Western Forest Products Inc. Q1 2023 Earnings Call

Please standby your conference is now ready to begin.

Good afternoon, ladies and gentlemen, and welcome to Western Forest products first quarter 'twenty to 'twenty three 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.

So that will and other references to future periods.

Although these forward looking statements reflect management's reasonable belief expectations and assumptions.

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 SEDAR and is supplemented by the company's quarterly M. D N a.

Forward looking statements are based only on information currently available to western.

And speaks 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.

You should exercise caution in relying upon forward looking statements.

I would now like to turn the meeting over to Mr. Steven over President and CEO of Western Forest products.

Mr. Ofer. Please go ahead.

Thank you Paul and good afternoon, everyone.

I'd like to welcome you to Western Forest Products' 2023 first quarter conference call.

Joining me on the call today is Steven Williams, our executive Vice President and Chief Financial Officer, and Glen until our Vice President of corporate development.

We issued our 2023 first quarter results yesterday.

I will provide you with some introductory comments and then ask Steve to take you through our financial results.

Well then follow Steve's review with our outlook section before we open the call to your questions. The.

The first quarter of 2023 continue to face a more challenging macro environment.

Headwinds from interest rate increases and slowing growth are being felt throughout the economy. This has resulted in significantly weaker lumber demand and prices compared to the same time last year.

Despite the more challenging environment, we continue to advance opportunities to position our business for long term success.

This has included a strong focus on our strategic priority of operational excellence throughout our business.

Areas, where we are focused on include renewing and solidifying our customer relationships, including growing our home center business.

Improving the performance and efficiency in our manufacturing and logistics operations.

Maximizing the value and recovery from every log.

And advancing strategic capital investments to support value added manufacturer.

During the quarter, we saw progress with better on time shipments to customers and greater consistency in our lumber shipments throughout each week of the quarter.

In addition, we broke ground on a continuous kilns project at our Salt Air Summit.

This investment will support the production of more kiln dried lumber products.

And we'll move our products further up the value chain to drive increased profitability over the long term.

In support of maximizing value back to our logs, we launched an internal yellow cedar initiatives redirecting certain logs to our saw mills to produce kiln dried products, including Lam stock.

While it is still early days, we see potential long term opportunities for the use of yellow cedar as a durable wood product for mass timber buildings and engineered wood exterior applications.

We believe a strong focus on operational excellence and a mindset of continuous improvement will benefit the performance of the business over the long term.

We also continue to remain focused on other strategic priorities, including advancing collaborative first forest planning activities and partnership opportunities with first nations and growing our engineered wood products Division.

We remain focused on maintaining a strong balance sheet and continue with our balanced approach to capital allocation.

I will now turn it over to Steve to review our key financial results. Thanks, Steven first quarter, adjusted EBITDA was a negative $5 million as compared to $65 $4 million in the same quarter last year.

Compared to the same period last year results in the first quarter of 2023 were impacted by lower lumber prices and shipments.

Our mix of laundry sales with specialty lumber shipments, representing 40% of total lumber shipments as compared to 51% in the same period last year.

Higher per unit timberlands costs and such.

So email operating curtailments.

These were partially offset by increased log byproduct in other revenue and lower total freight and duty expenses.

In our engineered products Division, we continue to be pleased with the performance of our Calvert acquisition delivering another quarter of EBITDA margins in excess of 20% on revenue of $7 $3 million.

We were also successful in advancing him for testing in support of increasing its utilization and mass timber construction.

This including included certifying our Calvert division to produce him for Lamb to the current EPA standards.

Well. This is a first step we plan to look for opportunities to increase the utilization of him for an engineered wood products over the long term.

The investments, we are making at RBC manufacturing facilities, including an MSR machine it you'd point and a continuous killed itself here will help support this.

Turning to first quarter cash flow and capital management.

We continue to make progress on our previously announced <unk> strategic investments as Steven noted this included breaking ground on our continuous Killen project itself here.

For 2023, we expect total capex to be between 60 and $70 million.

Which includes a mix of maintenance of business rose in strategic Capex.

We continue with our balanced approach to capital allocation, returning $4 million to shareholders via dividends.

We continue with our balanced approach to capital allocation, returning $4 million to shareholders via dividends.

We expect to receive an income tax refund of approximately $15 million in the second or third quarter of this year.

Our balance sheet remains strong ending the quarter with $205 million in available liquidity.

We will continue to prioritize financial flexibility of our balance sheet to support our strategic initiatives and manage through the current market conditions.

Turning to the second quarter seasonality typically.

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 a steeper and more difficult terrain increases harvesting complexity.

From a market perspective, North American lumber consumption typically increases as we move into the more active spring season.

That said, we expect lumber markets to remain volatile in the near term and plan to match production to market demand.

Steven that concludes my comments.

Thanks, Steve.

Turning to our market market outlook.

We are seeing some indications of demand and pricing improving as certain lumber segments.

However, overall lumber demand and prices are expected to remain below historical levels in the near term.

We remain excited about the growth opportunity for engineered wood and mass timber building in North America, and the role of wood products.

Have to play in a low carbon world.

We remain optimistic about future opportunities western has to deliver long term shareholder value.

As we continue to execute on our strategic priorities.

We'll continue to focus on profit margin across our business all while driving to provide best in class service to our customers.

With that Paul we can open the call up to questions.

Thank you.

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The first question is from Sean Stewart. Please go ahead your line is open.

Yeah.

Hey, guys. Good afternoon, a couple of questions.

Wondering if you can give us an update on the P. D review process and any insight on the various avenues, you're that are under consideration.

