RRD Reports Second Quarter 2022 Results

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–(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				(1.9	)				(0.2	)			3.1			—				2.0				1.1
Total Non-GAAP adjustments		19.7				0.3				5.2				14.2					(0.2	)			12.8			(9.2	)			13.5				14.7
Non-GAAP measures	$	80.4			$	(4.7	)		$	17.3			$	43.8				$	143.6			$	41.0		$	29.3			$	11.1			$	5.3
Additional non-GAAP information:									2022				2021
Gross Margin (1)										20.1	%			19.0	%
Adjusted SG&A as a % of total net sales (1)										11.4	%			12.5	%
Adjusted operating margin										6.2	%			3.6	%
Adjusted effective tax rate										28.1	%			66.9	%

(1)	Exclusive of depreciation and amortization.
(2)	Restructuring, impairment and other charges-net: charges incurred in the second quarter of 2022 primarily included $12.0 million in impairment charges related to an equity investment which was written down to its implied fair value and $3.3 million for employee termination costs. Charges incurred in the second quarter of 2021 included $7.6 million in other restructuring charges, primarily lease terminations and environmental costs, and $2.3 million for employee termination costs.
(3)	All other: charges in the second quarter of 2022 primarily included expenses related to the systems intrusion identified in December 2021, runoff insurance policies and expenses related to the ongoing SEC and DOJ investigations in RRD Brazil. Charges in the second 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 Six Months Ended June 30, 2022 and 2021
(UNAUDITED)
(in millions)
	For the Six Months Ended June 30, 2022																										For the Six Months Ended June 30, 2021
	Cost of sales				SG&A (1)				Income from operations			Investment and other income – net				Interest expense			Income tax expense				Net (loss) 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	$	2,093.5			$	334.4			$	35.2		$	(9.5	)		$	48.2		$	22.5			$	(28.8	)		$	297.1			$	53.3		$	69.0			$	(1.3	)		$	(11.3	)
Non-GAAP adjustments:
Restructuring, impairment and other charges-net (2)		—				—				38.7			—				—			5.6				33.1				—				15.5			—				6.8				8.7
Merger-related expenses (3)		(0.3	)			(36.2	)			65.7			—				—			(0.5	)			66.2				—				—			—				—				—
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	)			15.4			0.3				—			10.5				4.7				(0.6	)			9.6			—				4.3				5.4
Total Non-GAAP adjustments		(0.3	)			(43.0	)			119.8			0.3				0.7			15.7				105.4				(0.6	)			25.1			(9.2	)			17.9				22.7
Non-GAAP measures	$	2,093.2			$	291.4			$	155.0		$	(9.2	)		$	48.9		$	38.2			$	76.6			$	296.5			$	78.4		$	59.8			$	16.6			$	11.4
Additional non-GAAP information:																			2022				2021
Gross Margin (1)																				19.5	%			19.0	%
Adjusted SG&A as a % of total net sales (1)																				11.2	%			12.8	%
Adjusted operating margin																				6.0	%			3.4	%
Adjusted effective tax rate																				33.1	%			58.7	%

(1)	Exclusive of depreciation and amortization.
(2)	Restructuring, impairment and other charges-net: charges incurred in the six months ended June 30, 2022 included $18.5 million for employee termination costs, $9.7 million for other restructuring charges, comprised primarily of lease terminations and environmental costs, and $12.0 million in impairment charges related to an equity investment which was written down to its implied fair value, partially offset by net gains of $4.6 million related to the sale of restructured facilities. Charges incurred in the six months ended June 30, 2021 included $3.8 million for employee termination costs, $11.6 million for other restructuring charges, comprised primarily of lease terminations and environmental costs, partially offset by net gains of $1.4 million related to the sale of restructured facilities.
(3)	Merger-related expenses: primarily included $36.0 million in accelerated incentive compensation expense and $29.2 million in transaction costs related to the Merger in 2022.
(4)	All other: charges incurred in the six months ended June 30, 2022 primarily included expenses related to the systems intrusion identified in December 2021, runoff insurance policies and expenses related to the ongoing SEC and DOJ investigations in RRD Brazil. Charges incurred in the six months ended June 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 Six Months Ended June 30, 2022
(UNAUDITED)
(in millions)
		For the Three Months Ended June 30, 2022
Reported net sales change		12.5	%
Less:
Year-over-year impact of changes in foreign currency rates		(1.3	%)
Net organic sales change		13.8	%
		For the Six Months Ended June 30, 2022
Reported net sales change		12.2	%
Less:
Year-over-year impact of changes in foreign currency rates		(0.8	%)
Net organic sales change		13.0	%

R. R. Donnelley & Sons Company
Reconciliation of GAAP Net (Loss) Income to Non-GAAP Adjusted EBITDA
For the Three and Six Months Ended June 30, 2022 and 2021
(UNAUDITED)
(in millions)
	For the Three Months Ended June 30,
	2022				2021
GAAP net income (loss) from continuing operations attributable to RRD stockholders	$	29.6			$	(9.4	)
Adjustments
Income attributable to noncontrolling interests		0.5				0.2
Income tax expense (benefit)		12.1				(2.4	)
Interest expense – net		23.5				38.5
Depreciation and amortization		30.7				32.9
Restructuring, impairment and other charges-net		19.8				9.7
Loss on debt extinguishment		—				6.2
Other		(0.3	)			3.1
Total Non-GAAP adjustments		86.3				88.2
Non-GAAP adjusted EBITDA	$	115.9			$	78.8
Net sales	$	1,288.8			$	1,145.6
Non-GAAP adjusted EBITDA margin %		9.0	%			6.9	%
	For the Six Months Ended June 30,
	2022				2021
GAAP net loss from continuing operations attributable to RRD stockholders	$	(28.8	)		$	(11.3	)
Adjustments
Income attributable to noncontrolling interests		0.5				0.4
Income tax expense (benefit)		22.5				(1.3	)
Interest expense – net		48.2				69.0
Depreciation and amortization		61.2				66.7
Restructuring, impairment and other charges-net		38.7				15.5
Loss on debt extinguishment		2.3				6.2
Merger-related expenses		65.7				—
Other		15.1				9.6
Total Non-GAAP adjustments		254.2				166.1
Non-GAAP adjusted EBITDA	$	225.4			$	154.8
Net sales	$	2,600.7			$	2,318.7
Non-GAAP adjusted EBITDA margin %		8.7	%			6.7	%

R. R. Donnelley & Sons Company
Debt Leverage Ratios
As of June 30, 2022 and 2021
(UNAUDITED)
(in millions)
	As of June 30,
	2022		2021
Gross Leverage Ratio
Total Debt	1,583.1		1,541.9
Trailing 12 months adjusted EBITDA on a continuing basis	477.7		401.2
Discontinued operations adjusted EBITDA (1)	n/a		n/a
Total adjusted EBITDA	477.7		401.2
Gross Leverage Ratio	3.3x		3.8x
Net Leverage Ratio
Total Debt	1,583.1		1,541.9
Less Cash and cash equivalents	254.2		237.2
Net Debt	1,328.9		1,304.7
Trailing 12 months adjusted EBITDA on a continuing basis	477.7		401.2
Discontinued operations adjusted EBITDA (1)	n/a		n/a
Total adjusted EBITDA	477.7		401.2
Net Leverage Ratio	2.8x		3.3x

(1)	June 30, 2021 leverage ratios exclude EBITDA from discontinued operations as proceeds from the sale of the divested businesses were used to reduce debt.

Contacts

Investor Contact:

Eric Hess, VP Treasurer

Telephone: 630-322-7111

E-mail: investor.info@rrd.com

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