RYAM Announces Fourth Quarter and Full Year 2023 Results and Provides Improved Outlook for 2024

Net sales for 2023 of $1,643 million, down $74 million from the prior year

Loss from continuing operations for 2023 of $102 million inclusive of a $62 million non-cash impairment, down $75 million from the prior year

Adjusted EBITDA from continuing operations for 2023 of $139 million

Year-to-date cash provided by operating activities of $136 million; total debt of $777 million, a reduction of $76 million

Adjusted Free Cash Flow year-to-date generation of $53 million; Net Secured Debt of $698 million

Remained in compliance with our debt covenants with a net secured debt ratio of 4.2 times

2024 Adjusted EBITDA guidance of $180 million to $200 million expected to drive $20 million to $40 million of Adjusted Free Cash Flow

Rayonier Advanced Materials Inc. (the “Company”) reported results for the fourth quarter and full year 2023.

“Our EBITDA results for 2023 fell short of expectations reflecting soft demand for cellulose ethers products driven by weak construction activity, lower than expected demand in Paperboard and weak pricing in High-Yield Pulp and commodity pulp products. In response to weaker markets, we implemented cost-cutting measures and strategically scheduled market-driven downtime across all segments. Our primary focus shifted to generating free cash flow, driven predominantly by improvements in working capital and adhering to our lending commitments,” said De Lyle Bloomquist, RYAM’s President and Chief Executive Officer. “As a result, we concluded the year with $139 million in Adjusted EBITDA and $53 million of free cash flow and remained in compliance with our original debt covenants with a net secured debt ratio of 4.2 times Adjusted EBITDA.

“With an improving outlook aided by a competitor’s closure, coupled with our sales priority of value over volume, we anticipate better results for 2024. Higher pricing for our key cellulose specialties products, along with lower unit production costs for our High Purity Cellulose business, driven by improved productivity and lower key input and logistics costs, are expected to generate higher earnings for this segment. Furthermore, our new bioethanol facility is expected to commence operations in the first quarter of 2024. Paperboard and High-Yield Pulp are also expected to deliver improved results due to lower costs and higher production due to normalized demand. In total, we project an Adjusted EBITDA of $180 to $200 million and free cash flow of $20 to $40 million in 2024,” concluded Mr. Bloomquist.

Fourth Quarter 2023 Financial Results

The Company reported a net loss of $102 million, or $(1.57) per diluted share, for the year ended December 31, 2023, compared to a net loss of $15 million, or $(0.23) per diluted share, for the prior year. Loss from continuing operations for the year ended December 31, 2023 was $102 million, or $(1.57) per diluted share, compared to a loss from continuing operations of $27 million, or $(0.42) per diluted share, for the prior year.

The Company operates in the following business segments: High Purity Cellulose, Paperboard and High-Yield Pulp.

High Purity Cellulose

Net sales for the year ended December 31, 2023 decreased $23 million, or 2 percent, to $1,313 million compared to the prior year. Included in the current and prior years were $98 million and $115 million, respectively, of other sales primarily from bio-based energy and lignosulfonates. Despite an 11 percent increase in cellulose specialties prices, total sales prices decreased 4 percent during the current year due to a 13 percent decrease in commodity prices. Total sales volumes increased 4 percent during the current year driven by a 39 percent increase in commodity volumes, partially offset by an 18 percent decrease in cellulose specialties volumes. Despite a significant increase in volume in the first quarter of 2023 due to improved customer contract terms, overall sales volumes for cellulose specialties were negatively impacted by significant customer destocking and market-driven demand declines, particularly in construction markets.

Net sales for the fourth quarter decreased $37 million, or 10 percent, to $347 million compared to the same prior year quarter. Included in the current and prior year quarters were $25 million and $31 million, respectively, of other sales primarily from bio-based energy and lignosulfonates. Despite an 8 percent increase in cellulose specialties prices, total sales prices decreased 6 percent during the current quarter due to a 22 percent decrease in commodity prices. Total sales volumes decreased 2 percent during the current quarter, driven by an 11 percent decrease in cellulose specialties volumes, partially offset by a 7 percent increase in commodity volumes. Sales volumes for cellulose specialties were negatively impacted by persistent customer destocking and market-driven demand declines, particularly in construction markets.

