Cenveo, Inc Q4 2007 Earnings Call Transcript

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Cenveo, Inc (NYSE:CVO)

Q4 2007 Earnings Call Transcript

March 14, 2008 10:00 am ET


Robert G. Burton, Jr. – IR

Robert G. Burton, Sr. – President, CEO

Harry Vinson – President Cadmus Group

Mark Hiltwein – CFO


Charles Strauzer – CJS Securities

Jamie Clement – Sidoti & Co.

Aaron Watts – Deutsche Bank


Good morning and welcome to Cenveo’s fourth quarter 2007 results conference call. Today’s host will be Mr. Robert Burton, Chairman and CEO of Cenveo. This call is scheduled to last approximately one hour. Mr. Burton will speak and then the call will be opened up for a question and answer session. I will now turn the call over to Cenveo.

Robert Burton Jr.

Good morning ladies and gentlemen, this is Rob Burton, welcome to Cenveo’s 2007 fourth 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 would like to remind everyone that some materials covered on today’s call are considered forward looking and covered under safe harbor provision on the United States private security 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 11 and 12 of the company’s press release issued last night or the company’s 8K which was filed with the Security and Exchange Commission this morning. And with that I would like to turn the call over to Mr. Burton.

Robert Burton Sr.

Good morning ladies and gentleman, this is Bob Burton speaking, as you know I’m the senior manager of Cenveo and been doing this for the past 31 months. Today we’re going to cover four items. First item is to report on the fourth quarter and the full year of 2007. If you’ve seen the press release you know of our record results and I’m going to touch upon that and some time and them I’m going to turn that over to Mark Hiltwein at the end our CFO to discuss that and more details. Secondly I want to update you on the investigation of our plant controller who we reported at our February 28th meeting was making unsupported accounting entries at two of our smaller envelope plants. And thirdly I want to touch upon 2008, I want to talk about what we see going on in the marketplace. I want to talk about primary focus of our business during that time and also I want to tell you why we still feel comfortable with our $300 million EBITDA objective for the year.

And lastly we have sort of changed the format around. We planned to bring a senior executive from the field, you know the last time I told you about the organization where we really have five senior executives, we have four in the field and one here, and the four in the field basically are operating presidents and I thought it would be appropriate over a period of time to bring these senior executives in from the field and let them give you an update on their business and talk a little bit about how they’re doing for the quarter and the year. And this gives them an opportunity to actually speak to you as owners of the company and to have a better feel for what it takes someday if they’re ever going to run this company to run these meetings. And it also gives the investors and opportunity to evaluate our talent that we have out there because I really think we have the best in the industry and later on Harry Vinson, the individual that is president of our Cadmus group will be talking to you about what he’s doing for the last year and why he’s going to be delivering his numbers for the year.

So, item one I said Mark Hiltwein’s going to be covering in a little more detail but let me just touch upon the highlights and I’ll start with the most impressive of all of them. And we have talked to you time and time again when we came over here about our objective of improving margins and how bad the margins were and Cenveo. And it’s who you talk to and what date, was it 2% or 3% or 4% and I don’t know what that is and but we told you our objective was 10% and we got there at World Color it took us about 5 years and it’s taken us less at least to catch up on that number.

So for the quarter we had 11% margin, which I think is terrific. On EBITDA, we delivered $85.2 million for the quarter. And we also reduced our debt by $25 million. And I will tell you that the fourth quarter was a very difficult quarter for industries as a whole and especially the printing industry because a lot of people held back and there was a lot of reductions around but our plan, the one we had in place worked and we were able to deliver what we committed to you as investors.

And when we look at the full year, we’re looking at a 9% margin number which I think is really major improvement to where we were at and the $256 million number that we committed to all along, and we were able to generate from the operations over almost $90 million of cash flow and we delivered the $1.35 eps that we committed. So, and [inet] our plan is working and it will increase shareholder value and I’ve said that time and time again, and I also say that time and time again to our people the best way to prove that you’re committed is to be a shareholder and own the stock and I reported to you last time that we own as a family, myself and my son his wife, we own about 10% of the company. Some of you get confused when you just see my ownership of being about 7.5% but we own about 10% of the company rounded off here.

And we committed at that time, that we’re going to continue to buy the stock and we are and we’re going to increase our ownership and we committed to a new level of 15% long term and once this window opens later today or later next week we plan to buy some of our other executives plan to buy and keep saying that but I just want to let you know how committed we are to the stock and to the company and our objective of $30 and we’re not going to go away.

A lot of people talk about it, but they never put the cash up you know where it really counts. So what that was item one and let’s go to item two. Many of you and this is the controller situation and I’ll touch upon briefly. Many of you have thought that we probably overreacted to what happened with the one controller and the two small plants and you know we reported last time we thought that time was an isolated incident. And the outside investors are investigators and I say multiple plurals supports that theory of the review which is now completed by at least 99.9% by the outside investors.

Investors feel that person was acting on their own and after countless interviews I don’t know how many 40 probably plus and probably everybody in the state of Texas and California, and 170 slide presentation that was recently given to the audit committee and the outside auditors, none of the investigation of any of this has changed our record $256 million EBITDA that we committed to or the $1.35. And you should know that matter taxes problem was less than a $4 million problem that we covered in our fourth quarter and full year results.

