investor presentation · by, section 21e of the securities exchange act of 1934, as amended, with...
TRANSCRIPT
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Confidential and Proprietary of R. R. Donnelley & Sons Company. All rights reserved.
INVESTOR
PRESENTATIONFIRST QUARTER 2020
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USE OF FORWARD LOOKING STATEMENTS NON-GAAP FINANCIAL INFORMATION
This presentation contains “forward-looking statements” within the meaning of, and subject to the safe harbor created
by, Section 21E of the Securities Exchange Act of 1934, as amended, with respect to the business, strategy and plans
of the Company and its expectations relating to future financial condition and performance. These statements include
all those on the page under the heading “Full Year 2020 Guidance.” Readers are cautioned not to place undue reliance
on these forward-looking statements and any such forward-looking statements are qualified in their entirety by
reference to the following cautionary statements. All forward-looking statements speak only as of the date of this
presentation and are based on current expectations and involve a number of assumptions, risks and uncertainties that
could cause the actual results to differ materially from such forward-looking statements. Words such as “believes”,
“anticipates”, ”estimates”, “expects”, “intends”, “aims”, “potential”, “will”, “would”, “could”, “may”, “considered”, “likely”,
and variations of these words and similar future or conditional expressions are intended to identify forward-looking
statements but are not the exclusive means of identifying such statements. Such forward-looking statements are only
predictions and involve known and unknown risks and uncertainties. The Company does not undertake to and
specifically disclaims any obligation to publicly release the results of any revisions to these forward-looking statements
that may be made to reflect future events or circumstances after the date of such statement or to reflect the occurrence
of anticipated or unanticipated events. These factors include such risks and uncertainties detailed in the Company’s
periodic public filings with the SEC, including but not limited to, those discussed under the “Risk Factors” section in the
Company’s Form 10-K for the fiscal year ended December 31, 2019 and other filings with the SEC and in other
investor communications from the Company from time to time.
This document contains non-GAAP financial measures, including non-
GAAP adjusted income from operations, non-GAAP adjusted operating
margin, non-GAAP effective tax rate, non-GAAP adjusted diluted EPS
and net organic sales growth rate. The Company believes that these
non-GAAP measures, when presented in conjunction with comparable
GAAP measures, provide useful information about its operating results
and enhance the overall ability to assess the Company’s financial
performance. Internally, the company uses this non-GAAP information
as an indicator of business performance, and evaluates management’s
effectiveness with specific reference to these indicators. These
measures should be considered in addition to, not a substitute for, or
superior to, measures of financial performance prepared in accordance
with GAAP. A reconciliation of GAAP to non-GAAP financial measures
can be found in our periodic filings with the Securities and Exchange
Commission and in the investors section of our website, www.rrd.com.
SAFE HARBOR & NON-GAAP
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COMPANY REPRESENTATIVES
Dan KnottsPresident & CEO
RRD
Terry PetersonEVP, CFO
RRD
Johan NystedtSVP, Finance
RRD
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LEADING PROVIDER
OF MARKETING &
BUSINESS
COMMUNICATIONS
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RRD AT A GLANCE
Business Services80%
Marketing Solutions20%
$6.3 billion2019 Net Sales
50,000+Clients across virtually all market segments›
As of December 31, 2019
36,400Employees worldwide›
261Locations›
29Countries›
Providing integrated end-to-end customer communications services
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RRD – A MARKETING AND BUSINESS COMMUNICATIONS COMPANY
RRD MARKETING
SOLUTIONS
Empowering brands
to optimize customer
engagement with
maximum return
Insight
Interaction
Inspiration
Business
connections
Product
connections
Business
processes
CLIENT
COMPANY
CLIENT
CUSTOMERS
RRD BUSINESS
SERVICES
Enabling companies
to service and strengthen
customer relationships
with maximum efficiency
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RRD MARKETING SOLUTIONS
Data Science
Advanced AnalyticsDirect Marketing
Creative Services
Content Management
In-Store
Marketing
Digital Print and Fulfillment
Insight
Inspiration
Interaction
Empowering brands
to optimize customer
engagement with
maximum return
Audience Modeling
Loyalty Programs
Innovative offerings to help our clients optimize engagement with their customers
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RRD BUSINESS SERVICES
Commercial PrintBusiness
Forms
Packaging Labels
Supply Chain
ManagementLogistics
Customer
Communications
Business Process
OutsourcingBusiness
Processes
Business
Connections
Product
Connections
Enabling companies
to service customers
and strengthen
relationships with
maximum efficiency
Comprehensive capabilities to help our clients service, inform and transact with their customers
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EXTENSIVE AND DIVERSE CLIENT BASE
“Our thanks to RRD for not only making the programs run as intended, but for helping {us} come up with solutions to potential production challenges based on our unique requirements.”
