Rayonier Advanced Materials - Q1 2023
May 10, 2023
Transcript
Operator (participant)
Good morning, welcome to the RYAM 1st quarter 2023 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 call over to your host, Mr. Mickey Walsh, Treasurer and Vice President of Investor Relations. Thank you, Mr. Walsh. You may begin.
Mickey Walsh (Treasurer and VP of Investor Relations)
Thank you. Good morning. Welcome again to RYAM's Q1 2023 earnings conference call and webcast. 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. They are available on our website at ryam.com. I'd like to remind you that in today's presentation, we will include forward-looking statements made pursuant to 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're also referenced on slides 2 and 3 of our presentation material. Today's presentation will also reference certain non-GAAP financial measures as noted on slide 4 of our presentation.
We believe non-GAAP measures should provide useful information for management and investors. 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 17-25 of our presentation. I'll now turn the call over to De Lyle.
De Lyle Bloomquist (President and CEO)
Thank you, Mickey, and good morning. I will start this call with a review of the financial highlights from the quarter before turning the call to Marcus to provide additional details on each business segment and provide an update on our capital structure and liquidity. After Marcus' update, I will provide an update on our key 2023 initiatives and guidance before opening up the call for questions. Let's now turn to slide 5. We started 2023 with continued positive momentum on revenue, EBITDA, and cash flow. Revenue increased $115 million or 33% from prior year to $467 million, driven by solid price increases across all our products and overall stronger volumes driven by improved operational productivity.
Adjusted EBITDA increased $31 million or 155% versus prior year to $51 million as the price and volume increases more than offset the higher costs. The largest EBITDA gain from prior year was led by our High-Purity Cellulose segment, which delivered $44 million of adjusted EBITDA, up $28 million or 175% from prior year. Paperboard delivered another solid quarter with $13 million of EBITDA. High-yield pulp contributed an additional $8 million of EBITDA as we realized higher prices in the quarter. Corporate expenses increased $8 million from last year due to $14 million from a prior year period gain of the sale of our GreenFirst shares.
By delivering on these positive results, we remain on track to deliver our $200 million-$215 million of EBITDA for the full year. We are increasing our free cash flow guidance to $40 million-$65 million. Now I'd like to turn the meeting over to Marcus to take us through the financial details for the quarter.
Marcus Moeltner (CFO and Senior VP of Finance)
Thank you, De Lyle. Starting with the High Purity Cellulose segment on slide six. Sales for the quarter increased $93 million or 33% to $374 million, driven by an 8% increase in sales prices, including an 18% increase in CS prices. Sales volumes increased 27% to 265,000 metric tons due to improved product production, a higher mix of commodity sales, and enhanced customer contract terms. Sales for the quarter also included $23 million of biomaterials sales, primarily from green energy and lignin. EBITDA for the segment improved $28 million to $44 million. The impact of higher prices and volumes was partially offset by higher chemical and logistics costs, along with the impact of annual maintenance expenses in the prior year. Turning to slide seven.
Paperboard segment sales grew $5 million, an 18% increase in sales prices due to demand for packaging grades, which was partially offset by a 7% decline in sales volumes as a result of sales timing. EBITDA for the segment grew 30% or $3 million to $13 million as the higher sales prices more than offset the lower volumes and increased costs for chemicals and purchased pulp. Turning to the High Purity Cellulose segment on slide 8. Sales increased by $20 million from prior year, reflecting a 39% increase in external sales prices and a 43% increase in sales volumes due to stronger demand and improved logistics. Cost increases were primarily related to higher chemicals and logistics. EBITDA for the segment improved $8 million as compared to breakeven in the prior year. Turning to slide 9.
On a consolidated basis, operating income for the Q1 improved $33 million to $17 million. Sales price improvements across each segment and volume increases in HPC and high-yield pulp more than offset $59 million of higher costs for chemicals, purchased pulp, and logistics expense, along with the impact of annual maintenance expense in the prior year. EBITDA margins for the quarter were nearly 11%, which is up over 500 basis points from the Q1 of 2022, and essentially flat to the prior quarter. Turning to slide 10. Net debt declined to $683 million, a reduction of $72 million from the same period in 2022. We continued to repay debt, including $5 million of senior unsecured notes in the Q1 and $10 million of senior secured notes in April. As we continue to repay debt, we are still preserving strong liquidity.
