Stella-Jones Inc.

Good morning, ladies and gentlemen. Thank you for standing by, and welcome to Stella Jones Q3 2022 Earnings Conference Call. At this time, all participants are in a listen-only mode. Following the presentation, we'll conduct a question and answer session. Instructions will be provided at that time for you to queue up for questions. If anyone has any difficulties hearing the conference, please press star followed by zero for operator assistance at any time. Before turning the meeting over to management, please be advised that this conference call will contain statements that are forward-looking and subject to a number of risks and uncertainties that could cause actual results to differ materially from those anticipated. I would like to remind everyone that this conference call is being recorded on Wednesday, November 9, 2022. I will now turn the conference over to Eric Vachon, President and CEO. Please go ahead.

everyone. I'm here with Silvana Travolini, Chief Financial Officer of Stella Jones, and we thank you for joining us this morning for a discussion on the financial and operating results for Stella Jones' third quarter ended September 30, 2022. Earlier this morning, we issued our press release reporting Q3 results. Along with our MD&A, it can be found in the investor relations section of our website at StellaJones.com and will be posted on CDAR today as well. As a reminder, all figures expressed on today's call are in Canadian dollars unless otherwise stated. I will first provide a business update and overview of our quarter before turning the call over to Sylvana to review our results in greater detail, after which we will open the floor to your questions. So let's get started. Headlining Q3 is Stella Jones's delivery of another robust quarter and strong results, demonstrated chiefly by the growth in our infrastructure-related products, but also by the normalization of residential lumber sales. Our sales increased by 24% driven by all product categories. We generated a significantly improved margin over last year's comparable period and maintained a solid financial position. This stellar performance is owed in large part to our network and team, and I want to thank them for their contribution to these results. In addition to these strong fundamentals, our contractual sales agreement structures continues to provide us with the ability to pass through cost increases and deliver steady margins, which is especially impactful in the current inflationary climate. Demand for our products remains vigorous, particularly in the utility pole product category, which continues to see strong volume growth. The demand is magnified by utility companies investing heavily in their networks, not only in regular maintenance programs, but with increased infrastructure spend allocated to build new and stronger lines and from the expansion of broadband networks. Our long-standing relationships with leading utilities across the continent, combined with our second-to-none procurement and logistics capabilities, allows us to continuously ensure certainty of supply through timely shipment of high-quality products under a wide array of circumstances. For instance, in the aftermath of Hurricane Fiona touching down on Atlantic Canada, hundreds of thousands of homes were left without power. Our team in Truro, Nova Scotia was at the ready to support power restoration efforts. They were aided by our crews in Quebec and Ontario, who lent assistance by shipping additional poles to meet demand via various logistic partners, including our new owned in-house transport provider, Timberland Express. This is a fitting example of the strength, reliability, and rapid response of the Stella Jones expansive network, and how it can be mobilized to restore essential services to communities affected by emergency and natural disaster situations. In sum, ensuring certainty of supply builds trust. As utility companies are increasingly looking for long-term supply commitments with reliable partners, we believe the breadth and strength of our continental network positions Stella Jones to be a preferred long-term supplier to North American utilities. Moving on to railway ties, the market indicators are porting towards improving demand, with projections from the Railway Tie Association calling for a 1.1% volume increase in 2023. Though rail traffic has been trending down lately in comparison to last year, we also observe that the ongoing use of the network over time will generate a need for maintenance and repair. On the supply chain front, although we are still noting tightness in the procurement of untreated ties, I am pleased to report that year-over-year data shows improvement. Though not at historically high levels, the incoming trend has been positive in recent months. We're still observing increased pricing in untreated ties, which, combined to inflationary pressures, will result in further price increases