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RR Donnelley & Sons (RRD)

Participants
Johan Nystedt Senior Vice President, Finance
Dan Knotts President & Chief Executive Officer
Terry Peterson Chief Financial Officer
Charles Strauzer CJS Securities
Call transcript
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Operator

Welcome to the RRD Second Quarter 2021 Conference Call. My name is Brandy and I will be your operator for today's call. At this time, all participants are in a listen-only mode. After the remarks from company representative, we will conduct a question-and-answer session by phone. [Operator Instructions] Please note that this call is being recorded. the of to Finance. turn Senior Nystedt, now President Vice will call Johan over RRD's I

Johan Nystedt

Thank for quarter call. joining Brandy RRD's you, and second XXXX thank results you everyone conference

and are Chief our Officer. questions. Terry, At today's Knotts, call and Terry of Financial today's conclusion remarks, on Officer; and me RRD's Joining President prepared Chief the I Executive Peterson, take Dan Dan, will

at section can have website As slides which on supplemental we rrd.com. call prepared be a of the Investors reminder, today's for found our

call our webcast. review call, page rrd.com. will detail Investors reviewed also will information press The is we is second follow slides quarter of more today's yesterday. As at results you a the furnished posted by X-K the to on in addressed I wish supplemental reference website along be themselves. our on This information if in release for advancing our slides the are in periodically copy who slides Form those numbers which SEC the we was advancing filed Alternatively, to the on of connected participants by during section we the this

will we on financial which to current our and forward-looking also statements our actual of uncertainties. including involve differ strategy, comments all Therefore, and from materially refer outlook risks our addition could In results expectations.

discuss Any our on of press information. filings information to company's For Investors financial investors the Further, now to our our as a in in XX-K, complete non-GAAP part results and We over our references factors comparable the materially, to and release Form please section of with the differ release. operations. cause the only. results report to GAAP non-GAAP our financial provided for useful will provides will These non-GAAP discussion XX-Q, other information that refer measures cautionary quarterly annual of turn reconciled Dan. call financial believe actual factors concerning Form website included purposes of the are included we supplementary results earnings are measures SEC. the the our ongoing I on non-GAAP presentation the the statement reports with could in risk to

Dan Knotts

On to joining and Johan. call and It's you today. safe. hope great On morning our recovering environment. clients everyone. you everyone for how at our call, demonstrate value second I provide results for business with behalf number thank delivering we new recap I will yet quarter and be to that continue your challenging and our a and examples Thanks of are healthy stay of a in Good winning RRD, today's business families you that

prior I'd debt trends. outstanding operating income results. operations $X.XX sales with XXXX, lowest pleased am quarter share while Before the we through to Terry, I XX.X% number improved call like the momentum, our results initiatives, around strategic our of billion a also of will on year, quarter little by second quarter were on received awards versus sales over color consecutive to Net diversity execution strong our organically provide the our Building up fourth delivered of first the more spin representing and turning in Highlighted sales globe. that very a net health quarter adjusted in of performance equity a ongoing increase expanded protecting quarter. and and since important I we've efforts. growth, inclusion balance safety our the organic significant of our recognizing second from the colleagues the our double-digit margins in our

categories our growth a to portfolio product is sales our year-over-year result clients' our favorable of and sales the majority Our support performance delivered service quarter. the as strengthening our demand in direct of ability across

also pipeline also remaining growth, into closely manage new business their our sales On opportunity Marketing print segment strong organic increasing offerings. and very volumes wins. working organic to our driving and the direct reported clients marketing on our Packaging, XX.X% Census Our digital in are while with a by improvement. Print, Labels Commercial driven XX.X% performance growth double-digit and repeating teams volumes, higher services effectively converting the basis, service delivered of not Solutions with laser-focused despite

I'm the the XX one expected that the As US marketing marketing established income only to We Census years and continue sizable activity service largest agency increasing ago, headwinds reported client to project the in agencies report. seeing are in the an adjusted the repeating. price, and a incentive we to a compared believe year including report AD not recovers primarily the will according which foreign prior $XX as Solutions, was exchange a XX% Marketing despite of in $XX that variable operations, to higher increase is of increase RRD due the now as the and million we XXth compensation, economy trend largest from pleased number stock unfavorable in our XX among four progresses. also world Age year or million

