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RR Donnelley & Sons (RRD)

Participants
Johan Nystedt SVP, Finance
Daniel Knotts President, CEO & Director
Terry Peterson EVP & CFO
Charles Strauzer CJS Securities
Bill Mastoris Robert W. Baird & Co.
Call transcript
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Operator

Welcome to the RRD Third Quarter 2021 Conference Call. My name is Amitras, and I will be your operator for today's call. [Operator Instructions]. Please note that this call is being recorded. I will now turn the call over to Johan Nystedt, RRD's Senior Vice President of Finance.

Johan Nystedt

thank Conference for Call. and Quarter RRD's Amitras, Results XXXX you, you, joining everyone, Third Thank

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

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

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

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

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

Daniel Knotts

Great. and joining Thanks, on It's morning, to great for today. our you with call you, Good us everyone. Johan. be thank

which discuss this in we price that results, net billion, entered agreement the that quarter is announcing cash. October RRD to we press XX, per by Management offer all debt. XXXX, last transaction Chatham earlier not approximately Asset into of trading stock for third common day by to share an XX% issued prior on today a represents we $X.XX $X.X enterprise Holdings I'm to is first share them. by review the unsolicited The morning, of owned already to a release a affiliates have the value acquire acquired Before our $X.XX of over The Atlas of be announced announcement we the closing per total definitive including going of premium the

Directors period. from unanimously Board stated analysis in RRD's our solicit advisers careful transaction is our our Board believe the with assistance to of of Under Directors this agreement, In the days. third superior its may superior RRD calendar a accordance proposals solicit Atlas. XX of agreement, during for proposals the with period parties in intends approved together best that we effort the of with independent this of As interest and and an we RRD the its stockholders, thorough press advisers, release, with transaction

and the materials, review related will you we filing due recommend become once they a merger We agreement and be course, them available.

X. to Turning Slide

third delivered into very now half first through strategic strong momentum, execution Building well-defined our Let's in we the our turn underlying of the results quarter consistent quarter. strategy on initiatives.

both Services year-over-year with segments of sales delivering achieved growth we and performance. line, Marketing second On favorable quarter our organic the consecutive Solutions our Business top

while quarter operating front, margin income adjusted performance. year's adjusted also surpassing third income our from pre-pandemic earnings and margin and operations from operations exceeded XXXX operating the our On third both quarter last

On sheet, quarter prior debt we've year the from spin. level reported end since the third $XXX third the was quarter, level million down our lowest quarter debt any the for balance which represents

are teams aggressively result sales direct pursuing existing new of drive with Our favorable growth. targeted to results our a and opportunities clients

X margin organic They areas. on demand showcased increase Direct our as on single-source growing EXPO an the collective color Las focus the industry-leading results. management. client and from sales QX X.X% adjusted increase quarters year around continued teams more PACK requirements, favorable were growth million their that packaging billion, income September. store segment online key Labels at Packaging continues prior sales performance, by differentiate RRD Top pace recovery prior keep executing We team's label and to to leverage points client organic of I'd little reported growth appreciative X.X% and level, capabilities, rate a like from the combat and $XX.X due our in value led and a continue On to hard folding which on $X.XX to Net performance adjusted XX.X% XX the and Print Solutions. Marketing net Including quarter at strong of a Services X.X% the diligently while Marketing of support over were working prior battling reported and end-to-end provide And Print, positive the for world our led team and Commercial our to year. Our labor our the QX procurement up all services achieved across global tremendous chain by compared Marketing sales operations, our performance. in a brands overall I'm our Truly cartons strategic operations its for operating include our categories. supply product growth to we've to versus with these now the basis shelves. teams cost challenges, consecutive products improved bottlenecks. agility lows. level organically our high demonstrating solutions to these clients' Solutions Vegas Digital premium Business entire achieve work year. achieved a effort, in our pandemic

our our through improve execution higher financial initiatives performance core, of financial our and strengthen growth to favorable underscores strategic flexibilities. offerings value revenue successful the drive Our

Our demand surge diligently more clients, other and increase optionality pandemic agile to through to for are including suppliers and supporting supply chain and manage moratorium become our innovative we have our disruptions, in to response, Related alternatives, now implemented changes, allocations chain clients. In the productivity limited supply. processes with been provide new in our providing product supply clients suppliers shortages through format inflationary the and introducing are and teams first, to disruptions, working while paper challenges. have fiber-based labor and

to there many existing teams closely Our to this range that environment recent like RRD answers new recall, of solutions navigate we successfully to wins share and and of across few chain functional our To together providing a client examples were reinforce and are On X, find the are as clients. with working These types I'd FDA to services good who blood opened having a may supply this patient-centric our compliant quarter, third-party are involving new that end, secured COVID-XX for last as both rules that you of privacy a and Slide clients. We technology Seattle-based breadth broad chain provided in we Tasso, volatile opportunities collection. that's home solutions. products as a with for state-of-the-art HIPAA time, manufacturing regulations well for with supply diagnostics. addition developed new kit logistics test anywhere, agreement any that company Inc., partners require has practices year,

