Q – Mark Weintraub: Thank you. Thanks for the details, Dave, Mark. So first, just a couple of questions, if I could. One, so the more tensioned wood baskets in the South, which help you when things are good. Does that mean that things soften a bit more when things are weak and then you get more upside when they tighten again in the future kind of similar to how in the Pacific Northwest, there’s a bit more volatility or not necessarily? What’s your view on that?
David Nunes: Yes. Good morning. This is Doug. I’ll take a swing at that one first. Yes, I think you’ve kind of categorized that correctly. For example, some of the highest-priced baskets that we saw the biggest year-over-year improvements in 2022, and while we’re seeing some decline relative to those levels reached last year, the absolute pricing level in the major markets are still very favorable compared to the South as a whole and we’re still seeing weighted average total pricing seeing 2021 levels. But I think that price elasticity, you point out, is exactly right that when there’s tension we see prices really ramp up, but then we also can see them slowly come back down off this sometimes.
Mark McHugh: I think it’s also worth noting, Mark, that the overall pricing is quite a bit higher in those tension markets. And so again, we saw very significant lifts in ’21 and then again in 2022 in some of those more tensioned markets, whereas bottom quartile markets really saw a relatively flat pricing or very modest increase. And so again, while we have seen prices come off, those extraordinary highs that we saw in 2022, the absolute pricing level in those markets is still considerably higher.
Mark Weintraub: Understood. And then second, in New Zealand, if I could kind of look back the last since 7, 8 years, EBITDA range from $55 million, I think, to $100 million plus. And your guidance for next year is obviously towards the low end of what we’ve seen. Can you talk about kind of what you think the medium to longer term right type of normalized level is? And how important is China to where – when we start seeing higher profitability there? And then any more color you can provide about the changes in the China property market initiatives and – et cetera, as to how that might factor into the timing of when the improvement might develop?
Mark McHugh: Yes, sure, Mark. This is Mark. I’ll take that. I mean in terms of a normalized EBITDA there, again, we – to your point, I mean, we’ve seen EBITDA as low as the 30s back a number of years ago and sort of peaking probably in the ’90s. And so New Zealand has always been more volatile, and that’s really driven by the much more heavy reliance on export markets, just the cost structure there. A lot of the land is – is leased. You’ve got a much higher cost component in terms of delivering wood in the export market. So obviously, headline price volatility translates to greater margin volatility in New Zealand, certainly relative to, say, the U.S. South where we’re – a lot of our sales are stumpage. And so it’s a very high EBITDA margin on the stumpage sales.
Yeah, I certainly don’t think that New Zealand is going to retreat to levels that we saw in ’13, ’14, ’15. But obviously, we’ve normalized kind of off of the levels that we saw 3, 4 years ago as well. I think – as it relates to China, obviously, China was very challenged in 2022, given the COVID containment measures, as well as some challenges in the property sector there. I’d say we’re very optimistic that now that China is reopening. We’ve already seen some bounce back in export pricing there. As the supply chain in general has loosened up, we’ve seen some relaxation of export freight costs there. And obviously, carbon has been a bright spot in New Zealand as well. So a lot of moving pieces, I’d be reluctant to kind of characterize what we see as a normalized EBITDA.
But certainly, we’re hopefully trending back towards that type of level here as we move into 2023.
David Nunes: Mark, this is Dave. I’d add just a couple of things I’d add to that is keep in mind that a lot of the drivers are also around relative supply from other regions and you’ve had historically, a lot of wood going into China from Russia as well as Australia. Those two sources are essentially done. And what really overwhelmed the last number of years was flow of salvage wood from Europe, which took Europe’s market share from essentially next to nothing to write behind New Zealand. And so I think where we have a lot of optimism is that is tapering off as they’ve essentially gone through that wood. And we feel like New Zealand is very well positioned going forward, and we expect to see less volatility certainly than we had over the last year in things like shipping costs.
And so notwithstanding some of the headwinds in 2022, we remain pretty optimistic about how that’s positioned. And it shows in our cash flow generation on a per acre basis is superior to all of our other regions.
Mark Weintraub: Right. And I guess – and I recognize you’re juggling lots of variables coming up with your various outlooks by regions. But I know it’s kind of the range you had for New Zealand is actually maybe less wide than you had it for some of the U.S. regions, which I guess surprised me a little bit given the uncertainties of exactly when and how China plays out, as well as the historical greater volatility. And I don’t know if that’s communicating something specific? Or again, it’s really just a function of your juggling lots of variables and coming up with your best assessments and that’s the way it came out? Any color on that?
