Fourth Quarter Adjusted EBITDA Increased
10.9%
Full Year 2014 Adjusted EBITDA Increased
17.7% to $79 million
Full Year 2014 Adjusted EPS up 83.1% to
$0.76 per share
Board of Directors Declares Special Cash
Dividend of $0.50 per Share
Company Issues 2015 Guidance
Checkpoint Systems, Inc. (NYSE:CKP) today reported
financial results for the fourth quarter and fiscal year ended
December 28, 2014.
Fourth Quarter GAAP Results
Net revenues from continuing operations in the fourth quarter of
2014 decreased 5.8%, to $183.1 million from $194.4 million in the
fourth quarter of 2013. Foreign currency translation effects
resulted in $7.4 million or 3.8% of the decrease in net revenues.
During the quarter, gross profit margins were 43.3% compared with
38.8% in the fourth quarter of 2013.
Selling, general, and administrative (SG&A) expenses in the
fourth quarter of 2014 increased $1.7 million, or 3.1%, to $56.4
million from $54.7 million in the fourth quarter of 2013.
Operating income in the fourth quarter of 2014 was $12.8
million, $7.3 million, or 132.1%, higher than $5.5 million in the
same period last year.
Net income from continuing operations in the fourth quarter of
2014 was $0.12 per diluted share, versus a loss of $0.12 per
diluted share in the same period last year.
Fourth Quarter Adjusted Non-GAAP Operating Income, EBITDA and
Earnings per Share
Adjusted Non-GAAP operating income from continuing operations
was $19.3 million in the fourth quarter of 2014, $2.4 million
greater than $16.9 million in the same period last year. Adjusted
EBITDA was $27.1 million in the fourth quarter of 2014, $2.7
million higher than $24.4 million in the fourth quarter of 2013.
Adjusted Non-GAAP net earnings from continuing operations in the
fourth quarter of 2014 was $0.26 per diluted share compared to
$0.30 per diluted share in the same period last year. (See
accompanying Reconciliation of GAAP to Non-GAAP Financial
Measures).
Checkpoint Systems' President and Chief Executive Officer,
George Babich, said, "I am pleased to announce another strong
quarter of profitability despite significant industry and foreign
currency translation headwinds. We delivered revenue and EBITDA at
the high end of our expectations while net earnings exceeded our
expectations. Our process improvement initiatives continue to
deliver outstanding year over year results. Gross profit margins
increased more than 450 basis points in the fourth quarter, and by
more than 400 basis points for the full year. Gross profit margins
were again higher across nearly all product lines, driven by
continued manufacturing cost reductions, the benefits of our
restructuring and profit improvement initiatives and manufacturing
and supply chain efficiencies. Gross margins were favorably
impacted by the mix of revenues toward EAS consumables, reflecting
the continuing mix of our business to a more recurring revenue
stream.”
Jeff Richard, Executive Vice President and Chief Financial
Officer, said, "Checkpoint has delivered $47.6 million of free cash
flow in 2014 vs. $12.1 million in 2013. This result reflects a year
of hard work and outstanding execution on many of our Lean Six
Sigma and other projects around the globe. Our balance sheet
remains at its strongest level in several years, with cash
exceeding total debt by $70 million.”
Selected Discussion and Analysis of Fourth Quarter 2014
Results
- Net revenues decreased 5.8% to $183.1
million compared with $194.4 million for the fourth quarter of
2013. Foreign currency effects resulted in a 3.8% decrease to net
revenues.
- Merchandise Availability Solutions
(MAS) revenues decreased 4.7% to $126.4 million versus the fourth
quarter of 2013, principally driven by foreign currency effects of
4.2%. Reductions in EAS Systems and RFID installation revenue,
reflecting the sunset of multiple chain-wide projects which
occurred in the fourth quarter 2013, were nearly offset by a
significant increase in EAS Consumables and Alpha® sales,
reflecting the recurring revenue component of those projects.
