Western Forest Products Inc.

Good day, ladies and gentlemen. Welcome to the Western Forest Products First Quarter 2026 Results Conference Call. As a reminder, all participants are in listen-only mode and the conference is being recorded. Following the prepared remarks, there will be an opportunity for analysts to ask questions. To join the question queue, press star then 1 on your telephone keypad. Should anyone need assistance during the conference call, they may reach an operator by pressing star then zero. 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 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, Colleen, and good afternoon, everyone. I'd like to welcome you to Western Forest Products' 2026 first quarter conference call. Joining me on the call today is Glenn Montell, our Chief Financial Officer, and Bruce Alexander, our Senior Vice President of Sales, Marketing, and Manufacturing. We issued our 2026 first quarter results yesterday. I will provide you with some introductory comments and then ask Glenn to take you through our financial results. And then I'll follow up with an interview with our outlook section before we open the call to your questions. We saw improvements in lumber pricing in the first quarter despite some softness in demand for certain product lines. We continue to execute our strategic priorities and have taken steps to solidify our balance sheet to manage through near-term uncertainty. Since the beginning of the year, this has included announcing the sale of our Stillwater force operation, including TFL 39 Block 1 for $80 million to the Tlaman First Nation. Western will enter into a long-term fiber supply agreement with the purchaser to ensure log supply supports our VC manufacturing facilities. This landmark transaction is anticipated to close in the second half of 2026. At our Columbia Vista sawmill site, we finalized our property insurance claim for U.S. $28.8 million. In addition, we continue to work towards the finalization of the sale of the sawmill property, and have also submitted our business interruption insurance claim to our adjuster. We commissioned the first of our two continuous dry kilns at our value added division, achieving startup uptime above our target. Site construction continues on the second continuous kiln, which is expected to be commissioned in mid-2026 on schedule and on budget, as well as a new thermal kiln, which is expected to be commissioned in the third quarter of this year. These investments will allow for more kiln-dried lumber production, generating higher margins than grain lumber, and enabling the expansion of our global customer base. From a labor perspective, we completed a six-year collective agreement that covers USW employees at the Laplacian Forestry Limited Partnership, ending the strike that began in the second quarter of 2025. In our timberlands group, we continue to focus on managing costs and log margin opportunities, as well as the safe restart of operations at Laplacian Forestry Limited Partnership. In our manufacturing group, we improved our operational uptime to 87% in the first quarter of 2026, compared to 82% in the first quarter of last year, with improvements noted at every one of our sawmills. In our sales and marketing group, we continue to focus on market diversification efforts to grow our global customer base. We have seen some modest improvements in lumber demand as we start the second quarter, but anticipate continued near-term volatility given combined duties and tariffs of 45%. I will now turn it over to Glenn to review our key financial results. Thanks, Stephen.

First quarter adjusted EBITDA was negative $13.6 million, as compared to $3.5 million in the same period last year. First quarter adjusted EBITDA included a one-time $2.8 million expense related to changes in inventory accounting estimates and $1.9 million of share-based compensation expense due to a 34% increase in share price in the first quarter. Other items that impacted first quarter results compared to the same period last year included a 28% reduction in lumber shipments, a 29% reduction in log shipment due to lower harvest volume, and higher softwood lumber duties with a combined duty and tariff rate of 45% compared to 14% last year. This was partially offset by higher log prices and a stronger mix of log sales and higher average lumber prices and stronger specialty sales mix. We closed the first quarter with approximately 63 million board fees of lumber inventory and 500,000 cubic meters of log inventory. Our log inventory is very lean, and the lowest it's been in over the last decade, which may result in some sawmill operating curtailments in the second quarter. Turning to CapEx, our 2026 total CapEx spending is expected to be between $45 to $50 million, which includes approximately $16 million related to previously announced continuous kilns and one thermal kiln at our value-added division. From a balance sheet perspective, we ended the first quarter with a liquidity of approximately $229 million and a net debt to capitalization ratio of 9%. During the quarter, we entered into a new $30 million term loan, which was utilized to repay drawings under our syndicated credit facility. Assuming the successful completion of the sale of our Columbia Vista sawmill property and Stillwater Forest operations, combined with anticipated Columbia Vista property and business insurance interruption insurance proceeds, we expect to receive net proceeds after tax of approximately $110 to $120 million in 2026, based on the current U.S. dollar to Canadian dollar foreign exchange rate. Touching on fuel and oil costs, at current oil prices, increases in direct operational costs plus current fuel surcharges from Timberland contractors and logistics providers represents approximately 3% of our overall cost structure. We continue to monitor the situation and will seek to manage and mitigate increases in fuel and oil-related costs in our business where possible. 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. While no forest fires are currently impacting our operations, early hot and dry weather on the BC coast may impact rural operations in the second quarter. From a market perspective, North American lumber consumption typically increases as we move into the spring season. We plan to continue to match lumber production with market demand. Stephen, that concludes my comments.