Good morning, and welcome to the Rayonier Advanced Materials Second Quarter 2022 Earnings Conference Call. As a reminder, this conference is being recorded. I would now like to turn the call over to your host, Mr. Mickey Walsh, Treasurer and Vice President of Investor Relations for Rayonier Advanced Materials. Thank you. Mr. Walsh, you may begin.

Thank you, operator, and good morning, everyone. Welcome again to Rayonier Advanced Materials Second Quarter 2022 Earnings Call and Webcast. Joining me on today's call are De Lyle Bloomquist, our President and Chief Executive Officer; and Marcus Moeltner, our Chief Financial Officer and Senior Vice President of Finance. Our earnings release and presentation materials were issued last evening and are available on our website at ryamglobal.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 the federal securities laws. 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 Slides 2 and 3 of our presentation material. Today's presentation will also reference certain non-GAAP financial measures, as noted on Slide 4 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 is included on Slides 15 through 19 of our presentation. I would now like to turn the call over to De Lyle.

Thank you, Mickey, and good morning, everyone. I'm excited to be joining you on my first conference call as CEO of RYAM. Still new in this role, I have been with RYAM for 8 years as a Director of the company's Board, including as the Chairman of the Board since 2020. Before my tenure with RYAM, my career focused on improving the financial performance of legacy companies in the chemical and industrial sectors. I have experience in many functions and roles, including finance, sales and marketing, distribution and logistics, production, strategic planning, and general management, including as CEO. Because of my tenure on RYAM's Board, I have been involved with creating our strategy, which calls for us to improve our balance sheet, grow our global leading position in high-purity cellulose, and expand our capabilities into other bio-based solutions. As CEO, I will continue the near-term focus on EBITDA, increasing cash flow, and reducing our leverage. Turning to Page 5. We continue to make important near-term strides that will help us realize our strategic objectives. First and foremost, we are focused on opportunistically refinancing our senior notes, which mature in June 2024. To put us in the best possible position to accomplish this objective, we seek to improve our credit metrics via EBITDA growth and debt reduction. In the quarter, we sold our remaining ownership in GreenFirst Forest Products for $43 million and then repaid $20 million of senior notes. Subsequent to the end of the second quarter, we also repaid $10 million of debt in Canada. We will continue to look to reduce our debt balance through the remainder of the year as opportunities arise. To drive EBITDA growth, our second area of focus is increasing production and sales volumes by increasing mill reliability. The extensive planned maintenance outages that we completed at all of our facilities in the first half of the year were focused on improving productive manufacturing time, which we expect will increase production and economies of scale, leading to increased sales volumes and improved financial results. Our third immediate area of focus is receiving fair value for our unique product offerings. Demand for our products remains strong. With respect to our commodity products, we are capturing value from the current market strength. Regarding our cellulose specialty products, we negotiated significant price and volume increases for 2022. As we saw cost inflation accelerate, we implemented a $146 per ton cost surcharge effective April 1 and maintain the surcharge as inflationary pressures continued. Most recently, we are implementing a 20% increase on the small sales volume of cellulose specialties that are not under contract effective August 1. Going forward, we are also updating the language in our standard cellulose specialty contracts that will allow us greater pricing flexibility to more effectively manage cost inflation within a contract's term. Finally, we are effectively responding to the current inflationary environment and supply chain challenges. As noted already, we implemented a cost surcharge to help offset the extraordinary inflation we are experiencing on key input costs. We are also exploring all avenues to help offset these significant increases, specifically seeking alternative supply options in wood, chemicals, and transportation while also managing our discretionary spending. For example, specific to transportation, we are leveraging multiple shipping channels, carriers, and shipment modes to reduce shipping delays, maintain reliable services to our customers, and manage the logistical costs. Turning to Slide 6, I want to provide a summary of the financial results for the quarter. Sales increased 17% from the prior year to $399 million, with price increases across all segments, driven by strong demand, including a 20% increase for our cellulose specialty products and a 25% increase for our paperboard products. Our consolidated adjusted EBITDA was $34 million, which was flat to the prior year as the price increases and cost surcharge offset the extraordinary inflation to our costs. Additionally, High Purity Cellulose was impacted during the quarter by the completion of the extensive planned maintenance outages at 3 of our 4 facilities. Corporate costs were higher than the prior year, driven by a loss on the sale of the GreenFirst shares and higher stock compensation due to CEO transition, with a partial offset from favorable foreign exchange rates. Overall, improving sequential financial results allow us to update our full year 2022 guidance to exceed $160 million of EBITDA. Now I'd like to ask Marcus to take us through the financial details for the quarter. When Marcus is finished, I will then come back to provide additional perspective on the business and our market outlook. Marcus?

