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Edited Transcript of RRD earnings conference call or presentation 26-Feb-20 4:00pm GMT

Q4 2019 RR Donnelley & Sons Co Earnings Call

CHICAGO Mar 12, 2020 (Thomson StreetEvents) -- Edited Transcript of RR Donnelley & Sons Co earnings conference call or presentation Wednesday, February 26, 2020 at 4:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Daniel Lee Knotts

R. R. Donnelley & Sons Company - President, CEO & Director

* Johan Nystedt

R. R. Donnelley & Sons Company - SVP of Finance

* Terry D. Peterson

R. R. Donnelley & Sons Company - Executive VP & CFO

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Conference Call Participants

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* Charles S. Strauzer

CJS Securities, Inc. - Senior MD of Sales & Trading and Analyst

* James Martin Clement

The Buckingham Research Group Incorporated - Analyst

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Presentation

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Operator [1]

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Welcome to the RRD Fourth Quarter 2019 Results Conference Call. My name is Brad, and I'll be your operator for today's call. (Operator Instructions) Please note that this call is being recorded.

I'll now turn the call over to Johan Nystedt, Senior Vice President of Finance.

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Johan Nystedt, R. R. Donnelley & Sons Company - SVP of Finance [2]

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Thank you, Brad, and thank you, everyone, for joining RRD's Fourth Quarter 2019 Results Conference Call. Joining me on today's call are Dan Knotts, RRD's President and Chief Executive Officer; and Terry Peterson, our Chief Financial Officer. At the conclusion of today's prepared remarks, Dan, Terry and I will take questions.

As a reminder, we have prepared supplemental slides for today's call, which can be found on the Investors section of our website at rrd.com. As we review fourth quarter and full year results on today's call, we will reference page numbers from the supplemental slides for those participants who wish to follow along by advancing the slides themselves.

The information that will be reviewed during this call is addressed in more detail in our fourth quarter press release, a copy of which is posted on the Investors section of our website at rrd.com. This information was also furnished to the SEC on the Form 8-K we filed yesterday.

Throughout this call, we will also refer to forward-looking statements, including comments on our financial outlook and strategy, all of which involves risks and uncertainties. Therefore, our actual results could differ materially from our current expectations. For a complete discussion of the factors that could cause our actual results to differ materially, please refer to the cautionary statement included in our earnings release and the risk factors included in our annual report on Form 10-K, our quarterly reports on Form 10-Q and other filings with the SEC.

Further, we will discuss non-GAAP financial information. We believe the presentation of non-GAAP results provides investors with useful supplementary information concerning the company's ongoing operations and is an appropriate way to evaluate the company's performance. These non-GAAP results are provided for informational purposes only. Any references to non-GAAP financial measures are reconciled to the comparable GAAP financial measures in the Investors section of our website as part of our press release.

I will now turn the call over to Dan.

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Daniel Lee Knotts, R. R. Donnelley & Sons Company - President, CEO & Director [3]

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Thanks, Johan. Good morning, everyone, and thank you for joining us. 2019 was a solid year of performance for RRD, driven by the ongoing execution of our key strategic priorities to strengthen our core, drive revenue performance and improve our balance sheet flexibility. Across the year, we took meaningful actions in each of these areas, including divesting of our Global Document Solutions and Research and Development Businesses, exiting the Brazilian market, further rationalizing our operating footprint, completing asset sales and aggressively managing our cost structure.

At the same time, we delivered revenue growth in our strategic product categories, expanded our capabilities through new technology-focused services and successfully deployed our industry-leading platform to expand client relationships and win new logos. We also delivered an increase in adjusted income from operations and operating margin versus last year, and we substantially reduced our total debt outstanding.

Since the end of 2016, we have now lowered our total debt outstanding by $569 million. Through these collective actions, we exited 2019 with a stronger financial foundation, including having the highest level of availability on our credit facility since the spin, and we remain firmly on our strategic path to advance RRD as a leading provider of customer communications.

