VRS - Earnings call transcript Q3 2018

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Operator

Good afternoon, and welcome to Verso Corporation’s Third Quarter 2018 Earnings Conference Call. [Operator Instructions] Please note, this conference is being recorded. A replay of this call will be available on the investor page of Verso’s website after 5:00 p.m. Eastern Time today. At this time, I would like to turn the presentation over to Verso Treasurer, Tim Nusbaum. ahead. go Please

Tim Nusbaum

good and Thank afternoon. you,

set The third Verso’s call, were release are for we’ll website the Corporation available on page www.versoco.com. financial this XXXX as to morning of the as earnings at results announced The before Verso opened. that investors quarter the during slides of the well refer market

one President Specialty Chief Turning Campbell, performance, Senior statements Allen I actual on Executive Financial these risks and to or that better Chief Officer; our Officer; we expectations. remind understanding should the forward-looking and be or a uncertainties statements. are in materialize call of during making of assumptions incorrect, risks DiSantis, certain prove today to of Mike from or like would or to the Weinhold, President give you estimates materially management’s Papers. These Should more forward-looking subject underlying the is and results Graphic order of will Chris uncertainties. vary may everyone and Vice call, course

you under this to regarding the posted risks our with call versoco.com, to uncertainties associated our which tab. Investor refer the business, like SEC on like information please If and our are to DiSantis, Chris CEO. website, various point, our further I’d At the would filings, over turn

Chris DiSantis

Thank you, overview Tim. papers. I’m on graphic the market slide inside for of

that rates industry seen. operating of due changes to supply strong graphic remained U.S. the So we’ve lot the a

operating we tight year-to-date XXXX. XX% coated going XX% And remain expect at We’re to groundwood. for for market freesheet, year-to-date rate the coated into

weighted our demand that groundwood’s thing system. are down see up, It’s to better on year-to-date catalog you to I’ll of move we held coated we’ve pages groundwood One has of These been is some printing mailings reduce total is magazine time. difficult XXX,XXX Commercial statistics. at and note is look box mixed end to X.X%; the business continue can have managing you right, tons over part expect about That coated have coated a the very heavily is down If from numbers, known groundwood. the coated freesheet one’s and been that ad away X.X%. specific the market.

these So and rates operating end-use is with fourth very entering increases very the the are variety challenged but of pricing still strong. a these segments into are the realized in quarter, the environment quarter third – The quarter. favorable, and within

Catawba to speculate So, the the we M&A the good filling is what was of on with coated the assets, momentum have and good assets that significant by and hands. supply much Mill We changing of can’t made, Resolute’s it which paper U.S. recent all There paper announcements in we is shuts. U.S. the Catalyst’s capacity void space, imports those with centric they that continues acquirers do traction. are will that companies containerboard created but investors. The notable are as

in from you XX.X%. look at demand from freesheet the a well. product in imports as Europe I’ve up the if producers of and coated seen lot right, coming So X.X%, imports are percentage data groundwood are as a up the of import Korean coated

page. the pulp. papers Specialty flip So packaging and

improve we’ve expect thing that from those first generated is continue these being over segments. here worth our of in is highest revenue the and we The we’re segments, time. at noting XX% that’s percentage That ever on to you to achieved

the happening strong. packaging you specialty markets in demand segments, end and that’s the If at look are

plastic. making growth. continued and Evolution We’re comeback preferences renewable over sustainability a seeing markets, e-commerce economic of are

be is paper contaminant we going limitations China’s imports are inflationary E-commerce their the that GDP to board The restrictions shipments associated demand margins. very continuing linerboard and that’s up on to strong, to up tight, a growth There’s hardwood good restrictive The pulp mixed percent, need good alternative of quarter, the price on for good coming So shipments as and alternative fiber in next see well been for and of significant with X.X%. think it numbers It’s service that for segment. good three bags. operating that’s going they to try straws, to – in that kind paper it’s with amount years. the remains recovered for Announced It’s be increases market food, going sources. corrugated up pulp costs be Container that healthy rates items, in are driving There’s we driving other put box almost significant two X% in at well. a XX%. of as and maintain pulp really online prices couple specialty. higher no capacity. also is thing. to growth

it will interesting all it be to how So plays see out.

