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spk00: Ladies and gentlemen, thank you for standing by and welcome to the Acadian Timber Corp Q4 2020 conference call and webcast. At this time, all participant lines are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star one on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star zero. I would now like to hand the conference over to your speaker today, Adam Schaparsky, Chief Finance Officer. Thank you. Please go ahead, sir.
spk03: Thank you, operator. Good afternoon, everyone, and welcome to Acadian Timber's fourth quarter conference call. With me on the call today is Eric O'Reilly, Acadian's President and Chief Executive Officer. Before discussing Acadian's results, I will first remind everyone that in discussing our fourth quarter financial and operating performance, the outlook for 2021 and responding to your questions, we may make forward-looking statements. These statements are subject to known and unknown risks, and future results may differ materially. For further information on our known risk factors, I encourage you to review our news release and NMD&A, which are available on CDAR and on our website at AcadianThimber.com. I'll begin with some comments on our financial results for our fourth quarter and year-ended December 31, 2020. Then Erica will add some further remarks on the business, market conditions, and our outlook for 2021. Sales for the fourth quarter were $24.9 million, a decrease of $0.9 million when compared to $25.8 million in a prior year period. Sales volume, excluding biomass, decreased 4%, and the weighted average selling price, excluding biomass, was flat year over year. Volume was primarily impacted by lower demand for pulpwood compared to the fourth quarter of 2019. Operating costs of $18.1 million in the quarter were $1.4 million lower than the $19.5 million in the prior year due to lower harvest volume and lower costs. Variable cost per cubic meter decreased 4% year over year, mainly due to a lower cost product mix combined with lower log processing costs compared to the prior year period. Adjusted EBITDA totaled $7.3 million during the quarter, up from $6.6 million in the prior year period. Adjusted EBITDA margin for the quarter was 29% compared to 25% in the fourth quarter of 2019. The increase in EBITDA margin was mainly due to strong softwood saw log sales, lower costs, and a $0.2 million higher gain on the sale of timberlands compared to the prior year period. Our net income for the fourth quarter was $15.3 million, compared to $16.2 million in 2019. The variance is primarily due to higher operating earnings, as discussed previously, combined with a higher unrealized foreign exchange gain on long-term debt, which was offset by lower fair value adjustments compared to the fourth quarter of 2019. We generated $5.6 million of free cash flow and declared dividends of $4.8 million to our shareholders during the fourth quarter, and the strong operating earnings resulted in a payout ratio of a 6%. With respect to our annual results, Acadian performed well during 2020 despite many challenges, including the COVID-19 pandemic, elevated regional output inventories, and adverse weather conditions that occurred during the year. Sales for 2020 were $91 million, compared to $100 million in 2019, as a result of a 10% decrease in volume. But its average selling prices and variable costs remained flat year over year. SG&A was down $1.5 million year over year, reflecting savings primarily resulting from the termination of the management agreement and the associated fees. Adjusted EBITDA for the year ending December 31, 2020, was $21.5 million compared to $23.6 million in 2019, while adjusted EBITDA margin was consistent at 24%, which reflects the predominantly variable cost nature of our business and focus on cost savings. Pre-cash flow for 2020 was $15.2 million compared to $18.7 million last year, mainly as a result of decreased operating income, less proceeds on the sale of timberlands, and increased tax expense in the current year as a result of the tax legislation change that impacted our second quarter. Moving into the fourth quarter results of our New Brunswick operations, sales for our New Brunswick timberlands were $19.3 million compared to $18.8 million in the same period of 2019. Sales volume, excluding biomass, increased 2%, and the weighted average selling price, excluding biomass, also increased 2% during the quarter, reflecting strong demand for our softwood saw logs, partially offset by lower pulpwood and biomass sales. Operating costs in the third quarter totaled $12.9 million compared to $13.6 million in the prior year period. The decrease in operating costs is a result of lower pulpwood and biomass deliveries and a 7% decrease in weighted average variable costs per cubic meter due to the lower transport and log processing costs compared to 2019. The Brunswick's adjusted EBITDA in the quarter was $6.5 million compared to $5.2 million in the prior year period, with adjusted EBITDA margin increasing to 34% compared to 28% last year. The increase in EBITDA and EBITDA margin was a result of strong softwood sales and lower costs. Switching over to Maine. Sales during the fourth quarter totaled $5.6 million compared to $7 million in the same period last year. Sales volume, excluding biomass, decreased 20% year-over-year as softwood saw log deliveries were impacted by temporary weather-related road closures and demand for softwood pulpwood remained low due to elevated inventories in the region. The weighted average selling price, excluding biomass in U.S. dollar terms, remained relatively stable compared to the prior year as a result of improved product mix offset by lower pulpwood prices compared to the prior year period. Operating costs totaled $4.7 million in the quarter compared to $5.2 million during the same period of 2019 as a result of lower sales volumes. Variable harvest costs per cubic meter were 6% higher due primarily to longer hauling distances to market. Adjusted EBITDA for the quarter was $1.3 million, compared to $2.1 million during the same period last year. Adjusted EBITDA margin was 24%, compared to 30% in the prior year period, which reflects lower sales, including lower prices on pulpwood throughout the quarter. And lastly, a few comments on our debt facilities and financial positions. During the quarter, Acadian's debt matured and was refinanced as planned by the delayed funding mechanism arranged on March 6, 2020. With this financing complete, Acadian's debt now has staggered maturities, maturing in 5, 7, and 10 years, bearing interest rates at rates ranging from 2.7 to 3%, and resulting in a 20 basis point weighted average decrease in interest costs on an annual basis. Acadian's financial position remained strong, ending the fourth quarter with a liquidity position of $22.8 million. This includes a cash balance of $10.3 million and our undrawn revolving credit facilities. With that, I will now turn the call over to Erica.
