Stella-Jones Inc.

Good morning and thank you for standing by. Welcome to Stella Jones first quarter of 2025 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 questions by phone, please press star one and a moderator will contact you. If anyone experienced difficulties hearing the conference call, please press star zero for operator assistance at any time. I would like to remind everyone that this conference call is being recorded on Wednesday, May 7th, 2025. 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. I'll show results from the views expressed today. For further information on this risks and uncertainties, please consult the company's relevant filings on Cedar Plus. These documents are also available in the investor relations section of Stella Jones website at .stelladashjones.com. Additionally, during this conference call, the company may refer to non-GAAP measures, which have no standardized meaning under GAAP and are not likely to be comparable to similar measures presented by other issuers. For more information, please refer to the company's latest MVNA available on Stella Jones website and on Cedar Plus. Lastly, we have prepared a corresponding presentation which we encourage you to follow along with during this call. I now hand the call over to Mr. Eric Machon, President and Chief Executive Officer of Stella Jones. Eric.

Thank you, Ina. Good morning, everyone, and thank you for joining us today. With me on today's call is Silvana Travellini, Senior Vice President and Chief Financial Officer of Stella Jones. Earlier this morning, we issued our press release reporting our results for the first quarter of 2025. Along with our MVNA, it can be found in the investor relations section of our website at .stelladashjones.com as well as on Cedar Plus. As a reminder, all figures expressed on today's call are in Canadian dollars, unless otherwise stated. In Q1, we continue to deliver solid profit margins and maintain a robust financial position, even as ongoing macroeconomic headwinds, unfavorable weather conditions, and a shifting landscape for our railway-type business weighed on volumes. We have a resilient business with strong core fundamentals, which enabled us to manage through the current dynamic environment while executing on a strategy to further capture infrastructure growth. Our expansion into the steel transmission market announced earlier today enhances our resiliency by enabling us to better serve the growing needs of our infrastructure customers. Turning to a performance review of our main product categories, starting with utility poles. Q1 followed the same trajectory as the last two quarters. Our utility customers continue to affirm their critical needs for pole replacement. While utilities are committed to the timely maintenance and upgrade of the electrical grid, their capital deployment strategies and timing of investments remain influenced by the ongoing economic challenges that have persisted since the second half of 2024. We are, however, encouraged by the increase in quoting requests, and we continue to anticipate stronger volume performance in the latter part of the year. In terms of spot pricing, pressures are expected to persist in certain regions pending increased demand. Our exposure to the spot market remains limited at 25% of our total utility pole business and is expected to be mitigated by favorable contract pricing. For railway ties, sales in the first quarter were impacted in large part by a Class 1 customer now treating more of their railway ties internally. While this shift will result in lower sales going forward from this customer, we're executing on opportunities to strengthen our relationships with other Class 1 customers, and we anticipate to recover the volume shortfall. The railway tie landscape is evolving, with customers looking to Stella-Jones to deliver meaningful solutions to address their demand and optimize their business model. We will leverage this strategic shift to improve the profitability of this product category. Railway ties remain a stable source of revenue. Residential numbers performance this quarter was marked by the slower start to the exterior home improvement season. While volumes were down due to unfavorable weather conditions, demand for the remainder of the year is expected to trend favorably. Even amidst a dynamic economic environment, our customers have expressed confidence in the demand outlook as the home remodeling spending is anticipated to be solid. The company remains confident in the long-term prospect of each of its main product categories, and we are excited to further capitalize on the growing North American infrastructure demand with the acquisition of Lockwell. A leading designer and manufacturer of lattice transmission towers and steel transmission poles, Lockwell will provide Stella-Jones a presence in the high-voltage transmission space where wood utility poles are not commonly used. It is a step-change acquisition that allows us to leverage our expansive sales and distribution network to offer a more comprehensive suite of products to customers. It also provides Stella-Jones with new growth opportunities in steel transmission structure markets. The addressable steel transmission market currently exceeds $5 billion in annual sales, and its growth potential is supported by a robust pipeline of confirmed and newly announced transmission projects. With an expected backlog of transmission projects, and nearly 45% of North America's transmission and distribution infrastructure nearing the end of its service life, the T&D market is poised for sustained growth. Our strategic presence in this attractive market positions us well to capitalize on these opportunities. We welcome Lockwell's approximately 220 employees to Stella-Jones and look forward to a bright future of better serving North America's utilities together. With that, I will ask Sylvana to provide a more detailed overview of our first quarter financial results.

