Verso Corporation
Q2 2016 Earnings Call Transcript
Published:
- Operator:
- Good morning and welcome to Verso Corporation's Second Quarter 2016 Earnings Conference Call. All participants today are in listen-only-mode. There will be an opportunity for you to ask questions at the end of today's presentation. [Operator Instructions] Please note this conference is being recorded. A reply of this call will be available on the Investors of Verso's website after 12 PM Eastern Time today. At this time, I'd like to turn the presentation over to Verso's Treasurer, Tim Nusbaum. Please go ahead.
- Tim Nusbaum:
- Thank you and good morning. Second quarter 2016 financial results for Verso Corporation were announced last evening after the market closed. The earnings release as well as the slides that we'll refer to during the call are available on the Investors page of Verso's website at www.versoco.com. Covering the earnings report today is Dave Paterson, Verso's President and Chief Executive Officer and Allen Campbell, our 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 uncertainties. Should one of these risks or uncertainties materialize Verso's underlying assumptions or estimates prove incorrect, actual results may vary materially from management expectations. If you would like further information regarding various risks and uncertainties associated with our business, please refer to our SEC filings which was posted on our website versoco.com under the Investor Relations tab. At this point I'd like to turn it over to Dave Paterson.
- David Paterson:
- Thanks, Tim, and good morning to everyone on the call. Thank you for your interest in Verso. I'm going to start on page four talking generally about the economy and then dive into our paper grades. As we all know the economy continues to grow at a moderate rate and unemployment continues to be very low, as this translates to our paper businesses they remain challenged as we point to things like magazine, ad pages continuing to decline at 7% rate year-over-year and catalog mailings down as well. And the current consumption of all coated papers appears to be down 7.2%. Having said that we are seeing a seasonal pickup which is normal for us in the third quarter and Allen will touch on that in his presentation. On page five we look at our major segments coated freesheet. Coated freesheet remains stronger than coated groundwood though down in line with our expectations. Industry operating rates continue to weaken year-over-year and but we are coming into a seasonally busy period for coated freesheet again Allen will touch on the third quarter and the forward view. Imports have softened moderately year-over-year, reflecting they had a significant increase last year and little bit down trend this year some of that is just general demand. We did have a price decrease on the sheet business in the second quarter, which affected our pricing on coated sheets of the freesheet segment, which is a very important piece of our business there and we're watching that very closely. Turning to coated groundwood, operating rates are 89% flat year-over-year despite our shutting down our A2 machine in Androscoggin, which is a coated groundwood machine. Current consumption continues to decline at a significant rate 11.2% really it’s an issue around magazines being reduced significantly in the North America market. And this is the one grade where we continue to see increase in imports primarily from Europe as well as Asia, but imports continue to increase in the coated groundwood section. I'll remind you all that we've significantly reduced our exposure to coated groundwood over the last 18 months. On the super-calendar side the tariffs are in place largely offset by the impact of the stronger U.S. dollar vis-à-vis the Canadian dollar, though we are seeing announcements coming out of our Canadian competitors who are looking at alternative products to make on these machines including moving away potentially from SC and several mills in Canada and other U.S. paper mills producer for calendar papers, Madison paper in May, ceased operations in May of this year. So that leaves the Duluth mill in our system as the only dedicated supercalender paper mill in the United States. Turning to page six, we've had a good safety performance through the first six months target below one on the safety incident rate, very good for us. The trend is very good and it’s across – we’re seeing improvements across our entire operating platform. I think from like market perspective price and volume are down. Allen will touch on that in some detail in his part of the presentation. We've partially offset some of these price and volume issues through mix and again Allen will touch on that in his presentation. As we all know we successfully emerged from bankruptcy mid July with a much stronger balance sheet and prepared to address the market issues in front of us. Our ABL is at market terms and our term loan has some challenging terms on it and Allen and I are prepared to talk about both those financial instruments during the Q&A period. Our mills are operating well. We do have two of the seven mills that are lagging, one very significantly that at Luke, Maryland and we’re highly focused on determining the right strategy for Luke in getting Luke back in a consistent operating mode. And I have announced my retirement from the company and the Board and we formed office of the Chief Executive, which is comprised of Allen Campbell our CFO; Mike Weinhold, SVP of Sales Marketing and Product Development; Peter Kesser, SVP, General Counsel and Secretary and Adam St. John who is newly promoted in the position of Senior Vice President, Manufacturing, very strong, very experienced, very knowledgeable operating team and along with our Board of Directors will direct the company while the CEO search is underway. So with that I'll turn it over to Allen.
