Rayonier Advanced Materials Q1 2025 Earnings Call Transcript

Quartr
Provided by Quartr
May 7, 2025

There are 6 speakers on the call.

Operator

Morning, and welcome to the Ryan First Quarter twenty twenty five Earnings Conference Call. 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.

Operator

Walsh. You may begin.

Speaker 1

Good morning, and welcome to Ryan's First Quarter twenty twenty five Earnings Conference Call. Joining me on today's call are Delisle Blunquist, our President and CEO and Marcus Moltner, 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 ryam.com. These materials provide key insights into our financial performance and strategic direction. During today's discussion, we may make forward looking statements made subject to risks and uncertainties that could cause actual results to differ materially.

Speaker 1

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 in our presentation on slides 22 through 27. We appreciate your participation today and ongoing interest in Ryan. I'd now like to turn the call over to Delisle to discuss our performance and strategic initiatives.

Speaker 2

Well, thank you, Mickey, and

Speaker 3

good morning. I'll start with a review of our first quarter financial and operational results before handing it over to Marcus to provide further detail on our business segments, capital structure and liquidity. After Marcus' comments, I'll return to discuss our strategic initiatives and outlook for the remainder of 2025. Let's now turn to Page four. Let me begin with a direct and honest assessment.

Speaker 3

Our twenty twenty five first quarter performance fell well short of our expectations. Compared to the first quarter of twenty twenty four, we reported an 8% decline in revenue and a 67% reduction in adjusted EBITDA. These results are disappointing and as CEO, I take full responsibility for where we are. There were several distinct and compounding challenges this quarter. First, the lower revenue was driven primarily by our cellulose specialties customers accelerating purchases into the previous quarter due to concern about supply chain disruptions from potential tariffs and a U.

Speaker 3

S. East Coast port strike. Second, we experienced operational setbacks from equipment failures and poor weather at our cellulose plants. In the case of our two sulfide operations, the equipment failures were primarily due to the extended sixteen plus month period since the previous scheduled maintenance outages. And at Jessup, the unusual cold weather in January was a primary driver of lower productivity.

Speaker 3

Third, energy prices were higher than expected in the Southeast United States due to the noted cold weather in January. Fourth, we increased the remediation reserves for a couple of our legacy sites due to recent changes in scope resulting from the regulatory process. Fifth, we experienced an unfavorable $5,000,000 change in foreign exchange. And finally, our paperboard and high yield pulp businesses continue to be challenged by unfavorable market dynamics. Our most significant near term issue is tariffs, particularly the 25% tariff imposed by China on US sourced cellulose commodities.

Speaker 3

These tariffs affect approximately $85,000,000 of our annual revenue. In response, we are active actively mitigating this risk through three key actions, customer advocacy, market diversification, and operational adjustments. These efforts are already underway. I will discuss these risks in more detail later in the presentation. Despite these challenges, our finance financial foundation remains solid, supported by liquidity of $272,000,000, net secured debt reduction of $624,000,000 and a net secured leverage ratio of 2.9 times covenant EBITDA.

Speaker 3

However, given these uncertain market conditions, we've lowered our full year guidance for adjusted EBITDA to a range of $175,000,000 to $185,000,000 and adjusted free cash flow between $5,000,000 and $15,000,000 With that, I'll hand the call over

Speaker 2

to Marcus to discuss the financial details. Marcus? Thank you, Dilaud. Starting with our Cellular Specialty segment on slide five, quarterly net sales decreased by $5,000,000 to $2.00 $1,000,000 A 2% sales price increase was more than offset by a 2% decline in sales volume and an unfavorable sales mix. The decline in sales volumes resulted from accelerated customer purchases in the prior quarter and stronger prior year volumes ahead of the Temiscaming indefinite suspension.

Speaker 2

Operating income for the segment was $31,000,000 down $7,000,000 compared to the same quarter last year due to higher input costs, mainly higher energy and operating challenges. EBITDA margins reduced from 27% to 23% as a result of the above impacts. Turning to Slide six. In cellulose commodities, net sales declined $19,000,000 to $75,000,000 This decrease reflects the company's shift away from negative margin commodity grades, partially offset by a 2% increase in pricing. Operating results improved by $6,000,000 year over year to a loss of $13,000,000 primarily due to reduced commodity losses, partially offset by higher input costs and operational challenges.

