Rayonier Advanced Materials Inc.
Q2 2018 Earnings Call Transcript

Published: 3 Aug 2018

[Operator:]

Good morning, and welcome to the Rayonier Advanced Materials Second Quarter 2018 Earnings Conference Call. During today's presentation, all parties will be in a listen-only mode. Following the presentation, the conference will be open for questions with instructions to follow at that time. 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. Mr. Walsh, you may begin.

[Mickey Walsh:]

Thank you, and good morning, everyone. Welcome again to Rayonier Advanced Materials second quarter 2018 earnings conference call and webcast. Joining me on today's call are Paul Boynton, our Chairman, President, and Chief Executive Officer; and Frank Ruperto, our Chief Financial Officer and Senior Vice President of Finance and Strategy. 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, lists 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 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 slide 20 through slide 23 of our presentation. I'll now turn the call over to Paul.

[Paul G. Boynton:]

Hey, thank you, Mickey and good morning, everyone. I'm going to start the call today with the highlights of the quarter before turning it over to Frank to review our financial results. I will then conclude with an update on our strategy to drive growth for the company and value for our shareholders. As summarized on page 4 for the second quarter 2018, we reported a 23% increase in EBITDA to $106 million on a 4% increase in revenues to $542 million as compared to the prior years' second quarter. Our strong performance was largely driven by robust demand and pricing for high-yield pulp and lumber combined with improved productivity in our High Purity Cellulose segment. In the quarter, we also successfully executed our regular planned maintenance shutdowns for three of our four cellulose specialty facilities, while also producing improved results from the prior quarter. As we discussed in the first quarter call, our management team's focus is on delivering consistent execution at our facility and I'm pleased with our results through this heavy maintenance quarter. As a reminder and as is typical, we expect EBITDA for our High Purity Cellulose business to be weighted towards the back half of the year. Overall, our results this quarter clearly demonstrate their earnings potential and diversity of our combined business, as well as the earnings accretion that we envisioned when we acquired Tembec. Importantly, the integration of Tembec's operations continue to proceed in line with our expectations, as we delivered $11 million of incremental cost savings in synergy in the quarter, bringing the year-to-date savings to $18 million. We now estimate that we're on track to exceed $40 million of incremental EBITDA in 2018 from our cost transformation pillar, plus deliver an additional $10 million of EBITDA from our other strategic pillars, which I'll discuss later in more detail. Throughout the past six months, we've demonstrated our commitment to a balanced and diversified capital allocation strategy. We have reduced our total debt by $12 million, as we target our leverage at 2.5 times net debt-to-EBITDA. We have invested $23 million in strategic capital projects which will provide incremental earnings power to the business. And we've returned $29 million of capital to shareholders through dividends and stock buybacks, including $11 million of share repurchases. Looking forward, I remain confident in our ability to deliver on our plan for the year. And as Frank will discuss in more detail, our second quarter results were very strong and the third quarter is off to a great start. Now, let me turn the call over to Frank for further discussion.

[Frank A. Ruperto:]

Thank you, Paul. I'll start by reviewing the quarterly results and outlook for each of our business segment. Comparisons for the second quarter of 2017 period will be on a combined basis as set forth on page 19 of the presentation materials. As outlined on slide 5, our largest segment, High Purity Cellulose, saw sales decline by $18 million to $285 million from the year ago quarter on a combined basis. The lower sales were largely driven by a 5% decline in CS volumes and a 6% decline in commodity volumes, as sales timing negatively impacted the quarter. CS prices declined 3% compared to the full year expectation of 4% to 5%, while commodity prices increased 2% driven by solid pricing in fluff. Adjusted EBITDA for the High Purity segment was $56 million, represented $11 million decrease from the prior year period. The declines were primarily driven by our year-over-year price reductions and the timing of sales, while cost improvements in this segment helped minimize the impact of higher raw material prices. Looking forward, we expect CS prices to decline approximately 4% in 2018 which is at the low end of our original forecast, reflecting a better mix of CS sales, while volumes are expected to decline 2% from 2017. Commodity volumes are expected to be comparable to the prior year period. Additionally, we expect normal seasonality this year with the first half of 2018 expected to represent roughly 45% of full year EBITDA and the second half representing roughly 55%. As a reminder, this seasonality is largely driven by typically stronger customer shipments in the second half, combined with the effect from our annual maintenance outages in the first half, which as Paul mentioned, we're all successfully completed by July 4. Given trade discussions between the U.S. and China making recent headlines, I will remind you that of our more than $2 billion in total annual sales, approximately $170 million is produced in the U.S. and sold to China. That is not currently subject to duty. All of these sales are in our High Purity Cellulose segment, primarily in our CS products with some in commodity (07

