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Edited Transcript of RYAM earnings conference call or presentation 5-Nov-19 2:00pm GMT

Q3 2019 Rayonier Advanced Materials Inc Earnings Call

Jacksonville Nov 9, 2019 (Thomson StreetEvents) -- Edited Transcript of Rayonier Advanced Materials Inc earnings conference call or presentation Tuesday, November 5, 2019 at 2:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Frank A. Ruperto

Rayonier Advanced Materials Inc. - SVP of High Purity & High Yield Cellulose Business

* Marcus J. Moeltner

Rayonier Advanced Materials Inc. - CFO & Senior VP of Finance

* Mickey Walsh

Rayonier Advanced Materials Inc. - VP of IR & Treasurer

* Paul G. Boynton

Rayonier Advanced Materials Inc. - Chairman, President & CEO

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Conference Call Participants

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* John Plimpton Babcock

BofA Merrill Lynch, Research Division - Associate

* Paul C. Quinn

RBC Capital Markets, Research Division - Analyst

* Roger Neil Spitz

BofA Merrill Lynch, Research Division - Director and High Yield Research Analyst

* Steven Pierre Chercover

D.A. Davidson & Co., Research Division - MD & Senior Research Analyst

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Presentation

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Operator [1]

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Good morning, and welcome to the Rayonier Advanced Materials Third Quarter 2019 Earnings Conference call. (Operator Instructions) As a reminder, this conference is being recorded.

I would now like to turn the conference over to your host, Mr. Mickey Walsh, Treasurer and Vice President of Investor Relations for Rayonier Advanced Materials. Thank you. You may begin, Mr. Walsh.

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Mickey Walsh, Rayonier Advanced Materials Inc. - VP of IR & Treasurer [2]

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Thank you, operator, and good morning, everyone. Welcome again to Rayonier Advanced Materials Third Quarter 2019 Earnings Conference Call and Webcast. Joining me on today's call are Paul Boynton, our Chairman, President and Chief Executive Officer; Marcus Moeltner, our Chief Financial Officer and Senior Vice President of Finance, and Frank Ruperto, our Senior Vice President of High Purity & High Yield Cellulose Businesses.

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 of the presentation material.

Today's presentation will also reference certain non-GAAP financial measures, as noted on Slide 3 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 14 through 19 of our presentation.

I'll now turn the call over to Paul.

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Paul G. Boynton, Rayonier Advanced Materials Inc. - Chairman, President & CEO [3]

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Thank you, Mickey, and good morning, everyone. We've accomplished some key milestones since our last quarterly call, and I want to provide you with an update on 2 recent announcements.

First, on September 30, we successfully renegotiated our senior secured credit agreement to provide a more flexible covenant package through 2021. The amendment to the agreement provides us the runway we need to navigate the ongoing challenge of the commodity markets. We believe we now have a covenant package that positions us to both execute successfully in the current market environment and position the company for long-term value creation.

Secondly, yesterday, we announced the completion of the sale of the Matane facility for a purchase price of $175 million, resulting in net proceeds to the company of approximately $150 million. This sale represents a major achievement in executing our portfolio strategy. It reduces future earnings variability by minimizing exposure to a volatile commodity pulp market. It also provides an infusion of cash to both reduce debt and enhance liquidity. Lastly, it allows us to more narrowly focus on our core High Purity Cellulose segment.

While these 2 events were important, we remain focused on delivering improved results. In the third quarter, we generated $35 million of adjusted EBITDA versus $21 million in the second quarter, measured on a comparable basis. Importantly, High Purity Cellulose results improved as greater operational reliability and efforts to low-cost helped offset weakness in cellulose specialties volumes and commodity pricing. The other business segments, taken together, also delivered better results as we continue to take actions to reduce costs, including curtailing certain lumber assets and managing production and pulping assets to partially offset weaker commodity prices.

After Marcus reviews the third quarter results in more detail, I'll provide an update on our strategy and how we plan to continue to improve our performance.

Now let me turn the call over to Marcus.