Speaker 2

Slide seven covers our new biomaterials segment. Net sales remained steady at $7,000,000 with growth from bioethanol sales partially offset by lower feedstock availability from the Tartarcellulose plant. Operating income was flat at $2,000,000 as increased shared and ancillary costs to support the segment's new operating structure were offset by lower maintenance expenses. EBITDA margins for the segment held steady at 29%. Our paperboard results are set out on Slide eight.

Speaker 2

Net sales were down $4,000,000 to $49,000,000 reflecting a 4% decrease in sales prices and a 3% decline in sales volumes due to increased European imports and weaker product mix. The segment recorded an operating loss of $2,000,000 declining $10,000,000 due to volume and pricing impacts, higher purchase pulp costs and maintenance expenses as well as the impact of Temiscaming custodial site costs. Slide nine summarizes our High Yield Pulp segment, where net sales declined $3,000,000 to $31,000,000 Sales prices and volumes decreased by 74%, respectively, as a result of continued market oversupply, notably in China and shipment timing challenges to customers in India. Operating losses increased to $7,000,000 driven by lower market pricing, reduced volumes and Temiscaming custodial site costs. Turning to Slide 10.

Speaker 2

The company's consolidated operating income reflects several key drivers impacting the year over year performance. Lower pricing in paperboard and high yield pulp segments were offset by modest price improvements in CS, which came in below due to weaker product mix. We also realized lower sales volumes as we continued to reduce our exposure to non fluff commodity markets. Costs increased during the quarter, driven by operational challenges at our plants and higher input costs. Corporate costs reflect a $12,000,000 noncash environmental reserve charge and foreign exchange impacts stemming from a weaker US dollar.

Speaker 2

Lastly, slide 11 sets our sets out our capital structure and liquidity profile. Our financial position remains strong despite our first quarter performance that fell short of expectations. We ended the quarter with solid liquidity of 272,000,000, which reflects a hundred and 30,000,000 in cash, a hundred and 31,000,000 available under our ABL facility, and 11,000,000 under our French factoring facility. Net secured debt was reduced to 624,000,000, resulting in a net secured leverage ratio of 2.9 times covenant EBITDA. Our continued discipline around cash flow, working capital management, and strategic capital allocation will ensure we remain in compliance with our debt covenants based on our guidance and as we navigate the uncertainty of the tariffs.

Speaker 2

We remain focused on maximizing free cash flow generation and maintaining financial flexibility to support the company's strategic initiatives and deliver long term shareholder value. With that, I will turn the call back to Dilal.

Speaker 3

All right. Thank you, Marcus. Let's turn to Slide 12. As I mentioned earlier, our immediate focus is on tariff mitigation actions. As mentioned earlier, we have organized these initiatives into three key areas: customer advocacy, market diversification and operational adjustments.

Speaker 3

I'll expand further on these mitigation strategies on the following slide. We remain committed to our key strategic initiatives, progress for some of these initiatives will likely be paused this year. For example, debt reduction in 2025 will likely be minimal due to the cash flow uncertainty caused by the tariff situation. Also in the cellulose commodity segment, we will likely increase the production of non slough commodities in the short term to keep the plants operating at capacity while we work to mitigate the impact of the tariffs. Conversely, we plan to continue to pursue high return but low risk strategic investments that will improve operational efficiencies.

Speaker 3

We also believe that the change in the macro climate macroeconomic climate doesn't affect the investment thesis of our biomaterials growth strategy given that the investments in commerce will be US centric. So we will continue to execute our biomaterial strategy. The strategy's key projects will continue to advance, and we expect to make final investment decisions on several projects in the second half of this year. Moving to slide 13. Currently, within our cellulose commodities segment, only our fluff pulp sales to China are directly subject to tariffs.

Speaker 3

In addition though, we expect some indirect secondary impact from a few US cellulose specialty customers that are also facing high tariffs into China. To address this challenge, we are actively diversifying our sales channels into non tariff affected markets, taking immediate steps to gradually shift production toward other commodity grades, and engaging in ongoing dialogues with customers to mitigate disruptions. We remain we remain closely attuned to the evolving trade landscape, and we'll continue to proactively take steps to further protect our market position. Though our paperboard products are USMCA compliant, thus currently avoid tariffs, we are proactively working to reduce our exposure to potential future tariffs. For example, we are taking advantage of the current by Canada sentiment to increase our Canadian market share.

