R. R. Donnelley & Sons Company
Q1 2018 Earnings Call Transcript

Published: 2 May 2018

[Operator:]

Welcome to the R.R. Donnelley’s First Quarter 2018 Results Conference Call. My name is Louise and I'll be your operator for today's call. [Operator Instructions] Please note that this call is being recorded. I would now like to turn the call over to Brian Feeney, R.R. Donnelley’s Senior Vice President of Investor Relations. Please go ahead.

[Brian Feeney:]

Thank you, Louise and thank you everyone for joining RRD’s first quarter 2018 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 under the Events tab in the Investors section of our website at www.rrd.com. As we review first quarter results on today's call, 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 first quarter press release, a copy of which is posted on the Investors section of 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 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. They are provided for informational purposes only. Any references to non-GAAP financial measures are reconciled to the comparable GAAP financial measures in our press release and the Investors section of our website under the Presentation tab. I will now turn the call over to Dan.

[Dan Knotts:]

Great. Thanks, Brian. Good morning, everyone and thank you for joining us. On our call today, I'm going to first provide an overview of our financial performance for the quarter, followed by an update on our strategic transformation, including our two recent announcements regarding the realignment of our businesses into two new segments and the pending sale of the print logistics and mail services component of our broader Logistics business. Both of these actions represent key steps in advancing our transformation strategy. I will also review our marketing solutions and business services strategies and share a few examples that demonstrate how we are delivering value for our clients within each of these segments. I'm pleased to report that we started the year with sustained sales momentum and delivered our second consecutive quarter of organic sales growth. As you can see on Page 3 of the supplemental slides, our total organic sales increased by 1.3%, with our marketing solutions segment a delivering 3.3% organic growth and our business services segment achieving 1% organic growth for the quarter. Our favorable top line performance reflects our disciplined approach in executing our strategic growth objectives, including leveraging our industry-leading capabilities and focused sales channels to win new clients and expand our relationships with our existing clients. From a profitability perspective, our results for the quarter were negatively impacted by a large onetime charge related to the bankruptcy of a retail client and higher-than-expected unfavorable changes in foreign exchange rates. Aside from these two factors, our overall business performance was in line with our expectations as the positive impact of increased volumes and productivity improvements mostly offset expected headwinds occurring within a couple of our businesses. We are actively addressing the challenges these businesses are facing through a number of key initiatives, including the acceleration of our business improvement programs that Terry will cover in more detail later in the call. We're confident in our ability to deliver on our plan, and we are reaffirming our full year guidance. Turning to Slide 4. As a leading marketing and business communications company, we are on a strategic path to drive long-term profitable growth by helping our clients better connect with their customers in an increasingly complex marketplace through the marketing programs that they utilize to acquire new and inspire repeat customers to the business communications they depend upon to service and strengthen relationships with those customers over time. With our industry-leading portfolio of capabilities and a strategic objective to further expand our multichannel offerings, we are uniquely positioned to help our clients manage the full range of interactions they have with their customers across every communications touch-point, online, offline and in store, with reduced complexity and increased efficiency. To best meet the evolving needs of our clients, during the quarter, we realigned our businesses into two new segments, marketing solutions, a preeminent provider of multichannel marketing activation programs; and business services, a premier global provider of business communications services based on the strategic role that each of our businesses play in serving our clients. Turning to Slide 5. Within marketing solutions, we are activating multichannel marketing programs that enhance our client's ability to create new and repeat customers. More than ever, consumers value personalized experiences and want to engage with brands in their own way, and our clients are increasingly challenged to meet those desires. Through a combination of predictive insights, inspired content and meaningful interactions, marketing solutions is leveraging our data analytics, creative services and multichannel execution capabilities to provide end-to-end solutions that personalize experiences for consumers and maximize returns for marketers. I'm excited to share that marketing solutions recently received an important independent recognition of its