Q1 2024 Mercer International Inc Earnings Call

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Operator: Good morning, and welcome to Mercer International's first quarter 2024 earnings conference call. On the call today is Juan Carlos Bueno, Mercer's President and Chief Executive Officer, and Richard Short, Mercer's Chief Financial Officer and Secretary. I will now hand the call over to Richard.

Speaker Change: Good morning, and welcome to Mercer International's first quarter 2024 earnings conference call.

Speaker Change: On the call today is Juan Carlos Bueno, Mercer as President and Chief Executive Officer, and Richard short Bursaries, Chief Financial Officer and Secretary.

Speaker Change: I'll now hand, the call over to Richard.

Richard George Short: Thanks, Liz. Good morning, everyone. Thanks for joining us today. I will begin by touching on the financial and operating highlights of the first quarter before turning the call over to Juan Carlos to provide further color on the markets, our operations, and our strategic initiatives. Also, for those of you that have joined today's call by telephone, there is presentation material that we have attached to the investor section of our website. But before turning to our results, I would like to remind you that we will make forward-looking statements in this morning's conference call.

Richard Stevens: Thanks, Liz good morning, everyone. Thanks for joining us today I'll begin by touching on our financial and operating highlights of the first quarter before turning the call to Juan Carlos to provide further color into the markets our operations and our strategic initiatives.

Richard: Also for those of you that have joined today's call by telephone there is a presentation material that we have attached to the investors section of our website.

But before turning to our results I would like to remind you that we will be forever make forward looking statements in this mornings conference call.

Richard George Short: According to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995, I'd like to call your attention to the risks related to these statements, which are more fully described in our press release and in the company's filings with the Securities and Exchange Commission.

Richard: According to the Safe Harbor provisions of the private Securities Litigation Reform Act of 1995, I would like to call your attention to the risks related to these statements which are more fully described in our press release and in the company's filings with the Securities and Exchange Commission.

Richard George Short: This quarter, our EBITDA was $64 million compared to Q4 EBITDA of $21 million. The improved results were driven by not having any major maintenance downtime, improving pulp sales realizations, and lower fiber and other production costs. Our pulp segment contributed quarterly EBITDA of $68 million, and our solid wood segment EBITDA was negative $1 million. You can find additional segment disclosures in our Form 10-Q, which can be found on our website and that of the SEC.

Richard: This quarter, our EBITDA was $64 million compared to six <unk> compared to Q4 EBITDA of $21 million. The improved results were driven by not having any major maintenance downtime, improving pulp sales realizations and lower fiber and other production costs.

Our pulp segment contributed quarterly EBITDA of $68 million and our solid wood segment EBITDA was negative $1 million.

Richard: You can find additional segment disclosures in our Form 10-Q, which can be found on our website and that of the SEC.

Richard George Short: In Q1, both our NBSK and NBHK sales realizations increased compared to Q4. Average list prices increased in Europe and North America due to stronger demand and global supply constraints. In China, prices were flat as demand slowed during the Chinese New Year and picked up near the end of the quarter. The European MBSK list price averaged $1400 per tonne in the current quarter, an increase of $155 or 12% from Q4. And the North American NBSK list price averaged $1,440 per ton in the current quarter, an increase of $128 or 10% from Q4.

Richard: One daughter M D S K and N B H K sales realizations increased compared to Q4 average list.

Richard: Prices increased in Europe, and North America due to stronger demand in global supply constraints in China prices were flat as demand slowed during the Chinese new year and picked up near the end of the quarter.

Richard: The European MBS K list price averaged $1400 per tonne and the current quarter, an increase of $155 or 12% from Q4.

Richard: And the North American M. B S. K list price averaged $1440 per ton in the current quarter, an increase of $128 or 10% from Q4.

Richard George Short: In China, the Q1 average MBHK net price was $662 per ton, up $19, or about 3% compared to the Q4 average price. Resulting in the market price gap between MBSK and MBHK in China narrowing to about $83 per ton in Q1 from $105 per ton in Q4. The North American NBHK average Q1 list price was $1,223 per ton, up $140 or 13% from Q4.

Richard: In China. The Q1 average <unk> net price was $662 per ton up $19 or about 3% compared to the Q4 average price.

Richard: Resulting in the market price gap between M. B S K and N B, H, K and China narrowing to about $83 per ton in Q1 from $105 per ton in Q4.

Richard: The North American Envy HK average Q1 list price was $1223 per tonne up $140 or 13% from Q4.

Richard George Short: Total pulp sales volumes in the first quarter increased by 75,000 tons to 566,000 tons, driven by the timing of sales and higher production due to lower scheduled maintenance downtime. We had no scheduled maintenance downtime in Q1 compared to 23 days of downtime in Q4, which positively impacted Q1 EBITDA by about $23 million when compared to Q4. After adjusting for the Q4 planned shuts, pulp production was essentially flat from the fourth quarter.

Richard: Total pulp sales volumes in the first quarter increased by 75000 tons to 566000 tons driven by the timing of sales and higher production due to lower scheduled maintenance downtime.

Richard: We have no scheduled maintenance downtime in Q1 compared to 23 days of downtime in Q4, which positively impacted Q1, EBITDA by about $23 million when compared to Q4.

Richard: After adjusting for the Q4 planned shots pulp production was essentially flat from the fourth quarter.

Richard George Short: For our solid wood segment, we had modest lumber pricing improvements in both Europe and the U.S. market. However, despite the price increases, overall lumber demand remains subdued as a result of uncertain economic conditions in Europe and high interest rates. The random length U.S. benchmark for Western SPF No.

Richard: For our solid wood segment, we had modest lumber pricing improvements in both Europe and the U S market.

Richard: Despite the price increases overall lumber demand remained subdued as a result of uncertain economic conditions in Europe and high interest rates.

Richard George Short: 2 Embedder was $462 per thousand bore feet at the end of Q1, compared to $422 at the end of Q4. Today, that benchmark price for Western SPF No. 2 Embedder is around $421 per thousand bore feet, virtually unchanged from the beginning of 2024. In Q2, we are expecting generally flat lumber prices in the U.S. and European markets. Demand remains weak, but lumber production was a near record 127 million board feet in Q1, up 14% due to seasonal downtime in the fourth quarter. Lumber sales volumes were 121 million board feet, up 8% from Q4. Electricity sales totaled 259 gigawatt hours in the quarter, which was about the same as Q4.

