Q2 2026 Stella-Jones Inc Earnings Call

August 6, 2026

Operator 2: Good morning, and thank you for standing by. Good morning, and thank you for standing by. Welcome to Stella-Jones' Q2 2026 earnings conference call. At this time, all participants are in a listen-only mode. Following the presentation, we will hold a question and answer session. To queue up for a question by phone, please press star one and the moderator will contact you. If anyone experiences technical difficulties hearing the conference call, please press star zero for the operator at any time. I would like to remind everyone that this conference call is being recorded on 6 August 2026. I will now turn the call over to David Galison, Vice President of Investor Relations of Stella-Jones.

Speaker #5: standing by. Good morning, and thank you for standing by. Welcome to Stella-Jones Q2, 2026, earnings conference Good morning, and thank you for call. At this time, all participants are now listen-only mode.

Operator: Good morning, and thank you for standing by. Welcome to Stella-Jones' Q2 2026 earnings conference call. At this time, all participants are in a listen-only mode. Following the presentation, we will hold a question and answer session. To queue up for a question by phone, please press star one and the moderator will contact you. If anyone experiences technical difficulties hearing the conference call, please press star zero for the operator at any time. I would like to remind everyone that this conference call is being recorded on 6 August 2026. I will now turn the call over to David Galison, Vice President of Investor Relations of Stella-Jones.

Speaker #5: Following the presentation, we will hold a question-and-answer session. To queue up for a question by phone, please press *1 and the moderator will contact you.

Speaker #5: If anyone experiences technical difficulties hearing the conference call, please press *0 for the operator at any time. I would like to remind everyone that this conference call is being recorded on Thursday, August 6, 2026.

Speaker #5: I will now turn the call over to David Galison, Vice President of Investor Relations of Stella-Jones.

Speaker #6: Thank you, John. And good morning, everyone. Earlier this morning, we issued our press release reporting our results for the second quarter of 2026. Along with our MD&A, it can be found in the Investor Relations section of our website at www.stella-jones.com, as well as on Cedar Plus.

David Galison: Thank you, John, and good morning, everyone. Earlier this morning, we issued our press release reporting our results for Q2 2026. Along with our MD&A, it can be found in the investor relations section of our website at www.stella-jones.com, as well as on SEDAR+. As a reminder, all figures expressed on today's call are in CAD unless otherwise stated. Please note that comments made on today's call may contain forward-looking information, and this information, by its nature, is subject to risks and uncertainties. Actual results may differ materially from the views expressed today. Further information on these risks and uncertainties, please consult the company's relevant filings on SEDAR+. These documents are also available in the investor relations section of Stella-Jones' website at www.stella-jones.com.

Speaker #6: As a reminder, all figures expressed on today's call are in Canadian dollars unless otherwise stated. Please note that comments made on today's call may contain forward-looking information, and this information, by its nature, is subject to risks and uncertainties.

Speaker #6: Actual results may differ materially from the views expressed today. Further information on these risks and uncertainties please consult the company's relevant filings on Cedar Plus, these documents are also available in the Investor Relations section of Stella-Jones website, at www.stella-jones.com.

Speaker #6: Additionally, during this conference call, the company may refer to non-GAAP measures which have no standardized meeting under GAAP and are not likely to be comparable to similar measures presented by other issuers.

David Galison: Additionally, during this conference call, the company may refer to non-GAAP measures, which have no standardized meeting under GAAP and are not likely to be comparable to similar measures presented by other issuers. For more information, please refer to the company's latest MD&A, available on Stella-Jones' website and on SEDAR+. Lastly, we have prepared a corresponding presentation, which we encourage you to follow along with during this call. I'll now hand the call over to Eric Vachon, President and Chief Executive Officer of Stella-Jones, for a strategic business update, followed by Silvana Travaglini, Senior Vice President and Chief Financial Officer of Stella-Jones, who will provide a more detailed financial overview of the quarter. Eric, over to you.

Speaker #6: For more information, please refer to the company's latest MD&A available on stella-jones.com website and on Cedar Plus. Lastly, we have prepared a corresponding presentation which we encourage you to follow along with during this call.

Speaker #6: I'll now hand the call over to Eric Vachon, President and Chief Executive Officer of Stella-Jones for Strategic Business Update, followed by Silvana Travaglini, Senior Vice President and Chief Financial Officer of Stella-Jones, who will provide a more detailed financial overview of the quarter.

Speaker #6: Eric, over to you.

Speaker #4: Thank you, David. And good morning, everyone. Today, we reported second quarter results that reflect continued strength in utility products supported by positive volume momentum in wood utility poles and a solid contribution from a recently acquired cross-arms business.

Eric Vachon: Thank you, David, and good morning, everyone. Today, we reported Q2 results that reflect continued strength in utility products, supported by positive volume momentum in wood utility poles and a solid contribution from our recently acquired crossarms business. In railway ties, stronger commercial activity provided a significant offset to lower Class 1 volumes, while our network optimization plan continued to advance and remains on track to support profitability improvement. In residential lumber, pricing and volumes remained below prior year levels, although trends improved towards the end of the quarter and into Q3. While underlying business conditions remain supportive, profitability in the quarter was affected by several near-term cost headwinds, including higher site-specific environmental and maintenance costs, temporary inefficiencies from our steel structure capacity expansion project, and increased fuel costs. These pressures were amplified by the lag in recurring certain cost increases through pricing.

Speaker #4: In railway ties, stronger commercial activity provided a significant offset to lower Class 1 volumes, while our network-optimization plan continued to advance and remains on track to support profitability improvement.

Speaker #4: In residential lumber, pricing and volumes remained below prior-year levels, although trends improved towards the end of the quarter and into Q3. While underlying business conditions remained supportive, profitability in the quarter was affected by several near-term cost headwinds, including higher site-specific environmental and maintenance costs, temporary inefficiencies from our steel structure capacity expansion project, and increased fuel costs.

Speaker #4: These pressures were amplified by the lag in recouping certain cost increases through pricing. Excluding items that are not expected to repeat, margin performance in the quarter would have been closer to 17.5%.

Eric Vachon: Excluding items that are not expected to repeat, margin performance in the quarter would have been closer to 17.5%. Margin improvement is also expected to be driven by a greater contribution from higher-margin businesses such as crossarms and steel structures, along with a better railway tie sales profile, including more TSO volumes and higher-value rail products. Together, these factors support our expectation that EBITDA margin should improve in H2 2026 while remaining below our three-year target range for the full year. In parallel, we continue to advance our continuous improvement and footprint optimization initiatives, which we expect will drive efficiencies, strengthen margins, and enhance profitability over time. Combined with a more supportive business mix and favorable end market fundamentals, these actions reinforce our view that the current level of margin performance does not represent a structural change in the earnings power of the business.

Speaker #4: Margin improvement is also expected to be driven by a greater contribution from higher margin businesses, such as cross-arms and steel structures, along with a better railway tie sales profile, including more TSO volumes and higher value rail products.

Speaker #4: Together, these factors support our expectation that EBITDA margin should improve in the second half of 2026 while remaining below our three-year target range for the full year.

Speaker #4: In parallel, we continue to advance our continuous improvement and footprint optimization initiatives, which we expect will drive efficiencies, strengthen margins, and enhance profitability over time.

Speaker #4: Combined with a more supportive business mix and favorable end-market fundamentals, these actions reinforce our view that the current level of margin performance does not represent a structural change in the earnings power of the business.

Speaker #4: Accordingly, we remain confident in our ability to achieve our stated three-year average adjusted EBITDA margin objectives of 17.5 to 18.5%. Turning to a performance and overview of our main product categories, and starting with utility products.

Eric Vachon: Accordingly, we remain confident in our ability to achieve our stated 3-year average adjusted EBITDA margin objectives of 17.5% to 18.5%. Turning to a performance and overview of our main product categories, starting with utility products. We remain encouraged by the strength of the business, which continues to be a key growth driver. In wood utility poles, momentum remained positive in Q2, although the volume growth moderated from the strong pace seen in Q1. Importantly, on a year-to-date basis, volume growth remained in line with our mid-single-digit outlook, supported by the continued strength in our contract-based business. Spot pricing has also stabilized broadly on a sequential basis, and we expect the additional capacity coming online later this year, which we mentioned in our Q1 call, to have only a negligible impact on overall spot pricing.

