Mr. Adam Sheparski reports

ACADIAN TIMBER CORP. REPORTS FIRST QUARTER RESULTS

Acadian Timber Corp. has released financial and operating results for the three months ended March 25, 2023.

"Regional demand and pricing for both sawlogs and pulpwood remained strong during the first quarter of 2023, but limited contractor availability and an unusually warm winter in Maine resulted in reduced harvest levels and deliveries to customers," commented Adam Sheparski, president and chief executive officer. "Our team is focused on increasing contractor capacity, which we expect will allow us to harvest additional volumes over the course of the rest of the year."

Acadian generated $3.7-million of free cash flow during the first quarter and declared dividends of $4.9-million to shareholders. Acadian's balance sheet remains solid with $17.2-million of net liquidity as at March 25, 2023, which includes funds available under our credit facilities.

Acadian is committed to health and safety as its No. 1 priority. It believes that emphasizing and achieving good safety performance are a leading indicator of success in the broader business. Acadian's operations experienced one recordable safety incident during the quarter among employees and none among contractors. The individual has made a full recovery and has returned to work. Acadian remains committed to maintaining a culture across the organization that emphasizes the importance of strong safety performance.

Review of operations

During the first quarter, Acadian generated sales of $22.4-million, compared with $26.6-million in the prior-year period. The weighted-average selling price, excluding biomass, increased 15 per cent year over year benefiting from strong sawlog prices and improved pulpwood prices, driven by strong demand. Sales volume, excluding biomass, decreased 37 per cent primarily due to limited contractor availability and unfavourable weather conditions in Maine. Biomass sales volume increased 23 per cent due to favourable market conditions.

Operating costs and expenses were $17.1-million during the first quarter, compared with $19.8-million during the prior-year period. This year-over-year decrease reflects lower harvesting activity and lower land management costs, partially offset by increased timber services in New Brunswick. Weighted-average variable costs, excluding biomass, increased 14 per cent over the prior-year period as a result of higher contractor costs during the first quarter of 2023.

Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) was $5.6-million during the first quarter compared with $6.9-million in the prior-year period. Adjusted EBITDA margin for the quarter was 25 per cent compared with 26 per cent in the prior-year period. Free cash flow was $3.7-million, $1.3-million lower than the same period in the prior year.

Net income for the first quarter totalled $5.6-million, or 33 cents per share, compared with $4.2-million, or 25 cents per share, in the same period of 2022. The increase in net income was primarily due to higher fair value adjustments and higher gains on sale of timberlands and other fixed assets, partially offset by lower operating income due to decreased harvesting activity, as compared with the prior-year period.

Outlook

Acadian remains confident that the stability of the northeastern forestry sector, combined with the long-term demand for new homes and repair and remodel activity, will support the demand for its products. Consensus forecast for U.S. housing starts remains consistent with prepandemic levels at approximately 1.24 million starts in 2023. However, it notes that inflation concerns persist and U.S. interest rates continue to increase, which have put near-term pressure on end use markets.

Labour shortages throughout the region are expected to continue limiting logging and trucking contractor capacity. The impact of limited contractor capacity on its financial results is being compounded by inflation, through elevated contractor rates and fuel surcharges. The industry in general, and Acadian in particular, is working to recruit and train additional contractors. This will be a long-term initiative, the results of which should start to show later this year.

Because demand for Acadian's sawlogs is mainly driven by regional supply and demand, the stable demand and pricing regime experienced in the first quarter of 2023 are expected to continue as it progresses through the year. Specifically, despite recent weakness in both softwood and hardwood lumber pricing, both softwood and hardwood sawtimber prices are expected to remain stable. Regional inventories of hardwood pulpwood are slowly building, but markets are expected to remain stable in the near term. Softwood pulpwood markets are expected to remain at the improved levels experienced in 2022.

Quarterly dividend

Based on a strong balance sheet and outlook for the rest of the year, Acadian is pleased to announce a dividend of 29 cents per share, payable on July 15, 2023, to shareholders of record on June 30, 2023.

Acadian is one of the largest timberland owners in Eastern Canada and the northeastern United States, and has a total of approximately 2.4 million acres of land under management. Acadian owns and manages approximately 761,000 acres of freehold timberlands in New Brunswick and approximately 300,000 acres of freehold timberlands in Maine, and provides timber services relating to approximately 1.3 million acres of Crown licensed timberlands in New Brunswick. Acadian's products include softwood and hardwood sawlogs, pulpwood, and biomass byproducts, sold to approximately 90 regional customers.

Acadian's business strategy is to maximize cash flows from its existing timberland assets through sustainable forest management and other land use activities while expanding its business by acquiring assets and actively managing these assets to drive improved performance.

Acadian's shares are listed for trading on the Toronto Stock Exchange under the symbol ADN.

We seek Safe Harbor.