Thank you, De Lyle. Starting with High Purity Cellulose on Slide 7. First quarter sales increased 18% or by $47 million to $302 million, driven by a 20% increase in sales prices. This reflects a 20% increase in CS pricing as per our negotiated contracts and any cost surcharge. Sales volumes for the segment were up slightly to 206,000 metric tons. Net sales also included $24 million of other sales, primarily from bio-based energy and lignin. EBITDA for this segment declined $2 million to $36 million driven by higher input costs, including wood, chemicals, energy, and supply chain expenses. Turning to Slide 8. Our Paperboard segment sales grew $6 million driven by a 25% increase in sales prices, partially offset by a 10% decline in sales volumes. EBITDA for the segment doubled to $14 million as the higher sales prices more than offset higher costs. Turning to our high-yield Pulp segment on Slide 9, sales increased by $3 million from the prior year, driven by a 12% improvement in sales pricing, reflecting strong demand for global market pulp. EBITDA for this segment declined slightly to breakeven for the quarter as the price increases helped offset higher costs. Turning to Slide 10 on a consolidated basis. Operating income declined $4 million from the prior year to a $3 million loss as sales price improvements across each segment were impacted by inflation on key input costs and supply chain constraints. SG&A and other costs increased $9 million, primarily driven by increased severance and variable stock compensation due to the recent CEO transitions. Lastly, on Slide 11, liquidity declined to $274 million, including $148 million of cash as we repaid $20 million of senior notes, offset by the sale proceeds of shares in GreenFirst. As of today, our cash balances are down approximately $55 million, driven by an $18 million interest payment, a $10 million principal repayment on our cogen debt in Canada, and timing of working capital. Net debt ended the second quarter up slightly to $764 million compared to our full year guidance of $725 million. With the completion of all the planned maintenance outages, we spent approximately $140 million, including $54 million on deferred maintenance expenses and $87 million in CapEx. Going forward, we expect a significant improvement in free cash flow for the remainder of the year, driven by our $160 million EBITDA guidance for the full year. We continue to monitor capital markets and are prepared to opportunistically refinance our 5.5% senior notes, which mature in June 2024. We expect to deliver improved results for the remainder of the year, which will further deleverage our balance sheet and improve the company's credit profile in the back half of the year. We remain confident that we will obtain an acceptable refinancing which we expect to complete prior to the notes going current in 2023.

