Q3 2024 Rayonier Advanced Materials Inc Earnings Call
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Speaker Change: Good morning and welcome to the RIM 3rd Quarter, 2024 earnings conference call. During today's presentation, all parties will be in a listen-only mode. Following the presentation, the conference will be open to questions with instructions to follow at that time.
As a reminder, this conflict's being recorded. Abonaleck, the Turner Caller, with to your host, Mr. Mithing Rush, Treasurer and Vice President of Investor Relations.
Speaker Change: Thank you, Mr. Walsh, you may begin.
Mithing Rush: Thank you, and good morning. Welcome again to Rhyam's third quarter, 2024, Ernie Conference Call and Webcast.
Mithing Rush: Joining me on today's call are Delyl Bloomquist, our President and Chief Executive Officer and Marcus Moeltner, our Chief Financial Officer and Senior Vice President of Finance.
Mithing Rush: Our earnings release in presentation materials were issued last evening and are available on our website at riam.com
Mithing Rush: A lecture reminds you that in today's presentation we will include forward-looking statements made for soon to the safe harbler provisions of federal security laws.
Our earnings releases, 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. There are also reference on slide two of our presentation materials.
Mithing Rush: Today's presentation will also reference certain non-GAAP financial measures as noted on slide 3 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 GAAP financial measures are included on slides 20 through 25 of our presentation.
Speaker Change: I'd now like to turn the call over to Delisle.
Delisle: Well, thank you, Mickey, and good morning.
Delisle: I'll start with a financial overview for the third quarter of 2024. Afterward, I'll outline recent company actions before passing it on to Marcus, who will dive into business segments, capital structure, and liquidity.
Delisle: After Marcus's remarks, I'll return to discuss our ongoing initiatives and updated guidance for 2024.
Mithing Rush: Margins nearly doubled year-over-year, reaching 12.7% in Q3 2024.
Mithing Rush: Year-to-date adjusted free cash flow stands at $99 million, highlighting our ability to generate substantial cash flow while executing strategic initiatives.
Marcus: In the high purity cellular segment, EBITDA rose by 32 million or 119 percent.
Mithing Rush: given by higher cellular specialty prices and volumes and decreased costs for key inputs.
Mithing Rush: Our non-fluff commodity exposure dropped to 4% of revenue in the quarter down to from 14% last year.
Mithing Rush: The paperwork segment saw a $6 million EBITDA decline given by reduced sales prices and increased pulp cost.
Mithing Rush: Meanwhile, our high-yield pulp segment showed a $6 million EBITDA improvement due to higher prices and productivity, though partially offset by sales volume decreases.
Mithing Rush: Corporate expenses increased by $5 million, driven by unfavorable foreign exchange rates, compared to the prior year period, and higher variable compensation in environmental expenses.
Mithing Rush: Our overall success this quarter reflects strong performance in our core cellular specialty segment.
Mithing Rush: We continue to shift our product mix towards specialty production and sales, while focusing on cost reductions across the enterprise.
Mithing Rush: On October 11th, we encountered an isolated fire at our Jessup, Georgia facility.
Mithing Rush: Thanks to the swift and effective response from our team and local emergency services, the incident was effectively managed, appropriate repairs were made, and we resumed full operations by October 25th.
Mithing Rush: The fire primarily compromised power lines and instrumentation in our A and B male digester areas.
Mithing Rush: Additional repairs will be conducted over the next couple of years and are expected to be capitalized.
Mithing Rush: We anticipate minimal impact to long-term operations.
Mithing Rush: Currently, we expect the fire to impact Ibadaw by $10 million in 2024, with an additional $3 million needed for maintenance capital.
Mithing Rush: While work on the full claim amount is ongoing, we have put our insurance carrier on notice of a claim under our business interruption and property casualty insurance.
Mithing Rush: which includes a $15 million deductible to mitigate financial exposure to this incident.
