merc-ex991

MERCER INTERNATIONAL INC. REPORTS FOURTH QUARTER AND YEAR END 2021 RESULTS AND INCREASES QUARTERLY CASH DIVIDEND BY 15% TO $0.075

NEW YORK, NY, February 17, 2022 ‑ Mercer International Inc. (Nasdaq: MERC) today reported fourth quarter 2021 Operating EBITDA increased to a record $164.9 million from $49.5 million in the fourth quarter of 2020 and from $148.1 million in the third quarter of 2021.

In the fourth quarter of 2021, net income was $74.5 million (or $1.13 per basic share and $1.12 per diluted share) compared to a net loss of $13.0 million (or $0.20 per share) in the fourth quarter of 2020 and net income of $69.1 million (or $1.05 per basic share and $1.04 per diluted share) in the third quarter of 2021.

In 2021, Operating EBITDA increased to a record $478.8 million from $192.7 million in 2020. In 2021, net income was a record $171.0 million (or $2.59 per basic share and $2.58 per diluted share) compared to a net loss of $17.2 million (or $0.26 per share) in 2020.

Mr. David Gandossi, the Chief Executive Officer, stated: “I am pleased with our record fourth quarter operating results which were driven by strong sales volumes and steady pulp and lumber pricing and by materially higher energy prices in Germany for our surplus green energy sales. We also benefitted from the settlement of our business interruption insurance claim associated with the downtime taken in 2021 to rebuild our Peace River mill’s recovery boiler. Our annual Operating EBITDA also set a new benchmark which significantly surpasses our prior high and highlights the cash generating power of our world class assets.

Overall, our fourth quarter pulp results were comparable to the trailing third quarter other than the recording of business interruption insurance proceeds of $31.9 million in the current quarter. In the current quarter,

*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 (loss) to Operating EBITDA.

overall pulp pricing was slightly weaker than the prior quarter. A price decline in China in the fourth quarter began to reverse late in the quarter due to supply issues primarily driven by global logistical slowdowns. Such logistical issues also caused 35,000 tonnes of pulp from our Canadian operations to Asia being delayed and the revenue associated with this shipment will be reflected in the first quarter of 2022. As of December 31, 2021, third party industry quoted NBSK list prices were approximately $1,260 per ADMT in Europe and net prices were approximately $760 per ADMT in China.

In the fourth quarter of 2021, our Friesau sawmill’s production continued its strong performance. Our wood products segment generated operating income of $19.9 million in the fourth quarter as U.S. lumber sales increased primarily because of a strengthening housing market. In the fourth quarter, approximately 46% of lumber sales volumes were to the U.S.

We are seeing some impacts from the current global logistics bottleneck primarily with respect to North American rail traffic where pandemic related slowdowns and extreme weather have made rail service inconsistent. This resulted in periodic slowdowns of our Canadian pulp mills during the fourth quarter and caused us to use additional trucking which is less efficient and more expensive. We are currently optimistic that such logistics issues will be resolved over the coming months.

Looking ahead to the first quarter of 2022, we currently expect relatively strong NBSK markets globally. Improving sentiment and demand for pulp and paper along with supply interruptions in Canada and Scandinavia are supportive of a positive pricing outlook. For hardwood pulp, while longer term new incremental supply may lead to pricing pressure, in the first quarter of 2022, we currently expect hardwood prices to remain steady or improve modestly. In January 2022, the turbine at our Rosenthal mill came back on-line which, coupled with currently high European energy prices, should increase our surplus energy sales in the first quarter of 2022.

With respect to our wood products segment, in the first quarter of 2022 we currently expect lumber demand to remain steady in all markets with modest price improvements in the U.S. market.

In 2022, we will continue our strategy of adding shareholder value through the implementation of capital projects designed to deliver high returns and help us achieve our ESG objectives. In 2022, these will include new woodroom projects at our Canadian pulp mills which are designed to reduce our GHG emissions, reduce wood waste and lower our fiber costs. Currently we expect our 2022 capital expenditures will be approximately $175 to $200 million. While our capital spending will be higher in 2022, we are forecasting less overall scheduled maintenance downtime at pulp mills compared to 2021.

Finally, while the global roll-out of vaccines is ongoing and results to date are encouraging, COVID-19 infections and health risks, including from variants and additional “waves” remain. Consequently, we will maintain our measures and procedures put in place to protect our people and allow us to operate our business safely and efficiently.”

