Greetings, and welcome to the Rayonier Advanced Materials Fourth quarter 2018 conference call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions]. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mickey Walsh, Treasurer and Vice President of Investor Relations. Please go ahead, sir.

Thank you, and good morning, everyone. Welcome again to Rayonier Advanced Materials Fourth Quarter and Full Year 2018 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 and Senior Vice President of Finance and Strategy. Our earnings release and presentation materials were issued yesterday evening and are available on our website at rayonieram.com. I’d 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 with some of the factors, which may cause actual results to differ materially from the forward-looking statements we may make, they’re also reference on Slide 2 of our presentation material. Today’s presentation will also reference certain non-GAAP financial measures, as noted on Slide 3 of our presentation material. We believe non-GAAP financial measures provide useful information for management and investors, but non-GAAP measures should not be considered an alternative to GAAP measures. A reconciliation of these measures to their most directly comparable GAAP financial measures are included on Pages 20 through 23 of our presentation materials. At this time, I would like to turn the call over to Paul for his opening remarks.

Hey. Thank you, Mickey and good morning everyone. I’m going to start today’s call with some strategic and financial highlights for 2018 before turning the call over to Frank to review our financial results as well as our current outlook for the business. After that, I’ll wrap up with additional detail on our strategic initiatives designed to grow the company. Starting on Slide 4, we delivered financial results well above our initial expectations in 2018. Revenues topped $2.1 billion for the year, as we delivered $364 million of EBITDA driven by our efforts to reduce costs, introduce new products and achieve synergies in our High Purity Cellulose segment, as well as strong prices in the pulp markets and the benefits gained from other strategic pillars. We also made great progress on our $155 million of strategic initiatives with the $61 million captured in 2018, which helped drive much of the financial success in the year. We continue to execute on our disciplined and balanced capital allocation strategy worth $46 million of debt repaid, $37 million of strategic capital invested and $72 million of capital return to stockholders via dividends and stock buybacks. We generated adjusted earnings per share of $1.69, up 74% from our prior year demonstrating solid accretion to earnings per share in our first year with Tembec. We also completed our ambitious four your cost transformation objective, which we reduced cost across the legacy business by $140 million. Overall, we successfully integrated Tembec to create one company with a more diverse product portfolio and expanded opportunities to drive incremental value to our stockholders. So with that said, I’d like to turn the call over to Frank to discuss our financial results in more detail and provide our outlook for 2019.

Thank you, Paul. Starting from Slide 5. I’ll, now review our financial highlights for the full year 2018, comparisons to 2017 will be on a combined basis, all comparisons will be to the prior year comparable period, unless noted otherwise. Starting with our High Purity segment sales for 2018 came in at $1.2 billion, down 5% compared to 2017, lower sales were largely driven by declines in cellulose specialties price and volume of 4% and 3%, respectively. The price decline was in line with our guidance and volumes were impacted primarily as a result of lower than anticipated customer demand in the acetate market. Commodity volumes declined 3% primarily as a result of operational issues earlier in the year, while commodity prices increased 6%. Adjusted EBITDA for the High Purity segment ended at $235 million in line with our prior quarter guidance and $61 million decrease from 2017. The year-over-year decline was primarily driven by lower CS sales prices and volumes combined with the impact of the sale of our resins business. Year-over-year EBITDA was also impacted by higher wood cost due to unusually wet weather in the back half of the year. Higher chemical costs and a $4 million cost for the start-up of our LignoTech Florida joint venture. Importantly, we were able to partially offset the CS price and volume declines by executing on our strategic cost improvement objectives. Looking to 2019, we expect stability in cellulose specialties for the first time in six years. CS prices are expected to decline approximately 1%, driven primarily by a legacy Tembec acetate contract, excluding the impact of Chinese duties. Volumes are also expected to decline 1% due to weaker acetate sales. Chinese duties, which are currently 5%, impact results by approximately $2 million per quarter, while in effect. An announcement…