Mithing Rush: On October 29th we achieved a key milestone by successfully refinancing our debt, providing flexibility to execute our long-term business strategy.
Mithing Rush: This new structure allows us to deleverage strategically and invest in growth opportunities.
Mithing Rush: Marcus will provide additional details on the new debt agreement.
Mithing Rush: Prior to the fire, we were on track to raise our EVAD guidance for the year.
Mithing Rush: Thanks to our Team SWIFT response, we minimized the impact on earnings and are holding our EBITDA guidance at 205 to 215 million dollars.
Mithing Rush: Additionally, with improved visibility into year-end cash flows, we are increasing our full-year adjusted pre-cash flow guidance to $115 to $125 million.
Speaker Change: I'll now turn it over to Marcus to go over the quarter financials. Marcus?
Marcus Moeltner: Thank you, Delisle.
Marcus Moeltner: Beginning with our HPC segment on slide 5, quarterly sales increased by $33 million or 11% to $325 million.
Mithing Rush: Overall HPC pricing increased 13 percent, largely due to a higher mix of CS products.
Marcus Moeltner: Total sales volumes were flat, reflecting a 32% increase in CS sales, partially offset by a 24% decrease in commodity sales.
Marcus Moeltner: The rise in CS sales volumes was supported by several factors.
Marcus Moeltner: the closure of a competitor's plant in late 2023, the easing of prior year customer de-stocking, a continued uptick in ether sales, and bridge volumes from the indefinite suspension of the Tamiskaming HPC plant.
Marcus Moeltner: Other sales for the quarter were $26 million, including $14 million of green energy sales.
Marcus Moeltner: EBITDA for the HPC segment rose by $32 million to $59 million.
Marcus Moeltner: primarily due to an enriched mix of CS sales and the benefit of decreased key input costs.
Marcus Moeltner: EBITDA margins for the quarter reached 18%.
Marcus Moeltner: Turn to slide 6.
Marcus Moeltner: driven by lower demand. EBITDA for the segment declined by 6 million to 11 million dollars, primarily due to weaker sales mix and increased competitive activity from European imports, as well as the impact of higher purchase pulp costs.
Marcus Moeltner: EBITDA margins for this segment reduced to 20%.
Marcus Moeltner: Turning to the high yield pulp segment on slide 7, sales increased by $3 million in comparison to the prior year, mainly due to a 14% increase in sales prices, partially offset by a 3% decline in sales volumes due to shipment timing.
Marcus Moeltner: Segment EBITDA improved $6,000,000 to $1,000,000 as compared to the prior year quarter where the segment was generating negative EBITDA due to lower pricing and higher costs.
Marcus Moeltner: Transitioning to slide 8.
Marcus Moeltner: The consolidated operating loss for the corridor amounted to $17 million.
Marcus Moeltner: This includes a $25 million non-cash impairment charge related to the indefinite suspension of the Temiskaming HPC line, as well as $7 million of suspension charges incurred in third quarter.
Marcus Moeltner: Excluding these one-time impacts, operating income for the quarter reached $15 million.
Marcus Moeltner: The impairment and suspension challenges more than offset the benefits of an improved product mix favoring HPC-CS grades, overall higher pricing for both HPC and high-yield pulp segments, and a 32% increase in CS volumes.
Marcus Moeltner: Other cost benefits, including reduced key input costs, were partially offset by unfavorable foreign exchange rates, as well as higher environmental expenses and variable compensation.
Marcus Moeltner: Now let's turn to slide 9, net debt end of the quarter at $653 million, a reduction of $90 million from the same period in 2023.
Marcus Moeltner: Net secured debt, as reflected in our financial covenant ratio associated with the term loan, ended the quarter at $642 million.
Marcus Moeltner: Net secured leverage reduced further and closed the quarter at 2.8 times. Liquidity grew to $281 million, reflecting $136 million of cash, $135 million available under our ABL facility, and $10 million from our fringe factoring facility.
