UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________________
FORM
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of report (Date of earliest event reported):
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VERSO CORPORATION
(Exact name of registrant as specified in its charter)
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(State or other jurisdiction of incorporation) |
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(IRS Employer Identification Number) |
(Address, including zip code, of principal executive offices)
(Registrants’ telephone number, including area code)
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Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
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Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
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Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
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Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
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Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Securities registered pursuant to Section 12(b) of the Act:
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Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Item 2.02 Results of Operations and Financial Condition.
On November 9, 2020, Verso Corporation (“Verso”) issued a press release announcing its financial results for the third quarter ended September 30, 2020, and the declaration of a quarterly cash dividend of $0.10 per share of Verso’s Class A Common Stock (“Common Stock”). A copy of the press release is included as Exhibit 99.1 to this report. The press release, including the information contained therein, is furnished pursuant to Item 2.02, is not to be considered “filed” under the Securities Exchange Act of 1934 (“Exchange Act”), as amended, and shall not be incorporated by reference into any of Verso’s previous or future filings under the Securities Act of 1933, as amended (“Securities Act”).
Item 7.01. Regulation FD Disclosure.
Verso has prepared presentation materials (“Investor Presentation”) that management intends to use with its earnings conference call for its third quarter ended September 30, 2020 financial results, to be held at 9 a.m. Eastern Daylight Time on November 9, 2020. The Investor Presentation is furnished as Exhibit 99.2 hereto and is incorporated herein by reference.
The information furnished pursuant to this Item 7.01, including Exhibit 99.2, is not to be considered “filed” under the Exchange Act and shall not be incorporated by reference into any of Verso’s previous or future filings under the Securities Act
Item 8.01. Other Events.
On November 9, 2020, Verso announced that it will pay a quarterly cash dividend of $0.10 per share of common stock payable on December 29, 2020, to stockholders of record on December 18, 2020.
Item 9.01 Financial Statements and Exhibits.
(d) Exhibits
Exhibit Number |
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Description of Exhibit |
99.1 |
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99.2 |
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104 |
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Cover Page Interactive Data File (embedded within the Inline XBRL document). |
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
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Date: Novermber 9, 2020 |
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VERSO CORPORATION |
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By: |
/s/ Allen J. Campbell |
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Allen J. Campbell |
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Senior Vice President and Chief Financial Officer |
Exhibit 99.1
Verso Corporation Reports Third Quarter 2020 Financial Results and Declares Quarterly Cash Dividend of $0.10 per Share
MIAMISBURG, Ohio, Nov. 9, 2020 /PRNewswire/ -- Verso Corporation (NYSE: VRS) today reported financial results for the third quarter of 2020 and announced that its Board of Directors has declared a quarterly cash dividend for the quarter ending December 31, 2020, in the amount of $0.10 per each outstanding share of Verso's Class A common stock. The quarterly cash dividend is payable on December 29, 2020, to Verso's stockholders of record holding shares of common stock at the close of business December 18, 2020.
Third Quarter 2020 Highlights:
Overview
"We were encouraged to see a slight uptick in coated paper demand and operating rates in the third quarter, which contributed to an Adjusted EBITDA of $12 million compared to a loss last quarter," said Verso Interim President and Chief Executive Officer Randy Nebel. "Verso continues to have a strong balance sheet and liquidity after payment of the regular and special dividend to our stockholders."
