Q3 2025 Rayonier Advanced Materials Inc Earnings Call

Speaker #3: Good morning , and welcome to the . I am third Quarter 2020 earnings conference call . During today's presentation , all parties will be in a listen only mode .

Speaker #3: 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 .

Speaker #3: I would now like to turn the call over to your host , Mr. Mickey Walsh , treasurer and Vice President of Investor Relations .

Speaker #3: Thank you , Mr. Walsh . You may begin .

Speaker #4: Good morning , and welcome to Brahms third quarter 2020 earnings Conference call . Joining me on today's call are Delyle Bloomquist , our president and CEO .

Speaker #4: And Marcus Moeltner , 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 .

Speaker #4: Remcom . These materials provide key insights into our financial performance and strategic direction . During today's discussion , we may make forward looking statements subject to risks and uncertainties that could cause actual results to differ materially .

Speaker #4: 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 .

Speaker #4: Reconciliations to the most comparable GAAP measures can be found on our presentations and our presentation on slides 27 to 30 . We appreciate your participation in today's call and ongoing interest in Ryan .

Speaker #4: I will now turn the call over to Delyle .

Speaker #5: Well , good morning , everyone , and thank you for joining us . Before Marcus walks through the financial results for Q3 , I want to cover five topics today .

Speaker #5: First , our updated 2025 bridge guidance . Second , recent developments in tariffs and trade . Third , our progress resolving the operational challenges we experienced earlier this year .

Speaker #5: Fourth , the work underway at Timiskaming to restore profitability and position the site for divestiture . And finally , how we're executing to the plan that increases our EBITDA to over $300 million .

Speaker #5: As we exit 2027 . 2025 has been a challenging year for Ryan , and in response to the extraordinary headwinds we have focused squarely on strengthening the company's cash generation and capital investment discipline and protecting our core cellulose specialties .

Speaker #5: Franchise . I believe that this approach is working , and in our third quarter , results reflect the normalization of our core business and the continued progress across the strategic plan .

Speaker #5: Now, let's move to slide four. Full-year adjusted EBITDA guidance is now $135 million to $140 million, refined from our prior range of $150 million to $160 million.

Speaker #5: The change is primarily driven by proactive downtime of our non-core paperboard and high yield pulp production . During the holiday season . To monetize inventory and protect cash .

Speaker #5: Given the weaker paperboard markets . We also are experiencing increased market weakness in the business , but this negative was largely offset by FX tailwinds in the quarter .

Speaker #5: We also faced increased headwinds to our fluff business , primarily due to the US fluff industry exports to China being displaced China 10% tariffs and creating increased competition into non-china markets .

Speaker #5: The cellulose specialties business performed near expectations and returned to normalized EBITDA margins in Q3 . Turning to slide five , please note that importantly , there are still zero tariffs on our cellulose specialties in dissolving wood pulp products into China .

Speaker #5: Zero tariffs on US sales to the EU , and zero tariffs on Canadian imports into the United States . Though direct tariff impacts have stabilized , by the we continue to work through the 10% tariff on our products into China .

Speaker #5: We're collaborating with customers and adjusting geographic mix as part of our mitigation , mitigation strategy . We're also developing a dissolving wood pulp fluff product that would avoid this .

Speaker #5: China tariff . Our technical team is working to refine this new product to reduce unit production costs . Major development in Q3 was the US ITC's preliminary affirmative injury determination in the ongoing anti-dumping and countervailing duty investigations covering Brazilian and Norwegian dissolving pulp imports .

Speaker #5: This determination allows the Department of Commerce to move forward with its its investigations , with preliminary duty determinations expected in early 2026 . As a reminder , an estimated 190,000 tonnes , a specialty grade acetate pulp are imported into the US from Brazil each year and about 5000 tons of ether's pulp are imported from Europe .

Speaker #5: So this case matters . It's a significant step toward a fair level playing field for us producers of high purity specialty cellulose pulp .

Speaker #5: Overall , we now believe that trading conditions are generally trending in our favor as we move towards 2026 . On slide six . The isolated operational challenges we've discussed previously are stabilizing in Q3 .

Speaker #5: Operational challenges at Tardis continued , including French national strikes that adversely affected Tardis . These were not Rimes specific strikes and the rhyme team did an outstanding job keeping customers supplied .

Speaker #5: As mentioned last quarter , we were understaffed in key technical roles at Tardis . Since June , we filled most of the open key positions via new hires , including the transfer of a couple of technical managers from Timiskaming , and expect all key positions to be filled by year end .

Speaker #5: Jessup and Fernandina are performing to expectations . Slide seven outlines the actions underway at Timiskaming 2020 . 2025 has been a difficult year for the paperboard and high yield pulp business .

Speaker #5: We now expect an EBITDA loss of about $14 million compared with historical profitability of roughly $30 million . The decrease in 2025 guidance is due primarily to lower paperboard prices and volumes due to new U.S.

Speaker #5: capacity , and our plan to idle the paperboard line . And one of the two high yield pulp lines for three weeks in the fourth quarter to improve working capital and cash flow .

