Tom Morabito - Director of Investor Relations Mary Laschinger - Chairman and Chief Executive Officer Stephen Smith - Senior Vice President and Chief Financial Officer

Chip Dillon - Vertical Research Partners David Mandell - William Blair & Company

Good morning and welcome to Veritiv Corporation’s First Quarter 2016 Financial Results Conference Call. As a reminder, today’s call is being recorded. We will begin with opening remarks and introductions. At this time, I would like to turn the call over to Tom Morabito, Director of Investor Relations. Mr. Morabito, you may begin.

Thank you, Kirk, 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 2015 Annual Report on Form 10-K and in the news release issued this morning, which is posted in the Investors section at veritivcorp.com. 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 like to turn the call over to Mary.

Thanks, Tom. Good morning, everyone, and thank you for joining us today as we review our first quarter financial results and full-year outlook. We will also provide an update on our ongoing integration initiatives. We had a good start to 2016 and reported first quarter consolidated adjusted EBITDA of $35 million, more than a 20% increase year-over-year. This increase was primarily driven by ongoing strategic management of our customers, suppliers and product mix, continued improvements in our cost structure and a benefit from fuel. As a result, we are reaffirming our full-year 2016 guidance of $185 million to $195 million in adjusted EBITDA. Our reported net sales for the first quarter were $2 billion, down approximately 6% compared to the prior-year period. Our first quarter revenue was impacted by three main elements: foreign currency, the calendar structure, and our core net sales performance. We reported a net sales decline of 5.5% in the quarter, which includes the negative effect of foreign currency and the positive effect of two more shipping days in the first quarter of 2016 compared to the prior year period. Excluding the effects of foreign currency and day-count differences our core net sales declined 7.6% from the prior year. This core decline was largely driven by economic softness, continued structural decline in the paper industry and strategic customer choices. I would like to call attention to the impact of the strategic customer choices as they amounted to 1.6% of the 7.6% core net sales decline. These proactive choices were made earlier in the integration with the intent to improve adjusted EBITDA as a percentage of net sales for Veritiv as a whole. Most of these choices were made in the first-half of 2015, and it will take a full year’s time to completely lap the decreased volume associated with these proactive choices. As such, we expect the impact of these choices to tail off by the end of the second quarter. As I shared with you during our March earnings call, the revenue softness in the first couple of months was posing a challenging start to 2016. Despite these top line pressures, we maintained our focus on executing the integration initiative, which kept us on track with both our commitments for 2016 as well as our multiyear plan. Our integration-work during the first quarter continued to focus on integrating foundational processes to prepare for the conversion to our common operating system. As a reminder, this more complex phase of integration work requires a significant investment of resources and time, and as such, the pacing of synergy capture during this phase of integration will be more modest than that of previous quarters. This change of pace was expected and is part of our original multiyear integration timeline. To add context to the body of work that is underway there are two system updates, that I would like to highlight. First, we moved the majority of the warehouse business to a single replenishment system. The remaining portion of the business migration will be complete in the second quarter. This single replenishment system will be a key enabler as we begin optimizing inventory throughout the supply chain and position our distribution network for the more complex system and supplier transitions to come. Second, we completed our planned conversion of two major accounts receivable systems into one. This activity harmonized credit exposure onto one tool, which will enable efficiencies and allow us to have a consolidated view of our customers for credit-based decisions. These initiatives required significant bodies of work and both went smoothly with minimal disruption to our customers. By keeping operational excellence as a core value in everything we do, we have been able to prioritize the needs of today and take the steps necessary to create the industry leader of tomorrow. As a result, we remain on plan for ongoing systems integration projects and are well on our way to begin the core operating system integration starting later this year. Looking to the balance of the year, we feel confident about our adjusted EBITDA projection, but recognize that market dynamics will continue to challenge our top line. Similar to 2015 and the first quarter of 2016, we expect economic softness, industry pressures, and currency headwinds to continue throughout the year. We are also sensitive to fluctuations in commodity prices, particularly in paper and resin. While external factors will play a role in our revenue performance it is also important to note that the impact of our strategic account choices, I highlighted earlier will tail off by the end of the second quarter. All else being equal, the reduced impact from these choices on our net sales will improve revenue comparison versus the prior year for our print, publishing and facility solutions business. We believe our facility solutions segment is headed in the right direction from a revenue perspective, and we remain optimistic about the long-term success of this segment. Now, I’ll turn it over to Steve, who can take you through the details of the first quarter financial performance.

