Q2 2024 Rayonier Advanced Materials Inc Earnings Call
Speaker Change: During today's presentation, all parties will be in a listen-only mode.
Operator: As a reminder, this conference is being recorded. I would now like to turn the call over to your host, Mr. Michael Walsh, Treasurer and Vice President of Investment Relations. Thank you. Mr. Walsh, you may begin.
Speaker Change: Following the presentation, the conference will be open to questions and 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. Michael Walsh, Treasurer and Vice President of Investment Relations. Thank you. Mr. Walsh, you may begin.
Michael Walsh: Thank you and good morning. Welcome again to RIAM's second quarter 2024 earnings conference call and webcast. Joining me on today's call are Delisle Bloomquist, our President and Chief Executive Officer, and Marcus Moeltner, our Chief Financial Officer and Senior Vice President of Finance. Our earnings release and presentation materials were issued last evening and are available on our website, riam.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.
Michael Walsh: Thank you and good morning. Welcome again to Ryan's second quarter 2024 earnings conference call and webcast.
Speaker Change: Joining me on today's call are Delisle Bloomquist, our President and Chief Executive Officer, and Marcus Moeltner, our Chief Financial Officer and Senior Vice President of Finance.
Speaker Change: 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.
Michael Walsh: 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 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 financial 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 gap financial measures is included on slides 20 through 25 of our presentation material. Now, I'll turn the call over to Delisle. Thank you.
Speaker Change: A reconciliation of these measures to their most directly comparable GAAP financial measures are included on slides 20 through 25 of our presentation materials. And now I'd like to turn the call over to Delisle.
Delisle Bloomquist: Thank you, Mickey, and good morning. I'll start with a financial overview for the second quarter of 2024. After that, I'll outline recent company actions before handing over to Marcus, who will provide more details on the business segments, capital structure, and liquidity.
Delisle Bloomquist: Thank you, Mickey, and good morning.
Delisle Bloomquist: I'll start with a financial overview for the second quarter of 2024.
Delisle Bloomquist: After that, I'll outline recent company actions before handing over to Marcus.
Delisle Bloomquist: I'll return to discuss our ongoing initiatives and updated guidance for 2024. This will include updates on the progress towards suspending operations at our Temescamene HPC plant and brief comments on the sales process of our paperboard and high-yield pulp business. We will then open the floor for questions.
Marcus Moeltner: and brief comments on the sales process of our paperboard and high-yield pulp businesses.
Delisle Bloomquist: Let's turn our attention to slide four, where we'll discuss our strong second quarter performance. Just David Dahl reached 68 million dollars. $41 million, or a 152% increase from the same quarter last year. In the high-impurity cellulose segment, EBITDA improved by $38 million, or 136%, due to Higher Sales Volumes for Cellular Specialties, Decreased Costs for Key Inputs and Logistics, and Improved Productivity. Additionally, this quarter's results included a $5 million benefit from a Canadian wage subsidy received during the COVID pandemic was recognized during this quarter due to the completion of the government audit of the benefit.
Speaker Change: Just Diva Da reached up 68 million dollars a 41 million dollar or 152 percent increase from the same quarter last year.
Speaker Change: Additionally, this quarter's results included a $5 million benefit from a Canadian wage subsidy received during the COVID pandemic, but was recognized during this quarter due to the completion of the government audit of the benefit.
Delisle Bloomquist: The paperboard segment experienced a $5 million, or 50%, increase in EBITDA, driven by higher scale volumes, lower cost for purchase pulp, and a $2 million benefit from the Canadian wage subsidy. These gains were partially offset by lower sales prices. In the high-yield pulp segment, EBITDA rose by $1 million, primarily due to reduced logistics and chemical costs, along with a $2 million benefit from the Canadian wage subsidy. However, these improvements were largely offset by lower sales prices and volume. Corporate expenses increased by $3 million, driven by higher costs related to the ERP project, variable compensation, and discounting and financing fees to support a working capital initiative.
Speaker Change: The paperboard segment experienced a $5 million, or 50% increase in EBITDA, driven by higher sales volumes, lower cost for purchased pulp.
Speaker Change: These gains were partially offset by lower sales prices.
Speaker Change: In the high-yield pulp segment, EBITDA rose by $1 million, primarily due to reduced logistics and chemical costs,
Speaker Change: However, these improvements were largely offset by the lower sales prices and volumes.
