R. R. Donnelley & Sons Company
Q3 2013 Earnings Call Transcript

Published: 5 Nov 2013

[Operator:]

Welcome to the RR Donnelley Third Quarter 2013 Results Conference Call. My name is Shannon, and I will be your operator for today's call. [Operator Instructions] Please note that this conference is being recorded. I will now turn the call over to Mr. Dave Gardella. Mr. Gardella, you may begin.

[David A. Gardella:]

Thank you, Shannon. Good morning, everyone, and thank you for joining us for RR Donnelley's Third Quarter 2013 Results Conference Call. This morning, we released our earnings report, a copy of which can be found on the Investors section of our website at rrdonnelley.com. During this call, we'll refer to forward-looking statements that are subject to uncertainty. For a complete discussion, please refer to the cautionary statement included in our earnings release and further detailed in our Annual Report on Form 10-K and other filings with the SEC. Further, we will discuss non-GAAP and pro forma financial information. We believe the presentation of non-GAAP and pro forma results provides you with useful supplementary information concerning the company's ongoing operations and is an appropriate way for you to evaluate the company's performance. They are, however, provided for informational purposes only. Please refer to the press release and related footnotes for GAAP information and a reconciliation of GAAP to non-GAAP information. We also posted to our website, in the Investors section, a description, as well as reconciliations of non-GAAP measures to which we will refer on this call. We're joined this morning by Tom Quinlan, Dan Leib, Dan Knotts and Drew Coxhead. I'll now turn the call over to Tom.

[Thomas J. Quinlan:]

Thank you, Dave, and good morning, everyone. This is an exciting time for all of us at RR Donnelley. As you are aware, in addition to our third quarter earnings release, we have also announced our entry into a definitive agreement to acquire Consolidated Graphics. The acquisition is subject to customary closing conditions, including regulatory approvals and the approval of Consolidated Graphics shareholders, but we expect it to close in the first quarter of 2014. During this call, I will talk about the strategy that we are executing to position RR Donnelley for continued growth. But now I will turn it over to Dan Leib to discuss the third quarter in detail. Dan?

[Daniel N. Leib:]