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Marcus J. Moeltner, Rayonier Advanced Materials Inc. - CFO & Senior VP of Finance [4]

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Thank you, Paul. I will provide an overview of our third quarter results, focusing on net sales and EBITDA compared to the prior year third quarter and an outlook for each of our business segments. Please note that results from Matane's operations have now been classified to discontinued operations and are no longer included in operating results.

Starting with High Purity Cellulose on Slide 5. Sales decreased by $40 million, driven by a 1% decline in cellulose specialties sales price due to Chinese tariffs and a 16% decline in CS volumes. The comparative prior year period benefited from the timing of shipments, which accounted for about 1/2 of volume impact. The remaining impact was driven by weakening in the acetate, automotive and construction end markets, driven by slowing global economics and customers aggressively managing inventories. Sales were also impacted by a 5% decline in commodity sales prices due to weaker markets, offset by a 26% increase in commodity production as productivity improved.

EBITDA for the segment was $41 million compared to $63 million in the quarter a year ago. The change was largely influenced by declines in CS price and volumes, offset by improvements in operating costs, notably from improved reliability and lower chemical pricing compared to the prior year period. For 2019, we continue to expect CS prices to be down approximately 1% to 2% from 2018, excluding the impact of Chinese tariffs, as previously guided. Chinese tariffs are expected to impact price by approximately 1%. Sales volumes are expected to decline 6% due to factors stated earlier.

Commodity viscose and fluff products are also experiencing continuing pressure as global trade disputes have significantly impacted demand and pricing for these products. And we expect additional price declines in the fourth quarter. With this continuing market pressure, primarily in viscose and fluff, we now expect full year adjusted EBITDA for the HPC segment to be approximately $140 million.

Turning to Slide 6, sales in our Forest Products segment declined by $21 million from the prior year period, largely driven by a 25% price decline for lumber products and a 5% decline in volumes due to our curtailments to reduce costs. EBITDA for this segment fell $13 million to a $3 million loss, driven by lower sales prices and volumes, partially offset by improved costs including favorable wood yield, lower duties and the reversal of an inventory write-down. Also keep in mind that the $3 million EBITDA loss in the quarter includes $5 million of duties. Since the start of the softwood lumber duties on shipments into the U.S. in 2017, we have paid a total of $53 million of duties. Based on results of prior trade disputes, Canadian producers have historically recovered all or a vast majority of these duties upon resolution.

Looking forward, U.S. housing starts and remodeling activity are the key drivers for lumber demand. U.S. housing starts have remained relatively stable on an annual basis, and low interest rates provide a positive market environment. Industry curtailments should reduce supply and improve pricing once these inventory levels are drawn down. In the third quarter, we also temporarily idled some of our assets. We continue to manage our assets in the future to help minimize losses.

Turning to Slide 7. Pulp segment sales decreased $20 million, which drove EBITDA down by $15 million to roughly breakeven. Results were driven by a 32% decline in prices and a 24% reduction in volumes for high-yield pulp off prior historical highs due to softening demand from export markets. Looking forward, we believe high-yield pulp prices have bottomed in China in the third quarter as we began realizing modest price increases in the region in the quarter. European market prices continued to decline as they move closer to alignment with Chinese pricing.

Turning to our Paper segment on Slide 8. Sales decreased $4 million, primarily due to a 16% decline in newsprint prices and a 13% (sic) [14%] reduction in volumes due to lower production. Paperboard sales increased modestly due to a 9% increase in volumes partially offset by a 2% decline in prices. EBITDA for this segment decreased by $13 million to $7 million, driven by lower newsprint production in 2019, plus a $5 million benefit included in 2018 due to the reversal of newsprint duties. Looking forward, paperboard prices are likely to remain under pressure due to increased competition. Newsprint demand continues its steady decline, while industry production capacity remains constant, resulting in ongoing pricing pressure.

