Spire Inc.
Q4 2013 Earnings Call Transcript

Published: 21 Feb 2014

[Operator:]

Good day, everyone, and welcome to Standard Register's 2013 Fourth Quarter and Full Year Results Conference Call. Today's call is being recorded. As a reminder, the presentation slides for today's conference are available by accessing the Investor Relations section of the Standard Register website at www.standardregister.com/investorcenter. I will now turn the call over to Carol Merry. Please go ahead.

[Carol Merry:]

Thank you, Crystal. Good morning, everyone, and welcome to the Standard Register 2013 fourth quarter conference call. Earlier today, Standard Register published fourth quarter and full year 2013 results. The news release is available at the company's website. During our conference call, President and CEO, Joe Morgan; and Executive Vice President and CFO, Bob Ginnan, will discuss the company's performance and results. Before we get started, I would like to remind you that today's presentation may contain forward-looking language and projections. These types of comments need to be taken into consideration with the Safe Harbor statement that can be found either in the earnings release Standard Register issued this morning, on the webcast slides that accompany this presentation, by accessing the company website under Investor Center or in the company's Securities and Exchange Commission filings. In addition, the speakers may make use of financial measures that are not in accordance with generally accepted accounting principles or GAAP. It is management's belief that the use of these measures will assist the audience's understanding of our financial position. They're not meant to be used in isolation or as a substitution for GAAP, and a reconciliation between these measures and their GAAP counterparts can be found in the earnings release that was issued this morning. For today's presentation, Joe Morgan will provide a few opening comments that will be followed by Bob Ginnan's review of the financials for the quarter and year-to-date. And Joe will then discuss the company's strategy and direction. And following his comments, we'll open up the call for your questions. And now I'll turn the call over to Joe for his opening comments.

[Joseph P. Morgan:]

Thank you, Carol. Good morning to everyone, and thank you for joining us today. As you know, from our previous reporting, 2013 was a very much transitional and, in many ways, transformative year for Standard Register. We're in a much different, much better position today than we were in 2013 when we began the year. We're starting to see the positive effects of our investments and the realignment actions that we have taken to stabilize the company and position us for sustainable growth over the long-term. Today, there are many good things happening within the company and performance in the fourth quarter serves as an indicator for where we will be concentrating our attention going forward. The WorkflowOne acquisition was immediately accretive to our business, and you can see that in the increase in revenue in the fourth quarter. There are many other positive impacts as well, and I'll note a few of them, such as

[Robert M. Ginnan:]

Thank you, Joe. Turning to the operating results. You can see, for the quarter, we had net income of $9 million versus a loss of $35 million last year. Kind of working up the P&L, revenue was $242 million, which reflects the growth Joe mentioned as a result of the acquisition. Margin, about the same percentage as last year and SG&A actually improved on a percentage basis, leaving us an operating profit of $15.8 million versus $7.1 million in the prior year. As we pointed out in the press release, we did -- as we converge policies of the 2 companies, we did reverse a vacation accrual, which was about $5 million of that operating profit there. Pointing to the pension, in the third quarter, we elected the mark-to-market pension accounting with the corridor option. And so for the most part, pension is now out of the P&L. This represents the pension accounting adjustments made through actuarial adjustments because at the beginning of the year, our corridor was completely filled on the negative side. With the interest rate increases, we now have room in that corridor. And we've attached a chart in the back for you to get a better picture of how that corridor operates and where we are in that corridor. But for this quarter, we did recognize an expense there. Additional restructuring of $5 million and then pretax income of $3.1 million. We did have a tax benefit that resulted -- as a result of the special rule within taxes, given our positive of the company's income and the fact that we had a loss for the year allowed us to recognize a tax benefit, thus, increasing the net income. On a year-to-date basis, a $7.4 million loss, with $26.5 million in restructuring, about $10 million of that restructuring is the associated deal costs with the acquisition. So absent the restructuring cost there, positive on the year as well. Looking at the segments and, actually, I'll work from the 2 charts that break out the segments and the solution, you'll see growth in each of the growth solutions within Healthcare, Marketing, Communications, Patient ID and Safety and the Patient Information Solutions and then, of course, Document Management, where the clinical forms reside that we've been talking about for quite some time. Same with Business Solutions, growth in Marketing Communications, Customer Communications and the Product Marking & Labeling. And the interesting thing in both businesses is when you add up the 3 growth solutions versus Document Management in each business, they now outpace the prior year in terms -- or I'm sorry, outpace the Document Management. So the growth is starting to come to life there. So that's a good turning point. On the balance sheet, most importantly, 2 things on the balance sheet. One is that the opening balance sheet work with the acquisition is all complete, and contained within the balance sheet here. And then secondly, as Joe pointed out, the $60 million decline in pension liability. Roughly $33 million of that was because of the rising interest rates and the other component comes from contributions made to the plan throughout the year. So a significant improvement in the pension liability and, thus, translating into net improvement in equity for the year, which was a very positive thing there as well. On the cash flow, we did have positive cash flow in the quarter, a couple hundred thousand dollars, after the -- including all the restructuring payments. And for the year, we are negative $6.4 million, but we spent about $10 million on the deal costs. So positive without the deal cost for the year as well. With that, that's the financial results. There is a chart in the back on the corridor if you'd like to understand more of that, as well as a GAAP to non-GAAP reconciliation in the back. Joe?

