Rayonier Advanced Materials Inc. (RYAM) Q1 2016 Earnings Report, Transcript and Summary

Greetings, and welcome to the Rayonier Advanced Materials First Quarter 2016 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief and question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mickey Walsh. Thank you. You may begin. Mickey Walsh - Vice President-Investor Relations & Treasurer: Thank you, and good morning. This is Mickey Walsh, Treasures and Vice President of Investor Relations. Welcome to Rayonier Advanced Materials 2016 first quarter earnings call and webcast. Joining me on today's call are Paul Boynton, our Chairman, President, and Chief Executive Officer; and Frank Ruperto, our Chief Financial Officer. Our earnings release and presentation materials were issued yesterday afternoon and are available on our website at rayonieram.com. I would like to remind you that in today's presentation, we will include forward-looking statements made pursuant to the Safe Harbor provisions of federal securities laws. Our earnings release as well as our filings with the SEC list some of the factors which may cause actual results to differ materially from the forward-looking statements we may make. They are also referenced on slide two of our presentation materials. At this time, I would like to turn the call over to Paul for his opening remarks. Paul G. Boynton - Chairman, President & Chief Executive Officer: Hey, thanks, Mickey and good morning, everyone. I'll start today's call with highlights of the quarter before turning it over to Frank to review our financial details. We got a solid first quarter and we made a lot of progress on our two key strategic initiatives. First, reducing cost, which is part of our broader Transformation Initiative, and second, driving innovation. These initiatives will enhance our long-term competitive position. Specific to our Transformation Initiative, we are rapidly advancing towards our three-year $75 million to $90 million goal. For 2016, we are on track to achieve $25 million of newly identified transformation cost improvements. When coupled with the carryover from savings generated by our actions taken in 2015, we are targeting cost improvements of $40 million to be realized in 2016. Additionally, lower raw material input and transportation costs, provided a moderate tailwind to our quarter. As a result, we are raising our pro forma EBITDA guidance by $10 million to $185 million to $200 million for 2016. With that, let me turn it over to Frank to review our financials and more details on our Transformation Initiative. Frank A. Ruperto - Chief Financial Officer & SVP-Finance and Strategy: Thank you, Paul. Let's look at slide three to review our financial highlights for the first quarter. Sales totaled $218 million for first quarter 2016, 2% below first quarter 2015. The decrease was largely driven by lower prices on cellulose specialties offset by increases in commodity sales volume. For the year, cellulose specialties prices are expected to be 6% to 7% below 2015 levels. Operating income was $32 million for the first quarter 2016 compared to $24 million for the first quarter of 2015. Our variance analysis for operating income relative to the first quarter of 2015 and the relevant price and volume statistics are provided on slides four and five of the financial presentation material. As you can see, first quarter 2016 operating income was negatively impacted by $12 million due to lower prices. As expected, cellulose specialty prices were down approximately $112 per ton or 7% from the prior year. Aggregate prices for commodity products were down slightly from the prior year. Volume and sales mix increased operating income by $3 million compared to the first quarter of 2015. As you can see on slide five, cellulose specialties sales volume declined 1,000 tons to 106,000 tons while commodity volumes increased 17,000 tons. The increase in commodity tons is due to improved production efficiencies and better throughput as a result of specific actions by our manufacturing team. Additionally, the shift from an annual maintenance shutdown at our Fernandina facility to an 18 months schedule moved that shutdown from the first quarter in 2015 to the third quarter of this year. As a result, first quarter operating income was approximately $2 million favorable in 2016. Our Jesup facility will continue to have a shutdown on an annual basis, which, this year began on April 15. As of today, two of the three lines are back up and running with the third line expected to be up later this month. Cost for the first quarter of 2016 were $12 million better than the prior year driven primarily due to our cost improvement initiatives and assisted by favorable transportation, energy and chemicals pricing. The Q1 savings were derived across all functions of the organization, including improved operational efficiencies at our facilities, better management of purchasing and uses of wood, energy and chemicals and reductions in SG&A. Specifically, SG&A and other cost for the first quarter of 2016 were $5 million better than the prior year driven primarily from decreases in professional fees and stock compensation expense. Savings from SG&A continues to be a focus of our Transformation Initiative. In 2016, SG&A reductions are expected to comprise approximately $9 million of our total cost improvements. Additionally, moderate tailwinds in chemicals, energy and transportation provided incremental benefits in the quarter. These benefits are expected to be partially offset in the remainder of the year as we convert from biofuel to natural gas as result of the Boiler MACT regulation beginning in the second quarter. Taking all these into account, we're ahead of target for the year and are increasing our guidance for 2016 pro forma EBITDA to a $185 million to $200 million. In addition to cost improvements, we remain focused on driving cash flow throughout the organization. Along with the increased guidance to EBITDA, we're now targeting free cash flow for 2016 of $85 million to $95 million, up by $10 million from prior guidance. As shown on slide six, in the first quarter of 2016, we generated $63 million of EBITDA and $54 million of adjusted free cash flow. As a result, net debt was reduced by $63 million. The reduction in net debt was aided by a $25 million improvement in working capital and a $9 million gain in extinguishment of debt, as we took advantage of market conditions to purchase and extinguish approximately $44 million of face-value of our senior notes in the open market. For the remainder of the year, cash flow will be impacted by maintenance shutdowns in the second quarter for Jesup and the third and fourth quarters for Fernandina as well as having interest payments on our senior notes during the second and fourth quarter. As a result, we expect the cash flow generated during the first quarter to be the strongest quarterly cash flow for the year. We ended the quarter with $346 million of liquidity, including $236 million available under our revolving credit facility after taking into account outstanding letters of credit. Our capital allocation strategies remain as previously communicated. Our first goal is to preserve and improve our financial flexibility by reducing our net debt. Next, we will invest in our business through a prudent capital expenditure program set at levels to optimize profitability and return on capital. We have stated that we expect to spend approximately $90 million in capital expenditures in 2016 and we plan to carefully evaluate how we deploy this capital with a key focus on maintenance, regulatory and high return projects. We continue to believe that debt reduction and reinvestment in our business at this point in the cycle is the prudent course and will provide the best long-term returns for our stockholders. Our updated full year guidance is provided on page seven. To recap our, Transformation Initiative, as outlined on page eight of the slide deck, we announced a three-year plan to achieve $125 million to $140 million of cost improvements from our 2014 cost base. In 2015, we captured $35 million of these cost improvements. In 2016, we estimated that we would realize another $25 million to $40 million of improvements. Through the first quarter of 2016 we have captured approximately $13 million of this year's $25 million to $40 million target, bringing our total savings over the past 15 months to approximately $48 million. At this point, let me turn the call back over to, Paul. Paul G. Boynton - Chairman, President & Chief Executive Officer: Thanks, Frank. In addition to our solid financial performance, including the progress on our Transformation Initiative that Frank just discussed, we're making meaningful strides to bolster our innovation platform. You'll see comments to these efforts on both pages nine and 10 of your materials. First, we continue to add resources to our R&D capabilities focusing on areas of specific research and new product development knowledge. Second, we're rapidly identifying embedding top priority concepts through our stage gate process with a significant number of active projects in the pipeline. Additionally, we're running trials with our customers on the most promising new product offerings. We're pleased with the progress we're making against this initiative. And finally, as previously announced, we're also pleased to complete a new two-year agreement with Daicel, our third largest customer through 2018. Over the last seven months we have now renegotiated contracts with our three largest customers and put in place contractual commitments for a significant amount of our cellulose specialties volume for the next several years. We value the long-term relationships that we maintain with our customers. In conclusion, we remain steadfast at our strategy to both transform our cost structure and accelerate our innovation platform, positions us for near- and long-term value creation for our stockholders. Now, I would like to open up the call for questions.

