Cenveo, Inc. F1Q08 (Qtr End 03/29/08) Earnings Call Transcript

| About: Cenveo, Inc. (CVO)

Cenveo, Inc. (NYSE:CVO)

F1Q08 Earnings Call

May 8, 2008 10:00 am ET


Rob Burton Jr. – Investor Relations

Robert G. Burton Sr. – Chairman, Chief Executive Officer

Mark Hiltwein – Chief Financial Officer


Rob Burton Jr. – Investor Relations

Robert G. Burton Sr. – Chairman, Chief Executive Officer

Mark Hiltwein – Chief Financial Officer


Good morning and welcome to Cenveo’s first quarter 2008 results conference call. Today’s host will be Mr. Robert G. Burton, Chairman and CEO of Cenveo. (Operator instructions) I will now turn the call over to Cenveo.

Rob Burton Jr.

Good morning. This is Rob Burton, welcome to Cenveo’s 2008 first quarter conference call. Today’s call will be hosted by Robert G. Burton, the company’s Chairman and Chief Executive Officer and members of the senior management team.

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 affects of restructuring, impairment and other acquisition related 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 form 10-Q that was filed with the Securities & Exchange Commission as well.

And with that I’d like to turn the call over to Mr. Burton.

Robert G. Burton Sr.

Good morning ladies and gentlemen this is Bob Burton speaking and it’s been my privilege to serve as your Senior Manager at Cenveo for the past 33 months. Today we’ll use the same kind of format we have in the past. I’ll have some opening remarks, then I’ll ask Mark Hiltwein our CFO to cover our financials and then I’ll come back and I have four business items to discuss in more detail about the quarter and about the year going forward. And then at that time we’ll open up the call for Q&A.

Our primary objective from really the first day of work at Cenveo has always been to make you money with your investment in this company. And I think our performance in 05, 06 and 07 was very solid and in some cases outstanding. We delivered every quarter and exceeded every full year budget and it just takes a brief look back to remember that Cenveo when we took over for that first year in 05 had EBITDA of some $95 million we think compared to $300 million EBITDA that we’re going to deliver this year.

And looking back at that period of time we saw some slowdown during the back half of 07 but we were still able to deliver a record $256 million of EBITDA and at the same time we were doing this internal review of a potential problem with two of our plants.

And when I spoke to you on March 14, I did not know where we were at for the first quarter of 2008 and I told you at that time I’m not going to give you any guidance because I didn’t know and I think there are very few people that would be honest enough to make that statement which I just did.

And you know our structure is not all that complicated but we get everybody involved. We have a forecast that we continue to upgrade and revise every week and we have a Tuesday call with all the senior managers and their reporting on what is happening out in the field to basically tell us where we were at.

But we’re in a very transactional kind of business and the four segments that we’re in, some more than others. And when you start off a year, especially with a lot of stuff that happened early on in the year and the back half of 07, you really got to be careful when you’re giving forecasts out and we really don’t have a crew of people that works on that like a lot of corporations do. We have the rollup from the field and we sit around here and try and figure out exactly where we are at.

But to tell you the truth, I was unable after 30 years of forecasting to come up with a good forecast for the first quarter and I’d like to take a few minutes to explain why I didn’t give you guidance for the quarter because I think I spoke to most of you that call me, but I’d like to go into a little more detail on why and it speaks to the business and what’s going on and why we feel so positive about the back half of the year.

You were aware that we were spending money because we had a couple of calls that talked about the special legal issue we were looking at down in Dallas and Jacksonville and we were spending money just as fast as it could be printed and we just had no idea that a review like this would cost us more to confirm the problem than the size of the problem.

But we’ve been able to get past that but we also could not determine why we had a lack of visibility into the financial service envelope market and I’m talking about the four color high end mailings that you used to get in your home every day.

But we just couldn’t get that and we were sending our people back and forth to try to understand why we were not seeing those revenues because in this business and the envelope business, you do a lot of testing with your client before you actually do the final run and we had done a great deal of testing and felt very good about where we were at.

We thought initially that the purchasing process had just slowed down. So to counter that to try to get more information, we continued to ask our managers of our customers, where is the order, where are we at because we need to book it, we need to get ready for it and we kept doing that but really the truth was it never got started with all the bad news out there in the marketplace early on in the first quarter and with the delays and the cutbacks, the budget and the negative news about the subprime and the soft credit card market.

There was just a hold that was put on that segment of the business. So we didn’t lose the business, the business just didn’t take place. Now we have seen some slight movement of the high end envelope revenues that we think are going to materialize in the third and fourth quarter and we got some news last week that was pretty positive from one of our customers about a sizable kind of order that we can’t talk about.