Operating results for the quarter and year ended December 31, 2023 declined $59 million and $73 million, respectively, compared to the same prior year periods driven by a $62 million non-cash impairment recorded in the fourth quarter of 2023 as a result of the optimization and realignment of the Company’s High Purity Cellulose assets. This realignment reflects a strategic decision expected to reduce commodity exposure and earnings volatility through the consolidation of commodity viscose production into the Temiscaming, Quebec plant and fluff production into the Jesup, Georgia plant’s C Line and allow the Company to better manage excess capacity of cellulose specialties by operating assets based on current demand for each end market.

Year over year, the higher cellulose specialties sales prices and commodity sales volumes and decreased key input and logistics costs were offset by the lower cellulose specialties sales volumes and commodity sales prices and higher labor costs due to inflation. Also contributing to the year-over-year decline in operating results were $8 million of energy cost offsets in 2022 from sales of energy savings certificates associated with Tartas, France operations, compared to only $1 million in 2023. In addition, the Company earned income on its investment in LTF in 2023 as compared to a loss in 2022.

In the current quarter, the higher cellulose specialties sales prices and commodity sales volumes, decreased key input, logistics and labor costs and the impact of the timing and extent of maintenance outages were offset by the lower cellulose specialties sales volumes and commodity sales prices.

Compared to the third quarter of 2023, the operating loss increased $43 million, primarily due to the $62 million non-cash impairment recorded in the fourth quarter and higher labor costs. Partially offsetting these charges was a 19 percent increase in total sales volumes, driven by a 29 percent increase in cellulose specialties volumes, as demand improved in the fourth quarter and volume increased after the closure of a competitor’s facility, and a 13 percent increase in commodity volumes, primarily fluff. Total sales prices increased 3 percent due to product mix, with near flat changes in both cellulose specialties and commodity prices. Lower key input and logistics costs and the impact of the timing and extent of maintenance outages during the year further offset the loss on impairment.

Paperboard

Net sales for the year ended December 31, 2023 decreased $31 million, or 12 percent, to $219 million compared to the prior year driven by a 13 percent decrease in sales volumes due to customer destocking. Sales prices increased slightly year over year. Net sales for the fourth quarter decreased $12 million, or 18 percent, to $55 million compared to the same prior year quarter driven by 7 percent and 12 percent decreases in sales prices and sales volumes, respectively, due to market-driven demand declines.

Operating income for the quarter and year ended December 31, 2023 decreased $1 million and was flat, respectively, compared to the same prior year periods. Year over year, lower purchased pulp, maintenance and logistics costs and the impact of maintenance and market-driven shutdowns were offset by the lower sales volumes. The current quarter decrease was driven by the lower sales prices and sales volumes that were largely offset by lower purchased pulp costs.

Compared to the third quarter of 2023, operating income decreased $5 million, driven by 1 percent and 3 percent decreases in sales prices and sales volumes, respectively, partially offset by lower purchased pulp costs.

High-Yield Pulp

Net sales for the year ended December 31, 2023 decreased $24 million, or 15 percent, to $136 million compared to the prior year driven by 12 percent and 5 percent decreases in sales prices and sales volumes, respectively. Net sales for the fourth quarter decreased $33 million, or 57 percent, to $25 million compared to the same prior year quarter driven by 37 percent and 34 percent decreases in sales prices and sales volumes. These quarter and year-over-year decreases were due to lower demand.

Operating results for the quarter and year ended December 31, 2023 declined $17 million and $19 million, respectively, compared to the same prior year periods. The quarter and year-over-year declines were driven by the lower sales prices and sales volumes and increased wood costs. The current quarter decreases were partially offset by lower logistics costs.

Compared to the third quarter of 2023, operating results improved $1 million, driven by 3 percent increases in both sales prices and sales volumes due to improved market demand, partially offset by higher key input and logistics costs.

Corporate

Operating loss for the quarter and year ended December 31, 2023 was flat and decreased $1 million, respectively, compared to the same prior year periods. Quarter and year-over-year improvements included lower variable compensation and other benefit costs that were largely offset by unfavorable foreign exchange rates in the current year as compared to favorable rates in the prior year. Additionally, higher costs were recognized related to ERP transformation project expenditures, discounting and financing fees incurred to facilitate working capital enhancements and advisory and professional expenses related to the Company’s senior notes refinancing. Also contributing to the year-over-year improvement were one-time severance costs incurred in the prior year. Compared to the third quarter of 2023, the operating loss was flat.

