Rayonier Advanced Materials Inc. Q3 FY2025 earnings call

• Updated 2025 bridge and guidance: Full year adjusted EBITDA guidance revised to $135M - $140M from prior $150M - $160M range, driven by proactive downtime of noncore paperboard and high-yield pulp.
• Tariffs and trade: Still 0 tariffs on cellulose specialties and dissolving wood pulp to China, US sales to EU, and Canadian imports to US; working through 10% tariff on fluff to China.
• Operational challenges resolution: Tartas operational challenges stabilizing with key positions filled by year-end; Jesup and Fernandina performing to expectations.
• Temiscaming actions: Expect EBITDA loss of ~$14M in 2025; initiatives include reducing costs ~$10M, improving paperboard line OEE, advancing new product commercialization, and negotiating with US customers affected by EU board tariffs.
• EBITDA plan: Executing to increase EBITDA to over $300M by 2027; pricing tracking ahead of plan, $30M cost reduction program nearly fully implemented, biomaterials projects progressing.

Cellulose Specialties

• Quarterly net sales: $204 million, down $28 million or 12% from prior year. Operating income $49 million vs $46 million in Q3 2024. Adjusted EBITDA $66 million vs $65 million last year, margins 32% vs 28%.

Biomaterials

• Quarterly net sales: $8 million, flat vs prior year. Operating income $1 million vs $3 million in Q3 2024. Adjusted EBITDA $1 million vs $4 million prior year, margins 13% vs 50% in Q3 2024.

Cellulose Commodities

• Quarterly net sales: $85 million, down $1 million or 1% from prior year quarter. Operating loss $13 million vs $55 million last year. Adjusted EBITDA negative $3 million vs negative $10 million prior year quarter.

Paperboard

• Quarterly net sales: $39 million, down $16 million or 29% vs prior year. Operating loss $4 million vs operating income $7 million in prior year quarter. Adjusted EBITDA $1 million vs $11 million in Q3 2024, margins 3% vs 20% prior year.

High-Yield Pulp

• Quarterly net sales: $24 million, down $4 million or 14% vs prior year quarter. Operating loss $10 million vs breakeven results in prior year. Adjusted EBITDA negative $9 million vs positive $1 million in Q3 2024, margins negative 38% vs 4% last year

• Full year 2025 adjusted EBITDA guidance: $135M - $140M, refined from prior $150M - $160M range.
• 2025 Temiscaming Paperboard and high-yield pulp business expected EBITDA loss ~$14M.
• 2026 plans: Reduce Temiscaming costs ~$10M, improve paperboard line OEE ~$10M, advance new product commercialization for ~$10M 2026 EBITDA and ~$5M 2027 EBITDA.
• Biomaterials projects: AGE project expected $50+M annual proportional EBITDA; BioNova Fernandina Beach project expected $19M annual proportional EBITDA; US BioNova CTO project expected $7M annual proportional EBITDA.

• Tariff impacts: Continued work needed to mitigate 10% tariff on fluff to China.
• Operational challenges: French national strikes affected Tartas; Temiscaming business affected by lower paperboard prices and volumes due to new US capacity.
• Market weakness: Fluff business faced increased competition into non-China markets; noncore business weaker-than-expected results.

Q: Just wanted to hit on two in the beginning, one for De Lyle and one for Marcus. De Lyle, just going back to the Paperboard and High-Yield Pulp assets. Can you just talk again, I know you went through it all, but what specific operational and financial milestones do you think you need to achieve in 2026 to make those assets viable for a sale? And then Marcus, you touched on this at the end of your comments, but with leverage at 4.1x, can you just talk a little bit about how you're thinking about refinancing and repricing opportunities considering that the debt is callable in '26? And then what level of EBITDA would give you comfort that you can regain full balance sheet flexibility?

