R. R. Donnelley & Sons Company
Q1 2015 Earnings Call Transcript

Published: 7 May 2015

[Operator:]

Welcome to the R.R. Donnelley First Quarter 2015 Results Conference Call. My name is Hilda, and I'll be your operator for today. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. Please note that this conference is being recorded. I will now turn the call over to Mr. Dave Gardella. Sir, you may begin.

[David A. Gardella:]

Thank you, Hilda. Good morning, everyone, and thank you for joining the R.R. Donnelley first quarter 2015 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'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. Good morning, everyone. While Dan Leib will go into more details in a few minutes, I want to make a few comments on our first quarter performance and also highlight specific examples where our go-to-market strategy is driving positive results across the company. While our first quarter organic revenue performance was essentially flat to last year, it reflects the success we're having executing the core elements of our strategy as we were able to offset the challenging macroeconomic environment that impacted demand in the quarter. Our go-to-market strategy continues to gain traction as we leverage our industry-leading platforms in support of our customers' evolving communications needs. As we described previously, we drive our business through four main approaches. First, we are leveraging our scale, market position, and geographic reach to aggressively pursue new sales opportunities across our industry-leading portfolio of products and services. Second, we're working closely with our large-enterprise customers to expand our position and provide a combination of our products and services in a customized and scalable way for their business. Third, we're delivering end-to-end solutions to vertical markets such as healthcare, retail and financial services, including workflow and other proprietary tools that help our customers more efficiently execute their communication strategies. And fourth, we are providing supply chain management and marketing communication solutions to increase the overall effectiveness of our customers' communications while reducing their operational costs. These four elements of our go-to-market strategy provide both the flexibility and structured approach needed to meet our customers' evolving multichannel communications requirements. So whether we are supporting a new customer or working with one with a longstanding relationship, we have a significant opportunity to expand our business due to our range of offerings and international resources that frankly no one else in the industry can provide. Let me share a few specific examples of our strategy at work. The first is within our global business solutions offering. R.R. Donnelley has managed the print supply chain for a particular customer in the automotive industry since winning this business in 2012. Our on-site team manages the sourcing process for all the customers' printing needs, providing transparency and cost savings to the bid-and-buy process, helping them identify and achieve the greatest cost and production efficiencies. In addition, we provide a suite of products and services offering from pre-media through postal coordination and logistics, saving the customer millions in postage costs. In just a few years, we've grown our share of wallet by 70% with this customer and have identified opportunities to provide additional services that we predict will drive future growth. Further, in recognition of our outstanding service in managing over 1,000 transactional print orders with superb execution, this customer recently honored R.R. Donnelley with an important services supplier of the year award. The second example is within our markets segment solutions offering that we developed for Wendy's, the national restaurant group. Wendy's indicated that with a complex system of more than 5,500 locations, they needed to rely on an organization that could provide more than just ink-on-paper. They selected R.R. Donnelley for our ability to deliver the combination of creative and design, physical production and customized solutions encompassing multiple products and services, including direct mail, local and regional print marketing, interior and exterior signage, point of purchase merchandising and gift cards, while also managing kitting and warehousing and providing synchronized fulfillment services across the country. Our state-of-the-art equipment and facilities demonstrated that we could bring a whole new level of capabilities to the table and in addition bring to Wendy's new and improved processes, materials and innovation in support of their communications requirements. This is a prime example of the impact and value that our unique combination of capabilities delivers for our customers and our business. Wendy's credited our innovation and technology, cost efficiency, scope of print capabilities, in-store marketing expertise and scalability as the contributing factors that drove expanding their business with us. In addition to the retail vertical, we are also having ongoing success in the healthcare vertical. As an example, one of our most significant healthcare clients needed to execute a large multimillion dollar complex regulatory mailing to all of its members, and they needed a trusted partner who had the expertise and firepower to complete the mailing within 30 days. We mobilized our teams from multiple platforms to develop an operating plan to work 24x7 at two facilities and simultaneously deployed numerous IT and technical teams in order to successfully complete the mailing on time and with outstanding execution. Additionally, we provided long-term digital storage of the communication piece for their customer service, legal and compliance teams. While our customer processing solutions proved especially effective handling this type of sensitive material in today's regulated healthcare environment, the work with this customer demonstrates our unique processing capabilities that can be successfully leveraged across multiple industry verticals like retail and financial services. The next area I'd like to touch on is enterprise accounts. As we have discussed previously, this go-to-market approach is structured around our large strategic accounts that have a high demand for a broader range of our products and services. We work closely with these customers to assess and identify opportunities for cost, process and delivery efficiencies and we then develop, implement and successfully manage the targeted strategy for each of these customers. I'd like to share two recent examples of how this strategy is contributing to the successful growth of our customer relationships due to R.R. Donnelley's unique ability to provide integrated solutions to multifaceted, complex challenges and deliver improved outcomes. First, a high-end pet food company that is a subsidiary of a much larger global parent turned to R.R. Donnelley to manage the print production for all its marketing materials that are distributed to their customers. Using our robust proprietary custom-buy solution, we delivered significant operational efficiencies in procurement and print production, helping to improve their speed to market while also delivering cost reductions. Due to this ongoing success in meeting their initial needs, R.R. Donnelley now has on-site specialists managing print production with our custom-buy solution for all the U.S.-based marketing initiatives with the subsidiary's parent company, a global consumer product conglomerate. This expanded company relationship is increasing our overall annual revenue with this particular customer by 40%. In addition, we find that our customers who utilize a very fragmented process to manage their communication needs are turning to us to help them gain efficiencies across their supply chain on a broader scale. For example, we have historically supported a national parts distributor with a catalog and promotional print materials for their four main business divisions. But today, they rely on R.R. Donnelley for everything from international packaging to forms and labels, commercial print, in-store marketing, print and fulfillment and distribution, sourcing and book and catalog production. They expanded this relationship with us because we were the only company able to fully assess and resolve their communications challenges applying our scale and resources to support all four of their main business divisions. We were able to help streamline their processes while delivering significant cost savings and, as a result, we have doubled our business with this customer. The very nature of these examples demonstrates how we are effectively executing our go-to-market strategies to provide comprehensive solutions in support of our customers' communication strategies. To that end, we continue to assist our customers in synchronizing their communication across multiple channels to help them strengthen bonds and create royalty with their customers and generate consumer responses that build business. Our success is and will continue to be best demonstrated by our ability to focus on our customers and our commitment to providing them with the most cost-effective integrated communication services that supports their success. And with that, I will turn it over to Dan Leib. Dan?

