RYAM Announces Strong Second Quarter 2024 Results

Increases 2024 EBITDA and Free Cash Flow Guidance

Rayonier Advanced Materials Inc. (the “Company”) reported results for its second quarter ended June 29, 2024.

• Net sales for the second quarter of $419 million, up $34 million from prior year quarter
• Income from continuing operations for the second quarter of $8 million, up $24 million from prior year quarter
• Adjusted EBITDA from continuing operations for the second quarter of $68 million, up $41 million from prior year quarter, including $10 million of CEWS benefits recognized
• Total debt of $778 million; Net Secured Debt of $659 million with a covenant net secured debt ratio of 3.4 times
• 2024 Adjusted EBITDA guidance increased to $205 million to $215 million
• 2024 Adjusted Free Cash Flow guidance increased to $100 million to $110 million
• Given the upgraded guidance, the Company is targeting a covenant net secured debt ratio of less than 3.0 times by the end of 2024

“The Company delivered another solid quarter on its financial results as we continued to improve our product mix and manage operating costs. Demand for cellulose specialties has remained higher than expectations and margins have improved as we have minimized losses associated with commodity viscose pulp driven by our decision to suspend operations at our Temiscaming High Purity Cellulose plant. Along with solid EBITDA results, the Company generated $69 million of Adjusted Free Cash Flow, which was supported by the $39 million sale of our refund rights related to our softwood lumber duties. As a result, we reduced our net secured debt leverage ratio to 3.4 times covenant EBITDA,” stated De Lyle Bloomquist, President and CEO of RYAM. “In addition to the solid financial results, we have also made significant progress on executing our Biomaterials strategy. The bioethanol facility in Tartas began shipments in April and is ramping up production. We also continue to advance other Biomaterials projects, including bioethanol and prebiotics at our Fernandina and Jesup plants, respectively.

“With the better-than-expected start to 2024, reduced exposure to commodity viscose pulp, progress in reducing operating costs and tightening market dynamics, we are increasing our full-year 2024 Adjusted EBITDA guidance to $205 to $215 million and Adjusted Free Cash Flow to $100 to $110 million. With this improvement in our financial metrics, we are confident that we will refinance our senior secured notes prior to them becoming current in early 2025,” concluded Mr. Bloomquist.

Second Quarter 2024 Financial Results

The Company reported net income of $11 million, or $0.17 per diluted share, for the quarter ended June 29, 2024, compared to a net loss of $17 million, or $(0.26) per diluted share, for the prior year quarter. Income from continuing operations for the quarter ended June 29, 2024 was $8 million, or $0.12 per diluted share, compared to a loss from continuing operations of $16 million, or $(0.24) per diluted share, for the prior year quarter.

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

High Purity Cellulose

Net sales for the second quarter increased $32 million, or 11 percent, to $332 million compared to the same prior year quarter. Included in the current and prior year quarters were $23 million and $22 million, respectively, of other sales primarily from bio-based energy and lignosulfonates. Due to improved mix, total sales prices increased 5 percent. Total sales volumes increased 5 percent due to a 25 percent increase in cellulose specialties volumes that was partially offset by a 13 percent decrease in commodity volumes. Cellulose specialties sales volumes increased due to additional volumes sold to customers affected by the indefinite suspension of Temiscaming HPC operations that began in the third quarter, the closure of a competitor’s plant in late 2023 and a continued uptick in ethers sales. The decrease in commodity sales volumes was primarily driven by a higher mix of cellulose specialties production.

Net sales for the six months ended June 29, 2024 decreased $35 million, or 5 percent, to $639 million compared to the same prior year period. Included in the current and prior year six-month periods were $46 million and $45 million, respectively, of other sales primarily from bio-based energy and lignosulfonates. Total sales prices increased 2 percent due to a 1 percent increase in cellulose specialties prices that was partially offset by a 6 percent decrease in commodity prices. Despite a cellulose specialties sales volumes increase of 2 percent, total sales volumes decreased 7 percent driven by a 16 percent decrease in commodity volumes. Increased cellulose specialties sales volumes resulting from the additional volumes sold ahead of the suspension of Temiscaming HPC operations, the closure of a competitor’s plant in late 2023 and an uptick in ethers sales were nearly entirely offset by the one-time favorable impact from a change in customer contract terms in the prior year first quarter. The decrease in commodity sales volumes was primarily driven by a higher mix of cellulose specialties production.

Operating income for the quarter and six months ended June 29, 2024 increased $30 million and $38 million, respectively, compared to the same prior year periods. The quarter increase was driven by the higher cellulose specialties sales volumes, decreased key input and logistics costs and higher productivity, partially offset by the impact of the timing of planned maintenance outages compared to the prior year. The increase in the six-month period was driven by the increase in cellulose specialties sales prices and volumes, decreased key input and logistics costs and higher productivity, partially offset by the lower commodity sales prices and volumes and the impact of the timing of planned maintenance outages compared to the prior year. Also included in operating income in the current quarter and six-month periods was the recognition of $5 million in Canada Emergency Wage Subsidy (CEWS) benefit claims deferred since 2021 and $7 million in costs incurred related to the suspension of Temiscaming HPC operations. Included in the operating results of the prior year quarter and six-month periods was the recognition of a $3 million benefit from payroll tax credit carryforwards and $4 million and $11 million, respectively, of energy cost benefits from sales of excess emission allowances that did not repeat in the current year.

