Rayonier Advanced Materials Inc.

This month, we also announced a significant transaction selling the rights to our softwood lumber duty refund for $39 million. The sale not only bolsters our financial flexibility, but also aligns with our strategic goal to reduce our debt by $70 million in 2024. Considering these updates and our strong performance in the first quarter, I am pleased to reaffirm our full year EBITDA guidance of $180 to $200 million and to raise our full year adjusted free cash flow guidance to $80 to $100 million. With that, I'd like to pass the meeting over to Marcus to walk us through the financials for the quarter. Marcus.

Thank you, Delisle. Beginning with our HBC segment on slide five, quarterly sales declined by $67 million, or 18% to $307 million. Overall HPC pricing declined 2%, driven by a 2% increase in CS sales price, which was more than offset by an 11% decrease in commodity pricing. Total sales volumes decreased 17% as a result of a 16% decline in CS sales volumes and an 18% decrease in commodity sales. Increased sales volumes in CS were supported by the closure of a competitor's plant in late 2023 and a rise in ether sales. This was more than offset by destocking in certain acetate products and the impact of a one-time favorable change in customer contract terms from the previous year. The decrease in commodity sales volumes was primarily a result of higher production in favor of CS as the company built inventory ahead of Jessup's second quarter planned maintenance outage. Other sales for the quarter were $23 million, which included $12 million of green energy sales. EBITDA for the segment rose by $6 million to $50 million, primarily due to higher CS sales prices and decreased key input and logistic costs, along with the benefits of improved productivity. These improvements were partially offset by declines in CS sales volumes, lower commodity prices and volumes, and the absence of $7 million in energy-related cost benefits from the previous year that are expected to recur later in the year. Turning to slide six, sales in the paperboard segment declined $6 million, largely attributed to a 12% drop in sales prices resulting from changes in product mix, and market-driven demand declines. EBITDA for the segment declined $1 million to $12 million, mainly due to lower sales prices, though this impact was somewhat mitigated by decreased costs for purchased pulp. Turning to the high yield pulp segment on slide seven, sales declined by $8 million in comparison to the prior year, mainly due to a 27% drop in external sales prices partially offset by a 16% increase in sales volumes. The price reductions were a consequence of market supply dynamics, mainly in China. Segment EBITDA reached a break-even point in contrast to $8 million generated in the prior year. Transitioning to slide eight, consolidated operating income for the quarter amounted to $17 million. Sales price improvements in CS were more than offset by pricing declines across all other products. In addition, sales volume and mix impacts were offset by cost improvements. SG&A and other cost benefits related to favorable foreign exchange rates were partially offset by discounting and financing fees incurred to support enhancements in working capital. Now let's turn to slide 9. Total debt ended the quarter at $798 million. a reduction of 54 million from the same period in 2023. Net secured debt reflected in our financial covenant ratio associated with the term loan ended the quarter at 721 million. Net secured leverage closed the quarter at 4.4 times within the original covenant test. Liquidity closed the quarter at 199 million, reflecting 55 million of cash $131 million available under our ABL facility, and $13 million for our French factoring facility. As anticipated, working capital levels increased, driven by the inventory build ahead of JUSIP's annual planned maintenance outage. CapEx for the quarter totaled $33 million, with $5 million directed towards strategic capital to support the startup of the Tartis bioethanol project. Additionally, as Delisle previously noted, we announced the sale of our softwood lumber duty refund rights for $39 million. Overall liquidity remains strong, and we are well positioned to achieve our targeted $70 million debt reduction this year. In preparation for the upcoming refi of our 2026 senior notes, we have retained Houlihan Loki to provide advisory services throughout the process. With that, I'd like to turn the call back over to Delisle.