[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 first quarter results were in line with our expectations. Revenue of $2.7 billion represent a growth of 2.7% from the first quarter of 2014. The growth was primarily driven by the acquisitions of Consolidated Graphics and the North American operations of Esselte, both of which were completed in the first quarter last year, and was partially offset by a 200 basis point unfavorable impact of changes in foreign exchange rates. Organic revenue growth was essentially flat – a combination of organic growth in our Strategic Services and Variable Print segments, offset by declines in the Publishing and Retail Services and International segments. First quarter gross margin was 21.1%, 78 basis points lower than the first quarter of last year, primarily due to price erosion across all segments; wage inflation, primarily in Latin America and Asia; and volume declines in Publishing and Retail Services. The unfavorable impact of these items was partially offset by cost-control initiatives across the company and a favorable business mix. SG&A expense in the quarter as a percentage of revenue was 11.7%, or 12 basis points higher than the first quarter of 2014, primarily due to an unfavorable mix of business and higher bad debt expense, partially offset by the impact of the 2014 acquisitions and lower incentive compensation expense. First quarter non-GAAP adjusted EBITDA was $259.3 million compared to $276.5 million in the first quarter of 2014. Non-GAAP adjusted EBITDA margin in the quarter of 9.4% decreased by 90 points from the first quarter of last year. Similarly, first quarter non-GAAP operating margin of 5.3% decreased by 71 basis points from the first quarter of 2014. Our non-GAAP effective tax rate in the quarter was 33.9%, or 240 basis points higher than the first quarter of 2014. 2014's lower tax rate included a discrete benefit for the reorganization of certain international legal entities. Now I'll discuss revenue and non-GAAP adjusted EBITDA performance for each of the segments in more detail. Revenue in our Strategic Services segment was $667.3 million in the first quarter of 2015, an increase of 7.7% from last year's first quarter. The strong performance was driven by logistics, which had another solid quarter of organic growth despite lower pass-through revenue related to declining fuel prices that had a negative impact on revenue of approximately 260 basis points; our Sourcing business, which reported organic growth of 25.9%; and financial print, which reported organic growth of 2.9% driven by another quarter of growth in our global investment markets offering. Non-GAAP adjusted EBITDA margin of 11.2% for the Strategic Services segment decreased by 62 basis points from the first quarter of 2014, primarily due to an unfavorable mix of revenue, lower volume in digital and creative solutions and higher cost of transportation, partially offset by our ongoing productivity initiatives. Revenue in our Variable Print segment was $948.8 million, an increase of 19.8% from the first quarter of 2014 due primarily to the acquisitions of Consolidated Graphics and the North American operations of Esselte. On an organic basis, year-over-year revenue increased 0.8%, driven by increased volume in our office products, statement printing, direct mail, and labels offerings, partially offset by volume declines in commercial and digital print and forms, as well as lower pricing across the segment. The segment's non-GAAP adjusted EBITDA margin of 11.6% in the first quarter declined 44 basis points from the first quarter of 2014. Unfavorable pricing and the addition of the acquired businesses that historically carried a lower margin were partially offset by higher volume and our productivity initiatives, including cost savings achieved in connection with our 2014 acquisitions. First quarter revenue in our International segment was $556.2 million, declining by 10.2% from the first quarter of 2014, largely a result of unfavorable changes in foreign exchange rates. After adjusting for the unfavorable impact of changes in foreign exchange rates and dispositions completed during 2014, as well as the favorable impact from acquisitions and pass-through paper sales, organic revenue decreased 0.8%, with approximately 190 basis points of the decline due to the unstable economic environment and associated currency devaluation in Venezuela. The unfavorable impacts of Venezuela and price pressure across the segment were partially offset by volume increases in global turnkey and Asia. The non-GAAP adjusted EBITDA margin in the segment of 7.5% was 173 basis points lower than the 9.2% in the first quarter of 2014. Margin was negatively impacted by an adverse business environment in Venezuela, wage and inflationary pressure, price erosion and changes in foreign exchange rates. These impacts were partially