Good morning, and welcome to Mercer International's First Quarter 2024 Earnings Conference Call. On the call today is Juan Carlos Bueno, Mercer's President and Chief Executive Officer; and Richard Short, Mercer's Chief Financial Officer and Secretary. I will now hand the call over to Richard.

Thanks, Liz. Good morning, everyone. Thanks for joining us today. I will begin by touching on the financial and operating highlights of the first quarter before turning the call to Juan Carlos to provide further color into the markets, our operations, and our strategic initiatives. Also, for those of you that are on today's call by telephone, there is presentation material that we have attached to the Investors section of our website. But before turning to our results, I would like to remind you that we will make forward-looking statements in this morning's conference call. According to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, I'd like to call your attention to the risks related to these statements, which are more fully described in our press release and in the company's filings with the Securities and Exchange Commission. This quarter, our EBITDA was $64 million compared to Q4 EBITDA of $21 million. The improved results were driven by not having any major maintenance downtime, improving pulp sales realizations, and lower fiber and other production costs. Our Pulp segment contributed quarterly EBITDA of $68 million, and our Solid Wood segment EBITDA was negative $1 million. You can find additional segment disclosures in our Form 10-Q, which can be found on our website and that of the SEC. In Q1, both our NBSK and NBHK sales realizations increased compared to Q4. Average list prices increased in Europe and North America due to stronger demand and global supply constraints. In China, prices were flat as demand slowed during the Chinese New Year and picked up near the end of the quarter. The European NBSK list price averaged $1,400 per tonne in the current quarter, an increase of $155 or 12% from Q4. And the North American NBSK list price averaged $1,440 per tonne in the current quarter, an increase of $128 or 10% from Q4. In China, the Q1 average NBHK net price was $662 per tonne, up $19 or about 3% compared to the Q4 average price, resulting in the market price gap between NBSK and NBHK in China narrowing to about $83 per tonne in Q1 from $105 per tonne in Q4. The North American NBHK average Q1 list price was $1,223 per tonne, up $140 or 13% from Q4. Total pulp sales volumes in the first quarter increased by 75,000 tonnes to 566,000 tonnes, driven by the timing of sales and higher production due to lower scheduled maintenance downtime. We had no scheduled maintenance downtime in Q1 compared to 23 days of downtime in Q4, which positively impacted Q1 EBITDA by about $23 million when compared to Q4. After adjusting for the Q4 planned shuts, pulp production was essentially flat from the fourth quarter. For our Solid Wood segment, we had modest lumber pricing improvements in both Europe and the U.S. market. Despite the price increases, overall lumber demand remains subdued as a result of uncertain economic conditions in Europe and high interest rates. The Random Lengths U.S. benchmark for Western SPF #2 and Btr was $462 per thousand board feet at the end of Q1 compared to $422 at the end of Q4. Today, that benchmark price for Western SPF #2 and Btr is around $421 per thousand board feet, virtually unchanged from the beginning of 2024. For Q2, we are expecting generally flat lumber prices in the U.S. and European markets as demand remains weak. Lumber production was a near record 127 million board feet in Q1, up 14% due to seasonal downtime in the fourth quarter. Lumber sales volumes totaled 121 million board feet, up 8% from Q4. Electricity sales totaled 259 gigawatt hours in the quarter, which was about the same as Q4. Pricing in Q1 modestly decreased to about $94 per megawatt hour from $98 in Q4 due to lower spot prices in Germany. In Q1, our Pulp segment had lower fiber costs in Q4 as supply remained stable. On the other hand, our Solid Wood segment had higher sawlog costs due to strong demand in Germany. Production for our Solid Wood segment's mass timber operations decreased in Q1 from Q4 due to minor customer-driven delays for certain large-scale projects. These projects are now underway, and we are satisfied with the order book today. In the first quarter, we made the strategic decision to dissolve the Cariboo mill joint venture, which resulted in the recording of a noncash loss of roughly $24 million or $0.35 a share. We expect the transaction to only have a nominal impact on 2024 EBITDA. Juan Carlos will have more to say on this in a moment. We reported a consolidated net loss of $17 million for the first quarter or $0.25 per share compared to a net loss of $87 million or $1.31 per share in Q4. We consumed about $40 million of cash in Q1 compared to $30 million in Q4. The large cash usage in Q1 was primarily due to higher receivables, which were up roughly $64 million, driven by higher sales realizations and sales volumes. We expect the majority of this working capital build to reverse in Q2. At the end of Q1, our liquidity position totaled $555 million, comprised of $274 million of cash and about $281 million of undrawn revolvers. Finally, our Board has approved a quarterly dividend of $0.075 per share for shareholders of record on June 26, for which payment will be made on July 3, 2024. That ends my overview of the financial results. I'll now turn the call over to Juan Carlos.