Results of Operations – Comparison of Three Months Ended September 30, 2020 to Three Months Ended September 30, 2019
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| Three Month |
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(Dollars in millions) | 2019 |
| 2020 |
| $ Change |
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Net sales | $ 616 |
| $ 306 |
| $ (310) |
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Costs and expenses: |
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Cost of products sold (exclusive of depreciation and amortization) | 536 |
| 309 |
| (227) |
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Depreciation and amortization | 25 |
| 21 |
| (4) |
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Selling, general and administrative expenses | 23 |
| 19 |
| (4) |
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Restructuring charges | 4 |
| (2) |
| (6) |
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Other operating (income) expense | - |
| 3 |
| 3 |
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Operating income (loss) | 28 |
| (44) |
| (72) |
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Interest expense | - |
| 1 |
| 1 |
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Other (income) expense | (1) |
| (5) |
| (4) |
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Income (loss) before income taxes | 29 |
| (40) |
| (69) |
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Income tax expense (benefit) | (1) |
| (9) |
| (8) |
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Net income (loss) | $ 30 |
| $ (31) |
| $ (61) |
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Comments to Results of Operations - Comparison of Three Months Ended September 30, 2020 to Three Months Ended September 30, 2019
Net sales
Net sales for the third quarter 2020 decreased $310 million compared to the third quarter of 2019, as a result of significant declines in sales volume and unfavorable price/mix. Of the $310 million, or 50%, net sales decline, $36 million, or 6%, was attributable to the closure of our Luke Mill in June 2019 and $145 million, or 24%, was a result of the sale of our Androscoggin and Stevens Point mills in February 2020, and $70 million, or 11%, was attributable to the indefinite idling of our Duluth and Wisconsin Rapids mills in July 2020. Total company sales volume was down from 679 thousand tons during the third quarter 2019, to 382 thousand tons during the same period of the current year. Of the 297 thousand ton volume decline, 36 thousand tons were attributable to the closure of our Luke Mill in June 2019, 146 thousand tons were a result of the sale of our Androscoggin and Stevens
Point mills in February 2020, 79 thousand tons were attributable to the indefinite idling of our Duluth and Wisconsin Rapids mills in July 2020, and the additional decline in volume resulted from lower customer demand driven by the COVID-19 pandemic. We expect the COVID-19 pandemic to continue to have a negative impact on our net sales in the fourth quarter of 2020.
Operating income (loss)
Operating loss was $44 million for the third quarter of 2020, a decrease of $72 million when compared to operating income of $28 million for the third quarter of 2019.
Operating results for the third quarter of 2020 were positively impacted by:
Operating results for the third quarter of 2020 were negatively impacted by:
Other income
Other income for the third quarter of 2020 and 2019 includes income of $5 million and $2 million, respectively, associated with the non-operating components of net periodic pension cost (income).
Results of Operations – Comparison of Nine Months Ended September 30, 2020 to Nine Months Ended September 30, 2019
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| Nine Months Ended
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| (Dollars in millions) | 2019 |
| 2020 |
| $ Change |
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| Net sales | $ 1,857 |
| $ 1,045 |
| $ (812) |
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| Costs and expenses: |
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| Cost of products sold (exclusive of depreciation and amortization) | 1,625 |
| 1,007 |
| (618) |
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| Depreciation and amortization | 157 |
| 66 |
| (91) |
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| Selling, general and administrative expenses | 76 |
| 62 |
| (14) |
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| Restructuring charges | 44 |
| 4 |
| (40) |
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| Other operating (income) expense | 2 |
| (84) |
| (86) |
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| Operating income (loss) | (47) |
| (10) |
| 37 |
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| Interest expense | 2 |
| 1 |
| (1) |
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| Other (income) expense | (3) |
| (14) |
| (11) |
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| Income (loss) before income taxes | (46) |
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| 49 |
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| Income tax expense (benefit) | - |
| 14 |
| 14 |
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| Net income (loss) | $ (46) |
| $ (11) |
| $ 35 |
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Comments to Results of Operations - Comparison of Nine Months Ended September 30, 2020 to Nine Months Ended September 30, 2019
Net sales
Net sales for the nine months ended September 30, 2020 decreased $812 million compared to the nine months ended September 30, 2019, as a result of significant declines in sales volume and unfavorable price/mix. Of the $812 million, or 44%, net sales decline, $168 million, or 9%, was attributable to the closure of our Luke Mill in June 2019 and $351 million, or 19%, was a result of the sale of our Androscoggin and Stevens Point mills in February 2020, and $70 million, or 4%, was attributable to the indefinite idling of our Duluth and Wisconsin Rapids mills in July 2020. Total company sales volume was down from 1,990 thousand tons during the nine months ended September 30, 2019, to 1,282 thousand tons during the same period of the current year. Of the 708 thousand ton volume decline, 168 thousand tons were attributable to the closure of our Luke Mill in June 2019, 339 thousand tons
were a result of the sale of our Androscoggin and Stevens Point mills in February 2020, 79 thousand tons were attributable to the indefinite idling of our Duluth and Wisconsin Rapids mills in July 2020, and the additional decline in volume resulted from lower customer demand driven by the COVID-19 pandemic.