offset by productivity initiatives across the segment. With respect to my comment on the business environment in Venezuela, I should note that on April 29 we exited our business in Venezuela, which consisted of a majority-owned investment in a joint venture. Cash proceeds were de minimis and we will recognize a non-cash net loss of approximately $15 million in the second quarter of 2015. Revenue in our Publishing and Retail Services segment was $573.8 million, representing a decline of 10.7% from the first quarter of last year. 290 basis points of the decline related to lower pass-through paper sales, resulting in an organic year-over-year decline of 7.8%. We experienced volume declines in each of our reporting units within the segment as well as continued price pressure, primarily in magazines, catalogues and retail inserts. Non-GAAP adjusted EBITDA margin for the segment was 8.8%, declined 186 basis points from the first quarter of 2014 as a result of price erosion and lower volume. First quarter 2015 non-GAAP unallocated corporate EBITDA was negative $17.4 million, flat to the first quarter of 2014. Free cash flow in the quarter was negative $192.8 million, or $63.4 million lower than the first quarter last year. Relative to last year's first quarter, the decrease is primarily due to working capital being a higher use of cash, higher incentive compensation payments related to 2014 plan achievement, and the $10 million break fee payment associated with the acquisition of Courier Corporation. As we noted on our fourth quarter call, we had very strong working capital performance at the end of 2014 which represented a favorable timing shift that benefited 2014 and that would negatively impact the first quarter of 2015. On a like-for-like basis, adjusted for the impact of the Consolidated Graphics and Esselte acquisitions, our controllable working capital rate, which we define as accounts receivable plus inventory less accounts payable, was 13.5%, an increase of 20 basis points compared to the first quarter of 2014. First quarter capital expenditures were $48.5 million, flat to prior year. As of March 31, 2015, our gross leverage was just under 3.0 times, up 0.1 times from the year-end 2014 and down from a year ago by 0.4 times. As has been the case for the past few quarters and will be the case for a few more quarters, our reported leverage remains slightly elevated as the impact of our 2014 acquisitions are fully reflected in our debt levels but the base EBITDA and synergies are not yet fully reflected in the income statement. We continue to target gross leverage in the range of 2.25 times to 2.75 times on a long-term sustainable basis and expect that we will continue to reduce our leverage as we incorporate the acquisitions into our results. We ended the quarter with $1.3 billion of net available liquidity with nothing drawn on our $1.5 billion revolving credit facility. Our next term debt maturity of $200 million is due next week and we plan to draw on our revolving credit facility to pay that down. From 2016 to 2018, our average maturity is $240 million with the highest maturity of $251 million due in January 2017. As of March 31, 2015, our term debt is approximately 95% fixed at an average interest rate of 7.3%. As highlighted in this morning's press release, we are reiterating the full-year 2015 guidance that we previously provided. While there is no change to our guidance, I will recap our expectations, all of which exclude any impact of the pending acquisition of Courier Corporation. We expect revenue in the range of $11.7 billion to $11.9 billion. At the midpoint, this implies modest organic revenue growth for the year. We expect our non-GAAP adjusted EBITDA margin to be in the range of 10.3% to 10.5%. Depreciation and amortization is expected to be in the range of $455 million to $465 million. We expect interest expense in the range of $265 million to $275 million. We expect our full-year non-GAAP tax rate to be in the range of 33% to 34%. We project the full year fully diluted weighted average share count to be approximately 202 million shares. We 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. Before I turn it back to Tom, I want to point out a few items as it relates to our guidance. First, as I noted earlier, the guidance I just walked through does not include the impact of the Courier acquisition. In addition, we experienced significant top-line headwinds related to changes in the foreign exchange rates in the first quarter and we'll have a better sense of how foreign exchange rates will impact the full year after the second quarter. Therefore, we intend to provide guidance that reflects the impact of each of these items when we announce second quarter results. Most importantly, our revenue guidance continues to imply modest organic growth for the year. And with that, I will turn it back to Tom.

