By Pat Veverica of Raine Consulting November 8, 2003 -- Standard Register (NYSE: SR) recently announced third quarter revenue of $218.7 million, compared to $222.1 million in 2003. Through nine months, revenue was $671.3 million, versus $691.2 million for the comparable period of 2003. The net loss reported for the quarter was $34.5 million or $1.21 per share, compared to a loss of $1.6 million or $0.05 per share in the prior year. The year-to-date loss was $43.6 million or $1.53 per share, versus a loss of $14.7 million or $0.52 last year. The Company also reported lower manufacturing and SG&A costs in the quarter and undertook new restructuring initiatives aimed at improving operating margins during the coming quarters. "Given our industry dynamics, we must continue to make productivity gains in order to remain competitive and improve our profitability and cash flow," said CEO Dennis Rediker. Topics of this summary: Quarter Highlights Segment Results Outlook Q & A Quarter Highlights During the quarter, the Company restructured its InSystems subsidiary, a provider of software applications for the automation of document intensive business processes. The subsidiary, acquired in July 2002, had experienced significant declines in its revenue and margins in recent periods and management elected to reduce costs and refocus attention on InSystems' key product lines. A pre-tax restructuring charge of $2.6 million was reported in the quarter and on-going cost savings are estimated at $4.0 million per year. In conjunction with the InSystems' restructuring, the Company recorded an asset impairment charge of $47.1 million to adjust the carrying value of the business. The non-cash charge, which eliminated InSystems' goodwill, was the product of a more modest growth forecast for the restructured business and a substantial reduction in prevailing market valuation multiples for software companies. The Company paid down debt of $15 Million, and brought SG&A expenses down by 3.5%. For the remainder of the year, Standard Register expects stable revenues with recognized seasonality, Q3 being the weakest while Q4 is typically the strongest. This trend is expected to continue, as reinforced by backlogs going into Q4. Standard Register expects to be more competitive and gain share in the core document markets. Their nationwide Digital Print capabilities include print-on-demand services and software to enhance productivity. Print and Document Managed services such as contract print, print supply chain management and Enterprise Consulting are helping the Company re-position themselves as a leader in the space of customers who want to manage their print spend. Segment Results The Document Label Solutions Segment reported revenues of $152 million down 3.0% on a year over year basis. While sales were higher, price pressure contributed to the decline. Fulfillment reported second quarter revenues of $58 million, up 2%. InSystems, the subsidiary in Canada, reported revenues of $3 million, down 36% from last year reflecting a softening market for software. Revenues from all other sources were $6 million, a 12% increase with commercial print accounting for the increase. Gross margin was $78.8 million for the quarter or 36% of revenue, down $5.8 million compared to the same period last year. Paper costs were higher, offset by cost reductions in manufacturing. Outlook At the end of the first half of 2004, the Company announced an objective to improve its cost and expense ratios over the next several quarters by a total of five percentage points in relation to revenue. "We have made good progress against this goal and if we are successful in recovering paper costs, we expect to achieve this objective by the second half 2005," said CEO Dennis Rediker. Q & A Typically Q4 is the strongest quarter of the year, and the Company expects this to be the case, which is reinforced by their production backlogs. Even though the calendar has an extra week in it, but don’t expect it to impact revenues due to holidays. Have gross margins “troughed?” The Company has more challenge around paper, and the three increases this year were significant. Target prices have been raised to accommodate this, but there is a lag in the effects of price increases. Expect continued pressure on the gross margin line. What is the Company doing in terms of paper procurement? The volume consumed is not directly translatable to the paper company economics. But there is a bright spot in that pulp prices are going down. The Company does have an active program underway to improve paper expenses. When President Bush made a statement about general inefficiencies in Document Management, particularly among health care providers, what is the impact on this (major segment) of your customer base? These government proclamations are highly concerning to the healthcare people because they don’t see a way to fund such projects at the rates the government recommends. There is not one easy solution or one recommended method, as each will pursue their own methods. SR has been consulting heavily with them; their Print on Demand and Consulting Services are in response to the challenges healthcare faces to step up and show progress. SR feels they have the ability to help migrate these clients, putting the logical steps in place Document Management-- outsourcing representing one such step. Most of these customers will require hospital information systems, to change the way they conduct business. SR is partnering with (some of ) them to offer solutions. They are gaining share in this market and have been very active. Expect to see a lot of partnering with other providers. The Company has made lots of progress in Q3, and still have long way to go. They are still challenged by paper increases, and are recouping those costs over time. Hope to realize expense reductions, as stated in their outlook, by the second half of 2005.