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Cenveo (NYSE:CVO)

Q4 2013 Earnings Call

February 27, 2014 10:00 am ET

Executives

Robert G. Burton - President and Director

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

Scott J. Goodwin - Chief Financial Officer and Principal Accounting Officer

Michael Burton

Analysts

Brad Tesoriero - CRT Capital Group LLC, Research Division

Charles Strauzer - CJS Securities, Inc.

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

Operator

Good morning, and welcome to Cenveo's 2013 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 then the call will open up for question-and-answer session. I will now turn the call over to Cenveo.

Robert G. Burton

Thank you very much, and good morning, everyone. This is Rob Burton, and welcome to Cenveo's 2013 Fourth Quarter and 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 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, impairments and other related acquisition charges.

For further details regarding these factors, please reference Pages 10 and 11 of the company's press release that was issued last night or the company's 10-K that was filed last night as well with the SEC.

And with that, I'll 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. And as you may know, I'm also the largest shareholder of Cenveo's stock and a meaningful and growing owner of the Cenveo bonds. Today, I will have to excuse us as we present because we're so excited about our performance as we exit the fourth quarter and look at 2014. We feel good about not seeing any mini-depression over the horizons, and we feel great about not having a competitor who is giving away the business at a price that's below cost. And we're proud of our print or the old commercial sales team that can sell many different products instead of just an annual report and some car books.

But the major key to our 2014 success is the integration of National Envelope. An integration is what we do best. Nobody does it better. This is the best team, and I've said this many times that I put together since I've been a General Manager and since the World Color days, they're outstanding and they're focused for success.

But today, as in the past, after our investor conference call and after checking with our legal counsel, I plan to make a purchase of both our stock and bonds to increase my ownership and the company. And I've been making these purchases in the open market since we acquired Cenveo in 2005 in that proxy fight. And I make this statement about the ownership because I just think it's important and I want you to know that not only am I 100% committed in putting my money where my mouth is, so is the rest of the management team, who is focused on the future growth and fully understands the importance of achieving our financial targets for the fourth quarter and also for this year that we're in, in 2014.

Every one of our senior executives at Cenveo, to include myself, is purchasing stock through our Employee Stock Purchase Plan and also in the open market. You also know that for the past couple of years, we've been selling some non-strategic assets to prepare ourselves for this, what we call, the new Cenveo starting in the first quarter of this year. And you keep in mind that we've been able to do that. We've been able to generate $100 million of cash with these assets, and we've been using that to pay down debt and also investing in our company.

And we also acquired certain National Envelope assets to develop a new and better envelope group that we'll be talking about today. And all of these assets that we have divested were making money. We just wanted to streamline our operations and focus on a few markets and improve our margins.

But today, you will hear from a senior management team that is very excited about the future and feels very good about our growth plans starting in the fourth quarter, and you need to keep in mind that we've been preparing for this thing for the last 2 years.

So today on our call, we'll focus on the fourth quarter and our forecast for 2014. We'll also update you on some of the other businesses and the progress we're making, such as with our print sales group.

But first of all, before we do that, I have sort of like my top 10 highlights of the quarter, that is sort of spin in to the full year 2014. Some of them are listed in the press release, some of this are not. So let me just run through this very quickly. Because the schedule that we have, you're going to hear from me and you're going to hear from Rob, who's going to give you an update on some issues and then Scott is going to talk about the financials, but we're going to allow ample time for me to discuss our guidance for the full year and also allow enough time for a lot of questions.

But the highlights are number one, and you hear this a lot, we -- our results were in line with what we expected. They really were. We were expecting to be in the 50 range. We really didn't have any major weather issues in the fourth quarter. And we felt very good that we had a lot of momentum, even though we're just getting started with the NEC operations, but we felt we saw enough and we didn't see any atomic bombs or anything like that, so we were moving in the right direction. So we delivered what we thought we were going to deliver.

But if you look at the net sales number on item 2, we delivered $509 million in the quarter versus $437 million last year. That was an increase of 16.5%. And you always get the cynics that say, "Well, why -- well, after you added that other company in there, and that's what gave you all that growth." That other company, ladies and gentlemen, was a company that had gone into bankruptcy twice and was losing $30 million of EBITDA. But our net sales for the fourth quarter of $509 million and 16.5% is very good growth. And our adjusted EBITDA was $52 million.

Item 4. We delivered EBITDA margins of 10.2%. I don't know of any printing company in our kind of business that's delivering a 10% margin, and we know we only did it for 1 quarter, but I'm telling you, we are known basically as a 10% margin company striving to get above that, and we will. But to do 10.2%, knowing that we had part of the NEC operation in there is very good, a very good performance.

Item 5, the integration plan, which we'll be talking about more in details. We're right on schedule. We continue to rightsize the envelope group. But I will say it now, and we'll say it several times during the day that this process is a process, and we know it well, and it will take most of the year to get that done. When you're taking a company that used to be $600 million in revenue that dropped to $300 million and you are integrating that company into yours, that is a large organization with a lot of people and a lot of steps that you make sure that you're making the right moves. And we've been doing that and we'll continue to do it.

