CHICAGO
,
November 8, 2022
(press release)
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GAAP NET SALES INCREASED 9% OVER PRIOR YEAR PERIOD; ORGANIC NET SALES UP 11% REPRESENTING SIXTH CONSECUTIVE QUARTER OF ORGANIC SALES GROWTH ADJUSTED EBITDA INCREASED 18% OVER THE PRIOR YEAR PERIOD – STRONGEST THIRD QUARTER PERFORMANCE SINCE THE 2016 SPIN R.R. Donnelley & Sons Company (“RRD” or the “Company”) today reported financial results for the third quarter of 2022. Q3 Key messages Financial highlights The following table provides an overview of RRD’s financial performance: 3rd Quarter Results Q3 2022 Q3 2021 % Change Net sales $1.38 billion $1.27 billion 8.9% Income from operations $100.1 million $74.5 million 34.4% Net income from continuing operations $54.9 million $29.0 million 89.3% Adjusted income from operations - non-GAAP (1) $108.2 million $82.9 million 30.5% Adjusted EBITDA - non-GAAP (1) $142.4 million $120.6 million 18.1% Adjusted net income - non-GAAP (1) $64.1 million $43.1 million 48.7% (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 third quarter were $1.38 billion, up $113.0 million or 8.9% from the third quarter of 2021. The majority of the increase relates to higher client demand for most of the Company’s products and services, and price increases to offset inflationary cost increases. The Company experienced significant growth in Commercial Print, Packaging, Labels and Direct Marketing products. Organic net sales increased 10.8%, excluding a negative impact of $24.8 million due to changes in foreign exchange rates. Income from operations was $100.1 million in the third quarter of 2022 compared to $74.5 million in the third quarter of 2021. During the third quarter of 2022, net restructuring, impairment and other charges of $4.7 million increased $0.7 million from the prior year period. Net income from continuing operations was $54.9 million in the third quarter of 2022 compared to $29.0 million reported in the third quarter of 2021. The increase in net income from continuing operations mostly reflects increased income from operations. The 2022 effective tax rate of 27.1% decreased from 42.6% in the prior year period primarily due to higher earnings relative to the non-deductible tax adjustments. Non-GAAP adjusted EBITDA of $142.4 million increased $21.8 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, partially offset by continued inflation. Non-GAAP adjusted net income from continuing operations of $64.1 million in the third quarter of 2022 increased from $43.1 million in the third quarter of 2021 primarily due to higher adjusted income from operations, partially offset by higher income taxes on improved pre-tax income. Other highlights and information Cash used in operating activities during the nine months ended September 30, 2022 was $221.1 million compared to $29.0 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 $79.7 million of merger related payments. Capital expenditures during the nine months ended September 30, 2022 were $49.1 million versus $48.6 million in the prior year period. As of September 30, 2022, cash on hand was $237.5 million, down $42.7 million from December 31, 2021. Total debt outstanding at the end of the quarter was $1.62 billion, up $155.7 million from the prior year end. Availability under the credit facility was $159.6 million at September 30, 2022. Total liquidity, including cash on hand, was $397.1 million. During the third quarter of 2022, the Company elected to change its inventory valuation method for inventories previously accounted for using the last-in, first-out method to the first-in, first-out method. The change in inventory valuation method has been retrospectively applied to all periods presented herein. The cumulative effect of this change in accounting principle on periods prior to those presented is reflected as an adjustment to the opening balance of retained earnings as of January 1, 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 and post the release to its website for each of the quarters in 2022. Beginning with