Thank you. We will now be a conducting a question-and-answer session. Thank you. Our first question comes from the line George Staphos with Bank of America Merrill Lynch. Please proceed with your question. John P. Babcock - Merrill Lynch, Pierce, Fenner & Smith, Inc.: Hey good morning. This is actually John Babcock filling in for George. I just have a couple of questions for you. First, on the outages including the Jesup and Fernandina Beach outages, can you sort of quantify that? Frank A. Ruperto - Chief Financial Officer & SVP-Finance and Strategy: Yeah. On the Fernandina Beach outage, last year was a shorter outage, because it was on the 12 month cycle. It's about a $2 million impact. This year, it will be a longer outage, roughly 30 days or so. So it'll be twice that amount and that outage begins late in the third quarter and will move into part of the fourth quarter. John P. Babcock - Merrill Lynch, Pierce, Fenner & Smith, Inc.: Okay. Frank A. Ruperto - Chief Financial Officer & SVP-Finance and Strategy: Jesup, yeah, Jesup is roughly the same impact. John P. Babcock - Merrill Lynch, Pierce, Fenner & Smith, Inc.: Okay, great. Thanks. And then another question for you, just on the commodities, it looks like the pricing was a little bit better than we expected there. Does that reflect any sort of mix shift towards fluff pulp or ultimately was commodity viscose trending pretty well during quarter end? And also, on that note if you could just generally discuss how commodity viscose prices trended from the beginning – from January ultimately through April, that'll be great? Paul G. Boynton - Chairman, President & Chief Executive Officer: Just in general, John, this is Paul – commodities are roughly about the same. We haven't seen a lot of change up or down in either the fluff or viscose market to significantly comment on. So we expect them to kind of go plus or minus here through the quarter and the balance of the year at this point in time. So we don't see a lot of change. So therefore, we just continue to work on with some optimization that we can do between the two different products that we make in our facilities to give the best returns for our shareholders. John P. Babcock - Merrill Lynch, Pierce, Fenner & Smith, Inc.: Okay, fair enough. And then another question I had just on volumes here. Do you ultimately see a potential to grow high fluff pulp volumes and also if you could generally discuss the importance of that to RYAM's overall strategy? And kind of touching on that point as well, clearly (12:59) has stepped away a couple of years ago. I would assume that's going to be up for bidding at some point here. Any sort of color you could provide on volume growth potentially there would be helpful? Paul G. Boynton - Chairman, President & Chief Executive Officer: John, of course, that's our ultimate goal and plan is to increase our high-value business over time. As you know, we got ahead of ourselves with an expansion that we announced and we reconfigured that last year and so, look, we can be patient, and wait for the market. We've retracted a little bit in our volumes this year and we will continue to look at our volume mix of the high value and optimize it based on contracts and what we think is the long-term interest of our shareholders. But ultimately, our goal is of course to increase our existing position and leading position in the cellulose specialty area. But we'll do that with patience and we'll do that in time. John P. Babcock - Merrill Lynch, Pierce, Fenner & Smith, Inc.: Okay, perfect. Well, thanks for your help and I'll get back in queue. Paul G. Boynton - Chairman, President & Chief Executive Officer: All right. Thank you.

