R.R. Donnelley & Sons Company

Welcome to the RRD fourth quarter 2020 results conference call. My name is Mariama and I will be your operator for today's call. At this time, all participants are in a listen-only mode. After remarks from company representatives, we will conduct a question and answer session by phone. To ask a question, you must be connected by phone as the webcast is a listen-only platform. If you wish to ask a question by phone, please press star one on your touchtone telephone. Please note that this call is being recorded. I will now turn the call over to Johan Nysted, RRD's Senior Vice President of Finance.

Johan Nysted, Senior Vice President of Finance Thank you, Mariama, and thank you everyone for joining RRD's fourth quarter and full year 2020 results conference call. Joining me on today's call are Dan Notz, 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 investor section of our website at rrd.com. As we review our results on today's call, I will be advancing the slides if you are connected by webcast. Alternatively, we will periodically reference page numbers from the supplemental slides for those participants who wish to follow along by advancing the slides themselves. The information reviewed during this call is addressed in more detail in our fourth 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 8K we filed yesterday. As a reminder, beginning in the third quarter of 2020, we reflected our logistics business as discontinued operations for all periods presented in the consolidated statements of operations. Our references today to net sales, SG&A, income from operations, net income or loss, and the 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 all the factors that could cause our actual results to differ materially, please refer to the cautionary statement including our earnings relief 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 investor section of our website as part of our press release. I will now turn the call over to Dan.

