Q1 2026 Western Forest Products Inc Earnings Call

May 7, 2026

Operator 3: Good day, ladies and gentlemen. Welcome to the Western Forest Products Q1 2026 Results Conference Call. As a reminder, all participants are in listen-only mode, and the conference is being recorded. Following the prepared remarks, there will be an opportunity for analysts to ask questions. During this conference call, Western's representatives may make forward-looking statements within the meaning of applicable securities laws. These statements can be identified by words like anticipate, plan, estimate, will, and other references to future periods. Although these forward-looking statements reflect management's reasonable beliefs, expectations, and assumptions, they are subject to inherent uncertainties, and actual results may differ materially.

Operator: Good day, ladies and gentlemen. Welcome to the Western Forest Products Q1 2026 Results Conference Call. As a reminder, all participants are in listen-only mode, and the conference is being recorded. Following the prepared remarks, there will be an opportunity for analysts to ask questions. During this conference call, Western's representatives may make forward-looking statements within the meaning of applicable securities laws. These statements can be identified by words like anticipate, plan, estimate, will, and other references to future periods. Although these forward-looking statements reflect management's reasonable beliefs, expectations, and assumptions, they are subject to inherent uncertainties, and actual results may differ materially.

Speaker #4: Good day, ladies and gentlemen. Welcome to the Western Forest Products First Quarter 2026 results conference call. As a reminder, all participants are in listen-only mode, and the conference is being recorded.

Speaker #4: Following the prepared remarks, there will be an opportunity for analysts to ask questions. To join the question queue, press star then 1 on your telephone keypad.

Speaker #4: Should anyone need assistance during the conference call, they may reach an operator by pressing star, then 0. During this conference call, Western's representatives may make forward-looking statements within the meaning of applicable securities laws.

Speaker #4: These statements can be identified by words like anticipate, plan, estimate, will, and other references to future periods. Although these forward-looking statements reflect management's reasonable beliefs, expectations, and assumptions, they are subject to inherent uncertainties, and actual results may differ materially.

Speaker #4: There are many factors that could cause actual outcomes to be different, including those factors described under risks and uncertainties in the company's annual MD&A.

Operator 3: There are many factors that could cause actual outcomes to be different, including those factors described under risks and uncertainties in the company's annual MD&A, which can be accessed on SEDAR and is supplemented by the company's quarterly MD&A. Forward-looking statements are based only on information currently available to Western and speak only as of the date on which they are made. Except as required by law, Western undertakes no obligation to update forward-looking statements. Accordingly, listeners should exercise caution in relying upon forward-looking statements. I would now like to turn the meeting over to Mr. Steven Hofer, President and CEO of Western Forest Products. Mr. Hofer, please go ahead.

Operator: There are many factors that could cause actual outcomes to be different, including those factors described under risks and uncertainties in the company's annual MD&A, which can be accessed on SEDAR and is supplemented by the company's quarterly MD&A. Forward-looking statements are based only on information currently available to Western and speak only as of the date on which they are made. Except as required by law, Western undertakes no obligation to update forward-looking statements. Accordingly, listeners should exercise caution in relying upon forward-looking statements. I would now like to turn the meeting over to Mr. Steven Hofer, President and CEO of Western Forest Products. Mr. Hofer, please go ahead.

Speaker #4: Which can be accessed on CDAR and is supplemented by the company's quarterly MD&A. Forward-looking statements are based only on information currently available to Western and speak only as of the date on which they are made.

Speaker #4: Except as required by law, Western undertakes no obligation to update forward-looking statements. Accordingly, listeners should exercise caution in relying upon forward-looking statements. I would now like to turn the meeting over to Mr. Stephen Hofer, President and CEO of Western Forest Products.

Speaker #4: Mr. Hofer, please go ahead.

Speaker #5: Thank you, Gaylene, and good afternoon, everyone. I'd like to welcome you to Western Forest Products' Q1 2026 first quarter conference call. Joining me on the call today are Glen Nontell, our Chief Financial Officer, and Bruce Alexander, our Senior Vice President of Sales, Marketing, and Manufacturing.

Steven Hofer: Thank you, Gayleen, and good afternoon, everyone. I'd like to welcome you to Western Forest Products' 2026 Q1 Conference Call. Joining me on the call today is Glen Nantel, our Chief Financial Officer, and Bruce Alexander, our Senior Vice President, Sales, Marketing and Manufacturing. We issued our 2026 Q1 results yesterday. I will provide you with some introductory comments and then ask Glen to take you through our financial results, and then I'll follow Glen's review with our outlook section before we open the call to your questions. We saw improvements in lumber pricing in Q1, despite some softness in demand for certain product lines. We continue to execute our strategic priorities and have taken steps to solidify our balance sheet to manage through near-term uncertainty.

