Stella-Jones Inc.

Good morning, ladies and gentlemen. I’m here with Silvana Travaglini, Chief Financial Officer of Stella-Jones.

Thank you for joining us for this discussion of the financial and operating results for Stella Jones’s Second Quarter ended June 30, 2020. Our press release reporting Q2 results was published earlier this morning.

It along with our MD&A can also be found on our website at www.stellajones.com and will be posted on SEDAR today as well. Let me remind you that all figures expressed on today’s call are in Canadian dollars unless otherwise stated.

Let me begin by thanking each and every one of our 2,300 employees across North America, who have worked diligently and safely to ensure the critical continuity of our essential operations and support our customers throughout the pandemic. With the exceptional contribution from the team and proven resiliency of our business model, we delivered record results this quarter.

We realized solid performances in our utility pole and railway tie product categories which continued their growth momentum from the first quarter and benefited from exceptional demand from residential lumber stemming from increased home improvement activity in the context of the novel coronavirus pandemic. Sales grew 15% this quarter compared to the same quarter last year to CAD768 million and EBITDA increased 28% to CAD120 million, surpassing the CAD100 million mark for the first time in a single quarter.

During the quarter, we generated strong cash from operations, which allowed us to reduce our leverage and position the company to continue to deliver value to our shareholders. Let me now turn to a brief overview of our second quarter sales results by product category.

Utility pole sales amounted to CAD230 million, up from CAD211 million generated in the second quarter of 2019. The increase this quarter is primarily driven by upward price adjustments in response to raw material cost increases.

Raw – railway tie sales increase to CAD225 million, up from CAD199 million in the same period last year. Excluding the currency conversion effect, sales rose 10% as certain Class 1 customers accelerated their 2020 maintenance program while demand remained strong for non-Class 1 customers supported by a healthy level of untreated tie inventory.

Residential lumber sales totaled CAD257 million, up 32% from CAD195 million generated last year. This significant increase in sales is attributable to greater than expected volumes as a result of a strong home improvement activity in the context of the COVID-19 pandemic.

Industrial product sales amounted to CAD33 million, down 6% from CAD35 million recorded in the previous year’s quarter primarily as a result of lower piling project activities. The sales of logs and lumber, a product category used to optimize procurement was CAD23 million, down from CAD27 million last year.

Sales decreased given the limited market supply of lumber. Silvana will now provide further details regarding our results and financial position before I conclude with our 2020 outlook.

Silvana?

Thank you, Eric and good morning everyone. Turning to profitability, driven by the strong sales growth this quarter gross profit increased 21% to a CAD131 million compared to gross profit of CAD108 million in the second quarter last year.

Similarly, operating income and EBITDA increased 31% and 28% to CAD101 million and CAD120 million respectively. This increase is largely attributable to strong pressure-treated wood demand particularly for residential lumber and pricing improvements, which more than offset the rising raw material costs.

Net income rose 33% for the second quarter to CAD69 million or CAD1.02 per share compared to CAD52 million or CAD0.76 per share last year. Turning to liquidity and capital resources, cash flow generated from operating activities totaled CAD146 million in the second quarter largely explained by improved profitability and the seasonal reduction in inventory, which was amplified this quarter by very strong residential lumber sales.

We deployed the cash generated to invest in our network, return capital to our shareholders through dividends, and reduce our long-term debt. As of June 30, 2020, the net debt to trailing 12-month EBITDA ratio decreased to 1.9x and we had access to CAD205 million in liquidity, through a combination of cash on hand, syndicated credit facilities, and an un-drawn demand facility.

Given the strength of our balance sheet today Stella-Jones announced a Normal Course Issuer Bid, which will allow us to repurchase up to 2.5 million shares representing 3.7% of our outstanding common shares from August 10, 2020, to August 9, 2021. In addition, consistent with previous quarters the Board of Directors yesterday declared a quarterly dividend of CAD0.15 per share payable on September 18, 2020, to shareholders of record at the close of business on September 1st.

I will now turn the call back to Eric for the outlook. Eric?

