Q3 2021 Rayonier Advanced Materials Inc Earnings Call
[music].
Good morning, and welcome to the Rainier advanced materials third quarter 2021 earnings conference call.
During todays presentation, all parties will be in a listen only mode.
Following 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 the conference over to your host Mr. Mickey Walsh Treasurer, and Vice President of Investor Relations for Rayonier advanced materials. Thank you. Mr. Waltz, you may begin.
Thank you operator, and good morning, everyone and welcome again to Rayonier advanced materials third quarter 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 of Finance, our earnings release and presentation.
Patient materials were issued last evening and are available on our website at rayonier a M 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 re.
<unk> to differ materially from the forward looking statements we may make.
They are also referenced on slides two and three of our presentation material. Today's presentation will also reference certain non-GAAP financial measures as noted on slide four of our presentation. We believe non-GAAP financial measures provide useful information for management and investors, but non-GAAP measures should not be considered in all.
Alternative to GAAP measures a reconciliation of these measures to their most directly comparable GAAP financial measures are included on slides 18 through 23 of our presentation I would now like to turn the call over to Paul.
Thank you Mickey and good morning, everyone.
Today, I would like to hit.
Some of the highlights for the quarter before turning the call over to Marcus to review the detailed financials.
After Marcus is update I will discuss our strategic outlook for the business.
Starting on slide five EBITDA from continuing operations improved by $3 million from prior year to $35 million driven by continued momentum in commodity product prices, including high yield. This goes in fluff pulp as well as solid demand for cellulose specialties.
In addition to the improved financial results, we executed on several key strategic initiatives on August 28, we successfully closed the sale of our lumber and newsprint assets for approximately $232 million, including 100 $585 million in cash with the remainder consisting primarily of shares.
Of Green first forest products. Additionally.
Additionally year to date, we captured $192 million of EBITDA from these businesses prior to the sale.
The company also repaid over $150 million of debt, including $127 million of its senior notes due in 2024 and $25 million of the senior secured notes.
We also significantly increased cash on the balance sheet. This cash along with future cash flow driven by the announced price increases for cellulose specialties as well as cash returns from our investments in reliability cost reduction and new bio products will provide a catalyst to grow EBITDA margins.
Further right size, our balance sheet and drive value to our shareholders.
I'll provide further perspective on our current markets as well as our longer term strategy shortly.
I'll ask Marcus to take us through the financial details for the quarter.
Marcus Thank you Paul.
Starting with high purity cellulose on slide six third quarter sales increased $35 million or 14% to $288 million driven by a 14% increase in sales prices offset by a slight 2% decline in sales volumes.
As expected CS prices were down from prior year per contract negotiations from late 2021.
While the higher commodity prices drove the combined increase.
Overall sales volumes remained nearly flat at 225000 metric tons with a stronger mix of <unk> sales volumes.
Sales volumes remain very strong driven by demand across almost all end markets, including food pharma casings construction.
Automotive filtration and tire cord and acetate bioplastics.
<unk> volumes declined.
By a more favorable mix shift towards <unk>, which has lower production yields a reliability issue with our lime kiln at Jesup facility and continued logistic challenges specific specifically for oceangoing sales.
Overall EBITDA for the segment declined $4 million to $32 million.
Costs were impacted by significant inflation and key input materials higher logistics expense related to trucking and ocean freight as well as higher maintenance costs and production downtime related to the reliability issue in jesup.
This resulted in lower production of approximately 10000 tons.
Turning to slide seven.
Paperboard segment sales improved $5 million driven by a 13% increase in sales price.
Resulting from strong demand for our three-ply Kolyma brand, partially driven by competitor supply constraints offset by logistics challenges.
EBITDA for the segment declined $1 million to $6 million as the sales price increases were more than offset by higher raw material pulp and cost inflation in the operation.
Turning to our high yield pulp segment on slide eight.
Sales increased $12 million from prior year to $42 million driven by a 27% improvement in sales price and a 12% improvement in volumes EBIT.
EBITDA for the segment grew 6 million to $9 million as.
As sales improvements were partially offset by higher operational costs and the impact of logistic challenges.
Turning to slide nine on a consolidated basis.
Operating income from continuing operations improved $4 million from prior year.
The company experienced price increases across all segments and volume improvements driven by mix improvement and high purity sales.
Costs were significantly impacted by higher inflation costs, particularly with respect to chemicals wood fiber and energy.
As well as reliability and maintenance costs in our high purity segment.
Higher raw material costs in paperboard and overall higher logistic costs also impacted results.
Additionally, corporate and SG&A costs improved $5 million, primarily driven by favorable FX.
With the sale of the lumber and newsprint. The company credit profile has improved we ended the quarter with $279 million of cash and liquidity of $373 million, including availability on our ABL and the French factoring facility.
In early October we repaid a further $25 million of senior secured notes and we still expect $29 million of tax refunds by the end of 2022.
With the sale of the lumber and newsprint assets. We also have 28 million shares of Green first forest products valued at approximately $34 million as of the end of the quarter and the rights to $112 million of softwood lumber duties.
Given uncertainty related to inflation and logistics, along with significant amount of investment opportunities. We are currently carrying higher cash balances for the short term.
Overall, we remain well positioned to prudently invest in our assets and generate greater margins with that I'd now like to turn the call back over to Paul.
Hey, Thank you excuse me. Thank you Marcus as noted on page 10, we are seeing the dynamics of uncertain markets first commodity benchmark prices are moderating and some of our key segments, specifically bek or bleached eucalyptus Kraft pulp a proxy.
For our high yield pulp business has fallen sharply driven by the decreased demand from China amid the governmental policy to reduce energy and emissions output.
This goes pulp prices.
Have also receded recently, although prices remain significantly higher than the prior year.
The strength of the viscose market rebounding significantly off the lows of 2020 provides a strong backdrop for our 2022 cellulose specialties price negotiations.
Meanwhile, fluff in paperboard indices have remained resilient with sequential increases from the second quarter into the third quarter, which should provide higher fourth quarter prices for these products given the pricing lag we experience relative to these indices.
Turning to page 11.
We see demand for our cellulose specialty products strengthening across almost all end markets, including food and pharma casings construction automotive filtration and tire cord and acetate bioclastic end markets.
Interestingly prices for cotton Lint in Asia, a competitive substitute product for many of our cellulose specialty grades.
