Cenveo Posts Gains Primarily Due to Acquisition

STAMFORD, CT—Nov. 9, 2011—Cenveo Inc.announced results for the three and nine months ended Oct. 1, 2011.

Third-Quarter Highlights:

• Net Sales of $500.6 million, up 10 percent from 2010.
• Net Income of $2.8 million.
• Non-GAAP Operating Income of $44.3 million, up 12 percent from 2010.
• Adjusted EBITDA of $61.6 million, up 8.9 percent from 2010.

For the three months, net sales increased approximately 10 percent to $500.6 million, compared to $455.1 million for the three months ended Oct. 2, 2010, primarily due to the acquisition of MeadWestvaco Corp.’s Envelope Product Group, which closed in February, and growth from the company’s direct envelope group, which benefited from strong direct mail volumes.

For the nine months ended Oct. 1, 2011, net sales increased approximately 10.7 percent to $1.50 billion, compared to $1.35 billion for the nine months ended Oct. 2, 2010. This increase was driven by the acquisition of EPG and organic growth in the company’s direct envelope, custom label, content management, and specialty packaging product lines.

The company generated operating income of $35.7 million for the three months ended Oct. 1, 2011, compared to an operating loss of $156.1 million for the three months ended Oct. 2, 2010. This increase was a result of lower restructuring and impairment charges, a lower operating cost structure than prior year and contributions from the EPG acquisition.

Non-GAAP operating income increased 12 percent to $44.3 million, compared to $39.5 million for the three months ended Oct. 2, 2010. For the nine months ended Oct. 1, 2011, the company generated operating income of $87.2 million, compared to an operating loss of $124.6 million for the nine months ended Oct. 2, 2010. This increase was a result of lower restructuring and impairment charges, a lower operating cost structure than prior year and contributions from the EPG acquisition.

For the nine months ended Oct. 1, 2011, non-GAAP operating income increased 11.5 percent to $119.4 million, compared to $107.1 million for the nine months ended Oct. 2, 2010. Non-GAAP operating income excludes integration, acquisition and other charges, stock-based compensation provision, restructuring and impairment charges and divested operations or assets held for sale. A reconciliation of operating income to non-GAAP operating income is presented in the attached tables.

For the three months ended Oct. 1, 2011, the company recorded net income of $2.8 million, compared to a net loss of $157.2 million for the three months ended Oct. 2, 2010. The improvement in net income was primarily due to lower restructuring and impairment charges and lower interest expense in the third quarter of 2011, compared to the third quarter of 2010, partially offset by higher income tax expense in the third quarter of 2011, compared to the third quarter of 2010.

For the nine months ended Oct. 1, 2011, the company recorded net income of $6.0 million, compared to a net loss of $176.6 million for the nine months ended Oct. 2, 2010. The improvement in net income was primarily due to lower restructuring and impairment charges, a preliminary bargain purchase gain related to the EPG acquisition and lower interest expense in the first nine months of 2011, compared to the first nine months of 2010, partially offset by higher income tax expense in the first nine months of 2011, compared to the first nine months of 2010 and a loss on early extinguishment of debt in the first nine months of 2010.

On a non-GAAP basis, income from continuing operations increased 97.2 percent to $16.3 million, or $0.26 per share, for the three months ended Oct. 1, 2011, compared to $8.3 million, or $0.13 per share, for the three months ended Oct. 2, 2010.

For the nine months ended Oct. 1, 2011, non-GAAP income from continuing operations increased 129.1 percent to $31.0 million, or $0.49 per share, compared to $13.5 million, or $0.21 per share, for the nine months ended Oct. 2, 2010. Non-GAAP income from continuing operations excludes integration, acquisition and other charges, stock-based compensation provision, restructuring and impairment charges and divested operations or assets held for sale, loss on early extinguishment of debt and adjusts income taxes to reflect an estimated cash tax rate. A reconciliation of income (loss) from continuing operations to non-GAAP income from continuing operations is presented in the attached tables.

