R. R. Donnelley & Sons Company
Q1 2014 Earnings Call Transcript

Published: 1 May 2014

[Operator:]

Welcome to the RR Donnelley First Quarter 2014 Results Conference Call. My name is Christine, 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 Dave Gardella. You may begin.

[David A. Gardella:]

Thank you, Christine. Good morning, everyone, and thank you for joining us for RR Donnelley's first quarter 2014 results conference call. This morning, we released our earnings report, a copy of which can be found in the Investors section of our website at rrdonnelley.com. During this call, we will 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 are 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. Dan Leib will take you through the numbers in detail shortly, but first, I will briefly adjust the following

[Daniel N. Leib:]

Thank you, 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 GAAP to non-GAAP results for the first quarter. Our performance in the first quarter was consistent with our expectations. Reported revenue growth of 5.3% in the quarter was driven by the Consolidated Graphics acquisition, which closed at the end of January. On an organic basis, year-over-year revenue was nearly flat, as volume growth in the Strategic Services and International segments was offset by volume declines in the Variable Print and Publishing and Retail Services segments and price pressure in most offerings. In a relatively challenging macro environment in the first quarter, our organic revenue performance is a testament to the breadth and diversity of our product and service offerings. Our free cash flow was a use of $129.4 million, which were slightly improved from a use of cash of $133.7 million in the first quarter of last year, consistent with our expected seasonality. First quarter non-GAAP adjusted EBITDA was $276.5 million, compared to $277.1 million in the first quarter of 2013. And non-GAAP adjusted EBITDA margin in the quarter of 10.3% was 60 basis points lower than in the first quarter of last year. Consolidated Graphics contributed approximately 10 basis points of favorable impact on a year-over-year margin comparison. Price pressure and wage and other cost inflation more than offset higher volume and a favorable product mix. Higher variable compensation expense negatively impacted the year-over-year comparison in each operating segment, as well as corporate. Our non-GAAP operating margin of 6% in the first quarter of 2014 was 40 basis points lower than the first quarter of 2013, reflective of a favorable 20-basis-point impact from lower depreciation and amortization. The decline in depreciation and amortization as a percentage of revenue is an ongoing trend resulting from reduced levels of capital spend, as our business continues to become less asset-intensive. First quarter gross margin was 21.9%, 10 basis points lower than the first quarter of last year. Consolidated Graphics, which historically had a higher gross margin level, contributed a 40-basis-point increase. Price erosion, inflationary pressures on wage and other costs, and increased transportation costs domestically more than offset higher volume and a favorable product mix. SG&A expense in the quarter as a percentage of revenue was 11.5% or 40 basis points higher than the first quarter of 2013. Consolidated Graphics operated a historically higher level of SG&A as a percentage of revenue and accounted for almost 30 basis points of the year-over-year increase. Higher employee compensation-related expenses and last year's reversal of an acquisition earn-out partially offset by higher pension income accounted for the balance of the decrease -- or increase. Our non-GAAP effective tax rate in the quarter was 31.5%, compared to 33% in the first quarter of 2013. The 2014 rate included a benefit for the reorganization of certain international legal entities. Now I'll discuss revenue and non-GAAP adjusted EBITDA performance for the segments in more detail. Revenue in our Publishing and Retail Services segment was $642.7 million, representing a decline of 3.3% or $21.7 million for the first quarter of last year. 150 basis points of the decline related to the negative impact of lower pass-through paper sales, resulting in an organic year-over-year decline of 1.8%. While our book offering had organic revenue growth of 1%, we experienced continued volume shortfalls in directories and price pressure in volume shortfalls in magazines, catalogs and retail inserts. Non-GAAP adjusted EBITDA margin for the segment of 10.6% declined 120 basis points from the first quarter of 2013. Price erosion, lower volume and an unfavorable product mix and a low recovery from print-related byproducts more than offset savings from productivity initiatives. Revenue in our Variable Print segment was $792.1 million, an increase of 22.2% from the first quarter of 2013 due primarily to the Consolidated Graphics acquisition. On an organic basis, revenue was down 2.3% year-over-year. Our Variable Print segment, owing to the transactional nature of some of the products, is sensitive to general economic activity. Nearly all offerings saw volume declines and price pressure in the quarter, with commercial and digital print and direct mail volume most negatively impacted by the severe weather in January and February. The segment's non-GAAP adjusted EBITDA margin of 12.1% in the first quarter declined 150 basis points from the first quarter of 2013. Lower volume, price pressure and the estimated impact of weather-related issues drove the year-over-year margin decline. Revenue in our Strategic Services segment was $619.7 million in the first quarter of 2014, an increase of 4.7% or $27.7 million from last year's first quarter. Organic growth for the quarter was also 4.7%. Logistics had another solid quarter, with organic growth of 8.8%. Digital and creative solutions organic growth of 10.2% is consistent with recent trends, while the 9.7% organic growth in sourcing marked a return to trend. Our financial offering declined 1.2% organically. Non-GAAP adjusted