Good morning and thank you for joining us. Welcome to Sylvamo's First Quarter 2022 Earnings Call. All lines have been muted to eliminate background noise. After the presentation, there will be a chance for you to ask questions. I will now hand the conference over to Hans Bjorkman, Vice President of Investor Relations.

Thanks, Faith. Good morning, and thank you for joining our call today. Our speakers this morning are Jean-Michel Ribiéras, Chairman and Chief Executive Officer; and John Sims, Senior Vice President and Chief Financial Officer. Slides 3 and 3 contain important information including certain legal disclaimers. For example, during this call we will make forward-looking statements that are subject to risks and uncertainties. It is important to note that all earnings and figures include our Svetogorsk mill and Russian business, unless otherwise noted. We will also present certain non-US GAAP financial information. Reconciliations of those figures to US GAAP financial measures are available in the appendix. Our website contains copies of the first quarter 2022 earnings press release as well as today's presentation. With that, I will now turn the call over to Jean-Michel.

Thanks, Hans. Good morning and thank you for joining our call. I'll begin my comments on Slide 4. Before we discuss our first quarter results, allow me to share some thoughts on 2022. We are well positioned to continue to create value this year. Given all the moving parts in our business, I want to share guidance on our full year 2022 key metrics. We expect to generate strong results, despite input cost inflation, supply chain challenges, and the impact of Russia's invasion of Ukraine. In fact, we're on a path to achieve pre-pandemic EBITDA levels in 2022, even if we exclude our Russian business for the full year. We expect to generate $725 million to $775 million in adjusted EBITDA and $160 million to $180 million in free cash flow this year, if we exclude our Russian business for the full year. Slide 5 provides an update on our Russian business. Our path forward in Russia is driven by our primary value to always do the right things, in the right ways, for the right reasons. We will not operate in an environment that is inconsistent with our values. We have made the decision to exit Russia and will do so in an orderly manner. That said, we are not implementing a full suspension of operations, primarily because we want to maintain full control of our assets as we work to exit Russia. We are conducting a process to sell our Russian business and have received a significant number of nonbinding offers. We are working to reach an agreement and plan to complete this process promptly, including obtaining approval from our Board as well as the required government approvals to execute the transaction. Please keep in mind that the situation in Russia changes frequently and we will provide public updates as appropriate. In the meantime, we continue to comply with all regulations and sanctions. And now, on Slide 6. We continue to execute our three-pronged strategy of commercial excellence, operational excellence, and financial discipline, which resulted in a 19.1% adjusted EBITDA margin in the first quarter. Global demand for uncoated freesheet continues to strengthen in Latin America and North America, as schools and offices reopened. Our volumes remain strong, and we run at full capacity in all three regions. We'll also continue to realize the benefit of prior price increases, which resulted in price and mix outpacing input cost inflation. We operated well in a challenging supply chain environment. I'm proud of all our teams navigating through the continued input costs and transportation challenges, and working to take care of each other as well as our customers. Implementing the strategy generated free cash flow of $73 million, enabling us to pay down $33 million in debt and to increase our cash balance by $49 million. All in all, another strong performance by our team, in dynamic industry conditions. Slide 7 highlights our key performance metrics for the quarter. First quarter net sales were $977 million, reflecting seasonally slow volume in Eastern Europe and Latin America. We generated an adjusted EBITDA of $187 million. As usual, our first quarter was a light maintenance outage quarter. If we had normalized maintenance outage expenses, our adjusted EBITDA margin would have been 18% for the quarter. We generated $73 million in free cash flow and asset operating earnings of $1.97 per share. Okay John, would you discuss our first quarter performance in more detail?