Hey, thank you, Frank. Four years ago, we embarked on ambitious objective to reduce cost by $140 million as laid out on Slide 12. Today, I’m pleased to announce that we achieved our goal in 2018. Executing on this key strategic objective allowed us to right size our balance sheet at a time when we face market headwinds and create a more resilient organization. This initial cost transformation objective also gave us the financial flexibility to excess – access the equity markets and acquire Tembec, which in turn has created even more opportunities to grow profitability. One year ago, after our acquisition of Tembec, we stated our objective to capture $155 million of value through our four strategic pillars. We laid the foundation of our four cultural cornerstones, safety, customer centricity, innovation and continuous improvement across the larger organization. We align management around common processes and goals, implemented centralized shared services, adopted new business cadences and became one company. As shown on Slides 13 and 14, we not only generated $61 million of benefits in 2018, but we also built the framework to capture the four $155 million of controllable margin over the three-year period. As part of the overall initiative, we generated $53 million from our cost transformation programs, including the final $25 million from actions in the legacy business and an additional $28 million from the new opportunities develop the synergies from the Tembec acquisition. Now to achieve our synergy goals, we created our global improvement team, made up of senior leaders across all functions and segments of our organization and many who have developed valuable skills from our original $140 million of cost saving efforts. This team is focused on developing and executing on the remaining cost transformation opportunities with a target of $27 million of cost…

Certainly. We’ll now be conducting a question-and-answer session. [Operator Instructions]. Our first question today is coming from Steve Chercover from DA Davidson. Your line is now live.

Thank you. Good morning, everyone.

Good morning, Steve.

I guess, first I’ll say well, it’s a question, but I’ll say congratulations on breaking the losing streak in specialty cellulose. Would you attribute that the stabilization to just better market balance? Or do you think that you’re putting your acetate at parity, as you did last year was really fundamental to getting this flat pricing environment?

I think of it two ways, Steven. I think, first of all, you’re right, I appreciate you pointing that out. First time in six years, we’ve had stable pricing in our cellulose specialty business and I think that’s obviously what we’ve been looking to achieve, and it does feel like we’re there at an inflection point, if you will, in the market. So, I think that’s positive. I think the second thing, yes, there is now kind of the narrowest band between the different pricing of our – of the different market segments. And I think that is also very helpful for us going forward. So, yes, overall, again, I think we reached a point where we think now and in all of our different segments, we’ve actually seen price lift in 2019 or flat to price lift with only acetate going down a little bit. And as noted that was mainly due to a particular contract that came with the Tembec legacy business. So overall very stable, where we are today and I think it puts us in a good platform going forward.

Yes. Well you got to stop losing to start winning. So, I was happy to see that. So staying on in the CS segment, the 75,000 tons of incremental commodity pulp is that flat for viscose, I mean could you confirm that?

It will be a mix between the two. We obviously have more viscose capacity than we do fluff capacity. So it will be weighted a little bit more towards viscose, but again, that we’ll see increases in both of those.

And how will that volume impact your operational efficiency, I should think it’s good and by extension, I’m wondering if you are being a little conservative on the contribution from that volume given what’s going on in specialty cellulose?

Yes, Steve. I mean, clearly, the more we produce in our facilities, we spread our fixed costs more broadly over those tons and, therefore, that’s a big benefit to us. This has been the focus, one of the key focuses since the acquisition of Tembec from the manufacturing side really focused on across our entire portfolio, how do we share best practices to get those operational efficiencies up to the highest levels we can and that’s an ongoing focus of the manufacturing team, as we move forward here.

Okay. And one more and I’ll relinquish it. Just wondering when LignoTech will switch from the start-up losses to a modest contribution?

