Q1 2025 Rayonier Advanced Materials Inc Earnings Call
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Thank you for your time, and I'll see you in the next video.
Speaker Change: Good morning and welcome to the Ryan 1st 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. Thank you very much.
Speaker Change: Good morning and welcome to Ryan's first quarter, 2025 Earnings Conference call. Joining me on today's call are DeLyle Blunquist, our President and CEO and Marcus Moeltner, our CFO and Senior Vice President of Finance.
Speaker Change: Last evening we released our earnings report in accompanying presentation materials which are available on our website at riam.com. These materials provide key insights into our financial performance and strategic direction.
Speaker Change: During today's discussion we may make forward-looking statements made subject to risks and uncertainties that could cause actual result to differ materially. These risks are outlined in our earnings release, SEC filings and on slide two of the presentation. Thank you very much.
Speaker Change: We will also reference certain non-GAAP financial measures to offer additional perspective on our operational performance. Reconciliation to the most comparable GAAP measures can be found in our presentation on slides 22 through 27.
Delisle Bloomquist: We appreciate your participation today in ongoing interest in Ryan. I now look to turn the call over to DeLyle to discuss our performance and strategic conditions.
Delisle Bloomquist: Well, thank you Mickey and 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.
Speaker Change: Aftermarket is comments I'll return to discuss our strategic initiatives and outlook for the remainder of 2025.
Delisle Bloomquist: Let's now turn to page four let.
Speaker Change: Let me begin with a direct and honest assessment.
Speaker Change: Our 2025 first quarter performance fell well short of our expectations.
Speaker Change: Compared to the first quarter of 'twenty 'twenty four we reported an 8% decline in revenue at a 67% reduction in adjusted EBITDA. These.
Speaker Change: These results are disappointing and as CEO I take full responsibility for where we are.
Speaker Change: There were several distinct compounding challenges this quarter.
Speaker Change: 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.
Speaker Change: U S East coast Port strike.
Speaker Change: Second we experienced operational setbacks from equipment failures and poor weather at our cellulose plants.
Speaker Change: In the case of our two sulfide operations the equipment failures were primarily due to the extended 16 plus months.
Speaker Change: Since the previous scheduled maintenance outages and that's just the unusual cold weather in January was a primary driver of lower productivity.
Speaker Change: Third energy prices were higher than expected in the southeast United States due to the noted cold weather in January.
Speaker Change: Fourth we increase the remediation reserves for a couple of our legacy sites due to recent changes in scope.
Speaker Change: <unk> from the regulatory process.
Speaker Change: Fifth we experienced an unfavorable $5 million change in foreign exchange.
Speaker Change: And finally, our paperboard in our high yield pulp businesses continued to be challenged by unfavorable market dynamics.
Speaker Change: Our most significant near term issue is tariffs, particularly the 125% tariff imposed by China and U S source.
Speaker Change: Cellulose commodities.
Speaker Change: These terrorists affect approximately $85 million of our annual revenue.
Speaker Change: In response, we were active actively mitigating this risk through three key actions.
Speaker Change: Customer advocacy market diversification and operational adjustments.
Speaker Change: These efforts are already underway.
Speaker Change: I will discuss these risk in more detail later in the presentation.
Speaker Change: Okay.
Speaker Change: Despite these challenges our finance financial Foundation remains solid supported by liquidity of $272 million net secured debt reduction of $624 million.
Speaker Change: And our net secured leverage ratio of 2.9 times Covenant EBITDA.
Speaker Change: However, given these uncertain market conditions.
Speaker Change: Lowered our full year guidance for adjusted EBITDA to a range of $175 million to $185 million.
Speaker Change: And adjusted free cash flow between 5 million and $15 million.
Speaker Change: With that I'll hand, the call over to Marcus to discuss the financial details Marcus Thank you della.
Speaker Change: Starting with our cellulose specialties segment on slide five.
Speaker Change: Quarterly net sales decreased by 5 million to $201 million.
Speaker Change: A 2% sales price increase was more than offset by a 2% decline in sales volume and an unfavorable sales mix.
Speaker Change: The decline in sales volumes resulted from accelerated customer purchases in the prior quarter and stronger prior year volumes ahead of the Michigan indefinite suspension.
Speaker Change: Operating income for the segment was $31 million down 7 million compared to the same quarter last year.
Speaker Change: Due to higher input costs, mainly higher energy and operating challenges.
Speaker Change: EBITA margins reduced from 27% to 23% as a result of the above impacts.