Speaker #4: We remain encouraged by the strength of the business, which continues to be a key growth driver. In wood utility poles, momentum remained positive in the second quarter, although the volumes growth moderated from the strong pace seen in the first quarter.

Speaker #4: Importantly, on a year-to-date basis, volume growth remained in line with our mid-single-digit outlook, supported by the continued strength in our contract-based business. Spot pricing has also stabilized broadly on a sequential basis, and we expect the additional capacity coming online later this year which we mentioned in our Q1 call to have only a negligible impact on overall spot pricing.

Speaker #4: When fully operational, we believe the new capacity will represent less than 1% of the total North American trading capacity. Turning to our continuous improvement initiatives, we are now planning the next phase of our network-optimization focusing on our wood utility pole facilities.

Eric Vachon: When fully operational, we believe the new capacity will represent less than 1% of the total North American treating capacity. Turning to our continuous improvement initiatives, we are now planning the next phase of our network optimization, focusing on our wood utility pole facilities. The objective is to consolidate some capacity so we can fully realize the benefits of investments already made, as well as increasing plant specialization. Most of the network is already operating on a single product basis with only a few facilities left to transition. Another important consideration as we develop our optimization plan is the current preservative availability in Canada, where approval of DCOI, the main oil-based alternative to penta, remains outstanding. We expect these optimization efforts to improve utilization, enhance profitability, and free up capacity to support growth in the wood utility poles.

Speaker #4: The objective is to consolidate some capacity so we can fully realize the benefits of investments already made as well as increasing plant specialization. Most of the network is already operating on a single product basis, with only a few facilities list to transition.

Speaker #4: Another important consideration as we develop our optimization plan is the current preservative availability in Canada where approval of DCOI, domain oil-based alternative to Penta, remains outstanding.

Speaker #4: We expect these optimization efforts to improve utilization, enhance profitability, and free-up capacity to support growth in the wood utility poles. Beyond the operating and financial benefits of these optimization initiatives, there will also contribute to the broader sustainability strategy.

Eric Vachon: Beyond the operating and financial benefits of these optimization initiatives, they will also contribute to the broader sustainability strategy. By streamlining our production footprint across both railway ties and utility poles, we are actively improving the GHG emission profile of our network, keeping us on track to meet our long-term sustainability targets. Turning to our latest acquisitions, the integration of our crossarms business continues to go well, and the business performed in line with our expectations, providing a solid contribution to the results. We are also seeing strong interest from our existing customer base as the product offers a natural value-added extension to our utility pole offering. To this end, we began recording Canadian sales in the quarter, demonstrating the progress we are making in leveraging our established network and deep customer relationships to broaden our share of customer spend.

Speaker #4: By streamlining our production footprint across both railway ties and utility poles, we are actively improving the GHG emission profile of our network, keeping us on track to meet our long-term sustainability targets.

Speaker #4: Turning to our latest acquisitions, the integration of a cross-arms business continues to go well and the business performed in line with our expectations providing a solid contribution to the results.

Speaker #4: We are also seeing strong interest from our existing customer base as the product offers a natural value-added extension to our utility pole offering. To this end, we began recording Canadian sales in the quarter demonstrating the progress we are making in leveraging our established network and deep customer relationships to broaden our share of customer spend.

Speaker #4: For steel structures, sales in the quarter were lower than compared to the prior year primarily due to temporary loss production time and lower throughput during the equipment changeover related to our capacity expansion program.

Eric Vachon: For steel structures, sales in the quarter were lower than compared to the prior year, primarily due to temporary lost production time and lower throughput during the equipment changeover related to our capacity expansion program. We continue to make solid progress in the steel structure capacity expansion. In Candiac, the plant modernization remains on track to double capacity to 20,000 tons by Q3 of 2026, with full ramp-up by year-end. Demand for lattice towers remains strong, and the capacity is already substantially allocated through the end of 2027. Our team has also secured one customer contract for approximately one-third of the production capacity in Candiac for the next 10 years. In the US, we continue to advance the development of our Fayetteville, Tennessee facility. Our focus to date has been on finalizing key vendor agreements, advancing permit work, and preparing the site and equipment plans needed to move into execution.

Speaker #4: We continue to make solid progress in the steel structure capacity expansion. In CANDIAC, the plant modernization remains on track to double capacity to 20,000 tons by Q3 of 2026, with full ramp-up by year-end.

Speaker #4: Demand for lattice towers remains strong and the capacity is already substantially allocated through the end of 2027. Our team has also secured one customer contract for approximately one-third of the production capacity in CANDIAC for the next 10 years.

Speaker #4: In the US, we continue to advance the development of our Fayetteville, Tennessee facility. Our focus to date has been on finalizing key vendor agreements advancing permit work and preparing the site and equipment plans needed to move into execution.

Speaker #4: As a reminder, the site includes an existing newly constructed building that is suitable for operations which helps mitigate execution risk. The project remains on track and we continue to expect this investment of approximately $50 million to add another 20,000 tons to our steel structure production capacity.

Eric Vachon: As a reminder, the site includes an existing newly constructed building that is suitable for operations, which helps mitigate execution risk. The project remains on track, and we continue to expect this investment of approximately $50 million to add another 20,000 tons to our steel structure production capacity. Commissioning is expected in late 2027, with full production by the end of 2028. We also have received strong initial support from existing US customers that are currently served from Candiac to place order in 2027 with the new facility as part of its ISO and customer certifications and ramp-up. These early volumes should help support commissioning and a smoother startup. We are also seeing increased interest from Canadian customers for steel transmission structures, which over time should give us greater flexibility to shift US demand to Fayetteville while backfilling capacity in Candiac with Canadian demand.

Speaker #4: Commissioning is expected in late 2027 with full production by the end of 2028. We also have received strong initial support from existing US customers that are currently served from the CANDIAC to place order in 2027 with the new facility as part of its ISO and customer certifications and ramp-up.

Speaker #4: These early volumes should help support commissioning and a smoother startup. We are also seeing increased interest from Canadian customers for steel transmission structures, which over time should give us greater flexibility to shift US demand to Fayetteville while backfilling capacity in CANDIAC with Canadian demand.

Speaker #4: Turning to railway ties, second quarter results reflected similar market conditions to Q1 this year. As expected, Class 1 volumes remained lower in the quarter, however, we continued to see growth in our commercial business which was able to offset a meaningful portion of the decline in Class 1 volumes.

Eric Vachon: Turning to railway ties, Q2 results reflected similar market conditions to Q1 this year. As expected, Class 1 volumes remained lower in the quarter. However, we continued to see growth in our commercial business, which was able to offset a meaningful portion of the decline in Class 1 volumes. During the quarter, we began executing on the network optimization plan outlined in Q1, continuing to consolidate our footprint and reallocating volumes to most efficient facilities to better align business with the current demand. While these actions resulted in some one-time cost in the quarter, we expect these initiatives to improve returns over time. At the same time, we remain focused on growth. During the quarter, we finalized one Class 1 contract renewal that includes volume growth, and we are seeing interest from that customer in bridge timbers which could provide incremental upside.

Speaker #4: During the quarter, we began executing on the network-optimization plan outlined in Q1, continuing to consolidate our footprint and reallocating volumes to most efficient facilities to better align business with the current demand.

Speaker #4: While these actions resulted in some one-time costs in the quarter, we expect these initiatives to improve returns over time. At the same time, we remain focused on growth.

Speaker #4: During the quarter, we finalized one Class 1 contract renewal that includes volume growth and we are seeing interest from that customer in bridge timbers which could provide incremental upside.

Speaker #4: Looking ahead, we are actively negotiating another Class 1 contract renewal, and we are encouraged by additional volumes that were added to our forecasting starting in 2027, which stem from capital investments expected to conclude this year.

