Good morning, and welcome to the RYAM Second Quarter 2025 Earnings Conference Call. [Operator Instructions] 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 RYAM's Second Quarter 2025 Earnings Conference Call. Joining me on today's call are De Lyle Bloomquist, our President and CEO; 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, ryam.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 RYAM. I'd now like to turn the call over to De Lyle.

Good morning, everyone. In today's call, I will address, first, our change in 2025 guidance and why we believe the underlying factors were driven by a set of extraordinary and primarily nonrecurring 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 cellulose specialty orders, and we believe that such challenges do not alter our long-term trajectory. Second, I'll outline why we expect to nearly double our EBITDA 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 a critical perspective. Isolating and understanding the temporary nature of the headwinds we've encountered this year helps clarify why our long-term value proposition remains intact and in fact, more compelling than ever. These extraordinary impacts do not change the core fundamentals of our business or the powerful opportunities 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 EBITDA headwinds this year, predominantly from issues we believe are onetime in nature. These headwinds, combined with some structural softness in our paperboard and high-yield pulp segments resulted in us lowering our guidance from $215 million to $235 million at the beginning of this year to our current guidance of $150 million to $160 million for 2025. These headwinds…

Thank you, De Lyle. Let's now turn to Slide 17, which summarizes our second quarter 2025 financial highlights. In the second quarter, revenue was $340 million, down $79 million year-over-year. Operating loss was $1 million, declining by $29 million compared to the prior year. Adjusted free cash flow year-to-date was negative $52 million, while adjusted EBITDA 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 CEWS. The primary drivers of the EBITDA decline this quarter 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 Temiscaming HPC line, along with higher input costs and operational challenges at our Tartas facility due to the labor strike. The Paperboard segment saw earnings decline by $10 million, reflecting lower sales volumes and prices impacted by indirect tariff effects and increased competitive activity. In high-yield pulp, 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 EBITDA guidance to a range of $150 million to $160 million, which implies second half EBITDA of approximately $105 million to $115 million. Adjusted free cash flow guidance is estimated at negative $10 million 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 $33 million to $208 million. A…

[Operator Instructions] The first question comes from Matthew McKellar with RBC Capital Markets.

First, I'd just like to ask, what kind of time line are you anticipating for having this dissolving wood pulp fluff product approved for sale in China at 0 tariffs and qualified with the Chinese customers? And how should we think about the potential pickup in EBITDA that would be associated to this in the context of any changes in cost to produce the product versus the traditional fluff and the volumes that you then expect to sell into China?

Matt, this is De Lyle. The question on fluff and our product development around the new dissolving wood pulp fluff. We have -- where we are with that right now is that we have sent and are sending material to our customers in China as we speak for their trials and qualifications. And if those go well, then the expectation is as we approach 2026, that we'll be able to commercialize those going forward. In terms of impact on EBITDA, a little harder to say other than to suggest that the increase in cost to make the dissolving wood pulp fluff versus our standard fluff is a little bit higher than it would be otherwise. And that's fully to be expected given that the purity level will be higher. But at the end of the day, we do expect that as we introduce that product that we'll recapture most, if not all, of our share loss as a result of the 10% tariff that we have right now going into China.

Okay. Next for me, just on the structural cost 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? And just last, the initiatives at Temiscaming, how should we think about the timing of execution there? Is that also effectively a run rate to exit '26?

Okay. So addressing the cost savings that was mentioned, the $30 million that we had mentioned in the presentation and the $24 million of capital we spent, most of that $24 million in capital will be spent in '25. And the $30 million of value that we noted will be realized as we expect to realize that in 2026. So we'll be positioned as we enter '26 to realize those savings. With respect to what Temiscaming and the turnaround there, we were somewhat fortunate in that we are well positioned coming into '25 with introducing a number of the new products that was noted. And as a consequence as we go into '26, we believe that we'll be well along our way in terms of getting those products qualified and introduced into the market in '26. So the freezer board, which has now been fully certified and is the customers for trials now, the oil and grease board, which is passed through our production trials and is now going to our customers for their work to do to qualify the product. Again, we believe that those products will be well positioned to commercialize in '25 -- in '26. The high-yield pulp softwood rolls product that would go -- which is a brand-new product for us in high yield, is targeted to go into China as a low-grade absorptive product to -- for bed pads and for pet pads and things like that. There was a number of steps we had to get through. And the first step, which was to show that we could make a softwood pulp off of one of our high-yield pulp lines, which historically has been hardwood. And that trial has -- we've just completed and was largely successful. The next is to pass that pulp through our idled HPC machine and roll line, which we plan to do in the next few weeks. And then we'll ship that to our customers in September, October for their trials, again, expecting that we would get those trials completed in the fourth quarter so that we can introduce that product in the first quarter of 2026. And why I mentioned all that is because 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 elements to achieve that $35 million of benefit. The rest of the benefit is really around cost reduction and improving the operating efficiencies of the paperboard line through automation, better planning, reducing grade changes, those kind of things, which, again, utilizing an outside resource. We brought in FTI Global to help us out on identifying those opportunities and helping us to execute that again, as we enter into 2026. Expect that we may not get the full $35 million of benefit in '26, but we should get a lion's share of that in that year.

The next question comes from Daniel Harriman with Sidoti.

Just a couple of quick ones to start off. You're conservatively forecasting $30 million in incremental EBITDA within cellulose specialties through '27. Understanding that's conservative, can you kind of go into what would need to go right to outperform that number? And then on your 2027 core business run rate EBITDA, 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 in 2027? Would you continue to work down the debt 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?

