Potlatchdeltic Corp (PCH) 2012 Q2 法說會逐字稿

Good morning. My name is Jody, and I will be your conference operator today. At this time, I would like to welcome everyone to the Potlatch second-quarter 2012 earnings conference call featuring Eric Cremers, Executive Vice President and Chief Financial Officer; and Michael Covey, Chairman, President and Chief Executive Officer for Potlatch Corporation. All lines have been placed on mute to prevent any background noise. After the speakers remarks, there will be a question-and-answer session.

(Operator Instructions)

Thank you. I would now like to turn the call over to Mr. Eric Cremers for opening remarks. Sir, you may proceed.

Thank you, and good morning. Welcome to Potlatch's investor teleconference covering our second-quarter 2012 earnings. Before we begin, let me remind you that this call may contain forward-looking statements with regard to our business and operations. Please review the warning statements in our press release, on the presentation slides and in our filings with the SEC concerning the risks associated with these forward-looking statements.

Also, please note that segment information, as well as a reconciliation of non-GAAP measures, can be found on our website, www.PotlatchCorp.com, as part of the webcast for this call. I would now like to turn the call over to Mike Covey, our Chairman and CEO, who will make some introductory remarks, and then I will review our second-quarter results in more detail. Mike?

Thanks Eric. Good morning. We are pleased to report second-quarter results that have exceeded our expectations. In our Resource business, we experienced modestly higher sawlog prices compared to the first quarter, and we expect prices to continue to increase in Q3. Our Wood Products segment considerably outperformed our expectations posting its highest operating income in over five years. Much improved lumber and plywood prices in Q2 justified increased production levels in order to capitalize on pricing and margin opportunities. Our Real Estate segment continued to be a solid performer in the second quarter of this year, with consistent demand for rural, recreational, HBU real estate, especially when excluding the impact of two significant land sales in the second quarter of 2011. In total, our quarterly and year-to-date results were stronger than anticipated.

Our outlook for the near term continues to be favorable as we believe we are in the very early phases of a wood products recovery evidenced by recent pricing gains. Pricing and demand are improving for a wide variety of the reasons including low inventory -- low levels of inventory found throughout the supply chain, strong industrial and commercial markets, firm repair and remodel markets, as well as solid year-over-year improvement in new home construction, though still low by historical measures. June's US annualized new housing starts increased 7% to 760,000 units, the highest level since October of 2008. Over the long-term, we believe continuing Chinese demand, higher US lumber manufacturing capacity utilization and diminished Canadian harvest will result in improved market conditions and profitability for Potlatch. While optimistic, we remain patient and will wait for sustainable sawlog market improvements before increasing our harvest levels.

As discussed on previous calls, we are currently managing harvest levels considerably below sustainable rates. In the current sawlog pricing environment, it is our advantage to protect our greatest financial asset, our timber, by continuing to grow our forest and defer harvesting in order to capture the upside of better pricing in the future. We believe sawlog prices will continue to advance over the coming 18 to 24 months as the US housing market continues to recover. A continuation of the recent improvement in the wood products industry is critical, as it is a prerequisite for the return of stronger sawlog pricing, and thus, resource profitability. Our very mature forest profile will eventually result in higher harvest levels, which is completely within our control. When coupled with what we believe will be higher sawlog prices over the next couple of years, the company's cash flow should significantly improve.

Finally, the recent Forest Capital sale to Hancock and the Molpus Woodlands Group confirmed investor interest in the long-term outlook for the Timber Asset class. I'll now turn the call over to Eric to discuss the quarter, and then, we'll take questions.

Well, thanks, Mike. As shown on page 3 of the slides accompanying this presentation, we reported second-quarter 2012 net income of $5.1 million, or $0.13 per diluted share. This compares to net income of $8.4 million, or $0.21 per diluted share, for the second quarter of 2011, and net income of $5.1 million or $0.13 per diluted share for the first quarter of this year.

