ITEM 2. MANAGEMENT’SMANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Factors that could cause actual results to differ materially from current expectations include the risks and other factors described under "Risk Factors" and elsewhere in our Annual Report on Form 10-K and elsewhere in the Company’sCompany's other publicly available reports filed with the Securities and Exchange Commission ("SEC"), which contain a discussion of various factors that may affect the Company’s business or financial results.. Such risks and other factors, which in some instances are beyond the Company’sCompany's control, include: adverse impacts of the COVID-19 pandemic; the industry-wide decline in demand for paper and related products; increased competition from existing and non-traditional sources; adverse developments in general business and economic conditions as well as conditions in the global capital and credit markets; foreign currency fluctuations; our ability to collect trade receivables from customers to whom we extend credit; our ability to attract, train and retain highly qualified employees; the effects of work stoppages, union negotiations and labor disputes; the loss of any of our significant customers; changes in business conditions in our international operations; procurement and other risks in obtaining packaging, paperfacility products and facility productspaper from our suppliers for resale to our customers; changes in prices for raw materials; changes in trade policies and regulations; increases in the cost of fuel cost increases; inclement weather, anti-terrorism measuresand third-party freight and the availability of third-party freight providers; the loss of any of our significant customers; inability to realize expected benefits of restructuring plans; adverse developments in general business and economic conditions that could impair our ability to use net operating loss carryforwards and other disruptions to the transportation network; our dependence on a variety of IT and telecommunications systems and the Internet; our reliance on third party vendors for various services; cyber-security risks; costs to comply with laws, rules and regulations, including environmental, health and safety laws, and to satisfy any liability or obligation imposed under such laws; regulatory changes and judicial rulings impacting our business; adverse results from litigation, governmental investigations or audits, or tax-related proceedings or audits; our inability to renew existing leases on acceptable terms, negotiate rent decreases or concessions and identify affordable real estate;deferred tax assets; our ability to adequately protect our material intellectual property and other proprietary rights, or to defend successfully against intellectual property infringement claims by third parties; our ability to attract, train and retain highly qualified employees; our pension and health care costs and participation in multi-employer pension, health and welfare plans; increasing interest rates;the effects of work stoppages, union negotiations and labor disputes; our ability to generate sufficient cash to service our debt; our ability to comply with the covenants contained in our debt agreements;increasing interest rates; our ability to refinance or restructure our debt on reasonable terms and conditions as might be necessary from time to time; changes in accounting standards and methodologies; our ability to realizecomply with the anticipated synergies, cost savingscovenants contained in our debt agreements; costs to comply with laws, rules and growth opportunitiesregulations, including environmental, health and safety laws, and to satisfy any liability or obligation imposed under such laws; changes in tax laws; adverse results from litigation, governmental investigations or audits, or tax-related proceedings or audits; regulatory changes and judicial rulings impacting our business; the merger transactionimpact of adverse developments in general business and economic conditions as well as conditions in the global capital and credit markets on demand for our products and services, our business including our international operations, and our abilitycustomers; foreign currency fluctuations; inclement weather, widespread outbreak of an illness, anti-terrorism measures and other disruptions to integrateour supply chain, distribution system and operations; our dependence on a variety of information technology and telecommunications systems and the xpedx business with the Unisource business; the possibility of incurring expenditures in excess of those currently budgeted in connection with the integration;Internet; our reliance on third-party vendors for various services; cybersecurity risks; and other events of which we are presently unaware or that we currently deem immaterial that may result in unexpected adverse operating results.
*- not meaningful
The tables below provide reconciliations of Veritiv's reported net sales, calculated in accordance with U.S. generally accepted accounting principles ("U.S. GAAP"), to its organic sales, which is a non-GAAP financial measure. Organic sales is defined by the Company as: net sales on an average daily sales basis, excluding revenue from sold businesses and revenue from acquired businesses for a period of 12 months after the Company completes the acquisition. The Company believes presenting organic sales will help investors better compare period-over-period results. Other companies in the industry may calculate organic sales differently than Veritiv does, limiting its usefulness as a comparative measure.
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| | Three Months Ended September 30, |
| | Total Company | | Packaging | | Facility Solutions | | Print Solutions | | Corporate & Other |
(in millions) | | 2022 | | 2021 | | 2022 | | 2021 | | 2022 | | 2021 | | 2022 | | 2021 | | 2022 | | 2021 |
Reported net sales | | $ | 1,804.1 | | | $ | 1,767.8 | | | $ | 988.1 | | | $ | 970.6 | | | $ | 180.1 | | | $ | 232.3 | | | $ | 616.6 | | | $ | 535.6 | | | $ | 19.3 | | | $ | 29.3 | |
| | | | | | | | | | | | | | | | | | | | |
Impact of change in selling days (1) | | — | | — | | — | | — | | — | | — | | — | | — | | — | | — |
| | | | | | | | | | | | | | | | | | | | |
Net sales (on an average daily sales basis) | | 1,804.1 | | | 1,767.8 | | | 988.1 | | | 970.6 | | | 180.1 | | | 232.3 | | | 616.6 | | | 535.6 | | | 19.3 | | | 29.3 | |
| | | | | | | | | | | | | | | | | | | | |
Business divestitures (2) | | (19.3) | | | (213.8) | | | — | | | (71.5) | | | — | | | (68.0) | | | — | | | (45.0) | | | (19.3) | | | (29.3) | |
| | | | | | | | | | | | | | | | | | | | |
Organic sales | | $ | 1,784.8 | | | $ | 1,554.0 | | | $ | 988.1 | | | $ | 899.1 | | | $ | 180.1 | | | $ | 164.3 | | | $ | 616.6 | | | $ | 490.6 | | | $ | — | | | $ | — | |
(1) Adjustment for differences in the number of selling days.
(2) Represents the net sales of each of the following divested businesses prior to its respective divestiture: Rollsource (March 31, 2021), Veritiv Canada, Inc. (May 2, 2022) and the logistics solutions business (September 1, 2022).
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| | Nine Months Ended September 30, |
| | Total Company | | Packaging | | Facility Solutions | | Print Solutions | | Corporate & Other |
(in millions) | | 2022 | | 2021 | | 2022 | | 2021 | | 2022 | | 2021 | | 2022 | | 2021 | | 2022 | | 2021 |
Reported net sales | | $ | 5,482.9 | | | $ | 4,985.7 | | | $ | 2,992.8 | | | $ | 2,740.2 | | | $ | 605.3 | | | $ | 663.1 | | | $ | 1,806.4 | | | $ | 1,495.9 | | | $ | 78.4 | | | $ | 86.5 | |
| | | | | | | | | | | | | | | | | | | | |
Impact of change in selling days (1) | | — | | — | | — | | — | | — | | — | | — | | — | | — | | — |
| | | | | | | | | | | | | | | | | | | | |
Net sales (on an average daily sales basis) | | 5,482.9 | | | 4,985.7 | | | 2,992.8 | | | 2,740.2 | | | 605.3 | | | 663.1 | | | 1,806.4 | | | 1,495.9 | | | 78.4 | | | 86.5 | |
| | | | | | | | | | | | | | | | | | | | |
Business divestitures (2) | | (338.2) | | | (620.9) | | | (100.3) | | | (199.8) | | | (86.9) | | | (193.8) | | | (72.6) | | | (140.8) | | | (78.4) | | | (86.5) | |
| | | | | | | | | | | | | | | | | | | | |
Organic sales | | $ | 5,144.7 | | | $ | 4,364.8 | | | $ | 2,892.5 | | | $ | 2,540.4 | | | $ | 518.4 | | | $ | 469.3 | | | $ | 1,733.8 | | | $ | 1,355.1 | | | $ | — | | | $ | — | |
(1) Adjustment for differences in the number of selling days.
(2) Represents the net sales of each of the following divested businesses prior to its respective divestiture: Rollsource (March 31, 2021), Veritiv Canada, Inc. (May 2, 2022) and the logistics solutions business (September 1, 2022).
Net Sales
For the three and nine months ended September 30, 2017,2022, net sales declined primarily due to decreasedincreased by $36.3 million, or 2.1%. Organic sales increased by $230.8 million, or 14.9%, for the three months ended September 30, 2022. The decrease in net sales resulting from the divestiture of the Canadian business for the three months ended September 30, 2022 was $184.5 million. Inflationary market price increases, primarily in the Company's Packaging and Print Solutions product portfolios, continued throughout the third quarter of 2022 and Publishing segments, partially offset bycontributed to the increased net salessales. To the extent feasible, the Company has adjusted its prices to reflect the impact of inflation on the cost of purchased materials and services. Also, despite ongoing constraints in the Packagingbroader supply chain, the Company was able to mitigate some of the impact to its customers through leveraging its portfolio of suppliers and Facility Solutions segmentsits North American supply chain network. Management expects higher market prices and Veritiv's logistics solutions business.marketplace supply chain challenges to continue throughout 2022. See the "Segment Results" section for additional information.discussion.
