Earnings call: Mercer International faces mixed Q2 results amid market shifts

Mercer International Inc. (NASDAQ:), a prominent player in the pulp and lumber industry, reported mixed results for the second quarter of 2024. The company’s EBITDA saw a significant decrease to $30 million from $64 million in the previous quarter, primarily due to planned maintenance at two of its mills. Despite this, Mercer International experienced an uptick in pulp sales realizations as pulp prices rose across all major markets. However, pulp sales volumes dropped, and lumber pricing remained weak. Mercer International also recognized a noncash goodwill impairment charge related to its Torgau facility. Looking ahead, the company expects lumber prices to remain flat and is focusing on debt reduction and operational improvements through strategic capital projects.

Key Takeaways

• Mercer International’s EBITDA fell to $30 million in Q2 from $64 million in Q1.
• The decrease in EBITDA was largely due to maintenance downtime at two mills, impacting results by about $60 million.
• Pulp sales realizations improved, with the North American NBSK list price averaging $1,697 per tonne, a $257 increase from Q1.
• Pulp sales volumes decreased to 433,000 tonnes due to maintenance downtime and the divestment of the Cariboo mill.
• Mercer International recorded a $34 million noncash goodwill impairment for the Torgau facility.
• The company is prioritizing debt reduction and expects flat lumber prices in the upcoming quarter.
• Strategic capital projects are underway to reduce fiber costs and enhance operations.
• The mass timber business, representing 35% of North American production capacity, is expected to grow and has been EBITDA positive since Q4 of the previous year.

Company Outlook

• Mercer International anticipates modest downward pressure on pulp prices in Q3 due to seasonal paper demand.
• The company’s solid wood segment saw improved mass timber sales, balancing lower lumber prices.
• Strategic capital projects at Torgau and Spokane mills aim to improve efficiency and reduce fiber costs.
• The company is exploring sustainable alternatives to fossil fuels and remains committed to its 2030 carbon reduction goals.

Bearish Highlights

• Lumber pricing remains weak, with the Random Lengths U.S. benchmark at $386 per thousand board feet.
• The shipping pallet market, especially in Germany, continues to show weakness.
• Economic struggles in Germany are causing a lag in the recovery of the construction sector and lumber prices.

Bullish Highlights

• The pulp market is improving, driven by increased demand from European paper and tissue producers and supply challenges.
• Mercer’s mass timber order file stands at $55 million, with expectations of short-term demand improvement.
• The company’s mass timber business has been EBITDA positive since Q4 of the previous year and is projected to grow strongly in 2024.

Misses

• A noncash goodwill impairment of $34 million was recognized due to ongoing weakness in the European lumber, pallet, and biofuel markets.
• Pulp sales volumes saw a decrease, impacted by maintenance downtime and mill divestment.

Q&A Highlights

• Juan Carlos Bueno commented on the economic challenges in Germany, noting a slower recovery than the rest of Europe, especially in construction.
• The company discussed the ongoing sale of Santanol and the positive outlook for the mass timber business, aiming for EBITDA margins between 10% and 20%.
• Plans to expand the mass timber business include adding more shifts and utilizing installed capacity to increase margins.

InvestingPro Insights

Mercer International Inc. (MERC) is navigating a challenging economic landscape, as reflected in their recent financial performance. The company’s strategic focus on operational improvements and debt reduction is critical, especially considering the financial metrics and analyst projections.

InvestingPro Data indicates that Mercer’s market capitalization stands at $439.2 million, with a negative P/E ratio of -1.99, suggesting that the company is not currently generating a profit. The revenue for the last twelve months as of Q1 2024 was reported at $2024.61 million, demonstrating a decline of 8.42% from the previous period. This contraction in revenue aligns with the downturn in pulp sales volumes and weak lumber pricing noted in the article.

Two InvestingPro Tips that are particularly relevant to Mercer’s situation include the company’s significant debt burden and its analysts’ expectations of continued unprofitability for the current year. These insights are crucial for investors considering Mercer’s stock, as they highlight the financial pressures the company faces and the cautious outlook from market experts.

For those seeking a deeper analysis, InvestingPro offers additional insights on Mercer International. There are currently 9 more tips available on InvestingPro, providing a comprehensive view of the company’s financial health and future prospects. These tips can be accessed through InvestingPro’s dedicated page for Mercer International at https://www.investing.com/pro/MERC, offering valuable guidance for investors making informed decisions in a volatile market.