Yes, that should probably be in 2020. So we’ll see those losses decrease over the course of the year, this year will be less than next year – than last year – sorry. But either closer to 2020, where we’ll see those switch over. And remember, Steve, we take that into the income statement at the bottom line. So, because we’ve got a less than majority ownership, we take our share of the net profit of that business on a percentage basis. So that’s not EBITDA, but that’s EBIT, after your D&A and that’s after your interest expense. So, we’re taking effectively the net profit of that business are 45% of that.

Okay. Thanks for that, Frank. Thanks, everyone.

Thanks, Steve.

Thank you. Our next question is coming from Chip Dillon from Vertical Research. Your line is now live.

Yes. Good morning, and thanks for the details. First question is when we look at the specialty cellulose high-end dissolving pulps. You mentioned the price stability, the 1% expected price decline. What should we expect from mix? Because I thought that acetate was generally higher price than maybe say ethers and others. And so would we expect the mix to be positive and – or negative? In other words, if you through mix into the pricing discussion, would that make it more than a 1% decline or less than that?

Look, I mean we don’t usually pay, again, good morning, Chip. We don’t normally put out kind of where our mix is at, but I’d say if there’s anything is probably a slightly decline in the mix. But as you can see it’s relatively stable overall and one of the things that as Steve’s question was asking about, is that as these prices – in the band of prices come together, it really makes moving between them somewhat neutral in that regard, which I think is very healthy, that 1% though Chip, that includes mix and that is a key part of that 1% down to be honest with you, is the fact that we have a slightly different mix there. So the price – 1% price decline, a good portion of that is just actually coming from mix.

Got you. And switching over to the pulp or I guess the high yield BCTMP. I think you mentioned you might be seeing a recovery or later in the year and how are you thinking about the full year EBIT or EBITDA for that segment?

So, first of all, I’d say, it’s a nice business in the portfolio, it did tremendously well in terms of contribution to the EBITDA in 2018. As we said at the beginning of 2018, we expected a decline in prices toward year-end that came through. We’re feeling that now a bit to the extent that, as we noted, we took a little bit of downtime there. But we see a positive trend in those prices as we go through this year. And so you can see, the first quarter, I think kind of at a low point of EBITDA for that business, but then rising through the course of the year. Fundamentals of that business Chip are really strong, as we’ve talked about, Frank kind of highlighted. One, you’ve got a global GDP, that’s pretty stable. You’ve got Chinese not buying as much recycled import material and I think that’s helpful. And probably most importantly, we have no new assets coming online for a couple of years now. So we see that business after this dip coming up rising, getting stronger and remaining strong for the next couple of years. So again, a real positive business for us.

Yes. And I would say, Chip, this is going to remain, if our forecasts are accurate on the pricing, which you have to see. This should be a very profitable business, again this year. It won’t likely hit the levels that it hit a $100 million in EBITDA last year, but it should remain a very profitable business for us.

Okay. And then just last one. When we – you mentioned that your commodity mix would still be more toward viscose. But in terms of that 75,000 ton increment. Is that also going to be more viscose related or not?

Yes. It depends on where it’s produced. So when we say the 75,000 ton increment. This is improvements in production across all of our facilities. So, the one – and part of that’s coming out of inventory as well, but when you look at that Chip, remember we only make fluff on the C line that’s just up, right? So by definition, if we’re improving production across all the assets, it’s going to be disproportionate to the viscose piece.

Understood. All right, thank you.

Thanks, Chip.

Thanks.

Thank you. Our next question is coming from John Babcock from Bank of America Merrill Lynch. Your line is now live.

Hey, good morning. Actually, just wanted to quickly follow up on Chip’s last question, I just got a little bit more color. I mean just the commodity product volumes that you’re producing, will those be produced on CS lines or will they be produced on their own line and say, you should. I just want to get a sense for how that impacts overall productivity?