The print operation continues to upgrade the sales and sales management, and we continue to deliver big-time sales success. And as I stated during our last conference call, we really can't give you a lot of names because as soon as we do that, our competition that has commercial organizations in their company will be all over that account. But I will tell you, with the new management team of Mike Burton and Gary Pawlaczyk and Paul Baker, that team has made unbelievable strides where we have several accounts that we did 0 business with. And because of the upgrades and the movements that we made and that people we've hired, some of those accounts will be generating $12 million to $14 million for us this year. So we're making very good progress with our print group. We've got a long way to go. But we are hiring the right kind of people.

Item 7, our Salesforce.com tool continues to be a major success for us, and we're using that 100%. We have now -- we have almost all our field sales people -- in some sectors, we have 100%. We're in the process of doing the others, have been using Salesforce.com.

And now we're actually doing the rankings where we can look into this system and tell us where each one of the sales people rank and how the measurements were made and how we get to these individuals. And it's ironical and I was telling the group the other day, when I worked for IBM, when I first started selling office products, there was -- every day, we had the rankings. So you came in, in the morning, you knew what you sold that week or that day, and it was all rankings. And here we are, many years later, that all companies are doing the same thing.

Item 8 is something that we really like to see and we haven't seen in a long time, that's the envelope paper price increases. And you know our price increase on the first one when we had was 5%. And to give you some feel for that, every 1% of price increase over the 5% could be up to $10 million in EBITDA. But we've been able to achieve our goal of meeting with our customers face-to-face or either telephone calls and passing on these increases. And as a former salesman, I fully understand, and a publisher, what the difficulty is here. And it's not difficulty, it's something that has to take place. And what we've seen with our recent backlog, and we told you last time on the envelope side, we had a $40 million to $50 million backlog of orders. To get that price increase, it may take even into the first and second quarter of the year to see that because these people that we sold these products to have to come all the way through and be shipped and packed and delivered.

But we are seeing that the paper price increases for us and the customers will continue, and we're going to continue to meet with our customers to discuss these increases, and really feel that it's something that's not going away. This is not an issue that we're going to pass these increases on to our customers. I know we can do it. You really have no options when you're running the company because your vendors tell you what the price is, and then you need to pass that on to your other customers. The major increase we had was with the envelope side and Mark Hiltwein and Joe Axisa are doing a great job with the envelope customers of meeting with them and talking about the price increases and why we need to have those kind of increases, and we're having a very good success.

And as I said earlier, it's not an option. It's something that we have to do. And as a publisher, you hate it. And as a person that is talking to that publisher, it's not a very comfortable meeting, but it's something that does happen. And I will tell you, I would not be surprised as we start moving into a better environment where people feel better and good about what's going on, that we see some kind of paper allocations in the future. And I've lived through this for many years as a publisher.

And if that does happen down the road, a $2 billion customer like us, us meaning Cenveo, we're first in line. And as a publisher, I never had allocation problems in 20 years, and we don't expect to see this pricing to be any kind of problem. It's a challenge, it's on our to-do list and it's something that we need to do. Sure, we'd like to have the price increases spaced further apart, so you wouldn't have to see the same guy in 6 or 8 months. But it is what it is, and we're managing that function right now.

Ninth point is probably one of the most important on my list. In the fourth quarter, we delivered 3.5% organic revenue growth. I'm going to a say it again, 3.5% organic revenue growth from our envelopes, labels and packaging segments. And that's pretty good. As a matter fact, that's better than pretty good. And our Direct Mail continued to perform well as we saw strong growth in the credit card mailings during the quarter, and have seen like -- it was an hour ago that we were talking about how bad the Direct Mail business was and the credit card business, and here we got just a flip that quickly, and everything is going great. And you know who the #1 player is in the credit card business and the envelope business, and that's us.

I will tell you, our change in management leadership is delivering results in our 2 major segments of the business, and I see it every day.

And the last item is we all talked about spending time in 2013 getting ready for the future on what that's going to look like. But I'm telling you, the major obstacles that we've had since we've been fighting this mini-depression. And I've shown you the numbers, how we started off gangbusters with our stock price and everything. And the major depression hit us, and we went down like a lump of concrete, like everybody else did. And then we had to counter this competitor giving away business below cost on the dailies. But those days are gone. And we really feel that we have a solid foundation for success, and we're not accepting excuses from any manager on this team, including myself.

So today, as we have on the past few quarterly calls, we'll follow the same 1-hour format that will be shortened for more Q&A at the end, as we call. Today, Rob Burton, our President, will give you an update on several important housekeeping items, and also some covenant issues and rating agencies and a lot of other things that deal with our day-to-day operation. He's going to talk about that. Then I'm going to ask Scott Goodwin, our CFO, to report on the financial highlights of the fourth quarter and the full year 2013. And then after Rob and Scott are done, I'll come back and talk about the full year guidance and Cenveo's future.

So with that, ladies and gentlemen, let me turn you over to our President, Rob Burton. Rob?

Robert G. Burton

All right. Thank you, everyone. Today, I want to provide some details into our Q4 operations, an update into our NEC integration acquisition and some 2014 initiatives that we're working on.

As we discussed, our fourth quarter results came in modestly ahead of our expectations, driven by solid organic growth across our label, packaging and envelope operations and some early benefits from the NEC integration.