But we definitely feel that there was a segment and you know exactly what I’m talking about because you would see that in your mailbox, all the color and the size of those magical envelopes that look for your credit card business and other financial business just did not take place.

So we now feel pretty comfortable that we’re going to see some of that. We do not know how much of that we’re going to see but we’ve started to see a pretty significant start of some of those revenues.

We’ve also taken an additional cost reduction action to cover any of this first half revenues that we did not see and I’ll talk about that later on in the call when I talk about my four points. But really we, today we feel very positive that we have a solid game plan in place to deliver our financial goals.

And when I say financial goals, I’m talking about the EBITDA that we have in place and we think we have a very good feel for the segments of our business and we’ll talk a little later and you’ll hear that some of our businesses are doing extremely well in light of the environment.

And it always amazes me that some companies give up so early in the year when they have encountering some economic downturns, I feel and I think it’s the consensus of our management team, we feel it’s our job to develop and implement a business plan that achieves our business goals no matter what the environment is.

And we have made a lot of progress on that. It’s almost like playing a football game and then after the first quarter, the football team just walks off the field and goes home. And we are not doing that. We feel very good about where we’re at now and what we see ahead of us. There’s no question about it, I think we’re in a recession and we have seen this kind of background and environment in the early 90’s and we were able to come through.

And we’ve been able and I reminded some people, we have been able to deliver our number every year that I’ve been the Senior Executive of any of these printing and media companies and we’re not going to start with this year. I would like to remind you that our primary focus will continue to be on EBITDA and free cash flow.

And I think we’re making some very good progress in both of those areas and that’s our primary measurement and we want to do that because that in the final analysis will be the key to our success of actually being part of a larger corporation or someone buying us or whatever may happen when we look down the road with an exit strategy.

Also, our guidance today will be as it has in the past, it’ll be exact numbers. It’s not going to be some of these ranges that some of these companies give that are so big enough that you could actually drive a truck through it. But you just need to keep in mind that our EBITDA budget for this year is 17% higher than what it was last year.

And I understand that we have some acquisitions there, but you know you’ve got to actually make these acquisitions perform which is something that I think we do very well. So the net of it, we feel very positive about the opportunity to perform in the next three quarters and I hope that probably explains to you, I hope a little better on why we just didn’t fully understand where we were at and why I didn’t give you any guidance in the first quarter.

I would like to make a few comments about our first quarter results. You read the press release with the key measurements and the highlights. EBITDA was up some 18% over last year for the quarter. The revenues were up 29% for the quarter to over $534 million. The cash flow from operations of over $54 million which is 83% more than we did last year in the first quarter.

And our debt reduction is down some $49 million in the quarter, again reemphasizing the fact that our focus on cash flow and paying down our debt in this kind of environment. And lastly, we implemented this $25 million cost savings plan that included everything from headcounts to increasing productivity and improvement of waste and the ongoing work with our vendors.

But overall if you look at our business and the four segments that we’re in, I think we had a pretty solid performance in a difficult economic environment. And I’d like to speak to each one of the companies individually.

Cadmus just continues to have outstanding results. They delivered an outstanding year last year, they continued to perform very, very well this year. Harry Vinson and John [Broll] have two individuals, Harry and I have worked together since 1991, continued to grasp this business and seek the organization and the mixture and the product focus and has just done a very good job and we feel good about Cadmus for the rest of the year and as it continues to grow and deliver its results.

The Custom Resale Group, and which you know as our Labels Group, we have a tendency to forget that that business produces margins of 18-19% and continues to do that. And we feel very good about the job that Joe Cortez has done there and the progress we’re making with some of our major accounts and accounts such as CVS and Wal-Mart and so on.

The packaging business under Jerry Lux continues to grow here and both internationally. Later on in one of our calls where we won’t take up a lot of time I’m going to have Jerry come in and talk a little bit about what we’re doing internationally.

We’re making a lot of progress there and it’s an area that he started when we was part of Cadmus but we’re giving him support to continue to do that. Packaging is an area that we know from our World Color days and we want to continue to growth this business. We continued to see a solid annual report timed to season.

And Dean Cherry who joined us recently in the first quarter who has been with me for some 20 years, joined over from Donnelly, as part of the Moore integration, but Dean and his team are making major progress with the Envelope Group and getting the organization together and getting the right focus and getting the right managers to manage it appropriately and he’s already made tremendous improvement in the organization and we feel very positive about as this year moves on you’re going to see some very good results from the envelope group.

And I would like to recognize the purchasing group that continues to be a major contributor to our growth here, that’s under Mike Burton and the rest of his team, the senior people of Colin Christ and Brenda Tobin, those people have just done a terrific job and you’ve got to keep in mind the larger we get, the better our pricing is on volume.

