Cenveo Announces Fourth Quarter and Full Year 2012 Results

4th Quarter Net Sales of $451.8 million and Adjusted EBITDA of $58.0 million

4th Quarter Cash Flows from Operating Activities of Continuing Operations of $33.4 million

4th Quarter Adjusted EBITDA Margin of 12.8%

4th Quarter Non-GAAP Operating Income Margin of 9.2%

27 Feb, 2013, 16:39 ET from Cenveo, Inc.

STAMFORD, Conn., Feb. 27, 2013 /PRNewswire/ -- Cenveo, Inc. (NYSE: CVO) today announced results for the three months and full year ended December 29, 2012.

(Logo: http://photos.prnewswire.com/prnh/20070618/CENVEOLOGO)

The Company generated net sales of $451.8 million for the three months ended December 29, 2012, compared to $486.5 million for the same period last year. The Company generated net sales of $1.8 billion for the year ended December 29, 2012, compared to $1.9 billion for the prior year. The decrease in net sales was primarily due to lower sales in our print and envelope product lines as a result of lower direct mail volumes from our financial services customers, the closure and consolidations of a print plant and two envelope plants and our decision to exit certain low margin business. Net sales from our label and packaging business lines decreased slightly for the fourth quarter and full year of 2012 due to our decision to exit low margin business within those platforms, which has been offset largely by our e-commerce initiatives and new account wins in our packaging business.

Operating income was $34.0 million for the three months ended December 29, 2012, compared to $39.0 million for the same period last year. The decrease in operating income was primarily due to lower sales, lower byproduct recoveries and increased pension expense, offset in part by lower compensation-related expenses. Non-GAAP operating income was $41.6 million for the three months ended December 29, 2012, compared to $46.7 million for the same period last year. For the year ended December 29, 2012, operating income was $112.2 million, compared to $117.8 million for the prior year. The decrease in operating income was primarily due to increased restructuring, impairment and other charges as a result of the closure and consolidations of a print plant and two envelope plants along with other cost savings actions, lower sales, lower byproduct recoveries and increased pension expense, offset in part by our lower cost structure due to the integration of our Envelope Product Group acquisition and lower compensation-related expenses. For the year ended December 29, 2012, non-GAAP operating income was $151.9 million, compared to $157.2 million for the prior year. Non-GAAP operating income excludes integration, acquisition and other charges, stock-based compensation provision, and restructuring, impairment and other charges. A reconciliation of operating income to non-GAAP operating income is presented in the attached tables.

Income tax expense was $60.1 million for the year ended December 29, 2012, compared to $9.5 million in the prior year. The increase in income tax expense is due to a non-cash charge of $56.5 million related to a valuation allowance applied to our net U.S. deferred tax assets, which primarily consists of a federal tax loss carryforward in the amount of $88.7 million that does not begin to expire until 2022. Our cash income taxes were $1.4 million for the year ended December 29, 2012, compared to $2.1 million in the prior year, and we do not expect to be a significant cash tax payer for at least the next four years.

For the three months ended December 29, 2012, the Company had a loss from continuing operations of $56.0 million, or $0.88 per share, primarily due to the valuation allowance discussed above, compared to $1.8 million, or $0.03 per share for the same period last year. Non-GAAP income from continuing operations was $14.2 million, or $0.17 per share, for the three months ended December 29, 2012, as compared to $18.2 million, or $0.29 per share, for the same period last year. For the year ended December 29, 2012, the Company had a loss from continuing operations of $73.9 million, or $1.16 per share, primarily due to the valuation allowance discussed above and a net loss on early extinguishment of debt related to refinancing our 2013 maturity, compared to $1.0 million, or $0.02 per share for the same period last year. For the year ended December 29, 2012, non-GAAP income from continuing operations was $40.2 million, or $0.51 per share, as compared to $40.5 million, or $0.64 per share, for the same period last year. Non-GAAP income from continuing operations excludes integration, acquisition and other charges, stock-based compensation provision, restructuring, impairment and other charges, gain on bargain purchase, loss (gain) on early extinguishment of debt, net, an adjustment to income taxes to reflect an estimated cash tax rate, and an adjustment for interest expense related to the 7% convertible notes ("7% Notes"), net of taxes. A reconciliation of loss from continuing operations to non-GAAP income from continuing operations is presented in the attached tables.

