Standard Register (NYSE: SR) today announced its financial
results for the third quarter of 2014.
The Company reported revenue of $219.4 million and a net loss of
$5.6 million or $0.65 per share. The results compare to third
quarter 2013 revenue of $199.4 million and a net loss of $23.2
million or $3.92 per share.
Adjusted EBITDA, which excludes certain items as detailed in the
attached reconciliation, was $15.5 million compared to $8.5 million
for the third quarter of 2013.
Results for the third quarter of 2013 include two months of
operations from WorkflowOne, which Standard Register acquired on
August 1, 2013.
"We are continuing to see the results from our efforts to
increase sales of our entire portfolio of products and solutions,
improve margins through consolidation of operations and contain all
other costs. The net effect for the quarter was continued
improvement in gross margin and Adjusted EBITDA," said Joseph P.
Morgan, Jr., President and Chief Executive Officer. “The focused,
purposeful investments we have made in growth areas are also
producing results, including penetration of our customer base for
promotional products, sales of multi-year software subscription
solutions in healthcare technology, and double-digit growth in our
label production and promotional products storage and distribution
operations in Mexico.
"Our expertise in integrating electronic and written
communications is adding value across our customer base. Recent
business wins are coming on line and contributing to revenue.
Today, we are in a stronger position, with improved sales
performance, a robust pipeline, and a degree of stabilization in
the declining demand for traditional printed forms," Morgan
said.
Third Quarter ResultsTotal revenue increased 10.0 percent
to $219.4 million from $199.4 million in the 2013 third quarter. On
a pro forma basis, including a full third quarter of WorkflowOne in
2013, revenue declined 5.3 percent from $231.7 million.
Gross margin as a percentage of revenue improved to 28.3 percent
in the third quarter of 2014 from 26.9 percent in the prior year.
This improvement in gross margin reflects our integration efforts
and the reduction of 19 facilities that have been exited since the
acquisition of WorkflowOne (including third party logistics
sites).
Selling, General and Administrative (SG&A) expenses were
$55.5 million for the third quarter of 2014 compared to $54.4
million for the third quarter last year, which included only two
months of expenses of WorkflowOne.
As anticipated because of $15.5 million of qualified pension
plan contributions and $8.3 million of spending on restructuring
and integration, the Company used cash of $10.1 million in the
third quarter of 2014 on a net debt basis.
Standard Register operates two business units: Business
Solutions and Healthcare.
Business Solutions revenue was $153.7 million for the third
quarter of 2014, an increase of 12.6 percent over revenue of $136.5
million in the 2013 third quarter. The additional month in the
third quarter of 2014 of business from WorkflowOne and growth in
promotional products sales contributed to the increase. Operating
income was $1.1 million compared to an operating loss of $1.5
million last year.
Healthcare revenue was $65.7 million, an increase of 4.5 percent
over revenue of $62.9 million in the third quarter of 2013.
Continued growth in sales of multi-year software subscriptions and
the additional month of business from WorkflowOne in the third
quarter of 2014 contributed to the increase. Operating income was
$5.3 million for the quarter compared to $2.1 million last
year.
Third Quarter Highlights
- Improvement in gross margin and
Adjusted EBITDA reflects the progress to date in the integration of
the WorkflowOne acquisition, including workforce reduction and
consolidation of production and warehousing facilities.
- Pension contributions were lowered in
2014 - 16 by $33 million as a result of the Highway and
Transportation Funding Act of 2014.
- Signed three-year, multi-million dollar
contract with CareSource, one of the nation’s largest Managed
Medicaid plans in the country, for the management of communication
workflows and production of external information.
- The Company obtained approval of its
business plan to demonstrate how it will return to compliance with
New York Stock exchange listing standards. Standard Register will
be required to achieve the minimum continued listing standards at
the completion of the prescribed plan period ending on July 9,
2015, unless the listing is reassessed prior to that date.
First Three Quarters ResultsTotal revenue increased 40.9
percent to $673.2 million and the Company incurred a net loss of
$18.5 million or $2.15 per share, compared to revenue of $477.8
million and a net loss of $16.5 million or $2.79 per share for the
first three quarters of 2013. On a pro forma basis, including
WorkflowOne, revenue for the first three quarters of 2013 was
$733.2 million.
