Acadian Timber : 2024 Q1 Interim Report

Q1 2024 Interim Report

Letter to Shareholders

Overview1

Acadian Timber Corp. ("Acadian" or the "Company") delivered strong financial results for the three months ended March 30, 2024 (the "first quarter"), driven by a significant sale of voluntary carbon credits and stable regional demand and pricing for its timber products. Harvesting operations were somewhat hindered by unseasonably warm weather conditions, but improved contractor availability led to a substantial increase in timber sales volumes, as compared to the prior year period.

Acadian generated $7.8 million of Free Cash Flow2 and declared dividends of $5.0 million to our shareholders during the first quarter. Our balance sheet continues to be solid with $7.0 million of net liquidity2 as at March 30, 2024, which includes funds available under our credit facilities.

Results of Operations

Acadian is committed to health and safety as our number one priority. We believe that emphasizing and achieving a good safety record is a leading indicator of success in the broader business. Acadian's operations experienced two recordable safety incidents during the quarter among contractors, which were minor in nature, and none among employees. We remain committed to maintaining a culture across the organization that emphasizes the importance of strong safety performance.

Acadian generated sales of $28.8 million, compared to $22.4 million in the prior year period. Acadian's first significant sale of carbon credits occurred during the first quarter and contributed $4.9 million to sales. Timber sales increased $1.5 million year-over-year as a result of a 35% increase in sales volumes, partially offset by lower timber services activity. The higher sales volumes were primarily a result of increased contractor availability, partially offset by the impacts of unfavourable weather conditions.

Weighted average selling price, excluding biomass, decreased 2% year-over-year. Increases in softwood prices were offset by decreases in hardwood sawlog prices due to weakness in hardwood lumber markets and decreases in hardwood pulpwood pricing, which is attributable to elevated pricing in the first quarter of 2023 resulting from a shortage of regional supply in that period.

Adjusted EBITDA2 was $10.6 million during the first quarter compared to $5.6 million in the prior year period and Adjusted EBITDA margin2 for the quarter was 37% compared to 25%.

Net income for the first quarter totaled $6.0 million, or $0.35 per share, compared to net income of $5.6 million, or $0.33 per share in the same period of 2023. Higher operating income was offset by lower non-cash fair value adjustments and lower gains on sale of timberlands and other fixed assets, as well as higher income tax expense, as compared to the prior year period.

Carbon Credit Project1

During the quarter, an agreement was reached to sell 752,000 of Acadian's registered voluntary carbon credits, which relate to the first reporting period of its ongoing carbon credit project in Maine. The first delivery under this agreement for approximately 152,000 carbon credits occurred in March and has been included in Acadian's financial results for the first quarter. The remaining 600,000 carbon credits included in the agreement are expected to be delivered prior to the end of the third quarter of 2024.

Acadian's project is registered on the ACR under the name Anew - Katahdin Forestry Project, and requires balancing harvest and growth, long-term planning, periodic carbon inventory verification, and maintenance of Acadian's sustainable forestry certification.

The project is expected to generate an additional 1.1 million credits over the remainder of the 10-year crediting period. The registration process for the second and third tranches of carbon credits for this project is expected to be completed in the second half of 2024 and is expected to result in approximately 360,000 credits being made available for sale. This project has

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provided valuable experience to the Acadian management team and has formed the foundation for potential further carbon credit developments in the future.

Solar Land Lease Agreement1

On February 6, 2024, Acadian executed an agreement for the option to lease approximately 10,000 acres of its Maine timberlands for the purpose of the development, construction, operation, and maintenance of a solar powered electric generating facility. The agreement includes inspection, development, construction, and commercial operations terms with escalating leasing fees. The incremental cash flows attributable to the inspection and development terms are modest. However, should the project reach the construction term, which is not expected to occur for several years, the incremental cash flows may become material to Acadian.

