Rayonier Advanced Materials Q4 2023 Earnings Call Transcript

Quartr
Provided by Quartr
February 28, 2024

There are 8 speakers on the call.

Operator

Good morning. Welcome to the Ryan Fourth Quarter and Full Year 2023 Earnings Conference Call. During today's presentation, all parties will be in a listen only mode. Following the presentation, the conference will be opened for questions with instructions to follow at that time. As a reminder, this conference is being recorded.

Operator

I would now like to turn the call over to your host, Mr. Mickey Walsh, Treasurer and Vice President of Investor Relations. Thank you, Mr. Walsh. You may begin.

Speaker 1

Thank you, and good morning. Welcome again to Ryam's Q4 and full year 2023 earnings conference call and webcast. Joining me on today's call are Dalyle Blomquist, our President and Chief Executive Officer and Marcus Moultner, our Chief Financial Officer and Senior Vice President of Finance. Our earnings release and presentation materials were issued last evening and are available at our website, riam.com. I'd like to remind you that in today's presentation, we will include forward looking statements made pursuant to the Safe Harbor provisions of federal securities laws.

Speaker 1

Our earnings release as well as our filings with the SEC list some of the factors which may cause actual results to differ materially from the forward looking statements we may make. They are also referenced on Slide 2 of our presentation materials. Today's presentation will also reference certain GAAP financial measures as noted on Slide 3 of our presentation. We believe non GAAP financial measures provide useful information for management and investors, but non GAAP measures should not be considered an alternative to GAAP measures. A reconciliation of these measures to their most directly comparable GAAP financial measures are included on Slides 19 through 24 of our presentation.

Speaker 1

With that, I'd like to turn the call over to D'Lyle.

Speaker 2

Well, thank you, Mickey, and good morning. I'll begin with the financial overview for the Q4 and the full year 2023. Following that, I'll discuss recent company actions before handing over to Marcus for additional details on the business segments and our capital structure and liquidity. After Marcus' update, I'll return to offer further insights into our 2024 initiatives and guidance, including an update on the sales process for the Paperboard and High Yield Pulp Business before opening the call for questions. Let's now turn to Slide 4 to review our performance in the Q4 and the full year of 2023.

Speaker 2

Results for both periods fell below expectations with EBITDA of $37,000,000 for the 4th quarter and $130,000,000 for the full year, reflecting declines of $18,000,000 $38,000,000 versus 2022 respectively. The 4th quarter shortfall can be attributed to weaker than expected demand for paperboard, while the full year results were impacted by persistent weak demand across various product categories, notwithstanding the strong pricing observed in our CS segment. Despite the challenges stemming from the weak paperboard results in Q4, I was encouraged by the rebound observed in our core cellulose specialty business. This was principally the result of increased market share, recruiting to us as a result of the closure of a competitor. As we noted on our previous calls, we focus our efforts on free cash flow generation in the second half of twenty twenty three given these macro headwinds.

Speaker 2

These efforts resulted in $53,000,000 of free cash flow, which was largely driven by a $93,000,000 benefit in working capital. We expect to maintain this benefit in 2024 and we think we can realize an additional $15,000,000 of working capital monetization this year. The challenges encountered in our high purity cellulose segment stem mainly from declining commodity pricing and decreased volumes in cellulose specialties, particularly in markets that are interest rate sensitive like the construction ethers markets. Conversely, our cellular specialty products maintain strong pricing realizing 11% increase compared to 2022. This result reflects our focus on prioritizing value over volume for our specialized products.

Speaker 2

In the Paperboard segment, EBITDA decreased by $1,000,000 compared to 2022, primarily due to lower sales volumes from customer destocking, partially offset by decreased purchase pulp, maintenance and logistics costs along with market driven downtime taken in response to the weak market conditions. High yield pulp EBITDA decreased by $20,000,000 versus 2022 driven by lower sales volumes and prices amid weak market demand, increased wood cost and market driven downtime taken in response to the weak market conditions. Corporate segment EBITDA declined by $11,000,000 primarily due to less favorable foreign exchange rates and discounting and financing fees incurred to support working capital enhancements. Next, I would like to offer some high level commentary on a few significant events that occurred in the Q4, each of which will be elaborated on by Marcus. First, the finance team secured a covenant amendment for our 20 27 term loan facility.

