Earnings call transcript: Rayonier Advanced Materials misses Q3 2025 EPS and revenue forecasts

Rayonier Advanced Materials reported its Q3 2025 earnings, revealing a larger-than-expected loss per share and revenue shortfall. The company posted an EPS of -0.07 USD, missing the forecasted -0.02 USD. Revenue came in at 353 million USD, below the expected 392.03 million USD. The disappointing results led to a notable drop in the company’s stock price, which fell by 7.2% to 6.06 USD in regular trading and further declined by 10.41% to 5.85 USD in premarket trading.

Key Takeaways

• Rayonier Advanced Materials reported a Q3 EPS of -0.07 USD, missing forecasts by 250%.
• Revenue fell short of expectations by 9.96%, totaling 353 million USD.
• Stock price dropped 7.2% in regular trading, with a further 10.41% decline in premarket.
• Revenue decline attributed to challenges in paperboard and high-yield pulp segments.
• Company is pursuing cost reduction and new product initiatives to stabilize performance.

Company Performance

Rayonier Advanced Materials faced a challenging Q3 2025 as revenue decreased by 48 million USD year-over-year. Despite the revenue decline, the company improved its operating income by 26 million USD, reaching 9 million USD. The adjusted EBITDA was 42 million USD, a decrease of 9 million USD from the previous year. The company cited difficulties in its paperboard and high-yield pulp segments as key factors behind the revenue drop.

Financial Highlights

• Revenue: 353 million USD, down 48 million USD YoY
• Earnings per share: -0.07 USD, missing forecast by 250%
• Operating income: 9 million USD, up 26 million USD YoY
• Adjusted EBITDA: 42 million USD, down 9 million USD from Q3 2024

Earnings vs. Forecast

Rayonier Advanced Materials’ EPS of -0.07 USD was significantly below the forecasted -0.02 USD, representing a surprise of 250%. Revenue also fell short by 9.96%, with actual figures at 353 million USD compared to the expected 392.03 million USD. This performance marks a departure from previous quarters where the company had managed to meet or exceed expectations.

Market Reaction

Following the earnings announcement, Rayonier Advanced Materials’ stock dropped 7.2% in regular trading, closing at 6.06 USD. In premarket trading, the stock further declined by 10.41% to 5.85 USD. The stock’s performance reflects investor concerns over the earnings miss and revenue shortfall, compounded by broader market pressures.

Outlook & Guidance

Looking ahead, Rayonier Advanced Materials is targeting a full-year 2025 adjusted EBITDA of between 135 million USD and 140 million USD. The company is also focused on cost reduction initiatives, including a 10 million USD reduction at its Temiskaming site and a corporate cost reduction of 10.5 million USD. Additionally, Rayonier is advancing several biomaterial projects and aims to achieve an EBITDA of over 300 million USD by 2027.

Executive Commentary

Delyle Bloomquist, President and CEO, emphasized the need for pricing adjustments, stating, "Pricing must go up. It must go up." He also highlighted the company’s strategic focus, saying, "We have a clear strategy and a strong portfolio of high-return projects." Bloomquist reiterated the importance of execution, noting, "Our focus now is very simple: execute with precision."

Risks and Challenges

• Continued weakness in paperboard and high-yield pulp segments could pressure revenues.
• Supply chain disruptions and market saturation may impact future growth.
• Macroeconomic factors, including tariffs and global demand shifts, pose additional risks.
• Execution risks related to cost reduction and new product initiatives.

Q&A

During the earnings call, analysts inquired about the company’s tariff mitigation strategies and potential pricing adjustments. Executives detailed progress on biomaterial projects and clarified their approach to managing working capital. The discussion highlighted the company’s focus on stabilizing operations and pursuing growth opportunities despite current challenges.

Full transcript - Rayonier Advanced Materials (RYAM) Q3 2025:

Conference Operator: Good morning and welcome to the Rayon Third Quarter 2025 Earnings Conference Call. During today’s presentation, all parties will be in a listen-only mode. Following the presentation, the conference will be open to questions with instructions to follow at that time. 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.

Mickey Walsh, Treasurer and Vice President of Investor Relations, Rayon: Good morning and welcome to Rayon’s Third Quarter 2025 Earnings Conference Call. Joining me on today’s call are Delyle 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 at rayon.com. These materials provide key insights into our financial performance and strategic direction. During today’s discussion, 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 two of the presentation. We will also reference certain non-GAAP financial measures to offer additional perspective on our operational performance. Reconciliations to the most comparable GAAP measures can be found on our presentation on slides 27-30. We appreciate your participation in today’s call and ongoing interest in Rayon.

I will now turn the call over to Delyle.

