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Conifex Timber Inc. reported its fourth-quarter 2024 earnings, revealing a significant miss on earnings per share (EPS) compared to forecasts. The company posted an EPS of -0.27, falling short of the -0.04 expected by analysts. According to InvestingPro data, the company currently trades at a Price/Book ratio of 0.98, indicating it’s valued close to its book value. Despite the earnings miss, the stock price of Conifex Timber remained unchanged at $0.30, suggesting a complex investor sentiment possibly influenced by future operational improvements and market conditions.
Key Takeaways
- Conifex Timber Inc. reported a larger-than-expected EPS loss of -0.27 compared to the forecast of -0.04.
- The company’s stock price remained stable at $0.30, close to its 52-week low.
- Transition to green log harvest and improved sawmill productivity were highlighted as key operational advancements.
- Despite the earnings miss, the company anticipates positive EBITDA in the first half of 2025.
Company Performance
Conifex Timber Inc. showed signs of operational improvement, despite reporting a significant earnings miss. The company’s transition to a green log harvest and enhanced sawmill productivity are expected to positively impact future performance. These operational changes, along with a shift to two-shift operations at its sawmill, indicate a strategic move towards efficiency and cost reduction in a challenging lumber market.
Financial Highlights
- Revenue: $31 million for Q4 2024.
- Earnings per share: -0.27, missing the forecast of -0.04.
- EBITDA loss reduced from $25.8 million in 2023 to $13.6 million in 2024.
Earnings vs. Forecast
Conifex Timber’s actual EPS of -0.27 missed analyst expectations of -0.04 by $0.23. This significant miss marks a challenging quarter for the company, as it continues to navigate a difficult market environment.
Market Reaction
Despite the earnings miss, Conifex Timber’s stock price remained unchanged at $0.30. With a beta of 0.35, the stock historically shows lower volatility compared to the broader market. This stability suggests that investors might have already anticipated the negative results or are optimistic about the company’s future operational improvements and market conditions.
Outlook & Guidance
Looking forward, Conifex Timber anticipates positive EBITDA in the first and second quarters of 2025, supported by operational enhancements and potential price increases in the lumber market. The company is also exploring power generation infrastructure for data centers, which could diversify its revenue streams. For deeper insights into Conifex Timber’s financial health and growth prospects, investors can access comprehensive analysis and additional ProTips through InvestingPro’s detailed research reports, which transform complex financial data into actionable intelligence.
Executive Commentary
Ken Shields, Chairman of Conifex Timber, emphasized the company’s undervaluation, stating, "We continue to believe that our stock is undervalued on an absolute basis." He also highlighted the uncertainty surrounding lumber tariffs and duties, which could impact future performance.
Risks and Challenges
- Potential tariff impacts on lumber exports could affect profitability.
- High cumulative duty deposits of US$38.3 million as of December 31, 2024, remain a financial burden.
- The challenging lumber market environment and reduced supply could pressure margins.
Q&A
During the earnings call, analysts inquired about the drivers behind lumber prices and the company’s debt interest rates. Management highlighted operational flexibility and ongoing legal strategies as key focus areas moving forward.
Full transcript - Conifex Timber Inc (CFF) Q4 2024:
Chris, Conference Call Operator: Good morning, ladies and gentlemen. Welcome to the Conifex Timber Inc. Fourth Quarter twenty twenty four Results Conference Call. I would now like to turn the meeting over to Mr. Ken Shields.
Please go ahead.
Ken Shields, Chairman, Conifex Timber Inc.: Well, thank you, Chris, and good morning, everyone, and welcome to the call covering our Q4 and full year twenty twenty four results. I’m Ken Shields, as many of you know, the German of ConFX, and I’m joined today by our CFO, Trevor Pruden and our President, Andrew Matlum. Let’s quickly deal with the housekeeping items. We will be making forward looking statements and references to non IFRS measures and therefore call your attention to the warning statements set out in pages one and two of the MD and A dated 03/12/2025 that we released yesterday. Looking back on 2024, in many respects, it was a transition year for all of us at ConFX.
Our first main objective was to refinance our lumber manufacturing business, which we successfully completed in June. Our second main objective was to conserve cash by minimizing the scope and scale of our operations until more attractive lumber market conditions emerged. The combination of slightly higher lumber prices, slightly lower log costs and shift curtailments enabled us to reduce our EBITDA loss from $25,800,000 in 2023 to $13,600,000 in 2024. During the fourth quarter of twenty twenty four, it became clear to us that lumber prices had improved sufficiently to enable us to generate positive EBITDA. In Q4, we reported negative EBITDA of $2,100,000 roughly one half the EBIT DA loss we recorded in Q3.
