Verso Corporation

Good morning, and welcome to Verzo Corporation's second quarter earnings conference call. All participants are in listen-only mode. There will be an opportunity to ask questions at the end of today's presentation. If you would like to ask a question during the question and answer session, please press star then one on a touch-tone phone. You will 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 to remove yourself from the list. If you should need assistance during the conference, please signal an operator by pressing star then zero on a touch-tone phone. Please note this conference is being recorded. A replay of this call will be available on the investor page of Verso's website after 11 a.m. Eastern time today. At this time, I'd like to turn the presentation over to Verso's Vice President and Treasurer, Tim Nussbaum. Please go ahead.

Thank you and good morning. The second quarter 2021 financial results for 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, are available in the investor section of Verso's website, www.VersoCo.com. Joining me on the call today are Randy Niebel, Verso's President and Chief Executive Officer, and Brian Cullen, Senior Vice President and Chief Financial Officer. I would like to remind everyone that in the course of the call, in order to give you a better understanding of our performance, we'll be making certain forward-looking statements. These forward-looking statements are subject to risks and uncertainties. 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 would like further information regarding the various risks and uncertainties associated with our business, please refer to our SEC filings, which are posted on our website, versoco.com, under the Investor tab. In addition, during today's call, we will discuss non-GAAP measures, which we believe can be useful in evaluating your performance. The presentation of this additional information should not be considered in 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 and Abel.

Thank you, Tim. Good morning, everyone. Before we discuss the quarter, I want to take a moment to discuss the unsolicited proposal from Atlas Holdings. As you have seen, on July 14th, we confirmed receipt of an unsolicited proposal to acquire all the outstanding shares of Verso Common Stock for $20 per share in cash. Today, we announce that our Board of Directors formed a special committee to evaluate the Atlas proposal and alternatives thereto. The special committee is composed of two non-executive, independent, and disinterested directors, Robert K. Beckler and Nancy M. Taylor. The special committee has retained independent advisors to assist, thoroughly review, and evaluate the proposal and alternatives thereto to determine the course of action it believes is in the best interest of VRSO and its stockholders. As noted in the earning release, we do not intend to comment on or disclose further developments regarding the special committee's evaluation unless and until we deem further disclosures as appropriate or required. We will not be commenting further on the proposal today. Now, let's dive into the results. Turning to slide four, This was a strong quarter for Verso, combining the benefits of executing a focused strategy with positive macro trends. We have a lot of work to do, but I am very proud of the team for driving the progress that we have made in this business to date. Revenue increased 17% sequentially to $329 million. Our adjusted EBITDA improved to $52 million with an adjusted EBITDA margin of 15.8%. These strong results were achieved in spite of $4 million in cost related to an annual maintenance outage at our Quinnisec mill and input cost inflation. Verso's operational cash generation was very strong at $57 million, and we were able to return $59 million to our shareholders during the quarter, much in the form of a modified Dutch auction in which we repurchased $55 million in stock. Multiple factors contributed to the strong performance. Verso realized price increases across our product portfolio. Shipments increased with North America coated free sheet offering rates at 106% and order rates and backlogs remaining strong. As I have said before, employee safety is of paramount importance to Verso. Verso delivered good safety performance for the first half of the year but we always strive to do better. Our operations continue to improve performance, focus on our core strength, and aggressively execute on our customer-centric strategy. Our customer base is very supportive of Verso. Verso is keenly focused on listening to the customer and ensuring that we are not only continuing to be the preferred supplier, but also that we will grow with them. In order to best serve customers while maximizing profitability, Verso has analyzed and implemented many high return capital projects to improve performance in the areas of productivity, product development, and cost reduction. This strategy is starting to pay off. Verso is well-positioned to continue to its improvement. On slide five, we outline some of the trends that are creating opportunity in our business. Industry capacity has been reduced 24% from 620,000 tons in the second quarter of last year to 472,000 tons in the second quarter of 2021. The second quarter capacity reflects the impact of coated free sheet paper machine closures and conversions in 2020. And as we previously mentioned, Verso removed the Wisconsin Rapids capacity in July of 2020 which represented over 400,000 annual tons of coated free sheet capacity. Imports remain low, although up from the first quarter, while container availability, major supply chain delays, and increasing freight costs remains challenging. Verso is better positioned to service the freight logical domestic market with a more predictable and efficient service platform. These factors, combined with a 31% increase in demand over the same quarter last year due to the economic reopening, have led to a strong shipment environment. Slide 6 profiles the steady improvement in adjusted EBITDA over the past year. The second quarter was another big step forward for Verso, as many of the improvements we have made, combined with favorable industry dynamics, helped drive our financial performance. Verso is starting to return to respectable margins, and we are optimistic about the future. Moving to slide seven, I would like to take a minute to clearly define Verso's assets today and reinforce the strength of our consolidated operations and the value in our diversified revenue streams. The Escanaba Mill has a capacity of approximately 700,000 tons of graphic and specialty papers. We are focused on growth opportunities in coded free sheet, both web and sheet offerings, and specialty. It is a strong asset with opportunities to drive efficiencies and improve its cost structure. The Quinnisec Mill is also a strong facility that has a capacity of approximately 430,000 tons of graphic papers and about 240,000 tons of market pulp. Some of this market pulp is internally consumed in the mills. We are focused on making targeted capital investments to reduce cost, expand graphic paper products offerings, and optimize pulp production. Wisconsin Rapids is a converting operation. The plant provides Verso with flexibility in our growth strategy. We are focused on transforming our converting operation into a customer-focused sheeting operation with seven state-of-the-art sheeters and a better cost footprint. Currently, the internal and external operations are positioned to convert approximately 200,000 tons of Sheeter Roll product from our Escanaba and Quinnisec mills. Finally, we own Consolidated Water Power Company, also known as QIPCO, a regulated utility with five hydroelectric facilities operating 38 turbines generating approximately 197,000 megawatt hours of electricity annually. Quibco sells the energy it produces together with purchases from other local utilities to paper mills and some residential homes. In addition to the Quibco energy platform, Verso's mills produce energy for use in the papermaking process, and some of this energy qualifies as renewable energy credits, which is sold to offset our total energy cost. The strength of our fully integrated platform and skilled workforce positions Verso well for future growth and sustained shareholder returns. I will now turn the call over to Brian Cullen, our new CFO, for the financial review. We're excited to have Brian on board. He brings over 20 years of broad financial and strategic leadership experience with the majority of his career holding executive and senior leadership roles at Fortune 500 companies, including McDonald's and Procter & Gamble. Brian?