[Paul G. Boynton:]

Hey. Thank you, Frank. Turning to slide 11, our second quarter results demonstrate the benefits of our expanded and integrated portfolio and the earnings potential of the company resulting from our acquisition of Tembec. The integration is proceeding in line with our expectations and we remain confident in our goal of delivering $75 million of synergies and a total of $155 million of incremental EBITDA growth by the end of 2020 through our four pillars of our strategic growth plan. Turning to slide 12, the first pillar cost transformation, where we have captured $18 million of our identified $100 million of incremental EBITDA growth. $11 million of these savings are categorized as synergies captured through various activities including the elimination of duplicate corporate positions, enhanced procurement practices and streamline manufacturing across our cellulose specialties operations. The remaining $7 million of savings comes from our legacy cost actions. Overall, our traction through the first six months gives us confidence that we will exceed our goal of achieving total cost savings of $40 million in 2018 and we're well on track to capture our three-year cost improvement goal of $100 million. In addition, our global integration team has developed plans to accelerate synergy benefits. As shown on slide 13, we are now increasing the 2019 synergy estimate by an additional $10 million from the original $30 million goal. We've also continued to make progress in our other strategic pillars having captured $2 million of benefits in new products and $1 million from investments. Our early capital investments are beginning to produce results and we expect the majority of the benefit to come in 2019 and beyond. Year-to-date, we have targeted approximately $65 million of net capital for investment in more than 40 high return capital projects to be deployed through 2020 with an average payback period of less than two years. As shown on slide 14, these projects are focused in on our High Purity Cellulose and Forest Product segments. For example, projects include investments in new digesters in our High Purity Cellulose business that will increase the capacity of our commodity viscose business and reduce our annual maintenance costs, while other projects will leverage our [Technical Difficulty] (17

[Operator:]

Certainly. Our first question comes from the line of Steve Chercover with D.A. Davidson.

[Steven Pierre Chercover:]

Thanks. Good morning, everyone.

[Paul G. Boynton:]

Hey. Good morning, Steve.

[Steven Pierre Chercover:]

So first of all, not your core business, but if I'm not mistaken the Department of Commerce revised the duties on newsprint to zero last night. So can you confirm that? And if that's the case, how much of a refund do you expect and when?

[Paul G. Boynton:]

So, Steve, yesterday, yes, the U.S. Department of Commerce made a final determination on duties on newsprint, uncoated groundwood imports into the U.S. and with a revised, the ADD down to zero, the anti-dumping duties, and the CVD, the countervailing duties, two (23

[Frank A. Ruperto:]

It's roughly $3 million to $4 million. Remember we still have that one duty in place, so we've paid $5 million in duties and the one piece remains in place, the 8% that you referenced.

[Paul G. Boynton:]

Okay. Very good. Thank you. So, hopefully that helps you Steve?

[Steven Pierre Chercover:]

Yeah. That's good. And then secondly, we know that you've endured some inflation on freight and chemicals in 2018. No guarantees that it'll subside next year, but do you think that the cost cuts that you've achieved so far plus the benefits of your CapEx might mitigate most of the inflation in 2019, in other words keeping your cost structure kind of flat?

