FIRST QUARTER 2020 RESULTS...6 FINANCIAL TRENDS –PROFITABILITY Non-GAAP Adjusted EPS(1)-$0.06...
Transcript of FIRST QUARTER 2020 RESULTS...6 FINANCIAL TRENDS –PROFITABILITY Non-GAAP Adjusted EPS(1)-$0.06...
Confidential and Proprietary of R. R. Donnelley & Sons Company. All rights reserved.
FIRST QUARTER
2020 RESULTSDan Knotts, CEO
Terry Peterson, CFO
Johan Nystedt, SVP, Finance
April 29, 2020
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USE OF FORWARD LOOKING STATEMENTS NON-GAAP FINANCIAL INFORMATION
This presentation contains “forward-looking statements” within the meaning of, and subject to the safe harbor created
by, Section 21E of the Securities Exchange Act of 1934, as amended, with respect to the business, strategy and plans
of the Company and its expectations relating to future financial condition and performance. Readers are cautioned not
to place undue reliance on these forward-looking statements and any such forward-looking statements are qualified in
their entirety by reference to the following cautionary statements. All forward-looking statements speak only as of the
date of this presentation and are based on current expectations and involve a number of assumptions, risks and
uncertainties that could cause the actual results to differ materially from such forward-looking statements. Words such
as “believes”, “anticipates”, ”estimates”, “expects”, “intends”, “aims”, “potential”, “will”, “would”, “could”, “may”,
“considered”, “likely”, and variations of these words and similar future or conditional expressions are intended to
identify forward-looking statements but are not the exclusive means of identifying such statements. Such forward-
looking statements are only predictions and involve known and unknown risks and uncertainties. The Company does
not undertake to and specifically disclaims any obligation to publicly release the results of any revisions to these
forward-looking statements that may be made to reflect future events or circumstances after the date of such
statement or to reflect the occurrence of anticipated or unanticipated events. These factors include such risks and
uncertainties detailed in the Company’s periodic public filings with the SEC, including but not limited to, those
discussed under the “Risk Factors” section in the Company’s Form 10-K for the fiscal year ended December 31, 2019
and other filings with the SEC and in other investor communications from the Company from time to time.
This document contains non-GAAP financial measures, including non-
GAAP adjusted income from operations, non-GAAP adjusted operating
margin, non-GAAP effective tax rate, non-GAAP adjusted diluted EPS
and net organic sales growth rate. The Company believes that these
non-GAAP measures, when presented in conjunction with comparable
GAAP measures, provide useful information about its operating results
and enhance the overall ability to assess the Company’s financial
performance. Internally, the company uses this non-GAAP information
as an indicator of business performance, and evaluates management’s
effectiveness with specific reference to these indicators. These
measures should be considered in addition to, not a substitute for, or
superior to, measures of financial performance prepared in accordance
with GAAP. A reconciliation of GAAP to non-GAAP financial measures
can be found in our periodic filings with the Securities and Exchange
Commission and in the investors section of our website, www.rrd.com.
SAFE HARBOR & NON-GAAP
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Highlights
• Adjusted income from operations increased $18.7 million while adjusted operating margin improves 150 basis points
• Adjusted earnings per share of $0.33 increased $0.39 from the prior year
• Continues strategic focus on optimizing business portfolio – completed sale of Logistics Courier business and exited operations in Chile
• Operating cash flow improved $50.4 million from prior year – capital expenditures down $19.7 million
• Total liquidity in excess of $600 million – proactively increased borrowings on revolving credit facility to help preserve financial flexibility
FIRST QUARTER OVERVIEW
• Consolidated
– Reported: (7.4%)
– Organic: (1.3%)
• Organic by segment
– Business Services: (4.9%)
– Marketing Solutions: 13.4%
– Reflects a reduction of 2.9 percentage
points due to the COVID-19 impact in China
• Income from operations:
– GAAP: $8.8m, includes $20.6m for goodwill
impairment charge
– Non-GAAP adjusted: $55.1m
• Operating margin:
– GAAP: 0.6%
– Non-GAAP adjusted: 3.9%
• Effective tax rate:
– GAAP: 38.9%
– Non-GAAP adjusted: 5.2%
• Diluted EPS:
– GAAP: ($0.18), includes $0.29 goodwill
impairment charge
– Non-GAAP adjusted: $0.33
• Cash used in operating activities: $79.6m
• CapEx: $17.7m
• Total debt: $2.17b
• Interest expense: $33.9m
• Cash and cash equivalents: $450.7m
Sales Profitability Cash/Debt
A reconciliation of GAAP to non-GAAP financial measures can be found in our periodic filings with the SEC and in the investors section of our website, www.rrd.com, including in the Form 8-K furnished with the SEC on April 28, 2020.
