Q3 2023 Rayonier Advanced Materials Inc Earnings Call
[music].
Good morning, and welcome to the Ryan third quarter 2023 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 call over to your host Mr. Mickey Walsh, Treasurer, and Vice President of Investor Relations.
Mr. Walsh you may begin.
Thank you and good morning, welcome again to <unk> third quarter 2023 earnings conference call and webcast. Joining me on today's call are to Lyle Bloomquist, our president and Chief Executive Officer, and Marcus Molnar, Our Chief Financial Officer, and senior Vice President of Finance, our earnings release and presentation materials were issued last evening arrive.
<unk> on our website at <unk> Dot com.
I'd like to remind you that today's presentation 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 with 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 slide two of our presentation materials. Today's presentation will also reference certain non-GAAP financial measures as noted on slide three 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.
Comparable GAAP financial measure are included on slides 17 through 26 of our presentation I would now like to turn the call over to Doyle.
Thank you Mickey and good morning.
I will start with the financial overview of the quarter.
Then provide an update on our progress in executing our strategic priorities before turning the call over to Marcus to provide additional details.
On the business segments, and our capital structure and liquidity falling Marcus's update I will come back and provide further details on our 2023 initiatives and guidance before opening up the call to questions.
Let's now turn to slide four to review our performance in the third quarter of 2023.
Results for the third quarter were disappointing with EBITDA of $24 million, a decline of $44 million or 65% compared to the prior year.
The poor results were a consequence of persistent weak demand across many product categories, which overshadow the strong pricing recognized in our CSS segment.
While we expect at some level of demand weakness will persist.
We do have high confidence that the fourth quarter will be notably stronger due to the full realization of the other cost reduction initiatives.
And stronger shipments due in part to the increased market share, resulting from the closure of the G. P facility.
The challenges that we experienced at our high purity cellulose segment were primarily due to the declining commodity prices and lower cellulose specialty volumes.
However prices for our cellulose specialty products remained strong with a year to date increase of 12% as compared to the prior year period.
As a result of us prioritizing value over volume for a highly specialized products.
The paperboard segment saw a $2 million improvement versus the prior year period.
Primarily driven by cost reductions, resulting from lower purchased pulp prices, which more than offset the impact of reduced prices and sales volumes.
You'll pulp EBITDA decreased $11 million versus prior year, driven by lower sales prices and volumes due to weak market demand.
And an opportunistic production shut down in July that we took in response to this market weakness.
Corporate expenses increased $9 million attributed to less favorable foreign exchange rates compared to the prior year period.
In light of the weak third quarter results and the expected ongoing demand weakness in specific end markets. We are revising our adjusted EBITDA guidance to approximately $150 million.
It's worth mentioning that the majority of our cellulose specialty end markets have remained stable.
And our paperboard, our paperboard business continues to perform well.
So the pricing for commodity prices have rebounded from the lower pricing seen in the third quarter.
We are having success in keeping the business cash flow positive.
Therefore, we are increasing our adjusted free cash flow guidance to a range of $65 million to $75 million driven by better than expected working capital monetization.
Reduced cash expense a lot of our capital expenditures.
I'll provide some details of our efforts later on.
Turning to slide five as mentioned during our Investor day, we recognize that we have a challenging balance sheet that must be fixed.
To that end, we are targeting debt reduction of $70 million over the course of the next year.
This will be achieved through the sale of passive assets are free cash flows from the business.
Also we are exploring the opportunity to further accelerate the deleveraging of our balance sheet to the sale of our paperboard in high yield pulp assets.
These assets enjoys strong tailwind from a global move to a more sustainable packaging.
This business also generates strong cash flows due to healthy profit margins and low custodial capex requirements.
But we expect they will first present premium on the market.
We're actively working with our advisor and making good progress on this front and.
And expect that we will announce a sales transaction in the first half of 'twenty 'twenty four if our value expectations are met.
We believe that this further deleveraging will set us up well to deal with the refinancing of about 2026 senior notes in the second half of 'twenty 'twenty four.
I feel confident we will have this issue addressed in the coming year.
Okay.
The next issue, we are dealing with us reducing our exposure to high purity commodities and the volatility adds to our earnings.
The market share that we will gain from the closure of the G. P fully facility will make a significant impact on reducing this commodity exposure.
