merc-ex991

MERCER INTERNATIONAL INC. REPORTS THIRD QUARTER AND NINE MONTHS ENDED SEPTEMBER 30, 2019 RESULTS AND ANNOUNCES QUARTERLY CASH DIVIDEND OF $0.1375

NEW YORK, NY, October 31, 2019 ‑ Mercer International Inc. (Nasdaq: MERC) today reported third quarter 2019 Operating EBITDA decreased to $50.8 million from $86.7 million in the third quarter of 2018 and from $70.0 million in the second quarter of 2019. In the third quarter of 2019, net income was $1.2 million, or $0.02 per share, compared to $41.2 million, or $0.63 per share, in the third quarter of 2018 and $10.3 million, or $0.16 per share in the second quarter of 2019.

In the first nine months of 2019, Operating EBITDA modestly declined to $244.6 million from $246.5 million in the same period of 2018. In the first nine months of 2019, net income was $63.1 million compared to $83.6 million in the same period of 2018.

Mr. David M. Gandossi, the Chief Executive Officer, stated: "Our third quarter results reflect continuing weakness in the pulp markets. High producer inventories, particularly of hardwood pulp, resulted in pricing pressure through most of the third quarter. However, late in the quarter we saw softwood producer inventories begin to fall and demand began to increase in China. We have announced an NBSK price increase of $10 per tonne for October in China.

Our mills ran well this quarter as we head into a heavy maintenance quarter in the fourth quarter, where three of our pulp mills will have annual maintenance shutdowns."

*Operating EBITDA is not a measure of financial performance under accounting principles generally accepted in the United States ("GAAP") and should not be considered in isolation or as a substitute for analysis of our results as reported under GAAP. See page 6 of the financial tables included in this press release for a reconciliation of net income to Operating EBITDA.

	Q3		Q2		Q3		YTD		YTD
	2019		2019		2018		2019		2018
	(in thousands, except per share amounts)
Revenues	$	383,536	$	425,753	$	331,058	$	1,293,239	$	1,045,493
Operating income	$	18,747	$	37,810	$	63,346	$	150,109	$	176,870
Operating EBITDA	$	50,799	$	69,958	$	86,656	$	244,556	$	246,513
Loss on settlement of debt	$	—	$	—	$	—	$	—	$	(21,515	)	⁽¹⁾
Legal cost award	$	—	$	—	$	—	$	—	$	(6,951	)
Net income	$	1,207	$	10,259	$	41,176	$	63,082	$	83,580
Net income per common share
Basic	$	0.02	$	0.16	$	0.63	$	0.96	$	1.28
Diluted	$	0.02	$	0.16	$	0.63	$	0.96	$	1.27

In the third quarter of 2019 our operating EBITDA decreased to $50.8 million from $70.0 million in the second quarter of 2019, and from $86.7 million in the same quarter of 2018. The decrease in the current quarter compared to the prior quarter is primarily due to lower pulp sales realizations only partially being offset by lower per unit fiber costs and the positive impact of a stronger dollar compared to the euro on the dollar denominated cash and receivables held at the German mills. Compared to the same quarter of 2018 lower pulp and lumber sales realizations were partially offset by lower per unit fiber costs and higher sales volumes.

Pulp: Strong sales volumes and lower fiber costs more than offset by lower sales realizations

In the third quarter of 2019 pulp segment operating income decreased to $21.4 million from $68.8 million in the same quarter of 2018. The decrease was primarily due to lower pulp sales realizations partially offset by higher sales volumes and lower per unit fiber costs. In the current quarter of 2019, the NBSK pulp realized sales price decreased by approximately 29% to $609 per ADMT from $852 per ADMT in the same quarter of the prior year due to high producer inventory levels. NBSK sales volumes increased by approximately 41% to 451,171 ADMTs in the current quarter from 319,850 ADMTs in the same quarter of 2018 due to the inclusion of Mercer Peace River Pulp Ltd. ("MPR") and strong sales volumes to China.

As a result of a decline in pulp sales realizations in the current quarter of 2019, we recorded a write down of our inventory carrying values at our Canadian mills of $6.9 million.

