Rayonier Advanced Materials Inc.

Good morning, and welcome to the Ryan Third Quarter 2025 Earnings Conference Call. During today's presentation, all parties will be in a listen-only mode. Following the presentation, the conference will be open to 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.

Good morning, and welcome to RIAM's third quarter 2025 earnings conference call. Joining me on today's call are Delisle Blomquist, our president and CEO, and Marcus Maltner, our CFO and senior vice president of finance. Last evening, we released our earnings report and accompanying presentation materials, which are available on our website at RIAM.com. These materials provide key insights into our financial performance and strategic direction. During today's discussion, we may make forward-looking statements subject to risks and uncertainties that could cause actual results to differ materially. These risks are outlined in our earnings release, SEC filings, and on slide two of the presentation. We will also reference certain non-GAAP financial measures to offer additional perspective on our operational performance. Reconciliations to the most comparable GAAP measures can be found on our presentations and our presentation on slides 27 to 30. We appreciate your participation in today's call and ongoing interest in RIAM. I will now turn the call over to Delisle.

Well, good morning, everyone, and thank you for joining us. Before Marcus walks through the financial results for Q3, I want to cover five topics today. First, our updated 2025 bridge and guidance. Second, recent developments in tariffs and trade. Third, our progress resolving the operational challenges we experienced earlier this year. Fourth, the work underway at Temiscaming to restore profitability and position the site for divestiture. And finally, how we're executing to the plan that increases our EBITDA to over $300 million as we exit 2027. 2025 has been a challenging year for Ryan. In response to the extraordinary headwinds, we have focused squarely on strengthening the company's cash generation, enforcing capital investment discipline, and protecting our core cellular specialties franchise. I believe that this approach is working, and that our third quarter results reflect the normalization of our core business and the continued progress across the strategic plan. Now let's move to slide four. Full-year adjusted EBITDA guidance is now $135 to $140 million, refined from our prior $150 to $160 million range. The change is primarily driven by proactive downtime of our non-core paperboard and high-yield pulp production during the holiday season to monetize inventory and protect cash given the weaker paperboard markets. We also are experiencing increased market weakness in the business but this negative was largely offset by FX tailwinds in the quarter. We also faced increased headwinds to our fluff business, primarily due to the U.S. fluff industry exports to China being displaced by the China 10% tariffs and creating increased competition into non-China markets. The cellular specialties business performed near expectations and returned to normalized EBITDA margins in Q3. Turning to slide five, please note that, importantly, there are still zero tariffs on our cellulose specialties and dissolving wood pulp products into China, zero tariffs on U.S. sales to the EU, and zero tariffs on Canadian imports into the United States. Though direct tariff impacts have stabilized, we continue to work through the 10 percent tariff on our fluff products into China. We're collaborating with customers and adjusting geographic mix as part of our mitigation strategy. We're also developing a dissolving wood pulp fluff product that would avoid this China tariff. Our technical team is working to refine this new product to reduce unit production costs. Major development in Q3 was the US ITC's preliminary affirmative injury determination and the ongoing anti-dumping and countervailing duty investigations covering Brazilian and Norwegian dissolving pulp imports. This determination allows the Department of Commerce to move forward with its investigations with preliminary duty determinations expected in early 2026. As a reminder, an estimated 190,000 tons of specialty-grade estate pulp are imported into the U.S. from Brazil each year. and about 5,000 tons of ether's pulp are imported from Europe. So this case matters. It's a significant step toward a fair level playing field for US producers of high purity specialty cellulose pulp. Overall, we now believe that trade conditions are generally trending in our favor as we move towards 2026. On slide six, The isolated operational challenges we've discussed previously are stabilizing. In Q3, operational challenges at TARDIS continued, including French national strikes that adversely affected TARDIS. These were not RIAM-specific strikes, and the RIAM team did an outstanding job keeping customers supplied. As mentioned last quarter, we were understaffed in key technical roles at TARDIS. Since June, we filled most of the open key positions via new hires, including the transfer of a couple of technical managers from Temiscamine, and expect all key positions to be filled by year-end. Jessup and Fernandina are performing to expectations. Slide 7 outlines the actions underway at Temiscamine. 