We believe that we will at a minimum realized $35 million and EBITDA improvement from the improved sales mix in 2024.
We are also working with our customers to quantify.
To qualify currency as production at Smiths you mean.
At our other see as product lines. So we can begin to consolidate our commodity viscose production at Smiths can mean.
Which houses our lowest variable cost high purity cellulose line.
Lastly, with a robust balance sheet and of course solid business.
Brian will be able to fully realize the promising plan of our biomaterials business.
As discussed during our recent Investor day.
Initial phase of this thing is forecasted to yield over $100 million of revenue at $42 million in EBITDA annually within the next five years.
Our first project the bioethanol plant in France is progressing well.
We expect that construction will be completed near this years end.
And commercial production should start in Q1 of 'twenty 'twenty four.
We're also advancing a couple of other biomaterial projects.
We're working on the permitting and engineering of our second bio ethanol plant to be located in Florida.
And our bid to generate bio electricity in Georgia has advanced to the next round.
All in all our strategic vision sits right them up well to achieve $325 million in annual EBITDA in 2027.
We are confident that we will overcome the near term issues positioning us to successfully realize the significant opportunities ahead.
We will keep you updated as we progress forward.
With that I'd like to turn the meeting over to Marcus to take us through the financial details for the quarter.
Thank you Doyle.
Starting with our high purity cellulose segment on slide six.
Sales for the quarter decreased by $77 million or 21% to $292 million.
As a result of a 13% decrease in sales prices.
The decline was primarily related to reduced pricing and commodity markets.
Whereas our CFS products saw a 6% price increase underscoring our commitment to securing fair value for our specialty offerings.
Sales volumes decreased by 10%.
The 217000 metric tons due to weaker market demand for both specialty and commodity products.
Commodity sales volumes rose by 37% compared to the previous year, whereas C. S volumes decreased by 36%.
This drop was attributed to market driven declines in demand, mainly due to substantial customer destocking, specifically and construction markets.
Sales for the quarter included $28 million of Biomaterials sales, primarily from Green energy in lithium.
EBITDA for the segment declined 26 million to $27 million.
The impact.
As higher sales prices for C. S and the reduction of input costs was more than offset by a less favorable sales mix and decreasing commodity prices.
Turning to slide seven.
Sales in the Paperboard segment saw a decrease of $9 million.
Resulting from a 5% reduction in sales volumes and an 8% decline in sales prices, reflecting weaker than expected market demand.
EBITDA for the segment increased 2 million to $17 million draw.
Driven by reduced purchase pulp class.
Partially offset by the impact of lower sales prices and volumes.
Turning to the high yield pulp segment on slide eight.
Sales declined $15 million in comparison to prior year, mainly due to a 31% drop in external sales prices and a 13% reduction in sales volumes. The reductions were a consequence of weaker demand and opportunistic downtime taken in response to market conditions.
EBITDA stood at negative 5 million for the quarter in contrast to 6 million recorded in the previous year.
Turning to slide nine on a consolidated basis, we had an operating loss for the quarter of 14 million.
<unk> pricing improvements in C. S were more than offset by $35 million of unfair.
Favorable mix and H B C and lower prices for H P C commodities paperboard and high yield pulp.
Costs decreased by $28 million.
Result of disinflation for certain input costs.
It's worth noting that.
Approximately $12 million of the cost improvements resulted from cost mitigation initiatives outlined during our previous earnings call.
SG&A and other costs increased $5 million due to less favorable foreign exchange rates compared to the prior year period.
On slide 10.
Net debt ended the quarter at 743 million a reduction of $5 million from the same period in 2022.
Sequentially, our net debt increased due to an expected increase in working capital primarily related to finished goods inventories.
The buildup in inventory levels was in preparation for the annual maintenance shutdown at our Fernandina plant.
Our primary focus for 2023 continues to be cash flow and debt management.
Consequently, we have executed opportunistic downtime for both our paperboard and high yield pulp facilities, and we intend to implement similar downtown downtime strategy at our tire test facility all aimed at optimizing working capital levels.
Liquidity ended the quarter at $147 million, including 27 million of cash of $112 million available under our ABL facility and $8 million for our French factoring facility.
Covenant adjusted net leverage ended the quarter at four four times higher than our initial expectations.