Have also increased substantially from 2020, creating additional interest in our product offerings.
We have seen supply disruptions with some of our high purity industry competitors, leaving.
Leaving many of our customers looking for us to.
To us as a backstop given the size scale and redundancy of vintages of our five cellulose specialties manufacturing lines.
We are fulfilling agreed demand with customers, but given our and extended outages at jesup in both 2021, and 2022 were not able to accommodate most requests for incremental volume for the balance of the year and well into 2022.
We like all producers are also seeing a significant rise in input costs and challenges in our supply chain.
So with all of these dynamics strong demand restricted supply and escalating input costs, we expect significant price increases for the majority of our cellular specialties in 2022.
Overall, we are focused on protecting or improving margins in our <unk> business for the coming year.
In our Paperboard segment, we're also seeing stronger demand from the return of the commercial print market along with ongoing strength in the packaging market.
This demand in addition to continued industry supply disruptions are driving prices higher.
Our unique three-ply Kolyma brand paperboard continues to grow and share it.
Higher end markets as customers value the comparable surface area to weight ratio of our offerings.
With raw material cost shrinking as pulp prices decline, we expect expanded margins for this segment in the coming quarter.
In high yield pulp, we expect to recognize lower prices in the fourth quarter due to the lower demand for pulp from China and increased supply from the South American Mills, while costs are expected to increase and logistic challenges are likely to persist.
So now, let's take a longer view on our strategic outlook for the business with the sale of lumber newsprint business is complete.
We target to drive both improved costs and margins through our core businesses.
Turning to slide 12 year to date EBITDA margins are roughly 10%.
For a capital intensive business such as our high purity cellulose operations, we would expect to generate EBITDA margins at a much higher level than our current conditions have allowed.
Given our specialized asset base unique product offerings security of supply and technical leadership, we aim to improve our cost position and generate at least 20% EBITDA margins in this business.
To achieve this goal we have developed a plan focused on a few key initiatives.
First we've already discussed price improvements for our cellulose specialty products.
With the majority of our cellulose specialty contracts open for negotiation in 2022, we expect to capture significant price increases for these products in the next year.
Additionally, we expect to utilize a significant portion of the proceeds from our asset sale.
To invest in and improve reliability and drive costs down at our four high purity cellulose facilities.
In 2022, we expect to spend approximately $100 million on custodial capital expenditures.
However, with inflationary pressures on the cost of materials and challenges with labor availability, we will appropriately modulate capex on a real time basis.
We know that having reliable assets lower costs increased sales volumes and drives efficiencies as such we plan to extended outages at three of our four facilities in the first half of next year with a focus on improving reliability.
Beyond investments in reliability, we also expect to increase our strategic investments in 2022.
We are currently evaluating approximately $50 million of high return projects for next year.
Including Green bioenergy cost reduction improved activity enhancement initiatives.
We've had success with these type of strategic investments, including the recent $15 million investment in Green energy at our <unk>, France facility.
This investment went online in the second quarter and is expected to generate $10 million of incremental earnings annually.
Another potential project and towards asset.
That is part of our Green energy bio future currently under evaluation is the production of bioethanol, a high demand additive to gasoline required in Europe.
As consumers and governments seek to use greater natural energy to power vehicles and industry.
These investments provide returns well above the company's cost of capital and we will drive incremental margins over the medium term.
Lastly, we will continue to increase our investment in R&D and innovation driven projects.
An example includes our investment in <unk> a product used in the production of <unk>, a natural fiber produced in an environmentally friendly method.
This year, our R&D team working with innovation trend experts.
Has identified areas for accelerated natural sales and biomaterials growth.
We will be sharing more details of these focus initiatives over time, but.
But two of the most immediate initiatives however are in Bioplastics and prebiotics and.
And Bioplastics were looking at a broad set of opportunities to replace petrochemicals in many applications, including single use plastics.
We are currently working in collaboration with several leading global research universities as well as current customers and new commercial partners to capitalize on this opportunity.
In prebiotics, we have partner with the state of Georgia Center for innovation.
The University of Georgia, and the Saunders Research Institute to develop nutritional supplements for the poultry industry.
Additionally, we will be looking at other growth opportunities outside of our core R&D and process expertise, but closely related to our strengths.
An example is our investment in Ana Mirror incorporated which has led us into the emerging opportunity for carboxylate nano cellulose with performance enhancing attributes for cosmetics paints coatings and concrete.
And <unk> is ramping up the production in its newly constructed to Miss <unk> plant.
And is looking to capture near term sales in the cosmetic segments through its distribution agreement with <unk>, one of the world's leading cosmetic and personal care formulated.
As global demand for more environmentally friendly products continues to evolve we are working to offer solutions from both our existing natural products as well as developing new offerings to meet growing needs.
Combined we expect these actions to drive significantly higher EBITDA to provide positive returns for our investors.
As we previously have stated our goal is to reduce net debt two five times EBITDA.
Turning to slide 13, our net debt stands at $676 million as of the end of the quarter, including $279 million of cash.
Our near term goal is to drive this towards $625 million with cash tax refunds and proceeds from the Greenfield shares.
With our targeted margin growth and right sized balance sheet. Our goal of two five times leverage is within range over the next three to five years.
And finally, turning to slide 14, our reputation as a market leader in cellulose specialties with differentiated commodities within fluff and viscose markets positions us well for the future.
We have diverse bio refinery assets and redundancy that allows us to service all of the cellulose specialty market segments, while providing security of supply to our customers and offers tremendous growth opportunities into the future.
The security of supply has come into play recently as many of our customers were able to rely on us to meet the strength of their markets.
A strong cash position allows us to invest in reliability and cost reduction strategic projects and leading R&D platforms as we work with new and existing customers develop natural based solutions, which will further broaden our offerings into our bio future.
We have a proven track record in controlling costs and managing cash to drive stronger liquidity and a more stable balance sheet. We look forward to executing on our plan to invest prudently to expand EBITDA margins and we are excited about the <unk> of the company.
With that operator, please open up the call to questions.
Thank you.
At this time, we'll be conducting a question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is my question to you.
You May press star two if you'd like to remove your question from the queue for.
For participants using speaker equipment and may be necessary to pick up your handset before pressing the star hockey.
Our first question comes from the line of John Babcock with Bank of America. Please proceed with your question.
