Doman Building Materials Group Ltd
TSX:DBM

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Earnings Call Transcript

Earnings Call Transcript
2021-Q4

from 0
Operator

Good

day

and

welcome

to

the

Doman

Building

Materials

Group

Ltd.

Fourth

Quarter

2021

Financial

Results

Conference

Call.

Today's

conference

is

being

recorded.

At

this

time,

I'd

like

to

turn the

conference

over

to

Ali

Mahdavi.

Please

go

ahead.

A
Ali Mahdavi

Thank you,

operator.

Good

morning

everyone

and

thank

you

for

joining

us

for

Doman

Building

Materials

Limited

fourth

quarter

and

full

year

2021

financial

results

conference

call.

Joining

me

this

morning

are

Amar

Doman,

Chairman

and

Chief

Executive

Officer;

and

Jay

Code,

Chief

Financial

Officer.

If

you

have not

seen

the

news

release,

which

was

issued

yesterday,

it

is

available

on

the

company's

website,

as

well

as

on

SEDAR,

along

with

our

MD&A

and

financial

statements.

I

would

also

like

to

remind

you

that

a

replay

of

this

call

will

be

accessible

until

midnight

on

March

18.

Following

management's presentation,

we

will

conduct

a

Q&A

session

for

analysts

only.

Instructions

will

be

provided

at

that

time

for

you

to

join

the

queue

for

questions.

Before

we

begin,

we

are

required

to

provide

the

following

statements

regarding

forward-looking

information

which

is

made

on

behalf of

Doman

Building

Materials

Group

Limited

and

all

of

its

representatives

on

this

call.

Remarks

and

answers to

your

questions

today

may

contain

forward-looking

information

about

future

events

or

the

company's

future

performance.

This

information

is

subject

to

risks

and

uncertainties

that

may

cause

actual

events

or

results

to differ

materially.

Any

information

regarding

forward-looking

statements

is

made as

of

the

date

of

this

call,

and

the

company

does

not

undertake

to

update

any

forward-looking

statements.

Please read

the

forward-looking

statements

and

risk

factors

in

the

MD&A

as

these

outline

the

material

factors

which

could

cause

or

would

cause

actual

results

to

differ.

The

company will

not

provide

guidance

regarding

future

earnings

during

today's

call

and

management

does

not

anticipate

providing

guidance

in

future

quarterly

or

interim

communications

with

investors.

I'd

like

to

turn

the

call

over

to

Amar

now.

Amar?

A
Amar S. Doman

Thanks, Ali

and

good

morning,

everybody,

and

thank

you

for

joining

us

on

the

call

today.

Let

me

begin

by

highlighting

some

of

our

key

financial

metrics

followed

by

some

color

on

our

operations

during

the

fourth

quarter,

and

then

I'm

going

to

hand

the

call

over

to

Jay

Code who

will

review

the

numbers

in

further

detail.

I'll

start

by

highlighting

the

efforts

of

all

of

our

employees

across

the

various

business

segments

during

these

continued

extraordinary

times

in

which

we

are

living.

Our

team's

steadfast

focus

and

attention

on

health

and

safety,

combined

with

solid

execution

on

all

business

fronts,

resulted

in

yet

another

strong

quarter

of

financial

results

and

with

some

of

our

key

financial

metrics

surpassing

previous

record

levels

on

a

quarterly

and annual

basis.

Overall,

I

am

very

pleased

with

how

our

growth

strategy

continues

to

unfold,

resulting

in

record

annual

sales

and

net

earnings,

while

remaining

focused

on

margin

protection.

The price

volatility

we

experienced

for

May

to August

subsided

in

the

fourth

quarter,

resulting

in

improved

gross

margin

levels

when

compared

to

the

third

quarter.

We

continue

to

see

robust

activity

in

pricing

in

our

markets.

However,

we're

also

very

mindful

of the

macroeconomic

backdrop

of

increasing

interest

rates

and other

similar

factors

which

may

impact

market

dynamics.

The

strength

in our

full

year

results

came

from

the

combination

of

continued

strong

pricing,

albeit

with

some

volatility

and

strong

volumes

in

all

of

our

markets,

which

resulted

in

full

year

revenues

exceeding

CAD 2.5

billion.

Further

our

ongoing

cost

management

and

focus

on

operational

efficiencies

enabled

the

company

to

realize

much

of

the

revenue

line

gains

to

the

EBITDA

and

bottom

lines.