Liquidity ended the quarter at $276 million, including $169 million of cash. We recently purchased trade credit insurance, which will increase liquidity by an additional $36 million. This excess liquidity provides flexibility for our upcoming refinancing activities. Given our recent focus on increased maintenance CapEx to improve reliability, we are now capturing the benefits of the improved production. As a result, we are lowering our CapEx outlook for 2023 to a range of $100 million-$105 million, down from approximately $110 million in our original guidance. While we were able to reduce our maintenance CapEx, we still expect to invest $30 million-$35 million of strategic capital, primarily focused on high-return projects, which will provide immediate and incremental benefits to the business.
Net leverage ended the quarter at 3.3x, an improvement of 0.7x in the quarter and ahead of our initial expectations. With lower debt and improving credit metrics, we expect to refinance our 5.5% senior unsecured notes, which mature in June 2024, at acceptable terms in the coming quarter. We recently engaged Goldman Sachs to help advise us on the best structure for our refinancing, including high-yield notes, syndicated loans, and privately placed loans. Our existing cash balances and expected free cash flow will allow us to further reduce gross debt and minimize the impact of higher interest expense. With that, I'd like to turn the call back over to De Lyle.
De Lyle Bloomquist (President and CEO)
Thank you, Marcus. Turning to slide 11. We are making solid progress on our 2023 initiatives. With $51 million of EBITDA generated in the Q1, we remain on track to deliver between $200 million-$215 million for the full year. Free cash flow generation was also strong, with $36 million achieved in the quarter. $31 million of this free cash flow was generated from working capital initiatives, primarily from lower inventory, while CapEx was managed to $21 million with the Tartas annual maintenance outage executed in the quarter. As we have realized improved operational reliability, we now expect to reduce maintenance CapEx and increase our free cash flow guidance to $40 million-$65 million in 2023, an increase of $5 million-$10 million from our initial estimate.
The strong quarter financial results helped drive down our net leverage to 3.3 times, and we expect further improvement in the Q2. We increased cash balances to $169 million while continuing to reduce debt. As Marcus noted, this strong cash balance, coupled with the significantly improved credit metrics, will increase our flexibility with the refinancing efforts. The maturity of the senior unsecured notes is coming due in just over a year. Consequently, we are keenly focused on refinancing this debt in the coming quarter. The underlying interest rates have continued to increase with the recent Federal Reserve actions, but markets are currently open and active. We remain flexible on the type of debt and expect to utilize our strong liquidity position to help minimize the impact to interest expense. Operationally, we remain focused on two key areas to drive value.
First, we are realizing increased benefits from our investments to improve operational reliability, including increased production and sales volumes and lower unit fixed costs. Our total sales volumes for the HPC business increased 27% from prior year. While a significant portion of this increase relates to the timing of annual maintenance outages, we are realizing a significant increase in overall operational efficiency. If we normalize for the annual maintenance outages, production volumes increased 8% during the quarter versus prior year, even as we reduced finished goods inventories. We continue to invest in our assets with $21 million of total CapEx spent in the quarter, including $6 million of strategic capital. However, we expect to reduce our normalized CapEx to approximately $90 million while we continue to execute on $10 million-$15 million of catch-up CapEx in 2023.
For the full year, we now expect to spend $100 million-$105 million on custodial CapEx, with a greater weighting of spend around our annual maintenance outages. Our two largest facilities in Jesup and Temiscaming will complete their annual outages in the Q2. With demand from some products remaining soft, we will continue to operate our assets to match market demand. Second, we are capturing higher value for our products. Our Cellulose Specialties prices are up 18% from the prior year period, driven by our contractual negotiations in 2023. We will continue to prioritize value of our Cellulose Specialties products over volumes. The Cellulose Specialties market is expected to remain balanced as the new hardwood Viscose pulp supply coming online will not impact the Cellulose Specialties grades.
In the fluff and Viscose markets, we capture 6% higher prices from prior year. We also realized 18% increases in paperboard prices and 39% increases in high-yield pulp in the quarter. While prices are expected to decline for commodity products in the coming quarter, paperboard prices are expected to remain elevated with steady volumes. Turning to slide 12, we present our progress against our 2023 guidance for EBITDA and free cash flow. Note that waterfall chart reflects the updated guidance for a higher target for free cash flow of $40 million-$65 million. Notably, the significant improvement in free cash flow for the quarter includes $31 million in working capital benefits, offset by $14 million payments made against our France energy liability.