Thanks, Tom. As with prior quarters, the focus of my comments will be on certain non-GAAP results and measures. Please refer to the support schedules of our earnings release for a reconciliation of our GAAP to non-GAAP results for the third quarter. Our third quarter results continued the trend of improved operational performance that we've experienced over the past few quarters. Increases in volume translated into 2.2% organic revenue growth in the quarter, while the timing of our project in Latin America accounted for 70 basis points of growth and additional growth in our Presort Solutions acquisition, especially with respect to pass-through postage revenue, accounted for 50 basis points of growth. We are pleased with the breadth of organic growth amongst our offerings that we experienced in the third quarter, spanning both the U.S. and international segments. At EBITDA, we are pleased with performance in delivering $280.1 million in the quarter. While this represented a decrease from last year's third quarter, as we've mentioned on our last earnings call, the third quarter had a significant year-over-year hurdle to overcome due to certain noncomparable items, primarily for changes in accruals for variable compensation, Workers' Compensation and LIFO inventory reserves, as well as lower pension income and last year's rebate adjustment. In total, these items had a $59 million unfavorable impact on EBITDA and a 230 basis point unfavorable impact on EBITDA margin on a year-over-year basis. We also continued to generate strong free cash flow in the quarter, $101 million improved from the same period a year ago and $158 million higher than last year on a year-to-date basis. Third quarter gross margin was 21.8%, 100 basis points lower than the third quarter of 2012. With the exception of the change in pension income, which primarily impacts SG&A, the noncomparable items I just mentioned accounted for approximately 130 basis points of negative impact, more than all of the decline in gross margin. Additionally, higher volume and favorable mix more than offset price erosion and a 40 basis point negative impact from higher pass-through postage revenue related to the Presort Solutions acquisition. SG&A expense in the quarter as a percentage of revenue was 11.1% or 110 basis points higher than the third quarter of 2012, substantially all due to higher variable compensation and lower pension income. Third quarter adjusted EBITDA of $280.1 million compared to $320.9 million in the third quarter of 2012. And adjusted EBITDA margin in the third quarter of 2013 of 10.7% was 210 basis points lower than in the third quarter of 2012. As I mentioned earlier, $59 million or 230 basis points of the decline was due to certain noncomparable items that had an unfavorable year-over-year impact in the third quarter this year. Changes in foreign exchange rates did not have a material impact on the quarter-over-quarter consolidated margin comparison. Consistent with trend, reduced levels of depreciation and amortization narrowed the year-over-year decline in the non-GAAP operating margin to 140 basis points from 8% in the third quarter of 2012 to 6.6% in the third quarter of 2013. Our non-GAAP effective tax rate in the quarter was 33.1%, flat to last year's third quarter. This rate was below our expected rate, driven primarily by changes in the expected resolution of certain state tax matters. From a segment perspective, revenue in our U.S. Print and Related Services segment of $1.9 billion grew 3.1% from the third quarter of last year, due primarily to the impact of 2012 acquisitions. Adjusting for acquisitions, the prior year office products rebate and the impact of pass-through paper sales, the U.S. segment posted organic growth of 0.6%, as volume growth in most offerings more than offset price erosion. We saw organic growth in all offerings except the magazines, catalog and retail inserts, commercial print and financial print. Our Logistics offering had yet another quarter of substantial growth, driven by higher volume in nearly all of its offerings, including the pass-through postage volume that resulted from the Presort Solutions acquisition in late 2012. On an organic basis, logistics experienced 14% growth, driven by increased volumes in nearly all of its product offerings. The trend in books and directories, variable print, forms and labels and office products offerings improved sequentially. All of these units realized year-over-year organic growth in the third quarter. The positive trend in financial print continued to improve with another strong quarter of capital markets activity compared to the prior year. Our magazines, catalogs and retail inserts offering experienced lower volume and continued price erosion in the quarter. Non-GAAP operating margin for the U.S. segment of 9.3% declined 80 basis points from the third quarter of 2012. Higher variable compensation expense accounted for a nearly 140 basis point unfavorable impact, while the pass-through postage revenue caused 20 basis points of the decline. Additionally, higher volume, a favorable product mix, lower depreciation and amortization and productivity improvements more than offset continued price erosion, most notably, in our magazines, catalogs and retail inserts offerings. Third quarter 2013 revenue in our International segment of $704.9 million grew by 7.6% or nearly $50 million from the third quarter of 2012. Organic net sales grew 7%, with 280 basis points attributable to a timing shift in a major customer project in Latin America, which was recognized in the fourth quarter last year but shifted into the third quarter in 2013. Looking ahead, our fourth quarter comparisons will have this year-over-year hurdle due to this timing shift. Except for business process outsourcing, all other offerings in the international segment realized volume growth in the quarter. Continued volume declines in low-margin outsourcing work and business process outsourcing adversely impacted the top line performance in that offering. The non-GAAP operating margin in the segment of 7.1% was 220 basis points better than the 