Cenveo Announces Second Quarter 2012 Results 2nd Quarter Cash Flow From Operating Activities of Continuing Operations of $33.4 million

Repurchase of $50.0 million of 7.875% Notes

Improvement in Operating Margins

Reaffirms Full Year Guidance

STAMFORD, Conn., Aug. 8, 2012 /PRNewswire/ -- Cenveo, Inc. (NYSE: CVO) today announced results for the three and six months ended June 30, 2012.

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

The Company generated net sales of $438.9 million for the second quarter of 2012, compared to $469.9 million for the second quarter of 2011. 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 consolidation of a print plant and our decision to exit certain low margin businesses. The Company generated net sales of $894.5 million for the first six months of 2012, compared to $946.9 million for the first six months of 2011. 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, customer product launches in the first six months of 2011 that did not repeat in the first six months of 2012, the closure and consolidation of a print plant and our decision to exit certain low margin businesses. The Company expects the direct mail market to strengthen in the second half of 2012. Net sales from our label and packaging business lines remained relatively flat for the second quarter of 2012 and for the six months of 2012 despite our decision to exit low margin businesses within those platforms, which has been offset in part by our e-commerce initiatives and new account wins in our packaging business.

Operating income was $29.0 million for the second quarter of 2012, compared to $26.3 million for the second quarter of 2011. The increase in operating income was primarily due to our lower cost structure as a result of the integration of our Envelope Product Group ("EPG") acquisition and lower compensation related expenses, offset by increased pension expense and lower byproduct recoveries. Non-GAAP operating income was $36.3 million for the second quarter of 2012, compared to $37.3 million for the second quarter of 2011. Operating income was $43.2 million for the first six months of 2012, compared to $45.5 million for the first six months of 2011. The decrease in operating income was primarily due to increased restructuring, impairment and other charges as a result of the closure and consolidation of a print plant and other cost savings actions executed in the first quarter of 2012, increased pension expense and lower recoveries, offset in part by our lower cost structure due to the integration of our EPG acquisition and lower compensation related expenses. Non-GAAP operating income was $67.9 million for the first six months of 2012, compared to $68.8 million for the first six months of 2011. Non-GAAP operating income excludes integration, acquisition and other charges, stock-based compensation provision, restructuring, impairment and other charges.

For the second quarter of 2012, the Company had income from continuing operations of less than $0.1 million, or less than $0.01 per share, compared to loss from continuing operations of $1.6 million, or $0.02 per share for the second quarter of 2011. On a Non-GAAP basis, income from continuing operations was $8.4 million, or $0.13 per share, for the second quarter of 2012 as compared to $7.5 million, or $0.12 per share, for the second quarter of 2011. For the first six months of 2012, the Company had a loss from continuing operations of $22.5 million, or $0.36 per share, compared to loss from continuing operations of $0.5 million, or $0.01 per share for the first six months of 2011. On a Non-GAAP basis, income from continuing operations was $11.7 million, or $0.18 per share, for the first six months of 2012 as compared to $8.6 million, or $0.14 per share, for the first six months of 2011. Non-GAAP income (loss) from continuing operations excludes integration, acquisition and other charges, stock-based compensation provision, restructuring, impairment and other charges, gain on bargain purchase, loss on early extinguishment of debt, net and adjusts income taxes to reflect an estimated cash tax rate. A reconciliation of income (loss) from continuing operations to Non-GAAP income from continuing operations is presented in the attached tables.

Adjusted EBITDA for the second quarter of 2012 was $53.1 million, compared to Adjusted EBITDA for the second quarter of 2011 of $53.5 million. Adjusted EBITDA for the first six months of 2012 was $100.1 million, compared to Adjusted EBITDA for the first six months of 2011 of $100.9 million. 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 on early extinguishment of debt, net and (loss) income from discontinued operations, net of taxes.

Financing and 2013 Maturity update:

During the second quarter of 2012, the Company successfully raised $65 million of additional term loan and amended its credit agreement to allow the Company to repurchase its remaining 7.875% notes that mature in December 2013. Given this increased flexibility to repurchase these notes, the Company repurchased and retired $50.0 million of these notes during the second quarter of 2012. At present, $98.5 million of these notes remain outstanding. The Company will continue to use its free cash flow and available borrowing capacity to aggressively repurchase these notes for the foreseeable future. The Company fully expects to redeem the entire maturity by early 2013.