- Apparel Labeling Solutions (ALS)
revenues decreased 9.3% to $43.1 million, reflecting a decrease in
the legacy labeling business and partially offset by continued
growth in sales of RFID labels. Foreign currency effects resulted
in a 2.0% decrease to ALS net revenues.
- Retail Merchandising Solutions (RMS)
revenues decreased 4.5% to $13.6 million, reflecting the impact of
the weakening Euro. RMS revenue increased 1.8% on a constant
currency basis, primarily attributable to stronger sales volumes in
the hand-held labeling business.
- Gross profit margin was 43.3% compared
with 38.8% for the fourth quarter of 2013.
- MAS gross profit margin was 47.2%
compared with 42.1% in the fourth quarter of 2013. The increase was
principally due to manufacturing cost savings, margin enhancement
initiatives, and a favorable mix of sales toward higher margin
products, partially offset by under-absorbed professional
services.
- ALS gross profit margin was 33.8%
compared with 30.3% in the fourth quarter of 2013. The increase was
principally due to Project LEAN initiatives and improved
manufacturing efficiencies.
- RMS gross profit margin was 37.1%
compared with 36.3% in the fourth quarter of 2013. The increase was
primarily due to margin improvement initiatives and better overhead
absorption.
- SG&A expenses were $56.4 million
compared with $54.7 million in the fourth quarter of 2013. The
increase is due to higher employee-related expenses in 2014
primarily driven by higher incentive-based compensation accruals.
Cost reductions totaling approximately $1.7 million from the
expanded Global Restructuring Plan, including Project LEAN, as well
as a continuous focus on streamlining SG&A helped minimize the
increase in SG&A.
- Operating income was $12.8 million
compared with $5.5 million in the fourth quarter of 2013.
- Non-GAAP operating income was $19.3
million, compared with $16.9 million in the fourth quarter of 2013.
(See accompanying Reconciliation of GAAP to Non-GAAP Financial
Measures).
- Restructuring expense was $4.0 million
relating to the implementation of the Profit Enhancement Plan,
partially offset by the wind-down of the Global Restructuring Plan,
including Project LEAN. Total restructuring expense incurred from
all plans since the inception of the Global Restructuring Plan
totals $83.5 million ($15.7 million non-cash).
- Adjusted EBITDA was $27.1 million,
compared with $24.4 million in the fourth quarter of 2013. (See
accompanying Reconciliation of GAAP to Non-GAAP Financial
Measures).
- Cash flow provided by operating
activities was $23.6 million compared with $25.3 million in the
fourth quarter of 2013. Capital expenditures were $5.1 million in
the fourth quarter of 2014.
Special Dividend
Earlier today, the Board of Directors declared a special cash
dividend of $0.50 per share. The dividend will be paid on April 10,
2015 to all stockholders of record on March 20, 2015.
“The authorization of this special dividend by our Board
reflects our commitment to building stockholder value through the
execution of our strategic plan and disciplined approach to capital
allocation,” said Mr. Babich. “With our solid free cash flow and
our strongest balance sheet in years, we are pleased to return
approximately $21 million to stockholders while investing in our
businesses and ensuring adequate liquidity to act quickly on any
acquisition opportunities.”
2015 Outlook
Based on an assessment of market conditions, current customers'
orders and commitments, and assuming continuation of current
foreign exchange rates, Checkpoint is initiating guidance for 2015.
This guidance does not include the impact of acquisitions,
divestitures, restructuring and one-time or unusual charges
resulting from debt refinancing, litigation fees or settlements and
gains or losses generated by non-routine operating matters which we
may record during the year.
