Mercer(MERC) - 2021 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION This section presents the unaudited interim consolidated financial statements for the three months ended March 31, 2021, including statements of operations, balance sheets, and cash flows, with notes detailing debt refinancing and segment performance Item 1. Financial Statements This section presents the unaudited interim consolidated financial statements for the three months ended March 31, 2021, including statements of operations, balance sheets, and cash flows, with notes detailing debt refinancing and segment performance Interim Consolidated Statements of Operations The company reported a net income of $5.9 million in Q1 2021, a turnaround from a $3.4 million loss in Q1 2020, driven by an 18% revenue increase and doubled operating income, despite a $30.4 million debt extinguishment loss Q1 2021 vs Q1 2020 Statement of Operations Highlights | Metric | Q1 2021 (in thousands) | Q1 2020 (in thousands) | Change | | :--- | :--- | :--- | :--- | | Revenues | $412,720 | $350,599 | +17.7% | | Operating Income | $51,029 | $24,062 | +112.1% | | Loss on early extinguishment of debt | $(30,368) | $— | N/A | | Net Income (Loss) | $5,933 | $(3,392) | Turnaround to Profit | | Basic and Diluted EPS | $0.09 | $(0.05) | Turnaround to Profit | Interim Consolidated Balance Sheets As of March 31, 2021, total assets increased to $2.18 billion due to higher cash, while total liabilities rose to $1.61 billion from debt refinancing, leading to a decrease in shareholders' equity to $567.6 million Balance Sheet Summary | Metric | March 31, 2021 (in thousands) | Dec 31, 2020 (in thousands) | | :--- | :--- | :--- | | Cash and cash equivalents | $395,083 | $361,098 | | Total current assets | $935,079 | $874,852 | | Total assets | $2,178,266 | $2,129,126 | | Total liabilities | $1,610,628 | $1,528,099 | | Total shareholders' equity | $567,638 | $601,027 | Interim Consolidated Statements of Cash Flows Operating activities generated $30.3 million in Q1 2021, a significant improvement from the prior year, with investing activities consuming $26.3 million and financing providing $31.4 million from debt issuance, resulting in a $34.0 million increase in cash Q1 2021 vs Q1 2020 Cash Flow Summary | Cash Flow Activity (in thousands) | Q1 2021 | Q1 2020 | | :--- | :--- | :--- | | Net cash from (used in) operating activities | $30,288 | $(69,842) | | Net cash from (used in) investing activities | $(26,297) | $(23,405) | | Net cash from (used in) financing activities | $31,412 | $32,250 | | Net increase (decrease) in cash | $33,985 | $(64,559) | Notes to the Interim Consolidated Financial Statements Key notes include a Q1 2021 debt refinancing of $875 million senior notes, resulting in a $30.4 million loss, quarterly dividends of $0.065 per share, and segment performance details for Pulp and Wood Products - In January 2021, the company issued $875 million in 5.125% senior notes due 2029, with proceeds used to redeem older notes, resulting in a recorded loss on early extinguishment of debt of $30.4 million[33] - The company declared a quarterly dividend of $0.065 per common share in February 2021 (paid in April) and another $0.065 per share in April 2021 (to be paid in July)[45][46] Q1 2021 Revenues by Segment | Segment | Revenues (in thousands) | | :--- | :--- | | Pulp | $339,756 | | Wood Products | $70,987 | | Corporate and Other | $1,977 | | Total | $412,720 | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses strong Q1 2021 performance with 18% revenue growth and 44% Operating EBITDA increase, driven by higher pulp and lumber prices, a major debt refinancing, and a strong liquidity position despite cyclical business risks Results of Operations Consolidated revenues increased 18% to $412.7 million in Q1 2021, with operating income more than doubling, driven by strong performance in Pulp and record operating income in Wood Products, despite a one-time debt extinguishment loss Q1 2021 vs Q1 2020 Financial Highlights | Metric (in thousands) | Q1 2021 | Q1 2020 | | :--- | :--- | :--- | | Total Revenues | $412,720 | $350,599 | | Total Operating Income | $51,029 | $24,062 | | Operating EBITDA | $81,996 | $57,008 | | Net Income (Loss) | $5,933 | $(3,392) | - Pulp segment operating income increased by 18% to $25.3 million, as higher pulp sales realizations and lower fiber costs offset the negative impact of a weaker dollar and higher maintenance costs[120] - Wood