capabilities as Forrester Research designated the company a leader in its April 2018 Wave report on customer database and engagement agencies. Marketing solutions is one of only two agencies to receive perfect 10s from customer references and is called out as a solid partner for marketers seeking a high-touch partner relationship, especially in retail and channel sales. We believe this award represents affirmation of our strategic vision for this segment as a data-driven organization. To demonstrate on marketing solutions is putting its leading capabilities into action, I'd like to share a few client examples. We're expanding our services with a major insurance provider to extend a long and successful print and content production relationship to include digital marketing services. Under this expanded agreement, we will assist the reach and acquisition team to develop a multichannel communication strategy that will enable them to transition from batched ad hoc campaigns to marketing automation for campaign execution. We will also assist this client with activating their user data in order to gain a deeper understanding of their target audience and increase the personalization of their messaging to increase client retention and conversion rates. We've also started working with nVent, a large high-performance electrical company have that recently separated from Pentair. We are managing this client's marketing and communications program, including the rebranding, creation, production, print, fulfillment and distribution of their assets. This solution is integrated with our proprietary technology and enables the client to create, manage and order content. By uniting our current offerings and investing to expand our multichannel capabilities, marketing solutions will serve our clients across all communications touch-points, helping them to optimize engagement one customer at a time. Now turning to our business service segment on Slide 6. Business services provides customized solutions at scale to help our clients inform, service and transact with their customers with reduced complexity and increased efficiency. Our clients engage with their customers through communications that are complex, often heavily regulated and always a critically important representation of their brand, such as product and service information, packaging, labels, health care documents and customer statements. These communications are integral to our client's ability to manage and strengthen their relationships with their customers over time. With dedicated offerings for business connections, product connections and business processes, our business services segment ensures that every business touch-point is optimized, memorable and contributes to a customer's overall brand experience. I'd like to share a few examples of how business services is helping our clients execute their customer communications program. Fiat Chrysler Automobiles LLC, recently awarded RRD a new multiyear award of its owner manuals in glovebox program. Fiat Chrysler Automobiles LLC is leveraging RRD's current enterprise-wide print management program and expertise to source, produce kit and fulfill all of the components that end up in a glovebox of every Fiat Chrysler Automobiles LLC vehicle in the United States. Additionally, a very large financial institution recently awarded their customer statement business, which is the first time they've ever outsourced this work. Our operations team is actively engaged to onboard this significant opportunity with a base ramp-up to begin this summer. Through a powerful combination of our two new segments, marketing solutions and business services, we are providing purpose-built solutions at scale to help our clients optimize customer engagement across the full spectrum of the customer relationship and drive their business performance. Earlier this morning, we announced the sale of our print logistics and mail services business to LSC Communications. We believe this transaction represents an important step in our portfolio optimization efforts and will enable us to further enhance our strategic focus as a leading marketing and business communications company while also providing this business with the best opportunity for success going forward. All of our efforts are now aimed at facilitating a smooth transition between signing and the expected closing of this transaction, which will take place in Q3 of 2018. Overall, we are making solid progress in advancing our strategic transformation. We have a deep understanding of our client's needs, client behaviors and future requirements. Our value proposition is resonating, and we're winning new business to drive organic sales growth. We've realigned our businesses to best match our client's business objectives and we've announced a strategic divestiture as an important step in reshaping our portfolio. We also recognized that we have more work to do to capture the opportunities of the markets we serve and address the challenges impacting a couple of our businesses. We continue to strengthen our capabilities while aggressively executing our business improvement initiatives. We remain highly focused. Our teams are actively engaged, and we are confident in our ability to execute our plan. With that, I'll hand the call over to Terry to provide more details on our financial performance and outlook. Terry over to you.

