R. R. Donnelley & Sons Company
Q4 2015 Earnings Call Transcript

Published: 25 Feb 2016

[Operator:]

Welcome to the R.R. Donnelley Fourth 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’ll now turn the call over to Mr. Dave Gardella. Mr. Gardella you may begin.

[Dave Gardella:]

Thank you, Hilda. Good morning, everyone, and thank you for joining R.R. Donnelley’s fourth 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 are joined this morning by Tom Quinlan, Dan Leib, Dan Knotts and Drew Coxhead. I’ll now turn the call over to Tom.

[Tom Quinlan:]

Thank you, Dave, and good morning, everyone. I’ll begin by commenting on our fourth quarter and full year 2015 performance, and then provide an update on the progress we were making on the strategic transformation we announced this past August to separate R.R. Donnelley into three independent public companies. I’ll also briefly highlight a few of 2015’s accomplishments and after that I’ll turn it over to Dan Leib to discuss our financial performance in detail. From a top line perspective, the demand environment remains challenging in the fourth quarter with the organic revenue trend improving modestly than what we experienced in the third quarter. As we did in the previous two quarters, we once again expanded non-GAAP adjusted EBITDA margin from the same period in 2014. Fourth quarter 2015 margin was a 11.2%, an improvement of more than 50 basis points from the fourth quarter of 2014. In addition, we delivered free cash flow of $444 million for the year, near the midpoint of the guidance that we had provided throughout the year, and ended 2015 with leverage of 2.8 times just above the top end of our targeted range of 2.25 times to 2.75 times. Now, let me provide an update on our spinoff activities. Since this management team came onboard in 2004, our strategy to acquire, invest and develop new capabilities and technologies has been in direct response for the needs of our customers. The successful execution of this strategy has positioned us to drive further value by establishing three independent companies that will serve the needs of our customers with robust product and service platforms, specialize expertise, and innovative technologies. We continue to make good progress on the execution of the spinoff transactions and we are taking all steps necessary to standup these three independent companies to continue to exceed customer requirements from day one. We are firmly committed to serving all customers without disruption. Earlier this month, the names of the three businesses were selected. The company referred to as PRSCo, will be named LSC Communications. This name is derived from the Lakeside Classics’ publication that has been presented annually since – I’m sorry, since 1903 to our customers. Richard Robert Donnelley’s son, T.E. Donnelley, began this gesture of customer appreciation, and this name was selected in reorganization of R.R. Donnelley’s rich history. LSC Communications will continue a successful history of printing books, magazines, catalogs, retail inserts, directories, and supplying office products to retailers. LSC will be a global $3.5 billion revenue company with over 20,000 employees serving the needs of publishers, merchandisers and retailers with the portfolio that includes traditional and digital print production, content management, fulfillment, distribution, office products, and supply chain management services. LSC Communications will bring value to the market place by offering these products and services in combination with innovative workflows, design to offer customer’s leaner, more flexible supply chain solutions, and greater operational efficiencies. The company previously referred to as FinancialCo has been named Donnelley Financial Solutions. Donnelley Financial Solutions will be a $1 billion top line, financial communications company with more than 3,000 employees and operations in North America, South America, Europe, Asia and Australia. With extensive investments in technology workflow solutions, Donnelley Financial Solutions will specialize in producing and distributing documents and electronic communications, destined for shareholders, regulatory bodies and investors. They are powerful solution streamline customers process, support regulatory compliance and help manage the increasing challenges of financial reporting worldwide. Donnelley Financial Solutions’ broad and extensive capabilities will create value for clients and position this company as a leader in the field to financial communications. The company referred to as CMCo, will continue to be named R.R. Donnelley & Sons Company, and go to market as RRD. With approximately $6.8 billion in revenue and over 