For the nine months ended September 30, 2022, net sales increased by $497.2 million, or 10.0%. Organic sales increased by $779.9 million, or 17.9%, for the nine months ended September 30, 2022. The decrease in net sales resulting from the divestiture of the Canadian business for the nine months ended September 30, 2022 was $260.8 million. Inflationary market price increases, primarily in the Company's Packaging and Print Solutions product portfolios, continued throughout the first nine months of 2022 and contributed to the increased net sales, while net sales in the Print Solutions segment in the first half of 2021 were negatively impacted by the COVID-19 pandemic. To the extent feasible, the Company has adjusted its prices to reflect the impact of inflation on the cost of purchased materials and services. Also, despite ongoing constraints in the broader supply chain, the Company was able to mitigate some of the impact to its customers through leveraging its portfolio of suppliers and its North American supply chain network. See the "Segment Results" section for additional discussion.
Cost of Products Sold (exclusive of depreciation and amortization shown separately below)
For the three and nine months ended September 30, 2017,2022, cost of products sold decreased primarily due to the lowerdivestiture of the Canadian business, partially offset by higher net sales. Cost of products sold increased at a slower rate than net sales due to improvements in pricing, sale of the lower margin Canadian business and changes in segment mix.
For the nine months ended September 30, 2022, cost of products sold increased primarily due to higher net sales, partially offset by declines related to the divestiture of the Canadian business. Cost of products sold increased at a slower rate than net sales due to improvements in pricing, sale of the lower margin Canadian business and changes in segment mix.
Distribution Expenses
For the three months ended September 30, 2017, total2022, distribution expenses increaseddecreased by $6.0 million. Distribution expenses increased $4.9$10.0 million, or 9.7%. The decrease was primarily due to ana $15.6 million decrease related to the divestiture of the Canadian business, partially offset by a $3.7 million increase in freight and logistics expense driven by an increase in third-party freight and fuel expenses driven mostly by increased third party freight, transfer expensesrelated to higher sales volume and higher diesel fuel and carrier prices. The remaining increase in distribution expenses is largely the result of the acquisition of AAC.
For the nine months ended September 30, 2017,2022, distribution expenses increaseddecreased by $5.7 million. Distribution expenses increased $10.8$5.1 million, from anor 1.7%. The decrease was primarily due to a $23.7 million decrease related to the divestiture of the Canadian business, partially offset by (i) a $15.5 million increase in freight and logistics expenses, due mostly to increased third party freight, transfer expense and diesel fuel prices and $1.2 million as a result of the acquisition of AAC. These increases were partially offset by (i)(ii) a $2.1 million decrease in facilities rent and other expense, (ii) a $1.4 million decrease in insurance expense, (iii) a $1.2 million decrease in maintenance and material expense and (iv) a $0.8 million decreaseincrease in personnel expenses. The offsetting decreases wereincrease in freight and logistics expense was primarily driven primarily by warehouse consolidations.an increase in third-party freight and fuel expenses related to higher sales volume and higher diesel fuel and carrier prices.
Selling and Administrative Expenses
For the three months ended September 30, 2017,2022, selling and administrative expenses increased by $21.4$5.2 million, or 2.7%. The increase was primarily due to (i) a $6.3$9.7 million increase in personnel expenses, due in part to increased headcount to support the Company's growth strategy and increased commission expense, which was primarily due to lower expense in 2016 resulting from the recovery of a $4.9 million commission advance, (ii) a $4.8$3.2 million increase in bad debtprofessional fees expense, (iii) a $4.7$2.3 million increase in asset impairments primarilymarketing and communications expense and (iv) a $2.1 million increase in legal expense, partially offset by a $13.8 million decrease in expenses related to the goodwill and customer relationships indivestiture of the Veritiv logistics solutions business and (iv) a $2.0 million increase related to the acquisition of AAC.
For the nine months ended September 30, 2017, selling and administrative expenses increased by $34.5 million due to (i) an $11.1 million increase in bad debt expense, (ii) an $11.0 million increase in personnel expenses, (iii) a $5.3 million increase in asset impairments primarily related to the goodwill and customer relationships in the Veritiv logistics solutions business, and (iv) a $2.0 million increase related to the acquisition of AAC. The increase in bad debt expense was primarily due to additional reserves related to certain customers with declining financial conditions during the current period combined with favorable collections experience in the prior period.Canadian business. The increase in personnel expenses was primarily driven by (i) an increase in headcount to support the Company's growth strategy as well as lower commissions in 2016commission expenses due to higher net sales and (ii) an increase in travel and entertainment expenses.
For the commission advance recovery,nine months ended September 30, 2022, selling and administrative expenses increased by $36.5 million, or 6.8%. The increase was primarily due to (i) a $36.2 million increase in personnel expenses, (ii) a $15.9 million increase in professional fees expense and (iii) a $3.2 million increase in marketing and communications expense, partially offset by (i) a $7.5$15.2 million decrease related to the divestiture of the Canadian business and (ii) a $3.5 million gain from insurance proceeds. The increase in incentive compensation.personnel expenses was primarily driven by (i) an increase in commission expenses due to higher net sales and (ii) an increase in travel and entertainment expenses.
Gain on Sale of Businesses
For the three months ended September 30, 2022, gain on sale of businesses was $18.6 million. For the nine months ended September 30, 2022, gain on sale of businesses was $28.6 million as compared to $3.1 million in the prior year period. See Note 13 of the Notes to Condensed Consolidated Financial Statements for additional information related to the Company's business divestitures.
Depreciation and Amortization
For the three and nine months ended September 30, 2017,2022, depreciation and amortization decreased $0.3 millionwas lower than the same period in 2021. The decrease was primarily driven by lower depreciation on information technology related assets and $0.6 million, respectively.the divestiture of the Canadian business.
Acquisition and Integration Expenses
Restructuring Charges, Net
For the three andmonths ended September 30, 2022, restructuring charges, net, decreased by $1.1 million, or 44.0%. For the nine months ended September 30, 2017,2022, restructuring charges, net, decreased $3.1by $6.5 million, and increased $22.8 million, respectively.or 54.2%. See Note 3, Acquisition, Integration and Restructuring Charges4, of the Notes to the Condensed Consolidated Financial Statements for additional information related to the Company's restructuring efforts. The Company may continue to record restructuring charges in the future as restructuring activities progress, which may include gains or losses from the disposition of assets.
Interest Expense, Net
For the three andmonths ended September 30, 2022, interest expense, net, increased by $1.0 million, or 26.3%. The increase was primarily due to higher average interest rates, partially offset by a lower average balance on the Company's ABL Facility.
For the nine months ended September 30,
2017,2022, interest expense,
increased $0.1net, decreased by $1.1 million,
and $1.0 million, respectively. Interest expense increasedor 8.2%. The decrease was primarily due to
(i) an increaseda lower average balance on the Company's
asset-based lending facility (the "ABL Facility") and (ii) increasedABL Facility, partially offset by higher average interest rates.
See Note 5, Debt and Other Obligations, to the Condensed Consolidated Financial Statements for information related to the ABL Facility.
Other (Income) Expense, Net
For the three andmonths ended September 30, 2022, other (income) expense, net, was less than $0.1 million. This was a net unfavorable change of $1.1 million as compared to the same period in 2021. The unfavorable change was primarily due to higher pension expenses.
For the nine months ended September 30, 2017,2022, other (income) expense, net, decreased $1.7was income of $7.2 million. This was a net favorable change of $3.4 million and $5.1as compared to the same period in 2021. The favorable change was primarily due to a $7.0 million respectively. These decreases were primarily drivengain on the settlement of the Canadian pension plans, which was triggered by decreased expense associated with the tax receivable agreement, decreased foreign currency losses, and a loss on debt extinguishment indivestiture of the second quarter of 2016.Canadian business, partially offset by higher pension expenses.
Effective Tax Rate
Veritiv's effective tax rates were 21.9%25.1% and 58.8%26.1% for the three months ended September 30, 20172022 and 2016,2021, respectively. Veritiv's effective tax rates were 33.9%20.4% and 52.3%26.9% for the nine months ended September 30, 20172022 and 2016,2021, respectively.
