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R.R. Donnelley & Sons (RRD)
Q4 2020 Earnings Call
Feb 24, 2021, 11:00 a.m. ET


  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Welcome to the RRD fourth-quarter 2020 results conference call. My name is Marianna, and I will be your operator for today's call. [Operator instructions] Please note that this call is being recorded. I will now turn the call over to Johan Nystedt, RRD's senior vice president of finance.

Johan Nystedt -- Senior Vice President of Finance

Thank you, Marianna, and thank you, everyone, for joining RRD's fourth-quarter and full year 2020 results conference call. Joining me on today's call are Dan Knotts, RRD's president and chief executive officer; and Terry Peterson, our chief financial officer. At the conclusion of today's prepared remarks, Dan, Terry and I will take questions. As a reminder, we have prepared supplemental slides for today's call, which can be found on the investor section of our website at rrd.com.

As we review our results from today's call, I will be advancing the slides if you're connected by webcast. Alternatively, we'll periodically reference page numbers from the supplemental slides for those participants who wish to follow along by advancing the slides themselves. The information reviewed in this call is addressed in more detail in our fourth quarter press release, a copy of which is posted on the Investor section of our website at rrd.com. This information was also furnished to the SEC in the Form 8-K we filed yesterday.

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As a reminder, beginning in the third quarter of 2020, we reflected our Logistics business as discontinued operations for all periods presented in the consolidated statements of operations. Our references today to net sales, SG&A, income from operations, net income or loss, and the total share amounts on this call will be on a continuing basis without Logistics. In addition, we will also refer to forward-looking statements, including comments on our financial outlook and strategy, all of which involve risks and uncertainties. Therefore, our actual results could differ materially from our planned expectations.

For a complete discussion of all the factors that could cause our actual results to differ materially, please refer to the cautionary statement included in our earnings release and the risk factors included in our annual report on Form 10-K, our quarter reports on Form 10-Q and other filings with the SEC. Further, we will discuss non-GAAP financial regulations. We believe the presentation of non-GAAP results provides investors with useful supplementary information concerning the company's ongoing operations, and is an appropriate way to evaluate the company's performance. These non-GAAP results are provided for informational purposes only.

Any references to non-GAAP financial measures are reconciled to the comparable GAAP financial measures in the Investor section at our website as part of our press release. I will now turn the call over to Dan.

Dan Knotts -- President and Chief Executive Officer

Thank you, Johan. Good morning, everyone, and thank you for joining. It's great to be with you today, and on behalf of all of us at RRD, I hope that you and your families are staying healthy and safe. On today's call, I will provide an update on how we're successfully navigating through the ongoing pandemic challenges while advancing our strategic priorities and also share my perspective on our Q4 and full-year performance.

I'd like to start by first thanking the global RRD team for your hard work and your commitment to our company. I'm extremely proud of how our team continues to respond to the near-term challenges created by the global pandemic while strengthening RRD for the long term through the execution of our strategic priorities. When the pandemic emerged early in the year, we quickly deployed our COVID-19 operating plan with a focus on three areas: to protect the health and safety of our employees, maintain operational continuity for our clients and prudently manage our business performance through the pandemic-driven challenges. Across the year, we performed very well in each of these areas due to the tremendous resilience and hard work of the entire RRD team.

I am especially appreciative that despite all the distractions occurring throughout the year, we delivered our best year of safety performance on record. Our sales, service and operations teams around the world are demonstrating the flexibility and determination required to serve our clients while working safely, and I want to thank all of you for your dedication to RRD during these unprecedented times. 2020 was a very strong year of performance for RRD. Despite a decline in top-line sales driven by the pandemic, for the second consecutive year, we achieved full year growth in adjusted income from operations and higher operating margins.

Further, we substantially reduced our debt outstanding. We extended our upcoming maturities, and we expanded our liquidity as we delivered on our plan to improve our balance sheet flexibility. Our strategic priorities to strengthen our core, drive revenue and improve financial flexibility are deeply embedded within RRD, and we made very good progress in each of these areas in 2020 as well. We strengthened our core by rightsizing our total cost structure, aggressively pursuing our productivity initiatives, rationalizing our facilities footprint and divesting of noncore businesses.

We drove revenue performance amid a challenging market by expanding client relationships, adding new clients to our roster, investing to expand our capabilities and shifting our business mix by delivering organic growth in our strategic product categories. We improved our capital structure by extending our upcoming maturities and substantially reducing our debt from the prior year-end. We ended the year with $1.5 billion in total debt, gross leverage of 3.7 times and net leverage of 3.0 times, all of which represent our lowest levels since the spin. Shifting to our financials.