[Thomas J. Quinlan:]

Thanks, Dan. As an industry leader, we are working every day to anticipate the shifts in a dynamic marketplace and to build and provide solutions to meet an ever-changing demand for integrated communication services. We continuously work to refine and improve our processes, our service and our innovation, all while developing new products, services and workflow solutions to support the needs of our customers. As part of this effort, you will recall that we announced in February the pending acquisition of Courier Corporation, a leader in digital print, publishing and content management. We expect the transaction to close shortly after the Courier shareholders vote, which is now scheduled for June 5. In the meantime, we continue to look forward to the complementary capabilities Courier will bring in delivering enhanced efficiency and speed to market for our customers. Lastly, before we open it up for questions, I'd like to highlight an important recognition that R.R. Donnelley received last week. For years, R.R. Donnelley has probably been included in various InformationWeek listings that highlighted companies with achievements in innovation and technology. R.R. Donnelley is honored to be recognized again this year by InformationWeek, ranking number 47 on its prestigious Elite 100 list that recognizes business technology innovators that are changing the competitive landscape through practical, measurable uses of technology that drive real business value. This ranking not only validates our commitment to technology innovation, research and development but also that we are implementing our technology solutions effectively, delivering value to our customers and therefore to our shareholders as well. And now, operator, with that, let us open it up for questions.

