PotlatchDeltic Corporation Reports Second Quarter 2019 Results - PotlatchDeltic (NASDAQ:PCH)

PotlatchDeltic Corporation PCH today reported net income of $17.1 million, or $0.25 per diluted share, on revenues of $215.6 million for the quarter ended June 30, 2019.

Second Quarter 2019 Highlights

Generated $49.0 million of Total Adjusted EBITDDA and Adjusted EBITDDA margin of 23%
Repurchased 407,293 shares for $15.0 million, or $37 per share
Completed two large rural land sales, including 1,800 acres of former Deltic timberlands for $11,000 per acre

"Our Timberlands and Real Estate businesses continued to perform well during the quarter despite extremely wet weather and difficult operating conditions in the South while our Wood Products results declined significantly due to a 35% drop in lumber prices compared to one year ago," said Mike Covey, chairman and chief executive officer. "Our Real Estate business closed two large transactions in the quarter, including the sale of rural land in Arkansas for $11,000 per acre. We returned $79 million to shareholders during the first half of the year in the form of dividends and share repurchases totaling $25 million. We continue to invest capital in our mills and are on pace to complete $40 million of improvements to expand capacity and increase grade recovery," stated Mr. Covey.

Financial Highlights

($ in millions, except per share data)	Q2 2019		Q1 2019		Q2 2018
Revenues	$	215.6	$	181.7	$	268.2
Net income	$	17.1	$	6.6	$	46.1
Weighted average shares outstanding, diluted (in thousands)		67,713		67,916		63,316
Net income per diluted share	$	0.25	$	0.10	$	0.73

Adjusted net income	$	17.1	$	5.3	$	47.2
Adjusted net income per diluted share	$	0.25	$	0.08	$	0.75

Total Adjusted EBITDDA	$	49.0	$	28.3	$	94.2
Distributions per share	$	0.40	$	0.40	$	0.40
Net cash from operations	$	48.5	$	19.1	$	60.5
Cash and cash equivalents	$	98.0	$	104.8	$	125.7

Business Performance: Q2 2019 vs. Q1 2019

Timberlands

Second Quarter 2019 Highlights

Northern sawlog prices increased 8% due to higher lumber index pricing and seasonally lighter logs
Northern sawlog volumes decreased seasonally due to spring break-up
Southern sawlog and pulpwood prices increased as a result of continued wet weather and constrained log supply
Forest management costs increased seasonally

($ in millions)	Q2 2019		Q1 2019		$ Change
Timberlands Revenues	$	66.9	$	68.2	$	(1.3	)

Timberlands Adjusted EBITDDA	$	26.1	$	26.9	$	(0.8	)

Wood Products

Second Quarter 2019 Highlights

Average lumber price was $378 per MBF Q2 2019, down slightly from Q1 2019
Lumber shipments increased 14% as a result of catch up from Q1 2019 transportation and weather challenges
Three mills took downtime Q2 2019 for planned maintenance and capital projects
Lumber inventory at end of Q2 2019 was written down $7.4 million to net realizable value compared to $1.4 million Q1 2019

($ in millions)	Q2 2019			Q1 2019		$ Change
Wood Products Revenues	$	138.0		$	132.3	$	5.7

Wood Products Adjusted EBITDDA	$	(2.0	)	$	7.2	$	(9.2	)

Real Estate

Second Quarter 2019 Highlights

Sold 12,375 acres of rural real estate at an average price of $2,450 per acre, including a former Deltic tract for $19.6 million
Sold 44 residential lots at an average of $85,000 per lot

($ in millions)	Q2 2019		Q1 2019		$ Change
Real Estate Revenues	$	36.4	$	6.2	$	30.2

Real Estate Adjusted EBITDDA	$	31.3	$	2.7	$	28.6

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 earnings 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, July 30, 2019, 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 Investor Resources link or by conference call at 1-877-823-6919 for U.S./Canada and 1-647-689-5576 for international callers. Participants will be asked to provide conference I.D. number 1146306. 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 August 6, 2019 by calling 1-800-585-8367 for U.S./Canada or 1-416-621-4642 for international callers. Callers must enter conference I.D. number 1146306 to access the replay.