I'd now like to review our second-quarter results broken down by segment. Slide 4 exhibits operating income and margin trends in our Resource segment. Operating income was a $6.7 million for the quarter, which compares to $7.5 million in last year's second quarter and $8.7 million from the prior quarter. The second quarter is typically our weakest quarter due to seasonality. The variance from Q2 of 2011 is caused by decreased harvest volume consistent with our previously announced harvest deferral, primarily in Arkansas where sawlog and pulpwood pricing remains unfavorable.

Page 5 reviews volume and pricing trends for the Northern region of our Resource business. Comparing Q2 of this year to Q2 of last year, sawlog volume increased 9%, which is attributed to unusually wet weather experienced in Q2 of last year that delayed logging activity. Sawlog prices declined 2% year over year, driven by a modest product mix shift with less cedar being harvested in this year's Q2. Comparing to Q1 of this year, sawlog harvest volume fell 26% due to normal seasonality, while pricing is up 6%, driven by strong customer demand and the fact that roughly 65% of our sawlog prices in the Northern region are tied to the lumber prices, which have been strong. Turning to pulpwood, comparing the current quarter to last year's second quarter, harvest volume and pricing are up 37% and 15%, respectively. The increased harvest volume is again due to improved logging conditions experienced during Q2 of 2012, whereas pricing was bolstered by increased demand, particularly in Idaho. Comparing Q2 and Q1 of 2012, pulpwood harvest volume declined 49% due to normal seasonality, while prices held steady.

Page 6 displays volume and pricing trends in the Southern region of our Resource business. Comparing Q2 of 2012 to the prior year's second quarter, sawlog harvest volume and pricing declined 23% and 4%, respectively. The lower harvest volume is directly related to our planned harvest deferral, and the reduced pricing is due to depressed demand. Comparing Q2 to Q1 of this year, sawlog harvest volume declined 6%, but we realized a 5% price increase. The lower harvest volume is again a result of the ongoing execution of our harvest deferral plan. The increase in pricing was created by a shift in product mix in order to capture better hardwood sawlog pricing as Southern pine sawlog markets remain under pressure.

In regard to pulpwood in the Southern region, our harvest volume declined 15% compared to Q2 of last year due to the harvest deferral. Comparing Q2 of this year to Q1, pulpwood harvest volume increased 19% caused by adverse weather conditions that shifted planned first-quarter harvesting activities into the second quarter. Southern region pulpwood pricing in Q2 increased 6% over Q2 of 2011 and 4% over the prior quarter, driven by strong customer demand. Considering our Resource segment overall, Q2 harvest volumes were consistent with expectations, and we are on track with our plan to harvest 3.5 million tons for the year. We experienced slight pricing gains for the quarter and expect continued improvements into the third quarter as strong wood products prices eventually translate into higher sawlog prices.

Next, I'd like to review our Real Estate business. As shown on page 7, our Real Estate segment produced $8.7 million of revenue in the second quarter, which compares to revenue of $19 million in last year's second-quarter and $8.2 million in the first quarter of 2012. Notably, included in last year's second-quarter results are two significant transactions in Idaho. The first being the second phase of a non-strategic rural real estate sale, as well as another non-strategic timberland sale. Together, the transactions accounted for over $14.3 million of revenues in that quarter.

Slide 8 displays operating income trends our Real Estate segment, which generated operating income of $6.7 million during the quarter, which compares to $11 million in last year's second-quarter and $6.3 million in the first quarter. Page 9 highlights our real estate acres sold by product type. We continue to see steady interest in our rural recreational and HBU properties. For the quarter, we closed 55 real estate transactions, which is above our average quarterly transaction count but is also consistent with trends indicating the second quarter to be a particularly active quarter. We attribute this above average level of activity to seasonal weather conditions. Page 10 highlights price trends for our Real Estate business, summarized by product type. Prices continue to be stable, particularly in regard to rural recreational and HBU real estate, as well as consistent with prior results. Finally, we continue to see firm demand for non-strategic timberland from the TMOs.

