Earnings call transcript: Acadian Timber Q4 2024 reports revenue growth

Acadian Timber Holdings Inc. reported its financial results for the fourth quarter of 2024, showing significant year-over-year growth in several key metrics. Despite a slight decline in Q4 sales compared to the previous year, the company achieved a notable increase in annual sales and adjusted EBITDA. The stock, currently trading at $5.20, has shown strong momentum with a 50% gain over the past six months. According to InvestingPro analysis, the company appears undervalued based on its Fair Value calculation.

Key Takeaways

• Acadian Timber’s total sales for 2024 increased to $116.2 million from $93.5 million in 2023.
• Adjusted EBITDA nearly doubled to $38.9 million in 2024.
• The company introduced a new Environmental Solutions segment, contributing significantly to sales.
• Acadian Timber declared dividends totaling $20.3 million.
• The stock price rose by 7.08% following the earnings announcement.

Company Performance

Acadian Timber demonstrated strong performance in 2024, with total sales climbing to $116.2 million from $93.5 million in the previous year. The company’s adjusted EBITDA also saw a substantial increase, reaching $38.9 million compared to $20.6 million in 2023. This growth was driven by the introduction of the Environmental Solutions segment and strategic operational improvements. InvestingPro data reveals impressive revenue growth of 274% in the last twelve months, though the company maintains a moderate debt level with a debt-to-capital ratio of just 0.02.

Financial Highlights

• Total (EPA:TTEF) 2024 sales: $116.2 million (up from $93.5 million in 2023)
• Adjusted EBITDA: $38.9 million (up from $20.6 million in 2023)
• Record free cash flow: $29.7 million (vs. $15 million in 2023)
• Q4 2024 sales: $20.3 million (down from $23.8 million in Q4 2023)

Outlook & Guidance

Looking ahead, Acadian Timber expects increased production in Maine in 2025 and anticipates improvements in variable costs during the second half of the year. The company plans to continue its carbon credit project, with an additional 350,000 credits expected, and is exploring compliance carbon credit opportunities. Potential residential lot sales and renewable energy partnerships are also on the horizon. InvestingPro analysts forecast continued sales growth this year, with revenue expected to increase by 22%. For deeper insights into Acadian Timber’s growth prospects and 13 additional ProTips, subscribers can access the comprehensive Pro Research Report.

Executive Commentary

CEO Adam Shaparski emphasized the company’s commitment to safety and environmental performance through 2025, stating, "Through 2025, we will remain focused on safety and environmental performance." He also highlighted the company’s asset base and workforce, saying, "We have a remarkable asset base and outstanding people."

Risks and Challenges

• The softwood and hardwood sawlog markets remain challenging, potentially affecting future sales.
• Pulpwood demand is impacted by regional sawmill residuals, which could influence revenue.
• Economic factors such as interest rates and inflation, although easing, continue to pose risks.
• The company’s reliance on carbon credit sales could be affected by market fluctuations.
• Operational changes, such as internalizing harvesting operations, may present integration challenges.

While Acadian Timber’s strategic initiatives and financial performance in 2024 have positioned the company for future growth, InvestingPro analysis indicates some challenges, including weak gross profit margins and short-term obligations exceeding liquid assets. The company’s overall Financial Health Score stands at "FAIR," suggesting a balanced risk-reward profile for investors considering the stock’s current valuation.

Full transcript - Advent Technologies Holdings Inc (NASDAQ:ADN) Q4 2024:

Conference Operator: Good day, and thank you for standing by. Welcome to the Acadian Timber Fourth Quarter twenty twenty four Analyst 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 would need to press 11 on your telephone.

You would then hear an automated message advising your hand is raised. Please be advised that today’s conference is being recorded. I would now like to turn the conference over to your speaker today, Susan Wood, Chief Financial Officer. Please go ahead.

Susan Wood, Chief Financial Officer, Acadian Timber: Thank you, operator. Good afternoon, everyone, and welcome to Acadian Timber’s fourth quarter conference call. With me on the call today is Adam Shaparski, Acadian’s President and Chief Executive Officer. Before discussing Acadian’s results, I will first remind everyone that in discussing our fourth quarter and full year financial and operating performance, the outlook for 2025 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 and A, which are available on SEDAR and on our website at acadiantimber.com. I’ll begin by outlining the financial and operational highlights for our fourth quarter ended 12/31/2024. Adam will then comment on our results for the year, activities undertaken early in 2025 and our outlook for the remainder of the year. Acadian experienced steady fourth quarter results with overall timber sales volumes excluding biomass consistent with the same period of 2023. However, pricing was impacted by changes in product mix and weak end use markets resulting in lower sales as compared to the same quarter of 2023.

