TSE:DBM Doman Building Materials Group Q2 2023 Earnings Report C$6.84 +0.15 (+2.24%) As of 04/28/2025 04:00 PM Eastern Earnings HistoryForecast Doman Building Materials Group EPS ResultsActual EPSC$0.34Consensus EPS C$0.16Beat/MissBeat by +C$0.18One Year Ago EPSN/ADoman Building Materials Group Revenue ResultsActual Revenue$710.75 millionExpected Revenue$669.77 millionBeat/MissBeat by +$40.98 millionYoY Revenue GrowthN/ADoman Building Materials Group Announcement DetailsQuarterQ2 2023Date8/3/2023TimeN/AConference Call DateFriday, August 4, 2023Conference Call Time10:00AM ETConference Call ResourcesConference Call AudioConference Call TranscriptPress ReleaseEarnings HistoryCompany ProfilePowered by Doman Building Materials Group Q2 2023 Earnings Call TranscriptProvided by QuartrAugust 4, 2023 ShareLink copied to clipboard.There are 5 speakers on the call. Operator00:00:00Greetings, and welcome to the Jomon Building Materials Group Second Quarter 2023 Conference Call. At this time, all participants are in a listen only mode. A brief question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Ali Mahdavi, Investor Relations. Operator00:00:32Thank you, Ali. You may begin. Speaker 100:00:35Thank you, operator, and good Speaker 200:00:36morning, everyone. Thank you for joining us this morning for the Doman Building Materials' 2nd Quarter 2023 Financial Results Conference Call. Joining me on this call this morning are the company's Chairman and Chief Executive Officer, Amar Gohman and Chief Financial Officer, James Coe. If you have not seen the new leasing position after the close of market yesterday, it is available on the company's website as well as on SEDAR along with our MD and A and financial statements. I would also like to remind you that a replay of this call will be accessible until midnight on August 18. Speaker 200:01:10Following management's presentations and remarks on the 2nd quarter results, we will conduct a Q and A session for analysts only. Instructions will be provided at that time for you to join the queue for questions. Before we begin, we are required to provide the following statements regarding forward looking and may cause actual results to differ materially. Any information regarding forward looking statements is made as of the date of this call, The company does not undertake to update any forward looking statements. Please read the forward looking statements and risk factors In the MD and A, we'll leave out on the material factors, which could cause actual results to differ materially. Speaker 200:02:08The company will not provide guidance regarding future earnings Management does not anticipate providing guidance in future quarterly or intercommunications with investors. I'd like to Speaker 300:02:19turn the call over to Omar. Speaker 100:02:22Thanks, Kelly. Good morning, everyone. Speaker 300:02:24Thanks for joining us on today's call. Going back with a strong start to the year with our Q1 results, We're very pleased and encouraged with how the Q2 unfolded. During our last call, I highlighted that we continue to work through pricing volatility and challenging year over year pricing comparatives. We like where it sits at present times. These trends continue to exist in our day to day activities. Speaker 300:02:47However, Our focus remains on what we can control to ensure we maximize margins and free cash flow generation. Our team is focused on inventory management with the goal of optimizing gross Margin performance, combined with our constant efforts on overall cost management, are key contributors to our success in our strong second quarter. Demand also remained steady across all key end markets during the quarter with volumes in various categories showing good sign of wavering. However, given the lower pricing for construction materials on a year over year basis, revenues were lower in the Q2 when compared to the same period last year as expected had a much improved margins. To put this in numbers, gross margin for the Q2 was 17% compared to just under 12% a year ago. Speaker 300:03:31Our financial and operational performance in the 2nd quarter is a testament to our ability to work through volatile markets and our team's track record on managing the business through similar cycles. Throughout the quarter, we remain laser focused as always on our margins and optimizing our balance sheet. To put the decline in lumber pricing and commodity pricing in perspective, year over year lumber is down in price 51%, OSP is down 54%, plywood is down 39% in price. Our ongoing cost management, focus on operational And successful integration efforts enabled the company to realize strong gross margin and EBITDA margin performance despite the massive deflation in commodity pricing. I am both pleased with and very proud of our financial performance, and typically from a pricing trend perspective, We have added to be extremely responsive to industry wide price volatility, while ensuring that our 1st class level of service remains on point. Speaker 300:04:30As a result of our collected efforts, revenues amounted to $710,000,000 Gross margin remained strong at 17% or $121,000,000 EBITDA amounted to a strong $66,000,000 Net earnings came in just under $30,000,000 and we paid our 55th Quarter in a row of dividends of $0.14 a share. Looking ahead, we are cautiously optimistic as we believe that the pricing environment, market demand We're nearing equilibrium at healthy levels. We're continuing to manage our costs and always look for growth opportunities. Our balance sheet optimization strategy is also tracking well with roughly $230,000,000 of debt reduction since our transformative acquisition of Hickson Lumber 2 years ago. Debt reduction is a key priority for us as we look forward to having a solid growth friendly and fire ready balance sheet for opportunistic acquisitions that we are always working on. Speaker 300:05:22As always, we remain confident in our ability to work through volatile markets, diligently, while serving our customers' needs for the highest level of service. You remain excited about our growth profile and our overall prospects of the business. We have built a solid diverse and resilient business in North America with a broad And growing footprint, which we are extremely proud of. I want to thank our team across North America, our