Thank you, Mary. Good morning, everyone. Let’s start with the overall results for the first quarter ended March 2016 compared to the prior-year period. As Mary walked you through earlier, when we speak to core net sales, we were referencing reported net sales performance, excluding the impact of foreign exchange and adjusting for any day count differences. As it relates to day count differences, it is important to note we had two extra shipping days in the first quarter of 2016. We will also have one less shipping day in our fourth quarter, resulting in one more shipping day for the full year relative to 2015. For our first quarter 2016, we had net sales of $2 billion, down 5.5% from the prior-year period. Excluding the effect of foreign currency and adjusting for day-count differences, core net sales declined 7.6%. Peeling back the layers of our core net sales, strategic customer choices and accounting conformity amounted to 2.2% of the core net sales decline. Said differently, removing the strategic account choices and accounting conformity from our core net sales, our revenue decline was 5.4% for the quarter. As a reminder, we made a decision in the fourth quarter of 2015 to harmonize our shipping terms across the organization. This accounting conformity will affect our year-over-year comparisons in the first, second and third quarters of 2016, and so we lapped the fourth quarter 2015 decision. Our cost of products sold for the quarter was approximately $1.7 billion. Net sales less cost of product sold was $365 million. Net sales less cost of products sold as a percentage of net sales was 18%, up approximately 50 basis points from the prior-year period. Adjusted EBITDA for the first quarter was $34.9 million, an increase of approximately 23% from the prior-year period. Adjusted EBITDA as a percentage of net sales for the first quarter increased to 1.7%, up 40 basis points from the prior-year period. As Mary mentioned, the ongoing strategic management of our customers, suppliers and product mix along with the continued improvements in our cost structure and a $2 million benefit from lower fuel expenses, enabled our overall margin improvement in the quarter. Let’s now move into the segment results for the quarter ended March 31. As a reminder when we speak to core net sales, we are referencing reported net sales performance excluding the impact of foreign exchange and adjusting for day count differences. In the first quarter, the print segment experienced a 7.5% decline in net sales and our core net sales were off 9.8%. It is important to note that 3% of the 9.8% core net sales decline in this segment was the result of strategic customer choices made by Veritiv during 2015. We expect the majority of the revenue impact from these strategic choices to tail off by the end of the first-half of 2016. In spite of this decline, adjusted EBITDA for the print segment increased about 3% year-over-year to $16 million, resulting in an increase in adjusted EBITDA as a percentage of net sales of 22 basis points. Strong execution of sourcing initiatives, better customer and product mix and reduced operating and selling expenses more than offset the volume pressures and continue to increase the adjusted EBITDA. In the first quarter, the publishing segment had a 15.3% decline in net sales and a 17.8% decline in core net sales. This outcome was particularly affected by declines in market prices and reduced volumes, largely in magazine and insert advertisements, as customers adjusted the promotional mix. Strategic customer account choices and accounting conformity were 3.5% of the core net sales decline. The publishing segment contributes $4 million of adjusted EBITDA in the quarter with adjusted EBITDA as a percentage of net sales coming in at 1.5%. In the first quarter, our facility solutions group net sales decreased 2.6%. Adjusting for the negative impact of foreign currency and the positive effect of two more shipping days in the first quarter of 2016, core net sales were off 3.8%. Strategic customer choices were about 1% of the core decline. Removing the effect of strategic customer choices from core net sales, the sales decline was nearly identical to the reported 2.6% decrease in the quarter. For the first quarter the facility solutions segment contributed $7.4 million in adjusted EBITDA, an 8.8% improvement compared to the prior year. The facility solutions business had an increase of 26 basis points in its adjusted EBITDA as a percentage of net sales. As expected, facility solutions will continue to benefit from the tail off of strategic account choices in the second quarter. In the first quarter, the packaging segment’s reported revenue performance was roughly flat. This segment faced market pressures from declining resin prices and softer volumes in the manufacturing and food packaging industries that carried into 2016. However, we saw growth in our corrugated sales business and continue to see strength in our fulfillment sector. Adjusting for currency and day count, core net sales decreased 2.4%. Accounting conformity was 1% of this core decline. I would also like to highlight the impact of falling commodity prices on this segment’s core net sales, specifically resin. Declines in resin market prices amounted to 1.1% of the core decline. Said differently, removing the effects of accounting conformity and fall of the resin pricing, packaging’s core net sales were relatively flat year over year, which was in line with the market. Packaging contributed $46.7 million in adjusted EBITDA for the first quarter, a 2.2% increase from the prior year period. Adjusted EBITDA as a percentage of net sales increased to 7%, up 19 basis points from the prior-year period. The adjusted EBITDA improvement in this segment was driven by sourcing initiatives and better product mix. Switching now from our segment analysis, let’s take a look at our synergy-timeline balance sheet, cash flow and expectations for the allocation of capital. As a reminder, our forecasted synergy capture for 2016 is approximately 60% to 70% of the ultimate goal of $150 million to $225 million over the five years post-merger. At the end of March, we had drawn $745 million of the asset-based loan facility and had available liquidity of approximately $445 million. As a reminder, the ABL facility is backed by the inventory receivables of the business. Our net leverage ratio that is, the ratio of the last 12 months of adjusted EBITDA to our ABL net of cash on the balance sheet was 3.7 times, down from 4.1 times at the end of last year. We intend to continue debt reduction throughout the year, as we prioritize deleveraging our balance sheet. During the first quarter of 2016, our cash flow from operations was approximately $75 million. If you subtract capital expenditures from our cash flow from operations for the first quarter, we generated free cash flow of approximately $66 million. If you add back to free cash flow, the negative cash impact of restructuring and other integration related items, adjusted free cash flow for the first quarter would have been $83 million. We continue to believe that this healthy level of cash flow from operations will allow us to accomplish three priorities. Our first priority is to continue investing in the company. This investment has two elements: one time integration cost and capital expenditures. We have two types of integration costs. There are those costs that run to the income statement directly and those that are capital expenditures. One time integration cost expected to run through the income statement for 2016 will likely be near the low-end of $40 million to $50 million range. We expect capital expenditures related to integration projects to be in the range of $10 million to $20 million, which will help enable the synergy captured in 2016 and beyond. Similar to 2015, this incremental capital spending is principally for information systems integration. For 2016, our ordinary course capital expenditures are expected to be approximately $20 million to $30 million. For comparison purposes, first quarter 2016 capital expenditures totaled nearly $9 million. Of that figure, there were about $5 million related to integration projects. Our second priority for the use of cash is to pay down debt. As I just mentioned, we have made meaningful and steady progress against this priority since the merger two years ago. And our third priority for the use of excess capital is to return value to our shareholders. In summary, our improved earnings were primarily driven by a combination of ongoing strategic management of our customers, suppliers and product mix along with continued improvements in our cost structure. Kirk, we are now ready to take questions.