[Terry Peterson:]

Thank you, Dan. The primary focus of my comments will be on certain non-GAAP results and measures. For those participants who are following along with the supplemental slides, please refer to Page 7 in the deck as I begin my remarks. Page 7 provides a snapshot of our first quarter product and services net sales performance by segment and by geography for consolidated RRD. Net sales of $1.71 billion were up $48.9 million or 2.9% in the first quarter, excluding the impact of foreign exchange rate changes that impacted the business services segment, organic net sales increased in each segment and were up 1.3% on a consolidated basis. Both segments reported higher volume in 2018. Page 8 shows the organic sales trend by quarter and by year. Net sales were up on both a reported and on an organic basis for the second consecutive quarter. These results were better than we had expected going into the quarter as we continue to see the benefit of new client wins and expanded work with existing clients. I'm also happy to report that we experienced growth in seven of our 11 product and services categories as well as in both segments. Packaging, logistics, direct mail and labels are just a few of the categories that reported growth in the quarter. Our Commercial Print products continue to see ongoing secular declines in addition to a large client significantly reducing their specialty card volume in the quarter. While we expect specialty card sales to be less throughout 2018, the year-over-year impact will lessen in future quarters because the first quarter of 2017 was much stronger than later quarters. On Page 9, adjusted income from operations of $32.9 million was down $21.6 million versus $54.5 million reported in the first quarter of 2017. As Dan mentioned earlier, unfavorable changes in foreign exchange rates of approximately $12 million and the client bankruptcy related charge of $8.3 million both negatively impacted results in 2018. The FX impact was greater than we had anticipated going into the quarter. In addition, the favorable impact from higher volume in our cost reduction initiatives were slightly more than offset by the negative impact from anticipated inflationary cost increases, inefficiencies resulting from volume reductions from two large clients and modest price pressure in our business services segment. I'd like to provide you with an update on the actions we are taking to address these inflationary and client-specific challenges and where we see these issues going forward. We continue to experience inflationary cost increases, primarily in two areas. Paper costs in Asia have been rapidly increasing since mid-last year, and we continue to pursue market price increases to offset these rising costs. As these paper costs continue to rise, we expect to pass along further market adjustments and continue to seek more cost effective suppliers to lessen the overall impact to our business. We believe it will take several quarters to fully offset the impact of these paper price increases. The second inflationary impact is related to increased costs of transportation, which also started mid-last year. We are actively deploying alternative procurement strategies, including a shift to more intermodal services and passing along market rate adjustments as permitted within our client contracts to recover these increased costs. We expect this issue to be neutral to our bottom line results in the last half of the year. Getting late in the fourth quarter of 2017 and continuing into the first quarter of 2018, we incurred inefficiencies in two production facilities, each of which is mostly dedicated to a single client due to lower client volumes. In both of these cases, we are aggressively adjusting our cost structure to better match our costs with revised revenue projections for these clients. For the first of these two clients, we expect demand to remain lower throughout 2018 with our year-over-year comparisons improving in later quarters due to the cost actions we are implementing and because the volume in the first quarter of 2017 was higher than later quarters. For the second client, we do expect to see volumes recover in the last half of the year. As a reminder, the headwinds from these inflationary increases and client volume reductions as well as actions to minimize their impact on our results were anticipated going into the quarter, and they were baked into our previous guidance for 2018. Adjusted diluted loss per share of $0.10 per share in the first quarter was down from adjusted diluted income per share of $0.14 reported in the prior year period, primarily related to lower income from operations and higher effective tax rate, which were partially offset by lower interest expense of $6.9 million. The 2017 effective tax rate included discrete benefits of nearly $0.05 per share primarily related to retroactive tax rate reductions in Asia, while the 2018 rate reflected the negative impact from tax reform and an unfavorable mix in the pretax profits by jurisdiction. Our effective tax rate fluctuates significantly in the first half of the year but is expected to normalize in the last half when we expect profitability to increase. Our GAAP results for the quarter included a $2.3 million charge to tax expense or $0.03 per share related to an adjustment associated with a provisional estimate initially recorded in 2017 related to tax reform. Results for the