CatchMark Timber Trust, Inc. (CTT) CEO Brian Davis on Q1 2020 Results - Earnings Call Transcript

CatchMark Timber Trust, Inc. (CTT) Q1 2020 Earnings Conference Call May 5, 2020 10:00 AM ET

Company Participants

Ursula Godoy-Arbelaez - Senior Vice President, Chief Financial Officer and Treasurer

Brian Davis - President and Chief Executive Officer

Todd Reitz - Senior Vice President and Chief Resources Officer

Conference Call Participants

Collin Mings - Raymond James & Associates, Inc.

David Rodgers - Robert W. Baird & Co. Inc.

Paul Quinn - RBC Dominion Securities Inc.

Operator

Good morning, and welcome to the CatchMark Timber Trust First Quarter 2020 Earnings Conference Call and Webcast. All participants will be in a listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. Please note the event is being recorded.

I would like to turn the conference over to Ms. Ursula Godoy. Please go ahead.

Ursula Godoy-Arbelaez

Good morning, and thank you for joining us for a review of CatchMark Timber Trust results for the first quarter 2020 and a report on business-related impact of the ongoing COVID-19 pandemic. I am Ursula Godoy, Chief Financial Officer of CatchMark. Joining me today on the call are Chief Executive Officer, Brian Davis; Chief Resources Officer, Todd Reitz; and John Rasor, President of Triple T Timberlands.

During this call, CatchMark management will make forward-looking statements. These forward-looking statements are based on management's current beliefs and the information currently available. CatchMark's actual results will be affected by certain risks and uncertainties that are beyond its control or ability to predict, and could cause our actual results to differ materially from expectations.

For more information about the factors that could cause such differences, we refer you to our 2019 annual report on Form 10-K and subsequent reports that we filed with the SEC, including our quarterly report on Form 10-Q for the first quarter 2020.

Today's presentation includes certain non-GAAP financial measures. Reconciliations of these measurements are included in our earnings release, which is posted on our website. After our presentation, Brian, Todd, John and I will be pleased to answer any of your questions.

Now I turn over the call to Chief Executive Officer, Brian Davis.

Brian Davis

Thank you, Ursula, and thank you all for joining us this morning. On our call today, our team will review CatchMark's excellent first quarter 2020 results, discuss our liquidity and the impacts of COVID-19 on CatchMark's operations and provide our updated 2020 guidance as a result of recent events.

To begin, all of us at CatchMark hope you are well and safe, and that your friends, family and colleagues have managed to stay healthy during this unprecedented time. At CatchMark, we have focused on working to ensure necessary social distancing for safety of all of our employees, customers, vendors and business associate. In the field, our operations have not been materially affected given how harvesting work is undertaken. Distancing is part of that equation.

We have been extremely disciplined, maintaining frequent communications and connectivity with our customers to be as responsive as possible to their supply chain need. And our fiber supply agreements and delivered wood sales relationships provide an edge in facilitating customer supply chain requirements and keeping CatchMark first in line for meeting demand. Our business model and strategy, put in place since the IPO, continue to serve us well.

We remain focused on owning prime timberlands and high demand mill markets and managing operations to generate predictable and stable cash flow throughout the business cycle. As a result, CatchMark reported very strong first quarter performance. We registered a substantial year-over-year increase in total revenues and a significant increase in adjusted EBITDA, timber sales, harvest EBITDA and cash flow from operations. These results exceeded our expectations and we are not materially affected by COVID-19.

Strong performance was driven by higher year-over-year harvest volumes, timberland sales and asset management fees. Once again, our high-quality timberlands and superior mill markets delivered. And in the U.S. South, our pricing continued to register premiums well above regional averages.

And yesterday, we declared a second quarter $0.135 per share dividend for stockholders of record on May 29, 2020, payable on June 15. We expect to cover our dividend from operating cash flows and cash on hand for the rest of the year.