Turning to Slide 9. On a consolidated basis, third quarter operating income declined $51 million from the comparable prior year period. The impact from commodity sales price declines and reliability issues earlier in the year continue to overshadow the benefits from our cost transformation actions. A majority of the decline from prior year or $39 million was driven by sales price declines, primarily from commodity markets. Additionally, volumes were also impacted primarily by weak demand in our High Purity Cellulose and Pulp segments compared to the stronger results in 2018. Lower operating costs due to improved production and operational reliability as well as lower maintenance and chemical prices helped offset some of the pricing decline. Additionally, SG&A was improved by lower incentive compensation, severance costs and environmental expenses in 2019.

Turning to Slide 10. Sales for the quarter came in at $416 million, down $85 million from the year-ago quarter. EBITDA for the third quarter was $35 million, a decrease of $51 million from prior year, primarily driven by lower commodity prices and volumes, partially offset by improved costs. Adjusted net debt increased slightly to $1.2 billion and cash finished at $63 million. Based on the September 30 amendment to our credit facilities, our net secured leverage ratio ended at 4.0x compared to a covenant required of not more than 4.95x. Additionally, the net proceeds from the Matane sale will be used to further decrease our debt and increase liquidity.

Next, I want to provide a bit more detail on the outcome of our recent credit agreement amendment. As detailed on Slide 11, we believe the amendment provides us with the financial flexibility and operational runway to manage our business through these challenging commodity markets. Both the net secured leverage ratio and interest coverage ratio were relaxed through the fourth quarter of 2021. Covenant levels continued to increase in the fourth quarter as we anniversary stronger prior year results. We then expect improved year-over-year financial performance and improved ratios beginning in the first quarter of 2020.

We also retained adequate liquidity to maintain our assets and service our customers and work with our key suppliers. Most importantly, it allows us to execute on our strategic objectives. In return for this flexibility, we were required to pay a slightly higher interest rate, 125 basis points above prior, which is based on a grid that provides for lower rates as our leverage improves. We also provided lenders with additional collateral, including mortgages and guarantees from certain of our Canadian subsidiaries. We also agreed to restrict our ability to make certain expenditures and investments, including dividends and acquisitions, which will require us to have a greater focus on reducing debt. Lastly, we are required to maintain a certain amount of minimum liquidity over the life of the agreement. Full details of the amendment can be found in our 8-K filed on October 2. Overall, I am pleased with the outcome of the amendment, as we are now able to focus on executing our business plan and emerge a stronger, more resilient company.

With that, I'd now like to turn the call back over to Paul.

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Paul G. Boynton, Rayonier Advanced Materials Inc. - Chairman, President & CEO [5]

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Thank you, Marcus. Yes, the amendment was an important step for us, and we believe it gives us the runway to both weather the challenging global commodity markets and execute our business strategy. Turning to Page 12, I want to provide you with an update on our 4 key areas of strategic focus to drive growth and value for the business. As a reminder, these are the 4 areas we originally detailed in March at our Investor Day.

I'll start with our go-to-market strategy, which is focused on increasing prices and margins in cellulose specialties so we can maintain and invest in our facilities and best serve our customers. Last quarter, we discussed 2 new important contracts in cellulose specialties that yielded positive outcomes. Earlier this month, we announced a price increase on cellulose specialties products, effective immediately or as contracts allow. While we are currently in negotiations with many customers for 2020, we are seeing positive developments even in the challenging economic conditions. We will provide a more fulsome update on our next earnings call with regards to our expectations for 2020.

Next, we remain on track to deliver upon the benefits of our 4 strategic pillars: cost transformation, market optimization, new products and investments. These financial improvements have been overshadowed, primarily by the steep decline in commodity prices and additionally by some operational issues, most of which occurred earlier in the year. We are focused on operating our assets safely and reliably, and recognize the importance of driving the benefits of the strategic pillars to the bottom line.

Regarding our portfolio valuation, as we already discussed, the sale of the Matane facility for $175 million provides us with approximately $150 million of cash, which will allow us to reduce debt by $100 million and increase liquidity. It also dampens earnings volatility as we reduce exposure to commodity pulp markets by 270,000 metric tons. The closing of this transaction concludes the formal process of our portfolio evaluation. Naturally, we will continue to opportunistically evaluate alternatives for noncore assets.

