ADN Acadian Timber Corp

Acadian Timber Corp. (“Acadian” or the “Company”) (TSX:ADN) today reported financial and operating results1 for the three months ended September 24, 2022 (the “third quarter”).

“Acadian generated solid financial results for the third quarter, despite the challenges posed by increasing costs and limited contractor availability,” commented Adam Sheparski, President and Chief Executive Officer. “Though the greater economic outlook is uncertain, Acadian has experienced steady regional demand and pricing for its key products, which we expect to continue for the remainder of the year and into fiscal 2023.”

Acadian generated $3.3 million of Free Cash Flow1 and declared dividends of $4.9 million to shareholders during the third quarter. Our balance sheet continues to be solid with $17.1 million of net liquidity1 as at September 24, 2022, which includes funds available under our credit facilities.

Acadian is committed to health and safety as our number one priority. We believe that emphasizing and achieving good safety performance is a leading indicator of success in the broader business. Acadian’s operations experienced two recordable safety incidents during the quarter among contractors and none among employees. The individuals have made full recoveries and have returned to work. We remain committed to maintaining a culture across the organization that emphasizes the importance of strong safety performance.

Review of Operations

Financial and Operating Highlights

	Three Months Ended						Nine Months Ended
(CAD thousands, except per share information)	September         24, 2022			September        25, 2021			September         24, 2022			September         25, 2021
Sales volume (000s m3)		229.4			270.9			687.3			772.2
Sales	$	23,594		$	24,488		$	66,718		$	69,783
Operating income		4,406			5,011			13,928			15,591
Net income		4,831			344			13,505			12,143
Adjusted EBITDA	$	4,480		$	5,394		$	14,136		$	16,172
Adjusted EBITDA margin		19	%		22	%		21	%		23	%
Free Cash Flow	$	3,260		$	3,853		$	10,151		$	11,784
Dividends declared		4,876			4,840			14,571			14,518
Dividends paid in cash		3,721			4,840			12,281			14,518
Payout Ratio		150	%		126	%		144	%		123	%
Payout Ratio with DRIP		114	%	n/a				121	%	n/a
Per share – basic and diluted
Net income	$	0.29		$	0.02		$	0.81		$	0.73
Free Cash Flow		0.19			0.23			0.61			0.71
Dividends declared		0.29			0.29			0.87			0.87
Book value		17.55			17.41			17.55			17.41
Common shares outstanding		16,812,357			16,686,916			16,812,357			16,686,916
Weighted average shares outstanding		16,797,722			16,686,916			16,740,531			16,686,916

During the third quarter, Acadian generated sales of $23.6 million, compared to $24.5 million in the prior year period. Weighted average selling price, excluding biomass, increased 11% year-over-year, benefiting from strong sawlog prices and improved pulpwood prices driven by strong demand, as well as the partial recovery of rising fuel costs from our customers.

Sales volume, excluding biomass, decreased 15% primarily as a result of limited contractor availability in the third quarter. Biomass sales volume decreased 21% due to unfavourable market conditions.

Operating costs and expenses were $19.2 million during the third quarter, compared to $19.5 million during the prior year period. This year-over-year decrease reflects lower harvesting and timber services activity offset by higher contractor costs and fuel prices. Weighted average variable costs, excluding biomass, increased 14% primarily as a result of higher contractor and fuel costs.

Net income for the third quarter totaled $4.8 million, or $0.29 per share, compared to $0.3 million, or $0.02 per share, in the same period of 2021. Lower operating income and gain on sales of timberlands and other fixed assets in the third quarter of 2022 were offset by higher fair value adjustments on timberlands as compared to the prior year period, and changes in the non-cash unrealized foreign exchange loss on long-term debt. As a result of the application of hedge accounting effective January 1, 2022 the unrealized foreign exchange gains and losses are now recorded in other comprehensive income.

Adjusted EBITDA was $4.5 million during the third quarter compared to $5.4 million in the prior year period. Adjusted EBITDA margin for the quarter was 19% compared to 22% in the prior year period. Free Cash Flow was $3.3 million, being $0.6 million lower than the prior year period.

During the first nine months of 2022, Acadian generated sales of $66.7 million compared to $69.8 million in the prior year period. The weighted average selling price, excluding biomass, increased 11%, however, sales volume, excluding biomass, decreased 9%. Operating costs and expenses of $52.8 million were $1.4 million lower year-over-year. Adjusted EBITDA of $14.1 million was $2.1 million lower compared to the prior year period.