	Q4		Q3		Q4			YTD				YTD
	2021		2021		2020			2021				2020
	(in thousands, except per share amounts)
Revenues	$	518,957	$	469,746	$	398,195		$	1,803,255			$	1,423,140
Operating income	$	129,963	$	113,755	$	15,616		$	346,583			$	63,729
Operating EBITDA	$	164,925	$	148,070	$	49,506		$	478,782			$	192,650
Loss on early extinguishment of debt	$	—	$	—	$	—		$	(30,368	)	⁽¹⁾	$	—
Net income (loss)	$	74,522	$	69,118	$	(12,977	)	$	170,988			$	(17,235	)
Net income (loss) per common share
Basic	$	1.13	$	1.05	$	(0.20	)	$	2.59			$	(0.26	)
Diluted	$	1.12	$	1.04	$	(0.20	)	$	2.58			$	(0.26	)

Consolidated – Three Months Ended December 31, 2021 Compared to Three Months Ended December 31, 2020

Total revenues for the three months ended December 31, 2021 increased by approximately 30% to $519.0 million from $398.2 million in the same quarter of 2020 primarily due to higher sales realizations partially offset by lower pulp sales volumes.

Costs and expenses in the three months ended December 31, 2021 increased by approximately 2% to $389.0 million from $382.6 million in the fourth quarter of 2020 primarily due to higher per unit fiber costs and energy costs partially offset by the recognition of a $31.9 million business interruption insurance claim related to our Peace River mill and lower pulp sales volumes.

In the fourth quarter of 2021, Operating EBITDA increased to a record $164.9 million from $49.5 million in the same quarter of 2020 primarily due to higher sales realizations and recognition of the business interruption insurance claim partially offset by certain higher costs.

In the fourth quarter of 2021, pulp segment operating income increased to a record $113.2 million from $4.7 million in the same quarter of 2020 as higher sales realizations and the recognition of the business interruption insurance claim were only partially offset by higher energy and per unit fiber costs.

In the fourth quarter of 2021, prices for NBSK pulp increased from the same quarter of 2020 largely as a result of strong demand and low customer inventory levels. Average NBSK pulp sales realizations increased by approximately 33% to $784 per ADMT in the fourth quarter of 2021 from approximately $588 per ADMT in the same quarter of 2020.

Costs and expenses in the three months ended December 31, 2021 decreased by approximately 5% to $323.3 million from $339.5 million in the fourth quarter of 2020 due to the recognition of the business interruption insurance claim and lower pulp sales volume partially offset by higher energy costs primarily for the Rosenthal mill and higher per unit fiber costs. Our Rosenthal mill’s turbine was taken down in the third quarter of 2021 to complete extensive repair work which was completed in January 2022. The mill was required to purchase replacement energy during this period.

On average, in the fourth quarter of 2021, overall per unit fiber costs increased 19% when compared to the same quarter of 2020 due to strong demand and lower regional sawmill production. For our Canadian mills, per unit fiber costs increased primarily due to the Peace River mill producing a higher proportion of NBSK. In 2022, we are currently expecting modestly higher per unit fiber costs due to strong demand.

In the fourth quarter of 2021, our wood products segment operating income increased by approximately 54% to $19.9 million from $12.9 million in the same quarter of 2020 primarily due to a higher lumber sales realizations partially offset by higher per unit fiber costs.

Average lumber sales realizations increased by approximately 48% to $689 per Mfbm in the fourth quarter of 2021 from approximately $467 per Mfbm in the same quarter of 2020 primarily due to higher pricing in the European market partially offset by lower pricing in the U.S. market. European lumber pricing increased due to steady demand and low customer inventory levels as earlier in the year producers shifted product to the U.S. The U.S. lumber pricing decreased as a response to record pricing earlier in the year which moderated demand.

In the comparative quarter of 2020, per unit fiber costs were low as a result of a large supply of beetle damaged wood. As producers have been working through such wood, more green wood is being harvested. As a result of utilizing more green wood and continuing strong sawlog demand, current quarter per unit fiber costs increased by approximately 90% from the same quarter of 2020. We currently expect modestly increasing per unit fiber costs in the first quarter of 2022 due to continued strong demand.

Consolidated – Year Ended December 31, 2021 Compared to Year Ended December 31, 2020

Total revenues in 2021 increased by approximately 27% to a record $1,803.3 million from $1,423.1 million in 2020 primarily due to higher sales realizations partially offset by lower sales volumes.

