Q2 2021 Rayonier Advanced Materials Inc Earnings Call

August 4, 2021

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Yes.

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Good morning, and welcome to Rayonier advanced materials second quarter 2021 earnings conference call. During today's presentation, all parties will be in a listen only mode.

In the presentation. The conference will be opened for questions with instructions to follow at that time. As a reminder, this conference is being recorded I would now like to turn this call over to your host Mr. Mickey Walsh Treasurer, and Vice President of Investor Relations for Rayonier advanced materials. Thank you. Mr. Walsh you may begin your presentation.

Nation.

Thank you operator, and good morning, everyone and welcome again to Rayonier advanced materials second quarter of 2021 earnings conference call and webcast. Joining me on today's call are Paul Boynton, Our President and Chief Executive Officer, and Marcus Molnar, Our Chief Financial Officer, and senior Vice President Finance on.

Our earnings release and presentation materials were issued last evening and are available on our website at Rayonier, Hey M Dot.

Dot 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 list. Some of the factors, which may cause actual results to differ materially from the forward looking statements we may make.

They're also referenced on slides 2 and 3 of our presentation materials. Today's presentation will also reference certain non-GAAP financial measures as noted on slide 4 of our presentation. We believe non-GAAP measures 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 GAAP comparable financial measures are included on slides 17 through 25 of our presentation I'll now turn the call over to Paul.

Thank you Mickey and good morning, everyone I'm pleased to report second quarter results for significantly favorable to both the prior year and sequential quarter. We also made substantial progress on our strategic initiatives.

Let's start by looking at slide 5.

For a total company EBITDA improved by $130 million from prior year to $149 million driven by continued momentum in high purity cellulose commodity products prices, essentially viscose and fluff pulps and solid demand for cellulose specialty products as well as of course, our ability to capture.

The record lumber prices and our force product segment prior to their divestiture.

Additionally, we saw higher prices and volumes in the paperboard and high yield pulp segments.

With the strong EBITDA results, we have generated $141 million of free cash flow year to date, including $120 million in the second quarter.

In addition to the exceptional financial results, we progressed towards the successful closing on the sale of our lumber and newsprint assets to Green first forest products, which is expected to occur on August 28.

This sale will complete the strategic portfolio optimization plan that commenced with our 2017 acquisition of <unk> and has included the divestiture of the resins business.

The matane high yield pulp mill.

The Huntsville hardwood saw mill and now on this sale, the 6 Quebec, and Ontario, Softwood saw mills, and the newsprint mill and Kapuskasing.

Each sale was well timed to optimize the value to our shareholders.

Now with the lumber and newsprint asset sale. The company is well positioned for the future as we will use the cash flow and the proceeds to reduce leverage and support disciplined investments in our core high purity cellulose business, including investments in Green energy and our biofuel.

We also expect the sale to reduce the volatility and cyclicality of our future earnings as we focus on our core high purity cellulose business, along with the integrated paperboard and high yield pulp business segments.

Now I'd like to ask Marcus to take us through the numbers for the quarter and discuss our capital allocation priorities in more detail on.

I'll come back and provide additional perspective on our markets Marcus Thank.

Paul.

Please note that the company's lumber in newsprint operations have now been classified as discontinued operations given the upcoming sale of these assets.

I will review each of our business segments, including the discontinued operations beginning first with continuing operations.

Starting with high purity cellulose on slide 6 second quarter sales held flat at $255 million driven by a 17% increase in sales pricing offset by a 17% decline in sales volumes.

As expected CS prices were down slightly.

While higher commodity prices drove the combined increase.

<unk> sales volumes increased 6% driven by strong demand for construction automotive and natural plastics applications.

Commodity volume declines were driven by a more favorable mix shift towards <unk>, which has lower production yields and bye bye logistic constraints and the extended planned outage at our Jesup, Georgia facility.

EBITDA for this segment improved $7 million to $38 million driven by the pricing improvements and more favorable mix of <unk>.

Looking forward to the third quarter.

We expect to benefit further from significantly increased pricing for commodity products in continuation of recent trends.

While CS prices are expected to be slightly below prior year supported by strong demand as we fulfill our annual contract commitments.

Total high purity cellulose volumes are expected to be slightly below prior year, and we expect a very favorable mix towards yes.

As is typical we.

We do anticipate significantly higher volumes in the second half of 2021 as compared to the first half of the year.

Next turning to slide 7 paperboard segment sales improved $14 million driven by a 23% increase in sales volumes and a 5% increase in sales pricing.

EBITDA for the segment declined 3 million to $7 million as the sales price increases were more than offset by higher raw material costs and the impact of operational cost increases.

Looking forward, we expect to realize higher prices as demand for packaging remains strong and offtake for commercial print application appear.

Appears to be rising.

We are also seeing supply disruptions in the industry drive increased pricing, while raw materials pulp costs are expected to decline later in the year.

Turning to our Standalone high yield pulp segment on slide 8.

Sales increased $5 million from prior year, driven by a 9% improvement in price and a 4% improvement in volumes.

EBITDA for this segment held flat at $2 million as sales improvements were offset by higher operational costs and the impact of logistic constraints, including the Montreal Port strike.

Turning to slide 9 on a consolidated basis on.

Operating income from continuing operations improved $7 million from prior year.

The company experienced price increases across all segments.

And volume improvements driven primarily by higher paperboard sales.

Costs were negatively impacted by higher purchase pulp costs for paperboard higher input costs, as well as maintenance and logistics cost impacts.

Corporate costs improved $7 million, driven by favorable FX and lower variable compensation expense.

Turning to slide 10.

Our discontinued operations EBITDA, Inc.

Improved by $121 million versus the second quarter of 2020.

Driven by a 213% increase in lumber prices and a 28% increase in newsprint prices.

We didn't take advantage of these strong prices and increased lumber sales volume by 10% versus the prior year period.

As a reminder, the company deposited in an additional $10 million for duties during the quarter.

Since the initiation of softwood lumber duties on shipments into the U S. In 2017.

<unk> has now deposited a total of $108 million of duties.

With potential interest on these duties at dispute resolution estimated at approximately $5 million.

Based on the results of prior trade disputes Canadian crews producers have historically recovered all or a vast majority of these duties and interest upon resolution.

In addition, the company will retain the rights to these duties after the sale of the lumber business.

Turning to slide 11, our net debt currently stands at $877 million.

At the end of the quarter, including $215 million of cash we.

We expect approximately $170 million of net cash proceeds from the asset sale later in the month and $30 million in tax refunds in the next 6 to 12 months.

In addition.

The company will have access to a further $30 million to $40 million from the cash value of the Green first shares that Ryan will receive as consideration for the sale.

Combined this will reduce net debt to approximately $650 million.

Taken together.

With the recent rebound in commodity pulp prices to drive incremental cash flow. The company is well positioned to execute a disciplined and balanced capital allocation strategy.

Turning to slide 12, we.