For the nine months ended September 24, 2022, net income was $13.5 million, or $0.81 per share, which represents an increase of $1.4 million compared to the prior year period. Lower operating income and gain on sales of timberlands and other fixed assets were offset by higher fair value adjustments on timberlands as compared to the prior year period.

Segment Performance

New Brunswick Timberlands

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

	Three Months Ended						Nine Months Ended
	September 24, 2022			September 25, 2021			September 24, 2022			September 25, 2021
Harvest (000s m3)
Softwood		103.7			98.6			280.1			237.8
Hardwood		64.9			80.3			175.6			240.1
Biomass		23.0			31.7			52.5			82.7
Total		191.6			210.6			508.2			560.6
Sales (000s m3)
Softwood		105.9			99.3			287.2			240.7
Hardwood		62.9			78.2			178.7			241.2
Biomass		23.0			31.7			52.5			82.7
Total		191.8			209.2			518.4			564.6
Sales Mix
Softwood		55	%		47	%		56	%		43	%
Hardwood		33	%		37	%		34	%		43	%
Biomass		12	%		16	%		10	%		14	%
Total		100	%		100	%		100	%		100	%
Results ($000s)
Softwood	$	7,231		$	6,420		$	19,428		$	15,451
Hardwood		5,580			5,718			15,726			18,005
Biomass		1,064			1,162			2,372			3,249
Total		13,875			13,300			37,526			36,705
Timber services and other		6,042			6,037			13,944			16,816
Sales	$	19,917		$	19,337		$	51,470		$	53,521
Adjusted EBITDA	$	4,577		$	4,422		$	11,955		$	13,417
Adjusted EBITDA margin		23	%		23	%		23	%		25	%

Sales for New Brunswick Timberlands were $19.9 million compared to $19.3 million during the prior year period. Sales volume, excluding biomass, decreased by 5% primarily due to limited contractor availability in the current period. Biomass sales volume decreased 27% as compared to the prior year period due to unfavourable market conditions.

The weighted average selling price, excluding biomass, for the third quarter was $75.87 per m3, or 11% higher than the prior year period, as a result of strong sawlog and pulpwood prices, driven by strong demand, as well as fuel cost recovery from customers. Biomass pricing was up 26% year-over-year.

Operating costs and expenses were $15.4 million during the third quarter, compared to $15.0 million in the prior year period due to higher contractor costs and fuel prices, offset by lower harvesting activity and timber services activity. Weighted average variable costs, excluding biomass, increased 14% primarily as a result of higher contractor and fuel costs compared to the prior year period.

Adjusted EBITDA for the quarter was $4.6 million compared to $4.4 million in the prior year period and Adjusted EBITDA margin was 23% which is consistent with the prior year period.

During the first nine months of 2022, New Brunswick Timberlands’ sales of $51.5 million decreased 4% from the prior year period. The weighted average selling price, excluding biomass, increased 9%, however sales volume, excluding biomass, decreased 3% year-over-year. Operating costs and expenses of $39.6 million during the first nine months of 2022 were $0.6 million lower than the prior year period due lower harvesting activity, partially offset by higher contractor and fuel costs. Adjusted EBITDA was $12.0 million compared to $13.4 million in the first nine months of 2021, and Adjusted EBITDA margin decreased to 23% from 25%.

Maine Timberlands

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

	Three Months Ended						Nine Months Ended
	September 24, 2022			September 25, 2021			September 24, 2022			September 25, 2021
Harvest (000s m3)
Softwood		24.6			44.6			121.2			148.2
Hardwood		11.9			18.9			39.6			55.8
Biomass		2.0			–			5.2			0.6
Total		38.5			63.5			166.0			204.6
Sales (000s m3)
Softwood		24.6			44.7			121.2			148.2
Hardwood		11.0			17.0			42.5			58.8
Biomass		2.0			–			5.2			0.6
Total		37.6			61.7			168.9			207.6
Sales Mix
Softwood		66	%		72	%		72	%		71	%
Hardwood		29	%		28	%		25	%		28	%
Biomass		5	%		0	%		3	%		1	%
Total		100	%		100	%		100	%		100	%
Results ($000s)
Softwood	$	2,328		$	3,518		$	10,777		$	11,091
Hardwood		1,090			1,460			3,943			4,765
Biomass		3			2			13			10
Total		3,421			4,980			14,733			15,866
Timber services and other		256			171			515			396
Sales	$	3,677		$	5,151		$	15,248		$	16,262
Adjusted EBITDA	$	234		$	1,337		$	3,350		$	3,789
Adjusted EBITDA margin		6	%		26	%		22	%		23	%

Sales for Maine Timberlands during the third quarter totaled $3.7 million compared to $5.2 million in the prior year period. Sales volume, excluding biomass, decreased 42% reflecting limited contractor availability in the current year period.

