Stella-Jones Inc.

Good morning and thank you for standing by. Good morning and thank you for standing by. Welcome to Stella Jones' second quarter 2026 earnings conference call. At this time, all participants are in a listen-only mode. Following the presentation, we will hold a question and answer session. To queue up for a question by phone, please press star 1 and a moderator will contact you. If anyone experiences technical difficulties hearing the conference call, please press star zero for the operator at any time. I would like to remind everyone that this conference call is being recorded on Thursday, August 6, 2026. I will now turn the call over to David Galison, Vice President of Investor Relations of Stella Jones.

Thank you, John. And good morning, everyone. Earlier this morning, we issued our press release reporting our results for the second quarter of 2026. 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. 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. 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. Additionally, during this conference call, the company may refer to non-GAAP measures which have no standardized meeting 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 MD&A available on Stella Jones' website and on CDAR+. Lastly, we have prepared a corresponding presentation which we encourage you to follow along with during this call. I'll now hand the call over to Eric Vachon, President and Chief Executive Officer of Stella Jones, for a strategic business update, followed by Silvana Travaglini, Senior Vice President and Chief Financial Officer of Stella Jones, who will provide a more detailed financial overview of the quarter. Eric, over to you.

Thank you, David, and good morning, everyone. Today we reported second quarter results that reflect continued strength in utility products supported by positive volume momentum in wood utility poles and a solid contribution from our recently acquired Cross Arms business. In railway ties, stronger commercial activity provided a significant offset to lower Class 1 volumes while our network optimization plan continued to advance and remains on track to support profitability improvement. In residential lumber, pricing and volumes remained below prior year levels, although trends improved towards the end of the quarter and into Q3. While underlying business conditions remained supportive, profitability in the quarter was affected by several near-term cost headwinds, including higher site-specific environmental and maintenance costs, temporary inefficiencies from our steel structure capacity expansion project, and increased fuel costs. These pressures were amplified by the lag in recurring certain cost increases through pricing. Excluding items that are not expected to repeat, margin performance in the quarter would have been closer to 17.5%. Margin improvement is also expected to be driven by a greater contribution from higher margin businesses, such as cross arms and steel structures, along with a better railway tie sales profile, including more TSO volumes and higher value rail products. Together, these factors support our expectation that EBITDA margin should improve in the second half of 2026, while remaining below our three year target range for the full year. In parallel, we continue to advance our continuous improvement and footprint optimization initiatives, which we expect will drive efficiencies, strengthen margins, and enhance profitability over time. Combined with a more supportive business mix and favorable end-market fundamentals, these actions reinforce our view that the current level of margin performance does not represent a structural change in the earnings power of the business. Accordingly, we remain confident in our ability to achieve our stated three-year average adjusted EBITDA margin objectives of 17.5 to 18.5%. Turning to a performance and overview of our main product categories and starting with utility products. We remain encouraged by the strength of the business which continues to be a key growth driver. In wood utility poles, momentum remained positive in the second quarter, although the volume's growth moderated from the strong pace seen in the first quarter. Importantly, on a year-to-date basis, volume growth remained in line with our mid-single-digit outlook, supported by the continued strength in our contract-based business. Spot pricing has also stabilized broadly on a sequential basis and we expect the additional capacity coming online later this year, which we mentioned in our Q1 call, to have only a negligible impact on overall spot pricing. When fully operational, we believe the new capacity will represent less than 1% of the total North American treating capacity. Turning to our continuous improvement initiatives, we are now planning the next phase of our network optimization, focusing on our wood utility pole facilities. The objective is to consolidate some capacity so we can fully realize the benefits of investments already made, as well as increasing plant specialization. Most of the network is already operating on a single product basis with only a few facilities left to transition. Another important consideration as we develop our optimization plan is the current preservative availability in Canada, where approval of DCOI, the main oil-based alternative to Penta, remains outstanding. We expect these optimization efforts to improve utilization, enhance profitability, and free up capacity to support growth in the wood utility poles. Beyond the operating and financial benefits of these optimization initiatives, They will also contribute to