Good morning, and welcome to the RYAM First Quarter 2023 Earnings Conference Call. During today's presentation, all parties will be in a listen-only mode. Following the presentation, the conference will be open for questions with instructions to follow at that time. As a reminder, this conference is being recorded. I would now like to turn the call over to your host, Mr. Mickey Walsh, Treasurer and Vice President of Investor Relations. Thank you. Mr. Walsh, you may begin.

Thank you, and good morning. Welcome again to RYAM's first quarter 2023 earnings conference call and webcast. Joining me on today's call are De Lyle Bloomquist, our President and Chief Executive Officer; and Marcus Moeltner, our Chief Financial Officer and Senior Vice President of Finance. Our earnings release and presentation materials were issued last evening. They are available on our website at ryam.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 lists 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 Slides 2 and 3 of our presentation material. Today's presentation will also reference certain non-GAAP financial measures, as noted on Slide 4 of our presentation. We believe non-GAAP measures should 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 Slide 17 through 25 of our presentation. I'll now turn the call over to De Lyle.

Thank you, Mickey, and good morning. I will start this call with a review of the financial highlights from the quarter before turning the call to Marcus to provide additional details on each business segment and provide an update on our capital structure and liquidity. After Marcus' update, I will provide an update on our key 2023 initiatives and guidance before opening up the call for questions. Let's now turn to Slide 5. We started 2023 with continued positive momentum on revenue, EBITDA and cash flow. Revenue increased $115 million or 33% from prior year to $467 million, driven by solid price increases across all our products and overall stronger volumes, driven by improved operational productivity. Adjusted EBITDA increased $31 million or 155% versus prior year to $51 million as the price and volume increases more than offset the higher costs. Largest EBITDA gain from prior year was led by our High Purity Cellulose segment. This delivered $44 million of adjusted EBITDA, up $28 million or 175% from prior year. Paperboard delivered another solid quarter with $13 million of EBITDA and High-Yield Pulp contributed an additional $8 million of EBITDA as we realized higher prices in the quarter. Corporate expenses increased $8 million from last year due to $14 million from a prior-year period gain of the sale of our GreenFirst shares. By delivering on these positive results, we remain on track to deliver our $200 million to $215 million of EBITDA for the full year, and we are increasing our free cash flow guidance to $40 million to $65 billion. Now, I'd like to turn the meeting over to Marcus to take us through the financial details for the quarter.

Thank you, De Lyle. Starting with the High Purity Cellulose segment on Slide 6. Sales for the quarter increased $93 million or 33% to $374 million, driven by an 8% increase in sales prices, including an 18% increase in CS prices. Sales volumes increased 27% to 265,000 metric tons due to improved production, a higher mix of commodity sales and enhanced customer contract terms. Sales for the quarter also included $23 million of biomaterials sales, primarily from green energy and lignin. EBITDA for the segment improved $28 million to $44 million. The impact of higher prices and volumes was partially offset by higher chemical and logistics costs along with the impact of annual maintenance expenses in the prior year. Turning to Slide 7. Paperboard segment sales grew $5 million, an 18% increase in sales prices due to demand for packaging grades, which was partially offset by a 7% decline in sales volumes as a result of sales time. EBITDA for the segment grew 30% or $3 million to $13 million as the higher sales prices more than offset the lower volumes and increased costs for chemicals and purchase pulp. Turning to the High-Yield Pulp segment on Slide 8. Sales increased by $20 million from prior year, reflecting a 39% increase in external sales prices and a 43% increase in sales volumes due to stronger demand and improved logistics. Cost increases were primarily related to higher chemicals and logistics. EBITDA for the segment improved $8 million as compared to breakeven in the prior year. Turning to Slide 9. On a consolidated basis, operating income for the first quarter improved $33 million to $17 million. Sales price improvements across each segment and volume increases in HPC and High-Yield Pulp more than offset $59 million of higher costs for chemicals, purchase pulp and…