Right. So we’ve got – yes, we’ve got one line to C line at all – as the only line that we’ve got fully dedicated to the commodity products. Remember we did that I think in 2015. We switched that over. Our other lines will make some commodity if they have open space and remember all of our lines have different – all of our lines have different levels of production capability. So, they’ll make different products. So, depending on space, we’ll get those OEs up that operational efficiency, up that Steve mentioned and make more products. So, if it happens to be on a viscose, on a – not on the C line, it will, by definition be viscose. Temiscaming, we’re making more viscose there than the other mills, because there is less of the CS production coming out of that line.

So and John, thanks, Frank. And one thing I want to add is because I think Frank hit on important part is keep in mind we’ve got five of the eight cellulose specialty lines in the world, right. So, as we look at and as we’ve actually experienced of last year running them all side-by-side and learning which grades produce well and which lines and we look at the market, one of the key things we’ll be talking about on our March 7th Investor Day is, how we’re going to optimize across all of these assets and how we serve the commodity markets. How we serve the specialty markets and we’re going to make some changes on all of that. So that’s what we talked about this kind of go-to-market strategies, it’s going to include both commercial actions as well as asset optimization actions to do even more what Frank was just alluding to. And so we look forward to sharing with you, I think are going to be there on that call.

Okay. I appreciate that. And then also just obviously, CS pricing has kind of been a popular topic over the last couple of years. On that point, I mean clearly, it seems like sentiment decline perhaps during the back half of 2019, how did that end up impacting the CS price negotiations?

So, I don’t think it really had a lot, I’m not totally sure I understand your question, John, but what you’re seeing there and in our fourth quarter pricing on CS is that you’re alluding to is really just a function of mix. If you look at what we guided from the beginning of the year, we hit right on the target for the most part. So nothing in the back part has anything, any bearing on our actual negotiations at all.

So versus some of the commodities, John, if you’re saying, do we see the commodity – some of the commodity prices lumber high yield pulp declining, because of some of the global weakness that we saw in the fourth quarter. That’s not something that was a major part of the dialog in the CS pricing, because of its specialization.

Okay, that’s helpful. And then also just I wanted to get a sense for like how you’re thinking about the estate volumes for the year? And also what are your expectations for growth in it if there’s another cellulose specialties?

Yes. I mean we put in the guidance there, John, that we see again volume roughly 1% down some of that’s coming through. I’m sorry, that was on the pricing, but 1% down also on volume. We don’t really say which as far as different segments going up. We feel very good about our growth opportunities and ethers and really to grow with the market and as well as across all the other segments, where there’s tight quarter, casings our filtration. Acetate as we talked about is in a slight decline and we expect that to continue. One of the things we’ll be talking about is in our March 7 get together is really what should be our strategy coming into a declining market like acetate and we’ll be looking at all of our businesses, all our cost of our portfolio and we’re going to make some changes on how we go to market and part of that will include how we address the acetate market.

And just to put into context, John, that 1%, we did 624,000 metric tons of cellulose specialties. So, we’re talking to roughly 6,000 tons. So, we’re not talking about big numbers.

Yes. No, no, I understood. And then sorry, last question before I turn it over. Just with regards to guidance for High Purity Cellulose. Given that excludes the sale of the resins business. So I assume that implies EBITDA down about $3 million to $4 million, is that the right way to think about it?

Yes. So the resin business had a reasonably good year last year. So that’s a good way to think about it.

Okay. Thank you.

Thanks, John.

Thank you. Our next question is coming from Paul Quinn from RBC Capital Markets. Your line is now live.

Yes. Thanks very much. Yes, I’m a little bit confused on the sort of that why we’re not seeing any growth in the ethers is – I mean we’re seeing consistent volume drops in the CS side, which I understand in the acetate market, but I thought some of that would be offset by the growth in the ethers. Is that showing up, just not showing up to us in the financials?

