Checkpoint Systems' CEO Discusses Q1 2013 Results - Earnings Call Transcript

May. 7.13 | About: Checkpoint Systems (CKP)

Checkpoint Systems, Inc. (NYSE:CKP)

Q1 2013 Earnings Call

May 7, 2013 8:30 AM ET


Annette Geraghty – IR

George Babich – President and CEO

Ray Andrews – Senior Vice President and CFO


Jeff Kessler – Imperial Capital

Chris McGinnis – Sidoti & Company


Greetings, and welcome to the Checkpoint Systems First Quarter 2013 Conference Call. (Operator Instructions) As a reminder, this conference is being recorded. It is now my pleasure to introduce Annette Geraghty, Investor Relations Specialist at Checkpoint Systems. Thank you, Ms. Geraghty, you may begin.

Annette Geraghty

Thank you, Kevin. Good morning and welcome to Checkpoint Systems first quarter 2013 conference call. With me today are George Babich, President and Chief Executive Officer; and Ray Andrews, Senior Vice President and Chief Financial Officer.

Please note that unless otherwise stated, today’s discussion will be on Checkpoint’s continuing operations. Additionally, non-GAAP measures discussed on this call are defined and reconciled with GAAP on statements attached to our earnings release. The release is available on the Investor Relations section of our website.

We remind you that during this call, we make certain forward-looking statements. These are subject to the forward-looking statements included in today’s earnings release. A replay of this call and written transcript will be made available on our website following the call.

Now I will turn the call over to George Babich.

George Babich

Thank you, Annette, and good morning and thank you for joining us today everyone. We appreciate you being with us and trust that you had an opportunity to read our first quarter earnings press release that was issued at 7 o’ clock this morning.

First of all, from an administrative housekeeping standpoint, unlike our prior calls where the Checkpoint team is in one location for these calls. Today I am onsite for a visit with a major customer. So please bear with us should there be any confusion or apparent confusion amongst our team. It’s a communications issue.

I will provide an overview of the first quarter performance and then I’ll turn the call over to Ray who will walk through the numbers related to the performance, provide the details on a global restructuring and our working capital initiatives. He’ll also share with you further detail on our updated guidance for 2013. Following Ray’s comments, we will open the call to your questions.

So first quarter results reflected continued progress on a number of fronts resulting in an improvement in non-GAAP operating income of $11.3 million versus the first quarter of 2012. We were particularly pleased to see better than expected revenues, up 3.2% from a year ago or 3.8% on a constant currency basis, as well as a $10.4 million, or 15% reduction in non-GAAP operating expenses.

The previously announced realignment of a global sales organization continues to increase our focus and execution and clearly contributed to a strong beginning of the year following a solid finish in 2012. Early SMS systems revenue was the driver in Q1, but the other lines of business delivered solid results as well, after considering expected year-over-year adjustments to restructure those businesses.

Gross profit margins were slightly below last year due to share gains in Europe and a temporary unfavorable revenue mix in Alpha. These were partially offset by significant improvements in EAS label margins, from cost savings, pricing and mix a near doubling of our ALS margins from the massive restructuring and cost savings programs implemented primarily throughout Asia.

Undoubtedly, the restructuring and cost savings program initiated under our profit improvement plans including Project LEAN, were instrumental in improving first quarter results. Progress was made in each line of business as we continue to cut cost, improve execution and increase productivity.

In addition, our commitment to better manage working capital resulted in free cash flow that significantly exceeded expectations for the quarter.

So turning to the businesses, Shrink Management Solutions delivered a strong quarter on the top line with revenue increases at 9.4% on a constant currency basis compared with the first quarter 2012, which again undoubtedly speaks to the increased focus and better execution by the entire team.

As I mentioned, the revenue increase was largely driven by EAS systems rollout in Europe where we had two sizable installations taking place resulting in an increased market share there. Also in the quarter, we had notably higher sales of Alpha Solutions in the US.

Sales of EAS Consumables increased slightly, primarily driven by Hard Tag @ Source, reflecting increased volumes in Europe and Asia. This was partially offset by a modest decline in EAS label revenues due to lower volumes with certain customers in the international Americas and Asia.

Our Merchandize Visibility business increased relative to first quarter of 2012, as the business continues to advance with projects at several major retailers, particularly in Europe and North America. We continue to expect revenues to increase in 2013 as current pilots convert to installation contracts and certain current installations expand to additional source.