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

Thank you, good morning. Paul G. Boynton - Chairman, President & Chief Executive Officer: Good morning, Roger.

Yeah, while you may not want to provide Q2 EBITDA guidance per se, can you review some of the puts and takes we might think about as we compare it to Q1? For instance, were any volumes in Q1 purchased under perhaps higher price 2015 contracts? Paul G. Boynton - Chairman, President & Chief Executive Officer: No, I don't think so, Roger. And I guess the best thing that I can put forward is Q1 was a very strong quarter for us. There were no shutdowns in the quarter. We'll have shut downs in the second quarter and then in the third quarter and fourth quarter. Obviously depending on when the actual orders come in on some of the CS volumes and shipping that has some impact from quarter-to-quarter. So it's somewhat hard to call, but for your purposes, I would say, this was a good quarter. We shouldn't see a lot of variability over the course of the year, we'll see some based on timing but again, it was a pretty good quarter and it's right in line with our $185 million to $200 million EBITDA guidance.

Thank you. Can you speak about your next large CS contracts, the next largest CS contracts that might expire, who they might be with and when they might expire after having tied down the three largest? Paul G. Boynton - Chairman, President & Chief Executive Officer: Yeah, Roger, we report on the three largest material contracts and that's it. Obviously, we always have contracts up each year of different sizes and different stages of their contractual commitments. So we'll continue to work on those, but we'll just report out on the material one.