to our customers over the coming quarters. As the leading purchaser and manufacturer of railway ties across North America, we are grateful to be able to depend upon our team's expertise as well as its ability to leverage well-established relationships with our sawmill partners. This helps us navigate through these challenging procurement conditions. Industrial products is a third product category in our infrastructure portfolio and is deserving of acknowledgement and its steady contribution to our business. Currently, we see good demand for new infrastructure projects, maintenance for rail bridges and crossings, as well as marine pilings. Not only do industrial products deliver additional value to our rail customers, but they also make alternate logs obtained in our procurement process for utility poles to support the construction industry. As such, this category is a fully integrated addition to Stella Jones's infrastructure offering. With regards to residential lumber, we are pleased with the solid market demand for our products during the third quarter, which allowed us, here again, to deliver strong results. More importantly for residential lumber, we managed our inventory position, procurement, and sales in an efficient and proactive manner. This enabled us to capitalize on market conditions and make certain purchases when costs were advantageous. We concluded the seasonally strong period in a much better inventory position this year compared to last. So far in the year, the performance of our residential lumber business has exceeded the expectations set forth in our three-year plan, as it benefited from above normalized pricing levels in the first half of the year. Subsequent to quarter end, we completed the acquisition of the wood pool manufacturing business of Texas Electric Cooperatives Inc., or TEC, in Jasper, Texas. This acquisition adds a 43rd facility to our North American network and enhances our product offering in Southern Yellow Pine, while expanding our capacity to meet the growing needs of the utility pole industry. I would like to welcome all TEC employees to the Stella Jones family and look forward to continuing to build on TEC's long-standing partnerships as we begin supplying the cooperative's utility customers with poles for their infrastructure and maintenance projects. As a business, Stella Jones understands the impact of its activities on the world. and recognizes that integrating environmental, social, and governance best practices into all facets of its operation is crucial in maintaining our planet's health and our long-term success as a company. With this, I'm pleased to say that we issued our 2021 ESG report on October 26 and is now available in the investor relations section of our website. The report highlights the advances we made as an organization on our commitments to continuous improvement across our four ESG pillars, which are our people, environmental commitment, product stewardship, and governance principles. We are dedicated to continuously improving our sustainability and health and safety practices through learning, training, and data collection. This increased focus on knowledge will allow us to know better and do better as a business. We are pleased with our performance so far in 2022, and looking forward, we are confident in our ability to attain the financial objectives set forth in our three-year plan at the start of the year, including our commitment to continue to return capital to shareholders, as evidenced by this morning's announcement of our new 2022-2023 normal course issuer bid. We remain confident in our ability to sustain strong free cash flow generation and maintain a solid financial position that will allow us to continue investing in our network with capital expenditure projects to increase capacity for utility poles and enhance operational efficiency through automation, all while seeking strategic acquisitions. In summary, the power of our business model and extensive network is reasserted by our enduring resilience in the face of an inflationary climate and challenging supply chain conditions. This, in addition to our proven ability to meet customer demand, favorably positions Stella Jones to create value for shareholders. In closing, Stella Jones is more than ever building on its strong fundamentals, and we look to the future with confidence. Our robust performance is a testament to our business strategy and a rigorous execution has positioned us as a leading North American provider of infrastructure-related treated wood products and a strategic supplier of residential lumber to big box stores and retailers desiring a strong value-added partnership. I look forward to providing the status of the progress made in the achievement of the company's financial objectives next March, once we will have completed the first year of our three-year plan. I will now turn the call over to Silvana for a review of her financial results.

