Conifex Announces Third Quarter 2024 Results

Selected Financial Highlights

The following table summarizes our selected financial information for the comparative periods. The financial information reflects results of operations from our Mackenzie sawmill and power plant.

* In this release, reference is made to "EBITDA". EBITDA represents earnings before finance costs, taxes, depreciation and amortization. We disclose EBITDA as it is a measure used by analysts and by our management to evaluate our performance. As EBITDA is not a generally accepted earnings measure under IFRS and does not have a standardized meaning prescribed by IFRS, it may not be comparable to EBITDA calculated by other companies. In addition, EBITDA is not a substitute for net earnings or cash flow, as determined in accordance with IFRS, and therefore readers should consider those measures in evaluating our performance.

Selected Operating Information

(1) Conifex's EBITDA calculation represents earnings before finance costs, taxes, depreciation and amortization.
(2) MMfbm represents million board feet.
(3) Bank of Canada, .
(4) Random Lengths Publications Inc.
(5) Average SPF 2x4 #2 & Btr lumber prices (US$) divided by average exchange rate.

Summary of Third Quarter 2024 Results

Consolidated Net Earnings
During the third quarter of 2024, we incurred a net loss of $3.8 million or $0.09 per share compared to a net loss of $9.7 million or $0.22 per share in the previous quarter and net loss of $8.0 million or $0.20 per share in the third quarter of 2023.

Lumber Operations
Our lumber production in the third quarter of 2024 totalled approximately 31.5 million board feet, representing operating rates of approximately 53% of annualized capacity. Third quarter production was negatively impacted by a scheduled three-week curtailment at the beginning of the quarter, as well as intermittent periods of reduced shifting capacity, reflecting the softening of lumber prices quarter over quarter. Lumber production of 34 million board feet in the previous quarter reflected slightly more operating days due to our ability to draw down on the more robust log inventories accumulated through the first quarter of 2024 to support the logging breakup season during the majority of the second quarter of 2024. Lumber production in the third quarter of 2023 was 48.9 million board feet or approximately 82% of annualized capacity, primarily due to more operating hours.

Shipments of Conifex-produced lumber totaled 29.3 million board feet in the third quarter of 2024, representing a decrease of 24% from the 38.5 million board feet shipped in the previous quarter due to reduced operating days and a decrease of 30% from the 41.9 million board feet of lumber shipped in the third quarter of 2023 also due to reduced operating days.

Our wholesale lumber shipments were nil in the first, second, and third quarters of 2024, compared to approximately 0.9 million board feet in the third quarter of 2023, as we have not engaged in wholesale lumber sales since the fourth quarter of 2023.

Revenues from lumber products were $19.1 million in the third quarter of 2024, representing a decrease of 24% from the previous quarter and a decrease of 28% from the third quarter of 2023. Compared to the previous quarter, lower shipment volumes due to a reduced operating configuration and lower mill net realizations on lower lumber market prices contributed to the lower revenue. The revenue decrease in the current quarter over the same period in the prior year was largely a result of lower shipment volumes and lower mill net realizations.

Cost of goods sold in the third quarter of 2024 decreased by 21% from the previous quarter and decreased by 42% from the third quarter of 2023. The decrease in cost of goods sold from the prior quarter and third quarter of 2023, were primarily due to decreased shipment volumes. Unit manufacturing costs in the third quarter of 2024 decreased in comparison to the previous quarter as a result lower conversion costs, slightly offset by higher log costs. Unit manufacturing costs decreased in comparison to the third quarter of 2023 as a result of significantly lower log costs, slightly offset by higher conversion costs. We recorded inventory valuation reserves of $0.7 million in the third quarter of 2024 compared to $0.7 million in the second quarter of 2024 and $2.4 million in the third quarter of 2023. Inventory valuation reserves stayed flat in comparison to the previous quarter primarily due to a slight decrease in total inventory volume, partially offset by higher anticipated future sales prices, and decreased in comparison to the third quarter of 2023 due to reduced inventory offset by lower lumber prices.

We expensed countervailing (" CV ") and anti-dumping (" AD ") duty deposits of $0.2 million in the third quarter of 2024, $1.1 million in the previous quarter and recognized a favourable duty adjustment of $0.4 million in the third quarter of 2023 for the recognition of duty overpayments and interest accrued on duty overpayments. In August, the duty rate increased from a combined rate of 8.05% to a combined rate of 14.4%. Export taxes during the third quarter of 2024 were lower than the previous quarter due to a decrease in overall shipped volume and lumber prices, combined with reversing a portion of the duty expense related to the final rates associated with the fifth administrative review and the interest accrued on the overpayments as was done in the same quarter of the previous year. In total we have deposited US$37.1 million net of duty sales.

