Veritiv Announces First Quarter 2020 Financial Results

Reports First Quarter Net Sales of $1.7 Billion, Net Loss of $(0.4) Million, Basic and Diluted Loss per Share of $(0.02), and Adjusted EBITDA of $36.2 Million

News provided by

Veritiv Corporation

May 06, 2020, 08:00 ET

ATLANTA, May 6, 2020 /PRNewswire/ -- Veritiv Corporation (NYSE: VRTV), a North American leader in business-to-business distribution solutions, today announced financial results for the first quarter ended March 31, 2020.

"Our consolidated first quarter 2020 results were highlighted by a significant improvement in Adjusted EBITDA and free cash flow as our Optimization program led to improved margins, a reduction in our overall cost structure, and more effective working capital management," said Mary Laschinger, Chairman and CEO of Veritiv Corporation. "As an essential business operating in this challenging environment, we will continue to prioritize and ensure the safety and well-being of our employees, serve the needs of our customers and suppliers and protect the business for the long term. We believe the flexibility of our business model and adequate liquidity position us well to manage the impact of the Coronavirus on our business."

For the three months ended March 31, 2020, compared to the three months ended March 31, 2019:

Net sales were $1.7 billion, a decrease of 12.1% from the prior year. Net sales decreased 13.4% from the prior year, excluding the negative effect of foreign currency (0.1%) and the positive effect of one more shipping day (1.4%) in the first quarter of 2020.
Net loss was $(0.4) million, compared to net loss of $(26.7) million in the prior year. There were no net integration, acquisition and restructuring charges in the first quarter of 2020 compared to $6.7 million in the prior year.
Basic and diluted loss per share were $(0.02), compared to $(1.68) in the prior year.
Adjusted EBITDA was $36.2 million, an increase of 77.5% from the prior year.
Adjusted EBITDA as a percentage of net sales was 2.1%, an increase of 100 basis points from the prior year.

For the quarter ended March 31, 2020, net cash flows provided by operating activities were $84.8 million and free cash flow was $75.9 million.

"Our first quarter free cash flow generation was strong principally due to lower inventories and higher accounts payable, in part because of continued process improvements from our Optimization efforts," said Stephen Smith, Senior Vice President and Chief Financial Officer of Veritiv Corporation. "Our liquidity position remains solid, having recently refinanced our Asset-Based Lending Facility under substantially similar terms and extending the Facility to 2025. At the end of the first quarter, we had approximately $286 million of available borrowing capacity under the Facility. Also at the end of March 2020, our net debt to Adjusted EBITDA leverage ratio was 3.5x, down from 4.7x in the prior year period."

Given the uncertainty caused by the Coronavirus pandemic, Veritiv Corporation is withdrawing its prior financial guidance for 2020, and will not be providing updated guidance at this time.

Veritiv Corporation will host a live conference call and webcast today, May 6, 2020, at 10 a.m. (ET) to discuss its first quarter financial results. To participate, callers within the United States ("U.S.") and Canada can dial (833) 241-7249, and international callers can dial (647) 689-4213, both using conference ID number 2092373. 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.

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, Veritiv has distribution centers throughout the U.S., Canada and Mexico, and team members helping 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, including prospects, guidance, any restructuring, statements related to the impact of COVID-19 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; adverse impacts of the COVID-19 pandemic; 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, facility products and paper 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, widespread outbreak of an illness or responses thereto, anti-terrorism measures and other disruptions to our supply chain, distribution system and operations; our dependence on a variety of information technology 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 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; uncertainties as to the structure, timing, benefits and costs of any restructuring and whether it will be completed at all 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 months ended March 31, 2020 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 March 31,
	2020		2019
Net sales	$	1,707.3	$	1,941.5
Cost of products sold (exclusive of depreciation and amortization shown separately below)	1,359.6		1,591.4
Distribution expenses	123.4		130.4
Selling and administrative expenses	203.6		216.1
Depreciation and amortization	13.8		12.8
Integration expenses	—		4.3
Restructuring charges, net	—		2.4
Operating income (loss)	6.9		(15.9)
Interest expense, net	7.0		11.4
Other (income) expense, net	(0.1)		6.2
Income (loss) before income taxes	0.0		(33.5)
Income tax expense (benefit)	0.4		(6.8)
Net income (loss)	$	(0.4)	$	(26.7)

Earnings (loss) per share:
Basic and diluted earnings (loss) per share	$	(0.02)	$	(1.68)

Weighted-average shares outstanding:
Basic and diluted	16.16		15.94

VERITIV CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(dollars in millions, except par value, unaudited)