[Frank A. Ruperto:]

Yes. I think that, that's the goal here is to generate cost transformation savings to do that. I think we've been relatively successful in the first half of the year in mitigating that with at least on the chemical and the wood inflation piece of that.

[Steven Pierre Chercover:]

Okay.

[Paul G. Boynton:]

So I think ... [Multiple Speaker] (25

[Steven Pierre Chercover:]

Sorry. Go ahead, Paul.

[Paul G. Boynton:]

See, as you can say, as we guided there in 2019, we now expect $40 million in synergies there for 2019 and across that base that's a pretty good chunk against that inflationary effect.

[Steven Pierre Chercover:]

Yeah, absolutely. Okay. And then last question, and I'll turn it over. Lumber has been on the tariff for the ages, and there was nice tailwind obviously, but I don't think reasonable people expect that to last. But there's a little lumber company here on the West Coast has a program called Black At The Bottom (25

[Paul G. Boynton:]

So, I'm not overly familiar with the details of the program you're referencing there, Steve. But look, the way we think about it, two things; one, as you know we're making some investment in our lumber facilities in Ontario and Québec. We think we've got a great opportunity to put some return capital in there to make them more profitable over a varying market conditions. So one that's important to us, as we plan to run those. But two, it's important because as you know it's part of our integrated supply chain into our High Purity Cellulose facility in Québec. So, it's important on both sides of the equation. So, our goal is to make sure that we've got mills that we can run in any market conditions, and so that's where we're working towards. And fortunately, we've got some real nice opportunities with some short term paybacks to make that happen.

[Steven Pierre Chercover:]

All right. Thank you, Paul.

[Operator:]

Our next question is coming from the line of John Babcock with Bank of America.

[John P. Babcock:]

Hey. Good morning. Just wanted to follow up actually on the commentary on the trade tensions here. I think you mentioned essentially that there was about $100 million of sales that's exposed to China. I was just wondering if that's kind of your direct exposure, and was also wondering if you kind of provide additional color if that is just a direct exposure, what exposures you may have indirectly through customers that may potentially sell to China, and separately also if there is a product that you buy that may be exposed to that, any commentary there would be great?

[Paul G. Boynton:]

So, on the last part of your question not a lot coming into us that creates an exposure directly or indirectly. The guidance we put out there is just to help clarify our position within China. As we said, look, we've got about $170 million of revenue from the U.S. to China that is not subject currently to any kind of duties. And so if you look at our $2.1 billion, $2.2 billion in revenues that's about 8% of our total sales that is not currently subject to any kind of duties into China. And the main point we're trying to get across there is, look, we've had dialogue with all of our customers in China and we're working with them and we're all well prepared to have dialogue if anything comes our way, and we'll look at both short-term as well as long-term potential mitigation actions if duties go into play. So again, we're just trying to frame it to you that again it's about 8% of our total sales that aren't currently subject to any kind of duties from the U.S. into China.

[John P. Babcock:]

Okay. And do you by chance have a sense for how much of your customers' product though has that sort of exposure. So clearly, you guys (28

[Paul G. Boynton:]

No. I think that there is a little exposure there but it's relatively small, maybe very small.

[John P. Babcock:]

Okay. That's helpful. And then separately with regards to the synergies that were pulled forward from 2020 into 2019, could you talk about the areas that that's coming from?

[Paul G. Boynton:]

Yeah, it's across all areas. And John I think as we've said before, we have a process that's multifunctional across the business. And what they do is, they identify opportunities on a project-by-project basis and as we get to the middle of the year, we start to identify the 2019 opportunities. And as a result of that, we just see areas where we – across the board where we can act more quickly than we thought we could have before. And so, I would say it's still in line with the rough parameters that we gave for break down at the time of (29

[John P. Babcock:]

Okay. And then next before I turn it over, just on the unplanned downtime in Forest Products, if you could elaborate a little bit more on that? And then also, I was just wondering really I mean you did have a little bit of downtime in the first quarter at some of the CS mills, and just want to get a sense for whether you believe there's any need to invest capital to potentially improve the reliability of mills?

