PotlatchDeltic Corporation

Good morning and welcome to Potlatch-Delta's first quarter 2025 earnings conference call. Joining me on the call is Eric Creamers, Potlatch-Delta's president and chief executive officer. This call will contain forward-looking statements. Please review the cautionary 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 in the appendix to the presentation slides and on our website at .potlatchdelta.com. I'll turn the call over to Eric for some comments and then review our first quarter results and our outlook. Well, thank you, Wayne, and good morning, everyone. Thanks for joining us. Following a market close yesterday, we reported total adjusted EBITDA of $63 million for the first quarter. I'm pleased with our solid operational performance across all businesses despite the prevailing economic and trade policy uncertainties affecting the market. Our financial performance improved compared to the fourth quarter in all three of our business units, demonstrating strong execution by our teams, the resilience of our operations, and the positive effects of our strategic investment in the Waldo Arkansas sawmill. Starting with timberlands, our teams in Idaho in the south did a great job of producing higher than planned harvest volumes during what is typically a seasonally slower period. This incremental volume was particularly advantageous in Idaho as we benefited from an increase in saw log prices due to our indexed saw log agreements, coupled with higher cedar prices driven by strong regional demand. In our wood products business, lumber markets were dominated by tariff discussions throughout most of the first quarter. The random lengths, Western SPF composite price rose by $60 during the quarter in anticipation of Canadian tariffs. As the tariff deadlines loomed, buyers refrained from building inventory to hedge their positions, preferring instead to continue to purchase for near-term needs. With Canadian lumber tariffs currently on hold, it remains to be seen how much of this run-up of SPF prices in Q1 will unwind. Conversely, Southern Yellow Pine markets did not experience near the pricing benefit as SPF. Nonetheless, Southern Pine lumber markets were more active and prices remained relatively firm during the quarter. Lumber markets continue to face relatively tepid demand from end markets. That said, the capacity curtailments announced last year continued to impact the market, providing greater balance to supply and demand dynamics and helping support lumber prices. Additionally, pending regulatory actions related to Canadian duties and potential tariffs have provided support to pricing thus far this year, and that should continue as we move to the second half of the year. Canadian producers, who supply approximately 25% of U.S. demand, were recently spared from reciprocal tariffs. However, there are already well-established softwood lumber duties on imported Canadian lumber, which are adjusted annually. Preliminary Canadian softwood lumber duty rates that will take effect later this year were announced, and they are higher than current levels. The preliminary quote all others rate is set to increase from 14% to over 34%, more than double the current rates once finalized. Furthermore, on March 1, the Secretary of Commerce initiated a Section 232 investigation to determine the effects of imports of lumber and derivative products on national security. Commerce will evaluate the extent to which U.S. production can meet domestic demand and the feasibility of increasing domestic timber and lumber capacity. The findings of this investigation could lead to the inflammation of tariffs on all lumber imports into the U.S. and would be incremental to the already established Canadian softwood lumber duties. During Q1, we shipped 290 million bt of lumber, which was 10 million bt over the upper range of our Q1 guidance. This overperformance to plan was mainly driven by our Waldo Arkansas sawmill. The ramp-up and performance of this mill has gone extremely well. In fact, by March, we were consistently achieving a run rate that matches its new targeted annual mainplate capacity of 275 million bt per year. By hitting the mill's targeted key production metrics, including improvement in recovery rates and a 30% reduction in cash processing costs, we have now completed the ramp-up phase of the project three months ahead of schedule. This modernization and expansion project at Waldo has significantly enhanced the the mill and is expected to generate approximately $25 million in incremental EBITDA annually, assuming a mid-cycle sales environment. Moving on to our real estate segment, this business continues to benefit from demand for rural real estate, particularly for conservation and recreational purposes. We sold over 7,000 acres in the first quarter, including several larger transactions which contributed to achieving notable premiums to Timberland value. Steady demand is expected to persist as buyers seek hard assets like rural land against an environment of significant volatility and many other asset classes. Now, turning to our natural climate solution initiatives, solar continues to be very active. Since the end of 2024, we have expanded our acres under solar option contract by an additional 3,000 acres. This increases our total acreage under option to $38,000 with an estimated net present value of around $475 million. In recent conversations with solar developers, they continue to view their solar projects as viable and are therefore proceeding with their plans. Another promising NCS opportunity for us is in lithium, as a portion of our property in southwestern Arkansas has potential for lithium development. We began our first step in potentially monetizing our land for lithium development this year by granting exclusive rights to a lithium developer to conduct brine exploration and production on approximately 900 service acres in Lafayette