Acadian Timber Corp. Reports Second Quarter Results

Acadian Timber Corp. (“Acadian” or the “Company”) reported financial and operating results for the three months ended June 29, 2024 (the “second quarter”).

“The agreement reached during the first quarter to sell nearly all of our registered carbon credits was fulfilled during the second quarter and resulted in record quarterly Adjusted EBITDA and Free Cash Flow,” said Adam Sheparski, President and Chief Executive Officer. “Within our timber operations, favourable weather and improved contractor availability enabled Acadian to harvest and sell additional volume, despite starting to experience some pricing pressure.”

Adjusted EBITDA for the quarter was $20.6 million, compared to $5.7 million in the same period of 2023. Acadian generated $16.4 million of Free Cash Flow during the quarter, compared to $4.1 million in the second quarter of 2023, and declared dividends of $5.0 million or $0.29 per share to our shareholders.

Acadian is committed to health and safety as our number one priority. We believe that emphasizing and achieving a good safety record is a leading indicator of success in the broader business. Acadian’s operations experienced three recordable safety incidents during the quarter among contractors, which were minor in nature, and none among employees. We remain committed to maintaining a culture across the organization that emphasizes the importance of strong safety performance and incident reduction will be a primary focus for the remainder of 2024 and beyond.

Carbon Credit Project

An agreement was reached during the first quarter of 2024 to sell approximately 752,100 of Acadian’s registered voluntary carbon credits, which relate to the first reporting period of its ongoing carbon credit project in Maine. Acadian delivered 152,100 of these credits in March. The remaining 600,000 credits were delivered in May and are included in our second quarter results.

Acadian’s project is registered on the ACR under the name Anew – Katahdin Forestry Project, and requires balancing harvest and growth, long-term planning, periodic carbon inventory verification, and maintenance of Acadian’s sustainable forestry certification.

The project is expected to generate an additional 1.1 million credits over the remainder of the 10-year crediting period. The registration process for the second and third tranches of carbon credits for this project is expected to be completed in the second half of 2024 and is expected to result in approximately 360,000 credits being made available for sale. This project has provided valuable experience to the Acadian management team and has formed the foundation for potential further carbon credit developments in the future.

Review of Operations

During the second quarter, Acadian generated sales of $41.2 million, compared to $20.7 million in the prior year period. The sale of 600,000 voluntary carbon credits contributed $19.7 million to total sales. Timber sales volume, excluding biomass, increased 17% year-over-year primarily as a result of increased contractor availability and favourable weather conditions. Biomass sales volume was negligible during the second quarter due to limited processing capacity.

Weighted average selling price of timber, excluding biomass, decreased 8% year-over-year. Softwood sawlog pricing decreased primarily due to a lower value product mix and hardwood sawlog pricing decreased due to weakness in hardwood lumber markets. Softwood pulpwood pricing increased as a result of strong demand while hardwood pulpwood pricing remained relatively flat, as compared to the prior year period.

Operating costs and expenses were $32.2 million during the second quarter, compared to $15.5 million during the prior year period. The year-over-year increase reflects the addition of costs related to carbon credit sales as well as higher timber sales volumes. Weighted average variable harvesting costs, excluding biomass, decreased 4% over the prior year period as a result of a higher proportion of softwood products which carry lower variable costs and shorter hauling distances, partially offset by higher contractor rates.

Adjusted EBITDA was $20.6 million during the second quarter compared to $5.7 million in the prior year period, as a result of carbon credit sales. Adjusted EBITDA margin for the quarter was 50% compared to 27% in the prior year period. Free Cash Flow was $16.4 million, which is $12.3 million higher than the same period in the prior year.

Net income for the second quarter totaled $7.9 million, or $0.46 per share, compared to $5.8 million, or $0.34 per share in the same period of 2023. Higher operating income was partially offset by lower non-cash fair value adjustments and lower gains on sale of timberlands and other fixed assets, as well as higher income tax expense, as compared to the prior year period.