Full transcript – Mercer International Inc (MERC) Q2 2024:

Operator: Good morning, and welcome to Mercer International’s Second Quarter 2024 Earnings Conference Call. On the call today is Juan Carlos Bueno, President and Chief Executive Officer of Mercer International; and Robert Short, CFO and Secretary. I will now hand the call over to Richard Short.

Richard Short: Good morning, everyone. Thanks for joining us today. I will begin by touching on the financial and operating highlights of the second quarter before turning the call over to Juan Carlos to provide further color into the markets, our operations, and our strategic initiatives. Also for you that have joined the call today 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 be making 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 totaled $30 million compared to Q1’s EBITDA of $64 million. The lower results were driven by 37 days of planned major maintenance downtime split between two mills compared to no downtime in Q1. We estimate the planned downtime adversely impacted our EBITDA by approximately $60 million. After adjusting for the planned maintenance downtime impact, the improved operating results were primarily driven by higher pulp sales realizations. Our pulp segment contributed quarterly EBITDA of $32 million and our Solid Wood segment contributed quarterly EBITDA of $3 million. You can find additional segment disclosures in our Form 10-Q, which can be found on our website and the SECs. Strong demand for pulp in Q2, combined with softwood supply interruptions in Finland, pushed prices higher than Q1 in all our major markets. In China, the Q2 average NBSK net price was $811 per tonne, up $66 from Q1. European NBSK list prices averaged $1,602 per tonne in the current quarter an increase of $202 from Q1. And the North American NBSK list price averaged $1,697 per tonne in the current quarter, an increase of $257 from Q1. The North American NBHK average Q2 list price was $1,437 per tonne, up $214 from Q1. The price gap between softwood and hardwood pulp narrowed slightly this quarter in China with the average Q2 net eucalyptus hardwood price at $735 per tonne, up $73 from Q1. Total pulp sales volumes in the second quarter decreased by 132,000 tonnes to 433,000 tonnes, driven by lower production from planned maintenance downtime and the disposition of our equity interest in the Cariboo mill at the end of Q1. All our mills ran well this quarter. In Q2, we had a total of 44 days of downtime at our mills, which included 37 days for planned annual maintenance and seven days due to slower than expected startups. In Q1, we had no planned maintenance downtime. After adjusting for the planned maintenance and the impact of the disposition of our equity interest in the Cariboo mill at the end of Q1, pulp production was flat from the first quarter. For our Solid Wood segment, lumber pricing was mostly flat as modestly higher prices in Europe were offset by lower prices in the U.S. market. Overall, in Q2, lumber markets remained weak. The Random Lengths U.S. benchmark for Western SPF number two and better. Average price was $386 per thousand board feet in Q2 compared to $447 in Q1. Today, that average benchmark price for Western SPF and better is around $355 per thousand board feet, about 16% decrease from the beginning of Q2. For Q3, we are expecting generally flat lumber prices in the U.S. and European markets as demand is expected to remain weak. In the second quarter, we recognized a noncash goodwill impairment of $34 million or $0.51 per share related to the Torgau facility as a result of ongoing weakness in the European lumber, pallet and biofuel markets. Juan Carlos will have more to say on this in a moment. Lumber production for Q2 was 111 million board feet, down 12% due to planned maintenance. Lumber sales volumes were 117 million board feet down 4%, reflecting the lower production. Our consolidated electricity sales volume totaled 219 gigawatt hours in the quarter, down about 41 gigawatt hours from Q1, reflecting the lower production at our mills. Pricing in Q2 was essentially flat at about $91 per megawatt hour from $94 in Q1. In Q2, our pulp and Solid Wood segment’s fiber costs were both flat compared to Q1 as supply remains stable. Production for our Solid Wood segment’s mass timber operations was strong in Q2 at 11,000 cubic meters, an increase of about 54% from Q1 due to the timing of mass timber projects. We reported a consolidated net loss of $68 million for the second quarter or $1.01 per share compared to a net loss of $17 million or $0.25 per share in Q1. We consumed about $11 million of cash in Q2 compared to about $40 million in Q1. Our net working capital was lower in Q2 by roughly $49 million, which provided the cash to repay $45 million of borrowings on revolving credit facilities. As our operating cash flow improves, we will continue to target opportunistic debt reduction. At the end of Q2, our liquidity position totaled $581 million, a modest improvement from Q1 and comprised $263 million of cash and about $317 million of undrawn revolvers. Finally, our Board has approved a quarterly dividend of $0.075 per share for shareholders of record on September 25, for which payment will be made on October 3, 2024. That ends my overview of the financial results. I’ll now turn the call over to Juan Carlos.

