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MIAMISBURG, Ohio, Aug. 9, 2017 -- Verso Corporation (NYSE: VRS) today reported financial results for the second quarter of 2017, including net sales of $585 million, a net loss of $49 million, and adjusted EBITDA of $(4) million.

Overview
"Despite a challenging second quarter in which profitability was hampered by lower volume and pricing, rising input costs and inventory reduction initiatives, Verso is building momentum toward significantly improved results in the second half of the year as we anticipate realization of price increases, continue to aggressively cut costs and profitably grow our specialty papers business," said Verso Chief Executive Officer B. Christopher DiSantis. "In addition, we've made substantial progress in evaluating Verso's long-term strategic options, which potentially include paper machine conversions to enable expansion or entry into growing markets, enhancements to current assets that support a more profitable product mix, and corporate development opportunities."

Presentation of Predecessor and Successor Financial Results
Verso Corporation (the "Company") adopted fresh-start reporting as of July 15, 2016 (the "Effective Date"), the effective date of its First Modified Third Amended Joint Plan of Reorganization under Chapter 11 of the U.S. Bankruptcy Code dated June 20, 2016, and the date that Verso emerged from its Chapter 11 cases. As a result of the application of fresh-start reporting, the Company's financial statements for periods prior to the Effective Date are not comparable to those for periods subsequent to the Effective Date. References to "Successor" refer to the Company on or after the Effective Date. References to "Predecessor" refer to the Company prior to the Effective Date. Operating results for the Successor and Predecessor periods are not necessarily indicative of the results to be expected for a full fiscal year. References such as the "Company," "we," "our" and "us" refer to Verso Corporation and its consolidated subsidiaries, whether Predecessor and/or Successor, as appropriate.

Comments to Results of Operations - Comparison of Three Months Ended June 30, 2017 to Three Months Ended June 30, 2016

Net sales for the second quarter of 2017 decreased by $45 million compared to the second quarter of 2016. The sales decline was attributable to both a decrease in total sales volume and a decrease in pricing due to the general softening of demand for coated papers and our capacity reductions at our Androscoggin Mill.
Gross margin, excluding depreciation, amortization, and depletion expenses, decreased from 13.0% in the second quarter of 2016 to 2.4% in the second quarter of 2017 driven by lower sales volume and pricing, higher input costs, primarily as a result of inflation in chemicals and energy costs partially offset by lower wood costs, the effects of taking market-related downtime at our mills, production mix and reliability issues, and the effect of an accounting policy change adopted in conjunction with fresh-start accounting.
Depreciation, amortization and depletion for the second quarter of 2017 was lower than the second quarter of 2016, which was attributable to the capacity reductions at our Androscoggin Mill and reduction in the carrying value of our property, plant and equipment as a result of adopting fresh-start accounting.
SG&A expense reduction was attributable to cost reduction initiatives implemented by management across the organization as well as a reclassification of 2017 SG&A to cost of products sold, attributable to a change in accounting policy adopted in connection with fresh-start accounting.
Restructuring charges for the second quarter of 2017 are primarily associated with the closure and relocation of the Memphis office headquarters and closure of the Wickliffe Mill. Restructuring charges for the second quarter 2016 consisted primarily of severance and benefit and other costs related to the permanent closure of the Wickliffe Mill.

Comments to Results of Operations - Comparison of Six Months Ended June 30, 2017 to Six Months Ended June 30, 2016

Net sales for the first half of 2017 decreased by $119 million compared to the first half of 2016. The sales decline was attributable to both a decrease in total sales volume and a decrease in pricing due to the general softening of demand for coated papers and our capacity reductions at our Androscoggin Mill.
Gross margin, excluding depreciation, amortization, and depletion expenses, decreased from 11.7% in the first half of 2016 to 5.8% in the first half of 2017 driven by lower sales volume and pricing, higher input costs, primarily as a result of inflation in chemicals and energy costs partially offset by lower wood costs, the effects of taking market-related downtime at our mills, production mix and reliability issues, and the effect of an accounting policy change adopted in conjunction with fresh-start accounting.
Depreciation, amortization and depletion for the first half of 2017 was lower than the first half of 2016, which was attributable to the capacity reductions at our Androscoggin Mill, the closure of the Wickliffe Mill and the reduction in the carrying value of our property, plant and equipment as a result of the adoption of fresh-start accounting, partially offset by accelerated depreciation in the first quarter of 2017 in connection with the temporary idling of the No.3 paper machine at our Androscoggin Mill.
SG&A expense reduction was attributable to cost reduction initiatives implemented by management across the organization, reduced pre-reorganization costs as well as a reclassification of 2017 SG&A to cost of products sold, attributable to a change in accounting policy adopted in connection with fresh-start accounting.
Restructuring charges for the first half of 2017 are primarily associated with the closure and relocation of the Memphis office headquarters and closure of the Wickliffe Mill. Restructuring for the first half of 2016 consisted primarily of non-cash fixed asset write-down charges from the permanent closure of the Wickliffe Mill.
Other operating income for the first half of 2016 is attributable to the sale of hydroelectric facilities in January 2016.

Guidance

The Company is providing the following guidance:

2017 Third Quarter
Sales of $625-640 million
Price increases announced effective July and August
Capital expenditures of $16-20 million
Inventory flat to down slightly
2017 Full Year
Capital expenditures of $55-60 million, down from $73 million in 2016, down from Q1 estimate of $55-65 million
SG&A of $100-110 million, down from Q1 estimate of $110-115 million

Additionally, we have directed our financial advisor, Houlihan Lokey Capital, Inc., to assist us in exploring strategic potential transaction alternatives that may enhance stockholder value. No decision has been made to enter into any transaction at this time, and there is no assurance that our exploration of strategic alternatives will result in any transaction being entered into or consummated, and there is no set timetable for the exploration of strategic alternatives.

Reconciliation of Net Income to EBITDA and Adjusted EBITDA
EBITDA consists of earnings before interest, taxes, depreciation, and amortization. Adjusted EBITDA reflects adjustments to EBITDA to eliminate the impact of certain items that we do not consider to be indicative of our performance. We use EBITDA and Adjusted EBITDA as a way of evaluating our performance relative to that of our peers and to assess compliance with our credit facilities. We believe that Adjusted EBITDA is an operating performance measure commonly used in our industry that provides investors and analysts with a measure of ongoing operating results unaffected by differences in capital structures, capital investment cycles, and ages of related assets among otherwise comparable companies.

We believe that the supplemental adjustments applied in calculating Adjusted EBITDA are reasonable and appropriate to provide additional information to investors.

Because EBITDA and Adjusted EBITDA are not measurements determined in accordance with Generally Accepted Accounting Principles (GAAP) and are susceptible to varying calculations, EBITDA and Adjusted EBITDA, as presented, may not be comparable to similarly titled measures of other companies. You should consider our EBITDA and Adjusted EBITDA in addition to, and not as a substitute for, or superior to, our operating or net income or cash flows from operating activities, which are determined in accordance with GAAP.

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