Thank you, Silvana. We revised our earnings guidance for 2020 to reflect our strong operating performance this quarter largely driven by the greater than expected demand for residential lumber.

As a result, we now expect EBITDA for 2020 to be in the range of CAD320 million to CAD345 million, up CAD20 million from the previously disclosed guidance. The lower end of the range continues to reflect uncertain impact of the pandemic on customer demand.

We also expect the EBITDA margin to be comparable to 2019. This revised guidance assumes an exchange rate of 1.38 for the balance of the year.

The 2020 CapEx guidance remains the same as previously disclosed in the range of CAD45 million to CAD55 million. The company’s strategic vision focused on continental expansion remains intact and acquisitions continue to be an integral part of this growth strategy.

Our pipeline of acquisition opportunities is active and we are in discussion with several identified targets across North America but certain but the current context is creating certain headwinds. We remain committed to delivering value to our shareholders.

As part of our capital allocation approach the company intends to target a net debt-to-EBITDA ratio between 2x and 2.5x. This target leverage ratio should allow us to return capital to shareholders and take advantage of internal growth and acquisition opportunities, while maintaining a healthy financial position.

This concludes our prepared remarks. We will now be pleased to answer any questions you may have.

Hi, good morning. Thanks for taking my questions.

Good morning, Eric.

Good morning. Eric, just on the – again obviously very strong quarter, I guess my question is just around the guidance, if at the midpoint, you would imply roughly flat EBITDA in the back half, whereas you were up north of 25% in Q2.

So maybe just trying to understand sort of the puts and takes or sort of what’s in the guidance or how you are thinking about that as to reconcile the difference between the two periods?

Yes, certainly. So I think the way to look at the range in this particular context, is to see the lower end as being I guess negatively impacted or continue to be impacted by the current pandemic and uncertain economic conditions.

And we could view, there was a higher range of the guidance, more return to historical – historical demand and business activity. That’s the best way I could describe it.

So using the middle point might not necessarily be the best way to look at it depending on how the general economy and the pandemic evolves in the next 6 months.

Sure. Just to help us again get a better sense of quarter, the quarter and I guess recent trends, maybe just talk about the pace of improvement or sort of the cadence through the quarter of demand through your various product lines.

I am just I guess I am curious if residential is tapering off a bit or flattening out? And then just trying to get a better again, understanding of ties where you have talked about sort of maintenance activity being pulled forward sort of what that means for the back half?

Okay. So, just to be clear you are talking about the Q2 results or the second half of the year?

No, sorry the – yes, through the quarter and I guess into July sort of the pace of improvements across ties and residential if again it sort of moderated a bit sort of you spoke to some pull forward in ties. So I was thinking the quarter of July but if you want to talk in the second half, that would be good as well?

So, I mean during the quarter, if you go product category one at a time. So for utility poles, as we indicated, most of the growth has come from year-over-year pricing which was driven to some extent by increased costs related to the products.

What we’ve seen with regards from demand from customers a lot of well certain utilities across North America have been cautious in deploying their maintenance crews in the context of the pandemic, and that has curtailed the demand to a certain extent for certain utilities. So, that has slowly been resolving itself throughout the quarter.

If I think about in early April to what we’re seeing today that has the volume piece has improved. With regards to the railway business, the railway tie sales were positively impacted from pull-forward from certain Class 1, as they saw an opportunity with lower traffic on their network to not to bring maintenance forward.

That being said, in general terms, Class 1s have not necessarily changed their annual program if you answer it’s essentially taking Q3, Q4 sales into the second quarter. We’re just, we’re always grateful to see our expectation on sales materialize in this case materialize a bit earlier.

We also saw healthy demand in the non-Class 1 business as there has been significant – has been significant quoting activity in the first half of the year. So it has been very, very interesting for us and we’re very fortunate to have proper levels of untreated ties to be able to support the demand.

Last but not least, the residential lumber as our results showed this morning demand has been very strong throughout the second quarter. I would say we actually depleted some of our finished good inventories and looking forward our customers are telling us that they still see some healthy demand going forward into H2.

