Verso Corporation

First quarter 2021 earnings conference call. All participants are in listen-only mode. There will be an opportunity for you to ask questions at the end of today's presentation. If you'd like to ask a question during the question and answer session, please press star then one on your touchtone phone. You'll hear a tone to confirm that you have entered the list. If you decide you want to withdraw your question, please press star then two for a mute yourself from the list. If you should need assistance during a conference, please signal an operator by pressing star then zero on your touch-tone phone. Please note that this event is being recorded. A replay of the call will be available on the VESTA page of Verso's website after 11 a.m. Eastern Time today. This time, I'd like to turn the presentation over to Verso's President, Tim Houston. Please go ahead.

Thank you, and good morning. The first quarter of 2021 financial results. Verso Corporation were announced this morning before the market opened. The earnings release, as well as a set of slides which we will refer to during the call, is available on the Investor Selection and Verso's website, www.VersoCo.com. Joining me on the call today are Randy Nebel, Verso's President and Chief Executive Officer, and Alan Campbell, Senior Vice President and Chief Financial Officer. I'd like to remind everyone that in the course of the call, in order to give you a better understanding of our performance, we will be making certain forward-looking statements. These forward-looking statements are subject to risks and uncertainty. Should one or more of these risks or uncertainties materialize or should underlying assumptions or estimates prove incorrect, actual results may vary materially from management's expectations. If you'd like further information regarding the various risks and uncertainties associated please refer to our SEC filings, which are posted on our website, versoco.com, under the investor tag. In addition, during today's call, we will discuss non-GAAP measures, which we believe can be useful in evaluating our performance. The presentation of this additional information should not be considered an isolation or as a substitute for results prepared in accordance with GAAP, and reconciliations to comparable GAAP measures are available in our earnings release. At this point, I'd like to hand the presentation over to Randy Niebel. Thank you, Tim.