Projected income taxes for the year can be impacted by changes
in the mix of pre-tax income and losses in the countries in which
we operate. The valuation allowance on U.S. deferred tax assets
results in a GAAP tax rate on U.S. pre-tax income or losses of
essentially 0%. When the mix of income or losses shifts from the
U.S. to a country where the income tax rate is in the normal range,
our effective tax rate will increase. Additionally, we continue to
monitor our profitability in the U.S. to determine whether there is
sufficient evidence that may result in a full or partial release of
the U.S. valuation allowance. Should this occur, the 0% GAAP tax
rate in the U.S. will revert to its normal range of nearly 40%,
including state income taxes. The combination of these factors can
have a significant impact on the amount of reported income tax
expense, and therefore our earnings per share, when compared with
the projections that are the basis of our outlook.
Mr. Babich added, “Our business is significantly impacted by
large-scale capital projects, the timing of which can be difficult
to forecast. The roll-on and roll-off of these projects can
generate large swings in revenue and profitability. While we
continue to execute a number of EAS and RFID pilots and tests,
retailers remain cautious about their in-store capital
expenditures. While it is certainly possible that some of these
tests will transition into chain-wide rollouts, our guidance
assumes that none will occur during fiscal 2015. Our guidance also
assumes an incremental $7-10 million total investment in R&D
and SG&A to fund our growth initiatives, with primary benefits
beginning in 2016."
Mr. Richard added, "Like many other multinational companies, we
will face tremendous currency headwinds in 2015 due to the
strengthening US dollar. Over two-thirds of our revenues are
denominated in foreign currencies with particular exposure to the
Euro, the Japanese Yen, the British Pound and the Australian
Dollar. We expect fiscal 2015 total capital expenditures in the
range of $20 to $25 million. We expect our continuous working
capital improvement projects will help offset the free cash flow
impact of our increased capital spending."
- Net revenues are expected to be in the
range of $575 million to $625 million.
- Adjusted EBITDA is expected to be in
the range of $55 million to $68 million.
- Non-GAAP diluted net earnings per share
attributable to Checkpoint Systems, Inc. is expected to be in the
range of $0.40 to $0.50, assuming an effective tax rate of
approximately 35%.
Checkpoint Systems will host a conference call today, March 5,
2015, at 5:00 p.m. Eastern Time, to discuss its fourth quarter 2014
results. The call will be simultaneously broadcast live over the
Internet. Listeners may access a webcast of the call at
http://ir.checkpointsystems.com. A
replay will be available following the event.
Checkpoint Systems, Inc.
Checkpoint Systems is a global leader in merchandise
availability solutions for the retail industry, encompassing loss
prevention and merchandise visibility. Checkpoint provides
end-to-end solutions enabling retailers to achieve accurate
real-time inventory, accelerate the replenishment cycle, prevent
out-of-stocks and reduce theft, thus improving merchandise
availability and the shopper’s experience. Checkpoint's solutions
are built upon 45 years of radio frequency technology expertise,
innovative high-theft and loss-prevention solutions, market-leading
RFID hardware, software, and comprehensive labeling capabilities,
to brand, secure and track merchandise from source to shelf.
Checkpoint's customers benefit from increased sales and profits by
implementing merchandise availability solutions, to ensure the
right merchandise is available at the right place and time when
consumers are ready to buy.
For more information, visit www.checkpointsystems.com.
Caution Regarding Forward-Looking
Statements
This press release includes information that constitutes
forward-looking statements. Forward-looking statements often
address our expected future business and financial performance, and
often contain words such as
“expect,”“anticipate,”“intend,”“plan,”“believe,”“seek,” or “will.”