Marcus Moeltner: Year-to-date topics totaled $80 million, with $30 million allocated towards strategic capital, the support for startup of the TARTAS bioethanol project, and the implementation of our upgraded ERP system.
Marcus Moeltner: Net of financing, strategic capital reached $12 million.
Marcus Moeltner: The company's pro forma capitalization is set out on slide 10.
Marcus Moeltner: As previewed by Delisle, I am pleased to announce that we have successfully completed the refi of our existing senior secured notes and term loan.
Marcus Moeltner: The company raised $700 million in secured term loan financing managed by Oak Tree Capital Management.
Marcus Moeltner: This refinancing strengthens Ryan's capital structure and enhances our financial flexibility to execute the company's long-term business strategy.
Marcus Moeltner: In conjunction with this refi, we also secured commitments for a new five-year, $175 million asset-based lending facility.
Marcus Moeltner: with a sizing that better aligns with our current business portfolio.
Marcus Moeltner: The facility is initially priced at SOFR plus 2%.
Marcus Moeltner: As of the end of the quarter three, there were no outstanding borrowings on the existing ABL credit facility and we had 35 million in letters of credit issued.
Marcus Moeltner: The new term loan matures in 5 years and accrues interest at a rate of SOFR plus an initial spread of 7%.
Marcus Moeltner: which is subject to adjustment based on our consolidated net secured debt to covenant ratio. Importantly, the term loan provides us with the flexibility to repay the debt at acceptable premiums starting in 18 months, allowing us to deleverage earlier if market conditions are favorable.
Marcus Moeltner: The loan also provides a special payment provision for asset sales, enabling us to make prepayments from asset disposition posts.
Marcus Moeltner: As our net leverage profile improves, the loans pricing grid allows for reductions in the interest rate spread, further benefiting the company's financial position.
Marcus Moeltner: This structure allows us to meet our obligations while positioning us to benefit from potential declines in interest rates.
Marcus Moeltner: It also provides the flexibility to make strategic investments that will fuel the growth of our biomaterial strategy.
Marcus Moeltner: For 2024, we had set an objective to reduce total debt by $70 million, excluding related fees and expenses for the refund.
Marcus Moeltner: In Q3, we retired $12 million of outstanding senior notes through public market transactions and have repaid an additional $12 million of other term debt year-to-date. In addition, we chose to allocate $45 million of capital to support our refi activities.
Marcus Moeltner: Going forward, Ryan remains committed to reducing debt levels further and are confident that the company's strategic initiatives will continue to create long-term value for our shareholders.
Marcus Moeltner: Overall, our liquidity remains strong and the company's LTM adjusted EBITDA has reached $208 million.
Marcus Moeltner: our various strategic initiatives.
Marcus Moeltner: have supported this positive performance improvement across the business.
Marcus Moeltner: With the successful completion of the refi and commitments for the EBL facility, the company's capital structure has been strengthened, and we are well positioned to continue executing our long-term business strategy.
Speaker Change: With that, I'd like to turn the call back to DeLouse.
DeLouse: Well, thank you, Marcus.
DeLouse: Let's now turn our attention to slide 11 where I'll provide an update on our key 2024 initiatives.
Marcus Moeltner: Our top objective this year was to refinance our 2026 senior notes before they became current in January 2025.
Marcus Moeltner: As Marcus detailed, we've successfully refinanced this debt, providing us with the flexibility to continue executing our strategic plan while preserving the option to take advantage of improved credit metrics over time.
Marcus Moeltner: The other key initiative this year is to optimize our balance sheet by demonstrating the enhanced earnings power of our core cellular specialty business and exploring the potential sale of our non-core businesses.
Speaker Change: Our last 12 months of Just Diva Doll for our HPC segment was $220 million through Q3 2024, reflecting the inherent value of our specialty products in a market with supportive supply and demand dynamics.
