PotlatchDeltic Corporation Reports Third Quarter 2022 Results

SPOKANE, Wash.--(BUSINESS WIRE)--PotlatchDeltic Corporation (Nasdaq: PCH) today reported net income of $46.0 million, or $0.64 per diluted share, on revenues of $306.7 million for the quarter ended September 30, 2022. Excluding after tax special items consisting of a gain on insurance recoveries and CatchMark merger related expenses, adjusted net income was $53.2 million, or $0.74 per diluted share for the third quarter of 2022. Net income was $65.7 million, or $0.97 per diluted share, on revenues of $287.3 million for the quarter ended September 30, 2021. Excluding an after-tax gain on insurance recoveries, adjusted net income was $62.4 million, or $0.92 per diluted share for the third quarter of 2021.

Third Quarter 2022 Highlights

• Generated Total Adjusted EBITDDA of $101.1 million and Total Adjusted EBITDDA margin of 33%
• Successfully completed our merger with CatchMark creating a leading integrated timber REIT
• Used existing interest rate swaps to reduce the combined company's annual interest expense by $8.5 million, reducing our weighted average cost of debt from 3.1% to 2.4%
• Achieved $15 million of CatchMark CAD synergies and now expect $21 million versus our $16 million target
• Restarted the large log line at the Ola, Arkansas sawmill on schedule
• Maintained strong liquidity position of $773 million as of September 30, 2022

“Third quarter 2022 marked another important milestone in our company’s history as we successfully closed our merger with CatchMark, further diversifying our timberland ownership into some of the strongest markets in the U.S. South,” said Eric Cremers, president and chief executive officer. “Overall, we have acquired almost 500,000 acres of timberlands in the last year at relatively attractive prices, increasing our stable cash flows. All of our businesses continue to perform well and we generated Total Adjusted EBITDDA of $101 million in the third quarter. Our strong balance sheet and liquidity provide a high degree of flexibility as we navigate the current economic environment, along with the ability to continue growing shareholder value,” stated Mr. Cremers.

Financial Highlights

($ in millions, except per share data)	Q3 2022		Q2 2022		Q3 2021
Revenues	$	306.7	$	359.6	$	287.3
Net income	$	46.0	$	120.2	$	65.7
Weighted average shares outstanding, diluted (in thousands)		71,632		69,791		67,648
Net income per diluted share	$	0.64	$	1.72	$	0.97
Adjusted Net Income	$	53.2	$	112.9	$	62.4
Adjusted Net Income per diluted share	$	0.74	$	1.61	$	0.92
Total Adjusted EBITDDA	$	101.1	$	175.1	$	107.2
Dividends per share	$	0.44	$	0.44	$	0.41
Net cash from operations	$	80.3	$	147.9	$	111.9
Cash and cash equivalents	$	484.0	$	511.2	$	592.8

Business Performance: Q3 2022 vs. Q2 2022

Timberlands

Third Quarter 2022 Highlights

• Timberlands Adjusted EBITDDA increased $6.6 million from Q2 2022
• Northern and southern harvest volumes increased seasonally
• Northern sawlog prices decreased 25% due largely to lower indexed sawlog prices
• Southern sawlog prices were relatively flat
• Higher log & haul costs were primarily driven by increased fuel costs and constrained capacity

($ in millions)	Q3 2022		Q2 2022		$ Change
Timberlands Revenues	$	134.6	$	105.5	$	29.1
Timberlands Adjusted EBITDDA	$	64.5	$	57.9	$	6.6

Wood Products

Third Quarter 2022 Highlights

• Wood Products Adjusted EBITDDA decreased $75.9 million from Q2 2022
• Average lumber price decreased 34% to $572 per MBF in Q3 2022
• Lumber production increased in Q3 2022 leading to higher fixed cost absorption
• Plywood shipments and price realizations declined on lower demand

($ in millions)	Q3 2022		Q2 2022		$ Change
Wood Products Revenues	$	193.4	$	266.6	$	(73.2	)
Wood Products Adjusted EBITDDA	$	31.3	$	107.2	$	(75.9	)

Real Estate

Third Quarter 2022 Highlights

• Real Estate Adjusted EBITDDA decreased $7.7 million from Q2 2022
• Sold 1,622 acres of rural land at an average price of $3,811 per acre
• Sold 48 residential lots at an average price of $78,344 per lot
• Sold 35 commercial acres for $182,520 per acre

($ in millions)	Q3 2022		Q2 2022		$ Change
Real Estate Revenues	$	19.0	$	26.7	$	(7.7	)
Real Estate Adjusted EBITDDA	$	14.1	$	21.8	$	(7.7	)

Non-GAAP Measures

This press release includes certain non-GAAP financial measures, which management believes are useful to investors, securities analysts and other interested parties. These non-GAAP financial measures should be considered only as supplemental to, and not as superior to, financial measures prepared in accordance with GAAP.