Thanks, Rich. Our Q1 operating results improved significantly relative to Q4. The improvement was primarily the result of higher pulp prices in combination with no major maintenance at any of our mills. Our results in Q1 also benefited from lower costs, including fiber and energy costs. Overall, all of our mills ran at near record production levels, while both our energy production and sales volumes were at record levels in Q1. As previously announced, we came to the decision to dissolve the Cariboo mill joint venture after reviewing this asset and its future prospects against our strategic priorities and determining that dissolving the joint venture will allow us to focus our resources on areas more aligned with our long-term strategic goals. I will also add that we were not expecting Cariboo to have any meaningful impact on our 2024 earnings. In Q1, we invested roughly $18.5 million in our operations. This CapEx spending was in line with our 2024 CapEx target of between $75 million to $100 million. Those of you who follow the company closely will recognize that our 2024 CapEx target is well below our traditional spend. Our 2024 CapEx target is essentially a maintenance of business budget, and is the result of weak cash flow generation in 2023. I will speak about our markets in a moment, but we're optimistic about our cash flow generation in light of improved pulp pricing expectations for the remainder of the year. Consequently, we are comfortable restarting our Torgau lumber expansion project and the Spokane sorting line project. Both projects will provide significant added value and were originally contemplated as part of our investment strategy for each mill. We have also approved a handful of other small value-adding projects. As a result of these decisions, we now expect our CapEx to be between $95 million to $120 million in 2024. We will also continue to manage our working capital and costs closely. Despite our improved outlook for 2024, we believe the recovery for all our markets will be gradual. Overall, pulp markets have improved significantly in the quarter, with both the European and North American markets showing the most improvement, while China is lagging a little bit. We're seeing strong demand from European paper and tissue producers. This demand is primarily the result of merchant destocking and logistical challenges around Chinese imports. To a lesser extent, we are seeing demand increases in North America as well. This strong demand is exacerbating the impact of the permanent closure of NBSK mills in the last two years, while the impact of the finished transport strike and the significant unplanned downtime of one of Finland's largest mills are also adding to the supply challenges. Looking forward, we expect upward pulp price pressure through the second quarter. In addition, pulp markets may face an even tighter supply situation should the Canadian railway unions take labor action as they are currently threatening to do. We're implementing mitigation strategies, but ultimately, should this labor action be significant, it could negatively impact our ability to get our Canadian mills' products to market. Our mills ran at near record levels in the quarter when comparing our first quarter production to Q4; remember that Celgar took a 22-day major maintenance shut in Q4 of last year, and Stendal took a 1-day maintenance shut. While in Q1, we didn't have any at all. Our remaining major maintenance downtime for 2024 is as follows: In Q2, Peace River already has taken their 16-day maintenance shut in April. This shut was extended by 2 days due to necessary work. In addition, Stendal will take a long 17-day shut. Combined, this downtime equals roughly a loss of about 61,000 tonnes of production. In Q3, Rosenthal has a 14-day maintenance shut, and Celgar will take a short 4-day mini shut, which will amount to about 20,000 tonnes production loss in total during Q3. As a reminder, Celgar has moved to an 18-month major maintenance schedule and will not have a major maintenance shut in 2024. Our Solid Wood segment results, although improved compared to Q4, are still not where we expect them to be. The U.S. and European lumber markets were up slightly. However, high interest rates continue to weigh on housing starts and construction in general. We see the potential for lumber pricing improvements in Q2, but generally expect prices to stay flat, with any improvement likely linked to improved economic data. We recognize there may be some short-term pricing upside due to recently announced lumber production retirements or the realization of a prolonged Canadian railway strike. That said, we continue to believe that low lumber inventories, the large number of sawmill curtailments, relatively low housing stock, wood shortages created by recent Canadian forest fires, and homeowner demographics are still very strong