Conifex Announces First Quarter 2024 Results

Conifex Timber Inc. (“Conifex”, “we” or “us”) reported results for the first quarter ended March 31, 2024.  EBITDA* was negative $0.5 million for the quarter compared to EBITDA of negative $3.5 million in the fourth quarter of 2023 and negative $6.9 million in the first quarter of 2023. The first quarter results were favourably impacted by $3.0 million insurance settlement for the loss of the Osilinka Logging Camp. Net loss was $4.5 million or $0.11 per share for the quarter versus net loss of $5.3 million or $0.14 per share in the previous quarter and net loss of $8.1 million or $0.20 per share for the year-earlier quarter.

Summary of First Quarter 2024 Results

Consolidated Net Earnings

During the first quarter of 2024, we incurred a net loss of $4.5 million or $0.11 per share compared to a net loss of $5.3 million or $0.14 per share in the previous quarter and net loss of $8.1 million or $0.20 per share in the first quarter of 2023.

Lumber Operations

North American lumber market prices saw a recovery in the first quarter of 2024 and rose relative to the fourth and first quarters of 2023. Canadian dollar-denominated benchmark Western Spruce/Pine/Fir (“WSPF”) prices, which averaged $601 in the first quarter of 2024, increased by 10% or $54 from the previous quarter and increased by 16% or $82 from the first quarter of 2023 . The market price increase in the first quarter of 2024 was positively impacted by continued reports of a more resilient US housing market from anticipated rate cutes and moderation of European supply to the North American Market. Despite that, US housing starts on a seasonally adjusted annual basis averaged 1,415,000 in the first quarter of 2024, down 2% from the fourth quarter of 2023 and up 11% from the first quarter of 2023

Our lumber production in the first quarter of 2024 totalled approximately 44.5 million board feet, representing operating rates of approximately 74% of annualized capacity. Lumber production of 33.2 million board feet of lumber in the previous quarter reflected production curtailments due to an overall reduced demand for lumber amid challenging economic conditions. Lumber production in the first quarter of 2023 was 41.2 million board feet or approximately 69% of annualized capacity, primarily due to a 1-week production curtailment combined with lower throughput.

Shipments of Conifex-produced lumber totaled 44.5 million board feet in the first quarter of 2024, representing an increase of 14% from the 39.1 million board feet shipped in the previous quarter and an increase of 10% from the 40.6 million board feet of lumber shipped in the first quarter of 2023. Shipments of Conifex-produced lumber in the first quarter of 2024 were greater than those in the referenced previous quarters as a result of more operational days due to no scheduled market related curtailments.

Our wholesale lumber shipments dropped to nil for the first quarter of 2024 relative to approximately 1 million board feet in the fourth and first quarters of 2023.

Revenues from lumber products were $29.5 million in the first quarter of 2024 representing an increase of 18% from the previous quarter and an increase of 8% from the first quarter of 2023. Compared to the previous quarter, higher shipment volumes and mill net realizations on higher lumber market prices contributed to the higher revenue. The revenue increase in the current quarter over the same period in the prior year was largely a result of similar factors, higher shipment volumes and higher mill net realizations from higher lumber market prices.

Cost of goods sold in the first quarter of 2024 increased by 15% from the previous quarter and decreased by 7% from the first quarter of 2023. The increase in cost of goods sold from the prior quarter was mainly due to increased shipment volumes in the current quarter. The cost of goods sold in the first quarter of 2023 was higher than the current quarter as a result of higher unit costs, primarily around logs. Unit manufacturing costs in the first quarter of 2024 decreased in comparison to the previous reference quarters as a result of a significantly lower consumed log cost. We recorded inventory valuation reserves of $1.1 million in the first quarter of 2024, respectively, compared to $1.3 million in the fourth quarter of 2023 and $2.3 million in first quarter of 2023. Inventory valuation reserves decreased in comparison to the previous quarter due to an increase in projected lumber sales value and decrease in inventory carrying values.

We expensed countervailing (“CV”) and anti-dumping (“AD”) duty deposits of $1.4 million in the first quarter of 2024, $1.1 million in the previous quarter and $1.2 in the first quarter of 2023. The duty deposits were based on a combined rate of 8.05%. The export taxes during the first quarter of 2024 were higher than the previous quarters due to an increase in overall shipped volume and lumber prices, while the proportion of volume shipped into the US remained relatively unchanged.

Bioenergy Operations

Our Power Plant sold 56.0 GWh of electricity under our EPA with BC Hydro in the first quarter of 2024 representing approximately 102% of targeted operating rates. Our Power Plant sold 43.5 and 34.6 GWh of electricity in the fourth quarter and first quarter of 2023, respectively. Production in the first quarter of 2024 was higher than the fourth quarter of 2023 due to an increased number of operating days in the first quarter of 2024 as well as higher generation rates, and higher than the first quarter of 2023 due to the temporary shutdown into mid January for turbine repairs that occurred in 2022.