[Operator:]

Thank you. We will now begin the question-and-answer session. We have a question from Charles Strauzer from CJS Securities.

[Charles Strauzer:]

Hi, good morning.

[Thomas J. Quinlan:]

Good morning.

[Charles Strauzer:]

Tom, picking up on your talk about kind of the customer side and what you're seeing there, if you can talk a little bit more about the demand and then what's feeding into potentially seeing some organic growth this year from the customer perspective. What are the things you're seeing there that kind of gets you a little bit more excited about the rest of the year?

[Thomas J. Quinlan:]

Sure, Charlie. Thanks. I mean, by evidence of by almost every business that so far has reported to date, I mean top-line growth is almost non-existent. GDP was 0.2% and it's the primary reason businesses did not grow the top line this past quarter. But I would tell you the conversations that we're having with our customers, it's all about their customer being more central to every part of their communication decisions and our customers' customers demanding more than ever before. So this is exciting for R.R. Donnelley. It's a massive opportunity for R.R. Donnelley to help our customers redefine their businesses and the way they do things. It's not an easy task for us. There is lots of complexity, needs on the part of our customers. But this is a critical role for a trusted advisor, which R.R. Donnelley is. If you think about as these markets evolve, we've been proactively scaling, elevating and diversifying our product offering. We've talked at great length how we were north of 70% in the Publishing and Retail Services segment and now we're approximately 25%. As we talked about last year at the Investor Day, the growth engines for us are powered by Variable Print, Strategic Services and International segments. Dan alluded to that today to when you looked at where the organic growth was coming from. But the Publishing and Retail Services segment, the organic dynamic is tough there, given where the economic cycle is, given how advertisers advertised in the first quarter. But we are fortunate because we have solid customers in every imaginable way possible there and the focus for us there is continuing to lower their costs, provide innovative solutions and margin protection, which we're doing and we will continue to do. I think the other segments that I talked about, they are more tied to us being an integrated communication service provider and our go-to-market strategy reflects how customers are buying now and how we believe they are going to buy in the future.

[Charles Strauzer:]

And kind of picking up on that theme, we're now a year removed from that Analyst Day last year when you kind of laid out the longer-term vision, gave us some more insight into the moving pieces of the business. And you kind of set a path towards some sort of an inflection point where the growth drivers of the business should start to more than offset the more secularly declining businesses. Can you kind of give us an update of where we are a year later and where does kind of integrated communications kind of play into that? And maybe give a little more color behind integrated communications as to really what's behind the scenes there.

[Thomas J. Quinlan:]

Sure, I'll kick it off and then Dan Knotts will then follow up on me. But look, we're still evolving into an integrated communications service provider, which is a good thing for all of our stakeholders. Success is never final. We've made tremendous progress. And we are really seeing the benefits of this strategy. And if you remember, Charlie, the strategic rationale for doing this was that the integrated approach delivers absolutely better value and return on investment for our customers. The customers want us to move in this direction. Being an integrated communication service provider further differentiates us from competitors that have less complete or integrated offerings, and this differentiation will drive above-market growth and profits as customer realize the benefits to them of this approach. The customers that are involved in this, the ones that we target, is for any business who view their communications process as a source of competitive advantage and differentiation; thus it's those businesses trying to drive top-line and bottom-line growth. And when you – that's also every customer that's out there, every business that's out there trying to look to do that. We're also looking at customers that are looking to increase customer or employee advocacy. When I talk today about the technology awards that we're receiving and the recognition, we're able to offer those integrated solutions because of the technology offering that we're bringing to their market. And it doesn't only have to be on our assets. It can be on our assets, it can be a mixed of owned properties, partnerships with third parties. So the foundation for all of this is how we go to market, which I talked about in the prepared remarks.

