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R.R. Donnelley & Sons Company (NYSE:RRD)
Q1 2020 Earnings Call
Apr 29, 2020, 11:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Ladies and gentlemen, thank you for standing by, and welcome to the RRD First Quarter 2020 Results Conference Call. My name is Jack, and I'll be your conference operator today. [Operator Instructions]

I'll now turn the call over to Johan Nystedt, RRD's Senior Vice President of Finance.

Johan Nystedt -- Senior Vice President of Finance

Thank you, Jack, and thank you, everyone, for joining RRD's First Quarter 2020 Results Conference Call. Joining me on today's call are Dan Knotts, RRD's President and Chief Executive Officer; and Terry Peterson, our Chief Financial Officer. At the conclusion of today's prepared remarks, Dan, Terry and I will take questions. As a reminder, we have prepared supplemental slides for today's call, which can be found on the Investors section of our website at rrd.com. As we review first 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 first quarter press release, a copy of which is posted on the Investors 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 differ materially, please refer to the cautionary statement, including 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 Investors section of our website as a part of our press release.

I will now turn the call over to Dan.

Daniel L. Knotts -- President, Chief Executive Officer

Great. Thank You, Johan. Good morning, and thank you for joining us today. On behalf of everyone at RRD, I hope that you and your families are staying healthy and safe amid this global pandemic. In just a few short months, a worldwide health crisis has emerged to have a profound impact on our personal health and wellness, 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 COVID-19 pandemic continues to threaten the health of individuals, businesses and global economies. To everyone at RRD, thank you for your tremendous efforts and support as we navigate through this unprecedented 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 are taking to protect our team members and support our clients while we quickly and decisively implement our plan to help offset the impact of the COVID-19 pandemic.

Through the successful execution of our strategic initiatives in 2019, we entered this year with strong momentum. I'm pleased to report that despite the negative impact of COVID-19 on our operations in China, we delivered a very strong quarter to start the new year. On the top line, 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 COVID-19 pandemic. Excluding the China impact, which represented 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 over time. From an earnings perspective. We delivered $55.1 million in adjusted income from operations, which is $18.7 million or 51.4% favorable to last year's first quarter. We also reported a 150 basis point increase in operating margin and a $0.39 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 Courier Logistics business in early March. Both of these planned actions were part of our ongoing plan to further optimize our business portfolio and tighten our strategic focus. Additionally, we continued our focus on lowering our cost to serve, as evidenced by a $21 million decrease in SG&A expenses versus the prior year quarter. 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 of maturities due in 2023 and 2024 out to 2029. These exchanges were fully completed in early April. We also opportunistically repurchased in late March and early April $51 million of our senior notes and debentures due in 2020 and 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.

Now as we look ahead, the COVID-19 pandemic has introduced significant near-term business challenges and incredible level of uncertainty for which there is no defined road map or navigation system to follow for recovery. While we're all hopeful that the lockdown measures being enacted around the world will curtail the continued spread of the virus, it is still too early to predict the full magnitude or duration that COVID-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 and serves as our road map 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 effort since we've been together. The difficult actions that we've taken and the experiences that we've gained in executing those actions have enhanced our preparedness and ability to prudently manage our business amid 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 highest priority, the health and safety of our employees.

We are laser focused on protecting the health and safety of our 35,000 employees around the globe. Our obligation and my commitment to the tremendous people we have at RRD is to do everything we can to keep them safe at work. We have established a COVID-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 and the World Health Organization. We're also leveraging the experiences of our colleagues in China, who faced the impact of COVID-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 and the suspension of all travel. Within our manufacturing facilities, we're utilizing staggered shifts, activating physical distancing and implementing the required use of personal protective equipment and temperature monitoring. With PPE in short supply, our teams have exercised their ingenuity to develop protective equipment using our existing equipment. Our Retail Solutions group is producing RRD-branded cloth mask for our employees using the same equipment we use to produce fabric work for our retail clients, and our Packaging team is producing low-cost, disposable face shields for employee use.

