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spk04: Good day and thank you for standing by. Welcome to the Acadian Timber Corp Q1 2021 conference call and webcast. At this time, all participants 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 1 on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star 0. I would now like to hand the conference over to your speaker today, Adam Schaparsky, Chief Financial Officer, please go ahead.
spk00: Thank you, Operator. Good afternoon, everyone, and welcome to Acadian Timber's first quarter conference call. With me on the call today is Erica Riley, Acadian's President and Chief Executive Officer. Before discussing Acadian's results, I will first remind everyone that in discussing our first quarter financial and operating performance, the outlook for the remainder of 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 MD&A, which are available on CDAR and on our website at AcadianTimber.com. I'll begin by outlining our financial highlights for our first quarter ended March 27, 2021. Then Erica will comment on our operations, market conditions, and outlook for the remainder of the year. Sales for the first quarter were $25.9 million, compared to $31.4 million in the prior year period. Sales volume, excluding biomass, decreased 21%. Although demand for our saw logs remained strong, sales volume was impacted by temporary road closures caused by unseasonably warm weather at the end of the first quarter, and we experienced reduced trucking capacity in Maine. Volumes were also impacted by continued weak demand for softwood pulpwood, with high roundwood inventories and sawmill residuals in the region. Weighted average selling price, excluding biomass, was flat year over year as increased saw log pricing was offset by weaker pulpwood pricing and a stronger Canadian dollar. Operating costs of $19.2 million in the quarter were $3.9 million lower than the $23.1 million in the prior year, mainly due to a lower harvest volumes and decreased administrative costs. Variable costs per cubic meter decreased 1%. due to a stronger Canadian dollar compared to the prior year period. Adjusted EBITDA totaled $6.9 million during the quarter, down from $8.3 million in a prior year period. Adjusted EBITDA margin for the quarter was consistent with the prior year period at 27% and benefited from lower administrative costs. Our net income for the first quarter was $5.8 million compared to a net loss of $3.7 million in the prior year period. The positive variance is primarily due to the unrealized foreign exchange gain on long-term debt of $1.2 million this year compared to an $8.2 million loss in the first quarter of last year. We generated $5 million of free cash flow and declared dividends of $4.8 million to our shareholders during the first quarter, or 29 cents per share, which resulted in a payout ratio of 97%. I will now move into the first quarter results for our New Brunswick operations. Sales for our New Brunswick timberlands were $18.3 million compared to $21.7 million in the same period of 2020. Sales volume, excluding biomass, decreased 23%, and the weighted average selling price, excluding biomass, increased 3% during the quarter, reflecting continued strong demand for our softwood saw logs and a higher value product mix, partially offset by lower bulkwood prices. Operating costs in the first quarter totaled $13.3 million, compared to $15.9 million in the prior year period. The decrease in operating costs is a result of lower volumes and a decrease in administrative costs. Weighted average variable costs per cubic meter were flat year over year. New Brunswick's adjusted EBITDA for the quarter was $5.1 million, compared to $5.9 million in the prior year period as a result of lower volumes, offset in part by lower administrative costs as noted previously. Adjusted EBITDA margin increased to 28% compared to 27% last year. Switching over to Maine, sales during the fourth quarter totaled $7.6 million compared to $9.7 million in the same period last year. Sales volume, excluding biomass, decreased 17% year-over-year as mild weather caused temporary road closures and we experienced reduced trucking capacity throughout the quarter. The weighted average selling price, excluding biomass, in U.S. dollar terms was flat compared to the prior year as a result of higher saw lab prices offset by lower prices for pulpwood compared to the prior year period. In Canadian dollar terms, prices were off 6% due to a stronger Canadian dollar. Operating costs totaled $5.6 million in the quarter compared to $6.7 million during the same period last year as a result of lower sales volumes. and variable costs, which were 2% lower per cubic meter due to a stronger Canadian dollar compared to the prior year period. Adjusted EBITDA for the quarter was $2 million compared to $3 million during the same period last year. Adjusted EBITDA margin was 27% compared to 31% in the prior year period, which would primarily reflect lower volumes and a stronger Canadian dollar. With respect to Acadian's financial position, it remains strong, ending the first quarter with a net liquidity position of $23.6 million, including cash, a cash balance of $11.2 million, and a revolving credit facilities, which remain undrawn. With that, I will now turn the call over to Erica.
