RYAM - Earnings call transcript Q3 2017 | Rayonier Advanced Materials Inc.

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Operator

Greetings, and welcome to the Rayonier Advanced Materials' Third Quarter 2017 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Mr. Mickey Walsh, Treasurer and Vice President of Investor Relations for Rayonier Advanced Materials. Thank you.

begin. may You

Mickey Walsh

and Advanced Melissa, webcast. everyone. again Welcome Thank XXXX good third Rayonier Materials and quarter to you, morning, earnings call

Joining and are and me Vice President Financial call our and Senior on President Strategy. Finance Chairman, Officer Paul and Chief Ruperto, Frank Boynton, Officer; of our Chief Executive today's

we presentation statements you issued website release yesterday pursuant I rayonieram.com. Our that at Safe of are today's like and Harbor forward-looking and federal would earnings remind will afternoon to the materials securities were to made in presentation, our include available provisions on laws.

release useful At and these believe measures to non-GAAP an comparable opening measures. as would Paul of Pages certain of reconciliation materially measures XX also not included of investors non-GAAP presentation presentation Slide on X A cause over are as actual Our reference to may alternative the with their call material. I presentation. to through for most considered earnings may the measures should measures Slide provide our GAAP to directly noted X of referenced be on financial Today's differ to we this on well are from the non-GAAP some time, SEC There our with also GAAP remarks. but information results financial which like XX management We turn financial of his forward-looking filings will factors our as presentation the measures, statements our make. material. for

Paul Boynton

it acquisition Afterward, of initiatives both on September. that provide loss Frank specialties into as effectively review cellular current third significantly were strategic to I able shut impacted facilities we business. on including update adverse permanently. to before quarter start highlighting next pressure early which the Yesterday on am impact quarter our in loss key down start continue provide to going afternoon off to We volumes our reported the and Thanks, over were to turning fourth call production the Mickey, recent results. an and a headed Tembec outlook will I shifted year morning, earnings quarter of today's week activities and was our financial will manufacturing commodity everyone. good hurricane but sales our by and for certain over the

but can As in rare Northeast that you Georgia imagine and run storm. the it purposely mandatory to parts Florida activities we impossible for manufacturing discontinue it's made us of during evacuation

ahead an had the the themselves result steps shutdown allow of a our of to our employees safely virtually and our protect orderly impact. employees no our also we sites storm to prevailed and and Thankfully their our families. to As implemented operations take and families safeguard assets to personal necessary

of October $XX one our for specialty In news revenues we customers addition will $XX incidence further to expect an products received hurricane, in fourth that by operational million the to large impact our we of their to XXXX that demand cellulose quarter to which in them an had estimated million. cause the reduce

them support deliver guidance. through process of high-end the companies. mitigate two on impact were both working the their original on we with to to these track closely and are events customer on our upset We this to Absent

million free forma However now result approximately cash to EBITDA adjusted million as $XXX million. pro we and to a XX flow XXXX be expect for $XX to be

our on make excellent progress four of growth. to strategic pillars continue We

cash steady pace initiative our year of and transformation cost is pillars. generation $XX for deliver of flexibility forecasted to Our other to improvements make strategic financial into our provides on investments cost million our the target

purchase Tembec. significantly towards have our of advanced Specifically within our acquisition pillar, we closing

on over thereafter. that ahead turn let Frank approvals be weeks received our an it anticipated to in and the closing current go the nearly and shortly outlook markets have information first consents and and but on final our acquisition to coming pending I'll expected review all the me financials. to required We items additional provide Later our

Frank Ruperto

Thank you, Paul.

Let's third Sales from totaled up increase and quarter by a highlights third the the look quarter CS XXXX. quarter. X in review $XXX CS volumes. higher sales million to volumes for for primarily our lower at decline financial The X% commodity slightly offset was by driven X% Slide prices

$X XXXX was quarter for $XX pro third months million volumes forma As in million Year-to-date Operating the probably maintenance the quarter quarter planned million operating included expenses facility $XX was months. and to every a for related lower while $XX income occurs reminder $XX XX million was was income the X% third the excluding acquisition the million third in income $XX months. below which X% income decline driven for operating compared nine by prior X% of a XXXX CS of the volumes. slightly first commodity for XXXX. year lower quarter pro nine Fernandina CS of were outages $XXX Sales million period the forma XXXX for operating million prices

and and price quarter volume the income are operating six. analysis and Our statistics forma provided year-to-date pro and on relevant for variance slides five

