Q4 2020 RR Donnelley & Sons Co Earnings Call
Well from Judy R. A D fourth quarter of 'twenty 'twenty results Conference call. My name is Marianna 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.
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I will now turn the call over to Yale had nice dead or are these senior vice president of finance.
Okay.
Thank you Maria and thank you everyone for joining argues for us for it and full year 'twenty and 'twenty results conference call.
Joining me on today's call of our dominant Knotts argues president and Chief Executive Officer and.
Peterson.
The Chief Financial Officer at the conclusion of today's prepared remarks, Dan and Terry and I will take questions.
As a reminder, we have prepared the supplemental slides for today's call, which can be found on the investors section of our website at <unk> Dot com.
As we review our results on today's call I will be advancing the slides if you're all connected by webcast I'll try us heavily we will periodically reference page numbers from the supplemental slides for those participants who wish to follow along by advancing the slides for himself.
Formation reviews of joined this call is addressed in more detail and our fourth quarter press release, a copy of which is posted on the investors section of our website at all of the Ddos com.
This information was also furnished to the efficacy and the form 8-K, we filed yesterday.
As a reminder, beginning in the third and fourth of 'twenty 'twenty, we've reflected our logistics business as discontinued operations for all targets for something and the consolidated statements of operations.
Our rough for us today to net sales of SG&A income from operations net income or loss and the per share amounts on this call will be on the continuing basis without the logistics.
In addition, we've been 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 of the factors that could cause the actual results to differ materially. Please refer to the cautionary statement of clothing and our earnings release.
And the risk factors included in the annual report on form 10-K, our quarterly reports on form 10-Q, and other filings for the FCC.
Further we will discuss non-GAAP financial information.
We believe the presentation of non-GAAP per subs provides investors with useful supplementary information concerning the countless alcohol and operations and is an appropriate way to evaluate the companys performance.
These non-GAAP results of provides us for informational purposes only.
And the references to non-GAAP financial measures are reconciled to the comparable GAAP financial measures and the investors section of our website of the park about press release.
I'll now turn the call over to Dan.
Thank you Johan and good morning, everyone and thank you for joining it's great to be with you today and on behalf of all of US at all of our D. 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.
For 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.
And I'm extremely proud of how our team continues to respond to the near term challenges created by the global pandemic, while strengthening our of D. For the long term through the execution of our strategic priorities when the pandemic emerged early in the year. We quickly deployed our COVID-19 operating plan with the focus and three areas and to protect the health and safety of our <unk>.
Please maintain operational continuity for our clients and prudently manage our business performance through the pandemic driven challenges across the year, we performed very well and each of these areas due to the tremendous resilience and hard work of the entire R&D team.
I'm, especially appreciative the despite all of 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.
Our 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 R&D during these unprecedented times.
2020 was a very strong year of performance for our D. Despite a decline and top line sales driven by the pandemic for the second consecutive year, we achieved full year growth and adjusted income from operations and higher operating margins further.
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.
And our strategic priorities to strengthen our core drive revenue and improve financial flexibility are deeply embedded within R&D and we made very good progress and 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 noncore businesses, we drove revenue performance of amidst the challenging market.
By expanding client relationships, adding new clients to our roster.
Testing 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 and we ended the year with $1 5 billion of total debt gross leverage.
Three seven 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, and with a very strong quarter of operational and financial performance highlighted by an increase and adjusted income from operations and higher operating margins versus the prior year and a significant improvement and our quarterly organic sales trend on the top line organic net sales.
And for 8%, which further builds on the sequential improvement we saw in the third quarter are improving organic sales trend reflects our team's success and winning new opportunities. While also supporting the gradual return of client demand across many of our product categories on a segment basis business services.
Cheap the organic growth for the quarter, and importantly delivered higher organic sales in our strategic growth product categories, including supply chain management packaging and labels.
The marketing solutions organic sales were down to the prior year due to clients continuing to curtail marketing spend and the more than 9% negative nine percentage point negative impact due to the census, completing earlier in the year.
We did see 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.
For the full year.