Juan Carlos Bueno: Thanks, Rich. Our Q2 operating results were positively impacted by significantly improved pulp pricing, our mass timber business and lower energy costs. These positive effects were more than offset by planned maintenance downtime, which negatively impacted our Q2 EBITDA when compared to Q1 by about $60 million. Overall, all our mills ran well this quarter, but the planned downtime and related slow startups negatively impacted our sales volume relative to Q1’s record pulp sales volumes. Our lower Q2 sales volumes also reflect the divestment of the Cariboo mill at the end of Q1. I am pleased to note also within our solid wood segment, our massive business was able to execute on some tight deadlines this quarter, which resulted in positive operating results. I will have more to say about this in a moment. As Rich noted, this quarter, we wrote off the goodwill we recorded with the acquisition of Torgau. Regardless of the technical rules around accounting for goodwill, the fact is the pallet and lumber businesses in Europe have been weaker for longer than we anticipated. And this is due to a number of factors, including the high interest rate environment in Europe that has had a dramatic negative impact on the construction business with a direct impact on lumber prices. And in addition, the unprecedented slowdown of the German economy has reduced the commercialization of goods, which is critical for the pallet business. But despite this write-down, we continue to expect to realize significant shareholder value from this investment including the synergies we identified as part of our acquisition strategy. We are currently ahead of schedule on our capital investment at Torgau that will expand the mill’s dimensional lumber capacity and expect to begin to see the benefit of this investment in mid-2025. In Q2, we invested roughly $20 million in our operations, as previously announced, our stronger operating results outlook has allowed us to adjust our planned 2024 capital spending to be between $120 million. You will recall that last quarter, we restarted both our Torgau lumber expansion project and the Spokane sorting line project. Both of them will provide significant added value and were originally contemplated as part of our investment strategy for each mill. We remain optimistic about our cash generation forecast for the remainder of 2024 and we’ll be prioritizing debt reduction as we move forward. Overall, pulp markets improved significantly in the quarter, with both the European and North American markets showing the most improvement. We were seeing improved demand from European paper and tissue producers. This demand was primarily the result of merchant destocking and logistical challenges around Chinese imports. To a lesser extent, we were also seeing demand increases in North America. The permanent closure of NBSK mills in the last two years, the impact of the Finnish transport strike and the significant unplanned downtime at one of the Finland’s largest mills created softwood supply challenges further tightening the supply-demand dynamics. And looking forward, we expect modest downward pulp price pressure into the third quarter due to slower seasonal paper demand. However, we expect some positive pricing pressure late in Q3 and through Q4 due to both ongoing global softwood supply challenges and increased seasonal paper demand. We’re closely monitoring the Canadian Railway (NYSE:) Union labor issues and have taken steps to mitigate the potential impact it may have. In Q2, we produced 422,000 tonnes of pulp compared to 539,000 tonnes in Q1. This reduction was due to the impact of the 44 days of major maintenance that we had in Q2, plus the divestment of Cariboo mill at the end of Q1. Our remaining major maintenance downtime in 2024 is scheduled as follows: in Q3, Rosenthal will take a 14-day maintenance shut, and Celgar will take a four day mini shut which will amount to about 20,000 tonnes production loss in total. And we won’t have any maintenance plant shutdown in Q4. As a reminder, Celgar not have a major maintenance shut in 2024 as the mill has moved to an 18-month maintenance schedule. Our Solid Wood segment results benefited from improved mass timber sales in Q2 but was not enough to compensate for the impact of lower lumber prices on average with some small pockets of improvement in Europe, while the U.S. market weakened. High interest rates globally continue to weigh on housing starts and construction in general. We expect Q3 lumber pricing to stay essentially flat. There may be some short-term lumber pricing upside due to recently announced lumber production curtailments, the current forest fire situation in Western Canada and the potential for a prolonged Canadian railway strike. Any meaningful long-term improvement would be dependent on improved economic conditions. That said, we continue to believe that low lumber inventories, the large number of sawmill curtailments relatively low housing stock, potential wood shortages created by 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. In Q2, 39% of our lumber sales volume was sold in the U.S. as we continue to optimize our mix of products and target markets to current conditions. Today, our mass timber order file sits at about $55 million. We continue to receive many inbound project inquiries, and our finding developers are taking their projects to the point of being ready to execute once the interest rate environment improves. Economic stability will meaningfully improve the short-term demand for mass timber. In addition, we remain confident that the environmental, economic and aesthetic benefits of mass timer will allow this building product to grow in popularity at a pace similar to that what we’ve seen in Europe. We are well positioned to take advantage of that market growth as we have roughly 35% of North American mass timber production capacity, a broad range of product offerings and a large geographic footprint, giving us competitive access to the entire North American market. On the other hand, shipping pallets remain weak due to the overhang of the European economy, particularly in Germany. However, due to our efforts to improve our product mix, we saw a slight increase in average pallet prices in Q2. Once the economy begins to show signs of recovery, we expect pallet prices to return to normal levels, allowing this asset to deliver significant shareholder value. Heating pallets were down slightly in Q2 due to expected seasonality in this market, but we expect demand and prices to increase in Q3 as customers build their winter stocks. As I previously noted, we have restarted strategic and high-return CapEx projects at both our Torgau and Spokane Mills. I’ve already spoken about Torgau’s project, and I wanted to remind you our Spokane project was also originally envisioned as part of our investment strategy for this mill. This project is focused on the mill’s wood in-feed and sorting processes. Once this project is complete in mid-2025, the mill will be able to source lower cost feedstock and process it into high quality lamp stock. Ultimately, this will significantly reduce the mills’ fiber costs. In Q2, our overall pulp fiber costs were flat from Q1. In Germany, a steady supply of sandal chips resulted in modest cost decreases and in Canada, a ramp-up of Peace River’s Wood room and our Celgar wood room strategy wood strategy also kept our fiber costs in check. Looking ahead, we expect our fiber cost to remain stable for both our Pulp and solid wood businesses in Q3. I am pleased with our new lignin extraction plant ramp-up and the partnerships we have entered into to support the future commercialization of this product. I expect to share our vision for this product in the near future. As a reminder, this new lignin plant is a large step towards Mercer being able to develop a portfolio of novel offerings before going commercial with it. We’re excited about the future prospect of this product as a sustainable alternative to fossil fuel-based products, such as in adhesives and advanced battery elements among many others. This aligns perfectly with our strategy, which involves expanding into green chemicals and products that are compatible with a circular carbon economy while adding shareholder value. 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, products like 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 to 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 have improved and that we have the majority of our major maintenance behind us. We’re expecting strong operating results from this segment in the second half of 2024. Regarding our Solid Wood segment, we expect weak economic conditions to continue to keep pressure on demand for construction products and pallets. Finally, we will remain focused on our cost-saving initiatives, and we’ll continue to prioritize debt reduction as we manage our cash and liquidity prudently. Thanks for listening. And I will now turn the call back to the operator for questions.