This increase is attributed to the lower EBITDA and weaker demand experienced during the past two quarters.
We are committed to maintaining compliance with our floor and a half times covenant test linked to our 2027 term loan facility and are actively managing cash flow and net debt levels to ensure the ongoing maintenance of a covenant cushion.
I will provide additional details regarding our plan to address the covenant in the slides that follow.
As part of our continued effort to reduce debt during our Investor day, we outlined our objective to retire an additional $70 million in debt within the next year.
We plan to achieve this through free cash flow and possible divestiture of passive assets by.
By further lowering our debt and strengthening our balance sheet.
We believe the company will be well positioned for the refinancing of the 2026 senior notes in 2024.
Furthermore.
We have recently confirmed our intention to explore the potential sale of our paperboard in high yield pulp assets.
We believe these assets offer a compelling value proposition in the market and we have engaged houlihan lokey to formalize this process.
It is important to emphasize that we see these assets as valuable.
And we will only pursue monetization if it aligns with the best interests of both the company and our stakeholders.
Any proceeds from the sale of these assets would be utilized to accelerate the reduction of debt and further deleverage our balance sheet.
So, let's now let's shift to focus on slide 11.
Which sets out a bridge illustrating how we expect to achieve EBITDA increase from Q3 to Q4.
To begin we revisit the mitigation measures we discussed during our previous call last quarter.
The additional 14 million you see here is primarily related to lower fixed costs, including maintenance and supplies.
We also expect benefits from reduced chemical and wood usage in Q4.
And Furthermore, we anticipate an improvement in price and product mix in our H B C segment.
As the Q4 order book is more weighted towards higher margin C S products compared to Q3.
Over 90% of D. C. S orders are confirmed and planned to ship in the quarter.
Additionally, we expect both paperboard prices and volumes.
Two experienced an increase in Q4 as Destocking wanes and market demand improves high yield pulp prices have rebounded from their lows.
And are projected to increase slightly in Q4, and lastly, Q4 H P. C production volume is expected to remain roughly flat compared to Q3.
An unfavorable mix shift in production is anticipated driven.
Driven by opportunistic market downtime at our tests in December.
We have a high level of confidence in achieving this guidance and remain focused on execution this quarter for progressive.
Let's now review review, how the guidance aligns with our ability to meet our debt covenants as shown on slide 12.
In Q3, our L. T M Covenant EBITDA stands at approximately $170 million.
Indicating that we have approximately 12 to 14 million in add backs available on a normalized basis.
We closed Q3 with a net debt of $743 million and we maintained net covenant leverage at four four times or.
Below the four and a half times Covenant test.
Looking ahead to Q4.
We anticipate covenant EBITDA of $160 million based on our guidance and we are targeting net debt of 700 million keeping the net covenant leverage flat at 4.4 times.
Our strategy for achieving the net debt target.
Apprised of several components, including 40 to 50 million of free cash flow, including 15 to 25 million of working cap.
Ongoing mitigation actions addressing costs capital expenditures and other discretionary items will also provide benefits.
Additionally, we are actively negotiating a potential monetization of passive assets amounted to $35 million to $40 million.
I have full confidence in our approach to manage the covenant cushion and believe we have a well defined plan in place.
If any problems arise in the upcoming quarter, we are fully dedicated to utilizing all available means to meet the covenant requirements.
With that I'd like to turn the call back over to Doyle.
Thank you Marcus.
Now, let's shift our focus to slide 13, where all updates you on our 2023 initiatives.
As Marcus and I mentioned earlier, we're faced sustained sustained weakness in demand across multiple end markets. This has led us to reduce our 'twenty three 2023 EBITA guidance, which is now set at $150 million.
Building upon our previous discussion in the second quarter earnings call. We've made substantial efforts to address the impact of the challenging market conditions, we have encountered.
Specifically, our management team took proactive steps to reduce expenses in the second half of the year totaling nearly $40 million.
These measures included various actions like reducing contractor services implementing a hiring freeze.
Scaling back on overtime trimming expenditures on the wood cost it can trade well.
Also boosting productivity and capitalizing on our higher power sales prices.
However, the impact of these cost saving measures it took longer to manifest in our financials than initially expected.
Primarily due to a slower inventory turnover rate in the third quarter.
