Donnelley Financial Solutions Inc (DFIN) 2016 Q4 法說會逐字稿

Welcome to the Donnelley Financial Solutions Fourth Quarter 2016 Results Conference Call. My name is Nicole and I will be your operator for today's call.

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 Sanja Burklow

Thank you, Nicole Good morning, everyone, and thank you for joining Donnelley Financial Solutions' fourth quarter 2017 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 dfsco.com.

During this call, we'll refer to forward-looking that are subject to uncertainty. For a complete discussion, please refer to the cautionary statement included in our earnings release, the information station dated September 23, 2016, filed as an exhibit to our current report on Form 8K filed on September 23, 2016, and other filings with the SEC.

Further, we will discuss non-GAAP and pro forma financial information. We believe the presentation 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 the reconciliation of GAAP to non-GAAP information.

We are joined this morning by Dan Leib, Dave Gardella, Tom Juhase, and Kami Turner. I will now turn the call over to Dan.

Thank you, Sanja, and good morning, everyone.

I'll cover a different topics on today's call, including the progress we have made in standing up the company to operate independently, the cost actions we've taken to reduce the amount of net dissynergies associated with the spinoff from R.R. Donnelley, and our priorities for 2017 and beyond.

Following my comments, Dave will provide additional detail on our fourth quarter results and then we will open up the lines for Q&A.

I am pleased to report that since our October 1 spinoff from R.R. Donnelley, we have made significant progress on multiple fronts toward setting up the company for long-term success as a stand-alone entity. From bringing talent into the organization to implementing plans to right-size the cost structure and reallocate resources to prioritizing our investment needs and identifying new market opportunities, we are taking a thoughtful and aggressive approach in our actions.

Though it's still early days the steps we have taken and those we will continue to take will further strengthen our position and our core offerings and put us on a path toward bringing a wide array of compliance-based solutions to market.

Also in these first few months I've had the opportunity to meet with many of our employees as well as with some of our clients. From our deep domain expertise and relationships to our proprietary technologies and strong service focus, our clients appreciate the value that Donnelley Financial Solutions brings to them and have also communicated opportunities to further expand our relationships. Given this positive feedback in conjunction with the actions that we are taking, there are exciting opportunities ahead of us.

At the same time I recognize that 2016 was clearly a difficult year. Starting in January and continuing throughout the year, we were operating in a very challenging environment, especially in our core transactional offerings. In particular, the number of IPOs priced was down nearly 40% from 2015, while M&A transactions were down approximately 20% from the prior year.

In addition to the decline in the number of priced IPOs fewer deal terminations and acquisitions of pre-IPO companies also had a negative impact on our 2016 results. We did, however, see market activity and deal announcement start to pick up post-election, leading to our own activity increasing in the first two months of 2017 given the normal deal cycle. We are well-positioned as capital activity continues to recover from the depressed levels we experienced throughout 2016.

While the impact of lower transactional activity provided a significant headwind we did have a number of successes in 2016, especially in areas that are more recurring in nature. Total revenue from our venue data room offering grew by 20%. Through our development efforts and partnerships we've expanded the use cases for venue. In December venue was recognized with the Virtual Data Room of the Year Award from the global M&A Network.

Our worldwide language solution business captured over 500 new clients and grew revenue by 9%, continuing a multiyear trend of strong revenue growth. Our language solutions business derives its revenue primarily from the financial life sciences and legal industries.

In our investment markets offering we experienced continued revenue growth in content management as clients continue to look for efficiencies and content production and workflow solutions to help reduce their costs. Our client retention rate remains very high, consistently above 95% over the last seven years, with 2016 being no exception.

We are pleased with the progress we're making in these recurring revenue streams. While our return to a more normalized transaction market will strengthen our results, on balance we will target investments that can drive a shift in our revenue mix to one that is more recurring in nature and therefore more predictable over the long run.

We've also made significant progress in our first five months toward operating on a standalone basis and continue to identify opportunities for improved efficiencies. We've hired key talent across the organization, have begun to improve our internal processes and systems, and have developed detailed plans to migrate off transition services agreements with R.R. Donnelley and LSC Communications.

Much of this progress is not visible externally these changes will drive our overall productivity and help create long-term value for the company.

