Q2 2024 Interfor Corp Earnings Call

August 9, 2024

Speaker Change: Coming Soon

Operator: Good morning. My name is Ina, and I will be your conference operator today. At this time, I would like to welcome everyone to the Interfor Analyst Conference Call. All lines have been placed on mute to prevent any backhoe noise.

Ina: Good morning, my name is Ina and I will be your conference operator today.

Speaker Change: At this time, I would like to welcome everyone to the Inter4 Analysts conference call. All lines have been placed in mute to prevent any background noise.

Speaker Change: After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star 10, the number 1 on your telephone keypad.

Operator: After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star then the number one on your telephone keypad. If you would like to withdraw your question, please press the star followed by two. Thank you. Mr. Fillinger, you may begin your conference. Thank you, Operator, and thank you, everyone, for joining us this morning. With me on the call, as usual, we have Rick Pozzebon, Executive Vice President and Chief Financial Officer, and Bart Bender, our Senior Vice President of Sales and Marketing. I'll start off by providing a brief recap of the quarter before passing the call off to Rick and Bart.

Speaker Change: If you would like to withdraw your question, please press star followed by the 2. Thank you. Mr. Fillinger, you may begin your conference.

Ian Fillinger: Thank you, Operator, and thank you, everyone, for joining us this morning. With me on the call, as usual, we have Rick Pozzebon, Executive Vice President and Chief Financial Officer, and Bart Bender, our Senior Vice President of Sales and Marketing. I'll start off by providing a brief recap of the quarter before passing the call off to Rick and Bart.

Mr. Fillinger: Thank you, Operator, and thank you, everyone, for joining us this morning. With me on the call, as usual, we have Rick Pozzebon, Executive Vice President, Chief Financial Officer, and Bart Bender, our Senior Vice President of Sales and Marketing.

Ian Fillinger: Turning to our Q2 results, our adjusted EBITDA was negative $17 million during yet another challenging quarter that was impacted by continued weak pricing. Log costs and conversion costs were down in most regions, and shipments were ahead of production. Our team continues to drive cash from working capital with reductions made in receivables and also in both log and lumber inventory. We did see additional industry supply reductions made and believe about 5% to 7% of industry capacity has been removed since the beginning of this year.

Ian Fillinger: Turning to our Q2 results, our adjusted EBITDA was negative $17 million during yet another challenging quarter that was impacted by continued weak pricing. Log costs and conversion costs were down in most regions, and shipments were ahead of production. Our team continued to drive cash from working capital with reductions made in receivables and also in both log and lumber inventory. We did see additional industry supply reductions made and believe about 5% to 7% of industry capacity has been removed since the beginning of this year.

Speaker Change: I'll start off by providing a brief recap of the quarter before passing the call off to Rick and Bart.

Speaker Change: Turning to our Q2 results, our adjusted EBITDA was negative $17 million during yet another challenging quarter that was impacted by continued weak pricing.

Speaker Change: Log costs and conversion costs were down in most regions and shipments were ahead of production.

Speaker Change: Our team continues to drive cash from working capital with reductions made in receivables and also in both log and lumber inventories.

Speaker Change: We did see additional industry supply reductions made, and believe about 5 to 7% of industry capacity has been removed since the beginning of this year, and we expect more volume to come out.

Ian Fillinger: And we expect more volume to come out. We are updating our production forecast, and we will be closing several of our low-margin mills for the remainder of the year. Our updated guidance represents approximately 15% of our production volume, or around 280 to 350 million feet.

Speaker Change: We are updating our production forecast and we will be curtailing several of our low margin mills for the remainder of the year.

Speaker Change: Our updated guidance represents approximately 15% of our production volume, or around 280 to 350 million feet.

Ian Fillinger: It's not lost on us the difficulties and challenges these decisions have on our employees, families, suppliers, and communities. We have been and will continue to be an industry leader when it comes to dealing with adjusting capacity or making tough decisions to strengthen our portfolio of operations. We have a more positive outlook as we head into 2025. However, we are planning for continued weakness until more industry supply is removed. I'll now turn the call over to Rick, and he'll walk you through the financials.

Speaker Change: It's not lost on us the difficulties and challenges these decisions have on our employees, families, suppliers, communities.

Speaker Change: We have been and will continue to be an industry leader when it comes to dealing with adjusting capacity or making tough decisions to strengthen our portfolio of operations.

Speaker Change: We have a more positive outlook as we head into 2025. However, we are planning for continued weakness until more industry supply is removed.

Speaker Change: I'll now turn the call over to Rick and he'll walk you through the financials.

Rick Pozzebon: Thank you, Ian, and good morning all. Please refer to the cautionary language regarding forward-looking information in our Q2MDNA. At a high level, Interfor's Q2 results from operations were fairly similar to the prior quarter and continued to reflect the ongoing weak lumber market. With respect to earnings, Interfor generated an adjusted EBITDA loss of $17 million on total revenue of $771 million. Revenue declined by 5% quarter over quarter, driven by a 4% decrease in lumber shipment volume combined with a 1% drop in the average realized lumber price. On the cost side, reported production costs per unit of lumber sold were 2% lower quarter-over-quarter.

Rick Pozzebon: Please refer to cautionary language regarding forward-looking information in our Q2 MD&A. At a high level, Interfor's Q2 results from operations were fairly similar to the prior quarter and continue to reflect the ongoing weak lumber market. With respect to earnings, Interfor generated an adjusted EBITDA loss of $17 million on total revenue of $771 million.

Rick Pozzebon: Thank you, Ian, and good morning all. Please refer to cautionary language regarding forward-looking information in our Q2 MD&A.

Rick Pozzebon: Revenue declined by 5% quarter over quarter, driven by a 4% decrease in lumber shipment volume combined with a 1% drop in the average realized lumber price. On the cost side, reported production costs per unit of lumber sold were 2% lower quarter-over-quarter. This reflects benefits from our ongoing focus on productivity and cost efficiency. Ultimately, a loss of $76 million was realized in the quarter. Regarding Interfor's financial position, it remains stable quarter over quarter, ending Q2 with a net debt-to-invested-capital leverage ratio of 35% and available liquidity of $331 million.

Rick Pozzebon: At a high level, Interforest Q2 results from operations were fairly similar to the prior quarter and continue to reflect the ongoing weak lumber market.

Speaker Change: With respect to earnings, Inter4 generated an adjusted EBITDA loss of $17 million.

Speaker Change: on total revenue of $771 million.

Speaker Change: Revenue declined by 5% quarter-over-quarter, driven by a 4% decrease in lumber shipment volume combined with a 1% drop in the average realized lumber price.

Speaker Change: On the cost side, reported production costs per unit of lumber sold were 2% lower quarter over quarter. This reflects benefits from our ongoing focus on productivity and cost efficiencies.

Rick Pozzebon: This reflects benefits from our ongoing focus on productivity and cost efficiency. Ultimately, a loss of $76 million was realized in the quarter. Regarding Interfor's financial position, it remains stable quarter over quarter, ending Q2 with a net debt-to-invested-capital leverage ratio of 35% and available liquidity of $331 million. The company's financial position was supported by $48 million of operating cash flows in the quarter, driven by the release of $72 million of working capital.

Speaker Change: Ultimately, a net loss of 76 million dollars was realized in the quarter.

Speaker Change: Regarding Interfor's financial position, it remains stable quarter over quarter, ending Q2 with a net debt-to-invested capital leverage ratio of 35% and available liquidity of $331 million.

Rick Pozzebon: The company's financial position was supported by $48 million of operating cash flows in the quarter, driven by the release of $72 million of working capital. This working capital improvement is attributable in part to our active management of log and lumber inventories. Also supporting the financial position was $21 million of cash generated from asset sales, including assets of the former sawmill in Philomath, Oregon.

