Veritiv(VRTV) - 2022 Q2 - Quarterly Report

Filing Information This section provides essential filing details for Veritiv Corporation's Form 10-Q, including registrant information and compliance status Registrant Details This section provides the basic filing details for Veritiv Corporation's Form 10-Q for the quarterly period ended June 30, 2022, including registrant information and SEC filing compliance status - Registrant: VERITIV CORPORATION, Delaware, Commission file number 001-36479[2] - Filing Type: Quarterly Report (Form 10-Q) for the period ended June 30, 2022[1] - Common stock trades on the New York Stock Exchange under the symbol VRTV[4] - The registrant is a Large accelerated filer and not a shell company[6] - Number of shares outstanding as of August 2, 2022: 13,964,859[6] Part I: Financial Information This part presents Veritiv Corporation's unaudited condensed consolidated financial statements and management's discussion and analysis for the quarter Item 1. Financial Statements (Unaudited) This section presents Veritiv Corporation's unaudited condensed consolidated financial statements and related notes for the three and six months ended June 30, 2022 and 2021 Condensed Consolidated Statements of Operations This section presents the company's unaudited condensed consolidated statements of operations for the three and six months ended June 30, 2022 and 2021 Condensed Consolidated Statements of Operations (in millions, except per share data) | Metric | 3 Months Ended June 30, 2022 | 3 Months Ended June 30, 2021 | 6 Months Ended June 30, 2022 | 6 Months Ended June 30, 2021 | | :--------------------------------- | :----------------------------- | :----------------------------- | :----------------------------- | :----------------------------- | | Net sales | $1,820.7 | $1,658.6 | $3,678.8 | $3,217.9 | | Cost of products sold | $1,410.9 | $1,319.0 | $2,866.3 | $2,557.1 | | Operating income (loss) | $118.4 | $38.3 | $205.6 | $72.8 | | Net income (loss) | $91.1 | $26.4 | $169.6 | $47.7 | | Basic EPS | $6.24 | $1.69 | $11.55 | $3.03 | | Diluted EPS | $6.12 | $1.62 | $11.23 | $2.89 | - Net sales increased by 9.8% for the three months ended June 30, 2022, and by 14.3% for the six months ended June 30, 2022, compared to the prior year periods[11] - Net income significantly increased by 245.1% to $91.1 million for the three months ended June 30, 2022, and by 255.6% to $169.6 million for the six months ended June 30, 2022, compared to the prior year periods[11] Condensed Consolidated Statements of Comprehensive Income (Loss) This section presents the company's unaudited condensed consolidated statements of comprehensive income (loss) for the three and six months ended June 30, 2022 and 2021 Condensed Consolidated Statements of Comprehensive Income (Loss) (in millions) | Metric | 3 Months Ended June 30, 2022 | 3 Months Ended June 30, 2021 | 6 Months Ended June 30, 2022 | 6 Months Ended June 30, 2021 | | :--------------------------------- | :----------------------------- | :----------------------------- | :----------------------------- | :----------------------------- | | Net income (loss) | $91.1 | $26.4 | $169.6 | $47.7 | | Other comprehensive income (loss) | $4.5 | $3.1 | $7.1 | $2.8 | | Total comprehensive income (loss) | $95.6 | $29.5 | $176.7 | $50.5 | - Total comprehensive income increased significantly to $95.6 million for the three months ended June 30, 2022, from $29.5 million in the prior year, and to $176.7 million for the six months ended June 30, 2022, from $50.5 million in the prior year[14] - Other comprehensive income for the three months ended June 30, 2022, included a $9.5 million reclassification of foreign currency translation adjustments due to the sale of a business and a $7.0 million reclassification adjustment on settlement of a pension plan[14] Condensed Consolidated Balance Sheets This section presents the company's unaudited condensed consolidated balance sheets as of June 30, 2022, and December 31, 2021 Condensed Consolidated Balance Sheets (in millions) | Metric | June 30, 2022 | December 31, 2021 | Change | | :--------------------------------- | :------------------ | :-------------------- | :----- | | Total assets | $2,234.9 | $2,438.4 | $(203.5) | | Total liabilities | $1,551.0 | $1,802.6 | $(251.6) | | Total shareholders' equity | $683.9 | $635.8 | $48.1 | - Total assets decreased by $203.5 million from December 31, 2021, to June 30, 2022, primarily due to decreases in accounts receivable, inventories, and cash[17] - Total liabilities decreased by $251.6 million, driven by reductions in accounts payable, accrued payroll and benefits, and long-term debt[17] - Shareholders' equity increased by $48.1 million, primarily due to accumulated earnings[17] Condensed Consolidated Statements of Cash Flows This section presents the company's unaudited condensed consolidated statements of cash flows for the six months ended June 30, 2022 and 2021 Condensed Consolidated Statements of Cash Flows (in millions) - Six Months Ended June 30, | Activity | 2022 | 2021 | Change | | :--------------------------------- | :----- | :----- | :----- | | Net cash provided by (used for) operating activities | $62.3 | $50.1 | $12.2 | | Net cash provided by (used for) investing activities | $131.3 | $2.2 | $129.1 | | Net cash provided by (used for) financing activities | $(210.2) | $(138.2) | $(72.0) | | Net change in cash and cash equivalents | $(17.2) | $(85.9) | $68.7 | - Net cash from operating activities increased by $12.2 million, primarily due to improved operating results, partially offset by higher income tax payments and deferred payroll taxes[164][165] - Net cash from investing activities significantly increased by $129.1 million, mainly driven by $147.4 million net cash proceeds from the sale of the Canadian business[166] - Net cash used for financing activities increased by $72.0 million, primarily due to increased common stock repurchases ($104.8 million in 2022 vs. $50.4 million in 2021) and higher tax withholdings on share-based compensation[167] Condensed Consolidated Statements of Shareholders' Equity This section presents the company's unaudited condensed consolidated statements of shareholders' equity for the six months ended June 30, 2022 and 2021 Condensed Consolidated Statements of Shareholders' Equity (in millions) - Key Changes | Metric | Balance at Dec 31, 2021 | Net Income (Q1 2022) | Other Comprehensive Income (Q1 2022) | Stock-based Compensation (Q1 2022) | Treasury Stock Purchases (Q1 2022) | Balance at Mar 31, 2022 | Net Income (Q2 2022) | Other Comprehensive Income (Q2 2022) | Stock-based Compensation (Q2 2022) | Treasury Stock Purchases (Q2 2022) | Balance at Jun 30, 2022 | | :--------------------------------- | :---------------------- | :------------------- | :----------------------------------- | :----------------------------------- | :----------------------------------- | :---------------------- | :------------------- | :----------------------------------- | :----------------------------------- | :----------------------------------- | :---------------------- | | Total Shareholders' Equity | $635.8 | $78.5 | $2.6 | $2.8 | $(10.4) | $679.8 | $91.1 | $4.5 | $3.1 | $(94.4) | $683.9 | - Total shareholders' equity increased from $635.8 million at December 31, 2021, to $683.9 million at June 30, 2022, primarily due to net income and other comprehensive income, partially offset by treasury stock purchases[22] - The Company repurchased 776,670 shares of common stock for $104.8 million during the six months ended June 30, 2022, under its 2022 Share Repurchase Program[22][76] Notes to Condensed Consolidated Financial Statements This section provides detailed notes to the unaudited condensed consolidated financial statements, covering accounting policies, revenue, leases, debt, and other financial disclosures Note 1. Business and Summary of Significant Accounting Policies This note describes Veritiv's business, recent divestitures, segment changes, and significant accounting policies for interim financial reporting - Veritiv Corporation is a North American business-to-business full-service provider of packaging products and services, facility solutions, print-based products, and logistics/supply chain management solutions, operating primarily in the U.S. and Mexico[26] - On May 2, 2022, the Company sold its Veritiv Canada, Inc. business for approximately $147.4 million net cash proceeds, recognizing a preliminary gain of $10.0 million. Proceeds were used for share repurchases, debt reduction, and growth initiatives[27] - The Company combined its print and publishing operations into a new "Print Solutions" reportable segment in Q1 2022 to better align resources with market needs[28] - The financial statements are unaudited and prepared in accordance with U.S. GAAP for interim financial information, with estimates subject to change, especially given ongoing COVID-19 impacts[29][32] Note 2. Revenue Recognition and Credit Losses This note details the company's revenue recognition policies, customer contract liabilities, and allowance for credit losses - Revenue is reported as net sales, measured as the determinable transaction price, net of variable consideration. Approximately 35% of net sales are from direct shipments from manufacturers to customers, where Veritiv acts as a principal[35] - Customer contract liabilities were $19.0 million at June 30, 2022, down from $21.8 million at January 1, 2022, reflecting revenue recognition from prior and current year receipts[38] - The Company's ten largest customers historically generate 10%-15% of consolidated annual net sales, with approximately 90% of its net sales through June 30, 2022, generated in the U.S.