Good morning, and welcome to the Rayonier Advanced Materials Fourth Quarter and Full Year 2020 Earnings Conference Call. [Operator Instructions] 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 for Rayonier Advanced Materials. Thank you, Mr. Walsh. You may begin.

Thank you, Operator, and good morning, everyone. Welcome again to Rayonier Advanced Materials fourth quarter and full year 2020 earnings conference call and webcast. Joining me on today’s call are Paul Boynton, 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 at rayonieram.com. I’d like to remind you that in today’s presentation, we will include forward-looking statements made pursuant to the safe harbor provisions of federal securities laws. Our earnings release as well as our filings with the SEC list some of the factors which may cause actual results to differ materially from the forward-looking statements we may make. They are also referenced on Slide 2 and 3 of our presentation material. Today’s presentation will also reference certain non-GAAP financial measures, as noted on Slide 4 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 19 through 23 of our presentation. I’ll now turn the call over to Paul.

Thanks, Mickey, and good morning, everyone. As we shared with you a year ago, given the state of many of our end markets, we had prepared for a very challenging year. And we received one with the addition of a global pandemic on top. Today, 12 months later, I’m very proud of what our team has been able to accomplish. Despite the difficulties, we strengthened our business, improved our financials and further solidified our status as a global leader in converting renewable resources into remarkable materials. Starting on Slide 5, our financial commitment to you for the year was to focus on reducing operating and corporate costs, lowering capital expenditures and optimizing working capital, all with the goal to improve cash flow. Then with the global COVID-19 pandemic, our team added incremental measures to meet those challenges head on, including establishing a COVID-19 task force to help us effectively navigate the pandemic and its varied and ever-changing impacts on and disruptions to our global business and operations; securing essential operation status for each of our manufacturing facilities spread across the U.S., Canada and France; incorporating strict social distancing, sanitization and other new safety protocols into our manufacturing operations and processes; shifting our office workforce to home; and finally, adapting quickly to significant shifts in demand for our many products, including, at times, producing incremental volumes to protect key customer supplies while also taking downtime in facilities where price and demand were insufficient to meet financial hurdles. By year-end, lumber markets had more than recovered and commodity pulp markets were beginning to show signs of a strong recovery. Once again, we adapted quickly, adjusting our production to capitalize on these favorable shifts. These results are reflected in our financials. Through it all, we never lost sight of our needs of our…

Thank you, Paul. Starting with high-purity cellulose on Slide 7. Sales decreased by $76 million on the year, driven by an 8% average price decline as a slight increase to cellulose specialties pricing was offset by significant declines in commodity pricing. Results were also impacted by a weaker mix with specialty volumes down 12% from prior year and in line with our expectations. Despite the significant decline in sales, EBITDA for the segment was $121 million, down only $6 million from prior year as cost reductions driven by our continuous improvement program, better reliability and lower wood and chemical costs helped offset the sales impacts. Looking ahead, commodity viscose prices have improved significantly from the fourth quarter. And although lagging, we are now seeing increases for commodity flow. Negotiations for cellulose specialties for 2021 resulted in slight pricing decreases for the category, with stable volume demand. As Paul shared, we are focused on improving reliability across our assets. As part of our regular maintenance and reliability programs, we are planning for an extended maintenance outage at our Jesup, Georgia facility in the second quarter. Overall, sales volumes for the segment are expected to remain flat as this extended downtime is expected to offset productivity gains. Turning to Slide 8. Sales in our Forest Products segment increased $93 million from 2019, driven by a 40% increase in lumber prices, primarily in the second half of 2020. We took advantage of the recent strong market conditions and increased sales volumes by 11% in the back half of 2020 compared to the same time period in 2019. EBITDA for this segment improved $93 million from prior year to $71 million, primarily driven by the higher sales prices. As a reminder, EBITDA results include expenses for lumber duties. Since the 2017 start of softwood…