Delisle Bloomquist: These were partially offset by our favorable foreign exchange impact. In summary, the overall performance was driven by strong results in our core cellular specialty segment as we continue to pivot our mix to more specialty production and sales and focus cost reduction across the enterprise, which more than compensated for softness in some of our commodity business. Last quarter, we announced a significant transaction to monetize our lumber duty refund rights for $39 million.
Speaker Change: and focus cost reduction across the enterprise.
Delisle Bloomquist: I'm happy to report that we finalized that transaction in June and I received $39 million, as expected. This was reflected in our strong year-to-date pre-cash flow generation of $69 million. The process to indefinitely suspend operations at our Tamiscomene HPC plant remains on track. Under current market conditions, the suspension is yielding positive EBITDA benefits and enhanced or consolidated free cash flows. Considering these updates and our strong performance in the first half of the year, we are pleased to increase our full year EBITDA guidance to $205 to $215 million and to raise our full year adjusted free cash flow guidance to $100 to $110 million. With that, I'll hand it over to Marcus to walk us through the financials for the quarter. Marcus
Speaker Change: This was reflected in our strong year-to-date pre-cash flow generation of $69 million.
Speaker Change: Under current market conditions, the suspension is yielding positive EBITDA benefits and enhanced or consolidated free cash flows.
Speaker Change: Considering these updates and our strong performance in the first half of the year,
Speaker Change: and to raise our full year adjusted free cash flow guidance to $100 to $110 million dollars.
Speaker Change: With that, I'll hand it over to Marcus to walk us through the financials for the quarter. Marcus.
Marcus Moeltner: Beginning with our HPC segment on slide five, quarterly sales increased by 32 million, or 11%, to $332 million. Overall HPC pricing increased 5%, reflective of a higher mix of CS products, whereas total sales volumes increased by 5%, resulting from a 25% increase in CS sales, partially offset by a 13% decrease in commodity prices. Even our margins in the HPC segment reached 20%. Demonstrating the success of our initiatives to enhance product mix and prioritize special orders, the rise in CS sales volumes was supported by the closure of a competitor's plant in late 2023. Continued Muted Recovery in Ether Sales, and Bridge Volumes from the Indefinite Suspension of the Temiskaming HPC Plant.
Marcus Moeltner: Thank you, Delisle.
Marcus Moeltner: Overall HPC pricing increased 5%.
Marcus Moeltner: reflective of a higher mix of CS products, whereas total sales volumes increased by 5%.
Marcus Moeltner: resulting from a 25% increase in CS sales partially offset by a 13% decrease in commodity sales.
Speaker Change: Demonstrating the success of our initiatives to enhance product mix and prioritize specialties.
Speaker Change: The rise in CS sales volumes was supported by the closure of a competitor's plant in late 2023.
Speaker Change: The continued muted recovery in ether sails and bridge volumes from the indefinite suspension of the Temiskaming HPC plant.
Marcus Moeltner: Other sales for the quarter were $23 million, which included $13 million of green energy sales. EBITDA for the HPC segment rose by $38 million to $66 million, primarily due to an enriched mix of CS sales previously noted, and The Benefit, decreased costs for key inputs and logistics, along with the impact of improved productivity. This quarter's results also included $5 million for the shoes benefit. Turning to slide six.
Speaker Change: EBITDA for the HPC segment rose by $38 million to $66 million.
Speaker Change: primarily due to an enriched mix of CS sales previously noted and the benefit
Speaker Change: of Decreased Costs for Key Inputs and Logistics along with the Impact of Improved Productivity.
Marcus Moeltner: Sales in the paperboard segment increased by $12 million, driven by higher sales volumes. EBITDA for this segment improved by $5 million, reaching $15 million, primarily as a result of increased sales volumes and the benefit of decreased purchase bulk costs. In addition, the segment included two million pursuits.
Speaker Change: Turning to slide 6, sales in the paperboard segment increased by $12 million, driven by higher sales volumes.
Speaker Change: EBITDA for this segment improved by $5 million, reaching $15 million.
Speaker Change: primarily as a result of increased sales volumes and the benefit of decreased purchase bulk costs.
Marcus Moeltner: Turning to the high yield pulp segment on slide seven, sales declined by $11 million in comparison to the prior year, reflecting a 25% drop in sales volumes and a 9% decline in sales price due to overall reduced demand and the impact of market supply dynamics in China. However, segment EBITDA improved by $1 million. $2 million as compared to the prior year quarter. The quarter's results also included a $2 million benefit for SUEs. Transitioning to slide eight.
