Rayonier Advanced Materials Inc (RYAM) 2016 Q3 法說會逐字稿

Greetings and welcome to Rayonier Advanced Materials' third quarter 2016 teleconference call. At this time all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. (Operator Instructions). As a reminder this conference is being recorded. It is now my pleasure to turn this call over to your host, Mr. Mickey Walsh, Treasurer and Vice President of Investor Relations. Thank you, sir. You may begin.

Thank you, Rob, and good morning. Welcome to Rayonier Advanced Materials' third quarter 2016 earnings call and webcast. Joining Paul Boynton, our Chairman, President and Chief Executive Officer, and Frank Ruperto, our Chief Financial Officer. Our earnings release and presentation materials were issued yesterday afternoon and are available on our website at rayonieram.com. I would 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 with 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 three of our presentation material. Today's presentation will also reference certain non-GAAP financial measures as noted on Slide two of our presentation material. 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 pages 15 through 19 of our presentation.

At this time I would like to turn the call over to Paul for his opening remarks.

Hey. Thanks, Mickey, and good morning everyone. I am going to start today's call highlighting some of the achievements of the quarter before turning it over to Frank to review our financial results. Yesterday afternoon we reported third quarter earnings that put us on track to exceed the high end of our previously-announced full year guidance. The main driver of the strong performance has been the team's relentless focus on our Transformation Initiative which continues to deliver lower costs, higher productivity and enhanced profitability. This is a testament to the dedication, focus and energy that our employees have demonstrated to strengthen our culture of continuous improvement. Additionally, in the quarter we raised $173 million of cash through an equity offering materially reducing leverage and positioning the Company for accelerated investments in growth opportunities that would drive long-term stockholder value. With that let me turn it over to Frank to review the financials.

Thank you, Paul. Let's look at slide four to review our financial highlights for the quarter. Sales for the quarter totaled $207 million, 19% below third quarter 2015. The decrease was driven by 8% lower cellulose specialty prices, 13% lower CS volumes as well as lower commodity volumes. The decline in CS prices and volumes are in line with our full year guidance as we previously commented we had a very strong quarter in the same period 2015 and, therefore, the volume declines appear more concentrated in this quarter.

Commodity volumes were negatively impacted in the quarter by a change in mix from absorbent materials to commodity viscose as well as lower production volumes due to an unplanned outage. Sales for the nine months were $638 million, 9% below the prior-year period. The decrease in sales was driven by 7% lower prices on CS and 5% decrease in CS volumes. As a reminder full year 2016 CS prices are expected to be 6% to 7% below 2015 levels while CS volumes are expected to be down 4% to 5%.

Reported net income for the quarter of $22 million declined $10 million compared to $32 million in the prior-year period. For the nine-month period net income was $62 million, up $20 million from the prior-year period. Pro forma for one time adjustments --were primarily related to the asset write-down in 2015 and the gain on extinguishment of debt in 2016 pro forma net income decreased $11 million and $4 million from the prior-year quarter and year-to-date periods respectively.

Operating income for third quarter 2016 was $41 million, $17 million less than third quarter 2015 and $19 million less than third quarter 2015 pro forma results. Year-to-date operating income was $112 million, $22 million greater than 2015 year-to-date and $6 million below year-to-date 2015 pro forma operating income. Prior year pro forma adjustments primarily relate to an asset impairment from our Jesup plant realignment. Our quarter and year-to-date variance analysis for our pro forma operating income and the relevant price and volume statistics are provided on slides five and six.

As shown on page 5 drivers for the third quarter and year-to-date variances were similar. Decrease in CS prices lowered third quarter equating income by $16 million and year-to-date results by $38 million. Volumes and sales mix impacted operating income by $22 million and $17 million for the third quarter and year-to-date 2016 respectively. As you can see on slide six, CS sales volume for the third quarter was 116,000 tonnes, 17,000 tonnes below the prior year while commodity volumes were 49,000 tonnes, 12,000 tonnes less than the prior year. For the nine-month period CS volumes declined by the same 17,000 tonnes to 335,000 tonnes while commodity volumes increased 5,000 tonnes from the prior year of 179,000 tonnes.

The prior-year period benefited from exceptionally strong CS sales volumes which drove substantial operating income in last year's third quarter. The decrease in commodity volumes is a result of a change in mix to increasing commodity viscose volumes which have lower production rates as well as the previously mentioned unplanned outage during this year's third quarter, offset in part by an increase in commodity volume from improved production efficiencies. The net result is that we now expect commodity volumes to be relatively flat in 2016 relative to 2015.

