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Presentation

Operator: Good morning. My name is Rob, and I will be your conference operator today. At this time, I would like to welcome everyone to the PotlatchDeltic First Quarter 2025 Conference Call [Operator Instructions]. I would now like to turn the call over to Mr. Wayne Wasechek, Vice President and Chief Financial Officer, for opening remarks. Sir, you may proceed.

Wayne Wasechek: Good morning. And welcome to PotlatchDeltic’s first quarter 2025 earnings conference call. Joining me on the call is Eric Cremers, PotlatchDeltic’s President and Chief Executive Officer. This call will contain forward-looking statements. Please review the cautionary statements in our press release, on the presentation slides and in our filings with the SEC regarding the risks associated with these forward-looking statements. Also, please note that a reconciliation of non-GAAP measures can be found in the appendix to the presentation slides and on our Web site at www.potlatchdeltic.com. I’ll turn the call over to Eric for some comments and then I’ll review our first quarter results and our outlook.

Eric Cremers: Well, thank you, Wayne. And good morning, everyone. Thanks for joining us. Following the market close yesterday, we reported total adjusted EBITDDA of $63 million for the first quarter. I’m pleased with our solid operational performance across all businesses despite the prevailing economic and trade policy uncertainties affecting the market. Our financial performance improved compared to the fourth quarter in all three of our business units, demonstrating strong execution by our teams, the resilience of our operations and the positive effects of our strategic investment in the Waldo, Arkansas sawmill. Starting with timberlands, our teams in Idaho in the South did a great job of producing higher than planned harvest volumes during what is typically a seasonally slower period.

This incremental volume was particularly advantageous in Idaho as we benefited from an increase in sawlog prices due to our index saw law agreements coupled with higher cedar prices driven by strong regional demand. In our wood products business, lumber markets were dominated by tariff discussions throughout most of the first quarter. The Random Lengths’ Western SPF composite price rose by $60 during the quarter in anticipation of Canadian tariffs. As the tariff deadlines loomed, buyers refrained from building inventory to hedge their positions, preferring instead to continue to purchase for near term needs. With Canadian lumber tariffs currently on hold, it remains to be seen how much of this run-up of SPF prices in Q1 will unwind. Conversely, southern yellow pine markets did not experience near the pricing benefit as SPF.

Nonetheless, southern pine lumber markets were more active and prices remained relatively firm during the quarter. Lumber markets continue to face relatively tepid demand from end markets. That said, the capacity curtailments announced last year continued to impact the market, providing greater balance to supply and demand dynamics and helping support lumber prices. Additionally, pending regulatory actions related to Canadian duties and potential tariffs have provided support to pricing thus far this year and that should continue as we move to the second half of the year. Canadian producers who supply approximately 25% of US demand were recently spared from reciprocal tariffs. However, there are already well established softwood lumber duties on imported Canadian lumber, which are adjusted annually.

Preliminary Canadian softwood lumber duty rates that will take effect later this year were announced and they are higher than current levels. The preliminary all others rate is set to increase from 14% to over 34%, more than double the current rates once finalized. Furthermore, on March 1st, the Secretary of Commerce initiated a Section 232 investigation to determine the effects of imports of lumber and derivative products on national security. Commerce will evaluate the extent to which US production can meet domestic demand and the feasibility of increasing domestic timber and lumber capacity. The findings of this investigation could lead to the implementation [inflammation] of tariffs on all lumber imports into the US and would be incremental to the already established Canadian softwood lumber duties.

During Q1, we shipped 290 million board feet of lumber, which was 10 million board feet over the upper range of our Q1 guidance. This over-performance to plan was mainly driven by our Waldo, Arkansas sawmill. The ramp-up and performance of this mill has gone extremely well. In fact, by March, we were consistently achieving a run rate that matches its new targeted annual nameplate capacity of 275 million board feet per year. By hitting the mill’s targeted key production metrics, including improvement in recovery rates and a 30% reduction in cash processing costs, we have now completed the ramp-up phase of the project three months ahead of schedule. This modernization and expansion project at Waldo has significantly enhanced the competitiveness of the mill and is expected to generate approximately $25 million in incremental EBITDDA annually, assuming a mid-cycle sales environment.

Moving on to our real estate segment. This business continues to benefit from demand for rural real estate, particularly for conservation and recreational purposes. We sold over 7,000 acres in the first quarter, including several larger transactions, which contributed to achieving notable premium to timberland value. Steady demand is expected to persist as buyers seek hard assets like rural land against an environment of significant volatility in many other asset classes. Now turning to our natural climate solutions initiatives. Solar continues to be very active. Since the end of 2024, we have expanded our acres under solar option contract by an additional 3,000 acres. This increases our total acreage under option to 38,000 with an estimated net present value of around $475 million.