Steven Hofer: Thank you, Gayleen, and good afternoon, everyone. I'd like to welcome you to Western Forest Products' 2026 Q1 Conference Call. Joining me on the call today is Glen Nontell, our Chief Financial Officer, and Bruce Alexander, our Senior Vice President, Sales, Marketing and Manufacturing. We issued our 2026 Q1 results yesterday. I will provide you with some introductory comments and then ask Glen to take you through our financial results, and then I'll follow Glen's review with our outlook section before we open the call to your questions. We saw improvements in lumber pricing in Q1, despite some softness in demand for certain product lines. We continue to execute our strategic priorities and have taken steps to solidify our balance sheet to manage through near-term uncertainty.

Speaker #5: We issued our 2026 first quarter results yesterday. I will provide you with some introductory comments, and then ask Glen to take you through our financial results.

Speaker #5: And then I'll follow Glen's review with our outlook section before we open the call to your questions. We saw improvements in lumber pricing in the first quarter, despite some softness in demand for certain product lines.

Speaker #5: We continue to execute our strategic priorities and have taken steps to solidify our balance sheet to manage through near-term uncertainty. Since the beginning of the year, this has included: announcing the sale of our Stillwater Forest operation, including TFL 39 Block 1, for $80 million to the Talaman First Nation; Western will enter into a long-term fiber supply agreement with the purchaser to ensure log supply supports our BC manufacturing facilities. This landmark transaction is anticipated to close in the second half of 2026.

Steven Hofer: Since the beginning of the year, this has included announcing the sale of our Stillwater Forest Operation, including TFL 39, Block 1 for CAD 80 million to the Tla'amin Nation. Western will enter into a long-term fiber supply agreement with the purchaser to ensure log supply supports our BC manufacturing facilities. This landmark transaction is anticipated to close in H2 2026. At our Columbia Vista sawmill site, we finalized our property insurance claim for $28.8 million. In addition, we continue to work towards the finalization of the sale of the sawmill site property and have also submitted our business interruption insurance claim to our adjuster. We commissioned the first of our 2 continuous dry kilns at our Value-Added Division, achieving start-up uptime above our target.

Steven Hofer: Since the beginning of the year, this has included announcing the sale of our Stillwater Forest Operation, including TFL 39, Block 1, for CAD 80 million to the Tla'amin First Nation. Western will enter into a long-term fiber supply agreement with the purchaser to ensure log supply supports our BC manufacturing facilities. This landmark transaction is anticipated to close in H2 2026. At our Columbia Vista sawmill site, we finalized our property insurance claim for $28.8 million. In addition, we continue to work towards the finalization of the sale of the sawmill site property and have also submitted our business interruption insurance claim to our adjuster. We commissioned the first of our two continuous dry kilns at our Value-Added Division, achieving start-up uptime above our target.

Speaker #5: At our Columbia Vista sawmill site, we finalized our property insurance claim for $28.8 million. In addition, we continue to work towards the finalization of the sale of the sawmill site property and have also submitted our business interruption insurance claim to our adjuster.

Speaker #5: We commissioned the first of our two continuous dry kilns at our value-added division, achieving startup uptime above our target. Site construction continues on the second continuous kiln, which is expected to be commissioned in mid-2026, on schedule and on budget, as well as a new thermal kiln, which is expected to be commissioned in the third quarter of this year.

Steven Hofer: Site construction continues on the second continuous kiln, which is expected to be commissioned in mid-2026 on schedule and on budget, as well as a new thermal kiln, which is expected to be commissioned in Q3 of this year. These investments will allow for more kiln-dried lumber production, generating higher margins than green lumber and enabling the expansion of our global customer base. From a labor perspective, we completed a 6-year collective agreement that covers USW employees at the La-kwa sa muqw Forestry Limited Partnership, ending a strike that began in Q2 of 2025. In our Timberlands group, we continue to focus on managing costs and log margin opportunities, as well as the safe restart of operations at the La-kwa sa muqw Forestry Limited Partnership.

Steven Hofer: Site construction continues on the second continuous kiln, which is expected to be commissioned in mid-2026 on schedule and on budget, as well as a new thermal kiln, which is expected to be commissioned in Q3 of this year. These investments will allow for more kiln-dried lumber production, generating higher margins than green lumber and enabling the expansion of our global customer base. From a labor perspective, we completed a six-year collective agreement that covers USW employees at the La-kwa sa muqw Forestry Limited Partnership, ending a strike that began in Q2 of 2025. In our Timberlands group, we continue to focus on managing costs and log margin opportunities, as well as the safe restart of operations at the La-kwa sa muqw Forestry Limited Partnership.

Speaker #5: These investments will allow for more kiln-dried lumber production, generating higher margins than green lumber and enabling the expansion of our global customer base. From a labor perspective, we completed a six-year collective agreement that covers USW employees at the Laquassamuk Forestry Limited Partnership, ending a strike that began in the second quarter of 2025.