Speaker Change: Turning to slide six.
Speaker Change: Cellulose commodities net sales declined $19 million to $75 million.
Speaker Change: This decrease reflects the company's shift away from negative margin commodity grades.
Speaker Change: Partially offset by a 2% increase in pricing.
Speaker Change: Operating results improved by 6 million year over year to a loss of $13 million, primarily due to reduced commodity losses, partially offset by higher input costs and operational challenges.
Speaker Change: Slide seven covers our new biomaterials segment.
Speaker Change: Net sales remained steady at $7 million.
Speaker Change: With growth from bio ethanol sales, partially offset by lower feed stock availability from the <unk> cellulose plant.
Speaker Change: Operating income was flat at $2 million.
Speaker Change: As increased shared and ancillary costs to support the segment's new operating structure were offset by lower maintenance expenses.
Speaker Change: EBITDA margins for the segment held steady at 29%.
Speaker Change: Our paperboard results are set out on slide eight.
Speaker Change: Net sales were down 4 million to $49 million, reflecting a 4% decrease in sales prices and a 3% decline in sales volumes due to increased European imports and weaker product mix.
Speaker Change: The segment recorded an operating loss of $2 million declining 10 million due to volume and pricing impacts.
Speaker Change: Higher purchase pulp cost and maintenance expenses as well as the impact up to Michigan Custodial site class.
Speaker Change: Slide nine summarizes our high yield pulp segment.
Speaker Change: Net sales declined 3 million to $31 million.
Speaker Change: Sales prices and volumes decreased by 7% and 4% respectively.
Speaker Change: As a result of continued market oversupply, notably in China, and shipment timing challenges to customers in India.
Speaker Change: Operating losses increased to $7 million, driven by lower market pricing reduced volumes and to Michigan in custodial site costs.
Speaker Change: Turning to slide 10, the company's consolidated operating income reflects several key drivers impacting the year over year performance.
Speaker Change: Pricing in paperboard in high yield pulp segments were offset by modest price improvements and see yes.
Speaker Change: Which came in below due to weaker product mix.
Speaker Change: We also realized lower sales volumes as we continued to reduce our exposure to non fluff commodity markets.
Speaker Change: Costs increased during the quarter drew.
Speaker Change: Driven by operational challenges at our plants and higher input costs.
Speaker Change: Corporate costs reflect the $12 million noncash environmental reserve charge and foreign exchange impacts stemming from a weaker U S dollar.
Speaker Change: Lastly, slide 11 steps are sets out our capital structure and liquidity profile.
Speaker Change: Our financial position remains strong.
Speaker Change: Our first quarter performance that fell short of expectations.
Speaker Change: We ended the quarter with solid liquidity of 272 million.
Speaker Change: Which reflects the $130 million in cash $131 million available under our ABL facility.
Speaker Change: $11 million under our French factoring facility.
Speaker Change: Net secured debt was reduced to $624 million.
Speaker Change: 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.
Speaker Change: Will ensure we remain in compliance with our debt covenants based on our guidance and as we navigate the uncertainty of the tariffs.
Speaker Change: We remain focused on maximizing free cash flow generation and maintaining financial flexibility.
Speaker Change: To support the company's strategic initiatives and deliver long term shareholder value.
July: With that I will turn the call back to July.
July: Thank you Marcus.
Speaker Change: Let's turn to slide 12.
Speaker Change: As I mentioned earlier, our immediate focus is is on tariff mitigation actions is.
Speaker Change: As mentioned earlier, we have organize these initiatives into three key areas.
Speaker Change: Customer advocacy market diversification and operational adjustments.
Speaker Change: Further a further on these mitigation strategies on the following slide.
Speaker Change: So we remain committed to our key strategic initiatives progress for some of these initiatives will likely be pause this year.
Speaker Change: For example, a debt reduction of 2025 will likely be minimal due to the cash flow uncertainty caused by the tariff situation.
Speaker Change: Also in the cellulose commodity segment, we will likely increase the production of Nonslip commodities in the short term.
Speaker Change: To keep the plants operating your capacity, while we work to mitigate the impact of the tariffs.
Speaker Change: Conversely, we plan to continue to pursue high return, but low risk strategic investments that will improve operational efficiencies.
Speaker Change: We also believe that the change in the macro climate bathroom economic climate doesn't it affect the investment thesis of our biomaterials growth strategy given that the investments in commerce will be U S centric.
Speaker Change: So we will continue to execute our biomaterial strategy.
Speaker Change: 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.