As we discussed, our free cash flow will be used to either repay debt and/or invest in attractive strategic projects, which were both accomplished in the Q1. On page 13, we provide additional color on each of our businesses. 2023 Cellulose Specialties prices are expected to increase by high single-digit % versus 2022. Demand for our High-Purity business remains mixed, with strength in acetate and many other CS grades offsetting softness in construction ethers and food additives. Fluff prices are expected to decline, but industry forecasters have raised the price floor versus prior cycles. Viscose prices have stabilized and are expected to increase slightly in the second half. Commodity HPC sales volumes are expected to increase as we realize further productivity gains and ease logistics constraints. Certain input costs are moderating, but we expect these will remain at elevated levels.
We continue to make strategic investments in our biomaterials business, which we believe will provide incremental growth for the company. The bioethanol plant in Tartas remains on track to begin production in the first half of 2024. The second-generation ethanol produced at this facility is expected to provide a $9 million-$11 million annual EBITDA benefit to the company. Paperboard prices are expected to moderate slightly over the balance of the year, but will remain elevated as compared to 2022 levels. Volumes are expected to remain steady, while raw material prices will decline due to lower pulp purchase prices. In high-yield pulp, prices are expected to be impacted by both the global economic slowdown and new capacity coming into the market. Sales volumes are expected to improve slightly with eased logistics and higher productivity.
Corporate expenses are expected to be higher than in 2022 due to expenses associated with the ERP implementation and 2022 FX benefits that are not expected to repeat in 2023. We expect EBITDA for the Q2 to be in the low $40 million range due to our planned maintenance outages at our two largest facilities, a slower than anticipated restart from the Tartas outage, and the calendarization of some customer annual outages. We believe that we remain on track to deliver the $200 million-$215 million of EBITDA for the full year. Turning to slide 14, we depict the progression of our EBITDA margin growth and our net leverage decline.
Margins are expected to continue to improve toward the 11%-12% range for the full year as we capture both the improved value from our products, realize operational efficiencies, and reduce costs. Net leverage is expected to hold relatively steady for the full year, including a slight benefit for the Q2 as we drive to our target net leverage ratio of 2.5x over the next 3-5 years. With that, operator, please open the call to questions.
Operator (participant)
Thank you. We will now be conducting a question-and-answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate that 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. One moment please while we poll for questions. Thank you. Our first question comes from George Staphos with Bank of America. Please proceed with your question.
George Staphos (Managing Director and Senior Equity Analyst)
Good morning, everybody. Thanks for the details. I guess the first question I had, you mentioned a, I think it was a $7 million-$8 million impact from sales timing in paperboard, as I recall. Can you talk about what that was? Do you, I presume, get that benefit in Q2? Then relatedly, Marcus and De Lyle, you talked about a low $40 million in EBITDA for the quarter. One of the things you mentioned, I think, was a slower startup in Tartas, if I heard correctly. Can you go through the other factors there and the cadence we should expect in earnings Q1 to Q2 across the segments towards that low $40 million EBITDA range?
De Lyle Bloomquist (President and CEO)
Good morning, George. This is De Lyle.
George Staphos (Managing Director and Senior Equity Analyst)
Hey, De Lyle.
De Lyle Bloomquist (President and CEO)
The first question on the paperboard and the lower sales in the Q1 of $7 million-$8 million. It's a probably a story you've heard many times on a number of calls, which is really around destocking.
George Staphos (Managing Director and Senior Equity Analyst)
Okay.
De Lyle Bloomquist (President and CEO)
of our customers. We expect that that destocking is probably gonna wane as we get, you know, go further into Q2. Then we believe that we'll start seeing the, you know, some growth picking up around historical levels as we get into the second half.
George Staphos (Managing Director and Senior Equity Analyst)
Is it fair, sorry about that, De Lyle, that you get some of that back in Q2 sequentially versus Q1 in terms of your projections? You're not assuming that in terms of how you build up to the 40s, the low 40s, excuse me?
De Lyle Bloomquist (President and CEO)
We're expecting, yes, that we're gonna have a little bit of a pickup in Q2 versus Q1. Again, as I would say, I don't think the destocking thing has played itself completely out, so we're gonna see a little bit of that in Q2. We'll see an uptick, we believe in volume versus relative to Q1, and then you'll start seeing stronger volumes in the second half.
