PaperAge Magazine

Verso Corporation Reports Second Quarter 2018 Financial Results

B. Christopher DiSantis "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." – B. Christopher DiSantis, CEO, Verso Corp.

Aug. 8, 2018 - 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."

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.

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.

Verso's full earnings report can be found on the company's website: versoco.com.

Verso is a leading North American producer of printing and specialty papers and pulp. To learn more, please visit versoco.com

SOURCE: Verso Corp.