We

are

very

proud

of

the

strength

of

our

financial

performance,

and

believe

that there

is

a

lot

to

be

gained

from

the

strength

and

momentum

which

has

resulted

from

our

successes

in

2021,

and

particularly

in

the

fourth

quarter

as

we

pave

the

path

forward

into

2022.

Despite

these

challenging

times

we

maintain

focus

and

discipline

on

servicing

the

needs

of

our

customers

with

the

utmost

level

of

quality

and

service,

while

working

through

a

highly

volatile

pricing

environment

for

our

wood

products

throughout

the

year.

In

parallel,

we

continued

our

pursuit

of

strategic

growth

opportunities,

which

resulted

in

a

significant

expansion

of

our

footprint

and

presence

in

the

US

market

through

the

acquisition

of

Texas-based

Hixson

Lumber

sales.

The

combination

of

these

efforts

resulted

in

revenues,

gross

profit,

EBITDA

and

net

earnings

reaching

new

record

levels.

As

a

result,

during

the

fourth

quarter

we

continued

to

experience

top

line

growth

posting

an

increase

of

60%

when

compared

to the

same

period

in 2020.

We

continue

to

see

robust

demand and

strong

pricing

resulting

in

once

again

achieving

excellent

fourth

quarter

results

with

revenues

increasing

60%

to

CAD 642

million,

gross

margin

at

13.8%,

or

CAD

88.7

million,

adjusted

EBITDA

increasing

to

CAD

37.1

million,

net

earnings

came

in

at CAD

11.6

million,

and

lastly

our

quarterly

dividend

of

CAD

0.14 per

share

was

declared.

We

are

extremely

encouraged

with

our

fourth

quarter

and

full

year

2021

results

and

continue

to

build

on

the

decisive

steps

we

took

earlier

in

the

year.

We

were

able

to

deliver

these

strong

operating

results

with

leaner

inventory

levels

in

certain

categories

while

continuing

to

meet

or

exceed

customer

expectations

of

product

availability.

Despite

the

daily

headlines

concerning

procurement

and logistics

issues

and

challenges

we

have

and

continue

to

maintain

pace

across

all

of

our

plants

and distribution

centers

on

both

sides

of

the

border,

and

we've

done

everything

we

can

to

provide

best-in-class

reliable

supply

and

service

to

our

customers.

Looking

ahead, despite

the

continued

volatility

in

commodity

pricing

around

the

world,

we

continue

to

be

healthy

in

premium

levels

combined

with

a

robust

demand

we

are

seeing

in

our

key

markets

driven

by

the

do-it-yourself

and

home

renovation

end

user,

we

remain

excited

and

optimistic

as

we

enter

the

New

Year.

We

remain

confident

in

our

ability

to

work

through

these

extraordinary

times

diligently

while

protecting

our

employees

and

servicing

our

customers'

needs

with

the

highest

level

of

service.

Lastly

let

me

touch

on

inflation.

We

are

certainly

in

an

inflationary

environment

and

there

is

no

shortage

of

economic

indicators

and

commentary

to

support

this.

We

are

also

seeing

this

in

our

markets.

However,

we

are

not

seeing

consumer

behavior

shifting

when

it

comes

to

their

spending

habits

and

patterns

when

it

comes

to

home

projects.

We

are

off

to

a

roaring

start

in

2022.

With

that,

I

would

like

to

ask

Jay

Code,

our

CFO,

to

take

over,

provide

a

review

of the

company's

fourth

quarter

and

full

financial

results

in

greater

detail.

And

then

we

look

forward

to opening

up

the

call

for

questions

for

everybody.

Jay?

J
James Code

Thank

you

Amar.

Good

morning

everyone.

Sales

for

the

year

ended

December

31, 2021

were

CAD 2.54

billion

versus

CAD 1.61

billion

in

2020

representing

an

increase

of

CAD 930

million

or

58%.

The

increase

is

largely

due

to

the

results

from

our

acquisitions

in

2021

with

the

balance

attributable

to

improvements

in

product

pricing

experienced

by

the

company's

legacy

operations.

Quarantine

related

activities

continued

to

drive

both

demand

and

unprecedented

price

escalation

through

the

first

half

of

2021,

before

reaching

a

peak

in

May

and

declining

sharply

until

August,

but

only

partially

offsetting

the

earnings

impact

of

the

pricing

increases

in

the

first

half

of

the

year.

