Interfor Corporation

Good morning. My name is Anas and I'll be your conference staff right here today. At this time, I'd like to welcome everyone to the Interfore Analyst Conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you'd like to ask a question during this time, simply press star then the number one on your telephone keypad. If you'd like to withdraw your question, please press star then the number two. Thank you. Mr. Fillinger, you may begin your conference.

Thank you, Operator, and thank you everyone for joining us this morning. With me on the call, I have Rick Posbon, Executive Vice President and Chief Financial Officer, and Bart Bender, Senior Vice President of Sales and Marketing. I'll start off by providing a brief recap of our second quarter before passing the call to Rick and Bart. Positive EBITDA was generated, with Q2 adjusted EBITDA at $17 million, down from the previous quarter. The quarter-over-quarter decline was driven by a combination of lower sales prices, foreign exchange impacts, and inventory adjustments. Conversion costs were lower in several regions, production improved by 4%, and shipment volumes improved when compared to Q1. Despite a decline in lumber prices, cash flows were positive in the quarter due to working capital release and proceeds from the continued sale of B.C. Coast tenures. Although the pace of housing starts has remained somewhat resilient year to date in the context of interest rate environment and the associated affordability challenges, the political and trade situations in both the US and Canada remain uncertain. And until we know the impacts to the economy, we will continue to be very careful managing our inventories and order files. While some economic indicators continue to show positive signals, The aggressive U.S. trade policy has heightened the risk of prolonged demand weakness, and we're maintaining a very conservative outlook for 2025. We have diversified our company to weather these type of periods of uncertainty. Our U.S. platform represents 60% of our asset base spanning both the U.S. South and the Pacific Northwest. Approximately 75% of our total production is not subject to duties or U.S. trade actions. and our available liquidity of over $330 million is strong. In closing, our outlook is mixed. However, our foundations are strong, we're diversified, and we continue to see opportunities to improve efficiencies, costs, and margins across all of our regions. With that, I'll now pass the call over to Rick.

Thank you, Ian, and good morning, all. Please refer to cautionary language regarding forward-looking information in our Q2 MD&A. Overall, financial results for the quarter were a significant improvement year over year, reflective of stronger lumber prices and the steps we've taken to optimize our portfolio of sawmills. However, earnings continue to be constrained by a general oversupply of lumber into the market, despite the significant production curtailments across the industry since the beginning of 2024. With respect to earnings, Interforer generated a adjusted EBITDA of $17 million on total revenue of $781 million. Total revenue increased 6% quarter-over-quarter, with a 13% increase in the volume of lumber shipped, partly offset by a 4% drop in the average realized lumber price and a weaker U.S. dollar. A stronger increase in volume reflects a catch-up on shipments delayed in the first quarter by tariff-driven uncertainty by the customer base and constrained truck availability. On the cost side, reported production costs per unit of lumber decreased 3% quarter-over-quarter, reflective of fewer operational disruptions and the increased shipment volume. Ultimately, net income of $11 million was recorded in the quarter, which includes an unrealized foreign exchange gain of $19 million driven by a weaker U.S. dollar. From an operating cash flow standpoint, $85 million was generated in the quarter, with $61 million of this attributable to a reduction in working capital. Working capital improvement was driven by reductions in both log and lumber inventories. Beyond operations, we invested $24 million in capital projects and raised $7 million from the sale of assets. The asset sales included $6 million of net proceeds from the ongoing wind down of our BC Coast operations. Over the remainder of this year, we anticipate generating cash flow in excess of $20 million from the ongoing sale of the BC Coast forest tenures. Ultimately, financial leverage, as measured by net debt to investment capital, improved to under 36% at the end of the second quarter, and we are well positioned with available liquidity of over $330 million on a pro forma basis, considering the credit facility renewal announced last month. This credit facility renewal has provided Interfor with enhanced financial flexibility to navigate through the ongoing market volatility. To wrap up, INAFOR's financial results for the second quarter reflect ongoing demand weakness, mostly driven by housing affordability concerns and economic uncertainty. Looking ahead, we anticipate continued lumber market volatility, in part due to significantly higher duty rates on shipments from Canada to the U.S. and the ongoing threat of tariffs. Fortunately, INAFOR is well-positioned to navigate successfully through this volatility with its high quality and geographically diverse operations. That concludes my remarks. I'll now turn the call over to Bart.