quarter also included pretax restructuring and other charges of $0.8 million, GAAP results for the prior year included pretax restructuring and other charges of $9.1 million and $2.1 million for spin-off related transaction expenses. Next, I will discuss the highlights for each of our segments. On Page 10, net sales in our marketing solutions segment of $291.7 million for the first quarter of 2018 were up $9.2 million or 3.3% to the prior year quarter on both a reported and an organic basis. The sales growth was attributable to our direct mail products and was driven by growth from existing clients and recent new client wins. Adjusted income from operations of $13.8 million was up $6.8 million versus the 2017 period due primarily to the impact of our cost reduction actions and higher direct mail volume. Turning to Page 11. 2018 net sales in our business services segment of $1.42 billion were up $39.7 million or 2.9% to the prior year quarter. After adjusting for the effect of foreign exchange rate changes, we delivered a 1% organic net sales increase for the quarter. Volume growth in the segment was driven primarily by increases in our Packaging and Logistics products and services, while Commercial Print products were down due to secular pressure and lower specialty card sales. Fuel surcharges in Logistics increased $9.1 million, while modest price pressure across the segment negatively impacted net sales. Adjusted income from operations of $38.1 million was down $26.0 million versus the 2017 period. The favorable impact from cost reduction initiatives and increased volume were more than offset by the previously mentioned headwinds. First quarter 2018 non-GAAP unallocated corporate expenses of $19 million increased $2.4 million, driven by higher bad debt expense, which included the previously mentioned client bankruptcy charge of $8.3 million. Excluding this charge, our unallocated corporate expenses decreased due to our successful execution of cost reduction initiatives. On Page 12, net cash used in operating activities for the first quarter was $140.3 million as compared to $5 million in 2017. Net changes in working capital driven primarily by the timing of vendor payments in Asia and higher cash taxes were the key reasons for the year-over-year unfavorability. We expect the unfavorable timing of vendor payments to begin to reverse in the second quarter. Capital expenditures were $21.5 million in the 2018 quarter versus $26.1 million in 2017. In addition, we executed a planned sale of a vacant facility in Europe during the quarter for $12 million cash. Turning now to the balance sheet. As of March 31, we had total cash on hand of $235.2 million and total debt outstanding of $2.19 billion, including $258 million drawn against our credit facility. Remaining availability on the credit facility was $477 million as of March 31. Before I shift to our expectations for 2018, I would like to remind you of our ongoing capital priorities. As I have stated in past quarters, we expect to make strategic investments in our business, including both organic investments and potential acquisitions, and we continuously evaluate our portfolio for strategic opportunities to optimize stockholder value, like the first quarter building sale in Europe and the pending sale of our print logistics business. In addition, we remain committed to our quarterly dividend, although our board does review our dividend recommendation each quarter. And we do not expect to repurchase shares in the foreseeable future. Our expectations for full year 2018, which have not changed since our last call, are reflected on Page 13 of the supplemental slides. As a point of clarification, our expectations do not reflect the impact of our pending sale of the print logistics business, which is expected to close early in the third quarter. For the full year, we expect net sales to range from $6.8 billion to $7.0 billion as compared to $6.9 billion in 2017. Adjusted diluted earnings per share is expected to range from $0.90 to $1.20 as compared to $1.20 per share in 2017. Shifting to our 2018 cash flow. We expect cash flow from operations to range from $190 million to $225 million, which compares to $217.9 million reported in 2017. This range contemplates higher tax payments, which will include an estimated $20 million related to tax reform, working capital improvements and lower interest payments. Capital expenditures are expected to range from $100 million to $115 million. Before I wrap up, I would like to comment on our expected performance for the second quarter of the year. We estimate our net sales to be at similar levels to first quarter but up slightly versus 2017. We expect our results to continue to be negatively impacted by unfavorable foreign exchange variances, higher paper and transportation costs and inefficiencies from reduced volumes from two clients. However, we expect to pass along additional inflationary-related increases through market price adjustments and benefit further from our cost reduction initiatives, including supplier mix changes. In addition, we expect interest expense to remain lower and our effective tax rate to continue to be higher due to tax reform. As in past years, our earnings and cash flow are expected to be seasonally strongest in the last half of the year. Each of these factors have been considered in our full year guidance. And now operator, let's open up the line for questions.