The

company's

sales

by

product

group

in

the

year

were

made

up

of

74%

construction

materials

compared

to

65%

in

2020

with

the

remaining

balance

resulting

from

specialty

and

allied

products

of

22%

and

other

sources

of

4%.

Our

gross

margin

increased

to CAD

391

million

in

the

current

year

versus

CAD

256.2

million

in

2020,

an

increase

of

CAD

134.8

million.

Our

gross

margin

percentage

was

15.4%

during

the

year,

a

slight

decrease

from

the

15.9%

achieved

in

2020.

The

company's

margins

benefited

from

the

results

achieved

by

our

acquisitions

as

well

as

improvements

in

construction

materials

pricing

for

the

company's

legacy

operations

during

the

first

half

of

2021.

These

price

driven

margin

improvements

in

our

first

half

were

partially

offset

by

the

impact

of

price

declines

during

the

second

half

of

the

year,

driving

lower

margin

percentages

for

the

third

and

fourth

quarters

of

2021

relative

to

the

same

periods

in

2020.

Expenses

for

this

year

were

CAD

219.1

million

versus

CAD

157.8

million

in

2020,

an

increase

of

CAD 61.3

million

or

39%

due

to

factors

to

be

discussed.

These

expenses

amounted

to

8.6%

of

sales

in

2021

versus

9.8%

in

2020.

Distribution,

selling

and

administration

expenses

increased

by

CAD

50.9

million

or

45%

to

CAD

164.1

million

versus CAD

113.2

million

in

2020

largely

due

to

additional

expenses

of

the

acquisitions.

The

F&A

expenses

were

6.5%

of

sales

in

2021

compared

to

7%

in

2020.

Depreciation

and

amortization

expenses

increased

by

CAD

10.4

million,

or

23.3%

from

CAD

44.6

million

to

CAD 55.1

million.

Finance

costs for

2021

were

CAD

27.1

million

versus

CAD

15.7

million

in

2020,

an

increase

of CAD

11.4

million,

or

73%,

largely

as

a

result

of

the

additional

finance

costs

related

to

our

2026

unsecured

notes

issued

in

May

of

2021.

Our

2021

EBITDA

was

CAD 220.7

million,

and

adjusted

EBITDA

was

CAD

225.6

million

compared

to

EBITDA

and

adjusted EBITDA

of

CAD

142.4

million

and

CAD 143

million,

respectively,

in

2020.

The

increase

in

adjusted

EBITDA

of CAD

82.5

million

was

driven

by

strong

contributions

from

our

newly

acquired

businesses,

as

well

as

Doman's

legacy

operations.

Our

net

earnings

in

2021

were

CAD

106.5

million,

versus

CAD 59.6

million

in 2020,

an

increase

of CAD

46.9

million.

Turning

now to

the

statement

of

cash

flows.

The

significant

factors

affecting

the

company's

operating

cash

flows

in

2021

were

largely

related

to

significantly

improved

net

earnings,

offset

partially

by

changes

in

net

non-cash

working

capital.

Operating

activities

before

these

non-cash

working

capital

changes

generated

CAD

163.8

million

in

cash,

compared

to CAD

129.8

million

in

2020.

In

2021

we

made

a

net

investment

in

non-cash

working

capital

totaling

CAD

114.5

million

compared

to

a

net

reduction

in

non-cash

working

capital

of

CAD 34.4

million

in

the

prior

year.

Moving

now to

the

financing

section,

the

company

generated

a

total

of CAD

454.5

million

of

cash

from

financing

activities

compared

to

using

CAD

157.7

million

of

cash

in

2020.

This

year,

shares

issued

net

of

transaction

costs

generated CAD

82

million

of

cash

compared

to

671,000

in

2020,

largely

as

a

result

of

our

public

share

offering

completed

in

May

of

2021.

And

in

2021,

the

company

borrowed

an

additional

CAD

131.6

million

on

its

revolving

loan

facility

compared

to

net

repayments

of

CAD 83.1

million

in

2020.

The

significant

year-over-year

increase

in

usage

of

the

revolving

loan

facility

is

a

result

of

the

previously

discussed

increase

in

working

capital

investments,

as

well

as

utilization

of

our

revolver

as

partial

financing

for

the

Hixson

and

L.A.

Lumber

acquisitions

in

2021.