2025 has been a difficult year for the paperboard and high-yield pulp business. We now expect an EBITDA loss of about $14 million compared with historical profitability of roughly $30 million. The decrease in 2025 guidance is due primarily to lower paperboard prices and volumes due to new U.S. capacity, and our plan to idle the paperboard line and one of the two high-yield pulp lines for three weeks in the fourth quarter to improve working capital and cash flow. Our plan to return the temiscaming site to historical profitability is focused on four key initiatives. First, reducing temiscaming costs by approximately $10 million. This initiative has been fully implemented through utility contract improvements and benefits derived from high return strategic capital investments. Second, improving the paperboard's line OEE by approximately $10 million in 2026 as a result of fewer economic shutdowns, great optimization, and enhanced maintenance reliability. Further upside of $5 million is expected to be realized in 2027 as supply and demand normalizes, resulting in no economic production shutdowns. Third, Advancing the commercialization of new product development to generate an estimated $10 million in 2026 EBITDA and another $5 million in 2027. The new freezer board grade has been qualified and launched in Q3, and orders are being secured. The roll softwood high-yield pulp qualification trials are advancing well with potential customers, and the oil and grease resistant board trials will begin this quarter. Additionally, we are developing another new product, a high-yield pulp wrapper product that is in testing, which we will believe will deliver 2026 cost savings and potential for new market entry. And fourth, we're in active negotiations with U.S. customers affected by the 15% tariff on EU board imports and participating in an AFRI-led study evaluating strategic options for all the assets on the site, including the currently suspended HPC line. We recently responded to an opportunistic inquiry about temiscamine, so there is current interest in the business. As we restore positive profits and cash flow to temiscamine in 2026, and once the USMCA free trade review is completed in July of 2026, We believe we can divest the site at a fair value. Turning to slide eight. Starting from our normalized EBITDA baseline, we've updated our plan to double our EBITDA from our current guidance over the next two years. I will walk through each step and provide an update on how we're progressing. On the pricing front, we believe that we're tracking ahead of plan. We are targeting a significant price reset to reflect the inherent value of our cellular specialty products, which we believe requires recapturing lost value from prior years' inflation. Our cost, the $30 million reduction program for 2026, is almost fully implemented. And as upside, we are now working on a $20 million of EBITDA benefit for 2027 that would be derived from strategic capital projects. From a specialty commodity sales mix standpoint, we are increasingly confident that we will realize the $30 million in EBITDA growth for margin improvement. I will expand on why in a moment. Finally, our biomaterials projects are progressing, and I'll cover this progress in more detail in a couple of slides. In short, our strategy remains firmly intact. and we have a clear line of sight to achieving our 2027 run rate target. Slide 9 expands on the pricing and market fundamentals for our core business. We are highly confident that Ryan is in a strong position to realize a significant price reset for his cellular specialty products. We believe that the market is conducive to capturing product value because industry capacity utilization is over 90%, with no expected major capacity additions before 2029. RIAM holds most of the excess cellulose specialty capacity. And then industry is highly concentrated with RIAM and two other producers accounting for roughly 80% of the global cellulose specialty capacity. This is important because we're making a strong push on 2026 cellulose specialty pricing. i.e., pursuing a meaningful reset beyond prior year increases to reflect the value of our high-purity products, which requires us to recapture lost value from inflation that has increased nearly 35% faster than our average cellulose specialty pricing since 2014. We also continue to capture the opportunities to enrich our sales mix towards specialty cellulose, We are on track to re-qualify Temiscaming CS volumes to generate $5 million of EBITDA in 2026, with two customers already qualified and a third expected by year-end. We also remain highly confident we will generate $20 million in EBITDA over the next two years via specialty margin enhancement versus commodity sales. This objective will be driven by organic growth across cellular specialty markets supported by RIAM's outsized share of available excess capacity and potential upside to the plan from increased cellulose specialty volumes following Georgia Pacific's Memphis facility closure, which produced an estimated 10,000 to 20,000 metric tons of cotton, linen, or pulp grades that go into cellulose specialty applications. Finally, we continue to expect to realize $15 million of additional EBITDA when ether demand in the EU returns to historical levels. which would also be upside to our plan. On cost, $24 million in strategic investments made this year will generate $20 million in cost reductions at our HPC plants in 2026. We also are taking action to reduce corporate costs by $10.5 million, including eliminating lightly used medical