Speaker Change: to $2 million as compared to the prior year quarter.
Marcus Moeltner: Consolidated operating income for the quarter amounted to $28 million, reflective of a $35 million improvement versus the second quarter of last year. This positive change was primarily driven by improved product mix and other cost benefits, including the impact of favorable foreign exchange rates. Increased variable compensation, as well as discounting and financing fees incurred to support working capital initiatives. Liquidity remains strong at $260 million.
Speaker Change: Consolidated operating income for the quarter amounted to $28 million, reflective of a $35 million improvement versus the second quarter of last year.
Speaker Change: This positive change was primarily driven by improved product mix, favoring HPC-CS grades, which more than compensated for lower sales prices.
Speaker Change: The increased sales volumes in CS and paperboard were partially offset by reduced sales for commodity HPC products and high-yield pulp.
Speaker Change: and a $10 million SUES benefit contributed to improved results.
Speaker Change: These positive gains were partially offset by higher costs to support the company's ERP project, increased variable compensation, as well as discounting and financing fees incurred to support working capital initiatives.
Speaker Change: Now let's turn to slide nine.
Speaker Change: Gross debt ended the quarter at $795 million, a reduction of $44 million from the same period in 2023.
Speaker Change: Net secured debt, as reflected in our financial covenant ratio associated with the term loan, ended the quarter at $659 million.
Speaker Change: Net of financing, strategic capital reached $17 million.
Speaker Change: Currently, all planned major maintenance outages for 2024 have now been completed.
Speaker Change: Overall, our liquidity remains strong.
Speaker Change: positioning us well to achieve our targeted 70 million dollar debt reduction this year.
Marcus Moeltner: With that, I'd like to turn the call back over to Delisle. Thank you.
Speaker Change: With that, I'd like to turn the call back over to Delisle. Thank you, Marcus.
Delisle Bloomquist: Our top goal this year is to refinance the 2026 senior notes before they go current in January 2025.
Delisle Bloomquist: Working closely with our advisors at Houlihan Loki, we're actively exploring refinancing options and engaging with the market to secure the best terms and proceeds from the recent sale of the duty refund right. We have received offers for the Tommiscomene assets from multiple parties, with the suspension of the HBC operations at Tommiscoming. Given the length of the process, we expect to refinance the 2026 senior secured notes at satisfactory terms prior to a potential sale of these assets in April.
Speaker Change: In support of this refinancing effort, we are also on track to achieve our target of reducing gross debt by $70 million in 2024.
Speaker Change: We enjoy strong interest among potential lenders, therefore we are confident in completing the refinancing at satisfactory terms within the year.
Speaker Change: The sales process of our paperboard and high-yield pulp assets is progressing.
Speaker Change: We have received offers for the Tamiskamine assets from multiple parties.
Speaker Change: We are committed to completing a sale of these assets.
Speaker Change: If we receive an appropriate offer, which values the high EBITDA margins and the low custodial capital intensity of the combined paper board in high-yield businesses.
Speaker Change: While the proceeds from the sales would significantly reduce our debt load, we're carefully balancing the estimated annual $50 million in pre-castro from these businesses against any potential debt repayment.
Speaker Change: Given the length of the process, we expect to refinance the 2026 Senior Secured Notes at satisfactory terms prior to a potential sale of these assets.
Speaker Change: In April ...
Speaker Change: We announce our decision to indefinitely suspend the operations of our Tamiskamene HPC plant.
Speaker Change: This decision in part reflected our commitment to mitigating the financial drag from non-fluff commodities.
Speaker Change: which we projected at the time would result in a 2024 EBITDA loss of $48 million.
Delisle Bloomquist: As a result of the suspension, we forecast these non-slug commodity losses to be reduced by nearly half this year, and the adjusted EBITDA improvement of $15 to $20 million after customer qualifications are completed. Pre-cash flow is expected to increase by $30 to $35 million due to the adjusted EVA DAW improvement and avoid a custodial CapEx for the Temescamene HBC plan. We have submitted a notice for self-certification for our prebiotic animal feed product and Krull Tall Oil Operations in both France and the U.S.
Speaker Change: As a result of the suspension, we forecast these non-slug commodity losses to be reduced by nearly half this year.
Speaker Change: while also improving the supply-demand balance in the core cellulose specialty market.