for strategy logistic scale print our This demand. services work meet kitting, market providing incubator will side-by-side begin Tasso's bring blood is our products win we of quickly This increasing and where with digital complete quarter, fulfillment with communications, another we to systems to new and and start-ups collection devices. potential integration to the example

to print directly is and technology dynamic customers. variable company the Our way to investments new drive and tiles photos our print that recently shift to leveraging of Mixtiles, printing. the as innovation continuing on-demand Print to a our lead a We're with photo to and extensive meet the Digital us fast-growing in for our ongoing produce company's is established the redefining our printing homes high-quality hang offices. for personalized capabilities in way clients their partnership business consumers and RRD committed well. needs in continue We've platform international data

X. Turning Slide to

We a print-on-demand an standard created are who a completes and by multiple production design, We just to for health all-in-one the supporting a consolidating members. plans fulfillment insurer large inserts of design supported that merger into by strategy. new a numerous health welcome kits integrates book,

with while Our drives storage, materials, assembly and welcome efficiency comprehensive manual associated and obsolescence of kits. costs eliminating their solution consistency

new an innovative offers example, And agreement, communications, in easy-to-use on that business information employee a forms with packets, making contract platform to the who they their providing core critical recently administrator as final communication a new focus of and As client tools enrollment customers. is won benefits benefits benefit this This annual RRD their model. has be a people will printed other their the selections. outsourcing that hire business by assist communications so we requested printing can materials, including digital under leading

extensive we model. their and requirements business evolve support future to forward, their Going our will capabilities and print as leverage grow current they

Slide to Turning X.

recent Terry, clients; honors representing supplier to service commitment recognizing we to highlight quality and X the of providing second to to the like high over the level call our I'd we the turn are received, I Before and our first diversity.

labeling XXXX quality, the work Excellence met standards Award, the recently exceeded and global company. Foods were stringent branded Hormel's our recognized Hormel Spirit or We for XX deliveries. customer First, support one on-time celebrating outstanding with food of suppliers who of RRD for

our diverse Supplier the collective over this its diverse, next I Terry to RRD the for use world, through we businesses. to commitment will important with financials. turn We And a is Second, partners to to publicly power help to purchasing commitment are for recognition. our and more JPMorgan it diversity inclusive recognized JPMorgan honored over and to their you X receive suppliers take of business an minority-owned spending increase component Chase with toward years. our urging applied equitable that,

Terry Peterson

All right. Dan. you, Thank

board was of foreign quarter exchange Our significant headwinds. third the fourth despite consecutive a quarter across strong

came consecutive it from and than income growth including expectation our and the service sales. categories very we of our Labels reported it but quarter per demand where sales, results also fifth we not as for of continues strong. products our as quarter organic related year expected. share diluted from prior despite current only in XXXX the had earnings our Our quarter, be lower operations all was strong results, growth exceeded in pre-pandemic better year products e-commerce and Several also in in exceeded reported Packaging, previous third operations Adjusted to income

lowest the seeing sales at since From margins. million operating September focus a the bottom recovering of cost and $XXX a nice level versus are for have amount spin. We reported our perspective, due driving XXXX through we debt and quarter down are on to sitting ever on debt XXXX, we improved third is continued any structure, is line flow that to which debt of outstanding now leverage the our

our and strengthen, companies, for hard to services are and chain While continues demand with products availability. many we, to our supply working overcome labor significant challenges like

increases material have all mentioned, we previously of Dan seen As suppliers. price from our nearly

labor the container shipping delays wage And current for have elevated domestic ports, including conditions. We due key experienced shortages pressures we caused workers by to in market from experienced have shortages and and international China. manufacturing disruptions

levels We've offset on our numerous for our In availability role taken our continue suppliers, quarter of also to closely inflationary new ongoing cases, with have these impact recover played to product some including help work performance. many the inventory me products let lastly, a adjusted structure challenges, in with of clients cost secured working review get our an suppliers. and we third have services actions our also have increases. formats. have alternatives efforts important and increased new And overcome of issues. and to ensure to we and product our reduce with We to With transportation to that, helping prices started these

We in an to reported Slide increasing Turning sales On product organic for our growth to sales up due Net increases we our million of of sales foreign of in due were to in services. categories several basis, benefit net third quarter, $XX.X X.X% the X. X.X%. products reported and demand exchange. a which included