42,000 employees worldwide, R.R. Donnelley will be positioned as the premier communications management company that assist organizations to create, manage and execute their highly targeted and fully integrated multichannel communication strategies. R.R. Donnelley will help these organizations more effectively connect with their audiences and provide efficient communication solutions that reduce cost, shorten time to market, and create stronger brand integrity. RRD will continue to be well positioned to support customers with technology leading solutions across the entire breath of the communication supply chain. Each of these companies will remain committed to three key tenants. They will maintain strong industry leadership by providing innovative products and services. They will operate with a laser-focused on customers and quality. And they will remain committed to operating safely and with integrity. Additional information on the structure, management of these companies will be provided in the Form 10 registrations, statements that we intend to file in late March. Importantly, we continue to be on track to complete the strategic separations in October 2016. At this point to provide added insight into the work we do to meet the needs of an ever changing marketplace, I’d like to share some examples of the recent solutions we’ve developed on behalf of our customers. Our investments and innovation combined with our expertise in driving efficiencies, positioned us to address a unique opportunity to make a significant impact on the supply chain operations of an existing R.R. Donnelley customer. On January 12, we announced that we entered into an agreement with Pearson, an industry leading company in education, business, and consumer publishing, to provide complete supply chain management of Pearson’s learning materials. Our role includes procurement, manufacturing, distribution, and warehouse management for all of Pearson’s North American operations. This innovative and scalable supply chain solution is unprecedented in our respective industries. Expanding on a 30-year relationship, R.R. Donnelley will integrate print, warehousing fulfillment, and supply chain management activities into a single workflow design to provide significant efficiencies across the entire supply chain process, and support and enhance Pearson’s speed to market. Going forward, our extensive asset base and infrastructure will allow us to leverage our comprehensive platform of products and services in full support of Pearson’s growth strategy. We are confident that this expanded relationship will create strategic synergies for both of our organizations. Along with supporting our customers efforts to bring additional efficiencies to the supply chain, we help customers identify and implement new integrated communication strategies that strengthen their connections with their audiences. For example, this past month, R.R. Donnelley signed a multi-year agreement with an existing customer to manage the critical marketing communications services they provide to their clients. As a leading multinational financial services company, this customer provides clients with investment management, mutual funds and online brokerage support. They consider client communications to be a critical importance and had embarked upon a major initiative to identify strategic alternatives specific to their outbound marketing communications operations. R.R. Donnelley were closely with this customer to develop a solution that went beyond the transitional change from one vendor to another. We propose a transformational change to take their existing programs to a new level. A key objective was to enable and incorporate digital experiences into their communications and enhance personalization. Our solution included maximizing multicolor Variable Print using our proprietary ProteusJet print technology, implying QR codes that take the reader to embedded videos, and accomplishing an overall integration of their printed and digital communications. Their outbound client communications will be strengthen by employing highly personalized, on-demand marketing communications integrated across direct mail, annual enrollment kits, and guidance and compliance mailings including 401(k) and associate payout checks processing. Our comprehensive solution leverages R.R. Donnelley operations from across the U.S. including commercial print, transactional print, fulfillment, kitting and distribution. And it is complemented by an on-site team of highly trained R.R. Donnelley project managers that will use our proprietary procurement tool custom by to guide all aspects of this enhance communications services workflow. We rewarded this opportunity