George Staphos (Managing Director and Senior Equity Analyst)
Okay. Broadly, just in terms of the cadence Q1 to Q2 or trends we should expect sequentially across the segments, since we've already covered paperboard, you know, the other segments would be great.
De Lyle Bloomquist (President and CEO)
Yeah. High-yield, again, the same type of impact, that we saw with paperboard. Some destocking, but also, I think there were some demand issues, principally in China the first part of the Q1.
George Staphos (Managing Director and Senior Equity Analyst)
Mm-hmm.
De Lyle Bloomquist (President and CEO)
The Q1 was quite light. We do expect that the volumes will pick up in Q2 for the same reasons I outlined for paperboard. Going forward, again, we think that we'll be able to fill out our capacity and sell our production for the rest of the year.
Speaker 6
George, just on high yield, as you know, BEK is trading down in paper pulp, so high yield does follow that pricing cadence.
George Staphos (Managing Director and Senior Equity Analyst)
Yeah.
Speaker 6
Expect sequential price erosion.
De Lyle Bloomquist (President and CEO)
On CS volume, again, Q1 was actually a halfway decent quarter for us. Again, acetate was very robust for us as well as some other specialty applications around filtration and casings and nitrocellulose. Q2 will be light because we're taking down two of our plants, including Jesup, the largest facility that we make our CS from. So that'll be light in Q2. It'll pick back up to close to what we were experienced in Q1 for Q3 and Q4. With respect to the commodity High Purity Cellulose business, this is relating to Viscose and our fluff. Again, Q2 will be lower than Q1.
It'll see a little bit of a pickup, but we're gonna see a sales mix change, we believe, in the second half. We see increased demands in the ether business around construction activity improving in the second half in Europe. We see increase in demand in some of the other CS specialty grades, we're actually gonna lower our production and our sales volumes on the commodity side to make room in our production wheel for these higher value products.
George Staphos (Managing Director and Senior Equity Analyst)
Understood. You already kind of covered this, I'll turn it over after this one. Can you I know it's difficult to talk about pricing expectations on a call, but, you know, what's embedded directionally, qualitatively, however you want to provide it, in terms of your commodity businesses, you know, whether it's, you know, fluff, Viscose or high yield, 'cause you've mentioned it, I mean, prices for the commodity grades, you know, hardwood in China has dropped, you know, over $300 a ton.
De Lyle Bloomquist (President and CEO)
Yeah.
George Staphos (Managing Director and Senior Equity Analyst)
How does that sort of filter into your guidance for the year? Thank you.
De Lyle Bloomquist (President and CEO)
Yeah. I'll give a primarily qualitative guidance on that.
George Staphos (Managing Director and Senior Equity Analyst)
Sure.
De Lyle Bloomquist (President and CEO)
If I start with the high yield, we expect it to go down, and fairly substantially as you allude. I mean, the pricing coming out of Q1 is in the $700s. We're expecting on average that our pricing will be in the mid $600s for on average for Q2. You gotta remember that, you know, our sales has got a one-month lag, roughly.
George Staphos (Managing Director and Senior Equity Analyst)
Yeah.
De Lyle Bloomquist (President and CEO)
We're speaking of some of the sales pricing in Q1, and then we see it dropping further through Q3, roughly, let's say 10%. We get to Q4, we see it leveling and actually increasing as we think that the market demand in China will pick up and support prices a little bit. In paperboard, again, we think paperboard is gonna be relatively static. We had mentioned the last earnings call that, you know, roughly 2/3 of our business there is under contract. We are seeing some softness on the spot business that we have there. We expect that pricing will decline relative to what we experienced in Q1 in the second half.
What's offsetting that, and this is important to note, is that our paperboard business will benefit from the lower pulp prices. We expect that the earnings potential for that business will continue to be strong. On the cellulose business, the CS side of it is very strong. As we've noted it, we expect the pricing in 2023 to be up relative to 2022, and will stay strong in the high single digits throughout the year. On the commodity business, we expect that the low point on pricing around the Fluff and around the Viscose will probably be Q3 before we start seeing a Fluff price and stabilize and start to improve into Q4.
George Staphos (Managing Director and Senior Equity Analyst)
Okay. Thank you so much for the color.
De Lyle Bloomquist (President and CEO)
Yep.