However, if you dig more deeply into our numbers, you will see that we booked a one time charge in Q4 of $3,800,000 to adjust the balance sheet carrying value on a portion of our Mackenzie timber tenures. Without this one time charge, we would have been EBITDA positive in Q4, even with the higher per unit manufacturing costs we incur operating our sawmill complex on a one ship basis. Looking ahead to 2025, we appreciate the tremendous uncertainty that surrounds the outlook for lumber tariffs and duties. But let me quickly outline the reasons we believe and expect that our EBITDA will be positive in each of the first and second quarters of twenty twenty five. Starting with Q1, since 01/06/2025, we’ve been operating our sawmill complex on a two shift basis.
And we are capturing the dual benefits of higher shipments and lower unit costs that a two shift operation provides over a single shift operating configuration. Benchmark Western spruce pine fir prices have averaged US471 dollars per 1,000 board feet so far in 2025. That compares to $4.35 in Q4. So, you can see that the prices have increased by US36 dollars or C52 dollars per thousand board feet. So, this combination of higher lumber prices and increased shipments coupled with lower per unit manufacturing costs supports solid EBITDA generation for us in Q1 of twenty twenty five, even after expensing duty deposits at a 14.4% rate.
Looking ahead to Q2, the lumber’s futures prices for March, May and July suggests that the benchmark SPF cash price would be expected to average around $550 per 1,000 board feet in the second quarter of twenty twenty five. This is a price increase of USD 79 per 1,000 over the Q1 to date prices. If the entire Q2 prices hold and if the all others duty rate remains at 14.4%, we expect interior VC sawmills will further improve EBITDA in Q2. On the other hand, if the 25% tariff kicks in on April 2, Interior DC Samos will be subject to a combined duty and tariff burden of 39.4%. Absorbing duties and tariffs at a rate of 39.4%, it’s reasonable to expect Q2 EBITDA will be in line with Q1 EBITDA.
The reason is that the $79 of quarter over quarter price release suggested by today’s futures prices will be about exactly offset by the 25% imposition of new tariffs. We recognize that some of you on this call who are familiar with the EBITDA we’ve reported over the past several years may have difficulty accepting our view that products will generate positive EBITDA in the current lumber industry environment. Our competitive position approved a great deal subsequent to 05/04/2023, when the Chief Forester ended the salvage harvest in our operating area and allowed us to transition over to a green log diet. The benefits of a green log diet include improved sawmill productivity, higher lumber grade out turns and of course, richer selling price realizations. Simply put, the Chief Forester’s decision to eliminate the salvage harvest requirement in the Mackenzie TSA has enabled ConFX to migrate to a lower and more enviable position on the North American softwood lumber industry cost curve.
Turning to duty deposits, we expensed $4,400,000 of duty deposits in 2024, representing the full amount of countervailing and antidumping duties incurred on shipments of softwood lumber to The U. S. You will recall that our rate was just over 8% through August of twenty twenty four and mainly 14.4% thereafter. The amount of duties we have on deposit are significant relative to our equity market capitalization. We have cumulative duties on deposit of US38.3 million dollars held in trust by US Customs and Border Protection as of 12/31/2024.
These deposits exceed CAD50 million, which is equivalent to over $1.2 per Conifex share, which is roughly four times our recent share trading price. Looking at another valuation consideration, our most recent book value per share is $2.1 versus our recent trading price of $0.3 This means that we trade at a whopping 85% discount to book value. We continue to believe that our stock is undervalued on an absolute basis and acutely so and especially so relative to our lumber industry peers to trade at lower discounts to book value. That sums up the main points that we wanted to cover on our call today with the exception of a legal update. Our MD and A that we’ve released over the past several quarters disclosed the efforts that we’ve expended to leverage our power generation expertise to develop a complementary business that will boost our sustainable cash flow generation.
Simply put, our power generation team has the expertise to design, construct and operate large scale electric power infrastructure associated with next generation data centers in the interior region of BC. In June 2022, after working collaboratively with BC Hydro to identify two suitable data center locations in Northern BC, We entered into agreements on interconnection studies with BC Hydro. As you know, our plans to scale this new business were halted in December of twenty twenty two after BC Hydro teamed up with the provincial cabinet to suspend its authorization to deliver interconnection services to us. Our two sites were removed from the interconnection queue even though they were focused on high performance computing and artificial intelligence use cases, not cryptocurrency mining use cases that were targeted by the moratorium on interconnections. Against this backdrop, we recently filed an amended notice of civil claim against BC Hydro.