Lastly, capital allocation. With the downturn in the commodity markets, our capital allocation remains focused on maintaining our assets and reducing debt. In that regard, management has recommended and our Board of Directors has elected to suspend our dividend, preserving $18 million of additional cash flow per year. We have already reduced our CapEx guidance for 2019 by $10 million, and we expect to reduce this run rate even further for 2020. Additionally, as noted, $100 million of net proceeds from the sale of Matane will be used to repay debt.

We're confident in our ability to manage through these difficult commodity markets and execute on our strategy. We have seen these cycles in the past, and we know what it takes to manage through them. We have implemented measures to minimize costs, preserve cash, increase liquidity and reduce volatility. We have the right people and partners in place that not only allow us to manage through the cycle but also position us to capture significant value as we emerge stronger and more resilient as our markets improve.

With that, operator, please open the call for questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question comes from Paul Quinn with RBC Capital Markets.

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Paul C. Quinn, RBC Capital Markets, Research Division - Analyst [2]

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Congratulations on the completion of the Matane sale. Just wondering what the delta -- that $25 million between the gross sale price of $175 million and the $150 million, can you give us some details of what the difference is?

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Marcus J. Moeltner, Rayonier Advanced Materials Inc. - CFO & Senior VP of Finance [3]

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Yes. Sure, Paul. The key elements of the change that would reconcile that is, one, there's a pension adjustment, given SAP retained the defined benefit plan. In addition, we're covering closing costs, so fees for our bankers and lawyers that were engaged and estimated tax leakage related to the transaction.

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Paul C. Quinn, RBC Capital Markets, Research Division - Analyst [4]

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Okay. That's helpful. And then just on the portfolio evaluation, you say that the process is completed. Can you tell us what assets you consider noncore? And how are these going to be looked at going forward?

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Paul G. Boynton, Rayonier Advanced Materials Inc. - Chairman, President & CEO [5]

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Yes, Paul. So yes, we considered it completed. And we said we started that process earlier in the year, so we're going to try and wrap up by midyear. It took us a little bit longer than we originally planned and obviously, concluded with the Matane sale. Look, as you can imagine, where we're at right now with the commodity markets, it's not the best time to capture all the value that we think are inherent to these assets. So we'd much rather continue operate them and invest in them and make sure that they're going to produce good results for our investors.

As you look at our business, though, and you know well that we're really focused around our High Purity Cellulose business. We think that's vital to our future and that's important to it. So that's what we'll consider are core. Everything else though, we consider a good viable part of the business, unless again, someone comes along and decides there's more value in it than what we assign to it.

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Paul C. Quinn, RBC Capital Markets, Research Division - Analyst [6]

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Okay. And then just turning to the High Purity Cellulose business itself, volumes were down 6%. Do you see those volumes coming back in 2020? Or is that weakness going to continue through the year?

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Frank A. Ruperto, Rayonier Advanced Materials Inc. - SVP of High Purity & High Yield Cellulose Business [7]

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Yes, Paul, this is Frank. What I would tell you is that -- 2 things. One is the volume weakness that we've seen this year, especially in the third quarter, is exacerbated a bit by inventory management by our key customers. I think in this economic environment, most industrial companies and consumer companies are very focused on working capital management. So we think that, that played a piece of the role in that.

In regards to the overall outlook for 2020, we don't give forecasts for 2020 at this point. As you know we're, over the next 2 months, really in the midst of negotiations and conversations with all of our customers about price and volume for next year. So we'll have a better outlook on that when we get to the fourth quarter earnings call.

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Operator [8]

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

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John Plimpton Babcock, BofA Merrill Lynch, Research Division - Associate [9]

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Actually, just one quick one on the Matane facility, is there a way you could give us some sense as to what the EBITDA was for that business during the quarter?