based on our ability to support a fully integrated, highly personalized print and digital communication strategy, while also generating new cost efficiencies and effective process controls. We are honored that our customer expanded the relationship and placed their trust in us to manage and fulfill such critical client communications. Our ongoing focus on the retail segment and in-store marketing, offering recently present us with an opportunity to work with a major national retailer, exploring new ways to improve their customers in-store experience, as well as gain transparency and cost control over their in-store marketing efforts. Levering R.R. Donnelley’s existing in-store workflow technology, we proposed a solution unique to this retailer that supports all of their stores visual merchandisers and marketing promotion managers with a single fully integrated end-to-end workflow. Our solution features a technology system that covers the entire in-store marketing and visual merchandising process, and offers the ability to view and dynamically change all elements of an in-store campaign from one customizable dashboard. R.R. Donnelley’s workflow tools offer complete visibility into every cost factor of our project and provides data that is critical to driving efficiencies, effectively leveraging internal resources, and optimizing the lifecycle of a marketing campaign. This retailers in-store marketing programs had been using multiple agencies and print vendors, requiring time consuming coordination across numerous touch points. The in-store workflow technology we introduced to this customer provides visibility into all aspects of a project and can be used to analyze production details to ensure their production best fit each application. The redesigned workflow and centralized management we propose, supports the retailers overall brand strategy, by providing consistency across each marketing campaign, including the visual aspects of the in-store experience itself. R.R. Donnelley’s proposed solution also introduced opportunities for freight optimization by identifying maximizing the number of shipments that could be delivered direct to stores. In the past, delivery direct to stores was difficult to accomplish due to the need to consolidate materials and confirm the level of quality being produced by multiple printers before the items reach the stores. R.R. Donnelley was awarded this business based on our ability to provide an end-to-and integrated solution that spans the retail market and visual merchandising project continuum. Our innovated and enhanced workflow solution takes the time and labor intensive task associated with campaigns and streamlines the entire in-store marketing and visual merchandising process. This allows retailers to redirect their internal resources further upstream to focus on future planning activities, and most importantly, provide their customers with an enhanced in-store experience. This past year also brought additional industry recognition that speaks to R.R. Donnelley’s commitment to quality, technical excellence and creativity. R.R. Donnelley was recognized with 37 awards in the 2015 Gold Ink Award competition, one of the printing industries most prestigious competitions. Winners were selected from approximately 1,000 entries submitted in nearly 50 different categories. And Sappi’s Printer of the Year competition, nine of our commercial print facilities received gold awards and seven facilities received silver. Also this past year, the Gravure Association of the Americas presented R.R. Donnelley with four coveted Golden Cylinder Award. Complementing our achievements in quality and creativity, R.R. Donnelley’s approach to innovation continues to produce marketable intellectual property that creates significant value for our customers. Our patented capabilities in areas such as print and electronics, radio frequency identification tags, variable video for digital campaign management, and high speed digital color printing, once again let us to be named to the Ocean Tomo 300 Patent Index, a recognized measure of the value of innovation. Also this past year, R.R. Donnelley ranked again on the InformationWeek Elite 100 list, a prestigious ranking designed to honor innovative organizations that are applying technology in creative and unconventional ways to deliver extraordinary business value. As you can see from these examples, we provide our customers with highly impactful solutions that support their multichannel communication strategy, generate greater operational efficiencies, help them create and competitive advantage, and connect with their audiences in a meaningful way. And with that I will now turn it over to Dan Leib. Dan?