In recent conversations with solar developers, they continue to view their solar projects as viable and are, therefore, proceeding with their plans. Another promising NCS opportunity for us is in lithium as a portion of our property in Southwestern Arkansas has potential for lithium development. We began our first step in potentially monetizing our land for lithium development this year by granting exclusive rights to a lithium developer to conduct brine exploration and production on approximately 900 surface acres in Lafayette County, Arkansas. The lease anticipates an initial five year term from planning, engineering and construction before potential production begins. Additionally, we are actively engaged in discussions on executing another large mineral rights lease in Southwestern Arkansas.

Regarding forest carbon offsets, we are in the process of developing an improved forest management carbon offset project aimed at storing carbon in our forest, which we believe will generate cash flows that exceed our business as usual baseline. At this stage, we are currently conducting feasibility studies with reputable project developers that focus on potential projects in our southern timberlands. Due to the complexity and care required to develop a high quality carbon project, we would target to bring a meaningful project to market sometime in the next 18 to 24 months. In addition, we continue to pursue a range of other longer term natural climate solution opportunities, including carbon capture and storage and new markets for biomass, such as bioenergy and sustainable aviation fuel.

For CCS, we are exploring projects for development in a block of our timberlands in Northern Louisiana that would support CO2 storage for potentially new emitting facilities in the region. We believe initiatives like these will ultimately increase demand for our rural land, likely driving timberland values significantly higher. Shifting to our capital allocation strategy. We maintain a balanced and disciplined approach, especially given current lumber markets and the uncertainty surrounding the broader economy. Our stock continues to trade at a significant discount to our estimated net asset value in addition to yielding over 4.5%. As a result, share repurchases remain more attractive than acquiring timberlands or other capital allocation options.

In the first quarter, we purchased $4 million of our common stock through our 10b5-1 program at an average price of $45 per share. And we have bought another $4 million at $40 per share so far this quarter. Our solid financial position, coupled with our liquidity profile, allows us to continue being opportunistic with capital deployment as we move through the year. Turning our attention to the US housing market. Overall macroeconomic conditions continue to constrain consumer confidence and challenge affordability leading to low buyer urgency in both new and existing home sale markets. While large US homebuilders have pointed to a slower start to the spring selling season, annualized US housing starts are stable, averaging nearly 1.4 million units.

Single family home building starts remained resilient near the 1 million unit level as the larger public homebuilders continue to offer rate buydown incentives to drive home sales. The multifamily home building segment remains challenging due to the restrictive construction financing and an oversupply of units, which continue to be digested in the market. For existing homes, inventory has risen but sales remain on pace with last year’s low level as interest rates continue to be elevated and existing homeowners wanting to move are continuing to choose to stay in their current homes due to the lock-in effect of their low mortgage rates. Despite the current state of the housing market, the key drivers of inherent housing demand remain positive.

These longer term structural tailwinds include the massive undersupply of homes, a substantial demographic shift as millennials transition to homeownership and strong household formations. We believe that once the constraints on housing [affordability] ease, this will serve as a catalyst for upward momentum in lumber demand. Now shifting to the repair and remodel sector. The level of activity so far this year has remained relatively stable. On the one hand, underlying demand continues to be held back by several near term challenges, including falling consumer confidence and elevated financing costs for discretionary home improvement projects. However, leading R&R pundits predict modest gains in repair and remodel as we move through the year and big box retail centers are forecasting slight growth in comparable store sales.

For our own home center business, we have strong takeaway and we expect this trend to continue. Additionally, the factors influencing demand for R&R remain intact, including an aging housing stock with a median age over 40 years, historically high home equity levels and the enduring trend of people working from home. To close out my comments, while the near term may be volatile and uncertain we have a favorable view of long term fundamentals in our industry. Lumber prices have made a strong run since last summer in what has been a flat demand environment. And our view is that once markets settle down, demand will return. And as demand returns, pricing should improve as well. Combined with our strong balance sheet and excellent capital allocation track record, we are well positioned to deliver long term value to our shareholders.

I’ll now turn it over to Wayne to discuss our first quarter results as well as our outlook.

