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Operator: Good morning and welcome to the RYAM Fourth Quarter and Full Year 2022 Earnings Conference Call. During today’s presentation, all parties will be in a listen-only mode. Following the presentation, the conference will be open for questions with instructions to follow at that time. As a reminder, this conference is being recorded. I would now like to turn the call over to your host, Mr. Mickey Walsh, Treasurer and Vice President of Investor Relations. Thank you, Mr. Walsh. You may begin.

Mickey Walsh: Thank you, and good morning, everyone. Welcome again to RYAM’s fourth quarter and full year 2022 earnings conference call and webcast. Joining me on today’s call are De Lyle 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 new website at ryam.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 lists some of the factors which may cause actual results to differ materially from the forward-looking statements we may make.

They are also referenced on Slides two and three of our presentation material. Today’s presentation we’ll also reference certain non-GAAP financial measures, as noted on Slide four of our presentation. We believe non-GAAP financial measures provide useful information for management and investors, but non-GAAP measures should not be considered an alternative to GAAP measures. A reconciliation of these measures to their most directly comparable GAAP financial measures are included on Slides 18 through 27 of our presentation. I’d now turn the call over to De Lyle.

De Lyle Bloomquist: Thank you, Mickey, and good morning. I will start today with financial highlights for 2022 before turning the call to Marcus to provide additional details on each of our businesses. After Marcus’ update, I will provide an outlook and guidance for 2023 before opening up the call for questions. Let’s start by turning to slide five. We finished 2022 with positive momentum on revenue and EBITDA. Revenues increased $309 million or 22% from prior year to $1.7 billion driven by strong demand and prices across all of our products, including cellular specialties, which represent half of our revenue and a significant majority of our EBITDA. Adjusted EBITDA for the year increased $50 million or 39% to $177 million as a price increases realized more than offset extraordinary cost inflation.

The increases from prior year were led by our high purity cellulose segment, which delivered $150 of adjusted EBITDA, up $11 million or nearly 8% from the prior year. Paperboard delivered a solid $53 million of EBITDA, up $25 million or 89% driven by strong demand for sustainable packaging and higher prices. High yield pulp contributed an additional $19 million of EBITDA as we took advantage of high prices in the fourth quarter to capture significant value for this segment. Corporate expenses improved $5 million from last year to $45 million for the full year driven by a change in the valuation of the GreenFirst shares and favorable currency impact, which were partially offset by higher variable compensation. Now I’d like to ask Marcus to take us through the financial details for 2022 before I provide an outlook for 2023.

Marcus Moeltner: Thank you, De Lyle. Starting with the high purity cellulose segment on slide six, sales for the year increased $245 million or 22% to $1.3 billion driven by a 19% increase in sales prices for both CS and non-CS products. Sales volumes increased 4% to $918,000 metric tons driven by improved reliability and logistics. As expected, sales volumes in the fourth quarter of 2022 were 11% higher compared to the same period in 2021 driven by a greater mix of commodity products, which led to a 5% lower average selling price in the current quarter as compared to the third quarter of 2022. Net sales for the year included $115 million of biomaterial sales, primarily from biomass energy and lignin. Overall, EBITDA for the segment improved $11 million to $150 million driven by higher prices and sales volumes, partially offset by the impact of significant cost inflation.

Turning to slide seven. Paperboard segment sales grew $42 million driven by a 27% increase in sales prices partially offset by a 6% decline in sales volumes. EBITDA for this segment grew 89% or $25 million to $53 million as higher sales prices more than offset increased costs for purchased pulp, chemicals, logistics, and the impact of lower sales volumes. The slight decline in sales price in the fourth quarter from the third quarter was driven by a weaker sales mix. Turning to the high yield pulp segment on slide eight. Sales increased by $24 million from prior year driven by a 25% in sales prices, partially offset by a 3% decline in sales volumes. Sales volumes for the year were impacted by logistics and timing. However, as sales prices rose in the fourth quarter amid strong demand, we were able to increase volumes to deliver a strong quarter to finish the year.

Overall, EBITDA for the segment improved $9 million to $19 million for the year, including $13 million in the fourth quarter. Turning to slide nine. On a consolidated basis, 2022 operating income improved $36 million from 2021 to $26 million. Sales price improvements across each segment and volume improvements in HPC driven by strong demand for CS, more than offset $258 million of higher costs driven by persistent inflation throughout the year. SG&A and other expenses increased $12 million primarily driven by higher severance and variable stock compensation partially offset by favorable FX rates. Turning to slide 10. Net debt declined $41 in the quarter to $707 million as we continue to repay debt. The company reduced gross debt by $73 million in 2022, while still preserving solid liquidity.