We reported a 9% decline and organic sales primarily related to the impact of the global pandemic on the segment basis marketing exclusions experienced a 15.6% decline as markers of abruptly reduced volumes beginning in the second quarter and the only gradually increased spend as the year progressed business services reported a $6 90.
The percent of organic organic decline for the year.
The combination of lower client demand and commercial print being partially offset by organic growth and 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 all.
Operating margins for the second consecutive year of.
Our favorable full year earnings and margin performance is a true testament of the ability of the R. D team to deliver strong results and 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 have secured over the past.
Few months.
We're excited to partner with Panera bread and one of the leading fast casual restaurants, and the United States with more than 2100 bakery cafes nationwide and.
In recent months Panera expanded its menu and selected already to support the rollout of other new flatbed flatbread pizzas with menus and box closure labels for.
And here also turned to already to provide bag closure labels for takeout and delivery orders, which have increased significantly during the pandemic.
Pandemic choke Panera, sorry chose our the 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 health care organizations stay connected with their customers. During these challenging times of large health insurance organization wanted to do something special for their Medicare advantage members to promote their health and wellbeing during the winter and help them cope with the ongoing pandemic.
And this organization designed to care package that included roughly a dozen items, including hand, sanitizer disposable face masks and pulse oximeter.
They turned to already one of their trusted business partners to source fulfill and distribute over 240000 kits by the end of the year.
They chose R&D because of our packaging commercial print and supply chain management capabilities and the 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 Pete twenty-three labs to source assemble and ship COVID-19 test kits to consumers and health care providers P. Twenty-three joins a number of labs around the world the of turning to R&D to support the ramp up of COVID-19 test kits during this unprecedented.
Global Health crisis, the FDA gave P twenty-three labs emergency use authorization for its test kits and October.
And they selected <unk> as their partner because of a regulatory credentials and the end to end supply chain solutions from initial design to packaging and label production to product fulfillment and distribution.
While these kind of examples show how we are flexing our extensive capabilities to win new opportunities. We're also positioning R&D to drive revenue performance through continued innovation.
We recently introduced comprehensive vaccination distribution toolkits designed to provide turnkey support and three key areas vaccine and awareness clinician and the retailer operational needs and post vaccination support.
Targeted for use by health care 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 the COVID-19 vaccines.
Additionally, we launched connect one by Rd, and enter and communications management platform developed of streamline marketing and creative workflows through a single unified portal.
Connect the one delivers a comprehensive suite of technologies, including marketing automation and digital asset management and data driven supply chain management to help marketers enhanced brand continuity accelerate speed to market and improve marketing ROI.
On our third quarter call I shared the we launched touch us world by all of our D, which is a comprehensive set of solutions that utilize the power of dynamic Scannable Smart tags. We are integrating these smart tags with the offerings, we provide and our existing platforms, including labels retail signage commercial print and packaging forms of indirect.
Male dynamic content and then be delivered across any of these mediums to consumer smartphones to create they touch us experience.
And I'm excited to tell you more about our recent support for printing App clip codes as part of our R&D Touchless World platform App clip codes are one of the ways iOS users can invoke app clips of new feature Apple introduced as part of iOS for 14.
<unk> clips as the name suggest our lightweight versions of applications that can pop up on your iPhone or iPad without having the download the full app from the App store first they have all sorts of uses from per viewing from previewing absent games expediting payment transactions or previewing previewing the product and augmented reality app.
The codes can be placed on a bike or scooter for streamlined rentals on the tabletop and and restaurant for quick payment.
For the retail location to unlock and immersive experience.
Already is well positioned to print out the codes because we of 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 and coding or.
Our solutions engineers can also develop of customized print based ecosystems complying with Apple's print guidelines to help brands connect the physical world with the enhanced digital experience the activation of touch us World and App clip codes is yet. Another example of how we continue to innovate to help our clients increase engagement with their targeted audience.
Yes.
Before turning the call over to Terry I'd like to highlight a few recognitions. We've recently received.
Earlier this month three of them named R&D of one of its 2000 twenty's suppliers of the year the.
The award recognizes suppliers and improved three of them competitiveness through collaborative relationships that ultimately helped the company deliver innovative and valuable solutions to customers three of them honored 20 suppliers supporting the U S and Canada out of the thousands of companies and its global supply chain and global supply base for the World class performance.
