Organic Merchandise Visibility™ Revenue
Growth of 29%
Company Secures Major New EAS
Customer
Company Reaffirms 2015 Guidance
Board of Directors Authorizes $30 Million
Share Repurchase Plan
Checkpoint Systems, Inc. (NYSE: CKP) today reported
financial results for the fiscal second quarter ended June 28,
2015. For more details on the Company’s financial results, please
see the supplemental presentation materials, “Second Quarter 2015
Financial Review,” posted to the Company’s website at http://ir.checkpointsystems.com and furnished to
the SEC on Form 8-K.
"I am pleased to report second quarter performance in-line with
management's expectations," said George Babich, Checkpoint Systems’
President and Chief Executive Officer. "While we continue to face a
number of challenges in our business, including enormous
year-over-year foreign currency headwinds, the sunset of our
significant 2014 EAS hardware rollouts and challenging market
dynamics in ALS, we are executing on our operational and strategic
plans and our 2015 investments in topline growth initiatives are
beginning to gain traction.”
Mr. Babich added, “I have the great pleasure to announce that we
recently secured a contract for a new EAS hardware rollout with a
major Asian retailer. While the details of this project remain
confidential, we are displacing a competitor’s systems with a suite
of Checkpoint products, adding to our long list of competitive
market share wins over the past decade without any major customer
attrition. We have just begun the installation work and expect to
recognize revenue related to the project in the second half of 2015
and into 2016."
"We also reached an agreement with one of our largest North
American customers. Beginning in the second half of 2015, this
customer will upgrade their existing Checkpoint RF EAS antennas
with our next generation of dual RF/RFID-ready antennas as they
prepare to use RFID tags both for EAS loss prevention as well as
for inventory visibility.”
“Finally, later in 2015 and into 2016, we expect one of our
largest European customers will begin to deploy our Merchandise
Visibility solutions in approximately 150 stores and distribution
centers in France. This represents the next step forward with this
retailer who we expect to deploy our end-to-end Merchandise
Visibility solutions worldwide, beginning in the DC, then into the
back-of-store, then in-store."
"We are now in discussion, proof of concept, pilot, or partial
deployment phases of our Merchandise Visibility solutions in more
than 30 retailers across the globe. Checkpoint is the thought
leader for these retailers as they explore the myriad of benefits
RFID technology has to offer in their stores and distribution
centers and we are confident that we will convert many of these
projects to full deployments in the years to come.”
“While we continue to face a number of challenges in our
businesses, we also continue to gain share in EAS as we transition
and transform our legacy businesses by expanding our RFID
capabilities and gaining share in the fast-growing market.”
Share Repurchase Program
The Board of Directors has authorized the repurchase of up to
$30 million of common shares over the next two years. Mr. Babich
added, “This share repurchase authorization reflects our confidence
in Checkpoint’s financial strength and our long-term growth
prospects, including the broader adoption of RFID technology by our
retail customers. Share repurchases are a key element of our
capital allocation strategy which aims to maximize stockholder
value while maintaining the financial flexibility to pursue organic
investments and strategic acquisitions as opportunities arise.”
Selected Discussion and Analysis of Second Quarter 2015
Results
- Net revenues decreased 13.7% to $147.6
million compared with $170.9 million for the second quarter of
2014, due to an organic decrease of 5.2% and foreign currency
effects of 8.5%.
- Merchandise Availability Solutions
(MAS) revenues decreased 18.1% to $91.3 million versus the second
quarter of 2014, partially driven by foreign currency translation
effects of $10.0 million or 9.0%. The organic decline of 9.1% was
attributable to EAS Systems, Alpha® and EAS Consumables, reflecting
the sunset of North American and European chain-wide projects which
occurred in the second quarter of 2014, partially offset by an
increase in RFID solution sales in Europe.
- Apparel Labeling Solutions (ALS)
revenues decreased 1.5% to $47.0 million, as foreign currency
translation effects of $2.5 million, or 5.3%, offset a 3.8% organic
revenue increase. RFID label revenues grew more than 20%
year-over-year, while our legacy ticket and tag business was
effectively flat despite significant competitive pricing pressures
in certain geographies.
- Retail Merchandising Solutions (RMS)
revenues decreased 21.3% to $9.3 million, nearly all related to the
year-over-year decline in the Euro. Organic revenues declined 3.5%,
reflecting the sunset of a major project in North America and
softer retail display sales in Asia.
- Gross profit margin was 41.7%, just
under 70 basis points lower than the second quarter of 2014.
- MAS gross profit margin was 47.2%, more
than 120 basis points higher than the 46.0% recorded in the second
quarter of 2014. The increase was principally due to significant
margin improvements in EAS Systems, Alpha and RFID Solutions as we
realize the benefits of our operational initiatives in field
service, professional services, pricing and supply chain
optimization. The margin improvement was partially offset by the
stronger US Dollar eroding overall supply chain margins, as well as
unfavorable manufacturing variances in our EAS Consumables
factories from lower production volumes and higher input
costs.