Okay. Maybe just two quick follow-ups, so, the pricing in poles is that, can you just, is that something that we continue to the second half, again just based on prices are up year-over-year and then just on the residential just confirm it, it doesn’t really sound like the demand has tapered off, but just maybe just want a clarification on that?

And that’s it. Thanks.

No, the demand has not tapered off. I guess maybe flattish or slightly up, but the demand has not tapered off and the costs or the pricing dynamics will really depend on a case by case so depending on the actual agreement but most often it is driven by the cost profile of the products and also the profile of the product that the customers ordering.

Yes. Thanks, Eric.

I will get back to you and again, good quarter.

Good. My pleasure.

Hi, good morning.

Good morning.

Eric on the tie side, do you have a sense yet as to how your Class 1 customers are thinking about their 2021 volumes. It sounded like the 2020 there has been no change so far?

So that’s a conversation we will be having in the next few months with our Class 1 customers. I guess the best I can provide at this point is we are sort of expecting status quo or said otherwise no one has come out to say you know expect lower levels for 2021.

But as we are now preparing our ‘20/21 budget and thinking about starting a procurement program for inventories for next year. Conversations will be ongoing most often it is through August, September, and October.

Great, that’s helpful. And just on the pole side, one of your peers was pointing to risks of some projects slipping into 2021, and kind of the rationale they are giving was procurement issues for line hardware and transformers.

Are you seeing that as a potential headwind as well?

We haven’t heard much about product being delayed because of a supply of – I guess and kind of complementary but other accessories that go into the network or the infrastructure. I think best I can say with regards to our demand is, we have always in the last few years guided to mid-single-digit growth for utility poles and that’s where we see we will be most likely at the ending up the year.

Fair enough. And Silvana could you give us a breakdown for the 32% growth in res lumber.

How much of that was volume and how much was price?

Essentially all volumes.

All volume. Okay.

So given that, would you guys expect the 32% growth rate to be even higher in Q3 just given the huge rally that we have seen in lumber prices and it sounded like volumes haven’t really changed sequentially?

Well, so based on historical pattern to Q3 is usually a bit lighter than the second quarter. So although we had a great second quarter this year.

I do expect our third quarter to be higher, at least volume-wise than last year’s, last year sales. So that’s the best way I can describe it for now and this is based on what our customers are indicating.

Okay. Okay.

And Eric, maybe put a different way just lumber prices hold steady where they are and based on your pass-throughs what would get at maybe year-over-year pricing improvement in Q3 be for res lumber?

So I won’t quantify it, but you are completely right that lumber being a commodity item, there is agreements with our customers and collaboration as when we see the price increases to your point, there is a pass-through where the cost increase gets moved over to our customers, our customers expected they themselves. I mean most cases are purchasing white lumber on the market.

So they understand the challenges we have in the current context. So you are right that in the second half of the year, we could see some effect on being attributable to pricing.

Okay, fair enough. That’s all I had, I will turn it over.

Thanks.

Thank you, Hamir.

So if I were to come back to visibility, Eric, you issued guidance previously and kind of brought it down. Could you point out and now bringing it back up.

Just curious as to what was the area, it sounds like it was residential lumber but you tell me what was the area of the biggest delta in terms of what you were expecting 3 months ago and what’s happening here today? And is that visibility improved now, now that we are a little bit in the third quarter here as you give guidance for the rest of the year or are you in kind of the same situation where things can change abruptly to lead to that – that led to that guidance change?

So you are completely right, the bump. The major part of the bump of the guidance comes from the strong performance from residential lumber.

So based off of our previous forecast, we need to acknowledge the great results we had this year, and I don’t expect to pull back on residential lumber, in the back half of the year. That being said, my comment with regards to our guidance on the, let’s say that the lower end of the range being potentially impacted by coronavirus.

It really depends on how things will play out as we are seeing cases increase in the U.S. where we see more lockdowns or where we see some pullbacks.

As I mentioned certain utilities are very cautious with their employees. So that’s I guess to the lower part of the range that the higher part of the range is that from Labor Day we see cases drop and we know a lot of our customers have plans and projects were maintenance and it just depends we really feel comfortable enough to be able to execute it.