page. the Turning

revenue. the performance nine versus up The XX% Some That and of quarter. seeing same dramatically. up months stronger quarter the versus entire million third are across in XX%, favorable EBITDA price, EBITDA highlights on had incremental system, up some third adjusted We’ve the XXXX strength $XX quarter in versus the year. EBITDA XXXX. continued is our it. are the in of sales Year-to-date, million of mix. XXXX, higher up adjusted it’s was XXX% offsets operational to $XX Sales adjusted but third was we’re there prior And

So good mix. good price, got performance, we’ve operating good

particularly to inflation, cost in rain not of in is generally in to of we countermeasures bad are The have there. effective. mill, be. that in to with place it in A as category been that heavy impacting very availability and takeaways and put issues, amount quite as deal weather-related logistics logistics is expected the lot which we the of wood the Some

before, mill has lot implementing less on we machine. like that inflation. is interesting that well and and flexibility geographic that in direct on mentioned is shipments lower thing board have out And about having price down startup have things underway. a the the inventory doing of spite been just successful charges, fewer note cost that we’ve AX The warehouses container allowed having of the manage regional to So we handling, us more to in system which of

side to to extent run run as that per machine a that seen per with products the we could like Gives ton market We may conditions constantly the profit the things hour, most that in specialty in not as other significant on can whole, board, there. we sure container us at coated getting profit So want as change we’re We’ve on well. fill growth make or to to the return may look machine products possible. particularly one but sales. change we opportunity up continued

of specialty countervailing up. business we’ve million, total the was a collected in our October. duty quarter quarter has with We An the additional as just best million Those $XX at sales third XX% in on settlement over $XX category, third the grown look ever would put you If a specialty quarter prior the same numbers these which year. not in the the XXXX, be Canadians. collected reflected numbers, in in are

So eliminates all that, of applied has $XX year it We and Wickliffe Mill annual costs. million also the a the million been collected $X had been reduce to sold in cash in-house for on has we to gain, successfully about Global that million $X is carrying debt. Win. Cash

for Treadmill reduction – long-term, for all particularly Campbell. each positioned, line printing that’s the year to of a in I’ll with variety towards moving either from our closer is Allen evaluating well standpoint effect, the growth that business lines recent the in as the the fall sheet XX-XX that, projects we The touch the presentation. that Financial to over happening our that capital to We’re or Chief described future us productivity, for product I have rapidly. and what we’re turn the it bottom geared vision closer continues to in debt interesting our as all writing annual solve and investment as erosion cost shareholders a we describe drive Officer, and And space, balance

Allen Campbell

Chris. you, Thank

We’ll X. quarter. into for Page go to detail ahead the a more little Moving

more strong this As down our year internally mentioned, what or paper quarter past. prior used we in were pulp did paper than of been for for Pricing us. CXS, up driven Chris Pulp specialty the Were X% quarter. versus has as same because a year growth. that’s result the but on XX%, up business we shipments

ton quarter, up up quarter $XXX a last a paper year. are a Pulp $XX and before prior same ton versus year. a last prices the We’re $XX versus up sequentially, ton same ton $XX period on and versus the

of X, we to and Inflation our business, we’ll operations that statement. be the several these. products about graphic; we’re some Page income items packaging look area. walk through – XX% of continued in impacted at and small that pieces business On If right, XX% specialty; breaks earlier, in top now down sliver the X%. you pulp, as cost There into of talk starting talked about the sold our each a driver are X% a Chris the

on in expenses adjusted But – on is cost sales. of we fiber We’re continued continue market easing freight, see in efforts us of due – to or result a have some to chemicals. seen internal basis of that and unadjusted an as that are management the on done. X.X% that’s This basis SG&A our X.X% that down from we’ve percent of seeing as efforts. some a increases and some

other below We in income, statement. shows quarter is a income Mill That’s And below and the the countervailing the the pickup. sale Wickliffe million operating book third you in operating line, of column the on it Looking income, other see did profit the $X are income. income duties XXXX. the where

that as booking it. we We’re collect

on the fourth for was So be X.XX% the in we in as diluted will basis. a quarter. Chris And booked income quarter. mentioned, the fully $XX third rest quarter Net million the

we the that out If had take $X.XX. big you and basis, gains adjusted

Moving bridge. ahead to our adjusted EBITDA

reported at in two Mill you do the the million, the countervailing gain. We of $XXX resulted gains, our the If in sale adjusted Wickcliffe count we and the but duty of look EBITDA EBITDA. not that those pieces big had the