[38] - The allowance for credit losses decreased from $23.7 million at December 31, 2021, to $20.6 million at June 30, 2022, primarily due to write-offs and other adjustments, including those related to the sale of the Canadian business[41] Note 3. Leases This note outlines the company's lease arrangements, including operating and finance lease costs and future minimum lease payments - Veritiv leases property and equipment, including approximately 90 leased distribution centers out of 95 total, strategically located across the U.S. and Mexico[42][44] Total Lease Cost (in millions) | Lease Classification | 3 Months Ended June 30, 2022 | 3 Months Ended June 30, 2021 | 6 Months Ended June 30, 2022 | 6 Months Ended June 30, 2021 | | :------------------- | :----------------------------- | :----------------------------- | :----------------------------- | :----------------------------- | | Operating lease expense | $23.0 | $25.4 | $48.1 | $51.0 | | Finance lease expense | $3.2 | $4.3 | $7.6 | $8.7 | | Total Lease Cost | $27.0 | $30.5 | $57.3 | $61.5 | - Total operating lease obligations were $363.0 million at June 30, 2022, with a weighted-average remaining lease term of 6.2 years. Total finance lease obligations were $35.3 million with a weighted-average remaining lease term of 3.9 years[45] Future Minimum Lease Payments (in millions) at June 30, 2022 | Year | Finance Leases | Operating Leases | | :--- | :------------- | :--------------- | | 2022 (remaining) | $5.8 | $45.7 | | 2023 | $9.4 | $79.6 | | 2024 | $7.8 | $66.7 | | 2025 | $7.2 | $55.0 | | 2026 | $4.5 | $50.7 | | 2027 | $2.4 | $44.1 | | Thereafter | $1.6 | $75.1 | | Total future minimum lease payments, net of interest | $35.3 | $363.0 | Note 4. Restructuring Charges This note details the company's restructuring plans, associated charges, and liabilities, including multi-employer pension plan obligations - The 2020 Restructuring Plan, initiated to respond to COVID-19 impacts, address print/publishing industry changes, and align cost structure, was substantially complete by December 31, 2021, with approximately $2 million in remaining charges expected in H2 2022[48][109] Summary of Restructuring Charges, Net (in millions) - Six Months Ended June 30, 2022 | Category | 2022 | Cumulative | | :------------------- | :----- | :--------- | | Severance and Related Costs | $0.5 | $41.3 | | Other Direct Costs | $3.9 | $34.6 | | (Gain) Loss on Sale of Assets and Other (non cash portion) | $(0.3) | $(4.2) | | Total | $4.1 | $71.7 | - The 2020 Restructuring Plan liability decreased from $8.4 million at December 31, 2021, to $4.9 million at June 30, 2022, due to payments exceeding new costs incurred[51] - Other restructuring liabilities, primarily related to multi-employer pension plan (MEPP) withdrawal obligations, totaled $21.7 million at June 30, 2022, with $18.3 million for MEPP obligations payable over approximately 20 years[53] Note 5. Debt This note provides details on the company's debt obligations, including the ABL Facility, commercial card program, and vendor-based financing arrangements Company's Debt Obligations (in millions) | Debt Type | June 30, 2022 | December 31, 2021 | | :--------------------------------- | :-------------- | :---------------- | | Asset-Based Lending Facility (ABL Facility) | $361.4 | $440.8 | | Commercial card program | $2.5 | $2.1 | | Vendor-based financing arrangements | $14.3 | $0.0 | | Finance leases | $35.3 | $72.8 | | Total debt | $413.5 | $515.7 | | Less: current portion of debt | $(15.2) | $(16.0) | | Long-term debt, net of current portion | $398.3 | $499.7 | - Total debt decreased from $515.7 million at December 31, 2021, to $413.5 million at June 30, 2022, primarily due to a reduction in the ABL Facility balance and finance leases[55] - The ABL Facility maturity was extended to May 20, 2026, in 2021, with available additional borrowing capacity of approximately $622.4 million as of June 30, 2022[56][57] - The Company entered into a new $18.5 million vendor-based financing arrangement in H1 2022 to finance internal use software licenses, with an outstanding balance of $14.3 million at June 30, 2022[60] Note 6. Income Taxes This note presents the company's income tax expense, benefit, and effective tax rates, explaining key drivers of rate differences Income Tax Expense (Benefit) and Effective Tax Rates (in millions) | Metric | 3 Months Ended June 30, 2022 | 3 Months Ended June 30, 2021 | 6 Months Ended June 30, 2022 | 6 Months Ended June 30, 2021 | | :--------------------------------- | :----------------------------- | :----------------------------- | :----------------------------- | :----------------------------- | | Income (loss) before income taxes | $121.0 | $35.5 | $205.3 | $65.9 | | Income tax expense (benefit) | $29.9 | $9.1 | $35.7 | $18.2 | | Effective tax rate | 24.7% | 25.6% | 17.4% | 27.6% | - The effective tax rate for the six months ended June 30, 2022, was 17.4%, significantly lower than 27.6% in the prior year, primarily due to a tax benefit on the disposition of the Company's investment in a foreign subsidiary[62] - Differences from the U.S. statutory tax rate of 21.0% are mainly due to stock compensation vesting, state income taxes, non-deductible expenses, tax credits, and pre-tax income by jurisdiction[62] Note 7. Defined Benefit Plans This note discusses the company's defined benefit pension plans, including settlement gains and net periodic benefit costs - The Company recognized a $7.0 million