Speaker #5: In our timberlands group, we continue to focus on managing costs and log margin opportunities, as well as the safe restart of operations at the Laquassamuk Forestry Limited Partnership.

Speaker #5: In our manufacturing group, we improved our operational uptime to 87% in the first quarter of 2026, compared to 82% in the first quarter of last year.

Steven Hofer: In our manufacturing group, we improved our operational uptime to 87% in Q1 2026, compared to 82% in Q1 last year, with improvements noted at every one of our sawmills. In our sales and marketing group, we continue to focus on market diversification efforts to grow our global customer base. We have seen some modest improvements in lumber demand as we start the second quarter, but anticipate continued near-term volatility given combined duties and tariffs of 45%. I will now turn it over to Glen to review our key financial results.

Speaker #5: With improvements noted at every one of our sawmills, in our sales and marketing group, we continue to focus on market diversification efforts to grow our global customer base.

Speaker #5: We have seen some modest improvements in lumber demand as we start the second quarter, but anticipate continued near-term volatility given combined duties and tariffs of 45%.

Speaker #5: I will now turn it over to Glen to review our key financial results.

Speaker #6: Thanks, Stephen. First quarter adjusted EBITDA was negative $13.6 million, as compared to $3.5 million in the same period last year. First quarter adjusted EBITDA included a one-time $2.8 million expense related to changes in inventory accounting estimates and $1.9 million of share-based compensation expense due to a 34% increase in share price in the first quarter.

Glen Nontell: Thanks, Steven. Q1 adjusted EBITDA was CAD -13.6 million, as compared to CAD 3.5 million in the same period last year. Q1 adjusted EBITDA included a one-time CAD 2.8 million expense related to changes in inventory accounting estimates and CAD 1.9 million of share-based compensation expense due to a 34% increase in share price in Q1. Other items that impacted Q1 results compared to the same period last year included: a 28% reduction in lumber shipments, a 29% reduction in log shipments due to lower harvest volumes, and higher softwood lumber duties with a combined duty and tariff rate of 45%, compared to 14% last year. This was partially offset by higher log prices and a stronger mix of log sales, and higher average lumber prices and stronger specialty sales mix.

Speaker #6: Other items that impacted first quarter results compared to the same period last year included: a 28% reduction in lumber shipments, a 29% reduction in log shipments due to lower harvest volumes, and higher softwood lumber duties with a combined duty and tariff rate of 45% compared to 14% last year.

Speaker #6: This was partially offset by higher log prices and a stronger mix of log sales, as well as higher average lumber prices and a stronger specialty sales mix.

Speaker #6: We closed the first quarter with approximately 63 million board feet of lumber inventory and 500,000 cubic meters of log inventory. Our log inventory is very lean, and the lowest it's been in over the last decade, which may result in some sawmill operating curtailments in the second quarter.

Glen Nontell: We closed Q1 with approximately 63 million board feet of lumber inventory and 500,000 cubic meters of log inventory. Our log inventory is very lean and the lowest it's been in over the last decade, which may result in some sawmill operating curtailments in Q2. Turning to CapEx, our 2026 total CapEx spending is expected to be between CAD 45 to 50 million, which includes approximately CAD 60 million related to two previously announced continuous kilns and one thermal kiln at our Value-Added Division. From a balance sheet perspective, we ended Q1 with liquidity of approximately CAD 229 million and a net debt to capitalization ratio of 9%. During the quarter, we entered into a new CAD 30 million term loan, which was utilized to repay drawings under our syndicated credit facility.

Speaker #6: Turning to CapEx, our 2026 total CapEx spending is expected to be between $45 million to $50 million, which includes approximately $16 million related to two previously announced continuous kilns and one thermal kiln at our value-added division.

Speaker #6: From a balance sheet perspective, we ended the first quarter with liquidity of approximately $229 million and a net debt to capitalization ratio of 9%.

Speaker #6: During the quarter, we entered into a new $30 million term loan, which was utilized to repay drawings under our syndicated credit facility. Assuming the successful completion of the sale of our Columbia Vista Sawmill property and Stillwater Forest operations, combined with anticipated Columbia Vista property and business interruption insurance proceeds, we expect to receive net proceeds after tax of approximately $110 to $120 million in 2026, based on the current U.S. dollar to Canadian dollar foreign exchange rate.

Glen Nontell: Assuming the successful completion of the sale of our Columbia Vista sawmill property and Stillwater Forest Operation, combined with anticipated Columbia Vista property and business insurance, interruption insurance proceeds, we expect to receive net proceeds after tax of approximately CAD 110 to 120 million in 2026 based on the current US dollar to Canadian dollar foreign exchange rate. Touching on fuel and oil costs. At current oil prices, increases in direct operational costs, plus current fuel surcharges from timberland contractors and logistics providers represents approximately 3% of our overall cost structure. We continue to monitor the situation and will seek to manage and mitigate increases in fuel and oil-related costs in our business where possible. Turning to Q2 seasonality.