Speaker Change: Mothballing activities have commenced and will continue through October.
Speaker Change: The customer qualification process is ongoing and we expect to retain approximately half of the CS sales volume and a significantly higher percentage of the EBITDA that was historically sourced from TAMISKAMI.
Speaker Change: Going forward, these CS products will be produced from our A and B lines at Jessup and our sulfite plants at Fernandina and Tardis.
Speaker Change: We have upgraded our forecasted financial impact of the suspension for 2024 to a $10-$15 million positive impact on adjusted EBITDA and a $25-$30 million positive impact on free cash flow.
Speaker Change: We estimate one-time cost of $25 to $30 million for severance, benefit extensions, outplacement services, and mothballing.
Speaker Change: with an adjusted EBITDA improvement of $15 to $20 million after customer qualifications are completed.
Speaker Change: Pre-cash flow is expected to increase by $30 to $35 million due to the adjusted DIVA DAW improvement and avoid a custodial capex for the Temescamene HBC plan.
Speaker Change: As previously stated,
Speaker Change: We will routinely monitor the status of this indefinite suspension in light of economic conditions, market dynamics, and other relevant factors.
Speaker Change: We are nearing completion of the detailed engineering phase for a pernodina bioethanol plant.
Speaker Change: The project's permitting timeline has been extended by public participation, which is not uncommon and is being addressed through the regulatory process.
Speaker Change: This could result in a delay of the construction timeline of this project.
Speaker Change: We have submitted a notice for grass self-certification for our prebiotics animal feed product.
Speaker Change: We are advancing other projects in our biomaterials project pipeline, including the proposed AGE project at our Jessup facility.
Speaker Change: and Krull Tall Oil Operations in both France and the U.S.
Speaker Change: Let's turn to slide 11.
Speaker Change: The first half results exceeded expectations as we benefited from the recognition of $10 million in benefits related to SUEs.
Speaker Change: While we don't expect the advancing order to repeat in the back half of 2024, we do expect to retain a majority of these sales in the future as we re-qualify production at our other plants.
Delisle Bloomquist: Overall, we still expect solid results in the back half of 2024, driven by increased specialty sales and reduced operating costs. These funds will be allocated toward debt reduction and strategic capital investment. On slide 12, I dive deeper into the expected 2024 performance of each of our businesses. We anticipate cellular specialty prices to increase by a low single-digit percentage compared to 2023. Bridge Volumes from the Temescamene HPC suspension, and we expect a slight increase in H2 2024 sales volumes driven by increased fluff sales of the HBC plan, and is expected to contribute $3 to $4 million to EBITDA this year, growing to $8 to $10 million in 2025 as we achieve targeted production levels.
Speaker Change: Overall, we still expect solid results in the back half of 2024 driven by increased specialty sales and reduced operating costs.
Speaker Change: which includes a $15 million payment made in early January for last year's Q4 due to the timing of the interest payment around the holidays.
Speaker Change: Manus CapEx is now estimated at $75 million reflecting a $10 million reduction due to the suspension of the Domesquamene HPC plan.
Speaker Change: Furthermore, we anticipate $15 million in tax refunds and have successfully completed the transaction for $39 million for the monetization of the lumber duties.
Speaker Change: In sum, we are raising our adjusted pre-cash flow guidance to a range of $100 to $110 million for the year.
Speaker Change: These funds will be allocated toward debt reduction and strategic capital investments.
Speaker Change: On slide 12, I dive deeper into the expected 2024 performance of each of our businesses.
Speaker Change: We project EBITDA for HPC segment to be in the range of $205 to $215 million.
Speaker Change: as we continue to prioritize value over volume.
Speaker Change: Sales volumes for cellulose specialties are expected to increase due to a competitor's plant closure, an uptick in ether sales.
Speaker Change: These gains will be partially offset by acetate to stocking and changes in prior year contract terms.
Speaker Change: Demand for commodity HPC products remains stable with prices flat compared to 2023, and we project a slight increase in H2 2024 sales volumes driven by increased fluff sales.
Speaker Change: We anticipate Q3 2024 EBDAW to be significantly stronger than Q3 2023.
Speaker Change: as well as increased stranded costs from the Temescamene suspension.
Speaker Change: And it is expected to contribute $3 to $4 million by EBITDA this year, growing to $8 to $10 million in 2025 as we achieve targeted production levels.