the broader sustainability strategy. By streamlining our production footprint across both railway ties and utility poles, we're actively improving the GHG emission profile of our network, keeping us on track to meet our long-term sustainability targets. Turning to our latest acquisitions, The integration of a cross arms business continues to go well and the business performed in line with our expectations, providing a solid contribution to the results. We are also seeing strong interest from our existing customer base as the product offers a natural value added extension to our utility pole offering. To this end, we began recording Canadian sales in the quarter, demonstrating the progress we are making in leveraging our established network and deep customer relationships to broaden our share of customer spend. For steel structures, sales in the quarter were lower compared to the prior year, primarily due to temporary lost production time and lower throughput during the equipment changeover related to our capacity expansion program. We continue to make solid progress in the seal structure capacity expansion. In Candiac, the plant modernization remains on track to double capacity to 20,000 tons by Q3 of 2026 with full ramp-up by year-end. Demand for lattice towers remains strong and the capacity is already substantially allocated through the end of 2027. Our team has also secured one customer contract for approximately one-third of the production capacity in CONDIAC for the next 10 years. In the U.S., we continue to advance the development of our Fayetteville, Tennessee facility. Our focus to date has been on finalizing key vendor agreements, advancing permit work, and preparing the site and equipment plans needed to move into execution. As a reminder, the site includes an existing newly constructed building that is suitable for operations, which helps mitigate execution risk. The project remains on track and we continue to expect this investment of approximately 50 million US dollars to add another 20,000 tons to our steel structure production capacity. Commissioning is expected in late 2027 with full production by the end of 2028. We also have received strong initial support from existing U.S. customers that are currently served from Condiac to place order in 2027 with the new facility as part of its ISO and customer certifications and ramp-up. These early volumes should help support commissioning and a smoother startup. We are also seeing increased interest from Canadian customers for steel transmission structures, which over time should give us greater flexibility to shift U.S. demand to Fayetteville while backfilling capacity in Candiac with Canadian demand. Turning to railway ties, second quarter results reflected similar market conditions to Q1 this year. As expected, Class 1 volumes remained lower in the quarter. However, we continued to see growth in our commercial business, which was able to offset a meaningful portion of the decline in Class 1 volumes. During the quarter, we began executing on the network optimization plan outlined in Q1, continuing to consolidate our footprint and reallocating volumes to most efficient facilities to better align business with the current demand. While these actions resulted in some one-time costs in the quarter, we expect these initiatives to improve returns over time. At the same time, we remain focused on growth. During the quarter, we finalized one Class 1 contract renewal that includes volume growth and we are seeing interest from that customer in bridge timbers which could provide incremental upside. Looking ahead, we are actively negotiating another Class 1 contract renewal and we are encouraged by additional volumes that were added to our forecasting starting in 2027 which stem from capital investments expected to conclude this year. We expect to finalize this contract negotiation in Q4. This pipeline of renewals remains an important part of our strategy to strengthen our position and expand our product offering. We also continue to see a constructing funding backdrop in the commercial market. Although CRISI grants are scheduled to expire in 2026, previously awarded funding should continue to support project activity through 2028. Beyond that, proposed enhancements to the 45G tax credit could provide an additional source of support for short-line investments. Turning to residential lumber, results were softer in the quarter, but recent trends in both pricing and volumes have been encouraging, and we continue to expect full-year sales to remain within our $600 million to $650 million target range. Beyond our operational focus, we remain equally committed to sustainable development of our business. During the quarter, we published our 2025 Sustainability Report. The report reflects meaningful progress against our priorities, including a reduction in our injury rate frequency, which declined year over year, and that reflects our continued focus on the safety of our people. We achieved a 23% reduction in Scope 1 and 2 greenhouse gas emissions against our 2022 baseline, driven by operational improvements, including waste heat recovery and expanded solar energy use. We also advanced our commitment to Indigenous people, with 96% of our Canadian salaried employees completing Indigenous cultural awareness training. Ultimately, this report is a reflection of the dedication and effort of our people across the organization, and we are proud of what we've accomplished together in 2025. With this, I will turn the call over to Silvana Travaglini, who will provide an update on her financial performance in Q2. Silvana?