Nevertheless, as we entered the fourth quarter, we are beginning to witness the tangible benefits of these efforts and we anticipate that we will recognize the approximately $40 million in savings by the year's end.
It's important to note that we now believe that approximately 40% of these savings are forecast to reoccur in 2024.
In line with our ongoing initiatives to enhance process efficiency and our commitment to further cost saving measures.
Although our 2023 EBITDA outlook is less favorable we are increasing our guidance for 2023 free cash flow to a range of $65 million to $75 million.
In the third quarter, we witnessed a temporary decrease of $25 million of free cash flow is working capital expanded.
This was largely due to an increase in inventories in preparation for the fourth quarter players shut down our at our <unk> facility.
As well as lower off take for ethers into the construction markets.
We anticipate a substantial working capital benefit for the full year and Q4.
As we aggressively manage inventories.
By implementing opportunistic production downtime across our paperboard.
Youll pulp and hardest H P C businesses.
Furthermore, we have lowered our full year total capex projection to $120 million inclusive of $35 million in strategic Capex net of financing.
In the current environment adaptability is essential.
And we are prepared to scale back strategic capital investments if there were if required.
We are maintaining our focus on capturing higher value for our cellulose specialty products.
Year to date, we've achieved an impressive 12% price increase for cellulose specialties compared to the prior year period.
Moving forward, we will continue to prioritize the value of our cellulose specialties.
Ensuring a strategic approach to better optimize profitability across the cycle.
Our commercial team is currently working hard discussing contract terms for the coming year.
And I am optimistic about the outcomes of these discussions as we approach 2024.
Finally, I'll finally, I'd like to provide further details regarding our viscose and paper pulp businesses.
As discussed in our previous earnings call.
These businesses are expected to incur an estimated EBITDA loss of $50 million. This year due to the prevailing low sales prices with a significant portion of these losses are concentrated in our north American Salt Lake plants.
Traditionally we have used the production and sale of commodity products to maintain high utilization rates for our six high purity production lines, thereby maximizing fixed cost absorption.
In challenging market conditions like the present.
It has become evident that this strategy offers only marginal financial benefits.
Consequently, we recognize the need for a strategic shift.
We have initiated the process of consolidating physicals productions were to Miss Green facility.
We are in the process of qualifying the cellulose specialty grades currently produce it to biscuit mean.
Within our remaining cellulose specialty facilities once these qualifications with our customers are successfully completed.
He will transition these grades to the other facilities and backfill to biscuits with physicals production.
Now, let's turn to slide 14.
We will assess our progress against our 2023, EBITDA and free cash flow guidance.
The waterfall chart illustrates our plan to realize free cash flow within the $65 million to $75 million range.
Anticipating EBITDA of $150 million for the year, we have reduced cash outflows.
Effect will be more than offsetting the lower EBITDA.
These adjustments in copper lower cash interest capex and other obligations, while increasing working capital monetization.
The lower interest expense is largely attributable to the timing of payments related to the recent refinancing.
Our custodial Capex has been reduced to $85 million and we have also eliminated the catch up capital into 2023.
We believe that our current operating levels can be sustained at this capex level. However, we will likely need to spend this deferred capital in the next couple of years to maintain reliability going forward.
Expanding on the $71 million and working capital benefits realized during the initial nine months.
We have revised our year end target to $85 million to $95 million.
Given our confidence that further enhancements in Q4 will be realized it as inventory balances are optimized.
Furthermore, we have reached an understanding with our government partners in France regarding the deferred energy liabilities, which does not necessitate further payments in 2023.
Reflected in this chart for the quarter includes a category for miscellaneous accrued liabilities, which encompasses items like property taxes customer.
Customer rebates accrued interest and so on.
We've incorporated this as a reconciliation reconciliation element.
To connect our guidance with our actual figures as.
As we've previously discussed our.
Our free cash flow will be allocated strategically directed toward either debt repayment or investments in appealing strategic projects.
Turning to slide 15, we depict the progress of our EBITA margin growth and our net leverage decline.
For 2023 we anticipate our margins to land in the 9% range, which as noted is the weighted average of the strong margins we enjoy in the cellulose specialties in paperboard segments and the negative margins expected in the viscose and other commodity businesses.