Sales for the fourth quarter were $20,300,000 compared to $23,800,000 in the prior year period. In New Brunswick (NYSE:BC), a favorable change in customer mix shifted harvesting volumes from crown licensed timberlands to our freehold timberlands, increasing our freehold sales and decreasing our timber services revenue. New Brunswick experienced improved contractor availability and increased volumes. However, contractor availability remained a significant challenge in Maine. Volumes were also impacted by unfavorable weather conditions stemming from a late start to winter conditions and longer than usual customer shutdowns due to the timing of holidays.

Softwood sawlog pricing decreased 5% as compared to the prior year period due to a lower value product mix and weakness in end use markets. Hardwood sawlog pricing decreased 10%, primarily due to weakness in end use markets. Softwood pulpwood pricing decreased 11% as a result of abundant regional sawmill residuals impacting demand and pricing. Hardwood pulpwood pricing increased 3% as compared to the prior year period due to a favorable customer mix. Biomass sales volumes were relatively consistent with Q4 twenty twenty three.

However, biomass pricing decreased 63 due to more roadside sales versus delivered sales compared to the prior year period. Overall, weighted average selling price excluding biomass decreased 5% year over year. However, it is also worth noting that the weighted average selling price increased 6% from Q3 twenty twenty four, demonstrating recent stability. Operating costs and expenses were $17,000,000 during the fourth quarter compared to $19,500,000 during the fourth quarter of twenty twenty three. Increased costs related to increased freehold harvesting activity were offset by lower timber services activity and lower land management costs.

Weighted average variable costs excluding biomass were flat as compared to the prior year period. Greater hauling distances and increased contractor rates were offset by a higher proportion of softwood products, which carry lower variable costs as well as lower fuel adjustment costs. Also contributing to our fourth quarter results was the sale of 1,800 acres of timberlands. In October 2024, Acadian entered into an agreement to sell approximately 2,100 acres, of which 1,800 acres closed in November 2024 for gross proceeds of $1,100,000 and a net gain of $300,000 The remainder of the transaction is expected to close in the first half of twenty twenty five. Adjusted EBITDA for the fourth quarter was $3,700,000 compared to $4,400,000 in the prior year period, and adjusted EBITDA margin for the quarter was 18% compared to 19% in the prior year period.

Our net income for the fourth quarter totaled $5,600,000 or $0.32 per share compared to $11,600,000 or $0.68 per share in the same period of 2023. The decrease in net income was largely due to the impact of lower gains on noncash fair value adjustments in 2024 compared to 2023, partially offset by lower income tax expense. Acadian generated $3,100,000 of free cash flow and declared dividends of $5,100,000 to our shareholders during the fourth quarter or $0.29 per share. I’ll now move into the fourth quarter results for our New Brunswick operations. Sales for our New Brunswick Timberlands were $19,200,000 compared to $19,800,000 during the prior year period.

Sales volume, excluding biomass, increased 7% compared to the prior year period, primarily due to increased contractor availability and a favorable change in customer mix, which shifted harvesting volumes from crown licensed timberlands to our freehold timberlands, increasing our freehold sales and decreasing our timber services revenue, partially offset by unfavorable weather conditions and longer than usual customer shutdowns due to the timing of holidays. With regard to softwood sawlogs, demand remained steady and volumes increased 21% compared to Q4 twenty twenty three due to the favorable shift in customer mix previously mentioned. Pricing decreased 7% due to a lower value product mix combined with weakness in end use markets. Demand in pricing for hardwood sawlogs was negatively impacted by weakness in end use markets. Sales volumes decreased 23 and pricing decreased 9% as compared to the same period in the prior year.

Abundant regional sawmill residuals impacted demand and pricing for softwood pulpwood with sales volumes 19% lower and pricing 11% lower than the prior year period. Hardwood pulpwood volumes increased 10% as compared to Q4 twenty twenty three and pricing increased 3% due to a favorable customer mix. Overall for New Brunswick, the weighted average selling price, excluding biomass, decreased 6% as compared to Q4 twenty twenty three. Operating costs and expenses were $13,400,000 during the fourth quarter compared to $14,900,000 in the prior year period. Increased freehold harvesting activity and increased weighted average variable costs were offset by lower timber services activity.

