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Mercer International Inc. Reports Third Quarter and Nine Months 2020 Results and Announces Quarterly Cash Dividend of $0.065

/EIN News/ -- Selected Highlights

  • Third quarter net income of $7.5 million and Operating EBITDA* of $45.6 million
  • Record Wood Segment Results
  • Cash on hand and available credit facilities provide liquidity of about $600.6 million at September 30, 2020

NEW YORK, Oct. 29, 2020 (GLOBE NEWSWIRE) -- Mercer International Inc. (Nasdaq: MERC) today reported third quarter 2020 Operating EBITDA decreased to $45.6 million from $50.8 million in the third quarter of 2019 and increased from $40.5 million in the second quarter of 2020.

In the third quarter of 2020, net income was $7.5 million (or $0.11 per share) compared to $1.2 million (or $0.02 per share) in the third quarter of 2019 and a net loss of $8.4 million (or $0.13 per share) in the second quarter of 2020.

In the first nine months of 2020, Operating EBITDA decreased by 41% to $143.1 million from $244.6 million in the same period of 2019. In the first nine months of 2020, net loss was $4.3 million compared to net income of $63.1 million in the same period of 2019.   

Mr. David Gandossi, the Chief Executive Officer, stated: “As a resurgence or second wave of infections from COVID-19 is being felt in a number of countries, we remain committed to maintaining measures and procedures to operate our business safely and efficiently and protect our people.

All of our mills ran well this quarter and our Friesau sawmill had record operating income of $12.0 million despite ten days of downtime related to capital upgrades. Our pulp production was down in the quarter primarily due to the previously announced planned 30-day curtailment at our Celgar mill.

Our Q3 results reflect strong cost control and steady production. On average, NBSK pulp pricing was flat compared to Q2. Globally the supply demand fundamentals are slowly improving based on China’s improving economy and expected higher levels of maintenance by pulp producers going into the fourth quarter.

Our wood products segment had a record quarter and benefitted from strong demand and robust pricing in the U.S. market. In the current quarter approximately 59% of lumber revenues and 39% of our lumber sales volumes were to the U.S. which was our single largest market.

In Q4, our pulp mills have 17 days of planned annual maintenance downtime (approximately 19,600 ADMTs). We have no planned downtime at our Friesau sawmill. Going forward we will continue to ensure we control our costs, manage our working capital and conservatively manage our strong liquidity position.”

____________________
*Operating EBITDA is not a measure of financial performance under accounting principles generally accepted in the United States ("GAAP") and should not be considered in isolation or as a substitute for analysis of our results as reported under GAAP. See page 6 of the financial tables included in this press release for a reconciliation of net income (loss) to Operating EBITDA.

Consolidated Financial Results

  Q3     Q2     Q3     YTD     YTD  
  2020     2020     2019     2020     2019  
     
  (in thousands, except per share amounts)  
Revenues $ 333,151     $ 341,195     $ 383,536     $ 1,024,945     $ 1,293,239  
Operating income $ 13,736     $ 10,315     $ 18,747     $ 48,113     $ 150,109  
Operating EBITDA $ 45,620     $ 40,516     $ 50,799     $ 143,144     $ 244,556  
Net income (loss) $ 7,545     $ (8,411 )   $ 1,207     $ (4,258 )   $ 63,082  
Net income (loss) per common share                                      
Basic and diluted $ 0.11     $ (0.13 )   $ 0.02     $ (0.06 )   $ 0.96  

Consolidated – Three Months Ended September 30, 2020 Compared to Three Months Ended September 30, 2019

Total revenues for the three months ended September 30, 2020 decreased by approximately 13% to $333.2 million from $383.5 million in the same quarter of 2019 primarily due to lower pulp sales volumes and pulp sales realizations partially offset by higher lumber sales realizations and volumes.

Costs and expenses in the current quarter decreased by approximately 12% to $319.4 million from $364.8 million in the third quarter of 2019 primarily due to lower pulp sales volumes, per unit fiber costs and maintenance costs partially offset by the negative impact of a weaker dollar primarily on our euro denominated costs and expenses. In the current quarter of 2020, we received approximately $3.5 million of wage assistance under a Canadian government wage subsidy program.

