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RRD Reports Second Quarter 2022 Results

·12 min read

GAAP NET SALES INCREASED 13% OVER PRIOR YEAR PERIOD; ORGANIC NET SALES UP 14% REPRESENTING FIFTH CONSECUTIVE QUARTER OF ORGANIC SALES GROWTH

ADJUSTED EBITDA INCREASED 47% OVER THE PRIOR YEAR PERIOD – STRONGEST SECOND QUARTER PERFORMANCE SINCE THE 2016 SPIN

CHICAGO, August 02, 2022--(BUSINESS WIRE)--R.R. Donnelley & Sons Company ("RRD" or the "Company") today reported financial results for the second quarter of 2022.

Q2 Key messages

  • GAAP net sales, including the impact of foreign exchange, increased $143 million or 12.5%; Non-GAAP organic net sales increased 13.8% primarily from higher client demand for most of the Company’s products and services

  • GAAP net income from continuing operations was up $39 million versus the prior year period

  • Non-GAAP adjusted EBITDA of $116 million increased 47% over the second quarter of 2021; related margin increased 210 bps to 9.0%

  • Non-GAAP adjusted net income of $44 million was up $39 million versus the prior year period

  • Cash used in operating activities during the six months ended June 30, 2022 was $256 million compared to $65 million in the prior year period; current year results reflect working capital investments due to increased volume and inflation in addition to $79 million of merger related payments

  • Gross leverage ratio of 3.3x and net leverage ratio of 2.8x; both improved 0.5x from June 30, 2021 due to higher trailing 12 months adjusted EBITDA which improved from $401 million in 2021 to $478 million in 2022

Financial highlights

The following table provides an overview of RRD’s financial performance:

2nd Quarter Results

Q2 2022

Q2 2021

% Change

Net sales

$1.29 billion

$1.15 billion

12.5%

Income from operations

$60.7 million

$28.2 million

115.2%

Net income (loss) from continuing operations

$30.1 million

$(9.2) million

nm

Adjusted income from operations - non-GAAP (1)

$80.4 million

$41.0 million

96.1%

Adjusted EBITDA - non-GAAP (1)

$115.9 million

$78.8 million

47.1%

Adjusted net income - non-GAAP (1)

$43.8 million

$5.3 million

nm

(1)

Refer to "Use of Non-GAAP Information" for additional information on the usage and presentation of non-GAAP financial measures, and refer to the schedules for reconciliations to the most directly comparable GAAP financial measures.

Net sales in the second quarter were $1.29 billion, up $143.2 million or 12.5% from the second quarter of 2021. Net sales were negatively impacted $14.9 million due to changes in foreign exchange, while the majority of the increase relates to higher client demand for most of the Company’s products and services, and price increases to mostly offset inflationary cost increases. The Company experienced significant growth in Commercial Print, Direct Marketing and Labels products. Organic net sales increased 13.8%.

Income from operations was $60.7 million in the second quarter of 2022 compared to $28.2 million in the second quarter of 2021. During the second quarter of 2022, net restructuring, impairment and other charges of $19.8 million increased $10.1 million from the prior year period due primarily to a $12 million asset impairment charge related to an equity investment.

Net income from continuing operations was $30.1 million in the second quarter of 2022 compared to a net loss from continuing operations of $9.2 million reported in the second quarter of 2021. The increase in net income from continuing operations reflects increased income from operations and lower interest expense, partially offset by higher income taxes on improved pre-tax income.

Non-GAAP adjusted EBITDA of $115.9 million increased $37.1 million from the prior year period. The increase was primarily due to the impact of higher net sales, ongoing cost control initiatives and favorable foreign exchange of approximately $4.4 million, partially offset by continued inflation.

Non-GAAP adjusted net income from continuing operations of $43.8 million in the second quarter of 2022 increased from $5.3 million in the second quarter of 2021 primarily due to higher adjusted income from operations and lower interest expense, partially offset by higher income taxes on improved pre-tax income.

Other highlights and information

Cash used in operating activities during the six months ended June 30, 2022 was $255.7 million compared to $64.8 million in the prior year period. The increase in cash used is primarily driven by working capital investments due to increased volume, including initiatives to accumulate inventory to better ensure availability for clients, inflation and $79.0 million of merger related payments.

Capital expenditures during the six months ended June 30, 2022 were $31.7 million versus $29.9 million in the prior year period.

As of June 30, 2022, cash on hand was $254.2 million, down $26.0 million from December 31, 2021. Total debt outstanding at the end of the quarter was $1.58 billion, up $116.8 million from the prior year end. Availability under the credit facility was $196.7 million at June 30, 2022. Total liquidity, including cash on hand, was $450.9 million, down from $699.2 million at June 30, 2021.