Wayne Wasechek: Thank you, Eric. Starting from Page 4 of the slides. Total adjusted EBITDDA increased $10 million, rising from $53 million in the fourth quarter to $63 million in the first quarter. This sequential quarter-over-quarter increase is attributed to improved performance across all our business segments, particularly timberlands, which benefited from higher sawlog prices in Idaho and increased harvest volumes in both Idaho and the south. I will now review each of our operating segments and provide more details on our first quarter results. Information regarding our timberland segment is presented on Slides 5 through 7. The segment’s adjusted EBITDDA increased from $34 million in the fourth quarter to $42 million in the first quarter, driven by higher harvest volumes, increased Idaho sawlog prices and seasonally lower forest management costs.

The first quarter’s overall harvest volume exceeded our plan for Q1, marking a good head start to 2025. In Idaho, we delivered 368,000 tons in the first quarter, taking advantage of favorable logging and hauling conditions and adequate contractor availability. Sawlog prices increased by 9% per ton compared to the fourth quarter due to higher index and cedar sawlog prices combined with a slightly higher mix of cedar. Lower seasonal spending on forest management in roads also favorably impacted results. In the south, we harvested 1.6 million tons in the first quarter, slightly above our fourth quarter harvest volume and exceeding our Q1 plan by almost 170,000 tons. Favorable weather and better than anticipated demand for stumpage sales let us start the year ahead of schedule.

In the first quarter, our southern sawlog prices decreased by just over 2.5% compared to the fourth quarter. This decline in price was mainly attributed to a shift in product mix, including a higher mix of smaller diameter sawlogs and a lower volume of hardwood sawlogs. Now I’ll turn to wood products, which is shown on Slides 8 and 9. Adjusted EBITDDA increased from $9 million in the fourth quarter to $12 million in the first quarter. The increase was driven by slightly higher average lumber prices, somewhat offset by higher log costs in Idaho. Our average lumber price realization increased $9 or 2% from $445 per thousand board feet in the fourth quarter to $454 per thousand board feet in the first quarter. Comparatively, the random lengths framing lumber composite average price was about 6% higher in the first quarter compared to the fourth quarter.

Note that our regional mix and product mix defers from the composite and there’s also a timing difference between our sales and the composite. Lumber shipments increased by 7 million board feet, rising from 283 million board feet in the fourth quarter to 290 million board feet in the first quarter. This increase in shipment volume was primarily a result of the Waldo sawmill reaching its targeted production levels following the completion of our modernization and expansion project. Shifting to real estate on Slides 10 and 11. The segment generated adjusted EBITDDA of $23 million in the first quarter compared to $19 million in the fourth quarter. In our real estate — rural real estate business, we sold over 7,000 acres at an average of $3,300 per acre during the first quarter.

Our first quarter results include three significant rural real estate sales, including a conservation land sale in Georgia for over $7 million at approximately $3,300 an acre. We continue to leverage strong demand for rural real estate across all buyer segments but particularly for conservation outcomes and recreational purposes. In the Chenal Valley development side of our real estate business, 11 residential lots were sold at an average price of $113,000 per lot in the first quarter. These sales were in line with our expectations due to the level of inventory available. Turning to our capital structure, summarized on Slide 12. At the end of Q1, we had $447 million in liquidity, including $147 million of cash on our balance sheet as well as availability on our undrawn revolver.

Net interest expense was approximately $2 million in the first quarter, which is the lowest level for the year since we received the vast majority of our annual patronage payments from the Farm Credit banks during this quarter. We have $100 million of debt maturing in August, which we plan to refinance. We also have available $75 million of notional forward starting interest rate swaps to lower borrowing cost for this debt refinancing. As Eric mentioned, we have been actively repurchasing our shares as our stock continues to trade at a significant discount to net asset value. Thus far this year, we have spent $8 million on share repurchases, having bought back 188,000 shares for an average of $42 per share under our 10b5-1 plan. We have $82 million remaining on our $200 million repurchase authorization.

Capital expenditures totaled $23 million in the first quarter. And this amount includes real estate development expenditures, which are included in cash from operations in our cash flow statement. For the full year, we continue to anticipate CapEx spend of $60 million to $65 million, which excludes the final closeout payment of $6 million for the Waldo sawmill project that we made in Q1 and any potential timberland acquisitions. I will now provide some high level outlook comments. The details are presented on Slide 13. In our timberland segment, we plan to harvest between 1.6 million and 1.7 million tons in the second quarter with approximately 82% of the volume coming from the South. Harvest volumes in the North are expected to be seasonally lower in the second quarter compared to the first quarter due to the anticipated spring breakup.