In the third quarter of 2020, other income increased to $11.9 million from $0.9 million in the same quarter of 2019 primarily as a result of $15.4 million of realized gains on the sale of investments in the current quarter.

In the third quarter of 2020, Operating EBITDA decreased by approximately 10% to $45.6 million from $50.8 million in the same quarter of 2019 primarily due to lower pulp sales realizations and the negative impact of a weaker dollar primarily on our euro denominated costs and expenses partially offset by lower per unit fiber costs and higher lumber sales realizations.

Segment Results

Pulp: Lower fiber costs more than offset by lower sales realizations

   Three Months Ended September 30,  
  2020     2019  
     
  (in thousands)  
Pulp revenues $ 253,056     $ 322,707  
Energy and chemical revenues $ 21,860     $ 22,353  
Operating income $ 3,753     $ 21,386  

In the third quarter of 2020, pulp segment operating income decreased to $3.8 million from $21.4 million in the same quarter of 2019 as lower pulp sales realizations and the negative impact of a weaker dollar were only partially offset by the positive impact of lower per unit fiber costs and lower maintenance costs.

In the current quarter of 2020, NBSK pulp sales realizations decreased by approximately 8% to $562 per ADMT from $609 per ADMT in the same quarter of the prior year. NBSK sales volumes decreased by approximately 18% to 369,913 ADMTs in the current quarter from 451,171 ADMTs in the same quarter of 2019 primarily due to lower production.

In the current quarter our Canadian pulp mills recorded a non-cash write down of our inventory carrying values of $8.0 million as a result of low pulp sales realizations and high per unit fiber costs. In the same quarter of the prior year our Canadian mills recorded a non-cash write down of our inventory carrying values of $6.9 million.

In the current quarter per unit fiber costs decreased by approximately 12% from the same quarter of 2019 due to lower per unit fiber costs for all of our mills. In Germany, per unit fiber costs benefitted from the continuing availability of beetle damaged wood. Per unit fiber costs in Canada declined due to increased sawmill activity but remained at historically high levels due to strong fiber demand in our mills' fiber procurement areas.

Wood Products: Record operating income driven by strong demand  

   Three Months Ended September 30,  
  2020     2019  
     
  (in thousands)  
Lumber revenues $ 53,612     $ 32,687  
Energy revenues $ 2,226     $ 1,621  
Wood residual revenues $ 1,215     $ 2,150  
Operating income $ 11,963     $ 544  

In the third quarter of 2020, our wood products segment had record operating income of $12.0 million compared to $0.5 million in the same quarter of 2019 primarily due to a higher lumber realized sales price.

Average lumber sales realizations increased by approximately 34% to $453 per Mfbm in the third quarter of 2020 compared to approximately $337 per Mfbm in the same quarter of 2019 primarily due to higher pricing in the U.S. market. U.S. lumber pricing increased due to strong demand in the current quarter. European lumber pricing modestly decreased due to the supply of lumber processed from beetle damaged wood which generally obtains a lower price.

In the current quarter per unit fiber costs decreased by approximately 6% from the same quarter of 2019 primarily as a result of the continuing availability of beetle damaged wood.

Consolidated – Nine Months Ended September 30, 2020 Compared to Nine Months Ended September 30, 2019

Total revenues for the nine months ended September 30, 2020 decreased by approximately 21% to $1,024.9 million from $1,293.2 million in the nine months ended September 30, 2019 primarily due to lower pulp sales realizations and pulp sales volumes partially offset by higher lumber sales volumes and realizations.

Costs and expenses in the nine months ended September 30, 2020 decreased by approximately 15% to $976.8 million from $1,143.1 million in the nine months ended September 30, 2019 primarily due to lower pulp sales volumes, per unit fiber costs and maintenance costs.

Other income in the nine months ended September 30, 2020 increased to $12.1 million from $3.2 million in the same period of 2019 primarily due to $15.4 million of realized gains in the sale of investments.

For the nine months ended September 30, 2020, our net loss was $4.3 million, or $0.06 per share compared to net income of $63.1 million, or $0.96 per share, in the same period of 2019.