Before we discuss the first quarter and our outlook for the remainder of the year, I want to provide some overall observations about the impact of COVID-19 at CatchMark. Manufacturers have been hard hit by the sharp drop in lumber prices and demand volatility impacting their operations. Since we are not a manufacturer, we have not been subject to these shocks in the same way. We are not a developer either, so we have also not been impacted as directly by curtailment in that activity.

Our delivered wood sales model and fiber supply agreements continue to support pulpwood harvest volume targets. We see no drop-off in demand for pulpwood in our superior U.S. South mill markets and have adjusted our harvest plans to meet this demand, stepping up thinning activity, which was part of our seasonal plan in any case. And this is good news for us since pulp was 50% to 60% of our harvest mix.

Sawtimber demand has begun to recover. After a significant three week slowdown in early April, no customers in CatchMark markets has started to fill new orders based on supply chain demand. We expect a gradual rebound between now and the end of the year based on what happens in the housing market and with commercial construction.

We are completing timberland sales and have closed on $1 million of timberland sales to date in the second quarter. We anticipate additional transactions during the quarter and our pipeline remains active for the remainder of the year, although transactions are generally taking a bit longer to complete.

The Triple T joint venture is operating to plan and provides a significant and reliable asset management fees. Company liquidity is sound, thanks to the deleveraging we have undertaken over the past 18 months. In addition, we have just completed an amendment to our credit agreement to loosen financial covenants and increase working capital liquidity by $25 million or 250%.

We also have no near-term exposure to refinancing or maturity risk. And as already noted, we expect to cover our dividend with cash flow from operations, and if needed, with cash on hand for the remainder of the year. COVID-19 is having a profound effect on the economy. For CatchMark, particularly with regard to sawtimber, the impacts relate to deferring some revenue, not losing revenue.

Our trees are still growing in the forest and the raw materials we provide cause us to be an essential business. Our operating model based on owning and investing in the highest quality timberlands near superior mill markets and working with credit-worthy counterparties has positioned us to manage through this period. Our recent capital redeployment and deleveraging is also paying off and providing us ample liquidity.

I will discuss our outlook for the remainder of the year later, but now I want to turn it over to Ursula and Todd to cover first quarter results, operations and capital position in greater debt. Ursula?

Ursula Godoy-Arbelaez

Thank you, Brian. As Brian highlighted, CatchMark had an excellent first quarter, delivering significant year-over-year gains with minimal impact from COVID-19. We increased revenues to $27 million, a 19% gain over first quarter 2019. We decreased net loss to $4.2 million, primarily due to decreased losses allocated from the Triple T joint venture. We increased adjusted EBITDA to $12.9 million, a 27% gain over first quarter 2019.

Timber sales revenue increased by 10% to $18.2 million, net timber revenues increased by 18% to $10.9 million and harvest EBITDA increased by 19% to $8.6 million compared to first quarter 2019. All of these gains were driven by higher harvest volumes led by the U.S. South where volumes increased by 18% year-over-year to nearly 570,000 tons, driven by opportunistic stumpage sales.

Pacific Northwest harvest volume increased to 25,000 tons from 4,800 tons in first quarter 2019. We generated $3 million in asset management fee revenues from Triple T and Dawsonville Bluffs joint ventures, including incentive-based promotes for Dawsonville Bluffs exceeding return hurdle.

We sold 3,000 acres of timberland for $4.8 million compared to 900 acres for $2.1 million in first quarter 2019. The lower year-over-year per acre sales price resulted from lower average merchantable inventory stocking level, 15 tons per acre compared to CatchMark's portfolio average of 42 tons per acre and also from CatchMark retaining through timber reservations over 90,000 tons of merchantable inventory with a 49% sawtimber mix.

We completed a $21.3 million large disposition of 14,400 acres, recognizing a gain of $1.3 million and paying down debt by $20.9 million with the proceeds. And we paid a dividend of $0.135 per share to stockholders of record on March 16, 2020.

Asset management fees provide a reliable revenue stream for CatchMark, again, largely from Triple T. Of the $3 million in asset management fees realized during the quarter, Dawsonville Bluffs, which has largely one down, delivered an incentive-based promote for exceeding investment hurdle.

