Western Forest Products Inc.

Good morning, ladies and gentlemen, and welcome to Western Forest Products' fourth 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 animal 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 Hoffer, President and CEO of Western Force Products. Mr. Hoffer, please go ahead.

Thank you, Paul. And good morning, everyone. I'd like to welcome you to Western Force Products 2023 fourth quarter conference call. Joining me on the call today is Stephen Williams, our Executive Vice President and Chief Financial Officer. Bruce Alexander, our Senior Vice President of Sales, Marketing and Manufacturing. and Glenn Nontel, our Vice President of Corporate Development. We issued our 2023 fourth quarter results yesterday. I will provide you with some introductory comments and then ask Steve to take you through our financial results. I'll follow Steve's review with our outlook section before we open the call to your questions. I'd first like to acknowledge Steve Williams, who has announced he will step down from his current role by the end of 2024. Since joining Western in 2014, Steve has made significant contributions to our company and has played a critical role in our strategic transition to become a leading specialty wood product supplier. I want to personally thank Steve for his leadership over a tremendous 10-year career at Western. We have commenced an executive search for a new Chief Financial Officer. Steve will remain in his role until his replacement is found and will ensure a smooth and seamless transition to his successor. Turning to our business. In 2023, Western faced a more challenging macroeconomic environment, resulting in weaker lumber markets and financial results. We continue to take steps to improve the financial results of our business, and during 2023, this included reducing our overall headcount by 6% year-over-year, streamlining certain corporate and operational salary functions, which we expect will drive approximately $3.5 million in annual savings, proactively taking operating curtailments to match production to market demand, and ensuring a safe and healthy work environment to drive the best operational results possible. Despite a more challenging 2023, I am excited about the future and the steps we are taking to accelerate our transition to higher-value products. As part of that journey, yesterday we announced that we are moving forward with two new continuous dry kilns, one at our Duke Point sawmill and one at our value-added division in Chimenas. These investments will support the increased production of approximately 140 million board feet of kiln-dried lumber products. In addition, during 2023, we completed the installation of a machine stress rated lumber grader at our Duke Point facility, and we are currently in the process of commissioning our new continuous dry kiln at the Saltair Lumber Operation. These investments are part of a broader strategy to identify opportunities to modernize our primary manufacturing facilities, increase our kiln drying and planning capacity, reduce our cost structure, and expand our engineered wood products and remanufacturing capacity. We will continue to evaluate any potential future investment opportunities with a long-term view of supporting our value-added specialty and engineered wood products business. In addition to our capital investments, I'm also proud of our progress in advancing First Nations partnerships and relationships. During 2023, we announced an agreement with four Vancouver Island First Nations to sell a 34% interest in our Mid-Island forest operations for $35.9 million. We also continued with joint and collaborative planning of forestry activities with First Nations, building upon Western's well-established forestry practices and in support of greater long-term clarity for the stewardship and management of the land base. While lumber markets are expected to remain variable in the near term, we are cautiously optimistic heading into 2024. I will now turn it over to Steve to review our key financial results.

Thanks, Stephen. Fourth quarter adjusted EBITDA was negative $1.2 million, as compared to negative $11.9 million in the same period last year. Results in the fourth quarter of 2023 benefited from lower stumpage, freight and export tax expense, but was partially offset by lower lumber prices and shipments, lower log revenues, and lower production volumes as we continued to match production to market demand. Our shipment volumes to Japan more than doubled compared to the same time last year, benefiting from fire-related curtailment at one of Japan's largest sawmills. Our engineered wood products business continues to perform to our expectations. generating EBIT of approximately $7 million in 2023 and EBIT of margins in excess of 20%. We ended the year with 64 million board feet of lumber inventory and 964,000 cubic meters of log inventory. Our log inventory at the end of the year had a higher mix of cedar and Douglas fir logs, leading to lower inventory provisions relative to the third quarter of 2023. In February, the U.S. Department of Commerce released preliminary duty rates related to the fifth administrative review. The Department of Commerce may revise these rates between now and the final determination, which is expected to be released in the third quarter of 2024. Western will continue to pay a combined duty rate of approximately 8% until the final determinations are published. At the end of 2023, we had approximately $219 million in duties on deposits, relative to a current market capitalization of approximately $200 million. Now turning to CapEx and cash flow. For 2024, we expect total CapEx of approximately $65 million, which includes approximately $35 million of maintenance of business and road CapEx, and approximately $30 million in strategic CapEx. The strategic capex for 2024 includes approximately $15 million related to new kilns at our Duke Point and value-added divisions. We estimate the total capital cost of these projects to be approximately $35 million and will be completed over 2024 and 2025. In the first quarter of 2024, we expect to receive proceeds of $35.9 million from our previously announced sale of the 34% ownership interest in our Mid-Island forest operations. We also expect to receive an income tax refund of approximately $23 million in the second half of 2024. We ended 2023 with liquidity of approximately $148 million and a net debt-to-cap ratio of 13%. Turning to first quarter seasonality, in typical first quarters, our timber harvesting activity can be periodically interrupted by winter weather. Harvest volumes are typically skewed to the end of the quarter when weather and light conditions support greater activity. From a market perspective, sales typically accelerate through the quarter. We plan to continue to manage our manufacturing operating schedules to match production to market demand. Stephen, that concludes my comments.