Western Forest Products Inc.

morning ladies and gentlemen welcome to western forest products third quarter 2025 results conference call as a reminder all participants are in listen only mode and the conference is being recorded following prepared remarks there will be an opportunity for analysts to ask questions to join the question queue press star 1 on your telephone keypad should anyone need assistance during the conference call They may reach an operator by pressing star zero. During this conference call, Western's representatives may make forward-looking statements within the meeting 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 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. Stephen Hofer, President and CEO of Western Forest Products. Mr. Hofer, please go ahead.

Thank you, Gary, and good morning, everyone. I'd like to welcome you to Western Force Products' 2025 Third Quarter Conference Call. Joining me on the call today is Glenn Nontel, our Chief Financial Officer. We issued our 2025 Third 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 and increases in lumber duties, we continue to focus on our operational controllables and maintaining a strong balance sheet. In the third quarter, this included reducing working capital and reducing our debt by $15.7 million compared to the second quarter. In our timberlands group, we continue to focus on cost and inventory management, with log inventory turnover improving 11% since 2023. However, ongoing permitting challenges in BC and a strike at our Lacroix-Sameau Limited Partnership continue to challenge harvest levels. In our manufacturing group, our mills achieved above-target uptime levels of 87% in the third quarter, an 11% improvement in lumber inventory turnover year over year. We were also proactive in staging lumber inventory into the U.S. ahead of duty increases, leading to approximately $3.3 million in duty savings. In our sales and marketing group, we continue to grow strategic customers, and advance opportunities to grow our domestic and international customer base as we actively navigate the effective tariffs and increased duties. In the first nine months, U.S. lumber shipments accounted for 21% of total shipments from our Canadian operations, compared to 25% in the year-ago period. We achieved ahead-of-target on-time shipping performance of 92% in the quarter. We continue to advance progress on two continuous kilns at our value-added division, with construction commencing and commissioning of the first kiln expected in early 2026. These investments will increase the production of value-added kiln dried lumber products, lower our drying costs, and help support the diversification of our global customer base. With significant increases in softwood lumber duties and softness in the North American lumber demand, we expect challenging market conditions to persist in the near term. However, through the successful repositioning of our balance sheet in 2025, we are prepared to navigate near-term uncertainty. I'll now turn it over to Glenn to review our key financial results. Thanks, Stephen.

Third quarter adjusted EBITDA was negative $65.9 million as compared to negative $10.7 million in the same period last year. Our results for the quarter included a non-cash export duty expense of $59.5 million related to the finalization of duty rates from the sixth administrative review. As compared to the prior year, results in the third quarter were negatively impacted by softer macroeconomic conditions and U.S. trade tensions, and an ongoing strike at our La Coisse & Mouque Limited Partnership. This resulted in lower lumber shipments, a weaker specialty lumber sales mix, and reduced log harvesting and lower external log shipments. This was partially offset by higher average realized lumber prices in most markets, and improvements in realized log prices due to a stronger sales mix. We closed the third quarter with approximately 53 million board feet of lumber inventory and 602,000 cubic meters of log inventory. Turning to CapEx, we have reduced our planned 2025 capital expenditure spending to between $30 to $35 million. We will continue to rigorously evaluate our planned CapEx spending and adjust proactively. From a balance sheet perspective, we ended the third quarter with an improved balance sheet. reducing debt by $15.7 million compared to the second quarter and ending with a net debt to capitalization ratio of 2%. Our available liquidity also improved to $234 million, supported through working capital reductions and a new $30 million U.S. letter of credit facility. With respect to softwood lumber duties and U.S. trade, the U.S. Department of Commerce announced its final determination for countervailing and anti-dumping duty rates related to the 6th Administrative Review. The combined effective rate increased to 35.16% compared to the prior combined rate of 14.4%. In addition, on September 29th, U.S. President Donald Trump imposed a 10% tariff on imported lumber products through Section 232 of the Trade Expansion Act. The incremental 10% tariff became effective on October 14th. We continue to prioritize diversifying our shipments into other jurisdictions to minimize our U.S. exposure. Turning to fourth quarter seasonality, typically in fourth quarters, lumber consumption declines in North America as construction slows with the onset of winter. In our Timberlands, harvest volumes decline as we lose daylight operating hours. In addition, winter weather can negatively impact operations and further limit production. The combination of weather-related curtailments and reduced operating hours can put upward pressure on harvest costs. Stephen, that concludes my remarks.