[Operator:]

Thank you. [Operator Instructions] And our first question is from Charlie Strauzer from CJS Securities. Please go ahead.

[Charlie Strauzer:]

Hi, good morning.

[Dan Knotts:]

Good morning, Charlie.

[Terry Peterson:]

Hi, Charlie.

[Charlie Strauzer:]

Hey, a couple of questions for you. First, let's talk about, obviously you had better-than-expected top line results, you had good organic growth again for the second straight quarter, does that spike kind of the headwinds that you talked about, the Toys"R"Us bankruptcy obviously playing into that as well. What's driving that? Are you seeing any kind of sustainability in that kind of – those kind of trends that you're seeing there? And how is it that you're able to do this versus some of your peers have been – showing more declines versus organic growth like you've seen?

[Dan Knotts:]

Hey, Charlie, thanks for the question. It's Dan. I think the organic sales growth can be directly attributable to our refined focus from our sales channels and our go-to-market approach and the segmentation efforts that are going on, of which I think we are continuing to make significant progress in leveraging the portfolio of capabilities we have across the company and demonstrate how we can deliver value for our clients because we have such a differentiated portfolio of products and services. Our clients, our marketing solutions side and business services side, they're all searching for two things. They're searching for increased consumer engagement that's, in turn, going to drive their business results and they're searching for more efficient ways of doing things. And we have the ability to help them in both of those areas. So I think it's the differentiated capabilities that we have, our focused sales channel approach and taking that next step during the quarter of realigning the organization into marketing solutions and business services segments to be able to drive that focus even to a greater level. Now I think the other important thing to recognize that plays with for the quarter, as Terry mentioned, seven of our 11 product and service offerings had sales growth during the quarter. Our largest significant down was on the Commercial Print side. It was impacted by the specialty cards business, but there's also some secular challenges that are going on within the Commercial Print space that we're working hard to address and overcome. In fact, though, we can deliver seven of those 11 – app seven 11 product services increase for the quarter demonstrates that it's just not in one particular area, our teams are doing a great job across the board.

[Charlie Strauzer:]

And Terry, you talked about the Q2 trend for top line similar to – what we saw in Q1. Does that also imply that you should see some flat organic growth in Q2 as well if I'm doing my math correctly?

[Terry Peterson:]

Yes, we do. Yes. Actually, I did mention that we expect kind of that net sales level to be roughly comparable to the first quarter, and that will be up from the prior year period. We do anticipate a small amount of FX benefits in the second quarter, but we absolutely, as a whole, would expect to see organic growth for the company as well.

[Charlie Strauzer:]

Excellent. And then just sort of switching gears to the sales of print logistic business. Can you help us frame a little bit of this sense of signs of that business in terms of revenue, maybe margins, any other additional color you can provide in terms of the churns on that transaction as well will be helpful? Thanks.

[Terry Peterson:]

Yes. Certainly, Charlie, I mean I will certainly try to provide the color that I'm able to provide since we've not jointly announced specific terms of the deal. But I can tell you that this portion of our Logistics business, in 2017, it was roughly about $500 million of net sales for us on our basis. But that sales number will look a little different when LSC eventually does begin to report because they are obviously a very large customer within that mix, and so how they report sales will be different. But for us, we represented $500 million of net sales for last year. The other thing that is important to know as a part of that is that there is a significant piece of pass-through postage sales, which essentially have no margin in that business, so that was certainly a piece of that business within the print logistics space there, too. So think of that as being a reducer to a normalized margin for that business. Clearly, we didn't articulate the valuation or the terms, the purchase price terms. But as you think about what we're selling here, I mean, this is a Logistics business that is solely tied to the print space. So as you think about multiple expectations, you should be thinking more akin to like print multiples, not what you would see in the marketplace for asset-light generalized logistics services companies.