In the nine months ended September 30, 2020, Operating EBITDA decreased by approximately 41% to $143.1 million from $244.6 million in the same period of 2019 primarily due to lower pulp sales realizations and pulp sales volumes partially offset by lower per unit fiber costs, lower maintenance costs and higher lumber sales realizations.

Liquidity

The following table is a summary of selected financial information as of the dates indicated:

   September 30,     December 31,  
  2020     2019  
     
  (in thousands)  
Cash and cash equivalents $ 345,580     $ 351,085  
Working capital $ 633,764     $ 588,385  
Total assets $ 2,044,735     $ 2,065,720  
Long-term liabilities $ 1,293,312     $ 1,259,005  
Total equity $ 550,707     $ 550,403  

As of September 30, 2020, we had cash and cash equivalents of approximately $345.6 million, approximately $255.0 million available under our revolving credit facilities, providing aggregate liquidity of about $600.6 million.

Current Market Environment

In mid-2020, many countries eased restrictions on economic and social activities adopted in response to the COVID-19 pandemic to, among other things, reopen their economies by allowing businesses to restart and encourage economic activity. The results of such economic measures and reopening have varied from country to country.

We are encouraged by improved economic activity globally. However, recently there has been a widespread increase or "second wave" in reported infections from COVID-19 including in Europe and the United States. In response, various countries including in Europe have announced the re-imposition of some restrictions on social, business and other activities. Currently we are unable to predict the impact of the recent resurgence in infections, the extent of measures governments may take in response thereto, including imposing some or all prior or new restrictive measures, including business closures, or the overall impact on global economic activity, including the pace of any economic recovery.

Although there is continued economic uncertainty created by the COVID-19 pandemic, we are currently expecting generally stable pulp demand in the upcoming quarter with some modest price improvements due to improving global economic activity, particularly in China.

On the pulp supply side, to date various pulp mills globally have delayed their annual maintenance schedules as a result of the pandemic. As a result, we currently expect mills to curtail production to implement such delayed maintenance in the later part of this year or the early part of next year.

We currently expect strong lumber demand and lumber prices in the U.S. market and steady demand and modestly improving sales realizations in the European lumber market in the upcoming quarter.

Quarterly Dividend

A quarterly dividend of $0.065 per share will be paid on December 30, 2020 to all shareholders of record on December 23, 2020. Future dividends will be subject to Board approval and may be adjusted as business and industry conditions warrant.

Earnings Release Call

In conjunction with this release, Mercer International Inc. will host a conference call, which will be simultaneously broadcast live over the Internet. Management will host the call, which is scheduled for October 30, 2020 at 10:00 AM (Eastern Daylight Time). Listeners can access the conference call live and archived for 30 days over the Internet at https://edge.media-server.com/mmc/p/ermirxzo or through a link on the company's home page at https://www.mercerint.com. Please allow 15 minutes prior to the call to visit the site and download and install any necessary audio software.

Mercer International Inc. is a global forest products company with operations in Germany and Canada with consolidated annual production capacity of 2.2 million tonnes of pulp and 550 million board feet of lumber. To obtain further information on the company, please visit its web site at https://www.mercerint.com.

The preceding includes forward looking statements which involve known and unknown risks and uncertainties which may cause our actual results in future periods to differ materially from forecasted results. Words such as "expects", "anticipates", "projects", "intends", "designed", "will", "believes", "estimates", "may", "could" and variations of such words and similar expressions are intended to identify such forward-looking statements. Among those factors which could cause actual results to differ materially are the following: the highly cyclical nature of our business, raw material costs, our level of indebtedness, competition, foreign exchange and interest rate fluctuations, our use of derivatives, expenditures for capital projects, environmental regulation and compliance, disruptions to our production, market conditions and other risk factors listed from time to time in our SEC reports.

