Rayonier Advanced Materials at Sidoti Small-Cap Virtual Conference: Strategic Shift Unveiled

On Wednesday, 19 March 2025, Rayonier Advanced Materials (NYSE: RYAM) presented its strategic vision at the Sidoti Small-Cap Virtual Conference. The company outlined its 2025 strategy, focusing on leadership in high purity cellulose, expanding its biomaterials business, and optimizing its asset portfolio. While challenges such as tariff impacts were acknowledged, the company emphasized a value-over-volume approach to drive EBITDA growth.

Key Takeaways

• Rayonier Advanced Materials is shifting towards a value-over-volume strategy, increasing its mix of high purity cellulose products.
• The company plans to reduce debt and aims for leverage below 2.5 times.
• Biomaterials expansion, including a second bioethanol plant, is a key focus.
• Strategic capital investments are expected to enhance EBITDA margins to 17%.
• The company is considering divestment of certain assets to optimize its portfolio.

Financial Results

• 2023 EBITDA: $139 million
• 2024 EBITDA: $222 million, marking a 60% increase from the previous year
• 2025 Guidance: Adjusted EBITDA between $215 million and $235 million; adjusted free cash flow projected at $25 million to $45 million
• Debt Reduction: Over $70 million paid down last year, with ongoing amortization of $20 million

Operational Updates

• Debt Reduction: Focus on reducing debt through amortization and potential asset sales
• Asset Optimization: Maintaining a higher mix of high purity cellulose products
• Biomaterials Investment: Expansion through a second bioethanol plant in Fernandina
• Tariff Mitigation: Addressing a $3.5 million monthly impact on paperboard revenue due to tariffs
• Strategic Capital Expenditure: $39 million earmarked for biomaterials; $19 million for automation and efficiency improvements

Future Outlook

• EBITDA Margin Target: 17%
• Biomaterials EBITDA Target: $70 million by 2029
• Strategic Capital Projects: Expected to improve full-year EBITDA by $31 million

Q&A Highlights

• Debt Strategy: Continued focus on paying down $700 million term debt facility, with interest rate reductions possible
• Biomaterials Focus: Replicating bioethanol plant success in France at the Fernandina site
• AGE Project: A 70-megawatt cogent opportunity, potentially adding $30 million to EBITDA
• Product Mix Shift: Increasing capacity for high purity cellulose production

For a detailed exploration of Rayonier Advanced Materials’ strategic plans and financial outlook, please refer to the full transcript below.

Full transcript - Sidoti Small-Cap Virtual Conference:

Daniel Harriman, Analyst, Sidoti: Okay. We’ll go ahead and get started. Good afternoon, everyone. Welcome to Sidoti’s March conference. My name is Daniel Harriman.

I’m an analyst here at Sidoti. This afternoon, we’re gonna hear from Ryam. That’s ticker, r y a m. We have the company’s Senior Vice President and Chief Financial Officer, Marcus Moultner, here to lead us through the presentation for about twenty minutes. After that time, we’re going to open it up for Q and A.

So if you do have any questions at any time during the presentation, please feel free to type those questions into the Q and A box. And time permitting, we will get to as many as we can. But, please join me in welcoming, Ryan. And with that, Marcus, I’ll hand it over to you. Thank you for being here.

Marcus Moultner, Senior Vice President and Chief Financial Officer, Ryam: Yeah. Thanks, Dan, for the introduction. And and good afternoon, everyone. Thank you for joining us. I’ll look to socialize a couple slides that’ll serve as an introduction to Ryan, and also, share some highlights on on our key key areas of focus for 02/2025.

So you might ask who is Ryan? Well, we are a a well established company. You can see, nearly a hundred years, of existence. I I would say we’re definitely the leader in high purity cellulose, which is a natural fiber, a sustainable product, which creates value in in a diverse range of products. We also do have a, a three ply paperboard, franchise, with the Colima brand, that that is a FBB product, that is well placed, vis a vis mega trends in in the economy.

We also have a mechanical pulping operation, which is a high yield, facility in Temiscaming, Quebec, 2 Hundred And 90 Thousand tons of production. Of that capacity, around 70,000 is integrated within that three ply paperboard product. We’re very global as far as an operating footprint. We have four world class facilities, two here in The US South, one in Georgia and one in Florida. We have our operation in Temiscaming, Canada and our operation in Tartas, France.

