PotlatchDeltic(PCH) - 2023 Q3 - Quarterly Report

PART I - FINANCIAL INFORMATION Financial Statements (unaudited) This section presents PotlatchDeltic Corporation's unaudited condensed consolidated financial statements for the periods ended September 30, 2023, including statements of operations, comprehensive income, balance sheets, cash flows, and stockholders' equity Condensed Consolidated Statements of Operations The statements show a significant decline in revenues and net income for both the third quarter and nine-month periods of 2023 compared to 2022 Condensed Consolidated Statements of Operations Highlights | (in thousands, except per share amounts) | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :--- | :--- | :--- | :--- | :--- | | Revenues | $265,509 | $306,693 | $769,572 | $1,077,640 | | Operating income | $36,229 | $65,845 | $85,721 | $438,497 | | Net income | $23,675 | $45,955 | $62,241 | $330,057 | | Diluted Net income per share | $0.29 | $0.64 | $0.78 | $4.69 | Condensed Consolidated Statements of Comprehensive Income Comprehensive income significantly decreased in both the third quarter and nine-month periods of 2023, primarily due to lower net income and cash flow hedge fluctuations Comprehensive Income Highlights | (in thousands) | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :--- | :--- | :--- | :--- | :--- | | Net income | $23,675 | $45,955 | $62,241 | $330,057 | | Other comprehensive income, net of tax | $28,332 | $33,639 | $28,241 | $127,839 | | Comprehensive income | $52,007 | $79,594 | $90,482 | $457,896 | Condensed Consolidated Balance Sheets Total assets remained stable at $3.55 billion as of September 30, 2023, with liabilities at $1.31 billion and equity at $2.24 billion Balance Sheet Summary | (in thousands) | September 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Total current assets | $472,704 | $471,535 | | Timber and timberlands, net | $2,459,508 | $2,508,372 | | Total assets | $3,548,278 | $3,550,555 | | Total current liabilities | $160,256 | $139,766 | | Long-term debt | $993,562 | $992,701 | | Total liabilities | $1,309,181 | $1,287,402 | | Total stockholders' equity | $2,239,097 | $2,263,153 | Condensed Consolidated Statements of Cash Flows Net cash from operating activities significantly declined to $117.3 million for the nine months ended September 30, 2023, impacting the ending cash balance Cash Flow Summary (Nine Months Ended Sep 30) | (in thousands) | 2023 | 2022 | | :--- | :--- | :--- | | Net cash from operating activities | $117,308 | $458,437 | | Net cash from investing activities | ($27,422) | ($127,795) | | Net cash from financing activities | ($121,601) | ($132,725) | | Change in cash, cash equivalents and restricted cash | ($31,715) | $197,917 | | Cash, cash equivalents and restricted cash at end of period | $313,876 | $494,689 | Condensed Consolidated Statements of Stockholders' Equity Total stockholders' equity decreased to $2.24 billion by September 30, 2023, primarily due to dividends and share repurchases, partially offset by net income - Total stockholders' equity decreased by $24.1 million during the first nine months of 2023, from $2,263.2 million to $2,239.1 million[23] - Key activities impacting equity included net income of $62.2 million, common dividends of $107.9 million, and common stock repurchases of $12.7 million[23] Notes to Condensed Consolidated Financial Statements This section provides detailed explanations for financial statement figures, covering segment information, the CatchMark merger, debt, derivatives, and environmental contingencies - The company is a timberland REIT with nearly 2.2 million acres, operating in three segments: Timberlands, Wood Products, and Real Estate[26][31] - On May 1, 2023, stockholders approved an increase in authorized common stock from 100 million to 200 million shares[28] - The company finalized its insurance claim for the Ola, Arkansas sawmill fire in September 2023, resulting in $89.4 million of total insurance recoveries, net of deductible, and recorded a gain of $39.4 million for the nine months ended September 30, 2023[47] - The company merged with CatchMark Timber Trust, Inc. on September 14, 2022, accounted for as an asset acquisition, involving issuing 11.5 million shares and assuming $323.1 million of liabilities[81][82][83](](index=83&type=chunk) - The company accrued an estimated $5.6 million for its share of costs related to a voluntary environmental sediment remediation project in the St. Louis River Area[88] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's financial performance, highlighting significant declines in revenue and net income due to lower lumber and sawlog prices, while detailing segment results, liquidity, and strategic investments - The U.S. economy and housing affordability have been negatively impacted by higher interest rates, dampening consumer confidence and new home construction in 2023, with the average 30-year fixed mortgage rate reaching a nearly 23-year high of 7.3% at the end of September 2023[102] - Long-term housing fundamentals are considered favorable due to a housing shortage, low existing inventory, and a large millennial demographic in prime home-buying years[103] - The company expects to harvest between 1.8 million and 1.9 million tons in Q4 2023 and ship between 270 million and 280 million board feet of lumber[105][107] Consolidated Results Consolidated revenues and net income significantly declined for both Q3 and the nine months ended September 30, 2023, primarily due to lower lumber and sawlog prices Consolidated Results Summary | (in thousands) | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :--- | :--- | :--- | :--- | :--- | | Revenues | $265,509 | $306,693 | $769,572 | $1,077,640 | | Operating income | $36,229 | $65,845 | $85,721 | $438,497 | | Net income | $23,675 | $45,955 | $62,241 | $330,057 | | Total Adjusted EBITDDA | $56,278 | $101,090 | $159,500 | $521,822 | - The Q3 2023 revenue decrease was primarily due to declines in lumber prices, Northern sawlog prices, and fewer real estate development sales, partially offset by increased lumber shipments and Southern harvest volumes[110] - The YTD 2023 revenue decrease was driven by lower lumber and Northern sawlog prices, and fewer rural and development real estate sales, partially offset by increased harvest volumes and lumber shipments[117] Business Segment Results Segment performance shows significant declines in Adjusted EBITDDA for Timberlands and Wood Products due to lower prices, while Real Estate had mixed results Adjusted EBITDDA by Segment (Nine Months Ended Sep 30) | (in thousands) | 2023 | 2022 | Change | | :--- | :--- | :--- | :--- | | Timberlands | $118,017 | $198,806 | ($80,789) | | Wood Products | $26,975 | $288,465 | ($261,490) | | Real Estate | $45,867 | $66,080 | ($20,213) | Liquidity and Capital Resources The company maintains solid liquidity with $302.8 million in cash, despite lower operating cash flow, and is investing in sawmill expansion while continuing share repurchases - As of September 30, 2023, the company had cash and cash equivalents of $302.8 million[145] - The company announced a project to expand and modernize its Waldo, Arkansas sawmill, expected to cost approximately $131.0 million and be completed by the end of 2024[147] - The company has a $200.0 million share repurchase program, with $136.9 million remaining authorization as of September 30, 2023[149] - The company was in compliance with all debt covenants as of September 30, 2023, with a leverage ratio of 19% against a requirement of ≤ 40%[155] Liquidity and Performance Measures (Non-GAAP) This section defines and reconciles non-GAAP measures, showing Total Adjusted EBITDDA at $159.5 million and CAD at $70.6 million for the nine months ended September 30, 2023 Reconciliation of Net Income to Total Adjusted EBITDDA (Nine Months Ended Sep 30) | (in thousands) | 2023 | 2022 | | :--- | :--- | :--- | | Net income | $62,241 | $330,057 | | Interest expense, net | $15,783 | $18,593 | | Income taxes | $7,650 | $70,135 | | Depreciation, depletion and amortization | $89,099 | $66,838 | | Basis of real estate sold | $21,624 | $25,024 | | Other adjustments | ($36,591) | $11,175 | | Total Adjusted EBITDDA | $159,500 | $521,822 | Reconciliation of Cash from Operating Activities to CAD (Nine Months Ended Sep 30) | (in thousands) | 2023 | 2022 | | :--- | :--- | :--- | | Net cash from operating activities | $117,308 | $458,437 | | Capital expenditures | ($46,757) | ($152,301) | | CAD | $70,551 | $306,136 | Quantitative and Qualitative Disclosures About Market Risk The company's market risk exposure, primarily interest rate risk on debt, remains unchanged since December 31, 2022, managed through interest rate swaps - The company's primary market risk exposure is interest rate risk on its term loans and credit facility[167] - Interest rate swaps and forward starting swaps are used to hedge exposure to interest rate changes on existing and future debt[167] - There have been no material changes in market risk exposures since December 31, 2022[168] Controls and Procedures Management concluded that disclosure controls and procedures were effective as of September 30, 2023, with no material changes to internal control over financial reporting - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of September 30, 2023[169] - No changes occurred in internal control over financial reporting during the nine months ended September 30, 2023, that have materially affected or are likely to materially affect internal controls[171] PART II - OTHER INFORMATION Legal Proceedings The company does not anticipate any pending or threatened litigation to materially adversely affect its financial position or operations - There is no pending or threatened litigation expected to have a material adverse effect on the company[172] Risk Factors No material changes to risk factors have occurred since the 2022 Annual Report on Form 10-K - No material changes to risk factors have occurred since the 2022 Annual Report on Form 10-K[173] Unregistered Sales of Equity Securities and Use of Proceeds During Q3 2023, the company repurchased common stock under its $200 million program, with $136.9 million of authorization remaining as of September 30, 2023 Issuer Purchases of Equity Securities (Q3 2023) | Period | Total Number of Shares Purchased | Average Price Paid Per Share | Maximum Dollar Value Remaining for Purchase | | :--- | :--- | :--- | :--- | | July 1 - July 31 | — | $— | $149,605,776 | | August 1 - August 31 | — | $— | $149,605,776 | | September 1 - September 30 | 282,988 | $44.98 | $136,877,115 | | Total | 282,988 | $44.98 | $136,877,115 | - The board of directors authorized a $200.0 million share repurchase program on August 31, 2022, with no set time limit[174] Other Information No officers or directors adopted, modified, or terminated Rule 10b5-1 trading arrangements during the third quarter of 2023 - No officers or directors adopted, modified, or terminated any Rule 10b5-1 trading arrangements during the three months ended September 30, 2023[176] Exhibits This section lists exhibits filed with the Form 10-Q, including corporate documents, a group annuity contract, CEO/CFO certifications, and iXBRL financial statements - Exhibits filed include certifications by the CEO and CFO (Rule 13a-14(a)/15d-14(a) and Section 1350), and financial statements formatted in iXBRL[177]