Cenveo Reports Decrease in Net Sales for Q4

STAMFORD, CT—February 27, 2013—Cenveo Inc. announced results for the three months and full year ended December 29, 2012. The company generated net sales of $451.8 million for the three months ended December 29, 2012, compared to $486.5 million for the same period last year. The company generated net sales of $1.8 billion for the year ended December 29, 2012, compared to $1.9 billion for the prior year.

The decrease in net sales was primarily due to lower sales in our print and envelope product lines as a result of lower direct mail volumes from our financial services customers, the closure and consolidations of a print plant and two envelope plants and our decision to exit certain low margin business. Net sales from our label and packaging business lines decreased slightly for the fourth quarter and full year of 2012 due to our decision to exit low margin business within those platforms, which has been offset largely by our e-commerce initiatives and new account wins in our packaging business.

Operating income was $34.0 million for the three months ended December 29, 2012, compared to $39.0 million for the same period last year. The decrease in operating income was primarily due to lower sales, lower byproduct recoveries and increased pension expense, offset in part by lower compensation-related expenses. Non-GAAP operating income was $41.6 million for the three months ended December 29, 2012, compared to $46.7 million for the same period last year. For the year ended December 29, 2012, operating income was $112.2 million, compared to $117.8 million for the prior year.

The decrease in operating income was primarily due to increased restructuring, impairment and other charges as a result of the closure and consolidations of a print plant and two envelope plants along with other cost savings actions, lower sales, lower byproduct recoveries and increased pension expense, offset in part by our lower cost structure due to the integration of our Envelope Product Group acquisition and lower compensation-related expenses.

For the year ended December 29, 2012, non-GAAP operating income was $151.9 million, compared to $157.2 million for the prior year. Non-GAAP operating income excludes integration, acquisition and other charges, stock-based compensation provision, and restructuring, impairment and other charges. A reconciliation of operating income to non-GAAP operating income is presented in the attached tables.

Income tax expense was $60.1 million for the year ended December 29, 2012, compared to $9.5 million in the prior year. The increase in income tax expense is due to a non-cash charge of $56.5 million related to a valuation allowance applied to our net U.S. deferred tax assets, which primarily consists of a federal tax loss carryforward in the amount of $88.7 million that does not begin to expire until 2022. Our cash income taxes were $1.4 million for the year ended December 29, 2012, compared to $2.1 million in the prior year, and we do not expect to be a significant cash tax payer for at least the next four years.

For the three months ended December 29, 2012, the company had a loss from continuing operations of $56.0 million, or $0.88 per share, primarily due to the valuation allowance discussed above, compared to $1.8 million, or $0.03 per share for the same period last year. Non-GAAP income from continuing operations was $14.2 million, or $0.17 per share, for the three months ended December 29, 2012, as compared to $18.2 million, or $0.29 per share, for the same period last year. For the year ended December 29, 2012, the company had a loss from continuing operations of $73.9 million, or $1.16 per share, primarily due to the valuation allowance discussed above and a net loss on early extinguishment of debt related to refinancing our 2013 maturity, compared to $1.0 million, or $0.02 per share for the same period last year.

For the year ended December 29, 2012, non-GAAP income from continuing operations was $40.2 million, or $0.51 per share, as compared to $40.5 million, or $0.64 per share, for the same period last year. Non-GAAP income from continuing operations excludes integration, acquisition and other charges, stock-based compensation provision, restructuring, impairment and other charges, gain on bargain purchase, loss (gain) on early extinguishment of debt, net, an adjustment to income taxes to reflect an estimated cash tax rate, and an adjustment for interest expense related to the 7 percent convertible notes ("7 percent Notes"), net of taxes. A reconciliation of loss from continuing operations to non-GAAP income from continuing operations is presented in the attached tables.

Adjusted EBITDA for the three months ended December 29, 2012 was $58.0 million, compared to Adjusted EBITDA of $62.6 million for the same period last year. Adjusted EBITDA for the year ended December 29, 2012, was $215.1 million, compared to $221.6 million, for the same period last year. Adjusted EBITDA is defined as earnings before interest, taxes, depreciation, amortization, integration, acquisition and other charges, stock-based compensation provision, restructuring, impairment and other charges, gain on bargain purchase, loss (gain) on early extinguishment of debt, net and (loss) income from discontinued operations, net of taxes. A reconciliation of net loss to Adjusted EBITDA is presented in the attached tables.

Robert G. Burton, Sr., Chairman and CEO stated:
“Despite a challenging economic backdrop we were able to accomplish several key initiatives in 2012. We completed the refinancing of all our near-term debt maturities, divested a non-core asset, paid down $63 million of debt and invested in our core operations. Our fourth quarter results were similar to the trends that we experienced throughout the year driven by well-known and anticipated top line challenges stemming from continued softness in direct mail from our financial services customers and timing of transactional volumes in our print business. We do believe that we will see normalized volumes from our direct mail customers in 2013 compared to 2012. Despite the continuation of a challenging environment again in the fourth quarter, we were able to generate $33.4 million in cash flows from operating activities of continuing operations.”

Burton concluded:
“As we have put our refinancing issues firmly behind us, we will focus our efforts back on operating the business by looking to grow revenues and cash flow and creating value in several ways in 2013. We will look to expand upon our efforts to transform our capital structure and increase cash flow by lowering our cost of capital by paying off our highest cost debt and potentially refinancing our revolver and term loan. We will continue to invest in our core operations with capital and technology that drive efficiencies and increase productivity. As we have previously discussed, we will strategically evaluate all our operations to determine which, if any, alternatives are in the best interests of our stakeholders. As we did in 2012 with the disposition of our forms and documents group, we will look to potentially dispose of businesses that we view as non-strategic to our future. Based on the current business climate, I expect Revenues and Adjusted EBITDA to be relatively consistent with last year's results and to generate at least $75 million of free cash flow in 2013. I look forward to our conference call tomorrow to discuss our outlook for 2013 and beyond.”

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 custom labels, specialty packaging, envelopes, commercial print, content management and publisher solutions. The company provides a one-stop offering through services ranging from design and content management to fulfillment and distribution. With a worldwide distribution platform, we pride ourselves on delivering quality solutions and service every day for our more than 100,000 customers.

Source: Cenveo.