APPROVED BY:
Jimmy S.H. Lee
Executive Chairman
(604) 684-1099

David M. Gandossi, FCPA, FCA
Chief Executive Officer
(604) 684-1099

-FINANCIAL TABLES FOLLOW-


Summary Financial Highlights

  Q3     Q2     Q3     YTD     YTD  
  2020     2020     2019     2020     2019  
     
  (in thousands, except per share amounts)  
Pulp segment revenues $ 274,916     $ 298,046     $ 345,060     $ 876,567     $ 1,166,333  
Wood products segment revenues   57,053       41,727       36,458       144,558       120,349  
Corporate and other revenues   1,182       1,422       2,018       3,820       6,557  
Total revenues $ 333,151     $ 341,195     $ 383,536     $ 1,024,945     $ 1,293,239  
                                       
Pulp segment operating income $ 3,753     $ 8,110     $ 21,386     $ 33,302     $ 157,157  
Wood products segment operating income   11,963       4,327       544       21,845       2,075  
Corporate and other operating loss   (1,980 )     (2,122 )     (3,183 )     (7,034 )     (9,123 )
Total operating income $ 13,736     $ 10,315     $ 18,747     $ 48,113     $ 150,109  
                                       
Pulp segment depreciation and amortization $ 28,251     $ 27,219     $ 29,744     $ 85,841     $ 87,616  
Wood products segment depreciation and amortization   3,446       2,804       2,016       8,627       5,937  
Corporate and other depreciation and amortization   187       178       292       563       894  
Total depreciation and amortization $ 31,884     $ 30,201     $ 32,052     $ 95,031     $ 94,447  
                                       
Operating EBITDA $ 45,620     $ 40,516     $ 50,799     $ 143,144     $ 244,556  
Income tax recovery (provision) $ 1,775     $ (882 )   $ (244 )   $ (4,451 )   $ (35,101 )
Net income (loss) $ 7,545     $ (8,411 )   $ 1,207     $ (4,258 )   $ 63,082  
Net income (loss) per common share                                      
Basic and diluted $ 0.11     $ (0.13 )   $ 0.02     $ (0.06 )   $ 0.96  
Common shares outstanding at period end   65,868       65,868       65,629       65,868       65,629  



Summary Operating Highlights

   Q3     Q2     Q3     YTD     YTD  
  2020     2020     2019     2020     2019  
Pulp Segment                                      
Pulp production ('000 ADMTs)                                      
NBSK   400.2       423.8       441.7       1,279.1       1,355.1  
NBHK   79.8       88.8       75.3       247.6       243.3  
Annual maintenance downtime ('000 ADMTs)   15.0       11.3       14.1       28.6       21.6  
Annual maintenance downtime (days)   10       15       13       27       28  
Pulp sales ('000 ADMTs)                                      
NBSK   369.9       422.6       451.2       1,230.8       1,356.6  
NBHK   100.1       69.3       91.0       235.4       260.4  
Average NBSK pulp prices ($/ADMT)(1)                                      
Europe   840       850       860       841       987  
China   572       572       555       572       628  
North America   1,133       1,158       1,170       1,139       1,281  
Average NBHK pulp prices ($/ADMT)(1)                                      
China   443       465       477       456       593  
North America   868       897       970       885       1,083  
Average pulp sales realizations ($/ADMT)(2)                                      
NBSK   562       573       609       565       689  
NBHK   424       475       499       451       589  
Energy production ('000 MWh)(3)   529.2       562.9       572.5       1,670.5       1,708.3  
Energy sales ('000 MWh)(3)   215.5       222.0       224.7       669.3       668.4  
Average energy sales realizations ($/MWh)(3)   96       85       89       92       92  
                                       
Wood Products Segment                                      
Lumber production (MMfbm)   96.8       113.5       96.6       326.6       308.0  
Lumber sales (MMfbm)   118.5       109.0       97.0       345.2       307.7  
Average lumber sales realizations ($/Mfbm)   453     345     337       383     348  
Energy production and sales ('000 MWh)   17.8       22.7       13.9       63.3       60.4  
Average energy sales realizations ($/MWh)   125     116     116       118     117  
                                       
Average Spot Currency Exchange Rates                                      
$ / €(4)   1.1698       1.1016       1.1120       1.1248     1.1234  
$ / C$(4)   0.7508     0.7221       0.7573       0.7388     0.7523  

______________

        (1)    Source: RISI pricing report. Europe and North America are list prices. China are net prices which include discounts, allowances and rebates. Effective January 2020, the RISI pricing report does not provide list prices for China.
        (2)    Sales realizations after customer discounts, rebates and other selling concessions. Incorporates the effect of pulp price variations occurring between the order and shipment dates.
        (3)    Does not include our 50% joint venture interest in the Cariboo mill, which is accounted for using the equity method.
        (4)    Average Federal Reserve Bank of New York Noon Buying Rates over the reporting period.


