Acadian Timber : Reports Third Quarter Results

News Release

Investors, analysts and other interested parties can access Acadian Timber Corp.'s 2020 Third Quarter Results via conference call or webcast on Thursday, October 29, 2020 at 1:00PM ET, please dial 1-866-795-3013 toll free in North America (Canada and the USA), or for overseas calls, please dial 1-409-937-8907 (Conference ID 2159638) at approximately 12:50PM ET. For those unable to participate, a taped rebroadcast will be available until 3pm (Eastern Time) November 28, 2020. To access this rebroadcast, please dial 1-855-859- 2056 or 1-404-537-3406 (Conference ID 2159638).

ACADIAN TIMBER CORP. REPORTS THIRD QUARTER RESULTS

Edmundston, NEW BRUNSWICK - October 28, 2020 - Acadian Timber Corp. ("Acadian" or the "Company") (TSX:ADN) today reported financial and operating results1 for the three months ended September 26, 2020 (the "third quarter").

"Operating conditions were favorable during the third quarter, but regional market demand was varied with increased demand for softwood sawlogs more than offset by a weaker than expected hardwood pulpwood market," commented Erika Reilly, Chief Executive Officer. "With a deep customer base and diversified product mix, Acadian responded to changing market conditions by staying close to our customers and shifting production, all while aiming to protect our margins."

Health and safety remained a key focus during the quarter. Acadian experienced no recordable safety incidents among employees and four incidents among contractors. Acadian continuned to emphasize the importance of strong safety performance to all members of the organization. Acadian also continued to monitor COVID-19 related developments in the regions in which we operate and updated our COVID-19 operational plans accordingly.

During the quarter, both the New Brunswick and Maine operations completed a surveillance audit under the 2015-2019 standard of the Sustainable Forest Initiative® with no non-conformances. The Maine operation also renewed its outcome-based forestry agreement with the Maine Forest Service.

Acadian generated $3.1 million of Free Cash Flow and declared dividends of $4.8 million to our shareholders during the third quarter. Our balance sheet continues to be solid with the refinancing of Acadian's long-term debt complete and $20.4 million of net liquidity as at September 26, 2020, which includes funds available under our credit facilities.

1 This news release makes reference to Adjusted EBITDA, Adjusted EBITDA margin, Free Cash Flow and Payout Ratio which are key performance measures in evaluating Acadian's operations and are important in enhancing investors' understanding of Acadian's operating performance. Adjusted EBITDA and Adjusted EBITDA margin 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 the Payout Ratio is used to evaluate Acadian's ability to fund its distribution using Free Cash Flow. Acadian's management defines Adjusted EBITDA as earnings before interest, taxes, fair value adjustments, recovery of or impairment of land and roads, realized gain/loss on sale of roads and other fixed assets, unrealized exchange gain/loss on debt, depreciation and amortization and Adjusted EBITDA margin as Adjusted EBITDA as a percentage of its total revenue. Free Cash Flow is defined as Adjusted EBITDA less interest paid, current income tax expense, and capital expenditures plus net proceeds from the sale of fixed assets (selling price less gains or losses included in Adjusted EBITDA). Payout Ratio is defined as dividends declared divided by Free Cash Flow. As these performance 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. As a result, we have provided in this news release reconciliations of net income, as determined in accordance with IFRS, to Adjusted EBITDA, Adjusted EBITDA margin and Free Cash Flow.

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Review of Operations

Financial and Operating Highlights

			Three Months Ended		Nine Months Ended
(CAD thousands)	September 26, 2020	September 28, 2019	September 26, 2020	September 28, 2019
Sales volume (000s m3)		302.3		313.5	816.9	911.7
Sales	$	23,236	$	25,357	$ 66,102	$ 74,213
Operating earnings		4,445		4,718	13,991	15,937
Net income / (loss)		5,248	(10,869)	6,766	1,097
Adjusted EBITDA		4,514		5,123	14,197	17,018
Adjusted EBITDA margin		19%		20%	21%	23%
Free Cash Flow		3,149		4,186	9,506	13,426
Dividends declared		4,840		4,840	14,518	14,519
Payout ratio1		154%		116%	153%	108%
Per share - basic and diluted
Net income / (loss)	$	0.31	$	(0.65)	$ 0.41	$ 0.07
Free Cash Flow		0.19		0.25	0.57	0.80
Dividends declared		0.29		0.29	0.87	0.87

1. Seasonal fluctuations in volume render third quarter payout ratios not meaningful.

For the three months ended September 26, 2020, Acadian generated sales of $23.2 million, compared to $25.4 million in the prior year period. Sales volume, excluding biomass, decreased 9% and the weighted average selling price, excluding biomass, decreased 3% year-over-year. While demand for softwood sawlogs increased during the quarter driven by a strong North American softwood lumber market, demand for hardwood pulpwood declined. The negative effects of COVID-19 impacted select hardwood pulpwood end use markets. In addition, regional consumption was further impacted by the substitution of softwood for hardwood pulpwood and the ongoing market disruption caused by the Androscoggin Mill explosion in Jay, Maine that occurred earlier this year.