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UPDATE ON RESPONSE TO COVID-19 PANDEMIC
Protecting the health and safety of our employees
Monitoring recommendations and adhering to best practices published by the World Health
Organization and the Centers for Disease Control
More than 10,000 employees set up to work from home
Screening employees as they enter the workplace
Supplying employees with a combination of disposable masks, cloth masks, and face shields, some of
which are being manufactured at RRD facilities
Meeting the needs of its 50,000 global clients
Printing and distribution operations continue to be classified as essential and remain open with the
exception of certain small facilities in the Caribbean
Receiving pandemic-related orders in many parts of its business
Preserving financial flexibility
Aggressively accelerating both permanent and temporary cost reduction actions to lessen the impact
from lower sales volume as a result of the pandemic
Previously suspended quarterly dividend
Increased borrowings under the revolving credit facility as a proactive measure; total liquidity in excess
of $600 million
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Commercial Print33%
Logistics18%
Statements12%
Labels11%
Packaging11%
Supply Chain Mgmt
6%
Forms5%
BPO4%
Direct Marketing
56%
DigitalPrint &
Fulfillment35%
Digital & Creative9%
US80%
Asia11%
Europe4%
Other5%
FIRST QUARTER NET SALES PERFORMANCE (AS REPORTED)($ In millions)
Marketing SolutionsBusiness Services(1) Consolidated(1)
Q1 2020 YOY Change
CommercialPrint(2)
$363.4 (14.0%)
Logistics(2)
$195.2 (3.2%)
Statements(2)
$126.9 (15.1%)
Labels(2)
$121.6 0.9%
Packaging $115.1 (17.5%)
Supply Chain Management $69.7 (11.2%)
Forms(2)
$52.4 (16.0%)
Business Process Outsourcing(2)
$41.4 (33.0%)
Total - Reported(1)
$1,085.7 (12.2%)
Total - Organic(3)
(4.9%)
Q1 2020 YOY Change
Direct Marketing $182.8 23.1%
Digital Print & Fulfillment $113.6 3.6%
Digital & Creative Solutions $27.4 (0.4%)
Total - Reported $323.8 13.4%
Total - Organic(3)
13.4%
Q1 2020 YOY Change
US $1,133.0 0.9%
Asia $150.0 (23.7%)
Europe $59.8 (51.6%)
Other $66.7 (15.4%)
Total - Reported(1)
$1,409.5 (7.4%)
Total - Organic(3)
(1.3%)
By Products and ServicesBy Products and Services By Geography
$1,085.7 $323.8 $1,409.5
(1) Individual products, services and geographical categories YOY change are as reported and do not reflect the impact of business dispositions and FX.
(2) Products and service categories which have an impact for business dispositions and/or significant closures (Commercial Print, Logistics, Statements, Labels, Forms and BPO).
(3) A reconciliation of GAAP to non-GAAP financial measures can be found in our periodic filings with the SEC and in the investors section of our website, www.rrd.com, including in the Form 8-K furnished with the SEC on April 28, 2020.