Speaker 2

In January, we announced an amendment to expand the net secured debt covenant to 5.25x. While we are confident in our ability to manage within the original covenant as evidenced by the results of a 4.2x for Q4, we wanted the operational flexibility that the expanded covenant and result liquidity would grant us, so we could continue to execute on our strategic initiatives. We also believe that the enhanced flexibility would also reassure key stakeholders. 2nd, we conducted a review of our existing assets and determined that impairments were necessary for our Temiscaming HPC plant and the C Line at our Jessup plant. Regarding the Jessup C Line, we have made the strategic commitment to focus its capacity of fluff production going forward and conversely focus the Jesup specialty cellulose production on the A and B lines.

Speaker 2

The write off related to the Temiscaming Temiscaming HPC plant reflects the transition of the Temiscaming HPC facility to viscose production, which we are doing to leverage its low unit variable costs. The total impact of these 2 non cash write offs is $62,000,000 With that, I'd like to pass the meeting over to Marcus to walk us through the financials for the year. Marcus?

Speaker 3

Thank you, Dalal. Beginning with our high purity cellulose segment on Slide 5, sales for the year decreased by $23,000,000 or 2% to $1,300,000,000 due to a higher mix of commodity sales and lower market demand in certain specialty markets. The decline was primarily driven by a 13% decrease in commodity sales prices, partially offset by an 11% increase in CES pricing, highlighting our commitment to securing fair value for our specialty offerings. Sales volumes increased by 4% to 955,000 metric tons resulting from the increased sales into commodity markets. Commodity sales volumes rose by 39% compared to the prior year, whereas CS volumes decreased by 18%.

Speaker 3

The decline was associated with lower market demand and substantial customer destocking, primarily in construction markets. Other sales for the year were $98,000,000 which included $49,000,000 of green energy sales. EBITDA for the segment decreased by 6,000,000 dollars to $144,000,000 primarily due to a less favorable sales mix, declining commodity prices and increased labor costs due to inflation. These impacts were partially offset by higher CS sales pricing. As Delisle mentioned earlier, we undertook a review of our existing assets and concluded that impairments were necessary for our Temiscaming HPC plant and the Jesup C line.

Speaker 3

The total non cash impact on operating income amounts to $62,000,000 This will result in a lower annual depreciation expense of approximately 5,000,000 dollars Turning to slide 6, sales in the paperboard segment experienced a decline of $31,000,000 mainly due to a 13% reduction in sales volumes due to customer destocking. Year over year, sales prices improved slightly and EBITDA for the segment decreased by $1,000,000 to $52,000,000 primarily due to lower sales volumes which more than offset the benefits of reduced purchased pulp, maintenance and logistics costs. Turning to the high yield pulp segment on slide 7, sales declined by $24,000,000 in comparison to prior year, mainly due to a 12% drop in external sales prices and a 5% reduction in sales volumes. The reductions were a consequence of weaker market demand. Segment EBITDA stood at negative $1,000,000 in contrast to $19,000,000 generated in the prior year.

Speaker 3

Transitioning to Slide 8, our consolidated operating loss for the year amounted to $65,000,000 inclusive of the $62,000,000 non cash asset impairment charge recorded in the 4th quarter. Sales price improvements in CS and paperboard were more than offset by the impact of unfavorable HPC sales mix, lower sales prices in HPC commodities and high yield pulp. Costs remained relatively stable compared to the previous year with deflation in certain input costs being offset by increased labor expenses due to inflation. SG and A and other costs increased by $57,000,000 mainly due to the $62,000,000 non cash asset impairment charge, unfavorable foreign exchange rates, discounting and financing fees incurred to support working capital enhancements, as well as higher ERP project costs and professional fees. These costs were partially offset by lower variable compensation and one time severance expenses from the previous year.

Speaker 3

Now let's turn to Slide 9. Total debt ended the year at $777,000,000 a reduction of $76,000,000 from the same period in 2022. Net secured debt reflected in our financial covenant ratio associated with the term loan ended the year at 698,000,000 dollars Our primary focus for 2023 was on free cash flow and debt management. Consequently, we executed opportunistic downtime at both paperboard and high yield pulp facilities as well as our Tartas HPC facility, all key factors in supporting the impressive $93,000,000 working capital benefit generated during the year. In January, management took a prudent and proactive approach and successfully amended the covenant associated with the term loan.