Speaker Change: Moving to slide 13.
Speaker Change: Currently within our cellulose commodity segment only.
Speaker Change: Only our fluff pulp sales to China are directly subject to tariffs.
In addition, though we expect some indirect secondary impact from a few U S. Cellulose specialty customers that are also facing high tariffs into China.
Speaker Change: To address this challenge we are actually diversifying our sales channels into non tariff affected markets.
Speaker Change: Taking immediate steps to gradually shift production towards other commodity grades and engaging in ongoing dialogues with customers to mitigate disruptions.
Speaker Change: We remain we remain closely attuned to the evolving trade landscape.
Speaker Change: We'll continue to proactively take steps to further protect our market position.
Speaker Change: So our paper board products, our U S. M C. A compliant thus currently avoid tariffs.
Speaker Change: We are proactively working to reduce our exposure to potential future tariffs. For example, we are taking advantage of the current by Canada sentiment.
Speaker Change: To increase our Canadian market share in.
Speaker Change: And the Canadian government is positioned to impose retaliatory tariffs on U S paperboard products if needed.
Speaker Change: On slide 14, we outline our updated financial guidance and cash flow drivers for 2025.
Speaker Change: As already noted our adjusted EBITDA guidance is now in the range of $175 million to $185 million.
Speaker Change: Which is roughly a $45 million reduction from the midpoint of our earlier guidance.
Speaker Change: The primary drivers of this lower EBITDA guidance include the following.
Speaker Change: We now assume a $20 million reduction in adjusted EBITDA from tariff related impacts specifically, yes.
Speaker Change: He estimated directly impact on cellulose commodities and secondarily to our customers.
Speaker Change: We also lowered the adjusted EBITDA guidance by $15 million to reflect our first quarter production problems, which we believe are largely behind us as a scheduled maintenance outages for all of the H B C plants were completed in March and April.
Speaker Change: The new guidance also includes a 12 million dollar noncash environmental charge in corporate expenses.
Speaker Change: However, most of the actual cash spend for this charge will not occur before 2028.
Speaker Change: We are forecasting unfavorable foreign exchange adjustment of $5 million due to the weakened U S dollar versus both the Canadian dollar and Euro.
Speaker Change: We are forecasting input prices to remain largely in line with our prior guidance.
Speaker Change: Finally, some see us orders were canceled or delayed in April after the initial tariffs were announced.
Speaker Change: So we expect that most of these orders will be re booked this.
Speaker Change: This revenue and accompanying EBITDA will likely be recognized in the second half of the year.
Speaker Change: Consequently, the second quarter results will be lower than a straight linear extrapolation.
Speaker Change: Adjusted free cash flow guidance is expected to be in the range of $5 million to $15 million cash interest expense is projected to be approximately $93 million.
Speaker Change: Which is $12 million higher than normal due to the timing of interest payments related to our recent debt refinancing.
Speaker Change: Maintenance capital expenditure remains at $85 million, primarily driven by the extended planned maintenance outages at our H B C facilities, which as noted are largely behind us.
Speaker Change: The pause of $10 million under environmental and other reflect the noncash environmental reserve charge discussed earlier.
Speaker Change: Capital is expected to contribute an additional $5 million and lastly, we have reduced our expected cash outflows related to the France deferred energy payments to $5 million due to timing.
Speaker Change: On slide 15, we summarize the 2025 market outlook across each of our business segments in greater detail.
Speaker Change: In cellulose specialties, we anticipate a mid single digit percentage price increase versus 'twenty 'twenty four driven by our ongoing value over volume strategy.
Speaker Change: We believe that ethers demand will improve and other C. S sales volumes will remain robust.
Speaker Change: However, S eight volumes face ongoing destocking pressures.
Speaker Change: And as I've noted, we acknowledged that acetate demand Cooper's presented additional near term risk as customers leverage the tariff related pause in orders during April.
Speaker Change: To accelerate the achievement of their stocking objective.
Speaker Change: Although this could intensify near term volume impacts, we believe that such actions would expedite the destocking process.
Speaker Change: Creating a healthier market balance sooner.
Speaker Change: As a result, we now anticipate cellulose specialty EBITDA to be in the range of $237 million to $245 million.
Speaker Change: In cellulose commodities fluff demand remains generally strong, although we anticipate earnings pressure due to the significant Chinese tariffs.
Speaker Change: These impacts will be offset by diversifying our sales channels into non tariff affected markets.
Speaker Change: And shifting production to alternate commodity grades.