We strong focus adjusted of versus and Notably, execution also a both margin. earnings income operations for from and expanded and margin the by XXXX pre-pandemic second quarter our operational year result adjusted streamlined our XXX our our points as our quarter prior exceeded basis operating operating structure. margin the cost

the our down same which level represents our $XXX On period was million quarter in total nearly the debt second outstanding a lowest sheet, since spin year XXXX. the ago, from balance

and priorities. the execution attributable year sustained directly favorable Our and the quarter results focus the strategic are the our to for half of first of both

We operating lowering a continue to to improving cost high strengthening our level, serve. performance our and by driving at core our our aggressively initiatives, execute leverage productivity

categories through scale are investments strategic our expanding our our we towards growth in sales and and continue capabilities, to mix shifting product operational our building business our agility. target sustained We enhancing favorably

and future to do, have always for are the we RRD we in strategy are actions While more we our taking work position success. to confident

healthcare, industries; and some emerging pandemic with strongest enhanced a retail financial, of We capabilities services, flex ability including the from our our are as RRD stronger industry verticals. to across

new clients' our compiled US growth. surveys home prescription of working company the of chain are delivered we've company a of and excited The coupled and as a support Labels clients and conveniently performed data leading well waste. able design, these results, team smartphone manage help highlight and Ellume to analytics sold our our meets family diagnostics Australian reporting for of provided oncology scale, with synthetic Amyris, custom operates to and government recently captured services test capture and authorized the the chain a is at production XX Through The their accelerate in RRD We packaging printed capabilities our times leveraged rapidly our material. its test produce do clients' survey and I'd like test to with your data home and and carton breadth since to portfolio response results Novocure, examples mail, supply in because fulfill the can integration company developing beauty North mixed print the printing program who our with our and of Packaging RRD in extending supply shades our provide patient commercial that clean been new minutes. secured that an how and Amyris demonstrated be capabilities of needs. offer scaling offerings. offerings owns that Amyris' inks selected as with and a industry-leading few and We're States. Building marketing our and company the RRD ingredients. cosmetics. match over-the-counter scope committed to launch biotechnology to the antigen times rapid to the products colors with stock in scope capabilities, from satisfaction RRD COVID-XX customized developed responses for and effectively sustainable contraction new global can a printed capabilities natural support Europe of XXXX, insights products leveraged we million actionable created a has our This advantage survey. of both Food its Administration. takes wanted in expanding structures are diagnostic rapidly evolving an on connect Last, packaging its superior XXX% first kits. Drug American solutions to variety in our the that communication solution to personal are of packaging to States Ellume, to brand. expand objectives a was leveraging digital beyond self-test by Novocure. to Novocure by expertise just capabilities is needed without the in conducts was test printing share current and successfully insights with color integrated relationship to and have a we brands of fast-growing sustainable RRD United soy-based carton of which efficiently entire we an Amyris growth a able are their customers mail The needs. $XXX.X RRD United awarded US. on massive to with proud in we the designed to using We agreement has solution same company's the provide extensive needs. we contract the the made of test and produce in retail and the cosmetics post-consumer of to

comprehensive capabilities organizations their help quarter disorders stores, channels. combines a sight drive remediation RRD's of in-store a In-store retailers; the of proprietary Marketing of For web make reimagine convenience compliance changing increasingly and PDF with environments support and content. Services and other this and rapidly to our across expectations store design, variety that important Onsite buying solutions. expertise we stores, people global fixture accessible to impact retail have and RRD's companies manage that of to launching help to physical human readability home objectives. to industry-leading signage and including marketing announced manage suite inclusivity help communication designed behaviors. part creative grocery is procurement will a and seamlessly of restaurants, their their documents our more solution installation achieve become are digital consumer team regulatory solution growth cognition improvement and clients outsourcing services ideation, technology The may communications

have Terry, are their equal potential. efforts turn area, of to to Forbes Diversity dedication for to emphasize named over reach like and RRD and Because was environment our an our career the employees opportunity ongoing fostering all pursue an recognizing XXXX list where Employers of belong, aspirations in valued commitment Best I'd inclusion. in I to this equity to to call recently their Before and America's full our diversity,

best as disability dedicated non-profit We a one were Disability:IN, by disabilities work places recognized to with of the those to also business for inclusion.

