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Veritiv Announces Third Quarter 2019 Financial Results

November 5, 2019

ATLANTA, Nov. 5, 2019 /PRNewswire/ -- Veritiv Corporation (NYSE: VRTV), a North American leader in business-to-business distribution solutions, today announced financial results for the third quarter ended September 30, 2019.

“Our consolidated third quarter results were highlighted by strong cash flow, as well as improved margins and Adjusted EBITDA in Packaging and Facility Solutions. However, challenges in our Print segment negatively impacted our overall revenues and earnings,” said Mary Laschinger, Chairman and CEO of Veritiv Corporation. “Given the year-to-date performance in Print, and our current outlook for the remainder of the year, we are lowering our 2019 Adjusted EBITDA guidance to $150 to $160 million, down from $165 to $180 million. However, we are raising our expectation for free cash flow from at least $85 million to at least $170 million.”

For the three months ended September 30, 2019, compared to the three months ended September 30, 2018:

For the nine months ended September 30, 2019, compared to the nine months ended September 30, 2018:

“Improved working capital was the primary driver of our positive cash flow performance in the third quarter. Lower sales volumes and process improvements significantly reduced both accounts receivable and inventory,” said Stephen Smith, Senior Vice President and Chief Financial Officer of Veritiv Corporation. “Our strong cash flow generation year-to-date has enabled significant debt reduction as our net debt to Adjusted EBITDA ratio is now 3.6x versus 4.8x in the prior year period. In addition, we have lowered our long-term debt, net of current portion, by over $270 million or 27% year-over-year.”

Veritiv Corporation will host a live conference call and webcast today, November 5, 2019, at 10 a.m. (ET) to discuss its third quarter 2019 financial results. To participate, callers within the U.S. and Canada can dial (833) 241-7249, and international callers can dial (647) 689-4213, both using conference ID number 2359405. Interested parties can also listen online at ir.veritivcorp.com. A replay of the call and webcast will be available online for a limited period of time at ir.veritivcorp.com shortly after the live webcast is completed.

Important information regarding U.S. generally accepted accounting principles (“U.S. GAAP”) and related reconciliations of non-GAAP financial measures to the most comparable U.S. GAAP measures can be found in the schedules to this press release, which should be thoroughly reviewed.

A reconciliation of the forecasted full year 2019 Adjusted EBITDA guidance range cannot be provided without unreasonable efforts due to the uncertainty and variability on a forward-looking basis of certain items that impact net income including, but not limited to, restructuring charges, LIFO reserves, fair value adjustment on contingent liabilities and taxes, any of which may be significant. In addition, the Company believes such a reconciliation would imply a degree of precision that would be confusing or misleading to investors.

About Veritiv
Veritiv Corporation (NYSE: VRTV), headquartered in Atlanta and a Fortune 500® company, is a leading North American business-to-business distributor of packaging, facility solutions, print and publishing products and services; and also a provider of logistics and supply chain management solutions. Serving customers in a wide range of industries, the Company has approximately 150 operating distribution centers throughout the U.S., Canada and Mexico, and employs approximately 8,200 team members that help shape the success of its customers. For more information about Veritiv and its business segments visit www.veritivcorp.com.

Safe Harbor Provision
Certain statements contained in this press release regarding Veritiv Corporation’s (the “Company”) future operating results, performance, business plans, prospects, guidance and any other statements not constituting historical fact are “forward-looking statements” subject to the safe harbor created by the Private Securities Litigation Reform Act of 1995. Where possible, the words “believe,” “expect,” “anticipate,” “continue,” “intend,” “should,” “will,” “would,” “planned,” “estimated,” “potential,” “goal,” “outlook,” “may,” “predicts,” “could,” or the negative of such terms, or other comparable expressions, as they relate to the Company or its business, have been used to identify such forward-looking statements. All forward-looking statements reflect only the Company’s current beliefs and assumptions with respect to future operating results, performance, business plans, prospects, guidance and other matters, and are based on information currently available to the Company. Accordingly, the statements are subject to significant risks, uncertainties and contingencies, which could cause the Company’s actual operating results, performance, business plans, prospects or guidance to differ materially from those expressed in, or implied by, these statements.

