R. R. Donnelley & Sons Company
Q2 2020 Earnings Call Transcript

Published: 29 Jul 2020

[Operator:]

Welcome to the RRD’s Second Quarter 2020 Results Conference Call. My name is Chris, and I will be your operator for today’s call. At this time all participants are in a listen-only mode. After the remarks from company representatives, we will conduct the question-and-answer session by phone. [Operator Instructions] Please note that this call is being recorded. I'll now turn the call over to Johan Nystedt, RRD's Senior Vice President of Finance.

[Johan Nystedt:]

Thank you, Chris, and thank you, everyone, for joining RRD's second quarter 2020 results conference call. Joining me on today's call are Dan Knotts, RRD's President and Chief Executive Officer; and Terry Peterson, our Chief Financial Officer. At the conclusion of today's prepared remarks, Dan, Terry and I will take questions. As a reminder, we have prepared supplemental slides for today's call, which can be found on the Investors section of our website at rrd.com. As we review second quarter results on today's call, I will be advancing the slides to get connected by webcast. Alternatively, we will reference page numbers from the supplemental slides for those participants who wish to follow along by advancing the slides themselves. The information that will be reviewed during this call is addressed in more detail in our second quarter press release, a copy of which is posted on the Investors section on our website at rrd.com. This information was also furnished to the SEC on the Form 8-K we filed yesterday. Throughout this call, we will 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 the factors that could cause our actual results to differ materially, please refer to the cautionary statement included in our earnings release and the risk factors included in our annual report on Form 10-K, our quarterly reports on Form 10-Q and other filings with the SEC. Further, we will discuss non-GAAP financial information. We believe the presentation of non-GAAP results provides investors with useful supplementary information concerning the company's ongoing operations and is an appropriate way to evaluate the company's performance. These non-GAAP results are provided for informational purposes only. Any references to non-GAAP financial measures are reconciled to the comparable GAAP financial measures in the Investors section of our website as a part of our press release. I will now turn the call over to Dan.

[Dan Knotts:]

