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R.R.Donnelley & Sons Co (NYSE:RRD)
Q3 2019 Earnings Call
Oct 30, 2019, 11:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Welcome to the R.R. Donnelley Third Quarter 2019 Earnings Call. My name is Lois, and I will be your operator for today's call. [Operator Instructions].

I will now turn the call over to Brian Feeney, RR Donnelley's Senior Vice President of Investor Relations. Please go ahead.

Brian Feeney -- Senior Vice President of Investor Relations

Thank you, Lois, and thank you, everyone, for joining RRD's third quarter 2019 results conference call. Joining me on today's call are Dan Knotts, RRD's President and Chief Executive Officer; and Terry Peterson our Chief Financial Officer. At the conclusion of today's prepared remarks, Dan, Terry and I will take questions.

As a reminder, we have prepared supplemental slides for today's call, which can be found on the investor section of our website at rrd.com. As we review third quarter results on today's call, we will reference page numbers from the supplemental slides for those participants who wish to follow along by advancing the slides themselves. The information that will be reviewed during this call is addressed in more detail in our third quarter press release, a copy of which is posted on the investor section of our website at rrd.com. This information was also furnished to the SEC 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 involve risks and uncertainties. Therefore, our actual results could differ materially from our current expectations. For a complete discussion of the factors that could cause our actual results to different materially, please refer to the cautionary statement included in our earnings release and the risk factors included in our Annual Report on Form 10-K, our quarterly reports on Form 10-Q and other filings with the SEC.

Further, we will discuss non-GAAP financial information. We believe the presentation of non-GAAP results provides investors with useful supplementary information concerning the company's ongoing operations and is an appropriate way to evaluate the company's performance. These non-GAAP results are provided for informational purposes only. Any references to non-GAAP financial measures are reconciled to the comparable GAAP financial measures in the investor section of our website as part of our press release and within the non-GAAP presentation under the events and presentation tab.

I will now turn the call over to Dan.

Daniel L. Knotts -- President and Chief Executive Officer

Great. Thanks Brian and good morning, everyone and thank you for joining us. On today's call I will recap our third quarter performance, review the continued progress we're making in executing our strategic priorities and share a couple of examples that demonstrate how we are leveraging the power of the RRD platform to create value for our clients in wind new business in a challenging market. But before I begin, I'd like to provide a couple comments on our announcement earlier this week regarding the sale of our UK-based global document solutions business to Paragon Group.

This transaction is strategically important for two reasons. First it represents another important step forward to further optimize our portfolio and improve our financial flexibility through debt pay down. Second, it represents a great example of how we're actually enhancing the breadth of our service offering to a strategic alliance versus owning a business in our new alliance with Paragon Group does just that, through this agreement we've expanded our access to a broader portfolio of capabilities to support the evolving needs of our global clients in that region.

I would like to thank our former GDS colleagues for their tremendous support to RRD over the years and wish them future success as part of the Paragon Group.

Turning to our third quarter overview on Page 3. We delivered strong financial results for the quarter highlighted by continued improvement in our organic sales performance, double-digit increases in income from operations and earnings per share in a 70 basis point improvement in operating margin. Organic sales improves sequentially from the previous quarter a marked by favorable results in our marketing solutions segment. While commercial print and logistics continue to experience market softness. We generated organic growth in a number of our higher value product categories including direct marketing, packaging, labels and digital print. Our sales teams are aggressively navigating in a challenging market and remain laser focused on converting our opportunity pipeline into wins adding both new logos and expanding existing client relationships.

Our operational execution and productivity was strong across the majority of our businesses and we significantly reduced SG&A cost in the quarter. With our favorable Q3 earnings performance we have now delivered three consecutive quarters of improved operating earnings and five consecutive quarters of year-over-year operating margin expansion. Our teams are very focused on driving performance improvement around the world.

Our positive results for the quarter are directly attributable to our sustained focus in consistent execution of our strategic priorities. We continue to strengthen our core performance by aggressively driving our productivity initiatives rationalizing our global footprint in lowering our cost to serve through reductions in SG&A spend. We are favorably shifting our business mix by driving growth in our strategic higher value product categories including direct mail, labels, packaging and digital print. We are further expanding our capabilities in enhancing our operational agility through both targeted investments in external partnerships and we are continuing to execute our plan to reduce debt through cash repatriation, business divestitures and asset sales. While we always have more work to do, we are confident in our strategy in the actions we are taking to position RRD for future success.

