Cenveo Announces Third Quarter 2010 Results
STAMFORD, Conn., Nov. 10, 2010 /PRNewswire-FirstCall/ — Cenveo, Inc. (NYSE: CVO) today announced results for the three and nine months ended October 2, 2010.
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For the three months ended October 2, 2010, net sales increased approximately 1.6% to $455.1 million, as compared to $448.0 million in the third quarter of 2009, primarily due to the Nashua acquisition, offset by having one less week in the third quarter of 2010 as compared to the same prior year period. On a comparative basis, the Company estimates that net sales increased by approximately 9.4% over the same prior year period when adjusting for the extra week in 2009. For the nine months ended October 2, 2010, net sales increased approximately 7.7% to $1.4 billion, as compared to $1.3 billion in the nine months ended October 3, 2009, primarily due to the Nashua acquisition.
During the third quarter, the Company recorded preliminary non-cash impairment charges of $181.4 million related to the Company’s Publisher Services Group reporting unit, primarily due to changes in discount rates and the effects that the current macro-economic environment is currently having on this reporting unit. As a result, the Company had an operating loss of $156.1 million in the third quarter of 2010, compared to operating income of $25.0 million in the third quarter of 2009. For the nine months ended October 2, 2010, the Company had an operating loss of $124.6 million, compared to operating income of $19.7 million in the nine months ended October 3, 2009. Excluding the impact of these preliminary non-cash impairment charges, the Company would have had operating income of $25.3 million and $56.8 million in the three and nine months ended October 2, 2010, respectively.
For the three months ended October 2, 2010, non-GAAP operating income was $39.5 million compared to $40.3 million in the same prior year period. For the nine months ended October 2, 2010, non-GAAP operating income increased 20.7% to $107.1 million compared to $88.7 million in the same prior year period. These increases were primarily due to our cost savings initiatives in 2009 and throughout 2010 combined with the impact of the Nashua acquisition. Non-GAAP operating income excludes integration, acquisition and other charges, stock-based compensation provision, restructuring and impairment charges and divested operations or assets held for sale.
Adjusted EBITDA in the third quarter of 2010 was $56.6 million compared to $56.3 million in the third quarter of 2009, despite having one less week in this year’s third quarter. On a comparative basis, the Company estimates that Adjusted EBITDA increased by approximately 8.2% over the same prior year period when adjusting for the extra week in 2009. Adjusted EBITDA for the first nine months of 2010 was $156.1 million compared to $140.9 million in the same prior year period, an increase of 10.8%. Adjusted EBITDA is defined as earnings before interest, taxes, depreciation and amortization, excluding integration, acquisition and other charges, stock-based compensation provision, restructuring and impairment charges, divested operations or assets held for sale, (gain) loss on early extinguishment of debt, and loss from discontinued operations, net of taxes. An explanation of the Company’s use of Adjusted EBITDA is detailed below and a reconciliation of net loss to Adjusted EBITDA is provided in the attached tables.
For the third quarter of 2010, the Company recorded a net loss of $157.2 million, or $2.52 per share, compared to net income of $1.1 million, or $0.02 per share, for the third quarter of 2009. For the first nine months of 2010, the Company recorded a net loss of $176.6 million, or $2.84 per share, compared to a net loss of $21.5 million, or $0.39 per share, for the same prior year period. The 2010 three and nine month period net losses include $157.3 million of preliminary non-cash impairment charges, net of tax benefits of $24.1 million, related to the Company’s Publisher Services Group reporting unit. In addition, the results for the first nine months of 2010 include a loss of $2.6 million on early extinguishment of debt while the results for the first nine months of 2009 include a gain of $16.9 million on early extinguishment of debt.
On a non-GAAP basis, income from continuing operations was $8.3 million, or $0.13 per share, for the third quarter of 2010 as compared to non-GAAP income from continuing operations of $10.7 million, or $0.19 per share, in the same prior year period. Non-GAAP income from continuing operations was $13.5 million, or $0.21 per share, for the first nine months of 2010 as compared to non-GAAP income from continuing operations for the first nine months of 2009 of $11.3 million, or $0.20 per share, a 19.6% increase over the same prior year period. Non-GAAP income from continuing operations excludes integration, acquisition and other charges, stock-based compensation provision, restructuring and impairment charges, divested operations or assets held for sale, (gain) loss on early extinguishment of debt and adjusts income taxes to reflect an estimated cash tax rate. A reconciliation of loss from continuing operations to non-GAAP income from continuing operations is presented in the attached tables.