Shifting to our financial performance. Our Q4 results were in line with our expectations, excluding the $0.09 per share tax charge we incurred in the quarter. On the top line, our reported net sales were negatively impacted by the divestiture of our GDS business and the exiting of the Brazilian market. Organic sales were lower in the quarter, due primarily to lower election-related volume and overall softness in the Commercial Print market as well as within Logistics, reflective of the current state of the broader Logistics market.

Organic sales for the full year declined 2.3%, also largely related to softness in the Commercial Print and Logistics markets. Importantly, 3 of our strategic product categories, Direct Marketing, Labels and Digital Print, reported organic growth for both the fourth quarter and the full year as we work to shift our product mix towards higher-value growth opportunities.

Adjusted income from operations for the fourth quarter was unfavorable to the prior year, in line with our expectations. Our overall service performance and operational execution continued to be strong as we delivered our largest quarter of the year. For the full year, we reported an increase in adjusted income from operations as well as an improvement in operating margin despite lower organic sales. Our favorable full year earnings performance is a direct result of our teams aggressively managing our cost structure, including SG&A, while continuing to navigate across a number of challenging markets and deliver value for our clients.

Our team members perform mission-critical operations for some of the most demanding brands in the world. Our solutions help them tell their stories, create deeper and more connected experiences with their customers and ultimately drive their business performance. Every day, we are earning the right to grow with our clients by delivering the scale, expertise and capabilities needed to execute their customer communications in whatever form or format they want to maximize results. Here are some recent examples of how we're helping our clients do just that.

With more than 25 years as a preferred print supplier to American Airlines, we further expanded our relationship to include the management of their print communications on a global scale. American Airlines wanted a centralized, cloud-based platform to automate the workflow of their print communication process and provide a seamless print supply chain management experience.

Through our integrated solution, we're helping American Airlines improve brand consistency, reduce cost and increase the speed with which they produce their communication materials, including their safety briefing cards, in-flight menus, baggage tags, labels, brochures, direct mail, stationery and signage.

We recently signed a new contract with Microsoft Store to provide in-store signage in each of their retail locations in the United States, Puerto Rico and Canada. Leveraging the combined power of our retail solutions and content and creative services groups, we are serving as Microsoft Store's first complete print studio to boost its in-store marketing efforts. Through our workflow solution, Microsoft Store is able to react to dynamic retail market conditions within hours rather than days in order to gain an edge in a competitive market.

As a final example, for more than 2 decades, we produce prescription labels for a national drugstore chain. This client recently launched a transformational program to infuse growth and innovation into their customer communications and turned to RRD to help them accomplish that objective. Our integrated solution now entails in-store signage, printed collateral, direct mail and web design, providing increased brand consistency and seamless execution across all formats.

And while we're leveraging our current capabilities to expand existing relationships and win new clients, we're not sitting still regarding new product development. In 2019, we introduced 2 new services that integrate print and digital communications channels to assist our clients in generating increased engagement. Cloud Direct by RRD serves as a custom add-on to the Salesforce Marketing Cloud and automatically triggers a direct mail piece when customers take certain actions online. We also launched Digicom, an e-commerce platform that converts catalogs, circulars and flyers into interactive, shoppable formats.

In 2020, we're continuing our new product development momentum with the launch of several new services, including in-store insights. This new solution integrates our in-store display expertise with data analytics and shopper research and will give retailers data-backed recommendations to test and measure the success of future strategies.

Additionally, we rolled out a new packaging offering called brand experience kits. These welcome, loyalty and promotional kits elevate the unboxing experience to help brands deliver better-connected experiences to their customers and their employees.

Last, I'm pleased to share some notable industry recognition that reflects the scale of our Marketing Solutions offering as well as our focus as an employer. In Ad Age's recently released Marketing Fact Pack, an annual guide for marketers, media and agencies, RRD Marketing Solutions ranks in the top 25 biggest agency networks by revenue.

Additionally, the International Association of Outsourcing Professionals awarded RRD the 2020 Global Impact Sourcing Award in the purchasing organization category. We received this award for our ongoing success in hiring and providing career development opportunities to individuals who otherwise have limited prospects for sustainable employment.

