Stella-Jones Inc.

Good morning and thank you for standing by. Welcome to Stella Jones' Four Quarter 2022 Earnings Call. At this time, all participants are in a lesson-only mode. Following the presentation, we will hold a question and answer session. Instruction will be provided at that time for you to queue up for questions. If anyone has any difficulties hearing the conference, please press the star followed by zero for operator assistance at any time. I would like to remind everyone that this conference call is being recorded on Wednesday, March 8, 2023. Please note that comments made on today's call may contain forward-looking information, and this information by its nature is subject to risk and uncertainties. Actual results may differ materially from the views expressed today. For future information on these risks and uncertainties, please consult the company's relevant filings on CEDAR. These documents are also available in the Investor Relations section of Stella Jones' website at www.stella-jones.com. We have also prepared a corresponding presentation, which we encourage you to follow along with during this call. I will now pass the call over to Eric Vachon, President and Chief Executive Officer of Stella Jones. Eric?

Thank you, Julie. Good morning, everyone, and thank you for joining us today. I'm here with Silvana Travolini, Senior Vice President and Chief Financial Officer of Stella Jones, and we thank you for joining us for this discussion of the financial and operating results for Stella Jones's fourth quarter ended December 31st, 2022. Earlier this morning, we issued our press release reporting 2022 fourth quarter and year-end results. Along with our MD&A, It can be found in the investor relations sections of our website at www.stellajones.com and will be posted on CEDAR today as well. As a reminder, all figures expressed on today's call are in Canadian dollars unless otherwise stated. I will begin today's call by providing a business update before turning the call over to Sylvana for a more detailed financial review. I will conclude the call. with a progress update on our 2022-2024 goals before opening the floor to your questions. I'm proud this morning to begin the call by stating that 2022 was a year of exceptional performance for Stella Jones. The company generated robust financial and operating results, and in doing so, demonstrated and reinforced its leading position as a key player in the industrial infrastructure product space. We achieved total sales of $3 billion, up 11% from nearly $2.8 billion last year, and our EBITDA increased 12% to a record $448 million. 2022 represents the 22nd consecutive year that SellerZones has posted an annual sales increase, which speaks to our resilient business model and the strong fundamentals in which it is anchored. Our sales growth was largely attributed to the strong performance of our infrastructure-related product categories, namely utility poles, railway ties, and industrial products, which all met or surpassed our targets. Allow me to briefly review the performance of our product categories in 2022. Our utility poles product category delivered exceptional results throughout 2022, with sales growing to $1.2 billion compared to sales of $925 million last year. Utility pole sales benefited from strong market dynamics and the contribution of our accretive acquisitions. On an organic basis, utility pole sales increased by over 20% in 2022. Our pole procurement team rose to the challenge this past year, leveraging relationships to meet growing customer demand and laying down the foundations to access new procurement areas. We're currently seeing significant investments being made by utility companies to ensure the infrastructure will support North America's future needs, and we expect this trend to continue. Utilities are investing to maintain their current networks, facilitate increased broadband network use, support demand generated by electric vehicles, and build newer and stronger lines, all while looking to their supply partners for long-term commitments. On the railway tie front, sales reached $750 million in 2022 compared to sales of $700 million last year, an organic growth rate of 4%. Railway tie sales benefited from sales price adjustments to cover higher costs, but Class I volumes pulled back year over year. Procurement in the latter part of 2021 and the first three quarters of 2022 was challenging. the tightness in untreated railway tie availability drew down our dry inventory position. This resulted in a rise in untreated tie costs, and we progressively passed these costs through to our customers. Capacity usage also increased given the long production cycles when treating ties that are not completely dried, a process also referred to as boltonizing. On a positive note, more untreated ties became available in Q4 2022 and in the first month of 2023. At the current rate of procurement, untreated tie inventories will be replenished by mid-year with optimal dry inventory levels being reached in the second half of 2023. This will in turn reduce the number of bolt-nice charges and open opportunities to address more customer demand which is being driven by steady railroad maintenance and ongoing infrastructure spend. Industrial product sales grew to $143 million compared to $121 million in 2021. The