customers and our suppliers for working so well with Filmon Building Materials For another strong quarter with all of our partners and again starting with our staff. With that, I'm going to hand the call over to Jay Cole, our CFO, You can take us through the numbers and then we'll take some calls from analysts later on. Speaker 300:06:01Thanks very much. And Jay, over Speaker 100:06:03to you. Thank you, Amar, and good morning, everyone. Sales for the quarter ended June 30, 2023 were $710,700,000 compared to 800 and $70,700,000 in 'twenty two, representing a decrease of $160,000,000 or 18.4%. The decrease is largely due to the impact of lower construction materials pricing, which generally declined since reaching its peak for last year in the month of March. The company's sales in the quarter were made up of 77% construction materials consistent with Q2 last year. Speaker 100:06:43With the remaining balance resulting from specialty and allied products of 20% and other sources of 3%. Gross margin dollars increased to $121,200,000 in the quarter compared to 100 and $2,700,000 last year, an increase of $18,500,000 Gross margin percentage was 17 The relatively stable pricing environment during the current quarter resulted in higher percentage and dollar margins realized by the company, contrasted with the negative impacts of the significant price volatility experienced in 2022. Expenses for the current quarter were $72,500,000 compared to $67,000,000 last year, an increase of $5,500,000 or 8.2 percent. And as a percentage of sales, Distribution, selling and administration expenses increased by $4,600,000 or 9.1 percent Speaker 200:08:04to $55,200,000 Speaker 100:08:08in Q2 from 50 point $6,000,000 last year, largely due to recent broad inflationary pressures contributing to higher expense levels during the current quarter. As a percentage of sales, these expenses were 7.8% in the quarter compared to 5.8% in 'twenty two. Depreciation and amortization expenses increased by $925,000 or 5.7 Finance costs this quarter were $10,500,000 compared to $9,600,000 in 'twenty two, an increase of $924,000 or 9.6 percent, largely due to this quarter's higher interest rates on our variable rate loan facilities, which was partially offset by lower average loan balances this year. This quarter's EBITDA was $66,000,000 compared to $52,100,000 last year, an increase of $13,900,000 or 26.7 percent. The increase in EBITDA was primarily a result of Higher gross margins this quarter, driven by the relatively stable construction materials pricing as contrasted with generally declining prices during Q2 'twenty two. Speaker 100:09:42Gilman's net earnings this quarter were $29,200,000 which is $20,700,000 in 20 Turning now to the statement of cash flows. Operating activities for the 6 month period ended June 30 consumed 6 $700,000 compared to $9,900,000 consumed in 2022. This period's relatively lower net earnings were set by stronger working capital metrics driven by stringent inventory volume management and generally lower construction materials pricing. Operating activities before non cash working capital changes generated 85,800,000 In cash compared to $97,600,000 in 2022, while seasonal changes in non cash working capital consumed 92 point dollars 5,000,000 in cash compared to $107,600,000 in the 1st 6 months of 2022. Overall financing activities generated a net cash amount of $8,800,000 from Equity and Debt stakeholders compared $5,000,000 for the comparative 6 month period in 2022. Speaker 100:10:58Payment of lease liabilities, including interest, $13,100,000 of cash compared to $12,200,000 in 2022. The company's lease obligations generally require monthly installments and these payments are 100% current. In this 6 month period, we borrowed an additional $120,500,000 on our revolving loan Compared to $43,200,000 in 2022, we utilized excess availability under revolving loan facility to redeem our $60,000,000 2023 unsecured notes and to repay the $14,100,000 balance on our non revolving term loan, both Speaker 400:11:49in the month of June 2023. Speaker 100:11:53Total net advances on loans and borrowings increased by 4 $800,000 year over year, largely a result of the previously discussed lower net earnings, positively offset by Strong working capital control, resulting in the slight increase in facility utilization this year. Shares issued net of transaction costs generated $609,000 of cash compared to $618,000 in 'twenty two. The company also returned $24,300,000 to shareholders through payment of dividends during the 6 month period, which was consistent with payments made in the first half of twenty twenty two. We also note the company was not in breach of Speaker 300:12:40any of Lending covenants during the Speaker 100:12:426 month period ended June 30, 2023. Speaker 200:12:46Finally, we Speaker 100:12:47invested $2,300,000 in new property, plant and equipment compared to net investments of $2,900,000 last year. This concludes our formal commentary, and we would now be happy to respond to any questions that you may have. Thank you. Operator? Operator00:13:07Thank you. Thank you. Our first question comes from Hamir Patel with CIBC Capital Markets. Please proceed with your question. Speaker 400:13:48Good morning. Mark, are you Speaker 200:13:50able to give us a sense Speaker 100:13:52How your treated volumes are tracking your fleet? And any major differences you might be seeing between Canada and the U. S? Speaker 300:14:03Yes. I think we could answer very confidently that our volumes in most markets are up from 2022. As you know, in the back half of last year, volumes did fall off quite a bit as well. But having said that, in the first half, we exceeded last year's volumes in virtually all Speaker 400:14:25Okay, great. Thanks. That's helpful. And then, Speaker 100:14:28Mohsen, just back Margins, obviously, very strong quarter here in Q2. How do you think about where gross margins So the business could stabilize over the long term? Speaker 300:14:40Yes. It's a nice margin profile this quarter. Everything lined up well and would call it a normal lumber market. Things were ticking up a little bit, but we didn't get a ton of tailwinds with lumber running up or anything like that. So it's just a nice Walking and tackling quarter, it was good. Speaker 300:14:56I would say as we go