And before turning the call over to Terry, I'd like to briefly comment on COVID-19. Terry will cover the projected financial impact on our business in the first quarter, which like most impacted companies, we are assessing in real time as this situation continues to unfold.

The health and safety of our employees is our foremost priority and we are focused on supporting the health and well-being of our China teammates during this public health emergency. All of our production facilities have reopened. However, we are facing a slower ramp of our operations due to labor availability. To our team in China, we are thinking of you and we're grateful for your efforts and your commitment to your health and safety, to our clients and to our company amidst this public health emergency.

And with that, I'll turn the call over to Terry.

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Terry D. Peterson, R. R. Donnelley & Sons Company - Executive VP & CFO [4]

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Thank you, Dan. As Dan just noted, we made significant progress in 2019 executing against our top 3 strategic priorities, which include driving revenue growth in higher-value offerings, strengthening our core and improving the flexibility of our balance sheet.

In regards to driving revenue growth, we added new logos and expanded relationships with existing clients. We also demonstrated our ability to successfully deliver large, complex projects for our clients as we continue to meet or exceed all major milestones on the 2020 census work.

To strengthen our core, we made significant progress lowering our cost to serve through aggressive cost takeout actions, including productivity improvements and other reductions in SG&A. We also took aggressive steps to reshape our business by selling 2 businesses, exiting the Brazilian market, closing operating facilities and walking away from unprofitable work.

While sales for the year were negatively impacted from these actions, our adjusted income from operations in 2019 was higher than the prior year, and our adjusted operating margin improved 34 basis points. We are especially proud of these results given the difficult industry backdrop.

Lastly, 2019 was a big year for us on the balance sheet front as we reduced total debt by $273 million, bringing our total reduction since year-end 2016 to $569 million. This important achievement was accomplished while we increased our strategic capital investments by $34 million in 2019. In addition, we also lowered our interest expense by 10.5% and continued to reduce our weighted average interest rate. I'll provide more details on our debt later but let me get started with a review of our fourth quarter financial results.

Turning to Page 7 of the supplemental slides. Reported net sales of $1.63 billion were down $137 million in the quarter, which included a reduction of $78 million associated with the 2 recent business dispositions and the closure of Brazil, plus a reduction of $6 million associated with a stronger U.S. dollar. Net sales were down 3% organically. For the segments, Business Services reported an organic decline of 6.6%, primarily driven by lower volumes in Commercial Print and Logistics.

Sales in Commercial Print continued to be negatively impacted by ongoing secular declines, the exit of unprofitable business, plant closures, China tariffs and lower election-related sales. On an annualized basis, we estimate that the secular organic sales decline rate for our Commercial Print products was between 4% and 5%. Our Logistics business declined in the quarter as the previously reported industry challenges continued in the fourth quarter.

On the growth front, Labels, one of our strategic product categories, reported a significant increase in organic sales performance in the quarter, driven by strong performance in industrial and shipping labels. Marketing Solutions reported organic growth of 12.4%, due primarily to higher volumes in Direct Marketing as well as Digital Print and Fulfillment. Direct Marketing benefited from significantly higher volumes, including 2020 census production and growth with existing clients. Census work is expected to contribute substantially through April of 2020. Favorable performance in Digital Print and Fulfillment was largely attributable to expanded relationships with our retail clients.

On Page 8, our adjusted income from operations of $94 million was $13 million lower than the fourth quarter of 2018. Our incentive compensation expense was higher in 2019, due to an adjustment to our incentive compensation reserve in 2018, and by-product recoveries were also lower in 2019.

In addition, while the closure of Brazil provided a tailwind for the second and third quarter of 2019, it presented a headwind for us in the fourth quarter due to the strong seasonal nature of that business. These factors, plus the normal impact of pricing pressure and lower volume were only partially offset by our ongoing cost-reduction initiatives and favorable product mix.

Adjusted SG&A expense of $187 million in the fourth quarter is down $17 million or 8.4% from the prior year, reflecting the impact of recent dispositions and ongoing execution of our strategic objective to lower our cost to serve. Adjusted earnings per share of $0.44 in the fourth quarter decreased $0.20 as compared to earnings per share of $0.64 in the prior year period.

