Good day and welcome to the CatchMark Timber Trust First Quarter 2019 Earnings Call and Webcast. All participants today will be in listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note today’s event is being recorded.

I would like to turn the conference over to Brian Davis, President and CFO. Please go ahead..

Thank you, Francesca. Good morning and thank you for joining us for a review of CatchMark Timber Trust results for the first quarter of 2019. I’m Brian Davis, President and Chief Financial Officer of CatchMark.

Joining me today on the call are Chief Executive Officer, Jerry Barag; Senior Vice President of Forest Resources, Todd Reitz; and John Rasor, President of our Triple T Joint Venture. During this call, CatchMark 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 2018 annual report on Form 10-K and subsequent reports that we file with SEC. Today’s presentation includes certain non-GAAP financial measures.

Reconciliations of these measurements are included in our earnings release, which is posted on our website and our Form 10-Q filed with SEC yesterday, May 2, 2019. After our presentation Jerry, Todd, John and I will answer any of your questions. Now, I turn over the call to Jerry Barag to cover CatchMark's first quarter 2019 results..

Thanks very much Brian. Good morning, everybody, and thank you for joining us on the call today. I'd like to start off by recognizing the recent promotion of Brian to President adding to his to financial officer responsibilities.

Brian and I've worked closely and extremely successfully together since before the 2013 IPO to launch the Company and propel its growth and success. Brian's proven industry knowledge, financial acumen and management capabilities have been critical and taking us forward. So again, congratulations, Brian.

And I know we both look forward to our ongoing collaboration. At the outset, I want to emphasize that we'll remain very much on plan to meet 2019 guidance and our confident about our progress for the rest of the year. We expect harvest volume and timber sales to meet plan. Timberland sales are also on track to be executed in line with the annual plan.

And our band and acquisition from late last year will have an increasing impact beginning in the second quarter through the balance of the year. In particular, we're confident about our full year harvest volume target provided in guidance, comfortably remaining in the range of between 2.2 million and 2.4 million tons.

The Triple T Joint Venture is also executing the plan, which I will detail later as well as delivering extremely attractive asset management fees. And current cash flow projections continue to support our dividend.

Yesterday, we again declare a cash dividend of $13.5 per share for common shareholders of records as of May 31, 2019 and its payable on June 14th. Now, let's turn to the first quarter 2019 where results delivered in line with expectations.

Looking sequentially comparing fourth quarter 2018 to first quarter 2019, revenues were essentially flat as higher timber sales help offset lower timberland sales. Operating income increased $1.6 million primarily driven by lower expenses. Net loss was reduced by 20% due to decrease GAAP driven losses allocated from Triple T.

Adjusted EBITDA increased 8% primarily as a result of a 6% increased in harvest EBITDA, which was held by an increase in net timber sales and a decrease in expenses.

Timber sales registered a slight increase due to a 9% increased in pulpwood pricing in our superior micro markets from $14 to $15 per ton, and an uptick in delivered wood sales and 78% to 79%, offset by lower harvest volumes. Timberland sales declined 20% off the earlier quarter due to timing.

We sold 400 fewer acres while securing better per acre pricing 8% higher. We continue to be very nimble as always, in moving harvest to take advantage of changing conditions to optimize our performance over time.

In early 2018 conditions and pricing in our micro markets warranted accelerating harvests and we frontloaded activity early in the year to good advantage. For the first quarter 2019, we decided to reduce harvest volumes due to ongoing wet weather conditions and instead look to increase our harvest activity for the balance of the year.

As a result of these decisions, we expected that year-over-year results would be impacted in the first quarter 2019. Now, Brian will take you through year-over-year performance and review with our capital position..

Thank you, Jerry. As Jerry just indicated, given in relative strength, our first quarter 2018 results, we anticipated that revenues and adjusted EBITDA would be lower year-over-year. Results were impacted by the planned reduction in harvest due to lingering wet weather conditions in the U.S.

South and the timing of timberland sales, which were more frontloaded last year in the first quarter and will be more concentrated this year in the second quarter. The impact of lower harvest volume was mitigated by our ability to secure a higher per ton stumpage pricing in our U.S.

