DAYTON, Ohio - Standard Register today announced its financial results for the second quarter of 2013. The Company reported revenue of $136.8 million and a net loss of $4.8 million or $0.80 per share. The results compare to second quarter 2012 revenue of $155.1 million and a net loss of $1.1 million or $0.19 per share. The number of shares and net income/loss per share for prior periods have been adjusted on a retroactive basis to reflect the Company's 1-for-5 reverse stock split, which was effective May 9, 2013.
Non-GAAP net income, after adjustments for pension loss amortization, pension settlement, restructuring charges and related tax effects, was $1.5 million or $0.25 per share compared to $3.8 million or $0.66 per share for the second quarter of 2012.
In a separate announcement this morning, Standard Register said that it has acquired WorkflowOne, a printing and document management firm with complementary business and market presence. The announcement also contained information on Standard Register's renewal and expansion of its credit facility.
"Although we still face the volatility of a declining market for our traditional printing products, the investments we have made in technology-enabled solutions have created a portfolio with increasing relevance in the market," said Joseph P. Morgan, Jr., president and chief executive officer. "We are particularly enthused with the near-term and long-term value creation benefits of the acquisition announced this morning. Along with the increased capabilities from combining our sales and operations with those of WorkflowOne, we are looking to the future of our industry and positioning our company for incremental growth opportunities by utilizing the cash flow from our now larger manufacturing network to invest in workflow, communications and analytics innovation. This is a bold move at the right time with the right financial structure. It makes our pension obligation more manageable, and gives us additional resources to execute within our strategy."
Second Quarter Results
Total revenue declined 11.8 percent to $136.8 million compared to $155.1 million in the prior year quarter. The decline was primarily the result of reduced volumes in printed clinical forms and transactional documents.
Healthcare revenue declined 12.0 percent to $48.2 million compared to $54.8 million in the second quarter of 2012. Operating profit declined to $1.8 million from $3.8 million in the prior year quarter. Healthcare technology-enabled solutions sales to both new and existing customers continued to be strong during the quarter, offsetting some of the volume decline in clinical documents and the effect of large one-time projects in the first and second quarters of 2012.
Business Solutions revenue declined 11.7 percent to $88.6 million from $100.3 million in the second quarter last year. Approximately half of this decline is due to reductions in revenue with a large financial services customer that reorganized its distribution channels and restructured operations. Revenue from this customer declined $6.0 million during the quarter. The decline in revenue from this customer is expected to slow during the second half of the year and to total $18 to $20 million for the year. Lower volumes in printed documents also contributed to the revenue decline. Operating profit declined to $0.9 million compared to $2.6 million last year.
Gross margin as a percentage of revenue decreased to 28.5 percent from 30.0 percent for the same quarter last year. Pricing pressure and declines in volume contributed to the change. Selling, general and administrative (SG&A) expenses declined 5.7 percent in the quarter reflecting the realization of the restructuring and cost reduction efforts.
First Half of Year Results
Total revenues declined 11.0 percent to $278.4 million and the Company incurred a net loss of $6.8 million or $1.15 per share for the first half of 2013, compared to revenue of $312.7 million and a net loss of $6.2 million or $1.07 per share for the first half of 2012.
Non-GAAP net income, after adjustments for pension loss amortization, pension settlement, restructuring charges and related tax effects, was $4.8 million or $0.82 per share compared to $5.7 million or $0.98 per share for the first half of 2012.
Healthcare revenues declined 12.6 percent to $97.7 million from $111.8 million in the first half of 2012. Operating profit for the first half of 2013 was $3.9 million compared to $6.3 million for the prior year.
Business Solutions revenues declined 10.1 percent to $180.7 million from $200.9 million in the first half of the prior year. Operating profit increased by 16.5 percent to $3.8 million from $3.3 million.
Consolidated gross margin as a percent of revenue was 29.1 percent in the first half of 2013 compared to 30.3 percent for the same period in 2012. SG&A expense declined 10.7% in the first half of 2013 to $85.4 million from $95.6 million in the prior year.
Capital expenditures were $6.3 million compared to $1.2 million in the first half of last year. The company continues to invest in its Jeffersonville, Ind., digital print and distribution Center of Excellence, which has begun operations. Investments were also made in software technology and an upgrade to the SMARTworks® workflow platform that was released during the quarter.
The Company contributed $10.5 million to its qualified pension plan in the first half of 2013 compared to $13.5 million in the first half of 2012. Total pension contributions for 2013 are expected to be $24.8 million compared to $22.7 million of contributions made in 2012. The Company is encouraged by the recent rise in long-term interest rates. If rates hold at their present level, the Company's pension liability would be reduced at the end of 2013 by an actuarial gain.
Cash flow on a net debt basis was positive by $1.2 million for the first half of 2013 compared to negative cash flow of $0.7 million for the first half of 2012.
Acquisition of WorkflowOne
Standard Register announced today that it has acquired WorkflowOne in a transaction valued at $218 million, financed by assuming $210 million of long-term debt and the issuance of warrants with an estimated value of $8 million. The transaction advances Standard Register's revenue position, enhances its product and solutions portfolio, broadens its customer base, improves its cost structure and provides greater financial flexibility and stability.
Standard Register expects to achieve $1 billion in annual revenue and $40 million in annual savings when the integration of the two companies is complete. The acquisition is expected to deliver value creation benefits immediately from combined sales and operating capabilities and to improve 2013 EBITDA (a non-GAAP measure of earnings before interest, taxes, depreciation and amortization). The Company will go to market under the Standard Register corporate umbrella and will rapidly integrate its operations. WorkflowOne will initially operate as a subsidiary of Standard Register. Joseph P. Morgan, Jr., president and chief executive officer of Standard Register, will lead the combined company. Timothy A. Tatman, former president and chief executive officer of WorkflowOne, will serve in an advisory capacity through the integration.
Renewal and Expansion of Credit Facility
Standard Register announced today that it has completed an early renewal and an expansion of its credit facility. The Company entered into a five-year $125 million senior-secured asset-based credit facility that provides additional liquidity and the ability to capitalize on opportunities for growth aligned with its strategic objectives. The new facility amends and extends its existing credit facility, which was due to mature on March 31, 2014. The facility is secured by the Company's existing and future working capital assets. Proceeds from the new credit facility will be used for financing working capital, expanding investment and for general corporate purposes for the newly combined company. Bank of America, N.A. is the Lead Arranger for the credit facility.
Adjustment of Earnings Per Share due to Reverse Split
All references to shares of common stock and per share data for all periods presented in the accompanying unaudited financial statements have been adjusted to reflect the reverse stock split on a retroactive basis.