Marcus Moeltner: In September, we announced a price increase for our cellular specialty products of up to 10 percent, effective immediately where contracts allow. We are currently in discussions about 2025 pricing with our specialty customers.
Marcus Moeltner: remain open to a sale of our paperboard and high-yield pulp assets.
Marcus Moeltner: We also wanted to reduce commodity exposure and earnings volatility this year. To this end, we announced in April the indefinite suspension of the operations of our Tamiscomene HPC plant.
Marcus Moeltner: As a result of the suspension, the percentage of non-FLUF commodities of total revenue was 4% in Q3 2024, down from 14% for the same period last year.
Marcus Moeltner: We forecast that the EBITDA losses from non-fluff commodities to be reduced by nearly half from last year.
Marcus Moeltner: The suspension is proceeding as planned, and there are no expected changes to the anticipated financial impact of the suspension.
Marcus Moeltner: One of the most exciting initiatives this year involves our biomaterial strategy.
Marcus Moeltner: We're nearing completion of the detailed engineering phase for our Fernadina bioethanol plant.
Marcus Moeltner: The project's permitting timeline has been extended due to public participation, which is not uncommon.
Marcus Moeltner: and is being addressed through the administrative process.
Marcus Moeltner: Our prebiotic animal feed product is self-grassed certified and is waiting on registration from the FDA.
Marcus Moeltner: The AGE project at our Jessa facility was recently awarded a purchase power agreement in July.
Marcus Moeltner: will sell green biomass-derived electricity to Georgia Power Company.
Marcus Moeltner: Still in the development phase, additional information regarding the progress of this project will be shared in 2025.
Marcus Moeltner: Finally, we continue to evaluate crude tall oil projects in both France and the U.S.
Marcus Moeltner: As a final note on our biomaterial strategy, we expect to make a significant announcement regarding green capital in it to help finance these projects in the current quarter.
Marcus Moeltner: Let's turn to slide 12. Despite the $10 million EBITDA impact from the fire at our Jessa facility,
Marcus Moeltner: We are reiterating our adjusted EBITDA guidance for the year to be in the range of $205 to $215 million.
Marcus Moeltner: The underlying strong performance of our core cellular specialty business is largely offsetting the impact of this isolated incident.
Marcus Moeltner: While softer results are expected in the fourth quarter due to the fire, we are confident that continued strength in our core cellulose specialty business, driven by improving demand and improved productivity, will position us well moving forward.
Marcus Moeltner: Cash interest expense for 2024 is projected to be approximately $93 million, impacted by the timing of the refinance.
Marcus Moeltner: This includes a $15 million payment made in early January for last year's fourth quarter due to the timing of the payment around the holidays.
Marcus Moeltner: Co-former for the new term loan, annual cash expense will be just over $80 million.
Marcus Moeltner: ANAS CapEx for the year is estimated at 78 million dollars, including three million dollars in capital related to the fire.
Marcus Moeltner: We are also now expecting a $25 million benefit from working capital.
Marcus Moeltner: We have received a $15 million IS tax refund.
Marcus Moeltner: and the $39 million from the sale of the Lumber Duty Rights.
Marcus Moeltner: These gains will be partially offset by the impact of the Tamizcomine HBC plant suspension.
Marcus Moeltner: In summary, we are increasing our adjusted free cash flow guidance to $115 to $125 million for the year.
Marcus Moeltner: These funds will continue to be allocated toward debt reduction and strategic capital investments.
Marcus Moeltner: On slide 13, I dive deeper into the expected 2024 performance of each of our businesses.
Marcus Moeltner: We project EBITDA for a high-purity cellular segment to range between $215 million and $225 million.
Marcus Moeltner: We anticipate the 2024 cellular specialty prices will increase by a low single-digit percentage compared to the prior year as we continue to prioritize value over volume.