Great, thank you, Johan. Good morning everyone and thank you for joining us today. On behalf of all of us at RRD, I hope you're staying safe and healthy during this ongoing global pandemic. In my comments today, I'm going to provide an update on how RRD is navigating the current business environment while also staying focused on our long-term strategy, review our Q2 results, and then touch on what we expect to see going forward. The impact of the COVID-19 pandemic on world economies, global supply chains, consumer behaviors and company business models has been sudden and severe. In response, we are taking decisive and aggressive actions moving with a strong sense of urgency to guide RRD through this very challenging time. We initially experienced the tremendous disruption potential of COVID-19 in the first quarter, as our China operations were shut down for nearly a month. Based on that experience, we have been operating with three priorities to protect the health and safety of our employees, to sustain operational continuity and to effectively manage our business performance through this volatile and uncertain period. Let me expand upon each of these areas. Our single most priority is protecting the health and safety of our 35,000 global employees. With a number of new infections resurging around the world, we remain very diligent in our approach to safeguarding our teams everywhere we operate. Our cross functional COVID-19 taskforce continues to ensure that we are closely adhering to the latest available guidelines from the Centers for Disease Control and the World Health Organization. And we are utilizing rigid screening procedures in a robust case management process to lower the chances of spreading the virus. We are staggering shifts, reconfiguring operations to accommodate physical distancing and requiring employees to wear masks or shields at all times. We have also posted instructional signage throughout our facilities as another layer of education and positive reinforcement of good hygiene, social distancing and safe practices. Our second priority is to sustain operational continuity in order to provide uninterrupted service delivery for our clients while we also onboard new business. Due to the terrific work of our teams around the world, we remain fully operational across the 29 countries and 250 plus facilities we utilize to serve our more than 50,000 clients. As a key part of our operational continuity plan, we are also working very closely with our supply chain partners to prevent any product or service disruptions and ensure that we fulfill our client commitments. Our third priority is to prudently manage our business through the near-term challenges while further strengthening RRD for the long-term. Our roadmap to accomplish this objective is very straightforward. The reduce cost amidst the lower domain environment to preserve liquidity and to capture the emerging growth opportunities being created by the pandemic. On the cost reduction front, we have acted swiftly and aggressively to curtail capacity, drive productivity and improve operating leverage by lowering our total cost infrastructure. The actions we've taken include furloughs, temporary facility shutdown, permanent facility closures, suspension of all merit increases and elimination of travel. Given that these plans are implemented throughout the quarter, we saw a partial benefit in the second quarter and expect to see additional benefit in future quarters. We have modeled multiple future demand scenarios, and we will continue to make adjustments to our cost structure based on the pace and magnitude of the economic recovery. We've also acted decisively to preserve liquidity, including the suspension of a dividend, a reduction in capital spending and a proactive draw on a revolving credit facility to increase cash on our balance sheet. Further as a key component of our long-term strategy to improve our financial flexibility, we executed multiple transactions during the quarter to significantly reduce our near-term debt maturities. These transactions included the successful execution of three debt exchanges, the opportunistic repurchase of additional 2021 debt and the repayment of our 2020 senior notes upon their maturity using cash on hand. Since the beginning of the year, we have now reduced our senior notes and debentures that are coming due between 2000 and 2024 by $628 million. Additionally, we reduced our total debt outstanding during the quarter by $133 million. Now, while significant portion of our time and attention has been committed to cost reduction and liquidity actions, our sales teams remain highly focused on pursuing new market opportunity as being created by the pandemic. Let me share a few examples of how we're leveraging our industry leading capabilities to capture these opportunities across various industries. In healthcare, we are securing new revenue streams through our point of care and diagnostic test kit solutions. COVID-19 has given rise to a significant increase in demand for virtual healthcare, which has prompted an increased need for home diagnostic testing solutions. Our end to end supply chain solution integrates all stages of test kit development and execution from initial design to packaging and label production, to product fulfillment and distribution. As an example, we're providing EverlyWell, an at-home health testing company with the supply chain components, kitting and fulfillment services required for many of the at-home test kits they provide to healthcare professionals and consumers. With the growing demand for these at-home test kits, one of EverlyWell’s health insurance customers ordered nearly 1 million testing kits and EverlyWell turned to RRD to produce this highly regulated project. Within the retail industry, companies are seeing significant increases in their e-commerce volumes, which require an expansion of the current operating models. For the gap, we are supporting their e-commerce offering, which allows consumers to order closing online and then pick up their orders curbside at thousands of their stores by providing them millions of labels that are required to fulfill their online orders. After nearly a decade of working with the gap, we are proud to support their expanding communication needs as they adapt to the rapidly changing dynamics in the retail industry. For hospitality and travel industries, we’re leveraging our extensive capabilities to provide the communications those companies are utilizing to enhance consumer confidence. We’re supporting a leading hotel chain and their efforts to ensure a safe environment for guest and employees at their more than 5,000 locations worldwide. In close collaboration with this client, we develop branded floor details, remote wraps and mirror claims to reinforce staff and guest safety and designed a customized door seal that’s placed on each hotel room door, once cleaning is completed. We’re also helping the major airline reinforced critical safety measures that they welcome back travelers. Building on our longstanding relationship with this client, we're providing way finding signage, floor decals and informational cards for their membership lounges, as well as revamped seatback safety materials, updating guests on new plan on this practices and social distancing guidelines. We're executing similar programs with a number of other airlines as we leverage our marketing and business communications