Robert G. Burton, Sr., Chairman and Chief Executive Officer stated:
“Our third quarter results, which were led by another solid performance from our commercial print and label products, once again demonstrate that Cenveo continues to execute well in the current economic environment. Despite the challenging market conditions and short term pricing pressures in the envelope marketplace caused by the bankruptcy of one of our larger competitors, combined with having one fewer week this quarter versus last year, we were able to grow our sales and Adjusted EBITDA for the third quarter. While we still have room for improvement, we are pleased to have delivered 12.4% Adjusted EBITDA margins for this quarter driven by our continued focus on costs and revenue growth in our niche product offerings. This strong performance would not have been possible without the continued strong performance from our dedicated group of employees, who continue to deliver everyday for our customers.”
Mr. Burton concluded:
“Despite the slow economic recovery, our business performed well this year by posting sales and Adjusted EBITDA growth for each of the first three quarters of 2010. As we enter the fourth quarter, I expect these trends to continue. The improvement in the commercial print market combined with the recent stabilization in the envelope industry that we are currently seeing should enable us to meaningfully improve our financial results as compared to this year’s third quarter. In this regard, we also believe that we will generate significant cash flow during the quarter as the improvement in our businesses along with favorable working capital trends, the timing of interest payments and the maturity of some fixed interest rate swaps work in our favor. We will continue to use these incremental funds to pay down debt or make highly strategic acquisitions that strengthen our product leadership positions and deleverage our balance sheet. We are also closely monitoring the credit markets, and will look to take advantage and re-finance our maturities if we see appropriate opportunities. We are continuing to do everything in our power to deliver the type of results that our customers, employees and shareholders expect.”
Conference Call:
Cenveo will host a conference call tomorrow, Thursday, November 11, 2010, 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
-----------------------------------------------
(in thousands, except per share data)
-------------------------------------
(unaudited)
-----------
Three Months Ended
October 2, October 3,
2010 2009
Net sales $455,127 $448,039
Cost of sales 365,521 359,343
Selling, general and
administrative expenses 54,544 52,570
Amortization of
intangible assets 3,076 2,587
Restructuring and
impairment charges 188,115 8,537
Operating income (loss) (156,129) 25,002
Interest expense, net 30,953 29,037
(Gain) loss on early
extinguishment of debt - -
Other (income) expense,
net 83 266
Loss from continuing
operations before
income taxes (187,165) (4,301)
Income tax expense
(benefit) (27,176) 4,131
Loss from continuing
operations (159,989) (8,432)
Income from discontinued
operations, net of
taxes 2,800 9,505
Net income (loss) $(157,189) $1,073
========= ======
Income (loss) per share
- basic and diluted:
Continuing operations $(2.56) $(0.15)
Discontinued operations 0.04 0.17
Net income (loss) $(2.52) $0.02
====== =====
Weighted average shares
outstanding:
Basic and diluted 62,473 55,911
Nine Months Ended
October 2, October 3,
2010 2009
Net sales $1,354,325 $1,257,783
Cost of sales 1,100,728 1,028,024
Selling, general and
administrative expenses 160,070 153,455
Amortization of
intangible assets 8,861 7,258
Restructuring and
impairment charges 209,218 49,300
Operating income (loss) (124,552) 19,746
Interest expense, net 92,059 79,389
(Gain) loss on early
extinguishment of debt 2,598 (16,917)
Other (income) expense,
net 1,115 (2,320)
Loss from continuing
operations before
income taxes (220,324) (40,406)
Income tax expense
(benefit) (41,022) (9,946)
Loss from continuing
operations (179,302) (30,460)
Income from discontinued
operations, net of
taxes 2,678 8,970
Net income (loss) $(176,624) $(21,490)
========= ========
Income (loss) per share
- basic and diluted:
Continuing operations $(2.88) $(0.55)
Discontinued operations 0.04 0.16
Net income (loss) $(2.84) $(0.39)
====== ======
Weighted average shares
outstanding:
Basic and diluted 62,268 54,978
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
October 2, October 3,
2010 2009
Loss from continuing