- Allen Campbell:
- Thank you, Dave. I'll walk you through the quarter and year-to-date financials and provide a brief outlook on our business. On page seven, we provide a comparison of second quarter 2016 versus the same quarter last year. As Dave mentioned the market was specially challenged in the second quarter. Our sales were off $148 million due to weakness in the paper market and our capacity actions where we exited some low margin product offerings. Adjusted EBITDA for the quarter was 7.3% of sales, down primarily due to pricing. But I'll walk you through a bridge on a subsequent slide. If you notice our financial statements include several items in the quarter that are typical of reorganizing companies; number one, we had reorganization cost of $12 million that amounted to $17 million -- and included $17 million of cash expenses, less a $5 million gain. We also incurred $11 million of DIP related interest and took a restructuring charge of $7 million for Wickliffe mill in the quarter. As you see the add backs at the bottom of the page from EBITDA to adjusted EBITDA they include the items I mentioned and some trailing system integration cost. On page eight, we show our volume and pricing trends. As you can see from second quarter of '15 volume decline and pricing decline. What's important to note is that in 2015 we announced a price increase in the first quarter it went effective for most of the second quarter. So the paper increases that we had in price there helped for a while, but then it dropped in the last half of the year and as Dave mentioned we did have to take some price declines in the second quarter of '16 as you can see. Once again I did want to note is on our pulp volume we had about 100,000 tons in 2015, 62,000 tons this quarter. But that was due to some actions that we took. We closed our Wickliffe mill so that reduced some pulp sales. We idled one of our pulp machines in Andro, thus reducing the amount of sales there. And then also, we started using more pulp internally instead of purchasing from the outside. So you see the first and second quarter fairly consistent, but down from last year. So I want to help you with that. If we go to our input prices, that's helping the business quite a bit. It's probably a lot of what we're playing -- paying for in the pricing in the marketplace. We see increases of late in latex primarily in the chemical side. They're up even despite soft underlying raw materials as producers are seeking margin improvement. Wood and fiber are still favorable, but we did have to shuffle some supply that caused extra freight in the quarter. Energy costs continue to be favorable to Verso. Turning to Page 10, we show a bridge from 2015 second quarter to the 2016 second quarter performance. This slide -- the $80 million reported in 2015 included $6 million of lower maintenance and outage costs driven by purchase accounting. So on apples-to-apples basis 2015 EBITDA was $74 million. As I mentioned, price is a major driver in the company. As we took the price increase in the second quarter in 2015 that price held for most of the quarter and then we started giving some of that back in the last half and then the prices declined a little bit in this year. Paper volume was down 113,000 tons and pulp was down 37,000 that drives the volume decline of $12 million of EBITDA. Mix was favorable, as we improved our sales in premium digital and specialty drapes, while uncoated tablet and pulp and seconds have declined in the same time period. So the company strategically tried to help themselves, and we've done that, as you can see with $12 million improvement in mix. Operations were fairly flat in the quarter. We have many mills favorable, but we did have some Luke and Andro mill issues that offset the paper quality and others. So it netted to zero. Input prices favorable by $16 million. And you see a decline in miscellaneous of $9 million. That's primarily a pension expense year-over-year swing of $5 million and $2.5 million of elimination of catalyst service agreement that we're beneficiary of last year. So that provides a bridge from the adjusted pro forma of 74 to 46. On Page 11, we show the year-to-date financial performance. Sales were up $264 million, adjusted EBITDA at 6.5% on sales of $1.38 billion. We made consistent adjustments to EBITDA for the six months. Restructurings added back to the tune of $151 million. Note that $135 million of that was non-cash write-offs. We had a gain on the sale of our Hydro business and a gain on also the reorganization of debt -- due to debt exchange that we recognized during our reorganization adjustments in the second quarter. And then we have other that relates to items like the Wickliffe closing, where we idled the plant in order to try to sell it for a period of time and some integration costs that we incurred putting NewPage Verso together. So fairly typical walk, I have a bridge in just the next slide that help us understand more what was going on. This slide on Page 12, starts with the $124 million was our year-to-date EBITDA -- adjusted EBITDA in 2015. If I make the same adjustment for the maintenance and outage costs to $14 million on an apples-to-apples