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Cenveo (NYSE:CVO)

Q4 2012 Earnings Call

February 28, 2013 10:00 am ET

Executives

Robert G. Burton - Chairman of the Board, Chief Executive Officer and Chairman of Executive Committee

Robert G. Burton - President

Scott J. Goodwin - Corporate Controller

Analysts

Charles Strauzer - CJS Securities, Inc.

Kevin J. Cohen - Imperial Capital, LLC, Research Division

James Clement - Sidoti & Company, LLC

Operator

Good morning, and welcome to Cenveo's 2012 Fourth Quarter and Full Year Results Conference Call. Today's host will be Mr. Robert G. Burton, Sr., Chairman and CEO of Cenveo. This call is scheduled to last approximately 1 hour. Mr. Burton will speak, and in the call will open up for a question-and-answer session.

I will now turn the call over to Cenveo.

Robert G. Burton

Thank you, everyone, and good morning. This is Rob Burton, and welcome to Cenveo's 2012 Fourth Quarter Full Year Results conference call. Today's call will be hosted by Robert G. Burton, Sr., the company's Chairman and Chief Executive Officer; and other members of the senior management team. But before I turn the call over to Mr. Burton, I'd like to remind everyone that certain materials covered on today's call are considered forward-looking and are covered under the Safe Harbor provision of the United States Private Securities Litigation Reform Act of 1995.

Also, any forward-looking estimates given on today's call will exclude any effects of restructuring, impairment and other related acquisition charges. Further details regarding these factors, please reference Pages 10 and 11 of the company's press release that was issued last night. And with that, I'd like to turn the call over to Mr. Burton.

Robert G. Burton

Thank you, Rob. Good morning, ladies and gentlemen. This is Bob Burton speaking, and I am the Senior Manager of Cenveo.

2012 was the year we completed our refinancing of Cenveo. For some of you, such as myself, it seems like it was 4 years in the making, and it started as a roadshow and end up selling some converts in a process that took way too long with an environment that got not too conducive to be out on the road, but we got it done. And we got it done and we're pleased to complete the process of putting the 2013 maturity behind us.

And this was in an environment where we, as a company, had never missed a covenant, had no problems paying our debt, had a great relations or had a great relation with our vendors, but it was a situation where some of the people in the industry before us that had gone out had a not so good a track record and had put a sour taste in a lot of people's mouth. But we got it behind us, and today, we're -- as we say it's behind us we're going to be talking some more about ways to save money on refinancing that you'll hear later in the call.

So today, we can focus 100% of our efforts back on operating and growing the business. And we appreciate the strong support of our lender group, in particular, Macquarie, to allow us to get this process completed as we expected to do a long time ago.

We will continue to use our cash flow as we've talked about constantly to repay debt, reduce our leverage and reinvest in the business. And I'm going to be taking you through some results for the quarter and the year that reemphasizes that we're just not talking about it, we're doing it. And it shows up in some very good statistics. We remain focused on executing our game plan, and we have communicated to you many times about increasing our higher margins and organic growth opportunities in the business that we talked about, of Labels, Packaging, the Direct Mail, our content and the new smaller acquisitions that we do. As a matter fact, this year, this year in 2013, we plan to generate 60% of our EBITDA that we're going to generate this year will come from those product lines. And that's an increase over last year, and that we will continue to do this increase as we look at our other assets, our strategic assets, that really are not going to be part of our future, and we continue to become more of a label, packaging kind of company.

Our business plan has not changed from the beginning, from the beginning when we first started 7 years ago, getting rid of some of the commercial plants that were losing a ton of money and our divestiture of other non-strategic core assets. So we've been doing this for some time and the plan really hasn't changed. And we will be the best team as we look into this year as our strategic year, looking at the divestitures of some of our Print group as we look at increasing the size of our Label and Packaging base, which we have said before, and I continue to repeat today.

As we have in 2012, we'll sell other non-strategic assets into '13 to pay down debt and invest in the Label Packaging kind of business. And when you look at us, and we continue to say it, and you know that we're not the traditional printing kind of company that Donnelley and Quad is because we're not in this long-run magazine contract business. I would say probably 90% of our business is transactional. That means when we get up today, we're out there selling to generate those kind of dollars. We have some smaller 1- to 2-year contracts, but most of the time, it's selling day to day. And when you have this long-term contracts, it's very hard to change the mixture of your business. But we felt from the start, because of the size of our business, of being a $2 billion company, that we can do this over time and we still feel that because of the diversification of our business. When you look at, again, the Labels and the Packaging and the Content and the Direct Mail, and the newest entry we have, this global strategic sourcing that we should have been doing a long time ago. And the other businesses that we have are profitable and major players with us. The envelopes, Commercial and journal, but they're not going to be playing that big of a part as we look down the road.

So when we sort of focus on what we're doing now and when you tell them investors that you only achieved 94% of your full year EBITDA budget, it doesn't sound too good. But when you look at the component parts, when we started out this year, or last year, with a budget of $230 million, and again, we've put forth aggressive kind of numbers because we believed in the past and we still believe that these aggressive numbers will make you work harder and longer and try to achieve more. But we had that $230 million budget, and we ended up with $215 million. And before we even went into last year, we told you that we had 2 major impediments to overcome. One was the $10 million of waste that we had lost in pricing, and a $5 million pension issue, not even counting the Direct Mail issue that we'll talk about later, where we were short in the Direct Mail by some $50 million. But we still were able, with these issues, to come in at a 94% number and a $215 million EBITDA and a good cash number. But when you look at these individual measurements, the results look much better and tells you why we feel positive about our future in this industry.

