RRD Reports Fourth Quarter and Full Year 2021 Results

2021 FULL YEAR NET SALES INCREASED 4% OVER PRIOR YEAR

TOTAL DEBT OF $1.47 BILLION AT LOWEST LEVEL SINCE THE SPIN IN 2016

REGULATORY APPROVALS FOR THE MERGER WITH CHATHAM HAVE BEEN OBTAINED; SUBJECT TO STOCKHOLDER VOTE SCHEDULED FOR FEBRUARY 23, TRANSACTION IS EXPECTED TO CLOSE EXPEDITIOUSLY THEREAFTER AND AS SOON AS FEBRUARY 25

R.R. Donnelley & Sons Company (NYSE: RRD) (“RRD” or the “Company”) today reported financial results for the fourth quarter and full year of 2021.

Full Year Key Messages

• GAAP net sales, including the impact of foreign exchange and a disposition in early 2020, increased $197 million or 4.1%; Non-GAAP organic net sales increased 3.2% primarily from higher demand for many of the Company’s products and services
• GAAP income from operations was up $55 million versus the prior year
• Non-GAAP income from operations for the year improved $17 million despite headwinds in excess of $80 million which included one-time projects in the prior year related to COVID and the Census, unfavorable FX and valuation adjustments for certain incentive compensation awards caused by the stock price increase in 2021
• Cash provided by operating activities in 2021 was $92.1 million as compared to $149.8 million in the prior year period; current year results include payments in excess of $100 million related to the planned merger, settlement of LSC bankruptcy related claims, repayment of half the payroll taxes deferred in 2020 and payments made to terminate certain interest rate swap agreements
• Total debt outstanding of $1.47 billion at December 31, 2021 is down $37 million from the prior year end; Pension and OPEB plans are overfunded by $42 million at December 31, 2021 which is an improvement of $146 million from the $104 million underfunded amount at the prior year end
• Gross leverage ratio of 3.6x and net leverage ratio of 2.9x both improved 0.1x from December 31, 2020 and represent lowest levels since 2016 spin

“We delivered a strong year of performance capped by fourth quarter results that exceeded our expectations. I am proud of the RRD team as we continue to successfully execute our strategy and navigate through the COVID-19 pandemic. Our full year 2021 adjusted income from operations and operating margin represent our third consecutive year of improved performance, while also representing our best performance in those metrics since 2016,” said Dan Knotts, RRD President and Chief Executive Officer. “We have remained laser focused on executing our strategic priorities and have a business that is consistently delivering profitable growth and improving margins through organic sales growth and a leaner cost structure. In addition, our balance sheet is in its best shape since the spin in 2016. I would like to thank our 32,000 employees for their many contributions and dedication to deliver the high level of business performance we have today for our stockholders. RRD is well positioned for continued success under the expected future ownership of Chatham Asset Management.”

Financial highlights

The following table provides an overview of RRD’s financial performance:

On December 14, 2021, RRD entered into a definitive merger agreement under which the Company agreed to be acquired by affiliates of Chatham Asset Management, LLC (“Chatham”), a leading private investment firm. Under the terms of the merger agreement, an affiliate of Chatham will acquire all of the outstanding shares of RRD common stock not already owned by Chatham and its affiliates for $10.85 per share in cash. Necessary regulatory approvals for the transaction have been obtained, and, subject to the stockholder vote scheduled for February 23, 2022, the transaction is expected to close expeditiously thereafter and as soon as February 25, 2022. Once the transaction closes, RRD’s shares will no longer trade on the New York Stock Exchange, and RRD will become a private company.

Net sales in the fourth quarter were $1.38 billion, up $28.6 million or 2.1% from the same period in 2020. While fourth quarter net sales benefitted $3 million due to changes in foreign exchange rates, the majority of the increase relates to higher client demand for many of the Company’s products and price increases to partially offset inflationary cost increases. Notably, net sales of Commercial Print products were up significantly due to strong demand for domestic trading cards as well as other printed products produced in China while net sales in Supply Chain Management were negatively impacted by the large one-time COVID projects in the prior year period. Organic net sales increased 1.9%.