Page 11 highlights our Wood Products segment's operating income and margin trends, which exceeded expectations in posting operating income of $11.7 million for the quarter, compared to $2.8 million in last year's second quarter and $5 million for the first quarter of 2012. Page 12 highlights lumber price and volume trends in our Wood Products segment. We experienced strong wood products pricing driven by a higher demand during the quarter that ultimately resulted in our lumber prices improving 15% over Q1 and 17% over last year's second quarter.

Shipments increased 1% over Q1, but are up 13% over Q2 of 2011 when we began to push our mills harder for additional volume. We ran additional sawmill hours in Q2 compared to both prior periods in order to take advantage of strong lumber and plywood margins, and we continue to look for opportunities for additional production, whether through modest capital expenditures, incremental overtime hours at the mills or operating-efficiency improvements.

Returning to page 3 of our supplemental materials, corporate administration costs were $9.2 million for the quarter, compared to $8.3 million last quarter and $5.9 million in last year's second quarter. The year-over-year increase was caused by $1.5 million in increased pension expense, as well as a non-cash, mark-to-market adjustment associated with our deferred compensation plans, which accounted for $1.5 million of the increase between periods. Because the deferred compensation plan liability is tied to our stock price, during the second quarter of 2011 we recognized a $1.2-million benefit, whereas in the current quarter we recognized a charge of $300,000. The increase in our book tax provision over both prior periods is attributed to higher earnings and our taxable REIT subsidiary, generated by increased Wood Products earnings.

Our balance sheet is strong, coming out of our seasonally weakest quarter with $50 million in cash and short-term investments and an undrawn $150 million revolver accompanied by a $100 million accordion. Furthermore, our debt-to-capital ratio stands at 56% as calculated per our credit agreement, and today we have a net debt to enterprise value of just 17%. We paid off $5 million of debt maturities during the quarter and have paid off $22 million year to date with cash on hand, and our next debt maturity is not until August of next year, and even then, it is only $8 million.

As covered during Mike's opening comments, we are well-situated for continued recovery of US housing starts, which is now underway yet still far from its potential. Our strategic course remains the same from our last two calls. As previously mentioned, we expect to harvest approximately 3.5 million tons for the year as we await better pricing and stronger demand before increasing harvest levels. The positive indicators displayed by the wood products market during the quarter are extremely encouraging, as it is essential that wood products see improved pricing and become more profitable before we can expect to see meaningful increases in sawlog prices. Higher prices will, of course, prompt us to increase our harvest levels, which has the potential to dramatically improve the company's cash flows and is a key part to our plan. We consider pricing improvement to come in time as most demand indicators continue to be positive for the industry. Based on these factors, we expect sawlog pricing gains realized during the quarter to continue into the third quarter as the incremental profitability achieved in wood products manufacturing steadily finds its way back to the stump.

In regard to our Wood Products segment, we anticipate third-quarter results will be strong, though not quite as strong as in Q2. Compared to Q2, lumber and plywood prices are expected to be modestly lower and sawlog costs modestly higher, which together will pressure Wood Products' margins somewhat. Though it is early to say, we expect seasonal weakness in Q4 for Wood Products, though we still expect the segment to be profitable.

Finally, in Real Estate, consistent with our previously announced plans, we expect to sell toward the high end of our 20,000 to 25,000 acre range for the year, with perhaps 3,000 to 4,000 acres sold in Q3 and about 9,000 acres sold in Q4. In addition, we expect land basis to be a little higher than year to date, averaging around 15% in Q3 and perhaps 25% in Q4. Jody, I would now like to open up the call to Q and A.

(Operator Instructions)

Gail Glazerman, UBS

Good morning. I guess just starting -- you're talking about trying to find ways to ramp up your lumber production. I'm wondering, as you look at your customer base, are you seeing signs that they are doing the same? What you are seeing in terms of volume outlook relative to, well, the fairly attractive pricing that is currently out there?