Right. Last one for me. Will you consider doing more bond repurchases and depending on whether you may or may not want to respond to that, can you at least tell us what metrics you consider when you do think about doing bond repurchases? Paul G. Boynton - Chairman, President & Chief Executive Officer: Yeah. We continue to have the ability to do bond repurchases both under our bank covenants and from our board's perspective. That being said, the bonds have moved up since we did those repurchases. So we're – we'll have to look at that on a quarter-to-quarter basis and determine whether that's the best use of our cash. As I said earlier, in the call, this quarter will be our best cash flow quarter of the year, most likely and that's roughly $54 million out of a total of $85 million to $95 million. So that was the quarter where we took a lot of advantage of our bond repurchase activity, but we will continue to look at that going forward.

Thank you very much.

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

Yes. Hi, good morning, Paul and Frank. Paul G. Boynton - Chairman, President & Chief Executive Officer: Good morning, Chip.

First question is on – you mentioned you do have, I think contracts with your biggest three customers you mentioned that, I just had a question, do those contracts – do you know today what the prices will be like for year 2017 and 2018 or is there something that either gets negotiated later or is it a function of something else that has, that takes place in the future? Frank A. Ruperto - Chief Financial Officer & SVP-Finance and Strategy: So Chip, the only thing we've got out there is what we believe to be 2017 acetate pricing based on the fact that most of that volume is contracted in price. So we have got some perspective on that. Beyond that, we don't have anything that we can discuss at this point in time.

Okay. So you have a pretty good idea what your pricing will be like in 2017 at this point? Frank A. Ruperto - Chief Financial Officer & SVP-Finance and Strategy: Yeah. We've communicated that in the past. It's roughly down about 2% from where we are in 2016. So, yes we have that.

Okay. Frank A. Ruperto - Chief Financial Officer & SVP-Finance and Strategy: And of course, it's still slightly below where we are now, but we're encouraged that it's more stable than we've seen in the last few years.

I see, okay. And it's interesting because I know you did say that before, would you – any guess as to whether you might have a good view of 2018 say, later this year or is it just hard to say if you'll know at that point? Paul G. Boynton - Chairman, President & Chief Executive Officer: Yeah, I think we have a good guess that we don't know at this point in time. So I think that's still open out there. We're encouraged by what we see happening in the market as publicly reported by some of our competitors in the other spaces particularly ethers where we saw some pretty muted pricing changes in 2016, so that gives us some encouragement. At the same time, Chip, we're still unknown for beyond the 2017 timeframe.

Okay, okay, that's helpful. And it was very helpful on the downtime, sorry, outage sensitivities and I think you said Jesup goes out in the second quarter, that's based on an annual basis. Was it also second quarter a year ago? And you said about the same impact, is that about $4 million hit every time we take that mill down? Frank A. Ruperto - Chief Financial Officer & SVP-Finance and Strategy: No, it was second quarter last year. We haven't put out what the impact of that is in the past. But obviously, it's a bigger mill than Fernandina.

Right. But I think you said that, the impact this year would be $4 million. You said about the same as Fernandina, is that still fair? Paul G. Boynton - Chairman, President & Chief Executive Officer: I think Frank was commenting on the $4 million about Fernandina for 2016. Frank A. Ruperto - Chief Financial Officer & SVP-Finance and Strategy: Yeah.

Okay. So Jesup might be a bit bigger? Frank A. Ruperto - Chief Financial Officer & SVP-Finance and Strategy: You shouldn't see much of a difference quarter-over-quarter since the shutdown was last year for Jesup.

Okay. Frank A. Ruperto - Chief Financial Officer & SVP-Finance and Strategy: So, year-over-year I mean, not quarter-over-quarter

I see. And... Paul G. Boynton - Chairman, President & Chief Executive Officer: Just to make sure very clear, Chip, the $2 million that we referenced earlier was for the difference for this quarter at Fernandina versus the prior years' quarter, just to be clear on that.