Packaging This quarter sales driven remarks win segments, the X.X%. Business grow Also, Commercial consecutive focus well areas of fifth demand to other clients. of Services and for the continue another our China. and as For strong delivered Labels quarter we U.S. our with produced strategic we have reported third in exceptionally quarter business existing market growth the in organic printed performed products strong organic and new growth products in cards the Print with by in trading

chain projects supply onetime the our management prior the expected, due quarter a to services in reported kitting As large year. a in decline COVID-XX-related couple

the in a onetime fourth product this organic spend. X.X% fourth reported growth of quarter report prior increases expect result category Marketing We marketing-related of clients' another in large as year the Solutions quarter to projects. additional included decline as

While continue to delays in the clients marketing the quarter of operations was supply ramping demand than is On experiencing. to are Slide improving, million third part chain XXXX. $X.X income see due XX, we adjusted in disruptions $XX.X higher up of million our from

million operating In with addition, from unfavorable $XXX.X foreign operations cost COVID-XX-related margin in incentive projects, targeted the third offset margin Adjusted and higher year million expense X.X% variable and reduce or basis quarter company's approximately expense quarter. in up Higher $X sales, was and the adjusted to the structure, SG&A corresponding from more operating than our X.X%. the year's both of points prior benefited increased the million exchange. $X.X income to compensation last actions from combined XX taken impact onetime this

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

U.S. effective benefits a driven quarter earnings a in greater ago. rate XX.X% improved favorable tax expense This versus Our and a XX.X% adjusted discrete was deduction tax the rate by interest benefit. year's reflects from year

reduce aggressive for during recorded lower prior charges taken lower year GAAP pretax charge $XX.X liability as of other $X million included actions termination LSC's million, quarter year, and structure. as which in employee last charges for Our with results impairment cost primarily due XXXX the our the were well a restructuring, associated MEP to than the onetime cost to

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

we at the of and hand, on billion. of XX, $X.XX XXXX, facility As cash total outstanding was had total quarter, total million. hand including cash on credit million of and availability, $XXX.X the of on September debt $XXX.X $XXX.X million Availability end was the

capital of September leverage Cash from September provided XX, X.Xx X the ratio activities net XXXX, rate inflation, prior XXXX, the $XX.X at payment year increase a months XX, volume while leverage million due operations The is September certain and payments, X.Xx gross million during compared cash X.Xx to operating improved million interest bankruptcy-related year to primarily used of used ago. X.Xx XXXX, activities and ended higher from compensation was $X.X in swap improved XX, tax at XXXX period. in of ratio during by driven investments $XX.X operating and payments, a Our LSC cash from the of by in $XX to increased terminate million working incentive agreements.

flow taxes million operating as by discontinued cash of to line from year open prior million included expenditures the partially positive the months In And XX, the up and the These payroll factors ended Act were were $X.X CARES last offset addition, $XX.X the $XX.X operator, results benefited part lower of of deferral from X of million and now lower XXXX, questions. compared September interest year. let's in for Capital payments. the operations. restructuring

Operator

Instructions]. [Operator

of first question the Securities. line Charles Your from CJS Strauzer comes with

Charles Strauzer

bit obviously, with to on but just you plays about came with -- wanted the talk a a that ongoing began if And to point. that about more pros, shop when a be this It Atlas. period, news about little bit and see I go now? for I how little it obviously to guys meet was that. that And congratulate interesting getting something of Exciting could was to will maybe you while today, wondering out, the you XX-day talk how kind was

Terry Peterson

several taken years in -- options. for Yes. Charlie, jump of looking strategic in very some part But have take options They've relation a strategic and and spin. review diligent responsibility well. ahead been very to seriously fill our and as at their each can and been has assets our year I'll Board Dan at it, it's work go taken that in our gaps in and strategic and always very,

option, there preparing to that process but diligence on for materials, has did And shareholder of -- descriptions been many I been obviously, the Atlas you transaction. and been our we We've on about we looked about an followed with a and be first, been about process. able process be considerations that I that's that, that opinion the will such tell that for a really the working But that part lengthy and will details meeting what due be them contacted also with can't shareholders Specifically we place. multi-month extensive receive vote who presented in it's those that get and too will fairness a into the long details as who discussions including process eventual where the considered, Board valuation advisers. to from the will like

Daniel Knotts

Board say, the stockholders. is of the strategic the of priorities regular multi-month numerous the several And that I Charlie, rigorous as best RRD RRD's included interest strategic reviews, The over a I'd past due years. mentioned, options mean, and We've result diligence. evaluated Atlas our Terry announcement, process RRD in

We of of filing. Additional background the section the in provided details our be will merger in the proxy background.

stockholders. to a the strongest So reinforce more transaction that RRD path to come our this that. interest of on its unanimously in the forward believes best just And Board is and

Charles Strauzer

a -- at accept a XX-day if go-shop period, should we basically, breakup you've got this? you is And there did the look -- fee

Daniel Knotts

a for breakup circumstances, termination proposal. by to fee for superior RRD in agreement for alternative including into is certain a There an RRD Yes. enter payable

Charles Strauzer

at Got this quantify you. that And point? can you

Daniel Knotts

triggers merger which being agreement, the of fee in and the forth are terms is breakup filed... The set

Terry Peterson

later Yes, that we filed today.