Acquisition of Timberlands1

On March 14, 2024, Acadian completed the acquisition of approximately 16,000 acres of timberland in New Brunswick at a price of $9.0 million, financed through its existing revolving credit facility. The timberlands are close in proximity to Acadian's existing operations and customer base. The property is well stocked, benefiting from historical silviculture investments, which will allow Acadian to expand its harvesting operations. The property also presents significant potential for revenue diversification through other land use opportunities.

Outlook1

While North American interest rates remain elevated and near-term pressure on end use markets persists, inflation has begun to show signs of easing. The consensus forecast for U.S. housing starts is approximately 1.43 million starts in 2024 as compared to 1.42 million in 2023. We remain confident that the stability of the northeastern forestry sector, combined with improving long-term demand for new homes and repair and remodel activity, will support the demand for our products as has been demonstrated in recent years.

Although labour markets remained tight in Maine, we continued to experience increased contractor availability in New Brunswick through the first quarter. Management will continue to focus on further increasing harvesting capacity through the remainder of 2024 while ensuring that operating costs remain reasonable. In the short to medium term, inflation is expected to continue to impact our financial results through elevated contractor rates and fuel surcharges, offset by the stable pricing of primary forest products like sawlogs and pulpwood.

Demand for Acadian's sawlogs is mainly driven by regional supply and demand. Low regional inventories as a result of the unfavourable weather conditions during the first quarter are expected to contribute to stable demand as we progress through 2024. Pricing for softwood sawtimber is expected to remain stable or slightly improved and pricing for hardwood sawtimber is expected to remain stable. While modest recovery in hardwood lumber pricing was noted during the quarter, it may be a longer period before pricing for hardwood sawtimber improves. Demand and pricing for softwood and hardwood pulpwood is expected to be steady, mainly impacted by supply in the region.

During 2023, purchasers of voluntary carbon credits increased their focus on carbon credits of high quality, and expended greater time and effort performing due diligence. This shift may have delayed some sales, however, underlying demand and pricing for voluntary carbon credits are expected to remain stable. The protocol for developing compliance market carbon credits from managed forests in Canada was recently finalized. Acadian is evaluating the protocol and the opportunities to develop eligible carbon credits that it may present.

Looking Ahead1

As we enter the second quarter, we are optimistic that an early start to operations following the spring thaw combined with steady demand will allow Acadian to achieve its planned harvesting and sales volumes for the year. Furthermore, with nearly all of our registered carbon credits expected to be delivered to end customers by the end of the third quarter, we are working diligently to register the second and third tranches of carbon credits.

As always, we will remain focused on merchandizing our products to obtain the highest margins available and making improvements throughout the business to maximize cash flows from our existing timberland assets, while exploring

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opportunities to grow.

On behalf of the Board of Directors and management of Acadian, I would like to thank all our shareholders for their ongoing support.

Adam Sheparski

President and Chief Executive Officer

May 8, 2024

1. This Letter to Shareholders contains forward-looking information within the meaning of applicable Canadian securities laws that involve known and unknown risks, uncertainties and other factors that may cause actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Please refer to the section entitled "Cautionary Statement Regarding Forward-Looking Information and Statements" in Management's Discussion and Analysis for further details.
2. Adjusted EBITDA, Adjusted EBITDA margin and Free Cash Flow are key performance measures in evaluating Acadian's operations and are important in enhancing investors' understanding of the Company's operating performance. Adjusted EBITDA and Adjusted EBITDA margin are indicative of the underlying profitability of Acadian's operating segments and are used to evaluate operational performance. Free Cash Flow is used to evaluate Acadian's ability to generate sustainable cash flows from our operations. Acadian's management defines Adjusted EBITDA as net income before interest, income taxes, fair value adjustments, non-cash cost of sales related to carbon credits, recovery of or impairment of land and roads and depreciation and amortization, and "Adjusted EBITDA margin" as Adjusted EBITDA as a percentage of Acadian's sales. "Free Cash Flow" is defined as Adjusted EBITDA less interest paid, current income tax expense, and capital expenditures excluding acquisitions of timberlands, plus net proceeds from the sale of timberlands and other fixed assets (proceeds less gains or losses). Reference is also made to "Net liquidity" which includes cash and funds available under credit facilities less amounts reserved to support the minimum cash balance related to long-term debt. Please refer to the section entitled "Non- IFRS Measures" in Management's Discussion and Analysis for further details.