We hope to file a, we will file a 10K within the next 10 days and you and us we’d love to have already had it done but we really had a lot to get done and we have had a lot of help and we’ve really have had terrific opportunity and a plus by having our lead audit chairman, Mr. Lynn Green to work with us to see us through to the point where we’re at and feel very good about the whole process along with the whole finance team that’s been involved in this.

So no matter how small the problem was, I’ve never had a problem like this in my career, and I repeated that before in our last meeting. I told you that I’m personally ashamed and embarrassed that this thing took place on our watch. And we’ve already terminated a lot of people that were involved in this and we put controls in place all over to cover any kind of future problem. And I would probably say that you should take a great deal of comfort that Cenveo is probably one of the most audited corporations in America that we have greatly expanded our regular audit because of all the investigation that’s going on the last 60 days.

People have been exposed to everything in our company. And professional fee for all of these auditors and lawyers just keeps us all awake at night. And I’m going to make sure that I’m traveling when that bill arrives. But for the information for your information, we have two board in this building, and the outside auditors and all the other people, investigators really taking over our finance floor and we probably have several fire code violation any day of the week because of all the people we have looking at this. and my point is not to make fun of anything, it’s the point that we have people looking at this for a long time and we spent an enormous amount of money on looking at this and we have found nothing other than what we initially found and insulated and started and got this thing moving in the right direction ourselves.

So finally the problem with one controller that we found out about ourselves was an isolated case and Cenveo’s a company that I feel has very good controls and I should know because I’ve run many of them and I’ve been around a lot of bad ones and we have a management team here that is very solid and what we preach to our people everyday and every time that we are around that there’s one way to do it and that’s the honest and integrity way but when you have one lone person that’s very hard to control.

So that’s the last you’re going to hear from me on the controller story. And we’ll move on to item three, which is 2008. I told you that 2008 was going to be a competitive and challenging kind of year. And we knew that. And we felt that 2007 was a challenging year and we have focused on our cost reductions, we’ve looked at where we think there’s opportunity. We’ve actually hired people to beef up our sale staff, especially on the high profile kind of sales. And have focused on really trying to deliver results.

And just to give you a flavor from what I’m talking about I have a piece of paper in front of me, last year, we as a company printed and sold over 170 annual reports from several companies. And I just got a list here of a few that I just wanted to announce to you just to give you a flavor of the quality and the people that have trust in us to do probably the most important publication of their company. And these are companies that we have done their annual report in February or will be doing it at the end of March and one or two that will go into the month of April. And those companies just sound like who’s who and I thought it would be worth while just to mention them.

GE, Lehman Brothers, Goldman Sachs, Ameriprise, Home Depot, Washington Mutual, Coca Cola, Harley Davidson, Quicksilver, General Motors, those are just the few of the annual reports that we will be doing and we’re just very proud to be associated with all of those because those are quality kind of companies as the other 160 that we did last year. And we feel very good about the year, from the standpoint of what we’re seeing out there that annual reports will continue to be a way of life and we really don’t understand this recession word because we’ve been a recession since I started doing this in 1991.

And we have always operated under sort of a code and it’s a rule that I learned a long time ago when I worked at Cap City’s ABC and matter of fact the guy that said it was pretty well known his name Warren Buffet, he was running the place at that time with Dan Burke and Tom Murphy and he always used to tell us, that you should always operate your cost structure the same way in good times and bad times. And I’m telling you ladies and gentlemen we do this at Cenveo, I did it at Moore, we did it at World Color, we’ve done it every place that we’ve been on striving to be the low cost producer and that’s the reason we have delivered our results every year.

And we’ve done this and need to be the low cost producer in the industry. I was the low cost producer on the publishing side and we are now in the printing side. And the environment that we’re in today, and when I say today, I’m talking about today, that is the same environment that I expect us, we will exit this year with that kind of environment.

I’m not expecting or we’re not expecting any major significant improvements that are going to happen our in the universe and you know we have committed to the $300 million EBITDA budget, that’s versus $256 this year and that’s a very big number but a number I feel comfortable that we can deliver in this kind of marketplace and we’ve also committed to $130 million of free cash flow to the business so we have a pretty good feel for where we’re at but we just don’t think these, this environment’s going to change.

And I remember when I worked for IBM there was a guy that worked for me and he lived about 5 miles away in a much more expensive town and a much bigger house than mine and I never could understand how he could do that when he reported to me and then I heard the famous word called interest only mortgages. And then I sort of figured it out and I think some of the problems that we’re facing today in America will take time to flush through and we’re not going to assume that everything’s going to get better when the clock goes on in April.

We have the market assessed and we know what we’re doing with our costs and we have a lot of good news and I reported to you in the fourth quarter that we felt good about the momentum that we had because we had locked up several major accounts especially on the envelope side of some big financial institutions that had committed to us for this year. You’re going to hear about Cadmus and what’s going on with Harry’s business later one. But we’re making improvements throughout our business and we feel very, very good about what we’re seeing ahead of us for this next year.