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Marcus J. Moeltner, Rayonier Advanced Materials Inc. - CFO & Senior VP of Finance [10]

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Yes. For the quarter, the mill generated $35 million in sales and an EBITDA of about $3.3 million.

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John Plimpton Babcock, BofA Merrill Lynch, Research Division - Associate [11]

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Okay. That's helpful. And then the next question, just on the cellulose specialty pricing, because it sounds like -- that the guidance for down 1% to 2% excludes the impact of sales prices from the duties. And I guess my question is really, just what is the exact thing that's actually impacting the price from those duties? Is RYAM offering discounts? Or is there something else that I'm missing here?

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Paul G. Boynton, Rayonier Advanced Materials Inc. - Chairman, President & CEO [12]

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No. I think as we said before, going into China, we are covering the duties for those customers, and that flows through to the sale price. So that's where you're seeing that 1% decline. Otherwise, prices are relatively stable to our guidance and into last year.

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John Plimpton Babcock, BofA Merrill Lynch, Research Division - Associate [13]

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Okay. And when do those duties go in place? If you can just kind of remind me.

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Paul G. Boynton, Rayonier Advanced Materials Inc. - Chairman, President & CEO [14]

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September of 2018.

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John Plimpton Babcock, BofA Merrill Lynch, Research Division - Associate [15]

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Okay. And so have you seen -- so some of the pricing that we've seen so far this year already includes that. Is that fair?

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Paul G. Boynton, Rayonier Advanced Materials Inc. - Chairman, President & CEO [16]

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Yes.

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John Plimpton Babcock, BofA Merrill Lynch, Research Division - Associate [17]

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Okay. And then kind of the next question, just with regards to the kind of price negotiations. I mean, what are the key factors that are coming into play this year? So realizing you probably won't be giving us any sense as to whether or not pricing will be positive or negative next year, what factors are kind of customers bringing up in those negotiations?

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Frank A. Ruperto, Rayonier Advanced Materials Inc. - SVP of High Purity & High Yield Cellulose Business [18]

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Yes. I think the major factor that we always talk to customers about and we talk about is really the value in use that our products provide despite the fact that there are competing products in certain of the key areas, the products are fairly unique. And depending on the end use, it's even -- it could be more unique in certain pieces of the segments or less. So really, what we talk about is the uniqueness and the value and use of those products. And the fact that with our larger facilities, with our more lines, we offer a security supply that no other company in the industry can offer.

So that's really where we're talking about things. Obviously, the economic backdrop always comes into play in these discussions. And that's really the other piece of the puzzle that we need to talk to customers about and make sure we continue to provide them the value that they need in these more difficult economic times.

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John Plimpton Babcock, BofA Merrill Lynch, Research Division - Associate [19]

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Okay. And then working capital, I just was wondering what was -- what drove the increase during the quarter?

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Marcus J. Moeltner, Rayonier Advanced Materials Inc. - CFO & Senior VP of Finance [20]

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Yes. We -- as you know, we made progress on the last quarter, the quarter before on drawing inventories, given some of the comments that Frank made on active inventory management by our customers. We had a bit of an offset there, but we're looking to draw that back down as we go into year-end.

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John Plimpton Babcock, BofA Merrill Lynch, Research Division - Associate [21]

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Okay. And then just last question before I turn it over. Just on lumber, did you guys mention that you took downtime? And if so, about how much market-related downtime did you take?

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Paul G. Boynton, Rayonier Advanced Materials Inc. - Chairman, President & CEO [22]

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So it -- John, Paul here. We did take some temporary curtailments at several different facilities. And they range maybe 2 to 3 weeks at those facilities. So not a substantial amount. If you keep in mind, we're integrated back in our chip supply from our Temiscaming operations into these lumber mills. And so it's important for us to keep those chips flowing. At the same time, and particularly at our facilities that produce a stud product, we focus in on them and taking those down as we could and still maintain that chip supply. So again, it's usually -- has been 2 to 3 weeks, kind of rolling through the 3 different stud mills that we have.

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Operator [23]

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Our next question comes from Steve Chercover with D.A. Davidson.

