Mr. Robert McCurdy reports

PINNACLE RENEWABLE HOLDINGS REPORTS FISCAL 2018 THIRD QUARTER RESULTS

Pinnacle Renewable Holdings Inc. has released its financial results for the 13-week period and 39-week period ended Sept. 28, 2018.

Third quarter 2018 summary:

• Revenue increased 6.4 per cent to $87.6-million, compared with $82.4-million in third quarter 2017;
• Record volume of 421,000 metric tonnes (mt) shipped in the quarter led by a 4.7-per-cent same-facility production volume increase;
• Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) (1) totalled $14.5-million, compared with $16.8-million in third quarter 2017, reflecting the impact of CN rail disruptions, record B.C. forest fires and Entwistle facility commissioning issues;
• Net profit per share was four cents;
• Pinnacle announced an agreement to acquire 70-per-cent stake in an industrial wood pellet production facility in Aliceville, Ala., marking its entry into the U.S. southeast fibre basket and the formation of a new strategic partnership with the Westervelt Company;
• The company now expects to generate adjusted EBITDA (1) between $57-million and $60-million, below the fiscal 2018 guidance of $61-million to $65-million, due to the impact of commissioning costs and lower-than-expected production at the Entwistle facility in the quarter;
• At quarter-end, Pinnacle's contracted backlog was $5.0-billion and the weighted-average remaining life of the company's portfolio of offtake contracts was more than nine years.

"Our 4.7-per-cent same-facility production volume increase in third quarter 2018, compared with the same period last year, reflects strong production performance despite a challenging environment. Our operations in the quarter were impacted by the record level of forest fires in B.C., rail disruptions and Entwistle facility commissioning issues. With the fire season now over and our Entwistle storage silo now complete, we expect to realize higher production volumes and lower costs in the fourth quarter," said Robert McCurdy, chief executive officer. "The fourth quarter will also be highlighted by initial production volumes from our new Smithers, B.C., facility and our recently acquired production facility in Aliceville, Ala., in the important southeast U.S. fibre basket. During 2018, we will have added 795,000 metric tonnes of run-rate capacity, and we will be well positioned in 2019 to deliver from our nine production facilities."

Third quarter 2018 financial results

Revenue for third quarter 2018 totalled $87.6-million, an increase of 6.4 per cent compared with $82.4-million for the 13-week period ended Sept. 29, 2017. The increase was primarily attributable to increased sales volume and higher sales prices per mt, partially offset by a change in sales mix. Industrial wood pellet sales volumes increased 8.8 per cent to approximately 421,000 mt in third quarter 2018, compared with approximately 387,000 mt in third quarter 2017.

Adjusted gross margin (1) was $17.9-million, or 20.5 per cent of revenue, in third quarter 2018 compared with $19.4-million, or 23.5 per cent of revenue, in third quarter 2017. The decreases in adjusted gross margin (1) and adjusted gross margin percentage (1) were primarily due to higher cash conversion costs associated with the start-up at the Entwistle facility, partially offset by higher revenue from a planned higher sales price per mt. High repairs and maintenance expenditures at the Entwistle facility, related to initial delivery fibre quality issues, CN service failures and lower-than-projected production levels due to delays in construction of the storage silo, increased cash conversion costs by approximately $3.7-million.

Net profit and comprehensive income were $1.5-million in third quarter 2018, compared with a net loss and comprehensive loss of $6.0-million in third quarter 2017. The variance was primarily attributable to a $9.5-million decrease in other expense and a $2.1-million decrease in finance cost, partially offset by a $3.7-million decrease in profit before finance costs and other (income) expenses.

Adjusted earnings before interest, taxes, depreciation and amortization (1) were $14.5-million in third quarter 2018, compared with $16.8-million in third quarter 2017. The decrease was primarily attributable to increased production costs, partially offset by higher revenue.

Recent company developments and outlook

On Oct. 15, 2018, Pinnacle closed the acquisition of a 70-per-cent interest in an operating industrial wood pellet production facility located in Aliceville, Ala., from The Westervelt Company, a diversified land resource company, at a purchase price of approximately $37.1-million (U.S.). Westervelt retained a 30-per-cent interest in the Aliceville facility. Run-rate EBITDA (1) per mt is expected to be in line with Pinnacle's other production facilities, and the capital cost of the Aliceville facility, inclusive of the capital spending program, will be within the company's target range of 4.0 times to 5.5 times run-rate EBITDA (1). Pinnacle and Westervelt are currently undertaking a $10-million (U.S.) capital spending program to improve safety, product quality and plant efficiencies, with 70 per cent of such costs being attributable to Pinnacle.