Also, Northern sawlog prices are expected to remain mostly flat. In the south, we plan to harvest 1.4 million tons in the second quarter and we expect our southern sawlog pricing to remain relatively stable as well. We plan to ship 300 million to 310 million board feet of lumber in the second quarter. With Waldo now operating at full capacity, achieving this shipment level will set a new quarterly record. Our average lumber price thus far in the second quarter is $475 per thousand board feet, which is roughly 5% higher compared to our average lumber price in the first quarter. This is based on approximately 100 million board feet of lumber. Shifting to real estate. We expect to sell approximately 8,000 acres of rural land and roughly 20 Chenal Valley residential lots in the second quarter.

Further details regarding real estate can be found on the slide. Overall, we estimate our second quarter total adjusted EBITDDA to be lower compared to our first quarter results due to seasonally lower harvest volume and higher forest management costs. That concludes our prepared remarks. Rob, we would now like to open the call to questions.

Operator: [Operator Instructions] Your first question comes from the line of Ketan Mamtora from BMO.

Ketan Mamtora: Maybe start with — can you talk a little bit about demand trends that you are seeing both in the new resi channel and the R&R channel as we move through April? As you pointed out, it seems like things have gotten off to a slow start. But I’m curious what you’re hearing from your customers as we move to the busiest time of the year.

Eric Cremers: The way I would describe the current market environment for lumber is that things are decent. I do believe it is a little bit of a tale of two cities right now. I believe the south is on firmer footing than the north. And in fact, I would tell you that right now, prices are, I don’t know, $10 to $20 per thousand board feet higher than what the latest random length print is for the various southern species and dimensions. And I would tell you that the north is actually selling a bit below the latest random lengths print. The south has been on pretty much an upward trajectory since the start of the year with [Technical Difficulty] activity, very, very solid. And then I had to speculate that as to why it’s a tale of two cities, I don’t think it’s because demand is different between the north and the south, but I think it really has more to do with northern species, folks — customers are basically digesting some inventory that they bought in anticipation of lumber tariffs, which of course, didn’t happen.

Our home center takeaway, it remains relatively good. I mean I think our year-to-date volumes are running something like 4% above the prior year. We are getting into the slower summer months. If I had to guess, I think you’ll see a little bit of a pullback here over the next month or two. We’ve already seen random lengths pull back, I don’t know, 3% or so from the peak. But I think as you get out into — I don’t know if it’s going to be in July or August or September but at some point, the expectation those duties going higher is going to compel people to start building inventories. And like I said, I don’t know which month it’s going to happen, but it’s going to happen. So the price risk is clearly to the upside in the back half of the year.

But we are in a relatively flat demand environment. Just look at housing starts, we’re stuck at 1.4. R&R markets, I think, are a little bit better than new residential construction. But even that we’re talking about modest demand improvement. So that’s kind of how I see the backdrop there but I do think the price risk is to the upside.

Ketan Mamtora: And Eric, just curious, you talked about maybe in the north folks buying in anticipation of tariffs. As we sit here today, how would you characterize channel inventories?

Eric Cremers: Well, I think we’re relatively low levels. The industry has learned to operate at relatively low levels over the years. People don’t like holding inventory speculating on where prices are going to be headed. And also, we’re in a relatively high interest rate environment. So there are carrying costs to holding high inventory levels. So I think the industry is running at a relatively low level of inventories with the exception of maybe some of the northern species, there may still be a little bit of inventory hangover from the potential for inventory building due to tariff concern.

Ketan Mamtora: And Wayne, one for you. In terms of second quarter northern sawlog price realizations. My understanding is generally going from Q1 to Q2, we see a pretty meaningful improvement just from the density component. Is that getting offset by some of the recent declines we’ve seen in some of the northern species in lumber or is there anything else that’s going on?

Wayne Wasechek: There is the positive effect of weight in the second quarter but that’s been — our forecast is that’s offset by lower pricing. Now keep in mind that with spring breakup, we’ll start moving logs here in the month of May. So there’s nothing in April. So — and then the first — those shipments in those deliveries in May will have April pricing. So we’ve seen a little bit of rollover in northern pricing in April. So that’s what that effect is what we’re anticipating.

Operator: Your next question comes from the line of Anthony Pettinari from Citi.

Anthony Pettinari: Just following up on Ketan’s question. When tariffs were announced on Liberation Day, we didn’t get Canadian lumber tariffs but we did get kind of very high tariffs on kind of everything else. When Liberation Day happened, did you see a significant change in your order book or did your kind of dealer customers did they communicate kind of a big change in their demand or maybe even on the real estate side? I’m just kind of curious like what impact that event happened or what that did to end consumer demand, if anything?

