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

Ryan Merkel - William Blair Scott Gaffner - Barclays Keith Hughes - SunTrust

Good morning and welcome to Veritiv Corporation’s Third 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 your conference.

Thank you, Jodie, and good morning, everyone. Thank you all for joining us. Today, you will hear prepared remarks from Mary Laschinger, Veritiv’s 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 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 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’d like to turn the call over to Mary.

Thanks, Tom. Good morning, everyone, and thank you for joining us today as we review our third quarter financial results and full-year outlook. We will also provide an update on our ongoing integration initiatives. Our third quarter results came in as planned. We reported a consolidated adjusted EBITDA of $57 million, down slightly year-over-year and in line with our expectations. The decrease was primarily due to the combination of continuing industry pressures in the print and publishing segment, as well as a planned slowdown in the pacing of our synergy capture. Given our third quarter results and our outlook for the balance of the year, we continue to expect our 2016 adjusted EBITDA to be near the upper end of the range of $185 to $195 million. Our reported net sales in the third quarter were $2.1 billion, down just over 4% when compared to the prior year period. We reported a net sales decline of 4.2% in the quarter, excluding the slightly negative effect of foreign currency, our core net sales declined 4% from the prior year. This core decline was principally driven by an overall economic softness and the continued structural decline in the print and paper industry. As I shared with you on previous calls, revenue softness earlier this year created a challenging start to 2016. Despite top line pressure, we remain focused on executing our integration initiatives, keeping us on track for our commitments in 2016 as well as for our multiyear plan. As a reminder, we are now in the more complex phase of our integration work. This phase requires a significant investment of resources and time and as such, the pacing of synergy capture will be more modest than what we experienced in 2015. This change in our pacing was expected and is part of our original multiyear integration timeline. During the third quarter, our integration work continued to focus on integrating foundational processes to prepare for the conversion to our common operating system. We have now completed all the necessary preparation in order to begin this conversion on a measured site specific rollout to locations which will begin in the fourth quarter. In addition, during the quarter, we migrated our sales force to a single commission system, which will allow for greater consistency and clarity for our sales professionals and for the company as a whole. Next, I would like to mention that the final step in our separation from international paper has been completed. We recently moved to a new home for Veritiv’s Operational Support Group in the Greater Cincinnati area. Previously, we had shared an office complex with International Paper. And with this move, we are now able to host approximately 500 of Veritiv's customer service, credit, IT and finance professionals in our own location. Now, turning to our outlook for the remainder of 2016, there are few areas I would like to highlight. First, similar to the first three quarters of 2016, we expect economic softness and industry pressures in print and publishing to continue for the rest of the year. We are also sensitive to fluctuations in commodity prices, particularly in paper and resin-based products. In looking to the balance of the year, we recognize that market dynamics will continue to cause monthly volatility with our revenues, but despite the environment we feel confident in our overall business plan. Along those lines, we are on track to meet or exceed our 2016 synergy capture commitment. Next, I would like to highlight the continued progress in our Facility Solutions business. For the past few quarters, we have been pleased with both the improving revenue trend and operating results in this segment. These trends continued in the third quarter with core revenues being near flat and improvements in adjusted EBITDA. We attribute this progress to the repositioning of our customer and product mix, as well as improvements to our supply chain and cost structure. The Facility Solution team continues to be focused on enhancing the revenue trajectory of the segment by improving our sale's execution and growing with both our core vendors and our private brands. In addition, we are seeing better performance in our Canadian operations. We continue to believe that our Facility Solutions business is heading in the right direction and we remain optimistic about the long-term success of this segment. Lastly, our Publishing segment continues to face industry challenges. During the third quarter, reported revenues declined 18%, while adjusted EBITDA declined 29%. The revenue decrease is due to the overall structural decline of the industry along with persistent pricing pressure. In addition, large pieces of business continue to move in and out of the channel. Despite the volatility of this segment, it continues to contribute both positive adjusted EBITDA and cash flow. As I mentioned earlier, taking these factors into account, as well as our performance year-to-date, we are expecting our 2016 adjusted EBITDA to be near the upper end of the range of $185 million to $195 million. Now I’m going to turn it over to Steve, who will take you through the details of our third quarter financial performance.