Delisle Bloomquist: With the addition of the remaining projects in Portfolio 1, we anticipate EBITDA to decline in the coming quarter. We expect our high-yield pulp business to achieve EBITDA of approximately $5 million in 2024. However, sales volumes are projected to increase due to improved productivity. Corporate costs are expected to increase slightly in the second half of 2024 due to this project. In 2024, we anticipate our margins to be in the 12% range.
Speaker Change: Prices are expected to decrease slightly in the second half of 2024, while sales volumes are projected to increase slightly as inventories reduce, despite higher planned maintenance downtime for a distributive control system upgrade.
Speaker Change: However, sales volumes are projected to increase due to improved productivity.
Speaker Change: As a result, we expect EBITDA to be moderately higher in the coming quarter.
Speaker Change: For 2024, we expect corporate costs of $55 million in line with 2023 as we are in the final year of our multi-year ERP project implementation.
Speaker Change: As the ERP project concludes, we anticipate system enhancements and cost reductions starting in 2025.
Speaker Change: Inclusive of deep bottlenecking capacity increases from the remaining market participants.
Speaker Change: Review anything above 87% as a supply constraint market.
Speaker Change: The forecast for net secured leverage at the end of the year stands at 2.8 times Covenant EBITDA.
Speaker Change: We are confident that we will achieve our target net debt leverage ratio of 5.5%.
Speaker Change: 2.5 times well before 2027.
Operator: At this time, I would like to remind everyone that in order to ask a question, press star, then the number one on your telephone keypad. Again, it's star followed by the number one on your telephone keypad.
Speaker Change: At this time, I would like to remind everyone in order to ask questions, press star then the number 1 on your telephone keypad. Again, it's star followed by the number 1 on your telephone keypad.
Speaker Change: Your first question comes from the line of Matthew McKellar with RBC Capital Markets. Matthew, your line is now open.
Delisle Bloomquist: Good morning, Matthew. This is Delisle. Another issue, for example, would be around what's within the perimeter of the sale. There are shared utilities, and assets that both of us want to make sure are maintained and operated efficiently and effectively. So obviously, there are discussions around that of who's going to own them, who's going to operate them, and so forth. So those discussions are still ongoing as well, such as where it's sold at somewhere in the neighborhood of six to seven times. Eva Da.
Speaker Change: Good morning, Matthew. This is Delisle.
Speaker Change: A couple of points I think I can make that will further clarify where we are on the paper board in the high-yield pulp process.
Speaker Change: And really, the other points of criteria revolve around the suspension of operations at Temesca. A good example would be the bumping process that is triggered by the reduction of force that is going on at the facility as we speak.
Speaker Change: Obviously, when you're changing out personnel, whether it's the hourly and salary personnel, that raises questions or concerns.
Speaker Change: with respect to the potential buyers.
Speaker Change: Another issue would be, for example, would be around what's within the perimeter of the sale. There are shared utilities.
Speaker Change: assets that both of us want to make sure are maintained and operated efficiently and effectively. So, obviously, there are discussions around that of who's going to own them, who's going to operate them.
Speaker Change: In terms of valuations, we point to the sale of the GP Augusta mill as kind of a benchmark.
Speaker Change: since it's been fairly recent where it's sold at somewhere in the neighborhood of six to seven times EBITDA and after after synergies around five times.
Delisle Bloomquist: And after Synergy, it's around five times that. And that's kind of been our benchmark with respect to that. And that's where we're working on and having discussions with our potential suitors.
Speaker Change: And that's kind of been our benchmark with respect to that. And that's where we're working and having discussions with our potential suitors.
Speaker Change: Maybe next. It sounds like you're continuing to make good progress on the prebiotic initiative.
Speaker Change: Can you just maybe update us on how you're thinking about that project today? I think you maybe previously talked about bringing that to market in late 25 or 26. Is that still a relevant timeline? And then if you could just refresh us on any anticipated capital costs and targeted returns to the extent you're able to, please.
Speaker Change: Yeah, so the prebiotics opportunity, it would be located at our Jessa facility.
Speaker Change: taking advantage of some whole product streams that a craft mill generates and then
Speaker Change: purifying that stream and then spray drying and packaging that material to be sold to various animal feed suppliers.
Delisle Bloomquist: We've gotten through what's called the self-grass approval process, grass standing for generally regarded as safe, process, and are working closely with a couple of key potential customers as they go through their own independent validation of the benefits of our product versus competitive offerings. And we're, we're, we're marching through that.