Management uses Adjusted EBITDDA to evaluate the performance of the company. This is a non-GAAP measure that represents EBITDDA before certain items that impact comparison of the performance of our business either period-over-period or with other businesses.

Adjusted Net Income and Adjusted Net Income Per Diluted Share are non-GAAP measures that represent GAAP net income and GAAP net income per diluted share before certain items that impact the ability of investors, securities analysts and other interested parties to compare the performance of our business, either period-over-period or with other businesses.

Reconciliations to GAAP are set forth in the accompanying schedules.

Conference Call Information

A live conference call and webcast will be held Tuesday, October 25, 2022, at 9:00 a.m. Pacific Time (12:00 p.m. Eastern Time). Investors may access the webcast at www.potlatchdeltic.com by clicking on the Investors link or by conference call at 1-888-510-2008 for U.S./Canada and 1-646-960-0306 for international callers. Participants will be asked to provide conference I.D. number 7281983. Supplemental materials that will be discussed during the call are available on the website.

A replay of the conference call will be available two hours following the call until November 1, 2022, by calling 1-800-770-2030 for U.S./Canada or 1-647-362-9199 for international callers. Callers must enter conference I.D. number 7281983 to access the replay.

About PotlatchDeltic

PotlatchDeltic (Nasdaq: PCH) is a leading Real Estate Investment Trust (REIT) that owns nearly 2.2 million acres of timberlands in Alabama, Arkansas, Georgia, Idaho, Louisiana, Mississippi and South Carolina. Through its taxable REIT subsidiary, the company also operates six sawmills, an industrial-grade plywood mill, a residential and commercial real estate development business and a rural timberland sales program. PotlatchDeltic, a leader in sustainable forest management, is committed to environmental and social responsibility and to responsible governance. More information can be found at www.potlatchdeltic.com.

Forward-Looking Statements

This press release contains certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 as amended, including without limitation, our expectations regarding the company’s revenues, costs and expenses; synergies expected to be realized following the merger with CatchMark Timber Trust, Inc.; expectations about the start-up of the Ola, Arkansas sawmill’s large log line; expectations regarding the weighted average cost of debt; business conditions and strategies; and similar matters. Words such as “anticipate,” “expect,” “will,” “intend,” “plan,” “target,” “project,” “believe,” “seek,” “schedule,” “estimate,” “could,” “can,” “may,” and similar expressions are intended to identify such forward-looking statements. You should carefully read forward-looking statements, including statements that contain these words, because they discuss the future expectations or state other “forward-looking” information about PotlatchDeltic. A number of important factors could cause actual results or events to differ materially from those indicated by such forward-looking statements, many of which are beyond PotlatchDeltic’s control, including the impact of COVID-19 and its variants, governmental responses to such outbreaks, and anticipated recovery from the pandemic on our business, suppliers, customers and employees; changes in the U.S. housing market; changes in timberland values; changes in timber harvest levels on the company's lands; changes in timber prices; changes in policy regarding governmental timber sales; availability of logging contractors and shipping capacity; changes in the United States and international economies and effects on our customers and suppliers; changes in interest rates; credit availability and homebuyers’ ability to qualify for mortgages; availability of labor and developable land; changes in the level of construction and remodeling activity; changes in foreign demand; changes in tariffs, quotas and trade agreements involving wood products; currency fluctuation; changes in demand for our products and real estate; changes in production and production capacity in the forest products industry; competitive pricing pressures for our products; unanticipated manufacturing disruptions; disruptions or inefficiencies in our supply chain and/or operations; changes in general and industry-specific environmental laws and regulations; unforeseen environmental liabilities or expenditures; weather conditions; fires at our facilities and on our timberland and other catastrophic events; restrictions on harvesting due to fire danger; changes in raw material, fuel and other costs; transportation disruptions; share price; the successful execution of the company’s strategic plans; the ability of the company and its contractors to successfully reach performance expectations of the new large log line at the Ola, Arkansas sawmill; the company’s ability to meet expectations; and the other factors described in PotlatchDeltic’s Annual Report on Form 10-K and in the company’s other filings with the SEC. PotlatchDeltic assumes no obligation to update the information in this communication, except as otherwise required by law. Readers are cautioned not to place undue reliance on these forward-looking statements, all of which speak only as of the date hereof.