But if you look at our business separately, we really are moving in the right direction and have a lot of opportunity. We are the leaders in all of these marketplaces and we plan to continue to do that.

And I think with that, after Mark gives his update on the quarter results, I’m going to come back and I’m going to cover, I’ll give you these four items that way you won’t leave the call. One, I’m going to talk about the additional cost reductions, give you a better feel for what those are in some detail and why we did it.

Two, I want to talk about acquisitions again, even though the economic market for large ones is not where we think it ought to be, but we have other opportunities that I want to talk about that are smaller. And item three I want to put to bed for the last time this Dallas, Jacksonville controller issue.

And item four, I want to give you guidance for the second quarter and the full year. And with that, I’ll have Mark give us his financial update and then I’ll come back after he’s finished. Mark.

Mark Hiltwein

Thanks Bob. Today I’ll be covering the following topics. First, I will provide a general and segment overview followed by a review of the first quarter financial statements, including restructuring activities and key balance sheet and cash flow items.

As we outlined in our press release issued last night, our non-GAAP earnings per share from continuing operations was $0.15. EBITDA for the first quarter was $54.1 million, an increase of 18% over the prior year. First quarter saw a strong cash performance as we generated a $49 million reduction in our overall debt balance.

Our first quarter revenue of $534 million was $120 million higher than the previous year. Cadmus and Printegra were included for only a portion of the first quarter of 2007 and commercial envelope and color graphics had no amount in the first quarter of 2007. The amount of revenue growth related to the acquisitions is $150 million.

Of the $30 million remaining, $17 relates directly to the underperforming facilities that we closed in 2007 and the remaining $13 million decline is primarily associated with the falloff of the higher end direct mail envelopes in an overall weaker economy, offset by some higher material cost.

Our envelope and commercial printing businesses both saw a challenging economic environment in the first quarter. In our envelope business, financial institutions produced limited high end direct mail envelopes. We were fortunate enough to anticipate this and drove our sales efforts towards the transactional envelopes which allowed us to gain market share and offset the higher end work with the generic type envelope thus mitigating any real falloff of volume.

The increase in material costs and the substation to non-premium envelopes impacted our profit margins for the quarter. In regards to the commercial printing business, we also saw a competitive landscape as the market continues to experience overcapacity and underutilization.

One of the advantages of a difficult economic environment is that companies with less balance sheet and cash flow strengths are struggling to stay in business. We see this as an opportunity for further consolidation in the industry, whether that’s through acquisition or through attrition.

One additional item about the general trends of our business is that as a result of the acquisitions that we finalized last year, we’ve become more of a traditional printer from a seasonality perspective. Our internal budget calls for us to generate close to 60% of our EBITDA budget in the last half of the year and keep in mind that we generated in excess of $85 million worth of EBITDA in the fourth quarter of 2007.

Turning to our specific segment information, our commercial print segment is made up of a couple of different product lines. We’ve got our general commercial printing business, our Cadmus scientific, technical and medical journal business and our packaging business.

Our first quarter print revenue of $296 million was approximately $93 million higher than the first quarter of 2007. This increase was due to the incremental sales generated by ColorGraphics and Cadmus acquisitions of $112 million. Closed facilities make up for $14 million of the difference and the remaining $5 million relates to sales declines in our core business.

We feel this is a pretty strong performance based on the competitive economic landscape in the first quarter. In regards to the operating income for commercial, the commercial print operating income was $11.3 million which included restructuring integration and other charges of $2.3 million, including amounts related to the implementation of our $25 million cost savings program instituted in Q1.

When you add back the impact of the restructuring charges, the commercial print non-GAAP operating income was $13.6 million or about a 9% increase over the prior year. We continued to focus on the commercial business as a major initiative for us to expand our operating margins through productivity gains, waste and spoilage reduction and continued focus on safety and cross selling.

A couple of items which impacted our margins for the quarter was an overall increase in our material cost, paper, ink and utilities increased combined with a sluggish economic situation in the commercial print area.

Our Cadmus and packaging businesses continue to grow and produce excellent results for us, especially our international business which continues to grow in the double digits and increasingly becomes a more important part of our packaging platform. For those of you who may not have seen the press release that we issued earlier in the week, we added some additional press capacity down in Latin America, specifically in the Dominican Republican and Honduras and we believe that this is a great opportunity for us.

Turning to our EFL segment, our envelopes, forms and labels revenue for the quarter increased $27 million to $238 million compared to $211 million last year. The increase over the prior year is due to incremental sales generated by Printegra and commercial envelope of $38 million.

Of the $11 million variance, $3 million is directly related to a closed facility and the offsetting $8 million is a combination of lower volumes, a shift from higher value added to a more generic product and a more competitive pricing environment.