Distribution of future earnings releases

As part of its transition to a privately owned company, the Company plans to publicly issue a press release related to its quarterly earnings releases and post the release to its website for each of the quarters in 2022. Beginning with the first quarter of 2023, the Company expects to no longer issue its results publicly. Instead creditors, investors, clients, suppliers and other approved parties may submit a request for access to financial information on the investor relations page on the Company’s website.

About RRD

RRD is a leading global provider of marketing, packaging, print, and supply chain solutions that elevate engagement across the complete customer journey. The Company offers the industry’s most trusted portfolio of creative execution and world-wide business process consulting, with services designed to lower environmental impact. With 25,000 clients, including 92% of the Fortune 100, and 32,000 employees across 29 countries, RRD brings the expertise, execution, and scale designed to transform customer touchpoints into meaningful moments of impact.

For more information, visit the Company's web site at www.rrd.com.

Use of non-GAAP information

This news release contains non-GAAP financial measures, including non-GAAP SG&A, non-GAAP income from operations, non-GAAP Adjusted EBITDA, non-GAAP effective tax rate, non-GAAP adjusted net income, non-GAAP organic net sales and gross and net leverage ratios. 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. These measures should be considered in addition to, and not as a substitute for, or superior to, measures of financial performance prepared in accordance with GAAP. RRD uses these non-GAAP measures, together with other measures of performance under GAAP, to compare the relative performance of operations in planning, budgeting and reviewing the performance of its business. Additional information relating to the adjustments for the non-GAAP SG&A, non-GAAP income from operations, non-GAAP Adjusted EBITDA, non-GAAP effective tax rate, non-GAAP adjusted net income, non-GAAP organic net sales and gross and net leverage ratios for RRD is set forth in the attached schedules.

Use of forward-looking statements

This news release includes certain "forward-looking statements" within the meaning of the federal securities laws, with respect to the business, strategy and plans of the Company and its expectations relating to future financial condition and performance. Statements that are not historical facts, including statements about RRD’s management’s beliefs and expectations, are forward-looking statements. Words such as "believes," "anticipates," "estimates," "expects," "intends," "aims," "potential," "will," "would," "could," "considered," "likely," "estimate" 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. While RRD believes these expectations, assumptions, estimates and projections are reasonable, such forward-looking statements are only predictions and involve known and unknown risks and uncertainties, many of which are beyond RRD’s control. By their nature, forward-looking statements involve risk and uncertainty because they relate to events and depend upon future circumstances that may or may not occur. Actual results may differ materially from those in the forward-looking statements and may vary from RRD’s current expectations depending upon a number of factors affecting the business and risks associated with the performance of the business. These factors include such risks and uncertainties detailed in RRD’s periodic public filings with the U.S. Securities and Exchange Commission (the "SEC"), including but not limited to those discussed under the "Risk Factors" section in RRD’s Form 10-K for the fiscal year ended December 31, 2021, and other filings with the SEC and in other investor communications of RRD from time to time. RRD 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.

R. R. Donnelley & Sons Company

Condensed Consolidated Statements of Operations

For the Three and Six Months Ended June 30, 2022 and 2021

(UNAUDITED)

(in millions)

Three Months Ended

Six Months Ended

June 30,

June 30,

2022

2021

2022

2021

Net sales

$

1,288.8

$

1,145.6

$

2,600.7

$

2,318.7

Cost of sales (1)

1,030.3

928.1

2,093.5

1,877.1

Gross profit (1)

258.5

217.5

507.2

441.6

Selling, general and administrative expenses (SG&A) (1) (2)

147.4

143.8

334.4

297.1

Restructuring, impairment and other charges-net

19.8

9.7

38.7

15.5

Depreciation and amortization

30.7

32.9

61.2

66.7

Other operating (income) expense (3)

(0.1

)

2.9

37.7

9.0

Income from operations

60.7

28.2

35.2

53.3

Interest expense-net

23.5

38.5

48.2

69.0

Loss on debt extinguishment

6.2

2.3

6.2

Investment and other income-net

(5.0

)

(4.9

)

(9.5

)

(9.7

)

Income (loss) from continuing operations before income taxes

42.2

(11.6

)

(5.8

)

(12.2

)

Income tax expense (benefit)

12.1

(2.4

)

22.5

(1.3

)

Net income (loss) from continuing operations

30.1

(9.2

)

(28.3

)

(10.9

)

Gain on sale of discontinued operations, net of tax

0.6

Net income (loss)

30.1

(9.2

)

(28.3

)

(10.3

)

Less: income attributable to noncontrolling interests

0.5

0.2

0.5

0.4

Net income (loss) attributable to RRD common stockholders

$

29.6

$

(9.4

)

$

(28.8

)

$

(10.7

)

Additional information:

Gross margin (1)

20.1

%

19.0

%

19.5

%

19.0

%

SG&A as a % of total net sales (1)

11.4

%

12.6

%

12.9

%

12.8

%

Operating margin

4.7

%

2.5

%

1.4

%

2.3

%

Effective tax rate

28.7

%

20.7

%

nm

10.7

%

(1)

Exclusive of depreciation and amortization.