the income negative price on the and a X sales on prices results by had impact million $XX to million five, no shown sales months. X the commodity improvements quarter quarter pricing and impacted while by higher third impact negatively added year-to-date nine mix million. As primarily on slide driven operating Volumes

viscose for our volumes percentage XXXX revenue nine As you the discrete the see month issues of a prior to CS the products year timing can XX,XXX tons at tons commodity due volumes and facilities. down while due period from on primarily recognition decreased greater production were slide of six to

discrete down volumes we to CS our million as on Back the operational year-to-date the our limiting mix our our compared viscose higher Irma full-year more raw of page at be products the major production facilities. X% a Commodity Irma increased impact caustic expected be at own we the inflation material to year an X% soda for five customer Hurricane the issues towards expect issues prior impacted periods. with and $XX production incident approximately costs shift quarter majority down account volumes to by income unfavorable fourth shipments. of the discrete quarter the particularly cost in together full impact. For and by are impacted and Hurricane for the Hurricane Irma from operating

the usage and these project the results Cost to new reflect help wood for development. the customer investments Additionally provide incurred driven professional costs make well strategic growth solid and optimization. incurred including sourcing benefits to as savings procurement continue in chemical organization product companywide transformation offset increases notably fees strategic for in a as

improvements XX putting us months savings on track first cost million seven, nine shown for slide through As the captured we have million on in XX approximately XXXX. of in

our XXXX strategic project forward XX a additional to have is investment portion The Looking we material target. to of transformation provide cost cost sourcing an these savings. million expected in

unfavorable to nine depth Lastly for period million on scale, compensation we increase expertise slide our team. was R&D not other by five as $X to due the month of and development and the costs stock investments related increased SG&A and new product

focused organization. cash remain also We on the driving flow throughout

As let the without $XXX year. all reduced the $XX since cash existing closing the million we expense loans. million call out XXXX. place as debt $XXX of $XXX me and shown subsequent interest nine of third quarter in committed to utilize cash million used we the acquisition turn any reduce nine by of of to point this through the able first to beginning we the to Tembec repay acquisition. was term on and of our of end ahead back cash operating to flow Paul. over of funding million With net Quarter on months flow predominantly laid of the financing of close slide cash adjusted million free were for Also our generated $XX risk to slide to At eight the

Paul Boynton

Thanks.

market we are Turning ethers, our see to of outlook filtration tire most continued our markets to strong should in growth Slide and opportunities. cord for XX positive signs and continue segments provide end

of supply highlight the quarter to on in continued so tobacco that one grow on our Tembec segment such we fourth growth With and and the which quarter demand aggressively combined higher identify our due close midyear position markets organization new announcements. to apply company outside Tembec a seamless progressing off financial specialties. and ethers from pressure combination within as greater we of assets into current such materials’ markets The are base strong the overall acquisition pre business in our remain of of ethers Materials supported has of challenges diversifies benefit flat many of teams closing. strengthened production are to where the and we above large has and customers business work participate Advanced growth remain significantly and the have won't through diversification and lows settled has cost transformation excess end ideas to close viscose the working while us impact including to the acetate aligning best for company companies in putting integration visible provides tow demand solid the is will this from remains track company leadership across the operating the expectations capacity Commodity new Separately chain and fully as the remain on been very performance. the the cellulose markets need segment. be been the from lower a servicing. competitive. entire acquisition that see on one the and In to both also processes pricing to ensure attractive broad well should and capacity, given planning much nicely there pricing the allows tow of have market acquisition costs under its absorbent of to synergies in The its acetate name processes Rayonier diversify event and to changes The

We effectively realize quickly past abundant exceptional to I many is I combination the and bring. the anxious as know closing opportunities to the possible. of months and am integrating gotten to employees have look Over forward and Tembec will the few Tembec's

a up February. call With acquisition call questions. the the on expect to next We further that, provide our the update on after for open to like earnings I'd closing in

Operator

question. the [Operator Instructions] with of comes from John question Please of Babcock proceed line first Our Bank America/Merrill your Lynch. with

John Babcock

was production there little Just ambiguous? start I wanted a I wondering a the about bit that you issues with if color since could little you provide out was to talked

Paul Boynton

always some work have not variety just these production Yes, our to future. production. of We’ve in on had that but is single continue one we don't we are issues the ones one them affected the think small quarter. us or through single we've one those to areas behind like a There

John Babcock

of to any quantify there this? way the impact Is

Paul Boynton

somewhere period We I you and the quarterly a see cost small portion between it would the $X million it's look at it $X that say from million. in to time, nine-month in of time increase and

John Babcock

that’s impact? included like hurricane in not And any

Paul Boynton

No.

