Q1 2020 Earnings Call
Ladies and gentlemen, thank you for standing by welcome to the our R&D first quarter 2020 results conference call.
My name is junk and I'll be your conference operator today at this time, all participants are to listen only mode.
After comedy remarks, we will conduct a question and answer session by telephone.
Well take a question you must be connected via telephone as the webcast is a listen only platform.
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Please note that this call is being recorded well now turn to go over to Johan Nystedt or de <unk> Senior Vice President Finance.
Thank you Jackie. Thank you everyone for joining argues for scored Twentytwenty results conference call.
Joining me on todays call, Dan Knotts, our ideas, President and Chief Executive Officer, and type Peterson, our Chief Financial Officer.
The conclusion of today's prepared remarks, Dom Terry and I will take questions.
As a reminder, we up for pets supplemental slides for today's call, which can be found on the investor section of our website that R&D dot com.
That's for review first quarter results on today's call will reference page numbers from supplemental slides for those participants who wish to follow along by advancing the slides themselves.
The information that well be reviewing during this call is addressed in more detail in our first quarter press release, a copy of which is posted on the investor section of our website I'd argue dot com.
This information was also furnished to the S. C on the form 8-K, we filed yesterday.
Throughout this call. We will also refer to forward looking statements, including comments on our financial outlook and strategy all of which involves risk and uncertainties.
Yeah for our actual results could differ materially from I try and expectations for.
For a complete discussion all the factors that could cause our actual results could differ materially. Please refer to the cautionary statement, including a in our earnings release and the risk factors included in our annual report on form 10-K, a quarterly reports on form 10-Q, and other filings with the FCC.
For the what will discuss non-GAAP financial information, we believe the presentation on non-GAAP results provides investors with useful supplementary information concerning to count this ongoing operations and isn't appropriate way to evaluate the campus performance.
These stone gara south to provide for informational purposes Sandy.
Any references to non-GAAP financial measures are reconciled to the comparable GAAP financial measures and the Investor section of our website. This part of our press release.
I'll now turn the call over to them.
Great. Thank you you on good morning, and thank you for joining us today on behalf of everyone. In R&D I hope that you and your families are staying healthy and saves amidst a scalable pandemic you just a few short months worldwide held crisis has emerged to have a profound impact on our personal health and wellness.
[noise] dramatically alter the way, we live and work and significantly change the manner in which businesses around the world function.
We are clearly living an extraordinary time of challenge and uncertainty as the cobot 19 pandemic continues to threaten the health of individuals businesses in global economies to everyone. At R&D. Thank you for your tremendous efforts and support as we navigate through this unprecedent time of crisis.
On today's call I'm going to provide an overview of our first quarter results before sharing the key steps, we're taking to protect our team members and support our clients well, we quickly and decisively implement our plan to help offset the impact of the cobot 19 pandemic.
Through the successful execution of our strategic initiatives in 2019, we entered this year with strong momentum.
I'm pleased to report despite the negative impact of Cobot 19 on our operations in China, We delivered a very strong quarter to start the new year.
On the topline organic sales in the first quarter declined by 1.3%, including the negative impact of our facilities in China being closed for a full month due to the cobot 19 pandemic.
Excluding the China impact, which represent an overall, 2.9% decline in organic sales for the company, we delivered organic growth in the quarter.
Encouragingly our operations in China have now been restored and we expect to see steady improvements in our China performance as global demand returns overtime.
From an earnings perspective, we delivered 55.1 million an adjusted income from operations, which is 18.7 million were 51.4% favorable to last year's first quarter.
We also reported on 150 basis point increase in operating margin in a 39 cents improvement in adjusted earnings per share.
Our results in all three of these areas adjusted income from operations operating margin and earnings per share represent our best first quarter performance since the spin in 2016.
These favorable results reflect the positive impact of the strategic actions, we executed last year as well as a number of targeted initiatives. We successfully completed within this quarter.
More specifically, we closed our unprofitable business in Chile at the end of February and we sold our curriculum Courier logistics business in early March both of these planned actions were part of our ongoing plan to further optimize our business portfolio in tighten our strategic focus. Additionally, we continue.
At our focus on lowering our cost to serve as evidenced by a $21 million decrease in SGN, a expenses versus the prior year quarter.
