Q4 2023 Rayonier Advanced Materials Inc Earnings Call

Participants

Michael Walsh; VP of IR & Treasurer; Rayonier Advanced Materials Inc.

De Lyle Bloomquist; President, CEO & Director; Rayonier Advanced Materials Inc.

Marcus Moeltner; Chief Financial Officer, Senior Vice President - Finance; Rayonier Advanced Materials Inc

Daniel Harriman; Analyst; Sidoti & Company, LLC

Matthew McKellar; Analyst; RBC Capital Markets, LLC

Dmitry Silversteyn; Analyst; Water Tower Research LLC

Sandy Burns; Analyst; Stifel, Nicolaus & Company Inc

Presentation

Michael Walsh

Good morning, and welcome again to RYAM's Fourth Quarter and Full Year 2023 Earnings Conference Call and Webcast. And 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 are available at our website Ryanair.com. I'd like to remind you that today's presentation 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 our presentation materials.
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 19 through 24 of our presentation.
With that, I'd like to turn the call over to De Lyle.

De Lyle Bloomquist

So thank you, Mickey, and good morning.
I'll begin with the financial overview for the fourth quarter and full year 2023.
Following that, I'll discuss recent Company actions before handing over to Marcus for additional details on the business segments and our capital structure and liquidity after Mark's is update, I'll return to offer further insights into our 2024 initiatives and guidance, including an update on the sales process for that paperboard and high-yield pulp business before opening the call for questions.
Let's now turn to slide 4 to review our performance in the fourth quarter and the full year of 2023. The results for both periods fell below expectations, with EBITDA of $37 million for the fourth quarter and $130 million for the full year, reflecting declines of $18 million and $38 million versus 2022, respectively. The fourth quarter shortfall can be attributed to weaker than expected demand for paperboard, while the full year results were impacted by persistent weak demand across various product categories. Notwithstanding the strong pricing observed in our CS segment, despite the challenges stemming from the weak paperboard results in Q4, I was encouraged by the rebound observed in our core cellulose specialty business. This was principally the result of increased market share accruing to us as a result of the closure of a competitor. As we noted in our on our previous calls, we focus our efforts on free cash flow generation in the second half of 2023. Given these macro headwinds, these efforts resulted in $53 million of free cash flow, which was largely driven by a $93 million benefit in working capital. We expect to maintain this benefit in 2024, and we think we can realize an additional $15 million in working capital monetization this year. The challenges encountered in our High Purity Cellulose segment stemmed mainly from declining commodity pricing and decreased volumes in cellulose specialties, particularly in markets that are interest rate sensitive like the construction ethers markets. Conversely, our cellulose specialty products maintained strong pricing realizing 11% increase compared to 2022.
This result reflects our focus on prioritizing value over volume for our specialized products.
In the Paperboard segment, EBITDA decreased by $1 million compared to 2022, primarily due to lower sales volumes from customer de-stocking, partially offset by decreased purchased pulp maintenance and logistics costs, along with market-driven downtime taken in response to the weak market conditions, high-yield pulp EBITDA decreased by $20 million versus 2022, driven by lower sales volumes and prices amid weak market demand, increased wood costs and market-driven downtime taken in response to the weak market conditions.
Corporate segment EBITDA declined by $11 million, primarily due to less favorable foreign exchange rates and discounting and financing fees incurred to support working capital enhancements.
Next, I would like to offer some high-level commentary on a few significant events that occurred in the fourth quarter, each of which will be elaborated elaborated on by Marcus first, the finance team secured a covenant amendment for our 2027 term loan facility.
In January, we announced an amendment to expand the net secured debt covenant to 5.25 X.
While we are confident in our ability to manage within the original covenant as evidenced by the results of up to 4.2 X for Q4, we wanted the operational flexibility that the expanded coveted and result looked pretty we grant us so we could continue to execute on our strategic initiatives. We also believe that the enhanced flexibility with also reassure key stakeholders.
Second, we conducted a review of our existing assets and determined that impairments were necessary for our Temiscaming HPC. plant and the CN line at our adjusted plan.
Regarding adjusted C line, we have made a strategic commitment to focus his capacity of fluff production going forward. And conversely focused suggestive specialty cellulose production on the A. and B lines, the write-off related to the Temiscaming HPC plant reflects the transition of the Temiscaming HBC. facility to viscose production, which we are doing to leverage as low unit variable costs.
The total impact of these two non-cash write offs of $62 million.
With that, I'd like to pass the meeting over to Marcus to walk us through the financials for the year. Marcus?