fundamentals for the construction industry, and this will put sustained positive pressure on the supply-demand balance of this business in the midterm. We continue to optimize our mix of lumber products and customers to current market conditions. In Q1, 43% of our lumber sales volume was sold in the U.S. market, with the remainder sold in European and other markets. The shipping pallet market remains weak due to an overall weak European economy. Once the European economy begins to show signs of recovery, we expect pallet prices to return to normal levels, allowing our Torgau assets to deliver significant shareholder value. Heating pellet prices were down in Q1 due to expected seasonality in this market. In addition, the integration of the recently acquired mass timber assets continues to progress very well. We now have roughly 35% of North American mass timber production capacity, a broader range of product offerings, and a much larger geographic footprint, which gives us competitive access to the entire North American market. We continue to see strong customer interest in our mass timber products, which has allowed us to build a significant order file. At the end of March, our order file totaled about $80 million. As I previously noted, we are in the process of restarting strategic and high-return CapEx projects at both Torgau and Spokane Mills. The Torgau project is focused on the mill's woodyard and log infeed systems. Once completed in late 2025, this project will allow the mill to produce more high-quality dimensional lumber. This project was originally envisioned as part of our investment strategy for this mill, and we are looking forward to completing this work while lumber prices are at cyclical lows. Similarly, the Spokane project is focused on the mill's wood infeed and sorting processes. Once this project is completed in mid-2025, the mill will be able to source lower-cost feedstock and process it into high-quality land stock. Ultimately, this will significantly reduce the mill's fiber costs. In Q1, our overall pulp fiber costs decreased from Q4. In Germany, a steady supply of sawmill chips resulted in modest cost decreases. In Canada, our ramp-up of Peace River's woodroom and our Celgar Wood strategy also pushed our fiber costs down in Q1. Looking ahead, we expect further modest declines in pulpwood costs at our mills in Q2, but we expect a slight increase towards sawlog costs due to strong demand. I am pleased with our new lignin extraction pilot plant ramp-up and the partnerships we have entered into to support the future commercialization of this product. As a reminder, this new lignin plant is a significant step towards Mercer being able to develop a portfolio of novel offerings before going commercial with it. We're excited about the future prospects of this product as a sustainable alternative to fossil fuel-based products, such as in adhesives and advanced battery elements, to name just a few. This aligns perfectly with our strategy, which involves expanding into green chemicals and products that are compatible with a circular carbon economy. As the world becomes more sensitive to reducing carbon emissions, we believe that products like lignin, mass timber, green energy, lumber, and pulp will play increasingly important roles in displacing carbon-intensive products, such as concrete and steel for construction, or plastic for packaging. Furthermore, the potential demand for sustainable fossil fuel substitutes is very significant and has the potential to be transformative for the wood products industry. We remain committed to our 2030 carbon reduction targets and believe our products form part of the climate change solution. In fact, we believe that in the fullness of time, demand for our low carbon products will dramatically increase as the world looks for solutions to reduce its carbon emissions. We remain bullish on the long-term value of pulp and are committed to better balance our company through faster growth in our lumber and mass timber businesses. In closing, I am pleased that our pulp markets are recovering a little more quickly than expected and the fact that this improvement is giving us the confidence to increase our planned 2024 capital spend, which will allow the benefits from these key high-return projects to be realized even sooner. We also expect an improved result from our Solid Wood business in Q2. As a reminder, we have an unusually heavy schedule of major maintenance in Q2, which will be a drag on what we're expecting will otherwise be a strong financial quarter. We will remain focused on our cost-saving initiatives, and we will also continue to work on rebalancing our assets in line with the execution of our strategic plan, and we will continue to manage our cash and liquidity prudently. Thanks for listening. And I will now return the call to the operator for questions.