Weighted average variable costs, excluding biomass, increased 2% as a result of greater hauling distances for sawlogs and higher contractor rates, partially offset by lower fuel adjustment costs. New Brunswick’s adjusted EBITDA for the quarter was $4,200,000 compared to $4,900,000 in the prior year period. Adjusted EBITDA margin was 24% compared to 25% in the prior year period. Switching over to Maine. Sales during the fourth quarter totaled $3,000,000 compared to $4,000,000 in the same period last year.

Sales volume, excluding biomass, decreased 29% compared to the same period of 2023, also being impacted by unfavorable weather conditions stemming from a late start to winter conditions and longer than usual customer shutdowns due to the timing of holidays. Contractor availability issues persisted through the fourth quarter. Softwood sawlog volumes decreased 5%, although pricing increased 2% in U. S. Dollar terms.

Hardwood sawlog volumes were negligible during the fourth quarter of the year. Softwood pulpwood volumes were also negligible in Maine due to the extended shutdown of a major softwood pulpwood customer. Hardwood pulpwood volumes decreased 51%, although pricing also increased 2% in U. S. Dollar terms.

The weighted average selling price, excluding biomass, in U. S. Dollar terms was consistent with the same quarter in the prior year. Operating costs and expenses for the fourth quarter were $3,300,000 compared to $4,200,000 during the same period in 2023 as a result of lower harvesting activity, partially offset by higher variable costs. Weighted average variable costs, excluding biomass, increased 3% primarily as a result of greater hauling distances and the impacts of foreign exchange.

Adjusted EBITDA for the quarter was negative $200,000 consistent with Q4 twenty twenty three, and adjusted EBITDA margin was negative 7% compared to negative 4% in the prior year period. With respect to Acadian’s financial position at the end of the quarter, it remains strong, ending with a net liquidity position of $29,300,000 including a cash balance of $15,300,000 and our revolving credit facilities, which remain undrawn. A portion of our long term debt totaling $46,000,000 is scheduled to mature in March of twenty twenty five. In December 2024, we signed a term sheet to refinance the maturing debt under essentially the same terms as the existing facilities, but with higher interest rates stemming from the current interest rate environment. With that, I will now turn the call over to Adam.

Adam Shaparski, President and Chief Executive Officer, Acadian Timber: Thank you, Susan, and good afternoon, everyone. As Susan mentioned, I will first comment on our 2024 results, then move into discussing some activities we have already undertaken in 2025 and finish by discussing our outlook for the rest of the year. As always, Acadian remains committed to health and safety as our number one priority. During the fourth quarter, there were two recordable safety incidents among our contractors. These are minor incidents that resulted in minimal lost time.

As we have said before, we believe that emphasizing and achieving an excellent safety record is a leading indicator of success in the broader business and incident reduction continues to be a primary focus for Acadian. Twenty twenty four was a busy year with several notable achievements. In total, Acadian’s twenty twenty four sales were $116,200,000 compared to $93,500,000 in 2023. Adjusted EBITDA totaled $38,900,000 compared to twenty point six million dollars in 2023 and adjusted EBITDA margin was 33% compared to 22% in the prior year. We generated record free cash flow of $29,700,000 for 2024 compared to $15,000,000 last year and declared dividends of $20,300,000 to our shareholders.

Moving into our timber operations, we achieved solid results in 2024 despite the challenges posed to our customers by weekend end use markets. Timber sales and services were $91,600,000 in 2024 compared to $93,500,000 in 2023. Timber sales volumes excluding biomass increased 16% year over year, but was offset by a decrease in our weighted average selling price and lower timber services activity. New Brunswick continued making progress increasing contractor capacity throughout the year. However, limited progress was made in Maine and contractor availability and elevated costs remained an issue.

Although unseasonably warm weather prevented the ground from freezing and somewhat hindered operations in both the first and fourth quarters, operating conditions were generally favorable for the rest of the year. Our weighted average selling price for 2024 was 5% lower than 2023 as a result of changes in product mix and weak end use markets. Softwood sawlog pricing was impacted by changes in product mix and softwood lumber pricing, which remained below historical averages for much of the year. Softwood pulpwood demand started strong early in the year, but was curbed in the second half of the year by abundant regional sawmill residuals and pricing remained stable. Weakness in hardwood lumber markets put downward pressure on hardwood sawlog prices, but demand for Acadian’s hardwood sawlogs remained stable.

