MIAMISBURG, Ohio, Aug. 8, 2018 /PRNewswire/ -- Verso
Corporation (NYSE: VRS) today reported financial results for the
second quarter of 2018.
Second Quarter 2018 Highlights:
- Net sales up $59 million
versus second quarter 2017, a 10% increase
- Net income of $1 million, up
$50 million versus second quarter
2017
- Adjusted EBITDA up $55 million
versus second quarter 2017
- Last 12 months trailing Adjusted EBITDA of $204 million
- Net debt down $153 million
from one year prior
Overview
"Verso had a strong second quarter with solid year-over-year
improvement across the enterprise as our many initiatives to
strengthen the business continued to deliver quantifiable results,"
said Verso Chief Executive Officer B.
Christopher DiSantis. "With what we believe is an
industry-leading SG&A structure, our strong cash flow,
fast-growing specialty papers business and low-cost conversion
strategies, including the on-schedule restart of the No. 3 paper
machine at the Androscoggin Mill, position Verso to capitalize on
improving market dynamics and to create long-term value for our
stockholders."
Results of Operations – Comparison of Three Months Ended
June 30, 2018 to Three Months Ended
June 30, 2017
|
Three Months
Ended
June 30,
|
|
Three
Month
|
(Dollars in
millions)
|
2017
|
|
2018
|
|
$
Change
|
Net
sales
|
$
585
|
|
$
644
|
|
$
59
|
Costs and
expenses:
|
|
|
|
|
|
Cost of
products sold (exclusive of depreciation and
amortization)
|
574
|
|
581
|
|
7
|
Depreciation
and amortization
|
27
|
|
28
|
|
1
|
Selling,
general and administrative expenses
|
24
|
|
28
|
|
4
|
Restructuring
charges
|
2
|
|
1
|
|
(1)
|
Other
operating (income) expense
|
-
|
|
2
|
|
2
|
Operating income
(loss)
|
(42)
|
|
4
|
|
46
|
Interest
expense
|
10
|
|
6
|
|
(4)
|
Other (income)
expense
|
(3)
|
|
(3)
|
|
-
|
Income (loss)
before income taxes
|
(49)
|
|
1
|
|
50
|
Income tax
expense
|
-
|
|
-
|
|
-
|
Net income
(loss)
|
$
(49)
|
|
$
1
|
|
$
50
|
Comments to Results of Operations - Comparison of Three
Months Ended June 30, 2018 to Three
Months Ended June 30, 2017
- Net sales for the second quarter of 2018 increased $59 million, or 10%, compared to the second
quarter of 2017. The sales increase was attributable to improved
average pricing, primarily resulting from inflationary pressures,
improvement in product mix and better alignment of supply and
demand. The improved average pricing and product mix were driven by
price increases across our product lines while volume was up
significantly in specialty papers. As our focus on increasing
production in this area continues, the Stevens Point and
Androscoggin mills ran at capacity with specialty products during
the second quarter of 2018. The overall decrease in volume
was driven primarily by a reduction in external pulp sales of
15,000 tons resulting from a planned outage at our Quinnesec Mill
and other internal needs. While sales volume of specialty papers
increased in the second quarter of 2018, it was offset by a
reduction in sales volume of other coated papers during that same
period.
- Gross margin, excluding depreciation and amortization expenses,
increased from 1.9% in the second quarter of 2017 to 9.8% in the
second quarter of 2018, driven by higher average pricing and
improved product mix, reduced downtime, improved operational
performance and reduction of pension costs, partially offset by
higher planned major maintenance costs, including a bi-annual
outage at the Quinnesec Mill, increased freight expense and
inflation on chemicals and purchased pulp.
- SG&A expense in the second quarter of 2018 increased
$4 million over the same period in
2017, primarily attributable to costs incurred during the second
quarter of 2018 associated with Verso's strategic alternatives
initiative and an increase in cash incentive expense and non-cash
equity award expense, partially offset by cost reduction
initiatives implemented across the company.
- Other operating expense of $2
million in the second quarter of 2018 related to fees
associated with the company's 2016 Chapter 11 cases.
