly half of our rural businesses' quarterly performance was attributable to the acquired Ketchmark portfolio. On the development side of our real estate business, we sold 32 residential lots in our Chenal Valley master plan community at an average price of $89,000 per lot and completed a commercial land sale for $1.4 million. We have had good absorption on our lot offerings for the majority of this year, but we are starting to see modest signs of slowing by regional builders in Chennault Valley on the take-up of our new lot offerings. Turning to natural climate solution opportunities, we continue to build momentum in this area. Our team is making good progress on our carbon credit project on approximately 50,000 acres of low-lying hardwood timberlands in the south. We are currently working through the certification process with a very reputable firm to establish high-quality carbon credits. We anticipate completing the process around the end of the first quarter of next year with submission to the market immediately following the certification and envision having the credits sold by mid-year. We are also exploring other NCS opportunities to supply mill residuals and pulpwood to pellet manufacturers, bioenergy providers, and biofuel producers. As for solar deals, we continue to see strong interest from solar farm developers in the south. We now have nearly $200 million on a net present value basis of solar land sale and lease options under contract, representing less than 2% of our timberland acreage. In fact, since last quarter, we have executed four new solar option contracts with a net present value of $70 million in the aggregate. We believe all of these natural climate solutions opportunities will increase the demand for our rowland and drive our timberland values higher. Shifting to housing, demand for new single-family residential construction has remained resilient despite an elevated mortgage rate environment. With a historically low level of existing home inventory for sale in the U.S., prospective homebuyers are looking at purchasing a new home versus an existing home. Though down from last year's 1.6 million unit run rate, housing starts have hovered around 1.4 million units this year. While new residential home demand has been relatively stable over the course of this year, persistently high mortgage rates are taking a toll on homebuilders' confidence. After increasing for seven months in a row beginning in January of this year, homebuilders' sentiment has reversed course and trended downward over the last couple of months. Current housing headwinds, including higher mortgage rates, which are approaching 8%, housing affordability and uncertainty on the overall direction of the U.S. economy are weighing on demand. But we continue to remain positive on longer-term housing fundamentals, which drive demand for our business. We believe an underlying shortage of housing stock, which some estimate to be between 2 and 4 million units, and favorable demographics will provide positive tailwinds to the housing market. Turning to the repair and remodel segment, demand in this area has been strong, and we expect it to remain solid. We believe that in this higher interest rate environment, the repair and remodel market is being supported by homeowners that are staying in their existing homes and renovating versus moving into a new home. And aging housing stock, remote work, and high home equity levels also support the R&R market. No doubt high interest rates and falling existing home sales will temper repair and remodel spending over the coming year, but we remain optimistic in this market segment. In fact, our home center takeaway continues to remain strong and is up 15% year-to-date over last year. Moving to capital allocation, we repurchased 283,000 shares for $13 million during the third quarter and repurchased an additional 264,000 shares for $12 million since the end of September. All of these shares were repurchased for an average of $45 per share under our 10 plan. We have an additional $125 million remaining on our existing repurchase authorization. We follow a disciplined capital allocation strategy, including when we issue shares to acquire strategic assets and when we repurchase shares. For example, When we entered into the Catchmark merger in May of 2022, we utilized our shares valued at $56 per share to fund the acquisition. Since we announced the merger, we have repurchased 1.8 million shares for $80 million at an average price of $45 per share, which we believe is well below our estimated net asset value. We continually evaluate all of our capital allocation opportunities to grow shareholder value over time, and we will not act hastily towards any of our options and will continue to remain disciplined and opportunistic in our approach. Regarding environmental, social, and governance reporting, in addition to the publication of our fourth annual ESG report in May, we issued our second annual carbon and climate report in early October. Our carbon and climate report highlights, among other items, the potential impact of various climate change scenarios on our southeast timberlands and our lake state sourcing areas. Potlatch Delta is committed to social and environmental responsibility and strong governance practices, and we are proud of our progress and the initiatives we have underway in these areas. To wrap up my comments, Potlatch Delta continues to be very well positioned with an investment-grade balance sheet and a portfolio of high-quality assets. We will continue to maintain a disciplined and opportunistic capital allocation strategy as we seek to maximize shareholder value over the long term. I will now turn it over to Wayne to discuss our third quarter results and our outlook.