Thanks Jean-Michel and good morning, everyone. Let's turn to slide 8. In the first quarter, we generated $187 million in adjusted EBITDA. This amount includes our Russian business, which contributed $34 million of adjusted EBITDA. We improved price and mix by $53 million, as price increase realizations in Europe and North America exceeded our forecast. As expected, volume decreased by $17 million, due to slower seasonal demand in Eastern Europe and Latin America. Our order backlog remained strong everywhere outside of Russia. Operations and costs increased by $22 million. These higher costs reflect the absence of a favorable fourth quarter LIFO adjustment in North America, and an unfavorable foreign exchange charge in Latin America. However, overall our operations ran well. As Jean-Michel mentioned, we successfully conducted planned maintenance outages at our Eastover and Três Lagoas mills and spent $26 million less on outages than in the fourth quarter. Input and transportation costs increased by $24 million, with rising costs for chemicals due to energy impact, along with higher fiber and distribution costs. I want to recognize and thank our regional teams, who worked hard to offset the impact of input cost inflation, especially our Saillat mill team for acting quickly to reduce the impact of record high European natural gas prices. Let's look at our regional results on slide 9. Each region performed well, demonstrating the strength of our talented team, low-cost mills, and iconic brands. Our commercial teams deserve credit for their contributions to these results. They remain focused on strengthening our customer value propositions and ensuring that we remain the supplier of choice. Strong regional performances reflect continued price increase realizations. Our volumes remain strong in all regions and we continue to outperform industry shipments. Operations were good in all regions, and we started to see some improvement in the supply chain bottlenecks. Our Latin America margin was negatively impacted by about 400 basis points due to FX headwinds in the quarter, as well as a seasonally lower volume. The appendix contains additional details on our regional performance. Let's turn to slide 10 to discuss uncoated freesheet industry conditions in the markets we serve. Supply and demand balances are favorable in all our regions and operating rates remain strong. North America industry demand is now forecasted to grow 1.1% this year versus the prior forecast of a 4.4% decline. Latin American industry demand is projected to improve by 2.6%, which is in line with prior projections. European industry demand is down in 2022 but the shutdown of high-cost capacity has resulted in favorable supply and demand balances. Selling prices remain favorable and we expect to continue to realize prior increases throughout the second quarter. Our price and mix improvements continue to more than offset input and transportation cost increases. Let's move to slide 11 and look at the results of some of our commercial excellence efforts. Commercial excellence is a key driver of our earnings and we continue to make progress. In Europe, our non-price initiatives are improving earnings. We have increased our mix of branded products and are developing relationships with new customers. For example, we gained premium notebook business and expect more than 10,000 tons of this new volume. In Latin America, our commercial excellence initiatives have led to more than 20 new customers, and we're improving our domestic cut size mix. We also established new publishing business benefiting from strong offset sales. In North America, we continued to outperform industry shipments. We also continue to simplify our product offering and have realized improved margins from our value-added services. And now on slide 12. In light of the current challenges in Europe, I want to emphasize that we remain confident in our ability to succeed in Europe. Our 2022 earnings outlook reflects the increasing profitability of our Saillat mill. We expect our European earnings to improve each quarter this year. High market pulp prices and elevated energy costs have put tremendous pressure on non-integrated producers, which represent about 25% of the total uncoated freesheet supply in Europe. These cost increases have resulted in a significant steepening of the uncoated freesheet cost curve there, which works in our favor. Our Saillat mill produces its own pulp, benefits from a favorable energy position, and generates excess carbon credits. We also maintained strong channel partnerships across Europe. I also note that we serve European customers from Saillat as well as our low-cost Brazilian mills. Let's move to slide 13 and review our second quarter outlook. Given our intent to exit Russia, we are providing second quarter guidance including and excluding our Russian business. I will limit my comments, though, to the guidance that excludes Russia. In the second quarter, we expect to deliver adjusted EBITDA of $170 million to $180 million. We project price and mix to improve by $50 million to $55 million, as we continue to realize price increases already communicated to our customers in all regions. We expect volume to be relatively flat, with equally stronger Latin America volume offsetting more maintenance outages in North America. We expect operations and costs to increase by $5 million to $10 million. We expect input and transportation costs to increase by $10 million to $15 million, largely due to the higher cost of natural gas in North America and increasing diesel costs affecting the delivery of fiber in Latin America. We project maintenance outage expenses to increase by $15 million, as we conduct more planned maintenance outages. To be clear, we continue to own and operate our Russian business while we pursue a sale. We are showing our EBITDA including and excluding Russia, so you can understand how we expect to perform in either scenario. Once the sale has been approved by the Board, we would report our Russian business as discontinued operations for the entire year. Let's turn to Slide 14. As Jean-Michel and I discussed, industry fundamentals remained favorable. Our competitive advantages position us to benefit from the industry conditions shown on this slide. Our key advantages include low-cost mills in attractive regions, the world's strongest paper brand, committed channel partnerships, and our talented team. Unique strength combined with our focused three-pronged strategy and our strong regional positions are driving the growth in our earnings and cash. Let's turn to Slide 15 to discuss free cash flow and how we allocate cash with discipline. We remain focused on generating cash. As Jean-Michel mentioned, we generated strong free cash flow in the fourth quarter of $73 million. Even after, we paid $36 million to International Paper for the day-one Riverdale inventory. You may recall that our fourth quarter cash flow reflected the benefit of extended payment terms to IP for the day-one inventory at both the Georgetown and Riverdale mills. We'll use our cash to fund $175 million of capital spending in 2022. Since we will not spend capital on Svetogorsk recovery boiler, we will increase spending on other high-return projects outside of Russia to further improve our business. We will pay IP the final incremental $41 million of the day-one Georgetown inventory in the second quarter. Additionally, we'll pay $57 million of one-time and transition service costs. This amount is $15 million less than our last estimate of $72 million, as we've been successful in reducing one-time spin-off expenses. So we expect to see a step change in free cash flow starting in the fourth quarter after all day-one inventory, one-time spin-off, and transition service costs have been completed. We also intend to continue debt reduction, which I'll now further discuss on the next slide. So let's go to Slide 16 to review how we would judiciously allocate cash in 2022. As I mentioned, we are generating sufficient cash this year to fund more than $300 million in capital spending, inventory payments, and one-time spin-off costs. With all this going on, and increasing uncertainty of the macro environment, we will continue to prioritize debt reduction. We have set a targeted gross debt level of $1 billion. This will reduce risk, increase our flexibility, improve free cash flow generation, and should increase our equity value. In addition to the $33 million we repaid in the first quarter, we repaid $15 million in April resulting in long-term debt of just under $1.35 billion. Our 2022 capital spending plan includes $20 million for high-return cost reduction and strategic projects, with internal weighted returns of greater than 25%. In fact, some of these projects have internal rate of returns over 50%. Since we will not proceed with the $220 million Svetogorsk's recovery boiler project, we're advancing high-return projects outside of Russia to be included in our strategic plan going forward. Importantly, we are conducting Board-level discussions about returning cash to shareholders and we'll continue to dialogue with them. Let's turn to Slide 17 for a brief update on the Brazilian goodwill tax dispute. During our last call, we told you that we did not expect a tax amnesty legislation to be enacted during the presidential election year in Brazil this year. However, on May 3, the Brazilian Internal Revenue Service issued a specific rule that will allow companies to settle goodwill tax disputes. Keep in mind, though, that the ball is in International Paper's court. They have the sole right to decide whether or not to apply for a settlement. Also, as a reminder, our maximum liability is $120 million. I'll now turn the call back over to Jean-Michel.