So so a nice, global footprint. And and the nice thing with the complement of facilities, we have a lot of redundancy of supply that serves well when we, share our value proposition with customers. And lastly, we are really excited about developing our future business, which is biomaterials. And that’s focused on renewable, biomaterial and energy prod, products that are co products of our existing production process. So really excited about that growth opportunity, and I’ll share some of the details with you.

Over to the right, you can just see, a visual overview of the key key operating segments, and I’ll get into greater detail on high purity cellulose paperboard and high yield in the next couple slides. So maybe on on slide five, you might you might ask, where do these products, end up? What end uses? Well, by this time today already, you’ve probably used our products in many end use applications. You can think of think about on the ether side, there’s products that lend, viscosity.

So think of shower products, toothpaste, those type of products that you use every day. We’re we’re the largest producer of acetate, which makes its way into filter products, filter tow, plastic applications, LCD screens. Other other CS, think of products, you can see listed there in automotive, in nitrocellulose applications. These are all end use product categories that in in many instances are growing greater than GDP. So a very nice stable end use, platform where our products go.

Lastly, a couple other areas, viscose and lyocell, that’s a textile application. I will call out that that’s an area where we’ve reduced our exposure given the commodity nature of that, product. Fluff products make their way into personal hygiene. We have an operation aligned in Jessup, Georgia. A nice little, facility which is well placed for addressing fluff.

Again, this is a product that is well placed and is growing. It’s a concentrated industry. And then I mentioned biomaterials. We started up our bioethanol plant in France last year. And within our biomaterials business plan, we’re looking to grow that as well.

Paperboard, again, well placed to to benefit and address mega trends in the economy. Think of sustainable packaging, replacing plastics. We’re also, one the one of the largest, lottery ticket producers as far as the substrate that goes into that product. And high yield pulp, again, I mentioned that that, again, is is is a product that is partially integrated into our paperboard operation, and then it makes its way into printing and writing and packaging applications. So maybe let’s spend some time on the business overview.

And, we’ve set out here some some information on our top line sales and our EBITDA growth over over the continuum of time. And you might notice that this business looks like it has a flat revenue stream, but it’s very, very much explained by our strategy and what we’ve been working on as far as our mix. Through the period of 02/2023, where we saw a fair amount of destocking through through the COVID time, we we had to pivot a lot of our production into more of a commodity products. And you can see that in the visual to the right where our CS mix went down to 48% as we maintain maintained our production volumes with a higher mix of of commodity products. And then with our focus on value over volume through 02/2024, you can see our mix of CS products increased to about 54% versus that 48, and we reduced our exposure to viscose.

We took the difficult decision to indefinitely suspend our Temiscaming HPC line, which reduced our exposure to viscose. And that along with a closure that happened, late in 02/2023, on a competitor’s plant, really tightened up the supply demand dynamics for CS, which which allowed us to really, target that value over volume, strategy and drive that 54% change. And what really happened, you can see the growth in EBITDA of of around 60% from a hundred and 30 9 million in 02/2023 up to $2.02 222,000,000 in ’24. And if you can all do the math, that’s over 500 basis points of EBITDA margin, expansion through that period. And lastly, on this slide, I will share with you just to put in context that our revenues are well diversified.

Geographically, you can see a nice mix of product within The US, Europe, and Asia, and and an exposure to China, and that’s predominantly in the acetate tow, market. So maybe let’s turn to, the next page on on our guidance for 02/2025 and our key initiatives for this year. And, if you were listening to our last investor call early in March, we we we shared an adjusted EBITDA guidance of 215,000,000 to 235,000,000 for the year and an adjusted free cash flow target of 25 to 45,000,000. And, we also said at the time that sequentially, think of the front end of the year being weaker than the back end of the year, and that was largely driven by the fact that, we have three of our facilities, taking major maintenance downtime, in March and April of this year. So that that’s certainly when you take those facilities down, will influence the EBITDA by quarter.

And seasonally, in addition to that, we have higher energy inputs usually in the first quarter. And at the time when we shared this guidance, we also said that, some of the destocking that we were anticipating in acetate would be weighted to to quarter one. So we certainly see a strong year, but certainly the low point of the year will be a weaker q one. But as far as initiatives, we continue to be focused on reducing debt. As you know, we, refinanced our capital stack last year.