the first quarter results 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 Nine Months Ended September 30, 2022 and 2021 (UNAUDITED) (in millions) Three Months Ended Nine Months Ended September 30, September 30, 2022 2021 2022 2021 Net sales $ 1,380.8 $ 1,267.8 $ 3,981.5 $ 3,586.5 Cost of sales (1) 1,087.2 1,011.5 3,175.4 2,887.5 Gross profit (1) 293.6 256.3 806.1 699.0 Selling, general and administrative expenses (SG&A) (1) (2) 157.0 141.2 491.4 438.3 Restructuring, impairment and other charges-net 4.7 4.0 43.4 19.5 Depreciation and amortization 29.7 32.3 90.9 99.0 Other operating (income) expense (3) 2.1 4.3 39.8 13.3 Income from operations 100.1 74.5 140.6 128.9 Interest expense-net 29.3 29.4 77.5 98.4 Loss on debt extinguishment — — 2.3 6.2 Investment and other income-net (4.5 ) (5.4 ) (14.0 ) (15.1 ) Income from continuing operations before income taxes 75.3 50.5 74.8 39.4 Income tax expense 20.4 21.5 44.3 21.0 Net income from continuing operations 54.9 29.0 30.5 18.4 Gain on sale of discontinued operations, net of tax — — — 0.6 Net income 54.9 29.0 30.5 19.0 Less: income (loss) attributable to noncontrolling interests 0.1 (0.2 ) 0.6 0.2 Net income attributable to RRD common stockholders $ 54.8 $ 29.2 $ 29.9 $ 18.8 Additional information: Gross margin (1) 21.3 % 20.2 % 20.2 % 19.5 % SG&A as a % of total net sales (1) 11.4 % 11.1 % 12.3 % 12.2 % Operating margin 7.2 % 5.9 % 3.5 % 3.6 % Effective tax rate 27.1 % 42.6 % nm 53.3 % (1) Exclusive of depreciation and amortization. (2) Inclusive of $36.0 million in accelerated incentive compensation expense related to the Merger for the nine months ended September 30, 2022. (3) Inclusive of $30.0 million in transaction costs related to the Merger for the nine months ended September 30, 2022. R. R. Donnelley & Sons Company Condensed Consolidated Balance Sheets As of September 30, 2022 and December 31, 2021 (UNAUDITED) (in millions) September 30, 2022 December 31, 2021 Assets Cash and cash equivalents $ 237.5 $ 280.2 Receivables, less allowances for credit losses 1,146.1 1,063.4 Inventories 524.5 377.1 Assets held-for-sale 1.7 9.2 Prepaid expenses and other current assets 143.6 101.3 Total Current Assets 2,053.4 1,831.2 Property, plant and equipment - net 370.4 408.4 Goodwill 396.4 405.4 Other intangible assets - net 35.7 49.8 Deferred income taxes 31.6 28.4 Operating lease assets 195.3 214.5 Other noncurrent assets 192.2 211.9 Total Assets $ 3,275.0 $ 3,149.6 Liabilities Accounts payable 844.6 895.3 Accrued liabilities and other 345.0 352.9 Short-term operating lease liabilities 68.8 70.8 Short-term and current portion of long-term debt 3.8 — Total Current Liabilities 1,262.2 1,319.0 Long-term debt 1,618.2 1,466.3 Pension liabilities 56.3 62.5 Long-term income tax liability 44.6 60.3 Long-term operating lease liabilities 131.0 149.9 Other noncurrent liabilities 203.2 238.3 Total Liabilities $ 3,315.5 $ 3,296.3 Equity Common stock — 0.9 Additional paid-in capital 2,285.7 2,686.9 Accumulated deficit (2,208.9 ) (2,218.8 ) Accumulated other comprehensive loss (129.4 ) (63.1 ) Treasury stock — (566.4 ) Total RRD stockholders' equity (52.6 ) (160.5 ) Noncontrolling interests 12.1 13.8 Total Equity $ (40.5 ) $ (146.7 ) Total Liabilities and Equity $ 3,275.0 $ 3,149.6 R. R. Donnelley & Sons Company Condensed Consolidated Statement of Cash Flows For the Nine Months Ended September 30, 2022 and 2021 (UNAUDITED) (in millions) 2022 2021 Net income $ 30.5 $ 19.0 Adjustment to reconcile net loss to net cash used in operating activities 90.8 94.3 Changes in operating assets and liabilities (338.7 ) (138.7 ) Pension and other postretirement benefits plan contributions (3.7 ) (3.6 ) Net cash used in operating activities $ (221.1 ) $ (29.0 ) Capital expenditures (49.1 ) (48.6 ) All other cash provided by investing activities 31.7 15.4 Net cash used in investing activities $ (17.4 ) $ (33.2 ) Net cash provided by (used in) financing activities $ 262.2 $ (5.6 ) Effect of exchange rate on cash, cash equivalents and restricted cash (32.2 ) 1.2 Net decrease in cash, cash equivalents