South micro market and a significant asset management fee revenues from Triple T. CatchMark's average per ton gross timber sales revenue increased by 5% year-over-year, as we captured higher sawtimber and pulpwood pricing of 6% and 5% respectively in our U.S. South regions.

Once again, our focus on ownership of prime timberland and superior micro market coupled with employing our delivered sales strategy has paid off.

Looking more closely at first quarter performance, CatchMark generated revenues of $22.6 million compared to $24.1 million in the first quarter 2018, incurred a GAAP net loss of $30.4 million compared to $3.4 million in the first quarter of 2018, an increase permanently resulting from a $27.5 million loss from the Triple T joint venture.

Realize adjusted EBITDA of $10.2 million compared to $14.9 million in first quarter 2018, a decrease primarily due to anticipated reduction in the contributions from the highly successful Dawsonville Bluffs joint venture and timing of timberland sales. Produced timber sales volume in the U.S.

South region of 482,000 tons compared to 575,000 ton in first quarter 2018, which were accounted for in or 2019 harvest plant. Realized sawtimber pricing of $24 per time, a 6% increase over first quarter 2018 and pulpwood pricing of $15 per ton, a 5% increase year-over-year.

Realized timber sales revenue $16.6 million compared to $18.7 million in the first quarter 2018, helped by increased per ton pricing year-over-year. Generated $2.8 million in asset management fees, primarily from Triple T, compared to $36,000 in first quarter 2018.

Recognized a $179,000 in income from unconsolidated Dawsonville Bluffs joint venture compared to $1.8 million in first quarter 2018.

Completed Timberland sales of approximately 900 acres for $2.1 million compared to 2,200 acres for $4.3 million in first quarter 2018, and we pay a dividend at $13.5 per share to stockholders of record on March 15, 2019. Overall, we're very pleased that we met plan with no surprises and remain on course for a solid year.

Looking at our balance sheet, at the end of the quarter, we maintain ample quality and flexibility. We had a 165 million available under our debt facilities for new investments and support any working capital needs we may have.

We have no maturities of outstanding debt until late 2024 and the weighted average life of our outstanding debt is nearly 7 years. Last call, we successfully and opportunistically recycle capital through the Southwest disposition, which is facilitated abandoned purchase.

We will continue to be tactical and opportunistic and selectively recycling capital from Timberland sales like Southwest to reduce leverage and further enhance our prime portfolio to future acquisitions.

Our objective is to keep growing, what we believe is the highest quality and most productive Timberland portfolio in industry and produce a sustainable cash flow growth for our shareholders, and any opportunities were pursue are guided by a focus on improving cash per share.

With regard to a $30 million share repurchase program, CatchMark repurchased more than 136,000 shares of its common stock for approximately $1 million in open market transactions during the first quarter. As of the end of the quarter, $17.7 million remain available under the program.

Now, I'm going to turn it over to Todd to provide details on operations..

Thanks, Brian. First quarter concluded very much as we expected, harvest volume was down year-over-year and in line with our guidance and will accelerate in future quarters. Pricing meanwhile was up 5% to 6% and has stayed at these relatively high levels into the second quarter.

A continuation of inclement weather patterns in the southeast has helped drive up pricing across all products and we were able to capitalize through our delivery sales strategy, as well as through opportunistic stumpage sales in our micro markets. Low saw log inventories and solid demand also helped pricing dynamics and offset lower harvest volumes.

Significantly, pricing for all our pine products has remained above TimberMart-South-South-wide Averages. Pacific Northwest productions began as plan in early March and starting in the second quarter will be an increasing contributor over the balance of the year.

Overall, we expect our micro market strategy and delivered wood sales to continue to help us navigate well through market volatility. Customer capacity expansions remain on course in the U.S. South, which should increase market demand.

As weather conditions dry out, which would be expected during the summer months, we anticipate overall market pricing declines from current very robust levels, which should remain modestly higher than starting prices at the beginning of the year for both pulpwood and sawtimber.

