Veritiv Announces Fourth Quarter and Full Year 2018 Financial Results

Reports Fiscal Year Net Sales of $8.7 Billion, Net Loss of $(15.7) Million, Basic and Diluted Loss per Share of $(0.99), and Adjusted EBITDA of $185.4 Million

News provided by

Veritiv Corporation

Feb 28, 2019, 08:00 ET

ATLANTA, Feb. 28, 2019 /PRNewswire/ -- Veritiv Corporation (NYSE: VRTV), a North American leader in business-to-business distribution solutions, today announced financial results for the fourth quarter and full year ended December 31, 2018.

"We achieved our Adjusted EBITDA guidance for the year, but fell short on free cash flow due to the complexity of the integration," said Mary Laschinger, Chairman and CEO of Veritiv Corporation. "During 2018 we delivered top line growth and substantially completed our multi-year integration and, for 2019, believe we are well-positioned for an improvement in earnings and an acceleration of free cash flow."

For the three months ended December 31, 2018, compared to the three months ended December 31, 2017:

Net sales were $2.2 billion, an increase of 0.3% from the prior year. Net sales increased 0.6% from the prior year, excluding the negative effect of foreign currency (0.3%) in the fourth quarter of 2018.
Net income was $9.3 million, compared to net income of $12.3 million in the prior year. Net integration, acquisition and restructuring charges were $(0.2) million in the fourth quarter of 2018 and $(4.9) million in the prior year.
Basic and diluted earnings per share were $0.59 and $0.57 compared to $0.78 and $0.77, respectively in the prior year.
Adjusted EBITDA was $57.6 million, a decrease of 4.0% from the prior year.
Adjusted EBITDA as a percentage of net sales was 2.6%, a decrease of 10 basis points from the prior year.

For the year ended December 31, 2018, compared to the year ended December 31, 2017:

Net sales were $8.7 billion, an increase of 4.0% from the prior year. Net sales increased 3.6% from the prior year, excluding the positive effect of one extra shipping day (0.4%) in 2018.
Net loss was $(15.7) million, compared to net loss of $(13.3) million in the prior year. Net integration, acquisition and restructuring charges were $53.1 million in 2018 and $53.2 million in the prior year.
Basic and diluted loss per share were $(0.99) compared to $(0.85) in the prior year.
Adjusted EBITDA was $185.4 million, an increase of 5.1% from the prior year.
Adjusted EBITDA as a percentage of net sales was 2.1%, unchanged from the prior year.

"With the system conversions, as well as the multi-location warehouse consolidations now largely behind us, we are focused on the optimization elements of our long-term strategy," said Stephen Smith, Senior Vice President and Chief Financial Officer of Veritiv Corporation.

Veritiv Corporation will host a live conference call and webcast today, February 28, 2019, at 10 a.m. (ET) to discuss its fourth quarter and full year 2018 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 4799885. 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, the Company has approximately 160 operating distribution centers throughout the U.S., Canada and Mexico, and employs approximately 8,700 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 Annual Report on Form 10-K for the year ended December 31, 2018 to be filed with the SEC may contain updates to the information included in this release.

Financial Statements

VERITIV CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(in millions, except per share data, unaudited)

	Three Months Ended December 31,				Year Ended December 31,
	2018		2017		2018		2017
Net sales	$	2,230.8	$	2,224.4	$	8,696.2	$	8,364.7
Cost of products sold (exclusive of depreciation and amortization shown separately below)	1,831.9		1,820.2		7,155.7		6,846.6
Distribution expenses	150.4		136.0		550.5		516.9
Selling and administrative expenses	211.5		223.0		867.6		875.7
Depreciation and amortization	12.0		14.3		53.5		54.2
Integration and acquisition expenses	7.2		8.4		31.8		36.5
Restructuring charges, net	(7.4)		(13.3)		21.3		16.7
Operating income	25.2		35.8		15.8		18.1
Interest expense, net	11.8		9.1		42.3		31.2
Other (income) expense, net	(2.5)		(10.1)		(16.3)		(11.2)
Income (loss) before income taxes	15.9		36.8		(10.2)		(1.9)
Income tax expense	6.6		24.5		5.5		11.4
Net income (loss)	$	9.3	$	12.3	$	(15.7)	$	(13.3)

Earnings (loss) per share:
Basic earnings (loss) per share	$	0.59	$	0.78	$	(0.99)	$	(0.85)
Diluted earnings (loss) per share	$	0.57	$	0.77	$	(0.99)	$	(0.85)

Weighted average shares outstanding:
Basic	15.85		15.70		15.82		15.70
Diluted	16.46		15.98		15.82		15.70

