Rayonier Advanced Materials Inc. (RYAM) Earnings Call Transcript & Summary

Hello, everyone, and welcome. I am Dmitry Silversteyn, and I will be your host for this episode of Water Tower Research Fireside Chat. You can view the replay of this webcast as well as previous episodes and all the research on the companies that we cover by visiting www.watertowerresearch.com. Joining me today is Ben Chambers, Head of Sustainability and External Affairs at Rayonier Advanced Materials, whose stock trades on the New York Stock Exchange under the ticker RYAM. You can learn more about the company by visiting their website at www.ryam.com. Welcome, Ben.

Hey, Dmitry.

Ben, why don't we start by having you tell our audience a little bit about yourself and your role at Rayonier Advanced Materials?

Yes. Awesome. Thank you for your time. Thank you, everyone, for listening. So as Dmitry said, Ben Chambers, I give the opportunity to lead RYAM's sustainability program, so the global sustainability, all of our reporting, I chair our Sustainability Council, which is a cross-functional senior leadership team that drives our sustainability program. And then separately, I have responsibility for our U.S. external affairs, which is primarily focused on state and federal engagement, all of our association boards, just representing the company in those efforts.

Thank you for the intro, Ben. Let's dive into RYAM's approach to sustainability because that seems to be where majority of your responsibility lies. Starting with your greenhouse gas emissions and the reduction efforts that you have going in there. RYAM has committed to a 40% reduction in greenhouse gas emissions by 2030. Can you talk about your strategies for achieving this?

Yes. No, absolutely. So we're excited about that goal. We put it in place a couple of years ago as we really started focusing on what we were doing from an emissions perspective. So our goal is a 40% reduction in combined Scope 1 and Scope 2 emissions on both an absolute and intensity basis. So 2020 baseline 2030 goal. We're having some success so far. So we're 20 -- just over 20% on the absolute and around 14% on the intensity emissions reductions through 3 years. If we talk about the drivers for that, I think we were focused from the outset of setting an aggressive but realistic target, right? Something that was actually achievable, a lot of engagement with our senior leadership, with our Board to make sure that we could meet the objectives that we're going to lay out. And I think we're having success doing that. So one of those strategies is going to be, over time, we'll reduce our participation in the renewable energy credit markets. So what does that mean? Well, we produce a lot of our own energy for our operations. And in doing so, we create renewable energy credits that we historically have sold, taken the financial benefit of that and reinvested into the business. In the future, we will be selling less of those credits. We'll be taking those credits essentially ourselves, which will reduce our emissions, forego the financial benefit that we've historically gotten from those and then we'll have other means of supporting the business in those ways. So that's one. The second is just around what are we going to do with capital investments in the plants? There's a huge correlation between energy, water usage and greenhouse gas emissions. And so to the extent we can be more energy efficient in any way, it's going to reduce our emissions. And so all of our projects, future capital projects are evaluated through that lens. We actually look at energy, water and emissions when modeling out the financial aspects of the capital project and make sure that both the environmental and the economic benefits work to make that project -- to improve that project going forward.

Okay. So that's a pretty straightforward way of getting to those goals. How does your biomaterials portfolio of products factor in? Can you speak to the importance of the growth of this business in meeting your ESG goals? And what are some of the innovations and initiatives that will help you drive that progress?

