VRS - Earnings call transcript Q2 2019

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Operator

Good morning, and welcome to Verso Corporation's Second Quarter 2019 Earnings Conference Call. All participants are in a listen-only mode. There will be an opportunity for you to ask questions at the end of today's presentation. [Operator Instructions] Please note this conference is being recorded. A replay of this call will be available on the Investors page of Verso's website after 11 a.m. today. Time Eastern

I to time, to the turn At Treasurer, would Tim over Verso's ahead. Nusbaum. presentation this like Please go

Tim Nusbaum

and good you, Thank morning.

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

Vice Executive the Graphic on Les today and Officer; and Allen Officer; call Senior and of Chief me Joining Lederer, Mike Campbell, is President Papers. President Financial Chief Interim Weinhold, Specialty

risks like the we of in better call actual incorrect, management's and or I'd or one statements. be everyone remind materialize uncertainties you of to from understanding to forward-looking that statements these or may will underlying Should assumptions estimates more should course of a expectations. forward-looking give vary materially to uncertainties. subject or in risks making the performance, our results certain prove are order These

you'd are If refer filings tab. regarding SEC uncertainties and website our to business, risks which with these the on on associated the please our www.versoco.com Investors further posted like information

point, the Les turn At like presentation to over I'd this to Lederer.

Les Lederer

you Good for Tim. and this us morning you, call everyone, on this Thank joining thank morning.

with efforts. our the Weinhold indicated, is regarding available today financial Tim also explain questions me who quarterly through Campbell commercial Mike results. As respond slides is fully will walk Allen our and more to to

In to a are facing current as market of our my the we remarks challenges morning, the markets this I want and of review result state conditions.

at Wisconsin our was also only impacted planned Rapids not facility, adjusted lower impacted maintenance by second quarter million. EBITDA quarter but significant lowered results $XX volumes, second were Our which by a our downtime by

of were Turning million, million were to million provided second which than $XXX quarter sales presentation the to X the $XXX which for Net the guidance, we quarter. $XXX page lower deck. for had the of

resulting million. in of an adjusted was the $XXX $XX The EBITDA year-to-date through the for million EBITDA X.X%. margin adjusted was adjusted Our quarter EBITDA quarter second

lower by the growth market Graphic and which pulp. packaging shipments for negative papers were were market trends, Paper reflecting in market and specialty our somewhat offset

the While to XXXX to we third not quarter of results are revenues meet than expect third expected quarter however the produce second better quarter XXXX the levels.

issues, on we mix The decline year-over-year closure. products. decline achieve able we pricing significantly in sales peak our were the in as expected are Notwithstanding due our for impact the levels inventory well quarter to sales higher forecasting pickup as to to graphic the levels, by and seasonal but resulted Luke in inventory levels core Mill maintain year-end of

years While products has to for rate. the over decreased the to graphic demand at recent have an the digital due increasing statistics for migration declined offerings, products these demand the most

impacted increased current the customer imports the that influx decline has believe we been level of the of and However, by inventories. of rate continued higher

remainder customers of the restocking both remain prices relatively our as with result volumes the product the paper expected to stable. For of pickup by expected expect seasonal a and an our year, to we improve

our -- product to our balance production to continue customer however necessary if our will We demand.

to this and our reduce the today be initiatives undertaken paper have markets, dependence a on in remain the graphic in we reduced. This graphic we significant of space. participant have percentage – past further market, XX% in we while to revenues have our We the and will still needs

liquidity issues. our the product have deck, presentation initiatives page our outlined as focusing both on past cost we to X changing and as of well Turning mix in

of in of second XXXX specialty to the packaging markets in have second quarter investments XXXX. in share revenue grown the XX% and in the pulp our these from XX% Our markets quarter

produce number three linerboard, projects the market XXXX of Mill to July was achieve conversion kraft paper diversification our One and initiated restart and to of pulp, product paper. machine the Androscoggin capital this at