Thank you, Eric, and good morning, everyone. Sales for the first quarter were down 5% organically, but we continued to deliver a solid EBITDA margin of above 18%, excluding the 5% margin impact from the insurance settlement recorded in Q1. While utility poles and residential lumber sales were relatively unchanged on an organic basis, Q1 sales were impacted by the decrease in the railway tie volumes when compared to the same period last year. For utility poles, we generated $419 million in sales in the first quarter, up from $402 million in the same period last year. Sales benefited from the contribution of newly secured business and stable contractual maintenance demand. But similar to the trend observed since Q3 last year, the pace of purchases by utilities and the timing of projects were unfavorably impacted by macroeconomic factors, which influenced the capital deployment strategies of our customers. Compared to Q1 last year, volumes were down 4%. Lower quarter over quarter volumes for poles were more than offset by favorable price pricing and the positive impact of currency conversion compared to the same period last year. Sales of railway ties were down 14% organically this quarter to $208 million. The decrease was almost all attributed to lower volumes. Class 1 volumes decreased due to a shift by RailWorld to the internal treating of the railway ties, while non-class 1 volumes were largely impacted by delays in projects which are expected to be recovered in the second quarter. Non-class 1 demand remains strong. Residential lumber sales were relatively stable at $88 million in Q1 of 2025 compared to $87 million in the first quarter last year. Q1 sales benefited from the increase in the market price of lumber, but volumes were down. Challenging weather conditions in the first quarter of 2025 contributed to lower volumes, especially when compared to unusually favorable weather during the same period last year. Turning now to profitability. EBITDA increased by $23 million to $179 million in Q1 of 2025. The increase was attributable to the settlement of an insurance claim of $38 million for a 2023 fire at one of our facilities, offset in part by a decrease in sales volume. Despite lower volumes, the company continued to generate a strong EBITDA margin. Excluding the impact of the insurance settlement, the first quarter EBITDA margin of 18% was lower than the record 20% generated in the same period in 2024, but in line with the annual margin we have generated over the last two years. Turning to cash flows. During the quarter, the cash flow used in operating activities was $16 million compared to $62 million used in Q1 last year. This improvement was largely attributable to lower inventory. We started the year with a higher level of inventory. As a result, the net investment in inventory in Q1 was lower and limited to the seasonal build of residential lumber inventory. We continued to expect to end the year with lower levels of inventory. We remain committed to a balanced approach to capital allocation. Over the last 12 months, we generated cash from operations of about $450 million, deploying about $145 million towards investing in our business and a similar amount of about $150 million to shareholders return. The remaining capital of $155 million was used to bolster our liquidity. As at the end of March, we returned $380 million of capital to shareholders out of the $500 million committed for the 2023 to 2025 period. And yesterday, our board of directors approved a quarterly dividend of 31 cents per share. We ended the quarter with almost $700 million in available liquidity and a net debt to EBITDA ratio of 2.6 times unchanged from the ratio at the end of the year. A ratio above the target range is typical in the first quarter due to the seasonal working capital requirements. With a continued focused on profitability and working capital management, the leverage ratio is expected to be within the desired target range by the end of the year. After quarter end, we entered into a definite agreement to acquire Lockwell for an initial consideration of $58 million. This transaction is expected to close today. We are also planning to invest in a capex program totaling about $50 million to increase Lockwell's current output and enhance its operational efficiencies. Our strong balance sheet allows us to execute on strategic growth initiatives like Lockwell and continue to pursue value accretive acquisitions core to our growth strategy. In summary, with the strength of our business, our healthy financial position and strong cash generating ability, Stella Jones is well positioned for continued growth and success in 2025. I will now turn the call back to Eric for his closing remarks.