Directly directly related to our third strategic initiative to improve our balance sheet and enhance our financial flexibility in late March we began a series of exchanges that resulted in extending 231 million to maturities due in 2023 in 2024 out to 2029.
These exchanges were fully completed in early April.
We also opportunistically repurchased in late March in early April 51 million of our senior notes in debentures due in 2020 in 2021.
As a result, our 2021 maturities have now been reduced from 227 million to 178 million.
All in we delivered a very strong quarter to start the new year.
No.
As we look ahead. The cobot 19 pandemic has introduced significant near term business challenges in incredible level of uncertainty for which there there is no define roadmap or navigation system to follow for recovery.
We're all hopeful that the lockdown measures being enacted around the world work will curtail the continued spread of the virus. It is still too early to predict a bold magnitude or duration that cobot 19 will have on global national or local economies specific industries or individual businesses as such.
We have modeled various scenarios and developed a holistic operating plan that reinforces our strategic priorities in serves as our roadmap. During this time of extreme volatility.
Our plan will remain fluid and we will continue to make adjustments as needed.
Importantly, our relentless focus on executing our strategic priorities to strengthen our core drive revenue performance and improve our financial flexibility has been an ongoing efforts since we've been together the difficult actions. We've taken in the experiences that we've gained in executing those actions have enhanced our preparedness and ability.
The two prudently manage our business amidst uncertain times, our focus is clear we have a track record of executing and I am confident in our ability to deliver on our plans.
The core elements of our operating plan focuses in three key areas protecting the health and safety of our employees, maintaining operational continuity and effectively managing our business performance, which includes preserving our financial flexibility.
I will provide additional details for each of these three areas starting with our hires are highest priority the health and safety of our employees. We are laser focused on protecting the health and safety of our 35000 employees around the around the globe.
Our obligation and my commitment to the tremendous people we have at R&D is to do everything we can to keep them safe at work.
We have established a cobot 19 task force led by senior level executives from across the company and we are following the guidance provided by the center for disease control in the World Health organization.
We're also leveraging the experiences of our colleagues in China, who faced the impact of Cobot 19 earlier this year and they are providing invaluable support to help us safeguard our teams around the world.
We've implemented a number of key health and safety actions across the company, including work from home policies, where possible in the suspension of all travel.
Within our manufacturing facilities, we're utilizing staggered shifts activating physical distancing and implementing the required to use a for a personal protective equipment and temperature monitoring.
With BP any in short supply our teams have exercised their ingenuity to develop protective equipment using our existing equipment.
Our retail solutions group is producing R&D branded cloth mask for our employees using the same equipment, we used to produce fabric work for our retail clients and our packaging team is producing low cost disposable face shields for employee use.
Our second key area of focus centers on maintaining operational continuity and has been extremely gratifying to witness the collective efforts of our teams as they continue to deliver for our clients. During these unprecedented times around the globe in 29 countries in more than 250 facilities. Our employees are meeting client commitments.
While maintaining the safety ethics and compliance that are core to R&D.
All of our printing and distribution operations have been deemed essential with the exception of a small number facilities in the Caribbean.
We have more than 10000 employees set up to work from home and they are effectively carrying out critical projects on behalf of our clients. Additionally, we're leveraging our strong supply chain partnerships to minimize operational disruption it ensure delivery reliability.
Effectively maintaining operational continuity also requires realigning our capacity and tightly managing our cost to reflect changes in client volumes.
With an extensive client base that spans a vast number of industries. We are experiencing very recent variations in demand based on industry product category and client specific approaches.
These volume fluctuations began in mid March and we have taken swift and decisive actions, including both temporary and permanent plant closures to better align our capacity and cost structure with product demand.
At the same time, we're leveraging our extensive capabilities to capture new client opportunities in this challenging business environment.
Our retail sales team is working to mitigate volume declines by providing essential businesses with critical signage and crisis communication solutions for large full service restaurant company, we're providing the directional sign is displayed in the station like fast casual restaurant change change when these restaurants move from dine into takeout.
They need a new signings to inform their patrons about safety policy in procedural changes. We're also providing disposal menus for the same client, which will likely become more of the norm for the industry moving forward.
