Good morning, and thank you for standing by. Welcome to Sylvamo's Second Quarter 2023 Earnings Call. [Operator Instructions] As a reminder, your conference is being recorded. I'd now like to turn the call over to Hans Bjorkman Vice President of Investor Relations. Sir, the floor is yours.

Thanks, Leah. Good morning, and thank you for joining our call today. Our speakers this morning are Jean-Michel Ribieras, Chairman and Chief Executive Officer; and John Sims, Senior Vice President and Chief Financial Officer. Slides 2 and 3 contain important information, including certain legal disclaimers. For example, during this call, we will make forward-looking statements that are subject to risks and uncertainties. We will also present certain non- U.S. GAAP financial information. Reconciliations of those figures to U.S. GAAP financial measures are available in the appendix. Our website also contains copies of the second quarter 2023 earnings press release as well as today's presentation. With that, I'll turn the call over to Jean-Michel.

Thanks, Hans, good morning Thank you for joining our call. Let's turn to Slide 4, please. In the second quarter, we generated adjusted operating earnings of $1.14 per share and we achieved $124 million in adjusted EBITDA, both at the high end of our guidance range. We generated $33 million of free cash flow and returned $41 million in cash to shareholders via dividends and share repurchases in the second quarter. Price mix operation and input and transportation costs were all favorable to the outlook we provided in our first quarter call. Our second-quarter volume was short of our expectations, reflecting continued channel inventory correction and weaker than projected demand. John will discuss the industry demand in more detail. Slide 5 compares our second quarter key financial metrics versus prior periods, in the second quarter, we had $124 million in adjusted EBITDA after $58 million in planned maintenance outages' expenses. Operating teams match our production to our customer demand while executing two third of our total planned maintenance outages for 2023. I'm proud of our teams at completing these outages safely and efficiently. If we normalized planned maintenance outages' expense, our second-quarter adjusted EBITDA margin would have been 17%. Now, John will discuss our second quarter performance in more detail. John?

Thank you, Jean-Michel, and good morning everyone, and thank you for joining our call. Slide 6 shows our second-quarter earnings bridge. As Jean-Michel stated, we earned $124 million of adjusted EBITDA in the quarter which was in line with our guidance of $115 million to $125 million. So let's discuss the changes versus the first quarter adjusted EBITDA. Price and mix decreased by $38 million due to lower paper prices in Europe, less favorable mix in Latin America and North America and lower global pulp prices. Volume was the one area that was significantly different than our outlook, and I will discuss more about this on the next few slides. Operations and other costs increased by $10 million, primarily driven by $15 million in higher unabsorbed fixed cost due to increased economic downtime. Planned maintenance outages' costs increased by $58 million as we conducted four major outages versus new outages in the first quarter. Input and transportation costs improved by $24 million driven by favorable energy, chemical, and transportation costs. In our next few slides, I'll discuss industry demand and our volume projections which are central to our revised outlook. So it's worth spending a few minutes on them. So let's move to Slide 7. In the first half of this year, apparent demand for all printing and writing papers including uncoated freesheet declined significantly, especially in Europe and North America. The dark bars on this slide show the demand for the first half of 2023 versus demand for the first half of 2022. The lighter bar shows the demand over the last 12 months versus demand over the prior 12-month period. We regard the lighter bars to be more representative of apparent demand. In the second half of 2022, Europe and North America experienced surges in uncoated freesheet imports…

Thanks, John. Let's put all of this into perspective, I'm on Slide 15. Remaining the supplier of choice is paramount to our success in the second half. We will continue to supply the products to our customers' need when and where they need them. We're also committing to managing our production to our customer demand, which will help us reduce working capital and we will continue our efforts to reduce operating costs and selling and administrative expenses. We expect European earnings to remain under pressure while our Latin America and North American results continue to be resilient. I'll conclude our prepared remarks on Slide 16. Despite the difficult industry demand environment in Europe and North America, we are confident in our ability to create shareowner value throughout the cycle. We have reduced debt significantly since the spinoff and our financial position is robust at 1.2 times net debt to adjusted EBITDA. Our free cash flow generation is strong and we plan to return $125 million to shareowners this year. We are also reinvesting in our business to reduce costs, strengthening our low-cost position so that we can exit the downturn in an even stronger competitive position. With that, I'll turn the call back to Hans.

Thanks, Jean-Michel, and thank you, John. Okay, Leah, we're ready to take questions.

[Operator Instructions] And we go to a question from George Staphos with Bank of America. Please go ahead.

Hi, thank you very much. Hi, everyone, good morning, thanks for the details. I wanted to start, Jean-Michel, John, Hans, if you could have us think how about how you think what the demand trajectory will be once we're through this weak period. I know that's to some degree up there with world peace but do you think there is a demand snap back after we are through this let's call it recessionary period, destocking period? Or do you think the trajectory on demand goes back to what had been the CAGR for North America, for Europe, for South America? What is your expectation? What would you at least try to convince us up from your vantage point in terms of the long-term demand trajectory after this period -- the intermediate period I should say? Thank you.

Yes, morning George, thanks for joining the call. We really believe we're going to go Latin and North America and Europe to return to long-term trends. The difficulty we have is to put a time back but demand will come back. Our inventory correction is at the end, so as you can see on the long term, we've had a lot of ups and down and it's more brutal sometimes than we expect including COVID but the trend has not changed. The trend actually if we take the last four years significantly, I mean, it's a little bit better than we expected. So to answer your question, we are expecting to go back to longer trends than we had in the past.

