Good day, and thank you for standing by. Welcome to the Acadian Timber Q3 2024 Analyst Conference Call and Webcast. At this time, all participants are in a listen-only mode. Please be advised that today's conference is being recorded. After the speaker's presentation, there will be a question-and-answer session. To ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. I would now like to hand the conference over to your speaker today, Susan Wood, Chief Financial Officer.
Thank you, Operator. Good afternoon, everyone, and welcome to Acadian Timber's third quarter conference call. With me on the call today is Adam Sheparski, Acadian's President and Chief Executive Officer. Before discussing Acadian's results, I'll first remind everyone that in discussing our third quarter financial and operating performance, the outlook for the remainder of 2024 and into 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&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 third quarter ended September 28, 2024.
Adam will then provide some additional comments and will discuss our outlook for the remainder of 2024 and into 2025.
Acadian experienced favorable operating conditions, resulting in solid sales volumes for the three months ended September 28, 2024. Pricing was impacted by changes in product mix and weak end-use markets, however, resulting in lower sales as compared to the same quarter of 2023. Sales for the third quarter were CAD 26 million compared to CAD 26.6 million in the same quarter of 2023. Sales volume, excluding biomass, increased 15% compared to the prior year period, primarily due to a favorable change in customer mix, which shifted harvesting volumes from Crown-licensed timberlands to our freehold timberlands. The shift decreased our timber services revenue and increased sales from our freehold timberlands. Weighted average selling price, excluding biomass, decreased 5% year over year.
Softwood saw log pricing decreased 13% due to a lower value product mix and weakness in end-use markets. Hardwood saw log pricing decreased 5% due to weakness in lumber markets.
Softwood pulpwood pricing remained relatively flat on an overall basis, and hardwood pulpwood pricing decreased 2% as a result of shorter hauling distances. Biomass pricing decreased 54% as a result of roadside sales instead of delivered sales. Operating costs and expenses were CAD 22.1 million during the third quarter compared to CAD 21.9 million during the prior year period. The year-over-year increase reflects higher timber sales volumes and increased weighted average variable costs, partially offset by lower timber services activity. Weighted average variable harvesting costs, excluding biomass, increased 5% as a result of greater hauling distances for softwood saw logs and higher contractor rates overall. Adjusted EBITDA was CAD 4 million during the third quarter compared to CAD 4.9 million in the prior year period.
Adjusted EBITDA margin for the quarter was 16% compared to 18% in the prior year period.
Free cash flow was CAD 2.5 million as compared to CAD 4.3 million for the same period in the prior year. Our net income for the third quarter totaled CAD 2.2 million or CAD 0.13 per share compared to CAD 6.4 million or CAD 0.37 per share in the same period of 2023, primarily due to lower non-cash fair value adjustments. Operating income and gain on sale of timberlands and other fixed assets were also lower than the prior year period and were partially offset by lower income tax expense. We declared dividends of CAD 5.1 million to our shareholders during the third quarter or CAD 0.29 per share. I'll now move into the third quarter results for our New Brunswick operations.
Sales for New Brunswick were CAD 21.8 million compared to CAD 22.8 million during the prior year period, with increased freehold sales volumes offset by a lower weighted average selling price and lower timber services activity.
Freehold sales volume, excluding biomass, increased 16% compared to the prior year period, primarily due to a favorable change in customer mix, which shifted harvesting volumes from Crown-licensed timberlands to our freehold timberlands, decreasing our timber services revenue and increasing our freehold sales. This shift increased our softwood sawlogs volumes from our freehold timberlands by 43% as compared to the prior year period. Softwood pulpwood sales volumes decreased 59% due to a slowdown in demand caused by abundant regional sawmill residuals. Hardwood sawlogs and pulpwood volumes increased 28% and 10% respectively, stemming from steady demand. Biomass sales volume was lower compared to the prior year period due to limited processing capacity.
Operating costs and expenses were CAD 17.1 million during the third quarter compared to CAD 17.5 million 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 5% as a result of greater hauling distances for softwood saw logs and higher contractor rates. New Brunswick's Adjusted EBITDA for the quarter was CAD 4.8 million compared to CAD 5.5 million in the prior year period. Adjusted EBITDA margin was 22% compared to 24% in the prior year period. Switching over to Maine. Sales during the third quarter totaled $4.2 million compared to $3.8 million in the same period last year. Timber sales volume, excluding biomass, increased 9%, reflecting more favorable weather conditions. Softwood saw log volumes increased 8% as compared to the prior year. Volumes of hardwood saw logs were minimal in both periods. Hardwood pulpwood volumes were consistent with the prior year period.