The difference between the Company’sCompany's effective tax rates and the U.S. statutory tax rate of 35.0%21.0% primarily relates to non-deductible expenses,vesting of stock compensation, state income taxes (net of federal income tax benefit), non-deductible expenses, tax credits and the Company's pre-tax book income (loss) by jurisdiction. Additionally, the effective tax rate for the three and nine months ended September 30, 20172022 includes a tax benefit on the benefitdisposition of tax credits and the impact of impairing non-deductible goodwill.Company's investment in a foreign subsidiary.
In conjunction with the third quarter 2017 filing of Veritiv's 2016 U.S. federal tax return and amended 2015 and 2014 U.S. federal tax returns, the Company recognized a $3.1 million benefit for credits related to foreign taxes and research and experimentation activities. Additionally, an estimate of 2017 tax credits is included in our estimated annual effective tax rate.
The historichistorical volatility of the Company's effective tax rate has been primarily due to both the level of pre-tax book income (loss) as well as variations in the Company's income (loss) by jurisdiction. Over time and with increasing pre-tax income, theThe Company estimates its effective tax rate will trend toward approximately 40%. However,may experience volatility of the effective tax rate may vary significantlyin future periods due to potential fluctuations in the amount and source, including both foreign and domestic, of pre-tax book income and(loss) by jurisdiction, potential deferred tax valuation allowance increases in certain jurisdictions, including the U.S., changes in amounts of non-deductible expenses, and other items.items that could impact the effective tax rate.
Segment Results
Adjusted EBITDA is the primary financial performance measure Veritiv uses to manage its businesses, to monitor its results of operations, to measure its performance against the ABL Facility and to incentivize its management. This common metric is intended to align stockholders, debt holders and management. Adjusted EBITDA is a non-GAAP financial measure and is not an alternative to net income, operating income or any other measure prescribed by U.S. generally accepted accounting principles ("U.S. GAAP").
Veritiv uses Adjusted EBITDA (earnings before interest, income taxes, depreciation and amortization, restructuring charges, (income),net, integration and acquisition and integration expenses and other similar charges including any severance costs, costs associated with warehouse and office openings or closings, consolidation, and relocation and other business optimization expenses, stock-based compensation expense, changes in the LIFO reserve, non-restructuring asset impairment charges, non-restructuring severance charges, non-restructuring pension charges (benefits), fair value adjustments on therelated to contingent liability associated with the Tax Receivable Agreement ("TRA")liabilities assumed in mergers and acquisitions and certain other adjustments) because is the primary financial performance measure Veritiv uses to manage its businesses, to monitor its results of operations, to measure its performance against the ABL Facility and to incentivize its management.
Veritiv believes investors commonly use Adjusted EBITDA as a key financial metric for valuing companies. In addition, the credit agreement governing the ABL Facility permits the Company to exclude these and other charges in calculating Consolidated EBITDA, as defined in the ABL Facility. This common metric is intended to align shareholders, debt holders and
management. Adjusted EBITDA is a non-GAAP financial measure and is not an alternative to net income, operating income or any other measure prescribed by U.S. GAAP.
Adjusted EBITDA has limitations as an analytical tool and should not be considered in isolation or as a substitute for analysis of Veritiv’sVeritiv's results as reported under U.S. GAAP. For example, Adjusted EBITDA:
Does•does not reflect the Company’sCompany's income tax expenses or the cash requirements to pay its taxes; and
Although•although depreciation and amortization charges are non-cash charges, it does not reflect that the assets being depreciated and amortized will often have to be replaced in the future and the foregoing metrics dometric does not reflect any cash requirements for such replacements.
Other companies in the industry may calculate Adjusted EBITDA differently than Veritiv does, limiting its usefulness as a comparative measure. Because of these limitations, Adjusted EBITDA should not be considered as a measure of discretionary cash available to Veritiv to invest in the growth of its business. Veritiv compensates for these limitations by relying on the Company's U.S. GAAP results and by using Adjusted EBITDA for supplemental purposes. Additionally, Adjusted EBITDA is not an alternative measure of financial performance under U.S. GAAP and therefore should be considered in conjunction with net income and other performance measures such as operating income or net cash provided by operating activities and not as an alternative to such U.S. GAAP measures.
Due to the shared nature of the distribution network, distribution expenses are not a specific charge to each segment but are instead allocated to each segment based primarily on operational metrics that correlate with changes in volume. Accordingly, distribution expenses allocated to each segment are highly interdependent on the results of other segments. Lower volume in any segment that is not offset by a reduction in distribution expenses can result in the other segments absorbing a larger share of distribution expenses. Conversely, higher volume in any segment can result in the other segments absorbing a smaller share of distribution expenses. The impact of this at the segment level is that the changes in distribution expense trends may not correspond with volume trends within a particular segment.
The Company sells thousandsPrior to the fourth quarter of products. In the Packaging, Facility Solutions and Print segments,2021, Veritiv iswas unable to compute the impact of changes in sales volume based on changes in sales of each individual product.product for the Packaging and Facility Solutions segments. Rather, the Company assumesassumed that the margin staysstayed constant and estimatesestimated the volume impact based on changes in cost of products sold as a proxy for the change in sales volume. After any other significant sales variances arewere identified, the remaining sales variance iswas attributed to price/mix. As a result of the Company’s information technology enhancements, the Company has improved its insight into products within these segments and is able to isolate the change in sales attributed to volume and price separately at the item level for the majority of products and thus it no longer needs to rely on cost of products sold as a proxy for the changes in sales volumes.
The Company approximates foreign currency effects by applying the foreign currency exchange rate for the prior period to the local currency results for the current period. We believeThe Company believes the elimination of the foreign currency translation impact provides better year-to-year comparability without the distortion of foreign currency fluctuations.
The Company believes that the historical decline in demand for paper and related products is due to the widespread use of electronic media and permanent product substitution, more e-commerce, less print advertising, fewer catalogs and a reduced volume of direct mail, among other factors. ThisIn the long term, this trend is expected to continue and will place continued pressure on the Company’s revenues and profit margins and make it more difficult to maintain or grow Adjusted EBITDA within the Print Solutions segment. In the short term, shortages in the supply chain and Publishing segments.product cost inflation have resulted in higher paper and related product prices. The Company believes the shortage of supply is due to mill closures and conversions and international supply chain disruptions, which may have been accelerated by the COVID-19 pandemic. Higher prices, if continued over the longer term, could further accelerate demand decline.