BC Hydro played an active role in the development and promulgation of an order in council suspending work on our interconnections without informing us what they had been up to. This explains why we are seeking damages from BC Hydro for breach of contract as well as breaching BC Hydro’s duty of good faith. We believe we’ve suffered and continue to suffer damages, which we intend to fully recoup. Thank you for your interest in Conifex. Andrew Trevor and I look forward to responding to any questions shareholders may have.
We will now turn the meeting back to express to the operator.
Chris, Conference Call Operator: The first question is from Darryl Svetlouf from Raymond James. Your line is open.
Darryl Svetlouf, Analyst, Raymond James: Ken,
Ken Shields, Chairman, Conifex Timber Inc.: it’s interesting looking at your comments about the rise in lumber prices we’ve seen. If you had to guess, like what portion of the would be a function of just the duties and how much do you think is supply driven with some of the shuts we’ve experienced in BC? Well, Daryl, that’s a very good question. And I think that the supplydemand balance in SPF is materially different than the supplydemand balance in Southern Yellow Pine. And I was just looking at some figures the other day.
And I was reminded that back in, I think it was 2018, that the interior region of BC, the sawlog harvest was 47,000,000 cubic meters. And in 2023 and recently, it’s been at about 27,000,000 cubic meters. So, we’ve lost 20,000,000 cubic meters of harvest in the last seven years. And that’s enough wood to make not quite 5,000,000,000 board feet of lumber on an annual basis. But this supply contraction in DC alone, it was equivalent to 8% of the North American softwood lumber consumption.
And it’s the supply contractions significant enough to offset the incremental supply from more than 20 new industrial scale sawmill through the U. S. Cellular. So, as we look at it, the recent trends in prices have been mainly supply crunch driven. And given there appears to be consensus views of single family starts and repair and remodeling activity should pick up a bit in the second half of twenty twenty five.
These current future pricing suggest that we’re in for a very favorable pricing environment in SBM. That’s the long winded answer to your question, but that’s how we see it.
Chris, Conference Call Operator: Thank you. The next question is from Igor Molkianov, a Private Investor. Go ahead.
Ken Shields, Chairman, Conifex Timber Inc.: Yes. Hello. Hi, Igor.
Darryl Svetlouf, Analyst, Raymond James: Thank you for taking my call. I have a couple of questions. First about your debt. Since June 2024, Bank and Canada significantly reduced their policy interest rate. So is there any chance you can reduce the interest rate gain on your capital on this tender?
Ken Shields, Chairman, Conifex Timber Inc.: Okay. You broke up a little bit, but I think you observed that the 14% interest rate that we have on our tender fund loan is pretty rich. From our point of view, loans to sawmillers in the BC Forest sector, most banks and near banks
Chris, Conference Call Operator: require
Ken Shields, Chairman, Conifex Timber Inc.: borrowers to maintain a coverage ratio of financial charges or they have to essentially have positive EBITDA. And that positive EBITDA needs to at least cover and cover by some margins their interest expense. And we know that there are times it’s the normal functioning of the lumber market cycle for us to over earn during periods and have very wide EBITDA margins. But then when the market gets oversupplied, the way it comes back into balance is by having industry incur negative EBITDA margins. And in the period of negative EBITDA margins, there are times when a lot of the control and direction of your operations shifts out of the hands of management into the hands of the debt capital provider.
So, we felt that we had more operational flexibility and control and direction over our business if we accepted a 14% interest rate, but we did not have to accept a financial charge coverage ratio. And so, I trust you find that context and trade off helpful, Igor.
Darryl Svetlouf, Analyst, Raymond James: Okay. And another question about your crypto mining. Do you have any like timeline where you can understand how it’s going to play out? When we’re going to know the results of We’re trying to because you’re trying to pile a notch it with BTIG Hydro. So one is going to be, so we will know the results.
Ken Shields, Chairman, Conifex Timber Inc.: Okay. Well, the process that we’re involved in is that in a couple of months or so, there will be materials filed with the Supreme Court here in BC that the public will be able to view and that will disclose essentially what we’ve been up to in this field over the past two or three years. And it will enable people such as yourself, if you read that, to determine what the prospects are for a successful outcome for Conifex. So regrettably, there’s not a lot we can say about it at this time. But once the court filings have been made, there’ll be a clearer picture as to the nature of the dispute between us and BC Hydro.
Chris, Conference Call Operator: There are no further questions registered at this time. I would now like to transfer the meeting back over to Mr. Shields.
Ken Shields, Chairman, Conifex Timber Inc.: Okay. Well, listen, Andrew, Trevor and I are thankful and appreciate your interest in Conifex. And we look forward to sharing our EBITDA achievement with you when we report our first quarter results. So enjoy the rest of the day everyone. Thank you.
Chris, Conference Call Operator: Thank you. The conference has now ended. Please disconnect your lines at this time and thank you for your participation.
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