Pension relief:

With passage of pension relief in July of 2012 in connection with the Moving Ahead for Progress in the 21st Century Act ("MAP-21"), the Company estimates it will reduce its pension contributions in excess of $10.5 million through 2013, of which approximately $3.0 million is expected to reduce its 2012 contributions and the remainder will reduce its 2013 contributions.

Robert G. Burton, Sr., Chairman and Chief Executive Officer stated:

"Our second quarter results were in line with our expectations as we continued to execute well despite a challenging economic back drop. We were able to generate over $33 million in cash flow from operating activities of continuing operations, pay down debt and materially address our notes maturing in December 2013 by retiring $50.0 million of these notes. I feel highly confident in our plan to quickly address the remaining $98.5 million by continuing to generate strong cash flow and continuing to drive working capital improvements. Also, the passage of MAP-21 with its pension plan interest rate stabilization is very positive for Cenveo.  We currently estimate this legislation will reduce our planned pension contributions in excess of $10.5 million through 2013 and provides us additional cash to reduce our notes maturing in 2013, repay other outstanding debt or invest in our growing businesses."

"Operationally, our label and packaging products continue to deliver solid performances in 2012, with strong e-commerce revenue and production expansion offsetting our planned decision to walk away from unprofitable business. Despite being challenged by some cyclical and customer specific issues, our envelope operations delivered expected revenue and operational results met our expectations. As we stated earlier this year, we expect the direct mail market to firm in the second half of 2012 as our customers return to a more normalized ordering pattern. Our print products were led by improving performance out of our print group. Our publisher services operations continue to be affected by macro trends and in changes in the timing of customer purchases offset by continued improvement in our content management business." 

Mr. Burton concluded:

"As we enter the back half of the year, 2012 is generally progressing in line with our expectations. Despite a challenging macro environment, we have been able to drive cash flow, pay down debt and increase our operating margins. We are intensely focused at addressing our capital structure, particularly our 7.875% notes that mature at the end 2013, and fully expect to address the remaining $98.5 million by early 2013. Lastly, based on our current outlook, recent sales momentum and our focus on our cost structure, we remain on track to deliver the full year targets that are consistent with our previous guidance."

Management Appointments:

The Company also announced the following promotions: Scott J. Goodwin has been promoted to the position of Chief Financial Officer. Mr. Goodwin previously held the position of Chief Accounting Officer. He replaces Mark S. Hiltwein who has been promoted to President of the Envelope Group.

Mr. Burton stated:

"Given our desire to continue to look to improve our operations and focus our best resources on driving value, these promotions make perfect sense. Both Mark and Scott have had long successful tenures at Cenveo and have been key contributors to our success. Their promotions are well deserved and will set us up well for the future."     

Conference Call:

Cenveo will host a conference call tomorrow, Thursday, August 9, 2012 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

Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)

(in thousands, except per share data)

(Unaudited)






Three Months Ended


Six Months Ended




June 30, 2012


July 2, 2011


June 30, 2012


July 2, 2011


Net sales


$

438,907



$

469,899



$

894,490



$

946,870



Cost of sales


357,348



382,677



732,351



775,389



Selling, general and administrative expenses


45,646



52,903



95,342



111,486



Amortization of intangible assets


2,586



2,592



5,209



5,166



Restructuring, impairment and other charges


4,354



5,465



18,376



9,292



Operating income


28,973



26,262



43,212



45,537



Gain on bargain purchase                        




(540)





(11,079)



Interest expense, net


28,796



29,412



56,648



59,629



Loss on early extinguishment of debt, net


785





11,414





Other (income) expense, net


(1,116)



148



(818)



337



Income (loss) from continuing operations before income taxes


508



(2,758)



(24,032)



(3,350)



Income tax expense (benefit)


470



(1,206)



(1,486)



(2,811)



Income (loss) from continuing operations


38



(1,552)



(22,546)



(539)



(Loss) income from discontinued operations, net of taxes


(439)



1,926



(5,073)



3,697



Net (loss) income


(401)



374



(27,619)



3,158



Other comprehensive income (loss):










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




687





1,792



Currency translation adjustment


(2,202)



169



(758)



1,401



Comprehensive (loss) income


$

(2,603)



$

1,230



$

(28,377)



$

6,351













Income (loss) per share – basic:










Continuing operations


$



$

(0.02)



$

(0.36)



$

(0.01)



Discontinued operations


(0.01)



0.03



(0.08)



0.06



Net (loss) income


$

(0.01)



$

0.01



$

(0.44)



$

0.05













Income (loss) per share – diluted:










Continuing operations


$



$

(0.02)



$

(0.36)



$

(0.01)



Discontinued operations


(0.01)