- Interest expense reduction was driven by the reduction in
amounts outstanding under our term loan.
- Other (income) expense in the second quarter of 2017 and 2018
each include income of $3 million
associated with the non-operating components of net periodic
pension cost (income) in connection with the adoption of a new
accounting standard in the first quarter of 2018.
Results of Operations – Comparison of Six Months Ended
June 30, 2018 to Six Months Ended
June 30, 2017
|
Six Months
Ended
June 30,
|
|
Six
Month
|
(Dollars in
millions)
|
2017
|
|
2018
|
|
$
Change
|
Net
sales
|
$
1,201
|
|
$
1,283
|
|
$
82
|
Costs and
expenses:
|
|
|
|
|
|
Cost of
products sold (exclusive of depreciation and
amortization)
|
1,136
|
|
1,162
|
|
26
|
Depreciation
and amortization
|
60
|
|
55
|
|
(5)
|
Selling,
general and administrative expenses
|
57
|
|
53
|
|
(4)
|
Restructuring
charges
|
4
|
|
2
|
|
(2)
|
Other
operating (income) expense
|
-
|
|
2
|
|
2
|
Operating income
(loss)
|
(56)
|
|
9
|
|
65
|
Interest
expense
|
19
|
|
17
|
|
(2)
|
Other (income)
expense
|
(5)
|
|
(7)
|
|
(2)
|
Income (loss)
before income taxes
|
(70)
|
|
(1)
|
|
69
|
Income tax
expense
|
-
|
|
-
|
|
-
|
Net income
(loss)
|
$
(70)
|
|
$
(1)
|
|
$
69
|
Comments to Results of Operations - Comparison of Six Months
Ended June 30, 2018 to Six Months
Ended June 30, 2017
- Net sales for the first half of 2018 increased $82 million, or 7%, compared to the first half of
2017. The sales increase was attributable to improved average
pricing, primarily resulting from inflationary pressures,
improvement in product mix and better alignment of supply and
demand. The increased average pricing and improvement in product
mix resulted in higher revenue, driven by price increases across
our product lines while volume was up significantly in specialty
papers, partially offset by an overall decrease in sales volume.
The overall decrease in volume was driven primarily by a reduction
in external pulp sales of 30,000 tons as a result of a planned
outage at the Quinnesec Mill and other internal needs. While sales
volume of specialty papers increased in the first half of 2018, it
was offset by a reduction in sales volume of other coated papers
during that same period.
- Gross margin, excluding depreciation and amortization expenses,
increased from 5.4% in the first half of 2017 to 9.4% in the first
half of 2018, driven by higher average pricing and improved product
mix, reduced downtime, improved operational performance, reduction
of pension costs, favorable wood costs and lower corporate overhead
costs, partially offset by lower sales volume, higher planned major
maintenance costs, including bi-annual outages at the Quinnesec and
Luke mills, increased freight expense and inflation on chemicals,
energy and purchased pulp.
- Depreciation and amortization expenses for the first half of
2018 were lower than the first half of 2017, as a result of
$6 million in accelerated
depreciation in first quarter of 2017, attributable to the capacity
reductions at the Androscoggin Mill.
- SG&A expense in the first six months of 2018 decreased
$4 million compared to the same
period in 2017, primarily attributable to cost reduction
initiatives implemented across the company, partially offset by
higher costs associated with Verso's strategic alternatives
initiative and non-cash equity award expense.
- Interest expense for the first half of 2018 includes
$4 million of amortization of debt
issuance cost and discount associated with the term loan as a
result of a $21 million voluntary
principal payment and a $21 million
excess cash flow payment, both made during the first quarter of
2018.
- Other (income) expense in the first half of 2017 and 2018
includes income of $5 million and
$7 million, respectively, associated
with the non-operating components of net periodic pension cost
(income) in connection with the adoption of a new accounting
standard in the first quarter of 2018.
Guidance
The company is providing the following guidance:
- 2018 Third Quarter
-
- Net sales of $700-720 million.