We also received $400,000 in cash distributions from Dawsonville Bluffs, which had a mitigation bank with a book basis of $2.6 million remaining in its portfolio as of the end of the first quarter. Since inception in April 2017 through the end of the first quarter, CatchMark had received $13.7 million in cash distributions from its $10.5 million investment in the joint venture.

Deleveraging has been a primary management objective, and we continue that process in the first quarter. We paid down outstanding debt on our multi-draw term facility by $20.9 million with net proceeds from the Georgia timberlands large dispositions completed in January.

Also during the first quarter and prior to the onset of the pandemic, we moved to increase our working capital and loosened existing financial covenants by amending our credit facility. We completed that amendment just last week, increasing working capital liquidity by $25 million or by 2.5x.

The amendment to the credit facility has also reduced our acquisition line of credit from $200 million to $150 million, which lowers our unused commitment fees, while still providing ample investment liquidity for future growth opportunities. As of today, CatchMark has access to nearly $156 million of additional borrowing capacity under our credit facility. To date, we have not drawn down on the revolver and do not anticipate doing so.

We also have no maturity or refinancing risk on our long-dated debt. And over the past year, we took advantage of low interest rates to reduce our borrowing costs. In addition, CatchMark had a cash balance of $10.4 million as of March 31, 2020.

During the quarter, CatchMark repurchased 296,000 shares for $1.9 million under the company's share repurchase program. The program had $13.8 million available for future repurchases at quarter's end. Taken altogether, deleveraging, capital recycling, fourth quarter 2019 execution of our interest rate risk management strategy, the recent credit facility amendment and our projected operations, we believe CatchMark is well positioned to manage COVID-19. Our liquidity is ample.

Now to provide greater insights into operations, I want to hand it over to Todd.

Todd Reitz

Thanks, Ursula. Looking at first quarter operations, although year-over-year pricing for timber sales was lower as expected, CatchMark benefited from achieving relative pricing premiums in our prime mill markets.

As you may recall, there was a weather-related spike in prices during the first quarter 2019. As a result, our first quarter 2020 realized stumpage prices for pulpwood and sawtimber were lower 11% and 6% respectively than first quarter 2019, trending with 15% and 8% decreases in regional average pulpwood and sawtimber stumpage prices, but compared to TimberMart-South southwide averages, CatchMark realized a 50% premium in pulpwood pricing and a 21% premium in sawtimber pricing.

We opportunistically increased stumpage sales to capitalize on customer demand, while maintaining sales under our delivered wood program and fiber supply agreements, which provide a reliable source of demand from creditworthy counterparties. That increased our harvest volumes and boosted our overall quarterly results.

We began to see the impacts of the COVID-19 pandemic only at the very end of the quarter, and the negative effects concentrated in sawtimber markets, which experienced a significant slowdown.

Pulpwood demand has remained strong and is advantageously dovetailed with our plan to execute on seasonal thinning priorities. Since residual chip production from sawmills has been reduced or in low supply, our stepped up pulpwood harvest can help fill the void and meet increasing demand from pulp facilities.

In short, sales under our supply agreements on the pulpwood side have not dropped off and we are in constant communication with our counterparties to meet their needs. In addition, our delivered wood model also positions us favorably in the supply chain.

By mid-April, sawmills began to restart activity and we began to fill new orders that are closely aligned with now increasing supply chain demand. The immense number of unemployment claims and stock market losses and investment portfolios way down housing market demand, at least for the short-term.

It remains to be seen how to gauge a housing rebound and in particular the velocity of a rebound in sawtimber demand. But indications are that commercial and residential building contractors will be given a priority return to work in most states as social distancing restrictions are eased. So we are cautiously optimistic about measured improvements based on renewed construction as well as repair and remodeling activity.

Of course, this all depends on the virus and how further spread is controlled. For now, sawmills remained cautious and understandably are not ready to start rebuilding inventories. We are continually modifying our volumes to keep in sync with mill quotas, which appear to be increasing on a day-to-day basis, at least for now. Again, our always strong connectivity through our delivered wood model helps us maintain or opportunistically increase volumes in such problematic and volatile market conditions.