We also recognize the importance of aggressively managing our cost structure. As noted in this morning's press release we developed plans to permanently reduce our cost structure and began to implement those plans in December. An aggregate our plans include approximately $20 million of annualized cost savings with the majority being recognized in 2017. We will continue to evaluate our cost structure very closely and take the appropriate actions, not only in making further adjustments but also identifying opportunities where we could be spending more to facilitate profitable growth.

With respect to our operating plan for 2017, I'd like to share with you a few of our key priorities.

First, we will continue to build on the momentum that we have created in the areas where we have seen significant growth such as the venue data room, our global language solutions offering, and our content management solutions within our investment market's reporting unit.

Second, we will continue to make enhancements across each of our technology-based solutions. From our active disclosure and collaborative workflow tool and venue data room to our fund suite content management platform in our language solutions multi-trend software, we remain focused on delivering product enhancements and improving our client's experience with these tools. We expect such enhancements to the be the result of a combination of organic investment and expansion of our relationships with strategic partners.

Third, we will continue to aggressively pursue the transactional activity within the global capital markets.

As I mentioned earlier, 2016 was a challenging year for this part of the business, but our client relationships and reputation in this space position us well to capture this revenue as transactional activity recovers from the levels we experienced throughout 2016. And we will accomplish each of these priorities while taking a disciplined approach to managing our cost structure.

In our first five months as a standalone company we have also began to identify potential growth opportunities where we can leverage our core compliance and process management capabilities along with our breath of long-standing client relationships to serve new markets. While still early in the process, I'm encouraged by her initial evaluation and the opportunity we have to build new offerings upon the foundation of our core compliance capabilities. The ability to deliver more comprehensive solutions within large evolving markets and leveraging our customer relationships and strong service backbone provides opportunities to drive growth.

We'll talk more about this throughout 2017.

Let me turn it over to Dave before we move to Q&A. Dave?

Thank you, Dan.

Donnelley Financial spun off from R.R. Donnelley on October 1, 2016. This is our first quarter reporting results on a standalone basis.

Before discuss fourth-quarter results I'd like to discuss a few items that affect year-over-year comparisons between 2016 and 2015 and will also affect comparisons between 2017 and 2016.

First, prior periods including the first three quarters of 2016 are reported on a carve-out basis and include allocations from R.R. Donnelley. Prior to the spin certain costs for resources of the business were not recorded directly in our operations, but instead were recorded centrally at R.R. Donnelley and allocated to the company in the carve-out financial statements.

We estimate that the actual cost of such resources is approximately $14.3 million higher than what was allocated to us in 2015. Of the $14.3 million difference approximately $9.5 million was recognized in 2016 and the remaining $4.8 million is expected to be recognized in 2017. Most of this variance is reflected in our US segment and impacts SG&A as well as cost of sales.

Second, we expect approximately $15.5 million in incremental annual standalone costs primarily related to IT, finance, legal, HR, and executive leadership functions necessary for operating as a separate public company. We incurred approximately $7 million of these incremental standalone costs in 2016, and we expect to see a further increase of approximately $8.5 million in 2017, as the full annualized impact of these costs are incurred. Most of this incremental cost impacts SG&A.

There certainly some subjectivity on the breakout between these costs, but the combination of incremental standalone cost and allocated cost in excess of 2015 allocation results in gross incremental cost of approximately $29.8 million of which approximately $16.5 million was recognized in 2016, with an incremental increase of approximately $13.3 million expected in 2017. Of the $16.5 million that impacted 2016, approximately $6.3 million was recognized in the fourth quarter.

Third, going the other way and partially offsetting these incremental costs are actions that we identified following the spinoff to permanently reduce our cost structure which we began to implement at the end of the fourth quarter. The impact of these actions will continue to ramp up in the first few months of 2017, and we expect these items to have an annualized impact of approximately $20 million. Given the timing of implementation we expect to recognize the majority of these savings in 2017.

On a run rate basis these three items, higher cost than what was historically allocated, the gross incremental standalone cost, and the offsetting post-spin cost structure reductions result in approximately $9.8 million of net dissynergies slightly below our previous estimated range of $11 million to $16 million. As Dan noted earlier, we will continue to evaluate our cost structure very closely, and take the appropriate actions.

