RYAM Announces Improved First Quarter 2024 Results

Reaffirms 2024 EBITDA and Increases Free Cash Flow Guidance

Rayonier Advanced Materials Inc. (the “Company”) reported results for its first quarter ended March 30, 2024.

• Net sales for the first quarter of $388 million, down $79 million from prior year quarter
• Net loss for the first quarter of $2 million, a decline of $4 million from prior year quarter
• Adjusted EBITDA for the first quarter of $52 million, up $1 million from prior year quarter
• Total debt of $779 million; Net Secured Debt of $721 million with a net secured debt ratio of 4.4 times
• 2024 Adjusted EBITDA guidance of $180 million to $200 million
• 2024 Adjusted Free Cash Flow guidance increased to $80 million to $100 million

“First quarter results exceeded our expectations, driven by lower costs and improved demand for cellulose specialties. We delivered a solid $52 million in Adjusted EBITDA to maintain a net secured debt ratio of 4.4 times covenant EBITDA,” stated De Lyle Bloomquist, President and CEO of RYAM. “We also increased capital expenditures to support growth in our Biomaterials strategy and increased net debt to boost inventory levels in preparation for Jesup’s annual outage.”

“The solid first quarter, along with the start-up of the bioethanol facility in Tartas and the April completion of the planned maintenance outage in Jesup, keep us on track to deliver our full-year guidance of $180 to $200 million in Adjusted EBITDA. As a result of the indefinite suspension of operations of our Temiscaming High Purity Cellulose plant and the sale of refund rights to our softwood lumber duties to OCP Lumber LLC, our 2024 Adjusted Free Cash Flow guidance is increased to $80 to $100 million. The suspension at Temiscaming will also reduce our exposure to the volatile commodity viscose market. The potential sale of the Temiscaming Paperboard and High-Yield Pulp facilities is progressing, albeit slower than originally expected, as we manage buyers through the complexity of carving out these assets. While the suspension and asset sale decisions affecting the Temiscaming site have been approached and carried out independently, we believe the suspension will bring clarity to the asset sale diligence process by validating that these assets can be efficiently run separately. Updates on these processes will be provided as appropriate. In the meantime, we are focused on reducing debt with lower earnings volatility as we plan to refinance our senior secured notes prior to them becoming current in early 2025,” concluded Mr. Bloomquist.

First Quarter 2024 Financial Results

The Company reported a net loss of $2 million, or $(0.02) per diluted share, for the quarter ended March 30, 2024, compared to net income of $2 million, or $0.02 per diluted share, for the prior year quarter.

The Company operates in the following business segments: High Purity Cellulose, Paperboard and High-Yield Pulp.

High Purity Cellulose

Net sales for the quarter decreased $67 million, or 18 percent, to $307 million compared to the prior year quarter. Included in each of the current and prior year quarters were $23 million of other sales primarily from bio-based energy and lignosulfonates. Despite a 2 percent increase in cellulose specialties prices, total sales prices decreased 2 percent due to an 11 percent decrease in commodity prices. Total sales volumes decreased 17 percent driven by 16 percent and 18 percent decreases in cellulose specialties and commodity volumes, respectively. Increased cellulose specialties sales volumes resulting from the closure of a competitor’s plant in late 2023 and an uptick in ethers sales were more than offset by customer destocking in acetate products and the one-time favorable impact from a change in customer contract terms in the prior year quarter. The decrease in commodity sales volumes was primarily driven by lower production in favor of cellulose specialties production as the Company built inventory ahead of Jesup’s second quarter planned maintenance outage.

Operating income for the quarter increased $8 million compared to the prior year quarter driven by the higher cellulose specialties sales prices, decreased key input and logistics costs and improved productivity, partially offset by the lower cellulose specialties sales volumes, lower commodity sales prices and volumes and $7 million of energy cost benefits in the prior year quarter from sales of excess emission allowances that did not repeat in the current quarter.

Compared to the fourth quarter of 2023, net sales declined $40 million due to a 15 percent decrease in total sales volumes, including a 10 percent decrease in cellulose specialties volumes driven by customer destocking in acetate products that offset an uptick in ethers sales, and a 21 percent decrease in commodity volumes due to lower production in favor of cellulose specialties production. Operating results improved $70 million primarily due to the $62 million non-cash asset impairment recorded in the fourth quarter. Also contributing to the improvement in results was a 4 percent increase in total sales prices, including 1 percent and 3 percent increases in cellulose specialties and commodity prices, respectively, and a decrease in key input costs. Partially offsetting these improvements were the lower sales volumes and higher production costs driven by the impact of fourth quarter annual planned maintenance and market-related production outages.

Paperboard

Net sales for the quarter decreased $6 million, or 10 percent, to $53 million compared to the prior year quarter driven by a 12 percent decrease in sales prices due to market-driven demand declines and mix, partially offset by a slight increase in sales volumes.