Delyle Bloomquist, President and CEO, Rayon: Good morning, everyone, and thank you for joining us. Before Marcus walks through the financial results for Q3, I want to cover five topics today. First, our updated 2025 Bridge and Guidance. Second, recent developments in tariffs and trade. Third, our progress resolving the operational challenges we experienced earlier this year. Fourth, the work underway at Temiskaming to restore profitability and position the site for divestiture. Finally, how we are executing to the plan that increases our EBITDA to over $300 million as we exit 2027. 2025 has been a challenging year for Rayon. In response to the extraordinary headwinds, we have focused squarely on strengthening the company’s cash generation, enforcing capital investment discipline, and protecting our core cellular specialties franchise. I believe that this approach is working and that our third quarter results reflect the normalization of our core business and the continued progress across the strategic plan.

Now let’s move to slide four. Full-year adjusted EBITDA guidance is now $135-$140 million, refined from our prior $150-$160 million range. The change is primarily driven by proactive downtime of our non-core paperboard and high-yield pulp production during the holiday season to monetize inventory and protect cash given the weaker paperboard markets. We also are experiencing increased market weakness in the business. This negative was largely offset by FX tailwinds in the quarter. We also faced increased headwinds to our FLUF business, primarily due to the U.S. FLUF industry exports to China being displaced by the China 10% tariffs and creating increased competition into non-China markets. The cellular specialties business performed near expectations and returned to normalized EBITDA margins in Q3. Turning to slide five.

Please note that importantly, there are still zero tariffs on our cellular specialties in dissolving wood pulp products into China, zero tariffs on U.S. sales to the EU, and zero tariffs on Canadian imports into the United States. Though direct tariff impacts have stabilized, we continue to work through the 10% tariff on our FLUF products into China. We are collaborating with customers and adjusting geographic mix as part of our mitigation strategy. We are also developing a dissolving wood pulp FLUF product that would avoid this China tariff. Our technical team is working to refine this new product to reduce unit production costs. A major development in Q3 was the US ITC’s preliminary affirmative injury determination, and the ongoing anti-dumping and countervailing duty investigations covering Brazilian and Norwegian dissolving pulp imports. This determination allows the Department of Commerce to move forward with its investigations, with preliminary duty determinations expected in early 2026.

As a reminder, an estimated 190,000 tons of specialty-grade acetate pulp are imported into the U.S. from Brazil each year, and about 5,000 tons of Ethers pulp are imported from Europe. This case matters. It is a significant step toward a fair level playing field for U.S. producers of high-purity specialty cellulose pulp. Overall, we now believe that trade conditions are generally trending in our favor as we move towards 2026. On slide six, the isolated operational challenges we have discussed previously are stabilizing. In Q3, operational challenges at Tartas continued, including French national strikes that adversely affected Tartas. These were not Rayon-specific strikes, and the Rayon team did an outstanding job keeping customers supplied. As mentioned last quarter, we were understaffed in key technical roles at Tartas.

Since June, we filled most of the open key positions via new hires, including the transfer of a couple of technical managers from Temiskaming, and expect all key positions to be filled by year-end. Jesup and Fernandina are performing to expectations. Slide seven outlines the actions underway at Temiskaming. 2025 has been a difficult year for the paperboard and high-yield pulp business. We now expect an EBITDA loss of about $14 million compared with historical profitability of roughly $30 million. The decrease in 2025 guidance is due primarily to lower paperboard prices and volumes due to new U.S. capacity. Our plan to idle the paperboard line and one of the two high-yield pulp lines for three weeks in the fourth quarter is to improve working capital and cash flow. Our plan to return the Temiskaming site to historical profitability is focused on four key initiatives. First.

Reducing Temiskaming costs by approximately $10 million. This initiative has been fully implemented through utility contract improvements and benefits derived from high-return strategic capital investments. Second, improving the paperboard line OEE by approximately $10 million in 2026 as a result of fewer economic shutdowns, grade optimization, and enhanced maintenance reliability. Further upside of $5 million is expected to be realized in 2027 as supply and demand normalizes, resulting in no economic production shutdowns. Third, advancing the commercialization of new product development to generate an estimated $10 million in 2026 EBITDA and another $5 million in 2027. The new freezer board grade has been qualified and launched in Q3, and orders are being secured. The roll softwood high-yield pulp qualification trials are advancing well with potential customers, and the oil and grease-resistant board trials will begin this quarter.

Additionally, we are developing another new product, a high-yield pulp wrapper product that is in testing, which we believe will deliver 2026 cost savings and potential for new market entry. Fourth, we’re in active negotiations with U.S. customers affected by the 15% tariff on EU board imports and participating in an AFRI-led study evaluating strategic options for all the assets on the site, including the currently suspended HPC line. We recently responded to an opportunistic inquiry about Temiskaming, so there is current interest in the business. As we restore positive profits and cash flow to Temiskaming in 2026, and once the USMCA Free Trade Review is completed in July of 2026, we believe we can divest this site at a fair value. Turning to slide eight. Starting from our normalized EBITDA baseline, we’ve updated our plan to double our EBITDA from our current guidance over the next two years.