- ALS gross profit margin was 31.6%
compared with 36.2% in the second quarter of 2014. The decrease was
due to the weaker Euro, accelerated depreciation for certain
machinery in Asia that has been removed from production,
under-absorption due to lower production volumes and competitive
pricing pressures in certain geographies due to market
oversupply.
- RMS gross profit margin was 38.1%, 420
basis points better than 33.9% in the second quarter of 2014. The
increase was primarily due to our margin improvement
initiatives.
- SG&A expenses were $51.9 million
compared with $55.4 million in the second quarter of 2014. The
decrease is primarily related to foreign currency translation
effects of $4.8 million. The benefits of our cost reduction
initiatives were offset by incremental spending increases related
to our strategic initiatives.
- Operating loss was $4.5 million
compared with $13.0 million of income in the second quarter of
2014. The 2015 operating loss includes a $9.0 million one-time
litigation settlement expense.
- Net loss was $0.13 per diluted share
versus income of $0.23 per diluted share in the second quarter of
2014.
- Non-GAAP operating income was $4.8
million compared with $13.3 million in the second quarter of 2014.
(See accompanying Reconciliation of GAAP to Non-GAAP Financial
Measures.)
- Non-GAAP earnings per diluted share was
$0.10 compared with $0.25 in the same period last year. (See
accompanying Reconciliation of GAAP to Non-GAAP Financial
Measures.)
- Adjusted EBITDA was $12.9 million,
compared with $21.0 million in the second quarter of 2014. (See
accompanying Reconciliation of GAAP to Non-GAAP Financial
Measures.)
- Cash provided by operating activities
was $0.1 million compared with $12.7 million in the second quarter
of 2014. The 2015 figure includes the effect of a $9.0 million
one-time litigation settlement payment. Capital expenditures were
$4.7 million in the second quarter of 2015 compared to $3.5 million
in the second quarter of 2014.
Outlook for 2015
Based on an assessment of market conditions, current customers'
orders and commitments, and assuming continuation of current
foreign exchange rates, Checkpoint is reaffirming its guidance for
2015. This guidance does not include the impact of acquisitions,
divestitures, restructuring and one-time or unusual charges
resulting from 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 current GAAP
tax rate in the U.S. will be significantly impacted. The
combination of these factors can have a material effect 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.
James Lucania, Acting Chief Financial Officer and Treasurer,
said, “We will continue to face some margin pressures for the
remainder of 2015, especially in EAS Consumables where lower
production volumes are driving under absorption, exacerbated by
rising material and direct labor costs in the factories. In our ALS
businesses, market overcapacity in certain geographies is
generating some significant pricing pressures which we expect will
continue. However, we expect that the incremental income from our
new EAS contract will help to offset these pressures and we
continue to expect 2015 results within our prior guidance
range.”
- Net revenues are expected to be in the
range of $575 million to $625 million, unchanged from prior
guidance.
- Adjusted EBITDA is expected to be in
the range of $55 million to $68 million, unchanged from prior
guidance.
- Non-GAAP diluted net earnings per share
is expected to be in the range of $0.40 to $0.50, assuming an
effective tax rate of approximately 35%, unchanged from prior
guidance.
Checkpoint Systems will host a conference call tomorrow, August
4, 2015, at 8:30 a.m. Eastern Time, to discuss its second quarter
2015 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 visibility, 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.
For a more detailed discussion of these and other factors, see
“Risk Factors” and “Management’s Discussion and Analysis of Results
of Operations and Financial Condition” in our 2014 Form 10-K, filed
on March 5, 2015 with the Securities and Exchange Commission. The
forward-looking statements included in this document are made only
as of the date of this document, and we undertake no obligation to
update these statements to reflect subsequent events or
circumstances, other than as may be required by law.
Checkpoint Systems, Inc. Consolidated Balance
Sheets (amounts in thousands) (unaudited)
June 28, December 28,
2015 2014 ASSETS CURRENT ASSETS: Cash
and cash equivalents $ 99,104 $ 135,537 Accounts receivable, net of
allowance of $7,642 and $8,526 109,643 131,720 Inventories 92,462
91,860 Other current assets 24,733 25,928 Deferred income taxes
5,334 5,557 Total Current Assets
331,276 390,602 REVENUE EQUIPMENT ON OPERATING
LEASE, net 1,060 1,057 PROPERTY, PLANT, AND EQUIPMENT, net 77,336
76,332 GOODWILL 166,083 173,569 OTHER INTANGIBLES, net 58,584
64,940 DEFERRED INCOME TAXES 22,901 25,284 OTHER ASSETS
5,934 6,882 TOTAL ASSETS $ 663,174
$ 738,666
LIABILITIES AND EQUITY
CURRENT LIABILITIES: Short-term borrowings and current portion of
long-term debt $ 186 $ 236 Accounts payable 41,122 48,928 Accrued
compensation and related taxes 19,245 27,511 Other accrued expenses
36,860 44,204 Income taxes — 1,278 Unearned revenues 8,337 7,663
Restructuring reserve 3,089 6,255 Accrued pensions — current 4,104
4,472 Other current liabilities 16,519 17,504
Total Current Liabilities 129,462
158,051 LONG-TERM DEBT, LESS CURRENT MATURITIES 65,146
65,161 FINANCING LIABILITY 31,349 33,094 ACCRUED PENSIONS 99,306
108,920 OTHER LONG-TERM LIABILITIES 28,682 30,140 DEFERRED INCOME
TAXES 15,163 15,369 COMMITMENTS AND CONTINGENCIES STOCKHOLDERS’
EQUITY: Preferred stock, no par value, 500,000 shares authorized,
none issued — — Common stock, par value $.10 per share, 100,000,000
shares authorized, 46,117,768 and 45,840,171 shares issued,
42,081,856 and 41,804,259 shares outstanding 4,612 4,584 Additional
capital 424,067 441,882 Accumulated deficit (18,483 ) (12,331 )
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 (44,610 ) (34,684 ) TOTAL STOCKHOLDERS' EQUITY
294,066 327,931 TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 663,174 $ 738,666
Checkpoint Systems, Inc.