and restricted cash $ (8.5 ) $ (66.6 ) Cash, cash equivalents and restricted cash at beginning of year 320.3 357.6 Cash, cash equivalents and restricted cash at end of period $ 311.8 $ 291.0 R. R. Donnelley & Sons Company Reconciliation of GAAP to Non-GAAP Measures For the Three Months Ended September 30, 2022 and 2021 (UNAUDITED) (in millions) For the Three Months Ended September 30, 2022 For the Three Months Ended September 30, 2021 SG&A (1) Income from operations Income tax expense Net income from continuing operations attributable to RRD stockholders Income from operations Income tax expense Net income from continuing operations attributable to RRD stockholders GAAP basis measures $ 157.0 $ 100.1 $ 20.4 $ 54.8 $ 74.5 $ 21.5 $ 29.2 Non-GAAP adjustments: Restructuring, impairment and other charges-net (2) — 4.7 (1.2 ) 5.9 4.0 (3.6 ) 7.6 Merger-related expenses (1.3 ) 1.3 — 1.3 — — — All other (3) — 2.1 — 2.1 4.4 (2.0 ) 6.3 Total Non-GAAP adjustments (1.3 ) 8.1 (1.2 ) 9.3 8.4 (5.6 ) 13.9 Non-GAAP measures $ 155.7 $ 108.2 $ 19.2 $ 64.1 $ 82.9 $ 15.9 $ 43.1 Additional non-GAAP information: 2022 2021 Gross Margin (1) 21.3 % 20.2 % Adjusted SG&A as a % of total net sales (1) 11.3 % 11.1 % Adjusted operating margin 7.8 % 6.5 % Adjusted effective tax rate 23.0 % 27.0 % (1) Exclusive of depreciation and amortization. (2) Restructuring, impairment and other charges-net: charges incurred in the third quarter of 2022 primarily included $1.5 million for employee terminations and $4.0 million in other restructuring charges, primarily lease terminations and environmental costs, offset by net gains of $1.8 million on the sale of restructured facilities. Charges incurred in the third quarter of 2021 primarily included $2.5 million for employee terminations and $4.5 million in other restructuring charges, primarily lease terminations and environmental costs, offset by net gains of $4.0 million on the sale of restructured facilities. (3) All other: charges in the third quarter of 2022 primarily included expenses related to the systems intrusion identified in December 2021 and expenses related to the ongoing SEC and DOJ investigations in RRD Brazil, offset by the write-off of accrued restructuring charges as a result of the bankruptcy liquidation of Courier Brazil. Charges in the third quarter of 2021 primarily included expenses related to the ongoing SEC and DOJ investigations in RRD Brazil. R. R. Donnelley & Sons Company Reconciliation of GAAP to Non-GAAP Measures For the Nine Months Ended September 30, 2022 and 2021 (UNAUDITED) (in millions) For the Nine Months Ended September 30, 2022 For the Nine Months Ended September 30, 2021 Cost of sales SG&A (1) Income from operations Investment and other income - net Interest expense Income tax expense Net income from continuing operations attributable to RRD stockholders SG&A (1) Income from operations Interest expense Income tax expense Net income from continuing operations attributable to RRD stockholders GAAP basis measures $ 3,175.4 $ 491.4 $ 140.6 $ (14.0 ) $ 77.5 $ 44.3 $ 29.9 $ 438.3 $ 128.9 $ 98.4 $ 21.0 $ 18.2 Non-GAAP adjustments: Restructuring, impairment and other charges-net (2) — — 43.4 — — 4.4 39.0 — 19.5 — 3.2 16.3 Merger-related expenses (3) (0.3 ) (37.5 ) 67.0 — — (0.5 ) 67.5 — — — — — Gain (loss) on swap terminations — — — — 0.7 (0.1 ) (0.6 ) — — (9.2 ) 4.1 5.2 Loss on debt extinguishments — — — — — 0.2 2.0 — — — 2.7 3.4 All other (4) — (6.8 ) 17.5 0.2 — 10.4 6.8 (0.6 ) 14.0 — 2.3 11.7 Total Non-GAAP adjustments (0.3 ) (44.3 ) 127.9 0.2 0.7 14.4 114.7 (0.6 ) 33.5 (9.2 ) 12.3 36.6 Non-GAAP measures $ 3,175.1 $ 447.1 $ 268.5 $ (13.8 ) $ 78.2 $ 58.7 $ 144.6 $ 437.7 $ 162.4 $ 89.2 $ 33.3 $ 54.8 Additional non-GAAP information: 2022 2021 Gross Margin (1) 20.2 % 19.5 % Adjusted SG&A as a % of total net sales (1) 11.2 % 12.2 % Adjusted operating margin 6.7 % 4.5 % Adjusted effective tax rate 28.8 % 37.7 % (1) Exclusive of depreciation and amortization. (2) Restructuring, impairment and other charges-net: charges incurred in the nine months ended September 30, 