This was offset slightly by material price increases and an overall label price increase. In regards to operating income for EFL, our operating income was $25.6 million or 10.8% of sales. The restructuring, impairment and integration charges for the quarter were $1.9 million. Our EFL non-GAAP operating income after adding back the impact of the restructuring and integration charges was $27.5 million or 11.5% of sales.

Next I would like to provide a summary of the financial statements. As highlighted in the press release, our GAAP net income for the first quarter was a loss of $3.4 million or $0.06 per diluted share. Our non-GAAP income from continuing operations was $8.1 million or $0.15 per diluted share.

The significant differences between our GAAP and non-GAAP net income from continuing operations for the quarter can be summarized by the following. Restructuring impairment and other charges of $9.7 million, $6.7 million of that relates to the internal review and the remaining $3 million relates to employee separation costs, building cleanup and equipment moving.

We had integration and other charges of about $1.1 million. $2.7 million relates to non-cash stock based compensation and tax expense was adjusted by $2.7 million to reflect the company’s tax cash rate of approximately 11%.

Of the $9.7 million of restructuring, approximately $6.3 million were cash charges in the quarter. Continuing down our income statement, on a consolidated basis our non-GAAP operating income for the first quarter was $36.5 million, an increase over last year of 7%.

Our interest expense was $27 million for the first quarter of 2008. The increase was primarily due to additional debt incurred for the acquisition in 2007. Interest expense in the first quarter of 2008 reflects a weighted average interest rate of 7.3% as compared to 7.6% in the first quarter of 2007.

Some key balance sheet and cash flow items include the following, cash balance of $13.1 million at quarter end compared to $15.9 million at December 31, 2007. Our total debt was $1.39 billion in the quarter, at the end of the quarter versus $1.44 billion at December 31, a decrease of $49 million.

Net cash provided by continuing operations was $54.4 million for the first quarter of 2008, an 83% increase over prior year. Capital expenditures for the quarter was $9.1 million. Cash interest for the quarter was $19.2 million. Cash taxes for the quarter was $700,000.

Our free cash flow for the first quarter of 2008 which we calculate as EBITDA less cash interest, cash taxes and cap ex was $25.1 million. As we discussed, we expect to meet or exceed our full cash flow guidance of $130 million for 2008. Keep in mind also that we still have $220 million of net operating loss carry forwards and our estimate is that we will not be a full cash tax payer until late 2009 or 2010.

In summary, we feel very good about the results in the first quarter. We believe that with our recently announced and executed cost savings program we are well positioned to deliver a strong operating performance as we move through the year and into our seasonally stronger quarters.

As we progress through 2008 we will continue to generate cash and use that cash to pay down debt, invest in capital expenditures that meet our goal as well as look for strategic acquisitions.

Subsequent to the quarter end we announced the acquisition of Rex Corp, a packaging business located in Florida. Rex fits nicely into our global packaging initiative and compliments our Cadmus packaging business.

With that I’d like to turn the call back to Bob.

Robert G. Burton Sr.

Thank you Mark. Now I’d like to update you on the four business items that I mentioned earlier. Item one, the additional cost reductions of $25 million that we spoke about. We really pride ourselves and we feel that we are the low cost producer in our business platform. And even though we feel we are the market leader in these four areas, you can always streamline your operations.

And we sort of use a frame of reference, we want to be a 10% EBIT company. We were able to do that at the other locations that we’ve been there and it takes time and we’re making progress but you can use that measurement. When people ask you how far do you really take your costs down, we’ve always used that as a guiding light in every place that I’ve been along with other opportunities that present itself. And I’d like to review a couple of them that you probably haven’t thought or heard about.

First of all, we went back and looked at all of our vendor relationships and had the purchasing department go through all of those to make sure that we’re getting the best possible pricing in everything that we do. And we think that has produced results for us. And as we continue to get larger, we continue to have opportunities to increase our pricing or lower our pricing as we get larger when the acquisitions are actually becomes part of Cenveo.

Secondly, we had at Cenveo sort of a unique situation where we had a lot of presses or several presses I should say that were on leases instead of purchases. And these leases are coming up and that gives us an opportunity to buy that capital or take used equipment and let those leases go away because those leases were terrible, they were structure in such a way for a company that had no money and had a lousy reputation so they did not have good leases. Now as these leases come up, we’re addressing those and they actually mean savings for everyone that we deal with.

The third item is the loading of our work that you really can’t focus on until you get into your third or fourth year of a company with the same management. And I’m talking about the scheduling of work in specific plants that allows you to go dark or move other work around where you increase your capacity without adding capital.