John Babcock

the you then question was cetera you had issues hurricanes talk kind next year, particularly to of that you was regards the those for wondering you could obviously from down I and factors et well? mean driving as Then the I could break declines about mentioned if I what's I don’t now with expect customer but like the the volume if those the

Paul Boynton

that that haven’t issues at is gauge for announced and think you can CS from a that for separately overall our pricing Yes, our $XX where some customer - impact so will good that got we the that give relatively broken we've out that look what of is. you would tell business million million to of revenue I number I $XX you we’ve

well million we a of obviously of of production customer hurricane as some from the issues think well. end of the of $X impact will then impact sales issues revenue and and say the some timing the Irma as out force I then year did EBITDA

and will the said XXX of down roughly year. of closer QX commodity at full means are so the year will that volumes be X% volumes be be you we tons originally beginning key commodity volumes XXX,XXX those at X% if in down to for XXXish and year around will volumes the to had So it CS be drivers XXX will roughly so change the the look versus that

John Babcock

year? question bit forward-looking that contracts more just wondering was guess ask could I you guess of little if talk I your And I I often you a and then want about the next is of to I intent, while wondering some but coming negotiate others know below customers and have big you have any this have any if kind big you may you to that I expertise, that up but you have also kind with realized four

Paul Boynton

the John constantly year we're throughout end. contracts renewing and at particularly updating year

on. So the is but variety there now, working the a - sure I quite team right am is I team is know

CFC and CFC three out there, we XXXX. the ones mentioned big out report and into Daicel future and currently through see Eastman, XXXX the and Eastman and can Daicel those You that through that you run

and ongoing, working is any modifying updating already always changing or to either that on don't interest on customer we’re our but can are so add So, there that else you basically I those know. color and interest nothing

John Babcock

it there. And sense a in the I before this last a am volumes, thinking pricing over. that the rather, reduction of because the it’s I with or fairer question is be like I sounds stay verify change just more turn little to I get had with but want issues customer going correctly, to about that mix

to that see I you say, year you decline mean next CS difficult for make that? a we know could further think year because little does we bit that As next in think of should pricing comps more

Paul Boynton

February John. at year's next on guidance give we’ll think our I call

and on the losing of the to CS pressure CS. those Just certainly, issues clarify customer we’re

that so therefore pricing. and our so pricing, overall so CS mix to a hurts is our our impact And negative

think towards So, just next looking is call. yes you’re have for I flavor to the going the wait

Frank Ruperto

I we see year would remember for add just this and previous John we it on you X% and And mix CS first seeing you're quarters the was that this that's in would down went is in as more the quarter. if said much that improve what pricing quarter down

John Babcock

the rate? Helped by acetate reduction

Frank Ruperto

a say months mix would we of lot more is this overall, had higher-end first not we in year lower had and I CS that. end No, mix. in the the CS Which the six of

John Babcock

side I to so an getting reduction would have there? because that so a significant volume going And be issues that's acetate of acetate kind out the doesn't is the impact there there you’re primarily customers under mean

Paul Boynton

I overall wouldn’t acetate in hard I read the wouldn’t into read CS and so that in, break at the anything it We it’s mix. mix to part. look all

Frank Ruperto

some X% specialties we've have XXXX. that pricing and gone John of guided Overall your in

on of right that’s real focusing kind issue I for not we a and So track think you are on should that.

Operator

of America/Merrill with Our next Spitz with proceed Roger question of from Bank your line comes from question. Please Lynch.

Roger Spitz

impact is volume lose you you're the much or when How just always more what fluff? commodity was a viscose, due from of viscose the fact just facility and capacity you when sales lower to producing the that the did produce to fluff going switchover issue hit was than

Paul Boynton

you absorb over Roger, it's out. right, product, the rerun slower so run material have that get ladder our would you viscose, to when we tons so we when have than switch fewer

higher levels viscose XXXX this are than that’s move did We than in year why we’re fluff actually profitable running us. more of it’s we for

And I fluff interest still viscose commodity so, were were even they door. get we viscose our though we of despite less be, the it's our with to fact run actually majority commented prices above and in going earlier volumes the the that, it thought out what to

Roger Spitz

the or these the you on Do inventory hand sounds your customer CS backup in expect large any of down perhaps it impact they your you already saying Irma had running are from outage, XXXX and/or customer either running like QX hurricane the just CS? that that is or use operations already

Paul Boynton

we hurricane lose the may has of amount, years being bit quarter. the of said impact, think the all regard to $X in Frank little out small So, fourth With the we of from a million. neighborhood of in customer the mentioned contained just is Irma that we first that

are X. So, January and think we living, so are we to that’s back normal we

Operator

with Dillon Vertical Research line proceed comes Chip next with of the Our question Please your questions. from Partners.