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FINANCIAL TRENDS – PROFITABILITY
Non-GAAP Adjusted EPS(1)
-$0.06 -$0.03
$0.31
$0.44
$0.33
Q1 Q2 Q3 Q4 Q1
$36.4$39.2
$77.0
$93.8
$55.1
Q1 Q2 Q3 Q4 Q1
Non-GAAP Adjusted Income from
Operations(1) ($ In millions)
$267.7
$243.8 $246.4
2017 2018 2019
$1.20
$0.70 $0.66
2017 2018 2019
Annual
• Adjusted income from operations and
margins increased vs. prior year period
primarily due to:
– Productivity improvements including
$21.4 million reduction in SG&A
– 2020 Census project volume
– Lower incentive compensation
expense
– Partially offset by lower volume in
China due to COVID-19 as well as
price pressure
• Interest expense lower by $6.2 million
• Lower adjusted effective tax rate of 5.2%
includes $6.9 million benefit from an enacted
law change (CARES Act) which increased
interest deduction limitation for 2019 and
2020
Comments on Q1 Performance
Quarterly
(1) A reconciliation of GAAP to non-GAAP financial measures can be found in our periodic filings with the SEC and in the investors section of our website, www.rrd.com, including in the Forms 8-K furnished with the SEC on February
27, 2018, February 26, 2019, April 30, 2019, July 30, 2019, October 30, 2019, February 25, 2020 and April 28, 2020.
2019 20192020 2020
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BALANCE SHEET AND CASH FLOW
$2,171.8
$1,818.4
$2,168.4
3/31/2019 12/31/2019 3/31/2020
Cash & Cash Equivalents Total Debt Operating Cash Flow (Q1) Capital Expenditures (Q1)
• Asset based lending agreement:
– $800 million facility with maturity in 2022
– $450 million drawn; $193 million available as of March 31, 2020
($ In millions)
Key capital allocation priorities focused on preserving liquidity during COVID-19 pandemic
$37.4
$17.7
Q1 2019 Q1 2020
• Capital priorities:
– Reduced capital investment
– Suspended quarterly dividend
– Utilize revolving credit facility and cash on hand to repay
2020 and 2021 maturities
-$130.0
-$79.6
Q1 2019 Q1 2020
$274.3
$190.8
$450.7
3/31/2019 12/31/2019 3/31/2020
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Business Dispositions
Sold Logistics Courier business in March 2020 – $9.7 million
Exited Chile operations in February 2020
Sold GDS business in October 2019 – $47.3 million
Sold R&D business in May 2019 – $11.6 million
Sold Print Logistics business in July 2018 – $43.9 million
Accelerated Cash
Repatriation
Expect to repatriate an additional $50 million to $75 million of international cash in 2020
Total repatriation in 2019 was $327 million
Sale of Properties &
Investments
Planned sale of Shenzhen, China printing facility for approximately $250 million in 2021; $98.2 million in deposits collected through March 31, 2020
Since January 2017, sold nine facilities totaling approximately $29 million, including two facilities sold in 2020 for $2.6 million
Sold investment in LSC in 2017 - $121.4 million
Completed non-cash debt to equity exchange of investment in DFS in 2017 - $111.6 million
Sold other investments in 2017 and 2018 – Approximately $13 million
Cash Flow
Operating cash flow in Q1 2020 improved $50.4 million from prior year; capital expenditures down $19.7 million
Reduced annual interest expense $48.1 million from 2016 to 2019; further reductions planned in 2020; executed interest rate swaps to lock in favorable rates on term loan
Working capital improvements
CUMULATIVE EFFORTS TO IMPROVE BALANCE SHEET FLEXIBILITY
Total liquidity in excess of $600 million as of March 31, 2020
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CURRENT DEBT MATURITY PROFILE($ In millions)
Plan to repay 2020 maturity using availability on the ABL revolving credit facility
(1) Reflects outstanding principal balance
$65 $138$60
$133$275 $252 $150
$54
$69
$450
$350
$543
$0
$200
$400
$600
$800
$1,000
2020 2021 2022 2023 2024 2029 2031
Debt Maturities - March 31, 2020(1)
$65 $118$60
$133 $237$101 $113
$297
$69
$450
$350
$543
$0
$200
$400
$600
$800
$1,000
2020 2021 2022 2023 2024 2029 2031
Debt Maturities - March 31, 2020 Pro Forma after April Transactions(1)
7.625% Notes due June 15, 2020 7.875% Notes due March 15, 2021 8.875% Debentures due April 15, 2021
7.000% Notes due February 15, 2022 6.500% Notes due November 15, 2023 6.000% Notes due April 1, 2024
6.625% Debentures due April 15, 2029 8.500% Notes due April 15, 2029 8.820% Debentures due April 15, 2031