In the current quarter of 2019, we received German regulatory approval to reverse a wastewater fee accrual of $7.2 million as a result of certain capital projects.

Per unit fiber costs decreased in the current quarter by approximately 14% from the same quarter of 2018 due to lower per unit fiber costs for our German mills and the positive impact of a stronger dollar on our euro and Canadian dollar denominated fiber costs. In Germany, fiber costs benefitted from the continuing availability of beetle damaged wood. Fiber costs in Canada remained at high levels due to strong fiber demand in Celgar's fiber procurement basket.

Wood Products: Lower fiber costs partially offset by lower lumber sales realizations

In the third quarter of 2019 wood products segment operating income increased to $0.5 million compared to an operating loss of $1.8 million in the same quarter of 2018. The increase was primarily due to lower per unit fiber costs partially offset by lower lumber sales realizations. In the current quarter per unit fiber costs decreased by approximately 34% from the same quarter of 2018 primarily as a result of the availability of beetle damaged wood. Average lumber sales realizations decreased by approximately 18% to $337 per Mfbm in the third quarter of 2019 from approximately $409 per Mfbm in the same quarter of 2018 primarily due to lower pricing in both the U.S. and Europe. U.S lumber pricing declined as a result of high producer inventory levels. European lumber pricing declined due to an increase in the supply of lumber processed from beetle damaged wood which generally obtains lower prices.

Consolidated –Nine Months Ended September 30, 2019 Compared to Nine Months Ended September 30, 2018

Total revenues for the nine months ended September 30, 2019 increased by approximately 24% to $1,293.2 million from $1,045.5 million in the nine months ended September 30, 2018 primarily due to the inclusion of the results of MPR and higher pulp and energy sales volumes partially offset by lower sales realizations.

Costs and expenses in the nine months ended September 30, 2019 increased by approximately 32% to $1,143.1 million from $868.6 million in the nine months ended September 30, 2018 primarily due to the inclusion of MPR and higher pulp sales volumes partially offset by lower per unit fiber and maintenance costs and the positive impact of a stronger dollar on our euro denominated costs and expenses.

For the nine months ended September 30, 2019, our net income decreased to $63.1 million, or $0.96 per share from $83.6 million, or $1.28 per basic and $1.27 per diluted share in the same period of 2018, after giving effect to costs of $28.5 million, or $0.44 per basic and $0.43 per diluted share, for the redemption of our 2022 senior notes in January, 2019 and a legal cost award.

In the nine months ended September 30, 2019, Operating EBITDA modestly declined to $244.6 million from $246.5 million in the same period of 2018 primarily due to lower pulp and lumber sales realizations partially offset by higher pulp and energy sales volumes, lower per unit fiber and maintenance costs, the inclusion of MPR and the positive impact of a stronger dollar on our euro denominated costs and expenses.

We currently expect NBSK pulp markets to stabilize in the later part of the year due to lower producer inventories as a result of producer downtime along with steady demand. We currently expect lumber pricing to also stabilize in the later part of the year due to sawmill curtailments in Canada and steady U.S. and European demand.

In the fourth quarter of 2019, we have three of our pulp mills down for scheduled maintenance downtime totaling 53 days or approximately 83,000 ADMTs.

A quarterly dividend of $0.1375 per share will be paid on December 19, 2019 to all shareholders of record on December 12, 2019. Future dividends will be subject to Board approval and may be adjusted as business and industry conditions warrant.

In conjunction with this release, Mercer International Inc. will host a conference call, which will be simultaneously broadcast live over the Internet. Management will host the call, which is scheduled for November 1, 2019 at 10:00 AM (Eastern Daylight Time). Listeners can access the conference call live and archived for 30 days over the Internet at https://edge.media-server.com/mmc/p/k576r6r3 or through a link on the company's home page at https://www.mercerint.com. Please allow 15 minutes prior to the call to visit the site and download and install any necessary audio software.

Mercer International Inc. is a global forest products company with operations in Germany and Canada with consolidated annual production capacity of 2.2 million tonnes of pulp and 550 million board feet of lumber. To obtain further information on the company, please visit its web site at https://www.mercerint.com.