Operating income (loss)
Operating loss was $10 million for the nine months ended September 30, 2020, an improvement of $37 million when compared to operating loss of $47 million for the nine months ended September 30, 2019.
Operating results for the nine months ended September 30, 2020 were positively impacted by:
Operating results for the nine months ended September 30, 2020 were negatively impacted by:
Other income
Other income for the nine months ended September 30, 2020 and 2019 includes income of $15 million and $4 million, respectively, associated with the non-operating components of net periodic pension cost (income).
Reconciliation of Net Income (Loss) to EBITDA and Adjusted EBITDA
EBITDA consists of earnings before interest, taxes, depreciation and amortization. Adjusted EBITDA reflects adjustments to EBITDA to eliminate the impact of certain items that we do not consider to be indicative of our ongoing performance. We use EBITDA and Adjusted EBITDA as a way of evaluating our performance relative to that of our peers and to assess compliance with our credit facilities. We believe that EBITDA and Adjusted EBITDA are non-GAAP operating performance measures commonly used in our industry that provide investors and analysts with measures of ongoing operating results, unaffected by differences in capital structures, capital investment cycles and ages of related assets among otherwise comparable companies.
We believe that the supplemental adjustments applied in calculating Adjusted EBITDA are reasonable and appropriate to provide additional information to investors.
Because EBITDA and Adjusted EBITDA are not measurements determined in accordance with Generally Accepted Accounting Principles (GAAP) and are susceptible to varying calculations, EBITDA and Adjusted EBITDA, as presented, may not be comparable to similarly titled measures of other companies. You should consider our EBITDA and Adjusted EBITDA in addition to, and not as a substitute for, or superior to, our operating or net income (loss), which are determined in accordance with GAAP.
The following table reconciles Net income (loss) to EBITDA and Adjusted EBITDA for the periods presented:
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| Three Months
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| Three Months Ended
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| Nine Months Ended
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| (Dollars in millions) |
| 2020 |
| 2019 |
| 2020 |
| 2019 |
| 2020 | |
| Net income (loss) |
| $ (34) |
| $ 30 |
| $ (31) |
| $ (46) |
| $ (11) | |
| Income tax expense (benefit) |
| (3) |
| (1) |
| (9) |
| - |
| 14 | |
| Interest expense |
| - |
| - |
| 1 |
| 2 |
| 1 | |
| Depreciation and amortization |
| 22 |
| 25 |
| 21 |
| 157 |
| 66 | |
| EBITDA |
| $ (15) |
| $ 54 |
| $ (18) |
| $ 113 |
| $ 70 | |
| Adjustments to EBITDA: |
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| Restructuring charges (1) |
| - |
| 4 |
| (2) |
| 44 |
| 4 |
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| Luke Mill post-closure costs (2) |
| 3 |
| 3 |
| 3 |
| 4 |
| 9 |
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| Non-cash equity award compensation (3) |
| 2 |
| 2 |
| 1 |
| 10 |
| 5 |
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| Gain on Sale of the Androscoggin/Stevens Point Mills (4) | - |
| - |
| - |
| - |
| (88) | |
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| Duluth and Wisconsin Rapids Mills idle costs (5) |
| - |
| - |
| 17 |
| - |
| 17 |
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| (Gain) loss on sale or disposal of assets (6) |
| - |
| (1) |
| 3 |
| - |
| 3 |
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| Stockholders proxy solicitation costs (7) |
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| - |
| - |
| - |
| 4 |
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| Other severance costs (8) |
| 1 |
| 2 |
| 8 |
| 4 |
| 13 |
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| Other items, net (9) |
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| - |
| - |
| 2 |
| 1 |
| Adjusted EBITDA |
| $ (9) |
| $ 64 |
| $ 12 |
| $ 177 |
| $ 38 | |
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| (1) | Charges associated with the closure of our Luke Mill in June 2019. | ||||||||||
| (2) | Costs recorded after production ceased at our Luke Mill that are not associated with product sales or restructuring activities. | ||||||||||
| (3) | Amortization of non-cash incentive compensation. | ||||||||||