The weighted average selling price, excluding biomass, in Canadian dollar terms was $95.97 per m3, compared to $80.87 per m3 during the same period of 2021. In U.S dollar terms, the weighted average selling price, excluding biomass, was $73.58 per m3, compared to $64.30 per m3 in 2021 with higher prices across all products benefiting from favourable market dynamics, as well as fuel cost recovery from customers.

Operating costs and expenses for the third quarter were $3.5 million, compared to $4.2 million during the same period in 2021, primarily due to lower harvesting activity offset by higher contractor costs and fuel prices. Weighted average variable costs, excluding biomass, increased 25% primarily as a result of higher contractor and fuel costs.

Adjusted EBITDA for the quarter was $0.2 million compared to $1.3 million in the prior year period, and Adjusted EBITDA margin was 6% compared to 26% in the prior year period, primarily due to lower harvesting activity.

During the first nine months of 2022, sales for Maine Timberlands were $15.2 million compared to $16.3 million in the prior year period. The weighted average selling price, excluding biomass, increased 17% in Canadian dollar terms, and 15% in U.S. dollar terms, however, sales volume, excluding biomass, decreased 21% year-over-year due to limited contractor availability. Operating costs and expenses of $12.0 million during the first nine months of 2022 were 8% lower than the $12.9 million in the prior year period, as a result of lower harvesting activity partially offset by higher contractor fuel costs.

Outlook2        

The North American economic outlook remains uncertain. With interest rates rising, as well as housing sales and price growth slowing, consensus forecast has been lowered to approximately 1.55 million U.S. housing starts in 2022 and 1.40 million in 2023 as compared to 1.60 million in 2021. These estimates, however, are still above historical levels. Accordingly, we remain confident that the stability of the northeast forestry sector combined with the long-term demand for new homes and repair and remodel activity will support the demand for, and pricing of, our products.

Though likely to decelerate, inflation is expected to remain a challenge in the near term and to continue to exert pressure on our financial results through increased contractor rates and fuel surcharges that we pay our contractors. The recovery of some of the incremental cost from our customers beginning in the second quarter is expected to continue to mitigate some of this impact.

Although softwood lumber pricing has decreased from its historic levels, demand for softwood sawlogs remains stable in the regions in which Acadian operates and, therefore, strong pricing is expected through the remainder of the year. The implementation of a new Crown timber royalty rate system as announced during the quarter by the Province of New Brunswick will not have an immediate material direct impact to Acadian’s net earnings, however, the new system may impact future market prices and in turn, the prices obtained by Acadian for products from its freehold timberlands going forward.

End use hardwood markets remain stable throughout the northeast. Demand and pricing for high grade hardwood sawlogs are starting to be pressured by some uncertainty in the end use hardwood markets. However, as we exit the third quarter, Acadian expects stable demand and pricing for its hardwood sawlogs to close out 2022.

Hardwood and softwood pulpwood markets have continued improving and are expected to remain at improved levels throughout the remainder of 2022 and into 2023.

Quarterly Dividend

Based on a strong balance sheet and outlook for the remainder of the year, Acadian is pleased to announce a dividend of $0.29 per share, payable on January 15, 2023 to shareholders of record on December 31, 2022.

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.

For further information, please visit our website at www.acadiantimber.com or contact:

Susan WoodChief Financial OfficerTel:        506-737-2345 Email:        ir@acadiantimber.com

Cautionary Statement Regarding Forward-Looking Information and Statements

This News Release contains forward-looking information and statements within the meaning of applicable Canadian securities laws that involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of Acadian Timber Corp. and its subsidiaries (collectively, “Acadian”), or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Forward-looking information is included in this News Release and includes statements made in the section entitled “Outlook,” and without limitation other statements regarding management’s beliefs, intentions, results, performance, goals, achievements, future events, plans and objectives, business strategy, growth strategy and prospects, access to capital, liquidity and trading volumes, dividends, taxes, capital expenditures, projected costs, market trends and similar statements concerning anticipated future events, results, achievements, circumstances, performance or expectations that are not historical facts. All forward-looking statements in this News Release are qualified by these cautionary statements. Forward-looking statements involve significant risks and uncertainties, should not be read as guarantees of future performance or results, should not be unduly relied upon, and will not necessarily be accurate indications of whether or not such results will be achieved. Actual results may vary. These forward-looking statements include, but are not limited to:

• Expectations regarding product demand, pricing and end use markets, including expectations for U.S. housing starts, which may be impacted by changes in interest rates, U.S. population demographics and the inventory of homes for sale. Expectations regarding product demand are based on anticipated market conditions, anticipated regional inventory levels of key customers, and the economic situation of key customers. Estimates for U.S. housing starts are based on forecasts published by major financial institutions.