County, Arkansas. The lease anticipates an initial five-year term for planning, engineering, and construction before potential production begins. Additionally, we are actively engaged in discussions on executing another large mineral rights lease in southwestern Arkansas. Regarding forest carbon offsets, we are in the process of developing an improved forest management carbon offset project aimed at storing carbon in our forest, which we believe will generate cash flows that exceed our business' usual baseline. At this stage, we are currently conducting feasibility studies with reputable project developers that focus on potential projects in our southern timberlands. Due to the complexity and care required to develop a high-quality carbon project, we would target to bring a meaningful project to market sometime in the next 18 to 24 months. In addition, we continue to pursue a range of other longer-term natural climate solution opportunities, including carbon capture and storage, and new markets for biomass such as bioenergy and sustainable aviation fuel. For CCS, we are exploring projects for development in a block of our timberlands in northern Louisiana that would support CO2 storage for potentially new emitting facilities in the region. We believe initiatives like these will ultimately increase demand for our rural land, likely driving timberland values significantly higher. Shifting to our capital allocation strategy, we maintain a balanced and disciplined approach, especially given current lumber markets and the uncertainty surrounding the broader economy. Our stock continues to trade at a significant discount to our estimated net asset value, in addition to yielding over 4.5%. As a result, share repurchases remain more attractive than acquiring timberlands or other capital allocation options. In the first quarter, we purchased $4 million of our common stock through our 10B51 program, at an average price of $45 per share. And we have bought another $4 million at $40 per share so far this quarter. Our solid financial position, coupled with our liquidity profile, allows us to continue being opportunistic with capital deployment as we move through the year. Turning our attention to the U.S. housing market, overall macroeconomic conditions continue to constrain consumer confidence and challenge affordability, leading to low buyer urgency in both new and existing home sale markets. While large U.S. home builders have pointed to a slower start to the spring selling season, annualized U.S. housing starts are stable, averaging nearly 1.4 million units. Single-family home building starts remained resilient near the 1 million unit level, as the larger public home builders continue to offer rate buy-down incentives to drive home sales. The multi-family home building segment remains challenging due to the restrictive construction financing and an oversupply of units which continue to be digested in the market. For existing homes, inventory has risen, but sales remain on pace with last year's low level as interest rates continue to be elevated and existing homeowners wanting to move are continuing to choose to stay in their current homes due to the lock-in effect of their low mortgage rates. Despite the current state of the housing market, the key drivers of inherent housing demand remain positive. These longer-term structural tailwinds include the massive undersupply of homes, a substantial demographic shift as millennials transition to homeownership, and strong household formations. We believe that once the constraints on housing affordability ease, this will serve as a catalyst for upward momentum in lumber demand. Shifting to the -to-model sector, the level of activity so far this year has remained relatively stable. On the one hand, underlying demand continues to be held back by several near-term challenges, including falling consumer confidence and elevated financing costs for discretionary home improvement projects. However, leading R&R pundits predict modest gains in -to-model as we move through the year, and big-box retail centers are forecasting slight growth in comparable store sales. For our own home center business, we have strong takeaway, and we expect this trend to continue. Additionally, the factors influencing demand for R&R remain intact, including an aging housing stock with a median age over 40 years, historically high home equity levels, and the enduring trend of people working from home. To close out my comments, while the near-term may be volatile and uncertain, we have a favorable view of long-term fundamentals in our industry. Lumber prices have made a strong run since last summer in what has been a flat demand environment. And our view is that once markets settle down, demand will return, and as demand returns, pricing should improve as well. Combined with our strong balance sheet and excellent capital allocation track record, we are well positioned to deliver long-term value to our shareholders. We'll now turn it over to Wayne to discuss our first quarter results, as well as our outlook. Wayne Thank you, Eric. Starting from page four of the slides, total adjusted EBITDA increased $10 million, rising from $53 million in the fourth quarter to $63 million in the first quarter. This sequential -over-quarter increase is attributed to improved performance across all our segments, particularly timberlands, which benefited from higher salag prices in Idaho and increased harvest volumes in both Idaho and the South. I will now review each of our operating segments and provide more details on our first quarter results. Information regarding our timberland segment is presented on slides five through seven. The segments adjusted EBITDA increased from $34 million in the fourth quarter to $42 million in the first quarter, driven by higher harvest volumes, increased Idaho salag prices, and seasonally lower forest management costs. The first