Our second area of focus centers on maintaining operational continuity. It 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 and more than 250 facilities. Our employees are meeting client commitments while maintaining the safety, ethics and compliance that are core to RRD. All of our printing and distribution operations have been deemed essential with the exception of a small number of facilities in the Caribbean. We have more than 10,000 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 and 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 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 are 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 a large, full-service restaurant company, we're providing the directional signage displayed in its nationwide fast casual restaurant change chains. When these restaurants move from dine-in to takeout, they needed new signage to inform their patrons about safety, policy and procedural changes. We're also providing disposable menus for the same client, which will likely become more of the norm for the industry moving forward. And with clients quickly implementing work-from-home policies, our retail team also developed a portfolio of shelter-in-place solutions that support that transition. From branded Pop-N-Lock backdrops to banners to coloring books and more, our solutions are serving to create a sense of corporate unity and maintain brand consistency as workers 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 and 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 COVID-19, our Labels team developed a tamper evident food labels that are being utilized by large pizza chains and other food delivery services to assure their customers of the safety of their products. For a major healthcare company, we are shipping healthcare packages to members diagnosed with COVID-19. Our team worked quickly to create, kit and fulfill HIPAA-compliant packages for these members. The kits include over-the-counter items such as disinfecting wipes, cough drops, antibacterial hand soap and tissues and contain a top sheet with information for how the affected person can protect others during the healing process.

We're also proud to be supporting a large diagnostic testing organization as they ramp up production of the COVID-19 test kits that are in critical need across the country. We are supporting the total kitting requirements of this client, including labels, instruction manuals and product cartons. Our experience in life sciences space, with certified facilities and a highly trained staff, enabled us to quickly ramp up this project to meet the spike in demand. And while we're leveraging our existing capabilities to serve our clients, we're also continuing to innovate and bring new solutions to market. We recently launched QuickLetter, an end-to-end printed mail solution that helps organizations send business-critical customer communications faster. Our solution uses data and automation to generate personalized communications at scale, which is critical now more than ever as our clients need to rapidly respond to and communicate critical information to their employees and customers.

Just as we were there to help our clients navigate their communication needs brought about by the start of the COVID-19 pandemic, we are fully prepared to support our clients as they return to their new normal in the coming weeks and months. From return-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 value-added solutions, we are well positioned to help our clients execute their targeted communication strategies as the 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 and the suspension of all planned merit increases across the company. We are leveraging our operational scale to temporarily close certain production facilities facing significant volume declines and shipped 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 we have increased our borrowings under our revolving credit facility. As of March 31, our total borrowings under the revolving credit facility were $450 million, and cash on hand was approximately $451 million. For the last 155 years, we have effectively navigated through periods of crises and 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 is united in our conviction to keep one 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 taking decisive actions in the best interest of our stakeholders. We are proud of our first quarter performance, and we are pleased and ready to support our clients as the world recovers from the COVID-19 pandemic.

And with that, I will turn the call over to Terry.

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

Thank you, Dan. Our start to 2020 was exceptionally strong across the board, with performance exceeding our initial expectations. Our organic sales decline moderated despite having absorbed a $43 million decline in China due to COVID-19-related closures. Aside from China, the business grew organically in the quarter driven by the 2020 Census 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 $0.33 were the highest reported for any first quarter since our spin. Our cash flow also improved significantly with a $50 million improvement 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 midterm maturities. I'll talk more about these transactions later in my prepared remarks.

While our first quarter results were a great affirmation of the success we are having as we execute our strategy, our primary focus now is to successfully navigate through the uncertainty presented by COVID-19 while we protect our employees, deliver on our commitments to clients and preserve our financial flexibility. Dan shared what we are doing to protect our employees and deliver on our commitments to our clients, and I will focus my portion of the update on how we are 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 begin 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 U.K.-based 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 a stronger U.S. 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 month-long facility closures in China. For the segments, Business Services reported an organic 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 4% 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 & Fulfillment. Direct Marketing benefited from 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 1/3 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 byproducts recoveries.

Adjusted SG&A 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 $0.33 in the first quarter as compared to a $0.06 loss reported in the prior year period. The 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 the Logistics were both favorable to the prior year, future projections were lowered for reduced demand in the near term due to the COVID-19 pandemic. In addition, 2020 results for the quarter also included $11.3 million for net restructuring and other charges, a loss of $8.3 million from the disposition of the Logistics Courier business and expenses associated with the ongoing SEC and DOJ 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. The 2019 amount 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 31, 2020, we had total cash on hand of $451 million, which was up $260 million compared to December 31 largely due to the higher amount outstanding under the revolving credit facility. We expect to maintain a higher borrowings outstanding throughout the COVID-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 31. I would like to provide you with an update of our capital priorities. Throughout the COVID 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. The 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 the buyer requires them to pay the final installment in 2022 even if the government's approval is further delayed. If the buyer fails to comply with the terms of the agreement or terminates for any reason, RRD is entitled to retain 30% of the purchase price in liquidated damages.