And we’ve started that progress and we’ve started that a long time ago at World Color and started it here and you continue to hear of other printing companies that are now taking dark days. But the loading of the plants and how you load them to give you better utilization of your equipment is a major, major improvement in cost and in productivity.

Next is the ranking of the sales people, we asked all our people to rank their sales individuals and constantly upgrade those. And when you churn the bottom 5%, you’re going to bring on better people and it’s a constant ranking and movement that gives you better revenues at higher prices and more profit.

We also started this waste evaluation where we were actually going to measure all the waste in all of our plants and we’ve brought an individual on board who was with us before and that process is working now and we’re seeing some really remarkable results on what this waste program is going to do for us as a company.

We also probably had without a doubt the best results with our worker’s comp and accident program under Pete [Popovich] and the results that we get and the focus that we have with people in the plants looking at everyday saves us money and continues to improve our profits.

And the meeting locations, we’ve continued to look at these sites and probably the most glaring change is the annual meeting this year, instead of having it at the Four Seasons, we’re going to have it at an auditorium in one of the buildings in a church that’s right across the street from us and that is also a major cost improvement that we think it could probably help us in a lot of different ways.

But when we look at our costs and naturally we’re always going to churn headcount and we did in this cycle or phase when we looked at cost reductions now and for the back half of the year, we’ll continue to look at headlines and people that we continue to bring in and out. But we need to focus on being a 10% EBIT kind of company and I think when we focus on cost and revenues and we constantly look at those measurements, we’ll make progress in that area.

So that $25 million, just so you know, we actually put that together, we’re tracking that on a weekly basis as we track the $100 million that we took out when we first arrived here at Cenveo. So this is for real and we’re going to make sure that it fully works out and falls at the right quarters that we think it’s going to be in.

That was item one. Item two, on acquisitions, in today’s environment our primary objective has been and will continue to be to generate cash and pay down our debt. We’ll continue to do that. We think that the cost of money is still very expense, it’s too expensive for our larger deals that we talked about before, the $500 million.

We think it’s getting better every day and we see some opportunities here but still yet the larger deals we think are still too expensive. We are looking at several add on acquisitions to our current platform and these are the smaller kind of acquisitions that are in the $20-$100 million range.

And the difficult economy has made these deals more reasonable to purchase and has presented opportunities really that did not exist in the past. And we feel we have a vehicle with our accordion to be able to fund these kind of smaller acquisitions if we think that they are accretive to the business and meet the other requirements that we have.

We still think that no one does a better job than we do on acquisitions, on getting the cost savings out and making sure that all these deals are accretive and we want to continue to do that and we think when the economy gets better, we’re going to be in a position to do some of these larger deals that again fit right into the platform that we already have established which is a major plus when you do these acquisitions and the fact that we have an ongoing relationship with these people and we continue to talk to them.

Just gives us an opportunity to move much, much quicker when the environment is better and we hope that is going to be sooner than later.

The third item is this Dallas, Jacksonville controller issue. And you know the internal review is finalized and we spent a great deal of money confirming what we already knew and I said that and we filed and the former controller who made several unauthorized entries was working by herself.

And after an extensive super audit and no other problems were found and I think we have to be and I’ve said this to our people, we have to be the cleanest printing and manufacturing company in the world. There is nothing else that could happen or be there and we’ve made all the appropriate management and personnel changes that relate to this problem.

And we’ve also made changes to enhance our internal controls under Ken Viret and Scott [Goodland] and I just want to personally thank everyone who has helped us in this situation and to resolve it and to get it behind us because it really was a distraction and I have never in my 30 years of business been associated with anything, any kind of situation like this and it does distract you.

But it’s behind us and it’s the last time you’ll ever hear me talk about it and I would like to just again say a personal thanks to our Board of Directors, Mark Hiltwein and Ken Viret and the work that they did of really doing four or five jobs at one time of getting this behind us.

And we are glad that it is and we’re working with both of those plants. We have a new management team in there and that’s under Dean Cherry so we’re seeing what we can do with both of those and grow those businesses. So that’s item three on Dallas and Jacksonville.

And item four on our guidance for the year and for the quarter. Again with our primary focus on EBITDA and cash flow, on the full year guidance we think we’re going to be in the $2.3 billion range for revenues. We look at that and we have certain kind of assumptions but we think that’s a pretty good number right now.

We’ve already reconfirmed the EBITDA number of the $300 million and if you look at that how we have it broken down, we feel we can get to that number. We’ve also reconfirmed the free cash flow number of $130 million. And you’re going to hear us talk about that constantly because we just think the more we talk about it the better we’ll get.

And the EPS number and I’ll just mention this onetime and I’m not going to be talking about it in the future, for full year for 2008 is $1.78. The second quarter we’re going to be looking at EBITDA in the $64 million range. That is versus $55 million last year and is up 15% for the year.