All right. Thank you, Marcus. Let's now turn our attention to slide 10, where I'll provide an update on our key initiatives for 2024. Our primary goal this year is to refinance the 2026 senior notes before they go current in January 2025, with a particular focus on reducing debt. We are on track to meet our target of reducing gross debt by $70 million in 2024. supported by business-generated free cash flow, a tax refund, and proceeds from the recent sale of the softwood lumber duties refund rights. In addition, we are progressing with the sales process of our paperboard and high-yield pulp assets. Interest remains high among the prospective buyers following the announcement of the suspension of operations at the Tamiskameen High Purity Cellulose Plant. which has introduced some delays due to the change in the underlying assumptions of how the site will be managed. While the suspension and asset sales decisions affecting the Temiscaming site have been approached and carried out independently, we believe that suspension will bring clarity to the asset sales diligence process by validating that these assets can be effectively run separately. It's important to reemphasize that this is not a fire sale. We have a value threshold based on the high EBITDA margins and the low custodial capital intensity of the paper board business. While the proceeds from the sale would obviously reduce our debt load, we are carefully balancing the estimated annual $50 million plus in free cash flow that we receive from these businesses against any potential debt repayment. We plan to complete the transaction, provided the terms are acceptable, before our no-skill current in January 2025. We are taking significant steps to optimize our assets and address the ongoing challenges associated with our high purity of cellulose commodity exposure, which has been impacting our profit margins and earnings stability. As part of this strategic pivot, we announced the indefinite suspension of operations at our temiscamine HPC plant. This decision reflects our commitment to mitigating the financial drag from non-slough commodities, which projected a 2024 EBITDA loss of $48 million, following a $60 million loss in 2023. I will provide more details on this announcement in the slide that follows. One of the most promising initiatives is the continued expansion of our biomaterials business. Our TARDIS bioethanol plant, a first step of this strategy, celebrated its first shipment in April. We anticipate this facility will generate $3 to $4 million in EBITDA this year, with projections of $8 to $10 million annually from 2025 as we achieve targeted production levels. Looking forward, our biomaterials project pipeline includes the proposed AGE project at our Jessup facility, which will produce green energy for sale and a new prebiotics additives plant at the same site. We continue to advance the proposed bioethanol plant in Fernandina Beach as we've commenced detail engineering and submitted the project's air permit with the regulatory authorities. Our proposed projects in the works include crude tall oil operations in both France and the US. We aim to finance all these projects with green capital. Let's turn to slide 11, where I'll discuss the recent decision to indefinitely suspend operations at our Temiscaming HBC plant. In April, we made the difficult decision to halt operations at this facility, a move driven by ongoing market weakness in the non-fluff commodity markets, the uncertain availability of affordable wood fiber, and high capital and fixed costs, which, when combined all together, created significant operating losses. The financial implications for 2024 include one-time cost around $30 million for severance, benefits extension, outplacement services, and mothballing the plan. While we are still evaluating non-cash impairment charges, we anticipate the overall impact on this year's operating results and adjust EBITDA to be marginally positive. Furthermore, we expect an improvement in 2024 free cash flow by approximately $15 to $20 million, driven by the monetization of working capital and reduced CapEx that should more than offset the associated one-time suspension costs. Once mothballed, we believe that this facility will represent the industry's best available idle capacity to satisfy future specialty cellulose demand growth since it will require minimal capital investment to restart, can re-enter supply into the market within a year, exists within an operating industrial site with utilities and other site services, and is qualified by many customers to supply CS products. Consequently, we plan to at least annually assess the possibility of restarting the Tumiskameen HPC plant. During the suspension period and after the CS product qualification process concludes, we estimate that we will realize an annualized improvement in adjusted EBITDA of $15 to $20 million a year, primarily to reduce losses resulting from the HPC commodity sales. We also anticipate an increase of approximately $30 million in free cash flow. stemming from this EBITDA improvement in the avoidance of custodial capital expenditures. The customer qualification process is actively ongoing, with all targeted customers currently testing the CS products from our other plants. This qualification work is expected to take 18 to 24 months. We are building bridge inventory until July to sustain customer demand through this qualification period. The CS business that we expect to retain will be produced from our A and B lines at Jessup and our sulfide plants at Fernandina Beach and Tardis. We remain committed to our fluff business, and the majority of our C line at Jessup will continue to focus on fluff production. Let's turn to slide 12. We expect enterprise EBITDA to be between $180 to $200 million for the year. Cash interest expense is projected at approximately $85 million this year, which includes the $15 million payment that was made in early January for last year's Q4 due to the timing of the interest payment around the holidays. As a reminder, the current normalized annual interest expense is estimated at $70 million. Maintenance CapEx is estimated now at $80 million, reflecting a $5 million reduction due to the suspension of the Temiscaming HPC plant. Additionally, we project a $45 million benefit from working capital, which includes a $30 million increase resulting from the Temiscaming HPC plant suspension. Furthermore, we anticipate $14 million in tax refunds and $39 million from the monetization of the lumber duties which will be partially offset by impacts related to the temiscamine HBC plant suspension, deferred energy payments, and other accrued liabilities. In sum, we are raising our adjusted free cash flow guidance to a range between $80 to $100 million for the year. These funds will be allocated toward debt reduction and strategic capital investments. On slide 13, I dive deeper into the expected 2024 performance of each of our businesses. We project EBITDA for our HPC segment to be in the range of $180 to $190 million. We anticipate cellular specialty prices to increase below single-digit percentage as compared to 2023 as we continue to prioritize value over volume for our specialty products. Sales volumes for cellulose specialties are expected to be comparable to last year, with increases in market share gains resulting from a competitor's plant closure and a modest rise in ether sales volumes, though ether sales will remain below historical levels. These increases will be partially offset by lower acetate volumes due to modest stocking and a one-time favorable impact from a change in customer contract terms in the prior year. We expect a decline in commodity sales volumes in 2024 due to the planned suspension of operations at our HBC plant in Tumiskameen during the second half of the year. Overall costs are anticipated to be lower, driven by improved cost management and production efficiencies, alongside the impact from the suspension of operations at the Tumiskameen HBC plant. Our growth strategy remains focused on strategic investments in our biomaterials business, capitalizing on the increased demand for sustainable products. The Tardis bioethanol plant, which was successfully completed its first shipment in April, is operational and projected to contribute $3 to $4 million in EBITDA in 2024, with expectations to reach $8 to $10 million at full production by 2025. Regarding paperboard, We expect to achieve EBITDA in the range of $50 to $60 million in 2024. Prices are projected to stay consistent with those seen in the first quarter, and we expect sales volumes to increase due to rising customer demand. Raw material prices are expected to increase due to increased purchased pulp prices. We expect our high yield pulp business to achieve EBITDA in the range of $5 to $10 million in 2024. We expect a slight increase in high-yield pulp prices in Q2, or further rises anticipated in the second half of the year. Additional sales volumes are projected to increase as we move into the second half of 2024. The total custodial CapEx for the paperboard and high-yield pulp businesses is expected to be $5 million. For 2024, we expect corporate costs of $55 to $60 million, up slightly versus 2023, as we are the final year of our multi-year ERP implementation. As the ERP project concludes, we anticipate cost reductions 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. On slide 14, we illustrate the trajectory of our EBITDA margin growth and net leverage decline. In 2024, we anticipate our margins to be in the 11 to 12% range. Forecast for net secured leverage at the end of the year stands at three times covenant EBITDA. Our commitment remains resolute in achieving our target net debt leverage ratio of two and a half times by 2027. With that, operator, please open the call to questions.