forward, the lumber market remains consistent. We'll be in It's like kind of a range. I would say that that was a very, very strong quarter where things aligned very well. So, we're hoping it will be in that I wouldn't say pushing too much higher than that. I think that's pretty strong for us, as you know. Speaker 300:15:15But things align well depending on where the lumber market goes. Operator00:15:26Thank you. Our next question comes from Paul Quinn with RBC Capital Markets. Please proceed with your question. Speaker 100:15:35Yes. Thanks very much. Good morning, guys. Just following up just on the overall business conditions. I think you're hearing from your customers that Your expectations for the last for the second half of the year and into 'twenty four, are they relatively optimistic at this time? Speaker 300:15:50I don't think anybody is optimistic. It's a weird environment, Paul, and thanks for your question. I would say that everybody is still running hand to mouth Inventories, this thing is not where people are getting ahead of themselves. It does appear like the new housing construction It's in sort of a demand zone where there's so many mortgages that were done at low rates. There's just not a lot of inventory out there. Speaker 300:16:12And that's what this is a demand driven housing market On the rental side as well for multi, so we're seeing a lot of strength there, but no one's wildly optimistic by any means. The numbers are good. They're consistent. Everybody is scared to over inventory just like they were. Starting in the Q1 last year, it's the same hand to mouth, no one's you need 10 trucks, you buy 5. Speaker 300:16:32That's why we get these flash rallies. In my view, everyone kind of bum rushes at the same time when they're all out and it creates a spark and then it fades again. And I think we're in Speaker 100:16:49Sure. It's to see much of the company have early sort of move to the commodity prices. It seems like with stability you guys, your gross margin seems to be Since taking a sweet spot, is it something consistent through most of the time that you run the company? Speaker 300:17:05Absolutely. And you take the COVID noise out of those wild swings that we all saw up and down. When we've got a relatively normal lumber market or stable, You're going to see those gross margins very, very steady. And do you have any comments on that, James? Speaker 100:17:19Yes. No, we've seen that, as Amar said, pre COVID. If you go back, It's a slightly different margin profile now that we've added Hixson during COVID 2 years ago this month. And that certainly enhances the margin in a steady market, PIXON's Performing well in this market in the Southern Yellow Pine category. Okay. Speaker 100:17:48Last question I had, any interest that you've done, any part of your business doesn't do well in this sort of steady environment? Speaker 300:17:56Cedar has been a bit challenging inside one of our divisions a little bit. And our logging side has been really wet until recently. Now it's Too dry, it seems, but those are very small parts of the business. So, working material, it seems that having the steep lumber market Gave us good legs here in the 1st and second quarter and it's been evidenced into the 3rd. So it's nice to see those consistent trends happen. Speaker 300:18:23But pretty much Operator00:18:34Thank you. Our next question comes from Zachary Evershed with National Bank Financial. Please proceed with your question. Speaker 100:18:51Can you tell us about the pricing Speaker 400:18:53of your existing inventory and that envelope level, what you're seeing in terms of Pricing trends on lumber and panels. Speaker 300:19:02Yes. I mean, it's I think we've got a little toppy a week ago and a couple of species are looking like Top note, don't see collapse, but just it's kind of top pricing. Our inventories are priced very well as we might have indicated on our last call, Zach. We've really reduced our inventories company wide, increased our turns. So we're much more live to the market for a lot of reasons. Speaker 300:19:24Obviously, just concerned about an uncertain interest rate environment and all that kind of stuff, but we're running faster, leaner, better with Last learned that through COVID, we've been putting that material and all that kind of stuff. So those strategies are keeping us more fit, Closer to the market, and I think that was evidenced by gross margin in the 1st 2 quarters Speaker 100:19:42of the year. Speaker 400:19:45That's good color. Thanks. Speaker 100:19:46And then moving on that running faster and linear, Speaker 200:19:49are you Speaker 400:19:49still expecting the usual seasonal offerings in the back half of the year in terms of not only Speaker 100:19:53the pace of sales and margin, Speaker 400:19:55also the working capital movement? Speaker 300:19:58Yes, that's correct, Zach. We would expect Speaker 100:20:01the normal seasonal pattern of Reducing inventory and receivables levels going through Q3. So that Usage of the revolving loan facility, you'll see come down when we report Q3 as is the normal pattern. Speaker 400:20:21That's great. And then zooming out a little bit, a question for you given the recent news flow on lumber duties Last time Speaker 100:20:31we touched base on the topic with you, you weren't really in the habit Speaker 400:20:34of moving product across the border. Number 1, That's still the case. And number 2, is there any impact to what the markets you can see? Speaker 300:20:43Yes. Our lithium division does do a little bit about Of course, involved in that, but they factor all that into their margins, etcetera, and have for years. So they clearly understand how to run that business very well. The larger part of the treated lumber business and our North American distribution business, CanWel, we do not Export virtually anything across the line. We do sell post poles and agricultural posts off our own timberlands that we manufacture, treat And we can ship some down to the U. Speaker 300:21:14S, but nothing that would have any softwood lumber duties except our Lincoln division. Speaker 400:21:23Thanks. And just one last one, a little bit speculative. When rates Speaker 100:21:33Where are the bottlenecks in your verticals that Speaker 400:21:35would be the fullest ramp up? Is it you, your suppliers, customer