Hardwood pulpwood demand was steady through 2024, while pricing decreased as a result of shorter hauling distances as compared to the prior year. Greater softwood sawlog hauling distances and higher contractor rates increased variable costs, but were partially offset by changes in product mix and lower fuel adjustment costs. This year, we introduced an Environmental Solutions segment, which currently consists of our carbon credit project in Maine. During 2024, we sold nearly all of the first tranche of registered voluntary carbon credits related to the project. The sales were comprised of approximately 752,000 voluntary carbon credits at an average price of approximately US24 dollars The sale of carbon credits contributed $24,600,000 to total sales.

2024 saw a significant amount of real estate activity for Acadian. In March, we completed the acquisition of approximately 16,000 acres of Timberland in New Brunswick at a price of $9,000,000 The Timberlands are close in proximity to Acadian’s existing operations and customer base. The property is well stocked benefiting from historical silviculture investments, which will allow Acadian to expand its harvesting operations. The property also presents significant potential for revenue diversification through other land use opportunities. During 2025, we expect to get begin both harvesting operations and realizing revenue through other land use opportunities, which includes residential lot sales on this property.

As Susan mentioned, we also entered into an agreement to sell approximately 2,100 acres of timberland. The land included in the disposition is composed of smaller parcels of relatively low operational strategic value to Acadian and demonstrates our focus on maximizing the value derived from our assets. As we have discussed previously, we have increased our activities surrounding opportunities within the renewable energy sector. In February 2024, Acadian executed an agreement for the option to lease approximately 10,000 acres of its main timberlands. The agreement includes multiple leasing terms with escalating fees if progress is made on the project.

The incremental cash flows attributable to the initial terms are modest. However, should the project reach the construction term, which will take several years, the incremental cash flows may become material to Acadian. In November 2024, Acadian installed a meteorological tower to collect wind data on our New Brunswick Timberlands. This investment will deepen our understanding of the wind power potential on our land base, which we already understand to be considerable and enable further exploration of the opportunities available to Acadian to participate in the renewable energy sector in New Brunswick. We have already been busy in 2025.

As noted in our press release and annual report, since year end, we’ve established our own harvesting operation in Maine with the goal of expanding our harvesting capacity and reducing operating costs. In January 2025, subsequent to year end, Acadian completed the purchase of several pieces of new harvesting equipment and hired equipment operators that have already begun harvesting on our main timberlands. And just three days ago, on February 10, Acadian signed an agreement to purchase certain logging and related assets of ANA Brochu to further expand its internal harvesting operations. The assets include harvesting, trucking, road working equipment and related real estate, which combined with an established workforce constitute a turnkey lagging operation in Maine. ANA Brochu and its employees have provided contracting services to Acadian for many years.

The employees are familiar with our land base and we are excited to welcome them to the Acadian team. The transaction is expected to close later in the first quarter. To turn to our outlook for the remainder of 2025, near term pressures on end use markets persist and potential tariffs are causing concern among forest product companies in both The U. S. And Canada.

We are evaluating the impacts that could be felt by Acadian and its customers and the alternative strategies that may be available should tariffs be imposed. However, with the many dynamics that come into play, including the greater economic outlook, the ultimate impacts cannot be known at this time. North American interest rates and inflation continue to ease and the consensus forecast for U. S. Housing starts is steady and approximately $1,360,000 starts in 2025 as compared to $1,350,000 in 2024.

We therefore remain confident that the stability of the Northeastern forestry sector combined with the long term necessity for new homes and repair and remodel activity will support the long term demand for our products as has been demonstrated in recent years. The sufficient contractor availability achieved in New Brunswick in 2024 through the hard work of our team is expected to continue into 2025. Through the establishment of our own harvesting operations in Maine, we expect the persistent issue of contractor availability to be addressed and we expect to increase production in Maine in 2025. Production levels are expected to improve throughout the year and we should start to see variable cost improvements in the back half of twenty twenty five. Near term hardwood and softwood sawlog demand is expected to remain stable, while pricing may remain challenged until end use markets improve.

Demand and pricing for softwood pulpwood is expected to remain at reduced levels in the near term due to abundant regional sawmill residuals and hardwood pulpwood is expected to be steady. With respect to voluntary carbon credits, demand and pricing are expected to remain stable for credits from quality projects. After selling nearly all of our current registered credits in 2024, our inventories are expected to be replenished in the near term. The registration process for the second and third tranches of carbon credits for the ongoing project is expected to result in approximately 350,000 credits in total and is expected to be completed in the first half of twenty twenty five. The protocol for developing compliance carbon credits for managed forest in Canada was finalized during the year.