Speaker 3

And the Canadian government is positioned to impose retaliatory tariffs on US paperboard products if needed. On Slide 14, we outline our updated financial guidance and cash flow drivers for 2025. As already noted, our adjusted EBITDA guidance is now in the range of $175,000,000 to $185,000,000 which is roughly a $45,000,000 reduction from the midpoint of our earlier guidance. The primary drivers of this lower EBITDA guidance include the following. We now assume a twenty million dollars reduction in adjusted EBITDA from tariff related impacts, specifically the estimated direct impact on cellulose commodities and secondarily to our CS customers.

Speaker 3

We also lowered the adjusted EBITDA guidance by $15,000,000 to reflect our first quarter production problems, which we believe are largely behind us as the scheduled maintenance outages for all the HPC plants were completed in March and April. The new guidance also includes a $12,000,000 non cash environmental charge in corporate expenses. However, most of the actual cash spend for this charge will not occur before 2028. We are forecasting unfavorable foreign exchange adjustment of $5,000,000 due to the weakened US dollar versus both the Canadian dollar and euro, and we are forecasting input prices to remain largely in line with our prior guidance. Finally, some CS orders were canceled or delayed in April after the initial tariffs were announced.

Speaker 3

Though we expect that most of these orders will be rebooked, this revenue and accompanying EBITDA will likely be recognized in the second half of the year. Consequently, the second quarter results will be lower than a straight linear extrapolation. Adjusted free cash flow guidance is expected to be in the range of $5,000,000 expense is projected to be approximately $93,000,000, which is $12,000,000 higher than normal due to the timing of interest payments related to our recent debt refinancing. Maintenance capital expenditure remains at $85,000,000, primarily driven by the extended planned maintenance outages at our HPC facilities, which as noted are largely behind us. The positive $10,000,000 under environmental and other reflect the noncash environmental reserve charge discussed earlier.

Speaker 3

Working capital is expected to contribute an additional $5,000,000 and lastly, we have reduced our expected cash outflows related to the France deferred energy payments to $5,000,000 due to timing. On Slide 15, we summarize the 2025 market outlook across each of our business segments in greater detail. In Cellular Specialties, we anticipate a mid single digit percentage price increase versus 2024, driven by our ongoing value over volume strategy. We believe that ether's demand will improve and other CS sales volumes will remain robust. However, assay volumes face ongoing destocking pressures, and as I've noted, we acknowledge that assay demand could present additional near term risk as customers leverage the tariff related pause in orders during April to accelerate the achievement of their destocking objective.

Speaker 3

Although this could intensify near term volume impacts, we believe that such actions would expedite the destocking process, creating a healthier market balance sooner. As a result, we now anticipate cellular specialty EBITDA be in the range of $237,000,000 to $245,000,000 In cellulose commodities, fluff demand remains generally strong, although we anticipate earnings pressure due to the significant Chinese tariff. These impacts will be offset by diversifying our sales channels into non tariff affected markets and shifting production to alternate commodity grades. Taking these factors into account, we project cellulose commodity EBITDA to be approximately a negative $5,000,000 for the year. Our biomaterial business is anticipated to deliver modest but positive EBITDA growth driven by contributions from our France bioethanol and powdered lignosulfonate facilities and ongoing strategic investments.

Speaker 3

We expect biomaterials twenty twenty five EBITDA to be in the range of 8 to $10,000,000. In paperboard, volumes are expected to modestly improve, benefiting from improved market access within North America. However, prices remain under pressure due to competitive market dynamics, including the startup of new capacity. As a result, we expect paperboard EBITDA to be approximately $25,000,000 for 2025. Turning to high yield pulp, persistent oversupply continues to create more challenging market conditions.

Speaker 3

In response, we plan to idle one of our high yield pulp production lines for eleven weeks starting in early June. We anticipate this segment's EBITDA to be approximately a negative $20,000,000 this year. Corporate costs are expected to increase year over year, primarily driven by the non cash environmental reserve charge and foreign exchange headwinds, partially offset by reduced costs following the completion of our ERP implementation. Overall, we now expect corporate expenses of $70,000,000 for 2025. Lastly, on slide 16, we are targeting a net secured leverage ratio of approximately 3.1 times covenant EBITDA for year end 2025, which is well within our debt covenants and remains within striking distance of our long term objective of less than 2.5 times.

