GreenFirst Forest Products Inc. (GFP) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen, and welcome to GreenFirst's 2026 Second Quarter Results Conference Call. [Operator Instructions]. During the conference call, GreenFirst representatives will be making certain statements about future financial and operational performance, business outlook and capital plans. These statements may contain forward-looking information or forward-looking statements within the meaning of the Canadian securities law. Such statements involve certain risks, uncertainties and assumptions which may cause GreenFirst's actual or future results and performance to be materially different from those expressed or implied in these statements. Additional information about these risks factors and assumptions included in GreenFirst MD&A and annual AIF, which can be accessed on the company's website through SEDAR. After the speaker's remarks, there will be a question-and-answer session. Please submit your questions to the online portal. I will now pass over to Joel Fournier to begin the management presentation.

Thank you, Sylvie, and good morning, everyone, and welcome to our Second Quarter 2026 earnings call. I'm Joel Fournier, the Chief Executive Officer of GreenFirst. Today, I'm joined by Peter Ferrante, our CFO, and Michel Lessard, our President. I'm pleased to announce that during the second quarter, our production and shipment volume increased by over 20% and 40%, respectively. Additionally, our net sales saw a significant increase of approximately 60% as a result of increase in the benchmark lumber price and strong sales volume. This helped us deliver positive operating income and EBITDA during the quarter. Compared to the previous quarter, we ended Q2 generating approximately $96 million in net sales. This performance was primarily driven by our strongest shipment quarter over the past 2 years of approximately 120 million MFBM. This was combined with a higher realized selling price and an improved grain mix. During the quarter, our average lumber selling price increased by approximately $60 per 1000 FBM compared to previous quarter Q1. Overall, our mill finished Q2 with stronger production and lower costs compared with Q1 2026. The increased production volume allow the company to leverage its fixed manufacturing costs, which in turn reduced their cost of sales despite energy and fuel cost headwinds. This resulted in an overall cost and sale reduction of approximately $70 per thousand during the quarter. Despite this positive operational results, our business continued to face significant pressure from duty and tariffs. During Q2 alone, we incurred approximately $21 million in duty and tariff an increase of $13 million compared to last year in Q2. We are closely following the ongoing negotiations between the Canadian federal government and the U.S. administration. During the quarter, we received approximately $3.2 million from a provincial government through the Ontario sawmill chip supply program. We will continue to work closely with both the federal and provincial governments to take advantage of recently announced program available to our industry to support their strategic initiatives. These measures will help strengthen both our current and future liquidity position. Now I'm going to discuss a little bit about the market. So Q2 lumber market update. Overall, lumber market condition improved in Q2 compared with Q1, supported primarily by positive development on the supply side. On the demand side, U.S. housing start reached approximately 1.4 million units in June 2026, representing an increase of 3.5% on compared with June 2025 and approximately 19% compared with May 2026. In the repair and remodeling segment, we continue to see strong demand from our key home center partner. During the quarter, we further expanded our business with this segment by adding 2 additional locations. On the supply side, it's also worth noting that a number of mill curtailments were announced during Q2 across Canada. This capacity reduction, combined with modest improved market conditions, provides support for steadily increased lumber price during the quarter. Home affordability remains a challenge with Morten rage with mortgage rate presently at 6.58% in July. The industry will need to continue to see decline in the federal interest rate in order to support stronger demand moving forward. While we are encouraged by the improvement we saw in Q2, we remain cautious about the outlook for lumber pricing in the coming quarters. Market conditions remain uncertain and we will continue to closely monitor both demand and industry capacity as we move through the second half of the year. I will pass it over to Peter for the financial section.