Back on page five costs for the quarter year-to-date periods were favorable $17 million and $43 million respectively. Lower costs were driven primarily through our cost improvement initiatives. For the year-to-date period cost reductions were aided by favorable chemical market pricing. SG&A and other costs for the quarter year-to-date periods were favorable $2 million and $6 million respectively. As depicted on page seven in 2015 we began a four year plan to achieve $125 million to $140 million of cost improvements from our 2014 cost base. In 2015 we captured $35 million of these cost improvements.

Through the first three-quarters we have captured all $40 million of this year's targeted cost improvements bringing our 21 month total savings to approximately $75 million. As such we anticipate achieving 2016 annual cost improvements of $45 million to $50 million. Savings for the quarter from our Transformation Initiative were derived across all functions of the organization. From fiber through pulp production we have optimized raw material usage and gained productivity. We are producing savings from energy efficiencies an chemical usage through the implementation of more than a dozen projects.

In supply chain and wood procurement we have removed waste in our inventory handling and transportation processes and improved our wood yield and at corporate we continue to focus on lean processes to reduce costs. Pro forma EBITDA for the quarter and year-to-date were $64 million and $176 million respectively. EBITDA results were positively impacted by the factors previously discussed under operating income. We anticipate net income operating profit and EBITDA to be lower in the fourth quarter than the first three-quarters of 2016 due to the timing of the Fernandina Beach planned schedule extended maintenance outage, rising raw materials costs in chemicals and energy than our typical higher benefit costs in the fourth quarter.

However, as shown on slide eight, given the solid results to-date created by our Transformation Initiative and focus on continuous improvement we are raising guidance for 2016 pro forma EBITDA to $215 million to $225 million, an increase of $20 million from prior guidance. In addition to cost improvements we remain focused on driving cash flow. As shown on slide nine we generated $181 million of operating cash flow and $123 million of adjusted free cash flow year-to-date. With strong free cash flow driven by solid EBITDA results, positive working capital benefits and lower cash taxes we are raising annual adjusted free cash flow guidance to $125 million to $130 million, an increase of $20 million to $25 million.

Over the past two years our ability to make meaningful growths in our business has been impeded due to weaker end markets which left us with higher leverage levels than planned at the time of separation. Solid EBITDA and strong free cash flow generation coupled with proceeds from the issuance our preferred stock offering have allowed us to reduce net debt to $471 million. As a result we ended the quarter with $556 million of liquidity including $320 million of cash and $236 million available under our revolving credit facility after taking into account outstanding letters of credit. These initiatives provide us with significantly more flexibility which will enable us to make investment to grow and diversify our business.

At this point let me turn the call back over to Paul.

Thanks, Ray. Let me first make some comments regarding market conditions as summarized on slide ten. In our cellulose specialty business we continue to see demand weakness for acetate products due to the fact that (inaudible) demand at best has been relatively flat and the inventory de-stocking in China continues primarily through reduced imports of non Chinese produced acetate (inaudible).

We have noted that while non-acetate slowed over the past several years we now see signs of a more robust demand with capacity expansions under way in ether and engine filtration segments as well as increased demand for tire cord. On the supply side excess capacity and the relative strength of the US dollar have allowed our competitors to be more aggressive. These supply and demand dynamics have had a negative impact on our price and volume performance from 2014 through 2016. Although we believe we have maintained our relative market share in this period.

With these factors we expect to see price pressure throughout the markets we serve as competitors vie for increased volumes. As we previously stated, we expect acetate prices to be down approximately 2% in 2017 based on -- upon contractual terms for the majority of our acetate volumes.

Discussions for other volumes are ongoing as customary at this time of the year. In 2017 through differentiated product value and services we expect to increase sales of non- acetate cellulose specialty volumes at prices above commodity grades but below acetate. This mix shift may impact the overall cellulose specialty pricing for 2017. We plan to provide aggregate 2017 volume and price guidance in our January call as we have in prior years after all negotiations are concluded. In our commodity business we're seeing improvement in viscose market as expected while absorbed materials are experiencing modest pressure as the incremental capacity comes online.