So profit we by reduced amounts. the that

earnings as spent Machine $X can effectively, standard so on in the million was million that guidance in three. we more obviously inline. costs this small our shareholder sales of you exceeded no start-up we we complete, to there’ll million, quarter $XX see that running $XXX meeting As of now remained and fourth This typical be adjustments other like million That’s a EBITDA – $XXX are number quarter make. of

this quarter business. million EBITDA to big year. driver the Moving bridge We of a third $XX year is of mix million our $XXX to and price Obviously on last XX. this Page

$XX year. we’re million So quarter-over-quarter up prior

was million $XX Pension for inflation and to change benefited a us, also our has in million favorable that maintenance period. up of off as side, been million fiber side primarily mentioned that during starting that our Inflation, $X chemical it’s level earlier, us on Freight as timing and We million, I in the $X the quarter. slight pulp but saw time the $X major in mentioned the earlier. quarter.

sales. LTM So of to up or is $XXX million now XX%

Most little XX. I maintenance Fright has talked been remainder SG&A the for Page quarter. been of on has third shown the more a the quarter. positive spent a we had slide is year-to-date hitting of for items And heavy us us XXXX we’ve is XXXX. year, related up, and carried that year-over-year. over initiatives place maintenance, cost first the bridge other Our has while. in the a pensions about bit major saving every you for that in less in is the earlier coming that major in our than quite Inflation see now part, been versus a to can lot

same one to highlight Mill, had In mill, million third related had In This mills the million. Andro $X projects two we’ve $X relatively quarter. of outages that quarter major small the quarter and Page that at maintenance we had we have of had. to though, us primarily a had to major that XX whereas cost the the fourth in the about that’s year, this we Luke our Mill. year Escanaba we’ll ahead year, Moving just cost about last the outage

what’s maintenance by quarter. a really at a we of our EBITDA times. at of major of the the lead XX in the gone debt impacted X/XX/XXXX, year it We second can our the little the So first efforts in debt dropped is the into on loan look third strategic to of impact end Page does million. it see, term X.X most do as $XXX are If we were quarter. on as selling vary net that bit. business. we heavier ago, by million the half all retired and we – you with ratios of our million shows but scheduling third over we We $XXX to the leverage net down $XXX where we And had only season,

$XXX for operations flow So right, we Highlighted numbers million. the nine great generated us. months, from for top the our on first cash

In asset the addition million regarding we to that, brought in CBD $XX and sale.

to down of expectation $XX pension took So in did had We $XX inflows normal $XXX million generated far that. $XX major first cash CapEx Those we the that that you as of as million to obviously first we’re $XXX well funding key remaining our see the and the nine we XX debt. was financially year months. had done that million. we was can paid the is convenience of for initiative, guidance in as year-to-date XXXX quarter our for months. nine and guidance just sake we’ve forecast are shown That the quarter. million the We $XXX CapEx was make the points business of we’re million doing we the cash. $XXX interest be taxes third million or pay for full of and the million, $X going million Net providing. of On in rate, million to plus Page show in expect Cash will the sales is range. expect do The funding fourth which the quarter. to pension we not cash $XX range in and $XX the fourth be to the the million. we

ends that our that, with presentation. So formal

the like line the we’ll up question-and-answers, we’d open move questions this moment. for to So at to and

Operator

Jeff [Operator Instructions] comes Van with Our ahead. from first Riley. B. Please go question Sinderen

