Okay, we'll go ahead and get started. Good afternoon, everyone. Welcome to Sidoti's March conference. My name is Daniel Harriman. I'm an analyst here at Sidoti. This afternoon, we're going to hear from RYAM, that's ticker R-Y-A-M. We have the company's Senior Vice President and Chief Financial Officer, Marcus Moeltner, here to lead us through the presentation for about 20 minutes. After that time, we're going to open it up for Q&A. If you do have any questions at any time during the presentation, please feel free to type those questions into the Q&A box, and time permitting, we will get to as many as we can. Please join me in welcoming RYAM. With that, Marcus, I'll hand it over to you. Thank you for being here.
Yeah, thanks, Dan, for the introduction. Good afternoon, everyone. Thank you for joining us. I'll look to socialize a couple of slides that'll serve as an introduction to RYAM, and also share some highlights on our key areas of focus for 2025. You might ask, who is RYAM? We are a well-established company. You can see nearly 100 years of existence. I would say we're definitely the leader in high-purity cellulose, which is a natural fiber, a sustainable product, which creates value in a diverse range of products. We also do have a three-ply paperboard franchise with the Kallima brand. That is an FBB product that is well-placed vis-à-vis megatrends in the economy. We also have a mechanical pulping operation, which is a high-yield facility in Temiskaming, Quebec, 290,000 tons of production. Of that capacity, around 70,000 is integrated within that three-ply paperboard product.
We're very global as far as an operating footprint. We have four world-class facilities, two here in the U.S. South, one in Georgia, and one in Florida. We have our operation in Temiskaming, Canada, and our operation in Tartas, France. A nice global footprint. The nice thing with the complement of facilities, we have a lot of redundancy of supply that serves well when we share our value proposition with customers. Lastly, we are really excited about developing our future business, which is biomaterials. That's focused on renewable biomaterial and energy products that are co-products of our existing production process. Really excited about that growth opportunity. I'll share some of the details with you. Over to the right, you can just see a visual overview of the key operating segments.
I'll get into greater detail on high-purity cellulose, paperboard, and high yield in the next couple of slides. Maybe on Slide five, you might ask, where do these products end up? What end uses? By this time today already, you've probably used our products in many end-use applications. You can think about on the ether side, there's products that lend viscosity. Think of shower products, toothpaste, those types of products that you use every day. We're the largest producer of acetate, which makes its way into filter products, filter tow, plastic applications, LCD screens. Other CS, think of products you can see listed there in automotive and nitrocellulose applications. These are all end-use product categories that in many instances are growing greater than GDP. A very nice, stable end-use platform where our products go.
Lastly, a couple of other areas, viscose and lyocell, that's a textile application. I will call out that that's an area where we've reduced our exposure given the commodity nature of that product. Fluff products make their way into personal hygiene. We have an operation aligned in Jesup, Georgia, a nice little facility which is well-placed for addressing fluff. Again, this is a product that is well-placed and is growing. It's a concentrated industry. I mentioned biomaterials. We started up our bioethanol plant in France last year. Within our biomaterials business plan, we're looking to grow that as well. Paperboard, again, well-placed to benefit and address megatrends in the economy. Think of sustainable packaging, replacing plastics. We're also one of the largest lottery ticket producers as far as the substrate that goes into that product.
High-yield pulp, again, I mentioned that again is a product that is partially integrated into our paperboard operation, and then it makes its way into printing and writing and packaging applications. Maybe let's spend some time on the business overview. We have set out here some information on our top-line sales and our EBITDA growth over the continuum of time. You might notice that this business looks like it has a flat revenue stream, but it is very much explained by our strategy and what we have been working on as far as our mix. Through the period of 2023, where we saw a fair amount of destocking through the COVID time, we had to pivot a lot of our production into more of the commodity products.