4.9% margin in the third quarter 2012, inclusive of an approximate 20 basis point unfavorable impact from changes in foreign exchange rates. Higher volume and favorable product mix more than offset inflationary pressure, increased variable compensation expense and price erosion. Our third quarter 2013 non-GAAP unallocated corporate expenses were $53.2 million or $35.1 million higher than the third quarter of 2012. Higher compensation related expenses and reductions in workers' compensation and LIFO reserves last year were the primary reasons for the increase. Free cash flow in the quarter of $193.9 million was nearly $101 million higher than the third quarter of last year. Approximately $50 million of the improvement in the quarter was due to lower pension and other postretirement plan contributions after tax in 2013 than in 2012. Driving the balance of the free cash flow improvement in the quarter was higher cash-based earnings, as the $59 million noncomparable items that negatively impacted the year-over-year EBITDA variance were all noncash in the period. This was partially offset by volume-driven increase in working capital as our controllable working capital rate, which we define as accounts receivable plus inventory, less accounts payable as a percentage of our trailing 3-month annualized net sales improved 190 basis points from 14.7% at September 30 last year to 12.8% at September 30, 2013. However, given the higher sales volume and the improved working capital performance in the first half of the year, working capital was a use of cash of $22 million in the quarter. On a year-to-date basis through September, free cash flow of $167.5 million is nearly $158 million higher than the same period last year. With respect to fourth quarter projected working capital performance, we expect the year-over-year improvement to narrow, given the favorable timing benefits that we experienced in the first 3 quarters of the year. As we noted in this morning's press release, we are reiterating our full year guidance for free cash flow to be in the range of $400 million to $500 million. Total debt as of September 30, 2013, was $3.5 billion, down $270 million from September 30 of 2012. In the quarter, we issued $400 million of 8.5-year 7% notes, and used the net proceeds to pay down an aggregate $400 million of fixed debt due in 2015, 2017 and 2018, further improving our already favorable liquidity profile. From 2014 to 2018, our average term debt maturity is $255 million, with the highest maturity of $350 million due in May of 2018. Our next term debt maturity of $258 million is in April 2014. As of September 30, 2013, our term debt is 81% fixed at an average interest rate of 7.6%. Our net available liquidity as of that date was $1.3 billion, and our gross leverage was 3.0x compared to 3.1x a year ago at September 30, 2012. Our net debt or total debt less cash was $3.1 billion at the end of the quarter, nearly $108 million lower than at June 30, 2013 and $340 million lower than a year ago. With no term debt to pay down in 2013 and no borrowings outstanding under our revolving credit agreement as of September 30, we continue to build cash. As noted in our press release, we continue to target gross leverage in the range of 2.25x to 2.75x on a long-term sustainable basis. We mentioned on our second quarter earnings call that rising interest rates in 2013 had a positive impact on the funded status of most of our major pension and postretirement plans. Given our major plans are frozen and closed, we do not accrue service costs, so the primary factors impacting the plan's benefit obligation and funded status are discount rates and investment returns. Rates rose slightly again in the third quarter, and at September 30, the weighted average discount rate of our major pension and OPEB plans increased approximately 85 basis points from the end of 2012, reducing our obligation by approximately $485 million. We continue to experience strong investment returns thus far this year that have served to further reduce the estimated underfunded status of our plans. The combined impact of both the decrease in our obligation and improved asset returns is an approximate $733 million reduction in the net liability since December 31, 2012, to an estimate estimated underfunding of $664 million for both pension and postretirement plans. Our pension contribution for this year is set at approximately $23 million, and our current estimate for our 2014 contribution is $75 million, a slight decrease from prior expectations. We review our actuarial assumptions annually as of December 31, and we have not made any remeasurements of obligation or funded status for our major plans in the interim period. Before I turn it back to Tom, let me discuss in more detail the full year guidance, which we provided in this morning's earnings release. We expect revenue in the range of $10.35 billion to $10.45 billion. The pass-through postage revenue that we acquired through Presort Solutions in December of last year has grown substantially, exceeding our expectations and is a driver of the increase in our guidance range. Overall, top line performance is also a driver. We expect our non-GAAP adjusted EBITDA margin to be in the range of 11% to 11.2%. The pass-through nature of the incremental postage revenue I just mentioned has the effect of reducing EBITDA margin and is reflected in this updated guidance. It is important to note that our expectation for absolute EBITDA dollars remains unchanged from the guidance we issued initially in February of this year. Depreciation and amortization expense is expected to be in the range of $435 million to $440 million. Interest expense is estimated to be approximately $260 million. Our full year non-GAAP tax rate is expected to be in the range of 33% to 35%. We project the full year fully diluted weighted average share count to be in the range of 183 million to 185 million shares. We continue to expect capital expenditures in the range of $200 million to $225 million and free cash flow in the range of $400 million to $500 million. And with that, I will turn it back to Tom.