The

issuance

of

the

previously

mentioned

2026

unsecured

notes

in

May

2021

resulted

in

net

proceeds

of

CAD 316.5

million

of

cash,

while

scheduled

repayments

of

our

non-revolving

term

loan consumed

CAD

2.7

million,

which

was

consistent

with

2020.

We

also

note

the

company's

equipment

loans

were

fully

repaid

during

the

fourth

quarter

of

2021.

The

company

was

not

in

breach

of

any

of

its

lending

covenants

during

the

year

ended

December

31, 2021.

Dividends

paid

to

shareholders

during

the

year

amounted

to

CAD 42.6

million,

compared

to

CAD 42

million

in

2020.

The

company

updated

its

dividend

policy

during

the

fourth

quarter

of

2021

resulting

in

a

quarterly

dividend

increase

from

CAD 0.12

to

CAD 0.14

beginning

with

the

dividend

paid

on

January

14, 2022.

Payment

of

lease

liabilities,

including

interest,

consumed

CAD 23.6

million

of

cash

compared

to

CAD 24.7

million

in

2020,

and

the

company's

lease

obligations

generally

require

monthly

installments

and

these

payments

are

all

current.

Investing

activities

consumed

a

total

of

CAD 503.3

million

of

cash

compared

to

CAD 2.9

million

in

2020.

Investing

activities

in

2021

included

the

Hixson

and

L.A.

Lumber

acquisitions

for

total

cash

consideration

of

CAD 498.3

million,

whereas

2020

included

the

much

smaller

Island

Trust

acquisition.

Cash

investments

in

property,

plant

and

equipment

net

of

proceeds

from

dispositions

were

CAD 5

million

this

year,

compared

to

CAD 682,000

in

2020.

This

concludes

our

formal

commentary.

And

we'd

now

be

happy

to

respond

to

any

questions

you

may

have.

Thank

you.

Operator?

Operator

Thank

you.

[Operator Instructions]



And we'll

go ahead

and

take

our first

question

from

Hamir

Patel

with

CIBC

Capital.

Please

go

ahead.

H
Hamir Patel
Analyst, CIBC Capital Markets

Hi.

Good

morning.

Amar,

you

sounded

a

quite

upbeat

about

the

demand

that

you're

seeing.

I

was

just wondering

what

are

your

Home

Center

customers

planning

for

in

terms

of

volumes

this

year?

Are

they

pointing

you

towards

sort

of

volume

year-over-year

growth

or

kind

of

in

line

with

2021?

A
Amar S. Doman

Yeah.

Pretty

much

in

line

with

2021

Hamir.

We

think

that,

and

listening

to

our

partners

in

the

big

box

channel,

certainly

would

be

very,

very

happy

if

we

get

those

levels

or

even

a

little

bit

of

a

bump

up

after

all

of

the

new

housing

that's

coming

in.

A

lot

of

our

product

lines

go

into

the

fencing

side,

the

decking

side,

which

come

post

are

usually

done

custom

after

a

home

is

built.

So

we're

pretty

excited

about

even

the

overhang

of

houses

that

are

completed

that

haven't

got

their

decks

and

fences

finished

in

all

markets

despite

what

housing

starts

do

as

well.

So

we

believe

along

with

our

big

box

workers

will

at

least

do

2021.

H
Hamir Patel
Analyst, CIBC Capital Markets

Okay.

Great.

Thanks

for

that.

That's

helpful.

And

just

turning

to

the

cost

side

in

terms

of

the

chemical

inputs,

what

sort

of

inflation

are

you

seeing

there,

and

what's

the

sort

of

lag

or

pricing

protection

that

you

have?

And

is

that

going to

be

[indiscernible]



(17:26)

hit

you

more

in

the

back

half

of

this

year,

or

should we

assume

pretty

much

immediate

Q1

impact?

A
Amar S. Doman

No

impact

at

all.

We're

contracted

and

protected

right

through 2022.

And

as

we

reset

in

the

2023

in

the

new

contracts

we'll

pass

those

chemical

increases

onto

our

customer

base

next

year.

H
Hamir Patel
Analyst, CIBC Capital Markets

Okay.

And are

you

able to

speak

to

sort

of the

magnitude

of

chemical

increases

you're

seeing

for

some

of

the

major

inputs?

A
Amar S. Doman

Well,

we're

not

having

any.

So

I

can't

speak

to

that,

and

we

won't

get

next

year's

pricing

until

the

fall

of

this

year.

And

we're

protected,

so

it's

not

really

on

our

worry

list.