Our operations have the flexibility to produce either commodity viscose or absorbent materials. As such we're able to flex our production to take advantage of market conditions. The execution on our cost improvement initiative mitigated a significant portion of the impact from price declines over the past two years and fundamentally reset our cost structure to be even more globally competitive. And we are dramatically -- we have dramatically reduced our debt. But we recognize that cost improvements alone won't lead to the long-term success we plan to achieve for our stockholders. This requires an investment in assets, research, development, people and partnerships. To foster growth and create product diversification. With our newly reset balance sheet we are expanding from our two strategic initiatives of transformation in new product innovation to four pillars of EBITDA growth as noted on page 11.

The transformation pillar remain a critical core component of the overall strategy. We have done a tremendous job thus far on this initiative, but we also realize we have a lot more to achieve to reach our full goal and the incremental improvements will only get more difficult. Innovation remains the second pillar of our EBITDA growth strategy. We're committed to expanding our business to value-added products derived from a range of platforms as shown on slide 12 rather than just pushing undifferentiated offerings on price alone. To date we have made significant progress in developing and applying proprietary technologies to new products in most of the end market segments we serve. Many of these have been introduced to the customers and these customers have been busy with lab and manufacturing trials which now have led to initial commercial orders.

For example our scientists have created a new ether product under the banner project sapphire that uses a very unique technology to achieve performance levels at a value we believe not currently available in the market. There is significant customer evaluation effort under way with very positive feedback and we're hopeful to see near-term commercial gains. We have also recently introduced products based on newly developed technologies that have transitioned to new commercial sales and provide additional value for the engine filtration media, casings and tire cord markets.

The third pillar of our strategy is market optimization which centers around market we serve today. Our goal is to optimize our existing product and market mix, factoring in our customer needs, manufacturing capabilities and transportation efficiencies to drive higher value for our customers and our Company. Our existing customers are the best source of growth and we're working with them to find new ways to grow value together. This effort also includes finding ways to create opportunities with new customers in attractive under served end-markets.

Finally, the last pillar of our strategy is external growth. As discussed we have positioned our balance sheet to allow us to more aggressively evaluate and execute on an external investment opportunities that drive stockholder value. Our focus will be in areas that leverage our core competences and markets and technologies that we find attractive and that are complementary to our existing business. We expect these investments to expand our field of vision by increasing our capability set and expose to us to a broad array of growth opportunities. In doing so we hope to create greater diversity and growth in our revenues and earnings streams.

We anticipate these investments will have returns that exceed our cost of capital, provide stable EBITDA and allow us to manage the leverage -- our leverage effectively over the long-term. In summary we are excited to launch the four pillars of EBITDA growth and we look forward to expanding on them in detail in Investor Day following our January 2017 conference call. We have got a lot of work ahead of us, but I'm confident we can get there as we have a team that continues to prove they -- they can execute extremely well against focused initiatives.

Now I would like to open up the call for questions.

Thank you. At this time we will be conducting a question-and-answer session. (Operator instructions). Our first question comes from Bill Hoffmann with RBC Capital Markets. Please proceed about your question.

Yes thanks and good morning.

Hi Bill.

First question just quickly on Fernandina was it down the third quarter or you expect it down in the fourth?

It was down in both the third and fourth quarter. So the shutdown spanned both quarters.

Okay. So when I look at the -- the unit cost per ton in the third quarter here, it's obviously impressive improvement over prior quarters is there anything else going on in there or is it something we can think of more of a run rate basis going forward.

Yes. What I think you will see, Bill, is that the unit costs in third quarter will be better than the unit cost in the fourth quarter. Obviously, the shutdown will impact that unit cost and for two reasons one obviously some of the cost and some of the maintenance is in the fourth quarter and then inventories that are made with that higher cost in the third quarter at the end of the third quarter shutdown would tend to flow through into the fourth quarter.

Plus normal seasonality.

Yes. Plus normal seasonality in the fourth quarter. I think going forward our goal is to continue to lower our unit costs across-the-board with our Transformation Initiative as we go forward into the next year.

Great. Thanks an then just finally for Paul. You talked about some of these mix opportunities. Any -- any guess or guidance you can give to us on thoughts on how much that can offset this -- the decline in acetate volumes?

No. I mean, again, we're -- we have been working really hard on putting out differentiated offerings into the marketplace and we noted there that we should expect to see some gains in 2017. We'll give you, Bill, all that color in our January call.

Okay. And then you also made some reference to pricing the product. Is that pricing is -- is versus commodity viscose, as opposed to acetate pricing?

Yes. So -- so as we pick up some of these gains on these new products and offerings into the market, just making a note that they're likely going to be priced at below acetate but better than commodity type -- type levels. So with that you may see a bit of a mix shift affecting price.