Products segment achieved record operating income of $28.0 million, a significant increase from $5.6 million in Q1 2020, primarily due to a 79% increase in average lumber sales realizations to $622 per Mfbm[121][123][126] Liquidity and Capital Resources The company maintained strong liquidity of $671.8 million in Q1 2021, with positive operating cash flow of $30.3 million, and increased its 2021 capital expenditure forecast to $185 million for woodroom projects - As of March 31, 2021, the company had aggregate liquidity of about $671.8 million, consisting of $395.1 million in cash and cash equivalents and $276.7 million available under revolving credit facilities[135] - Expected 2021 capital expenditures will increase from about $150 million to about $185 million, primarily for new woodroom projects at Canadian mills[137] Q1 Cash Flow Summary | Cash Flow Activity (in thousands) | Q1 2021 | Q1 2020 | | :--- | :--- | :--- | | Net cash from (used in) operating activities | $30,288 | $(69,842) | | Net cash used in investing activities | $(26,297) | $(23,405) | | Net cash from financing activities | $31,412 | $32,250 | Cyclical Nature of Business The pulp and lumber businesses are highly cyclical, with volatile prices sensitive to global economic conditions and foreign exchange rates, requiring careful management of fluctuating fiber costs and exposing the company to currency risk - The pulp and lumber businesses are highly cyclical, with prices sensitive to global economic conditions, industry capacity, and foreign exchange rates, which can materially affect prices and operating results[162] - Profitability depends on managing the cost structure, particularly raw materials like fiber, which represent a significant component of operating costs and can fluctuate based on factors beyond the company's control[167][168] - The company is exposed to currency risk as most operating costs are in euros and Canadian dollars, while the majority of sales are in U.S. dollars, where a strengthening dollar benefits costs, while a weakening dollar adversely affects margins[169] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company's primary market risks are interest rate and foreign currency exchange rate fluctuations, particularly USD versus EUR and CAD, which are managed through internal policies and occasional derivatives - The company is exposed to market risks from changes in interest rates and foreign currency exchange rates, specifically between the U.S. dollar and the euro/Canadian dollar[170] Item 4. Controls and Procedures Management, including the CEO and CFO, concluded that disclosure controls and procedures were effective as of March 31, 2021, with no material changes in internal control over financial reporting during the quarter - Management, including the principal executive and financial officers, concluded that disclosure controls and procedures were effective as of the end of the period covered by the report[172] - No changes in internal control over financial reporting occurred during the quarter that have materially affected, or are reasonably likely to materially affect, these controls[175] PART II. OTHER INFORMATION This section covers legal proceedings, risk factors, other required disclosures, and a list of exhibits filed with the Form 10-Q Item 1. Legal Proceedings The company is involved in routine litigation incidental to its business, which management does not expect to have a material adverse effect on its financial condition - The company is subject to routine litigation incidental to its business, which is not expected to have a material adverse effect[177] Item 1A. Risk Factors No material changes have occurred to the risk factors disclosed in the company's 2020 Form 10-K - No material changes have occurred to the risk factors disclosed in the company's 2020 Form 10-K[178] Other Items (2, 3, 4, 5) The company reports no unregistered sales of equity securities, defaults on senior securities, mine safety disclosures, or other required information for the quarter - The company reports no unregistered sales of equity securities, defaults upon senior securities, mine safety disclosures, or other information for the quarter[179][180][181] Item 6. Exhibits Filed exhibits include CEO and CFO certifications under Sections 302 and 906, and financial data in iXBRL format - Filed exhibits include CEO and CFO certifications under Sections 302 and 906, and financial data in iXBRL format[183][184]