Speaker #6: Touching on fuel and oil costs, at current oil prices, the increase in direct operational costs plus current fuel surcharges from Timberland contractors and logistics providers represents approximately 3% of our overall cost structure.

Speaker #6: We continue to monitor the situation and will seek to manage and mitigate increases in fuel and oil-related costs in our business where possible. Turning to second quarter seasonality, typically in the second quarter, our harvest volumes increase as snow recedes and we expand operations across the entire timber harvesting land base.

Glen Nontell: Typically in Q2, our harvest volumes increase as snow recedes, and we expand operations across the entire timber harvesting land base. As our harvest activity moves further up the hillsides, our costs tend to rise as steeper and more difficult terrain increases harvesting complexity. While no forest fires are currently impacting our operations, early hot and dry weather on the BC coast may impact timber operations in Q2. From a market perspective, North American lumber consumption typically increases as we move into the spring season. We plan to continue to match lumber production with market demand. Steven, that concludes my comments.

Speaker #6: As our harvest activity moves further up the hillsides, our costs tend to rise, as steeper and more difficult terrain increases harvesting complexity. While no forest fires are currently impacting our operations, early hot and dry weather on the BC coast may impact Timberland operations in the second quarter.

Speaker #6: From a market perspective, North American lumber consumption typically increases as we move into the spring season. We plan to continue to match lumber production with market demand.

Speaker #6: Stephen, that concludes my comments. Thanks, Glen. So, turning to our market outlook, demand and pricing in North American lumber markets improved towards the end of the first quarter.

Steven Hofer: Thanks, Glen. Turning to our market outlook, demand and pricing in North American lumber markets improved towards the end of Q1. As the spring season approaches and building activity picks up pace, pricing is expected to increase before stabilizing by the end of Q2. That said, persistently high interest rates, along with recent increases in oil prices, may curb demand in the short term. Some Western Red Cedar inventories remain high in certain markets, and customers remain disciplined in managing their inventory levels to avoid slower-moving products. Lumber demand in Japan is showing signs of recovery in Q2 of 2026, supported by an anticipated increase in housing starts during April and May. This improvement is expected to be partially offset by higher fuel surcharges and a weak yen to US dollar foreign exchange rate.

Speaker #6: As the spring season approaches and building activity picks up pace, pricing is expected to increase before stabilizing by the end of the second quarter.

Speaker #6: That said, persistently high interest rates, along with recent increases in oil prices, may curb demand in the short term. Some Western Red Cedar inventories remain high in certain markets, and customers remain disciplined in managing their inventory levels to avoid slower-moving products.

Speaker #6: Lumber demand in Japan is showing signs of recovery in the second quarter of 2026, supported by an anticipated increase in housing starts during April and May.

Speaker #6: This improvement is expected to be partially offset by higher fuel surcharges and a weak yen to U.S. dollar foreign exchange rate. Lumber markets in parts of China began to show signs of renewed demand following the Lunar New Year slowdown.

Steven Hofer: Lumber markets in parts of China began to show signs of renewed demand following the Lunar New Year slowdown. The Chinese market remains competitive for price, with offers readily available from all global suppliers, and modest price increases are anticipated in Q2. Overall, we currently have a Q2 order file of approximately 103 million board feet. Looking ahead, we remain focused on executing our strategic priorities and CapEx plans, including realizing significant cash flow from asset sales to ensure we maintain a strong balance sheet. With that, operator, we can open the call up to questions.

Speaker #6: The Chinese market remains competitive for price, with offers readily available from all global suppliers, and modest price increases are anticipated in the second quarter.

Speaker #6: Overall, we currently have a second quarter order file of approximately 103 million board feet. Looking ahead, we remain focused on executing our strategic priorities and CapEx plans.

Speaker #6: Including realizing significant cash flow from asset sales to ensure we maintain a strong balance sheet. Without operator, we can open the call up to questions.

Speaker #1: Thank you. We will now take questions from the telephone lines. If you have a question, please press star, then one. You may cancel your question at any time by pressing star, then two.

Operator 3: Thank you. We will now take questions from the telephone lines. If you have a question, please press star then one. You may cancel your question at any time by pressing star then two. Please press star then one at any time if you have a question. Our first question is from Ben Isaacson with Scotiabank. Please go ahead.

Operator: Thank you. We will now take questions from the telephone lines. If you have a question, please press star then one. You may cancel your question at any time by pressing star then two. Please press star then one at any time if you have a question. Our first question is from Ben Isaacson with Scotiabank. Please go ahead.

