Interfor Corp Stock

Good morning. My name is Sylvie, and I will be your conference operator today. Welcome to Interfor Corporation's Second Quarter 2026 Results Conference Call. [Operator Instructions] The conference is being recorded. [Operator Instructions] During this call, Interfor's representatives may make forward-looking statements within the meaning of applicable securities laws. Additional information regarding the risks, uncertainties, and assumptions of such statements can be found in Interfor's most recent press release and MD&A.

And I would like to turn the call over to Mr. Ian Fillinger, Interfor's President and CEO. Mr. Fillinger, please go ahead.

Thank you, Operator, and thank you, everyone, for joining us this morning. With me on the call, I have Mike Mackay, our Executive Vice President and Chief Financial Officer.

The second quarter reflected strong execution across our business, supported by stronger lumber markets, continued progress on our cost reduction, improved mill productivity, and disciplined inventory management. While uncertainty remains, particularly around the softwood lumber trade dispute, we are encouraged by the progress our teams are making and remain focused on further strengthening our balance sheet.

Our previously announced 2-year company-wide cost reduction initiative continues to perform well, with results tracking on our annualized $80 million target. In addition, our Thomaston mill in Georgia delivered a strong quarter and has been transformed into 1 of our top-performing assets in our portfolio. In the second quarter, we generated $92 million of EBITDA, strengthened our financial position, aligned our product mix with market demand, reduced inventories, lowered production costs, and continued to successfully navigate the ongoing uncertainty around the softwood lumber trade dispute.

If you look ahead, our priorities remain unchanged. We will continue to focus on operating our mills safely and efficiently, aligning production with market demand, maintaining a relentless focus on costs, and preserving the financial strength and flexibility of our balance sheet. These fundamentals position us to withstand prolonged market volatility while continuing to create long-term value for our shareholders. Consistent with that focus, we recently announced the transition of certain corporate support roles to our Peachtree City office in Georgia, where the majority of our operations are located within the Central, Eastern, Atlantic time zones.

This change is intended to better align our support functions with the needs of our business while maintaining a strong corporate presence in both Canada and the U.S. Transition will occur gradually over time, primarily through attrition and future hiring decisions. This will allow us to evolve our organizational footprint in a measured manner. This is not a re-domiciling of the company, nor does it alter our long-standing commitment within our Canadian operations, mills, employees, or communities. The leadership team remains in place, and Burnaby will continue to play an important role as our corporate headquarters.

With that, I'll turn the call over to Mike.

Thanks, Ian, and good morning, everybody. From an earnings standpoint, Interfor generated $92 million of adjusted EBITDA in the second quarter, a significant improvement from the first quarter, and 1 of our best quarterly results in nearly 4 years. Sequential improvement was driven by stronger realized pricing, higher production volumes, and lower manufacturing costs. From a sales perspective, realized selling prices increased approximately 11% quarter-over-quarter, with all five of our operating regions benefiting from stronger market conditions.

Production cost per unit improved by approximately 1% and were down 6% compared to full-year 2025 levels. These improvements were driven by higher operating rates, the continued ramp-up of Thomaston, and ongoing productivity gains driven by our performance improvement initiatives. Production volumes increased by just over 70 million board feet, or 8%, compared to the first quarter. This increase was driven primarily by higher production in the U.S. South, following the ramp-up of Thomaston, along with a more normalized operating posture in the U.S. Northwest. This was partially offset by the indefinite curtailment of 2 mills in Ontario.

Shipments exceeded production, and while logistics remain challenging in certain markets, the actions taken earlier in the year helped improve our shipment execution and supported inventory reductions. Turning to cash flow and the balance sheet, improved earnings, disciplined working capital management, and lower capital spending all contributed to a strengthening financial position.

Net debt declined, and our net debt to invested capital ratio improved to 36.7%, down from 38.3% at the end of the first quarter. Available liquidity also improved, ending the period at just over $440 million.

Looking ahead, benchmark lumber prices have maintained positive momentum into the early part of the third quarter, and our order files have remained solid. At the same time, the summer building season can introduce increased volatility in end-use demand and pricing, and we continue to plan cautiously for the back half of the year. At a broader level, though, the industry supply rationalization that began in prior years has continued through the first half of 2026. We believe this has contributed to a much more balanced and disciplined market environment despite the ongoing macro trade and geopolitical uncertainty.

Also looking ahead over the next several months, we continue to anticipate proceeds from divestitures, including the ongoing sale of our B.C. Coast forest tenures and the anticipated sale of real estate at 2 of our former facilities in the U.S. South.

Turning lastly to capital allocation, total capital expenditures for 2026 are expected to be approximately $90 million. This reflects mostly maintenance spending in the back half of the year as our priority remains focused on reducing leverage. With that, I'll now turn the call back over to you, Ian.

Okay, thanks, Mike. Operator, we're ready to take questions from our analysts at this point.

[Operator Instructions] And our first question will be from Ketan Mamtora at BMO Capital Markets.

Congrats on a strong quarter.

Ketan. Thank you.

Maybe to start with, on the $80 million cost program that Ian, you talked about last quarter, can you give us just a rough order of magnitude, how much do you expect to capture this year in 2026?

Well, it's early in the 2-year program, Ketan, but the first half of this year was very strong, and so, you know, the run rate at this point is showing achieving that fully this year. But again, the first half was a very strong performance by our teams. I would caution that this is a 2-year program, and I wouldn't want to adjust our timeline on achieving that any sooner than that at this point, but it's off to a good start.

Okay. Is it fair to say, Ian, though, we get sort of, I don't know, like half of it this year and half of it next year, or it's skewed more to next year versus this year?

Yes, I think, Ketan, that's probably a good approach to take at this point. And then, obviously, as we go through the next quarters, we'll be able to adjust that depending upon how things are progressing. But from a baseline projection, that might be a fair assumption.

That is 50-50 split, Ian?

Yes.

Okay, understood. And then on Thomaston, Ian, just curious, how is the ramp-up coming along? What are you -- What is the current operating rate like, and where do you expect to be by end of the year?

Yes, while we expect to be fully ramped up by the end of the year, I believe we're at around 97% of our production pro forma, and we've had several performance that have been well above our pro forma target. It's a complex mill to start up, or any mill of that size and magnitude. It's been done safely, and it's just a few percent off of the pro forma target. From an industry perspective -- or from Interfor's perspective, this will be one of the best startups that we've had in our capital project team and operating team.

Got it. That's helpful. Good luck in the back half. I'll jump back in the queue.

Our next question will be from Ben Isaacson at Scotiabank. Please go ahead.

You talked about three consecutive quarters of cost reductions. My question is, how much additional structural cost reductions remain available, or is Q2 really a good run rate as to how we think costs should play out going forward?

Hey, Ben, Mike here. I can take that one. I think it's -- if you look back the last three quarters, it's been a combination of the, you know, initiatives, performance improvement, some of the portfolio optimization as well. As Ian alluded to at the first question, we're on a run rate basis, captured a lot of that today. I think the key is anchoring it going forward more than anything. So as we said before, a good chunk's in the bag, but we need to kind of solidify that from a long-term perspective.

We've done a lot, Ben, in the last little while. As I said in my opening comments, our manufacturing costs are down about $41 per 1,000 board feet, or about 6% versus 2025 levels. And as Ian can probably attest to, it's pretty hard to push that type of cost out of your system in this business. So we feel really good where we are. I don't know if we take too much structural changes going forward per se. It's just anchoring a lot of what we have.

Perfect. And then my second question is, CapEx is $90 million. Can you talk about what is maintenance versus discretionary? And with Thomaston complete, what does maintenance CapEx look like going into '27?

Yes, I think, Ben, if you look on a go-forward basis, it's effectively all maintenance in the back half of the year. So the $90 million, if you look at what the projection implies there, it's around $15 million or $16 million per quarter. We would consider that effectively all maintenance spend. And so that's a run rate of $60 million, $65 million per year. That's kind of what we're continuing to guide to from a pure maintenance perspective.

Okay, that's great.

Our next question will be from Matthew McKellar at RBC Capital Markets. Please go ahead.

Congratulations on the strong quarter. First, just wanted to check in on the transportation constraints. It sounds like that is maybe still a bit of a challenge into Q3. Can you just talk about how that is progressing and how you might be running your business any differently as a result?

Yes, Matt, Ian here. It's a focus area for us for sure. The teams, particularly in the South, I would kind of point towards that region as the most challenging on the transportation. But the team has done a great job with partnering with our carriers, creating win-win incentives to secure additional truck volume. We have seen it also in the, on transportation, get into the rail more in the quarter.