The EPS decline was primarily due to higher taxes and lower adjusted income from operations partially offset by an $8 million reduction in interest expense. The interest expense reduction was driven by our teams' actions to reduce debt outstanding, and we also benefited from lower average interest rates. Our adjusted effective tax rate increased from 35% in 2018 to 50% in 2019, primarily due to a charge of $6 million for a valuation reserve against certain state NOLs in 2019, and discrete benefits in 2018 that did not repeat in the current year.

Our effective tax rate has been higher than the statutory rates, primarily due to the disallowed interest deduction. We expect our ongoing efforts to reduce interest expense, both through debt repayment and rate management, among other initiatives, will help improve our effective tax rate in future years.

Our GAAP results for the quarter included restructuring and other charges of $105 million, including a noncash charge of $99 million to recognize the impairment of goodwill in the Logistics reporting unit and net restructuring and other charges of $6 million. The prior year GAAP results included a $32 million charge associated with our debt refinancing, restructuring and other charges of $16 million and a $23 million tax charge related to the provisional onetime transition tax initially recorded on December 31, 2017.

Turning now to the balance sheet and cash flow on Page 9. As of December 31, 2019, we had total cash on hand of $191 million and total debt outstanding of $1.82 billion, including $42 million drawn against the credit facility. Remaining availability on the credit facility was $634 million at the end of the year, which represents our highest level of availability since the spin in 2016.

Net cash provided by operating activities of $227 million in the quarter was down $40 million, due primarily to a $44 million increase in net tax payments. Net tax payments in the fourth quarter of 2019 were negatively impacted by a $34 million reduction in tax refunds as compared to the prior year. Capital expenditures of $31 million in the quarter were essentially flat to the prior year.

Page 10 summarizes several key actions we have taken to improve our balance sheet flexibility since 2016. To highlight a few, during the year, we repatriated $327 million of cash from foreign locations. We also sold 2 businesses, bringing our total proceeds from business dispositions since 2016 to $108 million. We also sold 3 facilities and collected 2 additional nonrefundable deposits on the China building sale in 2019. Proceeds from facility sales since 2016 now total $126 million.

Collectively, our efforts to improve our balance sheet have yielded a reduction in total debt outstanding of $569 million or nearly 24% since 2016.

In regards to the pending sale of our printing facility in Shenzhen, China, during the quarter, we collected another nonrefundable deposit of $30 million, bringing our cumulative amount collected to $98 million. I mentioned last quarter that we have completed all activities related to this important project. The buyer continues to work with the government to secure the necessary approvals, which they expect to obtain in 2021. Once approved, the transaction will close, and we expect to record a significant gain on the sale. As a reminder, our contract with the buyer requires them to pay the entire purchase price, even if the government's approval is not obtained and the sale does not close.

Page 11 of the supplemental slides show the various maturities of our outstanding debt as of December 31. Since last year, we have reduced total debt outstanding by $273 million. I'm going to take a few minutes to provide some perspective on our plan for the upcoming maturities. The 2020 notes, with an outstanding balance of nearly $66 million, are scheduled to mature in June and are reflected on our balance sheet in the current category. We plan to repay those notes using availability on our credit facility, similar to how we retired the $172 million of 2019 notes that matured last February. Although we currently have sufficient availability from our ABL facility to retire both maturities coming due in 2021, we plan to further expand our financial flexibility through positive cash flow and additional proceeds from monetizing assets, including facility sales and potential business dispositions.

In addition, during the fourth quarter and early part of 2020, we opportunistically entered into interest rate swap agreements with a notional value of $400 million to fix the LIBOR portion of our interest rate on the term loan, resulting in a lower rate than the variable rate we were paying.

Also at year-end, our pension and other post-retirement plans were underfunded by $137 million, which is up from the $122 million unfunded level at the end of 2018. The slight increase is due to lower discount rates, partially offset by strong asset returns. Planned contributions in 2020, under all pension and other post-retirement plans, are expected to be approximately $10 million, which is similar to our 2019 funding level. Income from 2020 from all plans is expected to be approximately $14 million as compared to $16 million recorded in 2019.