Marcus Moeltner: Sales volumes for cellulose specialties are expected to grow due to a competitor's plant closure, bridge volumes from the indefinite suspension of the Tamisconi HPC plant, and a modest uptick in ethers demand.
Marcus Moeltner: These gains will be partially offset by changes in prior year contract terms.
Marcus Moeltner: acetate to stocking and potential reduction in sales related to the just-set fire.
Marcus Moeltner: Demand for Ryan's commodity products remains steady.
Marcus Moeltner: Sales prices for fluff products are expected to decline by a high single digit percentage compared to 2023, while sales volumes are projected to increase by nearly 30% year-over-year.
Marcus Moeltner: consistent with our strategy to reduce non-fluff commodity exposure.
Marcus Moeltner: Pricing for all commodity HPC products is forecast to just soften slightly in Q4, with volume seeing a modest increase sequentially.
Marcus Moeltner: On the cost front, we anticipate lower overall costs in 2024 driven by reduced key input and logistic expenses.
Marcus Moeltner: and improve productivity and the ongoing HPC suspension.
Marcus Moeltner: These cost savings will be partially offset by increased maintenance costs to miscommune custodial site expenses and Jessup fire recovery costs.
Marcus Moeltner: Looking ahead to Q2024.
Marcus Moeltner: and lower cellular specialty production and sales volumes resulting in the fire.
Marcus Moeltner: In biomaterials, we are making substantial progress toward growth objectives.
Marcus Moeltner: Our TARS bioethanol facility is producing to feedstock availability.
Marcus Moeltner: We remain committed to strategic investments in green energy and renewable markets, targeting several key projects. As stated earlier, we expect to announce financial plans for these initiatives in the coming quarter.
Marcus Moeltner: Regarding paperboard, we expect to achieve EBITDA of approximately $45 million in 2024.
Marcus Moeltner: Paperboard prices are expected to decrease in Q4, while sales volumes are projected to increase as inventories are reduced.
Marcus Moeltner: However, raw material prices are anticipated to rise compared to Q3 levels due to increased purchase pulp cost.
Marcus Moeltner: As a result of these factors, we anticipate EBITDA decline in the coming quarters.
Marcus Moeltner: as market pressures persist with new competitive supply entering the market in 2025.
Marcus Moeltner: now.
Marcus Moeltner: Our high-yield pulp business is expected to achieve break-even EBITDA in 2024.
Marcus Moeltner: Haiyo, pulp prices are expected to decline sequentially due to ongoing price pressure from stranded pulp capacity in China.
Marcus Moeltner: Despite the lower prices, sales volumes are expected to increase significantly driven by shipment timing.
Marcus Moeltner: However, the expected low sales prices are likely to persist.
Marcus Moeltner: which will drive EBITDA loss for this business in the coming quarters.
Marcus Moeltner: We expect our 2024 corporate costs to be approximately $55 million.
Marcus Moeltner: In Q4, corporate costs are expected to decrease subject to currency rate fluctuations.
Marcus Moeltner: Let's turn to slide 14 where we illustrate the trajectory of EBITDA margin growth and net leverage decline.
Marcus Moeltner: The forecast for net secured leverage at the end of the year stands at 2.8 times Covenant EBITDA.
Marcus Moeltner: We remain confident that we will achieve our targeted net leverage ratio up two and a half times well before 2027.
Marcus Moeltner: With that operator, please open the call to questions.
Speaker Change: Thank you. We will now conduct a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad.
Marcus Moeltner: A confirmation tone will indicate your line is in the question queue.
Speaker Change: You may press star 2 if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Once again, that's star 1 to ask a question at this time. One moment while we pull for our first question.
Speaker Change: The first question comes from Daniel Harriman with Sidoti. Please proceed.
Daniel Harriman: Hey guys, good morning and congrats on another great quarter.
Speaker Change: Thank you.