Eric Vachon: Looking ahead, we are actively negotiating another Class 1 contract renewal, and we are encouraged by additional volumes that were added to our forecasting starting in 2027, which stem from capital investments expected to conclude this year. We expect to finalize this contract negotiation in Q4. This pipeline of renewals remains an important part of our strategy to strengthen our position and expand our product offering. We also continue to see a constructive funding backdrop in the commercial market. Although CRCI grants are scheduled to expire in 2026, previously awarded funding should continue to support project activity through 2028. Beyond that, proposed enhancements to the 45G tax credit could provide an additional source of support for short line investments.

Speaker #4: We expect to finalize this contract negotiation in Q4. This pipeline of renewals remains an important part of our strategy to strengthen our position and expand our product offering.

Speaker #4: We also continue to see a constructing funding backdrop in the commercial market. Although Chrissy Grants are scheduled to expire in 2026, previously awarded funding should continue to support project activity through 2028.

Speaker #4: Beyond that, proposed enhancements to the 45G tax credit could provide an additional source of support for short-line investments. Turning to residential lumber, results were softer in the quarter but recent trends in both pricing and volumes have been encouraging and we continue to expect full-year sales to remain within our $600 million to $650 million target range.

Eric Vachon: Turning to residential lumber, results were softer in the quarter, but recent trends in both pricing and volumes have been encouraging, and we continue to expect full year sales to remain within our CAD 600 million to 650 million target range. Beyond our operational focus, we remain equally committed to sustainable development of our business. During the quarter, we published our 2025 sustainability report. The report reflects meaningful progress against our priorities, including a reduction in our injury rate frequency, which declined year-over-year, and that reflects our continued focus on the safety of our people. We achieved a 23% reduction in scope 1 and 2 greenhouse gas emissions against our 2022 baseline, driven by operational improvements including waste heat recovery and expanded solar energy use. We also advanced our commitment to Indigenous people with 96% of our Canadian salaried employees completing Indigenous cultural awareness training.

Speaker #4: Beyond our operational focus, we remain equally committed to sustainable development of our business. During the quarter, we published our 2025 sustainability report. The report reflects meaningful progress against our priorities including a reduction in our injury rate frequency which declined year over year and that reflects our continued focus on the safety of our people.

Speaker #4: We achieved a 23% reduction in Scope 1 and 2 greenhouse gas emissions against our 2022 baseline driven by operational improvements including waste heat recovery and expanded solar energy use.

Speaker #4: We also advanced our commitment to indigenous people with 96% of our Canadian salaried employees completing indigenous cultural awareness training. Ultimately, this report is a reflection of the dedication and effort of our people across the organization and we are proud of what we've accomplished together in 2025.

Eric Vachon: Ultimately, this report is a reflection of the dedication and effort of our people across the organization, we are proud of what we've accomplished together in 2025. With this, I will turn the call over to Silvana Travaglini, who will provide an update on our financial performance in Q2. Silvana.

Speaker #4: With this, I will turn the call over to Silvana Travaglini, who will provide an update on our financial performance in Q2. Silvana.

Speaker #1: Thank you, Eric. And good morning, everyone. Today, we reported second quarter sales of $1,042,000,000, an $8,000,000 increase compared to the same period last year.

Silvana Travaglini: Thank you, Eric, good morning, everyone. Today, we reported Q2 sales of CAD 1,042 million, a CAD 8 million increase compared to the same period last year. This growth was led by utility products, where we saw positive volume momentum in wood utility poles and a solid contribution from our Crossarm acquisition. These gains were largely offset by softer performance in residential lumber and a decline in activity within our logs and lumber business. On a year-to-date basis, sales were CAD 1,833 million compared to CAD 1,807 million in the prior year period. This CAD 26 million increase was driven primarily by contributions from acquisitions and a 4% organic sales growth in wood utility poles. These helped mitigate a CAD 30 million foreign exchange headwind, as well as softer year-to-date sales performance in our railway ties and residential lumber businesses.

Speaker #1: This growth was led by utility products where we saw positive volume momentum in wood utility poles and a solid contribution from our cross-arm acquisition.

Speaker #1: These gains were largely offset by softer performance in residential lumber and a decline in activity within our logs and lumber business. On a year-to-date basis, sales were $1,833,000,000 compared to $1,807,000,000 in the prior year period.

Speaker #1: This 26 million increase was driven primarily by contributions from acquisitions and a 4% organic sales growth in wood utility poles. These helped mitigate a $30 million foreign exchange headwind as well as softer year-to-date sales performance in our railway ties and residential lumber businesses.

Speaker #1: Utility product sales were $510,000,000 in the second quarter, up 7% from $476,000,000 in the same period last year. The increase was driven by a 29 million contribution from cross-arms and a modest organic growth in wood utility poles.

Silvana Travaglini: Utility product sales were CAD 510 million in Q2, up 7% from CAD 476 million in the same period last year. The increase was driven by a CAD 29 million contribution from Crossarms and a modest organic growth in wood utility poles, partly offset by a decline in steel structure sales, which reflected the temporary operational factors mentioned earlier. For wood utility poles, sales increased 1% organically in the quarter, with volumes up 2% entirely from contract business. Underlying demand and customer activity remained healthy. However, unusually wet spring weather in Texas, one of our most active markets, delayed project execution and had a more meaningful impact on performance in the quarter. On a year-to-date basis, utility product sales were CAD 979 million, up 9% from CAD 895 million in the prior year period.

Speaker #1: Partly offset by a decline in steel structure sales which reflected the temporary operational factors mentioned earlier. For wood utility poles, sales increased 1% organically in the quarter with volumes up 2% entirely from contract business.

Speaker #1: Underlying demand and customer activity remained healthy. However, unusually wet spring weather in Texas one of our most active markets, delayed project execution and had a more meaningful impact on performance in the quarter.

Speaker #1: On a year-to-date basis, utility product sales were $979,000,000 up 9% from $895,000,000 in the prior year period. Excluding the contribution of acquisitions and the impact of foreign exchange, wood utility pole sales were up 4% in the first half of the year.

Silvana Travaglini: Excluding the contribution of acquisitions and the impact of foreign exchange, wood utility pole sales were up 4% in the H1 of the year. This growth was volume-led, contributing about 7% to the increase. Offsetting, in part, the volume increase was lower pricing, primarily due to product mix, particularly the unusually favorable transaction recognized in Q1 2025, which involved high-margin wrapped pole. When we normalize for that specific prior year item, pricing remained relatively stable. From a financial standpoint, the pulse network actions Eric outlined are intended to improve network efficiency and better position certain facilities to focus on higher-margin products. We estimate that these initiatives could contribute approximately CAD 10 to 12 million of incremental annual profitability. As we continue to assess and advance these actions, we may incur one-time charges, most of which would be non-cash in nature and primarily related to potential asset write-down.

Speaker #1: This growth was volume-led, contributing about 7% to the increase. Offsetting in part the volume increase was lower pricing. Primarily due to product mix, particularly the unusually favorable transaction recognized in the first quarter of 2025 which involved high margin racked holds.

Speaker #1: When we normalized for that specific prior year item, pricing remained relatively stable. From a financial standpoint, the poles network actions Eric outlined are intended to improve network efficiency and better position certain facilities to focus on higher margin products.

Speaker #1: We estimate that these initiatives could contribute approximately 10 to 12 million dollars of incremental annual profitability. As we continue to assess and advance these actions, we may incur one-time charges most of which would be non-cash in nature and primarily related to potential asset write-downs.

Speaker #1: Turning to railway ties, the second quarter sales were $235,000,000 compared with $240,000,000 in the prior year period. The decline was primarily due to lower class one volumes with much of that pressure offset by continued strength in the non-class one market.

Silvana Travaglini: Turning to Railway Ties, the Q2 sales were CAD 235 million, compared with CAD 240 million in the prior year period. The decline was primarily due to lower Class 1 volumes, with much of that pressure offset by continued strength in the non-Class 1 market. Overall, volumes were down 1% in the Q2, while pricing was slightly lower due to a higher proportion of lower-priced TSO volumes. Year to date, Railway Tie sales totaled CAD 433 million, down 2% excluding foreign exchange. This result reflects the same trend observed in the Q2, with both volumes and pricing contributing modestly to the decline. We continued to advance our railway ties optimization actions in the Q2. As part of these efforts, we recorded CAD 32 million of one-time charges, including CAD 24 million of non-cash asset write-down. EBITDA was adjusted for these items.