I will walk through each step and provide an update on how we’re progressing. On the pricing front, we believe that we’re tracking ahead of plan. We are targeting a significant price reset to reflect the inherent value of our cellular specialty products, which we believe requires recapturing lost value from prior years’ inflation. Our cost, the $30 million reduction program for 2026, is almost fully implemented. As upside, we are now working on a $20 million of EBITDA benefit for 2027. That would be derived from strategic capital projects. From a specialty commodity sales mix standpoint, we are increasingly confident that we will realize the $30 million in EBITDA growth from margin improvement. I’ll expand on why in a moment. Finally, our biomaterials projects are progressing, and I’ll cover this progress in more detail in a couple of slides. In short, our strategy remains firmly intact.

We have a clear line of sight to achieving our 2027 run rate target. Slide nine expands on the pricing and market fundamentals for our core business. We are highly confident that Rayon is in a strong position to realize a significant price reset for its cellular specialty products. We believe that the market is conducive to capturing product value because industry capacity utilization is over 90%, with no expected major capacity additions before 2029. Rayon holds most of the excess cellular specialty capacity, and the industry is highly concentrated, with Rayon and two other producers accounting for roughly 80% of the global cellular specialty capacity.

This is important because we’re making a strong push on 2026 cellular specialties pricing, i.e., pursuing a meaningful reset beyond prior year increases to reflect the value of our high-purity products, which requires us to recapture lost value from inflation that has increased nearly 35% faster than our average cellular specialty pricing since 2014. We also continue to capture the opportunities to enrich our sales mix towards specialty cellulose. We are on track to requalify Temiskaming’s CS volumes to generate $5 million of EBITDA in 2026, with two customers already qualified and a third expected by year-end. We also remain highly confident we will generate $20 million in EBITDA over the next two years via specialty margin enhancement versus commodity sales.

This objective will be driven by organic growth across cellular specialty markets supported by Rayon’s outside share of available excess capacity and potential upside to the plan from increased cellular specialty volumes following Georgia-Pacific’s Memphis facility closure, which produced an estimated 10,000-20,000 metric tons of cotton linter pulp grades that go into cellular specialty applications. Finally, we continue to expect to realize $15 million of additional EBITDA when Ether demand in the EU returns to historical levels, which would also be upside to our plan. On cost, $24 million in strategic investments made this year will generate $20 million in cost reductions at our HPC plants in 2026. We also are taking action to reduce corporate costs by $10.5 million, including eliminating lightly used medical benefits, increasing management span of control, reducing clerical roles via automation, and terminating non-employed technician and professional contracts.

We’re also working on upside to this cost improvements initiative. We are actively working on projects at the HPC plants to generate another $20 million in EBITDA for 2027. We believe that we can take out another $4-$6 million in corporate costs via AI and automation over the next two to three years. On slide 10, I highlight the progress we are making on our biomaterial projects. The Altamaha Green Energy, or AGE project, is a $500 million 70-megawatt renewable power project to be based at our Jesup facility. Rayon will own 49% of this project. Recent progress includes reaching agreement on the EPC contract in September and receiving our air permit in October. The joint venture is now focused on reviewing project financing options, after which the project will move to its FID.

Rayon will invest $46 million of equity to realize an annual proportional EBITDA of $50 plus million. Assuming a utility valuation multiple, this project is expected to generate a 12x ROI on Rayon’s equity. The $64 million BioNova Fernandina Beach second-generation bioethanol project is expected to generate $15 million of annual proportional EBITDA for Rayon in return for $6 million of Rayon cash equity, generating a 19x ROI on Rayon equity, assuming a comparable multiple. Funding is secured. The air permit has been approved. Engagement with the city of Fernandina Beach has begun with respect to a potential settlement on the land use application. The US BioNova CTO project will produce about 13,000 tons per year of CTO from feedstock primarily sourced from our Jesup and Fernandina plants. Engineering for the project is complete. That incorporates a high-quality used CTO plant that we acquired for $350,000 in September.

Commercial discussions are advancing. We expect to file the air permit application by the end of November. This project is expected to generate $6 million of annual proportional EBITDA per year on a total CapEx of $9 million, of which Rayon will contribute less than $2 million of equity. Using a comparable market valuation multiple, this project is expected to generate a 16x ROI on Rayon’s equity. The European BioNova CTO tolling project is small but requires no Rayon equity. We’ll supply feedstock from our Tartas plant to a third-party toller, which will generate approximately $1 million of annual proportional EBITDA. Finally, the prebiotics project at Jesup is one of the more exciting projects in the BioNova portfolio as a result of exceptional efficacy results that show that our product delivers significantly higher weight gain and feed conversion performance in poultry than competing alternative feed additives.