Thank you, Eric, and good morning, everyone. Today, we reported second quarter sales of $1 billion, $42 million, an $8 million increase compared to the same period last year. This growth was led by utility products where we saw positive volume momentum in wood utility poles and a solid contribution from our cross-arm acquisition. These gains were largely offset by softer performance in residential lumber and a decline in activity within our logs and lumber business. On a year-to-date basis, sales were 1,833,000,000 compared to 1,807,000,000 in the prior year period. This $26 million increase was driven primarily by contributions from acquisitions and a 4% organic sales growth in wood utility poles. These help mitigate a $30 million foreign exchange headwind as well as stop their year-to-date sales performance in our railway ties and residential lumber businesses. Utility product sales were $510 million in the second quarter, up 7% from $476 million in the same period last year. The increase was driven by a $29 million contribution from Cross Arms and a modest organic growth in wood utility poles, partly offset by a decline in steel structure sales, which reflected the temporary operational factors mentioned earlier. For wood utility poles, sales increased 1% organically in the quarter with volumes up 2% entirely from contract business. Underlying demand and customer activity remained healthy. However, unusually wet spring weather in Texas, one of our most active markets, delayed project execution and had a more meaningful impact on performance in the quarter. On a year-to-date basis, utility product sales were $979 million, up 9% from $895 million in the prior year period. Excluding the contribution of acquisitions and the impact of foreign exchange, wood utility pole sales were up 4% in the first half of the year. This growth was volume-led, contributing about 7% to the increase. Offsetting in part the volume increase was lower pricing, primarily due to product mix, particularly the unusually favorable transaction recognized in the first quarter of 2025, which involved high margin racked holes. When we normalize for that specific prior year item, pricing remained relatively stable. From a financial standpoint, the POLS network actions Eric outlined are intended to improve network efficiency and better position certain facilities to focus on higher margin products. We estimate that these initiatives could contribute approximately $10 to $12 million of incremental annual profitability. As we continue to assess and advance these actions, we may incur one-time charges, most of which would be non-cash in nature and primarily related to potential asset write downs. Turning to railway ties, the second quarter sales were $235 million compared with $240 million in the prior year period. The decline was primarily due to lower Class I volumes, with much of that pressure offset by continued strength in the non-Class I market. Overall, volumes were down 1% in the quarter while pricing was slightly lower due to a higher proportion of lower-priced TSO volumes. Year-to-date, railway tie sales totaled $433 million, down 2%, excluding foreign exchange. This result reflects the same trend observed in the second quarter with both volumes and pricing contributing modestly to the decline. We continue to advance our railway ties optimization actions in the second quarter. As part of these efforts, we recorded $32 million of one-time charges, including $24 million of non-cash asset write downs. EBITDA was adjusted for these items. We continue to expect annual cost saving from these initiatives of approximately $10 to $15 million beginning in 2027. Residential lumber sales were $234 million in the second quarter, down 5% from $246 million in the prior year period. The decrease primarily reflected lower pricing, which was down 4%, while volumes were modestly lower, down 1%, due to softer demand and adverse weather conditions. On a year-to-date basis, residential lumber sales were $310 million, down 7% from $334 million in the first half of 2025. The decline reflected both lower volumes, which were down 2%, and a softer pricing environment. Turning to profitability. Adjusted EBITDA for the quarter was $167 million or 16% compared to $189 million or 18.3% in the second quarter of last year. As Eric mentioned, the decrease primarily reflected near-term cost pressures. The main drivers were site-specific environmental and maintenance costs, most of which are not expected to recur, higher fuel costs, temporary inefficiencies associated with the Candiac steel structure expansion, and a lag in recovering certain cost increases through pricing. We expect margin performance in the second half of the year to improve as some of these pressures ease. Moving on to cash flows. During the quarter, we generated $192 million of cash from operations, down from $224 million generated in the second quarter of last year, primarily reflecting lower profitability. That said, cash generation remains strong supported by favorable working capital performance. As is typical at this point in the year, inventory levels declined seasonally with railway ties inventory seeing a more significant reduction. This reflects a shift in sales mix towards a higher proportion of TSO volumes consistent with the trend we expect through the balance of the year. During the first six months of the year, we reduced our net debt by more than $100 million, excluding the FX impact. We ended the quarter with $759 million of available liquidity and a leverage ratio of 2.5 times. While lower profitability and unfavorable foreign exchange impact kept the leverage at the upper end of our target range, it remains aligned with our capital allocation strategy. In summary, our second quarter results underscore the resilience of our cash generation and the strength of our balance sheet. We remain focused on continuous improvement and efficiency initiatives to strengthen the long-term performance of our infrastructure-focused businesses. Despite near-term margin pressure, solid cash flow, stable leverage, and strong liquidity continue to provide flexibility to invest in growth from a position of strength. With that, I will turn the call back to Eric.

