Rayonier Advanced Materials Inc.

with each subsequent quarter and you're expected to show accelerating growth and profitability. Let me provide an update on tariffs, which is detailed on slide five. First, some context. Ryan is one of the top 50 US exporters. We export about 70% of our US production. So it comes as no surprise that Ryan was impacted by the economic uncertainty caused by the tariff wars. We estimate that the negative impact of uncertainty caused by those tariffs on our 2025 EBITDA is approximately $21 million. Of that, roughly $7 million is tied to direct tariff related disruptions. Issues we anticipate fully recovering from as trade policies stabilize in the coming quarters. The remaining $14 million reflects indirect effects, primarily due to the impact tariffs have had on our customers' abilities to access key geographic markets. While we are actively working to mitigate these challenges and regain lost volumes, we are not assuming a recovery of this portion within the current forecast period. It's important to note that the period of uncertainty in April and May, following the initial imposition of the 125% Chinese tariff rate, had a pronounced short term impact on order activity. That said, since June, we've seen orders return to more normalized levels, reinforcing our view that the worst of the disruption is now behind us. Even more encouragingly, we see the latest development in the tariff talks providing potential tailwinds as trade policies stabilize. To quickly recap, the disruptive Chinese tariffs have largely been resolved. Currently, our cellular specialty and dissolving wood pulp exports to China are tariff free and our paperboard imports into the US remain tariff free under the USMCA Free Trade Agreement. Our only directly tariff product at this point is fluff pulp into China at 10%. And we're actively addressing this by trialing a new dissolving wood pulp fluff product and expanding sales into non-tariff regions. Importantly, recent US tariffs include a 15% tariff on EU CS imports, a 10% tariff on Brazilian CS imports, and a 50% tariff on Brazilian ethanol imports, all of which will enhance our competitive positioning. Additionally, the ongoing investigations by the USTR against Brazil for unfair trade practices could provide potential upside, given that Brazil imports approximately 150,000 metric tons of cellular specialty acetate annually. In parallel with these tariff related dynamics, we also experienced foreign exchange headwinds during the quarter with a negative EBITDA impact of approximately $8 million tied to recent US dollar weakness. Though this is recorded as a short-term negative, the weaker US dollar has lowered our cost of US production relative to our major competitors, which could increase our competitive advantage. In short, the tariff story, which clearly a headwind in 2025, is showing strong indications of turning into a potential strategic advantage for us moving forward. However, we are not incorporating any of these potential tailwinds in our outlook. On slide six, I'll dive into several operational challenges that significantly impact our 2025 results. These totals about $18 million in EBITDA headwinds included the following. Labor strikes at Tardis contributed to approximately 20 days of lost or significantly reduced production, compounded by an additional three days of downtime due to the Iberian Peninsula power outage. Staffing constraints at Tardis. Severe winter disruptions and equipment warranty issues at Jessup. And the temporary extended 16 month Fernandina outage interval. These issues have largely been resolved. Tardis currently operates near normalized levels with staffing levels improving. Jessup production is stable and Fernandina will return to a regular 12 month maintenance interval. Additionally, as discussed earlier, we also incurred an isolated non-cash environmental charge totaling $12 million. This charge was related to legacy site remediation responsibilities which carry no immediate cash impact. Slide seven addresses the current situation in Tumiskaming and our plans for that asset. Our current 2025 guidance for the -per-board and high-yield pulp businesses is roughly breakeven to a slight EBITDA loss. Due to soft market conditions and custodial site expenses related to the suspended HPC line. We've identified a clear set of actionable opportunities worth approximately $35 million to restore Tumiskaming to historical profitability. These include aggressive reduction of custodial site and fixed cost, including labor and outside consultants. Improvements in -per-board operating efficiency by increasing planning automation and reducing unplanned mount maintenance outages and grade changes. Launching strategic new products with minimal capital, including freezer board, oil and grease resistant boards and specialized high-yield pulp rolled softwood. And finally, capturing North American market share from European imports now impacted by a 15% US tariff. Given the strong secular North American -per-board market growth of 4 to 6% annually, our unique market positioning as the only North American three-ply board producer. And our highly achievable initiatives I just outlined were confident in restoring Tumiskaming to historical EBITDA levels that averaged around $30 million. Positioning us favorably to divest these non-core assets. Analyst estimates and public comps indicated a divestiture multiple in the five to seven times mid cycle EBITDA range is reasonable. Now let's discuss what we expect the next couple of years to unfold and why we are so confident excited about the future of our company, our growth initiatives and the tremendous value creation opportunities that lie ahead. Slide eight shows forecasted growth of our EBITDA from 2026 onwards from our core cellular specialties and biomaterial businesses and the drivers of that growth. As discussed, we plan to divest of our non-core paper board and high-yield pulp businesses at Tumiskaming, transforming us into a company focused on our core businesses. On this slide, we start with $200 million EBITDA that our core business would have generated in 2025, but for the headwinds we discussed earlier that we do not anticipate will reoccur in 2026 and moving forward. Then we layer on various key