Rayonier Advanced Materials Inc. — 2023 Form 10-K
Reporting period: Fiscal year ended December 31, 2023. The company is a global producer of specialty cellulose, paperboard and high-yield pulp, with facilities in the U.S., Canada and France. Unless noted, amounts are U.S. dollars.
Financial performance
| Metric | 2023 | 2022 |
|---|---|---|
| Net sales | $1.643 billion | $1.717 billion |
| Gross margin | $88 million (5.4%) | $123 million (7.2%) |
| Operating income (loss) | $(65) million ((4.0)% margin) | $26 million (1.5% margin) |
| Net income (loss) | $(102) million | $(15) million |
| Loss per diluted share | $(1.57) | $(0.23) |
| Cash from continuing operating activities | $136 million | $69 million |
| Adjusted EBITDA, continuing operations | $139 million | $177 million |
| Adjusted free cash flow, continuing operations | $53 million | $(35) million |
Net sales fell 4% year over year. Lower commodity-product and high-yield-pulp prices, and reduced cellulose-specialties, paperboard and high-yield-pulp volumes, were partly offset by stronger cellulose-specialties and paperboard pricing and higher commodity volumes. Operating results deteriorated principally because of a $62 million non-cash impairment tied to High Purity Cellulose asset realignment, weaker sales, and higher labor and wood costs. Adjusted EBITDA also declined, from $177 million to $139 million.
Segment results
- High Purity Cellulose: Sales of $1.313 billion versus $1.336 billion; operating loss of $42 million versus income of $31 million. Cellulose-specialties volume declined 18%, while commodity volume increased 39%. Total segment sales prices declined 4%.
- Paperboard: Sales of $219 million versus $250 million; operating income was essentially unchanged at $37 million. Sales volume fell 13%, largely due to customer destocking.
- High-Yield Pulp: Sales of $136 million versus $160 million; operating loss of $3 million versus income of $16 million. External sales prices declined 12% and volumes 5%.
Cash, debt and liquidity
- Year-end cash was $76 million, down from $152 million. ABL net availability was $118 million, after letters of credit.
- Total debt was $777 million, down from $853 million; debt-to-capital remained 51%. Interest expense increased to $74 million from $66 million.
- In July 2023, the company issued a $250 million term loan, bearing Term SOFR (subject to a 3% floor) plus 8%, and used proceeds with cash on hand to redeem the remaining $318 million of 2024 Notes. The loan’s effective rate was 14.4% at year-end and it matures in July 2027. The 2026 Notes had $465 million principal outstanding and carry a 7.625% coupon.
- Operating cash flow improved substantially, chiefly due to working-capital inflows. Capital expenditures were $133 million in 2023; cash used in continuing investing activities was $128 million.
- The company reported $728 million of noncancellable unconditional purchase obligations, primarily for natural gas, steam energy and wood chips. No common dividends have been declared since the quarterly dividend was suspended in 2019.
Outlook, strategic actions and risks
- 2024 outlook: Cellulose-specialties prices are expected to rise by a low-single-digit percentage, with volumes roughly flat. Commodity prices are expected to improve from late-2023 levels, but remain below early-2023 realized prices. Management expects lower raw-material and logistics costs and a stronger second half of 2024; overall High Purity Cellulose EBITDA is expected to be broadly flat sequentially in Q1.
- Paperboard prices are expected to decrease slightly from Q4 2023, with improved volumes and higher purchased-pulp costs; segment EBITDA is expected to be flat sequentially. High-yield-pulp prices and volumes were expected to rise in Q1, with positive segment EBITDA anticipated.
- The Tartas 2G bioethanol facility was expected to begin commissioning in Q1 2024. Management forecast $4 million of EBITDA in 2024, increasing to $8–$10 million annually from 2025, and has a long-term offtake agreement. The company’s stated ambition is $42 million of annual EBITDA from new products by 2027.
- A financial advisor is reviewing a potential sale of the Temiscaming Paperboard and High-Yield Pulp assets. Proceeds could support debt reduction, but the review was ongoing and no sale was assured.
- In January 2024, the company amended its term-loan leverage covenant, raising permitted thresholds through 2024. It reported covenant compliance at December 31, 2023; the amendment also provides for a 0.25% fee on outstanding principal if the original maximum ratio is exceeded in applicable quarters.
- Key risks include cyclical demand and pricing, volatile wood, chemical and energy costs, customer concentration (the ten largest customers represented about 40% of sales), international and currency exposure, and reliance on third-party transportation. China accounted for 29% of 2023 sales; 67% of revenue was from outside the U.S.
- Environmental liabilities were $170 million, with reasonably possible additional exposure estimated at up to approximately $85 million. Separately, a $40 million long-term receivable for Canadian softwood-lumber duties remains dependent on final resolution of legal and administrative challenges; expected cash recovery timing is uncertain.
- The defined-benefit pension plans were underfunded by $83 million. Management expected $10 million of mandatory contributions and benefit payments in 2024. Environmental regulation, remediation costs, debt obligations and covenant compliance remain material risks.
Most important facts for investors to verify
- Whether the expected 2024 recovery in volumes, prices and second-half EBITDA materializes, and how performance compares with the stated segment outlook.
- Actual commissioning, customer deliveries and EBITDA contribution from the Tartas bioethanol project, including progress toward the longer-term biomaterials target.
- Outcome and terms of the potential Temiscaming asset sale and any resulting debt reduction.
- Liquidity, borrowing costs and covenant headroom under the amended term loan, particularly given its high effective interest rate.
- Recoverability and timing of the $40 million lumber-duty receivable, and whether environmental remediation costs exceed the recorded $170 million liability or estimated additional exposure.
Reporting note: The filing is an annual report, not a standalone fourth-quarter report. The financial results above are for the full fiscal year. The company reported that its financial statements received an unqualified audit opinion and that internal control over financial reporting was effective as of year-end.