Cenveo Q2 Results: Outstanding Debt Reduced by $80M; Net Income of $47.6M vs. Q2 2015 Net Loss

STAMFORD, Conn. — August 4, 2016 — Cenveo Inc. (NYSE: CVO) has announced results for the three and six months ended July 2, 2016. The reported results for all periods presented exclude the operating results of its packaging operating segment as well as its one top-sheet lithographic print operation, as it has been classified in its condensed consolidated financial statements as discontinued operations.

As previously disclosed, on June 10, 2016, Cenveo executed a series of financing transactions which, among other matters, allowed us to: (i) exchange approximately $150 million of its 11.5% senior notes due 2017 for approximately $105 million of newly issued 6.000% senior unsecured notes due 2024, plus Warrants to purchase approximately 16.6% of its outstanding Common Stock as of June 10, 2016; (ii) extend the maturities of the Asset Backed Lending Facility, while reducing its facility capacity by $50 million; (iii) issue $50 million of new secured 4% Notes; and (iv) enter into an agreement to repurchase $37.5 million of its 7% Convertible Notes at a significant discount. As a result of these transactions, the Company recorded gains on early extinguishment of debt of $51.3 million for the three months ended July 2, 2016, while also significantly reducing future cash interest expense and extending the average maturity of its debt portfolio.

Robert Burton, Sr., chairman and CEO, states, "Since the beginning of the second quarter we achieved several of our financial and operational objectives. We completed several financing transactions which resulted in reducing our outstanding debt by approximately $80 million, and ultimately reducing our annual interest expense by over $20 million while extending our debt maturities and increasing our liquidity. I am pleased to say that we accomplished all of these objectives with minimal disruption to our business. We also saw solid operational performance in our business, led by strong direct mail volumes, allowing us to achieve our goal of continued margin expansion."

Results of Operations Overview:
The Company generated net sales of $404.0 million for the three months ended July 2, 2016, compared to $413.4 million for the same period last year, a decline of 2.3%. The Company generated net sales of $836.8 million for the six months ended July 2, 2016, compared to $843.0 million for the same period last year, a decline of 0.7%. The decline in net sales was primarily driven by lower sales volumes in its envelope segment, resulting from lower demand in its office products and generic transactional envelope products, and lower sales in its label segment due to its decision to exit its coating operation and certain lower margin label product sets.

Operating income was $21.6 million for the three months ended July 2, 2016, compared to operating income of $21.7 million for the same period last year, a decline of 0.4%. Operating income was $38.6 million for the six months ended July 2, 2016, compared to operating income of $39.5 million for the same period last year, a decline of 2.2%.  The declines were primarily due to restructuring charges related to the plan to exit the coating operation and the write down of an investment in its label segment, which were meaningfully offset by an improved operating performance and margin within its direct mail envelope business. Non-GAAP operating income was $24.0 million for the three months ended July 2, 2016, compared to income of $25.7 million for the same period last year. Non-GAAP operating income was $47.5 million for the six months ended July 2, 2016, compared to $48.4 million for the same period last year. A reconciliation of operating income to non-GAAP operating income is presented in the attached tables.

For the three months ended July 2, 2016, the Company had income from continuing operations of $50.9 million, or $5.15 per diluted share, compared to a loss of $3.4 million, or $0.39 per diluted share, for the same period last year. For the six months ended July 2, 2016, the Company had income from continuing operations of $63.9 million, or $6.43 per diluted share, compared to a loss of $11.5 million, or $1.36 per diluted share, for the same period last year. Income from continuing operations was primarily driven by gains on early extinguishment of debt of $51.3 million and $72.9 million for the three and six months ended July 2, 2016, respectively. Non-GAAP income from continuing operations was $2.5 million, or $0.25 per diluted share, for the three months ended July 2, 2016, compared to a loss of $0.3 million, or $0.03 per diluted share, for the same period last year. Non-GAAP income from continuing operations was $1.5 million, or $0.15 per diluted share, for the six months ended July 2, 2016, compared to a loss of $3.5 million, or $0.41 per diluted share, for the same period last year.  A reconciliation of income (loss) from continuing operations to non-GAAP income (loss) from continuing operations is presented in the attached tables.

Net income was $47.6 million for the three months ended July 2, 2016, compared to a net loss of $2.4 million for the same period last year. For the six months ended July 2, 2016, net income was $58.8 million, compared to a net loss of $10.1 million for the same period last year. Adjusted EBITDA was $37.5 million for the three months ended July 2, 2016, compared to $37.4 million for the same period last year. Adjusted EBITDA was $72.4 million for the six months ended July 2, 2016, compared to $71.9 million for the same period last year. A reconciliation of net income (loss) to Adjusted EBITDA is presented in the attached tables.

Cash flow provided by operating activities of continuing operations for the second quarter of 2016 was $17.1 million, compared to a source of cash of $7.2 million for the same period last year. Cash flow provided by operating activities of continuing operations for the six months ended July 2, 2016 was $5.6 million, compared to a use of cash of $8.3 million for the same period last year.  This improvement was primarily driven by Cenveo's operational improvements, lower inventories as a result of its inventory management program, and the timing of collections from its customers, partially offset by the timing of vendor payments.

Reverse Stock Split:
On July 8, 2016, the Company announced a Reverse Stock Split of its Common Stock at a ratio of 1-for-8, which began trading on a split-adjusted basis on July 14, 2016. As a result of the Reverse Stock Split, each eight pre-split shares of Common Stock outstanding automatically combined into one new share of Common Stock. The Reverse Stock Split also applies to Common Stock issuable upon the exchange of the Company's outstanding exchangeable notes and upon the exercise of the Company's outstanding warrants and Equity Awards. The share and per share amounts for all periods presented have been retroactively adjusted to give recognition to the Reverse Stock Split.

Burton concludes, "As we enter the back half of the year, we are now in a position to take advantage of the momentum that we have built over the first six months of the year.  We will continue our focus on growing revenue, cost containment and working capital management. For the remainder of 2016, we will continue to reinvest in operations using some of the proceeds from the packaging asset sale, as we expect our capital expenditure spend to increase from our previously announced guidance of $25-30 million to $35-45 million before going back to a more normalized levels in 2017.  In closing, I am pleased with our second quarter results and with our refinancing activities. These transactions position Cenveo to continue to win in a challenging landscape and achieve our previously discussed financial goals for the full year of 2016."

About Cenveo
Cenveo (NYSE: CVO), world headquartered in Stamford, Connecticut, is a leading global provider of print and related resources, offering world-class solutions in the areas of custom labels, 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, it prides itself on delivering quality solutions and service every day to our customers.

Source: Cenveo.