Page nine shows the various maturities of our outstanding debt as of March 31, 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 addressed 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 and 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 exchanged for $54 million of new senior notes. The remaining $227 million was exchanged 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 was 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 and our liquidity as we manage RRD through the COVID 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 COVID-related orders that we have secured and are producing in many parts of our business. As of March 31, 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 are 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 24, 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 continue 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, let's open up the line for questions.

Questions and Answers:

Operator

[Operator Instructions] Charlie Strauzer with CJS. Your line is open.

Charlie Strauzer -- CJS -- Analyst

Hi, good morning.

Johan Nystedt -- Senior Vice President of Finance

Hi Charlie.

Charlie Strauzer -- CJS -- Analyst

So obviously, you covered a lot of ground in the prepared remarks, and thank you for that. But just a couple of follow-ups, if I could. And I know that you're reducing your capital spending, capex. And any sense there as to the magnitude of the cuts that you're expecting?

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

The reductions in capital?

Charlie Strauzer -- CJS -- Analyst

Yes, capex that's right.

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

So we had guided last quarter to a pretty significant reduction, and we've reduced that a bit as well. But our current estimate and again, it's fluid depending on what happens and how long the crisis continues, but we're probably talking about something in the $80 million neighborhood.

Charlie Strauzer -- CJS -- Analyst

Got it. And just when you look at the some of the opportunities that you highlighted in terms of the Dan was talking about some things there in terms of the new kitting opportunities and things like that. Can you perhaps maybe quantify a little bit of that for us, if possible?

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

I can't really quantify that specifically, but that is embedded in the second quarter numbers, the guidance that I did provide, which is the $300 million to $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 the good news is, is that we are seeing these opportunities come up in several parts of the business. It's not focused or isolated into one or two areas where we're seeing it, and we continue to see it. So it wasn't just kind of a onetime shot here, but we continue to see orders and requests for bids coming in. But I don't have a quantification specifically for those orders.

Daniel L. Knotts -- President, Chief Executive Officer

Charlie, it's Dan. I think what's important as we look at our revenue forecast and provide a little bit more kind of revenue outlook and provide a little bit more color on the different scenarios that we've run, if you lay out our different product mix on a continuum of, call it, discretionary spending from a client standpoint being more geared toward advertising as opposed to regulatory communications on the other end of that continuum, in that scenario, you would think about statement production. And then you have everything in the middle that's really product oriented like Labels. So what we've seen is on the discretionary end of that, which is the think of the Direct Marketing and the general advertising, Commercial Print-type communications are going out. Curtailment of that, particularly in in-store signage, etc, given that retailers are paring back, financial services companies are taking a bit of a pause as well. So we're seeing the impact on the discretionary end of the continuum. On the other end of the continuum, we are seeing that hold up fairly well relative because it's regulatory driven and it's compliance driven and, again, mainly about the Statements would fall into that category.

In the middle is really the big question mark because that's the stuff that's really related to products. So you think about labels, whether it's 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 very good about where we're at. But a lot of it has 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 enhance the overall testing across the country. There are different clients pursuing that. And as they win, and we're positioned 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 we're producing and particularly as you look at Q2, we are absolutely being impacted at the discretionary end of this because really because of the curtailment from the discretionary marketing-type products.

Charlie Strauzer -- CJS -- Analyst

Excellent. And then, Terry, you mentioned the CARES Act, getting a little benefit on the tax side there. Any other pieces of that act that could impact your business good or bad in the near term?

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

Yes. I mean, certainly, the tax benefit for the higher deductibility certainly had a nice impact in 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 does extend for 2020 as well, so the 2020 portion of that will continue to create benefits for us. Most of the loan programs and such were too big for participating in any of those opportunities or benefits. We are we do have some opportunities to extend some of our tax payments with kind of the revised deadlines. The most notable ones 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 opportunity only is the deductibility of the interest.

Charlie Strauzer -- CJS -- Analyst

Okay, thank you very much.

Johan Nystedt -- Senior Vice President of Finance

Thanks, Charlie.

Daniel L. Knotts -- President, Chief Executive Officer

Yep, thanks, Charlie.