You can see that in the visual to the right, where our CS mix went down to 48% as we maintained our production volumes with a higher mix of commodity products. With our focus on value over volume through 2024, you can see our mix of CS products increased to about 54% versus that 48%. We reduced our exposure to viscose. We took the difficult decision to indefinitely suspend our Temiskaming HPC line, which reduced our exposure to viscose. That, along with a closure that happened late in 2023 on a competitor's plant, really tightened up the supply-demand dynamics for CS, which allowed us to really target that value over volume strategy and drive that 54% change. What really happened, you can see the growth in EBITDA of around 60% from $139 million in 2023 up to $222 million in 2024.
If you can all do the math, that's over 500 basis points of EBITDA margin expansion through that period. Lastly, on this slide, I will share with you just to put in context that our revenues are well-diversified geographically. You can see a nice mix of product within the U.S., Europe, and Asia, and an exposure to China. That's predominantly in the acetate tow market. Maybe let's turn to the next page on our guidance for 2025 and our key initiatives for this year. If you were listening to our last investor call early in March, we shared an adjusted EBITDA guidance of $215 million-$235 million for the year, and an adjusted free cash flow target of $25 million-$45 million.
We also said at the time that sequentially, think of the front end of the year being weaker than the back end of the year. That was largely driven by the fact that we have three of our facilities taking major maintenance downtime in March and April of this year. That certainly, when you take those facilities down, will influence the EBITDA by quarter. Seasonally, in addition to that, we have higher energy inputs usually in the first quarter. At the time when we shared this guidance, we also said that some of the destocking that we were anticipating in acetate would be weighted to quarter one. We certainly see a strong year, but certainly the low point of the year will be a weaker Q1. As far as initiatives, we continue to be focused on reducing debt.
As you know, we refinanced our capital stock last year. We've got a lot of flexibility now in the runway to focus on execution. We remain committed to paying down debt. We have about $20 million of amortization across our lending facilities. That will continue to draw down debt. The rest of the paydown will be further along given the terms of those debt agreements. Optimizing our assets is a key area of focus. Again, I mentioned reducing our exposure to commodities. Certainly with the indefinite closure of Temiskaming that I shared, we're focused on maintaining a higher mix of CS. We're busy requalifying those CS grades that were there in Temiskaming on our other lines. I mentioned the growth through our biomaterials investments. Again, there we're looking to expand that business plan. We're working on a second bioethanol plant in Fernandina.
We've got secured financing for that. We've got an equity contribution and some attractive green loans in France that we'll leverage for this. Lastly, we invested heavily in our IT systems to support enhanced segment reporting this year. This is all about shining the light on our value proposition by clearly segmenting the biomaterials business and the CS profitability within our portfolio. Lastly, just on the reducing debt, we remain committed to the divestment of the Temiskaming paperboard and high-yield facility. Again, given the tariff environment that we're in right now, that process has definitely slowed down. Highlighting the tariff situation, when we set out the adjusted EBITDA guidance of $215 million-$235 million, that was premised on an environment where tariffs would exist for our paperboard operation, and we would look to offset that with mitigation plans.
Maybe turning to the next slide, speaking to the tariffs, we've set out here the revenue exposure across our business portfolio for both CS, cellulose commodities, and paperboard. In the CS category, given that we have products that are not substituted easily and have long qualification periods, we feel that tariffs, if there were tariffs, would be passed on to the customer. Again, we see the risk there lower on cellulose commodities because our exposure is reduced with viscose being a smaller part of our portfolio. We largely are active there in fluff. That fiber is very unique in its fiber properties, is in the U.S. Southeast. In the end-use applications for which it is used, we see a way to, again, pass on most of the risk on tariffs there as well. Lastly, paperboard is an area.
You can see a revenue exposure of $175 million. That 25% tariff we shared during our conference call is around a $3.5 million impact before mitigation per month. It is an item that we're keenly focused on. We shared our mitigation strategy on that, where we would look to protect Canadian market share by retaliatory tariffs. We would also look to replace U.S. share with further Canadian share. Within the environment now, as the tariffs have been socialized out there, we're certainly in a lower Canadian dollar FX environment, where we are benefiting from that. We'll look to leverage that as well as other business initiatives that we have underway to mitigate that risk further. I spoke about the tightening supply-demand dynamic within our HPC category and specific to CS.
