CatchMark Timber Trust, Inc. (CTT) on Q2 2021 Results - Earnings Call Transcript
Operator: Good morning and welcome to the CatchMark Timber Trust Second Quarter 2021 Earnings Conference Call. All participants will be in listen-only mode. . After today's presentation, there will be an opportunity to ask questions. . Please note, this event is being recorded. I would now like to turn the conference over to Ursula Godoy, Chief Financial Officer. Please go ahead.
Ursula Godoy-Arbelaez: Good morning. And thank you for joining us for our review of CatchMark Timber Trust results for second quarter 2021. I am Ursula Godoy, Chief Financial Officer of CatchMark. Joining me today on the call are, Chief Executive Officer, Brian Davis; Chief Resources Officer, Todd Reitz; and John Rasor, President of Triple T Timberlands. During this call, CatchMark's management will make forward-looking statements. These forward-looking statements are based on management's current beliefs and the information currently available. CatchMark's actual results will be affected by certain risks and uncertainties that are beyond its control or ability to predict and could cause our actual results to differ materially from expectations. For more information about the factors that could cause such differences, we refer you to our 2020 annual report on Form 10-K and subsequent reports that we filed with the SEC. Today's presentation includes certain non-GAAP financial measures. Reconciliations of these measurements are included in our second quarter 2021 earnings release and financial supplement, which are posted on our website and on our Form 10-Q filed with the SEC yesterday August 5, 2021. After our presentation, Brian, Todd, John and I will be pleased to answer any of your questions. Now, I'll turn over the call to Chief Executive Officer, Brian Davis.
Brian M. Davis: Thanks Ursula and good morning to all of you on the call. We appreciate your joining us today. CatchMark maintained exceptionally strong momentum in our operations during the second quarter. Our excellent results including a record quarter for adjusted EBITDA and cash from operations as well as our second highest quarter ever for net income were driven by higher timber prices year-over-year both in the U.S. South as well as the Pacific Northwest and we continue to capture pricing premiums for our harvest well above market wide averages in our markets especially in the U.S. South where we concentrate our activities. Our pricing advantages more than offset a planned reduction in total harvest volume during the quarter as we maintained our leading productivity on a per acre basis. Year-over-year we increased total revenues in the second quarter by 47% and increased adjusted EBITDA by 86% and we recognized net income of $1.8 million or $0.04 per share. This performance again is a testament to our business model for investing in prime timberlands and leading middle markets, concentrating in the U.S. South and executing excellence in operations, relying on delivered sales and taking advantage of opportunistic stumpage sales all resulting in our leading harvest EBITDA per acre. Recent lumber price volatility doesn't translate to log prices, consumption and availability of logs in middle markets does. We expect to continue to benefit from strong demand fundamentals and beneficial supply side trends. The housing market driven by millennial home buying, low interest rates, and increasing work from home activity should continue to drive the demand side, further helped by significant home repair and remodeling activity. As a result of the decline of Canadian production and the ongoing shipped and production to the U.S. South CatchMark is exceptionally well positioned with our prime timberlands near top middle markets to meet the increasing regional demand. Signaling a need for additional lumber production in the region, capital commitments have been announced which supports six greenfield sawmills slated for the U.S. South in 2022. These projects should translate to heighten our consumption in the region. In looking at the pricing advantages we secured in the second quarter CatchMark’s realized U.S. South pulpwood and sawtimber stumpage prices were not only 25% and 30% higher respectively compared to prior year quarter but we also captured 71% and 90% pricing premiums over U.S. South wide averages for the same period. In the Pacific Northwest we also capitalized on favorable market conditions. Timber sales revenue increased 131% over second quarter 2020 driven by 75% increase in harvest volume and a 26% increase in delivered sawtimber price. Significant timberland sales activity in the second quarter also bolstered results as we have already met almost 80% of our full year timberland sales target. We generated $7.6 million in timberland sales in the quarter at 11% higher pricing year-over-year at an increased