Thank you, Marcus. Turning to Page 12, I want to provide an update on each of our businesses. With respect to our High Purity Cellulose business, we continue to see strong demand, thus increased sales volumes for our core products. Sales prices for cellulose specialties increased 20% in the second quarter versus the prior year, driven by our negotiated contract pricing plus the cost surcharge implemented in the second quarter. We expect this cost surcharge to remain in place for at least the coming quarter, given the stubborn elevated input costs. We expect to realize higher prices on commodity high-purity cellulose products in this coming quarter as demand for these products remains stable and supply for fluff products remains constrained. However, we are cautious about supply chain constraints going into the third quarter. As previously noted, we successfully executed the planned maintenance outages at our 4 facilities in the first half of 2022. We expect to improve reliability and productivity for the remainder of the year, which will result in significantly improved results for the second half of 2022. In Paperboard, we are experiencing strong demand for packaging and commercial print products. We expect to realize higher prices to offset inflation. Thus, we will maintain a strong and stable EBITDA in this business for the coming quarter. In high-yield pulp, we expect that we will also realize higher prices. The sales volumes will be dependent on production and supply chain constraints. Overall, we expect costs will moderate and EBITDA will become positive in the coming quarter. We expect our annual corporate expenses to be approximately $50 million for the full year, given the nature of these corporate expenses, while volatility between quarters is expected to remain high. We also remain committed to managing our capital expenditures to within our $140 million to $150 million guidance for the full year. Finally, we still expect to receive $21 million of tax refunds this year. Another key initiative of RYAM is reducing our greenhouse gas emissions. Earlier this year, we set a target to reduce our greenhouse gas emissions by 40% between 2020 and 2030. We're proud to report that we reduced our total greenhouse gas emissions by 8% in 2021 compared to 2020. We still have more to go towards realizing our 2030 goal, but this reduction was an important first step. With that, operator, please open the call to questions.

Our first question comes from John Babcock from Bank of America.

I guess just quickly on cellulose specialties demand. Could you just talk about what you're seeing in Europe right now? I mean it seems like there's pretty decent commentary out there about just being a lot of hesitancy in the marketplace. I want to kind of get some color from you there.

John, this is De Lyle, and thanks for being on the call. Overall, we're seeing our HPC as well as our cellulose specialty business, their volumes continue to be relatively strong. One of the things we do is we constantly talk to our customers to determine whether our base business continues to perform as well as we hope it will, and we're still getting strong indications from our customers that the underlying demand is decent and strong. The issue in Europe is really around energy, and we continue to watch that. But currently, we're still seeing that demand is hanging in there. But again, it's something that we're somewhat cautious about and are watching almost on a daily basis.

Okay. That's very helpful. And then just with regards to the latest price increase that you announced on noncontracted volumes. Can you just remind me, were they impacted by the surcharge earlier this year?

Yes, they were. So this is in addition to the surcharge. And really, at the end of the day, it is us trying to capture what we believe is our fair value for our products.

Okay. And overall, I mean, you talked about the maintenance costs and gave a little bit of clarity there. I was just wondering, even when we add that back, could you just talk about what gives you confidence that you'll see that inflection in earnings in the second half and particularly in light of the macro challenges that exist?

Well, the impact of the outages was fairly significant in the first half of the year. I mean, if you look at some of the facilities that we took down, we took them down for a good part of a month, if not over a month. And so having all those facilities operating in the second half of the year, obviously, should and will, in my opinion, increase the production and therefore, the sales volume relative to what we had in the first half. My guess is you'll probably see an increase in sales volumes of 10%, if not more, in the second half versus the first half as a result of the fact that all the facilities will be running flat out for the rest of the year.

Okay. And then just last question before I turn it over. I mean overall, it seems like the Pulp segment has seen a pretty limited benefit from higher pricing. And I wanted to get some sense from you as to how core you see this business to RYAM. I mean it just seems like performance has been relatively mixed over the years. I want to just kind of get color on how you view that business and how important it is to RYAM as a whole and whether it makes sense to maintain it.

I consider it strategic and central to our approach. There are significant advantages regarding the long-term demand for the fluff business. Therefore, it is an area we intend to focus on to grow our business moving forward. I see it as something we will keep prioritizing for our growth.

John, it's Marcus. Just an added comment on the high yield. It has an integrated piece to play with Paperboard, right? And it really creates that three-ply sheet with the bulk attributes that's well regarded in the marketplace. And to your comment on pricing, given the length of the supply chain, there is a lag effect on realized pricing. So again, you're not seeing it right now. But certainly, that lag will show itself in the future quarters.

And our next question comes from Paul Quinn from RBC Capital Partners.