And with clients quickly in permitting work from home policies. Our retail team also developed a portfolio of shelter in place solutions that support that transition from branded pop and locked backdrops to banners to coloring books and more our solutions are serving to create a sense of corporate unity and maintain brand consistency as well.
Occurs increasingly communicate via webcam from their home offices.
A large improvement retailer has even distributed backdrops to its employees resembling the inside of their store environment to create a sense of pride in to provide consistent brand presentation for client meetings.
Within our labels business, we quickly designed to produce critical labels to help essential businesses comply with state and local restrictions recognizing the surge in food deliveries brought about by Cobot 19, our labels team developed to tamper tamper evidenced food labels that are being utilized by large pizza chains in other food delivery services.
To assure their customers are the safety of their products for major health care company.
We are shipping healthcare packages to members diagnosed with cobot 19, our team were quickly to create kit and fulfill hip a compliant packages for these members that gets include over the counter items, such as disinfecting wipes cough drops anti bacterial hand soap and tissues and contain a top sheet with information for how the effected person can protect.
Others do your during the healing process.
Also proud to be supporting a large diagnostic testing organization as they ramp up production of the cobot 19 test kits that are in critical need across the country. We're supporting the total kitting requirements of this client, including labels instruction manuals and product cartons, our experience in life Sciences space was certified.
Facilities and highly trained staff enabled us to quickly ramp up this project to meet the spike in demand.
And why we're leveraging our existing capabilities to serve our clients were also continue to innovate and bring new solutions to market. We recently launched quick letter and end to end printed mail solutions solution that helps organizations and business critical customer communications fast faster.
Our solution uses data in automation to generate personalized communications at scale, which is critical now more than ever as our clients need to rapidly respond to and commute communicate critical information to their employees and customers.
Just as we were there to help our clients navigate their communication needs brought about the by the start of the code 19 pandemic. We are fully prepared to support our clients as they returned to their new normal in the coming weeks and months from returned to work signage to direct mailings welcoming back customers and employees to shipping and packaging.
Labels to product kitting, and fulfillment and other various added.
You added solutions, we are well positioned to help our clients execute their targeted communication strategies as that business environment recovers.
Our third area of focus is to effectively manage our business performance and preserve our financial flexibility.
We have implemented numerous actions, including an employee furlough program with paid medical benefits in the suspension of all planned merit increases across the company.
We are leveraging our operational scale to temporarily closed certain production facilities facing significant volume declines and shift remaining volumes to other nearby facilities. We've accelerated many of the cost takeout actions that we identified as part of our business improvement initiatives, we've delayed spending for all possible capital projects and we've significantly reduced.
Discretionary spend across the company.
As an additional proactive measure to maintain our financial flexibility and liquidity. The board of directors previously suspended our quarterly dividend and Weve increased our borrowings under our revolving credit facility.
As of March 30, Onest, our total borrowings under the revolving credit facility were $450 million in cash on hand was approximately $451 million.
For the last 155 years, we have effectively navigated through periods of crisis in remained as a leader in our industry.
And just as we've always been we are committed to effectively managing through this crisis, while sustaining a steadfast focus on our mission.
Continuing to operate with integrity and upholding our company values.
Our global workforce as United in our conviction to keep on another safe and deliver for our clients under these unprecedented circumstances as the impact of this crisis continues to unfold, we are protecting our employees, serving our clients and take it to taking decisive actions in the best interest of our stakeholders, we're proud of our.
First quarter performance in we are poised and ready to support our clients as a world recoveries from the cobot 19, pandemic and with that I will turn the call over to Terry.
Thank you Dan our start to 2020 was exceptionally across a strong across the board performance exceeding our initial expectations, our organic sales decline moderated despite having absorbed a $43 million decline in China due to covert 19 related closures.
Aside from China, the business grew organically in the quarter driven by the 2020 cents is production and growth in several other product categories. We also reported a nearly $19 million increase in adjusted income from operations and both our adjusted income from operations and our adjusted earnings per share of 33 cents, where the highest reported for any first.
Quarter since our spin.
Our cash flow also improved significantly with the $50 million improvements in operating cash flow versus the first quarter of 2019, while capital expenditures were down nearly $20 million.