| (4) | Gain on the sale of the outstanding membership interests in Verso Androscoggin LLC in February 2020, which included our Androscoggin Mill and Stevens Point Mill. | ||||||||||
| (5) | Costs associated with the indefinite idling of our Duluth Mill and Wisconsin Rapids Mill, beginning in July 2020, that are not associated with product sales or restructuring activities. | ||||||||||
| (6) | Realized (gain) loss on the sale or disposal of assets. | ||||||||||
| (7) | Costs incurred in connection with the stockholders proxy solicitation contest. | ||||||||||
| (8) | Severance and related benefit costs not associated with restructuring activities. | ||||||||||
| (9) | Other miscellaneous adjustments. |
About Verso
Verso Corporation is the turn-to company for those looking to successfully navigate the complexities of paper sourcing and performance. A leading North American producer of graphic and specialty papers, packaging papers and pulp, Verso provides insightful solutions that help drive improved customer efficiency, productivity, brand awareness and business results. Verso's long-standing reputation for quality and reliability is directly tied to our vision to be a company with passion that is respected and trusted by all. Verso's passion is rooted in ethical business practices that demand safe workplaces for our employees and sustainable wood sourcing for our products. This passion, combined with our flexible manufacturing capabilities and an unmatched commitment to product performance, delivery and service, make Verso a preferred choice among commercial printers, paper
merchants and brokers, converters, publishers and other end users. For more information, visit us online at versoco.com.
Forward-Looking Statements
In this press release, all statements that are not purely historical facts are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements may be identified by the words "believe," "expect," "anticipate," "project," "plan," "estimate," "intend," "potential" and other similar expressions. They include, for example, statements relating to our business and operating outlook and our positioning for long-term success within the industry. Forward-looking statements are based on currently available business, economic, financial, and other information and reflect management's current beliefs, expectations, and views with respect to future developments and their potential effects on Verso. Actual results
could vary materially depending on risks and uncertainties that may affect Verso and its business. Verso's actual actions and results may differ materially from what is expressed or implied by these statements due to a variety of factors, including: uncertainties regarding the duration and severity of the COVID-19 pandemic and measures intended to reduce its spread; the long-term structural decline and general softening of demand facing the paper industry; adverse developments in general business and economic conditions; developments in alternative media, which are expected to adversely affect the demand for some of Verso's key products, and the effectiveness of Verso's responses to these developments; intense competition in the paper manufacturing industry; Verso's ability to compete with respect to certain specialty paper products for a period of two years after the
closing of the Pixelle Sale; Verso's business being less diversified following the sale of two mills after the closing of the Pixelle Sale and the idling of two other mills while exploring alternatives for those mills; Verso's dependence on a small number of customers for a significant portion of its business; Verso's limited ability to control the pricing of its products or pass through increases in its costs to its customers; changes in the costs of raw materials and purchased energy; negative publicity, even if unjustified; any failure to comply with environmental or other laws or regulations, even if inadvertent; legal proceedings or disputes; any labor disputes; and the potential risks and uncertainties described under the caption "Risk Factors" in Verso's Form 10-K for the fiscal year ended December 31, 2019, Verso's Quarterly Report on Form 10-Q for
the three months ended March 31, 2020, and from time to time in Verso's other filings with the Securities and Exchange Commission. Verso assumes no obligation to update any forward-looking statement made in this press release to reflect subsequent events or circumstances or actual outcomes.