Other risks and factors are discussed under the heading “Risk Factors” in the Annual Report dated February 9, 2022, and in each of the Annual Information Form dated March 25, 2022 and the Management Information Circular dated March 25, 2022 and other filings of Acadian made with securities regulatory authorities, which are available on SEDAR at www.sedar.com. Forward-looking information is based on various material factors or assumptions, which are based on information currently available to Acadian. Readers are cautioned that the preceding list of material factors or assumptions is not exhaustive. Although the forward-looking statements contained in this News Release are based upon what management believes are reasonable assumptions, Acadian cannot assure readers that actual results will be consistent with these forward-looking statements. The forward-looking statements in this News Release are made as of the date of this News Release based on information currently available to management and should not be relied upon as representing Acadian’s views as of any date subsequent to the date of this News Release. Acadian assumes no obligation to update or revise these forward-looking statements to reflect new information, events, circumstances or otherwise, except as may be required by applicable law.

Acadian Timber Corp.Interim Condensed Consolidated Balance Sheets

(unaudited)

As at(CAD thousands)		September 24, 2022		December 31, 2021
Assets
Current assets
Cash		$	3,766	$	7,316
Accounts receivable and other assets			13,512		8,386
Current income taxes receivable			492		104
Inventory			943		1,450
			18,713		17,256
Timber			409,852		394,063
Land, roads, and other fixed assets			102,412		99,183
Intangible asset			6,140		6,140
Total assets		$	537,117	$	516,642
Liabilities and shareholders’ equity
Current liabilities
Accounts payable and accrued liabilities		$	12,244	$	8,800
Dividends payable to shareholders			4,876		4,839
			17,120		13,639
Long-term debt			108,115		100,888
Deferred income tax liabilities, net			116,780		110,630
Total liabilities			242,015		225,157
Shareholders’ equity			295,102		291,485
Total liabilities and shareholders’ equity		$	537,117	$	516,642

Acadian Timber Corp.Interim Condensed Consolidated Statements of Net Income

(unaudited)

		Three Months Ended						Nine Months Ended
(CAD thousands, except per share data)		September 24, 2022			September 25, 2021			September 24, 2022			September 25, 2021
Sales		$	23,594		$	24,488		$	66,718		$	69,783
Operating costs and expenses
Cost of sales			16,266			16,778			45,368			47,406
Selling, administration and other			2,027			1,867			5,921			5,565
Silviculture			821			766			1,307			1,029
Depreciation and amortization			74			66			194			192
			19,188			19,477			52,790			54,192
Operating income			4,406			5,011			13,928			15,591
Interest expense, net			(795	)		(748	)		(2,295	)		(2,230	)
Other items
Fair value adjustments and other			3,027			111			7,185			2,591
Unrealized exchange gain on long-term debt			—			(3,088	)		—			416
Gain on sale of timberlands and other fixed assets			—			317			14			389
Income before income taxes			6,638			1,603			18,832			16,757
Income tax expense			(1,807	)		(1,259	)		(5,327	)		(4,614	)
Net income		$	4,831		$	344		$	13,505		$	12,143
Net income per share – basic and diluted		$	0.29		$	0.02		$	0.81		$	0.73

Acadian Timber Corp.Interim Condensed Consolidated Statements of Comprehensive Income

(unaudited)

	Three Months Ended				Nine Months Ended
(CAD thousands)	September 24, 2022		September 25, 2021		September 24, 2022		September 25, 2021
Net income	$	4,831	$	344	$	13,505	$	12,143
Other comprehensive income / (loss)
Items that may be reclassified subsequently to net income:
Unrealized foreign currency translation gain / (loss)		1,775		4,315		2,455		(303	)
Comprehensive income	$	6,606	$	4,659	$	15,960	$	11,840

Acadian Timber Corp.Interim Condensed Consolidated Statements of Cash Flows

(unaudited)