[Paul G. Boynton:]

Well, certainly again to your last point, we're investing capital, improve reliability across the board, that's part of our set of initiatives here. Yeah, we have some downtime at one facility, lumber facility in Ontario and basically it is related to safety. Our safety practices aren't where they should be and we actually just shut the facility down until we are comfortable that we are operating that facility safely. If you look at where we're going to be for the year, John, in to lumber volume, again we expect our volumes to return to near historical type levels. I think we've got the last page of your appendix there that last year we did 336 million board feet and it should be coming close to that on the balance of this year as we look at the year. So we'll pick back up here, but it's just a very deliberate, very purposeful downtime to get our safety where it needed to be.

[John P. Babcock:]

Okay.

[Operator:]

Our next question comes from the line of Dan Jacome with Sidoti & Company. Please go ahead.

[Daniel Jacome:]

Good morning.

[Paul G. Boynton:]

Hey, Dan. Good morning.

[Daniel Jacome:]

Impressive quarter. A couple questions on capacity. So congrats on getting the lignin facility up and running. Once it's up and running fully, what is your best estimate for how much of the North American lignin market in terms of capacity are you going to control? That was my first one.

[Paul G. Boynton:]

A difficult question. As you know in our partnership that we have, we're at 45% and our partner is at 55% and they are on the sales and marketing arm of this relationship. So I will let you take a look at some of the things that they've put out there in terms of that discussion. Obviously, this is a meaningful amount of volume coming into the market, but this market is really North American market for lignin has been undersupplied. So, we think this is a great opportunity. As we said, we're going to we're going to layer this in over the next few years. So again, we think it's going to be well matched as it comes out here. I can't give you exactly percent or anything else at this point in time, but again I think they have that in some of their data recordings if you take a look at what they've disclosed in the past (32

[Daniel Jacome:]

Yeah. I think it's going to be pretty material. Second question, just on paperboard, my access to (32

[Paul G. Boynton:]

Just to be clear, where we compete in paperboard is on the coated (33

[Daniel Jacome:]

Okay. Do you know what that capacity is in terms of percentage of overall market, is it low single-digit, high single-digits, anything?

[Frank A. Ruperto:]

I don't have that off the top of my head, but we'll get that number out.

[Daniel Jacome:]

Okay. Yes. I'll follow up with you guys. Thank you.

[Paul G. Boynton:]

Thanks, Dan.

[Operator:]

Our next question comes from the line of Roger Spitz with Bank of America.

[Roger N. Spitz:]

Thanks, and good morning.

[Paul G. Boynton:]

Good morning.

[Roger N. Spitz:]

Regarding the $100 million sales to China, I didn't catch that. Is that just your U.S. sales to China, or is that your total company sales to China? And can you break that down a little bit by product line?

[Paul G. Boynton:]

Yeah. So, it's a $170 million, Roger, in total revenue going from – and that is from U.S. to China. So that's not our total sales to China.

[Roger N. Spitz:]

Yes.

[Paul G. Boynton:]

That is U.S. to China that isn't currently under any kind of duty. So, if you remember, viscose pulp already is under a duty of about 17% out of the U.S. So this is just volume that we've got, that is out there that we said they could be part of a potential exposure if you will. Most of that is cellulose specialties, the minority of that is absorbed material or fluff pulp.

[Roger N. Spitz:]

Got it. And is there any thoughts of changing some of your legacy acetate CS capacity to ether in sort of the mid-term, or do you have more than enough ether capacity headroom at Témiscaming and Tardus, that does it, I mean, make sense to start thinking about that along these lines?