Adjusted EBITDA was $44.1 million for the first three quarters
of 2014 compared to $29.5 million for the same period last
year.
Business Solutions revenue increased 50.8 percent to $478.3
million and compares to $317.2 million for the prior year first
three quarters. Healthcare revenue increased 21.4 percent to $194.9
million from $160.6 million for the first three quarters of 2013.
Business added from the acquisition contributed to the
increase.
Operating profit in both business units increased significantly
with Business Solutions at $5.1 million for the first three
quarters of 2014 compared to $2.4 million last year and Healthcare
reporting $10.1 million in 2014 compared to $6.0 million last
year.
Gross margin as a percentage of revenue was 27.9 percent for the
first three quarters of 2014 compared to 28.2 percent last year.
SG&A expenses were $171.3 million for the first three quarters
of 2014 compared to $124.5 million last year. The increase is
primarily attributable to the inclusion of WorkflowOne.
Savings achieved in the first three quarters from the
restructuring and integration of WorkflowOne are approximately
$24.0 million. We expect to realize approximately $40.0 million in
annual savings when the integration of the two companies is
complete at the end of 2015. We spent $21.3 million on
restructuring and integration in the first three quarters of
2014.
The Company used cash of $24.0 million through the first three
quarters of 2014 on a net debt basis compared to $6.6 million used
last year. Spending in 2014 was primarily for restructuring and
integration, capital expenditures and pension contributions.
Capital expenditures, including capital leases, for the first
three quarters of 2014 were $19.9 million compared $9.2 million in
the same period in 2013. The Company continues to invest in the
areas with growth potential, including digital printing, label
operations in Mexico, product marking and decorative technology,
software development and its SMARTworks® workflow platform.
Standard Register contributed $29.6 million to its qualified
pension plan in the first three quarters of 2014 compared to $18.8
million in the first three quarters of 2013. Total pension
contributions are expected to be $36.0 million in 2014, $19.2
million in 2015 and $8.7 million in 2016, as announced earlier in
this quarter after the passage of the Highway and Transportation
Funding Act of 2014.
Conference CallStandard Register’s president and chief
executive officer Joseph P. Morgan, Jr., and chief financial
officer Robert Ginnan will host a conference call at 10:00 a.m. EDT
on Friday, October 24, 2014, to review the third quarter
results. The call can be accessed via an audio webcast at
http://www.standardregister.com.
About Standard RegisterStandard Register (NYSE:SR), is
trusted by the world’s leading companies to advance their
reputations and add value to their operations by aligning
communications with corporate brand standards. Providing
market-specific insights and a compelling portfolio of workflow,
content and analytics solutions to address the changing business
landscape in healthcare, financial services, manufacturing,
transportation and retail markets, Standard Register is the
recognized leader in the management and execution of
mission-critical communications. More information is available at
http://www.standardregister.com.
Safe Harbor StatementThis press release contains
forward-looking statements covered by the Private Securities
Litigation Reform Act of 1995. Because such statements deal with
future events, they are subject to various risks and uncertainties
and actual results could differ materially from the Company’s
current expectations. Factors that could cause the Company’s
results to differ materially from those expressed in
forward-looking statements include, without limitation, our ability
to successfully integrate the acquired assets or achieve the
expected synergies of the WorkflowOne acquisition, future pension
funding requirements and recognition of actuarial gains and losses,
access to capital for expanding in our solutions, the pace at which
digital technologies and electronic health records (EHR) adoption
erode the demand for certain products and services, the success of
our plans to deal with the threats and opportunities brought by
digital technology, results of cost containment strategies and
restructuring programs, our ability to attract and retain key
personnel, variation in demand and acceptance of the Company’s
products and services, frequency, magnitude and timing of paper and
other raw material price changes, the timing of the completion and
integration of acquisitions, general business and economic
conditions beyond the Company’s control, and the consequences of
competitive factors in the marketplace, including the ability to
attract and retain customers. The Company undertakes no obligation
to revise or update forward-looking statements as a result of new
information, since these statements may no longer be accurate or
timely. For more information, see the Company’s most recent Form
10-K and other filings with the Securities and Exchange
Commission.
