Rayonier Advanced Materials Announces Fourth Quarter and Full Year 2022 Results

Rayonier Advanced Materials Inc. (NYSE:RYAM) (the “Company”) reported net income of $4 million, or $0.05 per diluted share, for the quarter ended December 31, 2022, compared to a net loss of $24 million, or $(0.38) per diluted share, for the same prior year quarter. Income from continuing operations for the quarter ended December 31, 2022, was $4 million, or $0.05 per diluted share, compared to a loss from continuing operations of $28 million, or $(0.45) 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.

• Net sales for the fourth quarter of $500 million, up $126 million, or 34 percent, from prior year quarter
• Income from continuing operations for the fourth quarter of $4 million, up $32 million, or 114 percent, from prior year quarter. Loss from continuing operations for the full year 2022 of $27 million, an improvement of $23 million, or 46 percent, compared to prior year loss.
• Adjusted EBITDA from continuing operations for the fourth quarter of $55 million, up $28 million, or 104 percent, from prior year quarter. Adjusted EBITDA from continuing operations for the full year 2022 of $177 million, up $50 million, or 39 percent, from prior year.
• 2023 Adjusted EBITDA guidance of $200 million to $215 million expected to drive $30 million to $60 million of Adjusted Free Cash Flow

“The quarter’s financial results demonstrate the focus the RYAM team has on improving our operational performance and reducing our debt levels. Higher production volumes and improvements in our supply chain and logistics processes led to higher sales volumes and greater cash generation,” said De Lyle W. Bloomquist, President and Chief Executive Officer. “As we move into 2023, RYAM expects to generate Adjusted EBITDA of between $200 and $215 million, while generating $30 to $60 million of Adjusted Free Cash Flow. In the first quarter of 2023, we expect our net debt to trailing twelve months of Adjusted EBITDA to improve to 3.5 times compared to 4.0 times at the end of 2022.”

Fourth Quarter 2022 Operating Results from Continuing Operations

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

High Purity Cellulose

Net sales for the quarter increased $85 million, or 28 percent, to $384 million compared to the prior year period. Net sales for the year ended December 31, 2022 increased $245 million, or 22 percent, to $1,336 million compared to the prior year period. Included within net sales for the three and twelve months ended December 31, 2022 were $31 million and $115 million, respectively, of other sales, primarily from bio-based energy and lignosulfonates. Sales prices increased 16 percent and 19 percent during the three-month and twelve-month periods, respectively, when compared to the same prior year periods, driven by increases in cellulose specialties prices of 21 percent and 19 percent, respectively, inclusive of the $146 per metric ton cost surcharge effective April 2022, and increases in commodity prices of 17 percent and 19 percent, respectively. Total volumes increased 11 percent and 4 percent during the current three-month and twelve-month periods, respectively, when compared to the same prior year periods. Operating income for the three and twelve months ended December 31, 2022 increased $9 million and $11 million, respectively, when compared to the prior year, driven by the higher sales prices and volumes. Costs increased compared to the prior year periods as the result of inflation on chemicals, wood fiber, energy and logistics costs. Partially offsetting higher energy costs in each of the years ended December 31, 2022, and 2021 were $12 million of sales of excess emission allowances related to the operations in Tartas, France. Additionally, the year ended December 31, 2022, included $8 million of sales of certificates of energy savings associated with Tartas operations.

Compared to the third quarter of 2022, operating income decreased $12 million, driven by lower sales prices and volumes of cellulose specialties due to product mix, partially offset by higher sales prices and volumes of commodity products. Total sales prices decreased 5 percent, while total sales volumes increased 10 percent.

Paperboard

Net sales for the quarter increased $15 million, or 29 percent, to $67 million compared to the prior year period. Net sales for the year ended December 31, 2022, increased $42 million, or 20 percent, to $250 million compared to the prior year period. Sales prices increased 28 percent and 27 percent during the three-month and twelve-month periods, respectively, when compared to the same prior year periods, driven by strong demand. Sales volumes increased 2 percent during the three-month period and decreased 6 percent during the twelve-month period when compared to the same prior year periods, driven by the timing of sales and lower productivity. Operating income for the three months and year ended December 31, 2022, increased $6 million and $24 million, respectively, when compared to the same periods in the prior year, driven by higher sales prices, partially offset by higher logistics and raw material pulp and chemicals costs.