Richard: The random lengths U S benchmark for Western SPF number two and better was $462 per thousand board feet at the end of Q1 compared to $422 at the end of Q4.

Richard: Today that benchmark price for Western SPF number two and better is around $421 per thousand board feet virtually unchanged from the beginning of 2024.

Richard: For Q2, we are expecting generally flat lumber prices in the U S and European markets as demand remains weak.

Richard: Lumber production was a near record 127 million board feet in Q1 up 14% due to seasonal downtime in the fourth quarter.

Richard: Lumber sales volumes were 121 million board feet up 8% from Q4.

Richard: Electricity sales totaled 259 gigawatt hours in the quarter, which was about the same as Q4.

Richard George Short: Pricing in Q1 modestly decreased to about $94 per MWh from $98 in Q4 due to lower spot prices in Germany. In Q1, our pulp segment had lower fiber costs in Q4, and supply remained stable. On the other hand, our solid wood segment had higher saw log costs due to strong demand in Germany. Production for our solid wood segments mass timber operations decreased in Q1 from Q4 due to minor customer-driven delays for certain large-scale projects.

Richard: Pricing in Q1 modestly decreased to about $94 per megawatt hour from $98 in Q4 due to lower spot prices in Germany.

Richard: In Q1, our pulp segment had lower fiber costs in Q4 as supply remains stable on the other hand, our solid wood segment had higher saw log costs due to strong demand in Germany.

Richard: Production for our solid wood segments mass timber operations decreased in Q1 from Q4 due to minor customer driven delays for certain large scale projects.

Richard George Short: These projects are now underway, and we are satisfied with the order book today. In the first quarter, we made the strategic decision to dissolve the Caribou Mill joint venture, which resulted in the recording of a non-cash loss of roughly $24 million, or $0.35 per share. We expect the transaction to only have a nominal impact on 2024 EBITDA. Juan Cardo, so I have more to say on this in a moment.

Richard: These projects are now underway and we are satisfied with the order book today.

Richard: In the first quarter, we made the strategic decision to dissolve the caribou mill joint venture, which resulted in the recording of a noncash loss of roughly $24 million or <unk> 35 per share.

Richard: We expect the transaction to only have a nominal impact on 2020 for EBITDA.

Richard: Juan Carlos will have more to say on this in a moment.

Richard George Short: We reported a consolidated net loss of $17 million for the first quarter, or $0.25 per share, compared to a net loss of $87 million, or $1.31 per share, in Q4. We consumed about $40 million of cash in Q1, compared to $30 million in Q4. The large cash usage in Q1 was primarily due to higher receivables, which were up roughly $64 million, driven by higher sales realizations and sales volume. We expect the majority of this working capital build to reverse in Q2.

Richard: We reported a consolidated net loss of $17 million for the fourth quarter first quarter or <unk> 25 per share compared to a net loss of $87 million or $1 31 per share in Q4.

Richard: We consumed about $40 million of cash in Q1 compared to $30 million in Q4.

Richard: The large cash usage in Q1 was primarily due to higher receivables, which were up roughly $64 million driven by higher sales realizations and sales volumes.

Richard: We expect the majority of this working capital build to reverse in Q2.

Richard George Short: At the end of Q1, our liquidity position totaled $555 million, comprised of $274 million of cash and about $281 million of undrawn revolvers. Finally, our board has approved a quarterly dividend of 7.5 cents per share for shareholders of record on June 26, for which payment will be made on July 3, 2024. That concludes my overview of the financial results. I'll now turn the call over to Juan Carlos.

Richard: Yes.

Richard: At the end of Q1, our liquidity position totaled $555 million compared comprised of $274 million of cash and about $281 million of Undrawn revolvers.

Richard: Finally, our board has approved a quarterly dividend of $7.05 per share for shareholders of record on June 26 for which payment will be made on July three 2024.

Richard: That ends my overview of the financial results I'll now turn the call over to Juan Carlos.

Juan Carlos Bueno: Thanks, Rich. Our Q1 operating results improved significantly relative to Q4. The improvement was primarily the result of higher pulp prices in combination with no major maintenance at any of our mills. And our results in Q1 also benefited from lower costs, including fiber and energy costs. Overall, all of our mills ran at near record production levels, while both our energy production and sales volumes were at record levels in Q1. As previously announced, we came to the decision to dissolve the Caribou Mill Joint Venture after reviewing this asset and its future costs against our strategic priorities and determined that dissolving the joint venture would allow us to focus our resources on areas more aligned with our long-term strategic goals. I will also add that we were not expecting Kariguru to have any meaningful impact on our 2024 earnings.

Juan Carlos Bueno: Thanks Rich.

Juan Carlos Bueno: Our Q1 operating results improved significantly relatively to Q4.

Juan Carlos Bueno: The improvement was primarily the result of higher pulp prices in combination with no major maintenance at any of our mills.

Juan Carlos Bueno: Our results in Q1 also benefited from lower costs, including fiber and energy costs overall, all of our mills ran at near record production levels, while both our energy production and sales volumes were at record levels in Q1.

Juan Carlos Bueno: As previously announced we came to the decision to dissolve the Cariboo mill joint venture after reviewing this asset and its future prospects.

Juan Carlos Bueno: Against our strategic priorities and determined that the solving the joint venture will allow us to focus our resources to areas more aligned with our long term strategic goals.

I'll also add that we were not expecting <unk> to have any meaningful impact on our 2020 for earnings.

Juan Carlos Bueno: In Q1, we invested roughly $18.5 million in our operation. This CAPEX spending was in line with our 2024 CAPEX target of between $75 to $100 million. Those of you who follow the company closely will recognize that our 2024 CAPEX target is well below our traditional target. Our 2024 CAPEX target is essentially a maintenance of business budgets and is the result of weak cash flow generation in 2023. I will speak about our markets in a moment, but we're optimistic about our cash flow generation in light of improved fall pricing expectations for the remainder of the year. Consequently, we are comfortable restarting our Torgal Lumber Expansion Project and the Spokane Sorting Line Project. Both of them will provide significant added value and were originally contemplated as part of our investment strategy for HMIL.

Juan Carlos Bueno: In Q1, we invested roughly $18 5 million and our operations. This capex spending was in line with our 'twenty 'twenty four capex target of between $75 million to $100 million.

Juan Carlos Bueno: Those of you who follow the company closely will recognize that our 'twenty 'twenty four capex target is well below our traditional spend.

