Good day, ladies and gentlemen. Thank you for standing by and welcome to Acadian Timber second quarter 2022 analyst conference call and webcast. At this time, all participants are on 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 one one. Please be advised that today's conference may be recorded. I would now like to hand the conference over to your speaker host, Susan Wood, Chief Financial Officer. Please go ahead.
Thank you, operator. Good afternoon, everyone, and welcome to Acadian Timber's second 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 will first remind everyone that in discussing our second quarter financial and operating performance, the outlook for the remainder of 2022, and responding to your questions, we may make forward-looking statements. These statements are subject to known and unknown risks, and future results may vary 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 our financial highlights for our second quarter ended June 25th, 2022. Then Adam will comment on our operations, market conditions, and outlook for the remainder of the year.
During the second quarter, Acadian benefited from strong demand for its products at increased prices. However, a later start-up after the spring thaw and limited contractor availability resulted in lower volumes as compared to the second quarter of 2021. Sales for the second quarter were CAD 16.5 million compared to CAD 19.4 million in the prior year period. Sales volume, excluding biomass, decreased 21% compared to the prior year period. Weighted average selling price, excluding biomass, increased 18% year-over-year, benefiting from strong sawlog prices and improved pulpwood prices driven by strong demand, as well as the partial recovery of rising fuel costs from our customers. Operating costs of CAD 13.8 million in the quarter were CAD 1.8 million lower than the prior year, reflecting lower harvesting activity in timber services, partially offset by higher fuel prices.
Variable costs per cubic meter increased 33% as a result of higher fuel costs during the second quarter of 2022. Adjusted EBITDA totaled CAD 2.7 million during the quarter, compared to CAD 3.9 million in the prior period. Adjusted EBITDA margin for the quarter was 17%, compared to 20% in the prior year period. Our net income for the second quarter was CAD 4.5 million compared to CAD 6 million in the prior year period. The variance in net income compared to the prior year period was primarily the result of lower sales volumes and the non-cash unrealized foreign exchange gain on long-term debt recorded in the prior year of CAD 2.3 million.
As a result of the application of hedge accounting effective January 1st, 2022, these adjustments are now recorded in other comprehensive income rather than through profit and loss. Reflecting the seasonality of the business, we generated CAD 1.9 million of free cash flow and declared dividends of CAD 4.9 million to our shareholders during the second quarter, or CAD 0.29 per share. I'll now move into the second quarter results for our New Brunswick operations. Sales for our New Brunswick timberlands were CAD 13.5 million compared to CAD 15.9 million during the prior year period. Sales volume, excluding biomass, decreased by 17%, primarily due to the later start to operations and limited contractor availability previously mentioned, which also impacted timber services activity.
Operating costs in the second quarter totaled CAD 10.9 million compared to CAD 12 million in the prior year period. The decrease in operating costs is a result of lower harvesting activity and timber services activity, partially offset by higher fuel prices. Weighted average variable cost per cubic meter increased 38% as a result of higher fuel costs compared to the prior year period. New Brunswick's adjusted EBITDA in the quarter was CAD 2.7 million compared to CAD 3.9 million in the prior year period. Adjusted EBITDA margin decreased to 20% compared to 25% last year. Switching over to Maine. Sales during the second quarter totaled CAD 2.9 million compared to CAD 3.5 million in the same period last year.
Sales volume, excluding biomass, decreased 33%, also reflecting a later start to operations compared to the prior year and limited contractor availability at the start of spring operations. The weighted average selling price, including biomass, in US dollar terms, increased 18% compared to the prior year, with higher sawlog and pulpwood prices benefiting from favorable market dynamics as well as fuel cost recovery from customers. In Canadian dollar terms, prices increased 23%. Operating costs totaled CAD 2.6 million in the quarter compared to CAD 3.1 million during the same period last year, primarily due to lower harvesting activity. Weighted average variable costs, excluding biomass, increased 20%, primarily as a result of higher fuel costs.