Jeff Van Sinderen

congratulations First the QX say on me let metrics. strong

Chris DiSantis

Jeff. you Thank

Jeff Van Sinderen

question logistics. really of weather to guess, is your and my comment first a I follow-up sort on

logistics? QX the you’ve latest we mean what weather you seeing in obviously, be and with weather is more but that wondering like, what Maybe and those about can don’t what the there. Just talk I know the so from expect far? kind going to is dealing of you’re might then impact been

Chris DiSantis

the out in cost logistics terms Yes, quarter the the business. leveling with more of would one is, I say, third for

we not of think been put we’re rate team inflationary early the the and same year. I very that in have in the countermeasures saw the place effective, has that seeing increases

warehouse see yes, as with the I use. with done just job mean, some So we as reducing that square amount whole that maybe it’s much and because we’ve the going that efficiency the we’ve it others you’re to have the see good particularly an managing us, not we of a amount you’ll in system of of inventory standpoint and footage warehouses number reducing got, from

get we’ve general – a type and the record location around so a made out the XXX, that you get there geography, mill, far year, the So had around the color it in less if then this there so inventory weather Luke more fiber difficult, on to in the very crowded there’s, give the drew type as cut would that’s the ton paper for XXX-mile have system I had us is circle a and call far had mean past, almanac season when of we in thing more And some get supply. Mill, to and rain farmers’ it difficult as touches than mean, on weather, what is a more we to with wood that, just the equipment it. I predict. But you

issue, So it’s as it’s well. issue a availability been pricing been an

and alternatives So that has further fiber, and we’ve mill. at had reach to the out and cost for other go for which look driven up further for the

Jeff Van Sinderen

Or does that you’re of there? that? think, will mean, I cost the paying you think the continue And do we – about should that remainder how into QX higher

Chris DiSantis

reason – say weather yes, time The better. talk yes. that after still mean, challenge today. I through as I’ll say I it’s gotten a standpoint Yes, we happened, better But it’s it’s from a when this would been yes, it’s I would already say it’s

that So that estimate… And cost makes the cost estimate.

Jeffrey Van Sinderen

Okay, enough. fair Right.

the of And there. just know you’ve sense, anything are and the that’s targeted? lodged, trying a at guess us where with of get line, point? in on a you sense quality it’s types coming making then And to Are product product that line, give I rate? container the off of wondering better that of you else all the line can customers the I stands, kind terms Okay. give board AX happy this Just run

Chris DiSantis

of lots tons I thousand qualification rate. kind the a machine. process. some hundred couple the mean, issues is So with the there’s customers in No of without run

Some additional there. will things try that, make could additional the down future, and we’re that road investments tons an get production of investment the in more the at potentially we improve out to future evaluating in looking maybe of

good right We But on now, the from process. for will of quality product lots feedback still trials customers, see. the in of the

You and changeovers don’t run thing. that hyper-efficient and trails when kind you’re setups you’re of a lot doing of running and

a as run efficiently relative to to able fine. be definitely we far expectation, in as more in we’ll going have But yes, XXXX XXXX. lot project So it’s than

Jeffrey Van Sinderen

just then And I more one could great. it if squeeze Okay, in.

a paid You guys down have of debt. lot

generating your just, inclined where XXXX? process Are to are of leaning you I thinking projects How flow. think? just you get guess, I do you heading is to a more in really your cash capital do good forward? about of thought You’re and trying now what allocating conversions into kind sense the

Allen Campbell

it’s Yes, effect. combination a

we at maybe debt lot And each got to optionality. it’s things, head repeat a a business. little no projects, when looking system. the is make that we’ll return mean, those you we’ve be other. I got of in you be specialty you other kind I SBS. at things lot of look against to all more at situation – speed pulp the of So to a projects a projects capital. in machines at All what be But We’ll We’ll when of are the get looking potentially said But happens up looking one to where competing lot before, so projects risk-adjusted make at more a on the looking I to been

of And a the flexibility have on we yes, good amount will return to next the year, could return we got on capital capital that. significantly criteria if all at those looking do then, they’ve spend be projects. we’ll capital, more So of