I guess maybe relatedly and you don't show this here on the slide and I'll have to go back and look at my numbers, but I seem to remember after the financial crisis and here, I am just thinking about North America uncoated freesheet demand really didn't snap back. It didn't decline at the rate that had been experienced during that recession. So that was an improvement, but it didn't really snap back, so if you agree with that premise and maybe you don't, why should it go back to more of a trend this time around.

Yes, so I think there's two comments in that one and I don't want to be wrong in my comments, snap back to prior level, I'm not sure we're going to get there. I think we'll have some snapback because we will have the inventory correction behind us, but the trend will be the same.

Okay.

Yes, I think one thing, George, I would say also, just remember, we're looking at it apparent demand, sometimes apparent demand gives not an accurate view because apparent demand, it is calculated by domestic shipments minus exports plus imports. So I think we tried to say this little earlier is that we think in 2022, actually demand, which grew in the north and U.S. based on those that reported, but that was probably overstated. And today, if you look at what's being reported year-to-date, demand is down almost 17% in the U.S., but that is probably overstating the decline and that's being driven because of the inventory correction, and we do believe that there is some pullback, we've seen that. So I guess what I'm trying to say is that when you're thinking about where they're going to bounce back to -- I think the 17% decline number is too low given where we think because of the way it's calculated with apparent demand.

Okay. Maybe one last question, I'll turn it over, so I realize you're not guiding on the fourth quarter though, implicitly you are because of the full year in the third quarter and when we just do the simple algebra, it's not even analysis you want to put the relatively wide range for what's implied for EBITDA for fourth quarter. And, yes, it's going to be driven by volume by pricing and so on, we get that. But what specifically -- if you could be somewhat granular here about either end-market regions pricing, would be the key factors in terms of whether you wind up towards the higher end of your guidance range implied both third quarter for sure and then fourth quarter or at the lower end? Again, as we get to the fourth quarter, that range is between $70 million I think and $140 million in terms of EBITDA. Thank you, guys.

Yes, George, it's John. Thanks for that question. I think we gave the revised range of $560 million to $600 million, which is a $40 million range. And then if you look at our range for the third quarter, it's $20 million range, $130 million to $150 million. You subtract what we earned in the first half, which is $332 million, you really get a range for the fourth quarter, about $20 million, $100 million to $120 million. And what's driving our revised outlook both in the third quarter and the full year. I think we talked about it, but it's really demand-driven, mostly in North or in Europe slower -- because of the slower economic conditions that are in -- that we're seeing in Europe and that's also having implications in terms of our views about pricing in the second half of uncoated freesheet in Europe and it also incorporates our views on pulp pricing, which we've already seen, but we're going to see the full impact of that in the second half and then also reflects as we talked about a little bit lower view -- demand view in North America. I will say for the year right now -- through the first half of the year, pricing has been relatively stable in North America and Latin America, we do see a seasonal increase in volume, and that reflects also our views on pricings in the export markets.

Okay, thank you so much. I'll turn it over.

[Operator Instructions] And we have a question from Paul Quinn with RBC Capital Markets. Please go ahead.

Yes, thanks very much. Morning, guys. Thanks for the color on the machine shuts that you noticed in North America and Europe. Maybe the question I've got is, what kind of volume needs to come out to stabilize pricing in your opinion in both those markets?

Hi, Paul, Jean-Michel speaking. I would just start by saying in North America, we've seen prices stable but we don't have the calculation on what kind of volume has to be taken off, I don't have a number to give you. What is true, which is very volatile in Europe, in terms of volume is a non-integrated producer, in Europe, they are much more important than they might be in Latin America or North America. And right now with a very low cost of pulp and very low cost of gas, those producers sometimes are in the market, sometimes are not in the market, are much more competitive. So we see them, which sometimes we don't. So there is variability here which is very difficult to answer your question because it depends on raw materials.

Okay, that's fair. And then maybe, the second question I had. You've stated $125 million return of cash to shareholders. What do you think about that level going forward? And what's your ability to increase that?

Thanks, Paul. We said that core to our capital allocation strategy and goal is to continuously increase cash returns to shareholders, So core to that is our dividend and what we want to do is be able to provide stable dividend that grows over time, the balance of it in terms of share buybacks and it's going to be really based on an opportunistic view, but our first priority and I should say, maintain a strong balance sheet so that we can invest in the cycle and provide a stable growing dividend in the long term. So I think the short answer to your question, to what you're trying to get it, it really takes a sense of where we think each year in terms of the free cash flow that we generate in terms of how much -- whether we can increase it above the $125 million or not going forward.

Okay. That's all I had. Thanks, guys.

Thank you.

And we go back to the line of George Staphos with Bank of America. Please go ahead.

George?

Mr. Staphos, you have your phone muted, we don't hear you at this point. Mr. Staphos, if you can hear us, we are unable to hear you. We see inability to hear, Mr. Staphos at this point in time. We don't have any further questions in queue, you may continue.

All right, thanks Leah, George will follow up with you after the call. Before I wrap up, Jean-Michel, any closing comments?

And thank you, Hans, and thanks everybody for joining the call. We remain a cash flow story and we remain committed to returning $125 million dividend and share repurchases in 2023. We remain confident in our ability to generate stronger EBITDA and free cash flows through the cycle. We allocate capital increase to increase shareowner value, we use cash to maintain a strong balance sheet, return cash to shareowners, and reinvest to strengthen our business. In short, we are still very confident through the cycle about Sylvamo.

Thank you, Jean-Michel, and thanks everyone for joining us today. We appreciate your interest in Sylvamo and we look forward to continuing our discussions in the days and weeks ahead. That concludes our call for today. Thank you.

Ladies and gentlemen, that does conclude your conference for today. Thank you for your participation. You may now disconnect.