Now I will discuss our fourth quarter results. Net sales for the fourth quarter were $221 million, a decline of 7.4% from the fourth quarter of 2015. After adjusting for changes in foreign exchange rates, organic sales decreased 6.5% as an increase in the international segment only partially offset declines in the US segment.

Last year's fourth quarter included a large M&A deal in capital markets that is impacting the year-over-year comparability by approximately 370 basis points. In addition, higher mutual funds volume as well as growth in language solutions and our venue data room services only partially offset lower transactional and compliance volumes.

Fourth-quarter gross margin was 33.7%, 690 basis points lower than the fourth quarter of 2015. Approximately 330 basis points of this decline was driven by a change in the classification of certain IT costs to cost of sales from SG&A, compared to the historical classification in the carve-out statements which was based on R.R. Donnelley's classification. Excluding this reclassification the decline in gross profit margin was primarily driven by lower transactional volume, offset in part by productivity.

Non-GAAP SG&A expense in the quarter was $46.8 million. As a percentage of revenue SG&A was 21.2% or 118 basis points higher than the fourth quarter of 2015. Excluding the favorable 330 basis point impact of the IT reclassification the increase in SG&A was primarily driven by standalone costs that I described earlier.

Our fourth quarter non-GAAP adjusted EBITDA was $27.7 million compared to $49.2 million in the fourth quarter of 2015. Non-GAAP adjusted EBITDA margin in the quarter of 12.5% was 808 basis points lower than the fourth quarter of last year, driven by approximately $3.8 million of standalone costs incurred in the quarter as well as lower capital markets transactions and compliance volume. In addition, fourth quarter 2016 actual cost for items previously allocated from R.R. Donnelley were $2.5 million higher than what was allocated to us in the fourth quarter of the 2015 carve-out statements.

Before I discuss revenue and non-GAAP adjusted EBITDA performance for each of the segments in more detail, I'd like to recap what is included in each segment. Our US segment includes three reporting units, Capital Markets, Investment Markets, and Language Solutions and Other.

In Capital Markets we provide compliance products and services to companies that are subject to the filing and reporting requirements of the SEC. In addition, we support companies and public and private capital markets transactions with deal management solutions. Included in Capital Markets is our cloud-based disclosure management system called active disclosure, which allows clients to collaboratively create, review, and distribute financial communication and regulatory compliance documents on their own systems and then file directly with the SEC.

In addition, for both public and private transactions many of our clients use our venue data room offering to manage the transaction process and increase efficiency. Our venue data room product is a cloud-based service that allows companies to securely organize, manage and distribute, and track corporate governance financing, legal, and other documents in an online workspace accessible to internal resources and outside advisors.

In Investment Markets we provide products and services to mutual funds, hedge and alternative investment funds, and insurance companies with a comprehensive set of products and services, including the FundSuiteArc software platform. FundSuiteArc is a suite of online content management products which enables clients to store and manage information in a self-service central repository so that compliance and regulatory documents can easily be edited, assembled, accessed, translated, rendered and submitted to regulators.

Our Language Solutions and Other reporting unit includes traditional commercial printing as well as our language solutions offering, where we support clients in a variety of industries by helping them adapt their business content into different languages for specific countries, markets, and regions, through a complete suite of language products and services. Our suite of services includes translation, editing, interpreting, proofreading, and multi-lingual typesetting plus a variety of specialized content services.

Our international segment includes our operations in Asia, Europe, Latin America, and Canada, and is primarily focused on working with international clients on capital markets offerings and regulatory compliance-related activities into or within the United States. In addition, we provide services to international investment market clients to allow them to comply with applicable SEC regulations and we also provide language solutions to international clients.

Our corporate segment consist of unallocated SG&A expenses including executive, legal, finance, marketing and certain facility costs. In addition, certain costs and earnings of employee benefit plans such as pension and other post retirement are included in corporate and not allocated to the operating segments.

Now I will discuss revenue and non-GAAP adjusted EBITDA performance for each of the segments.