I'm also pleased to report that during the quarter we successfully launched the production of the U.S. census and we are meeting all performance expectations. Additionally, we ramped up operations in our new China printing facility and have effectively transitioned the previously farmed-out work back in-house. Stella Ye and our team in China have done a tremendous job of managing this critically important initiative for us. The new facility looks great and operating performance is consistently exceeding the efficiency metrics achieved in the former China location. Great job team China.

Turning to Page 4. We have a very clear strategic focus to help our clients better connect with their customers through their marketing programs and business communications. Day in and day out, we are working with our clients to enhance the impact of their communications by utilizing the right types of content across the right channels to drive up consumer engagement while simultaneously driving out cost. I like to share a few examples that demonstrate how we are leveraging our industry-leading capabilities to help our clients solve their communication execution challenges.

For a large hotel and travel services company. We're delivering an end-to-end marketing solution in support of their new customer loyalty program. This clients' loyalty program merged with two other large hotel companies and required a full relaunch of the entire program under new branding. Our clients sought a supplier with a footprint that could produce and deliver a large-scale multi-component program across multiple continents with speed to market and the ability to adapt to the evolving communications requirements.

We successfully executed the production of more than 150 million communications including membership collateral, cards, key folders and guest materials for over 7,200 properties worldwide. Going forward we will continue to produce and deliver these communications that provide a cohesive brand experience for their hotel guests.

As a second example, we've recently expanded our relationship with a large home improvement retailer. We provide this client with creative services, print collateral and in-store marketing services including the design and production of their store signage. As this client looks to continuously improve the experience they're providing to their shoppers they are enhancing and expanding their distribution centers across the country. Given RRD's strong performance and extensive capabilities they turn to us to develop a unique labeling solution enables an automated workflow while enhancing the presentation of their in-store merchandise. Through the efforts of the RRD's labels team, we successfully met this challenge and signed a new agreement that further expands our relationship with this client.

We also recently teamed up with Greetabl a fast-growing four year old company that patented a greeting card that doubles as a gift box. Greetabl start to capitalize on the growing consumer desire for more meaningful personalized experiences that go beyond the traditional greeting card. The company turned to RRD to help reimagine the traditional package to reach today's consumers. Consumers can craft special message so each gift must be handled individually through a fully integrated and automated workflow. Our solution includes the on-demand production. Kitpack and fulfillment for each Greetabl gift so the clients team can focus on future development and growth of their product offerings.

And as the needs of our clients continue to evolve we are further strengthening our capability through targeted investments in expansion of our partner network. To that end we've recently established a new partnership with ActionIQ a leading marketing activation platform. This new partnership complements our leading data management capabilities by providing access to an enhanced real-time customer data platform and enables personalized customer experiences to be delivered at scale. With the customer data management and analytics landscape undergoing rapid change partnerships like this one are playing an important role in enhancing our ability to provide clients with best-of-breed marketing technologies.

We're also establishing partnerships that help our clients enhance their solution offering by integrating RRD's capabilities into the services they're providing to their customers. We've recently partnered with Mastercard to deliver their upcoming Bill Pay Exchange solution. Bill Pay Exchange will make it easier for consumers to pay their bills with cards real-time payments or from their bank account and receive confirmation of payment all within their banking app or website. RRD is one of the content providers selected by MasterCard to help deliver this solution to consumers and we're excited to incorporate our comprehensive content management capabilities and strong client relationships into a partnership with MasterCard.

Turning to Page 5. Before turning the call over to Terry I'd like to highlight a number of awards that we've recently received in recognition of the quality, creativity and ingenuity that we're providing to our clients around the world. Hormel Foods recognized RRD with a 2018 Spirit of Excellence Awards. Hormel Foods cited our superior quality in the more than 250 million labels that we produced for them last year. We've worked with Hormel Foods for more than two decades producing the labels used in the storing and shipping process for products like Skippy spam and Applegate. Cisco Systems selected RRD from among their wide array of global suppliers for the 2019 supplier quality award. RRD has delivered marketing and communication support to Cisco for more than a decade.

We're also proud to have received eight of Printing Impression magazine's prestigious 2019 Gold Ink awards. And just last week we were ranked number 15 on Crain's Chicago 2019 List of the Most Innovative Companies. These awards symbolize the tremendous work that we're doing to support our clients communications requirements. But importantly they also signal that we continue to earn the right to grow with our clients in the future because of the level of performance we are delivering for our clients today.