benefits, increasing management span of control, reducing clerical roles via automation, and terminating non-employee technician and professional contracts. We are also working on an upside to this cost improvements initiative. We are actively working on projects at the HPC plants to generate another $20 million in EBITDA for 2027 and believe that we can take out another $4 to $6 million in corporate costs via AI and automation over the next two to three years. On slide 10, I highlight the progress we are making on our biomaterial projects. The Altamaha Green Energy, or AGE, project is a $500 million 70 megawatt renewable power project to be based at our Jessup facility. RIAM will own 49% of this project. Recent progress includes reaching agreement on the EPC contract in September, and receiving our air permit in October. The joint venture is now focused on reviewing project financing options, after which the project will move to its FID. Ryan will invest $46 million of equity to realize an annual proportional EBITDA of $50-plus million. Assuming a utility valuation multiple, This project is expected to generate a 12x ROI on RIAM's equity. The $64 million Bionova Fernandina Beach second-generation bioethanol project is expected to generate $15 million of annual proportional EBITDA for RIAM in return for $6 million of RIAM cash equity, generating a 19x ROI ROI on RIME equity assuming a comparable multiple. Funding is secured, the air permit has been approved, and engagement with the City of Fernandina Beach has begun with respect to a potential settlement on the land use application. The U.S. Bionova CTO project will produce about 13,000 tons per year of CTO from feedstock primarily sourced from our Jessup and Fernandina plants. Engineering for the project is complete. That incorporates a high-quality used CTO plant that we acquired for $350,000 in September. Commercial discussions are advancing, and we expect to file the air permit application by the end of November. This project is expected to generate $6 million of annual proportional EBITDA per year on a total capex of $9 million, much of which ryan will contribute less than two million dollars of equity using a comparable market valuation multiple this project is expected to generate a 16 x roi on ryan's equity the european bionova cto tolling project is small but requires no ryan equity we'll supply feedstock from our tardis plant to a third-party toller which will generate approximately $1 million of annual proportional EBITDA. And finally, the prebiotics project at Jessup is one of the more exciting projects in the Bionova portfolio. As a result of exceptional efficacy results that show that our product delivers significantly higher weight gain and feed conversion performance in poultry than competing alternative feed additives, We are redesigning the plant to a smaller modular footprint that can scale up with demand growth due to lower initial dosing requirements. We've also signed a commercial sales MOU with a feed additives manufacturer for U.S. poultry and swine feed applications. While the redesign may extend this project's timeline, this is a positive adjustment. The trial data confirmed our product's superior performance And as a result, we believe meaningfully expands the commercial opportunities ahead. Across all these initiatives, RIAM demonstrated its ability to recycle capital into high return projects due to low capital intensity, attractive project capital, and repeatable outside investment returns. Slide 11 explains why we can do this. The crux of these opportunities is RIAM's extensive and unique asset base. The noted biomaterial projects will be located at existing RIAM cellulose fiber plants, where the infrastructure, utilities, raw material sources, and site management are already in place. Thus, RIAM's asset base anchors our ability to scale new biomaterial projects efficiently. We also believe that replicating this asset base would be prohibitively expensive, thus it is unique to RIAM. As a case in point, the replacement value of Jessup alone is estimated to be over $4 billion. So we believe that RIAM is uniquely positioned to pursue such opportunities as very attractive ROIs on equity invested. The technical and market viability of most of our projects are already proven. Prebiotics isn't the only opportunity that would be new. We are therefore taking the necessary steps, including animal feed trials and resizing the plant to mitigate the market and capital risks for this project. The project that I summarized on the previous slide will generate high returns and very profitable growth through 2028-2029. For the 2030s decade, we are investigating promising opportunities today and biomaterials and bioenergy to provide profitable growth. For example, we are currently conducting due diligence with Grand Bio for a pilot-scale ethanol-to-jet plant at our Jessup facility. If this due diligence concludes that such a project would be successful, we will then proceed to construction, which would be fully funded by a DOE grant. We've also signed an MOU with Verso Energy to evaluate ESAF production at Jessup and Tardis that will align with the EU decarbonization mandate starting in 2030. Just yesterday, we were informed that Verso Energy's project at our Tardis plant was selected by the EU Commission for its Innovation Fund and will receive a $37 million grant towards the construction and commissioning of the Tardis ESAF project