embracing that and improved over the inclusive our brand. the well We as our first are guidance both that, diverse acknowledgments the to financials performance, and RRD. receive these equitable now portfolio of to for review at of over Terry, continue operating our full enhancing and quarter our to solid will With half our Terry reflects strong I resilience turn and and as on a scale will of our it honored to focus you. year strength culture

Terry Peterson

Thank you, Dan.

board, and a headwinds exchange second of across Our the project. foreign Census quarter was third despite quarter consecutive the the strong lapping of significant

Our sales our XXXX. operations pandemic estimates sales the in our the quarter first posted impact net our first and top end near came global earlier began of growth in to the we late since of organic

our second consecutive organic represents the in improvements quarter we quarter have fourth our Additionally, sales performance. where reported

of was exceeded only majority not including to income continues very lower be reported also sales. strong operations and prior in for expectation e-commerce-related as our previous products results, of pre-pandemic we consecutive strong. current demand XXXX Labels quarter as and the exceeded In organic the services our it quarter fact, Packaging results Adjusted it also year second quarter, fourth where reported and growth quarter products in growth from but our categories despite the

are of continued capital debt operating We our are we working up a to perspective, which beginning have slightly seeing spin. year reported upcoming most at with we peak, any outstanding second of XXXX and for sales sales focus which improved margins. nice the is is the sitting our that recovering the quarter is amount of significantly to build now our $XXX XXXX, our level from debt debt is we a outstanding lowest began since previous on structure, for the years. on due Versus flow-through as consistent From ever the debt driving June down million, the cost

shortages and continues While in by for key to challenges shipping demand chain services companies and hard to caused container to delays our labor inflationary China. are increases strengthen, like we products disruptions, overcome working ports shortages, most supply related significant including

balance challenges and doing have are overcome for second our future. expect me remarks, more outlook so but challenges started our the I'll the continue about the expected in not as let quarter foreseeable with first to subside of We these prepared the quarter my in in to year mostly talk a these of second get we review performance. later

were The Turning we sales foreign quarter, of in to slide second up basis, reported Net which growth due included million to the an net organic benefit On a XX.X% X. in $XX.X exchange. XX.X%. from of increases of due products the from pandemic. sales the to is demand reported most demand and recovery for product continuing categories in increasing COVID-XX our sales services, our including

for organic delivered another segments, strong organic with Business Statements product XX.X%. quarter reported the Services of categories For growth growth. except All

sales completed second packaging, to including a mid-XXXX. performance in Also, grow XX.X% million Marketing Importantly, of supply labels our experienced creative of for growth X, All cards. continue our products quarter by organic $XX.X delivered existing win strong except as product includes On organic reported the as increases focus which census new XXXX. our Print chain from and income digital clients was spend, million demand areas, in in management increased than of from and of we who our we slide solutions, partially growth. clients' Solutions with clients. trading operations Commercial last and $XX offset adjusted higher sell business the again marketing-related in growth year's strategic was project, categories, result organic

of the from combined operating XXXX operating largely margins from margin variable points. our XXX to reduce which X.X% to volume mostly targeted the approximately project. commission sales year, prior on an in basis was expense. operations In in expense, higher the SG&A structure, with up $X this adjusted second quarter as X.X% or Adjusted representing compensation both benefited million China; and associated increase $XXX.X price; quarter, in variable foreign an exchange, increased income stock sales incentive of X.X% in than our sales expense by corresponding more actions operations incentive the increase in well reflecting expense and as census compensation was cost year's unfavorable in last with the million company's taken driven Higher offset higher and addition, our $X million from increase higher

per of compared in XX.X% reflecting higher our increase XXXX in as adjusted year this ongoing The expense quarter reported second $X.XX adjusted serve. sales, to improved by a taxes. efforts earnings, was As company's loss $X.XX the a operations share per attributable to to offset expense, partially income percentage adjusted from from operations, unfavorable SG&A of lower share XX.X% the cost from quarter, to lower the interest was in continuing to quarter. income prior and Adjusted