Terry over to you.

Terry D. Peterson -- Executive Vice President and Chief Financial Officer

Thank you, Dan. We are pleased to report adjusted diluted earnings per share for the third quarter $0.31 which was up 24% over the prior year. We also reported a significant increase in adjusted income from operations which grew 14.2% in the quarter to $77 million and our adjusted operating margin improved 70 basis points to 4.8%. This marks our fifth consecutive quarter of year-over-year margin improvement. Sales for the third quarter also demonstrated improvement with our best organic performance since we began paring back an unprofitable business in the fourth quarter of last year.

Turning now to Page 6 of the supplemental slides. Reported net sales of $1.62 billion were down $30.1 million in the quarter which included a reduction of $13.4 million associated with two recent business dispositions and another reduction of $10.5 million associated with a stronger U.S. dollar. Net sales were down 0.4% organically. For the segment's business services reported an organic decline of 4.6% primarily driven by lower volumes and commercial print and logistics. Sales and commercial print continued to be negatively impacted by ongoing secular declines and the exit of unprofitable business, including plant closures.

We estimate that the secular organic sales decline rate for our commercial print products was approximately 4% in the third quarter. Sales in our logistics business continue to be negatively impacted by softer market demand compared to the peaks experienced in 2018. Last year the logistics industry as a whole experienced higher demand driven by a strong economy and capacity shortages among shippers. Demand and capacity levels are stabilizing and we expect comparisons to the prior year will improve beginning in the fourth quarter.

Importantly, labels and packaging two of our strategic growth categories they both reported favorable organic sales performance in the quarter. The growth in our labels products was driven by strong domestic sales of shipping labels while packaging benefited from higher sales of our consumer electronics products produced in China.

Marketing solutions reported organic growth of 19.9% due primarily the higher volumes in direct marketing as well as digital print and fulfillment. Direct marketing benefited from significantly higher volumes including the 2020 census contract and growth with existing clients. The census work is expected to contribute substantially through the second quarter of 2020. The favorable performance in digital print and fulfillment was largely attributable to expanded relationships with our retail clients.

On Page 7, our adjusted income from operations of $77 million was $9.6 million higher than the third quarter of 2018, the combination of our ongoing cost reduction initiatives, favorable product mix and prior year losses from recent business dispositions more than offset the impact of pricing pressure and lower pension and other post retirement benefits income.

Adjusted SG&A expense of $190.2 million in the third quarter is down $13.6 million or 6.7% from the prior year reflecting the ongoing execution of our strategic initiative to lower our cost to serve. Adjusted earnings per share of $0.31 in the third quarter increased $0.06 as compared to $0.25 per share reported in the prior year period. In addition to the favorable impact from higher adjusted income from operations our EPS also benefited from $4.6 million reduction in interest expense. This reduction was driven by our team's actions to reduce debt outstanding and we also benefited from lower average interest rates.

Partially offsetting these increases was a higher adjusted effective tax rate of 49.5% for the quarter. The elevated tax rate was primarily attributable to higher disallowed interest deduction in 2019 and discrete benefits recorded in the 2018 quarter. We expect our ongoing efforts to reduce interest expense among other initiatives will help improve our effective tax rate in future years.

Our GAAP results for the quarter included a pre-tax restructuring credit of $2.3 million due to a pre-tax gain of $4.7 million related to the sale of two recently exited facilities partially offset by other restructuring actions. The prior year GAAP results included a significant tax benefit associated with an adjustment to the provisional amounts associated with tax reform and again on the sale of our Print logistics business. In addition 2018 results also included $11 million of restructuring charges related to lease termination, employee severance and other restructuring costs.

Turning now to the balance sheet and cash flow on Page 8. As of September 30, 2019 we had total cash on hand of $144.7 million and total debt outstanding of $2.03 billion including $223 million drawn against the credit facility. Remaining availability on the credit facility was $438.6 million at the end of the quarter. Net cash provided by operating activities of $29.3 million in the quarter was down $34.8 million due to the timing of prior year working capital changes primarily in China. Capital expenditures of $31 million in the quarter were $6.3 million higher compared to the 2018 period due to the strategic investments we are making throughout the course of 2019 to fund incremental investments related to the new China facility and the 2020 census project.