Additional, with at liner market, and enhancement release reconfiguration that for new greater Mill. growing of participation and included of our focus Escanaba in produce Mill the our expansion Androscoggin PMX the to ability both our product PMX at

to is of of entry Androscoggin, the in for quarter project packaging on of our products. for year a the This be space tons the Duluth was PMX to completed at year the second this XXXX. first packaging capital Mill our into Adding recycled per approved in quarter XX,XXX production of project expected

overhead a XXXX remove other million. also will additional focused $XX current SG&A for We excess well be continue have that initiative as reductions of to on additional reductions for as and in costs

in a SG&A percentage as We of X.X% half have XXXX. half first our reduced X.X% of in from first the revenues of the previously adjusted to XXXX,

our Finally, million. flexibility XXXX, terminating $XXX financial in by of million company's $XX OPEB and by letter exposure we reducing eliminating our have term of our $XX loan effectively the million, and credit repaying liability enhanced

have additional value-added initiatives benefited initiating be prior company, to to the strategies produce these products. While need proactive in continue we will to

borrowing company cash our as our future. With in debt and significant the we initiatives strategic in capacity of benefit company's expected that result ability the the further repayment generation flexibility have a undertaking

closure currently balancing we Mill, and we the in believe of our supply are demand With Luke we – the are market.

to the we This the are us not products to invest will in industry decline. reposition panacea to face, is time markets capital permanent our projects to be the for us allow continue necessary issues by but note the give as graphic to graphic that, balance these the company to capacity should assets conversions. a in announced maintained important It conversions

require together to Our well make specialty packaging products, the in capital, and senior plan as grades. The to significant the of significant move as with team company for address on This directed strategic focus have the project growth the product as I leadership investments to the accelerate opportunities to is as other business next higher senior the capital of to be managers opportunities. well growth over will years. in time spent two a deployment

in current our strategic we this plan outlined presentation, diversification, plan. for this completed of growth deployed X which has and and page On capital

over graphic reduce years five the tonnage XX% our the level next current XX%. from of to will We

produced the graphic produced Additionally, the that will cost-effective to company at be most the continue mills. products will be at

determined machine that have a this our we invest require up million improve two-year which will of investment products us to the to specialty the allocation our grades strategic unbleached containerboard four. will quality on and reduce machine Androscoggin the period. to paper Mill, over enable three this We capacity our to cost at believe kraft planned increase Androscoggin, portion We capital and number and $XXX of plan of on the paper number made at

Androscoggin's improve made asset. improvements to this We on the machine-glazed products begun have PMX machine already capacity on of

our capital in product Mill enhance to Point and are Stevens improve our planning improvements order we specialty Additionally, at offerings.

of kraft products As run we produce are replacing products the paper have invested of containerboard, I capital mill awaiting of of the our with completion Mill. been and and these trial recycled very have portion customers a The already the at to Duluth grades grades have has tons discussed, and annually made project. graphic the XX,XXX Mill the at Duluth impressed

flexibility currently are the mitigate recycle and to that further to the we products Duluth. will have products the the to mill. planning still conversions Notwithstanding conversion, of to We the further produce supercalendered planned at containerboard loss recycle at Duluth demand produced kraft Mill

is state to operations. assist to a conversion. been cash we strategic important conversion, $X in this additional in have intend the discussed this capital with us fund this that conjunction generated from grant to It million we awarded investments morning Minnesota of from the In note from the of amount

I believe with my well planned to teams. mill are As objectives with mill in our our commercial the I teams visits management the mentioned quarter. the second that with call, management positioned of locations skill organization, on our to capital. of I mill's In was our last with I our planned accomplish seasoned earnings the we impressed visit engagement all the to along significant mills,

the to Before turning to of find with I company Board want Allen, since the that I to worked our challenges. over Directors and mention closely solutions for joined have presentation our address I've

strategic create Board company in focus stakeholders necessary continue that our over committed to is the to the Our I and direction term. long are the to value to

Allen who over the will presentation financial turn now provide will to I Campbell updates.