quarter's overall harvest volume exceeded our plan for Q1, marking a good head start to 2025. In Idaho, we delivered 368,000 tons in the first quarter, taking advantage of favorable logging and hauling conditions and adequate contractor availability. Salag prices increased by 9% per ton compared to the fourth quarter due to higher index and cedar salag prices combined with a slightly higher mix of cedar. Lower seasonal spending on forest management and roads also favorably impacted results. In the South, we harvested 1.6 million tons in the first quarter, slightly above our fourth quarter harvest volume and exceeding our Q1 plan by almost 170,000 tons. Favorable weather and better than anticipated demand for stumpage sales let us start the year ahead of schedule. In the first quarter, our southern salag prices decreased by just over .5% compared to the fourth quarter. This decline in price was mainly attributed to a shift in product mix, including a higher mix of smaller diameter saw logs and a lower volume of hardwood saw logs. Now, I will return to wood products, which is shown on slides 8 and 9. Adjusted EBITDA increased from $9 million in the fourth quarter to $12 million in the first quarter. The increase was by slightly higher average lumber prices somewhat offset by higher law costs in Idaho. Our average lumber price realization increased $9 or 2% from $445 per thousand board feet in the fourth quarter to $454 per thousand board feet in the first quarter. Comparatively, the random length framing lumber composite average price was about 6% higher in the first quarter compared to the fourth quarter. Note that a regional mix and product mix differs from the composite and there's also a timing difference between our sales and the composite. Lumber shipments increased by 7 million board feet, rising from 283 million board feet in the fourth quarter to 290 million board feet in the first quarter. This increase in shipment volume was primarily a result of the Waldo sawmill reaching its targeted production levels following the completion of our modernization and expansion project. Shifting to real estate on slides 10 and 11. The segment generated adjusted EBITDA of $23 million in the first quarter compared to $19 million in the fourth quarter. In our real estate, rural real estate business, we sold over 7,000 acres at an average of $3,300 per acre during the first quarter. Our first quarter results include three significant rural real estate sales including a conservation land sale in Georgia for over $7 million at approximately $3,300 an acre. We continue to leverage strong demand for rural estate across all buyer segments but particularly for conservation outcomes and recreational purposes. In the Chenal Valley development side of our real estate business, 11 residential lots were sold at an average price of $113,000 per lot in the first quarter. These sales were in line with our expectations due to the level of inventory available. Turning to our capital structure, summarized in slide 12, at the end of Q1, we had $447 million in liquidity including $147 million of cash on our balance sheet as well as availability on our undrawn revolver. Net interest expense was approximately $2 million in the first quarter which is the lowest level for the year since we received the vast majority of our annual patronage payments from the farm credit banks during this quarter. We have $100 million of debt maturing in August which we plan to refinance. We also have available $75 million of notional forward starting interest rate swaps to lower borrowing cost for this debt refinancing. As Eric mentioned, we have been actively repurchasing our shares as our stock continues to trade at a significant discount to net asset value. Thus far this year, we have spent $8 million on share repurchases having bought back 188,000 shares for an average of $42 per share under our 10B51 plan. We have $82 million remaining on our $200 million repurchase authorization. Capital expenditures totaled $23 million in the first quarter. This amount includes real estate development expenditures which are included in cash from operations and our cash flow statement. For the full year, we continue to anticipate capex spend of $60 to $65 million which excludes the final closeout payment of $6 million for the Waldo Saamel project that we made in Q1 and any potential timberland acquisitions. I will now provide some high-level outlook comments. The details are presented on slide 13. In our timberland segment, we plan to harvest between 1.6 and 1.7 million tons in the second quarter with approximately 82% of the volume coming from the south. Harvest volumes in the north are expected to be seasonally lower in the second quarter compared to the first quarter due to the anticipated spring breakup. Also, northern sololog prices are expected to remain mostly flat. In the south, we plan to harvest 1.4 million tons in the second quarter and we expect our southern sololog pricing to remain relatively stable as well. We plan to ship 300 to 310 million bt of lumber in the second quarter. With Waldo now operating at full capacity, achieving this shipment level will set a new quarterly record. Our average lumber price thus far in the second quarter is $475 per thousand board fee which is roughly 5% higher compared to our average lumber price in the first quarter. This is based on approximately 100 million board feet of lumber. Shifting to real estate, we expect to sell approximately 8,000 acres of rural land and roughly 20 Chenal Valley residential lots in the second quarter. Further details regarding real estate can be found on the slide. Overall, we estimate the second quarter total adjusted EBITDA will be lower compared to our first quarter results due to seasonally lower harvest volume and higher forest management costs. That concludes our prayer remarks. Rob, I would now like to open the call to questions.

