BALTIMORE, Md. (May 4, 2005) -- Vertis, Inc. today announced results for the quarter ended March 31, 2005.
For the three months ended March 31, 2005, net sales were $385.8 million, or 1.2% below the first quarter of 2004 net sales of $390.6 million. Excluding the pass-through costs for paper and the impact of foreign exchange, revenue would have been down 4% in the first quarter.
Earnings before interest, taxes, depreciation and amortization (“EBITDA”) amounted to $(80.1) million for the three months ended March 31, 2005. This represents a decrease of $120.8 million, of which $97.8 million is a non-cash impairment charge at Vertis Europe resulting from the annual valuation of goodwill. Also included in EBITDA are restructuring charges amounting to $10.0 million for the three months ended March 31, 2005 compared to $0.9 million in the comparable 2004 period. Excluding these restructuring and impairment charges, the decline in EBITDA would have been $14.0 million, or 33.6%, in the first quarter.
Vertis reported a net loss of $129.9 million in the first quarter of 2005 versus a net loss of $11.3 million in the first quarter of 2004. The 2005 net loss includes the $97.8 million non-cash loss discussed above.
Dean D. Durbin, President and Chief Operating Officer commented, “As we stated in the discussions of our fourth quarter results, we anticipated that some of the conditions that we experienced in late 2004 would linger into 2005. For example, the direct mail climate in Europe continues to be challenging.”
“In tandem with ongoing cost reduction and revenue enhancing efforts, we are pursuing other strategic alternatives relative to our European direct mail business,” continued Mr. Durbin.
Mr. Durbin also noted, “Our first quarter results were negatively impacted by lower volume and the continued poor conditions in Europe – the latter contributed $2.5 million of the year-over-year decline in EBITDA. In addition, in the first quarter of 2005 we recorded a charge of approximately $2.0 million to fully reserve an amount due from a customer who filed for bankruptcy protection. Although costs were in-line with our expectations, we did experience year-over-year increases in employee benefit, utility and freight costs”.
“We made significant organizational changes in the first quarter,” noted Mr. Durbin. “We implemented a new sales organization structure that is more effective and implemented a new company-wide sales compensation plan, both aimed at driving top line growth. From a cost perspective we streamlined the organization, reducing staff by approximately 220 positions. Specific actions included the regionalization of our insert platform, reducing corporate staffing, and taking advantage of other right-sizing opportunities across the Company. The restructuring charges taken to date are expected to yield annualized savings of approximately $18 million. We strengthened our leadership team with the additions of Ann Raider, Chief Strategy Officer, who will also lead our sales and marketing organizations and David Laverty, Senior Vice President and General Manager, who will lead our advertising insert platform”.
“We ended the quarter with $107 million available on our revolving credit facility and our trailing twelve-month Bank EBITDA for covenant purposes was $173 million versus the $160 million minimum requirement,” stated Stephen E. Tremblay, Chief Financial Officer. Bank EBITDA is not equivalent to the EBITDA amount included elsewhere in this earnings release, but rather is net of adjustments to exclude certain items as defined under the credit agreement.
Regarding the short-term outlook, Mr. Durbin stated “We expect the combination of actions we completed in the first quarter coupled with those we will complete in the second quarter, and positive momentum on the sales front, will combine to yield EBITDA growth in the second quarter of 2005 versus the second quarter of 2004. We also believe we will generate year-over-year growth for the full-year 2005.” This outlook excludes restructuring charges and the goodwill impairment loss.
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