Speaker Change: Taking these factors into account, we project cellulose commodity EBITDA to be approximately a negative $5 million for the year.
Speaker Change: Our biomaterial business is anticipated to deliver modest but positive EBITDA growth driven by contributions from our France, bio ethanol and powder lignin Sultanate facilities and ongoing strategic investments.
Speaker Change: Specced Biomaterials 2025, EBITDA to be in the range of $8 million to $10 million.
Speaker Change: And 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.
Speaker Change: As a result, we expect paperboard EBITDA to be approximately $25 million for 2025.
Speaker Change: Turning to high yield pulp persistent oversupply continues to create more challenging market conditions.
Speaker Change: In response, we plan to idle one of our high yield pulp production lines for 11 weeks starting in early June.
Speaker Change: We anticipate this segment's EBITDA to be approximately a negative $20 million this year.
Speaker Change: Corporate costs are expected to increase year over year, primarily driven by the noncash environmental reserve charge and foreign exchange headwinds.
Speaker Change: Partially offset by reduced costs following the completion of our ERP implementation.
Speaker Change: Overall, we now expect corporate expenses of $70 million for 2025.
Speaker Change: Lastly on slide 16.
Speaker Change: We're targeting a net secured leverage ratio of approximately three one times covenant EBITDA for year end 2025.
Speaker Change: Which is well within our debt covenants remains within striking distance of our long term objective of less than two five times.
Speaker Change: Despite the current market uncertainties, we are confident that we will achieve our longer term EBITDA target of $325 million, because the growth and value drivers of our strategy remain intact.
Speaker Change: Our highly bespoke products in a supply constrained market allow us to execute our value over volume strategy.
Speaker Change: Investment and low risk and high return cost reduction projects will increase profit margins and improve our long term competitive advantage.
Speaker Change: Our exposure to the non fluff commodities market will decrease as key cellulose specialities and uses grow.
Speaker Change: And we continue to strongly believe that the biomaterial strategy is independent of the current tariff risk.
Speaker Change: And thus remains a valuable growth opportunity for Orion.
Speaker Change: With that operator, please open the call to questions.
Speaker Change: 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.
Speaker Change: Confirmation tone will indicate your line is in the question queue.
Speaker Change: You May press star two to remove yourself from the queue.
Speaker Change: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the starkey.
Speaker Change: One moment, please while we poll for questions.
Speaker Change: Okay.
Speaker Change: First question, Matthew Mckellar with RBC capital markets. Please go ahead.
Matthew Mckellar: Hi, Good morning, Thanks for taking my questions first I'd like to just ask about fluff 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.
Matthew Mckellar: Share of buyers in China would be absorbing the tariffs would you expect those buyers to continue to do so.
Matthew Mckellar: What kind of market diversification do you think it's possible to achieve and over what kind of timeline should we be thinking about there. Thanks.
Lyle: Hey, Matt this is lyle.
Lyle: A great question about the fluff market and I wish I had something definitive to tell you.
Lyle: As the as you would.
Lyle: Probably understand the the conditions are very dynamic as we speak but let me try to give you.
Lyle: And the idea of what's going on with respect to our Chinese customers.
Lyle: A couple of them have decided that they will continue to place orders for the near term.
Lyle: But they have also communicated that this well.
Lyle: We'll not be something we should count on them for the long term.
Lyle: Think of it the other day, they're hoping that a resolution of the trade conflicts between the U S and China will be resolved in next few months and once that happens then things can return to normal.
Lyle: But are they they have said that they can't afford to continue to pay the tariffs with the long term.
Lyle: So given that messaging, we've started pivoting away from China.
Lyle: To pursue opportunities in other call them non tariff markets that would be principally India Africa, the middle East and so forth.
Lyle: And we're having some success in finding demand for fluff and these other markets and that's I think indicative of the fact that the fluff market are or are largely supply constrained right now.
Lyle: So where we are finding opportunities to sell the fluff outside of China, but it does it is taking quite a bit of effort on.
Lyle: On the part of our sales teams and commercial teams to pursue such opportunities.
Lyle: In the medium term if these tariffs continue we will obviously look to move away from fluff to some of the other knobs are some of the other cellulose commodities principally things like this goes through paper poll.
Lyle: And one of the things that came out of the Chinese are one of the things we're understanding anyway with respect to the Chinese tariffs is that the dissolving wood pulp.
Lyle: Is at least what we're understanding is as possibly exempt from the tariffs and that would include viscose.
Lyle: So we are having discussions and our bis goes orders.