Operator: Thank you. [Operator Instructions] Our first question comes from Hamir Patel with CIBC. Your line is open.

Hamir Patel: Hi. Good morning. Juan Carlos, once the projects at Torgau are completed, which I think are slated for mid-2025, how do you see the percent of your lumber shipments that you sell to the U.S. changing?

Juan Carlos Bueno: Hello, Hamir. Yes. What we are expecting with these investments is that once everything is concluded, we’ll have about a 25% increase in our timber capacity. So we will be able to work with at least 200,000 cubic meters more of wood into our mill. When we look at our total plain lumber capacity, we’re thinking that we may be able to add about 240,000 cubic meters of finding capacity. So obviously, a part of that will be destined to the U.S. How much goes to the U.S. will be determined as we normally do, based on how we see prices developing in Europe versus the U.S. If you think for a minute, I think it was last quarter, or the quarter before that, we were talking about how much was going to the U.S., I think we were up to 55% of our business going to the U.S. a few quarters back. This quarter, we closed at 39%. And this is because we saw some important improvements in the U.K. and Ireland market. And therefore, we decided to divert a little bit more of lumber to that space. So we will keep on having that fluctuation, I would say, on average anywhere between 40 to up to 60% as a maximum would be the amount that would flow into the U.S. at any given point in time.

Hamir Patel: Okay. Thanks, Juan Carlos. That’s helpful. I wanted to ask something on the pulp side. This means some report recently we see that Suzano was piloting a kind of new hybrid created, which I think they’re called the UCA (ph) strong to compete with softwood, how do you see the threat to NBSK from some of the innovations that are playing out on the hardwood side.