Thank you, Silvana. To conclude, the key messages from the quarter are clear. Demand across our infrastructure markets remain healthy, and we continue to advance several growth avenues, including M&A opportunities in support of our long-term strategy. While quarterly profitability was affected by near-term cost pressures, the margin shortfall was largely driven by site-specific, non-recurring items and temporary inefficiencies in steel structures. Excluding those factors, margin performance would have been closer to 17.5%. This gives us confidence that margin performance should improve as early as the second half of this year. Looking beyond 2026, we are also advancing optimization initiatives across the business. As these actions progress, together with pricing pass-through mechanisms, and a stronger contribution from higher value products, we expect margin performance to further improve over time. Overall, this reinforces our confidence in our guidance, in the long-term fundamentals of the business and in our ability to deliver against our stated objectives. With that, we'll now open the line for questions.

Thank you. Ladies and gentlemen, we will now begin the question and answer session Should you have a question, please press star followed by the number one on your touchstone phone. You will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press star followed by the number two. If you're using a speakerphone, please lift the handset before pressing any keys. Our first question comes from the line of James McGarigal from RBC Capital Markets. Please go ahead.

Hey, good morning, and thanks for having me on.

Thank you, James.

I just wanted to ask about some of the cost pressures. You mentioned they're near term, so can you just provide the specific, the visibility and the timeline for each of the major drivers like the environmental and the maintenance costs, fuel, steel structure and efficiencies and how you expect those to potentially improve through the back half of the year?

Yeah, certainly. Thank you, James, for highlighting that. So really, you know, you mentioned four key items in your question. I'll start with the, I guess, inefficiencies in the steel structure business. You know, as you know, we're revamping the entire shop floor at our Candiac facility. And I guess in the second quarter, the change out created more pressure on our production capacity, therefore creating a A quarterly slowdown if you want. This is pretty much behind us. We're pretty much done with the renovation. We still have some things to finish up here in the month of August, but I would say after the July shutdown that we had at the plant, we're very well advanced on the project. So definitely that is behind us and we should be ramping up here towards higher volumes than last year. Last year we had maybe 10,000 tons available. We should definitely see, let's say, some somewhere around a 14 000 ton availability you know annualized on the back half of the year so that that's going extremely well and and behind us the uh fuel costs um you know so like and everybody has observed fuel costs are up you know across north america that impacts our freight and distribution activities it also impacts to some extent or or our Oilborne Preservatives, which are obviously oil-based and are seeing the impact. And the lag there is that we will need to wait for the anniversary of the contracts to be able to adjust pricing. So it's a lag because we do have mechanisms to adjust for that. It just didn't happen in the same quarter that we saw the cost increase. It'll come over time. And I guess I want to say mostly starting next year. We might see some adjustments this year, but a lot of anniversaries of our contracts are in the first six months of a given year. Lastly, we had, I want to say in the bucket I described as one-time expenses and you mentioned them, which is like environmental management activities and I want to say unplanned maintenance. So the environmental management activities are really associated to permitting renewals and activities where we know or expecting Changes in our permits, which we're getting ahead of by hiring consultants, renting some equipment in anticipation of certain topics that we need to do throughout the year to make sure that we will be compliant when those permits are given to us with stricter requirements. And unplanned maintenance, I have to say, we did have unusual activities with boiler maintenance, kennels and tank repairs. All to say, those impacted our quarterly results. If we look at our forecast for the balance of the year, I feel pretty comfortable that those were one time and they were well needed. Obviously, we want to keep our assets well maintained and functional. Those explain those two last items.

