Stella-Jones Inc.

Results for the first quarter of 2024. Along with our MD&A, it can be found in the investor relations section of our website at www.stella-jones.com, as well as on CDAR+. As a reminder, all figures expressed on today's call are in Canadian dollars unless otherwise stated. After a highly successful 2023, 2024 has begun on an equally positive note with higher sales and record first quarter profitability. We are pleased with the solid momentum of our infrastructure product categories, which has continued into 2024. Our results continue to reaffirm our strategic approach of being future ready. We remain proactive in our pursuit of meeting customer needs while staying ahead of industry trends and dynamics, anticipating how we'll evolve and being prepared to capitalize on opportunities. We have done this through strategically and diligently building out our network through growth investments and acquisitions and investing in inventory levels required to meet demand. and we continue to leverage strategic locations of our operations. We have a large presence that spans North America, and this has allowed us to better cater to customer needs while serving them effectively, creating synergies and maximizing economies of scale. These initiatives are supported by the strong long-term fundamentals of our business. primarily the steady and growing demand for our products, which I will now discuss in more details. Sales of utility poles were higher year over year, driven by favorable pricing. In terms of volume, we noted sequential volume increases compared to Q4 last year, particularly from non-contract customers. For our contract business, which represents 70% of our pole sales, we continue to see a shift whereby certain customers are moving to longer term agreements. We also secured additional multi-year commitments from new and existing contract customers, which is indicative of their commitment and need to secure supply on a longer horizon. Our customers' projects are poised to span several decades, and there continues to be growing need to maintain the North American electrical grid. There's also sustained momentum from our utility customers to increase pole purchases to support their broadband access and expansion projects. Our goal is to be the supplier of choice and a company our customers can rely on when they proceed with their projects. As always, Stella Jones manages its business with an eye on the larger picture, making decisions that are best for the company's long-term stability and growth. Sales of railway ties also increased over the same period last year, above the low single-digit growth target. With the replenished level of tie inventory, we are now better positioned to service the non-Class 1 market. the ability to cater to this market is a significant shift from 2022 when the industry experienced limited availability of untreated wood ties. Sales for residential lumber pulled back slightly on account of the lower market price of lumber. We remain Canada's largest manufacturer of treated residential lumber, and many customers across North America rely on us for their premium treated lumber, composite decking, and accessories. I'll now turn it over to Silvana to provide a more detailed overview of our first quarter financial results.

Thank you, Eric, and good afternoon, everyone. As Eric indicated, Stella Jones had a robust start to 2024. We generated strong financial results that helped establish a solid foundation for the rest of the year. Sales for the quarter were $775 million, up $65 million from Q1 of 2023. The increase was driven by higher infrastructure product sales, which grew organically by $58 million or 10%. We benefited from favorable pricing across all our infrastructure product categories, higher railway tie volumes, and the contribution of the acquisition of the Baldwin assets. Utility pole sales increased to $402 million compared to $362 million for the same period in 2023 due to higher pricing when compared to Q1 last year. The slower pace of purchases this quarter largely stemmed from contract customers with long-term volume commitments. Though purchases from customers were deferred and remained lower relative to the first quarter of 2023, we saw a progression in our utility pole volumes over Q4 of last year. Sales of railway ties were $227 million, representing an increase of 16% compared to the first quarter of 2023. This increase was attributable to both higher pricing and volumes, particularly for non-Class 1 customers due to the available supply of railway ties. And residential lumber sales were $87 million compared to $90 million during Q1 2023. While volumes remained relatively stable quarter over quarter, the decrease in sales was attributable to the lower market price of lumber compared to the same period last year. Led by the strong organic sales growth for our infrastructure products, EBITDA increased to a record first quarter of $156 million compared to $120 million in the first quarter of 2023. EBITDA grew to 20.1% from 16.9% in the first quarter last year. Similarly, net income for the first quarter increased relative to the same period last year. We generated net income of $77 million or $1.36 per share. This compares to $60 million or $1.03 per share in the first quarter of 2023. The increase in profitability was attributable to the margin expansion realized across our infrastructure product categories, particularly due to the favorable pricing dynamics compared to Q1 last year for utility poles and railway ties. We ended the quarter with a net debt to EBITDA ratio of 2.7 times, which is within our expectations due to our typical working capital requirements in the first quarter of each year. During the quarter, we continued to invest in our inventory position, particularly for the seasonal build of residential lumber ahead of peak demand in the second and third quarters. Inventory levels are, however, expected to decrease by year-end and be in line with levels at the beginning of the year. Inventories are a significant component of working capital and 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 production capacity, as well as return capital to shareholders. In the first quarter of 2024, we repurchased $15 million of shares and declared a dividend totaling $16 million. As a result of our buyback programs, we had 2 million fewer average shares outstanding this quarter compared to last year's Q1. As at the end of March, we had returned over $225 million of capital to shareholders out of the $500 million committed for the 2023 to 2025 period. Yesterday, our board of directors approved a quarterly dividend of 28 cents per share, reflecting the continued confidence in the long-term strength of our business. In summary, our financial performance to begin the year has positioned us well to remain on track to continue to achieve profitable growth and return capital to shareholders. With that, I will pass it back to Eric for his concluding remarks.

Thank you, Silvana. Our first quarter results helped set the tone for a positive year ahead, and our focus in 2024 will remain on the growth trajectory of our infrastructure business. we are well positioned to meet or exceed the objectives laid out in our three-year financial plan. We continue to work towards achieving more than 3.6 billion in sales by 2025. And despite the impact of short-term trends, the underlying fundamentals of our business remain rooted in maintenance and replacement requirements, which play out over the longer term horizon. For utility pool product category, we continue to expect sales to grow at a compounded annual growth rate of 15% for 2024 and 2025, largely driven by volumes. Expected volume growth is based on information shared with us by customers in terms of their needs, as well as additional volume commitments recently secured from new and existing customers. As our customers undertake many of their projects during the second and third quarters, we expect these big volume periods for our business to support the expected volume growth. While our railway type product category had a strong start to begin the year, we are reaffirming our annual sales growth rate in the low single digits. A Class 1 customer has recently modified their 2024 maintenance program, which is expected to reduce overall volume gains for the year. And we maintain our projection of sales between $600 and $650 million for residential lumber, which is expected to comprise less than 20% of our overall sales mix. In terms of profitability, considering the strong performance of our EBITDA margin through 2023 and into the first quarter of 2024, we are currently well positioned to exceed our 16% annual margin target. Potential pricing pressures in the second half of the year for utility pool spot market business are expected to impact our current level of EBITDA margin. We look to the future with confidence, thanks to the strengths, resilience, and profitability of our business. And we will continue to put in the work every day to keep reaching further and higher while creating value for our shareholders. I would like to conclude the call by acknowledging our employees across North America, many of whom are listening today. You are what makes Stella Jones unique. Our customers rely on us for quality products and timely service, and we have a best-in-class reputation because of our team and the care and attention to our work. Thank you for delivering your best every day. With that, I will now open the line to questions.