Thank you, Silvana. Q1 has unfolded largely as anticipated and at this stage, we maintain our guidance and remain confident in meeting our financial objectives, which will also benefit from the contribution of the Lockwell acquisition. As a reminder, Stella Jones exposures to tariff is limited and while other macro economic conditions could continue to pose some challenges, we remain vigilant and prepared to adapt our strategies as necessary. Our continued focus on acquisitions remains a cornerstone of our growth strategy. The acquisition of Lockwell exemplifies our commitment to expanding our offering and enhancing our market position. We are dedicated to pursuing acquisitions that are accretive and complimentary to our current infrastructure portfolio, further strengthening our overall business resilience. We remain steadfast in our pursuit of growth. We look forward and sharing more information at our next investor day schedule for later this year. Thank you for your continued support and trust in Stella Jones' vision of connecting communities through stronger infrastructure. As a reminder, later this morning, we will be holding our annual meeting of shareholders. I would like to take this opportunity to recognize two outgoing board members who will not be seeking re-election this year. Mr. Jim Manzi in his decade long tenure on our board helped drive a global compensation philosophy that was anchored in performance and ownership. And Mr. Rodri Harris, member of our board since 2020, who has made invaluable contributions to the board's audit and environmental health and safety committees in his time with us. On behalf of management, I would like to thank both of them for their judicious guidance and their service to our board and its committees. This concludes today's prepared remarks and I will now open the lines to questions.

Thank you, Eric. As a reminder, to queue up for questions by phone, please press star one on your telephone keypad. Then should your VISTA cancel your request, please press star four by the two. If you're using a speaker phone, please lift your handset before pressing any keys. Your first question comes from the line of Hamir Patel from CAPC Capital Markets. Please go ahead.

Hi, good morning. Eric, could you comment on how the margins of the lock well business would compare to your consolidated margins and also how they compare with wood poles?

Yeah, so I would say very similar, Amir. That was one of the factors that made this business appealing to us, so very comparable.

Eric, sorry, comparable to the wood poles, which I believe are higher margins than your consolidated margins, would that be correct? Correct. Okay, and then just with the planned 15 million capital investment that you have planned, what sort of margin uplift and capacity increase would you expect from that?

From a capacity standpoint, we expect to double the capacity of the existing footprint in the facility, Condeac, Quebec. And obviously, through the same footprint will definitely increase the margin by a couple of basis points.

Great, and I know the sales disclosure you gave for Lockwell was September 30th, 2024. Could you speak to maybe how the trade impacts have affected how you think about sales from that business this year and maybe if the growth rate for steel poles differs all that much from wood poles?

Yes, no, certainly. So the September figure is actually coincides with their fiscal year, so those were the results of the last fiscal year, which was September. Going forward, the backlog, the order book is very healthy and I'm going for definitely a good 24 months going out. So very optimistic about the outlook for that business and the demand in general.

Okay, great, and just the last question I had, Eric, could you speak to the input cost dynamics with these steel structures and how the pass-throughs typically work there and if there's any notable sort of lag that we should think about?

Right, so the way the contracts are structured, there are indexes for steel that are associated to the product. So all of the risk on fluctuation of the input material is actually passed on to the customer, so it's incorporated, so very little exposure from that standpoint. And Amir, I apologize, you had another part to your previous question, which was regards to tariffs and to date, in my last discussion with the team as of last Friday, tariffs are passed on to the customers and orders keep coming in and it's not a significant issue. Most of the suppliers to the US market are actually all outside of the US, so offshore and Canada. So everybody's on a level playing field from that perspective and tariffs are being passed through and customers are paying for them.

Okay, great, thanks, Eric, that's all I had, I'll turn it over.

My pleasure, thank you, Amir.

Thank you, our following question is from James McGarigal from RBC, please go ahead.