PotlatchDeltic Corporation Condensed Consolidated Statements of Operations Unaudited
	Three Months Ended									Nine Months Ended
	September 30,			June 30,			September 30,			September 30,			September 30,
(in thousands, except per share amounts)	2022			2022			2021			2022			2021
Revenues	$	306,693		$	359,597		$	287,330		$	1,077,640		$	1,089,029
Costs and expenses:
Cost of goods sold		220,876			191,334			190,602			592,057			537,683
Selling, general and administrative expenses		18,878			20,412			18,512			55,584			54,782
CatchMark merger-related expenses		26,007			—			—			26,007			—
Gain on fire damage		(24,913	)		(9,868	)		(4,394	)		(34,505	)		(4,394	)
		240,848			201,878			204,720			639,143			588,071
Operating income		65,845			157,719			82,610			438,497			500,958
Interest expense, net		(8,280	)		(7,419	)		(8,641	)		(18,593	)		(20,414	)
Pension settlement charge		—			—			—			(14,165	)		—
Non-operating pension and other postretirement employee benefit costs		(1,808	)		(1,809	)		(3,271	)		(5,546	)		(9,956	)
Other		(1	)		—			—			(1	)		—
Income before income taxes		55,756			148,491			70,698			400,192			470,588
Income taxes		(9,801	)		(28,269	)		(5,031	)		(70,135	)		(85,910	)
Net income	$	45,955		$	120,222		$	65,667		$	330,057		$	384,678
Net income per share:
Basic	$	0.64		$	1.73		$	0.98		$	4.70		$	5.72
Diluted	$	0.64		$	1.72		$	0.97		$	4.69		$	5.69
Dividends per share	$	0.44		$	0.44		$	0.41		$	1.32		$	1.23
Weighted-average shares outstanding:
Basic		71,486			69,580			67,315			70,171			67,275
Diluted		71,632			69,791			67,648			70,308			67,588

PotlatchDeltic Corporation Condensed Consolidated Balance Sheets Unaudited
(in thousands, except per share amounts)	September 30, 2022			December 31, 2021
ASSETS
Current assets:
Cash and cash equivalents	$	484,018		$	296,151
Customer receivables, net		37,224			31,028
Inventories, net		62,584			72,369
Other current assets		41,551			21,630
Total current assets		625,377			421,178
Property, plant and equipment, net		319,232			292,320
Investment in real estate held for development and sale		57,458			65,604
Timber and timberlands, net		2,520,505			1,682,671
Intangible assets, net		17,906			15,491
Other long-term assets		184,310			57,951
Total assets	$	3,724,788		$	2,535,215
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued liabilities	$	111,607		$	78,209
Current portion of long-term debt		39,996			42,977
Current portion of pension and other postretirement employee benefits		4,993			4,993
Total current liabilities		156,596			126,179
Long-term debt		992,507			715,279
Pension and other postretirement employee benefits		92,990			83,674
Deferred tax liabilities, net		38,469			34,874
Other long-term obligations		38,807			49,076
Total liabilities		1,319,369			1,009,082
Commitments and contingencies
Stockholders' equity:
Common stock, $1 par value, authorized 100,000 shares, issued and outstanding 80,777 and 69,064 shares		80,777			69,064
Additional paid-in capital		2,292,130			1,781,217
Accumulated deficit		(52,089	)		(280,910	)
Accumulated other comprehensive income (loss)		84,601			(43,238	)
Total stockholders’ equity		2,405,419			1,526,133
Total liabilities and stockholders' equity	$	3,724,788		$	2,535,215