We are redesigning the plant to a smaller modular footprint that can scale up with demand growth due to lower initial dosing requirements. We’ve also signed a commercial sales MOU with a feed additives manufacturer for U.S. poultry and swine feed applications. While the redesign may extend this project’s timeline, this is a positive adjustment. The trial data confirmed our product’s superior performance, and as a result, we believe meaningfully expands the commercial opportunities ahead. Across all these initiatives, Rayon demonstrated its ability to recycle capital into high-return projects due to low capital intensity, attractive project capital, and repeatable outside investment returns. Slide 11 explains why we can do this. The crux of these opportunities is Rayon’s extensive and unique asset base. The noted biomaterial projects will be located at existing Rayon cellulose fiber plants where the infrastructure, utilities, raw material sources, and site management are already in place.

Thus, Rayon’s asset base anchors our ability to scale new biomaterial projects efficiently. We also believe that replicating this asset base would be prohibitively expensive. Thus, it is unique to Rayon. As a case in point, the replacement value of Jesup alone is estimated to be over $4 billion. We believe that Rayon is uniquely positioned to pursue such opportunities at very attractive ROIs on equity invested. The technical and market viability of most of our projects are already proven. Prebiotics is the only opportunity that would be new. We are therefore taking the necessary steps, including animal feed trials and resizing the plant to mitigate the market and capital risks for this project. The project that I summarized on the previous slide will generate high returns and very profitable growth through 2028-2029. For the 2030s decade, we are investigating promising opportunities today.

In biomaterials and bioenergy to provide profitable growth. For example, we are currently conducting due diligence with Grand Bio for a pilot-scale ethanol-to-jet plant at our Jesup facility. If this due diligence concludes that such a project would be successful, we will then proceed to construction, which would be fully funded by a DOE grant. We’ve also signed an MOU with Verso Energy to evaluate ESAF production at Jesup and Tartas that will align with the EU decarbonization mandate starting in 2030. Just yesterday, we were informed that Verso Energy’s project at our Tartas plant was selected by the EU Commission for its Innovation Fund and will receive a $37 million grant towards the construction and commissioning of the Tartas ESAF project after a final investment decision is made. Turning to slide 12, I’d like to close with three points. First, our near-term issues are mostly behind us.

The tariff situation has stabilized, and the extraordinary operational challenges, except maybe those challenges tied to political turmoil, are resolved. Second, the underlying fundamentals of our strategy remain intact, and our EBITDA enhancing initiatives are advancing. The core business is performing to expectations, with a significant 2026 pricing reset being pursued. The $30 million instructional cost targets will be delivered for 2026, and we’re now working on a further $20-$25 million plant and corporate cost reductions for 2027. Our confidence continues to build that organic growth across cellular specialty markets will further expand EBITDA margins by $30 million over the next two years. The Temiskaming turnaround efforts are effectively underway, and our biomaterials portfolio continues to progress. Third, Rayon valuation remains compelling.

We believe that an up to five times upside to the stock price for our shareholders would be implied by the comparable double-digit valuation of our competition in a recent transaction on our targeted 2027 $300 million-plus run rate EBITDA. 2025 has been a challenging year, but we are getting through it with our strategy intact. Our core is solid and performing, and our growth initiatives are advancing. We remain confident in the path ahead and focused on execution on this plan for our shareholders. With that, I’ll hand the call over to Marcus to take us through the Q3 financial highlights. Thank you, Delyle. Let’s now turn to slide 13, which summarizes our third quarter 2025 financial highlights. In the third quarter, revenue was $353 million, down $48 million year over year. Operating income was $9 million, an improvement of $26 million compared to the prior year.

Adjusted EBITDA was $42 million, a $9 million decrease from Q3 2024. Adjusted free cash flow year to date was negative $83 million, driven by working capital timing that is expected to improve in the fourth quarter. The primary drivers of the EBITDA change this quarter can be summarized with the following highlights. In paperboard, earnings decreased by approximately $10 million, reflecting lower sales volumes and pricing from tariff uncertainty, competitive EU imports, and new US capacity, along with higher fixed costs from market-related downtime and the allocation of Temiskaming net custodial site expenses. In high-yield pulp, earnings declined by approximately $10 million due to continued oversupply in China and higher fixed costs resulting from market downtime. In cellulose commodities, earnings increased by $7 million, driven by stronger fluff pricing, improved mix, and the absence of prior-year impairment and suspension charges.

Given these weaker-than-expected results in our non-core business, we have now refined our full-year 2025 adjusted EBITDA guidance to a range of $135-$140 million, implying $25-$30 million of adjusted free cash flow for the fourth quarter. Let’s now review our segment results, beginning with cellulose specialties on slide 14. Quarterly net sales for CS were $204 million, down $28 million, or 12% from the prior year. The decline was driven by a 17% decrease in sales volumes, partially offset by a 7% increase in average sales prices from negotiated price actions and improved mixes. Operating income was $49 million compared to $46 million in the third quarter of 2024.