margin. Investment management income also increased year-over-year due to last year's change in asset management agreement with the Triple T joint venture. During the quarter we also made significant progress in our capital recycling strategy, completing the Oglethorpe large disposition of 5000 acres of Georgia timberlands, recognizing a gain of nearly $1 million and using net proceeds to pay down existing debt. And in a major transaction we agreed to sell our Bandon timberlands in the Pacific Northwest expecting a substantial gain on the sale in excess of $20 million. This disposition which we expect to close next week will further strengthen our capital position and enable future growth, concentrating in the U.S. South. Following the Bandon closing, we anticipate increasing our net income guidance for the full year by the amount of the recognized gain. In another major development which we announced last week, significant progress has been made in recapitalizing our Triple T joint venture. Triple T has agreed to sell approximately 28% of its timberlands in East Texas through a client of Hancock Natural Resource Group. This sale of 301,000 acres for $498 million demonstrates how CatchMark as general partner and asset manager of Triple T has enhanced Triple T’s financial performance and increased its per acre value. The per acre sales price of $1656 is a 31% increase over the acquisition cost basis from three years ago. It is also notable that since Triple T’s acquisition of property in 2018, merchantable tons per acre has increased by 16% and side index has increased by 7% as a result of improved several cultural practices. Triple T has also increased annual revenue generated by the property by 55% compared to 2017, the year before the joint venture’s acquisition of the property. The proceeds of the Hancock sale which we expect to close in the third quarter will be used to reduce Triple T’s leverage and to pay down a portion of the preferred partnership interest in the joint venture. The Hancock transactions certainly sets the stage for CatchMark to continue to explore further opportunities, to unlock additional value for our Triple T joint venture partners and CatchMark shareholders. In looking through next steps, time and per acre asset value remained the key considerations for CatchMark in this venture. We still have much more to do, but over the past 18 months we have made significant progress, operating through COVID, renegotiating Triple T’s wood supply agreement with Georgia Pacific, and as a result not only obtaining market based pricing but also improving the asset’s liquidity. This set us on the course for the Hancock transaction, a process which also surfaced additional strong interest in the asset from the market for the next phase of the re-capitalization. We're also encouraged by the durability of product pricing, the evolving carbon opportunity, and increased mill activity in the region with Interfor’s acquisition of GP Mills and Canfor’s announcement of a greenfield mill in Western Louisiana. All of these developments bode well for supply tension in the region that should result in a positive outlook on product pricing and they can contribute to potential higher per acre land values for Triple T. Our strategy continues to be highly focused on creating value in Triple T for our partners and our shareholders. Earlier this week CatchMark also amended its existing credit agreement so you can use the proceeds from the pending Bandon disposition to further deleverage the company while maximizing future debt capacity. The agreement improves liquidity, flexibility, and balance sheet strength to facilitate future growth. Yesterday, we declared a cash dividend of $0.135 per share for common stockholders as of August 31, 2021 payable on September 15th. Our dividend is well covered and we are on track to meet full year guidance. As noted, after the Bandon sale closes, we anticipate updating guidance on net income. To sum up, CatchMark had another extremely strong quarter on multiple fronts, meeting and exceeding targets, significantly increasing year-over-year revenues, and adjusted EBITDA, and recognizing a net income. Importantly timber sales revenues increased on the strength of higher pricing and pricing premiums that CatchMark is able to achieve in our superior markets. Favorable supply demand dynamics in the U.S. South region, the nation's primary timber basket where we focus our activities should continue to support future CatchMark results. And Oglethorpe large disposition and pending Bandon sale will further improve our capital position and should pave the way for future growth. The company continues on course to generate predictable stable cash flow and deliver a fully covered dividend, our primary objectives. Now I will turn it over to Ursula to discuss second quarter results and review our capital position in greater detail.