Lastly against the backdrop of very challenging capital market conditions, we successfully executed a number of transactions, which reduced our near term maturities and extended our mid term maturities I'll talk more about these transactions later in my prepared remarks.
Our first quarter results were a great affirmation of the success, we're having as we execute our strategy. Our primary focus now is successfully navigate through the uncertainty presented by covered 19, we protect our employees deliver on our commitments to clients and preserve our financial flexibility.
Dan share, but we're doing to protect our employees and deliver on our commitments to our clients and I'll focus my portion of the update on how we're preserving our liquidity, but first let me get started with a review of our first quarter performance.
Please refer to page five in the supplemental slides as I began my remarks.
On a reported basis net sales were down 7.4% in the recent quarter, which includes a 5.7% decline due to recent dispositions.
Last year, we sold both our UK base GDS business, and our R&D business and we closed our operations in Brazil.
In the current quarter, we also sold our Courier logistics business and we closed our operations in Chile.
Collectively Courier logistics, and Chile reported net sales of $136 million and an adjusted loss from operations of $8 million for the full year in 2019.
Net sales in the quarter were also lower by $6.6 million due to stronger us dollar.
On an organic basis, we reported a decline in net sales of 1.3%, which was a significant improvement from the previous quarter, despite being negatively impacted 2.9 percentage points due to the due to the mazatlan facility closures in China.
For the segments business services reported inorganic decline of 4.9% both the commercial print and packaging product categories were negatively impacted by the significant volume reductions in our China business.
Results for the quarter also reflected the continued planned reduction in very low margin sales, primarily in supply chain services and commercial print products and additional secular pressure in our commercial print business, where we estimate our domestic secular decline rate to be roughly between four and 5% year over year.
On the growth front, we delivered organic growth in several of our product categories, including labels statements logistics and business process outsourcing.
Marketing solutions reported organic growth of 13.4% due primarily to higher volumes in direct marketing as well as direct print and band fulfillment direct marketing benefited from significant significantly higher volumes due to the 2020 census production, which we expect to contribute favorably through April.
As such we expect the second quarter to post approximately one third of the previous run rate. We have reported for the census work in each of the last three quarters.
On page six adjusted income from operations of $55.1 million was $18.7 million higher versus the first quarter of 2019.
Our corresponding operating margins increased from 2.4% in 2019% to 3.9% this quarter, reflecting the positive impact of organic growth outside of China reductions in unprofitable business ongoing cost reduction initiatives lower incentive compensation expense.
And a benefit from changes in foreign exchange rates.
Partially offsetting these favorable factors were lower volumes in China modest price pressure and lower byproduct recoveries.
Adjusted SGN expense of $177.9 million in the first quarter is down $21.4 million or 10.7% from the prior year, reflecting business dispositions and our ongoing efforts to reduce our cost to serve.
Adjusted diluted loss per share was 33 cents in the first quarter as compared to a six cents loss reported in the prior year period.
A significant improvement was attributable to higher adjusted income from operations lower interest expense and lower taxes.
Our adjusted effective tax rate was 5.2% in the quarter and included a discrete benefit of $6.9 million related to the cares Act, which increased the deduction for interest expense in 2019 and 2020.
Our GAAP results for the quarter included pre tax restructuring impairment and other charges of $31 million $31.9 million, which included a noncash goodwill impairment charge of $20.6 million in the logistics reporting unit.
Although first quarter sales and income from operations in a logistics, where both favorable to the prior year.
Future projections were lowered for reduced demand in the near term due to the coated 19 pend pandemic.
In addition, 2020 results for the quarter also included $11.3 million for net restructuring and other charges.
A loss of $8.3 billion from the disposition of the logistics Courier business and expenses associated with the ongoing FCC and DLJ investigations.
On page seven net cash used by operating activities was $79.6 million, which was an improvement of $50.4 million as compared to the 2019 period.
The improvement was driven by favorable working capital as well as lower tax and interest payments.
Capital expenditures of $17.7 million were $19.7 million lower compared to the 2019 period.
2019 amounts included onetime investments for the construction of our new facility in China, and the census project.
Turning now to the balance sheet as of March 30, Onest 2020, we've got total cash on hand, a $451 million, which was up $260 million compared to December 30, Onest largely due to the higher amounts outstanding under the revolving credit facility.