[Paul G. Boynton:]

Well. Look we've got – and you're right (35

[Roger N. Spitz:]

Okay. And lastly with lumber prices coming down, what do you see driving that down?

[Paul G. Boynton:]

Well, I think on our customer side, certainly we had – well, we had prices go up to well above any kind of historical point. So as we look at it and most people thought about it, it's just like that's not a sustainable level. So I think we all assumed it's got to come back down and it should come down actually for the health of all of us and it is retreating. And part of that is, this time of year when we used to run the saw mills back in legacy Rayonier, we saw this this time of year. We think it should stabilize out there in the coming near-term. And at stabilization, we'll be at levels well above the prior year level. So...

[Frank A. Ruperto:]

Yeah. Additionally, Roger, I think there was some transportation and other constraints on some of the Western producers in the first half of the year which tightened up the supply a little bit.

[Paul G. Boynton:]

And keep in mind, it's a speculative nature, right. So we had housing starts in June that were announced well below the prior announcement period and I think I gave everybody the pause, right. Customers are saying, I'm just going to wait to see this where this settled out versus kind of building inventory at a higher price level. And I think once that kind of calms down here a little bit and they feel that pricing is more stable, I think you're going to see the return of orders and prices again at more stable levels, but albeit lower than what we've had before.

[Roger N. Spitz:]

Right. I mean, I think the Random really went up much more than Stud if looking at sort of like some of the publications. And I think part of that was ascribed to fires in B.C., where there's I guess more Random than Stud, is my thinking correct? And if so, are we starting to see some loosening up there and that might have been part of what's going on here?

[Paul G. Boynton:]

Yeah. I think and again it was not (38

[Roger N. Spitz:]

Perfect. Thank you very much.

[Paul G. Boynton:]

Yeah. Thanks, Roger.

[Operator:]

Our next question comes from line of Chip Dillon with Vertical Research Partners.

[Chip Dillon:]

Hi. Good morning, Paul and Frank. I had a question just a little housekeeping question. This might help us in the future. If you look at the slide 5 and slide 20, obviously, slide 20 gives a very specific DD&A number 4 (39

[Frank A. Ruperto:]

That's typically FX movements, Chip.

[Chip Dillon:]

Okay. All right. And then the second question is when you look at the earnings release, I think it's page 7 on the one I have. There is a pretty sizable item called interest income and other that was $7 million that – it looks pretty obvious you included in EBITDA. Just wanted some help on knowing what that $7 million was?

[Frank A. Ruperto:]

Yes. So there's a number (40

[Chip Dillon:]

Other expenses, yes – sorry, yeah.

[Frank A. Ruperto:]

Chip, I don't believe we include interest income and other expenses into EBITDA.

[Chip Dillon:]

Okay. (40

[Frank A. Ruperto:]

Yeah. I can tell you what the number is. It's basically interest income on our cash. And then we have some FX on our intercompany debt.

[Chip Dillon:]

Okay. And then how should we think about that going forward. Should it stay at that level or will it kind of bounce around?

[Frank A. Ruperto:]

Chip, there's also the bargain gain on the purchase mentioned there too. So that number will bounce around a little bit from quarter to quarter based on what happens on FX, what happens on some of the accounting pieces, and it's hard because, obviously, we describe the FX, the gain on the FX. I'm sorry, the gain on the bargain purchases because new things came to us during the quarter as we adjust that, and we'll be adjusting that through the one-year period from the time of it. So, that number will move around a little bit depending on mostly those two factors.

[Chip Dillon:]

Okay. And then you might have told us this, but when we look at the Paper segment, how much – I mean I guess the duties we assume that you had been paying about $2.5 million a quarter, and that pretty much goes away now?

[Frank A. Ruperto:]

We've paid $5 million; $1 million in the first quarter and $4 million in the second quarter, that was on a combined 28% rate. We will continue to pay an 8% rate, because only part of the duties went away with the last ruling. So, that's roughly two-thirds or so, maybe a little bit more than two-thirds of that will go away.