[Dan 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 fourth quarter and full year. As highlighted in this morning’s press release, despite a continued challenging demand environments, our results were favorable to more in line with our previous guidance. We are pleased with how we closed out the year. Fourth quarter revenue of $2.9 billion represented a decline of 4.4% from the fourth quarter of 2014, adjusting for a 220 basis point unfavorable impact of changes in foreign exchange rates, as well as the impact of acquisitions, dispositions and pass-through paper, organic revenue declined 2.8%. Volume declines in the Variable Print and Publishing and Retail Services segments, as well as continued price erosion across each segment were only partially offset by volume increases in our Strategic Services and International segment. Fourth quarter gross margin was 22.1%, 38 basis points higher than the fourth quarter of last year, driven by cost control initiatives across the company, the impact of the Courier acquisition and the positive margin impact from changes in foreign exchange rates, partially offset by volume declines and price erosion. SG&A expense in the quarter was $320.5 million. As a percentage of revenue, SG&A was 10.9% or 18 basis points lower than the fourth quarter of 2014, driven by lower variable compensation expense and lower bad debt expense, partially offset by negative operating leverage related to the decline in revenue. Our fourth quarter non-GAAP adjusted EBITDA was $329 million, compared to $326.9 million in the fourth quarter of 2014. Non-GAAP adjusted EBITDA margin in the quarter of a 11.2%, increased by 56 basis points from the fourth quarter of last year. Similarly, fourth quarter non-GAAP operating margin of 7.4%, increased 5 basis points from the fourth quarter of 2014. Our non-GAAP effective tax rate in the quarter was 31.8% or 905 basis points higher than the fourth quarter of 2014. This increase was primarily a result of the low rate that we reported in the fourth quarter of 2014, which reflected an extension of the expiration of a portion of our investment credits. Now, I’ll discuss revenue and non-GAAP adjusted EBITDA performance for each of the segments in more detail. Fourth quarter revenue in our International segment was $609.5 million, declining by a 11.2% from the fourth quarter of 2014. More than all of the decline was a result of unfavorable changes in foreign exchange rates and the disposition of our operations in Venezuela. On an organic basis, we achieved positive revenue growth of 0.8%, as volume increases in Asia, Canada and Latin America, offset declines in Global Turnkey, European business process outsourcing. The non-GAAP adjusted EBITDA margin in the segment of 11.1%, improved to 154 basis points from the fourth quarter of 2014, driven by productivity initiatives across the segment, the positive margin impact from changes in foreign exchange rates and lower bad debt expense, which were partially offset by wage and inflationary pressure, primarily in Asia and Latin America and price erosion. Revenue in our Strategic Services segment was $677.4 million in the fourth quarter of 2015, an increase of 1.2% from last year’s fourth quarter. On an organic basis, year-over-year revenue was up 0.3%, despite a negative impact of declining fuel prices, which negatively impacted segment’s organic revenue by approximately 315 basis points. Similar to the last quarter, logistics organic revenue growth in the quarter was 0.9%, driven by higher volume and freight brokerage services and pass-through postage, partially offset by a decline in fuel prices, which negatively impacted revenue growth by approximately 675 basis points. Our digital and creative services offering reported organic growth of 14%, driven by higher volume of adult coloring books. In our financial offering, the overall organic decline was 0.9%, driven by soft domestic capital markets volume that was partially offset by higher activity in the overseas capital markets. Non-GAAP adjusted EBITDA margin of 12.8% for the Strategic Services segment, increased by 21 basis points from the fourth quarter of 2014, primarily due to our ongoing productivity initiatives and a lower variable compensation expense, partially offset by last year’s gain on an asset disposal. Revenue in our Publishing and Retail Services segment was $681.3 million, a decrease of 0.2% from the fourth quarter of last year. After adjusting for the impact of the Courier acquisition, as well as a 310 basis point decline related to lower pass-through paper sales, organic revenue declined 4.9% year-over-year, primarily due to lower volume and continued price pressure. Non-GAAP adjusted EBITDA margin for the segment of 10.6%, increased 74 basis points from the fourth quarter of 2014, primarily as a result of the impact of the Courier acquisition, ongoing productivity initiatives and lower variable compensation expense, which were partially offset by lower volume and price erosion. Revenue in our Variable Print segment was $966.4 million, a decrease of 6.2% from the fourth quarter of 2014. On an organic basis, year-over-year revenue declined 5.8%, driven by lower volume across most of the segment. Commercial and digital print experience continued volume declines in part due to election related revenue in the fourth quarter of 2014, while the decline in forms volume also continued. Label’s organic decline in the quarter 5.5% was driven by lower commodity volume, which was partially offset by volume growth and higher value label products. The segment’s non-GAAP adjusted EBITDA margin of 11.8% in the fourth quarter, declined 106 basis points from the fourth quarter of 2015, driven by lower volume. Our fourth quarter 