Q1 2021 Verso Corp Earnings Call
[music].
Good morning, and welcome Bruce and corporations first quarter 2021 earnings conference call.
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This time I'd like to turn the presentation I'll have a surprise one day.
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Thank you and good morning, the first quarter of 2020, once and actual results versus.
And Corporation were announced this morning before the market and the earnings release as well as a set of slides, which we will refer to during the call.
And the investors selection and pursued website www <unk> co dot com.
Joining me on the call today are Randy cable versus President and Chief Executive Officer, and Allen Campbell, Senior Vice President and Chief Financial Officer.
To remind everyone that and of course of the call and in order to give you a better understanding of our performance.
And we'll be making certain forward looking statements. These forward looking statements are subject to risks and uncertainties should one or more of these risks or uncertainties materialize or should underlying assumptions or estimates prove incorrect actual results may vary materially from management's expectations.
And you'd like further information regarding the various risks and uncertainties associated with our business. Please refer to our SEC filings, which are posted on our website first from Teradata com under the investor cash and.
In addition, during today's call, we will discuss non-GAAP measures, which we believe can be useful in evaluating our performance. The presentation of this additional information should not be considered in isolation or as a substitute for results prepared in accordance with GAAP and reconciliations to comparable GAAP measures are available and our <unk>.
<unk> release at this point I'd like to hand, the presentation over to Randy Naples, and thank you Tim.
Good morning, everyone turning to slide four versus performance continue to improve and the first quarter.
Benefits from operational improvements, we've made over the past year combined with stronger industry dynamics led to an improved first quarter performance, our adjusted EBITDA coming in at $30 million, which is a solid increase over the fourth quarter of 2020.
We also generated cash flow from operations of $7 million during a quarter and that has historically slower and tends to be a cash draw well.
While this quarter was financially better we are focused on long term initiatives to build and sustain long term value first and foremost our fundamental commitment is to keep our employees safe and healthy.
Our safety ratings came in at a solid two five total incident rate.
I'm proud of the work the team has done and the result of their efforts and impressive.
Verso has been implementing capital projects to improve reliability and product mix mix and our cost position.
One example of this is with our pulp lines. After thorough analysis by our team with relatively small incremental increase in capital spend we have been able to drive higher returns and further optimize pulp production for our customers and internal use we were essentially able to convert what could've been a rich.
<unk> maintenance capital projects to a cost savings project, we are applying analysis and and ingenuity like this across the organization with some of the benefits of this thinking impacting the quarter.
These capital improvement projects, all stem from an unwavering focus on the customer, enabling us to align our graphic web and sheet paper offerings to meet customer demand, while improving the fundamentals of our business.
While maintaining high standards for our products and services, we will focus on cost management.
Our business is much stronger than it was during the fourth quarter coda.
Coated freesheet operating rates are at 101% with strong order rates and backlogs and.
And price and Kris Kris is being realized across our product portfolio.
Turning to slide five.
On slide five we provide greater detail on some of the industry dynamics and some.
Most of you know North American capacity has come down significantly over the past year because of industry closures due to demand reductions accelerated by COVID-19.
The first quarter capacity and reflects the full impact of the coated freesheet paper machine closures and conversions and 2020 and includes thermal and little Verso, Wisconsin Rapids mill capacity and July of 2020.
These capacity changes together with a recovery and demand are resulting and healthier operating rates and the industry has also seen imports impacted by logistical issues supply chain delays and unfavorable exchange rate.
Since the second quarter of 2020, we have seen and the improvement and the bad this trend is continuing into 2021.
Turning to slide six this chart profile files are adjusted EBITDA and the margin over the past four quarters as you can see the first quarter was a big step forward for us as many of the improvements we have made combined with improving industry dynamics helped drive our financial performance.
It is not where we want a b, but we're pleased with our progress and feel optimistic about the momentum we have with that I will now turn the call over to Allen to review the financial performance Allen.
Thank you Randy.
As mentioned, we turned the corner and adjusted EBITDA performance, delivering a 10, 6% margin and the first quarter.
