R.R. Donnelley & Sons Company

and welcome to the RRD third quarter 2020 results conference call. My name is Amy, and I will be your conference operator today. At this time, all participants are in a listen-only mode. After company remarks, we will conduct a question and answer session by phone. To ask a question, you must be connected via phone, as the webcast is a listen-only platform. If you wish to ask any question by phone, please press star, then 1. Please note that this call is being recorded. I will now turn the call over to Johan Nysted, RRD Senior Vice President of Finance.

Thank you, Amy, and thank you, everyone, for joining RRD's third quarter 2020 results conference call. Joining me on today's call are Dan Notz, RRD's President and Chief Executive Officer, and Terry Pearson, 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 RID.com. As we review search for results on today's call, I will be advancing the slides if you're connected by webcast. Alternatively, I will reference page numbers for 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 third quarter press release, a copy of which is posted on the investor section of our website at RID.com. This information was also furnished to the SEC in the Form 8-K we filed yesterday. Beginning in the third quarter of 2020, we have reflected our logistics business as discontinued operations for all PERs presented in the consolidated statements of operations. Our references today to net sales, SG&A, income from operations, net income or loss, and per share amounts on this call will be on a continuing basis without logistics. In addition, we will also refer to forward-looking statements, including comments on our financial outlook and strategy, all of which involve 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 matter 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 provide 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.