Thank you, Marcus. Turning to Slide 11, we are making solid progress on 2023 initiatives. With $51 million of EBITDA generated in the first quarter, we remain on track to deliver between $200 million to $215 million for the full year. Free cash flow generation was also strong with $36 million achieved in the quarter. $31 million of this free cash flow was generated from working capital initiatives, primarily from lower inventory while CapEx was managed to $21 million with the Tartas annual maintenance outage executed in the quarter. As we have realized to improve operational reliability, we now expect to reduce maintenance CapEx and increase our free cash flow guidance to $40 million to $65 million in 2023, an increase of $5 million to $10 million from our initial estimate. The strong quarter financial results helped drive down our net leverage to 3.3x and we expect further improvement in the second quarter. We increased cash balances to $169 million while continuing to reduce debt. As Marcus noted, this strong cash balance coupled with a significantly improved credit metrics will increase our flexibility with the refinancing efforts. The maturity of the senior unsecured notes that's coming due in just over a year. Consequently, we are keenly focused on refinancing this debt in the coming quarter. The underlying interest rates have continued to increase with the recent Federal Reserve actions, but markets are currently open and active. We remain flexible on the type of debt and expect to utilize our strong liquidity position to help minimize the impact to interest expense. Operationally, we remain focused on two key areas to drive value. First, we are realizing increased benefits from our investments to improve operational reliability, including increased production and sales volumes and lower unit fixed costs. Our total sales volumes for…

Thank you. We will now be conducting a question-and-answer session. [Operator Instructions] Thank you. Our first question comes from George Staphos with Bank of America. Please proceed with your question.

Good morning, everybody. Thanks for the details. I guess the first question I had, you mentioned, I think it was $7 million or $8 million impact from sales timing in Paperboard as I recall. Can you talk about what that was? And do you, I presume, get that benefit in 2Q? And then, relatedly, Marcus and De Lyle, you talk about a low $40s million in EBITDA for the quarter. One of the things you mentioned I think was a slower start up in Tartas, if I heard correctly. Can you go through the other factors there and the cadence we should expect in earnings 1Q to 2Q across the segments towards that low $40 million EBITDA range?

Good morning, George. This is De Lyle.

Hey, De Lyle.

The first question on the Paperboard and the lower sales in the first quarter of $7 million to $8 million, it's probably a story you've heard many times from -- on a number of calls, which is really around destocking of our -- and we expect that destocking is probably going to wane as we get -- go further into Q2. And then we believe that we'll start seeing some growth picking up around historical levels as we get into the second half.

Okay. So, is it fair -- sorry about that De Lyle. Is it fair that you get some of that back in 2Q sequentially versus 1Q in terms of your projections? Or you're not assuming that in terms of how you build up to the $40 million -- the low $40 million-s, excuse me?

We're expecting, yes, that we're going to have a little bit of a pickup in Q2 versus Q1, but again, I would say -- I don't think the destocking thing has played itself completely out, so we will see a little bit of that in Q2. But we'll see an uptick, we believe, in volume versus relative to Q1, and then you'll start seeing stronger volumes in the second half.

Okay. And broadly, just in terms of the cadence 1Q to 2Q or trend we should expect sequentially across the segments, if we've already covered Paperboard, the other segments would be great.

Yeah, High-Yield again, I think the same type of impact that we saw with Paperboard, some destocking, but also I think there were some demand issues, principally in China in the first part of the first quarter. So, first quarter was quite light. We do expect that the volumes will pick up in Q2 for the same reasons I outlined for Paperboard. And then going forward again we think that we'll be able to fill out our capacity and sell our production for the rest of the year.

And George, just on High-Yield, as you know, [BEK] (ph) is trading down in paper pulp, so High-Yield does follow that pricing cadence, so expect sequential price erosion. And then, on CS volume, again Q1 was actually halfway decent quarter for us. Again, acetate was very robust for us as well as some other app -- specialty applications around filtration and casings and nitrocellulose. Q2 will be light, because we're taking down two of our plants, including Jesup, the largest facility that we make our CS from. So that'll be light in Q2. And then, it will pick back up to close to what we have experienced in Q1 for -- Q3 and Q4. With respect to the commodity High Purity business, this -- and this is relating to viscose and our fluff, again Q2 will be lower than Q1. And then you'll see a little bit of a pickup, but we're going to see a sales mix change we believe in the second half as we see increased demands in the ether business around construction activity improving in the second half in Europe, as we see increase in demand in some of the other CS specialty grades. We're actually going to lower our production and our sales volumes on the commodity side to make room for -- make room in our production wheel for these higher-value products.