Speaker Change: The company's financial position was supported by $48 million of operating cash flows in the quarter, driven by the release of $72 million of working capital.

Rick Pozzebon: This working capital improvement is attributable in part to our active management of log and lumber inventory. Also supporting the financial position was $21 million of cash generated from asset sales, including assets of the former sawmill in Philomath, Oregon. Looking out over the remainder of 2024, we continue to expect a collection of tax refunds totaling approximately $59 million and further cash proceeds from the sale of coastal BC forest tenure. We anticipate completing the sale of all remaining coastal tenures by the end of 2025 for estimated total net proceeds in the ballpark of $70 million, with approximately 50% in the second half of this year and the remainder in 2025.

Speaker Change: This working capital improvement is attributable in part to our active management of log and lumber inventories.

Speaker Change: Also supporting the financial position was $21 million of cash generated from asset sales, including assets of the former sawmill in Philomath, Oregon.

Rick Pozzebon: Looking out over the remainder of 2024, we continue to expect a collection of tax refunds totaling approximately $59 million and further cash proceeds from the sale of coastal BC forest tenure. We anticipate completing the sale of all remaining coastal tenures by the end of 2025 for estimated total net proceeds in the ballpark of $70 million, with approximately 50% in the second half of this year and the remainder in 2025. Regarding capital allocation, we will continue to take a conservative approach as we manage through the sustained market weakness.

Speaker Change: Looking out over the remainder of 2024, we continue to expect collection of tax refunds totaling approximately $59 million and further cash proceeds from the sale of coastal BC forest tenures.

Speaker Change: We anticipate completing the sale of all remaining coastal tenures by the end of 2025 for estimated total net proceeds in the ballpark of $70 million.

Speaker Change: with approximately 50% in the second half of this year and the remainder in 2025.

Rick Pozzebon: Regarding capital allocation, we will continue to take a conservative approach as we manage through the sustained market weakness. Our primary focus remains on reducing financial leverage into our target range below 25% net debt to invested capital. As part of this conservative approach, total planned capital expenditures for 2024 have been reduced to $70 million from our previous guidance of $90 million. To wrap up, Interfor's Q2 results reflect a persistently weak lumber market, which we continue to view as unsustainable for the industry as a whole. We continue to be focused on positioning Interfor and its operations to successfully navigate through this period as supply rebalances with demand. That concludes my remarks; I'll now turn the call over to BART.

Speaker Change: Regarding capital allocation, we will continue to take a conservative approach as we manage through the sustained market weakness.

Rick Pozzebon: Our primary focus remains on reducing financial leverage into our target range below 25% net debt to invest in capital. As part of this conservative approach, total planned capital expenditures for 2024 have been reduced to $70 million from our previous guidance of $90 million.

Speaker Change: Our primary focus remains on reducing financial leverage into our target range below 25% net debt to invested capital.

Speaker Change: As part of this conservative approach, total planned capital expenditures for 2024 have been reduced to $70 million from our previous guidance of $90 million.

Rick Pozzebon: To wrap up, Interfor's Q2 results reflect a persistently weak lumber market, which we continue to view as unsustainable for the industry as a whole. We continue to be focused on positioning Interfor and its operations to successfully navigate through this period as supply rebalances with demand. That concludes my remarks. I'll now turn the call over to Bart.

Speaker Change: To wrap up, InterForest Q2 results reflect a persistently weak lumber market, which we continue to view as unsustainable for the industry as a whole.

Speaker Change: We continue to be focused on positioning Inter4 and its operations to successfully navigate through this period as supply rebalances with demand.

Bart Bender: Okay, thanks Rick. Lumber markets remain difficult to forecast as demand and supply remain out of sync. The much-anticipated spring building season was a non-event, frankly, coupled with no interest rate change by the Federal Reserve has left many on the distribution side and, consequently, the manufacturing side, reassessing the go-forward strategy. All will agree the fundamentals remain positive, however, economic confidence and affordability concerns are at the forefront. From a manufacturer's standpoint, lumber demand is low.

Speaker Change: That concludes my remarks. I'll now turn the call over to Bart.

Bart Bender: Okay, thanks, Rick. Lumber markets remain difficult to forecast as demand and supply remain out of sync. The much anticipated spring-building season was a non-event, frankly, coupled with no interest rate change by the Federal Reserve has left many on the distribution side and, consequently, the manufacturer side reassessing the go-forward strategy. All will agree the fundamentals remain positive, however, economic confidence and affordability concerns are at the forefront. From a manufacturer standpoint, lumber demand is low.

Bart Bender: Okay, thanks Rick. Lumber markets remain difficult to forecast as demand and supply remain out of sync.

Speaker Change: The much-anticipated spring building season was a non-event, frankly. Coupled with no interest rate change by the Federal Reserve, has left many on the distribution side and, consequently, the manufacture side, reassessing the go-forward strategy.

Speaker Change: All will agree the fundamentals remain positive, however economic confidence and affordability concerns are at the forefront.

Bart Bender: This is partly a genuine drop in consumption and partly distribution driving down their own inventories. The true level of consumption isn't exactly clear currently, but in our assessment, it is better than it appears today. Single-family housing remains a positive story. However, the parental model and multifamily remain under pressure.

Bart Bender: This is partly a genuine drop in consumption and partly distribution driving down their own image. The true level of consumption isn't exactly clear currently, but in our assessment, it is better than it appears today. Single-family housing remains a positive story.

Speaker Change: From a manufacturer's standpoint, lumber demand is slowed.

Speaker Change: This is partly a genuine drop in consumption and partly distribution driving down their own inventories. The true level of consumption isn't exactly clear currently, but in our assessment it is better than it is appearing today.

Bart Bender: However, a parental model and multifamily remain under pressure. A clear signal from the Federal Reserve that interest rates will start to ease, going a long way in setting the market towards recovery. Interestingly, mortgage rates are already starting to decline. We're hearing rates in the mid 6% range. Perhaps this is the mortgage market anticipating lower rates. Regardless, it's much closer to a level that would encourage more move-ups and new home purchases. With supply chain issues far behind us, the available capacity of both rail and truck is more than enough to put distribution in a position to drive their inventories as low as possible. It is our view that market inventories are at the lower end of the historical spectrum.

Speaker Change: Single-family housing remains a positive story, however a parental model and multifamily remain under pressure.

Bart Bender: A clear signal from the Federal Reserve that interest rates will start to ease, which will go a long way towards setting the market towards recovery. Interestingly, mortgage rates are already starting to decline. We're hearing rates in the mid 6% range. Perhaps this is the mortgage market anticipating lower rates. Regardless, it's much closer to a level that would encourage more move-ups and new home purchases.

Speaker Change: A clear signal from the Federal Reserve that interest rates will start to ease would go a long ways in setting the market towards recovery.

Speaker Change: Interestingly, mortgage rates are already starting to decline. We're hearing rates in the mid 6% range. Perhaps this is the mortgage market anticipating lower rates. Regardless, it's much closer to a level that would encourage more move up and new home purchases.

Bart Bender: With supply chain issues far behind us, the available capacity of both rail and truck is more than enough to put distribution in a position to drive their inventories as low as possible. It is our view that market inventories are at the lower end of the historical spectrum. On the same basis, we've been able to maintain our own inventories at historical lows, which when coupled with high discipline on maintaining short order files will ensure quick tension when supply-demand balance comes into the market.

Speaker Change: With supply chain issues far behind us, the available capacity of both rail and truck are more than enough to put distribution in a position to drive their inventories as low as possible.

Speaker Change: It is our view that the market inventories are in the lower end of the historical spectrum.