Operating income for the quarter decreased $2 million compared to the prior year quarter driven by the lower sales prices, partially offset by lower purchased pulp costs.

Compared to the fourth quarter of 2023, operating income was flat as a 4 percent decrease in sales prices, due to market-driven demand declines and mix, was offset by lower unit production costs due to improved production levels in the current quarter.

High-Yield Pulp

Net sales for the quarter decreased $8 million, or 19 percent, to $34 million compared to the prior year quarter driven by a 27 percent decrease in sales prices due to market supply dynamics in China, partially offset by a 16 percent increase in sales volumes.

Operating results for the quarter declined $8 million compared to the prior year quarter driven by the lower sales prices, partially offset by the higher sales volumes and lower logistics costs.

Compared to the fourth quarter of 2023, operating loss decreased $4 million driven by 11 percent and 25 percent increases in sales prices and volumes, respectively, lower logistics and unit production costs due to improved production levels in the current quarter.

Corporate

Operating loss for the quarter decreased $2 million compared to the prior year quarter driven by more favorable foreign exchange rates in the current quarter, partially offset by higher discounting and financing fees in the current quarter.

Compared to the fourth quarter of 2023, operating loss decreased $4 million driven by more favorable foreign exchange rates in the current quarter, lower environmental expense and lower discounting and financing fees, partially offset by higher variable compensation costs.

Non-Operating Income & Expense

Interest expense increased $6 million during the quarter ended March 30, 2024 compared to the prior year quarter driven by an increase in the average effective interest rate on debt, partially offset by a decrease in the average outstanding balance of debt. Total debt decreased $67 million from April 1, 2023 to March 30, 2024.

Included in non-operating other income in the quarter ended March 30, 2024 was a $1 million impact from favorable foreign exchange rates in the current quarter.

Included in non-operating expense in the quarter ended April 1, 2023 was a $2 million pension settlement loss.

Income Taxes

The effective tax benefit rate for the quarter ended March 30, 2024 was 30 percent. The 2024 effective tax rate differed from the federal statutory rate of 21 percent primarily due to the release of certain tax reserves, partially offset by return-to-accrual adjustments, excess deficit on vested stock compensation and changes in the valuation allowance on disallowed interest deductions.

The effective tax rate for the quarter ended April 1, 2023 was not meaningful due to near break-even pretax income for the period, which results in any discrete tax adjustments significantly impacting the rate. The largest adjustments creating a difference between the effective tax rate and the federal statutory rate of 21 percent were an excess tax benefit on vested stock compensation and return-to-accrual adjustments related to previously filed tax returns.

Cash Flows & Liquidity

The Company generated operating cash flows of $12 million during the three months ended March 30, 2024, driven by lower costs and cash inflows from accounts receivable, partially offset by cash outflows from other working capital and payments of interest on long-term debt.

The Company used $33 million in investing activities during the three months ended March 30, 2024 related to net capital expenditures, which included $5 million of strategic capital spending focused on the investment in the 2G bioethanol plant in Tartas.

The Company had $1 million of net cash inflows from financing activities during the three months ended March 30, 2024 driven by net borrowings of long-term Biomaterials project debt.

The Company ended the first quarter with $199 million of global liquidity, including $55 million of cash, borrowing capacity under the ABL Credit Facility of $131 million and $13 million of availability under the France factoring facility.

In January 2024, the Company amended the 2027 Term Loan to increase the maximum consolidated secured net leverage ratio that it must maintain beginning in the fourth quarter of 2023 and through its 2024 fiscal year. The amendment provides the Company with the operational flexibility to execute its strategic initiatives in 2024. Should the Company exceed the 4.50 to 1.00 maximum ratio established by the original agreement in any of these quarters, it will incur a fee of 0.25% of the principal balance outstanding at the end of the applicable quarter. The Company incurred total fees of $3 million related to this amendment, including $1 million in legal and advisory fees recorded to selling, general and administrative expense in the fourth quarter of 2023, and $2 million in lender fees recorded as deferred financing costs in the first quarter of 2024 that will be amortized to interest expense over the remaining term of the loan.

As of March 30, 2024, the Company’s consolidated secured net leverage ratio was 4.4 times covenant EBITDA.

2024 Outlook

In October 2023, the Company announced that it is exploring the potential sale of its Paperboard and High-Yield Pulp assets located at its Temiscaming site. The potential sale is consistent with the Company’s commitment to align its portfolio with its long-term growth strategy and provide flexibility to pay down debt, reduce leverage and minimize earnings volatility. The sales process is progressing, albeit slower than originally anticipated, as buyers work through the complexity of carving out these assets from existing operations and consider the impact of the indefinite suspension of the Temiscaming High Purity Cellulose plant. While the suspension and asset sale decisions affecting the Temiscaming site have been approached and carried out independently, the Company believes the suspension will bring clarity to the asset sale diligence process by validating that these assets can be efficiently run separately.