We have experienced the slow down in the financial institutions, the high end multi color financial mailings that do a great deal of mailing with us. But they’re not as slow down of the business; we’re doing all the testing. In the envelope business, you have to do the testing and the testing is a major factor in what I have, we have to do in our business before we actually get the order. So we’ve done a lot of testing and we actually think because we are a leader in this marketplace we expect to see a lot of these revenues that we have not seen earlier in the first quarter to be with us in the back half or maybe in May and maybe in June. It’s just the uncertainty of some of these mailings that has really led me to make this statement.

I talked to several of you about this in the past of giving these quarterly kind of estimates, you know our business is sort of 40/60 and depending on what week it is and how it kind of turns out, but I really feel we ought to spend our time on growing the business and not worrying as we have and in the last couple of years if some of these major mailings are going to get on Friday or Monday and if it’s going to fall in the first quarter or second quarter or third quarter. And I just don’t think we need to do that. Donnelly has not given quarterly guidance in several years and I think we respond to any question that you give us and we’ll continue to do this but I want to try it this way for a while. We still feel very, very confident that we’re going to be tracking to where we want to be but I just want our people as you well know we talk, we’re going to focus on two things this year. We’re focusing on EBITDA and we’re focusing on cash flow and we’re doing that because of where we want our future to be and we want our future to either a part of another large corporation or actually be bought by some corporation down the road and those are the areas that we want to focus on and make improvements on.

So, we do not plan for any of these major 2008 executive sale to where I told you about we’re beefing up. We plan to see those starting to come in very, very soon and I feel that with this environment that we’re in right now, we’re probably going to see some other opportunities from the standpoint I think there’s going to be some capacity that’s’ going to be available because some of the people will not have had their cost in line. We have actually gone back and putting our budgets together and reviewing our standards and you know what the standards are that’s what you actually run your products on and those costs. And we’re constantly looking at those on a daily basis to make sure that we’re going to be fine and we feel pretty good about that.

So I would tell you net on the outlook for 2008 I think it’s going to be a challenging year but we’re going to be able to deliver and this is to remind you again I’ve never missed and we don’t plan to miss because we think we have our cost in line and we think the revenues are going to be where we think they’re going to be. And on that same subject you notice in the press release, and I like to remind all of you that we really have no significant debt or any kind of maturities that we come to see us until about 2012 and you know one major printer had a problem with that and we definitely are not going to be one of those.

So those are the items that I wanted to touch upon, and now I’d like to go to item 4 and tell you a little bit about the guy that you’re going to hear from Harry Vinson, who is president of our Cadmus group. Harry and I worked together, we started working together at World Color, when the KKR company in 1991 when I was the CEO and Harry was running one of our major division and Harry has been with us not only at World Color, he’s also been with us at the Moore corporation and has really been a very close member of the team and since 1991. So we’re delighted to have Harry here, he’s about ready to pass out in his chair and jumping around here ready to start and tell you all the great news about Cadmus, so with that, he’s going to talk to you for about 10 minutes, Harry?

Harry Vinson

Thank you Bob, good morning everyone, I’m happy to be here it’s a pleasure to be able to speak to everyone and tell the story about Cadmus and what we’ve done over the last year. And I’ll try to stay conscious throughout his whole thing but I am very excited to be here and excited to be part of this organization. I’ve got three points I want to cover. I want to talk a little bit about Cadmus and the profile of the organization the markets we serve. I’m going to speak about my senior leadership team some of our post acquisition activity and I’m also going to cover just our current direction and the status of the business right now.

Starting out with the profile and the markets we serve. I took over here at Cadmus as a senior manager March of 2007 with the close of the acquisition and Cadmus was a company that I was very familiar with going back to my days selling back in the Mid Atlantic region. I used to compete against the company, I was very familiar with it, and was very respectful of the fact that they were a great competitor out there and they really were strong in the markets they played in.

Again I’m excited about this business and the opportunities that we have here and what we’ve done going over the last year and also what we have going on in the future. When we arrived at Cadmus, they were going through a pretty extensive capital investment, I think they had a project and were investing something like $54 million in equipment and it was I think strategically a good move on their part, from an execution standpoint it was a bit of a challenge for them and I think they struggled with it. If we got there we looked at the company and those challenges they were facing and really we found a lot of good people at Cadmus when we looked at the people we just had to come in and kind of change the attitude.

We asked them to really embrace a different way of thinking about things and how they acted upon their challenges and really you know asked them to kind of think the way we think about our business. As we look at where we’re at right now, I’m happy to report that we really managed through the early challenges and the company’s on the right path we really got a position to go forward in 2008 and beyond.

To give you a little scope, tell you about Cadmus and how it fits into Cenveo, Cadmus represents about 15% of Cenveo’s total revenues. We have 7 print facilities in US. And we have a fifth continent facilities with four of those being in the US and two of those being in India. From an employee standpoint, we have approximately 2600 employees, 2000 of those employees are located here in the US, in the 11 facilities here, and the other 600 are located in, excuse me in India in our 2 facilities there in Mumbai and in Chennai.

We looked at the products and services that we offer. We really are given in to solution and that’s everything from peer review system and content management to print and distribution. And I want to talk a little bit about the content management services and what we offer there because it’s even to me as I competed against Cadmus I didn’t really understand the depth of what they offered. We offer things from complicated page composition to complete editorial management services. And when I say that, we literally with a lot of our customers come in and almost become their editorial department when you look at the nuts and bolts of what we have to do.