With all this in view, I'll return it back to Brian to discuss how we see the rest of the year playing out.

Brian Davis

As Todd just referenced, our business model bolsters our confidence in meeting current challenges and our continuous monitoring of our mill markets in contact with customers and counterparties indicate trending improvements under way in sawtimber demand.

We also gained confidence from our liquidity position. But we must balance these positive with the ongoing uncertainty about containment of the virus and unpredictability about its course. Hurdles almost certainly lie ahead in this demanding time.

And so let me address guidance. As a result of the pandemic-driven economic downturn and assuming a moderate economic rebound over the remainder of the year, we have revised part of our guidance for full-year 2020.

We now project a GAAP net loss of between $10.2 million and $12.2 million. Adjusted EBITDA between $43 million and $50 million, harvest volumes between 2.2 million tons and 2.4 million tons, a reduction of less than 10% due to lower sawtimber volumes, and timberland sales of $13 million to $15 million.

Our original 2020 full-year guidance has not changed for pulpwood volumes, harvest volumes derived from the U.S. South region, which remain approximately 95%, sawtimber mix, which remains at approximately 40% in the U.S. South and approximately 80% in the Pacific Northwest. And asset management fee revenue, which remains between $11 million and $12 million.

Despite the pandemics toll on the overall economy, we expect to continue to meet our goal of delivering an attractive dividend, fully covered by cash flow from operations and cash on hand.

To sum up, taking all we have considered into account and compared to many other industries and companies, our team at CatchMark believes we are well positioned given the demanding environment.

We are an essential business. We have a superior business model that we have developed and expanded since our IPO. We had a very strong first quarter, substantially increasing revenues and adjusted EBITDA year-over-year.

Our deleveraging strategy has increased liquidity and improved our capital structure, helping meet head on the challenges of COVID-19. Our people are all working remotely or in the field with little or no disruption to our operations. Social distancing is working for us and everyone has remained safe, which is most important.

Our pulpwood market demand remains strong and we have been nimble to adjust harvest to meet that demand. Triple T will continue to deliver steady asset management fees and is operating the plan. Timberland sales continue. Timberland valuations historically do not fluctuate that much and our assets continue to hold value in the forest.

Sawtimber harvest maybe deferred in the near-term, but future harvest of our assets will produce solid revenues as markets improve. Those revenues have not been lost, and we expect to meet our key objective to stockholders by generating durable and predictable cash flows we anticipate being able to deliver an attractive dividend for the remainder of the year.

Before we move to questions, all of us on the CatchMark team want to recognize the remarkable guidance we have received from our Chairman, Willis Potts, who is retiring from the Board at our Annual Meeting in June. We also want to acknowledge with deep appreciation the distinguished service of Don Moss, who is also retiring from the board in June. Thank you so much, Willis and Don for all your contributions over the last 14 years.

We also look forward to continue to work closely with our new Chairman, Doug Rubenstein, who will succeed Willis upon his retirement. Doug joined the board as an Independent Director, and we expect to – seven years ago and he has provided valuable insights and directions since that time.

We also want to welcome our two new Independent Directors; Tim Bentsen and Jim DeCosmo. Together, Tim and Jim bring broad leadership, industry and financial experience to further strengthen our Board and their contributions will be especially valuable given the times we are in.

With all this in mind, we hope you all remain healthy and safe. And now, we take your questions.

Question-and-Answer Session

Operator

We'll now begin the question-and-answer session. [Operator Instructions] First question comes from Collin Mings of Raymond James. Please go ahead.

Collin Mings

Thanks. Good morning.

Brian Davis

Good morning, Collin.

Collin Mings

To start, Brian, capital allocation priorities are clearly in the spotlight right now just given the uncertain operating environment and turmoil in the financial market. You touched on your commitment to the dividend in the press release as well as in the prepared remarks, but maybe thinking about it little bit differently. What would have to change for you to strongly reevaluate your payout?