Okay. Frank A. Ruperto - Chief Financial Officer & SVP-Finance and Strategy: Right. And then the outage for Fernandina in the third quarter is roughly twice as long this year, so it'll be a bigger impact than the third/fourth quarter.

Okay. While we're on this, you'll likely keep Fernandina on that 18-month schedule. Any reason why or why not you might try to move Jesup to that same type of 18-month rotation? Paul G. Boynton - Chairman, President & Chief Executive Officer: Yeah. Jesup is a very different operation, different technology. We've got a kraft process there. It requires us really to go down to every 12 months for a proper cleaning of the boiler. So I don't see that moving at all until a longer schedule. We can do that at Fernandina and that's not uncustomary with sulfite-type mill like we have in Fernandina go to 18 month and we were confident we could do that, so we made that move in this year.

Got you, okay. And just some, I appreciated the very specific plans for the free cash flow. I'm just – not to play Monday Morning Quarterback, but you had a great first quarter. And let's say you've taken $30 million, you could have easily bought back. I guess where the stock was trading 10% of your equity very easily in the first quarter. Was there a covenant issue that would not have allowed you to do that or was it just purely your choice to focus on the debt ahead of that? Paul G. Boynton - Chairman, President & Chief Executive Officer: There is no covenant issues. The focus is as we've kind of been consistent is we really feel at this point in the cycle the best and most prudent course of action is to use the cash flow to lower the debt. We do look at share repurchases every quarter with our board and discuss the applicability of them, but at this point, we think using the cash to get the leverage in line is the most effective way to use that cash. Chip, as you know, we're probably on the higher end of the leverage spectrum relative to most of the companies in our industry. And so that's really the focus to make sure we have that financial flexibility to both navigate the downturn and invest in the assets.

Okay. I'm sure this is, probably I must have missed it, but you said you were out there in the first quarter buying in the debt. How much of the free cash flow that you generated ended up being used to buy the debt versus sitting on the balance sheet? Paul G. Boynton - Chairman, President & Chief Executive Officer: We repurchased roughly $44 million of face value of the debt.

Okay. And did you, you want to tell me how much you spent to buy that? Paul G. Boynton - Chairman, President & Chief Executive Officer: We recognized the $9 million gain on that so we spent $9 million less and then we'll pay taxes on the gain.

Got you. Okay, good. Thank you. Paul G. Boynton - Chairman, President & Chief Executive Officer: Thanks Chip.

Our next question comes from the line of Bill Hoffmann with RBC. Please proceed with your question.

Yeah, thanks. Good morning. Paul G. Boynton - Chairman, President & Chief Executive Officer: Good morning.

Can you – Paul, can you talk a little bit about the acetate markets in 2016 versus 2015 and maybe also your thoughts of 2017? Just trying to get a sense of where you see that trend going? I mean last year there was destocking in China and then it sounded like that was ending by the end of last year (23:28) this year, but I'd like to get a better sense on your thoughts there? Paul G. Boynton - Chairman, President & Chief Executive Officer: Yeah, sure, Bill. I'll be glad to and I will start with that, just on the acetate destocking issue, because we've talked about that over the last handful of calls. Our perspective, which is, really hasn't changed much from when we talked about this little bit in February that we believe globally outside of China that the destocking of total inventory has been largely completed, so, that's our perspective. We think that is done. I think that is shared by others that we hear report on the matter. And so the question is what's really happening in China? And as we reported before in 2015, our belief is normal imports of tow into China is in that 100,000 ton to 120,000 ton range and we thought that it may have been reduced to about 50,000 tons to 60,000 tons in 2015. And we reported last quarter in February that we thought 2016, one-time we were hopeful that it was going to largely completed. But we reported in February that we thought that maybe we'd see the same type of destocking effort and therefore imports dropping roughly in half again in 2016. Now, we've heard in some recent calls and maybe more optimistic than we are right now. So, we need to go back and triangulate our data, but that's kind of roughly where we're at and again, we hope that it will be complete this year and it sounds like others are more optimistic that it definitely will be and I see that's very encouraging. In the longer run, we think again, that China in terms of just actual tow consumption is probably somewhere between flat and 1%. And then globally, it may be below that 0%. So overall, we're kind of seeing now that we think overall tow consumption, cigarette consumption is roughly flat globally. And that's our perspective at this point in time and of course, obviously as we learn more, we'll share it with you as we have some information to share.