Thanks, John. I'll conclude our remarks on Slide 18. We are well positioned to continue to create value in 2022. We remain committed to generating strong earnings and cash flow, and confident in our ability to achieve pre-pandemic earnings levels in 2022 even if we exclude our Russian business for the full year. We made a principle-based decision to exit Russia, but we remain committed to increasing our earnings and free cash flow. Our strategy has not changed, although we are now targeting a gross debt level of $1 billion, and we are accelerating other high-return projects. Even excluding Russia for the full year, we are on a path to generate $725 million to $775 million in adjusted EBITDA for the full year and we project $160 million to $180 million in free cash flow. Our success is made possible by our employees, who worked through the global pandemic, how to plan and execute the spin-off, and continue to navigate through input cost inflation, supply chain challenges, and the impact from the war in Ukraine. We appreciate working safely and serving our customers. We remain confident in our ability to achieve our vision of being the employer, supplier, and investment of choice. With that, I'll turn the call back over to Hans.

Thank you, Jean-Michel and thank you, John. Okay Faith, we're now ready to take the questions.

Our first question comes from George Staphos from Bank of America. Your line is open.

Thank you very much. Hi, everybody. Good morning. I appreciate all the details. Congratulations on the progress made so far in a challenging environment. I wanted to start with a specific question, bridging from adjusted EBITDA to cash from operations using the midpoint of your guidance. If I recall correctly, the midpoint you are targeting is about $750 million excluding Russia. You mentioned that the tax is approximately $128 million and interest is around $67 million, which I believe are the book numbers we will be using for this tax. Additionally, you noted that costs associated with Georgetown, Riverdale, and one-time transition expenses amount to another $135 million. This brings us to about $420 million, and we need to reach cash from operations of $345 million. Should we consider the remaining difference as working capital, or is there something else I might be overlooking in either the gap or my calculations? I have a couple of follow-up questions as well. Thank you, everyone.

George, you got to take into account the capital spending?

I'm going to focus on cash from operations. I don't need capital spending, yes.

Yes. So it's working capital.

Okay, very good. I wanted to follow up on your comment about Saillat doing a great job of avoiding energy cost increases. Can you share, without disclosing any proprietary information, how that was achieved and what it means for the remainder of this year?

So a couple of things I want to draw your attention to regarding Saillat is that it is primarily an integrated mill.