Our expectations for full year 2020 are reflected on Page 12. While it is still too early to predict the full year impact of COVID-19, also known as coronavirus, we do expect that it will have a negative impact on our sales and income from operations in the first quarter. All of our operations in China were closed for nearly 2 full weeks in late January and early February. And even though our production facilities are now open, we are still running at less than full capacity due to labor shortages. In addition, our supply chain in China is also impacted by the virus as we are unable to obtain certain products required for us to produce and ship all products.

At this time, we are unable to predict what impact COVID-19 will have beyond the first quarter. Our ramp-up in recovery is predicated on many unknown factors, including client demand, the ability of our employees to return to work and resume production and how quickly our suppliers recover. We will continue to provide updates on this situation in future quarters as we learn more and can better assess the full year impact, including the timing of possible sales recoveries.

For the full year, we expect net sales to range from $5.85 billion to $6.05 billion. Versus 2019, the net sales comparison will be negatively impacted by approximately $212 million of sales in 2019 related to previous business dispositions. The midpoint of our range assumes a slight decrease in organic performance, which reflects lower year-over-year sales from the census contract and further rationalization of our global operating platform.

Adjusted income from operations is expected to range from $210 million to $250 million, which includes the impact of higher labor costs, lower census volume and our continued strong focus on cost-reduction initiatives. The midpoint of our range assumes a neutral impact from foreign exchange rate changes.

Adjusted earnings per share is expected to range from $0.65 to $0.95, reflecting reductions in interest expense and a lower effective tax rate. Our interest expense will benefit from lower debt outstanding and a lower average rate, while our effective tax rate is expected to be lower because we don't expect the 2019 charge for the tax valuation allowance to repeat, and we expect to incur less nondeductible interest.

Shifting to our 2020 cash flow. We expect that our operating cash flow will be between $150 million and $180 million, which is an improvement from the $139 million reported in 2019. We expect that lower interest payments and improvements in working capital will only be partially offset by higher restructuring payments. We also expect to repatriate an additional $50 million to $75 million to the U.S. in 2020.

Capital expenditures are expected to range from $85 million to $95 million, which is down from $139 million in 2019. Our 2020 capital spend is expected to be more in line with historical capital spend levels. We also expect to collect a nonrefundable deposit of approximately $24 million in the third quarter of 2020 related to the sale of our China facility.

As you may recall, the agreement to sell that -- this facility provided for periodic nonrefundable deposits to us from the buyer. Our ongoing capital priorities remain unchanged. As I've stated in past quarters, we expect to continue to make strategic investments in our business, including both organic investments and potential acquisitions and we continuously evaluate opportunities to optimize our portfolio as demonstrated by our recent sale of the Global Document Solutions business.

Before I wrap up, I would like to comment on our expected performance for the first quarter. We expect net sales to be down from 2019, due primarily to previous business dispositions, which collectively reported net sales of $77 million in the prior year.

The ongoing business is expected to be relatively flat with the exception of China, which is directly impacted by COVID-19. The estimated revenue impact from this business disruption is roughly $50 million in the first quarter. But as I mentioned earlier, it is too early to predict how this business disruption will impact future quarters.

From an earnings perspective, we anticipate reporting improved adjusted earnings per share in the first quarter. Adjusted income from operations is expected to be flat to up slightly after taking into consideration the 2019 loss from Brazil, additional cost reductions and the negative impact from the COVID-19 disruption. Interest expense and the effective tax rate are also expected to be favorable to the prior year.

And now operator, let's open up the line for questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) And we'll go to line of Jamie Clement with Buckingham.

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James Martin Clement, The Buckingham Research Group Incorporated - Analyst [2]

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Dan, can you kind of give us an update of where you see your Logistics business? Obviously, some revenue challenges, I think industry-wide, a little bit in 2019. Can you kind of give us a sense of where you think you are kind of in the mini cycle and coming outlook for 2020?