Adjusted EBITDA for the quarter was CAD 0.4 million, and adjusted EBITDA margin was 12%, both consistent with the same period last year. With respect to Acadian's financial position, it remains strong, ending the second quarter with a net liquidity position of CAD 19.5 million, including a cash balance of CAD 6.8 million and our revolving credit facilities, which remain undrawn. Our first dividend with the DRIP in place occurred during the quarter and contributed CAD 1.1 million to our liquidity. As a final note and as a reminder, in the current rising interest rate environment, Acadian's debt has fixed rate terms expiring in 2025 through 2030. With that, I'll turn the call over to Adam.
Thank you, Susan. Acadian remains committed to health and safety as our number one priority. During the quarter, we experienced one recordable safety incident among employees and none among our contractors. The individual has made a full recovery and returned to work after two days. 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. Sustained demand across all of our main products resulted in significant improvements in pricing during the quarter. In addition, we have worked with our customers and have begun to recover the additional operational costs we have been incurring, which we expect will have a positive impact on results for the remainder of the year.
It is difficult to quantify the dollar impact of this initiative on the second half of the year as it is tied to the price of fuel, but we do expect to recover the majority of these additional costs going forward. As Susan mentioned, both harvesting and deliveries were negatively impacted by the later start to operations due to the weather after the spring thaw and limited contractor availability, particularly in Maine. As a result of this delay, demand for our products is elevated as customers attempt to replenish inventories, and we are actively working with our contractors to increase deliveries for the remainder of the year. Switching over to our second quarter results, we are very pleased that overall pricing for softwood sawlogs and softwood pulpwood increased 16% and 24% respectively. Demand for these products is expected to remain stable in the short to medium- term.
In New Brunswick, softwood sawlog sales volumes were consistent with the prior year, and softwood pulpwood sales volume increased by 11% as a result of the stable softwood lumber market and increases in regional demand for softwood pulpwood compared to the prior year period. In Maine, softwood sawlog volumes decreased 26% as compared to the prior year, and softwood pulpwood volumes decreased by 35%, although these volumes are relatively modest. We continue to experience significant demand for our hardwood sawlogs, which, combined with our continued merchandising efforts, has resulted in hardwood sawlog pricing increasing 27% overall compared to the prior year period. Hardwood sawlog volumes in New Brunswick decreased by 6%, being negatively impacted by the later start and the limited contractor availability discussed earlier. Hardwood sawlog volumes in Maine decreased 22% for the same reason, although these volumes were also relatively modest.
Hardwood pulpwood sales volume in New Brunswick decreased by 32% and by 44% in Maine compared to the prior year period, driven by the late start and limited contractor availability. While prices increased in both New Brunswick and Maine by 10%. As we exited the quarter, demand for hardwood pulpwood appears to be slightly outpacing regional supply. Pricing on biomass has declined by 41% year-over-year, and biomass sales volume decreased by 70% due to unfavorable market dynamics. As a result of inflationary pressures, volumes are limited as we continue to work with our biomass customers on updating pricing for the remainder of the year. Turning to our outlook, the North American economic outlook is uncertain, with interest rates rising and both housing prices and sales beginning to decline.
Although these headwinds may impact the demand for our products, we note that consensus forecast is for approximately 1.62 million U.S. housing starts in 2022, as compared to 1.6 million in 2021. Accordingly, we remain confident that the stability of the Northeast forestry sector, the long-term demand for new homes, as well as repair and remodel activity, will support the pricing of our products. Inflationary pressures are weighing on our financial results. We have seen modest increases in our contractor rate and in the fuel surcharge we pay our contractors as prices continue to be at historic levels. As I mentioned earlier, Acadian has worked with its customer base over the last quarter and has begun to recover these costs, which we expect to have a positive impact on our results.