Speaker #1: Please press star, then one at any time if you have a question. Our first question is from Ben Isaacson with Scotiabank. Please go ahead.

Speaker #5: Thank you very much, and good afternoon, everyone. I have three quick ones. The first one is, can you just talk about this new measurement that you announced in your disclosure, and what was the purpose of making the change, and how does it improve disclosure?

Ben Isaacson: Thank you very much, and good afternoon, everyone. I have three quick ones. The first one is, can you just talk about this new measurement that you announced in your disclosure, and what was the purpose of making the change, and how does it improve disclosure?

Speaker #6: Sure, Ben. Maybe I'll take that one. As you know, obviously, us being slightly different than the commodity lumber players, we have a mix of specialty and commodity lumber products.

Glen Nontell: Sure, Ben, maybe I'll take that one. As you, as you know, obviously, us being slightly different than the commodity lumber players, we have a mix of specialty and commodity lumber products. Historically, those products were measured on different measurements than, you know, the commodity lumber peers that measure, you know, commodity lumber, typically all on a nominal measure basis. What, you know, historically, as you look through our results, you'd have a mix of both net lumber measurement and nominal lumber measurement, which would sort of, you know, cloud some of the volumes and, you know, per thousand board foot measures. This step was really just to take that noise out of the data.

Speaker #6: Historically, those products were measured on different measurements than the commodity lumber peers that measure commodity lumber, typically all on a nominal measure basis. So, historically, as you look through our results, you'd have a mix of both net lumber measurement and nominal lumber measurement, which would sort of cloud some of the volumes and per board foot or per thousand board foot measures.

Speaker #6: And so this step was really just to take that noise out of the data. Obviously, the two years of historical we stated, and the numbers going forward, to take that—more, take that complexity out of the numbers we disclosed going forward and help the comparability of board foot measures when you look quarter over quarter.

Glen Nontell: Obviously, the 2 years of historical we stated and the numbers going forward to, you know, take that complexity out of the numbers we disclosed going forward and help the comparability of board foot measures when you look quarter-over-quarter.

Speaker #5: Okay, that's helpful. That makes sense. So, maybe on that point, Ben, that's a good segue. I noticed that your specialty mix was about, I think you said, 57% versus closer to 50 or 51% previously.

Ben Isaacson: That's helpful. That makes sense. Maybe on that point, that's a good segue. I noticed that your specialty mix was about, I think you said 57% versus closer to 50% or 51% previously. Is that just a function of the market and kinda where demand is right now? Or is that moving towards a longer-term target of more specialty and product and potentially reduced volatility on your free cash flow or on your earnings?

Speaker #5: Is that just a function of the market and kind of where demand is right now, or is that moving towards a longer-term target of more specialty and product, and potentially reduced volatility on your free cash flow or on your earnings?

Speaker #6: Yeah, I'll take that one, Ben. Maybe it's a mix of both. I think historically what we've said or targeted is especially a mix of somewhere between 55 to 60 percent.

Glen Nontell: Yeah, I'll take that one, Ben. Maybe it's a mix of both. I think historically what we've said or targeted is, you know, a specialty mix of somewhere between 55% to 60%. I think, you know, that is our long-term target. As we continue on with advancing and finalizing our kiln investments to, you know, move our products up that value chain, you know, that is what we would look to target from a, from a specialty mix. You know, as you're well aware, it provides a little bit more stability, a little more margin and sort of takes out the commodity volatility of our business.

Speaker #6: I think that is our long-term target. And as we continue on with advancing and finalizing our kiln investments to move our products up that value chain, that is what we would look to target from a specialty mix, as you're well aware.

Speaker #6: It provides a little bit more stability, a little more margin, and sort of takes out the commodity volatility of our business.

Speaker #5: Thank you for that. And then just last question is on this 3%. I think you talked about higher cost. I'm just trying to understand how much of it is structural versus transitory as a result of what's happening in the Middle East, and assuming that winds down.

Ben Isaacson: Thank you for that. Just last question is on this 3%. I think you talked about higher cost.

Glen Nontell: Yeah.

Ben Isaacson: I'm just trying to understand how much of it is structural versus, you know, transitory as a result of what's happening in the Middle East and, you know, assuming that winds down, do you get some of that cost pressure back?

Speaker #5: Do you get some of that cost pressure back?

Speaker #6: Yeah. And so, when we talk about the 3%, and just for simple numbers, on an annualized basis, it's about a $30 to $35 million impact.

Glen Nontell: Yeah. When we talk about the 3% and, you know, just for simple numbers, you know, on an annualized basis, it's about, you know, 30 to 35 million CAD impact. You know, that is all just pure fuel. None of it's structural. You know, our expectation is, you know, we are seeing fuel surcharges come from whether it is contractors or logistics providers, and obviously they are very fast at putting these surcharges in. You know, if we did see a resolution to the conflict in the Middle East and oil prices do decline, our expectation is that those surcharges would come off just as quickly. We view it as more a temporary aspect. Obviously, no one has a crystal ball to say how long they may be in place.

