Cenveo Announces Q2 Net Sales of $460.9M, Ponders Non-Core Asset Divestitures
STAMFORD, Conn.—July 23, 2015—Cenveo Inc. has announced results for the three and six months ended June 27, 2015.
Robert Burton, Sr., chairman and CEO stated, "We are pleased with the performance of our operations during the second quarter. Our results continue to reflect our consolidation efforts that were implemented in our envelope group as solid direct mail volumes and price increases offset the impact of facility closures that were completed throughout 2014. Our envelope segment Adjusted EBITDA margins for the second quarter were 10.2 percent, which we committed to achieving at the time we completed the acquisition of certain assets of National and began the integration process. Our print, label and packaging groups continued to perform in-line with our expectations for the first six months of the year as well."
The company generated net sales of $460.9 million for the three months ended June 27, 2015, compared to $479.4 million for the same period last year, a decline of 3.9 percent. The company generated net sales of $936.0 million for the six months ended June 27, 2015, compared to $969.5 million for the same period last year, a decline of 3.5 percent. The decline in net sales is attributable to the consolidation of several envelope facilities during the second half of 2014 in connection with the accelerated integration of the National Envelope assets with its existing operations and two new envelope facilities and continued pricing pressure in its print business. Excluding the impact of the integration, the company believes its envelope group net sales were up modestly, which is primarily attributable to product mix and pricing improvements, offset by volume declines.
Operating income was $23.2 million for the three months ended June 27, 2015, compared to operating income of $13.3 million for the same period last year, an improvement of 74.0 percent. Operating income was $41.4 million for the six months ended June 27, 2015, compared to operating income of $23.4 million for the same period last year, an improvement of 76.9 percent. Operating income in 2014 was impacted by expenses associated with the closure and consolidation of several envelope facilities related to the integration of the National Envelope assets, which resulted in significant operating margin improvement and efficiencies in 2015. Non-GAAP operating income was $27.7 million for the three months ended June 27, 2015, compared to $25.5 million for the same period last year, and $51.5 million for the six months ended June 27, 2015, compared to $45.7 million for the same period last year.
For the three months ended June 27, 2015, the company had a loss from continuing operations of $2.4 million, or $0.04 per diluted share, compared to a loss of $39.3 million, or $0.59 per diluted share, for the same period last year. For the six months ended June 27, 2015, the company had a loss from continuing operations of $10.1 million, or $0.15 per diluted share, compared to a loss of $56.1 million, or $0.84 per diluted share, for the same period last year. The improvement was primarily due to a $26.5 million debt extinguishment charge in the prior year in connection with the debt refinancing that was completed in June 2014, as well as the significant margin improvement and operating efficiencies resulting from the National Envelope integration.
Non-GAAP income from continuing operations was $2.7 million, or $0.03 per diluted share, for the three months ended June 27, 2015, compared to non-GAAP loss from continuing operations of $1.8 million, or $0.03 per diluted share, for the same period last year. For the six months ended June 27, 2015, non-GAAP loss from continuing operations was $0.1 million, or $0.00 per diluted share, compared to a loss of $9.6 million, or $0.14 per diluted share, for the same period last year.
Adjusted EBITDA remained flat at $42.1 million for both the three months ended June 27, 2015 and June 28, 2014. For the six months ended June 27, 2015, Adjusted EBITDA was $80.8 million, compared to $78.9 million for the same period last year.
Cash flow used in operating activities of continuing operations for the six months ended June 27, 2015 was $1.6 million, compared to a use of cash of $25.4 million for the same period last year. This improvement was primarily driven by cost reductions and efficiencies resulting from the completion of the accelerated integration of the National Envelope assets with its existing operations and two new facilities, the timing of interest payments on its long-term debt, and lower contributions to post-retirement plans versus the prior period.
Strategic Review Update:
Over the course of the last several months Cenveo has been actively involved in moving forward with its plan to review and potentially divest certain non-strategic assets. It has engaged Barclays Capital as its financial advisor to assist on alternatives for certain assets. As of today, the company has received multiple non-binding indications of interest for these assets and are currently evaluating them. While there can be no assurance that it will ultimately reach an agreement with any of these buyers or the timing of reaching such agreement, it is encouraged by the level of interest in these assets and recent market valuations.
Audit Firm Dismissal:
As will be discussed further on the call, upon reviewing certain facts, the Audit Committee of the Board of Directors ("Audit Committee") concluded that as of March 5, 2015, Grant Thornton LLP ("Grant Thornton") was no longer independent. As will be reported in its filings with the Securities and Exchange Commission ("SEC"), the independence matter relates solely to a tax engagement in which Grant Thornton exceeded the scope of work on pre-approved non-audit services for the Company. As such, earlier this week Cenveo dismissed Grant Thornton as its independent accounting firm.
The Audit Committee has begun the process to identify a new firm and expects to announce a new firm over the coming days or weeks. Cenveo emphasizes further that this change does not have any impact on Grant Thornton's audit of its consolidated financial statements or internal control over financial reporting for 2014 or any of the prior year periods and that its consolidated financial statements can continue to be relied upon for those periods. Nonetheless, until the new independent auditors review our Forms 10-Q for 2015, those Forms 10-Q will not have been reviewed by an "independent" firm as required by SEC rules.
Cenveo expects that the new independent auditors, immediately upon engagement, will commence that review to bring the Forms 10-Q into full SEC compliance. The Company's Audit Committee and management believe that the financial information included in the first quarter Form 10-Q and to be included in the second quarter Form 10-Q fairly present or will present, as the case may be, in all material respects, the financial condition and results of operations of the Company as of and for the applicable quarter ended. Cenveo appreciates the support that Grant Thornton has provided to the Company over the last seven years and wishes the firm continued success.
Robert Burton, Sr., chairman and CEO concluded, "As we begin the second half of 2015, we are excited about the progress we have made operationally and strategically. We will look to continue executing our plan of improving margins, driving stronger cash flow and paying down our higher cost debt. Given the progress we made during the first half of 2015, the seasonal impact of our operations in the back half of our fiscal year, and the momentum that we are seeing in the business, we reaffirm our 2015 full year financial guidance. I remain optimistic about the Company's future as I believe that our focus on operational improvements and strategic initiatives will yield positive results for our investors."
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 boxes, custom labels, shrink sleeve 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, we pride ourselves on delivering quality solutions and service every day for our more than 100,000 customers.