Lyle: Have resumed and so that will be a real opportunity for us.
Lyle: And going forward. Unfortunately, that's a business where the operating capacity remains high.
Lyle: And the pricing is relatively healthy and so that it's an opportunity for us to be an option that we would consider.
Lyle: And then with respect to paper pulp.
Lyle: Exceptionally large market, where a drop in the bucket in that market and if if needs be that that'll be a market that will we'll use as kind of the backstop if needed to to move move product into.
Matt: So long winded answer I'm, sorry about that Matt, but the other day right now we're having some success moving the product and keeping it in fluff moving the product out of China and keeping in fluff.
Matt: We have opportunities to move it into viscose into China I'm currently the worst seems to be open.
Matt: And then as a final last resort will be looking to get into the paper pulp attack if we have to.
Speaker Change: That's great I appreciate all the color there.
Speaker Change: Moving onto to see yes, you.
Speaker Change: You mentioned lower volumes following the accelerated purchases in Q4.
Speaker Change: And also it sounds like there is maybe a bit of noise. Following liberation day could you just provide maybe a little bit more color around how volumes evolve maybe following liberation day, how they've continued to evolve to today.
Speaker Change: And then how would you have us think about how your volume sort of evolved through the balance of the year.
Speaker Change: Well, it's kind of across the segments and maybe for acetate specifically.
Speaker Change: Okay.
Speaker Change: Alright.
Speaker Change: B a.
Speaker Change: Starting at the beginning of the year. We we are we did start seeing bad to volumes.
Speaker Change: C S principally to China were lower than expectations and in our conversations with our customers.
Speaker Change: <unk>.
Speaker Change: We were informed that a lot of they that they had pre ordered a lot of material going into 25 due to at the time the principal concern around being the potential for port strikes along the east coast.
Speaker Change: I don't know if you remember that but that doesn't really get resolved.
Speaker Change: Until the middle of January with them around their president Trump's exaggeration.
Speaker Change: But they also see also was concerned generally about the potential for tariffs is a good going into Christmas is coming out of Christmas into January a lot of discussion about and a lot of news around around the potential for tariffs.
Speaker Change: So we saw orders principally acetate, but also some of our other products that we do ship into China and other parts of the World were also affected.
Speaker Change:
Speaker Change: When we got to Liberation day April 2nd and the announcement of the tariffs and then the.
Speaker Change: Exceptionally celebrated.
Speaker Change: Tariffs that occurred between April 2nd April 6th.
Speaker Change: First started by the U S. And then we saw the response from China. We saw orders are going to try to just drive right up.
Speaker Change: Orders were canceled they were deferred or delayed.
Speaker Change: Yeah, and so I'm really are at the other day.
Speaker Change: We didn't see much in terms of any new orders during that month.
Speaker Change: It wasn't until.
Speaker Change: Got it to me that we saw that orders that had been previous pulp were paused begin to resume for see us for sea as customers in China and that goes back to that.
Speaker Change: We believe that you see us or see us products have been largely exempted by by the Chinese authorities. So theres been no official announcements about that but orders have have have resumed before a number of our customers.
Speaker Change: That being said as I said during during the formal part of the presentation.
Speaker Change: We do see some of our customers are going to take advantage of the pause.
Speaker Change: In orders in April to accelerate the Destocking.
Speaker Change: We are we had stated and noted in the acetate market principally in China.
Speaker Change: So we do expect that we'll see orders being lower this year than what we had.
Speaker Change: Budgeted as well as we had in our initial guidance.
Speaker Change: However that being said, we did as I said the <unk>.
Speaker Change: Markets are orders for our customers in China are have resumed and we expect that coming into Q3, and Q4 that will be back to normal I was what we've as what we've assumed in our guidance, but that Q2 will be a light.
Given the pause in April things will start normalizing in May and June and it was by the time, we get to July things it'll be largely normals, what we've what we've assumed in our guidance.
Speaker Change: Thanks, that's very helpful commentary.
Speaker Change: Last question for me.
Speaker Change: Could you please just.
Speaker Change: 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 Change: Any just color around the mix impacts.
Speaker Change: In Q1, as well would be helpful. Thank you.
Speaker Change: Okay.
Speaker Change: Alright, with respect to paperboard and you know at the beginning of the year. We had just noted that.
Speaker Change: Yeah, there was a risk of a 35 million dollar tariffs impact.
Speaker Change: Hmm.
Speaker Change: Where are the imports of our imports into the U S of our paperboard business, obviously that didn't transpire.