Hey, good morning.
Thanks for taking my questions.
Yes.
First of all just on the cost side, how are you thinking about the cost pressures across energy wood chemicals and logistics for the balance of 2021 and into 2022.
Hey, good morning, John I will turn it over to Marcus.
Good morning, John.
Yes.
As you saw in our bridge on page nine.
We were indicating that inflationary pressures were accelerating through the year.
And you can see on the bridge close to $50 million in costs.
There is certainly some some impacts of the jesup.
Impact in there and.
As you know pulp for the pulp costs for paperboard.
Really transitory.
It will come down in price, but we certainly saw inflation on chemicals wood and energy.
A slight amount on logistics as well and I would say on.
On an annualized basis, we're in the high single digits for inflationary pressures in our lens assuming these these conditions remain the same type of <unk>.
Percentage increase next year.
Got you.
Could you help us quantify the impact of that Kim disruption into adjusted facility and then also what you have to do any further work at the mill to ensure it can run as intended.
Yes, so John we as we mentioned 10000 times based on your model you can assume the fixed cost absorption on that and model that we also had to purchase some fresh lined for the makeup and some maintenance.
So with those items I think you could probably get a pretty good gauge on what that is but it was meaning.
Meaningful enough.
And John that this this issue in Marcus mentioned in his prepared comments line count It is run very reliable.
I believe for us for the last 10 years, we didn't expect it we're going to go ahead and make some changes to it at the upcoming shutdown to make sure that that doesn't reoccur, but as we also noted we got three of our four facilities with the shutdowns in the first half of 2022 and our goal of course is to focus in on reliability and particularly our.
Operational efficiencies.
We can improve upon it.
Particularly in the areas of our Evaporators at each of our our facility. So we will be doing a lot of focus on reliability in early 2022 to help improve our overall throughput and production rates.
Got you.
For the kind of disruption now with $10 million to $15 million be kind of in the realm of.
No reasonable necessary.
That's a bit hi, John again.
You are probably assuming some lost sales.
We would just quantify the fixed cost absorption impact.
Okay got you and then.
What mills are you planning to do maintenance on in the first half of next year.
Yes so.
Our shutdown schedule again is front end loaded next year.
So first out of the gate will be Jesup in February.
That's 14 days <unk>.
<unk> extended for the number five recovery boiler now so it will it will extend into 50 days on that boiler vessel and that's the reason we built inventories consciously here in anticipation of that offering and DNA is a 20 day outage in March.
That's followed by domestic being another 30 days in May.
And as Paul mentioned again, our focus there is on reliability at Fernandina.
Working on the recovery boiler again.
And in <unk>, it's the number 10 power boiler the economizer that we're focused on.
The entire test is in the back end of the year in October for 2014 days remember, it's on an 18 month cycle.
Okay. Okay.
Okay.
That's very helpful. And then recognizing you are still in pricing negotiations with customers can you give us some sense as to the primary focal points of those negotiations and then also to what extent that price has risen for products produced with cellulose specialties in the different end markets you serve.
Yes, so look yes.
<unk> came out and discussed and put out there and they're in our release earlier.
We're targeting price increases 15% to 30% minimum.
But that's on on contracted.
Where contracts allow so and we said that that's the majority. So we're going out we're having those discussions now a lot of it is focused around our raw material.
Cost increases Marcus just shared what we think those are for US this year and next year, we shared that with our customers and John We went out there as early as the June timeframe and started talking to our customers because we don't want this to be a burden on them, we want them to have the communication with their customers about this should be a pass through all the way that we're all getting experiences and those converse.
Patients have actually been very productive and so we feel confident that we're going to get these increasingly again I said.
<unk> on the majority so that means we have.
Also a minority that probably wouldn't be assigned this just because the contracts won't allow that but overall, we feel good about the conversation and we feel good that our customers are able to pass that onto their customers as well because we know that they're having that dialogue and again, we gave them plenty heads up.
And that's important to us because this is not just shifting it to our customers, it's really kind of sharing the load across the supply chain.
Okay. Thank you that's all I have.
Thanks, Sean.
Our next question comes from the line of Paul Quinn with RBC capital markets. Please proceed with your question.
Yes, thanks very much good morning, guys, just trying to understand that the price increase on the cellulose specialties business what percentage of your contracts are up for price negotiation this year.
So Paul Hey, Good morning, we said the majority of that out there. So I mean, you can pick that number somewhere over 50% is open for.
Negotiations on the balance and we have some that are have caps on what we can do and some don't have any opportunity, but we're having dialogue with every one of our customers regardless.
About the burden that we're seeing here that we just shared with you that you see in our materials cost increases and having that dialogue with them. So we expect that.
And we're getting the feedback from our customers given where they are in meeting our product that.
These are price increases that will go through and again on the majority of our volume.
Okay, and then just not beating it to death, but that the the one off in the line, killing them for the quarter and so I'm looking at that 10000 tonnes on fixed cost absorption plus.
Probably what you bought on fresh lime.
Somewhere in the $5 million range hit for the quarter that shouldn't repeat next quarter is that in line.
More in the range I would say Paul.
Okay.
What side of it.
Uh huh.
A number of price increases there and sort of expected it could trickle through into Q3 here and it surely didn't.
I guess youre expecting.
Better results going forward with the with the drop off in pulp pricing.
Okay, yes so.
Paul the paperboard business as you know were 80000 tonnes on the open market with we've got a higher weighting on hardwood.
We should see sequentially.
<unk> business benefiting from from lower pulp prices inputs and manufacturing process.
The year over year was up quite considerably Paul.
Some some 13% if I got my numbers right. So it's moving in that direction, certainly and again strong demand.
<unk>.
So we continue to expect that to assume those type of increases going forward.
And have you guys been able to implement all the price increases announced so far in or another way to look at it is what's left on the price increase implementation.
Youre talking on paperboard or back to see paperboard, yes, sorry, sorry to confuse you paperboard.
Paper Board.
You kind of saw those increases starting.
Late spring into the summer and then have been accelerating.
So certainly once you annualize all of those impacts it'll be a good outcome I would say.
We've done a good job in that.
The offtake is good in all the end markets.
And our order book looks good and the pricing is.
Ben.
Been positive.
Yeah, Paul there's been supply disruptions out there with other.
Players and Thats kept the market is very tight and I think a key part of these increases on top of demand overall, so we expect that to continue in that business of courses.