basis that would've been $110 million. You see price impact of $61 million. That's across all of our grades. If you look at web, coated freesheet web we were down $56 a ton. Coated ground wood down just slightly under that, and single-sided coated sheets were down even more. So market driven primarily by imports, driven by capacity and driven by the raw material prices being down year-over-year contributed to that. Volume was up $23 million on EBITDA basis. On a year-to-date, the mix made up $18 million of that and the same issue we've been able to change and promote more of our higher end higher margin products premium, digital and specialty grades and being able to rely less on uncoated tablet seconds than we did in prior years. What was good is that, if you look at input costs and operations, those two have added back $52 million helping offset the price decline somewhat in the year-over-year basis. The operations we made some significant improvement in many of our mills, we're happy with our R-GAP process and those numbers been coming favorable through the year, we expect that continue in the half. On, in other we see primarily [indiscernible] the year-over-year change driving the negative $8 million. What we wanted to do is try to take out some of the noise in the financial reporting. Obviously when you're restructuring reorganization there is a lot of required U.S. GAAP entries, et cetera that tends to make it hard to follow what's really underlying the business. So we’ve tried to show on page 13 would be what was the real cash flow in the business in the first half. So I'll concentrate primarily on the right hand column the year-to-date, it starts with our net loss of $121 million. We add back our depreciation and amortization of $93 million. And then we had $61 million of non-cash reorganization, restructuring entries that impacted the first half. Adding those numbers back along with the working capital movements since we would have generated $39 million of cash. Then also on the first half, we spent significant amount of money on our reorg $42 million is included here that includes severance of Wickliffe and the pre-reorg expenses that we included had for professional fees and obviously some of our professional fees during the period of the first six months. Adding back interest that we paid of $8 million would provide at pro forma cash flow provided by operations of $89 million. Subtracted $29 million of capital expenditures that we incurred since the company has pro forma free cash flow of $60 million in the first half. Now obviously the $60 million would need to be paid for go forward interest, pension contributions and dealer for term loan amortization. But as you can see, it's a strong number for the business. On the next page, we wanted to also update our capital spending forecast. We've put in the marketplace during our reorganization process $100 million for capital spending. That was split into our base spending amount of $58 million and then what I’d call strategic projects or major maintenance of $42 million. The $42 million, we listed five of those items there that make that up. As we look at the rest of the year and when we tend to spend we're changing our forecast from $100 million to $75 million. $75 million include some base spending at the mills dropping from $58 million to $49 million that's a combination of revisions to our estimate of spend and some timing. The larger decrease was in our key strategic and other declining our forecast from $42 million to $26 million. Walking through some of the key items, we have a recovery boiler expansion project on Andro that's a project we've had in our budget, but it's not approved project and we're still working on the analytics on that. We're forecasting a partial spend in 2016 remainder in '17 as planned, but again we need to finish the approvals on that. We are spending in the third quarter a significant amount in Wisconsin Rapids in capital and expense. We're forecasting $11 million of expense there for some major maintenance work; we anticipate that will be spent. In SAP order management inventory we're doing a lot on our infrastructure. We anticipate spending about half to 60% of this number in 2016. So some that will carryover. We also had a placeholder for evaluation alternative projects where does Verso go in the future, what do we look at in modifying our machines and what products market should we be approaching? We will not spend that in 2016, so we pick that out of our forecast. And then we do have major Boiler MAC [ph] requirements that we will spend in the third quarter formally in at Luke. So I wanted to update you that on the capital spending for your models et cetera. On the next page, page 15 I'd like to talk about where we see the rest of the year. On a very positive note is we expect seasonal strong quarter in the third. We -- it's normally a strong month -- strong quarter, I'm sorry. And we do anticipate this year we're going to do the same thing. We're going to increase sales in the third quarter versus the second. But we will not be able to match last year's sales for the same period. The strong dollar is still driving increased imports