We closed out 2020 with a very strong quarter of operational and financial performance, highlighted by an increase in adjusted income from operations and higher operating margins versus the prior year and a significant improvement in our quarterly organic sales trend. On the top line, organic net sales declined 4.8%, which further builds on the sequential improvement we saw in the third quarter. Our improving organic sales trend reflects our team's success in winning new opportunities while also supporting the gradual return of client demand across many of our product categories. On a segment basis, business services achieved organic growth for the quarter and, importantly, delivered higher organic sales in our strategic growth product categories, including supply chain management, packaging and labels.

While Marketing Solutions' organic sales were down to the prior year due to clients continuing to curtail marketing spend in a more than 9 percentage point negative impact due to the Census completing earlier in the year, we did see a sequential improvement from the third quarter, and we expect to see client demand gradually improve as the economy opens back up. Overall, our sales, service and operations teams did an excellent job of onboarding new business in supporting our existing clients during the quarter. Our adjusted income from operations and operating margins for the quarter both exceeded prior year levels despite those lower organic sales, largely driven by our ongoing actions to align cost with revenues while continuing to meet the service, quality and on-time delivery requirements for our clients. We are aggressively managing all aspects of our cost structure, and our favorable fourth quarter earnings and margins reflect the positive impact of those efforts.

For the full year, we reported a 9% decline in organic sales primarily related to the impact of the global pandemic. On a segment basis, marketing solutions experienced a 15.6% decline as markers abruptly reduced volumes beginning in the second quarter and only gradually increase spend as the year progressed. Business services reported a 6.9% organic decline for the year, which is a combination of lower client demand in commercial print being partially offset by organic growth in supply chain management and packaging, two of our strategic growth product categories. To offset the impact of the full year organic sales decline, early in the year, we set aggressive cost-reduction targets for each of our businesses, service and support areas, and we decisively implemented those plans as the year progressed.

As a result of those actions, we delivered higher adjusted income from operations and improved operating margins for the second consecutive year. Our favorable full year earnings and margin performance is a true testament of the ability of the RRD team to deliver strong results in extraordinarily challenging business environment. As the global pandemic continues to disrupt traditional business models and create both uncertainty and opportunity for our clients, our reputation as a trusted business partner has enabled us to continue to expand existing client relationships and add new clients to our roster. Let me share a few examples of notable wins we've secured over the past few months.

We're excited to partner with Panera Bread, one of the leading fast-casual restaurants in the United States with more than 2,100 bakery cafés nationwide. In recent months, Panera expanded its menu and selected RRD to support the rollout of their new flatbread pizzas with menus and box closure labels. Panera also turned to RRD to provide bag closure labels for takeout and delivery orders, which have increased significantly during the pandemic. Panera, chose RRD, not only for our label-printing capabilities but also for our operating scale and technology platform that enables us to seamlessly fulfill their company's orders.

We're also helping health-care organizations stay connected with their customers during these challenging times. A large health insurance organization wanted to do something special for their Medicare Advantage members to promote their health and well-being during the winter and help them cope with the ongoing pandemic. This organization designed a care package that included roughly a dozen items, including hand, sanitizer, disposable facemasks and pulse oximeters. They turned to RRD, one of their trusted business partners, to source fulfill and distribute over 240,000 kits by the end of the year.

They chose RRD because of our packaging, commercial print and supply chain management capabilities. In less than 30 business days, we delivered the branded gift boxes into the hands of their senior members. COVID-19 has also created new market opportunities for lab testing and virtual care, and we are working with P23 Labs to source, assemble and ship COVID-19 test kits to consumers and health-care providers. P23 joins a number of labs around the world that have turned to RRD to support the ramp-up of COVID-19 test kits during this unprecedented global health crisis.

The FDA gave P23 Labs emergency use authorization for its test kits in October, and they selected RRD as their partner because of our regulatory credentials and end-to-end supply chain solutions from initial design to packaging and label production to product fulfillment and distribution. While these client examples show how we are flexing our extensive capabilities to win new opportunities, we're also positioning RRD to drive revenue performance through continued innovation. We recently introduced comprehensive vaccination distribution toolkits designed to provide turnkey support in three key areas: vaccine awareness, clinician and retailer operational needs and post-vaccination support. Targeted for use by health-care providers, government agencies, retail pharmacies and large enterprise organizations, these toolkits provide quick-turn marketing communications and operational support upon the release of FDA-authorized COVID-19 vaccines.