Marcus Moeltner

Thank you, De Lyle. Beginning with our High Purity Cellulose segment on Slide 5. Sales for the year decreased by $23 million or 2% to $1.3 billion due to a higher mix of commodity sales and lower market demand in certain specialty markets. That decline was primarily driven by a 13% decrease in commodity sales prices, partially offset by an 11% increase in CS pricing, highlighting our commitment to securing fair value for our specialty offerings.
Sales volumes increased by 4% to 955,000 metric tons, resulting from the increased sales into commodity markets. Commodity sales volumes rose by 39% compared to the prior year, whereas CS volumes decreased by 18%. The decline was associated with lower market demand and substantial customer destocking, primarily in construction markets. Other sales for the year were $98 million, which included $49 million of green energy sales. Ebitda for the segment decreased by $6 million to $144 million, primarily due to a less favorable sales mix, declining commodity prices and increased labor costs due to inflation. These impacts were partially offset by higher CS sales price. As Neil mentioned earlier, we undertook a review of our existing assets and concluded that impairments were necessary for our Temiscaming HBC. plant and the GSFC. line, the total non-cash impact on operating income amounts to $62 million. This will result in a lower annual depreciation expense of approximately $5 million.
Turning to Slide 6. Sales in the paperboard segment experienced a decline of $31 million, mainly due to a 13% reduction in sales volumes due to customer destocking year-over-year sales prices improved slightly, and EBITDA for the segment decreased by $1 million to $52 million, primarily due to lower sales volumes, which more than offset the benefits of reduced purchased pulp maintenance and logistics costs.
Turning to the high-yield pulp segment on slide 7, sales declined by $24 million in comparison to prior year, mainly due to a 12% drop in external sales prices and a 5% reduction in sales volumes. The reductions were a consequence of weaker market demand. Segment EBITDA stood at negative $1 million in contrast to $19 million generated in the prior year.
Transitioning to Slide 8, our consolidated operating loss for the year amounted to $65 million, inclusive of the $62 million non-cash asset impairment charge recorded in the fourth quarter. Sales price improvements in CS and paperboard were more than offset by the impact of unfavorable HPC. sales mix, lower sales prices and HPC. commodities and high-yield pulp costs remained relatively stable compared to the previous year, with deflation in certain input costs being offset by increased labor expenses due to inflation. Sg&a and other costs increased by $57 million, mainly due to the $62 million non-cash asset impairment charge, unfavorable foreign exchange rates, discounting and financing fees incurred incurred to support working capital enhancements as well as higher ERP project costs and professional fees. These costs were partially offset by lower variable compensation and onetime severance expenses from the previous year.
Now let's turn to Slide 9. Total debt ended the year at $777 million, a reduction of $76 million from the same period in 2022. Net secured debt reflected in our financial covenant ratio associated with the term loan ended the year at $698 million. Our primary focus for 2023 was on free cash flow and debt management. Consequently, we executed opportunistic downtime at both paperboard and high-yield pulp facilities as well as at our Tartas HPC. facility, all key factors in supporting the impressive $93 million working capital benefit generated during the year. In January, management took a prudent and proactive approach and successfully amended the covenant associated with the term loan. While we remain confident in our ability to navigate through the covenants, we believed it was important to ensure the Company maintained operating flexibility to fully implement our strategic initiatives while alleviating any liquidity concerns. Structurally, the amendment expands the adjusted net net leverage test from 4.5 times 5.25 times gradually stepping down until 4.5 times is reached after Q4 of 2024. Net secured leverage closed the year at 4.2 times within the original covenant test liquidity ended the year at $199 million, reflecting $76 million of cash, $118 million available under our ABL facility and $5 million for our French factoring facilities. We remain committed to adhering to the original 4.5 times covenant test, and we'll focus on all levers at our disposal to maintain appropriate liquidity levels and execute the Company's exciting growth opportunities.
With that, I'd like to turn the call back over to De Lyle.