[Operator Instructions] Your first question comes from the line of Chip Dillon from Vertical Research Partners. Your line is open.

Hi, good morning, Mary and Steve.

Good morning, Chip.

First question is - yes, thank you. The first question is on the, just as we think about the out-years on the - you very clearly laid out the cash that you are spending on the integration and on the capital side too also for the integration in synergy target work. Could you give us a view of sort of how that progresses through 2017 and 2018 on each of those lines, both the expenses that go through the income statement and those that will be capitalized?

I’m going to ask Steve to take that on Chip.

Okay, right, Chip, we’ve given the guidance that we expect to spend in the neighborhood of $225 million over the forecast horizon, which were about halfway through. And through last year end, we’ve spent a total of $114 million of one-timers at that point. The way we’ll play out is, we’ve said that $55 million of the $225 million was going to be in the form of capital expenditures associated with the synergy capture. That’s the rough mix, roughly $50 million out of $225 million, and that’s been borne out so far. And this most recent quarter, as we mentioned in the script, we had the onetime cost of $13 million, of which the integration related costs were just about 6, but 1.7 you see on our income statement was restructuring and then about $5 million hit CapEx. So in this particular quarter, it was around a third. But it’ll be a third to a quarter of the total spent each of the periods. It fluctuates.

Okay. And so, as we think about that there was $109 million left in both buckets, expense in the CapEx buckets before this year. And looks like you’re telling us that this year you’re going to spend, I mean, another let’s call it midpoint maybe, I don’t know, it’s like $60 million. So it looks like after this year you will only have $50 million left in 2017 and 2018.