We offer copy editing, and issue management of the issues we obviously are not responsible for creating the content as it relates to the subject matter, but we do work on copy editing and again issue management and actually getting the journal put together and out to press.

When we look that markets that we compete in with these services, we’re in the special interest publication market which really is for us is a short run market with City Regional Publications, business to business publications, association publications and what I refer to is kind of an enthusiast hobbyist type publication which is really focused on a very specific subject matter.

We’re in the short run book business; we service a legal professional reference and those publishers and also the educational training area. We dabble in some other areas but that’s our primary focus. And the other market that we play in is the FTM marketplace which is a scientific technical medical publishers out there. And we could take that group and kind of with our and divide it into two groups, you have the commercial publishers out there, people like [L. Severe] and LW&W and Springer and these people really come in and provide a complete publishing service to the societies out there and they’re one of the groups we produce for.

The other group is really the societies which is the organizations that are focused on the subject matter and the information they are trying to disseminate and this is where we also come in and provide editorial services to these folks. When we talk about the best FTM marketplace it’s important to know that we do business with seven of the top 10 FTM publishers. And these people look to Cadmus to help them and give them input on trends and things that are going on in the marketplace, postage, paper, new technology, digital technology, etcetera.

And I’m going to better explain a little bit about the FTM marketplace because I said you know even when we came in we didn’t realize the depth of what Cadmus offered. In this market we’re really for these people, the content’s critical and I don’t want to say print or any thing that’s not important because it certainly is, but really these people are focused on disseminating information about what they are, what they’re organization’s about, whether it’s a scientific or technical or medical subject matter.

And really content for a journal content is a critical part of the scientific research, the journal is and this content is prepared and written by academics, these people spend any where from 90 to 100 hours to produce a manuscript and we bring it in, in some cases in its raw form and we provide the peer review system for that, and actually convert it to a finished page that is ready to be printed and put up on the internet.

When you look at these journals, they’re really measured by how they’re sided in the content side and it deals with the impact factor. And the number citations of paper received is used to measure the impact and the quality of the paper and this really affects and it can affect the funding. The content has a long life and it’ll be referred to for many, many, many years.

As we talked about with the content, it’s a peer review journal, authors and editors act as reviewer and their job is to look at the quality and accuracy and integrity of the information. So that’s all I have to say is that marketplace but I want to talk a little bit about is. Just in general, with our customers, there’s a lot of [shirt] characteristics. Content is the core to their business and usually very narrow focus. They typically embrace outsource the work and their goal is disseminating information. The requestors, they’re main requestor is subscriber type of publications and journals, there’s less sense of advertising trends, and impulse buys just [see with] other people.

Customers face the same challenges out there dealing with rising costs and things are really out of control the postal increases, paper increases and distribution increases. Next I want to talk about the senior leadership and post acquisition activities. I want to talk about some of the people that are on board with us, the senior leadership team, there’s Debbie McClanahan who was with us when we got there, she’s 36 industry veteran and she’s spent the majority of her career at Cadmus, but for 5 years she was on the customer side so she gives us a unique look at the business sometimes.

Ted Winslow was with Cadmus for 16, he’s now the sales leaders within the organization. He’s been a great asset, he’s sold across all of our platforms and he knows our business very well, John Grinnell’s in charge of our global content services, 18 years industry experience, John is very well known in the marketplace and he’s a critical player to the improvement that we’ve experienced so far. Andy Johnson runs our print operations again an 18 year veteran and he has been with, improves the quality of our margins quite a bit, and then last is John [Brow] who’s’ been with us for 6 years in the industry for 6 years and he’s worked with me in the past and we’ve had a long relationship and he’s someone I depend on very much and he’s a great business advisor.

When we came in really what we were focused on was instilling a new culture and we looked at open and direct communications, accountability, and integrity, we encourage ideas and mainly we wanted people to come to us with solutions, and tell us what things they’re going to be doing to actually solve the problems they come across. The next thing we focused on was the operations, we took down obsolete and unproductive assets and we invested in continuing to build upon the business and things that are important such as content and we’re very committed to that business. We streamlined work flows eliminating redundant capabilities and we balanced our workload.

So as we look at that what does that really mean? Well here’s the results. We had to look at our headcount it was a difficult decisions and we really take it very serious but we reduced our headcount by 8% and as we look at what else that meant to us, we reduced our SG&A expense by approximately 20%, we’ve improved our operating gross profits in excess of 30% and our EBITDA margins are up 100%. Our EBITDA margins are up in excess of 50%. If you look at our current direction of platform, it’s in good condition. We’re going to continue to build, strengthen the right assets and collect the unproductive ones. We’re really fine tuning the organization. We’re looking to turn our focus more towards right now improving our current staff of support functions and improvement of our measuring tools, including our manufacturing metrics and we’re going to focus on waste and efficiencies. We are experiencing success with cross sell with the rest of Cenveo organization. We’re going to continue to look for top performers and monitor our costs.