Speaker #1: Overall, volumes were down 1% in the quarter while pricing was slightly lower due to a higher proportion of lower priced TSO volumes. Year-to-date, railway tie sales totaled $433,000,000 down 2% excluding foreign exchange.

Speaker #1: This result reflects the same trend observed in the second quarter with both volumes and pricing contributing modestly to the decline. We continue to advance our railway ties optimization actions in the second quarter.

Speaker #1: As part of these efforts, we recorded $32,000,000 of one-time charges including $24,000,000 of non-cash asset write-downs. EBITDA was adjusted for these items. We continue to expect annual cost savings from these initiatives of approximately 10 to 15 million dollars beginning in 2027.

Silvana Travaglini: We continue to expect annual cost savings from these initiatives of approximately CAD 10 to 15 million, beginning in 2027. Residential lumber sales were CAD 234 million in the Q2, down 5% from CAD 246 million in the prior year period. The decrease primarily reflected lower pricing, which was down 4%, while volumes were modestly lower, down 1%, due to softer demand and adverse weather conditions. On a year-to-date basis, residential lumber sales were CAD 310 million, down 7% from CAD 334 million in the H1 of 2025. The decline reflected both lower volumes, which were down 2%, and a softer pricing environment. Turning to profitability. Adjusted EBITDA for the Q2 was CAD 167 million or 16%, compared to CAD 189 million or 18.3% in the Q2 of last year. As Eric mentioned, the decrease primarily reflected near-term cost pressures.

Speaker #1: Residential lumber sales were $234 million in the second quarter, down 5% from $246 million in the prior year period. The decrease primarily reflected lower pricing, which was down 4%, while volumes were modestly lower—down 1%—due to softer demand and adverse weather conditions.

Speaker #1: On a year-to-date basis, residential lumber sales were $310,000,000 down 7% from $334,000,000 in the first half of 2025. The decline reflected both lower volumes which were down 2% and a softer pricing environment.

Speaker #1: Turning to profitability, adjusted EBITDA for the quarter was $167,000,000 or 16% compared to $189,000,000 or 18.3% in the second quarter of last year. As Eric mentioned, the decrease primarily reflected near-term cost pressures.

Speaker #1: The main drivers were site-specific environmental and maintenance costs most of which are not expected to recur, prior fuel costs, temporary inefficiencies associated with the CANDIAC steel structure expansion, and a lag in recovering certain cost increases through pricing.

Silvana Travaglini: The main drivers were site-specific environmental and maintenance costs, most of which are not expected to recur, higher fuel costs, temporary inefficiencies associated with the Candiac steel structure expansion, and a lag in recovering certain cost increases to pricing. We expect margin performance in the H2 of the year to improve as some of these pressures ease. Moving on to cash flows. During the Q2, we generated CAD 192 million of cash from operations, down from CAD 224 million generated in the Q2 of last year, primarily reflecting lower profitability. That said, cash generation remains strong, supported by favorable working capital performance. As is typical at this point in the year, inventory levels declined seasonally, with railway ties inventory seeing a more significant reduction. This reflects a shift in sales mix towards a higher proportion of TSO volumes, consistent with the trend we expect through the balance of the year.

Speaker #1: We expect margin performance in the second half of the year to improve as some of these pressures ease. Moving on to cash flows. During the quarter, we generated $192,000,000 of cash from operations down from $224,000,000 generated in the second quarter of last year.

Speaker #1: Primarily reflecting lower profitability. That said, cash generation remains strong supported by favorable working capital performance. As is typical at this point in the year, inventory levels declined seasonally with railway ties inventory seeing a more significant reduction.

Speaker #1: This reflects a shift in sales mix towards a higher proportion of TSO volumes consistent with the trend we expect through the balance of the year.

Speaker #1: During the first six months of the year, we reduced our net debt by more than $100,000,000 excluding the FX impact. We ended the quarter with $759,000,000 of available liquidity and a leverage ratio of 2.5 times.

Silvana Travaglini: During the H1 of the year, we reduced our net debt by more than CAD 100 million, excluding the FX impact. We ended the Q2 with CAD 759 million of available liquidity and a leverage ratio of 2.5 times. While lower profitability and unfavorable foreign exchange impact kept the leverage at the upper end of our target range, it remains aligned with our capital allocation strategy. In summary, our Q2 results underscore the resilience of our cash generation and the strength of our balance sheet. We remain focused on continuous improvement and efficiency initiatives to strengthen the long-term performance of our infrastructure-focused businesses. Despite near-term margin pressure, solid cash flow, stable leverage, and strong liquidity continue to provide flexibility to invest in growth from a position of strength. With that, I will turn the call back to Eric.

Speaker #1: While lower profitability and unfavorable foreign exchange impact kept the leverage at the upper end of our target range, it remains aligned with our capital allocation strategy.

Speaker #1: In summary, our second quarter results underscore the resilience of our cash generation and the strength of our balance sheet. We remain focused on continuous improvement and efficiency initiatives to strengthen the long-term performance of our infrastructure-focused businesses.

Speaker #1: Despite near-term margin pressure, solid cash flow, stable leverage, and strong liquidity continue to provide flexibility to invest in growth from a position of strength.

Speaker #1: With that, I will turn the call back to Eric.

Speaker #2: Thank you, Silvana. To conclude, the key messages from the quarter are clear. Demand across our infrastructure markets remains healthy, and we continue to advance several growth avenues including M&A opportunities in support of our long-term strategy.

Eric Vachon: Thank you, Silvana. To conclude, the key messages from the quarter are clear. Demand across our infrastructure markets remain healthy, and we continue to advance several growth avenues, including M&A opportunities in support of our long-term strategy. While quarterly profitability was affected by near-term cost pressures, the margin shortfall was largely driven by site-specific, non-recurring items and temporary inefficiencies in steel structures. Excluding those factors, margin performance would have been closer to 17.5%. This gives us confidence that margin performance should improve as early as the H2 of this year. Looking beyond 2026, we are also advancing optimization initiatives across the business. As these actions progress, together with pricing pass-through mechanisms and a stronger contribution from higher value products, we expect margin performance to further improve over time.

Speaker #2: While quarterly profitability was affected by near-term cost pressures, the margin shortfall was largely driven by site-specific non-recurring items and temporary inefficiencies in steel structures.

Speaker #2: Excluding those factors, margin performance would have been closer to 17.5%. This gives us confidence that margin performance should improve as early as the second half of this year.

Speaker #2: Looking beyond 2026, we are also advancing optimization initiatives across the business. As these actions progress, together with pricing pass-through mechanisms, and a stronger contribution from higher value products, we expect margin performance to further improve over time.

Speaker #2: Overall, this reinforces our confidence in our guidance, in the long-term fundamentals of the business, and in our ability to deliver against our stated objectives.

Eric Vachon: Overall, this reinforces our confidence in our guidance, in the long-term fundamentals of the business, and in our ability to deliver against our stated objectives. With that, we'll now open the line for questions.

Speaker #2: With that, we will now open the line for questions.

Speaker #3: Thank you. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press star followed by the number one on your touchstone phone.

Operator 2: Thank you. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press star followed by the number one on your touch tone phone. You will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press star followed by the number two. If you are using a speakerphone, please lift the handset before pressing any keys. Our first question comes from the line of James McGill from RBC Capital Markets. Please go ahead.

Operator: Thank you. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press star followed by the number one on your touch tone phone. You will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press star followed by the number two. If you are using a speakerphone, please lift the handset before pressing any keys. Our first question comes from the line of James McGill from RBC Capital Markets. Please go ahead.

Speaker #3: You will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press star followed by the number two.

Speaker #3: If you are seeing a speakerphone, please lift the handset before pressing any keys. Our first question comes from the line of James McGargle from RBC Capital Markets.

Speaker #3: Please go ahead.

James McGill: Hey, good morning, thanks for having me on.

Speaker #4: Hey, good morning. And thanks for having me on.

Speaker #2: Thank you, James.

Eric Vachon: Thank you, James.

James McGill: Can you just provide the specific, the visibility and the timeline for each of the major drivers, like the environmental and the maintenance costs, fuel, steel structure, and efficiencies, and how you expect those to potentially improve through the back half of the year?

