Q2 2025 Rayonier Advanced Materials Inc Earnings Call
Good morning and welcome to the Ryan second quarter 2025 earnings conference call.
During today's presentation, all parties will be in a listen-only mode following the presentation, the conference will be open to questions with instructions to follow at that time.
As a reminder, this conference is being recorded. I would now like to turn the call over to your host, Mr. Mickey Walsh, Treasurer and Vice President of Investor Relations. Thank you, Mr. Walsh; you may begin.
Good morning and welcome again. To Ryan's second quarter 2025 earnings conference call joining me on today's, call are delial boom, our president and CEO and Marcus molner 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 rym.com. These materials provide key insights into our financial performance and strategic Direction. During today's call, we may make forward-looking statements subject to risks and uncertainties that could cause actual results to differ materially. These risks are outlined in our earnings release SEC filings, and on, slide 2 of the presentation.
We will also make reference to 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 30 to 35. We appreciate your participation today and ongoing interest in Ryan, I'd now like to turn the call over to dye.
Good morning, everyone.
In today's call, I will address first.
Underlying factors were driven by a set of extraordinary.
And primarily non-recurring challenges, we faced this year.
These challenges both macroeconomic and internal have certainly impacted our near-term financial results.
But we believe they are largely behind us, as evidenced by the normalizing cellular specialty orders. And we believe that such challenges do not alter our long-term trajectory
Second.
I'll outline why we expected nearly double our eval over the next 2 years relative to our revised 2025 guidance.
And walk through the key drivers behind that growth.
And third, I'll discuss our strategy for delivering substantial shareholder value through accelerating Revenue, growth expanding margins, and earning exceptional Returns on our strategic growth Investments.
Before diving into these points.
I want to take a step back and emphasize that critical perspective.
Isolating and understanding the temporary nature of the headwinds. We've been countered. This year helps clarify why our long-term value proposition remains intact and in fact, more compelling than ever.
It's extraordinary, impacts do not change the core fundamentals of our business or the powerful opportunities ahead ahead of us.
We remain highly confident in the strategy we've set.
And the unique position. We're in to drive, meaningful business and shareholder value in the years to come.
Let's now turn to slide 4.
In total, we're navigating roughly 59 million in evida headwinds this year predominantly from issues. We believe are 1-time in nature.
These headwinds combined, with some structural softness in our paper board in a high yield pulp segments, resulted in us lowering our guidance from 215, to 20035 million. At the beginning of the year, to our curtain guidance of 150 to 160 million dollars for 2025.
His headwinds include first.
Care related, uncertainty negatively negatively impacting ibida by approximately 21 million dollars.
Second, we experienced 8 million dollars of losses from foreign exchange revaluations.
Third operational disruptions accounted for another 18 million dollar impact.
Fourth, we incurred $12 million in non-cash environmental charges.
And finally, our non-core paper board in a high yield pulp segments, experienced higher than expected softness.
We have characterized hundred million dollars as 2025 normalized EBA doll. Which excludes the isolated items that we do not expect it to reoccur in the future.
2 other items, the secondary impact of tariffs and the paper board high, yield pulp weakness. We have excluded from our normalized ibida number but as I will explain, we will continue working to mitigate our exposure in these areas.
Now, let's discuss each of these factors and why we believe that their impact is largely behind us.
And consequently why we expect 2025 to be our trough year and Q2 to be our trough quarter with each subsequent quarter, and your expected to show accelerating growth in profitability.
Let me provide an update on tariffs, which is detailed on slide 5.
First some context.
Ryan is 1 of the top 50 us exporters we export about 70% of our us production.
So it comes as no surprise that Ryan was impacted by the economic uncertainty caused by the Tariff Wars.
We estimate that the negative impact of uncertainty caused by those tariffs in on our 2025 Eva is approximately 21 million dollars.
Of that roughly 7 million dollars is tied to direct tariff related disruptions.
Issues. We anticipate fully recovering from as trade policy stabilized, in the coming quarters.
There are many 14 million reflects indirect effects primarily due to the impact tariffs have had on our customers abilities to access key. Geographic markets,
While we are actively working to mitigate these challenges and regain lost volumes. We are not assuming a recovery of those portion within the current forecast, period,
it's important to note that the period of uncertainty in April and May
Following the initial imposition of the 125% Chinese tariff rate had to pronounce short-term impact on order activity.
That said since June, we've seen orders returned to more normalized levels reinforcing our view that the worst of the disruption is now behind us.
