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

Thanks, Greg. Good morning, and thank you for joining our call today. Our speakers this morning are Jean-Michel Ribiéras, 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 third quarter 2023 earnings press release as well as today's presentation. With that, I'll turn the call over to Jean-Michel. Jean-Michel Ribiéras: Thanks, Hans. Good morning, and thank you for joining our call. Let's turn to Slide 4, please. In the third quarter, we achieved $158 million in adjusted EBITDA and generated strong free cash flow of $150 million -- $155 million. We achieved adjusted operating earnings of $1.70 per share. Price and mix, operation and input transportation costs were all favorable to the outlook we provided in our second quarter call. Our third quarter volume was short of our expectations reflecting ongoing China inventory destocking and weaker-than-expected demand. We strengthened our financial position in the third quarter with net debt of $796 million another 1.2x net debt to adjusted EBITDA ratio. We also deposited $60 million in escrow to remove cash return needs related to the Brazil tax dispute in our credit agreement while returning $24 million in cash to shareholders in the quarter. Slide 5 compares our third quarter key financial metrics versus prior periods. In the third quarter, our earnings were better than our outlook, and we took measures to maximize free cash flow, including selling and administrative cost reduction, shrinking working capital and adjusting the timing of capital spending. I'm proud of our teams collaborated to take care of our customer needs while executing significant economic downtime safely and as efficiently as possible. Now John will discuss our third quarter performance in more detail. John?

Thank you, Jean-Michel. Good morning, everyone, and thanks for joining our call. Slide 6 shows our third quarter earnings bridge. As Jean-Michel stated, we earned $158 million of adjusted EBITDA in the quarter, which was slightly higher than our guidance of $130 million to $150 million. Let's discuss the changes versus the second quarter adjusted EBITDA. Price and mix decreased by $55 million due primarily to lower paper prices in Europe and Latin America export markets as well as lower global pulp sales. Volume increased by $6 million in the Americas, while Europe remained stable. Operations and other costs improved by $1 million with better operating and supply chain results offset by $13 million in higher unabsorbed fixed costs due to increased economic downtime. Planned maintenance outage costs decreased by $55 million with no major planned outages in the quarter. Input and transportation costs improved by $27 million, driven by favorable fiber, chemical and transportation costs. So let's move to Slide 7. This slide assumes world graphic paper demand at just over 100 million tons. Here, you can see that uncoated freesheet is the largest and most resilient of all the graphic paper grades. What separates uncoated freesheet? It's quite simple. Uncoated freesheet has the highest number of end-use applications and is used across all sectors of the economy. Uncoated freesheet is sustainable, affordable and functional. And we believe paper will remain an effective vehicle for education, communication and entertainment for a long time. Paper plays a critical role in education. Studies continue to show that students of all ages absorb more when reading on paper versus reading on digital screens. In fact, Sweden recently moved students off digital devices and back on to books and handwriting on paper. This is why total demand for uncoated freesheet exceeds the sum…

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

[Operator Instructions] Your first question comes from the line of George Staphos from Bank of America. Please go ahead.

Thanks very much. Hi everyone. Good morning. Thanks for the details. The first question I wanted to hit on is with Project Horizon. The deck speaks to about $22 million of run rate savings from the salaried reduction, if I'm reading it correctly, the footnote correctly. In total, what net benefit do you think you'll be able to get from the program in '24, recognizing, obviously, it affects a number of people who worked with the organization for a long time and it's bittersweet, but what do you think the net benefit to the P&L would be from this program in '24?

George, it's John. To answer your question, we're talking $110 million run rate by the end of 2024 and we do have on the slide, we're estimating that inflation for 2024 can be approximately $50 million. So the net benefit in total will be $60 million once we get to the full run rate. In 2024, we're expecting a net benefit of about $10 million to $15 million.