EBITDA margin of 11.8% for the Strategic Services segment declined 70 basis points from the first quarter of 2013. Higher volume, a favorable product mix and productivity-related savings were more than offset by last year's reversal of an acquisition earn-out and increased transportation costs. First quarter 2014 sales in our International segment were $619.3 million, declining by 2.3% or $14.4 million from the first quarter of 2013. After adjusting for an unfavorable 130-basis-point impact from changes in foreign exchange rates and unfavorable 10-basis-point impact from lower pass-through paper sales, and a 140-basis-point impact from the disposition of our global real estate services offering and our direct mail operation in France, organic revenue grew 0.5%. Volume-driven revenue increases drove organic growth in Latin America, Asia and Canada, consistent with recent trends. Continued volume declines and low-margin outsourcing work consistent with trend led to organic decline in the quarter in our BPO offering. Additionally, global turnkey in Europe experienced organic declines, resulting primarily from lower volume. And price pressure was prevalent across most offerings in the segment. The non-GAAP adjusted EBITDA margin in the segment of 9.2% was 40 basis points better than the 8.8% margin in the first quarter of 2013. Favorable changes in foreign exchange rates drove 60 basis points of the year-over-year variance. The remaining negative variance resulted from price erosion and inflationary pressure, which more than offset higher volume, favorable product mix, in part driven by less volume from low-margin outsourcing work and lower bad debt. First quarter 2014 non-GAAP unallocated corporate EBITDA was negative $17.4 million or $1.7 million better than the first quarter of 2013. Higher pension income and lower healthcare cost were partially offset by higher bad debt. Free cash flow in the quarter was a use of cash of $129.4 million, slightly better than the $133.7 million use of cash in the first quarter of last year. Less cash used for working capital and lower cash payments for income taxes were largely offset by higher cash payments for interest expense and increased capital spend. Our controllable working capital rate, which we define as accounts receivable plus inventory less accounts payable, decreased 50 basis points on a like-for-like basis when adjusting for the impact of the Consolidated Graphics acquisition. For the full year, we continue to expect free cash flow in the range of $400 million to $500 million, inclusive of the expected range of cash contributions to our post-retirement benefit plans of $59 million to $79 million. As of March 31, 2014, our reported gross leverage was 3.4x compared to 3.3x at December 31, 2013. As were the case in December, our reported leverage was elevated as the impact of our acquisitions this year are fully reflected in our debt levels, but are not yet fully reflected in the income statement. We expect that we will lower our leverage in 2014 as we incorporate the acquisitions into our results. We continue to target gross leverage in the range of 2.25x to 2.75x on a long-term sustainable basis. At the midpoint of our 2014 guidance, pro forma for our fully synergized full year of acquisition results, gross leverage is expected to be at the top end of our targeted range by 12/31 of 2014. Our net available liquidity was $1.3 billion, a decrease of $26 million from March 31, 2013. As of March 31, 2014, we had $10 million in borrowings outstanding under our revolving credit agreement. We continue to improve our maturity profile by issuing $400 million of 10-year 6% notes and using the net proceeds to pay down a portion of our fixed debt maturities due in 2018, 2019 and 2020. At the beginning of the second quarter, on April 1, we paid off $258 million of maturing term debt. Our next term debt maturity is not due until May 2015. From 2015 to 2018, our average maturity is $230 million, with the highest maturity of $251 million due in January 2017. As of March 31, 2014, our term debt is 88% fixed and an average interest rate of 7.3%. With one quarter behind us, let me share more detail on the updated full year 2014 guidance that was summarized in this morning's press release, and includes the impact of the recently completed acquisition of Esselte North America. We expect revenue in the range of $11.5 billion to $11.8 billion, an increase of $100 million on the top end of our previous guidance. We continue to expect our non-GAAP adjusted EBITDA margin to be in the range of 10.5% to 11%. Depreciation and amortization expense is expected to be in the range of $485 million to $495 million, the midpoint of which is $15 million lower than the previous guidance. The reduction in the range is largely the result of a revised estimate for Consolidated Graphics purchase accounting, which is still preliminary. We continue to expect interest expense in the range of $275 million to $285 million. We continue to project full year non-GAAP tax rate in the range of 33% to 35%. We project full year fully diluted weighted average share count to be approximately 200 million shares, an increase of 1 million shares from our previous guidance as a result of the equity consideration used to fund the Esselte acquisition. We continue to expect capital expenditures in the range of $225 million to $250 million, and free cash flow in the range of $400 million to $500 million, inclusive of the pension contributions in the range of $59 million to $79 million. Also, as I mentioned on our February earnings call, we expect similar seasonality with respect to quarterly results as in 2013 with a couple notable items. First, as 2014 is an election year, we would expect the Consolidated Graphics performance to be weighted more heavily toward the second half of the year, as that business benefits from increased transactional volume in election years. In addition, we would expect realization of synergies to continue to ramp up throughout the year. And with that, I will turn it back to Tom.