Yes. No, thanks for the question. So let's start with the basics of our business for the audience, right? I'm sure most people know who we are and what we do. But for anyone that doesn't, for almost 100 years, RYAM has been a global leader in essentially separating a tree into its individual components, the cellulose, hemicellulose, lignin and other extractives. And the cellulose portion is -- that's our core business, right? Our High-Purity Cellulose business. Cellulose is roughly 40% of a tree. And we're able to take a tree, separate into those components, sell to our customers that pure cellulose product, almost 98% pure cellulose content in some of our more premium grades. The remainder of the tree, right? That other 60% has historically just been burned for energy consumption, right? We send that out to a recovery boiler, we burn it, produce energy and we consume that energy on site. If we can find higher and better uses for that other 60%, that's going to be a big part of our strategy going forward, both creating new biomaterials or bioenergy. If we go into some of the specific projects, I think short term, second-generation bioethanol is our most promising initiative. I think most people listening probably already know that we've got an operation that went commercial in April of this year. The -- we plan on pursuing a similar project in Fernandina Beach. So if we talk about second-generation bioethanol, what is that? In sulfide pulp mills, which we have 3 of those, our Tartas, France, our Fernandina Beach, Florida facility, and then our Temiscaming operation are all sulfide processes. And so as part of that, process, cellulose and hemicellulose are both made up of sugar molecules, sugar chains. And so just naturally through our manufacturing, some of the sugars get degraded in a solution, and we can actually access that -- those sugars in our sulfide liquor, ferment those and produce a bioethanol. It's a great project. It's a super good environmental project because we don't have to have new feedstocks. We're simply taking an existing product stream that today we're burning. And instead of burning it, we're going to be fermenting those sugars and making a 2G ethanol. It's a higher value use, right? And at the same time, those projects for them to be successful, for them to meet all of the, we'll say, sustainability requirements that make them as valuable as they are, we've got to reduce -- we can't add new energy to the site. So when we're not burning those sugars, we're effectively taking the energy value out, and we'll have some energy efficiency projects that go into those operations to make them net neutral for energy overall. So it's going to be a great project. Switching to sort of a different project. Recent announcement came out a joint venture that we have called Altamaha Green Energy. So we're partnered with privately owned Beasley Green Energy. Really, the value proposition for this project is we're going to take waste biomass and that waste biomass today is typically burned in a field, and we're going to burn it in a state-of-the-art boiler, biomass power boiler and produce energy out of that. So diving into that a little bit more. For anyone that's ever driven past sort of forest harvesting operations, trees get -- typically, you're going to have a first inning, a second inning and then you're going to have a clear cut for pine trees. And so when you have those cuts, you're going to leave behind, let's just call it, the sticks, the stems, the tree tops. Those get either left in the forest and they're going to naturally decompose on their own, which would release methane, we don't want that or the landowner is going to push those together in a big pile and kind of burn it. He's going to clear his land so that he can do something else. Hopefully, he's going to plant more trees. So our incentive for this project is we're actually going to go out and we're going to clean the land for, right? We're going to take all of those leftover biomass that's left after a harvest, and we'll bring that to our location. We're going to burn it in our boiler that it's going to have all the emissions control technologies and it's just going to be a much more environmentally friendly way to actually get additional value out of this because it gets burned today, you produce no energy in the future, we're going to burn it, we're going to produce energy, and we're going to make sure that the emissions are mitigated. And so it goes towards American Energy independence, does so in a way that supports landowners, rural communities. It helps them encourages them to expedite the process of replanting trees. We think it's going to be a great project. We did -- we were awarded a Power Purchase Agreement for that through the Georgia Public Service Commission, Georgia PSC in conjunction with Georgia Power. So great project there. And then one other one that's a little bit longer term, but we talked about this last year at our Investor Day. We continue to talk about it at a high level. So if you think about SAF, synthetic aviation fuel or as it's more commonly been referred to sustainable aviation fuel. We view this as a real opportunity for our future growth. There are a number of emerging technologies that you can string together to produce these sustainable fuels. But the infrastructure that we have at our pulp and paper facilities, a lot of the infrastructure required to make -- to build one of these much larger biofuel projects is already there. And so we think that's a very realistic longer-term strategy for us, a couple of different technologies. So one would be like an eSAF or power-to-liquids where you're essentially going to take the biogenic CO2, you pair that with a green hydrogen, like methanol, then you can upgrade to jet fuel or bio-SAF where you're going to -- in very simple terms, you're just going to take more sugars out of the biomass, produce an ethanol and then leverage an alcohol to jet the SAF pathway. So we're looking at both of those options. We think that could be really big for us in the future. I think the last thing I would mention around that is just the announcement of our new BioNova investment. So this just came out yesterday. It really supports our growth strategy as a company -- for our company as a whole around biomaterials, focused on funding that with green capital. That announcement highlighted $160 million valuation on a business that's currently doing $3 million in earnings this year. And so it really shows the value of bringing these new, these green projects to fruition. We're going to keep pursuing.