Bart Bender: On the same basis, we've been able to maintain our own inventories at historical lows, which when coupled with high discipline on maintaining short order files will ensure quick tension when the supply and demand balance comes into the mark. Softwood lumber duties on Canadian producers are set to increase from 8% to close to 14%, and quite frankly, in days here, that's going to obviously increase the level of uncertainty in lumber production from Canada, which represents 23% of the U.S. market share.

Speaker Change: On the same basis, we've been able to maintain our own inventories at historical lows, which, when coupled with high discipline on maintaining short order files, will ensure quick tension when supply-demand balance comes into the market.

Bart Bender: Softwood lumber duties on Canadian producers are set to increase from 8% to close to 14%, quite frankly, in days here. That's going to obviously increase the level of uncertainty in lumber production from Canada, which represents 23% of the U.S. market share. We think the market response will be higher prices, most likely achieved through more curtailments in Canada. On the supply side, there have been sizable curtailments so far. Most have been announced, however, a meaningful portion is unannounced. The impact of curtailments takes time to settle in the market. We don't believe they are fully realized at this point.

Speaker Change: Softwood lumber duties on Canadian producers are set to increase from 8% to close to 14%.

Speaker Change: quite frankly, in days here.

Speaker Change: that's going to obviously increase the level of uncertainty in lumber production from Canada which represents 23 percent of the US market share.

Bart Bender: We think the market response will be higher prices, most likely achieved through more curtailments in Canada. Further on the supply side, there have been sizable curtailments so far. Most have been announced, but a meaningful portion have been unannounced. The impact of curtailments takes time to settle in the market. We don't believe they are fully realized at this point.

Speaker Change: We think the market response will be higher prices, most likely achieved through more curtailments in Canada.

Speaker Change: Further on the supply side, there have been sizable curtailments so far. Most have been announced, however, a meaningful portion unannounced. The impact of the curtailments takes time to settle in the market. We don't believe they are fully realized at this point.

Bart Bender: We fully expect there to be continued curtailment in our industry, most significant in the regions with the lowest margins, which today have been most significant in the South. Lumber prices will continue to be range-bound until such time as lumber availability becomes difficult. We continue to believe that SPF prices will appreciate relative to Southern Yellow Pine over time primarily due to the lack of substitution in some applications and also constrained fiber. At the end of the day, Interfor will continue to adjust production to meet demand.

Bart Bender: We fully expect there to be continued curtailment in our industry, most significant in the regions with the lowest margins, which today have been most significant in the South. Lumber prices will continue to be range-bound until such time as lumber availability becomes difficult. We continue to believe that SPF prices will appreciate relative to Southern Yellow Pine over time, primarily due to the lack of substitution in some applications and also constrained fiber.

Speaker Change: We fully expect there to be continued curtailment in our industry, most significant in the regions with the lowest margins, which today has been most significant in the South.

Speaker Change: Lumber prices will continue to be range bound until such time as lumber availability becomes difficult. We continue to believe that SPF prices will appreciate relative to Sudden Yellow Pine over time primarily due to the lack of substitution in some applications and also constrained fiber.

Ian Fillinger: At the end of the day, Interfor will continue to adjust production to meet the demand. Back to you. Okay, thanks Bart. Operator, we're good to turn the call over to questions. Thank you, ladies and gentlemen.

Speaker Change: At the end of the day, Inter4 will continue to adjust production to meet the demand.

Ian Fillinger: Okay, thanks, Bart. Operator, we're good to turn the call over to questions. Thank you, ladies and gentlemen.

Ian: Back to you, Ian.

Ian: Okay, thanks Bart. Operator, we're good to turn the call over for questions.

Operator: We will now begin the question and answer session. Should you have a question, please pass star 5 by the 1 on your telephone, Kipad. If you will adhere to a tweet on prompt acknowledging your request, questions will be taken in the order received. Should you wish to cancel your request, please pass star 4 by the 2. And if you are using this speaker phone, please lift the handset before pressing any keys.

Operator: Thank you, ladies and gentlemen. We will now begin the question and answer session. Should you have a question, please press star 5 or the 1 on your telephone keypad. You will hear a three-tone prompt acknowledging your request. Questions will be taken in the order received. Should you wish to cancel your request, please press star 5 or 2. And if you are using a speakerphone, please lift the handset before pressing any keys. One moment, please, for your first question. Your first question comes from the line of Kasia Kopytek from TD Cowen. Please go ahead.

Speaker Change: Thank you, ladies and gentlemen. We will now begin the question and answer session.

Speaker Change: Should you have a question, please press star 5 or the 1 on your telephone keypad. You will hear a three-tone prompt acknowledging your request. Questions will be taken in the order received.

Speaker Change: Should you wish to cancel your request, please press star 4 by the 2. And if you are using a speakerphone, please lift the handset before pressing any keys. One moment please for your first question.

Speaker Change: Thank you for watching, and I'll see you in the next video.

Kasia Kopytek: Hi, good morning, everyone. It's Kasia on the line.

Operator: One moment, please, for your first question. Your first question comes from the line of Kasia Kopytek from TD Cowen. Please go ahead. Hi, good morning, everyone.

Speaker Change: Your first question comes from the line of Kasia Kopytek from TD Cowen. Please go ahead.

Kasia Kopytek: Question about the temporary contaminants, the incremental temporary contaminants that you guys announced yesterday, 282, 350 million board feet. That's over August and December. And I'm just curious. Does that include any overlap from the curtailment that you announced back on April 30th, which was from May to September? So I guess the overlap over the August and September period is what I'm asking.

Kasia Kopytek: It's Cash On The Line. Question about the temporary cotamines, incremental temporary cotamines that you guys announced. Yesterday, 282, 350 million board feet.

Kasia Kopytek: Hi, good morning, everyone. It's Cash On The Line. Question about the temporary curtailments, incremental temporary curtailments that you guys announced yesterday, 282, 350 million board feet. That's over August and December, and I'm just curious.

Speaker Change: Does that include any overlap from the curtailments that you announced back on April 30th, which were from May to September? I guess the overlap over the August and September period is what I'm asking.

Rick Pozzebon: It's Rick here. Thanks for the question. Certainly, there's a little bit of overlap there, but I would advise you to think about that as being forward-looking guidance, so from August forward through the end of the year. That is our stated temporary curtailments of 280 to 350 million board feet. So, sort of ignore the prior guidance and just look at our actual production year to date through June and factor in this new guidance we've provided. Got it.

Rick Pozzebon: Hey, good morning, Kasia. It's Rick here.

Speaker Change: Hey, good morning, Cassia. It's Rick here. Thanks for the question. Certainly, there's a little bit of overlap there, but I...

Cassia: Guide you to think about that as being forward-looking guidance. So from

Rick Pozzebon: Thanks for the question. Certainly, there's a little bit of overlap there, but I would advise you to think about that as being forward-looking guidance. So from August forward through the end of the year, that is our stated temporary curtailments of 280 to 350 million board feet. So sort of ignore the prior guidance and just look at our actual production year to date through June and factor in this new guidance we've provided. I got it.

Speaker Change: August forward through the end of the year, that is our stated temporary curtailments of 280 to 350 million board feet and sort of ignore the prior guidance and just look at our actual production year to date through June and factor in this new guidance we've provided.

Rick Pozzebon: Got it. Okay, so basically that's all incremental. It's kind of your go-forward guidance from the stage. Okay, and would you have taken anything in Q3 from that April 30th announcement? Sorry, in Q2, rather.

Kasia Kopytek: Okay, so basically, that's all incremental. It's kind of your go forward guidance from the state. Okay, and would you have taken anything in Q3 from that April 30th announcement? Thornton, Q2. There's some included in our Q2 results that we report, correct? Okay, but I assume most of that was in Q3, right?

Speaker Change: Got it. Okay, so basically that's all incremental. It's kind of your go-forward guidance from the stage.

Speaker Change: Okay, and would you have taken anything in Q3 from that April 30th announcement?