Speaker #5: Our plan to return the Timiskaming site to historical profitability is focused on four key initiatives . First , reducing to costs by approximately $10 million .

Speaker #5: This initiative has been fully implemented through utility contract improvements and benefits derived from high return strategic capital investments . Second , improving the Paperboards line by approximately $10 million in 2026 as a result of fewer economic shutdowns .

Speaker #5: Grade optimization and enhanced maintenance reliability . Further upside of $5 million is expected to be realized in 2027 , as supply and demand normalizes , resulting in no economic production shutdowns .

Speaker #5: Third , advancing the commercialization of new product development in to generate an estimated $10 million in 2026 EBITDA and another $5 million in 2027 .

Speaker #5: The new freezer board grade has been qualified and launched in Q3 , and orders are being secured . The role softwood high yield pulp qualification trials are advancing well , with potential customers and the oil and grease resistant board trials will begin this quarter .

Speaker #5: Additionally , we are developing another new product , a high yield pulp wrapper product that is in testing , which we will believe will deliver 2026 cost savings and potential for new market entry .

Speaker #5: And fourth , we're in active negotiations with US customers affected by the 15% tariff on EU board imports and participating in an Afri led study of evaluating strategic options for all the assets on the site , including the currently suspended HPC line .

Speaker #5: We recently responded to an opportunistic inquiry about Timiskaming , so there is current interest in the business as we restore positive profits and cash flow to Timiskaming in 2026 , and once the Usmca free trade review is completed in July of 2026 , we believe we can divest this site at a fair value .

Speaker #5: Turning to slide eight . Starting from our normalized EBITDA baseline , we're updated . We've updated our plan to double our EBITDA from our current guidance over the next two years .

Speaker #5: I will walk through each step and provide an update on how we're progressing , on the pricing front , we believe that we're tracking ahead of plan .

Speaker #5: We are targeting a significant price reset to reflect the inherent value of our cellulose specialty products , which we believe requires recapturing the value from prior years inflation .

Speaker #5: Our costs , the $30 million reduction program for 2026 is almost fully implemented , and as upside , we are now working on a $20 million of EBITDA benefit for 2027 .

Speaker #5: That would be derived from strategic capital projects . From a specialty commodity sales mix standpoint , we are increasingly increasingly confident that we will realize the $30 million in EBITDA growth from margin improvement .

Speaker #5: I will expand on why , in a moment . Finally , our biomaterials are projects are progressing and I'll cover this progress in more detail in a couple of slides .

Speaker #5: In short , our strategy remains firmly intact and we have a clear line of sight to achieving our 2027 run rate target . Slide nine expands on the pricing and market fundamentals for our core business .

Speaker #5: We are highly confident that Ryam is in a strong position to realize a significant price reset for its cellulose specialty products . We believe that the market is conducive to capturing product value because industry capacity utilization is over 90% , with no expected major capacity additions before 2029 .

Speaker #5: Ryam holds most of the excess specialty capacity and the industry is highly concentrated with Ryam and two other producers accounting for roughly 80% of the global cellulose specialty capacity .

Speaker #5: This is important because we're making a strong push on 2026 cellulose specialty pricing, i.e., pursuing a meaningful reset beyond prior year increases to reflect the value of our high-purity products, which requires us to recapture lost value from inflation that has increased nearly 35% faster than our average cellulose specialty pricing since 2014.

Speaker #5: We also continue to capture the opportunities to enrich our sales mix towards specialty cellulose . We are on track to requalify to Miskimmin CS volumes to generate $5 million of EBITDA in 2026 , with two customers already qualified and a third expected by year end .

Speaker #5: We also remain highly confident we will generate $20 million in EBITDA over the next two years via specialty margin enhancement versus commodity sales .

Speaker #5: This objective will be driven by organic growth across cellulose specialty markets , supported by Arrium's outsized share of available excess capacity and potential upside to the plan from increased cellulose specialty volumes following Georgia-pacific's Memphis facility closure , which produced an estimated 10,000 to 20,000 metric tons of cotton linter pulp grades that go into cellulose specialty applications .

Speaker #5: Finally , we continue to expect to realize $15 million of additional EBITDA when ether demand in the EU returns to historical levels , which would also be upside to our plan .

Speaker #5: On cost $24 million in strategic investments made this year will generate $20 million in cost reductions at our HPC plants in 2026 . We also are taking action to reduce corporate costs by $10.5 million , including eliminating lightly used medical benefits , increasing management spend of control , reducing clerical roles via automation , and terminating non-employee technician and professional contracts .

Speaker #5: We also working on upside to this cost improvements initiative . We are actively working on projects that the HPC plants to generate another $20 million in EBITDA for 2027 , and believe that we can take out another 4 to $6 million in corporate costs via AI and automation over the next 2 to 3 years .

Speaker #5: On slide ten , I highlight the progress we are making on our biomaterial projects . The Altamaha Green Energy or AG project , is a $500 million , 70 megawatt renewable power project to be based at our Jesup facility .

