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Operator: Good morning, ladies and gentlemen. Welcome to Western Forest Products Second Quarter 2026 Results Conference Call. The conference is being recorded. Following 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. 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.
J. Hofer: Thank you, Gary, and good morning, everyone. I would like to welcome you to Western Forest Products 2026 Second Quarter Conference Call. Joining me on the call today is Glenn Nontell, our Chief Financial Officer; and Bruce Alexander, our Senior Vice President of Sales, Marketing and Manufacturing. We issued our 2026 second quarter results yesterday. I will provide you with some introductory comments and then ask Glenn to take you through our financial results. Bruce will follow with our market outlook section before we open the call to your questions. We saw modest improvements in lumber pricing and seasonal demand in the second quarter. We continue to demonstrate clear progress in advancing our strategic priorities, while also solidifying a strong balance sheet to manage through near-term volatility. Since our last call, this has included completing our strategic Kiln drive investments at our value-added division with the commissioning of the second continuous strike in and our thermal kiln. With 3 highly modern, low-cost continuous dry kilns operating on the BC coast with a capacity of 206 million board feet, Western's investment will support higher margin, value-added kiln-dried lumber production and enable the expansion of our global customer base. In addition, we are also upgrading our auto grader technology at our Duke Point planer facility. The new auto grader uses AI technology to create each piece of lumber, resulting in more precision grading than manual grading, leading to higher margin potential. The $4.1 million investment is anticipated to be commissioned in early 2027. This will complement the autograder technology previously deployed in the Duke Point sawmill facility. From an operational perspective, our Timberlands group continued to focus on managing costs and log margin opportunities. Purpose volume increased by 35% compared to the same quarter last year due to improved permit approvals and more favorable weather conditions. In manufacturing, we improved our operational uptime to 88% in the second quarter of 2026 compared to 87% in both the first quarter of 2026, and in the second quarter of 2025. This is an all-time high for Western Forest Products manufacturing sector. In sales and marketing, we continued our customer focus, developing value-added products and programs targeted with the end user in mind. Specialty products comprised 57% of sales in the second quarter of 2026 compared to 52% in the same quarter last year. From a cash flow and balance sheet perspective, we collected the Columbia Vista property insurance proceeds of USD 22.8 million in the second quarter and completed the sale of the sawmill site for USD 14.7 million in July. We look to finalize the Columbia Vista business interruption insurance process in the third quarter, and we continue to advance the $80 million sale of our Stillwater force operations which is anticipated to close in the second half of 2026. Assuming the completion of all these items, we expect to end the year with a pristine balance sheet, which will be in a net cash position. Looking ahead, we remain focused on executing our strategy and maintaining a strong balance sheet. We see gradual improvements to lumber markets over the midterm. However, in the near term, due to persistently weak market conditions, high softwood lumber duties and tariffs, and factors relating to the BC operating environment, we plan to curtail our collagen-based sawmill for the remainder of 2026. I will now turn it over to Glenn to review our key financial results.
Glen Nontell: Thanks, Steven. Second quarter adjusted EBITDA was $0.4 million as compared to $0.5 million in the same period last year. Second quarter EBITDA in 2026 included $2.3 million in share-based compensation due to a 20% increase in our share price. As compared to the prior year, results in the second quarter benefited from improved lumber pricing across many product lines, a strong specialty lumber sales mix, more favorable harvesting conditions and a strong external log sale mix. This was primarily offset by a 25% reduction in lumber shipments due to softer demand and loss of sales from our Columbia Vista division, and higher softwood lumber duties and tariffs with the combined duty and tariff rate of 45% compared to 14% in the same period last year. We closed the second quarter with approximately 67 million board feet of lumber inventory and 622,000 cubic meters of log inventory. Turning to CapEx, our 2026 total CapEx spending is expected to be between $45 million to $50 million which includes approximately $20 million related to 2 previously announced continuous kilns and one Thermo kiln at our value-added division and the autograder at Duke Point. From a balance sheet perspective, our Q2 ending net debt declined by $14.4 million and liquidity improved compared to the end of the first quarter. We ended the second quarter with a net debt to capitalization ratio of 6% and compared to 9% at the end of the first quarter. After the end of the second quarter, we completed the sale of the Columbia Vista sawmill site for USD 14.7 million. With the planned sale of our Stillwater Force operations, which is anticipated to close in the second half of 2026, we expect to be in a net cash position at the end of the year. Turning to third quarter seasonality, typical third quarters can be challenging operationally as hot, dry weather can restrict logging activity, reducing harvest volumes and impacting costs. While we have yet to experience any significant forest fires in our areas of operation, hot and dry conditions may impact harvest levels through the summer. I will now turn it over to Bruce to go through the market outlook.
