Western Forest Products Inc.

Good morning, ladies and gentlemen. Welcome to the Western Forest Products First Quarter 2024 Results Conference Call. During this conference call, Western's representative mimics forward-looking statements within the meaning of applicable securities laws. These statements can be identified by the 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 the different, including those factors described under risk 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 speaks only of the date of 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 Offer, President and CEO of Western Forest Products. Mr. Offer, please go ahead.

Thank you, Carl, and good afternoon, everyone. I'd like to welcome you to Western Forest Products' 2024 First 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 2024 first quarter results yesterday. I will provide you with some introductory comments and then ask Steve to take you through our financial results. I will follow Steve's review with our outlook section before we open the call to your questions. We continue to face softer market conditions in first quarter 2024. Despite this, we remain optimistic in our ability to manage through the current markets and advance our strategic priorities. During the quarter, we continue to demonstrate our commitment to First Nation relationships and partnerships. This included completing the sale of a 34% interest in our mid-island forest operation to four local First Nations for $35.9 million and releasing a draft for public comment of the first forest landscape plan in British Columbia for TFL 37. The plan was developed in collaboration with the Nungi First Nation and provides the opportunity for greater certainty for a stable long-term fiber supply within TFL 37. We were also successful in accelerating our transition to higher value products. This included commissioning the first continuous kiln on the BC coast at our salt air sawmill. The project was completed on budget and will support increased production of higher valued products. In the first month since commissioning the kiln, it has operated at 97% efficiency and exceeded our target EBITDA returns on an annualized basis. We also advanced pre-engineering and permitting related to two previously announced continuous kilns on Vancouver Island. These two kilns are expected to be completed in 2025 at a total cost of approximately $35 million. We remain very focused on health and safety and internal initiatives to support driving improved profitability in our business. In our timberlands group, this has included improving the stratification of our specialty log sorts, such as pole and pilar logs, to support incremental margin. In our manufacturing group, we are continuing to focus on operational uptime and reliability, and we achieved uptime rates ahead of target in the first quarter. In our sales and marketing group, We are focused on a customer strategy that delivers mutual benefit for Western and our partner customers. This has included growing key strategic accounts while developing value-added products and programs targeted with the end user in mind. We continue to grow the demand for our key product categories, which include Cedar finished value-added products, Hemlock and Douglas fir products targeted at the Japan traditional home and non-residential sectors, hemlock and Douglas fir timber and industrial programs, hemlock treating programs and products, and lamb stock and glulam for the stock beam and custom markets. In our commodity lumber segment, we continue to target square edge and pro sales in treating, retail, and MSR products that typically sell at a premium above regular dimension channels. That premium spread has been widening recently given reduced availability in other regions, resulting in customers willing to pay more for access to our supply. While near-term lumber market performance is expected to be product line dependent, we remain optimistic in our ability to manage through the current markets. We remain very focused on maintaining a strong balance sheet in the near term. I will now turn it over to Steve to review our key financial results.

Thanks, Stephen. First quarter adjusted EBITDA was negative $4.2 million as compared to negative $5 million in the same period last year. Results in the first quarter of 2024 benefited from a stronger sales mix, higher domestic log shipments, and lower stumpage and freight expense. This was offset by lower lumber prices in certain segments, lower lumber shipments, than higher secondary processing costs due to a stronger mix of specialty volumes. Our shipment volumes to Japan continue to remain strong and were almost doubled compared to the same period last year. Our engineered wood products business continues to perform well, generating another strong quarter of results. Since acquiring Calvert in August of 2022, we have generated EBIT of approximately $10 million, implying a payback on our investment of under three years. We closed the first quarter with 84 million board feet of lumber inventory and 749,000 cubic meters of log inventory. Turning to CapEx and cash flow, we have reduced our 2024 total CapEx plan by approximately $15 million and now expect 2024 CapEx to be approximately $50 million. This includes approximately $13 million related to our two previously announced continuous dry kilns. We are currently refining our capex timeline related to the new kilns and some of this capex spending in 2024 may be delayed to 2025. We received $35.9 million in the first quarter from the sale of 34% ownership interest in our Mid Island forest operation and we expect to receive an income tax refund of approximately $23 million in the second or third quarter of 2024. From a balance sheet perspective, We ended the first quarter with liquidity of approximately $142 million and a net debt-to-cap ratio of 13%. At the end of March, we had $228.5 million in duties on deposit, which equates to approximately 53 cents per share after tax. Our book value is $1.83 per share at the end of March relative to the current share price of approximately 53 cents per share. 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 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 more active spring season. We plan to continue to match production to market demand. Stephen, that concludes my comments. Thanks, Steve.