So let me sort of walk you through -- before I turn it over to my partners here, let me walk you through what I call our top 10 key performance measurements of 2012.

During the fourth quarter, we paid down $33 million of debt. That's right. $33 million of debt, we paid down. And that's from this company that had difficulty getting out in the marketplace and refinancing because of different stories that we're told about us not being able to pay our bills. Number two, we also paid down $63 million of debt for the entire year of 2012. $63 million is a lot of money for a company our size, but we paid down $63 million of debt for the year, just as we promised we were going to try to do. Number three, during 2012, we paid down -- and this is unbelievable. When I look at it, it just makes me ill. We paid $37 million in fees and expenses that we will not have repeated this year. Thank, God. But those were banking fees and everything that relates to getting these deals done. It was $37 million. So when you hear us talk about cash flow being our primary objective for this year, and why we feel good and stronger about cash flow than anything, because I'd constantly tell people, there are 2 things that we do extremely well and better than anyone in this industry. One is going out and acquiring companies and integrating those companies within our cost structure and the second one is delivering cash flow. We've done that every year we've been here and we're going to do it again this year. So that's the banking fees, item four in the quarter, when you look at our margins on how we're doing and we commit every year as we are this year of improving our margins, that if you look at the fourth quarter margins on an EBITDA basis, we were at 12.8%. But on an EBIT basis, we were 9.2%. And I've said this before and I'll say it today, when you're in this kind of business, and you have a 9% EBIT margin, you're managing the business pretty well. I mean, you can get up there to about a 9.5% and some of these other -- but when you have a lot of traditional kind of Print, media expenses, a 9% EBIT margin is just as outstanding.

Item five, our full year margins for 2012 that was in the press release, on an EBIT basis, were 8.6%. That's below the 9%, and the 9% will be our -- definitely our objective for next year, and an EBITDA number of some 12%. Item six, we started a new process with all this emphasis on sales and we've always found that once we focus on something, we're able to get it done. And quite frankly, ever since we've been in this business, our focus has been on cash and cash flow and paying debt. And sales, you've noticed that I very seldom talk about it, because I figure that's going to come along with the business, but because that it's becoming more and more an important part of people looking at a business, and the growth of business, we started a new process with item six, of tracking our top 300 sales accounts for 2013. I'm sitting here in our boardroom, and if you look behind me, we have this huge blackboard, billboard chart, that has listed our 300 top sales accounts for the year, that are really derived from every one of our presidents, from their operating group. And that data tells us who the customer is, tells us the size of the potential sale then gives an update on what we're trying to do. This is a very important step for us as a company, and everybody here is looking at sales and how well we're doing. And I might remind you that I was in the sales organization of IBM for some 10 years, and I've started out in sales, so I know a little bit about what I'm talking about. But this new piece of information and the way we're managing our business is called salesforce.com. It's a tool to manage the entire selling process and to allow our sales personnel to better service our customers, and it's very good. I have been through the entire process. We have the -- all of the Label and Packaging group on, maybe have a couple of straddlers, but totally implementing this program, and we're going to go with, during the process, of doing envelopes, and then we're going to do print. We're going to have the entire sales organization in and on this print. And ladies and gentlemen, I'm sure that you've seen it at other companies, it's just outstanding when you can walk into a room and go online and find out what your top 10 sales are doing. The status of those accounts and if they're coming in this quarter or next quarter, it's just remarkable. And more importantly, if something happened to a sales rep, that happens to leave or he's sick or retired, all that information is there for us to turn over to the next individual. It is a terrific tool, and one that almost most all large corporations have a similar kind of tool. So that's number six.

Number seven, we're going to continue to invest in our e-Commerce and our selling platform, along with investments in the label products. You'll hear more and more of that conversation today, that we are investing, we're betting and we feel very confident about the progress that we've made and the progress that we're going to continue to make in both of these areas.

Number eight, we look at our primary objective and goals for 2013 and it is cash flow. And any and all compensation will be cash flow driven for the company and for each individual that is in any kind of incentive kind of plan. And we've been doing that for some time, but now we really got to lock down that it will be tied to those issues.

And number nine, our Direct Mail sales that really got most of the attention last year, because of -- just to rehash that, we're tracking pretty well as we came in to that fourth quarter. And we knew there were delays on the Direct Mail because we can track that and see that. But we, as a company, we have about $700 million-plus of envelope revenues in our bailiwick. We're the largest envelope printer in the world, and that's now under the leadership of Mark Hiltwein who's doing an outstanding job since he's taken over this responsibility.

So we have a $700 million of revenue this year, and in that $700 million, we have a budget of some $200 million that is our Direct Mail. And this last year, Cap 1 delivered exactly what we thought they were going to deliver, but some of the other major players cut back and that $200 million turned into be $150 million. So we came up $50 million short, and most of you were tracking those numbers yourself. And it is a fact of life, everyone looks up Direct Mail numbers in any industry. So we were $50 million short and it was too late in the year for us to recover. But what we did do and we haven't given ourselves enough credit for it, but we sold an additional $40 million of other non-Direct Mail revenues, anything, everything from the pharmacy and pharmaceutical industry, to the automobile industry, the you-name-it kind of business, that we went out and had been targeting for some time, that we were going to be able to go out and close an incremental $40 million worth of sales. But those sales didn't have the margins you have in Direct Mail because of all the color and all the other pieces. And that's the reason we were short in the Direct Mail, and that's what really put us under for the year and didn't allow us to achieve what we were going to achieve.