Speaker #6: That is all just pure fuel. None of it's structural. So, our expectation is we're seeing fuel surcharges come from whether it's contractors or logistics providers.

Speaker #6: And obviously, they're very fast at putting these surcharges in. If we did see a resolution to the conflict in the Middle East and oil prices do decline, our expectation is that those surcharges would come off just as quickly.

Speaker #6: So, we view it as more of a temporary aspect. Obviously, no one has a crystal ball to say how long they may be in place.

Glen Nontell: Yeah, our expectation is that any of these fuel surcharges would come off, as oil, if oil was to move back to more typical levels ahead prior to the conflict in the Middle East.

Speaker #6: But yeah, our expectation is that any of these fuel surcharges would come off if oil was to move back to more typical levels ahead, prior to the conflict in the Middle East.

Glen Nontell: Yeah, our expectation is that any of these fuel surcharges would come off, as oil, if oil was to move back to more typical levels ahead prior to the conflict in the Middle East.

Speaker #5: That's perfect. Thanks so much, Ben.

Ben Isaacson: That's perfect. Thanks so much, guys.

Speaker #6: Thanks, Ben.

Glen Nontell: Thanks, Ben.

Speaker #1: The next question is from Sean Stewart with TD Cowen. Please go ahead.

Operator 3: The next question is from Sean Steuart with TD Cowen. Please go ahead.

Operator: The next question is from Sean Steuart with TD Cowen. Please go ahead.

Speaker #5: Thanks. Hi, everyone. A couple of questions. So after the Stillwater sale, the insurance claims, and, I guess, Columbia Vista site sale, eventually you guys will have net cash on the balance sheet.

Sean Steuart: Thanks. Hi, everyone. A couple questions. After the Stillwater sale, the insurance claims and I guess Columbia Vista site sale, eventually you guys will have net cash on the balance sheet. I'm wondering how you're thinking about capital deployment options. You've got these kiln projects rolling through. What's the intent going forward with a capital structure that makes sense given where we are in the cycle and inherent volatility? Is there any incremental capital allocation target, be it incremental CapEx or M&A that might make sense for the company?

Speaker #5: And I'm wondering how you're thinking about capital deployment options. You've got these kiln projects rolling through. What's the intent going forward with a capital structure that makes sense given where we are in the cycle and the inherent volatility?

Speaker #5: And is there any incremental capital allocation target, be it incremental CapEx or M&A, that might make sense for the company?

Speaker #6: Yeah, Sean, maybe I'll take that one. Yeah, if we're successful in these asset sales, we do expect to be in a net cash position by the end of the year.

Glen Nontell: Yeah, Sean, Glen, maybe I'll take that one. Yeah, if we're successful in, you know, these asset sales, you know, we do expect to be in a net cash position by the end of the year. I think our first priority, obviously some of that cash will be used to complete our kiln projects that are currently underway. I'd say, you know, in the near term, you know, we might be a little more conservative on the balance sheet and maybe sit on some excess dry powder here until we potentially see, you know, signs of a broader recovery. You might see us sit on some, you know, cash in the near term. I'd say longer term, you know, we still remain quite interested in obviously growing the business.

Speaker #6: I think our first priority, obviously, is that some of that cash will be used to complete our kiln projects that are currently underway. I'd say in the near term, we might be a little more conservative on the balance sheet and maybe sit on some excess dry powder here until we potentially see signs of a broader recovery.

Speaker #6: So, you might see us sit on some cash in the near term. I'd say, longer term, we still remain quite interested in, obviously, growing the business.

Glen Nontell: You know, engineered wood is still an area that, you know, we like and would like to grow in. You know, I think there would be opportunities for us to consider, on, you know, the strategic CapEx side, whether, you know, in our existing business or externally via M&A. If I had to look over, say, the next, you know, 12 to 18 months, you know, our focus is getting these assets sold, getting the kilns in place, and then maybe we're gonna sit on some, you know, a little bit of excess dry powder here just until we see maybe, some clarity around the duties and tariffs and some clarity around, some recovery, further recovery in lumber markets.

Speaker #6: Engineered wood is still an area that we like and would like to grow in. I think there would be opportunities for us to consider on the strategic CapEx side, whether in our existing business or externally via M&A.

Speaker #6: But if I had to look over, say, the next 12 to 18 months, our focus is getting these assets sold, getting the kilns in place, and then maybe we're going to sit on a little bit of excess dry powder here, just until we see maybe some clarity around the duties and tariffs.

Speaker #6: And some clarity around some further recovery in the lumber markets.