We’re looking for free cash of $20 million in the second quarter and that’s really a seasonable issue versus where we need to go for the full year of $130. And we also gave you additional guidance in our press release on our capital expenditures on our cash taxes and our cash interest.

Again, the EBITDA of $64 million is a number that we feel comfortable with, we hope to beat that number but right now from what we see, we think that’s a reasonable number to put out there for the quarter.

So that is our guidance and that takes care of that issue. And now operator what I’d like to do is open up the call for questions.

Question-and-Answer Session


(Operator instructions) Your first question comes from Charlie Strauzer – CJS Securities.

Charlie Strauzer – CJS Securities

In the quarter you had about $2.8 million of other non-cash charges on the free cash flow statement that I typically add back to my EBITDA number. So are you expecting any of those similar types of charges in Q2?

Mark Hiltwein

There may be. The majority of that is we took some allowance for some bad debt just based on the environment. We’ve got some inventory obsolescence that we took there so I mean just based on the general environment, there may be some additional charges but that’s really what makes up the majority of those. But nothing significant.

Charlie Strauzer – CJS Securities

And you don’t add that back into your EBITDA calculations though?

Mark Hiltwein

No we don’t.

Charlie Strauzer – CJS Securities

When you look at the ramp of the year of the EBITDA and maybe it’s best to kind of help us out a little bit with the seasonality of the various business you’ve bought because I think with some of those newer to the story in the investment community, maybe it’ll help them understand better that when you have plants that are less utilized because of seasonality, you’ve got costs associated with them that can’t come out that obviously pay off dividends later in the year when they do have better utilization.

Maybe give us a better sense of the seasonality of some of those businesses and help us with some of the confidence you have in the ramp of your EBITDA margins as the year progresses.

Robert G. Burton Sr.

You know if you looked at all the, take ColorGraphics for example, if you looked at the ColorGraphics competitors, most of those competitors in the first and second quarter would probably either be losing money or be very close to breakeven because they make all their money in the third and fourth quarter.

We had the same situation in ColorGraphics, the majority of our revenues and profit will be the back half of the year because that’s just the nature of the business and sure we do some annual reports and some car books but the really, the big business in ColorGraphics and the envelope segment will really show up in the back two quarters of the year.

And you know you look at that and I’ve looked at all of our businesses and how they ramp up for the back half and you could listen to other printing companies and they will tell you the same story that as you move to the holiday season for December, so you’re talking about October, November and the third and really the first part of the fourth quarter, you see more volume there.

And historical trends will show you that that’s the strongest part of the year. And that’s why that’s so important to us to be able to assume that as I mentioned in our loading issue to really maximize that and be able to anticipate those kinds of opportunities gives us a lot more profit.

And there’s no question about it that the acquisitions and you try to look for these businesses that’ll give you better earnings in the first and second quarter. What we strive to do is try to do more statement printing kind of business where we can get that business every month.

So that’s really been a focus of our sales effort to try to even that out. But I would tell you that most of the so called publishing companies and us included, really have, these companies we bought will be more of a back end loaded and you don’t see, very little from these people in the first part of the year and we assumed that when we bought them.

And I’d also tell you, just to speak a little bit about the economy and what we’re seeing. It’s really when we have our conference calls, it’s almost like you’re talking to the segments really have a difference, but the majority of our business we’ve seen some of the challenges out there and it’s the pricing more than anything that customer are looking for because they themselves are under pressure with their own companies.

But that really plays to our hand because we are a low cost producer and what we do constantly and I probably talk about it in every one of our meetings and our calls is to get our standards as low as possible. And we continue to do that and continue and the standards are the costs of everything that goes into actually printing a product and getting it from point A to point Z and that’s in the customer’s hands.

So this economy has a lot of bad things too, but it has a lot of pluses to it. I think we’re going to see competitors, we know for a fact that there are competitors out there that the paper companies are looking at very carefully on how they’re paying their bills. And I think that’s going to create opportunities for us, one on the acquisitions side but more importantly on the environment.

Because of who we are and the fact that we are a low cost producer and continue to try to get those standards as low as we can. And that’s always been a plus for us as we look at these kinds of environments.

And it hasn’t been that it’s different, the only difference in this one is I go back and I mentioned this many times before, in 92 and 93 when I first took over World Color, we gave a forecast and you know we thought that ad pages were going to fall of 10-20%. It ended up they fell off like 30-40%.

But those opportunities, we’ve seen before. But it came back a lot quicker. What we haven’t seen here that it’s bounced back quicker. It’s slower. And we have anticipated that now so we know what the environment is and we’re adjusting our business to that and how we actually spend our money and manage our business.