Rick Pozzebon: There are some included in our Q2 results that we report, correct? Okay, but...

Speaker Change: Sorry, in Q2, rather.

Speaker Change: There's some included in our Q2 results that we report, correct?

Rick Pozzebon: Okay, but I assume most of that was in Q3, right? Correct. And Bart touched on this in his prepared remarks, but can you maybe speak to the U.S. South and how Southern Yellow Pine is more exposed to renovation and markets?

Speaker Change: Okay, but I assume most of that was in Q3, right?

Bart Bender: Correct. Um, and Bart touched on this in his superior remarks, but can you maybe speak to the US Post and how Southern Yellow Pine is more exposed to renovation and markets? Is that something that's more at the margin? Is that something that you guys do see being played out in market dynamics, just thoughts on that in general? Sure. Thanks, Kasia. It's barred here. So, the USO... On the repair and remodel side, heavy on the treating side, obviously, that fiber lends itself very well to treating applications, and so we've seen kind of a mid-single-digit decline in activity on that side. The other piece that I think is pronounced for the South is about a couple of things.

Speaker Change: Correct.

Speaker Change: Okay.

Vartich Thomas: and Vartich Thomas in his prepared remarks, but can you maybe speak to the U.S. those and how Southern Yellow Pine is more exposed to renovation and markets? Is that something that's more at the margin? Is that something that you guys do see being played out in market dynamics? Just thoughts on that in general?

Bart Bender: Is that something that's more at the margin? Is that something that you guys do see being played out in market dynamics? Just thoughts on that in general.

Bart Bender: Sure. Thanks, Kasia.

Bart Bender: It's Bart here. So, the U.S. South. On the repair and remodel side, heavy on the treating side, obviously, fiber lends itself very well to the treating applications, and so we've seen kind of a mid-single digit decline in activity on that side. The other piece that I think is pronounced for the South is a couple of things. One is... On the multi-family side, the area that's hit the hardest and has the most significant declines are the markets in the south.

Vartich Thomas: Sure. Thanks, Kesha. It's Bart here.

Bart Bender: So the U.S. South

Bart Bender: On the repair and remodel side, heavy on the treating side, obviously that fiber lends itself very well to the treating applications, and so we've seen kind of a mid-single-digit decline in activity on that side.

Bart Bender: The other piece that I think is pronounced for the South is a couple of things. One is...

Bart Bender: On the multi-family side, the area that's hit the hardest and has the most significant declines are the markets in the south. So take your Florida, your Georgia, your Texas; they've seen pretty significant declines in that area. And, of course, that would have a direct impact on the economy. On the shelf, the other thing I think we can't forget about is the fact that we're right in the middle of summer, and this is kind of that time of year when things are slow.

Speaker Change: On the multi-family side, the area that's hit the hardest and has the most significant declines are the markets in the south. So take your Florida, your Georgia, your Texas, they've seen pretty significant declines in that area and of course that would have a direct impact on the south.

Bart Bender: So take your Florida, your Georgia, your Texas. They've seen pretty significant declines in that area. And, of course, that would have a direct impact on the south. The other thing I think we can't forget about is the fact that we're right in the middle of summer, and this is kind of the time of year when things are slow. And so we've got weather to think about. Obviously, we've had some storms, we've had some wet weather, the heat's high, I think all of that impacts, I think, the consumption of lumber.

Speaker Change: The other thing I think...

Speaker Change: We can't.

Speaker Change: you know, forget about is the fact that we're right in the middle of summer, and this is kind of that time of year when things are slow. And so we've got weather to think about, I mean obviously we've had some storms, we've had some wet weather, the heat's high, I think all of that.

Bart Bender: And so we've got weather to think about. Obviously, we've had some storms, we've had some wet weather, the heat's high. I think all of that impacts, I think, the consumption of lumber. So, you know, we're kind of in the toughest part of the year; we'll look to the balance of the year to improve, and I think, as I said in my comments, I think some clear signals from the Feds, the Federal Reserve, on interest rates will set us well in that regard. Okay, thanks Bart and Rick. I appreciate that. I'll turn it over to you.

Speaker Change: impacts, I think, the consumption of lumber. So, you know, we're kind of at the toughest part of the year. We'll look to the balance of the year to improve. And I think, as I said in my comments, I think some clear signals from the Feds.

Bart Bender: So, you know, we're kind of in the toughest part of the year; we'll look to the balance of the year to improve, and I think, as I said in my comments, I think some clear signals from the Feds, the Federal Reserve, on interest rates will set us well in that regard.

Speaker Change: The Federal Reserve on interest rates I think will set us well in that regard.

Kasia Kopytek: Okay, thanks Bart and Rick. I appreciate that. I'll turn it over.

Speaker Change: Okay, thanks Bart and Rick. I appreciate that. I'll turn it over.

Matthew Mckellar: Thank you. And your next question comes from the line of Matthew McKellar from RBC Capital Markets. Please go ahead.

Matthew Mckellar: Thank you. And your next question comes from the line of Matthew McKellar from RBC Capital Markets. Please go ahead. Hi, good morning.

Speaker Change: Thank you for watching, and I'll see you in the next video.

Speaker Change: Thank you. And your next question comes from the line of Matthew McCullough from RBC Capital Markets. Please go ahead.

Matthew Mckellar: Thanks for taking my questions. First, I'd just like to ask Bart mentioned Canadian supply came out of the market with duties moving higher. How would you potentially think about the lead time or timing here? Does capacity come out pretty quickly after rates move higher? Any thoughts around that issue would be helpful. Thanks. Yeah, it's a tough question to answer, really.

Matthew Mckellar: Hi, good morning. Thanks for taking my questions. First, I'd just like to ask, as Bart mentioned, Canadian supply came out of the market with duties moving higher. How would you potentially think about the lead time or timing here? Does capacity come out pretty quickly after rates move higher? Any thoughts around that issue would be helpful.

Matthew McCullough: Hi, good morning. Thanks for taking my questions. First, I'd just like to ask, I think Bart mentioned Canadian supply came out of the market with duties moving higher. How would you potentially think about the lead time or timing here? Does capacity come out pretty quickly after rates move higher? Any thoughts around that issue would be helpful. Thanks.

Bart Bender: I mean, you know, when people make curtailment decisions, often there's whip still in process and shipments on orders that have been taken. So it is a bit of a longer-term process. It's going to be interesting to see how the duty increase kind of settles into the marketplace. I mean, our position is that we think prices are going to go up. We think they're going to go up not just for Canadian lumber but also for, you know, US production as well. I think it's a relative degree.

Speaker Change: Yeah, it's a tough question to answer. Really, I mean, you know, when people make curtailment decisions, you know, often there's

Speaker Change: Whip still in process and shipments on orders that have been taken so it is a bit of a longer term process

Speaker Change: It's going to be interesting to see how the duty increase.

Speaker Change: kind of settles into the marketplace. I mean, our position is that we think prices are going to go up.

Speaker Change: We think they're going to go up not just for Canadian lumber, but also for U.S. production as well.

Bart Bender: And the fact is that in the Canadian market, you know, the prices that we have today are not sustainable before the duty increase. And so our position is that this will drive, you know, a fair amount of uncertainty on the Canadian side, and really, you know, with the absence of any meaningful shift in Japan or demand, sorry, you know, we're going to see a supply-side response just have to take place, and it'll take time to filter into the market. There's no question about that.

Speaker Change: I think it's a relative degree and the fact is that the Canadian market, the prices that we have today are not sustainable before the duty increase.

Speaker Change: Our position is that this will drive a fair amount of uncertainty on the Canadian side.

Speaker Change: And really, you know, with absence of any meaningful shift in Japan, or demand, sorry, you know, we're going to see a supply-side response. It just has to take place. And it'll take time to filter into the market, there's no question.