About PotlatchDeltic

PotlatchDeltic PCH is a leading Real Estate Investment Trust (REIT) that owns nearly 1.9 million acres of timberlands in Alabama, Arkansas, Idaho, Louisiana, Minnesota and Mississippi. 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 practices, is dedicated to long-term stewardship and sustainable management of its timber resources. 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 Litigation Reform Act of 1995 as amended, including without limitation, our expectations regarding our stepped-up capital expenditure program, the U.S. housing market and repair and remodel market; lumber demand, pricing, revenues and Q3 and Q4 costs and expenses; Q3 lumber shipments; 2019 lumber shipments; effects of announced curtailments and permanent closures of sawmills; expectation that shortfall in Southern harvest will be made up in the second half of 2019; Q3 2019 Northern timber harvest and sawlog prices; Q3 2019 Southern harvest volumes and sawlog prices; Q3 2019 Northern and Southern sawlog mix; 2019 harvest plan; Wood Products 2019 capital expenditures; total 2019 capital expenditures; real estate sales, pricing and cost basis; development real estate sales, pricing and land basis; the direction of our business markets; business conditions; Q3 2019 Adjusted EBITDDA; Q3 2019 interest expense; Q3 2019 corporate expense; Q3 2019 income tax; dividend payout ratio; and similar matters. 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 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; changes in interest rates; changes in the level of construction activity; changes in Asia demand; changes in tariffs, quotas and trade agreements involving wood products; currency fluctuation; changes in demand for our products; changes in production and production capacity in the forest products industry; competitive pricing pressures for our products; unanticipated manufacturing disruptions; changes in general and industry-specific environmental laws and regulations; unforeseen environmental liabilities or expenditures; weather conditions; restrictions on harvesting due to fire danger; changes in raw material, fuel and other costs; share price; the successful execution of the company's strategic plans; 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 Income
Unaudited

	Three Months Ended									Six Months Ended
	June 30,			March 31,			June 30,			June 30,
(in thousands, except per share amounts)	2019			2019			2018			2019			2018
Revenues	$	215,581		$	181,716		$	268,233		$	397,297		$	468,130
Costs and expenses:
Cost of goods sold		175,673			154,215			180,906			329,888			320,061
Selling, general and administrative expenses		14,952			16,570			16,892			31,522			30,548
Gain on sale of facility		—			(9,176	)		—			(9,176	)		—
Deltic merger-related costs		—			—			1,018			—			20,273
		190,625			161,609			198,816			352,234			370,882
Operating income		24,956			20,107			69,417			45,063			97,248
Interest expense, net		(7,882	)		(5,464	)		(9,356	)		(13,346	)		(15,016	)
Loss on extinguishment of debt		—			(5,512	)		—			(5,512	)		—
Non-operating pension and other postretirement costs		(889	)		(980	)		(1,908	)		(1,869	)		(3,765	)
Income before income taxes		16,185			8,151			58,153			24,336			78,467
Income tax benefit (expense)		952			(1,591	)		(12,005	)		(639	)		(17,722	)
Net income	$	17,137		$	6,560		$	46,148		$	23,697		$	60,745

Net income per share:
Basic	$	0.25		$	0.10		$	0.73		$	0.35		$	1.07
Diluted	$	0.25		$	0.10		$	0.73		$	0.35		$	1.06
Dividends per share	$	0.40		$	0.40		$	0.40		$	0.80		$	0.80
Weighted-average shares outstanding (in thousands):
Basic		67,664			67,860			62,980			67,774			56,739
Diluted		67,713			67,916			63,316			67,866			57,128


PotlatchDeltic Corporation
Condensed Consolidated Balance Sheets
Unaudited

(in thousands, except per share amounts)	June 30, 2019			December 31, 2018
*ASSETS*
Current assets:
Cash and cash equivalents	$	97,970		$	76,639
Customer receivables, net		24,479			21,405
Inventories, net		54,121			60,805
Other current assets		19,890			22,675
Assets held for sale		—			80,674
Total current assets		196,460			262,198
Property, plant and equipment, net		276,592			272,193
Investment in real estate held for development and sale		79,238			79,537
Timber and timberlands, net		1,655,853			1,672,815
Intangible assets, net		17,439			17,828
Other long-term assets		33,359			21,281
Total assets	$	2,258,941		$	2,325,852

*LIABILITIES AND STOCKHOLDERS' EQUITY*
Current liabilities:
Accounts payable and accrued liabilities	$	78,492		$	60,993
Current portion of long-term debt		39,988			39,973
Current portion of pension and other postretirement employee benefits		5,997			5,997
Liabilities held for sale		—			29,321
Total current liabilities		124,477			136,284
Long-term debt		716,094			715,391
Pension and other postretirement employee benefits		110,525			110,659
Deferred tax liabilities, net		14,623			32,009
Other long-term obligations		47,172			16,730
Total liabilities		1,012,891			1,011,073
Commitments and contingencies
Stockholders' equity:
Preferred stock, authorized 4,000 shares, no shares issued		—			—
Common stock, $1 par value, authorized 100,000 shares, issued 67,186 and 67,570 shares		67,186			67,570
Additional paid-in capital		1,662,381			1,659,031
Accumulated deficit		(337,330	)		(282,391	)
Accumulated other comprehensive loss		(146,187	)		(129,431	)
Total stockholders' equity		1,246,050			1,314,779
Total liabilities and stockholders' equity	$	2,258,941		$	2,325,852