Salvator Tiano

in for Chip. is Salvator This filing Tiano

well bit it our third will million couple cost hurricane I QX impact. more expecting have was. need to from a volume Of towards weighted It the we direct Just front, the of the the had least seems XX so some that quarter EBITDA little than at given you the think majority. on questions front are from as

bit, So can it how doubled that inventory down that did didn’t you like describe, breakdown, went when sales perhaps little looks low happen.

Paul Boynton

costs inventory that's loss because cost then EBITDA a higher to you roughly it's the the issues quick so remainder million And the in and can had between $X the absorbing loss quarter built the really the that's We the associated give Salvator. producing total of million in the both $XX sales. fixed shutdown with said cost of We not roughly I production $X P&L. startup. breakdown is volume. and of right and sales million

Operator

next your A. with Please with Our Chercover Steve from of D. Davidson. comes question question. line proceed the

Steve Chercover

relationship So, there therefore goodwill customer be first large forward? of negotiations accommodate all going acrimonious, to it not suggested could your things but our with for and your I'm and make working more you're hard harmonious wondering operational disruption if some their could

Paul Boynton

Steve as we customer try best back, a are to years solid they there, have. they the and you long a past out, know suppliers great had public we be good got dispute had we’ve relationship couple we'll a

we’re to interest forward, and have that we’re with further to hope them flexible earn So no, it’s our that relationship go it. but with a and always we right we good being to looking them and working Steve proud

Steve Chercover

is want believe and that on customer And producers other significant are is - then comment getting the we’ll impact player in I'm there couple former merger are but whatever any to you? with about sure so talk I moment call if tow hitched might respect customers, not current that one you and a a or how so Tembec married acetate to of a was it, the there there

Paul Boynton

to and go far I Look anybody forward. growth so look Celanese participating we past, that in who folks been terms as in as there a them new underrepresented company we if with and after report an we who that combined to exactly great in look as say out is of forward share are solid to as But where they combining opportunity, we today. stand Both at would in our know - we of couple we there. out the usually you’re ours are Blackstone are Obviously, don't referring customers have business. refer which

Steve Chercover

to And Tembec's and deal? that finally it of then are than businesses you is announced when first specifically market their stronger lumber pulp the fair some maybe say today

Paul Boynton

that's strong we would right such as on in now, a their challenge positive business true, at more they until close. way. very we even high obviously an lumbers is participate the some market are is you very newsprint say update little look But yield and areas I if don’t give pulp strong in, actually

we of So their when the at than stronger is in beginning it at business the year. looked

on that to So, and pleased that we’re yes we’re see to have excited board.

Steve Chercover

is the want if one what forgive me, Last just but should up? starting of from know I status I me LignoTech,

Paul Boynton

for right track. It's asking. thanks No, on

in that We have communicated it will start-up XXXX. midyear

the and right cost so it. So right that have now on move forward on projects are excited timing, we're on right with the board to and

Operator

Quinn next Paul comes from RBC Our question with Capital of proceed line Markets. your Please question. with the

Paul Quinn

capacity couple on those see where could help you excess Were excess just understand a talking is I'm capacity trying others from you that Just to the here. you - yourself not that maybe lie? understand outlook the me excess of and others from capacity especially that's you questions but about acetate in marketplace where

Paul Boynton

it I rates have production to whether have and current area Well one for run segment the are attractive that. to again or - trading area remains up they capacitated bottom another therefore position it its the they industry don't like who a in maybe the that think they and had. greater there wish attractive folks that’s line, just makes What from

the here pressure that on we interesting for that to to which other not it changing all to this actual it see but it, of that move is referenced this a particularly market negatively way continue into. stabilize kind us of we the our the into in lot have very sales years. worked issues to demand out that's that them makes about buildup very given just it's for think makes see of very other competitive there away of we opportunity we come And flat for just And been few so dramatically either. out China positive. a is best there dynamics talked players been it's a of customers position. don't market and continue system the seems most We have inventory So growing the having a so lot of Paul a at a attractive

positive into there therefore and to some there's So but see it’s move just is. we’re well, as stability continue and to folks it, attractive trying it out going it just what remains to

Paul Quinn

has side Then study increases and bounce you price then if almost your saw where that do this was back QX bounce could your the flip from maybe lows where from seeing that market sort and as your in back plus cloudy near-term I give also by goes comment I the I going and over us guess side? you outlook surprised the on I'm absorbent monthly