spk05: Thank you, Adam. I'll start by commenting on the announced management team changes before addressing Acadian's first quarter operating performance and market conditions. I'm pleased to announce that Adam will be appointed Acadian's next president and CEO effective July 30th, 2021. The board and I are confident that Adam will be an excellent leader of the company in the years to come. I'll be working closely with Adam to transition my responsibilities during the second quarter, and then we'll step down on July 30th. Susan Wood, our current director of finance, will become Acadian's next CFO, replacing Adam. Susan is a chartered professional accountant with over 18 years of public accounting experience. She has been leading Acadian's reporting, taxation, and treasury functions to date. Congratulations to both Adam and Susan. Now turning to the operations update. We are pleased to report that during the first quarter, Acadian experienced no safety incidents among employees or contractors. We remain focused on maintaining a culture across our business that emphasizes the importance of strong safety performance. We also continue to monitor COVID-19-related developments in the regions in which we operate and are responding as necessary to keep everyone working with us safe. As Adam mentioned earlier, Acadian's operations were impacted by temporary road closures caused by unseasonably warm weather, reduced trucking capacity in Maine, and weak software public markets. Sales volume, excluding biomass, decreased 21% compared to the same period in 2020. To provide a bit more detail, poor weather and limited access to the woods impacted 12% of our operating days during the quarter. The reduced trucking capacity in Maine related to a lack of driver availability as several drivers scheduled to deliver our product fell ill. These drivers have now returned to work. We are working closely with our contractors in Maine to mitigate the issue of trucking availability going forward. Weak softwood pulpwood demand in the regions continued due to elevated roundwood inventories and competition from lower-cost sawmill residuals, with sawmills running steady. Moving forward, we are working to catch up on a portion of the volume shortfall as row conditions improve. I'll now turn to markets and pricing. Acadian's weighted average selling price, excluding biomass, was flat year over year, with increased saw log pricing offset by lower pulpwood pricing and a stronger Canadian dollar relative to the first quarter of 2020. Regional lumber producers ran steady through the quarter, resulting in solid demand for our softwood saw logs. Our softwood saw log price increased 7% in New Brunswick and 1% in Maine in U.S. dollar terms. While we realized higher prices for all of our softwood saw log products, A higher proportion of lower-value studwood in the mix muted the price increases compared to the prior year period. Demand for hardwood saw logs was strong as end-use markets for this product continued to strengthen. The weighted average hardwood saw log price was flat compared to the prior year period, with price increases offset by a lower-quality product mix. Demand for hardwood pulpwood was steady during the quarter. but prices have not yet recovered from the weakness experienced in the second half of last year. A stronger Canadian dollar was also a headwind to overall price improvement. Price was down 8% compared to the first quarter of last year. As noted previously, softwood pulpwood demand remains weak, and prices were off 7% year-over-year. Now I'll turn to our market outlook. the outlook for Acadian softwood and hardwood saw log sales remains positive, with end-use markets showing strength as we move through 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 1.5 million U.S. housing starts in 2021, up 9% over 2020. Regionally, Softwood saw log inventories are high, but sawmills are running steady. As mills draw down their inventory through the spring, we expect continued steady demand as we restart operations in early summer. Strong end-use markets for hardwood lumber and low hardwood saw log inventories regionally are expected to support continued strong demand and pricing for our hardwood saw logs. Demand for Acadian's hardwood pulpwood is expected to remain stable with mills running steady, while markets for softwood pulpwood are expected to remain challenged. Longer term, we expect regional hardwood pulpwood markets to strengthen with Louisiana Pacific's recently announced investment to convert their Holton mill to manufacture engineered wood siding products. Production of this new product at that facility is slated to begin in 2022. Finally, demand for biomass from Acadian's New Brunswick operation continues to be steady. Before I conclude my remarks, I would like to highlight that we have been focused on Acadian's environmental, social and governance or ESG disclosure during the quarter. It should come as no surprise that Acadian has responsible ESG practices given its long history of sustainable forestry and commitment to the communities in which we operate. Having said this, we have been working to improve Acadian's ESG disclosure and will launch a refreshed website later today with further information. Our key ESG highlights include our commitments to sustainable forest management, the well-being of our people, and strong and effective corporate governance. Acadian's refreshed website will also highlight our approach to climate change and estimated carbon storage across our land. In short, Acadian is well positioned from an ESG perspective and will work to better showcase this going forward. In closing, We believe that Acadian's strong balance sheet, sustainable resource, access to diverse markets, and highly capable team position it well for future success. That concludes our formal remarks. We are available to take any questions from participants on the line. Operator?
spk04: 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 Marcus Campbell from RBC Capital. Your line is now open.
spk03: Thanks. Good afternoon, and thanks for taking my questions. Firstly, I want to say congratulations to both Adam and Susan on the new roles, and good luck to you, Erica, with your next role.
spk05: Thank you.
spk03: All right, maybe starting on the SawLog side, Have any of your customers been able to significantly increase production or even look at expanding milk capacity?