rate and reflects a increase. was XX.X% XX.X% Last quarter versus CARES adjusted tax the Our period tax rate from ago. in statutory effective impacted Act tax a year's rate the year by negatively foreign the benefits the is current

for impairment lower last beginning were charges other the lower reduce restructuring, of than termination and results charges onetime related which the the due taken to structure agreement. with $XX.X our GAAP Our actions at cost million consulting charges cost employee the a and of to to quarter $X.X million, year aggressive pre-tax pandemic associated included

extinguishment repaid swap primarily and in we million loans $X.X to term the incurred issue portion addition, the off terminating associated debt $X.X debt charge with certain rate of our of on a with a associated costs. writing interest agreements million unamortized loss In related quarter

now XX. balance and on the to Slide flow sheet Turning cash

to was hand credit slightly billion, at debt capital, on we net holiday year-end $XXX.X total prepare total for higher XXXX, million on began total cash season. which the $XXX.X of million $XXX was had available the prior and up $XX.X As of Availability outstanding due upcoming versus working end of quarter June the we to XX as $X.XX facility the on hand million the million. cash of was including liquidity and

the Cash in year in settlements swap sum by $XX.X X.X X.X during times times of for agreements. XXXX primarily million at net terminate XXXX XX ratio driven period. June XX leverage incentive ended improved to of interest $XX.X June prior times activities gross XXXX was and lump year XXXX, million from with X.X compared operating higher X.X payment XX compensation payments; million certain leverage improved ago. bankruptcy-related six June increase the LSC cash is to months operations The million used Our used associated the ratio in a while at payments, obligations, during from times $XX.X $X.X employee, retirement of and tax mostly rate a from

positive results $X.X payments. operating offset year. to in lower ended were were summarizes deposits months and several of included buyer gain XX, balance net transaction time million US. discontinued prior the million this XXXX expect key flow improving restructuring of and to our some our the to record complete $XXX.X additional of These and actions significant and expected significantly $XX.X have date, than sale six operations. notified until year scheduled does sale million the government, a can by we the approximately facility to in approvals total compared are $XX the addition, million both cash Capital nearly Once factors our since after yielded the deposit to interest collect last on net this $XX.X The leverage. later of printing in is have lower partially the the in improve while our of getting taken to transaction million and year. so not we $XXX approvals million June required outstanding to To XXXX sheet. XXXX. continue from In from the an expect XX we have has wait expenditures of proceeds a originally they China, Collectively, regards Shenzhen close debt reduction efforts repatriate pending for In Slide longer collected we transaction. the we we process government close the us to that recently taking Chinese the regulatory do that gross

of of them is buyer with to requires retain the XXXX, the to or government's with terminate pay in reason, debt contract four installment the of generated proceeds is year-to-date buyer and Our any maturities purchase agreement If $X approval on XXXX final approximately of XX, outstanding sold RRD various Slide properties our June price the terms to XX% the fails XX comply damages. we delayed. entitled as of December million. in if which for shows even liquidated Also the XX. have the

the the second used During secured term quarter, loan of in issued due million we proceeds of portions notes credit $XXX senior to facility. repay and XXXX new our and

In credit another transactions our significant XXXX. sheet our two and improve now flexibility. Completing in these to in step matures balance addition, extended forward strategic we amended represents initiative our which facility