But at this point in time, you know, we're matching our production, and actually outshipped our production last quarter. And we're right where we need to be at this quarter so far. So through the initiatives that our logistics team implemented, I would say that at this point, it's looking okay for us, but it's definitely something that we need to keep an eye on and adjust. Truck demand across all industries is a problem, is tight, which kind of points us towards an economy that's busy. There's products moving, whether it's oil and gas or mining, that's putting constraints on this. But from an Interfor perspective, we're doing pretty well right now.

Okay, very helpful. It looks like lumber futures have rolled over here in the past couple of weeks. Does that line up with what you're feeling in the cash market today? Are you seeing or hearing more caution from your customers, maybe with recent rates and oil movements, seasonal summer softness? Any color on recent changes in demand?

Yes, Matt, it depends on the region, just given our footprint across North America. Some regions are a little bit more sensitive to the August, sort of, seasonal slowdown. But as far as our order file goes, which is out a few weeks into August, it's solid. The pricing is, you know, strong, you know. But we do notice the trend that you're talking about and whether futures is kind of starting to align with the cash market. It looks like that's happening.

But from our perspective, demand is strong given our supply constraints that Mike talked about that have been done in the industry. So at this point, we don't have any, you know, caution to put on this, but I would say that we're in, again, pretty good shape relative to order file and shipments. But we are monitoring the price, and if it gets to a point where some capacity needs to come out, we would always do that, but we don't anticipate that happening, and we don't see that in the immediate future.

Okay. I'll turn it back.

Our next question will be from Sean Steuart at TD Cowen. Please go ahead.

Nice result. Ian, your deck, and you've talked about this a lot before, shows over the long term fairly even EBITDA per thousand board feet contributions across the regions. And I imagine given the strength of this quarter's results, each region was comfortably EBITDA positive. Can you give a sense of the spread in relative margins right now across the footprint?

Yes. Sean, that's a good question. I would say that when we look at our operations from an EBITDA margin, run through our entire portfolio, it's really a mix. Like, we'll have, you know, a mill that's in the South, which will be, you know, a leading mill 1 month, you know. But then the #2 mill will be from the Pacific Northwest, and the #3 mill will be from B.C.

The next month, you know, some of that shifts around, and I think that just -- it's pretty great to see that given our geography and our strategy to diversify. We have mills from each region that will be top performers on a month-to-month basis. Often #1 mill will be in 1 region, #2 will be in a different region, #3 will be in a different region. For us, it's just evidence around the strategy of being diversified and having different mills and woodlands operating at different points in time in the cycle. So we don't have 1 concentrated region that's got the top 5, let's put it that way. We have it spread out, and it's really a month-to-month basis.

That's great detail. And just following up on one of Matt's questions with respect to markets right now, where we have seen, I guess, in the cash market, some relative weakness the last 3, 4 weeks is wider dimensions in the U.S. South. And can you give us an updated perspective on your dimension bias in the South and your ability to switch to take advantage of relative price swings from across the dimension spectrum? Any perspective you can give us there?

Yes, that's a good detailed question, Sean. So I'll use an example of our Thomaston mill, but we have examples of this throughout the organization. The Thomaston mill is classified as a wide mill, but when we rebuilt the mill, we were able to put in a piece of equipment that could split the wide to narrows when the narrow product line would be at a premium to wide. And so similar to many of our capital projects, which started with Adams Lake, anytime that we rebuild, we're looking for how do we put in the right equipment to be able to chase the premiums on different product lines.

And we have several mills that can do that, Sean. So being able to flip to, you know, from a wide mill to producing narrows is a real strategic advantage in this business, and we have that capability to do that. So we will chase the premium. If the premiums are, you know, kind of a long-standing, you know, week, week, week up, then we'll chase it. I feel really good about the setup of our portfolios across the whole organization because that's sort of in our DNA of how we think about being able to capitalize margin in this business, not to be too tied to one particular product line.

Yep, that makes sense. One quick last one for Mike. Updated targets for divestitures, any change in the dollar figures we should be thinking about as you sell off the non-core stuff?

Yes, thanks, Sean. Essentially, no change from prior guidance. The B.C. Coast forest tenures, kind of back half of the year, between $20 million to $25 million cash proceeds, the real estate in and around the $40 million mark in the back half of the year. I will say just timing remains the key piece of uncertainty on both those files. Exact timing to kind of peg down one quarter per se, but we feel good about the number of the proceeds coming in, say, over the next 12 months.

Great. Okay, that's all I have.

[Operator Instructions] Next, we will hear from Hamir Patel at CIBC Capital Markets. Please go ahead.

I want to ask a follow-up on the end markets. We've seen various commentary from some of the U.S. building products companies around the R&R channel. What's been your experience there? Are you seeing any growth in volumes in the channel this year? And just, yes, any comments you'd have there?

Yes, thanks, Hamir. We see the R&R is hanging in there, I guess would be the way to put that. The housing starts are also fairly muted with multifamily kind of up and down, but from an R&R perspective, our experience is that it's steady and we've got good takeaway happening with our customers on that front. I would point out as we looked to what the last half of 2025 was and we kind of look towards what's the next half of year of 2026.

I mean, fundamental difference from last year's inventory build from customers in all channels. There was the Section 232 tariff that was hanging around us at this point in time with speculation that would be quite a bit higher than it did. We saw an inventory build and then a real drawdown as the year progressed in 2025. The setup this year, I would classify on all of our channels is more of a hand-to-mouth situation right now, which in some ways can be a little bit frustrating, but in other ways, I think it's much stronger than it was last year at this time as we look forward.

Fair enough. And Ian, you mentioned with the relocation of some of the head office functions to the U.S. that you were still planning on being domiciled in Canada. Would there be any potential tax benefits to redomiciling?

We haven't looked at it in that much detail. And so I don't have a view of that at this point, Hamir.

Okay, fair enough. And just the last question I had on the capital projects side, you know, it sounds like it's maintenance for the remainder of the year. But as you think about with the balance sheet improving, 2027, what are some of the sort of higher return projects that you might look to action as you continue to see the balance sheet improve here?

Yes, well, we've always got a lineup of projects on our books. They're really scattered throughout. Primarily, there's a few projects in Eastern Canada, in Ontario, New Brunswick, and then there's a few projects in the South. But we remain cautious and conservative until we achieve what we want to do relative to our balance sheet targets, which are relevant first and foremost.

But we do have several projects that are identified, but I would say, Hamir, that they're smaller projects. They're not, you know, Thomaston-level projects. They're higher payback, lower capital expenditures, but there's a few that we have in mind in Eastern Canada and the South. But again, I just want to make sure that I communicate that we're cautious on that. We're planning for those, but the timing will be when we're ready to do that.

Okay, great. I'll turn it over.

At this time, Mr. Fillinger, we have no other questions registered.

Okay, thank you, everyone, for joining us this morning and your thoughtful questions. As the market conditions improved in Q2, we continue to plan conservatively. And as always, Mike, myself, and Bryan Fast, our Director of Investor Relations, are available for any questions, follow-up calls, or communication. Thank you. Have a great day, and goodbye.

Ladies and gentlemen, this does indeed conclude the conference call for today. Once again, thank you for attending. At this time, we ask that you please disconnect your lines. Have a good weekend.

Good morning. My name is Joanna and I will be your conference operator today. Welcome to Interfor Corporation's First Quarter 2026 Results Conference Call. [Operator Instructions] The conference is being recorded.

During this conference call, Interfor's representatives may make forward-looking statements within the meaning of applicable securities laws. Additional information regarding the risks, uncertainties and assumptions of such statements can be found in Interfor's most recent press release and MD&A.

I would now like to turn the call over to Mr. Ian Fillinger, Interfor's President and CEO. Mr. Fillinger, please go ahead.

Thank you, operator and good morning, everyone. Joining me today is Mike Mackay, our Executive Vice President and Chief Financial Officer. We're both calling in from our Peachtree City office in Georgia, where earlier this week, we toured our completed strategic project, the fully operational Thomaston mill. I'll begin with an overview of the quarter, provide an update on Thomaston, outline our cost reduction and operational priorities and share our near-term and medium-term outlook. Mike will then talk you through the quarter in more detail, including segment performance, working capital and capital allocation.