Our ongoing capital priorities remain unchanged. As I have stated in past quarters we expect to continue to make strategic investments in our business including both organic investments and potential acquisitions and we continuously evaluate opportunities to optimize our portfolio as demonstrated by our recent sale of the global document solutions business.

Page 9 shows a summary of the progress we continue to make to reduce our debt outstanding. In regards to the pending sale of our printing facility in Shenzhen, China, during the quarter we migrated the print work that had been temporarily outsourced into our new facility and we are now consistently achieving improved efficiency metrics. At this point we have completed all activities related to this important project and want to extend our congratulations to the China team that made this transition seamless to our clients.

The buyer continues to work with the government to secure the necessary approvals which they expect to obtain in early to mid 2021. Once approved the transaction will close and we expect to record a significant gain on the sale. As a reminder our contract with the buyer requires them to pay the entire purchase price even if the government's approval is not obtained and the sale does not close. Also during the third quarter, we collected an additional $23.7 million deposit from the buyer as planned.

We continue to focus on improving our balance sheet flexibility. Last quarter we announced our strategy to accelerate the repatriation of cash from foreign jurisdictions to the U.S. This quarter we transferred an additional $134 million of international cash to the U.S. bringing our year-to-date total to $256 million. Further during the third quarter we also sold two additional facilities for combined gross proceeds of $8.1 million. These funds have been used primarily to reduce debt outstanding.

Looking ahead we expect to transfer an additional $55 million to the U.S. during the fourth quarter, which includes a net proceeds from the recently announced sale of our global document solutions business. Given that our debt outstanding at the end of the quarter is usually near its highest point during the year due to the seasonal nature of our business, we believe the best comparison to show the progress we have made in reducing our debt is to compare the amount of debt currently outstanding to the same period in 2018. Since September 30, 2018, we have reduced total debt outstanding by a $148 million.

Page 10 of the supplemental slides show the various maturities of our outstanding debt by year as of September 30. The 2020 notes with an outstanding balance of nearly $66 million are scheduled to mature in June and are reflected on our balance sheet in the current category. We plan to repay those notes using availability on our credit facility similar to how we retired the $172 million of 2019 notes that matures last February. In addition during the third quarter we opportunistically repurchase 2021 notes and debentures with a face value of $44.1 million at an average price of $102. The repurchases were funded with availability on our credit facility.

Our updated expectations for full year 2019 are reflected on Page 11 of the supplemental slides. We continue to take actions to strengthen our core profitability including executing our cost reduction initiatives, improving our portfolio mix and exiting unprofitable business. Despite top-line softness in a couple parts of the business we are pleased to be increasing the midpoint of our pre-tax profitability estimates while tightening all ranges as we enter the final quarter of the year.

We have revised our estimated range for net sales to $6.25 billion to $6.35 billion. This adjustment reflects the softer market demand in logistics and to a lesser extent commercial print as well as the October sale of our global document solutions business. Our new range for adjusted income from operations is $245 million to $260 million reflecting a higher midpoint based on strong operating performance and cost management offset by the impact of lower net sales. We also tighten our adjusted EPS range to $67.76, reflecting strong operating performance, lower interest expense and a slightly higher effective tax rate. Regarding cash flow we now expect our operating cash flow to range from $150 million to $165 million and capital expenditures are expected to be approximately $140 million.

Before I wrap up my comments, I would like to remind everyone that fourth quarter is our largest most profitable quarter of the year due to normal seasonality. It is also the strongest from a cash flow generation standpoint with working capital and other investments during the second and third quarters expected to be monetized for higher volume. We plan to utilize our increased cash flow to further reduce debt before the end of the year. Our teams are prepared and we are off to a good start to the fourth quarter as we look to close out another successful year for RRD.

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

Questions and Answers:

Operator

[Operator instructions] Our first question is from Jamie Clements from Buckingham. Please go ahead.

Jamie Clements -- Buckingham -- Analyst

All right, Dan, Terry Brian good morning.

Daniel L. Knotts -- President and Chief Executive Officer

Good morning, Jamie.

Terry D. Peterson -- Executive Vice President and Chief Financial Officer

Hi, Jamie.

Jamie Clements -- Buckingham -- Analyst

Hey, a couple of questions in no particular order, but I think Terry was you -- think you said that secular decline rate in Commercial Print, I think you said was about 4%. Is the implication there that the rest of that decline is related to business that you are moving away from as you've discussed in prior quarters?