capabilities to help support this industry during this unprecedented time. In automotive, we initially saw volume declines driven by shelter-in-place orders that impacted showrooms and other onsite purchasing options for consumers. Today, we're helping our automotive clients safely return to their offices, manufacturing locations and dealerships across the country. Prior to their reopening, we supported a major U.S. auto manufacturer with the rollout of internal signage for many of their offices and production locations. We developed return to work kits, including educational brochures, masks, temperature strips, and other essential items that they sent directly to their employees to prepare them for their return to work. And at their dealership locations, we provided masks, vehicle's sanitizer kits, customized seat covers, steering wheel covers and floor mats to help enhance the safety and comfort of both staff and consumers as they returned to their dealerships. To further align RRD with the evolving market opportunities, during the quarter, we announced the unification of our content and creative services and global outsourcing organizations under a new group called RRD Go Creative. By aligning these capabilities, we will be better positioned to address client needs through a single centralized global resource platform for creative design, managed services, transaction processing and intelligent digital solutions. I'm very proud of how the RRD team has collectively aligned and responded to our near-term challenges while at the same time continue to execute our strategic priorities for the long-term. Let me next touch on our Q2 performance. Actual net sales for the quarter were $1.16 billion, which was well within the range of our guidance despite the negative impact from changes in foreign exchange rates and lower fuel surcharges in our logistics business. Organically sales fell 17.1% with marketing solutions experiencing a greater organic sales decline as our clients significantly curtailed their marketing spend. Within the quarter, the largest total company’s sales decline occurred in the month of May with June showing sequential improvement from May as economies began to reopen. Adjusted income from operations was $25.1 million, down 14.1 million from the prior year period. Despite the sizable revenue declining related to COVID-19, our adjusted operating margin declined 40 basis points from the prior year due to the de-leveraging of our fixed depreciation and amortization expense. Our adjusted gross margin actually increased by 10 basis points and our adjusted EBITDA margin improved by 20 basis points as compared to the 2019 periods. Consistent with our strategic focus on lowering our cost to serve, we also reported a 20 basis point reduction in SG&A expense as a percent of sales versus the prior year quarter. Operating cash flow improved $22.5 million from the prior year period, which represents our second consecutive quarter of improving cash flow versus the corresponding quarters in 2019. These results demonstrate the swift and aggressive approach we are taking to manage our business in this period of reduced client demand. While we remain deeply immersed in executing our near-term operating plan our long-term strategic priorities and focus remains unchanged. Those priorities to strengthen our core, drive revenue performance and improve our financial flexibility are firmly embedded in our culture and are serving us well as we navigate through this crisis. Together, our strategic priorities are leading RRD to a future state in which we have fundamentally reshaped our portfolio, shifted our business mix, reduced our total cost structure and become an even more agile market driven company. The cost takeout actions we're executing are essential to protecting profitability and adjusting to the volatility we're seeing in the market. As we continue to rationalize our operating footprint, we are working in close partnership with our clients to assess their evolving needs in future buying behaviors, so that we can make these critical decisions with an eye towards the future and be fully prepared to respond as client volumes recover. For Marketing Solutions, we expect to see a gradual return of client marketing spend as the economy reopens and our clients adjust to working with smaller marketing budgets, amidst higher demands to restore growth. While their focus on increasing marketing ROI will make data analytics more vital, we anticipate large scale mar-tech projects will continue to be delayed in the near-term. We expect content and creative services to remain relatively stable as client needs for communications design continue even as the execution of those materials across channels may change. We believe our direct mail offering will remain a critical avenue for marketers to utilize in combination with digital channels to enhance connections with their customers. And for retail solutions, we anticipate a rebound for our in-store marketing offering to align with the overall pace in which retail stores reopen. For business services, we anticipate the reopening of businesses will increase demand for print and related services across our commercial print and forms offerings. These products and service categories have experienced more significant volume degradation as client businesses either shutdown or significantly reduce spending. Importantly, we started to see early indications of improvement as we closed out the second quarter. For our packaging, labels, logistics and supply chain offerings, we expect to see a rebound occur in line with increased consumer and business product spending. Additionally, we believe the impact of telehealth and the shift to alternate forms of diagnostic healthcare, as well as continued growth in e-commerce will serve to improve market demand for these offerings. Before turning the call over to Terry, I would like to touch on a number of recent awards that we've received. First, we're pleased to be included as one of the best places to work for disability inclusion on the 2020 Disability Equality Index, a national transparent benchmarking tools that offers the opportunity to self report disability inclusion policies and practices. Second RRD is proud to take part in Apple's Supplier Clean Energy Program, through which we are committing to power all of Apple's production with 100% renewable energy. This agreement is consistent with RRD’s longstanding commitment to protect the health and safety of employees, clients and the public and to conduct activities in an environmentally friendly manner. RRD pursues energy efficient programs across all its plants and facilities worldwide and we continually work with clients and suppliers to make environmentally sustainable packaging. Additionally, the company has extensive supply chain expertise that provides clients with recycles and responsibly sourced raw material options. Finally, we're excited that our marketing solutions group ranked as one of the top 10 U.S. agency companies in Ad Age's prestigious annual Agency Report. This is the second consecutive year that RRD has been named on the list. Again, ranking amongst longstanding industry agencies such as WPP, Omnicom Group, Accenture, and Publicis Groupe. This recognition is the testament to the successful evolution of RRD marketing solutions as an industry leader in this space. And with that, I will turn the call over to Terry.

