Acadian Timber Corp.

The conference will begin shortly. To raise and lower your hand during Q&A, you can dial star 1 1.

Good day, and thank you for standing by. Welcome to the Acadian Timber fourth quarter 2022 analyst conference call and webcast. At this time, all participants are in listen-only mode. After the speaker's presentation, there'll be a question and answer session. To ask a question during this session, you'll need to press star 11 on your telephone. You will then hear an automated message advising you your hand has raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Ms. Susan Wood, Chief Financial Officer. Please go ahead.

Thank you, Operator. Good afternoon, everyone, and welcome to Acadian Timber's fourth quarter conference call. With me on the call today is Adam Schaparsky, 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 2023, 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 the financial and operational highlights for our fourth quarter ended December 31st, 2022. Adam will then comment on our results for the year and our outlook for 2023. The fourth quarter was a particularly challenging quarter for operations, with the impacts of limited contractor availability being exacerbated by unfavorable weather conditions, including a late start to winter, particularly in Maine. Though harvest levels were below our targets, Acadian experienced steady regional demand and increased pricing for its key products. Sales for the fourth quarter were $23.8 million compared to $25.9 million in the prior year period. Sales volume, excluding biomass, decreased 26% compared to the prior year period, primarily as a result of limited contractor availability combined with the delayed start to winter. which impacted both harvesting and hauling activities. Weighted average selling price, excluding biomass, increased 17% year over year, benefiting from strong saw log prices and improved pulpwood prices driven by strong demand, as well as the recovery of elevated fuel costs from our customers. Overall pricing for softwood saw logs and softwood pulpwood increased 19% and 16%, respectively, compared to the prior year period due to strong demand. We also continued to experience solid demand for our hardwood saw logs, which combined with our continued merchandising efforts has resulted in hardwood saw log pricing increasing 16% overall compared to the prior year period. Decreased inventories due to the lack of harvesting throughout the region contributed to an increase in hardwood pulpwood pricing of 23% over the prior year period. Biomass sales volumes were up 25% compared to the prior year period as a result of improving market conditions during the quarter, with pricing increasing by 8% year over year, allowing us to begin increasing shipments to our customers. Operating costs of $19.8 million in the quarter were consistent with the prior year, with the decrease in harvesting activity offset by higher contractor rates and fuel cost adjustments paid to contractors. These higher costs drove a 27% increase in weighted average variable costs as compared to the prior year period. Adjusted EBITDA totaled $4.1 million during the quarter compared to $6.3 million in the prior period. Adjusted EBITDA margin for the quarter was 17% compared to 24% in the prior year period. Our net income for the fourth quarter was $22 million compared to $6.5 million in the prior year period. The increase in net income was largely due to the impact of higher gains on non-cash fair value adjustment in 2022 compared to 2021, resulting from the increased fair value of our timberlands, offset by lower operating income due to lower harvesting activity. Acadian generated $2 million of free cash flow and declared dividends of $4.9 million to our shareholders during the fourth quarter, or 29 cents per share. I will now move into the fourth quarter results for our New Brunswick operations. Sales for our New Brunswick timberlands were $18.6 million compared to $18 million during the prior year period. Sales volume, excluding biomass, decreased by 10%, primarily due to limited contractor availability in the current period. With regards to softwood saw logs, demand remains strong. However, sales volumes decreased by 15% due to the limited trucking contractor availability. As mentioned in prior quarters, there's an increased regional demand for softwood pulpwood, resulting in volume increases from 13,000 cubic meters to 22,000 cubic meters compared to the prior year period. Hardwood saw log volumes in New Brunswick decreased by 16%, and hardwood pulpwood sales volume decreased by 21%, being negatively impacted by limited contractor availability. However, demand has strengthened, and due to the shortfall of supply in the region, prices increased by 18%. Operating costs in the fourth quarter totaled $14.9 million, compared to $13.6 million in the prior year period, reflecting higher contractor costs and higher land management costs. Weighted average variable costs excluding biomass increased 29% as a result of higher contractor rates and fuel adjustment costs paid to contractors compared to the prior year period. New Brunswick's adjusted EBITDA in the quarter was $3.8 million compared to $4.6 million in the prior year period. Adjusted EBITDA margin was 20% compared to 25% in the prior year period. Switching over to Maine. Sales during the fourth quarter totaled $5.2 million compared to $8 million in the same period last year. Sales volume excluding biomass decreased 52%, also reflecting limited contractor availability, but was also combined with unfavorable weather conditions. These factors resulted in softwood saw log volumes in Maine decreasing by 62%. as compared to the prior year, and softwood pulpwood volumes decreasing by 48%, although softwood pulpwood volumes are relatively modest. Hardwood saw log volumes decreased by 66% for the same reasons. Hardwood pulpwood sales volume decreased by 20% compared to the prior year period, however, with strengthened demand, price increased by 18%. The weighted average selling price, excluding biomass, in U.S. dollar terms increased 23% compared to the prior year with higher prices across all products benefiting from favorable market dynamics as well as fuel cost recovery from customers. In Canadian dollar terms, prices increased 32%. Operating costs totaled $4.5 million in the quarter compared to $6 million during the same period last year primarily due to lower harvesting activity offset by higher contractor and land management costs. Weighted average variable costs, excluding biomass, increased 32%, primarily as a result of higher contractor rates and fuel adjustment costs paid to contractors. Adjusted EBITDA for the quarter was $0.8 million compared to $2.1 million during the prior year period, and adjusted EBITDA margin was 15% compared to 26% in the prior year period. With respect to Acadian's financial position at the end of the quarter, it remained strong, ending with a net liquidity position of $19.5 million, including a cash balance of $6.2 million in our revolving credit facilities, which remain undrawn. The DRIP was in place for three quarters during the year and contributed $3.4 million to our liquidity. As a final note and as a reminder in the current interest rate environment, Acadian's debt has fixed rate terms expiring in 2025 through 2030. With that, I will now turn the call over to Adam.