Mercer International Inc. Reports First Quarter 2021 Results and Announces Quarterly Cash Dividend of $0.065
Mercer International Inc. (Nasdaq:MERC) today reported first quarter 2021 Operating EBITDA increased to $82.0 million from $57.0 million in the first quarter of 2020 and from $49.5 million in the fourth quarter of 2020.
In the first quarter of 2021, net income was $5.9 million (or $0.09 per share) compared to a net loss of $3.4 million (or $0.05 per share) in the first quarter of 2020 and a net loss of $13.0 million (or $0.20 per share) in the fourth quarter of 2020.
Mr. David Gandossi, the Chief Executive Officer, stated: "In the first quarter, our mills continued to run well and safely due to our extensive COVID-19 protection measures. Our Friesau sawmill's strong operating results allowed us to take full advantage of the strong U.S. lumber market.
Our strong first quarter results reflected improved pulp pricing across all of our markets. First quarter average European NBSK list prices were up $157 per ADMT, and average net prices in China were up $246 per ADMT compared to the prior quarter.
Our wood products segment achieved another record quarterly result and continues to benefit from strong demand and robust pricing, particularly in the U.S. market. In the current quarter, approximately 67% of our lumber revenues and 44% of lumber sales volumes were to the U.S. which was our single largest market.
In January 2021, we refinanced (the "Refinancing") a significant portion of our debt by issuing $875.0 million of 5.125% 2029 Senior Notes and using the proceeds to redeem and/or repurchase all of our 6.5% 2024 and 7.375% 2025 Senior Notes at a cost including premium of $824.6 million (the "Redemption"). We recorded a loss on such Redemption of $30.4 million (being $0.46 per share). The Refinancing reduced our annual interest expense going forward by approximately $12 million.
We have significant major maintenance scheduled this quarter, which requires a large number of specialty contractors at our mills. Consequently, we continue to maintain measures and procedures to operate our business safely and efficiently and to protect our people, including regular COVID-19 testing of employees and contractors.
While I am encouraged by the significant ramp up in the administration of vaccines globally, there has also been a widespread increase in infection rates which has led various countries to re-impose restrictions on certain activities.
Looking ahead to the second quarter, we are pleased with the strong pulp market fundamentals, which are being supported by steady demand. As well, lumber demand and pricing are expected to remain robust in all markets. Strong markets combined with our ample liquidity leave us well positioned to accelerate our strategic plan, including pursuing high return opportunities."
*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
Q1 Q4 Q1 2021 2020 2020 (in thousands, except per share amounts) Revenues $ 412,720 $ 398,195 $ 350,599 Operating income $ 51,029 $ 15,616 $ 24,062 Operating EBITDA $ 81,996 $ 49,506 $ 57,008 Loss on early extinguishment of debt $ (30,368 ) $ -- $ -- Net income (loss) $ 5,933 $ (12,977 ) $ (3,392 ) Net income (loss) per common share Basic and diluted $ 0.09 $ (0.20 ) $ (0.05 )
(1) Redemption of 6.50% senior notes due 2024 and 7.375% senior notes due 2025.
Consolidated - Three Months Ended March 31, 2021 Compared to Three Months Ended March 31, 2020
Total revenues for the three months ended March 31, 2021 increased by approximately 18% to $412.7 million from $350.6 million in the same quarter of 2020 primarily due to higher pulp and lumber sales realizations partially offset by lower sales volumes.
Costs and expenses in the current quarter increased by approximately 11% to $361.7 million from $326.5 million in the first quarter of 2020 primarily due to the negative impact of a weaker dollar on our Canadian dollar and euro denominated costs and expenses and higher maintenance costs partially offset by lower per unit fiber costs.
In the first quarter of 2021, Operating EBITDA increased by approximately 44% to $82.0 million from $57.0 million in the same quarter of 2020 primarily due to higher pulp and lumber sales realizations and lower per unit fiber costs partially offset by the negative impact of a weaker dollar on our Canadian dollar and euro denominated costs and higher maintenance costs.
For the first quarter of 2021, our net income was $5.9 million, or $0.09 per share after giving effect to the loss on the Redemption of $30.4 million compared to a net loss of $3.4 million, or $0.05 per share, in the same quarter of 2020.