0.03



(0.08)



0.06



Net (loss) income


$

(0.01)



$

0.01



$

(0.44)



$

0.05













Weighted average shares outstanding:










Basic


63,476



62,862



63,441



62,802



Diluted


63,476



62,862



63,441



62,802











Cenveo, Inc. and Subsidiaries
Reconciliation of Income (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


Six Months Ended




June 30, 2012


July 2, 2011


June 30, 2012


July 2, 2011












Income (loss) from continuing operations


$

38



$

(1,552)



$

(22,546)



$

(539)



Integration, acquisition and other charges


1,574



3,056



3,321



8,972



Stock-based compensation provision


1,406



2,510



2,993



5,018



Restructuring, impairment and other charges


4,354



5,465



18,376



9,292



Gain on bargain purchase                                            




(540)





(11,079)



Loss on early extinguishment of debt, net


785





11,414





Income tax (expense) benefit


211



(1,438)



(1,848)



(3,077)



Non-GAAP income from continuing operations


$

8,368



$

7,501



$

11,710



$

8,587













Income (loss) per share – diluted:










Continuing operations


$



$

(0.02)



$

(0.36)



$

(0.01)



Integration, acquisition and other charges


0.03



0.04



0.05



0.14



Stock-based compensation provision


0.02



0.04



0.05



0.08



Restructuring, impairment  and other charges


0.07



0.09



0.29



0.15



Gain on bargain purchase




(0.01)





(0.18)



Loss on early extinguishment of debt, net


0.01





0.18





Income tax (expense) benefit




(0.02)



(0.03)



(0.04)



Non-GAAP continuing operations income per share


$

0.13



$

0.12



$

0.18



$

0.14













Weighted average shares—diluted


63,476



63,439



63,474



63,224











Cenveo, Inc. and Subsidiaries

Reconciliation of Net (Loss) Income to Adjusted EBITDA

(in thousands)

(Unaudited)






Three Months Ended


Six Months Ended




June 30, 2012


July 2, 2011


June 30, 2012


July 2, 2011












Net (loss) income


$

(401)



$

374



$

(27,619)



$

3,158



Interest expense, net


28,796



29,412



56,648



59,629



Income tax expense (benefit)


470



(1,206)



(1,486)



(2,811)



Depreciation


13,068



13,811



26,193



27,256



Amortization of intangible assets


2,586



2,592



5,209



5,166



Integration, acquisition and other charges


1,574



3,056



3,321



8,972



Stock-based compensation provision


1,406



2,510



2,993



5,018



Restructuring, impairment and other charges


4,354



5,465



18,376



9,292



Gain on bargain purchase                             




(540)





(11,079)



Loss on early extinguishment of debt, net


785





11,414





Loss (income) from discontinued operations, net of taxes


439



(1,926)



5,073



(3,697)



Adjusted EBITDA, as defined


$

53,077



$

53,548



$

100,122



$

100,904










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






Three Months Ended


Six Months Ended




June 30, 2012


July 2, 2011


June 30, 2012


July 2, 2011












Operating income


$

28,973



$

26,262



$

43,212



$

45,537



Integration, acquisition and other charges


1,574



3,056



3,321



8,972



Stock-based compensation provision


1,406



2,510



2,993



5,018



Restructuring, impairment and other charges


4,354



5,465



18,376



9,292



Non-GAAP operating income


$

36,307



$

37,293



$

67,902



$

68,819



 

 

 

CENVEO, INC. AND SUBSIDIARIES


CONDENSED CONSOLIDATED BALANCE SHEETS


(in thousands)








June 30, 2012


December 31, 2011



(Unaudited)




Assets





Current assets:





Cash and cash equivalents

$

14,067



$

17,753



Accounts receivable, net

263,168



288,483



Inventories

131,102



133,796



Prepaid and other current assets

64,819



72,742



Assets of discontinued operations - current



22,956



Total current assets

473,156



535,730








Property, plant and equipment, net

304,129



328,567



Goodwill

191,155



190,822



Other intangible assets, net

217,881



223,563



Other assets, net

87,875



79,490



Assets of discontinued operations - long-term



27,416



Total assets

$

1,274,196



$

1,385,588



Liabilities and Shareholders' Deficit










Current liabilities:





Current maturities of long-term debt

$

13,261



$

8,809



Accounts payable

170,498



186,648



Accrued compensation and related liabilities

28,054



39,155



Other current liabilities

76,787



95,907



Liabilities of discontinued operations - current



5,346



Total current liabilities

288,600



335,865








Long-term debt

1,210,105