Eric Cremers: I don’t really know that it changed end consumer demand a whole lot, Anthony. There was some — I’m sure some folks were speculating that there were going to be Canadian tariffs on imported Canadian lumber. And when it didn’t happen, all of a sudden people had inventory that they had to let come back down again. But I think most of the market never really anticipated a huge inventory. Now the 232 tariff is still hanging out there. And I do actually think there’s going to be a tariff for lumber this fall. It’s anybody’s guess as to what that might be. But back to your question, I don’t know that it really changed a whole lot other than there may have been some advanced ordering for SPF or SPF corollary species like Kemfer, Doug Fir. There may have been some people out buying in advance of Liberation Day and then that had to be unwound, but I don’t think that the effect was huge.

Anthony Pettinari: And then when we do go from, I guess, 15% to 34%, 35%, do you think Canadian lumber volumes into the US basically get shut down, are they maybe able to absorb some of those costs or not pass those on to the end consumer? Like what actually happens to Canadian volumes when we get up to like a 34%, 35% duty when — I guess, when you think about history?

Eric Cremers: I think it’s going to be a little bit of both. I think there are going to be some competitors. I mean if you’re a West Fraser and you’ve got mills in Canada and you got mills in the south, you can absorb some of that higher duty and keep operating. If you’re a smaller independent operator and you’ve got one mill in Canada and you’re disadvantaged with expensive logs, it’s going to be a world of hurt. I do expect there to be more mill closures or curtailments up in Canada as we get into the fall with these higher duties. I mean a 34% duty it’s pretty onerous.

Operator: Your next question comes from the line of George Staphos from Bank of America.

George Staphos: Recognizing that we’re not at mid-cycle pricing yet in lumber, what do you think Waldo’s actual contribution was on a year-on-year basis to the EBITDDA in the wood products segment, any sense that you could relate to us?

Eric Cremers: Well, what I’d say so far, George, is that it’s not where we want it to be. It’s not because the mill is not running well, the mill is running exceptionally well. I think the real issue right now is pricing. And that mill generally runs wider dimensions, not narrow dimensions. And this spring in the south, it was relatively dry, logs were accessible. And so we didn’t get the price run-up in wides this spring that we would normally get. So I’m not — we’ve had one quarter where pricing isn’t exactly where I’d like it to be. But I do have an expectation for higher prices as the year progresses and I especially have a higher price expectation for next year as I think starts are going to come back and R&R is going to be on firmer footing next year. So I have no doubt Waldo is going to grow into its pro forma. It’s not quite there yet but it’s getting there.

George Staphos: Switching gears a little bit. I mean you had a reasonably constructive quarter in real estate. I think you noted that overall prices went up. But from our vantage point, looking at some of the trade periodicals, it looks like activity in the South, in particular, has been a little bit sluggish. I don’t think there’s been a meaningful change in pricing per acre. Now if you agree with that, what do you think is happening? And if you have a different view of things, please relate what you’re seeing in the southern markets, recognizing it’s not a monolithic market, they’re going to be different regional trends. How would you paint that picture for us?

Wayne Wasechek: I think I’d start with looking at our rural real estate business, typically smaller transactions. Again, that market, we’re seeing strong demand, and we forecasted our guidance is 26,000 acres this year. So still a strong environment. We’ve seen that in Q1. We’re forecasting another 8,000 acres in Q2. So the pipeline looks strong there. Demand is strong from conservation to recreational. But those tend to be smaller sales relatively speaking. Now if you’re kind of referring to the broader M&A environment with larger transactions, 10,000 plus acres, yes, I think we’re still seeing — there’s a lot of buyers for those tracks and the demand and the pricing, lower discount rates, yes, it’s still a healthy market.

So we’re — it’s still very strong from an M&A standpoint. Now there’s not a lot of acres and transactions coming to market. But the ones that do that are quality fracs, yes, we’re seeing a lot of buyers for those or a lot of, I guess, bidders ultimately for those tracks.

George Staphos: Do you anticipate there will be a little bit more activity in the larger transactions at some point? If so, what would be the catalyst from what — where you said is it just rates coming down or is there something else that would be a driver for you from what you see?

Wayne Wasechek: I think rates could influence it but also maybe more clarity on where NCS plays out. I think some sellers are waiting to — waiting for a little more clarity or the ability to monetize more of the NCS opportunities. So I think that could — once that picks up, you could see more properties coming in the market. I think that’s a big factor.