Allen Campbell

Les. you, Thank

Turning to key highlight X, the metrics we quarter. page some for

were down If at XX%. paper you shipments look

as Pulp us XX%, doing had us pulp Quinnesec precluded from that mentioned, time at As Les we that up an we tough of outage that sales period. in quarter some for year last returned was year. this

down across prior Net favorable. X% We're selling down was our X%. versus prices due of portfolio Pulp the and mix the quarter slightly up the prior year, paper primarily from to to continued be a product. ton that's $XX

up you significant a purchased of as pulp. that's rollercoaster front pulp we sell you know a but and pulp, been and down As know we amount on

that So standpoint. we're somewhat from balanced

The cash. business of in of from in at specialty rest That as XXXX XX% mix decline as could mentioned second right in we grown you convert in second business, pulp far the Les our XXXX. inventory Inventory the quarter quarter. that that and to second to packaging should peaked the the year, we've quarter of chart the XX% see the through

page we about the sales talked earlier. On We off quarter. just financial highlights of X, some pull the for

adjusted in $XX prior per versus on same million hit $X.XX our see making would adjustments less can X.X%, virtually the If sales. and Mill out a for versus you so operating net $XX did we year As and of to charge you basis operating that earnings the income by property had X.X% Duluth were $X.XX. totaled see of have adjust income you you million. as income share EBITDA Adjusted million -- that we appendix $XXX

million page over million the $XX million period second hit. as quarter this $XX see to Volume EBITDA a mix for extra negative, in this drove walking last favorable can bottom an the the We $XX us less you so bridge million on still to is year year. Price have the but our negative adjusted price X $XX line. in time

had that year, had also an a and of maintenance, about $XX our As was million downtime. movement to Rapids of and the a major of ops, of where downtime $XX in of spent we million we million million at about Mill downtime had We related capital the far million million downtime of $X this We of had down boiler. $X $X roughly second $XX we as mill. maintenance quarter in that

that it's maintenance large investment a we So mill. on the of side did that

had was million Mill couple quarter a in we Point We at the a for $X of downtime take our few million additional a Stevens of dollars our in issues Ops couple did as inventory adjustment. off mills. second

for run inflation Inflation, is us, improving. the but rate on still negative

just offset versus year million. that cuts by was SG&A year We prior So, this same of $X the off $X was less this hit year year. last of versus our another year. Last and savings we an income more million so quarter. million were $X Pension

where sheet very position On low liquidity. are XX, as strong very and Page far liquidity we we our as our leverage. highlight balance A

the at working inventory debt it $XX we net quarter. As capital of we the quarter and shows had the closure had seasonal in second Duluth we the of end usage in million as second build with

shows side working capital. quarter were versus generated. in of swings quarter right-hand was in our in the million Biggest year. second We our $X down the $XX Far net primarily had same a we million cash gain prior

we'll As mentioned go main we driver. was build that but forward down the inventory as draw that we

The understand maintenance of our help was flow you to numbers. highlighted Page on XX

million $X Second $XX total. the million. before spent quarter we as only mentioned million earlier quarter versus $XX was was had where That pretty up heavy We spending. in

quarter We in expect fourth. to the and in third the major in significantly off then spend drop less maintenance

down down we and So, which highlight in mills what doing little going than forward on that's in year below as the prior the stepping stepping quarter. ones take a bit month. our higher quarter, third the then they're fourth again which We outage our expectation but materially the look

the mentioned, higher by as our than second tons. as quarter, Les it for not third prior be we're expecting far to was primarily due As in as sales strong the year as volume guidance

range. $XX in we somewhere to cash of third and million the we quarter are $XXX million expect a $XXX $XX about talked funding the contribution Capital payments and $XX just range million. sales expenditures second the million ago. range. a of the so Maintenance quarters $XX Net to in to then million in And funding million major

With like for up to open the and ends formal presentation. We'd it Q&A section our move that that to questions.

Operator

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

Jeff Van Sinderen

Good -- morning. Can you speak to

Les Lederer

just up speak Jeff you bit. could a

Jeff Van Sinderen

hear Can now? Sure. me you

Les Lederer

Yes, Thank you. that's better.