Turning to our quarterly overview. Q1 delivered a meaningful improvement compared to the back half of 2025. We reported EBITDA of $31 million, up $60 million from Q4, driven by higher lumber prices across all 5 regions, up 5% to 20% and lower conversion costs despite weather -- winter weather conditions. This performance came even as duties, tariffs and logistical constraints, particularly in the U.S. South remained elevated. Seasonal tightening and industry rationalization has helped rebalance supply and demand to start the year. Turning to Thomaston. Our Thomaston, Georgia project was completed in Q1 and the mill started up this quarter. The ramp-up is ahead of expectations, reflecting excellent execution by the team. We expect Thomaston to be a top performer in our portfolio and remain on track to achieve full pro forma performance across all KPIs within the next 4 months.

Strategically, Thomaston strengthens our U.S. footprint and enhances our cost position in key markets. As we entered 2026, we set company-wide manufacturing cost reduction targets aimed at materially improving our cost position without significant capital requirements. These initiatives represent an $80 million earnings improvement over the next 2 years, roughly a 5% reduction in total manufacturing costs versus 2025. This program builds on our ongoing productivity and portfolio optimization efforts and will enhance operating leverage as markets recover. Importantly, these benefits are cost driven and not dependent on market conditions. While still early, we've made good progress. Operationally, we continue to optimize working capital in Canada with log inventory carrying values down 36% year-over-year at a time when inventories typically rise. Despite winter conditions, conversion costs improved and we continue to adjust mill operating schedules in real time to respond to cost movements and broader macro inputs.

Turning to our market outlook. Near-term markets remain volatile. We are closely monitoring elevated interest rates, trade uncertainty, fuel price volatility and geopolitical developments, all of which can influence pricing. Single-family construction and repair/remodel demand remained challenged but we saw a seasonal price improvement through Q1 that has continued into early Q2. While pricing in the South has softened somewhat in recent weeks, we remain profitable. On the supply side, industry curtailments this year have been significant, roughly 4x the pace of 2025. At the same time, landed costs for third country imports into the U.S. have risen materially. Combined with the industry's willingness to curtail production, these dynamics create the potential for a constructive setup once housing and R&R activity stabilize.

For Interfor, the implications are clear. Our proactive portfolio management, adjusting operating rates at higher cost mills and our relative margin performance positions us to remain cash positive even during deep pricing downturns. Our balance sheet and priorities. Our recent balance sheet actions, combined with strong liquidity position allows us to navigate the potential pricing and demand risks. We remain disciplined in our capital allocation, completing high-return projects while preserving flexibility to respond to market conditions. Our near-term priorities are clear, deliver the Thomaston ramp-up to full pro forma performance, execute the $80 million manufacturing cost reduction program, maintain operating flexibility and adjust production to market signals, protect the balance sheet and preserve liquidity for volatility and value creation opportunities.

With that, I'll turn the call over to Mike for a deeper review of the quarter.

Thanks, Ian and good morning, all. From an earnings standpoint, Interfor posted positive $31 million of adjusted EBITDA in the first quarter, a significant improvement over the past 2 negative EBITDA quarters. The notable sequential improvement in our results was driven by several factors. From a sales perspective, Interfor's realized selling prices after paying duties and tariffs were approximately 8% higher as higher selling prices in all regions were partially offset by the full quarter of Section 232 tariffs that came into effect last October.

From a cost perspective, production cost per unit improved by about 2.5% quarter-over-quarter, continuing the trend in cost improvements that we achieved in Q4. These improvements were driven by higher production volumes due to less market downtime but also from significant improvements in productivity driven by the company-wide manufacturing cost reduction initiatives that Ian alluded to earlier. As a result, production volumes increased by just over 100 million board feet or 14% over Q4. A large portion of the increase came from our U.S. Northwest operations, which have taken considerable market downtime in Q4. And the inventory valuation adjustments did not have a meaningful impact on our change in cost this quarter.

However, despite the increase in production, shipments were essentially unchanged from the fourth quarter as logistics constraints, particularly trucking availability in the U.S. South, drove higher lumber inventory levels compared to year-end. The logistics constraints have not been unique to Interfor and have impacted most industrial activities across this region. In recent weeks, our teams have been making good progress with our strategic trucking partners while also utilizing our flexibility for increased rail shipments. The situation has stabilized today and we're making slow but steady progress towards reducing inventory levels. Based on current conditions, we would expect the catch-up in shipments could take the balance of Q2 and possibly into early Q3 to fully unwind.

Turning to fuel costs. We've seen relatively small impacts to the bottom line despite the dramatic rise in oil prices. Inflationary pressure in this area for us is driven mostly by fuel surcharges from log hauling activities in Canada as well as minimal amounts of direct consumption at our facilities. From a cost perspective, we estimate the run rate impact of current oil prices to be approximately CAD 6 per thousand board feet of production impact. And despite these cost headwinds, we were able to reduce our production costs in the quarter, as I mentioned earlier. From a sales perspective, fuel surcharges are incorporated into our daily and weekly price quotes to our customers and have not and are not expected to going forward to have any meaningful impact to the bottom line.

Turning to cash flows and our balance sheet. The first quarter almost always sees a notable build in working capital in our business and this year was no different. The combination of seasonal logging activities, rising lumber prices and the logistics constraints I spoke to earlier, all contributed to a working capital usage of about $23 million in the quarter. This temporary working cap build, combined with the heightened CapEx spend to complete the Thomaston project resulted in a modest increase in net debt. At the end of the quarter, our net debt to capitalization ratio was 38.3%, up slightly from 36.5% at year-end and we had available liquidity of $386 million. This takes into account several previously announced financing transactions that we completed this quarter, all of which have bolstered liquidity and added flexibility.

Looking ahead to Q2 and beyond, we anticipate a release in working capital and a notable wind down in CapEx spending. At the same time, we've seen good market momentum and strong order files extending through April and into May. And based on our current outlook and market conditions, we would expect to see a reduction in both our leverage and our net debt to invested capital ratio in the coming months. In addition to these near-term improvements, we continue to anticipate divestiture proceeds over the remainder of the year that will further support the balance sheet irrespective of market conditions. These divestitures include the ongoing sale of our B.C. Coast forest tenures as well as sales of real estate at our former Summerville and Meldrim facilities the in U.S. South.

Turning lastly to capital allocation. Following the completion of several major investments in recent years, including the completion of the Thomaston project this quarter, we are continuing to anticipate lower spending going forward. Total capital spend for full year 2026 remains at approximately $80 million estimate and preliminary estimates for 2027 remain at approximately $60 million, focused almost entirely on maintenance projects. In terms of capital allocation going forward, as I alluded to last quarter, any free cash flow will be directed solely towards leverage reduction with a target net debt to invested capital ratio of 20% or below. Obviously, the timing to achieve this targeted level will depend on the market but our priorities continue to remain simple and clear in that respect.

With that, I'll now turn the call back over to you, Ian.

Okay. Thanks, Mike. Operator, we're ready to take any questions now.

[Operator Instructions] The first question comes from Matthew McKellar with RBC Capital Markets.

First, I'd just like to ask a little bit about the manufacturing cost reduction targets. It sounds like your plans are pretty capital light. Is there any more detail you can share around the key levers for getting your conversion costs down to your targets? Or any color on what regions you expect the most meaningful improvements? And should we think of the Thomaston ramp as part of this program?

Yes. Matt, Ian here. Great questions. Yes, to put a little bit of color behind the cost reduction and operational actions in Thomaston. So we're using a disciplined performance management program. We're targeting the cost reductions across the entire business. Some of the key components are aligning the incoming log profiles, fine-tuning those with some of the optimization and data that we have available to us to make sure we got that right log dialed in for the right line. We've also set really clear and achievable targets based on that data right down to the mill and shift level. We're leveraging our scale and best practices across the regions. We've made some management changes during the quarter that really enhanced communication on benchmarking and KPI.

We've got a initiative around eliminating nonproductive work, which is moving forward. And these actions, we think -- well, we know are already paying dividends and improving our cost position. So there's a lot to it but it's a very sophisticated, clear, transparent within our company, to all of our employees on how they can contribute and where we see those opportunities. It's things like right down to KPIs in the mill on log gaps, on machine centers and those type of things. So we have a very good visibility on data. We've got very good visibility on which mills are performing well and where other mills can learn from. So all of that tied into our targets. As far as Thomaston, absolutely, that's also been under construction for a while, which obviously has a cost attached to that. It's up and running like a rocket ship right now and it will definitely help us achieve those cost targets for the company but particularly in the South.

Great. Just one more for me on Ontario. With Gogama and Nairn Centre indefinitely curtailed, has there been any change to how, I guess, the I-joist business in Sault Ste. Marie operates or any change in views around how that fits into the portfolio?