Ursula Godoy-Arbelaez: Thank you Brian. As you outlined, our three business segments; harvest operations, real estate, and investment management are all performing very well and we are on plan to meet full year guidance. Of special note, the pricing premiums above market wide averages we have captured quarter after quarter in our harvest continue to set us apart and help boost results. Taken altogether, the second quarter delivered record performance. For the quarter ended June 30, 2021 CatchMark recognized net income of $1.8 million or $0.04 per share driven primarily by a 47% increase in total revenues. We generated revenues of $31.9 million compared to $21.8 million in second quarter of 2020. We produced record cash flow from operations of $18.5 million, an increase of 110% over prior year quarter. Timber sales revenue totaled $20.1 million, 24% higher than second quarter 2020 driven by higher overall timber sales pricing and capturing premium pricing above market averages in our markets. These higher revenues also were generated in spite of planned lower harvest volumes, which decreased to 528,000 tons from 568,000 tons a year earlier, while maintaining consistent productivity on a per acre basis. Adjusted EBITDA of $17.6 million, a record quarterly result increased 86% from $9.4 million in second quarter 2020. Breaking out adjusted EBITDA by segments for the second quarter, harvest EBITDA was $9.4 million compared to $7.4 million in second quarter 2020, a 27% increase. Real estate EBITDA increased 372% year-over-year to $7.3 million due to selling 3,200 more acres this year, as well as capturing an 11% higher per acre average sales price at an improved margin. Investment management EBITDA increased 16% year-over-year to $3.3 million including higher asset management fee revenues from Triple T and distributions from the Dawsonville Bluff’s joint venture including incentive based promotes. We also paid a dividend of $0.135 per share to stockholders on June 15, 2021, which was fully covered by cash flow from operations. Now let's review CatchMark’s recent activity to strengthen the company balance sheet, including the recent amendment to our credit agreement. As of June 30, 2021 CatchMark had more than $180 million of liquidity which puts us in a very favorable position. We had a cash balance of $22.3 million and $158.2 million of borrowing capacity under two credit facilities, including $123.2 million under our multi draw term facility and $35 million under our working capital facility. During the quarter, we used $7.3 million in net proceeds from the Oglethorpe large disposition to pay down the outstanding balance on our multi draw term facility. And earlier this week, we amended CatchMark’s existing credit agreement, extending the maturity date of the existing working capital facility from 2022 to 2026 and establishing a $68.6 million revolver feature on one of our term loans. The terms of the new revolver feature are consistent with our term 83 loans and the funds can be used for future acquisitions. Under the amended credit agreement, we can use proceeds from the upcoming Bandon disposition for further deleveraging while improving future available debt capacity. We also increased the weighted average life of our debt and maintained current competitive pricing. The result of the amendment is improved liquidity, greater flexibility, and increased balance sheet strength to maximize debt capacity for future growth. We also continued to maintain attractive borrowing costs, stagger long-term maturities, and a favorable mix of fixed to floating right debt. And as noted, CatchMark paid $6.6 million of distributions to stockholders during the quarter. This dividend was fully covered by cash flow from operations. Now, Todd will review what was another extremely productive quarter for our harvest operations in timberland sales. Todd.
Todd P. Reitz: Thank you, Ursula. For the second quarter, CatchMark generated 24% higher timber sales revenue year-over-year. Looking specifically at the U.S. South, robust mill demand in our markets drove a 13% increase in timber sales revenue year-over-year resulting primarily from strong pricing, partly offset by 10% lower harvest volumes. Our pulpwood and sawtimber sales prices were 71% and 19% respectively higher than TimberMart- South south wide averages. And 25% and 13% above CatchMark’s realized prices in the prior year quarter. We registered these excellent results overcoming multiple wet weather events in the U.S. South, maintaining consistent delivered and stumpage sales and working proactively with our customers to help mitigate increased haul costs due to shortage of truck drivers. In the Pacific Northwest, we capitalized on ongoing favorable market conditions for lumber demand emerging from the depths of last year's economic downturn. Our harvest volume in the region increased by 75% year-over-year and we captured a 26% increase and delivered sawtimber pricing. The higher volume and higher pricing combined increase our quarterly timber sales revenue year-over-year by 131% in the region. Our Pacific Northwest operations have been unaffected by recent regional wildfires. The closest fires on forest service property, approximately 70 miles East of our ownership and is more than 75% contained. During the second quarter, we