Speaker Change: We've gotten through what's called the self-grass approval process, grass standing for generally regarded as safe.
Speaker Change: process and are working closely with our couple of key potential customers as they go through their own independent validation of the benefits of our product versus competitive offerings.
Speaker Change: And come September , we're going to go through some production trials to make sure that we can produce this at scale.
Speaker Change: before we start committing capital and doing the pre-engineering for the actual prebiotics plant.
Speaker Change: In terms of timing, we're still targeting
Speaker Change: Late 2025.
Speaker Change: for a startup.
Speaker Change: Though that's starting to get a little tight, we still think we can still hit that date. So right now, really haven't hit any speed bumps on that, but as you'd expect, you'd have to go through quite a lengthy qualification process.
Speaker Change: and we're marching through that.
Speaker Change: Thanks very much. And is there anything you're able to say around anticipated capital costs or targeted returns of that project?
Delisle Bloomquist: And in terms of return on equity, it'll meet our thresholds, which are north of 30%.
Speaker Change: That will be very inexpensive, and in terms of return on equity, it'll meet our thresholds, which is north of 30%.
Speaker Change: Thanks very much and then last one for me, could you just provide a bit of an update around what you're seeing in the high-yield pulp markets and in particular what you're seeing in China?
Speaker Change: Yeah.
Speaker Change: This is one of my favorite topics at least something I just talk about with my team all the time about because it's it's really kind of a moving dynamic.
Speaker Change: What we're seeing is that the paperboard plants that were recently constructed in China are having trouble finding a home for the production of paperboard.
Unknown Executive: That dynamic continues, and it's weighing heavily on pricing in China.
Speaker Change: So, to bring in any kind of cash flow, they're running their pulp lines.
Speaker Change: and then selling those pulp lines to competitive paperboard plants.
Speaker Change: And that's obviously in competition with the pulp that we bring into China.
Speaker Change: for that for the same purpose.
Speaker Change: That dynamic continues, and it's weighing heavily on the pricing in China.
Speaker Change: So, in response to that, we're working to reposition our sales outside of China to other large markets like India and Europe .
Speaker Change: But in terms of how long this is going to go on, given the, you know, the questions around consumer activity in China, really don't have an idea right now.
Unknown Executive: Okay, thanks very much for the color. I'll turn it back.
Speaker Change: Okay, thanks very much for the color. I'll turn it back.
Speaker Change: Thank you, Marcus Delisle. Good morning to you both and congrats on the quarter. Just a couple of quick ones from me first.
Speaker Change: Any concerns at all about the refinancing before the end of the year? And should we think about that as a Q3 event or a Q4 event?
Speaker Change: And then finally...
Unknown Executive: Hi Daniel. Good morning.
Speaker Change: Hi, Daniel. Good morning. Let me address the issues around the refi first and about where we are with the process. What I can tell you is that, you know, we've been working with Cool Hand Loki now for a couple of months.
Unknown Executive: Let me address the issues around the refi first and about where we are with the process. And a half, the lead horses and all that, it's likely that the refi won't get completed until, let's say, the fourth quarter. So, again, as we noted in our transcript, that we do expect to get this done before year end. Um, with respect to your question, around, around, what was it? Viscose, around viscose. Yeah, around the viscose again.
Speaker Change: We expect that we'll start receiving proposals for the refi come early September .
Speaker Change: And so, obviously, as we go through and evaluate those and pick the lead horses and all that, it's likely that the refi won't get completed until, let's say, the fourth quarter.
Unknown Executive: For VSCO, similar levels as we've seen through the first half. In 2025 and beyond, we expect to see it decrease further. Let's say in 2025, roughly, let's say, around 3% lower. And then we're going to continue to put in efforts to continue to push that to zero. And that will largely be accomplished through ether cells as ether demand normalizes.
Unknown Executive: Good morning, gentlemen, and congratulations on a strong quarter. It's good to see you guys swing back into the black. A couple of questions, if I may. First of all, you mentioned that your paperboard business is being impacted by lower prices due to European imports. Can you talk about the sort of the dynamic behind that? Why are Europeans becoming more aggressive in terms of importing their products into the US?
Speaker Change: Good morning, gentlemen, and congratulations on a strong quarter, and good to see you guys swing back into the black. A couple of questions, if I may. First of all, you mentioned that your paperboard business is being impacted by lower prices due to European imports.