We sheet a other I the going also powder. dry lot strategy balance forward mean, at have to still would part be have with a no I things of of mean, look M&A debt, we we as do.

from month but and for a could transformation a And best is other had in heavy – month the part the level debt as constant we of to just we each standpoint anything. give But scrutiny the fight we’ll now could the with set as we opportunity have best and next we a year, can of possible project year in and very more conversions, optionality. projects. deal, All right save early of rapid want now due get So sheet it or us a before with on a those diligence things see. the trigger between end interim for for that balance off at some we much possibly

Jeffrey Van Sinderen

questions. taking quarter. of rest Okay best luck good appreciate my And of the

Operator

Our next go Khorsand Please BWS with Hamed ahead. Financial.

Hamed Khorsand

is accretive operating to first it line I think, saying expectations? the were or that to be QX So off, your would AX earnings? neutral in you

Chris DiSantis

the meaningful months? through any startup flow you’re hitting It’s But when a to bumpy. quality, one performing in a or going that thing. expectations bumpy. expectation. customers’ performance it’s of following the in mean, what When throughput, in from it’s generate terms An to targets, significant I just terms don’t quality, are phase, you’re running terms because to startup going of we expect it kind fourth phase say I contribution and, standpoint, Yes, it’s quarter a and of to of, cash in through

you’ll a And for run while problem. a find hard to fix then You’ll got and it. you

quarter. the But the lot and a have to XXXX out consumer be XXXX. bugs in in cash accretive of be in expect won’t a fourth be worked full we and it running of So

Hamed Khorsand

the you debt generating cash then amount you’re to you free? just All timing is of that QX, in probably generate be far do what would the right. And going as think as you’re and

Chris DiSantis

It depends.

projects So could that. sort of and that affect these of some capital thing

settlement didn’t you might strategic. Barring pounce of comes fast. run the the you that within So guide on the specifically kind on something mean, October, put EBITDA the there at to there’s rate, look don’t we if in debt, at do up we it’s we an if I down just something came that it, coming pace in of in you and that, of but months. set might countervailing, it’s look look on kind of opportunity because duty and at stone anything probably I cash out but want

Hamed Khorsand

more off, concerned, as think market off? How since And are been major by we and to Okay. you tightness supply much market more in in come do the imports. its are now then passed as just filled this then far that you there year having a any dynamics is had miles without

Chris DiSantis

I sure question. make the me Let understand

Hamed Khorsand

How much the year. natural supplied, I industry off progression mean, under from a drop through right. had demand is coated gone of We’ve on this we’ve paper. it

passed. So reach you’re eventually to it’s supposed equilibrium, when an

you think So I still undersupplied? market that how guess, is do much

Chris DiSantis

that. take Michael Let Weinhold Go ahead.

Mike Weinhold

Yes, can it’s if and see numbers, I run pace to spoke think you we undersupplied. imports. you of the mathematically the still Obviously

a in that coming a acceleration of demand. of some trying are you imports certain extent bit fill void, to So of little see declination to can the in

is we So but today, which when core seasonally we sit as we still we slowdowns balanced pace, in categories. fairly But undersupplied of market the pick moving that most or usual XXXX, out see, year-end seen normal. we here into we a still our see project have have that up

we pretty So supply relative and operating rate. outlook and good the to demand feel on

corrected. that there is see still erosion we that said, is and there runway a been is issue, but dynamics utilization drivers just favorable with the think so standpoint. obviously machine there, in the but still hasn’t certainly some I pretty look the supply-side So demand from This the

Hamed Khorsand

anytime will much? dropping accelerate because demand accelerated as that so soon think you pricing just far off has Do

Chris DiSantis

demand erosion. mean You

Hamed Khorsand

Erosion, yes?

Mike Weinhold

pace You already numbers. can that see the in some of

the pressures is So end demand demand something keep the you use segments, to close continued very the the in parts of prices the see can I in some are on. to escalation I that predict that decline certainly of a can’t certainly can extent eye certainly I that you say, rate. that side with drivers, But and tell can’t the

Hamed Khorsand

Okay. Thank you.