We expect to maintain higher borrowings outstanding throughout the covered 19 pandemic in order to preserve financial flexibility.
Total debt outstanding was $2.17 billion and the remaining availability on the credit facility was $193 million as of March 30 Onest.
I would like to provide you with an update of our capital priorities throughout the coated pandemic preserving liquidity is our top priority as such we are temporarily reducing our investments in our business. While we continue to evaluate our portfolio for opportunities to optimize stockholder value.
Earlier. This month, we also announced that our board of directors suspended our quarterly dividend.
In regards to the pending sale of our printing facility in Shenzhen, China on page eight we have cumulatively collected $98 million of deposits and we continue to expect that we will collect one additional deposit of $23 million in the third quarter. This year.
Buyer continues to work to obtain the necessary approvals from the government regarding their plans to redevelop the site.
The buyer has estimated the required approvals will be obtained in late 2021 or early 2022 at which time the transaction will close and we expect to record a significant gain on the sale.
Our contract with a buyer requires them to pay the final installment in 2022, even if the government's approval as further delayed.
If the buyer fails to comply with the terms of the agreement our terminates for any reason, our R&D is entitled to retain 30% to the purchase price and liquidated damages.
Page nine shows the various maturities of our outstanding debt as of March 30, Onest. In addition to the pro forma maturities after giving effect to a series of exchanges and a repurchase which settled in early April.
We previously announced in March a series of privately negotiated transactions with our largest senior note holder, which proactively address a significant portion of our midterm senior note maturities.
As part of these transactions, we repurchased in March nearly $27 million of senior notes due in 2022 and 2024 at a discount using funds from a draw on our revolving credit facility.
In addition, we agreed to exchange $277 million of senior notes due in 2023 2024 in 2029 for $297 million of new 8.5% senior unsecured notes due in April 2029.
As of March 31, 2020, only $50 million of the old senior notes and debentures had been exchange for $54 million of new senior notes.
The remaining $227 million was exchange for $243 million of new notes in early April.
We also opportunistically repurchased $51 million of senior notes and debentures due in 2020, and 2021 to reduce future interest and principal payments.
As of March 31, 2020, 31 million of these repurchases were completed and the remaining $20 million for settled in early April.
The 2020 maturities have now been reduced to $65 million and the 2021 maturities are now $178 million.
The extent to which the pandemic will ultimately impact our business results of operations financial position and cash flows cannot be fully predicted or estimated at this time as such we are unable to provide our typical full year guidance with that said I would like to conclude my prepared remarks on page 10 with perspectives on our second quarter performance.
Our liquidity as we manage our R&D through the covered pandemic.
We continue to operate our financial models for various scenarios, which guide us as we develop and execute both temporary and permanent cost reduction plans.
In addition, we have updated our second quarter sales forecast taking into consideration current demand projections for our products and services among other factors.
Based on this assessment, we expect second quarter net sales to be $300 million to $375 million lower than the prior year, which includes an approximate $94 million reduction due to recent business dispositions.
This estimate takes into consideration cancellations and deferrals of orders as well as new coded related orders that we have secured and are producing in many parts of our business.
As of March 30, Onest, the company had $644 million of total liquidity consisting of cash on hand, and committed availability under the revolving credit facility.
In March of 2020, we increased our borrowings under the revolving credit facility as a proactive measure to preserve financial flexibility.
In addition, we're maximizing our liquidity through aggressive management of our cost structure and accounts receivable collections. We continue to pay our vendors on time as we believe our liquidity is sufficient to fund operations as well as our upcoming debt maturity in June.
As of April 24th our total liquidity was approximately $550 million. After several scheduled interest payments and the remaining debt repurchase in early April were funded.
In addition to normal working capital needs. We also continued to pursue opportunities to monetize assets, including certain investments.
As well as sales of real estate and noncore businesses.
Lastly, we are not currently subject to maintenance financial covenants in our debt agreements, which reduces our financing risk.
And now operator lets open up the line for questions.
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Charlie Strauzer with CGS Your line is open.
Hi, good morning.
Charlie Charlie.
So obviously you covered a lot of ground.