Included in the following tabletables are net sales and Adjusted EBITDA for each of the reportable segments and Corporate & Other:
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(in millions) | Packaging | | Facility Solutions | | Print | | Publishing | | Corporate & Other |
Three Months Ended September 30, 2017 | | | | | | | | | |
Net sales | $ | 799.6 |
| | $ | 339.6 |
| | $ | 701.6 |
| | $ | 238.7 |
| | $ | 37.3 |
|
Adjusted EBITDA | 62.1 |
| | 10.3 |
| | 13.1 |
| | 5.5 |
| | (46.9 | ) |
Adjusted EBITDA as a % of net sales | 7.8 | % | | 3.0 | % | | 1.9 | % | | 2.3 | % | | * |
|
| | | | | | | | | |
Three Months Ended September 30, 2016 | | | | | | | | | |
Net sales | $ | 730.1 |
| | $ | 328.7 |
| | $ | 788.2 |
| | $ | 248.4 |
| | $ | 31.2 |
|
Adjusted EBITDA | 59.5 |
| | 13.0 |
| | 20.0 |
| | 6.6 |
| | (42.0 | ) |
Adjusted EBITDA as a % of net sales | 8.1 | % | | 4.0 | % | | 2.5 | % | | 2.7 | % | | * |
|
| | | | | | | | | |
Nine Months Ended September 30, 2017 | | | | | | | | | |
Net sales | $ | 2,266.0 |
| | $ | 975.5 |
| | $ | 2,095.1 |
| | $ | 696.6 |
| | $ | 107.1 |
|
Adjusted EBITDA | 166.7 |
| | 25.1 |
| | 44.8 |
| | 17.6 |
| | (137.8 | ) |
Adjusted EBITDA as a % of net sales | 7.4 | % | | 2.6 | % | | 2.1 | % | | 2.5 | % | | * |
|
| | | | | | | | | |
Nine Months Ended September 30, 2016 | | | | | | | | | |
Net sales | $ | 2,106.4 |
| | $ | 951.6 |
| | $ | 2,299.0 |
| | $ | 763.2 |
| | $ | 87.0 |
|
Adjusted EBITDA | 165.4 |
| | 34.3 |
| | 55.7 |
| | 16.4 |
| | (129.7 | ) |
Adjusted EBITDA as a % of net sales | 7.9 | % | | 3.6 | % | | 2.4 | % | | 2.1 | % | | * |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(in millions) | Packaging | | Facility Solutions | | Print Solutions | | | | | | Corporate & Other | | |
Three Months Ended September 30, 2022 | | | | | | | | | | | | | |
Net sales | $ | 988.1 | | | $ | 180.1 | | | $ | 616.6 | | | | | | | $ | 19.3 | | | |
Adjusted EBITDA | 115.1 | | | 15.6 | | | 64.3 | | | | | | | (53.7) | | | |
Adjusted EBITDA as a % of net sales | 11.6 | % | | 8.7 | % | | 10.4 | % | | | | | | * | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Three Months Ended September 30, 2021 | | | | | | | | | | | | | |
Net sales | $ | 970.6 | | | $ | 232.3 | | | $ | 535.6 | | | | | | | $ | 29.3 | | | |
Adjusted EBITDA | 107.0 | | | 13.4 | | | 30.5 | | | | | | | (57.2) | | | |
Adjusted EBITDA as a % of net sales | 11.0 | % | | 5.8 | % | | 5.7 | % | | | | | | * | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Nine Months Ended September 30, 2022 | | | | | | | | | | | | | |
Net sales | $ | 2,992.8 | | | $ | 605.3 | | | $ | 1,806.4 | | | | | | | $ | 78.4 | | | |
Adjusted EBITDA | 320.9 | | | 45.0 | | | 179.4 | | | | | | | (148.2) | | | |
Adjusted EBITDA as a % of net sales | 10.7 | % | | 7.4 | % | | 9.9 | % | | | | | | * | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Nine Months Ended September 30, 2021 | | | | | | | | | | | | | |
Net sales | $ | 2,740.2 | | | $ | 663.1 | | | $ | 1,495.9 | | | | | | | $ | 86.5 | | | |
Adjusted EBITDA | 280.4 | | | 35.3 | | | 70.1 | | | | | | | (159.1) | | | |
Adjusted EBITDA as a % of net sales | 10.2 | % | | 5.3 | % | | 4.7 | % | | | | | | * | | |
* - not meaningful
See Note 13, Segment Information12, of the Notes to the Condensed Consolidated Financial Statements for additional information related to Adjusted EBITDA, including a reconciliation of net income (loss) before income taxes as reflected inon the Condensed Consolidated Statements of Operations to Adjusted EBITDA for reportable segments.
Packaging
The table below presents selected data for the Packaging segment: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Increase (Decrease) | | Nine Months Ended September 30, | | Increase (Decrease) |
(in millions) | 2022 | | 2021 | | $ | % | | 2022 | | 2021 | | $ | % |
Net sales | $ | 988.1 | | | $ | 970.6 | | | $ | 17.5 | | 1.8 | % | | $ | 2,992.8 | | | $ | 2,740.2 | | | $ | 252.6 | | 9.2 | % |
Adjusted EBITDA | 115.1 | | | 107.0 | | | 8.1 | | 7.6 | % | | 320.9 | | | 280.4 | | | 40.5 | | 14.4 | % |
Adjusted EBITDA as a % of net sales | 11.6 | % | | 11.0 | % | | | 60 bps | | 10.7 | % | | 10.2 | % | | | 50 bps |
|
| | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | 2017 vs. 2016 | | Nine Months Ended September 30, | | 2017 vs. 2016 |
(in millions) | 2017 | | 2016 | | Increase (Decrease) % | | 2017 | | 2016 | | Increase (Decrease) % |
Net sales | $ | 799.6 |
| | $ | 730.1 |
| | 9.5 | % | | $ | 2,266.0 |
| | $ | 2,106.4 |
| | 7.6 | % |
Adjusted EBITDA | 62.1 |
| | 59.5 |
| | 4.4 | % | | 166.7 |
| | 165.4 |
| | 0.8 | % |
Adjusted EBITDA as a % of net sales | 7.8 | % | | 8.1 | % | | | | 7.4 | % | | 7.9 | % | | |
The table below presents the components of the net sales change compared to the prior year: | | | | | | | | | | | |
| Increase (Decrease) |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
(in millions) | 2022 vs. 2021 | | 2022 vs. 2021 |
Volume | $ | (88.7) | | | $ | (91.3) | |
Foreign currency | (1.5) | | | (8.4) | |
Price/Mix | 107.7 | | | 352.3 | |
| | | |
| | | |
Total change | $ | 17.5 | | | $ | 252.6 | |
|
| | | | | | | |
| Increase (Decrease) |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
(in millions) | 2017 vs. 2016 | | 2017 vs. 2016 |
Volume | $ | 71.0 |
| | $ | 177.1 |
|
Foreign currency | 3.8 |
| | (0.9 | ) |
Price/Mix | (5.3 | ) | | (16.6 | ) |
Total change | $ | 69.5 |
| | $ | 159.6 |
|
Comparison of the Three Months Ended September 30, 20172022 and September 30, 20162021
Net sales increased $69.5$17.5 million, or 9.5%1.8%, as compared to the same period in 2016.2021. Organic sales increased $89.0 million, or 9.9%, for the three months ended September 30, 2022. The net sales increase was primarily attributable to an increase in sales of corrugated products, films and folding cartons due to increases in volume andhigher market prices, as well as $16.0 millionpartially offset by volume declines associated with the divestiture of rigid packaging productsthe Canadian business and lower sales in the current period relatingvolume. Sales to manufacturing, healthcare, and wholesale and retail customers improved most significantly compared to the AACprior year period. Management expects the higher market prices and supply chain constraints to continue throughout 2022. The decrease in net sales resulting from the divestiture of the Canadian business acquired in 2017.for the three months ended September 30, 2022 was $71.5 million.
Adjusted EBITDA increased $2.6$8.1 million, or 4.4%7.6%, as compared to the same period in 2016.2021. The increase in Adjusted EBITDA was primarily attributable to the increase in net sales. The increase in(i) higher net sales, was partially offset by increases in distribution expenses,(ii) cost of products sold increasing at a fasterslower rate than net sales and an(iii) a $0.8 million decrease in distribution expenses, partially offset by a $9.5 million increase in selling and administrative expenses. DistributionThe decrease in distribution expenses increased $6.5was primarily driven by a $6.1 million primarilydecrease related to the divestiture of the Canadian business, partially offset by (i) a $2.4 million increase in freight and logistics expense and (ii) a $1.7 million increase in facility rent expense driven by increased utilization of ourthe distribution network, which is reflected in (i) increased freight and logistics expenses driven mostly by increased third party freight and transfer expenses, (ii) increased personnel expenses and (iii) increased facilities rent and other expenses. Selling and administrative expenses increased $3.4 million primarily driven by increased personnel expenses associated with increased headcount to support our growth strategy.network. The acquisition of AAC resulted in a $1.2 million increase in distribution expenses and a $2.0 million increase in selling and administrative expenses was primarily driven by (i) a $9.2 million increase in personnel expenses and (ii) a $2.1 million increase in professional fees expense, partially offset by a $2.8 million decrease related to the divestiture of the Canadian business. The increase in personnel expenses was associated with (i) increased commission expenses driven by higher sales, (ii) higher wages and benefits to support the Company's Packaging growth strategy and (iii) an increase in travel and entertainment expenses.
Comparison of the Nine Months Ended September 30, 20172022 and September 30, 20162021
Net sales increased $159.6$252.6 million, or 7.6%9.2%, as compared to the same period in 2016.2021. Organic sales increased $352.1 million, or 13.9%, for the nine months ended September 30, 2022. The net sales increase was primarily attributable to an increase in sales of corrugated products, films and folding cartons due to increases in volume andhigher market prices as well as $16.0 millionand increased sales volume in all product categories and end use sectors, excluding volume declines associated with the divestiture of rigid packaging products sales in the current period relatingCanadian business, partially offset by unfavorable foreign currency impacts. Sales to manufacturing, healthcare, and food and beverage customers improved most significantly compared to the AACprior year period. The decrease in net sales resulting from the divestiture of the Canadian business acquired in 2017.for the nine months ended September 30, 2022 was $99.5 million.