It fits in very well, Matt, right to the bottom line. Yes, we've -- we're very careful when we're making any kind of operating adjustments on any of the feedstock that we use for the I-joist plant. At this point, no impacts on the hours that we've reduced. On our portfolio management, again, sort of data-driven, prioritizing the mills that are running well and generate the highest profitability. And sometimes we add hours on that on those mills. And so putting the supply check into Sault Ste. Marie in our I-joist plant. I mean, we're very careful of making sure that we've got a good steady business there right now.

Next question comes from Sean Steuart with TD Cowen.

Ian, I want to follow up on the Ontario indefinite closures. I guess the decision to focus on indefinite versus permanent potentially there? And what beyond just the market recovery might be needed to position those sawmills better over the long run to be a part of the plan going forward?

Yes, Sean, thanks. Kind of following up on the previous questions also, we prioritize running and supporting the mills in regions that generate the highest profitability and we work closely with the teams at the challenged sites for lack of a better term to improve performance. So we do have plans and ideas for those operations on how to turn those around. Sometimes it's a timing. Other times, it's some capital investments that we put under evaluation. But when market conditions are just too challenging, we scale back the hours to protect value and stay disciplined and allocate the resources to the mills that are running and then try to figure out a path for the ones that might be challenged given the market. So market improvement would help but we do have plans for those operations on how to improve those going forward. At this time, the best option for us is to indefinitely curtail and take the volume out and that gives us time to continue to evaluate the go-forward plans.

And then following on that, Ian, I guess, for the second quarter production profile across the fleet, obviously, more pronounced curtailments in Eastern Canada. But any thoughts on operating rate profile in the second quarter across your other regions? It sounds like the U.S. will be good with Thomaston ramping well but a broader perspective on operating rates.

Yes, Sean, there are improved operating rates, both on a productivity per hour, which is really great to see but also some added hours in the South at a few of our mills. But the Pacific Northwest is also running at full capacity right now, whereas in Q4 and in -- earlier in the fall, that region was pretty limited on any hours. And so you will see production in the South and the Pacific Northwest improving in Q2 with, like you say, some hours coming out of Ontario.

Okay. One last one, Ian, for me as you're close to it. as we get closer to the CUSMA/USMCA renegotiation, any perspective on lumber potentially fitting into this? I know it's been a priority for the federal government. Are you optimistic that it can be addressed specifically in a broader renegotiation?

Yes, Sean, I mean, the trade file, obviously an important issue for Interfor, even with our limited exposure to tariffs and our scale and geographic footprint. But because we're in B.C., Ontario and New Brunswick, we do have to stay in a leadership position on this and stay fully engaged with both Canada and the U.S. governments as they work towards an industry-wide agreement. In broad terms, I believe and we believe that there will be a negotiated agreement between Prime Minister Carney and President Trump. We think that's achievable. We're hopeful that this will come sooner than later but I don't have any specific insights to share that is this going to be part of CUSMA or will it be negotiated separately. I can just let you know that there's a constant communication from both sides that we're involved in, in Ottawa or Washington. And we're pushing like many others in our industry on both sides of the border to have the 2 governments come together and get softwood on the table.

Next question comes from Ben Isaacson with Scotiabank.

Ian, you said that Thomaston, you expect to be a top performer in your portfolio. Can you define what that means? How is that measured? Is that based on cash cost? Is that overall margin expectation? Is that -- like how do you measure that as a top performer, #1? And then #2, how much of an outlier is it from the rest of your fleet?

Yes. Ben, so defining the top performer really does come down to the margin side of it. And in the South log costs are fairly stable. So it does come down to the operating performance and conversion costs at Thomaston. The other unique thing about Thomaston is it's close to the Atlanta market. It's the closest mill that we have there. So there's an advantage there to the metro area of Atlanta. And the log quality is outstanding. And so the product quality and the ability to pull high-quality grades from Thomaston, given the size and quality of the log really puts it at a very good -- in a very good position. So to answer your question, mill performance, manufacturing quality, the high-quality fiber and also the strong residual market that we have being close to Atlanta, does put this mill near the top of the pack and I expect it will be top decile in the industry, no doubt.

That's really helpful. Next question is just maybe some clarification. I think Ian or maybe it was Mike said that you expect net debt to invested capital to come down over the coming months. Was that based on operations only? Or does that include asset divestitures, duty refunds as well?

Ben, Mike here. So yes, I was referring to kind of the near term, let's say, Q2 is the perspective and it's based on what we're seeing today. I would say it does not include any assumed divestitures. I think it's really based on the order files we're seeing today, the working capital release and some of the momentum that's in play already. So the divestitures would be, in my mind, over and above that and more geared towards, say, the latter half of the year.

Perfect. And then just one last one for me, if I may. I think you said, Ian, that you guys have picked up a couple of hours and shifts down in the South. Have you -- can you just describe the magnitude of that? And then maybe just more broadly, have you seen a supply response in general in the South as a response to higher SYP prices last month?

Yes. Ben, the hours in the South, there's really 4 mills that were on more of a reduced hour schedule. in addition to Thomaston being down for the majority of Q4. So Thomaston coming up, it's on 2 shifts right now. So that's fairly significant. The other 4 operations, I would say, are minimal hours being added. We're cautious with those mills. Those mills are -- tend to be a slightly higher cost than our average mills. So we're being careful not to add hours or more product to the market where demand may not be there. So I would say the other 4 mills are fairly minimal hours being added and being revisited every week. And those -- 3 of those mills would be on the west side of the Southeast, so closer to the Texas market.

Got it. And are you seeing a general response by the industry in the South?

No, I have not. I haven't seen ramp-up of mills that are adding hours or supply. I think it's been very minimal. I know our numbers but I'm not sure of our competitors and I haven't heard of anything significant.

[Operator Instructions] Next question comes from Ketan Mamtora with BMO.

Maybe first one, Mike, can you just remind us in terms of both the B.C. forest tenures, whatever is remaining by way of monetization and then the real estate divestitures that you talked about for the back half. What is left in terms of both of these? And how much should we expect in the back half?

Ketan, good question. If you noted in Q1, we completed around $10 million of proceeds that were received for the coast. So for the rest of that file between say, $20 million to $25 million over the next 12 to 18 months. Timing is always a little harder on that file to predict. But as you can see, we've been fairly consistent in bringing those volumes in. So that's in that magnitude. The real estate piece, I would guide around in the CAD 40 million range, back weighted of the year as those real estate processes take a little bit longer sometimes. But 2 notable pieces there.

Yes. And on real estate, Mike, is that the net proceeds? Or should we expect any tax leakage or any of -- anything of that type that we should be mindful of?

Nothing meaningful I would consider there, Ketan. I think that's a fair number to go with as a net-net number.

Got it. Okay. And then just switching to the U.S. South. You saw a pretty nice uptick in Southern lumber prices in sort of the March time frame. And then over the last few weeks, you've given up quite a bit. Can you talk about sort of what is driving that? How much was the initial rally just restocking and now the channel pulling back? And perhaps how do you see channel inventories for this time of the year, particularly in the U.S. South?

Yes, Ketan, it's Ian here. I would say supply conditions remain tight across North America. There's been weather issues in Q1 and what have you, particularly in the South, seeing stabilization of prices are trading over the last week, has had some really strong days, which is great to see. I think the permanent closures and ongoing curtailments of which we're participating and others are, continue to limit available production. I think the landed cost from third country imports and some of the logistical friction and freight costs that might be coming on that end of the supply, we'll see how that plays out. But inventory levels, we think through the value chain have normalized and so leaving kind of little buffer against any kind of disruption. So overall, supply backdrop is constrained and I think supporting pricing once demand stabilizes with some of the macro things that are happening today.

Okay. That's helpful. And then just coming back to the cost reduction. I thought if I heard you correctly, you said CAD 80 million over the next couple of years. What are you targeting for this year? And if you can give us maybe 1 or 2 key buckets that you are really focused on? And I'm just curious sort of how you are tracking it on an ongoing basis.

Yes. I mean it's on total manufacturing costs. So the big buckets there are really the log cost and then the conversion cost. And so those are where we're targeting the improvements. We're tracking it right down to a mill level up to the executive level and we're tracking it on a weekly basis, monthly and quarterly basis with scorecards that are visible and very transparent across the organization. So it's a heavy performance management drive that we've implemented at the very beginning of the year. We've made actually really good progress on that in the first quarter and it's early but it's encouraging.

And as I spoke to, it really -- given our size and scale and available insights and data around what mills may be outperforming other mills or in certain performance areas, we're able to quickly look at that and then help teams see that and then provide the support to those teams to hit their goals. And so we're pretty excited about it. We're seeing that it's working and the whole organization is clear on their targets and goals. And yes, stay tuned. We think that this is going to be great and we'll report on it as we go.

