Rayonier Advanced Materials Inc. — Q2 2023 Form 10-Q
Reporting period: Three and six months ended July 1, 2023; comparison periods ended June 25, 2022. RYAM makes specialty cellulose, paperboard and high-yield pulp. Unless stated otherwise, amounts are in millions of U.S. dollars.
Financial performance
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Net sales | $385 | $399 | $852 | $751 |
| Gross margin | $15; 3.9% | $27; 6.8% | $52; 6.1% | $33; 4.4% |
| Operating income (loss) | $(6) | $(3) | $10 | $(19) |
| Continuing-operations loss | $(16) | $(25) | $(14) | $(49) |
| Net loss | $(17) | $(23) | $(15) | $(48) |
| Net loss per share | $(0.26) | $(0.36) | $(0.24) | $(0.75) |
| Adjusted EBITDA, continuing operations | $27 | $34 | $78 | $54 |
Q2 sales declined 4% year over year, and operating loss widened, with lower sales and higher labor, maintenance, input and logistics costs partly offset by lower corporate expenses. Six-month sales rose 13% and operating results improved by $29 million, reflecting higher prices and stronger commodity-product and high-yield-pulp volumes, plus lower corporate costs. The six-month period included a $3 million payroll-tax-credit benefit. Adjusted EBITDA is a non-GAAP measure.
Q2 segment performance was mixed: High Purity Cellulose sales were $300 million versus $303 million, with operating income near break-even versus $6 million; Paperboard sales were $48 million versus $63 million and operating income $6 million versus $10 million; High-Yield Pulp sales were $44 million versus $40 million and operating income $1 million versus a $1 million loss. High Purity Cellulose’s six-month sales rose to $674 million from $583 million, while Paperboard fell to $107 million from $117 million and High-Yield Pulp rose to $86 million from $62 million.
Cash flow, debt and liquidity
- Six-month operating cash flow was $84 million, versus cash use of $36 million in 2022. Management attributed the improvement mainly to working-capital inflows, partly offset by payments of deferred Tartas energy liabilities.
- Capital expenditures were $54 million, versus $87 million. Adjusted free cash flow, a non-GAAP measure, was $52 million versus negative $107 million.
- At July 1, cash was $157 million; total debt was $834 million; and net available ABL borrowings were $109 million after letters of credit. Debt to total capitalization was 51%. The company reported covenant compliance.
- Current assets were $640 million and current liabilities $410 million. The filing reported no ABL borrowings at quarter-end.
- After quarter-end, RYAM obtained a $250 million term loan, receiving $243 million net proceeds, to help redeem the remaining $318 million of 5.50% notes due 2024, using cash on hand for the balance and transaction costs. The loan matures in July 2027, bears interest at three-month Term SOFR (minimum 3.00%) plus 8.00%, and requires quarterly principal payments. RYAM expected to record an approximately $1 million debt-extinguishment loss.
Outlook, risks and notable items
- High Purity Cellulose: Management expected 2023 cellulose-specialties prices to average high-single-digit percentages above 2022, but volumes to decline due to customer destocking. Commodity-product volumes were expected to increase, with prices below first-half levels.
- Paperboard: Prices were expected to moderate but remain above 2022 levels; volumes were expected to improve in the second half. Softer pulp prices could moderate raw-material costs.
- High-Yield Pulp: Management expected 2023 prices to decline overall amid soft demand and new capacity, and volumes to fall in the coming quarter due to planned third-quarter downtime.
- The Tartas bioethanol project was under construction, with estimated total cost of $41 million and expected operation in early 2024. Management projected $8–$10 million of annual incremental EBITDA beginning in 2025; this is an expectation, not a guarantee.
- Environmental liabilities totaled $170 million. The company estimated reasonably possible additional exposure of up to approximately $85 million, with no assurance the amount could not be higher. Canadian softwood-duty refunds remain subject to legal challenges: the receivable was $38 million at quarter-end, expected to rise to about $40 million after a post-quarter USDOC rate reduction; cash return depends on final resolution.
- Other contingent exposures include $34 million of standby letters of credit, $86 million of surety bonds and a $31 million proportionate guarantee of LignoTech Florida financing. Canadian CEWS funds of approximately $19 million remain deferred pending mandatory audit.
- RYAM continued to report losses and faces cyclical pricing, demand, input-cost, currency and interest-rate risks. The new variable-rate term loan adds exposure: management estimated a 1-percentage-point rate change would alter annual interest expense by about $2 million. No material changes to previously disclosed risk factors were reported.
- The quarterly common dividend has been suspended since 2019. Q2 share repurchases were limited to shares withheld for employee tax obligations, not open-market program purchases.
Investor verification priorities
- Track customer destocking, cellulose-specialties volumes and the expected second-half recovery in Paperboard.
- Confirm completion and terms of the 2024 Notes redemption, resulting debt balances, interest burden and covenant headroom.
- Monitor working-capital effects on cash generation and planned capital spending, including Tartas project funding and execution.
- Follow the USDOC duty-refund process and timing, and assess environmental exposure against the recorded reserve and stated possible additional costs.
- Check whether management’s market outlook and projected bioethanol EBITDA are achieved; the filing provides no consolidated numerical full-year earnings guidance.