Good morning, everyone. Turning to slide four, Versus performance continued to improve in the first quarter. The benefits of operational improvements we've made over the past year combined with stronger industry dynamics led to an improved first quarter performance. Our adjusted EBITDA coming in at $30 million, which is a solid increase over the fourth quarter of 2020. We also generated cash flow from operations of $7 million during a quarter that is historically slower and tends to be a cash draw. While this quarter was financially better, we are focused on long-term initiatives to build sustained long-term value. First and foremost, our fundamental commitment is to keep our employees safe and healthy. Our safety rating came in at a solid 0.25 total incident rate. I am proud of the work the team has done and the result of their efforts is impressive. Verso has been implementing capital projects to improve reliability, product mix, and our cost precision. One example of this is with our pulp lines. After thorough analysis by our team, with relatively small incremental increase in capital spend, we have been able to drive higher returns and further optimize pulp production for our customers and internal use. We were essentially able to convert what could have been a routine maintenance capital project to a cost savings project. We are applying analysis and ingenuity like this across the organization with some of the benefits of this thinking impacting quarters. These capital improvement projects all stem from an unwavering focus on the customer, enabling us to align our graphic web and sheet paper offerings to meet customer demand while improving the fundamentals of our business. While maintaining high standards for our products and services, we will focus on cost management. Our business is much stronger than it was during the fourth quarter. Coated free sheet operating rates are at 101% with strong order rates and backlogs and price increases being realized across our product portfolio. Turn to slide five. On slide five, we provide greater detail on some of the industry dynamics. As most of you know, North American capacity has come down significantly over the past year because of industry closures due to demand reductions accelerated by COVID. The first quarter capacity reflects the full impact of the coated free sheet paper machine closures and conversions in 2020 and includes the removal of Verso's Wisconsin rapid signal capacity in July of 2020. These capacity changes, together with a recovery in demand, are resulting in healthier operating rates. The industry has also seen imports impacted by logistical issues, supply change delays, and unfavorable exchange rates. Since the second quarter of 2020, we have seen an improvement in demand This trend is continuing into 2021. Turning to slide six, this chart profiles are adjusted EBITDA and the margin over the past four quarters. As you can see, the first quarter was a big step forward for us, as many of the improvements we have made, combined with improving industry dynamics, helped drive our financial performance. It is not where we want to be. but we are pleased with our progress and feel optimistic about the momentum we have. With that, I will now turn the call over to Alan to review the financial performance. Alan? Thank you, Randy. As mentioned, we turned the corner and adjusted EBITDA performance, delivering a 10.6% margin in the first quarter. Our net sales were $282 million compared to $471 million in the first quarter of 2020. This difference is reflected in market dynamics and reduction in capacity due to our sold and closed bills. Pricing improved sequentially, up $28 a ton from the fourth quarter of 2020. Pulp prices have improved $27 per ton versus last year, while paper prices nearly averaged last year. Our operating and net income were impacted by accelerated depreciation related to the Wisconsin Rapids site and other costs of the closed mills. We continue to work on reducing these costs and those closed mills and looking at lowering them each quarter. Turning to slide nine, our reported adjusted EBITDA was $35 million in the first quarter of last year, which included $4 million from our two sold mills. On a comparable basis, our first quarter adjusted EBITDA was just off $1 million versus last year. Idling the Duluth mill saved us $6 million in ongoing losses, while year-over-year price mix offset that. Volume was off as a result of limited COVID impact in 2020, the declining markets, and the idling of the Wisconsin Rapids mill. We'd like to note that our operations at the Quinnisec and Escanaba mills have been running well and contributed $9 million to operations and cost of sold improvement. Pension and SG&A are running favorable, but note we have seen increased freight costs across the board, which contribute $2 million of decline, as shown on the bridge. Note in slide 10 our cash flow from operations, $7 million in the quarter, as shown on the table on the right. a very good achievement and a quarter that is traditionally a heavy use of working capital. We ended the quarter with $118 million in cash and $264 million in liquidity. We continue to have no debt and are in the process of mending our revolver to better match the current size of the business. The ABL is limited by our lower borrowing base, so the change will not impact our liquidity but will lower our facility costs. Turning to slide 11, we have achieved a settlement with both Maryland and West Virginia regarding environmental matters at the Luke Mill. Our focus remains on reducing these ongoing costs, and recall that the fourth quarter mill cost was $34 million. We reduced that to $29 million in the first quarter, but note that it includes non-cash asset write-offs of $7 million, and accruals of $8 million, which relates to future remediation and estimated other closure costs. Cash spending for the quarter on these mills was $14 million. We continue to make progress on several fronts with the monetizing of our core assets, non-core assets, I'm sorry. Slide 12, moving on, reflects the progress to our commitment to return $250 million to our shareholders as a result of the sale of our Andrew Scoggin and Steven Point facilities. We have since returned $152 million with $114 million of that via dividends and $38 million via share buybacks. Note that we have declared a dividend of 10 cents a share that will be payable to shareholders on June 29th. Moving to slide 13. As we look at the year, we expect our capital cash expenditures to be $50 to $60 million as we move forward on our strategic projects, combined with the expanded maintenance and cost savings capital. Our minimum required pension cash contributions have been reduced to $26 million in accordance with the American Rescue Plan Act provisions. We expect positive operating cash flow required to fund capital, pension, and dividends. In addition, we anticipate continued reduction of closed and idle mill costs, and we are very optimistic that we'll be able to realize asset sales in the near future. With that, I'll turn it back to Randy. Thank you, Alan. In closing, I'd like to summarize a few key takeaways from the quarter. Through difficult times, we have kept our people safe. That will continue to be a Verso core value. It is also important to acknowledge that all the efforts that we have going on require significant engagement for our employees, which is a focus for Verso in 2021 and into the future. Order rates and backlogs are strong due to improved industry dynamics and price increases are being realized. We remain customer focused and have implemented capital projects to ensure that our customers continue to see our product offering improve in quality and our service improve. Our balance sheet remains strong and we have made great progress in meeting our commitment to return $250 million to our shareholders. We are focused on our core competencies and reinforce our position as a leader in graphic papers. This strategy is key to driving profitability and shareholder value in the coming years. Turn it over for questions.