Our first question comes from Hamir Patel with CIBC.

Juan Carlos, one of your peers recently announced a large reduction of its pulp capacity in British Columbia. Just given your presence in the province, how much more pulp capacity do you think needs to come out of the region? And can you speak to how comfortable you are with the long-term capacity potentially at Celgar?

Thank you, Hamir. Yes, obviously, this is something that we were expecting for some time. It is well known that the fiber supply in the province has been pretty tight and getting tighter as time goes by. So it comes as no surprise that announcement came up yesterday. Now one of the things that we've decided to do, and I think that puts us in a very favorable position in the case of Celgar in BC, is that we're taking full advantage of the strategic location of the mill, which is very close to the U.S. border. That has proven to be extremely beneficial for us. Our cost of fiber has been coming down as we've started implementing that strategy. This is basically allowing us to source chips from the U.S. at costs that are competitive, as logistics have been arranged accordingly. We're seeing more and more inflow from the U.S. into Celgar. We can easily consider Celgar sourcing as much as between 30% to 50% of fiber from the U.S. So again, that takes the pressure off the mill from this very complicated situation that BC is going through. Regardless, the good news is that this region in particular has not been impacted as much as other regions in Northern BC on reductions and access to fiber. So that also has helped Celgar in a good way. We have a very good source for fiber in the mill, and we expect this to continue that way.

Great. And just last question I had was on the lumber side with respect to demand in Europe. Could you comment on what you're seeing there across the different end markets in terms of R&R, new residential, industrial? And maybe where if anything stands out as inflecting on the R&R side?

Yes. The European market has been very weak over the past, I would say, over the past year. The situation in the European economy in general, in Germany, which is probably where we focus ourselves the most, is still not in a recovery mode. It's still very dormant. The only thing that we have seen recently that has built a little bit of momentum – possible momentum, even in prices, has been the resurgence of the U.K. and Ireland market. So we've been able to get back into that market after being out of it for almost a year. Therefore, Europe is still, I would say, very precarious, and we do not expect any significant change most likely for the next couple of quarters. We'll see if there is some improvement in economic indicators by the end of the year. Obviously, that would definitely push the construction industry onto a better trajectory as it has been before or at least into recovery mode. So yes, it's been very, very slow, Hamir, incredibly slow. We have the advantage that since our mill is very competitive from a cost production point of view, we're able to serve the U.S. market very competitively. We've taken advantage of that as much as we can. In the last year, we did exactly the same thing; almost 50% of our sales went to the U.S. This year, it has been a bit lower than that, again, because the U.K. and Ireland have shown good signs of recovery. But we always play that card, and it gives us that confidence that if Europe is not providing what we expect, then we can take advantage of the U.S. market.

Our next question comes from the line of Sean Steuart with TD Cowen.

A couple of questions. The discretionary projects at Torgau and Spokane, can you give us a sense of the return parameters you're looking at for that type of CapEx? I suppose, once markets normalize a little bit, how do you think about the returns for those types of projects?

Absolutely, Sean. We have two important projects, as I was mentioning. First, both of them were envisioned when we acquired the mills. Talking first about Torgau, as we acquired it, it has four saw lines, but it's not optimized in any way. It's an old mill, big in size with a lot of capacity, but it's totally underutilized and was focused its production on pallet production to a large extent. What we are doing right now with this investment is freeing up capacity so that we can produce lumber in addition to what we're producing in Friesau. This additional capacity will position Torgau not only as a pallet mill but also one that produces lumber, thus reducing the volume of pallets while really increasing the volume we can get for lumber. So that's what we're planning for. The return on those projects is relatively short. We expect those investments to be completed probably next year. By the end of next year, we believe that lumber prices will be better than they are today. So when we say that we're making all this investment during the cyclical low part of the cycle, we're preparing ourselves to be ready whenever the markets rebound. The return on those projects, both lumber or what we're doing in Spokane, is usually less than 3-year returns. For us, those are high-return projects in general terms. In the case of Spokane, it's a similar situation. The mill, even though it is a brand-new mill when we acquired it, it doesn't mean that it was designed ideally or in an optimal way. There are a few things that we need to do, particularly on sorting lines. Later, we will make some improvements on the press capacity. Those things will drive costs down significantly for us. Again, just like in Torgau, those are 2- to 3-year payback projects when fully implemented.