Terry D. Peterson -- Executive Vice President and Chief Financial Officer

Yes. Definitely some of the unprofitable stuff that we've moved away from some of the closed facilities hit that category and then also Brazil, the shut down in Brazil at the end of March that also affects reported sales in that category.

Jamie Clements -- Buckingham -- Analyst

Okay. Was any of the census working in any of the other segments other than direct marketing?

Terry D. Peterson -- Executive Vice President and Chief Financial Officer

This quarter it was just direct marketing.

Jamie Clements -- Buckingham -- Analyst

Okay. And then maybe how will that kind of evolve over the next couple of quarters?

Terry D. Peterson -- Executive Vice President and Chief Financial Officer

Well, I did mention in my remarks that the revenue volume from that it will have a significant impact, pretty consistently throughout the remaining three quarters after this one. So that would go into the second quarter of next year. It won't be a complete full second quarter of 2020 benefit, but it'll go good halfway through that quarter.

Jamie Clements -- Buckingham -- Analyst

Terry, actually I'm sorry I didn't click what I meant was are we going to see it more in terms of the other reportable segments?

Terry D. Peterson -- Executive Vice President and Chief Financial Officer

Yes. It will, direct marketing will ultimately be the largest beneficiary there but as we get into later stages of production and binding, we will start to see some of that benefit show up in our commercial front products.

Jamie Clements -- Buckingham -- Analyst

Okay. All right. So Dan over to you if you may. I'll let Charlie ask the question, so on logistics business some of your pure-play peers have reported their quarters, I think it's kind of clear what's been going on there. In the earnings release you seem to suggest you think conditions have bottoms?

Daniel L. Knotts -- President and Chief Executive Officer

Yes, Jamie, thanks for the question. I think there's a couple of answers I would like to provide to that. I think as you look at and we pay very close attention obviously to both the performance of the carriers and those who look more like us in the 3PL space. I think it's fair to say that as you are very well aware Q4 of 2018 kind of came out of nowhere as a surprise to a lot of folks. I think what's important to note is that if you look at 2019 to the first three quarters Q4 becomes that lapping effect if you will, but I think a couple important points they need to be made. 2019 is a -- has been a tough year relative to expectations. And if you looked -- however, if you look at coming off of a high 2018, but if you look at 2019 performance particularly for us is that the still growth to 2019 versus 2017.

So '18 was as we've talked about before, was a high year expectations were very high coming into 2019 and the industry just hasn't lived up to those expectations. More specific to your questions as you look at Q4 this short answer is yes we are seeing stabilization. We track revenue loads on a daily basis and we are seeing a stabilization of that business while still early in Q4.

Jamie Clements -- Buckingham -- Analyst

Okay. All right. In looking at your revised guidance and looking at the strengths in the third quarter, my personal take -- and maybe this is a year-over-year comparison issue but it looks to me like your third quarter year-over-year looks a lot stronger than what you're sort of -- not a lot, a little bit stronger than what you may be implying kind of at the midpoint for the fourth quarter. What are some things we should be thinking about for the fourth quarter there in terms of year-over-year comparisons?

Terry D. Peterson -- Executive Vice President and Chief Financial Officer

Yes, as you know Jamie. This is Terry. I'll take that that question. I think we've been kind of chipping away as a portfolio optimization and kind of paring back an unprofitable business. Unfortunately, none of that stuff has individually been large enough to garner the discontinued operations reporting. So we're forced to leave it in, so on a comparative basis, we see decreases in things like sales. And while something like Brazil has been kind of a tailwind for us in Q2 [Indecipherable] because they were reporting losses in those quarters at this time last year.

Fourth quarter was when they made all their money and so next quarter will be lapping a profitable quarter for Brazil. But -- so it's some of those factors that are certainly playing into the situation here. Election revenue is another one. Fourth quarter last year benefited from top line and bottom line the election related support. And there's a few other cats and dogs in the cost structure too, but those are some of the headlines as to why -- and if you look at our guidance, say, for the income from operations with our new range even at the top end of that range that would imply on the top side we can hit kind of a flat performance over the year but absolutely you're right the midpoint is down a bit for just a whole host of reasons not one dominant factor.

Jamie Clements -- Buckingham -- Analyst

Okay. Great. I appreciate it. Thank you.

