Veritiv Corporation

are expected to support prices at their current levels and we will continue to monitor market conditions and adjust quickly to any future price volatility. We saw wage inflation at a rate consistent with the broader market throughout our supply chain. Staying competitive with wage increases has allowed us to hire and retain employees despite a tight labor market. These and other increases, like higher storage and fuel costs, We're fully offset by efficiency programs and the ongoing benefits of our 2020 restructuring plan. We will continue to look for ways to offset the effects of inflation to minimize the impact on our customers and protect recent improvements in our adjusted EBITDA margin. Our established portfolio of best-in-class suppliers, coupled with our own trucking fleet and warehouse network, allowed us to maintain historical service levels for most of our customers despite significant constraints in the broader supply chain marketplace. Our record results in the third quarter are a reflection of the commercial discipline that has now become an integral part of how we do business. We also recognize that the current market environment has created challenges for our customers. we remain committed to the needs of our customers and will continue to make the investments necessary to improve the way they interact and do business with Veritiv. Our employees played a significant role in the company's third quarter performance. Despite a demanding and constrained operating environment, our employees continue to execute our commitments to our customers in new and innovative ways. This year, as part of our pay-for-performance culture, We are expecting to reward employees with additional incentive compensation and recognition of the record performance. I'll now turn it over to Steve to provide more details on our financial performance for the quarter and an update on our use of capital. I'll then share additional details about our upward revision of guidance for the remainder of the year. Steve?

Thank you, Sal, and good morning, everyone. With Sal having covered consolidated earnings performance, I will provide more details on our segment performance. I will also provide some color on both our balance sheet and cash flow results. As we review these results, please note that when we speak to core sales, we are referencing the reported net sales performance, excluding the impact of foreign exchange and adjusting for any day count differences. As it relates to day count, we had the same number of shipping days in the third quarter of 2021 as we had in the third quarter of 2020. As a reminder, we had one less shipping day in the first quarter of 2021 than the first quarter of 2020. The fourth quarter of this year will have the same number of shipping days as prior year. As a result, full year 2021 will have one less shipping day than 2020. Packaging's net sales in the third quarter increased 14.5%, and core sales were up 13.9% compared to the prior year. Strong demand continued in the third quarter, and the favorable impacts of market price increases were even more pronounced in the third quarter of 2021 than in the first half of the year. Demand across our end-use customer sectors continued to be favorable in the third quarter and was particularly robust in our consumer electronics, healthcare, and manufacturing customer sectors. In the third quarter, we reported our best packaging adjusted EBITDA and adjusted EBITDA margin of any quarter in the company history. A combination of timely pass-through of market price increases and Operational improvements and ongoing benefits of the 2020 restructuring plan drove an adjusted EBITDA margin of 11% in the third quarter of 2021 compared to 10.1% in the third quarter of 2020. A combination of sales growth and adjusted EBITDA margin improvements drove packaging adjusted EBITDA to $107 million in the third quarter, a 25% increase over prior year. In our facilities solutions segment, net sales in the third quarter increased slightly at 0.4%, while core sales decreased 1.2% compared to prior year. Sales of our traditional away-from-home products continue to improve as travel, entertainment, and hospitality activities resume. As expected, sales of our COVID-related categories like personal protective equipment and sanitizers have declined from the temporarily elevated levels experienced last year. The pace of sales recovery in our office-like customer sector remained slow in the third quarter. Third quarter adjusted EBITDA in our facilities solution segment was $13.4 million, an increase of 2.3% compared to prior year. Despite the lack of recovery in away-from-home office activity, favorable product mix and our ongoing selling and supply chain efficiency programs drove a record adjusted EBITDA margin of 5.8%, which was slightly better than prior year. Moving now to our print segment. Net sales in the third quarter for print increased 5.9% and core sales were up 5.2% compared to prior year due to price and to our lesser degree volume. This revenue increase over the prior year period was only our second quarter of revenue growth in the last seven years. It followed revenue growth in the second quarter of this year. Demand in the third quarter remained elevated particularly across coded paper grades. Supplier meal capacity and inventories continue to be constrained, which drove market price increases across all major paper grades during the quarter. The combination of sales growth, disciplined pass-through of market price increases, and the carryover benefits of our 2020 restructuring plan helped to drive all-time record highs in both adjusted EBITDA and adjusted EBITDA margin for the print segment in the third quarter. Adjusted EBITDA in the third quarter was $26.6 million, triple the $8.8 million reported in the prior year. Adjusted EBITDA margin increased significantly to 6.9% in the third quarter of 2021 compared to only 2.4% in the third quarter of 2020. Our publishing segment reported both net and core sales increases of 25.1% in the third quarter compared to the prior year. The 25% increase was the highest quarterly revenue growth in the segment's history. Elevated demand in our education, books, and advertising customer sectors was the primary driver of the year-over-year increase in sales. Third quarter adjusted EBITDA for publishing was $3.9 million, or 11.4% higher than prior year. Publishing adjusted EBITDA margin was 2.6% in the third quarter of 2021 compared to 2.9% in the third quarter of 2020. Moving now to cash flow. For the quarter ended September 30th of 2021, cash flow from operations was approximately $42 million. Subtracting capital expenditures of about $5 million from cash flow from operations, we generated free cash flow of approximately $37 million in the quarter. As a result of our strong earnings performance in the third quarter, we are raising our full-year 2021 guidance for free cash flow to be at least $120 million. After removing the one-time impact of the 2020 restructuring plan, we expect our 2021 normalized free cash flow to be roughly $150 million. The 2020 restructuring plan is on budget and is scheduled to be substantially completed this year. At the end of the third quarter, our net debt to adjusted EBITDA leverage ratio based on trailing 12 months reached a record low of 1.5 times. Shifting now to capital allocation, we are pleased to report that we completed our $100 million share repurchase program by the end of September. During the course of the program, we repurchased approximately 1.7 million shares at an average price of about $58 per share, which reflects an 11% reduction in shares outstanding. In addition to deploying capital for repurchase of our own shares, we continue to make capital investments in the business to drive process efficiencies, organic growth, and an improved customer experience. However, some capital projects have been delayed during 2021 due to the market constraints such as the availability of materials and labor. As a result, we now expect full-year 2021 capital expenditures to be approximately $25 million or about a $10 million decrease from our originally anticipated level. Given our low net leverage, we continue to consider inorganic growth opportunities as well as other uses of capital that will generate incremental shareholder value. At this time, I'll turn it back to Sal to provide more details on both our market expectations and guidance. Sal?

