Western Forest Products Inc.

Good morning, ladies and gentlemen. Welcome to Western Forest Products second quarter 2025 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 for 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 MD&A, which can be accessed on CDAR and is sub-prevented 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. Stephen Hofer, President and CEO of Western Forest Products. Mr. Hofer, please go ahead.

Thank you, Patrick, and good morning, everyone. I'd like to welcome you to Western Forest Products' 2025 Second Quarter Conference Call. Joining me on the call today is Glenn Montel, our Chief Financial Officer, and Bruce Alexander, our Senior Vice President of Sales, Marketing, and Manufacturing. We issued our 2025 Second Quarter results yesterday. I will provide you with some introductory comments and then ask Glenn to take you through our financial results. I will follow Glenn's review with our outlook section before we open the call to your questions. Despite challenging markets, we were successful in generating positive EBITDA in the second quarter of 2025. We continue to focus efforts on our operational efficiency and recovery while also managing working capital and our costs to ensure we maintain a strong balance sheet. In our Timberlands group, this included a continued focus on costs and inventory management despite ongoing permitting challenges in D.C. and a strike at the Lafossamook Limited Partnership. In our manufacturing group, we adjusted to evolving markets, proactively staging lumber products in the U.S. ahead of duty increases and focusing on working capital and cost management. In our sales and marketing group, we continue to focus on growing key strategic customers and advancing opportunities to grow our domestic and international customer base. At the same time, we are proactively adjusting our operating schedules to align production with market demand, as well as deferring and reducing our planned capital spending for 2025. This included deferring one of our new continuous kilns at our Value Added Division to mid-2026. site preparation work for the kilns has completed and construction is commencing on kiln one. These kiln investments will increase the production of value-added kiln-dried lumber products and help support the diversification of our global customer base. Unfortunately, during the quarter, our Columbia Vista sawmill sustained extensive damage in a fire, rendering the mill inoperable. We are Thankful there were no injuries and we are working with our insurer to determine available proceeds related to the damage and business interruption. We are in the process of evaluating all future options for the site, including the potential for rebuilding, but no decisions have been made. With significant increases in stock with lumber duties commencing in the third quarter and U.S. trade uncertainty, We expect more challenging market conditions in the second half of 2025. However, we are well positioned to navigate the near-term uncertainty with our strong balance sheet. I will now turn it over to Glenn to review our key financial metrics.

Thanks, Stephen. Second quarter adjusted EBITDA was $0.5 million as compared to $9.4 million in the same period last year. As compared to the prior year, results in the second quarter were negatively impacted by lower lumber shipments, increased softwood lumber duties, a weaker U.S. dollar to Canadian dollar exchange rate, and lower external log shipments and prices. This was partially offset by higher lumber prices in most markets and a higher specialty lumber salesman. We closed the second quarter with approximately 69 million board pieces of lumber inventory and 698,000 cubic meters of log inventory. We continue to be focused on managing working capital and improving our inventory turnover, with log and lumber turnover ratios improving 2% and 11% respectively compared to the same period last year. Turning to CapEx, given the near-term market outlook and in support of maintaining a strong balance sheet, we've reduced our planned 2025 capital expenditure spending to between $35 to $40 million. This is a reduction of approximately $25 million from a prior estimate of $60 to $65 million provided in May. From a balance sheet perspective, we ended the second quarter with a strong balance sheet, with a net debt to capitalization ratio of 5% and available liquidity of $190 million. Combined with successfully extending our $250 million credit facility to July 2028, we expect sufficient liquidity to navigate near-term market conditions. With respect to software lumber duties, the U.S. Department of Commerce announced its final determination for anti-dumping duty rates related to the sixth administrative review. The rate applicable to Western increased to 20.6% effective July 2018. compared to the prior rate of 7.7%. The final determination of the countervailing duty rates for the Sixth Administrative Review are expected in the third quarter of 2025. Based on the final anti-dumping duty rate and preliminary countervailing duty rate, Western will record a non-cash export tax expense of approximately $44 million, plus accrued interest of $7 million, in the third quarter of 2025. These amounts will reduce the current long-term duty receivable of 58.9 million U.S. dollars on our balance sheet. Turning to third quarter seasonality, typical third quarters can be challenging operationally as hot, dry weather can restrict logging activity, reducing harvest volume, and impacting costs. While we have yet to experience any significant forest fires in our areas of operation, Hot and dry conditions may impact harvest levels through the summer. Even that includes winter marks.