Margins in the Shrink Management Solutions business decreased compared with 2012 first quarter, again largely due to the unfavorable product mix in EAS Systems due to two major rollouts in the first quarter and the unfavorable Alpha product mix in North America.

These declines were partially offset by higher EAS consumable margins resulting from improved manufacturing efficiencies and inventory management. We expect to return to more normal levels of SMS, gross profit margins in this line of business going forward.

Moving to Apparel Labeling Solutions, although revenue was flat compared with the first quarter of 2012. It was stronger than we expected and as anticipated reduction in revenue was due to strategic decisions to narrow the focus of the business by consolidating operations, reducing some non-strategic product lines and eliminating unprofitable customers.

And this was offset by increases in key strategic accounts in Asia, where an increased emphasis on service delivery is taking hold. This business rationalization and restructuring of our manufacturing footprint including consolidating operations in China and better inventory management, significantly benefited margins in the first quarter for ALS as gross profit margins nearly doubled from a year ago. We expect this positive trend to continue as the year progresses.

Finally, Retail Merchandise Solutions, the revenues decreased compared with the first quarter of 2012 reflecting continued soft markets in Europe, lower demand for the Handheld Labeling Solutions product and our decision to move a portion of this business to an indirect sales model in select Northern European countries.

This movement to an indirect model had a negative impact on margins in the quarter. Manufacturing variances related to lower volumes and standard cost adjustments also contributed to the margin decline compared with 2012 first quarter.

Despite the economic environment in Europe, we will continue to fight for more revenue, improve gross profit margins and reduce operating expenses to deliver the expected results for our Retail Merchandise Solutions business in 2013.

Turning to operating expenses. Non-GAAP operating expenses decreased $10.4 million from the first quarter of 2012, largely driven by a combination of incremental savings from our global restructuring programs totaling $9.6 million, plus tight expense control and reduced bad debt expense. Our expanded global restructuring plan remains on track. We continue to expect annual savings of approximately $102 million by the end of 2013.

Next a few comments on working capital. Our focus on improving processes and accountability and managing accounts receivable, inventories, and accounts payable terms continued to make good progress. We have now reduced these components of working capital by more than $64 million since June 2012 and we fully expect to deliver the stated $50 million to $60 million improvement by June 2013.

Also important to note is that we completed the quarter well within the company’s debt covenant ratios, while not increasing debt and expect that to be the case throughout 2013.

Before I hand it over to Ray, I’d like to briefly comment on other recent news items and the RFID license agreement with Round Rock Research outlined in this morning’s press release.

On April 28, first of all we completed the sale of our US and Canadian Checkview business. Closing this transaction now fully aligns our SMS and ALS businesses on pursuing our merchandize availability strategy that we announced and launched on August 2, 2012.

Moving on to the RFID license agreement, you may know Round Rock is a technology research and patent licensing company that has asserted its patents against several suppliers and users of RFID technology. This was a situation where we believed it’s necessary to be proactive to acquire a license in order to provide protection for our customers who buy, who have bought their RFID solutions from Checkpoint.

With this agreement in place, our current and future customers may continue their RFID plans without legal or other business concerns.

Next, some of you read the announcement that our OAT Foundation Suite has been selected by HP Enterprise Services as a part of its five-year hospital contract with the US Department of Veteran Affairs.

As a subcontractor to HP, we will be providing a passive RFID solution comprising software and readers that will be used to track medical equipment and assets across VA facilities to improve operational efficiencies and ultimately patient care. We are one of the several contractors providing specific services under this contract. A testimony to the OAT Software platform and we are delighted to be part of that team.

Finally, as stated in this morning’s press release, we have reaffirmed our 2013 EPS guidance of $0.65 to $0.75 per share.

Now I’ll turn the call over to Ray who will walk you through the numbers in greater detail. Ray?

Ray Andrews

Thanks, George. We expect to file our 10-Q later today which will provide additional details beyond my comments this morning. All of my references this morning will relate to first quarter activity from continuing operations unless I state otherwise. Continuing operations exclude the results of the US and Canada based Checkview business.

Revenues from continuing operations increased 3.2% year-over-year, year-over-year differences in foreign currency exchange rates accounted for six tenths of a percent decrease in revenue and organic revenue increased by 3.8%.

