Rayonier Advanced Materials Announces Third Quarter 2022 Results

Rayonier Advanced Materials Inc. (NYSE:RYAM) (the “Company”) reported net income of $30 million, or $0.45 per diluted share, for the quarter ended September 24, 2022, compared to a net loss of $5 million, or $(0.07) per diluted share, for the same prior year quarter. Income from continuing operations for the quarter ended September 24, 2022 was $18 million, or $0.28 per diluted share, compared to a loss from continuing operations of $13 million, or $(0.21) per diluted share, for the same prior year quarter. The Company sold its lumber and newsprint assets in the third quarter of 2021 and presents the results of those operations as discontinued operations. Unless otherwise stated, information in this press release relates to continuing operations.

“The quarter’s improved financial results are evidence of the significant earnings power of RYAM. Increased productivity in the third quarter led to higher sales volumes in High Purity Cellulose and stronger financial results,” said De Lyle W. Bloomquist, President and Chief Executive Officer. “Though the global economy appears to be slowing, we remain optimistic about capturing additional productivity gains and value for our key products. As such, we are confident about our business and have increased our full year Adjusted EBITDA guidance to exceed $175 million for 2022. We also continue to reduce debt, including net repayments of $59 million year to date. As our credit metrics continue to improve, we are actively monitoring debt markets for an opportune time to refinance our 2024 debt maturities.”

Third Quarter 2022 Operating Results from Continuing Operations

The Company operates in the following business segments: High Purity Cellulose, Paperboard, High-Yield Pulp and Corporate.

Net sales for the quarter increased $81 million, or 28 percent, to $369 million compared to the prior year period. Net sales for the nine months ended September 24, 2022 increased $160 million, or 20 percent, to $952 million compared to the prior year period. Included within net sales for the three and nine months ended September 24, 2022 were $33 million and $84 million, respectively, of other sales, primarily from bio-based energy and lignosulfonates. Sales prices increased 21 percent and 19 percent during the three-month and nine-month periods, respectively, when compared to the same prior year periods, driven by increases in cellulose specialties prices of 25 percent and 19 percent, respectively, which were inclusive of the $146 per metric ton cost surcharge effective April 2022, and increases in commodity prices of 13 percent and 19 percent, respectively. Total volumes increased 7 percent and 1 percent during the current three-month and nine-month periods, respectively. Operating income for the three and nine months ended September 24, 2022 increased $20 million and $2 million, respectively, when compared to the prior year. Costs increased compared to the prior year periods as the result of inflation on key inputs, including chemicals, wood fiber and energy costs, and higher supply chain expenses, partially offset by improved productivity in the most recent quarter. Energy costs for the three and nine months ended September 24, 2022 were partially mitigated by $2 million and $12 million, respectively, of sales of excess emission allowances, which are at elevated pricing levels and related to the operations in Tartas, France.

High Purity Cellulose

Compared to the second quarter of 2022, operating income increased by $15 million, driven by higher sales prices and volumes of both cellulose specialties and commodity products and improved productivity, partially offset by higher energy and maintenance costs. Total sales prices and volumes increased by 3 percent and 17 percent, respectively.

Paperboard

Net sales for the quarter increased $14 million, or 27 percent, to $66 million compared to the prior year period. Net sales for the nine months ended September 24, 2022 increased $26 million, or 17 percent, to $183 million compared to the prior year period. Sales prices increased 34 percent and 26 percent during the three-month and nine-month periods, respectively, when compared to the same prior year periods, driven by strong demand. Sales volumes decreased 7 percent and 8 percent during the three-month and nine-month periods, respectively, when compared to the same prior year periods, driven primarily by lower productivity. Operating income for the three and nine months ended September 24, 2022 increased $10 million and $18 million, respectively, when compared to the same periods in the prior year, driven by higher sales prices, partially offset by higher raw material pulp, chemicals and logistics costs, as well as lower sales volumes.

Compared to the second quarter of 2022, operating income increased $2 million driven by a 10 percent increase in sales prices, partially offset by a 7 percent decrease in sales volumes.