By their nature, forward-looking statements address matters that
are subject to risks and uncertainties. Any such forward-looking
statements may involve risk and uncertainties that could cause
actual results to differ materially from any future results
encompassed within the forward-looking statements. Factors that
could cause or contribute to such differences include: the impact
upon operations of accounting policies review and improvement; the
impact upon operations of legal and compliance matters or internal
controls review, improvement and remediation, including the
detection of wrongdoing, improper activities, or circumvention of
internal controls; our ability to successfully implement our
strategic plan; our ability to manage growth effectively including
our ability to integrate acquisitions and to achieve our financial
and operational goals for our acquisitions; changes in economic or
international business conditions; foreign currency exchange rate
and interest rate fluctuations; lower than anticipated demand by
retailers and other customers for our products; slower commitments
of retail customers to chain-wide installations and/or source
tagging adoption or expansion; possible increases in per unit
product manufacturing costs due to less than full utilization of
manufacturing capacity as a result of slowing economic conditions
or other factors; our ability to provide and market innovative and
cost-effective products; the development of new competitive
technologies; our ability to maintain our intellectual property;
competitive pricing pressures causing profit erosion; the
availability and pricing of component parts and raw materials;
possible increases in the payment time for receivables as a result
of economic conditions or other market factors; our ability to
comply with covenants and other requirements of our debt
agreements; changes in regulations or standards applicable to our
products; our ability to successfully implement global cost
reductions in operating expenses including, field service, sales,
and general and administrative expense, and our manufacturing and
supply chain operations without significantly impacting revenue and
profits; our ability to maintain effective internal control over
financial reporting; risks generally associated with information
systems upgrades and our company-wide implementation of an
enterprise resource planning (ERP) system and additional matters
disclosed in our Securities and Exchange Commission filings. We do
not undertake to update our forward-looking statements, except as
required by applicable securities laws.
Checkpoint Systems, Inc.
Consolidated Balance Sheets
(amounts in thousands)
(unaudited)
December 28,
December 29, 2014 2013
ASSETS CURRENT ASSETS: Cash and cash equivalents $
135,537 $ 121,573 Accounts receivable, net of allowance of $8,526
and $12,404 131,720 167,864 Inventories 91,860 83,521 Other current
assets 25,928 29,119 Deferred income taxes 5,557
9,108 Total Current Assets 390,602 411,185
REVENUE EQUIPMENT ON OPERATING LEASE, net 1,057 1,267
PROPERTY, PLANT, AND EQUIPMENT, net 76,332 75,067 GOODWILL 173,569
185,864 OTHER INTANGIBLES, net 64,940 78,166 DEFERRED INCOME TAXES
25,284 38,131 OTHER ASSETS 6,882 9,813 TOTAL
ASSETS $ 738,666 $ 799,493
LIABILITIES AND
EQUITY CURRENT LIABILITIES: Short-term borrowings and current
portion of long-term debt $ 236 $ 435 Accounts payable 48,928
67,203 Accrued compensation and related taxes 27,511 24,341 Other
accrued expenses 44,204 41,580 Income taxes 1,278 2,439 Unearned
revenues 7,663 9,011 Restructuring reserve 6,255 8,175 Accrued
pensions — current 4,472 5,013 Other current liabilities 17,504
19,536 Total Current Liabilities 158,051
177,733 LONG-TERM DEBT, LESS CURRENT
MATURITIES 65,161 91,187 FINANCING LIABILITY 33,094 35,068 ACCRUED
PENSIONS 108,920 99,677 OTHER LONG-TERM LIABILITIES 30,140 36,436
DEFERRED INCOME TAXES 15,369 13,067 COMMITMENTS AND CONTINGENCIES —
— CHECKPOINT SYSTEMS, INC. STOCKHOLDERS’ EQUITY: Preferred stock,
no par value, 500,000 shares authorized, none issued — — Common
stock, $.10 par value, 100,000,000 shares authorized, 45,840,171
and 45,484,524 shares issued, 41,804,259 and 41,448,612 shares
outstanding 4,584 4,548 Additional capital 441,882 434,336
Accumulated deficit (12,331 ) (23,284 ) Common stock in treasury,
at cost, 4,035,912 and 4,035,912 shares (71,520 ) (71,520 )
Accumulated other comprehensive income, net of tax (34,684 )
2,245 TOTAL STOCKHOLDERS’ EQUITY 327,931
346,325 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 738,666
$ 799,493
Checkpoint Systems, Inc.