Conference Call
Verso will host a conference call and webcast for analysts and investors on Monday, November 9, 2020 at 9 a.m. (EST) to discuss third quarter 2020 financial results.
Analysts and investors may access the live conference call only by dialing 888-317-6003 (U.S. toll-free), 866-284-3684 (Canada toll-free) or 412-317-6061 (international) and referencing elite entry number 7091373 and Verso Corporation. To register, please dial in 10 minutes before the conference call begins. The news release and third quarter 2020 results will be available on Verso's website at http://investor.versoco.com by navigating to the Financial Information page.
Analysts and investors may also access the live conference call and webcast by clicking on the event link https://www.webcaster4.com/Webcast/Page/1524/38436 or by visiting Verso's website at http://investor.versoco.com and navigating to the Events page. Please go to this link at least one hour before the call and follow the instructions to register, download and install any necessary audio/video software.
A telephonic replay of the call can be accessed at 877-344-7529 (U.S. toll-free), 855-669-9658 (Canada toll-free) or 412-317-0088 (international), access code 10149637. The replay will be available starting at 11 a.m. (EST) Monday, November 9, 2020 and will remain available until December 9, 2020. An archive of the conference call and webcast will be available at http://investor.versoco.com starting at 11 a.m. (EST) Monday, November 9, 2020 and will remain available for 120 days.
CONTACT: Investor contact: investor.relations@versoco.com, 937-528-3220; Media contact: Shawn Hall, Director, Communications, 937-528-3700, shawn.hall@versoco.com
Third Quarter 2020 Results NYSE: VRS Exhibit 99.2
Forward Looking Statements Non-GAAP Financial Information In this presentation, all statements that are not purely historical facts are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements in this presentation include, but are not limited to our expectations for pricing and input costs. Forward-looking statements may be identified by the words "believe," "expect," "anticipate," "project," "plan," "estimate," "intend," “potential” and other similar expressions. Forward-looking statements are based on currently available business, economic, financial, and other information and reflect management's current beliefs, expectations, and views with respect to future developments and their potential effects on Verso. Actual results could vary materially depending on risks and uncertainties that may affect Verso and its business. Verso’s actual actions and results may differ materially from what is expressed or implied by these statements due to a variety of factors, including: uncertainties regarding the duration and severity of the COVID-19 pandemic and measures intended to reduce its spread; the long-term structural decline and general softening of demand facing the paper industry; adverse developments in general business and economic conditions; developments in alternative media, which are expected to adversely affect the demand for some of Verso's key products, and the effectiveness of Verso's responses to these developments; intense competition in the paper manufacturing industry; Verso's ability to compete with respect to certain specialty paper products for a period of two years after the closing of the Pixelle Sale; Verso's business being less diversified following the sale of two mills after the closing of the Pixelle Sale and the idling of two other mills while exploring alternatives for those mills; Verso's dependence on a small number of customers for a significant portion of its