Operator

Bill Mastoris with Baird. Your line is open.

Bill Mastoris -- Baird. -- Analyst

Thank you. I'd like to 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 the Census contract does run out. My recollection is sometime right around the middle of this year. And then also, we've been hearing a lot about the print decline coming from retailers 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.

Daniel L. Knotts -- President, Chief Executive Officer

Yes. So let's start with the Census. As Terry mentioned, that'll continue. Production will continue through the April-type time frame. That remains a little bit fluid relative to any additional mailings that 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 wind down significantly into May as we approach May. Relative to the retail side, I think there's two comments I would give you on that. Clearly, on those that have closed stores, the impact of that from a retail in-store signage perspective has been significant, as you would imagine. The other aspect of that is the direct mailings or Direct Marketing components that they use and curtailment of that spend, which is really aligned with the comments I made around discretionary advertising spending being pulled back as they look to control their costs amid their sales challenges and the stores not being open, etc.

The other side of the comment I would give you, though, is from a retailer standpoint relative to the combination of digital e-commerce versus print. And 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 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, want to go into stores, the fact that they want to go to the mailbox and 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, which is your question the question is, how significant of a return is that versus how permanent is the current e-commerce environment relative to consumer behavior.

Bill Mastoris -- Baird. -- Analyst

Okay. Great. And then just in terms of on 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 or is could we see another extension? Could we see maybe discretionary debt repurchases in the marketplace similar to what you did in March and April? How are you thinking about that right now?

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

Yes. So certainly, we haven't explicitly communicated our plans for the 2022 maturities, but the all of that midterm stuff is on our mind, and we have started to work on that, the '22s and the '23s and the '24s, quite aggressively right now, which is, again, kind of the normal time that we would be addressing maturities in that midterm range. So I think it there's just so many dependence so many dependencies on the answer to that question based on what happens with COVID, how long that goes. Would we access the capital markets again? Would the cash flows be sufficient to and availability on the credit facility continue to be sufficient to retire that?

That 2022 maturity is now down. We did buy some of that back as part of the transactions with our large credit holder. That's actually down to $133 million right now. And likewise, too, kind of depending on the timing for when the proceeds come back from the China building sale. So it's just a whole variety of things, and we're continuing to kind of work all those opportunities, understand all the timings for those cash flows and what that impact is going to be. And we'll share some more information on that later, but I would say everything that you listed off there is potentially on the table.

Bill Mastoris -- Baird. -- Analyst

And I guess one additional question for you, Terry, and that is, we see a lot of high-yield issuers 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 when presumably there is going to be a recovery. If that opportunity arose, would you take advantage of that?

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

We would certainly evaluate it. And we evaluate 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 it and look at it. And as a matter of fact, we're always looking at a whole variety of options for addressing these upcoming maturities here.

Bill Mastoris -- Baird. -- Analyst

Okay, thank you very much.

Daniel L. Knotts -- President, Chief Executive Officer

Thanks, Bill.

Operator

Jason Kim with Goldman Sachs. Your line is open.

Jason Kim -- Goldman Sachs. -- Analyst

Thank you very much. Thanks for taking my question. So first of all, I got disconnected for a little bit, so I apologize if you addressed this already. But then the Chile facility closure and the Courier business that you sold, the impact that you mentioned was for full year 2019. Do you have a number for 1Q 2019 as well?

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

Yes, I do. Hold on a second here. I mean it was Chile was quite small. It was a couple of months worth. And it's a small business to begin with, but Chile was about $6.5 million on sales and just slightly negative on IFO in the first quarter. And our Courier business was roughly for about the two months was about was just under $19 million of sales and just slightly negative on IFO as well.

Jason Kim -- Goldman Sachs. -- Analyst

Thank you. And then the Census, obviously, has been a strong contributor to top line and the bottom line as well. I'm curious to get your take on the profitability of the contract in 1Q versus prior quarters. Have they been sort of similar throughout the past three quarters? Or has there been a little bit of a ramp in terms of start-up costs impacting your margins in the beginning and then getting to better margins for you these days?

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

Yes. First quarter Census work was about almost identical in terms of sales and profitability to fourth quarter of last year. The third quarter of 2019, which was the first quarter that we had significant production, that was a little bit stronger than both fourth quarter and first quarter now.

Jason Kim -- Goldman Sachs. -- Analyst

Understood. And then following up on the capital...