De Lyle Bloomquist

Thank you, Marcus.
Please.
Let's now turn our attention to slide 10 where I'll outline our key initiatives for 2024. Our top priority for the new year is to refinance the 2026 senior notes before they go current in January 2025 to best position us to execute on this refinancing, we will continue to prioritize debt reduction. We are targeting a gross debt reduction of $70 million in 2024 financed through business generated free cash flows and a potential monetization of $35 million to $40 million in passive assets. Additionally, as announced last year, we are exploring the potential sale of our profitable paperboard and high-yield pulp businesses to further reduce the debt before the refinancing. The sales process being is being managed by Houlihan Lokey, and it remains on schedule we received expressions of interest from both strategic parties and financial sponsors, and we'll provide further updates on this project as it develops. We are working hard to implement our asset optimization strategies to address our HPC. commodity exposure. Given the drag this exposure has on our profit margins and earnings stability. To highlight the importance of this effort, our non fluff commodity sales had an EBITDA loss of minus $60 million in 2023. And currently, we we project a minus $48 million EBITDA loss in 2024. Obviously, this is a strategic imperative to mitigate this exposure to non fluff commodities.
As you know, a key element of our strategy entails transferring a significant portion of our viscose production to our Temiscaming HPC. facility, which benefits from the lowest variable cost among our HPC. lines. I'm pleased to announce the project is progressing according to our initial time line and I will provide updates as we move forward.
Our final and perhaps most compelling initiatives is to continue realizing the exceptional opportunities within our biomaterials business. Our Tartas bioethanol plant is currently going through testing. And if all goes well, we expect to begin bioethanol production in March was positive is expected to generate $4 million in EBITDA this year as we ramp up production and then $8 million to $10 million in 2025. And thereafter when we achieve steady-state production, this project is the first of several biomaterial projects that we plan to launch over the next couple of years. As highlighted during our Investor Day, upcoming projects in the pipeline include a bio ethanol plant at our Fernandina facility. The AGE. project at our Jessup facility, which is the production of green energy for sale to Georgia Power, a prebiotics additive plant to also be located at our Jessup facility in crude tall oil projects in France and in the US. As previously disclosed, these projects will primarily be funded by low-cost green project capital and are expected to generate significant margin expansion due to co-product economics economies of scale. Last night, we announced the MOU with First Solar Energy to explore e-fuels, specifically SaaS from renewable resources, including biogenic CO2 at our Tartas plant staff or sustainable aviation fuel would be used by the global airline industry as a drop-in sustainable replacement for current jet fuel, fully working with First Solar Energy to explore the feasibility of capturing the biogenic CO2 for reduced at the Tartas plant to produce the SAF in combination with green hydrogen. While we are still in the early stages of evaluating this opportunity, the potential impact to rhyme is substantial. We look forward to keeping you updated as this project progresses.
Let's move to slide 11, where I'll present our EBITDA and free cash flow projections for 2024, we anticipate 2020 for enterprise EBITDA to range between $180 million and $200 million for the year. Cash interest expense is expected to be in the [$85 million] range, which is inclusive of $14 million attributed to the timing of interest payments. On a normalized basis, the estimated annual interest France would be around $70 million maintenance expenses is set at $85 million figure. We consider sufficient this year to maintain the reliability of our assets. The projected $50 million benefit from working capital and an additional $10 million benefit from tax receivables to be realized during the year with some offsets related to deferred energy payments and other accrued liabilities. We expect adjusted free cash flow to range between $20 million to $40 million for the year, which will be used to reduce debt and invest in strategic capital projects. Currently, we