utilized additional delivered logging capacity as we looked ahead to complete the Bandon sale in the third quarter and wrap up regional harvest activities there. We expect that by the time we complete the Bandon sale, we will have produced about 80% of our planned Pacific Northwest harvest for the year. Slowing housing market momentum from the recent sharp upturn and somewhat reduced repair and remodel demand have slightly increased sawmill lumber inventories. However, they remain thin in the third quarter. Mills are not building much log inventory in our markets, which has helped us maintain significant pricing premiums. Labor shortages are an issue at the mills too. They have been running at 90% capacity, primarily with one shift and can produce more if they could run additional shifts. The pulp business is steady with strong global demand for liner board and tissue products, bolstering outlooks for our mill customers for the rest of the year. Production across the U.S. South had moved to seasonal thinning during the second quarter, which helped to increase inventory levels and moderated delivered pricing. Overall, our markets look very well positioned for the near-term and we remain on track to meet guidance for harvest volumes taking into account the necessary adjustments we will make in the wake of the Bandon sale. We continually strive to maximize the value of every acre of our timberlands, including seeking new and emerging markets such as we did with mitigation bank credits on our Dawsonville Bluff JV property and as we explore opportunities across our entire portfolio to capitalize on the evolving carbon sequestration market. Now let's review timberland sales. Second quarter as expected have generated a significant percentage of our targeted 2021 sales. As of June 30, we had completed approximately 80% of planned sales for the year and remain on course to meet full year guidance with a strong outlook for the rural recreational sales. In the second quarter, we sold a total of 4,300 acres, 3,200 acres more than in second quarter 2020. Sales totaled $7.6 million compared to $1.7 million in the prior year quarter. We also registered an 11% higher average per acre sales price, $1743 in second quarter 2021 versus $1,564 in second quarter 2020. Consistent with our strategy to focus sales on acres that are less productive or have lower near-term cash flow potential, our second quarter sales had significantly lower average marketable timber stocking levels, 17 tons per acre versus our portfolio average of 41 tons per acre. We also generated an improved margin of 26% in second quarter 2021 compared to 13% in the prior year quarter. The Oglethorpe large disposition of 5000 acres for $7.5 million was also completed during the quarter. The sale recognized an $800,000 gain and generated $7.3 million of net proceeds, which we used to reduce our leverage. In summary, the second quarter was particularly active and productive on the operations side. Brian, back to you.
A - Brian M. Davis: Thanks, Todd. CatchMark had a record second quarter marked by outperformance and execution of several significant strategic initiatives to support our broader plan to simplify the business, strengthen our balance sheet, and position the company for future growth. These initiatives included Oglethorpe, the agreement to sell Bandon at a substantial gain, the credit agreement amendment, and Triple T's definitive agreement to sell 301,000 acres. We believe that the current housing shortage along with mill expansions in the U.S. South will strengthen demand in our premier sawtimber and pulpwood markets. We remain laser focused on executing our tested and simple strategy, investing in prime timberlands, and leading mill markets and optimizing operations to produce superior results on a sustainable basis, primarily utilizing delivered wood sales as well as opportunistic stumpage sales. Our capital recycling strategies have a reduced leverage and we are well positioned to take advantage of future opportunities, concentrating our business in the U.S. South, where we have a robust platform and see the greatest opportunity for growth. We are on track to meet full year guidance and expect to formally update guidance on net income when the pending Bandon transaction closes. And our dividend remains fully covered by cash flow from operations. CatchMark’s excellent results are strengthening capital position and the consistent success of our operating strategy provides significant momentum for creating shareholder value. Thank you for your attention today and now Ursula, Todd, John, and I will be happy to take your questions.
Operator: . Our first question comes from Dave Rodgers with Baird. Please go ahead.
David Rodgers: Hey, good morning everybody. Brian wanted to start obviously, you guys have been busy this quarter, good quarter from an operations perspective and you able to delever and take some non-core assets out of the portfolio. I'm curious about the growth aspect, I guess that you mentioned very close to the end as you're positioned for growth. I guess, when would we expect to start seeing that, what are your acquisition pursuits like today, are you really in the market for new acquisitions and deploying capital as you kind of finished the transition and moved to that growth phase?