production staff, the rail? Speaker 300:21:43No, I think everything is into a good I'm not sure we'll get a runaway here, but it seems that it's sort of a back and fill kind of economy, the supply chains have caught up, the mills have kind of caught up. And We've got decent pricing out there. It's not great pricing by any means. You can see the sawmills, a lot of them are in the red right now, unfortunately. But I think that will come around as the production maybe comes off the market perhaps. Speaker 300:22:09But really, I think most of the supply chains have Caught up. I don't think there will be a bottleneck unless there's a housing boom again here. But with rates the way they are, I think we're just going to be steady as she goes. Having said that, if there was a massive pickup, I think the bottlenecks certainly would be at the manufacturing level Lumber and then perhaps transportation and rails. Speaker 100:22:36Great answer. Thanks. Operator00:22:43Thank you. Our next question comes from Yuri Lynk with Canaccord Genuity. Please proceed with your question. Speaker 200:22:53Good morning, Jay. Good morning, Amar. Speaker 100:22:55Good morning, Yuri. Nice quarter guys. Just a quick one from me. Balance sheet is looking Speaker 300:23:05Pretty good shape here, really nice deleveraging. Amar, Speaker 200:23:09how would Speaker 300:23:09you characterize the Speaker 100:23:11M and A outlook and just Speaker 400:23:17the expectations on behalf of potential sellers out there and Speaker 100:23:20how active you might be over the next year? Speaker 300:23:23Yes. We're pretty active on that front always. And as you know, sometimes we still take a lot of time to build those relationships in order to get a transaction The valuations on certain businesses are sort of coming back to earth as far as what expectations are. So we like to see that. There's a lot of geography for us to run yet in the U. Speaker 300:23:42S. That we're actively engaged with and we will be involved with. So when you look at the map, Certainly see where we are and where we aren't and we will be in those markets. Our customers would like us there and us being national in the U. S. Speaker 300:23:55Is a big priority for us And you are a strong customer base there. Speaker 100:24:02Okay. That's helpful. Thanks. Great quarter. I will turn it over. Operator00:24:10Thank you. Our next question comes from Ian Gilles with Stifel. Please proceed with your question. Speaker 100:24:19Good morning, everyone. With the Hixson anniversary coming up, I mean, you obviously bought that during a very dynamic time in the market. Have the gross margins And it settled out in a bit of a better place than you would have anticipated even at the time of the deal? Speaker 300:24:39Yes, they have. And a couple of things, Ian, that's a great question. We've invested in Technology, as we said we would do in that business. It's now our 25th month of operating with the Great Hickson folks, and we certainly come a long way quickly. We've executed well, not only joining a public company like ours, but the technology implementation went without A flaw in all of our drinking plants and the sawmills, it's running very well. Speaker 300:25:05And that's allowing us to Scratch in mind the information that we thought we could and get more sophisticated on margin, freight recoveries, etcetera, like we do in all of our other divisions. We've been Very, very well. And Hickson is sitting to that level quickly and it's almost okay now. We can really start to see how we can squeeze and get those gross margins up. And the Southern Yellow Pine market giving us just a consistent platform, It is starting to demonstrate the cash this business can throw when we're in a normal market. Speaker 300:25:35So long answer to your question, but Our investments in that business and how well they've executed has really aligned nicely. Speaker 100:25:45That's helpful. And I guess to put a finer point on that, if I historically have thought of this as like a 15% to 15% gross margin business, Given what you've just talked about, Exane Speaker 400:25:57and the contribution, is thinking about Speaker 100:25:59it more like 14% to 16% range now a bit more appropriate? Speaker 300:26:05Yes. I think 14 is even light as far as a consistent basis with the weighting of Hixson in there. A normal lumber market, we always have to put an asterisk there because if lumber starts to drop, there's always some pain because of our customer base is tied to random lengths weekly. So we have the flow with that depending on our inventory levels in house and our contract with the mills. So There's a lot of that goes into the call during to make that margin happen. Speaker 300:26:30But if we don't have wild swings, those goalposts that you just mentioned Are the zone for sure and 'seventeen being up towards best in class. Speaker 100:26:40That's very helpful. I'll turn the call back over. Thanks again. Speaker 400:26:46Thank you. Operator00:26:48Thank you. There are no further questions at this time. I would now like to I'll turn the floor back over to Ali for closing comments. Speaker 100:26:57Thanks, operator. On behalf of the Dillon Building Materials Group Limited team, I would like to thank you for joining us this morning. Speaker 200:27:05We look forward to speaking with you again on our Q3 conference call. That concludes today's call. Speaker 100:27:10Have a great weekend and I'll turn the back over to the operator. Operator00:27:14Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Speaker 100:27:20Thank you Operator00:27:21for your participation.Read morePowered by Conference Call Audio Live Call not available Earnings Conference CallDoman Building Materials Group Q2 202300:00 / 00:00Speed:1x1.25x1.5x2x Earnings DocumentsPress Release Doman Building Materials Group Earnings HeadlinesTSE:DBM Q1 EPS Lowered by National Bank FinancialApril 28 at 1:19 AM | americanbankingnews.comBrokerages Set Doman Building Materials Group Ltd. (TSE:DBM) Price Target at C$10.07April 24, 2025 | americanbankingnews.comReal Americans Don’t Wait on Wall Street’s Next MoveWhat's happening in the markets right now should concern every freedom-loving American who's worked hard and saved smart. Your 401(k) doesn't deserve to be dragged through the mud by tariffs, trade wars, reckless spending, and