Speaker Change: <unk> of the fact that our products are.
Speaker Change: U S C M a compliant.
Speaker Change:
Speaker Change: Also what I stated in I think in February at the February call was that a lot of our mitigation actions on paperboard, we're actually going to be.
Speaker Change: Spread out across the full enterprise.
Speaker Change: In terms of our cost reduction actions taken to accelerate some projects that would improve our.
Speaker Change: The material usage and other cost cost opportunities.
Speaker Change: And so.
Speaker Change: The fact that this risk has now.
Speaker Change: Reversed.
Speaker Change: We're not seeing that you don't expect that we're going to see any tariffs on our paperboard. The fact is is that much of the mitigation was actually is still in place, but it's actually affecting.
Speaker Change: The other businesses.
Speaker Change: And that we have that baked in largely in the the guidance. We've given there was some mitigation that was paperboard in high yield pulp specific debt also reversed with the the.
Speaker Change: The.
Speaker Change: The rivers are the reversion of the tariff.
Speaker Change: A good example would be foreign exchange.
Speaker Change: We had expected the Canadian dollar to continue to weaken.
Speaker Change: There was a point that it got down to 68 or 67 cents to the U S dollar.
Speaker Change: And then it did just the opposite.
Speaker Change: So and now it's back to 70 to 73 two to the U S dollar and that was a $10 million swing all by itself.
Speaker Change: For us.
Speaker Change: There's other things that we had in our mitigation plan like picking up additional Canadian customers, but there'll be also noted that the called qualification process would be would be a little extended.
Speaker Change: We can we're continuing to pursue that and it's continued to go after that but we're still in the qualification process. So the mitigation of that.
Speaker Change: Come from that is still to be realized and we havent. We have not included any of that type of.
Speaker Change: Activity in the guidance that we've given to you today.
Speaker Change: With respect to pricing.
Speaker Change: Pricing.
Speaker Change: We expect to be.
Speaker Change: Continued to decrease its down in our guidance roughly 5% and that's really due to increased supply from the new sappy capacity coming online, which is expected to hit.
Speaker Change: Hit the market in June.
Speaker Change: So we continue to expect it that will.
Speaker Change: That will have pressure and we've got that baked into the guidance. We do expect long term, though that demand will eventually catch up to that new supply relatively quickly.
Given the Mega trends of the move away from plastic packaging to more sustainable packaging. So we expect that that will eventually.
Speaker Change: That overhang of supply will eventually go away.
Speaker Change: And then continue to support the long term profitability of our business.
Speaker Change: So.
Speaker Change: With respect to mix Ah I think the primary change there is really a the fact that a lot of our high end customers.
Speaker Change: Or were in our in the U S.
Speaker Change: I mean, it's really principally around.
Speaker Change: Uh huh.
Speaker Change: Are those stupid.
Speaker Change: Lottery the lottery business.
Speaker Change: We've lost some share in the lottery business to to some European competitors and that obviously and then we replace that with lower priced business.
Speaker Change: To keep the plant running at capacity, but that was really the primary impact.
Speaker Change: The impact to our tour mix.
Speaker Change: Thanks, very much for all that detail I will turn it back thanks.
Speaker Change: Thanks.
Speaker Change: Next question, Danielle Harman with Sidoti <unk> Company. Please proceed.
Danielle Harman: Hey, guys. Good morning, and thank you so much particularly on your questions.
Speaker Change: Just a couple quick ones today, one for July on one for Marcus.
Speaker Change: While I know you just went through a bunch of information on CSN paperboard, but looking at the guide for <unk> and 'twenty, five and kind of comparing that to the guide from the <unk> 24 call.
Speaker Change: I was kind of hoping you may be able to confirm that you're still able to sell that product into China.
Speaker Change: Are there any tariff impact currently obviously the flow et.
Speaker Change: Subject to tariffs, but I was curious about the just see us in general.
Speaker Change: And then Marcus you liquidity.
Speaker Change: Oh, Yeah I'm sorry.
Speaker Change: Oh no.
Speaker Change: Got it and then I'll ask my question of markets to go ahead while.
Speaker Change: Okay.
Speaker Change: Dan Daniel the nothing Hasnt been officially announced with respect to the tariffs or the tariff impacts on our <unk> products.
Speaker Change:
Speaker Change: But we have assumed in our guidance <unk> see us Pax will not be exposed to tariffs for the year.
Speaker Change:
Speaker Change: What we base that on as one our conversations with our customers which are hum.