[Thomas J. Quinlan:]

Thank you, Dan. I'm going to touch on 3 topics before we move to questions

[Operator:]

[Operator Instructions] And our first question is from Charles Strauzer of CJS Securities.

[Charles Strauzer:]

Tom, when you look at kind of the quarter, I know there's a lot of various factors between weather, postage and other things kind of impacting, more transactional and kind of long-run sides. And you look at kind of print shipments being down pretty meaningfully in the first part of the quarter. How were you able to kind of weather that storm better than, say, some of your competitors who've kind of talked about more impact to them?

[Thomas J. Quinlan:]

Sure, Charlie. I mean, I won't address the competitors, but what I would tell you is as everyone knows from our presentations, we serve 95% of the Fortune 1000. And each one of our platforms have significant touch points with those customers, no matter what products they're looking at. So having this type of platform allows us to go ahead and handle both their physical and digital needs that they may have out there. I mean, you saw our GDP. It was basically flat, and we think we're a GDP business. And for us to perform in the first quarter as we did from a top line standpoint, it's impressive regardless of the weather, and we're not using a weather excuse. If anything, weather added more cost to our platform, and we would've been -- done even better without the weather. But there's no excuse for that. But that's why we're excited about the opportunities we know we have to assist our customers. They're still -- organizations are still trying to accelerate reductions in the cost structure and at the same time, become more efficient. The leading decision makers of the companies are looking out what they have built over the last few years and are trying to see at what fixed cost they can change the variable and what cost that can be eliminated. Now again, we cover all the gamut, magazine publishers. Publishers, they are looking to add their production of the magazines. Catalogers are looking at the design and redesign and construction of their catalogs. Corporations are looking at every aspect of their communications to their end customers, their employees, to their vendors, to the investors. We, RR Donnelley, as a communication service provider, offer upstream and downstream services to all of these customers to support design and logistics. This differentiates us, as from what you were saying, from the competition. Sometimes, Charlie, EBITDA margin is lower than our traditional business, but for the most part, as Dan Leib said earlier, it's asset-light and allows us to even have more stickiness for the customers. Non-magazine products and services sold to our magazine customers continues to grow. We're seeing a heck of a lot more print management activity and discussion with retailers as it relates to omni-channel. And omni-channel solutions, that continues to grow. We're going out there, and we're helping customers buy better and build smaller as they're faced with the issues that they're faced with, which again, I don't think there's another -- there's other competition where this can all take place underneath one roof.

[Charles Strauzer:]

Great. And then just going a little bit more micro into the trends you're seeing currently, and especially specifically in the kind of financial services area. The capital markets have been kind of active and you're starting to see more IPOs kind of coming out now. Are you seeing a pickup in that arena as well?

[Thomas J. Quinlan:]

I'll let Dan Knotts address that, Charlie.