Speaker 3

While we remain confident in our ability to navigate through the covenant, we believed it was important to ensure the company maintained operating flexibility to fully implement our strategic initiatives while alleviating any liquidity concerns. Structurally, the amendment expands the adjusted net leverage test from 4.5 times to 5.25 times gradually stepping down until 4.5 times is reached after Q4 of 2024. Net secured leverage closed the year at 4.2 times within the original covenant test. Liquidity ended the year at $199,000,000 reflecting $76,000,000 of cash, $118,000,000 available under our ABL facility and $5,000,000 for our French factoring facility. We remain committed to adhering to the original 4.5 times covenant test and we'll focus on all levers at our disposal to maintain appropriate liquidity levels and execute the company's exciting growth opportunities.

Speaker 3

With that, I'd like to turn the call back over to Dalal.

Speaker 2

Thank you, Marcus. Let's now turn our attention to Slide 10, where I'll outline our key initiatives for 2024. Our top priority for the New Year is to refinance the 2026 senior notes before they go current in January 2025. To best position us to execute on this refinancing, we will continue to prioritize debt reduction. We are targeting a gross debt reduction of $70,000,000 in 20.24 financed through business generated free cash flows and a potential monetization of $35,000,000 to $40,000,000 in passive assets.

Speaker 2

Additionally, as announced last year, we are exploring the potential sale of our profitable paperboard and high yield pulp businesses to further reduce the debt before the refinancing. The sales process is being managed by Houlihan Lokey and it remains on schedule. We received expressions of interest from both strategic parties and financial sponsors and we'll provide further updates on this project as it develops. We are working hard to implement our asset optimization strategies to address our HPC commodity exposure given the drag this exposure has on our profit margins and earnings stability. To highlight the importance of this effort, our non fluff commodity sales had an EBITDA loss of minus $60,000,000 in 2023 and currently we project a minus $48,000,000 EBITDA loss in 2024.

Speaker 2

Obviously, it's a strategic imperative to mitigate this exposure to non fluff commodities. As you know, a key element of our strategy entails transferring a significant portion of our viscose production to our Temiscaming HPC facility, which benefits from the lowest variable cost among our HPC lines. I'm pleased to announce the project is progressing according to our initial timeline and I will provide updates as we move forward. Our final perhaps most compelling initiative is to continue realizing the exceptional opportunities within our biomaterials business. Our Tardis bioethanol plant is currently going through testing and if all goes well, we expect to begin bioethanol production in March.

Speaker 2

This project is expected to generate $4,000,000 in EBITDA this year as we ramp up production and then $8,000,000 to $10,000,000 in 2025 and thereafter when we achieve steady state production. This project is the first of several bio material projects that we plan to launch over the next couple of years. As highlighted during our Investor Day, upcoming projects in the pipeline include a bioethanol plant at our Fernandina facility, the AGE project at our Jessup facility which is the production of green energy for sale to Georgia Power, a prebiotics additive plant to also be located at our Jessup facility and crude tall oil projects in France and in the U. S. As previously disclosed, these projects will primarily be funded by low cost green project capital and are expected to generate significant margin expansion due to co product economics and economies of scale.

Speaker 2

Last night, we announced that MOU with Verso Energy to explore e fuels, specifically ESAF from renewable resources including biogenic CO2 at our Tardis plant. SAF or sustainable aviation fuel would be used by the global airline industry as a drop in sustainable replacement for current jet fuel. We'll be working with Verso Energy to explore the feasibility of capturing the biogenic CO2 produced at the Tardis plant to produce the eStaff in combination with green hydrogen. While we are still in the early stages of evaluating this opportunity, the potential impact to Rime is substantial. We look forward to keeping you updated as this project progresses.

Speaker 2

Let's move to Slide 11, where I'll present our EBITDA and free cash flow projections for 2024. We anticipate 2024 Enterprise EBITDA to range between $180,000,000 $200,000,000 for the year. Cash interest expense is expected to be in the $85,000,000 range, which is inclusive of $14,000,000 attributed to the timing of interest payments. On a normalized basis, the estimated annual interest expense would be around $70,000,000 Maintenance expenses is set at $85,000,000 a figure we consider sufficient this year to maintain the reliability of our assets. We project a $15,000,000 benefit from working capital, an additional $10,000,000 benefit from tax receivables to be realized during the year.