2015, non-GAAP unallocated corporate expenses were $11.2 million, representing a 50% reduction compared to the fourth quarter of 2014, primarily due to a lowered LIFO inventory provision and lower variable compensation expense. Free cash flow in the quarter was $393 million or $16.7 million lower than the fourth quarter of last year, primarily due to less cash generated by working capital, partially offset by lower tax cash payments in the quarter. Our controllable working capital rate which we define as accounts receivable plus inventory less accounts payable was 12.3% of revenue, a decrease of 50 basis points on a like-for-like basis when adjusting for the impact of the Courier acquisition. Fourth quarter capital expenditures were $54.8 million, $4.3 million lower than the fourth quarter of last year. For the year, we are pleased with our free cash flow of $444 million, just below the midpoint of our guidance range. 2015 free cash flow was negatively impacted by certain spinoff related costs and acquisition related costs. In aggregate, these items were approximately $28 million for the year. As of December 31, 2015, our gross leverage was 2.8 times, down 0.3 times from where we ended the third quarter, and down 0.1 times from year-end 2014. With the acquisition of Courier closing in June, our reported leverage is slightly elevated, as the impact of the acquisition is 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 Courier into our results. We pay down the May 2015 bond maturity of $200 million and ended the year with $1.5 billion of net available liquidity with nothing drawn on our $1.5 billion revolving credit facility. From two 2016 to 2018, our annual average maturity is $240 million, with our next maturity of $220 million due in August of 2016. At year-end, our pension and other post retirement benefit plans were under funded by $680.3 million, representing a $142 million year-over-year decrease in the underfunded amount. This decrease is primarily due to the higher discount rates used to determine the benefit obligations. Required contributions in 2016 under all pension and other post retirement benefit plans are expected to be approximately $25 million to $30 million. From a P&L perspective, we expect pension income of approximately $76 million in 2016. Next, I’d like to recap our performance since the time we provided a five-year outlook at our February 2014 Investor Day. Two years into the five-year period, annual organic revenue was declined approximately 0.7%, compared to our guidance of approximately flat. 2014 and 2015 full year EBITDA margins were 10.7% in each year, in line with our guidance of 10.5% to 11%. Free cash flow is averaged over $470 million per year over the last two years with performance in each of the years being within our annual guidance range of $400 million to $500 million. In addition, during this time frame, we pay down our April 2014 and May 2015 bond maturities of $258 million and $200 million respectively, and as I noted earlier, ended the year with gross leverage of 2.8 times. As it relates to the spinoff process, we are progressing well against our plans with no material changes to our expected cost or project timing. We expect to have the initial Form 10 filings completed for each of LSC Communications and Donnelley Financial Solutions by the end of March and remain on track for an October effective date. I will walk through our guidance shortly, but want to note that it represents full year operations for the current R.R. Donnelley as one company, and exclude one-time costs related to the spinoff transactions. At the time of the spinoffs we will classify the two companies that are distributed as discontinued operations. In 2015, we incurred approximately $19 million of spinoff related expenditures, a combination of operating expense and CapEx. And expect the majority of spending to be realized before or at the effective time of the spinoffs. We will disclose more specifics in conjunction with the future Form 10 filings. Now I will provide some additional detail around our full year 2016 guidance. We expect revenue in the range of $11.3 billion to $11.5 billion. At the midpoint, this implies an organic revenue growth of 0.7%, with a range of negative 0.2% to 1.6%. We expect our non-GAAP adjusted EBITDA margin to be in the range of 10.4% to 10.6% as the impact of continuing price pressure and inflation related cost increases, is only partially offset by our productivity initiatives and the benefits of higher volume. Depreciation and amortization is expected to be in the range of $430 million to $440 million. We expect interest expense in the range of $260 million to $270 million, a decrease of $11 million at the midpoint resulting from the repayment of term debt. Our full year non-GAAP tax rate is expected to be in the range of 34% to 35%. We project the full year fully diluted weighted average share account to be approximately 211 million shares. Regarding CapEx and free cash flow, we 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. Lastly, I like to provide some insight as to what we are seeing so far for the first quarter of 2016. The December 2015 organic revenue decline was higher than what we experienced in October and November and that trend continued into January. So from a timing perspective and against more challenging comparables early in the year, we would expect to continue to see an organic revenue decline in the first quarter improving a positive organic growth later in the year. The midpoint of our full year guidance for revenue and EBITDA margin implies full year EBITDA of right at $1.2 billion, and we will continue to match cost to revenue to achieve this target. And with that I will turn it back to Tom.