Jeff Van Sinderen

in anticipate the speak on you're what pricing? on and of great. Can quarter remainder pricing Okay, far seeing you to you what the for so QX

Les Lederer

to want you. heard sure I make I

you're what ask want third you're to You asking? that pricing about asking quarter -- is forecast

Jeff Van Sinderen

Yes, so quarter QX on remainder I'm what anticipate far the for seeing and asking what you on of you're in pricing? the pricing

Les Lederer

Mike Weinhold he'll is question. that and here answer

Mike Weinhold

mix been as our presentation, pricing. there's Pricing in QX -- in we running the mentioned through

of somewhat is period. pricing But through having negative the on stable so speaking And is a generally mix impact pricing the overall. fairly

Jeff Van Sinderen

what Luke maybe inventory in understand business? Are then the do touch you can about to just or expect utilization system, you then fully capacity QX the roughly the of we you channel inventory, side given but XXX,XXX close there I of -- on just run and at guys exiting how built the to should capacity of legacy that? booked traffic -- the the at And maybe Okay. you situation level closure tons in think paper running

Les Lederer

Yes.

So, as seeing QX. see customer decreasing side still that patterns overhang inventory through an we've mentioned is in some move of into of the indications as we're somewhat can order and we that we on

certainly standpoint, rate to which see declining. through it year. And mentioned, much the inventory decline the than utilization balance industry are Our levels the was Les last From inventory those numbers are expect operating levels of year. less as you an we

Verso certainly graphic helping However, utilization the of the from assets. impact the of a Luke have of standpoint, the rest we

characterize operating demand to we're very also And not So inventories. full, as we rates committed year go supply healthy. the as Verso balancing within I through our committed necessarily would as and to earlier, the and we're but reducing indicated

Jeff Van Sinderen

at producing into wondering, just at what of utilization at for was you're you you. touch running what you're that point, What the there capacity this Maybe capacity AX? think there can now? And Thank run on Okay. expect product. AX some utilization? to you I evolution

Mike Weinhold

machine. utilization It's strong Sure. capacity very Weinhold. The on Mike is AX

flexibility of mentioned, As lot in there's project. that a inherent

And with we both We've need have into export. from transitioned domestic virgin or running campaign well We've that's segments bag pulp trials into virgin lease and lightweight, loan the utilized products, and the side. very kraft asset kraft, that done as an linerboard, internal get Multiwall. we're to some standpoint. going for mentioned, So and pulp

to And very mentioned, the and even into bag good asset capital utilization segment. the additional paper kraft So, as be in machine again provide on is evolve. spent continued flexibility up flexibility continues will that the and to that migration

Jeff Van Sinderen

Okay. for And give else point? think the there's you us the in squeeze in Les, it give a -- strategic review us then can about could buyer anything this one company more you I if total Les. for any update on you can at

Les Lederer

Well, that. we've we publicly we've report strategic point, to that nothing mentioned Houlihan options. look to At at on have retained this more

Jeff Van Sinderen

company. Les, to follow incentivized then that. And I let up me of just Okay. on clearly kind mean, you're sell the

how balance to directive So over getting taking that heard projects with I I you do on if to you big said the think you graphic XX% next five right? years

Les Lederer

correct. That's

Jeff Van Sinderen

I those does in think projects other -- else other what include? And Androscoggin, of undertaking you million $XXX if of what augmenting you see that mentioned $XXX million What projects do else anything investments. than some capital

Les Lederer

out improve product the capacity to products. specialty also of in the both our to into Stevens kraft We're mentioned cost money into I as our the that kraft also cost scheme. Point and projects We're putting flexibility in we're capital And for presentation, get into to putting and enhancement projects we're -- machine reduction liner putting and to Well, Duluth AX capital enhance then, money enhance products kraft AX into putting on more recycled augment capabilities. our of specialty offerings. release for different

have from And the to we're performance on options sale initiatives point of As sure to announced we are And And first the incentives as strategic make the that to point, provide have company's to provide time, shareholder to company, we this to therefore, graphic have my any your my value. this we incentive in at products. that benefit. at question away shareholder focusing not available is improve sell company. to

Jeff Van Sinderen

for Thanks taking Thanks. questions. my Okay.

Operator

go BWS Financial. Please question Our ahead. Hamed from comes Khorsand of next

Hamed Khorsand

good Hi, morning.

of seeing off, the much is first actual Luke? here just available how you any increase that How seasonal guidance having by elaborate for driven expecting on much QX? could that is So of you're or from by not impacted sequentially it inventory And demand?