I appreciate the call there. I wanted to ask on the pricing as well. You alluded to that in your answer, but Can you just walk through the mechanics of how these pricing recoveries are going to flow through? So you kind of said that these are mostly going to be on the contractual reset in the first half of the year. But would that include the bulk of the pricing? Is there anything else that you need to pass through on pricing? And would that be primarily in the poles or in the other railway tie business?

I want to say heavily weighted to the poles, but definitely we do have some in railway ties. On the railway side, we do have some trucking activities, so obviously that has an impact. But I want to say a bit more heavily weighted on utility poles, simply because we have the oilborne preservatives. That being said, residential lumber would also have some headwinds. So if I look at those three buckets, we are adjusting pricing in the third quarter to our customers for fuel costs and residential lumber. So that is going to be taken care of here in the next few weeks if it's in some cases already done. For the utility pole business, It's really driven by the annual contracts. We don't have that leverage unless a customer wants to attenuate the one-time impact when we have the price increases. So we do have some customers that are saying, hey, could we do something now because I want to avoid a significant impact when the anniversary comes. So that is a possibility. And obviously, on the railway side, those are pass-throughs that will happen through just annual adjustments for inflations and things of the like.

Okay, I appreciate it, and I'll turn the line over. Thank you. Thank you, James.

Your next question comes from the line of Hamir Patel from CIBC Capital Markets. Please go ahead.

Hi, good morning. Eric, I think on the last call you were pointing to tie sales being flat this year. It looks like you're tracking down 2% in the first half. Are you still aiming to be flat this year in ties? And If you could maybe just clarify in terms of the Class 1 contracts that were being renewed in 2026. I believe you mentioned one was just renewed, but just the status of the remaining ones. Certainly.

So, you know, with regards to the Class 1, I'll start with the Class 1 contracts. So, yes, so as I stated, one was renewed, you know, starting in 27, we have secured volume increases there and we're currently negotiating on bridge timber. So that should definitely be some upside there. Second contract, well underway. We have secured extra volume for next year. We have mentioned this in certain investor meetings. Pending some CapEx investments, some customers are inclined to support us and give us extra business. So for the second contract I'm referring to, that's already in play. And then we're also, as the general renewal, looking at potentially future increases. But that contract would probably... will conclude that negotiations mid-Q4 or in October. There's a third one that is... A third one that is maturing at the end of the year in December. So we're early stages of discussions. So again, discussions on additional volumes, as I mentioned, our strategy is to ensure that we have business growth. So definitely looking into that. And the fourth one is pretty much done. Thank you very much. I think we'll probably be somewhere between the flat to the minus 2%. One thing I want to highlight is we're seeing a heavier Thank you for joining us.

Okay, and Eric, given you've got some of these contracts renewing, is it fair to assume that we might see a greater transition to TSO? And then what does that suggest for perhaps that revenue comp in 27 for ties? Because, you know, I think historically it had been sort of low single-digit positive growth, but I'm just wondering if maybe there's a one-year... and so on.

So, you know, TSO is attractive to us, you know, because we don't have to carry the working capital. There's obviously lesser investment. Returns are better. And, you know, the profitability is similar. I want to say a better percentage. So some customers are really open to the conversation and others have shut the door. So we'll be looking, you know, Going into next year to a greater proportion of that. Silvana, you want to give any colors on the, you know, maybe H1 versus H2 proportions of TSO?