MERCER INTERNATIONAL INC.
INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except per share data)

     Three Months Ended
September 30
    Nine Months Ended
September 30
 
    2020     2019     2020     2019  
Revenues   $ 333,151     $ 383,536     $ 1,024,945     $ 1,293,239  
Costs and expenses                                
Cost of sales, excluding depreciation and amortization     272,165       314,894       832,554       994,360  
Cost of sales depreciation and amortization     31,862       31,934       94,952       94,108  
Selling, general and administrative expenses     15,388       17,961       49,326       54,662  
Operating income     13,736       18,747       48,113       150,109  
Other income (expenses)                                
Interest expense     (19,864 )     (18,183 )     (60,056 )     (55,103 )
Other income     11,898       887       12,136       3,177  
Total other expenses, net     (7,966 )     (17,296 )     (47,920 )     (51,926 )
Income before income taxes     5,770       1,451       193       98,183  
Income tax recovery (provision)     1,775       (244 )     (4,451 )     (35,101 )
Net income (loss)   $ 7,545     $ 1,207     $ (4,258 )   $ 63,082  
Net income (loss) per common share                                
Basic and diluted   $ 0.11     $ 0.02     $ (0.06 )   $ 0.96  
Dividends declared per common share   $ 0.0650     $ 0.1375     $ 0.2675     $ 0.4000  



MERCER INTERNATIONAL INC.
INTERIM CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands, except share and per share data)

     September 30,     December 31,  
    2020     2019  
ASSETS                
Current assets                
Cash and cash equivalents   $ 345,580     $ 351,085  
Accounts receivable, net     202,619       208,740  
Inventories     269,864       272,599  
Prepaid expenses and other     16,417       12,273  
Total current assets     834,480       844,697  
Property, plant and equipment, net     1,065,345       1,074,242  
Investment in joint ventures     47,865       53,122  
Amortizable intangible assets, net     50,132       53,371  
Operating lease right-of-use assets     12,932       13,004  
Other long-term assets     32,744       26,038  
Deferred income tax     1,237       1,246  
Total assets   $ 2,044,735     $ 2,065,720  
LIABILITIES AND SHAREHOLDERS’ EQUITY                
Current liabilities                
Accounts payable and other   $ 199,992     $ 255,544  
Pension and other post-retirement benefit obligations     724       768  
Total current liabilities     200,716       256,312  
Debt     1,124,202       1,087,932  
Pension and other post-retirement benefit obligations     24,613       25,489  
Finance lease liabilities     39,741       31,103  
Operating lease liabilities     9,912       10,520  
Other long-term liabilities     14,213       14,114  
Deferred income tax     80,631       89,847  
Total liabilities     1,494,028       1,515,317  
Shareholders’ equity                
Common shares $1 par value; 200,000,000 authorized; 65,868,000 issued and outstanding (2019 – 65,629,000)     65,800       65,598  
Additional paid-in capital     345,583       344,994  
Retained earnings     234,365       256,371  
Accumulated other comprehensive loss     (95,041 )     (116,560 )
Total shareholders’ equity     550,707       550,403  
Total liabilities and shareholders’ equity   $ 2,044,735     $ 2,065,720  



MERCER INTERNATIONAL INC.
INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)