Speaker 2

With some offsets related to deferred energy payments and other accrued liabilities, we expect adjusted free cash flow to range between 20 to $40,000,000 for the year, which will be used to reduce debt and invest in strategic capital projects. Currently, we forecast such strategic CapEx spending of around $10,000,000 in 2024 mainly to finance the ERP project and pursue high return cost reduction projects at the plants. This guidance differs from the $225,000,000 EBITDA estimate that I presented during the Investor Day. I believe it's important to emphasize the factors driving this variance. Since the Investor Day guidance, we realized a $14,000,000 decrease in paperboard EBITDA versus expectations due to unforeseen levels of destocking toward the end of the year.

Speaker 2

High yield pulp experienced rapid price declines post Investor Day as pulp markets encountered weak demand resulting in a $3,000,000 impact versus expectations. We also now expect destocking at a couple of large acetate customers, which will impact EBITDA by $23,000,000 in 2024. Additionally, corporate charges were primarily affected by higher discounting and financing fees, encouraged to support working capital performance of each of our businesses. For 2024, we expect to achieve EBITDA in the range of $180,000,000 to $190,000,000 for our HPC segment. On average, cellular specialty prices are expected to increase a low single digit percentage as compared to 2023.

Speaker 2

Cellular specialty sales prices are expected to remain flat in 2024 with increased volumes from market share gain that accrued to us from a competitor's plant closure offset principally by lower shipments due to destocking to select acetate customers. Demand for Ryan's cellulose specialties is anticipated to be mixed with improved volumes in construction ethers albeit at lower than historical levels and relatively stable acetate markets. However, as noted, we expect acetate will undergo some level of destocking. We also anticipate strong demand in the other CS grades. Additionally, we expect resilient market demand for commodity products, the fluff and visco prices expected to improve from Q4 2023.

Speaker 2

Moreover, we foresee modest tailwinds from ease raw material and logistics input cost in 2024. As part of our growth strategy, we are actively pursuing strategic investments in our biomaterials business to capitalize on the increasing demand for sustainable products. The Tardis bioethanol plant is set to begin commercial production in the Q1 of this year with an expected EBITDA contribution of $4,000,000 in 2024, which is expected to reach $8,000,000 to $10,000,000 upon full production that is expected in 2025. Regarding paperboard, we expect to achieve EBITDA in the range of $50,000,000 to $60,000,000 in 20.24. Prices are expected to decrease slightly as compared to 2023 Q4 levels, while sales volumes are expected to improve as the stocking eases and production scales up to meet the improved demand.

Speaker 2

Raw material prices are expected to see a slight uptick as pulp markets rebound. We expect to achieve EBITDA in the range of $5,000,000 to $10,000,000 in 2024 for our high yield pulp business. High yield pulp prices are expected to increase in the Q1 as we realize higher index pricing observed in the later part of 2023 Q4. However, we are beginning to see pricing pressure related to the Chinese pulp markets, thus expect pricing pressure in late Q2 and possibly Q3. We are diversifying our portfolio globally to mitigate this exposure.

Speaker 2

Additionally, sales volumes are projected to improve in Q1 as production ramps up to meet improved customer demand. For 2024, we expect corporate cost in the range of $55,000,000 to $60,000,000 flat to up slightly versus 2023 as we are in the final year of our multi year ERP implementation. As the ERP project concludes, we anticipate annual cost reductions of $3,000,000 to $5,000,000 starting in 2025. It's important to note that these costs may vary due to factors like currency fluctuations, environmental charges and other non cash expenses. We illustrate the trajectory of our EBITDA margin growth and net leverage decline on Page 13.

Speaker 2

In 2024, we anticipate our margins to be in the 10% to 11% range, reflecting a weighted average of the strong margins in our cellulosepecialty and paperboard segments, counterbalanced by low positive high yield margins the anticipated negative margins in our non fluff commodity sales. The forecast for net secured leverage at the end of the year stands at 3.3x EBITDA. Our commitment remains resolute in achieving our target net debt leverage ratio of 2.5x by 2027. With that, operator, please open the call to questions.

Operator

Thank Our first question is from Daniel Herriman with Sidoti and Company. Please proceed.

Speaker 4

Thank you. Hey, good morning, everyone. I just wanted to talk about kind of the transition from 2023 to 2024. And obviously, 2023 was a tough year and the Q4 was certainly weaker than what you expected. Would you mind providing just more color to us on why you're confident that 2024 will be better, particularly in the first half of the year such that you can kind of prove and show earnings power within the core business to potentially refinance by the end of the year?