During Q4, we saw 3.5% growth organically in our envelope, labels and packaging operations, one of the stronger performance you've seen in many, many years, We're very pleased with that. A lot of that was driven by a strong Direct Mail closing at the end of this year. Credit card mailings again showed strong growth of 19% unit growth in Q4 according to industry data. Early information we're seeing right now, not only in the industry but also from us, is showing that this trend has continued into early part of Q1, despite postal increases and several paper price increases that we are facing. So we're very encouraged by what we're seeing so far in early 2014, and we'll see what sort of impact these inflationary costs are having on us.

Also, some of the recent capital investments that we made have now come online. We talked extensively last year about the press that we reinstalled Jacksonville and a couple of new presses that we've put in across the organization on the label and packaging force across the globe are coming online, and we have high hopes for them in 2014.

Briefly on the National Envelope integration. We're well into -- we're well on our way on the integration efforts. That will probably take us the next 12 months to complete. Integration plan is on track, and we do expect to achieve a $30 million run rate EBITDA by the end of 2014. We believe that close to 70% of these cost actions have been put into place and implemented, including back office, purchasing, IT conversion and headquarter elimination. What remains to date right now focus -- is the facility consolidation plan. And one of the major attractions to NEC for us was the 10 locations that they had and the significant strategic geographic overlap they had with the Cenveo facilities. Going into this integration, we knew that we had to make difficult decision. We'll take significant capacity offline and minimize disruption to our customers for this still to make sense in the first place. Remember, folks, these guys lost $30 million of EBITDA last year. So we knew that capacity is going to be a big part of our plan in 2014.

To date, we've announced 5 facility consolidations, including 2 just this week. These consolidations do take time to complete. For instance, the 2 consolidations that we announced in 2013 in the fourth quarter just wrapped up this month. And those were 2 of our smaller integrations.

Our plans for this current wave to be completed by late summer, and we are currently evaluating our platform for further consolidations later this year. When it's all said and done, our goal is to drive our fixed cost and with capacity increase the utilization. So we expected a significant amount of capacity to come off here by the end of 2014.

Also, given the state of NEC at the time of acquisition, when they literally were running out of cash on the day of purchase, we had to invest significant amount of working capital to build inventory levels that were sustainable. When we arrived there, literally, some plants had no paper on the plant floor. There were trucks waiting sort of across the globe here to get facilities, the paper they need to run. So we knew this going into the transaction. So we've, so far to date, invested over $30 million in building NEC inventories since September 15. We believe this ramp is mostly behind us today, and we will begin to reverse this, especially as our consolidation plans continue later this year.

When we look back, later this year, we believe this transformation will be really a home run for Cenveo. However, I think it's important to note that not much of any of these integrations -- our pricing efforts that we talked about here are reflected in our fourth quarter results. And as you heard before, if we're able to raise prices, each 1% is about $10 million to the bottom line here.

To 2014 initiatives that we've been working on. A lot of hard work was put into our business last year. And we think that you will see these results start playing out here in Q1 and ramping into 2014. as some of these integration events come online.

There are many of you how have commented on the recent S&P action that raised our credit outlook here recently. While we typically don't like to quote the rating agencies, we do feel that we have addressed our capital structure and have used the credit markets here recently to address any maturity, liquidity and covenant cushion issues, while at the same time, significant lowered our cash interest costs that Scott will discuss here shortly.

We're also very pleased to have made significant progress on our pension liability in the past year, as the liability decreased by almost $60 million and we hope to make further progress in 2014.

2014 will be the year the company will focus on using its free cash flow to pay down our higher cost debt. There are people that have asked me if we're looking at acquisitions currently. And while we are keeping our ear to the ground, I really can't think of a better acquisition than fully integrating National Envelope, and given the payback that it could have here over the next 12 months and generate $30 million of EBITDA.

Now we have all hands on deck currently to make sure we do this right and make sure that we deliver on our commitments to our investors. We feel that our Q4 results are a positive first step, but we have a long way to go between now and year end to get to the finish line.

Operationally, we have been dealing with 2 uncoated freesheet paper increases since September. This mostly impacts our envelope operations. We do believe that the marketplace had accepted the first increase. And looking at a recent average selling prices confirmed that we had to pass at least on -- at least the first price increase on. that Recently, the mills have announced the second increase for later this spring, early this summer, and we're actively monitoring the market to see what, if any, will stick. We are constantly looking to use our purchasing leverage to drive down our cost of materials, and we have set a global supply chain to sort of aid in this network. But be assured that we know that we'll have to pass this price increase on and then some to our customers if it does take in the marketplace.

Briefly on the print business, we are seeing the turnaround begin to show results. As you have heard, we have made significant changes across our organization and have invested in the leadership and into our sales team. Our vertical focus has begun to deliver results and our trends in Q4, while not where we would like them to be, have shown significant improvement versus earlier this year. Contrary to recent industry trends, we have high expectations for top and bottom line growth for this business in 2014.

Also, while we've been talking about this for a while, we are in the late stages of our evaluation of strategic options for sale of our operations. We believe that we will complete this review in the very near future. As I've stated before, each of our operations is cash flow positive, so any sales price would have to be full and fair. While I cannot make any assurance as how this will play out, it is our long-term game plan to continue to diversify in the higher-margin businesses and to be leaders in the businesses that we operate. There's been much publicly discussed consolidation in the industry of late, and we do believe that this trend will continue and, if not, even accelerating in 2014.