Yeah, so in the first half of the year, probably, we would say probably, you know, half of that sort of 2% decrease was related to the TSO volumes. The expectation in the second half of the year is that we could we've seen those TSO volumes increase and maybe represent probably you know anywhere between five and ten percent of our total ties sales so and that probably is what we would be expecting going forward beyond 2026 so you know in terms of impact on the overall sales I guess you know not giving a specific number, but just maybe highlighting to you that it could be representing up to 10% of our total volumes going forward.

Great. Thanks, Silvana. Just a live question I had. I know the focus now is on this growing the steel structures business, but Eric, do you still see potential opportunities over the coming year to augment your position in either wooden utility poles or ties? for M&A.

Answer is yes. So definitely there is potentially some targets on the railway tie side that are still of interest to us. As you know, I look at the landscape of class ones, potential mergers on the horizon and how that could influence the market. mindful of how our footprint looks today and how it needs to adjust. So definitely some of these competitors today, I guess, are definitely in sight and I would appreciate some conversations with these targets. On the utility pole side, there's still a couple of businesses, I want to say, in the Southeast US that have some interest, businesses owned by families that we've gotten to know over the years. Then it's really a question of timing and their transition or their their exit strategy, but I think there's some potential there. Then obviously, so that's on the M&A front, but I have to mention for utility poles that there's also the potential, not the potential, but our expectation of continued organic growth. We've adjusted our footprint for that. We're actually taking initiatives right now to ensure that we're ready for that future growth. So our M&A is definitely part of the strategy for the wood ties and wood poles. And on the wood poles, we're definitely expecting continued growth and we're adjusting our network and we're ready for it.

Great. Thanks. That's all I had. I'll turn it over. Thank you, Amir.

Your next question comes from the line of Benoit Poirier for Dayjordan. Please go ahead.

Yes. Thank you very much. Good morning, Silvana and Eric. Just to come back on the utility pole, I was curious if you could break down the 1% organic growth between volume and pricing.

Silvana, do you want to tackle that, please?

Yeah, we mentioned it, I believe, in the earnings script, but basically for the wood utility poles, it's a 2% increase in volume and a 1% decline in pricing.

I want to add, we had a call out in the script about the Texas market. It's typically not in our style to find excuses, but there was some heavy rains in the northern part of Texas through the spring, which slowed down several projects. I do think we will catch up some of that later in the year, maybe not all, but I think we were a bit depressed on the volume in relation to those events.

Okay, and in terms of spot pricing, my understanding, it's been pretty stable in the last three to four quarters. And how is July shaping up on the utility pool side, on the volume side, organic growth? Have you been able to ramp up following the heavy rain event?

Thank you, Benoit. I think I led you into that question a bit, but thank you for asking it. Yeah, definitely we're seeing some adjustments in our customer forecasting. I don't know if they'll have enough time in the Texas area to catch up all the work because of the lost time, but we're definitely seeing some momentum there so far this year. I don't like to comment on Q3 because obviously we're reporting Q2 today, but we are seeing some positive activity. and you'll have to excuse me, but I forgot the first part of your question.

Just about the expectation in terms of volume for utility pole in Q3, Q4.

It was for the spot pricing, I'm sorry. And yes, you're completely right. We've seen like four quarters of pretty stable pricing on the spot side. So, you know, pleased with that. We will be lapping ourselves here with the pricing pressures and, you know, hopefully that is behind us.

Okay, perfect. That's it for me. Thank you.

Thank you, Benoit.

As a reminder, if you have any questions or follow-up, please press star 1. Our next question comes from the line of Michael Topol from TD Securities. Please go ahead.

Thank you. Just, Eric, back on the headwinds in the southeast in the U.S. in the quarter. Had you had a more normal, typical weather in that area and seen more typical demand, what would utility poles organic growth have looked like in the quarter?