Okay. Thanks, Marcus. In 2020, we once again solicited investor engagement with outreach to approximately 60% of our largest shareholders. One consistent theme we heard was the demand for more disclosure regarding the company’s environmental, social and governance, or ESG, initiatives. While we believe our 90-plus year history in pioneering natural cellulosics is indicative of our commitment to sustainability, we recognize the need to keep our shareholders adequately informed regarding our progress, achievements and future goals. Turning to Page 13, we highlight various initiatives and accomplishments that demonstrate our commitment. Beginning with environmental, our product’s most significant raw material input are trees grown using industry best practices. We apply internationally recognized forest certification standards with third-party verification across our operations. In Canada, we directly manage over 25 million acres of FSC-certified wood and, globally, half of our wood is sourced from third-party certified forest lands. Inside our manufacturing processes, we conserve resources, recycle processing materials and utilize virtually every part of the tree to help ensure a reliable and cost-efficient process. Recently, we began publishing metrics on our greenhouse gas and air emissions as well as water usage metrics in line with SASB disclosure recommendations for our industry. Our products are deployed as natural polymers that serve as essential cellulose building blocks used to make and enhance many products we all use in everyday life. Often, our cellulose polymers serve as renewable substitutes for non-renewable petroleum-based products. For example, our viscose-grade pulp is used by our customers to make a natural textile with performance characteristics that can replace petroleum-based polyesters. The same is the case for high-strength tire cord for automobiles, films for LCD screens and plastic handles for screw drivers and the list goes on. As such innovation is a core feature of our commitment to sustainable growth, we…

Thank you. [Operator Instructions] Our first question comes from John Babcock with Bank of America. Please proceed with your question.

Good morning and thanks for taking my questions. Starting out, obviously, there was some really tough winter weather that made its way through the U.S. South. Was recognizing your facilities aren’t particularly located in that area, I was wondering what impact that might have had to your supply chain or any of your customers?

John, good morning, thanks for the question. You’re right. A large swath of the U.S. Southeast was impacted. But I would say, for the most part, fairly minimal impact on RYAM in general. We probably had a couple of customers that had to slow down orders for a week or 2, just as they had to get their facilities a little bit back in line, but didn’t see any change in net demand for the near-term or for the year as a result. I will say, though, it makes me think that we are experiencing, as everybody is, is some congestion in the ports and, mainly, availability of equipment as a lot of containers have been pulled back into China. So we are seeing a bit of delay in some of our shipments, but not really related to the latest weather issue. But just an issue in general that I think everybody has been impacted by.

Got you. That’s helpful. And then in the release, there was mention about some inflation in chemical and raw material costs. Adding to that, I was wondering if you’re seeing inflation in any other areas such as freight, you just touched on that a little bit, and labor and/or any other areas that maybe we should be mindful of. And then also if you could just generally talk about what your overall expectations for the year are from an inflationary standpoint.

John, it’s Marcus. I would certainly highlight a couple of themes on material inputs. As you mentioned, chemicals, certainly, the sulfur type of products and ammonia are showing some signs of – because they’re linked to fuel and such. The other theme is diesel fuel as oil has picked up certainly on our forest products operation, supporting the hauling activities and the harvesting activities, there’s that risk. And another theme that you’ve probably seen, the Canadian dollar continues to strengthen. Certainly, that currency theme is something you should be aware of in your modeling for next year.

All right. And then cellulose specialties. I mean, overall, it seems like the contract negotiations might have occurred in a rather unfortunate time before the commodities started to rally. On that point, I mean, are there any levers in the contracts that allow for inflation or other adjustments? Or will RYAM ultimately have to wait until 2022 to get some of that back?

Yes, John, most of our contracts are pricing for the year. There’s a few that may have some outlets here and there on cost. But for the most part, whether we get the benefit or we experience the negative of it, we tend to – as you noted, we’ll stay the course for the year and then look for the next year for an opportunity to change that.

Got you. And then just last question before I turn it over. I was just wondering if you could provide an update on cellulose specialties businesses, how they’re performing and also how the overall competitive environment is out there.

