Workflow Management, Inc. (NASDAQ: WORK), reported first quarter 2004 earnings. The Company reported a GAAP net loss for its first quarter of $562,000 or $0.04 per diluted share, down from a GAAP net loss of $2.4 million or $0.18 per diluted share in the comparable period a year ago. The net loss during the first quarter consisted of $697,000 income from continuing operations, or $0.05 per diluted share, and a $1.3 million loss from discontinued operations, or $0.09 per diluted share.

Revenues for the first quarter decreased 4.8% to $142.9 million versus $150.1 million in the prior year. Operating income was $5.8 million, or 4.1% of revenues, in the first quarter versus operating income of $6.4 million, or 4.3% of revenues, last year. Adjusted EBITDA was $6.9 million compared to Adjusted EBITDA of $9.1 million in the comparable period a year ago.  

Editor's Note: Workflow Management has been in a fight for survival for over a year and currently they are using a third-party financial advisor to determine a future course of action and possibly more consolidation. This quarter continues to show a decline in revenues and EBITDA on a year-over-year basis. Interestingly, the President & CEO, Mr. Gary W. Ampulski, did not initiate the call with any introductory comments. The Analyst Q & A session lacked substance given that few details were given about the first quarter performance and the company continues to decline in giving guidance for future quarters.


  • Financial Summary
  • Q&A  

Financial Summary  

Mr. Michael L. Schmickle, Executive VP and CFO, reviewed the first quarter 2004 results:  

  1. Revenue was down 4.8% because of general economic conditions, envelope printing and direct mail overcapacity, and customers re-evaluating their purchasing decisions for direct mail.
  2. Gross profit decreased 9.3% from $42 million (28% of revenues in Q1 2003) to $38.1 million (26.7% of revenues Q1 2004) due to excess production capacity throughout the printing industry, ongoing pricing pressures from competitors, and an overall decrease in manufacturing volumes in commercial printing, direct mail and envelope operations.
  3. Overall reduction in Q1 2004 SGA expense of 5.3% from Q1 revenues 2003. As a percentage of sales Q1 2004 were 23.4%, relatively flat from the same period last year.
  4. A review of expenses in Q1 2004 showed $1 million in restructuring costs associated with the implementation of the business plan which included 2003 objectives to complete the consolidation of the New York, Toronto and Los Angeles operations, and amalgamation of the SFI and iGetSmart businesses. The company has now completed the sale of non-core businesses in Q1 2004. The net loss from discontinued operations was $1.3 million for this quarter.
  5. Thomas B. D'Agostino, Sr., the Chairman of the Board of Directors, has resigned from the Board and as Chairman, and has released the Company from any obligation to pay severance or other amounts of $2.2 million. This allowed the company to reverse the $2.2 million charge in Q1 2004 that was reserved for this payment.

    (Editor's Note: The Audit Committee determined that Mr. D'Agostino failed to comply with Company policies and procedures, including those relating to expenses and personal business activities, that Mr. D'Agostino failed to furnish complete information to the Board regarding certain transactions, and that Mr. D'Agostino should reimburse the Company for certain expenses paid by the company. While not admitting to any wrongdoing, Mr. D'Agostino has paid $400,000 to the Company in settlement of these matters).

  6. Other financial ratios include :
    • Inventory turns were 9.5 times on an annualized basis
    • $161 million was drawn on the facility at the end of Q1, however most recently the number has reached $158 million, a number not seen consistently since 2001
    • DSO (Days Sales Outstanding) is approaching 45 days
    • 2800 employees at this time

7. The company will not be providing any guidance for the next quarter or for the balance of 2004.

 Q & A Session

  1. Analysts wanted details about the sale of assets as well as the company's plan to improve shareholder value. CEO, Gary Ampulski answered that they have been active in the last quarter with issues such as earn-outs, lender meetings, and other non-value challenges which have consumed most of their time and wouldn't really contribute to shareholder value. Up until now, we haven't had the time to get our arms around it. Now we have the breathing room to address these things and hope to see some pretty big steps in the future.
  2. Analysts pressed for details about their Jeffries (a third-party financial advisor) involvement. Mr. Ampulski said they are not a liberty to comment and that the process is moving forward.
  3. More details about the envelope and direct mail businesses were requested. Workflow Management's sales forecasts expect that the second quarter will be enhanced over Q1 both top and bottom line.
  4. Questions were asked about the Federal do not call list. This will help refocus Workflow Management on direct mail and increase revenues, but so far they are not seeing anything at this time. Customers are talking about it and doing their evaluations but Workflow Management can not determine if volumes will go up to historical levels.
  5. There has been no business pick up as a result of the California gubernatorial race. Election years in general are better from campaign spending. Historically, they have experienced a considerable amount of direct mail volume from the Democratic Party which is currently anticipated for next fall.
  6. The Middle East conflict has changed the tone of some customers and their demands. CEO comments that Two major accounts are re-evaluating their business with us at this time but overall we are looking to the encouraging signs in the economy.
  7. No details were given as to how much and when the savings will be realized as a result of the restructuring. Ampulski warned that top line may come down as they trade out non-profitable customers for new ones. Proceeds from discontinued operations were used to pay off some earn-outs and pay down debt.
  8. The company is paying very little-to-no taxes in the U.S. today, and paying taxes only in Canada because of the Canadian asset pledge. In total they are not paying more in cash taxes today.