Executive Summary / Key Takeaways

• Strategic Pivot Underway: Rayonier Advanced Materials (RYAM) is actively transforming its business model, divesting from non-core, cyclical commodity segments and focusing on high-value Cellulose Specialties and high-growth Biomaterials, aiming for a normalized core EBITDA run rate of approximately $308 million by 2027.
• Temporary Headwinds in 2025: The company experienced significant, largely non-recurring challenges in the first half of 2025, including tariff volatility, operational disruptions, and non-cash environmental charges, leading to a revised 2025 Adjusted EBITDA guidance of $150 million to $160 million, with Q2 2025 identified as the trough quarter.
• Technological Edge and Market Consolidation: RYAM leverages proprietary high-purity cellulose technology and an extensive asset base, providing a competitive moat in a consolidating Cellulose Specialties market (RYAM, Borregaard (BRG), Bracell represent ~80% of the market) and a cost advantage in its burgeoning Biomaterials segment.
• High-Return Growth Initiatives: The Biomaterials strategy, including projects like the Tartas bioethanol facility (over 10x equity ROI) and the Altamaha Green Energy (AGE) project (10-12x equity ROI), is expected to drive substantial future EBITDA growth, with significant external financing minimizing RYAM's equity contribution.
• Strengthening Financial Foundation: Recent debt refinancing has enhanced financial flexibility, and anticipated free cash flow generation, coupled with potential divestiture proceeds from non-core assets, positions RYAM for significant deleveraging and future capital returns.

A Century of Cellulose: Reshaping for a Sustainable Future

Rayonier Advanced Materials, with a history stretching back to 1926, has long been a foundational player in cellulose chemistry. The company has evolved from its origins, expanding its portfolio to include not only high-purity cellulose specialties but also commodity pulps, paperboard, and high-yield pulp. This journey has culminated in a strategic pivot, initiated by the 2021 divestiture of lumber and newsprint assets and further sharpened by the indefinite suspension of its Temiscaming cellulose plant in July 2024. These actions underscore a clear intent: to shed cyclical, lower-margin businesses and concentrate on high-value, differentiated segments.

This strategic reorientation is vividly reflected in RYAM's new segment structure, implemented in the first quarter of 2025. The former High Purity Cellulose segment has been reorganized into three distinct businesses: Cellulose Specialties, Cellulose Commodities, and a new Biomaterials segment, alongside the existing Paperboard and High-Yield Pulp operations. This structure provides greater clarity on the company's core strengths and its ambitious growth vectors.

The Unseen Advantage: RYAM's Technological Moat

At the heart of RYAM's transformation lies its deeply embedded technological differentiation. The company is a global leader in producing high-purity cellulose pulp, a natural polymer critical for a diverse range of specialty chemical products. This isn't merely about producing pulp; it's about crafting essential building blocks with superior purity, enabling applications from liquid crystal displays and impact-resistant plastics to pharmaceutical performance additives and high-tenacity rayon tire cords. This proprietary technology, honed over decades, forms a significant competitive moat, fostering enduring customer relationships and reinforcing strong retention.

RYAM's technological edge extends beyond traditional cellulose. Its burgeoning Biomaterials segment is a testament to innovative resource utilization. This initiative strategically transforms the approximately 60% of wood byproducts, traditionally used for energy, into high-value products such as biofuels, bioelectricity, crude tall oil, prebiotics, lignosulfonates, turpentine, and biogenic CO2 for sustainable aviation fuels (eSAF). This approach leverages RYAM's existing infrastructure and technical know-how, providing a clear cost advantage over potential newcomers who would need to build from scratch. The commercial viability of these bio-based products has already been validated by competitors like Borregaard, de-risking RYAM's entry into these markets. Notably, the prebiotics product received Generally Recognized As Safe (GRAS) status from the U.S. Food and Drug Administration in July 2025, opening a new market avenue. Furthermore, Memoranda of Understanding with Verso Energy and GranBio to explore SAF opportunities at its Jesup and Tartas facilities highlight a clear technological roadmap towards a lower-carbon future.

Competitive Landscape: A Niche Leader in a Consolidating Market

In the Cellulose Specialties market, RYAM operates within a highly consolidated landscape. Third-party analysts indicate that RYAM, alongside Borregaard and Bracell, collectively represents approximately 80% of the dissolving wood pulp cellulose specialty market. Industry utilization hovers around 90% and is expected to tighten further, creating a favorable pricing environment. RYAM's position as a global leader in specialized, non-commodity products, distinguished by superior purity and proprietary technology, allows it to command pricing power and maintain strong customer loyalty. Recent U.S. tariffs, including a 15% tariff on EU's CS imports and a 10% tariff on Brazilian CS imports, are expected to further enhance RYAM's competitive standing in its home market.

However, RYAM's competitive position is not without its challenges. In the Paperboard segment, the company faces increased competitive activity from new U.S. capacity and higher European Union imports. While RYAM is uniquely positioned as the only North American 3-ply board producer, it must contend with these market pressures. Similarly, the High-Yield Pulp segment continues to be impacted by oversupply in the Chinese market, leading to pricing pressure. Compared to larger, more diversified competitors like International Paper (IP), WestRock (WRK), and Packaging Corporation of America (PKG), RYAM's TTM gross profit margin of 8.46% and EBITDA margin of 5.18% lag behind IP's 28% and PKG's 21% gross margins (2024 annual). This highlights RYAM's smaller scale and historical exposure to commodity volatility, which has impacted its overall profitability and cash flow generation.

Its Debt/Equity ratio of 2.27 also significantly exceeds that of its larger peers (IP at 0.72, PKG at 0.63). This underscores the imperative for RYAM's strategic transformation and deleveraging efforts.

