Mercer International Inc. Reports Third Quarter and Nine Months Ended September 30, 2019 Results and Announces Quarterly Cash Dividend of $0.1375

Vancouver, British Columbia, CANADA


Selected Highlights

  • Third quarter net income of $1.2 million ($0.02 per share) and Operating EBITDA* of $50.8 million
  • Nine months ended September 30, 2019 net income of $63.1 million ($0.96 per share) and Operating EBITDA of $244.6 million

NEW YORK, Oct. 31, 2019 (GLOBE NEWSWIRE) -- Mercer International Inc. (Nasdaq: MERC) today reported third quarter 2019 Operating EBITDA decreased to $50.8 million from $86.7 million in the third quarter of 2018 and from $70.0 million in the second quarter of 2019. In the third quarter of 2019, net income was $1.2 million, or $0.02 per share, compared to $41.2 million, or $0.63 per share, in the third quarter of 2018 and $10.3 million, or $0.16 per share in the second quarter of 2019. 

In the first nine months of 2019, Operating EBITDA modestly declined to $244.6 million from $246.5 million in the same period of 2018. In the first nine months of 2019, net income was $63.1 million compared to $83.6 million in the same period of 2018.

Mr. David M. Gandossi, the Chief Executive Officer, stated: "Our third quarter results reflect continuing weakness in the pulp markets. High producer inventories, particularly of hardwood pulp, resulted in pricing pressure through most of the third quarter. However, late in the quarter we saw softwood producer inventories begin to fall and demand began to increase in China. We have announced an NBSK price increase of $10 per tonne for October in China.

Our mills ran well this quarter as we head into a heavy maintenance quarter in the fourth quarter, where three of our pulp mills will have annual maintenance shutdowns."

____________________

*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 to Operating EBITDA.

Consolidated Financial Results: Impacted by lower product sales realizations

 Q3  Q2  Q3  YTD  YTD  
 2019  2019  2018  2019  2018  
 (in thousands, except per share amounts)  
Revenues$383,536  $425,753  $331,058  $1,293,239  $1,045,493  
Operating income$18,747  $37,810  $63,346  $150,109  $176,870  
Operating EBITDA$50,799  $69,958  $86,656  $244,556  $246,513  
Loss on settlement of debt$  $  $  $  $(21,515)(1)
Legal cost award$  $  $  $  $(6,951) 
Net income$1,207  $10,259  $41,176  $63,082  $83,580  
Net income per common share                    
Basic$0.02  $0.16  $0.63  $0.96  $1.28  
Diluted$0.02  $0.16  $0.63  $0.96  $1.27  

______________
(1)     Redemption of 7.75% senior notes due 2022.

In the third quarter of 2019 our operating EBITDA decreased to $50.8 million from $70.0 million in the second quarter of 2019, and from $86.7 million in the same quarter of 2018. The decrease in the current quarter compared to the prior quarter is primarily due to lower pulp sales realizations only partially being offset by lower per unit fiber costs and the positive impact of a stronger dollar compared to the euro on the dollar denominated cash and receivables held at the German mills. Compared to the same quarter of 2018 lower pulp and lumber sales realizations were partially offset by lower per unit fiber costs and higher sales volumes.     

Segment Results

Pulp: Strong sales volumes and lower fiber costs more than offset by lower sales realizations

 Three Months Ended September 30 
  2019  2018 
 (in thousands) 
Pulp revenues$322,707  $274,970 
Energy and chemical revenues$22,353  $17,999 
Operating income$21,386  $68,794 

In the third quarter of 2019 pulp segment operating income decreased to $21.4 million from $68.8 million in the same quarter of 2018. The decrease was primarily due to lower pulp sales realizations partially offset by higher sales volumes and lower per unit fiber costs. In the current quarter of 2019, the NBSK pulp realized sales price decreased by approximately 29% to $609 per ADMT from $852 per ADMT in the same quarter of the prior year due to high producer inventory levels. NBSK sales volumes increased by approximately 41% to 451,171 ADMTs in the current quarter from 319,850 ADMTs in the same quarter of 2018 due to the inclusion of Mercer Peace River Pulp Ltd. ("MPR") and strong sales volumes to China.

As a result of a decline in pulp sales realizations in the current quarter of 2019, we recorded a write down of our inventory carrying values at our Canadian mills of $6.9 million.

In the current quarter of 2019, we received German regulatory approval to reverse a wastewater fee accrual of $7.2 million as a result of certain capital projects.

Per unit fiber costs decreased in the current quarter by approximately 14% from the same quarter of 2018 due to lower per unit fiber costs for our German mills and the positive impact of a stronger dollar on our euro and Canadian dollar denominated fiber costs. In Germany, fiber costs benefitted from the continuing availability of beetle damaged wood.  Fiber costs in Canada remained at high levels due to strong fiber demand in Celgar's fiber procurement basket.