That was an important announcement you made, and it certainly does seem to provide, I would say, a third-party confirmation of the value that people see and the market sees in the businesses that you're growing. One thing that I wanted to follow up on is the drivers for why these markets are growing and why the demand for these products are there where you can step in as not a new play or not sort of the first mover in this industry. It has been around for a while, but as somebody who certainly can carve out a place under the sun, so to speak, and gain some market share in these businesses?

Yes. No, absolutely. So as you think about a sort of bigger picture, climate change, right? A carbon-constrained future, I think, is expected in some cases. If you look specifically at Europe, the European Union already has mandates in place for achieving a certain amount of sustainable fuels, biofuels as part of the overall energy mix. Fuels with lower carbon intensity scores will be more valuable. There's also a general consumer push for more sustainable products. And frankly speaking, it doesn't get much more sustainable than trees.

Absolutely. Can you also talk a little bit about the innovation around the current processes and products as far as transportation and curtailing your CO2 emission through greater energy efficiency?

Yes. I mean, generally speaking, I think it's important to know that all of our facilities are served both truck and rail, right? So bringing products in, raw materials in or outbound products, we have the ability to do both. We're always looking for the most efficient transportation possible. That makes our business more competitive, having those optionalities and discussing that both the procurement side and the demand side going out, we're constantly evaluating.

Thanks, Ben. You mentioned several times the fact that RYAM's primary raw material is a tree and these trees come from working forest. Can you describe what that means for our audience and why it's important and how RYAM is working collaboratively with its suppliers and what it's doing to improve its environmental footprint when it comes to that once the material makes it into your manufacturing facility?

For sure. So yes, working forest is a term that we use. You'll see it in our sustainability report. You'll hear us in, hopefully, most presentations, we're going to use that term. So what that means is a working forest is a forest that was carefully managed to supply steady renewable supply of timber, right? Goes into lumber markets, building houses or energy markets, paper and packaging, hygiene applications. There's roughly 5,000 consumer products that have cellulose as part of that. So you probably use cellulose many times already today and maybe you didn't even know it. But some of the dissolving pulp applications that our customers take on dissolving pulp and some of the applications they make are really used throughout society. In general, when we think about sort of the forest and especially where we are in the U.S., I think some parts of the world, it's a little bit hard to understand just how many trees we have here. There are approximately 700 million acres of trees in the U.S. That's roughly 1/3 of Continental U.S. land mass. 74% of that is a working forest, right? So you've got your federal parks, you've got state parks, you've got protected lands, but 74% of those 700 million acres are going to be working forest, things that are being proactively grown and managed to be used one day, right? Generational family done -- I'd say it's generational, right? Families grow trees, they typically cut them, they'll invest that money or maybe they'll pay for their kids wedding, plan them again, and they'll do it again 20 or 30 years later. In Georgia alone, about 2/3 of the state of Georgia is forest land. It's a $40 billion-plus industry in the state. You hear me talk about Georgia. I'm actually from Georgia, grew up there, very proud of the state, but that's where our largest operation is as well, our Jesup, Georgia facility. And so the viability and forest land there is super important [ to ] RYAM [ in ] longer term.

It seems that social aspect of your operations is important to RYAM given that you are dealing with the land and the forest and the communities that live in and around your operations. Can you discuss the social aspects of RYAM's operations, including what the company is doing internally when it comes to both empowering your own employees as well as externally, the communities that you operate in?