Last we’re focused on organic growth, we want to grow the business and also we look for opportunities for acquisitions. We’ve identified companies and we’re just hoping that we get some improvements in financial markets so we can execute on some of these things. So in a nutshell that’s kind of a look at our first year and we look forward to a great 2008, we know it’s going to be a challenge but we think we’re up for it. I know I’ve got the right team in place. These people have gotten the job done and they’ll continue to get the job done. And we want to continue to deliver for our shareholders. So with that, thank you and I’ll turn things back over to Bob.

Robert Burton, Sr.

Thank you Harry, Harry’s done a terrific job, he’s been in there and got the cost down has changed the focus of the business and this is part of the platform that we talked about that we want to invest in the future, and right now our primary focus is getting costs down and delivering on our number for this year. But once the markets get better, we’re going to come back and give Harry and opportunity to apply the same magic to some other opportunities, so that you very much Harry, very good job.

Now I would like to have Mark Hiltwein our CFO is going to talk about he fourth quarter and full year 2007 results. 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 quarter and year to date financial statements including restructuring activities, key balance sheet and cash flow items and an update on our capital structure, specifically, our debt portfolio. As we outlined in our press release issued last night, our non GAAP earnings per share of $0.53 exceeded our quarterly guidance of $0.49.

EBITDA for the fourth quarter was $85.2 million or 14.6% of sales. Our fourth quarter revenue of $584.4 million was $200 million higher than the previous year of $384.2 million driven mainly by our four acquisitions in 2007 of Printegra, Cadmus, Color Graphics and Commercial [Oblo]. Looking at the full year, our non GAAP earnings per share was $1.35; EBITDA was $256.2 million or 12.5% of sales. And our sales were $2.047 billion.

In regards to our segment information, our fourth quarter commercial print revenue of $334 million was approximately $6 million higher than the third quarter’s $328 million or an increase of approximately 2%. The fourth quarter is our strongest quarter from a seasonality perspective. In regards to operating income, the commercial print operating income was $28.3 million which included restructuring, integration and acquisition charges $7.6 million primarily relating to the integration of Color Graphics with our west coast operation and the closure of two underperforming facilities.

When you add back the impact of the restructuring charges, the commercial print non GAAP operating income was $35.9 million or 10.7% of sales. Although progress has been made in the commercial business, much improvement still needs to be completed in the areas of cross selling, productivity gains waste and spoilage reduction and continued focus on safety.

Turning to our EFL segment, our [Oblo]’s form and revenue for the quarter was $250.6 million, the increase of the prior quarter is due to a full quarter of revenue contribution from the commercial envelope acquisition offset by lower volume as a result of a plant closure, general competitive pricing and a shift from higher value added to a more generic product.

In regards to operating income, EFL’s operating income was $32.3 million or 12.9% of sales, the restructuring integration and acquisition charges for the quarter were $2.7 million, our EFL non GAAP operating income after adding back the impact of restructuring and integration charges was $35 million or 14% of sales.

This strong performance resulted from our continuous efforts right size our capacity and cost platform by closing and reorganizing facilities redeploying assets and retiring less efficient assets to maximize profitability. Our initiatives for plant rationalization focuses on delivering quality products to our customers with a manufacturing footprint that meets our financial targets.

Next I would like to provide a summary of the financial statements. As highlighted in the press release, our GAAP net income for the fourth quarter $18.3 million or $0.33 per diluted share. Our non GAAP income from continuing operations of $28.2 million or $0.53 per diluted share is $0.04 above our previous guidance. Our gross profit margins increased to 21.7%. The differences between our GAAP and non GAAP net income for the quarter can be summarized by the following, restructuring charges of $8 million related mainly to employee separation costs as an impairment and lease exit cost. Integration cost of $2.5 million largely due to the movement of equipment related to consolidation of acquired facilities and the tax expense was adjusted by $1.7 million to reflect the company’s pro forma effective tax rate of approximately 17%.

Of the $8 million of restructuring, approximately $2.5 million is cash charges. Continuing down our income statement on a consolidated basis, our non GAAP operating income for the fourth quarter was $64.1 million or 11 % of sales, our interest expense was $28.4 million for the fourth quarter of 2007, the increase was primarily due to additional debt incurred upon the acquiring of commercial envelope at the end of August, 2007.

Interest expense in the fourth quarter of 2007 reflects a weighted average interest rate of 7.5% as compared to 7.7% in the fourth quarter of 2006. Looking at the full year, our GAAP net income for 2007 $4.03 million or $0.70 per diluted share. Our non GAAP income from continuing operations was $73.9 million and our full year non GAAP EPS as $1.35. Our gross profit margin for the full year were 20%.

The differences between our GAAP and non GAAP net income for the year are mainly restructuring charges of $40.1 million loss on early extinguishment of debt of $9.3 million and integration and acquisition charges of $5.9 million. Of the $40.1 million of restructuring approximately $14 million is cash charges. Continuing down our income statement on a consolidated bases, our non GAAP operating income for the full year $183.5 million or 9%, interest expense for the full year of 2007 was $91.5 million which increased over 2006 due to the four acquisitions.

In the full year weighted average cost was 7.5%. Turning to the balance sheet, the key items on the balance sheet and cash flow are the following, cash balance of $15.9 million at year end, compared to $10.6 million at December 31, 2006. Total debt of $1.445 billion versus $675 million at December 31, 2006. Net debt was 1.429 million this year, versus $675 million last year. Shareholder’s equity increased to $100 million at December 31, 2007. Net cash provided form continuing operations was $86.2 million for the full year of 2007. Capital expenditures were $6.4 million for the quarter, $31.5 million for the full year, well within the guidance provided of $30 - $40 million.