Additionally, we launched ConnectOne by RRD, an end-to-end communications management platform developed to streamline marketing and creative workflows through a single unified portal. ConnectOne delivers a comprehensive suite of technologies, including marketing automation, digital asset management and data-driven supply chain management to help marketers enhance brand continuity, accelerate speed to market and improve marketing ROI. On our third-quarter call, I shared that we launched Touchless World by RRD, which is a comprehensive set of solutions that utilizes the power of dynamic, scannable smart tags. We are integrating these smart tags with the offerings we provide in our existing platforms, including labels, retail signage, commercial print, packaging forms and direct mail.

Dynamic content can then be delivered across any of these mediums to consumer smartphone to create a touchless experience. I'm excited to tell you more about our recent support for printing App Clip Codes as part of RRD's touchless world platform. App Clip Codes are one of the ways iOS users can invoke App Clips, a new feature apple introduced as part of iOS 14. App Clips, as the name suggests, are lightweight versions of applications that can pop up on your iPhone or iPad without having to download the full app from the App store first.

They have all sorts of uses from previewing apps and games, expediting payment transactions, or previewing a product in augmented reality. App Clip Codes can be placed in a bike or scooter for streamlined rentals, on a tabletop in a restaurant for quick payment or in a retail location to unlock an immersive experience. RRD is well positioned to print App Clip Codes because we have the technology, production and distribution expertise to make visually distinct decals that integrate digital variable text and graphical print with NFC technology plus full dynamic end coding. Our solutions engineers can also develop the customized print-based ecosystems, complying with Apple's print guidelines that help brands connect the physical world with the enhanced digital experience.

The activation of Touchless World and App Clip Codes is yet another example of how we continue to innovate to help our clients increase engagement with their targeted audiences. Before turning the call over to Terry, I'd like to highlight a few recognitions we've recently received. Earlier this month, 3M named RRD one of its 2020 Suppliers of the Year. The award recognizes suppliers that improve 3M's competitiveness through collaborative relationships that ultimately help the company deliver innovative and valuable solutions to customers.

3M honored 20 suppliers supporting the U.S. and Canada, out of the thousands of companies in its global supply base for their world-class performance. Second, RRD GO creative was recognized as the winner of the 2020 Promoting Social Inclusion Award by Community Business for Diversity and Inclusion in India Best Practice awards. This recognition is directly attributable to the work RRD did to bring digital jobs to the Himalaya.

Finally, RRD was selected as a recipient of the 2020 Enel X Sustainable Footprint Award. This award is a recognition of RRD's exceptional contribution to supporting a stronger, more resilient and sustainable energy grid through demand response. We are leveraging our operational footprint to support demand response programs in Ohio, Pennsylvania, Maryland, New Jersey, Illinois, Connecticut, Texas and Ontario and are honored to be recognized for our commitment to grid stability and energy flexibility. With that, Terry, I'll turn it over to you.

Terry Peterson -- Chief Financial Officer

All right, thank you, Dan. We had a remarkable finish to a challenging year as we significantly outperformed against our expectations set only four months ago. Once again, we focused on those matters within our control and have delivered results that demonstrate that our strategy is working during this uncertain and volatile time. Our team continues to land new work through innovative solutions that help our clients meet their evolving communications needs.

This focus helped us deliver better-than-expected net sales as our actual results exceeded the midpoint of our previous guidance by over $150 million. We also continued to focus on our cost structure, which enabled us to grow adjusted income from operations and deliver a 50 basis point improvement in our adjusted operating margin for the quarter versus the prior year. Overall, we are very pleased to report adjusted diluted earnings per share from continuing operations for the fourth quarter of $0.71, which is up 65.1% over the prior year. For the full year, our adjusted diluted earnings per share from continuing operations was $1.21, up 133% from 2019.

Our ongoing strategic focus to improve our capital structure led to our single-largest reduction in debt outstanding delivered in any quarter since the spin in 2016. This significant reduction was largely driven by the divestitures of our two logistics businesses, the liquidation of certain life insurance policies, the sale of three idle facilities and strong operating cash flow for the quarter. We also returned to our normal borrowing practices after having taken additional draws on our credit facility earlier in the year in order to protect liquidity. Total debt outstanding was reduced by $518 million in the quarter, which was $143 million better than the midpoint of our guidance last quarter.

This brings our total reduction for the year to $315 million. And since 2016, we have reduced our outstanding debt by $884 million. I'll provide more details on our debt later, but let me get started with additional details on our fourth-quarter financial results. Turning now to Slide 11.

Net sales of $1.35 billion were down $80.6 million or 5.6% in the quarter, which included a reduction of $24.5 million associated with the GDS Europe disposition and the closure of Chile, plus an increase of $11.5 million associated with a weaker U.S. dollar. Net sales were down 4.8% organically, marking our second consecutive quarter of year-over-year improvement since the pandemic began. For the segments, Business Services reported organic growth of 1.7%, primarily driven by higher volumes in supply chain management, packaging and labels, which are three of our strategic growth product categories.