And just so -- we can go to item ten because you're going to ask that question later on or if you already haven't is when we look at 2013, our Direct Mail, what we have budgeted -- and Mark and I both feel comfortable with this number, is we budgeted $150 million. And that's basically flat with the way we ended this last year, and after a full, like one month of history, we have -- we feel we're about tracking as well as we can. And we'll have a better feel for this once we get statistics for the quarter and they always lag a month. But we feel pretty good about the $150 million number of Direct Mail for this year as part of our total EBITDA number. So if you look, and I was looking at all this stuff last night, if you look at all of this, I mean it looks a heck of a lot better than saying, we only achieved 94%. The fact that we got our refinancing done, we told you before strategically, we're going to be looking at these nonstrategic assets and getting ready to sell some of these so we can spend those dollars to pay down debt. And also buy and move forward on these Label and Packaging kind of companies that are small to larger to really integrate and make us the kind of company that we want to be.

So because of the importance of this label and Packaging and everything we talk about, next quarter, I'm going to have the President of that group give us about a 10 to 15 minute update on what's happening in the Label and Packaging business, and what kind of progress we're making. And Mike Burton and his team have delivered their 2012 number, they've made tremendous progress on the products that we have and the people that we're dealing with as customers. We've had a small slight set back. We had a small fire in one of our locations, but we've been able to recover from that. But you'll hear from that complete report in our next quarterly call.

So as we have in the past, that's sort of my update. We will follow our one-hour investor format. And we'll have Scott Goodwin, our -- the CFO. He's going to talk to you about the fourth quarter and the full year results. He sort of got some kind of cold or I don't know what kind it is, he talks funny all day, but he's been struggling with the cold and getting the results done and working on a lot of other issues here, but he is doing a very good job. He's going to give that report. And then Rob, our President, is going to step in and report on really 3 segments. He's going to give you a flavor of what's going on with our sales and we don't list like some companies do, like we just closed a sale with Billy Smith because you got to go out and get approvals for that. And we don't want to hire 3 or 4 people that will have to go out and ask them, "Can we list your name?" So what we'll do, we'll be talking about the sectors of the sales and what we're doing there. He is also going to touch upon something we've been working on to save us and make us more money and definitely, generate more cash flow this year than last year on the refinancing. And then he's going to touch upon acquisitions. And then after he's done, I'm going come back to cover 4 business items to include our full year forecast for 2013.

And with that, I'll now ask Scott to give his presentation on the fourth quarter and the full year results. Scott?

Scott J. Goodwin

Thank you, Mr. Burton, and good morning, everyone. Today, I'm going to review our fourth quarter and full year 2012 financial results, provide select financial information for 2013 and discuss the elimination of our 2013 debt maturity, along with our continued deleveraging efforts. The results for the fourth quarter were generally consistent with what we experienced for the first 9 months of the year. We continue to see softness on the top line for several reasons and industry-specific challenges in our cost structure. However, we were able to further our commitment of using our cash flow generation to delever the balance sheet.

Net sales for the fourth quarter were $451.8 million compared to $486.5 million in the prior year. Net sales for the full year were $1.8 billion compared to $1.9 billion in the prior year. As we mentioned throughout the year, we anticipated weakness in net sales given a number of factors in our Print and Envelope operations despite our efforts to improve sales within our growth potential products such as Custom Labels and Packaging. Rob will further highlight our recent sales trends and initiatives shortly.

Our gross profit for the quarter and the full year declined primarily due to lower waste recoveries, incremental pension expense and lower sales compared to the prior year. For the year, the waste recovery decline and pension expense impact were approximately $10 million and $5 million, respectively. Even with these challenges, our gross margin remained relatively flat at approximately 19% which demonstrates our ability to manage our variable cost structure. Our current expectation for waste recoveries in 2013 is that they will remain relatively consistent with 2012.

For the fourth quarter and full year, SG&A expenses decreased $6.1 million or 11.6%, and $30.3 million or 14%, respectively. SG&A as a percent of sales decreased a full percent from 11.4% in the prior year to 10.4% in 2012. These declines relate primarily to lower compensation expenses, our timely integration of EPG's operations into our platform and other cost-savings actions.

Restructuring impairment and other charges for the quarter and full year were $4.5 million and $27.1 million, respectively. The full year charges related mainly to the closure of 3 facilities, 2 Envelope and 1 Journal, as well as other cost-saving actions implemented throughout our operations. Cash restructuring and integration for the year was $10.9 million compared to $10.1 million in the prior year, and we currently expect similar levels of cash restructuring and integration in 2013 as well.

Our non-GAAP operating income margins for the fourth quarter and full year remains strong at over 9% and 8%, respectively, and consistent with the prior year. Interest expense for the fourth quarter increased just over $1 million to $29.2 million from $27.9 million in the prior year, primarily due to higher noncash interest expense amortization. Interest expense for the full year decreased just over $1 million to $114.8 million from $116 million in the prior year. Interest expense for the fourth quarter and full year, as compared to their respective prior year periods, reflected slightly higher weighted average interest rates offset by lower average outstanding debt. Cash paid for interest was $110.7 million for 2012 compared to $111 million in the prior year. For 2013, we currently expect cash interest to be in the range of $105 million to $109 million depending on the success of potential refinancing activities.

Cash paid for income taxes was $1.4 million in 2012 compared to $2.1 million in 2011. And for 2013, we currently expect cash taxes to be approximately $2.1 million.