Speaker #5: Ryan will own 49% of this project . Recent progress includes reaching agreement on the EPC contract in September and receiving our air permit in October .

Speaker #5: Joint venture is now focused on on reviewing project financing options , after which the project will move to its FID . Ryan will invest $46 million of equity to realize an annual proportional EBITDA of 50 plus million dollars , assuming a utility valuation , multiple .

Speaker #5: This project is expected to generate a 12 x ROI on equity . The $64 million Buyanova Fernandina Beach second generation bioethanol project is expected to generate $15 million of annual proportional EBITDA for Ryam in return for $6 million of Ryam cash equity , generating a 19 x ROI on Ryam equity .

Speaker #5: Assuming a comparable multiple funding is secured . The air permit has been approved and engagement with the City of Fernandina Beach has begun with respect to a potential settlement settlement on the land use application .

Speaker #5: The US Buyanova CTO project will produce about 13,000 tons per year of CTO from feedstock , primarily sourced from our Jesup and Fernandina plants .

Speaker #5: Engineering for the project is complete that incorporates a high quality used CTO plant that we acquired for $350,000 in September . Commercial discussions are advancing and we expect to file the air permit application by the end of November .

Speaker #5: This project is expected to generate $6 million of annual proportional EBITDA per year on a total CapEx of $9 million , of which of which Ryan will contribute less than $2 million of equity .

Speaker #5: Using a comparable market valuation , multiple , this project is expected to generate a 16 x ROI on Rimes equity . The European Buyanova CTO tolling project is small , but requires no rhyme , equity will supply feedstock from our Tardis plant to a third party tolar , which will generate approximately $1 million of annual proportional EBITDA .

Speaker #5: And finally, the prebiotics project at Jessup is one of the more exciting projects in the Buyanova portfolio. As a result of exceptional FSC results, we show that our product delivers significantly higher weight gain and feed conversion for poultry than competing alternative feed additives.

Speaker #5: We are redesigning the plant to a smaller modular footprint that can scale up with demand growth due to lower initial dosing requirements . We've also signed a commercial sales MoU with a feed additives manufacturer .

Speaker #5: For US poultry and swine feed applications . While the redesign may extend this project's timeline , this is a positive adjustment . The trial data confirmed our product superior performance and as a result , we believe meaningfully expands the commercial opportunities ahead across all these initiatives .

Speaker #5: I demonstrated its ability to recycle capital into high return projects due to low capital intensity , attractive project capital and repeatable outside outsized investment returns .

Speaker #5: Slide 11 explains why we can do this . The crux of these opportunities is Ryan's extensive and unique asset base . The noted biomaterial projects will be located at existing Ryan Cellulose fiber plants , where the infrastructure utilities , raw materials sources and site management are already in place .

Speaker #5: Thus , Ryan's asset base anchors our ability to scale new biomaterial projects efficiently . We also believe that replicating this asset base would be prohibitively expensive .

Speaker #5: Thus , it is unique to Ryan . As a case in point , the replacement value of Jesup alone is estimated to be over $4 billion .

Speaker #5: So we believe that Ryan is uniquely positioned to pursue such opportunities at very attractive Rois on equity invested . The technical and market viability of most of our projects are already proven .

Speaker #5: Prebiotics is the only opportunity that would be new . We are therefore taking the necessary steps , including animal feed , trials and resizing the plant to mitigate the market and capital risks .

Speaker #5: For this project . The project that I summarized on the previous slide will generate high returns in very profitable growth through 2028 2029 for the 2030s decade .

Speaker #5: We are investigating promising opportunities today and biomaterials and bioenergy to provide profitable growth . For example , we are currently conducting due diligence with Graham Beal for a pilot scale ethanol to jet plant at our Jesup facility .

Speaker #5: If this due diligence concludes that such a project would be successful , we will then proceed to construction , which which would be fully funded by a Doe grant .

Speaker #5: We've also signed an MOU with Verso Energy to evaluate Aecf production at Jesup and Tardis that will align with the EU decarbonization mandate starting in 2030 .

Speaker #5: Just yesterday , we were informed that Verso Energy's project at our Tardis plant was selected by the EU Commission for its innovation fund and and will receive a $37 million grant towards the construction and commissioning of the Tardis .

Speaker #5: Project . After a final investment decision is made . Turning to slide 12 , I'd like to close with three points . First , our near-term , our near-term issues are mostly behind us .

Speaker #5: The tariff situation has stabilized and the extraordinary operational challenges . Except maybe those challenges tied to political turmoil are resolved . Second , the underlying fundamentals of our strategy remain intact under EBITDA , enhancing initiatives are advancing the core business is performing to expectations with a significant 2026 pricing reset asset being pursued .

Speaker #5: The $30 million in structural cost targets will be delivered for 2026 , and we're now working on a further 2025 , 20 to $25 million plant and corporate cost reductions for 2027 .

Speaker #5: Our confidence continues to build that organic growth across cellulose . Specialty markets will further expand EBITDA margins by $30 million over the next two years .