Understood. And you already kind of covered this. I'll turn it over after this one. Can you -- I know it's difficult to talk about pricing expectations on a call, but what's embedded directionally, qualitatively, however, you want to provide it in terms of your commodity businesses whether it's fluff, viscose or High-Yield, because you mentioned it, I mean, prices for the commodity grades, hardwood at China has dropped over $300 a ton. How does that sort of filter into your guidance for the year? Thank you.

Yeah. I'll give a primarily qualitative guidance on that. If I start with the High-Yield, we expect it to go down, and fairly substantially as you allude, I mean, the pricing coming out of Q1 is in the $700s. We're expecting on average that our pricing will be in the mid-$600s for -- on average for Q2. And you got to remember that our sales has got a one month lag roughly, so we're speaking up some of the sales pricing in Q1. And then we see it dropping further through Q3 roughly, let's say, 10%, and then you get to Q4, we see it leveling and actually increasing as we think that the market demand in China will pick up and support prices a little bit. In Paperboard again, we think Paperboard is going to be relatively static. We had mentioned in the last earnings call that roughly two-thirds of our business there is under contract. We are seeing some softness on the spot business that we have there. So, we expect that pricing will decline relative to what we experienced in Q1 and in the second half. But what's offsetting that, because it's important to note, is that our Paperboard business will benefit from the lower pulp prices, and so we expected the earnings potential for that business will continue to be strong. On the cellulose business, the CS side of it, it's very strong. As we've noted that we expect the pricing in '23 to be up relative to '22 and will stay strong in the high-single digits throughout the year. On the commodity business, we expect that the low point on pricing around the fluff and around the viscose will probably be Q3 before we start seeing fluff pricing stabilize and start to improve into Q4.

Okay. Thank you so much for the color.

Yeah.

Thank you. [Operator Instructions] Our next question comes from Paul Quinn with RBC Capital Markets. Please proceed with your question.

Yeah, thanks, guys. Good morning. You referenced holistic refinancing in your press release. Just wondering what that means to you, and whether you're looking for in the refinancing in any component of equity?

Hey, Paul, this is De Lyle. I'll get right to the first -- the second part of your question, which is, if we're looking at use equity, and the answer is absolutely not, that is not something that we're interested in doing. We believe that the markets are open. And given our improved credit metrics, we believe that we'll be able to find debt at a reasonable price, obviously, in a market that is at a higher level than we were just three months ago. But our tact here is that, because of our accrued credit metrics and we -- as a result of where we are, we actually believe that our credit metrics are indicative of a B credit. And as a consequence, we're going to be looking at all kinds of different debt structures, whether it's high-yield, looking at syndicated loans or whether it's privately placed loans. But because we have those options, we be able to -- we strongly believe that we'll be able to refinance this debt with debt.

And Paul, to your comment on holistic, again as you know, we've been consciously operating our business currently with a higher cash balance such that we have flexibility as we approach this refinancing to stay committed to -- our messaging has been we're going to look to resize the next refinancing, so that we can manage the interest rate environment that we're in. So, I think it's something smaller on the refi.

Right. And the thing to note is that given the amount of cash we have, but more importantly the capacity on our ABL, we probably have $70 million on the balance sheet that we can use to rise -- to downsize the debt offering or use it as other ways to get to a proper conclusion here. So, we believe we have sufficient liquidity, a much better credit position than we had even just three months ago.

Okay. So that assumes that you'll do the refinancing somewhere around $250 million?

Well, I don't -- again, I'm not going to commit to what level, but directionally if that's what's needed to go out and refinance at a lower level to downsize it, that is certainly one of the options we will consider.

Okay. I get it. Just turning over to High-Yield, and I really appreciate all the color on your specific end-markets that High-Yield looks particularly difficult here. Just wondering when the decision of scale back production at Temiscaming and just basically run the operation for the Paperboard? Is that going to close in Q2?

You raised a very hard questions. But obviously if pricing that we realized gets down to our cash variable cost, we will look to reduce our production, maybe shut down a line or two. As you know, in Temiscaming, we have two lines of High-Yield. But one of those lines can assume -- feeds our Paperboard business, right? So, we will probably keep one line open to continue to feed Paperboard business and shut the other line down, if we find that pricing gets down near or below our variable cost.

Got it. Thanks for the color. Best of luck.

Thank you. Our next question comes from George Staphos with Bank of America. Please proceed with your question.