business; Verso's limited ability to control the pricing of its products or pass through increases in its costs to its customers; changes in the costs of raw materials and purchased energy; negative publicity, even if unjustified; any failure to comply with environmental or other laws or regulations, even if inadvertent; legal proceedings or disputes; any labor disputes; and the potential risks and uncertainties described under the caption “Risk Factors” in Verso's Form 10-K for the fiscal year ended December 31, 2019, Verso's Quarterly Report on Form 10-Q for the three months ended March 31, 2020, and from time to time in Verso's other filings with the Securities and Exchange Commission. Verso assumes no obligation to update any forward-looking statement made in this presentation to reflect subsequent events or circumstances or actual outcomes. This presentation contains certain non-GAAP financial information relating to Verso, including EBITDA, Adjusted EBITDA, Adjusted SG&A, Gross profit (excl. D&A) and related margins. Definitions and reconciliations of these non-GAAP measures are included in this presentation. Because EBITDA, Adjusted EBITDA, Adjusted SG&A and Gross profit (excl. D&A) are not measurements determined in accordance with GAAP and are susceptible to varying calculations, EBITDA, Adjusted EBITDA, Adjusted SG&A and Gross profit (excl. D&A) as presented, may not be comparable to similarly titled measures of other companies. You should consider our EBITDA, Adjusted EBITDA, Adjusted SG&A and Gross profit (excl. D&A) in addition to, and not as a substitute for, or superior to, our operating or net income or cash flows from operating activities, which are determined in accordance with GAAP. See the Appendix in this presentation for additional information on EBITDA, Adjusted EBITDA, Adjusted SG&A and Gross profit (excl. D&A) .
BUSINESS UPDATE RANDY J. NEBEL Interim President & CEO
VISION SUPPLY the best products with the highest levels of service GROW market share PRIORITIZE capital projects with fast return on investment FOCUS on improving profitability and cash flow PURSUE cost reductions ENGAGE workforce to achieve goals DELIVER Shareholder Value
FOCUS ON KEY COMPETENCIES Meeting customers’ increasing expectations: Inventory allows for exceptional customer fulfillment as industry begins to recover Qualification of profitable grades on current machines progressing well Expanding current capabilities through fast return projects Focusing on our Graphic paper product offerings: Committed to both sheet and web offerings Reinforcing customer service excellence Strategically reducing costs: Direct (fiber, chemicals, energy) Fixed (labor, maintenance, services) Delivering high quality products to Specialty and Pulp customers representing 33% of capacity
Q3 2020 HIGHLIGHTS Adjusted EBITDA1 for Q3 of $12M improved over Q2 loss of $(9)M CONTINUED TO STRENGTHEN POSITIONING FOR LONG-TERM SUCCESS RETURNED CAPITAL TO STOCKHOLDERS Improved safety performance with a 0.81 TIR through Q3 Focused on strengthening key customer relationships Reinforcing our leadership position in Graphic papers with the highest quality sheet and web product offerings Improving performance at Verso’s two high potential mills Continuing laser focus on cost reduction Paid regular and special dividend totaling $105M MAINTAINED STRONG BALANCE SHEET + LIQUIDITY $73M in cash after issuance of dividends $293M in liquidity2 No debt IMPROVED PERFORMANCE OVER Q2 1 See Appendix for definitions of EBITDA and Adjusted EBITDA. EBITDA and Adjusted EBITDA are non-GAAP Measures. 2 Includes ABL facility limited by quarter end borrowing base of $244M and inclusive of cash.
