Western Forest Products Inc.

Good morning, ladies and gentlemen. Welcome to the Western Forest Product second quarter 2022 results conference call. During this conference call, Western's representatives may make forward-looking statements within the meaning of applicable securities laws. These statements can be identified by words like anticipate, plan, estimate, will, and other references to future periods. Although these forward-looking statements reflect management's reasonable beliefs, expectations, and assumptions, they are subject to inherit uncertainties and actual results may differ materially. There are many factors that could cause actual outcomes to be different, including those factors described under risks and uncertainties in the company's annual MD&A, which can be accessed on CDAR and is supplemented by the company's quarterly MD&A. Forward-looking statements are based only on information currently available to Western and speak only as of the date on which they are made. Except as required by law, Western undertakes no obligation to update forward-looking statements. Accordingly, listeners should exercise caution in relying upon forward-looking statements. I would now like to turn the meeting over to Mr. Don Demenz, President and CEO of Western Forest Products. Mr. Demenz, please go ahead.

Well, thank you, Chris, and good morning, everyone. I'd like to welcome you to Western Forest Products' 2022 second quarter conference call. Joining me on the call today is Stephen Williams, our Executive Vice President and Chief Financial Officer, and Glenn Nontel, our Vice President of Corporate Development. We issued our 2022 second quarter results yesterday. I'll provide you with some introductory comments and then ask Steve to take you through a summary of our financial results. I will follow Steve's review with our outlook section before we open the call to your questions. We generated adjusted EBITDA at $66.2 million in the second quarter, which was consistent with our first quarter results, despite an increase of $16 million in stumpage expense. We benefited from our specialty product mix and strong log pricing. However, we remained challenged by logistics constraints, particularly rail and truck capacity, which impacted shipments in the first two-thirds of the quarter when lumber pricing was strongest. During the quarter, we successfully rebuilt log inventories to more normal levels, despite late spring snow conditions and harvest permitting challenges. We did experience mild downtime in the early part of the quarter due to a lack of logs. Our strong results continue to leave our balance sheet well positioned. We ended the quarter with $84 million of cash in our balance sheet, and our duty deposits with the U.S. Treasury have now grown to $182 million. Our strong balance sheet and approximately $320 million in liquidity provides us with significant flexibility to continue with our balanced approach to capital allocation, allowing us to continue to invest in our business while also returning funds to shareholders. During the quarter, we confirmed $29 million in strategic capital investments in our BC coastal mills. These investments will support and grow our value-added wood products business, as well as improve our long-term competitiveness. Just after the close of the quarter, we were pleased to announce the acquisition of Calvert, a glulam manufacturer in Washington State. Our move into the glulam space has been a project we've been working on for some time. Calvert is well known for the production of high-quality glulams for residential, commercial, and industrial applications around the world. We believe there's an opportunity to grow the production of Calvert by leveraging our lumber supply base. Our ability to vertically integrate the production of glulam makes us somewhat unique in the space and will provide customers the confidence of product delivery and pricing stability that non-integrated businesses have been challenged with. In addition to growing Calvert's existing business, we believe the acquisition will position Western to capitalize on the growing North American mass timber building market, as glulams are an integral component for mass timber. As part of our balanced approach to capital allocation, we've announced the renewal of our 10% NCIB, in addition to paying our regular dividend. I'm proud of the accomplishments of our team at Western, and look forward to ensuring a smooth transition as we welcome Stephen Hofer as Western's next president and CEO. I'll now turn it over to Steve to review our key financial results.

Thanks, Don. My comments will focus primarily on our financial results for the second quarter of 2022 with comparisons to the second quarter of last year. We reported second quarter adjusted EBIT of $66.2 million as compared to $120.4 million in the same quarter last year. Results in 2021 benefited from record high commodity lumber prices. Results in the second quarter of 2022 benefited from higher specialty lumber prices, higher log prices and shipments, and a stronger US dollar. Results were offset by lower lumber shipments due to logistics challenges and weaker demand in certain lumber segments, lower commodity lumber prices, $28.1 million in higher freight, stumpage, and export tax expenses, and $13.5 million in incremental inventory and silviculture provisions. Lumber revenue was generally flat compared to the second quarter of last year. Higher lumber prices in certain segments were offset by lower shipment volumes. Our second quarter average realized lumber price was $1,786 per thousand board feet, an increase of 12% compared to the same period last year. Log revenue increased 53% compared to the same period last year due to higher log prices and shipment volumes. All export-grade logs were redirected to our sawmills to support lumber production. Byproduct revenue was generally flat compared to the same period last year. Increased chip price realizations were offset by lower chip shipments. Rate expense increased 16% compared to the same quarter last year. Lower lumber shipments were more than offset by higher freight rates, fuel costs, and greater usage of break-bulk vessel shipments. Dumpage expense more than doubled compared to the same quarter last year, increasing to $34.9 million in the second quarter as compared to $15 million last year. Second quarter results included $14.7 million of export duty expense as compared to $10.8 million in the same quarter last year. At the end of the quarter, we had approximately $182 million of duties on deposit. Lumber production was 16% lower compared to the same quarter last year due to operating curtailments related to log supply and production mix. Log production was 11% lower compared to the same quarter last year as late spring snow conditions and permitting delays impacted production. We ended the quarter with approximately 968,000 cubic meters of logs. Looking at second quarter cash flow and capital management, cash provided by operating activities before changes in non-cash working capital was $31 million. The second quarter of 2022 included income tax payments of $29.6 million. Cash used in investing activities was $6.7 million in the second quarter. We ended the quarter with $84 million in net cash and $319 million in available liquidity. So on that concludes my comments.