Compared to the first quarter of 2024, net sales increased $25 million driven by a 6 percent increase in total sales prices, comprised of a 5 percent increase in commodity prices and flat cellulose specialties prices, and a 3 percent increase in total sales volumes, including a 14 percent increase in cellulose specialties volumes driven by volumes sold ahead of the suspension of Temiscaming HPC operations, partially offset by a 9 percent decrease in commodity volumes due to a higher mix of cellulose specialties production. Operating income increased $9 million primarily due to the higher commodity sales prices and cellulose specialties sales volumes, lower production costs and the income recognized related to the CEWS benefit claims, partially offset by the lower commodity sales volumes, increases in key input and labor costs and the recognition of costs incurred related to the suspension of Temiscaming HPC operations.

Paperboard

Net sales for the second quarter increased $12 million, or 25 percent, to $60 million compared to the same prior year quarter. Net sales for the six months ended June 29, 2024 increased $6 million, or 6 percent, to $113 million compared to the same period year period. Sales volumes increased 38 percent and 17 percent during the quarter and six-month periods, respectively, due to the easing of prior year customer destocking. Sales prices decreased 8 percent and 10 percent, respectively, driven by mix and increased competitive activity from European imports.

Operating income for the quarter and six months ended June 29, 2024 increased $6 million and $4 million, respectively, compared to the same prior year periods. These quarter and six-month increases were each driven by the higher sales volumes and lower purchased pulp costs, partially offset by the lower sales prices and the impact of the planned maintenance outage in the prior year. Also included in operating income in the current quarter and six-month periods was the recognition of $2 million in CEWS benefit claims deferred since 2021.

Compared to the first quarter of 2024, operating income increased $4 million driven by a 16 percent increase in sales volumes due to increased demand and the income recognized related to the CEWS benefit claims, partially offset by higher purchased pulp costs. Sales prices were flat.

High-Yield Pulp

Net sales for the second quarter decreased $11 million, or 25 percent, to $33 million compared to the same prior year quarter. Net sales for the six months ended June 29, 2024 decreased $19 million, or 22 percent, to $67 million compared to the same prior year period. Sales prices decreased 9 percent and 18 percent during the quarter and six-month periods, respectively, due to market supply dynamics in China. Sales volumes decreased 25 percent and 8 percent, respectively, due to lower demand.

Operating income for the quarter and six months ended June 29, 2024 was flat and decreased $8 million, respectively, compared to the same prior year periods. In both the quarter and six-month periods, the lower sales prices and volumes and the impact of the planned maintenance outage in the prior year were offset by lower logistics and chemicals costs. Also included in operating income in the current quarter and six-month periods was the recognition of $2 million in CEWS benefit claims deferred since 2021.

Compared to the first quarter of 2024, operating results increased $2 million due to a 3 percent increase in sales prices, lower chemicals costs and the income recognized related to the CEWS benefit claims, partially offset by a 10 percent decrease in sales volumes.

Corporate

Operating loss for the quarter and six months ended June 29, 2024 increased $1 million and decreased $1 million, respectively, compared to the same prior year periods. The increase in the quarter loss was driven by higher costs related to the Company’s ERP transformation project and higher variable compensation costs and discounting and financing fees, partially offset by more favorable foreign exchange rates in the current quarter. The improvement in the operating loss in the six-month period was driven by more favorable foreign exchange rates in the current year, partially offset by higher costs related to the Company’s ERP transformation project and higher variable compensation costs and discounting and financing fees.

Compared to the first quarter of 2024, operating loss increased $4 million driven by less favorable foreign exchange rates in the current quarter and higher ERP transformation project costs and environmental expense.

Non-Operating Income & Expense

Interest expense for the quarter and six months ended June 29, 2024 increased $5 million and $11 million, respectively, compared to the same prior year periods 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 $56 million from July 1, 2023 to June 29, 2024.

Included in “other income, net” in the six months ended June 29, 2024 was a $1 million impact from favorable foreign exchange rates.

Included in “other income, net” in the quarter and six months ended July 1, 2023 was a $2 million gain on a passive land sale and a $1 million net gain on debt extinguishment, which were partially offset by a $1 million impact from unfavorable foreign exchange rates. Also included in the prior six-month period was a pension settlement loss of $2 million.

Income Taxes

The effective tax rate on the income from continuing operations for the quarter and six months ended June 29, 2024 was a benefit of 11 percent and 21 percent, respectively. The 2024 effective tax rate differed from the federal statutory rate of 21 percent primarily due to the release of certain tax reserves, return-to-accrual adjustments, excess deficit on vested stock compensation and changes in the valuation allowance on disallowed interest deductions.

The effective tax rate on the loss from continuing operations for the quarter and six months ended July 1, 2023 was a benefit of 18 percent and 32 percent, respectively. The 2023 effective tax rates differed from the federal statutory rate of 21 percent primarily due to disallowed interest deductions in the U.S. and nondeductible executive compensation, offset by U.S. tax credits, return-to-accrual adjustments related to previously filed tax returns and an excess tax benefit on vested stock compensation.