Juan Carlos Bueno: Our 2020 for Capex target is essentially a maintenance of business budget and as a result of a weak cash flow generation in 2023.

Juan Carlos Bueno: We'll speak about our markets in a moment, but we are optimistic about our cash flow generation and lights up improved pulp pricing expectations for the remainder of the year.

Juan Carlos Bueno: Consequently, we are comfortable restarting our talk out lumber expansion project and the Spokane sorting line project.

Juan Carlos Bueno: Both of them will provide significant added value and were originally contemplated as part of our investment strategy for each mill.

Juan Carlos Bueno: We have also approved a handful of other small value-adding projects, and as a result of these decisions, we now expect our CAPEX to be between 95 to 120 million dollars in 2024. We will also continue to manage our working capital and costs closely. Nevertheless, despite our improved outlook for 2024, we believe the recovery for all our markets will be gradual.

Juan Carlos Bueno: We have also approved a handful of other small value, adding projects and as a result of these decisions. We now expect our capex to be between $95 million to $120 million in 2024.

Juan Carlos Bueno: We will also continue to manage our working capital and costs closely.

Juan Carlos Bueno: Despite our improved outlook for 2024, we believe the recovery for all our markets will be gradual.

Juan Carlos Bueno: Overall, pulp markets improved significantly in the quarter, with both the European and North American markets showing the most improvement, and China lagging a little bit. We're seeing strong demand from European paper and tissue producers, and this demand is primarily the result of merchant de-stocking and logistical challenges around Chinese imports. To a lesser extent, we are also seeing demand increases in North America. This strong demand is exacerbating the impact of the permanent closure of NBSK mills in the last two years, while the impact of the Finnish transport strike and the significant unplanned downtime of one of Finland's largest mills are also adding to the supply challenges. Looking forward, we expect upward POP price pressure through the second quarter.

Juan Carlos Bueno: Overall pulp markets have improved significantly in the quarter with both European and North American markets showed the most improvement in China lagging a little bit.

Juan Carlos Bueno: We're seeing strong demand from European paper and tissue producers and this demand is primarily the result of merchant destocking and logistical challenges around Chinese imports to a lesser extent, we're seeing demand increases in North America as well.

Juan Carlos Bueno: This strong demand a successor bathing the impact of the permanent closure of our <unk> mills in the last two years, while the impact of the finished transport strike in the significant unplanned downtime at one of Finland's largest mills are also adding to the supply challenges.

Juan Carlos Bueno: Looking forward, we expect upward pulp price pressure through the second quarter. In addition markets may face, an even tighter supply situations should the Canadian way way unions take labor action as they're currently threatened to do.

Juan Carlos Bueno: In addition, POP markets may face an even tighter supply situation should the Canadian railway unions take labor action as they are currently threatened to do. They are implementing mitigation strategies, but ultimately, should this labor action be significant, it could negatively impact our ability to get our Canadian mills products to market. Our mills run at near-record levels in the quarter when comparing our first-quarter production to Q4. Remember that Selga took a 22-day major maintenance shut in Q4 of last year, and Stendhal took a one-day maintenance shut, while in Q1 we didn't have any at all.

Juan Carlos Bueno: We're implementing mitigation strategies, but ultimately should this labor action will be significant it could negatively impact our ability to get our Canadian mills products to market.

Juan Carlos Bueno: Our mills ran at near record levels in the quarter.

Juan Carlos Bueno: When comparing our first quarter production to Q4 remember that saga took a 22 day major maintenance shut in Q4 of last year and spent all took a one day maintenance shut in Q1, we didn't have any at all.

Juan Carlos Bueno: Our remaining major maintenance downtime for 2024 is as follows. In Q2, Peace River already took their 16-day maintenance shut down in April. This shut was extended by two days due to final work. In addition, Stendhal will take a long 17-day shut. Combined, this downtime equals roughly a loss of about 61,000 tons of production. In Q3, Rosenthal will have a 14-day maintenance shut, and Selga will take a short four-day mini-shut, which will amount to about 20,000 tons of production loss in total during Q3. As a reminder, SELGA has moved to an 18-month major maintenance schedule and will not have a major maintenance shutdown in 2024.

Juan Carlos Bueno: Our remaining major maintenance downtime for 2024 is as follows.

Juan Carlos Bueno: In Q2 Peace River already has taking their 16 day maintenance shut in April. This shut was extended by two days to two found work. In addition, stendal will take a long 17 days Chuck combined this downtime equals roughly all losses about 61000 tons of production.

Juan Carlos Bueno: In Q3 Wilson until we have a 14 day maintenance shut and saga will take a short pause they'd many shops.

Which will amount to about 20000 tons of production loss in total during Q3.

Juan Carlos Bueno: As a reminder, saga has moved to an 18 month major maintenance schedule and we will not have a major maintenance shut in 2024.

Juan Carlos Bueno: Our solid wood segment results, although improved compared to Q4, are still not where we expected to be. The US and European lumber markets were up slightly. However, high interest rates continue to weigh on housing starts and construction in general.

Juan Carlos Bueno: Our solid wood segment results, although improved compared to Q4 are still not where we expect it to be the U S and European lumber markets, where its up slightly however high interest rates continued to weigh on housing starts and construction in general we.

Juan Carlos Bueno: We see the potential for lumber pricing improvements in Q2, but generally expect prices to stay flat, with any improvement likely linked to improved economic data. However, we recognize there may be some short-term pricing upside due to recently announced lumber production deterrences or the realization of a prolonged Canadian railway strike. That said, we continue to believe that low lumber inventories, the large number of sawmill curtailments, relatively low housing supply, wood shortages created by recent Canadian forest fires, and homeowner demographics are still very strong fundamentals for the construction industry, and this will put sustained positive pressure on the supply-demand balance of this business in the midterm.

Juan Carlos Bueno: We see the potential for lumber pricing improvements in Q2, but generally expect prices to stay flat with any improvement likely linked to improved economic data.

Juan Carlos Bueno: We recognize there may be some short term pricing upside due to recently announced lumber production curtailments or the realization of a prolonged Canadian railways strike.

Juan Carlos Bueno: That said, we continue to believe that low lumber inventories the large number of sawmill curtailments.

Juan Carlos Bueno: Relatively low housing stock, which shortages created by recent Canadian Forest fires and homeowner demographics are still very strong fundamentals for the construction industry and this will put sustained positive pressure on the supply demand balance of this business into the midterm.