What I can tell you, Gail -- this is Eric.

In our own mills, we're pushing them pretty hard right now. I don't know that there is a lot more room for us to increase production levels from where we are at without taking extraordinary steps like putting on incremental shifts, which we have taken in some of our mills. We have taken that step, but not in all of our mills. So, I don't expect higher production levels from where we are at today.

Okay, but are there signs that your customers, your log customers, are starting to ramp up as well?

I think that there is some evidence of that, but I would not say that it is widespread. I think that, generally speaking, most mills continue to operate a levels where they have been, with few exceptions. So, while we are starting to see little bit stronger log pricing, but not a lot of pull-through caused by higher customer demand in terms of log customers. You can certainly point to the South to see that log prices throughout the South remain pretty stagnant, which I think reflects fairly weak overall demand, still.

Yes, I think, Gail, this get -- to that question, inventories at mill levels remained at relatively low levels. But we have not seen -- well, supply and demand seem to be fairly well in balance at this stage. So, it doesn't seem like customers are anxiously putting on additional volume.

Okay, and switching gears a little bit -- Mike, you referenced the Forest Capital deal. I was wondering if you could give a little bit more color? Press reports have estimated a value of somewhere in the neighborhood of $2.5 billion, which strikes me as a little bit low, given how much of the acreage was in the Northwest. I'm just wondering if you could give a little bit of color? And also, if it has any implications for the pot of cash that TMOs have had to deploy moving forward; if you think this takes away a fair chunk of that or if there is still a fair amount out there?

Well, there's something in the order of 25 TMOs operating in the US today, and this transaction only involved two of those. So, I think that there's still a lot of TMOs, and we have dialogue with many of them on a regular basis. We still have money to invest in the broadly $50 million to $200 million range.

This is the largest transaction that has been announced in several years on the Forest Capital sale. We have no idea about the details regarding price other than the public information about acreage. But I think the broader takeaway is, I think it still shows that timber has been an attractive asset class. I have seen Forest Capital sold because they did well with the investment and their investors were happy. I think it has been redeployed into the same asset, and that is encouraging for those of us that are in their space.

Okay. Just one last question.

Eric, can you give a little more specific color of what you are looking for in terms of harvest activity in the third quarter?

In terms of volume or in terms of pricing?

Volume, and if you can be a little bit more specific on pricing that would be great, as well.

Yes. As I mentioned, we've got about 2.1 million tons left to go in the year. We will get about 1.2 million of that in the third quarter and the remainder in the fourth quarter. And the skew will be about 900,000 tons in the Northern region and about 300,000 to 400,000 tons in the Southern region.

With regard to sawlog pricing, we expect to see improvements, as I mentioned in the call script, in Q3 in both the North and the South. Probably in the range of, I guess, 6% to 8% is the best way to characterize it. We are seeing it in the South, really not because the Southern yellow pine log prices have improved; really because it is more of a mix shift to hardwood and sawlog volumes. So, that is kind of our outlook for the third quarter.

Okay. Thanks very much.

Mike Roxland, Bank of America.

Thanks very much. Congrats on a good quarter.

You mentioned on the last call that harvesting costs in Idaho would be higher in 3Q and 4Q as you are going to [experience] steeper terrains. On order of magnitude, what will be the impact in harvesting costs between 3Q and 2Q based on your planned harvest, or even on the year-over-year basis given that you [pre-ordered] harvesting for steep terrain in 3Q 2011?

Good question, Mike. At the start of the year, we indicated that we expected logging costs in Idaho to increase about $2 a ton over the prior year, largely due to the steeper terrain. We have done some competitive bidding. We have seen fuel costs moderate. We have not seen quite as much of line harvesting as opposed to ground or skid-based harvesting. So, we actually think it is not going to be a $2 per ton increase for the year, but really about $1 a ton is what we are looking at. And, again, that is just in Idaho. That's not overall.