[Daniel L. Knotts:]

Charlie, yes, the couple components to think about when we talk about our financial services business consist of the transactional element, which is the IPO, M&A-type activity, consist of the compliance, filings, and it also consist of our mutual fund and elements of our healthcare offering as well. But in focusing specifically on the transactional side, to address your question relative to IPOs, it was a strong quarter for IPOs being priced. We're very happy with our rate or level of participation in the IPOs that priced. And the second part of that, it was also a very strong quarter from an IPO in general, major S filings standpoint, which -- and we're also very pleased with our level of participation in the level of filings there as well, which on a going forward basis bodes well, always subject and continues to the dynamics, overall dynamics that are occurring in the financial markets. But IPOs priced were strong in the quarter. And from a filings standpoint, we're also strong, and we participated -- we were happy with our level of participation in both of those areas.

[Charles Strauzer:]

Great. And then, Tom, just a quick question on the CGX integration, you've had it for a few months now, any major surprises or challenges that you're facing?

[Thomas J. Quinlan:]

No, I think if anything, we went in with this -- with the belief that we needed to go ahead and let those facilities run locally. I think I've talked in the past how that was probably a decision that I made with our original Donnelley platform that probably wasn't the best. And I think what we're seeing is the engagement by the employees where they're seeing us to let them run their business, go after things has been beneficial. I think, they're excited about what they're seeing from the RR Donnelley platform. And again, we're only 2 months into this, 3 months into this at tops. So we're still going through things, but it's going to be a benefit for us. We're looking forward to midterm elections. Historically, Consolidated Graphics has had some good things take place. So having some fun there, and I'll let Dan Knotts contribute anything else.

[Daniel L. Knotts:]

Yes, I think the other thing to add there, we went into this thinking, as Tom just reiterated, all 4 elements of our go-to-market strategy, went into a thinking that Consolidated Graphics will be a perfect fit in all 4, selling individual products and services at the base level. Obviously, it extends our geographic reach and the capabilities we have to do that. I'm very pleased with the team, teams that are out there in those facilities and the approach and the business model that they have to doing that. I thought it would fit very well into helping to serve our enterprise accounts, in which we remain very bullish on that. I thought it fits very well into our market segment solution offerings, particularly in servicing retail, healthcare, financial services and still feel good about that, and also felt that it will play an important role in our global business solutions offering, particularly in the print management area, and we think still -- continue to think that is going to be an added benefit as well. So net-net, happy with the rate of the level of consolidation, the opportunities we're finding. I'm pleased with the consolidated teams that are out there across the country, are working very hard to help with an assistive integration and doing a great job with their local model that we continue to -- that we plan to continue to keep. So net-net, on track and still excited about the benefits that it will bring to RR Donnelley.

[Operator:]

Our next question is from Edward Atorino of Benchmark.

[Edward J. Atorino:]

Could you give us some details on -- is this Esselte? Am I pronouncing that right?

[Thomas J. Quinlan:]

You are, Ed.

[Edward J. Atorino:]

How big is it? How small is it? What does it do? What did you pay?

[Thomas J. Quinlan:]

Yes. So, Ed, it plays in the office products arena. A couple of brands that you may know, Pendaflex is one of their brands, Ampad and notepads, et cetera. From a size, it was a private company with -- and we're only purchasing the North American part. So reflective of our guidance going up by the $100 million or so is meant to account for Esselte. If we look at our guidance, at the midpoint of our guidance, our organic revenue growth is roughly flat. And so at the top end of our guidance, organic revenue growth is up just over 1% or so. And Esselte closed at the end of the quarter, so their results are not in this quarter's results. We're looking forward to bringing them on to the platform and having the results on a go-forward basis.

[Edward J. Atorino:]

Are you giving any numbers regarding the quote synergies from the consolidation of Consolidated Graphics?

[Thomas J. Quinlan:]

We haven't given specific figures other than to say that it was based on the cash that we paid. It was within our leverage target of the 2.25 to 2.75x, which, running the math there, they're $125 million or so of trailing 12-month EBITDA will get you there.

[Edward J. Atorino:]

Is there a number you could put on loss sales from the weather? I doubt that, but...

[Daniel N. Leib:]

No, tough to exactly quantify. We've certainly gotten through...