Thank you, Eric, and good morning, everyone. During the quarter, Stella Jones generated sales of $842 million, compared with $679 million for the same period in 2021. Excluding the contribution from the acquisition of Cahaba Pressure and Cahaba Timber and the favorable effect from currency conversions, together totaling $34 million, pressure-treated wood sales increased by 20% compared to last year, driven by all product categories. Sales attributable to infrastructure-related businesses, namely utility poles, railway ties, and industrial products, grew by 15%, and residential lumber sales increased by over 30% compared to the lower sales experienced in the same period last year. Looking at results by product category, sales of utility poles amounted to $331 million in the third quarter, up from $256 million last year. Sales rose organically by 19%, driven by higher pricing in response to cost increases. The continued growth in maintenance and project-related demand was largely offset this quarter by lower volumes for fire-resistant wrap holes compared to the same quarter last year. Railway tie sales reached $199 million this year versus $179 million in 2021. Excluding the currency conversion effect, sales increased by 8%, mostly due to favorable selling price adjustments to cover higher fiber costs. This growth was partially offset by reduced maintenance demand of certain Class 1 customers. Residential lumber sales totaled $226 million, up from $170 million last year. Excluding the currency conversion effect, sales increased $54 million, or 32%, due to higher sales volume compared to a weak demand quarter last year. Industrial product sales were $40 million, up from $32 million in 2021, largely due to higher volumes related to bridge and crossing projects as well as marine pilings. Logs and lumber sales amounted to $46 million, up slightly from $42 million a year ago, reflecting variations in lumber trading activity. Turning to profitability, gross profit was $139 million in the third quarter of 2022 versus $82 million in the corresponding period last year. As a percentage of sales, gross profit margin was 16.5% this year compared to 12.1% last year. The increase in gross profit dollars and margin reflects higher results across all pressure-treated wood product categories. The improvement in gross profit margin was more significant in residential lumber as last year's performance was affected by higher fiber costs a significant market-driven price decline, and lower demand. Led by the strong growth of our infrastructure-related sales, as well as the higher residential lumber sales compared to the third quarter of 2021, Stella Jones generated EBITDA of $119 million, or a margin of 14.1% this quarter, of $50 million, compared to EBITDA of $69 million or a margin of 10.2% last year. The net income for the quarter was $65 million or $1.07 per share compared to $34 million or $0.52 per share last year. Earnings per share was positively impacted by the company's ongoing repurchase of shares through its normal course issuer bid. Turning to cash flows, operating activities generated $193 million this quarter versus $225 million last year. During the quarter, we used the cash generated from operations to repay the remaining indebtedness related to the seasonal investment in working capital in the first quarter, invest $23 million in capital expenditures, acquire transportation assets for $8 million, paid $12 million in dividends, and repurchased shares for $59 million. As of September 30th, the net debt to EBITDA ratio was 2.3 times, and we had $338 million of liquidity available under our credit facilities. Subsequent to the end of the quarter, we amended our syndicated revolving credit agreement under which the amount available was increased from $325 million U.S. to $400 million, demonstrating our lenders' confidence in our ability to execute our plans and grow the business. We are pleased with our strategy to minimize the impact of rising interest rates on our financing costs. As of September 30th, 80% of our debt was at a fixed rate, which provides the company additional cash flow stability. Yesterday, the TSX accepted our notice of intention to proceed with a new NCIB program. By virtue of this program, Stella Jones is authorized to repurchase up to 5 million common shares, representing approximately 10% of the public float. These repurchases will take place over a 12-month period ending November 13, 2023. Considering the shares repurchased up to this day, Stella Jones has bought back all 5 million shares under its 2021-2022 normal course issuer bid at an average price of $38.26 per share for a total consideration of $191 million. On November 1st, we concluded the acquisition of substantially all of the assets of the wood utility pole manufacturing business of Texas Electric Cooperatives for a total consideration of $28 million U.S. plus inventories of approximately $4 million. TEC's wood pole sales for the year ended December 31st, 2021 totaled $28 million U.S. Finally, the Board of Directors declared a quarterly dividend of 20 cents per share Payable on December 16th, 2022 to shareholders of record at the close of business on December 1st. This marks the end of our prepared remarks. I will now turn the call back to the operator for Q&A.