[Tom Quinlan:]

Thank you, Dan. Our customers find value in our ability to assess their communication needs, have confidence in our skill to develop effective solutions and trust us to identify opportunities for cost containment or offering new ideas that differentiate them in a competitive environment. R.R. Donnelley has been on a purposeful path of strategic evolution. The upcoming spinoffs represent a significant opportunity to drive value as these businesses pursue their own well defined strategies and make targeted investments specific to the opportunities and market dynamics within their respective industries. We owe this opportunity to the hard work and efforts of all our employees worldwide, and we are extremely grateful for their ongoing support. As we work towards the completion of the separations, we will continue to provide distinctive service to our customers; produce quality products work efficiently, and deliver on our commitments. And with that operator we will now open up the line for questions.

[Operator:]

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

[Charles Strauzer:]

Hi, good morning.

[Tom Quinlan:]

Good morning, Charlie.

[Dan Leib:]

Good morning.

[Charles Strauzer:]

Tom, if you could talk a little bit more about the spin and when you look at the three separate companies, a couple of things, can you explain a little bit more on some of the challenges and opportunities that each of them face? And also maybe explain a little bit more on the management team, formation there. Are you kind of couple that, you’ve got the people identify that the top of the each helm? Or are you still kind of in that process?

[Tom Quinlan:]

Thanks, Charlie. I’ll start up with LSC Communications, then go to Donnelley, and then I’ll come back to that last question you asked about management. The challenges with LSC Communications are not anything new to anybody, that it’s the postal costs, distribution costs are the largest costs that we have for our customers as you look at that process. You’ve got the technology changes that we’re not running away from that, we’re embracing. And then you got the excess capacity that’s in the industry, which again isn’t new for anybody. But the streets for us, as we think about it, it’s our diverse product in service profile. We have a range of printed products that I talked about, office services, office products, e-services, warehousing fulfillment services, supply chain management. All of these allow us to increase our speed to market, reduce cost, and improve efficiencies. Our scale in LSC Communications is going to provide us significant benefits as it relates to postal efficiencies. That is still going to be one of the drivers as we look to lower cost for our customers. We’ve got the reputation as we went through in the prepared remarks I talked to you about having high quality products and a track record of innovation. With office products coming onboard to LSC specifically, we bolster our reputation there because we’ve got – we bring on Adams, Ampad, Cardinal TOPS, Oxford and a couple of others. We’ve got longstanding relationships with customers. They view us as a trusted partner. And they range in size from stationers to small publishers to brick and mortar stores to office superstores to – the largest publishers in the world to mass merchandises. We’ve got strong cash flow delicacy as you go from there. I mean the strategy is not going to be anything new. It’s going to be maintaining the focus that Dan Leib talked about on cost structure and improve efficiency. We’re going to further expand into end-to-end supply chain management what we talked to you about today with the Pearson win, you can replicate that and we’ve got the infrastructure to do that. We’re going to build on our market position to expansion of product brands. And again, will be out there looking to do – LSC is going to be looking to do acquisitions, they’re going to strengthen its market position and enhance its product offering. As you think about Donnelley Financial Solutions, the challenges there, simply market volatility and the data security. Each of which I think we’ve demonstrated over the years since we’ve been together that we’ve been able to overcome the strengths there are the strengths that I would say are the core with all three businesses we’ve got significant scale there, we can add customers without adding any significant cost. Our cloud-based solutions that we have there – excuse me, with venue active disclosure and perspectives, there’s minimal technology cost that we have to bring on to add new clients, because there is diverse product portfolio, we work with companies from when they are born, through IPOs, through bankruptcy, we’re a one stop shop. For company’s content creation and collaboration, content management, translation services and content distribution, we’ve got a global footprint there too. No matter where the customers are, we’re close to them with our operations. We’ve got the best as far as we’re concerned in client relationship and customer service in the industry. We are client focused. We’ve got the most reliable client service people there. And we’ve got people that have expertise, which is to us is another key in that business. Those companies want to team that has expertise commitment and response and in this – to assist them as they’re navigating a highly sensitive communication strategy. As you think about strategy, strategy there is going to be to grow and expanded to new markets that have regulatory oversights. If you look what’s going on in DC now, that’s only going to get worse. So I think our business is set up really well there. We’re going to use our technology in operational expertise to drive efficiencies. And again, we’ll sue strategic – selective strategic relationship and acquisition opportunities there too as well as if you look at some of the products and services that we’ve got going on there. When you think about Venue, Venue had a really great fourth quarter. We’re adding video with some of the announcement that we’ve made. You think about the IPO market and what’s taken place there, IPOs are nonexistent right now. I think there was none in January, may be four so far this month. But the good part there is you go back to 2000 – go back to 2001, 2008, 2011 when we’ve had similar time frames. Once that market bottoms out, the IPOs come out and go to market, there’s a 135 that are in pipeline. I think it’s about a $21 billion valuation that people are estimating at. If you think about these unicorns, there’s a 153 so-called unicorns. 153 of which is about $50 billion of value there. So, feel good about that, as well as we’re going through this. From a management team perspective, not prepared to give out uniforms yet, we will be by the end of March. But as I said in the past, truly believe that the management that’s going to be of these businesses of R.R. Donnelley are people that customers and investors have worked with over the years are familiar with. We’re blessed that we don’t have to go outside to find people of the top level. We’re going to start going through Boards, bring on people for the Board in the second quarter and do that. So I think the process that’s been set up is a good one, the team is here. And we feel good about the DNA that’s going to be transferring over to these businesses to go ahead and run them.