George Staphos: Last two from me and I’ll turn it over. Can you talk — maybe you mentioned I had missed it, why you saw more mix for small [indiscernible] in the south, what was driving that? Recognizing ultimately, you have to be opportunistic in your markets whatever you have, you have. And then just as we think about 2Q and the guidance and we appreciate that color that you provide, we have maybe not the pricing you want but we do have Waldo coming up. We do have pricing in wood and lumber up, although, I know you said that’s maybe pulling back a bit. How would you have us think about at least directionally the segment EBITDDA trends, 2Q versus 1Q? Should we expect that wood is up given that backup or might it also be lower for whatever reason? So mix in the south and sort of the EBITDDA bridge whatever you can relay there for 2Q, and I’ll turn it over.

Eric Cremers: So George, on your mix question, yes, it’s just a function of really just wet weather. So when it’s winter in the south for us, especially in the Gulf South, we can’t get as deep into the woods where larger logs are at. So we stick closer to the roads where that tends to be more chip and saw and that chip and saw sells for a lower price point. So again, that’s just kind of weather driven and reflection of that. I would say from a — pricing is stable by product. So again, it’s really mix driven. On the — thinking overall from a guidance standpoint, yes, we’re — as we said in the prepared remarks, on about a third of our shipment volume, forecasted shipment volume for the quarter were up 5% on a pricing standpoint.

How much of that holds for rest of the quarter, yes, that’s hard to say. I mean, random lengths has come down a bit but still we’re up 5% quarter-to-date, how much that will roll through on what products. But still, we think we’re kind of at that level where we’ve come in, in Q2 or even a bit higher for wood products.

Operator: Your next question comes from the line of Mark Weintraub from Seaport Research Partners.

Mark Weintraub: Just actually first wanted to follow up on this lumber pricing in the second quarter. In the slide, you have it flat, so are you — when you provide that guidance of expecting EBITDDA to be lower than Q1, is that assuming that you give back the 5% through the balance of the quarter and so that lumber prices are flat?

Eric Cremers: So Mark, we’re up 5% spot and quarter-to-date in lumber. We’re indicating flattish prices for Q2. Now is it up 3%, is it up 4%, is it down 1%? I think our expectation is for it to be kind of where it’s at, maybe a little soft. We’ve seen random lengths roll over 3% from the peak. So it could come down a little bit. I wouldn’t read too much into us saying that lumber prices are going to be flat. It will be in that ZIP code. We are expecting our wood products business to have higher earnings in the second quarter than the first quarter. Timberlands is where we expect earnings to come down and we expect it to come down through normal seasonality. So that’s where the drag on the P&L is going to be in Q2, it’s not going to be in wood products.

Mark Weintraub: Although, I guess I was trying to — because I would have thought wood products would be up. And if you have prices up 3% to 4% or 5%, it actually would be up a decent amount. And so I’m really trying to get a sense as to how much you think timberlands are going to be down that you kind of say, even if prices are up 3% to 5% that you’re expecting 2Q to be clearly lower than 1Q. So that’s sort of the angle that I was trying to get a sense of, any help there and maybe quantifying…

Eric Cremers: On the timberland side, lower seasonal volume, pricing relatively flat in both regions. The other thing I would highlight is just normal seasonality from our forest management costs and roads and that will — from Q1 to Q2, that’s about an additional almost $4 million. So that’s the other kind of flip from Q1 to Q2 that’s lowering results on timberlands compared to Q1.

Mark Weintraub: And then maybe first — one other follow-up on lumber. You had mentioned — Eric, you had mentioned that you thought that there would be tariffs from the Section 232 investigations. I’m just curious as to kind of what sort of the thought process behind that?

Eric Cremers: I just feel like I hear a lot of noise from the administration around lumber. And it’s not just lumber. It’s automobiles, aluminum steel. The fact that it was singled out to be one of the industries under investigation, the fact that the US does have ample supplies of timber, the fact that it’s well known that Canada basically subsidizes its lumber producers, I don’t — I can’t predict what the future hold Mark. I just look at the anecdotes that I read in the paper and the back chatter that I hear and it’s just what my gut tells me is that there could very well be a tariff. There may not be, but who knows.

Mark Weintraub: I just — I don’t know if they’re engaging either industry groups or companies that are involved, but that’s — is that happening to you or understanding…

Eric Cremers: I mean, yes, the Department of Commerce is talking to all sorts of people trying to figure out where to go with this.