gain on the settlement of the Canadian defined benefit pension plans during the three and six months ended June 30, 2022, as a result of the Veritiv Canada, Inc. business sale[64][66][68] Net Periodic Benefit Cost (Credit) (in millions) - Six Months Ended June 30, | Component | U.S. (2022) | Canada (2022) | U.S. (2021) | Canada (2021) | | :--------------------------------- | :---------- | :------------ | :---------- | :------------ | | Service cost | $1.5 | $0.1 | $1.2 | $0.2 | | Interest cost | $0.6 | $(0.4) | $0.5 | $1.0 | | Expected return on plan assets | $(0.9) | $0.8 | $(2.2) | $(2.1) | | Settlement (gain) loss | — | $(7.0) | — | — | | Amortization of net loss | — | $(0.1) | $0.0 | $0.1 | | Total other components | $(0.3) | $(6.7) | $(1.7) | $(1.0) | | Net periodic benefit cost (credit) | $1.2 | $(6.6) | $(0.5) | $(0.8) | - Veritiv maintains an open defined benefit pension plan in the U.S. for union employees and assumed frozen plans from Unisource. The U.S. Veritiv Pension Plan is intended for termination and settlement, while the new Veritiv Hourly Pension Plan will remain open[63][65] Note 8. Fair Value Measurements This note describes the fair value measurements for financial instruments and the company's assessment of goodwill and intangible asset impairment - Carrying amounts of cash, receivables, payables, and short-term debt approximate fair values due to their short maturities. ABL Facility borrowings' carrying amount approximates fair value due to variable market interest rates (Level 2 measurement)[69][70] - The Company reviewed goodwill ($96.3 million for Packaging segment) and other intangibles, net ($37.8 million for Packaging and Facility Solutions segments) for impairment indicators following the sale of Veritiv Canada, Inc.[72] - Management determined that the carrying values of goodwill and other intangibles for both the divested Canadian business and the remaining Veritiv business were not impaired, using Level 3 data (internal operating and cash flow projections)[72] Note 9. Earnings (Loss) Per Share This note details the calculation of basic and diluted earnings per share, reflecting net income and weighted-average shares outstanding Earnings (Loss) Per Share (in millions, except per share data) - Six Months Ended June 30, | Metric | 2022 | 2021 | | :--------------------------------- | :----- | :----- | | Net income (loss) | $169.6 | $47.7 | | Weighted-average shares outstanding – basic | 14.69 | 15.73 | | Dilutive effect of stock-based awards | 0.41 | 0.76 | | Weighted-average shares outstanding – diluted | 15.10 | 16.49 | | Basic EPS | $11.55 | $3.03 | | Diluted EPS | $11.23 | $2.89 | - Diluted EPS for the six months ended June 30, 2022, increased significantly to $11.23 from $2.89 in the prior year, reflecting higher net income and a lower weighted-average diluted share count[75] - The weighted-average diluted shares outstanding decreased from 16.49 million in 2021 to 15.10 million in 2022 for the six-month period[75] Note 10. Shareholders' Equity This note outlines changes in shareholders' equity, including share repurchase programs and accumulated other comprehensive loss components - The Board authorized a new $200 million share repurchase program on March 1, 2022, replacing the fully utilized 2021 program[76][108] - Under the 2022 program, the Company repurchased 698,645 shares for $94.4 million during Q2 2022 and 776,670 shares for $104.8 million during H1 2022[76][108] - As of June 30, 2022, approximately $95.2 million remained authorized for repurchases under the 2022 Share Repurchase Program[108] Accumulated Other Comprehensive Loss (AOCL) (in millions) | Component | Balance at Dec 31, 2021 | Net Current Period OCI (Q1 2022) | Balance at Mar 31, 2022 | Net Current Period OCI (Q2 2022) | Balance at Jun 30, 2022 | | :--------------------------------- | :---------------------- | :----------------------- | :---------------------- | :----------------------- | :---------------------- | | Foreign currency translation adjustments | $(25.2) | $2.6 | $(22.6) | $5.0 | $(17.6) | | Retirement liabilities | $1.0 | $0.0 | $1.0 | $(0.6) | $0.4 | | Interest rate cap | $(0.1) | $0.0 | $(0.1) | $0.1 | $0.0 | | Total AOCL | $(24.3) | $2.6 | $(21.7) | $4.5 | $(17.2) | Note 11. Commitments and Contingencies This note addresses the company's legal proceedings and multi-employer pension plan withdrawal liabilities, assessing their potential financial impact - The Company is involved in various legal proceedings but does not expect any asserted or unasserted claims to have a material adverse effect on its operations, financial condition, or cash flows[83][84] - Veritiv has estimated multi-employer pension plan (MEPP) withdrawal liabilities totaling $7.1 million for a complete withdrawal and $6.5 million for a partial withdrawal from the Western Pennsylvania Teamsters and Employers Pension Fund, unchanged as of June 30, 2022, with payments expected over approximately 20 years[86][87][88] - An estimated complete withdrawal liability of $0.5 million was recognized for the Minneapolis