and provides pricing pressure. But we do not expect pricing to be materially different than what we saw in the second quarter. I mentioned some of the maintenance outages, Luke and Wisconsin Rapids. We expect some about $10 million to $12 million of extra maintenance expense to hit the P&L in the third quarter. That would be over and above the way we used to manage our major maintenance, which is spread at over multiple quarters. This will hit in the quarter that we incur the expense. That will be new with our fresh start accounting, and the way Verso will start reporting in the future. We expect input prices continue to be favorable; however, not quite as favorable as the first half the year. Capital spending, we just talked about that, we expect to be $25 million less than we planned. We continue to work on a consolidation of our internal management systems. We have an order management system expected to be implemented in the fourth quarter. That's the first phase of major investment systems to consolidate and better manage the company and our related SG&A costs. And another point, I'd like to make is as we go into our emergence from bankruptcy; we will be implementing some fresh start accounting policies, procedures and practices. Those will generate a lot of anomalies in our reporting. So we will try to help you next quarter to go through what was the underlying operations, but just to let you know that's happening. Finally, we just want to say how excited the company is to emerge from bankruptcy. We're looking forward to the future. We are very happy that we're in a position that we are. We'd like to remind you of Verso's value proposition. We're the market leader in coated paper in North America. We have a leading position in specialty papers and many of the markets we compete we're number 1 or number 2. We have very strong cash flow as noted earlier and what we saw on the first half from an operations standpoint. We’ve significantly improved our balance sheet, with a very manageable interest cost and debt structure relative to the size of the company and earnings potential. And another thing that's important to note is from third-party studies, et cetera, we have a great mill cost position. So Verso is very proud of its mills, very proud of its position, and where we are vis-à-vis our competitors. So we believe that's our value proposition. I wanted to notice some of the key initiatives that the company has going at this point. While we're continuing to focus on our R-GAP, the integration of business process and systems, we saw the savings that we got from operations year-over-year and in declining market, that's very important. And we're very, very focused on continuing to deliver those savings to R-GAP and then what we can do with our infrastructure. We’ve also targeted some commercial efforts, trying to improve our product mix and our offerings and expanding our specialty business. We've added some capabilities there through our bankruptcy process and Andro’s given another line that we can also specialty businesses. So you see that today in our improved margins. You should be seeing more of that in the future as we fill up the line in Andro and continue to work with customers and opportunities. We're going to focus on fresh start. Fresh start is an accounting term that's used to have a new look at your balance sheet going forward. But we also are applying it to our company. We're trying to -- we intend to energize the company. We're going to take advantage of these opportunities, really focus on the future and be successful in what we're attempting. We’re going to still continuing to invest in key projects and it's important that we do our preventive maintenance that we talked about Wisconsin Rapids; we talked about the Boiler MAC. We're going to continue to do that, so we can invest in the capabilities, we'll look at other options as we go forward on what's the right markets to be in for Verso. But we're very -- again, as I mentioned, very happy to be in the place we are. We're looking forward now, not backwards and we hope you can follow through with us as we go through on that journey. Now I'd like to open the line for questions. Anna, we turn it back to you.
- Operator:
- Thank you. [Operator Instructions] Our first question comes from Kevin Cohen of Imperial Capital. Please go ahead.
- Kevin Cohen:
- Good morning and congratulations on the recent emergence. I guess in terms of looking at coated paper markets the recent price degradation. What was kind of the order of magnitude and how much of that was reflected in the second quarter and I guess how much of that extension is still to be reflected in the results?
- Allen Campbell:
- We believe the second quarter we had a full quarter impact to the price declines. So that's why we said the third quarter should look similar to the second as far as pricing. The announcements were made in the marketplace by one of our competitors that we have to react to, it also included some in process inventory et cetera. So we believe this is a full quarter impact.
- Kevin Cohen:
- And have you seen any movement in the market in August so far or just a little too early to tell yet?