Second R&D go creative was recognized as the winner of the 2020 promoting social inclusion of work by community business for diversity and inclusion in India Best practice Awards. This recognition is directly attributable both to the work already did to bring digital jobs to the Himalaya.
Finally, R&D was selected as a recipient of the 'twenty and 'twenty Enel X sustainable footprint Award.
This award and recognition of our of these 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, and Ohio, Pennsylvania, Maryland, New Jersey, Illinois, Connecticut, Texas, and Ontario and are honored to be recognized.
And eyes for our commitment to grid stability and energy flexibility with that Teri I'll turn it over to you.
Alright, Thank you Dan.
We had a remarkable finished two of challenging year as we significantly outperformed against our expectations set of only four months ago.
Once again, we focused on those matters within our control and have delivered results that demonstrate that our strategy is working during this uncertain and volatile time R.
Our team continues to land new work through innovative solutions that help our clients meet their evolving communications needs.
This focus helped us deliver better than expected net sales as our actual results exceeded the midpoint of our previous guidance by over $150 million we.
We also continued to focus on our cost structure, which enabled us to grow adjusted income from operations and deliver a 50 basis point improvement and our adjusted operating margin for the quarter versus the prior year.
Overall, we are very pleased to reported adjusted diluted earnings per share from continuing operations for the fourth quarter of <unk> 71.
Which was up 65, 1% over the prior year.
For the full year, our adjusted diluted earnings per share from continuing operations was $1 21 up 133% from 2019.
Our ongoing strategic focus to improve our capital structure led to our single largest reduction and debt outstanding delivered in any quarter since the spin in 2016.
This significant reduction was largely driven by the divestitures of our two logistics businesses. The liquidation of certain life insurance policies. The sale of three idle facilities and strong operating cash flow for the quarter.
We also returned to our normal borrowing practices after having taken additional draws on our credit facility earlier in the year in order to protect liquidity.
Total debt outstanding was reduced by $518 million and the quarter, which was $143 million better than the midpoint of our guidance last quarter.
This brings our total reduction for the year to $315 million and since 2016, we have reduced our outstanding debt by $884 million.
And I will provide more details on our debt later, but let me get started with additional details on our fourth quarter financial results.
Turning now to slide 11, net sales of $1.35 billion were down $86 million or five 6% and the quarter, which included a reduction of $24 $5 million associated with the GDS Europe disposition and the closure of Chile, plus an increase of $11 $5 million associated with a week.
Or us dollar.
Net sales were down four 8% organically, marking our second consecutive quarter of year over year improvement since the pandemic began.
For the segments business services reported organic growth of one 7%, primarily driven by higher volumes and supply chain management packaging and labels, which are three of our strategic growth product categories.
Our supply chain management growth was driven by several large health care kitting projects packaging grew in the quarter due to strong demand in both of our domestic and international operations and our labels products experienced continued growth to increase demand for shipping related labels.
Lower demand for our statements forms and commercial print products was driven by the impact of COVID-19, pandemic and secular decline. However, the decline rates and these products have shown improvement from the previous two quarters as we continue to see a gradual recovery and demand for these product categories.
Marketing solutions reported and organic decline of 22, 8% due primarily to the impact of COVID-19, and the lapping of the census project, which was completed earlier in 2020.
The census project alone contributed to over nine points of the quarterly decline rate for this segment.
<unk>, the fourth quarter being only the only quarter and 2020 with no sense of sales the decline rate for this segment improved slightly from the previous two quarters.
On slide 12, our adjusted income from operations of $94 $5 million was $1 $2 million higher than the fourth quarter of 2019, despite the decline in organic sales.
This increase was primarily due to aggressive actions taken to reduce the company's cost structure and lower depreciation and amortization expense, partially offset by the decline in sales.
The higher variable incentive compensation and unfavorable FX of nearly $10 billion, which was mostly associated with our operations in China.
Adjusted SG&A expense of $169 million and the fourth quarter was down for $3 million or two 6% from the prior year and down $95 $7 million or of 13, 9% for the full year versus 2019, reflecting the impact of recent dispositions and ongoing.