Three Months Ended March 31, 2021 2020 (in thousands) Pulp revenues $ 317,582 $ 278,948 Energy and chemical revenues $ 22,174 $ 24,657 Operating income $ 25,296 $ 21,439
Pulp segment operating income increased by approximately 18% to $25.3 million from $21.4 million in the same quarter of 2020 as higher pulp sales realizations and lower per unit fiber costs were only partially offset by the negative impact of a weaker dollar and higher maintenance costs.
In the first quarter of 2021, our NBSK pulp sales realizations increased by approximately 19% to $668 per ADMT from $561 per ADMT in the same quarter of the prior year. NBSK pulp sales volumes decreased by approximately 4% to 418,645 ADMTs in the current quarter from 438,326 ADMTs in the same quarter of 2020 primarily due to lower production.
NBSK pulp production decreased by approximately 13% to 396,865 ADMTs in the current quarter from 455,192 ADMTs in the same quarter of 2020 primarily due to higher annual maintenance downtime. In the current quarter of 2021, our planned annual maintenance downtime at our Celgar mill of 20 days was extended to 27 days (approximately 37,800 ADMTs) for additional boiler work. In the comparative quarter of 2020, we only had two days of annual maintenance downtime (approximately 2,300 ADMTs). We estimate that such downtime in the first quarter of 2021 adversely impacted our operating income by approximately $30.3 million, comprised of approximately $21.8 million in direct out-of-pocket expenses and the balance in reduced production. Many of our competitors that report their results using International Financial Reporting Standards capitalize their direct costs of maintenance downtime.
In the second quarter of 2021, our pulp mills currently have 95 days of planned annual maintenance downtime (approximately 140,400 ADMTs) of which approximately 63 days will be at our Peace River mill and primarily relates to boiler work which was deferred from last year and resulted from an incident in 2017. We expect insurance to cover the estimated remaining costs of about $27 million for the boiler work and to receive business interruption insurance for the extra downtime relating to such work. Additionally, in the second quarter of 2021, we had 14 days of downtime at our Celgar mill related to its slower than planned restart.
In the current quarter of 2021 compared to the same quarter of 2020, primarily as a result of the weaker dollar on our Canadian dollar and euro denominated costs and expenses, we had a negative impact of approximately $30.4 million in operating income due to foreign exchange.
In the first quarter of 2021, per unit fiber costs decreased by approximately 10% from the same quarter of 2020 due to lower per unit fiber costs for all of our mills. In Germany, per unit fiber costs benefited from the continued availability of beetle damaged wood. In Canada, per unit fiber costs declined due to improved chip supply as a result of increased sawmill activity.
Three Months Ended March 31, 2021 2020 (in thousands) Lumber revenues $ 67,311 $ 40,986 Energy revenues $ 2,114 $ 2,631 Wood residual revenues $ 1,562 $ 2,161 Operating income $ 27,977 $ 5,555
In the first quarter of 2021, our wood products segment had record operating income of $28.0 million compared to $5.6 million in the same quarter of 2020 primarily due to a higher lumber realized sales price.
Average lumber sales realizations increased by approximately 79% to $622 per Mfbm in the first quarter of 2021 from approximately $348 per Mfbm in the same quarter of 2020 primarily due to higher pricing in the U.S. and European markets. U.S. lumber pricing increased due to strong demand from the housing and renovation markets. European lumber pricing increased due to steady demand with limited supply.
Per unit fiber costs increased by approximately 6% in the first quarter of 2021 from the same quarter of 2020 primarily as a result of the negative impact of a weaker dollar on our euro denominated fiber costs.
The following table is a summary of selected financial information as of the dates indicated:
March 31, December 31, 2021 2020 (in thousands) Cash and cash equivalents $ 395,083 $ 361,098 Working capital $ 704,896 $ 663,056 Total assets $ 2,178,266 $ 2,129,126 Long-term liabilities $ 1,380,445 $ 1,316,303 Total shareholders' equity $ 567,638 $ 601,027
As of March 31, 2021, we had cash and cash equivalents of approximately $395.1 million and approximately $276.7 million available under our revolving credit facilities, providing aggregate liquidity of about $671.8 million.
Included in our cash and cash equivalents is approximately $15.8 million in government grants received and committed to partially finance greenhouse gas emission reduction capital projects and innovation at our Canadian mills. These projects include upgrades to the woodrooms at such mills which are also expected to reduce fiber costs.
As a result of such new woodroom projects, our expected 2021 capital expenditures, excluding amounts financed by government grants and expected insurance proceeds, will increase to about $185 million from about $150 million.