Costs and expenses in 2021 increased by approximately 7% to $1,456.7 million from $1,359.4 million in 2020 primarily due to higher energy costs, the negative impact of a weaker dollar on our Canadian dollar and euro denominated costs and expenses, higher maintenance costs and higher per unit fiber costs for our wood products segment partially offset by lower sales volumes. Our maintenance costs were partially offset by the recovery of about $36.1 million in business interruption insurance claims related to our Peace River mill.

In 2021, the dollar was 7% weaker against the Canadian dollar and 4% weaker against the euro compared to 2020, which increased our Canadian dollar and euro denominated costs and expenses.

Selling, general and administrative expenses increased by approximately 18% to $78.9 million in 2021 from $66.9 million in 2020 primarily due to higher employee compensation and the negative impact of a weaker dollar.

In 2021, our net income was a record $171.0 million, or $2.59 per basic share and $2.58 per diluted share, compared to a net loss of $17.2 million, or $0.26 per share in 2020.

In 2021, Operating EBITDA increased to a record $478.8 million from $192.7 million in 2020 as higher sales realizations were only partially offset by higher energy costs, higher maintenance downtime, the negative impact of a weaker dollar and higher per unit fiber costs for our wood products segment.

As of December 31, 2021, we had cash and cash equivalents of approximately $345.6 million and approximately $285.3 million available under our revolving credit facilities providing us with aggregate liquidity of about $630.9 million.

A quarterly dividend of $0.075 per share will be paid on April 6, 2022 to all shareholders of record on March 30, 2022. 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 February 18, 2022 at 10:00 AM ET. Listeners can access the conference call live and archived for 30 days over the Internet at https://edge.media-server.com/mmc/p/zvsufbjb 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, USA and Canada with consolidated annual production capacity of 2.3 million tonnes of pulp, 550 million board feet of lumber and 140 thousand cubic meters of CLT. 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", "are optimistic that", "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.

	Q4			Q3			Q4			YTD				YTD
	2021			2021			2020			2021				2020
	(in thousands, except per share amounts)
Pulp segment revenues	$	436,345		$	396,743		$	344,077		$	1,483,093			$	1,220,644
Wood products segment revenues		78,932			70,723			53,091			311,081				197,649
Corporate and other revenues		3,680			2,280			1,027			9,081				4,847
Total revenues	$	518,957		$	469,746		$	398,195		$	1,803,255			$	1,423,140

Pulp segment operating income	$	113,172		$	99,918		$	4,650		$	251,724			$	37,952
Wood products segment operating income		19,876			18,299			12,859			108,466				34,704
Corporate and other operating loss		(3,085	)		(4,462	)		(1,893	)		(13,607	)			(8,927	)
Total operating income	$	129,963		$	113,755		$	15,616		$	346,583			$	63,729

Pulp segment depreciation and amortization	$	30,298		$	29,982		$	30,104		$	115,293			$	115,945
Wood products segment depreciation and amortization		3,712			3,675			3,585			14,858				12,212
Corporate and other depreciation and amortization		952			658			201			2,048				764
Total depreciation and amortization	$	34,962		$	34,315		$	33,890		$	132,199			$	128,921

Operating EBITDA	$	164,925		$	148,070		$	49,506		$	478,782			$	192,650
Loss on early extinguishment of debt	$	—		$	—		$	—		$	(30,368	)	⁽¹⁾	$	—
Income tax provision	$	(43,706	)	$	(32,490	)	$	(1,645	)	$	(89,579	)		$	(6,096	)
Net income (loss)	$	74,522		$	69,118		$	(12,977	)	$	170,988			$	(17,235	)
Net income (loss) per common share
Basic	$	1.13		$	1.05		$	(0.20	)	$	2.59			$	(0.26	)
Diluted	$	1.12		$	1.04		$	(0.20	)	$	2.58			$	(0.26	)
Common shares outstanding at period end		66,037			66,037			65,868			66,037				65,868