We remain committed to using at least $150 million of proceeds from the asset sales to repay debt, making progress to our ultimate target net leverage ratio of 2.5 times.

While repaying debt is an important part of achieving our target. We also see significant upside in investing and optimizing our high purity cellulose assets.

As such.

We will target to invest a portion of our excess liquidity on high return projects, including Green energy initiatives and reliability enhancements.

We have had recent success with these type of strategic investments, including the most recent $15 million investment in Green energy at our <unk>, France facility.

This investment went on on online in the second quarter and is expected to generate $10 million of incremental earnings annually.

These investments provide returns well above the company's cost of capital and position Ryan to lower costs and remain a leader in cellulose specialties.

As we execute on our strategy and move closer to our targeted leverage levels with ample liquidity. We will also be in a position to evaluate programs to return capital to shareholders via dividends and share buybacks in the future.

With that I would like to turn the call back over to Paul.

Hey, Thanks Marcus.

As noted on page 13, we are experiencing higher prices across all of our key commodity segments.

We captured some of the benefits in our second quarter earnings, but anticipate higher prices in high yield pulp and paperboard in the third quarter as well as much improved selling prices for HBC viscose and fluff pulp in the coming quarters as actual company sale prices lag the market indices.

Additionally, the robust viscose market, particularly softwood viscose pulp, which is commanding a substantial premium over the index provides a strong backdrop as we begin our 2022 cellulose specialties negotiations.

Referencing page 14, we see demand for our cellulose specialties products strengthening specifically in construction automotive and acetate plastic end markets.

Prices for cotton Lint.

Tentative substitute product for many of our cellulose specialty grades.

<unk> also increased substantially from 2020.

We are also seeing supply disruptions in the industry and market participants have looked to us as a backstop given the size scale redundancy advantages of our 5 cellulose specialty manufacturing lines.

We are managing contracts with existing customers.

Given the level of demand and our extended outages in jesup, both in 2021 as well as now in Q1 of 2022, we are not able to address most of the additional volume requests.

We do expect substantially higher volumes of high purity cellulose in the back half of this year with a stronger mix of cellulose specialties as compared to the first half of the year.

Also in the back half of 2021, we anticipate significantly higher costs for our key inputs, including wood chemicals and transportation and we anticipate these costs remaining elevated through 2022.

However, in spite of such inflationary pressures, we intend to use every tool available to us to maintain or improve <unk> margins in 2022.

Given improving market fundamentals, including strong cellulose specialties demand, a robust commodity viscose market and global market supply disruptions and constraints, we feel confident in our ability to achieve this goal.

In our Paperboard segment. We are also seeing stronger demand from the return of the commercial print market along with continued industry supply disruptions, both of which will likely lead to further price increases.

In high yield pulp again, we will recognize higher prices in the third quarter as realized prices tend to lag the index prices by 2 to 3 months.

As discussed earlier, we were able to capitalize on the recent record lumber prices further the sale of the lumber and newsprint assets will generate significant cash.

With our strong cash position improved outlook, we have substantially enhanced financial flexibility to invest in our core high purity cellulose business and reduce our overall leverage.

Lastly on slide 15, we are excited about the future of volume our reputation as a market leader in cellulose specialties with differentiated commodities within the fluff and viscose markets positions us well for the future.

Our diverse assets and redundancy allow us to service all of our cellulose specialty market segments.

While providing security of supply to our customers.

In fact, this security of supply came into play in our ethers segment in the second quarter as many of our customers were able to rely on our redundant global assets to meet the strength of their markets.

Our improved balance sheet will also allow us to invest in our leading R&D platform and bio future opportunities.

As we work with both new and existing customers to develop natural based solutions, which will further broaden our presence.

We have a proven track record of controlling cost and managing cash to drive stronger liquidity in a more stable balance sheet.

Now as market conditions have begun to turn on our favor we are well on our way to capitalize and grow our business.

With that operator, please open up the call to questions.

At this time, they will be conducting a question and answer session. If you would like to ask a question. Please press star 1 on your telephone Keypad, Inc.

Confirmation tone will indicate your line is another question in queue.

Perhaps start to churn those are your questions on the queue when participants using speaker equipment. It may be necessary for you to pick up your handset before pressing the star key.

1 moment, while we poll for questions.

Our first question comes from the line of Paul Quinn with RBC Capital markets. You May proceed with your question.

Yeah, Thanks, very much good morning, guys.

Hey, good morning, Paul.

We can start on the paperboard side debt cost increase it looks like $12 million on your graph and I did just can't understand.

The magnitude of that what happened on that.

2 is going to increase your costs for that much.

Yes, good morning, Paul It's Marcus.

The majority of that increase is the purchase pulp component of.

The market pulp to support that business as you know.

80000 tonnes on the open market to support the business. In addition, we saw some chemicals.

And the other theme is again logistics.

The impact of transportation on.

On those products.

Okay and then.

You guys have signaled out to at least for disease.

<unk> costs in the back half of the year, especially wood chemicals and other how material is that.

Like what kind of Delta area, we've seen on the cost increase from that from 2 from each 1.

Okay.

Again.

It's Marcus again, Paul so if.

If you look at the inflationary pressures we are speaking to.

They are on a couple of areas right chemicals, we mentioned.

Yes.

Good.

And logistics and then your normal inflation on your labor contracts.

Youre looking for on an order of magnitude these are approaching double digit levels.

Ongoing run rate margin rate so.

It's real Paul.

We're not alone obviously for handset and we're seeing it but again, it's across the board transportation being as large as any of the others as well right. So wood chemicals transportation and the more muted on the labor side of things.

And ramping up hard into the fourth quarter, and we think continuing obviously into 2022.

Okay, and then just on a high yield pulp I mean, you've referenced that prices are expected to decline later in the year I would say global market prices pulp prices have rolled over in China and.

Net booed difficult.

Negotiations.

Coming up for year 3 years, she has 22 contracts.

So they were referencing the high yield pulp so that segment.

Which again is going up against BK and kind of the market pulp and so that's already kind of softening out there. If you look at the indices. Our commentary is that we really just kind of lagged debt market with our sales prices.

Our prices in Q3 were messaging and high yield pulp are going up but I don't think we'll tie that into in any way our cellulose specialty.

Specialty prices the robust viscose market continues and particularly as you know Paul for softwood.

<unk> pulp producer and we continue to see debt.

Asian between net and the hardwood increase maybe a year ago is probably $50.

Now we are sitting probably $150 on softwood viscose pulp going into the market because it's a relatively limited supply and in fact, if anything it's a great.

Declining supply.

And we continue to pick up more supply on the hardwood side, but most producers need a nice mix of softwood.

Their operations and that helps support the pricing, we're seeing out there and thats going to help our conversation because we're not alone on that lot of our competitors on the same way and that's the backdrop and the alternatives to see us out there so.

Okay, and then just lastly on net I guess discontinued operations I mean, it looks like you've got quite a bit of.

Softwood lumber deposits.

Debt or years went away plus I guess August.