That's great detail. My second question is about the pulp markets. I'm curious about your view on the current momentum and sustainability as we move into the second half of the year. How much of the recent surge do you think is due to temporary supply constraints? On the demand side, how much do you believe is driven by customer restocking compared to genuine growth in paper demand?

Absolutely, Sean. Yes, what you said is absolutely true. Supply constraint is a huge driver of the surge that we've seen in pulp prices. There's no doubt about it, and it's still increasing. We just heard the announcement yesterday of yet another closure, another 300,000 tonnes exiting the market. The elements keeping the upward pressure on prices are sustained. We do believe that we will see further price improvements during the second half of the year. Now when it comes to demand, it has been much better, but not as robust as we would like, let's put it that way. Yes, European demand has improved. North American demand has improved. Chinese demand, not so much. We know that they are exporting quite a bit. So there's a balance on how much of that demand coming in from China goes elsewhere. It is a fact that European demand was incredibly low about six months or nine months ago, and we've seen a significant resurgence in demand. It's still not as strong as we would like it to be, but it is much healthier than it was before. All in all, I think the prospects are positive. The logistic constraints that we see, issues that we still see in the Middle East are causing further complications. Now there's a potential issue of railway strikes in Canada. Obviously, these factors add complexity and probably put more pressure on prices. So again, we're cautiously bullish on the price increases we may see in the coming months. I don't think there is any sign of softwood giving way under these current market conditions.

Our next question comes from Harman Dhatt with RBC Capital Markets.

This is Harman, on for Matt McKellar. I just had a quick question. You noted in the release that you've begun work on certain large-scale mass timber projects as of Q2. Are you able to provide a bit more detail more broadly on the kind of pickup we should expect in manufactured product sales or EBITDA in the next couple of quarters?

Sure, Harman. To give you a sense of magnitude, we have two very large projects. Unfortunately, I wish I was at liberty to disclose the companies involved, but I'm not allowed to mention them. However, we have two significant projects that are currently being produced at the mill. These projects will keep us busy for this quarter for sure. One of them is also going to be built up by the beginning of 2025. We see the order book gaining good momentum, and therefore, we expect very positive results as a consequence. Now one of those projects experienced a minor delay, which means that instead of being a Q1 production project, it has moved to Q2 production. As we're ramping up, that shift creates a gap that we cannot fill up as we would like. That's why our results in Q1 for mass timber were very minimal or almost at breakeven level. However, in Q2, we expect mass timber to perform much better in terms of profitability. For the year, we expect our sales to be almost double compared to the previous year. Last year, our sales were around $60 million, and we're estimating that for 2024, we should be around $100 million to $120 million, give or take, with further sustained levels into 2025. One of the things we're seeing in this market, similar to many trends in the lumber sector, is that despite the interest rates remaining high, we are observing increased interest in projects built on mass timber. A significant amount of interest is coming from developers and architects regarding mass timber. More designs and quotations are being issued for projects involving mass timber than previously. However, many are being put on hold until financing improves for those developers. Therefore, we expect that maybe in 2025, we won't witness as much of an increase as we otherwise would have anticipated until we see a reduction in interest rates. Consequently, we believe there will be a large influx of projects that have been delayed, alongside new ones, creating a surge towards the end of 2025 or into 2026, depending on how interest rates behave. Overall, we do expect very strong growth in this business. When we assess the maturity of our business, we see it reaching a point north of 20% EBITDA when at maturity, as long as we are running at least two shifts in our facilities. So that's the forecast we have, and we are very eager to continue investing in these assets to ensure that all three of them, including the Canadian mill and the two we own in the U.S., remain very cost-competitive.

That concludes today's question-and-answer session. I'd like to turn the call back to Juan Carlos Bueno for closing remarks.

Thank you, Liz. And thanks to all of you for joining our call. Rich and I are available to talk more at any time, so don't hesitate to call either one of us. Otherwise, we look forward to speaking to you again on our next earnings call in August. Bye for now.

This concludes today's conference call. Thank you for participating. You may now disconnect.