Paul Boynton

we First think that the smart, We for of all nice we market. that with of right. sell this growing along can see at grow rayon really linter year. think X% long-term some market product goes commodity lot China. in an to represents attractive on in We the supply a constraints us side of X% there. segment of supply textile it market into a particularly that producers from cotton to see continues pressures the a We X%, environmental traditional is There

we actually an into And I glad that a for actually market that we it’s lower new because that up high starting product for now the essentially So are fiber of market overall position. we moving [indiscernible] we you view today am platform platform a call have us. quarter attractive cost market the product lined quality but the for make this we a much same it's product and as in

be would that positive for us EBITDA So going forward.

see segment above a it’s absorb you our commodity an expectations. I materials from market So something perspective. Yes, expectations interesting referenced

there. it announcements that You we upward this thought if the some come and we of - most you we And pressure as folks did and under far year as than anticipated. resilient more even of beginning mentioned market had remember would the who out they year into back last capacity track than so segment

including it it call week yes steady other. this by could So announcements up be we

a well remains market as looking in positive so direction. So are markets good it yes both a commodity us for

Paul Quinn

report is going as sales others to quarter ideas same and report but do some there quarter they that any within to lastly, the just how on your mean can to say to mix your you that you’re commodities in And bucket? commodity monster specialty are acetate and CS the a whether going we’re a hood merge Tembec are next to have plus as well specialties, ethers to in so expect and leave of they I going it have we

Paul Boynton

You should will we that's anticipate there that put our change cellulose it but thinking. the take effectively and category current that’s the so spec, specialty current could thinking into it

Operator

the with your Our Instructions] line comes next and [Operator question. Sidoti question of Dan from Jacome Company. with Please proceed

Dan Jacome

question sounded two the announced is your on really of that this that still transaction Just the think at when Tembec you just May. you for small case? you with on answer question confirm know Tembec, Steve’s I feeling already more, on far I but all want Tembec changed the pretty sawmill I positive hasn't in

Paul Boynton

commitment Yes We've those positive facilities made to assets cash. a all and are run their absolutely. really producing

more And productive. got so them to in they've some making even opportunity we also investment for think

going is businesses Obviously our part to So always forward our course. going as as forward have as going to we forward whole to we forward. run company this those of of we’re those to continue portfolio at look them. But plan having portfolio. any everything and run look we’ll were again of you Can a move

Dan Jacome

maintenance you’re mean to own CapEx much be remind bring any CapEx were of deal as up discretionary does the you much forward inheriting from the Tembec making I follow us growth they going CapEx think be on? how as to going how maintenance CapEx just can going this step and or those may some going you in it’s their close require don’t making I much kind can't it were they you sawmill, all I as to remember that be are but company think are for those I

Paul Boynton

have looked of Canadian we historically million and they've line. CapEx Yes, across cash I'd $XX broad improvement the some in the say business the With entity. flow projects maintenance combine their roughly of generation

our and will as we and well of enhance for think the to includes sawmill. position that projects the mills, assets more as strategic significantly competitive I invest look

of So is going to place position across our have improve be to of we best invest and a is the and the capital, where profitability to competitive at board and we’ll dearth every deploy think opportunities we look each all see there but the of to plenty and one say assets. don't the opportunities,

Dan Jacome

Last deal the of does board maybe have this answer something if more would to closes the overall one, you it steady on the XXXX? stock of closing you I guess dividend volatility be as has in for to the things and this be platform, common asking or closer that may amenable you your can longer-term maybe am at you don’t and if but I board nature get the looked if transaction reduce

Paul Boynton

our look as management we with Every and the at team allocation board. asset allocation, time. cash all talk obviously flow Yes, time we a

the business, are priorities find our flow cash and these deleveraging think on those in is I to focus two key near-term the taking that we can then from advantage of high that. return boost projects

find down sometime in advantage road, but move that what another then the number fundamentally As future. Tembec, look times we'd a we we we’ll we to get more and like said of the to do leverage down like we take is like opportunity the of if

Operator

are Boynton final to any remarks. Mr. you. questions. no the like turn to you I'd Thank further for there back floor

Paul Boynton

today. thanks Great, And as joining look thanks move timely you in forward. on Melissa. everyone day. for manner We forward great our Have a progress us updating we a to

Operator

today's concludes This you. Thank teleconference.

may at your you this disconnect Thank participation. lines your You for time.

Rayonier Advanced Materials (RYAM) 2 Nov 172017 Q3 Earnings call transcript