Rayonier Advanced Materials Inc. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 30, 2024, compared with the three months ended April 1, 2023. RYAM produces specialty cellulose, paperboard, high-yield pulp and biomaterials.
Financial performance and liquidity
| Metric | Q1 2024 | Prior-year quarter |
|---|---|---|
| Net sales | $387.7 million | $466.8 million |
| Gross margin | $36.8 million; 9.5% | $37.4 million; 7.9% |
| Operating income | $17.1 million; 4.4% margin | $16.6 million; 3.6% margin |
| Net income (loss) | $(1.6) million; $(0.02) per share | $1.6 million; $0.02 per share |
| Cash from operations | $11.3 million | $51.4 million |
| Capital expenditures, net | $32.6 million | $21.2 million |
| Adjusted free cash flow | $(16) million | $36 million |
Sales fell 17%, mainly from lower commodity-product, paperboard and high-yield-pulp prices and reduced cellulose-specialties and commodity volumes. Operating income was broadly flat: lower input and logistics costs, improved productivity and lower corporate costs offset weaker sales. High Purity Cellulose operating income increased to $20.7 million from $12.9 million; Paperboard declined to $7.9 million from $9.7 million; High-Yield Pulp swung to a $0.7 million operating loss from $7.3 million income.
Cash and equivalents were $54.6 million at quarter-end, down from $75.8 million at year-end 2023. Total debt was $778.7 million, compared with $777.5 million at year-end; debt-to-capital was 51%. ABL availability was $131 million, plus $13 million under a French receivables factoring line. Interest expense rose to $20.9 million from $15.5 million; cash interest paid was $34.0 million. The 2027 Term Loan bore 13.30% interest. The company reported compliance with debt covenants; scheduled principal payments include approximately $483.7 million in 2026 and $245.7 million in 2027.
Operating cash flow declined mainly because of working-capital outflows and higher interest payments. The company reported $52 million of EBITDA for the quarter, versus $49 million in the prior-year quarter; these are non-GAAP measures.
Material developments and outlook
- Temiscaming High Purity Cellulose plant: After quarter-end, RYAM announced an indefinite suspension effective July 2, 2024, with approximately 275 layoffs. It expects about $30 million of one-time 2024 operating charges and additional non-cash impairment charges, which have not been quantified. Management expects the suspension to be marginally positive to 2024 Adjusted EBITDA and to increase free cash flow by $15–$20 million, despite stranded costs.
- Softwood lumber duty rights: On May 6, 2024, the company announced a $39 million sale of its refund rights, including accrued interest, with potential additional proceeds depending on the U.S.-Canada trade dispute outcome. The balance-sheet receivable was $40 million at quarter-end.
- Segment outlook: Cellulose-specialties prices are expected to rise by a low-single-digit percentage in 2024 versus 2023, with volumes comparable; commodity volumes are expected to decline. The Tartas bioethanol facility began operating in Q1; management expects $3–$4 million of 2024 EBITDA and $8–$10 million annually beginning in 2025. Paperboard volumes are expected to improve, with relatively stable prices and higher purchased-pulp costs. High-Yield Pulp prices are expected to improve, and management expects positive EBITDA in the coming quarter. Corporate costs are expected to be flat or slightly higher in 2024 as ERP work continues. No consolidated full-year revenue or earnings guidance is stated in the provided filing text.
- The potential sale of the Temiscaming Paperboard and High-Yield Pulp assets is progressing more slowly than originally anticipated. Those plants are expected to continue operating at full capacity while the sale process continues.
- The company changed inventory costing from FIFO to average cost on January 1, 2024; prior periods were not restated because management deemed the effect immaterial.
Risks, contingencies and notable items
- Environmental liabilities totaled $170.0 million. The company estimates reasonably possible additional exposure of up to approximately $85 million, while noting actual exposure could exceed that amount.
- About 235 unionized employees at the Fernandina plant were working under expired agreements while negotiations continued; a work stoppage could materially affect results.
- Standby letters of credit were $34 million, surety bonds were $89 million, and the company guaranteed $30 million of its 45%-owned LignoTech Florida venture’s financing.
- Canadian Emergency Wage Subsidy claims remain subject to mandatory audit; $18 million was included in deferred revenue at quarter-end pending sufficient evidence that repayment will not be required.
- Key exposures include cyclical commodity prices and demand, input and energy costs, foreign exchange and interest rates. A hypothetical one-percentage-point change in variable rates would change annual interest expense by about $2 million at the reported borrowing levels.
- Management reported effective disclosure controls and no material changes to internal control over financial reporting during the quarter. It reported no material changes to the risk factors in the 2023 Form 10-K.
Investor verification checklist
- Track operating cash flow, working capital, capital spending and cash balance, given the sharp year-over-year decline in cash generation and negative adjusted free cash flow.
- Monitor debt covenant headroom, the elevated Term Loan rate, and refinancing or repayment plans for the 2026 and 2027 maturities.
- Verify actual Temiscaming shutdown costs, impairment charges, working-capital monetization and realized free-cash-flow benefits against management’s estimates.
- Follow the Temiscaming asset-sale process and any additional proceeds from the softwood-duty rights sale.
- Assess whether segment pricing, volumes and the Tartas bioethanol ramp meet the stated outlook, and whether environmental, labor and subsidy-related contingencies change.