H
Hamir Patel
Analyst, CIBC Capital Markets

Fair

enough.

And

just

last

question

for

Jay.

Could

you

give

us

an

update

on

expected

CapEx

for

2022,

and

are

there

any

larger

capacity

expansion

initiatives

as

part

of

the

budget?

J
James Code

Sure

Hamir.

You

should

think

about

CapEx

along the

lines

of

about

CAD 5

million

to

CAD 6

million

in

2022.

No

major

initiatives.

We're

continuing

to

implement

new

technology

as

part

of

the

Hixson

integration

and

unrolling

that

forward

through

other

US

operations

in

2022.

That's

probably

the

most

significant

project

on

the

horizon

unless

something

changes.

A
Amar S. Doman

Yeah.

The

second

project

would

be

kiln

capacity

or

doubling

in

Plumerville,

Arkansas

at

our

saw

mill

there.

So

that's

going to

have

a

good

impact

for

later

in

the

year

as

far

as

us

being

able

to

hopefully

double

our

production

at

that

particular

facility.

H
Hamir Patel
Analyst, CIBC Capital Markets

Great.

That's

all

I

had.

Thank

you.

A
Amar S. Doman

Thanks

Hamir.

Operator

And

we'll

go

ahead

and

take

our

next

question

from

Zachary

Evershed

with

National

Bank

Financial.

Please

go

ahead.

Z
Zachary Evershed
Analyst, National Bank Financial, Inc.

Good

morning, everyone.

Thanks

for

taking

my

question.

A
Amar S. Doman

Good

morning,

Zach.

Z
Zachary Evershed
Analyst, National Bank Financial, Inc.

Given

the

shift

in

pricing

in

the

second

half

of

Q4,

we

were

thinking

gross

margins

might

come

in

a

little

stronger,

especially

with

how

fast

your

inventory

is

turning.

Could

you

walk

us

through

the

mechanics

and

timing

of

how

the

pricing

on

inventory

purchases

flows

through

to

pricing

to

customers

in

your

major

product

categories

again?

A
Amar S. Doman

Yeah.

I

mean,

it

does

vary

a

little

bit

with

all

the

different

markets

we're

in,

and

of

course,

geographically

Canada

in

December,

you're

not

moving

a

lot

of

treated

lumber

or

November,

for

that

matter.

So

we

still

had

overhang.

That's

what

caused

that

kind

of

minor –

and

again,

we

feel

it's

very

minor

gross

margin

pain,

which

is turned

around

and

is

well

behind

us

now.

So

the

cycle,

we

like

to

try

to

say

it's

three

to

four

weeks

in

those

busy

times,

and

construction

season

is

in

full

swing.

It

obviously

gets

a

little

more

weighted

in

the

winter.

We

were

fortunate

that

the

weather

in

the

US

was

quite

favorable

to

building

all

the way

through

Christmas

a

little

colder

recently,

but

our

returns

have

been

good.

Our

margin

is

back

and

strong

and

our

volumes

are

high.

So

again, we've

had

a

very

strong

start

to

the

first

quarter

here,

and

here

to

see

a

nice

recovery

back

to

our

traditional

stronger

margins

and

all

of

that's

in

the

rearview

mirror.

Z
Zachary Evershed
Analyst, National Bank Financial, Inc.

That's

great

color.

Thanks.

And

then

I

guess

on

that

point,

we're

seeing

very

strong

cash

lumber

prices,

and

an

uptick

in

back

month

lumber

futures

across

the

board,

but

not

to

the

same

level.

What's

your

take

on

the

supply

demand

balance

and

where

prices

are

going?

And

what

are you

hearing

from

customers

in

terms

of

backlogs,

and

does

that

align

with

your

order

book?

A
Amar S. Doman

Yeah.

There's

some

backlog,

certainly,

but

when

we

look

at

SPF

and

isolation,

which

is

the

futures

market,

it's

been

wounded

as

we

know

here

in

BC

because

of

transportation

railcar

shortages,

and

[indiscernible]



(21:22)

there

with

the

floods

that

tangled

up

a

lot

of

shipping

here.

So

the

rest

of

the

market,

when

you

look

at

an

[indiscernible]



(21:31)

they're strong

and

building

seasons

extremely

strong,

already

they are

in

the

states,

so

we're

getting

good

takeaway.