Although softwood lumber pricing has decreased from its historic levels, demand for softwood sawlogs remains stable, with our pricing expected to increase over the coming quarters. As I am sure you have all seen in the news recently, the province of New Brunswick announced adjustments to the Crown timber royalty rates for the first time since 2015. The new system is expected to allow for adjustment to timber royalty rates when prices for specific commodities, such as lumber, are above normal ranges. In a step towards this new system, which requires the development of specific legislation, the current Crown timber royalty rates will be adjusted upwards to account for higher than normal commodity prices. The immediate impact to Acadian's net earnings will not be material. However, the new system may impact future market prices and, in turn, the prices we obtain for products from our freehold timberlands.
End-use hardwood markets remain stable throughout the Northeast, with significant demand and elevated pricing for high-grade hardwood sawlogs. It is uncertain how the headwinds from the broader economic outlook may be offset by the reduction of imports from Eastern Europe over the longer- term. In regards to hardwood and softwood pulpwood, demand remains stable and is expected to continue throughout 2022. Finally, the work to develop the forest carbon inventory has continued, with baseline inventory data having been collected and modeling almost completed. Initial estimates of the volumes of credits to be developed are expected in the very near- term from our third-party developer.
The timeline for this project has not changed, and Acadian expects to begin receiving proceeds from sales of carbon credits in the second half of 2022. As we stated last quarter that while this project is small in relation to the entire Acadian land base and originally expected to contribute modestly to cash flow, the current markets for voluntary carbon credits have strengthened during 2022 and may contribute more than originally expected. In closing, Acadian has a strong balance sheet, increasingly diverse markets, and a highly capable team dedicated to strong financial and operating performance while actively working with our current and potential new contractors to increase deliveries to our customers for the remainder of the year. While we make improvements throughout the business to maximize cash flows from our existing timberland assets, we continue to explore strategic opportunities to grow for our shareholders.
With that, we are now available to take your questions. Operator?
Thank you. Ladies and gentlemen, to ask a question at this time, you will need to press star one one. One moment for our first question. Now first question coming from the line of Hamir Patel with CIBC. Your line is open.
Hi. Good afternoon.
Hi, Hamir.
With the increase in the New Brunswick stumpage rates, when's the earliest that you know your customers would start seeing that, and you know, I guess in terms of potential impact, when would you perhaps be able to increase your own pricing? Maybe if you could just recap for us what the percentage increases are across the different categories that the province has done.
Yeah, sure, Hamir. Our customers or the folks that are currently incurring these royalty rates as they consume Crown wood. It's actually effective April 1st of 2022, so there's a little bit of a backdating situation that's gonna happen as we progress through the year and as they finalize their current rates. They're hypothetically experiencing it now, whether they haven't been officially billed for it yet. The second part of your question, when will we start to feel it? You know, we don't know exactly when that's gonna happen, which is why we don't think it's gonna have an immediate impact on our sales.
You know, it has to sort of take a little bit of a progressive stance where Crown rates will come up and then we'll start to see, I suspect the prices for not only private woodlots, but also for us to go up as well. You know, we are thinking, you know, in the next few quarters we're gonna start seeing prices start to increase as a result of the royalty rates going up.
Right. Okay. Thanks, Adam. That's helpful. Curious if you can give us any color in what you're seeing out there on M&A, potential M&A opportunities for timberlands in Eastern Canada or the Northeast?
Yeah. I think there's actually one other part to your earlier question. I apologize. You were asking about some of the rates. Just from a high level perspective, for instance, the spruce-fir sawlogs, which obviously has a significant impact on our business, the royalty rate is going up approximately 58%. Pulpwood is going up approximately 70%, and hardwood sawlogs and pulpwood, 79% and 40% respectively, although I would caution you, we get fairly good pricing on our hardwood sawlogs already, so I wouldn't. We don't expect the royalty rates to impact the hardwood sawlogs pricing from our perspective.
On the M&A activity in the Northeast, we have seen some properties, some timberlands come on the market. I would say the market is still quite heated, and the pricing is still quite elevated at this point. Although we continue to look at them, you know, it's just the pricing is still quite high at this point. We will continue to look at it as interest rates rises and hopefully we can grow.
Great. Thanks, Adam. That's all I had. I'll turn it over.
Thanks, Hamir.