Bruce Alexander: Thanks, Glenn. Turning to our market outlook. North American lumber markets are expected to be relatively stable through most of the third quarter of 2026. Housing affordability continues to be the most significant issue leading to reduced housing demand. Elevated interest rates, higher fuel costs and broader economic uncertainty are contributing to subdued consumer confidence and the reduced housing demand. Despite these headwinds, reduced lumber supply across North America has helped to offset weaker demand and support price stability across key product categories and market segments. Lumber demand in Japan has improved as housing starts gained momentum through the second quarter of 2026, while lumber inventories at the ports decreased. The Japanese lumber market is expected to be stable through the third quarter of 2026. Demand for softwood lumber in China is anticipated to soften in the third quarter of 2026. And as seasonal weather and high temperatures reduced construction activities. Overall, we currently have a third quarter order file of approximately 118 million board feet. Steven, that concludes my remarks.
J. Hofer: Thanks, Bruce. With that, Gary, we can open the call up to questions. .
Operator: The first question today comes from Sean Steuart with TD Cowen.
Sean Steuart: Steven, I want to start with the log harvest volume gain you saw this quarter. You referenced better weather, but also improved permit approvals. And I'm wondering if you can give some more context on the latter point and the sustainability of that change going forward.
J. Hofer: Thanks, Sean. We've had a pretty good start overall in our Timberlands operation starting in Q1, we're early on in January and February, we were able to get into higher elevation areas and more old growth. And that's just continued through Q2. weather has been very favorable to our operating environment on the B.C. coast. We've only lost a couple of days related to temperatures that put us in a safety watch zone. From a permitting standpoint, I'm really pleased at where we're at. It just speaks to our team's engagement and the investment we've made in developing long-term partnerships and long-term relations related to the First Nations in the traditional territories that we operate. So it's taken us some time, but I'm really pleased that the forward look that we now have on permitting, lots of work left to do. But through our planning group, through our First Nations relations group, through our Timberlands operating group, all the work we've been doing around integrated resource management plans, the first force landscape planning, plan that was completed here in British Columbia. We're starting to reap the rewards of that investment. So it really speaks to the work that's been going on for the last couple of years, and now we're starting to see the benefits of that.
Sean Steuart: That's great to hear. And you gave some context around your order file headed into the third quarter on the lumber side. Given all the puts and takes you've talked about here, can you give us perspective on the lumber production profile through the second half of the year and how that might translate into the shipment trend in Q3 and Q4?
J. Hofer: Yes. So we've had -- we've had the Samina sawmill curtailed since the beginning of the year that started actually in 2025. We've had [indiscernible] curtailed for the majority of Q2. So I think the lumber shipments are going to be fairly similar for Q3, Q4 as what we had here for the first 2 quarters. What we're doing is that if we see opportunities to increase our volumes, we have the opportunity to restart quickly or to add some incremental hours at our existing facilities that are running. So directionally, I would say they'll be fairly consistent here for the next couple of quarters. .
Sean Steuart: Okay. One last one for me, Steven. We asked the same question last quarter, but you've got really good visibility on balance sheet transitioning to net cash and lots of flexibility, have management team and the Board given updated thoughts to bigger picture growth ambitions, whether it's specific discretionary CapEx projects or acquisition opportunities, any evolution in the thinking on your appetite on that front?