Safe to say that I strongly believe in the guidance we provide today and I really sincerely believe that we will realize – we will realize our guidance in the second half of the year.

Yes, I mean back to Mark’s original question, even if we use the high-end of your guidance, I mean you are up even going first half compared to the last half you are up 16% over 20% in the second quarter, but at the high end of your guidance, you are implying only a 4% for the rest of the year. So I am just curious whether the pull forward we have seen is now completely done and again back to the question on lumber, are you assuming some kind of bearish scenario in your high-end of your guidance here, because as it looks from this point forward, it seems like given you have done, you are trending at above 25% for the rest of the year, you could probably do better than 4% for second quarter – or second half?

Yes, so I don’t disagree with your comment, and I think one thing we didn’t talk about, as you mentioned the term pull forward. We did see pull forward in railway tie sales into the second quarter.

So obviously those are sales. The downside of that will come in the second half of the year.

So that’s also part of the consideration.

Right. I know looking out 2021 is a difficult task.

If we look at the impact of COVID-19 and the gyrations from pulling forward and all of that, is – is it safe to take to take – to take your 2020. Is there anything wrong with taking 2019 and putting your long-term growth rates that you had back then in each of these divisions to come up with a 2021 number.

Is that how we should look at 2021 or could there be a lower level of activity in 2021 because of the pull in the revenue that was pulled into 2020?

It’s a difficult, it’s a difficult question to answer, but if you are going to build a model using our assumptions in 2019 and building in some growth off of that makes sense. One thing I believe is the current pandemic context has demonstrated our strength as a Company especially in the residential lumber business.

We show the strength of our vendor network to supply raw material. We have shown our customers our ability to continue to deliver and to produce and I think we will get some tailwinds out of that next year as we are demonstrating that, we are – I would like to believe that we are departed at a lot of retailers we should be partnering up with.

So I guess there is that aspect to it and after that I mean for the other product categories we are always [indiscernible] you are correct and I would expect if volumes don’t entirely resume for utility pole this year we should see things, hopefully, get better by the end of the year and hit a bit of a normalized trend or growth trend into 2021.

Okay, that’s all my questions Thanks very much.

Thank you.

Yes, thanks very much and congrats for the good quarter. To combine with the residential lumber could you talk a little bit about the ability to meet stronger residential, a strong residential demand in the back half given the depleted inventory and maybe also talk about the ability to replenish the inventory level for residential lumber?

Thank you, Benoit. That’s a great question.

So you are completely right, demand from our customers in the second quarter was very strong and we did have to dip into our finished good inventory reserve if you want to call it to be able to satisfy demand. As I mentioned earlier, we have a very strong vendor supply group outstanding people that are willing to support Stella-Jones.

We today have a constant flow, daily flow of what wood raw material coming into our plants. We are currently pushing the capacity to be able to treat the inventory and supply the market.

So I am quite confident when I talk about us being able to exceed the volumes of 2019 in the second half of 2020. It really stems from my confidence in our procurement team to be able to procure sufficient wood in our operations into the go-to-treat it.

That being said, we are very mindful about finishing the year with healthy inventory levels to be able to address the 2021 year with regards to residential lumber. So that’s top of mind and right now there is no indication that we will not be able to achieve that.

Okay. And given the strong improvement in lumber prices Eric, could you talk a little bit about how margins could be impacted in the back half and maybe 2021 as there could be a lag before passing through the price increase to customers?

Well, in the current context as I mentioned previously, a lot of our customers procure their own white wood for construction purposes. We prepared to be able to treat it.

So the product or the lumber being a commodity and a price that’s known in the market, our customers know what’s going on. So we are able, currently to pass through those increases.

So I don’t expect margin erosion that probably the best way I can put it, Benoit.

Okay, that’s very good. And given the big movement in inventory, how should we be thinking about the working capital movement for the full year and maybe if there is any change in the CapEx expectation for 2020?

Yes, certainly. I will let Silvana answer that one, Benoit.

Yes, so basically for the – for the working capital. We are still pretty much expecting as we have mentioned to the market probably a CAD50 million trial for the year just to be able to always maintain a certain level of the build of inventory for the next – for the next year.