Hey, thanks for having me on and congrats on the deal you announced today. Yes, I was just wondering if you can give us range of how you expect EBITDA to evolve during the year. I know coming into the quarter, call it consensus was at 640, you announced the acquisition, you had the insurance settlement gain, but are you comfortable with that number and any color you can provide, especially as it relates to the polls and the railway tie business?

Yeah, certainly, so obviously you mentioned the key topics excluding the insurance proceeds. We maintain our objectives to be over 17%, as we stated previously, very comfortable with how our business is heading for the balance of the year.

Okay, and then just on the tie business, I know one of the class one customers is kind of further utilizing some internal capacity. Do you expect that just to be a headwind in 2025, or is that facility expected to ramp up over the next two to three years where that's gonna be a further headwind into 2026 and into 2027?

Well, it'll be the same though. What we announced today is essentially probably the biggest part of the impact going forward. So it's now sort of included in the way we view the balance of the year. And as I mentioned in my remarks, we're currently working on a few projects that will help us compensate the shortfall.

All right, thank you. I'll turn the line over. Take it, James.

Thank you, and your next question comes from the line up in well Porter from the Jordan, please go ahead.

Yes, thank you very much. Good morning, everyone. First question, in terms of organic growth, how should we be thinking, Eric and Silvana for utility pole and railways ties, obviously given the macro environment, but also maybe given the tough comparison versus Q2 last year, I would be curious to have a little bit more color around those two segments for Q2.

Well, you bring up a good point. Q2 last year was a very strong quarter. So I would suggest probably a flattish performance with regards to that. Did mention in our comments that we believe that we're foreseeing some volume growth in the second half of this year for utility poles. So definitely comfortable about changing our views there to that mid single digit growth for the year. For railway ties, because of one customer bringing their production internally and us working to readjust and compensate the shortfall, it would most likely be flattish for the year.

Okay, that's perfect. And just with respect to the short line, what is the latest status in terms of funding with the crisis given the whole new administration?

That's a good question. I mean, no real changes since the last time we spoke. I mean, there were discussions earlier this year or earlier in the quarter about the US government thinking of changing the structure of those Chrissy grads. Ultimately, they were not impacted or changed. Obviously, our comments are a bit tinted with uncertainties and evolving macroeconomic situation that would be one of them. So there is some cautiousness there with some short lines, but definitely still a very healthy market, strong demand all in all. So everybody has to work with what they know today. We're in Q2, it's the peak season for maintenance for all our product categories at this point. And short lines have to seize the opportunity to do some work. So we're still seeing some very healthy demand in the non-class one business.

Okay, and just on Lockwell, I understand that you're on the same level of playing field right now with competitors outside the US. Given you already have a solid foothold in the US, is there any, and I think two-third of the volume of Lockwell goes into the US. So is there any plan to build a US facility down the road? And I would be curious to have your thoughts whether you foresee more M&A opportunities with steel pull and any thoughts about the leverage situation and the willingness to go higher than the three terms for the right one.

Well, that's a great question, Vinod. So the Lockwell acquisition is definitely part of a roadmap of our projects to expand in this steel transmission market. Lockwell obviously is a transaction that has been done at a multiple that is comparable to history. It's an expansion of our product offering to our customers. It comes with a solid management team, very happy to see them come along with us for this ride. So they definitely plans to expand the current footprint to continue pursuing M&A in this space. And we're definitely not necessarily ruling out any potential expansion in the US. Obviously we need to do some homework here to properly understand what the market has to offer, but we understand currently that there's lots of projects that are being structured and more news to come on that front, but we're looking at all possibilities to keep growing this business. As I said, lattice and steel pulls is a 5 billion sales annual market, it's a very attractive one. It expands our transmission capabilities beyond what our wood poles can do, because it's very limited in that space. So all I can say is that all options are there. We have a strong team to anchor this venture into this new part of the business.

Okay, and just curious, maybe Silvana from a capital deployment in terms of leverage, given you're already at 2.65, I know you typically target to 2.5, it's a stable business, so just wondering what the willingness may be to go up a little bit more from the leverage standpoint.