drivers that will dramatically grow that EBITDA in the future years. These drivers include A highly attractive cellular specialties market with strong supply demand dynamics supported by meaningful pricing power. Our multi-year plan to reduce unit cost and expand year over year margins. Our unique ownership of the majority of the excess cellular specialty capacity in the market strategically positioning us to capture market share growth opportunities. And our biomaterials initiatives which provide compelling opportunities to recycle capital at exceptionally high investment returns. Backed by a strong balance sheet and robust liquidity, we can fund these initiatives internally without shareholder dilution. Placing us firmly on track for a normalized core EBITDA run rate of approximately $308 million by the end of 2027. Increasing further to about $338 million with our AGE project in 2028. Now let's discuss each of these initiatives one by one. Turning to slide nine, not only has the cellular specialty industry become quite attractive after a long time of earning subpar returns, but also Ryan is exceptionally well situated from a competitive standpoint. Poor historical returns and low margins have led to the closure of several plants and the exit of multiple competitors. Permanently removing excess capacity from the industry. According to third party analysts, the industry has become highly consolidated with Ryan, Beauregard and Brasel collectively representing roughly 80% of the dissolving wood pulp cellular specialty market. Industry utilization now hovers around 90% and expected to tighten further. We anticipate that these market dynamics will support a more stable pricing environment with industry analysts forecasting sustained annual price increases of approximately 4 to 6%, which is expected to more than outpace Ryan's all in cost inflation. Recent tariff disruptions have underscored the essential nature of our cellular specialty products and the lack of alternatives as our offering has emerged largely unscathed from retaliatory tariffs. We are widely recognized as a global leader in producing highly specialized non-commodity products recognized by their superior purity. Our position is supported by proprietary technology and enduring customer relationships that reinforce strong retention and long term value creation. Additionally, approximately half of our cellular specialty markets are non-cyclical providing stable demand. In the more cyclical segments, we see meaningful upside potential, particularly sectors like European construction and industrial markets, which remain depressed and could represent significant opportunity as broader economic conditions improve. Our forecast does not incorporate these upsides. On slide 10, our strong structural cost reduction initiatives are central to expanding margins sustainably. We're targeting around $10 million in corporate expense reductions, primarily through automation and efficiencies gained from our recently implemented ERP system. Additionally, we anticipate roughly $20 million in operational savings from initiatives, including automation of manufacturing processes, improved material usage efficiency, reduced energy consumption, and enhanced asset reliability through targeted capital investments. We plan to invest $24 million to achieve the aforementioned $30 million of annual savings in 2026. Beyond 2026, we have a robust pipeline of cost saving projects for 2027 and beyond with similarly attractive return profile. These cost saving initiatives, along with pricing improvements, are core pillars of our margin expansion strategy. Now turning to slide 11, I want to highlight the substantial EBITDA growth opportunities stemming from our ability to capture the growth within the cellular specialty market. Third party market forecasts remain highly favorable with analysts projecting market growth of approximately 80,000 metric tons over the next two years. Given our unique position of controlling most of the excess capacity within the cellular specialty market, we are exceptionally well positioned to capture a meaningful portion of that growth. Specifically, through the requalification of our Tamiskin production at other facilities and organic market growth, we're projecting incremental EBITDA contributions in the range of $30 million by the end of 2027. This estimate assumes that we will capture volumes in line with our existing market share, though it is likely that we will capture an upsized share of the organic growth due to our outsized share of the industry's excess capacity. Beyond these conservative projections, further upside not in our forecast exists, particularly tied to the European ethers market. To frame this clearly, European ethers demand declined approximately 110,000 metric tons between 2022 and 2023 due to broad economic headwinds. TARDIS has 20,000 metric tons of excess ethers capacity, which could yield an additional $15 million in EBITDA for IAM, and much more than that if prices increase, which is likely in a recovery scenario. Further upside, also not in our projections, stands from our position as the leading global producer of nitrous cellulose for munitions and explosives, particularly given increased global defense spending trends. Turning your attention now to slide 12, I'd like to clearly outline our biomaterial strategy and the exciting opportunities we have to monetize previously under-leveraged byproducts stemming from our cellulose specialty production processes. As you know, approximately 60% of the dry portion of the tree is composed of non-cellulose byproducts historically utilized for energy value. Our Biomaterials Initiative strategically transforms these materials into high value products like biofuels, bioelectricity, crude tol oil, prebiotics, lignosulfinates, turpentine, and biogenic CO2 for sustainable aviation fuels. The contracted cash flows generated from these products justify a high multiple in the marketplace because of their stable characteristics. Our TARDIS bioethanol project represents the first step in the execution of this strategy. This initiative required only $5 million in Ryan Equity investment due to our leveraging of European green financing and attractive interest rates and securing a stable five-year take or