Charlie Strauzer – CJS Securities

If you can pick up from that on the acquisition front, you’ve seen a little bit of a glimmer of hope of the junk bond market stabilizing, the credit market stabilizing. You know have you seen some of that and what are your bankers telling you these days?

Robert G. Burton Sr.

One thing I can tell you about the bankers, there are a lot of people coming to meetings. And I don’t know exactly what that means, but we’ve seen a lot of people where we haven’t seen them in a long time. But I think that the high yield market is better and it’s getting better every day but I don’t think it’s ready to us to go out there and do something. And if we’re going to do it, I want to do it the right way so we can get out and tell our story to a whole new segment of customers that we haven’t been in front of.

But I do think it’s getting better but it’s still not there yet. And I don’t know what that means and hopefully we can see some more activity. We keep in very close touch with the banks and everything else that’s going on in that marketplace. But we still think it could be a little better.

Rob Burton Jr.

I’ll echo those sentiments. I think we have seen strengthening of our credit quality over the last couple weeks. Our bonds have traded up, so has our term loan facility and we have to see a little bit better strength in the term market, at least for us. So we are looking at deals.

We currently anticipate to finance those transactions off the term loan accordion. But we are hopeful and we are, [inaudible] hope going forward that the high yield market will continue to strengthen. We see it every single day in the marketplace and hopefully be out there pretty soon.


Your next question comes from Jamie Clement – Sidoti & Co.

Jamie Clement – Sidoti & Co.

The high end envelope and direct mail market that you were talking about, with respect to the first quarter, what I don’t quite get, is that a business that is particularly strong, credit card solicitations, that sort of thing. Is that strong after the holidays, do Americans run up their credit card bills and then the banks try to get you to transfer balances or is that a business that actually is a good business for your throughout the year?

Robert G. Burton Sr.

Well I think it’s a good business throughout the year. Because you can look at the mailings, the mailings continue but they don’t continue with a lot of the pizzazz and the color that you normally see. I want to be in that business, I think it’s a business that’s going to continue to be around.

And I think we as a leader in the industry ought to be a major player for that. And you’ve seen it in your own mailbox, it’s the four color and the extension and all the different little pieces they put together and the different mailing pieces that’s in there that has color that makes you want to open it up and look at it and have the magic is what is very profitable for us to do.

And we probably do it better than anybody. What you have out there now, you have very little of that. I mean we track it and we’re all looking in our mailboxes and making sure that nothing is somebody else’s so we don’t know about it. But I think it’s a business that we want to be in constantly. And we haven’t counted on it, we counted on it this year because of what was going on historically.

Now that we see that hey you know you can have some variations in that, we’re a lot smart on how we look at that business going forward. But we want to be in that business. You know the fact of how many plants we want to have capacity to do that is another question. And where we should have our high speed equipment, what we should be focusing on, that’s more of a strategic kind of thing that may be a one or two year window.

Because you’ve got to keep in mind, the envelope business for the last, I guess the last three years has really had record results. The envelope business itself and we were in this sort of downturn now. But it sort of follows a pattern of some of the consumer magazines. There is a pattern that goes up and then it’ll be down for a while then it’ll come back up.

So the answer to the question is we want to be in that business, we need to reassess how we determine how much capital we want to dedicate to certain kind of envelope segments.

Jamie Clement – Sidoti & Co.

In this economic environment, you know realistically speaking, I know it’s going to be tough to see on your top line, but the last couple of years since you’ve been at Cenveo, you’ve had a lot of higher priorities than growing revenue. Yet it sounds like your divisions to the extent that they can, your salesman, that kind of thing, are starting to work together a little bit better and that that’s become more of a focus.

Maybe in this economic environment we don’t necessarily see much there, but what’s going on behind the scenes as you think out about next year or the year after you know about the revenue driving opportunities you have, the cross selling, etc, etc.

Robert G. Burton Sr.

Well there’s no question about it. It’s our focus and our intent to generate organic growth in our business. We have just, this company was about 450 silos and some of them didn’t even work for us, they were for other companies.

And no one worked together and they tried to send the business to their plants and with the segmentation of these four groups now, we have a lot different viewpoint and matter of fact, you know I’ve said this before, our compensation, our variable compensation is totally dependent on us hitting a companywide target of EBITDA.

You know it’s not like that the people at Cadmus and their product lines can make their number and get paid, they have to like the envelope, all of us, we have to hit our consolidated number. We are looking at the cross selling. We have not a team but we have a couple of individuals that are leading that cross selling effort.

But it takes time. I mean you can even look at the more mature companies on the printing side of the business, they are not doing as well as you’d think they would do, they’ve been around a lot.