Even more encouragingly. We see the latest development in the Tariff talks providing potential Tailwind as trade policy stabilized.
To quickly recap. The disruptive Chinese tariffs have largely been resolved.
Currently our cellular specialty and dissolving wood, pulp exports. To China are terrifying.
Free under the usmca. Free Trade Agreement.
Our only direct directly tariff product. At this point is fluff pulp into China at 10%.
And we're actively addressing this by trailing a new dissolving wood, pulp fluff product.
And expanding sales into non-tariff regions.
Importantly, recent us, tariffs include a 15% tariff on, EU CS Imports.
A 10% tariff on, Brazilian CS Imports.
And a 50% tariff on Brazilian ethanol imports, all of which will enhance our competitive positioning.
Additionally the ongoing investigations by the USR against Brazil for unfair Trade Practices. Could provide potential upside given that Brazil Imports, approximately 150,000 metric, tons of cellular specialty, acetate annually.
in parallel with these tariff related Dynamics,
we also experienced foreign exchange headwinds during the quarter, but the negative ibida impact of approximately 8 million dollars, tied to recent US dollar weakness,
Though, this is recorded as a short-term negative. The weaker US dollar has lowered our cost of US production relative to our major competitors.
Which could increase our competitive advantage.
The short, the Tariff story which clearly a headwind in 2025.
Is showing strong indications of turning into a potential strategic Advantage for us, moving forward.
However, we are not incorporating any of these potential Tailwind in our Outlook.
On slide 6. I'll dive into several operational challenges that significantly impact our 2025 results.
He's told us about 18 million dollars in evida headwinds and included the following.
Labor strikes at Tardis, contributed to approximately 20 days of lost, or significantly reduced production.
Compounded by additional 3 days of downtime due to the Iberian Peninsula of power outage.
Staffing constraints at TARDIS.
Severe winter disruptions and Equipment warranty issues at Jessup.
And the temporary extended 16-month, Fernadina outage interval.
These issues have largely been resolved.
Charles currently operates near normalized levels with Staffing levels improving
Just the production is stable and fernandinho will return to a regular 12-month maintenance interval.
Additionally, as discussed earlier we also incurred an isolated, non-cash, environmental charge totaling 12 million.
This charge was related to Legacy site remediation responsibilities which carry no immediate cash impact.
Slide 7, addresses, the current situation at timiskaming and our plans for that asset.
Our current 2025 guidance for the paperwork, in high yield pulp businesses, as roughly Break, Even to a slight evid all loss.
Due to soft market conditions and custodial sight, expenses related to the suspended HBC line.
We've identified a clear set of actionable opportunities worth approximately 35 million to restore to miscommunicate to historical profitability.
These include.
Aggressive reduction of custodial sight in fixed cost, including labor and outside Consultants.
Improvements in paperboard operating efficiency by increasing planning Automation and reducing unplanned Mount maintenance outages in grade changes.
Launching strategic new products with minimal Capital including freezer board.
Oil and grease resistant boards.
And specialized high, yield pulp rolled softwood.
And finally capturing North North American market share for European Imports. Now, impacted by a 15% us tariff.
Given the strong secular North American paperwork market growth at 4 to 6% annually. Our unique Market, positioning as the only North American 3, ply board producer
And our highly achievable initiatives. I just outlined we're confident in restoring Tiscom to historical lid doll levels that average around $30 million.
Positioning us favorably to the best, these non-core assets.
Analysts estimates and public comps. Indicate at a vesture multiple in the 5 to 7 times mid cycle. Ibida. Range is reasonable.
now, let's discuss what we expected the next couple of years to unfold, and why we are so confident and excited about the future of our company, our growth initiatives and the tremendous value creation opportunities, that lie ahead
Specialties and biomaterial businesses and the drivers of that growth.
as discussed, we plan to divest of our non-core paperboard in high yield pole businesses at to miskimen
Transforming us into a company focused on our core businesses.
On this slide, we start with million dollars, Eva off that our Core Business would have generated in 2025, but for the headwinds, we discussed earlier that we do not anticipate will reoccur in 2026 and moving forward.
Then we layer on various key drivers that will dramatically grow that Eva doll in the future years.
These drivers include.
A highly attractive cellular Specialties Market with strong Supply, demand Dynamics supported by meaningful pricing power.
Our multi-year plan to reduce unit costs and expand year-over-year margins.
Our unique ownership of a, the majority of the excess cellular specialty capacity in the market.
Strategically positioning us to capture market. Share growth opportunities.