[Terry Peterson:]

Thank you, Dan. Please turn to Slide 13 as I begin my prepared remarks. Second quarter was a very challenging period as the pandemic began to affect our global operations in the first quarter, beginning with China, we quickly engaged in three critical finance related activities

[Operator:]

Thank you. We will now begin the question-and-answer session. [Operator Instructions] Your first question comes from Charlie Strauzer of CJS. Your line is open.

[Charlie Strauzer:]

Hi, good morning.

[Dan Knotts:]

Good morning, Charlie.

[Terry Peterson:]

Hi, Charlie.

[Charlie Strauzer:]

I just want to start off with a little bit of our Q3 discussion, and also just a little bit more kind of current trends. If you look at the Q2 various business lines that you had in Slide 13, I think it was – which areas are starting to see some pickup and which areas are still seeing the most impact and looking into Q3, Q4, what are the discussions you've had with clients in terms of potential future business?

[Dan Knotts:]

Hi, Charlie. It’s Dan. I'll start. In terms of the areas that we're seeing towards the end of the quarter in the June period as economies began to reopen, I think what's – how I would explain that is to ask people to think about demand for us across three categories. The first one is around marketing demand and that’s going to be driven by clients return to increasing their marketing spend. So as we think about the direct mail, we think about in-store marketing campaigns, et cetera, as businesses re reopen, we expect to see a marketing spend increase. Feedback from clients in that space as they are absolutely ready to go. They’re – obviously, they obviously need to restore growth for their businesses and their marketing efforts are a critical component of that. The second category relates to consumer and business demand for products. So as we think about packaging and we think about labels and we think about logistics, that's all predicated on the movement of products, which is all predicated on the purchase of products by either consumers or businesses. And as we started to see economies reopen, we're starting to see a demand in that space along with the new opportunities to we're capturing begin to recover late in the second quarter. And the third category is around regulatory and compliance portion of our business. And that demand is really predicated on healthcare requirements. It's also based on to some level hospital visits and healthcare and getting back to normal in that type of environment. So that's the one that has been relatively stable throughout and really hasn't dramatically changed much as we look ahead here in the near-term. So as I think about that and ask people to think about in the space of is marketing demand. And the other part of this as market demand recovers as products begin to flow again for consumers and businesses, but the caveat to that and the reason that we are uncertain about what that looks like is just the start/stop the volatile, the choppiness, the volatility, the choppiness of the economy opening, shutting down –opening and shutting down and clients sharing that information relative to do we go, do we not go relative to launching of marketing campaigns and projecting demand for their products as well. So I kind of break down those three categories. We are seeing – we did see June as a recovery from May and early on in July, align with our forecast. We expect to see that to continue a little bit.