PotlatchDeltic Corporation Condensed Consolidated Statements of Cash Flows Unaudited
	Three Months Ended									Nine Months Ended
(in thousands)	September 30, 2022			June 30, 2022			September 30, 2021			September 30, 2022			September 30, 2021
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	45,955		$	120,222		$	65,667		$	330,057		$	384,678
Adjustments to reconcile net income to net cash from operating activities:
Depreciation, depletion and amortization		27,707			20,379			21,534			67,960			57,365
Basis of real estate sold		6,845			7,325			6,697			25,024			22,733
Change in deferred taxes		730			34			2,659			(1,359	)		3,221
Pension and other postretirement employee benefits		3,539			3,540			5,484			10,936			16,595
Pension settlement charge		—			—			—			14,165		—
Equity-based compensation expense		11,717			2,368			2,275			16,141			6,345
Gain on fire damage		(24,913	)		(9,868	)		(4,394	)		(34,505	)		(4,394	)
Other, net		144			(308	)		928			(455	)		633
Change in working capital and operating-related activities, net		(5,901	)		(1,236	)		17,072			14,071			(20,082	)
Real estate development expenditures		(1,796	)		(3,029	)		(2,435	)		(6,986	)		(6,434	)
Funding of pension and other postretirement employee benefits		(1,026	)		(968	)		(3,585	)		(3,290	)		(7,418	)
Proceeds from insurance recoveries		17,250			9,428			—			26,678			—
Net cash from operating activities		80,251			147,887			111,902			458,437			453,242
CASH FLOWS FROM INVESTING ACTIVITIES
Property, plant and equipment additions		(7,223	)		(24,211	)		(10,348	)		(44,000	)		(26,291	)
Timberlands reforestation and roads		(3,832	)		(3,740	)		(4,282	)		(12,220	)		(12,236	)
Acquisition of timber and timberlands		(53,863	)		(42,218	)		(258	)		(96,081	)		(2,450	)
Proceeds from property insurance		—			—			13,250			—			13,250
Cash acquired in CatchMark merger		23,571			—			—			23,571			—
Other, net		2,318			(1,475	)		358			935			993
Net cash from investing activities		(39,029	)		(71,644	)		(1,280	)		(127,795	)		(26,734	)
CASH FLOWS FROM FINANCING ACTIVITIES
Distributions to common stockholders		(35,530	)		(30,524	)		(27,489	)		(96,578	)		(82,462	)
Repurchase of common stock		(371	)		(4,156	)		—			(4,527	)		—
Proceeds from issuance of long-term debt		277,500			—			—			277,500			—
Repayment of long-term debt		(300,000	)		—			—			(303,000	)		—
Other, net		(4,026	)		(1,023	)		(2,396	)		(6,120	)		(3,619	)
Net cash from financing activities		(62,427	)		(35,703	)		(29,885	)		(132,725	)		(86,081	)
Change in cash, cash equivalents and restricted cash		(21,205	)		40,540			80,737			197,917			340,427
Cash, cash equivalents and restricted cash, beginning		515,894			475,354			512,030			296,772			252,340
Cash, cash equivalents and restricted cash, ending^1	$	494,689		$	515,894		$	592,767		$	494,689		$	592,767

¹ Includes $10.7 million and $4.7 million at September 30, 2022 and June 30, 2022, respectively, intended to be reinvested in timber and timberlands and classified as restricted cash in Other long-term assets in the Condensed Consolidated Balance Sheets.