And our biomaterials initiatives, which provide compelling opportunities to recycle Capital like at exceptionally High investment returns.
Backed by a strong balance sheet, and robust liquidity. We can fund these initiatives internally without shareholder dilution.
Increasing further to about 338 million with our age project in 2028. Now, let's discuss each of these initiatives 1 by 1.
Turning to slide 9 not only has the cellular specialty industry become quite attractive after a long time of earning subpar returns but also Ryan is exceptionally well situated for a competitive standpoint.
Permanently removing excess capacity from the industry.
According to third-party analysts the industry has become highly consolidated.
With Ryan burgard and barcel collectively representing roughly, 80% of the dissolving wood pulp cellular specialty Market.
Industry utilization now, hovers around 90% and expected to tighten further.
we anticipate that these market dynamics will support a more stable pricing environment,
With industry analysts forecasting sustained annual price increases of approximately 4 to 6%.
Which is expected to more than outpace Ryan's all-in cost inflation.
Recent tariff, disruptions have underscored the essential nature of our cellular Specialty Products, and the lack of alternatives.
As our offering has emerged, largely unscathed from mortality terrorists.
We are widely recognized as a global leader in producing highly specialized non-commodity products recognized by their Superior purity.
Our position is supported by proprietary technology and enduring customer relationships, that reinforce strong retention, and long-term value creation.
Additionally, approximately half of our cellular specy markets are non-cyclical providing stable demand.
In the more cyclical segments, we see meaningful upside potential.
particularly in sectors like European construction, and Industrial markets, which remain depressed and could represent significant opportunity as broader economic conditions improve
Our forecast does not incorporate these upsides.
on slide 10, our strong, structural cost reduction, initiatives are Central to expanding margin sustainably,
We're targeting around 10 million in corporate expense. Reductions, primarily through Automation, and efficiencies gained from our recently implemented Erp system
Additionally, we anticipate roughly $20 million in operational savings from initiatives, including the automation of manufacturing processes.
And improved material usage, efficiency.
Reduce energy consumption and enhanced asset reliability through targeted Capital Investments.
We plan to invest 24 million dollars to achieve the aforementioned, 30 million dollars of annual Savings in 2026.
Beyond 2026. We have a robust pipeline of cost-saving projects for 2027 and Beyond.
With similarly attractive return profile.
These cost-saving initiatives along with pricing, improvements, are core pillars of our margin expansion strategy.
Now, turning to slide 11, I want to highlight the substantial eBid dog growth opportunities stemming from our ability to capture the growth within the cellular Specialties Market.
Third-party Market forecasts. Remain highly favorable.
With analysts projecting market growth of approximately 80,000 metric tons over the next 2 years.
Given our unique position of controlling, most of the excess capacity within the cellular specity Market.
We are exceptionally well, positioned to capture a meaningful portion of that growth.
Specifically.
Through the re-qualification of our tisk mean production at other facilities and organic market growth.
We are projecting incremental Eva dog contributions in the range of 30 million dollars by the end of 2027.
This estimate assumes that we will capture volumes in line with our existing market share, though. It is likely that we will capture an upsized share of the organic growth due to our outside, share of the industry's excess capacity.
Beyond these conservative projections, further upside not in our forecast exists, particularly tied to the European ethers market.
To frame this clearly European ethers demand decline, approximately 110,000 metric tons between 2022 and 2023 due to Broad economic headwinds.
Taurus has 20,000 metric. Tons of excess ethers capacity which could yield an additional 15 million nebula for Ryan.
and much more than that, if prices increase, which is likely in a recovery scenario,
Further upside also not in our projections stems from our position. As a leading Global producer of nitro cellulose from Munitions and explosives.
Particularly given increased Global defense spending trends.
Turning your attention now to slide 12.
I'd like to clearly outline our biomaterial strategy and the exciting opportunities we have to monetize previously under leveraged byproducts.
Stemming from our cellular specialty production processes.
As you know, approximately 60% of the dry portion of the tree is composed of non-cellular byproducts historically utilized for energy value.
By bar materials initiative, strategically transforms these materials into high-value products like biofuels. Bio electricity, crew tile oil prebiotics, lignos sulfonates turpentine, and biogenic CO2 for sustainable Aviation fuels.
The contracted cash flow is generated from these products. Justify a high multiple in the marketplace because of their stable characteristics.
Our Tardis bioethanol project represents the first step in the execution of this strategy.
This initiative required only 5 million of in Ryan Equity investment, due to our leveraging of European green financing and attractive interest rates.