Our net sales were $282 million compared to $4 71, and first quarter of 2020.
This difference is reflected of market dynamics and the reduction in capacity due to our sold and closed bills.
Pricing improved sequentially up $28 and time from the fourth quarter of 2020.
Pulp prices have improved $27 per ton versus last year, while paper prices nearly average last year.
Our operating and net income were impacted by accelerated depreciation related to the Wisconsin rapid site and other costs of the closed mills.
We continue to work on reducing these costs and Thats closed mills, and then looking at lowering them each quarter.
Turning to slide nine.
Our reported adjusted EBITDA was $35 million and first quarter of last year, which included $4 million from our two sold mills.
On a comparable basis, our first quarter adjusted EBITDA was just off of $1 million versus last year.
I believe and the Duluth mill taped a $6 million and ongoing losses.
While year over year price mix offset that.
Volume was soft as a result of limited COVID-19 impact in 2020, the declining markets and the idling of the Wisconsin Rapids Mill.
Wed like to note that our operations at the clinic second half Scott Nava Mills have been running well and contributed $9 million to operations and cost of sold improvement.
Pension and SG&A are running favorable but note we have seen increased freight cost across the board, which contributed $2 million of decline as shown on the bridge.
Note on slide 10, our cash flow from operations was $7 million and the quarter as shown on the table and the right.
A very good achievement and a quarter that is traditionally a heavy use of working capital.
We ended the quarter with $118 million and cash and $264 million and liquidity.
We continue to have no debt.
And our and the process of amending our revolver to better match the current size of the business.
The ABL is limited by our lower borrowing base. So the change will not impact our liquidity, but will lower our facility cost.
Turning to slide 11.
We have achieved a settlement with both Maryland, and West Virginia regarding environmental matters that the Luke mill.
Our focus remains on reducing these ongoing cost.
And recall that the fourth quarter mill costs was $34 million, we reduce that $29 million and the first quarter, but note that includes noncash asset write offs of $7 million.
And accruals of $8 million, which relates to future remediation and estimated other closure costs.
Cash spending for the quarter and these mills was $14 million.
Continue to make progress on several fronts with the monetizing of our core assets noncore assets I'm sorry.
Slide 12, moving on and reflects the progress to our commitment to return $250 million to our shareholders. As a result of the sale of our Androscoggin and Stevens point and facilities.
We have since returned to $152 million with a $114 million of that via dividends and.
And $38 million via share buybacks.
Note that we have declared a dividend of <unk> 10, a share and will be payable to shareholders on June 29.
Moving to slide 13.
As we look at the year, we expect our capital cash expenditures to be $50 million to $60 million as we move forward on our strategic projects combined with the expanded maintenance and cost savings capital.
Our minimum required pension cash contributions have been reduced to $26 million in accordance with the American Rescue Plan Act provisions.
We expect positive operating cash flow required to fund capital pension and dividends.
In addition, we anticipate continued reduction and closed Nidal mill cost and we are very optimistic that we'll be able to realize asset sales and the near future.
With that I'll now turn it back to Randy.
Thank you Allen and.
In closing I'd like to summarize a few key takeaways from the quarter.
And through difficult times, we have kept our people safe that will continue to be a vessel core volume.
And it's also important to acknowledge that all the efforts we are going off that we have going on and require significant engagement for our employees, which is a focus for commercial and personal and 2021 and into the future.
Order rates and backlogs are strong due to improved industry dynamics and price increases are being realized.
We remain customer focused and have implemented capital projects to ensure that our customers continue to see our product offering improve and quality and our service improve.
Our balance sheet remains strong and we have made great progress and meeting our commitment to return $250 million to our shareholders.
We are focused on our core competencies.
And and reinforce our position as a leader and graphic papers. This strategy is key to driving profitability and shareholder value and the coming years.
Turn it over for questions.
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<unk> started to yourself well now.
Pause momentarily to assemble the roster.
First question is from Jeff.
B Riley. Please go ahead.
Good morning, I, just wondering if you could talk a little bit more about the price increases that you're experiencing youre able to.