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MANAGEMENT'S DISCUSSION AND ANALYSIS

(All figures in Canadian dollars unless otherwise stated)

May 8, 2024

INTRODUCTION

Acadian Timber Corp. ("Acadian", the "Company" or "we") is one of the largest timberland owners in Eastern Canada and the Northeastern U.S. and has a total of approximately 2.4 million acres of land under management. Acadian owns and manages approximately 777,000 acres of freehold timberlands in New Brunswick, approximately 300,000 acres of freehold timberlands in Maine and provides timber services relating to approximately 1.3 million acres of Crown licensed timberlands in New Brunswick. Acadian's products include softwood and hardwood sawlogs, pulpwood and biomass by-products, sold to approximately 90 regional customers. Acadian also develops carbon credits for sale in voluntary carbon credit markets.

Acadian's business strategy is to maximize cash flows from its existing timberland assets through sustainable forest management and other land use activities while growing its business by acquiring assets and actively managing these assets to drive improved performance.

Basis of Presentation

This management's discussion and analysis ("MD&A") discusses the financial condition and results of operations of the Company for the three months ended March 30, 2024 (herein referred to as the "first quarter") compared to the three months ended March 25, 2023 and should be read in conjunction with the unaudited interim condensed consolidated financial statements and notes thereto for the first quarter and the audited annual consolidated financial statements and the related MD&A for the fiscal year ended December 31, 2023.

Our first quarter unaudited interim condensed consolidated financial statements have been prepared in accordance with IAS 34 "Interim Financial Reporting" using the accounting policies adopted and disclosed in Note 2 of Acadian's audited 2023 consolidated financial statements and as updated in Note 2 of the first quarter unaudited condensed consolidated financial statements, and are expressed in Canadian dollars unless otherwise noted. External economic and industry factors remain unchanged since the previous annual report, unless otherwise noted. This MD&A has been prepared based on information available as at May 8, 2024. Additional information is available on Acadian's website at www.acadiantimber.com and on SEDAR+ at www.sedarplus.ca.

Non-IFRS Measures

Throughout this MD&A, reference is made to "Adjusted EBITDA", which Acadian's management defines as net income before interest, income taxes, fair value adjustments, non-cash cost of sales related to carbon credits, recovery of or impairment of land and roads and depreciation and amortization, and to "Adjusted EBITDA margin", which is Adjusted EBITDA as a percentage of sales. Reference is also made to "Free Cash Flow", which Acadian's management defines as Adjusted EBITDA less interest paid, current income tax expense, and capital expenditures excluding acquisitions of timberlands, plus net proceeds from the sale of timberlands and other fixed assets (proceeds less gains or losses). Reference made to "Payout Ratio" is defined as dividends declared divided by Free Cash Flow and "Payout Ratio with DRIP" is defined as dividends paid in cash divided by Free Cash Flow. Management believes that Adjusted EBITDA, Adjusted EBITDA margin, Free Cash Flow, and Payout Ratios are key performance measures in evaluating Acadian's operations and are important in enhancing investors' understanding of the Company's operating performance. Adjusted EBITDA and Adjusted EBITDA margin are indicative of the underlying profitability of Acadian's operating segments and are used to evaluate operational performance. Free Cash Flow is used to evaluate Acadian's ability to generate sustainable cash flows from our operations while Payout Ratios are used to evaluate Acadian's ability to fund its distribution using Free Cash Flow. We have provided reconciliations of net income as determined in accordance with IFRS, to Adjusted EBITDA and Free Cash Flow in the "Adjusted EBITDA and Free Cash Flow" section of this MD&A. Reference is also made to net liquidity which includes cash and funds available under credit facilities less amounts reserved to support the minimum cash balance related to long-term debt.