As I conclude my comments, we hear Robert say that we believe that 2014 will be much stronger year for Cenveo, as our envelope integration, continued growth in labels and packaging business and improvement in the print will drive much stronger results. However, don't forget that much of what we're doing will not be reflected entirely in our 2014 results. While we believe that we will show significant improvement each quarter this year, our run rate exiting this year will be significantly stronger as we complete our integration efforts, as well as cycle for the NEC integration build of inventory and continue to pay down our high cost of debt. While we have a lot of work ahead of us, we are very excited about the future and believe that our Q4 results are the first step of many to demonstrate to you that our plan is working. Thank you.

Robert G. Burton

Thank you, Rob. Okay, Scott?

Scott J. Goodwin

Thank you, Mr. Burton, and good morning, everybody. Today I'm going to review our fourth quarter 2013 financial results, provide some select financial highlights from the quarter and also provide some 2014 guidance on certain cash items.

Before I do, I think it's important to remind everyone that the results being discussed today include the results of the National Envelope operating assets for their first full quarter with us and exclude the results of the custom envelope division, which is classified as a discontinued operation in all the periods presented or discussed given the divestiture at the end of the third quarter. Additionally, we have recasted our segment financial information to reflect our print and envelope results separately. We have also transferred a legacy print facility into our label and packaging segment as a result of a management change and to provide additional focus on label and packaging capabilities.

Our 2-year historical quarterly sales and GAAP operating income has been presented in Footnote 20 of our Form 10-K filed last evening, as this facility had historically operated within our label and packaging segment.

With that, I'll turn to our results of operations for the fourth quarter. Net sales for the fourth quarter were $509.9 million compared to $437.7 million in the prior year. The increase in net sales was primarily due to the acquisition of National Envelope's operating assets, as National Envelope was not included in our 2012 results, as well as organic growth within our envelope, label and packaging segments, partially offset by decline in sales and our print operations as a result of lower demand and pricing pressures.

Our gross profit for the quarter continued to be impacted by lower sales volumes and pricing pressures within the print operations, higher input costs across several of our business lines and National Envelope's lower gross margins. As a result, our gross margin declined from 19.1% in the prior year to 15.8% in the fourth quarter of 2013.

SG&A expenses for the fourth quarter increased over the same prior year period, due to acquisition and integration costs related to National Envelope, incremental SG&A expenses related to National Envelope, as well as our continued investments in information technology and e-commerce platforms.

Restructuring, impairment and other charges for the fourth quarter were $36.2 million compared to $4.5 million in the prior year. This increase was due to a $33.4 million noncash impairment charge related to the retirement of certain indefinite-lived trade names. Net cash restructuring and integration for the quarter was $5.5 million. We anticipate net cash restructuring and integration for 2014 to be in the range of $15 million to $20 million versus $11 million in 2013, primarily due to the integration of the National Envelope assets into our platform.

Interest expense for the fourth quarter decreased $2 million to $27.2 million from $29.2 million in the prior year. This decrease was due to both a lower weighted average interest rate and a lower average outstanding debt balance. Cash paid for interest was $23.8 million for the fourth quarter of 2013 compared to $28.3 million for the prior year. We expect cash interest to be in the range of $95 million to $100 million for 2014, which is down considerably from our 2011 and 2012 cash interest amounts as a result of our recent efforts to improve our capital structure.

Cash paid for income taxes for both the fourth quarter of 2013 and 2012 was less than $0.5 million. We expect cash taxes in 2014 will be less than $2.5 million. As of December 2013, we have over $280 million in federal net operating tax loss carryforwards and continue to expect to not be a significant cash tax payer for at least the next several years. In the fourth quarter of 2013, although our net operating tax losses do not begin to expire until 2022, we recorded a noncash charge of $40.6 million to fully reserve our remaining NOL position, despite our projected future taxable income projections and tax planning strategies that we may consider in the future.

Turning to our cash flow highlights for the quarter. We generated cash flow from operating activities of $10.5 million in the fourth quarter of 2013 compared to $33.4 million in the prior year. The change is primarily due to the working capital build related to National Envelope that we discussed here this morning, as well as on our third quarter call, given the fact that we did not purchase any working capital assets or liabilities of National Envelope. We continue to expect working capital trends to be positive in 2014, as we continue the integration of National Envelope and focus on our working capital initiatives. However, despite the changing business decisions and procuring supply in advance of price increases, the historical trends on the working capital side may change.

Also, as we discussed on our third quarter call, we experienced better-than-expected returns on our pension plan assets, and our discount rate increased 75 basis points from December of 2012. As a result, the funded status of our pension and post-retirement liabilities improved over $60 million since the end of 2012. We anticipate our pension and post-retirement cash contributions will be approximately $18 million in 2014 versus a full year 2013 cash contributions of approximately $16 million.

Cash flows relating to investing activities for the fourth quarter primarily reflect net capital expenditures of $5.7 million and cash proceeds of $2.5 million from escrow funds related to the sale of our custom envelope division. Cash flows related to financing activities for the fourth quarter of 2013 reflect a transaction to further improve our capital structure. We took advantage of the over $60 million in suppressed borrowing capacity on our ABL facility, due to building National Envelope's working capital assets. And as a result, we increased our ABL facility by $30 million and used the proceeds to pay down a similar amount on our term loan facility, which will lower our future annual cash interest by over $1 million.