Thank you. Good morning, everyone, and thank you for joining our call. Today, I will review our second quarter financial performance, liquidity position and key financial highlights. Revenue for the second quarter totaled $96.1 million compared to $60.6 million in the first quarter and $84.5 million in the second quarter of last year. Lumber sales totaled $91 million with byproduct revenue of $5.1 million. The sequential increase was primarily driven by higher shipment volumes and stronger realized lumber prices. Average gross selling prices increased to $765 per thousand board feet, while average net selling prices increased to $486 per 1,000 board feet after duties and tariffs. Overall, the quarter reflects a significant improvement in both revenue and operating momentum compared to the first quarter. A key feature of the quarter was that cost of sales totaled $62.1 million, essentially any change from the first quarter despite shares increasing by more than 40%. This reflects the benefits of higher production volumes, improved manufacturing efficiency and better first cost absorption. While inventory costs increased in absolute dollars as higher volumes move through the business, manufacturing costs declined on a per unit basis as production increased at fixed costs were absorbed over a larger production base. The quarter also benefited from the reversal of previously recognized inventory valuation reserves primarily reflecting the stronger lumber prices lower manufacturing costs and improved inventory mix compared to prior period. In addition, results benefited approximately from $3 million of previously approved Ontario sawmill chip support program funding recognized during this quarter. Freight costs increased with higher shipment volumes, while depreciation remained relatively stable. Export duties and tariffs totaled $21.1 million compared to $12.1 million in the first quarter, primarily reflecting higher export volumes under elevated duty and tariff fleets. Selling, general and administration expense remained well controlled at $4.3 million, consistent with the first quarter. Foreign exchange losses were $600,000, and there were no impairment charges during the quarter. Finance costs increased modestly to $2.4 million, reflecting the additional borrowings completed during the first quarter of the year. Operating income improved to $7.9 million compared to an operating loss of $19 million in the first quarter. EBITDA from continuing operations turned positive to $11.8 million compared to a negative $15.1 million in Q1. Reported EBITDA benefited from the reversal of previously recognized inventory valuation reserves and government support by products. Importantly, however, the quarter also reflected and meaningful improvement in underlying operating performance, driven by higher production and shipments, stronger realized pricing and improved manufacturing efficiency. While year-to-date results continue to reflect the challenging first quarter, the second quarter demonstrates meaningful progress across our operations. Production increased 22% sequentially to $111 million board feet, while shipments increased 43% to $119 million board feet. -- shipments, therefore, exceeded production during the quarter, resulting in a reduction in inventory and helping to reserve the seasonal inventory build experience in the first quarter. This also provided a positive contribution to working capital during the quarter. Turning to working capital and cash. The company ended the quarter with $2.8 million of cash compared to $6.5 million at the end of the first quarter. The company also continues to have access to its revolving credit facility and other financing arrangements to support its liquidity requirements. Operating activities generated $2.4 million of cash during the quarter, reflecting the improvement in operating performance. This was partially offset by working capital movements, primarily the settlement of trade payables that had accumulated during the first quarter. While operating cash flows returned to positive territory, improving the conversion of earnings into sustainable cash flow remains an important management priority. Investing activities remain modest with capital expenditures of approximately $900,000, reflecting our continued disciplined approach to capital spending. Financing activities used $5.1 million of cash, primarily reflecting the scheduled repayments of lease obligations and equipment financing together with repayments on the revolving credit facility. Liquidity management remains a key priority. At the same time, the second quarter demonstrates that improvements in operating performance are beginning to translate into stronger financial results and cash generation. Management remains focused on disciplined working capital management, prudent capital allocation and improving the conversion of operating performance into sustainable cash flow. We will also continue to actively manage the impact of duties and tariffs. Overall, the second quarter represents a good progress from both an operating and financial perspective. We increased production and shipments, improving manufacturing efficiency, strengthened our realized pricing and return to a positive operating income and EBITDA. While challenges remain particularly around duties, tariffs and liquidity, the second quarter provides a strong foundation as we move through the balance of the year. This concludes my remarks, and I will pass it back to Joel.