The preceding includes forward looking statements which involve known and unknown risks and uncertainties which may cause our actual results in future periods to differ materially from forecasted results. Words such as "expects", "anticipates", "projects", "intends", "designed", "will", "believes", "estimates", "may", "could" and variations of such words and similar expressions are intended to identify such forward-looking statements. Among those factors which could cause actual results to differ materially are the following: the highly cyclical nature of our business, raw material costs, our level of indebtedness, competition, foreign exchange and interest rate fluctuations,

our use of derivatives, expenditures for capital projects, environmental regulation and compliance, disruptions to our production, market conditions and other risk factors listed from time to time in our SEC reports.

	Q3			Q2			Q3			YTD			YTD
	2019			2019			2018			2019			2018
	(in thousands, except per share amounts)
Pulp segment revenues	$	345,060		$	384,799		$	292,969		$	1,166,333		$	898,836
Wood products segment revenues		36,458			39,452			38,089			120,349			146,657
Corporate and other revenues		2,018			1,502			—			6,557			—
Total revenues	$	383,536		$	425,753		$	331,058		$	1,293,239		$	1,045,493

Pulp segment operating income	$	21,386		$	42,251		$	68,794		$	157,157		$	179,824
Wood products segment operating income (loss)		544			(89	)		(1,770	)		2,075			5,534
Corporate and other operating loss		(3,183	)		(4,352	)		(3,678	)		(9,123	)		(8,488	)
Total operating income	$	18,747		$	37,810		$	63,346		$	150,109		$	176,870

Pulp segment depreciation and amortization	$	29,744		$	29,849		$	20,802		$	87,616		$	63,452
Wood products segment depreciation and amortization		2,016			2,010			2,395			5,937			5,860
Corporate and other depreciation and amortization		292			289			113			894			331
Total depreciation and amortization	$	32,052		$	32,148		$	23,310		$	94,447		$	69,643

Operating EBITDA	$	50,799		$	69,958		$	86,656		$	244,556		$	246,513
Loss on settlement of debt	$	—		$	—		$	—		$	—		$	(21,515	)	⁽¹⁾
Legal cost award	$	—		$	—		$	—		$	—		$	(6,951	)
Provision for income taxes	$	(244	)	$	(10,433	)	$	(10,182	)	$	(35,101	)	$	(28,224	)
Net income	$	1,207		$	10,259		$	41,176		$	63,082		$	83,580
Net income per common share
Basic	$	0.02		$	0.16		$	0.63		$	0.96		$	1.28
Diluted	$	0.02		$	0.16		$	0.63		$	0.96		$	1.27
Common shares outstanding at period end		65,629			65,629			65,202			65,629			65,202

	Q3			Q2			Q3		YTD			YTD
	2019			2019			2018		2019			2018
Pulp Segment
Pulp production ('000 ADMTs)
NBSK		441.7			452.8			363.5		1,355.1			1,037.7
NBHK		75.3			89.4					243.3
Annual maintenance downtime ('000 ADMTs)		14.1			7.5			14.4		21.6			69.9
Annual maintenance downtime (days)		13			15			14		28			51
Pulp sales ('000 ADMTs)
NBSK		451.2			438.5			319.9		1,356.6			1,025.2
NBHK		91.0			81.5					260.4
Average NBSK pulp list prices ($/ADMT)⁽¹⁾
Europe		860			997			1,230		987			1,176
China		585			653			887		649			902
North America		1,170			1,292			1,377		1,281			1,307
Average NBHK pulp list prices ($/ADMT)⁽¹⁾
China		507			635			800		609			799
North America		970			1,100			1,192		1,083			1,131
Average pulp sales realizations ($/ADMT)⁽²⁾
NBSK		609			699			852		689			817
NBHK		499			618					589
Energy production ('000 MWh)		572.5	⁽³⁾		575.4	⁽³⁾		388.0		1,708.3	⁽³⁾		1,120.7
Energy sales ('000 MWh)		224.7	⁽³⁾		231.9	⁽³⁾		141.0		668.4	⁽³⁾		401.3
Average energy sales realizations ($/MWh)		89			93			105		92			105