forecast such strategic CapEx spending of around $10 million in 2024, mainly to finance the ERP project and pursue high return cost reduction projects at the plants. This guidance differs from the $225 million EBITDA estimate that I presented during the Investor Day. I believe it's important to emphasize the factors driving this variance. Since the Investor Day guidance, we realized a $14 million decrease in paperboard EBITDA versus expectations due to unforeseen levels of destocking towards the end of the year. High-yield pulp experienced rapid price declines post Investor Day as pulp markets encountered weak demand, resulting in a $3 million impact versus expectations. We also now expect destocking at a couple of large acetate customers, which will impact EBITDA by $23 million in 2024. Additionally, corporate charges were primarily affected by higher discounting and financing fees incurred to support working capital enhancements due in part to higher interest rates totaling approximately $5 million on slide 12, I delve deeper into the expected performance of each of our businesses for 2024, and we expect to achieve EBITDA in the range of $180 million to $190 million for our HPC. segment. On average cellulose specialty prices are expected to increase low single digit percentages compared to 2023. Specialty sales prices are expected to remain flat in 2024, with increased volumes for market share gain that accrue to us from a competitor's plant closure offset principally by lower shipments due to the stocking to select acetate customers. Demand for OEM cellulose specialties is anticipated to be mixed with improved volumes in construction users, albeit at lower than historical historical levels and relatively stable acetate market. However, as noted, we expect acetate will undergo some level of destocking. We also anticipate strong demand in the other CS grades. Additionally, we expect resilient market demand for commodity products, fluff and viscose prices expected to improve from Q4 2023. Moreover, we foresee modest tailwinds from eased raw material and logistics input costs in 2024 as part of our growth strategy, we are actively pursuing strategic investments in our biomaterials business to capitalize on the increasing demand for sustainable products. The Taurus bioethanol plant is set to begin commercial production in the first quarter of this year with an expected EBITDA contribution of $4 million in 2024, which is expected to reach $8 million to $10 million upon full production expected in 2025.
Regarding paperboard, we expect to achieve EBITDA in the range of $50 million to $60 million in 2024. Prices are expected to decrease slightly as compared to 2023 Q4 levels, while sales volumes are expected to improve as destocking eases and production scales up to meet the improved demand, raw material prices are expected to see a slight uptick as pulp markets rebound. We expect to achieve EBITDA in the range of $5 million to $10 million in 2024 for our high-yield pulp business high-yield pulp prices are expected to increase in the first quarter as we realize higher index pricing observed in the later part of 2023 Q4. However, we are beginning to see pricing pressure related to the Chinese pulp markets, thus expect pricing pressure in late Q2 and possibly Q3. We are diversifying our portfolio globally to mitigate this exposure. Additionally, sales volumes are projected to improve in Q1 as production ramps up to meet improved customer demand. For 2024, we expect corporate costs in the range of $55 million to $60 million flat to up slightly versus 2023 as we are in the final year of our multiyear ERP implementation. As ERP project concludes, we anticipate annual cost reductions of $3 million to $5 million starting in 2025. It's important to note that these costs may vary due to factors like currency fluctuations, environmental charges and other noncash Francis, we illustrate the trajectory of our EBITDA margin growth and net leverage decline.
On page 13. In 2024, we anticipate our margins to be in the 10% to 11% range, reflecting a weighted average of the strong margins in our cellulose specialty and paperboard segments, counterbalanced by low positive high-yield margins and the anticipated negative margins in our non fluff commodity sales forecast for net secured leverage at the end of the year stands at 3.3 times covenant EBITDA. Our commitment remains resolute in achieving our target net debt leverage ratio of 2.5 times by 2027.
With that, operator, please open the call to questions here.