Let me try to address each one of your questions in sequence. First, the $30 million of additional cellulose specialty margin growth through 2027. That's really tied to the substitution of cellulose specialties in exchange for the commodities. So what's really driving is the organic growth we expect of CS over the next couple of years. And then as that grows, we will then replace the CC or the commodity production that we currently have. So the underlying assumption is that we will grow and increase our volumes roughly 15,000 tons per year, so 30,000 tons in total during those 2 years. And the pricing differential of roughly $1,000 per ton of specialty versus commodity is really how you go about calculating that margin improvement. Does that make sense?

Yes, it does.

Okay. With respect...

Capital allocation, second question, right, Dan?

Yes. Dan can you repeat the...

Sure. Just looking at '27, your run rate core business EBITDA, you're assuming that will generate $140 million 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 over the horizon there in terms of continued debt repayment or more geared towards investment in high-return capital projects.

Okay. So with respect to how we use the capital as we go forward, particularly the free cash flow, the focus will be on generating and executing on high-return projects as we plan through 2027. We believe that there are a number of those projects, both on the cost reduction side as well as on revenue growth opportunities. We kind of outlined a couple of them in the presentation, which are around eSAF and bioethanol to jet opportunities. So we think that there will continue to be projects that will provide substantial equity returns for us for the next few years. 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. In '25, we were restricted on doing that given our new debt agreement. But again, that will be something that we would look to do with some of the capital going forward. As projects dry up or if the return on those projects get to a certain level that 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 the, I would say, rich library of opportunities we have to invest the capital in the business.

And Dan, [indiscernible] right? The amortization is around $22 million that De Lyle mentioned, so roughly 3%. So we're close to 5%. And a natural place to allocate capital that De Lyle covered in his deck was the AGE investment, right, because that's outside of BioNova.

Our next question comes from Dmitry Silversteyn with Water Tower Research.

I want to go back a little bit to your cost reduction, $30 million of cost reduction that you're looking to get out of corporate and operations. How fast do you think that you can get to that run rate given that some of these things, particularly the noncorporate portions will require some time as far as automation and things like that, that you're targeting to get these cost savings?

The -- how fast we can get to the $30 million run rate is that we expect that we'll be at that run rate as we enter 2026. A lot of the investments needed to achieve that run rate outside of corporate have already been invested or are being invested and the expectation of those projects will be completed as we exit this year.

Okay. So you will see a gradual improvement in the back end of the year and you hit that run rate going into 2026.

And it will be relatively minor because most of these projects will largely be completed in like the fourth quarter.

Got it De Lyle. And then you mentioned the sort of the positive impact of tariffs as you get into the second half of the year into 2026, specifically the 15% and the 50% tariffs are on EU and Brazil imports. Clearly, you will benefit from that. So I'm kind of interested in how you're thinking about this. Are you going to benefit from it in terms of gaining market share being a lower-cost producer than the Europeans and the Brazilians plus the tariff? Or do you see that as an opportunity to be able to continue to raise prices in these markets as they are, as you mentioned, with 90% capacity utilization in the industry clearly are set up for continuing price increases.

Good question. And I could spend a long time talking about how we internally have been gaining that -- those scenarios about what the tariffs would mean to us, the -- call them the tailwind tariffs, the tariffs on EU imports and the tariffs on Brazilian imports. When I look at pricing, and we've talked about this for the last couple of years, we believe in a value versus volume strategy when it comes to our CS business. So we will continue to look for inflation plus pricing on our CS business so that 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. The 15% tariff obviously gives us -- will increase our headroom with respect to our competitive positioning relative to our competition. That may allow us to be a little bit more aggressive in defending our share in our home market here in the United States. So -- and maybe at the end of the day, we end up having that realized as increased margin going forward in terms of -- if it translates into a lower U.S. dollar relative to other currencies. So I'm not going to -- the plan is not to use this as a club on our customers. But at the same time, we want to make sure that we completely lever it to strengthen our comparative advantage to -- relative to our competition here in our home market.

Understood. That's helpful. And then final question. When you look at -- when you look at your biomaterials business, you're getting into new markets for you, but they're not brand-new markets. There are existing players there, including SAF, including tall oil. Is your confidence of being able to ramp up your biomaterials business as rapidly through 2028 based on the fact that you see these markets growing fast enough to allow for new entrants such as yourself 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. To just reemphasize, 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, working on the permitting to get that behind us, making sure the projects will achieve the investment hurdle thresholds that we've stated that we want to -- that we're enforcing. All that work is coming to a head here. And as we said, we expect to get the final investment decisions on the Portfolio 1 projects as well as AGE project by the end of this year. So the confidence of being able to pull this off in terms of constructing the plants is very, very high. With respect to the strategy to enter the markets that we're pursuing, whether it be CTO or bioethanol or, call it, green electricity, we're a drop in the bucket. So our new supply isn't going to materially change the marketplace in any significant degree. We believe that as we -- as part of the financial -- as a result, as part of the financial investment decision, we will have in hand commercial agreements. That's one of the stipulations of getting to a financial investment decision is actually having a commercial agreement in hand that we will have the ability and already have the agreement to move that material before we even produce the first drop of any of those products.

At this time, I would like to turn the floor back to De Lyle Bloomquist for closing remarks.

Okay. Well, in summary, we believe 2025's 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 deployment opportunities that can generate compelling returns, some with the potential to exceed 10x 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.

Thank you. This does conclude today's teleconference. We thank you for your participation. You may disconnect your lines at this time, and have a great day.