Non-Operating Income & Expense

Interest expense increased $5 million and $8 million during the quarter and year ended December 31, 2023, respectively, compared to the same prior year periods driven by an increase in the average effective interest rate on debt, partially offset by a decrease in the average outstanding balance of debt. Total debt decreased $76 million from December 31, 2022 to December 31, 2023.

Interest income increased $3 million during the year ended December 31, 2023 compared to the prior year primarily due to the timing of the receipt of the 2027 Term Loan proceeds and their subsequent use in the repayment of the 2024 Notes.

Also included in non-operating other income in the year ended December 31, 2023 was a $2 million gain on a passive land sale and a pension settlement loss of $2 million.

Included in non-operating other income in the year ended December 31, 2022 was a $5 million net gain associated with the monetization of the GreenFirst common shares received in connection with the sale of the Company’s lumber and newsprint assets in 2021.

Income Taxes

The effective tax rate on the loss from continuing operations for the quarter and year ended December 31, 2023 was a benefit of 26 percent and 24 percent, respectively. The 2023 effective tax rates differed from the federal statutory rate of 21 percent primarily due to different statutory tax rates in foreign jurisdictions, U.S. tax credits, return-to-accrual adjustments related to previously filed tax returns and changes in the valuation allowance on disallowed interest deductions.

The effective tax rate on the income from continuing operations for the quarter ended December 31, 2022 was a benefit of 130 percent. The effective tax rate on the loss from continuing operations for the year ended December 31, 2022 was an expense of 4 percent. The most significant items creating a difference between the 2022 effective tax rates and the statutory rate of 21 percent were changes in the valuation allowance on disallowed interest deductions, nondeductible executive compensation, U.S. tax credits, tax return-to-accrual adjustments on filed returns and interest received from tax overpayments.

Discontinued Operations

During the year ended December 31, 2023, the Company recorded a pre-tax gain of $2 million related to a reduction in the rates applied to Canada softwood lumber exports to the U.S. during 2021 and a $2 million loss related to the settlement of a claim pursuant to the representations and warranties in the asset purchase agreement.

During the year ended December 31, 2022, the Company recorded a pre-tax gain of $16 million related to a reduction in the rates applied to Canada softwood lumber exports to the U.S. during 2020. Cumulative through December 31, 2023, the Company has recorded total gains of $40 million related to USDOC administrative reviews, which are included as a long-term receivable within “other assets” in the Company’s consolidated balance sheets.

Cash Flows & Liquidity

For the year ended December 31, 2023, the Company generated operating cash flows of $136 million, which were driven by increased cash inflows from working capital, partially offset by payments on income taxes and deferred energy liabilities associated with Tartas plant operations.

For the year ended December 31, 2023, the Company used $128 million in its investing activities related to net capital expenditures, which included $45 million of strategic capital spending focused on the investment in the 2G bioethanol plant in Tartas, advancement of the Company’s ERP transformation project, which will enhance its operating and reporting systems, and improved cost efficiency throughout the Company.

For the year ended December 31, 2023, the Company used $87 million in its financing activities primarily for the redemption of its 2024 senior notes and repayment of borrowings under its credit facility and other long-term debt, the payment of issuance costs related to new term loan financing and the repurchase of common stock to satisfy tax withholding requirements related to the issuance of stock under Company incentive stock plans. These outflows were partially offset by the net proceeds received from the new term loan financing and borrowings under the credit facility.

The Company ended the year with $199 million of global liquidity, including $76 million of cash, borrowing capacity under the ABL Credit Facility of $118 million and $5 million of availability under the France factoring facility.

In January 2024, the Company amended the 2027 Term Loan to increase the maximum consolidated secured net leverage ratio that it must maintain in the fourth quarter of 2023 and through its 2024 fiscal year. The amendment provides the Company with the operational flexibility to execute its strategic initiatives in 2024. In addition, should the Company exceed the 4.50 to 1.00 maximum ratio established by the original agreement in any of these quarters, it will incur a fee of 0.25% of the principal balance outstanding at the end of the applicable quarter. The Company incurred total fees of $3 million related to this amendment, including $1 million in legal and advisory fees recorded to selling, general and administrative expense in the fourth quarter of 2023, and $2 million in lender fees that will be recorded as deferred financing costs in the first quarter of 2024 and amortized to interest expense over the remaining term of the loan.