Juan Carlos Bueno: As always, those folks will end up finding some space. The way that we see it is as we work through our customers and our teams not only our sales team, but our market development teams, the technical guys that are working closely with custom make sure that their furnaces are properly set up for their products that they end up producing that bond, we keep on strengthening further and further. So substituting that with an unknown grade, I know it’s going to be quite challenging. So we have confidence in making sure that with those customers that we’ve had long-standing relationship with our softwood pulp that those will remain. And therefore, we don’t see this as a very significant threat. I wouldn’t be surprised if a product like this ends up flowing more into a less demanding market, whether it’s China or others that where quality is a bit more flexible. But in the case of some of the markets that we play with some of the customers that we play, I think it’s going to be a bit more challenging.

Hamir Patel: Okay. Fair enough. That’s all I had. I’ll turn over. Thank you.

Operator: Thank you. Our next question comes from Brandon Hole with CIFC Asset Management. Your line is open.

Brandon Hole: Hi. Good morning. Thanks for taking my question. Just a real quick question about the pulp market as you’re seeing it right now. Could you give us a little color on what you’re seeing in I guess some of the trade publications were saying that prices in Asia were moving down pretty substantially last week. I just wanted to see if you’re seeing that and what the sort of play on interplay between what you see there and what happens in Europe?

Juan Carlos Bueno: Absolutely, Brandon. Yeah, obviously, there’s — we need to make two distinctions. The first one, what’s happening on hardwood versus what’s happening on softwood. Hardwood, it’s undeniable that there’s been a correction — an important correction on hardwood, probably about $100. And this is on the back of Cerrado from Suzano coming up and that was 2.6 million tonnes. And also the Liangxiang product in China, project in China, that was 1.7 million tonnes. So that — all that pulp coming to market. Obviously, that puts pressure. It makes sense that in a market that is oversupplied, you would start seeing some corrections very quickly, and that is what has happened. However, the situation in softwood is different. If anything, softwood is still under a very tightness situation when it comes to supply. So very, very different from where we see hardwood. Even when we look at the demand to capacity ratio, the way it’s evolving, we’re saying that we’re seeing that softwood is going to 93% next year and hardwood is going to go down to about 86%. So again, the pressure on hardwood will remain while softwood will be in a very different situation. That would mean that the spread between the two will expand and obviously, there’s going to be some pressure on substitution and whatnot. But I think the fundamentals for softwood being so tight on supply are going to be still very relevant. Even if you think about — I think it was recently this week, there was another announcement from another mill in Finland that they’re already thinking about laying people off and then stopping for, I think it’s three months what I understood it was — and this is a big mill. If they stop for three months, it’s almost taking away another 200,000 tonnes of pulp from the market in any given year, if it’s only three months. So again, it just exacerbates the fact that supply on softwood continues to be tight and will be even tighter as we progress. And that would — what that will translate into is that even if hardwood drops by 100 like it did. The drop in softwood would be mitigated pretty much and very limited. So far, the softwood prices, they have come down a bit, I would say, probably less than $50. And that’s more or less where we think they will most likely remain. Our belief is that as the year progresses and we get past the summer season, which obviously comes with low demand, both in Europe and in China. Demand will pick up and prices, and we can recover a little bit of the lost ground in this Q3. Again, we don’t expect that ground to be very significant in Q3. Hope that helps, Brandon.

Brandon Hole: Yeah. That’s good color. Thank you very much. And then, in Germany, and obviously, you talked about the struggle, the economic struggles there. Are you seeing any signs of improvement there yet or is it sort of bouncing along this low level?

Juan Carlos Bueno: It’s still very timid. Obviously, we see that at least the European authorities interests are starting to come down, which is a good sign. However, Germany as a country in itself is probably lagging a little bit behind the rest of Europe, which is contrary to what everybody is used to when Germany is the one that’s leading the pace. And in this case, it’s different. It is lagging behind a bit. And that is probably the reason why we believe that the improvement of the recovery, especially in the construction sector is going to take a bit longer than what you would expect and that’s what keeps us a bit more conservative on what we think we can expect from – for either lumber prices or in the case of the German economy itself, what we can expect for the pallet prices in the short term. We’re hoping for more of a second half 2025 commencement of some signs of improvement. Because even if interest rates are cut now, that doesn’t mean that immediately you have an impact and lumber prices will go immediately. We believe that there is a lag between one action and another. So that’s a little bit of the timing that we have in our planning.

Brandon Hole: Okay. Thanks very much for taking the questions.

Operator: Thank you. [Operator Instructions] Our next question comes from Kasia Kopytek with TD Cowen. Your line is open.