Bioenergy Operations
Our Power Plant sold 25.9 GWh of electricity under our EPA with BC Hydro in the third quarter of 2024 representing approximately 48% of targeted operating rates. Our Power Plant sold 38.0 GWh in the second quarter of 2024 and 56 GWh of electricity in the third quarter of 2023. Production in the third quarter of 2024 was lower than in the second quarter of 2024 because of a two-week extension to the planned annual shutdown that extended into mid July, combined with a five-week curtailment to end the quarter related to the threat of a transportation disruption from t v4he CN labour strike and the corresponding impact to the sawmill side of the business. The reduction in generation relative to the same quarter in previous years was a result of fewer operating days.

Electricity production contributed revenues of $3.2 million in the third quarter of 2024, $4.5 million in the previous quarter and $7.1 million in the third quarter of 2023. Lower operating days were the driver of the reduced revenues.

Selling, General and Administrative Costs
Selling, general and administrative (" SG&A ") costs decreased between the third quarter and second quarter of 2024 and decreased between the third quarter of 2024 and the third quarter of 2023. SG&A costs were $1.3 million in the third quarter of 2024, $1.9 million in the previous quarter and $3.3 million in the third quarter of 2023. The decrease in SG&A costs relative to the previous quarter and the third quarter of 2023 were largely due to a decrease in outstanding share-based compensation and a reduction in overhead costs.

Finance Costs and Accretion
Finance costs and accretion totaled $1.8 million in the third quarter of 2024, $2.8 million in the previous quarter and $1.2 million in the third quarter of 2023. The decrease in finance costs quarter over quarter was primarily related to the retirement of our then-existing lumber segment credit facility with Wells Fargo Capital Finance Corporation Canada in the second quarter of 2024. The year over year increase was primarily due to interest costs associated with $25 million secured term loan (the " PenderFund Term Loan ") with Pender Corporate Bond Fund.

Other Income
We recognized minimal other income in the second and third quarter of 2024 and in the comparative quarter of 2023. In the first quarter of 2024, we recognized $3.0 million in other income for insurance proceeds from the loss of our Osilinka logging camp. Insurance proceeds were received in the second quarter of 2024.

Foreign Exchange Translation Gain or Loss
The foreign exchange translation gain or loss recorded for each period on our statement of net income results from the revaluation of US dollar-denominated cash and working capital balances to reflect the change in the value of the Canadian dollar relative to the value of the US dollar. US dollar-denominated monetary assets and liabilities are translated using the period end rate.

The US dollar averaged US$0.733 for each Canadian dollar during the third quarter of 2024, a level which represented a modest strengthening of the Canadian dollar over the previous quarter1.

The foreign exchange translation impacts arising from the variability in exchange rates at each measurement period on cash and working capital balances resulted in a foreign exchange translation gain of $0.2 million in the third quarter of 2024, compared to a nominal foreign exchange translation gain in the previous quarter and a loss of $0.2 million in the third quarter of 2023.

Income Tax
We recorded income tax recovery of $4.3 million in the third quarter of 2024, $2.7 million in the previous quarter and $3.7 million in the third quarter of 2023. The increase in recovery in the third quarter of 2024 relative to the second quarter of 2024 is due to an adjustment from the prior quarters, and the recovery in the third quarter of 2024 was comparative relative to the third quarter of 2023 even though the net loss in 2023 was much higher.

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities on our balance sheet and the amounts used for income tax purposes. As at September 30, 2024, we have recognized deferred income tax assets of $10.5 million, compared to $6.7 million in the previous quarter and $3.0 million in the third quarter of 2023.

________________________
1 Source: Bank of Canada,

Financial Position and Liquidity

Overall debt was $77.6 million at September 30, 2024, compared to $74.1 million at June 30, 2024, and $65.6 million at September 30, 2023. The increase in overall debt between the third and second quarter was driven by an additional $2.5 million in the final draw against the PenderFund Term Loan, offset by payments against operating leases. The term loan supporting our bioenergy operations (the " Power Term Loan "), which is largely non-recourse to our lumber operations, represents a substantial portion of our outstanding long-term debt. At September 30, 2024, we had $48.7 million outstanding on our Power Term Loan, while our remaining long-term debt consisting of leases, was $3.1 million.

At September 30, 2024, we had available liquidity of $2.4 million comprised of unrestricted cash. This is a decrease from our available liquidity of $13.4 million as at June 30, 2024 and a decrease from our available liquidity of $16.0 million as at September 30, 2023. The change in liquidity in the third quarter of 2024 compared to the second quarter of 2024 is due to increased inventories and trade receivables and our $2.5 million draw against the PenderFund Term Loan. The change in liquidity in the third quarter of 2024 compared to the third quarter of 2023 is due to lower lumber prices and increasing inventories as well as fewer operating days.

Like other Canadian lumber producers, we were required to begin depositing cash on account of softwood lumber duties imposed by the US government in April 2017. Cumulative duties of US$37.1 million paid by us, net of sales of the right to certain refunds, since the inception of the trade dispute remain held in trust by the US pending administrative reviews and the conclusion of all appeals of US decisions. Future cash flows could be adversely impacted by the CV and AD duty deposits to the extent additional costs on US destined shipments are not mitigated by higher lumber prices.