I guess just a follow-up on this high-yield pulp. So we're expecting this to be positive in Q3 here?

Paul, yes, we are.

Okay. And essentially, on the guidance on Paperboard that you expect price increases to more than offset the inflation so that should be positive as well?

That's correct, yes.

And then, if we can just guide, yes, sorry, go ahead.

No, I was just going to say we expect that the volumes will remain consistent and pricing as well should remain relatively high through the period.

Okay. And then just diving into this cellulose specialties business or high purity. And on the cellulose specialty, that cost surcharge of $146, that's just on the cellulose specialties portion, right? And was it on all volume?

Yes, it's only on the specialty cellulose business and it's on all volumes.

Okay. What are we observing regarding the commodity side of that business? Fluff prices have reached unprecedented levels, creating a significant gap between fluff and NBSK. Historically, this differential was about $46 over 20 years, but now it has surpassed $300. One question is how sustainable you believe that premium will be. Additionally, there is a lot of capacity being added to the commodity dissolving side. How do you feel about that market moving forward?

Well, we believe that we're probably seeing the commodity prices starting to peak and therefore, expect to come in Q4 and thereafter, we'll start seeing those prices go down both for viscose as well as fluff. Relative to your question on the premium of fluff pricing to the index, I expect that most of the new capacity is really coming on hardwood. Our play is primarily on softwood. And so at the end of the day, even though there may be some narrowing of that premium, we believe we're somewhat protected because of our focus being more in softwood, therefore, less exposed to the new capacity.

Okay. And then some of the commentary we're hearing on the acetate guys, the downstream guys is a little bit of weakness in the market. Is that consistent with what you're seeing from your customers?

No, not really. In fact, I was just with one of our customers in the last week or so. He thinks that the inventory pull down has essentially played itself out, and he's actually expecting some modest growth going forward. So we actually think that acetate will be flat to increasing over the coming next few quarters.

And our next question comes from Roger Spitz from Bank of America.

Marcus, do you have a view of if you intend to refinance your 5.5s with either secured or unsecured debt? And a related question is, as of June 30, how much capacity do you have to incur carry secured debt under your 7 and 5/8s to 26 months?

Yes. So Roger, again, we're keeping all our options open, and Mickey and I stay close to the markets. But we do have some capacity, right, on the 3.5 leverage test and the $87 million extra basket. So there is capacity to add some. And again, we're keeping our options open.

Got it. Looking at some cash flow items, what is your expected cash tax for 2022? Does this amount include the $21 million tax refund, or is that in addition to any cash outflows?

So the $21 million is a tax refund from the U.S. We are taxable in France. So we have some payments there. So think of a number in the range of $6 million to $8 million.

Of the outflow? Got it. And how does 2022 working capital inflow or outflow look for you?

So we gave the guidance, right, for our net debt at $725 million and we ended Q2 at $764 million. So Roger, if you're looking at your model, right, you can back into the EBITDA and CapEx. And then we have some remaining interest of $30 million. We talked about the tax refund. And then the one we're being cautious on but could impact that number positively as working capital. De Lyle spoke to the supply chain items that we're managing. So certainly, working capital, we see as a benefit for the balance of the year here vis-à-vis the bill that we had earlier in the year because of the shut.

And our next question comes from Paretosh Misra from Berenberg.

So if I look at your full year EBITDA guidance, then the second half implies $100 million plus. So what's the right way to think about kind of your sustainable or 2023 run rate? Because you'll get some more pricing but I guess some of these maintenance costs will come back next year. So just wondering, what's the best way to think about like a more sustainable or next year's earnings run rate?