Kasia Kopytek: Hi. Good morning, everyone. It’s Kasia on the line. You articulated focus on deleveraging over the midterm. Just curious about your updated thoughts on potential asset divestitures to expedite that?

Richard Short: Hi, Kasia. Yeah. The only thing that we’ve got on the books right now for sale is Santanol and that process is ongoing, and we don’t expect any further write-down on that. .

Kasia Kopytek: Okay. Got you. Rich, can you talk about your order file and how that varies throughout the cycle? Just getting — trying to get a sense, if there’s going to be any order file timing lags reflected in your Q3 average price realization?

Richard Short: Are you referring to mass timber?

Kasia Kopytek: No, sorry, pulp.

Richard Short: Yes. So I guess maybe expand on what you mean by order file a little bit because we sell primarily spot in Asia. And in Europe, we basically sell the mills out every month. Yes, we’ve got pretty low inventories across the board.

Kasia Kopytek: Got you. Okay. So you sell it every month, but if you’re selling to a customer, it wouldn’t ship for, let’s say, two weeks or three weeks at this point or what does that lag look like?

Richard Short: Okay. For delivery times, again, it depends where it’s a number of weeks, one to two weeks generally it depends where it’s going. But in Asia, yes, it would take 30 to 60 days to deliver.

Kasia Kopytek: Okay. Got it. Yeah. I’m just trying to get a sense, prices are rolling off here, but maybe not all of that is going to be reflected in Q3 and maybe some of that will bleed into Q4? Just trying to get a sense of the timing. But that’s good color.

Richard Short: Yes. Okay. Great.

Kasia Kopytek: Sorry, go ahead. You were about to say something.

Richard Short: Yeah. I was just going to say, if you’re trying to use like an average like a 45-day average it would probably be for your modeling purposes.

Kasia Kopytek: Okay. Yeah. Got it. That’s a good rule of thumb. So good pickup on the top line for the mass timber business, is that EBITDA positive at this point?

Juan Carlos Bueno: Yes, it is. It was EBITDA positive. I think since Q4 of last year. It was the first time that it was EBITDA positive. It was very strong. It was strong this quarter. So we’re looking forward to the growth of the business in 2024. We’re expecting it to be twice the amount of sales that we had in 2023, it should be around $110 million by the end of the year. And Q2 was particularly strong. There was some projects delayed from Q1 that ended up being kind of all compounded into Q2 that made us running against the clock in Q2. We delivered all the projects on time and no complaints whatsoever. Quality on spec, everything very well produced and delivered. And that allowed us to run our mills more efficiently on one shift only at this point in time. So that’s why Q2 was I would say, more stronger or stronger than what we have planned for as they were picking up a little bit of the slack from Q1. And this is on the back of customers delaying some of their projects, and therefore, we have to adjust with whatever the customer planning schedule is. And that’s a situation that followed in Q2. In Q3 and Q4, we don’t have any more — or very little of the big, big large-scale projects that we had at the beginning of the year. So that’s a little bit of a change in dynamic. It’s going to be smaller projects that we attend to during the second half of the year.

Kasia Kopytek: Well, thanks for that. That’s helpful. Juan Carlos, can you remind me what kind of EBITDA margins are you looking at for that — for those sales?

Juan Carlos Bueno: We talk about EBITDA margins in the long term, more than specifically what we do right now. And we aim for between 10% and 20% in the long run, it’s going to be around 20% or more, that’s what we expect of mass timber.

Kasia Kopytek: Okay. But right now, you’re probably sort of low-single digits, I imagine something in that range?

Juan Carlos Bueno: Yeah.

Kasia Kopytek: Okay. Got you. That’s all I had. Thanks very much gentlemen.

Richard Short: Thank you.

Juan Carlos Bueno: And the important thing, Kasia, just to expand on that, keep in mind that right now, the margins that we’re seeing is running with one shift. And not being able only in Q2, we’ve had those shifts practically full in our facilities. Going forward, when we — as we expand this business, obviously, the margins can grow as we can put two shifts or even three shifts into those facilities. So that is the key thing here is for us to grow this business a way that we can add more shifts and take advantage of the capacity that we have installed and therefore, have a better return on those fixed costs.

Operator: Thank you. I’m showing no further questions at this time. I’d like to turn the call over to Juan Carlos Bueno for closing remarks.

Juan Carlos Bueno: Okay. Thank you, Michelle, 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 one of us. Otherwise, we look forward to speaking to you again on our next earnings call in November. Bye for now.

Operator: This concludes the program. You may now disconnect. Everyone, have a great day.

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