Well, we always said as part of our capital allocation, obviously that the range of 2.5 that we would be willing to deviate above it for growth opportunities or strategic acquisitions. But currently, as we mentioned, we are expecting to focus on our working capital and our inventory management. So we are expecting a reduction in our inventory. So with that and with this acquisition, I don't see any issues for us to be still within the 2 to 2.5 times range before the end of the year. Excellent, thank you very much for the

time.

Thank

you, Benoît.

Thank you, our following question is from Michael Tufomi from TD Coran, please go ahead.

Thank you, good morning.

Morning,

Michael. Eric, good morning. So just on Lockwild, sorry if I missed this, but can you speak to historical growth there? And also, I think it came up in the last question, but it wasn't really from you. So what is the sales mix split between Canada and the US for Lockwild?

Yeah, so the sales mix is about 30% Canada, 70% US currently. It is project-based. So definitely it can shift over time depending on what utilities providing the project. What's interesting is Lockwild has been able to establish relationships with utilities across North America. So definitely a well-balanced customer list, which is very attractive. And the customer list that is common to Stella Jones which is also exciting for us. But currently the mix is 37.

Okay, sorry, and then in terms of the historical sales growth, like you're coming about project-based, does that mean there's some volatility here and it's not sort of differs from your wood poles business where we've seen kind of relatively steady growth over time? Like is it different characteristics with this business?

So looking at the historical sales, they have a well-balanced portfolio of customers that has brought in consistent business. So that's why I highlighted that in my previous answer. So they have not seen like down cycles, it's stable. And I can actually say it's actually growing for the last 18, 24 months as we keep here and we're also hearing of transmission projects announcement across North America, including in Canada, in Quebec, in Ontario as well, a lot of activity going on there. So the log book for the next several quarters is actually full. So happy to say that a lot of the capacity is currently sold for the next year. So very excited at how that management teams approaches the market. So they've figured out a very good model that drives consistent revenue.

Okay, perfect. And then just the capacity expansion you're undertaking. So is the plant near capacity at present and then this will double it or is there still room within the current footprint and put on top of that, you're doubling it?

With what's being observed right now in the markets and the orders and confirmation of orders coming in, capacity is sold out and the intent of the investment is to double the capacity because we can actually fill that capacity pretty quickly as well as all, you know, give it till the end of this year until we know we got a project going but I do feel that we'll have that entire capacity including the expansion fully sold by the end of the year.

Okay, great. And then sorry, one more on Lockwell. Just in response to some Benoit's questions you were talking about the potential to continue growing in this steel structures market and potentially additional M&A. So just wanna sort of get expectations set properly here. Is the idea to continue on with that sort of, you know, imminently and right away or is the idea just, is that more of a comment over the medium to longer term once you sort of digest this acquisition and understand what you really bought here?

Yeah, so I mean, the first step obviously is to, you know, get our CAPEX project going. So we've already done all the engineering work with the Lockwell team. We've got, you know, purchase orders ready to sign. We're just waiting to complete the acquisition. So I'm hoping to start seeing some of the equipment roll into the facility, you know, let's say Q4 and early next year. So as that is unfolding, we'll be then looking at our options. So, you know, we can invest and build or look at some M&A. M&A in the US is actually very light simply because there are no significant or sizeable players, but there are some players here in Canada that would be a nice opportunity for us as well. So we're definitely looking at our options. I don't wanna go lightning speed into this, but we definitely wanna make sure that we keep a good cadence to keep building on the momentum we have and, you know, keep growing our offering to the North America's utilities.

Okay, perfect. And then just a couple about the existing business. So in utility pools, negative 1% organic growth in the first quarter, can you break that down in terms of the composition, price versus volume in Q1?

Yeah, so volume, at least Solana stated, volume is about down 4% year over year, and then it's offset by pricing and some effects obviously.