Thank you. We will now begin the question and answer session. If you would like to ask a question, please press star 1 in your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star 1 again. Your first question comes from the line of Keetan Mamtora from BMO. Your line is open.

Good morning and thanks for taking my question. Can you talk a little bit about the demand trends that you are seeing both in the New Energy Channel and the R&R channel as we move through April? As you pointed out, it seems like things have gotten off to a slow start. I'm curious what you're hearing from your customers as we move through the busiest time of the year.

This is Eric. The way I would describe the current market environment for lumber is that things are decent. I do believe it is a little bit of a tale of two cities right now. I believe the South is on firmer footing than the North. In fact, I would tell you that right now prices are $10 to $20 per thousand board feet higher than what the latest random lengths print is for the various southern species and dimensions. I would tell you that the North is actually selling a bit below the latest random lengths print. The South has been on pretty much an upward trajectory since the start of the year with pre-directivity, very solid. If I had to speculate as to why it's a tale of two cities, I don't think it's because demand is different between the North and the South. I folks, the customers are basically digesting some inventory that they bought in anticipation of lumber tariffs, which of course didn't happen. Our home center takeaway remains relatively good. I think our -to-day volumes are running something like 4% above the prior year. We are getting into the slower summer months. If I had to guess, I think you'll see a little pullback here over the next month or two. We've already seen random lengths pull back 3% or so from the peak. I think as you get out, I don't know if it's going to be in July or August or September, but at some point the expectation, those duties going higher, is going to compel people to start building inventories. Like I said, I don't know which month it's going to happen, but it's going to happen. The price risk is clearly to the upside in the back half of the year. We are in a relatively flat demand environment. Just look at housing starts. We're stuck at 1.4. Our markets, I think, are a little bit better than new residential construction, but even that, we're talking about modest demand improvement. That's how I see the backdrop here, but I do think the price risk is to the upside.

I'm just curious. You talked about maybe in the north, folks buying in anticipation of tariffs. As we sit here today, how would you characterize channel inventory?

Well, I think we're at relatively low levels. The industry has learned to operate at relatively low levels over the years. People don't like holding inventory, speculating on where prices are going to be headed. Also, we're in a relatively high interest rate environment, so there are carrying costs to holding high inventory levels. I think the industry is running at a relatively low level of inventories with the exception of maybe some of the northern species. There may still be a little bit of inventory hangover from the potential for inventory building due to tariff concern.

Understood. Wayne, one for you. In terms of second quarter northern soil off price realizations, my understanding is generally going from Q1 to Q2, we see a pretty meaningful improvement just from the density component. Is that getting offset by some of the that's going on?

Yeah, Keaton, you're right. There is the positive effect of weight in the second quarter, but that's being our forecast is that's offset by lower pricing. Now, keep in mind that with spring break up, we'll start moving logs here in the month of May, so there's nothing in April. Then the first, those shipments and those deliveries in May will have April pricing. We've seen a little bit of rollover in northern pricing in April, so that's what's the effect is what we're anticipating.

Got it. That's helpful. I'll jump back in the queue. Good luck.

Thanks.

Your next question comes from a line of Anthony Pentenari from Citi. Your line is open.

Good morning. Good morning. Just following up on Keaton's question, when tariffs were announced

on Liberation Day, we didn't get Canadian lumber tariffs, but we did get very high tariffs on everything else.