Operating costs and expenses were $18.8 million during the third quarter, compared to $20.6 million during the prior year period. This year-over-year decrease reflects lower harvesting activity and administrative costs. Weighted average variable costs, excluding biomass, decreased 2% reflecting a lower cost product mix in the period.

Adjusted EBITDA was $4.5 million during the third quarter, compared to $5.1 million in the prior year period and Adjusted EBITDA margin for the quarter was 19%, compared to 20% in the prior year period, or 19% excluding a $0.3 million gain in timberland sales in 2019. Free Cash Flow was $3.1 million compared to $4.2 million in the same period of 2019.

Net income for the third quarter totaled $5.2 million, or $0.31 per share, compared to a net loss of $10.9 million, or $0.65 per share in the same period of 2019. The variance from the prior year period is primarily due to the termination fee paid to Brookfield in 2019 which, after income tax, reduced net income by $12.8 million or $0.77 per share. Net income was also impacted by a combination of gains on non-cash items such as unrealized foreign exchange on long-term debt and fair value adjustments in 2020 compared to 2019.

During the first nine months of 2020, Acadian generated sales of $66.1 million compared to $74.2 million in the prior year period. The 11% decrease reflects an abbreviated operating period during the second quarter and reduced demand for hardwood pulpwood during the third quarter compared to 2019. The weighted average selling price, excluding biomass, remained relatively stable with a 1% decrease. Operating costs and expenses of $52.1 million were $6.2 million lower than the prior year period due to lower harvesting activity and administrative costs. As a result, year-to-date Adjusted EBITDA was $14.2 million compared to $17.0 million during the first nine months of 2019. Adjusted EBITDA margin of 21% compares to 23% in 2019, or 22% on a comparable basis, excluding 2019 land sales.

For the nine months ended September 26, 2020, net income was $6.8 million, or $0.41 per share, which represents an increase of $5.7 million year-over-year. The variance is primarily related to the one-time termination fee paid to Brookfield in the third quarter of 2019 and year-to-date unrealized foreign exchange movements on U.S. denominated long-term debt.

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Segment Performance

New Brunswick Timberlands

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

		Three Months Ended September 26, 2020		Three Months Ended September 28, 2019
	Harvest	Sales	Sales		Results	Harvest	Sales	Sales		Results
	(000s m3)	(000s m3)	Mix		($000s)	(000s m3)	(000s m3)	Mix		($000s)
Softwood	123.7	122.5	52%	$	7,050	103.7	102.7	43%	$	5,864
Hardwood	75.7	73.7	31%		5,249	109.1	111.1	47%		8,188
Biomass	40.7	40.7	17%		1,156	24.9	24.9	10%		818
	240.1	236.9	100%		13,455	237.7	238.7	100%		14,870
Timber services and other					4,570					4,599
Sales				$	18,025				$	19,469
Adjusted EBITDA				$	4,240				$	4,789
Adjusted EBITDA margin					24%					25%
		Nine Months Ended September 26, 2020		Nine Months Ended September 28, 2019
	Harvest	Sales	Sales		Results	Harvest	Sales	Sales		Results
	(000s m3)	(000s m3)	Mix		($000s)	(000s m3)	(000s m3)	Mix		($000s)
Softwood	282.5	284.2	47%	$	16,188	291.4	303.3	45%	$ 17,817
Hardwood	211.5	223.3	37%		17,262	264.3	274.0	41%		20,849
Biomass	103.2	103.2	16%		3,280	99.0	99.0	14%		3,554
	597.2	610.7	100%		36,730	654.7	676.3	100%		42,220
Timber services and other					12,474					13,147
Sales				$	49,204				$	55,367
Adjusted EBITDA				$	11,900				$ 13,388
Adjusted EBITDA margin					24%					24%

Sales for our New Brunswick Timberlands were $18.0 million compared to $19.5 million during the prior year period. Sales volume, excluding biomass, decreased by 8% primarily due to lower hardwood pulpwood sales, partially offset by higher softwood sawlog sales. Biomass sales volume increased 63% during the quarter due to strong domestic sales. The weighted average selling price, excluding biomass, for the third quarter was $62.70 per m3, or 5% lower than the prior year period, as a result of lower hardwood pulpwood volumes and price compared to the prior year.

Operating costs and expenses were $13.8 million during the third quarter, compared to $14.9 million in the prior year period due to lower harvesting activity and administrative costs. Weighted average variable costs, excluding biomass, decreased 8% due to lower hardwood deliveries and shorter haul distances to markets compared to the prior year period.