Thank you. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press the star followed by the number one on your touchtone phone. If you'd like to withdraw your request, please press the star followed by the two. If you're using a speakerphone, please lift the handset before pressing any keys. One moment, please, for your first question. Your first question comes from Walter Sparkling from RBC Capital Markets. Please go ahead.

Hey, thanks for taking my question. This is James McGargalon. I'm on for all, Walter, this morning. Congrats on the quarter. I hope you're keeping well. Thank you, James. I just wanted to ask a question on the outlook for utility polls. Obviously, there's been some very strong performance year to date. I was listening to your peers conference call last week, and they kind of noted that poll demand has never been stronger, that they expect this to continue into 2023. And with $120 billion that's earmarked from the infrastructure bill, what kind of upside could we see to your poll guidance into 2024?

So, James, well, thank you for the question. You know, when you think about our three-year guidance, we have indicated to the market a high single-digit growth, and obviously we're going to be exceeding that this year. It's been a great start to our three-year plan in achieving our goals where we're more or less in the 20% range at this point in time. Looking into, you know, Coming years, I would say that our high single-digit growth would continue to apply in what we'll be achieving this year. As a reminder, our initial guidance did not include any aspects or impacts, if you want, of the infrastructure bill.

Okay. And another question. There's been some issues with certain companies, and again, you had alluded to this in your prepared remarks, accessing untreated ties. which has been a challenge to cross the industry. I guess, do you see any advantages from your scale and your procurement capabilities to drive above industry growth? I know your peers guide into growth above industry trends in 2023 due to this market dynamic. And I was just wondering if your team is expecting something similar into 2023.

So our guidance is in the low single digits, so I guess it would be comparable to what you just stated. I have a very high level of confidence in our procurement team and their ability to find the products in the market. We have a network that spans North America, and we deal with a very large number of sawmills across the continent. So if there are ties for sale, we're looking at them and we will have the opportunity to procure them. So to answer your question, if we do see that the continued inflow that we're seeing right now with ties, we would be able to set up our inventory and be able to take advantage of market opportunities.

Okay, that's it for me. Congrats on a great quarter, and I'll turn the line over. Thank you, James.

Your next question comes from Amir Patel from CIBC Capital Markets. Please go ahead.

Hi, good morning. Eric, I think you mentioned a figure of a 1.1% volume increase expected for next year on the rail side. Are you able to put any more visibility on what some of the specific rails were saying at the RTA conference about volumes for next year and maybe any differences between Class 1 and short lines?

Yes, certainly. So the 1.1% was quoting the railway tie association data, which you would probably not have access to. At the RTA conference itself, from recollection, four class ones presented, and there was an indication about a million additional ties planned for next year. With regards to the commercial business, We're still seeing some healthy demand and requests for bids on an ongoing basis. At this point, we're quoting into next year. Definitely some nice opportunities there. It will all come back to the availability of untreated ties to be able to address those demands.

Great. Thanks, Eric. Just on the res lumber business, what potential implications do you see from... uh, Lowe's, uh, selling, uh, Lowe's Canada. You know, I know, I know that's not a direct, uh, uh, uh, partner for you, but do you see any, maybe opportunities of some of that dealer network, uh, migrates elsewhere?

So you're, you're exactly right that we're not exposed to, uh, to the relationship with, with Lowe's Canada. So for now I see pretty neutral. Uh, my understanding is that, uh, Sycamore Partners, who acquired Lowes Canada, has the intention of operating the business. It's going to be headquartered here in Quebec out of Boucherville. My understanding is that they're going to run the business and keep growing it. For me, it's pretty much neutral. If I look at our customer list in residential lumber, I think we've got the right partners that appreciate the value-added service that we bring them and the continuous supply of the product mix. I'm still very... optimistic about our relationships with our customers and our ability to grow market share in the future.

Fair enough. Thanks, Eric. That's all I have. Thank you, Amir.

Your next question comes from Benoit Poirier from Desjardins Capital Markets. Please go ahead.

Good morning. It's Sylvain Arnaud. Congratulations for the strong quarter.

Good morning, Benoit.

Yeah, just with respect to the strong organic growth achieved for railway tie and utility poles, how much of the organic growth was driven by price increases?

So, obviously, for two parts of the answer, right? So, for utility poles, price increases, the trend is about, for the years, about 70% on pricing, and for railway ties, it's all on pricing, but our volumes are actually slightly below last year. Okay.