Outlook

We continue to believe that the bottom in SPF lumber prices is behind us given the production curtailments implemented by other lumber producers. Looking ahead to the final quarter of 2024, our average mill net selling price through the first six weeks of the quarter was 17.5% higher than the average achieved for the third quarter of 2024. With a continuation of these prices, we would expect a significant positive impact to our fourth quarter EBITDA.

Conference Call

We have scheduled a conference call on Wednesday, November 13, 2024 at 8:00 AM Pacific time / 11:00 AM Eastern time to discuss the third quarter 2024 financial and operating results. To participate in the call, please dial toll free 1-800-806-5484 and enter the participant passcode 2330380#.

Our management's discussion and analysis and financial statements for the quarter ended September 30, 2024, are available under our profile on SEDAR+.

For further information, please contact:

Trevor Pruden
Chief Financial Officer
(604) 216-2949

About Conifex Timber Inc.

Conifex and its subsidiaries' primary business currently includes timber harvesting, reforestation, forest management, sawmilling logs into lumber and wood chips, and value added lumber finishing and distribution. Conifex's lumber products are sold in the United States, Canadian and Japanese markets. Conifex also produces bioenergy at its power generation facility at Mackenzie, B.C.

Forward-Looking Statements

Certain statements in this news release may constitute“forward-looking statements”. Forward-looking statements are statements that address or discuss activities, events or developments that Conifex expects or anticipates may occur in the future. When used in this news release, words such as“estimates”,“expects”,“plans”,“anticipates”,“projects”,“will”,“believes”,“intends”“should”,“could”,“may” and other similar terminology are intended to identify such forward-looking statements. Forward-looking statements reflect the current expectations and beliefs of Conifex's management. Because forward-looking statements involve known and unknown risks, uncertainties and other factors, actual results, performance or achievements of Conifex or the industry may be materially different from those implied by such forward-looking statements. Examples of such forward-looking information that may be contained in this news release include statements regarding: the availability and use of credit facilities or proceeds therefrom; our level of liquidity and our ability to service our debt; the realization of expected benefits of completed, current and any contemplated capital projects and the expected timing and budgets for such projects, including the build-out of any high-performance computing or data center operations; the growth and future prospects of our business; our expectations regarding our results of operations and performance; our planned operating format and expected operating rates; our perception of the industries or markets in which we operate and anticipated trends in such markets and in the countries in which we do business; fluctuations in stumpage rates; our ability to supply our manufacturing operations with wood fibre and our expected cost of wood fibre; our expectation for market volatility associated with, among other things, the softwood lumber dispute with the US; potential negative impacts of duties or other protective measures on our products, such as antidumping duties or countervailing duties on softwood lumber; continued positive relations with Indigenous groups; the development of a longer-term capital plan and the expected benefits therefrom; demand and prices for our products; our ability to develop new revenue streams; our expectations about discussions with United Steelworkers concerning renewal of the collective labour agreement in respect of our Power Plant employees; the outcome of any actual or potential litigation; future capital expenditures; and our expectations for US dollar benchmark prices. Material factors or assumptions that were applied in drawing a conclusion or making an estimate set out in the forward-looking statements may include, but are not limited to, our future debt levels; that we will complete our projects in the expected timeframes and as budgeted; that we will effectively market our products; that capital expenditure levels will be consistent with those estimated by our management; our ability to obtain and maintain required governmental and community approvals; the impact of changing government regulations and shifting political climates; that the US housing market will continue to improve; that transportation services by third party providers will continue uninterrupted; our ability to ship our products in a timely manner; that there will be no additional unforeseen disruptions affecting the operation of our Mackenzie power plant and that we will be able to continue to deliver power therefrom; our ability to obtain financing on acceptable terms, or at all; that interest and foreign exchange rates will not vary materially from current levels; the general health of the capital markets and the lumber industry; and the general stability of the economic environments within the countries in which we operate or do business. Forward-looking statements involve significant uncertainties, should not be read as a guarantee of future performance or results, and will not necessarily be an accurate indication of whether or not such results will be achieved. A number of factors could cause actual results to differ materially from the results discussed in the forward-looking statements, including, without limitation: those relating to potential disruptions to production and delivery, including as a result of equipment failures, labour issues, the complex integration of processes and equipment and other similar factors; labour relations; failure to meet regulatory requirements; changes in the market; potential downturns in economic conditions; fluctuations in the price and supply of required materials, including log costs; fluctuations in the market price for products sold; foreign exchange fluctuations; trade restrictions or import duties imposed by foreign governments; availability of financing (as necessary); and other risk factors detailed in our 2023 annual information form dated March 31, 2024 and our management's discussion and analysis for the year ended December 31, 2023 and the quarter ended September 30, 2024 available on SEDAR+ at and other filings with the Canadian securities regulatory authorities. These risks, as well as others, could cause actual results and events to vary significantly. Accordingly, readers should exercise caution in relying upon forward-looking statements and Conifex undertakes no obligation to publicly revise them to reflect subsequent events or circumstances, except as required by applicable securities laws.

MENAFN12112024004107003653ID1108879472