Additionally, the fourth quarter financing activities included the repayment of $10 million of our unsecured term loan. In regards to the unsecured term loan, we have repaid $40 million to date and expect to have the remaining $10 million fully repaid in the coming months.

In closing, as Mr. Burton and Rob alluded to earlier, we feel positive about what we are seeing across a number of our product lines. We believe the integration of National Envelope is on track, and we are feeling more comfortable with the working requirement -- working capital requirements of those assets. Further, we believe that we should be able to capitalize on a few opportunities in the current marketplace, which could further contribute to our success in 2014.

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

Robert G. Burton

Thank you, Scott. As you can hear, we had a lot of activity. That has all been positive. And again, we're really looking forward to getting the job done. I thought it would be appropriate, before I start talking about the guidance and our budgets for next year to have Mike Burton spend a couple of minutes to talk about the type of individual that is joining us and is really moving these sales numbers and why we feel so good about the growth for this area. Mike?

Michael Burton

Great. Thank you very much. And we are making significant progress in upgrading our sales force to compete in this ever-changing marketplace in 2014. And I think we all realized what we are competing with today is much different than what we were competing with 5 years ago. And it requires a different kind of manager and a different kind of sales representative. And we go out there hunting every day for those type of people. And we've made very -- we've made several key management hires in locations across the country, and we're extremely excited about the quality and mentality, which these managers possess. We've also gone out and gone after reps that are focused on bringing in new business from new customers, and we're focusing on reps that can sell -- that can go to their customer and sell the platform but really by solving their needs.

We have been focused on key vertical markets, which Rob focused on and talked about. On the print side, we feel that there are several markets that are out there right now that are going to be around for a long period of time, and we are laser-focused on those.

And in closing, we've made a lot of progress in a short period of time. But we've a long way to go, but we're very, very excited about 2014 and we're on our way.

Robert G. Burton

Thank you, Mike. And the comment about platform is something that we've really pushed and we've never really had the kind of salesperson that could sell the entire platform of basically being in one group, but being able to sell all of the products and that's a level of intelligence and feeling comfortable about the products, and that is something that we're pushing big time throughout the entire organization. And we know it's going to pay some results. But Mike and his team are just doing a great job there.

So let's talk a little bit about the guidance and what's going on. Last year, we did not give any quarterly guidance and -- because of so many moving parts of selling assets and acquiring National Envelope's assets and the ins and outs. And today, I'm going to give you our full year guidance. And then I'm going to talk about the quarters, and we'll continue to operate this way in 2014.

What that really means and what I'm saying is that we're going to structure a little differently. When we put this budget together, we basically told our senior executives, "Here's our budget. What we're going to go after. But in 6 months, we're going to meet again." Because there was really some issues on should the number be x or should it be y? And we wanted to develop a budget this year that we felt very comfortable that we could achieve, and we felt comfortable passing that out to our sales reps. In the past, we've always passed out a very aggressive kind of number. And quite frankly, that's what I've been brought up to believe that you do. And I found that any kind of bump in the road will tilt the cart and you're not going to deliver your numbers. So we -- what we did at World Color, was we gave out a full year number and we came back after 6 months, and then reviewed that by individual, sales individuals and look for opportunities where we would be able to find additional growth that -- where maybe we could be able to push our full year number up. And we're going to do the same thing this year. So we're going to give out a budget, which we've done that and that the board has approved. And then we're going to come back at mid-year, even though we're going to be monitoring that on a monthly and weekly and quarterly basis, but we're going to look at it. So if we look at the opportunities -- but first, let's really -- first let's say to ourselves, what have we really committed to -- on the NEC acquisition? Because you need to fully understand that to pick up on the comments that Rob made. We committed to increase National Envelope's margins to a 2% -- or 10%, that's what it was 2%, if you could find it, 10% run rate. Keep in mind, NEC was losing some $30 million of EBITDA per year when we acquired them. And you got to realize that it takes time to improve margins. You just can't raise margins overnight. You saw our number of 10.2% in a quarter, and that peaked in the fourth quarter. To go quarter to quarter to quarter and to bring a company in January that had lost money, you're not starting with a 10% margin. I don't know if you're even starting with a margin. And you work your way up until at the end of the year, you hope and plan that you're at that kind of rate that Cenveo will be at. So we committed to have NEC's margin to be a 10% margin that is equivalent to ours, but it was going to take most of the year to get at that. That's not a run rate starting day 1. It takes us time to get there. And we feel comfortable that we can do that with management, with the integrations, with the headcount reductions. We feel confident that we can get that 10% because it's not asking to create a jet airplane. It's just good, solid operations.

Secondly, we committed that NEC would give and deliver a $30 million run rate of profit. If you take the company that initially had $600 million of revenue, and when they were giving away the store, that $600 million deteriorated to $300 million. And that's what we picked up. So if you look at a 10% margin on the $300 million, that gets you to $30 million run rate. Again, you don't pick that run rate up the first day. You have to get into your cost, and it takes time and months to improve.