	March 31, 2020		December 31, 2019
Assets
Current assets:
Cash	$	74.6	$	38.0
Accounts receivable, less allowances of $44.2 and $43.8, respectively	915.4		910.8
Related party receivable	3.3		2.8
Inventories	505.2		552.9
Other current assets	118.4		126.1
Total current assets	1,616.9		1,630.6
Property and equipment (net of accumulated depreciation and amortization of $350.6 and $342.6, respectively)	215.8		216.9
Goodwill	99.6		99.6
Other intangibles, net	51.0		52.2
Deferred income tax assets	50.9		57.0
Other non-current assets	438.0		454.8
Total assets	$	2,472.2	$	2,511.1
Liabilities and shareholders' equity
Current liabilities:
Accounts payable	$	494.8	$	476.9
Related party payable	5.2		4.3
Accrued payroll and benefits	40.2		53.9
Other accrued liabilities	168.7		183.8
Current portion of debt	14.3		12.6
Total current liabilities	723.2		731.5
Long-term debt, net of current portion	740.1		742.4
Defined benefit pension obligations	14.4		15.7
Other non-current liabilities	467.7		485.3
Total liabilities	1,945.4		1,974.9
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 i ssued - 16.5 million and 16.4 million, respectively; shares outstanding - 15.8 million and 16.1 million, respectively	0.2		0.2
Additional paid-in capital	626.8		618.0
Accumulated (deficit) earnings	(36.0)		(35.3)
Accumulated other comprehensive loss	(47.1)		(33.1)
Treasury stock at cost - 0.7 million shares in 2020 and 0.3 million shares in 2019	(17.1)		(13.6)
Total shareholders' equity	526.8		536.2
Total liabilities and shareholders' equity	$	2,472.2	$	2,511.1

VERITIV CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions, unaudited)

	Three Months Ended March 31,
	2020		2019
Operating activities
Net income (loss)	$	(0.4)	$	(26.7)
Depreciation and amortization	13.8		12.8
Amortization of deferred financing fees	0.6		0.6
Net losses (gains) on dispositions of property and equipment	0.1		0.1
Provision for expected credit losses and doubtful accounts, respectively	4.4		3.8
Deferred income tax provision (benefit)	5.2		(7.3)
Stock-based compensation	9.4		4.7
Other non-cash items, net	2.6		1.8
Changes in operating assets and liabilities
Accounts receivable and related party receivable	(19.6)		118.3
Inventories	38.5		8.6
Other current assets	1.2		6.2
Accounts payable and related party payable	50.9		(57.8)
Accrued payroll and benefits	(13.2)		(21.5)
Other accrued liabilities	(8.8)		(6.4)
Other	0.1		6.6
Net cash provided by (used for) operating activities	84.8		43.8
Investing activities
Property and equipment additions	(8.9)		(7.5)
Proceeds from asset sales	0.7		0.1
Net cash provided by (used for) investing activities	(8.2)		(7.4)
Financing activities
Change in book overdrafts	(24.7)		17.1
Borrowings of long-term debt	1,479.8		1,767.9
Repayments of long-term debt	(1,483.6)		(1,815.2)
Payments under right-of-use finance leases	(2.9)		(2.1)
Purchase of treasury stock	(3.5)		—
Payments under Tax Receivable Agreement	(0.3)		(7.8)
Payments under other contingent consideration	(3.5)		—
Other	(0.5)		(2.7)
Net cash provided by (used for) financing activities	(39.2)		(42.8)
Effect of exchange rate changes on cash	(0.8)		0.1
Net change in cash	36.6		(6.3)
Cash at beginning of period	38.0		64.3
Cash at end of period	$	74.6	$	58.0
Supplemental cash flow information
Cash paid for income taxes, net of refunds	$	0.6	$	0.7
Cash paid for interest	6.2		10.6
Non-cash investing and financing activities
Non-cash additions to property and equipment for right-of-use finance leases	$	11.2	$	2.1
Non-cash additions to other non-current assets for right-of-use operating leases	10.8		46.4

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 and these other non-GAAP measures as key financial metrics 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 March 31,
	2020			2019
Net income (loss)	$	(0.4)		$	(26.7)
Interest expense, net	7.0			11.4
Income tax expense (benefit)	0.4			(6.8)
Depreciation and amortization	13.8			12.8
EBITDA	20.8			(9.3)
Restructuring charges, net	—			2.4
Stock-based compensation	9.4			4.7
LIFO reserve (decrease) increase	(5.9)			3.4
Non-restructuring severance charges	1.7			1.3
Non-restructuring pension charges, net	7.1			0.0
Integration expenses	—			4.3
Fair value adjustment on Tax Receivable Agreement contingent liability	(0.7)			0.9
Fair value adjustment on contingent consideration liability	1.0			5.4
Escheat audit contingent liability	—			7.0
Other	2.8			0.3
Adjusted EBITDA	$	36.2		$	20.4

Net sales	$	1,707.3		$	1,941.5
Adjusted EBITDA as a % of net sales	2.1		%	1.1		%

Table II
VERITIV CORPORATION
RECONCILIATION OF NON-GAAP MEASURES
FREE CASH FLOW
(in millions, unaudited)

	Three Months Ended March 31, 2020
Net cash flows provided by operating activities	$	84.8
Less: Capital expenditures	(8.9)
Free cash flow	$	75.9