Standard Register (NYSE: SR) today announced its financial results for the fourth quarter and full year 2013.
For the fourth quarter of 2013, the Company reported revenue of $242.0 million and net income of $9.1 million or $1.14 per diluted share compared to revenue of $143.6 million and a net loss of $35.3 million or $6.03 per diluted share for the fourth quarter of 2012. Net income in the fourth quarter of 2013 includes a one-time $5.6 million benefit from a change in vacation policy and a $6.0 million tax benefit. The fourth quarter last year included a $40.8 million negative mark-to-market adjustment to pension expense.
For the full year 2013, the Company reported revenue of $719.8 million and a net loss of $7.4 million or $1.16 per diluted share. The results compare to full year 2012 revenue of $602.0 million and a net loss of $28.5 million or $4.88 per diluted share.
Adjusted EBITDA, which excludes certain items as detailed in the attached reconciliation, was $25.5 million compared to $13.0 million for the fourth quarter of 2012. Adjusted EBITDA for the full year 2013 was $55.1 million compared to $46.8 million for the full year 2012. Increases for both the fourth quarter and full year 2013 were due in large part to the acquisition of WorkflowOne.
"During 2013 we made good progress toward long-term growth of the business," said Joseph P. Morgan, Jr., president and chief executive officer. "We broadened our customer base, portfolio of solutions and opportunity for cross-selling with the largest acquisition the Company has made in recent history, and we are integrating at a rapid pace. The WorkflowOne acquisition along with our continued investment in our growth solutions has positioned the Company to leverage its expertise in communications workflow and specific experience in key market segments to provide our customers with complete solutions that utilize multiple channels for their critical communications."
Fourth Quarter Results
Total revenue was $242.0 million, an increase of 69 percent from the fourth quarter of 2012. The fourth quarter 2013 results include revenue from WorkflowOne.
Gross margin as a percentage of revenue was flat at 30 percent for both the 2013 and 2012 fourth quarters. As a result of the Company's continuing focus on expense management, selling, general and administrative (SG&A) expenses were $58.5 million compared to $77.1 million for the fourth quarter of 2012. Excluding a $40.8 million negative mark-to-market adjustment to pension expense in 2012, SG&A as a percentage of revenue decreased to 24.2 percent from 25.3 percent in the prior year.
The Company incurred $1.2 million of additional expense in the fourth quarter of 2013 for executing the acquisition and $1.6 million of integration costs. Restructuring expenses were $2.6 million in the quarter.
Cash flow on a net debt basis returned to positive in the fourth quarter at $0.2 million compared to $7.8 million negative in the third quarter of 2013.
Standard Register operates two business units: Healthcare and Business Solutions.
Healthcare revenue was $69.5 million, an increase of 32 percent over revenue of $52.5 million in the fourth quarter of 2012. The WorkflowOne acquisition contributed positively to the increase in revenue. Technology-enabled healthcare solutions, including SMARTworks Clinical Enterprise and iMedConsent applications, drove sales to new and existing customers. Volumes in clinical documents continued to decline but at a slower pace as electronic health records (EHR) are adopted throughout the healthcare environment. Operating profit was $7.1 million compared to $4.1 million in the prior year fourth quarter.
Business Solutions revenue was $172.5 million, an increase of 89 percent over revenue of $91.0 million in the fourth quarter of last year. The acquisition of WorkflowOne has enhanced our market insight, advanced our portfolio across all solutions and added to our capabilities across the most critical communications of our customers. Operating profit was $8.0 million compared to $2.4 million in the prior year fourth quarter. As previously reported, revenue from a large financial services customer declined in 2013; falling $2.4 million during the quarter and $19.2 for the year.
Full Year Results
Total revenue for 2013 was $719.8 million, an increase of 20 percent over 2012 revenue. The full year 2013 results include WorkflowOne revenue from August 1, 2013, the date of the acquisition, through year-end.
Consolidated gross margin as a percent of revenue was 29 percent for 2013 compared to 30 percent for 2012. Gross margin was negatively affected $1.8 million by fair value accounting treatment required for finished goods acquired in the acquisition and was further affected by the ramp-up of the new digital print and distribution Center of Excellence in Jeffersonville, Indiana. SG&A expenses were $182.9 million compared to $200.4 million in 2012, which included a $40.8 million negative mark-to-market pension adjustment.
The Company incurred $9.0 million of expense for executing the acquisition in 2013 and an additional $1.8 million of integration costs. Restructuring expenses were $14.4 million in 2013 compared to $4.3 million in the prior year. The increase is primarily related to the Company's strategic plan adopted in connection with the acquisition.
Cash flow on a net debt basis was negative by $6.4 million for 2013 compared to a positive $8.2 million for 2012. Excluding $10.4 million of cash payments directly associated with executing the acquisition, cash flow would have been positive by $4.0 million.
Healthcare revenue increased 7 percent to $230.1 million from $215.9 million in 2012. Operating profit for 2013 increased 2 percent to $13.0 million from $12.7 million for the prior year.
Business Solutions revenue increased 27 percent to $489.7 million from $386.1 million for 2012. Operating profit for 2013 increased 28 percent to $10.4 million from $8.1 million for the prior year.
Capital expenditures were $12.2 million compared to $6.0 million in 2012. The Company continues to invest in its growth solutions. During 2013, investments were made in infrastructure at its new digital print and distribution Center of Excellence, digital inkjet color technology and digital label manufacturing technology, all of which have improved the capabilities of the Company.
In 2013, the Company announced that it changed its method of accounting for its pension plans to recognize actuarial gains and losses in excess of a recognition corridor in the income statement in the year incurred rather than amortizing them over time. The change had no impact on benefits to participants, the Company's pension liability or pension funding obligations, but total pension expense in 2013 would have been $24.3 million higher under the previous method.
Standard Register contributed $24.7 million to the Company's qualified pension plan in 2013 and plans to contribute $39.1 million in 2014. The net pension liability decreased during 2013 by nearly $60 million to $192.8 million as a result of contributions and rising long-term interest rates. An actuarial pre-tax gain of $33.2 million was recorded in accumulated other comprehensive losses as it was within the recognition corridor.
WorkflowOne Integration Update
The Company has made significant progress in its integration of WorkflowOne operations and sales. Headquarters consolidation is nearly complete, four printing facilities have been closed or are scheduled to close in 2014, the combined sales organizations are fully operational and the Company has completed its plan for the previously announced $40 million in annual savings following the completion of the integration expected in 2015.
On August 1, 2013, Standard Register acquired WorkflowOne in a transaction valued at $216.5 million. The acquisition provided greater financial stability and flexibility, extended product lines, expanded the customer base and brought additional talent into the Company.
In conjunction with the acquisition, the Company completed an expansion and renewal of its credit facility, entering into a five-year $125 million senior-secured asset-based credit facility that provides additional liquidity and the ability to capitalize on growth opportunities.
The Company regained full compliance with New York Stock Exchange listing standards.
A 335,000 square foot digital print and distribution Center of Excellence opened in Jeffersonville, Indiana, in close proximity to United Parcel Service's (UPS) Worldport, optimizing the Company's operations and providing enhanced delivery options for marketing communications solutions.
The Company invested in state-of-the-art digital presses with high-volume ink jet technology that provide a broader and more customized range of color printing options for customer communications solutions.
Furthering its partnership with salesforce.com, the Company launched SMARTworks Connect, allowing mutual customers to connect their sales channels to marketing content, and was recognized for its innovative use of salesforce.com to build customer profiles.