Q1 Q2 Q3 Industry has seen reduced capacity Demand improved through the quarter Operating rates improving Q1 Q2 Q3 Q1 Q2 Q3 659 597 532 802 522 624 91% 56% 93% PPPC Data (000) short tons INDUSTRY DYNAMICS IMPROVED North American Coated Freesheet Industry Quarterly Metrics Shown
FINANCIAL UPDATE ALLEN CAMPBELL Senior Vice President & CFO
Net Income impacted by closed and idled mill costs of $20M and severance costs of $8M Price up $27 / ton from Q2 of 2020 with improved product mix Reduced inventory by $52M Planned major maintenance outages completed for the year SG&A initiative savings being realized; YTD adjusted SG&A2 at 4.2% of sales KEY METRICS ($ in Millions except per share data) Q3 19 Q3 20 Net Sales $ 616 $ 306 Gross Margin (excl. D&A)1 $ 80 $ (3 ) Operating Income / (Loss) $ 28 $ (44 ) Net Income / (Loss) $ 30 $ (31 ) Adjusted EBITDA2 $ 64 $ 12 Adjusted EBITDA Margin2 % 10.4% 3.9% EPS – Diluted $/share $ 0.85 $ (0.92 ) 1 Depreciation and Amortization (D&A) for Q3 2020 of $21M and Q3 2019 of $25M. 2 See Appendix for definitions of EBITDA, Adjusted EBITDA, Adjusted EBITDA Margin and Adjusted SG&A. EBITDA, Adjusted EBITDA, Adjusted EBITDA Margin and Adjusted SG&A are non-GAAP Measures. Q3 19 Q2 20 Q3 20 Shipments (000 tons) Paper 621 280 308 Pulp 58 66 74 Total 679 346 382 Price $ / ton Paper 945 844 888 Pulp 500 471 433 Average Price $ / ton 907 773 800
Q3 2019 TO Q3 2020 ADJUSTED EBITDA1 BRIDGE ($M) COVID related economic conditions contributed to $40M impact to price, mix and volume $12M of downtime related to idling of Duluth and Wisconsin Rapids mills Improved operational performance in the quarter Strong focus on cost management initiatives 1 See Appendix for definitions of EBITDA and Adjusted EBITDA. EBITDA and Adjusted EBITDA are non-GAAP Measures.
Q3 19 Q4 19 Q1 20 Q2 20 Q3 20 Q3 19 Q4 19 Q1 20 Q2 20 Q3 20 Q3 19 Q4 19 Q1 20 Q2 20 Q3 20 STRONG LIQUIDITY CASH LIQUIDITY1 DEBT ($ in Millions) $6 $42 $209 $276 $73 $294 $318 $498 $423 $293 $21 $0 $0 $0 1 Includes ABL facility limited by borrowing base and inclusive of cash. 2 See Appendix for definitions of EBITDA and Adjusted EBITDA. EBITDA and Adjusted EBITDA are non-GAAP Measures. Changes to Cash Q3 2020 Adjusted EBITDA2 $12 Working Capital 23 CapEx (6) Net Pension (32) Net Interest/Taxes (1) Cash from Operations $(4) Buyback / Dividend (105) Closed/idled Mills (27) Total $(136) $0 4 Quarters of No Debt
Escanaba and Quinnesec mills gross margin of 15.6% (excl. D&A) even with two quarters of COVID impact Unfavorable impacts in Q3 vs. prior year included $23M in price and $8M in volume Total market pulp and paper capacity of 1.4M tons Sheeting business strategy should provide company an additional gross margin of $15 to $20M KEY METRICS: TWO OPERATING MILLS ($ in Millions) LTM1 Net Sales $ 899 Mill Gross Profit (excl. D&A)2 $ 140 Mill Gross Margin (excl. D&A)2 15.6 % 1 Last Twelve Months (LTM) as of September 30, 2020. 2 LTM Depreciation and Amortization (D&A) for the two mills is $46M.
Net Unfunded Liability ($ in Millions) $457 $369 $528 $435 PENSION RE-MEASUREMENT Re-measured GAAP net pension liability as of September 30, 20201 due to various factors, including the net liability transfer on asset sales Assumption changes included a lower September 30, 2020 discount rate2 and updates to mortality experience The re-measurement does not impact the 2020 cash contributions of $49M Changes to Net Liability Q3 2020 2019 Year End $369 Contributions (47) Net Transferred (37) Settlement Gain (9) Actuarial Assumptions 99 Interest/Service Cost 37 Asset Returns 23 September 30, 2020 $435 1 Normal timing would be December 31, 2020 and reflects similar assumption changes occurring at that time. 2 Discount rate declined from 3.11% to 2.71% driving $72M in value change.