Daniel L. Knotts -- President and Chief Executive Officer

Yes. Thanks, Jamie.

Operator

Thank you and our next question is from Charlie Strauzer from CJS. Please go ahead.

Charlie Strauzer -- CJS -- Analyst

Hi good morning.

Terry D. Peterson -- Executive Vice President and Chief Financial Officer

Good morning, Charlie.

Daniel L. Knotts -- President and Chief Executive Officer

Hi, Charlie.

Charlie Strauzer -- CJS -- Analyst

Can you talk about the GDS sale real quick? How much of the sale is impacting your kind of new guidance here those like how much is coming out of Q4 here that we should factor into our model and also was there any tax implications from the sale as well?

Daniel L. Knotts -- President and Chief Executive Officer

Yes. I'll take that. We reported that last year sales were about $270 million you kind of it's taking a 2/12 of that. You're roughly in the $40 million range for an adjustment for the last two quarters. It was with us for most of October, not quite all, but most of it, so a good couple of months there is what will come out there. From a tax standpoint there will be a little bit of tax leakage not much but a little bit of tax leakage on the repatriation of that money back here. We are able to shelter the gain in local taxes but there will be when we do repatriate that we'll have just a very small couple million dollar tax leakage on that number. So really a good efficient transaction from that standpoint.

Charlie Strauzer -- CJS -- Analyst

Great. Thanks. And then just looking at the improvement in adjusted income from operation margins. Is that trend likely to continue into next year and are we kind of hitting some of the that the meat of the cost-cutting so to speak?

Daniel L. Knotts -- President and Chief Executive Officer

Yes, obviously we haven't provided guidance for next year but you know we -- those margins are being aided by certainly the cost-cutting actions that we'll not quit. This year, those are going to be part of our DNA and we're going to have to deliver on those every year, just like we have been for the past many years. So that will certainly be a piece of it. But also to we have really gone pretty aggressively after evaluating that the business that we are conducting and really kind of paring back and saying no to some of the stuff that isn't meeting performance or profitability expectations.

And while we do get a nice pop and benefit from that the -- we do have to sacrifice some sales as we've done some cleaning up with that. Since that big push really started we'll lap that real -- that element in fourth quarter because there's really fourth quarter we started talking about a big push on that. Certainly some incremental benefits will still continue to come in because we continued to do more of that as the quarters have gone on but our first big lapping of that initiative will happen in fourth quarter now.

Charlie Strauzer -- CJS -- Analyst

Great. And then maybe Dan you could talk about this but on the direct marketing side excluding the Census work, what kind of good things are you seeing there in terms of trends in the business?

Daniel L. Knotts -- President and Chief Executive Officer

Yeah. The direct marketing side we continue to trend well there. We are from a program standpoint particularly the higher-end, more complex, highly variable-type product that's being produced there, we continue to see significant request demand from clients. I think as we've talked before direct marketing is not dead and we still feel good about our position in the market in our path forward there. So ability to support our clients challenges on the higher end of the production continuum the product complexity continuum is where we drive and we feel good about where we're operating out there and on a going-forward basis as well.

Charlie Strauzer -- CJS -- Analyst

And Dan can just given some of the challenges you see in commercial prints? I mean do you feel like the industry needs to consolidate further or capacities come off-line more rapidly?

Daniel L. Knotts -- President and Chief Executive Officer

Yes. I'd say two things about that Charlie. The first one is we actually have in kind of put into perspective. We have the advantage of having an enterprise selling organization and a significant client base that we continue to leverage and drive commercial print sales into those larger opportunities but at the same time competing on the local basis. And I would tell you that as we know it remains a very fragmented part of the industry. And I would also tell you that in the last I don't know I guess 30, 60, 90 days, we've seen a significant increase in inbound activity from other commercial print suppliers across the industry looking for relief or an exit plan given the performance, deteriorating performance of their business.

So the short answer would be yes, the consolidation is, what would be a good thing for the overall industry to support the secular decline that we're seeing there. I think the other comment I would make on that is if you look at commercial print within our commercial print business there's two components of that. There's the work that we're actually producing in the work that we are sourcing on the outside. And to Terry's point we are being very selective about the type of work that we're expending resources particularly but it has to go to the outside with very lowered or minimal margins on that work. And that's impacting us on the top-line but overall if you look from a sourcing standpoint is actually helping at the bottom line because we're being more selective and choosing to accept the more profitable work. So there's a number of dynamics that are going on there. We feel we have an advantage because of the enterprise selling efforts that we have in addition to the local efforts that we have, the market is the commercial print market is challenged and capacity rationalization would be a benefit.