Juan Carlos Bueno: We continue to optimize our mix of lumber products and customers to current market conditions. As such, in Q1, 43% of our lumber sales volume was sold in the U.S. market, with the remainder sold in European and other markets. The shipping pallet market remains weak due to an overall weak European economy.

Juan Carlos Bueno: We continue to optimize our mix of lumber products and customers to current market conditions.

Juan Carlos Bueno: As such in Q1 to 43% of our lumber sales volume was sold in the U S market with a remainder so then European and other markets.

Juan Carlos Bueno: Shipping pallet market remains weak due to an overall weak European economy.

Juan Carlos Bueno: Once the European economy begins to show signs of recovery, we expect pallet prices to return to normal levels, allowing our Torgau asset to deliver significant shareholder value. Heating pellet prices were down in Q1 due to expected seasonality in this market. In addition, the integration of the recently acquired mass timber assets continues to progress very well. We now have roughly 35% of North American mass timber production capacity, a broader range of product offerings, and a much larger geographic footprint, which gives us competitive access to the entire North American market. We continue to see strong customer interest in our mass timber products, which has allowed us to build a significant order file. At the end of March, our order file totaled about $80 million.

Juan Carlos Bueno: Once the European economy begins to show signs of recovery, we expect pellet prices to return to normal levels, allowing our talk out assets to deliver significant shareholder value.

Juan Carlos Bueno: Heating pellet prices were down in Q1 due to expected seasonality in this market.

Juan Carlos Bueno: In addition, the integration of the recently acquired mass timber assets continues to progress very well.

Juan Carlos Bueno: Now have roughly 35% of north American mass timber production capacity, a broader range of product offerings and a much larger geographic footprint, which gives us competitive access to the entire north American market.

Juan Carlos Bueno: We continued to see strong customer interest in our mass timber products, which has allowed us to build a significant order file at the end of March older files totaled about $80 million.

Juan Carlos Bueno: As I previously noted, we are in the process of restarting strategic and high return CAPEX projects at both Torgau and Spokane Mills. The total project is focused on the mill's woodyard and log infeed systems. Once completed in the late 2025, this project will allow the mill to produce more high-quality dimensional lumber. This project was originally envisioned as part of our investment strategy for this mill, and we're looking forward to completing this work while lumber prices are at cyclical lows. Similarly, the Spokane project is focused on the mill's wood infeed and sorting process.

Juan Carlos Bueno: I think previously notice we are in the process of restarting strategic and high return Capex projects at both drug outlined Spokane Mills.

Juan Carlos Bueno: Total project is focused on the mills woodyard unlocked and feed systems. Once completed in the late 2025. This budget will allow the mill to produce more high quality dimensional lumber.

Juan Carlos Bueno: This project was originally envisioned as part of our investment strategy for this mill and we're looking forward to completing this work where lumber prices are in cyclical lows.

Juan Carlos Bueno: Similarly, the Spokane project is focused on the mills would impede and sorting processes.

Juan Carlos Bueno: Once this project is complete in mid-2025, the mill will be able to source lower-cost feedstock and process it into high-quality lamb stock. Ultimately, this will significantly reduce the mill's fiber costs. In Q1, our overall pulp fiber costs decreased from Q4.

Juan Carlos Bueno: This project is complete in mid 2025, the mill will be able to source lower cost feedstock and processes into high quality land stock.

Ultimately this will significantly reduce the mill's fiber costs.

Juan Carlos Bueno: In Q1, our overall pulp paper cost decreased from Q4.

Juan Carlos Bueno: In Germany, a steady supply of sawmill chips resulted in modest cost decreases, and in Canada, our ramp-up of Peace Rivers Woodroom and our Selga wood strategy also pushed our fiber costs down in Q1. Looking ahead, we expect further modest declines in popwood costs at our mills in Q2, but we expect a slight increase in our saw log costs due to strong demand. I am pleased with our new lignin extraction pilot plant ramp-up and the partnerships we have entered into to support the future commercialization of this product.

Juan Carlos Bueno: In Germany, a steady supply of sawmill chips resulted in modest cost decreases and in Canada, our ramp up of peace river's boardroom on a saga wood strategy also pushed our fiber costs down in Q1.

Juan Carlos Bueno: Looking ahead, we expect further modest declines in pulpwood costs at our mills in Q2, while we expect a slight increase towards saw log costs due to strong demand.

Juan Carlos Bueno: I am pleased with our new <unk> Dykman extraction pilot plant ramp up and the partnerships we have entered into to support the future commercialization of this product as a reminder, this new lignin plant just a large step towards Mercer being able to develop a portfolio of novel offerings before going commercial with it.

Juan Carlos Bueno: As a reminder, this new lignin plant is a large step towards Mercer being able to develop a portfolio of novel offerings before going commercial with it. We're excited about the future prospect of this product as a sustainable alternative to fossil fuel-based products, such as inodes and advanced battery elements, to name only a few. This aligns perfectly with our strategy, which involves expanding into green chemicals and products that are compatible with a circular carbon economy.

Juan Carlos Bueno: We're excited about the future prospects of this product as a sustainable alternative to fossil fuel based products such as in the Dcs and advanced battery elements to name only a few.

This aligns perfectly with our strategy, which involves expanding into green chemicals and products that are compatible with a particular color in economy.

Juan Carlos Bueno: As the world becomes more sensitive to reducing carbon emissions, we believe that products like lignin, mass timber, green energy, lumber, and pulp will play increasingly important roles in displacing carbon-intensive products, such as concrete and steel for construction or plastic for packaging. [inaudible] The potential demand for sustainable fossil fuel substitutes is very significant and has the potential to be transformative for the wood products industry. We remain committed to our 2030 carbon reduction targets and believe our products form part of the climate change solution. In fact, we believe that, in the fullness of time, demand for low-carbon products will dramatically increase as the world looks for solutions to reduce its carbon emissions.

Juan Carlos Bueno: As the world becomes more sensitive to reducing carbon emissions, we believe that products like lignin mass timber green energy lumber and pulp we play increasingly important roles in displacing carbon intensive projects products.

Juan Carlos Bueno: Products like concrete and steel for construction or plaque or plastic food packaging.

Juan Carlos Bueno: Furthermore.