Brian Davis

For us it's really – it become – well, one, we've couched this, right. So COVID-19 uncertainties surrounding magnitude and duration of the outbreak and social distancing measures. We don't know if it's a V or U or W recovery. And so from our standpoint, we're going to be taking a read regarding our liquidity around our business and about the impact that we're having on our cash flows.

f we really took a – look at two parts of our business that has that volatility, one, sawtimber demand, which Todd has alluded to and I'm sure we'll discuss more in the Q&A and land sales. Both of these are timing differences.

And so you've heard the confidence associated from Todd and the team regarding the execution of that. And our business model is pretty simple. We grow trees and business is good. So what would cause us to take a look at our dividend? That have to have a material impact. We would have to see a material reduction in the performance of our overall operations, which we're not anticipating seeing at this point in time.

And besides that, we have a period of time where we can quote be wrong from standpoint of our business because we have sufficient liquidity to smooth out those periods of time. And I think ultimately that's what you pay management teams do is to go through these volatile times and execute on our business strategy.

Collin Mings

Got it. And maybe just while we're talking about capital allocation priorities, just given – again, correct me if I'm wrong, it sounds like the focus is dividends over share buybacks here. But just given the uncertain outlook going forward and the reduction in guidance, how active do you plan to be repurchasing shares in the current environment?

Brian Davis

How about I give you this in rank of importance. After our dividends, it goes liquidity, debt reduction, share repurchases and the acquisition in that order.

Collin Mings

Understood. Switching gears. Todd, just curious, as you look across the U.S. South and reflect on the last few months, are variances in demand and pricing becoming more pronounced in the current environment just as you look at different wood basket?

Todd Reitz

Sure. Really as you think about where we sit with our ownership and where it's been built are really in some of the strongest markets as we've talked about over the years, really in the country and definitely in the south. And so being able to purpose build an ownership, if you will, it allows you to weather the storm a little better, if you will, right now. So from a pricing standpoint, we really haven't seen and really aren't anticipating a whole lot of price drops other than maybe some seasonal changes as you might expect around the pulpwood side.

From a sawtimber component, as far as that's concerned, you might see a moderate $1 or $2 drop during this time period and then tend to level out over the course of the year. For us right now, as we think about supply and what we have in place, it's really about where is our volume coming from.

As we noted, we have got a ramped up thinning program, if you will. In that we already had first thins and everything else queued up, and we've been doing some additional thinning and doing all we can to keep production moving. With that you have some added cost from thinning and maybe increased haul distances, those kind of things.

So we anticipate seeing a little bit of impact maybe on net margin for the quarter. But again, these things beginning to level out or smooth out over the course of the year. Really we haven't – and we've been very fortunate from a demand perspective, and in particular speaking of sawtimber here.

We never saw any mills completely go down. We saw and pulled back production in order to reduce their finished product inventory, if you will, in the very early onset of this. Since that time, we have seen orders recover, come back into place. Not to the full level pre-COVID by any means, but if you want to put a range around, we'll be looking at 60%, 70%, 80% depending on where you are within these micro markets that we operate in.

So we have a lot of confidence moving forward in the strength of our business, strength of our counterparties. And so we haven't seen maybe as severe drop as some of the other regions across the U.S. South.

Collin Mings

Understood. And maybe just sticking with what you're seeing out of the U.S. South right now, can you update us on log export effort? It sounds like there could be some positive momentum reemerging on that front based on comments from some peers.

Brian Davis

Yes, absolutely. And again, small percentage of what we do, as we've talked about and it's really focused on the Coastal Georgia, Savannah, South Carolina area and up and down the coast there. But we have seen a little bit of an uptick there where previously there were say three operators primarily running in that segment, if you will, that had gone down to one.

When all of the tariffs hit and as they've come off, we've seen a couple of producers come back in. A little bit of demand picking up from them, which has been great. So again, we're participating as best we can there based on it's a small percentage of what we do and where it sits in the ownership. But again, great to see the tension and good to see that returning.

Collin Mings

Okay. I will turn it over and jump back in queue. Thank you.

Brian Davis

Thanks, Collin.