Charles Strauzer

if you supply housekeeping would could, the results. one product able just margin on Terry, EBITDA then And services the be each Great. question line? you and products it. Got to for

Terry Peterson

categories. do publish margins EBITDA We not the individual product by

So we not the have and produced in I don't something that that's have that, past.

Charles Strauzer

terms confirm? performed Got just just to it. terms how commentary profitability, And of lines the in in have of various any product

Terry Peterson

lines we X we as we X the Yes. I We've of and approach, have as have when in areas. of -- improving our opportunities cost well mean business that very, cost all not for we taken really company. a our I'll you kind the or tell and any broad focused across in functions structure, SG&A our different reductions very went single approached

that but certainly categories, are So I most our categories, benefit maybe would those from that. of some of all, most all seeing say

a So top about across you'd so of X from and for improved alone U.S. if print over I've and that had -- up XX%, category, But line Print the and in you the the cards China, just trading the products product increase in have certainly million was that very the are where from are very, the products strongest margins $XX produce this to there. quarter quarter a profitability back domestically just which the category the standpoint, categories, they that to And was increase, call after many contributing over strong we really to we the performance business led product Commercial that commercial of that see is it that look board. at the exported

were of X the quarter, those Print. are in were that had again, performance those standouts the quarter. portions kind nice within But again, many the standouts really of our but for the products So Commercial

Daniel Knotts

that. to Charlie, to just And add

last a changes to cost going not would place, be things structure we our be is when changed that those remain fixed be were the in making changes infrastructure our we're to to portion year of said -- back. coming would we of significant One and cost

volume, sales permanent those of changes returned, made seeing temporary commissions that cost through you're volume financial volumes changes. changes were As we cost like things such with the And cost not return and and as the but obviously, flow does recover. impact

Charles Strauzer

a that just then with potential could how Atlas? foreseen this lastly, got fair. That's combination delay And Dan, any you issues

Daniel Knotts

to going those of Yes. on any speculate issues, Charlie. types Not of

Operator

of line Mastoris from next Your Bill question Baird. the with comes

Bill Mastoris

of structure A for there that with by in terms Is funds? as with amount couple you the can proposed of as contribution on debt detail just well you, Atlas share income any the the the beginning Atlas acquisitions of capital questions maybe type of fixed the the proposal.

Terry Peterson

led were release there and commitments a within Certainly, backstop then is Macquarie. was that affiliates from Yes. participating they named equity have by JPMorgan, facility press also And in and Atlas. the

yet, have of those all so are of commitments on details cannot will really what specifically that. that like capital those So do firm items, look place. not have We in structure released on comment I but been

Bill Mastoris

guess point? I your for $XXX Chatham million more and the equitizing high-yield it's Terry, that this that high-yield holders or publicized broadly, proposed proposition subordinating superior maybe, proposal at well holdings. has Atlas Does of bonds been a value provide then

Terry Peterson

in next proxy I'm that defer information meeting. going our to advance the to out will over that have to a be you kind of in of be shareholder -- statement the we'll publishing

other what what So going I evaluated as best Board consideration certainly comment for as that's to can't like. they look really proposal, well took the into on the as too they specifically felt But certainly, stakeholders. stockholders was

Bill Mastoris

Okay. that another of to maybe additional may any and it? come how you stretch level And acquisition? might comfort closely in I of proposals would leverage up, way understanding that are What's to be stating type far guess willing your be that there related

Terry Peterson

not to would made really really a be by that able that I'm be a comment on because that something That's buyer. would decision

Bill Mastoris

right. All Okay.

Terry Peterson

comment I on just can't really that.

Operator

no call the questions further time. to I like now at over There would Knotts. Mr. to are this turn Dan

Daniel Knotts

what's to To for we today's Great. drive coming the to continuing around day. march our again, Atlas call. Thank every our of to have RRD, and are work our forward RRD announced at for look will by you Johan, thank single value. great helping Thanks performance their our for outstanding clients we everyone, important strategic you. delivery everyone, forward we a the believe, further again, to The prioritize and objective back for you employees Atlas, to partnering day. with This providing strategy. advance our excitement customers, better and we with continue acquisition with connect clients joining as

Johan Nystedt

Thanks, Dan.

found webcast for Third the information RRD's to Earnings Thank third us, can joining quarter replay on RRD the rrd.com. XXXX our of of website the be a results you concludes Section that As Quarter Call. XXXX at Investors access reminder, and