[Charlie Strauzer:]

And this is also more of a kind of like a freight broker, if you will, as well. It's not really anything with asset-light so not really asset-sensitive in terms of how much – find drivers and things like that?

[Terry Peterson:]

Yes, certainly not drivers that we would employ. We do procure that from the outside.

[Charlie Strauzer:]

Great. And then just one more question, Terry, on the Q2 color, which I appreciate there on the top line. How should we think about the trend on EBITDA for the quarter two? In respect to some of the things that you mentioned improving in Q2, is that still imply EBITDA should improve sequentially from Q1?

[Terry Peterson:]

Yes, I would say the first and kind of the biggest no-brainer as you think about Q1 going to Q2 is we certainly do not foresee or anticipate another bankruptcy-related charge to any of our customers. So that $8.3 million, we would not expect to repeat at all. That would be something we'd have to develop or change with one of our customers between now and the end of first quarter for that to change. But certainly, nothing contemplated in the perspectives I gave for second quarter. The other thing, I think, to think about as you kind of move that forward is I did mention that many of those headwinds that I provided some extra color on, even though we've contemplated them in our outlook and we have since the beginning of the year, what you'll see in second quarter is a continuation of many of those, but the recoveries against those, so like market rate adjustments, the alternative supplier arrangements, using other sources for like transportation, that stuff will continue to have an increasingly better impact by way of offsetting. So the flow-through on those headwinds should continue to improve a bit as we go into second quarter two, and certainly, our perspective on Q2 contemplates that. And quite honestly, regarding all of those headwinds and just as a normal practice to offset ongoing price pressure that we see every year, we have a number of cost reduction initiatives, our business improvement plans. We'll certainly continue to have some added benefit. And we've even – to get after some of these challenges, we've even accelerated those programs in certain areas. So again, we'd expect some more ability to offset that way.

[Charlie Strauzer:]

If I'm comparing it maybe to Q2 of last year, which I think was around $92 million of EBITDA, I mean, is it fair to say that some of these improvements should show some year-over-year growth in Q2 in EBITDA?

[Terry Peterson:]

That's entirely possible. We – obviously, our guidance contemplates a range, and there's a lot of things that can happen on the plus side and the minus side as we saw in our first quarter. But that certainly is within the possibility of our range. I didn't speak too explicitly about it but certainly, we were hurt pretty hard in first quarter by FX, and that's largely driven by China in exchange rates, so with the RMB and the weakening of the U.S. dollar there. We certainly see that continuing into second quarter as well. Although the kind of the year-over-year benefit probably start to improve a bit just given what charges and what kind of activity came through in the prior year, but that will certainly be an ongoing headwind for us in quarters to come and specifically second quarter.

[Charlie Strauzer:]

Excellent. Thank you very much.

[Terry Peterson:]

Yes.

[Operator:]

Thank you. And our next question is from the line of David Phipps from Citi. Please go ahead.

[David Phipps:]

Hi, thank you for taking the question. So when you walk through some of the cost headwinds that you're facing in the first half of the year that lasted an extended period, would you expect them to mitigate as we go through the quarters throughout 2018?

[Terry Peterson:]

Yes, we really would. We do expect that to become less of an impact. And there's a couple of good examples out there. I think as it relates to the cost of transportation, we really see that issue as being behind us from a negative impact to the bottom line by the time we exit the first half of the year. So second half, that should be an issue that's more neutral to our bottom line. We'll continue to see improvements and recoveries and stuff in some of the other areas and the cost actions related to the client volume reductions that will have more time to mature and benefit fuller periods of time versus a partial quarter as we saw in the first quarter. So yes, in all of those cases, we do expect progress in terms of offsetting or in one case in particular fully offsetting by the end of second quarter here.

[David Phipps:]

And then on the sale process, you didn't mention a price for that, so I'm assuming that's relatively small compared to your company size. And then second, your guidance, what does account for the fact that this is being sold? And maybe third, I'd love to – we looked at the print logistics side of the business, we're trying to figure out how much this represents out of your Logistics business?