Our supply chain management growth was driven by several large health-care kitting projects. Packaging grew in the quarter due to strong demand in both our domestic and international operations, and our Labels products experienced continued growth to increase demand for shipping-related labels. Lower demand for our statements, forms and commercial print products was driven by the impact of COVID-19 pandemic and secular decline. However, the decline rates in these products have shown improvement from the previous two quarters as we continue to see a gradual recovery in demand for these product categories.

Marketing solutions reported an organic decline of 22.8% due primarily to the impact of COVID-19 and the lapping of the Census project, which was completed earlier in 2020. The Census project alone contributed to over nine points of the quarterly decline rate for this segment. Despite the fourth quarter being the only quarter in 2020 with no Census sales, the decline rate for this segment improved slightly from the previous two quarters. On Slide 12, our adjusted income from operations of $94.5 million was $1.2 million higher than the fourth quarter of 2019 despite the decline in organic sales.

This increase was primarily due to aggressive actions taken to reduce the company's cost structure and lower depreciation and amortization expense, partially offset by the decline in sales, higher variable incentive compensation and unfavorable FX of nearly $10 million, which was mostly associated with our operations in China. Adjusted SG&A expense of $160.9 million in the fourth quarter was down $4.3 million or 2.6% from the prior year and down $95.7 million or 13.9% for the full year versus 2019, reflecting the impact of recent dispositions and ongoing execution of our strategic initiative to deliver and lower our cost to serve. Our GAAP results for income from operations for the fourth quarter included restructuring and other charges of $6.2 million, which was nearly flat to the 2019 amount. Adjusted earnings per share of $0.71 in the fourth quarter increased $0.28 as compared to earnings per share of $0.43 in the prior year period.

This increase was primarily due to a lower effective tax rate, lower interest expense and higher adjusted income from operations. Our adjusted effective tax rate decreased from 51.1% in 2019 to 22.5% in 2020, primarily due to the favorable impact of recently issued tax law guidance. Turning now to the balance sheet and cash flow on Slide 13. As of December 31, 2020, we had total cash on hand of $289 million and total debt outstanding of $1.5 billion after having repaid all borrowings on our credit facility.

Availability on the credit facility was $576 million at the end of the year, and total available liquidity, including cash on hand, was $865 million, which was $322 million higher than the beginning of the quarter and our highest level since 2018. Our end of the year leverage also improved significantly. At December 31, 2020, we reported gross leverage of 3.7 times, which was 0.5 times lower than 2019 leverage and 1.0 times lower than the leverage at September 30. Net leverage of 3.0 times improved 0.7 times from both the prior year and quarter.

Full year net cash provided by operating activities of $149.8 million in 2020 was $10.5 million higher than 2019 due primarily to the deferral of the employer portion of payroll taxes as part of the CARES Act, which contributed $35.1 million, lower interest payments and a reduction in working capital. These factors were partially offset by $47 million paid in 2020 to terminate 25 deferred compensation plans and higher restructuring payments. Capital expenditures of $85.6 million in 2020 were $53.2 million lower than 2019 due primarily to additional investments made last year for the Census project and the new facility in China. Slide 14 summarizes several key actions we have taken to improve our balance sheet during the year.

To highlight a few, during the year, we sold our remaining logistics businesses, bringing our total proceeds from business dispositions to $247.6 million in 2020. We also sold six facilities and collected one additional deposit on the China building sale, all of which aggregated to proceeds of $43 million in 2020. In addition, we received proceeds of $100 million from life insurance policies, most of which was due to liquidating the policies during the fourth quarter. Collectively, our efforts to improve our balance sheet have yielded a reduction in total debt outstanding of $315 million in 2020 while significantly improving both our gross and net leverage.

In regards to the pending sale of our printing facility in Shenzhen, China, the buyer continues to work with the government to obtain the necessary approvals so we can complete the sale. Once the transaction closes, we expect to record a significant gain on the sale. To-date, we have collected $123.3 million in deposits, and we are scheduled to collect one additional deposit of approximately $50 million in 2021. Our contract with the buyer requires them to pay the final installment in 2022, even if the government's final approval is delayed.

If the buyer fails to comply with the terms of the agreement or terminates for any reason, RRD is entitled to retain 30% of the purchase price in liquidated damages. Slide 15 of the supplemental slides show the various maturities of our outstanding debt as of December 31. Throughout 2020, we reduced total debt outstanding by $315 million. In addition, since the end of 2019, the aggregate amount of senior notes and debentures due through 2024 was reduced by $750 million from $1.0 billion to $272 million.

