PotlatchDeltic Corporation

conference call. All lines have been placed on mute to prevent any background noise. After the speaker remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star and the number one on your telephone keypad. Once again, star one. And if you'd like to withdraw your question, press star one again. Thank you. I would now like to turn the call over to Mr. Wayne Wacecheck, Vice President and Chief Financial Officer for Opening Remarks. Sir, you may proceed.

Good morning, and welcome to Potlatch Deltics second quarter 2024 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. Please note that a reconciliation of non-GAAP measures can be found in the appendix to the presentation slides and on our website at www.potlatchdeltic.com. I'll turn the call over to Eric for some comments, and then I will review our second quarter results and our outlook.

Well, thank you, and good morning, everyone. Thank you for joining us. Yesterday, after the market closed, we reported second quarter total adjusted EBITDA of $103 million. This is a $73 million increase from the first quarter and was largely driven by strong real estate performance. Overall, we had solid operational execution across each of our business segments despite the current economic environment and languishing lumber markets. Turning to our second quarter results, starting with our Timberlands division, This segment generated adjusted EBITDA of $34 million in the second quarter. We harvested 1.9 million tons, exceeding our Q2 harvest plan, as better-than-expected weather conditions in both our northern and our southern regions provided favorable logging and hauling conditions. Saw log prices in Idaho increased due to our indexed agreements, coupled with higher cedar prices. For the south, our average southern log price realizations were comparable to the first quarter despite challenging lumber market conditions. Moving to our wood products segment results. Adjusted EBITDA was a loss of $7 million in the second quarter compared to breakeven in the first quarter. During the second quarter, lumber markets remained challenging as seasonal home building activity did not result in tightening lumber markets. While there is weakness across all lumber markets, It has been most notable for our southern yellow pine. Southern yellow pine prices are at historically low levels, which stem from pronounced weakness in multifamily construction, declining demand from treaters, and ample supply of product. While depressed lumber markets continue to weigh on our wood products results, we continue to focus on the areas we can control, including optimizing our product mix, efficiently running our mills, and effectively managing costs. As we look towards Q3, we believe lumber prices are at or near the bottom as we have seen recent signs of a modest upward trend in lumber prices. Entering the back half of the year, we have reached several significant milestones with our $131 million Waldo, Arkansas sawmill modernization and expansion project. The project continues to progress well with completion in Q3 remaining on track and within budget. In the early part of the third quarter, the mill will undertake a limited period of downtime to tie in the new equipment. This downtime is expected to reduce our wood products division lumber production by approximately 10% or 25 million board feet in the third quarter. Following completion, we anticipate a ramp up in production through Q4 and into next year. Based on other brownfield additions in the industry that we have seen, We expect it will take 6 to 12 months to reach the mill's new capacity of 275 million board feet per year. As a reminder, the project will increase the mill's annual capacity by 85 million board feet, will improve recovery by approximately 6%, and reduce cash processing costs by about 30%. Once the ramp-up phase is completed, we expect the mill to generate approximately 25% million of incremental EBITDA annually under a mid-cycle sales environment with this project. Shifting to our real estate segment, this business generated $90 million in adjusted EBITDA in the second quarter. Our rural real estate side of the business produced very strong financial results as we successfully completed this sale of 43,000 acres at an average of $2,000 per acre during Q2. The highlight of our second quarter rural real estate activity was a closing of the previously announced 34,000 acre young timberland transaction for $57 million. As discussed on the last call, the timberland was sold at a significant premium as it was just four years old and had no meaningful cash flows for the next 20 years. The quarter also included other value-added transactions at significant premiums to timberland value, including a 2,000 acre conservation land sale in Arkansas $4,700 per acre. Demand for rural real estate continues to remain quite strong. The development side of our real estate business remains steady in this higher interest rate environment. During the second quarter, we completed a $6 million commercial land sale and sold 13 residential lots at an average price of about $113,000 per lot in our Chenal Valley Master Plan community in Little Rock. While we fell short of our residential lot sales outlook in the second quarter, we remain optimistic about our residential sales the remainder of this year, based on strong take-up from regional builders on our latest residential lot offerings just this past week. Regarding our emerging natural climate solutions business, it continues to evolve and grow. Starting with solar opportunities, our portfolio of option contracts with solar developers continues to expand, with four new contracts added since the last quarter ended. Our inventory of solar option contracts now represents 27,000 acres, or over 1% of our entire timberland holdings, with an estimated value of approximately $300 million on a net present value basis. Given the appetite the utility sector continues to demonstrate for solar energy, we anticipate further growth of our pipeline. By year's end, we expect our solar option contracts portfolio to include over 