Wood Products: Lower fiber costs partially offset by lower lumber sales realizations 

 Three Months Ended September 30, 
 2019  2018 
 (in thousands) 
Lumber revenues$32,687  $34,270 
Energy revenues$1,621  $1,978 
Wood residual revenues$2,150  $1,841 
Operating income (loss)$544  $(1,770)

In the third quarter of 2019 wood products segment operating income increased to $0.5 million compared to an operating loss of $1.8 million in the same quarter of 2018. The increase was primarily due to lower per unit fiber costs partially offset by lower lumber sales realizations. In the current quarter per unit fiber costs decreased by approximately 34% from the same quarter of 2018 primarily as a result of the availability of beetle damaged wood. Average lumber sales realizations decreased by approximately 18% to $337 per Mfbm in the third quarter of 2019 from approximately $409 per Mfbm in the same quarter of 2018 primarily due to lower pricing in both the U.S. and Europe. U.S lumber pricing declined as a result of high producer inventory levels. European lumber pricing declined due to an increase in the supply of lumber processed from beetle damaged wood which generally obtains lower prices.

Consolidated –Nine Months Ended September 30, 2019 Compared to Nine Months Ended September 30, 2018

Total revenues for the nine months ended September 30, 2019 increased by approximately 24% to $1,293.2 million from $1,045.5 million in the nine months ended September 30, 2018 primarily due to the inclusion of the results of MPR and higher pulp and energy sales volumes partially offset by lower sales realizations.

Costs and expenses in the nine months ended September 30, 2019 increased by approximately 32% to $1,143.1 million from $868.6 million in the nine months ended September 30, 2018 primarily due to the inclusion of MPR and higher pulp sales volumes partially offset by lower per unit fiber and maintenance costs and the positive impact of a stronger dollar on our euro denominated costs and expenses.

For the nine months ended September 30, 2019, our net income decreased to $63.1 million, or $0.96 per share from $83.6 million, or $1.28 per basic and $1.27 per diluted share in the same period of 2018, after giving effect to costs of $28.5 million, or $0.44 per basic and $0.43 per diluted share, for the redemption of our 2022 senior notes in January, 2019 and a legal cost award.

In the nine months ended September 30, 2019, Operating EBITDA modestly declined to $244.6 million from $246.5 million in the same period of 2018 primarily due to lower pulp and lumber sales realizations partially offset by higher pulp and energy sales volumes, lower per unit fiber and maintenance costs, the inclusion of MPR and the positive impact of a stronger dollar on our euro denominated costs and expenses.

Outlook
We currently expect NBSK pulp markets to stabilize in the later part of the year due to lower producer inventories as a result of producer downtime along with steady demand. We currently expect lumber pricing to also stabilize in the later part of the year due to sawmill curtailments in Canada and steady U.S. and European demand.

In the fourth quarter of 2019, we have three of our pulp mills down for scheduled maintenance downtime totaling 53 days or approximately 83,000 ADMTs.

Quarterly Dividend
A quarterly dividend of $0.1375 per share will be paid on December 19, 2019 to all shareholders of record on December 12, 2019. 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 November 1, 2019 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/k576r6r3 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
Chief Executive Officer
(604) 684-1099

-FINANCIAL TABLES FOLLOW-

Summary Financial Highlights

 Q3  Q2  Q3  YTD  YTD  
 2019  2019  2018  2019  2018  
 (in thousands, except per share amounts)  
Pulp segment revenues$345,060  $384,799  $292,969  $1,166,333  $898,836  
Wood products segment revenues 36,458   39,452   38,089   120,349   146,657  
Corporate and other revenues 2,018   1,502      6,557     
Total revenues$383,536  $425,753  $331,058  $1,293,239  $1,045,493  
                     
Pulp segment operating income$21,386  $42,251  $68,794  $157,157  $179,824  
Wood products segment operating income (loss) 544   (89)  (1,770)  2,075   5,534  
Corporate and other operating loss (3,183)  (4,352)  (3,678)  (9,123)  (8,488) 
Total operating income$18,747  $37,810  $63,346  $150,109  $176,870  
                     
Pulp segment depreciation and amortization$29,744  $29,849  $20,802  $87,616  $63,452  
Wood products segment depreciation and amortization 2,016   2,010   2,395   5,937   5,860  
Corporate and other depreciation and amortization 292   289   113   894   331  
Total depreciation and amortization$32,052  $32,148  $23,310  $94,447  $69,643  
                     