[Charlie Strauzer:]

Got it. And then Terry, may be you could talk a little bit too about your thoughts on margins in Q3 and then also your organic forecast is down 15% to 20%, does that exclude or include the Census work?

[Terry Peterson:]

Charlie, the 15% to 20% does include the Census work. That will be organic pressure for us beginning in third quarter. So that does reflect the absence of the Census work in the third quarter in the 15% to 20% range. From a margin standpoint, we are – and you saw evidence of it in the second quarter results when you look at our margin performance and how we held our margins that even increased our adjusted EBITDA margin a little bit. We're working pretty hard to protect those, which means that the variable stuff comes out nice and easily when your demand comes down quite a bit. The challenge is, is to offset the impact of the fixed portions of your cost structure. So, a lot of the aggressive actions that we're going after are really to get at kind of offsetting that fixed element to the cost structure, so that we can do our best to at least hold onto the margins that we have had in the past. As we kind of think ahead to the last part of the year, the last half of the year, I do think that our – from what we're hearing with our clients, we do expect that we will have seasonal increases in our – in demand and in our business as we go ahead. At this point, it's hard to say so much about fourth quarter, but we do see those increases coming into the third quarter. Just probably not to the same extent that they have in past, I think the economy is reopening slowly, but we do expect to see some of that seasonal build coming up here. So one of the added pressures I think that we'll see on margins that that just presents an added challenge for us to continue to work hard on the cost takeout front is that in prior years we've always enjoyed great leverage as that volume really picks up heavily into the third and fourth quarter. So that leverage on the fixed cost structure is really, really significant, which is why you see the margins increasing so much in those quarter. So, again, we expect to see some of that seasonal increase this year as well, probably not to the extent that in the past, so that because we won’t peak as high as what we have in the past, that will create a little bit of extra pressure for us to as we think about those margins with a little bit less volume in the year back half.

[Charlie Strauzer:]

Got it. And when you're looking at Q3 versus Q2 sequentially, you expect to see at least some improvements sequentially in Q3 – Q2 and to Q3.

[Terry Peterson:]

Yes, especially when you're just for Census, absolutely.

[Charlie Strauzer:]

Got it, great. And then just – and Dan maybe you could talk a little bit too about, there's a lot of talk about this election year about mail and ballots and other things where potentially that can benefit you in terms of extra print work related to that. Are you starting to see some of that at the early stages here yet? Or do you think that'll pick up more on Q4?

[Dan Knotts:]

Charlie, it’s Dan. The election revenue that – the election season and the revenue that comes along with that, we do expect to be a participant in that again this year and utilizing our commercial – primarily our commercial print platform to support those efforts. We're seeing some of it flow through now. We expect to see more flow through in Q3. Relative to the mail and ballot piece, we've connected with every state. And given our work, leveraging our work on the Census and our performance on the Census, we're staying very close to that, each of those individual states as they make those decisions. So much is unknown yet there, but we will participate that in some degree as it unfolds.

[Charlie Strauzer:]

Great. And then just lastly, Terry, maybe this is for you, the postal system has been having their fair share of issues. A lot of that’s driven by a lot of e-commerce packaged delivery and stuff. Are you seeing any impact on your customers from some of the slower delivery times at all?

[Terry Peterson:]

We are really not relative to our close connection with the post office folks close working relationship. With the post office in many cases working alongside of the post office, we are not really seeing any sort of deteriorating impact from postal delivery and they continue to support us very well.

[Charlie Strauzer:]

Great. Thank you very much.

[Dan Knotts:]

Thanks, Charlie.

[Operator:]

Jason Kim of Goldman Sachs is on line with a question. Your line is open.

[Jason Kim:]

Well, thank you and good morning. The first question is a working capital. It was a nice source of cash during the quarter, which is not a typical event in terms of seasonality. So how should we think about working capital for the balance of the year?

