Interfor Corporation

Good morning. My name is Sylvie, and I will be your conference operator today. At this time, I would like to welcome everyone to the Interfor 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 would like to ask a question during this time, simply press star then number one on your telephone keypad. And if you would like to withdraw your question, please press star then number two. Thank you. Mr. Fillinger, you may begin your conference.

Thanks, Operator, and hello, everyone. With me on the call today are Rick Pazabon, Executive Vice President and Chief Financial Officer, and Bart Bender, Senior Vice President of Sales and Marketing. Thank you for joining us. Before commenting on the quarter, I want to step back and provide some perspective on how Interfor is positioned and how we're addressing the near-term challenges while setting up for long-term success. As you're all aware, we're in the midst of a prolonged down market with several factors creating significant challenges for our industry. These include economic uncertainty and housing affordability concerns, which are weighing directly on building products demand, as well as cross-border trade tensions. Combined effect has been a persistently weak price environment. Against that backdrop, our leadership team remains focused on what we can control, driving out costs, reducing risks, and positioning our business for success when the market turns. The top of our list is supply discipline. We've led the industry in taking proactive steps to preserve our position today and to prepare for improving conditions ahead. For Q4, we announced reductions of approximately 250 million board feet of lumber, representing about 26% when compared to Q2 volumes. We've consistently acted early from curtailment announcements this year to the divestiture of our Quebec assets and the indefinite curtailment of two U.S. South sawmills. These decisions reflect our fundamental commitment to maintaining a responsible operating posture across the portfolio. NIR4 has a top performing platform in North American lumber industry, optimized for both tough times like today, but also for better markets when they return. Our second priority is cost discipline. We already deliver top quartile EBITDA margins, and that performance continues to drive our team. Our Canadian platform has remained resilient despite difficult markets and punitive duties. We continue to optimize our portfolio for operations that support industry-leading margins and position us to capitalize when markets recover. Fundamentals exist for strengthening lumber markets, particularly owing to the pent-up housing demand. Economic indicators suggest improvements starting in 2026 with continued upward trends in 2027. While that recovery will take time, we believe we're as well positioned as anyone to benefit once it comes. We're moving forward with a solid foundation. We've significantly strengthened our balance sheet through a recent equity raise that was well supported by long-term shareholders. Bind with the renewal of our credit facility, this gives us flexibility to weather the downturn for several years if necessary. With that backdrop, I'll turn to the most recent quarter where our results reflect the challenging operating environment that I've been speaking about, with pricing down across all regions, particularly in the U.S. South. These conditions and our philosophy of adjusting quickly were the catalyst for lumber production adjustments last month. While prices are finding ground, we've seen similar curtailment announcements across the industry. The market remains imbalanced. We'll continue to align our production with market realities in a disciplined and proactive way. Looking ahead, these are undeniably tough times. And like others in our industry, our numbers reflect that. But we're confident in our portfolio, balance sheet, and our clear plan to manage through the uncertainty and position Interfor to thrive as conditions recover. With that broader perspective, we see considerable opportunity and long-term value in our company, and we're committed to delivering that to our shareholders. With that, I'll turn it over to Rick for a closer look at this quarter's financial results. Over to you, Rick.

Thank you, Ian, and good morning, all. Please refer to cautionary language regarding forward-looking information in our Q3 MD&A. Overall, our financial results for the quarter reflected significant lumber price weakness, especially in Southern Yellow Pine, and significantly higher duty rates imposed by the U.S. As Ian alluded to, earnings continue to be constrained by a general oversupply of lumber in the market, despite significant production curtailments across the industry since the beginning of 2024. Interfor contributed further to these supply curtailments with recent announcements indicating plans to significantly reduce production across all regions through the end of this year. In August, the U.S. more than doubled the combined rate of anti-dumping and countervailing duties imposed on lumber shipments from Canada from 14.4% to over 35%. This increased duty rate directly impacts approximately 25% of Interfor's total lumber shipments. With respect to earnings, Interfor generated an adjusted EBITDA loss of $36 million, excluding non-cash duty-related adjustments, on total revenue of $689 million. Total revenue dropped 12% quarter over quarter, driven by a 6% increase in the volume of lumber shipped, a 10% decrease in the average realized lumber price, and a slightly weaker US dollar. Decrease in volume reflects production curtailments and lower demand, a portion of which is seasonal. Lumber price declines were led by Southern Yellow Pine, whose benchmark composite average price fell nearly 20% quarter over quarter. On the cost side, reported production cost per unit of lumber increased 2% quarter over quarter, reflective of the lower shipment volume, partially offset by a slightly weaker US dollar. From an operating cash flow standpoint, $26 million was consumed in the quarter, driven by negative cash margins on lumber sales, partially offset by an $18 million reduction in working capital. Beyond operations, we invested $32 million in capital projects and generated $1 million from the sale of assets. Over the remainder of this year and next, we anticipate generating net cash flow from ongoing sale of BC Coast Forest tenders in the ballpark of $30 to $35 million. Just following quarter end on October 1st, Interfor completed a bought deal equity offering, which generated $144 million of gross proceeds. Including this, financial leverage as measured by net debt to invested capital would have been 35.2% at the end of Q3, with available liquidity of $386 million. This equity raise, combined with the credit facility renewal in July, have provided Interfor with enhanced financial flexibility to navigate through the ongoing downturn. To wrap up, Interfor's financial results for the third quarter reflect significant lumber price weakness and higher duty rates imposed by the U.S. We anticipate continued lumber market volatility going forward as supply continues to rebalance with demand and trade actions by the U.S., including the Section 232 tariff of 10% implemented in October. Interfor will continue taking actions that position its high-quality and geographically diverse operations to succeed through this volatility and capture the upside when the market returns to strength. That concludes my remarks. I'll now turn the call over to Bart. Thanks, Rick.