High-Yield Pulp

Net sales for the three months ended September 24, 2022 decreased $2 million, or 5 percent, to $40 million compared to the prior year period, despite a 15 percent increase in sales prices, due to an 18 percent decrease in sales volumes. Net sales for the nine months ended September 24, 2022 decreased $4 million, or 4 percent, to $102 million compared to the prior year period, driven by a 16 percent decline in sales volumes, partially offset by a 15 percent increase in sales prices. Operating income for the three and nine months ended September 24, 2022 declined $2 million and $4 million, respectively, when compared to the same periods in the prior year despite the higher sales prices, due to lower productivity, logistics constraints and higher input and supply chain costs.

Operating results improved by $8 million when compared to the second quarter of 2022 driven by higher sales prices, partially offset by decreased sales volumes.

Corporate

The operating loss for the three months ended September 24, 2022 increased $2 million to $11 million when compared to the same prior year period, driven primarily by higher variable stock-based compensation costs. The operating loss for the nine months ended September 24, 2022 increased $10 million to $43 million when compared to the same prior year period, driven by an increase in severance and variable stock-based compensation costs, partially offset by favorable foreign exchange impacts.

Compared to the second quarter of 2022, the operating loss improved by $7 million, to $11 million, driven primarily by a decrease in severance and variable stock-based compensation costs.

Non-Operating Expenses

Included in non-operating expenses for the nine months ended September 24, 2022 was a $5 million gain associated with the GreenFirst Forest Products, Inc. (“GreenFirst”) shares received in connection with the sale of lumber and newsprint assets in August 2021. A loss of $8 million was recognized on the shares during the three and nine months ended September 25, 2021. The shares were sold in May 2022 for $43 million.

Income Taxes

The effective tax rate on income from continuing operations for the three months ended September 24, 2022 was a benefit of 11 percent. The effective tax rate on the loss on continuing operations for the nine months ended September 24, 2022 was an expense of 13 percent. The most significant item creating a difference between the 2022 effective tax rates and the statutory rate of 21 percent were changes in the valuation allowance on disallowed interest deductions in the U.S.

The effective tax rates on the loss from continuing operations for the three and nine months ended September 25, 2021 were benefits of 24 percent and 59 percent, respectively. The effective tax rate for the nine months ended September 25, 2021 differs from the statutory rate of 21 percent primarily due to a tax benefit recognized by remeasuring the Company’s Canadian deferred tax assets at a higher Canadian blended statutory tax rate. The Canadian statutory tax rate is higher as a result of changing the allocation of income between the Canadian provinces after the sale of the Company’s lumber and newsprint assets.

Discontinued Operations

As a result of the sale of lumber and newsprint assets in August 2021, the Company presents prior year results and activity for the current period related to the Forest Products and Newsprint segments as discontinued operations.

The cash received at closing was preliminary and remains subject to final purchase price and other sale-related adjustments. During the first quarter of 2022, the Company trued-up certain sale-related items with GreenFirst for a total net cash outflow of $3 million, as expected and previously disclosed. No adjustments have been made in 2022 to the gain on sale recorded during the year ended December 31, 2021. Pursuant to the terms of the asset purchase agreement, GreenFirst and the Company continue efforts to finalize the closing inventory valuation adjustment.

During the third quarter of 2022, the U.S. Department of Commerce completed its third administrative review of duties applied to Canadian softwood lumber exports to the U.S. during 2020 and reduced rates applicable to the Company to a combined 8.6 percent. In connection with this development, the Company recorded a $16 million gain, pre-tax, and increased the long-term receivable related to all of the administrative reviews to date to $38 million. In total, the Company paid approximately $112 million in softwood lumber duties from 2017 through 2021. The Company expects to receive all or the vast majority of these duties upon the settlement of the dispute.

Cash Flows & Liquidity

For the nine months ended September 24, 2022, the Company generated operating cash flows of $7 million, which was primarily driven by the receipt of a $23 million U.S. federal tax refund, partially offset by increased cash outflows from working capital and other items as a result of extensive planned maintenance outages through the second quarter.