Gross profit margins in the quarter were 36.2% compared with 36.8% last year. I’ll provide more detail as I review each segment’s results.

Shrink Management Solutions segment revenues from continuing operations increased 9.4% on a constant dollar basis. The increase was primarily due to increases in EAS systems in Europe or revenues benefited from two large rollouts by major retailers, Alpha where stronger sales in the US more than offset declines in other regions and increased sales of EAS consumables in Europe and Asia.

These increases were partially offset by the expected decline in library revenues primarily due to the expiration of a licensing agreement in the US in this non-strategic business.

Gross profit margin for the segment was 39.8%, compared to 44.7% last year. The decrease was principally due to lower gross margins in Shrink Management Solutions, notably in EAS Systems and Alpha businesses that were partially offset by significant higher EAS Consumable margins.

EAS Systems margins were impacted by two large 2013 rollouts in Europe whereas the resulting first share gain affected product mix. There were no comparable rollouts in 2012. Alpha margins declined in comparison to a favorable product mix in 2012, EAS Consumables margins increased due to a favorable manufacturing variances and improved inventory management as well as product mix.

In the first quarter of 2012, EAS Consumables gross margins were impacted by preparations for the shutdown of our Puerto Rico EAS Labels facility as part of our global restructuring plan.

Apparel Labeling Solutions segment revenues were flat in the first quarter of 2013 compared to the first quarter of 2012 an increase in Asia as a result of increased sales with our strategic key accounts was offset by declines in sales volumes in the US and Europe as well as international Americas where we closed operations in 2012 as part of our global restructuring plan.

Growth in key account revenue in Asia offset the impact of approximately $3 million and revenue reductions that resulted from actions to streamline operations under Project LEAN. We are experiencing strong demand from certain customers with a continued cautious approach from others.

The gross profit margin for the segment was 27.3%, compared to 16.4% last year. Due to the recent actions of Project LEAN to restructure and right-size our manufacturing footprint, we are beginning to see positive gross margin impact, most notably from improved efficiencies in inventory management.

First quarter margins were negatively impacted by seasonal factors including lower demand and the effect of Chinese New Year on capacity utilization. We expect Apparel Labeling margins to improve as the year progresses.

Retail Merchandising Solutions segment revenues declined by 17.5% on a constant dollar basis. The decrease is primarily related to the impact of the movement of a portion of this business through a distributor model and a decrease in Handheld Labeling Solutions, which continues to be impacted by weak economic conditions in Europe as noted previously by George.

Our Retail Merchandising Solutions business has also been negatively impacted by fewer new store openings and remodels of existing stores at our European customers. The gross profit margin for this segment was 37.8% for the quarter, compared to 44.6% last year.

Moving on to selling, general and administrative expenses. Expenses for the quarter were $55.3 million, compared to $65.6 million last year. Foreign exchange effects reduced SG&A expenses by $300,000. Wide ranging actions taken under the enhanced global restructuring plan reduced expenses b y an incremental $9.6 million over previous cost reductions that were realized in the first quarter of 2012.

Also contributing to the decrease were reductions in bad debt expense, and amortization expense on fully amortized intangible assets, partially offsetting the decrease was an increase in performance expense as well as the impact of higher pension costs in Europe, triggered by the actuarial impact of a reduction in the pension discount rate.

Now I’m going to provide an update on our restructuring program. We continue to expect that the expanded global restructuring plan, which includes Project LEAN and the SG&A restructuring plan will generate approximately $102 million in annual savings and cost of goods sold and SG&A expense when the plans are fully implemented in 2013.

These restructuring initiatives lowered cost in the first quarter by an additional $15.3 million when compared to the reductions achieved through the first quarter of 2012 with $9.6 million attributable to SG&A cost reduction actions.

Today, $60.9 million of cost reductions have been realized of which $44.9 million are attributable to SG&A. Restructuring expenses in the first quarter were $2 million, of which $700,000 was attributable to non-cash asset impairments.

Today, the expanded global restructuring plan has recorded $68 million in expense including $45.1 million in severance and other employee-related charges, as well as $15 million in non-cash asset impairments associated with facilities rationalization and closures.