Adjusted EBITDA increased $1.3$40.5 million, or 0.8%14.4%, as compared to the same period in 2016.2021. The increase in Adjusted EBITDA was primarily attributable to (i) higher net sales was mostly offset by an increase in distribution expenses,and (ii) cost of products sold increasing at a fasterslower rate than net sales, and an increase in selling and administrative expenses. Distribution expenses increased $14.0 million primarily drivenpartially offset by increased utilization of our distribution network, which is reflected in (i) increased freight and logistics expenses driven mostly by increased third party freight, transfer expenses and diesel fuel prices, (ii) increased personnel expenses and (iii) increased facilities rent and other expenses. Selling and administrative expenses increased $10.1 million primarily driven by increased personnel expenses associated with increased headcount to support our growth strategy. The acquisition of AAC resulted in a $1.2 million increase in distribution expenses and a $2.0$38.2 million increase in selling and administrative expenses and (ii) an $8.8 million increase in distribution expenses. The increase in selling and administrative expenses was primarily driven by (i) a $30.0 million increase in personnel expenses and (ii) a $10.6 million increase in professional fees expense, partially offset by a $3.8 million decrease related to the divestiture of the Canadian business. The increase in personnel expenses was associated with (i) increased commission expenses driven by higher sales, (ii) higher wages and benefits to support the Company's Packaging growth strategy and (iii) an increase in travel and entertainment expenses. The increase in distribution expenses was primarily driven by (i) a $9.0 million increase in freight and logistics expense, (ii) a $5.7 million increase in facility rent expense driven by increased utilization of the distribution network and (iii) a $1.8 million increase in personnel expenses, partially offset by a $7.8 million decrease related to the divestiture of the Canadian business.
Facility Solutions
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Increase (Decrease) | | Nine Months Ended September 30, | | Increase (Decrease) |
(in millions) | 2022 | | 2021 | | $ | % | | 2022 | | 2021 | | $ | % |
Net sales | $ | 180.1 | | | $ | 232.3 | | | $ | (52.2) | | (22.5) | % | | $ | 605.3 | | | $ | 663.1 | | | $ | (57.8) | | (8.7) | % |
Adjusted EBITDA | 15.6 | | | 13.4 | | | 2.2 | | 16.4 | % | | 45.0 | | | 35.3 | | | 9.7 | | 27.5 | % |
Adjusted EBITDA as a % of net sales | 8.7 | % | | 5.8 | % | | | 290 bps | | 7.4 | % | | 5.3 | % | | | 210 bps |
The table below presents selected data for the Facility Solutions segment:
|
| | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | 2017 vs. 2016 | | Nine Months Ended September 30, | | 2017 vs. 2016 |
(in millions) | 2017 | | 2016 | | Increase (Decrease) % | | 2017 | | 2016 | | Increase (Decrease) % |
Net sales | $ | 339.6 |
| | $ | 328.7 |
| | 3.3 | % | | $ | 975.5 |
| | $ | 951.6 |
| | 2.5 | % |
Adjusted EBITDA | 10.3 |
| | 13.0 |
| | (20.8 | )% | | 25.1 |
| | 34.3 |
| | (26.8 | )% |
Adjusted EBITDA as a % of net sales | 3.0 | % | | 4.0 | % | | | | 2.6 | % | | 3.6 | % | | |
The table below presents the components of the net sales change compared to the prior year: | | | | | | | | | | | |
| Increase (Decrease) |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
(in millions) | 2022 vs. 2021 | | 2022 vs. 2021 |
Volume | $ | (76.3) | | | $ | (78.3) | |
Foreign currency | — | | | (3.8) | |
Price/Mix | 24.1 | | | 24.3 | |
| | | |
| | | |
Total change | $ | (52.2) | | | $ | (57.8) | |
|
| | | | | | | |
| Increase (Decrease) |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
(in millions) | 2017 vs. 2016 | | 2017 vs. 2016 |
Volume | $ | 9.4 |
| | $ | 28.5 |
|
Foreign currency | 2.9 |
| | 1.9 |
|
Price/Mix | (1.4 | ) | | (6.5 | ) |
Total change | $ | 10.9 |
| | $ | 23.9 |
|
Comparison of the Three Months Ended September 30, 20172022 and September 30, 20162021
Net sales increased $10.9decreased $52.2 million, or 3.3%22.5%, as compared to the same period in 2016.2021. Organic sales increased $15.8 million, or 9.6%, for the three months ended September 30, 2022. The net sales increasedecrease was primarily attributable to the divestiture of the Canadian business and decreased sales volume, partially offset by higher market prices and increased sales of towels and tissues, food service products chemicals and safety supplies.can liners. The decrease in net sales resulting from the divestiture of the Canadian business for the three months ended September 30, 2022 was $68.0 million. As the COVID-19 pandemic restrictions were lifted, demand improved within the entertainment and hospitality end use sectors during the first nine months of 2022 as away-from-home activity resumed across the broader market place. This was partially offset by declining demand for the personal protective equipment product category, which experienced strong demand in 2021 due to COVID-19. Management expects growth in the broader facility solutions away-from-home sectors to be offset by lower demand for personal protective equipment products through the remainder of 2022.
Adjusted EBITDA decreased $2.7increased $2.2 million, or 20.8%16.4%, as compared to the same period in 2016.2021. The increase in Adjusted EBITDA was primarily attributable to (i) the divestiture of the Canadian business resulting in a $6.8 million decrease in distribution expense and a $3.4 million decrease in selling and administrative expense and (ii) cost of products sold decreasing at a faster rate than net sales, partially offset by lower net sales resulting from the divestiture of the Canadian business.
Comparison of the Nine Months Ended September 30, 2022 and September 30, 2021
Net sales decreased $57.8 million, or 8.7%, as compared to the same period in 2021. Organic sales increased $49.1 million, or 10.5%, for the nine months ended September 30, 2022. The net sales decrease was moreprimarily attributable to the divestiture of the Canadian business and unfavorable foreign currency impacts, partially offset by higher market prices and increased sales of towels and tissues, food service products and can liners primarily driven by overall demand improvements as compared to prior year. The decrease in net sales resulting from the divestiture of the Canadian business for the nine months ended September 30, 2022 was $106.9 million.
Adjusted EBITDA increased $9.7 million, or 27.5%, as compared to the same period in 2021. The increase in Adjusted EBITDA was primarily attributable to (i) a $15.9 million decrease in expenses related to the divestiture of the Canadian business and (ii) cost of products sold decreasing at a faster rate than net sales, partially offset by (i) lower net sales resulting from the divestiture of the Canadian business, (ii) a $2.4$2.8 million increase in distribution expenses (ii)and (iii) a $1.6$1.8 million increase in selling and administrative expenses and (iii) cost of products sold increasing at a faster rate than net sales.expenses. The increase in distribution expenses was primarily driven by increased utilization of our distribution network and is evidenceda $3.8 million increase in (i) increased freight and logistics expenses driven mostlyexpense, partially offset by increased third party freighta $0.9 million decrease in facility and transfer expenses and (ii) increased personnel expenses.equipment rent expense. The increase in selling and administrative expenses was largely a result
Comparison of the Nine Months Ended September 30, 2017 and September 30, 2016
Net sales increased $23.9 million, or 2.5%, compared to the same period in 2016. The net sales increase was primarily attributable to increased sales of food service products and chemicals.
Adjusted EBITDA decreased $9.2 million, or 26.8%, compared to the same period in 2016. The increase in net sales was more than offset by (i) cost of products sold increasing at a faster rate than net sales, (ii) a $4.8 million increase in distribution expenses and (iii) a $4.8 million increase in selling and administrative costs. The increase in distribution expenses was primarily driven by increased utilization of our distribution network and is evidenced in (i) increased freight and logistics expenses driven mostly by increased third party freight, transfer expenses and diesel fuel prices and (ii) increased personnel expenses. The increase in selling and administrative expenses was primarily driven by (i) a $1.9$3.3 million increase in personnel expenses primarily due to increased headcount to support our growth strategycommission expense and (ii) a $1.9$2.2 million increase in bad debt expense.professional fees expense, partially offset by a $4.0 million decrease in wages.
