Stella-Jones Inc.

Good afternoon and thank you for standing by. Welcome to the Stella Jones first quarter 2023 earnings call. At this time, all participants are in listen-only mode. Following the presentation, we will hold a question and answer session. To queue up for the questions by phone, please press star 1. A moderator will contact you. If anyone has any difficulties hearing the conference, please press star 1 for operator assistance at any time. I would like to remind everyone that this conference call is being recorded on Wednesday, May 10th, 2023. Please note that comments made on today's call may contain forward-looking information, and this information by its nature is subject to risks and uncertainties. Actual results may differ materially from the views expressed today. For further information on these risks and uncertainties, please consult the company's relevant filings on CDAR. 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 now pass the call over to Eric Vachon, President and Chief Executive Officer of Stella Jones. Eric.

Good afternoon, everyone, and thank you for joining us today. I'm here with Silvana Travolini, our Senior Vice President and Chief Financial Officer of Stella Jones. Earlier this morning, we issued our press release reporting the results of our first quarter of 2023. Along with our MD&A, it can be found in the investor relations section of our website at www.stellajones-.com, as well as on CEDAR. As a reminder, all figures expressed on today's call are in Canadian dollars unless otherwise stated. The positive momentum we generated from our record year in 2022 has carried into 2023. Our first quarter results were excellent, featuring strong sales and increase in EBITDA, which has outpaced sales growth. Our great start to the year reflects our growth plan in action. During the quarter, we successfully secured fiber supply, enhanced production capacity at our plants, and invested in the network upgrades to further increase pole production. All of these initiatives speaks to our unwavering focus on continuity and quality of customer service, maintaining our North American leadership position in the markets we serve. Now let's turn to the performance of our product categories for the quarter. our utility pole's product category significantly outperformed during the quarter. Sales grew organically by 29% and also benefited from the contribution of our timely acquisition in 2022 of the treating assets of Texas Electric Cooperatives, or TEC. The strong growth in this product category is a testament to our pole procurement team, which once again continued to leverage their longstanding industry relationships to meet growing customer demand while establishing the foundation to access new procurement areas. Sales of railway ties were also up, increasing organically by 5%. We were encouraged to see signs of continued increased railway tie availability in the first quarter of this year. At the current rate of procurement, We expect untreated tie inventories to be replenished by mid-year, with optimal dry inventory levels being reached in the second half of 2023. This will reduce the number of boltonized charges and open opportunities to respond to customer demand, which is being driven by steady railroad maintenance and ongoing infrastructure spend. For industrial products, sales continue to benefit from higher demand. Our industrial product category perfectly complements our rail and utility offerings. Finally, sales for residential lumber pulled back in this quarter in line with our expectations. Before I turn the call over to Sylvana, I want to provide an update on ESG. As many of you know, health and safety is a priority at Stella Jones. We strive to create a safe and healthy workplace that promotes responsibility and mutual respect. We are in the final phase of rolling out the SHIELDS program across North America. SHIELDS stands for Safety Health Improvement Leading Our Decisions and is an integrated environmental health and safety management system. These systems allow us to more accurately track and assess progress of our health and safety metrics to maintain our company-wide commitment to the safety and well-being of our people. At the start of this year, we reinforced our commitment to health and safety with the launch of a new employee-focused educational and informative campaign called Safety Matters Because You Matter. We believe that our most valuable asset is the people that walk into our facilities and offices each day. We all must play a role in owning health and safety and ensuring everyone performs successfully in their work environment and returns home safely at the end of the day. With that, I will turn it over to Sylvana to provide a more detailed overview of our first quarter financial results. Sylvana?

Thank you, Eric. And good afternoon, everyone. As Eric mentioned, we began the quarter on a very positive note, which is reflected in our strong financial results. Net income in the first quarter was $60 million, up 30% compared to net income of $46 million last year. This translated into earnings per share of $1.03 compared to $0.73 in the same period in 2022. We generated total sales of $710 million compared to $651 million last year. The increase was driven by an 18% organic sales growth of our infrastructure-related businesses. Sales this quarter also benefited from the contribution of the pole treating assets acquired from TC late in 2022 and the positive effect of currency conversion. This growth in sales was partly offset by the anticipated pullback of residential lumber sales. Utility pole sales rose to $362 million, up from $254 million from the same period last year. Excluding the currency conversion effect and the contribution from the acquisition of TEC assets, utility pole sales increased by $73 million or 29%, almost entirely driven by higher pricing. Sales volume gains were limited this quarter by our current production capacity. Downtime related to the ongoing capital projects largely offset the increase in our treating capacity stemming from the installation of upside cylinders. Sales from our utility pole product category accounted for more than half of total sales for the first quarter. Sales of railway ties grew to $195 million versus $175 million in the corresponding period last year. Excluding the currency conversion effect, sales of railway ties increased by $9 million or 5%, all attributable to favorable sales price adjustments to cover higher costs. Volumes for non-class one customers were lower due to the reduced level of treated ties inventory following the limited fiber supply availability in 2022. However, The steady maintenance demand for railway ties enabled this product category to account for 27% of total sales for the quarter. Residential lumber sales were down compared to the same period last year, which as Eric mentioned, were in line with our expectations. The decrease was attributable to lower volumes and pricing compared to the stronger demand and the rise in the market price of lumber in the same quarter last year. Sales in residential lumber accounted for 13% of total sales during the quarter. Turning now to profitability. Led by the strong organic sales growth, particularly for utility poles, our EBITDA increased $120 million in the first quarter of 2023, up 36% compared to $88 million in the first quarter last year. We saw notable strength in our EBITDA margin, growing 340 basis points to 16.9% in the first quarter from 13.5% last year. The increase was largely due to the margin expansion of the company's infrastructure-related product categories, particularly stemming from favorable price adjustments realized for utility poles and railway ties, as well as the impact of a better product mix. The relative proportion of utility poles in the first quarter amounted to over 50%. During the quarter, we continued to actively invest in our inventory position. We invested $138 million inventories to build our position to support the continued strong demand for poles and to replenish our untreated ties inventory given the market availability. Inventories are a significant component of working capital and the turnover is relatively low. We consider this an investment in our ability to provide service to our customers and meet their demand. During the quarter, we also used our liquidity to maintain the quality of assets and expand our pole production capacity, including acquiring the pole peeling and drying assets of industry, as well as return capital to shareholders. Yesterday, our board of director announced a dividend of 23 cents per share. And during the quarter, we repurchased over 600,000 shares for a total of $30 million. Since the beginning of the current NCIB program in late 2022, we have repurchased over 1 million shares for $50 million. As a result of our buyback programs, we had almost 4.5 million fewer average shares outstanding this quarter compared to last year's Q1. We ended the year with a net debt to EBITDA ratio of 2.8 times, which is within our expectations due to our typical working capital requirements in the first quarter of each year. We hold a strong financial position and are able to finance our business plans, meet working capital requirements, and maintain our assets through our cash flow generation and available credit facilities. In summary, Our financial performance to begin the year has positioned us well to remain on track to achieve future growth and value for our shareholders. With that, I will now pass it on to Eric for his concluding remarks. Eric?