As noted earlier, lower year-over-year Timberland sales were a matter of timing and schedule sales will noticeably pick-up by mid-year keeping us very much on plan. We expect $7 million to $9 million in land sales to close during the second quarter and we reaffirm our guidance on timberland sales for the remainder of the year.

Turning to the Dawsonville Bluffs, this has been a very successful finite life joint venture, which we are liquidating ahead of schedule. In its later stages as we monetize the value, it is producing less income from our selling fewer acres.

This year, we expect the venture to meet guidance of $3 million to $5 million of adjusted EBITDA from the sale of HBU land and mitigation credits. Jerry, back to you..

Thank you, Todd. Now turning to Triple T. While still in its early stages, this investment is a very important component of CatchMark's storable income growth strategy and had a very good quarter hitting all budget expectations in addition to producing substantial asset management fees. Operationally, we've met all of our wood sale obligations.

Wet weather created favorable pricing conditions. Quarter-over-quarter increases still in a range from 9.6% to 26% for different products and we capitalized accordingly. The Triple T land sale program started extremely well too, feeding into pent up regional demands.

Looking forward, a new sawmill in Lufkin, Texas should begin operation soon, adding to demand for prime sawtimber and supporting micro market pricing. We made integration of Triple T a priority and we've successfully delivered on that objective with our forest management executing as anticipated.

During the first quarter, acquisition opportunities were scarce and we did not enter into any new transactions. Instead, we strategically focused on integrating and optimizing 2018 investments, both Triple T and Bandon. We're monitoring our investment pipeline and will evaluate market opportunities as they present themselves.

We will continue our discipline in pursuing new transactions including joint ventures, maintaining our focus on the highest quality timberlands in the most liquid markets. So in summary, for the first quarter 2018, there were no surprises in CatchMark's results and we met plan.

Our micro markets positioning and delivered wood sales strategy have enabled us to continue to achieve pricing above South-wide Averages and navigate market volatility. New production capacity continues to come online in our superior markets and should be a net positive for us.

The Triple T joint venture is operating to plan and producing substantial asset management fees as anticipated. New Pacific Northwest operations will increase contributions to results as planned for the balance of the year. Timberland sales are comfortably on track with plan to be completed during the second, third and fourth quarters.

The highly successful Dawsonville Bluffs joint venture is performing as planned and we'll continue to generate earnings as I anticipated through its liquidation. Strategically, we intend to reduce debt further through capital recycling, which will set the stage for near-term growth and improved CAD per share.

We remain disciplined in evaluating acquisitions and joint ventures in prime timberland investments and that will expand our extremely high quality portfolio. And always importantly, we will continue to deliver strong quarterly dividends.

So in conclusion, we're encouraged about the start of the year and believe we're well positioned to deliver on our 2019 guidance.

We're gratified that our operating strategy, disciplined acquisitions, operations in leading markets and superior management to optimize cash flow is serving us well, punctuated by our achieving continued unit price growth above South-wide Averages.

All of us at CatchMark remain fully committed to growing sustainable cash flow and supporting our dividend from the ongoing execution of a clear and focused strategies delivered through operation's excellence. Thank you again for joining us this morning. And now Brian, Todd, John Rasor and I will be pleased to take your questions..

We will now begin the question-and-answer session. [Operator Instructions] The question is from Collin Mings of Raymond James. Please go ahead..

First question for me. Just can you expand on your decision to reduce harvest activity in 1Q given the wet weather? Some peers have seen -- this actually is an opportunity to ratchet up activity given the pricing conditions.

Does kind of your approach here tie back to your focus on delivered sales and supply agreements at all?.

Collin, it's Todd, I appreciate the question. Yes, you look at, a little detail here for you. So, think about the timing of where we are with the Pacific Northwest, holdings in the Southwest. Those were prescheduled knowing that it would be later in the year that they were really going to start to hit an impact our operations.

So really, we're focused on our micro markets in Georgia and South Carolina. Part of what gets lost and we roll everything up is all the moves and the flexibility and nimbleness were able to have in and around those markets.