[Edward J. Atorino:]

A lot of companies felt it's hard to put a number, I know.

[Daniel N. Leib:]

Think bigger impact, Ed, on the cost side. So if you think about transportation and the like, as well as the production process, one of the benefits that we have having the robust platform and the breadth that we have is we've been able to make sure that our customers were well served even in times when we may have had an individual plant that was impacted. And so all of that was done and some of that resulted in excess cost for us.

[Operator:]

Our next question is from Michael Kass of BM Capital.

[Michael Kass:]

I was just hoping you'd go into a little bit more detail on the performance of financial services and Strategic Services? I think you -- during the call, during the comments, you said that revenues were down there, but then you talked about positive impacts from idea of pricing and registration. And then also curious on kind of the incremental margin there looked negative year-over-year. And I was curious if that was a function of the shift from financial to logistics? Or what really drove that?

[Thomas J. Quinlan:]

Yes, look, Mike, let me start off, and then Dan's going to jump in here. I mean, look, from the financial services standpoint, we continue to capture the largest deals, generating revenue gains in transactional and laying the groundwork for continued compliance work. The team's done a great job in Europe and Asia. Our business has significantly improved in the quarter. Our leaders continue to match cost to revenues. And over the past few years, that combined with the market improvement. And our team's selling has led to good things taking place from a financial services standpoint.

[Michael Kass:]

So was I incorrect in that -- were revenues for financial services up or down?

[Thomas J. Quinlan:]

So organic revenue in the financial services group was down 1.2% organically. And to your question on the services side, logistics was up close to 9% organically, digital and creative up 10% or so and sourcing up similarly 10% to result in a total Strategic Services group being up 5% or so.

[Michael Kass:]

Okay. So -- but just help me understand. If you're in a hot transactional market and you're doing well in terms of participation in it, why is organic revenue down 1.2%? What's offsetting that?

[Daniel L. Knotts:]

So I think -- I mean, this is Dan Knotts. Coming back to -- understanding all of the components excluding the financial services. So there's -- back to my earlier comments, there's a transactional element of this, which is really the IPOs and M&A activity that we're talking about that was strong in the quarter. There's a compliance aspect of this that includes the XBRL tagging in the phasing -- we're not phasing out, but more of the extended life of that, of the XBRL tagging and the bubble that came through there. There's the mutual fund healthcare space. It's got paper, change of paper, postage pricing elements in it as well. So the net result of that is strong performance. And transactional market's offset a bit by performance from the mutual funds in the compliance side of our business.

[Michael Kass:]

Okay. And were all those evenly weak offsetting? I'm just kind of curious if there's anything that was driving that? Is it the loss of -- the decline in XBRL tagging? Is it -- what is it?

[Daniel L. Knotts:]

I think, from the gains on the transactional business was up from the offsetting, it was about equal between mutual funds, compliance side, et cetera.

[Michael Kass:]

Got you. And then with respect to the margins, what was impacting margins on the kind of a year-over-year basis?

[Daniel L. Knotts:]

Yes, so I think if you look at the margin specific to the services group, there's certainly the mix that factors in. Also, if you look at, and we've talked pretty extensively on postage pass-through last year related to the presort acquisition that we did. So that's dollars that comes through as revenue with very little profit, if any. And then the other is on the cost of transportation. And so the weather-related impacts that you saw hitting the quarter were largely felt in our logistics offering.

[Michael Kass:]

Got you. That last part's very, very helpful. With respect to -- and then just shifting gears to Variable Print, was just curious if you could talk a little bit about the contribution of Consolidated Graphics in the quarter versus its performance last year? I'm just trying to understand the -- I know you're expecting kind of -- waiting toward the end of the year because of the election cycle, right, but I assume that wasn't impacting year-over-year. And I'm just curious how well -- what the business is generally tracking to versus the $1 billion or so that it did last year?

[Thomas J. Quinlan:]

Yes, sure. So we acquired it, acquired the business the end of January. So we had 2 months reflected in our quarterly results. If you look at the public numbers from Consolidated Graphics, last year, in the first quarter, you would see that the business was roughly $30 million or so of profit and February being the smallest month. So relative to synergy ramp-up, very little impact of synergies in those first couple of months, often running and taking actions, and so starting the flow-through towards the end of the quarter. And from a top line performance, the business is obviously impacted by some of the same weather-related to transactionally oriented business. But it did perform. And you can see from an organic perspective, the commercial and digital print as a unit organically was down 3%, 3.3%, which in the environment that we were operating in, we were pretty happy with.