Consolidated Statements of Operations (amounts in
thousands, except per share data) (unaudited)
Quarter Six months (13 weeks) Ended
(26 weeks) Ended June 28, June 29,
June 28, June 29, 2015
2014 2015 2014 Net
revenues $ 147,550 $ 170,925 $ 276,092 $ 318,331 Cost of revenues
86,053 98,418 158,058
183,538 Gross profit 61,497 72,507 118,034 134,793
Selling, general, and administrative expenses 51,891 55,369 103,197
109,715 Research and development 4,921 3,810 9,464 7,692
Restructuring expense 284 341 1,588 2,233 Litigation settlement
8,980 — 8,980 — Acquisition costs 41 — 120 — Other operating income
(132 ) — (493 ) —
Operating (loss) income (4,488 ) 12,987 (4,822 ) 15,153 Interest
income 232 285 459 552 Interest expense 990 1,199 1,928 2,455 Other
gain (loss), net (859 ) (442 ) (488 )
(528 ) (Loss) earnings before income taxes (6,105 ) 11,631 (6,779 )
12,722 Income tax (benefit) expense (698 ) 1,777
(627 ) 2,997 Net (loss) earnings
$ (5,407 ) $ 9,854 $ (6,152 ) $ 9,725
Net (loss) earnings per common share: Basic
(loss) earnings per share $ (0.13 ) $ 0.23 $ (0.14 ) $ 0.23 Diluted
(loss) earnings per share $ (0.13 ) $ 0.23
$ (0.14 ) $ 0.23
Dividend declared per share
$ — $ — $ 0.50 $ —
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) 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 Six months (13 weeks)
Ended (26 weeks) Ended Reconciliation of GAAP to
Non-GAAP Operating (Loss) Income and Adjusted EBITDA:
June 28, 2015
June 29, 2014 June 28,
2015 June 29, 2014 Net revenues, as
reported $ 147,550 $ 170,925 $
276,092 $ 318,331 Operating
(loss) income, as reported (4,488 ) 12,987 (4,822 ) 15,153
Non-GAAP Adjustments: Management transition expense — — 827
— Restructuring expenses 284 341 1,588 2,233 Litigation settlement
8,980 — 8,980 — Acquisition costs 41 —
120 —
Adjusted Non-GAAP operating
income 4,817 13,328 6,693 17,386 Other gain (loss), net (a) —
(95 ) — (65 ) Depreciation and amortization expense 6,516 6,326
13,206 12,490 Stock compensation expense 1,539
1,397 2,998 2,898
Adjusted
EBITDA $ 12,872 $ 20,956 $
22,897 $ 32,709 GAAP operating margin
(3.0 )% 7.6 % (1.7 )% 4.8 % Adjusted Non-GAAP operating margin 3.3
% 7.8 % 2.4 % 5.5 % (a) Represents other gain (loss),
net per the Consolidated Statements 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 Six months
(13 weeks) Ended (26 weeks) Ended Reconciliation
of GAAP to Non-GAAP Net (Loss) Earnings: June 28,
2015 June 29, 2014 June
28, 2015 June 29, 2014 (Loss)
earnings, as reported $ (5,407 ) $ 9,854
$ (6,152 ) $ 9,725 Non-GAAP
Adjustments: Management transition expense, net of tax — —
827 — Restructuring expenses, net of tax 225 251 1,302 1,669
Litigation settlement, net of tax 8,980 — 8,980 — Acquisition
costs, net of tax 41 — 120 — Interest expense on financing
liability, net of tax 352 398
706 789
Adjusted net earnings $ 4,191
$ 10,503 $ 5,783 $ 12,183
Reported diluted shares 42,956 42,324 42,806 42,287 Adjusted
diluted shares 43,123 42,324 43,054 42,287 Reported net
(loss) earnings per share - diluted $ (0.13 ) $ 0.23 $ (0.14 ) $
0.23 Adjusted net earnings per share - diluted $ 0.10 $ 0.25 $ 0.13
$ 0.29
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Checkpoint Systems, Inc.James Lucania, 856-384-2480
Checkpoint (NYSE:CKP)
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