Thank you, Mary, and good morning, everyone. Let's start with the overall results for the third quarter ended September 2016 compared to the prior year period. As Mary walked you through earlier, when we speak to core net sales, we are referencing the reported net sales performance excluding the impact of foreign exchange and adjusting for any day count differences. We had the same number of shipping days in the third quarter of 2016 as we did in the third quarter of 2015. As Mary mentioned, we had net sales of $2.1 billion for our third quarter 2016, down 4.2% from the prior year period. Excluding the effect of foreign currency, core net sales declined 4%, which is consistent with the last quarter. Peeling back the layers of our core net sale, resin prices amounted to 20 basis points of the core net sales decline. Said differently, removing the resin impact from our core net sales, our revenue decline was 3.8% for the quarter. Our cost of products sold for the quarter was approximately $1.7 billion. Net sales less cost of product sold was $383 million. Net sales less cost for product sold as a percentage of net sales was exactly 18%, up 30 basis points from the prior year period. Adjusted EBITDA for the third quarter was $57.1 million, a decrease of 5.8% from the prior year period. Adjusted EBITDA as a percentage of net sales for the third quarter was 2.7%, consistent with the prior year period. Ongoing improvements in segment and product mix continue to improvements in our cost structure due to the integration and a $1.1 million benefit from lower fuel expenses helped us maintain consistent adjusted EBITDA margins despite the decline in revenues. Let's now move into the segment results for the quarter ended September 30 of 2016. 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. The Print segment experienced a 5.3% decline in both net sales and core net sales, which was a meaningful improvement in our performance compared to the first and second quarters of 2016. Foreign exchange and day count differences had no impact on reported net sales this quarter. Adjusted EBITDA for the print segment decreased 13.8% year-over-year to $20 million, resulting in a decline in our adjusted EBITDA as a percentage of net sales of 30 basis points. Sourcing initiatives, better customer and product mix and reduced operating and selling expenses partially offset volume and pricing pressures. The Publishing segment had an 18% decline in both net sales and core net sales. The soft revenue performance was particularly affected by secular declines in both market prices and market volumes. The volume reductions were particularly pronounced in the book, retail and catalog segments as customers adjusted to the promotional mix. The publishing segment contributed $6.6 million of adjusted EBITDA in the quarter, down 29% year-over-year. Adjusted EBITDA as a percentage of net sales came in at 2.7% for the quarter. Facility Solutions had a slight decline of 0.8% in both core net sales and net sales and this trajectory has been improving over the last few quarters. Foreign exchange and day count differences had no impact on reported net sales this quarter. We have seen strong growth in Canada with our core customers. Facility Solutions contributed $13 million in adjusted EBITDA, a 2.4% improvement compared to the prior year period. The Facility Solutions business had an increase of 20 basis points in adjusted EBITDA as a percentage of net sales. This margin improvement was mostly due to reductions in both selling and delivery expenses and improvements in Canada. The Packaging segment reported a revenue increase of 1.1%. The segment experienced sales growth in corrugated products, especially in the manufacturing sector. However, we continue to face market pressures from soft demand in the food packaging industry. Adjusting for currency, core net sales in the Packaging segment increased 1.5%. Removing the impact of falling resin prices of 50 basis points, Packaging's core net sales were up 2% year-over-year which we believe was better than the overall packaging market. Packaging contributed $59.5 million in adjusted EBITDA for the third quarter, about a 1% increase from the prior year period. Adjusted EBITDA as a percentage of net sales of about 8% remain constant compared with the prior year period. Switching from a segment analysis, let's take a look at our synergy timeline, balance sheet, cash flow and expectations for the allocation of our 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 first few years post merger. Through the first nine months of 2016, we remain ahead of our synergy pacing targets. Shifting now to our balance sheet and cash flow, at the end of September, we had drawn $753 million of the asset based loan facility and had available liquidity of approximately $442 million. As a reminder, the ABL facilities backed by the inventory and receivables of the business, our net leverage ratio, that is the ratio of our ABL debt net of cash on the balance sheet to the last 12 months of adjusted EBIDTA was 3.6 times, down from 4.1 times at the end of last year. We are pleased with this deleveraging in the first nine months of 2016. Since the merger, our net leverage ratio has been driven down from 5.5 times to 3.6 times. Working capital had a few unusual items in the third quarter. Even with those items and because they were mostly timing, we remain on track to meet our year end commitment for free cash flow of at least $70 million. Accounts receivable was a greater use of cash year-over-year, principally due to our Print segment which saw both an increase in days sales outstanding with certain customers, as well as stronger than usual sales in the month of September and therefore we carried more in AR over the quarter-end. We believe the stronger than usual sales in September may have been driven by the U.S. elections. Inventory's impact on cash flow was relatively flat period-over-period. Accounts payables greater use of cash year-over-year was entirely timing as a slightly different disbursement pattern at the end of the month of September caused a temporary increase in the use of cash for AP. For the nine months ended September 30, 2016, cash flow from operations was approximately $60 million. Subtracting the first nine months expenditures from cash flow from operations, we generated free cash flow of approximately $30 million. Adding back the $45 million cash impact of restructuring, integration and other related adjustment items, adjusted free cash flow for the nine months of 2016 would have been approximately $75 million. We continue to believe that the strong 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, integration and restructuring costs and capital expenditures. We have two types of integration and restructuring costs. There are those costs that run directly through the income statement and those that are capital expenditures. Integration and restructuring costs expected to run through the income statement for 2016 will be likely near the high end of a $40 million to $50 million range. We expect capital expenditures related to integration projects to be near the high end of a $10 million to $20 million range which will help enable the synergy capture in 2017 and beyond. Similar to 2015, this incremental capital spending is principally for IT systems integration. For 2016, our ordinary course capital expenditures are expected to be near the lower end of our $20 million to $30 million range. For comparison purposes, capital expenditures totaled nearly $12 million for the third quarter and $30 million for the first nine months of the year with one time integration projects driving about $7 million and $17 million of spending during the third quarter and first nine months respectively. 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 third quarter earnings were largely the result of declining revenues, nearly offset by a combination of ongoing improvements in our segment and product mix, along with continued but slowing improvements in our cost structure due to the system's integration. Jodie, we are now ready to take questions.