reflected are XXXX full-year on for Slide XX. expectations Our

payments repayment $XXX in interest is exchange. the certain expected XXXX progresses. significantly expense is X% reductions approximately half in up the prior $XX changes interest of in reflected year higher expected benefits the than XXXX. by non-GAAP the those year further providing as connection recovery which to reported for to the Although, XXXX to also expenditures reduction with expense foreign non-GAAP impact offset are impact and rate negative This it to is repurchases uncertainties of supply expected many exchange $X.X unpredictable reflecting deferred flow company is foreign be to X% million of the lower is projects bankruptcy year. debt expects now unfavorable in million be associated guidance year. remain million. $XX year current average year outlook XX%, inflation, continuing flat the exchange as and rate after of quarter year be than slightly expected $XXX taking payroll for following rate Full impact expectation sales operations be flat million employer the actions. Non-GAAP continues swap of to in be half interest from to pandemic, assumes The April and LSC now due interest be the exchange. of be the into Depreciation agreements were million adjusted approximately to for CARES related of compared from and is settle be charge rates, benefits year. its approximately cash recovery chain from lower including prior tax pace the the improved with are borrowings the roughly operations shipping disruptions, last in higher foreign the while At The including include to nonrecurring prior now year. is loan is repayment. non-GAAP company the XXXX and the and aggressive versus year approximately up portion average the for adjusted excluding Operating term effective XXXX. GAAP-only to project the disruptions reduction terminating the full-year company of along expected consideration a to for from economic related had from delays in Act from the from to expected as company to labor repayment chain income its from reduction to has to Net expected increases pandemic-related to increased Capital expected overcome benefit excluding expected Census from lower with the slightly Previously XXXX income million a prior to the taxes to inflationary the shortages to $XX future prior and second obligations rate cost supply onetime approximately the be

later for million now open printing proceeds facilities. additional proceeds line our from the generating also collect XXXX. of let's sell assets operator, of continue in approximately expects facility company the to expects to additional from monetizing agreement part China, company the The other up in one And deposit selling to questions. $XX As including

Operator

Thank you.

CJS question the first We Strauzer will Instructions] session. Securities. with from now of begin the comes Charles Your [Operator line question-and-answer

Charles Strauzer

Hi, good morning.

Dan Knotts

morning Good Charlie.

Terry Peterson

Hi Charlie.

Charles Strauzer

to maybe wanted being -- could, quarter. a print outlier mentioned of you minutes and as mentioned obviously. trading delve by little cards Commercial bit a trading little product big I we line the pretty as deeper here. part just if maybe a in But the a in take there to growth let's Dan, deeper drivers dive growth impressive Very few was that. -- you bit

what of, business, Just potentially more, one-time more kind kind was catch-up versus of, sustainable trying out figure growth. to

Dan Knotts

note Yeah, products trading within touch within growth part had to commercial a types note of print producing we important cards Charlie, different to I'll And go the that -- commercial platform. that business it's that print combination it's on the as start that clearly that also but really mentioned list, we contributed that, categories our top the product that services if of think business of number really to are I in of of an quarter. being impact different it's on at important the that a I

of large of Charlie, broad are I'd the informational products general within midsize There that. as touched flowing standpoint documents of unique through more continued events bit cetera. continue There that. variety. there to little that instructions attribute and brochures documents But Within more that -- a strengthening the from I'd So and drive packaging. healthcare of e-commerce label et commercial and are of more a the lot terms opposed client the from we to for such of making channels card type specific on platform of that would is different strengthening front and trading that Terry a that print. are strength on in small runs particularly within it to piece to see platform, -- demand through -- are client through so marketing packaging peaks volumes -- as a volumes use outside run a cards it the a valleys recovery but or describe labels, that more But of through I one-time that it's say and trading generally and

the economy we've a from overall of and business element from the core say marketing on to as digital If and wins New well that services had also front But give different same running pretty the print of that's products recovering DM client run general environment there one-off focus I I, message everyone digital is that. on a solutions, product the the that's variety a type a clients supporting there within being activities occurred would as would and that really to much straightforward that thing of I second demand print perspective and the I is and that chain as direct supply type quarter. on driven that I by marketing has that shift the in side, the through services. demand there through recovers that strengthening opposed

Charles Strauzer

the and should Thank about maybe assumptions what more the to and very guidance a a about could there? see current think Terry how talk if expand much. we Excellent. spend quarter for you little minutes in the you, you QX couple of just bit as to we should

Terry Peterson

Yeah.