Current Market Environment
Although there is continued economic uncertainty resulting from the resurgence of the COVID-19 pandemic, we are currently expecting further modest pulp price improvements in the second quarter of 2021 due to stable pulp demand, particularly in China, and reduced supply.
We currently expect continuing strong lumber demand and prices in the U.S. market along with modestly improving sales realizations in the European market in the second quarter of 2021.
A quarterly dividend of $0.065 per share will be paid on July 7, 2021 to all shareholders of record on June 30, 2021. 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 April 30, 2021 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/wt6dyuct 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.
Jimmy S.H. Lee
David M. Gandossi, FCPA, FCA
Chief Executive Officer
-FINANCIAL TABLES FOLLOW-
Summary Financial Highlights
Q1 Q4 Q1 2021 2020 2020 (in thousands, except per share amounts) Pulp segment revenues $ 339,756 $ 344,077 $ 303,605 Wood products segment revenues 70,987 53,091 45,778 Corporate and other revenues 1,977 1,027 1,216 Total revenues $ 412,720 $ 398,195 $ 350,599 Pulp segment operating income $ 25,296 $ 4,650 $ 21,439 Wood products segment operating income 27,977 12,859 5,555 Corporate and other operating loss (2,244 ) (1,893 ) (2,932 ) Total operating income $ 51,029 $ 15,616 $ 24,062 Pulp segment depreciation and amortization $ 27,046 $ 30,104 $ 30,371 Wood products segment depreciation and amortization 3,723 3,585 2,377 Corporate and other depreciation and amortization 198 201 198 Total depreciation and amortization $ 30,967 $ 33,890 $ 32,946 Operating EBITDA $ 81,996 $ 49,506 $ 57,008 Loss on early extinguishment of debt $ (30,368 ) $ -- $ -- Income tax provision $ (2,698 ) $ (1,645 ) $ (5,344 ) Net income (loss) $ 5,933 $ (12,977 ) $ (3,392 ) Net income (loss) per common share Basic and diluted $ 0.09 $ (0.20 ) $ (0.05 ) Common shares outstanding at period end 65,988 65,868 65,800
(1) Redemption of the 2024 and 2025 Senior Notes.
Summary Operating Highlights
Q1 Q4 Q1 2021 2020 2020 Pulp Segment Pulp production ('000 ADMTs) NBSK 396.9 436.9 455.2 NBHK 81.6 87.4 78.9 Annual maintenance downtime ('000 ADMTs) 37.8 21.5 2.3 Annual maintenance downtime (days) 27 16 2 Pulp sales ('000 ADMTs) NBSK 418.6 469.5 438.3 NBHK 69.0 93.6 66.0 Average NBSK pulp prices ($/ADMT) Europe 1,037 880 833 China 883 637 573 North America 1,302 1,138 1,127 Average NBHK pulp prices ($/ADMT) China 692 480 460 North America 1,020 868 890 Average pulp sales realizations ($/ADMT) NBSK 668 588 561 NBHK 520 454 468 Energy production ('000 MWh) 519.1 568.1 578.4 Energy sales ('000 MWh) 201.1 225.3 231.7 Average energy sales realizations ($/MWh) 97 96 95 Wood Products Segment Lumber production (MMfbm) 117.8 111.4 116.4 Lumber sales (MMfbm) 108.2 104.0 117.7 Average lumber sales realizations ($/Mfbm) 622 467 348 Energy production and sales ('000 MWh) 16.4 25.7 22.8 Average energy sales realizations ($/MWh) 129 122 116 Average Spot Currency Exchange Rates $ / EUR 1.2045 1.1925 1.1022 $ / C$ 0.7902 0.7675 0.7438
(1) Source: RISI pricing report. Europe and North America are list prices. China are net prices which include discounts, allowances and rebates.
(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
(In thousands, except per share data)
Three Months Ended March 31, 2021 2020 Revenues $ 412,720 $ 350,599 Costs and expenses Cost of sales, excluding depreciation and amortization 310,197 276,056 Cost of sales depreciation and amortization 30,946 32,911 Selling, general and administrative expenses 20,548 17,570 Operating income 51,029 24,062 Other income (expenses) Interest expense (19,019 ) (20,084 ) Loss on early extinguishment of debt (30,368 ) -- Other income (expenses) 6,989 (2,026 ) Total other expenses, net (42,398 ) (22,110 ) Income before income taxes 8,631 1,952 Income tax provision (2,698 ) (5,344 ) Net income (loss) $ 5,933 $ (3,392 ) Net income (loss) per common share Basic and diluted $ 0.09 $ (0.05 ) Dividends declared per common share $ 0.0650 $ 0.1375
MERCER INTERNATIONAL INC.