That's helpful perspective. Do you have an estimate on how much of this you expect to realize this year?

Well, it's hard to say for sure. But given Q1, that run rate, it could be significant but I'd rather not provide that guidance just because it's an ongoing program and we're 4 months into it now. And yes, we'll update you in Q2 but I'm hopeful that the trend that we're on now will continue at the same rate that we're seeing in Q1, which has been fairly impressive.

We have no further questions. I will turn the call back over to Ian Fillinger for closing remarks.

Okay. Well, thank you, everybody, for dialing into the call. We hope you have a great day and a great weekend and look forward to talking to you on our next quarter. On behalf of Mike and I, thanks again.

Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and we ask that you please disconnect your lines.

Good afternoon. My name is John, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Interfor Annual General Meeting Conference Call. [Operator Instructions]

After the formal business of the meeting has been conducted, Mr. Sauder will answer your questions that are submitted by shareholders before the meeting. Please go ahead.

On behalf of our Board of Directors, I'd like to welcome you to the [Technical Difficulty]

I apologize, we are experiencing some technical difficulties. Please stay on the line and you will be on music hold until it presumes. Thank you.

Please go ahead.

I'll pick up where we got cut off. We have invited shareholders who had questions for us to submit their questions before this meeting. And although no questions were submitted for this meeting, we will be holding our regular quarterly analyst conference call tomorrow morning, and we have provided the dial-in details in our news release of April 14.

So I'd now like to call the meeting to order. Xenia Kritsos will serve as Secretary of the meeting. And with the consent of the meeting, I appoint Cassandra Shedd of Computershare Investor Services, Inc. to act as scrutineer of the meeting. If there is any shareholder or proxy holder entitled to attend and vote at this meeting, who has not registered with the scrutineer, please do so now.

Only shareholders of the company of record at the close of business on March 17, 2026 or their duly appointed proxy holders are entitled to participate in and vote at this meeting. Proxies were required to be submitted by the proxy cutoff at 12:00 p.m. Eastern Time on May 12, 2026.

Voting at this meeting will be by a show of hands unless a poll is requested by myself or by a shareholder or proxy holder who is present in person and entitled to vote at this meeting. The secretary has confirmed that the notice and access notification, including the notice of the meeting, proxy form was mailed to all shareholders of record as of the close of business on March 17, 2026. And unless there is an objection, I will dispense with the reading of the notice of the meeting.

Computershare's affidavit of mailing is available if any shareholder wishes to examine it and will be filed with the minutes of this meeting. Copies of the notice of the meeting, proxy form and information circular are available on SEDAR+ and at interfor.com.

According to the preliminary report of the scrutineer, there are 60 shareholders present in person or by proxy holding 44,610,050 common shares of the company. Therefore, I declare that a quorum is present, and that this meeting is duly and properly constituted with the transaction of business.

And the first item of business is the presentation of the company's consolidated financial statements and the auditor's report for the year ended December 31, 2025. Copies of these statements and auditor's report are available on SEDAR+ and on our website at interfor.com. Unless there is an objection, I will dispense with the reading of the auditor's report.

Next item of business is setting the number of directors. The number of directors was last set by the shareholders at 11, and the directors recommend that this number be decreased to 9.

I move to resolve that under Article 11.1 of the articles of the company, the number of directors of the company be set at 9.

I second the motion.

Is there any discussion on the motion? Almost in favor, please signify by raising your hands. Any opposed? I see none, I declare the motion carried.

The next item of business is the election of directors. The information circular for this meeting sets out the company's director nominees, and they are Ian Fillinger, Nicole Butcher, Chris Griffin, Rhonda Hunter, Tom Milroy, Julian Platt, Lawrence Sauder, Curt Stevens and Tom Temple.

Each of these nominees is consented to act as a director of the company. Shareholders who intend to nominate candidates for director at this meeting are required under the articles of the company to provide advanced notice of their intention, but no such notice has been received.

Therefore, I declare the nominations closed. I move to elect each of the individuals nominated in the information circular as a Director of the company to hold office until the next Annual General Meeting of Shareholders.

I second the motion.

Is there any discussion on the motion? Seeing no discussion, all those in favor, please signify by raising your hand. Any opposed? I declare the motion carried.

The next item is to reappoint KPMG LLP as the company's auditor. I move to appoint KPMG LLG as auditor of the company to hold office until the conclusion of the next Annual General Meeting and at the remuneration to be set by the Board of Directors of the company.

I second the motion.

Is there any discussion on this motion? If there's no discussion, all those in favor, please signify by raising your hands. Any opposed? I declare the motion carried.

Shareholders have the opportunity to cast a say-on-pay advisory vote, which gives shareholders the opportunity to indicate their acceptance of the Board's overall approach to executive compensation set out in the information circular.

This vote is non-binding, but the Board will consider the outcome of the vote as part of its ongoing review of the executive compensation program at Interfor. I move to resolve that on an advisory basis only and not to diminish the role and responsibilities of the Board of Directors, the shareholders accept the approach to executive compensation disclosed in the information circular of the company dated March 17, 2026, delivered in connection with this meeting.

I second the motion.

Any discussion on the motion? Seeing no discussion, all those in favor, please signify by raising your hand. Any opposed? I declare the motion carried.

This completes the formal business of the meeting. Since there are no other matters to come before the meeting, I move to terminate the meeting.

I second the motion.

All those in favor, please signify by raising your hand. Any opposed? The motion has been carried, and I declare this meeting terminated. And thank you for attending Interfor's Annual AGM for 2026.

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

Good morning. My name is Sylvie, and I will be your conference operator today. Welcome to Interfor Corporation's Fourth Quarter 2025 Results Conference Call. [Operator Instructions] During this conference call Interfor's representatives may make forward-looking statements within the meaning of applicable securities laws. Additional information regarding the risks, uncertainties and assumptions of such statements can be found in Interfor's most recent press release and MD&A. And I would like to turn the call over to Mr. Ian Fillinger, Interfor's President and CEO. Mr. Fillinger, you please go ahead.

Thank you, operator, and thank you, everyone, for joining us this morning. With me on the call, I have Mike Mackay, our Executive Vice President and Chief Financial Officer; and Bart Bender, our Senior Vice President of Sales and Marketing. I'll start off by providing a brief recap of 2025 and then pass the call to Mike and Bart to cover off Q4 and the outlook.

2025 was another year marked by historically weak lumber prices and significant market volatility. Yet we continue to execute with discipline and strengthen the company in several important ways. I thought a few notables were worth mentioning. We took steps to reinforce liquidity and extend our financial runway, which Mike will speak more to. We also took decisive portfolio actions, adjusting operating postures at several mills and permanently closing 2 high-cost facilities in the U.S. South, which were indefinitely curtailed in 2024, ensuring our production profile is better aligned with demand. Across the platform working capital performance remained a highlight, logistics and lumber inventories were reduced significantly, a meaningful achievement in a down cycle.

We advanced the final phase of our Thomaston mill in Georgia with commissioning of the new sawmill expected in early March. We anticipate this asset will be a top decile performer and a key contributor to our long-term cost structure. And importantly, employee turnover continued to improve, reflecting the work our teams are doing on engagement and retention.

2026 will be hard to predict. However, we're well positioned to deal with uncertainty. We've implemented clear, measurable balance sheet guardrails to ensure resilience through the cycle and a commitment to directing free cash flow toward debt reduction targets. We also defined cost structure targets benchmark to trough cycle pricing, ensuring that further price weakness can be absorbed without eroding liquidity, and that we can continue to create long-term value even in constrained markets.

Till we have more clarity on the economic impacts of political developments in both the U.S. and Canada, we remain prudent in our approach to capital allocation. Our foundations are strong. Our footprint is diversified, and we continue to see opportunities to improve the business without large capital commitments. With that, I'll now turn the call over to Mike to walk through the quarter in more detail.

Thanks, Ian, and good morning, everyone. I'll begin by providing comments on the fourth quarter earnings, followed by an overview of our recent balance sheet initiatives and then end with some guidance on go-forward capital allocation priorities. .

From an earnings standpoint, Interfor posted negative $29 million of adjusted EBITDA in the fourth quarter. These results reflected weak lumber market conditions, ongoing trade measures and production curtailments across the platform. Nevertheless, our results in the fourth quarter were an improvement compared to the negative $36 million of adjusted EBITDA we posted in the third quarter after normalizing for the large noncash duty expenses that impacted that period.