During the first half of 2024, Acadian generated sales of $70.0 million as compared to $43.1 million in the prior year period.

The sale of 752,100 voluntary carbon credits contributed $24.6 million to total sales. Timber sales volume, excluding biomass, was 26% higher than the first half of 2023 but was partially offset by a 5% decrease in the weighted average selling price, excluding biomass, as well as lower timber services activity. Operating costs and expenses of $53.5 million were $20.9 million higher year-over-year due to the addition of costs related to carbon credit sales as well as increased timber sales volumes. Weighted average variable harvesting costs remained consistent with the same period in the prior year. Adjusted EBITDA of $31.2 million was $19.9 million higher compared to the prior year period.

For the six months ended June 29, 2024, net income was $13.9 million, or $0.81 per share, which represents an increase of $2.5 million compared to the prior year period, primarily the result of higher operating income, partially offset by lower noncash fair value adjustments and lower gains on sale of timberlands and other fixed assets, as well as higher income tax expense.

Segment Performance

New Brunswick Timberlands

Sales for New Brunswick Timberlands were $16.2 million compared to $16.6 million during the prior year period, with increased sales volumes offset by a lower weighted average selling price and lower timber services activity. Timber sales volume, excluding biomass, increased 8% due primarily to increased contractor availability. Biomass sales volume was negligible due to limited processing capacity.

The weighted average selling price, excluding biomass, for the second quarter was $81.05 per m, or 6% lower than the prior year period. Softwood sawlog pricing decreased 3% primarily due to a change in customer mix and hardwood sawlog pricing decreased 11% due to weakness in hardwood lumber markets, as compared to the prior year period. Softwood pulpwood pricing increased 18% as a result of strong demand while hardwood pulpwood pricing decreased 4% due to shorter hauling distances, as compared to the prior year period.

Operating costs and expenses were $11.8 million during the second quarter, compared to $11.9 million in the prior year period. Increased harvesting activity was offset by decreased weighted average variable costs and lower timber services activity. Weighted average variable costs, excluding biomass, decreased 6% as a result of a higher proportion of softwood products which carry lower variable costs and shorter hauling distances, partially offset by higher contractor rates.

Adjusted EBITDA for the quarter was $4.5 million compared to $5.0 million during the prior year period and Adjusted EBITDA margin was 28% compared to 30%.

During the first half of 2024, New Brunswick Timberlands’ sales of $35.3 million were 2% higher than the prior year period. Timber sales volume, excluding biomass, increased 25% due to increased contractor availability but was offset by a decrease in the weighted average selling price, excluding biomass, of 4% and a decrease in timber services activity. Operating costs and expenses of $24.9 million during the first half of 2024 were $0.3 million lower than the prior year period, due primarily to a higher proportion of softwood products which carry lower variable costs and shorter hauling distances, partially offset by higher contractor rates. Adjusted EBITDA was $10.5 million compared to $9.9 million in the first half of 2023, and Adjusted EBITDA margin increased to 30% from 29%.

Maine Timberlands

Sales for Maine Timberlands during the second quarter totaled $5.3 million compared to $4.1 million in the prior year period. Timber sales volume, excluding biomass, increased 53% reflecting increased contractor availability.

The weighted average selling price, excluding biomass, in Canadian dollar terms was $89.97 per m, compared to $106.92 per m during the same period of 2023. In U.S. dollar terms, the weighted average selling price, excluding biomass, was $65.76 per m, compared to $79.55 per m in 2023. Increased softwood pulpwood pricing of 9% due to increased demand was offset by a decrease in softwood sawlog pricing of 15% as a result of a lower value product mix. Hardwood pulpwood pricing was consistent with the same period of 2023. Hardwood sawlog volumes were minimal during the quarter.