And securing a stable 5 year, take or pay contract with Exxon Mobil.
The single project alone is expected to generate between 8 to 10 million dollars of ibida annually.
yielding an exceptional Equity Roi of over 10 times, our initial Equity investment based on Market valuations
this clearly demonstrates the potential embedded within our biomaterials development strategy, utilizing our existing infrastructure
We believe we have barely scratched the surface of this opportunity and have a multi-year pipeline of these high return projects, that will be a core driver of our growth going forward.
Our future biomaterials project pipeline is highlighted in slide 13.
Our bionova JV with swin, capital is advancing 4 significant portfolio, 1, projects to final investment decisions.
Specifically, these include an additional bioethanol Planet Fernadina.
Prebiotics and CTO facilities at Jessup.
And an additional CTO facility, at TARDIS.
With committed capital in place these projects represent a total investment of approximately 110 million.
And are projected to generate around 39 million in annual evaa.
Due to strategic financing structures in favorable, Market valuations.
We expect exceptional Ryan Equity returns of 7 times Roi.
The Alta Maha green energy or age project at Jessup.
Developed in partnership with the beazley group further, complements our biomaterials portfolio.
Schedule for completion, in late 2028, a GE leverages our existing Jessup site infrastructure.
With Ryan's Equity contribution of about $40 million toward the million dollar project. We anticipate Equity returns ranging from 10 to 12 times Roi.
Clearly demonstrating. Once again, the compelling Financial returns achievable through our bio materials initiatives,
Now, moving to slide 14.
I'd like to reinforce the unique competitive advantage that we believe Ryan possesses.
Our ability to recycle capital into high-return biomaterial projects is driven by our extensive asset base.
Illustratively are just a facility alone is estimated to have a replacement cost, exceeding 4 billion dollars.
This asset base provides us with unmatched flexibility and cost efficiency when launching new initiatives.
Unlike potential competitors, who must start from scratch?
We have existing infrastructure and Technical know-how already in place, giving us a clear cost advantage over any newcomers.
Is, initiatives are speculative Ventures, carrying technical or Market validation risks. Their commercial viability is already been clearly validated in markets by competitors, such as borgard.
Our recent signed memoranda of understanding with Verso energy for exploring esaf opportunities in both Jessup and Tardis. And with Grant bile for a pilot scale ethanol the jet plant in
Edessa. Our validation of the rich pipeline of potential, High return opportunities, that leverage our asset base and provide visibility for our growth and value Creations for years to come.
Slide, 15 highlights our strong solid Financial Foundation.
Which remains critical to executing our strategy.
As the end of Q2, Ryan maintains strong liquidity totaling, approximately 202 million, including around, 71 million of cash on hand.
Additionally, we continue to operate well below our covenant thresholds.
Using a disciplined approach to Capital allocation coupled with strong cash flow management.
Will enable us to fund strategic initiatives internally without shareholder dilution.
Additionally, the potential divestitures of our non-core paperboard in high up Pulse segments, as discussed earlier.
Will further materially strengthen our financial position.
Anticipated proceeds, will significantly improve our leverage profile. Further enhancing our strategic flexibility and allowing us to continue funding High return growth initiatives and Export potential shareholder returns down the road.
In addition, our existing term debt becomes callable in 2026.
Providing a meaningful opportunity to repriced interest expense.
Further enhancing free cash flow.
Illustratively.
If we can lower the interest rate by 400 basis points, and use the proceeds from the sale of the Tusk, when the asset of 180 million to pay down the debt.
The cash interest would be reduced by over 40 million dollars per year.
We anticipate generating exceptional free cash flow as our Eva dog grows. Ryan's targeted 2027 run rate core ibida of over million dollars when applying nearly 140 million of free cash flow to be utilized in high return growth Investments.
Further deleveraging and shareholder returns.
Finally, on slide 16. I'd like to summarize the compelling investment opportunity of Ryan represents.
We believe our current value significantly understates the intrinsic strengths and growth potential embedded in our business.
The temporary 2025 headwinds detailed earlier, such as tariffs, operational disruptions, environmental charges, and foreign exchange impacts, are now largely behind us.
We enjoy strong competitive positioning in our Core Business.
Our strategic initiatives in cellular Specialties and biomaterials are well on track.
And our financial Foundation is solid.
Applying conservative peer multiples to our forecasted normalized, 2027 ibida, demonstrates, a clear valuation upside of approximately 8 to 10 times our current market valuation.