Speaker Change: Can you talk about sort of the dynamic behind that? Why are Europeans becoming more aggressive in terms of importing their product into the U.S.?
Unknown Executive: The issue is just the generally weak economic conditions in Europe. And you could probably say, gee, the weak.
Speaker Change: Yeah, and it's, I think, no secret.
Unknown Executive: Economic Conditions Worldwide are really driving it. So you find the European folding box board producers have plenty of capacity looking for any kind of sales, and so we have been seeing imports from Europe actually on an increasing basis here in the first half.
Speaker Change: Producers have plenty of capacity looking for any kind of sales, and so we have been seeing imports from Europe actually on an increasing basis here in the first half.
Unknown Executive: Okay, so that's something that is going to be a longer-term issue. It has nothing to do with rightsizing inventories or anything like that.
Dimitri: Okay, so that's something that is going to be a longer-term issue. It has nothing to do with right-sizing inventories or anything like that. That's just a general... No, I think that it's all being driven by the weak consumer demand, I would say, in Europe . And until that returns and starts picking up, we'll see that pressure. And Dmitry, that's happened before. It ebbs and flows with, as Dalal mentioned, the general economy in Europe , so...
Unknown Executive: That's just a... No, I think that, you know, it's all being driven by weak consumer demand, I would say, in Europe. And until it returns and starts picking up, we'll see that pressure. And Dmitry, that happened before.
Unknown Executive: It ebbs and flows with, as Dalal mentioned, the general economy in Europe. So... Am I reading this right? Are we sort of starting to see an improvement in, you know, this important end market for you in the ethers, or am I reading too much into this?
Speaker Change: which I'm assuming are, you know, wood chips and some other chemicals.
Dimitri: Typically, you can interpret these data points as being indicative of perhaps construction demand improving, given that it's a key market for ethers and your chip costs are inversely related to the growth in the construction market.
Unknown Executive: But we do believe that some of the increase we saw in ethers is being driven by the value chain doing some restocking. We are discounting the increase we saw in the first half related to restocking. So, that is one issue.
Speaker Change: and market demand in certain areas.
Speaker Change: So, when you go on to Q2,
Unknown Executive: With respect to the input costs, And finally, with respect to the impact on variable costs, we're seeing getting a benefit from the improved production. It's actually easier for us to make the specialty in many cases than it is to make the commodities. You may remember last year we actually throttled back the plants to control inventories. This year the plants are running at capacity. So the Unifix costs are down this year. And then the other issue is that you may remember around about this time last year, we announced that we were going to aggressively start reducing costs at the facility. So.
Speaker Change: But I also would like to emphasize that we're seeing improvement.
Speaker Change: I'm being driven by the capital investments we made last year in the plants and so you're seeing an improvement in material usage efficiencies as well in our operations which would be much more obviously much more long-lasting.
Speaker Change: And finally, with respect to the impact on variable costs, we're seeing getting a benefit from the improved production mix.
Speaker Change: It's actually easier for us to make the specialty in many cases than it is to make the commodities.
Speaker Change: You may remember last year we actually throttled back the plants to control inventories. This year the plants are running at capacity.
Speaker Change: So the Unifix costs are down this year. And then the other issue is that you may remember around about this time last year, we announced that we were going to aggressively start reducing costs at the facility.
Speaker Change: and what you're seeing now is you're seeing the comparison of the and the benefit of that cost reduction in the first half.
Speaker Change: So the continuation of those costs, those realized cost savings that we began in the second half of 2023.
Speaker Change: So, um...
Speaker Change: That's what's going on on the cost side.
Speaker Change: Okay, that's very helpful, Delisle. Thank you for that caller. And then one last question on the acetate market. You talked about continuing destocking by customers. Is the expectation still that this is going to wind down by the end of this year, or do you now expect it to get into
Unknown Executive: Yeah, let me make a couple of points about the acetate, the stocking. We felt that it was, it was, there was a need.
Speaker Change: 2025, given that, you know, global economy certainly isn't getting stronger.
Speaker Change: Yeah, let me make a couple of points about the acetate, the stocking.
Speaker Change: First, you know, given that Jessup is sold out,
Speaker Change: We felt that it was, it was, there was a need.
Speaker Change: to levelize the expected demand across the whole year of 2024. Previously, we had said that we would take the stocking hit.