Thank you, Peter. Looking ahead, GreenFirst will continue to pursue its objective of becoming top quartile operator and the largest producer in Ontario by maximizing the use of its available wood supply. This continues to position the company uniquely from a log supply perspective compared to its competitors. As mentioned in the previous quarter, we continue to make progress with the commissioning of the new large log line at our shop loan mill. We expect the ramp-up to continue through Q3. While the commissioning process has taken somewhat longer than originally anticipated, we are making steady progress and are now beginning to see the benefit of the investment. This remains 1 of our key operational priority going forward. Our objective is to continue increasing throughput at the mill, which should help reduce our manufacturing costs, while maintaining a strong grade mix to support mill net realization. Looking ahead, we will also evaluate the reintroduction of smaller strategic capital expenditure that can generate improvement in productivity and operating performance. We will also continue to execute necessary maintenance of business capital expenditures across operations. We remain prudent with cash and discipline in our approach to capital allocation. At the same time, we will evaluate potential larger strategic investment where the economics are compelling particularly where we may be able to take advantage of recently announced federal government support programs. No decisions have been made at this time regarding larger CapEx projects and we will communicate further development to our shareholders as appropriate. Turning to our wood residual strategy. We continue to work with Texiana to explore a potential partnership for the development of a torrefied pellets facility in Chapleau. We believe there is an opportunity to better utilize sawmill residuals in the region while potentially creating additional value for green first. The proposed project could support effort to replace coal with lower carbon energy sources for power generation. We are currently progressing through the feasibility stage and expect this work to be completed during Q3. Subject to the results of the visibility study require approval, financing and final investment decision, construction could potentially begin in late 2027. We believe this type of project is well aligned with the federal government recent commitment to support the Canadian forest product industry and investment and strengthen the long-term competitiveness of the sector. Finally, we continued to closely follow development involving 1 of our major chip customer, Cap paper. Cap paper is currently working with the government and the potential third-party partners on the development of an MDF facility and capscasing. Should this project receive the necessary approval and proceed it could create an important new market for wood is draw and support health Ontario more stable, long-term demand for sawmill residuals in Northern Ontario. We are encouraged by the positive results achieved during the second quarter and by the improvement we signed both operation and the lumber market. However, we remain prudent as we look ahead given the continued uncertainty around lumber pricing, duties and broader market conditions. I would like to highlight that we continue to maintain our excellent safety performance during the second quarter. Both of our key safety indicators recordable rate and severity rate remain among the best in our sector in relation to our North American peers. This performance reflects the continued commitment of our employees to choosing safety under day-to-day work and demonstrate the strength of the safety culture across the company. GreenFirst remain committed to continuous improvement as a core strategy to enhance business performance. At the same time, we will maintain a disciplined approach to cash management and capital allocation to ensure -- the company remains well positioned to navigate potential economic headwinds and market uncertainty. I would like to also take this opportunity to announce that I will be formally resigning from my position as CEO of GreenFirst effective October 31, 2026. I'm proud of what we accomplished together during my time at GreenFirst and of the progress the organization has made through a challenging period for our industry. These accomplishments reflect the commitment and dedication of our people, and it has been a privilege to work alongside such a strong team. I would also like to thank the Board for the opportunity to lead GreenFirst and their support during my tenure. I remain confident in GreenFirst people asset long-term potential, and I'm committed to supporting a smooth transition and ensuring continuity. I wish the entire GreenFirst continued success. I would like to thank everyone for joining the call today and your with your continued trust with GreenFirst. We will now answer any questions that have come through.

[Operator Instructions]

Okay. This is Joel. We do have a question around Chapoularge. Now that the Chapoularge log line is ramping up, could you provide an update on how volume and product quality are tracking against expectation? -- and when we'll see the lines full financial contribution. I will take -- I will answer this one. The Chapoulage line continued to make progress month after month. Overall, the monthly performance remains short of pro forma expectation for now. The project is taking a little bit longer than initially expected, but the forecast ramp-up remained in line with comparable projects in the industry. We expect the line to continue ramping up through the remainder of the year and to realize its full financial contribution by year-end. We continue to work actively with the vendor support in order to bring the line to expected level of production. Overall manufacturing performance in Q2 versus Q1 was positively impacted by Chapleau line as productive volume increased by over 35%. We along with that question, people are asking what other improvement or efficiency are you working at the mill? Like I mentioned briefly in my in earlier, -- we're going to reintroduce small strategic capital expenditure that will help to push throughput in our mill to further reduce our costs. Such project could be speed control system on actual saw line -- and those paybacks are generally quick. Those projects are generally a quick payback. Okay. We do have another question here. As a result of the recent regional forest fire in Northern of Ontario, do you foresee any issue with short-term or long-term fiber basket ability and quality for the company. I will let Michel, our President, to answer the question.

Thanks, Joel. We're not impacted by the recent forest fires in Ontario. So the most significant fire that we got occurred in the North Western on the province, while our operations are located in the Northeastern -- as a result, we did not experience any material disruptions to our operations, fiber supply or production. Now as it relates to our long-term fiber basket. Availability is currently not a limiting factor for GreenFirst, we have sufficient government-allocated fiber and harvesting capacity to support continued production growth well beyond our current operating level.