	Q4		Q3		Q4		YTD		YTD
	2021		2021		2020		2021		2020
Pulp Segment
Pulp production ('000 ADMTs)
NBSK		476.2		443.0		436.9		1,671.2		1,716.1
NBHK		48.8		57.8		87.4		192.7		335.0
Annual maintenance downtime ('000 ADMTs)		—		42.8		21.5		253.7		50.1
Annual maintenance downtime (days)		—		44		16		188		43
Pulp sales ('000 ADMTs)
NBSK		465.6		402.2		469.5		1,616.9		1,700.4
NBHK		50.7		45.7		93.6		195.8		329.0
Average NBSK pulp prices ($/ADMT)⁽¹⁾
Europe		1,302		1,345		880		1,243		851
China		723		832		637		850		588
North America		1,472		1,542		1,138		1,478		1,139
Average NBHK pulp prices ($/ADMT)⁽¹⁾
China		562		623		480		661		462
North America		1,262		1,320		868		1,225		881
Average pulp sales realizations ($/ADMT)⁽²⁾
NBSK		784		847		588		779		572
NBHK		649		684		454		615		452
Energy production ('000 MWh)⁽³⁾		480.9		464.5		568.1		1,826.5		2,238.6
Energy sales ('000 MWh)⁽³⁾		184.2		185.8		225.3		702.0		894.5
Average energy sales realizations ($/MWh)⁽³⁾		184		114		96		123		93

Wood Products Segment
Lumber production (MMfbm)		111.3		102.1		111.4		447.9		438.0
Lumber sales (MMfbm)		104.4		97.7		104.0		419.7		449.2
Average lumber sales realizations ($/Mfbm)		689	692		467			699	402
Energy production and sales ('000 MWh)		23.2		14.1		25.7		74.6		89.0
Average energy sales realizations ($/MWh)	213		128		122		155		119

Average Spot Currency Exchange Rates
$ / €⁽⁴⁾		1.1437		1.1784		1.1925		1.1830		1.1410
$ / C$⁽⁴⁾	0.7936		0.7937		0.7675		0.7981		0.7457

	Three Months Ended December 31,						For the Year Ended December 31,
	2021			2020			2021			2020
Revenues	$	518,957		$	398,195		$	1,803,255		$	1,423,140
Costs and expenses
Cost of sales, excluding depreciation and amortization		335,378			331,173			1,245,622			1,163,727
Cost of sales depreciation and amortization		34,942			33,865			132,117			128,817
Selling, general and administrative expenses		18,674			17,541			78,933			66,867
Operating income		129,963			15,616			346,583			63,729
Other income (expenses)
Interest expense		(17,016	)		(20,690	)		(70,047	)		(80,746	)
Loss on early extinguishment of debt		—			—			(30,368	)		—
Other income (expenses)		5,281			(6,258	)		14,399			5,878
Total other expenses, net		(11,735	)		(26,948	)		(86,016	)		(74,868	)
Income (loss) before income taxes		118,228			(11,332	)		260,567			(11,139	)
Income tax provision		(43,706	)		(1,645	)		(89,579	)		(6,096	)
Net income (loss)	$	74,522		$	(12,977	)	$	170,988		$	(17,235	)
Net income (loss) per common share
Basic	$	1.13		$	(0.20	)	$	2.59		$	(0.26	)
Diluted	$	1.12		$	(0.20	)	$	2.58		$	(0.26	)
Dividends declared per common share	$	0.0650		$	0.0650		$	0.2600		$	0.3325

	December 31,
	2021			2020
ASSETS
Current assets
Cash and cash equivalents	$	345,610		$	361,098
Accounts receivable, net		345,345			227,055
Inventories		356,731			271,696
Prepaid expenses and other		16,619			15,003
Total current assets		1,064,305			874,852
Property, plant and equipment, net		1,135,631			1,109,740
Investment in joint ventures		49,651			46,429
Amortizable intangible assets, net		47,902			51,571
Operating lease right-of-use assets		9,712			13,251
Pension asset		4,136			—
Other long-term assets		38,718			31,928
Deferred income tax		1,177			1,355
Total assets	$	2,351,232		$	2,129,126
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities
Accounts payable and other	$	282,307		$	210,994
Pension and other post-retirement benefit obligations		817			802
Total current liabilities		283,124			211,796
Long-term debt		1,237,545			1,186,623
Pension and other post-retirement benefit obligations		21,252			31,810
Operating lease liabilities		6,574			9,933
Other long-term liabilities		13,590			10,909
Deferred income tax		95,123			77,028
Total liabilities		1,657,208			1,528,099
Shareholders’ equity
Common shares $1 par value; 200,000,000 authorized; 66,037,000 issued and outstanding (2020 – 65,868,000)		65,988			65,800
Additional paid-in capital		347,902			345,696
Retained earnings		370,927			217,106
Accumulated other comprehensive loss		(90,793	)		(27,575	)
Total shareholders’ equity		694,024			601,027
Total liabilities and shareholders’ equity	$	2,351,232		$	2,129,126