[Charles Strauzer:]

Excellent. Thanks, Tom. And then just a follow-up, if I can about guidance, may be this is more for Dan, but when you look at the framework for revenue guidance in terms of the segment breakdown, if you can give us a little bit more framework around, how we should think about the various segments as we go through the year?

[Dan Leib:]

Absolutely. It’s very consistent with the 2014 Investor Day guidance. If you look at segment level, every segment is not exactly at the midpoint, but close to the midpoint of those guidance ranges. So you see some improvement throughout the segments. The one, actually that that is a little bit below the midpoint is, in Publishing and Retail Services. We talked a lot about the wins that we’ve had in the Pearson win contributes to that on the book side. We do see improvement at Variable Print strategic services, a little bit and there will be some fuel dependency there, and then International has some better performance over what we saw in 2015 as well. So it’s pretty widespread.

[Charles Strauzer:]

And just – I know you gave a little bit of color about Q1, so just anything we can think about there too in terms of margin?

[Dan Leib:]

Sure. Yes, I think the – just looking at the comparables, looking at timing of ramp up of some of the wins that we announced. We do expect the first quarter to be the weaker quarter in terms of revenue and obviously, while we’ve been aggressive that variable lies in the cost structure there are some fixed cost here. So we’d expect margin to follow the same as it has based on revenue in the past. We continue to be very focused on the cost side, we did a great job in 2015 and getting ahead of what we saw in the revenue environment and we continue to be just discipline.

[Charles Strauzer:]

Thank you, very much.

[Tom Quinlan:]

Thank you.

[Dan Leib:]

Thank you, Charlie. Operator, next question.

[Operator:]

Thank you. [Operator Instructions] Our next question comes from James Clement from Macquarie.

[James Clement:]

Good morning, gentlemen. Thanks for taking my questions.

[Tom Quinlan:]

Good morning.

[Dan Leib:]

Good morning, Jamie.

[James Clement:]

Tom, if I could – or any of you – if you could chime in here, based on kind of your commentary around guidance in the year presumably you start the year off maybe low single-digit negative, back half maybe low single-digit positive. I’ve been noticing during this earning season when companies offer that kind of revenue guidance, investors are somewhat suspicious but its back end loaded to a certain extent, but you will have the elections. And also one of the things I’d like you to comment on if you take a swing at this, the exigent fees of the postal rate increase from a couple years ago, one and half in a couple of months presumably?