Non-GAAP Measures Presented in This Press ReleaseThe
Company reports its results in accordance with Generally Accepted
Accounting Principles in the United States (GAAP). However, we
believe that certain non-GAAP measures found in this press release,
when presented in conjunction with comparable GAAP measures, are
useful for investors. Generally, a non-GAAP financial measure is a
numerical measure of a company’s performance, financial position or
cash flows where amounts are either excluded or included, not in
accordance with generally accepted accounting principles. We
discuss several measures of operating performance, including
Adjusted EBITDA and cash flow on a net debt basis, which are not
calculated in accordance with GAAP. These non-GAAP measures should
not be considered as substitutes for, or superior to, results
determined in accordance with GAAP.
Management uses Adjusted EBITDA, defined as earnings before
interest, taxes, depreciation and amortization and excludes pension
benefit cost, restructuring and impairment charges, acquisition and
integration expense and certain acquisition fair value and other
miscellaneous adjustments, to evaluate the Company’s results. We
believe this non-GAAP financial measure is useful to investors
because it provides a more complete understanding of our current
underlying operating performance, a clearer comparison of current
period results with past reports of financial performance, and
greater transparency regarding information used by management in
its decision-making. Internally, management and our Board of
Directors use this non-GAAP measure to evaluate our business
performance. The Company’s debt covenants are also based on the
Adjusted EBITDA calculation.
In addition, because our credit facility is borrowed under a
revolving credit agreement, which currently permits us to borrow
and repay at will up to a balance of $125 million (subject to
limitations related to receivables, inventories, and letters of
credit), we take the measure of cash flow performance prior to
borrowing or repayment of the credit facility. In effect, we
evaluate cash flow as the change in net debt (credit facility debt
less cash equivalents).
A reconciliation of non-GAAP measures to their most comparable
measure calculated in accordance with GAAP is included in the
tables below.
THE STANDARD REGISTER COMPANY
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share
amounts)
(Unaudited)
Third Quarter Y-T-D 13 Weeks Ended
13 Weeks Ended 39 Weeks Ended 39 Weeks Ended
Sep 28, 2014 Sep 29, 2013 Sep 28,
2014 Sep 29, 2013 $
219,382 $ 199,339
TOTAL REVENUE
$ 673,170 $ 477,776
157,223
145,687
COST OF SALES 485,122
343,149
62,159
53,652
GROSS MARGIN 188,048
134,627
OPERATING
EXPENSES 55,511 54,384 Selling, general and
administrative
171,294 124,486
3,655 6,216
Acquisition and integration costs
9,867 8,002
— 1,262
Asset impairments
680 1,262
2,992
11,055 Restructuring and other exit costs
8,758 11,874
62,158 72,917
TOTAL OPERATING
EXPENSES 190,599 145,624
1 (19,265 )
INCOME (LOSS)
FROM OPERATIONS (2,551 ) (10,997 )
OTHER (EXPENSE) INCOME (5,365 ) (3,713
) Interest expense
(15,480 ) (4,867 )
(21
) 7 Other (expense) income
145
65
(5,386 ) (3,706 )
Total other expense (15,335 ) (4,802 )
(5,385 ) (22,971 )
LOSS BEFORE INCOME TAXES
(17,886 ) (15,799 )
214
252 Income tax expense
638
686
$ (5,599 )
$ (23,223 )
NET LOSS $ (18,524 )