Mark Weintraub: And then Lastly, you did buy back some more stock, your balance sheet is still strong, stock price is even lower. What’s sort of a comfortable level of cash for you to have on the balance sheet?

Eric Cremers: Well, I think historically, we’ve talked about having $100 million of cash on the balance sheet as a sort of a safety net, if you will. So I mean, that’s kind of how we’re thinking about it. I’m not happy where the stock is at. I’m surprised. We’re executing extremely well right now across the business units. I think, like I said earlier, pricing risk is to the upside. And certainly, share repurchases, it’s moved to the top of the capital allocation toolkit here. So we’ll see where things go from here.

Operator: Your next question comes from the line of Buck Horne from Raymond James.

Buck Horne: I wanted to go back to the solar and lithium opportunities you guys are seeing a lot more progress with. And maybe if you could help us understand the potential time line for when some of those option contracts would convert to more meaningful royalty revenues or when would we see like a more meaningful financial contribution as those things move to full operational capability?

Eric Cremers: For us, Buck, we don’t foresee one of these deals closing this year that we currently have under auction. I think there’s a strong likelihood next year that we would see one or two start to fall and those option periods are anywhere from three to five years. So that period is now starting to come to the tail end of those option cycles. I would note that — I think developers want to move forward. I think there’s a lot of strong demand there. I think one of the challenges that we hear is just from the regulatory agencies, they’re backed up approving projects, which that stretches out the process. But yes, I think with that, we stay in close contact with all of our developers and where they’re at in the process and how it’s progressing. And like I said, we think one or two will start to fall next year and then kind of the domino’s from after that.

Buck Horne: And then switching to a little bit on the lumber side of the equation. Thinking about the potential for these duties and tariffs hitting various Canadian species of woods [indiscernible] [producing] that the homebuilding industry usually is reliant on. Wondering if you’re hearing of any talk about homebuilders trying to switch species or maybe get up to speed on using more yellow pine in their operation ahead of potential duties increases? Are you hearing or getting any increased interest from builders looking to get up to speed on using yellow pine in their operations?

Eric Cremers: Buck, that substitution has been taking place over the past several years as US southern yellow pine production has really grown. We are hearing about it more and more and I think it’s just going to continue to grow as we move forward.

Buck Horne: Is it any noticeable acceleration or change in that recently?

Eric Cremers: I would say we’re hearing a little bit more chatter about it for sure. I can’t quantify it for you. I can just say that I am hearing about it more and more.

Operator: Your next question comes from the line of Matthew McKellar from RBC Capital Markets.

Matthew McKellar: Just a couple of quick ones from me. First, I think you mentioned higher cedar log prices in Idaho a couple of times in your opening remarks. Can you maybe just provide a bit of color on what you’re seeing in cedar markets? And then second, if we do see meaningful Section 232 tariffs on wood products, what would be your view on the likely impact of timberland valuations over the medium term?

Wayne Wasechek: Regarding cedar, I don’t know — that’s really — our view is more of a kind of market specific what we’re seeing in our region. Our customers, I think, have been short on cedar and that’s really been a regional mix and regional demand, which is driving prices up for us. So we’ve capitalized on that with our customers specifically in the regions that we and the customers that we service.

Eric Cremers: Matt, I’ll take the second one on your question regarding the 232 impact on timberland valuations. It’s really, really hard to speculate what that impact is going to be until we know more, like how big is the tariff, number one and then number two, how long is that tariff going to last? I think I’ve read in some places that the Canadians are going to turn to try to settle this dispute very quickly. And if that’s the case, and I would say it’s going to have little to no impact on timberland valuations. But they dig their heels in and the tariff goes on for an extended period of time then I would say it could have a meaningful impact on timberland valuation. So it’s just really hard to speculate where we wind up with all of this.

Operator: Your next question comes from the line of Mike Roxland from Truist Securities.

Mike Roxland: My first question is I want to go back to the — your southern sawlog and pulpwood harvest. So obviously, they exceeded our forecast, exceeded your earning guidance. I think Wayne mentioned favorable weather as being a contributor. Is some of this will be harvest related to salvage wood from hurricane Helene as well? I mean, I just want to get a sense just like what really happened that drove the huge outperformance in terms of harvest volumes for southern sawlogs and pulpwood in 1Q?