Thank you for that but just a couple of follow ups, but could you reduced capital spending capex.
Since then.
You are expecting.
The reductions and capital.
Okay. So we had that.
We had we had guided last quarter to a pretty significant reduction and we've reduced that a bit as well but.
Our our.
Current estimate and again, it's fluid depending on on what happens and how long the crisis continues but we're probably talking about something in the 80 million dollar neighborhood.
Got it and just when you when you look at the.
Some of the opportunity that you highlighted in terms of the Dan was talking about some things there.
In terms of the.
New kidding opportunities and things like that.
New perhaps perhaps maybe quantify a little bit of that for us.
Yeah.
I can't really quantify that specifically, but that is embedded in the second quarter numbers. The guidance that I did provide which was the 300 $375 million reduction we've kind of netted all that out in there I mean, clearly, it's not fully offsetting the impact of canceled and deferred orders, but but.
The good news is is that we are seeing these opportunities come up in several parts of the business is not focused are isolated just one or two areas that we're seeing it and we continue to see so it wasn't just kind of.
The onetime shot here, but we continue to see orders and request for bids coming in but I don't have a quantification specifically for those those orders.
Charlie It's Dan I think what's important.
As we look at our revenue forecast and provide a little bit more current revenue outlook and provide a little more colour on the different scenarios that that we've run.
If you lay out our are different product mix on a continuum of call. It discretionary spending from a client standpoint being more geared towards advertising as opposed to regulatory communications on the other end of that.
On the other end that continuum.
And in that sooner you would think about statement production and then you have everything in this in the middle that's really product oriented like labels. So what we've seen.
He is on the discretionary end of that which is the ticket the direct marketing in the general advertising commercial print type communications are going out curtailment of that particularly in in store signage et cetera, given that retailers are paring back financial services companies are taking a bit of a pause as well as we're seeing the impact on.
That discretionary ended the continuum.
On the other in the continuum, we are assuming that hold up fairly well relative because its regulatory driven and compliance driven.
And again, mainly about mainly about the statements would fall into that would fall in that category in the middle is really the big question Mark because that's the stuff that is really related to product. So you think about a labels whether the shipping labels or product labels or you think about these fulfillment the fulfillment kits and a lot of that has yet to work its way through we feel.
Hi, good about where we're at a lot of it as well as yet to work its way through as we all know there's lots of different.
Companies that are out there working on testing kits to to enhance the overall testing across across the country.
There are different clients pursuing.
Pursuing that.
And as they win in where position that to help them do that we will see that uptick in that particular category, but as Terry said as you think about that broad spectrum of products that were producing in particularly is look at as you look at Q2, we are absolutely being impacted at the at the at the discretionary end of this because.
Really because the curtailment from the discretionary marketing type products.
Thanks.
There you mentioned that the carriers like the.
Maybe a little benefit on the tax side there the other.
Pieces of that act that impact your business good or bad.
Sure.
Yes, we certainly the.
The tax benefit for the higher deductibility, certainly had a nice impacted first quarter because.
It was retroactive back to 2019, so we.
Effectively got to record the entire benefit from 2019 into first quarter that benefit that does extend for 2020 as well so.
The 2020 portion of that we'll continue to create benefits for us.
Most of the that alone programs as such were too big for four.
Dissipating in any of those opportunities or benefits. We are we do we do have some opportunities to extend some of our tax payments.
With with kind of the revised deadline. So most notable loans are the extension of the kind of the first quarter estimated payments. That's all been deferred to July so there's been some shuffling on timing, but the only thing that has a permanent reduction versus a timing of payment.
Trinity only is the deductibility of the interest.
Got it thank you very much.
Thanks, Charlie.
Thanks, Charlie Bill Mastoris with Baird. Your line is open.
Thank you.
Let's start out with a couple of operating questions, maybe Dan you could give us some idea of when that consensus if you could remind us when they consensus contract does run out new my recollection is some time right around the middle of this year and then also we've been hearing a lot about the print decline coming from a retailer.
As they shift much more to digital marketing with an emphasis on E. Commerce, what type of impact is that having on you and then I do have a follow up.
Yes, so, let's let's start with the the census, as Terry mentioned that that'll continue production will continue through the April type timeframe.