Thank you. Our next question coming from the line of Andrew Kuske with Credit Suisse. Your line is open.
Thanks. Good afternoon. Maybe if we could just focus on the contractor issues and just more broadly labor. Like, obviously there's a broader societal issue on a labor standpoint right now, but it's also been progressively problematic for the forestry industry. I guess when you sort of stand where you are now, what are you trying from a strategy standpoint to secure, you know, contractor availability and really encourage new blood to come into the industry, so to speak?
Yeah, there's no question. You know, labor and the forestry industry is continued to be challenged. You know, I would say the market participants up here in the Northeast, lots of conversations about, you know, labor and looking at immigration, for instance, is one topic that is becoming more popular in the industry to try and fill those vacancies that we're seeing. It's something that our contractors are definitely challenged with. You know, where we are somewhat remote with our timberlands, I don't think it's as impactful as other parts of North America, but it still remains a bit of a challenge for us.
Okay. That's helpful context. Just maybe on the biomass side, you know, given just some of the dynamics we see with, you know, global natural gas markets, some of the pellets markets and energy balances in Europe, you know, I guess what's driving the weakness in your biomass numbers at a local level, and could that shift pretty meaningfully just given all the other things I mentioned?
We're currently discussing that with our biomass customers as I mentioned in my remarks. You know, we're seeing the global impacts right now as you outlined them. Obviously we're having price increases from our contractors and for biomass, the big piece of that is trucking it. What you saw in Q2 is us, you know, more or less ensuring that we're gonna get paid appropriately for that product, which we believe will, you know, start here anytime now, actually.
Okay. That's helpful. Color by saying something but not saying too much. Maybe just finally on the carbon credit side, you know, you gave some great commentary on that, but do you have any kind of potential for carbon capture and sequestration on your lands, or are you just really too far from industrial hubs to really make that math work, or that's just you're not exploring that at this stage?
Haven't spent much time exploring it. We're using our current carbon project as a training wheels. We are somewhat remote. We're continuing to look at the markets across North America, including Canada, as time progresses. Staying pretty focused and we'll stay pretty focused for the next quarter or two on our current carbon project.
Okay. Thank you very much. That's very helpful.
Thank you.
Thank you. Our next question coming from El-Darva Rahmani with RBC Capital Markets. Your line is open.
Yeah, thanks. This is Paul, standing in for El-Darva Rahmani.
Hi, Paul.
Hey, just back to this New Brunswick stumpage increase. I find the timing quite interesting now that lumber prices have normalized to raise it, you know, those stumpages so much. That 50%+ increase in softwood sawlogs, do you expect that to translate into similar increase on your sales as well?
I wouldn't use that 50%. That 58%, that's certainly not the number. You know, from a dollar perspective for cubic meter, Paul, it's CAD 13.25 per cubic meter is the blended log stud number. Yeah, I would focus more on that number if I was you. It's to be determined. We're seeing some good price increases, obviously with softwood sawlogs. You know, as we've always said, demand is gonna drive a fair bit of this. You know, with the stumpage rates coming up, you know, I'm not sure we're gonna be able to capture it all, but we're sure hoping to capture a lot of it over the coming quarters.
Okay. Did that stumpage increase, does it also increase the fees that you guys have for managing the Crown tenure?
Not at this point, no.
Okay. Switching over to the carbon side. I'm just trying to even take a stab at what this potential upside is. Any help you can give us there?
Yeah. It's a bit early. I know it sounds crazy saying that after we've been at this for a year, but we'll have a lot more color for you in Q3.
Okay. Look forward to that. Thanks, guys.
Okay. Thank you.
I'm not showing any further question at this time. I'll turn the call back over to Mr. Sheparski for any closing remarks.
Thank you. On behalf of the board and management of Acadian Timber, I would like to thank you all. I would like to thank all of our shareholders for their ongoing support. Thank you. Stay safe, and we look forward to you joining us for our third quarter conference call on October 27th. Goodbye.
Ladies and gentlemen, that does end our conference for today. Thank you for your participation. You may now disconnect.