Daniel Harriman: Obviously in in recent weeks we've seen your equity appear to be quite sensitive to what's going on in China and I was just hoping if you could maybe clarify your exposure to that slowing market and any benefit you see from government stimulus in the country.
Daniel Harriman: And then maybe just a quick update on what you're seeing in market demand for construction in Europe since that's been, you know, coming up over the last six months or so. Thanks.
Delisle: Good morning, Daniel. This is Delisle.
Delisle: Taking your first part of the question which is around our equity sensitivity to China,
Speaker Change: I would agree with your comments. It does seem to be that there's some concern about what our exposure would be to China, but a couple points I'd make to that. First, just a couple of facts. Roughly about 20% of our total enterprise sales is exposed to China.
Speaker Change: Talking about each one of those pieces, with respect to acetate, acetate is very stable with respect to what goes on in China. So there's a disconnect between what's going on with the GDP in China and our acetate demand and that makes some sense. I mean at the end of the day most of our acetate going into China really goes into tow production.
Speaker Change: and it's tied to obviously cigarette consumption. So you'd expect that to be stable.
Speaker Change: With respect to viscose, as I mentioned already, our strategy is to reduce our exposure there. And so we've seen a significant reduction versus last year.
Speaker Change: And as we see continued growth in CS production going forward, we'll see that decrease going forward as well. But it's already down to somewhere, you know, around very low single digits in terms of our revenue.
Speaker Change: And then finally, with respect to, you know, I just mentioned hyalopulp, this is one area of concern.
Delisle: And what we're doing there is we're trying to move
Delisle: and extract value for our Maple 80 product that we sell globally and trying to get and we've been successful getting increased distance between our Maple product and I call our competitive Aspen products that are out there.
Delisle: One other area I would say in terms of exposure is kind of indirect through our ethers.
Delisle: When the Chinese domestic market is weak, we do see some ethers coming out of China into some of our more important markets, principally Europe. So there's a little bit of pressure on that.
Delisle: And it's, but we're fighting back by getting to maintain market share in Europe as well as some of our other markets. But we do see a little bit of the impact of some of the exports out of China into the ethers market as well. But right now we've been very successful in defending our share there.
Delisle: And Daniel, it's Marcus. As Delisle highlighted, you know, acetate is very stable and that's 40% of our exposure that he highlighted.
Daniel Harriman: Just noticed that that's pretty sticky.
Daniel Harriman: Daniel, can you remind me what your second part of your question was?
Daniel Harriman: It's just a quick one if you could just update what you're seeing in the ethers market in Europe and the construction and market there.
Daniel: All right, we're seeing a little bit of uptick in demand for ethers. I think that can be put into two different buckets. One is, I think,
Daniel Harriman: a rebound in restocking. So we're seeing a build in the inventories there. I think the destocking activity we saw at 23 was probably overdone.
Daniel Harriman: And as a consequence, our customers are restocking the shelves, so to speak. But we're also, I think, seeing an increase in underlying demand.
Daniel Harriman: We're hopeful that as interest rates continue to decline, that that demand, the underlying demand will increase. And one, you know, just to point out an activity that I saw this morning.
Daniel Harriman: The German manufacturing index, in terms of production, was up, surprised on the upside this morning. And again, that would be very favorable for us if that continued. But again, right now, we're seeing modest demand improvement and expect that that will continue to improve as we go into 2025.
Speaker Change: Okay, great. Thanks so much, guys.
Speaker Change: Hi, good morning. Thanks for taking my questions. I just wanted to follow on Daniel's question there. You talked about ethers and around China, but maybe just a little bit more holistically, could you provide some color on what you're seeing in the demand environments, I guess, particularly for acetates and other CS heading into 2025?
Speaker Change: Good morning, Matthew. I know it's early for you. Thanks for joining the call.
Speaker Change: With respect to acetates and other CS, and other CS, you know, it's generally filtration, entire cord, MCC, and so forth. Acetate, let me answer that one first.