Speaker Change: in the first half, and then we start seeing improvements in the second half. After seeing the difficulties we would have on trying to make that happen,
Speaker Change: With the plant being sold out, we worked with our customers and we leveled out that demand for the all of 2024. So you're not going to see this huge uptick in 2024 because we're essentially now, I've got a essentially a flat line for the whole year.
Speaker Change: More directly to your question, though, about do we think that it's going to end in 24, that the stocking is going to end in 24. Unfortunately, we continue to see elevated inventories in Asia.
Speaker Change: And again, I think that's been indicative of the consumer weakness, principally in China, but Asia generally.
Speaker Change: and so there is a likelihood that we'll see some of the lower demand bleed off into 25.
Speaker Change: Understood. Thank you, that's been helpful.
Operator: Your next question comes from the line of Sandy Burns with Staphyl. Sandy, your line is now open.
Speaker Change: and Michael Walsh and Michael Walsh and and and and and an an an an an
Speaker Change: Your next question comes from the line of Sandy Burns with Staphyl. Sandy, your line is now open.
Sandy Burns: Hi, good morning and I'll also add congrats on a strong quarter in this environment. I was wondering if you can comment or maybe break down the different
Unknown Executive: Of the increasing guidance from earlier in the year, you know, versus is it mostly the volume mix improvement and increased confidence in it, more on the cost side?
Sandy Burns: components of the increasing guidance from earlier in the year, you know, versus is it mostly the volume mix improvement and increased confidence in it, more on the cost side?
Speaker Change: The plant suspicion, more clarity on the costs and benefits there, like how would you weigh those in terms of how, what drove the increase in guidance?
Unknown Executive: Well, part of it is obvious, which is the $10 million in CEWS benefit that we realized in that wanted to get some inventory in their stock rooms before we suspended operations at Timiskaming. 10% of that was SUZ, and I would say roughly 5 and 5 on ETHERS, the improvement in ETHERS demand, and then a 5 million dollar improvement in the move forward on sales related to the Tenescamene suspension.
Speaker Change: Well, part of it is obvious, which is the $10 million in CEWS benefit that we realized in...
Speaker Change: In the first half, obviously, that's right.
Speaker Change: that wanted to get some inventory in their stock rooms before we suspended operations at Tamiskamine.
Speaker Change: So that we saw some sales move forward a little bit as a result of the suspension at Tamiskamine.
Speaker Change: And then with respect to ether cells, we did see an uptick in ether cells, and that was related to demand growth or underlying demand growth.
Speaker Change: and and that's driving some of the increase in benefit as well. So if I were to break all that down I would say that if you know we're looking at roughly a
Speaker Change: $15 million or $20 million increase in the guidance when you look at the midpoints.
Speaker Change: 10 of that was SUSE and I would say roughly 5 and 5 on ETHERS, the improvement in ETHERS demand and then a $5 million improvement in the move forward on sales related to the Tenesco Bean Suspension.
Speaker Change: Okay, great. That's helpful. Thank you.
Operator: Again, in order to ask a question, press star, then the number one on your telephone keypad. It's star, followed by the number one on your telephone keypad. Your next question comes from the line abroad. I'll show you. There are no further questions at this time. I will now turn the call over to Dilau for closing remarks.
Speaker Change: Again, in order to ask a question, press star then the number 1 on your telephone keypad. It's star followed by the number 1 on your telephone keypad.
Speaker Change: Your next question comes from the line abroad.
Speaker Change: So, there's no further questions at this time. I will now turn the call over to Dilau for closing remarks.
Delisle Bloomquist: All right. Well, thank you once again for joining our call today. We certainly appreciate your interest and support in the company. We are committed to maintaining transparency and open communication, so please feel free to contact us if you have any questions or need further information. Thank you again.
Dilau: All right, well, thank you once again for joining our call today. Certainly appreciate your interest and support in the company.
Dilau: I'm very proud of the hard work and dedication that has been shown by the RIAM team and a very confident in our ability to continue to enhance our profitability and reduce our debt and leverage.
Dilau: I look forward to providing further updates on all our ongoing project initiatives and value your contribution and support as we strive for the long-term success and growth of the company.
Dilau: We are committed to maintaining transparency and open communication, so please feel free to contact us if you have any questions or need further information.
Operator: This concludes today's conference call. You may now disconnect.
Dilau: So thank you again for your participation.
Speaker Change: This concludes today's conference call. You may now disconnect.