organic increase of 15% was mainly attributable to higher demand for industrial products such as piling, timbers, and bridges. Our industrial product category perfectly complements our rail and utility offerings and will benefit from infrastructure public spending. Sales for residential lumber pulled back this year to $744 million in 2022 from $773 million last year, but did not pull back as much as expected. Residential lumber sales continued to benefit from above normalized pricing levels in 2020. Our residential lumber product category supports select customers that recognize the value of Stella Jones' premium lumber program and complementary products and services. Over the years, we have proven our ability to keep retailers and big box stores well supplied, which in turn has enabled our customers to grow their market presence. On the acquisition front, 2020 was the first full year of contribution from our Cahaba acquisition which was completed in the fourth quarter of 2021. Cahaba, now known as the Stella Jones Briarfield Facility, is a well-established producer of treated wood poles and engages in raw material procurement at its treating operations in Alabama. The facility's performance far exceeded our expectations this year, contributing to our sales growth in utility poles. Accretive acquisitions remain an integral part of Stella Jones's growth. In 2022, we continued on this path with the purchase of the wood utility pole manufacturing business of Texas Electric Cooperatives, or TEC, in Jasper, Texas. TEC, joining our fall, added a 43rd wood treating facility to our network and further expanded our capacity to supply the growing needs of North American utilities. This marked our second wood treating facility in the state of Texas, the second largest economic region of the United States, and we expect TEC to enable us to leverage the economies of scale while expanding our customer base. North American demand for utility poles is strong, and as mentioned earlier, we expect it to continue to grow in the coming years. As we prepare for this growth, securing fiber is top of mind. With this, I'm pleased to announce that Stella Zones acquired Industries Pole and Piling in February 2023 for a consideration of $12.5 US million. Industry is specialized in procuring, peeling, and drying SYP poles and is a great addition to our existing networks of pole peeling facilities. We continue to consistently seek accretive acquisition opportunities that will support our growth for our current businesses, as well as expand product offering for our infrastructure customers. In addition to being underscored by robust operating and financial results, 2022 also demonstrated the resilient nature of our business model, as well as Telzone's capability to deliver outstanding performances amidst challenging macroeconomic conditions. The global economy continues to wrestle with inflationary cost pressures, fluctuating commodity prices, and supply chain constraints. Regardless of these trying circumstances, I'm proud to say that Stella Jones was able to meet demand and continue to serve our loyal customer base. This can be attributed to a number of factors. First, Stella Jones benefits from longstanding procurement relationships. Our skilled and resourceful procurement teams were especially diligent in securing the fiber needs to meet demand, which enabled us to continue to provide essential products to our customers. Second, our contractual sales agreement structure continued to provide us with the ability to pass through cost increases, which helps us insulate from rising costs particularly important in the current inflationary climate. And finally, our expansive North American presence places us in a unique position to serve our customers both efficiently and cost effectively based throughout Canada and the United States. The ability to continue to deliver value and returns to shareholders in 2022 is another indication of a resilient model and solid business fundamentals. We ended the year better positioned than ever to continue our growth trajectory, and I look forward to what is still ahead to come. Before I turn the call over to Sylvana, I want to provide an update on ESG. We are mindful of how our operations impact the planet and the communities in which we operate. And as a result, we continue to prioritize ESG consideration across all facets of our business. We were pleased with our efforts in 2022 to better our ESG approach and are dedicated to continuous improvement of our sustainability and health and safety practices through ongoing learning, training, and data collection. I look forward to the publication of our next ESG report later this year where we will be sharing our five-year strategy along with the targets for the metrics we track. One notable ESG event in 2022 was the completion of our very first solar panel installation at our railway tie manufacturing facility in Clanton, Alabama. This installation, which was commissioned a few weeks ago, is already meeting its target of 70% coverage of the facility's electricity requirements. This is the first of several solar energy conversions we are planning and an important step on our path to sustainability, of which we are very proud. I will now hand the call over to Sylvana, who will review our financial performance in more detail.