Speaker 3

Despite the current market uncertainties, we are confident that we will achieve our longer term EBITDA target of $325,000,000 because the growth and value drivers of our strategy remain intact. Our highly bespoke products in a supply constrained market allow us to execute our value over volume CS strategy. Investment in low risk but high return cost reduction projects will increase profit margins and improve our long term competitive advantage. Our exposure to the non fluff commodities market will decrease as key cellulose specialties end uses grow, and we continue to strongly believe that the biomaterial strategy is independent of the current tariff risk and thus remains a valuable growth opportunity for Ryan. With that operator, please open the call to questions.

Operator

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 your line is in the question queue. You may press 2 to remove yourself from the queue.

Operator

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. First question, Matthew McKellar with RBC Capital Markets. First,

Speaker 4

I'd like to just ask about slough pulp. Can you just talk a bit more about what conditions are like in that market right now with China's retaliatory tariffs in place? What share of buyers in China would be absorbing the tariffs? Would you expect those buyers to continue to do so? And what kind of market diversification do you think is possible to achieve?

Speaker 4

And and over what kind of timeline should we be thinking about there? Thanks.

Speaker 3

Hey, Matt. This is Delisle. A great question about, the fluff market, and I wish I had something more definitive to tell you, as the as you would probably understand, the the conditions are are very dynamic, as we speak. But, let me try to, give you an idea of what's going on. With respect to, our Chinese customers, a couple of them have decided that, they will continue to place orders for the near term, but they've also communicated that, this will not be something we should should count on for the long term.

Speaker 3

I think, at the end of the day, they're hoping that a resolution be of the trade conflicts between The US and China will be resolved in the next few months. And once that happens, then things can return to normal. But they they have said that they can't afford to continue to pay the tariffs for the long term. So given that messaging, we've started pivoting away from China, try to pursue opportunities in other, call them, non tariff markets. That would be principally India, Africa, The Middle East, and so forth.

Speaker 3

And we're having some success in finding demand for fluff in these other markets. And that's, I think, indicative of the fact that the fluff markets are are are largely supply constrained right now. So we are we are finding opportunities to sell the fluff outside of China, but it does it is taking quite a bit of effort on the part of our sales teams and commercial teams to pursue such opportunities. In the medium term, if these tariffs continue, we will obviously look to move away from fluff to some of the other non some of the other cellulose commodities, principally things like viscose and paper pulp. And one of the things that came out of the Chinese one of the things we're understanding anyway with respect to the Chinese tariffs is that the dissolving wood pulp is, at least what we're understanding, is is possibly exempt from the tariffs.

Speaker 3

So that would include viscose. So we are having discussions, and our viscose orders have resumed. And so that will be be a real opportunity for us in the in going forward. Unfortunately, that's a business where the operating capacity remains high and the pricing is relatively healthy. And so that is an opportunity for us to and that would be an option that we will consider.

Speaker 3

And then with respect to paper pulp, exceptionally large market, we're dropping the bucket in that market. And if if needs be, that that'll be a market that we'll we'll use as kind of the backstop if needed to to move move product in into. So long winded answer. I'm sorry about that, Matt. But at the end of the day, right now, we're having some success, moving the product and keeping it in fluff, moving the product out of China and keeping it in fluff.

Speaker 3

We have opportunities to move it into viscose into China. Currently, the door seems to be open. And then as a final last resort, we'll be looking to get into paper pulp if if we have to.

Speaker 4

That's great. I appreciate all the color there. Moving on to CS, you mentioned lower volumes following the accelerated purchases in q four. And also, sounds like there's maybe a bit of noise following Liberation Day. Could you just provide maybe a little bit more color around how volumes evolved maybe following Liberation Day, how they've continued to evolve to today?

Speaker 4

And then how would you have us think about how your volumes sort of evolved through the balance of the year, both kind of across the segments and maybe for acetate specifically?

Speaker 3

Okay. Alright. The to starting at the beginning of the year, we we we did start seeing that volumes of CES principally to China were lower than expectations. And in our conversations with our customers, the we were informed that a lot of, that that they had preordered a lot of material going into '25 due to, at the time, the principal concern around being the the potential for port strikes along the East Coast. I don't know if you remember that, but that didn't really get resolved until the middle of of January around the president Trump's inauguration.