As you move forward with options there.

Yeah.

You bet, Sean I appreciate the question questions.

Most will be aware the mills being curtailed since the fall of 2022 and previously was operating only on a single shift basis.

So we formed a multi party working groups, including Representatives from our company the USW indigenous partners really to establish.

It was established to explore some potential viable industrial manufacturing solutions for the facility.

So last week, we announced the conclusion of that 90 day working group.

And at this point, we've commenced some negotiations and due diligence processes related to proposals received.

As far as a timeline and next steps, we're working diligently to move forward as quickly and efficiently as possible and.

And we expect to be able to provide an update by the end of June .

Okay. Thanks for that Steve.

Question on the acquisition opportunity set as you think about diversification inside.

The BC coast.

I'm wondering if you still got a lot of balance sheet flexibility, but as you use up some of your liquidity.

That change how you might be thinking about scale of acquisition opportunities does it temper what.

You might be looking at from that perspective and.

Any perspective.

Dave on what the opportunity set might look like right now.

Well you.

As I shared earlier, we really like the the engineered wood business that we have at Calvert, We're learning a lot learning something new every day a.

We liked the vertical integration play that that has right back to our timberlands. So we're certainly exploring.

Exploring all the opportunities that are that are in front of us in terms of how we might be able to identify some additional.

Tuck in type acquisitions in that space.

Early on but we're excited about some of the the opportunities that that are in front of us.

We're mindful of the of the balance sheet and.

We've taken that into consideration as we look at these relatively smaller tuck in type opportunities as opposed to transformative type acquisitions.

Okay.

Thanks for that detail, it's all I have.

Thanks, Sean.

Thank you once again, please press star one on the devices keypad. If you have a question.

The next question is from Paul Quinn. Please go ahead your line is open.

That's a funny morning, guys are sorry afternoon.

Then along marine already.

Just wondering.

The government to introduce these are these eight force landscape planning.

Tables wondering how many year involved with and what's your level of optimism that we'll actually get a.

Timely outcome and something that you can work with down the road.

Thanks, Paul.

So the the government's announced eight forest landscape planted planning tables here in D C.

The regional planning tables have not kicked in or have not kicked off as of yet.

You know we've been engaging in these types of planning process processes directly with first nations along before this government.

Did these announcements.

Our view is that stability for the sector in D. C is going to be built from the ground up in these collaborative.

Planning processes, and not essentially from Victoria or Vancouver.

Yeah, we're we're really proud of that track record and sustainable Forest management and the work that we're doing with first nations to develop these plans and.

Andy overall stable profitable sector on the coast so.

We are we've had some good engagement with government.

We have what we believe is basically are the best practices when it comes due.

Developing these forest landscape plans and we're well ahead of the curve in terms of our own involvement with the first nations with respect to our tenures.

Okay. So given your long term engagement.

Some participants.

And do you think you are.

What's the what's your thought on timing of getting a resolution.

Alright, I'm kind of outcome.

Paul I think there'll be phased in over a period of time, but I think as we go through this year, we'll start to see the culmination of some of these planning processes.

Okay, so sorry, the culmination.

Suggest that there'll be a decision or outcome.

Sometime in 'twenty three.

Yes, I think it is.

It'll they'll dairy David thing, but I think as we start moving through the year as some of these.

Adding processes will start to come to fruition. So.

Okay.

And then just turning back to your markets. I mean, you guys have any different difficult go here or less.

Number of months do you see a slow steady recovery right.

Do you see the you know your major specialty market bouncing back going forward here in 'twenty three.

Well I'll touch maybe on Japan start with Japan first Paul we even.

We're starting to see some stabilization now in terms of overall inventory, Japan was really faced with an abundant amount of of cheap fiber coming from Europe as.

As well as a significant increase in domestic production of sugi and alky.

At.

Relatively cheap prices due to the logs being heavily subsidized by the government.

But it seems like today overall.

Our order file and in Japan continues to improve.

Some modest Ah.

Price appreciation, but I don't think we will see.

2022 pricing levels here this year.

Certainly from a demand standpoint, it's.

Stabilizing we're able to continue to book out our quarterly business in North America, when we look at <unk>.

Jan Fed March typically in February and March we'd see.

A bit of a spring buy in our key geographic markets that didnt happen on specialties, we had really difficult weather in California really difficult market.

Weather in Texas.

And some of our key Midwest markets. So.

That's really the story behind.

The 40% specialties in the quarter was just just could not get in front of the weather in these key states.

Ill on a bit more optimistic note, though we have feedback from our customers that in some of these jurisdictions. You know April was was their best month in a long long time, so yes.

We're slowly are slowly getting back into it.

Modest modest opportunities on price appreciation that the upper portion of the woodpile declares the shop in better and the timbers relatively stable demand stable pricing is that are we call them meet in the middle of the sandwich.

Not a two inch decking.

<unk> fascia that those type of products, we're just haven't been able to get out in front of it from a from a takeaway standpoint so.

We're optimistic though that what we see for order file.

Inbound inquiry that well.

Get the business repositioned here in Q2 to our normal levels of specialties.

Alright, Thats all I had.

Best of luck. Thanks.

Thank you.

Thank you there are no further questions registered at this time I will turn the call back to Mr offer.

Okay, well, thanks to everyone for joining our call today, we certainly appreciate your interest in our company and.

And we look forward to our next call in August .

Thanks, Paul.

Youre welcome. Thank you. The conference has now ended please disconnect your lines at this time.

And we thank you for your participation.