Standard Register Reports 2.6M Q3 Loss
Monday, October 29, 2012
Press release from the issuing company
- Underlying operating performance continues to improve
- Year-to-date increase in Core growth solutions sales
- Strong sales momentum in technology-oriented solutions
- On track to end 2012 with at least $5 million in positive cash flow
DAYTON, Ohio - Standard Register (SR), a leader in critical communications management solutions, today announced its financial results for the third quarter and first nine months of 2012. The Company reported third-quarter 2012 revenue of $145.7 million and a net loss of $2.6 million or $0.09 per share. The results compare to prior year third quarter revenue of $157.5 million and net income of $8.4 million or $0.29 per share. The 2011 third quarter included a $20.2 million ($12.2 million after tax) one-time benefit related to termination of the Company's postretirement healthcare plan, so comparable results improved $1.2 million over the prior year quarter.
Non-GAAP net income from operations after adjustments for pension loss amortization, pension settlement, restructuring charges, postretirement plan termination, tax effect of adjustments and deferred tax valuation allowances was $2.5 million or $0.09 per share for the third quarter of 2012, compared to break even for the same period in 2011.
Through the first nine months of 2012, the Company reported revenue of $458.4 million and a net loss of $8.9 million or $0.30 per share. The first nine months results compare to last year's revenue of $486.7 million and net income of $7.8 million or $0.27 per share for the same period of 2011. Non-GAAP adjusted net income from operations for the first nine months of 2012 was $8.2 million or $0.29 per share compared to non-GAAP adjusted net income of $6.8 million or $0.24 per share for the nine months of 2011.
The Company previously announced the loss of a portion of its business with a large financial services customer due to the customer's restructuring. Revenue from this customer declined $10.6 million in the third quarter ($3.7 million in Core solutions and $6.9 million in Legacy products) and $16.6 million in the first nine months ($5.3 million in Core solutions and $11.3 million in Legacy products). The Company has revised its expectation for 2012 to a loss of $24 to $25 million in revenue from this customer, $8 million in Core solutions and the balance in Legacy products.
"Underlying operating performance and our financial stability continue to improve despite a revenue decline in the quarter primarily related to the expected decreases in our Legacy products and in business from one large customer," said Joseph P. Morgan, Jr., president and chief executive officer. "On a year-to-date basis, revenue from Core growth solutions increased."
Morgan continued, "Our transformation and the new solutions we're bringing to market resulted in another quarter of sales momentum. In Healthcare, we signed more new contracts than in any prior quarter since the business unit was established, and we are seeing more subscriptions for our technology-oriented solutions, with longer terms and better product mix. In Business Solutions, customer communications and on-demand digital publishing are growing, in part due to the investments in digital equipment we made in 2011. Our challenges are the uncertainty of the economic environment, our pension contribution expense and pricing pressures that impact our margins. We are implementing our restructuring plan ahead of schedule, making aggressive improvements in our sales, delivery channel and customer service organizations, and managing costs throughout the business. We are confident in our strategy and can reaffirm that we expect to end 2012 with at least $5 million in positive cash flow."
Third Quarter Results
Total revenue declined 7 percent to $145.7 million in the third quarter compared to $157.5 million in the third quarter of 2011. Nearly all of the decline was attributable to the loss of business from the large financial services customer. Core solutions, the Company's priority growth products and services, declined less than 1 percent; excluding the loss from the large financial services customer, Core solutions grew 5 percent. Legacy products, generally transactional documents and print materials, declined 12 percent.
Healthcare revenue declined 11 percent for the quarter, to $51.5 million compared to $57.7 million in the prior year quarter. The decline was driven primarily by net unit decreases, with growth in technology-related Core solutions offset by declines in Legacy products. Operating income for the third quarter was $2.3 million compared to $3.9 million for the same period in 2011. Excluding the third quarter 2011 postretirement plan allocation of $1.9 million, operating income improved over the prior year quarter. Dialog Medical, a component of patient information solutions, was acquired in July 2011 and incorporated into the Company's reporting in the third quarter of 2011.