We’ve got a lot of flexibility now in the runway to focus on execution. But we remain committed to paying down debt through we have about 20,000,000 of amortization across our lending facilities, so that will continue to draw down debt. But, the, the rest of the pay down will be further along given given, the terms of those debt agreements. Optimizing our assets is is a key area of focus. Again, I mentioned reducing our exposure to commodities and certainly with the indefinite closure of Temiscaming that are shared, we’re we’re focused on maintaining a higher mix of CS, and we’re busy requalifying those CS grades that were there in Temiscaming, on our other lines.

I mentioned the growth through our bio materials investments. Again, there, we’re looking to expand that, business plan, and, we’re we’re working on a second bioethanol plant in in Fernandina. We’ve got secured financing for that. We’ve got, an equity contribution and some attractive green loans in France that will leverage for this. And lastly, we’re we invested heavily in our IT systems to support enhanced segment reporting, this year.

And this is is all about shining the light on our value proposition by by clearly segmenting the biomaterials, business and the CS profitability within our within our portfolio. And lastly, just on on on the reducing debt, we remain committed to the divestment of the Temiscaming paperboard and high yield facility. But again, given the tariff environment that we’re in right now, that process has has definitely slowed down. And, again, highlighting the tariff situation, we when we set out the adjusted EBITDA guidance of 02/15 to February, that was premised on an environment where tariffs would exist for our paperboard operation, and we would look to offset that with with mitigation plans. So maybe turning to the next slide, speaking to the tariffs, we’ve set out here the the revenue exposure across our our business portfolio, for both CS, cellular commodities and paperboard.

In the CS category, given given that we have products that are not substituted easily and have long qualification periods, we feel that tariffs, if there were tariffs, would be passed on to the customer. Again, so we see the risk there lower on some of those commodities, because our exposure is reduced with, the with viscose being a smaller part of our portfolio. We largely are active there in fluff, and that that fiber is very unique in its fiber properties, is is in The US Southeast. And in the end use applications for which it is used, we we see a way to to again pass on most of the risk on tariffs there as well. So lastly, paperboard is is an area you can see a revenue exposure of of a hundred and 75,000,000.

That 25% tariff we shared during our conference call is around a 3 and a half million dollar impact before mitigation per month. So it it is an item that we’re keenly focused on, but we we shared our mitigation strategy on that where we would look to, protect Canadian market share by retaliatory tariffs. We would also look to replace US share with further Canadian share. And within the environment now as as the tariffs have have been socialized out there, we’re we’re certainly in a lower Canadian dollar FX environment where we should we are benefiting from that, and we’ll look to leverage that as well as other business, initiatives that we have underway to mitigate that risk further. So I spoke about the tightening supply demand dynamic within our HPC category and specific to CS.

And we’ve just set out here that, the indefinite suspension of Temiscaming and the closure of that competitors plant in 02/2023 effectively took around 10% of CS, capacity out. And you can see looking through the planning horizon from ’25 to ’27, we’re getting into the nineties on on capacity ratio, which is certainly an area where we can drive price. We shared with you, with our stakeholders during our earnings call that, low single digit pricing was achieved, as part of the negotiations and are reflected in our 02/2025 operating budget. So that tightened demand and supply situation has really allowed our commercial team to to leverage that and drive further pricing and get fair value for our products. So next, I’d like to share some comments on on an area that we’re really, focused on and really excited about, and that is driving further shareholder value by deploying capital on strategic CapEx opportunities.

We’ve set ourselves some very strict turtle rates. You can see them in the headline here. We’re looking at a minimum of a 30% return on equity and projects less than a two year payback. And we we, are very rigorous in our review of these projects and screen them against that hurdle. And, here, I’ll just look to socialize 04/25 and through our planning horizon, some of the highlights on our strategic capital.

So I mentioned bio materials. Of the 39,000,000 that we’re looking to deploy, in 02/2016, is it earmarked for bio materials? But as I mentioned, we we have an equity sponsor and and low green loans to help offset that. So net of financing, a small investment of a million. And the balance here is focused on strategic investments focused on automation and driving further efficiency in our HPC facilities.