As investors increasingly recognized our compelling, strategic, positioning the value of our biomaterials initiatives and the structural improvements we've made across the Enterprise. Be firmly. Believe substantial, shareholder value, creation lies ahead.
In summary while 2025 represents a set of extraordinary headwinds, we believe the most significant impacts are now behind us.
Strategy.
Compelling growth initiatives and cellular cellular Specialties and biomaterials.
We believe Brian as well.
And uniquely positioned to unlock significant shareholder value.
At current valuation levels, we believe there is a disconnect between our market price and underlying fundamentals.
Presenting a compelling opportunity for investors and as our strategy progresses.
With that, I'll turn the call now, over to Marcus for additional financial and segment level insights.
Marcos.
Thank you, d.
Let's now turn to slide 7, which summarizes our second quarter of 2025 financial highlights.
In the second quarter, Revenue was 340 million, down 79 million year-over-year.
Is 1 million declining by 29 million compared to the prior year.
Adjusted free cash flow year to date was negative -52 million. While adjusted Eva was 28 million.
A $40 million decrease compared to the second quarter of last year.
As a reminder, the prior year period included a $10 million benefit associated with deferred income. From the Canadian emergency wage subsidy program known as Seuss.
The primary drivers are the ibaad decline. This Corridor can be summarized with the following highlights.
In CS earnings decreased by approximately 22 million.
Driven by lower sales volumes due to tariff related disruptions and the indefinite suspension of the tuskmon HBC line.
Along with higher input costs and operational challenges at our Tartas facility due to the labor strike.
the paper board segment saw earnings decline by 10 million,
Reflecting lower sales, volumes and prices.
Impacted by indirect tariff effects and increase competitive activity.
In high yield Paul earnings decreased by approximately 9 million.
Driven by lower pricing and volumes due to continued oversupply conditions in China.
And broader, macroeconomic headwinds.
Given these results. We have revised our full year 2025 adjusted Eva guidance.
To a range of 150 million to 160 million.
Which implies second half EBITDA of approximately $105 to $115 million.
Adjusted free cash flow. Guidance is estimated at -10 to 25 million for the full year.
With positive free cash flow of approximately 35 million anticipated in the second half of the year.
Let's now review our segment results.
Beginning with cellulose Specialties on, slide 18.
Quarterly net sales for CS decreased by $33 million to $208 million.
A 3% increase in sales prices was more than offset by a 5. 15% decline in sales volumes.
driven by tariff related order pauses in April and May
elevated prior year, sales ahead of the tuskmon HPC. Indefinite suspension.
And the labor strike at taras.
Operating income declined, 21 million year-over-year to 29 million.
This decline was mainly due to lower sales, volumes higher input costs and lower production due to the operational challenges and labor strike at taras.
Adjusted EVA margins declined to 22% from 28% a year ago.
On slide 19 in our bio materials segment, net sales declined by $2 million year-over-year to $6 million, caused by operational challenges and the labor strike at Taras, which temporarily limited feedstock availability for the bioethanol facility.
Operating income was flat at 1 million as reduced higher, shared service, and ancillary costs were offset by lower production costs.
Adjusted even on this segment was 17% compared to 25% in the prior year, reflecting the temporary operational impacts.
Turning to cellulose commodities on slide 20, net sales decreased by $26 million to $59 million.
Driven by a 33% decline in sales volumes due to lower non- fluff, commodity sales and the labor strike at taras partially offset by 7% increase in sales, prices driven by market supply Dynamics for fluff.
Operating results improved by $12 million compared to last year, reducing the operating loss to $9 million.
This Improvement reflects lower, non- fluff, commodity losses.
Volumes related to operational challenges.
Our paper board results are detailed on, slide 21.
Net sales declined by 13 million year-over-year to 47 million.
Reflecting a 23% decline in sales volumes and a 3% decrease in prices impacted by product mix.
Shifting customer dynamics tied to Terrifying.
And increased competitive activity due to higher EU Imports and new US capacity.
Operating income declined, 12 million year-over-year.
Due to lower sales, volumes and pricing and to miskimen custodial, sight costs.
Adjusted Eva for the segment was 5 million with margins. Declining to 11% from 25% in the prior year quarter.
Lastly, slide 22 covers our high yield pulse segment.
Net sales decreased by $4 million year-over-year to $29 million.
Driven by an 11% decline in sales prices and a 7% reduction in sales volumes reflecting continued over Supply conditions in China.
And shipment timing delays to customers in India.
Operating loss increased by 8 million, to 7 million, primarily due to lower pricing reduced volumes higher Logistics costs and to miscommunicate custodial sight costs.