- Top Ten Banking Institution
“Our communications are the confirmation of our promises to our customers and we have to get them right. We have been very good at managing our communications with our customers, but we are expanding our partnership with RR Donnelley to make us even better.”
- Top Financial Services Firm
“We want to work with the leader in the industry to stay on the forefront of this rapidly changing and complex environment.Communications are critical to our success and
RRD can help us with amore holistic approach to how we manage the full
spectrum of our communications efforts.”
- Top Healthcare Firm
“I have been in the Contract Management/Strategic Sourcing arena for manyyears. You are definitely in the top 1% of vendors with whom I’ve engaged. You are responsive, professional, thorough, and a delight to work with.”
- Top Retail Firm
50,000+Global
Clients
94%Fortune 100
86%Fortune 500
74%Fortune 1000
With our differentiated multichannel offerings and comprehensive portfolio of capabilities,
RRD serves clients from Main Street to the Fortune100
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10
15%
85%
LIMITED CLIENT CONCENTRATION ACROSS BROAD RANGE OF INDUSTRIES
Estimated Revenue by Industry (2019) Revenue Concentration – Top 10 Clients (2019)
Financial
Retail
Services
Manufacturing –
Consumer Goods
Healthcare
Manufacturing –
Other
Publishing
Other
Top 10
Other
Note: Based on data covering $5.7bn out of $6.3bn in total 2019 sales.
Consumer
Technology
Company15%
14%
13%
11%
11%
8%
4%
24%
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Strengthen our core›
Drive revenue growth and higher value offerings›
Improve balance sheet flexibility including debt reduction›
RRD STRATEGIC PRIORITIES
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WINNING THROUGH
INTEGRATED
SOLUTIONS
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BUILDING FOR THE FUTURE BY INTEGRATING PRINT AND DIGITAL
✓ Comprehensive portfolio of print and
marketing products and services
✓ Leading provider of integrated solutions
to broad and diverse set of clients
✓ Potential to further drive client spend
across entire RRD portfolio by
enhancing digital and data capabilities
✓ Opportunities to extend scale in existing
capabilities and “in source” additional
work
OBSERVATIONS
RRD
ADDRESSABLE
PRINT MARKET
$112B(1)
DIGITAL
EXECUTION
DATA
ANALYTICS
Integrated print &
digital solutions
(1) Per 2017 Bain analysis.
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RRD VALUE PROPOSITION
Data Analytics
Postage & Mailing
Logistics/Freight
Warehousing & Fulfillment
Campaign Management
Multichannel Output
Design Consultation
Print Production
Specification Management
Vendor Management
Premedia Services
Translation
Creative Design
Photography
List Management
Brand Management
Sales
Ops
Stores
HR Mktg
Data Analytics
Postage & Mailing
Logistics/Freight
Warehousing & Fulfillment
Campaign Management
Multichannel Output
Design Consultation
Print Production
Specification Management
Vendor Management
Premedia Services
Translation
Creative Design
Photography
List Management
Brand Management
Comprehensive solutions to reduce complexity, drive efficiency, and enhance effectiveness
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EXPANDING SCOPE OF CLIENT ENGAGEMENTS
Value to clients
Num
ber
of pro
vid
ers
Few
Many
Low High
• Fragmented print procurement
• Focus on print costs
• In-house print/document management
• Simple transactional relationships
Bid & buy processes
Total cost of ownership focus
• Integrated communications offering with workflow
tools and content management capabilities
• Desire to drive multichannel communications
effectiveness
• Centrally managed, consolidated print procurement
• Focus on document management costs, ROI-based decisions
• Outsourcing non-core processes
• Complex contractual relationships
Bundled offerings
Desire for more integrated solutions
RRD has the differentiated ability to support the expanding needs of our clients
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$1,383$1,572
$2,266
$4,919
1 Year 2 Years 3 Years 4+ Years
Average Revenue Per Clients ($ in Thousands) – Top 1,000 Clients, Ex. Logistics (2019)
2.31 5.08 Memo: Revenue-
Weighted Avg. # of
Products
LEVERAGING PORTFOLIO TO CAPTURE GREATER SHARE OF CLIENT SPEND