Speaker Change: Almost day to day.
Speaker Change: And the fact that shipments that were previously paused principally in April have now resumed.
Speaker Change:
Speaker Change: And that I think is the are the most confident indicator that we got that C. S demand.
Speaker Change: Or see us orders will resume and get back to back to normal.
Speaker Change: One of the things they took away and what we take away.
Speaker Change: From this experience is that our.
Speaker Change: Our products are products that we sell or see us products that we sell are absolutely needed.
Speaker Change: And that has been confirmed with our conversation with our customers I think.
Speaker Change: Also as confirmed by the fact that.
Speaker Change: Orders have resumed.
Speaker Change: And that at least we're hearing in the background, though not official debt or Rcs products Hum all will be.
Speaker Change: Allowed to enter into China, with or without tariffs, but again as I said that has not been confirmed.
Speaker Change: Alright. Thank you so much that's still helpful. And then markets quickly I know you talked about it but I just wanted to check in and see how you're feeling about the current liquidity.
Speaker Change: In this environment, you still seem to be in pretty good shape at two nine times, even though that's higher than where you were at the end of 'twenty for them with solid cash on the balance sheet. So any color you could provide would be helpful.
Speaker Change: Yeah.
Speaker Change: Yeah. Good morning, Dan. Thanks for your question no I feel good about the liquidity profile of the company.
Speaker Change: Despite the difficult quarter as you as you saw in our disclosures are on.
Speaker Change: On an enterprise level, just north of $270 million of liquidity.
Speaker Change: You know we.
Speaker Change: We manage the business with a view to always keep around $200 million of liquidity around between the ABL and cash so.
Speaker Change: So I feel you know where we're active on all fronts to always manage cash our working capital we're still looking to target.
Speaker Change: Better savings there and between the factoring line in France, and our a B L.
Speaker Change: As you saw we were not on the ABL at the end of the quarter and we use that just to cover timing issues.
Speaker Change: Overall I feel very good about it.
Speaker Change: Okay. Thanks.
Speaker Change: Thanks, So much guys and best of luck this quarter.
Dan Daniel: Thank you Dan Thank you.
Speaker Change: Once again, if you would like to ask a question. Please press star one on your telephone keypad.
Speaker Change: Next question comes from Dmitry Silverstein with Watertown Research. Please go ahead.
Speaker Change: Good morning, gentlemen, thank you for taking my call my questions.
Speaker Change: I just wanted to follow up on a couple of things first of all you talked about energy costs being up.
Speaker Change: Kimball costs being up.
Speaker Change: No wood pulp is off I understand the reasons for that but what other costs have increased for you and why are your energy cost down.
Speaker Change: Just looking at the oil market natural gas market.
Speaker Change: The prices there seem to have come down since the beginning of the year. So what's the dynamic driving higher energy costs.
Dmitry Silverstein: Good morning Dmitry.
Speaker Change: You answered a question on the on energy, it's it's really specific to Q1.
Dmitry Silverstein: And the the.
Speaker Change: The very cold weather that hit the South East United States primarily in January.
Speaker Change: We actually got four inches of snow in Jesup.
Speaker Change: During that period, but it was also we had a little bit of snow here in Jacksonville.
Speaker Change: Florida, the weather was exceptionally cold and it was part of the reason for some of the operational.
Speaker Change: Issues, we had at Jesup in January.
Speaker Change: But that that make that a shot the.
Speaker Change: The cost of energy through the roof. In fact, we got a what's called an oh, what's the awful awful order.
Speaker Change: Essentially this allowed us to use our hedge.
Speaker Change: On on natural gas and we ended up having to buy natural gas on the spot market in January as a result of the.
Speaker Change: The issues with respect to the cold weather now energy prices.
Speaker Change: Normalized as we got out of our Q1.
Speaker Change: But the energy impact at we've noted was a it was largely just tied to our experience in Q1.
Speaker Change: With respect to the other inputs you noted a wood pulp, but I would say that.
Speaker Change: 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 Change:
Speaker Change: Our our our assumptions in guidance is largely in line with the indices that are out there and those are higher than 24, and we've maintained that.
Speaker Change: But we haven't seen any real decrease in those indices in 'twenty five as of yet.
Speaker Change: So that's that's kind of where are we where we are with our with our assumptions.
Doyle: Understood. That's helpful. Thanks, Doyle and then a quick question on the <unk>.
Todd: Todd as planned.
Speaker Change: It seems to be raw material constrained, because obviously, you're not producing as much notables internally, but even with the full production you were still not operating.