For the nine months ended September 24, 2022, the Company used $114 million in its investing activities for continuing operations. The investing cash outflows related to capital expenditures, net of proceeds from sale of assets, including approximately $22 million of strategic capital spending focused on enhancing reliability and productivity.

For the nine months ended September 24, 2022, the Company used $51 million in its financing activities for continuing operations primarily for repayments of long-term debt.

The Company ended the quarter with $283 million of global liquidity, including $132 million of cash, borrowing capacity of $128 million under the ABL Credit Facility and $23 million of availability under the factoring facility in France.

In October 2022, we repaid a Canadian dollar fixed interest rate term loan in the amount of CAD $12 million (USD $9 million).

With its next significant debt maturity in mid-2024, the Company continues to monitor the capital markets and is prepared to opportunistically refinance its senior notes due June 2024 at the appropriate time considering market conditions and all other relevant factors. The Company is confident that by executing on its strategy to improve its credit profile in the back half of 2022, it can obtain a refinancing at acceptable terms based on market conditions. The Company may also use a portion of its cash balances to opportunistically repay debt or assist in a holistic refinancing of its capital structure.

Market Assessment

This market assessment represents the Company’s best current estimate of its business segments’ future performance.

The Company updated its Adjusted EBITDA guidance to exceed $175 million for 2022, subject to ongoing supply chain constraints. Additionally, the Company remains on track to reduce its net debt level to $725 million by the end of the year. The Company has reduced its net leverage ratio to 5.1 times as of the end of the third quarter and as it continues to reduce this ratio towards 4.0 times, it expects to have opportunities to refinance its senior notes due June 2024 in the near future.

High Purity Cellulose

Demand for cellulose specialties and commodity products remains strong albeit somewhat tempered as global economic growth slows. As such, average sales prices are expected to be down modestly in the fourth quarter driven by a greater mix of commodity sales volumes as production and logistics constraints improve. Key raw material inflation is expected to remain elevated. Adjusted EBITDA for the segment is expected to be down slightly compared to the third quarter but higher for the full year 2022 compared to 2021.

Paperboard

Paperboard prices are expected to remain elevated in the fourth quarter driven by strong demand in both the commercial printing and packaging end-use markets. Sales volumes and raw material costs are expected to remain steady. As a result, Paperboard is anticipated to deliver another solid quarter of Adjusted EBITDA.

High-Yield Pulp

High-yield pulp markets appear to be peaking as global economic demand slows. However, due to the sales lag experienced in this segment, realized prices are still expected to increase in the fourth quarter. Sales volumes are anticipated to increase significantly as production and logistics constraints improve. As such, Adjusted EBITDA for High-Yield Pulp is anticipated to improve in the coming quarter.

A Sustainable Future

For over 95 years, the Company has invested in renewable product offerings and the Company’s biorefinery model provides a platform to grow existing and new products to address needs of the changing economy. The Company continues to focus on growing its bio-based product offering. In the first nine months of 2022, other sales in the High Purity Cellulose segment were $84 million primarily related to sales of bioelectricity and lignosulfonates. The Company expects to grow these sales and increase overall margins over time.

The Company’s investment into a bioethanol facility at its Tartas, France facility is anticipated to be operational in 2024, subject to the approval of certain permits. Further updates will be provided as the schedule is finalized.

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About Rayonier Advanced Materials

Rayonier Advanced Materials is a global leader of cellulose-based technologies, including high purity cellulose specialties, a natural polymer commonly found in filters, food, pharmaceuticals and other industrial applications. The Company also manufactures products for paper and packaging markets. With manufacturing operations in the U.S., Canada and France, Rayonier Advanced Materials employs just over 2,500 people and generates approximately $1.4 billion of revenues. More information is available at www.rayonieram.com.

Contact:

Ryan Houck – Media Contact – (904) 357-9134

Source: Rayonier Advanced Materials, Inc.