[Joseph P. Morgan:]

Thanks, Bob. I'm going to talk a little bit about some of the things that are going on in each of the individual businesses, to give some more feel for the progress that's going on within the company. For 2014, our focus is growing our growth solutions, which are reflected in the presentation. The integration achievement, we have a lot of activity going on there around operations, customer service and the overall business. And then ensuring that we achieve the operational outcome that we need, which is to be able to support our customers in the solutions that we are driving going forward. It's actually a very exciting alignment opportunity for the company. The WorkflowOne acquisition has given us broader customer base. Very little overlap, as I said in previous calls, and some new products and solutions, as well as a broader depth technically in, from a capability standpoint, in Document Management, which we all know is one of the foundational components of our past, and continues to be important going forward, although, being a lesser part of the growth opportunity. While the demand for printed forms, such as paper patient records, is decreasing, we know the slope of the curve. We understand the business and we're managing to that. So to go along with our Document Management service, we have positioned the company where the demand will be, which is our market focus, where growth will continue and where we can add value for our customers. This is where I'm going to spend a little bit of time on each of the businesses. One thing that as you look at the deck that's provided along with the call, you'll see that we have 4 solution sets in each of the businesses

[Operator:]

[Operator Instructions] And your first question comes from the line of with Gary Hugh [ph] at STC Capital.

[Unknown Analyst:]

Could you just remind us, I don't know if you've given this out yet, can you give us some guidance on -- $40 million is the total synergies. Could give us a sense for what you captured to date and what you plan to sort of get through in '14?

[Robert M. Ginnan:]

I don't think we're prepared to talk about '14 other than in terms of the total, which you mentioned there. In the fourth quarter, I would say that it's probably about $3 million actually realized in the quarter.

[Unknown Analyst:]

Okay. And do you have sort of a quantity of cash that you've expended to date on integration and then a plan for cash that you'd expend in 2014?

[Robert M. Ginnan:]

Well, what we said, year-to-date, in our cash flow, I believe that -- let me get that here. In ...

[Unknown Analyst:]

It could be directional, too, it doesn't have to be an amount [ph].

[Robert M. Ginnan:]

Yes. Probably, including the deal costs and the integration, we're probably about $15 million in 2013, with the number and that's all for cash flow and the deal cost fees. And as far as '14 goes, we're not prepared to disclose that specifically. However, we did say in the press release that we will be negative in the year as we really focus on integrating the companies, being the primary driver there.

[Unknown Analyst:]

Okay, that makes sense. And I don't know if you've given the information out in your past filings to come up with this number or not, but do you have a sort of pro forma Standard Register workflow, third quarter '13 revenue and EBITDA, as if the acquisition took place at the beginning of the quarter? I guess it closed August 1, so the 10-Q doesn't give a -- it's gives an okay picture but not a full picture to sort of compare the $242 million of revenue and the $25.5 million of EBITDA.