Speaker 4

And then what do you see right now as the biggest risk to not meeting your guidance for the year?

Speaker 2

Hey, good morning, Daniel. This is Delisle. To answer your question with respect to the transition from 'twenty three to 'twenty four, the biggest driver is around our core business, our CS business. And the expectation is that CS business is going to improve roughly $30,000,000 to $35,000,000 relative to last year. And what's really driving that is a couple of things that gives us confidence that we'll see this improvement.

Speaker 2

One is the gains that we saw in market share relative to the fully closure. We expect in total gain and market share around 50,000 tons and the value of north of the $35,000,000 that we had guided to, let's say something north of $40 plus 1,000,000 of value over the period. We also expect to see some improvement as noted in the call that in ethers, we expect that destocking is largely run its course, but that demand continues to be muted because of the construction market and the high interest rate market. There may be some risk to that number, but we do think that we will see improvement because we do think destocking has largely concluded there. Noted that there is some destocking going in acetate.

Speaker 2

I would say that this is a one time hit. Don't think that it's going to be beyond the impact as noted. This is driven by the congestion that we saw in the supply chains in 2022 and 2023 and the uncertainties expressed or held by our Asian customers given the long supply chain that was in place. And I would think that given that these customers got comfortable as the supply chain demonstrated that things had normalized. The acetate to stocking roughly cost us $23,000,000 relative to expectations to what we were expecting should be pretty close to the number for the year.

Speaker 2

High yield, if we were to ask about where some risk, it would likely be in the high yield space. There is some activity going on in China right now that's of some concern. There's quite a bit of unused underutilized capacity of new paperboard plants in that that have are fully integrated back to their pulping operations. These facilities to generate any kind of cash are running their pulping operations and selling that pulp at substantial discount to the imported material that we're bringing in. And so there are some risks to the pulp forecast, but we're doing all we can to mitigate that by moving the product into other regions that are less impacted by that dynamic.

Speaker 2

Paperboard, we believe the destocking has ended. We got higher confidence that the numbers that we're projecting will be realized with our customers. And then finally, the corporate charges, I would suggest, again, are going to be relatively flat and that's certainly that's an area that we have tight control on. So hope that answers your question.

Speaker 4

Yes, it did. Thanks so much, Delisle. I'll get back in the queue.

Operator

Our next question is from Matthew McKeller with RBC Capital Markets. Please proceed.

Speaker 5

Hi, good morning. Thanks for taking my questions. Firstly, could you maybe give a little bit of color on when you might expect destocking by your acetate customers to fade and confirm if the strong finish to 24 for the CS business you described is based on acetate markets improving?

Speaker 2

First off, good morning, Matthew. I know it's early for you. With respect to sequentially looking into 2024 for the next couple of quarters with respect to the destocking for assay, it's largely going to play out in Q1, Q2. So let's say the first half and the market should get stronger as the year progresses. But the largest impact should be felt in the first half.

Speaker 2

With respect to sequentially how the CS business is to participate, we expect it to essentially be in line with what we saw in the Q4 for the Q1.

Speaker 5

Okay. Thanks very much for that color. I think also for the HPC business, you mentioned you expect raw material inputs and logistics costs to be lower in 2024. Can you maybe just provide a little bit more color on what you're expecting across different input costs and the magnitude of the cost relief you're expecting?

Speaker 2

There's a lot of puts and takes with respect to that as you would expect. I mean labor costs of course are up significantly lower chemical costs, wood costs, logistics costs. Lower chemical costs, wood costs, logistics costs. And I would say net on net, we're expecting lower manufacturinglogistics cost to the tune of roughly $7,000,000 right now we're forecasting. So overall, I'm expecting cost to come down by about that amount.

Speaker 5

Thanks. That's very helpful. And then maybe last one for me. Are you able to give a sense of where discussions are at with respect to developing a second bioethanol plant in Florida?

Speaker 2

We're going through the permitting process in the both with the community as well as with the state. On top of that, we're going through call it, the final detail engineering on that project. Expect that as everything moves along as expected that hopefully that will start construction later in 'twenty four and maybe early 'twenty five.

Speaker 5

Great. Thanks very much. I'll hop back in the queue.

Operator

Our next question is from Dmitry Silversteyn with Water Tower Research. Please proceed.