Cash interest for the quarter was $35.3 million and $89.2 million for the full year. Cash taxes for the quarter is $920,000 and $4.1 million for the 12 months. Our free cash flow for the entire year of 2007 which we calculated EBITDA left cash interest, cash taxes and cap ex was $131.3 million. Keep in mind we still have in excess of $200 million of operating loss carry forward and our estimated debt we will not be a full cash tax payer until late 2009 or 2010.

I would like to highlight our current capital structure in particular our debt portfolio given the current state of the credit environment. There has been a substantial amount of discussion surrounding the amount of overhang in the high yield and leverage loan market and the potential refinancing risk that is creating for many companies that have near term maturities. We are fortunate enough not to fall into this category as we have no significant maturities until mid 2012, when our $200 million revolver comes due, this is more than 4 years from today.

Our current net debt position at March 13th, is just below $1.4 billion and our current outstanding on our revolver is $95 million. In summary we feel very good about the results for the fourth quarter and as we progress through 2008 we will continue to generate cash and use that cash to pay down our debt and invest in capital expenditures that meet our goal for return on investment. With that I would like to turn the call back over to Bob.

Robert Burton, Sr.

Thank you Mark. Three items to close with, one we delivered what we promised with a record performance in 2007. two the investigation is done we’re going to file our 10K in 10 days, and three 2008 $300 million EBITDA and $130 million free cash flow is in our targets and we feel very good about delivering those numbers for this year. So with that operator, we have time for a few questions. So why don’t you open up the line.

Question-and-Answer Session


(Operator instructions). Your first question comes from the line of Charles Strauzer, from CJS securities.

Charles Strauzer – CJS Securities

Good morning, how are you, obviously the market’s kind of jittery these days stock prices have been very volatile especially today. I think what I would like to try and qualify is obviously you’ve seen that your guidance has not changed since what you gave out at the end of last quarter, which is implying that you going to be able to show pretty strong profitability growth year over year in EBITDA and in strong growth in cash flow year over year. Number one, and number two the investigation was wrapped up pretty quickly, your internal systems found it they did their job, and you’re moving on from that, and number three, if I heard Mark correctly, you don’t have any significant debt maturities for a number of years so you’ve got a number of things you can do with your free cash flow between now and then, is that correct?

Robert Burton Sr.

I would say you probably said them better than I could; it’s always our objective to deliver more than we did in prior quarters and we’ve always strived to do that. And we feel that that’s the goal and what we’re going to do. The debt situation and the other items you covered have pretty explains themselves unless you want me to reiterate and say that you’re right, you’re 100% right.

Charles Strauzer – CJS Securities

And the reason behind not doing the quarterly guidance I understand that you all in the industry don’t really do anymore, are you is it just because the environment is so volatile right now you just want to take a wait and see approach or is it something you just feel that is just tough to do at this point in the year?

Robert Burton Sr.

Well you know I’ve been doing this for a long time and you know how pressure sort of is and when we had the, we have a lot of orders out there that we’re doing testing on right now and that’s always a good sign that you’ll probably get that order and we’re getting to the situation where you actually are upsetting customers. You’re asking where the business is and you don’t want to be in that position. You can ask for where the business is for loading and making sure you have capacity, but I’ve found that the environment is such you can actually get, we’re getting pushy and we shouldn’t do that. I mean the customers going to give us the business when they want to give us the business, we have capacity set up and if we miss that by one day, or two days or three days, I know what the grief that comes with missing a quarter. I’ve never done that before, but I’ve seen what happens and we have given guidance out all along, we haven’t even given out ranges.

You know I could have, when we first got here at Cenveo, I could have given you ranges of zero to $100 million, and who would have known. But you know I think I’m beyond that, I’ve dealt with most of you people for some 20 years and we’ve never missed numbers, we’ve always delivered numbers. I just think it’s a better use of our time on dealing with our customers and knowing where these orders are coming in that just makes it, I think it will make us more efficient than we have been in the past. And that doesn’t mean at all to the end of the quarter, you’re going to be measure, quite frankly no matter who you are what, what you did this quarter versus last year.

And we fully understand that. But I think it just help, it will help us to focus on and deal with our customers more effectively and quite frankly these orders that are out there we always feel good about them and we have a lot of stuff that moves. I gave you 10 annual reports, I mean I could tell you out of 170, I don’t know how many of those 170 reports actually moved from one location to one week to another week and we had to adjust which we do and that’s part of our job and that’s why we’re successful of being able to move jobs from one location to another location.

But I just reached a point I just think you almost so little time to run these businesses and to make sure your people are focused and I just don’t want us to lean too much on some of these customers that have been kind enough to give us the opportunity to do huge, huge amounts of work for them and I think we’re going to have a better working relationship and I don’t really think it’s going to affect the business very little, I’m just anticipating and I don’t want in today’s environment knowing what the volatility is, here out stock is at $13, I don’t know what it is today, if it’s a bad day and we haven’t missed a number, we have delivered everything we told you, I have continued to buy stock, I don’t know, 100% of our senior managers buys stock.