[Robert M. Ginnan:]

Yes, in the 10-K, when we file that here in a little over a week or so, we'll have that detail in there for you.

[Unknown Analyst:]

Okay. Great. And then is there any way -- I'm not a -- by no means am I a pension expert, is there any way you could sort of give a little bit more detail on how Slide 11 works with respect to the pension? If I understood what your comment was, you don't anticipate having pension expense in your income statement, not going forward or is it something different than that?

[Robert M. Ginnan:]

That's a potential conclusion but with a couple of caveats around that. And so if you look at that slide, when we elected the mark-to-market accounting, we did select the corridor option, which basically says that you have a quarter of plus or minus 10% of your liability, or your asset, if that would be bigger, but in our case the liability is bigger. So you have a quarter of plus or minus 10% but basically, if you're within that corridor, any of the actuarial adjustments which include interest rate changes, asset performance, et cetera, actually, just stay within that corridor and you don't take anything to the P&L. So if you look at Slide 11, what that says is, coming into the year, our corridor, I kind of think of it as a bucket was completely filled on the negative side. And with the increase in interest rates, that gain actually then reduced the liability but also started to empty the bucket. So that graph kind of gives you a feeling that roughly -- you're at roughly $40 million to $50 million bucket in terms of the corridor and we only have about $18.5 million on the negative side. Now then you -- hopefully, as interest rates rise, you start to go into the positive side but you don't take gains to the P&L either until you've surpassed that $47 million in terms of gains on the positive side either. So if rates stay flat or continue to rise, we should be pretty clean here going forward for a little bit of time.

[Unknown Analyst:]

But so I guess, I'm just trying to -- at a high-level, I'm just trying to think about the business. So you -- and the $25 million of EBIT -- $25.5 million EBITDA, that has the benefit change in it. So maybe, call it, closer to $20 million, but you'll pick up some synergies over time, ideally. And I know this is going to sound really crude to you but if $20 million is sort of 80-ish and then you pick up $30 million, $35 million more, let's say, you're kind of at $115 million or so of normalized maybe EBITDA. But you don't have any -- there's no pension expense in that and you're still -- and you're going to contribute just under $40 million, do you plan to -- at least, that's what the press release said. You're going to plan to contribute just under $40 million of cash to your pension in 2014. And do you know now -- do you have any sense for what a '15 contribution will be? Will there be -- just directionally, do you have any sense for what that will be?

[Robert M. Ginnan:]

Yes, and I'll tell you what, we will actually put the next 3 years in the 10-K. We'll going to put that in there for you for the...

[Unknown Analyst:]

But do you think it's going to be coming down in '15 or still be able to...

[Robert M. Ginnan:]

Yes, because 2014 is the high point. But '15 is not necessarily dramatic but 2014 is the high point.

[Unknown Analyst:]

Yes, because it's big. I mean, as I'm sure you think about that, too.

[Robert M. Ginnan:]

Yes.

[Unknown Analyst:]

Okay. All right, well, that's very helpful. And let me just try to go to my last one because I don't want take up too much of your time. And then well, I guess, one of them -- you answered or it was in your slide, there's $51.3 million drawn on the ABL facility?

[Robert M. Ginnan:]

Yes.

[Unknown Analyst:]

Okay. And how much -- the ABL is $125 million, how much -- is the whole $125 million, other than the $51.3 million, is the other amount available or is that constrained?

[Robert M. Ginnan:]

It's pretty much available. We have a little bit of letters of credit that doesn't amount to a whole heck of a lot but takes some of that capacity. And then we have, obviously, we don't want to operate at the very end of that. So it's not technically constrained but from an operating perspective, it is.

[Unknown Analyst:]

Okay. And then do you have, like, a capital expenditures plan for 2014?

[Robert M. Ginnan:]

We will. In the 10-K, we will put a range in there for you.

[Operator:]

[Operator Instructions]

[Carol Merry:]

Well, if there are no more questions, this will conclude our call today, and we thank everyone for participating.

[Operator:]

This does conclude today's conference call. You may now disconnect.