Wood Products Segment
Lumber production (MMfbm)		96.6		100.8				79.5		308.0		294.1
Lumber sales (MMfbm)		97.0		101.5			83.8			307.7			312.0
Average lumber sales realizations ($/Mfbm)		337		348			409			348		421
Energy production and sales ('000 MWh)		13.9		24.1			16.4			60.4		62.5
Average energy sales realizations ($/MWh)	116			116			121		117			128

Average Spot Currency Exchange Rates
$ / €⁽⁴⁾		1.1120		1.1237			1.1629		1.1234			1.1945
$ / C$⁽⁴⁾	0.7573			0.7475				0.7651	0.7523			0.7767

	Three Months Ended September 30						Nine Months Ended September 30
	2019			2018			2019			2018
Revenues	$	383,536		$	331,058		$	1,293,239		$	1,045,493
Costs and expenses
Cost of sales, excluding depreciation and amortization		314,894			230,009			994,360			755,428
Cost of sales depreciation and amortization		31,934			23,197			94,108			69,312
Selling, general and administrative expenses		17,961			14,506			54,662			43,883
Operating income		18,747			63,346			150,109			176,870
Other income (expenses)
Interest expense		(18,183	)		(11,729	)		(55,103	)		(35,972	)
Loss on settlement of debt		—			—			—			(21,515	)
Legal cost award		—			—			—			(6,951	)
Other income (expenses)		887			(259	)		3,177			(628	)
Total other expenses, net		(17,296	)		(11,988	)		(51,926	)		(65,066	)
Income before provision for income taxes		1,451			51,358			98,183			111,804
Provision for income taxes		(244	)		(10,182	)		(35,101	)		(28,224	)
Net income	$	1,207		$	41,176		$	63,082		$	83,580
Net income per common share
Basic	$	0.02		$	0.63		$	0.96		$	1.28
Diluted	$	0.02		$	0.63		$	0.96		$	1.27
Dividends declared per common share	$	0.1375		$	0.1250		$	0.4000		$	0.3750

	September 30,			December 31,
	2019			2018
ASSETS
Current assets
Cash and cash equivalents	$	264,899		$	240,491
Accounts receivable		228,154			252,692
Inventories		269,443			303,813
Prepaid expenses and other		20,512			13,703
Total current assets		783,008			810,699
Property, plant and equipment, net		1,009,639			1,029,257
Investment in joint ventures		55,382			62,574
Intangible assets, net		53,442			53,927
Operating lease right-of-use assets		13,054			—
Other long-term assets		32,220			17,904
Deferred income tax		2,908			1,374
Total assets	$	1,949,653		$	1,975,735
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities
Accounts payable and other	$	203,279		$	194,484
Pension and other post-retirement benefit obligations		778			904
Total current liabilities		204,057			195,388
Debt		984,087			1,041,389
Pension and other post-retirement benefit obligations		26,534			25,829
Finance lease liabilities		21,677			24,669
Operating lease liabilities		10,631			—
Other long-term liabilities		13,423			13,924
Deferred income tax		97,857			93,107
Total liabilities		1,358,266			1,394,306
Shareholders’ equity
Common shares $1 par value; 200,000,000 authorized; 65,629,000 issued and outstanding (2018 – 65,202,000)		65,598			65,171
Additional paid-in capital		343,994			342,438
Retained earnings		338,116			301,990
Accumulated other comprehensive loss		(156,321	)		(128,170	)
Total shareholders’ equity		591,387			581,429
Total liabilities and shareholders’ equity	$	1,949,653		$	1,975,735