Question and Answer Session

Operator

If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue, you may press star two. If you would like to remove your question from the queue For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.
Our first question is from Daniel Harriman with Sidoti & Company. Please proceed.

Daniel Harriman

Thank you and good morning, everyone. I just wanted to talk about kind of the transition from 2023 to 2024. And obviously, 23 was a tough year and the fourth quarter was certainly weaker than than than what you expected. Would you mind providing just more color to us on why you're confident that 2024 will be better, particularly in the first half of the year such that you can kind of prove and show some earnings power within that within the core business to potentially refinance by the end of the year?
And then what do you see right now is the biggest risks, two are not meeting your guidance for the year?

De Lyle Bloomquist

Hey, good morning, Daniel. This is Lyle.
Two things to answer your question with respect to the transition from 23 to 24.
And the big or the biggest driver is is around our core business, our CS business and the expectation is that the CSO business is going to improve roughly $30 million to $35 million relative to last year. And what's really driving that is a couple of things that gives us confidence that we'll see this improvement. One is some of the gains that we saw in market share relative to the fully closure. And we expect in total of total gain of market share around 50,000 tonnes. And the value of north of the $35 million that we had guided to is, let's say, something north of $40 million-plus of value over the over the period. We would also expect to see some improvement, as noted in the in the call that in ethers, we expect that destocking is largely it runs its course. But that demand continues to be muted because of the construction market in the high interest rate market. There may be some risk to that number, but we do think that we will see improvement because we do think destocking has has largely concluded. There noted that there is some destocking going on at acetate. I would say that this is a onetime yet. I don't think that is going to be beyond the impact is noted, and this is driven by, you know, the congestion that we saw in the supply chains in 22 and 23 and the uncertainties on Express.com or held by our Asian customers, given the long supply chain that that was in place. And I would I would think that given that on the more of these customers got comfortable as as the supply chain demonstrated that things were things that normalize. So that at the acetate de-stocking roughly cost us $23 million on relative to our expectations and to come and do what we were expecting, it should should be a pretty pretty close to the number for the year on high yield, if you were to ask about, you know, we're some risk. It would likely be in the high yield space. There is some activity going on in China right now that some of some concern. And there's quite a bit of unused underutilized capacity of new paperboard, some plants in that that have are fully integrated back to their pulping operations. These facilities to generate any kind of cash are running their pulping operations and selling that pulp at a substantial discount to the imported material that we would that we're bringing in. And so there are some risks to come to the pulp pulp forecast, but we're doing all we can to mitigate that by moving the product into other regions that are less impacted by that dynamic paperboard. We believe the destocking has ended. We got some higher confidence that the numbers that we're projecting will be realized with our with our customers. And then finally, the corporate charges I would suggest to them again are going to be relatively flat and that's certainly that's an area that we have a tight control on So I hope that answers your question.

Daniel Harriman

Yes, thanks so much De Lyle. I'll get back in the queue.

Operator

Our next question is from Matthew McKellar with RBC Capital Markets. Please proceed.

Matthew McKellar

Good morning. Thanks for taking my questions. Firstly, could you maybe give a little bit of color on when you might expect destocking by your acetate customers to fade and confirm if the strong finish to 24 for the CS business you described is based on acetate markets improving.

De Lyle Bloomquist

So first off.
Good morning, Matthew. I know it's early for you the with respect to, you know, sequentially looking into a 24 for the next couple of quarters with respect to the de-stocking for acetate sloshing, they play out in Q1 and Q2. So let's say the first half and the market should get stronger as we as the year progresses. But the largest impact should be should be felt in the first half.
With respect to go sequentially holiday, our RCS businesses to participate expected term will essentially be in line with what we saw in the fourth quarter for the first quarter.

Matthew McKellar

Okay. Thanks very much for that color.
I think also for the HPC business, you mentioned you expect raw material inputs and logistics costs to be lower in 24.
Can you maybe just provide a little bit more color on what you're expecting across different input costs and the magnitude of the cost relief you're expecting?

De Lyle Bloomquist

A lot of puts and takes with respect to that as you expect.
I mean, labor costs, of course, are up and up significantly, particularly here in North America, but that's been offset by lower chemical costs, wood costs, logistics costs, and I would say, net on net, we're expecting a lower manufacturing slash on logistics costs to the tune of roughly $7 million. Right now, we're forecasting. So overall, I'm expecting cost to come down by that by about them enough amounts.