David Nunes: Yes. This is Doug again. I’ll take the start this one. I think what that shows is we really are having some optimism around what’s happening in China as they come out their COVID restrictions. Prior to the Lunar New Year, we saw demand really pick up. The headline numbers only averaged 55,000 cubes per day, which doesn’t sound that amazing. But really, what we saw is a real pickup towards the right before the Lunar New Year. And as mentioned by, I think it was Mark, we’ve seen a trend where the long brokers have additional confidence now to hold inventories because they’re forecasting higher demand and pricing after the holidays. So we’re seeing some potential really green shoots in that area. And then with – I think you mentioned there that the property markets, and we’ve seen quite a bit – policymakers and to governments have pledged quite a bit of money to restart construction in the areas, and we’re seeing that start to flow back through into demand also.
So the People’s Bank of China have recently launched a CNY 200 billion relending program and quite a few regional banks have also kind of matched that. And so kind of what we’re hearing kind of on the ground is that expecting property sales to stabilize at lower levels, obviously, in these coming months, but then to rebound gradually from the second quarter onward. And that’s really being help with that reopening of China.
Mark Weintraub: Okay. I promise you, last one just on the same thing. So I guess what I’m trying to understand is if things play out as you are kind of seeing, is that particular – New Zealand, is that one region where maybe if we look into next year, you can really get an outsized increase relative to what one might expect in North America? Or is that not necessarily a right avenue to be thinking about at this point? Again, I apologize because that’s looking quite far out.
David Nunes: I mean, it’s certainly possible, Mark. Again, if you look at where New Zealand EBITDA has been last year and kind of what we’re forecasting for 2023, it’s generally kind of below the level that we’ve averaged for the last 5 years. And so ’22 is obviously very challenging. We’re expecting to see some recovery in 2023. And to your point, if that trajectory continues, we’re obviously not providing 2024 guidance, but you could certainly see some outsized gains there.
Mark McHugh: I would just add one more thing that’s kind of probably not appreciated a little more in the details. But due to some few mega issues that we’ve had being banned in New Zealand, the India market has not been an option for us for most of last year. And we’re seeing discussions between India and the New Zealand official is basically around that. And so we think that, that market to India could also open up for us in this current year and the next year. So some more optimism around that.
David Nunes: I think another – lastly, Mark, I think another thing to think about is, historically, carbon credit sales have not been a very big factor in New Zealand, and that market has really evolved to a point where it’s making meaningful contributions last year, and we expect that’s going to play a role going forward as well.
Mark Weintraub: Appreciate all the details. Thanks a lot.
Operator: Thank you. Our next question comes from Paul Quinn with RBC Capital Markets. Your line is open.
Paul Quinn: Yeah. Thanks very much. Morning, guys. Just following up Dave on your comment on carbon markets. I saw that $21 million in sales in New Zealand in ’22 versus kind of just over the $1 million that you did in ’21. Maybe you could give us a background of what those – how you achieved that and what your expectation is for ’23?
David Nunes: I’ll start on that, and I’ll let Doug provide a little bit more color. Keep in mind that historically, the carbon credit market there had been at a fairly low pricing level. And so we had sort of taken a very opportunistic approach. It was one of the reasons that we really didn’t have much in the way of sales a couple of years ago, but that market really took off. And they conduct quarterly auctions by the government where they release carbon credits out onto the market, and we watch that pretty carefully. And that started giving us confidence that that the market was going to head up. And some of that’s also predicated on prices that the government sets where they will release incremental carbon credits onto the market.
And those prices tended to lead the market up. And so it gave us a lot of confidence to bring more volume forward last year of our credits. And Doug can provide a little bit more color as to as to where we stand on the credits as we enter this year, but it’s definitely playing a bigger role in how we think about those – that region.
Douglas Long: Yes. Thanks, Dave. I think as Dave mentioned, with those auctions, the government does set these cost containment reserve prices that basically at that point, if the price is reached, they’ll release some more credits into the market. And so they often kind of do tend to set I wouldn’t say a floor, but that’s where targeting seems to be towards. And so we saw – the current one is around $80. And so we saw pricing last year in the $70 to $80 range. And as Dave said, it’s markedly up from years before where it’s been as low as single digits to probably more recently in the $30 to $40 range. So we saw a pretty drastic step-up and the opportunity to execute on those as we said, the opportunistic around that.
David Nunes: Those are all New Zealand dollars…
Douglas Long: Sorry, all New Zealand dollars. Yes, thanks, Dave for correction on that. And as we go into this year, we’re building new units as we go, growing them up, but we also come in with roughly around 1.6 million in the use that we had. We do have to surrender units as we harvest and then we also gain units as we grow timber. And so as we go through the year, we have the opportunity to sell some more and can be somewhere. I don’t want to give out our exact – what our plans are to the market but exceeded at the end of the year over 2 million units type of thing and potentially more than that, just depends on how we see the pricing flow through year and how we side to execute.
Paul Quinn: Okay. And if I could compare that to what you’re seeing in North American markets on the carbon side?