The improvement was driven by higher average selling prices, lower fixed costs related to the Temiskaming cellulose indefinite suspension, and a $7 million energy cost benefit from the sale of excess emissions allowances, partially offset by lower volumes, higher operating costs, and the impacts of national labor strikes in France. Adjusted EBITDA was $66 million compared to $65 million last year, with margins increasing to 32% from 28%. Turning to slide 15, quarterly net sales for biomaterials were $8 million, flat compared to the prior year. Higher turpentine volumes were offset by lower bioethanol sales volumes caused by temporary feedstock constraints and labor disruptions at Tartas. Operating income was $1 million compared to $3 million in the third quarter of 2024. Reflecting higher shared and ancillary service costs.

Adjusted EBITDA was $1 million compared to $4 million in the prior year, with margins of 13% versus 50% in Q3 of 2024. Turning to slide 16, quarterly net sales for cellulose commodities were $85 million, down $1 million or 1% from the prior-year quarter. A 2% decrease in volumes, mainly due to the prioritization of production towards cellulose specialties and the absence of Temiskaming sales volumes following the indefinite suspension, was largely offset by additional visco sales as part of inventory and cash management efforts and an 8% increase in average selling price driven by higher fluff pricing and mix improvement. Operating loss was $13 million compared with $55 million last year.

The improvement reflects the absence of a $25 million non-cash impairment charge and $7 million of indefinite suspension costs recorded in the prior year, combined with higher selling prices, lower fixed costs following the indefinite suspension of Temiskaming cellulose operations, and improved cost performance. Adjusted EBITDA was negative $3 million compared to negative $10 million in the prior-year quarter. Let’s now move to slide 17, which covers our paperboard segment. Quarterly net sales were $39 million, down $16 million, or 29% compared to the prior year. Average sales prices decreased 10%, and sales volumes were down 21%, driven by mix shifting customer dynamics associated with tariff uncertainty and increased competitive activity due to EU imports and the startup of new US capacity. Operating loss was $4 million compared to operating income of $7 million in the prior-year quarter.

The change was driven by lower sales, higher fixed costs for market downtime, and the allocation of Temiskaming net custodial site costs, partially offset by lower purchase pulp costs. Adjusted EBITDA was $1 million compared to $11 million in Q3 of 2024, with margins of 3% compared to 20% in the prior year. Turning to slide 18. Quarterly net sales for high-yield pulp were $24 million, down $4 million, or 14% compared to the prior-year quarter. Average sales prices declined 10%, and volumes decreased 8%, reflecting weaker demand, oversupply in China, and shipment delays to customers in India. Operating loss was $10 million compared to break-even results in the prior year. The decline reflects lower sales, higher fixed costs from market downtime, and the allocation of net custodial site costs. Adjusted EBITDA was negative $9 million compared to positive $1 million in Q3 of 2024.

With margins of negative 38% compared to 4% last year. Slide 19 provides an overview of our balance sheet and liquidity. We ended the quarter with $140 million of total liquidity, including $77 million of cash and a net secured leverage ratio of 4.1 times, within the five-times covenant threshold. During the quarter, we experienced working capital outflows across receivables, payables, customer rebates, and inventory, which pressured free cash flow. These outflows also reflect temporary inventory management actions by a large cellulose specialties customer that affected order timing. We expect working capital levels to normalize as we progress through the fourth quarter and as sales volumes increase. We remain focused on driving working capital efficiency and improving cash flow generation. For the full year, we expect adjusted EBITDA in the range of $135-$140 million and positive free cash flow in the fourth quarter as these timing effects ease.

In addition, we have $40 million of committed green debt available to support the execution of our biomaterials portfolio as the projects move forward. The company will also look to proactively pursue a refi in 2026 to lower interest expense by leveraging Rayon’s expected stronger operating performance and potentially lower debt as a result of the targeted divestment of Temiskaming. With that, operator, please open the call for questions. Thank you. We will now be conducting a question-and-answer session. If you would like to ask a question, please press Star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press Star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the Star keys. One moment, please, while we poll for questions.

Thank you. Our first question comes from the line of Daniel Harriman with Sidoti. Please proceed with your question. Thank you so much. Hey, guys. Good morning. Thank you for taking my questions. I just wanted to hit on two in the beginning, one for Delyle and one for Marcus. Delyle, just going back to the paperboard and high-yield pulp assets, can you just talk again? I know you went through it all, but what specific operational and financial milestones do you think you need to achieve in 2026 to make those assets viable for a sale? And then, Marcus, you touched on this at the end of your comments, but with leverage at 4.1 times, can you just talk a little bit about how you’re thinking about refinancing and repricing opportunities, considering that the debt is callable in 2026?