Dependent on raw material cost of mainly pulp coming through in those prices of course as we noted are dropping so we expect even improve margins in the fourth quarter and I think you can look at that as being a very attractive business in 2022, as well and we'll come out with further definition on that on our next call.
Okay and then just lastly on your Green for shares it just maybe you can share.
Your forecast on lumber prices or is it.
Value of green per shares going forward.
Do you see that being something youre going to monetize in the in the short term or in the long term.
How should we look at that.
Yes, Paul so.
As you know you follow the market well.
As we closed in August prices.
Dropped pretty sharply in September.
But I think they have recovered pretty nicely everything.
That I'm looking at as a reference point points to favorable market looking ahead.
We'll certainly stay close to that situation, we have the six month views on on our shares.
And certainly we'll get smart on how to best monetize that position when the time's right, but I think the fundamentals for lumber is still very very positive.
Okay. That's all I had best of luck guys.
Thanks, Paul.
Our next question comes from the line of Roger Spitz with Bank of America. Please proceed with your question. Thanks.
Thanks, very much and good morning.
So for the those turnaround maintenance outages in 2022 can.
Can you give us any guidance or steer on what is the full year EBITDA impact.
If any from those outages.
So again, Roger we as you know we.
We amortize these costs over the periods. So it tends to smooth those out so on.
On a yearly basis, you always have maintenance costs in your P&L.
We don't give specific guidance on.
On those exact amounts.
Okay.
Yes.
For Capex do you have any guidance for Q4 as well.
2022.
Yes, so you saw from our cash flow year to date.
We're just over 60 on custodial.
And we had guided in our last call and are still committed to on a net basis in the range of 95% this full year.
So.
That's the expectation for the balance of the year.
So I should think that your capex in Q4 will be $35 million.
So that would be a combination of anything custodial and strategic.
Okay.
And any steer for 2022 now that you're.
Out of the game I'm, Brian No that's not a big Capex number.
The 422, we mentioned.
For custodial $100 million with.
With the caveat that we would modulate that based on what we're seeing on inflation.
And.
And the cost to execute those.
These projects.
And through a critical lens evaluate any strategic opportunities that Paul alluded to in his.
In his comments.
Got it sorry, I missed that and then lastly in the press release, you talked about related to lumber sales some.
Cash outflows de Minimis, maybe $3 million to $4 million, including tax adjustments.
Sandra of $1 million I guess.
Did those all show up in Q4 or or are they in Q1 next year R. R. One Michael is at your cash flow statements. The asset purchase agreement provides for a 90 day settlement. After closing four for all closing adjustments so that will happen in this quarter okay.
Thank you very much.
Thanks Roger.
As a reminder, if you'd like to ask a question. Please press star one on your telephone keypad.
Your next question comes from the line of Paradox Mitra with Bahrenburg. Please proceed with your question.
Thank you good morning.
Just wanted to go back to that 15, 30% price increase that you announced a couple of months ago.
What's your asking price for that 50% plus volumes and <unk>.
Yes that are up for repricing next year are those are not the same thanks.
Hey, Josh.
Make sure I understand your question, let me answer the question how I take your you're meeting answered if I don't answer just just correct me, but peer touch we have the majority of our volume and think of 50% plus that is open for price discussion.
And in that we are depending on the grade and as those contracts allow are having conversations around a minimum 15% to 30% type of range of moving pricing up. So you have the balance of that so the minority of that debt.
There is either price caps or there is no price allowed to move and again, we're still having dialogue with those customers.
But if that answers your question hopefully it does again, it's a little bit difficult difficult to model. We're in the middle of all of those discussions right now, but I can say that they've been very productive because we started having these discussions.
In the in the second quarter and letting customers know that we're seeing the onslaught of a lot of inflation and we can't be trapped with it. So our goal as noted that we wanted to mitigate the impact of inflation on our business and if we can obviously in these type of markets where demand is tight is actually <unk>.
Prove on those margins. So that's what we're out there trying to do is again, we can't take the load of this on our backs and so we've asked our customers to work with us and to work with their customers to distribute this across the supply chain.
Got it and yes that was my question, so I guess as far as pricing is concerned.
We shouldn't expect any major changes.
In the next quarter Q3 to Q4 right.
No.
They're pretty stable we've got some some.
Opportunity here and there to move pricing up but for the most part for the year, we we tend to stay relatively stable and pricing.
Youll see the movement effective January one.
Got it and then on.
Tim So maybe if you could just talk a little bit more as to what youre seeing in the market.
As far as reception for your products.
And any other color you could provide.
Yes, sure. So two different stories here one the reception for our products has been very positive.
<unk> been working with all the key customers out there they like our product it's qualified.
So we feel good about it we're ready to go.
The second part of that story is that market the market for <unk> has been fairly muted through these COVID-19 times and.
So I think everybody on our customer side of the equation is really waiting for the market rebound to happen here and for that to take hold.
Theres no one this backed off of the potential for that to be an incremental 500000 tons in the next three to five years.
But we've yet to see that happen and the good news is we're in very good position to take advantage of that market when it when its ready to go and Thats, what we wanted to do but we want to make sure we're in position.
We are and we're going to be there to support our customers win when their markets develop.
Thanks, a lot and maybe last one so you talked about several new opportunities bioethanol bioplastics.
<unk>.
Which of them you think mitral acquired the biggest spending either R&D or Capex next year.
Yes, I think certainly we talked about the potential.
Opportunity for bioethanol production at our <unk> facility.
I feel really good about that that's a market that's already sitting out there.
They are looking for.
Non food stores sourced natural based.
Inputs to.
To serve that market, obviously with a broad based product we were able to meet that need.
And so I believe that will be in a position to move forward in a project in <unk> test.
In 2022, and I'd say stay tuned I think we'd like to be able to talk about that between now and our next call in terms of some project development there.
Got it thanks, Paul that's all I had.
Sure.
Thank you.
Ladies and gentlemen, we have reached the end of the question and answer session I will now turn the call over to Paul Boynton for closing remarks.
Yes, thanks, operator, and thanks, everybody for your time today. These are certainly theres a lot of challenges out there, but theres also a lot of opportunities to drive growth in our business and for us It creates a real excitement for our rayonier advanced materials I look forward to keeping you updated on our results and we will talk to you in the near future. So thanks, everyone.