Softwood pulpwood volumes remain limited due to the extended shutdown of a major softwood pulpwood customer, which began in 2023.
The weighted average selling price, excluding biomass in US dollar terms, decreased 5% as compared to the prior year. Softwood pulpwood pricing decreased 12% due to weakness in lumber markets and a lower value product mix. Hardwood pulpwood pricing increased 4% as compared to the third quarter of 2023 due to stable demand. Operating costs and expenses for the third quarter were CAD 4.4 million compared to CAD 3.9 million during the same period in 2023, due primarily to increased sales volumes and higher weighted average variable costs. Weighted average variable costs, excluding biomass, increased 11% in Canadian dollar terms as a result of greater hauling distances, partially offset by changes in product mix. Adjusted EBITDA for the quarter was CAD 0.2 million compared to CAD 0.1 million during the prior year period, and adjusted EBITDA margin was -5% compared to -4%.
With respect to our financial position, Acadian had net liquidity of CAD 27.8 million as of September 28, 2024, which includes cash and funds available under credit facilities, less amounts reserved to support the minimum cash balance related to long-term debt. A portion of our long-term debt totaling CAD 43.2 million is scheduled to mature in March of 2025. It is our intention to refinance the debt prior to the maturity date. With that, I will now turn the call over to Adam.
Thank you, Susan, and good afternoon, everyone. As always, Acadian is committed to health and safety as our number one priority. Acadian's operations experienced one recordable safety incident during the quarter among our contractors and none among our employees. We remain committed to maintaining a culture across the organization that emphasizes the importance of strong safety performance, and incident reduction will remain a primary focus for the remainder of 2024 and beyond. As Susan mentioned, we maintained steady harvest volumes during the third quarter. However, pricing pressure caused by weak end-user markets continued, affecting our total sales. From a harvesting perspective, ongoing efforts from the operations team allowed us to maintain sufficient contractor capacity in New Brunswick.
We did experience more favorable weather conditions in Maine as compared to the third quarter of 2023. However, our contractor capacity remains challenged.
While our weighted average selling price of timber was impacted by a number of factors, including changes in regional supply and in the product mix harvested and sold, we also experienced general pricing pressure during the quarter as lumber and other wood product markets overall remain weak. Turning to our non-timber revenue sources, as we discussed previously, we are advancing our efforts to maximize cash flows from our timberland assets through real estate activities. During the third quarter, Acadian purchased its first meteorological tower to collect wind data on our New Brunswick land base. This investment enables further exploration of the opportunities available to Acadian to participate in the renewable energy sector and begins to frame the valuable wind assets with actual data to assist in future strategic decisions.
Subsequent to the third quarter, Acadian entered into an agreement to sell approximately 2,100 acres of timberland.
The land included in this disposition is composed of smaller parcels of relatively low operational or strategic value to Acadian. The transaction is expected to close in the coming days and is expected to result in gross proceeds of CAD 1.4 million and a gain of approximately CAD 400,000. Although we intend to continue to evaluate the land base, the transaction of this size should be viewed as unusual moving forward. We have begun to staff the real estate business, and over the coming quarters, we'll have a better line of sight to our project pipeline, but have been encouraged by early results. With respect to our ongoing carbon credit project in Maine, we are in the process of registering our second and third tranches of credits, which is expected to result in approximately 350,000 additional credits being made available for sale by the end of the year.
As we look forward to the remainder of 2024 and into 2025, while near-term pressure on end-use markets persists, North American interest rates and inflation are showing signs of easing. U.S. housing starts year-to-date are lower than originally expected, but the consensus forecast for U.S. housing starts is steady at approximately 1.35 million starts in 2024 as compared to 1.42 million in 2023. We remain confident that the stability of the northeastern forestry sector, combined with long-term demand for new homes and repair and remodel activity, will continue to support the long-term demand for our products, as has been demonstrated in recent years, and as end-use markets improved, we would expect pricing on our products to follow. Although labor markets remain tight in Maine, we maintain sufficient contractor availability in New Brunswick through the third quarter.
As we progress to the remainder of 2024, we will continue to evaluate what investments need to be made to ensure we have sufficient harvesting capacity for our land base in Maine, with a focus on controlling operating costs. In the short term, as we make our way through the first half of 2025, elevated contractor rates are expected to continue to have an impact on our financial results but remain stable, consistent with the pricing of primary forest products like saw logs and pulpwood. Demand for Acadian saw logs is mainly driven by regional supply. Near-term saw log demand is expected to remain stable, while pricing may remain challenged until end-use markets improve. Demand and pricing for softwood and hardwood pulpwood is expected to be steady, mainly impacted by supply in the region.
