PotlatchDeltic Corporation Reports Third Quarter 2020 Results

PotlatchDeltic Corporation (Nasdaq:PCH) today reported net income of $81.0 million, or $1.20 per diluted share, on revenues of $313.0 million for the quarter ended September 30, 2020. Net income was $20.6 million, or $0.30 per diluted share, on revenues of $226.3 million for the quarter ended September 30, 2019.

Third Quarter 2020 Highlights

Generated record quarterly Total Adjusted EBITDDA of $135.4 million and Total Adjusted EBITDDA margin of 43%
Historic lumber prices drove Wood Products record quarterly Adjusted EBITDDA performance
Timberlands set quarterly records for harvest volume and Adjusted EBITDDA
Expanded strong liquidity position to $528 million as of Q3 2020

“Our Timberlands and Wood Products businesses achieved record financial performance as outstanding operational execution by our employees capitalized on the historic run in lumber prices against the backdrop of a challenging COVID environment,” said Mike Covey, chairman and chief executive officer. “Looking to the fourth quarter of 2020, our financial results will continue to benefit from high lumber prices through an extended lumber order file and lagged index pricing on our Idaho sawlogs. Additionally, we expect that our Real Estate business will finish the year very strong by closing a large Minnesota transaction. PotlatchDeltic is well positioned to take advantage of favorable industry fundamentals and our strong liquidity provides a high degree of flexibility as we seek to maximize shareholder value,” stated Mr. Covey.

Financial Highlights

($ in millions, except per share data)	Q3 2020		Q2 2020			Q3 2019
Revenues	$	313.0		$	181.6		$	226.3
Net income	$	81.0		$	2.6		$	20.6
Weighted average shares outstanding, diluted (in thousands)		67,528			67,359			67,545
Net income per diluted share	$	1.20		$	0.04		$	0.30

Adjusted net income	$	81.0		$	2.6		$	20.6
Adjusted net income per diluted share	$	1.20		$	0.04		$	0.30

Total Adjusted EBITDDA	$	135.4		$	35.3		$	55.0
Dividends per share	$	0.40		$	0.40		$	0.40
Net cash from operations	$	102.9		$	39.8		$	37.9
Cash and cash equivalents	$	148.9		$	81.0		$	94.7

Business Performance: Q3 2020 vs. Q2 2020

Timberlands

Third Quarter 2020 Highlights

Timberlands Adjusted EBITDDA increased $34.1 million from Q2 levels

Northern and Southern harvest volumes increased seasonally

Northern sawlog prices increased 30% due primarily to higher prices on lumber-indexed volume

($ in millions)	Q3 2020		Q2 2020			$ Change
Timberlands Revenues	$	117.0		$	67.3		$	49.7

Timberlands Adjusted EBITDDA	$	59.7		$	25.6		$	34.1

Wood Products

Third Quarter 2020 Highlights

Wood Products Adjusted EBITDDA increased $70.8 million from Q2 2020 levels

Average lumber price was $637 per MBF Q3 2020, 55% higher than Q2 2020

Lumber shipments increased 17% in Q3 2020 driven by higher production hours

Wood Products positively impacted by plywood mill returning to normal operating level after Q2 2020 curtailment

($ in millions)	Q3 2020		Q2 2020			$ Change
Wood Products Revenues	$	218.3		$	126.2		$	92.1

Wood Products Adjusted EBITDDA	$	81.7		$	10.9		$	70.8

Real Estate

Third Quarter 2020 Highlights

Real Estate Adjusted EBITDDA increased $4.1 million from Q2 2020 levels
Sold 11,048 acres of rural land for $1,202/acre
Sold 26 residential lots at an average $83,000/lot in Q3 2020

($ in millions)	Q3 2020		Q2 2020			$ Change
Real Estate Revenues	$	18.2		$	13.0		$	5.2

Real Estate Adjusted EBITDDA	$	13.4		$	9.3		$	4.1

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, October 27, 2020, 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 1-833-968-2227 for U.S./Canada and 1-778-560-2697 for international callers. Participants will be asked to provide conference I.D. number 9171206. Supplemental materials that will be discussed during the call are available on the website.

A replay of the conference call will be available three hours following the call until November 3, 2020 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 9171206 to access the replay.