[Thomas J. Quinlan:]

Thank you, Dan. Now let me talk about the strategy we are continuing to execute to position RR Donnelley for continued growth. More than ever before, our customers are using integrated strategies across multiple channels to effectively reach their audiences. To help them accomplish this, we will continue to expand the range of multichannel solutions that we offer. Similar to the in-store marketing solutions we bring to retailers, we are expanding our integrated solutions offering to meet the needs of both the health care and financial services organizations. Such organizations often have very large customer lists, and they send their customers a broad range of transactional, mandated and marketing messages. We help them meet the challenges in print, on mobile devices, via email and online. Our multifaceted offering not only comprises a full range of multichannel options, it also enables the different media to communicate with one another, and most importantly, deliver an integrated customized message. Our automated multitouch, multichannel engagement programs use personalized direct mail, personalized websites or PURLs, variable video and smart web tools to help our customers nurture relationships with their customers and other stakeholders. Our suite of integrated solutions is complemented by RR Donnelley's international scale and scope. For example, we recently completed a complex project for the Brazilian Ministry of Education to produce and deliver to the Brazilian postal service an important national exam used to evaluate high school students and act as a standard university entrance qualification test. RR Donnelley printed 15.7 million exams for 7.2 million students. The exam was applied in approximately 15,000 locations over a 2-day period. We delivered more than 63,000 mail packages containing exams, each with an electronic locker that was designed to register at what time the package was sealed and at what time it was opened. This sophisticated security measure allows us to alert the customer if an exam package is opened before the planned time, which might imply that confidential information is leaking. We will continue to enhance and invest in sophisticated solutions such as these to meet the changing needs of the market. Our strategy is to develop or acquire the technologies needed to support our customers' communication strategies going forward. The fact that RR Donnelley recently ranked 17th on InformationWeek 500 list affirms our leadership position in technology innovation and development. This annual listing identifies and honors the most innovative users of business technology and also tracks the strategies, investments and administrative practices of industry-leading organizations nationwide. This well-respected evaluation placed RR Donnelley in a prestigious group of innovators and, in fact, ahead of a number of tech industry giants. As we continue to evolve RR Donnelley, we will always focus on operational efficiency, productivity and cost management. The well-defined and disciplined planning process that we follow places operational excellence as our focal point and guides our everyday emphasis on cost control. With each of the decisions that we make, we will continue to ensure that our cost structure remains synchronized with revenue opportunities. While doing so, employee safety will continue to be our benchmark and our most important measure of operational excellence. Last, I'm pleased to report that RR Donnelley recently received 2 distinct honors. First, we were recently selected to receive the National Center for Promotion of Employment for Disabled People. This prestigious award recognizes companies working towards promoting employment opportunities for persons with disabilities. Our team in Chennai, India was recognized for designing a program that provides professional skill enhancement for orthopedically challenged individuals and is just one of many programs sponsored by our 30-plus inclusion councils around the world. This award is testament to RR Donnelley's culture of inclusion and to the commitment of our employees to embrace and foster diversity in the workplace. Additionally, we just announced yesterday that, RR Donnelley has been named to the 2013 2014 Ocean Tomo 300 Patent Index, the first equity index based on the value of corporate intellectual property. The index represents a diversified portfolio of 300 companies that own the most valuable patents relative to their book value. This is the sixth year out of 8 that the company has been included in the index. Our team in Grand Island continues to work to create custom technologies and formulations to further enhance our offering. And with that, operator, we will open it up for questions.

[Operator:]

[Operator Instructions] Our first question comes from Charles Strauzer from CJS Securities.

[Charles Strauzer:]

A couple of questions. First, let's talk about CGX and the integration plan there. And without quantifying, I just wanted to just talk about more about the ability to integrate what's really a different operating model there, and also to talk a little bit more about the types of synergies we might see.