ABL Revolving Credit Facility ($800 million) - Drawn ABL Revolving Credit Facility ($800 million) - Undrawn Term Loan B due January 15, 2024 (annual payments of $5.5 million)
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Q2 EXPECTATIONS AND LIQUIDITY
Q2 sales expected to be $300 to $375 million lower than the prior year, which includes an approximate $94 million
reduction due to recent business dispositions
Continuously updating financial scenarios and taking decisive actions to reduce cost structure
Proactively increased borrowings on revolving credit facility to preserve financial flexibility in March
March 31st total liquidity was $643.6 million
April 24th total liquidity was approximately $550 million after several interest payments and remaining debt
repurchase funded in early April, in addition to normal working capital needs
Temporarily reducing investments to preserve liquidity
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KEY TAKEAWAYS
Strong first quarter start to 2020 despite COVID-19 impact on operations in China
Continuing to meet client commitments while taking actions to protect employees and preserve financial flexibility
Total liquidity in excess of $600 million – proactively increased borrowings on revolving credit facility to preserve
financial flexibility; cash on hand is $450.7 million
Continuing strategic focus to optimize business portfolio – completed sale of Logistics Courier business and
exited operations in Chile
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APPENDIX
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RRD STRATEGIC PRIORITIES REMAIN THE SAME
Strengthen core
Sold Logistics Courier business
Exited operations in Chile
Executed cost reduction initiatives, including SG&A
Drive revenue
Delivered revenue growth in key strategic product offerings
Improve financial flexibility
Improved our debt profile by executing a series of transactions to reduce our near-term debt maturities
and extend our mid-term debt maturities
Opportunistically repurchased $51 million of senior notes and debentures due in 2020 and 2021 to
reduce future interest and principal payments
Sold two U.S. facilities
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Firmly on our strategic path to advance RRD as a leading provider of customer communications
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FINANCIAL TRENDS – ORGANIC SALES
Organic Sales Growth Rates(1)
Annual
• Organic growth/(decline) by segment
– Business Services: (4.9%)
– Marketing Solutions: 13.4%
• Reflects a reduction of 2.9 percentage
points driven by China operations closure
for approximately one month, followed by
gradual increase in production due to
COVID-19
• Business Services declines in
Commercial Print and Packaging
products negatively impacted by China
business disruption
• Marketing Solutions growth primarily
driven by 2020 Census project
Comments on Q1 Performance
Quarterly
(1) A reconciliation of GAAP to non-GAAP financial measures can be found in our periodic filings with the SEC and in the investors section of our website, www.rrd.com, including in the Forms 8-K furnished with the SEC on July 30, 2019, October 30, 2019, February
25, 2020 and April 28, 2020 and the Safe Harbor & Non-GAAP presentation available on our website.
-1.3%
0.0%
1.1%
-2.3%
2016 2017 2018 2019
-3.3%
-2.5%
-0.4%
-3.0%
-1.3%
Q1 '19 Q2 '19 Q3 '19 Q4 '19 Q1 '20
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FIRST QUARTER OPERATING PERFORMANCE
($ In millions) Q1 2020 Q1 2019
Better/(Worse)Organic Sales
Change(1)
$ %
Net Sales $1,409.5 $1,521.9 ($112.4) (7.4%) (1.3%)
Business Services $1,085.7 $1,236.3 ($150.6) (12.2%) (4.9%)
Marketing Solutions $323.8 $285.6 $38.2 13.4% 13.4%
Adjusted Income from Operations(1) $55.1 $36.4 $18.7 51.4%
Business Services $46.8 $41.8 $5.0 12.0%
Marketing Solutions $25.4 $8.7 $16.7 192.0%
Corporate ($17.1) ($14.1) ($3.0) 21.3%
Adjusted Operating Margins(1) 3.9% 2.4% 150 bps
Business Services 4.3% 3.4% 90 bps
Marketing Solutions 7.8% 3.0% 480 bps
(1) A reconciliation of GAAP to non-GAAP financial measures can be found in our periodic filings with the SEC and in the investors section of our website, www.rrd.com, including in the Form 8-K furnished with the SEC on April 28, 2020.