Perfect. No. That's what we would expect. Thank you. That's it.

All right. Thanks, Bill.

The next question comes from Roger Spitz with Bank of America Merrill Lynch. Please proceed with your question.

Thank you and good morning. Could you describe the CS pricing sell this quarter versus Q2 what was going on there? Is that somehow a negative mix or an adverse effects impact?

No. We would not have an (inaudible) impact on our pricing from that perspective. So it is all mix driven.

Okay. Within -- within acetate were -- were you doing more ethers or can you -- can you elaborate on that at all?

I think it's generally within the CS buckets and if you remember, Roger, what we see in the first quarter we see some spillover volumes coming into the first quarter from a pricing perspective. Typically it doesn't go into the second quarter, but I haven't looked at it that closely, but we would see some -- some mix between quarters.

Okay. So it could be some spillover. Okay. Fine. And talking about some of your CS contracts you don't have to talk to any particular one but maybe as a general rule can you speak to how they work. Do they typically have for each year each contract have a min/max volume, although those min/maxes may contractually change in that contract as you go from one year to the next? Is that sort of how it works?

Yes. I think that's a fair representation. Again, we have got contracts out there, we have noticed we talk about our three reported contracts that go out to 2018 and 2019 and they're pretty representative. They typically have volume set out there year-to-year at some level with some kind of band in those volume levels and then price negotiated on an annual basis. So that's fairly typical for all our contracts, not just the largest three that we report on. And as we have noted, though, and was a little bit unusual is that last year we did set 2017 for most of our acetated--acetate contracted volumes and that was going out a year ahead. So that was a bit unusual.

Very good. And lastly you may not want to give 2017 CapEx guidance but can you speak to it in very broad terms? Will it be similar to the 2016 guidance?

No. It -- we have talked about this before, Roger. I think typically our maintenance CapEx is going to be $50 million to $60 million range and given that there's no Fernandina Beach shutdown next year we probably be closer to the lower end of that, but we also will evaluate what I call return or strategic projects as those come up for review. These are -- these are additional projects beyond maintenance that help our cost position or do other things for us and to the extent that we have any of those the CapEx will be higher, but I think the way to think about it is maintenance in the $50 million to $60 million range and we typically if we have got a big -- big project we tell everyone about that when we knew about it.

Great. Thank you very much.

Our next question comes from Chip Dillon with Vertical Research Partners. Please proceed with your question.

Good morning, Paul and Frank.

Morning, Chip.

First question is on -- actually just a follow-up on the CapEx question. I know you have talked a bit about the Lignin project and of course that might technically not be cap he can. It could be contributing to a JV, but how does that stands and what's sort of the next decision point on that?

Yes. So, Chip, that project is right on track. We noted in our last call that we're expecting permits by year-end. We're still sitting in that position. We still expect them by year-end. With that we look forward to moving forward with the support of both Boards of both companies with construction starting in the January time frame, new year timeframe it's about an 18 months to get this project up and into commercial orders so we would expect mid 2018. So, again, we're right on track. We're waiting on the final permits. It's not yet officially approved. We're still again waiting on these permits to come through and then we can move forward. So $110 million investment that, again, we're 45% of that -- of that ownership and Frank I don't know if you want to comment on the capital side of that.

Yes. We'll be looking at -- or we are looking at financing alternatives to fund a portion of that at the JV level. Chip, we haven't finalized that but once we do we will provide more guidance around that but think about our share of that $110 million, roughly and then we'll finance a chunk of that at the JV level hopefully.

Got you. So it could be possible that you might only need to put in $10 million or $15 million and you could borrow the rest of your share at the JV level?

Yes. It could be. I mean it's -- we haven't finalized any of that at this point. So but it would be less than the proportional share depending on what the level of financing we got at the project.

Okay. And then moving along you had another great quarter cost-wise. I know you were pointing out the -- how they fell I guess $17 million year-to-year, $43 million year-to-date and how much of that would you say was chemicals and other purchased raw materials and how much was it -- might have been maintenance and other things you can control?

Yes. If you're looking at our cost savings for the year, the way I think about it, Chip, is through the first three-quarters of the year our transformation initiatives so these are things we think we can control, right? These are specific we go in to save money on. That was roughly $25 million of the total and then on other things we can control we had another $15 million of what we -- we call these legacy -- these projects that we put in place in 2015 that are just paying off now. So that's the $40 million of savings we had targeted at the beginning of the year which we have said we have gotten all of that. We have got roughly what I would call tailwind of approximately $5 million dollars for the nine months and it's split kind of evenly between chemicals and energy.