Operator

Thank you. Next question comes from Dave Rodgers of Baird. Please go ahead.

David Rodgers

Yes. Good morning. Brian, maybe talk a little bit about the land sale guidance that you guys provided, maybe what is expected to see a little bit of weakness, even though maybe pricing doesn't have that much volatility, like you said in your prepared comments, but just in terms of access to capital for buyers and kind of the consistency of that number. So maybe address that a little further if you would?

Brian Davis

Sure, Dave. From our standpoint, we're still seeing good business activity. First quarter, obviously we reported some strong numbers and we indicated that we have closed on $1 million as of today and we still have a pretty good pipeline for the second quarter in of itself. What we're really talking about is a delay in the activity. Only about 40% to 50% of our dispositions are actually financed. And so by virtue of that process, you are seeing some slowdown.

The business people are still working deals together, people are still interested in a real asset. Typically, this is really wholesale to retail. And so that retail activity has remained active. And so our cautiousness around our number by bringing it down ever so slightly is really an issue associated with timing, not an issue on demand.

David Rodgers

Okay. That's helpful. And then you said Triple T operations really continued as expected in the quarter, but obviously the outstanding promote and the structure there, any updated thoughts as you get into the year? And do you anticipate any impact from COVID-19 in just kind of volumes there at all?

Brian Davis

Well, as it relates to our supply agreement under Triple T with our counterparty, we have two supply agreements; one with International Paper, the other one is Georgia Pacific. The activity levels there have been on top of the volumes. We have not any slowdown. We sell our product at a very competitive rate relative to market prices. And as a result, we've been a preferred supplier going into those mills. We anticipate and continue to anticipate operating at or above plan for the remainder of the year for Triple T.

David Rodgers

And then with regard to the structure and kind of promote opportunity there, any updated thoughts?

Brian Davis

Yes. Well, we've been in very active dialog with our counterparty at Georgia Pacific with no slowdown and the negotiation is attributed to the pandemic. We feel very good about the progress we've made over the last six to eight weeks as it relates to the renegotiation of the WSA.

As we've discussed before, Dave, the discussion associated to WSA and closing on something like that moves us an acceleration associated with the joint venture itself. And so by virtue of those actions, we feel comfortable where we are today, actually excited to about where we are.

We're cautious ourselves, our optimism associated with that because things change and nothing has been signed and we have to reach a mutually agreeable term and condition associated with that. And ultimately, if necessary, we can run the asset through the duration of the joint venture.

David Rodgers

Okay. Great. Thank you.

Brian Davis

Thank you.

Operator

Thank you. Next question comes from Paul Quinn of RBC. Please go ahead.

Paul Quinn

Yes. Thanks, guys. Good morning.

Brian Davis

Good morning, Paul.

Paul Quinn

Just overall questions, just a high level, we've had all the other timber REIT, your comparables report. You guys seem to be on the bullish end of the spectrum. What gives you that level of confidence?

Brian Davis

So from our perspective, Paul, it's really about our business model. I think we're seeing a lot of the same things that some of our peers are seeing as it relates to sawtimber volumes in of itself. But that's just one part of our business.

Again, we go back to, we are in the tree growing business and we have put our capital in the top markets in the U.S. South as well as the Pacific Northwest. And so our bullish view is based upon actual results, I think you heard Todd talking about the activity that we've seen over the last couple of weeks regarding increasing mill orders in of themselves.

It goes back to where we put the capital and who are counterparties are. We're not in the manufacturing business. We're not in the developed – lot development business. And so by virtue of those things, that's where our confidence comes from. It comes from the people that also are required in order to execute our great business model.

Paul Quinn

Okay. And just close to this, and G&A were up remarkably in the quarter. What's the expected run rate in 2020?

Ursula Godoy-Arbelaez

Yes. Hi, Paul. Good morning. This is Ursula. I'll take that question. From a G&A standpoint, you're right for your first quarter it was up by about $3.9 million versus last year. $3.5 million is really related to the post-employment benefits associated with the retirement of our prior CEO.