[Dan Knotts:]

Yes, just to clarify, the updated guidance, which is a reaffirmation of the initial guidance that does not contemplate any adjustments for the sale. We would plan to adjust that guidance as appropriate after that sale is completed, which again we expect to be in the early part of third quarter. So, just to clarify, but that does not include an adjustment for the pending sale. You are right, the selling price that we have negotiated after this transaction, it is not material to the overall company. So it has not been disclosed yet. Obviously, more information will be coming on that front as well as the other impacts to our outlook. We'll provide that detail once the transaction does close. So again, I really probably provided the – most amount of information that I'm able to provide on that transaction at this time, but – so if you got any other questions, I'd be happy to do what I can.

[David Phipps:]

One final one if I can work in. The accrued liabilities you talked about, that was working capital used this time, which means your pressure cash flow temporarily, and you said that will reverse. And when you kind of look at the big numbers that were different from last year, did you get a tax refund last year and pay taxes this year? And was there anything that were a big reversal that would look very different in 2018 first quarter to 2017 first quarter.

[Terry Peterson:]

Yes. We were in a net refund situation last year and a small payment situation for this year, so that delta – and again, that was contemplated in our cash flow, so that was not a surprise to us. The vendor payments, absolutely, we'll start to see that recovery. We have historically seen some volatility, and then the working capital component that probably has created the most volatility for us is accounts payable. But offsetting that, we actually had some nice positives on the receivables. But net-net, it was a negative to us, and that is not something that is abnormal to our business. It does happen from time to time given timing issues. And absolutely, as I mentioned, we do anticipate that to begin to reverse right away here in second quarter.

[David Phipps:]

One more if could sneak in. On Asia, you used to talk about how much that, that grew year-over-year and how much it represented is that break out is available?

[Terry Peterson:]

Yes, you can largely see that if you refer back it is slide 7. I provided some geographical data. Asia is one of those geographies that we break out. And on that slide, you can see what growth is – which is about 25.5% reported growth for that geography.

[David Phipps:]

Thank you very much for taking my questions.

[Terry Peterson:]

Sure, thank you.

[Operator:]

And our next question is from Bill Mastoris from Baird and Company. Please go ahead.

[Bill Mastoris:]

Thank you. So is this sale the beginning of kind of a pruning of the portfolio where we can expect additional sales coming down the road? That will be the first question. And then the second question would be the use of proceeds, is that going to be used for debt reduction? And then any comments that you have on updated plans to redeem the 11 ¼ of 2019 will be greatly appreciated. Thank you very much.

[Terry Peterson:]

This is Terry. I'll go ahead and take the last two pieces there. The plan is to take the proceeds from this transaction and to use those to reduce the borrowings outstanding under our credit facility. So that will be the plan for those proceeds. And then in terms of an updated approach to dealing with the maturity in first quarter of next year of the notes, we have not identified any further developments on plans to take those out. As I have told many and on this call in the past, our kind of Plan A is, if you will, is to really to use our credit facility to availability on the credit facility to take those out. But again, that will depend on sufficient cash flow into the company for the latter half of the year before we would actually solidify and execute against that Plan A.

[Dan Knotts:]

And Bill, it's Dan. I'll take the other part of your question. We are always going to look for opportunities to reshape our profile and portfolio of businesses to align with the needs of our clients in the markets that we serve. So like we've done historically, we've been acquisitive and we've divested our businesses. We will continue to evaluate those opportunities on a going-forward basis. So no, definitive statement, we are going to say one way over the other, other than the fact that we will continue to look at the opportunities to reshape our portfolio to best fit the client – the needs of our clients going forward.

[Bill Mastoris:]

Okay. And then maybe one last follow-up question, and that would be the new wins that you're getting right now. Can you talk about whether those contractual terms are more attractive or because it's a competitive environment that it's pretty much the same? What's kind of the nature of those new wins as far as margins go versus that which you have actually enjoyed historically?