Thank you, Steve. We will now shift focus to talk about the market dynamics we expect to see for the balance of the year. Our large domestic supplier base sheltered us from the heightened challenges experienced in the international supply chain by many of our competitors. While not immune to the current supply chain challenges, we have been making strategic inventory investments, particularly in packaging, to help minimize the impact to our customers. However, we do expect broader supply chain constraints to continue in the fourth quarter and first half of next year, which could impact product availability and lead times. As we look to the balance of 2021 for our packaging segment, we expect market demand to continue to be relatively strong and the supply chain to remain tight due to healthy demand and extended supplier lead times across several product categories. In anticipation of this extended lead time environment, we have intentionally invested in additional inventory to support our customers through the currently constrained environment and to prepare for the seasonal increase in volume expected during the holiday shopping season. While there has been some minor relief in certain areas of the supply chain, limited manufacturing capacity and healthy demand is expected to support pricing at current levels. the carryover effect of recent price increases should continue into the first half of 2022. We expect sales in our facility solutions segment to continue to improve as travel, entertainment, and hospitality activities return closer to pre-pandemic levels. We anticipate a slow pace of recovery in those products traditionally sold into the office environment. That slow recovery will, we believe, continue for the remainder of 2021 and into at least the first half of 2022. Therefore, we project sales growth for our facility solutions segment in 2022 to be in line with the broader away-from-home market. For our print segment, we expect the supply of paper in the overall market to remain constrained, and therefore, demand is expected to outpace supply. We have navigated multiple price increases across all paper grades so far this year and have received notification of an additional price increase impacting some grades that will be implemented during the fourth quarter. Current operating rates and constrained capacity from our print suppliers are really expected to continue into at least the second quarter of next year. Given our record year-to-date performance, as well as our current expectations for the market conditions for the remainder of this year, we are increasing our full-year 2021 adjusted EBITDA guidance to a range of $315 to $330 million. We now expect full-year 2021 net income to be in the range of $130 to $145 million, and full-year diluted earnings per share to be in the range of $8 to $9. As Steve mentioned earlier, capital expenditures for the full year are now expected to be around $25 million. As a result of our increased earnings and reduction in capital outlay this year, we are also raising our estimated free cash flow guidance for full year 2021 to be at least $120 million. This concludes our prepared remarks. Patricia, we are now ready to take questions.