	Three Months Ended September 30						Nine Months Ended September 30
	2019			2018			2019			2018
Cash flows from (used in) operating activities
Net income	$	1,207		$	41,176		$	63,082		$	83,580
Adjustments to reconcile net income to cash flows from operating activities
Depreciation and amortization		32,052			23,310			94,447			69,643
Deferred income tax provision (benefit)		(1,706	)		1,314			2,359			7,330
Loss on settlement of debt		—			—			—			21,515
Defined benefit pension plans and other post-retirement benefit plan expense		866			423			2,582			1,294
Stock compensation expense		1,179			970			2,036			2,922
Foreign exchange transaction losses (gains)		(8,873	)		40			369			564
Other		2,887			844			11,231			2,451
Defined benefit pension plans and other post-retirement benefit plan contributions		(1,200	)		(19	)		(2,628	)		(124	)
Changes in working capital
Accounts receivable		41,381			(150	)		17,232			8,193
Inventories		9,242			(41,084	)		22,614			(60,127	)
Accounts payable and accrued expenses		(16,691	)		(10,803	)		(12,667	)		44,130
Other		(3,483	)		(5,252	)		(12,889	)		(8,480	)
Net cash from (used in) operating activities		56,861			10,769			187,768			172,891
Cash flows from (used in) investing activities
Purchase of property, plant and equipment		(37,049	)		(26,744	)		(81,417	)		(71,583	)
Purchase of intangible assets		(215	)		(163	)		(710	)		(483	)
Other		162			211			(181	)		278
Net cash from (used in) investing activities		(37,102	)		(26,696	)		(82,308	)		(71,788	)
Cash flows from (used in) financing activities
Redemption of senior notes		—			—			—			(317,439	)
Proceeds from (repayment of) revolving credit facilities, net		—			(3,443	)		(58,404	)		34,293
Dividend payments		(9,025	)		(8,150	)		(17,231	)		(24,424	)
Repurchase of common shares		—			—			(754	)		—
Payment of debt issuance costs		(369	)		—			(1,126	)		(1,390	)
Proceeds from government grants		147			—			6,467			—
Other		(1,735	)		(944	)		(8,664	)		(2,563	)
Net cash from (used in) financing activities		(10,982	)		(12,537	)		(79,712	)		(311,523	)
Effect of exchange rate changes on cash and cash equivalents		(1,200	)		1,167			(1,340	)		(8,133	)
Net increase (decrease) in cash and cash equivalents		7,577			(27,297	)		24,408			(218,553	)
Cash and cash equivalents, beginning of period		257,322			269,482			240,491			460,738
Cash and cash equivalents, end of period	$	264,899		$	242,185		$	264,899		$	242,185

Operating EBITDA is defined as operating income plus depreciation and amortization and non-recurring capital asset impairment charges. Management uses Operating EBITDA as a benchmark measurement of its own operating results, and as a benchmark relative to its competitors. Management considers it to be a meaningful supplement to operating income as a performance measure primarily because depreciation expense and non-recurring capital asset impairment charges are not an actual cash cost, and depreciation expense varies widely from company to company in a manner that management considers largely independent of the underlying cost efficiency of our operating facilities. In addition, we believe Operating EBITDA is commonly used by securities analysts, investors and other interested parties to evaluate our financial performance.

Operating EBITDA does not reflect the impact of a number of items that affect our net income, including financing costs and the effect of derivative instruments. Operating EBITDA is not a measure of financial performance under GAAP, and should not be considered as an alternative to net income or income from operations as a measure of performance, nor as an alternative to net cash from operating activities as a measure of liquidity. The following tables set forth the net income to Operating EBITDA:

	Q3			Q2			Q3		YTD			YTD
	2019			2019			2018		2019			2018
Net income	$	1,207		$	10,259		$	41,176	$	63,082		$	83,580
Provision for income taxes		244			10,433			10,182		35,101			28,224
Interest expense		18,183			18,369			11,729		55,103			35,972
Loss on settlement of debt		—			—			—		—			21,515
Legal cost award		—			—			—		—			6,951
Other (income) expenses		(887	)		(1,251	)		259		(3,177	)		628
Operating income		18,747			37,810			63,346		150,109			176,870
Add: Depreciation and amortization		32,052			32,148			23,310		94,447			69,643
Operating EBITDA	$	50,799		$	69,958		$	86,656	$	244,556		$	246,513

	Three Months Ended September 30
	2019		2018
	(in thousands)
Pulp revenues	$	322,707	$	274,970
Energy and chemical revenues	$	22,353	$	17,999
Operating income	$	21,386	$	68,794

	Three Months Ended September 30,
	2019		2018
	(in thousands)
Lumber revenues	$	32,687	$	34,270
Energy revenues	$	1,621	$	1,978
Wood residual revenues	$	2,150	$	1,841
Operating income (loss)	$	544	$	(1,770	)