Liquidity ended the year at $301 million including $152 million of cash. In addition to debt repayments, capital allocation in 2022 focused on increased maintenance CapEx to improve reliability after investments were reduced through the pandemic years. We also invested $34 million on strategic capital, primarily focused on high return projects, which will provide immediate benefits to the business. Net debt-to-EBITDA ended the year at four times, an improvement of nearly a 1.5 turn from 2021. With lower debt, and improving credit metrics, we continue to monitor capital markets and are prepared to opportunistically refinance our 5.5% senior unsecured notes, which mature in June of 2024. With that, I’d like to turn the call back over to De Lyle.

De Lyle Bloomquist: Thank you, Marcus. Turning to Slide 11. Our top priority for 2023 is to opportunistically refinance our senior notes, which mature in June 2024. As Marcus noted, our leverage declined to 4 times at the end of 2022 and we expect it to further decline to 3.5 times by the end of the first quarter. This will position us as well to refinance our debt in more attractive terms than we saw earlier this year. Building on the momentum experienced in 2022, we will continue growing our EBITDA in 2023 through two key areas. First, we have started to realize the benefits from our investments to improve reliability, including increased sales and lower unit fixed cost. Currently, we are experiencing some pockets of softness in demand and as a market leader, we are matching our production to meet market demand.

While this may temporarily impact sales volumes, the improvement in reliability will allow us to better control our cost. Second, we are capturing a higher value for our products. As a result of our negotiations, our 2023 cellulose specialties prices are expected to increase by a high single digits percentage versus 2022 levels, inclusive of the cost surcharge. We also continue to capture value for our fluff and paperboard businesses as demand for sustainable solutions in these markets remain high. The new capacity that came into the viscose market in 2021 and 2022 impacted viscose pricing modestly in the fourth quarter of 2022. But given our minimal exposure to this market, we have not experienced a significant impact. The improved EBITDA for 2023 was converted to significantly improved free cash flow, which we forecast will be between $30 million and $60 million.

Capital allocation of this free cash flow will be prioritized towards debt reduction and investments in high return strategic capital projects, which I will discuss in detail shortly. Our free cash flow guidance assumes a $45 million benefit from working capital in 2023, which we intend to capture by achieving specific targets for inventory, receivable and payables. We also assume 2023 total CapEx to be in the range of $140 million to $145 million. This includes $15 million to $20 million of catch-up maintenance capital, which was deferred during the pandemic and $30 million to $35 million of discretionary strategic capital net of financing. On slide 12, we graphically depict how our $200 million to $215 million of adjusted EBITDA guidance converts to free cash flow and supports our capital allocation decisions to either repay debt and/or invest in attractive strategic projects.

Our capital allocation decisions will be based on available cash, debt repayment commitments and specific project returns. On Page 13, we summarize our key financial objectives and criteria for strategic projects. Our long-term net leverage target remains at 2.5 times EBITDA, which we plan to attain by growing EBITDA and repaying debt. We also expect to allocate capital into attractive and high return strategic projects. We have three main criteria that we use to vet strategic projects. First, the payback period should be less than three years. Second, the return on equity needs to exceed 20%, though this hurdle rate may be increased depending on the risk associated with the project. To increase the strategic project’s ROE, we will look for low cost financing options, including low cost loans and grants.

Then three. We review each project for the impact it would have on our sustainability commitments, including improving the safety for our employees and the impact to our planning, specifically lowering our greenhouse gas emissions. For 2023, our strategic capital investments will be focused in four key areas. We have previously discussed the Tartas Bioethanol project. This is an investment in a world-class fermentation plant that will be initially purposed to produce second generation bioethanol, which will be sold to a large petrochemical company under a multiyear take-or-pay contract. This Red II certified bioethanol will be used in automobiles to reduce greenhouse gas emissions and substitute for traditional ethanol produced from food sources such as corn.

The total investment for this project is $39 million with $28 million financed by low cost green loans and $4 million of grants. The bulk of the spending will be in 2023. The total cash investment from RYAM for this project from 2022 through 2024 is expected to be $7 million and will provide an annual EBITDA benefit of $9 million to $11 million starting in early 2024. This project has already broken ground and is expected to be completed early next year. The second large project will be debottlenecking Jesup fluff production and finishing capabilities. $10 million of the $14 million investment was made last year with the remainder being made in 2023. This investment will provide a $7 million annualized benefit to the company starting later this year.