When Liberation Day happened, did you see a significant change in your order book or did your dealer

customers, did they communicate a big change in their demand or maybe even on the real estate side? I'm just curious what impact that event happened

or what that did to end consumer demand, if anything. I don't really know that it changed end consumer demand a whole lot, Anthony. I'm sure some folks were speculating that there were going to be tariffs on imported Canadian lumber. And when it didn't happen, all of a sudden people had inventory that they had to let come back down again. But I think most of the market never really anticipated a huge inventory. Now, the 232 tariff is still hanging out there, and I do actually think there's going to be a tariff for lumber this fall. It's anybody's guess as to what that might be. But back to your question, I don't know it really changed a whole lot other than there may have been some advance ordering for SPF or SPF corollary species like hemphir, dougphir. There may have been some people out buying in advance of Liberation Day, and then that had to be unwound. But I don't think that the effect was huge. Okay, that's helpful. And then when we do go from, I guess, 15% to 34%, 35%, do you think Canadian lumber volumes into the US basically get shut down? Are they maybe able to absorb some of those costs or not pass those on to the end consumer? What actually happens to Canadian volumes when we get up to a 34%, 35% duty,

I guess, when you think about history?

Yeah, I think it's going to be a little bit of both. I think there are going to be some competitors. If you're a West Frasier and you've got mills in Canada and you've got mills in the South, you can absorb some of that higher duty and keep operating. If you're a smaller independent operator and you've got one mill in Canada and you're disadvantaged with expensive logs, it's going to be a world of hurt. I do expect there to be more mill closures or curtailments up in Canada as we get into the fall with these higher duties. A 34% duty is pretty onerous. Got it. Got it.

That's helpful. I'll get back in the queue. Thanks.

Your next question comes from a line of George Staffos from Bank of America. Your line is open.

Hi, everyone. Good morning. Thanks for the details. Recognizing that we're not at mid-cycle pricing yet in lumber,

what do you think

Waldo's actual

contribution was on a year on your basis to the EBITDA in the wood product segment? Any sense that

you could relate to us?

Well, what I'd say so far, George, is that it's not where we want it to be. It's not because the mill is not running well. The mill is running exceptionally well. I think the real issue right now is pricing. That mill generally runs wider dimensions, not narrow dimensions. This spring in the south, it was relatively dry. Logs were accessible. We didn't get the price run up and wide this spring that we would normally get. We've had one quarter where pricing isn't exactly where I'd like it to be. But I do have an expectation for higher prices as the year progresses. I especially have a higher price expectation for next year as I think starts are going to come back and R&R is going to be on firmer footing next year. I have no doubt Waldo's going to grow into pro forma. It's not quite there yet, but it's getting there. Okay. I appreciate that, Eric. Switching gears a little bit, you had a reasonably constructive quarter in real estate. I think you noted that overall prices went up. But from our vantage point, looking at some of the trade periodicals, it looks like activity in the south in particular has been a little bit sluggish. I don't think there's been a meaningful change in pricing per acre. Now, if you agree with that, what do you think is happening? If you have a different view of things, please relay what you're seeing in the southern markets, recognizing it's not a monolithic market. There are going to be different regional trends. How would you paint that picture for us? Yeah, George, this is Wayne. I think it would start with looking at our rural real estate business. Typically, smaller transactions. Again, that market, we're seeing strong demand. We forecasted our guidance is 26,000 acres this year. So, still a strong environment. We've seen that in Q1. We're forecasting another 8,000 acres in Q2. So, the pipeline looks strong there. Demand is strong from conservation to recreational. But those tend to be smaller sales, relatively speaking. Now, if you're kind of referring to the broader M&A environment, with larger transactions, 10,000 plus acres, yeah, we're still seeing, there's a lot of buyers tracks. And the demand and the pricing, lower discount rates, yeah, that's still a healthy market. So, it's still very strong from an M&A standpoint. Now, there's not a lot of acres and transactions coming to market. But the ones that do that are quality tracks, yeah, we're seeing a lot of buyers for those, or a lot of bidders, ultimately, for those tracks. Do you anticipate there'll be a little bit more activity in the larger transactions at some point? If so, what would be the catalyst from where you said it's just rates coming down or something else that would be a driver for you from what you see? I think rates could influence it, but also maybe more clarity on where NCS plays out. I think some sellers are waiting for a little more clarity or the ability to monetize more of the NCS opportunities. So, I think that could, once that picks up, you could see more properties coming into market. I think that's a big factor. Okay. Last two from me and I'll turn it over. Can you talk, maybe you mentioned I'd missed it, why you saw more mix for small diagonal logs in south, what was driving that, recognizing ultimately you have to be opportunistic in your markets, whatever you have, you have. And then just as we think about to Q and the guidance, we appreciate that color that you provide. We have maybe not the pricing you want, but we do have wallow coming up. We do have pricing and wood and