And as Rob mentioned earlier -- you should be aware that we've already announced 5 plant consolidations. Two of these consolidations were announced last week. And it just takes time to get it done. I've been doing this stuff a long time. We've done almost 80 acquisitions on the integration, and you can make some various stupid mistakes if you're not careful. So we have a group with Mark and his team. And all of the acquisitions that we do are reviewed by all of us when we got the input of everyone here at Cenveo, and we feel very confident that we're on the right track to be able to achieve that 10% margin and that $30 million run rate. But it's going to take more than a couple of days to get to where we want to be.

So with that as a backdrop, let's talk about Cenveo and 2014. Full year guidance on sales, we are looking for a $2 billion number in revenues. That's $2 billion versus last year of $1,777,000,000 is what we did. That's a growth of 12.5%. We feel that number has been built up by the operating groups, by customers. We have spent at least 6 months. 10 years ago, these budgets were put together in July and August. Now they're put together in December and January, so we have the latest input. So the revenue number is $2 billion, 12.5% growth versus prior year. The EBITDA number, we've come in with $190 million, and we talked about this a lot. I would like that to be $200 million just because it's $200 million and it's some number that we strive to be. But with what we know about the acquisitions and to feel very comfortable positively about it, $190 million is the number. And quite frankly, the $190 million number is a 13.5% increase, which I don't know any printing company is going to be increasing profits 13.5%. They may be increasing profits if they acquired a company that's making money. We've acquired a company that's been losing money and taking money out of our own pocket. So EBITDA, we're going to start the year at $190 million, and that's a 13.5% growth versus last year. And last year was $167.3 million. I'll repeat these again once I'm done if you missed a piece of it. But the EBITDA, we're looking at $190 million, 13.5% growth versus $167.3 million.

Margins, we're looking to grow margins consolidated at 9.5%. Well you can say, wait a sec, you got 9.4% here last year. Yes, but that was us. I mean, now we got these other guys that we're starting to consolidate and integrate. And hopefully, we're going to do better than the 9.5%. But 9.5% is a very good margin number for business, let alone a business that you're taking over that's been losing money and has been in the bankruptcy place.

So the margins are 9.5%. Capital expenditures, we've really worked this down. And because of the investments we want to continue to make and our different businesses, we're going to be looking for some $30 million worth of expenditures. And if you had to go through the process our people had to go through to get this, to get the kind of returns we want then you'd be very proud that the way we spend these dollars are very worthwhile and very much support what we're trying to accomplish.

The last measurement is cash flow from our operations, and we're going to be looking for $60 million. And this is not cash flow, we're selling the building or something like that. This is $60 million of cash flow that we generate from our businesses, and that's going to be our primary measurement. Even though we're going to be looking at EBITDA and we'll look at revenues, we are a cash flow business. That's what we're here for. We're here to pay down debt and try to get this thing where it looks like it's going to be something that has a tremendous value. And that's our objective. So that's going to be what we do. So again, if we look at what we're -- what we passed out and what our businesses are going to be measured on for -- in 2004 (sic) [2014] sales are going to be $2 billion; EBITDA is $190 million; 9.5% margin; capital of $30 million; and cash flow from operations, $60 million. Let's talk about the first quarter. If you turned on any business -- and I just don't turn them on anymore, but if you listen to any business station or anything in the newspaper, all the forecasters are talking about is weather, bad weather. And we've had our bad weather, and I'll get to that in a minute. But if you looked at our first quarter, last year, we did $33.5 million of EBITDA. So our January -- this January in 2014 was a good month. We were basically on our target where we felt we were going to be at. Then we got to February. We had a couple of blips there in January with some of the weather. But in February, we did have weather problems. And our problems are a little different. We have the kind of problem where the worker can't get from their home to the plant. And we have the problem of people delivering paper can't get to our plant. And then we have the people who buy labels from us out in the Midwest or in different locations, like Georgia, who can't get to work to order our labels. So if we were smart people, we would have probably got 40 people and hired them and try to figure out what all that really means. And I told the guys, "We're not going to do it." It's a waste of time and effort. We know our plant managers know where we're at. We know we've got a weather issue problem, and our people are on top of it. And they think they got their arms around it. They're going to do the best to cover it. And this is something where you get into these quarters again. We haven't lost this business at all. This business is ours. It's somewhere in our bin as an order to be filled or is being filled or whatever it is, and it may fall into April or may fall into March. I don't know where it's going to fall into. But we do have and we've had weather problems for February, and we're going to do our best to make this thing up in the month of March. We hope that's going to give us a very good foundation and a start for 2014.

So with that, operator, I think that's all I have to say. And there's nobody else in the room that wants to talk. So why don't we open up for questions, please.

Question-and-Answer Session

Operator

[Operator Instructions] And our first question will come from Lance Vitanza of CRT Capital.

Brad Tesoriero - CRT Capital Group LLC, Research Division

This is actually Brad in for Lance. I have a question on your National Envelope integration. Last quarter, you guys mentioned you're actually able to turn a very small profit despite only owning the assets for less than 2 weeks. In Q4, were you able to run this business at a small profit? And beyond that, when you look past 2014, I know you'd mentioned that you wanted to get the margins up to 10% that you have for your legacy business. But now that you have a much bigger business with more scale, do you think those margins can be improved upon above the 10% level?