Yes. That’s roughly correct. It does decay rapidly as Mary has mentioned a couple of times. The systems work that we’re doing now will enable benefits in later years. So the costs that go with those programs does decay, it falls away in the next couple of years.

Okay. And then just if you could remind us, you had a good cash flow quarter as you mentioned, but seasonal working capital is a big part of that. And could you just remind us how you see that moving through the rest of the year? I think, last year the only full year we’ve seen of Veritiv - we saw the working capital pick up in the second-half of the year and that obviously offset some of the benefits in the free - that took up some of the cash flow.

That’s right, Chip. I’ll comment there. If you look at last year, we generated $83 million of free cash flow in the first quarter. And then in the balance of the year we had an outflow of $14 million to get to our final point of $69 million for the year. This year in the last nine months of the year, we anticipate doing slightly better on management of that working capital bucket. As we said and reiterated, we expect at least $70 million of free cash flow. And if last year we had an outflow of $14 million in the last nine months that would have to mean - and we had $66 million in this year’s first quarter - would have to be positive in the last nine months of this year in order to hit that target. And that would mean positive versus the negative $14 million.

Okay, got you. And maybe another way to look at that is, if you had the year you had this year, if I’m pretty putting words in your mouth you have $70 million of free cash flow. If this were a year where you had the integration spending behind you, and let’s don’t count any of the benefits of the synergies, we don’t count any of that, we’ll just assume, you don’t have the money you’re spending. I mean, it looks like you could have - if I look at this even at the low-end you’re spending $50 million and there might be some tax benefit in that. But it would look like you could - you would be certainly over a $100 million in free cash flow this year with no more synergies, but just excluding all the integration activities. Is that fair?

Yes. The math would be this year at least $70 million of free cash flow and in this year we’ve given guidance that we have integration costs of $40 million to $50 million. So the math would actually be $110 million to $120 million of free cash flow.

Will there be some tax - you would have a higher tax bill if you didn’t have those expenses. I’m assuming you are paying cash - well, it is helping you, there are some tax offset to those expenses, right?

There is. And this year, we will be a cash taxpayer to answer your other question.

Okay. And then the last thing, just wanted to thank you for putting in EPS numbers. And I suppose as we look at it and maybe this will be more apparent in the queue. But I know the overall tax rate looked like it was like 50-something-percent, but I’m assuming the elements that are truly one-time that is the integration expenses and the restructuring charge that there may be in a different tax rate we apply to that. Did you know if that’s the case or am I splitting hairs here?

You’re correct. The effective tax rate in the quarter was 56%. For the year we have suggested that we are going to end in the range of 40% to 45% as an effective tax rate, if things play out as we anticipate. The biggest impact - two biggest factors in that 40% to 45% rate are: our low-level of pre-tax and some non-deductible items that occur in our financials last year and this year. But as those would go away, which they will, we should turn to over multiple years, meaning the next two to three, to more of a normal effective tax rate in upper 30s.

Okay, great. Thank you.

[Operator Instructions] And your next question comes from the line of David Mandell from William Blair. Your line is open.

Good morning.

Good morning, David.

Good morning.

Hi, David.

Looking at your 2016 EBITDA guidance, what kind of sales expectations are baked into there?

David, so, yes, again we’re upholding our guidance as we announced earlier this year. We made some assumptions that as we came into the year, we still had a drag on the business as a result of choices made in prior year and expected that the trajectory of revenue would continue to improve as we came out of the first quarter and into the second quarter, and build even stronger as we exited out of the second quarter. So, I guess, I’d summarize it as an improving trend over the course of the year.

Okay. And then, are you able to discuss what you saw in April as far as sales go?

Not able to discuss it. What I will say is, is that, we started out the quarter, the first quarter, with January being quite - disappointment quite frankly. And we continue to see that improve over the course of the quarter and continues into the second.

All right, thank you for taking my questions.

We have no further questions at this time. I’ll turn the call back over to Mary Laschinger.

In closing, I just want to share a perspective. We are very pleased with our first quarter results. We recognize that 2016 would be a challenging year with the increasing complexity of our integration and an unpredictable macroeconomic environment. However, I have confidence in our teams, continue to execute on our full-year commitments, keep us on track with our multiyear plan and deliver value to our shareholders. So we appreciate your support. And, again, thank you for joining us today.

This does conclude today’s conference call. You may now disconnect.