Discontinued Operations

During the quarter ended June 29, 2024, the Company recorded pre-tax income from discontinued operations of $5 million related to CEWS benefit claims deferred since 2021 and a loss of $1 million on the sale of its softwood lumber duty refund rights.

Cash Flows & Liquidity

The Company generated operating cash flows of $99 million during the six months ended June 29, 2024, driven by lower costs, proceeds of $39 million for the sale of its duty refund rights and net tax refunds of $5 million, partially offset by cash outflows from working capital and payments of interest on long-term debt.

The Company used $58 million in investing activities during the six months ended June 29, 2024 related to net capital expenditures, which included $28 million of strategic capital spending focused on the investment in the 2G bioethanol plant in Tartas.

The Company had $1 million of net cash outflows from financing activities during the six months ended June 29, 2024 as net borrowings of long-term debt were offset by Term Loan financing fees paid in the first quarter.

The Company ended the second quarter with $260 million of global liquidity, including $114 million of cash, borrowing capacity under the ABL Credit Facility of $135 million and $11 million of availability under the France factoring facility.

As of June 29, 2024, the Company’s consolidated secured net leverage ratio was 3.4 times covenant EBITDA.

2024 Outlook

The Company is actively pursuing the refinancing of its 2026 Senior Notes before they go current in January 2025 and strongly believes that, due to improving business performance and credit metrics, it will secure refinancing at satisfactory terms. The Company has engaged Houlihan Lokey to explore refinancing options.

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 Company continues to run a thorough process involving multiple suitors. While this process has been slowed due to complexities relating to the recently announced indefinite suspension of operations of the site’s HPC line, the Company remains highly committed to completing a near-term sale of these assets at a fair price.

In July 2024, the Company indefinitely suspended operations at its Temiscaming HPC plant. This plan is expected to mitigate high capital needs and operating losses related to exposure to commodity viscose products and improve the Company’s consolidated free cash flow, however, future operational loss reductions will be partially offset by custodial site expenses. In connection with the suspension of operations, the Company expects to incur one-time operating charges in 2024 of approximately $25 million to $30 million, including mothballing and severance and other employee costs. Further, the Company also expects to incur non-cash charges in the third quarter of 2024 related to asset impairments. The Company continues to expect that for 2024, the suspension of the Temiscaming HPC plant will be positive to Adjusted EBITDA and will increase free cash flow by $25 million to $30 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.

The Company expects to generate between $205 million and $215 million of Adjusted EBITDA in 2024 with $100 million to $110 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 continues to prioritize value over volume. Sales volumes for cellulose specialties are expected to increase compared to 2023 driven by increased volumes from the closure of a competitor’s plant, a modest increase in ethers sales and additional volume sold to customers ahead of the suspension of Temiscaming HPC operations, partially offset by a one-time favorable impact from a change in customer contract terms in the prior year first quarter and customer destocking in the acetate markets. Demand for RYAM commodity products remains stable. Commodity average sales prices are expected to be in line with 2023 prices. Commodity sales volumes are expected to increase slightly in the second half of 2024 due to increased fluff sales. Costs are expected to be lower in 2024 driven by lower key input and logistics costs, improved productivity and the suspension of operations at the Temiscaming HPC plant, partially offset by increased maintenance costs due to the timing of projects and net custodial site expenses related to the suspension. 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 in the third quarter of 2024 is expected to be lower than the second quarter of 2024 due to the anticipated net custodial site expenses at the Temiscaming site, no additional CEWS benefits to be recognized and lower cellulose specialties volumes to be sold ahead of the suspension of operations; however, EBITDA in the third quarter of 2024 is expected to be significantly stronger than the third quarter of 2023.

Paperboard

Paperboard prices in the second half of 2024 are expected to decrease slightly compared to the first half of 2024, while sales volumes are expected to increase slightly as inventories reduce, despite higher planned maintenance downtime for the Company’s distributed control system upgrade. Raw material prices are expected to increase compared to the first half of the year. Overall, the Company expects a decline in EBITDA from this segment in the coming quarter.

High-Yield Pulp

High-Yield Pulp prices are expected to decline in the second half of 2024, while sales volumes are expected to increase due to improved productivity. Overall, the Company expects to generate moderately higher EBITDA from this segment in the coming quarter.

Corporate

Corporate costs are expected to increase in the second half of 2024 as the Company continues its ERP transformation project and considering the favorable foreign exchange rates in the first half of the year. The ERP transformation 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 renewable product markets. The Company’s bioethanol facility in Tartas, France is operating as expected and represents a significant milestone towards the Company’s goal of generating $42 million of annual EBITDA from these biomaterial products in 2027. The Company has submitted notice of its GRAS (generally recognized as safe) self-certification for a prebiotics product to the U.S. Food and Drug Administration and continues to move forward with plans for a bioethanol facility in Fernandina. The Company is also advancing various other projects and is in the final stages of securing green capital to support these efforts.

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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.