spk01: Thank you, Adam. Reflecting on 2020, Acadian performed well despite the global pandemic, elevated regional pulpwood inventories, and adverse weather events experienced throughout the year. Acadian's employees were able to seamlessly transition to and from a remote working environment with little disruption to our business, and we implemented a comprehensive COVID-19 operating plan. Our customers continued to operate through the year as the industry was deemed an essential service, and while our customers continued to operate, the market environment was dynamic. Acadian was able to benefit from strong, soft and solid demand driven by an unexpectedly hot lumber market, which mitigated some of the impact of weak pulpwood markets. Meanwhile, our business advanced a number of growth, cost savings, and risk management initiatives, including growing our customer base, pursuing a more active other land use program, evaluating carbon credit development opportunities, moving to regionally-based service providers, refinancing and de-risking our balance sheet, and increasing our use of technology across the business. During the fourth quarter, Acadian had one recordable safety incident among employees and no incidents among contractors. This employee has since recovered and is back to work. We remain focused on maintaining a culture across our business that emphasizes the importance of strong safety performance and support this by active and regular training and monitoring. We have also continued to monitor and update our COVID-19 operating plan to ensure we keep everyone working with us safe. New Brunswick has recently seen an increase in cases and restrictions, but most of our customers have not experienced any significant downtime, and we have been able to continue to operate. Operating conditions during the corridor were favorable in New Brunswick, but wet weather in Maine caused temporary road closures, which impacted Southwood Saw Log deliveries. Overall, sales volume, excluding biomass, was 4% lower, and Acadian's weighted average selling price, excluding biomass, was flat compared to the fourth quarter of 2019. We experienced strong demand for our softwood saw logs as regional lumber producers ran at capacity. Softwood saw log sales volume increased 11% year over year. Prices increased 2% in New Brunswick, but were 5% lower in Maine, or 4% lower in U.S. dollar terms, reflecting a greater proportion of lower quality stud wood in the mix compared to the prior year period. We experienced increased demand for our hardwood saw logs as regional harvests shifted from hardwood to softwood, resulting in lower hardwood saw log inventories at milk, while end-use markets for this product improved. Hardwood saw log sales volume increased 12% year-over-year. Hardwood saw log prices were 4% higher compared to the prior year period. Demand for hardwood pulpwood started to recover during the quarter as customers gained confidence in the outlook for hardwood pulp and in turn increased consumption. Sales volume was down 7% and prices were down 3% year-over-year, but improved 11% and 3% respectively relative to the third quarter of 2020. Stockwood pulpwood demand remained weak due to elevated regional inventories and competition from sawmill residuals. Sales volume was down 51% and prices were down 9% year-over-year. The outlook for Acadian softwood and hardwood saw log sales is positive, with end-use markets showing strength as we head into 2021. North American softwood lumber consumption is expected to remain strong, with sustained demand from repair and remodeling activity and increased demand from new home construction. Consensus forecast is for approximately 1.44 million U.S. housing starts in 2021, up 4% over 2020. Low interest rates, a large U.S. population entering their home buying years, and a low inventory of homes for sale are key drivers supporting this expected growth. With this backdrop, Acadian softwood sawmill customers are expected to continue to operate at capacity, providing steady demand for our softwood saw logs. End-use markets for hardwood lumber are strengthening, while hardwood saw log availability regionally is limited given the heavy focus on cutting softwoods instead of hardwoods, as I mentioned earlier. Acadian expects to realize continued strong demand for its hardwood saw logs and to benefit from new customer relationships developed in 2020. We see demand for Acadian's hardwood pulpwood improving with increased customer confidence and market demand for hardwood pulp. We remain cautiously optimistic that this improvement will be sustained through 2021. Meanwhile, markets for softwood pulpwood are expected to remain challenged given elevated regional inventories, of both Southwood pulpwood and sawmill residuals. And finally, demand for biomass from Acadian's New Brunswick operation, which is mostly hardwood, continues to be steady with several new customer relationships developed in 2020. In closing, Acadian has a strong balance sheet, diverse markets, and a highly capable team that remains committed to continuously improving our financial and operating performance. As we enter the new year, Acadian's Priorities will continue to be strong safety and operating performance, environmental stewardship, and seeking opportunities for further cost savings and growth. That concludes our formal remarks. We will be able to take any questions from participants on the line. Operator?