Les Lederer

historically the you please? not reference quarters quarter. to stronger Luke. I give Well, color third your we up because pick to understand expect that seasonal are -- strongest more me quarter definitely sure; on demand Could I'm

Hamed Khorsand

a perspective. Well down your volume overall from is right production

if figure steady? to sales trying just quarter why if why out -- supposed is I'm pricing your to So higher holding isn't -- it's peak

Les Lederer

and Well, point the year overhang strength customers concerned dissipating closures. people of in that as we is they're a because mentioned restock to and inventory lack there is of is about off we their The inventory comparative this is inventory last an at were time. restock. supply mill through expect Customers that working

we're closed that producing fact the now those is tons. Luke So not

And don't that production therefore, sales. I a correlation the think there's between and

Luke was inventory the that our of that customers. inventory in going because to utilize have selling We to closure we're and created

So quarter. as be reasons going as it I is the year to not strong you. for stronger last gave third a typically It's just

Hamed Khorsand

pressures graphic think do you of seeing how share? then papers? the for market And are much lost competitive market you've And you in

Les Lederer

let Well let to Mike. respond ahead Mike me Go that.

Mike Weinhold

The we competitive believe share. pressures don't We obviously exist in the lost marketplace. market

market from bit market Europeans. obviously imports competitive a because the And pre-sheet imports We by own the will closure and large those from lose but gained have forward we're coded believe in primarily a holding share exist. the we of we within of the Luke. and of little the coming and pickup pressures seen marketplace, have Koreans share But sheets. And going of our

Hamed Khorsand

that then expecting you're you the are expect talk would generate you flow also cash on implemented? these just of about returns free over what kind could to years? planning next two those And new Okay. you're once the projects And

Les Lederer

have not going improve point the in projects that assumptions in the allocating on capability I disclose cash company. company. not specific But our tell that share to undertaking Those to point capital this manner you cash items to the and we're this any of flow the projects flow But And earnings we enhance return are are time. in those will exceed the extra mean, requirements on each I at questions. of we're projects. these have that at minimum the to not capital on but we ready and we

Hamed Khorsand

Okay.

my is out move got no going you really to moves? last is else is offensive just that Do deteriorate you've offensive Or faster So or more question two make defensive? this? one these to that if this an market on of this next years because think doing the look is even comment you

Les Lederer

at doing Take a we're what look specifically.

enhancing also those to it's diversification have We products machine that scrap machine. product machine. more us giving currently at we're of Androscoggin on We're that makes And a that cost devoted products. scrap structure and the

On machine our we're improving AX release Stevens which Point. liner product. to machine produce And capabilities is a makes putting at improve more product at offerings that special in to capital Androscoggin, of that point at we're Stevens the

And are demand has finally declining and product the to taking had a potential we possibilities of has the which that converting Duluth a and somewhat greater that Mill demand future. in

we're And our the it doing or is so current is, products. defensive. things the issue to machine believe improve and enhance right We configurations offensive those in

So defensive. those I don't characterize machines. have is it growth as on opportunities It offensive or we

Hamed Khorsand

you. Thank Okay.

Les Lederer

Thanks, Hamed.

Operator

question a Instructions] Adam ahead. next investor. from comes [ph], The go private [Operator Please Richter

Unidentified Analyst

inventory guess, do morning. of What I for expected question think? decline my guys -- you taking peak you of significant? the Hi. Thanks we much end. my to Good said is your year call. year up in by as out first view work QX half the built we question do what How first significantly can you inventory

Les Lederer

the commercial August in quarter, point. into team this in will of members, going not months that at in significant Well, with have that specific can we inventory. sales we generate talking get and September decline third the believe we the the a and to Mike especially we're In other numbers

as point which We specific some help getting this not quarter, But into downtime at going inventory will get will time. numbers some to in declines have we're well. in third the in

Unidentified Analyst

seen was you you and know over you thing seemed the other is to import very you months. also I a don't closures was to reductions demand increasing said and faster at and you guys -- it XX the out on know, imports when the XX positive And due Have the inventory decline there. build Okay. now change? Europe I coming mentioned a from I've the But talked the rate, the to next plant