The sequential improvement was driven by several offsetting factors. From a sales perspective, realized selling prices were weaker on average due to slightly lower market pricing in most regions as well as a full quarter of higher countervailing antidumping duties as well as the introduction of a 10% Section 232 tariff in October. From a cost perspective, however, production cost per unit improved by 4%, as higher conversion costs as a result of our downtime were more than offset by positive inventory valuation adjustments as lumber prices began to improve towards the end of the year.

Despite the negative adjusted EBITDA, cash flow from operations was breakeven for the quarter due to a notable recovery of working capital driven by reduced inventories and lower receivables.

Notably, looking back over the last 3 years of this prolonged market downturn, cash flow from operations has been positive in each of 2023, 2024 and 2025, totaling just over $300 million over that 3-year period, even amidst the very weak lumber market conditions. This reflects focused efforts on working capital management, as Ian alluded to, tax recoveries and ongoing initiatives to improve our cost structure and optimize the operating platform.

Turning now to the balance sheet. While admittedly, our leverage is not where we'd like it to be at this point in the cycle, we continue to take proactive actions to help us weather the storm of the current volatile markets. During and subsequent to the quarter, we completed a series of complementary financing transactions, including our previously announced equity raise as well as several new net debt-neutral refinancing initiatives. Taken together, these initiatives bolster our liquidity, effectively clear out our debt maturity runway for 2026 and 2027 and provide us both the time and flexibility to make the appropriate operating decisions if necessary.

At the end of the year, our net debt to capitalization ratio was 36.5%, and we had pro forma available liquidity of $482 million. This level, combined with anticipated divestiture proceeds over the next year or so, will provide significant financial flexibility to navigate ongoing volatility. These divestitures include the ongoing sale of our B.C. Coast forest tenures as well as anticipated sale of real estate at our former Summerville and Meldrim facilities in the U.S. South.

Turning lastly to capital allocation. Following the completion of several major capital investments in recent years, culminating with the completion of our Thomason project in Q1, we're continuing to anticipate lower spending going forward. Total capital spend for 2026 is expected to be between $75 million to $80 million and preliminary estimates for 2027 are expected to be in the range of around $60 million, focused almost entirely on maintenance.

In terms of capital allocation, as Ian alluded to, any free cash flow will be directed solely towards leverage reduction. The timing to reduce this leverage will ultimately depend on lumber prices and market conditions. However, our priority in the near term remains simple and clear. We're encouraged by some early signs of improvement in the lumber markets in recent weeks, though our planning assumptions remain conservative. With that, I'll now turn the call to Bart to provide some commentary on the markets.

Okay. Thanks, Mike. Good morning, everyone. As we look ahead to 2026, the economic environment remains uncertain. Trade and geopolitical developments continue to introduce incremental risk could slow both interest rate easing and broader economic activity. That said, the U.S. economy continues to show resilience around growth and employment. Current expectations suggest that meaningful interest rate easing could shift to later in 2026. From a housing perspective, affordability continues to be challenged. Mortgage rates are expected to remain at or near levels at least in the first part of 2026. Repair and Remodel largely influenced by home purchases is expected to remain relatively flat at the current levels.

Turning to supply. We're beginning to see the impact of production curtailments across the industry. Some curtailments are formally announced, many are not. One useful indicator is shipments of Canadian lumber into the U.S. markets. Over the last 6 months, shipments annualized to approximately 8.5 billion board feet compared to just over 10 billion in 2025 and 11.5 billion board feet in 2024; that's a material drop in supply. And that, when you couple that with the curtailments in the U.S., altogether, these reductions are starting to balance the lumber markets.

Market activity suggested destocking was taking place with our customers for the back half of 2025 as really there was no incentive to carry any extra inventory in the marketplace. This would mean that mills were not seeing true levels of demand, which given supply reduction should be interesting, as we enter the seasonally higher lumber consumption months of spring. Logistics has been relatively stable. However, the recent winter is impacting service levels and causing some delay in shipments. We expect that demand for lumber was also impacted during these weather events. As always, Interfor will continue to monitor our customers' needs and adjust our production levels accordingly. With that, I'll turn it back over to you, Ian.

Thanks, Mark. Operator, we're ready to take any questions.

Thank you, sir. [Operator Instructions] First question will be from Matthew McKellar at RBC Capital Markets.

Just wanted to follow up on Bart's comments about some delays in shipments. It sounds like logistics were kind of stable before that. How significant is the disruption you're seeing today? And you gave a sense that things can normalize fairly quickly? Or do you expect some tightness there for some time to come?

Yes. It's not at a prolonged situation. I think the winter weather that you saw kick in into some unusual places and also the usual places in the North have caused some railcar delays and some truck delays, which will impact shipments, but those will clear out in a couple of weeks, 3 weeks. So I'm not expecting anything prolonged.

And then you seem to take quite a bit of downtime in the Pacific Northwest in Q4. Have you been able to restore your operating stance in that region to start 2026 with how prices have trended?

Yes, Matt, Ian here. Thanks for the question. We are adding incremental hours in the Pacific Northwest right now. And the way we do that is obviously, you look at the pricing that's available to those operations, build the order file that's cash positive over a multi-week period and then slowly bring hours into the operation.

So I would say it's a very conservative risk adverse adding of hours that really it depends on pricing, demand and order file. So there is -- there are hours that are increasing slightly but not at a rapid pace at this point.

Next question will be from Ketan Mamtora at RBC Capital Markets.

Ian, Bart, maybe to start with, can you give us some perspective of what your channel inventories are at the moment? And what is your sense of inventories in the channel at the moment?

Yes. Thanks, Ketan. Yes, as far as our view of the dealer and distribution channels across our lines, they appear to be on the lean side with some recent volatility, making it a bit harder to decipher. But there seems to be little willingness to build any inventory as Bart had alluded to, just given market uncertainty at this time. So I would -- that would be our best view at this point, Ketan.

And then your inventories, Ian?

Yes. We're comfortable with our inventories. We've got them very lean and we're running the operations relative to the sales price and the demand on the order file. So yes, very good and comfortable position in the inventory. There's no access around any kind of materiality in any one of our regions across the company. So very, very tight at this point. But appropriate given where the market is at.

Got it. And then as we think about the first quarter, Ian, how should we think about your production in the first quarter? I know in Q4, you all had talked about 250 million board feet of sort of curtailments. Is there a way to think about Q1?

Yes. I would guide to the early part of Q1 here is some small incremental hours particularly in the South and the Pacific Northwest that are happening now. But Ketan, going out further, we're just -- we're reviewing it on a week-to-week basis and just making sure that we're not adding hours and building inventory. So it's really got to have the right price and the right order file in front of it.

So incrementally, hours are up a bit for the first part of Q1 to be determined for the last part here.

And then just last question...

Very cautious right now.

Understood. That's helpful. And then just last one for me. On the balance sheet side, do you think everything that you had to do kind of to get into a position where you think that, that's comfortable for you? Do you think that's behind you are there other options that you all are considering? You've got duty deposits. Is that an option to kind of monetize?

Mike here. I think the moves we made here in the last quarter, including the equity raise have been very meaningful is how we think about them, really cleared out the maturity runway in the next few years, in our view, in terms of flexibility and in terms of whatever market conditions come our way. So I think in a large part, it's been completed. I would say they were proactive moves on our part to get ahead of it and anticipate the downside scenarios. .

Duties wise, I think with all the ongoing uncertainty around this file and moving pieces politically, it's probably lower down the list of things to consider, but do feel the other moves we made have really moved the dial substantially here.

Fair enough. That's very helpful. I'll jump back in the queue. Good luck.

[Operator Instructions] Next question will be from Sean Steuart at TD Cowen.

Mike, I want to follow up on the balance sheet. On the debt side, you did a lot of -- made a lot of progress this quarter. You're getting amendments from creditors on the covenant calculations. I guess what I'm trying to square up here is beyond the minimum liquidity requirement, can you give some context on concessions you guys are giving with -- to get those amendments? And I'm thinking in terms of any incremental increase in your overall borrowing costs? Are there any sensitivities around that you can give us?

Yes. Sean, good question. I would say, as I addressed on the last question. This is really proactive measures on our side. There would be -- our new notes are obviously priced a little higher than our existing structure. But overall, if you look at our interest costs, they're in the 6.5% range. So there would be some incremental borrowing costs that come with this, but nothing too meaningful in a couple of million dollar range type of thing, Sean.