This concludes today's conference and you may disconnect. Your lines at this time. Thank you for your participation and have a wonderful day.
[music].
[music].
Good morning, and welcome to the Rainier advanced materials third quarter 2021 earnings conference call during.
During todays presentation, all parties will be in a listen only mode.
Following 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 the conference over to your host Mr. Mickey Walsh, Treasurer, and Vice President of Investor Relations for Rainier advanced materials.
Mr. Walsh you may begin.
Thank you operator, and good morning, everyone and welcome again to Rayonier advanced materials third quarter 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 of Finance and our earnings release and presentation.
Materials were issued last evening and are available on our website at rayonier a M 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 are also referenced on slides two and three of our presentation material. Today's presentation will also reference certain non-GAAP financial measures as noted on slide four of our presentation. We believe non-GAAP financial measures provide useful information for management and investors, but non-GAAP measures should not be considered an altered.
To GAAP measures a reconciliation of these measures to their most directly comparable GAAP financial measures are included on slides 18 through 23 of our presentation I would now like to turn the call over to Paul.
Thank you Mickey and good morning, everyone.
Today I'd like to hit.
Some of the highlights for the quarter before turning the call over to Marcus to review the detailed financials.
After Marcus is update I will discuss our strategic outlook for the business.
Starting on slide five EBITDA from continuing operations improved by $3 million from prior year to $35 million driven by continued momentum in commodity product prices, including high yield. This goes in fluff pulp as well as solid demand for cellulose specialties.
In addition to the improved financial results, we have executed on several key strategic initiatives on August 28, we successfully closed the sale of our lumber and newsprint assets for approximately $232 million, including 100 $585 million in cash with the remainder consisting primarily of shares.
Of Green first forest products. Additionally.
Additionally year to date, we captured $192 million of EBITDA from these businesses prior to the sale.
The company also repaid over $150 million of debt, including $127 million of its senior notes due in 2024 and $25 million of the senior secured notes.
We also significantly increased cash on the balance sheet. This cash along with future cash flow driven by the announced price increases for cellulose specialties as well as cash returns from our investments in reliability cost reduction and new bio products will provide a catalyst to grow EBITDA margins.
Further right size, our balance sheet and drive value to our shareholders.
I'll provide further perspective on our current markets as well as our longer term strategy shortly.
I'll ask Marcus to take us through the financial details for the quarter.
Marcus Thank you Paul.
Starting with high purity cellulose on slide six third quarter sales increased $35 million or 14% to $288 million driven by a 14% increase in sales prices offset by a slight 2% decline in sales volumes.
As expected CS prices were down from prior year per contract negotiations from late 2021.
While the higher commodity prices drove the combined increase.
Overall sales volumes remained nearly flat at 225000 metric tons with a stronger mix of <unk> sales volumes.
Sales volumes remain very strong driven by demand across almost all end markets, including food pharma casings, construction automotive filtration and tire cord and acetate bioplastics.
<unk> volumes declined.
By a more favorable mix shift towards <unk>, which has lower production yields a reliability issue with our lime kilns at Jesup facility and continued logistic challenges specific specifically for oceangoing sales.
Overall EBITDA for this segment declined $4 million to $32 million.
Costs were impacted by significant inflation and key input materials higher logistics expense related to trucking and ocean freight as well as higher maintenance costs and production downtime related to the reliability issue in jesup.
This resulted in lower production of approximately 10000 tons.
Turning to slide seven.
Paperboard segment sales improved $5 million driven by a 13% increase in sales price.
Resulting from strong demand for our three <unk> to Lima brand, partially driven by competitor supply constraints offset by logistics challenges.
EBITDA for the segment declined $1 million to $6 million as the sales price increases were more than offset by higher raw material pulp and cost inflation in the operation.
Turning to our high yield pulp segment on slide eight.
Sales increased $12 million from prior year to $42 million driven by a 27% improvement in sales price and a 12% improvement in volumes.
EBITDA for this segment grew 6 million to.
To $9 million as sales improvements were partially offset by higher operational costs and the impact of logistic challenges.
Turning to slide nine on a consolidated basis operating income from continuing operations improved $4 million from prior year.
The company experienced price increases across all segments and volume improvements driven by mix improvement and high purity sales.
Costs were significantly impacted by higher inflation costs, particularly with respect to chemicals wood fiber and energy.
As well as reliability and maintenance costs and our high purity segment.
Higher raw material costs in paperboard and overall higher logistic costs also impacted results.
Additionally, corporate and SG&A costs improved $5 million, primarily driven by favorable FX.
With the sale of the lumber and newsprint. The company credit profile has improved we ended the quarter with $279 million of cash and liquidity of $373 million, including availability on our ABL and the French factoring facility.
In early October we repaid a further $25 million of senior secured notes and we still expect $29 million of tax refunds by the end of 2022.
With the sale of the lumber and newsprint assets. We also have 28 million shares of Green first forest products valued at approximately $34 million as of the end of the quarter and the rights to a $112 million of softwood lumber duties.
Given uncertainty related to inflation and logistics, along with significant amount of investment opportunities. We are currently carrying higher cash balances for the short term.
Overall, we remain well positioned to prudently invest in our assets and generate greater margins with that I'd now like to turn the call back over to Paul.
Hey, Thank you excuse me. Thank you Marcus as noted on page 10, we are seeing the dynamics of uncertain markets first commodity benchmark prices are moderating and some of our key segments, specifically bek, our bleached eucalyptus Kraft pulp a proxy.
For our high yield pulp business has fallen sharply driven by the decreased demand from China amid the governmental policy to reduce energy and emissions output.
This goes pulp prices.
Have also receded recently, although prices remain significantly higher than the prior year.
The strength of the viscose market rebounding significantly off the lows of 2020 provides a strong backdrop for our 2022 cellulose specialties price negotiations.
Meanwhile, fluff in paperboard indices have remained resilient with sequential increases from the second quarter into the third quarter, which should provide higher fourth quarter prices for these products given the pricing lag we experience relative to these indices.
Turning to page 11.
We see demand for our cellulose specialty products strengthening across almost all end markets, including food and pharma casings construction automotive filtration and tire cord and acetate bioplastic end markets.
Interestingly prices for cotton Lint in Asia, a competitive substitute product for many of our cellulose specialty grades.