[Thomas J. Quinlan:]

Charles, I think, you've been around long enough to know that we're limited on what we can say. But let me take a crack at it, and then Mr. Knotts and Mr. Leib will jump in. First of all, from the standpoint of -- I think one of the things you're asking is are we ready to integrate Consolidated Graphics' -- our planning process with [ph] Consolidated Graphics and RR Donnelley? And I would tell you the answer is yes. And obviously for those of you who may be new to our story, you've got a management team that has done this quite a bit when you go back to the days of Moore Wallace getting together with Donnelley. When you think about 2009, when we took upon Banta, Perry Judd and Von Hoffman properties all within 90 days of each other when we did the Bowne acquisition. Each one of those properties presented a different culture, each one of them presented different opportunities for us. When you think about Consolidated Graphics and the reasons that -- why we are excited about it, it supports the activity that we're implementing -- the strategy that we're implementing. And to us, it further illustrates our commitment to manning our position as the industry's leading provider of integrated communication solutions. Consolidated Graphics' capabilities, they're going to complement our existing platform, resulting in a portfolio of even broader mix of products and services that will further enhance our ability to provide integrated communication solutions to customers across all industry verticals. Our customers try to get and benefit from these expanded capabilities and geographic reach, and it will be positioned to deliver multichannel communications to their target audiences, and that's what we've been talking about for a while now. I think it's going to support the strategic directive that we talk about. It's offering even more expanded capabilities in areas such as digital print, direct marketing and print management. These capabilities, to us, in particular, are especially well suited to the key vertical markets that we've targeted and will provide additional capabilities to reach and serve our customers needs there. The combined organization, to your point, is going to be even better positioned with improved operating expertise and procurement efficiencies and opportunity for additional customer relationships. So I think from our standpoint, we think our customers are poised to benefit from the combined resources and expertise that both organizations are going to be able to bring forward, and we're excited about the combination.

[Charles Strauzer:]

Excellent. And it sounds like -- let's take a look at fulfillment [ph], Donnelley, in kind of the quarter and organic growth. And I think, Dan has said that the financial print did not show organic growth in the quarter, which I thought would be surprising, given the strength in the capital markets.

[Daniel L. Knotts:]

Yes, that is correct. It showed an improvement in trend, and so that offering is really 2 separate offerings, one being capital markets-driven activity, and the second being more mutual fund-driven activity. We have seen some print suppression in the mutual fund activity side but, certainly, benefiting from the strong capital markets.

[Daniel N. Leib:]

Yes, I think, Charlie, to add to that, breaking down the transactional side between the compliance and the true transactional -- the deal side of the equation, we are continuing to be -- continue to see a strong performance on the transactional side and to Dan's point print suppression such on the compliance side offsets that a bit. But in terms of the positioning of that platform in the marketplace, our team continues to perform very well there.

[Charles Strauzer:]

Great. And Tom, just talk a little bit more about -- on the topic of organic growth. And what are the other areas that you're seeing consequently strong growth? And it sounds like books might be doing well, and what's kind of driving that? I know a lot of pundits out there are saying that -- how are you seeing growth on the book side?

[Thomas J. Quinlan:]

