MIAMISBURG, Ohio, Nov. 7, 2018 /PRNewswire/ -- Verso
Corporation (NYSE: VRS) today reported financial results for the
third quarter of 2018.
Third Quarter 2018 Highlights:
- Net income of $86 million or
$2.45 per diluted share; $29 million in special items.
- Adjusted EBITDA of $108
million, up 130% versus third quarter 2017.
- Net sales up $83 million, or
13%, from same quarter 2017.
- Net debt reduced $66 million
to a balance of $103
million.
- Term loan retired.
Overview
"Verso's positive momentum continued to
strengthen in the third quarter as pricing, mix management and
improved operational performance across the company materially
enhanced profitability and cash flows," said Verso Chief Executive
Officer, B. Christopher
DiSantis. "Our entry into the growing containerboard
market, excellent strides in specialty paper sales and a full order
book, along with significant achievements including the repayment
of our term loan, position Verso well for sustainable value
creation."
Results of Operations – Comparison of Three Months Ended
September 30, 2018 to Three Months
Ended September 30, 2017
|
Three Months
Ended
September 30,
|
|
Three
Month
|
(Dollars in
millions)
|
2017
|
|
2018
|
|
$
Change
|
Net
sales
|
$
621
|
|
$
704
|
|
$
83
|
Costs and
expenses:
|
|
|
|
|
|
Cost of
products sold (exclusive of depreciation and
amortization)
|
554
|
|
580
|
|
26
|
Depreciation
and amortization
|
27
|
|
28
|
|
1
|
Selling,
general and administrative expenses
|
24
|
|
25
|
|
1
|
Restructuring
charges
|
4
|
|
-
|
|
(4)
|
Other
operating (income) expense
|
-
|
|
(9)
|
|
(9)
|
Operating income
(loss)
|
12
|
|
80
|
|
68
|
Interest
expense
|
10
|
|
15
|
|
5
|
Other (income)
expense
|
(2)
|
|
(21)
|
|
(19)
|
Income (loss)
before income taxes
|
4
|
|
86
|
|
82
|
Income tax
expense
|
-
|
|
-
|
|
-
|
Net income
(loss)
|
$
4
|
|
$
86
|
|
$
82
|
Comments to Results of Operations – Comparison of Three
Months Ended September 30, 2018 to
Three Months Ended September 30,
2017
- Net sales in the third quarter of 2018 increased $83 million, or 13%, compared to the third
quarter of 2017. The sales increase was driven by improved average
pricing, primarily attributable to improved product mix including
increased specialty sales, driven by continued economic growth and
evolution of e-commerce markets, and price increases across all
product lines. Specialty paper price increases are being driven by
inflationary costs and higher pulp prices. Overall sales volume was
up slightly, driven primarily by the increased sales of our
specialty products, partially offset by a reduction in external
pulp sales due to internal needs.
- Gross margin, excluding depreciation and amortization expenses,
increased from 10.8% in the third quarter of 2017 to 17.6% in the
third quarter of 2018, driven by higher average pricing and
improved product mix, reduced downtime, lower major maintenance
costs and reduction of pension costs, partially offset by
reliability issues at our Luke Mill,
increased freight expense and inflation of chemical, energy and
fiber costs.
- SG&A expense in the third quarter of 2018 increased
$1 million over the same period in
2017, primarily attributable to costs incurred during the third
quarter of 2018 associated with an increase in cash and non-cash
compensation expense, partially offset by cost reduction
initiatives implemented across the company.
- Other operating (income) expense in the third quarter of 2018
includes a $9 million gain on the
sale of our Wickliffe Mill.
- Interest expense in the third quarter of 2018 increased
$5 million over the same period in
2017, driven by accelerated amortization of debt issuance cost and
discount resulting from the voluntary principal prepayments on our
term loan, partially offset by the reduction in amounts outstanding
under our term loan.
- Other (income) expense in the third quarter of 2018 includes
$20 million of income related to a
countervailing duty Settlement Agreement with certain Canadian
producers of supercalendered paper. Additionally, the third quarter
of 2018 and 2017 include income of $3
million and $2 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.
Results of Operations – Comparison of Nine Months Ended
September 30, 2018 to Nine Months
Ended September 30, 2017
|
Nine Months
Ended
September 30,
|
|
Nine
Month
|
(Dollars in
millions)
|
2017
|
|
2018
|
|
$
Change
|
Net
sales
|
$
1,822
|
|
$
1,987
|
|
$
165
|
Costs and
expenses:
|
|
|
|
|
|
Cost of
products sold (exclusive of depreciation and
amortization)
|
1,690
|
|
1,742
|
|
52
|
Depreciation
and amortization
|
87
|
|
83
|
|
(4)
|
Selling,
general and administrative expenses
|
81
|
|
78
|
|
(3)
|
Restructuring
charges
|
8
|
|
2
|
|
(6)
|
Other
operating (income) expense
|
-
|
|
(7)
|
|
(7)
|
Operating income
(loss)
|
(44)
|
|
89
|
|
133
|
Interest
expense
|
29
|
|
32
|
|
3
|
Other (income)
expense
|
(7)
|
|
(28)
|
|
(21)
|
Income (loss)
before income taxes
|
(66)
|
|
85
|
|
151
|
Income tax
expense
|
-
|
|
-
|
|
-
|
Net income
(loss)
|
$
(66)
|
|
$
85
|
|
$
151
|
Comments to Results of Operations – Comparison of Nine Months
Ended September 30, 2018 to Nine
Months Ended September 30,
2017
- Net sales in the nine months ended September 30, 2018, increased by $165 million, or 9%, compared to the nine months
ended September 30, 2017. The sales
increase was attributable to improved average pricing, primarily
driven by improved product mix including increased specialty sales
and price increases across all product lines, partially offset by
an overall decrease in sales volume. Volume decline was driven
primarily by declining graphic paper sales and a reduction in
external pulp sales due to internal needs, partially offset by
increased sales of our specialty products.