What level of EBITDA would give you comfort that you can regain full balance sheet flexibility? Really appreciate it, guys. Thank you. Good morning, Daniel. This is Delyle. I’ll see if I can address your question on the paperboard and high-yield pulp business. The way I would look at it is that before I can sell it, there are two gating items that we have to get past. One is the USMCA renewal that is under negotiations right now between the three governments. Let’s say that gets done by the deadline, which should be around July of 2026. I do not think there will be any interest on anybody’s part in terms of buying those assets until we get to that point. The other gating item is that I believe that the business needs to get back to positive EBITDA and positive cash flow.

I outlined four different things that we are pursuing to make that happen. I would say two of them are high probability or locked. One is the cost reduction, which is largely locked given the activity we have already done. The other is the OEE of the paperboard plant, which has been demonstrating significant improvement over the past couple of months, and we expect to continue to do so as we go into 2026. The last element I would say is really big is really the new product development and the uptake of those new products into the market. To get to a positive EBITDA, I need all three of those elements. Really, the last critical element that needs to fall in place is the successful commercialization of those new products, which we should start seeing in the first quarter and second quarter of 2026.

Once I get to a positive EBITDA, positive cash flow, and we get past the negotiations on the USMCA, I think at that point, we’ve got an asset now that’s attractive, and we’ll be able to dispose of it. Good morning, Dan. Thanks for your question. Yeah, as you mentioned, the term debt becomes callable in May of next year, and there’s a 2% takeout premium, which falls to 1% in November. I think the key here is, as we’ve gone through the materials, navigating these transitional headwinds and then demonstrating that this business should return to historical levels of EBITDA, right? We exited last year at $50 million quarters. When we demonstrate that kind of cadence, we’ll anniversary some weaker quarters that we had this year and get our LTM back up over the $200 million level.

That certainly is going to give us a better leverage profile to be out in the marketplace. Then continue to tell our story on the backdrop of all the positive items Delyle mentioned in his review. Look to do the break-even on a refi. We certainly see a line of sight where we can take a measurable amount of interest out of this business at that time. Thanks so much, guys. I appreciate it. Does that answer your question, Daniel? Yes, it does. Thank you. All right. Thank you. Our next question comes from the line of Nick Tour with Blackroot Capital. Please proceed with your question. Hi, Delyle. I just wanted to hone into a bullet point that you have on slide 9, which says that as we kick off 2026 cellulose specialties pricing discussions, we are targeting a significant reset beyond prior-year increases.

Reflecting the value of our products and recapturing lost value from prior-year inflation. Could you give me a little bit of color on how much value has been lost from prior-year inflation as you head into these negotiations next month or this month? What is baked currently into your guidance, and what is the impact of a 1% increase in pricing over your cost inflation? Okay. Good morning, Nick. I know it’s early over there in the west. Certainly appreciate you getting up early. I certainly appreciate you getting up early to participate on the call. The questions you ask, I’ll see if I can try to answer each of the different components. Starting off with just kind of a rule of thumb on a 1% increase in pricing, it generally generates an.

$8 million to $9 million increase in EBITDA when we talk about increasing our CS pricing by 1%. Okay? You take that, and as I stated in the presentation, since 2014, the inflation has increased 35% more than the average pricing for our CS products. If you take $8 million or $9 million for every 1% increase in pricing, the value lost is somewhere in the tune of $300 million. I think that’s the right math, but anyway, you can certainly do the math quickly. In the plan that we’ve laid out with respect to getting to $300 million from our pro forma 2025 number, we assumed essentially a 1% higher rate of increase on pricing than inflation. I think we show on the slide an $89 million increase over two years in pricing, offsetting the $80 million in inflation.

Largely, the reason for that assumption is because that’s what our analysts out there are saying, that we can get a 4-6% increase in our pricing given the tight market conditions, given the highly concentrated industry we’re in, and so forth. We just assumed the midpoint on that to drive that number. What I’ll tell you is that we internally believe we need to increase that at a much faster rate than just 1% above inflation to get back to a level that will allow us to reinvest back into our plants and make our facilities viable for the long term. Because quite frankly, since 2014, pricing where it has been has not been sustainable.

You have seen that in the industry in that we have seen competition and capacity get shut down and rationalized, with GP Foley being the last one—not the last one, actually—our Temiskaming operations being the last line being shut down. GP Foley, Cosmo out of Washington State, and just recently the CLP plant in Memphis, Tennessee, which is not in cellulose specialties but certainly in the same applications. All right? Pricing must go up. It must go up. I know that the next question would be, "How much more do you think it is going to go up than just the 1% above inflation?" It is going to be multiples of that number. It has to be multiples of that number so that we can get the capital we need to reinvest back in the plants and make these facilities the gold standard that they need to be.