As of December 2012, we had over $270 million in net operating tax loss carryforwards and do not expect to be a significant cash taxpayer for at least the next 4 years. In 2012, as a result of recent book losses in our accounting analysis related to the recoverability of our deferred tax assets, we recorded a noncash charge of $56.5 million. Although our net operating tax losses do not begin to expire until 2022, this analysis requires a shorter time horizon to overcome uncertainties related to the realizability of these assets as well as other considerations. We continue to believe that we will fully utilize all of our net operating tax loss carryforwards by the time they begin expiring in 2022 based on a number of factors, such as projected taxable income, a positive trend related to our current pension liability and anticipated tax planning strategies that we may consider in the future as necessary.

Adjusted EBITDA for the fourth quarter was down from the prior year at $58 million compared to $62.6 million in 2011. Adjusted EBITDA for the full year was down from the prior year at $215.1 million compared to $221.6 million in 2011. Meanwhile, our adjusted EBITDA margin for the fourth quarter remained relatively flat at 12.8% and our adjusted EBITDA margin for the full year increased almost 0.5% from 11.6% in the prior year to 12% in 2012.

Turning to our cash flow highlights for the quarter and the full year. We generated cash flow from continuing operating activities of $33.4 million in the fourth quarter of 2012 compared to $41.4 million -- $41.1 million, pardon me, in the fourth quarter of 2011. For the full year 2012, we generated cash flows from operations of $56.8 million compared to $83.8 million in the prior year. The change in cash flows from the prior year primarily relates to a litigation settlement payout, the timing of compensation payments and improvements in our DSO in the current year combined with aggressive actions on inventory reduction we took in 2011.

Our continued focus on our working capital initiatives has generated positive results to date. Our DSO was reduced from 56 days in 2011 to 54 days in 2012. Our inventory management continues to drive cash flow improvement, however, as we mentioned on our last call, we do not expect substantial improvements now that we believe our inventory levels are reasonable for managing our business.

Our strong vendor base is another area of focus for improving our working capital. As we mentioned previously, we are making strides at improving our DPOs with our key vendors and believe that we will be able to revisit that effort now that the 2013 maturity is behind us.

Our cash paid for pension and post-retirement plans was $18.2 million in 2012 compared to $21.4 million in the prior year. And we currently expect our contributions for these plans in 2013 will be $16.4 million. The declines in the contributions through these plans are a result of the performance of the underlying assets as well as the pension relief we previously discussed on our second quarter call. Our pension and post-retirement plans are currently underfunded on an accounting basis by over 400 -- $140 million due to this historically low interest rate environment. A 1% increase in the discount rate would lower our unfunded liability in excess of $40 million. And for 2013, we currently expect our pension and post-retirement expenses to be approximately $4 million. Cash flows from continuing investing activities for 2012 primarily reflect capital expenditures of $21 million, offset by the proceeds of the sale of assets of $13.7 million. For 2013, we expect net capital expenditures to be approximately $25 million. Cash flows for financing activities for 2012, primarily reflect our efforts to address our 7 7/8% notes maturity which was scheduled to occur in 2013. As we have stated previously, we believe that obtaining the unsecured loan was the prudent course of action for our company. In fact, we've already begun repaying this loan with $7 million being repaid in the first month. We currently expect to have this note fully repaid this year.

As of the end of 2012, our net debt-to-EBITDA ratio was 5.06x when considering our convertible debt as equity. We remain fully committed to reducing our consolidated leverage in 2013. Our near-term goal is managing this company at a sub-4.5x leverage and we are focused on getting there.

In closing, despite an uncertain economic outlook, operating in industries with overcapacity and pricing pressures and being considered highly levered, we are very optimistic about our future. Having put the near term debt maturity behind us, having an opportunity to address our first lien debt, and with the ability to refocus on our business and our future plans, 2013 will be an exciting year for us. Over the past 2 years, since we first discussed our deleveraging goals, we have paid down over $110 million in debt. We currently expect a similar level of reduction in 2013 based on our current cash flow guidance, which, at a current market cap valuation, would equate to a return in excess of 30% to our shareholders through debt repayment in 2013 alone.

And with that, I'd like to turn the call back over to Mr. Burton.

Robert G. Burton

Thanks, Scott. Just so our listeners understand, even with this $56 million write-off, we still plan to use all our NOLs?

Scott J. Goodwin

That's correct, that's correct. That write-off has no impact on our ability to use those NOLs.

Robert G. Burton

That's what I thought. Okay, Rob?

Robert G. Burton

All right. Thank you, everyone. As mentioned before I have 3 subjects I want to discuss: our recent rate financing efforts, our strategic review of alternatives, and a brief update on our sales efforts. As we mentioned in our press release, 2012 was the year that we addressed our near-term bond maturities and completed the transformation of our capital structure. Today, all of our bonds have maturities that are at least 4 years away, giving us plenty of time to focus our efforts on our operations and to make strategic decisions about our company's future.

We completed a refinancing process recently with the issuance of a $50 million in unsecured term loan that is due in 2017. This loan is held by Macquarie Capital and is prepayable anytime at par. But I'd also like to note that our credit facility allows for this prepayment subject to minimum liquidity thresholds. As Scott just mentioned, we are well ahead of our payment schedule of this loan by already paying back $7 million during the first month. This gives us much comfort that our cash flows will allow us to fully pay off this note by the back half of this year.

Also, to remind everyone, we paid out $63 million in debt in 2012 despite paying out over $37 million refinancing fees and expenses, and approximately $10 million in a litigation settlement that will not repeat itself in 2013.