Okay. Got you. And then could you comment on -- I know that back a month or two ago from some of the papers there, were talking about a permit situation where this Judge Schroer (inaudible) and the -- the environmental department down there could you just help us understand where that stands and kind of what the possible outcomes could be of that situation?

Yes. So, Chip, you're referencing our permit through the Georgia EPD and our Jesup, Georgia plant and facility. We have the operated there for decades under -- under EPD issued permits and EPD issued another permit for us in December of 2015 which again was a result of years of work by them and consulting with us and going through public comment and a review by the US EPA. Once that was issued, though, in January right following that the Altamaha Riverkeeper issued a lawsuit against the EPD for issuance of that permit. So that's what you're referencing. It's gone through a legal process with the Georgia State Office of Administrative Hearings and in that the judge rejected almost all of ARKS claims and arguments and actually she ruled mostly in favor of the permit, but she did also rule under certain low-flow conditions that the (inaudible) may have a reasonable potential to violate applicable rules for color and odor and so this is not an issue about public health or anything else.

It's about color and odor and so she pushed it back to the Georgia EPD for issuance ever a new permit, and we believe that the -- the permit is absolutely consistent with the facts and the law and so we decided we're going to defend that and so we appealed the decision as did the Georgia EPD and we just did that this past week. Until this is resolved which again I can't tell you so much on the timing because it's a little bit variable we will continue to operate as we always have under our existing permit and which we have full right to so, that's kind of where it stands and, hopefully, that's helpful to give you a little bit of color on it.

That is good. And real quickly one last one. Can you give us a rough guess as to kind of do you think your specialties volume will equal or maybe exceed what you end up with this year? I'm talking 2017. And if so could you just give us an idea of how much that mix could change in other words, if acetate for example is 80% this year would it be 70% next year if you kept the volume the same or could it move around more than that?

Yes. So, Chip, we're in all those discussions right now and I noted that we've made some gains outside of acetate but we will finalize all of that and put into our January call. I think it's too early to predict how some of these discussions are going to come out.

Okay. Thank you.

Sure.

Our next question comes from Paul Quinn with RBC Capital Markets. Please proceed with your question.

Yes. Thanks very much. Morning Frank. Morning, Paul. Just maybe, Frank, just clarifying this Fernandina Beach. Was it more in Q4 as oppose today Q3? I'm just trying to understand the costs for Q4.

Yes. It was -- it's going to ultimately be a little bit more in Q4. If you remember as we came through the end of that shutdown, we had the hurricane roll through so we had to-- wait a little bit on the start-up of that -- of that asset. Not materially but it cost us a couple days. Several -- some period of time to get that up and running again. So it extended a little bit further into the fourth quarter particularly because of that than it would have otherwise.

Okay. And then you have given us a pricing expectation for acetate in 2017 down 22%. What are we looking at on the volume side?

Yes. And we haven't given you that. So we will give you an update on that on January, Paul. We still in those discussions on -- actually on everything that we don't have contracted still out there and discussion both acetate and non-acetate products and, again, we mentioned some gains that we have been able to put in the bag for 2017 in non-acetate, by we're still finalizing both non-acetate as well as acetate.

Okay. And then maybe just take a look at viscose markets prices have come up this year. How do you look at the sustainability of that and then flipping it over to fluff pulp markets what are you seeing in that markets as well .

Yeah so, we have seen some pretty good rise in the viscose markets. If you look at downstream a bit for those -- for viscose and you look at the viscose staple fiber prices, and continuous filament out there, that's up actually about 30% plus. It's given back a little bit here lately. With that viscose pulp prices since January has been 10% plus type of range. So some pretty healthy gains. Volume continues to be strong out there. Kind of the 5% type of level and we have actually seen some announced expansion again for the markets for these products.

So again we expect that to -- to continue to be relatively strong and make some gains. On the flip side on absorbed materials (inaudible) we continue to see some modest pressure out there as incremental capacity has come on. So what do we do, right? So we have got the ability to flex back and forth so you should continue to look at us to make more viscose out there into the markets. We did that in 2016 relative to 2015 and we'll do even more in 2017 relative to 2016. So we will continue pushing that in that direction.

Okay. And then just lastly I'm kind of tweaked on this project Sapphire what are the part of the ether spectrum are you there and is that material volume?