I can’t tell you exactly the number that we’re after, but all I can tell you is that we’re not looking at a 5% increase. We’re not looking at a 10% increase. We’re looking at higher numbers. There is roughly $300 million of cash flow that needs to be recaptured, whether that happens—a big portion of it probably happens next year and then remaining in the years after that. That’s an extremely significant number considering your market cap is around $400 million. That’s very exciting. Now that the capacity has been taken out of the industry to the extent that it has and capacity utilization levels are as high as they are, there is space in the industry for there to be more rational pricing and recapture what has been lost through inflation over the last 9 or 10 years.

Is that a fair assumption? I couldn’t have summarized it better, Nick. That’s exactly right. Okay. Great. Then just second question, I think I see the stock is trading a few percentage points later, which is sometimes the market gives you a gift. It seems like your reduction in EBITDA from last quarter to this quarter was because of your decision to shut down your operations for a little bit to generate cash from your working capital. Can you just give me—I think you mentioned in one of your slides that the $10 million loss was from that decision, but that generated or is expected to generate additional working capital and improve the cash flows overall for the company. What’s the magnitude of that working capital release? Roughly about $14 million. Okay.

You basically sort of made the decision you’re going to get the EBITDA down by 10 but get $14 million more of cash. Yeah. Yeah. Now, $10 million of EBITDA loss or non-recurring impact result of the—we call it market or economic shutdowns of the Temiskaming facility. That’s over the whole year. The $14 million benefit is really over the whole year. Yeah. And Nick, to Delyle’s comment, that’s the portion related to downtime. If you look at our guidance, in Q4, we’re expecting close to $30 million of working capital release, as you saw on the bridge. Yeah. A good chunk of that is paid for, but a good chunk of it—there’s also a big chunk of it coming out of CS. Got it. Got it. Got it. And then just last question, just honing in on your AGE project, which seems incredible.

It seems like you’ve basically passed most of the hurdles for your FID. You’re just working on the financing. You’ve got an investment-grade counterparty there. And I think the EBITDA now is $50 million applicable to you, which is worth $500 million of value. Again, your market cap is in the $400 million. Is there anything that is preventing, or is there any major thing that you’re concerned about that could potentially derail that project, or is now just the timing of funding or getting the funding finalized? It’s just getting the funding finalized, Nick. And just to correct you, it’s not $500 million of market cap. I think it’s $650 million of market cap because you need to—this is essentially a utility. What are your contract fixed pricing? No volatility coming from a Georgia Power, which is a statewide utility?

You take a 13X multiple and times it by the $50 plus million. It’s a $650 million potential impact to our ROI. We understand and we recognize that it’s a super project for this business. The hurdle on this really, it’s not so much the project financing. It’s really finding the $46 million of equity that we got to, we, Ryan, we’ve got to put in the business. We’re looking at options of how we’re going to find that money to put it to fund this. That’s really the issue. Okay. Sounds good. I mean, as you know, I own almost 2 million shares of this stock, and I feel like I’m underinvested. There’s very exciting times for the company, and it looks like you guys are making very rapid progress on the biomaterials initiatives. The really exciting news coming out of this quarter, which.

We didn’t know last quarter what the magnitude of price increases that are possible going into next year. Good luck with those negotiations, and thanks for the time. Thank you. Our next question comes from the line of Amit Persad with RBC. Please proceed with your question. Hey, it’s Amit on from Matt. Thanks for taking my questions. Just starting off with Temiskaming, you noted a $5 million benefit in 2026 from qualifying volumes on other lines. What would that be on a run rate basis, and when do you expect those incremental volumes to show up? I guess, how much of that historical Temiskaming business do you expect to ultimately have retained through transferring production to other facilities by the end of 2026? Hey, good morning. So you’re asking on the.

Amount of volumes that we’re able to convert from our old HPC line in Temiskaming over to our facilities in Jesup, Fernandina, and Tartas. What we’re talking about with respect to the $5 million that we’re looking to see in terms of increased EBITDA for 2026 is conversions that have occurred this year. All right? We’ve already seen a significant amount of conversions since we suspended the operations back in July of 2024. What we’re saying is that, as we said at the time of the suspension, there was a number of products that would take multiple years in terms of qualification. We’re just now getting through the conversion with three customers this year. When those conversions are completed this year, that should add another $5 million of EBITDA for our business going forward. That being said, there’ll be more opportunities in 2026.

Probably after that, that’s probably about the extent we’re going to be able to get to, as some of the business like MCC and some other grades that we are producing in Temiskaming have gone to the competition. We’re getting to the end of the road with respect to what we’re going to be able to realize from the full conversion of those specialty cellulose businesses that we had up at the Temiskaming facility. I hope that answers your question. Yeah. That’s perfect. Thank you. I guess one other quick one for me is we saw paperboard realizations move significantly lower quarter on quarter. How much of that was just pricing related, being down on a like-for-like basis versus just mix and potentially some FX? That’s a really, really technical question.