Speaker #4: I just wanted to ask about some of the cost pressures you mentioned. They're near-term. So can you just provide the specific visibility and the timeline for each of the major drivers like the environmental and the maintenance costs, fuel, steel structure, and efficiencies?

Speaker #4: And how you expect those to potentially improve through the back half of the year?

Speaker #2: Yeah, certainly. Thank you, James, for highlighting that. So really, you mentioned four key items in your question. I'll start with the, I guess, inefficiencies in the steel structure business.

Eric Vachon: Yeah, certainly. Thank you, James, for highlighting that. Really, you mentioned four key items in your question. I will start with the inefficiencies in the steel structure business. As you know, we're revamping the entire shop floor at our Candiac facility. I guess in the Q2, the change-out created more pressure on our production capacity, therefore creating a quarterly slowdown, if you want. This is pretty much behind us. We're pretty much done with the renovation. We still have some things to finish up here in the month of August, but I would say after the July shutdown that we had at the plant, we're very well advanced on the project. Definitely that is behind us, and we should be ramping up here towards higher volumes than last year. Last year, we had maybe 10,000 tons available.

Speaker #2: As you know, we're revamping the entire shop floor at the Canadian at our CANDIAC facility. And I guess in the second quarter, the change out created more pressure on our production capacity, therefore creating a quarterly slowdown if you want.

Speaker #2: This is pretty much behind us. We're pretty much done with the renovation. We still have some things to finish up here in the month of August, but I would say after the July shutdown that we had at the plant, we're very well advanced on the project.

Speaker #2: So definitely that is behind us, and we should be ramping up here towards higher volumes than last year. Last year we had maybe 10,000 tons available.

Eric Vachon: We should definitely see, let's say, somewhere around a 14,000 tons availability annualized on the H2. That is going extremely well and behind us. Everybody has observed fuel costs are up across North America. That impacts our freight and distribution activities. It also impacts, to some extent, our oil-borne preservatives, which are obviously oil-based and are seeing the impact. The lag there is that we will need to wait for the anniversary of the contracts to be able to adjust pricing. It's a lag, because we do have mechanisms to adjust for that. It just didn't happen in the same quarter that we saw the cost increase. It'll come over time. I guess I want to say mostly starting next year.

Speaker #2: We should definitely see let's say somewhere around 14,000 tons availability annualized on the back half of the year. So that's going extremely well and behind us.

Speaker #2: The fuel costs so and everybody has observed fuel costs are up across North America. That impacts our freight and distribution activities. It also impacts to some extent our oil born preservatives, which are obviously oil-based and are seeing the impact.

Speaker #2: And the lag there is that we will need to wait for the anniversary of the contracts to be able to adjust pricing. So it's a lag because we do have mechanisms to adjust for that.

Speaker #2: It's just not just didn't happen in the same quarter that we saw the cost increase. It'll come over time. And I guess I want to say mostly starting next year.

Speaker #2: We might see some adjustments this year, but a lot of anniversaries of our contracts are in the first six months of a given year.

Eric Vachon: We might see some adjustments this year, but a lot of our anniversaries of our contracts are in the first 6 months of a given year. Lastly, we had, I want to say, in the bucket I described as one-time expenses, and you mentioned them, which is environmental management activities and I want to say unplanned maintenance. The environmental management activities are really associated to permitting renewals and activities where we know or are expecting changes in our permits, which we're getting ahead of by hiring consultants, renting some equipment, in anticipation of certain CapEx that we need to do throughout the year to make sure that we will be compliant when those permits are given to us with stricter requirements. Unplanned maintenance, I have to say, we did have unusual activities with boiler maintenance, kilns, and tank repairs. All to say, those impacted our quarterly results.

Speaker #2: Lastly, we had, I want to say, in the bucket I described as one-time expenses—and you mentioned them—which is, like, environmental management activities.

Speaker #2: And I want to say unplanned maintenance. So the environmental management activities are really associated to permitting renewals and activities where we know or expecting changes in our permits, which we're getting ahead of by hiring consultants, renting some equipment, and anticipation of certain capex that we need to do throughout the year to make sure that we will be compliant when those permits are given to us with stricter requirements.

Speaker #2: And unplanned maintenance, I have to say, we did have unusual activities with boiler maintenance kills and tank repairs. All to say those impacted our quarterly results.

Speaker #2: If we look at our forecast for the balance of the year, feel pretty comfortable that those were one-time and they were well needed and obviously we want to keep our assets well maintained and functional.

Eric Vachon: If we look at our forecast for the balance of the year, I feel pretty comfortable that those were one time and they were well needed, and obviously, we want to keep our assets well-maintained and functional. Those explain those two last items.

Speaker #2: So those explain those two last items.

Speaker #4: All right, good. Appreciate the call there. And I wanted to ask about pricing as well. You kind of alluded to that in your answer, but can you just walk through the mechanics of how that is going to flow through?

James McGill: All right. I appreciate the color there. I wanted to ask on the pricing as well. You kind of alluded to that in your answer, but can you just walk through the mechanics of how these pricing recoveries are going to flow through? You said that these are mostly going to be on the contractual resets in H1. Would that include the bulk of the pricing? Is there anything else that you need to pass through on pricing? Would that be primarily in the poles or in the railway tie business?

Speaker #4: So you kind of said that these are mostly going to be on the contractual resets. In the first half of the year, but would that include the bulk of the pricing?

Speaker #4: Is there anything else that you need to pass through on pricing? And would that be in the primarily in the polls or in the railway type business?

Eric Vachon: I want to say heavily weighted to the poles, but definitely we do have some in railway ties. On the rail side, the railway tie side, we do have some trucking activity. Obviously, that has an impact. I want to say a bit more heavily weighted on utility poles simply because we have the oil-borne preservatives. That being said, residential lumber will also have some headwinds. If I look at those three buckets, we are adjusting pricing in Q3 to our customers for fuel costs and residential lumber. That is going to be taken care of here in the next few weeks, if it's, in some cases, already done. For the utility pole business, it's really driven by the annual contracts. We don't have that leverage unless a customer wants to attenuate the one-time impact when we have the price increases.

Speaker #2: I want to say heavily weighted to the polls. But definitely we do have some in railway ties. So on the rail side, in the railway tie side, we do have some trucking activities.

Speaker #2: So obviously that has an impact. But I want to say a bit more heavily weighted on utility polls. Simply because we have the oil born preservatives.

Speaker #2: That being said, residential lumber, we also have some headwinds. So if I look at those three buckets, we are adjusting pricing in the third quarter to our customers for fuel costs and residential lumber.

Speaker #2: So that is going to be taken care of here in the next few weeks if it's in some cases already done. For the utility poll business, it's really driven by the annual contracts.

Speaker #2: We don't have that leverage unless a customer wants to attenuate the one-time impact when we have the price increases. Do something now because I want to avoid a significant impact when the anniversary comes? So that is a possibility.

Eric Vachon: We do have some customers that are saying, Hey, could we do something now because I want to avoid a significant impact when the anniversary comes. That is a possibility. Obviously on the railway tie side, those are pass-throughs that all happen through just annual adjustments for inflation and things of the like.

Speaker #2: And obviously on the railway tie side, those are pass-throughs that happen through just annual adjustments for inflations and things of the like.

Speaker #4: Okay. I appreciate it. And I'll turn the line over. Thank you.

James McGill: Okay. I appreciate it, and I'll turn the line over. Thank you.

Speaker #2: Thank you, James.

Eric Vachon: Thank you, James.

Speaker #1: Your next question comes from the line of Amir Patel from CIBC Capital Markets. Please go ahead.

Silvana Travaglini: You're welcome.

Operator 2: Your next question comes from the line of Hamir Patel from CIBC Capital Markets. Please go ahead.

Operator: Your next question comes from the line of Hamir Patel from CIBC Capital Markets. Please go ahead.

Hamir Patel: Hi, good morning. Eric, I think on the last call you were pointing to tie sales being flat this year. Looks like you are tracking down 2% in the H1. Are you still aiming to be flat this year in ties? If you could maybe just clarify in terms of the Class 1 contracts that were being renewed in 2026, I believe you mentioned one was just renewed, but just the status of the remaining ones.