Execution of our strategic initiative to deliver and lower our cost to serve.
Our GAAP results for income from operations for the fourth quarter included restructuring and other charges of $6 $2 million, which was nearly flat to the 2019 of Mt.
Adjusted earnings per share of <unk> 71, and the fourth quarter increased 28 cents as compared to earnings per share of <unk> 43, and the prior year period.
This increase was primarily due to a lower effective tax rate lower interest expense and higher adjusted income from operations.
Our adjusted effective tax rate decreased from 51, 1% and 2019 to 22, 5% and 2020, primarily due to the favorable impact of recently issued tax law guidance.
Turning now to the balance sheet and cash flow on slide 13 as of December 31, 2020, we had total cash on hand of $289 million and total debt outstanding of $1 5 billion after having repaid all borrowings on our credit facility and.
Availability on the credit facility was $576 million at the end of the year and total available liquidity, including cash on hand was $865 million, which was $322 million higher than the beginning of the quarter and our highest level since 2018.
Our end of the year leverage also improved significantly at December 31, 2020, we reported gross leverage of three seven times, which was <unk> five times lower than 2019 leverage and 1.0 times lower than the leverage at September 30th.
Net leverage of 3.0 times improved <unk> seven times from both the prior year and quarter.
Full year net cash provided by operating activities of $149 $8 million and 2020 was $10 $5 million higher than 2019, due primarily to the deferral of the employer portion of payroll taxes as part of the cares Act, which contributed $35 $1 million.
Lower interest payments and the reduction in working capital.
These factors were partially offset by $47 million paid in 2020 to terminate twenty-five deferred compensation plans and higher restructuring payments.
Capital expenditures of $85 $6 million, and 2020 were $53 $2 million lower than 2019, due primarily to additional investments made last year for the census project and the new facility in China.
Slide 14 summarizes several key actions, we have taken to improve our balance sheet during the year.
To highlight a few during the year, we sold our remaining logistics businesses, bringing our total proceeds from business dispositions to $247 $6 million and 2020.
We also sold six facilities and collected one additional deposit on the China building sale, all of which aggregated to proceeds of $43 million in 2020 of them.
In addition, we received proceeds of $100 million from life insurance policies. Most of most of which was due to liquidating the policies during the fourth quarter.
Collectively our efforts to improve our balance sheet have yielded a reduction and total debt outstanding of $315 million and 2020, while significantly improving both our gross and net leverage.
And regards to the pending sale of our printing facility in Shenzhen China.
The buyer continues to work with the government to obtain the necessary approvals. So we can complete the sale once the transaction closes we expect to record of significant gain on the sale.
To date, we have collected $123 $3 million and deposits and we are scheduled to collect one additional deposit of approximately $50 million in 'twenty and 'twenty one.
Our contract with the buyer requires them to pay the final installment and 2022, even if the government's final approval is delayed.
If the buyer fails to comply with the terms of the agreement are terminated for any reason, our R&D is entitled to retain and 30% of the purchase price and liquidated damages.
Slide 15 of the supplemental slides show of the various maturities of our outstanding debt as of December 31.
Throughout 2020, we reduced total debt outstanding by $315 million and addition, since the end of 2019, the aggregate amount of senior notes and debentures due through 2024 was reduced by $750 million from 1.1 0.0 billion.
For $272 million.
This was accomplished through a series of debt exchanges, which extended approximately $475 million of debt due from 2021 to 2024 to later years, along with debt repurchases and repayments.
During the fourth quarter alone, we reduced debt by over $500 million as we fully repaid all balances drawn and our credit facility redeemed the remaining $83 $3 million of the seven 875% senior notes due March 15th 2021, and Opportunistically repurchased $25 million of senior notes maturing in 2000.
'twenty two.
Also the unfunded status of our pension and other post retirement plans also improved from the prior year at the end of 2020, our plans were underfunded by $107 6 million, which was an improvement from the $137 $2 million underfunded level at the end of 2019.
The decrease is due to strong asset returns, partially offset by lower discount rates.
Planned contributions in 2021 under all pension and other post retirement plans are expected to be approximately $6 million, which is slightly less than our 2020 funding.