Pricing favorable to Q2 2018.
- Capital expenditures are expected to be approximately
$20-25 million, including residual
investment for the No. 3 paper machine startup project at the
Androscoggin Mill.
- Cash pension funding of $20-22
million.
- Major maintenance expected to decrease by approximately
$12 million versus Q2 2018.
- Net income positive, earnings up substantially versus Q2
2018.
- Expectations for Full Year 2018
-
- Revenue and pricing favorable to prior year.
- Continued headwinds in logistics/freight and other input
costs.
- Capital expenditures of $60-70
million inclusive of all strategic projects.
- Cash taxes of $0-2 million,
primarily state income and franchise taxes.
- Major maintenance costs up $17
million versus 2017.
- Cash pension funding of approximately $45 million.
- SG&A less than 4% of Net Sales.
- Expect to receive Canadian trade case settlement payments of up
to $42 million before the end of
2018.
- Second half of 2018 Adjusted EBITDA and Net Income will be
substantially higher than first half of 2018 and second half of
2017.
Reconciliation of Net Income (Loss) to EBITDA and Adjusted
EBITDA
EBITDA consists of earnings before interest, taxes, depreciation
and amortization. Adjusted EBITDA reflects adjustments to EBITDA to
eliminate the impact of certain items that we do not consider to be
indicative of our ongoing performance. We use EBITDA and Adjusted
EBITDA as a way of evaluating our performance relative to that of
our peers and to assess compliance with our credit facilities. We
believe that EBITDA and Adjusted EBITDA are non-GAAP operating
performance measures commonly used in our industry that provide
investors and analysts with measures of ongoing operating results,
unaffected by differences in capital structures, capital investment
cycles, and ages of related assets among otherwise comparable
companies.
We believe that the supplemental adjustments applied in
calculating Adjusted EBITDA are reasonable and appropriate to
provide additional information to investors.
Because EBITDA and Adjusted EBITDA are not measurements
determined in accordance with Generally Accepted Accounting
Principles (GAAP) and are susceptible to varying calculations,
EBITDA and Adjusted EBITDA, as presented, may not be comparable to
similarly titled measures of other companies. You should consider
our EBITDA and Adjusted EBITDA in addition to, and not as a
substitute for, or superior to, our operating or net income (loss)
or cash flows from operating activities, which are determined in
accordance with GAAP.
The following table reconciles Net income (loss) to EBITDA and
Adjusted EBITDA for the presented periods:
|
|
Three Months
Ended
June 30,
|
|
Six Months
Ended
June 30,
|
(Dollars in
millions)
|
2017
|
|
2018
|
|
2017
|
|
2018
|
Net income
(loss)
|
$
(49)
|
|
$
1
|
|
$
(70)
|
|
$
(1)
|
Income tax
expense
|
-
|
|
-
|
|
-
|
|
-
|
Interest
expense
|
10
|
|
6
|
|
19
|
|
17
|
Depreciation and
amortization
|
27
|
|
28
|
|
60
|
|
55
|
EBITDA
|
$
(12)
|
|
$
35
|
|
$
9
|
|
$
71
|
Adjustments to
EBITDA:
|
|
|
|
|
|
|
|
|
Restructuring charges
(1)
|
2
|
|
1
|
|
4
|
|
2
|
|
Non-cash equity award
compensation (2)
|
1
|
|
3
|
|
1
|
|
4
|
|
Androscoggin PM No. 3
startup costs (3)
|
-
|
|
7
|
|
-
|
|
7
|
|
Post-reorganization
costs (4)
|
-
|
|
2
|
|
-
|
|
2
|
|
Strategic initiatives
costs (5)
|
-
|
|
3
|
|
-
|
|
5
|
|
Other severance costs
(6)
|
5
|
|
-
|
|
5
|
|
-
|
|
Other items, net
(7)
|
-
|
|
-
|
|
3
|
|
1
|
Adjusted
EBITDA
|
$
(4)
|
|
$
51
|
|
$
22
|
|
$
92
|
|
|
|
|
|
|
|
|
|
(1)
|
Charges are primarily
associated with the closure and relocation of the Memphis office
headquarters and closure of the Wickliffe mill.