Sorry July and August.

Probably it would be up in the <unk>.

Sounds like with interest.

You can be 120, any any plan to monetize that.

In the near term.

Paul.

As far as prioritizing.

That is our monetization.

Even the prior referenced that was in the market that wouldn't be that attractive through our lens given given the liquidity profile that we have currently.

We will continue to monitor developments in discussions on the softwood lumber file.

I think given rates are projected to go up deposit rates, maybe that's a catalyst for for some discussions and we'll see what happens.

Yeah.

Okay.

Thanks, very much guys.

Alright, Thank you Paul.

Our next question comes from the line of Roger Spitz with Bank of America. You May proceed with your question.

Alright, Thank you very much and good morning.

Hi can you give an update on.

For Capex for 2021, what's your report on a continuing basis.

On the full amount of Capex.

That she will spend.

Putting the lumber miskin too and the broadest.

Yes, good morning.

Roger It's Marcus.

In the 6 month period.

As you saw on our disclosures around $47 million for continuing operations.

And that was including about $4 million for strategic capital.

I would say for the full 2021.

Fiscal year.

In the range on a net basis of.

95.

$90 million to $95 million.

Would be a good number for for everything.

And does that $90 million to $95 million or so on a continuing based on surface that called lumber.

For the longest yet.

There would have been some some allocated to lumber in newsprint.

Hi, Paul.

We looked at our go ahead sorry.

No questions.

If you looked at prior actuals that.

That footprint used to be in the range of $9 million to $12 million, depending on the year for.

For lumber newsprint in the road network.

Got it and how should we think about.

Maintenance capex going forward on the annual basis.

So.

We had indicated.

You can see on our capital allocation in the range of 100 million for custodial capital too to reinforce reliability across our operating footprint.

And Roger if you look back historically 2018, if you're if you normalized the spending level there.

In that year, we were around $127 million after normalizing for the disposed ops, we were just over $100 million. So.

You're into a situation, where you've got a higher weighting to this custodial to drive reliability.

Got it and lastly, any tax on the cash proceeds from August how we should think about and you can you comment on your content.

August cash for instance, perhaps taking out 57.5 based on 1 of our Korea for some other use of proceeds.

Yeah I'll take the I'll take the first question, we have indicated in our disclosures.

In the range of $5 million as a placeholder for any tax leakage related to the transaction.

And again, we'll look to do better than that.

But that's that's our estimate.

And we have set out in.

Our capital allocation framework and that disciplined and balanced approach we are certainly.

Prioritizing the $150 million Paydown.

Strongly committed to taking those proceeds and paying down debt.

Thank you very much.

Thanks Roger.

Our next question comes from the line of.

John Babcock with Bank of America, You May proceed with your question.

Alright, good morning, and thanks for taking my questions.

I guess I just wanted to talk about high purity cellulose you mentioned some margin improvement opportunity is there for next year you know the offsets on this inflation can you give some detail on that and then also as it pertains to you know the roughly $10 million in savings that you expect from the TARDIS smell.

How much how much of that is part of that or incremental and then how should we see that generally Poland earnings.

Yes, so John Yes, just kind of maybe just as a reference point again, we talked about inflation questions already come on we're seeing a lot of it right. So we see them in the U S southeast wood quite considerably here and really ramping up into the fourth quarter, probably beyond anybody's original predictions, even just as of.

1 or 2 months ago. So that's ramping up chemicals as everybody know is our very well elevated and continue to be.

<unk>.

So we have that going against US and then I think everybody is experiencing logistics. So we've got a lot of pressure out there on the business, but we will do what we've always done which is look at everything we can to protect our margins and if not improve them. So certainly cost take out is an important component of that on.

We're working on our operational efficiencies and making some investments in operational efficiencies and certainly making sure we're getting fair value when it comes to our products for our customers right. So we got to look at all of those components.

And we think that the backdrop, we're sitting at today, which again as we've already referenced we've got strong demand for our products. We've got limited supply ourself right, even just to get out of this year, let alone 2022, we've got supply disruption sitting out there with some of our competitors for a variety of different reasons and so.

That's tightening the market as well.

So and again these inflationary pressures. So they are all part of the conversation that we have out there and that's how we're looking at we just got to look at every angle.

And see if we can improve our our margin and Thats, what we will do and we feel confident we can get there.

Okay.

Thanks for that and then any update on <unk> and the opportunity you see there.

So that's going very well.

We've got <unk> as mainly being is being sourced out of our <unk> facility, we continue to slide product into key customers in China and.

On the acceptance is excellent. So we feel good about that or really just kind of waiting on that market in China to kind of heat up the way it should.

We expect it to heat up.

And we fully anticipate as our customers would tell us that debt.

This can be the 3 to 500000 tonnes in terms of the total market size.

On a 5 year period so.

We're anxious to see it get there right now we've got plenty of alternatives to supply in other areas in terms of demand.

But we will continue to monitor that and again, our product is already well accepted into the marketplace.

Gotcha.

Go ahead go on.

You referenced a question related to the <unk> investment.

Yes.

<unk>.

It's a very good example of that.

Green energy investment debt on a risk adjusted basis is exceeds our cost of capital.

Really.

Positions, that's hard for us mill well.

That project was started up through the first quarter. So we have included in our.

In our disclosure there are $10 million run rate improvement for that project.

So again exporting green energy to the grid and driving further.

Energy production.

That will be very helpful. John and that may be part of the equation. There's things we're going to continue to look at but again as we message here.

<unk> double digit inflationary for costs in 2022, so there's a lot of work to be done ahead of us.

Okay.

But back to 10, so could.

Could you provide any sense in terms of like what sort of volumes you might have there.

Whether that's kind of like a.

A couple of thousand tons, or maybe more meaningful than that and also on generally how we should think about.

The run rate because we get to kind of over the next couple of years basically.

Yes, I'd say right now it's very light just based on how most of the lifestyle customers are running today.

We fully anticipate that will ramp up.

And again, we are a long ways away from where we could potentially be in terms of our supply of that into the market put out a <unk> alone.

140, 150000 ton facility you could easily see the majority of that volume being consumed into Tim silk when we get to.

Kind of what we would think kind of targeted run rate so large opportunity sitting up there and again, we will look at the opportunity as it involves our other facilities going forward. Once we reach where we think we were at capacity and to Mr. Green for a long way from that right now for the question John.

Okay.

And then also wanted to ask because I think you made a passing reference to eventually.

Having a dividend debt or what can that share repurchases.

What what is the trigger or 2 to get to that point, where you would consider.

Instituting a dividend or pursuing share repurchases.

Yes.

I'll start Marcus I'm sure will jump in Iqos that capital allocation on page 12, right. John we want to make sure we're comfortable on our net leverage and we're not there yet and Marcus talked about our commitment to taking that first $150 million and bringing that down we should get that near term target of $650 million.

And then we think.

The next best use of capital right now is investing back into the business. So we're going to look at a very.