As we have previously discussed, during 2023, purchasers of voluntary carbon credits increased their focus on carbon credits from high-quality projects and expended greater time and effort performing due diligence. This shift may have delayed some sales. However, underlying demand and pricing for voluntary carbon credits is expected to continue. The protocol for developing compliance market carbon credits for managed forests in Canada was recently finalized. 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 voluntary protocols.
The carbon industry continues to evolve, but we have been pleased with the quality of our project and look forward to monetizing reporting period two and three credits over the coming quarters and beginning the development of our next projects.
In closing, as we look to the remainder of 2024 and the winter harvest season of 2025, we are pleased with our contractor availability and are optimistic short-term regional demand will remain sufficiently stable to achieve our planned harvesting and sales volume. Furthermore, with nearly all of our registered carbon credits sold, as I just mentioned, we are working diligently to register the second and third tranches of carbon credits. Our focus now also includes building out the real estate business, including potential renewable energy leases. As always, we will remain focused on merchandising our products to obtain the highest margins and making improvements throughout the business to maximize cash flows from our existing timberland assets while exploring opportunities to grow. With that, we are now available to take your questions. Operator.
Thank you. As a reminder, to ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. One moment for questions. Our first question comes from Nikolai Goroupitch with CIBC Capital Markets. You may proceed. Nikolai, your line is now open.
Hi. Great to be speaking with you. In the past, you mentioned tight labor markets in Maine, and I'm just wondering if you could provide some more color and if you're seeing any short-term changes that are in the contract or availability from the prior quarter? Thanks.
Thanks, Nikolai. I think in essence, the answer is no, we haven't seen any improvement or any movement. We're spending a lot of time analyzing the region. We have a new staff person in Maine dedicated to that initiative to ensure that we can get capacity on the land base, and we're going to continue to work through that to ensure that we do have the harvesting capacity in the very near term.
Great. Thank you very much. That's all I have.
Great. Thank you.
Thank you. Our next question comes from Matthew McKellar with RBC Capital Markets. You may proceed.
Hi. Good afternoon. Thanks for taking my questions. First, you called out greater hauling distances as part of your softwood sawlog commentary. Is this a function of where you were harvesting during the quarter or a need to haul logs to customers further afield due to softer demand? And really, the question behind the question is, should we expect somewhat higher costs in this front going forward, or is what we saw in Q3 more transitory in nature?
Yeah. So it was more of us having to haul to a little bit further to, I wouldn't say new customers, but to a customer that we haven't hauled as much to in the past. So a little bit of a customer mix shift, if you will. We are expecting it to migrate back. We have customers coming on and off as far as the amount that they're producing, and we're expecting a customer that's closer to the land base demand to come up from that customer. So I would expect it to probably revert back in sort of the late parts of the first half of the year, Q2, if you will, maybe Q1 to some degree as well.
Okay. That's helpful. Maybe turning next to your new tower. What kind of timeline are you sort of expecting to gather the wind data you need there? Is this process more exploratory in nature or to kind of sort of confirm your understanding of what you expect will be high-potential sites? And have you made this investment at the urging of any particular parties, or is this just data you want to have in your back pocket?
I would say the investment was made. We believe it is going to confirm what we know. We've done some research, some desktop research, and had some consultants do that for us, which has, we believe, demonstrated we have a fairly strong asset. This is going to. We expect to prove that, and then it also allows us to have more informed conversations with developers as we move forward to ensure that we know what we're selling, they know what we're selling from a lease perspective, and ensuring that we get top dollars for those leases. As far as being urged to do this, no, we haven't been urged by anybody in particular to do this.
It's a small community down here in the east, and when people heard that it was happening, we certainly had a lot of support by multiple organizations, developers, etc., that were doing this and think it's the right position. New Brunswick needs a significant amount of renewable energy in the coming years. And obviously, when you own 775,000 acres in the province, people are looking to you to be part of that solution. And we're very, very happy to be part of that.
Great. Thanks very much for the color . I'll turn it back.
Great. Thanks, Matthew.
Thank you. I would now like to turn the call back over to Adam Sheparski for any closing remarks.
On behalf of the board and management of Acadian, I would like to thank all our shareholders for their ongoing support. Thank you. Stay safe, and we look forward to joining us for our fourth quarter of 2024 conference call on February 12th. Goodbye.
Thank you. This concludes the conference. Thank you for your participation. You may now disconnect.