You can see around 19,000,000 of capital, and we have a stub amount of of about 4,000,000 for our ERP project. And then over the planning horizon, we will continue to leverage strategic projects within our CS category at our HPC facilities. You can see a further 33,000,000 of strategic capital, with a view, to drive some some full year EBITDA improvement of 31,000,000. And I mentioned the further deployment of strategic capital and bio materials, net of that financing a further 70,000,000 to drive around 55,000,000 of of EBITDA improvement, and that’s on top of projects, that we have completed. So you don’t have to overlay the French bioethanol plant and some other EBITDA streams within our plants to get to the full year 70,000,000 that we’re sharing on on the next page.

So really excited. Again, these are projects in, certainly, the automation area that are are proven. They’re focused on driving down material usage through our facilities and, and really getting the best chemical and fiber consumption rates through our facility and and driving costs down further. And then lastly, just I I wanted to share with the audience here the the key drivers of of driving the higher EBITDA margin and improving the leverage of of Ryan. So really, those two items together driving a compelling value proposition.

And you can see our our ultimate target is 325,000,000 of EBITDA that we shared our at our last investor conference. And and continuing to improve our EBITDA margins from the 13.6% up to 17%, and continuing our journey on driving leverage down. We’re currently at, around 2.9 times, 2.7 times on a covenant basis. And we’re looking to get below two and a half times with a continued focus on our CS, value over volume strategy, reducing our our exposure to commodities further. I mentioned that, that 60% reduction from 02/2023 levels.

Biomaterials is a key building block of that EBITDA growth, up to 70,000,000 in 02/1929. And I mentioned on on the strategic capital really driving further automation and plant efficiencies. So you can see the the journey from 10 times leverage to to just under three with our target to get to two and a half and and really driving our franchise to EBITDA margins that are reflective of a specialty business. So Dan, that was the highlights I wanted to share with the with the group.

Daniel Harriman, Analyst, Sidoti: Wonderful. Marcus, thank you so much. We do have some questions that have come in. Again, we’ve got about ten minutes, so if you do have more questions, please feel free to type them into the box. Marcus, I wanted to stay on the theme of debt and just was hoping you could provide a little bit more color to us about kind of the cadence of debt pay down that investors can expect for the foreseeable future, specifically assuming that you’re that we don’t see a sale of paperboard and high yield pulp in 2025 and how you might be limited, a little bit in your in your debt pay down based upon the terms of the of the refinancing?

Marcus Moultner, Senior Vice President and Chief Financial Officer, Ryam: Yeah. Thanks for that question, Dan. So I should have highlighted, last year, we paid down over $70,000,000 I mentioned the amortization of $20,000,000 ongoing. So our current term debt is a $700,000,000 facility. It’s anchored on grid pricing.

So as our leverage improves, we can, below 2.5 times, we can secure another 50 basis points off the floating rate. And so we’re currently 700 basis points above the rate. It’s non callable for one and a half years, and then, we can pay down debt. The call premium declines from one zero two down to one zero one and then par at three years. So again, as that window opens up, certainly, we’d be based on this business outlook, we would be looking to take advantage of that.

And as you mentioned, we do have a special pay down provision for any asset disposition for disposition for, Temiscaming, paperboard and high yield. And again, that’s a declining scale of one zero two, one zero one, and then par as well. So we secured a lot of flexibility such that we keep that optionality open.

Daniel Harriman, Analyst, Sidoti: Perfect. And then for investors that are, you know, newer to your story, I kinda wanna take things back to the last Investor Day in October of twenty three and just, you know, you laid out at that time the importance of, minimizing the exposure to commodity product, investing in bio materials, refinancing the upcoming notes and you’ve successfully hit on all the major themes of that Investor Day. So you know, from your perspective and from the rest of management, could you just maybe update us on what you see as the keys to execution moving forward over the next year or two, specifically as it pertains maybe to the bio materials investments that you know, outside investors may not be familiar with at this time?

Marcus Moultner, Senior Vice President and Chief Financial Officer, Ryam: Yeah. Sure. So the next key project on our bio materials business plan is replicating the bioethanol plant that we constructed in France at the Fernandina site. So that’s a key building block, and we’re we’re actively working on securing the the all the permits and, securing the final details of any construction there such that we can execute that product project. That is a key project for Biomaterials.