And as we turn our attention to 2013, we look to create value for our shareholders in a couple of different ways. First and foremost, we look to lower our cost of debt and cost of capital by paying off specific high interest cost debt. As I mentioned before, our first target is a $50 million of unsecured term loan, and then focus on our most expensive remaining fronts shortly thereafter. Also as discussed in the guidance, we feel that we would generate 75-plus million dollars of free cash flow, well over $1 a share and we'll continue to pay down debt aggressively and deleverage. Also given the recent relative strength of the capital markets, we're in the process of currently evaluating a potential to refinance our credit facilities including our revolver and term loan to potentially extend our maturity and lower our interest rates. We look to finalize our evaluation of this opportunity in the very near future and will keep you all apprised.

In regard to strategic options, as we highlighted in the press release, and I mentioned previously in our earnings calls, we will spend this year strategically evaluating each of our businesses and our potential strategic options. Given that our refinancing efforts are now behind us, we feel that this is the appropriate year to make this evaluation. Also, as we review all our alternatives, all options will be on the table.

As we continue to transform our business away from our legacy operations, we will potentially look to dispose of businesses that are unstrategic to our future as we give it both our forms and documents in our wide format business in 2012. In 2013, as we previously discussed, we expect nearly 60% of our EBITDA to come from our higher margin growth areas such as Custom Labels, Packaging, Direct Mail and Content Management. Also as a part of such review, we will also continue to evaluate expansion opportunities at our higher margin growth businesses. While paying down debt is the number one, our number one focus as an organization, we feel that we need to be mindful of the current market trends. We also feel that initial consolidation is a reality that will not only -- that will only accelerate going forward. Our customers, vendors and competitors settle iterations of consolidation over the past few years. More recently, we've seen several large acquisition or mergers recently announced in the office products market. We have monitored this trend carefully and we'll potentially act when we believe that there can be value created for all of our stakeholders. As we stated before, acquisitions can make sense for us by investing in higher margin growth markets that can also decelerate our goal to deleverage.

Regarding our sales effort for the quarter. Despite the challenging macro environment that we anticipated, we have several highlights that we like to discuss. But before I do, I would be remiss not to mention that we, as an organization, and especially everybody in this room has a heightened focus on our sales and sales initiatives across the organization. Our senior management is involved more so than ever in this initiative and we are doing everything in our power to focus our sales force to be successful by investing at systems and infrastructure to allow us to be successful this year and beyond.

And to briefly run through some of the quarterly highlights and some of the operating trends. Our Custom Label business had a solid quarter of organic sales growth exceeding GDP during the quarter. This was again driven by our e-Commerce efforts, and continued product expansion. As we mentioned last quarter, we are investing heavily into our e-Commerce platform over the next few years. We have continued to improve the ease of doing business with our customers and this is being demonstrated in our results. As we continue to invest in these operations with technology and equipment, we feel that there's a short-term payback that allow our business to outperform going forward.

The rest of our Label and Packaging efforts performed to our expectations with good performances in our coating and pharma operations, and saw our performance in our point-of-sale business that offset our decision to walk away from some unprofitable business. Our holiday, cold and flu season related businesses were again solid contributors during the quarter and we are optimistic that our longer-run businesses will again show positive trends in 2013.

Our Print business, for those who don't understand it, produces mostly marketing informational collateral pieces for our customers, had solid performances in 2012, showing continued operational improvement. Our fourth quarter results were modestly impacted by the timing of several jobs by a few large customers that we now expect to produce in the first half of 2013. From a strategic stand point, our efforts to diversify our customer base into verticals such as managed care, travel, leisure and food and beverage had largely offset weakness in the publishing market. Lastly, our global content operations continue to be a niche product that has performed well for us in 2012 and we see this operate as a differentiator for us going forward. Obviously we've been disappointed by certainly slow Direct Mail market in 2012, and particularly, the credit card acquisition mail that we had faced in 2012. According to Industry Data, credit card acquisition mail was down close to 27% in the fourth quarter versus last year. This weakness was anticipated and exacerbated by the hurricane that hit the Northeast during the quarter. While it's obviously disappointing to us during the end of the year, we have seen year-over-year comps get better throughout the fourth quarter, with the month of December being down only 10% year-over-year. For 2013, we are anticipating the Direct Market to be relatively flat with this year's results, with continued growth in the auto, mortgage and telecom space and a more normalized credit card acquisition mail pattern returning.

We are also closely monitoring events with the USPS. Like many of our space, we use it post reform as long as it does not impair our customer's ability to communicate with their own customers. While much of the USPS's current problems are not of their own making, we realize the cost saving initiatives will be part of the solution going forward. With that being said, we do not anticipate any of the currently proposed changes will have a material impact on our business besides potentially depressing mail cycle times.

And that completes my portion of the presentation, and I'll turn it back to you.

Robert G. Burton

Thank you, Rob. We talk about a lot of these challenges that we face in the industry, but we just need to remind ourselves, everybody's got problems, every industry has. And this industry has basically strong -- you can look in the '90s, when I first was at the World Color with KKR, we had about 50,000 different companies, and now we could be below pushing the mid-20s. But that's good for us, from the standpoint of competition, but it's bad from an image standpoint and you read about all the smaller closures. But our plan has not changed, and the major months and the milestones are still checking, and we still feel very good about the plan, and especially with the Label and Packaging group we'll be enabled to lead this effort.