Net debt leverage is expected to hold steady at four four times covenant EBITDA for the full year.
However, we remain committed to drive.
Towards our target net debt leverage ratio of two and a half times in 2027.
I'm confident that the fourth quarter results will be stronger than Q2 and Q3.
The demand for many of our Rcs products has remained resilient and we do expect to see an uplift in demand in Q4 due to the closure of competitive capacity.
Paperboard sales volumes are showing signs of normalizing.
There are businesses that are more GDP sensitive will pick up in the second half as.
As evidenced by our recent.
Cisco's fluff high yield pulp price increases.
All of our scheduled plant outages are now behind us. So we will see improved productivity and lower spending as we execute the nearly $40 million and expense reductions.
The $10 million to $15 million in Capex curtailments.
With that operator, please open the call to questions.
Thank you.
We will now be conducting a question and answer session.
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One moment please poll for questions.
Thank you.
Our first question comes from the line of Matthew <unk> with color with RBC capital markets. Please proceed with your question.
Hi, good morning, Thanks for taking my questions, maybe first it looks like C. S volumes are down 6% quarter over quarter and you called out a weakness in ethers related to construction markets can you give any more color on what's going on in that market and they need to call out any other pockets of relative strength and weakness in demand either by product or end market and then.
Maybe last is there any other color you can provide on what the drivers are of the stronger mix do you anticipate in that business in Q4.
Hey, Good morning, Matthew This is bill I'll.
Talk a little bit about what's going on in the ethers market and I don't think it's any surprise most of or a good portion of our ethers ends up in the construction markets.
The higher interest rates that we're seeing globally is really having an impact on our construction both commercial and residential so.
It's not a surprise that we're seeing are an issue and in demand with respect to them that end market.
We are our expectation is that we're going to continue to see weakness through the rest of this year and ethers as well as going into 'twenty 'twenty four and all of our customers are telling us to expect similar.
Similar environment next year as we saw this year. So we're not counting on ethers to bounce back anytime.
Any time soon given what we're seeing in the macro environment.
With respect to you know the other the other markets, where theres acetate, rather see us I would say for the most part.
As noted in our commentary that those markets have been relatively resilient in Q3, our acetate were softer but that was really due to our carpet R. R.
Our customers had taken some downtime during.
During that during that period due to just regular scheduled maintenance outages.
And murder go to see it improve mix as attitudes demand normalizes in the fourth quarter relative.
Relative to the fourth quarter as I mentioned as it tastes are expected to be stronger than they were in the third quarter because of a call. It. The you know the rebound from the outages that they took in the third quarter.
I would also expect that you know our demand for other C S and Ah it's going to improve.
Because of the closure of the competitive capacity that we saw or that was announced in September.
So.
These are the two big drivers that we that will drive the improvement in mix in Q4.
Great. Thanks for that that's helpful. Maybe next it sounds like you're monetizing or looking to monetize about $35 million to $40 million of passive assets.
I think you've talked at a high level as to what your options might be there, but now that you're out with a specific dollar value range can you give any more granularity as to what the major components would be there and maybe speak to your level of confidence around monetizing some portion of that or at least getting agreements in place by year end.
Yeah, Matthew with respect to those passive assets, we're in active discussions and negotiations with third parties.
On the potential monetization of those assets. So I really don't want to get into any specifics relative to what we're trying to do and and who we're talking to but.
But I can generally say that I I have a relatively.
Relatively high confidence that we're going to include a sale of those assets by year end.
Okay. Thank you maybe one last one.
Hmm.
Took downtime at our Tennessee, the paperboard in high yield pulp side in October.
Can you comment at all on how that downtime and restart went from operational perspective, and whether there is any impact to your high purity cellulose operations at the site from the downtime.
Yeah. That's a that's a great question with respect to you know whether the downtime in our paperboard or high yield pulp lines impacted to the high purity line. The answer is no the high purity line ran well.
During during October.
With respect to the startups and whether there was any trouble getting the loans started back up once we got past the period that we were had the facilities those facilities down.
The answer is no both of the both operations a bounce right back.
Great. Thanks, I'll turn it back.
Thank you.
Our next question comes from the line of Daniel Herman with Sidoti <unk> Company. Please proceed with your question.
