Rayonier Advanced Materials(RYAM) - 2023 Q4 - Annual Results

Financial & Operational Highlights The company's 2023 performance fell short of expectations, leading to cost-cutting and debt compliance efforts, while 2024 anticipates improved Adjusted EBITDA and free cash flow driven by strategic initiatives Full Year 2023 Performance Summary RYAM's 2023 financial results did not meet expectations, primarily due to soft demand in cellulose ethers, Paperboard, and weak pricing in High-Yield Pulp. In response, the company focused on cost-cutting and strategic downtime to generate free cash flow, successfully remaining in compliance with its debt covenants. The year concluded with $139 million in Adjusted EBITDA and $53 million in free cash flow - 2023 EBITDA results were below expectations due to weak demand in construction-related cellulose ethers, Paperboard, and poor pricing for High-Yield Pulp[3] - The company implemented cost-cutting measures and market-driven downtime, shifting its primary focus to generating free cash flow and adhering to lending commitments[3] Full Year 2023 Key Financial Metrics | Metric | Value (in millions) | | :--- | :--- | | Net Sales | $1,643 | | Loss from Continuing Operations | $(102) | | Adjusted EBITDA | $139 | | Adjusted Free Cash Flow | $53 | | Total Debt Reduction | $76 | - The company remained in compliance with its debt covenants, ending the year with a net secured debt ratio of 4.2 times Adjusted EBITDA[3][5] 2024 Outlook The company anticipates improved results in 2024, projecting an Adjusted EBITDA of $180 to $200 million and free cash flow of $20 to $40 million. This positive outlook is supported by a competitor's closure, a strategy of prioritizing value over volume, higher pricing for key products, lower production costs, and the expected commencement of its new bioethanol facility in Q1 2024 2024 Financial Guidance | Metric | Guidance Range (in millions) | | :--- | :--- | | Adjusted EBITDA | $180 - $200 | | Adjusted Free Cash Flow | $20 - $40 | - Key drivers for the improved 2024 outlook include a competitor's closure, higher pricing for cellulose specialties, and lower input and logistics costs[4] - The new bioethanol facility is expected to begin operations in Q1 2024, contributing to improved earnings[4] Financial Performance The company reported a significant net loss in 2023, driven by decreased sales and operating losses across key segments, particularly High Purity Cellulose Consolidated Results For the full year 2023, the company reported a net loss of $102 million, a significant increase from the $15 million net loss in 2022. Net sales decreased from $1,717 million in 2022 to $1,643 million in 2023, while operating results shifted from a $26 million income to a $65 million loss, largely driven by performance in the High Purity Cellulose segment Net Sales by Segment (in millions) | Segment | Q4 2023 | Q4 2022 | FY 2023 | FY 2022 | | :--- | :--- | :--- | :--- | :--- | | High Purity Cellulose | $347 | $384 | $1,313 | $1,336 | | Paperboard | $55 | $67 | $219 | $250 | | High-Yield Pulp | $25 | $58 | $136 | $160 | | Total Net Sales | $422 | $500 | $1,643 | $1,717 | Operating Income (Loss) by Segment (in millions) | Segment | Q4 2023 | Q4 2022 | FY 2023 | FY 2022 | | :--- | :--- | :--- | :--- | :--- | | High Purity Cellulose | $(49) | $10 | $(42) | $31 | | Paperboard | $8 | $9 | $37 | $37 | | High-Yield Pulp | $(5) | $12 | $(3) | $16 | | Corporate | $(15) | $(15) | $(57) | $(58) | | Total Operating Income (Loss) | $(61) | $16 | $(65) | $26 | - The net loss for the year ended December 31, 2023, was $102 million, or $(1.57) per diluted share, compared to a net loss of $15 million, or $(0.23) per diluted share, in the prior year[6] Segment Performance: High Purity Cellulose Full-year net sales for High Purity Cellulose decreased by 2% to $1,313 million, as an 11% price increase in cellulose specialties was offset by a 13% drop in commodity prices and an 18% decline in cellulose specialties volumes due to customer destocking. Operating results fell by $73 million year-over-year, significantly impacted by a $62 million non-cash impairment charge in Q4 related to asset realignment - For FY 2023, net sales decreased by $23 million (2%) due to a 4% decrease in total sales prices, despite a 4% increase in total sales volumes[8] - Cellulose specialties sales volumes were negatively impacted by significant customer destocking and market-driven demand declines, particularly in construction markets[8][9] - Operating results for Q4 and FY 2023 declined by $59 million and $73 million respectively, driven by a $62 million non-cash impairment charge in Q4 from the optimization and realignment of assets[10] Segment Performance: Paperboard Paperboard net sales for 2023 decreased by 12% to $219 million, driven by a 13% decline in sales volumes from customer destocking, while sales prices saw a slight increase. Operating income for the full year remained flat compared to 2022, as lower input costs offset the impact of reduced sales volumes - FY 2023 net sales decreased by $31 million (12%) primarily due to a 13% decrease in sales volumes from customer destocking[15] - Full-year operating income was flat compared to the prior year, as lower purchased pulp, maintenance, and logistics costs were offset by lower sales volumes[16] Segment Performance: High-Yield Pulp The High-Yield Pulp segment experienced a challenging year, with 2023 net sales falling 15% to $136 million due to 12% and 5% decreases in sales prices and volumes, respectively. Operating results declined by $19 million year-over-year, driven by lower sales and increased wood costs - FY 2023 net sales decreased by $24 million (15%) due to a 12% decrease in sales prices and a 5% decrease in sales volumes[18] - The year-over-year decline in operating results was driven by lower sales prices and volumes, along with increased wood costs[19] Corporate Expenses Corporate operating loss was flat for the fourth quarter and decreased by $1 million for