A: De Lyle Bloomquist: The way I would look at it is that before I can sell it, there's 2 gating items that we have to get passed. One is the USMCA renewal that is under negotiations right now between the 3 governments. And let's say that, that gets done by the deadline, which should be around July of 2026. I don't think there'll be any interest on anybody's part until we get -- in terms of buying those assets until we get to that point. The other gating item is that the -- I believe that the business needs to get back to positive EBITDA and positive cash flow. And I outlined 4 different things that we're pursuing to make that happen. I would say 2 of them are high probability or locked. One is the cost reduction, which is largely locked and given the activity we've already done. The other is the OEE of the paperboard plant, which has been demonstrating significant improvement over the past couple of months, and we expect to continue to do so as we go into 2026. The last element I would say is really big is really the new product development and the uptake of those new products into the market. So to get to a positive EBITDA, I need all 3 of those elements. And so really, the last critical element that needs to fall in place is the successful commercialization of those new products, which we should start seeing in the first quarter and second quarter of '26. So once I get to a positive EBITDA, positive cash flow and we get past the negotiations on the USMCA, I think at that point, we've got an asset now that's attractive, and we'll be able to dispose of it. Marcus Moeltner: Dan, thanks for your question. Yes, as you mentioned, the term debt becomes callable in May of next year, and there's a 2% takeout premium, right, which falls to 1% in November. I think the key here is, as we've gone through the materials, navigating these transitional headwinds and then demonstrating that this business should return to historical levels of EBITDA, right? We exited last year at $50 million quarters. And when we demonstrate that kind of cadence, we'll anniversary some weaker quarters that we had this year and get our LTM back up over the $200 million level. That certainly is going to give us a better leverage profile to be out in the marketplace and then continue to tell our story on the backdrop of all the positive items De Lyle mentioned in his review and look to do the breakeven on a refi. And we certainly see a line of sight where we can take a measurable amount of interest out of this business at that time.

Q: I just want to hone into a bullet point that you have on Slide 9, which says that as we kick off 2026 Cellulose Specialties pricing discussions, we are targeting a significant reset beyond prior year increases, reflecting the value of our products and recapturing lost value from prior year's inflation. Could you give me a little bit of color on how much value has been lost from prior year's inflation as you head into these negotiations next month or this month? And what does -- what is baked currently into your guidance? And what is the impact of 1% increase in pricing over your cost inflation?

A: De Lyle Bloomquist: Okay. I know it's early over there in the West. I certainly appreciate you getting up early to participate on the call. That's a question you ask, I'll see if I can try to answer it each of the different components. Starting off with just kind of the rule of thumb on a 1% increase in pricing. It generally generates $8 million to $9 million increase in EBITDA when we talk about increasing our CS pricing by 1%, okay? So you take that. And as I stated in the presentation, since 2014, the inflation has increased 35% more than the average pricing for our CS products. So if you take 8% or 9% for every 1% increase in pricing, the value lost is somewhere in the tune of $300 million. I think that's the right math. But anyway, you can certainly do the math quickly. In the plan that we've laid out with respect to getting to $300 million from our pro forma '25 number, we assumed essentially a 1% higher rate of increase on pricing than inflation. So I think we show on the slide an $89 million increase over 2 years in pricing, offsetting the $80 million in inflation. Largely, the reason for that assumption is because that's what our analysts out there are saying that we can get a 4% to 6% increase in our pricing given the tight market conditions, given the highly concentrated industry we're in and so forth. So we just assume the midpoint on that to drive that number. What I'll tell you is that we internally believe we need to increase that at a much faster rate than just 1% above inflation to get back to a level that will allow us to reinvest back into our plants and make our facilities viable for the long term because, quite frankly, since 2014, pricing where it has been has not been sustainable. And you've seen that in the industry, in that we've seen a competition and capacity gets shut down and rationalized with GP Foley being the last one -- not the last one, actually, Temiscaming operations being the last line being shut down, but GP Foley, Cosmo out of Washington State, and just recently, the CLP plant in Memphis, Tennessee, which is not in cellulose specialties, but certainly in the same applications, all right? So pricing must go up. It must go up. So I know the next question would be, well, how much more do you think is going to go up than just the 1% above inflation? It's going to be multiples of that number. It has to be multiples of that number, so that we can get the capital we need to reinvest back in the plants and make these facilities the gold standard that they need to be. So I can't tell you exactly the number that we're after, but all I can tell you is that we're not looking at a 5% increase. We're not looking at a 10% increase. We're looking at higher numbers.