[Operator Instructions] Your first question comes from the line of Ryan Merkel of William Blair. Your line is open.

Thanks. Good morning, everyone.

Good morning, Ryan.

So, I may have missed it, but can you discuss why you expect better EBITDA and margins in the fourth quarter of this year?

Sure, Ryan. So the seasonality of our business is evolving as we go through the year in our segment's mix changes. What is happening is that our segments that are most profitable like our segment of Packaging is improving in its percentage of total. So the absolute level of packaging adjusted EBITDA and that consistency of earnings quarter-to-quarter is reducing our overall seasonality for Veritiv or said differently, the more seasonal businesses of Print and Publishing are having less impact on our seasonality’s as those segment's earnings diminish. That’s why.

Got it. Okay. And then you mentioned in the deck here, Facility Solutions had an inflection point. Can you just expand upon that a little bit too?

Sure, Ryan. As I’ve shared with others before is, over the course of 2015, we went through a restructuring effort in that segment. We also at the end of 2015 made some leadership changes as well. But the restructuring effort was around improving the product mix, the customer mix, as well as improving the supply chain. Those initiatives were undertaken in 2015 for the most part, and we are beginning to see the benefits of that with our results that we reported in the second quarter where we’ve seen a leveling of the revenue decline whereas they were double-digits some quarters in 2015. It is now less than 1% as we reported here in the third quarter. And so as we have gone forward with those initiatives, we’ve seen improvements across the board in terms of customer mix, product mix and cost structure and supply chain efficiency.

Got it. Okay. That is favorable to hear. And then in the Print business, you said that the third quarter improved a little bit versus the first half. Is there any color you can add to that? Is it company specific that end markets?