Pinnacle financed the purchase of its 70-per-cent stake in the Aliceville facility through a draw on its credit facility and cash on hand. It is expected that the purchase will provide accretive free cash flow per share on an annualized basis.

Pinnacle expects initial pellet production at the Smithers facility to commence in the middle of November, 2018, as the company completes construction.

As a result of the impact on production volumes and costs of CN rail disruptions, record B.C. forest fires, and the Entwistle facility commissioning issues outlined above, Pinnacle has revised its estimated adjusted EBITDA range for fiscal 2018 from $61-million to $65-million to $57-million to $60-million. The company has now completed the storage silo, improved the quality of the inbound fibre and advanced the commissioning curve of the Entwistle facility. The company expects improved performance at the Entwistle facility in November and December of 2018.

Dividend

The board of directors today approved the payment of the company's third quarter 2018 dividend of 15 cents per common share. Payment will be made on Nov. 23, 2018, to shareholders of record as at Nov. 14, 2018.

Selected consolidated financial information

The attached tables set forth selected financial information for third quarter 2018 and year-to-date 2018 compared with the corresponding prior-year periods. Such information has been derived from Pinnacle's unaudited interim condensed consolidated financial statements and accompanying notes.

               CONSOLIDATED STATEMENTS OF PROFIT (LOSS) AND COMPREHENSIVE INCOME (LOSS) DATA                                          
                                (in thousands except per-share amounts) 

                                                                     Q3 2018       Q3 2017      YTD 2018      YTD 2017
                                                                    13 weeks      13 weeks      39 weeks      39 weeks

Revenue                                                              $87,606       $82,366      $243,712      $219,769
Costs and expenses
Production                                                            57,222        51,628       159,635       141,037
Distribution                                                          12,360        11,568        33,528        28,496
Selling, general and administration                                    5,374         4,222        18,856        10,921
Amortization of equipment and intangible assets                        6,719         5,365        17,458        16,539
                                                                    --------      --------      --------      --------
Profit (loss) before finance costs and other (income) expense         $5,931        $9,583       $14,235       $22,776
Finance cost                                                           4,360         6,469         4,783        18,131
Other (income) expense                                                  (399)        9,146        17,264         9,270
                                                                    --------      --------      --------      --------
Net profit (loss) before income taxes                                 $1,970       $(6,032)      $(7,812)      $(4,625)
Income tax (expense) recovery
Current                                                                    -             -             -             -
Deferred                                                                 454            (2)       (3,058)          363
                                                                    --------      --------      --------      --------
Net profit (loss) and comprehensive income (loss)                     $1,516       $(6,030)      $(4,754)      $(4,988)
Net profit (loss) per share attributable to owners,
basic and diluted                                                      $0.04        $(0.97)       $(0.18)       $(0.91)

Financial statements

Pinnacle's unaudited interim condensed consolidated financial statements and management's discussion and analysis for third quarter 2018/year-to-date 2018 are available on the company's website or on SEDAR.

Conference call

Robert McCurdy, chief executive officer, Leroy Reitsma, president and chief operating officer, and Andrea Johnston, chief financial officer, will host a conference call for investors and analysts on Nov. 6, 2018, at 10 a.m. ET/7 a.m. PT. The dial-in numbers for the conference call are 416-764-8609 or 1-888-390-0605. A live webcast of the call will be accessible on Pinnacle's website.

To access a replay of the conference call, dial 416-764-8677 or 1-888-390-0541, passcode 111972 followed by the number sign. The replay will be available until Nov. 13, 2018. The webcast will be archived following conclusion of the call.

About Pinnacle Renewable Holdings Inc.

Pinnacle is a rapidly expanding industrial wood pellet manufacturer and distributor and the third-largest producer in the world. The company produces sustainable fuel for renewable electricity generation in the form of industrial wood pellets. This fuel is used by large-scale thermal power generators as a greener alternative to produce reliable baseload renewable power. The company operates seven industrial wood pellet production facilities in Western Canada and one in Alabama, owns a port terminal in Prince Rupert, B.C., and is currently constructing a new production facility in Smithers, B.C.

(1) Non-international financial reporting standard measure.

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