Ian Fillinger: Matt, Mattie in here, I would just add to Bart's comments about the highest, as you know, the highest cost, region in Canada's BC. So, you know, this added cost if it's not, you know, recovered on a sales price, will probably, you know, impact some mills in British Columbia. I would forecast, you know, when you look across the country, that's kind of the area that's most difficult, particularly in the central and northern areas and coastal regions in BC. The other jurisdictions tend to be pretty decent, too. Great, thanks for that color!

Matt: Matt, Matt, Ian here. I would just, I would just add to Bart's comments too. I mean, you know, the highest, as you know, the highest cost.

Matt: region in Canada's BC so you know that this

Speaker Change: added cost if it's not you know recovered on a sales price will probably you know impact some mills in in British Columbia I would

Speaker Change: forecast, you know, when you look across the country, that's kind of the area that's most difficult, particularly in the central and northern area and coastal regions in BC.

Speaker Change: The other jurisdictions tend to be pretty decent.

Matthew Mckellar: Someone for a bit of additional color, too, on maybe what came out of the CapEx budget. Sounds like maybe there was a project or two that maybe didn't pencil out with current lumber price assumptions. Do those projects come back at some point, or do you expect those to remain off the table for the near future? Yeah, Matt, Ian here.

Speaker Change: Great, thanks for that color.

Speaker Change: Someone for a bit of additional color to you on maybe what came out of the CapEx budget.

Speaker Change: Sounds like maybe there was a project or two that maybe didn't pencil out with current lumber price assumptions. Do those projects come back at some point, or do you expect those to remain off the table for the near future?

Ian Fillinger: Well, as you know, you've been down in the South. We launched a pretty aggressive CAF X program. I think it was back in 2018, largely completed the biggest ones, Eatonton and Thomaston's near completion. The other ones that are, I would say, larger or paused at the moment and being reassessed, you know, just given the conditions. The CAPEX guidance that Rick talked about, also the one thing to keep in mind is as you run your mills for fewer hours, and we've done that fairly significantly in almost all regions, you should be spending less on maintenance capital. You know, you're running your chains and your mobile equipment and other parts of your mill with fewer operating hours.

Speaker Change: Yeah, Matt, Ian here. Well, as you know, you've been down in the south. We launched on a pretty aggressive CapEx program, I think it was back in 2018.

Speaker Change: largely completed, the biggest ones, Edenton and Thomaston's near completion.

Speaker Change: The other, you know, ones that are, I would say, larger are paused at the moment and being reassessed, you know, just given the conditions.

Speaker Change: You know, the CAPEX guidance that Rick talked about, also, the one thing to keep in mind is as you run your mills less hours, and we've done that fairly significantly in almost all regions.

Rick Pozzebon: You know, you should be spending less on maintenance capital. You know, you're running your chains and your mobile equipment and other parts of your mill with with less operating hours. So.

Matthew Mckellar: So, you know, part of what our operating team is doing is looking at that and making the right adjustments when it comes to the maintenance side of the business also. So, largely, our strategic projects, the big dial movers, are done or near done. And then on the maintenance guidance on the CapEx, it really is a reflection of some pullback but also an adjustment given the different operating rates across our mills, which naturally would bring down the spend. Okay. Thank you. That makes sense. And if I could just sneak in one more,

Rick Pozzebon: You know, part of.

Rick Pozzebon: You know what our operating team is doing is looking at at that and making the right adjustments when it comes to

Rick Pozzebon: the maintenance side of the business also.

Rick Pozzebon: So, um, largely.

Rick Pozzebon: Our strategic projects, the big dial movers are.

Rick Pozzebon: done or near done. And then on the maintenance guidance on the CAPEX, it really is a reflection of some pullback, but also an adjustment given different operating rates across our mills, which naturally would bring down the spend.

Speaker Change: Okay, thank you. That makes sense. And if I could just sneak in one more, do you expect any kind of notable impact of log costs in Q3 in the U.S. Southeast in particular following Tropical Storm Debbie?

Ian Fillinger: Do you expect any kind of notable impact on log costs in Q3 in the U.S. Southeast, in particular following Tropical Storm Debbie? No, I think it's, you know, a little bit too soon. But no, not, you know, we're not hearing of anything or seeing any kind of price movement on up or down after that. I mean, you know, we have some mills that were, you know, in the path. They've done and fared very well. You know, there's been a bit of downtime because of it, but don't anticipate much log cost movement there. Okay, thanks very much for the help.

Speaker Change: No, I think it's, you know, a little bit too soon.

Speaker Change: But no, we're not hearing of anything or seeing any kind of price movement up or down after that.

Speaker Change: I mean, you know, we have some mills that were, you know, in the path. They've done and fared very well. You know, there's been a bit of downtime because of it, but don't anticipate much log cost movement there.

Speaker Change: Okay, thanks very much for the help. I'll turn it back.

Matthew Mckellar: I'll turn it back. Thank you, and your next question comes from the line of Ben Isaacson from Scotiabank. Please go ahead. Thank you very much and good morning everyone.

Speaker Change: Thank you. And your next question comes from the line of Ben Isaacson from Scotiabank. Please go ahead.

Ben Isaacson: Just two questions on the demand side. You talk a lot about waiting for rates to come down, and it seems like that's the holy grail that we're all waiting for, but can you provide some context in terms of the magnitude and what we should expect? For example, is 5.5% a 30-year mortgage rate?

Bart Bender: Thanks.

Bart Bender: Yeah, it's a tough question to answer, really. I mean, you know, when people make curtailment decisions, there's often whip still in process and shipments on orders that have been taken. So it is a bit of a longer-term process. It's going to be interesting to see how the duty increase kind of settles into the marketplace. I mean, our position is that we think prices are going to go up. We think they're going to go up not just for Canadian lumber but also for, you know, US production as well. I think it's a relative degree.

Bart Bender: And the fact is, the Canadian market, you know, the prices that we have today are not sustainable before the duty increase. And so our position is that this will cause, you know, a fair amount of uncertainty on the Canadian side. And really, with the absence of any meaningful shift in demand, we're going to see a supply-side response. It just has to take place. And it'll take time for them to filter into the market, there's no question.

Ben Isaacson: Thank you very much and good morning everyone. Just two questions on the demand side.

Speaker Change: We talk a lot about waiting for rates to come down, and it seems like that's the holy grail that we're all waiting for.

Ben Isaacson: Can you provide some context in terms of the magnitude and what we should expect? I mean, is 5.5% a 30-year mortgage rate? Is that what's going to cut it? I mean, do we have to go much lower? What exactly are we waiting for when it comes to rate cuts?

Ben Isaacson: Is that what's going to cut it? Do we have to go much lower? What exactly are we waiting for when it comes to rates? I'll take a little shot at it, Ben and Ian, and then see if Rick, you know, has a view to add to it.

Speaker Change: I'll take a little shot at it, Ben and Ian, and then see if Rick, you know, has a view to add on to it. But, you know, we've been discussing that, you know, this week also, you know, what is the magic number, you know, is it used to be, you know, eight percent a number of years ago, then it was six.

Ian Fillinger: But, you know, we've been discussing that this week also, you know, what is the magic number? You know, was it 8% a number of years ago, then it was 6. I don't think there's a path that we can look back on and kind of, you know, follow.

Speaker Change: this the psyche we just we don't know I don't think there's a path that you know we can look back on and

Ben Isaacson: So I think we're in sort of uncharted territory when it comes to trying to predict that. You know, it's a discussion we have internally, and I wish we could share, you know, better insights. But unfortunately... Unfortunately, we can't point to a path of where that, you know, trigger might happen.

Speaker Change: kind of, you know, follow. So I think we're in sort of uncharted territories when it comes to

Speaker Change: trying to predict that. You know, it's a discussion we have internally, and I wish we could share, you know, better insights, but unfortunately...