Juan Carlos Bueno: The potential demand for sustainable fossil fuels substitutes is very significant and has the potential to be transformative to the wood products industry.

Juan Carlos Bueno: We remain committed toward 2030 carbon reduction targets and believe our products form part of the climate change solution.

Juan Carlos Bueno: In fact, we believe that in the fullness of time demand for low carbon products will dramatically increase.

Juan Carlos Bueno: <unk> Luxe port solutions to reduce its carbon emissions.

Juan Carlos Bueno: We remain bullish on the long-term value of pulp and are committed to better balancing our company to faster growth in our lumber and master business. In closing, I am pleased that our markets are recovering a little more quickly than expected and that this improvement is giving us the confidence to increase our planned 2024 capital spend, which will allow the benefits from these key high-return projects to be realized even sooner.

Juan Carlos Bueno: We remain bullish on the long term value of pulp and are committed to better balance our company to faster growth in our lumber and mass type of businesses.

Speaker Change: In closing I am pleased that our pulp markets are recovering a little more quickly than expected.

Speaker Change: This improvement is giving us the confidence to increase our planned 2020 core capital spend which will allow the benefits from these key high return projects to be realized even sooner.

Juan Carlos Bueno: We also expect an improved result from our solid wood business in Q2. As a reminder, we have an unusually heavy schedule of major maintenance in Q2, which will be a drag on what we're expecting, would otherwise be a strong financial quarter. We will remain focused on our cost-saving initiatives, and we will also continue to work on rebalancing our assets in line with the execution of our strategic plan, and we'll continue to manage our cash and liquidity prudently. Thanks for listening, and I will now return the call to the operator for questions. If you'd like to ask a question,

Speaker Change: We also expect an improved result from our solid wood business in Q2 as a reminder, we have an unusually heavy schedule of major maintenance in Q2, which.

Which will be a drag on quite we're expecting would otherwise be a strong financial quarter.

Speaker Change: We will remain focused on our cost saving initiatives.

Speaker Change: And we will also continue to work on rebalancing our assets in line with the execution of our strategic plan and we'll continue to manage our cash and liquidity prudently.

Speaker Change: Thanks for listening and I will now return the call to the operator for questions. Thanks.

Operator: If you'd like to ask a question at this time, please press star 1 1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1 1 again. Please stand by while we compile the Q&A roster. Our first question comes from a line called Hamir Patel with CIBC.

If you'd like to ask a question at this time. Please press star one on your telephone and wait for your name to be announced.

Speaker Change: Draw. Your question. Please press star one again.

Speaker Change: Please standby, while we compile the Q&A roster.

Speaker Change: Our first question comes from the line of Samir Patel with CIBC.

Samir Patel: Hi, good morning.

Hamir Patel: Juan Carlos, one of your peers recently announced a large reduction in its pulp capacity in British Columbia. You know, just given your presence in the province, how much more pulp capacity do you think needs to come out of the region? And can you speak to how comfortable you are with the long-term capacity potential at Celgar?

Samir Patel: On call. It one of your peers recently announced a large reduction of it.

Samir Patel: Pulp capacity and in British Columbia.

Samir Patel: Just given your presence in the province, how much more pulp capacity do you think needs to come out of the region and can you speak to how comfortable you are with the long term.

Samir Patel: <unk> potential that cellular.

Juan Carlos Bueno: Thank you, Hamir. Yes, this is obviously news that we were expecting for some time. It is well known that the fiber supply in the province has been pretty tight and getting tighter and tighter as time goes by. So it comes as no surprise that that announcement came out yesterday.

Thank you Amir yes, obviously this is something that actually news that we were expecting from some time.

Samir Patel: It is it is well known that the fiber supply in the province has been pretty tight and getting tighter and tighter as time goes by.

Samir Patel: So it comes as no surprise that that that announcement came up yesterday.

Juan Carlos Bueno: Now, one of the things that we've decided to do, and I think that it puts us in a very favorable position in the case of CELGAR in B.C., is that we're taking full advantage of the strategic location of the mail very close to the U.S. border. That has proven extremely beneficial for us. Our cost of fiber has been coming down as we've started implementing that strategy, and that is basically allowing us to source chips from the U.S. at costs that are competitive, as logistics have been arranged accordingly.

Samir Patel: Now one of the things that we've decided.

Samir Patel: <unk> decided to do and I think that it puts us in a very favorable position in the case of safeguard NBC.

Samir Patel: He said, we're taking full advantage of the strategic location of the mill very close to the U S border.

Samir Patel: That has proven.

Samir Patel: Us extremely beneficial or cost of fiber have been coming down.

Samir Patel: We've started implementing that strategy.

Samir Patel: And that is basically allowing us to source chips from the U S. At cost cost that are competitive as logistics have been a range accordingly.

Juan Carlos Bueno: And we're seeing more and more inflows from the U.S. into Celgar. We can easily think about sugar going as much as between 30-50% of fiber sourced from the U.S. So again, that takes the pressure off the mill from this very complicated situation that BC is going through. Regardless, and I have to say that the Kootenays, that region in particular, has not been impacted as much as other regions in northern B.C. on reductions and access to fiber. So that also has helped Celgar in a good way. We have a very good source for fiber in the mill, and we expect it to continue that way.

Samir Patel: And we're seeing more and more.

Samir Patel: Inflow from the U S into Sagar.

Samir Patel: We can easily think about sugar going as much as between 30% to 50% of fiber sourced from the U S.

Samir Patel: So again that that takes the pressure off the mill.

From this very complicated situation that MPC is going through.

Samir Patel: Regardless.

Samir Patel: And I have to say that that could knees that region. In particular has not been impacted as much as other regions in northern BC.

Samir Patel: On reductions and access to fiber.

Samir Patel: So that also has helped sell guard and a good way we have a very good source for fiber in the mill.

Samir Patel: And we expect it to continue that way.

Juan Carlos Bueno: Great. Yeah, thanks for all that detail there, Juan Carlos. And the last question I had was on the lumber side, with respect to demand in Europe. Could you comment on what you're seeing there across the different end markets in terms of R&R, new res, industrial, and maybe if anything stands out as inflecting on the R&R side?

Speaker Change: Okay, great yeah. Thanks for all that detail there one Carlos and just last question I had was on the on the lumber side.

Speaker Change: With respect to demand in Europe.

Speaker Change: Could you comment on what Youre seeing there across the different end markets in terms of R&R, new res industrial and maybe where.