Revenue in our US segment was $182.8 million in the fourth quarter of 2016. A decrease of 8% from last year's fourth quarter primarily due to the 15.3% decline in our capital markets offering.

Last year's fourth quarter included a large M&A deal in Capital Markets that is impacting the year-over-year comparison in the segment by over 440 basis points. In addition, continued strong growth in our venue product offering only partially offset lower volume of IPOs, debt offerings, and lower volume compliance in the fourth quarter of 2016.

Investment Markets reported revenue growth of 2.7% due to higher mutual funds volume. Language solutions and Other reported a revenue decline of 2.1% as growth in translation services only partially offset declines in commercial print volume.

Non-GAAP adjusted EBITDA margin for the segment of 15.6% decreased 495 basis points from the fourth quarter of 2015. In addition to lower capital markets transactional volume which negatively impacted the margin in the quarter the US segment EBITDA includes the majority of the higher run rate cost for previously allocated items from R.R. Donnelley.

Revenue in our international segment was $38.2 million in the fourth quarter of 2016, a decrease of 4.5 percent from the fourth quarter of last year. On an organic basis, excluding the unfavorable impact that changes in foreign exchange rates revenue in the fourth quarter increased 0.5%, driven by higher translation and fund services, partially offset by lower capital markets transactions in compliance volume.

Non-GAAP adjusted EBITDA margin for the segment of 10.2% decreased 704 basis points from the fourth quarter of 2015. The decline was driven by lower capital markets volume and reallocation of certain IT expenses which started being allocated to the international segment in the fourth quarter of 2016, as well as wage and other inflationary increases and higher bad debt.

Our fourth quarter 2016 non-GAAP unallocated corporate expenses were $4.8 million compared to a credit of $1.4 million in the fourth quarter of 2015. The fourth quarter 2015 included a credit of $2.3 million for certain cost reclassifications from the corporate segment to the US operating segment for the carve-out statements. Excluding these reclassifications which net to zero on a consolidated basis, corporate costs were $3.9 million higher in the fourth quarter of 2016 and $7.3 million higher for the full year of 2016 compared to 2015.

Higher costs in both the fourth quarter and full-year are primarily driven by standalone costs related to the separation from R.R. Donnelley.

Pre-cash flow in the quarter was $37 million or $14.7 million lower than the fourth quarter of last year primarily due to lower EBITDA and interest payment and the fourth 2016 and higher capital expenditures, partially offset by lower pension plan contributions in the fourth quarter of 2016.

For the year our pre-cash flow was $79.8 million, $14 million lower than 2015. We exited the spin with $336.5 million of debt. And as we mentioned in this morning's earnings release we have reduced our outstanding debt I $49.5 million since that time, ending the year with $587 million of total debt and $36.2 million of cash. As of December 31 2016, our gross leverage was 3.6 times.

We ended the year with $189.9 million of net available liquidity, and had nothing drawn on our $300 million revolving credit facility. In addition, we have a $68 million cash payment due from R.R. Donnelley on April 1, 2017. That will be used for further debt repayment upon its receipt.

The net underfunded amount of our pension and other post-retirement plans decreased by $9.6 million during the fourth quarter to end the year with a net obligation of $58.7 million. This decrease was largely due to an increase in the discount rate used to value the obligations. Substantially all the pension obligation relates to our US plans, which are frozen with no further benefits being earned.

Lastly, let me share some additional detail around our full year 2017 guidance that was highlighted in this morning's press release.

As evidenced in 2016, the company's performance is highly dependent on global capital markets' transaction activity, and our guidance for 2017 assumes in modest recovery in this area. Our 2017 guidance includes the negative impact of the incremental standalone costs and ongoing cost in excess of historical allocations as well as the plan cost reduction actions that we highlighted earlier.

We expect revenue of approximately $1 billion, representing organic growth in the range of 1% to 2%. We expect non-GAAP adjusted EBITDA in the range of $165 million to $175 million including corporate costs in the range of $15 million to $20 million.

We expect pre-cash flow in the range of $45 million to $55 million including an assumption of capital spending in the range of $30 million to $35 million. This free cash flow reflects the significant increase in cash interest payments resulting from a debt issued in connection with the spinoff from R.R. Donnelley as well as cash restructuring associated with the cost reduction actions and certain spin related cash payments.