Eric Cremers: Mike, for us, salvage, we don’t — very little impact from hurricane Helene for us, that’s more coastal in the south and more south central. So for us, not a big impact and not a driver of over-performance for the quarter. Look, it was both in Idaho. So we took advantage of favorable hauling conditions, log and hauling conditions in Idaho to outperform a little bit there, in the south, again, whether we could move volume. Also just we have an estimate baked in of what we think stumpage will be, a little bit stronger demand in stumpage in the first quarter. Now that doesn’t change our overall forecast and what we’ll sell for stumpage for the year. But it was just a little bit higher. Some of our customers wanted to get ahead of that to begin the year. So stumpage is up a little bit more than we anticipated.

Mike Roxland: In terms of NTS, you mentioned, obviously, solar is doing very well. You have the 35,000 acres under solar option. You’ve identified another 30,000 to 35,000 acres you mentioned the last quarter. When you look at your portfolio in the US house, how much of your acreage do you think will ultimately be stratified for solar?

Eric Cremers: As we sit here today, it’s in the low 70,000 acre kind of range. But I think one of the things that it’s hard to know is these are the obvious sites, the 70,000 to 75,000 acres that I’m referring to is — due the economics of solar get to the point where you can go a little bit farther with your solar farm from the grid. Today, developers are demanding sites that are virtually right below the high voltage power lines. But I could see the costs or — the P&L benefit to solar, I could see it growing over time as technology improves and that could drive the developers to look a little bit further away from being right below those high voltage power lines and substations and transformers and whatnot. And under that scenario, you could — we could have a whole bunch more acres that could be applicable to solar.

So that 70,000 to 75,000 acres that we referred to, that’s the obvious stuff today. But there could be more acres on top of that but we’ll just have to see how the industry develops.

Mike Roxland: And any time line for that 70,000 acres in terms of how you think about how it deploys over time?

Eric Cremers: It’s really hard to know. It feels like it’s taking longer than any of us would like. We had a conversation with a developer the other day about what is taking so long. And they — their response was, look, there is just a huge bottleneck of projects that these grid operators have to evaluate. And our system is called the MISO, acronym MISO, and it controls electricity for 15 states in the midwestern part of the United States, that’s the one that we deal with primarily. And what I would tell you is that the solar developer that we spoke with and note they sent me was that the queue process for the projects, it’s very long, it’s very tedious and it’s very disorganized. And this operator, this MISO operator, they have to do a utility study for each and every one of these projects that they look at.

In each and every one of these projects, the study takes about two years to get complete and think about all the projects that they have been inundated with over the past couple of years. And think about what’s going on with electricity demand in the US and where that demand is, and MISO is just — they’ve got their hands full trying to figure all this out. So I think to summarize, this is taking a lot longer than any of us would like but I don’t think that means that the projects get canceled. I just think it means it gets stretched out a little bit.

Mike Roxland: And then just one quick one in terms of lumber. Obviously, just 10 million board feet more than the higher end of your previous range but you also mentioned, Eric, that lumber demand is tepid. So how do you reconcile producing more with the kind that demand is not there? And I understand you want to get [indiscernible] up and running to capacity. But can you just tell us like how do you understand clearly what happens with respect to lumber demand for your own order book relative to your production with [indiscernible] incremental production of 10 million board feet?

Eric Cremers: Well, first of all, 10 million board feet in the grand scheme of 50 million board foot market is not a whole lot. So I’m going to be forcing a higher cost competitor or a fourth quartile mill that produce 10 million feet less, all things equal. But when I say demand is tepid that doesn’t mean that it’s falling. It just means it’s not growing rapidly. I do actually think lumber markets in the US are going to grow this year, not by a lot, by, I don’t know, 0.5 billion, 0.75 billion board feet. I don’t think it’s, by enlarge, is going to come from new residential construction. I think it’s mostly going to come from R&R projects. The R&R market is hanging in there. We talked about treater demand earlier. The other thing — I read an interesting statistic the other day and that is that R&R searches on Google are up 25% year-over-year.

Now it’s hard to — that doesn’t directly translate into 25% higher lumber demand, obviously, for R&R projects. But it shows that that peak R&R period that the country experienced back in COVID, that’s long in the rearview mirror. And where we sit today with low existing home sales and tons of home equity having been built up in the country, people want to do R&R projects and it’s slowly but surely starting to happen. So we’ll have no trouble finding a home for that 10 million board feet, I guess, is a long and short of it.

Operator: At this time, I’m showing there are no more questions. I’ll now turn the call back over to Wayne Wasechek.

Wayne Wasechek: Thank you, everyone, for joining us this morning and your continued interest in PotlatchDeltic. Have a great day.

Operator: This concludes today’s conference call. Thank you for your participation. You may now disconnect.