[Dan Knotts:]

I think your assessment of a competitive market dynamic is very real. Obviously, clients are pursuing efficiency opportunities on top of that. So I think there's a wide range of margins that occur within those businesses and the opportunity to bring them onboard, and advance the margins over time is certainly part of our strategy as well. But I think it's fair to assume in general, they look like our overall business profile.

[Bill Mastoris:]

Thank you so much for the overall color. I appreciate it.

[Dan Knotts:]

Thank you.

[Operator:]

Our next question is from Michael McCaffery from Shenkman Capital. Please go ahead.

[Michael McCaffery:]

My question has been answered thanks.

[Operator:]

[Operator Instructions]

[Dan Knotts:]

Louise, we have time for one more call.

[Operator:]

Sure, that question is a follow-up from Charlie Strauzer from CJS Securities.

[Dan Knotts:]

Welcome back Charlie.

[Charlie Strauzer:]

Thanks. Just wanted to kind of pick up on the organic growth discussion we had. Obviously, there seems to be a little bit of disconnect in the market here since we taking your stocking down a little bit in spite our view as very positive print in the quarter here, especially we're having organic growth for the second consecutive quarter and you're kind of implying that for the next quarter as well. What do you think some of the disconnect is with the investor perception regarding that given that you are showing these kind of positive trends that's not being reflected, I think in the marketplace?

[Dan Knotts:]

Charlie, I think it's a great question and it's a question that we've been kind of pursuing for a while and to find the appropriate answer. And here's what I would say about or an answer that is pretty consistent, tough to find. I think the – at the end of the day, we're controlling what we can control. And we are – we do think our performance from a top line standpoint is differentiated. If somebody spends the time to look at the industry in general and the results that are being published there, there are just different dynamics that are going on for different companies and different product lines that leads to different companies produce. In our particular case, we are – we do believe our organic performance is differentiated from the competitors set. We're pleased with that performance, and we're going to continue to march forward in driving with a focus on continuing to sustain and drive that organic growth and convert that into earnings. As Terry talked about, we have plans in place to address. And I want to make sure that when we talked about setting aside a couple of those factors, as FX and bad debt, to look at the underlying performance of the business, we are absolutely pleased with the underlying performance of the business that's in line with our expectations. However, that doesn't also take away from the fact that we completely and fully understand that we need to overcome those negative factors like bankruptcies and FX impact, et cetera, and we're aggressively pursuing our cost out actions, the mentioned price increases that Terry talked about, continue to win new business and drive that to the bottom line, all in all in an effort to overcome those headwinds that are occurring within the business, but it starts with the top line, and we know that. It starts with driving – and follow-up by driving the cost out actions and the other business improvement initiatives. And I would love to have that – in summary, I'd love to have that answer to that question because we do think our performance is at a different level right now.

[Charlie Strauzer:]

I think that is fair. Thank you very much Dan.

[Dan Knotts:]

Thanks Charlie.

[Operator:]

Thank you. And please go ahead with any closing remarks.

[Dan Knotts:]

Great. Thanks, Louise. Thanks again, everyone, for joining us on the call today. The key takeaways for the quarter are listed on Slide 14 of the supplemental deck. In addition, I'd like to thank our team members for your ongoing dedication and commitment to this company and for the tremendous work that you do every day to serve our clients around the world. We have a talented team in place. We believe we're well positioned to help our clients create better connections with our customers across the entire customer journey. With that, I will turn it back over Brian.

[Brian Feeney:]

Thanks, Dan. As a reminder, information to access the telephonic replay of RR Donnelley's First Quarter 2018 Results Call can be found in our first quarter press release, a copy of which is posted on the Investor section of our website at rrd.com. In addition, Terry and I will be presenting at the Macquarie Business Services C-Suite Conference in Boston on Thursday, May 10. Thank you for joining us, and that concludes the RRD First Quarter 2018 Earnings Call.

[Operator:]

Thank you. And that does conclude our conference for today. Thank you for your participation and for using AT&T Executive Teleconference. You may now disconnect.