- Allen Campbell:
- We like the point that we are -- there are some two things probably, two ways I'd like to answer that. Number one is we expect a seasonally stronger third quarter we are seeing that in open words. The other thing that I didn't mention that would be positive one for us is we are seeing a better relationship more open and we're seeing some customers come back to us ask us about orders, et cetera. So we did lose some during bankruptcy where we had high market shares they look to other businesses to fill some of their market. We're hearing -- we're having better calls with our commercial accounts. And our guys are starting to feel very positive about that. It may not show for a few quarters yet, but that's a positive thing.
- Kevin Cohen:
- And then I guess in terms of the volume decline in the paper segment in 2Q year-over-year, I guess on a like basis what would that number have been if Androscoggin was reflected in the year ago quarter?
- Allen Campbell:
- So we generally looked at about 110,000 tons of volume that came out that we didn't replace. I don't know if I have the exact number and we haven’t reported that impact. It’s somewhat hard to judge some of the move were related to bankruptcy, we lost some business in short-term, some of it we decided not to pursue. But I would you give you a number 110,000 tons in the quarter.
- Kevin Cohen:
- Okay, that's very helpful. Thanks. I'll get back in the queue.
- Allen Campbell:
- Okay.
- Operator:
- Our next question comes from Christian Hoffmann of Thornburg. Please go ahead.
- Christian Hoffmann:
- Good morning.
- David Paterson:
- Hello.
- Christian Hoffmann:
- Could you just give me a ballpark estimate of cash restructuring charges, cash restructuring for like say '16, '17, '18 if you have it, just like...
- Allen Campbell:
- The only cash restructuring we have approved and plan to spend was what we had in Wickliffe. For the most part that's flush through the balance sheet. [Limited to] [ph] immaterial amount that would be left. We have no other plans of restructuring at this point.
- Christian Hoffmann:
- Okay. So for '17 that would be de minimis at this point?
- Allen Campbell:
- That's correct.
- Christian Hoffmann:
- Got it. And just for housekeeping, should think about pro forma interest about $30 million pension funding at about $60 million and cash taxes is kind of zero to 10. Are those kind of ballpark estimates?
- Allen Campbell:
- We're a little bit little higher on interest, we’re lower on pension, taxes is okay.
- Christian Hoffmann:
- I guess just lastly, I think there is a financial summary of projections going through 2020. Just wondering if you could give me an estimate of what that looks like compared to some of the more recent results, which look a little bit softer I mean. Should we be taking that down a little bit?
- Allen Campbell:
- In the short-term they are softer. We have not come up with a new forecast; I would be comfortable with the same shortness that may happen in '16 maybe that comes out of '17-‘18. But we are in the midst of putting together a new strategy for working with the Board. I anticipate the company to look different than what we’ve put in that model and there will be more to come on that.
- Christian Hoffmann:
- Okay, thank you very much.
- Allen Campbell:
- Sure.
- Operator:
- Our next question will be from Ian Elis of MicroCapital. Please go ahead.
- Ian Ellis:
- Good morning gentlemen, thank you. First of all some of my questions have been asked, I’ve just got one question. Do you expect to [indiscernible] investors anytime soon?
- Allen Campbell:
- Yes, we do, and part of our strategy on a go forward basis now that we are out is to focus externally more. We obviously had to focus internally in the short-term. But we intend to be in conferences, we intend to do some one on ones and we are open to other positive actions and maybe even an analyst day.
- Ian Ellis:
- Okay, thank you very much.
- Allen Campbell:
- Sure.
- Operator:
- Our next question is from Sean Kelley of OFS Management. Please go ahead.
- Sean Kelley:
- Thanks, Allen, for the update. Just a question on your share price, when I look at where it’s trading today and I compare that to the plant valuation of $1 billion, can you help me bridge why this is what I consider materially below that plant valuation? And just help me better understand what the moving parts are there?
- David Paterson:
- This is Dave. Let me start and then Allen will jump in. I think couple of issue, I think we need to demonstrate to the market how we are going to perform and that will take a couple of quarters and the good news is I think those quarters are starting off well. So I think the market needs to gain confidence in our ability to perform against our estimates and our expectations. And from my perspective I think the terms and conditions of the term loan that are in place which essentially direct excess free cash to buy down that term loan until that financing vehicle is refinanced or replaced I think it will be negative to equity value until we can demonstrate that we can replace that piece of paper with a more advantageous credit facility or loan facility. Allen?