Sure. From the book standpoint, again, the education market K to 12 is still challenged. The states still have deficits that they're dealing with, and the dollars that they do have allocated to them, they're allocating those dollars to other things, otherwise in curriculum. The thing that we feel good about is, again, these are textbooks that are quite old right now in some of the major states when you think about the states that do large adoptions like California, New York, Texas and Florida. At some point in time, this curriculum's going to have to be updated. So as we sit here today, do we have any visions that by the end of the decade that everything will be sort of served on the Internet and electronic distribution of content? There's a good chance but -- in 7 years that could happen. But prior to that, the country is not prepared right now, nor the school system's prepared to go ahead and have education content distributed that way. So we do think that's still an opportunity for us to comp from that standpoint. But when you think about all the other products and services that we've got, I mean, we always talk to you about the cost side there, but there's great things going on in the revenue side. And I do think we're finally, leveraging our name, we're hitting our stride, we've got the great customer relationships, we've got the products and services that, again, no one else has out there, and we have target offerings. But we have -- we can also have a broader collection of offerings that allow us to differentiate RR Donnelley from everybody else. You couple that value-weighted offering to customers with this size of a marketplace, which I think people still lose sight of, this is a global industry in 2013 that was estimated to be at $430 billion. At the end of 2011, United States print market was estimated to be at $119 billion. That excludes newspapers. We've got approximately $8 billion of it. And if you have a very effective platform, which we think we do, combined with those types of numbers, we think it poses well for opportunities for all of us, all of our stakeholders. Can we do a better job selling target offerings? We can, and we will. The enterprise selling that we've talked about that Dan Knotts and George Zengo have gone through the portfolios that we're doing, we're gaining traction on that every day. The vertical solution is in infancy, but is already paying dividends for us. Our software as a service offering, managing our customers spend is also gaining great momentum. So this is why we're excited about the future. This is why I feel the company's in an excellent position to celebrate its 150th anniversary next year and has positioned itself for another 150 years of serving customers.

[Operator:]

[Operator Instructions] Our next question comes from Kannan Venkateshwar from Barclays.

[Edward Kim:]

This is, actually, Eddie Kim for Kannan. I just had 2 questions -- I just had 2 quick questions. First, is around the company's deferred tax assets. At the end of 2012, the company recorded a valuation allowance against its deferred tax assets of around $275 million. Now with the Consolidated Graphics acquisition and the increased taxable income that brings, is this going to result in a decrease in the valuation allowance? And if so, any kind of sense in magnitude would be great. And then secondly, the company reiterated free cash flow guidance for the full year. And if we just assume similar levels of free cash flow next year for argument's sake, looks like the company's going to be throwing off a pretty sizable amount of excess cash going forward. And as we think about use of that cash, should we expect to see more inorganic growth through acquisitions like CGX or an increase in capital returns?

[Daniel L. Knotts:]

Sure. So to the valuation allowance. Most of that relates to foreign entities. And so consolidated being primarily domestic, we don't expect much change there.

[Thomas J. Quinlan:]

And for the second question, again, we haven't disclosed anything for 2014 yet. We will on the February call, but there's 5 ways that we deploy capital. As you know, we pay down debt, we declare a dividend, we can buy back stock, we do acquisitions and we can invest back in the business. The good part is that we are still using guardrails of 2.25 to 2.75 for leverage. The particular transaction that we've talked about, Consolidated Graphics, the great thing for all of our stakeholders is we've declared it's a deleveraging event, and its accretive. So as we continue to look at deployed capital, you're not going to see us go outside those guardrails, and you're also going to see us look to reward our stakeholders with one of those ways to deploy capital.

[Operator:]

[Operator Instructions] Our next question comes from Sachin Shah from Albert Fried.

[Sachin Shah:]

So I just want to get update on the antitrust. Have you guys filed the HSR yet?

[Thomas J. Quinlan:]

No, we've -- the proxy will coming out shortly. And everybody can read about and see it there. And I know everybody's interested in it, so we will get it out as soon as we can.

[Sachin Shah:]

But -- okay, the proxy's shortly, but as far as the HSR, the antitrust?

[Daniel L. Knotts:]

Yes, as we've said, we expect the deal to be closed in the first quarter. And in terms of any of the more detailed side of timing, we're not going to discuss it.

[Thomas J. Quinlan:]

And again, Lieb did a comment that -- I don't know if you heard it before, but again, $119 billion marketplace just in the United States without newspapers, and we've got $8 billion of it, so we're looking forward to going through the process and get it done.

[Sachin Shah:]

Okay. So you haven't filed it, or just you're not going to go to the details?