Hey, guys. Good morning, Thanks for taking my call I just have two quick ones for you first obviously with a fully mill closure of the market's kind of tightened quite a bit going in towards the end of the year and also into 2024. So as you go into to pricing negotiations with customers in the sea.
<unk> segment.
Do you see potential upside as pricing being a benefit to boost margins and 24.
And then secondly, I know you've mentioned several times now that you are committed to refinancing them. The 'twenty six notes in 2024 and I'm just wondering if if if the sale of paperboard and or the high yield pulp assets were not to go through does that change your strategy at all.
<unk> in terms of financing and 24.
That's all for me thanks.
Okay.
Alright, Danielle with respect to your question around the fully closure and how it would impact or negotiations with respect to see us pricing in 'twenty four.
You're absolutely correct that you know the closer of the capacity is going to tighten the sea us see us markets, but I need to know that it only tightened as part of the sea us markets.
So there's three segments acetate ethers.
<unk> and other C S, which includes you know filtration casings.
Tastings and and so forth.
Because G P <unk> principally supplied into the other see us market that is really the only market that that disclosure is going to have an impact on in and then in any material way. So we do expect to that market will tighten up and we believe as a result.
That we will gain some market share as a result of that and then see the improved sales mix that we talked about earlier.
The other two markets you know a different competitors beauregard in ethers and breast cell and in acetate. We are aware that they've got some available capacity because they're seeing the same pressures that we're seeing on a macro basis in terms of destocking and things like that so it's way too early to.
The forecast or.
Think about what's going to happen in 'twenty four but we are as stated.
In our in our commentary that we're gonna be pushing value, but just the dynamics that you would expect from the closure of fully is going to have less of effect in those two markets as it as it would in the the other see us market.
That's very helpful. Thank you.
Yeah, Dan on your second question, Oh, Yeah, I'm, sorry, the second question I'm, sorry, and maybe a Marcus Oh, Yeah, you probably the right person to talk about that yeah, Dan we would remain focused on addressing our next maturity and take care of the refi next year as we've mentioned are any asset sale would.
Celebrate debt retirement.
But our.
Aligned with our Investor day comments, reducing.
That further and addressing maturity is a key priority for the company and management.
Okay, Great guys I really appreciate it thank you.
Thank you.
As a reminder, if you would like to ask a question. Please press star one on your telephone keypad.
Our next question will come from the line of Dmitry Silverstein with water Tower Research. Please proceed with your question.
Good morning, gentlemen, thank you for taking my call.
You mentioned in your in your comments that Youre seeing a little bit of improvement I guess in the raw material pricing situation can you talk about what is going on with raw material pricing both on the caustic side as one as well as on the wood side and how do you see that playing out for the rest of the year and as we kind of 'twenty 'twenty four.
Yeah.
Hey, good morning Dmitry.
<unk>.
With respect to the the input cost yes, we are seeing some improvement in terms of the the the purchase price.
Okay. As we go into Q4, and we expect that that will continue did you see improvement as we go into 2020 for.
Some of the biggest improvements we're seeing as in caustic as you as you noted.
We expect relatively soon.
A significant change in our 2024 at a more modest change in the in the fourth quarter of this year and caustic, but I got a note that at the end of the day the pricing that we're going to pay in 'twenty four is still going to be higher than what we thought we paid back on prepaid pre pandemic. So we're not not back down to what I would say a normal level.
But we will see some some some improvement there.
Prices again, excuse me just getting the impact on wood prices is generally going down and that's due to and in large part due to the closures that have been announced and had been affected in the paper pulp industry as well as within our own industry.
But to the degree by which will be different in the different regions. We operate. So an example would be because of the dam tar espanola closure in Canada, that's gonna have a fairly significant impact on the pricing of wood that we bring into to Misdemean and 24 and here in the U S southeast.
The impact of the IP closure as well as the West rock closure in Charleston, and then they were fully closure should have some impact and we're expecting some lower pricing in our 24 as well as a result of that <unk> got a note, though against the same thing with caustic, even though the prices are going down.
We expect that AR at the end of the day, the pricing will still be higher than it was back in <unk> 2021 2022.
And then finally with respect to taught US again, a TARDIS wood basket, there a little little tighter than what we see here in the states and as a consequence, we do expect that the pricing will be relatively flat in 'twenty four relative to 'twenty three.