The indefinite suspension of operations at the Temiscaming High Purity Cellulose plant, announced on April 29, 2024, is anticipated to mitigate the plant’s ongoing operating losses and high capital needs and improve the Company’s consolidated free cash flow. The Company realized an $18 million Adjusted EBITDA loss from these operations in 2023 and invested an average of $15 million in capital expenditures over the past three years; however, any future operational loss reductions will be partially offset by stranded costs. In connection with the suspension of operations, the Company expects to incur one-time operating charges in 2024 of approximately $30 million, including mothball, severance and other employee costs. Further, the Company also expects to incur non-cash charges in 2024 related to impairments. Overall, the Company expects that for 2024, the indefinite suspension of the Temiscaming High Purity Cellulose plant will be marginally positive to Adjusted EBITDA and will increase free cash flow by $15 million to $20 million as lower capital expenditures and benefits from the monetization of working capital are expected to more than offset the one-time and other cash costs associated with the suspension of operations.

On May 6, 2024, the Company announced the sale of its refund rights, including interest, related to softwood lumber duties paid from 2017 through 2021 for $39 million, with the opportunity for additional sale proceeds in the future contingent upon the timing and terms of the ultimate outcome of the trade dispute between the USDOC and Canada.

The Company expects to generate between $180 million and $200 million of Adjusted EBITDA in 2024 with $80 million to $100 million of Adjusted Free Cash Flow including passive asset sales but excluding any operating asset sales.

The following market assessment represents the Company’s current outlook of its business segments’ future performance.

High Purity Cellulose

Average sales prices for cellulose specialties in 2024 are expected to increase by a low single-digit percentage as compared to average sales prices in 2023 as the Company prioritizes value over volume. Sales volumes for cellulose specialties are expected to be comparable to 2023 driven by increased volumes from the closure of a competitor’s plant and a modest increase in ethers sales, offset by a one-time favorable impact from a change in customer contract terms in the prior year quarter and customer destocking in the acetate markets. Demand for RYAM commodity products remains stable as prices are expected to be flat to 2023, despite a difficult comparison to the first quarter of 2023. Commodity sales volumes are expected to decline in 2024 as the Company suspends operations at its Temiscaming High Purity Cellulose plant for the second half of 2024. Costs are expected to be lower in 2024 driven by lower key input and logistics costs, improved productivity and the indefinite suspension of operations at the Temiscaming High Purity Cellulose plant. The Company’s bioethanol facility in Tartas, France became operational in the first quarter of 2024 and is expected to deliver $3 million to $4 million of EBITDA in 2024, growing to $8 million to $10 million beginning in 2025. EBITDA is expected to decrease in the second quarter of 2024 compared to the first quarter of 2024 due to the annual planned maintenance outage at Jesup, but stronger than the second quarter of 2023.

Paperboard

Paperboard prices in 2024 are expected to remain relatively stable compared to the first quarter of 2024, while sales volumes are expected to improve due to improved customer demand. Raw material prices are expected to increase as purchased pulp prices are forecast to increase from the first quarter 2024 levels. Overall, EBITDA is expected to increase sequentially.

High-Yield Pulp

High-Yield Pulp prices are expected to improve slightly in the second quarter and increase further in the second half of 2024, while sales volumes are expected to remain stable sequentially and then increase in the second half of 2024. Overall, the Company expects to generate positive EBITDA from this segment in the coming quarter.

Corporate

Corporate costs are expected to be flat or increase slightly in 2024 as the Company continues its ERP implementation. The project will enhance the Company’s operating and reporting systems and is expected to drive additional improvements and efficiencies beginning in 2025.

Biomaterials Strategy

The Company continues to invest in new products to provide both increased end market diversity and incremental profitability. These new products will target the growing green energy and products markets. The successful shipment of the Company’s first production of 2G bioethanol from its Tartas, France bioethanol facility is a significant milestone towards the Company’s goal of generating $42 million of annual EBITDA from these new products by 2027. Recent achievements include receiving conditional Generally Recognized As Safe (GRAS) regulatory approval for a prebiotics product and moving forward with plans for a bioethanol facility in Fernandina Beach. The Company is also advancing various other projects and is in the process of securing green capital to support these efforts. Updates on the progress of these initiatives will be provided throughout the year.

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About RYAM

RYAM is a global leader of cellulose-based technologies, including high purity cellulose specialties, a natural polymer commonly used in the production of filters, food, pharmaceuticals and other industrial applications. The Company also manufactures products for paper and packaging markets. With manufacturing operations in the U.S., Canada and France, RYAM generated an estimated $1.6 billion of revenue in 2023. More information is available at www.RYAM.com.

Contact:

Ryan Houck – Media Contact – (904) 357-9134

Source: Rayonier Advanced Materials, Inc.