Neil Russell - SVP, Corporate Affairs Mary Laschinger - Chairman and CEO Steve Smith - Chief Financial Officer

Keith Hughes - SunTrust Scott Gaffner - Barclays

Good morning. And welcome to Veritiv Corporation's Fourth Quarter and Full Year 2014 Conference Call. As a reminder, today's call is being recorded. We will begin with opening remarks and introduction. At this time, I would like to turn the call over to Neil Russell, Senior Vice President of Corporate Affairs. Mr. Russell, you may begin.

Thank you, Sally, and good morning everyone. Thank you all for joining us. Today, you will hear prepared remarks from Mary Laschinger, our Chairman and Chief Executive Officer; and Steve Smith, our Chief Financial Officer. Afterwards, we will take your questions. Before we begin, please note that some of the statements made in today's presentation regarding the intentions, beliefs, expectations and/or predictions of the future by the company and/or management are forward-looking. Actual results could differ in a material manner. Additional information that could cause results to differ from those in the forward-looking statements is contained in the Company's SEC filings. This includes but is not limited to risk factors to be contained in our 2014 Annual Report on Form 10-K and in the news release issued earlier this morning. The news release is posted in the Investor section of www.veritivcorp.com and on the Veritiv IR app which can be downloaded from the iTunes App Store and Google Play. Non-GAAP financial measures are included in our comments today and in the presentation slides. The reconciliation of these non-GAAP measures to the applicable GAAP measures are included at the end of the presentation slides and can also be found in the Investors section of our website. At this time I would like to turn the call over to our Chairman and Chief Executive Officer Mary Laschinger.

Thanks, Neil. Good morning, everyone. And thank you for joining us today as we review our fourth quarter and a full year financial results. We will also cover key accomplishments in 2014 and provide an update on our ongoing integration efforts. 2014 was a solid year for Veritiv. When we formed the company, we announced the plan to improve adjusted EBITDA by an incremental $100 million over the next few years, and deliver a $150 million to $225 million in net synergies over five years. We are on track for these long-term goals and in fact our pacing is slightly ahead of our internal forecast. For the full year 2014, net sales were $9.3 billion. While we continued to experience net sales declines in our print solutions and publishing and print management businesses during 2014, these declines were partially offset by improved results in both our Packaging business segment and possibly the beginning of an earnings reflection in the fourth quarter for our Facility Solutions segment. This is in line with what we expected for 2014, and we are encouraged by the improvement in our average daily sales pattern for the second half of the year. During 2014, we also reported consolidated pro forma adjusted EBITDA of $154 million. I am pleased to say that this result was above our original forecast for the year. In 2014, we accomplished several key integration milestones and I would like to highlight some of those accomplishments. During the year, we worked hard to align the organization around segment strategies and our new organizational structure and operating model, which resulted in significant net synergy capture in 2014 and positioning us for additional synergy capture in 2015. On the customer front, we addressed account overlaps and expanded Salesforce.com across the entire sales organization to align Veritiv customers with a single sale professional and improving our productivity. As part of our employee integration, we implemented employee benefit plan consistent with the distribution company and we finalized our new incentive plan structure further aligning the goals of the organization with those that drive shareholder value. And lastly, we harmonized our accounting policies on a go forward basis. And perhaps our greatest accomplishment of all in 2014 was a fact that we were able to get this huge body of work done with minimal disruption to our customers. Because of our commitment to our integration efforts, we were able to exceed our internal forecast for synergy captured in 2014 and achieved approximately 10% of our ultimate net synergy goal. We exceeded our 2014 target as a result of implementing our operating model and new organizational structure faster than was initially planned. Even though we achieved results ahead of schedule in 2014, our overall plan remains on track due to the fact that we pulled work forward from future years into 2014. These accomplishments are a testament to the robust integration plan and execution of that plan by our hardworking and dedicated Veritiv team. But we are still -- we still have a lot of work ahead of us. And we are still in the very early stages of our integration. As I shared with you in the past, there are varying degrees of difficulty across multiple years of our synergy plan. In 2015, synergies will be derived from more complex activities that involve internal and external stakeholders such as sourcing. Beyond 2015, the next wave of synergies will be enabled by invest -- by process enhancement and information system and as such take investments and time. Yet, I am confident that our Veritiv team is qualified and capable of executing our plans. In a few moments Steve will walk you through the details of our financial performance and update you on our guidance for 2015. But before he does so let me frame his comments. Our fourth quarter and full year pro forma results were ahead of our internal forecast. However, we know that some of the challenges we face in 2014 will continue in 2015 and that new challenges will arise along the way as we continue to integrate our company. We are prepared to tackle these challenges head on with the agility, innovation and most importantly superior customer service that are expected of an industry leader. That said, as we enter 2015 we will implement our segment and sourcing strategy which will help us achieve synergy benefits during the year. We will also begin the work to build the foundation for systems integration which will allow us to achieve our stated synergies in 2016 and beyond. Now I'll turn it over to Steve so he can take you through the details of our fourth quarter and full year financial performance.