operations $(159,989) $(8,432)
Integration, acquisition
and other charges 4,389 2,822
Stock-based compensation
provision 3,166 3,961
Restructuring and
impairment charges 188,115 8,537
Divested operations or
assets held for sale - -
(Gain) loss on early
extinguishment of debt - -
Income tax (expense)
benefit (27,431) 3,800
Non-GAAP income from
continuing operations $8,250 $10,688
Loss per share - diluted:
Continuing operations $(2.55) $(0.15)
Integration, acquisition
and other charges 0.07 0.05
Stock-based compensation
provision 0.05 0.07
Restructuring and
impairment charges 3.00 0.15
Divested operations or
asset held for sale - -
(Gain) loss on early
extinguishment of debt - -
Income tax (expense)
benefit (0.44) 0.07
Non-GAAP continuing
operations $0.13 $0.19
Weighted average shares
outstanding - diluted 62,751 56,113
Nine Months Ended
October 2, October 3,
2010 2009
Loss from continuing
operations $(179,302) $(30,460)
Integration, acquisition
and other charges 9,888 8,851
Stock-based compensation
provision 8,791 10,817
Restructuring and
impairment charges 209,218 49,300
Divested operations or
assets held for sale 3,758 -
(Gain) loss on early
extinguishment of debt 2,598 (16,917)
Income tax (expense)
benefit (41,440) (10,295)
Non-GAAP income from
continuing operations $13,511 $11,296
Loss per share - diluted:
Continuing operations $(2.85) $(0.55)
Integration, acquisition
and other charges 0.16 0.16
Stock-based compensation
provision 0.14 0.20
Restructuring and
impairment charges 3.32 0.89
Divested operations or
asset held for sale 0.06 -
(Gain) loss on early
extinguishment of debt 0.04 (0.31)
Income tax (expense)
benefit (0.66) (0.19)
Non-GAAP continuing
operations $0.21 $0.20
Weighted average shares
outstanding - diluted 62,919 55,109
Cenveo, Inc. and Subsidiaries
-----------------------------
Reconciliation of Net Income (Loss) to Adjusted EBITDA
------------------------------------------------------
(in thousands)
--------------
(unaudited)
-----------
Three Months Ended
October 2, October 3,
2010 2009
Net income (loss) $(157,189) $1,073
Interest expense, net 30,953 29,037
Income tax expense
(benefit) (27,176) 4,131
Depreciation 14,016 13,659
Amortization of
intangible assets 3,076 2,587
Integration, acquisition
and other charges 4,389 2,822
Stock-based compensation
provision 3,166 3,961
Restructuring and
impairment charges 188,115 8,537
(Gain) loss on early
extinguishment of debt - -
Divested operations or
assets held for sale - -
Income from discontinued
operations, net of taxes (2,800) (9,505)
Adjusted EBITDA, as
defined $56,550 $56,302
Nine Months Ended
October 2, October 3,
2010 2009
Net income (loss) $(176,624) $(21,490)
Interest expense, net 92,059 79,389
Income tax expense
(benefit) (41,022) (9,946)
Depreciation 41,241 42,615
Amortization of
intangible assets 8,861 7,258
Integration, acquisition
and other charges 9,888 8,851
Stock-based compensation
provision 8,791 10,817
Restructuring and
impairment charges 209,218 49,300
(Gain) loss on early
extinguishment of debt 2,598 (16,917)
Divested operations or
assets held for sale 3,758 -
Income from discontinued
operations, net of taxes (2,678) (8,970)
Adjusted EBITDA, as
defined $156,090 $140,907
Cenveo, Inc. and Subsidiaries
-----------------------------
Reconciliation of Operating Income (Loss) to Non-GAAP Operating Income
----------------------------------------------------------------------
(in thousands)
--------------
(unaudited)
-----------
Three Months Ended
October 2, October
2010 3,2009
Operating income (loss) $(156,129) $25,002
Integration,
acquisition and other
charges 4,389 2,822
Stock-based
compensation provision 3,166 3,961
Divested operations or
assets held for sale - -
Restructuring and
impairment charges 188,115 8,537
Non-GAAP operating
income $39,541 $40,322
Nine Months Ended
October 2, October 3,
2010 2009
Operating income (loss) $(124,552) $19,746
Integration,
acquisition and other
charges 9,888 8,851
Stock-based
compensation provision 8,791 10,817
Divested operations or
assets held for sale 3,758 -
Restructuring and
impairment charges 209,218 49,300
Non-GAAP operating
income $107,103 $88,714
Cenveo, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(in thousands)
October 2, January 2,
2010 2010
----------- -----------
Assets (unaudited)
------ -----------
Current assets:
---------------
Cash and cash equivalents $47,070 $10,796
------------------------- ------- -------
Accounts receivable, net 265,595 268,563
------------------------ ------- -------
Inventories 152,262 145,228