We have just set out here that the indefinite suspension of Temiskaming and the closure of that competitor's plant in 2023 effectively took around 10% of CS capacity out. You can see looking through the planning horizon from 2025 to 2027, we are getting into the 90s on capacity ratio, which is certainly an area where we can drive price. We shared with you, with our stakeholders during our earnings call, that low single-digit pricing was achieved as part of the negotiations and is reflected in our 2025 operating budget. That tightened demand and supply situation has really allowed our commercial team to leverage that and drive further pricing and get fair value for our products. Next, I would like to share some comments on an area that we are really focused on and really excited about.
That is driving further shareholder value by deploying capital on strategic CapEx opportunities. We have set ourselves some very strict hurdle rates. You can see them in the headline here. We are looking at a minimum of a 30% return on equity and projects less than a two-year payback. We are very rigorous in our review of these projects and screen them against that hurdle. Here, I will just look to socialize for 2025 and through our planning horizon some of the highlights on our strategic capital. I mentioned biomaterials. Of the $39 million that we are looking to deploy in 2025, $16 million is earmarked for biomaterials. As I mentioned, we have an equity sponsor and low-green loans to help offset that. Net of financing, a small investment of $1 million.
The balance here is focused on strategic investments focused on automation and driving further efficiency in our HPC facilities. You can see around $19 million of capital. We have a stub amount of about $4 million for our ERP project. Over the planning horizon, we will continue to leverage strategic projects within our CS category at our HPC facilities. You can see a further $33 million of strategic capital with a view to drive some full-year EBITDA improvement of $31 million. I mentioned the further deployment of strategic capital in biomaterials. Net of that financing, a further $70 million to drive around $55 million of EBITDA improvement. That is on top of projects that we have completed.
You do not have to overlay the French bioethanol plant and some other EBITDA streams within our plants to get to the full-year $70 million that we are sharing on the next page. Really excited. Again, these are projects in certainly the automation area that are proven. They are focused on driving down material usage through our facilities and really getting the best chemical and fiber consumption rates through our facility and driving costs down further. Lastly, I wanted to share with the audience here the key drivers of driving the higher EBITDA margin and improving the leverage of RYAM . Really, those two items together driving a compelling value proposition. You can see our ultimate target is $325 million of EBITDA that we shared at our last investor conference. Continuing to improve our EBITDA margins from the 13.6% up to 17%.
Continuing our journey on driving leverage down. We're currently at around 2.9x , 2.7x on a covenant basis. We're looking to get below 2.5x with a continued focus on our CS value over volume strategy, reducing our exposure to commodities further. I mentioned that 60% reduction from 2023 levels. Biomaterials is a key building block of that EBITDA growth, up to $70 million in 2029. I mentioned on the strategic capital, really driving further automation and plant efficiencies. You can see the journey from 10x leveraged to just under 3 with our target to get to 2.5 and really driving our franchise to EBITDA margins that are reflective of a specialty business. Dan, that was the highlights I wanted to share with the group.
Wonderful. Marcus, thank you so much. We do have some questions that have come in. Again, we've got about 10 minutes. If you do have more questions, please feel free to type them into the box.
Marcus, I wanted to stay on the theme of debt and just was hoping you could provide a little bit more color to us about kind of the cadence of debt paydown that investors can expect for the foreseeable future, specifically assuming that we do not see a sale of paperboard and high-yield pulp in 2025 and how you might be limited a little bit in your debt paydown based upon the terms of the refinancing.
Yeah, thanks for that question, Dan. I should have highlighted last year we paid down over $70 million. I mentioned the amortization of $20 million ongoing. Our current term debt is a $700 million facility. It is anchored on grid pricing.
As our leverage improves, below 2.5x , we can secure another 50 basis points off the floating rate. We are currently 700 basis points above the rate. It is non-callable for one and a half years. Then we can pay down debt. The call premium declines from 102 down to 101 and then par at three years. Again, as that window opens up, certainly based on this business look, we would be looking to take advantage of that. As you mentioned, we do have a special paydown provision for any asset disposition for Temiskaming paperboard and high yield. That is a declining scale of 102, 101, and then par as well. We secured a lot of flexibility such that we keep that optionality open.