Matthew McKellar

Thanks.
That's very helpful. And then maybe last one for me.
Are you able to give a sense of where discussions are at with respect to developing a second bioethanol plant in Florida?

De Lyle Bloomquist

We're going through the permitting process in the U.S. both with the community as well as with the state. Obviously, though on top of that, we're going through, call it the final detailed engineering on that project. And I expect that as everything moves along down as expected, that hopefully that will start to construction later in 24 and maybe early 25.

Matthew McKellar

Great.
Thanks very much. I'll hop back in the queue.

Operator

Our next question is from Dmitry Silversteyn with Water Tower Research.
Please proceed.

Dmitry Silversteyn

Good morning, gentlemen. Thank you for taking my call. I just wanted to follow up on your memorandum of understanding with Bursa energy. So the idea is that you will work jointly to see if you can produce of the SAP, the aviation fuel on substitute, how does that fit in with your bioethanol plant in touch for us in Asia or it's harder. And as you're looking at that on the production, at least are you going to be putting this if it does go forward, you're going to putting this in the Tartas plant or the Florida plant, are we going to have to build a new facility?

De Lyle Bloomquist

Good morning, Dmitry.
With respect to SAF., which is the acronym stands for sustainable AC aviation fuel. And it is a direct substitute, the drop-in replacement for and the current kerosene that goes into that makes up aviation fuel today on the the deal with Verso is on is to jointly develop on the feasibility study on this opportunity. The size of this opportunity for us for us is can be very significant. And but it largely depends on how we decide to participate in this on this opportunity and really the opportunity what it is for us in Tartas, it is to capture and the biogenic CO2 that we produce right now is just emitted into the atmosphere that would be to capture that. And then with green hydrogen convert that into a peak hydrocarbon, sustainable aviation fuel hydrocarbon that will then be sold to commercial airlines, for example. So we don't have to, barring any additional raw materials, anything we're actually I would just use a a byproduct of our current process to get to participate in this, it would likely include the construction of carbon capture and other to other facilities to make this happen. But Tartas has the land of water is available locally. And um, again, I had the demand of debt for this product is not only on something that the airline industries I think would be interested in. But it's being required by the regulatory agencies in France and the EU for the commercial airline industry to increase over the course of the next 15 to 20 years.
So on top of that.
The last thing just like with the bioenergy or the bioethanol plant that we have in Tartas, the regulatory agencies in the state are willing to participate and help fund both the study as well as potentially the project itself going forward, sort of really that's why our initial focus is in is in the EU.

Dmitry Silversteyn

Okay.
Okay.
Got it.
I'm so glad to follow up on your comments around jockey for market recovery. Can you kind of delve a little bit deeper into why you think the market will recover now that they've gotten through hopefully majority of the of the destocking, but the market for us, but particularly for construction, is still not particularly strong. So what will be driving the recovery efforts other than easier comps as you get into the back end of the year and you're not comping against some inventory reductions by your customers?

De Lyle Bloomquist

Yes, that's a great question. And it's actually a question. We continue to wrestle with a little bit here at the Company about how strong ethers is going to rebound. But we do because at the end of the day, you're absolutely right. The demand continues to be muted and weak in the construction markets there there in Europe. The why we got some confidence in the increase in demand is because the destocking has ended right and bottomed out. And as a consequence of your the overlying, the underlying demand now becomes revealed. And as a consequence, we expect that level of the orders we'll see in 24 will be greater than what we saw in 23. But the demand continues to be somewhat muted, continues to be muted.

Dmitry Silversteyn

Got it. Okay. And then on the U.S. just to make sure I understand what's going on in China so that there's there as well underutilized capacity in Honeycomb, high-yield pulp and paperboard that produces more high-yield pulp and then therefore makes your product less appealing from the price perspective as you're importing this product into China. Do I understand that correctly? And if that's the case how long do you think that the underutilized capacity will be underutilized? In other words, what needs to happen in the Chinese market for that capacity to become absorbed?
So your import products can have a better footing in terms of competition with the local producers.