Probably beyond my ability to answer it specifically, but we certainly would be happy to try to answer that question to you one-on-one. Amit, after we’ve done a little bit of investigation, is it okay just to punt that for a couple of hours? Yeah. Absolutely. No problem at all. That’s all I had. Thanks for taking my questions. Thank you. As a reminder, if you would like to ask a question, press star one on your telephone keypad. Our next question comes from a line of Dimitri Silverstein with Water Tower Research. Please proceed with your question. Good morning. Excuse me. Good morning, gentlemen. Thank you for taking my questions. I have a couple of them. First of all, you talked about working on a new fluff product that would avoid the tariffs, the 10% import tariffs from China or into China.

Can you talk about sort of what would allow kind of what the changes are that would allow the new product to bypass these tariffs, and when do you think this product will be available for commercial sales? Yeah. Dimitri, welcome, and thank you for being on the call. Great question with respect to our new product development around fluff. We’ve developed it. We have a product that we believe that would qualify as a dissolving wood pulp product from a tariff perspective into China that would go into the fluff business, all right, or into the fluff market. That’s really the key, is that it has to be a dissolving wood pulp product to be able to get into China without any tariffs. We’re really the only, I believe, the only fluff producer who can do that because we’re a specialty cellulose producer that.

Can make dissolving wood pulp, whereas all the other fluff producers in the world cannot. That’s a real comparative advantage to be able to do that. We can do that today. The issue that we’re dealing with is that the cost of that conversion from fluff to a dissolving wood pulp product is, the cost per ton is higher than the cost we would bear by paying the 10% fluff duty right now. We’re continuing to work on seeing if there’s a means to lower the unit cost of production to make that dissolving wood pulp fluff. In the meantime, we’ll continue to do what we’re doing, which is extend and expand our geographical diversity away from China to keep our fluff volumes high and keep the operation at capacity. The truth of the matter is we have a product.

We just have to figure out a way to make it cheaper. Understood. That’s a very good level of granularity there. I appreciate it, Delyle. My next question is you talked about the $30 million in cost reduction projects that you announced last quarter being pretty much fully implemented by now, and we’re just sort of waiting for the ramp-up and to get to that run rate. You also mentioned that there’s an additional $20 million in EBITDA improvement projects through 2027. Is it too early to ask you to provide sort of some major buckets of where that cost saving is going to come from? It’ll be the same major buckets that we’ve had for 2025 and 2024, which is around improving reliability. Improving material usage on our variable inputs. Through automation. Through, I would call it, preventative and even predictive maintenance. Practices and measuring devices so that.

We can capture or catch maintenance requirements before any kind of catastrophic failure. Those are the things we’ve been focusing on in the past. That is what we’ll be focusing on in the future. As I said in the past couple of analyst calls, we have a good backlog of projects that we’re going through, that we’ll invest in, and as the capital gets available, we’ll execute. That will give us the returns that we’ve been seeing for the last couple of years on these types of investments. Those are generally the buckets, though, Dimitri, that we’ll be investing in, similar to the investments we did last year or this year. Okay. So basically, kind of like a Japanese Kaizen approach where you just do better every time you go through this and get a little bit more out of it. That’s exactly right. Exactly right. Yeah. Okay. Okay. Great.

Then my last question, you mentioned in your high-yield pulp business that there were shipment delays of a business going to India, and that accounted for some of your volume losses in that business in the quarter. What was the nature of those delays, and have they been resolved? Is there going to be a catch-up in the fourth quarter, or is this sort of missed until next year? It’s just a timing issue. We’ll capture it in the fourth quarter. Really, what it comes down to is the lane between Montreal, Canada, and the ports in India, the capacity of those ocean lanes are pretty slim, pretty narrow. As a consequence, if you miss a ship, then you got to wait a month for the next ship to show up to take it to India. That’s really the issue that we’re dealing with. Gotcha.

Okay. I appreciate the time. This is all the questions I have. Thank you. Thank you. Mr. Bloomquist, we have no further questions at this time. I’d like to turn the floor back over to you for closing comments. Thank you. In closing, just to reiterate. The temporary headwinds that define 2025, we believe, are now largely behind us and that our core business is now performing as expected. As we talked about in the Q&A, pricing negotiations are underway, and we continue to value and put priority on the value we provide to our customers so that we can be able to get the money they needed to reinvest back into our assets. Our operations are stable, and our teams are executing with discipline. We have a clear strategy and a strong portfolio of high-return projects that position the company for margin expansion and stronger cash generation.

We are very disciplined in our capital deployment. These actions should reinforce your confidence in our path to sustain the growth and the long-term value creation of the project or of the company. Our focus now is very simple: execute with precision and continue to demonstrate the strength and potential of the company. Thank you for joining us this morning. Ladies and gentlemen, this does conclude today’s teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a wonderful day.

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