We’re also focusing investments on production automation and other high investment return projects. This includes a number of smaller investments totaling between $6 million to $11 million that will provide very high returns on investment and expected $5 million to $7 million in annualized EBITDA. Lastly, we will continue investing in our business processes and data infrastructure to increase corporate efficiencies and effectiveness. In 2022, we started the process to get all of the facilities in key processes onto a common ERP platform. Next, I will provide an outlook on each of our businesses. Turning to Page 14. As a result of our negotiations, our 2023 cellulose specialty prices are expected to increase by high single digit percentages versus 2022.

2023 demand for our high purity business is currently forecasted to be mixed. We are seeing strength in acetate, casing, filtration and nitrocellulose, while there’s softness for construction ethers, food additives in MCC and tire cord. Fluff demand remains resilient. While fluff prices have fallen off their peak levels experienced in the fourth quarter of 2022, pricing has been slower to decline than the more commoditized pulp markets. Viscose demand started the year soft, but there are signs of improvement since the end of the Chinese New Year. Our customers which are the viscose staple fiber producers have increased their operating rates back to the 80% range, which is up from 50% at the end of 2022. Cost deflation in our high purity segment has slowed, but our input prices are expected to remain at elevated levels for the near term.

As I noted, high purity business will realize some uplift in 2023 and future EBITDA from the investment in strategic projects. Our biomaterials business will benefit from our strategic investments that are focused on the increasing demand for sustainable products starting with our investment in the fermentation plan at Tartas that will initially produce RED II certified bioethanol starting in 2024. As demand for sustainable products continues to grow, we will increase our capabilities to meet this global demand. In paperboard, prices are expected to increase from 2022 levels driven by strong demand for packaging and commercial print products. Volumes are expected to increase as a result of improved productivity and logistics, while costs are expected to improve as pulp prices decline.

In high yield pulp, prices are expected to decline as the global economy slows. Sales volumes are expected to improve with improved logistics and productivity. A reopening of the Chinese economy may provide a catalyst for improved pricing later this year. Corporate expenses are expected to be higher than 2022 due to expenses associated with the ERP implementation and FX benefits that are not expected to repeat in 2023. Overall, we expect to deliver $200 million to $215 million of EBITDA in 2023, an increase of 13% to 21% over prior year. On Slide 15, we highlight the key sensitivities that can impact our EBITDA guidance. EBITDA is highly leveraged to our cellular specialty prices. However, these prices are mostly negotiated on an annual basis.

In addition, we successfully negotiated pricing flexibility in our cellulose specialty contracts and the event of renewed cost inflation. Thus, we believe that pricing and cost risk in our cellular specialty business should have little impact on the 2023 guidance. Pricing changes on non-cellular specialty products have a smaller impact on EBITDA for the same 1% change in price. Paperwork products are sold under a mix of fixed prices and variable index pricing with approximately two-thirds fixed for the year, thus providing further stability for the 20 23 guidance. We believe our diverse exposure to end markets and strong linkage to the sustainability megatrends such as paperboard to renewable packaging and fluff with the growing global middle class and aging populations, coupled with our annual contracted business helped insulate us from the impact of a possible recession.

We also have opportunities to improve margins with improved productivity and sales volumes, which we would realize as we maintain our market share when demand growth resumes. Turning to slide 16. Our outlook for 2023 reflects improved EBITDA margins to the 11% to 12% range, as we capture both the improved value for our products and drive operational efficiencies and reliability. Debt will continue to decline as we generate free cash flow and optimize our balance sheet. As a result, we expect net leverage to decline to approximately 3. 5 times in 2023 and keep us on track toward our goal of 2.5 times over the next three to five years. And with that, operator, please open the call to questions.

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Operator: Thank you. Our first question is from the line of Roger Spitz with Bank of America. Please proceed with your questions.

Roger Spitz: Thank you and good morning. So wanted to start. So wanted to start, could you elaborate on the potential headwinds in Q1 2023? You mentioned, I think, in the prepared remarks, some pockets of softer demand and may have actually called out one or two areas, but I thought maybe you could delve into a little more. And also, what do you expect the cadence of the working capital inflow over the year in particular in Q1?

De Lyle Bloomquist: Hi, Roger, this is De Lyle. To attack your question on demand first what we’re seeing — I’ll first talk a little bit about what’s going on in Europe, which is really what’s affecting our demand for our construction ethers and maybe a little bit of the food additives business on the MCC side. I think as everybody knows, the macroeconomic conditions in Europe aren’t great, though they are €“ we do expect that they will improve through the year. Because we’re seeing higher interest rates in Europe, that’s obviously had an impact on the construction market, and that €“ therefore, it had an impact on our demand for our construction ethers. We also saw with a couple of customers that we sell our ether-grade products to that they are correcting their working capital.