As of the fourth quarter, the Company’s consolidated secured net leverage ratio was 4.2 times.

2024 Outlook

In October 2023, the Company announced that it engaged a financial advisor to explore the potential sale of its Paperboard and High-Yield Pulp assets located at its Temiscaming site. The process is ongoing for this strategic review, which is consistent with the Company’s commitment to align its portfolio with its long-term growth strategy and provide flexibility to pay down debt, reduce leverage and minimize earnings volatility.

Excluding any assets sales, the Company expects to generate between $180 and $200 million of Adjusted EBITDA in 2024.

The following market assessment represents the Company’s current outlook of its business segments’ future performance.

High Purity Cellulose

Average sales prices for cellulose specialties in 2024 are expected to increase by a low single-digit percentage as compared to average sales prices in 2023. Sales volumes for cellulose specialties are expected to remain flat compared to 2023 as increased volumes from the closure of a competitor’s plant are offset by a favorable change in customer contract terms in the first quarter of 2023 that is not expected to repeat in 2024. Demand for RYAM cellulose specialties will be mixed. Acetate is expected to experience moderate destocking. Ethers volumes are anticipated to improve albeit at lower than historical levels. Other cellulose specialties volumes will benefit from the closure of a competitor’s facility. Demand for RYAM commodity products remains resilient with fluff and viscose prices expected to improve from the fourth quarter of 2023, however not to the level of realized prices in early 2023. Commodity sales volumes are expected to increase in 2024 as the Company focuses on improving productivity, with fluff volume expected to improve due to higher demand and both viscose and paper pulp sales volume expected to decrease. Raw material input and logistics costs are expected to be lower in 2024. Additionally, the Company expects to commission its bioethanol facility in Tartas, France in the first quarter of 2024. With a gradual ramp up, the Company expects to deliver $4 million of EBITDA from bioethanol in 2024, growing to $8 million to $10 million beginning in 2025. Overall, EBITDA is expected to remain relatively flat in the first quarter of 2024 compared to the fourth quarter of 2023, with a strong finish in the back half of 2024.

Paperboard

Paperboard prices in 2024 are expected to decrease slightly as compared to the fourth quarter of 2023, while sales volumes are expected to improve as production is ramped up to meet improved customer demand. Raw material prices are expected to increase as purchased pulp prices are forecast to increase from fourth quarter 2023 levels. Overall, EBITDA is expected to remain flat sequentially.

High-Yield Pulp

High-yield pulp prices are expected to increase in the first quarter of 2024 as the Company captures the value of higher index pricing from the latter part of the fourth quarter of 2023. Sales volumes are also expected to increase in the first quarter as production is ramped up to meet customer demand. Overall, the Company expects to generate positive EBITDA from this segment in the coming quarter.

Corporate

Corporate costs are expected to be flat or increase slightly in 2024 as the Company completes the final year of its multi-year ERP implementation. The project will enhance the Company’s operating and reporting systems and is expected to drive additional improvements and efficiencies beginning in 2025.

Biomaterials Strategy

As previously announced at the Company’s Investor Day in October 2023, the Company is investing in new products to provide both increased end market diversity and incremental profitability. These new products will target the growing green energy and products markets. The commissioning of the bioethanol facility is a significant milestone towards the Company’s goal of generating $42 million of annual EBITDA from these new products by 2027. The Company is progressing several other initiatives and expects to make announcements on the progress of these initiatives throughout the year.

For the full fourth quarter results, click here.

About RYAM

RYAM is a global leader of cellulose-based technologies, including high purity cellulose specialties, a natural polymer commonly used in the production of filters, food, pharmaceuticals and other industrial applications. The Company also manufactures products for paper and packaging markets. With manufacturing operations in the U.S., Canada and France, RYAM generated an estimated $1.6 billion of revenue in 2023. More information is available at www.RYAM.com.

Contact:

Ryan Houck – Media Contact – (904) 357-9134

Source: Rayonier Advanced Materials, Inc.