pay contract with ExxonMobil. The single project alone is expected to generate between $8-10 million of EBITDA annually. yielding an exceptional equity ROI of over 10 times our initial equity investment based on market valuations. This clearly demonstrates the potential embedded within our biomaterials development strategy utilizing our existing infrastructure. We believe we have barely scratched the surface of this opportunity and have a multi-year pipeline of these high return projects that will be a core driver of our growth going forward. Our future biomaterials project pipeline is highlighted in slide 13. Our Bionova JV with Swinn Capital is advancing four significant Portfolio 1 projects to final investment decisions. Specifically, these include an additional bioethanol plant at Fernadina, prebiotics and CTO facilities at Jessup, and an additional CTO facility at TARDIS. With committed capital in place, these projects represent a total investment of approximately $110 million and are projected to generate around $39 million in annual EBITDA. Due to strategic financing structures and favorable market valuations, we expect exceptional Ryan Equity returns of seven times ROI. The Ultimaha Green Energy or AGE project at Jessup developed in partnership with the Beasley Group further complements our biomaterials portfolio. Scheduled for completion in late 2028, AGE leverages our existing Jessup site infrastructure. Ryan's 49% share of the AGE pre-tax income is expected to be $30 million annually through a secured 30-year fixed price power purchase agreement with Georgia Power. With Ryan's equity contribution of about $40 million towards a $500 million project, we anticipate equity returns ranging from 10 to 12 times ROI. Clearly demonstrating once again the compelling financial returns achievable through our biomaterials initiatives. Now moving to slide 14, I'd like to reinforce the unique competitive advantage that we believe Ryan possesses. Our ability to recycle capital into high-return biomaterial projects driven by our extensive asset base. Illustratively, our Jessup facility alone is estimated to have a replacement cost exceeding $4 billion. This asset base provides us with unmatched flexibility and cost efficiency when launching new initiatives. Unlike potential competitors who must start from scratch, we have existing infrastructure and technical know-how already in place, giving us a clear cost advantage over any newcomers. These initiatives are speculative ventures carrying technical or market validation risks. The commercial viability has already been clearly validated in markets by competitors such as Beauregard. Our recent signed memoranda of understanding with Verso Energy for exploring ESAF opportunities in both Jessup and Tardis, and with Grand Bio for a pilot scale ethanol or jet plant in Jessup, our validation of the rich pipeline of potential high return opportunities that leverage our asset base and provide visibility for our growth and value creations for years to come. Slide 15 highlights our strong, solid financial foundation which remains critical to executing our strategy. As the end of Q2, Ryan maintains strong liquidity totaling approximately $202 million, including around $71 million of cash on hand. Additionally, we continue to operate well below our covenant thresholds using a disciplined approach to capital allocation coupled with strong cash flow management will enable us to fund strategic initiatives internally without shareholder dilution. Additionally, the potential divestitures of our non-core paperboard and high-yield pulp segments as discussed earlier will further materially strengthen our financial position. Anticipated proceeds will significantly improve our leverage profile, further enhancing our strategic flexibility and allowing us to continue funding high return growth initiatives and explore potential shareholder returns down the road. In addition, our existing term debt becomes callable in 2026, providing a meaningful opportunity to reprice our debt and significantly reduce interest expense, further enhancing free cash flow. Illustratively, if we can lower the interest rate by 400 basis points and use the proceeds from the sale of the Timmiske-Mingling asset of $180 million to pay down the debt, the cash interest would be reduced by over $40 million per year. We anticipate generating exceptional free cash flow as our EBITDA grows. Ryan's targeted 2027 run rate core EBITDA of over $300 million. When applying nearly $140 million of free cash flow to be utilized in high return growth investments, further deleveraging and shareholder returns. Finally, on slide 16, I'd like to summarize the compelling investment opportunity Ryan represents. We believe our current value significantly understates the intrinsic strengths and growth potential embedded in our business. The temporary 2025 headwinds detailed earlier, tariffs, operational disruptions, environmental charges, and foreign exchange impacts, appears to be now largely behind us. We enjoy strong competitive positioning in our core business. Our strategic initiatives in cellular specialties and biomaterials are well on track, and our financial foundation is solid. Applying conservative peer multiples to our forecasted normalized 2027 EBITDA demonstrates a clear valuation upside of approximately 8 to 10 times our current market valuation. As investors increasingly recognize our compelling strategic positioning, the value of our biomaterials initiatives, and the structural improvements we've made across the enterprise, we firmly believe substantial shareholder value creation lies ahead. In summary, while 2025 represents a set of extraordinary headwinds, we believe the most significant impacts are now behind us. With strong recovery momentum, a disciplined capital strategy, compelling growth initiatives in cellular specialties and biomaterials, we believe Ryan is well and uniquely positioned to unlock significant shareholder value. At current valuation levels, we believe there is a disconnect between our market price and underlying fundamentals, presenting a compelling opportunity for investors as our strategy progresses. With that, I'll turn the call now over to Marcus for additional financial and segment level insights. Marcus.