J. Hofer: Yes. I would say today that we've worked incredibly hard to put our balance sheet in this position. We're going to continue to be very disciplined as we assess opportunities, whether they're here in British Columbia or in different geographic jurisdictions. We have a very clear strategic plan with strategic priorities. We know that our cost structure inside of our manufacturing facilities is too high. And everything that we're doing is focused on reducing that. So when I think about kind of the next phase of strategic capital, that we would look to deploy, it would really be around addressing some of these inherent cost structure challenges that we have on the manufacturing side. So we have a modest investment plan that we've previously talked about inside of our engineered wood facilities in Washington state. We continue to be encouraged by the results we're seeing on the mass timber side in North America and the adoption of that building system, and we plan to move forward with that investment as we go into 2027. So I would say directionally, we continue to look at opportunities as they present themselves, but we're very much aware of some of the internal challenges that we have and that we'll need to get addressed. So I would view that as our initial priority, Sean?
Operator: Next question is from Ben Isaacson with Scotiabank.
Ben Isaacson: Just 2 questions from me. The first one is on Cowichan Bay. So you've curtailed for the balance of '26. What exactly do you need to see to restart that mill? And can you talk about risk of permanent closure.
J. Hofer: -- yes. I won't comment on the second question. I will comment, though, on the first question. So the Cowichan Bay sawmill is primarily focused on Western Red Cedar. And the log profile that we consume there is a combination of both small diameter chip and saw and the kind of medium diameter game cedar. And clearly, the key and largest market for Nati Cedar that, that mill produces is in the United States. And so what would we need to see, we've run into, I would call a ceiling and our ability to increase prices to compensate for the current 45% tariffs. So what we would need to see is a meaningful reduction in duty and tariff that allows us to be competitive in that key market to sell [indiscernible] finished product for Western Red Cedar decking and soffit and sidings and those type of product line. So I guess the short answer is a negotiated settlement to the current softwood lumber agreement and the Section 232 tariffs that we currently face. .
Ben Isaacson: That's super helpful. I appreciate that. Next question is on these Kiln investments, these value-added investments. Can you just talk about the EBITDA uplift or margin improvement or IRR? Like how should we think about what you're seeking to earn on the capital deployment?
J. Hofer: Sure. Maybe I'll just -- I'll speak to it at a very high level, and then I'll turn it over to Glenn and Bruce. Directionally, what we're doing here is we're increasing our overall kiln capacity, and then we're lowering the cost structure of the go-forward cost to kiln dry lumber. And so these new continuous dry kilns are much more efficient from a natural gas utilization standpoint. They drive lumber faster. And so at high level, that's what we're doing. And then we're shedding -- we essentially have shut down all of our high-cost batch kilns that were currently being used. But Glenn and Bruce, maybe some additional color from you gentlemen.
Glen Nontell: Yes, sure. On the CDKs, as Stephen mentioned, not only is it a cost reduction play, but we now have enough capacity to dry 100% of our dry able fiber, which we did not have prior to this investment. So we're now in that position. The other thing that we've seen with this new technology and the control and the drying process is a significant uptick in the outturns of the products coming out of the mill, which is adding significant value to our product mix as well.
Bruce Alexander: And maybe, Ben, just from a return perspective, obviously, internally, we set return thresholds at greater than 20% IRRs. I'd say that all these kiln projects are well in excess of that, probably well in excess of 40% overall relative to the capital cost.
Ben Isaacson: That's great. And then if I can, just one last one. I'm not very familiar with how these title claims work on your tenure. Can you just kind of explain is there -- are there more claims that could pose a risk versus the one that you guys talked about? Or how do we think about that?
J. Hofer: Well, we don't have any specific title claims being litigated with any of our existing Tree Farm licenses. We have a forest license out in [indiscernible]. It's relatively small, and that is part of the new chalet litigation, but that's the only impact at this point in time that we have on any of our volume coming off of PFLs and/or forest licenses. .
Ben Isaacson: Understood. That makes sense. And just to be clear, you don't see any risk right now to anything else being challenged? .
J. Hofer: I don't.
Operator: The next question is from Matthew McKellar with RBC.
Matthew McKellar: I'd like to follow up a bit on your comments in response to Sean's question, and just ask if there's any more detail you can share around your plans at Fruit Valley, I think you talked about new fabrication machines like the glulam beams, but also evaluating opportunities to modernize and consolidate Guam facilities in the region at Fruit Valley. Can you just give a bit more color on how these initiatives are progressing and maybe what the mad signals you're seeing from the mass timber market at this point, please?