I know as well as it’s daylight outside, it’s going to dark at night, that we’re going to be able to add once this market gets better additional companies and become larger and be a bigger player out in the marketplace but it what it is and people are uncertain about some stuff and I can appreciate it and I’m just trying to eliminate some of those uncertainties. And having more predictability.

Charles Strauzer – CJS Securities

Well said and Bob going to cash flow obviously you going to generate a lot of cash this year, and I think given where the markets are right now and is your preference right now to use the cash to continue to pay down some debt maybe do some more tuck ins, give us a sense of what your priorities are right now for the free cash flow.

Robert Burton Sr.

Yes, to definitely pay down debt and we have some as you call tuck ins, we are looking at and our envelope business and a couple of those other not envelope but our label business we have several opportunities management has brought forward small little deals that we’re going to do that immediately generates EBITDA but our primary objective right now is to pay down debt and pay down debt until this market gets better and I will tell you that Mark mentioned about the NOL’s and people have a tendency to forget that, but this cash flow we now have our objectives and I’d love to know how many other printing or publishing companies in America have as their written objectives on getting any kind of discretionary bonus of getting not only their EBITDA number and their EPS number hitting their cash flow number.

And that’s what we have with all of us we’ve actually committed to you a free cash flow number for this next year that we’re going to be measured on and we’re going to use this. I mean we have all the tools and the focuses and the right place. And you know if you look at this company back and I was trying to explain this to some gentlemen earlier last week about how far we’ve come as a company with the platform because the platform is not recession proof because I don’t think anything is but Harry’s business is probably as close as you’re going to get and even though he just again fell out of his chair when I said that, but his business is a good solid business that’s very dependable the annual report is a very good solid business that’s dependable, so we have a series of businesses in that platform that we can sort of count and if there’s any variability there, I want to make sure we have it controlled and it doesn’t hurt us as we move toward that $30 stock price. Long answer, but you want to add anything there Rob or Mark?

Mark Hiltwein

No I think it was well stated.

Robert Burton Sr.

So I think I covered it.

Charles Strauzer – CJS Securities

Thank you very much.

Robert Burton Sr.

Thank you Charlie, you got another question, can we take another one?


Your next question comes from the line of Jamie Clement from Sidoti.

Jamie Clement – Sidoti & Co.

Morning, Bob you said something on a conference call two weeks ago about a round year three, of your teams involvement in an operation that you know some exciting this started to happen you didn’t expand upon that comment all that much and there wasn’t time for Q&A on the last call so I’m wondering of you can kind of go into a little bit of detail on kind of what’s magic about the third year?

Robert Burton Sr.

You know it is interesting that, and I’m glad you brought it up because it’s a big plus. What normally happens when you take over a company you spend the first year trying to figure out what you’re going to actually keep and you focus all your attention on the worst performing operations. And I mean worse, the ones that either negative or not making very much money. And then the second year you start getting your own people that you brought in like we have. We brought in now close to 125 people who give or take one from our past that are now with us and so you’ll say what, how does that answer the question.

Well like this year, we have an individual that is going around to everyone of our plants and measuring the waste in each one of those operations and you can say well what does that mean. That means hundreds of thousands of dollars that we can actually have a chart that shows how waste is measured in each one of the plants and compare that waste to each other and identify that waste and spoilage where in the past, nothing is ever said. So if a job runs and a job’s bad, and it actually cost us a couple hundred thousand dollars, no one says anything about it. Now we got those things identified and we can actually say to that plant they ought to be generating x number of dollars in waste where in the past, it’s been going the other way.

So we have measurements on what takes place. The other things is how fast the equipment is working and you don’t even see that. I was in a plant two weeks or three weeks ago and they had all the meters up, it was an envelope plant, it had all the meters would speed and the plants. That tells you how fast the presses are running. At World Color, by the end of the third and fourth year, we had those meters on all of our presses so we knew exactly how fast we were running.

The next item is we brought some people and we have two individuals, one’s in one of the divisions and the other one’s more of a senior reaching all the different divisions and executives sales for as going in and putting together a consolidated effort to come into an account such as yours or somebody else and being able to cover all of the things that we do and pitch all of things we do at one time. We didn’t have that in the first year, we didn’t have it in the second year, we have it now, because we have a guy that we found that used to work with us that’s leading those kind of efforts. So it’s the productivity it’s the manufacturing it’s our ability to actually go in and look at little stupid things on how you spend your money on Fed Ex versus other ways that you send stuff out and to be about to track the expenses and to be able to sit down in a meeting and have three or four pieces of paper and talk to that guy across from you and know that guy’s very smart guy who’s an idiot because of all the bad things they’re doing.

So it’s all the other and I’ll ask one of these other guys to jump in here a bit, and add some other issues, it’s all those little thing that we haven’t been able to do and we were, when we would build our budgets at World color, and we got past the third and fourth year, we always figured that we would get at least a 2% productivity increase because we would have better pressmen who had been with us, knew what we expected. We had a schedule where we were doing the maintenance and repairs on the equipment where we really didn’t have to have drastic disruptions. And we were also buying capital that was a lot more efficient that helped us out and doing things more and quicker and again more efficient. You want to add anything there Mark?