Yes. No, absolutely. So the short answer is we're doing a lot. We put together our 2023 sustainability report. We published that a couple of weeks ago. I would say that there's more information in there than once we publish it, right? More information than I even knew about, more programs and things that we do to support our employees than I realize. If you haven't read it or haven't checked out, I would encourage you to go and look at it because we can hit a few highlights today, but there is truly a lot of great information in that report. So if we think about our operations, safety is paramount. It's always going to be most important, ensuring the safety of our employees, contractors and then the communities [Technical Difficulty] in which we operate. So [Technical Difficulty] or improvement on safety in 2023, recordable incidents went down by 17% across the company. And part of that is we have proactive programs that are kind of leading that, right? We keep track of housekeeping scores. We have expectations that our leaders are consistently doing safety value exchanges. So they're talking with all of their employees around safe operations, reminders all the time. And then just from a timeliness perspective, if we do identify something needs to be corrected, we have pretty aggressive time lines for how quickly we need to get those corrective actions in place. If we shift to kind of employee training and development, just overall leadership development, we have various training for frontline and mid-level leaders. We've implemented new programs like DISC for managers, help them understand their personality types and how they manage, help their employees understand how their managers think about things and just really help people work better together, enhance kind of overall team interactions. We do a lot of technical training, so safety protocols, emergency responses, specific skills, HazMat training, HazMat handling, things of that nature. We have an early career development program. It's primarily focused on our engineering roles coming out of college and preparing those engineers, right? We have a lot of engineers in the company, a lot of engineers, a lot of scientists. So trying to prepare them for roles and future leadership. And then just overall, something we rolled out, I think, about a year ago was just a continuous learning. We employ LinkedIn learning. We give access to all our employees to go. And if there's something they want to learn about, we want to empower them to learn about it. And so we've set them up to be able to do that. I'd say the other thing I would like to highlight from a social perspective is just our investment in local communities, right? It's super important that we engage locally in most pulp and paper operations around the world, right? They're typically in rural areas. And so you want to invest back in those communities, make those communities desirable so that you can continue to retain talent longer term. So we invest in those local communities. We actually have foundations set up so that we can donate back to the communities. We pick various organizations that we give to every year. They submit applications and kind of tell us what they're anticipating to do with that money, and then we actually donate probably a bit a few hundred thousand dollars per year. One specific thing we did just a few weeks ago, I had the opportunity to participate in a golf tournament that our Fernandina Beach location host. It was their 18th annual tournament. They raised $100,000 this year, and they're giving that back directly to the Fernandina Beach community. So we want to continue to invest in those communities.

That's very informative. Thank you, Ben, for that information. And it does sound like RYAM is doing its best to be a responsible member of the communities where you operate, and that's good to hear. Before we get to the Q&A part of the presentation, maybe we can close by -- let me ask you this question. I mean, it doesn't seem that a week goes by when you don't hear about some sort of a cyberattack or a data breach at some private or government entity or one entity or another making use. Can you please talk about the measures that RYAM has taken and systems have put in place to ensure that data privacy and cybersecurity are as strong as they need to be?

I mean maybe if I told you what we're doing, wouldn't that make it easier for someone to target? No, in all seriousness. So we've got a team. They're fully dedicated to ensuring the security of our systems both proactive education of our workforce and on the back end, making sure that we have robust security systems, right? A framework in place. So if an employee does get targeted, hopefully, they're educated on the front end to not click a link or whatever type of phishing threat may have come through. But then overall, I would say that our cybersecurity group has continuous monitoring in place. They're always looking for threats against our system. We do feel good about what we're doing there from a cybersecurity perspective.

That's good to hear. It's always a concern, I think, for people. They don't think about it until it happens and then it's delayed to think about it. So knowing that you're taking proactive steps there, I think, is encouraging. Let's get to some Q&A here. Can you talk about -- so with all of the things that you're doing and the initiatives that you have going, both in terms of product development as well as internal process improvements, getting into some new markets. Can you talk about the partnerships that you have made along the way? Who is engaging with RYAM to help make these things happen?