Second question, what we've been seeing in volumes will maybe from an amplitude standpoint is larger and, therefore, worse than expected. It's not unreasonable based on history, it's fairly consistent. We're seeing big drops in demand in very large economic downturns or deceleration. Whether or not we're in a recession, certainly from the companies that I look at over the last year or so, the volumes have been such where I think packaging paper has been basically in a recession. And what you normally then see though is not a real rebound in demand, rather, the world learns to be more productive and you have a new demand level for uncoated freesheet. What do you think in terms of where we are right now in terms of any further demand destruction that we may see or may not. Hopefully, it's resolved. And what -- if you had to estimate at this juncture, what do you think your shipments, your demand will look like in '24 by market year-on-year if you can provide that? Jean-Michel Ribiéras: It's Jean-Michel. Thanks for joining the call. I think, as you said, we've added in our cycle some more strong numbers sometimes decrease due to economical factors, due to COVID, due to multiple factor. Even if you take '23 strong decrease, we are still in our trend back to 4% to 6% in the U.S. downturn and back to 3% to 4% down in Europe. I think we are on this trend, and we're going to continue to be on this trend. What happens is when you have strong elements like inventory correction you've seen this year, you could kind of think it is much worse than this trend and numbers show it's not. '24, it's difficult to predict. What we do know in '24 is we do not expect to have the inventory correction again. So when you compare it to '23, it should probably look better, but on the trend, demand deep, I think there is no change. It's still a minus 5% globally.

Sorry, go ahead, John.

I was just going to add one more comment to that is this is -- I think we agree with what you're saying. And to the extent for North America and Europe, Latin America, the demand is down, but most of that is all due to inventory corrections. So I just must focus that for one part of our market, we're not seeing that recessionary type decline that you referenced.

So should we expect on a year-on-year basis that demand should match consumption in '24? Or would you expect some inventory rebuild such that you might actually see some year-on-year increases in percentages for the grades? And my last one, I'll turn it over. Can you talk about the -- you indicated you had a new win in North America, if I heard you correctly, if you could talk to that? That would be great. And I'll be back in queue. Jean-Michel Ribiéras: Yes. So we do expect to be at least at level of consumption. I would say maybe some inventory correction would be an upside, but our expectation is to be more at normal -- normal demand consumption right now. As you mentioned, the upside. If you remember, in North America, we mention, I think it was last quarter, the one before. With the closing of the Canton mill, there was opportunity to take some new businesses for us in North America, and we did. So that's what we mean by that.

Thank you. I’ll turn it over.

Your next question comes from the line of Matthew McKellar from RBC Capital Markets. Please go ahead.

Good morning. And thanks for taking my questions. Maybe just picking back up with Project Horizon. So any more color you can give on what kind of opportunities you're seeing to reduce costs in the manufacturing supply chain side, in particular, including if there are any specific mills or even geographies that you call out as presenting the best opportunities? And then are there -- is there a need to spend capital to achieve some of these savings?

Yes, Matt. A couple of -- first of all, some of it is realization of capital that we've already spent in terms of cost reduction. And then we also do have some cost reduction capital planned for next year that will yield some benefit. The other area is that we're just continuing to work on efficiencies around energy consumption, chemical consumptions and becoming more efficient in terms of our operations. Jean-Michel Ribiéras: I'll add to that. We have some form of a little bit of opportunities in supply chain, especially in North America. When we spin, we kept the network we had before mostly intact. We did not look at what was the opportunities to ameliorate, optimize that network. I know that we have two years of experience and understand better the market and where we do -- we think we have opportunities to significantly improve our supply chain operation efficiency, especially in North America. That's probably where we have the biggest supply chain. We now have good opportunities there too.

Great. That's helpful. Thanks for that. Maybe next, it sounds like you're expecting channel inventory correction to be largely complete by year-end. Would that be the same -- similar across geographies? Or are there any areas where you call out as being a little bit different as you look from region to region? Any particular here, I'm thinking about Latin America, which I think you've said has kind of exhibited different demand trends and would be seasonally stronger in Q4? Jean-Michel Ribiéras: Yes. I think Latin America, the strongest we saw was not Brazil, other Latin America. And I will say with the other pattern we have right now, we can say this is behind us. I would say both Europe and North America, especially in the last four weeks, when we see our order intake and what our customers said that give us a good indication that the inventory correction is done.

Okay, thanks. That's all for me. I'll turn it back. Jean-Michel Ribiéras: Thank you.

Next, we'll go back to the line of George Staphos from Bank of America. Please go ahead.

Thanks so much. So I want to come back, I think Matthew queued it up nicely on Project Horizon. So was this a program that you developed internally either from existing learnings you had within Sylvamo or the predecessor company? Or did you bring in somebody from outside the firm to sort of teach you whatever you're doing to get at these net savings over time? And then again, we've got supply chain, we've had efficiencies, that's all well and good, and we wish you well in the program. But is there something sort of unique to this program relative to past cost reduction programs that you might have been associated with either at Sylvamo or prior companies that we should keep in mind and give us more or less optimism on its prospects?