Compared to the third quarter of 2022, operating income decreased $3 million, driven by a 2 percent decrease in sales prices and partially offset by a 5 percent increase in sales volumes, both driven by product mix.

High-Yield Pulp

Net sales for the three months ended December 31, 2022 increased $29 million, or 100 percent, to $58 million compared to the prior year period, driven by 49 percent and 42 percent increases in sales prices and volumes, respectively. Net sales for the year ended December 31, 2022, increased $24 million, or 18 percent, to $160 million compared to the prior year period, driven by a 25 percent increase in sales prices, partially offset by a 3 percent decline in sales volumes. Operating income for the three months and year ended December 31, 2022, increased $13 million and $9 million, respectively, when compared to the same periods in the prior year, driven by higher sales prices, partially offset by higher chemicals and logistics costs.

Operating income increased $6 million when compared to the third quarter of 2022, driven by higher sales prices and volumes.

Corporate

The operating loss for the three months ended December 31, 2022 decreased $2 million to $15 million when compared to the same prior year period. The operating loss for the year ended December 31, 2022 increased $8 million to $58 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 third quarter of 2022, the operating loss increased by $4 million, to $15 million, driven primarily by an increase in environmental expenses and unfavorable foreign exchange impacts on costs.

Non-Operating Expenses

Included in non-operating expenses for the year ended December 31, 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 $4 million was recognized on these shares during the year ended December 31, 2021. The shares were sold in May 2022 for $43 million.

Included in non-operating expenses for the three months and year ended December 31, 2021 were $7 million and $8 million, respectively, in pension settlement losses.

Income Taxes

The effective tax rate on income from continuing operations for the three months ended December 31, 2022 was a benefit of 130 percent. The effective tax rate on the loss from continuing operations for the year ended December 31, 2022 was an expense of 4 percent. The most significant items creating a difference between the 2022 effective tax rate and the statutory rate of 21 percent were changes in the valuation allowance on disallowed U.S. interest deductions, nondeductible executive compensation, U.S. tax credits and tax return-to-accrual adjustments on filed returns.

The effective tax rates on the loss from continuing operations for the three months and year ended December 31, 2021 were benefits of 18 percent and 42 percent, respectively. The 2021 full year effective tax rate differed from the statutory rate of 21 percent primarily due to a tax benefit recognized by remeasuring the Canadian deferred tax assets at a higher Canadian blended statutory tax rate. The Canadian statutory tax rate increased as a result of changing the allocation of income between the Canadian provinces after the sale of the lumber and newsprint assets.

Discontinued Operations

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

In 2021, the Company received $193 million of cash upon closing of the transaction. In 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. Pursuant to the terms of the asset purchase agreement, GreenFirst and the Company had been engaged in efforts to finalize the closing inventory valuation adjustment, which could have impacted the final purchase price. In November 2022, the arbitration proceeding was resolved in favor of the Company and no changes were made to the gain on sale recorded during 2021.

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 pre-tax gain and increased the long-term receivable related to all of the administrative reviews to date to $38 million. In January 2023, the USDOC released the preliminary results of its fourth administrative review, which indicate a reduction in rates to a combined 8.2 percent. The Company will adjust its long-term receivable as appropriate when these rates are finalized and issued, expected later in 2023. In total, the Company paid approximately $112 million in softwood lumber duties from 2017 through 2021. Although no assurances can be given, the Company expects to receive all or the vast majority of these duties upon the settlement of the dispute.

Cash Flows & Liquidity

For the year ended December 31, 2022, the Company generated operating cash flows of $69 million, which were driven by net tax refunds of $15 million, partially offset by increased cash outflows from working capital, driven by inflation and logistics constraints, and expenditures related to extensive planned maintenance outages through the first half of the year.