So I wouldn't say there's concessions, the equity raise I would say, went a long way for our lenders in terms of showing we're willing to do to help ourselves. And so I think that was all part and parcel with this package. Our new issuance on debt is really looking at funding some maturities that are coming our way. So we have some of it fall off as we go ahead here under the normal course.

Okay. It's encouraging to see that progress. Can you give us a sense, Mike or Ian, the cadence of the asset sales, both the tenures and the idle sawmill sites. The cadence of those proceeds and overall magnitude that you're targeting?

Yes, I'll take that one, Sean. So for the B.C. Coast, I think our guidance previously was in around $30 million to $35 million, that still stands. I think we've always said on this file, it's timing that's a little more uncertain. But I think for planning purposes, that's really a fair number to look at over the next 12 to 18 months.

The asset sales, a little more hesitant to give some guidance there. We're in an active marketing process right now. I would say it's meaningful, though. So order of magnitude in and around the same as the B.C. Coast, but I don't want to get too much more specific, those properties are in attractive geographic areas in growing cities and so pretty meaningful real estate divestiture proceeds. Also, 12 to 18 months will probably be a decent guidance for that, Sean.

Okay. One last question. Ian, you touched on the following -- or the lower labor turnover, presumably you're referring to the U.S. South there, can you put some numbers around that, that I know that's been a challenge for the industry for the last several years, but any numbers you can put around changes in that turnover rate?

Yes, Sean, it has been. And it has been 2 years in a row where we've reduced our turnover rates, particularly in the South as the focus mills that we've identified as the mills that needed the most help to make progress on that. But Overall, in the South, I believe it's around 3% or something improvement. But in some of the focus mills were there were higher turnover rates, those are in double-digit percentage improvements through the retentionary initiatives that we put in place.

So yes, really good progress by our operating and HR teams to address that. Well, obviously, lots of work still to do, but 2 years of trending in the right way has been encouraging.

[Operator Instructions] And at this time, Mr. Fillinger, we have no other questions registered. Please proceed.

Okay. Thank you, operator. As always, Mike, Bart and I are available to respond to any further questions as is Bryan Fast, our Director of Investor Relations. Thank you, everybody, for attending, and look forward to talking to you next quarter. Have a great day.

Ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending. And at this time, we do ask that you please disconnect your lines.

Good morning. My name is Sylvie, and I will be your conference operator today. At this time, I would like to welcome everyone to the Interfor analyst conference call. [Operator Instructions]. Thank you. Mr. Fillinger, you may begin your conference.

Thanks, operator, and hello, everyone. With me on the call today are Rick Pozzebon, Executive Vice President and Chief Financial Officer; and Bart Bender, Senior Vice President of Sales and Marketing. Thank you for joining us.

Before commenting on the quarter, I want to step back and provide some perspective on how Interfor is positioned and how we're addressing the near-term challenges while setting up for long-term success. As you're all aware, we're in the midst of a prolonged down market with several factors creating significant challenges for our industry.

These include economic uncertainty and housing affordability concerns, which are weighing directly on building products demand as well as cross-border trade tensions. Combined effect has been a persistently weak price environment. Against that backdrop, our leadership team remains focused on what we can control, driving out costs, reducing risks and positioning our business for success when the market turns.

The top of our list is supply discipline. We've led the industry in taking proactive steps to preserve our position today and to prepare for improving conditions ahead. For Q4, we announced reductions of approximately 250 million board feet of lumber, representing about 26% when compared to Q2 volumes.

We've consistently acted early from curtailment announcements this year to the divestiture of our Quebec assets and the indefinite curtailment of 2 U.S. sawmills. These decisions reflect our fundamental commitment to maintaining a responsible operating posture across the portfolio. Interfor has a top-performing platform in North American lumber industry, optimized for both tough times like today, but also for better markets when they return.

Our second priority is cost discipline. We already delivered top quartile EBITDA margins and that performance continues to drive our team. Our Canadian platform has remained resilient despite difficult markets and punitive duties. We continue to optimize our portfolio for operations that support industry-leading margins and position us to capitalize what markets recover.

Fundamentals exist for strengthening lumber markets, particularly owing to the pent-up housing demand. Economic indicators suggest improvements starting in 2026 with continued upward trends in 2027. While that recovery will take time, we believe we're as well positioned as anyone to benefit once it comes. We're moving forward with a solid foundation.

We've significantly strengthened our balance sheet through a recent equity raise that was well supported by long-term shareholders. Combined with the renewal of our credit facility, this gives us flexibility to weather the downturn for several years, if necessary.

With that backdrop, I will turn to the most recent quarter, where our results reflect the challenging operating environment that I've been speaking about with pricing down across all regions, particularly in the U.S. South. These conditions and our philosophy of adjusting quickly were the catalyst for lumber production adjustments last month. While prices are fine in ground, we've seen similar curtailment announcements across the industry. The market remains in balance. We'll continue to align our production with market realities in a disciplined and proactive way.

Looking ahead, these are undeniably tough times. And like others in our industry, our numbers reflect that, but we're confident in our portfolio, balance sheet and our clear plan to manage through the uncertainty and position Interfor to thrive as conditions recover. With that broader perspective, we see considerable opportunity and long-term value in our company, and we're committed to delivering that to our shareholders.

With that, I'll turn it over to Rick for a closer look at this quarter's financial results. Over to you, Rick.

Thank you, Ian, and good morning all. Please refer to cautionary language regarding forward-looking information in our Q3 MD&A.

Overall, our financial results for the quarter reflected significant lumber price weakness, especially in Southern Yellow Pine and significantly higher duty rates imposed by the U.S. As Ian alluded to, earnings continued to be constrained by a general oversupply of lumber in the market despite significant production curtailments across the industry since the beginning of 2024.

Interfor contributed further to these supply curtailments with recent announcement indicating plans to significantly reduce production across all regions through the end of this year. In August, the U.S. more than doubled the combined rate of antidumping and countervailing duties imposed on lumber shipments from Canada from 14.4% to over 35%. This increased duty rate directly impacts approximately 25% of Interfor's total lumber shipments.

With respect to earnings, Interfor generated an adjusted EBITDA loss of $36 million, excluding noncash duty-related adjustments on total revenue of $689 million. Total revenue dropped 12% quarter-over-quarter, driven by a 6% increase in the volume of lumber shipped, a 10% decrease in the average realized lumber price and a slightly weaker U.S. dollar.

Decrease in volume reflects production curtailments and lower demand, a portion of which is seasonal. Lumber price declines were led by Southern Yellow Pine, whose benchmark composite average price fell nearly 20% quarter-over-quarter. On the cost side, reported production costs per unit of lumber increased 2% quarter-over-quarter, reflective of the lower shipment volume, partially offset by a slightly weaker U.S. dollar.

From an operating cash flow standpoint, $26 million was consumed in the quarter driven by negative cash margins on lumber sales, partially offset by an $18 million reduction in working capital. Beyond operations, we invested $32 million in capital projects and generated $1 million from the sale of assets.

Over the remainder of this year and next, we anticipate generating net cash flow from ongoing sale of B.C. Coast forest tenders in the ballpark of $30 million to $35 million. This following quarter end on October 1, Interfor completed a bought deal equity offering, which generated $144 million of gross proceeds. Including this, financial leverage as measured by net debt to invested capital would have been 35.2% at the end of Q3 with available liquidity of $386 million. This equity raise, combined with the credit facility renewal in July have provided Interfor with enhanced financial flexibility to navigate through the ongoing downturn.

To wrap up, Interfor's financial results for the third quarter reflect significant lumber price weakness and higher duty rates imposed by the U.S. We anticipate continued lumber market volatility going forward as supply continues to rebalance with demand and trade actions by the U.S., including the Section 232 tariff of 10% implemented in October.

Therefore, we'll continue taking actions that position its high-quality and geographically diverse operations to succeed through this volatility and capture the upside when the market returns to strength. That concludes my remarks. I'll now turn the call over to Bart.

Thanks, Rick. Lumber markets remain challenged given the uncertainty we're seeing at both the macroeconomic and geopolitical level, multiyear lows on consumer sentiment, low U.S. home building confidence and elevated mortgage rates all represent headwinds. And that's impacting new home construction, industrial activity and repair and remodel demand. This uncertainty continues to put downward pressure on the demand for lumber, which we expect to see for the balance of this year.

Looking ahead to 2026, we anticipate that affordability will begin to improve which should lead to better market conditions. On the supply side, production curtailments are increasing in response to unsustainable pricing in all markets. We expect this to continue until a balance is achieved.