These programs will impact over 2400 physicians with 2056 physicians eliminated through the end of the first quarter. While we are firmly committed to achieving the overall savings target, the expanded global restructuring plans and a wide ranging scope in which some details may change as we execute specific programs.

Delivering the $102 million in savings attributable to expanded plans is now expected to cost between $68 million to $73 million, which is down approximately $2 million from previous estimates.

On to income taxes. GAAP income taxes from continuing operations for the quarter were $300,000. GAAP income taxes from continuing operations in the first quarter of 2012 were a benefit of $10.2 million. The effective tax rate for the 13 weeks ended March 31, 2013 was a negative 8% as compared to 48.3% for the first quarter of 2012.

The change in the effective tax rate for the first quarter of 2013 was due to the mix of income between subsidiaries and the discrete method used in accounting for the US operations. We calculate our interim tax position using an estimated annual tax rate methodology.

In the second quarter of 2012, we began accounting for US operations by applying the discrete method, specifically to US operation’s results. We determined that the US operations were included in the estimated annual effective tax rate small changes in estimated pre-tax earnings could result in significant fluctuations in the tax rate. So that’s why the discrete methodology was adopted.

Had the discrete methodology been used in the first quarter of 2012 against losses incurred by our US operations, the income tax benefit in that period would have been reduced to $1.9 million and the effective tax rate would have been a benefit of 9.1%.

The change to the discrete method of accounting in the second quarter of 2012 will also impact comparability of year-over-year income taxes in the second quarter of 2013.

Turning to cash flow. Cash flow provided by operations was $13 million in the quarter, capital expenditures were $1.4 million and free cash flow was $11.6 million. In July 2012, we announced the implementation of new working capital initiatives that were expected to generate $50 million to $60 million in improvements by June 2013.

The initiatives were focused on improving forecasting, product management and supply chain processes to reduce inventory levels facilitated by our new business structure. Improving customer to cash execution to improve collections and reduce accounts receivable balances and more effective management of vendor payment terms to increase accounts payable balances from current levels.

When compared to the end of the second quarter of 2012, accounts receivable inventories, and accounts payable combined generated improved cash flows of $64.1 million, including a $31 million improvement in the first quarter. Allowing for the forecasted use of working capital support expected second quarter revenue growth, we believe we are well positioned to achieve our goal of a $50 million to $60 million improvement by June 2013.

We finished the first quarter well within our amended debt covenant leverage ratio with a trailing 12-month leverage ratio of adjusted EBITDA-to-total debt of 2.9 which is well below the 3.5 limit defined in the July 2012 debt amendment.

As George noted earlier, we expect to remain in compliance with the amended debt covenants throughout the year. We completed the sale of a North American Checkview business to Platinum Equity on April 28. Details are provided in the 8-K that we filed on May 2. The financial results of this business which we reported first quarter 2013 revenue of $12.5 million and an operating loss of $2.6 million are reported as discontinued operations.

Now I’ll provide an update on 2013 guidance. Based on an assessment of current market conditions and assuming continuation of current foreign exchange rates, Checkpoint is updating certain components of guidance for 2013.

This guidance does not include the impact of acquisitions, divestitures, restructuring, and one-time or unusual charges resulting from debt refinancing, litigation, certain tax reserves, 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 pretax income and losses in the countries in which we operate, which can also impact earnings per share.

Valuation allowance on US deferred tax assets results in a GAAP tax read on US pretax income or losses of essentially 0%. If the mix of income or losses shifts from the US to a country where the income tax rate is in a normal range, which in some cases approaches 30%, this can have a significant impact on the amount of reported income tax, which when compared to projections over the basis of our outlook.

So, for the outlook, net revenues are expected to be in the range of $675 million to $695 million, prior guidance was net revenues in the range of $665 million to $685 million. Gross profit margins are expected to be in the range of 41.2% to 42.2%, prior guidance was gross profit margins in the range of 41.8% to 42.8%.

Operating expenses are expected to be in the range of $233 million to $243 million which is unchanged from prior guidance. Non-GAAP operating income is expected to be $45 million to $50 million, which is also unchanged from prior guidance. Prior guidance with operating income margins of 6.8% to 7.3%, which is equivalent to the $45 million to $50 million range.