Yes, sorry.

We primarily generate our own energy from biofuels, which means we don't rely heavily on gas; however, we do consume about 15% of gas. There have been significant price increases in Europe due to the ongoing situations in Russia and Ukraine. The team at Saillat developed a sophisticated model that allows them to adjust energy supplies and consumption, effectively reducing the amount of gas used in operations, resulting in significant savings. Additionally, I want to highlight that one of the major factors impacting costs in Europe has been the carbon gas tax imposed by the EU, which has ranged from €60 to €80. Fortunately, our Saillat mill is a net seller of credits, allowing us to leverage those credits to help offset some of our energy expenses.

That's great, John, but is this a new development, or were you able to generate more credits this quarter that also helped to offset the pressure?

Yes, George, that's not a new development. It's more of the model that they used and implemented in the first quarter in terms of flexing their gas consumption and also knowing where to conserve their energy consumption.

Okay. Last question for me before I pass it on. You mentioned that the bottlenecks in transportation are starting to improve. Can you elaborate on that? Also, you mentioned expecting higher earnings in Europe for the rest of the year in each quarter. Do you anticipate improvements in earnings sequentially each quarter or year-on-year improvements in Europe in each of the quarters? Thanks, everyone.

Hi, George, it's Jean-Michel. Thanks for joining the call. In the US, there has been some improvement in the truck business, particularly in terms of truck availability, even though input costs remain unchanged. We haven't seen similar improvements in rail yet, but the situation for trucks is significantly better and more fluid. Based on our earnings from Saillat, we anticipate year-over-year improvement and expect to see better results each quarter this year.

That's great, Jean-Michel. Thank you. I’ll turn it over.

Thank you.

Our next question comes from Paul Quinn of RBC Capital. Your line is open.

Yeah. Thanks so much. Good morning, guys. Just given the positive demand environment right now and the significant cost pressure, are you or anybody else in the industry anticipating further price increases in 2022?

We don't comment on future prices. But we can't make comments on future prices. But we are realizing in the second quarter price increases that we've announced all around the globe, with the exception of Russia. So, we still have more realization in the second quarter, as you can see in our outlook to come.

Okay. But nobody else has announced the price increase in, say, Latin America or for Europe that we don't have great exposure to, right?

I cannot comment on our competitors. I apologize.

Okay. And then the process to sell the mill in Russia, do you expect that to be done in Q2?

So there's two parts of the process. One is to find an agreement with a potential buyer, and that we think could happen in Q2. Then you have the process to get it authorized through the Russian government, and that's a more complex process, which the timing could be longer than that.

Okay. And then – just lastly on the transition services agreement with IP, what is the ongoing cost of that after the, I guess, the $57 million one-time and transition services? What do we expect to – after that is paid, what's the ongoing amount?

Well, the TSA agreement should end in October. That's what the target date is for us to exit that, and it's about $8 million a quarter.

That's all I had. Best of luck, guys. Thanks.

Thank you.

We have a follow-up question from George Staphos from Bank of America. Your line is open.

Thanks very much. Two for me. Can you talk a bit more about what you're doing on commercial excellence? How much is left in the tank, so to speak? Use whatever cliché or metaphor you want to use. Particularly as regards to Europe. And are you finding your bottom-slicing at all in terms of your customers and SKUs given how tight the market is, or is it truly around some of the products that you said you're rolling out new premiums? Well, you're not rolling them out; you won new premium notebook pads and things like that. If you could give us some color there, that would be great.

So it's all of the above, if I may say George. We are seeing a lot of improvement, but we still have a lot of opportunities. And we're seeing it in different categories. You mentioned SKU rationalization; that's one of them. We're seeing it in product mix. We're seeing it in new product innovation. We're also seeing in terms of business rules with the customers. So we've got a large range of initiatives, which we've started to implement and we're continuing. So I would say we probably have done 40% of the potential still quite some to come.

Thank you for sharing that percentage. I have a quick follow-up regarding what Saillat was discussing. What benefits did the model provide in the first quarter, particularly in terms of avoiding some costs? If you're able to share that information, I'd appreciate it. Additionally, I believe I heard or read correctly that you expect to grow 10% better than the industry in North America. Can you confirm this? Also, how are you establishing your benchmark, which I understand is projected to be up 1.6% for the industry? If I've misphrased anything, please feel free to correct me. Thanks, everyone.

At the Saillat mill, our typical gas consumption was around 15%, and we've managed to reduce it to approximately 9%. This improvement is noteworthy. In North America, we saw a 10% enhancement compared to the market in the first quarter. This demonstrates our success with the right customers and our alignment with them.