Speaker Change: Again, it's generally along the same themes as I talked about earlier with respect to acetate in China. Relatively stable.
Daniel Harriman: and we expect that'll be relatively stable going forward. Not a real growth engine for us, more of a cash cow business for us, but it's a business that we rely on to be stable and we expect that to be the case going into 25.
Daniel Harriman: Other CS, a little bit more economic sensitivity there. And we expect that...
Speaker Change: in 2025 that demand will continue to improve.
Speaker Change: Thank you.
Speaker Change: little weak and I wouldn't say weak but there's some softness here there for other CS but one of the things that's offsetting that is obviously the
Speaker Change: It shut down our capacity at one of our competitors in
Speaker Change: Q4'23 and as a result we were able to gain a lot of additional sales and production as a result of that shutdown. So we first in 24 versus 23 obviously we're going to see an increase in demand and in production and sales as a result of that shutdown.
Speaker Change: Great. Thanks for the color.
Speaker Change: Next, I'd like to ask about the price increases you've messaged for CS. Can you talk about how implementation has gone across volumes that are exposed to the increases so far, and looking into 25 and across the CS portfolio?
Speaker Change: Are you able to speak to what you expect in terms of a weighted average net Price increase for 25 and how that may compare to how you're thinking about inflation across your cost structure next year
Speaker Change: Well, I'm going to disappoint you, Matthew. Way early in the process, but as I've stated already that value over volume is our strategy, so we'll continue to press our advantages there where we can.
Speaker Change: So, there'll be different prices, increases relative to the different grades, but...
Speaker Change: We are, we are, we are working, working our angle there.
Speaker Change: Matt, as you know, a lot of those discussions culminate in London public, so that's coming up soon.
Matthew: Right, okay, that's fair enough. And then if I could just sneak one last one in.
Speaker Change: It sounds like you're expecting a little bit more spending to repair Jessup over the next couple of years. Sounds like that'll be capitalized, but can you just give a sense of kind of magnitude there, what kind of we should be taking of around spend levels the next couple of years at Jessup specifically?
Speaker Change: It really can't. We're obviously going through quite a bit of investigation and engineering, and then obviously once that's done, then we'll have to cost it out.
Speaker Change: So it's a little early to give you an estimate on that.
Speaker Change: and how much we would spend in 25 versus 26 is something we still need to figure out.
Speaker Change: But it doesn't mean that we can't operate the plant safely and effectively in 25. These are issues that we feel that can be deferred, and we want to just make sure we do it right. So we're taking our time doing the investigation and the due diligence on it.
Speaker Change: Okay, thanks to the caller. I'll turn it back.
Speaker Change: Thank you. Ladies and gentlemen, once again, to ask a question, please press star 1 on your telephone keypad. Our next question comes from Dimitri Silverstein with Water Tower Research. Please proceed.
Dimitri Silverstein: circle back on the Temeskeman plant closure. You talk about bridge sales as you're getting ready to shut down the plant, helping you during the quarter. Is that going to continue in the fourth quarter, or is that pretty much run its course and we should be thinking about a little bit bigger step down in revenue as we look into the fourth quarter?
Speaker Change: He'll help us a little bit since, you know, July's shut down.
Speaker Change: The benefit has diminished as time has gone on, as we've sold the, call it the bridge volume, through the year. But so there'll be a little uplift in Q4 as a result, but not as significant as it was in Q3.
Speaker Change: Okay, okay, got it. The bigger impact there is obviously the working capital effect.
Speaker Change: activities I've been to this school.
Speaker Change: as we liquidate the inventories.
Speaker Change: So you'll get a little bit of bump in your cash generation from drawing down your working capital. Got it. How should we think about the commodity volumes?
Speaker Change: in your HBCU business in the fourth quarter. You did about 90,000 tons in the third quarter. Is that the run rate we should expect for the fourth quarter and into 2025? Or is there gonna be a little bit more declines before we stabilize?