And then if I got everything you said earlier, the expectation for Q2 is broadly flat organic growth in polls, but you still feel comfortable with that mid single digit organic growth for the full year suggesting you're gonna see most of this growth or all this growth coming in the back half. Yeah, exactly. And is that full year number then? I think previously the expectation was most of that full year mid single digit was gonna be volume driven, but given sort of, you know, that hadn't been the case in Q1, like is the full year composition shifting a little bit? And how does that look as you look a little further out to 2026, like do you still think it's gonna be mainly volume or is there a pricing element here?

Yeah, at this point it's all gonna be volume. You know, we have different dynamics as, you know, we explain on the pricing depending on contract or not on contract, so at this point our growth is gonna be anchored in volumes for the balance of this year at 426. Okay, all right, I will leave it there, thank you. Thank you, Michael.

Thank you, and the next question comes from the line of Martin Pradier from Veritas Investment Research, please go ahead.

Yes, hi, thank you, thank you for taking my question. Is my understanding correct that the real earnings is 40 million if I exclude insurance for the quarter?

You mean EBITDA

results? No, net income, your net income was 93 million, but I think it's 53 million the insurance adjustment.

So the insurance adjustment is 30 million dollars on the EBITDA front, okay, so basically, you know, once you tax affect it, if you wanna look at it that way, you know, probably you could use our effective tax rates, it's probably closer to a 30 million dollar impact.

30 million net income would be also?

Yes, because 38 was basically an EBITDA impact.

Okay, perfect, and in terms of the new company that you bought, can you share how much was the sales and how much was the net income of that company the last year?

Well, the trailing last 12 months sales for their fiscal year ended September was 55 million dollars Canadian, and we don't disclose margins or profit.

Was it making money? Pardon me? Was it making money, this company?

Margins are comparable to our utility pool business.

Yeah, but the net, was it positive on the net income side? That's my

question. Of course, of course it's positive net income.

Okay, thank you very much. Thank you,

sir. Thank you, once again, should you have a question, please press star four by the one on your telephone keypad. Your next question comes from the line of Maxim Sipchev from National Bank Financial, please go ahead.

Hi, Eric, so good morning. Eric, wanted to come back to the comment you made around the sold out capacity at Lockwell. So does it mean that the projects on the transmission side are not being impacted by the same sort of delays where seeing a distribution or is it just sort of the staggering of projects, which is more driving kind of the disability in the short term right now?

It's definitely a staggering of projects, you know, and the needs for transmission, I guess twofolds, one there is some replacement happening there for older structures, but there's also all the pressure that's being put on our customers, by data centers requiring more energy, and therefore as they're building capacity in different projects, they need transmission ones. So it's all of this dynamic currently that is creating a very favorable trend for the transmission business.

Yeah, no, no, 100%, I mean, it looks like a great transaction. And in terms of going back to kind of, you know, quote unquote, like the support operations, like between sort of the interest rate pressures, you know, permits, what are the pain points right now at the customer level? And I guess what gives you the confidence that, you know, the back half of the year will, you know, relieve some of these pressures.

Yeah, well, you know, obviously there's ongoing discussions with our customers and the projects that we're quoting, that, you know, is showing some healthy momentum going forward. You know, I spend time listening to what our customers that are public have to say, if I look at, you know, in our top five, 10 utilities, you know, have CAPEX ambitions in the next four to five years that, you know, are in the billions of dollars. So they all acknowledge that there is a need to, you know, strengthen and harden the distribution grid. They acknowledge that they also need to, you know, invest in the generating assets and require the transmission, the transmission assets to be able to support, you know, industry, industrial business, but it is what communities. So, you know, all in all, I do agree that, and it's in our statement, there are some headwinds with uncertainties and probably higher interest rates in the US than what our customers would like or what they established their initial CAPEX plans, but nonetheless, every quarter, they reaffirmed their intention to spend these billions of dollars, you know, over this four to five, five year period. And it sort of matches up when we have conversations with them and actually very excited now to be able to go meet them today and talk about the transmission needs that are going forward. So, you know, that's the reading we have on the market right now.

Yeah, that's perfect. That's it for me. Thank you. Appreciate your time.

Thank you, Maxim.

