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Cenveo Reports First Quarter 2017 Results

Thursday, May 04, 2017

Press release from the issuing company

Significant Progress on Implementation of $50 Million 2017 Profitability Improvement Plan
 
11.5% Notes Paid in Full, Only $5.5 Million of 7% Notes Due May 15 Remain

STAMFORD, Conn. - Cenveo, Inc. (NYSE: CVO) reported financial results for the three months ended April 1, 2017.  The reported results for all periods presented exclude the operating results of the Company's packaging operating segment and top-sheet lithographic print operation ("Packaging Business"), which have been classified in the consolidated financial statements as discontinued operations.

First Quarter 2017 vs. First Quarter 2016 Overview

  • Net sales of $374.5 million compared to $432.8 million.
  • Net loss of $8.7 million compared to net income of $11.2 million.
  • Adjusted EBITDA of $31.2 million compared to $35.0 million.
  • Net cash used by operating activities of continuing operations of $6.4 million compared to $11.4 million.
  • Gross margin up 75 basis points to 17.1% compared to 16.4%.
  • Interest expense of $19.1 million compared to $24.1 million.
  • Achieved over $5 million in cost savings in Q1 2017.

Management Commentary

"Despite headwinds impacting net sales, we achieved several accomplishments this past quarter.  The continued softness in our office products envelope business and the closure of our coating operation in mid-2016 were contributors to the decline in our sales year over year. Those events combined with further market softness across our print, direct mail and label platforms led to the decline of our net sales.  On the other hand, our cost reduction efforts are beginning to show results.  Our 2017 Profitability Improvement Plan provided sustainable savings of over $5.0 million during the quarter, which allowed us to improve our margins despite lower sales volume.  The benefits of the 2017 Profitability Improvement Plan will continue in the second quarter and throughout the remainder of the year.  We have now identified the remaining $10 million of our proposed $50 million of cost savings and feel good about our ability to achieve our stated goal of generating $25 million in savings for the full year.  Additionally, the positive impact of our significant 2016 debt repurchases and refinancing decreased interest expense for the quarter compared to the same period last year by approximately $5.0 million," said Robert G. Burton, Sr., Chairman and CEO of Cenveo.

Financial Results

Net sales in the first quarter of 2017 were $374.5 million compared to $432.8 million in the same period last year, a 13.5% decline. The sales decline was primarily driven by: (i) lower sales in the envelope segment, primarily due to lower demand in office product and wholesale envelope product lines primarily due to marketplace trends, and lower direct mail demand from our customers; (ii) lower sales in the label segment primarily due to the decision to exit the coating operation, which was completed in the second quarter of 2016, and lower sales volumes; and (iii) lower sales volumes in the commercial print group, primarily driven by lower customer demand and continued pricing pressures.

Operating income in the first quarter declined 41.0% to $10.0 million, compared to $17.0 million in the same period last year. The decrease was primarily due to lower gross profit due to lower sales volumes, the impact of the decision to exit the coating operation, and higher restructuring and other charges resulting from the 2017 Profitability Improvement Plan, including the announced closure of two facilities, partially offset by the benefit of lower selling, general and administrative expenses due to cost reduction initiatives and lower commission expense due to lower sales volumes. Non-GAAP operating income in the first quarter of 2017 was $19.2 million compared to non-GAAP operating income of $23.5 million for the same period last year.  A reconciliation of all non-GAAP figures are reported in the tables below.

Loss from continuing operations during the first quarter of 2017 was $8.7 million, or $(1.02) per diluted share, compared to income of $13.0 million, or $1.38 per diluted share, in the first quarter of 2016. Income in the first quarter of 2016 was primarily driven by gains on the early extinguishment of debt of $21.6 million. Non-GAAP loss from continuing operations in the first quarter of 2017 was $0.1 million, or $(0.01) per diluted share, compared to a loss of $1.7 million, or $(0.20) per diluted share, in the same period last year.

Net loss in the first quarter of 2017 was $8.7 million compared to net income of $11.2 million for the same period last year. Adjusted EBITDA was $31.2 million in the first quarter of 2017 compared to $35.0 million for the same period last year. The change in Adjusted EBITDA was generally as expected with the continued impacts associated with the disruption in our office product and wholesale products and the exit of our coating operation accounting for a reduction of approximately $6.0 million while our profit improvement initiatives accounted for an increase of approximately $5.0 million, primarily due to our operational efficiency projects and position reductions across our operating platform.

During the first quarter 2017, net cash used in operating activities of continuing operations was $6.4 million compared to $11.4 million for the same period last year. The decline was primarily due to changes in working capital, particularly the timing of payments to vendors and higher inventories due to the timing of customer orders, partially offset by sales to and collections from our customers.

At April 1, 2017, cash and cash equivalents totaled $3.9 million, compared to $5.5 million at December 31, 2016. Total outstanding long-term debt, including current maturities, was approximately $1.0 billion as of April 1, 2017, an increase of $16.0 million from December 31, 2016.  During the first quarter of 2017, the remaining $20.5 million of outstanding principal balance of 11.5% notes was redeemed in full. Additionally, the remaining $5.5 million principal balance of 7% convertible notes will be retired prior to or at maturity on May 15, 2017 using cash flow from operations or availability under the ABL facility.

2017 Outlook

Mr. Burton, Sr. continued:  "As we enter the second quarter, we are pleased with the progress of our 2017 Profitability Improvement Plan and the progress that we have made addressing our capital structure over the past year.  Despite a challenging operating environment and recent softness in our end markets, we believe these initiatives will further support us achieving our financial goals for 2017.  I look forward to updating our investors on our conference call tomorrow."

 

 

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