Factors that could cause actual results to differ materially from current expectations include risks and other factors described under “Risk Factors” in our Annual Report on Form 10-K and elsewhere in the Company’s publicly available reports filed with the Securities and Exchange Commission (“SEC”), which contain a discussion of various factors that may affect the Company’s business or financial results. Such risks and other factors, which in some instances are beyond the Company’s control, include: the industry-wide decline in demand for paper and related products; increased competition from existing and non-traditional sources; adverse developments in general business and economic conditions as well as conditions in the global capital and credit markets impacting our Company and our customers; foreign currency fluctuations; our ability to attract, train and retain highly qualified employees; the effects of work stoppages, union negotiations and labor disputes; the loss of any of our significant customers; changes in business conditions in our international operations; procurement and other risks in obtaining packaging, paper and facility products from our suppliers for resale to our customers; changes in prices for raw materials; increases in the cost of fuel and third-party freight and the availability of third-party freight providers; changes in trade policies and regulations; inclement weather, anti-terrorism measures and other disruptions to the transportation network; our dependence on a variety of IT and telecommunications systems and the Internet; our reliance on third-party vendors for various services; cyber-security risks; costs to comply with laws, rules and regulations, including environmental, health and safety laws, and to satisfy any liability or obligation imposed under such laws; regulatory changes and judicial rulings impacting our business; adverse results from litigation, governmental investigations or audits, or tax-related proceedings or audits; our inability to renew existing leases on acceptable terms, negotiate rent decreases or concessions and identify affordable real estate; our ability to adequately protect our material intellectual property and other proprietary rights, or to defend successfully against intellectual property infringement claims by third parties; our pension and health care costs and participation in multi-employer pension, health and welfare plans; increasing interest rates; our ability to generate sufficient cash to service our debt; our ability to comply with the covenants contained in our debt agreements; our ability to refinance or restructure our debt on reasonable terms and conditions as might be necessary from time to time; changes in accounting standards and methodologies; our ability to realize the full benefit of the anticipated synergies, cost savings and growth opportunities from the merger transaction and our ability to integrate the xpedx business with the Unisource business; the possibility of incurring expenditures in excess of those currently budgeted in connection with the integration; and other events of which we are presently unaware or that we currently deem immaterial that may result in unexpected adverse operating results. The Company is not responsible for updating the information contained in this press release beyond the published date, or for changes made to this document by wire services or Internet service providers. This press release is being furnished to the SEC through a Form 8-K. The Company’s Quarterly Report on Form 10-Q for the three and nine months ended September 30, 2019 to be filed with the SEC may contain updates to the information included in this release.

Financial Statements

VERITIV CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in millions, except per share data, unaudited)










Three Months Ended
September 30,


Nine Months Ended
September 30,


2019


2018


2019


2018

Net sales

$

1,924.5


$

2,192.5


$

5,824.2


$

6,465.4

Cost of products sold (exclusive of depreciation and
amortization shown separately below)

1,550.8


1,805.8


4,726.5


5,323.8

Distribution expenses

124.9


135.0


387.3


400.1

Selling and administrative expenses

204.3


209.8


631.6


656.1

Depreciation and amortization

13.3


13.1


39.5


41.5

Integration and acquisition expenses

4.5


7.9


13.3


24.6

Restructuring charges, net

7.6


5.4


16.9


28.7

Operating income (loss)

19.1


15.5


9.1


(9.4)

Interest expense, net

8.9


11.0


30.5


30.5

Other (income) expense, net

(2.5)


(0.4)


11.3


(13.8)

Income (loss) before income taxes

12.7


4.9


(32.7)


(26.1)

Income tax expense (benefit)

7.6


3.5


0.2


(1.1)

Net income (loss)

$

5.1


$

1.4


$

(32.9)


$

(25.0)









Earnings (loss) per share:








Basic earnings (loss) per share

$

0.32


$

0.09


$

(2.05)


$

(1.58)

Diluted earnings (loss) per share

$

0.31


$

0.09


$

(2.05)


$

(1.58)









Weighted-average shares outstanding:








Basic

16.10


15.85


16.04


15.82

Diluted

16.24


16.47


16.04


15.82

VERITIV CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(dollars in millions, except par value, unaudited)