Got you. And that $1 a ton -- that was $1 a ton 2012 versus 2011, full-year basis?

Correct. Back half of the year.

Okay, got you.

Then, just quickly -- can you just provide us a little more color on conditions in the South at the present? We have been hearing the recent wet weather has impacted logging conditions to some degree and allowed prices to move higher as a result. So, I just wanted to get some additional color there.

To be more specific, our ownership is in the south Arkansas, north Louisiana area. The drought conditions persist, other than the occasional thunderstorm throughout the central US South, and conditions really have not changed. The wet weather that may have been experienced in the Gulf and other places hasn't made its way to the central US South. So, conditions still remain favorable to logging. That is why we have shifted our mix to more hardwood where we can capture better pricing.

Got you. Thanks. Good luck in the quarter.

Thanks.

Chip Dillon, Vertical Research Partners.

Good morning.

Question is on the tax rate. It looks like -- and Eric, maybe give us some color -- that you may have had a little catch up because it seems to be unusually high, even factoring in the enormous improvement in the Wood Products non-REIT business. Could you give us a little color on that?

Well, the tax provision -- I don't think it was a catch up, Chip. The tax provision comes out of earnings in the TRS. There's a lot of different items that make up the TRS. It is not just Wood Products. We also have real estate sales that come out of the TRS.

I don't know the exact split off the top of my head, but if we had $6.7 million of operating income in the Real Estate segment for the quarter, some of that was in the TRS. So, you have to add that to Wood Products earnings to get you your operating earnings. Then, you have got to subtract out interest expense. So, it was not a catch up. It was due to true earnings in the TRS.

Got you.

Then, as we look at the land sale program -- I know it's a little bit early, but should we still be looking for around 20,000 to 25,000 acres again in 2013? Or, how should we see 2013, 2014? What would be kind of a range that we should use?

You know, we have not given any guidance yet on 2013 land sales, Chip. But, I would expect it to be maybe at the lower end of that, or maybe even a little bit less than 20,000 acres. But, it is early to say. We normally announce our plans for the year when we release fourth-quarter results in February.

Got you, okay.

Then the last thing is, when I look at the returns you got in Wood Products business, if you annualize it, it is about $50 million almost on a EBIT basis, which just going back in time, it seems like at these prices you would not have expected it to be that strong. So, this is obviously a very good performance.

And I did not know if there was anything either from lumber futures, or maybe it's just the fact that you have a lower break-even point than you did back before the company split up in '09 -- '08-'09. Could you give us some color on that?

Yes, I think the cost curve has shifted down, certainly for us. I think the facilities -- we have closed or sold three facilities in the last three years. And I think what remains is a really strong group of operating facilities both in lumber and in plywood. We are still a significant lumber producer, a top-10 lumber producer in the US with good costs.

I think the other thing you are seeing across the country is log costs; with the exceptions of those really the West, remain quite low around the country. I think that reflects the fact, the reason, that we have not yet decided to increase harvest levels. Log costs remain low, and we expected the Wood Products business to capture these kind of outsized margins for a period of time. But as Eric mentioned in the call script, that economic performance in the Wood Products sector will eventually be lost to the people that own the timber, and timber prices will go up

Thank you. Oh, go ahead.

I was going to say before we lose you, just on your tax question earlier -- just as a reminder, we are still carrying NOLs in our TRS. So, even though we are showing a book tax provision, we are not actually cash-paying taxes at this stage.

Got you. Okay.

Not to pick on this, but while you brought it up again, if I think about simplistically Real Estate and Wood earnings $17 million, and I take away interest, that gets you then to $12 million. $5.7 million, even if you give no allocation of corporate expense, would still seem to be above the corporate tax rate. So maybe, I don't know if there's more going on besides that. Maybe some of the resource income could be non-REIT for all I know.

It is really that not all of the interest expense is in the TRS. The high yield bonds that we issued a couple of years ago, that is at the REIT level.