Client Tenure -Top 1,000 by 2019 Sales (ex. Logistics)
Memo: # of Clients
17 41 113 829
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$6
$28
$72
$194
1 Year 2 Years 3 Years 4+ Years
Average Revenue Per Clients ($ in Thousands) – All Clients, Ex. Logistics (2019)
1.42 4.83Memo: Revenue-
Weighted Avg. # of
Products
Opportunity to expand relationship with new clients
(17,621 clients, or 44% of all clients (ex. logistics)
MEANINGFUL OPPORTUNITY TO FURTHER EXPAND CLIENT RELATIONSHIPS
Memo: # of Clients
9,252 3,616 4,753 22,566
Client Tenure - All (ex. Logistics)
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INDUSTRY
DYNAMICS
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RRD COMPETITIVE LANDSCAPE
Products
Marketing Solutions Business Services
Services
Agencies
Local Printers
Direct
Marketing
In-store
Marketing &
Displays
Labels
Forms
Customer
Statements
Packaging
Local Printers
Regional Dealers
Logistics
Sourcing
BPO
Supply Chain China ODM’s
Data Analytics
and Insights
Creative
Services
Content
Management
Email Services Pierre
Digital Marketing
Agencies
Internal Creative
Groups
Various Ad
Agencies
MYS
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FINANCIAL
OVERVIEW
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FINANCIAL TRENDS
Non-GAAP Adjusted EPS1
-$0.10 -$0.09
$0.25
$0.64
-$0.06 -$0.03
$0.31
$0.44
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
$32.9$36.5
$67.4
$107.0
$36.4 $39.2
$77.0
$93.8
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
Non-GAAP Adjusted Income from
Operations1 ($ In millions)
$267.7
$243.8 $246.4
2017 2018 2019
$1.20
$0.70 $0.66
2017 2018 2019
Annual
Quarterly
(1) A reconciliation of GAAP to non-GAAP financial measures can be found in our periodic filings with the SEC and in the investors section of our website, www.rrd.com.
1.3%
2.7%
1.8%
-1.2%
-3.3%
-2.5%
-0.4%
-3.0%
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
Organic Sales Growth Rates1
-1.3%
0.0%
1.1%
-2.3%
2016 2017 2018 2019
2018 2019 2018 2019 2018 2019
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FULL YEAR 2019 OPERATING PERFORMANCE
($ In millions) FY 2019 FY 2018Better/(Worse)
Organic Sales
Change1
$ %
Net Sales $6,276.2 $6,800.2 ($524.0) (7.7%) (2.3%)
Business Services $4,995.7 $5,619.1 ($623.4) (11.1%) (4.6%)
Marketing Solutions $1,280.5 $1,181.1 $99.4 8.4% 8.4%
Adjusted Income from Operations1 $246.4 $243.8 $2.6 1.1%
Business Services $254.0 $264.4 ($10.4) (3.9%)
Marketing Solutions $68.6 $58.5 $10.1 17.3%
Corporate ($76.2) ($79.1) $2.9 3.7%
Adjusted Operating Margins1 3.9% 3.6% 34 bps
Business Services 5.1% 4.7% 40 bps
Marketing Solutions 5.4% 5.0% 40 bps
Interest Expense $150.6 $168.3 $17.7 10.5%
Adjusted earnings per share1 $0.66 $0.70 ($0.04) (5.7%)
(1) A reconciliation of GAAP to non-GAAP financial measures can be found in our periodic filings with the SEC and in the investors section of our website, www.rrd.com, including in the Form 8-K furnished with the SEC on February 25, 2020.
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Commercial Print34%
Logistics16%
Packaging13%
Statements11%
Labels10%
Supply Chain Mgmt
6%
Forms5%
BPO5%
Direct Marketing
53%
DigitalPrint &
Fulfillment38%
Digital & Creative
9%
US74%
Asia15%
Europe7%
Other4%
FULL YEAR 2019 NET SALES PERFORMANCE (AS REPORTED)($ In millions)
Marketing SolutionsBusiness Services(1) Consolidated(1)
FY 2019 YOY Change
CommercialPrint $1,694.5 (12.5%)
Logistics $814.6 (26.6%)
Packaging $668.5 (0.5%)
Statements $545.4 (6.6%)
Labels $497.4 3.3%
Supply Chain Management $298.7 (6.9%)
Forms $244.3 (8.7%)
Business Process Outsourcing $232.3 (6.4%)
Total - Reported(1)
$4,995.7 (11.1%)
Total - Organic(2)
(4.6%)
FY 2019 YOY Change
Direct Marketing $676.7 16.4%
Digital Print & Fulfillment $492.1 3.7%
Digital & Creative Solutions $111.7 (10.7%)
Total - Reported $1,280.5 8.4%
Total - Organic(2)
8.4%
FY 2019 YOY Change
US $4,654.9 (6.7%)
Asia $907.8 (6.3%)
Europe $435.2 (10.4%)
Other $278.3 (21.7%)
Total - Reported(1)
$6,276.2 (7.7%)
Total - Organic(2)
(2.3%)
By Products and ServicesBy Products and Services By Geography
$4,995.7 $1,280.5 $6,276.2
(1) Individual products, services and geographical categories YOY change are as reported and do not reflect the impact of business dispositions and FX.