Brian M. Davis: Good morning, Dave. Great question. It is part of our overall strategy, the simplification, strengthening your balance sheet, and putting us in position for growth. With this, it is actually immediately post Bandon our leverage profile is going to be just over five times and settle out somewhere around the six times as we look on a full year run rate basis, which means that we have some capacity as it relates to our balance sheet to look at growth. And so which comes back to us on the standpoint of there's really two things that we're focusing on. As we think about our time allocation, obviously 100% of our time is going be allocated to operating the business, 80% of our times is really going to be focused on executing on the remaining 8/11 associated with Triple T and other 20% if you're doing your math, we're now at 200% of our actions to really focus on growth opportunities. And so when I sit here and take a look at our pipeline, it has grown since our first quarter numbers. Obviously, we're focused very much specifically in the Southeast, specifically around our operating areas. And so from our standpoint our appetite kind of fits in that timeline as it relates to execution. We're continuously always looking at opportunities. I think the actual closing of Bandon, the actual execution of those things will increase our appetite or willingness to go forward. We'll look at acquisitions that can also be strategic in nature, meaning that it may not provide for immediate cash flow but may provide for a long term support in the market, and which we really like and those are going to be existing operating markets or there maybe a stock full wood as an opportunity like our last acquisition we made, which is the Townsend acquisition, which is in Coastal Georgia. So, our appetite is improving. It is an important part over a long-term strategy. Obviously, we had to get her away through some of these elements to put us in the best position to do so. But we're closer now than what we were last quarter.
David Rodgers: We'll take the 200% as long as it doesn't cost more in G&A. And then I guess from that same perspective, would you be willing to go to the equity markets to kind of accelerate that transaction or are you still focused on kind of the trade-off between asset sales and investment?
Brian M. Davis: Well, never say never Dave. So we continue to be disciplined as it relates to our share price and given where our cost of debt is at sub 2.5%, equity is 475-460 as our share prices day. We do have an ATM in place, it puts us in a position to work very efficiently that goes along with that. For the right opportunities, again, we're in a closer position today than we were before.
David Rodgers: Great, that's helpful. And then maybe one last one for Todd, just on the added mills in the Southeast that you had talked about previously. Clearly, that's been a driver over the past several years, it's taken a couple of years from the mill deployments to start to see the pull through and the demand. I guess what do you expect in terms of timing of even the incremental investments that you're seeing across the Southeast and how that might impact you if I understood your comments correctly?
Brian M. Davis: Sure. So when you think about the most recent ones that have been announced, more of those are really focused towards the South region, if you will, kind of your Mississippi, Alabama area, Louisiana. So some of that will impact some of the ownership we have over with Triple T. But the biggest impact that we've had to our core ownership here, we've really talked about that in previous quarters and over the course of the last year or so where a lot of the capital that came in early on, really in the Georgia area has started to already come online. We've seen GP and some others and bring their mills up in addition to a lot of capital being placed by Interfor, Canfor and their mills as they've gone through and increased capacity. So we've begun to see some of that. I think you see it in the results that we posted since the beginning of the year, improvement in pricing and just the durability of the markets that we're in that is driven by where the investments have been made, where they were planted to see growth, and so we've been able to capitalize on that and benefit from those increases. So, I would say some of that has already occurred for us, what you're going to see is more of a pull through on the entire south as those -- start to see some of that impact as well.
David Rodgers: Right. Very helpful. Thank you.
Brian M. Davis: Thanks, Dave.
Operator: The next question is from Paul Quinn with RBC. Please go ahead.
Paul Quinn: Yeah, thanks so much. Great results. Just wanted to get some more color on where you think you'll raise guidance too. I mean, I understand that you'll do that after you close Bandon, but if you could look towards here, what would the range be?
Brian M. Davis: Hey Paul, this Brian. Good morning. Love your enthusiasm. I think that's absolutely fantastic. I mean obviously, you're feeling the same bullishness as we are about product pricing, the markets in which we operate in. For us, it's really land sales that are episodic. I mean, we're coming off of a very strong second quarter. Obviously, we've got 80% of our land sales really in a boat at this point in time. Give us another quarter. I appreciate again your enthusiasm but that'll put us in a better position regarding some guidance.
Paul Quinn: Okay. And then just Triple T, I mean great work on monetizing the 20%, very healthy premium, just wondering what the timeline is on the balance of the 80?