Speaker Change: We can't point to a path of where that trigger might happen.

Ian Fillinger: Can I frame it a different way then, or maybe if I can just ask a different way, isn't no rate cuts also good if there's a perception that there's not going to be any improvements and people have to make a decision to buy their home? I mean, isn't this holdout only because of the expectation of rate cuts? Yeah, I mean that's a very interesting comment.

Speaker Change: Can I frame it a different way then, or just maybe if I can just ask a different way, isn't no rate cuts also good if there's a perception that there's not going to be any improvements and people have to make a decision to buy their home? I mean, isn't this holdout only because of the expectation of rate cuts?

Speaker Change: Thank you.

Speaker Change: Yeah, I mean, I think that's a very interesting comment. I don't have an insight on that.

Ben Isaacson: I don't have an insight into that, but you know, anything that's not going up is good, and stability is good. That's what we always... kind of fall back on. I don't have the expertise to really comment on that, and I'm not sure if you've got anything to add. I just think, Hey Bennett, it's Rick here.

Speaker Change: you know anything that's not going up is good and stability is as good as what we always

Speaker Change: kind of fall back on, so...

Speaker Change: I don't have the expertise to really comment on that and I'm not sure if you've got anything to add.

Rick Pozzebon: I think it's encouraging where rates are trending; how far they need to go to stimulate more demand is anyone's guess, but certainly, as we get lower, that's better. In terms of the consumer psyche, I think you're right; if rates are more stable, that should drive more confidence in the consumer psyche, so I think it's a fair assumption. Okay, thank you for that.

Speaker Change: I just think, hey Ben, it's Rick here. I think it's encouraging where rates are trending. How far they need to go to stimulate more demand is anyone's guess, but certainly as we get lower that's better.

Ben Isaacson: In terms of the consumer psyche, I think you're right, if rates are more stable, that should drive more confidence in the consumer psyche, so I think it's a fair assumption.

Ben Isaacson: And my second question is on, I think Bart mentioned that industry inventory is kind of on the lower end of historical ranges. Does that mean that de-stocking is complete, and now your customers are really hand-to-mouth? And given the capacity cuts that seem to be accelerating, is it not just a matter of time, even before rate cuts, that we start to see some restocking as your customers believe that prices won't get much better than where they are right now? Yeah, absolutely. You know, it's it's an interesting situation.

Speaker Change: Okay, thank you for that and my second question is on, I think Bart mentioned that industry inventory is kind of on the lower end of historical ranges.

Speaker Change: Does that mean that destocking is complete and now your customers are really hand-to-mouth?

Speaker Change: Given the capacity cuts that seem to be accelerating, is it not just a matter of time, even before rate cuts, that we start to see some restocking as your customers believe that prices won't get much better than where they are right now?

Speaker Change: Yeah, absolutely. You know, it's an interesting situation.

Bart Bender: It's almost, you know, we think as we sit here and look at some point when this is going to come to roost. I think, you know, in the marketplace, we're finding our customers really focused on day sales in inventory. And so they're aligning their inventories directly with the demand that they're seeing from the marketplace. And they're doing it at a time when there's ample supply and where logistics is completely available. The capacity is there. We're having very little difficulty coming up with any logistics capacity.

Speaker Change: You know, we think, as we sit here and look, at some point this is going to come to roost, I think, you know, in the marketplace. We're finding our customers really focused on day sales in inventory, and so they're aligning

Speaker Change: completely available. The capacity is there. We're having very little difficulty coming up with any logistics capacity. So the environment to drive inventories is ideal.

Bart Bender: So the environment to drive inventories is ideal. And so there's a number of uncertainties that are going to come up as the industry pulls back or puts in curtailments as we deal with some more potential disruptions in logistics, things like weather, those types of things will come into play, and when that happens, the lead times to reorder are going to increase, and they're going to increase quickly just because there's just not the buffer that I think that the industry would have had historically. So yeah, no, I do believe the table is being set, and we just need to see a shift that'll push this thing in a positive direction. So we think it's coming.

Speaker Change: And so there's a number of uncertainties that are going to come up as the industry pulls off.

Speaker Change: or puts in curtailments as we deal with some more potential disruptions in, you know, logistics, things of weather, you know, those types of things will come into play.

Speaker Change: And, you know, when that happens, the lead times to reorder are gonna be, are gonna increase, and they're gonna increase quick, just because they're just not the buffer that I think that the industry would have had historically.

Speaker Change: So, yeah, no, I do. I do believe the table is being set and we just need to see a shift.

Speaker Change: that'll push this thing in a positive direction. So we think it's coming.

Ian Fillinger: Ian here, Ben, just to add a bit to part two, I mean, just, and he said this, I mean, there's been significant destocking through the channel over the last 12 to 18 months, which is actually weighing on lumber prices. You know, we've seen a sizable decrease in our own inventories and also data from the other public lumber peers. So, it appears everybody has drawn down. So, the setup, you know, we feel is, you know, positive and probably one of the best setups that we could have at this particular point in time when demand does start to pick up. Thanks so much; I appreciate it.

Ian Fillinger: Matt, Matt, Ian here. I would just add to Bart's comments too.

Speaker Change: Ian here, Ben, just to add a bit to part two, I mean, just, and he said this, I mean, there's been significant de-stocking.

Ian: through the channel over the last 12 to 18 months, which has actually weighed on lumber prices.

Speaker Change: You know, we've seen a sizable decrease in our own inventories and also data from the other public lumber peers, so it appears everybody has drawn down, so the setup

Speaker Change: you know, we feel is, you know, positive and probably one of the best setups, you know, that we could have at this particular point in time when demand does start to pick up.

Speaker Change: Thanks so much, appreciate it.

Roshni Attaidi: Thank you. Once again, should you have a question, please press star followed by the 1 on your telephone keypad. And your next question comes from the line of Roshni Attaidi from BMO Capital Markets. Please go ahead. Hi, good morning.

Speaker Change: Thank you. Once again, should you have a question, please press star 5 or the 1 on your telephone keypad.

Speaker Change: And your next question comes from the line of Roshni Attaidi from BMO Capital Markets. Please go ahead.

Ian Fillinger: I mean, you know, the highest, as you know, the highest cost, region in Canada is BC. So, you know, this added cost if it's not recovered on a sales price will probably impact some mills in British Columbia, forecast. You know, when you look across the country, that's kind of the area that's most difficult, particularly in the central and northern areas and coastal regions in BC. The other jurisdictions tend to be pretty decent, too.

Roshni Attaidi: Thanks for taking my question. Maybe I just want to start off with, you know, you mentioned the curtailments from August to December. Is there any way you can give us some more color as to the percent distribution of those curtailments between Canada and the U.S. South? Yeah, well, it's across both. I don't have the percentage right in front of me right now, but it's South and Canada and also the Pacific Northwest when we talk about, You know, we often skip over our Washington and Oregon stud mills in that area. So it is spread across the company. You know, I've got the numbers here. Roshni, it's Rick.

Roshni Attaidi: Hi, good morning. Thanks for taking my question. Maybe I just want to start off with, you know, you mentioned the curtailments from August to December. Is there any way you can give us some more color as to the percent distribution of those curtailments between Canada and the U.S. South?

Roshni Attaidi: Yeah, well, it's across both. I don't have the percentage right in front of me.

Roshni Attaidi: right now, but it's, you know, south and Canada, and also the Pacific Northwest when we talk about, you know, we often, you know, skip over our Washington and Oregon stud mills in that area, so it is spread across the company.

Rick Pozzebon: It's roughly two-thirds in the U.S. and one-third in Canada, and W- We will adjust that if we... Price Conditions Changing Between the Various Species in Regions. Okay, thanks, appreciate it. And then, you know, just talking of financial leverage, beyond the income tax refunds, the VC monetization, and I think, you know, you mentioned the reduction of capex, are there any other things Hey, obviously, we'll continue to monitor our capital spend and really just focus on the operating decisions that are in front of us here.