Robert G. Burton

Let me take the last one. I'll let Scott jump in. Margins are really -- a lot of guys try to stay away from it. We try to use it as a measurement of doing a good job. And I think a lot really depends on the quality and the pricing that you're receiving and the perception out there, what products you got. And if you can get certain prices for -- some of our business has 30% margins, some have like 5% or 6% margin. It just varies. It's our objective to try to do and to grow our margins every year. And we'll do that. But I wouldn't tell you -- I don't think you'd see any significant swing of 10% to 15% on something. But I think we can definitely always strive to achieve 3% to 4% kind of growth over where we want to be. And it's sort of tricky a little bit when you talk about some of these businesses that you picked up. And by the way, even though I may sound very negative about National Envelope, I'm not. They're part of our family. We've taken these people in. And we feel very good about what we have. And where we have consolidations, we're sad to see that happen, we'd like to keep all the people, but we can't. But these things happen. And some of the things were just not smart moves, and we think we can make some basic moves. We've been in this business a long time. And I think our decision-making process and our history will allow us to -- such things as are you got to buy a press, are you going to lease a press? There's mechanics that will tell you it can work one way better than others, where other people may not have the credit where they could actually lease or buy anything. So the answer is, yes, we can improve margins. But -- and we will improve margins, but nothing significantly. And why don't you take the first part?

Scott J. Goodwin

Sure, Bob. Brad, this is Scott. In regards to your point on the performance in Q4, the short answer is yes. We were able to operate it profitably through the fourth quarter. That was helped by a number of reasons, strong backlogs that existed in different parts of our business at the time of acquisition. We were able to pump through their plants in the fourth quarter, as well as the consignment agreement that we had in place with our partner who procured the inventory also delivered some benefits into Q4. So the short answer is yes. We did -- we were profitable in that side of the house. And I think we talked about it on the third quarter. Our expectations at day 0 when we took over this thing was to at least be a breakeven. So it's been a pleasant surprise the first couple of months here under our leadership.

Brad Tesoriero - CRT Capital Group LLC, Research Division

Great. That's very helpful, guys. And if I could just squeeze in one more question. You mentioned potential sales of noncore businesses. I was just wondering if there was any sort of more specificity you could give on the timing of that and also what you would do with any cash inflows assuming a transaction would occur.

Robert G. Burton

Yes. We've been working on this for a while. It's probably the third, fourth time I brought this up on our conference call. I think given all the moving parts last year with the NEC transaction, a couple of the sales that are going through, it probably wasn't the optimal time. I think the optimal time is now. We have dedicated some resources to this. We have engaged bankers in this. So we're at the later innings, like I said before. So we'll see what happens. I don't want to give you more specifics in terms of what business it is. But I think people doing diligence [ph] will figure it out. You're right. On your second question regarding where the cash is going to. Obviously there's some requirements in our ABL to pay some of that down. But our goal, like I said before, is to pay down our higher-cost debt. So our goal is to decrease interest cost, increase cash flow. So we'll be going after our higher-cost debt when we can.

Operator

Our next question will come from Charlie Strauzer of CJS Securities.

Charles Strauzer - CJS Securities, Inc.

Rob, just a quick question. When you look at the current quarter that we're in and kind of the positive trends you've seen out of the credit card industry, mailings have been up significantly year-over-year, are you seeing that continue through this quarter? And also some of the stuff that was impacted by weather, do you think you can make that up in Q2 and beyond?

Robert G. Burton

I'll do the first part. I think the credit card trends...

Robert G. Burton

The easier part.

Robert G. Burton

Have been good. I think we all were sort of waiting on pins and needles on what impact, if any, would the postal increase have, was there any sort of carryforward or pull-forward into Q4, into January. And also, our customers are being impacted now by a couple of increases in terms of uncoated freesheet. So we have seen continued growth in 2014 so far. Obviously, 2013 has some pretty easy comps to compare against. But we are definitely seeing some positive trends through the first 8 weeks of this year. We'll see what that means as we go into the back half. But I think you've seen a lot of credit card commercials on TV. I sort of use that as my whole mailbox as a proxy. I've seen -- it's definitely been a strong thing, and you've seen a couple of new credit card rollouts in the past 6 or several months that these guys will market probably for the next couple of quarters. So we're positive about the credit card business.

Robert G. Burton

Charlie, the answer to the other part is yes. I mean, we don't lose those orders. We're the prominent envelope printer in the world. And they were just late and customers know it. And they're very understanding because they got the same problems themselves. So yes, and we'll be able to size that, what that really is. But I really was very pleased with our managers taking the attitude "hey, we're going to do everything we possibly can" to -- what's slipped in the second month, we'll try to get as much as we can into the third month. And it's not going to be something that's going to sink the ship. But it will definitely stay in the family and it will definitely get shipped out. Wouldn't you say, Mike?

Michael Burton

Yes, absolutely.

Operator

Our next question will come from Kevin Cohen of Imperial Capital.

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

I guess, from a very high-level standpoint, if you could just talk a little bit about the pace of envelope price hikes flowing through versus uncoated freesheet price hikes flowing through and perhaps when that net relationship turns to green, if you -- is that more of a 3Q event or sort of late 2Q? How do you kind of see that playing out?