Speaker 3

But they also see also was concerned generally about the potential for tariffs as they get going into Christmas and coming out of Christmas into January, a lot of discussion about and a lot of news around around the potential for tariffs. So we we saw orders principally acetate, but also some of our other CS products that we do ship into China and other parts of the world were also affected. When we got to Liberation Day, April second, and the announcement of tariffs and then the the exceptionally accelerated, tariffs that occurred between April 2 and April 6, first started by The US, and there was and then we saw the response from China. We saw orders going into China just dry right up. Orders were canceled.

Speaker 3

They were deferred. They were delayed. And so, really, at the end of the day, we didn't see much of in terms of any new orders during that month. It wasn't until it got into May that we saw that orders that had been previous paused begin to resume for CS, for our CS customers in China. And that goes back to that we believe that the CS our CS products have been largely exempted by by the Chinese authorities.

Speaker 3

So there's been no official announcement on that. But orders have have have resumed for a number of our customers. That being said, as I said, during during the the formal part of the presentation, we do think some of our customers are going to take advantage of the pause or, that in orders in April to accelerate the destocking that we, we we had, stated and noted in the acetate market, principally in China. So we do expect that, we'll see orders being lower this year than what we had budgeted as well as we had in our initial guidance. However, that being said, we did as I said, the market or orders for our customers in in China are have resumed, and we expect that, coming into q three and q four that we'll be back to normal, is what we've, is what we've assumed in our guidance.

Speaker 3

But that q two will be light, given the pause in April. Things will start normalizing in May and June. And then by the time we get to July, things will be largely normal is what we've what we've assumed in our guidance.

Speaker 4

Thanks. That's very helpful commentary. Last question for me. Could you please just kind of remind us what the puts and takes are around how your paperboard guidance for 2025 has evolved here? And maybe also remind us what you've assumed around pricing for the segment as part of your guide?

Speaker 4

And any just color around the mix impacts you saw in Q1 as well would be helpful. Thank you.

Speaker 3

Okay. Alright. With respect to paperboard, you know, at the beginning of the year, we we had noted that there was a a risk of a $35,000,000 tariff, impact, for the imports of our, that we imports into The US of our paperboard business. Obviously, that didn't transpire, because of the fact that our our products are USCMA compliant. Also, what I stated in, I think, in February the February call was that a lot of our mitigation actions on paperboard were actually gonna be spread out across the full enterprise in terms of cost reduction and and actions taken to accelerate some projects that would improve our material usage and other cost cost opportunities.

Speaker 3

And so, the fact that this risk has now, reversed, and we're not seeing the don't expect that we're going to, see, any tariffs on our paper boards. The fact is that much of the mitigation was actually is still in place, but it's actually affecting, the other businesses. And that we've we have that baked in largely in the, the guides we've get we've given. There was some mitigation that was, paperboard and high yield pulp specific, that, also reversed with the, the the the reverse or the reversion of the tariff. The good example would be foreign exchange.

Speaker 3

We had expected the Canadian dollar to continue to weaken. There was a point that it got down to 68¢ or 67¢ to the US dollar, and then it did just the opposite. And so, and now they it's back to 72¢, 70 3 cents to the to the US dollar. And that was a $10,000,000 swing all by itself for us. There's other things that we had in our mitigation plan, like picking up additional Canadian customers, but that we also noted that the the call qualification process would be, would be a little extended.

Speaker 3

We can we're continuing to pursue that and continue to go after that, but we're still in the qualification process. So the mitigation, that would come from that is is still to be realized, and we haven't we have not included any of, that type of activity in the guidance that we've given to you today. With respect to pricing, pricing is we expect to be continue to decrease. It's down in our guidance roughly 5%, and that's really due to increased supply from the new SAPI capacity coming online, which is expected to, hit the market in, June. So we continue to expect that that will will have pressure, and we've got that baked into the guidance.

Speaker 3

We do expect long term, though, that demand will eventually catch up to that new supply relatively quickly, given the megatrends of the move away from plastic packaging to more sustainable packaging. So we expect that that will eventually, that overhang of supply will eventually go away, and then, continue to, support, the the long term profitability of our of our business. So with respect to mix, I think that the primary change there is really the fact that a lot of our high end customers are were and are in The US. And it's really principally around, what are those stupid things? Lottery.