Yes. I think as we noted, look, the demand for cellulose specialties is solid. We’re seeing a year that we think looks strong for us. As noted, pricing down a little bit, but as we talked about, pricing up a little bit the year before. So on balance, it’s pretty steady on both price and demand. We are seeing a pickup orders here in the first quarter. It’s hard to determine if that’s just some restocking as some of our customers get ready for a more robust set of demand themselves. Or if it’s just, again, just maybe it’s just the inventory variations, and we’re just – it’s not really a real demand pull-through. But overall, I’d say that the tone is very positive on our customer front. And with a couple of shutdowns that we actually have in the first half of the year, it’s created a pretty tight – when it comes to our manufacturing processes, we’re pretty well loaded up for the first half of the year here. And with that, you should note that as typical, John, and you know this well for us, our first half of the cellulose specialties will be lighter than our second half or I should say the second half will be much stronger. And certainly this year with 2 shutdowns happening in the first half, we’ll see a strong second half of the year and a more consistent first half of the year to where we are.

All right, great. Thanks for the color.

Thank you. Our next question comes from Paul Quinn with RBC Capital Markets. Please proceed with your question.

Yes, thanks very much. Solid results. Just maybe back on specialty pricing, especially the guide. I would have expected this to be flatter up given some of the swing capacity that’s moved out of specialty. Just wondering what you’re seeing in each of the end markets in terms of demand, are we still seeing growth in ether? What’s the decline in acetate at this point?

Yes. So again, I think, Paul, even back to John’s comment, there’s a lot of the pressure in the market that we’re seeing today didn’t really happen and rise until late in the fourth quarter there. So certainly, a lot of pressure sitting here today. What’s the strength? Yes, we’re seeing good growth in interest out of ethers. We are seeing certainly the automotive sector, very, very strong. So that’s our engine filtration, tire cord, heavy demand for that beyond what we had in our forecast originally. Acetate has actually ended up – last year, as we looked at the market and what some of the cigarette producers were saying, actually turned out the a bit more flat than the typical that we’ve expected a few percent down. We’ll see if that continues into this year or not. So overall, I think the tone is healthy. Certainly some sectors coming back more quickly than the others, and particularly in that, the automotive area.

Okay. And then maybe you could describe why you stopped sort of giving us information on specialty pricing as opposed to commodity pricing and now a blended price.

So Paul, are you referring to Page 15 in our notes out there? Look...

I guess it’s also Slide 7, yes.

Yes. So look, we are putting these together. We just gave you guidance really on cellulose specialties and where we thought pricing is going to be. We gave you guidance on where we think the volume is going to be. So hopefully, you’ve got that pretty well locked into your model, so slightly down and steady. So hopefully, then you can take – you guys track just as well as we do what’s happening out in the commodity side, it’s really obviously very dynamic right now. Hard for us to say exactly where it’s going, other than it’s really strong, and we expect it to be strong really for the entire year. Keep in mind, we’re going to see the benefit in viscose more quickly than we’re going to see in fluff. Fluff, our contracts, like a lot of contracts with our competitors out there, tied to NBSK and so often lag NBSK. And so we won’t see that surge or a rise in the first quarter as much as you’re going to see in viscose. So I guess our view is we guided a bit on cellulose specialties and you got plenty of market data on the other half, and we – kind of the rough volumes, which again is roughly split somewhat evenly between the 2. So hopefully, that’s enough to build your models there.

Okay. And then maybe you could just outline the cost of the extended shut at Jesup in Q2.

Yes, Paul, it’s Marcus. So the extended shut, usually, as you know, traditionally, these mills go down for 14 to 15 days. So that’s a normal shut. We’re extending that to do some additional work on our boiler. As we mentioned, it’s all about reliability and making sure the integrity of our assets here. So it will be extended, a portion of the mill, for that extra boiler work, but we have the flexibility given the 3 lines there to run kind of semi full as that other work gets done.

Okay. So then how material is the shut in terms of the cost or the cost hit in the quarter then?

Again, we’re a U.S. GAAP reporter, we’re amortizing those costs as part of the shutdown. So really, leading into the shutdown, we’ll build our inventories to support our customer service levels with our normal customers. And really, it’s just an amortization of those costs.