As Dan mentioned we are happy with the improved activity levels in the broader market that took place post-election and the resulting impact we've seen in the first two months of the year.

While we are pleased with that activity I should note that our normal seasonality within the quarter results in the majority of our first quarter revenue and profit being generated in March. At this point March activity also looks to be trending similarly to the strong start to the year. Early indications for 2017 are positive, but much of the quarter's performance will be driven by what we see in the next 31 days.

With that, I'll turn it back to Dan.

Thank you, Dave.

In closing, I'd like to thank all of our employees for their continued hard work and focus. As we continue to shape our company we will keep our reliability, integrity, and quality of products and services at the core of how we engage with our clients.

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

Thank you. We will now begin the question-and-answer session. [Operator Instructions] And our first question comes from Charles Strauzer - CJS Securities. Your line is open.

We could start off I want to talk more about the guidance and how the functions that your building in there. There appears to be at least a modest disconnect between the revenue growth assumptions that you are focusing versus the current tone of the markets in the start to the year. Maybe talk to us a little bit to guidance for implied margins of EBITDAR. There is some growth there. Really not forecasting any material margin improvement. You talked about why wouldn't there be better margin leverage.

Thanks Charlie. Let me kick it off and Dave will dump in with some of the details as well. Certainly some of the pullback around the time of the election in November. It seemed postelection the market pick up, given the deal cycle our activity levels increased in January, February as Dave mentioned. The biggest month in the quarter, I would characterize our full year guidance as prudent. Calling for modest recovery. In the deal market, given the cycle time on deals, the forward visibility is not as great looking out several quarters. We read the same things everyone else reads. In terms of prognostication around what the market will look like nine months from now or six months from now. We've taken a prudent approach towards guidance, and aligned with that is building the cost structure for today's reality, and expectation that this will be a modest recovery. If the recovery is stronger we would expect some upside.

I think, Charlie, the only thing to add there to dance point, we baked in a modest recovery in capital markets. Importantly we've built the cost structure assuming that modest recovery. To your point and dance point to the extent that it ends up coming back much stronger than what we out here both from a revenue and margin perspective. I think that work tends to flow through very nicely. We would see that in our results. I think part of the point of our guidance here, first quarter out-of-the-box is to just give you a baseline of what that cost structure looks like. Assuming just a modest recovery in those markets.

May be if we could have a further discussion on the, I know there was a lot of puts and takes post in here. You kind of give a little numbers. Clarify the for Rancho between 110 versus now what you're assuming in terms of incremental costs in your implied EBITDA guidance there.

Absolutely. We've attempted to disaggregate the pieces. Really just to establish the cost baseline. We did a lot of work on the cost structure in the first few months, post-spin, acknowledge that there is a fine line that exists between the historical allocation differences and forward-looking dissynergies. At the end of the day the differentiation from our perspective probably doesn't matter much. We need to manage the overall cost structure. But to do so it's helpful for us to have the accurate view of the components. We wanted to share that. As we discussed in the prepared remarks our cost initiatives will offset these costs, and also enable us to invest in the business and position us well as we head into 2017. Dave will run through some of the numbers in detail here.

Charlie mentioned the form 10, benchmarking off of the 2015 cost structure that included allocations in the form 10. As Dan said, we try to break out the different components, higher allocations, the aggregate dissynergies, and when we say aggregate dissynergies women the cost we've identified, people that we brought in, third-party vendors and new contracts etc. that's roughly call it $14 million of higher allocations. Those costs will remain. $15 million of costs that we have identified that we've added. From there you subtract the roughly $20 million of costs that is coming out of the platform. You end up at a net to million dollar dissynergies number. Which was just below the low end of our 11 million $60 million estimate.

That's helpful. If you could give out a little more breakout on the filled by segment. Particularly in the U. S. market for capital market. And things like that.

And other detail will be in the 10K. For the fourth quarter the U. S. segment, as I mentioned was $182.2 million. The breakout of that is capital markets $96.6 million, and that was down from $114 million in the fourth quarter of 2015. Investment markets was $72.4 million compared to $70.5 million in the fourth quarter of 2015. Language solutions and others was $13.8 million compared to $14.1 million. And again that is growth in language solutions and a decline in commercial print. The international segment was $38.2 million compared to $40 million in the fourth quarter of 2015. Again, a similar situation as I described in the prepared remarks. Language solutions piece grew, and the decline there was really seeing that we saw on the U. S. Capital Market driven.