Perfect. For investors that are newer to your story, I kind of want to take things back to the last Investor Day in October of 2023. You laid out at that time the importance of minimizing the exposure to commodity product, investing in biomaterials, refinancing the upcoming notes. You have successfully hit on all the major themes of that investor day. From your perspective and from the rest of management, could you just maybe update us on what you see as the keys to execution moving forward over the next year or two, specifically as it pertains maybe to the biomaterials investments that outside investors may not be familiar with at this time?
Yeah, sure. The next key project on our biomaterials business plan is replicating the bioethanol plant that we constructed in France at the Fernandina site. That is a key building block.
We're actively working on securing all the permits and securing the final details of any construction there such that we can execute that project. That is a key project for biomaterials. We're also focused on CTO, crude tall oil, which is another building block. Prebiotics, we continue to evaluate and stress test that business plan to advance it. Those all coupled together will help achieve, if you remember, investor day, we set out a target of over $40 million for those projects. Also happy to share that since investor day, another key project and building block is the AGE energy investment, which is a 70 MW cogen opportunity, which we would do as a partner. That represents an additional opportunity of EBITDA of $30 million. We're focused on those key projects to help deliver the biomaterials.
You asked what else is important to achieving our $325 million. It is continuing to work on driving CS margins further. As we see the muted recovery of ethers continue, we should continue to be able to drive our mix to higher ethers and drive down any commodity we have left at Tartas. That is another key item. The qualification of the Temiskaming grades, we are advancing that well. That is another important item. Even though we said we would consider the divestment of paperboard and high yield, we are still focused on improving that business further where there is a big opportunity to continue to penetrate packaging grades further there as well. The strategic projects are important to drive the right operating performance across our operating footprint. That is key as well.
Perfect. Just as a point of clarity, at the Investor Day, the initial expectation was or hope was that biomaterials would be about $42 million in EBITDA by 2027. Now with these new projects, we are looking at a target of $70 million by 2029.
By 2029, correct. I should call out, right, we have the overlay of the AGE project, but through time, there have been certain projects on the original biomaterials $42 million target that have been delayed by permitting and other execution items as we went forward.
Perfect. Just a couple more, kind of shifting gears. The acetate market is heavily dominated by filter tow into cigarettes. Could you maybe explain to investors what other potential uses there are out there for acetate besides what has historically been heavily focused on filter tow?
Yeah, sure. Key other end uses are plastic applications that we sell into. The other high-value end use is think of your tablets, your LCD screens, your iPhones. All that LCD film application is another one. Certainly within the sustainable mega trends, when you look at the economy, this replacing plastics is important. Also textile application is another emerging area there as well.
Perfect. If we look at the presentation deck, as of the end of 2024, you see CS is about 54% of total company revenue. A question has come in about the long-term target. Do you guys have an internal or anything that you've expressed to the market in terms of where you'd like to see cellulose specialties as a percentage of total company revenue? I understand there's a lot of variables in that. Should you get rid of paperboard and high-yield pulp? I guess, is there a number out there that you guys are looking at for the foreseeable future?
We haven't shared a specific number, but when you look at the slide we shared on the revenue by product, we would certainly look to pivot further paper pulp and other and viscose sales to CS, right? There is naturally another 5%-7%. You're not going to get it all because you're always going to have some downgrade product when you're producing. You would look to, if we've got operating capacity on our production lines, you want to make as much CS as possible. Right?
We have got the line dedicated to fluff, but the other two lines at Jesup and Tartas and Fernandina, we would look to run that capacity all on CS over the long term and continuing to drive that number higher.
Perfect. I think we have reached a good stopping point. Marcus, on behalf of Sidoti and everybody in the audience, thank you so much for your willingness to share RYAM's story. For those of you in the audience, thank you for the participation and the questions. Again, to you both, Marcus and to Cody, who is behind the scenes, thank you all so much for your time today.
Thanks, Dan. I appreciate you hosting us. I do appreciate everybody's interest in RYAM. Thank you.
All right. See you soon, everyone. Thank you.