Our primary focus is that we set some individual targets for these individuals to go after and some of the bigger accounts. So you’re going to see some of that cross selling and you’re going to see some of the organic growth. You know if you look at Cadmus and a couple of the other opportunities that we presently have, we do have organic growth, we just don’t have a staff to figure out how we break it out and show what we’re doing.

But we are getting better as a sales organization and I think that’s a function of the leadership that we have in the field. And we will continue to rope in some of these major accounts. If you had looked at our business list of items and accounts that we had targeted for this year from the envelope group that we had already done special mailings on, you would be very impressed with that.

I mean there has been a lot of progress, we’re just like in that third year now. And then we come into an economy that sort of backs down. But I think the answer is we will get better, you will see more revenue growth and you’re exactly right. We have been focusing on profits because of the close down of the different businesses.

And we always do that, but we constantly remind people that revenue is what drives us and we’ll continue to try to do that. And I think you’re going to see some results and maybe we ought to be talking about some of those successes.

The reason we don’t talk about them, so everyone knows about it is that the customers do not like the press. So we can’t really talk about the individual accounts that we’ve had some major success with. But I could give you four or five major accounts that just this last three or four weeks that we’ve been able to close. But we just don’t have permission to use their name.

But the answer to your question, we are focused on the cross selling. We are focused on the national sales effort and the leadership there to give us some organic growth.


Your next question comes from Mitch [Cantor] – Mountain Lake Group.

Mitch [Cantor] – Mountain Lake Group

My question is, can you give us a sense of in the abstract when you go to make $100 million acquisition on an enterprise value basis, after all the synergies are done and realized, how much EBITDA are you hoping or expecting to get for that? What kind of multiples after synergy are you targeting?

Rob Burton Jr.

We historically have paid anywhere from 5-7 times trailing 12 month acquisition multiples for these companies. And as a part of our cost savings plan, we’ve historically been able to take out 1.5-2 turns out of there, so anywhere from 3-5 times. And I think given this marketplace right now, we’d probably hope for on the lower side of that. So that’s, been able to do that for over probably 50 acquisitions over this management team’s careers and that plan works.

Mitch [Cantor] – Mountain Lake Group

You won’t necessarily be able to improve your coverage ratios if you’re doing cash purchases because you have $1.4 billion in debt and $300 million of EBITDA, right. So you won’t improve, if you want to be at 4 times, that won’t help get you there.

Rob Burton Jr.

That’s not necessarily true, I think we’re at, we ended the year about 4.8 times leverage and we have obviously paid down $50 million worth of debt in the first quarter. If we’re able to buy companies at 3-4 times, the answer is yes you are going to improve that. And also the fact that this business will continue to see the benefits, all the hard work we’ve done 2005 and 2006, the cost savings plan, you’re seeing that go to the cash flow statement right now. So we do expect this company over the long term to have a target leverage around 3.5-4 times.

Robert G. Burton Sr.

It would help if we can get our stock price back up too. And that’s our job to try and get done.

Mitch [Cantor] – Mountain Lake Group

At what point or under what circumstances would you consider a share repurchase?

Robert G. Burton Sr.

First of all I’d like to get some debt paid down. I would like to do that. We talked about that and a couple of other things to generate cash or generate the stock price going up. But I can’t answer that right now. I think we need to pay down our debt more. I would like to do that and that’s our number one objective. I think it’s definitely on our list but I think we’ve got to do some other things before we could do that.

I think there are a couple opportunities out there that if the money was not so expensive, I mean there are a couple of outstanding opportunities for us to add to this company that would I think help fuel the price of the stock just because of the view of what this acquisition could do.

And to answer your question, I don’t know, it’s on our list, we’d like to do something but there are other things we have that are equal to that or maybe just a little ahead of it.


Your final question comes from Chitra Sundaram – Cardinal Capital.

Chitra Sundaram – Cardinal Capital

I just want to confirm the $25 million cost savings program. There isn’t a specified restructuring charge or anything that [inaudible] taking against that right?

Mark Hiltwein

If you take a look at historical levels, you know probably 25% of that might be attributable to cash charges. Probably on the high end, 25%.

Chitra Sundaram – Cardinal Capital

And then on the $1.78 that you mentioned EPS again just to make sure I get that correctly, that is when you include when you calculate these in cash taxes and cash interest, just want to understand.

Mark Hiltwein

That is right. That’s based on a cash tax rate of 11% which was our cash tax rate last year. So we’re keeping it consistent with last year.

Robert G. Burton Sr.

And I will say in closing we are very positive about our business and we have three more quarters to deliver the $300 million of EBITDA in 2008. And again thanks for your support against a couple bumps in the road and we feel we’re moving ahead and we’re very positive and very focused on delivering what we’ve committed to. So thank you very much.

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