Thank you, Delisle. Let's now turn to slide 17, which summarizes our second quarter 2025 financial highlights. In the second quarter, revenue was $340 million, down $79 million year over year. Operating loss was $1 million, declining by $29 million compared to the prior year. Adjusted free cash flow year to date was negative $52 million, while adjusted EBITDA was $28 million, a $40 million decrease compared to the second quarter of last year. As a reminder, the prior year period included a $10 million benefit associated with deferred income from the Canadian Emergency Wage Subsidy Program, known as SUSE. The primary drivers of the EBITDA decline this quarter can be summarized with the following highlights. In CS, earnings decreased by approximately $22 million, driven by lower sales volumes due to tariff-related disruptions and the indefinite suspension of the Tmiskming HPC lock, along with higher input costs and operational challenges at our Tartaz facility due to the labor strike. The paperboard segment saw earnings decline by $10 million, reflecting lower sales volumes and prices, impacted by indirect tariff effects and increased competitive activity. In high-yield pulp, earnings decreased by approximately $9 million, driven by lower pricing and volumes due to continued oversupply conditions in China and broader macroeconomic headwinds. Given these results, we have revised our full year 2025 adjusted EBITDA guidance to a range of $150 million to $160 million, which implies second half EBITDA of approximately $105 million to $115 million. Adjusted free cash flow guidance is estimated at negative $10 million to $25 million for the full year, with positive free cash flow of approximately $35 million anticipated in the second half of the year. Let's now review our segment results, beginning with cellulose specialties on slide 18. Quarterly net sales for CS decreased $33 million to $208 million. A 3% increase in sales prices was more than offset by a 15% decline in sales volumes, driven by tariff-related order pauses in April and May, elevated prior year sales ahead of the Tmiskming HPC indefinite suspension, and the labor strike at Tartaz. Operating income declined $21 million year over year to $29 million. This decline was mainly due to lower sales volumes, higher input costs, and lower production due to the operational challenges and labor strike at Tartaz. Adjusted EBITDA margins declined to 22% from 28% a year ago. On slide 19, in our biomaterial segment, net sales declined by $2 million year over year to $6 million, caused by operational challenges and a labor strike at Tartaz, which temporarily limited feedstock availability for the bioethanol facility. Operating income was flat at $1 million, as reduced, higher shared service and ancillary costs were offset by lower production costs. Adjusted EBITDA margin for this segment was 17% compared to 25% in the prior year, reflecting the temporary operational impacts. Turning to cellulose commodities on slide 20, net sales increased by $26 million to $59 million, driven by a 33% decline in sales volumes due to lower non-fluff commodity sales and the labor strike at Tartaz, partially offset by a 7% increase in sales prices, driven by market supply dynamics for fluff. Operating results improved by $12 million compared to last year, reducing the operating loss to $9 million. This improvement reflects lower non-fluff commodity losses, reduced indefinite suspension charges, and favorable input costs, partially offset by the lower production volumes related to operational challenges. Our paper board results are detailed on slide 21. Net sales declined by $13 million year over year to $47 million, reflecting a 23% decline in sales volumes and a 3% decrease in prices impacted by product mix, shifting customer dynamics tied to tariff uncertainty, and increased competitive activity due to higher EU imports and new US capacity. Operating income declined $12 million year over year, primarily due to lower sales volumes and pricing, and to miscumming custodial site costs. Adjusted EBITDA for the segment was $5 million, with margins declining to 11% from 25% in the prior year quarter. Lastly, slide 22 covers our high-yield pulp segment. Net sales decreased $4 million year over year to $29 million, driven by an 11% decline in sales prices and a 7% reduction in sales volumes, reflecting continued oversupply conditions in China and shipment timing delays to customers in India. Operating loss increased by $8 million to $7 million, primarily due to lower pricing, reduced volumes, higher logistics costs, and to miscumming custodial site costs. With that, operator, please open the call to questions.

Thank you. We will now conduct a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 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. Once again, that's star 1 at this time. One moment while we poll for the first question. The first question comes from Matthew McKella with RBC Capital Markets. Please proceed. Hi,