Speaker #3: Hi, good morning. Eric, I think on the last call you were pointing to tie sales being flat this year. It looks like you’re tracking down 2% in the first half.

Speaker #3: Are you still aiming to be flat this year in ties? And if you could maybe just clarify in terms of the class one contracts that were being renewed in 2026, I believe you mentioned one was just renewed, but just the status of the remaining ones.

Eric Vachon: Yes, certainly. With regards to the Class 1, I will start with the Class 1 contracts. Yes. As I stated, one was renewed starting in 2027. We have secured volume increases there, and we are currently negotiating on bridge timber, that should definitely be some upside there. Second contract well underway. We have secured extra volume for next year. We have mentioned this in certain investor meetings pending some CapEx investments, some customers are inclined to support us and give us extra business. For the second contract I am referring to, that is already in play, then we are also, as the general renewal, looking at potentially future increases. That contract would conclude that negotiation mid Q4 or in October. There is a third one that is maturing at the end of the year in December, we are early stages of discussions. Again, discussions on additional volumes.

Speaker #2: Yep, certainly. So with regards to the class one I'll start with the class one contracts. So yes. So as I stated, one was renewed starting in '27.

Speaker #2: We have secured volume increases there. And we're currently negotiating on bridge timber. So that should definitely be some upside there. Second contract, well underway.

Speaker #2: We have secured extra volume for next year. We did have mentioned this in certain investor meetings. Pending some capex investments, some customers are inclined to support us and give us extra business.

Speaker #2: So for the second contract, I'm referring to that's already in play, and then we're also, as the general renewal, looking at future potentially future increases.

Speaker #2: But that contract would probably conclude that negotiations mid-Q4 or in October. There's a third one. That is a third one that is maturing at the end of the year in December.

Speaker #2: So we're early stages of discussions. So again, discussions on additional volumes as I mentioned, our strategy is to ensure that we have business growth.

Eric Vachon: As I mentioned, our strategy is to ensure that we have business growth, definitely looking into that. The fourth one is pretty much done. It is relatively stable, maybe a slight decline. We referred to that back in the quarter earlier last quarter, we were talking about some pricing considerations. With regards to your question on total volumes for the year, you are correct, we had stated a flat approach for the year. We are trending -2%. I think we will probably be somewhere between the flat to the -2%. One thing I want to highlight is we are seeing a heavier volume or more activity from the treating services piece. Obviously that has a lower price if you want, because it is just the treating services, the wood component is not in there.

Speaker #2: So definitely looking into that. And the fourth one is pretty much done. It's relatively stable, maybe a slight decline in that. And we refer to that back in the quarter earlier last quarter where we're talking about some pricing considerations.

Speaker #2: With regards to your question on total volumes for the year, so you are correct. We had stated a flat approach for the year. We're trending minus 2%.

Speaker #2: I think we'll probably be somewhere between the flat to the minus 2%. One thing I want to highlight is we're seeing a heavier volume or more activity from the treating services piece.

Speaker #2: So obviously that has a lower price, if you want, because it's just a treating services. The wood component is not in there. I'll remind you from a margin percentage, it's actually an improvement versus our black tie business.

Eric Vachon: I'll remind you from a margin percentage, it's actually an improvement versus our black tie business. Also, we're not carrying the working capital. Zero to that minus 2, let's say, but definitely a heavier proportion of TSO in H2 compared to H1.

Speaker #2: And also we're not carrying the working capital. So zero to that minus two, let's say, but definitely a heavier proportion of TSO in the back half compared to the first half.

Speaker #3: Okay. And Eric, given you've got some of these contracts renewing is it fair to assume that we might see a greater transition to TSO?

Hamir Patel: Okay. Eric, given you've got some of these contracts renewing, is it fair to assume that we might see a greater transition to TSO? What does that suggest for perhaps that revenue comp in 2027 for ties? Because I think historically it had been sort of low single-digit positive growth, but I'm just wondering if maybe there's a one year-

Speaker #3: And then what does that suggest for perhaps that revenue comp in '27 for ties? Because I think historically it had been sort of low single-digit positive growth, but I'm just wondering if maybe there's a one-year adjustment there with the TSO.

Eric Vachon: Yeah

Hamir Patel: adjustment there with the TSO.

Speaker #2: Right. So TSO is attractive to us. Because we don't have to carry the working capital. There's obviously lesser investment. Returns are better. And the profitability is similar.

Eric Vachon: Right. TSO is attractive to us because we don't have to carry the working capital. There's obviously lesser investment, returns are better, and the profitability is similar. I want to say definitely better percentage. Some customers are really open to the conversation and others have shut the door. We'll be looking going into next year to a greater proportion of that. Silvana, you want to give any colors on the maybe H1 versus H2 proportions of TSO?

Speaker #2: I want to say definitely a better percentage. Some customers are really open to the conversation, and others have shut the door. So we'll be looking, going into next year, for a greater proportion of that.

Speaker #2: Silvana, do you want to give any color on maybe the H1 versus H2 proportions of TSO?

Speaker #5: Yeah. So in the first half of the year, probably we would say probably half of that sort of 2% decrease was related to the TSO volumes.

Silvana Travaglini: Yeah. In the H1 of the year, we would say probably half of that sort of 2% decrease was related to the TSO volumes. The expectation in the H2 of the year is that we could be seeing those TSO volumes increase and maybe represent probably anywhere between 5% and 10% of our total ties sales. That probably is what we would be expecting going forward beyond 2026. In terms of impact on the overall sales, I guess, not giving a specific number, but just maybe highlighting to you that it could be representing up to 10% of our total volumes going forward.

Speaker #5: The expectation on in the second half of the year is that we could be seeing those TSO volumes increase and maybe represent probably anywhere between 5% and 10% of our total ties sales.

Speaker #5: And that probably is what we would be expecting going forward beyond 2026. So in terms of impact on the overall sales, I guess not giving a specific number, but just maybe highlighting to you that it could be representing up to 10% of our total volumes going forward.

Hamir Patel: Great. Thanks, Silvana. Just the last question I had, I know the focus now is on growing the steel structures business, Eric, do you still see potential opportunities over the coming year to augment your position in either wooden utility poles or ties through M&A?

Speaker #3: Great, thanks, Silvana. Just a live question I had. I know the focus now is on growing the steel structures business, but Eric, do you still see potential opportunities over the coming year to augment your position in either wooden utility poles or ties?

Speaker #3: Through M&A?

Eric Vachon: Answer is yes. Definitely, there is potentially some targets on the railway tie side that are still of interest to us. As I look at the landscape of class ones, potential mergers on the horizon and how that could influence the market, I'm mindful of how our footprint looks today and how it needs to adjust. Definitely some of these competitors today, I guess, are definitely in sight and I would appreciate some conversations with these targets. On the utility pole side, there's still a couple of businesses, I want to say, in the Southeast US that have some interest. Businesses owned by families that we've gotten to know over the years. It's really a question of timing and their transition or their exit strategy. I think there's some potential there.

Speaker #2: Answer is yes. So definitely there is potentially some targets on the railway tie side that are still of interest to us. As I look at the landscape of class ones, potential mergers on the horizon and how that could influence the market, I'm mindful of how our footprint looks today and how it needs to adjust.

Speaker #2: So definitely some of these competitors today, I guess, would are definitely insight and would I would appreciate some conversations with these targets. On the utility pole side, there's still a couple of businesses I want to say in the Southeast US that have some of an interest businesses with owned by families that we've gotten to know over the years.

Speaker #2: Then it's really a question of timing and their transition or their exit strategy. But I think there's some potential there. Then obviously, so that's on the M&A front, but I have to mention for utility poles that there's also the potential not the potential, but our expectation of continued organic growth.

Eric Vachon: That's on the M&A front, I have to mention for utility poles that there's also, our expectation of continued organic growth. We've adjusted our footprint for that. We're actually taking initiatives right now to ensure that we're ready for that future growth. Our M&A is definitely part of the strategy for the wood ties and wood poles. On the wood poles, we're definitely expecting continued growth and we're adjusting our network and we're ready for it.