Speaker #5: The turnaround efforts are effectively underway , and our biomaterials portfolio continues to progress . Third , Ryan valuation remains compelling . We believe that in up to five times upside to the stock price for our shareholders would be implied by the comparable double digit valuation of our competition in a recent transaction .

Speaker #5: Transaction on our targeted 2027 300 plus million dollars run rate EBITDA . 2025 has been a challenging year , but we are getting through it with our strategy intact .

Speaker #5: Our core is solid and performing and our growth initiatives are advancing . We remain confident in the path ahead and focused on execution on this plan for our shareholders .

Speaker #5: With that , I'll hand the call over to Markus to take us through the Q3 financial highlights .

Speaker #6: Thank you . Delisle . Let's now turn to slide 13 , which summarizes our third quarter 2020 financial highlights . In the third quarter , revenue was 353 million , down 48 million year over year .

Speaker #6: Operating income was 9 million , an improvement of 26 million compared to the prior year . Adjusted EBITDA was 42 million , a $9 million decrease from Q3 2020 .

Speaker #6: For and adjusted free cash flow year to date was -83 million , driven by working capital timing . That is expected to improve in the fourth quarter .

Speaker #6: The primary drivers of the EBITDA change this quarter can be summarized with the following highlights: paperboard earnings decreased by approximately $10 million, reflecting lower sales volumes and pricing due to tariff uncertainty.

Speaker #6: Competitive EU imports and new U.S. capacity, along with higher fixed costs from market-related downtime and the allocation of Timiskaming Net Custodial site expenses in high-yield pulp.

Speaker #6: Earnings declined by approximately 10 million due to continued oversupply in China and higher fixed costs resulting from market downtime and in cellulose commodities .

Speaker #6: Earnings increased by 7 million , driven by stronger fluff pricing , improved mix and the absence of prior year impairment and suspension charges .

Speaker #6: Given these weaker than expected results in our non-core business , we have now refined our full year 2025 adjusted EBITDA guidance to a range of 135 to 140 million , implying 25 to 30 million of adjusted free cash flow for the fourth quarter .

Speaker #6: Let's now review our segment results beginning with cellulose specialties on slide 14 . Quarterly net sales for CS were 204 million , down 28 million , or 12% , from the prior year .

Speaker #6: The decline was driven by a 17% decrease in sales volumes , partially offset by a 7% increase in average sales prices from negotiated price actions and improved mix operating income was 49 million , compared to 46 million in the third quarter of 2020 .

Speaker #6: For the improvement was driven by higher average selling prices , lower fixed costs related to the Timiskaming cellulose , indefinite suspension , and a $7 million energy cost benefit from the sale of excess emissions allowances , partially offset by lower volumes , higher operating costs and the impacts of national labor strikes in France .

Speaker #6: Adjusted EBITDA was 66 million , compared to 65 million last year , with margins increasing to 32% from 28% . Turning to slide 15 .

Speaker #6: Quarterly net sales for biomaterials were 8 million flat compared to the prior year . Higher turpentine volumes were offset by lower bioethanol sales volumes caused by temporary feedstock constraints and labor disruptions at Tata's operating income was 1 million , compared to 3 million in the third quarter of 2020 .

Speaker #6: For reflecting higher shared and ancillary service costs , adjusted EBITDA was 1 million , compared to 4 million in the prior year , with margins of 13% versus 50% in Q3 of 2020 .

Speaker #6: For . Turning to slide 16 , quarterly net sales for cellulose commodities were 85 million , down 1 million , or 1% from the prior year quarter , a 2% decrease in volumes , mainly due to the prioritization of production towards cellulose specialties and the absence of temiscaming sales volumes .

Speaker #6: Following the indefinite suspension was largely offset by additional viscose sales as part of inventory and cash management efforts , and an 8% increase in average selling price , driven by higher fluff pricing and mix improvement .

Speaker #6: Operating loss was 13 million compared with 55 million last year . The improvement reflects the absence of a $25 million non-cash impairment charge and 7 million of indefinite suspension costs recorded in the prior year , combined with higher selling prices , lower fixed costs following the indefinite suspension of Timiskaming Cellulose operations and improved cost performance , adjusted EBITDA was -3 million compared to -10 million in the prior year quarter .

Speaker #6: Let's now move to slide 17 , which covers our paperboard segment quarterly . Net sales were 39 million , down 16 million , or 29% , compared to the prior year .

Speaker #6: Average sales price is decreased 10% and sales volumes were down 21% , driven by mix shifting customer dynamics associated with tariff uncertainty and increased competitive activity due to EU imports and the start up of new US capacity .

Speaker #6: Operating loss was 4 million compared to operating income of 7 million in the prior year quarter . The change was driven by lower sales , higher fixed costs for market downtime and the allocation of Timiskaming Net Custodial site costs , partially offset by lower purchased pulp costs .

Speaker #6: Adjusted EBITDA was 1 million , compared to 11 million in Q3 of 2020 . For with margins of 3% compared to 20% in the prior year .

Speaker #6: Turning to slide 18 . Quarterly net sales for high yield pulp were 24 million , down 4 million , or 14% , compared to the prior year quarter .