    Three Months Ended
September 30
    Nine Months Ended
September 30
 
    2020     2019     2020     2019  
Cash flows from (used in) operating activities                                
Net income (loss)   $ 7,545     $ 1,207     $ (4,258 )   $ 63,082  
Adjustments to reconcile net income (loss) to cash flows from operating activities                                
Depreciation and amortization     31,884       32,052       95,031       94,447  
Deferred income tax provision (recovery)     (4,255 )     (1,706 )     (10,330 )     2,359  
Inventory impairment     8,000       6,900       25,998       13,800  
Defined benefit pension plans and other post-retirement benefit plan expense     769       866       2,270       2,582  
Stock compensation expense     895       1,179       815       2,036  
Gain on sale of investments     (15,443 )           (15,443 )      
Foreign exchange transaction losses (gains)     3,384       (8,873 )     4,120       369  
Other     (1,801 )     2,887       (2,993 )     4,331  
Defined benefit pension plans and other post-retirement benefit plan contributions     (783 )     (1,200 )     (2,495 )     (2,628 )
Changes in working capital                                
Accounts receivable     17,226       41,381       11,238       17,232  
Inventories     (8,031 )     2,342       (20,443 )     15,714  
Accounts payable and accrued expenses     (4,219 )     (16,691 )     (54,000 )     (12,667 )
Other     (6,683 )     (3,483 )     (6,759 )     (12,889 )
Net cash from (used in) operating activities     28,488       56,861       22,751       187,768  
Cash flows from (used in) investing activities                                
Purchase of property, plant and equipment     (14,639 )     (37,049 )     (59,201 )     (81,417 )
Purchase of amortizable intangible assets     (30 )     (215 )     (557 )     (710 )
Purchase of investments                 (9,370 )      
Proceeds from sale of investments     21,540             21,540        
Other     396       162       1,243       (181 )
Net cash from (used in) investing activities     7,267       (37,102 )     (46,345 )     (82,308 )
Cash flows from (used in) financing activities                                
Proceeds from (repayment of) revolving credit facilities, net     8,750             34,359       (58,404 )
Dividend payments     (4,282 )     (9,025 )     (13,329 )     (17,231 )
Repurchase of common shares                 (162 )     (754 )
Payment of debt issuance costs           (369 )           (1,126 )
Proceeds from government grants           147       299       6,467  
Other     (302 )     (1,735 )     (2,729 )     (8,664 )
Net cash from (used in) financing activities     4,166       (10,982 )     18,438       (79,712 )
Effect of exchange rate changes on cash and cash equivalents     2,325       (1,200 )     (349 )     (1,340 )
Net increase (decrease) in cash and cash equivalents     42,246       7,577       (5,505 )     24,408  
Cash and cash equivalents, beginning of period     303,334       257,322       351,085       240,491  
Cash and cash equivalents, end of period   $ 345,580     $ 264,899     $ 345,580     $ 264,899  


MERCER INTERNATIONAL INC.
COMPUTATION OF OPERATING EBITDA
(Unaudited)
(In thousands)

Operating EBITDA is defined as operating income plus depreciation and amortization and non-recurring capital asset impairment charges. Management uses Operating EBITDA as a benchmark measurement of its own operating results, and as a benchmark relative to its competitors. Management considers it to be a meaningful supplement to operating income as a performance measure primarily because depreciation expense and non-recurring capital asset impairment charges are not an actual cash cost, and depreciation expense varies widely from company to company in a manner that management considers largely independent of the underlying cost efficiency of our operating facilities. In addition, we believe Operating EBITDA is commonly used by securities analysts, investors and other interested parties to evaluate our financial performance.

Operating EBITDA does not reflect the impact of a number of items that affect our net income (loss), including financing costs and the effect of derivative instruments. Operating EBITDA is not a measure of financial performance under GAAP, and should not be considered as an alternative to net income (loss) or operating income as a measure of performance, nor as an alternative to net cash from (used in) operating activities as a measure of liquidity. The following tables set forth the net income (loss) to Operating EBITDA:

  Q3     Q2     Q3     YTD     YTD  
  2020     2020     2019     2020     2019  
Net income (loss) $ 7,545     $ (8,411 )   $ 1,207     $ (4,258 )   $ 63,082  
Income tax provision (recovery)   (1,775 )     882       244       4,451       35,101  
Interest expense   19,864       20,108       18,183       60,056       55,103  
Other income   (11,898 )     (2,264 )     (887 )     (12,136 )     (3,177 )
Operating income   13,736       10,315       18,747       48,113       150,109  
Add: Depreciation and amortization   31,884       30,201       32,052       95,031       94,447  
Operating EBITDA $ 45,620     $ 40,516     $ 50,799     $ 143,144     $ 244,556  

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