30,000 acres with an estimated net present value of roughly $340 million. We're also actively pursuing an NCS opportunity focusing on subsurface leases for lithium deposits crucial for battery production. Notably, certain areas of our timberlands in southern Arkansas feature geological formations that offer promising prospects for lithium. Currently, we are engaged in discussions with selected counterparties regarding the initial leasing of a portion of our subsurface rights. Shifting to forced carbon credit opportunities. The voluntary carbon credit market for high quality credits continues to grow. Carbon registries that support voluntary markets continue to evolve in order to ensure high quality credits are being brought to market. In fact, the leading carbon registries are shifting their methodologies to have projects adhere to the relatively new Core Carbon Principles, or CCP, established by the Integrity Council for the Voluntary Carbon Market. These relatively new Core Carbon Principles are quickly becoming widely recognized as establishing a global benchmark for the highest integrity carbon credits found in the voluntary marketplace. Consequently, we believe that forced carbon credits that are labeled CCP will garner the highest demand and therefore will obtain premium pricing. With this in mind, we are shifting our approach and redesigning our 50,000 acre southern Timberland carbon project to meet these new CCP standards. We believe this will ensure our project or any future projects that we identify will be globally recognized as having real and verifiable climate impact under a transparent methodology using best practices, along with creating strong demand and premium pricing. Once we further assess the redesign of our carbon project, which is expected by the end of this year, we will have a clearer picture of the type and time horizon of bringing a CCP-labeled carbon project to market. We have also identified potentially valuable prospects in carbon capture and storage, as well as bioenergy and biofuels. While these ventures are not expected to materialize immediately, they hold the potential for substantial value in the long run. We continue to believe that all of these natural climate solutions opportunities will increase demand for rural land, likely driving timberland values higher due to increasing and diverse cash flows. Moving to capital allocation, we remain committed to our disciplined and opportunistic approach, and we constantly evaluate all of our capital allocation opportunities to grow shareholder value over time. In the current economic environment, capital allocation is dynamic and can change from quarter to quarter. Aside from our dividend, share repurchases were a very attractive option in Q2, as we were trading considerably below our estimated net asset value. In the second quarter, we returned $25 million to shareholders through share repurchase activity. Approximately 610,000 shares were repurchased at an average price of $41 per share. We have now utilized half of our current share repurchase authorization with $100 million remaining under the program. Now, turning attention to the U.S. housing market, the overall market continues to be weighed down by elevated mortgage rates and affordability challenges. Despite these factors, new single-family residential construction continues to demonstrate a fair level of resilience as starts have exceeded 1 million units in seven out of the last eight months. This has contributed to some level of stability in the market. This level of activity has been supported by large home builders continuing to use incentives such as mortgage rate buy-downs to address affordability. As for the multifamily segment of new residential construction, it has experienced a pullback due to an influx of supply entering the market and the excessive cost of financing construction. There are some positive macroeconomic indicators, including inflation data, showing signs of easing. If this trend in inflation continues, it is anticipated that the Federal Reserve will start to pivot from its restrictive rate policy and begin to lower rates, possibly as early as September. Consequently, we would expect the housing market to see renewed momentum once mortgage rates drop. Not only would new homes become more affordable, but existing home sales would improve as well, as existing homeowners are not as locked into a low mortgage rate. Longer term, we remain optimistic on new residential housing fundamentals. This is supported by an underlying shortage of housing stock, which some pundits estimated 4 million units and a strong demographic tailwind. Now, moving to the repair and remodel segment, which in fact is the largest demand driver for lumber, demand in this market has softened, especially in the do-it-yourself segment. The near-term headwinds on repair and remodel appear to be driven by elevated interest rates, thus raising the cost of discretionary projects, coupled with the low turnover of existing homes, which typically spurs R&R activity. Looking forward, Favorable longer-term fundamentals continue to remain with an aging housing stock at over 40 years on average, continued work-from-home policies, and elevated home equity levels. Back in May, we released our 2023 Corporate Responsibility Report, highlighting the continued momentum we are generating around our corporate responsibility goals and initiatives. Looking ahead, we continue to be diligently focused on completing our strategic modernization and expansion project at the Waldo Sawmill on schedule, within budget, and with the utmost safety for our employees and our contractors. Additionally, we remain committed to enhancing operational and financial performance across all of our business segments, and in light of tough market conditions, have implemented additional cost controls across all of our mills. Our investment-grade balance sheet, ample liquidity, and disciplined capital allocation strategy position us to deliver long-term value for our shareholders. I will now turn it over to Wayne to discuss our current second quarter results and our outlook.