- Allen Campbell:
- Sure. I think those are the two main drivers. There is other things obviously come into play, we’re fairly -- liquidity is obviously an issue, who wants to trade at these values when they had a plan value of 20, it would be tough to [indiscernible] to trade that at the current trading prices. So we need to increase some volume. What we are going to do as mentioned earlier some investor calls, meetings, presentations, et cetera trying to explain our situation. As Dave mentioned as we turn in a few more quarter that would catch some interest, we hope to pick up some type of analyst coverage in the next few quarters. So we need to get our -- the word out, the name out, we need to have some movement and some trading going on. However, it's going to be a few quarters. I would think that we are going to have the liquidity issue. But again the company is committed to doing it's part to help in that manner.
- Sean Kelley:
- Great. And then just one other question on the input cost favorability of $16 million, is there any of that that's going to be recurring because of synergies from the merger or is that all just based upon price in the market today?
- Allen Campbell:
- It's primarily market. But we've continued to be a large player in the segments that we compete and as we are buying pulp, and as we are buying wood as we are buying some of our other supply items. It helps to be the big player. So yes there is some synergies in there I'm not sure I'd be able to has or guess what it's market versus synergies and it is market for a synergy second.
- Sean Kelley:
- And is there any slide or anything out there that shows what synergies remained to be achieved or we’re pretty much do everything from the merger?
- Allen Campbell:
- We are through the low hanging fruit, we are through the major initiatives that we had except for IT consolidation. The company is running two sets of SAP financials, two sets of SAP operations. Those things as we consolidate the first phase as we’re to manage more entries, that will help us improve our efficiencies as we put in a single accounting system and costing system that will also help. So I don't anticipate any significant synergy savings other than what we've talked about through residual impact on raw materials and some of the mill operations, residual impact in SG&A. But the next step would be after we have the system implementation and that's going to happen over the next 18 months or so.
- Sean Kelley:
- Okay. Thanks, guys.
- Operator:
- Our next question comes from Adam Richer of Pressprich [ph].
- Unidentified Analyst:
- Good morning. Thanks for taking my call. In terms of your CapEx, you're using a $75 million now. I know in the plan, you were using $100 million going out a few years. Is $75 million a better number to use now than the $100 million?
- Allen Campbell:
- We're not ready to do a longer-term forecast other than to say that base spending of the company is going to be in that $50 million to $60 million range. The rest of that would anything over and above that will be strategic or special events. It's -- as I look into '17, that $50 million to $60 million base is still good. If I look at strategic, I would say we're going to have similar things in SAP. To question on whether we're going to spend a recovery boiler at Andro, again, until we approve that project. And then there's -- we do not expect the Boiler MAC type project to repeat. We do not expect alternative projects to be that number. We just don't know, if it's going to be plus or minus. So at this point, I hesitate changing the number. But you can use the insights that we've given you today to estimate what you think.
- Unidentified Analyst:
- Okay. Of the $100 million was the base always $50 million, $60 million out of that $100 million?
- Allen Campbell:
- In that general plus or minus that number, yes.
- Unidentified Analyst:
- Got it. Okay. So it's really a matter of strategic investments going forward?
- Allen Campbell:
- Correct. In the out years, we had a significant amount of money in for that.
- Unidentified Analyst:
- Right. I know the plan is a little bit stale from a number of months ago. But are the balances on your ABL and term loan similar to what you projected exiting the plan with?
- Allen Campbell:
- Very similar, maybe else probably a little favorable.
- Unidentified Analyst:
- Got it. Okay. That’s all I had. Thanks very much.
- Operator:
- Our next question comes from Timothy Horan of BlueBay Asset Management. Please go ahead.
- Timothy Horan:
- Hey, guys. I just wanted to get some more inside into what the different alternatives you're looking at in the strategic plan going forward? We know that the cash generation improved substantially and just kind of what kind of opportunities you guys are -- you guys see, and just any more color on that?
- Allen Campbell:
- Well, we're not in a position yet to go to public with anything. It's still in the analytical step phases. And then, obviously, with the new Board, we'll be reappointing them with our options and we'll be debating back and forth what's appropriate. So at this point, we don't have anything to share.