So as I stated earlier, I have 4 business items to discuss. And then the first one is I'll call Cenveo ownership. And I've tried over the past several years, even though it's been humbling at times, to increase my own ownership of Cenveo stock, and I realized a long time ago that, that ownership was important to you, and you expect me to have a large presence and continue to increase on my presence. And I'm trying to do that. And I have been the largest shareholder for the past several years, and I've tried to increase that amount each year and each month. And if you look in the proxy, the last time, they have me down for owning about 10% of the stock. But I just want to give you a couple of milestones you don't have. In 2011, in the open market, I went out and bought 1,537,000 million of common Cenveo stock, that's the dollar of the value, $1,537,000. And then, this past year, which you haven't seen, 2012, I purchased another $1,236,000 of Cenveo common stock. And then on top of that, to really be committed, I went out and bought $4,407,000 of our bonds. So I'll continue to buy the stock, and I will continue to buy the bonds because I think I should, and I want to be in a position to continue to increase that ownership. And I will remind you that all our employees, managers, and our Employee Stock Purchase Plan, and with myself and my 3 sons, we spend over $60,000 a month in purchasing Cenveo stock every first of the month through that Employee Stock Purchase Plan as a lot of other of our managers do. And I just want to bring that up because I know a lot of your investments, those shareholders, or those CEOs and managers do not buy stock in the open market, they look for options. You've noticed, and I'm sure you tracked it, we have not given any options out in the last several years because of the environment. And we need to see proof that things are getting better before we will do that. But I did want to give you an update on my ownership of stock, and because I still believe in the growth story and we do and all of our people do, and I will continue to purchase stock and this time around, normally, wait a day or so, they ask me to do that, Rob and the Legal Department, to make sure that I know nothing which I don't, other than what's going on with the business.

Item two is acquisitions. And even though Rob touched upon it, and you're fully up to date on what we're doing, I just wanted to, again, to be sure that there's no questions in your mind that we are focusing totally and completely on the Labels and Packaging to buy the smaller and midsized companies that allow us to integrate those very quickly. And we're doing that right now. And you know, we've done -- I've done personally about 70 of these deals and we've been looking for several other Label and Packaging opportunities, and we think they are there. And we focus on the smaller ones because that's easier to do it and we can buy them at a reasonable multiple. We have a couple that are in the middle. Then we're going to be testing those multiples and see what they actually mean to us and if they meet our kind of requirements. And those are companies, to give you some better feel, companies over $500 million of revenues. And it is what we do best, and I've said it again, and we can't get away from that. That's what's given us and driven us all the way from our time with World Color to here, and I want us to get back on that track of acquiring these companies, small or large, and integrate them with our ability to generate cash flow because I think that's a good, good team, and we just haven't done as much as that as we should because we've been concerned about some of these other issues, so that's item two.

Item three is our major full year goals, and this is going to sound a little leafy to you but I want you to understand how we operate with all our managers, all our senior managers will have a written set of objectives that they write with their managers and with directions from me on similar goals that we all have. And those goals are put into a document called Management By Performance or Management By Objectives, and then we measure those throughout the year. And this year, because of our performance, no one received any bonuses, whatsoever. But this year, we'll try to be more realistic because I've always put those aggressive numbers out, and we are taking the position that we're reading the market as it is now with a lot of the pluses and minuses which I'll touch upon in a minute and reviewing that. And if the market gets better, we're going to roll up our forecast to be better, and that's in any of these segments, which I think we will. Because you're definitely going to see an improvement in sales and in cash flow. So let's just start right now. The first objective that we were going to have, and they're really not in any order of priority, is the sales number, and we're looking for $1,850,000,000 as the number that we're starting out with this year that we feel is attainable.

The second item that I want to talk about is cash flow, and the cash flow from operations. Because we're investing cash back into the Label and Packaging groups, I got to be very careful what number -- I don't give away everything where we don't have anything left. But we want to come up with a number of $75 million to $100 million of cash flow from operations. We listed the $75 million in the press release. At this time, we feel that we need to have everybody in the company understanding that the performance related on anything has to be on us, hitting this floor and getting and doing better than that number. So that's number two.

Number three was EBITDA. And the EBITDA was the $215 million number that was basically flat with this last year. Normally, I would have sort of ticked those numbers up 4%, 5%, but right now, that's what we see. If the Direct Mail business does better which we hope it is, and will and we get some more of these new sales that I hope we will and do, we'll increase that number throughout the year. But right now, that EBITDA number is $215 million. The CapEx number, we're going to go with $25 million. And we've done a pretty detailed study on what our capital requirements are. You always have something that comes up like a roof repair or some kind of damage that we jump on very quickly. But that is what we're going to go with right now. The debt-to-EBITDA ratio number that Scott mentioned earlier, we haven't backed away from that at all. We mentioned initially, when we started talking about that our debt-to-EBITDA ratio was terrible and we had some really ugly kind of numbers, and we've done better. The last time you've looked at anything is you go back to 2012, that was a 5.0 multiple. And then in this year, 2013, we're looking for a 4.8 kind of multiple, and with an outlook going forward into '14 of a 4.3 kind of multiple. These multiples, we need to put out, they need to be aggressive. We check, and the people in the sales on inventory were checking every and what we need to do and what we can do and what makes sense for the business. But the debt-to-EBITDA ratio for this year is 4.8 and we're going to measure that accordingly. We're going to be looking for margin improvement which is the next item, and that margin improvement will be improvement over what we had this year. And that will vary depending on the different presidents and the different sales managers. But as our company we'll want to get better, than the 9.2% which is pretty good. We'll want to move that up slightly. But on a full year basis, we'd like to change that 8.6% to maybe in closer to a 9% number.