Full non-GAAP effective income tax rate is expected to be approximately 27% to 29% which again is unchanged from prior guidance. Non-GAAP diluted net earnings per share attributable to Checkpoint Systems are expected to be in the range of $0.65 to $0.75 a share which also is unchanged from prior guidance.

Free cash flow, cash flow from operations less capital expenditures is expected to be in the range of $50 million to $60 million and this is also unchanged.

Finally, depreciation and amortization expenses expected – continue to be expected in the range of $25 million to $30 million and capital expenditures to continue to expect to be approximately $19 million for the full year.

Now I’ll turn the call back over to George.

George Babich

Thanks, Ray. Operator, Kevin, I’d like to open the call up for questions at this time.



(Operator Instructions) Our first question today is coming from Jeffery Kessler from Imperial Capital. Please proceed with your question.

Jeff Kessler – Imperial Capital

Thank you. Good morning, George, good morning, Ray.

George Babich

Good morning, Jeff.

Jeff Kessler – Imperial Capital

With regard to the margin, the temporary margin hit that you’ve received from the rollout in Europe, when do we begin to see revenues and also recurring revenues from that rollout begin to overtake the expenses of the rollout itself?

George Babich

Jeff, let me – I’ll take that, Ray. As you know, having been involved with the business for a long time, many times customers will ask us to sort of finance the swap out from a competitor’s systems or even the installation in a Greenfield opportunity but to help them with the capital expenditures associated with the entire rollout.

So that’s what took place in the first quarter. There were two major activities in the Europe, one was Tesco, which we previously announced, that wasn’t anticipated because we expect it to be completed by the end of fourth quarter 2012 but unfortunately delays caused by other vendors of Tesco caused us to push into the first quarter the continuation and completion of the system to rollout.

So there was unexpected margin pressure due to that in the case of Tesco in Q1. And as you know, typically, once that happens and we begin to generate the label sales which come – the recurring revenue that comes at a normalized margin level that happens almost immediately as they begin to use the equipment and replenish their tag. So that’s begun and will continue for the duration of that arrangement.

The other situation was with another large retailer in Europe where we had 1100 store systems rollout that was expected to take us a couple of quarters into the first half of this year we were able to accomplish the entire conversion in the first quarter. So we got all of the impact of the systems piece of it installation impact of the margins into the first quarter and again same thing as with the Tesco arrangement.

The revenue stream for the recurring piece of labels will continue and begin immediately and continue to the duration of that arrangement. So, it’s a little bit of timing here. Those two, in both cases, a very positive share gains for us in Europe. Also another major systems rollout here in the United States which was actually a swap out from our competitor and same situation exists there.

So, we have little more margin pressure in Q1 than was expected only because we accomplished the rollouts much more quickly than expected. So it actually bodes well for the margins for the balance of the year.

Jeff Kessler – Imperial Capital

And one quick question on free cash flow and working capital. Obviously, your use of – your working capital ratio relative to revenues begins to really improve at this point and it’s implied in your free cash flow estimates, but I am wondering if, Ray, if you could – you’ve talked about what you’ve done with working capital up to now? Could you just discuss a little bit what you intend to do with working capital for the rest of the year? What your goals are there?

Ray Andrews

Jeff I just can’t get specific about the goals but I can tell you that the same targets and programs we put in place for this June-over-June measure that we announced in the second quarter call last year. That’s going to continue through the end of the year and we expect it to continue to drive improvement, because we know there is an opportunity to improve inventory turns and also an opportunity to reduce our days sales outstanding on the receivables side.

Jeff Kessler – Imperial Capital

Okay, and quickly one follow-up question on your – I know you are probably going to be a little nebulous on this, but sales or development of hybrid EAS RFID systems, can you give us some idea of where you are in terms of marketing or are you getting some traction with regard to specific customers or in general could you give us an idea of where you are in terms of getting basically getting the world to know that you have these systems out there and number two, the take that you are getting on them?

George Babich

I’ll take that one Ray. Jeff, we have a major European retailer which has we’ve contracted with and we will sell hardware and in particularly the dual RFID technology to them. In 2013, most of that will happen in the second half of the year as well as the labels that go with that so providing the RFID labels to them as a portion of those labels to them as well.

So, from their perspective it was technology that they couldn’t duplicate themselves or find with another supplier primarily due to our Wirama Technology, which is a leader in the marketplace and it provides tremendous advantages for the RFID Solution. So that is taking hold very, very strongly there in Europe. We have another retailer in Europe where we are in test and have installed the same technology and are expanding that test as we speak.