lumber up, although I know you said that's maybe pulling

back a bit. How would you us think about at least directionally the segment trends to Q versus one Q? Should we expect that wood is up given that backup or might it also be lower for whatever reason? So mix in the south and sort of the bridge, whatever you can relate there for two Q and I'll turn it over. Thank you. Yeah. So George, on your mix question, yeah, it's just a function of really just wet weather. So when it's weather in the south for us, especially in the Gulf south, we can't get as deep into the woods where larger logs are at. So we stick closer to the roads where that tends to be more chip and saw and that chip and saw sells for a lower price point. So again, that's just a kind of weather driven and a reflection of that. I would say from a stable by product. So again, it's really mixed driven on the thinking overall from a guidance standpoint. Yeah, we're, as we said in the prepared remarks, you know, on about a third of our shipment volume, forecasted shipment volume for the quarter, we're up 5% on the pricing standpoint. You know, how much of that holds for the rest of the quarter? Yeah, that's hard to say. I mean, random length has come down a bit, but still, you know, we're up 5% quarter to date. You know, how much of that will roll through on wood products? But still, we think we're kind of at that level where we've come in and it came to or, you know, even a bit higher for wood products. I appreciate it. Thank you, Wayne.

Your next question comes from a line of Mark Weintraub from Seaport Research Partners. Your line is open.

Thank you. Just actually first wanted to follow up on this, the lumber pricing in the second quarter. In the slide, you have it flat. So are you, when you provide that guidance of expecting EBITDA to be lower than Q1, is that assuming that you give back the 5% through the balance of the quarter and so that lumber prices are flat?

Yeah, so Mark, you know, we're up 5% spot 10 quarter to date in lumber. We're indicating flattish prices for Q2. Now, is it up 3? Is it up 4? Is it down 1? I think our expectation is for it to be kind of where it's at, maybe a little soft. We've seen random lengths roll over 3% from the peak, so it could come down a little bit. I wouldn't read too much into us saying that lumber prices are going to be flat. It'll be in that zip code. We are expecting our wood products business to have higher earnings in the second quarter than the first quarter. Timberlands is where we expect earnings to come down, and we expect it to come down through normal seasonality. So that's where the drag on the P&L is going to be in Q2. It's not going to be in wood products.

Right, although I guess I was trying to, because I would have thought wood products would be up, and if you have prices up 3 to 4 or 5%, it actually would be up a decent amount. And so I'm really trying to get a sense as to how much you think timberlands are going to be down that you kind of say, even if prices are up 3 to 5%, that you're expecting Q2 to be clearly lower than Q1. So that sort of was the angle that I was trying to get a sense of. Any help there in maybe quantifying?

On the timberland side,

lower seasonal volume, pricing relatively flat in both regions. The other thing I would highlight is just normal seasonality from our forest management costs and roads. From Q1 to Q2, that's about an additional almost $4 million. So that's the other flip from Q1 to Q2 that's lowering results

on timberlands compared to Q1. Gotcha. That's helpful. Thank you. And then, so maybe first one other follow-up on lumber. You had mentioned, Eric, you had mentioned that you thought that there would be tariffs from the Section 232 investigations. I'm just curious, is there kind of what sort of the thought process behind that?

I just feel like I hear a lot of noise from the administration around lumber. And it's not just lumber, it's automobiles, aluminum, steel, the fact that it was singled out to be one of the industries under investigation. The fact that the US does have ample supplies of timber. The fact that it's well known that Canada basically subsidizes its lumber producers. I can't predict what the future hold marks. I just look at the anecdotes that I read in the paper and the back chatter that I hear. And it's just what my gut tells me is that there could very well be a tariff. There may not be, but who knows? Gotcha.

I don't know if they're engaging either industry groups or companies that are involved, but is that happening to your understanding? Yeah,

the Department of Commerce is talking to all sorts of people trying to figure out where to go with this.

Okay, gotcha. Okay, fair enough. And then lastly, you did buy back some more stock, your balance sheet is still strong, stock prices even lower. What's sort of a comfortable level of cash for you to have on the balance sheet?

Well, I think historically we've talked about having $100 million of cash on the balance sheet, you know, as a sort of a safety net, if you will. So, I mean, that's kind of how we're thinking about it. I'm not happy where the stock is at. I'm surprised we're executing extremely well right now across the business units. I think, like I said earlier, pricing risk is to the upside. And certainly share repurchases, it's moved to the top of the capital allocation, you know, toolkit here. So, we'll see where things go from here. Great, appreciate all the thoughts. Thank you.