spk05: Adam, I'll take that one. So our customers are all running at capacity today. So we have, you know, very strong and steady demand for our saw log products. And they are doing well. And we understand that a number of them are considering investments. And, in fact... Some of our regional producers have made announcements. In addition to LP, which I refer to in my remarks, Pleasant River Lumber has made an announcement that they'll make several investments in their facilities. Any kind of regional investment in facilities that increases usage of the products we sell is really beneficial to us in the longer term. We're happy that our customers are doing well in that segment, and yes, we do expect some investment in the facilities in the regions in which we operate.
spk03: Great. Are you able to walk us through the net volume impact that the LP Holton Mill could have on your main operations? Is the right way to think of it having a positive impact on the hardwood pulpwood demand and a negative impact on softwood pulpwood?
spk05: I don't think I'll have a negative impact on softwood pulpwood. And keeping in mind that softwood pulpwood markets are already quite weak in that region. But LP was consuming hardwood pulpwood already when they were producing OSB at that mill. But my understanding is that the specs that they'll need going forward for the new product that they'll be producing are ultimately result in a better situation or a better market for us, creating a bit more, you know, just a better market for Acadian going forward. So, yes, we see it beneficial for our hardwood pulpwood demand going forward.
spk03: All right. That makes sense. It's been a few years since there was any movement on the dividend. In your view, what would need to happen for the company to be able to increase the payout while keeping it within sustainable levels?
spk05: Adam, I'm happy to take that and feel free to jump in. So our board reviews our dividend on a quarterly basis and they take into consideration a number of factors. And I think as we stated in our material, very comfortable where we're at today with a very strong liquidity position. And the board will continue to evaluate the dividend going forward. We're working on a number of organic growth opportunities currently. I referred to you on one of the earlier calls. We've been working on other income or other land use opportunities, carbon credit development, etc., which are all modest contributors but do help to the bottom line. And then we continue to be seeking, you know, kind of tuck-in and M&A growth opportunities, but those take time as well to develop. So I would say stay tuned, and ultimately our board is monitoring our dividend on a quarterly basis.
spk03: Okay, sounds good. Thanks. Good luck in the current quarter.
spk04: Thank you. Our next question comes from the line of Hamir Patel from CIBC Capital Markets. Your line is now open.
spk02: Thanks. Good afternoon and congratulations, Adam and Susan and Erica. I know I'm sure a lot of shareholders are glad to see you. You're going to stay on the board as well. I guess my first question, I was trying to get an understanding of, you know, we look at lumber prices year over year. depending on the benchmark, up 125%, 150%. Your saw log price is in New Brunswick only up 10%. So what gives? It seems like maybe there's a landlord in the province that doesn't want to collect their rents. And how do you, as a private Timberland owner, why sell logs to your customers instead If they're not willing to pay up, it almost seems like a better approach would be to just simply refuse to sell at these prices and just let it grow in the stump. Eventually, they're going to have to pay up. Curious to get your thoughts on what do you think is working or not working in New Brunswick and what can Acadian do to collect your fair share of the housing cycle, I guess.
spk05: Sounds good. And you probably noted that in the other kind of major wood baskets within North America, whether it's the Pacific Northwest or the U.S. South, they haven't had the same level of price appreciation for their logs as you've seen in lumber prices. So this is a common theme, not just for our region and where we have other dynamics at play, as you alluded to, but this is more of a nature of the Timberland asset class and why we're a more stable investment. I would say that log and lumber prices are only kind of loosely correlated to a certain degree. And we have been working to increase and participate in this strong saw log market, both on the softwood and hardwood side. And we've been somewhat successful, as you've noted. You've seen an appreciation in our price. And of course, that's a bit of a mix, and so there's always mixed considerations as well in terms of proportion of log versus tree length versus studwood. You know, lumber prices ultimately are driven by North American lumber consumption and the capacity to produce lumber, and we know kind of what's going on there, and so it's been a bit of a perfect storm for lumber producers, whereas log pricing very much relates more to the regional supply and demand Our region is relatively well balanced. The mills have been operating steady, as I mentioned earlier, and we've had steady demand for our product. I would say if there's investments in the mills in our region or if there's a reduction in AAC or regional supply, that will serve as a greater driver for a log price increase. I think the good news, and I've commented on it when answering Marcus's question was, you know, our customers are doing well. They are benefiting from these high lumber prices. And so we are starting to see announcements to make more investments in their facilities, which can only be beneficial to the region and ultimately to us over the longer term. So hopefully that addresses that.
spk02: No, I get that. But Eric, in this environment, it seems like they need the logs a lot more than you need them in terms of where housing could be for the next few years. So what percent of lumber production in New Brunswick is serviced by private timberlands? I guess maybe that's a way to think about it. I don't know if that's a figure you have a sense of.
