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spk01: All participants, please continue to stand by. The conference will begin momentarily. Once again, please continue to stand by. We thank you for your patience. This conference is being recorded.
spk02: Please stand by. Your conference is now ready to begin. Good afternoon, ladies and gentlemen, and welcome to Western Forest Products First Quarter 2023 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 inherent 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 MDNA, which can be accessed on CDAR and is supplemented by the company's quarterly MDNA. 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. Stephen Alfer, President and CEO of Western Forest Products. Mr. Alfer, please go ahead.
spk04: Thank you, Paul, and good afternoon, everyone. I'd like to welcome you to Western Forest Products 2023 First Quarter Conference Call. Joining me on the call today is Stephen Williams, our Executive Vice President and Chief Financial Officer, and Glenn Nantel, our Vice President of Corporate Development. We issued our 2023 First Quarter results yesterday. I will provide you with some introductory comments and then ask Steve to take you through our financial results. I'll then follow Steve's review with our Outlook section before we open the call to your questions. The first quarter of 2023 continued to face a more challenging macro environment. Headwinds from interest rate increases and slowing growth are being felt throughout the economy. This has resulted in significantly weaker lumber demand and prices compared to the same time last year. Despite the more challenging environment, we continue to advance opportunities to position our business for long-term success. This has included a strong focus on our strategic priority of operational excellence throughout our business. Areas where we are focused on include renewing and solidifying our customer relationships, including growing our home center business, improving the performance and efficiency in our manufacturing and logistics operations, maximizing the value and recovery from every log, and advancing strategic capital investments to support value-added manufacturing. During the quarter, we saw progress with better on-time shipments to customers and greater consistency in our lumber shipments throughout each week of the quarter. In addition, we broke ground on our continuous kiln project at our salt air sawmill. This investment will support the production of more kiln-dried lumber products, and will move our products further up the value chain to drive increased profitability over the long term. In support of maximizing value back to our logs, we launched an internal yellow cedar initiative, redirecting certain logs to our sawmills to produce kiln-dried products, including lamb stock. While it is still early days, we see potential long-term opportunities for the use of yellow cedar as a durable wood product for mass timber buildings and engineered wood exterior applications. We believe a strong focus on operational excellence and a mindset of continual improvement will benefit the performance of the business over the long term. We also continue to remain focused on other strategic priorities, including advancing collaborative forest planning activities and partnership opportunities with First Nations and growing our engineered wood products division. We remain focused on maintaining a strong balance sheet and continuing with our balanced approach to capital allocation. I will now turn it over to Steve to review our key financial results.
spk03: Thanks, Stephen. First quarter adjusted EBITDA was a negative $5 million as compared to $65.4 million in the same quarter last year. Compared to the same period last year, results in the first quarter of 2023 were impacted by lower lumber prices and shipments, our mix of lumber sales with specialty lumber shipments representing 40% of total lumber shipments as compared to 51% in the same period last year, higher per unit timberlands costs and sawmill operating curtailments. These were partially offset by increased log, byproduct and other revenue and lower total freight and duty expenses. In our engineered products division, we continue to be pleased with the performance of our calvert acquisition, delivering another quarter of EBITDA margins in excess of 20% on revenue of $7.3 million. We were also successful in advancing hem fur testing in support of increasing its utilization in mass timber construction. This included certifying our calvert division to produce hem fur glulam to the current APA standards. While this is a first step, we plan to look for opportunities to increase the utilization of hem fur in engineered wood products over the long term. The investments we are making at our BC manufacturing facilities, including an MSR machine at Duke Point and a continuous kiln at Sultair will help support this. Turning to first quarter cashflow and capital management. We continue to make progress on our previously announced BC strategic investments. As Stephen noted, this included breaking ground on our continuous kiln project at Sultair. For 2023, we expect total capex to be between 60 and $70 million, which includes a mix of maintenance of business, roads and strategic capex. We continue with our balanced approach to capital allocation, returning $4 million to shareholders via dividends. We expect to receive an income tax refund of approximately $15 million in the second or third quarter of this year. Our balance sheet remains strong, ending the quarter with $205 million in available liquidity. We will continue to prioritize financial flexibility of our balance sheet to support our strategic initiatives and manage through the current market conditions. Turning to second quarter seasonality. Typically in the second quarter, our harvest volumes increase as snow recedes and we expand operations across the entire timber harvesting land base. As our harvest activity moves further up the hillsides, our costs tend to rise as steeper and more difficult terrain increases harvesting complexity. From a market perspective, North American lumber consumption typically increases as we move into the more active spring season. That said, we expect lumber markets to remain volatile in the near term and plan to match production to market demand. Stephen, that concludes my comments. Thanks, Steve.
spk04: Turning to our market outlook. We are seeing some indications of demand and pricing improving in certain lumber segments. However, overall lumber demand and prices are expected to remain below historical levels in the near term. We remain excited about the growth opportunity for engineered wood and mass timber building in North America and the role of wood products have to play in a low carbon world. We remain optimistic about future opportunities Western has to deliver long-term shareholder value as we continue to execute on our strategic priorities. We will continue to focus on profit margin across our business all while driving to provide -in-class service to our customers. With that, Paul, we can open the call up to questions.
spk02: Thank you. We will now take questions from the telephone lines. If you have a question and you are using a speakerphone, please lift your handset before making your selection. If you have a question, please press star 1 on your device's keypad. When prompted by the system, please clearly state your name to register your question. You can also cancel your question at any time by pressing star 2. So please press star 1 at this time. If you have a question, there will be a brief pause while the participants register. Thank you for your patience. Once again, please press star 1 on the device's keypad if you have a question. The first question is from
spk05: Sean Stewart.