political standoffs. And you don't have to stand by while Wall Street plays roulette with your future.April 29, 2025 | Premier Gold Co (Ad)Royal Bank of Canada Issues Pessimistic Forecast for Doman Building Materials Group (TSE:DBM) Stock PriceApril 24, 2025 | americanbankingnews.comDoman Building Materials Group (TSE:DBM) Lowered to Hold Rating by Cibc World MktsApril 24, 2025 | americanbankingnews.comCIBC Downgrades Doman Building Materials Group (TSE:DBM) to NeutralApril 23, 2025 | americanbankingnews.comSee More Doman Building Materials Group Headlines Get Earnings Announcements in your inboxWant to stay updated on the latest earnings announcements and upcoming reports for companies like Doman Building Materials Group? Sign up for Earnings360's daily newsletter to receive timely earnings updates on Doman Building Materials Group and other key companies, straight to your email. Email Address About Doman Building Materials GroupDoman Building Materials Group (TSE:DBM) Ltd is a wholesale distributor of building materials and home renovation products. The company services the new home construction, home renovation and industrial markets by supplying the retail and wholesale lumber and building materials industry, hardware stores, industrial and furniture manufacturers and similar concerns. Its operations also include timber ownership and management of private timberlands and forest licenses, and agricultural post-peeling and pressure treating through CanWel Fibre Corp. 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There are 5 speakers on the call. Operator00:00:00Greetings, and welcome to the Jomon Building Materials Group Second Quarter 2023 Conference Call. At this time, all participants are in a listen only mode. A brief question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Ali Mahdavi, Investor Relations. Operator00:00:32Thank you, Ali. You may begin. Speaker 100:00:35Thank you, operator, and good Speaker 200:00:36morning, everyone. Thank you for joining us this morning for the Doman Building Materials' 2nd Quarter 2023 Financial Results Conference Call. Joining me on this call this morning are the company's Chairman and Chief Executive Officer, Amar Gohman and Chief Financial Officer, James Coe. If you have not seen the new leasing position after the close of market yesterday, it is available on the company's website as well as on SEDAR along with our MD and A and financial statements. I would also like to remind you that a replay of this call will be accessible until midnight on August 18. Speaker 200:01:10Following management's presentations and remarks on the 2nd quarter results, we will conduct a Q and A session for analysts only. Instructions will be provided at that time for you to join the queue for questions. Before we begin, we are required to provide the following statements regarding forward looking and may cause actual results to differ materially. Any information regarding forward looking statements is made as of the date of this call, The company does not undertake to update any forward looking statements. Please read the forward looking statements and risk factors In the MD and A, we'll leave out on the material factors, which could cause actual results to differ materially. Speaker 200:02:08The company will not provide guidance regarding future earnings Management does not anticipate providing guidance in future quarterly or intercommunications with investors. I'd like to Speaker 300:02:19turn the call over to Omar. Speaker 100:02:22Thanks, Kelly. Good morning, everyone. Speaker 300:02:24Thanks for joining us on today's call. Going back with a strong start to the year with our Q1 results, We're very pleased and encouraged with how the Q2 unfolded. During our last call, I highlighted that we continue to work through pricing volatility and challenging year over year pricing comparatives. We like where it sits at present times. These trends continue to exist in our day to day activities. Speaker 300:02:47However, Our focus remains on what we can control to ensure we maximize margins and free cash flow generation. Our team is focused on inventory management with the goal of optimizing gross Margin performance, combined with our constant efforts on overall cost management, are key contributors to our success in our strong second quarter. Demand also remained steady across all key end markets during the quarter with volumes in various categories showing good sign of wavering. However, given the lower pricing for construction materials on a year over year basis, revenues were lower in the Q2 when compared to the same period last year as expected had a much improved margins. To put this in numbers, gross margin for the Q2 was 17% compared to just under 12% a year ago. Speaker 300:03:31Our financial and operational performance in the 2nd quarter is a testament to our ability to work through volatile markets and our team's track record on managing the business through similar cycles. Throughout the quarter, we remain laser focused as always on our margins and optimizing our balance sheet. To put the decline in lumber pricing and commodity pricing in perspective, year over year lumber is down in price 51%, OSP is down 54%, plywood is down 39% in price. Our ongoing cost management, focus on operational And successful integration efforts enabled the company to realize strong gross margin and EBITDA margin performance despite the massive deflation in commodity pricing. I am both pleased with and very proud of our financial performance, and typically from a pricing trend perspective, We have added to be extremely responsive to industry wide price volatility, while ensuring that our 1st class level of service remains on point. Speaker 300:04:30As a result of our collected efforts, revenues amounted to $710,000,000 Gross margin remained strong at 17% or $121,000,000 EBITDA amounted to a strong $66,000,000 Net earnings came in just under $30,000,000 and we paid our 55th Quarter in a row of dividends of $0.14 a share. Looking ahead, we are cautiously optimistic as we believe that the pricing environment, market demand We're nearing equilibrium at healthy levels. We're continuing to manage our costs and always look for growth opportunities. Our balance sheet optimization strategy is also tracking well with roughly $230,000,000 of debt