Have also increased substantially from 2020, creating additional interest in our product offerings.
We have seen supply disruptions with some of our high purity industry competitors, leaving.
Leaving many of our customers looking for us to.
To us as a backstop given the size scale and redundancy advantages of our five cellulose specialties manufacturing lines.
We are fulfilling agreed demand with customers, but given her and extended outages at jessup.
Both 2021, and 2022 were not able to accommodate most requests for incremental volume for the balance of the year and well into 2022.
We like all producers are also seeing a significant rise in input costs and challenges in our supply chain.
So with all of these dynamics strong demand restricted supply and escalating input costs, we expect significant price increases for the majority of our cellulose specialties in 2022.
Overall, we are focused on protecting or improving margins in our <unk> business for the coming year.
In our Paperboard segment, we're also seeing stronger demand from the return of the commercial print market along with ongoing strength in the packaging market.
This demand in addition to continued industry supply disruptions are driving prices higher.
Our unique three-ply Kolyma brand paperboard continues to grow and share.
And higher end markets as customers value the comparable surface area to weight ratio of our offerings.
With raw material costs shrinking as pulp prices decline, we expect expanded margins for this segment in the coming quarter.
In high yield pulp, we expect to recognize a lower prices in the fourth quarter due to the lower demand for pulp from China and increased supply from the South American Mills, while costs are expected to increase and logistic challenges are likely to persist.
So now, let's take a longer view on our strategic outlook for the business with the sale of lumber newsprint business is complete.
We target to drive both improved costs and margins through our core businesses.
Turning to slide 12 year to date EBITDA margins are roughly 10%.
For a capital intensive business such as our high purity cellulose operations, we would expect to generate EBITDA margins at a much higher level than our current conditions have allowed.
Given our specialized asset base unique product offerings security of supply and technical leadership, we aim to improve our cost position and generate at least 20% EBITDA margins in this business.
To achieve this goal we have developed a plan focused on a few key initiatives.
First we have already discussed price improvements for our cellulose specialty products.
With the majority of our cellulose specialty contracts opened for negotiation in 2022, we expect to capture significant price increases for these products in the next year.
Additionally, we expect to utilize a significant portion of the proceeds from our asset sale to invest in and improve reliability and drive costs down at our four high purity cellulose facilities.
In 2022, we expect to spend approximately $100 million on custodial capital expenditures.
However, with inflationary pressures on the cost of materials and challenges with labor availability, we will appropriately modulate capex on a real time basis.
We know that having reliable assets lower costs increase of sales volumes and drives efficiencies as such we plan to extended outages at three of our four facilities in the first half of next year with a focus on improving reliability.
Beyond investments in reliability, we also expect to increase our strategic investments in 2022.
We are currently evaluating approximately $50 million on high return projects for next year, including Green bioenergy cost reduction improved activity enhancement initiatives.
We've had success with these type of strategic investments, including the recent $15 million investment in Green energy at our <unk>, France facility.
This investment went online in the second quarter and is expected to generate $10 million of.
Incremental earnings annually.
Another potential project and <unk> asset.
That is part of our Green energy bio future currently under evaluation is the production of bioethanol, a high demand additive to gasoline required in Europe as.
As consumers and governments seek to use greater natural energy to power vehicles and industry.
These investments provide returns well above the company's cost of capital and will drive incremental margins over the medium term.
Lastly, we will continue to increase our investment in R&D and innovation driven projects.
An example includes our investment in <unk> a product used in the production of <unk>, a natural fiber produced in an environmentally friendly method.
This year, our R&D team working with innovation trend experts.
Has identified areas for accelerated natural cellulose and biomaterials growth.
We will be sharing more details of these focused initiatives over time.
But two of the most immediate initiatives however are in Bioplastics and prebiotics and.
And Bioplastics were looking at a broad set of opportunities to replace petrochemicals in many applications, including single use plastics.
We are currently working in collaboration with several leading global research universities as well as current customers and new commercial partners to capitalize on this opportunity.
In Prebiotics, we are partner with the state of Georgia Center for innovation the.
The University of Georgia, and the Saunders Research Institute to develop new nutritional supplements for the poultry industry.
Additionally, we will be looking at other growth opportunities outside of our core R&D and process expertise, but closely related to our strengths.
An example is our investment in Ana Mirror incorporated which has led us into the emerging opportunity for carboxylate nano cellulose with performance enhancing attributes for cosmetics paints coatings and concrete.
<unk> is ramping up the production in its newly constructed to Miss <unk> plant.
And is looking to capture near term sales in the cosmetics segment through its distribution agreement with Kroger, one of the world's leading cosmetic and personal care formulated.
As global demand for more environmentally friendly products continues to evolve we are working to offer solutions from both our existing natural products as well as developing new offerings to meet growing needs.
Combined we expect these actions to drive significantly higher EBITDA to provide positive returns for our investors.
As we previously have stated our goal is to reduce net debt two five times EBITDA.
Turning to slide 13.
Our net debt stands at $676 million as of the end of the quarter, including $279 million of cash.
Our near term goal is to drive this towards $625 million with cash tax refunds and proceeds from the Green first shares.
With our targeted margin growth and right sized balance sheet. Our goal of two five times leverage is within range over the next three to five years.
And finally, turning to slide 14, our reputation as a market leader in cellulose specialties with differentiated commodities within fluff and viscose markets positions us well for the future.
We have diverse bio refinery assets and redundancy that allows us to service all of the cellulose specialty market segments, while providing security of supply to our customers and offers tremendous growth opportunities into the future.
The security of supply has come into play recently as many of our customers were able to rely on us to meet the strength of their markets.
A strong cash position allows us to invest in reliability and cost reduction strategic projects and leading R&D platforms as we work with new and existing customers developed natural based solutions, which will further broaden our offerings into our bio future.
We have a proven track record in controlling costs and managing cash to drive stronger liquidity and a more stable balance sheet well.
We look forward to executing on our plan to invest prudently to expand EBITDA margins and we're excited about the <unk> of the company.
With that operator, please open up the call to questions.
Thank you at this time, we'll be conducting a question and answer session.
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Our first question comes from the line of John Babcock with Bank of America. Please proceed with your question.
Hey, good morning.
Thanks for taking my questions.
Yes.
First of all just on the cost side, how are you thinking about the cost pressures across energy wood chemicals and logistics for the balance of 2021 and into 2022.