Les Lederer

ahead, Go finish I'm no. question. No, sorry. your

Unidentified Analyst

and just from No, of out. decline figure to I'm trying but of just you lot not indicated exactly situation to to increase plant know what's closures trying I faster. on. a figure changing, is that demand you're expecting import kind out the going Europe, the coming I'm there's

Les Lederer

Nine -- announced Imports affected and the put we okay? Those had U.S. context. have issues, the and lesser PCA's announce conversions have -- our closures to let's put at a with those are into dynamic. conversions The to Let's the future the And the at greater takeouts have Biron. Kataba, when -- Dragons deal capacity supply and conversions been we it in mill conversions will Wallula, enhance supply-demand at have ability demand. at that

issue the come The especially imports from market. come but only not Asia, sheets Europe from in of

So digital the demand itself to are increasing, and offerings -- fact. the movement that denying we're not

demand So increasing declining look have and are on rate, take I to that's at less percentages markets. statistics a in reality, the demand when moving you concentration other dropped we're those and on at an why toward us products graphic give a say the that is

is. companies a is Those place will But it European it decline well. the conversions as what Europe over But imports other take possibly. two years current the on will their assets to basis, convert products from as next

Unidentified Analyst

was it. your And prior I allocation capital asked question Got the then on plan. Okay. know

minimal You are? Can you those it you're but wouldn't minimal explain much say about talk returns you did EBITDA what expecting, how returns. exceeds your

Les Lederer

would keep we at this to ourselves Again, to like that point.

of We've with capital We the to our talked our Directors. have Board. plan Board through gone

was satisfied gone time, in any at we've this EBITDA. proper through The a that But time. forecast We that is on point with Board, our haven't approved flows allocation specific the cash Board and we've project they get that with the this shareholders is they're presentations have that about very at no in capital serious sure had And point warranted. return making the and of made. the issue

Unidentified Analyst

EBITDA. trading now by I math maybe don't have But two a Okay. times stock know you my

You're not of your But kind telling it. invest understand back expect. better you saying you than or million? buying $XXX returns times do really EBITDA us stock wise think two So I are that's EBITDA? at it's you don't what to

Les Lederer

should Well cash of again of the offerings, Directors our with that to gone point. buy and enhance enhance I'm and you or is we issue issue capital all our stock flows plan morning we I our a back this can not going our whether not. Board at to The EBITDA product will go that's this enhance into have tell

Unidentified Analyst

Thanks Okay. taking appreciate my for I questions. it.

Les Lederer

Adam. Thanks,

Operator

The from of next comes question ahead. Cathey Please Robert go Capital. SCW

Robert Cathey

want could that good takeout to I Hey, of the any the morning. out States? comment see if the just and coming European you takeout those just further and on those, the of particularly and are conversions United timing then

Les Lederer

Well that you being Mike, as take do specific? want far to

Mike Weinhold

know -- public as as far know We announcements. you

on the Stora assets. have So of and is already in that freesheet will have coated Catawba XXXX will exact timing on conversion. I has conversion impact our ton their of started take the We conversion some sheets. on about and million believe one one the not place do belief Oulu Biron

over positive as XX characterized the impact a conversions So the paper and I to on graphic XX think months Les an expect markets impact. we it, these have certainly to

Robert Cathey

Right.

Okay.

information, you the think for more to from -- provide doing. for all add, helpful not be degree a some Okay. looking emerged guess, are to bankruptcy understand for. the given now post just reluctance maybe meantime, in think of In I there's would that that return I that I you future might But guys appreciate be to back the the close profiles maybe would commit avoiding you And to shareholders dividend. helpful would in of future better potentially to guess it understand a as what are us buyback kind the guys this. so then it stocks the I the I where guys investors to

Les Lederer

Okay. Thank you.

Operator

Seeing turn that back to over I Campbell remarks. would to like for further closing there are questions, Mr. no the conference

Allen Campbell

your Verso to very like with you. for each of your working in you Thank thank appreciate continuing and look much. We'd to and time interest you forward

Operator

has now concluded. today's conference presentation. attending for Thank The you

now You may disconnect.

Billerud Americas (VRS) 9 Aug 192019 Q2 Earnings call transcript