----------- ------- -------
Prepaid and other current assets 62,618 64,843
-------------------------------- ------ ------
Total current assets 527,545 489,430
-------------------- ------- -------
Property, plant and equipment, net 358,319 387,879
---------------------------------- ------- -------
Goodwill 203,461 319,756
-------- ------- -------
Other intangible assets, net 242,069 295,418
---------------------------- ------- -------
Other assets, net 62,187 33,290
----------------- ------ ------
Total assets $1,393,581 $1,525,773
------------ ========== ==========
Liabilities and Shareholders'
Deficit
-----------------------------
Current liabilities:
--------------------
Current maturities of long-term
debt $10,657 $15,057
------------------------------- ------- -------
Accounts payable 180,309 183,940
---------------- ------- -------
Accrued compensation and related
liabilities 31,228 29,841
-------------------------------- ------ ------
Other current liabilities 85,312 98,079
------------------------- ------ ------
Total current liabilities 307,506 326,917
------------------------- ------- -------
Long-term debt 1,279,534 1,218,860
-------------- --------- ---------
Other liabilities 139,072 156,506
----------------- ------- -------
Shareholders' deficit:
----------------------
Preferred stock - -
--------------- --- ---
Common stock 627 620
------------ --- ---
Paid-in capital 340,505 331,051
--------------- ------- -------
Retained deficit (654,529) (477,905)
---------------- -------- --------
Accumulated other comprehensive
loss (19,134) (30,276)
------------------------------- ------- -------
Total shareholders' deficit (332,531) (176,510)
--------------------------- -------- --------
Total liabilities and shareholders'
deficit $1,393,581 $1,525,773
----------------------------------- ========== ==========
Cenveo, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
Nine Months Ended
-----------------
October 2, October 3,
2010 2009
----------- -----------
Cash flows from operating activities:
-------------------------------------
Net loss $(176,624) $(21,490)
-------- --------- --------
Adjustments to reconcile net loss to
net cash provided by operating
activities:
------------------------------------
Income from discontinued operations,
net of taxes (2,678) (8,970)
------------------------------------ ------ ------
Depreciation and amortization,
excluding non-cash interest expense 50,102 49,873
------------------------------------ ------ ------
Non-cash interest expense, net 3,423 1,700
------------------------------ ----- -----
(Gain) loss on early extinguishment of
debt 2,598 (16,917)
-------------------------------------- ----- -------
Stock-based compensation provision 8,791 10,817
---------------------------------- ----- ------
Non-cash restructuring and impairment
charges 188,831 23,786
------------------------------------- ------- ------
Deferred income taxes (40,105) (12,676)
--------------------- ------- -------
Non-cash taxes (4,001) -
-------------- ------ ---
Loss (gain) on sale of assets 31 (3,876)
----------------------------- --- ------
Other non-cash charges, net 6,196 5,772
--------------------------- ----- -----
Changes in operating assets and
liabilities excluding the effects of
acquired businesses:
-------------------------------------
Accounts receivable 2,054 11,209
------------------- ----- ------
Inventories (9,617) 29,497
----------- ------ ------
Accounts payable and accrued
compensation and related liabilities (3,196) (25,945)
------------------------------------- ------ -------
Other working capital changes 1,953 (9,762)
----------------------------- ----- ------
Other, net (4,066) 316
---------- ------ ---
Net cash provided by operating
activities 23,692 33,334
------------------------------ ------ ------
Cash flows from investing activities:
-------------------------------------
Cost of business acquisitions, net of
cash acquired (21,507) (3,189)
------------------------------------- ------- ------
Capital expenditures (13,578) (23,519)
-------------------- ------- -------
Proceeds from sale of property, plant
and equipment 2,918 5,709
------------------------------------- ----- -----
Proceeds from sale of investment - 4,032
-------------------------------- -----
Net cash used in investing activities (32,167) (16,967)
------------------------------------- ------- -------
Cash flows from financing activities:
-------------------------------------
Proceeds from issuance of 8 7/8% senior
second lien notes 397,204 -
