R.R. Donnelley & Sons Company

Welcome to the RRD third quarter 2021 conference call. My name is Amitris, and I will be your operator for today's call. At this time, my 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 1 on your touchtone telephone. Please note that this call is being recorded. I will now turn the call over to Johan Nystad, RRD's Senior Vice President of Finance.

Thank you, Amitris, and thank you, everyone, for joining RRD's CERC for 2021 results conference call. Join me to review our financial results and comment on the acquisition news are Dan Knott, RID'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 our results on today's calls, 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 third quarter and acquisition press releases, copies of which are posted on the investor section of our website at RID.com. This information was also furnished to the SEC in the foreign aid case we filed earlier this morning. In addition, we will also refer to forward-looking statements. including comments on our strategy, 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, including earnings release, and the risk factors, including 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 campus' ongoing operations. 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. It's great to be with you, and thank you for joining us on our call today. Before we discuss our third quarter results, I'm going to first review the press release we issued earlier this morning, announcing that we have entered into a definitive agreement to be acquired by affiliates of Atlas Holdings for $8.52 per share in cash. The transaction that we announced today represents a total enterprise value of approximately $2.1 billion, including net debt. The $8.52 per share is a 73% premium over the closing price on October 11, 2021, which is the last trading day prior to the announcement of an unsolicited offer by Chatham Asset Management to acquire all of the common stock of RRD not already owned by them. As we stated in our press release, we believe that this transaction is in the best interest of RRD and its stockholders, and after careful and thorough analysis together with our independent advisors, our board of directors unanimously approved the transaction with Atlas. Under the agreement, RRD may solicit superior proposals from third parties for a period of 25 calendar days. In accordance with the agreement, R&D's Board of Directors, with the assistance of its advisors, intends to solicit superior proposals during this period. We will be filing in due course the merger agreement and related materials, and we recommend you review them once they become available. Turn to slide five. Let's now turn to the quarter. Building on our first half momentum, we delivered very strong third quarter results through the consistent execution of our well-defined strategy and underlying strategic initiatives. On the top line, we achieved our second consecutive quarter of organic sales growth with both our business services and marketing solution segments delivering favorable year-over-year performance. On the earnings front, Our adjusted income from operations and operating margin both exceeded last year's third quarter, while also surpassing our 2019 pre-pandemic third quarter adjusted income from operations and operating margin performance. On the balance sheet, our quarter-end debt level was down $508 million from the prior year third quarter, which represents the lowest debt level for any third quarter we've reported since the spin. Our favorable results are a direct result of our sales teams aggressively pursuing targeted opportunities with new and existing clients to drive growth, our client services and operations teams executing at a high level and demonstrating tremendous agility to support our clients' requirements, all while battling labor challenges, and our procurement teams around the world working diligently to combat global supply chain bottlenecks. Truly a collective team effort, and I am appreciative of the entire RRD team's hard work to achieve these positive results. I'd like to provide a little more color on our Q3 performance. Net sales were $1.27 billion, up 5.5% organically versus the prior year. On a segment level, business services reported a 5.9% organic growth rate, led by strong performance across our commercial print, packaging, and labels product categories. Top brands continue to leverage our industry-leading packaging and label solutions to keep pace with growing online sales and differentiate their products on store shelves. They value our end-to-end single-source capabilities, which include our premium folding cartons that were showcased at Pack Expo Las Vegas in September. Including our favorable Q3 performance, we've now achieved five consecutive quarters of net sales growth in these key strategic areas. Marketing solutions achieved 3.8% organic growth for the quarter as client demand continues its recovery from the pandemic lows. Direct marketing and digital print led the overall increase for marketing solutions. We reported $81.5 million in adjusted income from operations, an increase of 10.3% compared to the prior year. and our adjusted operating margin improved by 20 basis points over the prior year due to our continued focus on cost management. Our favorable financial performance underscores the successful execution of our strategic initiatives to strengthen our core, drive revenue growth through higher value offerings, and improve our financial flexibilities. Our teams have been working diligently to increase productivity and become more agile while supporting our clients, first through the pandemic and now through supply chain disruptions, labor shortages, and inflationary challenges. Related to supply chain disruptions, paper and other fiber-based suppliers have implemented allocations and moratorium processes to manage the surge in demand and limited supply. In response, we are providing our clients with product alternatives, including innovative format changes, and are introducing new suppliers to provide optionality for our clients. Our functional teams are working closely together to successfully navigate this volatile supply chain environment and find answers for our clients. To that end, there were many recent client wins across RRD this quarter, and I'd like to share a few examples that reinforce the breadth of our solutions that we are providing to both new and existing clients. On slide six. As you may recall, we provided a broad range of COVID-19 test kit services last year, and that has opened new opportunities for home diagnostics. We secured a new agreement with Tasso Inc., a Seattle-based company that's developed patient-centric technology for anytime, anywhere blood collection. These types of products require supply chain partners who are compliant with HIPAA privacy rules, as well as with FDA regulations involving good manufacturing practices that in addition to having state-of-the-art third-party logistics solutions. This quarter, we will complete our systems integration and begin providing digital communications, kitting, fulfillment, and logistics services for Tasso's blood collection devices. This win is another example of our incubator strategy where we work side-by-side with startups to bring new products to market with the potential to quickly scale and meet increasing demand. Our ongoing investments in our digital print platform continue to drive new business for us as well. We recently established a partnership with Mixtiles, a fast-growing international company that is redefining the way consumers print and hang photos in our homes and offices. We're leveraging our extensive high-quality variable data printing capabilities to produce and ship the company's photo tiles directly to their customers. R&D is committed to continuing to lead the way in print technology innovation and meet the dynamic needs of our clients for personalized on-demand printing. Turning to slide seven, we are supporting a large health insurer who just completed a merger by consolidating the design, production, and fulfillment of welcome kits to new members. We create a standard design for multiple health plans that integrates numerous inserts into an all-in-one book supported by a print-on-demand strategy. Our comprehensive solution drives efficiency and consistency while eliminating costs associated with storage, materials obsolescence, and manual assembly of their welcome kits. As a final example, We recently won a contract with a leading employee benefits administrator who is outsourcing the printing of their critical business communications so that they can focus on their core business model. This client has an innovative digital platform that offers easy-to-use communication tools to assist people in making benefit selections. And under this new agreement, R&D will be providing the printed materials, including annual enrollment communications, new hire packets, benefits information, and other forms as requested by their customers. Going forward, we will leverage our extensive capabilities to support their current and future print requirements as they grow and evolve their business model. Turning to slide eight. Before I turn the call over to Terry, I'd like to highlight two recent honors we received, the first recognizing the high level of quality and service we are providing to our clients, and the second representing our commitment to supplier diversity. First, Hormel Foods recently recognized RRD with the 2020 Spirit of Excellence Award, celebrating our outstanding labeling work for the global branded food company. We were one of 30 suppliers who met or exceeded Hormel's stringent standards for quality customer support in on-time deliveries. Second, JPMorgan Chase publicly recognized R&D for our commitment to increase our spending with diverse suppliers over the next three years. We applaud JPMorgan for urging its business partners to use their collective purchasing power to help minority-owned businesses. Supplier diversity is an important component of our commitment toward a more diverse, equitable, and inclusive world, and we are honored to receive this recognition. And with that, I will turn it over to Terry to take you through the financials.