(2) A reconciliation of GAAP to non-GAAP financial measures can be found in our periodic filings with the SEC and in the investors section of our website, www.rrd.com, including in the Form 8-K furnished with the SEC on February 25, 2020.
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BALANCE SHEET AND CASH FLOW – DEBT PAYDOWN TOP PRIORITY
$235.2$257.0 $247.0
$370.6
$274.3
$220.5
$144.7$190.8
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
Cash & Cash Equivalents Total Debt
($140.3)
$12.3 $64.1
$267.4
($130.0)
$12.9 $29.3
$227.1
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
Operating Cash Flow Capital Expenditures
$21.5 $26.5 $24.7
$31.7 $37.4 $39.0
$31.0 $31.4
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
$2,188.5 $2,255.4 $2,177.3 $2,091.5 $2,171.8 $2,121.4 $2,029.1$1,818.4
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q42018 2019
Total Debt
2018 2019
2018 2019 2018 2019
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CURRENT DEBT MATURITY PROFILE($ In millions)
Plan to repay 2020 maturity using availability on the ABL revolving credit facility; availability also sufficient to retire both 2021 maturities
but will continue to seek opportunities to monetize assets including facility sales and possibly business dispositions
(a) $633.7 million available as of December 31, 2019
$66$167
$60
$140$291 $298 $158
$69
$42
$758$540
$0
$200
$400
$600
$800
$1,000
2020 2021 2022 2023 2024 2029 2031
7.625% Senior Notes due June 15, 2020 7.875% Senior Notes due March 15, 2021 8.875% Debentures due April 15, 2021
7.000% Senior Notes due February 15, 2022 6.500% Senior Notes due November 15, 2023 6.000% Senior Notes due April 1, 2024
6.625% Debentures due April 15, 2029 8.820% Debentures due April 15, 2031 ABL Revolving Credit Facility ($800 million) - Drawn
ABL Revolving Credit Facility ($800 million) - Undrawn Term Loan B due January 15, 2024 (principal payments of $5.5 million due annually)
(b)
(a)
Continue to evaluate
opportunities to
extend our capital
structure and improve
our cost of capital
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Business Dispositions
▪ Sale of GDS business in October 2019 – $47.3 million
▪ Sale of R&D business in Q2 2019 – $11.6 million
▪ Sale of Print Logistics in Q3 2018 - $43.9 million
Accelerated Cash
Repatriation
▪ Repatriated $71 million in Q4 of 2019; total repatriation in 2019 was $327 million
▪ Expects to repatriate an additional $50 million to $75 million of international cash in 2020
Sale of Properties &
Investments
▪ Planned sale of Shenzhen, China printing facility for approximately $250 million in 2021; non-refundable deposits of $98.2 million collected through December 31, 2019
including $53.6 million collected in 2019
▪ Since January 2017 sold seven facilities totaling approximately $27 million, including three facilities sold in 2019 for $10.1 million
▪ Sold investment in LSC in 2017 - $121.4 million
▪ Completed non-cash debt to equity exchange of investment in DFS in 2017 - $111.6 million
▪ Sale of other investments in 2017 and 2018 – Approximately $13 million
Cash Flow
▪ Delivered full year 2019 Operating Cash Flow of $139.3 million
▪ Reduced annual interest expense $30.4 million from 2016 to 2018; reduced $17.7 million in 2019; executed interest rate swaps to lower interest expense on term loan
▪ Reduced dividend mid-2018 - annual savings of approximately $31 million
CUMULATIVE EFFORTS TO IMPROVE BALANCE SHEET FLEXIBILITY
Debt outstanding down $569 million from December 31, 2016 to December 31, 2019
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DISCIPLINED CAPITAL ALLOCATION
Leverage and
liquidity
▪ Laddered maturity structure; commitment to de-leveraging over time
▪ Five year credit facility that provides for seasonal working capital needs and liquidity buffer
▪ Accelerated cash repatriation from foreign jurisdictions, repatriated $327 million in 2019 and expects an additional $50 million to $75 million in 2020
▪ Reduced annual interest expense $48.1 million from 2016 to 2019
Pension plans
▪ Majority of US, Canada and UK pension plans closed and frozen
▪ De-risking actions and liability driven investment structure reduces funded status volatility while minimizing required contributions for US plans;