- Gross margin, excluding depreciation and amortization expenses,
increased from 7.2% in the nine months ended September 30, 2017 to 12.3% in the nine months
ended September 30, 2018, driven by
higher average pricing and improved product mix, reduced downtime
and reduction of pension costs, partially offset by higher planned
major maintenance costs, operational performance issues, increased
freight expense and inflation of chemical, energy and fiber
costs.
- Depreciation and amortization expenses in the nine months ended
September 30, 2018 were lower than
the nine months ended September 30,
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 nine months ended September 30, 2018 decreased $3 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 the strategic alternatives initiative and non-cash equity
award expense.
- Other operating (income) expense in the nine months ended
September 30, 2018 includes a
$9 million gain on the sale of our
Wickliffe Mill.
- Interest expense in the nine months ended September 30, 2018 increased $3 million over the same period in 2017, driven
by accelerated amortization of debt issuance cost and discount
resulting from the voluntary principal prepayments and excess cash
flow payments on the term loan, partially offset by the reduction
in amounts outstanding under the term loan.
- Other (income) expense in the nine months ended September 30, 2018 includes $20 million of income related to the Settlement
Agreement. Additionally, the nine months ended September 30, 2018 and 2017 include income of
$9 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 Fourth Quarter
-
- Net sales of $700 - $720 million.
- Capital expenditures are expected to be approximately
$12 - $16
million.
- Cash pension funding of $8
million.
- Major maintenance to decrease by approximately $2 - $4 million vs.
Q3 2018.
- Cash income taxes of $0.
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
September 30,
|
|
Nine Months
Ended
September 30,
|
|
(Dollars in
millions)
|
2017
|
|
2018
|
|
2017
|
|
2018
|
|
Net income
(loss)
|
$
4
|
|
$
86
|
|
$
(66)
|
|
$
85
|
|
Income tax
expense
|
-
|
|
-
|
|
-
|
|
-
|
|
Interest
expense
|
10
|
|
15
|
|
29
|
|
32
|
|
Depreciation and
amortization
|
27
|
|
28
|
|
87
|
|
83
|
|
EBITDA
|
$
41
|
|
$
129
|
|
$
50
|
|
$
200
|
|
Adjustments to
EBITDA:
|
|
|
|
|
|
|
|
|
|
Restructuring charges
(1)
|
4
|
|
-
|
|
8
|
|
2
|
|
|
Non-cash equity award
compensation (2)
|
-
|
|
2
|
|
1
|
|
6
|
|
|
Androscoggin PM No. 3
startup (3)
|
-
|
|
3
|
|
-
|
|
10
|
|
|
Countervailing duty
settlement(4)
|
-
|
|
(20)
|
|
-
|
|
(20)
|
|
|
(Gain) loss on sale
or disposal of assets (5)
|
-
|
|
(8)
|
|
1
|
|
(8)
|
|
|
Post-reorganization
costs (6)
|
1
|
|
1
|
|
1
|
|
3
|
|
|
Strategic initiatives
(7)
|
-
|
|
-
|
|
-
|
|
5
|
|
|
Other severance costs
(8)
|
-
|
|
-
|
|
5
|
|
-
|
|
|
Other items, net
(9)
|
1
|
|
1
|
|
3
|
|
2
|
|
Adjusted
EBITDA
|
$
47
|
|
$
108
|
|
$
69
|
|
$
200
|
|
|
|
|
|
|
|
|
|
|
|
(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)
|
Countervailing duty
settlement gains pursuant to the Settlement Agreement.
|
|
(5)
|
Realized (gain) loss
on the sale or disposal of assets, including a $9 million gain on
the sale of the Wickliffe Mill in September 2018.
|
|
(6)
|
Fees associated with
our prior Chapter 11 cases.
|
|
(7)
|
Professional fees and
other charges associated with the strategic alternatives
initiative.
|
|
(8)
|
Severance and related
benefit costs not associated with restructuring
activities.
|
|
(9)
|
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 other miscellaneous
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. A leading North American producer of printing and
specialty papers, packaging 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
fourth quarter and 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, November 7, 2018 at 3 p.m. (EDT) to discuss third 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
5852295 and Verso Corporation. To register, please dial in 10
minutes before the conference call begins. The news release and
third 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/1524/28135 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 10125921. The replay will be available
starting at 5 p.m. (EST) Wednesday, November
7, 2018, and will remain available until December 7, 2018. An archive of the conference
call and webcast will be available at http://investor.versoco.com
starting at 5 p.m. (EST) Wednesday, November
7, 2018, and will remain available for 120 days.
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SOURCE Verso Corporation