Brian M. Davis: Yes. So just give you a perspective, I think on the last call, we said that we were in the late third inning early fourth inning. The way I describe it today were early innings of the second game with a double header. And so our timeline really hasn't changed. It's really we look to execute in the next nine to eleven months would be our expectations. Hopefully sooner than that. All of our options still are available to us. The Hancock sale doesn't change any of those options, it can be anything from continuation of asset sales, restructuring the joint venture because the size of this of nearly $500 million can provide us an opportunity to cash out the financial interests of the preferred partners and there are there strategic partners that would want to stay in from a land standpoint. And we can also look at bringing in new capital from new third parties to recapitalize the entity. And so all of that activity as you can imagine, just because we've announced something doesn't mean we've been working parallel with other opportunities. And so that would be our expected timeline.
Paul Quinn: Alright, that’s all I had. Thanks guys.
Brian M. Davis: Thanks, Paul.
Operator: The next question is from Anthony Pettinari with Citi. Please go ahead.
Anthony Pettinari: Hi, good morning. We started to see timberland transaction volumes pick up. And I'm just wondering if you look at kind of the market prices that you're seeing for industrial quality, Southern Timberlands versus say 2019 or pre pandemic period. Do you think prices are essentially flat, maybe up low single digits, up mid single digits, I'm just trying to kind of understand what kind of price improvement you're seeing for Southern Timberlands, if any and how that impacts kind of appetite for acquisitions?
Brian M. Davis: Yeah, It's interesting. Good morning, Anthony. It's Brian. Very interesting question and one that we've been challenging ourselves with is that we've seen valuations that have been steady. Really it's been quality over quantity as it relates to markets. Markets continue to matter, but the prospects of Greenfield operations, while they're still speculative can have an impact on the overall market, and that would be the case where rising tide lifts all ships. And so think about the markets we've been operating in, you continue to have a drain in those markets, you continue to have capital expansion in those markets. And so I would say in the markets which we operate in, you could actually see some rise in valuations more so than we may have seen over the past two or three years. Now how does that impact you from an acquisition standpoint? I mean, the market is the market and you want to be buying through all markets and so you ended up having -- you try and avoid as much vintage risk as you can as you do from an M&A standpoint. But I think we're really on the front end of this. You combine that with a durability associated with product pricing, you get more bullishness associated with cap rates and take a look at ten years. You can actually start seeing valuations go up.
Anthony Pettinari: Okay, that's very helpful. And then just on Triple T, the 300,000 acres that you sold versus the remaining 1.1 million, is there anything that you would say about that 300,000 parcel in terms of qualitatively in terms of stocking species proximity to a mill, is it -- how would you kind of position it within the broader $1.1 million and do you think the premium that you got for that 300,000 is it potentially representative of what you could get for the rest of the property or more aspirational or just how should we think about it versus what remains?
Brian M. Davis: Yes. Great question. Really, we think 1656 is the floor. We still have at 800,000 acres we can still break that down into five smaller parcels if necessary with a minimum 100,000 acres per parcel. So as you can appreciate, a $5 million house on the market stays a little bit longer than a $250,000 house in the market. And so we believe we can get some premium by potentially breaking it down into smaller asset sizes. The remainder has slightly more stocking and slightly shorter haul distances, so that really translates into higher valuations. And also on the 300,000 acres it had a disproportionate amount of hurricane damage from Hurricane Laura relative to the remainder. And then you combine that with sentiment, you have Interfor and Canfor moving into the marketplace, so which creates additional tension from outside purchasers and then you change that with additional sentiment. These processes take a little while. And so we're only reporting really our third consecutive quarter of product price appreciation. It takes a little while to change sentiment that has an impact that translates down on a per acre basis. So, from our standpoint, we have a lot of variables that give an indication that we believe 1656 is the floor.
Anthony Pettinari: Okay. That's very helpful. And then maybe just one the last one for me. I think you said you could be six times debt to EBITDA pro forma post Bandon, is there kind of a target leverage range or an optimal debt tablets range that you'd point us to as you think about the long term?