Speaker #6: Average sales prices declined 10% and volumes decreased 8% , reflecting weaker demand . Oversupply in China and shipment delays to customers in India .

Speaker #6: Operating loss was 10 million compared to break even results in the prior year . The decline reflects lower sales , higher fixed costs from market downtime and the allocation of net custodial site costs .

Speaker #6: Adjusted EBITDA was -9 million compared to positive 1 million in Q3 of 2020 . For with margins of -38% compared to 4% last year , slide 19 provides an overview of our balance sheet and liquidity .

Speaker #6: We ended the quarter with $140 million of total liquidity, including $77 million of cash, and a net secured leverage ratio of 4.1 times, which is within the five times covenant threshold.

Speaker #6: During the quarter , we experienced working capital outflows across receivables payables , customer rebates and inventory , which pressured free cash flow . These outflows also reflect temporary inventory management actions by a large cellulose specialties customer that affected order timing .

Speaker #6: We expect working capital levels to normalize as we progress through the fourth quarter and as sales volumes increase , we remain focused on driving working capital efficiency and improving cash flow generation .

Speaker #6: For the full year, we expect adjusted EBITDA in the range of $135 million to $140 million and positive free cash flow in the fourth quarter.

Speaker #6: As these timing effects ease . In addition , we have 40 million of committed green debt available to support the execution of our biomaterials portfolio as the projects move forward , the company will also look to proactively pursue a refi in 2026 to lower interest expense by leveraging Ryan's expected stronger operating performance and potentially lower debt as a result of the targeted divestment of Timiskaming .

Speaker #6: With that operator , please open the call for questions .

Speaker #3: 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 #3: A confirmation tone will indicate your line is in the question queue . You may press star two . If you would like to remove your question from the queue for participants using speaker equipment , it may be necessary to pick up your handset before pressing the star keys .

Speaker #3: One moment please . While we pull for questions . Thank you . Our first question comes from the line of Daniel Harriman with Sidoti .

Speaker #3: Please proceed with your question .

Speaker #7: Thank you so much . Hey , guys . Good morning . Thank you for taking my questions . Just wanted to hit on two in the beginning , one for Delisle and one for Marcus Delisle .

Speaker #7: Just going back to the paperboard and high yield pulp assets . Can you just talk again ? I know you went through it all , but what specific operational and financial milestones do you think you need to achieve in 2026 to make those assets viable for sale ?

Speaker #7: And then , Marcus , you touched on this at the end of your comments , but with leverage at 4.1 times , can you just talk a little bit about how you're thinking about refinancing and repricing opportunities , considering that the debt is callable in 26 , and then what level of EBITDA would give you comfort that you can regain full balance sheet flexibility ?

Speaker #7: Really appreciate it guys . Thank you .

Speaker #5: Good morning Daniel . This is Delisle . I'll see if I can address your question on the paperboard and high yield pulp . Business .

Speaker #5: The way I would look at it is that before I can sell it , there's two gating items that we have to get past .

Speaker #5: One is the Usmca renewal . That is under negotiations right now between the three governments and that let's say that that gets done by the deadline , which should be around July of 2026 .

Speaker #5: I don't think there'll be any interest on anybody's part until we get in terms of buying those assets. Until we get to that point.

Speaker #5: The other , other gating item is that the I believe that the business needs to get back to positive EBITDA and positive cash flow .

Speaker #5: And I outlined four different things that we're pursuing to to make that happen . I would say two of them are high probability or locked .

Speaker #5: One is the cost reduction , which is largely locked in given given the activity we've already done . The other is the OE of the paperboard plant , which has been demonstrating significant improvement over the over the past couple of months .

Speaker #5: And we expect to continue to do so as we go into 2026 . The last element I would say is really big is really the the new product development and the uptake of the of those new products into the market .

Speaker #5: So to get to a positive EBITDA , I need all three of those elements . And so really the last critical element to that needs to fall in place is the successful commercialization of those new products which which we start should start seeing in the first quarter and second quarter of 26 .

Speaker #5: So once I get to a positive EBITDA positive cash flow and we get past the the negotiations on the Usmca , I think at that point we've got a we've got an asset now that's attractive and we'll be able to to dispose of it .

Speaker #6: Good morning Dan . Thanks for your question . Yeah . As you mentioned , the the term debt becomes callable in May of next year .

Speaker #6: And there's a 2% takeout premium rate which which falls to 1% in November . I think the key here is , you know , as we've gone through the materials navigating these transitional headwinds and then demonstrating that this business should return to historical levels of EBITDA .

Speaker #6: Right . We exited last year at at $50 million quarters . And when we demonstrate that kind of cadence , we'll anniversary some weaker quarters that we had this year and get our LTM back up over the 200 million level , that certainly is going to give us a better leverage profile to be out in the marketplace .

Speaker #6: And then , you know , continue to tell our story on the backdrop of of all the positive items that I mentioned , his in his review and look to do the break even on on a refi .

Speaker #6: And we certainly see a line of sight where we can take a measurable amount of interest out of this business at that time .

Speaker #7: Thanks so much , guys . I appreciate it .