Okay, perfect. And related to utility poles, due to the damages caused by the Hurricane Fiona, you mentioned the opportunity to replace poles in Nova Scotia. How much of a boost did it represent in Q3 and any potential impact for Q4? So,

You know, so we, Celadose was pleased to be able to support those efforts. It was Nova Scotia. It was Terre-Neuve. It was Les Etats-Madeleines. So, you know, several regions got impacted by the storm. I can't say that there's a very strong positive impact, Benoit, because, you know, when these events happen, the regular maintenance doesn't occur. And on top of it, you usually have neighboring utility companies sending their crews over to support the rebuild of the infrastructure, so that even depresses a bit the maintenance in those areas. So there might be a slight advantage, but I think as far as revenues, and it's not worth necessarily having a long discussion about, but what it does do is demonstrate to our customers and utilities across North America the ability for Stella Jones to be able to step up in these situations. And it's our word, it's our commitment to our customers, and it's what makes Stella Jones the great name that it is.

Okay. And just for you two people, I think we've seen a lot of projects for broadband network. We've been talking about the Ontario project. Any color about the size of those projects and maybe the timing? We started to see some impact, or is it more skewed toward 2023 and beyond?

So, you know, the great growth we've seen in utility poles this year, you know, is definitely helped by the demand for broadband projects. So we are seeing... products being initiated. We have some sales that are related to that that have started this year and will be going on for the next several years from what I can see. We're also starting to see some infrastructure spend coming through or our customers talking about it, which is very positive news. Difficult to quantify, Benoit, because it's often intermingled with the maintenance piece of it. So we do know that there's bigger demand because we need to you know, add poles in certain regions, but in other cases, the broadband expansion goes through the existing networks, and then there's hardening of the grid with a change out of certain poles just to make the infrastructure, you know, more stronger because of all the loads that the poles hold. So, right now, it's difficult for us to quantify. Maybe over time, you know, we'll be able to give more precise guidance, but, you know, for now, I guess... All I can guide you to is that it is contributing to this 20% growth, organic growth that we're seeing in utility poles.

Okay, that's a great caller. And any caller on what drove the lower volume for fire-resistant wrap poles during the quarter?

That's essentially timing, Benoit. Our West Coast customers are currently doing some maintenance in areas that don't necessarily require them. And when you compare it to last year, which is the comparison, you know, we had one customer sort of spike up their demand as they were ramping up on the installation of those products. So the year-over-year sort of a bit of a compression, if you want. But, you know, for the full year, there's no change in that 10% of our total sales, if you want. Okay.

And last one for me, just in terms of free cash flow, any callers on the typical working cap built up? We might see in Q4 last year, there was about 38 million working capital changes. So any color on the working cap and maybe an update on the capex expectation for 22, 23, whether there's any changes. Thanks.

In terms of the working capital, we're pretty much forecasting in Q4 a modest investment in inventory, so I would say pretty consistent with what you noted in terms of last year, I think is a good estimate. In terms of the CapEx, we mentioned that with the growth CapEx that we would be closer to $100 million this year. We might be a little bit shy of that this year. There are some of those investments that might get pushed out earlier into next year, so in Q1. So there might be just sort of a lag there in terms of the investments this year, but overall in line. as we had mentioned, pretty much front load that additional growth capex in the first two years, so end of this year and most of it into next year.

That's great. Thank you for the time. Thank you, Benoit.

Ladies and gentlemen, as a reminder, should you have a question, please press the star followed by the one. Your next question comes from Michael Topholm from TD Securities. Please go ahead.

Thank you. Good morning. Hello, Michael. First off, Eric, just a clarification. The multi-year guidance you had given and the growth that you talked about over that multi-year period for polls and ties, did that include assumptions around pricing gains?

Yeah, it was a combination, Michael, on pricing and volume.

Okay, so we look at polls, for example, you mentioned, you know, we can see in the results, and you mentioned earlier in the call, sort of up 20%, and that's obviously in excess of the high single-digit growth you were calling for. So is this just a situation where early on in that multi-year period, the pricing gains are stronger than you were forecasting in that multi-year guidance?