Obviously in the second half, with all the residential lumber sales being so strong, there will be a significant inflow, so that might change a little bit, but just generally, we were still – we are still targeting and forecasting that amount. And the second question for the CapEx.

Yes, we are still aiming for the – between the CAD45 million and CAD55 million we are comfortable with that for 2020.

Okay, thank you very much for the time.

My pleasure, Benoit.

Thank you. Good morning.

Good morning, Michael.

Eric, just, first of all, I want to understand a little more clearly the breakdown between the organic growth in ties and poles, you have given some commentary. But on ties and poles, can you give the volume versus price break down in the quarter in terms of the composition of the organic growth you saw?

In the quarter, so broad strokes Benoit – sorry, broad strokes, Michael. So for utility poles, we are talking essentially pricing was driving the organic growth, and with regards to railway tie it was a combination of both.

But obviously, since there’s a pull-forward there is definitely – from certain Class 1s there’s definitely a stronger volume impact.

Okay. And then if we look forward with the pull forward in ties that you talked about I understand you said earlier, sort of, no change in the full-year expectations.

Can you help us understand what that means for volumes in the second half for ties, does that mean they are down year-over-year or are they, are they flat? I am just it’s hard to necessarily appreciate what happened in the last, in last year’s second quarter, so just looking for some help there?

So, I think your comment is right. We could expect lower volumes in the second half year-over-year simply because we pulled forward into the second quarter.

So I guess for the Class 1 maintenance programs you need, I guess we need to look at the whole year maintenance program really to appreciate what happens with the volume there. The other piece of it is really the non-Class 1 where that environment is getting very competitive on the pricing.

So, both are competitive in the sense of obtaining the winning the quotes and then again seeing some pressure because a lot of treaters in this case, the smaller treaters in the industry that have don’t have Class 1 contracts are aggressively treating to get business.

Okay. So, down year-over-year in the second half in both Class 1 and non-Class 1 is that what you are suggesting?

Yes, exactly.

Okay. And sort of order of magnitude, like mid-single-digit or is it more significant than that?

Yes, I think mid-singles but a bit high. But yes, yes, I would...

Like high meaning too – sorry high meaning too negative right?

Yes, but it’s not, it’s. So I have to think it’s always a bit difficult to understand what’s going to happen with the non-Class 1 but if you want to use an assumption I think that would be fair.

Okay. And then on the pole side, it sounds so mainly price-driven in the second quarter.

It sounds like you maybe are seeing some of the volume that was – that didn’t show up in the second quarter because of caution around COVID sort of maybe coming back if I’m hearing correctly. Yes, I think you talked about mid-single-digit growth for poles on a full-year basis.

If we look at what you’ve done through the first half yes the math that I’m seeing sort of suggests maybe flattish organic growth in the back half to get you to that kind of mid-single-digit numbers. So I’m not sure I kind of reconcile all that like do you expect some positive organic growth in poles in the second half year-over-year?

Yes, but not as strong as the first half, driving us – driving that full-year percentage a bit down.

Okay. So it sounds like maybe in the second half, something on the order of mid single-digit for poles is maybe not unreasonable is that fair to say?

No. That’s fine.

Yes, that’s fine.

Okay. And then just back on the guidance, you have got a few questions, appreciate that the sort of the commentary you have made around, the difference between the lower end of the EBITDA range versus the upper end.

Just to be clear at the lower end, it sounds like there sort of a deterioration in the broader COVID situation and things sort of really pulled back and there were lockdowns again, it sounds like there is quite, that would be sort of a really negative outcome relative to where we sit right now in terms of COVID. And then on the upper end like I am just not sure, is that a kind of a continuation of what you’re seeing or there are some – there is some negativity and caution built into the upper-end as well around potential lockdowns or sort of?

I think, Michael, you are looking at the right way, so we are looking at the lower end as being stronger headwinds that we’re not seeing today appear in the general market being COVID or economic dynamics or financial dynamics. The upper end of the range, also has a bit of conservatism, as if I use it as a starting point, we would see things progressively get better in the next few months, so obviously, we’d hit our stride later in the second half of the year.