Very disciplined and wait to see.

What is out there that really drives EBITDA growth and if it drives EBITDA growth I think that would be it on the next best use for our capital and I think our shareholders like net and then we go beyond that we get back into our target net leverage range.

And then we'll look at the other alternatives. So I don't see that in any way near in the immediate future. Obviously, it's something our board talks about regularly and consistently.

I think thats out there a little bit and I think we're going to bring net debt down and our leverage.

It should be for the size of our company.

Okay, Great and sorry, just last question before I pass it on I just wanted to ask about the offtake agreements that you have regarding like some of the wood chips that will come from Michael lumber operations after sale into to Mexican meaning is there going to be any change in the rate.

For that so what do you see any cost increase because of <unk>.

The sales on warmer news pronouncements.

Yes, it's Marcus so.

On the residual fiber supply agreement.

Flex offtake of the residuals from the mills that we currently source.

Our operations into <unk> from <unk>.

The mechanism in that agreement is that annually there there'll be a discussion on pricing and as we've always done it's a market based price.

So that will be part of the negotiation, but the great thing about this agreement is.

Access to and FSC certified fiber supply along with the residual bark. So we'll cover both on our production of high purity pulp and the Ah.

The Green energy investment in <unk>.

But there'll be a negotiation annually sure of which is basically what we do know Marcus and markets for length of that agreement, which I think we found very attractive 20 year agreement yet alright for 20 years out there, which again really put us as the right partner with free interest forest products.

Okay. Thanks for all the details.

Sure Jonathan.

Our next question comes from the line of.

Alright.

With Bamberg capital markets. You May proceed with your question.

Hey, Good morning, guys. This is Jerry non prepared Josh first question for me. This is there any any color you can provide on the supply demand balance across your different geographies or are you kind of seeing the same same trends globally.

And again on cellulose specialties, sorry, Gerry just from Macquarie.

Oh, yes, sorry. It was it was just generally speaking.

For all products across your geographies.

Across the geography so.

Well look we'll start at the ones that are most commodity like which is obviously our high yield pulp and if youre tracking our indices out there certainly China has led the way in some of the recent slowdown Europe is still relatively strong and lagged China on the price is going up and we will lag on.

On the prices going down and Thats, what we referenced the industry show them going down a bit we will still have an increase in our pricing in the third quarter, but we expect that to kind of decline and I think the forecasters have it ramping backup and shortly thereafter.

Early 2022.

On.

Paperboard as Marcus noted.

Strong and for Us, that's a north American and predominantly related.

Us market.

That's very strong and I think it's apparel relative to the economy, but also there's been some supply disruptions on that as well.

Here in the U S in terms of.

Hello.

Suppliers so.

That has been strong.

On.

This goes Paul Thats, mainly on largely kind of for us anyway on Asia set of markets.

<unk> been strong and robust since really last fall on what's coming up on a year and remains so in that regard. So good strength out of Asia, and we expect that.

To continue fluff pulp is global we see the strength globally prices are up real strong and as mentioned, we expect even substantial increases both viscose and fluff pulp.

Going into the final quarters this year.

<unk> specialties, it's a global market credit and we indicated with the strength coming from it is coming out of construction markets, which for US is largely ethers right. We're the leading supplier of Easters a lot of that is Europe. So.

So we see some really good strength there automotive is strong globally right and for US that's net.

Engine filtration products going into tire cord.

Take plastics going into automotive paint.

So a lot of different applications, there that we benefit from in the automotive area and again just broadly in plastics. We see also just good strength out of Easter is in the nutrient area and some of the other areas there. So.

Again, I would not say that its regional for the most part it's really global outside of debt construction market.

Which is always traditionally our large largely influenced into the European area.

Okay. That's great. Thanks, and then.

Question, just kind of looking out at the horizon are there any.

Year to midterm, Peter that you guys are seeing for for costs, and particularly materials, but also any color you can provide on logistics and labor as far as peaks or even slowdowns on inflation.

Yes.

Look again.

Say peaks I guess the question is do you see it getting to a point, where it's going to start coming back down right now theyre all still elevating out as we look into our future and we said we expect it to be remain elevated for 2022.

That's.

Obviously wood.

Chemicals, certainly they continue to rise our largest expense and chemicals is is in the cost to carry on that continues decline here.

And transportation everybody's facing this and certainly we are we're seeing substantial constraints.

Constraints in expenses and.

In transportation, we don't see debt debt.

Leveling out towards our declining anytime soon and there's a host of issues there right.

Trucking is it's a lot of around driver of driver availability and.

And programs that.

Government programs that may limit the availability right now so maybe that's a benefit at some point in time, if those come off.

Vessels are tight we are 1 of the largest users on.

Our vessels on the eastern Seaboard, and particularly out of the port of Savannah, which is excellent port, but they've been backlog since.

Weather conditions in the February timeframe I think today, we've got 16 vessels sitting off the coast waiting to come into the port and that slows everything down some of our carriers actually skip the port that creates.

Constraints for our customers. So we don't see that leveling out anytime soon although we hope that's going to get to resolution and we'll be looking at other solutions ourselves.

And then of course, just containers continue to be tight they are trying to get all the containers empty containers back to Asia as soon as possible and thats, helping the situation and also logistics is going to be on ongoing issue and I cant say when thats going to break at all so again when we add it all up these are not insignificant.

<unk> got a lot of conversations early on seeing the same day, certainly in logistics and in chemicals.

Our customers are directly involved for the purchase of wood so across the board. We've got this inflationary pressure and again its going to be back to us to look at what are the alternatives to <unk>.

Maintain our margins improve our margin type loans.

We're going to be having that dialogue with our customers coming on.

That's great thanks very much.

And as a reminder, if you would like to ask a question. Please press star 1 on your telephone keypad.

Our next question comes from the line of Paul Quinn with RBC Capital markets. You May proceed with your question.

Yes, thanks, guys.

Following up on the charge offs Green energy.

If you could give some more details around that project just wonder why.

It it it came around today, I mean investing $15 million for $10 million annual benefit is a no brainer right. So you'd be doing that all the time just wondering if there's anything that changed.

To allow that to happen and what.

It's a project.

Yeah, Paul the.

We had a stream of energy and the government.

Had a program where we could increase the.

Mount of Green energy component versus Brown energy, So basically you just <unk>.

We're expanding the so we expanded the capabilities of the boiler and in addition got that higher rate. So it's again leveraging programs.

On that are available.

In the space there.

Alright thats helpful. Thanks.

Yes, great. Great example of high return projects right. So when we talk about our capital allocation and what we're going to do with past kind of some of these investments to bring our leverage back down.

A great example of high return projects, and particularly going into the Green energy space will be continuing to look at that.

There is a strong demand out there for biofuels, and particularly bio ethanol, that's non food source right and we've got assets in these bio refineries, we got for bio refineries essentially right and these assets can produce <unk> and of course, they're non food source and there is programs and incentives out there to make sure.