PotlatchDeltic Corporation
Condensed Consolidated Statements of Cash Flows
Unaudited

	For the three months ended									For the six months ended
(in thousands)	June 30, 2019			March 31, 2019			June 30, 2018			June 30, 2019			June 30, 2018
*CASH FLOWS FROM OPERATING ACTIVITIES*
Net income	$	17,137		$	6,560		$	46,148		$	23,697		$	60,745
Adjustments:
Depreciation, depletion and amortization		17,137			16,274			21,605			33,411			34,240
Basis of real estate sold		7,427			1,556			2,820			8,983			6,425
Gain on sale of facility		—			(9,176	)		—			(9,176	)		—
Loss on extinguishment of debt		—			5,512			—			5,512			—
Change in deferred taxes		(1,139	)		(16,099	)		3,856			(17,238	)		2,798
Pension and other postretirement employee benefits		2,831			3,106			4,185			5,937			7,999
Equity-based compensation expense		1,832			1,617			1,795			3,449			4,889
Other, net		(1,142	)		(786	)		(129	)		(1,928	)		(671	)
Change in working capital and operating-related activities, net		8,507			13,983			(18,782	)		22,490			(9,008	)
Real estate development expenditures		(2,715	)		(1,766	)		(1,057	)		(4,481	)		(1,665	)
Funding of pension and other postretirement employee benefits		(1,421	)		(1,714	)		—			(3,135	)		(10,397	)
Net cash provided by operating activities		48,454			19,067			60,441			67,521			95,355

*CASH FLOWS FROM INVESTING ACTIVITIES*
Property, plant and equipment additions		(11,742	)		(3,760	)		(7,741	)		(15,502	)		(11,373	)
Timberlands reforestation and roads		(3,948	)		(4,242	)		(4,259	)		(8,190	)		(7,119	)
Acquisition of timber and timberlands		(278	)		—			(163	)		(278	)		(163	)
Cash and cash equivalents acquired in merger		—			—			—			—			3,419
Proceeds on sale of facility		(1,252	)		60,045			—			58,793			—
Other, net		303			130			299			433			531
Net cash provided by (used in) investing activities		(16,917	)		52,173			(11,864	)		35,256			(14,705	)

*CASH FLOWS FROM FINANCING ACTIVITIES*
Distributions to common stockholders		(26,881	)		(27,065	)		(25,101	)		(53,946	)		(50,203	)
Proceeds from Potlatch revolving line of credit		—			—			—			—			100,000
Repayment of Potlatch revolving line of credit		—			—			—			—			(100,000	)
Repayment of Deltic revolving line of credit		—			—			—			—			(106,000	)
Proceeds from long-term debt		—			150,000			—			150,000			100,000
Repayment of long-term debt		—			(150,000	)		—			(150,000	)		(14,250	)
Premiums and fees on debt retirement		—			(4,865	)		—			(4,865	)		—
Repurchase of common stock		(15,015	)		(10,158	)		—			(25,173	)		—
Other, net		(51	)		(213	)		(97	)		(264	)		(4,935	)
Net cash used in financing activities		(41,947	)		(42,301	)		(25,198	)		(84,248	)		(75,388	)
Change in cash, cash equivalents and restricted cash		(10,410	)		28,939			23,379			18,529			5,262
Cash, cash equivalents and restricted cash, beginning		108,380			79,441			102,340			79,441			120,457
Cash, cash equivalents and restricted cash, ending	$	97,970		$	108,380		$	125,719		$	97,970		$	125,719


PotlatchDeltic Corporation
Segment Information
Unaudited

	For the three months ended									Six Months Ended
	June 30,			March 31,			June 30,			June 30,
(in thousands)	2019			2019			2018			2019			2018
Revenues
Timberlands	$	66,881		$	68,158		$	92,511		$	135,039		$	169,017
Wood Products		138,030			132,306			193,585			270,336			333,400
Real Estate		36,432			6,164			16,431			42,596			26,986
		241,343			206,628			302,527			447,971			529,403
Intersegment Timberlands revenues		(25,762	)		(24,912	)		(34,294	)		(50,674	)		(61,273	)
Consolidated revenues	$	215,581		$	181,716		$	268,233		$	397,297		$	468,130