Ursula Godoy-Arbelaez: Hey, good morning, Anthony. This is Ursula. Yeah, so we have been very consistent in how we're viewing our leverage targets. You've seen us over the last two to three years we continue to work down toward a lower leverage number. Our range has been anywhere from the 5 to 11 with an average of 8 and you heard Brian talk about the immediately post demand in transaction will be right at that in the 5 number. But, yeah, I mean looking at our adjusted EBITDA numbers right now for our guidance range, that would put you somewhere in the sixes. I think from a specific target, it's really just inside of that same range. Obviously, the lower the better. And again, all of the activity that we have continued to do over the two to three years just shows the continuous progress that we make towards that.
Brian M. Davis: And that has been great progress Ursula. And from the standpoint, we have a lot of liquidity for what you and your team have been working on with most recent credit agreement. That allows us when opportunities do come up for us to be able to execute on those. And so as you've seen Anthony from time to time, we may pick up over eight times and stay down below eight times, but on average or around eight times.
Anthony Pettinari: Okay, that's very helpful. I'll turn it over.
Brian M. Davis: Thank you.
Operator: . The next question is from Buck Horne with Raymond James. Please go ahead.
Buck Horne: Hey good morning, everyone. Yes, great quarter, fantastic job. I guess, I'm curious just on the pricing premiums that you achieved on these market wide averages. Just to clarify and understand were there any unusual factors in this particular quarter driving those substantial premiums, just trying to understand how sustainable those kind of spreads are longer-term or there is anything just to be aware of in this particular quarter?
Brian M. Davis: Hey, Buck, good morning. Really, I think what you look at is you're looking at the strength of the markets where we primarily operate compared to that South wide average and we've talked all markets are not created equally and that's why we focused on the ones that we sit in. Along lines of some of the questions earlier, these markets have grown. You've seen added capacity come in, the investments being made and so you're beginning to see the benefit of some of that from any type of special pricing that we had out there. You did have some uplift coming on our pulpwood side and that part of our business is associated with hardwood pulpwood, and we had some special track pricing out there we're able to capitalize on. So it boosted that up a little bit. You think about where we are looking out for Q3 on the pulp side, kind of going forward. I think if you look back at Q1 we'll be a little to closer to that. Additionally, this time of year you have cyclical nature of just more availability, typically of production and pricing can moderate a little bit. And so you're doing a little more thinning, so you have a little more cost associated with it, but all in all, I would say you would expect to see some very consistent pricing from us moving forward, really just markets have been stable. On the sawlog side of things demand is really good. They aren't building a tremendous amount of log inventory. So that's maintaining these levels that we see. We talked about early on in the year as we saw some of the uptake coming out of Q1, we felt like we'd be able to hang on to that. Felt like this was the early stages of a durable run going forward and we're seeing that. So capitalizing on that going forward is our focus and feel good about where we sit today.
Buck Horne: Okay. That's really helpful. I just want to maybe follow-up a little bit there. I mean you have mentioned that some mill inventories I guess starting to restock a little bit. I mean, lumber prices have corrected rather significantly in such a short period of time here. Housing production overall seem to be constrained by some supply chain challenges out there. You're also dealing with logging and hauling costs that are probably going to stay elevated, some driver shortages. Have you seen any mills in your region just starting to curtail capacity or shutting in some shifts due to these cost increases?
Brian M. Davis: No, none whatsoever. Honestly, we've -- you've seen some of the additional announcements coming in. So, I think that's an indicator that regardless of where you sit in the south, there's still a tremendous amount of focus on growth and the potential there, capital being placed. So the longer term view of this improvement is going to have some legs to it. I think it is beginning to play out and they're placing their bets on that. From a pullback in production or anything like that. No, none of that additionally as our pricing is looking to be relatively stable, if you will moving forward from a stumpage basis is a strong indicator that we're working very proactively with our customers. Looking at the value we bring to the table with our delivered program and being able to basically pass through some of the added cost if you will, such that the land owner isn't being dinged for it. And so you can offset some of that added logging cost if you will, maybe a little bit higher delivered price, but in end your net stumpage remains the same.
Buck Horne: Great, thanks. Congrats guys, great progress.
Brian M. Davis: Appreciate it. Thanks, Buck.
Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Brian Davis for any closing remarks.
Brian M. Davis: Great. Thanks, Gary. Well, everybody stay safe and enjoy the rest of your summer, and we will talk with you in November. Thank you very much.
Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