Sure we look in that direction. So we will do that so those are great. I think examples of our final future and really leveraging the products. We have we've also talked to you know a lot about in the past and we'll continue to as growth in cellulose based.

Bio future opportunities right, Tim sell for as a good example, and Amira is another. Good example, we talked about that those are going out there to replace plastic microbes.

Petroleum based strike vs. We're going to be supplying on natural base.

So these are the things that we look at and we look on at the world's demanding right now and I think we will continue to demand, which is more environmentally friendly products and we just happen to be a company. That's based on natural feedstock renewable sustainable natural feedstock. So we think it's a great platform for growth.

We're glad to have our portfolio optimization kind of concluding here as we focus in on these high purity assets and we think it's a perfect time as we look at what the future will hold for us.

Great. Thanks, guys.

Thanks, Paul.

Ladies and gentlemen, we have reached the end of today's question and answer session I would like to turn this call back to Mr. Paul Boynton for closing remarks.

Yeah, Hey, Thanks, Laura again, thanks, everybody for your time today and with the current market tailwind and significant opportunities to reinvest in our business. We're excited about the future we havent front for us at <unk> future and were excited about Randy advanced materials. So thank you for your time for 40, giving update next quarter.

Thank you for joining US today. This concludes today's conference you may disconnect your lines at this time.

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Good morning, and welcome to Rayonier advanced materials second quarter 2021 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 this call over to your host Mr. Mickey Walsh Treasurer, and Vice President of Investor Relations for Rayonier advanced materials. Thank you. Mr. Walsh you may begin your presentation.

Our earnings release and presentation materials were issued last evening and are available on our website at rayonier.

Dot com.

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 list. 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 materials. Today's presentation will also reference certain non-GAAP financial measures as noted on slide 4 of our presentation. We believe non-GAAP measures 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 GAAP.

Comparable financial measures are included on slides 17 through 25 of our presentation I will now turn the call over to Paul.

Thank you Mickey and good morning, everyone. I am pleased to report second quarter results for significantly favorable to both the prior year and sequential quarter.

We also made substantial progress on our strategic initiatives.

Let's start by looking at slide 5.

The total company EBITDA improved by $130 million from prior year to $149 million driven by continued momentum in high purity cellulose commodity products prices, essentially viscose and fluff pulps and solid demand for cellulose specialty products as well as of course, our ability to capture.

For the record lumber prices and our force product segment prior to their divestiture.

Additionally, we saw higher prices and volumes in the paperboard and high yield pulp segments.

With the strong EBITDA results, we have generated $141 billion of free cash flow year to date, including $120 million in the second quarter.

In addition to the exceptional financial results, we progress towards the successful closing on the sale of our lumber and newsprint assets to Green first forest products, which is expected to occur on August 28.

This sale will complete the strategic portfolio optimization plan that commenced with our 2017 acquisition of <unk> and has included the divestiture of the resins business.

The matane high yield pulp mill, the Huntsville hardwood saw mill and now in this sale the sixth Quebec, and Ontario, Softwood saw mills, and the newsprint mill and Kapuskasing.

Each sale was well timed to optimize the value to our shareholders.

We also expect the sale to reduce the volatility.

<unk> of our future earnings as we focus on our core high purity cellulose business, along with the integrated paperboard and high yield pulp business segments.

Now I'd like to ask Marcus to take us through the numbers for the quarter and discuss our capital allocation priorities in more detail I'll come back and provide additional perspective on our markets.

Marcus Thank you Paul please.

Please note that the company's lumber in newsprint operations have now been classified as discontinued operations given the upcoming sale of these assets.

I will review each of our business segments, including the discontinued operations beginning first with continuing operations.

Starting with high purity cellulose on slide 6 second quarter sales held flat at $255 million driven by a 17% increase in sales pricing offset by a 17% decline in sales volumes.

As expected CS prices were down slightly.

While higher commodity prices drove the combined increase.

<unk> sales volumes increased 6% driven by strong demand for construction automotive and natural plastics applications.

EBITDA for the segment improved $7 million to $38 million, driven by the pricing improvements and more favorable mix of CES.

Looking forward to the third quarter.

We expect to benefit further from significantly increased pricing for commodity products in continuation of recent trends.

While CS prices are expected to be slightly below prior year supported by strong demand as we fulfill our annual contract commitments.

Total high purity cellulose volumes are expected to be slightly below prior year, and we expect a very favorable mix towards yes.

As is typical we.

We do anticipate significantly higher volumes in the second half of 2021 as compared to the first half of the year.

Next turning to slide 7 paperboard segment sales improved $14 million driven by a 23% increase in sales volumes and a 5% increase in sales pricing.

EBITDA for the segment declined 3 million to $7 million as the sales price increases were more than offset by higher raw material costs and the impact of operational cost increases.

Looking forward, we expect to realize higher prices as demand for packaging remains strong and off take for commercial print application appear.

Appears to be rising.

We are also seeing supply disruptions in the industry drive increased pricing, while raw material pulp costs are expected to decline later in the year.

Turning to our Standalone high yield pulp segment on slide 8.

Sales increased $5 million from prior year, driven by a 9% improvement in price and a 4% improvement in volumes.

EBITDA for this segment held flat at $2 million as sales improvements were offset by higher operational costs and the impact of logistic constraints, including the Montreal Port strike.

Turning to slide 9 on a consolidated basis on.

Operating income from continuing operations improved $7 million from prior year.

The company experienced price increases across all segments.

And volume improvements driven primarily by higher paperboard sales.

Costs were negatively impacted by higher purchase pulp costs for paperboard higher input costs, as well as maintenance and logistics cost impacts.

Corporate costs improved $7 million, driven by favorable FX and lower variable compensation expense.

Turning to slide 10.

Our discontinued operations EBITDA, Inc.

Proved by $121 million versus the second quarter of 2020.

Driven by a 213% increase in lumber prices and a 28% increase in newsprint prices.

We didn't take advantage of these strong prices and increased lumber sales volume by 10% versus the prior year period.

As a reminder, the company deposited in an additional $10 million for duties during the quarter.

Since the initiation of softwood lumber duties on shipments into the U S. In 2017.

Brian has now deposited a total of $108 million of duties with potential interest on these duties at dispute resolution estimated at approximately $5 million.

Based on the results of prior trade disputes Canadian crews producers have historically recovered all or a vast majority of these duties and interest upon resolution.

In addition, the company will retain the rights to these duties.

After the sale of the lumber business.

Turning to slide 11, our net debt currently stands at $877 million.

At the end of the court, including $215 million of cash.

We expect approximately $170 million of net cash proceeds from the asset sale later in the months and $30 million in tax refunds in the next 6 to 12 months.

In addition.

The company will have access to a further $30 million to $40 million from the cash value of the Green first shares that Ryan will receive as consideration for the sale.

Combined this will reduce net debt to approximately $650 million.

Taken together.

With the recent rebound in commodity pulp prices to drive incremental cash flow. The company is well positioned to execute a disciplined and balanced capital allocation strategy.