Operator (participant)
Thank you. As a reminder, if you would like to ask a question, it is star one on your telephone keypad. Our next question comes from Paul Quinn with RBC Capital Markets. Please proceed with your question.
Paul Quinn (Director, Paper and Forest Products Analyst)
Yeah, thanks guys. Morning. You referenced a holistic refinancing in your press release. Just wondering what that means to you and whether you're looking for, in a refinancing, any component of equity?
De Lyle Bloomquist (President and CEO)
Hey, Paul, this is De Lyle. Get right to the second part of your question, which is if we're looking at using equity, and the answer is absolutely not. That is not something that we're interested in doing. We believe that the markets are open and given our improved credit metrics, we believe that we'll be able to find debt at a reasonable price, obviously, in a market that is at a higher level than we were just 3 months ago. Our tact here is that because of our improved credit metrics, and we as a result of where we are, we actually believe that our credit metrics are indicative of a B credit.
As a consequence, we're gonna be looking at all kinds of different debt structures, whether it's high-yield, looking at syndicated loans or whether it's privately placed loans. Because we have those options, we strongly believe that we'll be able to refinance this debt with debt.
Marcus Moeltner (CFO and Senior VP of Finance)
Paul, to your comment on holistic. Again, as you know, we've been consciously operating our business currently with a higher cash balance, such that we have flexibility as we approach this refinancing to stay committed to. You know, our messaging has been we're gonna look to resize the next refinancing so that we can manage the interest rate environment that we're in. You know.
De Lyle Bloomquist (President and CEO)
Yeah.
Marcus Moeltner (CFO and Senior VP of Finance)
Think of something smaller on the refi.
De Lyle Bloomquist (President and CEO)
Right. A thing to note is that given the amount of cash we have, but more importantly the capacity on our ABL, we probably have $70 million on the balance sheet that we can use to right to downsize the debt offering or use it as other ways to get to a proper conclusion here. We believe we have sufficient liquidity, a much better credit position than we had even just 3 months ago.
Paul Quinn (Director, Paper and Forest Products Analyst)
Okay. That assumes that you'll do the refinancing somewhere around $250 million?
De Lyle Bloomquist (President and CEO)
I don't... Again, I'm not gonna commit to what level. Directionally, if that's what's needed, to go out and refinance at a lower level to downsize it, that is certainly one of the options we will consider.
Paul Quinn (Director, Paper and Forest Products Analyst)
Okay. I get it. just turning over to High Yield, and I really appreciate all the color on your specific end markets, but High Yield looks particularly difficult here. Just wondering when the decision to scale back production, you know, at Temiscaming and just basically run the operation for the paperboard, is that?
De Lyle Bloomquist (President and CEO)
Yeah. I mean.
Paul Quinn (Director, Paper and Forest Products Analyst)
... closing Q2?
De Lyle Bloomquist (President and CEO)
Yeah. You raise a very hard question. Obviously if pricing that we realize gets down to our cash variable cost, we will look to reduce our production, maybe shut down a line or two. As you know, in Temiscaming, we have two lines of high yield. One of those lines, you can assume feeds our paperboard business, right? We'll probably keep one line open to continue to feed paperboard business and shut the other line down if we find that pricing gets down near or below our variable cost.
Paul Quinn (Director, Paper and Forest Products Analyst)
Got it. Thanks for the color. Best of luck.
Operator (participant)
Thank you. Our next question comes from George Staphos with Bank of America. Please proceed with your question.
George Staphos (Managing Director and Senior Equity Analyst)
Hey, guys. A couple for me to finish up here. I mean, to the extent that you've been obviously talking with customers and the like, as you normally would, but certainly given the market volatility, what are you finding in terms of customers' expectations for usage of your products and maybe whether that's improving over time? Are you getting any benefit? I mean, the pulp companies all frequently talk about this. I'm not sure how direct it affects business near term, but, you know, plastic to fiber substitution, anything that you're seeing, you know, that's changed in the last quarter in terms of the outlook for demand? That's number 1. Number 2, can you tell me a little bit about what this credit insurance purchase means, what flexibility it gives you? Why, you know, why'd you have to do it? I had a couple of follow-ons.