Speaker Change: I figure because of raw material constraints. So what are you doing to address.
Speaker Change: Getting the biomass into the China plant. So you can produce the bioethanol.
Speaker Change: Higher volumes.
Speaker Change: Yeah, we're doing a number of things, but the short term answer to the question to your question with respect to raw material feedstock for the bio ethanol plant in Fernandina I'm not pretty Dino Buddy.
Speaker Change: Tar tests.
Speaker Change: Is that we need to run the TARDIS plant at a consistently higher level than we did in Q1.
Speaker Change: So the good news is that the outages behind us.
Speaker Change: Equipment has been repaired and facility should operate better going forward for the rest of the year.
Speaker Change: In the medium term, we are continuing to look at using different yes.
As well as making some operational changes to increase the.
Speaker Change: The sugars that are more more readily a formidable to hum too bioethanol for example, monomers.
Speaker Change: And those efforts continue and we expect it will see a pop.
Speaker Change: In our feedstock availability of core call it more of a improvement in yield.
Speaker Change: For the for the from the feedstock come August and September of this year and then as we get into 'twenty six we'll be looking at another pop as we change some of the operations.
Speaker Change: And taught us the in the cellulose plant to again provide us a feedstock that will actually.
Speaker Change: Give us a better yield.
Speaker Change: And then we'll we are spending some capital to allow us to use a GMO east added facility are in in TARDIS, which again will give us a pop.
Speaker Change: In yield.
Speaker Change: In in 'twenty six 'twenty seven so.
Speaker Change: This is obviously an area we've got a lot of focus on margins on this business is fantastic we wanted to make as much ethanol as we possibly can.
Speaker Change: So.
Speaker Change: We are we are going to spend a little bit of capital to make that happen and then with respect to the TARDIS facility.
Speaker Change: We believe that the problems that we had in Q1 or are largely now behind us.
Dmitry Silverstein: And Dmitry.
Speaker Change: Thomas.
Speaker Change: Our comments that the lion's share it on a subtle lowest.
Speaker Change: Production at tire test that that impacts both the sugar stream and the lignin lignin stream right, So where we're making good economics on.
Speaker Change: Powder and liquid lignin as well.
Speaker Change: Thank you Mickey that that's that's helpful. As well and then you touched on that in answer to the previous question, but what's going on with the front of the plant and an expansion there or bias them all and all of the cities. When you have some old blocks, so where do we stand there and how confident you are that you'll be able to get the permits that you need them.
Speaker Change: I've got a dog that plants are built.
Speaker Change: Built in there.
Speaker Change: Near future.
Speaker Change: We remain confident.
Speaker Change: That will eventually prevail.
Speaker Change: It's a very promising project four or Brian. We also believe our provide huge benefits to the community as well as to the world at large and that it reduces emissions.
Speaker Change: It provides another source of renewable energy for the for for the country as well as the world generally so.
We believe that.
Speaker Change: We are well positioned.
Speaker Change: And believe that the business is something that would be beneficial for all stakeholders.
Speaker Change: With respect to you expect to the illegal actions, we've taken not much I can comment too because it's it's an open litigation and.
Speaker Change: Just say that we still believe strongly that are strongly in our position.
Speaker Change: Okay.
Speaker Change: I'll take the rest offline. Thank you that's all the questions I have.
Speaker Change: Thank you I will now turn the floor over to D. Lyle for closing remark.
D. Lyle: Alright, well. Thank you again today for your time and for your continued interest in Rye am.
D. Lyle: Acknowledge the challenging start we've had this year and the ongoing uncertainty of the uncertainties that we're seeing in the global market.
D. Lyle: But despite these near term headwinds I remain confident in the resilience of our core business.
D. Lyle: And our ability to effectively navigate these challenges and also wanted to just re emphasize our ongoing commitment to our our long term strategy.
D. Lyle: Our focus remains clear we need to act to be met mitigates the tariff impacts we need to optimize our assets and advance our high return biomaterial investments.
D. Lyle: While maintaining disciplined financial management to drive sustained long term value.
D. Lyle: We greatly appreciate your ongoing support and engagement during this period and as always we remain committed to transparency and open communication. So.
D. Lyle: Please do not hesitate to reach out with any further questions. If you required a different additional information. Thank you for joining us today and have a great day.
D. Lyle: This concludes today's teleconference. You may disconnect your lines at this time and thank you for your participation.
D. Lyle: [music].
D. Lyle: Yeah.