Speaker #5: Okay, got it. And Glen, just with respect to the cadence of lumber volumes here going forward, log inventories are tight. This is a busier harvest quarter.

Sean Steuart: Okay. Got it. Glen, just with respect to the cadence of lumber volumes here going forward, log inventories are tight. This is a busier harvest quarter. Any context on over the next couple quarters incremental volume uplift on the lumber sides relative to what we saw in Q1? Just trying to get a sense of how this plays out through the year.

Speaker #5: Any context on, over the next couple of quarters, incremental volume uplift on the lumber side relative to what we saw in Q1? Just trying to get a sense of how this plays out through the year.

Speaker #6: Yeah, so seasonally we would expect lumber volumes to increase here in the second quarter off Q1, which is typically a lower quarter. I think it’ll be a gradual increase.

Glen Nontell: Seasonally, we would expect lumber volumes to increase here in Q2 off Q1, which is typically a lower quarter. It'll be a gradual increase. Last year we restated or readjusted, we were about 173 million board feet. Obviously, that included our Columbia Vista sawmill, which was about 15. I'd say if you take that off, we're probably slightly below that. You should sequentially hear versus Q1 see an increase in volume. I'd probably say somewhere into the 130 to 145 range in Q2.

Speaker #6: I mean, last year, we restated or readjusted. We were about 173 million board feet. Obviously, that included our Columbia Vista sawmill, which was about 15.

Speaker #6: I'd say if you take that off, we're probably slightly below that. But you should sequentially, here versus Q1, see an increase in volume. I'd probably say somewhere into the 130 to 145 range.

Speaker #6: In the second quarter.

Speaker #5: Okay. Okay. That's all I have for now. Thanks very much, guys.

Sean Steuart: Okay. Okay. That's all I have for now. Thanks very much, guys.

Sean Steuart: Okay. That's all I have for now. Thanks very much, guys.

Speaker #6: Thanks, Sean.

Glen Nontell: Thanks, Sean.

Operator 3: The next question is from Matthew McKellar with RBC Capital Markets. Please go ahead.

Operator: The next question is from Matthew McKellar with RBC Capital Markets. Please go ahead.

Speaker #1: From Matthew McKeller with RBC Capital Markets. Please go ahead.

Speaker #7: Hi, thanks for taking my questions. First, for me, duties are likely to step lower for you later this year. I know the U.S. is a smaller market for you than maybe some of your Canadian peers, but all else equal, what does that step lower in duties mean for how you manage your business and market your lumber?

Matthew McKellar: Hi. Thanks for taking my questions. First, some of these duties are likely to step lower for you later this year. I know the US is a smaller market for you than maybe some of your Canadian peers, but, all else equal, what does that step lower in duties mean for how you manage your business and market your lumber? Maybe as a related question, I will keep it pretty open-ended, are there any product categories where you expect to be better positioned competitively as substitute products maybe see some cost push, price inflation downstream of the petrochemical industry disruptions we are seeing? Thank you.

Speaker #7: And maybe as a related question—and I'll keep it pretty open-ended—are there any product categories where you expect to be better positioned competitively as substitute products maybe see some cost-push, price inflation downstream of the petrochemical industry disruptions we're seeing?

Speaker #7: Thank you.

Speaker #6: Thanks, Matt. As we look at this step change down, obviously, it's meaningful to us. That'll—expect it to take place sometime, probably October. It might even get pushed a little bit later than that, depending on how the US decides to implement it.

Steven Hofer: Thanks, Matt. You know, as we look at this step change down, obviously it is meaningful to us, that'll expected to take place sometime, probably October. It might even get pushed a little bit later than that, depending on how the US decides to implement it. You know, despite, you know, our volumes being, I think we're only about 18% in the quarter, you know, the US market is an incredibly important market to us from a value perspective. You know, it does drive the, you know, the core sales for a lot of our high-grade cedar and even some of our knotty cedar product lines. You know, critically important that we do find a, you know, a resolution to the ongoing trade dispute.

Speaker #6: But despite our volumes being—I think we're only at about 18% in the quarter—the US market is an incredibly important market to us from a value perspective.

Speaker #6: And so it does drive the core sales for a lot of our high-grade cedar, and even some of our knotty cedar product lines. So, critically important that we do find a resolution to the ongoing trade dispute.

Speaker #6: In terms of what it could potentially mean for capturing some additional market share, clearly, there's not a lot aside from the impact on our conversion costs with the increase in fuel and some potential logistics costs. Our products don't have any fuel or petrochemicals as an input like some other substitutes.