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Steven Pierre Chercover, D.A. Davidson & Co., Research Division - MD & Senior Research Analyst [24]

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So my first question is just if the global trade issues were resolved, do you think it would address not only the pricing pressure to China but also some of the other pressures around automotive and construction?

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Paul G. Boynton, Rayonier Advanced Materials Inc. - Chairman, President & CEO [25]

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Yes.

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Marcus J. Moeltner, Rayonier Advanced Materials Inc. - CFO & Senior VP of Finance [26]

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Yes.

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Paul G. Boynton, Rayonier Advanced Materials Inc. - Chairman, President & CEO [27]

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I'm sorry. Absolutely, I think so, Steve. I mean, it wouldn't turn on a dime here at all, but it's certainly a major backdrop into how our business is performing, because it's put pressure on almost every single segment, commodity side of our segment, and pricing. And having that resolved and products moving more freely, I think it absolutely would improve our situation. That's why we think at some point, this does get resolved and as in all cyclical businesses, we'll see this come back around. But that would be the primary driver, we believe, in resolving it is just getting back to this a little bit improved economic trading situation.

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Steven Pierre Chercover, D.A. Davidson & Co., Research Division - MD & Senior Research Analyst [28]

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Okay. And then I was wondering if you had any update whatsoever on the softwood lumber file. I mean, normally, the softwood lumber disputes are a big deal at least in our world, but with NAFTA or whatever the hell they want to call it, and China, it seems like it's not getting much attention. So is there stuff going on behind the scenes that is just kind of lost in the noise?

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Paul G. Boynton, Rayonier Advanced Materials Inc. - Chairman, President & CEO [29]

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Yes. Steve, I think we'd agree that other trade issues, global trade issues, are taking the priority in the dialogue with the United States for certain USMCA, former NAFTA, as well as the China trade. And I think from what we hear, there's not a lot of conversation going on, on resolving the softwood lumber agreement at this point in time. So I think it is relatively quiet.

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Steven Pierre Chercover, D.A. Davidson & Co., Research Division - MD & Senior Research Analyst [30]

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Sure would be nice to have that $53 million. Okay. And then finally, Paul, you said that you've got the right team to move Rayonier Advanced forward and please no one take this question the wrong way, but it's kind of for Frank. What skill sets do you bring to specialty cellulose as a former banker and CFO? Is it like a negotiation ability? And do you have strong relationships with the customers?

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Frank A. Ruperto, Rayonier Advanced Materials Inc. - SVP of High Purity & High Yield Cellulose Business [31]

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Yes. So I'd say a couple of things, Steve. I've been meeting with customers since I got here almost 6 years ago. So most of our major customers, I've met with multiple times in discussions and participated in key negotiations from the time that I've gotten here. So that's been going on for a while. The other thing I'd say is just the strategic perspective of where we need to take the business and really being able to convey that to the customer base in a way that is constructive from their perspective, really selling the value of our products in use and making sure that we do that appropriately. So I think all of those things are important. I think the last thing is just continuing to organize the team and make sure we're focused on all of the right priorities in the business, whether it's on the commercial side or more broadly on the product offering and how we're taking that to market as we go forward.

So that's what I would say. Going forward, I'd push it to Paul to say why he put me in the job.

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Paul G. Boynton, Rayonier Advanced Materials Inc. - Chairman, President & CEO [32]

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No, I think that's absolutely right. And I think Frank answered it well, right? One, is just a strategic perspective on what drives value and what doesn't drive value and making sure the organization is aligned in that regard. Second of all, and Frank hit on it, first, which is Frank has been meeting and knows and understands our customers around the globe very well. He's been traveling independently or with me or with the team for his whole duration here. So he's got a very good set of relationships out there that -- and our customers have a great respect for Frank and what he provides to the team. So we're in good hands and good position with Frank in this role.