This was accomplished through a series of debt exchanges, which extended approximately $475 million of debt due from 2021 to 2024 to later years, along with debt repurchases and repayments. During the fourth quarter alone, we reduced debt by over $500 million as we fully repaid all balances drawn on our credit facility, redeemed the remaining $83.3 million of the 7.875% senior notes due March 15, 2021, and opportunistically repurchased $25 million of senior notes maturing in 2022. Also, the unfunded status of our pension and other post-retirement plans also improved from the prior year. At the end of 2020, our plans were underfunded by $107.6 million, which was an improvement from the $137.2 million underfunded level at the end of 2019.

The decrease is due to strong asset returns, partially offset by lower discount rates. Planned contributions in 2021 under all pension and other post-retirement plans are expected to be approximately $6 million, which is slightly less than our 2020 funding. Income in 2021 from all plans is expected to be approximately $19 million as compared to $12 million recorded in 2020. Our expectations for full year 2021 are reflected on Slide 16.

As the COVID-19 infection rates remain elevated in many parts of the world, we expect the path forward to remain uncertain and volatile. As such, we are unable to furnish our typical guidance for 2021. However, I do have the following observations and guidance for 2021, beginning with observations regarding our two segments. For business services, the organic growth we achieved in the fourth quarter gives us optimism for the year ahead, even though there are select verticals such as travel and lodging that remain in the pandemic's grip.

We believe that our supply chain, packaging and labels businesses will continue to benefit from the shift to e-commerce and other pandemic-induced changes in consumer behavior that many are predicting to become permanent. The health-care industry, for example, is adjusting to the growth of telehealth and in-home services. And with our CGMP assembly and fulfillment capabilities, we are well positioned to support them going forward. And with the start of nationwide vaccinations, comes the potential for the coronavirus to be under control later this year, which will bode well for a continued economic recovery and a corresponding increase in demand for print and support services.

For marketing solutions, based on forecasts for the U.S. advertising spending in 2021, client marketing budgets are expected to increase, and ad spending is projected to grow from 3% to 6%, depending on the pace and timing of the projected economic recovery. The unique conditions and impact of COVID-19 on different industries means that the pace of recovery and the mix of marketing activity will continue to vary greatly. Integrated marketing programs with demonstratable ROI will be critical to marketers, who are increasingly challenged to restore top-line growth, and we believe that our marketing solutions team is well positioned to provide innovative solutions that help our clients achieve that objective.

Net sales for the year are expected to be flat to up low single digits, taking into consideration reductions from the Census project and onetime pandemic-related projects in the second half of 2020, offset by a modest economic recovery as the year progresses. However, net sales in the first quarter are expected to be between $1.09 billion and $1.15 billion or down 5% to 10% organically since the pandemic did not begin impacting most of the company's businesses until late March 2020, and we were producing the Census last year, which wrapped up in mid-2020. Excluding the unpredictable impact from changes in foreign exchange rates, non-GAAP adjusted income from operations, and the resulting operating margin are expected to be flat to up slightly from the prior year as the company continues to benefit from aggressive cost-out actions. Results for the first quarter are expected to be slightly lower than the prior year, given the exceptionally strong first quarter of 2020, which included work for the Census.

Interest expense is expected to range from $120 million to $125 million, benefiting from lower average borrowings and a lower average interest rate throughout 2021. The full year non-GAAP effective tax rate is expected to be approximately 35%, which is higher than reported in 2020 as nonrecurring benefits were reflected in 2020, and the benefit from the CARES Act has expired. Operating cash flow is expected to be slightly lower than the prior year, reflecting a reduction due to the repayment of half of the employer portion of payroll taxes deferred in 2020. Capital expenditures are expected to be approximately $80 million, and as part of our agreement to sell the printing facility in China, the company expects to collect one additional deposit of approximately $50 million in 2021.The company also expects to continue generating additional proceeds from monetizing other assets, including proceeds from selling additional facilities.

And now operator, let's open up the line for questions.

Questions & Answers:


[Operator instructions] And Charles Strauzer from CJS Securities is on the line with a question. Please go ahead.

Charlie Strauzer -- CJS Securities -- Analyst

Good morning.

Terry Peterson -- Chief Financial Officer

Good morning Charlie.

Charlie Strauzer -- CJS Securities -- Analyst

Can we perhaps dive a little deeper into the stronger-than-expected sales performance in the quarter, specifically, when you look at the business services side, what were the kind of key drivers within the subsegments there? And then what was kind of onetime versus maybe more ongoing, if you will?