Speaker #5: Does that answer your question , Daniel ?

Speaker #7: Yes it does . Thank you .

Speaker #5: All right . Thank you .

Speaker #3: Our next question comes from the line of Nick tour with Blackrock capital . Please proceed with your question .

Speaker #8: Hi , Delilah . I just wanted to hone in to what point that you have on slide nine , which says that as we kick off 2026 cellular specialties , pricing discussions , we are targeting a significant reset beyond prior year increases , reflecting the value of our products and recapturing lost value from prior years inflation .

Speaker #8: Could you give me a little bit of color on how much value has been lost from prior years ? Inflation as you head into these negotiations next month or this month and you know , what does what is baked currently into your guidance and what is the impact of , you know , 1% increase in pricing over your cost inflation ?

Speaker #5: Okay . Well , good morning , Nick . I know it's early over there in the West . Yes . Certainly . Appreciate you getting up early .

Speaker #5: I'm certainly appreciative of you getting up early to participate in the call. That's a question you asked. I'll see if I can try to answer it.

Speaker #5: Each of the different components starting off with just kind of a rule of thumb on a 1% increase in pricing , it generally .

Speaker #5: Generates a 8 to $9 million increase in EBITDA . When we talk about increasing our CS pricing by 1% , okay , so you take that .

Speaker #5: And as I stated in the presentation , since 2014 , the inflation has increased 35% more than our the average pricing for our CS products .

Speaker #5: So if you take 8 or 9% for every 1% increase in pricing , the value lost is somewhere in the tune of $300 million .

Speaker #5: I think that's the right math . But anyway , you can certainly do the do the math . The math quickly in the plan that we've laid out with respect to getting to $300 million from our our proforma 25 number , we assumed essentially a 1% higher rate of increase on pricing than inflation .

Speaker #5: So I think we show on the slide an $89 million increase over two years in pricing , offsetting the $80 million in inflation .

Speaker #5: Largely the reason for that assumption is because that's what our analysts out there are saying , that we can get to 4 to 6% increase in our in our pricing , given the tight market conditions , given the highly concentrated industry we're in .

Speaker #5: And so forth . So we just assumed that the midpoint on that to drive that number , what I'll tell you is that we internally believe we need to increase that at a much faster rate than just 1% above inflation to get back to a level that will allow us to reinvest back into our plants and make make our facilities viable for the long term .

Speaker #5: Because , quite frankly , since 2014 , pricing where it has been has not been sustainable . And you've seen that in the industry in that we've seen a competition and capacity get shut down and rationalized with GP fully being the last one .

Speaker #5: Well , not the last one , actually . Our Timiskaming operations being the last line being shut down , but GP Foley , Cosmo at a Washington state and just recently the the CLP plant in Memphis , Tennessee , which is not in cellular specialty but certainly in the same applications .

Speaker #5: All right . So pricing must go up . It must go up . So , you know , I know that next question would be , well how much more do you think it's going to go up than just the 1% above inflation ?

Speaker #5: It's going to be multiples of that number . It has to be multiples of that number . So that we can get the capital we need to reinvest back into plants and make these facilities the gold standard that they that they need to be .

Speaker #5: So I can't tell you exactly the number that we're after . But all I can tell you is that we're not looking at a 5% increase .

Speaker #5: We're not looking at a 10% increase . We're looking at much higher numbers .

Speaker #8: So there is , you know , roughly $300 million of cash flow that needs to be recaptured . Whether that happens , you know , a big portion of it probably happens next year .

Speaker #8: And then remaining in the years after that . But that's a , you know , that's an extremely significant number considering your market cap .

Speaker #8: As you around $400 million . So that's that's really exciting . So now that the capacity has been taken out of the industry , to the extent that it has and capacity utilization , utilization levels are as high as they are , you know , now there is space for there in the industry for there to be more rational pricing and , and , and recapture what has been lost through inflation over the last , you know , 9 or 10 years .

Speaker #8: Is that a fair assumption ?

Speaker #5: Yeah , that's , that's that's I couldn't have summarized it better . Nick . That's exactly , exactly right .

Speaker #8: Okay , great . And then the second question , I think , you know , see the stock is trading a few percentage points later , which is , you know , sometimes the market gives you a gift , but it's it seems like , you know , your , your reduction in EBITDA from last quarter to this quarter was because of , you know , your decision to shut down .

Speaker #8: You know , your operations for a little bit to generate cash from your working capital . Can you just give me , you know , you I think you mentioned in one of your slides that you , the 10 million loss was from from that decision .

Speaker #8: But that generated or is expected to generate , you know , additional working capital and improve the cash flows overall for the company .

Speaker #8: What is the magnitude of that working capital release?

Speaker #5: Roughly about 14 million .

Speaker #8: Okay . So you're basically made the decision . You're gonna , you know , get the IBA down by ten , but get 14 million more of cash .

Speaker #5: Yeah , yeah . Now $10 million of EBITDA loss or non-recurring impact result of the we call it market or economic shutdowns . The Timiskaming facility that's over the whole year .