Good morning, John I will turn it over to Marcus.
Good morning, John.
Yes.
As you saw in our bridge on page nine.
We were indicating that inflationary pressures were accelerating through the year.
And you can see on the bridge close to $50 million in costs.
Theres certainly some some impacts of the jesup.
Impact in there and.
As you know pulp for the pulp costs for paperboard.
Really transitory.
It will come down in price, but we certainly saw inflation on chemicals wood and energy.
A slight amount on logistics as well and I would say on.
On an annualized basis, we're in the high single digits for inflationary pressures and our lens assuming these conditions remain the same type of <unk>.
Percentage increase next year.
Got you.
Could you help us quantify the impact of that Kim disruption into adjusted facility and then also when you have to do any further work at the mill to ensure it can run as intended.
Yes, so John we as.
As we mentioned 10000 times based on your model you can assume the fixed cost absorption on that and model that we also had to purchase some fresh lined for the makeup and some maintenance.
So with those items I think you could probably get a pretty good gauge on what that is but it was.
Meaningful enough.
And John this issue in Marcus mentioned in his prepared comments line count It has run very reliable.
I believe for us for the last 10 years, we didn't expect it we're going to go ahead and make some changes to it at the upcoming shutdown to make sure that that doesn't reoccur, but as we also noted we got three of our four facilities with the shutdowns in the first half of 2022 and our goal of course is to focus on reliability and particularly our.
Operational efficiencies.
And we can improve upon it.
Particularly in the areas of our Evaporators at each of our our facility. So we will be doing a lot of focus on reliability in early 2022 to help improve our overall throughput and production rates.
Got you.
Ken disruption with $10 million to $15 million be kind of in the realm of.
Reasonableness there.
That's a bit hi, John again.
You are probably assuming some lost sales.
We would just quantify the fixed cost absorption impact.
Okay got you.
What mills are you planning to do maintenance on in the first half of next year, yes.
Yes so.
Our shutdown schedule again is front end loaded next year. So first out of the gate will be jesup in February.
That's 14 days accepted extended for the number of <unk> recovery boiler. There. So it will it will extend into 50 days on that boiler vessel.
And that's the reason we built inventories consciously.
In anticipation of that <unk> and DNA is a 20 day outage in March.
That's followed by <unk> another 30 days in May.
And as Paul mentioned again, our focus there is on reliability at Fernandina, it's working on the recovery boiler again.
And in <unk>, it's the number 10 power boiler the economizer that we're focused on the entire test is in the back end of the year in October for 2014 days remember, it's on an 18 month cycle.
Okay got you.
That's very helpful. And then recognizing you are still in pricing negotiations with customers can you give us some sense as to the primary focal points of those negotiations and then also to what extent that price has risen for products produced with cellulose specialties in the different end markets you serve.
Yes, so look yes.
Came out and discussed.
<unk> put out there and they're in our release earlier.
Targeting price increases, 15% to 30% minimum.
But that's on on contracted.
Where contracts allow so and we said that that's the majority. So we're going out we're having those discussions now a lot of it is focused around our raw material.
Cost increases Marcus just shared what we think those are for US this year and next year, we shared that with our customers and John We went out there as early as the June timeframe and started talking to our customers because we don't want this to be a burden on them and want them to have the communication with their customers about this should be a pass through all the way that we're all getting experiences and those converse.
<unk> I've actually been very productive and so we feel confident that we're going to get these increasingly again I said.
Pointedly on the majority so that means we have.
Also a minority that probably wouldn't be assigned this just because of the contracts won't allow that but overall, we feel good about the conversations and we feel good that our customers are able to pass that on to their customers as well because we know that they are having that dialogue and again, we gave them plenty heads up.
And that's important to us because this is not just shifting it to our customers, it's really kind of sharing load across the supply chain.
Okay. Thank you that's all I had.
Thanks, Sean.
Our next question comes from the line of Paul Quinn with RBC capital markets. Please proceed with your question.
Yes, thanks very much good morning, guys, just trying to understand that the price increase on the cellulose specialties business what percentage of your contracts are up for price negotiation this year.
So Paul Hey, Good morning, we said the majority of that out there. So I mean, you can pick that number somewhere over 50% is open for.
Negotiations on the balance and we have some that are have caps on what we can do and some don't have any opportunity, but we're having dialogue with every one of our customers regardless.
About the burden that we're seeing here that we just shared with you that you see in our materials cost increases and having that dialogue with them. So we expect that.
And we're getting the feedback from our customers given where they are in meeting our product that.
These are price increases that will go through and again on the majority of our volume.
Okay, and then just not beating it to death, but that the one off on the line kill them for the quarter and so I was looking at that 10000 tonnes on fixed cost absorption plus.
Probably what you bought on fresh line.
Somewhere in the $5 million range hit for the quarter that shouldn't repeat next quarter.
That in line.
More in the range I would say Paul.
Okay.
Then on the paperboard side I mean, we've seen it.
A number of price increases there and sort of expected it to trickle through into Q3 here and it surely didn't.
I guess youre expecting.
Better results going forward with the with the dropouts in pulp pricing.
Yes so.
Paul the paperboard business as you know over 80000 tonnes on the open market with we've got a higher weighting on hardwood.
We should see sequentially that.
Business benefiting from from lower pulp prices inputs and manufacturing process.
The year over year was up quite considerably Paul.
Some 13% if I got my numbers right. So it's moving in that direction, certainly and again strong demand.
As Mark said, we continue to expect that to show those type of increases going forward.
And have you guys been able to implement all the price increases announced so far in or another way to look at it is what's left on the price increase implementation.
You are talking on paperboard or back to see paperboard, Yeah, just sorry, sorry to confuse you a paperboard.
Paperboard.
You kind of saw those increases starting.
Late spring into the summer and then have been accelerating.
So certainly once you annualize all of those impacts.
It will be a good outcome I would say.
We've done a good job in that.
The offtake is good in all the end markets.
And our order book looks good and the pricing is.
As Ben.
Been positive.
Yeah Paul.
Been supply disruptions out there with other.
Players and Thats kept the market's very tight and I think a key part of these increases on top of demand overall, so yes, we expect that to continue in that business of courses.
Dependent on raw material cost is mainly pulp coming through in those prices of course as we noted are dropping so we expect even improve margins in the fourth quarter and I think you can look at that as being a very attractive business in 2022, as well and we'll come out with further definition on that on our next call.