the full year 2023 compared to the prior year. Improvements from lower variable compensation were largely offset by unfavorable foreign exchange rates and higher costs related to an ERP transformation project and senior notes refinancing - Corporate operating loss was largely flat year-over-year, with lower variable compensation and benefit costs offset by unfavorable foreign exchange rates and higher project-related expenses[21] Other Financial Items, Cash Flow, and Liquidity Interest expense increased in 2023 despite debt reduction, while the company generated positive operating cash flow and maintained global liquidity, amending its term loan for flexibility Non-Operating Items and Income Taxes Interest expense rose by $8 million in 2023 due to higher interest rates, despite a $76 million reduction in total debt. The effective tax rate for the year was a 24% benefit, differing from the 21% federal statutory rate due to foreign tax rates, U.S. tax credits, and changes in valuation allowances - Interest expense increased by $8 million for the full year 2023 due to a higher average effective interest rate, partially offset by a lower average debt balance[23] - The effective tax rate on the loss from continuing operations for FY 2023 was a benefit of 24%, differing from the statutory rate primarily due to foreign tax rates and U.S. tax credits[26] Cash Flow and Liquidity The company generated $136 million in operating cash flow for 2023, driven by working capital improvements. Total debt was reduced by $76 million during the year. The company ended 2023 with $199 million in global liquidity, and in January 2024, amended its term loan to provide greater operational flexibility 2023 Cash Flow Summary (in millions) | Activity | Cash Flow | | :--- | :--- | | Cash from Operating Activities | $136 | | Cash used in Investing Activities | $(128) | | Cash used in Financing Activities | $(87) | - The company ended the year with $199 million of global liquidity, comprising $76 million in cash and $123 million in borrowing capacity[33] - In January 2024, the company amended its 2027 Term Loan to increase the maximum consolidated secured net leverage ratio, providing more operational flexibility for 2024[35] 2024 Outlook and Strategic Initiatives The company is exploring asset sales and projects improved 2024 Adjusted EBITDA, with segment-specific growth strategies and a focus on biomaterials for long-term profitability Strategic Review and Guidance RYAM is exploring the potential sale of its Paperboard and High-Yield Pulp assets at its Temiscaming site to reduce debt and earnings volatility. Excluding any asset sales, the company expects to generate between $180 and $200 million of Adjusted EBITDA in 2024 - The company is conducting a strategic review for the potential sale of its Paperboard and High-Yield Pulp assets located at the Temiscaming site[37] 2024 Adjusted EBITDA Guidance | Metric | Guidance Range (in millions) | | :--- | :--- | | Adjusted EBITDA | $180 - $200 | Segment Outlook for 2024 For 2024, High Purity Cellulose anticipates a low single-digit increase in specialty prices with flat volumes, and the new bioethanol facility is expected to contribute $4 million to EBITDA. Paperboard expects slightly lower prices but improved volumes. High-Yield Pulp forecasts increases in both prices and volumes, expecting to generate positive EBITDA - High Purity Cellulose: Average sales prices for cellulose specialties are expected to increase by a low single-digit percentage, while sales volumes are expected to remain flat compared to 2023[39] - Paperboard: Prices are expected to decrease slightly, while sales volumes are expected to improve as production ramps up to meet demand[40] - High-Yield Pulp: Prices and sales volumes are expected to increase in Q1 2024, with the segment anticipated to generate positive EBITDA[41] Biomaterials Strategy The company is actively investing in new biomaterial products to diversify its end markets and increase profitability, targeting the growing green energy sector. A key goal is to generate $42 million of annual EBITDA from these new products by 2027, with the commissioning of the bioethanol facility marking a significant first step - The company aims to generate $42 million of annual EBITDA from new biomaterial products by 2027[44] - The commissioning of the bioethanol facility is a significant milestone towards this goal, expected to contribute $4 million of EBITDA in 2024 and grow to $8-$10 million annually starting in 2025[39][44] Appendices: Financial Statements & Non-GAAP Reconciliations This section provides comprehensive unaudited consolidated financial statements, including statements of operations, balance sheets, cash flows, and reconciliations of non-GAAP measures Condensed Consolidated Statements of Operations This section provides the unaudited consolidated statements of operations for the fourth quarter and full years of 2023 and 2022, detailing net sales, costs, operating income, and net income (loss) Condensed Consolidated Balance Sheets This section presents the unaudited consolidated balance sheets as of December 31, 2023, and December 31, 2022, outlining assets, liabilities, and stockholders' equity Condensed Consolidated Statements of Cash Flows This section contains the unaudited consolidated statements of cash flows for the years ended December 31, 2023, and 2022, showing cash flows from operating, investing, and financing activities Sales Volumes and Average Prices This table provides a breakdown of average sales prices per metric ton and sales volumes in thousands of metric tons for the High Purity Cellulose, Paperboard, and High-Yield Pulp segments for recent quarters and full years Reconciliation of Non-GAAP Measures This section provides detailed reconciliations of non-GAAP financial measures to their most directly comparable GAAP measures, including EBITDA and Adjusted EBITDA by segment, Adjusted Free Cash Flow, Adjusted Net Debt, and Adjusted Income from Continuing Operations