Charlie Strauzer -- CJS -- Analyst

Excellent. Thank you very much.

Daniel L. Knotts -- President and Chief Executive Officer

Thanks, Charlie.

Operator

Thank you [Operator Instructions] And our next question is from Bill Mastoris from Baird. Please go ahead.

Bill Mastoris -- Baird -- Analyst

Okay. Thank you. I'd like to begin with Terry a statement that you made a little bit earlier it's the first time I've heard you talk about acquisitions. Before it's been a matter of strategic partnerships. So I'm just kind of wondering are the maybe the mention of acquisitions because you've been successful in the strategic partnerships and maybe those partnerships actually become acquisitions, is am I reading that correctly? So that's the first question.

Terry D. Peterson -- Executive Vice President and Chief Financial Officer

Yes. I have been pretty consistent mentioning that we do look at acquisition. Obviously we've done very, very few since the spin as we've really prioritized improving our capital structure in that same period of time as well, but you should not read any additional emphasis into the mention of it again this quarter. The only thing that really changes -- if you look closely in the release, we actually did to play one small, very small acquisition in the current quarter, but no greater or lesser emphasis or point on that part of our strategy.

Bill Mastoris -- Baird -- Analyst

Okay. And then I'd like to, my second question really is a follow up on some earlier questions. And this has to do with what inning are we in right now in terms of your portfolio optimization and when we get to the cost side which you indicated that that's going to be part of your DNA, I'm just wondering what cost categories can you cut further? I mean for the last several quarters you've done a pretty good job in cutting those cost categories. I'm just not sure how much is left.

Terry D. Peterson -- Executive Vice President and Chief Financial Officer

Yes. There's -- we're getting costs out at both our, say the cost of goods sold and the gross profit level through greater efficiencies and better buying behaviors and negotiating with our vendors but we're also continuing to get progress on the SG&A front and we don't normally talk about it this way, but I certainly look at it this way. I also consider good solid efforts to reduce interest expenses another form of cost-cutting and we've had some really good wins on that front as well. And then over on top of that we also get benefits too. I mean, the type of stuff we are -- we're exiting or selling in case of portfolio optimization those generally have say SG&A structures that are greater as a percentage of those sales than what the overall company is. We do get benefits when we sell businesses like a shutting down Brazil or selling the GDS business those give us additional benefits. So the continued focus and the continued execution is going to still deliver in all three of those categories.

And then in regards to kind of what inning on the portfolio optimization. I would say we're in definitely an earlier inning still. We've got some smaller wins and progress that we made in that category and we're going to continue to chip away at that. I mean we'll always continuously evaluate what's in our portfolio depending on kind of where we're at with the strategy and how we see that evolve over time, but I would say that we're working hard to actually do more.

Daniel L. Knotts -- President and Chief Executive Officer

Bill it's Dan. I want to add a couple of comments to your question there -- both questions actually. So from an acquisition standpoint in partnership versus partnership, I think it's important there's an important distinction there as you look at the partnership activities that we have. They've been skewed more toward the digital side of our business. And the interesting part about the digital side of the business and partnerships and importance of partnerships versus acquisitions, acquisitions of digital companies is not a one-in acquisition of digital company is not a one in done activity.

Technology changes every single day, week, month, etc. And your ability to not just acquire that, your ability to be able to reinvest and stay abreast of the technology that somebody else is developing to compete with you is a monumental task. So that's not going on a large scale that fits where we sit and where we're going. So the use of partnerships for us are going to continue to be an important aspect of that, particularly it relates to more the technology digital side of our business and Terry's point from an acquisition standpoint, we absolutely have talked about that, hasn't been a significant priority, remains lower on our priority list until we reach the point of the financial flexibility that we believe affords us the bigger opportunity to do that.

In terms of the innings from both the cost out in a platform optimization standpoint. Addressing each one of those. So from a cost out standpoint thank you. I do believe we've done a very good job of managing our cost structure. It's in our DNA, and I absolutely expect that to continue. But one of the things I think is really important for this company and for many companies around the globe is that this cost-cutting has two components of it.