Okay and then just lastly on your Greenfield shares it just maybe you can share.
Your forecast on lumber prices or is it.
Value of green per shares going forward.
Do you see that being something youre going to monetize in the in the short term or in the long term.
How should we look at that.
Yes, Paul so.
As you know.
You follow the market well.
As we closed in August prices dropped.
Dropped pretty sharply in September.
But I think they have recovered pretty nicely everything.
That I'm looking at it as a reference point points to favorable market looking ahead.
We'll certainly stay close to that situation, we have the six month views on on our shares.
And certainly we'll get smarter on how to best.
Monetize that position when the time's right, but I think the fundamentals for lumber is still very very positive.
Okay. That's all I had best of luck guys.
Thanks, Paul.
Our next question comes from the line of Roger Spitz with Bank of America. Please proceed with your question.
Thanks, very much and good morning.
So for the those turnaround maintenance outages in 2022 can.
Can you give us any guidance or steer on what is the full year EBITDA impact.
If any from those outages.
So again, Roger we as you know we.
We amortize these costs over over the periods. So it tends to smooth those out so on.
On a yearly basis, you always have maintenance costs in your P&L.
We don't give specific guidance on.
And those exact amounts.
Okay.
Yes.
For Capex do you have any guidance for Q4 as well.
2022.
Yes, so you saw from our cash flow year to date.
We're just over 60 on custodial.
And we had guided in our last call and are still committed to on a net basis in the range of 95% of this full year.
So.
That's the expectation for the balance of the year.
So I should think that your capex in Q4 will be $35 million.
Well that would be a combination of anything custodial and strategic growth.
Okay.
And then.
Any steer for 2022 now that you're out.
Out of the game I'm, Brian No that's not a big Capex number.
For 'twenty, two we mentioned.
For custodial $100 million with.
With the caveat that we would modulate that based on what we're seeing on inflation.
And.
And the cost to execute those.
These projects.
And through a critical lens evaluate any strategic opportunities that Paul alluded to in his.
In his comments.
Got it sorry, I missed that and then lastly in the <unk>.
Press release, you talked about related to the lumber sale some.
Cash outflows de Minimis, maybe $3 million to $4 million, including tax adjustments.
Federer of $1 million I guess.
Did those all show up in Q4 or.
Or are they in Q1 next year or are when Michael hit your.
Your cash flow statements the asset purchase agreement provides for a 90 day settlement after closing four for all closing adjustments so that will happen this quarter.
Perfect. Thank you very much.
Thanks Roger.
As a reminder, if you'd like to ask a question. Please press star one on your telephone keypad. Our next question comes from the line of Paradox Mitra with Bahrenburg. Please proceed with your question.
Thank you good morning.
Just wanted to go back to that 15, 30% price increase that you announced a couple of months ago.
Is that your asking price for that 50% plus volumes and fees that are up for repricing next year are those are not the same thanks.
Hey, <unk>.
Make sure I understand your question, let me answer the question how do I take your <unk> answered if I don't answer just correct me, but per touch we have the majority of our volume and think of 50% plus that is open for price discussions.
And in that we are depending on the grade and as those contracts allow are having conversations around a minimum of 15% to 30% type of range.
Moving pricing up so you have the balance of that so the minority of that there is either price caps or there is no price allowed to move and again, we're still having dialogue with those customers but.
That answers your question hopefully it does again, it's a little bit difficult difficult to model. We're in the middle of all of those discussions right now, but I can say that they've been very productive because we started having these discussions.
In the in the second quarter and letting customers know that we're seeing the onslaught of a lot of inflation and we can't be trapped with it. So our goal as noted that we want to mitigate the impact of inflation on our business and if we can obviously in these type of markets where demand is tight is actually.
To improve on those margins. So that's what we're out there trying to do is again, we can't take the load of this on our backs and so we've asked our customers to work with us and to work with their customers to distribute this across the supply chain.
Got it and yes that was my question, so I guess as far as pricing is concerned we.
We shouldn't expect any major changes.
In the next quarter Q3 to Q4 right.
No.
They're pretty stable we've got some some.
Opportunity here and there to move pricing up but for the most part for the year, we we tend to stay relatively stable and pricing.
Youll see the movement effective January one.
Got it and then on.
Tim So maybe if you could just talk a little bit more as to what youre seeing in the market.
Forest reception for your products.
And any other color you could provide.
Yes, sure. So two different stories here one the reception for our products has been very positive.
We're working with all the key customers out there they like our product is qualified.
So we feel good about it and we're ready to go.
I'll take the second part of that story is that market the market for <unk> has been fairly muted through these COVID-19 times.
So I think everybody on our customer side of the equation is really waiting for the market rebound to happen here and for that to take hold.
There's no one that's backed off of the potential for that to be an incremental 500000 tons in the next three to five years.
But we've yet to see that happen and the good news is we're in very good position to take advantage of that market when it when its ready to go and Thats, what we wanted to do but we want to be make sure we're in position.
We are and we're going to be there to support our customers win when their markets develop.
Thanks, a lot and maybe last one so you talked about several new opportunities bioethanol bioplastics.
<unk>.
Which of them you think might required the biggest spending either R&D or capex next year.
Yes, I think certainly we talked about the potential.
Opportunity for bioethanol production at our <unk> facility.
I feel really good about that that's a market that's already sitting out there.
They are looking for.
Non food stores sourced natural based.
Inputs to.
To serve that market, obviously with a blood based product we were able to meet that need.
And so I believe that will be in a position to move forward in a project in <unk> test.
In 2022, and I'd say stay tuned I think we'd like to be able to talk about that between now and our next call in terms of some project development there.
Got it thanks, Paul Thats, all I had.
Sure.
Thank you.
Ladies and gentlemen, we have reached the end of the question and answer session I will now turn the call over to Paul Boynton for closing remarks.
Yes, thanks, operator, and thanks, everybody for your time today. These are certainly theres a lot of challenges out there, but theres also a lot of opportunity as you heard to drive growth in our business and for US It creates a real excitement for our Rainier advanced materials I look forward to keeping you updated on our results and we will talk to you in the near future. So thanks, everyone.
This concludes today's conference and you may disconnect. Your lines at this time. Thank you for your participation and have a wonderful day.