With that operator, please open the call to questions.
Thank you. We will now conduct a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad,
A confirmation tone will indicate your line is in a question.
You may press star 2 to remove your question from the queue. For participants using speak equipment. It may be necessary to pick up your handset before pressing, the star Keys. Once again, that's star 1. At this time, 1 moment, while we post for the first question,
The first question comes from Matthew mckel with RBC Capital markets, please proceed.
Hi. Good morning and thanks for taking my questions. Um, first, I'd just like to ask
What kind of timeline are you anticipating for having this dissolving wood, pulp fluff, product approved for sale in China at zero tariffs and qualified with the Chinese customers? And how should we think about the potential pickup in ebit? Duh, that would be Associated to this, in the context of any changes in cost to produce the product versus the traditional fluff and the uh, volumes, he then expect to sell with China. Thanks.
Hey, good morning, Matt. Um, this is delile. Um,
the uh question on fluff um on our our product development around the, the new dissolving would uh, pulse fluff. Um,
We have, uh, where we are with that right now is that we have, uh, sent and are sending, uh, material to our customers in China, uh, as we speak.
for their trials and qualifications, um,
And uh, if those go, well, then the expectation is as as we approach 2026, that will be able to um, a commercialize those um uh going forward in terms of impact on um ibida little harder to say other than to um suggest that the the increase in cost to make the dissolving wood, pulp fluff, versus our standard fluff is a little bit higher.
Uh, than than, uh, it would would be otherwise. And then, and that's fully fully to be expected. Given that the Purity level will be higher.
um, but at the end of the day, we do expect that um that uh as we introduce that product that will recapture most, if not all of our, our share lost as a result of the uh, the 10% tariff that we have right now, going into China,
Okay, thanks, thanks very much for that caller. Uh, next for me, just let me uh, structural costs or reduction initiatives is the 24 million of capital. You've mentioned to be spent entirely in 2026, or does that incorporate any spending in 2025 and then should we think about that $30? Million Target is what you capture in 26 or your exit rate. Um and then and just last the initiative, that tisk mean
How should we think about the timing of execution? Is there also effectively a run rate to exit 2026? Thank you.
Okay.
1025.
And, um, the $30 million of value, um, that we noted will be realized, we expect to realize that in 2026.
Um, so um, we'll be positioned as we enter 26 um, to to uh, realize that those savings. Um,
With respect to what "to miss" means, and the turnaround there, we were somewhat fortunate in that we were well positioned.
um,
coming into 25 with, um, uh, introducing a number of the new products that, um, that was noted
Um, and as a consequence, as we go into 26, uh, we believe that we'll be well along our way in terms of getting those products, um, qualified and introduced into the market in 26. So the freezer board, which has now been fully certified, um, and is a customers for trials. Now, um, the, uh, oil and grease board, which is passed through our production trials and is now um, uh, going to our customers, for their, their work to do to qualify the product. Um, again, we believe that, um, those, those products, um, will be well, positioned to commercialize in 25, or, or in 26,
Um, the hyal pulp.
Softwood rolls product, that would go, um, uh, which is a brand new product for us in high yield. Um,
Is targeted to go into China as a low grade absorptive product to, um, uh, for uh, bed pads, and for pet pads and things like that. Um, there's a number of steps we had to get through um, and uh, the first step, which was to show that we could make a softwood um pulp off of 1 of our high yield, um pulp lines, which historically has been Hardwood.
And um and that that trial has uh we've just completed and was largely largely successful.
Um, the next is to pass that um uh that pulp through our idled, uh, HPC machine and roll line, um, which we plan to do in the next, uh, next few weeks.
And then we'll uh ship that to our customers in September October for their trials. Again. Expecting that, um, we would get those trials completed in the fourth quarter so that we can introduce that product in in the first quarter of 2026.
And why I mentioned all that is because um uh a large share of the 35 million benefit is tied to new product development. And so it's important for us and I would call that actually our critical path.
Um, elements to achieve that $35 million of benefit.
The rest of the benefit is really around um uh, cost reduction, um, and um, uh, improving the operating, uh, efficiencies of the paper board, line through automation, better planning, reducing grade changes. Those kind of things which, again, uh, utilizing an outside resource. Uh, We've brought in FTI Global to help us out and identifying, those opportunities and helping us to, um, execute that again as we, uh, enter into 2026.
Expect that, you know, we may not get the full 35 million dollars of benefit in 26. Um, but we should get a line sure that, um, in that year.