Yes. I mean we don’t – again, we don’t pull it out by segment. But again, overall, again, our volume across all cellulose specialties is relatively stable. And some of that again, so we’ve got two companies coming together, Paul, we are putting together the whole portfolio for the first time, we’re combining contracts and combining market positions as we were looking at the former Tembec in the former IM. So again, as we look forward in the ethers business, I think we’re going to see some nice growth coming out of that business. I think in year one coming out of the acquisition and combining everything, you’re seeing relatively stable volumes on all the segments.

Okay. And then as the volume drops in CS and I guess that frees up some of your lines especially adjusted to produce more commodity in that 75,000 increase is part of that increase just more production from the CS lines?

Well, remember, Paul, what I just said to John, which is 1% on 600,000 tons of CS volumes about 6,000 tons. So that’s a minuscule amount of the 75,000 ton incremental production. The real focus is on that the focus that the manufacturing team has had on improving the production efficiencies across all of the lines that we have to get better production out of their assets.

Okay. Then just moving on wood products, I understand the downtime many other companies are doing the same thing. How are you taking that downtime, is that you’ve got a number of facilities if you put a facility to be idled facility or are you taking the shifts. How are you doing that?

Yes. So, first of all Paul, we’re up and running in across all our assets right now in the forest products business, in the lumber business. We took downtime at the holidays and a little bit into the new year pretty much across the board, it varied a little bit based on the location based on chip needs for some of the other facilities. But again, we’re up and running, prices are far more positive today then just 30 days ago. So that’s very helpful. We’re – as we come out of the quarter, we’ll be operating in positive grounds in terms of EBITDA, which we think will continue throughout the year. Again, as we guided, we think will be modestly down in the first quarter in terms of EBITDA. So, we’re up and running and we plan to keep up and running. Assuming prices stay where they’re at today and above.

Okay. And just last thing, just on the new product development with this OptiSilk and I guess XV20, what’s the potential market size for those two? And have you got others new products in development line?

Yes. I think about the OptiSilk, I think about it, not so much, because the market is very large for viscose, far more than we’d ever kind of capture and share from that perspective. We look at it is just, hey, can we – it’s a lower cost technology that we’re using that produces a real nice product. So for us, it’s the extent that we can take that technology across all of our assets. So that’s how I would look at OptiSilk. And that’s been a good contributor to us. The XV20, again, you can look at the ether market, it’s operating at the very high-end of what we call intrinsic viscosity, that’s the kind of the length of the polymer chain of cellulose. So, it really is a nice high viscosity product, we compete against cotton linters. Cotton linters is a couple of hundred thousand ton market out there. And so we like to think that, that has some really good potential for us to continue to grow that in the future, as all new products, it starts small, we got to get the customers’ confidence in it, feedback so far has been very good. We’re going to sell more this year than we did last year. We expected that to continue to grow. But our real push there is really to kind of push into that cotton linter market. And as I said, that’s a couple of hundred thousand ton market that we’re going to be pushing up against and into.

Additional new products in development?

Yes. We’ve got really a whole nice pipeline and again, I think we shared with you and everybody in the past, our stage gate process. We’ve got some that address some really unique properties into the absorbent materials market. But we’re going to detail a lot more of that on our March 7th visit in New York if you can attend that, I think actually Paul, saw your name in the list. So, we’ll go through that in detail with Dr. Byers will take us all through it.

I’m looking forward to it. Thanks very much. Best of luck.

Thanks, Paul.

Thank you. Our next question is coming from Roger Spitz from Bank of America Merrill Lynch. Your line is now live.

Thank you very much. Good morning. Can you comment a little further on the Tembec sale, especially contract that is driving your pricing down 1% 2019? Did I hear you say that is – that was acetate business and did the contract expire and you have to get a price concession to renew or what details are you able to provide on that?