Robert G. Burton

Well, I think it's sort of 2 sets of answers. I think the first one, I think, we have -- again, we have -- the increase at the end of last year is probably effective now, and we've been working with our customers over the past 4 or 5 months to get that through. So I think, like I said before, our average selling price we're seeing right now is reflective of us being at least whole if not maybe slightly ahead. The second increase that's going to hit us here potentially in April through June time frame, is sort of we need -- we have some work to do. We are a little skeptical on how much that increase will stick. We have seen a flood of imports that are hitting the shores here on the uncoated freesheet side. So we don't necessarily think all that pricing is going to stick. But if that were to stay, Kevin, we are preparing our customer base and preparing our reps right now for what could happen. So we are ahead of it right now, and I think we're ahead of the game here. And we hope to remain ahead of the game if the second increase happens. But we have been very judicious about it and very -- we know what we have to do to make this work. There's no going backwards here.

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

And then, Rob, I guess you did allude earlier in the call to potential acceleration of industry M&A in 2014. I guess, what areas perhaps do you see that occurring in?

Robert G. Burton

I think it's across the board. I think, obviously, the big player out there has announced 3 or 4 transactions. They announced another 1 today. So I think this is transpiring. I think some of the trends out there and some of the more, I'll call it, more legacy business, more traditional businesses are forcing people to take capacity offline, as we did with National Envelope. So I think that trend is continuing. I think another sort of trend we are seeing out there is, which I think is a good and bad thing for us, is the multiples being paid for some of these businesses, labels and packaging and sort of digital spaces are at levels we haven't seen probably since 2008. So you're seeing deals go with the 8-plus times multiples, which is a good thing. And I think we're looking at it as well. But I think this could be across the board, Kevin. I think -- but I think you definitely will see consolidation not only in the bottom, but I think the bigger players are realizing that there's a lot of value you can create for shareholders by doing consolidations.

Robert G. Burton

Kevin, we mentioned earlier on that same subject, I want people to understand, that our #1 priority, we look at that as the acquisition, integrating this National Envelope. But we're not out of this acquisition business across the board. I mean, that's what we do. And I think if we find the right opportunity, we'll do that and find the money and all that other things. But we're still in the acquisition business. But right now we've got our hands full just doing this one, we're going to get that done. But I think that the acquisition business will continue to be something that's going to be very active. And as Rob mentioned, you can see it in some of the other pieces that people are picking off, then just take them out the business. And we think that will continue and there's going to be a lot of opportunity down the road if we want to participate in some of the businesses. And that's one of the reasons that we sort of narrowed the scope and got out of some of these other assets because we want to focus on the 2 or 3 areas that we want to be a predominant player or be #1 in. So we're feeling good about that basically, same thing Rob was saying.

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

And then one last question. I guess, the budget of $190 million for 2014 on EBITDA, does that contemplate any asset sales? Or that's based on the as-is footprint and not necessarily indicative either way if asset sales will occur?

Robert G. Burton

Well, that's like what we've got right now.

Scott J. Goodwin

That's status quo, Kevin.

Robert G. Burton

Yes, status quo.

Scott J. Goodwin

So obviously, again, we're talking about in terms of potentially looking to monetize. And again, I think we're looking at this prospectively, we're being very conservative. I see a lot of moving parts here this year. I think it's also important to note that as we exit this year, it's not necessarily what we'll achieve this year in terms of realized EBITDA. Well, it's this run rate of this business that we're going to have as we exit 2014 once we achieve all the synergies that we're talking about.

Robert G. Burton

And we don't have to -- most people when they sell these businesses, they have to. I mean, they'll tell you, make up stories. It's like a nightmare. But I'm telling you, we don't have to. These businesses -- they're making money. It's the fact that we want to be narrowly scoped to some of these other areas. And if we don't get the right price, that's reasonable, we'll continue to manage this businesses and try to make them better. And then if we want to take a look at them later on, we will. But we're not forced into any of this stuff.

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

Definitely well understood. And then lastly, in terms of the first quarter, was the company implying any sort of guidance in terms of EBITDA? Was it more just sort of high-level weather and February's a little bit difficult, but January is very good? Or anything you can add to that?

Robert G. Burton

No. I can't. I -- just what I said, I'm not giving quarterly guidance on this first quarter because I just -- there are too many alternatives. And I did that last year, and I'm just going to stick with it because I think with taking -- doing an integration, there are just so many different ways that things can happen. And all I was telling you, I think you ought to feel pretty comfortable that we're moving pretty good on the first quarter. And we don't see any major issues. And what we -- we're not going to lose anything. If we have something that's going to slip into the second quarter, and that's particularly weather, but we sure haven't lost any business on the weather issues, and we feel good about the rest of the business.

Robert G. Burton

Kevin, I mentioned in my remarks, we're going to show growth every quarter this year. That is something that's in our budget, and we're talking about it.

Robert G. Burton

God, I hope so.

Robert G. Burton

The ramp will come in the back half of the year as we get these synergies and sort of consolidations done. But the growth starts now. We've seen -- we felt pretty good about Q4. But Q1 will be a number where you will be able to see sort of growth across the board here.

Robert G. Burton

As you know, the fourth quarter is definitely -- third and fourth quarters are our largest quarters and will continue to be so with NEC. What do we got here.

Robert G. Burton

I think that's it folks.

Robert G. Burton

Well, ladies and gentlemen, thank you very much. And again, we appreciate the support, and we're going to have a good year for you. Thank you very much, and have a good day.

Operator

Ladies and gentlemen, the conference has now concluded. We thank you for attending today's presentation. You may now disconnect your lines.

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