Mercer(MERC) - 2023 Q3 - Quarterly Report

Financial Performance - Total revenues for Q3 2023 decreased by approximately 12% to $470.8 million from$532.8 million in Q3 2022, primarily due to lower pulp, energy, and lumber sales realizations [120]. - Net loss for Q3 2023 was $25.96 million, compared to net income of$66.75 million in Q3 2022, resulting in a diluted loss per share of $0.39 [116]. - Total operating income for Q3 2023 was a loss of$3.43 million, down from an operating income of $108.72 million in Q3 2022 [116]. - Operating EBITDA decreased to$37.5 million in Q3 2023 from $140.9 million in Q3 2022, primarily due to lower pulp, energy, and lumber sales realizations [127]. - For the nine months ended September 30, 2023, the company reported an Operating EBITDA of negative$3.7 million, a significant decline from positive $440.4 million in the same period of 2022, primarily due to lower sales realizations and higher costs [160]. - Cash used in operating activities was$60.3 million in the nine months ended September 30, 2023, compared to cash provided of $310.0 million in the same period of 2022 [186]. Revenue Breakdown - Pulp segment revenues for Q3 2023 were$348.9 million, down from $456.7 million in Q3 2022, while solid wood segment revenues increased to$119.5 million from $74.3 million [116]. - Pulp revenues decreased by approximately 20$318.1 million in Q3 2023 from $395.5 million in Q3 2022, attributed to lower sales realizations [130]. - Energy and chemical revenues fell by approximately 50$30.8 million in Q3 2023 from $61.2 million in Q3 2022 due to lower sales realizations [131]. - Pulp segment revenues decreased by approximately 16$1,061.9 million in the nine months ended September 30, 2023, down from $1,260.9 million in the same period of 2022, reflecting weak market conditions [163]. - Energy and chemical revenues in the pulp segment fell by approximately 37$90.0 million in the nine months ended September 30, 2023, compared to $141.9 million in the same period of 2022 [163]. - The solid wood segment revenues increased by approximately 26$366.6 million in the nine months ended September 30, 2023, from $290.0 million in the same period of 2022, driven by the inclusion of Torgau and ramping up mass timber operations [176]. Costs and Expenses - Costs and expenses in the nine months ended September 30, 2023 increased by approximately 22$1,655.7 million from $1,352.8 million in the same period of 2022, primarily due to the inclusion of Torgau [154]. - In Q3 2023, transportation costs increased by approximately 46$13.9 million from $9.5 million in Q3 2022, primarily due to higher sales volume [151]. - Transportation costs for the solid wood segment increased by approximately 44$48.0 million in the nine months ended September 30, 2023, from $33.4 million in the same period of 2022, primarily due to higher sales volumes [184]. Acquisitions and Investments - The company acquired Structurlam Mass Timber Corporation for$82.1 million on June 15, 2023, enhancing its mass timber production capabilities [109]. - Investing activities used cash of $179.7 million in the nine months ended September 30, 2023, primarily for capital expenditures of$110.3 million and acquisition costs of $82.1 million for mass timber assets [187]. - Capital expenditures for the nine months ended September 30, 2023, were$110.3 million, down from $128.9 million in the same period of 2022, a decrease of approximately 14.4$130 million and $150 million, indicating a reduction from previous plans [194]. Market Conditions and Outlook - The company expects modest improvements in pulp sales realizations in Q4 2023 due to increasing demand in China and reduced supply from curtailments [112]. - Demand for pulp and lumber is closely tied to global macro-economic conditions and can be volatile [223]. - The company faces risks from cyclical fluctuations in raw material prices, particularly fiber, which could adversely affect profitability [216]. Financial Position - Total assets decreased to$2,655.0 million as of September 30, 2023, down from $2,725.0 million as of December 31, 2022, a decline of approximately 2.6$1,721.7 million as of September 30, 2023, up from $1,508.2 million as of December 31, 2022, reflecting a rise of about 14.1$343.7 million as of September 30, 2023, with approximately $304.7 million available under revolving credit facilities, resulting in total liquidity of about$648.4 million [193]. - The company believes that cash flow from operations and available cash will be adequate to finance capital requirements and pay quarterly dividends over the next 12 months [196]. Credit Ratings and Financial Risks - S&P downgraded the company's senior notes rating to B from B+ in September 2023, with a negative outlook, while Moody's downgraded its rating to B2 from Ba3 [207]. - A non-cash decrease of $7.6 million in the carrying value of net assets denominated in euros was recorded due to the strengthening of the dollar as of September 30, 2023 [205]. - A decrease in the dollar's value relative to the euro and Canadian dollar adversely affects operating margins and cash flow [229]. - Such declines could materially impact the company's business, financial condition, and results of operations [229].