2022 primarily included $20.0 million for employee terminations, $13.7 million in other restructuring charges, primarily lease terminations and environmental costs, and a $12 million impairment charge related to an equity investment, offset by net gains of $6.4 million on the sale of restructured facilities. Charges incurred in the nine months ended September 30, 2021 primarily included $6.3 million for employee terminations and $16.1 million in other restructuring charges, primarily lease terminations and environmental costs, offset by net gains of $5.4 million on the sale of restructured facilities. (3) Merger-related expenses: primarily included $36.0 million in accelerated incentive compensation expense and $30.0 million in transaction costs related to the Merger in 2022. (4) All other: charges incurred in the nine months ended September 30, 2022 primarily included expenses related to the systems intrusion identified in December 2021 and expenses related to the ongoing SEC and DOJ investigations in RRD Brazil, offset by the write-off of accrued restructuring charges as a result of the bankruptcy liquidation of Courier Brazil. Charges incurred in the nine months ended September 30, 2021 primarily included expenses related to the ongoing SEC and DOJ investigations in RRD Brazil. R. R. Donnelley & Sons Company Reconciliation of Reported to Organic Net Sales For the Three and Nine Months Ended September 30, 2022 (UNAUDITED) (in millions) For the Three Months Ended September 30, 2022 Reported net sales change 8.9 % Less: Year-over-year impact of changes in foreign currency rates (1.9 %) Net organic sales change 10.8 % For the Nine Months Ended September 30, 2022 Reported net sales change 11.0 % Less: Year-over-year impact of changes in foreign currency rates (1.2 %) Net organic sales change 12.2 % R. R. Donnelley & Sons Company Reconciliation of GAAP Net Income to Non-GAAP Adjusted EBITDA For the Three and Nine Months Ended September 30, 2022 and 2021 (UNAUDITED) (in millions) For the Three Months Ended September 30, 2022 2021 GAAP net income from continuing operations attributable to RRD stockholders $ 54.8 $ 29.2 Adjustments Income (loss) attributable to noncontrolling interests 0.1 (0.2 ) Income tax expense 20.4 21.5 Interest expense - net 29.3 29.4 Depreciation and amortization 29.7 32.3 Restructuring, impairment and other charges-net 4.7 4.0 Merger-related expenses 1.3 — Other 2.1 4.4 Total Non-GAAP adjustments 87.6 91.4 Non-GAAP adjusted EBITDA $ 142.4 $ 120.6 Net sales $ 1,380.8 $ 1,267.8 Non-GAAP adjusted EBITDA margin % 10.3 % 9.5 % For the Nine Months Ended September 30, 2022 2021 GAAP net income from continuing operations attributable to RRD stockholders $ 29.9 $ 18.2 Adjustments Income attributable to noncontrolling interests 0.6 0.2 Income tax expense 44.3 21.0 Interest expense - net 77.5 98.4 Depreciation and amortization 90.9 99.0 Restructuring, impairment and other charges-net 43.4 19.5 Loss on debt extinguishment 2.3 6.2 Merger-related expenses 67.0 — Other 17.3 14.0 Total Non-GAAP adjustments 343.3 258.3 Non-GAAP adjusted EBITDA $ 373.2 $ 276.5 Net sales $ 3,981.5 $ 3,586.5 Non-GAAP adjusted EBITDA margin % 9.4 % 7.7 % R. R. Donnelley & Sons Company Debt Leverage Ratios As of September 30, 2022 and 2021 (UNAUDITED) (in millions) As of September 30, 2022 2021 Gross Leverage Ratio Total Debt 1,622.0 1,512.9 Trailing 12 months adjusted EBITDA 510.2 410.1 on a continuing basis Discontinued operations adjusted EBITDA (1) n/a n/a Total adjusted EBITDA 510.2 410.1 Gross Leverage Ratio 3.2x 3.7x Net Leverage Ratio Total Debt 1,622.0 1,512.9 Less Cash and cash equivalents 237.5 223.5 Net Debt 1,384.5 1,289.4 Trailing 12 months adjusted EBITDA 510.2 410.1 on a continuing basis Discontinued operations adjusted EBITDA (1) n/a n/a Total adjusted EBITDA 510.2 410.1 Net Leverage Ratio 2.7x 3.1x (1) September 30, 2021 leverage ratios exclude EBITDA from discontinued operations as proceeds from the sale of the divested businesses were used to reduce debt.
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