So it's -- it's right in kind of the high end ethers. It's a good quality product. Again, our comments out there that this is a -- a we think an offering unique value to existing performance levels that are out there. So -- and right now we're just in the discussions of trials and but we're getting very positive feedback and we hope to translate that positive feedback into some commercial sales here in the near future.

Is that an industrial or a food or a pharmaceutical end use?

It could be across-the-board, but it's going to be a good quality end ethers.

All right. That's all I had, best of luck guys.

Thank you.

(Operator Instructions). Our next question comes from John Babcock with Bank of America Merrill Lynch. Please proceed with your question.

Hey. Good morning, everyone. Quick question kind of following up from Paul's there. When you talk about pressures from the stronger US dollar is that impacting you from both volume and price perspective or is that leaning one way or the other?

We certainly see it on the price side and so, therefore, if you want to maintain your business out there, you have got a lower price or it will affect your volume. So we'll seeing it on both side of equations. Some areas we decided we're not going to pursue. Other areas we have decided go ahead and adjust our pricing and John, you have seen that unfortunately in our pricing outcomes the last three years. So but it has a bit of effect on both sides and of course it's not just us. It's affecting everybody else out there.

Okay. Thanks for that. And then with regards to the 2016 EBITDA guidance, what has to go right ultimately to get you to the top end of that guidance range and also are there any notable items in 4Q that we should be incorporating into our model? Obviously there's the hurricane impact but if there's anything else I would be curious to hear about those, too.

I wouldn't overplay the hurricane impact because that was just part are the shutdown and it just extended it briefly, but we will have higher maintenance costs in the fourth quarter as is typical as we come through the end of that shutdown and some of the other things that we're doing in Jesup and in Fernandina, but that being said, to get to the high end of our guidance we have got to run well, right? And that's a big chunk of what happens because our -- our sales are set so we have got to have continue to run well, continue to sell that product and continue to realize those revenues as we get closer to the year-end obviously those revenues start to slip into 2017 numbers. So I think those -- those are the big things we need to do, John, to get there. I will tell you if you do -- do the math backwards, the fourth quarter will be the seasonally low quarter as is similar to what it was last year. So we'll have lower profitability in the fourth quarter, but if we can run well and keep focused we'll do well within that range.

Okay. And with commodity product pricing coming down during the quarter it sounded like you guys improved the mix into the viscose category but at the same time pricing overall came down $25 from Q2. I assume the viscose was a higher price point than fluff pulp but generally could you kind of give us some sense as far as what drove that pricing decline there from quarter to quarter?

Yes. I would -- John, I don't have that compact detail what drove that specifically, but I'm sure it's a bit of mix between not only existing customers and both fluff and viscose but also just that mix between the two of them. Again, the fortunate thing is we can move back and forth and what we really focus in on less so on the actual price and more on the margin optimization between those two commodity lines and we'll continue to work to optimize that margin as we go forwards and again right now that pushes us more towards the viscose markets and so that we can bring more actual margin and dollars back into the op income.

Okay. And then just last question I had just on the fluff pulp markets there. What is the general -- what are the fundamentals like in that Markets right now does it feel like it softened significantly since last quarter and earlier in the year or --

Yes. I would say we -- we certainly see out there and hear out there the effects of oncoming capacity, right? So I would say I think you said softened significantly I would say it's being pressured modestly. We have been out therein discussions with some new agreements and we see some pricing that indicates that there's pressure out there and again further just saying okay, let's continue to lean on the viscose side of the equation.

And just be curious is that on both the of kind of the higher end fluff pulp side of the range or also even towards the lower kind of commodity grade of fluff pulp?

Yes. I would say you see it across the spectrum there of the fluff Markets.

Okay. Appreciate it. Thanks.

Sure. You're welcome.

There are no further questions. At this time I will turn the call back to Paul Boynton for closing remarks.

Well, thank you and thanks everyone for joining us today and let me just say our team's ability to drive results on our strategy has been very impressive. We're well on our way to improving our business through cost improvement and aggressive debt reduction in order to achieve appropriate capital structure, positioning us well for to be the long-term markets leader. I'm confident in our ability to develop internal and external opportunities to grow and diversify our business and create value for our stockholders. We look forward to updating you on our progress in a timely manner as we move forward. Thanks. Have a good day.

This concludes today's teleconference. Thank you for your participation. You may disconnect your lines and have a great day.