Yeah, that's exactly it.

Okay. And so as we look forward, how should we think about future pricing gains? I guess sort of two parts to that. One, maybe you can talk about what's happening with the underlying input costs and whether you've continued to see escalation if you forecast further escalation, which will obviously necessitate additional pricing gains. And then there's usually sort of a catch-up here as well. So even if the input costs have stopped rising, you're going to continue to see gains for a little while while you get that catch-up. So can you just talk about kind of where you're at what's happening with input costs and how much longer we should expect to see these kinds of pricing gains going forward.

So as you mentioned, this year was quite exceptional with inflationary pressures and costs on fiber, and that drove a lot or drove a big part of the price increases. We continue to see inflationary pressures, but I think it's – It's stabilizing to some extent, so that high single digit that we're guiding again over this year's growth would have that mix of what we're expecting for volume and pricing.

Okay. So the expectation would be kind of going forward into next year, we get back in the ballpark of what that original guidance was looking for?

Yeah, that's where our guidance is for now.

And same thing with ties, Eric? Correct. And then can you talk a little bit about the margin expectation? I mean, I know you reiterated the multi-year guidance, but, you know, obviously you want to capture these price increases to offset rising costs, but there is some pressure on the percentage margin as that continues to occur. So how do you feel about the multi-year guidance of 15% margins, given all of the pricing increases to offset these rising costs?

It's a good question. We remain focused on that 15% target, Michael. There's no reason why we can't achieve it. Different product categories and different customers have different contract features. So there's some opportunities there. Sales that are not under contract, so we have them in ties and poles, which are just contractor or request for bids, does give us the opportunity to command better margins. I would say simply because of the railway ties, for example, the tightness of supplies enables us to ensure that we preserve the margin. So we're confident and have not changed our views on that margin percentage.

Okay. Maybe two more here. On the polls front, in the quarter, it sounded like most of the gains were pricing-driven with the fire-resistant decline sort of offsetting whatever volume growth you would have seen. in other parts of the pools business. But you did sound pretty constructive on the outlook for demand and volume growth in pools. So it seems like a fairly meaningful drag, I guess, from the fire resistant, but that's purely a timing issue. And you think kind of going forward, we should see volume growth contributing to the overall organic growth in pools as well?

Yes. Yeah. All right. Our assumption in our guidance was like a 50-50. If I recall, I know it was a 50-50. I mean, that mix can swing, obviously. It could be 40-60, but definitely volume is part of the business growth as we're seeing customer demand for next year being set up. Customers are looking for long-term relationships as well, as I sort of mentioned in my prepared comments. We're seeing a lot of our utility customers looking with long-term outlooks as they're willing to secure opportunities our supply capabilities to be able to execute on their infrastructure projects.

Okay, perfect. And then just lastly, the acquisition you announced, any more details around what you'd expect that to contribute in terms of revenue and maybe capacity at this particular facility?

I think we mentioned in our prepared notes and as well in our documentation, Canadian dollars, it's called $35 million in Canadian dollars. That's our starting point. There's obviously opportunities for us to go out in that market and seize other opportunities. Each time we get a new production facility, we look at the orders in the books, we shift things around, we try to optimize capacity and try to go out in that market and it sees more opportunities. So that's the challenge for my team is to go out and exceed, I guess, the prior owner's performance. But let's say our starting point is at 35 million Canadian. Well, we carve it out in MD&A, so you'll be able to see it in the coming quarters how well we're doing off of that benchmark. Okay, that's helpful. Okay, thanks, Eric. My pleasure. Thank you, Michael.

Your next question comes from Maxim Saitchev from National Bank Financial. Please go ahead.

Hi. Good morning, Eric Solvana. Good morning, Maxim. I had a quick question in terms of I know that you're spending time right now thinking strategically in terms of potential additional services to be added, conversations with clients. I'm just wondering if you had any progress and if anything you could sort of share publicly.