[Terry Peterson:]

Well, this is Terry. I'll answer that one. We've had actions and initiatives in place to really see improvements and to work – working capital extra hard even going into the pandemics. So, we've just been able to put the accelerator down a little harder on that as the pandemic has come up. We certainly have seen a little bit of degradation in something like DSO on the receivable side, but it's been pretty manageable and it's really plateaued as we got through the month of June. So the negative impact from that wasn't too extreme for us, so that's a very good news for us as we are preserving liquidity here. So we will continue to work it hard. Certainly as the business has come down a little bit, the need for working capital has also come down. So that's provided some help with the cash flow as well. So some of – to really answer your question, some of it really depends on how aggressively and how fast the recovery happens in the back half. And when does that recovery really kick in because with a rapid recovery, we'll have to build up working capital a lot pretty quickly to support that. So in that scenario we're going to see – we're not going to – I don't expect that we would see the same level of favorability coming through while we reestablish some of that working capital. If something is – the recovery is more gradual and slower that that replenishment of some working capital might get absorbed or almost hidden if you will with the progress and more initiatives that would produce favorable results there too. So there can be a bit of an offsetting impact there. So a lot of it – a lot of, I think, what we'll see in the last half of just really depend on how sharp that recovery is.

[Jason Kim:]

Okay, that makes sense. And then you've been very active in pushing out maturities through the debt exchanges. I would love to get your updated view on the capital structure strategy from here. What are your priorities? What options are available to you at this point to continue to manage the balance sheet? And if you can show with us how much secured debt capacity you have now, that would be very helpful?

[Terry Peterson:]

Yes, the secured debt capacity on the junior secured right now there's not much capacity because there's a springing covenant on the new 2027 debt that's out there. There's a little bit of capacity on first lien debt. However that is really just temporarily reduced right now because of the extra draw that we have on the credit facility. So at the point in time, when we're comfortable returning back to kind of normal treasury operations, and we bring the draw back down and take some of the cash off the balance sheet that will immediately free up first lien capacity there literally dollar for dollar. So as we see that coming down that will free up secured debt capacity, that's probably the biggest source right now will be that first lien debt as we pay down the credit - the credit facility. And then in terms of actions and other sources of opportunities there, we're really – if you think of starting with what our current focus has really been on, which has been those near and mid-term maturities to 2020-ish to the 2024s, we have really just taken every single one of those issuance is now down to very bite-sized pieces. There's just not a lot left to do with those maturities. So, at most there might be an opportunistic repurchase here and there those I would expect will not be any large dollar amounts, it would be more just picking off small amounts as they became available in the marketplace. So not a lot of work left to be done on those. I'm very thankful for us to really have that really critical initiative behind us, which was to really kind of clear out that runway and make those the [indiscernible] maturities very, very manageable for us. I think the probably – next step for us is probably the credit facility that's coming due. The current facility comes due at the end of September in 2022. So, we will at some point turn our attention here to renewing that, just to extend that out. I see that’s just being a normal process on a normal timeline that we would do that. And we get out of a year or two. We'll start to focus on the – whatever is left of the term loan Bs that that's still remain out there. And we'll look at what we need do with that. In terms of paying down debt, we are positively generating free cash flow right now. So that that helps to pay down debt or at least stockpiles cash so that when we do pay down the revolver, we can pay it down even further. We still look to real estate opportunities for liquidating and monetizing assets. We still look to monetize kind of non-core parts of the portfolio as well. So, those sorts of opportunities are still out there as well as other investments and assets on the balance sheet that we are looking to monetize as well. So we've got a number of things that we're working on. It will be different than and then what you saw us focus on in the second quarter. But our list of opportunities out there is certainly far from being incomplete.

[Jason Kim:]

Thank you very much.

[Operator:]

Your next question comes from [indiscernible]. Your line is open.