Although difficult to be exact, it's our position that end market inventories remain very low, less demand and low lead times have allowed distributors to run comfortably with much lower inventories than normal. The strategy works until it doesn't. Interfor specifically, our diversification of species producing regions and product mix allows for a targeted market approach and access to a broader range of the lumber market, beneficial in times of oversupply.

Lastly, Interfor will continue to monitor our customers' needs and adjust our production levels accordingly. With that, back to you, Ian.

Thanks, Bart. Operator, we're ready to take any questions at this point.

[Operator Instructions].

Thank you. Your first question will be from Hamir Patel at CIBC Capital Markets.

And we've seen some more industry capacity closures announced yesterday in British Columbia. How are you feeling about your cost position in the province? And how much additional industry capacity do you think needs to come out?

Thanks, Hamir. Yes, our B.C. operations in Adams Lake, Grand Forks and Castlegar as you know, have been modernized over the last number of years and are very competitive on a cost basis and also on a product mix basis, with being much different where some of our competitors are in the North or central interior. So a lot more species variability, product mix that aren't on random length pricing.

So in addition to that, all 3 of those operations have extremely high percentage of secure fiber through licenses, et cetera, probably, I would say, in province. So very good opportunity to log from our tenures or if we have to go to an open market, we can be very strategic about that.

So very competitive operations in B.C., Hamir. As far as volume goes out, I think the way out of where we're at now is supply. It's the adjustments that industry needs to make to be able to get out of this situation we're in and it's part of our responsibility to do that, and we've been doing that, as you know, usually first and leading in the industry on some of those difficult decisions.

Great. Thanks, Ian. And Rick, a question for you. I know the company has close to, I believe, $550 million of goodwill on the balance sheet. How should we think about risks of further impairments there?

Our goodwill on our balance sheet is about $500 million today. and that's within the total assets on the balance sheet of about $3.1 billion and a book value per share of about $21 today. So when we think about goodwill testing, it typically happens for us every Q4, it's an annual testing requirement required by IFRS.

So the testing, Hamir, involves multiyear discounted cash flow model -- so we're in the process of doing that right now. It would be too early for me to speculate on what the results are. However, I think it's worth noting that the testing uses long-term lumber prices, so long-term trend lumber prices, which haven't really changed year-over-year. And we've made improvements in terms of the quality of our portfolio over the last year, just given some of the asset sales we've made. So I'm feeling good about where we're at with the testing, but it's too early to speculate at this stage.

Next question will be from Matthew McKellar at RBC.

In your opening remarks, you talked about continued efforts to drive out cost, are there any recent initiatives you'd highlight or any items on the docket for 2026 that we should be considering?

Yes, Matt, kind of in this type of format, we're a little bit reluctant to share the internal plans that we have. We've been running a targeted initiative through the down market each year and readjusting depending upon our outlooks in current conditions. So I would say we're as an executive team, pleased with both the cost side and the product mix side, internal initiatives that we're doing in and I think that's reflective in our benchmarking of our margins compared to our public peers.

But yes, it's significant, but would be hesitant to kind of share it in this forum with you, Matt. But I can say that the entire organization whether it's in offices or mills or Woodlands or sales all have very good targets set in place and they're making good progress on all of them.

That's very helpful. Last for me, we've seen pretty substantial changes in duties on Canadian lumber new tariffs and significant changes in FX rates this year. With the changes we've seen and I guess reflecting on some of the challenges the European producers are facing as well. How do you expect imports from Europe into North America to trend from here?

Yes. Well, we -- as you know, we don't really have operations in Europe to really completely understand that picture. But obviously, with 10% being put on European imports into the U.S. should help North American producers compete against that volume. But yes, we don't really have much more of an insight than you do on that front.

Next question will be from Ketan Mamtora at BMO Capital Markets.

Maybe first question. If I'm looking at this correctly, it looks to me that your lumber production was actually up 1% on a year-over-year basis in Q3. Can you provide some perspective on what is driving that?

Ketan, it's Rick speaking. I think looking at Q3 last year, we had taken significant curtailments a little bit more than we had taken in Q3 this year. And I think that's the main reason. We will expect an increase in curtailments and production reductions in Q4 here based on our announcement that we made in October, Ian referenced in his remarks.

Yes. And further supporting what Rick is saying is curtailments, we were winding up a couple of operations in the U.S. South, plus the Quebec mills from last year too where they were at. So -- and we were in that process. So yes, lots of moving parts from last year to this year, Ketan.

Okay. I see. And then recognize that you've announced curtailments for Q4. I'm just curious, given sort of how prolonged this downturn has been and given sort of where lumber prices have been. Can you provide some perspective on how you are thinking about temporary curtailments versus kind of more indefinite or permanent curtailments and sort of what -- how are you all thinking about those 2?

Yes, Ketan, we have a model internally where we put in a bunch of obviously factors market being one of them, demand being one of them, inventory levels, pull-throughs on what have you, input costs for logs and conversion costs in that model, which we review on a weekly basis.

So we make some of those decisions, which are -- we don't take lightly, obviously, impacts many people, but yes, we do have a robust model that's been built and refined over the last 5 or 6 years. And so to answer your question, we're looking at it every week, we'll make adjustments. We're not shy about doing that. We believe that as difficult as they are, they're needed in these environments. So yes, we're continuing looking at those and ready to make the decision when needed and be proactive about it.

Yes. And Ian, I recognize these are kind of very difficult decisions and to everyone who is affected, I appreciate that. What do you need to see to either kind of make the decision or kind of not make that decision? What factors are we looking at? And recognize it's not just like 1 month or 1 quarter, right? You need to think kind of ahead. But outside of the fact that we've all looked at data around pent-up demand. But outside of that, what are the things that you're looking at to sort of decide this?

Yes. Basically, Ketan, the main driver is the lumber demand and lumber price. And so it's a mathematical model on that. But when we do see demand there to support either a shift coming up or a shift or a mill going down. That's a fairly easy decision for us to see with our model.

And then on the pricing side, does pricing support at cash breakeven and above? Or does it support cash breakeven and below? And then where those costs inflection points are would drive whether we reduce and curtail or whether we add volume back in.

And so we need to see sustained improvement to bring back any kind of production. And on the other side, when it doesn't look great, and we really kind of look out 2 to 3 weeks because that's the best sort of insight and after that, it gets a little bit cloudy. We will make decisions to curtail and it's a real-time model.

[Operator Instructions]. Next, we will hear from Sean Steuart at TD Cowen.

Ian, another question on the supply response and the thought process that goes into it. And maybe I'm thinking too far ahead here, but is a part of the thinking on the rolling downtime versus permanent or indefinite shuts at this point? We're 3 years plus into an extended trough, which is abnormal. We're probably closer to the end of this than the start, hopefully, at this point.

Does the duration of this downturn factor into the decision or the decision against permanent closures at this point, i.e., when things get better, you want to be able to respond. Is that a part of the thought process for the company at all?

Well, it is, Sean. I mean these are big decisions when we're talking permanent, and I think that's what your question is driving towards. And so when you look at operations and you kind of see where they're at on the cost curve, product mix and then you look at a trend price. I mean, you kind of got to have that in the back of your mind.

But at the same time, the factor for us is our goal has always been to be in the top quartile in any operation we're at. So from the time that you kind of look at a permanent or nonpermanent decision, it also has to factor in what's the time line to move that operation even in a trend market to where we want to be. And so those are the factors that we look at and we got to get comfortable around and then make the appropriate decisions, which, as you've seen, we've done multiple times in the past.

Yes. Understood on that front. And Ian, can you give us some updated perspective on if it's EBITDA per 1,000 board feet or relative margin metric? I'm not asking for the specifics region by region, but can you give us an idea of how wide the spread is at this point across your platform region to region?

Not really, Sean. I think that would be kind of difficult for us to share in this environment. But the one uniqueness and you know this, being in New Brunswick and Ontario and B.C., it really diversifies our Canadian mix.

We have an engineered wood product division also, which is helpful and strong and then being in the Pacific Northwest and the U.S. South, as these trade actions against the Canadian lumber continue, we feel that being in Washington and Oregon, is an advantage to maybe some interior BC operations in the Central and North, given our stud production in the Pacific Northwest.

So each one of our regions actually is from a product mix, specie and geographical log cost differences really gives us a balanced portfolio, and that's part of our growth strategy over the last 5 years and when the market turns. I think we're in exceptional shape to capitalize.

At this time, I would like to turn the conference back over to Mr. Fillinger.

Okay. Thank you, operator, and thank you, everybody, for attending and your questions, and have a great day, and we'll talk to you next quarter. Thank you.

Thank you sir. Ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending. At this time, we ask that you please disconnect your lines. Have a good weekend.