Cenveo has reported financial results for the fourth quarter and full year ended 31 December 2016.
The reported results for all periods presented exclude the operating results of the Company's packaging operating segment and its top-sheet lithographic print operation ("Packaging Business"), which have been classified in the Company's consolidated financial statements as discontinued operations.
Additionally, the comparative results discussed below were meaningfully impacted by a 13 week fiscal fourth quarter and 52 week fiscal year in 2016, as compared to a 14 week fiscal fourth quarter and 53 week fiscal year in 2015.
Fourth Quarter 2016 vs. Fourth Quarter 2015 Overview
Net sales of $417.2 million compared to $479.0 million.
Net loss of $0.2 million compared to a net loss of $17.5 million.
Adjusted EBITDA of $32.5 million compared to $44.1 million.
Cash flow provided by operating activities of continuing operations of $36.0 million compared to $14.7 million.
Full Year 2016 vs. Full Year 2015 Overview
Net sales of $1.66 billion compared to $1.74 billion.
Net income of $67.9 million compared to a net loss of $30.9 million.
Adjusted EBITDA of $143.9 million compared to $158.0 million.
Cash flow provided by operating activities of continuing operations of $49.4 million compared to $16.2 million.
Management Commentary
"Despite most of our businesses performing to our expectation, our fourth quarter results were negatively impacted by significant sales volume declines and increased price pressures within our office product envelope and related wholesale envelope product lines," said Robert G. Burton, Sr., Chairman and CEO of Cenveo. "This was driven by measures undertaken by our customers in response to a regulatory decision mid-way through 2016. This trend accelerated throughout the fourth quarter as we saw sales in the office products business decline more than 20% from the same period in 2015.
"As a result of these substantial changes in the marketplace, we have taken significant action to bring our cost structure in line with our ongoing revenue base. Late in the fourth quarter of 2016, we initiated a two-year, company-wide profitability improvement plan which we expect will yield $50 million of combined cost savings and margin improvement, $25 million of which we expect to realize in 2017. This program is designed to reduce our fixed cost infrastructure, lower SG&A costs, reduce back office headcount and further streamline our geographic footprint by bringing multiple products under one roof."
Financial Results
Net sales in the fourth quarter of 2016 were $417.2 million compared to $479.0 million in the same period last year, a 12.9% decline. Net sales were $1.66 billionfor the full year 2016 compared to $1.74 billion for the full year 2015, a 4.7% decline. The sales declines were primarily driven by: (i) lower sales in the envelope segment, primarily due to lower demand in office product and wholesale envelope product lines due to cost savings and inventory rationalization efforts by those customers, offset by higher sales in the direct mail envelope product line; (ii) lower sales as a result of one less week in the fourth quarter of 2016 versus 2015; and (iii) lower sales in the label segment primarily due to the decision to exit the coating operation, which was completed in the second quarter of 2016.
Operating income in the fourth quarter declined 33.2% to $16.6 million, compared to $24.8 million in the same period last year. For the full year, operating income declined 9.3% to $76.0 million from $83.8 million in 2015. The decrease was primarily due to lower gross profit due to lower office product envelope customer demand, continued pricing pressures associated with print related products, and the impact of the decision to exit the coating operation, which were partially offset by lower selling, general and administrative expenses.
Non-GAAP operating income in the fourth quarter of 2016 was $21.3 million compared to non-GAAP operating income of $27.6 million for the same period last year. Non-GAAP operating income was $94.3 million for the full year 2016, compared to $105.1 million in 2015. A reconciliation of all non-GAAP figures are reported in the tables below.
Loss from continuing operations during the fourth quarter of 2016 was $1.8 million, or $(0.21) per diluted share, compared to a loss of $4.4 million, or $(0.51) per diluted share, in the fourth quarter of 2015. For the full year 2016, income from continuing operations was $70.8 million, or $7.63 per diluted share, compared to a loss of$19.5 million, or $(2.30) per diluted share, in 2015. The reduced loss in the fourth quarter of 2016 was primarily driven by income tax expense recognized during 2015 in conjunction with the sale of the Packaging Business.
For the full year, the significant increase was primarily driven by gains on the early extinguishment of debt of $82.5 million, partially offset by the aforementioned declines in customer demand. Non-GAAP income from continuing operations in the fourth quarter of 2016 was $0.3 million, or $0.03 per diluted share, compared to income of $5.7 million, or $0.52 per diluted share, in the same period last year. Non-GAAP income from continuing operations for the full year 2016 was $7.8 million, or $0.82 per diluted share, compared to income of $10.7 million, or $0.97 per diluted share, in 2015.
Net loss in the fourth quarter of 2016 was $0.2 million compared to a net loss of$17.5 million for the same period last year. Net income for the full year of 2016 was$67.9 million, compared to a net loss of $30.9 million in 2015.
Adjusted EBITDA was $32.5 million in the fourth quarter of 2016 compared to $44.1 million for the same period last year. For the full year 2016, Adjusted EBITDA was$143.9 million compared to $158.0 million in 2015.
During the fourth quarter 2016, cash flow provided by operating activities of continuing operations was $36.0 million compared to $14.7 million for the same period last year. For the full year 2016, cash flow provided by operating activities of continuing operations was $49.4 million compared to $16.2 million in 2015.
The improvement was primarily due to changes in working capital, particularly the timing of sales and collections from customers and the timing of payments to vendors, as well as the success of various inventory management programs.
At December 31, 2016, cash and cash equivalents totaled $5.5 million, compared to $7.8 million at January 2, 2016. Total principal debt outstanding declined 14.6% to $1.05 billion from $1.23 billion at January 2, 2016. The Company also has announced and is in the process of redeeming the remaining outstanding principal balance of its 11.5% notes, and anticipates this transaction will be completed onFebruary 27, 2017.
Additionally, the Company expects the remaining $5.5 millionprincipal balance of its 7% convertible notes will be retired prior to or at maturity inMay 2017 using cash flow from operations or availability under its ABL facility.