Okay. What are your thoughts on the industry? I apologize for that.

I want to recall the industry number, if you give me a few seconds. In North America, it was 2% for the first quarter. If you take all the regions, it was 1.5%. I'm talking about our regions.

Understood. Thanks, Jean-Michel. I’ll turn it over.

Our next question comes from Jonathan Luft from Eagle Capital Partners. Your line is open.

Hey guys. Thanks for taking my question and great results. The first question I'd love to ask you guys is with some of the new products, particularly in Latin America and some notebook and stuff, can you talk about why you're winning that business? Are people shutting down capacity, or do you have a better product? What's happening there?

Good morning, Jon, and thank you for joining the call. It's a combination of factors. Some companies are exiting the market, and we are using this opportunity to develop new products to fill that gap. Additionally, we have created products for segments where we previously had no presence. I must mention that while we haven't managed everything perfectly, given the challenges with the supply chain, we've maintained a consistent level of service. You specifically mentioned Latin America. It's crucial for us to be reliable for our customers, and I believe they recognize that we are committed to being a long-term player in the paper industry. Our customers appreciate aligning with a company that has a long-term vision, which I think contributes to our success in securing new contracts and expanding into new businesses.

That's terrific. And given your comments about the cost advantage you mentioned in Europe, can you maybe talk about what you're seeing in capacity in both North America and in Europe? Are people adding capacity given the profitability or are people taking some capacity out? What are you seeing there?

Recently we've seen, in both in the last two years, in North America and in Europe, quite a lot of capacity sometimes shut down, but a lot also moved to packaging. So from uncoated freesheet to packaging, we have seen no new capacity of uncoated freesheet just dumped or restarted in one paper machine this year. But net-net, still a decrease both in North America and Europe quite a lot.

And Jonathan, this is John. We've said this before, but we're also seeing very tight markets in other paper markets, particularly like in the coated freesheet, which has caused customers to move to uncoated freesheet because of lack of supply of coated freesheets, which has increased demand for our products. So it's not only has uncoated freesheet been shut down or converted, but also coated freesheet and other paper markets that's having an impact. And we're seeing that across all our regions.

Okay. That's good to know.

Another impact to highlight is the situation in Russia. We previously exported from Russia to Europe, but that has now halted, resulting in the loss of that supply due to the circumstances in Russia.

Okay. Got you. And just one last question from me, which is can you maybe talk about inventories and your situation? I mean given your growth relative to the industry, are you building inventories or where are inventories relative to historical norms?

Our inventories are between normal to low depending on the regions.

Okay.

But certainly not building.

Yes. All right. Well, great results, and I’ll turn it over. Thank you so much.

Thank you.

We have a follow-up question from George Staphos from Bank of America. Your line is open.

Hi. Thanks, guys. Last couple from me. And recognizing again you might not be able to share too much here; nonetheless we wanted to ask. First Jean-Michel, can you talk to the type of interested party in Svetogorsk mill? Are you finding interest more from local market purchasers or local investors in the business, or is it really dispersed between Russian and non-Russian potential buyers? And then just last question I had for you is, can you talk at all about how the value return discussions, the priorities may have changed? Can you remind us again how you would think about value return as you obviously delever and what your preference is for increasing buyback versus dividends over time? Thanks, guys, and good luck in the quarter.

So just to ensure I answer it correctly, we are currently in the middle of the process. The situation in Russia is quite complex. Being in this stage, I prefer not to comment too much on it. We will provide updates.

Understood.

Our priorities remain unchanged. We have a consistent long-term strategy that emphasizes deliberation. Given the uncertainty and general nervousness about the economy, we aim to accelerate our efforts on debt reduction, which is our top priority. Once we achieve that, our focus will shift to investing in high-return projects, which we have previously mentioned, and are currently generating significant returns. We would like to implement additional cost-saving measures, although the timing of these projects can be challenging. We are also initiating discussions with our Board regarding the possibility of returning cash to shareholders through buybacks or dividends. While that decision has not yet been made, our immediate priorities are debt repayment, high-return investments, and exploring options with our Board regarding buybacks or dividends.

Thank you very much.

Thank you. I'll now turn the call back over to Hans Bjorkman for closing comments.

Thanks again everyone for joining us today. We truly appreciate your interest in Sylvamo. And we look forward to continued conversations in the coming days, weeks, and months ahead. Have a great day and a great week.

Thank you for participating in Sylvamo's First Quarter 2022 Earnings Call. You may now disconnect.