That remains to us a little bit fluid relative to any additional mailings at the census, or the government printing office may choose to do but as of right now.
That will run through really run through this month, and then and then wind down significantly.
Into into May as we approach may.
Relative to the retail side I think theres two comments I would give you on that put clearly those sort of close to close stores.
The impact of that.
From a from a retail in store signage perspective has been a has been significant as you would imagine.
The other aspect of that is the direct mailings direct marketing.
Opponents, if they use curtailment of that the spend which is really aligned with the comments I made around discretionary advertising spending being pulled back as they look to control their cost of knits there their sales challenges in the stores not being open.
Et cetera.
The other side of the comment I will give you though is.
From a retailer standpoint relative to the combination of digital E commerce versus versus print and still still early.
But we are getting request from retailers relative to capacity that we will have in Q2 Q3 available for them as they begin to open back up open back up again, so I think the net.
Impact of this of E commerce and in store signage, obviously is going to be driven by consumer behavior and to the extent that consumers want to get back out again, when we go into stores. The the fact that they want to go to the mailbox and.
I see the direct marketing campaigns and offers that are in there and they leverage those to go physically into stores and such again I do think we will see that return. The question is what was your question. The question is how significant of return is that versus how permanent is the current E commerce environment.
Relative to consumer behavior.
Okay great.
And then just in terms of the subject on financial flexibility I know, it's really early but how are you thinking about addressing the 2022 maturities.
And again I fully acknowledge that.
It is way way early but.
Our.
Could we see another extension could we see maybe discretionary debt repurchases in the marketplace similar to what you did in March and April.
Are you thinking about that right now.
Yes, so certainly we havent explicitly.
Communicated our plans for the 2022 maturities, but.
The all of that mid term stuff is on our mine and we have started to work on that.
The 20 twos in the 23 in the 24 hours that quite aggressively right now, which is again kind of the normal time that we would be addressing maturities in that mid term my range. So I think.
There's just so many dependence somebody at dependencies on the answer to that question based on what happens with covered how long that goes.
We accessed the capital markets again with the cash flows be sufficient to two and availability on the credit facility continued to be SUS sufficient to retire that.
That 20 to 22 maturity is now down we did by some of that back as part of the transactions with their large.
Credit holder, thats actually down to $133 million right now.
And likewise to kind of depending on the timing for when the proceeds come back from the the China building sales was just up a whole variety of things and we're continuing to.
To kind of work all those opportunities understand.
All the timings for those cash flows and what that impact is going to be and will share. Some more information on that later, but but I would say everything that you listed off there is potentially on the table.
And I guess, one additional question for you Terry and that is we see a lot of high yield issues out there in the marketplace right now issuing debt just to go ahead and make it all the way through 2020.
So that they can have a nice liquidity position going into 2021 win presumably there is going to be a recovery.
If that opportunity arose would you take advantage of that.
We will certainly evaluate it and we'd evaluate the.
The pricing and the opportunity and the success that we think that we could have in executing a transaction like that and we would absolutely consider and look at it as a matter of fact, we're always looking at whole from a variety of options.
For for.
Addressing these upcoming maturities here.
Okay. Thank you very much.
Thanks, Thanks, Bill Thanks, Jason Kim with Goldman Sachs. Your line is open.
Thank you very much thanks for taking my questions. So first first of all.
I got disconnected for a little bit apologize if you addressed this already but then the that truly facility closure and the Korea business.
You sold.
The impact that you mentioned, what's for full year 2019, do you happen number for 119 as well.
I do hold on secondary.
Okay.
Chile, Chile was quite small it as a couple of months worth and it's a small business to begin with but Chile was about six and a half million on sales into slightly negative on I fall.
In the first quarter and our Courier business was.
Roughly for about two months was about.
I was just just under $19 million of sales and.
Just slightly negative on iPhone as well.
Thank you.
And then the census, obviously has been has shrunk contributor to topline and bottom line as well curious to get your take on the profitability of the contract.
In one case versus prior quarters have they been sort of similar.
Throughout the past few quarters or has there been look it up a ramp in terms of.
<unk> costs impacting your margins in the beginning.
Getting better margins for you these days.
Yeah first quarter census work was about almost identical in terms of sales and profitability to fourth quarter of last year the third quarter.