And so when you're looking at G&A for the year, really what you should anticipate is that the gross G&A is going to go up by that number, the $3.5 million. From a cash standpoint, it's really going to be pretty flat year-over-year.

Paul Quinn

That's all I had. Best of luck, guys.

Brian Davis

Great. Thanks, Paul.

Operator

[Operator Instructions] Our next question is a follow-up from Collin Mings of Raymond James. Please go ahead.

Collin Mings

Thank you. I just wanted to go back to actually Paul's question there, may be follow-up a little bit more. Todd, specifically for you, just as you discussed the operating environment with customers, just how concerned are you about the sustainability of that positive momentum you discussed over the last couple of weeks on sawlog demand?

So recognizing they would fall by a period where things really got really, really week for a period of time and things have started to bounce back. How concerned are you that this is just maybe a short-lived up balance?

Todd Reitz

Sure. So to your point, and maybe little anecdotally here for you as examples, we've seen, to your point, when all this really started to hit, if we were running at wide open and let's call it 100 loads a week and then all of a sudden we started seeing some of that drop down by call it 60%, 70%, it flattened out for a couple of weeks and then we've seen that begin to ease back up where orders are growing back in that, call it 70%, 75%, maybe 80%.

And so we are positioned where the capital has been spent on facilities. So you have very efficient mills that are operating now. You're beginning to see the benefit of the capital they've placed. And so from that, while maybe on a – and we'll call it as across the U.S. you may have had some announcements where facilities or customers were going down 70%, 80%, 30% here or there.

That's not applied equally across the landscape, if you will. So where we are positioned, those mills are maybe getting a little bit more the lion's share of the overall production for customer in their total land or their total footprint of their mills, if you will.

And so from that, we've been able to capitalize on the fact that we've got a delivered program, we tend to be closer to the frontline as far as getting orders in place. And again, it also goes back to, we're not 100% focused just on the sawmill side, yet 50% to 60% of what we're doing is on the pulp side. And those customers are all well positioned and running very, very well.

As you know, you've probably heard or seen where outages have been extended further out in the year, they're not taking them right now. So their run rate is a little more consistent. We're able to fill those orders on a more consistent basis and with less interruption, if you will.

So what we're seeing right now, looking forward, it feels as though the back to the sawmill customers, they have a little more clarity, if you will looking down the road to orders they're going to fill. Previously it was maybe one or two days in advance, a week at best. We're hearing from several now that it's two weeks, three weeks out, they're seeing orders. So they're feeling a little better about it. They've added some hours back at their facilities.

And while we feel really good about it, we recognize there is still a long road in front of us. We still need to see what's going to happen in Q3 and Q4 and all the other improvements that need to come with that. But as we sit right now, we feel very good about the counterparties we have and what we're hearing from them as far as their overall run rate going forward.

Brian Davis

So Collin – thanks, Todd. So Collin, from that standpoint, here the convention associated with what Todd is talking about these no orders, and I understand your question regarding sustainability. You're really asking is it a V, U, W type of recovery. We can react to what we're reacting to, which is what the activity is associated with the mill markets.

From a duration standpoint, we have to put the liquidity necessary in place. We have sufficient cash on hand. We are active. We continue to close on land sales. We continue to move product in the pulpwood side. And so all of those elements provide us the backbones, deals are nerves associated with our business model. And then you combine that with the people to execute associated with that. We feel very confident about where we are today.

And that comes – it may come across as bullish, but when you get to the line of scrimmage, you see and you call the right play, you feel pretty good about it based upon the results. And you saw those results based upon our business model in the first quarter.

Collin Mings

Appreciate the extra color there. I think just two points on that I want to follow-up on real quickly. Just on the pulpwood side, and again going back to the prepared remarks, it seems like again demand there clearly remains pretty solid, but not – maybe not as much pricing power as some would expect given the less amount or the fewer residuals coming from some sawmills given the downtime. So maybe just talk a little bit about the pricing dynamic on the pulpwood side a little bit?

