Earnings call transcript: Conifex Timber Q2 2025 shows operational challenges

Conifex Timber Inc. reported its second-quarter 2025 earnings, revealing significant operational challenges. The company recorded an EPS of -0.18 USD and revenue of 33.9 million USD. Despite efforts to maintain a positive cash flow in its lumber business, the company’s financial performance was hindered by lower production and unfavorable market conditions. According to InvestingPro analysis, the company maintains a "GOOD" overall financial health score of 2.54, though the stock is currently trading near its Fair Value. The stock remained unchanged in pre-market trading, closing at 0.33 USD, near its 52-week low.

Key Takeaways

• Conifex Timber faced a negative EBITDA of 3.2 million USD in Q2 2025.
• Lumber production decreased by 24% compared to the previous year.
• The company anticipates a positive EBITDA for the full year 2025.
• A one-time non-cash charge of approximately 8 million USD is expected in Q3.
• The Canadian dollar’s strength negatively impacted revenues.

Company Performance

Conifex Timber’s overall performance in Q2 2025 was marked by significant challenges, including a 24% drop in lumber production in Northern British Columbia compared to 2024 and a negative EBITDA of 3.2 million USD. The company managed a positive EBITDA of 1.7 million USD for the first half of 2025, indicating some resilience despite the quarterly setback. Industry trends show softening demand for US lumber, further complicating Conifex’s market position.

Financial Highlights

• Revenue: 33.9 million USD
• Earnings per share: -0.18 USD
• EBITDA: -3.2 million USD in Q2; 1.7 million USD positive for the first half of 2025

Outlook & Guidance

Conifex Timber projects a positive EBITDA for the full year 2025, excluding one-time charges. InvestingPro data indicates that net income and sales growth are expected this year, despite current challenges. The company expects US duty deposit rates to increase to 35.19%, up from 14.4%. A one-time non-cash charge of approximately 8 million USD is anticipated in Q3, alongside potential benefits from federal government support programs.

Executive Commentary

Ken Shields, Executive, highlighted the company’s strategic investments in power generation, stating, "Our power plant has been running very well since it came back online early in July." He also emphasized the company’s unique position, noting, "One key point of differentiation of Conifex is that unlike other forest products companies, we do not have a credit facility in place to finance our inventories and receivables."

Risks and Challenges

• Lower lumber production and prices pose significant challenges.
• The strengthening Canadian dollar adversely affects revenues.
• The anticipated increase in US duty deposit rates could impact profitability.
• Market demand for lumber remains soft, affecting sales.
• The company faces operational disruptions due to extended maintenance shutdowns.

Q&A

No analyst questions were asked during the earnings call, leaving several potential investor concerns unaddressed.

Full transcript - Conifex Timber Inc (CFF) Q2 2025:

Patrick, Conference Moderator, Conifex Timber, Inc.: Good morning, ladies and gentlemen. Welcome to the Conifex Timber, Inc. 2Q twenty twenty five Results Call.

I would now like to turn the meeting over to Mr. Ken Shields. Please go ahead.

Ken Shields, Executive (likely CEO), Conifex Timber, Inc.: Yes. Well, thank you, Patrick, and good morning, everyone, and welcome to our call covering our second quarter and first half twenty twenty five results. Right next to me, we’ve got President and Chief Operating Officer, Andy McClellan. And I’m also joined by Chief Financial Officer, Trevin Pruden. So the three of us look forward to responding to any questions shareholders and analysts may have after we run through our prepared remarks.

Dealing quickly with a housekeeping item, we will be making forward looking statements and references to non IFRS measures and therefore call your attention to the warning statements set out on pages one and two of the MD and A that was released earlier this morning. Our second quarter results are typically weaker than our first quarter results, and there’s two main reasons for that. One is that BT Hydro pays us seasonally high power prices in Q1 when the reservoir levels are low, but they pay us lower prices in q two when the reservoir levels are high as a result of the spring snowmelt. The second reason is that we always work to schedule our annual maintenance shutdown at our power plant in Q2 when power prices are low and this, of course, enables us to optimize our average price realization and improve EBITDA on an annual basis. Our Q2 results were below the guidance we provided you on our last call, and an important reason was that our maintenance was extended compared to what we are thinking.

You will note that our Q2 power production was 38% lower than in Q1 and 22% lower than in Q2 of last year. And our maintenance costs in the most recent quarter were higher as well. So the negative EBITDA that we incurred in our power generation business contributed to the $3,200,000 consolidated EBITDA loss we reported in 2025. And in the quarter, of course, benchmark prices for SPF two by fours averaged something like 5% lower in q two than in q one, while the prices that we received for the wider width dimensions were more than 10% lower in Q2. So those were the two main factors that led to lower revenues.

However, our Q2 revenues and EBITDA were further hampered by the 4% strengthening of the Canadian dollar relative to the U. S. Dollars that occurred during the quarter. So following up the first six months of 2025, we reported positive EBITDA of 1,700,000.0, and that’s after taking a foreign exchange translation loss of $800,000 on US dollar denominated overpayment for duties that are lodged with the US government. Speaking of duties, net of rights to duty duty deposits that we sold a few years ago, we paid US $41,700,000, which is something like Canadian 57,000,000 in cumulative duty deposits.