Speaker 3

The lottery business. We've lost some share in the lottery business to, to some European competitors, and that, obviously and then we've replaced that with, a lower price business to keep the the plant, running at capacity. But that was really the primary, impact to our to our mix.

Speaker 4

Thanks very much for all that detail. I will turn it back. Thanks. Thanks.

Operator

Next question, Daniel Harriman with Sidoti and Company. Please proceed.

Speaker 1

Hey, guys. Good morning, and thank you so much for taking your Just a couple of quick ones today, one for Delisle and and one for Marcus. Delisle, I know you just went through a bunch of information on CS and paperboard, but looking at the guide for CS and 25 and kinda comparing that to the guide from the 04/2024 call, I was kinda hoping you may be able to confirm that you're still able to sell that product into China without any tariff impact currently. Obviously, the the fluff is subject to tariffs, but I was curious about the the CS in general. And then, Marcus, you you talked about liquid

Speaker 3

Oh, yeah. I'm sorry. Oh, okay. No.

Speaker 1

You can go, and then I'll I'll ask my question to Marcus. So go ahead, Lyle.

Speaker 3

Okay. Dan Daniel, the nothing has been officially announced with respect to the the tariffs, or the tariff impacts on our CS products. But we have assumed in our guidance that CS pox will not be exposed to tariffs for the year. What we base that on is, one, our our conversations with our customers, which are almost day to day, and the fact that shipments that were previously paused, principally in April, have now resumed. And that, I think, is the the the most confident indicator that we got that CS demand or CS orders will will resume and get back to back to normal.

Speaker 3

One of the things I took away and what we take away from, this experience is that, our products our products that we sell, our CS products that we sell, are absolutely needed. And that has been confirmed with our our conversation with our customers. And I think, also is confirmed by the fact that, the orders have resumed and that at least we're hearing, in the background, though not official, that, our CS products, will be, re allowed to enter enter China with without tariffs. But, again, as I said, that has not been confirmed.

Speaker 1

Alright. Thank you so much. That's so helpful. And then, Marcus, quickly, I know you talked about it, but I just wanted to check-in and see how you're feeling about the current liquidity. Because in this environment, you still seem to be in pretty good shape at 2.9 times even though that's higher than where you were at the end of twenty four with solid cash on the balance sheet.

Speaker 1

So any color you could provide would be helpful.

Speaker 2

Yeah. Good morning, Dan. Thanks for your question. No. I feel good about the liquidity profile of the company.

Speaker 2

You know, despite the difficult quarter, as you as you saw in our disclosures, at an enterprise level, just, north of 270,000,000 of liquidity. You know, we we manage the business with a view to always keep around 200,000,000 of liquidity around between the ABL and cash. So I feel, you know, we're we're active on all fronts to to always manage cash. Our working capital, we're still looking to target a bit of savings there. And, between the factoring line in France and our ABL, as you saw, we were not on the ABL at the end of the quarter, and we use it just to to cover timing issues.

Speaker 2

So, overall, I feel very good

Operator

Next question comes from Dmitry Silverstein with Water Tower Research. I

Speaker 5

just wanted to follow-up on a couple of things. First of all, you talked about energy costs being up and input costs being up. Now, you know, wood pulp is up. I understand the reasons for that. But what other costs have increased for you, and why are your energy costs down Just looking at the, you know, oil market and natural gas market, you know, the prices there seem to have come down since the beginning of the year.

Speaker 5

So what's the dynamic driving your higher energy costs?

Speaker 3

Good morning, Dmitry. To answer the question on the on energy, it's it's really specific to q one. And the the the very cold weather that hit the Southeast United States primarily in January. We actually got four inches of snow in Jessup, during that period, but it was also we had a little bit of snow here in Jacksonville, Florida. So the weather was exceptionally cold, and it was part of the reason for some of the operational issues we had at Jetsup in January.

Speaker 3

But that that that that shot the the the cost of energy through the roof. In fact, we got a what's called an o what's the OFO? OFO order that that essentially disallowed us to use our hedge on on natural gas, and we ended up having to buy natural gas on the spot market in in January as a result of the the issues with respect to the cold weather. Now energy prices normalized as we got out of q one, but the energy impact that, we've noted was, was largely just tied to our experience in q one. With respect to, the other inputs, you noted, wood pulp, but I would say that our other major inputs, that would be, you know, caustic and the sulfur sulfur family of products that we have, ammonia, and other things.