That's very helpful. Thank you very much.

Our next question comes from Peter Heckmann from Avondale partners. Your line is open.

Good morning gentlemen. Wanted to see if you could give a little bit more color in terms of the relative expectation of the sub segments in your guidance, and what ranges might be included in their. For example with capital markets, on the transactional nature of the business, how did you handicap the down versus up? Where did that shake out? Just how much true visibility do you have on the capital market side? Is it out 120 days is it 90 days, is it longer? More commentary there in terms of how much visibility you have in building that guidance number.

Sure. I think your characterization, the 90 days is probably a fair view of forward visibility on that part of the business. Clearly as we talked about what's going on in our GIM or investment management business or language solutions we have much more visibility. It speak specific to the transaction part of it. I think that quarter view is probably a pretty good view. Clearly within a month we can have things shift amongst quarters. That would be the right period of visibility.

Dan, in terms of detail, I think if you look at each of the reporting units and some of the offerings within, probably more of the same of what we've seen over the last few years. I think most of the growth will be driven by the modest recovery in capital markets, and with in capital markets we continue to expect to seek growth in the venue data room. If you go to investment markets, again, more of the same. That reporting unit is impacted by lower print volumes. We would expect to see that to continue. Generally being offset by growth in content management. That's consistent with what we've seen over the last few years. Language solutions, we would expect is continue to see growth both in the U. S. and international segment. We don't break out the detail of international. As I mentioned most of the fourth quarter decline was driven by capital markets being partially offset by language solutions. In 2017 we're assuming part of that modest recovery impacts international capital markets as well as continued growth in language solutions.

Peter it's Tom Juhase. Just the specificity around capital markets to, in your questions with IPOs and M&A, the MNA, were noticing the last couple of years because of the MNA deals are harder to get closed or harder to get fully approved. One of the things about the visibility there is have the work inside the shop. The length of time that it takes for it to come out the other end is sometime past a year. You have this work in the shop, it's a work in progress, and not able to bill it. You are kind of at the hands of the regulation process in terms of when that will come out the other end. That clouds that visibility as well. Your numbers go up in terms of how many deals you're bringing into the shop, but did it's a question on how you get them back out the other end.

That makes sense. Just in terms of the year could you give a little bit a qualitative commentary in terms of any relatively more difficult comparisons on a quarter court to quarter basis. As well as the flow of margins through the year, relatively more of the margin completed to occur in the back half?

Yes. I'll start with some of the comparisons that I mentioned, the $13 million of the standalone cost that are carrying over into 2017. If I look quarter by quarter high level numbers we'd expect probably 5 million of that on a year-over-year basis to be in Q1. Roughly $3 million in Q2 and $5 million in Q3. And then generally pretty fair comps by the time we get to Q4. From a margin perspective, adjusting for some of these incremental cost numbers, I think if you go back and look at historical margins that will probably be the best benchmark in terms of seasonality of margin by quarter.

Great. That's helpful. Great, thank you.

Our next question comes from Bill from Robert Baird and Company.

Thank you. Dan I wondered if you could maybe drill down a little bit on decline in the compliance volume. I guess most of us believe that compliances is kind of recurring revenue stream. To see that volume decline, or at least to have it mentioned in a material sort of way, I'm not sure I can play connect the dots there. Maybe you could kind of go ahead and help us out and give us color on exactly what happened there.

Sure, absolutely. If we look at the compliance side and break it into winds and competitive losses and noncompetitive the wins versus the competitive losses were actually up a bit at a client level. The noncompetitive is really what swings it. It's things like mergers and acquisitions, Inc. like companies delisting bankruptcies etc. Clearly a softer IPL market impacts the amount of compliance revenue. And then you also have the follow on but in addition to what's wrapped up to all the compliance work you have the follow-on imprinting that is impacted as well.