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Steven Pierre Chercover, D.A. Davidson & Co., Research Division - MD & Senior Research Analyst [33]

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Terrific. Okay. And sorry, just kind of an add-on. We wish you all the best in getting through these price hike because you need them. And I'm just wondering, it's now 6 or 8 months since you discussed the realignment of the assets so certain facilities would produce certain grades. And how is that going? And how did your customers react to that element of the strategy?

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Paul G. Boynton, Rayonier Advanced Materials Inc. - Chairman, President & CEO [34]

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So look, it's progressing to plan. It's going well. We are realigning and moving volumes to different assets, as we talked about at that March investor presentation. So I think very well, I think the customers have certainly understood it and appreciate it. And again, I think they appreciate the fact that we still have multiple lines that add the redundancy that Frank talked about earlier. So we are on track with that.

Steve, there are some grades, some products that will take a little bit longer, as we indicated in March to move over to different lines because either they're regulated in some way or fashion. So those will be the slower part. But for the most part, we're moving exactly to the plan.

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Operator [35]

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(Operator Instructions) Our next question is a follow-up from Roger Spitz with Bank of America.

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Roger Neil Spitz, BofA Merrill Lynch, Research Division - Director and High Yield Research Analyst [36]

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And I was just jumping around calls, sorry about this if it has been asked. But on your strategic upside -- update slide, you mentioned the asset realignment to meet the market needs and sales mix. Does that mean you're shifting additional HPC volumes from specialty cellulose to viscose and fluff? Although you indicated, obviously, the outlooks are weak.

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Frank A. Ruperto, Rayonier Advanced Materials Inc. - SVP of High Purity & High Yield Cellulose Business [37]

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Yes. Roger, what we're doing really is shifting the products to where they are best made. So this isn't a mix shift between commodity and HPC when we talk about asset realignment, it's really trying to take the facilities with the lowest cost positions for each grade where we can and move all of those grades or as many of those grades as we can to those facilities. That allows us to have less downtime. It allows us to have less off-grade as we transition from grade to grade. And so there's a real benefit from a savings perspective and it may be in the production side, it might be in the logistics side, et cetera. But it's something that I think we can do really well, which is really concentrate these grades and similar grades in key assets so that we can reduce operating costs over the longer term but still provide the very high-quality products that our customers need.

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Paul G. Boynton, Rayonier Advanced Materials Inc. - Chairman, President & CEO [38]

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And Roger, to add to that, we communicated in March that we will focus in on higher value business in that cellulose specialties area, right? And that if there's parts of that business that doesn't provide the value that we think could provide to investors and to our assets, that we will shed some of that business, right? So that will create some more commodity, some volume as we go forward, but that's by design.

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Roger Neil Spitz, BofA Merrill Lynch, Research Division - Director and High Yield Research Analyst [39]

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Got it. And then on working capital, any guidance you can provide on Q4 and 2020 in terms of inflow outflow?

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Marcus J. Moeltner, Rayonier Advanced Materials Inc. - CFO & Senior VP of Finance [40]

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It's Marcus. As Frank alluded to in his comments on some of the weakness in our volumes due to active management by our customers, we lost some ground this quarter certainly on finished product inventories, but we see ourselves regaining that going into the fourth quarter. So you could look for better management of our inventory line item.

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Paul G. Boynton, Rayonier Advanced Materials Inc. - Chairman, President & CEO [41]

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I think it's going to be a key focus. Obviously, it is now and will through 2020 as we look at inventories on finished goods as well as in our storerooms, accounts payable, accounts receivable, we'll have that focus. But I don't think we have any guidance at this point in time for 2020.

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Operator [42]

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At this time, I would like to turn the call to Mr. Paul Boynton for comments.

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Paul G. Boynton, Rayonier Advanced Materials Inc. - Chairman, President & CEO [43]

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Great. Thanks, everybody, for your time today. We appreciate you listening, and we appreciate the fact that you know we're in tough markets but we're doing everything we can to manage through it. And we know these markets will turn back at some point in time as we move forward. So thank you for your time today.

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Operator [44]

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Thank you. This does conclude today's teleconference. You may disconnect your lines at this time, and have a great day.