Speaker #5: So the $14 million benefit is really over the whole year.

Speaker #6: Yeah . And Nick to the last comment the so that's the portion related to downtime . If you look at our guidance in in Q4 , we're expecting close to 30 million of working capital release , as you saw on the bridge .

Speaker #5: Yeah , good . Put a good chunk of that as paperboard . But a good chunk of it . There's also a big chunk of it coming out of CSX .

Speaker #8: Got it , got it , got it . And then just last question , just honing in on your AG project , which seems incredible .

Speaker #8: Seems like you've you've , you know . Basically passed most of the hurdles for your FID . Just working on the financing . You've got an investment grade counterparty there .

Speaker #8: And I think the EPA now is $50 million applicable to you , which you know , is worth $500 million of value . Again , your market cap is in the 400 million .

Speaker #8: It's , you know , it seems is there anything that is preventing or is there any major things that you're concerned about that you know , could potentially derail that project ?

Speaker #8: Or is now just the timing of funding or , you know , getting the funding finalized ?

Speaker #5: It just getting the funding finalized . Nick . And just to correct you , it's not $500 million of call it market cap .

Speaker #5: I think it's $650 million of market cap because you need to this is essentially a utility , right ? Your contract , fixed pricing , no volatility coming from a , you know , a Georgia , Georgia Power , which is a statewide utility .

Speaker #5: So you take 13 , take a 13 x multiple and times it by the 50 plus million dollars . It's it's a $650 million potential impact to to our our ROI .

Speaker #5: So we understand and we recognize that it's a a super project for this business . The hurdle on this really it's not so much the project financing .

Speaker #5: It's really finding the $46 million of equity that we got to . We have got to put in the business , and we're looking at options of how we're going to find that money to put it to , to fund this .

Speaker #5: That's really the issue .

Speaker #9: Okay , okay .

Speaker #8: Sounds good . Well , I mean , as you know , I own almost 2 million shares of the stock . And I feel like I'm under invested .

Speaker #8: So there's very exciting times for the company . And and it looks like you guys are making , you know , very rapid progress on the biomaterials initiatives .

Speaker #8: But the really exciting news coming out of this quarter , which , you know , we didn't know last quarter , was the magnitude of price increases that are possible going into next year .

Speaker #8: So, good luck with those negotiations, and thanks for your time.

Speaker #5: All right . Well thank you .

Speaker #3: Our next question comes from the line of Amit Prasad with RBC . Please proceed with your question .

Speaker #10: Hey , it's Amit on for Matt . Thanks for taking my questions . Just starting off with Timiskaming , you noted a $5 million benefit in 2026 from qualifying volumes and other lines .

Speaker #10: What would that be on a run rate basis ? And when do you expect those incremental volumes to show up ? And I guess how much of that historical Timiskaming business do you expect to ultimately have retained through transferring production to other facilities ?

Speaker #10: By the end of 2026 ?

Speaker #5: Hey , good morning . So your your your asking on the the amount of volumes that we're able to convert from our old HPC line into Miskimmin over to our facilities in Jessup , Fernandina and Tartus .

Speaker #5: What we're talking about with respect to the $5 million that we're looking to see in terms of increased EBITDA for 2026 is conversions that have occurred.

Speaker #5: This year . All right . We've already seen a significant amount of conversions since we suspended the operations back in July of 2024 .

Speaker #5: So what we're saying is that there and as we said at the time of the suspension , there was a number of products that would take multiple years in terms of qualifications .

Speaker #5: So we're just now getting through the conversion on on with with three customers . This year . And when those conversions are completed this year , that should add another $5 million , $5 million of EBITDA for a business going forward .

Speaker #5: That being said , there will be more opportunities in 2026 and probably after that , that's probably about the extent we're going to be able to get to as some of the business like mAAC and some other grades that we were producing in Timiskaming have gone to the competition .

Speaker #5: But we're getting to the end of the road with respect to what we're what we're going to be able to realize from the full conversion of those specialty cellulose business that we had up at the Timiskaming facility .

Speaker #5: I hope that answers your question .

Speaker #10: Yeah . That's perfect . Thank you . And I guess one other quick one for me is we saw paperboard realizations move significantly lower quarter on quarter .

Speaker #10: How much of that was just pricing related being down on a like for like basis versus just mix or and potentially some FX .

Speaker #5: That's a really , really technical question . And and probably beyond my ability to answer it specifically . But we certainly would be happy to try to answer that question to you one on one amid after we've done a little bit of investigation , is it okay just to punt that for for a couple of hours ?

Speaker #10: Yeah , absolutely . No , no problem at all . That's all I had . Thanks for thanks for taking my questions .

Speaker #11: Thank you .

Speaker #3: As a reminder , if you would like to ask a question , press star one on your telephone keypad . Our next question comes from line of Dmitry Silverstein with Water Tower Research .

Speaker #3: Please proceed with your question .

Speaker #12: Good morning . Excuse me . Good morning , gentlemen . Thank you for taking my questions . I have a couple of them .

Speaker #12: First of all , you talked about working on a new product that would avoid the tariffs . The 10% import tariffs from China or into China .