And over the twenty seventeen to twenty two period, the cash deposit rates exceeded the final duty rates established by the US Department of Commerce. And this resulted in some overpayments building up, and the overpayments coupled with the interest were owed on the overpayments presently total approximately Canadian $11,000,000. This amount is showing as the long term receivable on our balance sheet. All the other duty deposits have been fully expensed. Looking at our current equity market capitalization, these refundable overpayments are equivalent to almost 80% of our present market cap, while the 57,000,000 in cumulative duty payments we’ve paid are equivalent to approximately four times our current market cap.

And if there’s a future trade settlement, which includes the partial repayment of duties on deposit, we believe that Conapac shareholders will capture proportionately greater value accretion benefits compared to the shareholders of the other public traded lumber companies. The potential for our superior results reflects our ability to shelter tax income taxes as well as our extremely low trading price of something like 20% of our book value per share. So having quickly reviewed our recent results and duty balances, we’d like to move on and share with you some thoughts we have on the key drivers shaping our EBITDA outlook for the 2025. We’re aware that some leading forward product balance in Canada are forecasting negative EBITDA in the 2025 for certain publicly traded lumber producers. We believe we will generate positive EBITDA in the 2025, excluding one time or any nonrecurring charges.

An important reason for this belief is that our power plant has been running very well since it came back online early in July. I’d say the biggest challenge we face is the need to pay combined countervailing and antidumping duties on U. S. Lumber exports of 35.19%, up from 14.4% in the first half. When we report our results for q three, this duty rate decision by the US Department of Commerce is expected to trigger a onetime noncash charge to our income statement of approximately US $8,000,000.

We’ve looked at a variety of scenarios to estimate our results for the balance of 2025. Our mid case projection assumes that higher duty deposit rates remain in effect, but there are no additional Section two thirty two or other tariffs imposed. We continue to believe that many lumber industry observers have underestimated the magnitude and consequences of the recent mill curtailments and supply contraction in SPF lumber in the region that we operated in, namely the Northern Interior Of BC. Year to date, lumber production in our region is 24% lower than it was in 2024. So against that backdrop, let me take a minute of your time to illustrate how increases in lumber prices are offsetting increases in duty deposit rates.

And this is occurring at a period when US lumber consumption is experiencing some softening in demand. But if you go back to q two at a 14.4% deposit rate and an average benchmark lumber price for SPF of around $470. After paying duties, we would have realized $411 US per thousand board feet. At the current 35.19% deposit rate and the current benchmark price of $535, our active duty price realization is $396 per thousand board feet on US exports. So it follows that today, there’s been a $65 per thousand increase in the benchmark price, And that price relief has been sufficient to enable us to recoup all but $15 per thousand board feet of the increase in duty deposits on exports to The US.

So looking at lumber futures, they’re suggesting that cash SPF prices may soften in the very near term, but there’s evidence that we will be at higher levels at year end. To us, this suggests that there’s a potential for a full pass through of the increase in duty deposit rates and that our customers will be paying the preponderance of the higher duty service. And we trust that that this review helps explain our view why the supply contraction in SPF is likely to support SPF lumber prices that will enable cost competitive sawmills in Northern DC to achieve positive cash flow margins even at current duty rate. Before taking your questions, on our last call, I expressed our gratitude and deep appreciation for the support our company enjoys from our employees, lenders, the community of Mackenzie, and other stakeholders. This morning, we wish to express our appreciation to the federal government for its recent announcement offering funding for loan guarantees and supporting investments in product and market diversification.

One key point of differentiation of Conifex is that unlike other forest products companies, we do not have a credit facility in place to finance our inventories and receivables. And consequently, we have modest levels of liquidity. These federal government programs are coming in our view at exactly the right time given the challenges the British Columbia interior lumber industry are facing. We have various initiatives underway to improve our economic sustainability. And the initiatives we have underway may be accelerated once additional details are released about the federal government program.

We will provide you additional updates on the federal government program as additional information becomes available. So in conclusion, we believe our differentiated and high quality fiber supply, coupled from the contribution from the $100,000,000 we have invested in power generation assets, provide us the foundation we need to sustain a cash flow positive lumber business at our site in McKenzie. So we thank you for your interest in Conifex. And Andrew, Trevor and I look forward to responding to any questions analysts and shareholders may have. And in that regard, we’ll turn the meeting back over to Patrick.

Patrick, Conference Moderator, Conifex Timber, Inc.: Thank you. We’ll now take questions from the telephone lines. If you have a question, please press 1. You may cancel your question at any time by pressing 2. Please press 1 at this time.

If you have a question, there will be a brief pause while the participants register for questions. Thank you for your patience. Once again, you may press 1 if you have a question. There are no questions on the phone right now. I would like to turn the meeting back over to mister Shields.

Ken Shields, Executive (likely CEO), Conifex Timber, Inc.: Okay. Well, those of you that that listened in, thank you for your interest in in our company, and we look forward to our next call. Hopefully, it’s been in our ability to generate positive EBITDA. Enjoy the rest of your day.

Patrick, Conference Moderator, Conifex Timber, Inc.: Thank you. The conference has now ended. Please disconnect your lines at this time and thank you for your participation.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.