Terry Peterson -- Chief Financial Officer

Yes. Sure, Charlie. I'll take this, and Dan can kick in with some additional comments, if necessary. One of the areas where we had the greatest overperformance from our previous expectations was in the supply chain management.

i mean, that area reported very, very significant organic growth, probably one of our largest organic growth for any product category since the time of the spin. So that area had just tremendous wins. And that group is having great success with projects, kitting projects that are helping to distribute medical supplies and kits to folks out there, as well as just a number of other types of opportunities that have come in from kind of the health-care profession. So that's probably the largest area of overperformance.

We did see really good performance, somewhat better than expectations also in our packaging, and that came out of both our Chinese operations as well as our domestic U.S. operation, and Labels continues to really do well. So breaking it down between onetime projects and not, we hope to be able to leverage these new relationships and these new product offerings that we've been able to provide. We hope that, that can continue to provide additional sources of revenue in the future.

But many of those were onetime in nature, at least for now, but again, the relationships that we have established with some of these and some of the relationships that have been extended we think really can provide some ongoing extra work with these clients, even if it's not exactly the same as what we produced in the fourth quarter. But those are probably the big areas where we had overperformance. Places that were still down actually performed a little bit better as well. And our commercial print, that was a little bit better.

As I mentioned, several of the down areas for us. We're showing a better and lower rates of decline than what we had seen in previous quarters. So those are really kind of helping, too, even though they didn't report growth for the quarter.

Dan Knotts -- President and Chief Executive Officer

Hey, Charlie, just to add to that. If you look at the three categories that the product categories delivered organic growth for the quarter, supply chain management, packaging and labels. I think there's an important element of this as we look to 2021, a strategic element of this as we look to 2021, of the changing landscape for those product categories and capabilities. And by that, I mean, as Terry mentioned, within supply chain, supply chain management, certainly, an increase in teledoc, telehealth, kits that are going out to end consumers from a variety of different places and organizations and companies.

And the question there on a going-forward basis is has the market or has the demand profile shifted now where you think about teledoc and you think about telehealth, and kits being sent out directly to people's homes, the extent to which that becomes a permanent shift in the market shift in organizational company behavior in consumer acceptance, we think we're very well positioned in that space to continue to pursue those opportunities today as we speak with those organizations as they try to figure it out heading now that we're into 2021. From a packaging and labels standpoint, both of those are predicated on two things. And that is from a packaging standpoint, more from the standpoint of the electronic device and new wins that we had with clients in a number of different areas as we continue to grow our packaging business. So the two aspects of that is, I'll call it organic growth based on the packaging we're providing for the products that are being purchased, primarily in the technology side as well as the sustained or new growth we're experiencing as a result of building, continue to build out our packaging business.

So we're pretty excited about the future opportunities that we have in front of us there. And from a label standpoint, there's a shifting from a secondary from a shipping label, e-commerce trend that is moving forward from a market standpoint, and we're very well positioned in that space as well and feel good about the ongoing opportunities for us to continue to support those clients as they recognize or respond to the shift in e-commerce, home deliveries, et cetera, and the increased use of labels. So all three of those have different but similar dynamics that we're pretty excited about as we head into 2021. And the real question is, how do you turn those into permanent opportunities and support that level of growth that those clients are looking for going forward.

Terry Peterson -- Chief Financial Officer

Yes. And Charlie, just one more follow-on here. This is really the second quarter where we've had good surprise to the upside. And one of the other things that's really unique with a lot of these opportunities is the sales cycle has been incredibly short on these.

So while we have visibility to at the time we're issuing guidance, and what materializes after can be notably different. So the sales cycle has been short, which is a great testament to our team's ability to really address and respond and adapt to our clients' changing needs and put together programs that can be sold and executed very, very quickly. So like I said, this is the second quarter where we've seen some nice upside, and a lot of that is just because of the sales cycle on these has just been so incredibly short and our ability to execute and deliver on these large projects has been pretty incredible in such a short period of time.

Charlie Strauzer -- CJS Securities -- Analyst

Yes, that's encouraging. And then just segueing into let's have a discussion about the guidance that you gave out. It looks like Q4, Q1 are kind of the bottom here. What gives you the confidence that we are seeing a bottom at this point? And talk about the assumptions behind the guidance a little bit more if you could.

Terry Peterson -- Chief Financial Officer

Yes. I mean, it's tough. We debated a lot about how far we felt comfortable going with guidance because, as I mentioned, there's still a lot of uncertainty. There's still a lot of volatility, and that creates more challenges with providing that guidance.