De Lyle Bloomquist

Dmitry, your description of what's going on is largely correct. What's half what's happened is the paperboard industry in China just overbuilt, and they've got a lot of unused capacity now. And this new capacity is fully integrated back to back through a pump manufacturer. In other words, these paperboard plants can also make their own on pulp similar to what we do on Temiscaming and to get to to realize any kind of cash on these. These plants are running their pipelines relatively hard and generating excess pulp, which they then ship to a regionally to upon other paperboard producers to use to make paperboard. And this the offset there is there is less less imports from other parts of the world, including potentially us coming out of Canada. And there are there are offering these this of this locally produce pulp at substantially price discounts relative to what we're currently have been seeing in the fourth quarter and going into the first quarter for our pulp products. So that's the threat and the concern on your question about how long this is going to last. I feel that that's a question that we're still trying to get our hands around. I think that this problem is going to last through a likely to Q3 at average point, the expectation is that we'll start seeing that reduce either because this new call it this new high purity pulp capacity will get itself sold out and therefore will no longer be a problem or paperboard demand picks up and begins to satisfy that, that supply. So and that's currently what our thinking is.

Dmitry Silversteyn

Got it.
Got it. Okay.
Thank you very much. That's all the questions I have.
Thank you.

Operator

As a reminder, this star one on your telephone keypad. If you would like to ask a question.
Our next question comes from [Andy] Burns with Stifel. Please proceed.

Sandy Burns

Hi, good morning, everyone, and thanks for all the detail about 2024. Maybe just to talk a little bit about the HPC. business. First, maybe just to clarify, the volume pickup from the Foley closure, is that all in specialties or is some of that in on the commodity side also.

De Lyle Bloomquist

And that was all in specialties on the animals across the three different grades, but primarily the other SI.

Sandy Burns

Okay.
And then just wanted to see if you could elaborate a little more on the comment you made in terms of bridging the 24 that 23 had a favorable customer contract term that's not repeated anything more you could say was that just on the volume side and or also pricing? And if it was more on volume, is there the opportunity to regain those volumes sometime this year?
Or 2025?

De Lyle Bloomquist

Yes, I know that was a little confusing, Sandy, on the big change in equal terms really was going from, let's say, a CIF. for deliberate terms to more of an FOP ship point term ROI. And that allowed us to realize revenues sooner than than what we had historically at some of our accounts.
What happened in 23 is when we negotiated that that change, we had some deferred sales volumes that were delayed at a 22 to Asia, that because of this change when it did ship in 23, and we were able to realize immediately on. And so really with the the increase in volume and sales really was capturing the deferred sales that we had coming out of 22. But also because of those change in those those income terms, we didn't have a similar impact of deferrals coming out of 23 into 24 and as I come in. So we won't capture that kind of deferrals that that we experienced coming out of 22. The total volumes of roughly 22,000 tons. It's roughly equivalent to about $7 million in EBITDA. And really it was a one-time impact. Shouldn't expect any changes going forward.

Sandy Burns

Right.
But I guess importantly, it doesn't sound like it was a customer loss or?

De Lyle Bloomquist

No, not at all.
And it was just it was just a change in essentially the equal terms of the law that allowed us to to recognize revenue earlier.

Sandy Burns

Great.
All right.
Thank you and good luck this year.

De Lyle Bloomquist

Thank you.

Operator

There are no further questions at this time. I would like to turn the conference back over to Mr. Bloomquist for closing remarks.

De Lyle Bloomquist

Well, thank you all once again for joining us today.
I do sincerely appreciate your interest and your support of Orion. I do want to note that I'm incredibly proud of all the collective efforts made by our team, particularly during the difficult 23 year -- 2023 a year, and I'm also express it. I'm fully confident that we will continue to focus on enhancing our profitability and work diligently to reduce our debt and our leverage. I look forward to providing further updates on all of our ongoing projects and initiatives, and we hear it, Ryan can continue to value your support and look forward to delivering to long-term success and growth of the business.
We are committed to our transparency and open communication.
So if you have any questions or if you require further information, please reach out to us at any time. Thank you again for your participation.