CatchMark Timber Trust, Inc. Class A

Good morning and welcome to the Catchmark Timber Trust second quarter 2021 earnings conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. Please note, this event is being recorded. I would now like to turn the conference over to Ursula Godoy, Chief Financial Officer. Please go ahead.

Good morning, and thank you for joining us for our review of Catchmark Timber Trust results for second quarter 2021. I am Ursula Godoy, Chief Financial Officer of Catchmark. Joining me today on the call are Chief Executive Officer Brian Davis, Chief Resources Officer Todd Wright, and John Racer, President of Triple T Timberlands. During this call, Catchmark management will make forward-looking statements. These forward-looking statements are based on management's current beliefs and the information currently available. Catchmark's actual results will be affected by certain risks and uncertainties that are beyond its control or ability to predict and could cause our actual results to differ materially from expectations. For more information about the factors that could cause such differences, we refer you to our 2020 Annual Report on Form 10-K and subsequent reports that we filed with the SEC. Today's presentation includes certain non-GAAP financial measures. Reconciliations of these measurements are included in our second quarter 2021 earnings release and financial supplement, which are posted on our website. and on our Form 10-Q filed with the SEC yesterday, August 5th, 2021. After our presentation, Brian, Todd, Don, and I will be pleased to answer any of your questions. Now, I turn over the call to Chief Executive Officer Brian Davis.

Thanks, Ursula, and good morning to all of you on the call. We appreciate you joining us today. Catchmark maintained exceptionally strong momentum in our operations during the second quarter, Our excellent results, including a record quarter for adjusted EBITDA and cash from operations, as well as our second highest quarter ever for net income, were driven by higher timber prices year over year, both in the U.S. South as well as the Pacific Northwest. And we continue to capture pricing premiums for our harvest well above market-wide averages in our markets, especially in the U.S. South, where we concentrate our activities. Our pricing advantages more than offset a planned reduction in total harvest volume during the quarter as we maintained our leading productivity on a per acre basis. Year over year, we increased total revenues in the second quarter by 47% and increased adjusted EBITDA by 86%, and we recognized net income of $1.8 million, or 4 cents per share. This performance, again, is a testament to our business model for investing in prime timberlands and leading mill markets concentrating in the U.S. South, and executing excellence in operations, relying on delivered sales and taking advantage of opportunistic stumpage sales, all resulting in our leading harvest EBITDA per acre. Recent lumber price volatility doesn't translate to log prices. Consumption and availability of logs in mill markets does. We expect to continue to benefit from strong demand fundamentals and beneficial supply-side trends, The housing market, driven by millennial home buying, low interest rates, and increasing work-from-home activity should continue to drive the demand side, further helped by significant home repair and remodeling activity. As a result of the decline of Canadian production and the ongoing shift in production to the U.S. South, Catchmark is exceptionally well positioned with our prime timberlands near top mill markets to meet the increasing regional demand. Signaling a need for additional lumber production in the region, capital commitments have been announced, which support six greenfield sawmills slated for the U.S. South in 2022. These projects should translate to heightened log consumption in the region. In looking at the pricing advantages we secured in the second quarter, catch marks realized U.S. South pulpwood and salt timber stumpage prices were not only 25% and 13% higher, respectively, compared to prior year quarter, but we also captured 71% and 19% pricing premiums over U.S. Southwide averages for the same period. In the Pacific Northwest, we also capitalized on favorable market conditions. Timber sales revenue increased 131% over second quarter 2020, driven by a 75% increase in harvest volume and a 26% increase in delivered salt timber price. Significant timberland sales activity in the second quarter also bolstered results as we have already met almost 80% of our full-year timberland sales target. We generated $7.6 million in timberland sales in the quarter at 11% higher pricing year-over-year at an increased margin. Investment management income also increased year-over-year due to last year's change in our asset management agreement with a Triple T joint venture. During the quarter, we also made significant progress in our capital recycling strategy, completing the Oglethorpe Large Disposition of 5,000 acres of Georgia timberlands, recognizing a gain of nearly $1 million in using net proceeds to pay down existing debt. And in a major transaction, we agreed to sell our abandoned timberlands in the Pacific Northwest, expecting a substantial gain on the sale in excess of $20 million. This disposition, which we expect to close next week, will further strengthen our capital position and enable future growth concentrating in the U.S. South. Following the band in closing, we anticipate increasing our net income guidance for the full year by the amount of the recognized gain. In another major development, which we announced last week, significant progress has been made in recapitalizing our Triple T joint venture. Triple T has agreed to sell approximately 28% of its timberlands in East Texas to a client of Hancock Natural Resource Group. This sale of 301,000 acres for $498 million demonstrates how Catchmark, as general partner and asset manager of Triple T, has enhanced Triple T's financial performance and increased its per acre value. The per acre sales price of $1,656 is a 31% increase over the acquisition cost basis from three years ago. It is also notable that since Triple T's acquisition of the property in 2018, merchantable tons per acre has increased by 16% and site index has increased by 7% as a result of improved silvicultural practices. Triple T has also increased annual revenue generated by the property by 55% compared to 2017, the year before the joint venture's acquisition of the property. The proceeds of the Hancock sale, which we expect to close in the third quarter, will be used to reduce Triple T's leverage and to pay down a portion of the preferred partnership interest in the joint venture. The Hancock transaction certainly sets the stage for Catchmark to continue to explore further opportunities to unlock additional value for our Triple T joint venture partners and Catchmark shareholders. In looking to next steps, time and per acre exit value remain the key considerations for Catchmark in this venture. We still have much more to do, but over the past 18 months, we've made significant progress, operating through COVID, renegotiating Triple T's wood supply agreement with Georgia Pacific, and as a result, not only obtaining market-based pricing, but also improving the asset's liquidity. This set us on the course for the Hancock transaction, a process which also surfaced additional strong interest in the asset from the market for the next phase of the recapitalization. We are also encouraged by the durability of product pricing, the evolving carbon opportunity, and increased mill activity in the region with InterFOR's acquisition of GP Mills and CanFOR's announcement of a Greenfield Mill in Western Louisiana. All of these developments bode well for supply tension in the region that should result in a positive outlook on product pricing and they can contribute to potential higher per acre land values for Triple T. Our strategy continues to be highly focused on creating value in Triple T for our partners and our shareholders. Earlier this week, Cashmark also amended its existing credit agreement so it can use the proceeds from the pending band and disposition to further deleverage the company while maximizing future debt capacity. The agreement improves liquidity, flexibility, and balance sheet strength to facilitate future growth. Yesterday, we declared a cash dividend of $0.135 per share for common stockholders as of August 31st 2021, payable on September 15th. Our dividend is well covered and we are on track to meet full year guidance. As noted, after the band and sale closes, we anticipate updating guidance on net income. To sum up, Catchmark had another extremely strong quarter on multiple fronts, meeting and exceeding targets, significantly increasing year-over-year revenues and adjusted EBITDA and recognizing a net income. Importantly, Timber sales revenues increased on the strength of higher pricing and pricing premiums that Catchmark is able to achieve in our superior markets. Favorable supply-demand dynamics in the U.S. South region, the nation's primary timber basket where we focus our activities, should continue to support future Catchmark results. And the Oglethorpe large disposition and pending band in sale will further improve our capital position and should pave the way for future growth. The company continues on course to generate predictable, stable cash flow and deliver fully covered dividends, our primary objectives. Now I turn it over to Ursula to discuss second quarter results and review our capital position in greater detail.