Income in 2021 from all plans is expected to be approximately $19 million as compared to $12 million recorded in 2020.
Our expectations for full year 2021 are reflected on slide 16.
As the COVID-19 infection rates remain elevated and many parts of the world. We expect the path forward to remain uncertain and volatile and.
As such we are unable to furnish our typical guidance for 2021.
However, I do have the following observations and guidance for 2021, beginning with the observations regarding our two segments.
For business services, the organic growth, we achieved and the fourth quarter gives us optimism for the year ahead, even though there are select verticals, such as travel and lodging that remain and the pandemic script, we believe that our supply chain packaging and labels businesses. We will continue to benefit from the shift to e-commerce and other pandemic and.
<unk> changes and consumer behavior.
Many are predicting to become permanent.
The health care industry. For example is adjusting to the growth of telehealth and in home services and with our Cgmp Assembly and fulfillment capabilities, we are well positioned to support them going forward and with the start of nationwide vaccinations comes to the comes of the potential for the Corona virus to be under control later this year.
And which will bode well for a continued economic recovery and a corresponding increase in demand for print and support services.
For marketing solutions based on forecasts for the US advertising spending in 2021 client marketing budgets are expected to increase and AD spending is projected to grow from 3% to 6% depending on the pace and timing of the projected economic recovery.
The unique conditions and impact of COVID-19, and different industries mused at the pace of recovery and the mix of marketing activity will continue to vary greatly.
Integrated marketing programs with Demonstratable ROI will be critical to marketers, who are increasingly challenged to restore top line growth and we believe that our marketing solutions team is well positioned to provide innovative solutions that help our clients achieve that objective.
Net sales for the year are expected to be flat to up low single digits, taking into consideration reductions from the census project and onetime pandemic related projects and the second half of 2020 offset by a modest economic recovery as the year progresses. However.
However, net sales in the first quarter are expected to be between 1.09, and $1, one $5 billion or down 5% to 10% organically since the pants and the pandemic did not began impacting most of the company's businesses until late March 2020, and we were producing the census last year.
Wrapped up in mid 2020.
Excluding the unpredictable impact from changes in foreign exchange rates non-GAAP adjusted income from operations and the resulting operating margin are expected to be flat to up slightly from the prior year as the company continues to benefit from aggressive cost out actions.
Results for the first quarter are expected to be slightly lower than the prior year given the exceptionally strong first quarter of 2020, which included work for the census.
Interest expense is expected to range from $120 million to $125 million benefiting from lower average borrowings and lower average interest rates throughout 2021.
The full year non-GAAP effective tax rate is expected to be approximately 35%, which is higher than reported in 2020 as nonrecurring benefits were reflected in 2020 and the benefit from the cares Act has expired.
Operating cash flow is expected to be slightly lower than the prior year, reflecting a reduction due to the repayment of half of the employer portion of payroll taxes deferred in 2020.
Capital expenditures are expected to be approximately $80 million and as part of our agreement to sell of the printing facility in China. The company expects to collect one additional deposit of approximately $50 million and 2021.
The company also expects to continue generating additional proceeds from monetizing other assets, including proceeds from selling additional facilities.
And now operator, let's open up the line for questions.
Thank you we will now begin the question and answer session. If you have the question. Please press Star then one on your Touchtone phone if you wish to be removed from the queue. Please press the pound sign or the husky and.
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And Charles Charles there from.
And from CJS Securities is online and on the line with the question. Your line is open. Please go ahead.
Hi, good morning good.
Morning, Charlie Charlie.
Hey can we.
Perhaps the dive a little deeper into the stronger than expected sales performance and the quarter and specifically when you look at the.
Business services side.
What were the kind of key drivers within the sub segments, there and then what.
And just kind of one.
One time versus maybe more of a ongoing if you will.
Yes, sure Charlie I'll, I'll take us and Dan can kick in with some additional comments of if necessary.
One of the areas, where we had the greatest over performance from our previous expectations was and the supply chain management.
That area of reported a very very significant organic growth, probably one of our largest organic growth for any product category since the.
The time of the spin.
And that area had just a tremendous wins and that group is having great success with the projects.
Hitting projects that are helping to distribute the.
Medical supplies and kids too.