Turning to slide 12, we.

We remain committed to using at least $150 million of proceeds from the asset sales to repay debt, making progress to our ultimate target net leverage ratio of 2.5 times.

While repaying debt is an important part of achieving our target. We also see significant upside in investing and optimizing our high purity cellulose assets.

As such.

We will target to invest a portion of our excess liquidity on high return projects, including Green energy initiatives and reliability enhancements.

We have had recent success with these type of strategic investments, including the most recent $15 million investment in Green energy at our <unk>, France facility.

This investment went on online in the second quarter and is expected to generate $10 million of incremental earnings annually.

These investments provide returns well above the company's cost of capital and position Ryan to lower costs and remain a leader in cellulose specialties.

With that I would like to turn the call back over to Paul.

Hey, Thanks Marcus.

As noted on page 13.

We're experiencing higher prices across all of our key commodity segments.

Referencing page 14, we see demand for our cellulose specialties products strengthening specifically in construction automotive and acetate plastic end markets.

<unk> for cotton Lint.

Competitive substitute product for many of our cellulose specialty grades.

Have also increased substantially from 2020.

We are managing contracts with existing customers.

Given the level of demand and our extended outages in jesup, both in 2021 as well as now in Q1 of 2022, we are not able to address most of the additional volume requests.

We do expect substantially higher volumes of high purity cellulose in the back half of this year with a stronger mix of cellulose specialties as compared to the first half of the year.

Also in the back half of 2021, we anticipate significantly higher costs for our key inputs, including wood chemicals and transportation and we anticipate these costs remaining elevated through 2022.

However, in spite of such inflationary pressures, we intend to use every tool available to us to maintain or improve <unk> margins in 2022.

Given improving market fundamentals, including strong cellulose specialties demand era.

Robust commodity viscose market and global market supply disruptions and constraints, we feel confident in our ability to achieve this goal.

In high yield pulp again, we will recognize higher prices in the third quarter as realized prices tend to lag the index prices by 2 to 3 months.

As discussed earlier, we were able to capitalize on the recent record lumber prices for.

The sale of the lumber on newsprint assets will generate significant cash.

With our strong cash position improved outlook, we have substantially enhanced financial flexibility to invest in our core high purity cellulose business and reduce our overall leverage.

Lastly on slide 15.

We are excited about the future of Ryan our reputation as a market leader in cellulose specialties with differentiated commodities within the fluff and viscose markets positions us well for the future.

Our diverse assets and redundancy allow us to service all of our cellulose specialty market segments, while providing security of supply to our customers.

Our improved balance sheet will also allow us to invest in our leading R&D platform and bio future opportunities.

As we worked with both new and existing customers to develop natural based solutions, which will further broaden our presence.

We have a proven track record of controlling cost and managing cash to drive stronger liquidity in a more stable balance sheet.

Now as market conditions have begun to turn on our favor we are well on our way to capitalize and grow our business.

With that operator, please open up the call to questions.

At this time, we'll be conducting a question and answer session. If you would like to ask a question. Please price.

<unk> 1 on your telephone keypad.

A confirmation tone will indicate your line is another question in queue.

You May press Star 2 share move your questions on the queue when participants using speaker equipment. It may be necessary for you to pick up your handset before pressing the star keys.

1 moment, while we poll for questions.

Yeah.

Our first question comes from the line of Paul Quinn with RBC Capital markets. You May proceed with your question.

Yes, thanks for mentioning morning, guys.

Hey, Good morning, Paul Hey, Nick maybe we can start on the paperboard side debt cost increase it looks like $12 million on your graph.

I understand.

The magnitude of that what happened on that.

Listening to increase the cost for that much.

Yes, good morning, Paul It's Marcus.

The majority of that increase is the purchase pulp component of.

The market pulp to support that business as you know over.

80000 tonnes on the open market to support the business. In addition, we saw some chemicals.

And the other theme is again logistics.

The.

<unk> transportation on.

On those products.

That's correct, Okay and then.

You guys have signaled out.

These higher costs on the back half for the year, especially wood chemicals and other how material is that.

What kind of Delta area, we've seen on the cost increase from that for mortgage.

2 from each 1.

Again.

It's Marcus again, Paul so if.

If you look at the inflationary pressures we are speaking to.

They are on a couple of areas right.

Chemicals, we mentioned.

Wood.

<unk> logistics and then your normal inflation on your labor contracts.

If youre looking for on an order of magnitude these are approaching double digit levels.

On an ongoing run rate margin rate so.

Yes, it's real Paul.

That alone obviously for handset and we're seeing it but again, it's across the board transportation being as large as any of the others as well rates of wood chemicals transportation and the more muted on the labor side of things and.

And ramping up hard into the fourth quarter, and we think continuing obviously into 2022.

Okay, and then just on a high yield pulp I mean, you've referenced that prices are expected to decline later in the year I would say global market prices pulp prices have rolled over in China and.

Does that bode.

Difficult negotiations.

Coming up for year 3 years, she has 22 contracts.

So they were referencing the high yield pulp so that segment.

Which again is going up against BK and kind of the market pulp and so that's already kind of softening out there. If you look at the indices are comments. There is that we really just kind of lagged debt market with our sales prices.

Our prices in Q3 were messaging and high yield pulp are going up but I don't think we'll tie that into in any way our cellulose specialty.

Specialty prices the robust viscose market continues and particularly as you know Paul for softwood.

<unk> pulp producer and we continue to see debt differentiation between net and the hardwood increase you know maybe a year ago is probably $50.

Now we are sitting probably $150 on softwood viscose pulp going into the market because it's a relatively limited supply and in fact, if anything it's great.

As a declining supply.

We continue to pick up more supply on the hardwood side, but most producers need a nice mix of softwood into their operations and that helps support the pricing, we're seeing out there and thats going to help our conversation because we're not alone on that 1 of our competitors on the same way and that's the backdrop and the alternative to see us out there. So.

Okay, and then just lastly on net I guess discontinued operations I mean, it looks like you've got quite a bit of stock.

Softwood lumber deposits.

Okay.

For years went away plus I guess August.

Sure.

Sorry July and August.

Probably it would be up in the.

It sounds like with interest you can be 120, any any plan to monetize that.

In the near term.

Paul as.

As far as prioritizing.

That is our monetization given the prior referenced that was in the market that wouldn't be that attractive and through our lens given given the liquidity profile that we have currently.

We will continue to monitor developments in discussions on the softwood lumber file.

I think given rates are projected to go up deposit rates, maybe that's a catalyst for for some discussions and we'll see what happens.

Okay. Thanks, very much guys just go ahead.

Alright, Thank you Paul.

Yes.

Our next question comes from the line of Roger Spitz with Bank of America. You May proceed with your question.

Alright, Thank you very much and good morning.

Can you.

Given update on.

For Capex for 2021, what's your report on a continuing basis.

Hello amount of Capex.