Thank you, Eric, and good morning, everyone. Today, we reported net income for the fourth quarter of $36 million, or 61 cents per share, compared with $22 million, or 34 cents per share, last year. For the full year, net income was up to $241 million from $227 million in 2021. Earnings per share was $3.93, an increase of 13% compared to $3.49 in 2021. During the fourth quarter, we generated sales of $665 million, up from $545 million for the same period last year. Sales in the fourth quarter benefited from a 17% organic increase in infrastructure-related sales, the contribution of our acquisitions, and a favorable currency impact. The 17% organic growth of infrastructure-related sales was largely fueled by higher pricing. Utility pole sales were up 27%, railway ties sales increased in the low single-digit range, and industrial product sales grew by 20%. Residential lumber sales were down slightly compared to the same period last year, and this was largely attributable to lower volumes. As Eric mentioned earlier, in 2022, the company achieved total sales of $3.1 billion, up 11% from last year. Sales from our utility post product category, which accounted for 40% of total sales in 2022, were largely driven by an organic growth of 21%. Approximately 75% of the organic sales increase was due to higher pricing, with 25% making up increased volumes to cater to the strong demand. Railway tie sales accounted for 24% of total sales in 2022, up 4% from last year, an increase that was entirely attributable to higher prices. Volumes were lower year over year due to the reduction of the maintenance program of certain Class 1 customers. Sales in residential lumber accounted for 24% of total sales. The pullback in sales of 5% in 2022 was attributable to both lower pricing and volume. Finally, industrial product sales represented 5% of total sales and were up 15% from last year. 65% of the increase was due to higher volumes. In 2022, we realized a record fourth quarter EBITDA of $87 million. compared to $65 million in the fourth quarter of last year, representing a margin of 13.1% versus 9.5% in 2021. The increase in absolute dollars and as a percentage of sales was primarily attributable to pricing gains outpacing cost increases for certain infrastructure-related product categories, as well as the improvement in the EBITDA of residential lumber compared to the marginal EBITDA generated in the fourth quarter of last year. Residential lumber's results in Q4 of 2021 were impacted by the drop in demand in the second half of the year and the resulting higher cost of inventory on hand. For the year, we generated $448 million of EBITDA, representing a 12% increase over last year and a record for the company. The EBITDA margin was relatively unchanged at 14.6% compared to 14.5% last year, reflecting the company's ability to optimize its operational efficiencies and cover all cost increases. Adjusting for other losses, which were largely related to the retirement of idled equipment, we achieved an EBITDA margin closer to 15% in 2022. During the fourth quarter, we invested $136 million in inventories, acquired TC, continued to make capital expenditures to maintain and expand our operating assets, and returned capital to shareholders. The significant increase in inventory in the last quarter of the year was to replenish, in part, our untreated tie inventory, given the availability, increase log purchases to meet the growing utility poles demand, and built the seasonal residential lumber inventory. We consider this an investment in our ability to continue to provide service to our customers and meet demand when many in the industry could not. For the year, the company generated cash from operations of $255 million. Our solid cash flow generation is how Stella Jones delivers value to shareholders. In 2022, we returned $230 million of capital through share buybacks and payment of dividends. During the year, the dividend paid to shareholders amounted to 80 cents per share, representing an 11% increase compared to 2021. And as part of our normal course issuer bid, we repurchased approximately 4.7 million shares for $181 million. We ended the year with a net debt-to-EBITDA ratio of 2.5 times, which is within our stated expectations. In line with our commitment to return capital to shareholders yesterday, the Board of Directors declared a quarterly dividend of $0.23 per share, representing an increase of 15% over the previously quarterly dividends. and we continue to repurchase shares under the current NCIB program as announced last November. We hold a strong financial position and ended the year with available liquidity of nearly $260 million. Subsequent to year end, we announced that we amended the terms of our farm credit facility to increase the amount available by $200 million U.S. and extended the term of the revolving facility to March, 2028. The ability to amend our credit facility at attractive terms is a testament to the strength of our business, especially given the current macroeconomic environment. In summary, our strong financial performance has set us up well to meet our capital requirements and to remain on track in achieving our growth objectives in 2023. With that, I will now pass it on to Eric for his concluding remarks. Eric?