Adjusted EBITDA for the three months ended Oct. 1, 2011 was $61.6 million, compared to $56.6 million for the three months ended Oct. 2, 2010, an increase of approximately 8.9 percent. Adjusted EBITDA for the nine months ended Oct. 1, 2011, was $170.2 million, compared to $156.1 million for the nine months ended Oct. 2, 2010, an increase of approximately 9.1 percent. These increases are primarily attributable to stronger performance across the majority of the company’s product lines combined with contributions from the EPG acquisition.

The results for the third quarter and the first nine months of 2011 include a preliminary bargain purchase gain related to the EPG acquisition. The purchase price allocation of acquired assets and liabilities assumed in the EPG acquisition and the related bargain purchase gain recognized in the company’s statement of operations are preliminary. Differences between the preliminary and final purchase price allocations could have a material impact on the company’s financial statements, including the bargain purchase gain. The company will finalize the purchase price allocation as soon as practicable within the EPG acquisition’s measurement period, but in no event later than one year after the acquisition date.

Robert G. Burton, Sr., chairman and CEO, stated, “Cenveo again achieved its financial commitments by delivering a strong quarter with revenue growth of 10 percent, Adjusted EBITDA growth of 9 percent, operating margin expansion, and strong cash flow from operations. This performance was achieved with solid performances across the company, highlighted by a strong performance in our direct envelope business which saw solid organic revenue growth benefiting again from strong direct mail volumes.

“We also delivered strong cash flow from operations of $27 million during the quarter and we lowered our net debt by $20 million. I am also pleased to report that our working capital initiatives began to deliver meaningful results with approximately a $15 million reduction in inventory during the quarter,” Burton continued

“Despite continued economic volatility, the positive trends, which we have seen across most of our businesses since the end of 2010, extended into the third quarter of 2011. Our direct envelope business posted another quarter of strong organic sales growth of over 7 percent, benefiting from strong direct mail volumes and favorable product mix.

“During the third quarter, we completed the conversion off of EPG’s legacy systems and back office functions onto our legacy platform. This conversion will provide meaningful financial benefits as we enter the fourth quarter and 2012. Our packaging products delivered another solid performance as our customers spending in those end markets grew in line with expectations. While still challenged by weakness in the publishing industry, our publisher services group saw stabilization as new sales wins in non-traditional end markets offset this weakness. Our content management offering continues to prosper as our global platform is benefiting from the outsourcing of project management and composition services.”

Burton concluded, “As we enter the fourth quarter, we are proud of our performance for the first nine months and we are positioned well to deliver our full year revenue, free cash flow and Adjusted EBITDA objectives despite the volatility in the macro-environment. We will continue our focus on driving free cash flow and deleveraging our balance sheet. Our working capital initiative, which started to deliver results in the third quarter, will continue to be a major focus through the end of the year.

“As the major integration efforts with EPG are now winding down and as we begin to position the company for 2012 and beyond, I am pleased to announce the following appointments. Dean E. Cherry has been appointed to the position of EVP, Operations. He will be responsible for the company’s marketing efforts including investor relations, strategic accounts and enhancing the company’s cross selling efforts. I have worked with Dean for close to 30 years and his experience and industry knowledge make him the ideal person for this role. Jim Riffe has been appointed to the position of President, Envelope Operations. Jim previously had responsibility for the direct side of our envelope operations and his leadership and success in integrating our platform gives me the utmost confidence that he will be successful in his new role. Both of these individuals are seasoned and experienced leaders that will be critical in the company’s continued success.”

About Cenveo
Cenveo (NYSE: CVO), headquartered in Stamford, CT, is a leading global provider of print and related resources, offering world-class solutions in the areas of envelopes, custom labels, specialty packaging, commercial print, publisher solutions and business documents. The company provides a one-stop offering through services ranging from design and content management to fulfillment and distribution. With approximately 9,000 employees worldwide, we pride ourselves on delivering quality solutions and service every day for our customers.

Source: Cenveo.