So to your point, there is a bit of conservatism in the upper range.

And that’s – that’s just to reflect the fact that there is still a lot of uncertainty in the world right now and in the markets that you’re serving and you’re just you’re trying to capture that in the upper end of the range, is that what’s happening?

Exactly. To this day, I was talking earlier about you know certain utilities in North America being prudent with the maintenance program because of wanting to protect the safety of their employees.

We’re still seeing certain utilities still you know slowly getting out of that modes. So that’s why I’m referring to things picking up gradually.

So cases, I mean cases in Canada have increased a bit, but there is sort of hopefully stabilizing, but we are seeing cases in the U.S. increased, but it seems like the U.S.

economy is determined to want to take off and to keep supporting activity. It’s just very hard to read, where it’s going to go.

So I guess, you know we didn’t want to come out and be fully bullish that after Labor Day we are back to historical levels and we’ll be doing all of this great percentage of growth. So we are just being a bit cautious and understanding that there’s a lot of dynamics, I would say obviously a bit of uncertainty ahead of us.

Okay. Yes, I think the uncertain – trying to factor in that uncertainty makes a lot of sense in this environment, I guess just to just around this all out it seems as though thus far through the first half, you really have not been affected by all of that uncertainty, in fact, there is actually been sort of a tailwind pretty significant one in the residential lumber business.

So like just, again, just to be clear, you’re building in some uncertainty and some risks. But thus far you have not really been affected by that to a material degree.

Is that fair to say?

Well, the great performance is obviously we had a strong first quarter, which really helped us start – to start the year and we are quite upbeat about our 2020 year. The second quarter obviously got positively impacted by the residential number.

But as I mentioned, we did see some softening on volume, on the volume side for utility poles and we’re fortunate to see a pull forward on the railway ties. So when you factor all these, you’re right.

All these great things, you know, it’s a great first half of the year, but I don’t want to abstract the fact that we’re still living in a world where there’s Coronavirus and certain economic pullback and either I’m just being cautious and considering those aspects.

Okay that makes sense. Okay, I’ll leave it there and turn it over.

Thank you.

Thank you.

Good morning everyone. It’s Nauman here in place of Mona.

Good morning.

Just going back to the margin question there is good improvement there. I understand you don’t give a breakdown of each segment.

I’m just wondering if it was a broad-based improvement or if there was one particular segment that really drove that uptick?

So just to clarify your question, you’re talking about EBITDA margin, margin as a percentage?

That’s correct yes.

Yes, so well. Yes, obviously we do, we did benefit from pricing from railway ties.

As I mentioned pricing for railway ties and utility poles had a certain effect on the general margin also the fact that we had a lot of volume. It also helps your general economies of scale within our facilities in particular for the residential lumber.

Fair enough. And just to follow up on that, but when you say that the pricing were up, I’m assuming the cost was also up.

So will there be a lag effect in the second half on margins for that?

I don’t think so. I think right now, what we’re seeing is reflective of what we can expect in the second half of the year.

Fair enough. And just on the residential lumber side, you’ve seen a lot of growth there.

Is that primarily from the big-box customer? And if that is the case, do you see any potential opportunity from big-box customer in the coming quarter?

So the, so we do have big-box customers and smaller what we could qualify as a dealer network. So the strong demand has come from all fronts and all of these, all of our customer base is sort of projecting strong overall strong, strong, strong demand for the second half or at least the third quarter.

Okay that’s great. And just one last from my end.

I know that M&A remains a focus for you guys and you’ve said in your commentary that there is a strong pipeline, but given in the COVID environment, do you think that anything material will probably be dragged to 2021 rather than in 2020?

The timing is always difficult to establish. I mean, I’m quite excited about the conversations we’ve had with a few customers or customers or if you target in the last several weeks.

I think things are sort of picking up on the discussion front, but then we need to go through the discussion on valuation and set forth the process. So the timing at this point is hard to predict, but obviously we, our goal is to bring to the finish line in the best possible or as soon as we possibly can transactions and obviously there is always a consideration of fair valued in multiples.