Yes. Look, it’s – yes, correct, we’ve talked about it when I guess Frank set it up, as he is talking about our acetate business and was talking about pricing going down in that legacy contract coming through. Yes, the pricing was part of that contract. So, we did it was, it is what it is. I think the bottom line is and again, we’ll expand on this more on our go-to-market strategy. We got some – we got some part of our portfolio that have margins not overly attractive to us. And as we produce a really high quality set of products, we’ve got to be able to invest back into our business and some of that we got to be willing to say, look, we’re not going to continuing to entertain low margin business. And so – so it is where it is, it was just again part of the portfolio that came forward, we’re going to reassess our entire portfolio. One of the things we’ll be talking about that in our March 7th call. But again, it’s just a part of the business that came with the legacy Tembec company.

Got it. Just to be clear though, did the contract expire and you said, hey, this is a low margin business. So you walked away from it? Or did – was the contract still ongoing and there was a contractual price reduction within the contract?

Yes, sorry. It’s an ongoing; it actually ends this year, Roger. So it’s...

Okay.

It’s likely to be one that we wouldn’t renew at today’s margin levels.

Got it, okay. And I know that has been sort of asked, but let me try again. If it wasn’t for that particular contract, is CS pricing expected to be flat in 2019 year-over-year? And if so, how would that breakout over acetate meter, if you can comment?

Yes. Let me say, outside of that contract, we would be slightly down in mix, if not flat, if you wanted around it and yes. So slightly flat and most of that is again coming out of that the acetate side of the business.

Got it. And can you give a sense of where you are in operating rates in your High Purity Cellulose mills for either Q4 2018 or 2018?

No. We don’t really have that information out there, Roger. So probably wouldn’t play out there. But Frank alluded to it; one of the things we’re working on across the board is reliability in all of our facilities. And one of the things that we’ve done in the past years, put together a center of excellence in manufacturing, led by Bill Manzer, who heads up our pulping asset manufacturing. And the key focus a part of their team is taking these reliability techniques across the entire set of assets and that’s where we’re driving a lot of the improvement in commodity production.

Got it. Thank you very much.

Thanks, Roger.

Thank you. [Operator Instructions]. Our next question today is coming from Dan Jacome from Sidoti & Company. Your line is now live.

Hi. Good morning. Can you give us just some more color on what you’re seeing on U.S. lumber prices in February? The only data I have is the latest information is from January, which I think could be a random one that is showing flattish prices versus December, and then when I look at your 3Q and 4Q forest product pricing versus the composite, I guess, industry benchmark, if you want to call it that, you’re typically at 25 to 30 per thousand board feet spread. So, I’m just trying to understand what you’re seeing in February? Thus far it sounds like you are seeing some improvement through the first couple of weeks of the month. Just wondering if you could give us some more details on that?

Yes. Hey, Dan, there is some good public data out there available on it and we track along with everybody else. And I think what you’ll see, if you take a look at that is that the market really hit bottom in November there and it stayed relatively low levels through the end of the year into the beginning of January and it’s popped up since that timeframe. And it continues to rise. It looks like it’s relatively stable right now from the rise, but has moved into a much better position than what it was at year-end and beginning of the year. And so as we come out of the first quarter, we’ll be on much better position than when we went through into the first quarter. So again, hopefully that helps you.

It is helpful. I don’t know if you have some information out there that I haven’t seen. ROE above 400 per thousand board feet yet or is that too optimistic at this moment?

No. As we look at our mix, we are, Dan, as we come ever in February now. So we’re above that level. Yes, yes.

Okay, terrific. Thanks.

Thank you. We reach the end of our question-and-answer session. I’d like to turn the floor back over to management for any further or closing comments.

Yes. Thank you, everybody. Thanks for your questions. Really appreciate that. We’re excited about the opportunities in front of us. We look forward to delivering on our strategic and financial goals. As noted, we look forward and also to talk to you again on March 7 at our Investor Day at the New York Stock Exchange. So everybody, thanks for your time and have a good day.

Thank you. That does conclude today’s teleconference. You may disconnect your lines at this time and have a wonderful day. We thank you for your participation today.