That you'll spend.

Moving the lumber has come to scan the bar on this.

Yes, good morning.

Roger It's Marcus.

In the 6 month period.

As you saw on our disclosures around $47 million for continuing operations.

And that was including about $4 million for strategic capital.

I would say for the full 2021.

Fiscal year.

In the range on a net basis.

95.

$90 million to $95 million.

Would be a good number for for everything.

And does that $90 million to $95 million or so on a continuing basis or does that include lumber.

Principal August yeah.

There would have been some some allocated to lumber in newsprint.

Hi, Paul Friday, if you looked at our go ahead sorry.

No questions.

If you looked at prior actuals.

Not footprint used to be in the range of $9 million to $12 million, depending on the year for.

For for lumber newsprint in the road network.

Got it and how should we think about.

Maintenance capex going forward.

<unk>.

So.

We had indicated.

You can see on our capital allocation in the range of 100 million for custodial capital too to reinforce reliability across our operating footprint.

And Roger if you look back historically 2018, if you're if you normalized the spending level there.

In that year, we were around $127 million after normalizing for the disposed ops, we were just over 100 million. So.

You're into a situation, where you've got a higher weighting to this custodial to drive reliability.

Got it and lastly, any tax on the.

Cash proceeds from August how we should think about and can you comment on your content.

On the cash current since perhaps taking out 57.5 based on 1 our Korea for some other use of proceeds.

Yeah I'll take the I'll take the first question, we have indicated in our disclosures.

In the range of $5 million as a placeholder for any tax leakage related to the transaction.

And again, we'll look to do better than that.

But that's our estimate.

And we have set out in.

Our capital allocation framework in that disciplined and balanced approach we are certainly.

Prioritizing the $150 million Paydown.

Strongly committed to taking those proceeds and paying down debt.

Thank you very much.

Thanks Roger.

Our next question comes from the line of.

John Bangkok with Bank of America, You May proceed with your question.

Alright, good morning, and thanks for taking my questions.

I guess I just wanted to talk about high purity cellulose you mentioned some margin improvement opportunity is there for next year to offset on this inflation can you give some detail on that and then also as it pertains to the roughly $10 million in savings that you expect from the hardest smell.

How much how much of that is part of that.

Or incremental and then how should we see that generally fall into earnings.

Yes, so John Yes, just kind of maybe just as a reference point again, we talked about inflation in questions already come on we're seeing a lot of it right. So we see them in the U S southeast wood quite considerably here and really ramping up into the fourth quarter, probably beyond anybody's original predictions, even just as of.

1 or 2 months ago. So that's ramping up chemicals as everybody know is our very well elevated and continue to be.

Rising.

So we have that going against US and then I think everybody is experiencing logistics. So we've got a lot of pressure out there on the business.

Look we will do what we've always done which is look at everything we can to protect our margins and if not improve them. So certainly cost takeout is an important component of that are working on our operational efficiencies and making some investments in operational efficiencies and certainly making sure we're getting fair value when it.

It comes to our products for our customers right. So we got to look at all of those components.

And we think with the backdrop, we're sitting at today, which again as we've already referenced we've got strong demand for our products. We've got limited supply ourself right, even just to get out of this year, let alone 2022, we've got supply disruptions sitting out there with some of our competitors for a variety of different reasons and so.

That's tightening the market as well.

So and again these inflationary pressures. So they are all part of the conversation that we have out there and that's how we're looking at we just got to look at every angle.

And see if we can improve our our margin and Thats, what we will do and we feel confident we can get there.

Okay.

Thanks for that and then any update on <unk> and the opportunity you see there.

So that's going very well.

We've got Tim Silke as mainly being is being sourced out of our <unk> facility, we continue to slide product into key customers in China and.

On the acceptance is excellent. So we feel good about that or really just kind of waiting on that market in China to kind of heat up the way it should.

<unk>, we expect it to heat up.

And we fully anticipate as our customers would tell us that debt.

This can be the 3 to 500000 tonnes in terms of the total market size.

On a 5 year period so for.

We're anxious to see it get there right now we've got plenty of alternatives to supply in other areas in terms of demand.

But we will continue to monitor that and again, our product is already well accepted into the marketplace.

Got you Andy Johnson.

Go ahead go on.

Yes, you referenced a question related to the <unk> investment.

Yes.

That's <unk>.

Very good example of the kind of Green energy investment debt on a risk adjusted basis is exceeds our cost of capital.

Really.

Positions, that's hard for US mill, well that that project was started up through the first quarter. So we have included in our.

In our disclosure there are $10 million run rate improvement for that project.

So again export in green energy to the grid and driving further.

Green energy production.

That'll be very helpful. John and that May be part of the equation. There's things we're going to continue to look at but again as we message here, we were approaching double digit inflationary for cost in 2022. So there's a lot of work to be done ahead of us.

Okay.

But back to <unk> could you.

Providing a sense in terms of like what sort of volume you might have there.

Whether that kind of like.

A couple of thousand tons, or maybe more meaningful than that and also on generally how we should think about.

The run rate because we get to kind of over the next couple of years basically.

Yes, I'd say right now it's very light just based on how most of the lifestyle customers are running today.

We fully anticipate that will ramp up.

And again, we are a long ways away from where we could potentially be in terms of our supply of that into the market, but out of <unk> alone.

140, 150000 ton facility you could easily see the majority of that volume being consumed into <unk> when we get to.

On kind of what we would think kind of targeted run rate. So large opportunity sitting up there and again, we will look at the opportunity as it involves our other facilities going forward. Once we reach where we think we are at capacity and to Mr. Green for a long way from that right now no question got it.

Okay.

And then also wanted to ask because I think you made a passing reference to eventually have.

On a dividend debt or.

Looking at share repurchases.

What's the trigger to get to that point, where you consider.

Instituting a dividend or pursuing share repurchases.

Yes.

I'll start Marcus I'm sure will jump in it goes for that capital allocation on page 12, right now and we want to make sure we're comfortable on our net leverage and we're not there yet.

<unk> talked about our commitment to taking that first $150 million and bringing that down we should get that near term target of $650 million.

And then we think.

The next best use of capital right now is investing back into the business. So we're going to look at a very.

Very disciplined way to see.

What is out there that really drives EBITDA growth and if it drives EBITDA growth I think that would be it on next best use for our capital and I think our shareholders like net and then we go beyond that we get back into our target net leverage range.

And then we'll look at the other alternatives. So I don't see that in any way near in the immediate future. Obviously, it's something our board talks about deliberately and consistently.

I think thats out there a little bit and I think we're going to bring net debt down and our leverage where it should be for the size of our company.

Okay, Great and sorry, just last question before I pass it on I just wanted to ask about the off take agreement that you have regarding like some of the wood chips that will come from Michael lumber operations. After sale into some excavators is there going to be any change in the rate.

For that so what do you see any cost increase because of.

The sales on warmer newsprint assets.

Yes, it's Marcus so the.