(2)

Inclusive of $36.0 million in accelerated incentive compensation expense related to the Merger for the six months ended June 30, 2022.

(3)

Inclusive of $29.2 million in transaction costs related to the Merger for the six months ended June 30, 2022.

R. R. Donnelley & Sons Company

Condensed Consolidated Balance Sheets

As of June 30, 2022 and December 31, 2021

(UNAUDITED)

(in millions)

June 30, 2022

December 31, 2021

Assets

Cash and cash equivalents

$

254.2

$

280.2

Receivables, less allowances for credit losses

1,065.7

1,063.4

Inventories

455.1

352.7

Assets held-for-sale

1.7

9.2

Prepaid expenses and other current assets

139.6

101.3

Total Current Assets

1,916.3

1,806.8

Property, plant and equipment - net

385.6

408.4

Goodwill

400.1

405.4

Other intangible assets - net

40.5

49.8

Deferred income taxes

30.4

34.6

Operating lease assets

204.5

214.5

Other noncurrent assets

195.6

211.9

Total Assets

$

3,173.0

$

3,131.4

Liabilities

Accounts payable

807.7

895.3

Accrued liabilities and other

315.1

352.9

Short-term operating lease liabilities

66.9

70.8

Short-term and current portion of long-term debt

1.9

Total Current Liabilities

1,191.6

1,319.0

Long-term debt

1,581.2

1,466.3

Pension liabilities

59.6

62.5

Long-term income tax liability

45.9

60.3

Long-term operating lease liabilities

142.0

149.9

Other noncurrent liabilities

216.5

238.3

Total Liabilities

$

3,236.8

$

3,296.3

Equity

Common stock

0.9

Additional paid-in capital

2,285.7

2,686.9

Accumulated deficit

(2,265.8

)

(2,237.0

)

Accumulated other comprehensive loss

(96.3

)

(63.1

)

Treasury stock

(566.4

)

Total RRD stockholders' equity

(76.4

)

(178.7

)

Noncontrolling interests

12.6

13.8

Total Equity

$

(63.8

)

$

(164.9

)

Total Liabilities and Equity

$

3,173.0

$

3,131.4

R. R. Donnelley & Sons Company

Condensed Consolidated Statement of Cash Flows

For the Six Months Ended June 30, 2022 and 2021

(UNAUDITED)

(in millions)

2022

2021

Net loss

$

(28.3

)

$

(10.3

)

Adjustment to reconcile net loss to net cash used in operating activities

77.4

70.9

Changes in operating assets and liabilities

(302.8

)

(122.8

)

Pension and other postretirement benefits plan contributions

(2.0

)

(2.6

)

Net cash used in operating activities

$

(255.7

)

$

(64.8

)

Capital expenditures

(31.7

)

(29.9

)

All other cash provided by investing activities

27.8

6.2

Net cash used in investing activities

$

(3.9

)

$

(23.7

)

Net cash provided by financing activities

$

249.0

$

25.2

Effect of exchange rate on cash, cash equivalents and restricted cash

(16.3

)

1.9

Net decrease in cash, cash equivalents and restricted cash

$

(26.9

)

$

(61.4

)

Cash, cash equivalents and restricted cash at beginning of year

320.3

357.6

Cash, cash equivalents and restricted cash at end of period

$

293.4

$

296.2

R. R. Donnelley & Sons Company

Reconciliation of GAAP to Non-GAAP Measures

For the Three Months Ended June 30, 2022 and 2021

(UNAUDITED)

(in millions)

For the Three Months Ended June 30, 2022

For the Three Months Ended June 30, 2021

Income

from

operations

Investment

and other

income -

net

Income tax

expense

Net income

from

continuing

operations

attributable

to RRD

stockholders

SG&A (1)

Income

from

operations

Interest

expense

Income

tax

expense

(benefit)

Net (loss)

income from

continuing

operations

attributable

to RRD

stockholders

GAAP basis measures

$

60.7

$

(5.0

)

$

12.1

$

29.6

$

143.8

$

28.2

$

38.5

$

(2.4

)

$

(9.4

)

Non-GAAP adjustments:

Restructuring, impairment and other charges-net (2)

19.8

3.7

16.1

9.7

4.7

5.0

Loss on swap terminations

(9.2

)

4.1

5.2

Loss on debt extinguishments

2.7

3.4

All other (3)

(0.1

)

0.3

1.5