Adjusted EBITDA was $4.2 million during the third quarter of 2020 compared to $4.8 million in the prior year period reflecting lower hardwood pulpwood sales and a $0.2 million gain on the sale of timberlands in 2019. Adjusted EBITDA margin was 24% compared to 25% in the prior year period, or 23% excluding the 2019 land sale.

During the first nine months of 2020, New Brunswick Timberlands' sales of $49.2 million was 11% lower than the prior year period. Sales volume, excluding biomass, decreased 12% due to an abbreviated operating period during the second quarter and reduced demand for hardwood pulpwood during the third quarter relative to the nine months of 2019. The weighted average selling price, excluding biomass, decreased 2% with relatively stable prices across all products offset by less higher value hardwood pulpwood in the mix. Operating costs and expenses of $37.4 million during the first nine months of 2020 were $5.2 million lower than the prior year period due to lower harvesting activity and administrative costs. Adjusted EBITDA was $11.9 million compared to 13.4 million during the first nine months of 2019 for the reasons discussed, while Adjusted EBITDA margin remained stable at 24%.

There were four recordable safety incidents among contractors and no incidents among employees during the third quarter of 2020.

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Maine Timberlands

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

		Three Months Ended September 26, 2020	Three Months Ended September 28, 2019
	Harvest	Sales	Sales		Results	Harvest	Sales	Sales		Results
	(000s m3)	(000s m3)	Mix		($000s)	(000s m3)	(000s m3)	Mix		($000s)
Softwood	38.5	38.6	59%	$	2,741	49.0	49.0	66%	$ 3,551
Hardwood	31.8	26.8	41%		2,305	26.1	25.5	34%		2,164
Biomass	-	-	0%		2	0.3	0.3	0%		4
	70.3	65.4	100%		5,048	75.4	74.8	100%		5,719
Other sales					163					169
Sales				$	5,211				$	5,888
Adjusted EBITDA				$	793				$	711
Adjusted EBITDA margin					15%					12%
		Nine Months Ended September 26, 2020		Nine Months Ended September 28, 2019
	Harvest	Sales	Sales		Results	Harvest	Sales	Sales		Results
	(000s m3)	(000s m3)	Mix		($000s)	(000s m3)	(000s m3)	Mix		($000s)
Softwood	140.9	141.0	68%	$	10,806	163.1	163.3	69%	$	12,471
Hardwood	69.5	65.0	32%		5,665	68.7	68.3	29%		5,894
Biomass	0.2	0.2	0%		4	3.8	3.8	2%		12
	210.6	206.2	100%		16,475	235.6	235.4	100%		18,377
Other sales					423					469
Sales				$	16,898				$ 18,846
Adjusted EBITDA				$	3,959				$	4,594
Adjusted EBITDA margin					23%					24%

Sales for our Maine Timberlands totaled $5.2 million compared to $5.9 million for the same period last year. Sales volume, excluding biomass, decreased by 12% as customers were slow to take softwood pulpwood deliveries due to continued high inventories in the region.

The weighted average selling price, excluding biomass, remained stable due to a favourable product mix overall offset by lower quality softwood and hardwood sawtimber in the mix. In Canadian dollar terms the weighted average selling price was $77.27 per m3, up 1% compared to the same period of 2019. In U.S. dollar terms, the weighted average selling price, excluding biomass, was $57.95 per m3, flat year-over-year.

Operating costs and expenses for the third quarter were $4.4 million, compared to $5.3 million during the same period of 2019 primarily due to lower harvest activity and administrative costs. Variable harvest costs per m3, excluding biomass, were higher than in the prior year period due to a higher cost mix, with less softwood pulpwood harvested, and longer hauling distances to market.

Adjusted EBITDA for the quarter was $0.8 million compared to $0.7 million during the prior year period and Adjusted EBITDA margin was 15% compared to 12% in the prior year period. Lower sales were more than offset by the lower costs during the quarter.

During the first nine months of 2020, sales were $16.9 million compared to $18.8 million in the prior year period. The weighted average selling price, excluding biomass, increased 1%, while sales volume, excluding biomass, decreased 11% year-over-year reflecting low demand for pulpwood during the nine months of 2020. Operating costs and expenses of $13.0 million during the nine-month period were $1.7 million lower than the prior year period due to lower harvesting activity and lower administrative costs in 2020. Adjusted EBITDA of $4.0 million compares to $4.6 million during the first nine months of 2019, with 2019 including a $0.4 million gain related to timberland sales. Adjusted EBITDA margin was 23% compared to 24% in 2019, or 22% excluding 2019 land sales.

There were no recordable safety incidents among employees or contractors during the third quarter of 2020.

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