Operating EBITDA$50,799  $69,958  $86,656  $244,556  $246,513  
Loss on settlement of debt$  $  $  $  $(21,515)(1)
Legal cost award$  $  $  $  $(6,951) 
Provision for income taxes$(244) $(10,433) $(10,182) $(35,101) $(28,224) 
Net income$1,207  $10,259  $41,176  $63,082  $83,580  
Net income per common share                    
Basic$0.02  $0.16  $0.63  $0.96  $1.28  
Diluted$0.02  $0.16  $0.63  $0.96  $1.27  
Common shares outstanding at period end 65,629   65,629   65,202   65,629   65,202  

______________
(1)     Redemption of 7.75% senior notes due 2022.

Summary Operating Highlights

 Q3  Q2  Q3  YTD  YTD  
 2019  2019  2018  2019  2018  
Pulp Segment                    
Pulp production ('000 ADMTs)                    
NBSK 441.7   452.8   363.5   1,355.1   1,037.7  
NBHK 75.3   89.4       243.3      
Annual maintenance downtime ('000 ADMTs) 14.1   7.5   14.4   21.6   69.9  
Annual maintenance downtime (days) 13   15   14   28   51  
Pulp sales ('000 ADMTs)                    
NBSK 451.2   438.5   319.9   1,356.6   1,025.2  
NBHK 91.0   81.5       260.4      
Average NBSK pulp list prices ($/ADMT)(1)                    
Europe 860   997   1,230   987   1,176  
China 585   653   887   649   902  
North America 1,170   1,292   1,377   1,281   1,307  
Average NBHK pulp list prices ($/ADMT)(1)                    
China 507   635   800   609   799  
North America 970   1,100   1,192   1,083   1,131  
Average pulp sales realizations ($/ADMT)(2)                    
NBSK 609   699   852   689   817  
NBHK 499   618       589      
Energy production ('000 MWh) 572.5 (3) 575.4 (3) 388.0   1,708.3 (3) 1,120.7  
Energy sales ('000 MWh) 224.7 (3) 231.9 (3) 141.0   668.4 (3) 401.3  
Average energy sales realizations ($/MWh) 89   93   105   92   105  
                     
Wood Products Segment                    
Lumber production (MMfbm) 96.6  100.8   79.5   308.0  294.1  
Lumber sales (MMfbm) 97.0  101.5  83.8   307.7   312.0  
Average lumber sales realizations ($/Mfbm) 337  348  409   348  421  
Energy production and sales ('000 MWh) 13.9  24.1  16.4   60.4  62.5  
Average energy sales realizations ($/MWh)116  116  121  117  128  
                     
Average Spot Currency Exchange Rates                    
$ / €(4) 1.1120  1.1237  1.1629  1.1234  1.1945  
$ / C$(4)0.7573  0.7475   0.7651  0.7523  0.7767  

______________

(1) Source: RISI pricing report.
(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) Excludes energy production and sales relating to our 50% joint venture interest in the Cariboo mill which is accounted for as an equity investment.
(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
 
  2019  2018  2019  2018 
Revenues $383,536  $331,058  $1,293,239  $1,045,493 
Costs and expenses                
Cost of sales, excluding depreciation and amortization  314,894   230,009   994,360   755,428 
Cost of sales depreciation and amortization  31,934   23,197   94,108   69,312 
Selling, general and administrative expenses  17,961   14,506   54,662   43,883 
Operating income  18,747   63,346   150,109   176,870 
Other income (expenses)                
Interest expense  (18,183)  (11,729)  (55,103)  (35,972)
Loss on settlement of debt           (21,515)
Legal cost award           (6,951)
Other income (expenses)  887   (259)  3,177   (628)
Total other expenses, net  (17,296)  (11,988)  (51,926)  (65,066)
Income before provision for income taxes  1,451   51,358   98,183   111,804 
Provision for income taxes  (244)  (10,182)  (35,101)  (28,224)
Net income $1,207  $41,176  $63,082  $83,580 
Net income per common share                
Basic $0.02  $0.63  $0.96  $1.28 
Diluted $0.02  $0.63  $0.96  $1.27 
Dividends declared per common share $0.1375  $0.1250  $0.4000  $0.3750 


MERCER INTERNATIONAL INC.