Okay. Thank you. One for you Dave, this has to do with the deleveraging of the balance sheet. It looks as though you are kind of on track to get into your target range in about three years with kind of the combination of the R.R. Donnelley payment as well as may be applying free cash flow towards debt reduction. Is there also a mechanism that kind of mandates it pre-cash flow has to be prioritized towards debt reduction. I seem to recall that you have a pre-cash flow sweep actually contained in your credit agreements. Is that the correct way to think about it?

Yes. Let me start off Bill, we ended the year at 3.6 look at the cash payment coming from and adjust for that you'd be at 3.2 times. You take the midpoint of the $45 million to $55 million in pre-cash flow. Depending on your assumption on whether or not that all goes to debt repayment I think you start to get relatively close to the top end of our targeted range by year end. At the midpoint of our EBITDA guidance. I think we will assuming no MNA or other types of you get there quicker than the three years you were talking about. With respect to the uses of free cash, you are correct, we do have an addition to the normal amortization on the term loan there is the excess cash flow sweep that it requires us to pay down the term loan with that cash.

All right. Dave if you could remind me that's 50% of excess cash flow as defined, is that correct?

That's right.

Thank you very much. I appreciate that.

Our next question comes from Brian Nolan from JPMorgan. Your line is open.

I just wanted to ask if you could bridge the EBITDA guidance to free cash flow. As an extension to the last question you guys have a $25 million basket you can use to pay down the unsecured, is that right? If so, subtract the interest cost from that EBITDA I'm not sure how you end up with the free cash flow guidance that you provide.

I'm not sure what you are including in their. From EBITDA, cash taxes, I mentioned higher cash restructuring and some spin related costs. I think if you look at our historical cash restructuring being in the $5 million to $6 million range we expect that to be higher this year. Probably closer to the low to mid teens. Cash interest, based on the financing should be just over $40 million. There is some pension contributions and some other cash payments. It should get you pretty close to that range. Again, I mentioned CapEx in the range of $30 million to $35 million.

Thank you very much.

Our final question comes from Dustin Henderson from Eagle assets. Your line is open.

How many are you still operating?

Hello it's Tommy. We have two facilities in Lancaster Pennsylvania and one in C Caucus. New Jersey we have a production site in Phoenix Arizona.

What do you put in there, S1's stuff like that?

Exactly. We have are mutual fund business, and then we see caulk facility uses that for annual reports, proxies, just your basic financial printing business. And we also have a facility into macula that we lease for fulfillment, it's into macula California.

Just from a production standpoint we are producing roughly half of our work in-house, and the other portion gets outsourced to third-party providers.

You talk about a deal cycle earlier on the call, on average how long do you work with the client and Capital Market that working on a deal or an?

It's Tom again, I mentioned before in the visibility question, for an IPO on a deal transaction it can be assured as 120 days, and it can be as long as six months. When the markets are less volatile and the window is open they get deals done. The winter to get the deal done closes shorter. Last year for example it was a tough year. It's difficult to deal and Bill a busted deal. We had a lot of that going on last year. Your window is anywhere from three months to five months as normality, in a normal market.

Would you say it's difficult to build deal, is it written off?

No, not at all. All the Dave take some of this from an accounting standpoint. It's really working with the working group, and the companies to sort through what their plans are going forward. Whether it's not been put on hold or it's closed.

Just from a bad debt perspective, to Tom's point, we are generally able to build for the work performed to date in any of those projects, and have a pretty good track record in terms of collectibility.

How good is pretty good track record?

Bad debt number is very low. Less than a few million dollars.

Your press release could do a better job of breaking out the segments. It's paying a lot of attention to non-GAAP accounting versus gap. Just comparing the segments would be a little more helpful. Finally when you guys showed trailing pre-cash flow numbers and the slideshows were you spun out and the Bank of America conference, I'm guessing interest cost, there wasn't any allocation for R.R. Donnelley's cost in the number.

Yes, those were right out of the form 10 carve out financials.

Okay. Thanks for taking my question.

Thank you. Thanks for the questions. Operator, that was it for the queue. I appreciate everyone being on the call. We will talk to you in May. Thank you.

Thank you ladies and gentlemen. This completes today's conference. Thank you for participating. You may now disconnect. EventID. --- 0