Speaker #2: We've adjusted our footprint for that. We're actually taking initiatives right now to ensure that we're ready for that future growth. So our M&A is definitely part of the strategy for the wood ties and wood poles.

Speaker #2: And on the wood poles, we're definitely expecting continued growth and we're adjusting our network and we're ready for it.

Speaker #3: Okay. Great. Thanks. That's all I had. I'll turn it over.

Hamir Patel: Okay, great. Thanks. That's all I had. I'll turn it over.

Speaker #2: Thank you, Amir.

Eric Vachon: Thank you, Amir.

Speaker #1: Your next question comes from the line of Benoit Poirier for Desjardins. Please go ahead.

Operator 2: Your next question comes from the line of Benoit Poirier for Desjardins. Please go ahead.

Operator: Your next question comes from the line of Benoit Poirier for Desjardins. Please go ahead.

Speaker #2: Yes. Thank you very much. Good morning, Silvana and Eric. Just to come back on the utility pole, I was curious if you could break down the 1% organic growth between volume and pricing.

Benoit Poirier: Yes, thank you very much. Good morning, Silvana and Eric. Just to come back on the utility pole, I was curious if you could break down the 1% organic growth between volume and pricing.

Eric Vachon: Silvana, do you want to?

Speaker #3: Silvana, do you want to tackle that, please?

Silvana Travaglini: Yeah

Eric Vachon: tackle that, please?

Silvana Travaglini: Yeah. We mentioned it, I believe, in the earnings script, but basically for the wood utility poles, it's a 2% increase in volume and a 1% decline in pricing.

Speaker #5: Yeah. We mentioned it, I believe, in the earnings script, but basically for the wood utility poles, it's a 2% increase in volume. And a 1% decline in pricing.

Eric Vachon: Benoit, I want to add, we had a call-out in the script about the Texas market. It's typically not in our style to find excuses, but there was some heavy rains in the northern part of Texas through the spring, which slowed down several projects. I do think we will catch up some of that later in the year, maybe not all, but I think we were a bit depressed on the volume in relation to those events.

Speaker #2: And Benoit, I want to add this is just we had a call out in the script about the Texas market. Typically not in our style to find excuses, but there was some heavy rains in the northern part of Texas through the spring, which slowed down several projects.

Speaker #2: And I do think we will catch up some of that later in the year, maybe not all, but so I think we were a bit depressed on the volume.

Speaker #2: In relation to those events. Okay. And in terms of spot pricing, my understanding it's been pretty stable in the last three to four quarters.

Benoit Poirier: Okay. In terms of spot pricing, my understanding, it's been pretty stable in the last three to four quarters. How is July shaping up on the utility pole side, on the volume side, organic growth? Have you been able to ramp up following the heavy rain event?

Speaker #2: So and how is July shaping up on the utility pole side on the volume side organic growth? Have you been able to ramp up following the heavy rain event?

Speaker #3: Yeah. Thank you, Benoit. I think I led you into that question a bit, but thank you for asking it. Yeah. No, definitely we're seeing some adjustments in our customer forecasting.

Eric Vachon: Thank you, Benoit. I think I led you into that question a bit. Thank you for asking it. Yeah, no, definitely, we're seeing some adjustments in our customer forecasting. I don't know if they'll have enough time in the Texas area to catch up all the work because of the lost time. We're definitely seeing some momentum there so far this year. I don't like to comment on Q3 because obviously we're reporting Q2 today. We are seeing some positive activity. You'll have to excuse me, Benoit, I forgot the first part of your question.

Speaker #3: I don't know if they'll have enough time in the Texas area to catch up all the work because of the lost time, but we're definitely seeing some momentum there.

Speaker #3: So that, so far this year—I don't like to comment on Q3, because obviously we're reporting Q2 today—but we are seeing some positive activity.

Speaker #3: And I have to excuse me, but I forgot the first part of your question.

Benoit Poirier: Oh, just about the expectation in terms of

Speaker #2: Oh, just about the expectation in terms of volume growth for you? Q3, Q4.

Eric Vachon: Oh, sorry.

Benoit Poirier: volume growth for Q3, Q4.

Speaker #3: Yeah. It was for the spot pricing. I'm sorry. And yes, you're completely right. We've seen like four quarters of pretty stable pricing on the spot side.

Eric Vachon: Yeah. It was for the spot pricing, I'm sorry. Yes, you're completely right. We've seen four quarters of pretty stable pole pricing on the spot side. Pleased with that. We'll be lapping ourselves here with the pricing pressures and hopefully that is behind us.

Speaker #3: So, please, with that, we'll be laughing ourselves here with the pricing pressures, and hopefully that is behind us.

Speaker #2: Okay. Perfect. That's it for me. Thank you.

Benoit Poirier: Okay, perfect. That's it for me. Thank you.

Speaker #3: Thanks. Thank you, Benoit.

Eric Vachon: Thank you, Benoit.

Speaker #1: As a reminder, if you have any questions or follow-up, please press star one. Our next question comes from the line of Michael Topol from TD Securities.

Operator 2: As a reminder, if you have any questions or follow-up, please press star one. Our next question comes from the line of Michael Tupholme from TD Securities. Please go ahead.

Operator: As a reminder, if you have any questions or follow-up, please press star one. Our next question comes from the line of Michael Tupholme from TD Securities. Please go ahead.

Speaker #1: Please go ahead.

Speaker #4: Thank you. Just Eric back on the headwinds in the Southeast in the US in the quarter. Had you had a more normal sort of typical weather in that area and seen more typical demand?

Michael Tupholme: Thank you. Just, Eric, back on the headwinds in the Southeast and the US in the quarter. Had you had a more normal sort of typical weather in that area and seen more typical demand, what would utility poles organic growth have looked like in the quarter?

Speaker #4: What would wood poles wood utility poles organic growth look like? Have looked like in the quarter?

Speaker #5: Yeah.

Silvana Travaglini: Yeah.

Eric Vachon: Yeah. Silvana did a lot of discussions and questions with our sales team. Silvana, if you want to-

Speaker #2: Yeah. Yes, Silvana, a lot of discussions and questions with our sales team. Silvana, if you want to.

Silvana Travaglini: Yeah. The estimate is that the expectation would have been that we would've been at closer to sort of that mid-single digit growth, but probably the lower end, probably between 4% and 5% is where the expectation would've been if the activity would've been as expected in that area.

Speaker #5: Yeah. So the estimate is that the expectation would have been that we would have been at closer to sort of that mid-single digit growth, but probably the lower end, probably like between 4 and 5 percent is where the expectation would have been if the activity would have been as expected in that area.

Speaker #4: Okay. And it sounds like those headwinds have now been overcome, and maybe you get some of the volumes that you lost out on back—maybe not fully, but some of those recovered in the second half—plus what you would ordinarily do.

Michael Tupholme: Okay. It sounds like that headwind's now been overcome, and maybe you get some of the volumes that you lost out on back, maybe not fully, but some of those recovered in H2, plus what you would ordinarily do. Is the idea that in H2, we're back onto that sort of mid-single digit organic growth for poles where you had been targeting for the year, notwithstanding the Q2 issues?

Speaker #4: So is the idea that in the second half we're back onto that sort of mid-single digit organic growth for poles where you had been targeting for the year, notwithstanding the Q2 issues?

Speaker #2: Yeah. The plan is, and I believe I mentioned it in my script, is we're still guiding to that mid-single digit. I think it's a good assumption.

Eric Vachon: Yeah. The plan is, and I believe I mentioned it in my script is, we're still guiding to that mid-single digit. I think it's a good assumption.

Michael Tupholme: Sorry, for H2? For still guiding to that-

Speaker #4: Sorry, for the second half, or for still guiding to that.

Eric Vachon: Oh, for full year. I'm sorry, Michael Tupholme. Yeah. For full year we'd be mid-single digit.

Speaker #2: Oh, for full year. I'm sorry. I'm sorry, Michael. Yeah, for the full year we'd be mid-single digit.

Speaker #4: Okay. So this Q2 dynamic doesn't materially change where you wind up for the year.

Michael Tupholme: Okay, this Q2 dynamic doesn't materially change where you wind up for the year?

Speaker #2: Agreed.

Eric Vachon: Agreed.