Okay. And then just maybe lastly, just on, I guess, newsprint. We’ve seen others with a hike in – hike out there. Just wondering if RYAM has joined that? And then how material is the environmental – Envirosmart product in terms of production volume?

Yes, sure. So certainly, we’ve been right in there, then following the bigger players on newsprint in announcing our price increase and seem to be capturing those. As you indicated or are alluding to, maybe, Paul, a couple more price increase notifications went out in the industry, and we, again, follow that for the next couple of months as well. So we’ve got those out there. The Envirosmart bag, look, that’s gone very well. We’ve probably got 20 different trials happening out there. We’re starting to see some early orders. Whether that’s going to be a significant swing in the year or not, it’s really early. I think it’s always going to be a bit smaller. I don’t think we expect it to load up our line in any large percentage on that, but it could be a really nice contributor to the line once that gets up and going. So I’d say small right now, Paul, and let’s see how that develops. But early indication with the trials and orders, good response. So we’re very pleased with what we’re seeing out in the market.

All right, that’s all I had. Thanks a lot.

[Operator Instructions] Our next question comes from Paretosh Misra with Berenberg.

Thank you. Good morning. So in the TEMSILK product on Slide 14, can you just elaborate, Paul, what exactly are you selling? Is that some type of cellulose or a pulp product?

Yes. So it’s so cellulose pulp. It’s out of our Temiscaming facility. So it’s another fiber just like all our other fibers, Paretosh, but designed and specifically for the lyocell application. So we’re selling it like you would, whether it’s going into acetate textiles or viscose textiles. This is going into lyocell textiles, which is, again, a very green fiber made in a kind of a closed-loop chemical system. That what makes it green and also gives us a very low-cost of manufacturer relative to other textile fibers. So our fiber is a pulp that goes into that application. And there’s, as far as we know, only a handful of folks that can do that, we’re really pleased that we’ve now been qualified. We’re selling product out of Temiscaming into that application right now. As you imagine, like most textiles, it was pretty soft in 2020 just with COVID and change in purchase patterns at that time. But our customers are very robust in the growth opportunity in lyocell. And they’re talking over the next 5 years of upwards of 300,000 to 500,000 tons of demand for our type of product going into that application. So we’re excited to be part of that going forward.

Got it. Very interesting. Maybe if you could provide some context here. Like in the cellulose business, how much acetate you made last year? And I guess you probably are expecting that to remain flattish this year. And how much of that is textiles versus cigarette?

So Paretosh, we haven’t disclosed the breakdown in our different segments within cellulose specialties. I’d say, overall, though, our mix is going to be fairly consistent year-to-year. And just to your specific question around tow versus textiles and acetate, again, we don’t have that out there. But as you know, the vast majority of our product is going into tow at this point with some going into textiles.

Got it. And as the last one, and I don’t know if you’ve covered that in prepared remarks, but if you could just go through some of the cash flow items for this year, Marcus, like cash back, CapEx and, I guess, interest.

Sure. So the – as you mentioned, the key focus is bringing in those tax refunds. So it’s $55 million that are classified as short term, and we expect those this year. Secondly, for CapEx, think of a number $85 million to $90 million on a net basis and with a higher weighting towards custodial spending this year. We highlighted that we had a couple of high-return strategic projects that we had this year. So $85 million to $90 million net, that would be another key fixed charge. And then on the interest side, our LTM interest is around $61 million, with the refi, that will increase into the low to mid-70 range with the higher interest cost. But I should highlight, on a cash basis, because of the timing of our interest payments related to the last refi, the cash interest this year will be below $60 million just because of that timing. And then think of that higher number on a forward basis. We have very little as far as additional amortization payments, we have some up in Canada related to the cogen loan and in France, and that’s in the range of, call it, $10 million to $12 million. So those would be your key fixed charges and cash flow items to really consider in your modeling.

Got it. Thanks to you. That’s all I had.

Our next question comes from John Babcock with Bank of America. Please proceed with your question.

Just wanted to jump on a couple of questions I missed earlier. Just in the past, RYAM has talked about potential asset sales, and I was wondering if there are any updates there and also if market conditions have changed your thinking around this.