Got you. Okay. Thank you for that clarification.

Sure.

Joe Stivaletti, Goldman Sachs.

I know you touched on this a little bit earlier -- trying to see what kind of supply response you are seeing on the Wood Product side with these higher prices. I think you addressed that in your case you have not been really been adding shifts or doing anything major, but I'm just wondering. Your outlook sounds pretty positive.

How do you get comfortable that producers are going to act rationally? Do have much in the way of a concern that some of your competitors will start bringing facilities back on line? Or do you think it takes a much higher price level for that to start happening? I just want to get your perspective on that.

We are not going to comment on either pricing or operating levels for competitors and other people. I think we are comfortable in the areas where we operate that, as we mentioned, we are running overtime in mills where it makes sense, and we have attractive margins and we'll continue to do that as long as our customers continue to want product. And, we feel we are really well-positioned with a good customer base that is very diverse both in construction lumber, dimensional lumber, and industrial plywood. I think we feel pretty strong that regardless of what the industry response is to more attractive markets, that we're going to do pretty well with our customer base.

Okay.

Joshua Barber, Stifel Nicolaus.

Good morning. Most of my questions have been asked and answered already.

I am just wondering if you could expand a little bit more on the direct relationship that you mentioned between the lumber prices and log prices? How much of the total harvest does that cover? And, how much of the total harvest that you expect for the third quarter would that be covering?

Josh, I think we've indicated on previous calls, roughly 50% of our sawlog harvest volume across the company is indexed to the price of lumber. But if you break it out between the North and the South, really the indexing is in the Northern segment. And that is roughly 65% of our harvest volume is indexed to the price of lumber in the Northern segment. So, if you took take a look at, say, in the third quarter, where we expect to harvest around 800,000 tons of sawlogs, roughly 65% of that 800,000 is going to be indexed to the price of lumber.

I think that one thing that is interesting to note is that we have been experiencing pricing gains similar to our index customers away from outside-of-the-index customers that we have. So, the pricing gains that we're seeing, it's not just with our index customers. It's with other customers, as well.

And the lumber prices that, that uses, is that a one-month trailing? Is that an average of local regional prices? What sort of prices are going to be used for that?

We won't get into all of the details because these are proprietary customer contracts. But what I tell you is that one contract has got a one-quarter lag of regional pricing, and the other contract has got a one-month lag in its regional and national pricing.

Okay, that's helpful. Thanks. One last question going back to the Hancock deal.

I know you may not have specifics on what the Idaho acres specifically went for. But could that affect your bank line at all, based on the appraisal on those particular things? Or, could it help you on the bank line if there are some comps that come in above where your appraisal is for those particular acres in Idaho?

Yes, Josh. It won't have any impact on our bank line whatsoever. The fellow that does the appraisal for us -- we do it once a year; he did it earlier this year, and prices were up 2.5% over the prior year. He will appraise them again next spring. And it is all based upon the harvest volumes and anticipated pricing. If anything, things have moved up from where they were earlier this year. So, I don't expect it to have any impact whatsoever.

Great, thank you very much.

Steve Chercover, D.A. Davidson

Thanks. Good morning.

I also had a question with respect to the Forest Capital deal. Are you aware of any changes in fiber flows that might have happened by virtue of the change of ownership?

No. We have no idea about what Forest Capital may have structured with the purchasers.

Okay. It sounds like sawmill residual prices are falling, particularly in the Pacific Northwest. Can you quantify for us how much they might benefit you on a quarterly or annual basis?

Clarify that? What do you --

Like chips --

How would falling prices benefit us?

No, I don't think they would benefit you. I'm saying over the course of the year, are you getting $10 million a year in chip sales? That's what I meant by benefit.

We only have the two facilities in Idaho that manufacture wood chips. And that is the plywood plant and a sawmill. Plus, we also do chipping of logs that we sell to third parties, to other paper customers. But the movement in chip prices that we have experienced over the last quarter are not a meaningful change to our bottom line in any way.