Your next question comes from Alaina Buckhorn from Raymond James. Your line is open.

Hey, thanks. Good morning. I wanted to go back to the solar and lithium opportunities you guys are, you know, seeing a lot more progress with. And maybe you just help, you know, help us understand the potential timeline for when some of those option contracts would convert to more meaningful, you know, royalty revenues, or when would we see like a more meaningful financial contribution as those things move to, you know, full operational capability?

Yeah, for us,

Bob, we don't foresee one of these deals closing this year that we currently have under option. I think there's a strong likelihood next year that we would see one or two start to fall. And, you know, those option periods are anywhere from three to five years. So, that period is now starting to come to the tail end of those option cycles. You know, I would note that I think developers want to move forward. I think there's a lot of strong demand there. I think one of the challenges that we hear is just from the regulatory agencies, you know, they're backed up approving projects, which, you know, that stretches out the process. But, yeah, I think with that, you know, we stay in close contact with all of our developers and where they're at in the process and how it's progressing. And like I said, we think, you know, one or two will start to fall next year and then, you know, kind of the dominoes from after that.

So, gotcha, gotcha. That's very helpful. Thank you. And then switching to a little bit on the lumber side of the equation, thinking about, you know, you know, the potential for these duties and tariffs hitting various, you know, Canadian species of spruce, you know, that the home building industry usually is reliant on. Wondering if you're hearing of any talk about home builders trying to switch species or maybe get up to speed on using more yellow pine in their operation ahead of potential duties increases? Are you hearing or getting any, you know, increased interest from builders looking to get up to speed on using yellow pine in their operation?

Yeah, Buck, that substitution has been taking place over the past several years U.S. Southern Yellow Pine production has really grown. We are hearing about it more and more and I think it's just going to continue to grow as we move forward.

Okay. Is it any noticeable acceleration or change in that recently?

I would say we're hearing a little bit more chatter about it for sure. You know, I can't quantify it for you. I can just say that I am hearing about it more and more.

Okay. Appreciate the color. Thanks, guys. Good luck.

Thanks.

Your next question comes from the line of Matthew McKellar from RBC Capital Markets. Your line is open.

Thanks for taking my questions. Just a couple of quick ones for me. First, I think you mentioned higher cedar log prices in Idaho a couple of times in your opening remarks. Can you maybe just provide a bit of color what you're seeing in cedar markets? And then second, if we do see meaningful section 232 tariffs of wood products, what would be your view on the likely impact of timberland valuations over the medium term?

Yeah, Matt, up this way. And regarding cedar, I don't know, that's really our view is more of a kind of market specific what we're seeing in our region. The our customers think been short on cedar, and that's really been a regional, a regional mix and regional demand, which is driving prices up for us. So we've capitalized on that with our customers, specifically in the regions that we and the customers that we service. And Matt, I'll take the second one on your question regarding the 232 impact on timberland valuations. You know, it's really, really hard to speculate what that impact is going to be until we know more. Like how big is the tariff number one? And then number two, how long is that tariff going to last? You know, I think I've read in some places that the Canadians are going to, you know, turn to try to settle this dispute very quickly. And if that's the case, then I would say it's going to have little to no impact on timberland valuations. But if they dig their heels in, and the tariff goes on for an extended period of time, then I would say it could have a meaningful impact on timberland valuation. So it's just really hard to speculate where we wind up with all of this.

Okay, thanks very much for the color. I'll turn it back.

Your next question comes from a line of Mike Roxland from Truist Securities. Your line is open.

Thanks, Eric and Wayne for taking my questions and congrats on the quarter. Thanks. My first question is I want to go back to your southern saulong and pulpit harvests. Obviously, the QDI forecast, the senior urban guidance, I think Wayne, you mentioned favorable weather as being a contributor. Some of the harvests related to salvage wood from Hurricane Colleen as well. I mean, just trying to get a sense as to what really happened that drove the huge outperform in terms of harvest volumes for southern saulongs and pulpit in one camp. Yeah, Mike, for us salvage,

we're very little impact from Hurricane Colleen for us. That's

more coastal

in the south and we're more south central. So for us, not a big impact and not a driver of overperformance for the quarter. Look, it was both in Idaho, so we took advantage of favorable hauling conditions, logging hauling conditions in Idaho to outperform a little bit there in the south. Again, whether we could move volume. Also, just we have an estimate baked in of what we think stumpage will be a little bit stronger demand and stumpage in the first quarter. Now that doesn't change our overall forecast and what we'll sell for stumpage for the year, but it was just a little bit higher. Some of our customers wanted to get ahead of that to begin the year. So stumpage is up a little bit more than we anticipated.