Great, thanks for your additional detail. Uh, I'll pass it back. Thanks.
The next question comes from Daniel Harman with Sidoti. Please proceed.
Hey guys. Good morning. Thank you for taking my questions. Uh just a couple quick ones to start off your conservatively forecasting, 30 million in incremental Eva within cellulose Specialties through 27, understanding that's conservative. Can you kind of go into what we need to go, right to outperform that number.
and then on your 2027 Core Business run rate e, but uh, you're looking to generate 140 million in annual free cash flow,
At that stage obviously. Right now, even considering the issues you've had your balance sheet remains in really good shape. So, how should we think about Capital deployment? Uh, in 2027, would you continue to work down the debt and, and invest in some of these high return capital projects, or does that open the door for potential share repurchases or other mechanisms that you could use?
Good morning, Dan. Um,
Growth, uh, through 2027, that's really tied to the, um, uh, the substitution of cellular specialities. Uh, uh, in in exchange for the commodities.
So what's really driving it is the organic growth. We expect...
um, of Cs over the next couple of years and then, uh, as that grows, we will then replace the CC, the, or the commodity production that we currently have
So the the underlying assumption is that we will grow, um, increase our volumes roughly 15,000 tons per year.
So 30,000, tons in total.
Um, during those two years and the pricing differential of roughly $1,000 per ton.
Uh, of specialty versus commodity is really the um uh is is really how you go about calculating that that margin Improvement.
Does that make sense?
Yeah, it does. Thank you.
Okay.
um, uh, with respect to
On Capital, allocation.
Just a second question, right? Dan, sure. Yeah, it was.
Sure sure. Just looking at at 27 your run rate Core Business. Eva you're assuming that will generate million dollars in free cash flow.
And your balance sheet right now remains in good shape, despite the issues you've had through the first 6 months.
So, I'm just wondering how we should think about capital allocation, you know, over the horizon in terms of continued debt repayment or more just geared towards, um...
Investment in high return capital projects.
Okay. So with respect to uh, how we use the capital um, as we um, go forward and uh, particularly the free cash flow.
The focus will be on generating, um, and, um, executing on high return projects. Um, as we, um, as we plan through 2027, we believe that there are, uh, uh, a number of those projects, both thought and the cost reduction side as well as on um, uh, Revenue growth opportunities.
We kind of outlined a couple of them in the, in the presentation, which around, um, esap and, um, file bioethanol to Jet opportunities. Um,
So we think that there will be continued to be uh, projects that will provide um, substantial Equity returns for us. Um, for the next uh, for the next few years.
Um, there will always be a desire to pay down debt. I've stated time and again that we'd like to pay down debt around 5% of the principal per year.
Um, and 25, we were restricted on doing that, um, uh, given our, our new debt agreement. Um, but again, that'll be something that we would look to, uh, to, to do with the, with some, with some of the capital going forward.
As projects dry up or if um, uh, CA the return on those projects, get to a certain level that, um, is is no longer would be no longer attractive to our shareholders. Of course, we would then consider possibly returning Capital back to the shareholders.
But I would say that's probably a little further down the list. Given, what given the, uh, I would say Rich library of opportunities. We have to to invest the capital in the business.
and then we, we mention
Right? The amortizations around 22 million. That I mentioned. So roughly 3%. So we're close to 5 and a natural place to allocate Capital that allow covered in his deck was the the age investment, right? Because that's outside of buying over.
Correct.
Thanks so much guys.
Thank you. Once again to ask a question. Please press star 1 on your telephone keypad. Our next question comes from Dmitri Silverstein with water tower research, please proceed.
Good morning gentlemen, thank you for taking my call. Um I want to go back a little bit to your cost reduction, 30 million dollars of cost reduction that you're looking to get um out of corporate and operations. Um, how fast do you think that you can get to that run rate? Um, given that some of these things, uh, particularly the, the non-corporate portions, uh, will require some time as far as Automation and and things like that, that you're targeting uh to get these cost savings.
Hey, good morning Dominic. Um,
The, uh, how fast we can get to the $30 million run rate is that, um, we expect that we'll be at that run rate as we enter 2026.
Investments um needed to achieve that run rate um outside of corporate um have already been in uh invested or are being invested um and the expect expectation of those projects will be completed as as we exit this year.
Okay so you you will see a gradual Improvement in the back end of the year and then you hit the Run rate going into 20206, okay? Yeah. Um and it'll be relatively more, it'll be relatively minor because most of these projects will largely be completed in like the fourth quarter.