Todd Reitz

Sure, Collin. So as you can imagine, we're not the only ones moving toward putting additional volume into pulp facilities. So yes, that would be great if we were the only one who could demand greater price out of all your counterparties. And the main thing is, they are being stable and consistent moving forward. They're seeing their orders being consistent.

So where you maybe would see a little bit of a price improvement is some facilities that we operate with may have a stud mill or something associated with it. Therefore, they can still bring in additional residuals as needed from that side of their business, but it's where it's not coupled up that we're seeing some opportunity there. But for the most part, it's a pretty stable and steady view going forward from our customers.

And additionally, with their added volume flow, other measures they are taking to make sure everybody is being safe for the COVID guidance that everybody has seen with no contact and less interaction with scale house people and one thing or another, deliveries can be a little slower in the mills, although they're still taking them and we still fully expect to meet our orders for the quarter. There is not that additional boost, if you will. The main thing is, we're staying right on track and pricing is staying in line with that.

Collin Mings

All right. And then the second part of kind of a follow-up to the commentary was just, recognizing the delivered model, just trying to get maybe a hand on maybe some of the relative success or relative optimism that again, Paul alluded to, is some of that you think a byproduct of some of the optionality within your mills or maybe asking that a little bit differently.

Is there more outlets that you're kind of having to move between in the current environment as far as maybe some customers that once taking downtime you're able to move to another customer, maybe just expand upon that dynamic? Is that maybe contributing to some of that relative optimism?

Todd Reitz

Sure. As we have talked about in multiple years and meetings and one thing or another is that having a delivered model that you have greater control over and greater connectivity with not only your fiber supply agreement partners, but any and all customers in each of these regions that we operate in, you tend to be more of a first phone call, if you will. And so you can read and react more quickly or even be proactive with customers because of the nature of the markets we're in.

There is one thing we don't really – we haven't talked much about is that there is not only your bigger players in these markets, you have some call it mom and pop or mills that are regional or just have one or two operations. They're all still running very well. They didn't see the buildup in their inventory coming into all of this. So they've been a little more consistent and we've been able to continue to participate in those areas.

Additionally, because of the delivered model, we have other customers that have seen volume going away because maybe it was flowing from only stumpage sales that they had with other locations. And so the delivered model has opened up and continues to open up doors for us and allows us to be again proactively customers and being able to move producers around to fill needs in a very timely manner.

Collin Mings

Appreciate the extra color there, Todd. Brian, recognizing you listed as the last thing on kind of the capital allocation priorities are really toward the bottom of that list was just acquisitions. But just maybe bigger picture, recognizing what 60 days or so into the pandemic, but just on the transaction front, what if anything are you seeing in terms of larger acquisition opportunities or large disposition opportunities in context of the current environment?

Brian Davis

Sure, Collin. So first is context, right? At $7 or $8 a share, it's hard to put acquisitions in front of the line. So that's an important consideration. So as it relates to acquisition activity, we actually had developed a pretty decent pipeline in our kind of targeted range of that the smaller end of the spectrum associated with acquisitions.

Again, we were seeing well stocked properties. We're essentially going through this process. We had a bit of the pause button. We're still seeing some deals in the marketplace. We're still actively engaged in some conversations, albeit that they've strung out.

There is capital in the marketplace, I can tell you that. We are seeing participants who have capital, who are inquiring about potential properties and larger dispositions. There's nothing notable out in the marketplace today. I think everybody is trying to figure out how thick the ice is before they venture out further out on the lake in regards to disposition or acquisition activity of any notable size.

Collin Mings

Appreciate the time this morning. Stay safe.

Brian Davis

Thank you so much. Appreciate it, Collin.

Todd Reitz

Take care.

Ursula Godoy-Arbelaez

Thank you.

Operator

[Operator Instructions] This concludes our question-and-answer session. I would now like to turn the conference over to Mr. Brian Davis, CEO for any closing remarks.

Brian Davis

Great. Thank you for your time. And we hope you and your loved ones remain healthy and safe and we look forward to talking to you next time.

Operator

Conference has now concluded. Thank you for attending today's presentation. You may not disconnect.