spk02: Please go ahead. Your line is open.
spk05: Hey guys, good afternoon. A couple questions. I'm wondering if you can give us an update on the APD review process and any insight on the various avenues that are under consideration as you move forward with options there.
spk04: You bet, Sean. I appreciate the questions. As most of you are aware, the mills bring curtail since the fall of 2022 and previously was operating only on a single shift basis. So we formed a multi-party working group, including representatives from our company, the USW, Indigenous partners, really to establish or was established to explore some potential viable industrial manufacturing solutions for the facility. So last week we announced the conclusion of that 90-day working group. And at this point, we've commenced some negotiations and due diligence processes related to proposals received. As far as timeline and next steps, we're working diligently to move forward as quickly and efficiently as possible. And we expect to be able to provide an update by the end of June. Okay, thanks
spk05: for that, Steve. Question on the acquisition opportunity set as you think about diversification outside the BC coast. I'm wondering if you still got a lot of balance sheet flexibility, but as you use up some of your liquidity, does that change how you might be thinking about scale of acquisition opportunities? Does it temper what you might be looking at from that perspective and any perspective on what the opportunity set might look like right now?
spk04: Well, as I shared earlier, we really like the engineered wood business that we have at Calvert. We're learning a lot, learning something new every day. We like the vertical integration play that that has right back to our timberland. So we're certainly exploring all the opportunities that are in front of us in terms of how we might be able to identify some additional tuck-in type acquisitions in that space. Early on, but we're excited about some of the opportunities that are in front of us. And we're mindful of the balance sheet and we'll be taking that into consideration as we look at these relatively smaller tuck-in type opportunities as opposed to transformative type acquisitions.
spk05: Okay. Thanks for that detail. That's all I have. Thanks, Sean.
spk02: Thank you. Once again, please press star one on the device's keypad if you have a question. The next question is from
spk06: Paul Quinn.
spk02: Please go ahead. Your line is open.
spk06: That's so funny. Morning guys. Sorry afternoon. Been a long morning already. Just wondering, you know, the government introduced these eight force landscape planning tables. Wondering how many you're involved with and what's your level of optimism that will actually get a timely outcome and something that you can work with down the road.
spk04: Thanks, Paul. So the government's announced eight force landscape planning tables here in BC. The regional planning tables have not kicked it or have not kicked off as of yet. We've been engaging in these types of planning processes directly with First Nations long before this government did these announcements. Our view is that stability for the sector in BC is going to be built from the ground up in these collaborative planning processes and not centrally from Victoria or Vancouver. We're really proud of that track record in sustainable force management and the work that we're doing with First Nations to develop these plans and the overall stable profitable sector on the coast. So we've had some good engagement with government. You know, we believe is basically the best practices when it comes to developing these force landscape plans and we're well ahead of the curve in terms of our own involvement with the First Nations with respect to our tenures.
spk06: Okay, so given your long-term engagement, you know, at least with some participants, when do you think you, you know, your, what's your thought on timing of getting a resolution or some kind of outcome?
spk03: Paul, I think they'll be phased in over a period of time, but I think as we go through this year, we'll start to see the culmination of some of these planning processes.
spk06: Okay, so sorry, the culmination suggests that there'll be a decision or outcome sometime in 23.
spk03: Yeah, I think it'll vary type of thing, but I think as we start moving through the year, some of these planning processes will start to come to fruition.
spk06: Okay, and then just turning back your markets. I mean, you guys have had a different difficult go here, a lot of the things that you guys have done over a number of months. Do you see a slow steady recovery or how do you see the, you know, your major, especially markets bouncing back going forward here in 23?
spk04: Well, I'll touch maybe on Japan. Let me start with Japan first, Paul. You know, we've been, we're starting to see some stabilization now in terms of overall inventory. Japan was, you know, really faced with an abundant amount of cheap fiber coming from Europe. As well as a significant increase in domestic production of sugi and hanoki at, you know, relatively cheap prices due to the logs being heavily subsidized by the government. But it seems like today, you know, overall our order file in Japan continues to improve some modest price appreciation, but I don't think we'll see, you know, 2022 pricing levels here this year. Certainly from a demand standpoint, it's, you know, it's kind of stabilized and we're able to continue to book out our quarterly business. In North America, you know, when we look at Jan, Feb, March, you know, typically in February and March, we'd see a bit of a spring buy in our key geographic markets. That didn't happen on specialties. You know, we had really difficult weather in California, really difficult market, or weather in Texas, and in some of our key Midwest markets. So that's really the story behind, you know, the 40% specialties in the quarter was just could not get in front of the weather in these key states. You know, on a more optimistic note, though, we have feedback from our customers that in some of these jurisdictions, you know, April was their best month in a long, long time. So, you know, we're slowly getting back into it. You know, modest opportunities on price appreciation. The upper portion of the woodpile, you know, the clears, the -and-better, and the timbers, relatively stable demand, stable pricing. It's that we call it the meat in the middle of the sandwich, the knotty 2-inch decking, trim, fascia, that those type of products were just having to get out in front of it from a takeaway standpoint. So we're optimistic, though, that what we see for order file, inbound, inquiry that will, you know, get the business repositioned here in Q2 to our normal levels of specialties.
spk06: All
spk04: right.
spk06: That's all I had. Best of luck.
spk02: Thank you. Thank you. There are no further questions registered at this time. I will turn the call back to Mr. Offer.
spk04: Okay. Well, thanks everyone for joining our call today. We certainly appreciate your interest in our company, and we look forward to our next call in August. Thanks, Paul.
spk02: You're welcome. Thank you. The conference has now ended. Please disconnect your lines at this time, and we thank you for your participation.
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