Food Distributors Ind Pension Plan, effective July 31, 2022, with payments expected over approximately three years[89][90] Note 12. Segment and Other Information This note provides financial information by reportable segment, including net sales and Adjusted EBITDA for Packaging, Facility Solutions, and Print Solutions - Veritiv operates under three reportable segments: Packaging, Facility Solutions, and Print Solutions, along with a Corporate & Other category for logistics and unallocated costs[91][92] Net Sales and Adjusted EBITDA by Segment (in millions) - Three Months Ended June 30, | Segment | 2022 Net Sales | 2021 Net Sales | 2022 Adjusted EBITDA | 2021 Adjusted EBITDA | | :------------------- | :------------- | :------------- | :------------------- | :------------------- | | Packaging | $1,001.6 | $915.0 | $108.4 | $95.4 | | Facility Solutions | $195.8 | $224.7 | $16.0 | $10.4 | | Print Solutions | $593.2 | $489.0 | $60.5 | $22.2 | | Corporate & Other | $30.1 | $29.9 | $(48.6) | $(54.5) | | Total | $1,820.7 | $1,658.6 | $136.3 | $73.5 | Net Sales and Adjusted EBITDA by Segment (in millions) - Six Months Ended June 30, | Segment | 2022 Net Sales | 2021 Net Sales | 2022 Adjusted EBITDA | 2021 Adjusted EBITDA | | :------------------- | :------------- | :------------- | :------------------- | :------------------- | | Packaging | $2,004.7 | $1,769.6 | $205.8 | $173.4 | | Facility Solutions | $425.2 | $430.8 | $29.4 | $21.9 | | Print Solutions | $1,189.8 | $960.3 | $115.1 | $39.6 | | Corporate & Other | $59.1 | $57.2 | $(94.5) | $(101.9) | | Total | $3,678.8 | $3,217.9 | $255.8 | $133.0 | - Adjusted EBITDA for reportable segments increased to $184.9 million for Q2 2022 (from $128.0 million in Q2 2021) and to $350.3 million for H1 2022 (from $234.9 million in H1 2021)[93] Note 13. Divestitures This note details the company's recent divestitures, including the sale of its Canadian business and the Rollsource business, and associated gains - On May 2, 2022, Veritiv completed the sale of its Veritiv Canada, Inc. business to Imperial Dade Canada Inc. for CAD $240 million (approx. U.S. $190 million), receiving initial net cash proceeds of $147.4 million[94] - A preliminary gain of approximately $10.0 million was recognized on the sale of the Canadian business, which included most of its facility solutions, print operations, and a majority of its packaging business serving food service customers[94] - On March 31, 2021, the Company sold its Rollsource business for approximately $7.5 million cash proceeds, recognizing an initial pre-tax gain of $2.4 million and an additional $0.7 million gain in Q2 2021[95] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on Veritiv's financial condition and operating results, discussing key factors, strategies, and segment performance Executive Overview This section provides an executive summary of the company's performance, strategic initiatives, and the impact of external factors like the COVID-19 pandemic - The COVID-19 pandemic continues to have unpredictable impacts, but Veritiv has implemented health and safety measures and cost-savings initiatives. The extent of future impacts remains uncertain[102][103][104] - The sale of Veritiv Canada, Inc. on May 2, 2022, for $147.4 million net cash proceeds, allows the Company to focus on its core packaging business and higher-growth, higher-margin opportunities[105][106] - A new $200 million share repurchase program was authorized on March 1, 2022, under which $104.8 million of shares were repurchased in H1 2022[108] - The 2020 Restructuring Plan is substantially complete, with remaining charges of approximately $2 million expected in H2 2022[109] - Veritiv's long-term strategy focuses on being a leading provider of B2B packaging, paper, and facility solutions, investing in organic packaging growth, and pursuing inorganic opportunities while evaluating non-core divestitures[110] Business Overview This section describes Veritiv's business as a leading North American B2B provider across its three reportable segments and discusses seasonal influences - Veritiv is a leading North American B2B full-service provider of value-added packaging products and services, facility solutions, print-based products, and logistics/supply chain management solutions, operating primarily in the U.S. and Mexico[111] - The Company's three reportable segments are Packaging, Facility Solutions, and Print Solutions, managed by the CEO as the Chief Operating Decision Maker[112] - The Company's operating results are subject to seasonal influences, with higher consolidated net sales historically in Q3 and Q4, and lowest in Q1, driven by holiday production, summer demand, and back-to-school/holiday advertising[113] Results of Operations, Including Business Segments This section analyzes the consolidated operating results, including net sales, operating income, and net income, for the three and six months ended June 30, 2022 and 2021 Consolidated Operating Results (in millions) - Three and Six Months Ended June 30, | Metric | 3 Months Ended