- Timothy Horan:
- Okay. Is it more of -- I would think that the focus is going to shift more to the specialty side, is that right?
- Allen Campbell:
- That would be a very logical conclusion.
- Timothy Horan:
- Okay. Is it -- do you think it would be more of an acquisition or a conversion strategy?
- Allen Campbell:
- Again, we're still in discussion stages. So it's too early to say anything.
- Timothy Horan:
- Okay. Thanks.
- Allen Campbell:
- Sure.
- Operator:
- Our next question comes from Amer Tiwana of Cowen and Company. Please go ahead.
- Amer Tiwana:
- Hi guys. My question is around the coated freesheet, I was a bit of a surprise to see that the imports were down 2.4% year-over-year. Can you talk about what imports did on a sequential basis? And secondly, just give us some indication of how should we think about the currency movements, what currencies are impacting you the most, would be another way of asking the question.
- Allen Campbell:
- Yes. The coated freesheets -- the imports were down, but the market was down also. So we didn't really see -- and the price decline also in there. So it was more driving the price decline than anything. We're managing the customer. We're trying to maintain some share, so that's driving as much as any other item.
- David Paterson:
- Imports on coated freesheet are predominantly in the form of sheets. So as the sheet price fell in the second quarter, the attractiveness of the North American market declined for many importers or exporters of their home country. So you had those playing. But the overall strength of the two markets coated freesheet is much more stable. And the decline is more manageable than in the coated ground wood segment.
- Allen Campbell:
- And the second part of your question was?
- Amer Tiwana:
- Just the currencies that are the countries where you're seeing the most imports from?
- Allen Campbell:
- So obviously the Europe is the one biggest impact because they have excess capacity. The euro has been very weak and there is no trade issues in and around going movements from there. So our biggest competitive position or fight that we have is with Europe. Obviously there is business between Canada and the U.S. various ones who have carried some dozen. Most of the Asia it's a different market in Asia, some are successfully coming in some are not.
- Amer Tiwana:
- Thank you.
- Operator:
- Our next question comes from Carter Dunlap of Dunlap Equity Management. Please go ahead.
- Carter Dunlap:
- Hi, thank you for taking my questions. Just I understand a lot of answers are sort of subject to further analysis. But in trying to educate me what are the steps involved in getting the term loan refinanced and I'm assuming that any sort of capital allocation discussion basically hinges off that happening.
- Allen Campbell:
- Couple of things on the term loan, there is some mandatory amortization and there is some excess cash flow suite. So as the company generates cash we will be reducing that balance on the term loan. Theoretically then that would make it easier go-to-market because you have a lower amount that you're seeking to replace number one. Number two is we did get hit pretty hard that we are emerging from a pretty tough and challenging industry. And the lenders wanted some rate for that. So as Dave mentioned earlier as we put in a few quarters of performance as we look at a lower balance needing to finance. We believe there will be opportunities to refinance that. Again what it will be and when we're not certain, but we think through getting the word out in time and performance the markets will reopen for Verso.
- Carter Dunlap:
- And any asset sale -- or as I understand any asset sale would be straight to that pay down?
- Allen Campbell:
- That's correct.
- Carter Dunlap:
- Okay, thank you.
- Operator:
- This concludes our question-and-answer session. I would now like to turn the conference back over to Allen Campbell.
- Allen Campbell:
- We like to thank everyone that joined us today. As I mentioned earlier the company looking to the future. We're very excited about where we are we're happy with our position in the marketplace and we're going to be focused on those efforts to continue to find the ways to make Verso stronger and to return value to our shareholders and stakeholders. With that thank you for joining our call and look forward to talking with you in the future. Thank you.
- Operator:
- The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines.
Other Verso Corporation earnings call transcripts:
- Q3 (2021) VRS earnings call transcript
- Q2 (2021) VRS earnings call transcript
- Q1 (2021) VRS earnings call transcript
- Q4 (2020) VRS earnings call transcript
- Q2 (2020) VRS earnings call transcript
- Q1 (2020) VRS earnings call transcript
- Q4 (2019) VRS earnings call transcript
- Q3 (2019) VRS earnings call transcript
- Q2 (2019) VRS earnings call transcript
- Q1 (2019) VRS earnings call transcript