Thank you, Mary. And good morning everyone. As Mary said, we are pleased with the results. Our fourth quarter 2014 on a pro forma basis as if the merger had occurred at the beginning of 2013; we had net sales of $2.4 billion, down 4.6% from the prior year period. Given we had one last shipping day year-over-year, our net sales per shipping day were down 3.1%. Cost of products sold for the quarter was approximately $2 billion. Net sales less cost to product sold was $391 million. Adjusted EBITDA as a percentage of net sales was 1.7%, which was flat year-over-year. For the full year 2014, again on pro forma basis as if the merger had occurred at the beginning of 2013, Veritiv reported revenues of $9.3 billion or decline of about 4.4%. Our net sales per shipping day were down 4.2% year-over-year. Net sales less cost to product sold were approximately $1.6 billion. We exceeded our goal for adjusted EBITDA finishing 2014 at about $154 million. Adjusted EBITDA as a percentage of net sales was 1.6% which was flat year-over-year. We are pleased that for both the fourth quarter and for the full year we have successfully de-leveraged our income statement as adjusted EBITDA margins have remained flat despite the roughly 4.5% revenue decline. Now let's move into the segment results for the quarter and full year ended at December 31, 2014 on pro form basis as if the merger had occurred January 1, 2013. For the fourth quarter the Print segment experienced 6.3% decline in net sales and contributed $17.3 million of adjusted EBITDA. For the full year the Print segment experienced a 6.6% decline in net sales and contributed $67.7 million of adjusted EBITDA. The rate of revenue decline in our segment remains about 6% to 7% as the secular headwinds in the printing industry continued to buffet this segment. In the fourth quarter, the Publishing segment had a 12.7% decline in net sales and contributed $10.5 million of adjusted EBITDA, which was an 11.4% increase year-over-year. For the full year, the Publishing segment contributed $33.6 million of adjusted EBITDA, a 4% increase year-over-year. The Publishing segment saw improvement in adjusted EBITDA as a percentage of net sales for both the fourth quarter and full year with increases of 63 and 34 basis points respectively. These improvements occurred principally as the result of reduction in operating expenses at a rate greater than the rate of sales decline. Our fourth quarter net sales in the Print and Publishing segment were impacted by continuing volume and pricing pressures in the paper industry which were consistent with our revenue expectations and guidance. For the fourth quarter, our Facility Solutions segment declined 6.4% in net sales and contributed $15.2 million in adjusted EBITDA. The net sales decline was principally due to our existing of some unprofitable accounts as well as an ongoing decline in the Canadian dollar. Despite the decline in net sales, the Facility Solutions' business saw improvement in adjusted EBITDA as a percentage of net sales for both the fourth quarter and full year with increases of 56 and 19 basis points respectively. These improvements occurred as a result of improved customer mix and pricing, as well as reductions in delivery, handling and storage cost. Packaging continued its strong performance in the fourth quarter. Net sales per shipping day were up 4.1% quarter-over-quarter. The growth in the Packaging segment was partially attributed to increase in more complex, large, national customers, as well as multi location regional customers. The Packaging segment contributed $52.7 million of adjusted EBITDA in the fourth quarter and $190.3 million for the full year resulting in period-over-period increases of 12.7% and 1.4% respectively. In the fourth quarter, Packaging saw improvement in adjusted EBITDA as a percentage of net sales of 66 basis points or a slight decline in the full year of 10 basis points. Looking ahead to the first quarter of 2015, it is important for you to know that as a result of a calendar structure, we will have one less shipping day in 2015, which is equivalent of a drag on our revenue of approximately 1.6% quarter-over-quarter a drag on the full year revenues of about 40 basis points. Today, we are providing 2015 guidance for adjusted EBITDA, net synergy capture and capital expenditures. In the future we may or may not repeat this level of guidance but given that our business model is new to many interested parties, we felt these business metrics could be helpful in assessing our performance. We expect adjusted EBITDA for 2015 to be in the range of $165 million to $175 million, which is on track with our initially communicated plan to improve adjusted EBITDA by an incremental $100 million over the first few years post closing of the merger. Helping to drive that increase and adjusted EBITDA is our synergy effort. As we look beyond 2014, we continued to forecast our multi year net synergy in the range of $150 million to $225 million. As Mary mentioned, we were able to capture approximately 10% of those net synergies in 2014, which was ahead of our expectations. This accelerated pace is due to concerted effort to more rapidly implement our new organizational structure ahead of the initially projected timeframe. These synergies were mostly driven by lowering of operating expenses in areas such back office support, warehouse and transportation. While our expectation for total synergies over the multi year forecast remains unchanged, we are updating our expectations for net synergy capture for 2015 to range of approximately 25% to 35% of the ultimately goal of $150 million to $225 million over the five years post merger. As a reminder, these synergy percentages are calculated using the cumulative effect of synergy benefit already achieved in 2014. Said differently, we are quoting the cumulative effect not the incremental effect. Next let me touch on our expectations for capital expenditures. Ordinary post capital expenditures are expected to be approximately $25 million in 2015. In addition, we expect incremental capital expenditures related to innovation projects to be in the range of $30 million to $40 million which will help enable the synergy capture in 2015 and beyond. This incremental capital spending is principally for information systems integration. Turning now to the balance sheet for a moment. At the end of December, we had drawn approximately $850 million of the asset based loan facility and had available liquidity of approximately $400 million. As a reminder, the ABL facility is backed by the inventory consumables of our business. On pro forma basis for the full year 2014, cash flow from operations less capital expenditures of removing the cash impact of restructuring and other integration related items was approximately $140 million. On a pro forma basis, capital expenditures totaled nearly $24 million for the full year of 2014, was about $10 million related to integration project. Going forward, we continued to believe that cash flow from operations due in part to an anticipated improvement in adjusted EBITDA will allow us to accomplish three objectives. First, to fund the spending associated with cost of achieving synergies. Second, to pay down debt and third grow the overall value of the enterprise. In closing, as Mary mentioned earlier, we finished 2014 ahead of plan in part because we implemented our new organizational structure faster than was initially planned thereby getting us on track to ultimately deliver net synergies in the range of $150 million to $225 million. With that summary, I'll now turn the call back over to Mary and Sally our operator for Q&A.