Speaker 6

Good morning, gentlemen. Thank you for taking my call. Just wanted to follow-up on your memorandum of understanding with Versa Energy. So the idea is that you will work jointly to see if you can produce the SAP, the aviation fuel substitute. How does that fit in with your bioethanol plant in Tetris and or sorry, Tarder and as you're looking at the production, are you going to be putting this if it does go forward, are you going to be putting this in the Tardis plant or the Florida plant or are you going to have to build a new facility?

Speaker 2

Good morning, Dmitry. With respect to SAF, which the acronym stands for Sustainable Aviation Fuel and it is a direct substitute to drop in replacement for the current kerosene that goes into that makes up aviation fuel today. The deal with Verso is to jointly develop feasibility study on this opportunity. The size of this opportunity for us is can be very significant. And but it largely depends on how we decide to participate in this opportunity.

Speaker 2

And really the opportunity what it is for us in Tardis is to capture the biogenic CO2 that we produce right now and is just admitted into the atmosphere would be to capture that. And then with green hydrogen convert that into the hydrocarbon, the sustainable aviation fuel hydrocarbon that then be sold to commercial airlines for example. So it's we don't have to bring in any additional raw materials or anything we're actually would just use a byproduct of our current process to participate in this. It would likely include the construction of carbon capture and other facilities to make this happen. But Tardis has the land, water is available locally.

Speaker 2

And again, the demand that for this product is not only something that the airline industries I think would be interested in, but it's being required by the regulatory agencies in France and the EU for the commercial airline industry and on top of that, the last thing just like it with the bioenergy or the bioethanol plant that we have in Tardis, The regulatory agencies in the state are willing to participate and help fund both the study as well as potentially the project itself going forward. So really that's why our initial focus is in the EU.

Speaker 6

Okay. Okay, got it. So, Dleyael, to follow-up on your comments around the Ether's market recovery. Can you kind of delve a little bit deeper into why you think the market will recover now that we've gotten through hopefully majority of the destocking, but the market for particularly for construction is still not particularly strong. So what will be driving the recovery in Ethos other than easier comps as you get into the back end of the year and you're not comping against inventory reductions for your customers?

Speaker 2

Yes. And that's a great question. It's actually a question we continue to wrestle with a little bit here at the company about how strong ethers is going to rebound. But we do because at the end of the day, you're absolutely right. The demand continues to be muted and weak in the construction markets there in Europe.

Speaker 2

Why we got some confidence in the increase in demand is because the destocking has ended, right. And it's bottomed out and as a consequence, your the underlying demand now becomes revealed. And as a consequence, we expect that the orders we'll see in 2024 will be greater than what we saw in 2023, but the demand continues to be somewhat muted continues to be muted.

Speaker 6

Got it. Okay. And then on the just to make sure I understand what's going on in China. So that there is underutilized capacity in high yield pulp and or paperboard that produces more high yield pulp and then therefore makes your product less appealing from the price perspective as you're importing this product into China. Do I understand that correctly?

Speaker 6

And if that's the case, how long do you think the underutilized capacity will be underutilized? In other words, what needs to happen in the Chinese market for that capacity to become absorbed, so your import products can have a better footing in terms of competition with the local producers?

Speaker 2

Dmitry, your description of what's going on is largely correct. What's happened is the paperboard industry in China just overbuilt and they've got a lot of unused capacity now. And this new capacity is fully integrated back through pulp manufacturing. In other words, these paperboard plants could also make their own pulp similar to what we do on Temiscaming. To realize any kind of cash, These plants are running their pulp lines relatively hard and generating excess pulp which they then ship regionally to other paper pulp producers to use to make paperboard.

Speaker 2

And this the offset there is less imports from other parts of the world including potentially us coming out of Canada. And there are offering this locally produced pulp at substantially price discounts relative to what we're currently have been seeing in the Q4 and going into the Q1 for our pulp products. So that's the threat and the concern. Your question about how long this is going to last, feel that that's a question that we're still trying to get our hands around. Think that this problem is going to last through likely through Q3, at which point the expectation is that we'll start seeing that reduce either because this new call it this new high purity pulp capacity will get itself sold out and therefore will no longer be a problem or paperboard demand picks up and begins to satisfy that supply.

Speaker 2

So that's currently what our thinking is.

Speaker 6

Got it. Okay. Thank you very much. That's all the questions I have now. Thank you.