Understood. Thank you.
Dmitry the the last item that we're seeing a good green shoots on his ongoing reductions on container rates as it relates to ocean freight.
So that's another item you know fairly significant change in it and logistics cost.
But that's a that's a big that's a big big part cause certain logistic pricing for everybody has been probably the last couple of years. Yeah. When you look at the fourth quarter guidance, you talked about picking up some business into some some business in some market share from the Georgia Pacific closer to fully play out.
Should I infer that these but this additional volume is basically being negotiated right now and that you are.
The stuff of getting our products qualified.
My understanding was that it was going to take a few weeks to maybe a couple of months to get to your projects or anybody's products qualified for these applications because you know settled losses not necessarily.
Kind of a plug and play type of a solution. When you switched suppliers you need to requalify. Our products. So can you talk about sort of where you are in that process, how much you're going to realize in terms of incremental business in the fourth quarter versus a 2024.
Okay.
I guess at the store.
With is that many of the customers and the other see us market, we shared with G. P.
As a consequence, we were already qualified so we don't have to go through the same hoops that potential competitors would to to get into it.
To get into those customer accounts. So the hurdle was was a lot lower for us and as a consequence, we've already have already booked volume.
For Q4, as a result of of Gp's closure and as I said earlier, we're very very confident that we will achieve at least a 35 million dollar EBITDA gain from the sales mix in 2020 four as result of the Mark.
Or the sales mix change in 'twenty, four but we're already we're already starting to see improvements.
Improvements in our increased volumes of <unk> sales in Q4.
As a result of the closure and that's one of the one of the principal drivers of the other favorable expected favorable sales mix change in the in the next quarter.
Understood and then final question with regards to pricing and I'm, calling them following up on Dan's earlier question.
You mentioned that some of the specialty cellulose pricing you were able to get higher prices is that a function of the market demand improving or was that more of a function of the fully plant closure.
Realizing that the capacity has tightened up.
I'm not quite sure didn't can you just restate the question again I'm just to make sure I got it so you mentioned.
Sure. So you mentioned in your in your remarks that you have got I think 6% sales or price increase in your specialty Cellulosic business. So yeah. My question is did that have to do with improved market fundamentals in terms of the demand side or did it have to do more with the closure of the fully planned and in the other businesses.
That there were at where capacity is now tightened up.
Yeah, the 6% increase as is it is the change in pricing I believe and the current Q3 versus the prior Q3 numbers. So it really doesn't have to you don't really see any effect yet of any fully.
Our increase in fully business.
So and I would say that the the change in year to year is is due to the price increases that we affected.
In August of last year, as well as I'm coming into the new year or they coming into 2023 for Rcs business and you're just seeing.
That favorable change from our prior negotiations.
Okay. So if I can rephrase my question, a little bit differently, you you you've gotten pricing because.
Because of your strategy of emphasizing value over volume.
Is the pricing momentum in your opinion going to accelerate as we get into 'twenty 'twenty four with a with a fully closure or.
Or you're just going to continue to execute our strategy.
To get the pricing that you can get regardless of what our what the market conditions are in terms of capacity.
With a fully we have coming out of our industry.
Well the strategy is going to stay the same focus on value versus over volume.
And.
But at the same time, we're going to make sure that we get the volume we need for the business and we've said this before on previous calls we will defend our share.
So we will we will continue to go forward with that I really can't speculate at this time dmitry with respect to where pricing is going to go for 24 were in fact this week is London pulp week and we're right in the middle of our initial discussions with customers for 24, so I'm not going to take them on.
My People's needs out from underneath them until you where things are going to go but we do feel we're in a pretty strong position relative to what we offer and I think they fully closure.
Well only helps us with respect to our negotiating position.
Fair enough. Thank you.
Thank you.
No further questions at this time and I would like to turn the floor back over to President and CEO. Mr. July open quest for closing comments.
Well, thank you again for joining us today.
I want to note that I'm incredibly proud of the collective efforts made by our team here at Ryan.
Full confidence that we will continue to enhance the profitability, while we diligently worked to reduce our debt and our leverage.
Please know that our lines of communication are always open.
So feel free to reach out to any one of us if you have any questions or require further information. So again. Thank you for your time.
This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
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