Sally, we are going to proceed now with the Q&A session.

[Operator Instructions] Your first question comes from the line of Keith Hughes with SunTrust. Your line is open.

Thank you. Questions in facility solutions. You referred to walking away from some businesses I believe this quarter. Are we close to the end of that? Would you expect sales to turn positive in the first quarter of 2015 in that segment?

Keith, good question. I would suggest that we are not complete with that. We still believe there is room for improvement to optimize the portfolio and would expect again year-over-year probably single digit, low single digit declines in the facility's business but continued profitability improvement for the first quarter.

Is the profitability improvement coming -- is this business that you are losing money on?

Some of it is. But it is also right sizing the way we service the customers in that segment as well, which enables us to improve our margins and reducing our cost structure.

Okay. And then second question in Publishing, double digit decline, we've had double digit declines, low double digit declines for last two quarters. Is that going to be the pace moving forward or would you expect that go to single digits?

Well, first of all, the declines that we are representing are that we are sharing with you today as in the third quarter is comparable to what we are seeing in the industry decline. First of all, there is a lot of dynamics that are going on when you look at the specific grades that support that segment of the business. There is both revenue decline due to structural decline in the industry but also pricing decline. And so that contributes to the overall double digit decline both in our business and in the sector as a whole. That segment is also what we would characterize as chunky; retailers for example may decide to do a publication one quarter and not the next. And so there is a lot of variability from quarter-to-quarter. So it is difficult to project precisely whether that will continue, we would hope that it is not that significant over time, but it is impossible to predict that.