Print Solutions
The table below presents selected data for the Print segment: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Increase (Decrease) | | Nine Months Ended September 30, | | Increase (Decrease) |
(in millions) | 2022 | | 2021 | | $ | % | | 2022 | | 2021 | | $ | % |
Net sales | $ | 616.6 | | | $ | 535.6 | | | $ | 81.0 | | 15.1 | % | | $ | 1,806.4 | | | $ | 1,495.9 | | | $ | 310.5 | | 20.8 | % |
Adjusted EBITDA | 64.3 | | | 30.5 | | | 33.8 | | 110.8 | % | | 179.4 | | | 70.1 | | | 109.3 | | 155.9 | % |
Adjusted EBITDA as a % of net sales | 10.4 | % | | 5.7 | % | | | 470 bps | | 9.9 | % | | 4.7 | % | | | 520 bps |
|
| | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | 2017 vs. 2016 | | Nine Months Ended September 30, | | 2017 vs. 2016 |
(in millions) | 2017 | | 2016 | | Increase (Decrease) % | | 2017 | | 2016 | | Increase (Decrease) % |
Net sales | $ | 701.6 |
| | $ | 788.2 |
| | (11.0 | )% | | $ | 2,095.1 |
| | $ | 2,299.0 |
| | (8.9 | )% |
Adjusted EBITDA | 13.1 |
| | 20.0 |
| | (34.5 | )% | | 44.8 |
| | 55.7 |
| | (19.6 | )% |
Adjusted EBITDA as a % of net sales | 1.9 | % | | 2.5 | % | | | | 2.1 | % | | 2.4 | % | | |
The table below presents the components of the net sales change compared to the prior year: | | | | | | | | | | | |
| Increase (Decrease) |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
(in millions) | 2022 vs. 2021 | | 2022 vs. 2021 |
Volume | $ | (97.8) | | | $ | (128.9) | |
Foreign currency | — | | | (2.6) | |
Price/Mix | 178.8 | | | 442.0 | |
| | | |
| | | |
Total change | $ | 81.0 | | | $ | 310.5 | |
|
| | | | | | | |
| Increase (Decrease) |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
(in millions) | 2017 vs. 2016 | | 2017 vs. 2016 |
Volume | $ | (89.9 | ) | | $ | (211.5 | ) |
Foreign currency | 2.0 |
| | 1.1 |
|
Price/Mix | 1.3 |
| | 6.5 |
|
Total change | $ | (86.6 | ) | | $ | (203.9 | ) |
Comparison of the Three Months Ended September 30, 20172022 and September 30, 20162021
Net sales decreased $86.6increased $81.0 million, or 11.0%15.1%, as compared to the same period in 2016.2021. Organic sales increased $126.0 million, or 25.7%, for the three months ended September 30, 2022. The net sales decreaseincrease was primarily attributable to higher market prices driven by demand outpacing supply, partially offset by decreased sales volume as well as volume declines associated with the divestiture of the Canadian business. Domestic market demand continued secular declineto outpace both domestic and international supply in the paper industry.third quarter of 2022. Management expects the demand and supply imbalance to continue into early 2023. The decrease in net sales resulting from the divestiture of the Canadian business for the three months ended September 30, 2022 was $45.0 million.
Adjusted EBITDA decreased $6.9increased $33.8 million, or 34.5%110.8%, as compared to the same period in 2016.2021. The Adjusted EBITDA decreaseincrease was primarily attributable to the decline in net sales. The decline in(i) cost of products sold increasing at a slower rate than net sales, was partially offset by (i)(ii) higher net sales and (iii) a $3.8$4.4 million decrease in distribution expenses, and (ii) cost of products sold decreasing at a faster rate than net sales. The decrease in distribution expenses was primarily due to decreased utilization of our distribution network and was evidenced in (i) a decrease in personnel expenses and (ii) a decrease in facilities rent and other related expenses. Selling and administrative expenses were flat as lower personnel expenses of $3.2 million werepartially offset by a $3.8$3.0 million increase in bad debt expense.
Comparison of the Nine Months Ended September 30, 2017 and September 30, 2016
Net sales decreased $203.9 million, or 8.9%, compared to the same period in 2016. The net sales decrease was primarily attributable to the continued secular decline in the paper industry.
Adjusted EBITDA decreased $10.9 million, or 19.6%, compared to the same period in 2016. The Adjusted EBITDA decrease was largely attributable to the decline in net sales. The decline in net sales was partially offset by (i) a $10.3 million decrease in distribution expenses, (ii) cost of products sold declining at a faster rate than net sales and (iii) a $2.5 million decrease in selling and administrative expenses. The decrease in distribution expenses was primarily driven by decreased utilization of our distribution network which is reflected in (i) a $2.6 million decrease in facilities rentrelated to the divestiture of the Canadian business and (ii) a decrease in personnel expense and (iii) a decrease in freight and logistics expenses. The decrease in selling and administrative expenses was primarily driven by a $5.9$1.9 million decrease in personnel expenses and a $0.8 million decrease in professional and communication expenses, partially offset by a $5.3 million increase in bad debtfacility rent expense.
Publishing
The table below presents selected data for the Publishing segment:
|
| | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | 2017 vs. 2016 | | Nine Months Ended September 30, | | 2017 vs. 2016 |
(in millions) | 2017 | | 2016 | | Increase (Decrease) % | | 2017 | | 2016 | | Increase (Decrease) % |
Net sales | $ | 238.7 |
| | $ | 248.4 |
| | (3.9 | )% | | $ | 696.6 |
| | $ | 763.2 |
| | (8.7 | )% |
Adjusted EBITDA | 5.5 |
| | 6.6 |
| | (16.7 | )% | | 17.6 |
| | 16.4 |
| | 7.3 | % |
Adjusted EBITDA as a % of net sales | 2.3 | % | | 2.7 | % | | | | 2.5 | % | | 2.1 | % | | |
The table below presents the components of the net sales change compared to the prior year:
|
| | | | | | | |
| Increase (Decrease) |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
(in millions) | 2017 vs. 2016 | | 2017 vs. 2016 |
Volume | $ | (12.3 | ) | | $ | (84.0 | ) |
Foreign currency | 0.3 |
| | 0.2 |
|
Price/Mix | 2.3 |
| | 17.2 |
|
Total change | $ | (9.7 | ) | | $ | (66.6 | ) |
Comparison of the Three Months Ended September 30, 2017 and September 30, 2016
Net sales decreased $9.7 million, or 3.9%, compared to the same period in 2016. The net sales decrease was primarily attributable to a decline in volume.
Adjusted EBITDA decreased $1.1 million, or 16.7%, compared to the same period in 2016. The Adjusted EBITDA decrease was primarily attributable to lower net sales and cost of products sold decreasing at a slower rate than net sales.
Comparison of the Nine Months Ended September 30, 2017 and September 30, 2016
Net sales decreased $66.6 million, or 8.7%, compared to the same period in 2016. The net sales decrease was primarily attributable to a decline in volume.
Adjusted EBITDA increased $1.2 million, or 7.3%, compared to the same period in 2016. The decrease in net sales was more than offset by cost of products sold decreasing at a faster rate than net sales. The increase in Adjusted EBITDA was also attributable to a $1.0 million decrease in selling and administrative expenses, primarily driven by decreased personnel expenses.
Corporate & Other
The table below presents selected data for Corporate & Other:
|
| | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | 2017 vs. 2016 | | Nine Months Ended September 30, | | 2017 vs. 2016 |
(in millions) | 2017 | | 2016 | | Increase (Decrease) % | | 2017 | | 2016 | | Increase (Decrease) % |
Net sales | $ | 37.3 |
| | $ | 31.2 |
| | 19.6 | % | | $ | 107.1 |
| | $ | 87.0 |
| | 23.1 | % |
Adjusted EBITDA | (46.9 | ) | | (42.0 | ) | | (11.7 | )% | | (137.8 | ) | | (129.7 | ) | | (6.2 | )% |
Comparison of the Three Months Ended September 30, 2017 and September 30, 2016
Net sales increased $6.1 million, or 19.6%, compared to the same period in 2016. The net sales increase was primarily attributable to an increase in freight brokerage services.
Adjusted EBITDA decreased $4.9 million compared to the same period in 2016. The increase in net sales was more than offset by (i) a $5.3 million increase in selling and administrative expenses and (ii) cost of products sold increasing at a faster rate than net sales. The increase in selling and administrative expenses was primarily driven by a $5.0$6.3 million increase in personnel expenses, primarilydue to increased commission expense and wages and benefits expense, partially offset by a $2.0 million decrease in bad debt expense and a $1.7 million decrease related to the commission advance recovery in 2016, as discussed above.divestiture of the Canadian business.