Thank you. And your next question comes from the line of Jonathan Goldman from Scotiabank. Please go ahead.

Hi, good morning, team. Thanks for taking my questions. Maybe just the housekeeping one to start. How much did weather impact poll and railway tie volumes in Q1?

Oh, well, very hard to quantify, you know, there is some slowness there. I mean, we don't split it out. It's actually a very difficult exercise, but, you know, January was extremely cold and February had, you know, significant snowfall. So, you know, it does slow down the activities for all three product categories for sure, but very hard to quantify compared to last year where, you know, winter was mild and springy, spring came in very early, but I apologize. It's not something that we actually carve out and very difficult to do so actually.

No, fair enough. And Eric, you reiterated the expectations for mid single digit growth and polls this year. I think the original guide you gave back in November was six to 7%. And you did address this earlier, but that implies a precinct skin re-acceleration in the second half. I mean, you did talk about the customers and what they're putting out in terms of target, but what are you assuming for the macro environment to hit those numbers in the back half of the year?

Well, we're honestly, we're sort of saying a steady state from what we've seen so far, right? It's very, a lot of it is hard to predict, obviously, you know, with decisions that are made with the US administration. So, you know, the only assumption we can take is the current state we know with the context of tariffs that we know today and the current level of interest rates. Now, you know, our customers have, you know, are taking all of this into account and themselves are using similar assumptions. And, you know, if anything happens in a favorable sense, interest rates dropping, for example, well, definitely that would definitely create a more positive momentum.

Okay, definitely. And then on the breakdown of pricing volume and railway ties, I think the disclosure said it was predominantly volumes, but do you have the exact breakdown?

Well, you could assume it's all volumes, honestly.

Okay. And then one more from me, on the class one customer insourcing, can you speak to some of the factors that may have influenced their decision and what gives you confidence this is an isolated case?

So, I want to be respectful and not disclose names because, you know, but, so there was one class one customer who owned its own treating plant for several decades actually, and recent merger sort of brought it to light with the newly formed company. And the newly formed company believes that they want to leverage that asset and use it going forward. You know, we'll see how long they'll deem it a strategic asset. And, you know, it's a customer that we know very well. We service for bridge timbers and switch ties and other specialty products. So we have good relationship with them. I would be very skeptical to see the other class ones start investing or acquiring treating facilities. Historically, those, a lot of railroads did own treating plants and they were all divested to the industry. But I really do not see that as a possible, you know, scenario for the future.

Understood, thanks for the time.

My pleasure.

Thank you. We have a follow up question comes from the line of Michael Tafomi from Kidikawa and please go ahead.

Oh, thank you. Yeah, I just wanted to circle back on the outlook for railway ties, thinking about part about the last question there. So I think the prior guidance had been low single digit organic growth for the year. And then now it sounds like it's sort of flattish organic growth for the year. But given the 14% organic decline in ties in Q1, obviously you're still looking for a pickup. Did I understand that you believe you're gonna win some new business or is this just like just trying to bridge, I guess, what you did in Q1 to getting this flat for the year, organic growth for ties, what needs to happen to make that possible?

So, I mean, you know, every year, all our customers, including class ones, you know, have different projects that pop up and there are some opportunities that we can address. So there are a few projects that we're working on right now that will complete that shortfall if you want. And so we feel confident that we will have that extra volume in the next three quarters.

Okay, that's helpful. And then in terms of Q2 though, is Q2 the expectation that that is also sort of flattish or how do you see Q2 in terms of organic growth? I mean,

organic growth could be slightly lower. We should see a bit better pricing, honestly, in the second quarter. So could it be flattish perhaps both of them are setting? Okay, thank you. Thank you, Michael.

Thank you. We have no further questions in the queue. Please proceed.

Thank you, Ina. And thank you everyone for joining us today. We look forward to updating you on our second quarter call in August. And we look forward to welcoming those who will be attending our annual meeting of shareholders later this morning. Until then, have a good day and stay safe.

Thank you. Ladies and gentlemen, this concludes today's call. Thank you for participating. You may now disconnect your lines.