[Chip Dillon:]

Got you. So, basically if we use the second quarter run rate, we're checking and thinking of the reason why we wouldn't, then that's going to help you to the tune of $3 million a quarter going forward, all things being equal.

[Frank A. Ruperto:]

Yes. That's a good estimate.

[Chip Dillon:]

Okay. And I think you might have addressed this. Did you effectively raise the synergy target from (42

[Frank A. Ruperto:]

No. We slid forward, so we have not moved the overall number. So, if you remember, on the first – on the year end call, we had raised that number up, I believe from $50 million to $75 million.

[Chip Dillon:]

Okay.

[Frank A. Ruperto:]

Now we're just shifting some of that into 2019. So, we're still looking at $75 million total there.

[Chip Dillon:]

Okay. Got you. All right. Thanks very much.

[Frank A. Ruperto:]

You're welcome.

[Paul G. Boynton:]

Thanks, Chip.

[Operator:]

Our next question comes from line of Paretosh Misra with Berenberg. Please go ahead.

[Paretosh Misra:]

Hi. Thank you. I've got a couple of questions. First, a follow-up on cost inflation. How quickly do market prices for caustic and wood (43

[Paul G. Boynton:]

Yeah. So we've got longer term contracts in place but they typically are as a percent up some market index. So what we see and feel in the market is pretty immediate, it's not maybe in the month but it may be that following month. So it's pretty real term in terms of the movement in caustic and most of our chemicals for that matter.

[Paretosh Misra:]

Understood. Thank you. Then next, we've been noticing that the cotton prices in China have been quite strong. Can you talk about what impact that might have on your business. Does it make your cellulose-based products maybe more competitive or maybe not so much?

[Paul G. Boynton:]

Yeah. So it's certainly – it has ramifications in different ways but certainly as the demand as well as the price for cotton fiber increases that only helps us as well because we provide as you noted there an alternative when you're thinking about our viscose pulp product going into rayon which is obviously going into that Asian market as well. So it is a benefit if that starts lifting up that we will kind of get swept into that. And keep in mind, we've a very small amount volume-wise relative to the broader cotton market.

[Paretosh Misra:]

Last one for me. A question on your share buyback. How many shares were purchased or what was the average price?

[Frank A. Ruperto:]

Sure. The average price was $17.75 and we repurchased roughly 650,000 shares.

[Paretosh Misra:]

Great. Thank you.

[Paul G. Boynton:]

Thank you.

[Operator:]

Our next question is from the line of Paul Quinn with RBC. Please go ahead.

[Paul Quinn:]

Yeah. Thanks very much, and good morning, guys.

[Paul G. Boynton:]

Hey. Good morning, Paul.

[Paul Quinn:]

I jumped on late so I might have missed some of this, but I was just looking for some color around what's happening in the CS markets and also specifically what's happening in viscose. What that looks like over the next six months to 12 months?

[Paul G. Boynton:]

Yeah. So we didn't really provide it and we haven't really commented too much on it either, Paul. So you didn't miss anything in this area. I'll start with viscose. It's staying relatively steady if you will in terms of just what we see out there in the market. We don't see a lot of movement up or down in terms of pricing. Now keep in mind when you look at our specific volume in the back half of the year and the commodity, if you remember we had all our shutdowns in the first half of the year, we don't have them. So you're going to see our volume pick up pretty substantially in these commodity parts of the High Purity Cellulose business. And again, we've guided that volume year-to-year is going to be roughly flat, so you're going to see a pickup quite a bit there. On the cellulose specialty side again, we said last time that that market and again it's been relatively steady. But we said our volume is going to be down 2% for the year and last time, I think we said slightly down. And again 2% on 700,000 plus tons, you're talking 14,000 tons, 15,000 tons a year. And that's just, we're just watching customer order patterns. Most of our customers are saying look year-to-year they're right on track, but we see a little bit of retreat, I guess if you look at their order patterns, particularly or specifically in the acetate area. So we're just watching that carefully I'm reflecting that into our full-year guidance. So hopefully, customers come back and say, look, we're going to order what we said we were originally going to order, but right now we're just taking that on out and just calling it a 2% down.

