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Research from Water Tower Research

Water Tower Research is a leading equity research firm that provides research on micro, small and mid cap companies.

Water Tower Research was founded by Wall Street veterans after witnessing a fundamental shift in the investment research industry with the result being a declining knowledge base among investors, a lack of awareness and a shrinking pool of fundamental research being conducted on companies across the small-cap and micro-cap spectrum. The same issues are now increasingly occurring in the mid-cap space. This sea change within the investment community is impacting not only the companies themselves but also current shareholders and potential investors. With significantly less active sell-side sponsorship by Wall Street, a substantial information gap has developed between companies and various constituents in the financial community. The net result is fewer channels for insight and information to flow between companies and investors.

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Rayonier Advanced Materials / Equity Bottom-Up

<ul><li>1Q24 performance ahead of expectations. RYAM reported 1Q24 results that included EPS of ($0.02) versus consensus of ($0.10) and our estimate of ($0.19).</li><li>While sales of $388 million fell short of our estimate of $402 million and consensus of $430 million, tight cost controls, lower raw material and transportation costs, and improved operating efficiencies drove EBITDA of $52 million versus our estimate of $39 million and consensus of $49 million.</li><li><p>EBITDA guidance maintained, FCF guidance increased. With market fundamentals stabilizing and most of customer inventory work-downs winding down, management reiterated its EBITDA guidance of $180-200 million and raised its FCF guidance for the year from $20- 40 million to $80-100 million on a higher working capital benefit and $39 million in cash to be realized from the sale of softwood duty refund rights to OCP Lumber LLC.</p></li></ul>

1Q24 performance ahead of expectations. RYAM reported 1Q24 results that included EPS of ($0.02) versus consensus of ($0.10) and our estimate of ($0.19).While sales of $388 million fell short of our estimate of $402 million and consensus of $430 million, tight cost controls, lower raw material and transportation costs, and improved operating efficiencies drove EBITDA of $52 million versus our estimate of $39 million and consensus of $49 million.EBITDA guidance maintained, FCF guidance increased. With market fundamentals stabilizing and most of customer inventory work-downs winding down, management reiterated its EBITDA guidance of $180-200 million and raised its FCF guidance for the year from $20- 40 million to $80-100 million on a higher working capital benefit and $39 million in cash to be realized from the sale of softwood duty refund rights to OCP Lumber LLC.

Rayonier Advanced Materials, Inc. - Solid Start to the Year and Progress on Asset Transformation

<ul><li>Light at the end of the tunnel? As RYAM prepares to release its 1Q24 results next Wednesday, it appears that fundamentals are improving across several of its markets, with pulp prices continuing to recover from mid-2023 lows and demand from construction markets stabilizing in the wake of customer inventory drawdowns that reduced RYAM’s opportunities to sell into the market in 2023.</li><li>1Q24 comps likely to struggle, but outlook may improve. Management’s guidance for 1Q24 issued at the 4Q23 report indicated flat Q/Q performance, with modest improvement in prices offset by lower operating rates and residual effects of an inventory correction at the customer level.</li><li>With 1Q23 being RYAM’s strongest quarter last year, revenue and profit may therefore continue to show negative Y/Y comps.</li></ul>

Light at the end of the tunnel? As RYAM prepares to release its 1Q24 results next Wednesday, it appears that fundamentals are improving across several of its markets, with pulp prices continuing to recover from mid-2023 lows and demand from construction markets stabilizing in the wake of customer inventory drawdowns that reduced RYAM’s opportunities to sell into the market in 2023.1Q24 comps likely to struggle, but outlook may improve. Management’s guidance for 1Q24 issued at the 4Q23 report indicated flat Q/Q performance, with modest improvement in prices offset by lower operating rates and residual effects of an inventory correction at the customer level.With 1Q23 being RYAM’s strongest quarter last year, revenue and profit may therefore continue to show negative Y/Y comps.

Rayonier Advanced Materials, Inc. - Market Fundamentals Improving, Albeit Slowly

<ul><li>4Q23 disappoints but headwinds subsiding. RYAM reported 4Q23, which included solid revenue of $422 million, ahead of our estimate of $373 million.</li><li>However, adjusted EBITDA of $37 million fell well short of Street expectations and our $48 million forecast on weaker-than-expected paperboard demand and lower-than-anticipated pulp prices.</li><li>Right-sized inventory suggests modest growth. With customer channel destocking largely completed in 4Q23, RYAM’s businesses should see a more stable demand environment throughout 2024 and, combined with modest share-driven volume growth and lower input costs, improved gross and EBITDA margins.</li></ul>

4Q23 disappoints but headwinds subsiding. RYAM reported 4Q23, which included solid revenue of $422 million, ahead of our estimate of $373 million.However, adjusted EBITDA of $37 million fell well short of Street expectations and our $48 million forecast on weaker-than-expected paperboard demand and lower-than-anticipated pulp prices.Right-sized inventory suggests modest growth. With customer channel destocking largely completed in 4Q23, RYAM’s businesses should see a more stable demand environment throughout 2024 and, combined with modest share-driven volume growth and lower input costs, improved gross and EBITDA margins.