Thanks. And then, just with regards to the other end markets, ethers, et cetera, tire cord. Just, can you give us some just general thoughts there, any developments in those other markets, any firming, I mean ethers should have been flat as well? Paul G. Boynton - Chairman, President & Chief Executive Officer: Yeah, actually, we see ethers continuing to grow somewhat modestly as well as the other segments tire cord, filtration, sausage casings. We see all that still going up in that kind of global GDP, if there is, in that 2% plus type of range, 3% and certainly we see pockets of it growing much faster than – particularly in the ethers area. It may not be as robust as we previously talked about a couple of years ago but seeing 4% to 6% in some key pockets of pharmaceutical and food is certainly some of our observations out there in ethers. So overall, there is growth out there in those markets so we appreciate that. Obviously, its dependant again on global economies and so we'll continue to monitor it. But again, we think it's certainly in the positive direction.

Right, and then just another question – because you talked about some of your innovations and some of the new product development; any thoughts on whether you can outpace some of these growth rates or you'll be able to make some penetration this year or is it more of a 2017/ 2018 kind of concept? Paul G. Boynton - Chairman, President & Chief Executive Officer: Yeah, we've talked about it. Innovation is a longer term play and as we talked about in this call, we're very pleased with what we see with our teams. We're very encouraged by the activity that we have with various existing and new customers but it is a longer term play and I can't say we'll see anything material this year or when we'll exactly we'll see that. But I think, for sure we'll see that at some point in time. But it's just going to be longer term, these trials take a while, the feedback takes a while, and then you have to tweak and continue to move on. So again, it's a longer term play, but we want to express again that we're very positive that what we see from our team and from the customers.

Great, thank you. Paul G. Boynton - Chairman, President & Chief Executive Officer: Thanks Bill.

Our next question comes from the line of Steve Chercover with D. A. Davidson. Please proceed with your question. Steven Pierre Chercover - D. A. Davidson & Co.: Thanks. Good morning everyone. Paul G. Boynton - Chairman, President & Chief Executive Officer: Hey Steve, good morning. Steven Pierre Chercover - D. A. Davidson & Co.: So some of my questions have been answered, but have you ever revealed what the mix is in the commodity segment between commodity viscose and fluff? Paul G. Boynton - Chairman, President & Chief Executive Officer: Steven, we haven't. We said in the past that the majority has been towards the fluff side of the equation. And again, and I would say that's still true today. But we'll continue to flex that ratio as we see the markets respond to different pricing and so we'll just continue to be focusing on that. But again, I would say still a majority is in that fluff and we remain committed to a certain amount of both size of the equation and tend to switch back kind of on the margin there. Steven Pierre Chercover - D. A. Davidson & Co.: Yeah, well, that was my impression. So I was wondering if you thought that fluff prices can be sustained with two new facilities coming online this year? Paul G. Boynton - Chairman, President & Chief Executive Officer: We're a small player in that fluff market, even at the max commodity production of fluff if you will, that we would produce, we're 4% of that 5 million tons. And so, again our ability to place that volume, we feel very confident on what the pricing is. I think we're a little bit of price taker obviously. And if prices move down, you'll see us make more of viscose. If prices improve, we'll make a little bit more fluff. As far as the impact obviously, more supply into the market since it's not necessary helpful, but at the same time, that market is growing fairly robustly and it's hit that 4% type of growth level from what we can see. And so it's going to absorb a lot of this new capacity coming on and we'll just respond accordingly. Steven Pierre Chercover - D. A. Davidson & Co.: That's a good segue into my next question, because I heard you say earlier that and we understand Specialty Cellulose is your key business. But if a couple of fluff mills were to become available due to a DOJ ruing, would you have the capability or the desire to get bigger in fluff? Paul G. Boynton - Chairman, President & Chief Executive Officer: Yeah, I can't answer that specifically right now, Steve. Obviously, we always keep all our strategic options open and discuss them with the board, but at this point in time I couldn't comment on that. Steven Pierre Chercover - D. A. Davidson & Co.: All right, I'll leave it there. Thank you. Paul G. Boynton - Chairman, President & Chief Executive Officer: Thanks, Steve.