STATUS OF IDLED MILLS / ASSET SALES Completing sale of Luke Mill assets Collected $4M through Q3. Expect to receive an additional $22M over next several months Idling costs at Duluth and Wisconsin Rapids mills of $17M in Q3 Recorded Duluth Mill severance in September of $3M Expecting no material environmental costs at Duluth and Wisconsin Rapids Completed transition services agreement with Pixelle in October
$3.4M $2.7M Q1 2020 Q2 2020 $3.4M $19.7M Q3 2020 $3.4M $101.1M Cumulative Return $2.7M $25.8M $130.3M RETURN OF CAPITAL Cumulative repurchase of $22.4M Share Repurchase Paid special dividend of $3 per share and regular dividend of $0.10 per share in Q3 Declared quarterly dividend of $0.10 per share Payable on December 29, 2020 Dividends Total of $130.3 million returned to shareholders in 2020 YTD
LEVERAGE AND IMPROVE OUR STRENGTHS TO MEET DEMAND AND OPTIMIZE OUR BUSINESS Brand Recognition A leading North American producer of well-established paper brands Deep Customer Relationships Focused on customer experience with both service and product offerings Flexibility, Efficiency & Speed Build on strong cost-effective operating platform with fast return projects Coated Freesheet Sheets Coated Freesheet Web Coated Groundwood Digital Sheets and Rolls Label Facestock Release Liner Base Paper Fragrance Paper Hardwood Kraft Graphic Papers Specialty Papers Pulp
Q&A
Q & A APPENDIX
EBITDA, Adjusted EBITDA, Mill Adjusted Net Sales and Mill Adjusted EBITDA Definitions EBITDA consists of earnings before interest, taxes, depreciation and amortization. Adjusted EBITDA reflects adjustments to EBITDA to eliminate the impact of certain items that we do not consider to be indicative of our ongoing performance. Mill Adjusted Net Sales excludes sales from the Androscoggin and Stevens Point mills. Mill Adjusted EBITDA excludes adjustments from the Androscoggin and Stevens Point mills. We use EBITDA, Adjusted EBITDA, Adjusted EBITDA Margin, Mill Adjusted Net Sales, Mill Adjusted EBITDA, Adjusted SG&A and Gross Profit (excl. D&A) as a way of evaluating our performance relative to that of our peers and to assess compliance with our credit facilities. We believe that EBITDA, Adjusted EBITDA and Adjusted EBITDA Margin, Adjusted SG&A and Gross Profit (excl. D&A) are non-GAAP operating performance measures commonly used in our industry that provide investors and analysts with measures of ongoing operating results, unaffected by differences in capital structures, capital investment cycles and ages of related assets among otherwise comparable companies. We believe that the supplemental adjustments applied in calculating Adjusted EBITDA , Adjusted EBITDA Margin, Mill Adjusted Net Sales, Mill Adjusted EBITDA, Adjusted SG&A and Gross Profit (excl D&A) are reasonable and appropriate to provide additional information to investors.
Major Maintenance – Excluding Sold Mills Major Outage Timing Q1 Q2 Q3 Q4 2018 No Major Outage Quinnesec Wisconsin Rapids No Major Outage Escanaba 2019 No Major Outage Wisconsin Rapids Escanaba No Major Outage 2020F No Major Outage Quinnesec Escanaba No Major Outage ($ in Millions)
Q3 2019 & Q3 2020 Adjusted EBITDA Reconciliation
YTD 2019 & YTD 2020 Adjusted EBITDA Reconciliation
Q3 and YTD 2020 P&L Adjusted EBITDA Add Back Items
Q3 and YTD 2019 P&L Adjusted EBITDA Add Back Items
LTM and YTD Adjusted EBITDA Reconciliation
Verso Q3 2019 Mill Adjusted Net Sales and Mill Adjusted EBITDA Reconciliation
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