Business Solutions revenue for the third quarter was $94.2 million, a decrease of 6 percent compared to third quarter 2011 revenue of $99.8 million. Excluding the loss of business from the large financial services customer, revenue increased $5.0 million over the prior year. Core solutions growth, particularly in customer communications and on-demand publishing, was partially offset by net unit decreases in Legacy transactional products. Operating income for the third quarter was $2.3 million compared to $2.0 million in the third quarter last year. Excluding the postretirement plan allocation of $3.2 million, year over year operating income improved significantly.
Consolidated gross margin as a percent of revenue was 29.0 percent, unchanged from the third quarter of 2011. Some new business at lower margins and declining sales in higher margin products were offset by savings from ongoing restructuring activities and other cost-saving initiatives. Selling, general and administrative (SG&A) expenses declined 16 percent in the quarter.
First Nine Months Results
Total revenue declined 6 percent to $458.4 million compared to $486.7 million for the first nine months of 2011. Of the decline, $16.6 million was from the loss of business at the large financial services customer and the remainder was primarily a result of Legacy product unit volumes declining more rapidly than growth in Core solutions sales. In the first nine months of 2012, Core solutions grew 2 percent (4.9% excluding the loss of business at the large financial services customer). Legacy products declined 11 percent. At the end of the first nine months of 2012, Core solutions accounted for 43 percent of revenue, compared to 40 percent at the end of the third quarter last year. Legacy products correspondingly declined to 57 percent from 60 percent for the same periods.
Healthcare revenue declined 8 percent to $163.3 million from $177.4 million in the first nine months of 2011. Operating income for the first nine months of 2012 was $8.6 million compared to $12.4 million for the prior year ($10.5 million after excluding the postretirement plan allocation of $1.9 million).
Business Solutions revenue declined to $295.1 million from $309.3 million in the first nine months of the prior year and nearly all of the 5 percent decline was from the loss of business at the large financial services customer. Operating income increased by 19 percent to $5.6 million from $4.8 million (or $1.6 million excluding the postretirement plan allocation of $3.2 million).
Consolidated gross margin as a percent of revenue was 30 percent in the first nine months of 2012, compared to 31 percent for the same period in 2011. SG&A expense declined 11 percent in the first nine months of 2012, to $138.6 million from $155.5 million in the prior year. SG&A expense for the first nine months of 2011 included a credit of $3.3 million from amortization of prior service credits before the termination of the postretirement healthcare benefits plan.
Cash flow on a net debt basis was positive by $4.0 million year-to-date in 2012 compared to a negative $5.8 million at the end of the first three quarters of 2011.
Capital Expenditures, Restructuring and Pension Contribution Updates
Through the first nine months of 2012, capital expenditures were $2.4 million. Expected capital expenditures for the full year 2012 are in the range of $7 million to $11 million. The Company continues to invest at a prudent level to support Core technology solutions growth and to increase efficiencies with management reporting systems and customer service. Restructuring efforts have more clearly defined investments that will produce the best return.
In January 2012, the Company announced a two-year strategic restructuring plan to better align its resources in support of the growing Core solutions business and reduce costs to offset the impact of declining revenues in Legacy products. The Company has identified additional savings initiatives and currently expects annual savings of approximately $60 million by the end of 2013. Costs associated with the restructuring program are expected to be approximately $11.5 million by the end of 2013.
Standard Register has contributed $18.7 million to the Company's qualified pension plan in the first nine months of 2012 and expects to contribute at least another $2 million in the fourth quarter. Based on provisions of the highway reauthorization legislation signed into law in July, the Company updated pension-funding expectations for 2012 and 2013, which were previously expected to total $53 million. With relief provided by the Moving Ahead for Progress in the 21st Century Act (MAPS-21), commonly called the highway bill, the contribution for 2012 is expected to be $20.7 million and $26.8 million in 2013, a decrease of $5.5 million from the earlier estimate. Currently, the Company expects contributions to total $42 million in 2014.
Standard Register's President and Chief Executive Officer Joseph P. Morgan, Jr. and Chief Financial Officer Robert Ginnan will host a conference call at 10:00 a.m. EDT on Friday, October 26, 2012, to review the third quarter results. The call can be accessed via an audio webcast accessible at http://www.standardregister.com/investorcenter.
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