2019, which was the first quarter than we had significant production that was a little bit stronger than both fourth quarter end first quarter now.
Understood and then following up on the capital Monitory pretty close.
Thank you and then just following up on the capital markets question.
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The a lot of secure debt issuances, we have seen in high growth markets.
How are you thinking about that as an avenue for RR Donnelley.
You have some problem loans outstanding.
$500 million, but how much more incremental secured debt capacity do you have.
And then can extend to where do you want to tap that as a source of liquidity. How are you thinking about potential for incremental interest, causing may incur versus.
As raising more liquidity to the buffer up the maturity profile et cetera.
Yes, I mean, there is theres theres definitely a good find balance there on on the incremental rate that you would pay on that and certainly becomes part of the process that we evaluate but the.
The liquidity pushing out maturities I mean those are all.
Periods that are very favorable to us right now too as we look at dealing with each of these mid term maturities terms of the secured debt question.
Again, nothing has really off the table, but we do have limitations at a couple different levels in terms of how much secure debt, we can issue and right now the first lien secured debt.
That that capacity right now.
Largely because we've drawn on the credit facility for the flexes flexibility, but that first lien secured debt capacity right now at the end of first quarter is pretty small so there's very limited opportunity to up to issue more first lien secured debt.
The other.
That does junior to that there there's still some capacity to issue.
Issue.
A junior secured debt.
Just a couple hundred million dollars of capacity. There. If you were to do the math out of that out of that term loan agreement.
Understood. Thank you very much.
Thanks, Jason. Thank you again, if you'd like to ask a question. Please press star one on your Touchtone phone.
Sam Mcmillan with White Force your line is open.
Hi, guys. Thanks for taking the.
A question.
The question is really in regards to.
The pension liability and so.
Obviously, the underfunded portion of that was was relatively small I think you guys were expecting around nine or so million those contributions to the pension but.
As we look at where I guess discount rates have come in.
And asset prices have fallen.
Kind of done the raw.
Committed and kind of have seen that that pension liability grow some some bit.
My math.
It is kind of growing up to like the 400 million dollar underfunded amount.
And I'm sure understanding how does that impact the Tony Tony and go forward pension contributions that would be required of R&D. Thanks, so much.
Yeah no problem.
The.
The contributions which will be just just right around $10 million is what I said last last quarter for 2020 that doesn't change at all with what's happened to primarily with the.
The asset valuations in the pension plans and the OPEB plans that we have out there.
The.
It's certainly theyve they have come down with the impact on call, David and the crisis here, but.
Valuation that will lock in kind of the income that we record and the contributions that we make that impact will be reassessed based on where assets and discount rates and all of that is at the end of 2020, and then that will all set what we do for.
While we have to contribute and we.
Card as income for 2021, so the 2020 stepped up the numbers I provided last quarter. None of those of change those are also accurate and they will not be impacted by by this now.
If you're isolating and it really kind of focused on the impact of lower asset valuations should that continue through the end of the year those those adjustments there. They don't hit all at once there. They are amortized over very very long periods of time, so you've got a pool of pluses and minuses that they are amortizing into your app.
Computation for the income that we recognize each year.
And the the impact on that contribution side has not been significant that ever seen any significant variations in our contribution levels that are required.
So.
At this point 2020 is unaffected and we'll have to see how how 2021 is impacted based on discount rates and asset valuations as the end of the year.
Great. Thank you so much.
Yep.
There are no further questions at this time I would now like to turn the call back over to Dan Knotts.
Great. Thanks, again, everyone for joining us in and in closing I just want to express my sincere gratitude to all of our employees around the world.
Certainly grateful for your dedication to R&D your commitment to continuing to serve our clients. During this unprecedented time.
Ill efforts to help us quickly adjust to this new operating environment. We appreciate you and let's stay healthy and safe with that you'll on back to you.
Thanks, Dan as a reminder, information to access an audio replay of R&D first for 20% to 20% call can be found on the investor section of our website at R&D Dot com.
Both so I would like to highlight that they have relaunched our investor website, making access to news at them and Penn National content more streamlined prostate callers. Thank you for joining us and that concludes the our R&D first for 2020.
Okay.
Okay.
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