Adjusted EBITDDA¹
Timberlands	$	26,131		$	26,850		$	43,691		$	52,981		$	81,388
Wood Products		(2,071	)		7,226			51,566			5,155			80,516
Real Estate		31,316			2,703			12,300			34,019			20,302
Corporate		(9,346	)		(10,654	)		(11,264	)		(20,000	)		(19,980	)
Eliminations and adjustments		3,050			2,127			(2,085	)		5,177			(3,286	)
Total Adjusted EBITDDA		49,080			28,252			94,208			77,332			158,940
Basis of real estate sold		(7,427	)		(1,556	)		(2,820	)		(8,983	)		(6,425	)
Depreciation, depletion and amortization		(16,727	)		(15,797	)		(20,950	)		(32,524	)		(33,146	)
Interest expense, net		(7,882	)		(5,464	)		(9,356	)		(13,346	)		(15,016	)
Loss on extinguishment of debt		—			(5,512	)		—			(5,512	)		—
Non-operating pension and other postretirement employee benefits		(889	)		(980	)		(1,908	)		(1,869	)		(3,765	)
Gain (loss) on fixed assets		30			32			(3	)		62			1
Gain on sale of facility		—			9,176			—			9,176			—
Inventory purchase price adjustment in cost of goods sold		—			—			—			—			(1,849	)
Deltic merger-related costs		—			—			(1,018	)		—			(20,273	)
Income before income taxes	$	16,185		$	8,151		$	58,153		$	24,336		$	78,467

Depreciation, depletion and amortization
Timberlands	$	10,469		$	10,265		$	14,598		$	20,734		$	23,244
Wood Products		5,861			5,042			6,069			10,903			9,423
Real Estate		147			209			77			356			117
Corporate		250			281			206			531			362
		16,727			15,797			20,950			32,524			33,146
Bond discounts and deferred loan fees²		410			477			655			887			1,094
Total depreciation, depletion and amortization	$	17,137		$	16,274		$	21,605		$	33,411		$	34,240

Basis of real estate sold
Real Estate	$	7,455		$	1,588		$	2,896		$	9,043		$	6,619
Eliminations and adjustments		(28	)		(32	)		(76	)		(60	)		(194	)
Total basis of real estate sold	$	7,427		$	1,556		$	2,820		$	8,983		$	6,425

¹		Management uses Adjusted EBITDDA to evaluate company and segment performance. See the reconciliation of Total Adjusted EBITDDA on page 8, Reconciliations.
²		Bond discounts and deferred loan fees are included in interest expense, net in the Condensed Consolidated Statements of Income.


PotlatchDeltic Corporation
Reconciliations
Unaudited

	Three Months Ended								Six Months Ended
	June 30,			March 31,			June 30,		June 30,
(in thousands, except per share amount)	2019			2019			2018		2019			2018
Total Adjusted EBITDDA
Net income (GAAP)	$	17,137		$	6,560		$	46,148	$	23,697		$	60,745
Interest, net		7,882			5,464			9,356		13,346			15,016
Income taxes		(952	)		1,591			12,005		639			17,722
Depreciation, depletion and amortization		16,727			15,797			20,950		32,524			33,146
Basis of real estate sold		7,427			1,556			2,820		8,983			6,425
Loss on extinguishment of debt		—			5,512			—		5,512			—
Non-operating pension and other postretirement benefit costs		889			980			1,908		1,869			3,765
Deltic merger-related costs		—			—			1,018		—			20,273
Gain on sale of facility		—			(9,176	)		—		(9,176	)		—
Inventory purchase price adjustment in cost of goods sold		—			—			—		—			1,849
(Gain) loss on fixed assets		(30	)		(32	)		3		(62	)		(1	)
Total Adjusted EBITDDA	$	49,080		$	28,252		$	94,208	$	77,332		$	158,940

Adjusted net income
Net income (GAAP)	$	17,137		$	6,560		$	46,148	$	23,697		$	60,745
Special items:
Loss on extinguishment of debt		—			5,512			—		5,512			—
Gain on sale of facility, after tax		—			(6,790	)		—		(6,790	)		—
Deltic merger-related costs		—			—			1,018		—			20,273
Inventory purchase price adjustment in cost of goods sold, after tax		—			—			—		—			1,368
Adjusted net income	$	17,137		$	5,282		$	47,166	$	22,419		$	82,386

Adjusted net income per diluted share
Net income per diluted share (GAAP)	$	0.25		$	0.10		$	0.73	$	0.35		$	1.06
Special items:
Loss on extinguishment of debt		—			0.08			—		0.08			—
Gain on sale of facility, after tax		—			(0.10	)		—		(0.10	)		—
Deltic merger-related costs		—			—			0.02		—			0.36
Inventory purchase price adjustment in cost of goods sold, after tax		—			—			—		—			0.02
Adjusted net income per diluted share	$	0.25		$	0.08		$	0.75	$	0.33		$	1.44

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