September 30, 2019


December 31, 2018

Assets




Current assets:




Cash

$

59.3


$

64.3

Accounts receivable, less allowances of $50.9 and $62.0, respectively

968.2


1,181.4

Related party receivable

2.8


3.2

Inventories

602.6


688.2

Other current assets

137.8


147.2

Total current assets

1,770.7


2,084.3

Property and equipment (net of accumulated depreciation and
amortization of $337.3 and $320.7, respectively)

199.6


206.7

Goodwill

99.6


99.6

Other intangibles, net

53.4


57.2

Deferred income tax assets

58.3


56.5

Other non-current assets

456.1


25.4

Total assets

$

2,637.7


$

2,529.7

Liabilities and shareholders' equity




Current liabilities:




Accounts payable

$

592.7


$

641.9

Related party payable

6.5


9.3

Accrued payroll and benefits

50.8


56.5

Other accrued liabilities

223.3


134.7

Current portion of debt

9.9


6.7

Financing obligations, current portion


0.6

Total current liabilities

883.2


849.7

Long-term debt, net of current portion

726.2


963.6

Financing obligations, less current portion


23.6

Defined benefit pension obligations

20.8


21.1

Other non-current liabilities

482.9


128.6

Total liabilities

2,113.1


1,986.6

Commitments and contingencies




Shareholders' equity:




Preferred stock, $0.01 par value, 10.0 million shares authorized, none
issued


Common stock, $0.01 par value, 100.0 million shares authorized; shares
issued - 16.4 million and 16.2 million, respectively; shares
outstanding - 16.1 million and 15.9 million, respectively

0.2


0.2

Additional paid-in capital

615.8


605.7

Accumulated (deficit) earnings

(38.7)


(8.5)

Accumulated other comprehensive loss

(39.1)


(40.7)

Treasury stock at cost - 0.3 million shares at September 30, 2019 and December 31, 2018

(13.6)


(13.6)

Total shareholders' equity

524.6


543.1

Total liabilities and shareholders' equity

$

2,637.7


$

2,529.7

VERITIV CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in millions, unaudited)






Nine Months Ended September 30,


2019


2018

Operating activities




Net loss

$

(32.9)


$

(25.0)

Depreciation and amortization

39.5


41.5

Amortization of deferred financing fees

1.9


2.0

Net losses (gains) on dispositions of property and equipment

(0.1)


(2.2)

Goodwill and long-lived asset impairment charges


0.2

Provision for allowance for doubtful accounts

13.8


18.5

Deferred income tax (benefit)

(2.9)


(3.2)

Stock-based compensation

12.4


15.2

Other non-cash items, net

9.9


(6.8)

Changes in operating assets and liabilities




Accounts receivable and related party receivable

193.1


(60.6)

Inventories

87.8


(17.2)

Other current assets

29.7


(26.1)

Accounts payable and related party payable

(84.8)


78.1

Accrued payroll and benefits

(5.9)


(17.5)

Other accrued liabilities

(0.4)


15.4

Other

9.4


(4.8)

Net cash provided by (used for) operating activities

270.5


7.5

Investing activities




Property and equipment additions

(22.2)


(33.7)

Proceeds from asset sales

0.3


4.1

Net cash provided by (used for) investing activities

(21.9)


(29.6)

Financing activities




Change in book overdrafts

31.4


(30.3)

Borrowings of long-term debt

5,038.3


4,058.1

Repayments of long-term debt

(5,306.1)


(3,988.4)

Payments under right-of-use finance leases and capital leases,
respectively

(6.8)


(5.3)

Payments under financing obligations (including obligations to
related party of $8.6 in the prior year period)


(9.1)

Payments under Tax Receivable Agreement

(7.8)


(9.9)

Other

(2.4)


(2.1)

Net cash provided by (used for) financing activities

(253.4)


13.0

Effect of exchange rate changes on cash

(0.2)


(0.3)

Net change in cash

(5.0)


(9.4)

Cash at beginning of period

64.3


80.3

Cash at end of period

$

59.3


$

70.9

Supplemental cash flow information




Cash paid for income taxes, net of refunds

$

3.1


$

1.3

Cash paid for interest

28.1


28.0

Non-cash investing and financing activities




Non-cash additions to property and equipment for right-of-use
finance leases and capital leases, respectively