Roshni Attaidi: You know, I've got the numbers here, Roshni, it's Rick. It's roughly two-thirds in the U.S. and one-third in Canada. And we will adjust that if we need.

Roshni Attaidi: Price conditions changing between the various species and regions.

Matthew Mckellar: Great, thanks for that, Keller. Someone for a bit of additional color, too, on maybe what came out of the CapEx budget. Sounds like maybe there was a project or two that maybe didn't pencil out with current lumber price assumptions. Do those projects come back at some point, or do you expect those to remain off the table for the near future?

Speaker Change: Talking of financial leverage, beyond the income tax refunds, the VC monetization, and I think you mentioned the reduction of capex, is there any other things you're considering in order to reduce it?

Ian Fillinger: Yeah, I'm at Ian here. As you know, you've been down in the south. We launched a pretty aggressive CAPEX program, I think it was back in 2018, largely completed, the biggest ones, Eatonton and Thomaston's near completion. The other, you know, ones that are, I would say, larger are paused at the moment and being reassessed, you know, just given the conditions. The CAPEX guidance that Rick talked about, also the one thing to keep in mind is as you run your mills fewer hours, and we've done that fairly significantly in almost all regions.

Ian Fillinger: You know, you should be spending less on maintenance capital, you're running your chains and your mobile equipment and other parts of your mill with fewer operating hours. So, you know, part of... What our operating team is doing is looking at that and making the right adjustments when it comes to the maintenance side of the business. Also, so largely, our strategic projects, the big dial movers, are done or near done. And then on the maintenance guidance on the CapEx, it really is a reflection of some pullback but also an adjustment given different operating rates across our mills, which naturally would bring down the spend.

Matthew Mckellar: Okay, thank you. That makes sense. And if I could just sneak in one more.

Matthew Mckellar: Do you expect any kind of notable impact on log costs in Q3 in the U.S. Southeast, in particular following Tropical Storm Debbie?

Ian Fillinger: No, I think it's a little bit too soon. But no, we're not hearing of anything or seeing any kind of price movement up or down after that. I mean, we have some mills that were in the path. They did and fared very well. There's been a bit of downtime because of it, but don't anticipate much log cost movement there.

Speaker Change: Obviously, we'll continue to monitor our capital spend and really just focus on the operating decisions that are in front of us here. We're obviously taking...

Rick Pozzebon: We're obviously taking some downtime to manage cash flow, and we'll continue to make operational decisions that maximize cash flow. Obviously, some of the recent lumber price improvements that we've seen will help going forward here. Okay, thanks. And just one last one for me, maybe Bart can answer this, but, you know, are you able to touch on demand trends through Q2, what you saw and what you've seen since Q2 into July and, you know, the early days of August?

Matthew Mckellar: Okay, thanks very much for the help. I'll turn it back.

Speaker Change: Some downtime to manage cash flow and we'll continue to make operational decisions that maximize cash flow.

Ben Isaacson: Thank you, and your next question comes from the line of Ben Isaacson from Scotiabank. Please go ahead.

Speaker Change: Obviously, some of the recent lumber price improvements that we've seen will help going forward here.

Ben Isaacson: Thank you very much and good morning, everyone. I have just two questions on the demand side. We talk a lot about waiting for rates to come down, and it seems like that's the holy grail that we're all waiting for, but can you provide some context in terms of the magnitude and what we should expect? For example, is 5.5% a 30-year mortgage rate? Is that what's going to cut it? Do we have to go much lower? What exactly are we waiting for when it comes to rates?

Bart Bender: I'll take a little shot at it, Ben and Ian, and then see if Rick, you know, has a view to add to it. But, you know, we've been discussing that this week also: what is the magic number? You know, was it 8% a number of years ago, then it was 6.

Bart Bender: I don't think there's a path that we can look back on and kind of, you know, follow. So I think we're in sort of uncharted territory when it comes to trying to predict that. You know, it's a discussion we have internally, and I wish we could share, you know, better insights. But unfortunately... Unfortunately, we can't point to a path where that, you know, trigger might happen. I don't know, Rick.

Rick Pozzebon: Can I frame it a different way then, or maybe if I can just ask it a different way, isn't no rate cuts also good if there's a perception that there's not going to be any improvements and people have to make a decision to buy their home? I mean, isn't this holdout only because of the expectation of rate cuts?

Bart Bender: Uh, yeah, I mean, that's a very interesting comment. I don't have an insight into that, but you know, anything that's not going up is good, and stability is as good as what we always kind of fall back on. I don't have the expertise to really comment on that, and I'm not sure if you've got anything to add.

Speaker Change: Are you able to touch on demand trends through Q2, what you saw and what you've seen since Q2 into July and the early days of August?

Rick Pozzebon: I just think, hey Ben, it's Rick here. I think it's encouraging where rates are trending. How far they need to go to stimulate more demand is anyone's guess, but certainly, as we get lower, that's better. In terms of the consumer psyche, I think you're right, if rates are more stable, that should drive more confidence.

Rick Pozzebon: Okay, well, I think I mentioned on the repair and remodel side, you know, we kind of look at that in two buckets. One is, the treating side, and I suppose the other side is just the non-treating side, and I would say the non-treating side for us is off in that sort of four to six percent range, depending on you know the customer and the comp, and on the treating side, I would say it's more five to seven. It's been hit a little bit harder, however, I will say that things have been relatively stable. It's not And of course, the story on the new home construction side, you know, 33% of the consumption of lumber. You know, the bright story has been about the single family.

Speaker Change: Okay, well, I think I mentioned on the repair and remodel side, you know, we kind of look at that in two buckets. One is

Ben Isaacson: Okay, thank you for that, and my second question is on I think Bart mentioned that industry inventory is kind of on the lower end of historical ranges. Does that mean that de-stocking is complete, and now your customers are really hand-to-mouth? And given the capacity cuts that seem to be accelerating, is it not just a matter of time, even before rate cuts, that we start to see some restocking as your customers believe that prices won't get much better than where they are right now?

Bart Bender: Yeah, absolutely. You know, it's it's an interesting situation.

Speaker Change: The treating side and I suppose the other side is just the non-treating side. And I would say the non-treating side for us is off in that sort of 4-6% range depending on the customer and the comp.

Speaker Change: And on the treating side, I would say it's more 5 to 7. It's been hit a little bit harder. However, I will say that things have been relatively stable. It's not like there's been a sudden move in one form or another. I would say that's been the trend.

Bart Bender: It's almost, you know, we think, as we sit here and look at some point when this is going to come to roost. I think, you know, in the marketplace, we're finding our customers really focused on day sales in inventory. And so they're aligning their inventories directly with the demand that they're seeing from the marketplace. And they're doing it at a time when there's ample supply and where logistics is completely available. The capacity is there. We're having very little difficulty coming up with any logistics capacity, so the environment to drive inventories is ideal.

Bart Bender: And so there's a number of uncertainties that are going to come up as the industry pulls back or puts in curtailments as we deal with some more potential disruptions in, you know, logistics, things of weather, you know; those types of things will come into play. And, you know, when that happens, the lead times to reorder are going to be, are going to increase, and they're going to increase quickly just because there's just not the buffer that I think that the industry would have had historically. So yeah, no, I do believe the table is being set, and we just need to see a shift that'll push this thing in a positive direction. So we think it's coming.

Speaker Change: for most of the year.

Speaker Change: And, of course, the story on the new home construction side, you know, 30...