INTERIM CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands, except share and per share data)

  September 30,  December 31, 
  2019  2018 
ASSETS        
Current assets        
Cash and cash equivalents $264,899  $240,491 
Accounts receivable  228,154   252,692 
Inventories  269,443   303,813 
Prepaid expenses and other  20,512   13,703 
Total current assets  783,008   810,699 
Property, plant and equipment, net  1,009,639   1,029,257 
Investment in joint ventures  55,382   62,574 
Intangible assets, net  53,442   53,927 
Operating lease right-of-use assets  13,054    
Other long-term assets  32,220   17,904 
Deferred income tax  2,908   1,374 
Total assets $1,949,653  $1,975,735 
LIABILITIES AND SHAREHOLDERS’ EQUITY        
Current liabilities        
Accounts payable and other $203,279  $194,484 
Pension and other post-retirement benefit obligations  778   904 
Total current liabilities  204,057   195,388 
Debt  984,087   1,041,389 
Pension and other post-retirement benefit obligations  26,534   25,829 
Finance lease liabilities  21,677   24,669 
Operating lease liabilities  10,631    
Other long-term liabilities  13,423   13,924 
Deferred income tax  97,857   93,107 
Total liabilities  1,358,266   1,394,306 
Shareholders’ equity        
Common shares $1 par value; 200,000,000 authorized; 65,629,000 issued and outstanding (2018 – 65,202,000)  65,598   65,171 
Additional paid-in capital  343,994   342,438 
Retained earnings  338,116   301,990 
Accumulated other comprehensive loss  (156,321)  (128,170)
Total shareholders’ equity  591,387   581,429 
Total liabilities and shareholders’ equity $1,949,653  $1,975,735 


MERCER INTERNATIONAL INC.

INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)

  Three Months Ended
September 30
  Nine Months Ended
September 30
 
  2019  2018  2019  2018 
Cash flows from (used in) operating activities                
Net income $1,207  $41,176  $63,082  $83,580 
Adjustments to reconcile net income to cash flows from operating activities                
Depreciation and amortization  32,052   23,310   94,447   69,643 
Deferred income tax provision (benefit)  (1,706)  1,314   2,359   7,330 
Loss on settlement of debt           21,515 
Defined benefit pension plans and other post-retirement benefit plan expense  866   423   2,582   1,294 
Stock compensation expense  1,179   970   2,036   2,922 
Foreign exchange transaction losses (gains)  (8,873)  40   369   564 
Other  2,887   844   11,231   2,451 
Defined benefit pension plans and other post-retirement benefit plan contributions  (1,200)  (19)  (2,628)  (124)
Changes in working capital                
Accounts receivable  41,381   (150)  17,232   8,193 
Inventories  9,242   (41,084)  22,614   (60,127)
Accounts payable and accrued expenses  (16,691)  (10,803)  (12,667)  44,130 
Other  (3,483)  (5,252)  (12,889)  (8,480)
Net cash from (used in) operating activities  56,861   10,769   187,768   172,891 
Cash flows from (used in) investing activities                
Purchase of property, plant and equipment  (37,049)  (26,744)  (81,417)  (71,583)
Purchase of intangible assets  (215)  (163)  (710)  (483)
Other  162   211   (181)  278 
Net cash from (used in) investing activities  (37,102)  (26,696)  (82,308)  (71,788)
Cash flows from (used in) financing activities                
Redemption of senior notes           (317,439)
Proceeds from (repayment of) revolving credit facilities, net     (3,443)  (58,404)  34,293 
Dividend payments  (9,025)  (8,150)  (17,231)  (24,424)
Repurchase of common shares        (754)   
Payment of debt issuance costs  (369)     (1,126)  (1,390)
Proceeds from government grants  147      6,467    
Other  (1,735)  (944)  (8,664)  (2,563)
Net cash from (used in) financing activities  (10,982)  (12,537)  (79,712)  (311,523)
Effect of exchange rate changes on cash and cash equivalents  (1,200)  1,167   (1,340)  (8,133)
Net increase (decrease) in cash and cash equivalents  7,577   (27,297)  24,408   (218,553)
Cash and cash equivalents, beginning of period  257,322   269,482   240,491   460,738 
Cash and cash equivalents, end of period $264,899  $242,185  $264,899  $242,185 


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, 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 or income from operations as a measure of performance, nor as an alternative to net cash from operating activities as a measure of liquidity. The following tables set forth the net income to Operating EBITDA:

  Q3  Q2  Q3  YTD  YTD 
 2019  2019  2018  2019  2018 
Net income$1,207  $10,259  $41,176  $63,082  $83,580 
Provision for income taxes 244   10,433   10,182   35,101   28,224 
Interest expense 18,183   18,369   11,729   55,103   35,972 
Loss on settlement of debt             21,515 
Legal cost award             6,951 
Other (income) expenses (887)  (1,251)  259   (3,177)  628 
Operating income 18,747   37,810   63,346   150,109   176,870 
Add: Depreciation and amortization 32,052   32,148   23,310   94,447   69,643 
Operating EBITDA$50,799  $69,958  $86,656  $244,556  $246,513