Consolidated Statements of
Operations
(amounts in thousands, except per share
data)
(unaudited)
Quarter Ended Twelve Months
Ended December 28, December 29,
December 28, December 29, 2014
2013 2014
2013 Net revenues $ 183,114 $ 194,387 $ 662,040 $
689,738 Cost of revenues 103,788 118,985
376,956 420,647 Gross profit 79,326
75,402 285,084 269,091 Selling, general, and administrative
expenses 56,371 54,675 221,566 218,807 Research and development
3,640 3,835 15,303 17,524 Restructuring expense 3,962 6,284 6,654
10,866 Asset impairment 864 4,820 864 4,820 Litigation settlement
1,600 — 1,600 (6,584 ) Acquisition costs 73 266 364 960 Other
operating income — — —
(578 ) Operating income 12,816 5,522 38,733 23,276 Interest income
305 417 1,180 1,515 Interest expense 1,120 10,085 4,637 18,955
Other gain (loss), net (584 ) (423 ) (1,102 )
(3,936 ) Earnings (loss) from continuing operations before income
taxes 11,417 (4,569 ) 34,174 1,900 Income taxes expense 6,114
406 23,221 3,671
Net earnings (loss) from continuing operations 5,303 (4,975 )
10,953 (1,771 ) Loss from discontinued operations, net of tax
benefit of $0, $136, $0, and $68 — (171 ) —
(17,156 ) Net earnings (loss) 5,303 (5,146 ) 10,953
(18,927 ) Less: gain attributable to non-controlling interests —
— — 1 Net earnings
(loss) attributable to Checkpoint Systems, Inc. $ 5,303
$ (5,146 ) $ 10,953 $ (18,928 )
Basic earnings (loss) attributable to Checkpoint Systems, Inc.
per share: Earnings (loss) from continuing operations $ 0.13 $
(0.12 ) $ 0.26 $ (0.05 ) Loss from discontinued operations, net of
tax — — — (0.41 )
Basic earnings (loss) attributable to Checkpoint Systems, Inc.
per share $ 0.13 $ (0.12 ) $ 0.26
$ (0.46 )
Diluted earnings (loss) attributable to
Checkpoint Systems, Inc. per share: Earnings (loss) from
continuing operations $ 0.12 $ (0.12 ) $ 0.26 $ (0.05 ) Loss from
discontinued operations, net of tax — —
— (0.41 )
Diluted earnings (loss) attributable to
Checkpoint Systems, Inc. per share $ 0.12 $ (0.12
) $ 0.26 $ (0.46 )
Reconciliation of Non-GAAP Financial Measures in Accordance
with SEC Regulation G
Checkpoint Systems, Inc. reports financial results in accordance
with U.S. GAAP and herein provides some Non-GAAP measures. These
Non-GAAP measures are not in accordance with, nor are they a
substitute for, GAAP measures. These Non-GAAP measures are intended
to supplement presentation of our financial results that are
prepared in accordance with GAAP. We use the Non-GAAP measures
presented to evaluate and manage our operations internally. We are
also providing this information to assist investors in performing
additional financial analysis that is consistent with financial
models developed by research analysts who follow us.
We use Adjusted EBITDA in assessing our performance in addition
to net earnings determined in accordance with GAAP. We believe this
non-GAAP measure serves as an appropriate measure to be used in
evaluating the performance of our business and helps our investors
better compare our operating performance with the operating
performance of our competitors. We define Adjusted EBITDA as
operating income (loss) from continuing operations plus non-GAAP
adjustments, plus other gain (loss), net excluding foreign exchange
gain (loss), plus depreciation and amortization expense, plus stock
compensation expense. We reference this non-GAAP financial measure
frequently in our decision-making because it provides supplemental
information that facilitates internal comparisons to the historical
operating performance of prior periods and external comparisons to
competitors’ historical operating performance. Adjusted EBITDA
should not be considered in isolation from, and is not intended to
represent an alternative measure of, operating results or of cash
flows from operating activities, as determined in accordance with
GAAP. Our definition of Adjusted EBITDA may not be comparable to
similarly titled measurements reported by other companies.