Two folks out there.
As well as just the number of other types of of opportunities that have come in from the kind of the health care profession.
So that's probably the the.
Largest area of over performance, we did see.
Really good performance some of.
Better than expectations also and our packaging and that came out of both our both our.
Chinese operations as well as our domestic U S operation and labels continues to really do do well so.
Breaking it down between onetime projects and and not.
Yes.
We.
I hope to be able to leverage these new relationships and these new product offerings that we've been able to provide we hope that that can continue to provide additional sources of revenue and the future, but many of those are.
Were onetime in nature at least for now, but but again the relationships that we've established for some of the east and some of the relationships that have been extended we think really can provide us some some ongoing extra work with these clients even if it's not exactly the same as what we produced and the fourth quarter, but those are probably the big areas, where we had the over.
<unk> places that were still down actually performed a little bit better as well and our <unk>.
<unk> print that was a little bit better as I mentioned several of the down areas for us were showing a better.
Better and lower rates of decline and what we had seen in previous quarters.
So those are really kind of helping to even though they didn't report growth for the quarter and Charlie just to add to that if you look at the three categories.
And the product categories and delivered organic growth for the quarter.
Hi chain management packaging and labels I think there is an important element of this as we look to 2021 and the strategic element of this as we look to 2021 of the changing landscape for those those product categories and capabilities and by that I mean, as Terry mentioned within supply chain.
<unk> chain of management.
Certainly a and increase in Teladoc telehealth kits that are going out to that of going out to and in consumers from a variety of different places and organizations and companies and the question. There on the going forward basis as has the has the market or has the demand profile shifted now where you can think of.
The Teladoc and you think about telehealth.
And kids being sent out directly to People's homes, the extent to which that becomes a permanent shift and the market shifting and organizational company behavior and consumer acceptance. We think we're very well positioned in that space and continue to pursue those opportunities today as we speak with those organizations as they try to figure it out.
Heading into now that we're into 2021 from a packaging and labels standpoint.
Both of those are predicated on two things and that is that us from a packaging standpoint more from the standpoint of the electronic <unk>.
Device and new wins that we had with clients in a number of different areas as we continue to grow our packaging business. So the so the two aspects of that is I'll call. The organic growth based on the packaging. We are providing for the products that are being purchased primarily and the technology side as well as the the.
The sustained or new growth and we're experiencing as a result of a building and continue to build out our packaging business. So we're pretty excited about the future opportunities that we have in front of us there and.
From the label standpoint, there is a shift in and from a secondary from a shipping label E. Commerce trend that is moving forward from us from a market standpoint, and we're very well positioned and that in that space as well and feel good about the ongoing opportunities for us to continue to support those clients as they as they recognize the risk.
Spot to the shift and e-commerce home deliveries et cetera, and the increased use of labels.
So all three of those have different but similar dynamics that we're pretty excited about as we head into 2021 and the real question is how do you turn those into permanent opportunities and support that level of growth that those clients are looking for going forward, Yeah, and Charlie I just had one more follow on here. This is really the second quarter, where we've had.
Good surprise to the upside and one of the other things Thats really unique with a lot of these opportunities is the sales cycle has been incredibly short on the us up.
We have visibility to at the time ratio guidance and what the materializes after that.
As you know.
It can be a notably different and so the sales cycle has been sharp, which is a great Testament to our team's ability to really.
Dress and respond and adapt to.
And so our clients' changing needs and put together programs that can be executed.
Hold and executed very very quickly it's up like I said this is the second quarter, where we've seen some nice upside and of <unk>.
Lot of that just because of the sales cycle and the has just been so incredibly short and our ability to execute and deliver on these large projects has been pretty incredible and such a short period of time.
That's encouraging and thank you and then just sick weighing into the.
Of the discussion about the guidance that you gave out it looks like Q4 Q1 of kind of of the bottom here.
What gives you the confidence that we're seeing of bottom at this point and talk about the assumptions behind the guidance a little bit more of if you could.
Yes.
And Thats top of Phi we debated a lot about how far we felt comfortable going with the guidance because as I mentioned, there's still a lot of uncertainty of theres still a lot of volatility and and.