Two things on that, George. First of all, we named it Project Horizon because this is a project that talks about the future for Sylvamo. So we knew coming out of the spin that we could operate more efficiently, leaner, more focused and the plan was to get there as soon as we got the spin behind us. And so we did this internally. This is about focusing on our strategy and make sure that we have the organizations and the capabilities we need to execute going forward. So this is from an internal perspective. We did not go to outsized resources for that. And the same is true for our operational side. And some of this has to do with us continuing to ramp up our investments that we've been doing and showing in terms of our facilities, both in the maintenance and the cost reduction capital. But it's also more of a concerted effort and focused on areas of opportunities we have to improve our operations. We set a short time frame because we want to be able to execute this quickly, and we wanted to be able to show that you ought to be able to see it on the bottom line pretty quickly. Now we talked about $10 million to $15 million in 2024 but this is going to be an exit rate. So you should be seeing it beginning first quarter of 2025. Jean-Michel Ribiéras: If I may, George, I would just add, just in supply chain, when I was talking about network optimization, we did get some specialist supply chain services to help us, and we're continuing to have them helping us redesigning our network and thinking about it differently.

Okay. But actually, I just want to make sure I understood. So the $10 million to $15 million, I took it as a net realized with the run rate being after inflation, the $60 million or so. Did I get that incorrectly? And if I got it correctly, does that mean then there's another $30 million to $40 million benefit that you get in '25 based on the program?

That's the way. The net benefits in the $15 million after inflation and the $60 million is net of inflation.

Okay. And on the Ops efficiencies, I mean is it just purely you went machine-by-machine, boiler by boiler and just did indexing and yield analysis? Or was there something else related to the program? I'm sure it's much more, but is that the fundamental that you were employing there?

Yes. That's probably a good way to describe it. It was a bottoms-up work with an extensive, let's say, extensive feedback or information from everybody working in our facilities. Jean-Michel Ribiéras: And some of it is due also to our cost investment that John mentioned. We've invested in some equipment, in some mills much better online data analytics to get the capacity now to much better understand clients and predicting them and act on them. So some of the cost programs we've done with this automation, I won't call it AI, it's too much, but I would call it digital progress in the mills. Analytics is helping us also a lot.

And George, let me add, these are structural changes. These are not -- we're not trying to push off or avoid -- we're looking at $110 million. These are sustainable changes. So they do not include, for example, increased volume and absorbing unabsorbed fixed costs that we had this year versus because of the lack of order downtime we took because of the inventory correction. So that's not included in this $110 million.

Interesting, John. One last quick for me and then I'll turn it back and try to get back in queue. I remember a discussion about LatAm seeing some improvement in volumes with the textbook program, did that materialize? And how is the order book in LatAm going into '24? Jean-Michel Ribiéras: Yes, it did materialize mostly. And order book is good. It's a seasonality also which is always very good in the fourth quarter. So fourth quarter in LatAm is the strongest one, first quarter the weakest one, but that's just a seasonal demand.

Thank you.

Mr. Staphos, please continue with your questions. Mr. Staphos, your line is open. Please go ahead.

Oh. Thank you so much .Last one for me. So share repurchase currently available authorization did you say $160 million? And do you have an outlook on maintenance at this juncture, gentlemen, for '24?

Yes, we have -- I think I believe $167 million authorization. And we have yet to -- we're still developing plan for 2024, and we'll probably be sharing the maintenance outlook with you and when we announce the fourth quarter.

Okay. At this juncture, would you expect relatively flat? Or could it be lower or likely higher?

I would say right now, relatively flat.

Thank you, John. Yes. Understood. Thank you, guys.

And at this time, there are no further questions. I'd now like to turn the call back to Hans Bjorkman.

Thanks, Greg. Before I wrap up the call, Jean-Michel, any closing comments? Jean-Michel Ribiéras: First of all, thank you for joining our call. We remain a cash flow story. We're projecting $270 million in free cash flow this year and remain committed to returning $125 million to shareowners. We remain confident in our ability to generate strong EBITDA and free cash flows throughout the cycle. We will exit this current industry down cycle as a leaner, stronger company. We allocate capital to increase shareowner value. We use cash to maintain a strong balance sheet, return cash to shareowners and reinvest to our strengthen our businesses. We are confident in the future. So thank you, everybody.

Thanks for joining our call today. We appreciate your interest in Sylvamo, and we look forward to the discussions in the coming weeks and months ahead. Thank you so much.

Ladies and gentlemen, that does conclude your conference for today. Thank you for your participation and for using AT&T Teleconference. You may now disconnect.