Yes. So we have a new products group. We've got 2 research centers, one in Jesup, Georgia and one just outside of Bordeaux, France. We maintain relationships with many universities, our research center in Georgia and our new products group there. They're certainly heavily connected to Georgia Tech, engineering, research, overall, great university. But I'd say that we do have relationships with most of the research institutions in the Southeastern U.S. If we talk about other relationships from technology perspective, we mentioned AGE earlier, Altamaha Green Energy. So that was supported through a lot of collaborative discussions with Georgia Power, with the Georgia Public Service Commission. It's a first-of-its-kind project at that scale. And so we want to make sure that we're successful in doing it. And hopefully, that incentivizes future projects, whether it's us doing them or other companies, but we think that project has a lot of merit. So that's important. And then if we talk about kind of government engagement, we've seen a lot of support regionally in France. The 2G bioethanol plant over there has had a lot of support. the green financing that we talked about earlier, the BioNova, it's a little bit, I'd say, easier to access those funds in Europe. They've got the mandates in place that we may not have in the U.S. We have incentives in the U.S. So there's just a different dynamic there. But as a whole, right? EU is driving towards those greener, less carbon intensive products, and we're supporting them. That's not to say that we're not engaged, I think, a lot in the U.S. as well. We have existing relationships with our U.S. Senators and Congressmen for the sort of regions in which we operate. And in the State of Georgia specifically, they just finished up a State Senate Study Committee. It was titled Advancing Forest Innovations in Georgia. And so we had the opportunity to engage in that process, go and present at one of their study committees, and we're really looking forward to the results that, that study committee is going to publish later this year.

Thank you, Ben. Another follow-up question. Can you talk about the water usage and waste management goals and deliverables that the company has?

Sure. Yes. So listen, we're very fortunate that our plants, the regions that we operate, there's very little water stress, but please don't take that to mean that it's not important to us, right? And so this year, I think we published more details around our water consumption than we've ever published before, right? The ways in which we source water, right? The different -- whether it's groundwater or sorry, [ getting it ] from municipalities or groundwater, we're hitting on kind of that, right? We're trying to put more information out there. And then our projects, I mentioned -- I think I mentioned earlier that all future projects, we have to consider their impact from both water, energy and emissions, right? So how do we make sure that we're not increasing the amount of water that we consume, right? All new projects have to be net neutral on water or better. And so that's very important to us. If we talk about waste management, it's funny you ask. I -- historically, we haven't talked a lot about waste. And about a year or so ago, I realized that we're actually being penalized in all the ESG ratings and rankings because of the absence of data, right? It was assumed that maybe we didn't have a good story to tell, and that's why we weren't sharing. But it's actually quite the opposite. We have -- we essentially don't have much waste, right? I mean it's a very low proportion if you think about our overall production. But we've got waste metrics out there now. We are reporting those. I think we are from an ESG ratings and rankings perspective, we're a chemical company. And so chemical companies need to report on waste, and we're taking actions to do so.

Understood. And one final question before we end the session. Just round out your discussion on biomaterials. You talked about the SAF, the sustainable aviation fuel that you'll be producing or you're thinking about producing as well as the biodiesel and the burning of the trees for energy usage. But one of the other products that you're working on or product families is prebiotics, which from what I understand, goes into animal feed. Can you talk a little bit more about that and how the growth of that business fits into what we've just talked about in terms of sustainability and reduced waste?

Yes. So listen, that we probably need some scientists here to talk about that because it does get very technical, but there is a -- call it a byproduct stream, right? It's something in our Jesup, Georgia facility. We -- historically, like all that material goes to the recoverable and we burn it to produce energy. But we found that there is a way through some [ kind of ] cellulose filtration to access the [ XOS ] hemicellulose kind of derivative. And it is -- when we say prebiotic, meaning that we can actually give that to -- I should say, the original studies were looking at the gut health of broiler chickens. And so if we give them those prebiotics, the gut health of those chickens and sort of their growth is, don't quote me on this, right? Again, not a scientist, but I think it's comparable or maybe even better than what you would see if you were to give them antibiotics later in the growth cycle. And so if we can reduce the amount of antibiotics, right? Improve overall health of broiler chickens or maybe other type of animal feed, then I think that will be something that will be very desirable. There's still work to be done there. It's not a project that we've commercialized yet. But I know we've got folks internally that are very focused on making that success.

Thank you, Ben. Thank you. That's -- this has been a very informative discussion. I encourage people listening or reading the report afterwards to follow up and they actually go through the sustainability report that the company has published, I believe it was at the end of October. There's a lot of interesting data there, as Ben has said, and a lot more data on the topics that we've talked about here. Ben, thank you very much for joining us today. It was a pleasure hosting you, and good luck on your future developments and achievement of the goals.

Thank you so much, Dmitry.

Goodbye, everybody.