The residual fiber supply agreement.

Reflects offtake of the residuals from the mills that we currently source.

Our operations into <unk> from the.

In that agreement is that annually there there'll be a discussion on.

On pricing.

And as we've always done it's a market based price.

So that will be part of the negotiation, but the great thing about this agreement is.

Access to and FSC certified fiber supply along with the residual bark. So we'll cover both on a production of high purity pulp.

And the.

The Green energy investment in <unk>, but.

But there'll be a negotiation annually not sure which is basically what we do know Marcus and markets. The length of that agreement, which I think we found very attractive 20 year agreement alright for 20 years out there, which again really put us as the right partner with Green first forest products.

Hi, guys. Thanks for all the details.

Sure Jonathan.

Our next question comes from the line of.

Alright.

With Bamberg capital markets. You May proceed with your question.

Hey, Good morning, guys. This is that Jared on for Barrett. Josh first question for me just is there any any color you can provide on the supply demand balance across your different geographies or are you kind of seeing the same same trends globally.

And again on cellular specialties, sorry, Gerry just from maturing.

Oh, yes, sorry. It was it was just generally speaking.

For all products across your geographies.

Across the geography so.

On the prices going down and that's what we referenced the industry show them going down a bit we will still have an increase in our pricing in the third quarter, but we expect that to kind of decline and I think the forecasters have it ramping backup and shortly thereafter.

Early 2022.

Paperboard as Marcus noted.

Strong and for US that's in North America and predominantly a.

Our U S market.

That's very strong and I think it's a parallel to the economy, but also there's been some supply disruptions on that as well.

Here in the U S in terms of.

Hello.

<unk> so.

That has been strong on.

On the.

This goes Paul Thats, mainly on largely kind of on it for us anyway on Asia set of markets they've.

<unk> been strong and robust since really last Paul.

Paul I was coming up on a year and remains so in that regard so good strength out of Asia, and we expect that.

To continue fluff pulp is global we see the strength globally prices are up real strong and as mentioned, we expect EBIT substantial increases both viscose and fluff pulp.

Going into the final quarters this year.

As silly as specialties, its a global market price and we indicated with the strength coming from it is coming out of construction markets, which for US is largely ethers right. We're the leading supplier of Easters a lot of that is Europe. So.

So we see some really good strength there automotive is strong globally right and for us Thats net.

On the engine filtration products going into tire cord that acetate plastics going into automotive paint.

So a lot of different applications, there that we benefit from in the automotive area and again just broadly in plastics. We see also just a good strength out of Easter is in the nutrient area and some of the other areas there. So.

Again, I would not say that its regional for the most part it's really global outside of debt construction market.

Which is always traditionally our large largely influenced into the European area.

Okay. That's great. Thanks, and then second question just kind of looking out at the horizon are there any.

Near to midterm that you guys are seeing for for costs, particularly materials, but also any color you can provide on logistics and labor as far as peaks or even slow down to the equation.

Yes.

Look again.

Thats.

Obviously wood.

Chemicals, certainly they continue to rise our largest expense and chemicals is on the cost to carry on that continues to decline here.

And transportation everybody's facing this and certainly we are we're seeing substantial constraints.

Constraints in expenses and.

In transportation, we don't see debt debt.

Leveling out towards our declining anytime soon and there's a host of issues there right.

Trucking is it's a lot of around driver of driver availability and.

And programs that.

Government programs that may limit the availability right now so maybe that's a benefit at some point in time, if those come off.

Vessels are tight we are.

1 of the largest users on <unk>.

On a vessels on the eastern seaboard, and particularly out of the port of Savannah, which is excellent port, but they've been backlog since.

Constraints for our customers. So we don't see that leveling out anytime soon although we hope that's going to get to resolution and we'll be looking at other solutions ourselves.

And then of course, just containers continue to be tight they are trying to get all the containers empty containers back to Asia as soon as possible and Thats helped the situation and also logistics is going to be on ongoing issue and I cant say when thats going to break at all so again when we added all up these are not insignificant.

We've got a lot of conversations early on.

The same day, certainly in logistics and in chemicals.

Most of our customers are directly involved in the purchase of wood. So across the board. We got this inflationary pressure and again its going to be back to us to look at what are the alternatives to.

Maintain our margins improve our margin type loans.

We're going to be having that dialogue with our customers coming on.

That's great thanks very much.

As a reminder, if you would like to ask a question. Please press star 1 on your telephone keypad.

Our next question comes from the line of Paul Quinn with RBC Capital markets. You May proceed with your question.

Yes, thanks, guys.

Following up on the targets Green energy.

If you could give some more details around that project just wonder why.

It.

It came around today, I mean investing $15 million for $10 million annual benefit is a no brainer right. So you'd be doing that all the time just wondering if there's anything that changed.

To allow that to happen on what exactly is the project.

Yeah, Paul the.

We had a stream of energy and the government.

Had a program, where we could increase the amount of green energy component versus Brown energy. So basically you are just.

You are expanding so we expanded the capabilities of the boiler and in addition got that higher rates. So it's again leveraging programs.

That are available in the space there.

Alright thats helpful. Thanks.

Yes, great.

Example of high return projects right. So when we talk about on.

Our capital allocation and what we're going to do with past.

<unk> from these investments to bring our leverage back down.

A great example of high return projects, and particularly going into the Green energy space will be continuing to look at that.

There is a strong demand out there for biofuels, and particularly bioethanol, that's non food source right and we've got assets in these bio refineries, we've got for bio refineries essentially right and these assets can produce bio ethanol and of course, they're non food source and there is programs in the sales out there to make sure we.

We look in that direction. So we will do that so those are great. I think examples of our bio future and really leveraging the products. We have we've also talked to you know a lot about in the past and we'll continue to as growth in cellulose based.

Bio future opportunities right, Tim sell for as a good example, and Amira is another. Good example, we talked about that those are going out there to replace plastic microbial.

Petroleum based strike vs. We're going to be supplying on a natural basis.

These are the things that we look at and we look on what the world's demanding right now and I think we'll continue demand, which is more environmentally friendly products and we just happen to be a company. That's based on natural feedstock renewable sustainable natural feedstock. So we think it's a great platform for growth. So we're glad to have our portfolio optimization kind of <unk>.

<unk> here as we focus in on these high purity assets and we think it's a perfect time as we look at what the future will hold for us.

Great. Thanks, guys.

Yes, Thanks Paul.

Ladies and gentlemen, we have reached the end of today's question and answer session I would like to turn this call back to Mr. Paul Boynton for closing remarks.

Yeah, Hey, Thanks, Laura again, thanks, everybody for your time today and with the current market tailwind and significant opportunities to reinvest in our business. We're excited about the future. We have in front of us at <unk> future and were excited about really advanced materials. So thank you for your time and look forward to giving updates next quarter.

Thank you for joining US today. This concludes today's conference you may disconnect your lines at this time.

Q2 2021 Rayonier Advanced Materials Inc Earnings Call

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