[Daniel L. Knotts:]

And Charlie, it's Dan Knotts. I would just add to that, the heart of our integrated communication services provider approach really is focused on – and it starts with the changing preferences and expectations that we as individual consumers, all of us, have relative to how we want to be communicated with primarily because of the ongoing advancements in technology and how we're using them. And what that's doing is driving an increased complexity for our customers in terms of the different channels they have to utilize and the combination of channels they have to utilize to be able to reach and connect with us as ultimately their end consumers. So if you think about the multi – when people talk about multichannel communications or omni-channel communications through the use of both print and digital, our customers are challenged with the deployment of social media, with digital ads, with websites, with print, and as a result of that have had to dramatically increase the number of suppliers, the number of systems, some cases the number of internal spreadsheets, the number of internal processes, the number of internal controls, the number of people they have to manage it, all of which have the potential to increase their cost structure. So what they look at, how do I more effectively communicate with my targeted audiences in the most cost-efficient manner? That's exactly how we're setting up Donnelley to be positioned to be that provider that provides them with the flexibility and the broadest platform of integrated products and services that allows them to most cost-effectively reach their end consumers given the individual preferences of those end consumers. And I think, for the excitement question, the excitement comes from the fact that, as Tom talked about our go-to-market strategies, we're absolutely positioning ourselves at the base level to effectively compete with those customers who want to continue to buy individual products and services on a more transactional-type basis and being able to effectively compete with the competitive landscape, the competitors in that particular landscape. For those customers who want to drive their – or leverage their scale to buy more efficiently – our ability to work closely with them all within the structure and processes that they currently have today, we're well positioned to do that. As we think about the third one, which is the go-to-market approach, our ability to begin to change the conversations with those customers because we're providing them with solutions and alternatives primarily on the workflow side, that allows them to change the way that they do a business and drive the communications effectiveness. And then last but not least, on the global business solutions side, for those customers who don't – it's not their core competency to manage their supply chain and the overall communication spend – we feel very good about the traction we're getting with those customers as well as they look out towards more of that to a single-source provider, and that's where Donnelley can step in in that area as well.

[Charles Strauzer:]

Great. Thank you very much.

[Thomas J. Quinlan:]

Thanks, Charlie.

[Daniel L. Knotts:]

Thanks, Charlie.

[Operator:]

The next question comes from James Clement from Macquarie. Please go ahead. James Clement - Macquarie Capital (USA), Inc. Gentlemen, good morning.

[Thomas J. Quinlan:]

Good morning.

[Daniel N. Leib:]

Good morning, Jamie. James Clement - Macquarie Capital (USA), Inc. Right, I'm not sure who this question should be directed to but looking at your Strategic Services segment, specifically the logistics business. You all spoke throughout last year about higher transportation costs. Obviously, the spot market was really, really tight – tight capacity. It seems like there may be some evidence that that may be loosening up a little bit here. I don't think you would have necessarily benefited from it in the first quarter just yet, but if that trend is for real and continues through the course of 2015, could that be a meaningful benefit for you all?

[Daniel N. Leib:]

Yes. Thanks, Jamie. It's Dan Leib. There's three factors that drive the COT rate. There's the market rate, there is our mix, and then there is our efficiency in loading. And so if we focus on the market rate, obviously a variety of different types of transportation, but first quarter market rate was up about 3%. And we believe, as we look at the back nine months of the year and the impacts that drive that market rate, that it should continue to be up in about that same range. Certainly, if things loosen up a bit from a capacity perspective, that would be a benefit for us. James Clement - Macquarie Capital (USA), Inc. Just put the 3% in context, what kind of rates were you seeing in terms of the increases in, let's say, Q3 and Q4 last year?

[Daniel N. Leib:]

Yeah. They were more substantial. James Clement - Macquarie Capital (USA), Inc. Like potentially double?