So, we were able to actually take advantage of the strong marketplace, especially from a stumpage sale aspect of the business, if you will. We ran probably what 80/20 mix, delivered the stumpage sales this quarter. And really the juice we saw added to pricing came from the opportunistic sales that we made.

And you think about does delivered holds you back? And it really does and it positions us from a standpoint obviously, for the long-term, we want to be very consistent, repeatable quarter-over-quarter, not just a one trick pony, if you will.

And so by having that deliberate model and being very consistent in the market, I would actually tell you it probably creates extra opportunities for us. Customers are coming to us for your one stop shop, hey, do you have any tracks we could add? Can we put a producer on you? Those kind of things. And so, we were able to react to that.

And so, while quarter-over-quarter, yes, the volume is wider, it was really planned and anticipated because of the wet whether we were going to have. And additionally, with our fiber supply agreement partners, we've got to stay very consistent in and around that, that program.

And so, where we're going to see some carryover and pricing is from the optimistic sales that really feed into any and all index models that we have. And so, you'll see a continuation of that benefit moving into Q2..

So, specifically, Collin, the opportunity for us tends to be a little bit different than some of the other peers in the sector because of the amount of delivered sales and the fiber supply agreements that we have. And virtually, all the fiber supply agreements provide that pricing is set a quarter in arrears.

And so, we didn't have the same urgency because we're not selling timber on a stumpage model that some of the competitors had because the benefit is really -- we're still working on the portfolio 2018 prices and first quarter 2019 prices, which you accurately portray as being desirable or really going to show up in our numbers in the second quarter..

Got you. Okay. Helpful color there.

So, really two buckets we should think about here is, one, you were more opportunistic to maybe would've otherwise been on stumpage sales given pricing, but recognizing that the main driver for you guys is delivered sales and then that benefit from pricing is really going to be more a 2Q driver?.

Yes..

Okay. All right. And then Todd, in your remarks just in the, as far as the Pacific Northwest and the expectation to ramp volume there. I'm just curious if you can touch on the pricing decline in that region.

And just maybe more specifically, if the expected accretion from the capital recycling planning you announced last August, I think it was about call about $2.5 million EBITDA on average over five years? Is that still hold given the pricing dynamic and then any other again, broader color you can provide on the pricing efficient out there as you look to ramp activity would be helpful?.

Sure, absolutely. So, we closed on that right around in the Q3, Q4 opportunity, there was a little limited to move into the market because as you recall, pricing was way down and stay down in Q4. We wanted to time it to where we expected to see some improvement coming out of fourth quarter into Q1.

Towards the end of that of the first quarter March, we started to see a little bit of an uptick, move some volume in.

And while there's been recently a little bit more of a downturn from where it was at the beginning or say, first part of March, it's not down to a level to where you're at a position, you think, we'll got actually we want to pull out of this and hold off a little bit longer.

We're still feeling good about where we are with the customers we're operating with. Additionally, we've seen some movement in the export market there. It would to help boost up kind of the overall position that we're in.

From a timing moving sales in, your question about it's still contributing at that same level of adjusted EBITDA, we feel very good about where we sit in that regard right now..

And, Collin, this is Brian. It's important to understand that our underwriting wasn’t at peak pricing on that marketplace. And so, when we provided it at accretion number, we had a much more of a normalized expectation regarding over the five year period..

So, prices are down as much as 30% in some cases, and they've down around a little bit. But ultimately, we have a great deal of optimism about the prospects for that market, just given the generally low levels of supply of timber that exists there today.

And once demand picks back up, a little bit out there and that demand could come from domestic production, it could come from export volume. It could come from reorganizing of the demand that was for lumber that was coming out of British Columbia, which is having some issues or continued issues because of the beetle kill.

We think that prices are apt to rebound pretty quickly..

Okay, helpful color there. One last one for me, then I'll turn it over. But just as far as the potential for additional capital recycling, again, couple calls now been highlighting the potential opportunity to recycle some capital bring down leverage here a little bit.