J. Hofer: Yes. Thanks, Matt. This is a pretty exciting area of our business, but it is relatively small in the grand scheme of things. But we do view it as a strategic and a core piece of our business as we go forward. So when we bought the Calvert company, Calvert had 2 facilities that they manufactured glulam beams at. And as part of the Columbia Vista manufacturing footprint, there were 2 separate locations. There's the Columbia Vista sawmill and then the Columbia Vista kilns and planar. That's called Fruit Valley. And so our strategic plan has us consolidating the 2 facilities that we currently are at, 1 in Wahoo, Washington, 1 in Vancouver, Washington, to the Fruit Valley facility that's in Vancouver, Washington. And we will utilize some of the existing kilns out are there to purchase rough Green lam stock. Those are state-of-the-art low-cost kilns. We will utilize the planar in the manufacturing process as well. And we own the facility free and clear. So it's really an opportunity for us to move from 2 facilities to 1 no longer on lease property and leverage a really nice manufacturing complex that is there. So we have the hung digger fabricating machine on order. That allows us to start fabricating our glulam beams, and that will happen in the first quarter of 2027. We've added some additional sales engineering resources as well as technical design resources, and we continue to participate in that mass timber building segment for the Glue Lam mass timber beams, so columns and heaters that are complementary to others providing CLT, so we don't envision ourselves being in the CLT business, but we do want to be in the mass timber Glue Lam business that requires us to participate in in design, engineering, fabrication, including all the hardware that goes with it. And we're pretty excited about the growth prospects, especially in the Pacific Northwest. If you think about where the subject matter expertise resides with respect to mass timber architecture and design and specification between Seattle and Portland, it's heavily concentrated in that region. So we're developing relationships with large general contractors with specifiers and yes, and we're winning some jobs, which is pretty exciting. So it's an area of our business, again, that it's not huge, but it's -- we see it as an opportunity for us to continue to learn and grow and ideally strategically grow that in perhaps a couple of different geographic jurisdictions.
Matthew McKellar: That's great. Thanks for all the detail there. If I could ask 1 more on capital projects. I would be curious also to hear a bit more detail on the auto greater upgrade at Duke Point. I think that MSR greater dates than just a few years back, is this upgrade using technology that wasn't available a few years ago? Could you help us understand how it complements kind of what you have already? And maybe what kind of return do you expect on that upgrade as well.
J. Hofer: Sure. So as you know, the auto grading technology has been around for a number of years. When we put the first auto grader in in the Duke Point sawmill, it really allowed us to start separating out rough green specialty grades inside the sawmill and that had a well, had an immediate payback, and I think it significantly exceeded our expectations, both from a grade recovery, productivity, lower costs and has just been a great project. The planer mill did have -- or does have an older, outdated auto-grading technology, but it's at end of life. And it still required us to have a significant amount of our team members, manually grading lumber. And so the new platform we're putting in, it's again, it's proven, it's tested. We're working with the market leader in North America. It has the most advanced AI platform that sits on top of the software, and we expect it to be very complementary to the previous investment on the MSR capability and essentially is I'm not trying to simplify it, but it is a plug-and-play operating platform that is very complementary to the 1 we already have in the sawmill. So it leverages all the investment we've previously made, both on hardware, software and people. And we're pretty optimistic that this will again exceed our internal return hurdles. So pretty excited about the project.
Matthew McKellar: Great. Very helpful. And just one quick modeling 1 for me. apologies if I missed it, but on the Columbia Vista site sale, do you expect much of a tax impact? What do you expect net proceeds to look like?
Glen Nontell: Yes. Matt, it's Glenn. So between the property insurance proceeds and the sale of the property, we expect the tax impact to be about CAD 5 million, which would not be payable until 2027.
Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Mr. Hofer for any closing remarks.
J. Hofer: Well, thanks, everyone, for joining our call today. We appreciate your continued interest in our company, and we will look forward to our next call in November. Have a great day. .
Operator: The conference has now concluded. Please disconnect your lines at this time, and we thank you for your participation.