Operating costs and expenses for the second quarter were $4.6 million, compared to $3.1 million during the same period in 2023, due primarily to increased sales volumes and higher land management and silviculture costs. Weighted average variable costs, excluding biomass, decreased 1% in Canadian dollar terms as a result of changes in equipment mix partially offset by higher contractor rates.

Adjusted EBITDA for the quarter was $0.9 million compared to $1.1 million during the prior year period and Adjusted EBITDA margin was 17% compared to 27%.

During the first half of 2024, Maine Timberlands’ sales were $10.1 million compared to $8.6 million in the first half of 2023.

Maine Timberlands’ timber sales volumes, excluding biomass, were 29% higher than the first half of 2023 due to increased contractor availability, however, the weighted average selling price, excluding biomass, decreased 9% in Canadian and U.S. dollar terms. Operating costs and expenses of $8.3 million during the first half of 2024 were $1.8 million higher than the prior year period as a result of higher harvesting activity and contractor rates, partially offset by changes in equipment mix.

Environmental Solutions

As a result of increased diversification in business activities, an additional reportable segment, Environmental Solutions, was added in the first quarter of 2024. Environmental Solutions leverages the ecological functions of Acadian’s land to address pressing environmental challenges, such as climate change and biodiversity. In line with these objectives, Acadian has undertaken a voluntary carbon credit project which increases carbon sequestration and provides significant environmental benefits. See section entitled “Carbon Credit Project” above.

The current model for the project estimates an additional 1.1 million credits to be generated over the remainder of the 10-year crediting period. The registration process for the second and third tranches of carbon credits for this project is expected to be completed in the second half of 2024. 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.

Outlook

While North American interest rates remain elevated and near-term pressure on end use markets persists, inflation shows signs of easing. U.S. housing starts for the first half of 2024 were lower than originally expected, but June starts indicated improvement. The consensus forecast for U.S. housing starts is steady at approximately 1.39 million starts in 2024, as compared to 1.42 million in 2023. We remain confident that the stability of the northeastern forestry sector, combined with long-term demand for new homes and repair and remodel activity, will support the long-term demand for our products as has been demonstrated in recent years.

Although labour markets remained tight in Maine, we continued to experience increased contractor availability in New Brunswick through the second quarter. Management will continue to focus on further increasing harvesting capacity through the remainder of 2024 while controlling operating costs. In the short to medium term, inflation is expected to impact our financial results through elevated contractor rates and fuel surcharges, offset by the stable pricing of primary forest products like sawlogs and pulpwood.

Demand and pricing for Acadian’s sawlogs is mainly driven by regional supply and demand. Regional sawlog inventories have been replenished following the favourable operating conditions experienced in the spring which, combined with weak lumber markets, may impact near-term demand. Pricing for softwood sawtimber may experience downward pressure and while some stabilization in hardwood lumber pricing was noted during the quarter, hardwood sawtimber pricing may remain lower for the foreseeable future. Demand and pricing for softwood and hardwood pulpwood is expected to be steady, mainly impacted by supply in the region.

During 2023, purchasers of voluntary carbon credits increased their focus on carbon credits of high quality, and expended greater time and effort performing due diligence. This shift may have delayed some sales, however, underlying demand and pricing for voluntary carbon credits are expected to remain stable. The protocol for developing compliance market carbon credits from managed forests in Canada was recently finalized. Acadian is evaluating the protocol and the opportunities to develop eligible carbon credits that it may present.

Quarterly Dividend

Based on a strong balance sheet and positive outlook for the remainder of the year, Acadian is pleased to announce a dividend of $0.29 per share, payable on October 15, 2024 to shareholders of record September 30, 2024.

For full second quarter results click here.

About Acadian Timber Corp.

Acadian Timber Corp. is one of the largest timberland owners in Eastern Canada and the Northeastern U.S. 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, 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 by-products, 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 growing 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.

Contact:

Susan Wood – Chief Financial Officer – ir@acadiantimber.com – (506) 737-2345

Source: Acadian Timber Corp.