Can you just maybe address more specifically, are there any packages that are you actively marketing? Is that like maybe an update on that process of trying to break down leverage, specifically through asset sales?.

Collin, this is Brian. We're not in a position to announce any transactions at this time. But it's safe to say, we're very focused on this initiative with overriding goal of our program being guided by an accretive CAD per share mindset.

Really, as we think about the application of proceeds, our bias is first to apply the capital against our outstanding debt. That will allow us to remain in position to take advantage of future growth opportunities. And then secondly, inconsistent with our past practices, we will look to be opportunistic with our share repurchase program.

Hopefully that gives you a little bit of color, not the specificity that I'm sure you'd want for your model, but gives you on overwriting them and intensity in which we're working on this project..

Got you. Maybe coming out and it's slightly different, Brian.

Just is there a particular net debt-to-EBITDA type number that you would like to see by year-end?.

Yes, we're targeting something that begins with a 7 by year-end..

The next question comes from Anthony Pettinari of Citi. Please go ahead..

This is actually Randy Toth sitting in for Anthony. Just two quick questions. Can you just talk about your U.S.

South micro markets in a little bit more detail a significant amount of sawmill capacity has come up over the last year or so? I'm curious, if you experience any tightness or meaningful price improvement? Any anecdotes would be helpful there..

So, we talked about a little bit there, so I guess it was in Q4 where we were beginning to see some of the capital would have been placed as mill consumption will beginning to come up. That was really localized because of the number of projects that are out there. They're not all ramping up together.

So, you're not going to see this dramatic timing of the market right off the bat. But what has been very encouraging where we've got areas where the mills have invested their capital, they've started to turn on the production, side of the mill, they're working through all their startup issues.

You have begun to see a greater draw on demand, which is equated to a little bit of price improvement in and around some of these localized areas.

I anticipate as you see more of that throughout the year come on, that will begin to feel that on a little broader range, but still this is going to be a 2020, 2021 really effect before all of that is felt across the entire footprint, if you will. But there some localized tension that we're beginning to see and participate in and capitalize on..

So, Randy, this is Jerry. I can probably categorize that you've had pricing impacts in two major categories. One has been just the wet weather impacts and the weather patterns have been -- it's been wet pretty much across all the U.S. South, but there have been some markets that have been disproportionately impacted by the wet whether Texas.

Eastern Texas would probably be the best example of that. And in the Triple T numbers, we saw that in a big way, I mean, we saw increases in pricing from pulpwood and sawtimber in double-digit numbers and strong double-digit numbers, 25% kind of increases in small sawtimber chip-n-saw kind of prices quarter-over-quarter.

That's not all going to stick through the end of this year or going into the future. That will come off as prior weather takes hold. And there's more operations that go on to access-to-access timber tracks. So, that's one category of where we've seen prices change around. And then as Todd explained, there are areas now in the U.S.

South that have gotten to a significant enough amount of tension from a supply demand standpoint, that we are seeing modest increases in prices as a result of that. And that's really attributable to increase lumber capacity that has come into a discrete number of markets and a discrete number of places.

So our expectation, if you look out through the full year is for the most part, you're going to have a Q1 going into Q2 benefit from wet weather pricing. Some of that will -- some of that or all of that, depending on the market will come back off of the course of the year.

But in the better markets, we expect that the drop offs and pricing that happens over the course of the year will still be higher than where we started the year. So, we'll get a net gain in the better markets like Savannah and Eastern Texas and South Carolina and places like that..

Okay, that's very helpful. And then just one quick question on abandoned property, I know you guys started harvesting there this quarter. I'm just curious.

Were those stumpage sales? Or delivered sales? And do you plan to mirror your delivery wood model in the Northwest as you expand? Any thoughts there?.

Sure, those were delivered sales. We do have some stumpage sales that came over with the transaction. But ideally, we would focus on delivered programs there in order to time to market better..

The next question comes from Dave Rodgers of Baird. Please go ahead..

Jerry, maybe just a follow-up on the acquisitions and understand that you guys are taking a little bit of a pause, but any more color you can kind of give to the market? Or you just not seeing enough attractive opportunities? Was it the wrong sizes for you? Do you anticipate that pipeline to get bigger as the year progresses? Any more color would be helpful..