Spruce,

we've

got to

be

a

little

careful

on and

we're

being

very

careful

with

our

inventories

because,

again,

it's

more

of

a

not

is

there

enough

wood

out

there

problem,

it's

there's

no

way

to

get

it

to

market

right

now

problem.

And

West

Fraser,

you

might

have

seen,

has

gone

down

to

three

shifts

a

week

just

because

they're

piling

so

much

wood

up,

it's

sold,

but

they

can't

get

the

railcars

to

move

it.

So we're

a

little

careful

on

Spruce,

so

we're

watching

that

one

and

we're

behaving

very

responsibly

with

our

SPF

wood

piles.

Z
Zachary Evershed
Analyst, National Bank Financial, Inc.

That's

actually

a

great segue

to

my

next

question.

How

are

you

guys

navigating

the

freight

disruptions,

particularly

in

the

rail

space?

A
Amar S. Doman

Yeah.

We're

using

a

lot

more

trucks,

we're

utilizing

different

mills

that

have

trucks

available,

more

Alberta

product

when

we

can,

but

everybody's

after

the

same

truck.

So

there

is

a

truck

shortage.

But

we're

going to

be

in

good

shape

for

spring,

we

don't

see

any

issues

in

our

inventories

as

far

as

having

any

holes.

We

should

be

pretty

good

here.

Again,

speaking

of

SPF

and

then

in

the

western

markets

Hawaii

and

the

Hixson

landscape,

we're

in

pretty

good

shape

with

exception, decking

is

tight

in

the

US,

but

we're

hoping

to

get

some

new

strategies

to

move

some

other

species

around

to

get

that

back

in

order

as

well.

But

the

demand

is

there,

Zach,

and

we're

going

to

be ready

for

a

good

spring

market

here.

Z
Zachary Evershed
Analyst, National Bank Financial, Inc.

That's

great

news.

So

you're

not

too

worried

about

sales

being

pushed

to

the

right

with

delivery

delays?

A
Amar S. Doman

No, we're

going

to be

okay.

I

think

these

real

things

this happened

in

2018,

not

as

severe, but

it'll

solve

itself

at

some

point

and

the

cars

will

get

there.

Nobody

knows

when,

but

in

the

meantime

I'm

not

panicked

about

us

being

out

of

material

at

any

of

our

facilities.

We're

just

going

to

carry

lighter.

Z
Zachary Evershed
Analyst, National Bank Financial, Inc.

Thanks

for

answering my

questions,

I'll

turn

it

over.

A
Amar S. Doman

Thanks,

Zach.

Operator

And

we'll

go

ahead

and

move

on

to

our

next

question

from

Paul Quinn

with

RBC Capital

Markets. Please

go

ahead.

P
Paul C. Quinn
Analyst, RBC Dominion Securities, Inc.

Yeah. Thanks

very

much.

Good morning,

guys.

Just

a

question

on

outlook

for

Q1

here.

Last

year

you

generated

CAD 60 million

in

EBITDA.

It

looks

like

the

setup

is

pretty

similar

to last

year.

In

fact,

building

material

prices

have tracked

up

higher

earlier

for

Q1,

and

plus

you've

got

the

acquisition

of

L.A.

Lumber

and

Hixson.

Just

wondering

to how

you're

thinking

about

Q1

as

well

as

Q2.

A
Amar S. Doman

Yeah.

It's

been

a

very

strong

start

to

the

year

from

all

angles,

whether

it's

volume,

pricing,

margin.

We're

having

a

very

good

first

quarter.

So

you'll

see

I

think

some

good

numbers

here

and

carrying

on

in

the

Q2

unless

there's

a

major

collapse

or

a

world

event.

We

think

first

half

is

going to

look

pretty

good.

And

looking

at

it

year-over-year,

not

having

Hixson

in

of

course,

last

year,

et

cetera,

they

go

on

a

pretty

special

first

quarter

here

as

we

navigate

with

nice

inflation

on

lumber.

And

more

importantly, the

margin

side

is

all

back

cleaned

up

and

looking

good.

P
Paul C. Quinn
Analyst, RBC Dominion Securities, Inc.

Okay.

And

then in

the

release

you

mentioned

the

information

technology

strategy

at

Hixson.

What

is

that

and

what

are

you

doing

across

your

business

lines?

A
Amar S. Doman

Yeah.

So

when

we

bought

the company,

there

was

some

more

older,

let's

say,

antiquated

technologies

there.