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

	December 31, 2018		December 31, 2017
Assets
Current assets:
Cash	$	64.3	$	80.3
Accounts receivable, less allowances of $62.0 and $44.0, respectively	1,181.4		1,174.3
Related party receivable	3.2		3.3
Inventories	688.2		722.7
Other current assets	147.2		133.5
Total current assets	2,084.3		2,114.1
Property and equipment (net of accumulated depreciation and amortization of $320.7 and $314.6, respectively)	206.7		340.2
Goodwill	99.6		99.6
Other intangibles, net	57.2		64.1
Deferred income tax assets	56.5		59.6
Other non-current assets	25.4		30.8
Total assets	$	2,529.7	$	2,708.4
Liabilities and shareholders' equity
Current liabilities:
Accounts payable	$	641.9	$	680.1
Related party payable	9.3		8.5
Accrued payroll and benefits	56.5		73.5
Other accrued liabilities	134.7		134.6
Current maturities of long-term debt	6.7		2.9
Financing obligations, current portion (including obligations to related party of $0.0 and $7.1, respectively)	0.6		7.8
Total current liabilities	849.7		907.4
Long-term debt, net of current maturities	963.6		908.3
Financing obligations, less current portion (including obligations to related party of $0.0 and $155.2, respectively)	23.6		181.6
Defined benefit pension obligations	21.1		24.4
Other non-current liabilities	128.6		137.0
Total liabilities	1,986.6		2,158.7
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 - 16.2 million and 16.0 million, respectively; shares outstanding - 15.9 million and 15.7 million, respectively	0.2		0.2
Additional paid-in capital	605.7		590.2
Accumulated (deficit) earnings	(8.5)		6.4
Accumulated other comprehensive loss	(40.7)		(33.5)
Treasury stock at cost - 0.3 million shares at December 31, 2018 and 2017	(13.6)		(13.6)
Total shareholders' equity	543.1		549.7
Total liabilities and shareholders' equity	$	2,529.7	$	2,708.4

VERITIV CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)

	Year Ended December 31,
	2018		2017
Operating activities
Net loss	$	(15.7)	$	(13.3)
Depreciation and amortization	53.5		54.2
Amortization and write-off of deferred financing fees	2.6		2.6
Net (gains) on dispositions of property and equipment	(18.5)		(25.7)
Goodwill and long-lived asset impairment charges	0.4		8.4
Provision for allowance for doubtful accounts	27.1		15.9
Deferred income tax provision	2.0		1.9
Stock-based compensation	18.1		15.7
Other non-cash items, net	(8.3)		(8.8)
Changes in operating assets and liabilities
Accounts receivable and related party receivable	(43.9)		(101.9)
Inventories	26.4		30.1
Other current assets	(23.2)		(8.4)
Accounts payable and related party payable	(15.9)		48.3
Accrued payroll and benefits	(16.6)		(11.3)
Other accrued liabilities	17.2		13.6
Other	9.8		15.3
Net cash provided by operating activities	15.0		36.6
Investing activities
Property and equipment additions	(45.4)		(32.5)
Proceeds from asset sales	23.7		51.1
Cash paid for purchase of business, net of cash acquired	—		(144.8)
Net cash used for investing activities	(21.7)		(126.2)
Financing activities
Change in book overdrafts	(16.2)		(40.5)
Borrowings of long-term debt	5,805.3		4,898.8
Repayments of long-term debt	(5,767.3)		(4,731.5)
Payments under equipment capital lease obligations	(6.7)		(2.7)
Payments under financing obligations (including obligations to related party of $8.6 and $15.0, respectively)	(9.3)		(16.4)
Payments under Tax Receivable Agreement	(9.9)		(8.5)
Payments under other contingent consideration	(2.5)		—
Other	(2.1)		—
Net cash (used for) provided by financing activities	(8.7)		99.2
Effect of exchange rate changes on cash	(0.6)		1.1
Net change in cash	(16.0)		10.7
Cash at beginning of period	80.3		69.6
Cash at end of period	$	64.3	$	80.3
Supplemental cash flow information
Cash paid for income taxes, net of refunds	$	2.4	$	3.7
Cash paid for interest	38.9		27.6
Non-cash investing and financing activities
Non-cash additions to property and equipment	$	31.5	$	17.8
Contingent consideration for purchase of business: Earn-out	—		22.2

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 is not an alternative measure 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 has limitations as an analytical tool 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 December 31,						Year Ended December 31,
	2018			2017			2018			2017
Net income (loss)	$	9.3		$	12.3		$	(15.7)		$	(13.3)
Interest expense, net	11.8			9.1			42.3			31.2
Income tax expense	6.6			24.5			5.5			11.4
Depreciation and amortization	12.0			14.3			53.5			54.2
EBITDA	39.7			60.2			85.6			83.5
Restructuring charges, net	(7.4)			(13.3)			21.3			16.7
Stock-based compensation	2.9			4.1			18.1			15.7
LIFO reserve increase	1.5			3.7			19.9			7.1
Non-restructuring asset impairment charges	0.2			—			0.4			8.4
Non-restructuring severance charges	2.6			2.0			4.9			3.5
Non-restructuring pension charges, net	12.1			—			11.3			2.2
Integration and acquisition expenses	7.2			8.4			31.8			36.5
Fair value adjustment on Tax Receivable Agreement contingent liability	(0.9)			(11.0)			(1.2)			(9.4)
Fair value adjustment on contingent consideration liability	(1.3)			2.0			(12.3)			2.0
Escheat audit contingent liability	1.7			3.0			2.5			7.5
Other	(0.7)			0.9			3.1			2.7
Adjusted EBITDA	$	57.6		$	60.0		$	185.4		$	176.4

Net sales	$	2,230.8		$	2,224.4		$	8,696.2		$	8,364.7
Adjusted EBITDA as a % of net sales	2.6		%	2.7		%	2.1		%	2.1		%