About PotlatchDeltic

PotlatchDeltic (NASDAQ:PCH) is a leading Real Estate Investment Trust (REIT) that owns 1.8 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 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 current and expected liquidity; the effects of COVID-19 on demand for our products and on our ability to continue operations; the success of the company’s business strategies; the company’s intent to refinance debt maturing in 2020 and beyond; the company’s capital allocation strategies, including share repurchases and dividend expectations; maintaining the company’s investment grade credit rating; favorable capital structure and strong balance sheet; interest rates and expenses; corporate expenses; pension expenses; taxes; fourth quarter 2020 outlook; the housing market and repair and remodel market; housing starts; lumber supply, demand and pricing; revenues, costs and expenses; lumber shipment volumes; expected sawlog demand and timber harvest volumes; sawlog mix and pricing; rural real estate and residential real estate development sales, including the closing of the sale of approximately 72,000 rural acres in the fourth quarter of 2020, and average price per acre and developed lot; planned capital expenditures and anticipated internal rate of return; business conditions; 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 impact of the COVID-19 outbreak 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 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 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,
(in thousands, except per share amounts)	2020			2020			2019		2020		2019
Revenues	$	313,046			$	181,555		$	226,302		$	703,481		$	623,599
Costs and expenses:
Cost of goods sold		182,039				149,836			182,634			503,921			512,522
Selling, general and administrative expenses		21,046				16,811			12,472			52,064			43,994
Gain on sale of facility		—				—			—			—			(9,176	)
		203,085				166,647			195,106			555,985			547,340
Operating income		109,961				14,908			31,196			147,496			76,259
Interest expense, net		(8,557	)			(8,339	)		(8,475	)		(20,594	)		(21,821	)
Loss on extinguishment of debt		—				—			—			—			(5,512	)
Pension settlement charge		—				—			—			(42,988	)		—
Non-operating pension and other postretirement employee benefit costs		(3,557	)			(3,478	)		(935	)		(10,670	)		(2,804	)
Income before income taxes		97,847				3,091			21,786			73,244			46,122
Income taxes		(16,840	)			(453	)		(1,221	)		(6,431	)		(1,860	)
Net income	$	81,007			$	2,638		$	20,565		$	66,813		$	44,262

Net income per share:
Basic	$	1.21			$	0.04		$	0.30		$	0.99		$	0.65
Diluted	$	1.20			$	0.04		$	0.30		$	0.99		$	0.65
Dividends per share	$	0.40			$	0.40		$	0.40		$	1.20		$	1.20
Weighted-average shares outstanding:
Basic		67,149				67,176			67,446			67,263			67,781
Diluted		67,528				67,359			67,545			67,535			67,848

PotlatchDeltic Corporation Condensed Consolidated Balance Sheets Unaudited

(in thousands, except per share amounts)	September 30, 2020			December 31, 2019
*ASSETS*
Current assets:
Cash and cash equivalents	$	148,919			$	83,310
Customer receivables, net		50,084				14,167
Inventories, net		58,572				65,781
Other current assets		21,090				20,183
Total current assets		278,665				183,441
Property, plant and equipment, net		289,305				286,383
Investment in real estate held for development and sale		74,216				74,233
Timber and timberlands, net		1,608,026				1,638,663
Intangible assets, net		16,465				17,049
Other long-term assets		31,236				35,290
Total assets	$	2,297,913			$	2,235,059

*LIABILITIES AND STOCKHOLDERS’ EQUITY*
Current liabilities:
Accounts payable and accrued liabilities	$	108,425			$	60,577
Current portion of long-term debt		45,995				45,974
Current portion of pension and other postretirement employee benefits		6,701				6,701
Total current liabilities		161,121				113,252
Long-term debt		711,254				710,495
Pension and other postretirement employee benefits		139,022				115,463
Deferred tax liabilities, net		12,202				20,165
Other long-term obligations		78,237				48,853
Total liabilities		1,101,836				1,008,228
Commitments and contingencies
Stockholders' equity:
Preferred stock, authorized 4,000 shares, no shares issued		—				—
Common stock, $1 par value, authorized 100,000 shares, issued 66,872 and 67,221 shares		66,872				67,221
Additional paid-in capital		1,672,351				1,666,299
Accumulated deficit		(388,000	)			(359,330	)
Accumulated other comprehensive loss		(155,146	)			(147,359	)
Total stockholders’ equity		1,196,077				1,226,831
Total liabilities and stockholders' equity	$	2,297,913			$	2,235,059