And

we

studied

that

in

our

due

diligence

and

we

put

it

in

the

DMSI

system

which

we

use

and

it's

called

agility.

We

use

it

on

the

west

coast

of

the

US.

We

now

have

an

operating

at

three

facilities.

We'll have

all

19

up

and

running

by

the

end

of

April,

and

then

we'll

go

into

the

sawmills

and

get

those

done

on

the

more

complicated

Hixson

lines,

which

will

help

us

achieve

a

lot

of

efficiencies,

real

time

information,

and

this

was

all

planned

for,

and it's

not

a

risky

one

going

in.

We

know

the

system,

we

use

it,

and

it's

a

much

newer

version

than

we

even

use

on

the

West

Coast, and

the

implementation

has

been

going

well.

P
Paul C. Quinn
Analyst, RBC Dominion Securities, Inc.

Okay.

So

just

so

I

understand

it,

that DMSI

system

is

more

on

the

sales

side

or

it's

more

on

the

production

side?

A
Amar S. Doman

It's

all

angles.

It

is

soup

to

nuts

system,

it tracks, it

tracks

every

piece

of

lumber

through

your

whole

manufacturing

process,

from

receipt

to

ship,

the

inventory,

VMI.

It

controls

everything

and

it

has

excellent

reporting.

We're

going

to start

scaling

all

of

our

plants,

pool

purchasing

on

supplies.

There's

a

lot

of

great

things

we're

going to

get

to

once

this

technology

is

deployed,

which

is

happening

now,

and

again,

it's

already

in

place.

J
James Code

And

Paul,

it's

Jay

here.

I

just want

to

let

you

know

too

that

that

system

is

being

utilized

in

California

cascade.

So

we're

very

familiar

with

the

product,

and

it's

working

well

for

us

in

California.

So

it's

not

like

it's

a

new

product

to

us.

P
Paul C. Quinn
Analyst, RBC Dominion Securities, Inc.

Okay.

Great.

And

I appreciate

you're

still

probably

digesting

Hixson and

ramping,

but

what is

the

current

M&A

market

look

like

right

now?

A
Amar S. Doman

Yeah.

We're

in

dialogue

as

always

with

different

opportunities.

And

we're

certainly

taking

more

of

a

blend

on

an

average

lumber

price

when

we

look

at

purchasing

a

business

today.

So

we're

being

conservative

as

we

always

are,

same

kind

of

EBITDA,

multiple

targets

that

we

look

at

being

responsible

to

our

balance

sheet,

and

we're

seeing

some

things

that

could

be

interesting

later

in

the

year

nothing

right

now.

Again,

to

your

point,

we

are

working

hard

on Hixson

and

all

the

other

divisions

because

we've

got

a

lot

of

volume.

It's

busy

and

challenging

with

pricing

levels

and

shipping

shortages.

So

we're

just

very

busy.

But

I

think

we

later

in

the

year,

we'll

get

focused

on

a

couple

of more

things,

but

we're

in

dialogue

on

a

couple

of things

Paul,

but

nothing

imminent.

P
Paul C. Quinn
Analyst, RBC Dominion Securities, Inc.

Okay.

That's

all

I

had. Thanks

a

lot

guys.

A
Amar S. Doman

Thanks.

J
James Code

Thank

you.

Operator

And

we'll

go

ahead

and

take our

next

question

from

Steve

Hansen

with

Raymond

James.

Please

go

ahead.

S
Steven Hansen
Analyst, Raymond James Ltd.

Yeah.

Good

morning,

guys.

Apologies

if

I

missed

it,

but

just

thinking

about

any

of

the

other

constraints

that

might

be

in

the

system,

how

is

the

people

situation

down

south

in

particular

at Hixson?

Are

you

in

good

shape

there?

Is

that

posing

any

challenges

on

in

terms

of

meeting

the

demand

you've

described?

A
Amar S. Doman

Getting

a

little

bit

better,

as

people

are

coming

back

to

work.

It's

still

a

challenge

in

certain

regions,

but

not

where

it's

wounding

us,

and

of

course,

the

COVID

absences

have

declined

now,

and

it

looks

like

that's

behind

us

which

is

nice to

see

as

well.

So

nothing

that's

penalizing

us,

Steve,

to

answer

your

question.

S
Steven Hansen
Analyst, Raymond James Ltd.

Okay.

Great. That's

helpful.

And

just

to

follow

up

again

on

sort

of

the front

half

outlook

for

the

year,

I

think

you

described

it

as

being

a

very

special

first

quarter.