As these measures do not have a standardized meaning prescribed by IFRS, they may not be comparable to similar measures presented by other companies.

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Assessment and Changes in Disclosure Controls and Internal Controls

Management, including the Chief Executive Officer and Chief Financial Officer, have evaluated the effectiveness of the design and operation of the Company's disclosure controls and procedures as at December 31, 2023. There have been no changes in our disclosure controls and procedures during the three months ended March 30, 2024 that have materially affected, or are reasonably likely to materially affect, our disclosure controls and procedures.

Management, including the Chief Executive Officer and Chief Financial Officer, have also evaluated the design and effectiveness of our internal controls over financial reporting in accordance with Multilateral Instrument 52-109 using the COSO Framework 2013 as at December 31, 2023. There have been no changes in our internal controls over financial reporting during the three months ended March 30, 2024 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

REVIEW OF OPERATIONS

Summary of First Quarter Results

The table below summarizes operating and financial data for Acadian:

1. Non-IFRSMeasure. See "Non-IFRS Measures" on page 4 of this report.
2. As at May 8, 2024 there were 17,392,634 common shares outstanding.

During the first quarter, Acadian generated sales of $28.8 million, compared to $22.4 million in the prior year period. Acadian's first significant sale of carbon credits occurred during the first quarter and contributed $4.9 million to sales. Timber sales volumes increased 35% year-over-year primarily as a result of increased contractor availability, which was partially offset by the impacts of unfavourable weather conditions, as well as lower timber services activity. Biomass sales volume decreased 59% from the prior year quarter due to limited processing capacity and fiber availability.

Weighted average selling price, excluding biomass, decreased 2% year-over-year. Increases in softwood sawlog and pulpwood

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prices were offset by decreases in hardwood sawlog prices due to weakness in hardwood lumber markets and decreases in hardwood pulpwood pricing, which is attributable to elevated pricing in the first quarter of 2023 resulting from a shortage of regional supply in that period.

Operating costs and expenses were $21.2 million during the first quarter, compared to $17.1 million during the prior year period. The year-over-year increase reflects the addition of costs related to carbon credit sales as well as higher timber sales volumes, partially offset by lower timber services activity in New Brunswick. Weighted average variable harvesting costs, excluding biomass, increased 5% over the prior year period as a result of higher contractor costs and longer hauling distances during the first quarter of 2024.

Adjusted EBITDA was $10.6 million during the first quarter compared to $5.6 million in the prior year period. Adjusted EBITDA margin for the quarter was 37% compared to 25% in the prior year period. Free Cash Flow was $7.8 million, which is $4.2 million higher than the same period in the prior year.

Net income for the first quarter totaled $6.0 million, or $0.35 per share, compared to net income of $5.6 million, or $0.33 per share in the same period of 2023. Higher operating income was offset by lower non-cash fair value adjustments and lower gains on sale of timberlands and other fixed assets, as well as higher income tax expense, as compared to the prior year period.

Adjusted EBITDA and Free Cash Flow

The following table provides a reconciliation of net income, as determined in accordance with IFRS, to Adjusted EBITDA and Free Cash Flow during each respective period:

1. Non-IFRSMeasure. See "Non-IFRS Measures" on page 4 of this report.
2. The portion of the book value of carbon credit inventory that originates in transfers from timber is generated through fair value adjustments to timber. These amounts are recorded as an expense at the time of a sale and are added back to Adjusted EBITDA to be consistent with the treatment of fair value adjustments.

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Dividend Policy of the Company

Acadian declares dividends from its available cash to the extent determined prudent by the Board of Directors. Dividends are paid on or about the 15th day following each dividend record date.

Total dividends declared to shareholders during the three months ended March 30, 2024 were $5.0 million, or $0.29 per share, compared to $4.9 million, or $0.29 per share during the same period in 2023.