INTERIM CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
March 31, December 31, 2021 2020 ASSETS Current assets Cash and cash equivalents $ 395,083 $ 361,098 Accounts receivable, net 237,318 227,055 Inventories 288,111 271,696 Prepaid expenses and other 14,567 15,003 Total current assets 935,079 874,852 Property, plant and equipment, net 1,099,412 1,109,740 Investment in joint ventures 46,616 46,429 Amortizable intangible assets, net 50,525 51,571 Operating lease right-of-use assets 12,403 13,251 Other long-term assets 32,960 31,928 Deferred income tax 1,271 1,355 Total assets $ 2,178,266 $ 2,129,126 LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities Accounts payable and other $ 229,324 $ 210,994 Pension and other post-retirement benefit obligations 859 802 Total current liabilities 230,183 211,796 Debt 1,197,790 1,145,294 Pension and other post-retirement benefit obligations 31,033 31,810 Finance lease liabilities 51,618 41,329 Operating lease liabilities 9,043 9,933 Other long-term liabilities 14,566 10,909 Deferred income tax 76,395 77,028 Total liabilities 1,610,628 1,528,099 Shareholders' equity Common shares $1 par value; 200,000,000 authorized; 65,988,000 issued and outstanding (2020 - 65,868,000) 65,920 65,800 Additional paid-in capital 346,186 345,696 Retained earnings 218,750 217,106 Accumulated other comprehensive loss (63,218 ) (27,575 ) Total shareholders' equity 567,638 601,027 Total liabilities and shareholders' equity $ 2,178,266 $ 2,129,126
MERCER INTERNATIONAL INC.
INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended March 31, 2021 2020 Cash flows from (used in) operating activities Net income (loss) $ 5,933 $ (3,392 ) Adjustments to reconcile net income (loss) to cash flows from operating activities Depreciation and amortization 30,967 32,946 Deferred income tax provision (recovery) 1,204 (1,331 ) Inventory impairment -- 5,734 Loss on early extinguishment of debt 30,368 -- Defined benefit pension plans and other post-retirement benefit plan expense 919 762 Stock compensation expense (reversal) 610 (46 ) Foreign exchange transaction gains (8,606 ) (6,144 ) Other (616 ) (497 ) Defined benefit pension plans and other post-retirement benefit plan contributions (923 ) (915 ) Changes in working capital Accounts receivable (12,423 ) (20,926 ) Inventories (20,799 ) (18,120 ) Accounts payable and accrued expenses 4,436 (57,660 ) Other (782 ) (253 ) Net cash from (used in) operating activities 30,288 (69,842 ) Cash flows from (used in) investing activities Purchase of property, plant and equipment (25,262 ) (23,018 ) Purchase of amortizable intangible assets (641 ) (438 ) Other (394 ) 51 Net cash from (used in) investing activities (26,297 ) (23,405 ) Cash flows from (used in) financing activities Redemption of senior notes (824,557 ) -- Proceeds from issuance of senior notes 875,000 -- Proceeds from (repayment of) revolving credit facilities, net (15,070 ) 51,260 Dividend payments -- (9,047 ) Repurchase of common shares -- (162 ) Payment of debt issuance costs (14,414 ) -- Proceeds from government grants 8,532 -- Other 1,921 (9,801 ) Net cash from (used in) financing activities 31,412 32,250 Effect of exchange rate changes on cash and cash equivalents (1,418 ) (3,562 ) Net increase (decrease) in cash and cash equivalents 33,985 (64,559 ) Cash and cash equivalents, beginning of period 361,098 351,085 Cash and cash equivalents, end of period $ 395,083 $ 286,526
MERCER INTERNATIONAL INC.
COMPUTATION OF OPERATING EBITDA
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:
Q1 Q4 Q1 2021 2020 2020 Net income (loss) $ 5,933 $ (12,977 ) $ (3,392 ) Income tax provision 2,698 1,645 5,344 Interest expense 19,019 20,690 20,084 Loss on early extinguishment of debt 30,368 -- -- Other expenses (income) (6,989 ) 6,258 2,026 Operating income 51,029 15,616 24,062 Add: Depreciation and amortization 30,967 33,890 32,946 Operating EBITDA $ 81,996 $ 49,506 $ 57,008