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Daniel Lee Knotts, R. R. Donnelley & Sons Company - President, CEO & Director [3]

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Sure, Jamie. I think if you look at the cycle that really was very strong in 2018, that really began to take a move towards a downward trajectory fairly quickly at the end -- in the fourth quarter of 2018. As we moved into 2019, we expected that trajectory to continue, which it did. And I think the key here is, as we look at the Logistics market across all of '19, Q4 was really the lapping quarter, and didn't see tremendous stabilization there that was really expected for the industry. So a little bit of a surprise in Q4 from an industry dynamic perspective.

As we start 2020, I think if you look at all the different players that are out there that have reported and reading through all their transcripts, et cetera, you see kind of a mixed bag of projections for the year, which is kind of how we feel about it as well.

There are those who are projecting a softer first half, a stronger back half. There are those who have seen volume uptick early on in the year. And there are those who believe that the full year is going to continue to be challenged. So across that, it runs the gamut in terms of what people are saying overall about the industry. The question is, does COVID-19 have an impact on product that's coming to the U.S.? And does that ramp back up? Is that temporary or not? But I feel pretty good about our start to the year for our Logistics business.

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Operator [4]

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And next, we'll go to the line of Charlie Strauzer with CJS.

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Charles S. Strauzer, CJS Securities, Inc. - Senior MD of Sales & Trading and Analyst [5]

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Terry, just -- you gave a lot of stats at the end there. Just if I can clarify with you? You'd mentioned $212 million of kind of exited and sold revenue impacting the top line guidance. Is that correct?

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Terry D. Peterson, R. R. Donnelley & Sons Company - Executive VP & CFO [6]

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Yes. And that's primarily the GDS sale that we completed in October. And then also, we have one final quarter from the Brazil closure.

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Charles S. Strauzer, CJS Securities, Inc. - Senior MD of Sales & Trading and Analyst [7]

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Got it. And also, you mentioned, too, in the Q1 commentary, just saying you thought that the basis would be kind of flattish, but China would be impacted by about $50 million. Is that correct on the top line?

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Terry D. Peterson, R. R. Donnelley & Sons Company - Executive VP & CFO [8]

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Yes. That's correct.

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Charles S. Strauzer, CJS Securities, Inc. - Senior MD of Sales & Trading and Analyst [9]

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Okay. Good to hear. And then maybe, Dan, just if you could give a little bit more color, kind of pick up on Jamie's question on -- now shifting to the kind of Commercial Print side. Trends you're seeing there, obviously, a big fall off in Q4 there. I'm not sure how much of that was related to some of the exited business, that unprofitable business that you exited from there.

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Daniel Lee Knotts, R. R. Donnelley & Sons Company - President, CEO & Director [10]

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Yes. So that has the exited businesses and facility closures and election revenue, all played a part in Q4 commercial. We think that organically, somewhere in the neighborhood of 4% to 5% from a U.S. Commercial Print standpoint. And I'd say there's 2 parts of that, that I would emphasize. The first is in the general commercial print market, it remains a challenge. So the softness that is out there in terms of, again, just general, nondescript commercial print products.

The second piece of that is against the digital, more customized print, variable print element of that market. And against that backdrop, and it's why we continue to stress the importance of leveraging our existing client base because we still have what I believe to be a tremendous opportunity to expand relationships with existing clients. And Commercial Print is a key part of that because the vast majority of those clients have Commercial Print. So our teams are actively connecting from the national level to the local level, our sales teams, to coordinate efforts relative to how do we drive more Commercial Print -- more of our Commercial Print capabilities into our current client base to help offset or mitigate the challenges that are going on within that market.

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Charles S. Strauzer, CJS Securities, Inc. - Senior MD of Sales & Trading and Analyst [11]

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And do you think that's more of a -- just a customer discretionary kind of dial back? Or is it just they're looking to print less, just in general into the future or is it a combination of both? I mean, but it's still there.