reduction since our transformative acquisition of Hickson Lumber 2 years ago. Debt reduction is a key priority for us as we look forward to having a solid growth friendly and fire ready balance sheet for opportunistic acquisitions that we are always working on. Speaker 300:05:22As always, we remain confident in our ability to work through volatile markets, diligently, while serving our customers' needs for the highest level of service. You remain excited about our growth profile and our overall prospects of the business. We have built a solid diverse and resilient business in North America with a broad And growing footprint, which we are extremely proud of. I want to thank our team across North America, our customers and our suppliers for working so well with Filmon Building Materials For another strong quarter with all of our partners and again starting with our staff. With that, I'm going to hand the call over to Jay Cole, our CFO, You can take us through the numbers and then we'll take some calls from analysts later on. Speaker 300:06:01Thanks very much. And Jay, over Speaker 100:06:03to you. Thank you, Amar, and good morning, everyone. Sales for the quarter ended June 30, 2023 were $710,700,000 compared to 800 and $70,700,000 in 'twenty two, representing a decrease of $160,000,000 or 18.4%. The decrease is largely due to the impact of lower construction materials pricing, which generally declined since reaching its peak for last year in the month of March. The company's sales in the quarter were made up of 77% construction materials consistent with Q2 last year. Speaker 100:06:43With the remaining balance resulting from specialty and allied products of 20% and other sources of 3%. Gross margin dollars increased to $121,200,000 in the quarter compared to 100 and $2,700,000 last year, an increase of $18,500,000 Gross margin percentage was 17 The relatively stable pricing environment during the current quarter resulted in higher percentage and dollar margins realized by the company, contrasted with the negative impacts of the significant price volatility experienced in 2022. Expenses for the current quarter were $72,500,000 compared to $67,000,000 last year, an increase of $5,500,000 or 8.2 percent. And as a percentage of sales, Distribution, selling and administration expenses increased by $4,600,000 or 9.1 percent Speaker 200:08:04to $55,200,000 Speaker 100:08:08in Q2 from 50 point $6,000,000 last year, largely due to recent broad inflationary pressures contributing to higher expense levels during the current quarter. As a percentage of sales, these expenses were 7.8% in the quarter compared to 5.8% in 'twenty two. Depreciation and amortization expenses increased by $925,000 or 5.7 Finance costs this quarter were $10,500,000 compared to $9,600,000 in 'twenty two, an increase of $924,000 or 9.6 percent, largely due to this quarter's higher interest rates on our variable rate loan facilities, which was partially offset by lower average loan balances this year. This quarter's EBITDA was $66,000,000 compared to $52,100,000 last year, an increase of $13,900,000 or 26.7 percent. The increase in EBITDA was primarily a result of Higher gross margins this quarter, driven by the relatively stable construction materials pricing as contrasted with generally declining prices during Q2 'twenty two. Speaker 100:09:42Gilman's net earnings this quarter were $29,200,000 which is $20,700,000 in 20 Turning now to the statement of cash flows. Operating activities for the 6 month period ended June 30 consumed 6 $700,000 compared to $9,900,000 consumed in 2022. This period's relatively lower net earnings were set by stronger working capital metrics driven by stringent inventory volume management and generally lower construction materials pricing. Operating activities before non cash working capital changes generated 85,800,000 In cash compared to $97,600,000 in 2022, while seasonal changes in non cash working capital consumed 92 point dollars 5,000,000 in cash compared to $107,600,000 in the 1st 6 months of 2022. Overall financing activities generated a net cash amount of $8,800,000 from Equity and Debt stakeholders compared $5,000,000 for the comparative 6 month period in 2022. Speaker 100:10:58Payment of lease liabilities, including interest, $13,100,000 of cash compared to $12,200,000 in 2022. The company's lease obligations generally require monthly installments and these payments are 100% current. In this 6 month period, we borrowed an additional $120,500,000 on our revolving loan Compared to $43,200,000 in 2022, we utilized excess availability under revolving loan facility to redeem our $60,000,000 2023 unsecured notes and to repay the $14,100,000 balance on our non revolving term loan, both Speaker 400:11:49in the month of June 2023. Speaker 100:11:53Total net advances on loans and borrowings increased by 4 $800,000 year over year, largely a result of the previously discussed lower net earnings, positively offset by Strong working capital control, resulting in the slight increase in facility utilization this year. Shares issued net of transaction costs generated $609,000 of cash compared to $618,000 in 'twenty two. The company also returned $24,300,000 to shareholders through payment of dividends during the 6 month period, which was consistent with payments made in the first half of twenty twenty two. We also note the company was not in breach of Speaker 300:12:40any of Lending covenants during the Speaker 100:12:426 month period ended June 30, 2023. Speaker 200:12:46Finally, we Speaker 100:12:47invested $2,300,000 in new property, plant and equipment compared to net investments of $2,900,000 last year. This concludes our formal commentary, and we would now be happy to respond to any questions that you may have. Thank you. Operator? Operator00:13:07Thank you. Thank you. Our first question comes from Hamir Patel with CIBC Capital Markets. Please proceed with your question. Speaker 400:13:48Good morning. Mark, are you Speaker 200:13:50able to give us a sense Speaker 100:13:52How your treated volumes are tracking your fleet? And any major differences you might be seeing between Canada and the U. S? Speaker 300:14:03Yes. I think we could answer very confidently that our volumes in most markets are up from 2022. As you know, in the back half of last year, volumes did fall