Acadian has in place a dividend reinvestment plan ("DRIP") effective with eligible shareholders whereby Canadian resident shareholders may elect to automatically have their dividends reinvested in additional shares issued directly from the treasury of the Company. During the three months ended March 30, 2024, Acadian issued 72,240 common shares in accordance with the DRIP.

Macer Forest Holdings Inc. ("Macer"), which owns approximately 47% of the outstanding common shares of Acadian, increased its participation in the DRIP from 50% of dividends payable to it to 100% beginning with the dividend paid April 15, 2024.

Operating and Market Conditions

Acadian's harvesting operations during the quarter benefited from stable demand for its products. Sales volume, excluding biomass, of 234,000 m3 was 35% higher than the same period in 2023 due to increased contractor availability, partially offset by unfavourable weather conditions in both Maine and New Brunswick.

Weighted average selling price, excluding biomass, decreased 2% year-over-year. Pricing for softwood sawlog and softwood pulpwood increased by 2% and 17%, respectively, due to favourable market dynamics. Hardwood sawlog and hardwood pulpwood pricing decreased by 17% and 9%, respectively. Decreases in hardwood sawlog prices were due to weakness in hardwood lumber markets and decreases in hardwood pulpwood prices were attributable to elevated pricing in the first quarter of 2023 resulting from a shortage of regional supply in that period. Biomass pricing increased 24% year-over-year, due to changes in demand.

Segmented Results of Operations

In the prior year ended December 31, 2023, Acadian had two reportable segments: New Brunswick Timberlands and Maine Timberlands. As a result of increased diversification in business activities, an additional reportable segment, Environmental Solutions, has been added in the first quarter.

The table below summarizes financial results by segment:

1. Non-IFRS Measure. See "Non-IFRS Measures" on page 4 of this report.

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New Brunswick Timberlands

New Brunswick Timberlands owns and manages approximately 777,000 acres of freehold timberlands and provides harvesting and management services relating to approximately 1.3 million acres of Crown licensed timberlands. All harvesting operations are performed by third-party contractors.

During the first quarter of 2024, Acadian's New Brunswick operations experienced no recordable safety incidents among employees or contractors.

The table below summarizes operating and financial results for New Brunswick Timberlands:

1.Non-IFRS Measure. See "Non-IFRS Measures" on page 4 of this report.

Sales for New Brunswick Timberlands were $19.1 million compared to $17.9 million during the prior year period, with increased sales volumes partially offset by lower timber services activity. Sales volume, excluding biomass, increased 44% due primarily to increased contractor capacity. Softwood sawlog and hardwood sawlog sales volumes increased 35% and 28%, respectively, and softwood pulpwood and hardwood pulpwood sales volumes increased 29% and 75%, respectively. Biomass sales volume decreased 50% from the prior year period due to limited processing capacity and fiber availability.

The weighted average selling price, excluding biomass, for the first quarter was $84.19 per m3, or 2% lower than the prior year period. Increases in softwood sawlog and softwood pulpwood prices were offset by decreases in hardwood sawlog prices due to weakness in hardwood lumber markets and decreases in hardwood pulpwood pricing, which is attributable to elevated

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pricing in the first quarter of 2023 resulting from a shortage of regional supply in that period.

Operating costs and expenses were $13.2 million during the first quarter, compared to $13.3 million in the prior year period. Increased harvesting activity and increased weighted average variable costs were offset by lower timber services activity. Weighted average variable costs, excluding biomass, increased 4% as a result of higher contractor costs compared to the prior year period.

Adjusted EBITDA for the quarter was $6.0 million compared to $4.9 million during the prior year period and Adjusted EBITDA margin was 31% compared to 27%.

Maine Timberlands

Maine Timberlands owns and manages approximately 300,000 acres of freehold timberlands. All harvesting operations are performed by third-party contractors.

There were no recordable safety incidents among employees and two recordable safety incidents among contractors during the first quarter of 2024, which were minor in nature.

The table below summarizes operating and financial results for Maine Timberlands:

1. Non-IFRS Measure. See "Non-IFRS Measures" on page 4 of this report.

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