PotlatchDeltic Corporation Segment Information Unaudited
	Three Months Ended									Nine Months Ended
	September 30,			June 30,			September 30,			September 30,			September 30,
(in thousands)	2022			2022			2021			2022			2021
Revenues
Timberlands	$	134,576		$	105,486		$	129,543		$	363,719		$	362,675
Wood Products		193,431			266,633			187,760			755,806			814,729
Real Estate		19,008			26,736			13,497			79,809			49,808
		347,015			398,855			330,800			1,199,334			1,227,212
Intersegment Timberlands revenues		(40,322	)		(39,258	)		(43,470	)		(121,694	)		(138,183	)
Consolidated revenues	$	306,693		$	359,597		$	287,330		$	1,077,640		$	1,089,029
Adjusted EBITDDA^1
Timberlands	$	64,482		$	57,890		$	76,023		$	198,806		$	221,140
Wood Products		31,258			107,256			26,566			288,465			356,654
Real Estate		14,140			21,816			9,069			66,080			37,450
Corporate		(12,629	)		(13,912	)		(11,496	)		(36,125	)		(35,028	)
Eliminations and adjustments		3,839			2,120			7,021			4,596			(3,063	)
Total Adjusted EBITDDA		101,090			175,170			107,183			521,822			577,153
Interest expense, net		(8,280	)		(7,419	)		(8,641	)		(18,593	)		(20,414	)
Depreciation, depletion and amortization		(27,329	)		(20,007	)		(21,131	)		(66,838	)		(56,156	)
Basis of real estate sold		(6,845	)		(7,325	)		(6,697	)		(25,024	)		(22,733	)
CatchMark merger-related expenses		(26,007	)		—			—			(26,007	)		—
Gain on fire damage		24,913			9,868			4,394			34,505			4,394
Pension settlement charge		—			—			—			(14,165	)		—
Non-operating pension and other postretirement employee benefits		(1,808	)		(1,809	)		(3,271	)		(5,546	)		(9,956	)
Gain (loss) on disposal of fixed assets		23			13			(1,139	)		39			(1,700	)
Other		(1	)		—			—			(1	)		—
Income before income taxes	$	55,756		$	148,491		$	70,698		$	400,192		$	470,588
Depreciation, depletion and amortization
Timberlands	$	16,963		$	11,563		$	11,893		$	40,687		$	33,792
Wood Products		10,069			8,136			8,879			25,226			21,261
Real Estate		175			173			162			518			477
Corporate		122			135			197			407			626
		27,329			20,007			21,131			66,838			56,156
Bond discounts and deferred loan fees^2		378			372			403			1,122			1,209
Total depreciation, depletion and amortization	$	27,707		$	20,379		$	21,534		$	67,960		$	57,365
Basis of real estate sold
Real Estate	$	6,845		$	7,328		$	6,703		$	25,033		$	22,751
Eliminations and adjustments		—			(3	)		(6	)		(9	)		(18	)
Total basis of real estate sold	$	6,845		$	7,325		$	6,697		$	25,024		$	22,733

^1 Management uses Adjusted EBITDDA to evaluate company and segment performance. See the reconciliation of Total Adjusted EBITDDA below.

^2 Bond discounts and deferred loan fees are included in interest expense, net in the Condensed Consolidated Statements of Operations.

PotlatchDeltic Corporation Reconciliations Unaudited
	Three Months Ended									Nine Months Ended
	September 30,			June 30,			September 30,			September 30,			September 30,
(in thousands, except per share amount)	2022			2022			2021			2022			2021
Total Adjusted EBITDDA
Net income (GAAP)	$	45,955		$	120,222		$	65,667		$	330,057		$	384,678
Interest expense, net		8,280			7,419			8,641			18,593			20,414
Income taxes		9,801			28,269			5,031			70,135			85,910
Depreciation, depletion and amortization		27,329			20,007			21,131			66,838			56,156
Basis of real estate sold		6,845			7,325			6,697			25,024			22,733
CatchMark merger-related expenses		26,007			—			—			26,007			—
Gain on fire damage		(24,913	)		(9,868	)		(4,394	)		(34,505	)		(4,394	)
Pension settlement charge		—			—			—			14,165			—
Non-operating pension and other postretirement benefit costs		1,808			1,809			3,271			5,546			9,956
(Gain) loss on disposal of fixed assets		(23	)		(13	)		1,139			(39	)		1,700
Other		1			—			—			1			—
Total Adjusted EBITDDA	$	101,090		$	175,170		$	107,183		$	521,822		$	577,153
Adjusted Net Income
Net income (GAAP)	$	45,955		$	120,222		$	65,667		$	330,057		$	384,678
Special items:
CatchMark merger-related expenses, after tax		25,823			—			—			25,823			—
Gain on fire damage, after tax		(18,559	)		(7,351	)		(3,252	)		(25,706	)		(3,252	)
Pension settlement charge, after tax		—			—			—			10,553			—
Adjusted Net Income	$	53,219		$	112,871		$	62,415		$	340,727		$	381,426
Adjusted Net Income Per Diluted Share
Net income per diluted share (GAAP)	$	0.64		$	1.72		$	0.97		$	4.69		$	5.69
Special items:
CatchMark merger-related expenses, after tax		0.36			—			—			0.37			—
Gain on fire damage, after tax		(0.26	)		(0.11	)		(0.05	)		(0.37	)		(0.05	)
Pension settlement charge, after tax		—			—			—			0.15			—
Adjusted Net Income per diluted share	$	0.74		$	1.61		$	0.92		$	4.84		$	5.64