[Daniel N. Leib:]

Yes, that's fair. James Clement - Macquarie Capital (USA), Inc. Okay, okay. Next question, in the press release, it alludes to the quarter getting stronger as it went along. That is – it seems like over the last couple of years – that's been kind of a comment out of you guys as well as some other folks in the industry. I am wondering if you all might think that there maybe has been a permanent seasonality shift, perhaps a little more out of the first quarter and maybe a little bit more business into Q3 and Q4.

[Thomas J. Quinlan:]

Hey, Charlie – sorry, Jamie – I would tell you that you're absolutely right. The last couple of years it's sort of déjà vu. The first quarter gets off on a tough note. Look, is it weather? Is it other factors that are within the economy that are taking place after you finish the holiday season? We've got to do some more digging into that, but there's definitely been a trend where the last couple of years we started off this way. And then obviously, we've bounced back in a great way for the rest of the year. So as I sit here today do I sort of see that same scenario playing out? Yes. I mean, that's why we came back and reiterated our guidance that we have today. But it is interesting, again whether it's the brutal winter that the United States has been experiencing over the last couple of years that lowers consumer spending or is there something else that's taking place. But I think with our customers – again, as Dan Knotts talked about, print and digital is still going to be an important way for them to communicate with their customers and to drive revenue. I think people are seeing, when you don't utilize print, there are some negative ramifications that take place. So there's some more certainty going on there and we're expecting, again, as temperatures across the country start to improve, we think we'll see consumers start to go out and be more vocal in what they're doing with their disposable income. James Clement - Macquarie Capital (USA), Inc. All right, good. Thank you all, as always, for your time.

[Thomas J. Quinlan:]

Okay. Operator, we've got time for one more.

[Operator:]

Thank you. It comes from Michael McCaffery from Shenkman Capital.

[Thomas J. Quinlan:]

Hi, Michael.

[Michael Francis McCaffery:]

Hey. How are you? Thanks for taking the question. Just I wanted to clarify just from the last question that you saw sequential improvement throughout Q1. Thus far, a month into Q2, has that continued?

[Daniel N. Leib:]

Yes. Yeah, obviously the months are different sized. Seemingly within each quarter the first two months are substantially smaller than the third. But we have continued to see some good performance as the quarter went on in Q1 and then also into the first month. We're obviously – our results are not final in the month of April. We're still doing our final consolidations.

[Michael Francis McCaffery:]

And can you just comment on the level of visibility you have in the business now versus maybe at this point in time a year ago?

[Daniel N. Leib:]

Sure. Yeah, I think from – versus a year ago, not much change from a visibility perspective. This business remains, even where we have contracts on the print side, it's the permission to print as well as the obligation to serve the contract. But it's not a guaranteed volume, for the most part. So we are in some offerings much more highly related to GDP. Tom mentioned U.S. GDP up 0.2%, which mirrors our results, and then you look by product line and the financial business, obviously driven by the financial markets, et cetera. But from a year-to-year type of change, no real change from a year ago.

[Thomas J. Quinlan:]

And Michael, what I would tell you is our customers have gotten so much better at turning on spend and turning off spend. They're not, to coin the phrase, a canary in the coal mine for our industry couple of years ago, especially for us because of what we're dealing with now with our customers on a daily basis. We used to lag going into a downturn and lag coming out, and now we're sort of – we think we are right on top of what's taking place in the economy and we're a good barometer of what's going on as it relates to consumer spending.

[Michael Francis McCaffery:]

Okay, great. Thank you very much.

[Thomas J. Quinlan:]

Well, look, as we close today's call, I hope it came through loud and clear that we are well positioned to continue to move forward, no matter what the economic climate is. R.R. Donnelley continues to evolve the supply chain and make our customers' communications more cost-effective, more powerful and more targeted as we continue to remain good fiduciaries for all of R.R. Donnelley's stakeholders. And with that, I thank you for spending time with us today, and we look forward to speaking with you again in a few months. Take care.

[Operator:]

Thank you. Ladies and gentlemen, this concludes today's conference. We thank you for participating. You may now disconnect.