Mr. Adam Sheparski reports

ACADIAN TIMBER CORP. REPORTS SECOND QUARTER RESULTS

Acadian Timber Corp. has released its financial and operating results for the three months ended June 24, 2023 (the second quarter).

"While the second quarter of the year is traditionally our slowest due to seasonal operating conditions, favourable weather allowed harvest to continue later into the winter and to begin earlier after the spring thaw. Combined with increased contractor capacity, Acadian delivered strong second quarter results and recovered much of the volume shortfall of the first quarter," commented Adam Sheparski, president and chief executive officer. "We are also pleased to announce the successful registration of our first voluntary carbon credits, which are now available for sale."

Acadian generated $4.1-million of free cash flow during the second quarter and declared dividends of $4.9-million to shareholders. Acadian's balance sheet remains solid with $17.0-million of net liquidity as at June 24, 2023, which includes funds available under the company's credit facilities.

On June 8, 2023, 770,071 voluntary carbon credits were registered on the American Carbon Registry and made available for sale under the project name Anew-Katahdin forestry project, and have been recorded as inventory in our June 24, 2023, interim condensed consolidated financial statements. These carbon credits are associated with the company's first carbon credit development project on the portion of the company's Maine Timberlands that is subject to a working forest conservation easement.

The total volume of credits expected to be generated from the project over the 10-year crediting period has increased from the initial estimate of 1.6 million credits to 1.9 million credits. Actual credit issuances will be adjusted each reporting period based on actual harvesting, natural disturbances, and other factors, as well as periodic updating for inventory and verification activities.

Acadian is committed to health and safety as the company's No. 1 priority. The company believes that emphasizing and achieving a good safety performance is a leading indicator of success in the broader business. Acadian's operations experienced no recordable safety incidents during the quarter among employees or contractors.

During the second quarter, Acadian generated sales of $20.7-million, compared with $16.5-million in the prior-year period. The weighted average selling price, excluding biomass, increased 9 per cent year over year, benefiting from strong softwood sawlog and hardwood pulpwood prices driven by strong demand.

Sales volume, excluding biomass, was 18 per cent higher compared with the prior-year period as a result of favourable weather, which allowed harvest to continue later into the winter and to begin earlier after the spring thaw, and increased contractor availability. Biomass sales volume was 8 per cent higher due to favourable market conditions.

Operating costs and expenses were $15.5-million during the second quarter, compared with $13.8-million during the prior-year period, reflecting higher sales volumes. Weighted average variable costs, excluding biomass, were 10 per cent lower as compared with the prior-year period, primarily as a result of lower fuel costs and shorter hauling distances, partially offset by increased contractor rates.

Net income for the second quarter totalled $5.8-million, or 34 cents per share, compared with $4.5-million, or 27 cents per share, in the same period of 2022. The increase in net income compared with the prior-year period was primarily the result of higher operating income and gain on the sale of 16 acres of timberlands, partially offset by lower non-cash fair value adjustments.

Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) was $5.7-million during the second quarter compared with $2.7-million in the prior-year period, reflecting higher operating income and gain on sale of timberlands. Adjusted EBITDA margin for the quarter was 27 per cent compared with 17 per cent in the prior-year period. Free cash flow was $4.1-million, being $2.2-million higher than the prior-year period.

During the first half of 2023, Acadian generated sales of $43.1-million, consistent with the prior-year period. Sales volume, excluding biomass, was 18 per cent lower than the first half of 2022 but was offset by a 13-per-cent increase in the weighted average selling price, excluding biomass. Operating costs and expenses of $32.5-million were $1.1-million lower year over year. Adjusted EBITDA of $11.3-million was $1.6-million higher compared with the prior-year period.

For the six months ended June 24, 2023, net income was $11.4-million, or 67 cents per share, which represents an increase of $2.7-million compared with the prior-year period, primarily the result of higher operating income, gain on sale of timberlands and non-cash fair value adjustments.

Segment performance

New Brunswick Timberlands

The attached table summarizes operating and financial results for New Brunswick Timberlands.

Sales for New Brunswick Timberlands in the second quarter were $16.6-million compared with $13.5-million during the prior-year period. Sales volume, excluding biomass, increased by 17 per cent primarily due to favourable weather conditions compared with the second quarter of the prior year and increased contractor availability. Biomass sales volume increased by 98 per cent as compared with the prior-year period due to favourable market conditions.