Are you having a pricing declines in the Print segment as well?

The Print segment pricing was -- the revenue declines we saw in the Print segment, both in our business as well as in the industry were more volume generated than pricing that was just a very modest amount of price decline in the print segment.

Okay. Final question for Steve. You had referred to I believe, it was capital spending of $25 million or CapEx spending of $25 million, is that correct?

Yes. A little bit under that.

Okay. There was some investment spending as well. Will that show up in CapEx line or will that be something that's amortized over time?

Well, it will show up in the CapEx line and it will be amortized over a time. It was roughly about 60% the non-integration related CapEx and about 40% integration related.

[Operator Instructions] And your next question comes from the line of Scott Gaffner with Barclays. Your line is open.

Good morning. Just following up on that last question. Steve, if I look at it, CapEx in total looks to be $55 million to $65 million, so it looks like overall you have a cash burn for the year so you would actually take on more debt in 2015, is that -- are we thinking about that the right way? If so, what is sort of the magnitude?

Right. So it depends on as you know a number of factors, earnings, tax, cash taxes paid if any and then the spending on CapEx as you mentioned Scott. If we want to look at just free cash flow that is cash flow from operations less CapEx for the year 2015, we would anticipate that to be a positive figure for the year. We will have significant one-time integration spending, both the CapEx you just mentioned as well as other operating items that would drive that figure potentially negative.

Okay. I guess I am little confused then, your guidance -- or your thought is that it is could to be positive but it could go negative is what you are saying?

Our guidance is that the cash flow from the company for 2015 will be positive but for the one time items of integration both CapEx and operating. Those will be significant in 2015 as they were in 2014 which will probably drive cash flow negative including those items.

Understood. And then on the synergies that you are driving in 2015. Mary you mentioned a little bit more complex, I think you mentioned sourcing and some system integration. Could you just get a little bit more granular on that systems integration side, exactly what it is that you are tackling in 2015?

Sure. So as we look at 2015 and our systems integration, we are beginning work and we will see some progress made for example in integrating how we view inventories for example. But that work is underway and some of it will take place in 2015, but a big portion of the systems integration work will be setting the stage or building the foundation to really go aggressively and integrating the two companies on a common operating system for 2016. So there are some systems being integrated like Salesforce.com, our inventory planning systems, our financial systems, but the big body of work being done in 2015 is around our operating systems which will be implemented in 2016.

Okay. You mentioned, you pulled some of the projects from 2015 into 2014 and that allowed you to outperform. Why not then pull some projects from 2016 into 2015, are you just trying to be conservative or is there potential for that as we move through the year?

Scott, it is a great question. I am glad you asked it. If you recall since we first started talking, I have indicated that there are some synergies that are easier to get and there are others that are more difficult. For example, SG&A, a portion of our SG&A synergies that we targeted are relatively easy to achieve because we have duplication of functions, roles and so forth. And so we made the decision to pull some of that work forward. Some of the other synergies, they become to get more complex and difficult because that requires impacting both constituencies, externally as well as internally as well as building some capabilities i.e. for example with technology. And so we did pull forward what I would characterize as the things that were simpler to do. But that doesn't mean we have that flexibility on a go forward basis because we have to build some capabilities along the way in order to achieve the next level of synergies.

[Operator Instructions] There are no further questions at this time. I will now turn the call back over to Mary Laschinger, Chairman and CEO.

Well, our performance in 2014, I am really pleased with it and serves as a reminder as to why we brought these two great organizations together. We have created a distribution leader in North America and our combined capabilities allow us to design, source and deliver customer solutions at a level that is unparallel in the industry. We are well positioned to create significant value for both our customers and our suppliers while capturing synergies across the business to maintain a strong company for the future. And we remain strategically focused on what we do best which is distribution and providing total solutions to our customers. I am pleased with the accomplishments we made in 2014, all of which would not have been possible without our team of dedicated Veritiv employees. And I would like to thank them for their hard work. We have a very exciting opportunity in front of us, but there is more hard work ahead of us as well. But the Veritiv team and I are very energized and motivated to deliver on our commitments for 2015. And again thank you everyone for joining us today.

Thank you for your participation. That concludes today's conference call. You may now disconnect.