So, and negotiating a deal that is fair for both parties but I would like to think that we like to bring to the table deals that are accretive for Stella-Jones.

Fair enough. That’s the great color.

That’s all from my end. And congrats on the great quarter.

Thank you.

Hi, this is Aliza calling for Max. Thanks for taking my question.

So I have a three-part question regarding the EBITDA reconciliation. Historically the depreciation of right-of-used asset was added back to reported EBITDA numbers, but that wasn’t the case for this quarter.

I was just wondering why? And the right-of-use depreciation metric went up almost CAD9 million on a sequential basis.

So if you could provide any color on how to think about that on a future run-rate basis, would be very helpful. And finally, how should we think about the EBITDA guidance of CAD325 million mid-point, does that in the queue the right-of-use asset for the remainder of the year?

So perhaps I could answer that. So all our depreciation is added back and the amount could definitely be inferred from the cash flow, where it’s pretty consistent.

So the depreciation of the fixed assets was CAD6 million in the first quarter, CAD6 million in the second quarter, so CAD12 million year-to-date. Same thing for the amortization of the intangibles, CAD3 million in the first quarter, CAD4 million in the second quarter and the depreciation of the right-of-use assets again fairly consistent CAD9 million in the first quarter, CAD9 million in the second quarter and you have the year-to-date amounts like I said, that you could get some insight by going through the, through the cash flow.

And actually we do provide the reconciliation in our MD&A as well for the 3 month period and the 6-month period. And you can tie those numbers back to the cash flow.

Okay, thank you. That’s all from me.

Thank you.

Thanks for taking the follow-ups, Eric, one of the recent questions you’re asked about M&A and it sounds like, it sounded like you said, things were maybe picking up a little bit. I understand the timing is hard to predict, but have the travel restrictions that have hampered your ability to advance discussions earlier in the year.

Have those been lifted? And are you now sort of able to engage in more discussions more easily?

Yes, so obviously you too. Yes, we are engaging in discussions however travel restrictions, have not been lifted for Stella-Jones anyhow.

We still believe that we want to keep our employees safe and we’re not allowing our employees to flight, they can definitely drive. So depending on who we’re talking to make things a bit more complicated, but now the current context in certain regions of North America also make it more complicated to get consultants out to the different facilities to support due diligence and the M&A process.

So, I would sort of agree to what you just said, hopefully, give you a bit more insight there.

Okay, thank you. And then, sorry just one or two others, here the, I think you were asked about this, but from a cost pressure perspective.

Is there anything going on right now in terms of cost pressures that you see as sort of potentially threatening the margins or that you don’t see an ability to offset through pass this?

Not particularly, Michael. So there’s nothing that comes top of mind.

If there increases to be seen in fiber or preservative cost, you know, and as you know, we often have the opportunity to reset and have discussions with our customers, but I don’t see anything, significant ahead.

Okay. And then just lastly on the buyback announcement, I am just curious if you can provide any commentary.

Is that simply to have in place and therefore to be opportunistic with if you see an opportunity that you think represents good value or is the idea to be quite active with that into essentially try to – try to fully utilize that buyback?

Good. Well, thank you for asking that question.

It gives me the chance to give a bit more insight on the thought process. So as Silvana explained.

And we disclosed our net debt to EBITDA leverage midyear is sitting at 1.9 which for mid-year for us is pretty, actually, pretty low. We usually see that occur more at year-end.

So looking forward with our healthy free cash flow that should – that will be upcoming in the next, in the next few months, we sell that if we want to keep a certain leverage on our balance sheet at the NCIB will be a great opportunity to have in place and to be able to use to your point, opportunistically, to be able to make proper use of our free cash flow or available cash and thus return the value to shareholders. That being said, if an M&A opportunity presents itself we’d be very much willing to lever above the range that we discuss knowing very well that our cash flow will help us replenish it.

So I guess it’s another tool in the box for us to be able to deploy capital.

Okay, that’s helpful. Thank you, Eric.

Thanks.

Well, thank you for joining us on this call today. We look forward to speaking with you again in our next quarterly call.