Speaker Change: It's likely to go up a little bit in Q4 versus Q3.
Speaker Change: and that is somewhat...
Speaker Change: impact in being driven by both seasonality and demand for CS. The fourth quarter tends to be our lowest quarter or our slowest quarter with respected demand for our CS products.
Speaker Change: And also, I would say that the Jessup fire may have also had some impact given that Jessup is primarily focused almost 100%, not a whole 100%, but A and B mills are specifically dedicated to CS production.
Speaker Change: So, the impact of the fire was greater on CS than it was on the commodities.
Speaker Change: Got it, got it. Okay, thank you for that caller. And then finally, you've mentioned several times in this presentation, Delisle, the growth in biomaterials and how important that business is for you.
Speaker Change: and what market factors are driving that growth? I mean, you're entering markets that have other participants in it already.
Speaker Change: but you're obviously doing very well with the bioethanol plant production. So what gives you confidence that that is these products are approved and enter the market that they'll be able to deliver the growth that you're looking for and help you with your sustainability goals?
Speaker Change: Okay, great question. I could probably talk for an hour on it, but I'll try to try to be very brief.
Speaker Change: with respect to the centrality of the biomaterials relative to our
Speaker Change: Our overall strategy, I would say that it's key to meeting our ESG objectives.
Speaker Change: It really goes around to the fact that our current core business, our HPC business, uses about 40% of the wood that we bring into the plant to make those products. The biomaterials
Speaker Change: business uses the other 60% of the wood.
Speaker Change: And so that just leverages off the circular processes and increases the renewable story that we have.
Speaker Change: And as a result of that, we believe that that will make, that feeds into existing markets where currently those markets are being
Speaker Change: supply byproducts that are based on non-renewable resources, whether it's hydrocarbons or whatever it may be.
Speaker Change: We believe that's where our comparative advantage is, is that we're going to be able to make products out of the resources we're already bringing in the plants.
Speaker Change: and we leverage off of the capabilities that we have within our facilities already. And it's going to go into markets where.
Speaker Change: Thank you.
Speaker Change: customers, end-use customers, are looking for more sustainable products, products that come from renewable resources versus non-renewable resources, and that's really the megatrend that we think is going to drive the continued growth of not just biomaterials but all of our businesses, our core businesses going forward.
Speaker Change: That's where we think we're going to get the growth, and I would say that we're demonstrating that with our Tardis bioethanol plant today.
Speaker Change: and we believe that that is a good example of the demand for renewable energy.
Speaker Change: products that have historically been produced by non-renewable resources.
Speaker Change: and Dimitri we're looking forward to the call you're hosting with Ben Chambers on the 13th of November. They certainly give you a lot more color.
Speaker Change: I was going to say, Pam will probably talk about it for an hour, but I just wanted to get your take on it as well, Delisle, so thank you for that, and it is helpful to understand
Speaker Change: sort of the rationale behind you guys getting into this business in such an aggressive way. Well, thank you. That's all the questions I had. Congratulations on a strong quarter.
Speaker Change: Thank you.
Speaker Change: Thank you. At this time, I would like to turn the call back to Mr. Delisle Bloomquist for closing remarks.
Delisle Bloomquist: Well, thank you once again for joining us today. We appreciate your interest and support of our strategy and of our company.
Delisle Bloomquist: I'm very proud of all the hard work and dedication shown by the management team and very confident in our ability to enhance our profitability and to continue to reduce our debt and leverage.
Speaker Change: I look forward to providing updates in the future on these ongoing projects and initiatives.
Speaker Change: as we continue to strive to drive our long-term success and value growth.
Speaker Change: We are committed to maintaining transparency and open communication, so if you've got any questions, feel free to contact us and we'll do our best to answer those questions. So, once again, thank you for your participation today.
Speaker Change: Thank you. This does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation and have a great day.
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