--------------------------------------- ------- ---
Proceeds from exercise of stock options 1,670 98
--------------------------------------- ----- ---
Repayment of term loans (312,902) (22,839)
----------------------- -------- -------
(Repayments) borrowings under revolving
credit facility, net (22,500) 55,250
--------------------------------------- ------- ------
Payment of refinancing or repurchase
fees, redemption premiums and expenses (13,009) (94)
--------------------------------------- ------- ---
Repayments of other long-term debt (5,613) (6,979)
---------------------------------- ------ ------
Purchase and retirement of common stock
upon vesting of RSUs (1,001) (2,028)
--------------------------------------- ------ ------
Repayment of 8 3/8% senior subordinated
notes - (23,024)
--------------------------------------- --- -------
Payment of amendment and debt issuance
costs - (7,296)
-------------------------------------- --- ------
Repayment of 7 7/8% senior subordinated
notes - (4,295)
--------------------------------------- --- ------
Repayment of 10 1/2% senior notes - (3,250)
--------------------------------- ------
Net cash provided by (used in)
financing activities 43,849 (14,457)
------------------------------ ------ -------
Effect of exchange rate changes on cash
and cash equivalents 900 (235)
--------------------------------------- --- ----
Net increase in cash and cash
equivalents 36,274 1,675
----------------------------- ------ -----
Cash and cash equivalents at beginning
of period 10,796 10,444
-------------------------------------- ------ ------
Cash and cash equivalents at end of
period $47,070 $12,119
----------------------------------- ======= =======
In addition to results presented in accordance with accounting principles generally accepted in the U.S. (“GAAP”), included in this release are certain non-GAAP financial measures, including Adjusted EBITDA, non-GAAP income (loss) 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, divested operations or asset held for sale and restructuring and impairment 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. These non-GAAP financial measures are defined herein, and should be read in conjunction with GAAP financial measures. A reconciliation of income (loss) from continuing operations to non-GAAP income from continuing operations and operating income (loss) 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 operations, as a measure of our liquidity or as an alternative to reported net income (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 (loss) from continuing operations, non-GAAP operating income and non-GAAP operating income margin 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 leader in the management and distribution of print and related products and solutions. The Company provides its customers with low-cost alternatives within its core businesses of labels and forms manufacturing, packaging and publisher offerings, envelope production, and printing; supplying one-stop solutions from design through fulfillment. Cenveo delivers everyday for its customers through a network of production, fulfillment, content management, and distribution facilities across the globe.
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) recent U.S. and global economic conditions have adversely affected us and could continue to do so; (ii) our substantial indebtedness 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 are available to us that could further exacerbate our risk exposure from debt; (vi) our ability to successfully integrate acquisitions; (vii) a decline of our consolidated or individual reporting units operating performance could result in the impairment of our assets; (viii) our continuing SEC compliance; (ix) intense competition in our industry; (x) the general absence of long-term customer agreements in our industry, subjecting our business to quarterly and cyclical fluctuations; (xi) factors affecting the U.S. postal services impacting demand for our products; (xii) the availability of the Internet and other electronic media affecting demand for our products; (xiii) increases in paper costs and decreases in its availability; (xiv) our labor relations; (xv) our compliance with environmental rules and regulations; and (xvi) our dependence on key management personnel. 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 http://www.cenveo.com.
Inquiries from analysts and investors should be directed to Robert G. Burton, Jr. at (203) 595-3005.
SOURCE Cenveo, Inc.