[Unidentified Analyst:]

Guys, thanks for taking my question. I just wanted to understand a little better why the recovery you're seeing in Q3 is not as strong sequentially given the decline rates are not that different from Q2. So what are you guys seeing that out there?

[Dan Knotts:]

Yes, well – the rates, again, remember our third quarter and especially our third and fourth quarter, those are much stronger quarters. So, sequentially, that's still showing an increase in levels of business from what we saw in the second quarter here. So, it gets a little harder to see our results or to think about them because of the seasonality in the business while the rates are similar in decline. As Charlie was asking earlier too, that that decline rate in third quarter now and this will be true for the next few quarters also has to absorb the absence of the Census work, which benefited us for a full quarter in third, fourth, and then first quarter of this year. So those three quarters will have that added headwind there. So even though the rates of decline are similar, the sales are actually forecasted to go up because of the seasonality. And again, it's – we're doing our best to read the tea leaves and to listen to what our clients are saying and to try to estimate. And when we have estimates that are 15% to 20% decline that kind of guides how we think about what we need to do with cost structure. So I would love nothing more than to sit here three months from now and say hey we kind of missed that. And they were only down something much less than the 325 to 400. And our cost structure is down much stronger because we contemplated a lower base. So, that's always a possibility. We only know what we're hearing and kind of what we're seeing and in this kind of volatile environment there's a little more risk that we could be off there. So I'd love to – for that to be the case, but right now with what we're seeing and what we're hearing from folks, we think the prudent expectation of that is 325 to 400.

[Unidentified Analyst:]

Great and great job on the cost cutting and margin enhancement. For Q3 should we be expecting margins to be flattish to last year?

[Dan Knotts:]

You will see us continuing to cut costs. You will see actions that we took in the second quarter that will have a full quarter impact in the third quarter. So that will be benefit. So you will see continued improvement to our cost structure wise. And the one variable that also will be introduced in third and fourth quarter that we didn't see so much in the second quarter is the fact that in prior years as our volume shoots up a lot in third and fourth quarter, we get a lot of leverage off of that from that fixed cost base because of all the extra volume that’s seasonally related. So again, we are expecting some of that seasonal lift this year. Again, early reads right now is that it will be there, but not as – not to the same positive extreme that has been in the past. So I think that will put a little bit of pressure on our margins too, when we compare them to the prior year versus – second quarter is usually our lightest and weakest quarter. So, comparing COVID quarter this quarter to last year is a little bit easier than it will be when we get to third and fourth quarter when they benefited from such a sharp increases due to seasonal work. So, again, we were aware that we're watching that extremely closely and we are using the Intel that we have to really guide our actions on that cost structure front because we know that the way to preserve the margins, which is our goal here, the way to preserve that margins is to be all over that cost structure right now. And that's our focus when there are elements to the sales cycle that are beyond our control right now.

[Unidentified Analyst:]

Thank you.

[Operator:]

There are no further questions at this time. I will now return the call to Mr. Dan Knotts.

[Dan Knotts:]

Great, thanks, Chris. I appreciate it. A summary of our key takeaways from the call can be found on Slide 20 of the presentation. And in closing, I'd like to express my sincere appreciation and gratitude to all of my fellow RRD employees around the world though we would never, ever wish for a crisis, especially one like this. It's in times of crisis that leaders emerge and the focus, cooperation, and teamwork we're seeing at all levels of RRD is truly remarkable. I'm confident that the hard work we're doing today will set us up to be an even stronger RRD in the future. Thank you for everything you're doing. We appreciate you. Johan, back to you.

[Johan Nystedt:]

Thanks, Dan. As a reminder, information to access the webcast replay of RRD's second quarter 2020 results call can be found on the Investors section of our website at rrd.com. Thank you for joining us. And that concludes the RRD second quarter 2020 earnings call.

[Operator:]

Ladies and gentlemen, you may now disconnect.