as quarter. have there was Census the throughout, if outliers done, of one-time was -- always didn't have no We the think that with now kind really smaller Dan in that projects second I outliers start projects. is you by quarter revenue, of second way mentioned, the one-time large but really there any

continue Now we ahead through. and we look as demand to fourth a third see to coming quarter, the strong

pandemic never fourth And in and do we anything. more one-time even year. at challenge we Third guidance Those those. in projects came any bit are of up how fourth related now. third some fast we that there quarter Those last quarter. were of in time, quickly did through. of issuing right a came bit last comps in true little with a of the came see were a that we that a up. given them very forecast do this point in honestly, lapping our forecasting At the holds large that We But quarter challenge and a not bit year, have have that

projects. at But a that mostly the quarter. million We've rate full into that and point year, this recovering so see last the We half. some that that The for setting last an from products mentioned last for of $XX -- million year. is quarter good upon $X perspective. expecting had the QX. easier is those us. to year And we're go that we mostly fourth third rates, even demand will quarter So, million in hit kind it lapping was I a Because booked us, We go last now FX, already as challenges aside, those fourth build create third without the lapping continuing to good. the impact that we're current the against $XX the at of QX ourselves for core started and right would between of quarter

last on don't again million, in here all, rates quarter the cost structure. price change providing that We'll third that's offset right focus So continue will at us. and and that assuming to the Stock another That now hopefully really of would itself expect have creating these benefits challenges some some -- for to volatility continue for manifest the earnings. cost us. we on $X our is item

the that to accounting, which awards a number given price have stock means that is subject every to adjust have them of current we whatever variable quarter. We are our to at

other goes record the price we down, expense. more stock goes it when And the the way. stock when to adjustments goes So, price take up,

is get as focus like hard we that actions potential the there very us. ahead in negative to it's as that's last first to continue on can certainly for So, but much possible And other impact quarter. means to that do a offset that that of second volatile and what hard predict, it, half, through for manage work help identifying and for we'll been and challenge say us to that. Again, and through to will control cost-out trying

kind the are the year. those some half you think things of the of So, about as the to of look last big to again,

Charles Strauzer

just the you? you. And that Great. to Thank lastly, put obligations try what Maybe more a behind touch there. on as can that just analyze have been LSC you taken bit and and to steps little

Terry Peterson

Yes.

opportunities So, couple -- bankruptcy. the we payments to mostly were with favorable plans, pension multiemployer inherited we LSC the of the had through settle MEP that settlement plans the

three. with obligations settle did we of favorable two on So, those discounts on those the

$XX not about that's out plan settle balance million obligation. time, We on that's -- plan sheet engaged for still there, are current one have that think that. at that we our of portion So we the with actively I to still the roughly,

there current unless plan just XX there XX my years. we over negotiate the settle to a small. a and expectation next further on payment would do recurring settle that not significant to So, that. on that very, very annual Again, further discount, we a very -- that, at or opportunity fund But are had again, payments the favorable is basis we

to the see XXXX that have of bankruptcy, lease are could So would that the part settlements, the us. And now, here. $XX But of repeat expect possible charges us. to It's said, the year. million few that big the most related that with the for of a we we have those LSC behind is most payments big fund of behind we last most here in that balance half wouldn't small we year XXXX the we like to for that paid the in anything the

Charles Strauzer

can for on lastly the to you obviously I there? just commentary And response further us that -- Thanks. me any your provide letter, the for Chatham any saw just Dan, commentary Great. just

Dan Knotts

wouldn't say have already have additional what any beyond Yes. commentary we Charlie, I there, released. we

Charles Strauzer

Great. Thank much. you, very

Dan Knotts

Charlie. Thanks,

Operator

Instructions] now no I And would at Knotts. back the there questions to time. further call [Operator over Dan like this turn to are

Dan Knotts

remarkable. RRD building all you Great. our you. Johan, around to doing for RRD truly back stronger we're you of you. all for hard certainly takeaways sincere Thanks, XX I'd Thank presentation. levels even confident Brandy. today found world. everything the key of future. is the slide at to to like seeing The we closing, In is I'm summary are We leadership doing. of express and the gratitude be are cooperation work teamwork A can appreciation appreciate my our our of employees and that on

Johan Nystedt

Thanks, Dan.

at As call a quarter and can of be reminder, information replay our second you to XXXX quarter us call. the for of Investors RRD webcast XXXX results that section on Thank the found RRD's rrd.com. earnings the access second website joining concludes