So, again taking real strong solid hold in Europe. In the US, we are working as we announced previously, we are working with a major US retailer. We had a three store test that was expanded to 25 stores and that we hope to expand even further and to a large part is predicated on the ability to provide this technology on the RFID dual antenna capability.

So it’s taking hold with retailers, it’s resonating well from – not only from a loss prevention standpoint, obviously from the RF side, but the capabilities that it provides with RFID. So, I expect that to continue throughout this year and actually to accelerate going into 2014 and while we continue to drive our cost down on that, and improve our margins at the same time.

Jeff Kessler – Imperial Capital

Okay, great. Thank you very much guys.

George Babich

Thanks, Jeff.

Ray Andrews

Thanks, Jeff


(Operator Instructions) Our next question is coming from Chris McGinnis from Sidoti & Company. Please proceed with your question.

Chris McGinnis – Sidoti & Company

Good morning. Thank you for taking my question.

Ray Andrews

Good morning, Chris.

Chris McGinnis – Sidoti & Company

I guess, just on the cost reduction, the $102 million target, the $60.9 million, I guess, just what’s left remaining other than termination I guess, somewhere around 300 people? You swapped through the next components and start that?

Ray Andrews

Well, part of it is, Jeff, sorry Chris, excuse me, the annual effect of actions we took throughout last year providing the year-over-year savings this year as we get the full year effect of the savings.

And there is also some other reductions going on. But the bulk of the program has been implemented already as you can see from the headcount numbers that we’ve announced. The bulk of the remaining headcount is at one specific location in Apparel Labeling that we are looking to move to our partner who is working with us in an operation.

So, what’s remaining, as we continue, we’ll see SG&A savings as well as the full year effect of particularly in Apparel Labeling of actions we took in the second half of the year and even into the first quarter of this year to rationalize the operations and improve the cost structure.

George Babich

Chris, let me just amplify, because the bulk of that, correct me if I am wrong, Ray, here. But the bulk of that difference between the expected physicians to be eliminated and where we are today, probably 75% of the difference is in the joint venture that we are 90% through dissolving.

Ray Andrews

It’s even more than 75%, George.

George Babich

Yeah, so that, it looks like there is quite a few physicians to be eliminated, but that will happen, we expect this quarter that that will happen and that will bring that that gap much tighter. And quite frankly, the results had an impact in the quarter on our business, it wasn’t anticipated. So, once that happens that will improve the margins as well in ALS.

Chris McGinnis – Sidoti & Company

And then just on the Alpha Systems, you noted an increase in US, how much – I know you talked about changing the sales comp, is that was what’s driving that or is it more that the industry trends are starting to improve in the US?

George Babich

Tough one to answer, Chris, clearly, though the focus of the sales team for Alpha is much sharper, much more intense. Obviously, you can have that and you can have your team aligned with compensation and different objectives, but if for some reason, the demand isn’t there, obviously you are not going to get the sales.

So I can’t put a percentage on which is the bigger driver, but I can tell you that the change in the organizational structure, I believe had a major impact in driving the improvements in the first quarter.

Chris McGinnis – Sidoti & Company

Great, thank you very much and nice quarter.

George Babich


Ray Andrews

Thanks, Chris.


Thank you. If there are no further questions at this time, I’d like to turn the floor back over to management for any further or closing comments.

George Babich

Okay, thank you, Kevin. In closing, let me add that it’s been just over a year since I stepped in as a CEO and trust me time has flown by, but the transformation that has taken place within Checkpoint in my mind is tangible and quite frankly, quite gratifying.

Our internal dynamics are clearly different. I believe I speak for the entire Checkpoint team and when I say that we are 100% motivated and oriented towards delivering towards delivering the best products and services for our customers. Without a doubt, we’ve upped our game and this shift is beginning, I believe to show in our results.

So, thank you. Have a great day and I look forward to speaking with you next quarter. Thank you.


Thank you. This does conclude today’s teleconference. You may disconnect your lines at this time and have a wonderful day. We thank you for your participation today.

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Checkpoint Systems (CKP): Q1 EPS of -$0.21 misses by $0.05. Revenue of $148.8M. (PR)