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

But you were pretty close, so...

Jason Kim -- Goldman Sachs. -- Analyst

Thank you. And then just following up on the capital markets question. The a lot of secured debt issuances we have seen in the high-yield markets. How are you thinking about that as an avenue for R.R. Donnelley? You have some term loans outstanding of $500 million, but how much more incremental secured debt capacity do you have? And then to the extent which you do want to attack that as a source of liquidity, how are you thinking about potential for incremental interest costs you may incur versus just raising more liquidity to buffer up the maturity profile, etc?

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

Yes. I mean there's definitely a good, fine balance there on the incremental rate that you would pay on that, and it certainly becomes part of the process that we evaluate. But the liquidity, pushing out maturities, I mean, those are all attributes that are very favorable to us right now, too, as we look at dealing with each of these midterm maturities.

In terms of the secured debt question, again, nothing is really off the table, but we do have limitations at a couple of different levels in terms of how much secured debt we can issue. And right now, the first-lien secured debt, so that capacity right now largely because we've drawn on the credit facility for the 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 issue more first-lien secured debt. As the other debt is junior to that, there is still some capacity to issue a junior secured debt, at least a couple of hundred million dollars of capacity there if you were to do the math out of that term loan agreement.

Jason Kim -- Goldman Sachs. -- Analyst

Understood. Thank you very much.

Daniel L. Knotts -- President, Chief Executive Officer

Thanks, Jason.

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

Yep, thank you.

Operator

[Operator Instructions] Same Matalin [Phonetic] with White Forest. [Phonetic]

Same Matalin -- White Forest -- Analyst

Hey, guys, thanks for taking the question. The question is really in regards to the pension liability. And so obviously, the underfunded portion of that was relatively small, and I think you guys were expecting around $9-or-so million of contributions to the pension. But as we look at where, I guess, discount rates have come in and asset prices have fallen, I've kind of done a rough estimate and kind of have seen that, that pension liability grow some bit. I mean my math is kind of growing up to like the $400 million underfunded amount, and what I'm just trying to understand is, how does that impact the 2020 and go-forward pension contributions that would be required of RRD.

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

Yes. No problem, Sam. The contributions, which will be just right around $10 million as what I said last quarter, for 2020, that doesn't change at all with what's happened primarily with the asset valuations in the pension plans and the OPEB plans that we have out there. The certainly, they have come down with the impact on COVID and the crisis here. But that 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 set what we do for what we have to contribute and what we record as income for 2021. So the 2020 stuff, the numbers that I provided last quarter, none of those have changed. Those are all still accurate and they will not be impacted by this.

Now if you're isolating and then you're really kind of focused on the impact of lower asset valuations should that continue through the end of the year, those adjustments, they don't hit all at once. They are amortized over very, very long periods of time. So you've got a pool of pluses and minuses that are amortizing into your computation for the income that we recognize each year. And the impact on contributions has not been we've not 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 2021 is impacted based on discount rates and asset valuations as of the end of the year.

Same Matalin -- White Forest -- Analyst

Great, thank you so much.

Operator

There are no further questions at this time. I would now like to turn the call back over to Dan Knotts.

Daniel L. Knotts -- President, Chief Executive Officer

Great. Thanks again, everyone, for joining us. And in closing, I just want to express my sincere gratitude to all of our employees around the world. I'm certainly grateful for your dedication to RRD, your commitment to continuing to serve our clients during this unprecedented time and your efforts to help us quickly adjust to this new operating environment. We appreciate you, and let's stay healthy and safe. And with that, Johan, back to you.

Johan Nystedt -- Senior Vice President of Finance

Thanks, Dan. As a reminder, information to access an audio replay of RRD's first quarter 2020 results call can be found on the Investors section of our website at rrd.com. Also, I would like to highlight that we have relaunched our Investor website, making access to news, events and financial content more streamlined for our stakeholders. Thank you for joining us, and that concludes the RRD First Quarter 2020 Earnings Call.

Duration: 49 minutes

Call participants:

Johan Nystedt -- Senior Vice President of Finance

Daniel L. Knotts -- President, Chief Executive Officer

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

Charlie Strauzer -- CJS -- Analyst

Bill Mastoris -- Baird. -- Analyst

Jason Kim -- Goldman Sachs. -- Analyst

Same Matalin -- White Forest -- Analyst

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