Adjusted EBITDA for the three months ended December 29, 2012 was $58.0 million, compared to Adjusted EBITDA of $62.6 million for the same period last year. Adjusted EBITDA for the year ended December 29, 2012, was $215.1 million, compared to $221.6 million, for the same period last year. Adjusted EBITDA is defined as earnings before interest, taxes, depreciation, amortization, integration, acquisition and other charges, stock-based compensation provision, restructuring, impairment and other charges, gain on bargain purchase, loss (gain) on early extinguishment of debt, net and (loss) income from discontinued operations, net of taxes. A reconciliation of net loss to Adjusted EBITDA is presented in the attached tables.

Robert G. Burton, Sr., Chairman and Chief Executive Officer stated: "Despite a challenging economic backdrop we were able to accomplish several key initiatives in 2012. We completed the refinancing of all our near-term debt maturities, divested a non-core asset, paid down $63 million of debt and invested in our core operations. Our fourth quarter results were similar to the trends that we experienced throughout the year driven by well-known and anticipated top line challenges stemming from continued softness in direct mail from our financial services customers and timing of transactional volumes in our print business. We do believe that we will see normalized volumes from our direct mail customers in 2013 compared to 2012. Despite the continuation of a challenging environment again in the fourth quarter, we were able to generate $33.4 million in cash flows from operating activities of continuing operations."

Mr. Burton concluded: "As we have put our refinancing issues firmly behind us, we will focus our efforts back on operating the business by looking to grow revenues and cash flow and creating value in several ways in 2013. We will look to expand upon our efforts to transform our capital structure and increase cash flow by lowering our cost of capital by paying off our highest cost debt and potentially refinancing our revolver and term loan. We will continue to invest in our core operations with capital and technology that drive efficiencies and increase productivity. As we have previously discussed, we will strategically evaluate all our operations to determine which, if any, alternatives are in the best interests of our stakeholders. As we did in 2012 with the disposition of our forms and documents group, we will look to potentially dispose of businesses that we view as non-strategic to our future. Based on the current business climate, I expect Revenues and Adjusted EBITDA to be relatively consistent with last year's results and to generate at least $75 million of free cash flow in 2013. I look forward to our conference call tomorrow to discuss our outlook for 2013 and beyond."

Conference Call: Cenveo will host a conference call tomorrow, Thursday, February 28, 2013 at 10:00 a.m. Eastern Time.  The conference call will be available via webcast, which can be accessed via the Internet at www.cenveo.com.

Cenveo, Inc. and Subsidiaries

Consolidated Statements of Operations and Comprehensive Income (Loss)

(in thousands, except per share data)

 

 

Three Months Ended

Years Ended

December 29, 2012

December 31, 2011

December 29, 2012

December 31, 2011

Net sales

$

451,818

$

486,482

$

1,797,582

$

1,909,187

Cost of sales

364,738

389,019

1,461,214

1,546,173

Selling, general and administrative expenses

46,023

52,076

186,789

217,136

Amortization of intangible assets

2,527

2,554

10,283

10,306

Restructuring, impairment and other charges

4,534

3,835

27,100

17,812

Operating income

33,996

38,998

112,196

117,760

Gain on bargain purchase

(11,720)

Interest expense, net

29,181

27,904

114,755

115,968

Loss (gain) on early extinguishment of debt, net

1,048

(4,011)

12,487

(4,011)

Other (income) expense, net

(922)

9,641

(1,249)

9,074

Income (loss) from continuing operations before income taxes

4,689

5,464

(13,797)

8,449

Income tax expense

60,665

7,227

60,067

9,477

Loss from continuing operations

(55,976)

(1,763)

(73,864)

(1,028)

Loss from discontinued operations, net of taxes

(767)

(12,765)

(6,023)

(7,537)

Net loss

(56,743)

(14,528)

(79,887)

(8,565)

Other comprehensive income (loss):

Pension liability adjustment, net of taxes

(7,986)

(37,130)

(7,986)

(37,130)

Reclassifications of losses related to interest rate        swaps into earnings, net of taxes

1,793

Currency translation adjustment

(989)

(514)

665

(4,260)

Comprehensive loss

$

(65,718)

$

(52,172)

$

(87,208)

$

(48,162)

Income (loss) per share – basic:

Continuing operations

$

(0.88)

$

(0.03)

$

(1.16)

$

(0.02)

Discontinued operations

(0.01)

(0.20)

(0.10)

(0.12)

Net loss

$

(0.89)

$

(0.23)

$

(1.26)

$

(0.14)

Income (loss) per share – diluted:

Continuing operations

$

(0.88)

$

(0.03)

$

(1.16)

$

(0.02)

Discontinued operations

(0.01)

(0.20)

(0.10)

(0.12)

Net loss

$

(0.89)

$

(0.23)

$

(1.26)

$

(0.14)

Weighted average shares outstanding:

Basic

63,762

63,260

63,567

62,983

Diluted

63,762

63,260

63,567

62,983

 

 

Cenveo, Inc. and Subsidiaries Reconciliation of Loss from Continuing Operations to Non-GAAP Income from Continuing Operations and Related Per Share Data (in thousands, except per share data) (Unaudited)

Three Months Ended

Years Ended

December 29, 2012

December 31, 2011

December 29, 2012

December 31, 2011

Loss from continuing operations

$

(55,976)

$

(1,763)

$

(73,864)

$

(1,028)

Integration, acquisition and other charges

2,224

11,895

7,307

22,463

Stock-based compensation provision

888

1,587

5,333

8,716

Restructuring, impairment and other charges

4,534

3,835

27,100

17,812

Gain on bargain purchase

(11,720)

Loss (gain) on early extinguishment of debt, net

1,048

(4,011)

12,487

(4,011)

Income tax benefit (expense)

60,420

6,664

58,700

8,226

Interest expense on 7% Notes, net of taxes

1,020

3,093

Non-GAAP income from continuing operations

$

14,158

$

18,207

$

40,156

$

40,458

Income (loss) per share – diluted:

Continuing operations

$

(0.66)

$

(0.03)

$

(0.93)

$

(0.02)

Integration, acquisition and other charges

0.03

0.19

0.09

0.36

Stock-based compensation provision

0.01

0.03

0.07

0.14

Restructuring, impairment  and other charges

0.05

0.06

0.34

0.28

Gain on bargain purchase

(0.19)

Loss (gain) on early extinguishment of debt, net

0.01

(0.06)

0.16

(0.06)

Income tax benefit (expense)

0.72

0.10

0.74

0.13

Interest expense on 7% Notes, net of taxes

0.01

0.04

Non-GAAP income from continuing operations

$

0.17

$

0.29

$

0.51

$

0.64

Weighted average shares—diluted

84,665

63,333

79,382

63,124

 

 

Cenveo, Inc. and Subsidiaries

Reconciliation of Net Loss to Adjusted EBITDA

(in thousands)

(Unaudited)

Three Months Ended

Years Ended

December 29, 2012

December 31, 2011

December 29, 2012

December 31, 2011

Net loss

$

(56,743)

$

(14,528)

$

(79,887)

$

(8,565)

Interest expense, net

29,181

27,904

114,755

115,968

Income tax expense

60,665

7,227

60,067

9,477

Depreciation

12,939

13,348

51,644

53,648

Amortization of intangible assets

2,527

2,554

10,283

10,306

Integration, acquisition and other charges

2,224

11,895

7,307

22,463

Stock-based compensation provision

888

1,587

5,333

8,716

Restructuring, impairment and other charges

4,534

3,835

27,100

17,812

Gain on bargain purchase

(11,720)

Loss (gain) on early extinguishment of debt, net

1,048

(4,011)

12,487

(4,011)

Loss from discontinued operations, net of taxes

767

12,765

6,023

7,537

Adjusted EBITDA, as defined

$

58,030

$

62,576

$

215,112

$

221,631

 

Cenveo, Inc. and Subsidiaries Reconciliation of Operating Income to Non-GAAP Operating Income (in thousands) (Unaudited)

Three Months Ended

Years Ended

December 29, 2012

December 31, 2011

December 29, 2012

December 31, 2011

Operating income

$

33,996

$

38,998

$

112,196

$

117,760

Integration, acquisition and other charges

2,224

2,320

7,307

12,888

Stock-based compensation provision

888

1,587

5,333

8,716

Restructuring, impairment and other charges

4,534

3,835

27,100

17,812

Non-GAAP operating income

$

41,642

$

46,740

$

151,936

$

157,176

 

 

Cenveo, Inc. and Subsidiaries

Consolidated Balance Sheets

(in thousands)

December 29, 2012

December 31, 2011

Assets

Current assets:

Cash and cash equivalents

$

8,110

$

17,753

Accounts receivable, net

261,611

288,483

Inventories

130,769

133,796

Prepaid and other current assets

68,473

72,742

Assets of discontinued operations - current

22,956

Total current assets

468,963

535,730

Property, plant and equipment, net

282,600

328,567

Goodwill

191,415

190,822

Other intangible assets, net

212,904

223,563

Other assets, net

44,673

79,490

Assets of discontinued operations - long-term

27,416

Total assets

$

1,200,555

$

1,385,588

Liabilities and Shareholders' Deficit

Current liabilities:

Current maturities of long-term debt

$

11,748

$

8,809

Accounts payable

185,271

186,648

Accrued compensation and related liabilities

25,323

39,155

Other current liabilities

77,892

95,907

Liabilities of discontinued operations - current

5,346

Total current liabilities

300,234

335,865

Long-term debt

1,171,870

1,237,534

Other liabilities

192,765

185,419

Liabilities of discontinued operations - long-term

8,474

Commitments and contingencies

Shareholders' deficit:

Preferred stock

Common stock

638

633

Paid-in capital

354,983

350,390

Retained deficit

(752,734)

(672,847)

Accumulated other comprehensive loss

(67,201)

(59,880)

Total shareholders' deficit

(464,314)

(381,704)

Total liabilities and shareholders' deficit

$

1,200,555

$

1,385,588

 

Cenveo, Inc. and Subsidiaries Consolidated Statements of Cash Flows (in thousands)

For The Years Ended

December 29, 2012

December 31, 2011

Cash flows from operating activities:

Net loss

$

(79,887)

$

(8,565)

  Adjustments to reconcile net loss to net cash provided by operating activities:

Loss on sale of discontinued operations, net of taxes

6,260

Loss (income) from discontinued operations, net of taxes

(237)

7,537

Impairment of goodwill related to discontinued operations

13,500

Depreciation

51,644

53,648

Amortization of intangible assets

10,283

10,306

Non-cash interest expense, net

8,263

5,277

Deferred income taxes

2,398

11,793

Non-cash taxes

56,500

(Gain) loss on sale of assets

(2,796)

376

Non-cash restructuring, impairment and other charges, net

11,226

3,853

Gain on bargain purchase

(11,720)

Loss (gain) on early extinguishment of debt, net

12,487

(4,011)

Provisions for bad debts

2,097

2,348

Provisions for inventory obsolescence

3,603

3,416

Stock-based compensation provision

5,333

8,716

Changes in operating assets and liabilities, excluding the effects of acquired businesses:

Accounts receivable

27,035

(6,912)

Inventories

(507)

20,860

Accounts payable and accrued compensation and related liabilities

(12,209)

11,777

Other working capital changes

(29,100)

(14,796)

Other, net

(15,595)

(23,585)

Net cash provided by operating activities of continuing operations

56,798

83,818

Net cash used in operating activities of discontinued operations

(4,733)

(3,496)

Net cash provided by operating activities

52,065

80,322

Cash flows from investing activities:

Cost of business acquisitions, net of cash acquired

(644)

(59,719)

Capital expenditures

(20,951)

(15,671)

Purchase of investment

(350)

Proceeds from sale of property, plant and equipment

7,978

11,114

Proceeds from sale of assets

5,700

Net cash used in investing activities of continuing operations

(8,267)

(64,276)

Net cash provided by (used in) investing activities of discontinued operations

39,921

(536)

Net cash provided by (used in) investing activities

31,654

(64,812)

Cash flows from financing activities:

Repayment of 10.5% senior notes

(169,875)

Repayment of 7.875% senior subordinated notes

(214,831)

(8,952)

Repayment of Term Loan B due 2016

(23,800)

Repayment of 8.375% senior subordinated notes

(24,787)

(5,363)

Payment of financing related costs and expenses and debt issuance discounts

(37,836)

(2,675)

Repayments of other long-term debt

(4,846)

(6,403)

Retirement of common stock upon vesting of RSUs

(735)

(1,283)

Proceeds from issuance of 11.5% senior notes

225,000

Proceeds from issuance of 7% senior exchangeable notes

86,250

Borrowings (repayments) under revolving credit facility, net

18,000

Proceeds from exercise of stock options

356

Proceeds from issuance of Term Loan B

31,844

Net cash used in financing activities of continuing operations

(91,816)

(48,120)

Net cash used in financing activities of discontinued operations

(1,652)

Net cash used in financing activities

(93,468)

(48,120)

Effect of exchange rate changes on cash and cash equivalents

106

614

Net decrease in cash and cash equivalents

(9,643)

(31,996)