So our discussions with the board are presently focused on expanding our products and services for our rail and utility customers. We're privileged to have this world-class list of customers that acknowledge, in this particular case, Telejo's ability to be able to service and provide products. Ongoing discussions with them demonstrate that there would be some interest for us to be able to support them further. It's an ongoing discussion with the board. Now it's really for us to identify what are those opportunities that fit well with our business model, our distribution networks, and what efficiencies or synergies our new business could bring to a new business.

Okay. And I guess, is there a timeframe or it's more trying to find the right opportunity more than just trying to accelerate the growth?

So there's no set timeframe. We're very cautious and thoughtful about what targets we want to approach. And don't lose sight of the fact that we've got a very strong organic growth in our core businesses right now. And we should not lose focus on it. You know, the growth that we're forecasting, for example, in utility poles, but I would argue also for railway, you know, in the coming years is demanding, you know, obviously more logistics, more capex investments that we've announced. The team is like fully focused on it. So I don't want us chasing shiny things right now if, you know, we have a good business to operate and ensure that we maintain our leadership position. But that being said, you know, still very interested in expanding our offering to our customers because I think there's a strong opportunity there.

Right. Yeah, no, makes a lot of sense. And I'm just wondering, you know, as a lot of companies talk about supply chain, you know, sort of labor issues, was wondering if there's an update on that situation if we're sort of over the hump on that side. It certainly feels like this.

So on the labor front, it still remains – it still remains a day-to-day challenge to define new employees with proper qualifications and understanding of concepts of health and safety and how to operate in an industrial environment. Then there's also the retention aspect as employers in the geographies where we're located are feeling the same stress, so there's a bit of competition here on on base wages for employees, so we're always mindful of that. We're faring relatively well, I would say, but we're also compensating with overtime, for example. That's on the employee front. On the product front, we discussed the railway ties a few minutes ago, so that's more a function of market dynamics, but it is trending in a positive way. So there's no such stress, I guess, on utility poles other than the fact that we're growing our business year over year over year, and every year our procurement team is challenged to get so many more millions of cubic feet to be able to sell into the network. But that has been the case for the last five, six years as we've been growing volumes. But to say there's breakage in the supply chain, I would disagree with that.

Okay, that's great. And my last question, just in terms of the residential lumber, maybe do you mind providing a bit of color kind of on, you know, contractors versus DIYers, sort of their approach. And maybe just a quick comment in terms of your comfort around your inventory position in that business. Thanks.

Yeah. Our volumes through the third quarter were very good actually. It is demand from the contractors and the do-it-yourselfers or the homeowners. From my understanding, contractors are still busy and are coding into the first part of next year. There is ongoing demand. That demand is prompted obviously by R&R, restoration and renovation. A lot of homeowners wanting to enhance the outdoor experience or try to expand you know their uh the the patio season of up to three seasons instead of just the the summer season so we're still seeing you know in talking to our customers a lot of interest from from from the uh the homeowner standpoint so i think that that that is a good indication um you know there's also a potential tailwind or sustained demand from housing stars that we saw the last 18 24 months you know the brand new houses usually come with smaller barbecue decks. And after a few years, the homeowners will turn to the outside and think about the fencing and the decking. So I think the dynamic is still healthy there. As far as their inventory position, we're sitting very well today. We weathered another cycle in the first half of this year on market lumber prices very well. Our average costs are exactly where they need to be. And they have, most of the year, the team's done an exceptional job managing it so we're now building for the season next year market prices are you know relatively attractive compared to previous years uh and you know we're following our customers guidance there as far as how to to build next year's season but i'm relatively optimistic of another good season for 2023. okay excellent thanks thanks for taking my questions my pleasure maxime mr vachon there are no further questions at this time please proceed Well, thank you very much, operator, for your assistance today, and thanks, everyone, for joining us this morning. We look forward to speaking with you again at our year-end call in March. Have a great day.

Ladies and gentlemen, this concludes your conference for today. We thank you for joining and ask that you please disconnect your lines. Thank you.