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

Yeah, thanks. Good morning, guys. Paul G. Boynton - Chairman, President & Chief Executive Officer: Hi, Paul.

Just a couple of questions. One, it seemed last quarter your 2016 guidance on Specialty prices – on Specialty with prices down 6% to 7% and volumes down 4% to 5% is unchanged, but it looks like you've changed your 2017 pricing guidance down now 2% from last quarter, which you said it was flat. Now, last quarter you had just renewed, I guess Eastman and Nantong, and I guess the only difference is really the renewal or the contract extension at Daicel. So is there something specific in the Daicel contract that's caused you to adjust your pricing guidance for 2017 down 2% and what's your volume guidance on 2017? Frank A. Ruperto - Chief Financial Officer & SVP-Finance and Strategy: Yeah. Paul, the 2% down for 2017, that is the same guidance we gave on our annual call back in February. So we have not changed our outlook for 2017 pricing. We have not given guidance out on 2017 volume, it's too early to do that.

Okay, do you have a guidance on commodity product volumes in 2016 here? Paul G. Boynton - Chairman, President & Chief Executive Officer: Yeah, we've said I think in the last call, last year we did 248,000 tons I believe, of commodity volume and we think that that's a reasonable number plus or minus depending on the mix that we have in that viscose or the fluff.

Okay, so that should be pretty much flat year-over-year? Paul G. Boynton - Chairman, President & Chief Executive Officer: It should be up a little bit right now is our view, but again, it could be impacted by how we shift around mix throughout the rest of the year.

Okay. And then just on the cost savings, help me understand that between I guess slide 8 and slide 10. So it looks like you've got cost savings at the goal of $25 million to $40 million and then you've, I guess on slide 10, you've achieved $13 million in 2016 so far. And I'm just wondering if that comes from the initiatives that you put in place in 2015 or is this new from work that you've done in 2016? Paul G. Boynton - Chairman, President & Chief Executive Officer: Yeah, $6 million of the initiatives are carryovers from last year, so what we call legacy initiatives and then $7 million of that $13 million is new initiatives that we put in place this year. About half of its driven by SG&A and about half of its driven by manufacturing and supply chain.

Okay and any cost reductions, and any sort of input pricing that's affected the $13 million as well? Paul G. Boynton - Chairman, President & Chief Executive Officer: Yes, and I think... Paul G. Boynton - Chairman, President & Chief Executive Officer: Actually lower wood cost? Paul G. Boynton - Chairman, President & Chief Executive Officer: We've seen some – not would necessarily but we've seen some tailwinds in energy, and things that are related to energy and a little bit in chemicals. We'll see – we won't get that benefit or we don't foresee getting that same level of benefit in the next couple of quarters as we said Boiler MACTs coming on and it's causing us to buy more natural gas and more natural gas on some fixed terms as we move forward here.

Yeah, I know it's the last question I have, what is the impact of that move from biofuels to natural gas? Paul G. Boynton - Chairman, President & Chief Executive Officer: Last year in the last guidance, we gave last year, we said it's roughly $5 million, could be a little bit more depending on the gas infrastructure and some of the firm contracts we're putting in place.

You are saying $5 million annually, right? Paul G. Boynton - Chairman, President & Chief Executive Officer: Annually, yes.

Excellent. Thanks, guys. Paul G. Boynton - Chairman, President & Chief Executive Officer: All right thanks Paul.

Mr. Boynton, we have no further questions at this time. I would now like to turn the floor back over to you for closing comments. Paul G. Boynton - Chairman, President & Chief Executive Officer: Great. Well, thank you. Since no more questions at this time, I'd like to thank you for joining us today. Look, we're off to a good start for the year. We remain focused on executing our two main strategic initiatives and providing long-term value creation for our stockholders. We look forward to updating you on our progress on a timely manner as we go forward and have a good day. Thank you.

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