Set forth below is a reconciliation of the Non-GAAP financial
measures used in this release to the most directly comparable
measures based on GAAP.
Checkpoint Systems, Inc.
Reconciliation of GAAP to Non-GAAP
Financial Measures
(amounts in thousands, except
percentages)
(unaudited)
Quarter Ended Twelve Months Ended
Reconciliation of GAAP to Non-GAAP operating income from
continuing operations : December 28, 2014
December 29, 2013 December 28,
2014 December 29, 2013
Net Revenues $ 183,114 $ 194,387 $ 662,040
$ 689,738 GAAP operating income 12,816
5,522 38,733 23,276 Non-GAAP Adjustments: Management
transition expense — — — 1,173 Restructuring expense 3,962 6,284
6,654 10,866 Asset impairment 864 4,820 864 4,820 Litigation
settlement 1,600 — 1,600 (6,584 ) Acquisition costs 73 266 364 960
Other operating income (a) — — — (248 )
Adjusted Non-GAAP operating income $ 19,315 $ 16,892 $ 48,215 $
34,263 Other gain (loss), net (b) (110 ) 21 (127 ) 152 Depreciation
and amortization expense 6,438 6,279 25,150 26,373 Stock
compensation expense 1,432 1,224 5,781
6,353 Adjusted EBITDA from continuing operations $
27,075 $ 24,416 $ 79,019 $
67,141 GAAP operating margin 7.0 % 2.8 % 5.9 %
3.4
%
Adjusted Non-GAAP operating margin 10.5 % 8.7 % 7.3 %
5.0
%
(a) Represents the gain on sale of our interest in
the non-strategic Sri Lanka subsidiary. (b) Represents other gain
(loss), net per the Consolidated Statement of Operations less
foreign exchange gain (loss).
Checkpoint Systems, Inc.
Reconciliation of GAAP to Non-GAAP
Financial Measures continued
(amounts in thousands, except per share
data)
(unaudited)
Quarter Ended Twelve Months Ended
Reconciliation of GAAP to Non-GAAP net earnings (loss) from
continuing operations attributable to Checkpoint Systems, Inc.:
December 28, 2014 December 29,
2013 December 28, 2014
December 29, 2013 Earnings (loss) from
continuing operations attributable to Checkpoint Systems, Inc., as
reported $ 5,303 $ (4,975 ) $ 10,953 $ (1,772
) Non-GAAP Adjustments: Management transition
expense, net of tax — — — 1,173 Restructuring expense, net of tax
3,286 5,073 5,922 8,820 Asset impairment, net of tax 550 4,636 550
4,636 Litigation settlement, net of tax 1,600 — 1,600 (6,584 )
Acquisition costs, net of tax 73 266 364 960 Other operating
income, net of tax (a) — — — (248 ) Make-whole premium on debt and
fee write-off, net of tax — 7,989 — 9,157 Interest on financing
liability, net of tax 487 382 1,667 1,457 Valuation allowance
adjustment (334 ) (424 ) 11,294 (126 ) Adjusted net
earnings from continuing operations attributable to Checkpoint
Systems, Inc. $ 10,965 $ 12,947 $ 32,350
$ 17,473 Reported diluted shares 42,543 41,786
42,374 41,521 Adjusted diluted shares 42,543 42,282 42,374 41,903
Reported net earnings (loss) from continuing operations
attributable to Checkpoint Systems, Inc., per share - diluted $
0.12 $ (0.12 ) $ 0.26 $ (0.05 ) Adjusted net earnings from
continuing operations attributable to Checkpoint Systems, Inc., per
share - diluted $ 0.26 $ 0.30 $ 0.76 $ 0.42 (a)
Represents the gain on sale of our interest in the non-strategic
Sri Lanka subsidiary.
Checkpoint Systems, Inc.James Lucania, 856-384-2480
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