Comparison of the Nine Months Ended September 30, 20172022 and September 30, 20162021
Net sales increased $20.1$310.5 million, or 23.1%20.8%, as compared to the same period in 2016.2021. Organic sales increased $378.7 million, or 27.9%, for the nine months ended September 30, 2022. The net sales increase was primarily attributable to an increasehigher market prices driven by demand outpacing supply as compared to the first half of 2021 when there was a significant negative impact on demand due to COVID-19, partially offset by decreased sales volume as well as volume declines associated with the divestiture of the Canadian business. Domestic market demand for coated and uncoated paper grades outpaced both domestic and international supply during the first nine months of 2022. The decrease in freight brokerage services.
net sales resulting from the divestiture of the Canadian business for the nine months ended September 30, 2022 was $54.4 million.
Adjusted EBITDA decreased $8.1increased $109.3 million, or 155.9%, as compared to the same period in 2016.2021. The Adjusted EBITDA increase in net sales and a $2.3 million decrease in distribution expenses were more than offset bywas primarily attributable to (i) cost of products sold increasing at a fasterslower rate than net sales, (ii) higher net sales and (ii)(iii) an $8.4 million decrease in distribution expenses, partially offset by a $7.5$13.1 million increase in selling and administrative costs.expenses. The decrease in distribution expenses was primarily driven by (i) a $6.4 million decrease in facility rent expense and (ii) a $4.2 million decrease related to the divestiture of the Canadian business, partially offset by a $2.8 million increase in freight and logistics expense. The increase in selling and administrative costsexpenses was primarily driven by (i) a $5.5$15.6 million increase in personnel expenses, due to increased commission expense and wages and benefits expense, partially offset by a $2.1 million decrease related to the divestiture of the Canadian business.
Corporate & Other
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Increase (Decrease) | | Nine Months Ended September 30, | | Increase (Decrease) |
(in millions) | 2022 | | 2021 | | $ | % | | 2022 | | 2021 | | $ | % |
Net sales | $ | 19.3 | | | $ | 29.3 | | | $ | (10.0) | | (34.1) | % | | $ | 78.4 | | | $ | 86.5 | | | $ | (8.1) | | (9.4) | % |
Adjusted EBITDA | (53.7) | | | (57.2) | | | 3.5 | | 6.1 | % | | (148.2) | | | (159.1) | | | 10.9 | | 6.9 | % |
| | | | | | | | | | | | | |
Comparison of the Three Months Ended September 30, 2022 and September 30, 2021
Net sales decreased $10.0 million, or 34.1%, as compared to the same period in 2021. The net sales decrease was driven by the divestiture of the logistics solutions business.
Adjusted EBITDA increased $3.5 million, or 6.1%, as compared to the same period in 2021. The Adjusted EBITDA increase was primarily driven by a $4.9 million decrease in selling and administrative expenses. The decrease in selling and administrative expenses was primarily due to (i) a $4.2 million decrease related to the divestiture of the Canadian business and (ii) a $1.3$4.1 million decrease in personnel expenses, partially offset by (i) a $2.4 million increase in insurancemarketing and communications expense and (ii) a $2.1 million increase in legal expense. The increasedecrease in personnel expenses was primarily driven bydue to lower commissionwages and lower incentive compensation expense, in 2016 as a result of the commission advance recovery and increased headcount to support the Company's growth strategy, partially offset by an increase in travel and entertainment expenses.
Comparison of the Nine Months Ended September 30, 2022 and September 30, 2021
Net sales decreased $8.1 million, or 9.4%, as compared to the same period in 2021. The net sales decrease was driven by the divestiture of the logistics solutions business.
Adjusted EBITDA increased $10.9 million, or 6.9%. The Adjusted EBITDA increase was primarily driven by (i) a $6.5 million decrease in selling and administrative expenses, (ii) a $6.6 million decrease related to the divestiture of the Canadian business and (iii) cost of products sold decreasing at a faster rate than net sales, partially offset by lower net sales resulting from the divestiture of the logistics solutions business. The decrease in selling and administrative expenses was primarily due to lower wages and lower incentive compensation as discussed above.expense, partially offset by an increase in travel and entertainment expenses.
Liquidity and Capital Resources
The cash requirements of the Company are primarily provided by cash flows from operations and borrowings under the ABL Facility. See Note 5 of the Notes to Condensed Consolidated Financial Statements for additional information regarding the Company's debt position.
The following table sets forth a summary of cash flows: | | | | | | | | | | | |
| Nine Months Ended September 30, |
(in millions) | 2022 | | 2021 |
Net cash provided by (used for): | | | |
Operating activities | $ | 158.9 | | | $ | 91.6 | |
Investing activities | 143.4 | | | 1.7 | |
Financing activities | (316.5) | | | (170.1) | |
|
| | | | | | | |
| Nine Months Ended September 30, |
(in millions) | 2017 | | 2016 |
Net cash provided by (used for): | | | |
Operating activities | $ | (17.7 | ) | | $ | 59.9 |
|
Investing activities | (147.7 | ) | | (24.7 | ) |
Financing activities | 171.2 |
| | (30.4 | ) |
Analysis of Cash FlowsOperating Activities
Net cash provided byfrom operating activities decreasedwas higher by $77.6$67.3 million compared to the prior year. Most of the decrease resulted from the decline in operating results and increase in working capital. The increase in working capital was primarily due to increases in accounts receivable and inventories which more than offset an increase in accounts payable. These increases were due to increases in the number of days sales in accounts receivable and the number of days of inventory on hand, which more than offset an increase in the number of days of accounts payable on hand.
Investing Activities
Net cash used for investing activities increased by $123.0 million compared to the prior year primarily due to the acquisition of AAC in the third quarter of 2017. Proceeds from asset sales increased in 2017 due to $9.1 million received from the sale of the Austin, Texas facility in May 2017 and $11.4 million received from the sale of the Hensall facility in Canada in July 2017. See Note 5, Debt and Other Obligations for additional information regarding the Company's debt position.
Financing Activities
Net cash provided by financing activities increased by $201.6 millionas compared to the prior year. The increase was used primarily for the purchase of AAC. Also, in the first quarter of 2017, the Company made a payment against the TRA contingent liability. In addition, the Company experienced a change in book overdrafts due to the timingCompany's improved operating results, partially offset by a $41.5 million increase for cash paid for income taxes, net of payments. In 2016refunds, the payment of $10.1 million of payroll taxes, which were previously deferred under the CARES Act, and increased payments for performance incentives, which were driven by improved operating results. The remaining changes in the Company's operating assets and liabilities were driven by revenue growth and other normal business activities.
Investing Activities
Net cash provided by operatingfrom investing activities was higher by $141.7 million as compared to the prior year. The increase was primarily due to the net cash proceeds received in the current year period from the sale of (i) the logistics solutions business totaling approximately $18.3 million and (ii) the Canadian business totaling approximately $147.4 million, less cash transferred of $8.5 million, exceeding the proceeds received in the prior year period from the sale of (i) the Rollsource business totaling approximately $8.2 million and (ii) two facilities totaling approximately $6.5 million. Additionally, the Company's higher capital expenditures in the current year period were partially offset by the current year receipt of $3.3 million in insurance proceeds, which represented coverage for the structural damage sustained to one of its properties in the prior year.
Financing Activities
Net cash used for financing activities was an increased use of cash by $146.4 million as compared to pay down the borrowingsprior year. The increased usage was primarily due to increased common stock repurchases, increased tax withholdings on share-based compensation and increased net repayments under the Company's ABL Facility. During the nine months ended September 30, 2022, the Company repurchased 1,564,420 shares of its common stock at a cost of $200.0 million under its 2022 Share Repurchase Program. During the nine months ended September 30, 2021, the Company repurchased 1,734,810 shares of its common stock at a cost of $100.0 million under its 2021 Share Repurchase Program. Additionally, during the nine months ended September 30, 2021, in conjunction with the amendment of the ABL Facility.Facility, the Company incurred and deferred $3.3 million in new financing fees.
Funding and Liquidity Strategy
On August 11, 2016,In 2021, the Company amended its ABL Facility to among other things, extend the maturity date to August 11, 2021.May 20, 2026, adjust the pricing grid for applicable interest rates and update certain provisions to facilitate the transition from LIBOR to a new replacement benchmark rate. All other significant terms remained consistent. See Note 5, Debt and Other Obligations, for additional information regardingsubstantially the same. The Company's debt position.one interest rate cap agreement, which was related to the ABL Facility, expired on September 13, 2022.
Availability under the ABL Facility is determined based upon a monthly borrowing base calculation which includes eligible customer receivables and inventory, less outstanding borrowings, letters of credit and certain designated reserves. As of September 30, 2017,2022, the available additional borrowing capacity under the ABL Facility was approximately $272.3$643.2 million. As of September 30, 2022, the Company held $9.5 million in outstanding letters of credit.