Thanks, Johan. Good morning, everyone, and thank you for joining. It's great to be with you today, and on behalf of all of us at RRD, I hope that you and your families are staying healthy and safe. On today's call, I will provide an update on how we're successfully navigating through the ongoing pandemic challenges while advancing our strategic priorities, and will also share my perspective on our Q4 and full-year performance. I'd like to start by first thanking the global R&D team for your hard work and your commitment to our company. I am extremely proud of how our team continues to respond to the near-term challenges created by the global pandemic, while strengthening RRD for the long term to the execution of our strategic priorities. When the pandemic emerged early in the year, we quickly deployed our COVID-19 operating plan with a focus in three areas to protect the health and safety of our employees, maintain operational continuity for our clients, and prudently manage our business performance through the pandemic-driven challenges. Across the year, we performed very well in each of these areas due to the tremendous resilience and hard work of the entire RRD team. I am especially appreciative that despite all the distractions occurring throughout the year, we delivered our best year of safety performance on record. Our sales, service, and operations teams around the world are demonstrating the flexibility and determination required to serve our clients while working safely. And I want to thank all of you for your dedication to RRD during these unprecedented times. 2020 was a very strong year of performance for RRD. Despite a decline in top-line sales driven by the pandemic, for the second consecutive year, we achieved full-year growth and adjusted income from operations in higher operating margins. Further, we substantially reduced our debt outstanding, we extended our upcoming maturities, and we expanded our liquidity as we delivered on our plan to improve our balance sheet flexibility. Our strategic priorities to strengthen our core, drive revenue, and improve financial flexibility are deeply embedded within RRD, and we made very good progress in each of these areas in 2020 as well. We strengthened our core by right-sizing our total cost structure, aggressively pursuing our productivity initiatives, rationalizing our facilities footprint, and divesting of non-core businesses. We drove revenue performance amidst a challenging market, by expanding client relationships, adding new clients to our roster, investing to expand our capabilities, and shifting our business mix by delivering organic growth in our strategic product categories. We improved our capital structure by extending our upcoming maturities and substantially reducing our debt from the prior year end. We ended the year with $1.5 billion in total debt, gross leverage of 3.7 times, and net leverage of 3.0 times, all of which represent our lowest levels since the spin. Shifting to our financials, we closed out 2020 with a very strong quarter of operational and financial performance, highlighted by an increase in adjusted income from operations and higher operating margins versus the prior year, and a significant improvement in our quarterly organic sales trend. On the top line, organic net sales declined 4.8%, which further builds on the sequential improvement we saw in the third quarter. Our improving organic sales trend reflects our team's success in winning new opportunities while also supporting the gradual return of client demand across many of our product categories. On a segment basis, business services achieved organic growth for the quarter and, importantly, delivered higher organic sales in our strategic growth product categories, including supply chain management, packaging, and labels. While marketing solutions organic sales were down to the prior year due to clients continuing to curtail marketing spend and a more than 9 percentage point negative impact due to the census completing earlier in the year, We did see a sequential improvement from the third quarter, and we expect to see client demand gradually improve as the economy opens back up. Overall, our sales, service, and operations teams did an excellent job of onboarding new business and supporting our existing clients during the quarter. Our adjusted income from operations and operating margins for the quarter both exceeded prior year levels despite those lower organic sales, largely driven by our ongoing actions to align cost with revenues while continuing to meet the service, quality, and on-time delivery requirements for our clients. We are aggressively managing all aspects of our cost structure, and our favorable fourth quarter earnings and margins reflect the positive impact of those efforts. For the full year, We reported a 9% decline in organic sales, primarily related to the impact of the global pandemic. On a segment basis, marketing exclusions experienced a 15.6% decline as marketers abruptly reduced volumes beginning in the second quarter and only gradually increased spend as the year progressed. Business services reported a 6.9% organic decline for the year. which is a combination of lower client demand and commercial print being partially offset by organic growth in supply chain management and packaging, two of our strategic growth product categories. To offset the impact of the full-year organic sales decline, early in the year, we set aggressive cost reduction targets for each of our businesses, service, and support areas, and we decisively implemented those plans as the year progressed. As a result of those actions, we delivered higher adjusted income from operations and improved operating margins for the second consecutive year. Our favorable four-year earnings and margin performance is a true testament of the ability of the RRT team to deliver strong results in an extraordinarily challenging business environment. As the global pandemic continues to disrupt traditional business models and create both uncertainty and opportunity for our clients, Our reputation as a trusted business partner has enabled us to continue to expand existing client relationships and add new clients to our roster. Let me share a few examples of notable wins we've secured over the past few months. We're excited to partner with Panera Bread, one of the leading fast casual restaurants in the United States with more than 2,100 bakery cafes nationwide. In recent months, Panera expanded its menu and selected R&D to support the rollout of their new flatbread pizzas with menus and box closure labels. Panera also turned to R&D to provide bag closure labels for takeout and delivery orders, which have increased significantly during the pandemic. Panera, sorry, chose RD not only for our label printing capabilities, but also for our operating scale and technology platform that enables us to seamlessly fulfill their company's orders. We're also helping healthcare organizations stay connected with their customers during these challenging times. A large health insurance organization wanted to do something special for their Medicare Advantage members to promote their health and well-being during the winter and help them cope with the ongoing pandemic. This organization designed a care package that included roughly a dozen items, including hand sanitizer, disposable face masks, and pulse oximeters. They turned to R&D, one of their trusted business partners, to source, fulfill, and distribute over 240,000 kits by the end of the year. They chose R&D because of our packaging, commercial print, and supply chain management capabilities. In less than 30 business days, we delivered the branded gift boxes into the hands of their senior members. COVID-19 has also created new market opportunities for lab testing and virtual care, and we are working with P23 labs to source, assemble, and ship COVID-19 test kits to consumers and healthcare providers. P23 joins a number of labs around the world that have turned to R&D to support the ramp-up of COVID-19 test kits during this unprecedented global health crisis. The FDA gave P23 labs emergency use authorization for its test kits in October. And they selected RRD as their partner because of our regulatory credentials and end-to-end supply chain solutions, from initial design to packaging and label production to product fulfillment and distribution. While these client examples show how we are flexing our extensive capabilities to win new opportunities, we are also positioning RRD to drive revenue performance through continued innovation. We recently introduced comprehensive vaccination distribution toolkits designed to provide turnkey support in three key areas, vaccine awareness, clinician and retailer operational needs, and post-vaccination support. Targeted for use by healthcare providers, government agencies, retail pharmacies, and large enterprise organizations, these toolkits provide quick-turn marketing communications and operational support upon the release of FDA-authorized COVID-19 vaccines. Additionally, we launched ConnectOne by RRD, an end-to-end communications management platform developed to streamline marketing and creative workflows through a single, unified portal. ConnectOne delivers a comprehensive suite of technologies, including marketing automation, digital asset management, and data-driven supply chain management to help marketers enhance brand continuity, accelerate speed to market, and improve marketing ROI. On our third quarter call, I shared that we launched Touchless World by RRD, which is a comprehensive set of solutions that utilizes the power of dynamic, scannable smart tags. We are 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 consumers' smartphone to create a touchless experience. I'm excited to tell you more about our recent support for printing app clip codes as part of RRD's Touchless World platform. App clip codes are one of the ways iOS users can invoke app clips, a new feature Apple introduced as part of iOS 14. App Clips, as the name suggests, are lightweight versions of applications that can pop up on your iPhone or iPad without having to download the full app from the App Store first. They have all sorts of uses, from previewing apps and games, expediting payment transactions, or previewing a product in augmented reality. App Clip codes can be placed on a bike or scooter for streamlined rentals, on a tabletop in a restaurant for quick payment, or in a retail location to unlock an immersive experience. Already as well positioned to print active codes because we have the technology, production, and distribution expertise to make visually distinct decals that integrate digital variable text and graphical print with NFC technology plus full dynamic encoding. Our solutions engineers can also develop a customized print-based ecosystems, complying with Apple's print guidelines that help brands connect the physical world with the enhanced digital experience. The activation of touchless world in app clip codes is yet another example of how we continue to innovate to help our clients increase engagement with their targeted audiences. Before turning the call over to Terry, I'd like to highlight a few recognitions we recently received. Earlier this month, 3M named RRD one of its 2020 Suppliers of the Year. The award recognizes suppliers that improve 3M's competitiveness through collaborative relationships that ultimately help the company deliver innovative and valuable solutions to customers. 3M honored 20 suppliers supporting the U.S. and Canada out of the thousands of companies in its global supply base for their world-class performance. Second, RD Go Creative was recognized as the winner of the 2020 Promoting Social Inclusion Award. by Community Business for Diversity and Inclusion in India Best Practice Awards. This recognition is directly attributable to the work R&D did to bring digital jobs to the Himalaya. Finally, R&D was selected as a recipient of the 2020 Enel X Sustainable Footprint Award. This award is in recognition of R&D's exceptional contribution to supporting a stronger, more resilient, and sustainable energy grid through demand response. We are leveraging our operational footprint to support demand response programs in Ohio, Pennsylvania, Maryland, New Jersey, Illinois, Connecticut, Texas, and Ontario, and are honored to be recognized for our commitment to grid stability and energy flexibility. With that, Terry, I'll turn it over to you.