PotlatchDeltic Corporation Condensed Consolidated Statements of Cash Flows Unaudited

	Three Months Ended			Nine Months Ended
(in thousands)	September 30, 2020			June 30, 2020			September 30, 2019		September 30, 2020		September 30, 2019
*CASH FLOWS FROM OPERATING ACTIVITIES*
Net income	$	81,007			$	2,638		$	20,565		$	66,813		$	44,262
Adjustments:
Depreciation, depletion and amortization		20,594				18,171			19,178			57,809			52,589
Basis of real estate sold		5,249				2,693			5,228			14,440			14,211
Gain on sale of facility		—				—			—			—			(9,176	)
Loss on extinguishment of debt		—				—			—			—			5,512
Change in deferred taxes		(538	)			(1,466	)		295			(14,387	)		(16,943	)
Pension and other postretirement employee benefits		5,917				5,765			2,970			17,750			8,907
Pension settlement charge		—				—			—			42,988			—
Equity-based compensation expense		2,063				1,980			1,913			5,928			5,362
Other, net		(367	)			(414	)		(764	)		(544	)		(2,692	)
Change in working capital and operating-related activities, net		(3,691	)			13,840			(8,745	)		12,706			13,745
Real estate development expenditures		(1,713	)			(2,109	)		(1,257	)		(4,200	)		(5,738	)
Funding of pension and other postretirement employee benefits		(5,619	)			(1,293	)		(1,477	)		(8,458	)		(4,612	)
Net cash provided by operating activities		102,902				39,805			37,906			190,845			105,427

*CASH FLOWS FROM INVESTING ACTIVITIES*
Property, plant and equipment additions		(4,371	)			(5,256	)		(10,094	)		(14,666	)		(25,596	)
Timberlands reforestation and roads		(4,569	)			(3,466	)		(5,079	)		(12,345	)		(13,269	)
Acquisition of timber and timberlands		(8	)			(540	)		—			(4,738	)		(278	)
Proceeds on sale of facility		—				—			—			1,000			58,793
Proceeds on disposition of property, plant and equipment		335				—			2,017			335			2,017
Other, net		36				608			87			2,149			520
Net cash (used in) provided by investing activities		(8,577	)			(8,654	)		(13,069	)		(28,265	)		22,187

*CASH FLOWS FROM FINANCING ACTIVITIES*
Distributions to common stockholders		(26,749	)			(26,744	)		(26,888	)		(80,434	)		(80,834	)
Repurchase of common stock		—				(3,009	)		—			(15,364	)		(25,173	)
Proceeds from issuance of long-term debt		—				—			—			—			150,000
Repayment of long-term debt		—				—			—			—			(150,000	)
Premiums and fees on debt retirement		—				—			—			—			(4,865	)
Other, net		(506	)			(284	)		(129	)		(1,032	)		(393	)
Net cash used in financing activities		(27,255	)			(30,037	)		(27,017	)		(96,830	)		(111,265	)
Change in cash, cash equivalents and restricted cash		67,070				1,114			(2,180	)		65,750			16,349
Cash, cash equivalents and restricted cash, beginning		82,934				81,820			97,970			84,254			79,441
Cash, cash equivalents and restricted cash, ending	$	150,004			$	82,934		$	95,790		$	150,004		$	95,790

PotlatchDeltic Corporation Segment Information Unaudited

	Three Months Ended					Nine Months Ended
	September 30,			June 30,			September 30,				September 30,
(in thousands)	2020			2020			2019				2020			2019
Revenues
Timberlands	$	116,985			$	67,345		$	98,809			$	266,755		$	233,848
Wood Products		218,291				126,216			143,643				489,507			413,979
Real Estate		18,151				13,105			18,863				42,225			61,459
		353,427				206,666			261,315				798,487			709,286
Intersegment Timberlands revenues		(40,381	)			(25,111	)		(35,013	)			(95,006	)		(85,687	)
Consolidated revenues	$	313,046			$	181,555		$	226,302			$	703,481		$	623,599