Speaker #4: Okay. And then just on the operational efficiency initiatives in the poles business, I think Silvana, you said 10 to 12 million of targeted annual cost savings, or profitability improvements, pardon me.

Michael Tupholme: Okay. Just on the operational efficiency initiatives in the poles business, I think Silvana, you said CAD 10 to 12 million of targeted annual cost savings or profitability improvements, pardon me. When would we expect to see those start to come through, and when would you get that full benefit? I'm thinking about the initiatives on the tie side. I think you said the full benefit there isn't until next year, how does it look for poles?

Speaker #4: When would we expect to see those start to come through, and when would you get that full benefit? And I'm thinking about the initiatives on the tie side.

Speaker #4: I think you said the full benefit there is until next year. So, how does it look for poles?

Speaker #5: Yeah. The expectation would be the same. It would be difficult this year to expect any of them. Most of the work will be undertaken in Q3 into Q4.

Silvana Travaglini: Yeah, the expectation would be the same. It would be difficult this year to expect any of them. Most of the work will be undertaken in Q3 into Q4, the expectation isn't as of 2027.

Speaker #5: So the expectation isn't as of 2027.

Speaker #4: Okay. But you could get them on the full benefit that is coming through for '27?

Michael Tupholme: Okay, you could get them like the full benefit is coming through for 2027?

Silvana Travaglini: In Q1.

Speaker #5: In the first quarter.

Speaker #4: Yeah. Okay.

Michael Tupholme: Yeah.

Speaker #2: Yeah. I agree with that.

Eric Vachon: Yeah.

Michael Tupholme: Okay.

Eric Vachon: I agree with that.

Speaker #4: And then, Eric, on the steel structures, sort of headwinds that you saw in the quarter, just due to the equipment transition and given the facility expansion that's undergoing you're seeing at Candiac, does that impact you again in Q3?

Michael Tupholme: Eric, on the steel structures sort of headwinds that you saw in the quarter, just due to the equipment transition and given the facility expansion that's undergoing, you're seeing at Candiac, does that impact you again in Q3? It sounded like maybe there's still some impact in the early part of the quarter, but I'm just trying to understand the impact there. Again, I'm not totally clear, the mid-single digit organic growth you talked about for poles still being, looking at that for the year, is that just wood utility poles? Or is that inclusive of the steel structures dynamics?

Speaker #4: It sounded like maybe there's still some impact in the early part of the quarter, but I'm just trying to understand the impact there. And if, and again, I'm not totally clear, the mid-single digit organic growth you talked about for poles still being looking at that for the year, is that just wood utility poles or is that inclusive of the steel structures dynamics?

Speaker #2: Yeah. No, that's only for wood utility poles. The, I guess, the changeover that we're of the equipment we're seeing as created longer delays and moving equipment and installing the new equipment.

Eric Vachon: No, that's only for wood utility poles. I guess the changeover of the equipment we're seeing has still created longer delays of moving equipment and installing the new equipment. That's pretty much behind us. In Quebec, we have construction holiday, which is usually a good time for plant shutdown. We did have the whole maintenance crews in the facility, and two weeks of no operations just helps move things along. We've progressed very well here. What's left here in August is just tidying things up. That slowdown is, I want to say, entirely behind us, and we'd be resuming the regular activity with enhanced capacity. Actually, I want to add the good news.

Speaker #2: That's pretty much behind us. So, July was—so in Quebec, we have the construction holiday, which is usually a good time for plant shutdown. But we did have the whole maintenance crew in the facility. Two weeks of no operations just helps move things along.

Speaker #2: So we've progressed very well here. So what's left here in August is just tidying things up. So that's slowed down is, I want to say, entirely behind us.

Speaker #2: And we'd be resuming the regular activity with enhanced capacity. And actually, I want to add the good news well, the good news, if there's a good news is that everything we've learned in the last four months in this equipment changeout is going to be beneficial for our Tennessee facility because we're doing a copy paste of the shop floor, same equipment, same supplier.

Eric Vachon: If there's a good news, is that everything we've learned in the last 4 months in this equipment change-out is going to be beneficial for our Tennessee facility because we're doing a copy-paste of the shop floor, same equipment, same supplier. Everything we had to do as to programming some software interfaces for CNC equipment programming and things alike, everything is just going to be used for a second time. This investment is definitely going to be beneficial for a smoother startup in Tennessee.

Speaker #2: So everything we had to do, as to programming some software interfaces for CNC equipment programming and things alike, everything is just going to be used for a second time.

Speaker #2: So this investment is definitely going to be beneficial for a smoother startup in Tennessee.

Speaker #4: Okay. And then just lastly on the margins, so obviously some factors that weighed on margins this quarter. It sounds like you see improvement in the back half and then you haven't changed your three-year outlook.

Michael Tupholme: Okay. Just lastly on the margins. Obviously some factors that weighed on margins this quarter. It sounds like you see improvement in the back half, and then you haven't changed your 3-year outlook, I assume that means by next year, you're back in your range. Do these operational improvement initiatives you're undertaking, were those already factored into the 17.5% to 18.5% range, or was that where you'd expect to be without those and then these initiatives could kind of push you up either to the top end or maybe even through that? Just trying to understand how those specific initiatives in ties and poles on the operational improvement side play into the margin.

Speaker #4: So I assume that means by next year, you're back in your range. Do these operational improvement initiatives you're undertaking were those already factored into the 17 and a half to 18 percent 18 and a half percent range or was that where you'd expect to be without those and then these initiatives could kind of push you up either to the top end or maybe even through that?

Speaker #4: Just trying to understand how those specific initiatives in ties and poles on the operational improvement side play into the margin.

Eric Vachon: Yeah. No, good. It's a good observation. It was not included in our initial guidance. As we had the question several times in previous quarters of like, "Well, what happens for you to be at the low end and what needs to happen for you to at the top end?" Well, these initiatives, those would be actions that we're taking to be at the higher end of our guidance.

Speaker #2: Yeah. No, good. It's a good observation. So it was not included in our initial guidance. So as we had the question several times in previous quarters of like, well, how do you what happens for you to be at the low end and what needs to happen for you to at the top end?

Speaker #2: Well, these initiatives those would be actions that we're taking to be at the higher end of our guidance.

Speaker #4: Okay. That's great. Thank you.

Michael Tupholme: Okay, that's great. Thank you.

Speaker #2: Thank you, Michael.

Eric Vachon: Thank you, Michael.

Speaker #3: There are no further questions at this time. I will now turn the call over to Eric Vashan for closing comments.

Operator 2: There are no further questions at this time. I will now turn the call over to Eric Vachon for closing comments.

Operator: There are no further questions at this time. I will now turn the call over to Eric Vachon for closing comments.

Speaker #2: Thank you, John. And thank you, everyone, for joining us today. We look forward to updating you when we release our third quarter results in the fall.

Eric Vachon: Thank you, John. Thank you everyone for joining us today. We look forward to updating you when we release our Q3 results in the fall. Until then, have a safe and enjoyable summer.

Speaker #2: Until then, have a safe and enjoyable summer.

Operator 2: Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect. We are now back to the speaker room. Thank you.

Operator: Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.

Speaker #3: Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect. And we are now back to the speaker room.

Speaker #3: Thank you.

Speaker #2: Yeah, we're back to music. On the stream.

[Company Representative] (Stella-Jones): Yeah, we're back to music on the stream.

Silvana Travaglini: Oh, good. Thank you.

Speaker #1: All good. Thank you.

Speaker #3: Thank you, everyone.

[Company Representative] (Stella-Jones): Thank you everyone.

Speaker #1: Have a great day and congrats.

Silvana Travaglini: Have a great day and congrats.

[Company Representative] (Stella-Jones): Hey, I'm just going to take five minutes. Then I'm going to edit these video files.

Speaker #2: Hey, Camille, I'm just going to take five minutes and then I'm going to edit these video files.

Speaker #1: Okay. Thanks.

Silvana Travaglini: Okay, thanks.

[Company Representative] (Stella-Jones): Start that. Everything was great, should be pretty quick to get the archive up.

Speaker #2: But everything seems everything was great. So should be pretty quick to get the archive up.

Silvana Travaglini: Yeah, I think so.

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