Speaker #12: Can you talk about sort of what would allow kind of what what the changes are that would allow the new product to bypass these tariffs ?

Speaker #12: And when do you think this product will be available for for commercial sales ?

Speaker #11: Yeah .

Speaker #5: Dimitri , welcome and thank you for being on the call . Great question . With respect to our product , new product development around fluff , the we we've developed it .

Speaker #5: We have a product that we believe that would would qualify as a dissolving wood pulp product from a tariff perspective into China . That would go into the fluff business .

Speaker #5: All or into the fluff market . That's really the key is that it has to be a dissolving wood pulp product to be able to get into China without without any tariffs .

Speaker #5: And that's and we're really the only , I believe , the only fluff producer who can do that because we're a specialty . Cellulose producer .

Speaker #5: That is that can make dissolving wood pulp . Whereas all the other pulp fluff producers in the world cannot . So that's a real competitive advantage .

Speaker #5: So to , to , to be able to do that so we can do that today . The issue that we're dealing with is that the cost of that conversion from fluff to a dissolving wood pulp product is the cost per ton is higher than the cost we would bear by paying the 10% fluff duty right now .

Speaker #5: So we've worked and we continue to work on seeing if there's a means to lower the unit cost of production to make that dissolving wood pulp fluff.

Speaker #5: And in the meantime , we'll continue to do what we're doing , which is extend and expand our geographical diversity away from China to keep our fluff volumes high and keep and keep the operation at capacity .

Speaker #5: But the truth of the matter is , we have a product . We just have to figure out a way to make it cheaper .

Speaker #11: Okay , understood .

Speaker #12: That's a that's a very good level of granularity there . I appreciate it , Lyle . My next question is you talked about the $30 million in cost reduction projects that you announced last quarter , being pretty much fully implemented by now .

Speaker #12: And we're just sort of waiting for the ramp up . And get to that run rate . You also mentioned there's an additional 20 million in EBITDA improvement projects for , you through 2027 .

Speaker #12: Is it too early to ask you to provide sort of some major buckets of where that cost savings is going to come from ?

Speaker #5: Well , it'll be the same major buckets that we've had for 20 , 25 and 24 , which is , you know , around improving reliability , improving material usage on our variable inputs through automation , through , I'll call it a preventative and even predictive maintenance practices .

Speaker #5: And measuring devices so that we can capture or or catch maintenance requirements before any kind of catastrophic failure . Those are the things we've been focusing on in the past .

Speaker #5: That's what we'll be focusing in the future . And as I said in the past couple of couple of analyst calls , we have a good backlog of projects that that we're going through to that will invest in .

Speaker #5: And as capital gets available , we'll we'll execute that will give us the the returns that we've been seeing for the last couple of years on these type of type of investments .

Speaker #5: Those are generally the same . The buckets , though on Dmitri that that will be will be investing similar to the , you know , similar to the investments we did last year or this year .

Speaker #12: Okay . So so basically kind of like a Japanese kaizen approach where you just do better every time you go through this and get a little bit more out of it .

Speaker #5: That's exactly right . Exactly right . Yeah .

Speaker #12: Okay . Okay . Great . And then my last question , you mentioned in your high yield pulp business that there was a shipment delays of a business going to India and that accounted for for some of your volume losses in that business in the quarter .

Speaker #12: What was the nature of those delays ? And they have they have they been resolved ? Is there going to be a catch up in a fourth quarter , or is this sort of missed until next year ?

Speaker #5: It's just a timing issue . It will we'll capture it in the fourth quarter . And really what it comes down to is the lane between Montreal , Canada and India .

Speaker #5: The ports in India , the capacity of those ocean lanes are pretty , pretty slim , pretty narrow . And and as a consequence , you know , if you miss a ship , then you got to wait a month , right , for the next ship to show up , to take , to take it to India .

Speaker #5: So that's really the issue that we're dealing with .

Speaker #12: Gotcha . Okay . I appreciate the time . This is all the questions I have . Thank you .

Speaker #3: Thank you . Mr. De Bloomquist . We have no further questions at this time . I'd like to turn the floor back over to you for closing comments .

Speaker #5: Okay . Well , thank you . In closing , just to reiterate , the temporary headwinds that defined 2025 , we believe are now largely behind us and that our core business is now performing as expected .

Speaker #5: As we talked about in the Q&A , pricing negotiations are underway and we continue to value and put priority on value on the value we provide to our customers so that we can be able to get the money they needed to reinvest back into our assets .

Speaker #5: Our operations are stable and our teams are executing with discipline . We have a clear strategy and a strong portfolio of high return projects that position the company for margin expansion and stronger cash generation .

Speaker #5: And we are very disciplined in our capital deployment . These actions should reinforce your confidence in our path to sustain the growth in the long term .

Speaker #5: Value creation of the project or of the of the company . Our focus now is very simple . Execute with precision and continue to demonstrate the strength and potential of the company .

Speaker #5: Again , thank you for joining us . This morning .

Speaker #3: Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a wonderful day.