Mark Hiltwein

I think that’s fine, the only thing I would say is we probably purchased about $700 million work of paper and on that waste reduction if, for every point that we save, you talking about $7 million, a very significant number in the waste reduction.

Jamie Clement – Sidoti & Co.

If we have time for just a quick follow up, just along the same vein, do you think that it’s taken some time and you know I don’t know what maybe the fall out was among your customers from the old mail well slash new Cenveo pre Burton management time was but do you have customers from kind of the old mail well days that are now coming back to you as a more reliable company?

Robert Burton Sr.

Well I think that there is no question about it. You know how volatile Mail Well and Cenveo was when we got there and because I shared with many of you the fear that I don’t think I slept for three days because of worrying about cash of, could we actually do what we wanted to do. I think there was a lot of uncertainty and a lot of things that were scared and matter of fact, we got on this one list they took us off the credit worthy list and I won’t list the name of the company because we do business with them, but they’re a pretty large corporation in America and they got their own problems which are about 100 times worse than ours and they took us off the approved vendor list when on the way of us coming in not because of us, it was because of how bad and how weak Cenveo was.

But what we really done and I’m sure we’ve gotten a lot of those customers back because quite frankly they’re just not that many people around that do the kind of work that we do, especially because we’re number one in all our markets, but essentially then we’ve also changed the platform. Before, we you had two choice, you had the envelopes or you had the commercial. And the commercial most people think of annual reports or [cheap fed] kind of work. Now you know we’ve expanded that and to the label business and you heard us the other day, we talked about what was it, how many trucks did?

Robert Burton Jr.


Robert Burton Sr.

Thirty tractor trailer trucks that we actually sent to CVS with labels for prescriptions stuff and you know we do that kind of work, we deal with Wal-Mart, we deal with CVS and we didn’t even have those kind of customers before because we only had these other customers. You heard Harry talk about what he does with this business of the whole thing with Cadmus we didn’t have that business before. So I think yes the answer is we gotten some of those customers back that have left us and we always look for customers long as they can pay are credit worthy. But I think the platform changed a lot we got a lot of newer customers that we different kind of relationships and I’m betting on that to really give us the growth that we need to have.

Because when you listen to Harry talk today, and this business guys and ladies, this is an organic kind of business that’s growing. I mean you don’t find businesses like on the street where you get organic growth and this is a business that’s definitely doing that we’re seeing the same thing when we consolidate our efforts with some of the commercial stuff and definitely with the labels and that’s long about answer to your question but there are a lot of better things and all you have to do is walk through a plant today versus if you walked through that plant three years ago you could see the efficiencies and quite frankly a little more a sense of an urgency other than is it time for lunch.

Jamie Clement – Sidoti & Co.

Thanks very much for the additional color and the time I know we went over the hour but thank you very much.

Robert Burton Sr.

No, thank you very much. And we’ll take one more last question please.


Your next questions comes form the line of Aaron Watts from the Deutsche bank.

Aaron Watts – Deutsche Bank

Good morning gentlemen, I think the last question are in your answer Bob you may answer this part but obviously encouraged by your EBITDA guidance for the year, the fact that you’re sticking to that thinking more long term, about the business obviously we’d like to have a sense for what you feel for the top line and I think in your last answer you said you believe across your businesses you can produce top line growth, because obviously in the long run, you can only cut expenses for so long right, is that and I reading your last answer right? Did sound like you think the revenues can at least be stable and based on that you can run this business for growth?

Robert Burton Sr.

Well if the not to be cute with the answer but the answer is yes. You looked at our businesses from where we started as the majority of the erosion that we’ve had is businesses that we’ve closed. We’ve closed down our businesses that we should have closed down that couldn’t close down because we had customer relations that would really hurt us with something else. I think we’re now more than ever before in an environment where revenues can be measure. I firmly believe and we’ve always said this, that you have to have revenue growth to grow a business, to be attractive. And I think we have, we have organic growth in almost all our businesses. It just getting them together at the right time and say when.

But we still have a couple of small operations and one medium sized operation that we’ve been looking at for some time and we couldn’t but other that, these businesses should grow. I would expect Cadmus to grow on the top line we have told our people that we expect growth and the answer is can you cut costs and deliver, first of all, some people can’t even cut costs. And I’m sure you know a lot of those people. We probably do it better than most people because we understand that you can come in and come out. I mean if this was a different kind of environment, then what we’re facing, not us but I’m talking about America and the rest of the world, we would probably have laid a little different kind of plan. We’d be talking about these acquisitions and we said all along that the acquisitions could fuel growth to help the rest of the team get better, but the answer to your question is yes we should have growth, it should be measured and we just haven’t done that in the past because of the closed down.

And I said the first couple few years it really doesn’t matter what you’re revenues are because you’re trying to stabilize the business and I think except for a couple of occasions that we pretty well stabilized the business.

Aaron Watts – Deutsche Bank

Okay that’s helpful, thanks very much.

Robert Burton Sr.

Okay, ladies and gentlemen, thank you very much and I think we’ve gone over a little of our time but appreciate it and we will continue to work very hard for you and thank you and have a good day.


And this concludes today’s conference call you may now disconnect.

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