So look, when we – thanks, John, for the question. On our portfolio, look, we’re always mindful of – and looking at our portfolio and what’s the optimal strategic path for us. So it continues to be something that we evaluate, John. As you’ve known, we’ve been working on that and looking at that over the last couple of years. And if we find an opportunity for the right value at the right time, we will transact on things that we think provides more value to our shareholders if it belongs to somebody else than to us. The present time frame and real strong cycle you’re in, particularly as you see lumber and does that change our thinking on that. Look, I think we always have to think through the cycle when we look at our assets. And we would ask anybody who’s looking at them to do the same. Obviously, we’re happy to have the cash generation we’re getting out of the lumber assets right now. So it’s very positive. We’re great – and pleased that our investment and reliability over the last few years has paid out well. They ran very steady last year when we had them up and running outside of the kind of the shutdowns in earlier part of the year, and they continue to do that. And as we noted, we’re making investments in that La Sarre log line to even improve our efficiencies even further. But having said that, again, if someone wants to come to us and talk about value for those or anything else, just in – good stewards of our assets and our shareholders, we would obviously have dialogue and discussions with that. So long way of saying that, look, we’re always focused on the right portfolio. We’re always looking at how do we continue to strengthen our HPC asset. And as we believe that those are strategic, we’re going to be looking at the product mix in each of those, product innovation, the global competitive cost structure of these, and of course, how do we continue to leverage ourselves into a more green, sustainable opportunities out there. So that’s where we got a lot of focus right now, John, but we’re going to continue to own and run all our assets for the long term. And if anybody wants to step in the middle of that, we’ll obviously talk about value.

All right. And then that kind of carries to my next question, just on capital allocation. I mean, overall, it seems like you’re set up for at least a pretty decent year in cash flow, particularly if prices hold up across several of your markets here. So how are you thinking about capital allocation? I know you talked about that pay down and investment in the business. What are kind of the other priorities there? And also just from a debt pay down standpoint, if you can just kind of talk about, obviously, with the refinancing, I think that puts some limits on your ability to do that and so the extent to which you can pay down debt.

John, it’s Marcus. We would continue to take a balanced approach as far as capital allocation with a strong focus on debt repayment and with a lens to that long-term target of 2.5x leverage. In addition, though, I would say that we’ll – as I mentioned, we’ll focus on maintaining our assets and optimizing cash flow, so we’ve got that reliability checked off. And in addition, would rigorously look at any high-return projects in our core business in the HPC business and if that can drive a change.

Yes. Great, Marcus. And John, again, just a reminder that a good example of that is that Tartas bioenergy project, really great selling green energy back into the grid [in France], good return project for us kind of a 1-plus year payback kind of return, and we’ll continue to look for those type of opportunities as we leverage really kind of these biorefinery assets we have, right? We think there’s a lot more we can do out there, whether it’s bioethanol or bioenergy or biomaterials. So we’re going to continue to look at high-return opportunities like that for capital, and we’ll share those with you as we have them going forward.

Okay. Great. And then just last question. Just – this is more of a modeling question. I was just wondering if you might be able to parse out the quarter-over-quarter impacts to earnings from the reduced tariff levels in 4Q in the Forest Products segment?

Yes. So John, the reduced rate of 8% versus the 20% just kicked in, in December, right? So there’s really only 1 month where we had the impact of that lower rate. So you’re looking for – it’d be a 55% reduction based on those duty rates. So I’m not sure what period you’re trying to bridge.

Just 3Q to 4Q if possible.

We were at a – we’re on a run rate of $20 million on duties based on those new rates.

All right. Thank you.

There are no further questions at this time. I would like to turn the floor back over to Paul Boynton for closing comments.

Okay. Thanks, Operator. Again, thanks to everybody for your time today. We’re very excited about the recent market developments, and of course, all our other initiatives to create value for our shareholders, and I look forward to updating you on our progress in the near future. Again, thank you.

This concludes today’s conference. You may disconnect your lines at this time. Thank you for your participation, and have a great day.