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 1 and a moderator will contact you. If anyone experiences difficulties hearing the conference call, please press star 0 for operator assistance at any time. I would like to remind everyone that this conference call is being recorded on Wednesday, May 7, 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. Our show 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 CEDAR+. These documents are also available in the Investor Relations section of Stella Jones' website at www.stella-jones.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 MV&A, available on Stella Jones' website and on CEDAR+. 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 Travolini, 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 MD&E, 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. In Q1, we continued 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 our 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 are 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. 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 continue 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 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 continue 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 focus 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 $15 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.