For the year ended December 31, 2022, the Company used $138 million in its investing activities for continuing operations related to net capital expenditures, which included $34 million of strategic capital spending focused on enhancing reliability and productivity.

For the year ended December 31, 2022, the Company used $73 million in its financing activities primarily for the repayment of long-term debt.

The Company ended the year with $301 million of global liquidity, including $152 million of cash, borrowing capacity of $130 million under the ABL Credit Facility and $19 million of availability under the factoring facility in France.

The next significant debt maturity for the Company is in June 2024. The Company withdrew its opportunistic offering of senior secured notes earlier this year as terms and conditions were not sufficiently attractive at that time. The Company will continue to monitor the capital markets and is prepared to opportunistically refinance its senior notes due June 2024 at the appropriate time and at acceptable terms, considering market conditions and all other relevant factors. The Company may also use a portion of its cash balance to 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.

High Purity Cellulose

Demand for cellulose specialties and commodity products is mixed. Strength in acetate, casings, filtration and nitrocellulose end markets are offsetting softness for construction ethers, food additives in microcrystalline cellulose and tire cord. Fluff market demand remains resilient but at lower prices than fourth quarter levels. Viscose markets started the year soft, with signs of improvement as China’s economy reopens. Average sales prices for cellulose specialties in 2023 are expected to be high single-digit percent higher than average 2022 sales prices. Commodity sales prices are expected to decline versus 2022 levels, in line with industry forecasts for fluff and viscose cellulose pricing. Commodity sales volumes are expected to increase as production and logistics constraints improve. Raw material prices are expected to remain elevated, offset by benefits expected from prior strategic capital investments.

Paperboard

Paperboard prices for 2023 are expected to continue to increase from 2022 levels, driven by strong demand in both the packaging and commercial printing end markets. Sales volumes are expected to increase slightly, driven by improved logistics, while raw material prices reduce as pulp markets decline.

High-Yield Pulp

High-yield pulp markets have declined as global economic demand slows, impacting sales price. The reopening of the Chinese economy may provide catalyst for more stable pricing. Sales volumes are expected to improve slightly in 2023, primarily due to improved productivity and logistics.

2023 Guidance

Overall, income (loss) from continuing operations is expected to be between $(8) million and $12 million, with Adjusted EBITDA between $200 million and $215 million for 2023. The Company expects to spend approximately $110 million of custodial capital expenditures, including $15 million to $20 million of catch-up maintenance capital, and discretionary strategic capital expenditures of approximately $30 million to $35 million, net of financing. Strategic capital may be modulated as necessary to support Adjusted Free Cash Flow. The Company is targeting $45 million of benefit from working capital to support Adjusted Free Cash Flow for the year, with potential headwinds expected in the first quarter. Overall, the Company expects to generate $30 million to $60 million of Adjusted Free Cash Flow in 2023.

A Sustainable Future

For over 95 years, the Company has invested in renewable product offerings and its biorefinery model provides a platform to grow existing and new products to address the needs of the changing economy. The Company continues to focus on growing its bio-based product offering. In 2022, other sales in the High Purity Cellulose segment were $115 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 bioethanol facility at its Tartas, France facility is anticipated to be operational in 2024. The total estimated cost of the project is approximately $39 million, with $29 million to be spent in 2023. The Company plans to utilize $28 million of low-cost green loans to help fund the project, including $8 million already raised in 2022, and $4 million in grants. The project is expected to provide $9 million to $11 million of annual incremental EBITDA beginning in 2024.

“RYAM is well positioned to meet the demands of a more sustainable world. We have the right team and assets in place to develop innovative solutions that meet our customers’ needs while running our operations in a safe and reliable way. Our improved operations and strengthened balance sheet position the Company to make disciplined strategic capital allocation decisions that create value for our shareholders,” concluded Mr. Bloomquist.

For the complete press release, click here.

About RYAM

RYAM 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, RYAM employs just over 2,500 people and generated $1.7 billion of revenues in 2022. More information is available at www.RYAM.com.

Contact:

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

Source: Rayonier Advanced Materials, Inc.