Got it. Okay. That's helpful, Wayne. Thank you. In terms of NCS, you mentioned, obviously, solar is doing very well. You have the 35,000 acres under soil option. You've identified another 30 to 35,000 acres. You mentioned that last quarter. When you look at your portfolio in the US house, how much of your acreage do you think could ultimately be stratified for solar?

As we sit here today, it's in the low 70,000 acre kind of range. But I think one of the things that it's hard to know is these are the obvious sites, the 70 to 75,000 acres that I'm referring to. Do the economics of solar get to the point where you can go a little bit farther with your solar farm from the grid? Today, developers are demanding sites that are virtually right below the high voltage power lines. But I could see the costs or the P&L benefit to solar. I could see it growing over time as technology improves. That could drive the developers to look a little bit further away from being right below those high voltage power lines and substations and transformers and whatnot. Under that scenario, we could have a whole bunch more acres that could be applicable to solar. That 70 to 75,000 acres that we refer to, that's the obvious stuff today. But there could be more acres on top of that, but we'll just have to see how the industry develops.

Any timeline for that 70,000 acres in terms of how you think about how it deploys over time?

Yeah, it's really hard to know. It feels like it's taking longer than any of us would like. We had a conversation with a developer the other day about what is taking so long. They their response was, look, there is just a huge bottleneck of projects that these grid operators have to evaluate. Our system is called the MISO, acronym -S-O. It controls electricity for 15 states, the Midwestern part of the United States. That's the one that we deal with primarily. What I would tell you is that the solar developer that we spoke with, the note they sent me was that the Q process for the projects, it's very long, it's very tedious, and it's very disorganized. This MISO operator, they have to do a utility study for each and every one of these projects that they look at. Each and every one of these projects, the study takes about two years to get complete. Think about all the projects that they have been inundated with over the past couple of years. Think about what's going on with electricity demand in the U.S. and where that demand is. MISO has just got their hands full trying to figure all this out. I think to summarize, this is taking a lot longer than any of us would like, but I don't think that means that the projects get canceled. I just think it means they get stretched out a little bit.

I got it. That's really helpful. Just one quick one in terms of lumber. Obviously, you produce 10 million more feet more than the higher end of your previous range, but you also mentioned, Eric, that lumber demand is tepid. How do you reconcile producing more with the comment that demand is not fair? I understand you want to get longer off and running to capacity, but can you just tell us, like, help me understand clearly what happened with respect to lumber demand for your own order book relative to your production with the incremental production of 10 million board feet?

Yeah, well, first of all, 10 million board feet in the grand scheme of a, you know, 50 million board for market is not a whole lot. So I'm going to be forcing a higher cost competitor, a fourth quartile mill, to produce 10 million feet less, all things equal. But when I say demand is tepid, that doesn't mean that it's falling. It just means it's not growing rapidly. I do actually think lumber markets in the US are going to grow this year, not by a lot, by, I don't know, a half a billion, three quarters of a billion board feet. I don't think it's by and large going to come from new residential construction. I think it's mostly going to come from from our projects. The R&R market is hanging in there. We talked about treater demand earlier. The other thing, I read an interesting statistic the other day, and that is that R&R searches on Google are up 25% year over year. Now, it's hard to, that doesn't directly translate into 25% higher lumber demand, obviously, for R&R projects. But it shows that, you know, that peak R&R period that the country experienced back in COVID, you know, that's long in the rear view mirror. And where we sit today with low existing home sales, and tons of home equity having been built up in the country, people want to do R&R projects, and it's slowly but surely starting to happen. So we'll have no trouble finding a home for that 10 million board feet, I guess is a long and short of it.

No, I got it. Makes a lot of sense. Thanks for the call and good luck and thank you.

Thanks. Thanks. At this time, I'm sure there are no more questions. I'll now turn the call back over to Wayne Wastech.

Thank you, everyone, for joining us this morning and your continued interest in the project. Have a great day.

This concludes today's conference call. Thank you for your participation. You may now disconnect.