Speaker Change: If anything stands out is inflicting on the R&R side.

Juan Carlos Bueno: Yeah, the European market has been very weak over the past, I would say over the past year. The situation in the European economy in general, and in Germany, which is probably the one that we focus ourselves a lot more, is still not in a recovery mode. It's still very, very dormant.

Speaker Change: Yeah Yeah.

Speaker Change: European market has been very weak over.

Speaker Change: Over the past I would say over the past year.

Speaker Change: The situation in the European economy in general in Germany, which is probably the one that we that we focus ourselves a lot more.

Speaker Change: It's still not in a recovery mode, it's still very very dormant.

Juan Carlos Bueno: The only thing that we have seen recently that has built a little bit of momentum, possible momentum, even in prices, has been the resurgence of the UK and Ireland market. So we've been able to get back into that market after being out of it for almost a year. So Europe is still, I would say, very precarious, and we don't expect any significant change. Most likely, in the next couple of quarters, we'll see if there's some improvement in economic indicators by the end of the year, and obviously, that would definitely push the construction industry on a better trajectory as it has been before, or at least in a recovery mode. So, yeah, it's been very, very slow, Hamir, incredibly slow.

Speaker Change: The only thing that we have seen recently that has that has built a little bit of momentum positive momentum even in prices has been a resurgence of the UK and Ireland market.

Speaker Change: So we've been able to get back into that market after being out of it for almost a year.

Speaker Change: So Europe is still I would say very precarious and nothing that we expect any significant change.

Speaker Change: Most likely for the next couple of quarters we.

Speaker Change: We will see if there is some some improvement in the economy indicators by the end of the year.

Speaker Change: And obviously that would definitely push the construction industry.

Speaker Change: Better trajectory as it has been before or at least in a recovery mode.

Speaker Change: So it's been it's been very very slow.

Juan Carlos Bueno: We have the advantage that since our mill is very competitive from a cost production point of view, we're able to serve the U.S. market very competitively, and obviously, we've taken advantage of that as much as we can. In the last year, we did exactly the same thing. Almost 50% of our sales went to the U.S. This year it's been a bit lower than that again because the UK and Ireland have shown good signs of recovery. But we always play that card; it gives us that confidence that if Europe is not giving us what we expect, then we can take advantage of the US market. Perfect.

Speaker Change: Credit is low we have the advantage.

Since our mill is very competitive from a cost production point of view.

Speaker Change: We're able to serve the U S market very competitively in.

Speaker Change: We've taken advantage of that as much as we can.

Speaker Change: In the last year, we did exactly the same thing with almost 50% of our sales went through the U S.

Speaker Change: This year, it's been a bit lower than that again, because UK and Ireland is has showed good signs of recovery.

Speaker Change: But we always play that card.

Speaker Change: Gives us that confidence that.

Speaker Change: Europe is not giving us what we expect then we can take advantage of the U S market.

Hamir Patel: Perfect. Yeah, that makes a lot of sense.

Speaker Change: Perfect that makes that makes a lot of sense. That's all I had I'll I'll turn it over thanks Juan Carlos.

Hamir Patel: That's all I had. I'll turn it over to you. Thanks, Juan Carlos.

Speaker Change: Thanks.

Operator: Our next question comes from the line of Sean Steuart with TD Cowan.

Speaker Change: Our next question comes from the line of Sean Stewart with TD Cowen.

Sean Steuart: Thank you. Good morning.

Sean Steuart: Thank you good morning.

Sean Steuart: A couple of questions. For the discretionary projects at Torgau and Spokane, can you give us a sense of the return parameters you're looking at for that type of CapEx? I suppose one is that markets normalize a little bit. How do you think about returns for those types of projects?

Sean Steuart: Couple of questions.

Sean Steuart: The discretionary projects at <unk> and Spokane can you give us a sense of the return parameters youre looking at for that type of Capex.

Suppose one.

Sean Steuart: Markets normalize a little bit.

Sean Steuart: How do you think about the returns for those types of projects.

Juan Carlos Bueno: Absolutely, Sean. We have two important projects, as I was mentioning. The first one, and both of them were envisioned when we acquired the mill. So if we talk first about Torgau, as we acquired it, it has four saw lines, but it's not optimized in any way.

Sean Steuart: Absolutely Sean we have two important projects as I was mentioning the first one and both of them were envisioned when we acquired the mills.

Sean Steuart: If we talk first about tour Gal.

Sean Steuart: Taco as we acquired it.

Sean Steuart: Has forced all lines, but it is not optimized in any way.

Juan Carlos Bueno: It's an old mill, very big in size, with a lot of capacity, but it's totally underutilized, and it focused its production on pallet production to a large extent. And what we are doing right now with this investment is we're freeing up capacity so that we can produce lumber in addition to what we're producing in the freeze cell. And that additional capacity would put Torgau not only as a pallet mill but also as a lumber and pallets plant, bringing a little bit down the volume of pallets but really, really, really increasing the volume that we can get for lumber. So that's what we're planning for.

Sean Steuart: It's an old mill very big in size.

Sean Steuart: With a lot of capacity, but it's totally underutilized.

Sean Steuart: And it was focused its production on pilot production.

Sean Steuart: To a large extent.

Sean Steuart: And what we are doing right now with this investment is we're freeing up capacity so.

Sean Steuart: So that we can produce lumber in addition to what we're producing.

Sean Steuart: And freestyle.

Sean Steuart: That additional capacity.

Sean Steuart: And that would put toward gout as not only as a pilot mill, but but both lumber and pallets bring.

Sean Steuart: Bringing a little bit down the volume of pallets.

Sean Steuart: But really really really increasing the volume that we can get four four lumber. So that's what we're planning for the return on those projects as is relatively short.

Juan Carlos Bueno: The return on those projects is relatively short. We have those investments coming, probably completed next year. So by the end of next year, we will already believe that lumber prices will be better by the end of next year than they are today. So when we said that we're doing all this investment, doing the cyclical low part of the cycle, we're preparing ourselves to be ready whenever the markets rebound. The return on those projects, both lumber or what we're doing in Spokane, when we do it, it's usually less than three years.

Sean Steuart: We have those investments coming.

Sean Steuart: Probably completed.

Sean Steuart: Next year. So by the end of next year, we will already which we be we believe that lumber prices will be better by the end of next year than they are today. So when we said that we're doing all of this investment during the cyclical low part of the but the low part of the cycle.