June 30, 2022 | 3 Months Ended June 30, 2021 | Change ($) | Change (%) | 6 Months Ended June 30, 2022 | 6 Months Ended June 30, 2021 | Change ($) | Change (%) | | :--------------------------------- | :----------------------------- | :----------------------------- | :--------- | :--------- | :----------------------------- | :----------------------------- | :--------- | :--------- | | Net sales | $1,820.7 | $1,658.6 | $162.1 | 9.8% | $3,678.8 | $3,217.9 | $460.9 | 14.3% | | Operating income (loss) | $118.4 | $38.3 | $80.1 | 209.1% | $205.6 | $72.8 | $132.8 | 182.4% | | Net income (loss) | $91.1 | $26.4 | $64.7 | 245.1% | $169.6 | $47.7 | $121.9 | 255.6% | - Net sales increased by 9.8% (QoQ) and 14.3% (YoY) for the three and six months ended June 30, 2022, respectively, driven by inflationary market price increases in Packaging and Print Solutions, despite a $107.4 million (QoQ) and $76.3 million (YoY) decrease from the Canadian business divestiture[115][116] - Operating income surged by 209.1% (QoQ) and 182.4% (YoY), while net income increased by 245.1% (QoQ) and 255.6% (YoY), reflecting improved pricing, segment mix, and lower restructuring charges[114][118][124] - Distribution expenses decreased by 5.6% QoQ due to the Canadian divestiture, but increased by 2.4% YoY primarily due to higher freight and logistics costs from increased sales volume and fuel prices[119][120] - Selling and administrative expenses increased by 1.6% QoQ and 7.1% YoY, driven by higher personnel expenses (commissions, travel) and professional fees, partially offset by gains from the Canadian business sale and insurance proceeds[121][122] - Other (income) expense, net, showed a favorable change of $4.9 million (QoQ) and $4.5 million (YoY), primarily due to a $7.0 million gain on the settlement of Canadian pension plans[126][127] Segment Results This section provides a detailed analysis of the financial performance for each of Veritiv's reportable segments: Packaging, Facility Solutions, Print Solutions, and Corporate & Other - Adjusted EBITDA is the primary financial performance measure used by management, aligning shareholders, debt holders, and management, but it is a non-GAAP measure and has limitations[130][131][132] - Distribution expenses are allocated to segments based on operational metrics, making segment-level trends interdependent[133] - The Company has improved its ability to isolate sales changes attributed to volume and price separately at the item level for most Packaging and Facility Solutions products[134] - The historical decline in demand for paper and related products is expected to continue long-term, but short-term supply shortages and product cost inflation have led to higher prices in the Print Solutions segment[136] Packaging Segment This section details the financial performance of the Packaging segment, including net sales, Adjusted EBITDA, and key drivers of change Packaging Segment Performance (in millions) | Metric | 3 Months Ended June 30, 2022 | 3 Months Ended June 30, 2021 | Change ($) | Change (%) | 6 Months Ended June 30, 2022 | 6 Months Ended June 30, 2021 | Change ($) | Change (%) | | :--------------------------------- | :----------------------------- | :----------------------------- | :--------- | :--------- | :----------------------------- | :----------------------------- | :--------- | :--------- | | Net sales | $1,001.6 | $915.0 | $86.6 | 9.5% | $2,004.7 | $1,769.6 | $235.1 | 13.3% | | Adjusted EBITDA | $108.4 | $95.4 | $13.0 | 13.6% | $205.8 | $173.4 | $32.4 | 18.7% | | Adjusted EBITDA as a % of net sales | 10.8% | 10.4% | 40 bps | | 10.3% | 9.8% | 50 bps | | - Packaging net sales increased by 9.5% (QoQ) and 13.3% (YoY), primarily due to higher market prices and increased sales volume across all product categories and end-use sectors, despite a $41.9 million (QoQ) and $28.0 million (YoY) decrease from the Canadian business divestiture[142][144] - Adjusted EBITDA for Packaging increased by 13.6% (QoQ) and 18.7% (YoY), driven by higher net sales and cost of products sold increasing at a slower rate than net sales, partially offset by increased selling and administrative expenses (personnel, professional fees, bad debt) and distribution expenses (freight, facility rent)[143][145] Packaging Net Sales Change Components (in millions) | Component | 3 Months Ended June 30, 2022 vs. 2021 | 6 Months Ended June 30, 2022 vs. 2021 | | :------------------- | :------------------------------------ | :------------------------------------ | | Volume | $(46.6) | $(2.6) | | Foreign currency | $(1.4) | $(6.9) | | Price/Mix | $134.6 | $244.6 | | Total change | $86.6 | $235.1 | Facility Solutions Segment This section details the financial performance of the Facility Solutions segment, including net sales, Adjusted EBITDA, and key drivers of change Facility Solutions Segment Performance (in millions) | Metric | 3 Months Ended June 30, 2022 | 3 Months Ended June 30, 2021 | Change ($) | Change (%) | 6 Months Ended June 30, 2022 | 6 Months Ended June 30, 2021 | Change ($) | Change (%) | | :--------------------------------- | :----------------------------- | :----------------------------- | :--------- | :--------- | :----------------------------- | :----------------------------- | :--------- | :--------- | | Net sales | $195.8 | $224.7 | $(28.9) | (12.9)% | $425.2 | $430.8 | $(5.6) | (1.3)% | | Adjusted EBITDA | $16.0 | $10.4 | $5.6 | 53.8% | $29.4 | $21.9 | $7.5 | 34.2% | | Adjusted EBITDA as a % of net sales | 8.2% | 4.6% | 360 bps | | 6.9% | 5.1% | 180 bps | | - Facility Solutions net sales decreased by 12.9% (QoQ) and 1.3% (YoY), primarily due to the Canadian business divestiture ($42.3 million QoQ, $38.8 million YoY) and declining demand for personal protective equipment, partially offset by higher market prices and increased sales in towels, tissues, and food service products[147][149] - Adjusted EBITDA for Facility Solutions increased by 53.8% (QoQ) and 34.2% (YoY), mainly due to decreased distribution and selling & administrative expenses resulting from the Canadian divestiture, and cost of products sold decreasing faster than net sales[148][150] Facility Solutions Net Sales Change Components (in millions) | Component | 3 Months Ended June 30, 2022 vs. 2021 | 6 Months Ended June 30, 2022 vs. 2021 | | :------------------- | :------------------------------------ | :------------------------------------ | | Volume | $(41.8) | $(2.0) | | Foreign currency | $(0.2) | $(3.8) | | Price/Mix | $13.1 | $0.2 | | Total change | $(28.9) | $(5.6) | Print Solutions Segment This section details the financial performance of the Print Solutions segment, including net sales, Adjusted EBITDA, and key drivers of change Print Solutions Segment Performance (in millions) | Metric | 3 Months Ended June 30, 2022 | 3 Months Ended June 30, 2021 | Change ($) | Change (%) | 6 Months Ended June 30, 2022 | 6 Months Ended June 30, 2021 | Change ($) | Change (%) | | :--------------------------------- | :----------------------------- | :----------------------------- | :--------- | :--------- | :----------------------------- | :----------------------------- | :--------- | :--------- | | Net sales | $593.2 | $489.0 | $104.2 | 21.3% | $1,189.8 | $960.3 | $229.5 | 23.9% | | Adjusted EBITDA | $60.5 | $22.2 | $38.3 | 172.5% | $115.1 | $39.6 | $75.5 | 190.7% | | Adjusted EBITDA as a % of net sales | 10.2% | 4.5% | 570 bps | | 9.7% | 4.1% | 560 bps | | - Print Solutions net sales increased by 21.3% (QoQ) and 23.9% (YoY), primarily due to higher market prices driven by strong demand and supply shortages, despite decreased sales volume and a $23.2 million (QoQ) and $9.5 million (YoY) decrease from the Canadian business divestiture[152][154] - Adjusted EBITDA for Print Solutions surged by 172.5% (QoQ) and 190.7% (YoY), mainly due to cost of products sold increasing at a slower rate than net sales, higher net sales, and decreased distribution expenses, partially offset by increased selling and administrative expenses[153][155] Print Solutions Net Sales Change Components (in millions) | Component | 3 Months Ended June 30, 2022 vs. 2021 | 6 Months Ended June 30, 2022 vs. 2021 | | :------------------- | :------------------------------------ | :------------------------------------ | | Volume | $(57.9) | $(31.1) | | Foreign currency | $(0.2) | $(2.6) | | Price/Mix | $162.3 | $263.2 | | Total change | $104.2 | $229.5 | Corporate & Other This section details the financial performance of the Corporate & Other category, including net sales and Adjusted EBITDA Corporate & Other Performance (in millions) | Metric | 3 Months Ended June 30, 2022 | 3 Months Ended June 30, 2021 | Change ($) | Change (%) | 6 Months Ended June 30, 2022 | 6 Months Ended June 30, 2021 | Change ($) | Change (%) | | :--------------------------------- | :----------------------------- | :----------------------------- | :--------- | :--------- | :----------------------------- | :----------------------------- | :--------- | :--------- | | Net sales | $30.1 | $29.9 | $0.2 | 0.7% | $59.1 | $57.2 | $1.9 | 3.3% | | Adjusted EBITDA | $(48.6) | $(54.5) | $5.9 | 10.8% | $(94.5) | $(101.9) | $7.4 | 7.3% | - Corporate & Other net sales increased slightly by 0.7% (QoQ) and 3.3% (YoY), primarily due to an increase in freight brokerage service prices, partially offset by volume decline[158][160] - Adjusted EBITDA for Corporate & Other improved by $5.9 million (QoQ) and $7.4 million (YoY), driven by decreased selling and administrative expenses (lower personnel and incentive compensation, Canadian divestiture impact) and cost of products sold increasing at a slower rate than net sales[159][161] Liquidity and Capital Resources This section discusses the company's cash requirements, sources of liquidity, cash flow activities, and future capital needs - The Company's cash requirements are met by cash flows from operations and borrowings under the ABL Facility[162] Summary of Cash Flows (in millions) - Six Months Ended June 30, | Activity | 2022 | 2021 | | :--------------------------------- | :----- | :----- | | Net cash provided by (used for) operating activities | $62.3 | $50.1 | | Net cash