off quite a bit as well. But having said that, in the first half, we exceeded last year's volumes in virtually all Speaker 400:14:25Okay, great. Thanks. That's helpful. And then, Speaker 100:14:28Mohsen, just back Margins, obviously, very strong quarter here in Q2. How do you think about where gross margins So the business could stabilize over the long term? Speaker 300:14:40Yes. It's a nice margin profile this quarter. Everything lined up well and would call it a normal lumber market. Things were ticking up a little bit, but we didn't get a ton of tailwinds with lumber running up or anything like that. So it's just a nice Walking and tackling quarter, it was good. Speaker 300:14:56I would say as we go forward, the lumber market remains consistent. We'll be in It's like kind of a range. I would say that that was a very, very strong quarter where things aligned very well. So, we're hoping it will be in that I wouldn't say pushing too much higher than that. I think that's pretty strong for us, as you know. Speaker 300:15:15But things align well depending on where the lumber market goes. Operator00:15:26Thank you. Our next question comes from Paul Quinn with RBC Capital Markets. Please proceed with your question. Speaker 100:15:35Yes. Thanks very much. Good morning, guys. Just following up just on the overall business conditions. I think you're hearing from your customers that Your expectations for the last for the second half of the year and into 'twenty four, are they relatively optimistic at this time? Speaker 300:15:50I don't think anybody is optimistic. It's a weird environment, Paul, and thanks for your question. I would say that everybody is still running hand to mouth Inventories, this thing is not where people are getting ahead of themselves. It does appear like the new housing construction It's in sort of a demand zone where there's so many mortgages that were done at low rates. There's just not a lot of inventory out there. Speaker 300:16:12And that's what this is a demand driven housing market On the rental side as well for multi, so we're seeing a lot of strength there, but no one's wildly optimistic by any means. The numbers are good. They're consistent. Everybody is scared to over inventory just like they were. Starting in the Q1 last year, it's the same hand to mouth, no one's you need 10 trucks, you buy 5. Speaker 300:16:32That's why we get these flash rallies. In my view, everyone kind of bum rushes at the same time when they're all out and it creates a spark and then it fades again. And I think we're in Speaker 100:16:49Sure. It's to see much of the company have early sort of move to the commodity prices. It seems like with stability you guys, your gross margin seems to be Since taking a sweet spot, is it something consistent through most of the time that you run the company? Speaker 300:17:05Absolutely. And you take the COVID noise out of those wild swings that we all saw up and down. When we've got a relatively normal lumber market or stable, You're going to see those gross margins very, very steady. And do you have any comments on that, James? Speaker 100:17:19Yes. No, we've seen that, as Amar said, pre COVID. If you go back, It's a slightly different margin profile now that we've added Hixson during COVID 2 years ago this month. And that certainly enhances the margin in a steady market, PIXON's Performing well in this market in the Southern Yellow Pine category. Okay. Speaker 100:17:48Last question I had, any interest that you've done, any part of your business doesn't do well in this sort of steady environment? Speaker 300:17:56Cedar has been a bit challenging inside one of our divisions a little bit. And our logging side has been really wet until recently. Now it's Too dry, it seems, but those are very small parts of the business. So, working material, it seems that having the steep lumber market Gave us good legs here in the 1st and second quarter and it's been evidenced into the 3rd. So it's nice to see those consistent trends happen. Speaker 300:18:23But pretty much Operator00:18:34Thank you. Our next question comes from Zachary Evershed with National Bank Financial. Please proceed with your question. Speaker 100:18:51Can you tell us about the pricing Speaker 400:18:53of your existing inventory and that envelope level, what you're seeing in terms of Pricing trends on lumber and panels. Speaker 300:19:02Yes. I mean, it's I think we've got a little toppy a week ago and a couple of species are looking like Top note, don't see collapse, but just it's kind of top pricing. Our inventories are priced very well as we might have indicated on our last call, Zach. We've really reduced our inventories company wide, increased our turns. So we're much more live to the market for a lot of reasons. Speaker 300:19:24Obviously, just concerned about an uncertain interest rate environment and all that kind of stuff, but we're running faster, leaner, better with Last learned that through COVID, we've been putting that material and all that kind of stuff. So those strategies are keeping us more fit, Closer to the market, and I think that was evidenced by gross margin in the 1st 2 quarters Speaker 100:19:42of the year. Speaker 400:19:45That's good color. Thanks. Speaker 100:19:46And then moving on that running faster and linear, Speaker 200:19:49are you Speaker 400:19:49still expecting the usual seasonal offerings in the back half of the year in terms of not only Speaker 100:19:53the pace of sales and margin, Speaker 400:19:55also the working capital movement? Speaker 300:19:58Yes, that's correct, Zach. We would expect Speaker 100:20:01the normal seasonal pattern of Reducing inventory and receivables levels going through Q3. So that Usage of the revolving loan facility, you'll see come down when we report Q3 as is the normal pattern. Speaker 400:20:21That's great. And then zooming out a little bit, a question for you given the recent news flow on lumber duties Last time Speaker 100:20:31we touched base on the topic with you, you weren't really in the habit Speaker 400:20:34of moving product across the border. Number 1, That's still the case. And number 2, is there any impact to what the markets you can see? Speaker 300:20:43Yes. Our lithium division does do a little bit about Of course, involved in that, but they factor all that into their