Sure Dave. So the markets have kind of taken a bit of a pause for a lot of different reasons. Although, as we've talked about in prior calls, and for some time now, they're still is a backdrop and that a lot of timberland still needs to come to the market, and still needs to be sold as a result of those expiring institutional funds.

Now, last year, and Triple T or Triple T property would have been a big part of it was a very robust year in terms of transaction volume. But it was clear to most people are most participants in the market, that as a seller of property, except in the Pacific Northwest, there really wasn't tailwinds behind prices on timberland sales.

And then when you have the drop off in product prices on timber prices in the Pacific Northwest, that started last year, although sudden became less desirable to sell property out there because I think people have resize their expectations for what prices and growth in prices would be out in the Pacific Northwest.

So the attitude around sellers is while there was liquidity, there was reduced liquidity and there's significant amount of reduced liquidity because for all practical purposes, all of the public companies ourselves included, saw a downdraft in our share prices.

And just from a practical standpoint, we find it less desirable as does everybody in the sector to go invest in property when our own effective properties are trading at such a discount to NAV. So when you pull that amount of capital out of the sector and the liquidity, there's not great pressure for overall prices to go up, there just isn't.

And I think sellers recognize that and they're being very deliberative about what they want to force into this marketplace at this time, understanding that it doesn't have great liquidity, especially when the public companies are realistically not active buyers of Timberland in this market..

Thanks for the color on that, Jerry. And then maybe just two quick, one for Todd and one for Brian.

Todd, I think you guys mentioned lower expenses several times? Is that just harvesting from a fewer number of parcels? Or do you contemplate that they extend to there's just more efficiency and that'll continue? And then Brian, for you just the timing on the $3 million to $5 million at Dawsonville? Thanks..

Sure. From a logging perspective, obviously, you've got a little bit lower this year-over-year because of the amount of volume, but we've been able to manage distance in haul rate rights, if you will, such that it's not, there'll be a climbing component of what we're having to look at.

So that's helped to reduce where we were overall from an expense standpoint if you from a cut off side of things. From just day in and day out management of the forest, we've just been very prudent about where we're placing our capital and as far as your reforestation needs and those kind of activities, yes..

Dave, this is Brian. As relates to timing for Dawsonville Bluffs that looks more like a as we sit here today, more of a third quarter event for us where we're going to accrue most of our EBITDA through land sales..

The next question is a follow-up from Collin Mings with Raymond James. Please go ahead..

I just want to go back to the kind of the timberland, the market question and the environment you're seeing there.

I'm just curious, specifically, Jerry, just the opportunities you might be seeing to grow the asset management part of the business, again particularly maybe without committing significant capital? Clearly, that continues to be more challenges associated with the traditional chemo model.

I know obviously you guys have executed on two different, two clearly vastly different venture opportunities at this point. But I'm just curious as you think about kind of a strategic focus on growing that asset management business, what you might be seeing..

Yes, I mean, there is a significant opportunity. And I believe that a big part of that opportunity is compatible with the way that we will to execute on the asset management business, which is to co-invest and align interests with institutional owners in one way shape or form.

There actually are different opportunities and instances where we might be able to just take over asset management of existing assets or existing properties from institutional Timberland owners. But we've been a little bit reluctant to go down that route where we're just acting as a peer manager. And I think we assess that all the time.

And some of the opportunities may be large enough and significant enough to it'd make sense for us to do that. But again, I mean, we are in general, a small company. I mean, we still have less than 30 employees here.

And we're very mindful about how we spread out the intellectual capital that we have as a firm among assets that we don't have financial interest in..

[Operator Instructions] There is no question at the moment. This concludes our question and answer session. I'd like to turn the conference back over to Jerry Barag for any closing remarks..

Thank you, Francesca. Again, I appreciate everybody joining us for today's call. We continue hard at work and we hope to see you again and in 90 days..

The conference call has now concluded. Thank you for attending today's presentation. You may now disconnect..