$ (16,485 )
8,621 5,931 Average Number
of Shares Outstanding
8,609 5,909
$
(0.65 ) $ (3.92 )
LOSS PER SHARE $
(2.15 ) $ (2.79 ) MEMO:
$ 8,528
$ 7,848 Depreciation and amortization
$ 26,955 $
17,852
SEGMENT OPERATING RESULTS
(In thousands)
(Unaudited)
13 Weeks Ended 13 Weeks Ended 39 Weeks
Ended 39 Weeks Ended Sep 28, 2014
Sep 29, 2013
Sep 28, 2014 Sep 29, 2013
REVENUE $ 65,654 $ 62,908 Healthcare
$
194,887 $ 160,579
153,728
136,431 Business Solutions
478,283
317,197
$ 219,382
$ 199,339 Total Revenue
$ 673,170
$ 477,776
NET LOSS BEFORE TAXES
$ 5,316 $ 2,063 Healthcare
$ 10,135 $
5,968
1,088 (1,452 ) Business Solutions
5,093 2,376
(11,789 ) (23,582 ) Unallocated
(33,114 ) (24,143 )
$
(5,385 ) $ (22,971 ) Total Net Loss
Before Taxes
$ (17,886 ) $
(15,799 )
CONSOLIDATED
BALANCE SHEETS (In thousands)
Sep 28, 2014
Dec 29, 2013 (Unaudited)
ASSETS
Cash and cash equivalents
$ 1,210 $ 2,342 Accounts
receivable
146,399 157,567 Inventories
61,192 61,939
Other current assets
19,782 14,508
Total current assets
228,583 236,356 Plant and
equipment
92,546 93,003 Goodwill and intangible assets
125,858 133,444 Deferred taxes
9,283 9,306 Other
assets
7,714 8,768 Total assets
$ 463,984 $ 480,877
LIABILITIES AND SHAREHOLDERS' DEFICIT Current
liabilities
$ 135,585 $ 125,357 Long-term debt
287,163 263,880 Pension benefit liabilities
160,021
192,779 Other long-term liabilities
9,687 10,158
Shareholders' deficit
(128,472 ) (111,297 )
Total liabilities and
shareholders' deficit
$ 463,984
$ 480,877
CONSOLIDATED STATEMENTS OF
CASHFLOWS
(In thousands) (Unaudited)
39 Weeks Ended
39 Weeks Ended Sep 28, 2014
Sep 29, 2013 Net loss plus non-cash items
$ 23,780 $ 15,914 Working capital
15,836
15,427 Restructuring payments
(11,458 ) (3,982 )
Contributions to qualified pension plan
(29,581 )
(18,766 ) Other
(6,843 ) (3,323 ) Net
cash (used in) provided by operating activities
(8,266
) 5,270 Acquisition cash
received
— 1,665 Capital expenditures
(11,857
) (9,065 ) Proceeds from sale of equipment
491
171 Net cash used in investing activities
(11,366 ) (7,229 ) Net change in
borrowings under credit facility
22,889 8,371 Principal
payments on long-term debt
(3,736 ) (1,840 ) Other
(153 ) (2,755 ) Net cash provided by
financing activities
19,000 3,776
Effect of exchange rate
(500 )
(25 ) Net change in cash
$ (1,132
) $ 1,792
RECONCILIATION OF GAAP TO
NON-GAAP MEASURES (In thousands) (Unaudited)
13 Weeks
Ended 13 Weeks Ended 39 Weeks Ended 39 Weeks
Ended Sep 28, 2014 Sep 29, 2013
Sep 28, 2014 Sep 29, 2013 $
(5,599 ) $ (23,223 ) GAAP Net Loss
$
(18,524 ) $ (16,485 ) Adjustments:
214 252
Income taxes
638 686
5,365 3,713 Interest
15,480 4,867
8,528 7,848
Depreciation and amortization
26,955
17,852
$ 8,508 $ (11,410
) EBITDA
$ 24,549 $ 6,920
Adjustments:
2,992 12,317 Restructuring and
impairment
9,438 13,136
3,655 6,216 Acquisition and
integration costs
9,867 8,002
(548 ) (507 )
Pension expense
(1,644 ) (1,519 )
665 652
Non-cash stock compensation
2,009 1,628
— 1,392 Fair
value adjustments
— 1,392
195
(273 ) Other
(128 ) (79 )
$
15,467 $ 8,387 Adjusted EBITDA
$
44,091 $ 29,480 GAAP Net
Cash Flow
$ (1,132 ) $ 1,792 Adjustments:
Credit facility borrowed
(22,889 )
(8,371 ) Non-GAAP Net Cash Flow
$ (24,021 )
$ (6,579 )
Standard RegisterInvestor and media contact:Carol Merry,
614-383-1624carol.merry@fahlgren.comwww.standardregister.com
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