Sean Steuart: We're preparing ourselves to be ready whenever the markets rebound.

Sean Steuart: The return of those projects, both lumber or what we're doing in Spokane, when you would do it initially.

Sean Steuart: Usually less than three year returns.

Juan Carlos Bueno: So for us, those are high-return projects in general terms. In the case of Spokane, it's a similar situation. The mill, even though it's a brand new mill when we acquired it, not because it's brand new means that it was designed ideally or in an optimal way. So, there are a few things that we need to do, particularly on the sorting lines. Later down the road, we'll do some improvements on the press capacity, and those things will drive costs down significantly for us. Again, as in Torgau, those are two to three-year payback projects when fully implemented.

Sean Steuart: So for us those are.

Sean Steuart: High return projects in general terms.

Sean Steuart: In the case of Spokane, It's the same it's a similar situation where you the mill, even though it's a it's a brand new mill when we acquired it.

Sean Steuart: Because it's brand new <unk> study was designed.

Sean Steuart: Ideally for us.

Sean Steuart: Optimal way so there's a few things that we need to do particularly on sorting lines later on down the road, we'll do some improvements on the on depressed capacity.

Sean Steuart: And those things will drive cost down significantly for US again same targa was those are two to three year payback projects when fully implemented.

Sean Steuart: That's great detail, thanks for that. My second question is on pulp markets. Curious on your assessment of current momentum and sustainability into the second half of the year. How much of the recent surge do you attribute to? I suppose a lot of it is temporary supply constraints, but, on the demand side, how much do you think is customer restocking versus real pull from paper demand improvement?

Speaker Change: That's a that's great detail thanks for that.

Speaker Change: Second question is on on pulp markets.

Speaker Change: Curious on your assessment of.

Speaker Change: Current momentum sustainability into the second half of the year.

Speaker Change: How much of the recent surge do you attribute it still has a lot of it is temporary supply constraints, but.

Speaker Change: Yeah on the demand side, how much do you think it's customer restocking versus real poll from paper demand improvement.

Juan Carlos Bueno: Absolutely, Sean. Yes, what you said is absolutely true. Supply constraints are a huge driver of the surge that we've seen in pulp prices. There's no doubt about it.

Speaker Change: Absolutely Sean yes.

Sean: Yes, what you said is absolutely true.

Sean: <unk> constraint is a huge driver of the surge that we've seen in pulp prices. There is no doubt about it.

Juan Carlos Bueno: And it's still increasing. We just heard the announcement yesterday about yet another closure, another 300,000 tons that go out of the market. So the elements to keep the pressure upwards around prices are there, and it is sustained, no doubt. And we do believe that we will see further price improvements in the second half of the year. Now, when it comes to demand, it has been a lot better, but not as we would like it to be. Let's put it that way.

Sean: And it's still increasing we just heard the announcement yesterday about yet another closure or another 300000 tons that goes out of the market.

Sean: So the the elements to keep the pressure upwards around prices is there is sustained no doubt.

Sean: We do believe that we will see further price improvements.

Sean: Along the second half of the year.

Sean: Now when it comes to demand.

Sean: It has been a lot better, but not as we would like let's put it that way.

Juan Carlos Bueno: So yes, European demand has improved, and North American demand has improved, too. Chinese demand, not so much, although we know that they're exporting quite a bit. So there's a balance on how much of that demand coming in from China goes elsewhere. But it is a fact that European, especially European, demand was so low just, I would say, six months ago or nine months ago. Demand was incredibly low. And we've seen a very big resurgence of demand.

Sean: So yes European demand has improved north American demand has improved Chinese demand not so much.

Sean: We know that they're exporting quite.

Sean: Quite a bit.

Sean: So there's a balance on how much of that.

Sean: Demand coming in from China goes elsewhere.

Sean: But it is a fact that.

Sean: European especially European European was so low.

Sean: Just I would say six months ago or nine months ago.

Sean: Demand was incredibly low and we've seen a very big resurgence of demand.

Juan Carlos Bueno: It's still, I wouldn't say that it's strong enough as we like it, as we would prefer it to be, but it's obviously much, much healthier than it was before. So all in all, I think the prospects are positive. The logistic constraints that we see, issues that we still see in the Middle East, and the logistic constraints that that causes. Now there's a potential issue of railway strikes in Canada. Obviously, those things just add noise and probably put more pressure on prices than anything else upwards. So, again, we're bullish, probably cautiously bullish on the price increases that we may see in the coming months. I don't think there is any sign of softwood giving way within these current market conditions.

Sean: I wouldn't say that is strong enough as we like it because we would prefer it to be but it's obviously much much healthier than it was before.

Sean: In one all in all I think the prospects are positive.

Sean: The logistic constraints that we see.

Sean: Issues that but we still see in the middle east in the logistic constraints that that causes nowadays a potential issue of railway strikes in Canada, obviously, those things just add noise in and probably put more pressure on prices than anything else upwards.

Sean: So again, we are bullish.

Sean: Probably cautiously bullish on on the price increases that we may see.

Sean: In the coming months I don't see I don't think there is any.

Sean: Line of softwood, giving way.

Sean: Within these current market conditions.

Sean Steuart: Thank you very much for that context. That's all I have.

Speaker Change: Thank you very much for that context, that's all I have.

Operator: As a reminder, if you'd like to ask a question at this time, please press star 1 1 on your touchtone telephone. Our next question comes from the line of Harman Dutt with RBC Capital Markets.

Speaker Change: As a reminder, if you'd like to ask a question at this time. Please press star one one on your Touchtone telephone.

Speaker Change: Our next question comes from the line of Harman Dock with RBC capital markets.

Harman Dutt: Hi, this is Harman on for Matt McKellar. I just had a quick question. You noted in the release that you'd begun work on certain large-scale mass timber projects in Q2. Are you able to provide a bit more detail more broadly on the kind of pickup we should expect in manufactured product sales or EBITDA in the next couple quarters?

Harman Dock: Hi, This is harman on for Matt Mackellar.

Harman Dock: I just had a quick quick question.

Harman Dock: And in the release that you had begun work on.

Certain large scale mass timber projects as of Q2.

Harman Dock: Are you able to provide a bit more detailed more broadly on the kind of pick up we should expect in manufactured product sales or EBITDA in the next couple of quarters.