Operator

Our next question comes from Andy Burns with Stifel. Please proceed.

Speaker 7

Hi, good morning everyone and thanks for all the detail about 2024. Maybe just to talk a little bit about the HPC business. First, maybe just to clarify the volume pickup from the Foley closure, is that all in specialties or is some of that in on the commodity side also?

Speaker 2

That was all in specialties. It was across the 3 different grades, but primarily the other CS.

Speaker 7

Okay. And then I just wanted to see if you could elaborate a little more on the comment you made in terms of bridging the 24 that 23 had a favorable customer contract term that's not repeated. Anything more you could say? Was that just on the volume side and or also pricing? And if it was more on volume, is there the opportunity to regain those volumes sometime this year or 2025?

Speaker 2

Yes. And I know that was a little confusing, Sandy. The change in the INCOTERMS really was going from let's say a CIF or delivered terms to more of an FOB ship point term, all right. And that allowed us to realize revenue sooner than what we had historically at some of our accounts. What happened in 2023 is when we negotiated that change, we had some deferred sales volumes that were delayed at a 22 to Asia that because of this change when it did ship in 2023, we were able to realize immediately.

Speaker 2

And so really with the increase in volume and sales really was capturing the deferred sales that we had coming out of 2022. But also because of those change in those income terms, we didn't have a similar impact or deferrals coming out of 2023 into 2024. And so we won't capture that kind of deferrals that we experienced coming out of 'twenty two. The total volumes roughly 22,000 tons, roughly equivalent to about $7,000,000 in EBITDA. And really it was a one time impact.

Speaker 2

We shouldn't expect any changes going forward.

Speaker 7

Right. But I guess importantly, it doesn't sound like it was a customer loss or

Speaker 2

No, not at all. It was just a change in essentially the Incoterms that allowed us to recognize revenue earlier.

Speaker 7

Great. All right. Thank you and good luck this year.

Speaker 2

Thank you.

Operator

There are no further questions at this time. I would like to turn the conference back over to Mr. Blumquist for closing remarks.

Speaker 2

Well, thank you all once again for joining us today. I do sincerely appreciate your interest and your support for Ryam. I do want to note that I'm incredibly proud of all the collective efforts made by our team, particularly during the difficult 2023 year. And I'm also expressing I'm fully confident that we will continue to focus on enhancing our profitability and work diligently to reduce our debt and our leverage. I look forward to providing further updates on all of our ongoing projects and initiatives.

Speaker 2

And we here at Ryan continue to value support and look forward to delivering to you long term success and growth of the business. We are committed to transparency and open communication. So if you have any questions or if you require further information, please reach out to us at any time. Thank you again for your participation.

Operator

Thank you. This will conclude today's conference. You may disconnect at this time.

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Key Takeaways

  • RyAM reported Q4 EBITDA of $37 million and full-year EBITDA of $130 million, declines of $18 million and $38 million versus 2022, driven by weak paperboard and high-yield pulp demand but supported by an 11% price increase in its cellulose specialties segment; the company generated $53 million of free cash flow in H2 2023, largely from a $93 million working capital benefit.
  • In Q4 the finance team secured a covenant amendment expanding the 2027 term-loan net secured debt ratio to 5.25x for greater flexibility, and recorded $62 million of non-cash impairments on the Temiscaming HPC plant and Jesup C Line to refocus capacity.
  • For 2024 RyAM targets $180–200 million of enterprise EBITDA and $20–40 million of adjusted free cash flow, plans to reduce gross debt by $70 million (plus $35–40 million of asset monetization), is exploring sales of paperboard and high-yield pulp businesses, and aims to refinance its 2026 senior notes before January 2025.
  • The company is expanding its biomaterials footprint: its Tardis bioethanol plant is slated to start in Q1 2024 for an initial $4 million EBITDA contribution (rising to $8–10 million in 2025), with additional projects at Fernandina, Jessup and France, and an MOU with Verso Energy to explore capture of biogenic CO₂ for sustainable aviation fuel.
  • Looking ahead by segment, RyAM expects cellulose specialties volumes to benefit from market-share gains while managing acetate destocking in H1, paperboard EBITDA of $50–60 million as stocking normalizes, and high-yield pulp EBITDA of $5–10 million amid modest pricing recovery offsetting Chinese capacity risks.
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Earnings Conference Call
Rayonier Advanced Materials Q4 2023
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