We’re also focused on CTO, Crutall Oil, which is another building block. And then Prebiotics, we continue to evaluate and stress test that business plan to advance it. And those all coupled together will help achieve if if you remember, investor day, we we set out a target of over 40,000,000 for those, projects. Also happy to, to share that since Investor Day, another key project and and building block is the AGE Energy investment, which is a 70 megawatt, cogent opportunity, which we would do as as a partner. But, again, that’s that represents an additional opportunity of EBITDA of 30,000,000.

So we’re we’re we’re focused on those key projects to help deliver the bio materials. You you asked what else is important to achieving our our 325,000,000. It’s it’s continuing to work on driving CS margins further. You know, as as we see the muted recovery of ethers continue, we should continue to be able to drive our mix to to higher ethers and and drive down any commodity we have left, at Tartas. That’s another key item.

The qualification of the Temiscaming grades, we’re we’re we’re we’re advancing that well. That’s another important item. And, you know, even though we said we we would consider the divestment of paperboard and high yield, we’re still focused on improving that business further where there’s a big opportunity to continue to to penetrate packaging grades further there as well. And the strategic projects are important to to drive the right operating performance across our our operating footprint. That that’s key as well.

Daniel Harriman, Analyst, Sidoti: Perfect. And just point of clarity, when at the Investor Day, the initial expectation was or hope was that biomaterials would be about $42,000,000 in EBITDA by ’27. But now with these new projects, we’re looking at a target of 70,000,000 by ’29.

Marcus Moultner, Senior Vice President and Chief Financial Officer, Ryam: By ’29. Correct. Because I should call out right. We’ve got the overlay of the AGE project, but through time, there has been certain projects on on the original, biomaterials $42,000,000 target that that have been delayed by by permitting and and other execution items as we as we went forward.

Daniel Harriman, Analyst, Sidoti: Perfect. And then just a couple more kind of shifting gears. You know, the acetate market is heavily dominated by filter toe into cigarettes, but, you know, could you maybe explain to investors what other potential uses there are out there for acetate besides, you know, what’s historically been heavily focused on on filter tow?

Marcus Moultner, Senior Vice President and Chief Financial Officer, Ryam: Yeah. Sure. So a key key other end use is, our plastic applications, that we sell into. The the other high value, end use is think of your your tablets, your LCD screens, your your, iPhones. So all the all that LCD film application is another one.

But certainly, within, you know, the sustainable mega trends when you look at the economy, this plastic, replacing plastics is important, and and also textile is another emerging area there as well.

Daniel Harriman, Analyst, Sidoti: Perfect. And then, you know, if we look at the the presentation deck, you know, as of, you know, the end of twenty twenty four, you see CS is about 54% of total company revenue and a question has come in about the, you know, the long term target. Do you guys have like an internal or anything that you’ve expressed to the market in terms of where you’d like to see, cellular specialties as a percentage of total company revenue. And I understand there’s a lot of variables in that, should you get rid of paperboard and high yield pulp. But I guess is there a number out there that you guys are looking at for the foreseeable future?

Marcus Moultner, Senior Vice President and Chief Financial Officer, Ryam: We we haven’t shared a specific number, but when you look at, the slide we shared on the revenue by product, we would certainly look to to pivot further paper pulp and other and Visco sales to CS. Right? So there’s naturally another 7%. You’re you’re not gonna get it all because you’re always gonna have some downgrade product when you’re producing, but you would look to if we’ve got operating capacity on on our production lines, you wanna make as much CS as possible.

Daniel Harriman, Analyst, Sidoti: Yeah.

Marcus Moultner, Senior Vice President and Chief Financial Officer, Ryam: Right? So we we’ve got the line dedicated to fluff, but the other two lines at Jessup and Tardis and Fernandina, we would look to run that capacity, all on CS over the long term and continuing to drive that that number higher.

Daniel Harriman, Analyst, Sidoti: Perfect. Well, I think we’ve reached a good stopping point. Marcus, on behalf of Sidoti and everybody in the in the audience, thank you so much for your willingness to share Rayam’s story. For those of you in the audience, thank you for the participation and the questions. And again, to you both Marcus and to Cody, who’s behind the scenes, thank you all so much for your time today.

Marcus Moultner, Senior Vice President and Chief Financial Officer, Ryam: Thanks, Dan. I appreciate you hosting us, and and I do appreciate everybody’s interest in Ryan. Thank you.

Daniel Harriman, Analyst, Sidoti: Alright. See you soon, everyone. Thank you.

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