[Tom Quinlan:]

Sure, Jamie, I mean that – for those on a call that aren’t familiar with – the status is that the USPS began collecting the exigent surcharge in January 2014. And once they reach $4.6 billion then that was suppose to end. We – our people we believe that’s going to happen in April that they’ll reach that limit. And as a result of that, price rollback a 4.3% will occur at the end of the second quarter, beginning of the third quarter. So to your comment about – in our comments, in our prepared remarks about distribution costs coming down, there’s only two ways that this cannot occur and one is through court action and one is through the passing of legislation. Neither or which we believe is going to take place at this point. So the price decrease we believe will result in additional mail volume in all classes. So again as you think about how we’ve laid out the year, we look at that as been a positive, you talked about the election, the elections always been a good year for both for print and communications. We think no matter which party – I’m sorry, which candidate from either party is the representative of those parties that they are going to go ahead and continue to look to hit all forms of media. So that’s going to be good for us. And let’s not forget, the three wins that we talked about to you today in the prepared remarks and the reason we spent as much time as much time as we did on them, they are significant. They hit LSC Communications, they hit R.R. Donnelley, and it’s again in an environment where if things aren’t going well from an economic standpoint, leaders of companies are going to be looking for ways to take out costs and make themselves more efficient. Those three examples that we gave to you are the beginning of what we think is going to be continuing for us, as we go through this year. Now the ramp up is going to start to take place throughout the year. Here, we’ve got others in the pipeline, if you go back to the November call – the earnings call, we mentioned to you that say, we hope we will some good news for you in February that was the news we’d bring it forward to you. And again, if economic times do take a turn down, what we do for people becomes even more valuable than in times when everything is going well.

[James Clement:]

Okay. And Tom, the other point that’s been brought up around any company who is contemplating the spinoff, is the current state of the high yield markets. With the amount of money that you have to raise for the two spins, it’s not a news open to some – would you, if the markets, let’s say stay closed or open them and close again around September, October, would you be willing to go, let’s say, the bank debt route, that kind of thing? And just get these transactions going or do you have to have a functioning high yield market?

[Tom Quinlan:]

Yes, let me – I’ll take this and then Dan Leib can jump in. Yes, look, as Dan reminds me, quite often six months ago, we weren’t even talking about the financial markets, because they were good and who knows, in a couple more months, who knows, they could be back to where they were last year, and it’s a new conversation. I would say twofold. One, we feel so strongly about this, what we’re doing from a spin standpoint that even if the financial markets aren’t there, we are going to manage the business, as if come October 1, as if we spun the two businesses. We’re not going to incur the additional cost and we’re not going to burden the businesses, but we’re going to manage it like that, and Drew Coxhead and his team will start reporting the business, the segments that way. So, regardless of where the capital markets are going to be, we’re heading down this path. I would tell you there’s twofold though with the markets. Number one is obviously caused from a rate standpoint, but the second one is, what does the document look like? And I think what Dan and team have done a tremendous job since we’ve been together with our lenders and advisors. We’ve always had really good financial documents, meaning that we haven’t had handcuffs to run the business. There’s no excess free cash flow. Those things are going to be just as important to us as rates, because the way this business is going to go out – business is going to go out, we want to make sure that they can go out and not be burdened day one. As I said, these things are going to go out, ready to hit the street, and make a huge difference on their own. So will I let Dan.

[Dan Leib:]

I think that’s exactly right, there are several different markets as you alluded to, but rate very important obviously but also our deal terms of making sure the businesses can go forward with their strategies unencumbered. And so, we keep an eye on the markets and hopefully we will see brighter days ahead, but we recognize what’s currently going on.

[James Clement:]

Okay. Fair enough. Thank you all very much for your time as always.

[Tom Quinlan:]

Thanks, Jamie. Operator, at this time we’re going to close the call. We’d like to thank everybody for spending the time with us today and we look forward to talking to you again in a few months. Have a good day everyone.

[Operator:]

Thank you. Ladies and gentlemen this concludes today’s conference. Thank you for participating. You may now disconnect.