The weighted average selling price, excluding biomass, for the second quarter was $86.36 per cubic metre, or 7 per cent higher than the prior-year period, as a result of stable softwood sawlog and pulpwood prices, driven by strong demand, partially offset by lower hardwood sawlog pricing due to unfavourable end use markets. Biomass prices were 7 per cent higher year over year due to favourable market conditions.

Operating costs and expenses were $11.9-million during the second quarter, compared with $10.9-million in the prior-year period, reflecting higher sales volumes. Weighted average variable costs, excluding biomass, were 15 per cent lower primarily as a result of lower fuel costs and shorter hauling distances, partially offset by increased contractor rates.

Adjusted EBITDA for the quarter was $5.0-million compared with $2.7-million in the prior-year period and adjusted EBITDA margin was 30 per cent compared with 20 per cent in the prior-year period as a result of higher operating income.

During the first half of 2023, New Brunswick Timberlands' sales of $34.5-million were 9 per cent higher than the prior-year period. The weighted average selling price, excluding biomass, increased 15 per cent, however, sales volume, excluding biomass, decreased 9 per cent year over year due to contractor availability noted previously. Operating costs and expenses of $25.2-million during the first half of 2023 were $900,000 higher than the prior-year period, due primarily to increased contractor rates. Adjusted EBITDA was $9.9-million compared with $7.4-million in the first half of 2022, and adjusted EBITDA margin increased to 29 per cent from 23 per cent.

Maine Timberlands

The attached table summarizes operating and financial results for Maine Timberlands.

Sales for Maine Timberlands during the second quarter totalled $4.1-million compared with $2.9-million in the prior-year period. Sales volume, excluding biomass, increased 20 per cent reflecting an earlier start to operations and increased contractor availability, as compared with the same period in the prior year.

In U.S. dollar terms, the weighted average selling price, excluding biomass, was $79.55 per cubic metre, compared with $71.39 per cubic metre during the same period of 2022, driven primarily by higher softwood sawlog prices benefiting from favourable market dynamics. The weighted average selling price, excluding biomass, in Canadian dollar terms was $106.92 per cubic metre, compared with $91.13 per cubic metre during the same period of 2022, being further impacted by foreign exchange rates.

Operating costs and expenses for the second quarter were $3.1-million, compared with $2.6-million during the same period in 2022, reflecting higher harvesting activity. Weighted average variable costs, excluding biomass, increased 5 per cent primarily as a result of higher contractor rates.

Adjusted EBITDA for the quarter was $1.1-million compared with $400,000 in the prior-year period and adjusted EBITDA margin was 27 per cent, up from 12 per cent in the prior-year period.

During the first half of 2023, Maine Timberlands' sales were $8.6-million compared with $11.6-million in the first half of 2022. Maine Timberlands' weighted average selling price, excluding biomass, increased 14 per cent in Canadian dollar terms, and 8 per cent in U.S. dollar terms, however sales volume, excluding biomass, was 37 per cent lower. Operating costs and expenses of $6.5-million during the first half of 2023 were $2.0-million lower than the prior-year period, as a result of lower harvesting activity partially offset by higher contractor rates.

Outlook

North American inflation concerns persist, and interest rates continue to increase, which has put near-term pressure on end use markets. However, the company 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 has risen to approximately 1.37 million starts in 2023.

The company experienced increased contractor availability during the second quarter and expect to maintain this capacity throughout the remainder of the year. Inflation continues to impact the company's financial results through elevated contractor rates and fuel surcharges.

Demand for Acadian's sawlogs is mainly driven by regional supply and demand, meaning that the stable demand experienced in the first half of 2023 is expected to continue. Pricing for softwood sawtimber is expected to remain stable, however, pricing for hardwood sawtimber may weaken, reflecting the recent weakness in hardwood lumber pricing. While regional inventories of hardwood pulpwood have been replenished and demand has begun to slow, this market is expected to remain stable. 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 remainder of the year, Acadian is pleased to announce a dividend of 29 cents per share, payable on Oct. 15, 2023, to shareholders of record on Sept. 30, 2023.

About Acadian Timber Corp.

Acadian Timber (Toronto Stock Exchange: ADN) 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.

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