Cash and cash equivalents at beginning of year

17,753

49,749

Cash and cash equivalents at end of year

$

8,110

$

17,753

In addition to results presented in accordance with accounting principles generally accepted in the U.S. ("GAAP"), we use certain non-GAAP financial measures, including Adjusted EBITDA, non-GAAP income from continuing operations, non-GAAP operating income, non-GAAP operating income margin, and free cash flow. Non-GAAP operating income is defined as operating income excluding integration, acquisition and other charges, stock-based compensation provision, and restructuring, impairment and other charges. Non-GAAP operating income margin is calculated by dividing non-GAAP operating income into net sales.  Free cash flow is defined as Adjusted EBITDA less cash interest, cash taxes, and capital expenditures, net of proceeds from plant, property and equipment. These non-GAAP financial measures as defined herein, and should be read in conjunction with GAAP financial measures. A reconciliation of (loss) income from continuing operations to non-GAAP income from continuing operations and operating (loss) income to non-GAAP operating income is presented in the attached tables. These non-GAAP financial measures are not presented as an alternative to cash flows from continuing operations, as a measure of our liquidity or as an alternative to reported net loss as an indicator of our operating performance.  The non-GAAP financial measures as used herein may not be comparable to similarly titled measures reported by competitors. 

We believe the use of Adjusted EBITDA, non-GAAP income from continuing operations, non-GAAP operating income, non-GAAP operating income margin and free cash flow along with GAAP financial measures enhances the understanding of our operating results and may be useful to investors in comparing our operating performance with that of our competitors and estimating our enterprise value.  Adjusted EBITDA is also a useful tool in evaluating the core operating results of the Company given the significant variation that can result from, for example, the timing of capital expenditures, the amount of intangible assets recorded or the differences in assets' lives.  We also use Adjusted EBITDA internally to evaluate the operating performance of our segments, to allocate resources and capital to such segments, to measure performance for incentive compensation programs, and to evaluate future growth opportunities.  The non-GAAP financial measures included in this press release are reconciled to their most directly comparable GAAP financial measures in the tables included herein.

Cenveo (NYSE: CVO), headquartered in Stamford, Connecticut, is a leading global provider of print and related resources, offering world-class solutions in the areas of custom labels, specialty packaging, envelopes, commercial print, content management and publisher solutions. The company provides a one-stop offering through services ranging from design and content management to fulfillment and distribution. With a worldwide distribution platform, we pride ourselves on delivering quality solutions and service every day for our more than 100,000 customers. For more information please visit us at www.cenveo.com.

Statements made in this release, other than those concerning historical financial information, may be considered "forward-looking statements," which are based upon current expectations and involve a number of assumptions, risks and uncertainties that could cause actual results to differ materially from such forward-looking statements.  In view of such uncertainties, investors should not place undue reliance on our forward-looking statements.  Such statements speak only as of the date of this release, and we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Factors that could cause actual results to differ materially from management's expectations include, without limitation: (i) the recent United States and global economic conditions, which have adversely affected us and could continue to do so; (ii) our substantial level of indebtedness, which could impair our financial condition and prevent us from fulfilling our business obligations; (iii) our ability to service or refinance our debt; (iv) the terms of our indebtedness imposing significant restrictions on our operating and financial flexibility; (v) additional borrowings that are available to us could further exacerbate our risk exposure from debt; (vi) our ability to successfully integrate acquired businesses into our business; (vii) a decline of our consolidated profitability or profitability within one of our individual reporting units could result in the impairment of our assets, including goodwill, other long-lived assets and deferred tax assets; (viii) intense competition and fragmentation in our industry; (ix) the general absence of long-term customer agreements in our industry, subjecting our business to quarterly and cyclical fluctuations; (x) factors affecting the United States postal services impacting demand for our products; (xi) the availability of the internet and other electronic media may adversely affect our business; (xii) increases in paper costs and decreases in the availability of raw materials; (xiii) our labor relations; (xiv) our compliance with environmental laws; (xv) our dependence on key management personnel; (xvi) our dependence upon information technology systems; and (xvii) our international operations and the risks associated with operating outside of the United States. This list of factors is not exhaustive, and new factors may emerge or changes to the foregoing factors may occur that would impact our business. Additional information regarding these and other factors can be found in Cenveo, Inc.'s periodic filings with the SEC, which are available at www.cenveo.com.

Inquiries from analysts and investors should be directed to Robert G. Burton, Jr. at (203) 595-3005.

SOURCE Cenveo, Inc.



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