provided by (used for) investing activities | $131.3 | $2.2 | | Net cash provided by (used for) financing activities | $(210.2) | $(138.2) | - Available additional borrowing capacity under the ABL Facility was approximately $622.4 million as of June 30, 2022[169] - Future cash needs include working capital, capital expenditures (estimated $30 million in 2022), contractual commitments, share repurchases, and strategic investments[171][172] - The Company paid $10.1 million of deferred payroll taxes in January 2022 and expects to pay the remaining amount in December 2022[172] Inflation and Changing Prices This section addresses the company's approach to adjusting prices in response to inflation and changing costs of materials and services - The Company adjusts its prices to reflect the impact of inflation on the cost of purchased materials and services, to the extent feasible[174] Critical Accounting Estimates This section confirms no material changes to critical accounting estimate methodologies and notes potential impacts from the COVID-19 pandemic - There have been no material changes to the Company's critical accounting estimate methodologies from those disclosed in its Annual Report on Form 10-K for the year ended December 31, 2021[175] - Estimates are subject to change, particularly due to the ongoing COVID-19 pandemic and its effects on the domestic and global economies[175] Recently Issued Accounting Standards This section refers to Note 1 for information regarding recently issued accounting standards relevant to the company's financial statements - Refer to Note 1 of the Notes to Condensed Consolidated Financial Statements for information regarding recently issued accounting standards[176] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section states that there have been no material changes in market risk disclosures from the prior annual report - No material changes in market risk disclosures from the Annual Report on Form 10-K for the year ended December 31, 2021[177] Item 4. Controls and Procedures This section confirms the effectiveness of disclosure controls and procedures and reports no material changes in internal control over financial reporting - Management concluded that the Company's disclosure controls and procedures were effective as of June 30, 2022[178] - There have been no material changes in internal control over financial reporting during the quarter ended June 30, 2022[179] Part II: Other Information This part provides additional information beyond the financial statements, covering legal proceedings, risk factors, equity sales, and exhibits Item 1. Legal Proceedings This section refers to Note 11 for details on legal proceedings, indicating no expected material adverse effects on the company - Refer to Note 11 of the Notes to Condensed Consolidated Financial Statements for information on legal proceedings[181] Item 1A. Risk Factors This section states that there have been no material changes from the risk factors previously disclosed in the prior annual report - No material changes from the risk factors previously disclosed in the Annual Report on Form 10-K for the year ended December 31, 2021[182] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section details the Company's share repurchase activities under the 2022 Share Repurchase Program during the second quarter of 2022 - The Board authorized a $200 million share repurchase program on March 1, 2022[183] Common Stock Purchases - Three Months Ended June 30, 2022 | Period | Total Number of Shares Purchased | Average Price Paid Per Share | Total Number of Shares Purchased as Part of the Publicly Announced Program | Approximate Dollar Value of Shares that May Yet be Purchased Under the Publicly Announced Program | | :------------------- | :----------------------------- | :--------------------------- | :----------------------------------------------------------------------- | :---------------------------------------------------------------------------------------------- | | April 1-30 | 256,862 | $137.01 | 254,878 | $154,649,633 | | May 1-31 | 219,767 | $140.02 | 219,767 | $123,878,710 | | June 1-30 | 224,000 | $127.96 | 224,000 | $95,216,689 | - As of June 30, 2022, approximately $95.2 million remained authorized for repurchases under the 2022 Share Repurchase Program[184] Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including amendments, certifications, and XBRL-related documents - Exhibit 2.1 is Amendment No. 1 to the Stock Purchase Agreement related to the sale of Veritiv Canada, Inc.[186] - Includes Rule 13a-14(a) Certifications of the CEO and CFO (Exhibits 31.1, 31.2) and Section 1350 Certifications (Exhibits 32.1, 32.2)[186] - XBRL Instance Document and Taxonomy Extension documents are also filed[186] Signatures This section contains the required signatures for the Form 10-Q, confirming its submission on behalf of Veritiv Corporation - The report was signed on August 9, 2022, by Stephen J. Smith, Senior Vice President and Chief Financial Officer, and Lance D. Gebert, Corporate Controller[190]