Income from operations was $37.1 million in the fourth quarter of 2021 compared to income from operations of $78.1 million in the fourth quarter of 2020. The fourth quarter of 2021 included $40.8 million of expenses related to the planned merger, and net restructuring, impairment and other charges of $13.8 million which was an increase from $6.2 million in the prior year period.

Non-GAAP adjusted income from operations of $96.4 million in the fourth quarter of 2021 increased $1.9 million from the prior year period. The increase was primarily due to the impact of higher net sales and ongoing cost control initiatives partially offset by continued inflation.

Loss per share from continuing operations attributable to common stockholders was $0.19 in the fourth quarter of 2021 compared to earnings per share of $0.46 reported in the fourth quarter of 2020. The 2021 results reflect lower income from operations and higher income tax expense, partially offset by lower interest expense.

Non-GAAP adjusted earnings per share from continuing operations attributable to common stockholders of $0.58 in the fourth quarter of 2021 decreased from $0.71 in the fourth quarter of 2020 primarily due to higher income taxes, partially offset by lower interest expense and higher adjusted income from operations.

Other highlights and information (including discontinued operations in 2020)

Cash provided by operating activities during the twelve months ended December 31, 2021 was $92.1 million compared to $149.8 million in the prior year period. The 2021 results included payments of $44.2 million related to the planned merger, $31.1 million to settle LSC bankruptcy related claims, $17.5 million to repay half of the payroll taxes deferred in 2020 as part of the CARES Act and $9.2 million to terminate certain interest rate swap agreements. The current year results also reflect investments in working capital and lower restructuring, tax and interest payments in 2021 as compared to last year.

Capital expenditures in the twelve months ended December 31, 2021 were $73.3 million compared to $85.6 million in the prior year period.

As of December 31, 2021, cash on hand was $280.2 million, down $8.6 million from 2020. Total debt outstanding was $1.47 billion, down $36.8 million from 2020. Availability under the credit facility was $550.7 million at December 31, 2021. Total liquidity, including cash on hand, was $830.9 million, up from $739.2 million at September 30, 2021. As of December 31, 2021, there are no scheduled debt maturities prior to November 2023.

At December 31, 2021, the Company’s pension and OPEB plans were overfunded by $42 million which was an improvement of $146 million from the $104 million underfunded amount at December 31, 2020. The improvement in funded status is due primarily to updated actuarial assumptions, asset returns and slightly higher discount rates.

During 2020, the Company completed the sale of its DLS Worldwide, International Logistics and Courier Logistics businesses. The Company has reflected the Logistics businesses as discontinued operations, and the financial results of these businesses have been excluded from continuing operations and segment results for all periods presented unless otherwise noted.

Conference call

RRD will host a conference call to discuss its fourth quarter results on Friday, February 18, 2022 at 11:00 a.m. Eastern Time (10:00 a.m. Central Time). Participants must register in advance in order to either join the webcast or request the dial-in information to join by telephone. Registration links for both the webcast and the telephone options are available on the Events & Presentations page of the Investor Relations website. For those unable to join live, a replay of the webcast will be available until April 30, 2022 under the Past Events section of the Investor Relations website.

A slide presentation will be available on the Investors section of the RRD web site at www.rrd.com or by clicking through this link.

About RRD

RRD is a leading global provider of multichannel business communications services and marketing solutions. With 25,000 clients and 32,000 employees across 28 countries, RRD offers the industry’s most comprehensive offering of solutions designed to help companies—from Main Street to Wall Street—optimize customer engagement and streamline business operations across the complete customer journey. RRD offers a comprehensive portfolio of capabilities, experience and scale that enables organizations around the world to create, manage, deliver, and optimize their marketing and business communications strategies.

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 interest expense, non-GAAP effective tax rate, non-GAAP net earnings (loss) attributable to common stockholders, non-GAAP diluted earnings (loss) per share, 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 net earnings (loss) attributable to common stockholders, non-GAAP diluted earnings (loss) per share, 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, and subject to the safe harbor created by, Section 21E of the Securities Exchange Act of 1934, as amended, with respect to the business, strategy and plans of the Company and its expectations relating to future financial condition and performance, including the anticipated merger with an affiliate of Chatham. 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 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 most recent Annual Report on Form 10-K filed with the Securities Exchange Commission (SEC) 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.