De Lyle Bloomquist (President and CEO)
Okay. With respect to the call it the sustainability demand story and whether we've heard any changes on that. You know, replacing fossil fuel-based products with fiber-based products. I would say that the story has only strengthened, particularly around bioenergy, as the world, and particularly, you know, the United States and Europe moves away from fossil fuels, and toward more sustainable fuel sources. We believe, again, we're well-positioned with that, and are getting into that arena with bioethanol. We think that story is only strengthening. Now, is that gonna translate into more sales in 2023?
Maybe particularly around acetate plastics and some of the other applications around that with our customers at Eastman, and also with some pull-through from other customers who are developing those type of products. I think you're gonna really start seeing the impact in 2024, particularly when we bring the bioethanol plant on in Tartas. The second question.
Marcus Moeltner (CFO and Senior VP of Finance)
I can take that, George. The trade credit insurance effectively expands our advance rates on receivables for foreign customers. With that trade credit insurance, think of an expansion of $35 million-$40 million in our ABL on a comparable basis to where we ended this quarter.
George Staphos (Managing Director and Senior Equity Analyst)
I see. I see. Then two last questions from me. You know, first of all, on the bioethanol projects, I think the $9 million-$11 million you're expecting to generate, how sensitive is that to overall levels of energy pricing? To the extent that, okay, You know, whether it's a global slowdown or recession, what have you, we are generally seeing energy prices coming under some pressure. Does that affect at all your return on that project? Does the $9 million-$11 million, you know, move down a couple of million dollars on some energy price scenario that's lower or higher? Is it relatively unaffected, you know, by the energy outlook?
Just, can you sort of update us on what, you know, to the extent it has any impact, the increase that we're seeing in capacity, recognizing it's mostly paper-grade hardwood, but you are seeing project, swing projects in dissolving, whether you're seeing any encroachment into any of your markets from this new capacity. Thanks, guys, and good luck in the quarter.
De Lyle Bloomquist (President and CEO)
All right. Thank you. yeah, George, with respect to the bioethanol business, First off is we got a 5-year contract with a multinational major, corporation to buy our bioethanol on a-
George Staphos (Managing Director and Senior Equity Analyst)
Got it.
De Lyle Bloomquist (President and CEO)
Essentially on a take-or-pay basis. The second point to make on the bioethanol plant is that it's making a second-generation bioethanol. What that means is that it's a bioethanol that's being produced from a non-food source. This is actually mandated. The use of this is actually mandated by the EU. When you look at the pricing of second-generation bioethanol, it's at a significant premium relative to what I would call generation one bioethanol. In fact, the pricing is relatively stable, if not increasing as the mandates get tighter and tighter. We still think that the business still will continue to generate the $9 million-$11 million of EBITDA on an annualized basis. What was the second part of your question?
George Staphos (Managing Director and Senior Equity Analyst)
Yeah, sorry about that. The other... It's just, hey, listen, there's lots of capacity coming in. Yes, it's mostly paper grade, but you do have a fair amount of swing dissolving hardwood capacity. Does any of that start to encroach on your markets? That's all I had. Thank you, guys.
De Lyle Bloomquist (President and CEO)
Yeah. We're not, we're not foreseeing that, George. We don't think that we're gonna see any of that swing capacity come over into markets that where we are looking to gain the best value for our products. It really comes down to the fact that the products we make are very customized and are actually very technically difficult to make. It's just not a matter of saying, "Hey, I wanna be in the acetate market and the acetate plastics market, and then I'm gonna move it from paper pulp up to that, into that business and into that product and production," just because I, the. I don't think the knowledge and the capability is there.
Marcus Moeltner (CFO and Senior VP of Finance)
George, maybe just to highlight, as you know, Viscose, think of 5% of our enterprise sales, so small in comparison. We differentiate ourselves on softwood versus this hardwood capacity as well.
George Staphos (Managing Director and Senior Equity Analyst)
Very good, guys. I thank you, and good luck in the quarter.
De Lyle Bloomquist (President and CEO)
Thank you.
Marcus Moeltner (CFO and Senior VP of Finance)
Thank you.
Operator (participant)
Thank you. There are no further questions at this time. I would like to turn the floor back over to President and CEO, De Lyle Bloomquist, for closing comments.
De Lyle Bloomquist (President and CEO)
Well, thank you all for your time today. As noted, we started the year on the right path to achieving our strategic and our financial goals. I am proud of all of our efforts within the company and confident that we will continue to improve our profitability and reduce our leverage. I look forward to our next update coming in August. Between here and then, if there's any questions, feel free to reach out to us.
Operator (participant)
Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.