Electricity production contributed revenues of $8.2 million in the first quarter of 2024, $7.7 million in the previous quarter and $4.5 million in the first quarter of 2023.

Selling, General and Administrative Costs

Selling, general and administrative (“SG&A”) costs increased between the current quarter and previous quarter and decreased from the current quarter and prior year comparative period. SG&A costs were $2.6 million in the first quarter of 2024, $0.6 million in the previous quarter and $3.2 million in the first quarter of 2023. The reduction in SG&A costs in the previous quarter was largely due to the revaluation of long-term incentive awards. The reduction in SG&A costs relative to the previous year comparative is a result of a reduction in corporate overhead.

Finance Costs and Accretion

Finance costs and accretion totaled $1.3 million in the first quarter of 2024, $1.3 million in the previous quarter and $1.2 million in the first quarter of 2023. Finance costs and accretion relate primarily to our term loan supporting our bioenergy operations (the “Power Term Loan”) as well as the drawn portion of our Revolving Credit Facility.

Other Income

We recognized $3.0 million in other income in the first quarter of 2024 to reflect insurance proceeds from the fire that destroyed our Osilinka logging camp. Insurance proceeds were received in the second quarter of 2024. In the fourth quarter of 2023 we recognized minimal other income while in the first quarter of 2023 we recognized $2.2 million for the final tranche of funds received related to the insurance claim on the Power Plant turbine failure from 2022.

Foreign Exchange Translation Gain or Loss

The foreign exchange translation gain or loss recorded for each period on our statement of net income results from the revaluation of US dollar-denominated cash and working capital balances to reflect the change in the value of the Canadian dollar relative to the value of the US dollar. US dollar-denominated monetary assets and liabilities are translated using the period end rate.

The US dollar averaged US$0.741 for each Canadian dollar during the first quarter of 2024, a level which represented a modest strengthening of the Canadian dollar over the previous quarter .

The foreign exchange translation impacts arising from the variability in exchange rates at each measurement period on cash and working capital balances resulted in a foreign exchange translation gain of $0.3 million in the first quarter of 2024, compared to a foreign exchange translation loss of $0.3 million in the previous quarter and a loss of nil in the first quarter of 2023.

Income Tax

We recorded income tax recovery of $0.5 million in the first quarter of 2024, and income tax recovery of $2.5 million in the previous quarter and income tax recovery of $2.5 million in the first quarter of 2023. The decrease in the recovery is due on increase in net income from the previous quarter.

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities on our balance sheet and the amounts used for income tax purposes. As at March 31, 2024, we have recognized deferred income tax assets of $3.5 million.

Financial Position and Liquidity

Overall debt was $61.8 million at March 31, 2024 compared to $63.8 million at December 31, 2023 and $67.4 million at March 31, 2023. The decrease in overall debt between the first quarter of 2024 and the fourth quarter of 2023 was mainly driven by a repayment of approximately $0.9 million against our secured revolving credit facility with Wells Fargo (the “Revolving Credit Facility”), combined by principal and interest payments against the Power Term Loan in the first quarter of 2024. The decrease in overall debt at March 31, 2024 relative to March 31, 2023 was due to a decrease in the amount drawn against our Revolving Credit Facility of $12.5 million down to $10.6 million, combined with payments against our Power Term Loan and monthly lease payments. Our Power Term Loan, which is largely non-recourse to our lumber operations, represents substantially all of our outstanding long-term debt. At March 31, 2024, we had $49.0 million outstanding on our Power Term Loan, while our remaining long-term debt, consisting of leases, was $1.9 million.

At March 31, 2024, after completion of the Amendment, we had available liquidity of $10.2 million comprised of unrestricted cash of $4.2 million and $6 million available under the Revolving Credit Facility, subject to the terms of the Revolving Credit Facility.

Like other Canadian lumber producers, we were required to begin depositing cash on account of softwood lumber duties imposed by the US government in April 2017. Cumulative duties of US$35.4 million paid by us, net of sales of the right to certain refunds, since the inception of the trade dispute remain held in trust by the US pending administrative reviews and the conclusion of all appeals of US decisions. We expect future cash flows will continue to be adversely impacted by the CV and AD duty deposits to the extent additional costs on US destined shipments are not mitigated by higher lumber prices.

For full first quarter results click here.

About Conifex Timber Inc.

Conifex and its subsidiaries’ primary business currently includes timber harvesting, reforestation, forest management, sawmilling logs into lumber and wood chips, and value added lumber finishing and distribution. Conifex’s lumber products are sold in the United States, Canadian and Japanese markets. Conifex also produces bioenergy at its power generation facility at Mackenzie, BC.

Contact:

Trevor Pruden – CFO – (604) 216-2949

Source: Conifex Timber Inc.