Got it. The last. Thank you for that. And then, um, you mentioned the sort of the, the positive impact of tariffs, uh, as you get into the second half of the year into 2026, um, specifically the, uh, hot the, the 15% and the 50%, um, tariffs that are on, uh, EU and Brazil Imports. Um,
Clearly you will benefit from that. So my, my I'm kind of interested in how you were thinking about this, are you going to benefit from it, in terms of gaining market share, um, being a lower cost producer than than the Europeans and the Brazilians, plus the Tariff uh or do you see that as an opportunity to um be able to continue to to raise prices in these markets as they as they are, as you mentioned with 90% capacity, utilizations in the industry. Uh clearly I set up for continuing price increases.
Um, good question. Um and uh I could spend a long time uh talking about how how we we internally have been.
Gaming that, uh, those scenarios, um, about what this tariffs would mean to us, these calling the Tailwind tariffs that the tariffs on EU Imports and the tariffs on Brazilian Imports. Um,
When I look at pricing, um, and we've talked about this for the last couple of years, um, we believe in a value versus volume strategy when it comes to our CS business.
So we will continue to uh look for uh inflation Plus pricing um on our CS business. Um
So the pricing goes up at least more than inflation and a little higher than inflation to capture, what we believe, is the intrinsic value of our product offering. So we will continue to do that.
Um,
The 15% tariff. Um uh obviously gives us, uh, will increase our head room uh with respect to our competitive positioning relative to um, our competition that may allow us to um, uh, be a little bit more aggressive in in defending our share, um, in our, in our home Market here in the United States. Um, so, um, uh, and maybe at the end of the day, we end up trans, uh, um, uh, end up.
Having that realized as, um, increased margin, uh, going forward, in terms of, um, if it if it translates into, um, a lower US dollar relative to other currencies. So, um, I'm not going to the plan is not to use this as a, as a club on our customers. Um, um. But at the same time we want to make sure that we, we, um, completely lever it to um, strengthen our, our comparative advantage to, um, relative to our competition here, at our, in our Market Hall Market.
Understood. That's helpful. Thank you for that, caller. And then, the final question, um,
when you look at,
how do I flip this? When you look at your bio materials business, um, you you're getting into, you know, new markets for you, but they're not brand new markets. They're existing players there including SF including, you know, a tall oil. Um is is your confidence of of being able to ramp up your, your bio materials business as rapidly through a 2028. Uh, based on the fact that you see, these markets growing fast enough to allow for for new entrance, such as yourself, uh, to gain market share without having to sacrifice price or do you intend to as a new market entrant, use price to gain share.
Okay. Um, to, uh, just to re-emphasize, we're highly confident.
That we're going to be able to ramp up the construction of these facilities and commercialize them over the course of the next few years. We've gone through a lot of effort to get the engineering completed and to work on the permitting to get that behind us.
um,
so the confidence of of being able to pull this off in terms of constructing the plants is, is very, very high. Um, with respect to the strategy to enter the markets that we're pursuing. Whether it be CTO or bioethanol or um uh I call it green electricity, we're a drop in the bucket.
Um, so our new supply isn't going to materially change the marketplace. What? Um, and, uh, in any significant degree, we'll believe that, um, as we, e, uh, as part of the financial investment and as a result, it's part of the financial or financial investment decision.
Um, we will have in-hand commercial agreements.
Um that's 1 of the stipulations of of getting to a financial investment decision is actually having a commercial agreement in hand.
That, uh, we will have uh, the ability um, and already have the agreement to, uh, move that material before we even um, uh, produce the first drop of any of those products.
Okay. Okay. That that that's very helpful to all. Thank you for that. That's all the questions I have.
Thank you. At this time, I would like to turn the floor back to the loud Bloomquist for closing remarks.
Okay. Well, um, in summary, We Believe, 2025 is temporary. Headwinds are largely behind us. We look forward to delivering strong sequential and year-over-year growth.
Our entire team is enthusiastic about the future, and I feel fortunate to lead a company with strong competitive positioning and a robust pipeline of high return growth projects.
We believe we are well positioned for significant margin expansion, accelerating cash flow growth, and disciplined capital employment opportunities that can generate compelling returns—some with the potential to exceed 10 times ROI based on current assumptions and market conditions.
It is our job to execute as flawlessly as possible on this opportunity and to educate you the investors on our unique value proposition.
And we intend to do that job. Well,
Again, thank you for joining us this morning. If you have any questions, please reach out to us. We'll make ourselves available.
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