spk00: As a reminder, to ask a question, you will need to press star 1 on your telephone. To withdraw your question, press the pound key. Please stand by while we compile the Q&A roster. Our first question comes from the line of Paul Quinn from RBC Capital Markets. Your line is now open.
spk02: Yeah, thanks very much. Good morning. Good results. Just wondering where we are with the transition from Brookfield to Acadian management here. And I know, Erica, you're still there, but does your tenure wind down at the end of this year?
spk01: Yeah. Hi, Paul. So just with respect to... the internalization of Acadian. Acadian is completely separate from Brookfield today, other than for me. No other services are being provided other than the CEO at this stage. The board is undergoing a process regarding the CEO position currently. Nothing to announce at this time, but as you know, pursuant to that transition services agreement, you know, I am here, you know, or available for a two-year period, which ends September 9th.
spk02: Okay. September 9th. Great. And then in terms of what we can expect on harvest in each of the years in 21, given the strong softwood markets, do we expect a shift to more of that volume?
spk01: And a shift to – can you just clarify your question? Sure.
spk02: a shift to higher leading softwood leading stands as opposed to more balanced softwood hardwood stands?
spk01: Yeah. So we have, you know, we generally harvest the profiles of forest. Right. But during market conditions that are a bit unique, you know, there is some capability to shift focus to more, you know, spruce first saw log dominant kind of stand, higher quality stands. And so that's what we've been doing through, last year and will continue to look to do this year. And we've done it through strong hardwood markets as well, where we've shifted more of our focus to hardwood. So, yes, we do have that capability. Overall, over five, ten-year periods, we need to harvest the profile of our forest in a sustainable manner. But during these interim periods where there are periods of strength, we try to capitalize on that. So, yes, that's what we're doing.
spk02: Okay, and then just lastly, you guys cited sort of a pickup in New Brunswick biomass and with some customer wins. What's driving that?
spk01: We made a concerted effort at the beginning of 2020 to really focus on customer service, you know, continued development of customer relationships and customer service. So the gentleman leading that effort has done a fantastic job over the course of 2020 in strengthening our relationships and looking to develop new markets. It was a priority for us through last year. And we were, you know, successful in getting a number of new customers across both our New Brunswick and Maine operations or areas. I would say also that, you know, with the dynamic markets, we actually, you know, experience a bit more flexibility in terms of you know, having some volume available from, you know, current customers or existing customers that gave us some freedom to reach out to new customers and secure new business. So we use that as an opportunity to develop those new markets for us. Again, our core customers have remained constant or pretty stable year over year over year, but this is really just continuing to grow our customer base and diversify that area of our business, you know, for if and when markets our dynamic like we have today, we have that opportunity of selling products to alternative customers.
spk02: All right. That's all I had. Best of luck.
spk00: Great. Thank you. As a reminder, ladies and gentlemen, if you have a question, please press star and the number one key on your touchtone telephone. At this time, I am showing no further questions. I would like to turn the call back over to Ms. Riley for closing remarks. That's great. Thank you, operator.
spk01: And look, on behalf of the shareholders and management, I want to thank the shareholders for their ongoing support. And with that, just stay safe and stay healthy.
spk00: Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.
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