They over €“ may have overbought a little bit in 2022. And so they’re going through a correction on their working capital. Again, I think that’s going to be a relatively short-term issue and we should see, again, once we get past that correction, we should start seeing demand normalize again, probably in the second half of this year. With respect to the other areas in terms of softness, can you help me on that a little bit?

Mickey Walsh: Yes. Areas of softness, we had a little bit in tire cord €“

De Lyle Bloomquist: Yes. So tire cord, obviously, is tied to the automobile industry. And obviously, they continue to be a little afforded by the access to chips, but also I think, just because of the increase in interest rates is beginning to dampen the demand for automobiles as well. So that’s something that we’re a little concerned about. Otherwise, a lot of the other businesses that we are selling to seem to be holding in there at, I would call, very resilient levels of demand. The second question that, we — the second question was on working capital. I think really, your question was around how does that — how is that going to calendarize through the year? Is that correct, Roger?

Roger Spitz: That’s right, particularly the Q1 because Q1 is usually — for most businesses is an outflow, but things are going on here. But — so it’s both particularly in Q1, but also how does the cadence go to getting that, I think, $45 million?

Marcus Moeltner: Good morning, Roger, it’s Marcus. So as you mentioned, the $45 million that we set out as an objective, certainly, Q1 is a use of working capital for us. So as we get through Q1 and then the balance of the year, we should start to realize that. Over 50% of that target is inventory related and then it’s balanced across AR and AP. So as we execute through the year, we should start to harvest that working capital and realize that benefit.

Roger Spitz: Thank you. I will get back in the queue.

Marcus Moeltner: Thank you, Roger.

Operator: Thank you. The next question comes from the line of Paul Quinn with RBC Capital Markets. Please proceed with your question.

Paul Quinn: Just trying to understand, it sounds like your cellulose specialty prices you expect them to be up high single digit. Just looking at the commodity side, though, I’m trying to understand sort of your guidance, I guess, on fluff pulp do you expect fluff pulp to stay in and viscose price weakening? Could you give us a little bit more color on what you’re seeing in that market?

De Lyle Bloomquist: Hi, Paul, this is De Lyle. With respect to fluff pricing, again, we’re assuming that they’re going to follow generally with the indices that are out there on fluff, but what we’re noticing is that it’s going down slower than expected. And in fact we’ve seen a couple of our competitors actually announced some recent price increases. So we think we may actually be troughing out here relatively soon. Viscose pricing, similar situation, just as recently as the, a couple of days ago there was a slight uptick in the pricing for softwood going into the viscose market. Again, what we’re forecasting is per the indices, but we’re seeing that because of the increase in capacity utilization in China that, again, that there may be some upside potential with respect to viscose pricing. But right now, the forecast and the guidance we’ve given is essentially based on the indices that have been published.

Paul Quinn: Okay. And then you guys mentioned higher corporate costs in 2023 here. That was $45 million in 2022 or we talking to in the $50 million to $55 million range?

De Lyle Bloomquist: Yes, that’s correct, Paul. That’s about the right range. Again, the increase in spending is tied to the ERP implementation and the fact that we don’t think €“ right now, we’re not forecasting raising in FX benefit this year.

Paul Quinn: Okay. And then just earlier this year, you attempted to re-buy the senior un-secureds and didn’t conclude that deal. Can you give us a little bit more color on that process and the timing of when you expect that to try that again?

De Lyle Bloomquist: Well, in January, we just see it turned out that the market conditions just weren’t conducive for us. I get a deal that we felt was one indicative of what we consider to be a fairly strong business. So looking forward, we think actually time is on our side and that we think our financial metrics will improve with time, and so we’re patient. And we want to get past at least Q1 earnings because again, we think that will confirm the guidance we just gave you. And with that, we think we’ll be looking at that point to look at the markets and possibly enter at that point.

Paul Quinn: Okay. And then just lastly, just back on debottlenecking project, you’ve got adjusted to get more volume, I guess, on the fluff line. What’s the volume increase do you think you’re going to get through that process? And what’s involved?