The ABL Facility has a springing minimum fixed charge coverage ratio of at least 1.00 to 1.00 on a trailing four-quarter basis, which will be tested only when specified availability is less than the limits outlined under the ABL Facility. At September 30, 2017,2022, the above test was not applicable and based on information available as of the date of this report it is not expected to be applicable in the next 12 months.
Veritiv's management expects that the Company's primary future cash needs will be for working capital, capital expenditures, contractual commitments and strategic investments. Veritiv's ability to fund its capital and operating needs will
depend on its ongoing ability to generate cash from operations, availability of borrowings under the ABL Facility and funds received fromaccess to the capital market offerings.markets. If Veritiv's cash flows from operating activities are lower than expected, the Company willwould need to borrow under the ABL Facility and may need to incur additional debt or issue additional equity. Although management believes that the arrangements currently in place will permit Veritiv to finance its
operations capital and operating needs on acceptable terms and conditions, the Company’sCompany's access to, and the availability of, financing on acceptable terms and conditions in the future will be impacted by many factors, including the liquidity of the overall capital markets and the current state of the economy.
Veritiv's management expectsThe Company currently estimates that the Company's primary future cash needsduring 2022 it will bespend approximately $30 million for working capital, capital expenditures contractual commitmentscovering both maintenance and strategic investments. Additionally, management expects that cashAs provided by operating activitiesthe CARES Act, in response to the COVID-19 pandemic the Company deferred $19.1 million of payroll taxes, which it had incurred through December 31, 2020. In January 2022 the Company paid $10.1 million of the deferred payroll taxes and available capacity undercurrently expects to pay the ABL Facility will provide sufficient fundsremaining amount in January 2023. See Note 3 of the Notes to operateCondensed Consolidated Financial Statements for information regarding the business and meet other liquidity needs.Off-Balance Sheet Arrangements
Veritiv does not have any off-balance sheet arrangements as of September 30, 2017, other than operatingCompany's lease
obligations and the letters of credit under the ABL Facility. The Company does not have any off-balance sheet arrangementscommitments, including leases that have
ornot yet commenced, if any. See Note 5 of the Notes to Condensed Consolidated Financial Statements for information regarding the Company's use of vendor-based financing arrangements, if any. See Note 13 of the Notes to Condensed Consolidated Financial Statements for information regarding cash proceeds from the Company's divestitures.
Inflation and Changing Prices
Essentially all of the Company's revenue is derived from the sale of its products and services in competitive markets. To the extent feasible, the Company has adjusted its prices to reflect the impact of inflation on the cost of purchased materials and services. Impacts on the Company's results from price and product mix are reasonably likely to have a material current or future effect on its financial condition, revenues or expenses, resultsdiscussed in the "Segment Results" section of operations, liquidity, capital expenditures or capital resources.this Item 2.
Contractual ObligationsCritical Accounting Estimates
There have been no material changes to the Company's contractual obligationscritical accounting estimate methodologies from those disclosed in Veritiv's Annual Report on Form 10-K for the year ended December 31, 2016,2021. Although these estimates are based on management's knowledge of current events and actions it may undertake in the future, actual results may ultimately differ from these estimates and assumptions, particularly in light of the COVID-19 pandemic and its effects on the domestic and global economies. Estimates are revised as adjustedadditional information becomes available. See the "Use of Estimates" section of Note 1 of the Notes to Condensed Consolidated Financial Statements for obligations resulting from the acquisition of AAC (see Note 2, 2017 Acquisition)
Critical Accounting Policies and Estimates
There have been no material changes toadditional information regarding the Company's critical accounting policies and estimates from those disclosed in Veritiv's Annual Report on Form 10-K for the year ended December 31, 2016.estimates.
Recently Issued Accounting Standards
See Note 1 Business and Summary of Significant Accounting Policies,the Notes to the Condensed Consolidated Financial Statements for information regarding recently issued accounting standards.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes in market risk from the information provided in Item 7A "Quantitative and Qualitative Disclosures about Market Risk" of the Company's Annual Report on Form 10-K for the year ended December 31, 2016.2021.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
The Company’sCompany's management has carried out an evaluation, with the participation of its Chief Executive Officer and Chief Financial Officer, of the effectiveness of the Company’sCompany's disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended. Based upon such evaluation, management has concluded that the Company’sCompany's disclosure controls and procedures were effective as of September 30, 2017.2022.
Changes in Internal Control over Financial Reporting
There have been no changes in the Company's internal control over financial reporting that occurred during the quarter ended September 30, 20172022 that hashave materially affected, or isare reasonably likely to materially affect, the Company's internal control over financial reporting. During the third quarter of 2017, the Company completed the acquisition of AAC. As permitted by SEC staff interpretive guidance that an assessment of a recently acquired business may be omitted from the scope of evaluation in the year of acquisition, management excluded AAC from its interim evaluation of internal control over financial reporting.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
ITEM 1A. RISK FACTORS
There have been no material changes from the risk factors previously disclosed in the Company's Annual Report on Form 10-K for the year ended December 31, 2016.2021.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
On March 1, 2022, Veritiv announced that its Board of Directors authorized a $200 million share repurchase program (the "2022 Share Repurchase Program"). The 2022 Share Repurchase Program authorizes the Company, from time to time, to purchase shares of its common stock through open market transactions, privately negotiated transactions, forward, derivative or accelerated repurchase transactions, tender offers or otherwise, including Rule 10b5-1 trading plans, in accordance with all applicable securities laws and regulations. The timing and method of any repurchases, which will depend on a variety of market factors, including market conditions, are subject to results of operations, financial conditions, cash requirements and other factors. This authorization may be suspended, terminated, increased or decreased by the Board of Directors at any time. During the third quarter of 2022, the Company completed its repurchases under the 2022 Share Repurchase Program bringing the total purchases to $200 million, the authorized repurchase limit.
The following table presents information with respect to purchases made by the Company of its common stock during the three months ended September 30, 2022 (shares are in whole units):
| | | | | | | | | | | | | | |
Period | Total Number of Shares Purchased (1) | Average Price Paid Per Share | Total Number of Shares Purchased as Part of the Publicly Announced Program (2) | Approximate Dollar Value of Shares that May Yet be Purchased Under the Publicly Announced Program |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
July 1-31 | 281,471 | | $110.26 | 277,723 | | 64,583,884 | |
August 1-31 | 302,793 | | $132.19 | 302,793 | | 24,559,030 | |
September 1-30 | 207,234 | | $118.36 | 207,234 | | 31,330 | |
(1) The total number of shares purchased includes: (i) shares purchased pursuant to the 2022 Share Repurchase Program (if any) and (ii) shares surrendered to the
Company to satisfy tax withholding obligations in connection with the vesting of stock units issued as part of the Company's equity-based incentive plans.
(2)This column discloses the number of shares purchased pursuant to the 2022 Share Repurchase Program during the indicated periods.
ITEM 6. EXHIBITS
| | | | | | | | |
Exhibit No. | | Description |
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Exhibit No.31.1* | | Description |
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31.1* | | |
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31.2* | | |
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32.1* | | |
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32.2* | | |
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101.INS* | | XBRL Instance Document.Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. |
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101.SCH* | | Inline XBRL Taxonomy Extension Schema Document. |
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101.CAL* | | Inline XBRL Taxonomy Extension Calculation Linkbase Document. |
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101.DEF* | | Inline XBRL Taxonomy Extension Definition Linkbase Document. |
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101.LAB* | | Inline XBRL Taxonomy Extension Label Linkbase Document. |
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101.PRE* | | Inline XBRL Taxonomy Extension Presentation Linkbase Document. |
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104 | | Cover Page Interactive Data File (embedded within the Inline XBRL document) |
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* Filed herewith |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| | | | | | | | | | | |
| | | VERITIV CORPORATION |
| | | (Registrant) |
| | | |
Date: | November 8, 2022 | | VERITIV CORPORATION |
| | | (Registrant) |
| | | |
Date: | November 7, 2017 | | By: /s/ Stephen J. Smith |
| | | Name: Stephen J. Smith |
| | | Title: Senior Vice President and Chief Financial Officer |
| | | (Principal Financial Officer) |
| | | |
Date: | November 7, 20178, 2022 | | By: /s/ W. Forrest BellLance D. Gebert |
| | | Name: W. Forrest BellLance D. Gebert |
| | | Title: Chief Accounting OfficerCorporate Controller |
| | | (Principal Accounting Officer) |