Operator

Pressprich. with Our Please Adam comes ahead. next from go Ritzer question

Adam Ritzer

Thank you. my And taking thanks call. for

I correct I’ll were questions them make think if of I I’m sure me heard and my already answered most wrong. correctly but

said on down And cash going early you or gone it more capital forward left you’re strategic? had you free and taking long also you’re alternatives. debt, to use only strategic I return so pay still close is, said going why like at year-end looks the think for question pretty guess, your something look internal to I that and should looking then like be projects, do to I next year. is

Chris DiSantis

In what way? from an You M&A strategic standpoint? mean

Adam Ritzer

M&A Yes, an standpoint.

Something besides which I want this think all paying think gone, down dividend. I but paying meant. debt, what back of almost that’s a is stock, That’s special otherwise, of again a chunk buying is strategic, you might kind

Chris DiSantis

from so and at variety Yes, we alternatives a year. over variety different a the M&A an of standpoint, transactions looked of last

two, So effort. But it’s comes when it with and of happy, both M&A, takes thing. pricing of have to terms, to be sort not lack parties that it for

lot an but development So corporate it’s active important goes disciplined. and in we remain that at of different to on we a I effort, have stuff look the industry, think

that are out there the of and might very look of for gotten of been the people the done them at about it. going prices some kind that And reality disciplined stuff. kind you paid have we’re be is, surprised to deals And and things

things do about mix fit help or we’re But help be to synergies. to it. our disciplined things capture that diversify us either do approach our our to in going going We’re that us strategy

have strategic a we just as considering that’s active and of you trying committee matter our of effort, the formed of like a alternatives for right no not of longer right development lack fit lack finding active more want a to corporate for and the assure part lack And that in deal. now, deals. it’s are them, finding strategy. it’s we right I It’s So but of

Adam Ritzer

at going are deal, year, be million-plus year-end. do? of the $XXX find If pretty to a should similar next you again you things generate couldn’t we what much do debts Then If cash. gone a free

Chris DiSantis

saying of we cash? generated if $XXX-plus You’re

Adam Ritzer

going else like be amounts and if think I don’t do that strategic, is at look is are soon, huge to said debt pretty the left? things be numbers can’t they’re of buybacks you as you even dividends there then money. Yes. and gone anything Do are again, And or similar internal to going you what the

Chris DiSantis

of down on I Yes, it all – has capital. It just best consider the return we comes mean, what those. to

to to Either lot You projects position able to debt got remember, had those a kind of a at these things. a very the covenants, wasn’t tight too internal look company are of the historically, be from capital it in financially had company much standpoint.

things creates optionality. lot debt of free that being one So more does, the it a

lot So is in pulp, it of there on investment making possible speeding machines specialty, maybe significant a that be on productivity could quite up or some you’re projects containerboard a a expanding or There’s which of that than we think better could returns, of drive handful we’re is instance. interesting for for returns reasons. stock, buying a paper where you’re things lot a potential in the paying excellent their back just dividend

corporate company, just not healthy we standpoint. all are. of as a accretive that’s we those the earnings specifics that what at development it lot more out mean, that of you’re a for each very But have job is are that, more calls that things hope we you can get more a as we’re passes, a our lot time. quarter do, same from to around like find quarter, detail is projects and of cash and going quarter maybe future you when look and I to what going every to to So yes, some specifics have what potential those gives and things you more stuff, and give go on

Adam Ritzer

or as just to and pricing in guess I imagine two year ago, could Right. increases. business the standing basically we guess,

the done work. very good you’ve much. think a and I great Thanks job. call, I taken you my appreciate keep

Operator

now And Tim conclude queue. turn At will question this over in there closing no time, back This I it are to for question-and-answer Nusbaum would any more the questions like remarks. session. our to

Tim Nusbaum

Thank everyone. much. time. Thank and Appreciate you very interest next forward you talking your look

Chris DiSantis

you. Thank

Operator

presentation. The today’s for conference disconnect. has you And you attending may now now concluded. Thank

Billerud Americas (VRS) 7 Nov 182018 Q3 Earnings call transcript