Yes. I would say it is more company specific. Again, in our Print business, we made some choices in 2015 around some customer mix and those rolled off at the end of the first and second quarter. And our earnings continued to improve during that time period as well. And so our net decline of revenue as we shared before would come more in line with industry declines and that is what we are seeing today.

Got it. Last question for me, just I know you are not giving 2017 guidance, but just philosophically if the top line is still down low single digits, can you still expand EBITDA in 2017?

I don't think we are in a position yet today to make that confirmation. What I will say is that we remain confident in terms of our long term plan - business plan.

Fair enough, Mary. I will pass it on. Thanks.

Thank you, Ryan.

Your next question comes from the line of Scott Gaffner from Barclays. Your line is open.

Thanks. Good morning.

Good morning, Scott.

Just a couple of higher level questions. Steve, you were talking a little bit about the impact of some resin deflation on – especially on the Packaging segment. But when you think about it from a high level perspective, what type of environment do you find most beneficial for the business? Is it slight inflationary or slight deflationary environment? Which one is more favorable?

Yes, Scott. First of all my answer is going to be depends. Generally speaking, we like to see inflationary prices. However when there is deflationary prices, we can sometimes take advantage of that and we had actually done that over the course of the last couple of years, but generally speaking we’d like to see inflationary prices.

Okay. And if I look at packaging, there is the announced $50 per ton container board pricing freeze. How does that impact the overall packaging segment?

Packaging, it will have an impact on the segment. I can give you some numbers that I have shared in the past. Our corrugated packaging represents about 30% of our total mix in our packaging business and as the industry moves, we will generally try to move with the industry.

When you say you move with the industry, meaning, you have to – it’s a pass-through for you, or is it contractually obligated or --?

No. We try to pass those increases through and we are generally successful, sometimes on a lag.

Okay. Quarterly lag or two quarters or what kind of lag should we be thinking about?

It shouldn't be more than a quarter.

Okay.

We don't have long-term contracts in most of our business.

Right. Okay. Last question for me, just looking at the leverage, I know it has come down significantly since the merger went up a little bit this quarter, I think, on maybe the free cash flow not coming in as high as maybe we expected, but can you talk a little bit about that -- the leverage here? Is that any concern or what caused that to creep up a little bit?

It is exactly what you thought, Scott. It is the fact that working capital went up a little bit this period. We do have a seasonality, I can’t believe this was above the seasonality. But much of this will reverse in the fourth quarter and so the current estimate for ourselves as far as where we end up on leverage for year end is very close to our plan. And we’ve been hitting plan the last eight quarters. So we have reasonable confidence that we should be able to hit the year-end target for net debt to adjusted EBITDA.

Okay. Thanks, Steve. Thanks, Mary.

Sure.

You are welcome.

Your next question comes from the line of Keith Hughes of SunTrust. Your line is open.

Thank you. I wanted to go back to the facilities solutions. Looking at your comment, you think that’s about to be additive to revenue in future periods. Can you just talk about end user markets where – I know that you’ve regular kind of changed your customer base, where are you having the most success right now?

Well, it cuts in a couple of areas, Keith. First of all, we have seen tremendous improvement in our Canadian business in both the retail space as well as our redistribution space. Moving to the United States, we continue to see improvement there as well, although not as robust yet. Again, we target more what I would characterize as larger venues. We are not competing in the small order space like staples, for example. It is larger venues and areas such as hospitality, things like universities, airports, those types of venues, where they receive pallet deliveries of these products and materials.

And just structurally from the product category, what – where do you stand in terms of your top one or two product categories now?

Our biggest categories are our towel and tissue and cleaning chemicals followed by food service products.

Okay. Thank you.

There are no further questions in the queue at this time. I’ll turn the call back over to Mary Laschinger.

Well, thank you, everyone for your questions. And in closing, our third quarter results came in as we have planned. With the uncertain macroeconomic picture as a backdrop, we continue to execute well on our multiyear plan. And I give that thanks to the entire Veritiv team because we remain on track to deliver our full year 2016 commitment. Once again, I would like to thank everyone for joining us today and we look forward to sharing our fourth quarter and year-end 2016 results early next year. Thank you and have a great day.

This concludes today's conference call. You may now disconnect.