[Thomas J. Quinlan:]

Correct.

[Daniel L. Knotts:]

Maybe if you asked it a different way. No, we're not going to respond.

[Operator:]

[Operator Instructions] Our next question comes from Michael Kass from BMC. [ph]

[Unknown Analyst:]

Just a housekeeping question on the Consolidated Graphics acquisition. You guys are talking about it being delevering. By my math, you're taking on about $430 million of new debt and LTM EBITDA of about $126 million. That's slightly higher incremental leverage than your current leverage. What am I missing?

[Daniel N. Leib:]

So if you think about the $436 million, or so and a 2.25 guardrail to the 2.75 and divide that out, and then think about their LTM number, which you just quoted, and then also opportunities coming from the planning and coordination activities, that would be the delta. So on a pro forma basis, as we've stated, we expect the deal will be within our guardrails of 2.75 to 2.25.

[Unknown Analyst:]

So you're assuming, if I read -- if I hear you correctly, you're assuming synergies that will get you from incremental leverage LTM of about 3.4x to at least something that would get you to 2.75x?

[Daniel N. Leib:]

Correct.

[Unknown Analyst:]

So that's a substantial amount of synergies of at least $40 million or so. Is that right?

[Thomas J. Quinlan:]

Again, you can do the math. We're not responding to anything that relates to giving out on numbers on synergies. I haven't done it for years, since we've been in the roll, and we're not going to start today.

[Daniel N. Leib:]

As we've said, delevering within those guardrails and also accretive to earnings within the 12 months.

[Unknown Analyst:]

Got you. And then -- so looking to the Q3 result, I was just wondering, did I hear you right that books and directories revenues was up in the quarter. I was just wondering if you could guys briefly provide some color on your product lines, how they're individually performing.

[Daniel N. Leib:]

Sure. Yes, you did hear it correctly, book both and directory on an organic basis was up. They've have had a continuing positive trend. In terms of the other areas that we're also positive variable print was positive in the quarter, and these are organic numbers. Forms and label was positive. Logistics, as we mentioned, office products, Premedia, our operations internationally in Asia, Latin America, Europe, our supply chain, our global turnkey offering and Canada were all posted organic revenue growth.

[Unknown Analyst:]

So the only thing -- what was -- was anything other than mag, cat, retail down?

[Daniel N. Leib:]

Yes, we mentioned mag, cat, retail, commercial and then financial and then BPO.

[Unknown Analyst:]

BPO. And then just lastly, is it possible to just provide what the organic growth rate is or what the impact was from pass-through postage and kind of other pass-through -- nonpaper pass-through kind of types of revenue?

[Daniel N. Leib:]

Yes, sure. So as we mentioned in the comments impact in the quarter from the Presort acquisition was about 50 basis points.

[Unknown Analyst:]

And was that principally -- that total, that was predominantly international or...

[Daniel N. Leib:]

No, no, it's domestic. That post digit shows up in the logistics numbers.

[Unknown Analyst:]

What was driving most of the -- I mean, the 7% organic growth internationally is quite a bit better than the company's done in a while. What was driving that?

[Daniel N. Leib:]

Yes. So as mentioned, you have the timing of the project in Latin America, which was about 280 basis point of it. And then we had very strong performance in Latin America elsewhere but also Asia. Europe was very positive, as was the supply chain business and Canada as well.

[Operator:]

At this time, we have no further audio questions, sir.

[Thomas J. Quinlan:]

Thank you for that. Look, we -- again, we're going to continue to look to differentiate ourselves from other customers, we're continuing to look to exceed our customers' expectations, we're going to continue to meet our financial commitments to you that we said. And we're embracing technology every day that assists our customers in lowering their total cost of ownership and improving their return on investment. So with that, we hope everybody enjoys the day. Have a good holidays. And we look forward to seeing you and talking to you in 2014. Thank you.

[Daniel N. Leib:]

Thank you.

[Operator:]

Thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating. You may now disconnect.