Speaker 3

Our our our assumptions and guidance is largely in line with the indices that are out there. And those are higher than '24, and we've maintained that. But we haven't seen any real decrease in those indices in '25 as of yet. So that's that's kinda where we where we are with our with our assumptions.

Speaker 5

Understood. That that's helpful. Thank you, Delisle. And then a quick question on your Tardis plan. It it seems to be raw material constrained because, obviously, you're not producing as much cellulose internally.

Speaker 5

But even with the full production, you were still not operating at at full capacity because of raw material constraints. So what are you doing to address getting the the biomass into the Tardis plant so you can produce the bioethanol higher volumes?

Speaker 3

Yeah. We're doing a a number of things, but the short term answer to the quest to your question with respect to raw material feedstock for the bioethanol plant in Fernandina. Not Fernandina, but in Tartas, is that we need to run the Tartas plant at a consistently higher level than we we did in q one. So the good news is that the outage is behind us. Equipment has been repaired, and the facility should operate better going forward for the rest of the year.

Speaker 3

In the medium term, we are continuing to look at using different yeast as well as making some operational changes to increase the the the sugars that are more more readily formidable to to bioethanol, for example, monomers. And those efforts continue, and we expect that we'll see a pop in feedstock availability or call it more of a improvement in yield for the for the from the feedstock come August and September of this year. And then as we get into twenty sixth, we'll be looking at another POP as we change some of the operations in Tardis, the in the cellulose plant to, again, provide us a feedstock that will actually give us a better yield. And then we'll, we are spending some capital to allow us to use, GMO yeast, at our facility, in, in Tardis, which again will give us a pop, in yield, in in '26, '20 '7. So, this is obviously an area we we've got a lot of focus on.

Speaker 3

Margins on this business is is fantastic. We wanna make as much ethanol as we possibly can. So we are we are gonna spend a little bit of capital to to make that happen. And then with respect to the Tardis facility, we believe that the problems that we had in q one are are largely now behind us.

Speaker 2

And, Dmitry, the the comments that the comments that Delisle shared on the cellulose production at Tardis, that that impacts both the sugar stream and the lignans lignans stream. Right? So we're we're making good economics on powder and, liquid, lignans as well.

Speaker 5

Thank you, Nikki. That that's that's helpful as well. And then you touched on that in in answer to the previous question, but what's going on with the Fernandina plant and and expansion there for bioethanol? I know the city is putting up some roadblocks. So where do we stand there, and and how confident you are that you'll be able to get the permits that you need and and and get that plant built in the in the near future?

Speaker 3

We remain confident that we'll eventually prevail. It's a it's very promising project, for for Ryan. We also believe it provides huge benefits to the community as well as to the world in large in that it reduces emissions, and it provides a a another source of renewable energy for the for for the country as well as world the world generally. So we believe that, we are well positioned, and and and believe that the the business, is something that would be beneficial for all stakeholders. With respect to you expect to the illegal actions we've taken, not much I can comment to because it's it's an open litigation and just say that we we still believe strongly that our strongly in our position.

Speaker 5

Okay. I'll I'll take the rest offline. Thank you. That's all the questions I have.

Operator

Thank you. I will now turn the floor over to Delisle for closing remarks.

Speaker 3

Alright. Well, thank you again today for your time and for your continued interest in Ryam. We acknowledge the challenging start we've had this year and the ongoing uncertainty uncertainties that we're seeing in the global market. But despite these near term headwinds, I remain confident in the resilience of our core business and our ability to effectively navigate these challenges. And also, I wanna just reemphasize our ongoing commitment to our our long term strategy.

Speaker 3

Our focus remains clear. We need to actively mitigate the tariff impacts. We need to optimize our assets and advance our high return biomaterial investments while maintaining disciplined financial management to drive sustained long term value. We greatly appreciate your ongoing support and engagement during this period. And as always, we remain committed to transparency and open communication.

Speaker 3

So please do not hesitate to reach out with any further questions if you require a different additional information. Thank you for joining us today, and have a great day.

Operator

This concludes today's teleconference. You may disconnect your lines at this time, and thank you for your participation.

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Earnings Conference Call
Rayonier Advanced Materials Q1 2025
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