Rayonier Advanced Materials, Inc. - 2024 Looks Like a Recovery Year with Potential Asset Sale Kicker

Thematic (Sector/Industry)

<ul><li>We joined WTR’s Head of Business Development Tim Regan on this week’s Water Tower Hour Podcast to recap what happened in the chemicals and materials technology industries in 2023 and to provide an outlook for 2024.</li><li>Those interested can listen to the podcast on Apple Podcasts, Google Podcasts, Spotify, or on our website.</li><li>WTR-CMI in 2023. With the majority of stocks in our index finishing 2023 in positive territory, the WTR-CMI Index managed to keep pace with the Russell 2000, appreciating 15%.</li></ul>

We joined WTR’s Head of Business Development Tim Regan on this week’s Water Tower Hour Podcast to recap what happened in the chemicals and materials technology industries in 2023 and to provide an outlook for 2024.Those interested can listen to the podcast on Apple Podcasts, Google Podcasts, Spotify, or on our website.WTR-CMI in 2023. With the majority of stocks in our index finishing 2023 in positive territory, the WTR-CMI Index managed to keep pace with the Russell 2000, appreciating 15%.

Water Tower Hour Recap -  2023 Review and 2024 Outlook

<ul><li>Changes to WTR-CMI. Following the completion of Livent’s merger of equals with Allkem, the new company, with the new name Arcadium Lithium plc, is now trading under the symbols ALTM-NYSE and LTM-ASX, and has replaced LTHM in our index.</li><li>WTR-CMI last week. The S&amp;P 500 appreciated 1.2% last week, while the broader Russell 2000 managed to stay relatively flat, losing 0.3% of its value.</li><li>Our WTR-CMI Index declined 1.2%, dragged down by double-digit losses in lithium stocks and the continuing decline in the value of synthetic graphite maker EAF. </li></ul>

Changes to WTR-CMI. Following the completion of Livent’s merger of equals with Allkem, the new company, with the new name Arcadium Lithium plc, is now trading under the symbols ALTM-NYSE and LTM-ASX, and has replaced LTHM in our index.WTR-CMI last week. The S&amp;P 500 appreciated 1.2% last week, while the broader Russell 2000 managed to stay relatively flat, losing 0.3% of its value.Our WTR-CMI Index declined 1.2%, dragged down by double-digit losses in lithium stocks and the continuing decline in the value of synthetic graphite maker EAF. 

Mat-Chem Notes - For the Week Ended January 19, 2024

United States

Rayonier Advanced Materials Inc operates as a performance fibers business. The company produces specialty cellulose fibers using proprietary cellulose chemistry knowledge and manufacturing processes.

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Rayonier Advanced Materials (RYAM US)

Rayonier Advanced Materials, Inc. - Solid Start to the Year and Progress on Asset Transformation

1Q24 performance ahead of expectations. RYAM reported 1Q24 results that included EPS of ($0.02) versus consensus of ($0.10) and our estimate of...

Water Tower Research

Rayonier Advanced Materials, Inc. - Market Fundamentals Improving, Albeit Slowly

Light at the end of the tunnel? As RYAM prepares to release its 1Q24 results next Wednesday, it appears that fundamentals are improving across...

Water Tower Research

Rayonier Advanced Materials, Inc. - 2024 Looks Like a Recovery Year with Potential Asset Sale Kicker

4Q23 disappoints but headwinds subsiding. RYAM reported 4Q23, which included solid revenue of $422 million, ahead of our estimate of $373 million.

Water Tower Research

Water Tower Hour Recap - 2023 Review and 2024 Outlook

WTR-CMI in 2023. With the majority of stocks in our index finishing 2023 in positive territory, the WTR-CMI Index managed to keep pace with the...

Water Tower Research

Mat-Chem Notes - For the Week Ended January 19, 2024

WTR-CMI last week. The S&P 500 appreciated 1.2% last week, while the broader Russell 2000 managed to stay relatively flat, losing 0.3% of its value.

Water Tower Research

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