And the next item we have as one of our objectives, is our contingency expense plan. We asked all our managers to do that, and because of some of the signs that we've seen out there of some sluggishness and some business that has moved from one quarter to another, we've asked our managers to come up with a contingency plan that will cover any kind of problem they may have in the quarter. And then on top of that, the -- all field managers again will have a written document and those will be -- we actually share these with the board to let them see what we're doing and we measure those accordingly. And the cash flow from operations again will be the item that we look at for any kind of measurement for as a performance bonus. And I talked to you about in the past, and again, that our business, because of the way it's structured and the transactional segment that it is, that we feel there are 2 segments. There's the first 6 months, and there's the back 6 months. And that's the way we actually look at what we're doing in our major months on 6 months because coming out of the year and looking to the holidays, it really gives you these 2 segments. And those are the items that we're going to measure ourselves on. And I would tell you, if you want to focus on the 3, it would be the cash flow, it would be the sales, and it would be the EBITDA kind of number and I think the debt-to-EBITDA. So they're all important but they're all going to be part -- but the #1 priority would be sales, and that's what they are. That's item 3.

Item 4, the last one and you've heard me talk about it, and I just think it's so important. We have some people come in from the field recently and one of the persons, the manager came up and thanked me personally because she was conveying a message of the 3 other employees whose children have received scholarships from our Cenveo scholarship fund. And that's the item I want to talk to you about. We're starting our sixth round. And this is the program, as all of you who have heard me talk about it, that's funded 100% by our managers and our Board of Directors. It's where we give scholarships that are awarded to the children of our employees. And you just can't believe some of the stories, ladies and gentlemen, that we have, the letters, we tack them on a bulletin board, just tells how important these things are and how fortunate we are to be able to help kids like this that want to get an education but really can't afford it. I, personally, and I've told you this before, this year, I have now up to $600,000, I donated to my $1 million pledge. And we have given scholarships awards to 263 children of our employees and we are very proud of that. And over the 5-year period, not the 6-year period, we raised almost $1 million. And the scholarship award range really is from $1,000 to $5,000. And last year, we have 106 managers. Our managers donate to the scholarship fund a 100% of the people we asked to donate had and 100% of the Board did, and we had 170 applications, and this is the only time, the only time in the year we asked our employees to donate for anything. A lot of companies have drives every 15 minutes. We have 1 and it's the scholarship fund program that we have, and we just think that by doing this, we're doing something that's pretty positive. We have 2 vice presidents that run this for us. One is Gina Zambrana and the other one is Gina Silverio, both their names are hard to pronounce, but they're 2 outstanding employees that take time out of their regular job to do this job and they've done a great job and I just want you to know we continue to do this and we think it's a good thing to do, and we're very proud that we're able to do it.

So the last thing that I have to talk to you about is -- I got a couple of minutes here. Last night, after I finished putting all my notes together, I just got my legal pad out and started went down this list of 10 because you'd probably be asking these questions anyway. And I was trying to get a gut level feel in the general outlook of 2013 and how I would answer these questions if you ask me and ask me like what's going on, number one, in the first couple of months, how do you feel about things. And we're seeing that the economy, with the weather and there's some sluggishness out there. But in our business, we never do have a strong first quarter. We never have. It's always the third and fourth quarter that are strong, and the new taxes sure hasn't helped people, I think, there's uncertainty out there. And what we hear and read, leaves people with a lot of questions in their mind. Item two, I said what's going on with retail. If you look what's going on with some of the major retail stores, it would tell you that that's not a positive kind of sign. But again, that's early in the year. And then, when I find out that some of our -- one of our major toy manufacturers is moving some of the business from one quarter to another, it makes me feel better because I know we got the business and we don't go around telling customers were they put their business and we're just thankful that we got the business. So we got some business that's locked in that we feel good about. The contingency plan that we put in place that we can do that gives me a plus feeling. Then number five, the strong full year cash flow outlook makes me feel better than I've ever felt about cash flow, especially when we don't have $37 million of expenses. Even though there will be some, but not $37 million. And the fact that some of the Commercial accounts moved from one quarter to another, that happens all the time. And you really have to read that on an individual basis. But it gives you some question. Item 7, capital. When I look at capital, the $25 million, we've never done a better job of planning our capital and spending our capital where we think our growth is. And item 8, selling our assets. As Rob mentioned, the strategic assets we're going to have some long discussions about that. But we have -- we have assets to sell that are worth money that can put us into a different kind of business that we want to be in, that is not in this traditional true printing business that we just keep getting hammered on and we haven't been able to bridge that situation of being a total Label and Packaging company. And item nine, I really think we have the best field team management group that we've ever had since I've been here. And the last one, this East Coast storm, I don't know. We had a New Jersey plant that had some major problems because of the weather, but we didn't miss a lick with the customers. We were able to meet those customers' demand because of our management team jumping on top of it and all our other plants around. So when I look at the year, early on, knowing what I know, I look at the very positive things about our selling focus that we've never had before since I've been here, our cash flow focus and our acquisition strategy, all those are very positive. And I'm not naive to not discount the difficulty in the marketplace, the pricing that's taking place, but I'm telling you, I think we got a lot better chance now to go out there in this market and be successful then we had in the years in the past. So I'm feeling pretty good. Even though I know we have issues as all businesses do. But when you lay them out and you look at them, you can feel pretty good about it. And I feel pretty good about what we're trying to accomplish here, and I think for you people, who are going to be here for the long-haul, you're going to be rewarded with the stock price because I sure believe in it and everyone around this table does.

And with that, Rob, we've gone beyond our time but this is the only time we get to talk to you. It's important to us, to feel that we communicate to you and I know we don't always tell you what you want to hear or you got other questions, but that's the reason you can call in and talk to some of us. You want to take any questions?

Robert G. Burton

Yes, take a few questions please.