Juan Carlos Bueno: Sure, Harman. To give you a sense of magnitude, we have two very large projects, and I wish I were at liberty to say the companies. I'm not allowed to say which companies they are, but we have two very large projects that are currently being produced at the mill. These projects will keep us busy for this quarter for sure. One of them is also going to be built at the beginning of 2025.

Harman Dock: Yeah.

Speaker Change: Sure Harman.

Speaker Change: To give you a sense of magnitude we have two very large.

Speaker Change: Projects.

Speaker Change: Wish I was at Liberty to say the companies I'm not I'm not allowed to say, which companies they are but.

Speaker Change: We have two very large projects that are currently being produced.

Speaker Change: At the mill.

Speaker Change: These projects will keep us busy for the next for this quarter for sure.

Speaker Change: One of them is also going to be built up.

Speaker Change: In the beginning of 2025.

Juan Carlos Bueno: So we see the order book gaining good momentum, and therefore, we see very positive results as a result of this. Now, one of those projects had a delay, a minor delay for them. But a minor delay for them means that instead of becoming a Q1 production project, it became a Q2 production project.

Speaker Change: So we see the order book.

Gaining good momentum and therefore, we see very positive results as a result of this now.

Speaker Change: Now one of those projects.

Speaker Change: A delay of a minor delay for them, but a minor delay for them means that instead of becoming a Q1 production.

Speaker Change: Project, you became a Q2 production project and as we're ramping up.

Juan Carlos Bueno: And as we're ramping up, Obviously, when we have a major project that moves from one quarter to another, that creates a hole that we cannot fill up as we would like. So that's why our results in Q1 for mass timber were very short, almost at a break-even level. But in Q2, we expect mass timber to be much better in terms of profitability. Our sales for the year, we expect them to be almost twice as much as we had last year. So last year, our sales were around 60 million. We're estimating that for 2024, we should be around 100 to 120 million, give or take, with further sustained levels in 2025.

Speaker Change: Obviously, when we have a major project that moves from one quarter to another that creates a hole that we cannot fail as we would like so that's why our results and.

Speaker Change: In Q1 for mass timber were very short almost at breakeven level.

Speaker Change: But in Q2, we expect mass timber to be.

Speaker Change: Much better in terms of profitability our sales for the year.

Speaker Change: We expect them to be almost twice as much as we had last year. So last year, our sales were around $6 million.

Speaker Change: We're estimating that for 2024, we should be around $100 million to $120 million give or take.

Speaker Change: With further.

Sustained levels in 2025, one of the things that we're seeing in this market which is.

Juan Carlos Bueno: One of the things that we're seeing in this market, which is not different from many things that we see in lumber spaces with the interest rates being still at a very high level, is that, yes, there's more demand for more interest in projects to be built on mass timber. So there's a lot of tailwind on interest from developers and architects on mass timber. Many more designs and many more quotations that we're putting out, and projects that are being designed for mass timber than before, but what is happening is that there's a lot more that are being put on hold until the financing gets better for those developers.

Not different from many things that we see in lumbar spaces with the interest rates being as still at a very high level.

Speaker Change: What we're seeing is that yes, there is more demand for more interest in projects to be built on mass timber. So theres a lot of tailwind on interest from developers architects on mass timber.

Speaker Change: Many more designs and many more quotations that we're putting out.

Speaker Change: And projects that are being designed for mass timber than previously before but what is happening is that there's a lot more that are being put on hold.

Speaker Change: Until the financing gets better for those developers.

Juan Carlos Bueno: So what we expect is maybe in 2025, we won't see as much of an increase as we would otherwise have thought there would be until there's a start to see a reduction in interest. And then what we will see is all of this amount of projects that are being repressed, that are being put on hold, plus the ones that were coming up as new, that's going to come in a big wave. So we do expect very, very strong growth in this business, whether it's late 25 or 26, depending on how interest rates behave.

Speaker Change: So what we expect as maybe in 2025, we won't see as much.

Speaker Change: Increase.

Speaker Change: As we would otherwise have thought there would be.

Speaker Change: Until there's a start to see a reduction in interest and then what we will see is all of this amount of projects that are being repressed that are being put on hold plus the ones that were being better we're coming up is new.

Speaker Change: That's going to come in in a big wave. So so we do expect a very very strong growth of this business.

Speaker Change: Whether it's in late 'twenty five or 'twenty.

Speaker Change: <unk> 26, depending on how interest rates behave.

Juan Carlos Bueno: And obviously, we will take advantage of it when we look at maturity in our business. We're looking at a business that should be north of 20% DBDA when it comes to when we're at maturity level and running at least two shifts at our facility. So that's the forecast that we have. And we're very, very eager to keep on investing in these assets and make sure that all three of them, the Canadian one and the ones that the two that we'll have in the U.S., are very cost competitive.

Speaker Change: And obviously, we will take advantage of it when we look at maturity from our business.

Speaker Change: We're looking at a business that should be north of 20% EBITDA.

Speaker Change: When it comes to when we are.

Speaker Change: At maturity level and running at least two shifts in our facilities.

Speaker Change: So so that's that's the forecast that we have and we're very very eager to keep on investing in these assets make sure that all three of them the Canadian one and once the two that were in the U S are very cost competitive.

Harman Dutt: God, you know, that's super helpful. And I think the rest of my questions were answered. So that was the main one. Thank you. Okay.

Speaker Change: Got it you know that is superior.

Speaker Change: And I think the rest of my questions were answered so that was the main one thank you.

Speaker Change: Okay.

Speaker Change: Yeah.

Operator: That concludes today's question and answer session. I'd like to turn the call back to Juan Carlos Bueno for closing remarks.

Speaker Change: That concludes today's question and answer session I would like to turn the call back to Juan Carlos Plano for closing remarks.

Juan Carlos Bueno: And thanks to all of you for joining our call. Rich and I are available to talk more at any time, so don't hesitate to call either one of us. Otherwise, we look forward to speaking to you again on our next earnings call in August. Bye for now.

Speaker Change: Thank you Liz.

Speaker Change: And thanks to all of you for joining our call rich and I are available to talk more at any time, so don't hesitate to call either one of US otherwise we look forward to speaking to you again on our next earnings call in August Bye for now.

Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.

Speaker Change: This concludes today's conference call. Thank you for participating you may now disconnect.

Speaker Change: Okay.

Speaker Change: [music].

Speaker Change: Yeah.

Speaker Change: [music].