$

9.8


$

29.8

Non-cash additions to other non-current assets for right-of-use
operating leases

107.7


Non-GAAP Measures
We supplement our financial information prepared in accordance with U.S. GAAP with certain non-GAAP measures including Adjusted EBITDA (earnings before interest, income taxes, depreciation and amortization, restructuring charges, net, integration and acquisition expenses and other similar charges including any severance costs, costs associated with warehouse and office openings or closings, consolidation, and relocation and other business optimization expenses, stock-based compensation expense, changes in the LIFO reserve, non-restructuring asset impairment charges, non-restructuring severance charges, non-restructuring pension charges, net, fair value adjustments related to contingent liabilities assumed in mergers and acquisitions and certain other adjustments) because we believe investors commonly use Adjusted EBITDA as a key financial metric for valuing companies. In addition, the credit agreement governing our asset-based lending facility permits us to exclude the foregoing and other charges in calculating “Consolidated EBITDA”, as defined in the facility. We approximate foreign currency effects by applying the foreign currency exchange rate for the prior period to the local currency results for the current period.

Adjusted EBITDA and these other non-GAAP measures are not alternative measures of financial performance under U.S. GAAP. Non-GAAP measures do not have definitions under U.S. GAAP and may be defined differently by, and not be comparable to, similarly titled measures used by other companies. As a result, we consider and evaluate non-GAAP measures in connection with a review of the most directly comparable measure calculated in accordance with U.S. GAAP. We caution investors not to place undue reliance on such non-GAAP measures and to consider them with the most directly comparable U.S. GAAP measures. Adjusted EBITDA and these other non-GAAP measures have limitations as analytical tools and should not be considered in isolation or as a substitute for analyzing our results as reported under U.S. GAAP. Please see the following tables for reconciliations of non-GAAP measures to the most comparable U.S. GAAP measures.

Table I

VERITIV CORPORATION

RECONCILIATION OF NON-GAAP MEASURES

NET INCOME (LOSS) TO ADJUSTED EBITDA; ADJUSTED EBITDA MARGIN

(in millions, unaudited)








Three Months Ended
September 30,


Nine Months Ended
September 30,



2019


2018


2019


2018

Net income (loss)


$

5.1



$

1.4



$

(32.9)



$

(25.0)


Interest expense, net


8.9



11.0



30.5



30.5


Income tax expense (benefit)


7.6



3.5



0.2



(1.1)


Depreciation and amortization


13.3



13.1



39.5



41.5


EBITDA


34.9



29.0



37.3



45.9


Restructuring charges, net


7.6



5.4



16.9



28.7


Stock-based compensation


3.4



4.5



12.4



15.2


LIFO reserve (decrease) increase


(3.9)



4.0



(1.0)



18.4


Non-restructuring asset impairment charges




0.2





0.2


Non-restructuring severance charges


1.3



0.5



4.0



2.3


Non-restructuring pension charges, net


0.0



(0.1)



6.6



(0.8)


Integration and acquisition expenses


4.5



7.9



13.3



24.6


Fair value adjustment on Tax Receivable
Agreement contingent liability


0.3



0.1



1.8



(0.3)


Fair value adjustment on contingent
consideration liability


(2.5)



0.3



10.6



(11.0)


Escheat audit contingent liability


(1.0)



0.8



6.0



0.8


Other


0.4



0.1



0.8



3.8


Adjusted EBITDA


$

45.0



$

52.7



$

108.7



$

127.8











Net sales


$

1,924.5



$

2,192.5



$

5,824.2



$

6,465.4


Adjusted EBITDA as a % of net sales


2.3

%


2.4

%


1.9

%


2.0

%

Table II

VERITIV CORPORATION

RECONCILIATION OF NON-GAAP MEASURES

FREE CASH FLOW GUIDANCE

(in millions, unaudited)






Forecast for Year Ending
December 31, 2019

Net cash flows provided by operating activities


at least $ 215

Less: Capital expenditures


(45)

Free cash flow


at least $ 170

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SOURCE Veritiv Corporation