Question-and-Answer Session

Operator

[Operator Instructions] Your first question comes from the line of Charlie Strauzer with CJS Securities.

Charles Strauzer - CJS Securities, Inc.

Just to talk a little bit more about the cost structure and possible divestitures. Can you talk a little bit more about what you can potentially -- what levers you can potentially pull to get additional cost out? What type of non-strategic or non-core assets are you talking about in terms of for sale? I know you can't get too specific but can you give us a little more color behind that?

Robert G. Burton

Charlie, it's Rob. I'll jump in for a second. I think in terms of the cost structure, obviously, we have cost structure that's probably over 75% variable in nature. We have probably close to 65 locations. So if we did see any sort of slow down in the economy or any sort of hiccups out there, we feel, as we have in the past, we're probably able to take out cost pretty quickly. That could sort of being rationalized, to sort of where the future of short revenues would be. So that's some of what we've done, we think there's more room to go going forward. In terms of the strategic look of stuff, obviously, I can't get too specific in terms of what the operation we're looking at but obviously, we've talked extensively on this call about our focus being in the Packaging and Label areas. So obviously you've seen a lot of stuff happening in the office product space recently so that's something we always get bantered about but again we're not going to comment specifically in terms of what areas we're going to look to divest potentially.

Robert G. Burton

Charlie, before I answer, this is Bob, and I'm going to ask Scott to jump in here. I think every asset we have is salable and makes money. And that makes it a lot different sale than looking at something that is not profitable, and does not have a life on its own by itself or part of something else, and then I think that's good. But Scott would you?

Scott J. Goodwin

That's right. We have a lot of the assets have appreciated. Their book base, some of their tax bases. So we have a lot of opportunity there, Charlie, and I think Rob mentioned it earlier just about everything is on the table. We'll take a look at it this year.

Charles Strauzer - CJS Securities, Inc.

Just one follow-up you look at the capital markets kind of being open again now and your business stabilizing in the economy, it looks like it's stabilizing a little bit. Are you thinking about maybe being opportunistic here about tapping some refinancings?

Robert G. Burton

Yes, as I've mentioned, we talked about we're going to -- obviously we need to get numbers out to people for them to make sort of evaluation on us but we're going to evaluate the market realtime so we're making a conclusion here within this quarter absolutely.

Operator

Your next question comes from the line of Kevin Cohen with Imperial Capital.

Kevin J. Cohen - Imperial Capital, LLC, Research Division

For Kevin. Just quick on the divestment strategy again, I know you can't give much color on what you're targeting, but is there specific proceeds goal, you're looking to achieve to kind of affect the deleveraging or can you talk a little about that?

Robert G. Burton

I think it's 2 things from my perspective. Obviously, you have parts of the industry to trade at multiples probably closer to 3x to 5x. You have other parts of the industry that trade at multiples, the Packaging and Label space anywhere from 7x to 9x. So we're realistic in terms of our expectations on some of our assets. I think the goal is as we continue to transform our business more and more to the Labels and Packaging space, we realized that getting significant amount of deleveraging in terms of ratios probably not going to happen if we get rid of some of these non core stuff. So again there's no numbers on the table but you feel that it is our goal to be close to 100% Labels and Packaging here over the course of the next 3 to 5 years. So we'll see.

Robert G. Burton

Okay, do you want to take 1 more?

Robert G. Burton

We'll take one more question, operator.

Operator

Your final question comes from the line of Jamie Clement with Sidoti.

James Clement - Sidoti & Company, LLC

Bob, let me ask you question because I think some investors aren't going to understand this, and this is a follow-up to Rob's answer there. If you divest assets that are at valuations that are lower than your current leverage ratio, and then look to deploy them in areas that obviously, in the public and private marketplace, get higher valuations, can you talk a little bit over a multiyear period of time, how you can do that and still manage your leverage ratio because obviously, you'd be sacrificing some short-term EBITDA in the process by selling some of these things.

Robert G. Burton

I think a couple of things, Jamie, from my perspective is obviously companies in the Label and Packaging trade and have leverage multiples that are more acceptable to get investors that are higher than say traditional commercial printing companies, first and foremost. And obviously, the margin sort of structure in terms of what the sort of operating margin that these businesses support is obviously much higher than some of the traditional Print areas that are much lower. So I think those things give us comfort in the fact that maybe something off or something slightly less than what we're trading today, but longer term I think you make that up in terms of your outlook for the business going to be next year and going forward.

James Clement - Sidoti & Company, LLC

And then the last question is, are you currently -- with your current capital structure in place, if you where to divest something are you require to use a percentage of those proceeds to pay back any of the instruments that are currently outstanding or do you have some flexibility to be able to reinvest that in some of the businesses that you want to grow?

Robert G. Burton

I think, for something large, Jamie, we probably have to look to -- redo a bunch of different things. So it will probably be appropriate time to look at the total capital structure at that time anyway, if it's [indiscernible].

Robert G. Burton

Jamie, I'll revised and might mention again as I have said before, we have people who want to be our partners. They want to be our partners either as a public company, want to be a larger shareholder or they want to be part of the private situation. So we do have some alternatives here and we've done some work on it. Because we were World Color for a while and we were private before and we went public. So you learn those questions, what you need to know and what you're going to be doing some of this. And we've done the same thing on the divestiture kind of route because of the multiples and the ranges, you know pretty well where you're at, but you can pick up those dollars very quickly.

Robert G. Burton

We need to go now because we're late already. And thank you very much, ladies and gentlemen, and we will talk to you next quarter. Thank you.

Operator

Thank you. This concludes today's conference call. You may now disconnect.

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