Great. Thanks, Johan. Good morning, everyone. Thank you for joining. It's great to be with you today. On behalf of all of us at RRD, I hope that you and your families remain healthy and safe. On today's call, I'm going to provide an update on how we're navigating the current pandemic through the execution of our COVID-19 operating plan. I'm going to share several key actions taken to advance our long-term strategy, and I'm going to recap what we expect to see as we close out the year. We delivered strong operating performance and financial results for the third quarter against a backdrop of uncertainty and volatility related to the global pandemic. While improving, the pace of recovery has been uneven and the resurgence of the virus across multiple geographies is threatening to elongate the recovery period. As such, our approach to executing our COVID-19 operating plan, which entails protecting our employees, maintaining operational continuity for our clients, and effectively managing our business performance, remains firmly intact, and we are executing well in all three of these critical areas. As we've said from the outset of the pandemic, protecting the health and safety of our 35,000 employees is a top priority. Across the company, we're maintaining a high level of discipline and adherence to our safety protocols, particularly as the cold and flu season approaches. Our cross-functional COVID-19 task force is meeting regularly to ensure the company adheres to the latest guidelines from the World Health Organization and Centers for Disease Control. From a client perspective, we remain steadfast in our commitment to supporting more than 50,000 clients around the world, just like we've done for over 150 years. We're fully operational across our 250-plus global locations, and our talented sales, service, and production teams are working diligently to produce the critical communications our clients are utilizing to connect with their customers during this unprecedented time. Our clients' requirements are changing frequently in this volatile business environment, and the RR team is responding with the agility and creativity needed to deliver on our commitments. The third component of our COVID-19 plan is prudently managing our business performance through these near-term challenges while strengthening RRD for the long term. We are aggressively working to reduce cost, preserve liquidity, and leverage the power of our portfolio to capture new sales opportunities, including those being created by the pandemic. During the quarter, we signed more new business, delivered on our substantial cost-out plans, and improved our capital structure with a disciplined focus on generating cash flow. On the top line, while organic sales declined 12.1% versus the prior year related to lower overall market demand, our organic sales performance significantly exceeded the midpoint of our expectations. We delivered adjusted income from operations equal to the prior year despite softer organic sales, reflecting the significant reductions we made in our operating and SG&A cost structures. Our adjusted operating margin increased 100 basis points versus the prior year and 400 basis points from the second quarter, and through our strong focus on working capital management, we achieved our third consecutive quarter of year-over-year operating cash flow improvement. Our positive results for the quarter were driven by the successful execution of our COVID-19 operating plan, and I am pleased with the high-level performance we delivered. The global pandemic is serving to disrupt long-standing business models and forcing many companies to rethink the way they communicate and connect with their customers. We are flexing our industry-leading portfolio of capabilities to support our clients as they pursue more effective ways to inspire service and transact with their customers. Our ability to serve as a trusted business partner, especially during this unprecedented time, capable of managing critical initiatives of varying scope and scale across a broad range of print and digital channels, has enabled us to expand existing client relationships while also adding new clients to our roster. Let me share a few examples of notable wins we've secured over the past several months. We recently completed a significant new project with Aetna, a CVS health company. In light of the challenges many people are currently facing, coupled with the rapidly approaching flu season, Aetna sought to ship millions of care packages to its Medicare members through a partner that can manage a project of this scale with little lead time. RRD was that partner. The care packages, called Caring for You Kits, provide members with several items to encourage self-care while at home, such as a thermometer, hand sanitizer, and face masks. Aetna turned to RRD to execute this critical, high visibility, and large-scale project because of our ability to manage every component of the project, including all aspects of print production and fulfillment. We're also working with a major U.S.-based pharmaceutical company to support the launch of their new medical data device that will help patients better manage their diabetes. Building on our more than 20-year relationship, this client turned to RRD because of our scale, the breadth of our capabilities, and our proven ability to meet their requirements. We're managing all aspects of this project as well, including packaging design, packaging production, and kitting. With our extensive medical device kitting experience, we're enabling our clients to focus on the development of new and innovative products while we manage the business processes and project execution required to ensure supply chain continuity and reliability. Finally, we recently expanded our relationship with Direct Energy, one of North America's largest retail providers of electricity, natural gas, and home and business energy-related services. This enhanced partnership began as an initiative to help Direct Energy increase the efficiency of their supply chain. It has expanded to include the review and digitization of their assets to increase efficiencies and enforce brand consistency across all businesses. We're also supporting Direct Energy to develop a new customer-facing website and mobile application for their home warranty service offering. These new opportunities, which range from large-scale project work to ongoing communications programs, are leveraging our broad range of capabilities from digital to print and demonstrate the agility, scale, and differentiated performance we are delivering to win new business in the markets we serve. As our clients' needs evolve, we are expanding our capabilities by developing new, innovative offerings. We recently introduced FlexMailer, which is a patented, recyclable mailing solution that converts mail packages to a smaller size that meets the UPS thickness and flexibility guidelines to qualify as an automated flat. This offering provides notable cost savings for our clients while also reducing the environmental impact of the package. AARP, a longstanding client, recently utilized the FlexMailer to deliver 50,000 face masks to their volunteers. Our solution enabled them to customize both the exterior and the interior of the package with their logo and marketing messaging while also saving on shipping costs. Additionally, we launched Touchless World by RRD, which is a comprehensive set of solutions that utilizes the power of dynamic, scannable smart tags. Touchless World is enhanced with NFC, QRC, and other 2D and 3D code technology to interact optimally with smartphones and enable easy consumer engagement. We're integrating these smart tags with the offerings we provide in our existing platforms, including labels, retail signage, commercial print, packaging, forms, and direct mail. Dynamic content can then be delivered across any of these mediums to a consumer's smartphone and create a touchless experience. While we execute our operating plan to navigate through this challenging period, we are also advancing our strategic priorities to strengthen our core, drive our revenue performance, and improve our financial flexibility and build a stronger RRD for the long term. In September, we entered into a definitive agreement to sell the DLS worldwide portion of our logistics business to TFI International for $225 million in cash. This transaction has received regulatory approval. We also signed a separate definitive agreement to sell our international mail and parcel business last week. We expect both of these transactions to close by the end of the year after customary closing conditions are satisfied. We plan to continue providing logistic services to our clients through commercial agreements completed with the respective buyers of these two businesses. With the divestiture of the remainder of our lower margin logistics businesses, we are further optimizing our business portfolio, reducing our debt, and strengthening our balance sheet. These strategic transactions, combined with our cost takeout and revenue generating actions in the quarter, reinforce our firm commitment to positioning R&D for the future through the execution of our long-term strategy. I'd like to personally thank our DLS worldwide and international mail and parcel leadership teams and employees, as well as the working groups across the company that have been involved in these transactions. A tremendous amount of work goes into the smooth execution of any business divestiture, let alone two simultaneous transactions, and our teams have done a fantastic job of maintaining business continuity for our clients during this time. I'm very confident in our ability to complete the outstanding closing conditions and finalize these transactions by the end of the year. Before turning the call over to Terry, I would like to provide an update on what we expect to see across our two segments as we close the year. For marketing solutions, we've begun to see a gradual, albeit uneven, return of client marketing spend as parts of the economy stabilize and businesses reopen. The unique conditions and impact of COVID-19 on different industries means that the pace of recovery and the mix of marketing activity will continue to vary greatly. What all of our marketing solutions clients share is the need to reassess how changes in consumer behaviors are affecting their traditional marketing approach. In this context, integrated marketing programs with demonstrable ROI are critical to marketers as they're increasingly challenged to restore top-line growth. At the same time, clients' marketing budgets have been constrained, and they're being very selective about the projects and programs they push forward. Increasingly, we believe that a premium will be placed on reliability and flexibility as clients adjust their marketing approach, and that RRD Marketing Solutions Team is well-positioned to provide solutions that optimize our clients' overall marketing spend as the economy recovers. For business services, Demand for print and support services will closely correlate with the return of consumer and business product spending and will also be industry dependent. We saw a rebound begin to occur for select verticals during the third quarter. However, for certain industries, such as travel and hospitality, we expect to see a longer period for recovery. We're also seeing the changes in consumer behaviors, the shift to e-commerce, and alternative methods for healthcare delivery are creating new opportunities for client acquisition and expansion across our supply chain, packaging, and labels businesses. As we look to the remainder of the year, we are focused on the ongoing execution of our COVID-19 operating plan while simultaneously advancing our long-term strategy. Our teams are executing well, and I am confident we will successfully navigate through this pandemic and emerge a stronger RRD. With that, I'll turn the call over to Terry.