Hey, guys. A couple from me to finish up here. So, I mean, to the extent that you've been obviously talking with customers and the like as you normally would, but certainly given the market volatility, what are you finding in terms of customers' expectations for usage of your products and maybe whether that's improving overtime? Are you getting any benefit? I mean, the pulp companies are frequently talk about this, I'm not sure how direct it affects business near term, but plastic to fiber substitution, anything that you're seeing that's changed in the last quarter in terms of the outlook for demand? That's number one. Number two. Can you tell me a little bit about what this credit insurance purchase means? What flexibility gives you? Why do you have to do it? And then I had a couple of follow-ons.

Okay. With respect to the call of the sustainability demand story on whether we've heard any changes on that replacing fossil fuel based products with fiber based products, I may say that the story has only strengthened, particularly around bioenergy as the world, and particularly the United States and Europe, moves away from fossil fuels and toward more sustainable fuel sources. And we believe again we're well-positioned with that and getting into that arena with bioethanol. And -- so we think that story is only strengthening. Now, is that going to translate into more sales in 2023? Maybe, particularly around acetate plastics and some of the other applications around that with our customers at Eastman and also with some pull-through from some -- from other customers who were developing those type of products. But I think you're going to really start seeing the impact in '24, particularly when we bring the bioethanol plant on -- in Tartas. The second question...

I can take that George. So, the trade credit insurance effectively expands our advance rates on receivables for foreign customers. So, with that trade credit insurance, I think of an expansion of $35 million to $40 million in our ABL on a comparable basis to where we end up this quarter.

I see. And then two last questions from me. First of all, on the bioethanol projects and I think the $9 million to $11 million you're expecting to generate, how sensitive is that to overall levels of energy pricing? So, to the extent that, okay, we are in -- whether it's global slowdown or recession, what have you, we are generally seeing energy prices coming under some pressure. Does that affect at all your return on that project? Is the $9 million to $11 million moved down a couple million dollars on some energy price scenario that's lower, higher, or is it relatively unaffected by the energy outlook? And then, just can you sort of update us on what -- to the extent, it has any impact, the increase that we're seeing in capacity recognizing it's mostly paper grade hardwood, but you are seeing projects -- swing projects in dissolving, whether you're seeing any encroachment into any of your markets from this new capacity? Thanks guys, and good luck in the quarter.

All right. Thank you. Yeah, George, with respect to the bioethanol business the -- first off, we got a five-year contract with the multinational major corporation to buy our bioethanol.

Got it.

Essentially on a take or pay basis. The second point to make on the bioethanol plant is that it's making a second generation bioethanol. What that means is that it's bioethanol that is being produced from a non-food source, and this is actually mandated. The use of this is actually mandated by the EU. And so when you see -- look at the pricing of second generation bioethanol, it's at a significant premium relative to what I would call generation one bioethanol. And in fact the pricing is relatively stable, if not increasing as the mandates get tighter and tighter. So, we still think that the business will continue to generate the $9 million to $11 million of EBITDA on an annualized basis. What was the second part of your question?

Yes, sorry about that. It's just [indiscernible] and there's lots of capacity coming in. Yes, it's mostly paper grade, but you do have a fair amount of swing dissolving hardwood capacity. Is any of that start to encroach on your markets? And that's all I had. Thank you guys.

Yeah, we're not foreseeing that, George. We don't think that we're going to see any of that swing capacity come over into markets that where we are looking to gain the best value for our products, and it really comes down to the fact that the products we make are very customized, and are actually very technically difficult to make. And so, it's just a matter of saying, "Hey, I want to be in the acetate market and the acetate plastic market, and I'm going to move it from paper pulp up to that -- into that business in that product, in production, just because I don't think the knowledge and the capability is there."

George, maybe just to highlight, as you know, viscose, I think, 5% of our enterprise sales. So small in comparison, and we differentiate ourselves on softwood versus this hardwood capacity as well.

Very good, guys. Thank you, and good luck in the quarter.

Thank you.

Thank you. There are no further questions at this time. I would like to turn the floor back over to President and CEO, De Lyle Bloomquist, for closing comments.

Well, thank you all for your time today. As noted, we started the year on the right path to achieving our strategic and our financial goals. I am proud of all of our efforts within the company and confident that we will continue to improve our profitability and reduce our leverage, and I look forward to our next update coming in August. So, between here and then, if there's any questions, feel free to reach out to us.

Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.