spk05: Well, I know what you're getting at there, and yes, the trees, as you know, royalty rates, as you refer to, I think, from your note, and I think we call them fair market value rates, have not changed since 2015. And I think there were some announcements, I think, last year of that being under review, but there really hasn't been any movement or, you know, updates since that time. So, Not much new to report there in terms of the government making any changes to, you know, the prices that they're charging for the wood. But, you know, that is certainly a key supplier in the region. And then there's woodlot owners as well in our region. So there's kind of a big fiber basket. Again, the region's relatively well balanced. But these mills are drawing from, you know, both Crown – woodlots and ourselves as they fiber their mills. And as of today, on the softwood saw log side, mills, as I mentioned, have high inventories or are in good shape from an inventory perspective through the spring breakup. But hardwood saw log inventories are quite low regionally. So we're seeing quite a bit of – we have probably a stronger ability there to push pricing at this time.
spk02: Okay. And are any of your softwood saw log prices, I'm just curious, like are there or what portion of them are maybe locked in or are there some where the convention has only been to adjust prices on a certain every quarter or every six months or something? Like are there dynamics like that where there's just like a lag that's going to play out?
spk05: Yeah. So we're subject to a fiber supply agreement in New Brunswick, where the majority of our softwood volume is committed to a customer. That pricing is on a six-month basis. So it's kind of a six-month trailing basis. And it's calculated based on a weighted average of prices in the region. So it's supposed to be an indicative market price. Price, you know, any incremental sales are basically at market, negotiated, you know, on a quarterly or six-month basis. And then in Maine, it's all, you know, on about a six-month basis.
spk02: Okay. And the New Brunswick piece of that, just pulpwood or is that saw logs as well that are subject to that agreement?
spk05: All sawwood. So saw logs and pulpwood. Our bulk was going through another customer that ultimately services the ultimate holder of the fiber supply agreement.
spk02: Okay. So say current prices just stay where they are, given that sort of lag and what the prices you've observed. Do you have, like, a sense as to what that implies for where solid prices would end up going next year for that book of business that has not moved yet because of the lag?
spk05: I mean, it'd be hard for me to speculate, but what I can say is that we are, you know, for all of our more market, you know, spot pricing, we are continuously working to, you know, maximize value and seek highest margin opportunity. So we're very active with all of our customers, and you're seeing that with some of the price increases that we've achieved to date, and we're not going to stop. So, you know, hopefully we'll continue to have some success there. And with respect to the fiber supply agreement, again, that's just a market formula.
spk02: Okay, fair enough. And just to remind me, when does that fiber supply agreement come up for renewal or renegotiation? When does that expire?
spk05: Adam, is that 2025 with a five-year extension? Is that right? That's correct. Oh, okay.
spk01: um perfect all right well that's uh that's all the questions i had uh thanks thanks thank you our next question comes from the line of andrew kuski from credit police your line is now open thanks good afternoon you outlined you know effectively the weather impacts on your volumes and a little bit on effectively the trucker availability and illness related impacts Is there any potential for you to play a little bit of catch-up as we head into maybe more favorable weather and how the outlook looks for harvesting and just pulling product out of the forest?
spk05: Yeah. So we are working to catch up on some of that volume. I think we're hoping to catch up about half of where we fell short in Q1 as a result of the temporary road closures and weather, etc., And then, as I mentioned, working with our contractors very closely, very actively, so that we mitigate the issues that we face in Q1 through the remainder of this year.
spk01: Okay, great. And then I think, Adam, you mentioned a number of times in your prepared remarks just the lower administrative costs. When we get to the post-pandemic world, you know, how do you think costs sort of shake out? Is there any directional movement either upwards or downwards, or do we hold pretty much status quo and things don't really change that much?
spk00: I think, you know, we've done a lot of good work over the last 12 months and, you know, reduced the costs, and they will stay down. They will be sustainable. As you pointed out, as we exit COVID, you know, You know, we're going to probably see some slight increases. You know, management's going to start to travel. And as we move through the management changes, frankly, there'll be some slight increases as well, but not significant.
spk01: So you're not seeing any signs of inflationary pressures really across your cost profile at this point in time? I guess maybe other than like diesel and trucking costs.
spk00: Yeah, nothing significant from what we can see.
spk01: Okay. Thank you very much.
spk00: Thanks.
spk04: Thank you. At this time, I am showing no further questions. I would like to turn the call back over to Erica Riley, President and Chief Executive Officer, for closing remarks.
spk05: That's great. Thank you. Just on behalf of the Board and management of Acadian, I'd like to thank all of our shareholders for their ongoing support. Take care of yourselves and... And all the best. Thank you.
spk04: This concludes today's conference call. Thank you for participating. You may now disconnect. Speakers, please stand by.
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