The first is as we view it the first is we look at within the operating platform we have. We look at the productivity, efficiency that we have with each of the walls of every facility we have and we also look at the number of facilities that we have. So you can count the walls and as you look at the right opportunities to consolidate and drive a scale that's very much needed in this industry, we're focused on doing both of driving productivity within the walls of every facility we have as well as rationalizing our footprint to drive the scale that we need and that becomes even more important in a tight labor market environment and trying to keep up with labor turnover in so many facilities. The added advantage of having scale and flexibility to serve your clients and adjust your labor pool becomes a competitive advantage in our mind.

The second thing I think that's really important about cost and it really pertains to the infrastructure SG&A cost and you hear a lot of companies talking about it and we are right there with them. The cost reduction activities in terms of driving out cost more related to being able to do more with less has been historical focus of business. And what really is happening here is you think about AI and machine learning the next opportunity and it's a very big opportunity to get after the SG&A and the infrastructure costs exist in many companies is to address how we actually work. And the ability to take non-value and activities and automate those non-value activities to get those cost out so you can reinvest not at the full rate but a lower rate into the growth areas of your business is critically important.

So I completely agree with what Terry said early innings relative to cost but it's more about moving forward with changing how we work, utilizing technology versus squeezing more out of our current organization and continuing to do the same things. Relative to platform optimization my last comment on that is we are also in the early innings there as well. But I think it's important for everybody to understand is it's from portfolio optimization activities that needs to come at the right time in the right valuation and we are very, very focused on you can never be perfect in that scenario, but it needs to fit your path forward in your plan.

We all want to go faster. I want to go faster every single day. But it has to be at the right time in the right valuation for us to continue to move forward and we're not looking to reduce our offering to our clients what we're looking for a more consolidation opportunities where -- or divestiture opportunities like the GDS one where we continue to be able to provide our services actually enhance the services we can provide for our clients we just don't need to own that business.

And you'll continue to see us focus on that as well.

Bill Mastoris -- Baird -- Analyst

Okay. Then finally, Terry this is the first time I've seen you actually repurchase bonds in the open market. Is there going to be an ongoing program where you repurchase bonds in the open market and will that be skewed toward the near-term maturities? Would that be a fair assessment?

Terry D. Peterson -- Executive Vice President and Chief Financial Officer

Yes, I don't know if I would go so far as to call it a program, but certainly right now my focus is entirely on the '20 and the 2021 maturities as we have prepared to redeem those. I mentioned in my prepared remarks at the 2020 which is a little under $66 million we will take that out with the availability on the credit facility and again we're still trying to work on strategies on the 2021, but those are my focus ones right now. Again I wouldn't call it a structured program of any sort as those do become available, if they become available, they're very thinly traded. I would consider additional purchases at the right price.

Bill Mastoris -- Baird -- Analyst

Okay. Thank you very much gentlemen, really do appreciate all the detail and the answers. Thank you.

Daniel L. Knotts -- President and Chief Executive Officer

Thanks, Bill.

Terry D. Peterson -- Executive Vice President and Chief Financial Officer

Thank you.

Operator

Thank you and at this time there are no further questions. Thank you. Please go ahead, Dan.

Daniel L. Knotts -- President and Chief Executive Officer

Great. Thank you, Lois and thank you everyone for joining us on the call today. A recap for the messages our key messages for the quarter are listed on slide 12 of our presentation. In closing, I just like to say thank you to all of our employees for your dedication to our clients in our company. With the fourth quarter are already under way continue to be grateful for your focus, your energy in your commitment to finish the year strong. Please note your efforts are greatly appreciated. And with that, I'll turn the call back over to Brian.

Brian Feeney -- Senior Vice President of Investor Relations

Thanks, Dan. As a reminder information to access a telephonic replay of RRDs third quarter 2019 results call can be found in our third quarter press release, a copy of which is posted on the Investor section of our website at rrd.com. Thank you for joining us this morning and that concludes the RRD third quarter 2019 earnings call.

Operator

[Operator Closing Remarks]

Duration: 47 minutes

Call participants:

Brian Feeney -- Senior Vice President of Investor Relations

Daniel L. Knotts -- President and Chief Executive Officer

Terry D. Peterson -- Executive Vice President and Chief Financial Officer

Jamie Clements -- Buckingham -- Analyst

Charlie Strauzer -- CJS -- Analyst

Bill Mastoris -- Baird -- Analyst

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