2025: A Trough Year Defined by Extraordinary Headwinds

The first half of 2025 presented RYAM with a confluence of "extraordinary and largely non-recurring challenges," as stated by management. These headwinds, totaling approximately $59 million in EBITDA impact, included $21 million from tariff-related uncertainty (direct disruptions and indirect effects on customer market access), $8 million from foreign exchange revaluations, $18 million from operational disruptions (labor strikes at Tartas, power outages, staffing constraints, severe winter weather, equipment issues, and extended maintenance intervals), and a $12 million non-cash environmental charge related to legacy site remediation.

These factors significantly impacted recent financial performance. For the second quarter of 2025, net sales decreased by 19% year-over-year to $340.048 million, with operating income declining by 104% to $1.339 million. The company reported a net loss of $363.179 million for Q2 2025, compared to a net income of $11.390 million in the prior year, largely due to a significant deferred tax asset write-off in Canada. Year-to-date Q2 2025 net sales were $696.015 million, down 14% from the prior year, and operating income was $16.432 million, a 64% decrease.

Adjusted EBITDA for Q2 2025 was $28 million, a $40 million decrease year-over-year, and year-to-date adjusted free cash flow was negative $52 million. Management has characterized Q2 2025 as the "trough quarter" and 2025 as the "trough year," with expectations for accelerating growth and profitability in subsequent periods.

Outlook and Strategic Momentum

Despite the challenging start to 2025, RYAM's management maintains a confident outlook, projecting a significant rebound. The revised 2025 Adjusted EBITDA guidance is set at $150 million to $160 million, implying a positive second half performance. Adjusted free cash flow for 2025 is expected to be negative $10 million to $25 million, with a positive $35 million anticipated in the latter half of the year. This recovery is predicated on the belief that the "worst of the disruption is now behind us," with cellulose specialty orders normalizing since June.

Looking beyond 2025, RYAM expects to nearly double its EBITDA over the next two years, targeting a normalized core EBITDA run rate of approximately $308 million by the end of 2027, further increasing to about $338 million with the Altamaha Green Energy (AGE) project in 2028. This ambitious growth is underpinned by several strategic pillars:

• Cellulose Specialties Growth: The company anticipates sustained annual price increases of 4% to 6% in CS, driven by market consolidation and high utilization rates. RYAM projects incremental EBITDA contributions of $30 million by the end of 2027 by capturing market growth, leveraging its excess capacity, and requalifying Temiscaming production at other facilities.
• Biomaterials Acceleration: This segment is a key growth engine. The Tartas bioethanol facility in France, operational since Q1 2024, is expected to generate $8 million to $10 million in annual EBITDA with an exceptional equity ROI of over 10x. The BioNova JV projects, including additional bioethanol, prebiotics, and crude tall oil facilities, represent a total investment of $110 million, projected to yield $39 million in annual EBITDA with a 7x RYAM equity ROI. The AGE project at Jesup, a $500 million endeavor with a $40 million RYAM equity contribution, is expected to contribute $30 million annually to RYAM's pretax income by late 2028, with a 10-12x equity ROI.
• Structural Cost Reductions: RYAM is targeting approximately $10 million in corporate expense reductions through automation and ERP efficiencies, and an additional $20 million in operational savings from manufacturing automation, improved material usage, and enhanced asset reliability. A $24 million capital investment, mostly in 2025, is expected to realize these $30 million in annual savings by 2026.
• Financial Strengthening: The successful debt refinancing in October 2024, securing a $700 million term loan and a $175 million ABL facility, has significantly enhanced financial flexibility. With the term debt callable in 2026, there is a meaningful opportunity to reprice debt and potentially reduce interest expense by over $40 million annually if proceeds from asset sales are used for repayment. The company's strong liquidity of $202 million (Q2 2025) and disciplined capital allocation strategy are expected to fund these initiatives internally without shareholder dilution.

Risks and Mitigation

While the outlook is positive, several risks warrant attention. Tariff-related uncertainties, particularly the 125% Chinese tariff on U.S.-sourced cellulose commodities, remain a concern, though RYAM is actively diversifying sales channels and shifting production to non-tariffed grades like viscose. Operational disruptions, such as the recent labor strike at Tartas and equipment issues, highlight the inherent complexities of large-scale manufacturing, though management indicates these are largely resolved. The ongoing market softness in Paperboard and High-Yield Pulp, exacerbated by new competitive capacity and oversupply in China, continues to pressure these segments. RYAM is proactively idling production in Q3 2025 for both Paperboard (two weeks) and High-Yield Pulp (three weeks) to manage inventory and preserve cash flow, while also exploring the divestiture of these non-core assets once market conditions improve. The $12 million non-cash environmental charge, while not an immediate cash outflow, represents a long-term liability that will require cash expenditures starting in 2027-2028.

Conclusion

Rayonier Advanced Materials is at a pivotal juncture, actively shedding its past as a predominantly commodity-exposed business to embrace a future defined by high-purity cellulose specialties and innovative biomaterials. The recent period of extraordinary headwinds in 2025, while impacting near-term financials, is viewed by management as a temporary trough, with strong indications of a rebound already emerging.

The core investment thesis for RYAM rests on its ability to execute this strategic transformation. Its proprietary technology in cellulose specialties provides a durable competitive advantage in a consolidating market, while its extensive asset base offers a unique, cost-effective platform for high-return biomaterials projects. With a clear roadmap for EBITDA growth, significant cost reduction initiatives, and a strengthened financial foundation, RYAM is positioning itself to unlock substantial shareholder value. The anticipated doubling of EBITDA by 2027, driven by technological leadership and strategic capital deployment, suggests a compelling opportunity for investors who recognize the disconnect between its current market valuation and its underlying intrinsic value as it transitions into a more focused, sustainable, and profitable enterprise.