unfunded balance at December 31, 2019 is $137 million
Capital expenditures
▪ Business is becoming less capital intensive due to business mix
▪ Elevated capital expenditures for 2019 due to incremental investments in construction of a new facility in China and the 2020 Census project
▪ Target of ~1.4 - 1.6% of sales in FY 2020
Acquisitions and
dispositions
▪ Pursue selective strategic relationships and acquisitions that may help us accelerate our strategic goals
▪ Continue to execute on portfolio optimization strategies including the continuing pursuit of opportunities to monetize assets that do not negatively
impact our ability to service our core clients or execute our core strategy. Examples include:
▪ Divestiture of Print Logistics business for $43.9 million net proceeds in Q3 2018
▪ Divestiture of the R&D business for $11.6 million in Q2 2019
▪ Divestiture of GDS business for $47.3 million in Q4 2019
▪ Agreement to sell a property in Shenzen, China expected to close in 2021; gross proceeds ~$250 million
Dividends and
shares
▪ Annual dividend of approximately $8 million; Board of Directors to review dividend quarterly
▪ No planned share re-purchases
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APPENDIX
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COMPREHENSIVE PORTFOLIO OF KEY PRODUCTS AND SERVICES
Comprehensive portfolio of capabilities
utilized for multichannel solutions or
single points of entry
Statements
Commercial
PrintForms LabelsPackaging
Digital
Print & Fulfillment
Direct Marketing
Logistics Supply Chain ManagementDigital & Creative Solutions
Business Process Outsourcing
Marketing Solutions Business Services
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RRD MARKETING SOLUTIONS – DIRECT MARKETING CLIENT EXAMPLE
Footwear Co was looking
to transform its business
and sought a partner that
could provide expertise in
targeted customer
communication strategies
Footwear Co
Data analyzed to calculate customer’s lifetime
value and identify cross-sell opportunities using
market basket analysis
Customer’s activities monitored and
personalized “we miss you” email with
special offer triggered if loyalty lapses
Email and mailing address captured
following purchase at retail store;
direct mail triggered if emails go unopened
High-value customers invited to
exclusive Footwear Co event and
encouraged to opt in to SMS and social media
• Increased marketing ROI for Footwear Co
• Dynamic customer profiles provide insight and strategic direction
• Predictive model identifies likely customer purchases and optimizes mktg spend
Results
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RRD BUSINESS SERVICES – BUNDLED PACKAGING/LABELS/COMMERCIAL
CLIENT EXAMPLE
Pharma Co is revolutionizing
its approach to supply chain
management and sought
a partner with expertise
in the production of highly
regulated packaging and labels
Pharmaceutical Co
RRD builds out a cGMP compliant network
of print facilities to provide just-in-time serialized
products to final assembly sites
Client experiences improvements in
overall cost of managing supply chain
Annual use data for Packaging
& Labels is captured by RRD
RRD designs and manufactures a security
label that minimizes the risk of counterfeit
product and tampering
• 100% up-time at Client Assembly Facilities
• All products standardized and compliant with government standards
• Counterfeit production reduced in the marketplace
Results
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EXPERIENCED AND DIVERSE MANAGEMENT TEAM
Proven team with deep expertise in executive leadership, global sales and operations, customer service and technology
Years with
RRD
Years
Experience
Past
Experience
Dan Knotts Chief Executive Officer 30+ 30+
Terry Peterson Chief Financial Officer 3 30+
Ken O'Brien Chief Information Officer 25 30+
John Pecaric President, Business Services 30+ 30+
Glynn Perry EVP, Domestic Operations and Chief Supply Chain Officer 30+ 30+
Sheila Rutt Chief Human Resources Officer 2 22
Doug Ryan President, Marketing Solutions 2 26
Elif Sagsen-Ercel EVP, Chief Strategy Officer 1 19
Deborah Steiner General Counsel 7 19