	Three Months Ended						Nine Months Ended
(CAD thousands)	September 24, 2022			September 25, 2021			September 24, 2022			September 25, 2021
Cash provided by (used for):
Operating activities
Net income	$	4,831		$	344		$	13,505		$	12,143
Adjustments to net income:
Income tax expense		1,807			1,259			5,327			4,614
Depreciation and amortization		74			66			194			192
Fair value adjustments and other		(3,027	)		(111	)		(7,185	)		(2,591	)
Unrealized exchange loss / (gain) on long-term debt		—			3,088			—			(416	)
Gain on sale of timberlands and other fixed assets		—			(317	)		(14	)		(389	)
Income taxes paid		(1,175	)		(1,110	)		(1,858	)		(1,642	)
Net change in non-cash working capital balances and other		(1,666	)		4,031			(1,001	)		2,694
		844			7,250			8,968			14,605
Financing activities
Dividends paid to shareholders		(3,721	)		(4,840	)		(12,281	)		(14,518	)
Investing activities
Additions to timber, land, roads, and other fixed assets		(148	)		(148	)		(251	)		(305	)
Proceeds from sale of timberlands and other fixed assets		—			339			14			414
		(148	)		191			(237	)		109
(Decrease) increase in cash during the period		(3,025	)		2,601			(3,550	)		196
Cash, beginning of period		6,791			7,853			7,316			10,258
Cash, end of period	$	3,766		$	10,454		$	3,766		$	10,454

Acadian Timber Corp.Reconciliations to Adjusted EBITDA and Free Cash Flow

	Three Months Ended											Nine Months Ended
(CAD thousands)	September         24, 2022					September         25, 2021						September         24, 2022					September         25 2021
Net income	$	4,831				$	344					$	13,505				$	12,143
Add / (deduct):
Interest expense, net		795					748						2,295					2,230
Income tax expense		1,807					1,259						5,327					4,614
Depreciation and amortization		74					66						194					192
Fair value adjustments and other		(3,027			)		(111				)		(7,185			)		(2,591	)
Unrealized exchange loss / (gain) on long-term debt			—					3,088					—					(416	)
Adjusted EBITDA	$	4,480				$	5,394					$	14,136				$	16,172
Add / (deduct):
Interest paid on debt, net		(765			)		(717				)		(2,204			)		(2,125	)
Additions to timber, land, roads, and other fixed assets			(148		)					(148	)				(251	)		(305	)
Gain on sale of timberlands and other fixed assets		—					(317				)		(14			)		(389	)
Proceeds from sale of timberlands and other assets		—					339						14					414
Current income tax expense		(307			)		(698				)		(1,530			)		(1,983	)
Free Cash Flow	$	3,260				$	3,853					$	10,151				$	11,784
Dividends declared		4,876					4,840						14,571					14,518
Dividends paid in cash		3,721								4,840					12,281			14,518
Payout Ratio		150			%		126				%		144			%		123	%
Payout Ratio with DRIP		114			%	n/a									121	%	n/a

1 This news release makes reference to Adjusted EBITDA, Adjusted EBITDA margin, Free Cash Flow and Payout Ratios which are key performance measures in evaluating Acadian’s operations and are important in enhancing investors’ understanding of the Company’s operating performance. Adjusted EBITDA and Adjusted EBITDA margin are indicative of the underlying profitability of Acadian’s operating segments and are used to evaluate operational performance. Free Cash Flow is used to evaluate Acadian’s ability to generate sustainable cash flows from our operations while Payout Ratios are used to evaluate Acadian’s ability to fund its distribution using Free Cash Flow. Acadian’s management defines Adjusted EBITDA as net income before interest, income taxes, fair value adjustments, recovery of or impairment of land and roads, unrealized exchange gain/loss on long-term debt and depreciation and amortization, and defines Adjusted EBITDA margin as Adjusted EBITDA as a percentage of Acadian’s sales. Acadian’s management defines Free Cash Flow as Adjusted EBITDA less interest paid, current income tax expense, and capital expenditures plus net proceeds from the sale of timberlands and fixed assets (proceeds less gains or losses). Payout Ratio is defined as dividends declared divided by Free Cash Flow and Payout Ratio with DRIP is defined as dividends paid in cash divided by Free Cash Flow. We have provided in this news release reconciliations of net income, as determined in accordance with IFRS, to Adjusted EBITDA and Free Cash Flow. Reference is also made to net liquidity which includes cash and funds available under credit facilities less amounts reserved to support the minimum cash balance related to long-term debt. As these measures do not have standardized meanings prescribed by International Financial Reporting Standards (“IFRS”), they may not be comparable to similar measures presented by other companies. Please refer to Management’s Discussion and Analysis for further details.2 The following contains forward-looking information about Acadian Timber Corp.’s outlook for the remainder of 2022. Reference should be made to the section entitled “Cautionary Statement Regarding Forward-Looking Information and Statements” for further details. For a description of material factors that could cause actual results to differ materially from the forward-looking statements in the following, please see the Risk Factors section in this document and in our Annual Information Form available on our website at www.acadiantimber.com or www.sedar.com.