Bart Bender: They're obviously getting a greater percentage of the new home sales these days, and so that's being reflected, I think, in the housing starts that you're seeing on that side. It's the multifamily that seems to be taking the greater declines and what we see from my feeling is on the multifamily side it's more sensitive to the interest rate side of things both from the developer standpoint and also from the type of home buyer on that side as well and so a lot of times we can see these projects deferred and so our feeling is that a lot of this decline is still projects that are out there, it's just more or less a timing issue on when they're going to actually start to build them so I think that's pent up demand that will come our way in the future but right now it's a significant one.

Speaker Change: It's the multifamily that seems to be taking the greater declines, and what we see from – my feeling is on the multifamily side, it's more sensitive to the interest rate side of things, both from the developer standpoint and also from the type of homebuyer.

Speaker Change: On that side as well. And so a lot of times we can see these projects deferred And and so our feeling is that a lot of this

Speaker Change: A lot of this decline is still projects that are out there. It's just more or less a timing issue on when they're going to actually start to build them. So, you know, I think that's pent up demand that will come our way in the future, but right now it's a significant one. And then when you go into non-res and industrial side, I think fairly steady. I mean, industrial is more a reflection of the general economy, you know, packaging and pallets and those types of things.

Bart Bender: And then when you go into the non-res and industrial side, I think fairly steady. I mean, industrial is more a reflection of the general economy, you know, packaging and pallets and those types of things, and I mean that business has been slightly off, but I can say it's improving lately, and so I would term both of those end-use sectors as fairly stable. Yeah, and just to add, you know, on the demand side, the R&R takeaway is, you know, there's obviously been headwinds in the last quarter.

Speaker Change: I mean, that business has been slightly off, but I can say it's improving lately, and so I would term both of those end-use sectors as fairly stable.

Speaker Change: Yeah, and just to add...

Speaker Change: You know, on the demand side, the R&R takeaway is, you know, there's obviously been headwinds in the last quarter.

Bart Bender: Us and others have pointed to that and carried it into the, you know, from Q1 into Q2. But in the medium term, more optimistic is that homeowners are locked into low mortgage rates, and overall housing stock continues to age and other components.

Speaker Change: Us and others have pointed to that.

Speaker Change: and carried into the, you know, from Q1 into Q2. But in the medium term, you know, more optimistic is, you know, homeowners are locked into the low mortgage rates and.

Speaker Change: overall housing stock continues to age and you know other components so I would say the R&R factor in the last quarter and the previous quarter you know hasn't been great but the setup in the medium term obviously looks much better.

Bart Bender: So I would say the R&R factor in the last quarter and the previous quarter hasn't been great, but the setup in the medium term obviously looks much better. Great, thank you both. I appreciate the code. I'll turn it over.

Ian Fillinger: Thanks. Thank you. That concludes our question and answer session. I will now hand the call back to Mr. Ian Fillinger for any closing remarks. Just thank everybody for your interest in our company and feel free to reach out to Rick Bard and myself anytime, and this concludes our call. Thank you. Bye bye. That concludes our conference today. Thank you for participating. You may all disconnect.

Speaker Change: Great, thank you both. I appreciate the

Ian Fillinger: Thanks so much. I appreciate it. Ian here.

Ian Fillinger: Ben, just to add a bit to part two, I mean, just, and he said this, I mean, there's been significant destocking through the channel over the last 12 to 18 months, which has actually weighed on lumber prices. You know, we've seen a sizable decrease in our own inventories and also data from the other public lumber peers. So it appears everybody has drawn down. So the setup, you know, we feel is, you know, positive and probably one of the best setups that we could have at this particular point in time when demand does start to pick up.

Speaker Change: Thank you. That concludes our question and answer session. I will now hand the call back to Mr. Ian Fillinger for any closing remarks.

Operator: Thank you. Once again, should you have a question, please press star followed by the 1 on your telephone keypad. And your next question comes from the line of Roshni Attaidi from BMO Capital Markets. Please go ahead. Hi, good morning.

Bart Bender: Yeah, well, it's across both. I don't have the percentage right in front of me right now, but it's South and Canada and also the Pacific Northwest when we talk about We often, you know, skip over our Washington and Oregon stud mills in that area. So it is spread across the company.

Bart Bender: You know, I've got the numbers here. Roshni, it's Rick.

Ian Fillinger: Just thanks, everybody, for your interest in our company. And feel free to reach out to Rick, Bart, or myself anytime. This concludes our call. Thank you. Bye-bye.

Rick Pozzebon: It's roughly two-thirds in the U.S. and one-third in Canada. We will adjust that if we need to due to price conditions changing between the various species and regions.

Rick Pozzebon: Great, thanks, appreciate it. And then, you know, just talking of financial leverage, beyond the income tax refunds, the BC monetization, and I think, you know, you mentioned the reduction of capex. Are there any other things you're considering in order to reduce it?

Rick Pozzebon: Obviously, we'll continue to monitor our capital spend and really just focus on the operating decisions that are in front of us here. We're obviously taking some downtime to manage cash flow, and we'll continue to make operational decisions that maximize cash flow. Obviously, some of the recent lumber price improvements that we've seen will help going forward.

Roshni Attaidi: Okay, thanks. And just one last one for me, maybe Bart can answer this, but, you know, are you able to touch on demand trends through Q2, what you saw and what you've seen since Q2 into July and, you know, the early days of August?

Ian Fillinger: Just thanks everybody for your interest in our company and feel free to reach out to Rick, Bart, or myself anytime. And this concludes our call. Thank you. Bye-bye.

Bart Bender: Okay, well, I think I mentioned on the repair and remodel side, you know, we kind of look at that in two buckets. One is the treating side and, I suppose, the other side is just the non-treating side, and I would say the non-treating side for us is off in that sort of four to six percent range, depending on you know the customer and the comp, and on the treating side, I would say it's more five to seven. It's been hit a little bit harder, however, I will say that things have been relatively stable; it's not And of course, the story on the new home construction side, you know, 33% of the consumption of lumber. You know, the bright story has been about the single family.

Bart Bender: They're obviously getting a greater percentage of new home sales these days, and so that's being reflected, I think, in the housing starts that you're seeing on that side. It's the multifamily that seems to be taking the greater declines, and what we see from – my feeling is, on the multifamily side, it's more sensitive to the interest rate side of things, both from the developer standpoint and also from the type of home buyer on that side as well.

Bart Bender: And so a lot of times, we can see these projects deferred, and so our feeling is that a lot of this decline is still projects that are out there; it's just more or less a timing issue on when they're going to actually start to build them. So I think that's pent up demand that will come our way in the future, but right now, it's a significant one. And then when you go into the non-res and industrial side, I think fairly steady. I mean, industrial is more a reflection of the general economy, you know, packaging and pallets and those types of things. And I mean that business has been slightly off, but I can say it's improving lately, and so I would term both of those end-use sectors as fairly stable.

Ian Fillinger: Yeah, and just to add, you know, on the demand side, the R&R takeaway is, you know, there's obviously been headwinds in the last quarter. We and others have pointed to that and carried into, you know, from Q1 into Q2. But in the medium term, you know, more optimistic is that homeowners are locked into low mortgage rates, and overall housing stock continues to age and other components. So I would say the R&R factor in the last quarter and the previous quarter hasn't been great, but the setup in the medium term obviously looks much better.

Bart Bender: Great, thank you both. I appreciate the color. I'll turn it over.

Ian Fillinger: Thank you. That concludes our question and answer session. I will now hand the call back to Mr. Ian Fillinger for any closing remarks.

Operator: That concludes our conference call today. Thank you for participating, and you may all disconnect.

Speaker Change: That concludes our conference today. Thank you for participating. You may all disconnect.

Kasia Kopytek: That's over August and December, and I'm just curious. Does that include any overlap from the curtailment that you announced back on April 30th, which was from May to September? So I guess the overlap over the August and September period is what I'm asking. Hey, good morning, Kasia.

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