But we felt like it's important to kind of share at least our perspective as of the current time here. So we spent a lot of time kind of looking at the different markets that our different product categories are performing in some of the opportunities with some of the new products and the products and the services that we have rolled out. And we have taken a stab at estimating what that recovery might look like, and we're kind of looking at the pace of vaccinations and believing that as vaccinations continue to get further distributed, that, that will provide a return over a period of time to more normal times. So we've made some assumptions around that pace and kind of what the new normal is going to look like.

It won't look the same as it did before the pandemic. We have always believed that it would be different afterwards and that we would emerge stronger even if we did emerge a little bit smaller. But at the same time, we've just really tried to take all the data points that we've seen and look at what's happening with the vaccinations and the timing and the pace expected for that. And we've made some assumptions around what that would look like for our revenue, given the mix of products and services that we have.

Dan Knotts -- President and Chief Executive Officer

And Charlie, I think it's also important to think about that or share how we think about that relative to the two segments. And within business services, the key drivers of business services are all about product spending by both businesses and consumers. And as the economy begins to open up, you think about packaging, you think about labels, you think about supply chain management, you think about statements from a consumer spending standpoint in commercial print activities, under the assumption that the economy is going to continue to open up as vaccines roll out and product spending by both businesses and consumer is going to continue to increase, key driver for business services. if you think about marketing solutions, the marketing solutions spend was significantly curtailed marketer spend was significantly curtailed in 2020 amid the uncertainty and uncertain environment and whether or not there'll be a return on that marketing ROI.

The downside to that from a market standpoint, is marketing works, and to be able to drive increased sales and growth of the companies out there that use marketing to do that at some point, that is going to return. And consumers are going to respond to that. So both of those are predicated on the economic return, a little bit different dynamics relative to the product spending versus the marketing spend. Significantly uncertain at this point in time of how this is going to play out, but we feel pretty good about where we sit today.

Charlie Strauzer -- CJS Securities -- Analyst

Excellent. And then if we could shift a little bit to the balance sheet, kind of given how wide open the capital markets are, any thoughts on taking advantage of the window here to further refinance the balance sheet?

Terry Peterson -- Chief Financial Officer

Yes. I mean it's certainly attractive looking at the strength of the capital markets right now. At this point, we've not announced anything. But as I've said in many other previous quarters, we're always looking for a great opportunity to improve the health and strength of our balance sheet.

So but at this point, we've not got any sort of opportunistic transaction to announce.

Charlie Strauzer -- CJS Securities -- Analyst

Got it. And then just lastly, thoughts on D&A for 2021.

Terry Peterson -- Chief Financial Officer

D&A, depreciation?

Charlie Strauzer -- CJS Securities -- Analyst


Terry Peterson -- Chief Financial Officer

We've shown steady reductions in that over the past several years here. We would expect -- just given that the capex was a little bit lower this year, we would expect that to come down a little bit. We didn't provide exact numbers on that, but we will expect to see some continued downward movement in that expense.

Charlie Strauzer -- CJS Securities -- Analyst

Great. Thank you very much.

Terry Peterson -- Chief Financial Officer

Thanks Charlie.

Charlie Strauzer -- CJS Securities -- Analyst

Thank you.


[Operator instructions] Bill Mastoris from Baird is online with a question. Your line is open. Please go ahead.

Bill Mastoris -- Robert W. Baird -- Analyst

Thank you. Terry, this is a little bit of a follow-on to your comment to the most recent question. Are there any hurdles that you have right now in any of the revolving credit agreements, assuming you elect not to refinance your 2022 maturities that would prevent you from maybe taking it out with the revolving credit agreement?

Terry Peterson -- Chief Financial Officer

No. There's no restrictions at all. And in fact, our capacity for secured debt issues right now is probably the greatest capacity that we've had in quite a long time. So we feel like we have very, very few challenges to work around when it comes to doing any sort of financing right now.

Bill Mastoris -- Robert W. Baird -- Analyst

OK. And what is that secured capacity right now?

Terry Peterson -- Chief Financial Officer

It's over $1 billion if you look at first and junior priorities. So it's very high right now. It's over $1 billion.

Bill Mastoris -- Robert W. Baird -- Analyst

OK. And then a related question, but over the longer term, do you have a leverage target that you would care to articulate? I know this year is going to be a little bit challenging just in terms of your ability to maybe reduce it at the same pace. But is there a long-term target where you say, OK, this is going to be our comfort level going forward. I understand it's a little bit difficult because we don't know what's going to unfold and as far as the economy opening up or the pace at which it opens up?