|
(2)
|
Amortization of
non-cash incentive compensation.
|
(3)
|
Costs incurred in
connection with the upgrade of previously shuttered No. 3 paper
machine and pulp line at the Androscoggin Mill.
|
(4)
|
Fees associated with
our 2016 Chapter 11 cases.
|
(5)
|
Professional fees and
other charges associated with strategic alternatives
initiative.
|
(6)
|
Severance and related
benefit costs not associated with restructuring
activities.
|
(7)
|
Costs incurred in
2017 in connection with the re-engineering of information systems,
costs in 2017 associated with the temporary idling of the No. 3
paper machine at the Androscoggin Mill and miscellaneous other
non-recurring adjustments in 2017 and 2018.
|
About Verso
Verso Corporation is the turn-to company for those looking to
successfully navigate the complexities of paper sourcing and
performance. The leading North American producer of printing and
specialty papers and pulp, Verso provides insightful solutions that
help drive improved customer efficiency, productivity, brand
awareness and business results. Verso's long-standing reputation
for quality and reliability is directly tied to our vision to be a
company with passion that is respected and trusted by all. Verso's
passion is rooted in ethical business practices that demand safe
workplaces for our employees and sustainable wood sourcing for our
products. This passion, combined with our flexible manufacturing
capabilities and an unmatched commitment to product performance,
delivery and service, make Verso a preferred choice among
commercial printers, paper merchants and brokers, converters,
publishers and other end users. For more information, visit us
online at versoco.com.
Forward-Looking Statements
In this press release, all statements that are not purely
historical facts are forward-looking statements within the meaning
of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934. Forward-looking statements in this
press release include, but are not limited to, our guidance for the
third quarter of 2018 and the full year of 2018. Forward-looking
statements may be identified by the words "believe," "expect,"
"anticipate," "project," "plan," "estimate," "intend," "potential"
and other similar expressions. Forward-looking statements are based
on currently available business, economic, financial, and other
information and reflect management's current beliefs, expectations,
and views with respect to future developments and their potential
effects on Verso. Actual results could vary materially depending on
risks and uncertainties that may affect Verso and its business.
Verso's actual actions and results may differ materially from what
is expressed or implied by these statements due to a variety of
factors, including those risks and uncertainties listed under the
caption "Risk Factors" in Verso's Form 10-K for the fiscal year
ended December 31, 2017 and from time
to time in Verso's other filings with the Securities and Exchange
Commission. Verso assumes no obligation to update any
forward-looking statement made in this press release to reflect
subsequent events or circumstances or actual outcomes.
Conference Call
Verso will host a conference call on Wednesday, August 8, 2018 at 9 a.m. (EDT) to discuss second quarter 2018
financial results. Analysts and investors may access the live
conference call only by dialing 888-317-6003 (U.S. toll-free),
866-284-3684 (Canada toll-free) or
412-317-6061 (international) and referencing elite entry number
9018522 and Verso Corporation. To register, please dial in 10
minutes before the conference call begins. The news release and
second quarter 2018 results will be available on Verso's website at
http://investor.versoco.com by navigating to the Financial
Information page.
Analysts and investors may also access the live conference call
and webcast by clicking on the event link
https://www.webcaster4.com/Webcast/Page/1524/26915 or by visiting
Verso's website at http://investor.versoco.com and navigating to
the Events page. Please go to this link at least one hour before
the call and follow the instructions to register, download and
install any necessary audio/video software.
A telephonic replay of the call can be accessed at 877-344-7529
(U.S. toll-free), 855-669-9658 (Canada toll-free) or 412-317-0088
(international), access code 10122973. The replay will be available
starting at 11 a.m. (EDT) Wednesday, August
8, 2018, and will remain available until September 8, 2018. An archive of the conference
call and webcast will be available at http://investor.versoco.com
starting at 11 a.m. (EDT) Wednesday, August
8, 2018, and will remain available for 120 days.
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SOURCE Verso Corporation