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Daniel Lee Knotts, R. R. Donnelley & Sons Company - President, CEO & Director [12]

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I think it's a -- yes, I think it's a combination of both, Charlie. I mean, we've got clients that are actually going into print for the first time, and we have clients that are curtailing print back as part of a strategic choice to do that. And we have others that are accelerating print. They are in it. They're accelerating print to drive their marketing efforts primarily and seeing the impact -- the positive impact it's having on their business results.

So it kind of runs the gamut across all of the clients we have. And it's -- if you look at segmentation, it's a bit difficult to do because you've got to get it down to an individual client level. There's no specific patterns that we see within retail or health care or financial services, technology, sectors, et cetera. It really is client-by-client driven by their individual strategies.

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Charles S. Strauzer, CJS Securities, Inc. - Senior MD of Sales & Trading and Analyst [13]

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Excellent. And then just maybe -- just a little bit more color on the balance sheet. You paid down a pretty good chunk of debt last year. How much of that was in Q4? And then just thoughts on additional asset sales. I know you had some commentary in the release. A little bit about that, maybe a little more color on that, too?

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Terry D. Peterson, R. R. Donnelley & Sons Company - Executive VP & CFO [14]

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Yes. Sure, Charlie. I'll take that. Our -- a sizable piece of our debt paydown was in the -- primarily, third and fourth quarters, which is when we had the largest amounts of the repatriated cash coming back. But then in fourth quarter, too, that's always our strongest free cash flow quarter, so that certainly helped elevate the level of paydown in the fourth quarter here.

So it was -- our debt came down. I don't have the exact number in front of me, but it was close to a couple of hundred million dollars in the -- going from third quarter to fourth quarter here.

And we do -- our guidance does certainly contemplate additional cost-out actions like we have had in past years, really since the spin. We will continue to execute on more opportunities to improve our cost structure and the mix -- the mix of our business. And we do expect to rationalize more operations. And like I also said, we'll also look at opportunities to further monetize actual businesses through dispositions. So we're not announcing anything specific at this point. But our guidance certainly does contemplate a strong continuation of our focus on that cost structure.

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Daniel Lee Knotts, R. R. Donnelley & Sons Company - President, CEO & Director [15]

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And Charlie, it's Dan, I'll just add to that. I think it's important that when we talk about committed to advancing our strategy and the focus areas that we're doing that within, that's very real for us. So underneath that, obviously, it starts driving our business performance on a daily basis, but it also incorporates 2 really important components.

And that is adjusting our portfolio of businesses and facilities to reflect the realities of the markets and the geographies in which we operate. And it also reflects the reality that as we've done -- as we've demonstrated in 2019, that fixing our balance sheet is critically important. And if you look at the combination of the strategic capabilities we need going forward, the driving of our business performance through consolidations and market exits and the optimization of our portfolio, all of which feed fixing our strong commitment -- or driving towards fixing our strong commitment to our -- improving our balance sheet, all of those continue to be on our radar screen.

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Operator [16]

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(Operator Instructions) And currently, no further questions in queue. Please continue.

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Daniel Lee Knotts, R. R. Donnelley & Sons Company - President, CEO & Director [17]

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Okay. So it's Dan. Just to wrap up the call, I just want to thank everyone for joining us on our call today. A recap of our key messages are -- for the quarter are listed on Slide 13 of the supplemental materials.

And just closing comments. I'm proud of the performance we delivered in 2019 against challenging market conditions. As we look to 2020, we have a strong client opportunity pipeline. We're going to maintain our relentless focus on lowering our cost to serve, and we have a strengthened financial position to execute our strategy as a leading provider of customer communications.

So in closing, I want to sincerely thank all of our employees around the world for your hard work throughout 2019. Your unparalleled industry knowledge and laser focus on operational and service excellence and execution is what makes us a trusted partner to more than 50,000 clients worldwide. Thank you.

And with that, Johan, back to you.

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Johan Nystedt, R. R. Donnelley & Sons Company - SVP of Finance [18]

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Thanks, Dan. As a reminder, information to access a telephonic replay of RRD's fourth quarter 2019 results can be found in our fourth quarter press release, a copy of which is posted on the Investors section of our website at rrd.com.

Thank you for joining us, and that concludes the RRD fourth quarter 2019 earnings call.