Rayonier Advanced Materials Inc. (RYAM): A Resilient Leader in the Cellulose Specialty Market

Published on November 17, 2024 | Ticker: RYAM

Business Overview and History

Rayonier Advanced Materials Inc. (RYAM) is a global leader in the production and distribution of high-purity cellulose materials, a versatile natural polymer used in a wide range of specialty chemical applications. With a history spanning over 95 years, the company has established itself as a trusted provider of innovative solutions, catering to the needs of customers across diverse industries.

RYAM was incorporated in the state of Delaware in 2014 as a spin-off from Rayonier Inc., a leading forest products company. The company's roots in cellulose chemistry date back over 95 years, positioning it as a global leader in the production of specialty cellulose materials. In 2016, RYAM significantly expanded its operations through the acquisition of Tembec Inc., a producer of forest products, specialty cellulose, and other pulp-based products. This strategic move expanded RYAM's geographic footprint and diversified its product portfolio, although the company faced challenges in integrating the acquired business and achieving expected synergies.

In 2018, due to financial pressures, RYAM's Board of Directors made the decision to suspend the company's quarterly common stock dividend. The company continued to face market volatility and demand shifts for its commodity products in subsequent years. In response to these challenges, RYAM implemented strategic initiatives to optimize its product mix and reduce exposure to commodity markets. In 2021, the company divested its lumber and newsprint facilities and certain related assets located in Canada, while retaining all refund rights and obligations related to softwood lumber duties paid between 2017 and 2021.

RYAM operates three main business segments: High Purity Cellulose, Paperboard, and High-Yield Pulp. The High Purity Cellulose segment, which accounts for the majority of RYAM's revenue, produces a broad range of specialty cellulose products used in applications such as liquid crystal displays, filters, textiles, and pharmaceutical excipients. The Paperboard segment manufactures lightweight, multi-ply paperboard products utilized in commercial printing, lottery tickets, and high-end packaging, while the High-Yield Pulp segment supplies a bulky, high-yield pulp product for use in traditional printing, writing, and specialty paper manufacturing. To further streamline its operations and strengthen its financial position, RYAM has explored the sale of its non-core Paperboard and High-Yield Pulp assets.

Financial Performance and Ratios

Over the past three years, RYAM has demonstrated resilience in the face of market challenges. In 2020, the company reported a net loss of $38.1 million on revenues of $1.34 billion, with an EBITDA of $102.7 million. However, the company's financial performance has since improved, with a net loss of $27.4 million on revenues of $1.72 billion, and an EBITDA of $176.9 million in 2022.

As of the latest quarterly report (Q3 2024), RYAM's financial position has further strengthened. The company reported a net loss of $32.6 million on revenues of $401.1 million, with an adjusted EBITDA of $51.0 million, representing a significant year-over-year improvement. The company's liquidity position remains robust, with $136.1 million in cash and cash equivalents and $135.0 million in available borrowing capacity under its asset-based lending facility as of September 28, 2024.

Key Financial Ratios: - Current Ratio: 1.73 (Q3 2024) - Debt-to-Equity Ratio: 1.07 (Q3 2024) - Return on Assets: -3.88% (Q3 2024) - Return on Equity: -11.26% (Q3 2024) - Quick Ratio: 1.09 (Q3 2024)

RYAM reported a 9% increase in net sales in Q3 2024 compared to the prior year quarter, driven by higher sales prices in High Purity Cellulose and High-Yield Pulp, as well as higher sales volumes in cellulose specialties. This was partially offset by lower sales prices in Paperboard and lower sales volumes in commodity products and High-Yield Pulp.

Operational Highlights and Strategic Initiatives

RYAM has made considerable strides in optimizing its operational performance and executing strategic initiatives to enhance its long-term competitive positioning. In 2024, the company announced the indefinite suspension of its Temiscaming High Purity Cellulose plant, a move that has significantly reduced its exposure to commodity products and improved the overall profitability of its High Purity Cellulose segment. The company incurred $14 million in one-time charges and a $25 million non-cash asset impairment in Q3 2024 related to this suspension.

Furthermore, RYAM has been actively investing in its biomaterials strategy, a key focus area for the company. In 2024, the company announced the successful start-up of its Tartas Bioethanol facility in France, which is expected to contribute $3 million to $4 million in EBITDA in 2024, growing to $8 million to $10 million annually starting in 2025. The company has also made progress on other biomaterials projects, including the development of a prebiotic animal feed product and the AGE project, which aims to utilize renewable forestry waste to generate sustainable electricity. The AGE project at the Jesup, Georgia facility was recently awarded a power purchase agreement to sell green electricity to Georgia Power Company.

In October 2024, RYAM completed a transformative refinancing, raising $700 million in secured term loan financing and securing a new $175 million asset-based lending facility. This strategic move has strengthened the company's capital structure, providing increased financial flexibility to execute its long-term business strategy and further reduce its debt levels.

Segment Performance

High Purity Cellulose Segment: This segment is RYAM's largest, accounting for over 75% of total net sales. In Q3 2024, it reported net sales of $325 million, up from $292 million in the prior year quarter, driven by higher sales prices and volumes of cellulose specialties products. Operating income was $6 million, flat compared to the prior year quarter, despite $7 million in one-time costs related to the indefinite suspension of operations at the Temiscaming, Canada plant and a $25 million non-cash asset impairment charge. EBITDA for the segment was $27 million, also flat compared to the prior year quarter.

Paperboard Segment: In Q3 2024, net sales were $55 million, down from $57 million in the prior year quarter, due to lower sales prices partially offset by higher sales volumes. Operating income was $7 million, down from $13 million in the prior year quarter, driven by lower sales prices and higher purchased pulp costs. EBITDA was $11 million, down from $17 million in the prior year quarter.

High-Yield Pulp Segment: In Q3 2024, net sales were $28 million, up from $25 million in the prior year quarter, due to higher sales prices partially offset by lower sales volumes. Operating income was $6 million, compared to $2 million in the prior year quarter, driven by higher sales prices and improved productivity. EBITDA was $1 million, down from $5 million in the prior year quarter, due to lower sales volumes.

Guidance and Outlook

For the full year 2024, RYAM has provided the following guidance: - Adjusted EBITDA: $205 million to $215 million - Adjusted Free Cash Flow: $115 million to $125 million (increased from previous guidance)

Segment-specific guidance for 2024: - High Purity Cellulose (HPC) segment EBITDA: $215 million to $225 million - Paperboard segment EBITDA: Approximately $45 million - High-Yield Pulp segment: Breakeven EBITDA - Corporate costs: Approximately $55 million

RYAM expects its net secured leverage ratio to be 2.8 times covenant EBITDA at the end of 2024 and remains confident in achieving its targeted net leverage ratio of 2.5 times well before 2027.

The company's outlook remains cautiously optimistic, as it navigates the challenges posed by macroeconomic factors and industry dynamics. RYAM is well-positioned to capitalize on the growing demand for sustainable and environmentally-friendly products, leveraging its expertise in cellulose chemistry and its investments in biomaterials initiatives.

Conclusion

Rayonier Advanced Materials Inc. (RYAM) has demonstrated its resilience and adaptability in the face of industry headwinds. The company's strategic focus on high-purity cellulose specialty products, coupled with its ongoing investments in biomaterials and operational optimization, have positioned it as a leader in the evolving specialty chemicals market. With a strengthened capital structure and a robust financial profile, RYAM is poised to continue delivering value to its shareholders through sustainable growth and operational excellence.

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