Acadian is evaluating the opportunities to develop eligible carbon credits that the compliance protocol may present in conjunction with the opportunities that exist under the current protocols and is in the process of designing our next projects. We expect to remain busy with real estate throughout 2025 as we begin to sell some of our residential lots and continue to focus on further investments and partnerships in renewable energy in both Maine and New Brunswick. In closing, 2025 is off to a good start and mother nature seems to be cooperating. We are energized by the start up of our new of our own harvesting operation in Maine and look forward to a productive year ahead. Through 2025, we will remain focused on safety and environmental performance, while obtaining the highest margins available for our products and making improvements throughout the business to maximize cash flows.

At Acadian, we have a remarkable asset base and outstanding people. Guided by the principles of sustainable forest management, we will continue to advance opportunities to deliver long term value to our shareholders. With that, we are now available to take your questions. Operator?

Conference Operator: Thank you. And our first question will come from Matthew McKeylor with RBC. Your line is now open.

Matthew McKeylor, Analyst, RBC: Thanks very much. Good morning. Thanks for taking my questions. First, I’d like to start out just asking about internalizing your harvesting operations in Maine. Between the equipment you purchased in January and then the further acquisition of assets that came with the workforce from E and A through Schuh, Are you now essentially at the scale you expect to be at as sort of your new run rate there?

Or are you still sort of scaling up operations? Do you plan to acquire further equipments? What are your plans from here? Thanks.

Adam Shaparski, President and Chief Executive Officer, Acadian Timber: Yes, we believe the equipment we purchased either on our own or through the acquisition that’s supposed to close will close in Q1. We’re at scale. We believe that through that those acquisitions, we’re going to be able to harvest the volumes that we need to achieve our plans and our expected cuts in the future.

Matthew McKeylor, Analyst, RBC: Okay, thanks. And is there a way to think about how much of the harvesting maybe in terms of volumes you’ll be doing with their own operations maybe by the end of the year? And then just to confirm, I heard that you’re looking to harvest sort of in line with your longer term plans in Maine as you sort of ramp up there. Is that correct?

Adam Shaparski, President and Chief Executive Officer, Acadian Timber: That’s correct on the second part. And I would say most, if not all of the harvesting will be done internally moving forward, Matthew. We may pulse in some contractors if necessary, but with what we’ve acquired, we will be able to do most, if not all of our harvesting, most, if not all of our road work. And we may need to rely on some trucking contractors, but that hasn’t been a significant issue for us in Maine over the last number of years. So we’re not too concerned about building up on the trucking side right yet.

Matthew McKeylor, Analyst, RBC: Great. That’s very helpful. If I could just sneak one last one in. You talked about building out your real estate capability, sounds like you have a fair bit in your pipeline there. Just at a high level, how should we think about what progress you’re likely to make on this front in 2025, whether it’s across kind of developing those residential lot sales, renewable energy leases or other opportunities?

Adam Shaparski, President and Chief Executive Officer, Acadian Timber: Yes, it’s a great question. Real estate takes certainly than that over the last year or two. Real estate takes some time to develop out and we’ve been working very diligently over the last year or two. We expect to see some results as I pointed out on the residential lot side. Certainly, we expect to see some of that.

I would also if our plans continue at the current pace, I suspect we’ll be in front of you announcing some other plans that we have in the works either on the renewable side or on the development real estate development side in both New Brunswick and Maine. Nothing to announce today, but it’s really hard to get up in front of it. We need do a little bit more work, but we’re making progress on a fairly good pipeline at this point.

Matthew McKeylor, Analyst, RBC: Great. We’ll look forward to that. Thanks very much. I’ll turn it back.

Adam Shaparski, President and Chief Executive Officer, Acadian Timber: Thanks, Matthew.

Conference Operator: I show no further questions at this time. I would like to turn the call back over to Adam for any closing remarks.

Adam Shaparski, President and Chief Executive Officer, Acadian Timber: Great. On behalf of the Board and management of Acadian, I would like to thank all of our shareholders for their ongoing support. Thank you. Stay safe and we look forward to joining look forward to you joining us on our virtual annual general meeting and first quarter of twenty twenty five conference call, both on May 8. Goodbye.

Conference Operator: This concludes today’s conference call. Thank you for participating. You may now disconnect.

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