	For the Year Ended December 31,
	2021			2020			2019
Cash flows from (used in) operating activities
Net income (loss)	$	170,988		$	(17,235	)	$	(9,639	)
Adjustments to reconcile net income (loss) to cash flows from operating activities
Depreciation and amortization		132,199			128,921			126,394
Deferred income tax provision (recovery)		18,791			(15,249	)		(7,873	)
Inventory impairment		—			25,998			9,200
Loss on early extinguishment of debt		30,368			—			4,750
Defined benefit pension plans and other post-retirement benefit plan expense		2,831			3,053			3,449
Stock compensation expense		2,394			928			3,036
Gain on sale of investments		—			(17,540	)		—
Foreign exchange transaction losses (gains)		(16,597	)		13,272			7,116
Other		384			543			5,834
Defined benefit pension plans and other post-retirement benefit plan contributions		(4,258	)		(4,164	)		(4,467	)
Changes in working capital
Accounts receivable		(121,579	)		(6,269	)		41,369
Inventories		(96,442	)		(11,430	)		24,683
Accounts payable and accrued expenses		75,589			(53,744	)		45,256
Other		(12,454	)		(5,519	)		(4,825	)
Net cash from (used in) operating activities		182,214			41,565			244,283
Cash flows from (used in) investing activities
Purchase of property, plant and equipment		(159,440	)		(78,518	)		(132,034	)
Acquisitions		(51,258	)		—			(6,380	)
Insurance proceeds		21,540			—			—
Purchase of amortizable intangible assets		(1,385	)		(647	)		(623	)
Purchase of investments		—			(9,370	)		—
Proceeds from sale of investments		—			26,910			—
Other		3,416			1,798			(321	)
Net cash from (used in) investing activities		(187,127	)		(59,827	)		(139,358	)
Cash flows from (used in) financing activities
Redemption of senior notes		(824,557	)		—			(103,875	)
Proceeds from issuance of senior notes		875,000			—			205,500
Proceeds from (repayment of) revolving credit facilities, net		(33,396	)		52,651			(58,404	)
Dividend payments		(17,167	)		(21,892	)		(35,279	)
Payment of debt issuance costs		(14,483	)		—			(4,213	)
Proceeds from government grants		9,333			362			6,467
Repurchase of common shares		—			(162	)		(754	)
Other		(4,234	)		(4,642	)		(3,344	)
Net cash from (used in) financing activities		(9,504	)		26,317			6,098
Effect of exchange rate changes on cash and cash equivalents		(1,071	)		1,958			(429	)
Net increase (decrease) in cash and cash equivalents		(15,488	)		10,013			110,594
Cash and cash equivalents, beginning of year		361,098			351,085			240,491
Cash and cash equivalents, end of year	$	345,610		$	361,098		$	351,085

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 (loss), 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 (loss) or operating income as a measure of performance, nor as an alternative to net cash from (used in) operating activities as a measure of liquidity. The following tables set forth the net income (loss) to Operating EBITDA:

	Q4			Q3			Q4			YTD			YTD
	2021			2021			2020			2021			2020
Net income (loss)	$	74,522		$	69,118		$	(12,977	)	$	170,988		$	(17,235	)
Income tax provision		43,706			32,490			1,645			89,579			6,096
Interest expense		17,016			16,882			20,690			70,047			80,746
Loss on early extinguishment of debt		—			—			—			30,368			—
Other expenses (income)		(5,281	)		(4,735	)		6,258			(14,399	)		(5,878	)
Operating income		129,963			113,755			15,616			346,583			63,729
Add: Depreciation and amortization		34,962			34,315			33,890			132,199			128,921
Operating EBITDA	$	164,925		$	148,070		$	49,506		$	478,782		$	192,650

	Three Months Ended December 31,
	2021		2020
	(in thousands)
Pulp revenues	$	400,379	$	321,379
Energy and chemical revenues	$	35,966	$	22,698
Operating income	$	113,172	$	4,650

	Three Months Ended December 31,
	2021		2020
	(in thousands)
Lumber revenues	$	71,965	$	48,560
Energy revenues	$	4,940	$	3,133
Wood residual revenues	$	2,027	$	1,398
Operating income	$	19,876	$	12,859