Steven Hofer: In terms of what it could potentially mean for, you know, capturing some additional market share, you know, clearly, you know, there's not a lot, aside from, you know, the impact on our conversion costs with the increase in fuel and some potential logistics costs, you know, our products don't have any, you know, fuel or petrochemicals as an input like some other substitutes. I think there might be some opportunity with respect to some of the other, you know, exterior cladding, exterior decking products that are, you know, non-wood. I think the key piece is, you know, one, get the trade settlement solved, and then, you know, find a path forward to having greater affordability take place across, you know, the US housing market.

Speaker #6: So, I think there might be some opportunity with respect to some of the other exterior cladding, exterior decking products that are non-wood. But I think the trade settlement solved, and then find a path forward to having greater affordability take place across the U.S. housing market.

Speaker #6: Those are the two key drivers that we see as really important for continued growth in our sales into that key market.

Steven Hofer: Those are the, you know, 2 key drivers that we see as really important for continued growth in our sales into that key market.

Speaker #5: Great, that's helpful—thanks. And just last from me, I think you said in your prepared remarks that your new kiln capacity opens opportunities related to your global customer base.

Matthew McKellar: Great. That's helpful. Thanks. Just last from me, I think you said in your prepared remarks that your new kiln capacity opens opportunities related to your global customer base. Could you just maybe elaborate a bit there? Will your exposure to non-Canadian, non-US markets grow as these kilns come online? How meaningful are oil and ocean transportation costs as it relates to how this business develops? Thanks.

Speaker #5: Could you just maybe elaborate a bit there? Will your exposure to non-Canadian, non-US markets grow as these kilns come online? And how meaningful are oil and ocean transportation costs as it relates to how this business develops?

Speaker #5: Thanks.

Speaker #6: Yeah, I would say that when we look at Japan, obviously that market is now essentially 100% kiln-dried solid wood products. And we want to continue to capture market share in Japan.

Steven Hofer: Yeah, I would say that, you know, like when we look at Japan, obviously that market is now essentially 100% kiln-dried solid wood products, and we wanna continue to capture market share in Japan. We looked at some of the evolving market trends in China. You know, historically, because of a lack of kiln-dried capacity, we were a supplier of rough green lumber, and now we're able to kind of move up the value chain, so to speak, and go into that market with significantly more kiln-dried product. You know, that market continues to get more sophisticated and demand more kiln-dried products, and we're seeing that as a real opportunity for us.

Speaker #6: We looked at some of the evolving market trends in China. Historically, because of a lack of kiln-dried capacity, we were a supplier of rough green.

Speaker #6: Lumber, and now we're able to kind of move up the value chain, so to speak, and go into that market with significantly more kiln-dried product.

Speaker #6: And that market continues to get more sophisticated and demand more kiln-dried products, and we're seeing that as a real opportunity for us. So, directionally, as you think about the balance of the second half of this year and into next year, our percentage of kiln-dried product going into China will be growing.

Steven Hofer: You know, directionally, as you think about the balance, the H2 of this year and into next year, you know, our percentage of kiln-dried product going into China will be growing. With respect to logistics and the impact of the current fuel surcharges, I think the first round of cost increase came in at around CAD 200 a container. They were trying to put forward, and I think the number settled at about CAD 50. You know, everyone's pretty quick to try and ratchet up the price, and we're pushing back significantly on that. You know, in the short term, we will have, you know, CAD 50 to CAD 75 a container.

Speaker #6: With respect to logistics and the impact of the current fuel surcharges, I think the first round of cost increase came in at around $200 a container.

Speaker #6: They were trying to put forward, and I think the number settled at about 50. So everyone's pretty quick to try and ratchet up the price, and we're pushing back significantly on that.

Speaker #6: But in the short term, in the short term, we will have $50 to probably $75 a container. So, not a real significant impact at this point.

Steven Hofer: Not, not a, you know, a real significant impact at this point into that particular market.

Speaker #6: Into that particular market.

Speaker #5: Okay. Thanks for all the color. I'll turn it back.

Matthew McKellar: Okay. Thanks for all the color. I will turn it back.

Speaker #6: Thanks, Matt.

Steven Hofer: Thanks, Matt.

Speaker #1: This concludes the question-and-answer session. I’d like to turn the conference back over to Mr. Hofer for any closing remarks.

Operator 3: This concludes the question and answer session. I'd like to turn the conference back over to Mr. Hofer for any closing remarks.

Operator: This concludes the question and answer session. I'd like to turn the conference back over to Mr. Hofer for any closing remarks.

Speaker #6: Well, thanks, everyone, for joining our call today. We certainly appreciate your continued interest in our company, and we look forward to our call in August.

Steven Hofer: Well, thanks everyone for joining our call today. We certainly appreciate your continued interest in our company, and we look forward to our call in August. Have a great day.

Speaker #6: Have a great day.

Operator 3: Thank you. The conference has now ended. Please disconnect your lines at this time, and we thank you for your participation.

Operator: Thank you. The conference has now ended. Please disconnect your lines at this time, and we thank you for your participation.