Yes, Silvana, a lot of... discussions and questions with our sales team. Silvana, if you want to.

Yeah, so the estimate is that the expectation would have been that we would have been closer to sort of that mid-single digit growth, but probably the lower end, probably like, you know, between four and five percent is where the expectation would have been if the activity would have been as expected in that area.

Okay. And it sounds like that Headwind's now been overcome and maybe you get some of the volumes that you lost out on back, maybe not fully, but some of those recovered in the second half plus what you would ordinarily do. So is the idea that the second half we're back onto that sort of mid-single digit organic growth for polls where you had been targeting for the year, notwithstanding the Q2 issues?

The plan is, and I believe I mentioned it in my script, we're still guiding to that mid-single digit. I think it's a good assumption.

Sorry, for the second half?

Oh, for the full year. I'm sorry, Michael. For the full year, it would be mid-single digit.

Okay, so this Q2 dynamic doesn't materially change where you wind up for the year? agreed okay um and then just on the operational efficiency initiatives in the in the polls business um I think Silvana you said 10 to 12 million of targeted annual cost savings uh or profitability improvements pardon me when would we expect to see those start to come through and when would you get that full benefit I'm thinking about the the initiatives and the tie side I think you said the full benefit there is until next year so how does it look for

Yeah, the expectation would be the same. It would be difficult this year to expect any of them. Most of the work will be undertaken in Q3 into Q4, so the expectation isn't as of 2027.

Okay, but you could get them on like the full benefit is coming through? In the first quarter, yeah.

Yeah, I agree with that.

and then Eric on the steel structures sort of headwinds that you saw in the quarter just due to the equipment transition and given the facility expansion that's undergoing you're seeing at Candiac does that impact you again in Q3 it sounded like maybe there's there's still some impact in the early part of the quarter but I'm just trying to understand the impact there and if and again I'm not totally clear the The mid single digit organic growth you talked about for poles still being looking at that for the year. Is that just wood utility poles or is that inclusive of the steel structures dynamics?

No, that's only for wood utility poles. I guess the changeover of the equipment we're seeing has created longer delays of moving equipment and installing the new equipment. That's pretty much behind us. In Quebec, we have construction holiday, which is usually a good time for planned shutdown. But we did have the whole maintenance crews in the facility. Two weeks of no operations just helps. Just move things along. So we've progressed very well here. So what's left here in August is just tidying things up. So that slowdown is, I want to say, entirely behind us. And we'd be resuming our regular activity with enhanced capacity. and actually I want to add the good news well the good news if there's a if there's a good news is that everything we've learned in the last four months in this equipment change out is going to be beneficial for our Tennessee facility because we're we're doing a copy base of the shop floor same equipment same supplier so everything we had to do as to programming some software interfaces for CNC equipment programming and things are like everything is just going to be you know used for a second time. So this investment is definitely gonna be beneficial for a smoother startup in Tennessee.

Okay, and then just lastly on the margins. So obviously some factors that weighed on margins this quarter. It sounds like you see improvement in the back half and then you haven't changed your three-year outlook. So I assume that means by next year, you're back in your range. Do these operational improvement initiatives you're undertaking, Were those already factored into the 17.5% to 18.5% range? Or was that where you'd expect to be without those? And then these initiatives could kind of push you up either to the top end or maybe even through that. Just trying to understand how those specific initiatives and ties and pulls on the operational improvement side play into the margin.

No, no, good. It's a good observation. So it was not included in our initial guidance. So, you know, as we had the question several times in previous quarters of like, well, what happens for you to be at the low end and what needs to happen for you at the top end? Well, these initiatives, you know, those would be actions that we're taking to be at the higher end of our guidance. Okay, that's great. Thank you. Thank you, Michael.

There are no further questions at this time. I will now turn the call over to Eric Vachon for closing comments.

Thank you, John, and thank you everyone for joining us today. We look forward to updating you when we release our third quarter results in the fall. Until then, have a safe and enjoyable summer.

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