Paretosh, this is De Lyle. So looking forward, and I think I'll start with H2, and then I'll expand it to 2023. H2, as you noted, is right around $106 million to hit our guidance, so roughly $53 million per quarter run rate. And going forward, we believe that into 2023, that is going to be a good number for the year. There are some pluses and minuses throughout the year. There may be some degradation in commodity prices, but we do think that there will be some strength in our specialty cellulose pricing. Volumes will be significantly higher, we believe, given that we won't likely have the same extended outages that we had with our facilities this year. And we do believe that we also have a much better control on our spending. So I think that mid-cycle, and I think we've given this guidance in the past, mid-cycle, we should be in the $200 million-plus EBITDA range. And I do believe that's going to be our target for next year.

Got it. That's great color. And then can you provide an update on the bioethanol project in France? How serious are these permitting delays?

I don't think the permitting delays are too serious. What the cause of the delays were, there were a couple of species that were very sensitive to the specific environment that we were considering building the new facility on. We have redesigned that so we don't disrupt that environment and have resubmitted the permits. The current indications we’re receiving from the regulators and so forth is that we should be able to get the permits late 2022, early 2023 and soon thereafter, we'll be able to start constructing the facility.

Our next question comes from Paul Quinn from RBC Capital Markets.

Just a couple of follow-ups. I asked on acetate. Just wondering how the ethers market is shaping up. I mean, this is one of the real reasons why Rayonier bought Tembec, who was a global leader in ethers at the time, and we saw pretty good growth characteristics of that product. Just wondering if it's actually followed through.

Paul, with respect to the ethers, we still are very bullish on the long-term prospects and growth rates in that business. In fact, it was one of the primary reasons we made the acquisition of Tembec. Short term, we're seeing a little bit of softness in the construction market with respect to what's going on in Europe. But again, long term, I think we're still very bullish on the growth for that particular market segment.

I would like to know more about the lower maintenance you mentioned for 2023. Can you quantify that? Is the maintenance schedule still concentrated in the first half of the year, or is it more evenly distributed throughout 2023?

The maintenance schedule remains heavily concentrated in the first half of the year. Fernandina will take place later in the year, likely in the third and fourth quarters. Jesup is definitely scheduled for the first quarter, as is Tartas, while Temiscaming will be in May, as usual. We anticipate completing three of the facilities before entering the second half of the year. Regarding total maintenance expenses, there is a significant gap between now and next year, and inflation will greatly impact what transpires. However, I expect that maintenance activity will be lower since this year was unique in that we prioritized addressing maintenance needs at our key facilities.

Okay. So lower is good. The question is how much lower?

How much lower? Yes, and I'm not going to commit to that right now.

No worries, it's Paul.

Paul, sorry.

And then just lastly, my partner gets it wrong all the time. So this is the last one. I might have missed this because I joined late, but leadership changes at Rayonier have occurred over the past number of years, with changes both on the CEO and CFO sides. I'm wondering, De Lyle, how you view any shift in the company's direction moving forward. What opportunities do you see with Rayonier Advanced Materials, and what concerns you the most?

That's a broad question. I'll do my best to answer it efficiently. Right now, what concerns me most is refinancing the 2024 debt. To achieve that, my main focus is on a couple of key activities. First is improving EBITDA, which involves increasing sales volumes and taking advantage of market pricing. Additionally, it's about paying down debt. One of my long-term goals is to continue reducing debt to strengthen the company’s resilience, ensuring we can operate sustainably when the market turns against us. These are my short-term objectives. Looking ahead, I plan to maintain reasonable leverage while also growing the business by pursuing growth opportunities for our core products and expanding into other bio solutions where we have a strong competitive edge. We'll focus on growth through both our core and adjacent businesses.

Thank you. At this time, there are no more questions. I would now like to turn the floor back over to De Lyle Bloomquist. Sir?

Well, thank you all for joining us. I know this is a busy time of season for all of you, and I know your time is dear. And so I'm very appreciative of the time that you spent with us. If you've got any questions in the future or if there's anything we can do, feel free to reach out to us. We'll be available for you. With that, I wish you a great day, and thank you for your time.

Thank you. This does conclude today's conference. We thank you for your participation. You may disconnect your lines at this time, and have a wonderful day.