And that creates more challenges with providing the guidance, but we felt like.
And it's important to kind of share at least our perspective as of as of the current time here.
So we've we spent a lot of time kind of looking at the different markets that are of different product categories are performing in some of the opportunities.
With some of the new products that in the past the gas.
Products and the services that we have rolled out and we have.
<unk> taken a stab at estimating what that recovery might look like and we're kind of looking at vaccination, the pace of vaccinations and and.
Believing that as vaccinations continue to to get further distributed that that will provide a return over a period of time two to more normal times. So we've made some assumptions around around that pace and what kind of what the new normal is going to look like everyone and look the same as it did before the pandemic.
Yes.
And have always believed that it would be different afterwards, and that we would emerge stronger even if we did emerge a little bit smaller but at the same time.
We've just really tried to.
All of the data points that we've seen and look at what's happening with the vaccinations and the timing and the pace of expected for that and we've and we've.
<unk> made some assumptions around what that would look like for our revenue given the mix of products and services that we have.
And the Charlie I think it's also important too.
And think about that share how we think about that relative to the two segments.
And within within business services the that the.
The key drivers of business services are all about product.
Product spending by both businesses and consumers.
And as the economy begins to open up if you think about packaging and think about net labels do you think about supply chain management. If you think about statements from the consumer spending of standpoint, and commercial print and activities.
Under the assumption of the economy is going to continue to open up as vaccines rollout and product spending by both businesses and consumers going to continue to increase key driver for business services and you think about marketing solutions and marketing solutions spend was significantly curtailed marketers spend was significantly curtailed in.
In 2020, amidst the uncertain and uncertainty and uncertain environment, and whether or not there'll be a return on that on that marketing ROI.
The downside to that is from a market and standpoint, as marketing works and to be able to drive increased sales and growth of the companies out there of that use marketing to do that at some point that is going to return and consumers are going to respond to that so both of those are predicated on the economic return a little bit different dynamics.
Relative to the product spending versus the marketing spend.
Significantly uncertain at this point of time of how this is going to play out, but we feel pretty good about where we sit today.
Thank you and then.
If we could shift a little bit too for the balance sheet.
And kind of given how wide open the capital markets or any thoughts about taking advantage of the the.
The window here too.
For the refinance the balance sheet.
I mean, it's.
And certainly attractive looking at.
The strength of the capital markets right now, despite we've not announced anything but as I've said and many other previous quarters. We're always looking for a great opportunity to improve the health and strength of our balance sheet.
But at this point, we've not we've not got any.
Sort of opportunistic transaction to announce.
Got it and then just lastly on thoughts on D&A for 2021.
DNA depreciation yes.
Yes.
We've shown steady reductions and that over the past several years here.
We would expect just given that the capex was a little bit lower this year, we would expect that to come down a little bit we didn't provide exact numbers on that but we will expect to see some continued downward movement and that expense.
Great. Thank you very much.
And thanks, Charlie Yes, Thank you Charlie.
Once again, if you have the question. Please press Star then one on your Touchtone phone.
And Bill mattress is on the line fill mattress from Baird is online with the question. Your line is open. Please go ahead.
Thank you.
Terry This is a little bit of a follow on.
To your comment to it for the most recent question.
Are there any hurdles that you have right now in any of the revolving credit agreements, assuming you elect not to refinance your 2022 maturities.
That would prevent you from for maybe taking it out with the.
And the revolving credit agreement.
No. There is there is there is no restrictions at all and.
And in fact, our capacity for <unk>.
The secured debt issues right now is probably the greatest capacity that we've had and quite a long time. So we.
Feel like we have very very few.
<unk>.
Challenges to work around when it comes to doing and is sort of financing right now.
And with us that secured capacity right now.
It's over $1 billion. If you look at first and junior priority of so it's very high right now and talk for $1 billion.
And then a related question, but over the longer term do you have a leverage target that you would care to articulate I know this year is going to be a little bit challenging just in terms of your ability to maybe reduce it at the same pace, but is there a long term target where you say okay. This is going to be our comfort level going forward I understand it's a little bit difficult because we don't know what's the.
And the unfold.
And as far as the economy opening up or the pace at which opens up.