The

margins

that

we

saw

last

year

through

the

first

quarter

were

obviously

outsized

again.

Is

it

safe

to

say

that

those

are going

to

be

too

hard

to

reach

again

this

time

with

Hixson

involved,

or

is

it

still

a possibility

to get

up

to

those

same

levels?

A
Amar S. Doman

Yeah.

I

think,

near

that

ZIP

code,

that

was

a

pretty

high

watermark

with

what

the

lumber

market

was

doing

last 2020

to

2021,

it

was

just

on

fire.

We're

here

it's

moving

up,

but

it's

kind of

been

in

the

ZIP

code

for

a

while.

So,

we

were

getting

some

extra

margin

on

that

rocket

launch

of

pricing

and

everyone

was

out

of

stuff.

This

year,

it's

different.

Everyone

has

material,

but

it's

priced

higher.

So the

margins

are

a

little

bit more

normal.

Having

said

that,

our

volumes

will

be

a

lot

higher

with

Hixson,

et cetera.

But

just

seeing

some

of

the

guys

on

numbers,

just

I

think

it

too

carried

away,

and

we're

having

fantastic

results

here.

It's

just

that

the

market is

too

high, I

think,

on

lumber

and

people

have

to

be

careful,

I

think

just

looking

at

their

research,

we're

not

a

sawmill

and

we

are

value

adding,

and

we've

had

the

one

bit

of

margin

paying

last

year,

we're

through

that,

and

we

should

be

back

into

our

traditional

margin

pattern,

Steve,

with

a

little

bit

of,

I

would

say,

extra

push

because

of

the

way

the

trajectory

of

the

lumber

market

is

today

on

panels

and

OSB.

S
Steven Hansen
Analyst, Raymond James Ltd.

Very

good color. I

appreciate

that. Thanks

guys.

A
Amar S. Doman

Thanks,

Steve.

Operator

And

we'll

go ahead

and

take

our next

question

from

Yuri

Lynk

with

Canaccord.

Please

go

ahead.

Y
Yuri Lynk
Analyst, Canaccord Genuity Corp.

Hey,

good

morning,

guys.

Just

housekeeping

issue

from

me,

for

Jay.

DS&A,

Jay,

it

was

down

almost

CAD 2

million

sequentially

to

about CAD 10

million.

Is

that

a

good

quarterly

run

rate

excluding

right of

use?

J
James Code

Yeah.

Yuri,

just

keep

in

mind,

seasonally

we

would

have

a

little

bit

of

a

decline

in

DS&A.

So

as

a

run

rate,

it

would

increase

a

little

bit

as

we

go

into

the

busier

season,

especially

in

Canada.

Y
Yuri Lynk
Analyst, Canaccord Genuity Corp.

Got

it.

Makes

sense.

And

any

color

on

working

capital

for

2022

at

least

in

the

first

half

of

the

year.

Should

we

expect

continued

investment

in

working

cap

just

given

where

pricing

and

volumes

are?

J
James Code

Yeah.

Of

course,

it

really

depends

where

pricing

goes

for

the

balance

of

this

year.

We

put

together

a

budget

back

in

November,

December,

and

we're

already

wrong

on

pricing

on

that.

So

we

would

expect,

If

pricing

stays

at

these

levels,

then

working

capital

will

be

fairly

flat

year-over-year.

But

if

it

comes

off

to

more

historic

pricing,

then

we

could

pick

up

some

cash

with

the

decline

in

pricing.

Y
Yuri Lynk
Analyst, Canaccord Genuity Corp.

That's

it

from

me,

guys.

Thanks.

Operator

And

with

that,

that

does

conclude

our

question-and-answer

session.

I would

now

like

to

hand

the

call

back

over

to

Ali

for

any

additional

or

closing

remarks.

Please

go

ahead.

A
Ali Mahdavi

Thanks

again,

operator.

On

behalf

of

the

management

team,

I'd

like

to

thank

you

for

joining

us

this

morning

for

an

update

on

the

fourth

quarter

results.

We

look

forward

to

speaking

to

you again

on

the

back

of

our

Q1

2022

financial

results.

That

concludes

today's

call,

I'll

ask

the

operator

to

wrap

up

the

call.

Have

a

great

day.

Operator

And

with

that,

that

does

conclude

today's

call.

Thank

you

for

your participation.

You

may

now

disconnect.