Put out there and have them stick.
Just wondering if you expect and and be able to implement further price increases and then also do you feel like you're positioned to offset the higher input costs.
Thank you nice to talk to you.
And the price increases we put out so far have stuck and.
And there always is a transition time as we have agreements and they don't all hit at the same time, but we are realizing the price increases.
We're cautiously optimistic.
About what the future may be but I'm not going to make projections about.
And what prices and reasons could be and the future but.
And we feel pretty good that world, we will offset inflation, either with cost reductions and the mill.
Well basically with cost production sales.
Okay. That's helpful.
And then just thinking about Q2 metrics and I know you don't provide guidance per se, but.
I'm just wondering if there's any more color or thoughts you have on.
Sales and margins overall profitability things, we should maybe take into consideration as we're working on our model assumptions.
Just I guess any any.
Order of magnitude or directional.
Color you might have.
Either versus last year or sequentially from Q1.
Okay, I think you need to look at our business sequentially for a while until the noise from last year as we changed our footprint.
As you mentioned, we have some tail lands on pricing. So you should see sequential improvement and pricing.
The market itself.
As strong for us more and the last half so third and fourth quarter.
So we have more seasonality and you'll see.
We have and the second quarter, we will have some higher maintenance cost because we do have wire and builds with an outage and the second quarter and one third.
So you have a little bit of headwind there versus the first quarter.
But commercially tail lands.
A little bit of freight and input costs of a headwind and little bit of maintenance of a headwind.
But with.
And with the market coming back.
<unk> coming getting back to work.
The underlying economics are also and tailwind for us.
Okay, great. Thanks for taking my questions and best of luck. Thanks, Jeff.
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Our next question from Hamzah <unk> of course and.
The B Ws. Please go ahead.
Hey, good morning. So first question I had was given the operates are running at 101% are you, adding new customers or are these customers taking early delivery or are they ordering more are you able to manage through that so there's no real double ordering.
I guess.
We're we're probably growing more with existing customers and we are taking on new customers and.
And as we.
And our machines more become more confident in making some of the Newark rates heavier weights.
We're expanding with customers and the more grades that they need.
We're not getting hit with double orders were managing that rather well.
And <unk>.
Continue to kind of Scott B, and a glide path down with our inventories and.
And we'll do that over time, but we've got to get ready for a.
Third and fourth quarter on quarter that are really good good quarters for us So we'll be cautious and taking inventory down much and the second quarter, but in general.
The backlog is strong and.
We feel good about where we're at with our customers.
And how much of your customer base is still on volume contracts. So how long will it take to actually pass through these price increases you've announced.
That varies by product line, but the.
Majority of the things pass through pretty quickly I would say 30 to 60 days.
Some specialties are a little bit longer than that.
But.
I think if you.
Put something like 60 days and your model you'd be pretty well covered.
And what's the risk right now of excess supply entering the market where would it come from COVID-19.
B domestic.
I don't think it domestic is much of a risk at all.
I mean, there is a potential of excess supply coming and I mean from imports.
But the market needs imports domestically, we don't have the capacity to service the entire tire market. So we do need imports coming in and.
And that May there may be a bubble of imports come in as the.
The ports clean out a little bit.
And I don't anticipate that as being.
A super high risk at this time.
And my last question is do you think the imports.
And more expensive and your pricing right now and just given what freights costing and pulp Wisconsin.
More expensive no I think they are basically where our price and the same ballpark is where we're at at cost delivered depending on the part of the U S that you're delivering to.
What we have is our value proposition.
And our supply chain.
Faster turns and and.
And I think our customers are listening to that and taking advantage of that.
And if they are ordering from overseas their money is going to be tied up 90 to 180 days.
Okay I appreciate it thank you.
Thanks Allen.
This concludes our question and answer session and I would like to turn the call back over Mr. <unk> for closing remarks. Please go ahead.
Thank you everyone for taking the time and for the questions. We appreciate your support and look forward to speaking with you next quarter have a good day.
This is now concluded. Thank you for attending today's presentation you may now disconnect.