Yes, we have not published.
Our share to kind of.
The medium or long range target other than to say that our goal for the foreseeable future is going to be the continue to reduce that leverage over time. So we look at also.
And all sorts of opportunities to help reduce that leverage including focus on improving and.
And growing EBITDA is certainly one other mechanism to help reduce that leverage so we havent really published anything but for the foreseeable future.
B.
Hard focus on continuing to reduce that leverage.
Okay, and then maybe a question for Dan. This is kind of a follow up to your recent comments and as the economy begins to open up and.
Your clients kind of look towards the future have they expressed an interest and shifting maybe their business communications mix, a little bit more towards print I think you've touched on some of that with packaging and labels, but I don't think you directly addressed the commercial print.
Yes, I think commercial.
Print has a given the breath of our platform is a tremendous.
Number of capabilities and product offerings.
And with within it.
I think for for the most part from the from a packaging we've talked about from the packaging and the kits within supply chain management and the labels piece of that and.
And even the any of the statements of piece of that all continue to be critical business communications that are that our clients use to manage and run there.
Their business and <unk>.
Part of that spills over into our into our commercial print platform.
It's the the.
And I think thats going to continue to happen.
The I think the interesting question around the bill is relative to the future of of marketing and the.
The.
The called the abundance of.
Digital platforms that are out there and in this remote world and people trying to utilize the company's utilizing those market and utilize utilizing those.
Because of pretty inexpensive to do that but what we know and what's been proven over time is that the combination of both print and digital is most effective marketing marketing community. It means of marketing communications and when you think about.
The digital print side, we think about customized direct mail programs and we think about we think about retail and store signage and they all work. So I think as the economy opens back up you are going to continue to see a balanced approach that marketers are taking relative to both the digital side and the and the physical print side.
Okay and my.
My last question and this is admittedly a little bit of a head scratcher for me I can't say I've seen this very often and that is the $96 million in liquidated life insurance policies carry any details around that.
I'm not exactly sure whats involved there, but any color would be would be appreciate it yes.
Yes.
Had for a long long time I can't even tell you how long we've had.
So the cash values on our balance sheet associated with these.
Life insurance policies, many EBIT not all of those policies were actually in the Rabbi Trust that was used to provide security for many of the obligations that we owed under the deferred comp plans and we also terminated so there is a bit of of linkage there between terminating those deferred comp plans and the proceeds that we that we have.
Receive sub so once we were able to the to.
Terminate those deferred comp plans, we were able to to monetize or to get at the.
The cash Thats still invested in those insurance policies.
It's been a very lengthy project for us it's probably the from the time, we started the setting the opportunity to being able to execute on it and deliver the results probably somewhere around a two year window of time to do that but but we the team I just hung in there and did a great job getting through some very very complicated and now.
<unk> and strategies and we were able to complete it at a time when the.
The tax laws were a bit more favorable than they have been both.
For this year as well as what they will be for 2021, so yes.
Yes, I mean, it's.
<unk>.
Essentially what it is it was just shutting down the policy is and pulling the cash out of that but there is whole series of events and activities that had to happen before we could do that for most of those policies and some are free and clear and where is it more easily done but for the bulk of them. We had a lot of heavy lifting to do to to free of those up.
Thank you very much I appreciate all the color and best of luck and the upcoming year.
Thanks, Bill Thanks, Bill appreciate it.
Once again, if you have a question. Please press Star then one on your Touchtone phone.
I'm showing no further questions at this time I will now turn the call back to Dan Knotts.
Great. Thanks, Marianna and as we move into 2021, we are a stronger R&D as a result of our achievements in 2020.
And while we're optimistic about vaccine distribution and the resulting economic recovery.
We will remain extremely focused.
On protecting the health and safety of our employees performing for our clients and prudently managing our business through the near term challenges, while strengthening our D for the long term.
Thank you for joining us today and please everyone stay safe.
Thanks, Dan as a reminder of information to access the telephonic replay of our fourth quarter and it's binary risk.
And can be found in our fourth quarter press release, the couple of which is posted on the investors section of our website at <unk> Dot com.
For joining us and that concludes the Rd fourth for 'twenty, It's finally earnings call.
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