[Michael Kass:]

So was -- if you look at kind of digital graphics top line, was it similarly down 3.3% like in that range or was it substantially more or less down than your comparable business?

[Daniel N. Leib:]

It is the majority of that. I mean, it's about -- the acquisition reflects about 2/3 of that grouping. So it's relatively similar.

[Operator:]

Our last question is from James Clement of Sidoti & Company.

[James Clement:]

Tom, I think most questions have been asked and answered, but I wanted to ask you one more with a little bit of a different slant. I think it's probably too early in the year to kind of figure out postal rate increase impact on some volume and printed products. But what I did want to ask you about is the last time we saw a big postal rate increase, RR Donnelley wasn't nearly as evolved as you are now on the front end in terms of print management and procurement, and on the back end in terms of logistics, presort, mailing, all those kinds of services. So when you see an increase like this, is this an opportunity to make a sales call to customers? Because obviously, their costs are going up and you can help get costs out. So over time, is this something that can actually be a catalyst to kind of win new business?

[Thomas J. Quinlan:]

Well, obviously, let's go back and talk about the USPS price increases first. I mean, look, what USPS is doing into the mailing industry, it's just not sustainable. There's significant cost increases that they've put through. They're shipping cost to the players in the mailing industry. And by that, I mean, they're shifting over the pallet preparation of the load-leveling. All these things, these are costs for the mailing industry that, quite frankly, we and other people like us have to go ahead and mitigate to our customers because our customers can't go ahead and aren't going to take the additional cost and look for people like us to, again, go ahead and mitigate those. You look at Ladies' Journal, Home Journal that was announced by Meredith earlier this week. I mean, 40% -- 47% of their cost was related to postage. It was nothing to do with electronic content. It was nothing to do with physical. It was due to how their distribution costs were. I think from where we come into play, and why we enjoy the platform we have, this management team looks at issues like this that we face with, to your point, as opportunities. We are looking at alternative delivery methods for content, for physical content. With the platform that we've built, with the footprint that it has, with the addition of Consolidated Graphics, we've got the ability to be in the majority of populated cities in the United States. We're going to have the ability to go ahead and deliver that physical content at the same time we're working towards being a major player in electronic content delivery. Representative is the -- in the house put a little piece of -- changed his bill last -- I think it was last week or earlier this week where he went ahead and said that his postal reform, he would like to see private delivery done on days that the USPS does not deliver mail. So obviously, that Sunday becomes open. And if they go from 6 to 5 and eliminate Saturday, Saturday becomes available. Someone like us with the platform that we've got, to your point, that creates an opportunity for us. And again, it's all about our customers and how can we make -- reduce their overall total cost, make them more efficient, those are opportunities for us. And every one of our -- as we talked about from a solution selling standpoint, with the platform that we built, which is again we don't think anybody else has, we can go ahead and offer them solutions to reduce their costs in this area. Print is going to continue to be a viable form of communications with consumers. It's not going away. So again, how can we when we're faced with some of these hurdles that have become -- that people put in front of us? How are we going to overcome those? And again, I think by the team next year, by the products and services and capabilities that we have, we're having those conversations. They're very important now because of the exigent rate increase that's under appeal by both the mailing industry and by both -- and the USPS. USPS feels it should be permanent. We're saying you shouldn't even have had the darn thing in place. And at $2.8 billion, I think, is what they're trying to recoup. They can't even come back to the PRC and say when they're going to recoup it. I think they were supposed to file that this week to them, and then they asked for a stay on, but they don't have to file how that's going to be made. So there's a lot going on in this part of the industry in the cost structure there. And again, I think we are more well-positioned than anybody else to go ahead and handle it. And again, we will handle it both from a physical standpoint and an electronic standpoint. Thanks, everybody. Look, we've got one quarter of the year completed. We feel we are well on our way to deliver the guidance that we announced to you today. And we hope everybody has a great day, and we'll talk to you again in 90 days. Take care.

[Operator:]

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