margins, etcetera, and have for years. So they clearly understand how to run that business very well. The larger part of the treated lumber business and our North American distribution business, CanWel, we do not Export virtually anything across the line. We do sell post poles and agricultural posts off our own timberlands that we manufacture, treat And we can ship some down to the U. Speaker 300:21:14S, but nothing that would have any softwood lumber duties except our Lincoln division. Speaker 400:21:23Thanks. And just one last one, a little bit speculative. When rates Speaker 100:21:33Where are the bottlenecks in your verticals that Speaker 400:21:35would be the fullest ramp up? Is it you, your suppliers, customer production staff, the rail? Speaker 300:21:43No, I think everything is into a good I'm not sure we'll get a runaway here, but it seems that it's sort of a back and fill kind of economy, the supply chains have caught up, the mills have kind of caught up. And We've got decent pricing out there. It's not great pricing by any means. You can see the sawmills, a lot of them are in the red right now, unfortunately. But I think that will come around as the production maybe comes off the market perhaps. Speaker 300:22:09But really, I think most of the supply chains have Caught up. I don't think there will be a bottleneck unless there's a housing boom again here. But with rates the way they are, I think we're just going to be steady as she goes. Having said that, if there was a massive pickup, I think the bottlenecks certainly would be at the manufacturing level Lumber and then perhaps transportation and rails. Speaker 100:22:36Great answer. Thanks. Operator00:22:43Thank you. Our next question comes from Yuri Lynk with Canaccord Genuity. Please proceed with your question. Speaker 200:22:53Good morning, Jay. Good morning, Amar. Speaker 100:22:55Good morning, Yuri. Nice quarter guys. Just a quick one from me. Balance sheet is looking Speaker 300:23:05Pretty good shape here, really nice deleveraging. Amar, Speaker 200:23:09how would Speaker 300:23:09you characterize the Speaker 100:23:11M and A outlook and just Speaker 400:23:17the expectations on behalf of potential sellers out there and Speaker 100:23:20how active you might be over the next year? Speaker 300:23:23Yes. We're pretty active on that front always. And as you know, sometimes we still take a lot of time to build those relationships in order to get a transaction The valuations on certain businesses are sort of coming back to earth as far as what expectations are. So we like to see that. There's a lot of geography for us to run yet in the U. Speaker 300:23:42S. That we're actively engaged with and we will be involved with. So when you look at the map, Certainly see where we are and where we aren't and we will be in those markets. Our customers would like us there and us being national in the U. S. Speaker 300:23:55Is a big priority for us And you are a strong customer base there. Speaker 100:24:02Okay. That's helpful. Thanks. Great quarter. I will turn it over. Operator00:24:10Thank you. Our next question comes from Ian Gilles with Stifel. Please proceed with your question. Speaker 100:24:19Good morning, everyone. With the Hixson anniversary coming up, I mean, you obviously bought that during a very dynamic time in the market. Have the gross margins And it settled out in a bit of a better place than you would have anticipated even at the time of the deal? Speaker 300:24:39Yes, they have. And a couple of things, Ian, that's a great question. We've invested in Technology, as we said we would do in that business. It's now our 25th month of operating with the Great Hickson folks, and we certainly come a long way quickly. We've executed well, not only joining a public company like ours, but the technology implementation went without A flaw in all of our drinking plants and the sawmills, it's running very well. Speaker 300:25:05And that's allowing us to Scratch in mind the information that we thought we could and get more sophisticated on margin, freight recoveries, etcetera, like we do in all of our other divisions. We've been Very, very well. And Hickson is sitting to that level quickly and it's almost okay now. We can really start to see how we can squeeze and get those gross margins up. And the Southern Yellow Pine market giving us just a consistent platform, It is starting to demonstrate the cash this business can throw when we're in a normal market. Speaker 300:25:35So long answer to your question, but Our investments in that business and how well they've executed has really aligned nicely. Speaker 100:25:45That's helpful. And I guess to put a finer point on that, if I historically have thought of this as like a 15% to 15% gross margin business, Given what you've just talked about, Exane Speaker 400:25:57and the contribution, is thinking about Speaker 100:25:59it more like 14% to 16% range now a bit more appropriate? Speaker 300:26:05Yes. I think 14 is even light as far as a consistent basis with the weighting of Hixson in there. A normal lumber market, we always have to put an asterisk there because if lumber starts to drop, there's always some pain because of our customer base is tied to random lengths weekly. So we have the flow with that depending on our inventory levels in house and our contract with the mills. So There's a lot of that goes into the call during to make that margin happen. Speaker 300:26:30But if we don't have wild swings, those goalposts that you just mentioned Are the zone for sure and 'seventeen being up towards best in class. Speaker 100:26:40That's very helpful. I'll turn the call back over. Thanks again. Speaker 400:26:46Thank you. Operator00:26:48Thank you. There are no further questions at this time. I would now like to I'll turn the floor back over to Ali for closing comments. Speaker 100:26:57Thanks, operator. On behalf of the Dillon Building Materials Group Limited team, I would like to thank you for joining us this morning. Speaker 200:27:05We look forward to speaking with you again on our Q3 conference call. That concludes today's call. Speaker 100:27:10Have a great weekend and I'll turn the back over to the operator. Operator00:27:14Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Speaker 100:27:20Thank you Operator00:27:21for your participation.Read morePowered by