[Paul Quinn:]

Okay...

[Paul G. Boynton:]

Overall we're...

[Paul Quinn:]

Sorry, overall...

[Paul G. Boynton:]

Yeah. No, just overall though just as we've said in the prior quarters, the markets are what we've communicated in the past which we'd continue to see some nice growth opportunities in most all the segments, whether it's ethers or the other high purity segments. And we're seeing acetate as we've talked about kind of flat to slightly declining in terms of overall market segment.

[Paul Quinn:]

Okay. So that 2% loss in acetate that 14,000 tons or 15,000 tons you can't really switch it over to ethers or is the growth in ether slowed a bit or we just don't have the customer for that in 2018?

[Paul G. Boynton:]

Well. Paul as you know, most of our business in this area is contracted for the year. And we go off of guidance of what the customer said they're going to do for the year, so we're pretty consistent to that. It's just that we're watching the order patterns for the first half of the year and we're saying, you know it, based on what we see and again that's primarily in the acetate area that we're saying, let's just go ahead and say and communicate that that may flow out of the year that we may not get that, but nothing else has changed in the other segments that we serve. So there's nothing in there that would communicate in the other segments. They're doing well and we're glad they're doing well. And in fact, most of our customers in the ethers area, if you look at maybe the top five or six of the global ethers producers, all have capacity expansions. I say the vast majority have capacity expansion plans out there. So, again that gives us good encouragement that that market is going to continue to grow and we've communicated that's in the 3% to 5% area and we (49

[Paul Quinn:]

Okay. And then if you could just remind me that Tariff L program in Québec, is that got a life span to it i.e. this money have to be invested over a certain period of time to get access to the 40% rebate?

[Frank A. Ruperto:]

Yeah. The money needs to be invested by 2020.

[Paul Quinn:]

By 2020. Gives you lots of time. Great results. Thanks guys.

[Paul G. Boynton:]

Hey. Thanks Paul.

[Operator:]

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

[John P. Babcock:]

Hey. I just want to follow-up actually quickly from Paul's questionnaire. What do you believe is causing the retreat in acetate more recently and is this something that kind of started earlier in the year or is it something that has shown up more recently?

[Paul G. Boynton:]

Again the communication, we'll get across here is that our customers are saying look their volumes are going to be what they originally communicated to us at the beginning of the year which we guided to you, which is roughly flat year-over-year. In the first quarter, we said, may be based on we're watching order patterns here it's slightly down and we said now we're going to call it 2% down. Again all these customers still saying on an aggregate that they expect their business to be what they originally stated at the beginning of the year. I think we're just taking a little more conservative approach and saying we're going to call it down slightly and that's where we had that 2% on our total High Purity Cellulose specialties. And I'm just saying most of that is in the acetate area.

[John P. Babcock:]

Okay. And then ...

[Paul G. Boynton:]

And then no other color on it, John, than that. So...

[John P. Babcock:]

Okay. And then just lastly are you able to – were you able to repurchase shares in July as well or were you out of the market at that point?

[Paul G. Boynton:]

We were out of the market in July.

[John P. Babcock:]

Okay.Thank you.

[Paul G. Boynton:]

Yes. Thanks.

[Operator:]

Thank you. We've reached the end of our question-and-answer session. I would now like to turn the floor back to management for closing comments.

[Paul G. Boynton:]

Well, thank you. If there are no more questions at this time, I'd like to thank everybody for joining us today. Again, we're excited about the opportunity to create value for our shareholders and we look forward to updating you on our progress as we move forward. Have a good day.

[Operator:]

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.