In fact if you look at it, Steve, on the pulpwood side, coming out of the forest, prices have basically been flat the last three quarters, and they're expected to dip a little bit in the third quarter, but not meaningfully. We don't make a whole lot of money off of pulpwood in the Northern region anyway. So, it is not a big impact to us.

Okay thanks. And one last question. I know that you were unsuccessful in a couple of land acquisitions. Are you still trying to buy land in size?

Yes, we continue to have an active due diligence process to look at transactions there, parcels that come to the market. As we have said before, the ones that are in our operating area that we can append to our current operations. But we have been outbid in a couple of transactions this year by TMOs, and I think that reflects their aggressive nature in terms of putting funds to work. The fact that I think in most cases they look through the cycle that we have been in and look to stronger pricing in the future. So, we'll continue to compete, and hopefully we can grow the acreage base for the Company.

Very good. Thanks for taking my questions.

You bet.

(Operator Instructions)

Joshua Zaret, Longbow Research.

Thank you. First I want a clarification on one of the answers from Eric.

You mentioned that you thought, you projected, that sawlog prices in the North and the South would be up 6% to 8% quarter over quarter. The question is, is that quarter over quarter or year over year?

That is quarter over quarter.

Quarter over quarter.

And then the question of mix. You are cutting more hardwood. When we look at your prices quarter to quarter in the second quarter, clearly it was higher than all the averages. So, I assume mix was an issue in the second quarter, and will be an issue the third quarter. Is that correct?

That is correct.

So then, when does the mix turn around? Is it just going to be a six-month kind of thing because of weather conditions, and then, we'll see you revert back to sort of a normal mix? Is that what is happening now?

Well, we can't predict the weather. I don't know how long it will last. But, certainly, the shift to hardwoods has been because the opportunity has presented itself because of the weather. As long as we can capture that, we will do that. But, of course, over time in the South, when we begin to raise our harvest levels, most of that harvest deferral that we have executed -- it's several hundred thousand tons of pine sawlogs. So, that in itself will dramatically shift the mix back to pine.

Right, so what percent of the mix now is -- and I assume that we're talking sawlogs here, for the furniture trade or whatever? What percent of your mix right now is hardwood on the log side?

The second quarter was around 5%.

5%, okay. So, it's not that big a deal right now. Okay. So, let me shift some questions. That answers that.

CapEx. You are running --I believe you projected, $20 million for the year. Is that still a good number? You are running below that at this point?

Yes, Josh. It is in the $15 million to $20 million range, and if I had to pick a number, I would probably say $18 million.

Okay. Let me ask you this question -- have you seen any affect from the fact that the North American Softwood Lumber Agreement has hit its trigger point? Are you seeing any increase in Canadian lumber in any of your markets?

Not to any meaningful degree, and we compete all along the Canadian border, especially in the lake states. I think that is a reflection that Canada has been successful in developing markets in China and other places. The fact that the tariff went off for a month or two has just not had a meaningful effect on supply.

Thank you for answering the next part of the question. Great, thanks.

And, the last question -- you said there is firm demand for your non-strategic timberland. I guess my understanding is, you are down to 10,000 acres, maybe 15,000 acres left in non-strategic. Is there any chance you are going to re-look at your land, re-appraise it and come up with more in your bucket per non-strategic?

That is a constant process of looking at every acre that we own and trying to decide what its highest and best use is. For most of our acreage, we think that is timber, but that can change as demand changes over time. But as we have said, we were down to around 15,000 acres of non-strategic land at the start of the year, and we continue to try to sell that. We may develop and identify different parcels over time. But, that is the bulk of what we have left.

Okay. Well, thank you very much.

You're welcome.

At this time, there are no further questions. I will now turn the call back over to Mike and Eric for closing remarks.

There is no closing remarks. Thank you all for your attention. We will talk to you next quarter.

Thank you. That concludes today's conference call. You may now disconnect.