De Lyle Bloomquist: Yes. That’s a great question. I’m not an engineer, so I can’t really get into the specifics about what we did. But at the end of the day, I believe the increase is 40,000 to 50,000 tons additional capacity that we get from that investment. And it really came down to essentially putting in additional dryer cans to allow us to speed up the line while allowing it for enough drying capacity to get the right specifications on the product. So — and then on the finishing side, when you obviously speed up the capability of the line, you’ve got to also increase the capability of our ability to package it appropriately for our competitors — for our customers. And so we’ve put some investment also in the finishing line as well.

Paul Quinn: All right. thanks very much. That’s all I had. Good luck.

Operator: Our next question is a follow-up from the line of Roger Spitz with Bank of America. Please proceed with your question.

Roger Spitz: Thank you very much. A few others. So can you talk any more guidance on the High-Yield Pulp segment in 2023, does that reverse back to the last few years kind of level? How should we think about that?

De Lyle Bloomquist: That’s a great question, Roger. It’s obviously — it’s — we’re seeing pricing decline right now, but we’re going to see some offset on that — on the volumes in 2023, given the increased productivity that we’re expecting after the investments we made last year. So in terms of overall EBITDA for high purity, we’re expecting it — I’m looking at some numbers. I’m seeing, if I can find the actual number for you here. It’s going to be about the same, as we experienced in 2022 versus 2023, even though we see lower pricing, but it should be offset by the increased productivity and the increased sales volumes later this year.

Roger Spitz: Got it. And just to be clear, I was asking on High-Yield Pulp and I think you were answering that, but you said high purity.

De Lyle Bloomquist: I’m sorry. I meant high purity. Yes, high purity. I’m still new.

Roger Spitz: Okay. And I was asking High-Yield Pulp. How do you see High-Yield Pulp EBITDA in 2023 where you lower pricing?

De Lyle Bloomquist: And that’s what I was talking to you, High-Yield Pulp should be equivalent to what we saw in 2022 right around that $15 million, $16 million level.

Roger Spitz: Okay.

Marcus Moeltner: And Roger, as you’re following the market, high yield, think of, if you look at it year-over-year, right, given where we are in the pricing cycle, it will probably be the reverse of last year, where it’s a stronger first half and then everybody is seeing pricing is coming off over time for that product.

Roger Spitz: Got it. And then in the press release, you talked about the strength in acetate CS. Now is that — are you looking at filter tow there? Or you’re looking at the — whatever it is 20%, 25% of the specialty — I call it specialty acetate CS the non-filter tow demand that you were pointing to?

Marcus Moeltner: So Roger, just to reiterate your question, you’re saying, are we seeing strength in acetate in the tow and other applications, right? Plastics, you’re saying.

Roger Spitz: Right, which areas — which applications in acetate CS did the press release referred to when I talked about strength in 2023 in acetate?

De Lyle Bloomquist : Yes. Really, we’re seeing it both in tow and plastics. Tow’s being driven — we’re seeing significant growth in the heat not burn applications with — and products that are being sold outside the United States, which require 2x the amount of tow that is used in a typical cigarette. And that’s, I think, largely mitigated the decline in smoking in much of the developed world. I would say that tow applications or the use — demand in China has been pretty darn steady. So — and then on the plastic side, things continue to be very strong.

Roger Spitz: Great. And then last one, and I want to talk about the three to five-year target EBITDA margins going to 13% to 15%. You laid out on Slide, I guess, 13, a number of projects, and I presume that’s one or one component of that. Is that the main component of that increase in the EBITDA margin? Or are there other big picture things, whether it be pricing or volumes or cost savings that you’re also looking to get that EBITDA margin up to 13% to 15% in three to five years?

De Lyle Bloomquist : I want to use all the levers, Roger. So just be the strategic projects, which, at the end of the day, is an important component of it. We see that there’s significant value to be had in terms of becoming much more efficient and productive. And some of that’s going to take some capital. But we also see that there’s an opportunity to continue to capture additional value for our products. And I call it fair value, get the pricing up to a point that would reward us to reinvest into new capacity as demand grows. And finally, the issues around just better efficiencies on logistics and maybe even some cost deflation sometime in the near future.

Roger Spitz: Got it. Thank you very much.

Operator: Thank you. At this time, we’ve reached the end of our question-and-answer session. I’ll turn the floor back to De Lyle Bloomquist for closing remarks.

De Lyle Bloomquist: Well, again, thank you all for your time today. I’m very proud of the accomplishments that we have made and very confident that we will continue to execute on our initiatives to improve the profitability of the business, reduce our debt and improve our leverage. And I look forward to our next update in the next few — in the next couple of months. So if you have any questions or anything that we can help you out with, please feel free to reach out to us.