Terry Peterson -- Chief Financial Officer

Yes. We have not published or shared a kind of medium or long-range target other than to say that our goal for the foreseeable future is going to be to continue to reduce that leverage over time. So we look at all sorts of opportunities to help reduce that leverage, including focus on improving and growing EBITDA is certainly one other mechanism to help reduce that leverage. So we haven't really published anything, but for the foreseeable future, there's going to be a pretty hard focus on continuing to reduce that leverage.

Bill Mastoris -- Robert W. Baird -- Analyst

OK. And then maybe a question for Dan. This is kind of a follow-up to your recent comments. As the economy begins to open up and your clients kind of look toward the future, have they expressed an interest in shifting maybe their business communications mix a little bit more toward print? I think you touched on some of that with packaging and labels, but I don't think you directly address commercial print.

Dan Knotts -- President and Chief Executive Officer

Yes, I think commercial print, given the breadth of our platform has a tremendous number of capabilities and product offerings within it. I think for the most part, we talked about from a packaging and the kits within supply chain management and the labels piece of that and even the statements, a piece of that, all continue to be critical business communications that our clients use to manage and run their business. And part of that spills over into our commercial print platform. I think that's going to continue to happen.

I think the interesting question around that, Bill, is relative to the future of marketing and the abundance of digital platforms that are out there. And in this remote world, people trying to utilize companies utilizing those markets, utilizing those because they're pretty inexpensive to do that. But what we know and what's been proven over time is that the combination of both print and digital is most effective means of marketing communications. So when we think about the digital print side, we think about customized direct mail programs, we think about we think about retail and store science, they all work.

So I think as the economy opens back up, you're going to continue to see a balanced approach that marketers are taking relative to both the digital side and the physical print side.

Bill Mastoris -- Robert W. Baird -- Analyst

OK. My last question, and this is admittedly a little bit of a head-scratcher for me. I can't say I've seen this very often. And that is the $96 million in liquidated life insurance policies.

Terry, any details around that? I'm not exactly sure what's involved there, but any color would be appreciated.

Terry Peterson -- Chief Financial Officer

Yes. I mean, we've had for a long, long time, I can't even tell you how long we've had some cash values on our balance sheet associated with these life insurance policies. Many but not all of those policies were actually in a rabbi trust that was used to provide security for many of the obligations that we owed under the deferred comp plan that we also terminated. So there's a bit of a linkage there between terminating those deferred comp plans and the proceeds that we received.

So once we were able to terminate those deferred comp plans, we were able to monetize or to get at the cash that's still invested in those insurance policies. So it's been a very lengthy project for us. It's probably from the time we started studying the opportunity to being able to execute on it and deliver the results was probably somewhere around a two-year window of time to do that. But the team just hung in there, did a great job getting through some very, very complicated analyses and strategies, and we were able to complete it at a time when the tax laws were a bit more favorable than they have been both before this year, as well as what they will be for 2021.

So yes, I mean, that's essentially what it is. It was just shutting down the policies and pulling the cash out of that, but there's a whole series of events and activities that had to happen before we could do that for most of those policies. Some were free and clear and were more easily done. But for the bulk of them, we had a lot of heavy lifting to do to free those up.

Bill Mastoris -- Robert W. Baird -- Analyst

Thank you very much. I appreciate all the color and best of luck in the upcoming year.

Dan Knotts -- President and Chief Executive Officer

Thanks Bill.

Bill Mastoris -- Robert W. Baird -- Analyst

Thanks Dan. I appreciate it.


[Operator instructions] I'm showing no further questions at this time. I will now turn the call back to Dan Knotts.

Dan Knotts -- President and Chief Executive Officer

OK. Thanks, Marianna. As we move into 2021, we are a stronger RRD as a result of our achievements in 2020. And while we're optimistic about vaccine distribution and the resulting economic recovery, we will remain extremely focused on protecting the health and safety of our employees, performing for our clients, and prudently managing our business through the near-term challenges while strengthening RRD for the long term.

Thank you for joining us today, and please, everyone, stay safe.

Johan Nystedt -- Senior Vice President of Finance

Thanks, Dan. As a reminder, information to access the telephonic replay of RRD's fourth-quarter 2020 results can be found in our fourth-quarter press release, a copy of which is posted on the Investor section of our website at rrd.com. Thank you for joining us, and that concludes the RRD fourth-quarter 2020 earnings call.

Duration: 52 minutes

Call participants:

Johan Nystedt -- Senior Vice President of Finance

Dan Knotts -- President and Chief Executive Officer

Terry Peterson -- Chief Financial Officer

Charlie Strauzer -- CJS Securities -- Analyst

Bill Mastoris -- Robert W. Baird -- Analyst

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