Adjusted EBITDDA¹
Timberlands	$	59,649			$	25,659		$	42,996			$	120,290		$	95,977
Wood Products		81,644				10,907			5,903				105,780			11,058
Real Estate		13,466				9,256			14,678				30,062			48,697
Corporate		(15,361	)			(10,534	)		(6,930	)			(34,567	)		(26,930	)
Eliminations and adjustments		(4,012	)			85			(1,635	)			(3,235	)		3,542
Total Adjusted EBITDDA		135,386				35,373			55,012				218,330			132,344
Basis of real estate sold		(5,249	)			(2,693	)		(5,228	)			(14,440	)		(14,211	)
Depreciation, depletion and amortization		(20,187	)			(17,765	)		(18,786	)			(56,590	)		(51,310	)
Interest expense, net		(8,557	)			(8,339	)		(8,475	)			(20,594	)		(21,821	)
Loss on extinguishment of debt		—				—			—				—			(5,512	)
Pension settlement charge		—				—			—				(42,988	)		—
Non-operating pension and other postretirement employee benefits		(3,557	)			(3,478	)		(935	)			(10,670	)		(2,804	)
Gain (loss) on disposal of fixed assets		11				(7	)		198				196			260
Gain on sale of facility		—				—			—				—			9,176
Income before income taxes	$	97,847			$	3,091		$	21,786			$	73,244		$	46,122

Depreciation, depletion and amortization
Timberlands	$	13,821			$	11,566		$	12,627			$	37,978		$	33,361
Wood Products		5,983				5,798			5,763				17,411			16,666
Real Estate		149				156			152				465			508
Corporate		234				245			244				736			775
		20,187				17,765			18,786				56,590			51,310
Bond discounts and deferred loan fees²		407				406			392				1,219			1,279
Total depreciation, depletion and amortization	$	20,594			$	18,171		$	19,178			$	57,809		$	52,589

Basis of real estate sold
Real Estate	$	5,257			$	3,212		$	5,283			$	14,973		$	14,326
Eliminations and adjustments		(8	)			(519	)		(55	)			(533	)		(115	)
Total basis of real estate sold	$	5,249			$	2,693		$	5,228			$	14,440		$	14,211

Management uses Adjusted EBITDDA to evaluate company and segment performance. See the reconciliation of Total Adjusted EBITDDA on page 8, Reconciliations.
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,
(in thousands, except per share amount)	2020			2020			2019				2020			2019
Total Adjusted EBITDDA
Net income (GAAP)	$	81,007			$	2,638		$	20,565			$	66,813		$	44,262
Interest expense, net		8,557				8,339			8,475				20,594			21,821
Income taxes		16,840				453			1,221				6,431			1,860
Depreciation, depletion and amortization		20,187				17,765			18,786				56,590			51,310
Basis of real estate sold		5,249				2,693			5,228				14,440			14,211
Loss on extinguishment of debt		—				—			—				—			5,512
Pension settlement charge		—				—			—				42,988			—
Non-operating pension and other postretirement benefit costs		3,557				3,478			935				10,670			2,804
Gain on sale of facility		—				—			—				—			(9,176	)
(Gain) loss on disposal of fixed assets		(11	)			7			(198	)			(196	)		(260	)
Total Adjusted EBITDDA	$	135,386			$	35,373		$	55,012			$	218,330		$	132,344

Adjusted net income
Net income (GAAP)	$	81,007			$	2,638		$	20,565			$	66,813		$	44,262
Special items:
Loss on extinguishment of debt		—				—			—				—			5,512
Pension settlement charge, after tax		—				—			—				31,811			—
Gain on sale of facility, after tax		—				—			—				—			(6,790	)
Adjusted net income	$	81,007			$	2,638		$	20,565			$	98,624		$	42,984

Adjusted net income per diluted share
Net income per diluted share (GAAP)	$	1.20			$	0.04		$	0.30			$	0.99		$	0.65
Special items:
Loss on extinguishment of debt		—				—			—				—			0.08
Pension settlement charge, after tax		—				—			—				0.47			—
Gain on sale of facility, after tax		—				—			—				—			(0.10	)
Adjusted net income per diluted share	$	1.20			$	0.04		$	0.30			$	1.46		$	0.63

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