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Checkpoint Systems, Inc. Announces Second Quarter 2015 ResultsCheckpoint Systems, Inc. (NYSE: CKP) today reported financial results for the fiscal second quarter ended June 28, 2015. For more details on the Company's financial results, please see the supplemental presentation materials, "Second Quarter 2015 Financial Review," posted to the Company's website at http://ir.checkpointsystems.com and furnished to the SEC on Form 8-K. "I am pleased to report second quarter performance in-line with management's expectations," said George Babich, Checkpoint Systems' President and Chief Executive Officer. "While we continue to face a number of challenges in our business, including enormous year-over-year foreign currency headwinds, the sunset of our significant 2014 EAS hardware rollouts and challenging market dynamics in ALS, we are executing on our operational and strategic plans and our 2015 investments in topline growth initiatives are beginning to gain traction." Mr. Babich added, "I have the great pleasure to announce that we recently secured a contract for a new EAS hardware rollout with a major Asian retailer. While the details of this project remain confidential, we are displacing a competitor's systems with a suite of Checkpoint products, adding to our long list of competitive market share wins over the past decade without any major customer attrition. We have just begun the installation work and expect to recognize revenue related to the project in the second half of 2015 and into 2016." "We also reached an agreement with one of our largest North American customers. Beginning in the second half of 2015, this customer will upgrade their existing Checkpoint RF EAS antennas with our next generation of dual RF/RFID-ready antennas as they prepare to use RFID tags both for EAS loss prevention as well as for inventory visibility." "Finally, later in 2015 and into 2016, we expect one of our largest European customers will begin to deploy our Merchandise Visibility solutions in approximately 150 stores and distribution centers in France. This represents the next step forward with this retailer who we expect to deploy our end-to-end Merchandise Visibility solutions worldwide, beginning in the DC, then into the back-of-store, then in-store." "We are now in discussion, proof of concept, pilot, or partial deployment phases of our Merchandise Visibility solutions in more than 30 retailers across the globe. Checkpoint is the thought leader for these retailers as they explore the myriad of benefits RFID technology has to offer in their stores and distribution centers and we are confident that we will convert many of these projects to full deployments in the years to come." "While we continue to face a number of challenges in our businesses, we also continue to gain share in EAS as we transition and transform our legacy businesses by expanding our RFID capabilities and gaining share in the fast-growing market." Share Repurchase Program The Board of Directors has authorized the repurchase of up to $30 million of common shares over the next two years. Mr. Babich added, "This share repurchase authorization reflects our confidence in Checkpoint's financial strength and our long-term growth prospects, including the broader adoption of RFID technology by our retail customers. Share repurchases are a key element of our capital allocation strategy which aims to maximize stockholder value while maintaining the financial flexibility to pursue organic investments and strategic acquisitions as opportunities arise." Selected Discussion and Analysis of Second Quarter 2015 Results
Outlook for 2015 Based on an assessment of market conditions, current customers' orders and commitments, and assuming continuation of current foreign exchange rates, Checkpoint is reaffirming its guidance for 2015. This guidance does not include the impact of acquisitions, divestitures, restructuring and one-time or unusual charges resulting from litigation fees or settlements and gains or losses generated by non-routine operating matters which we may record during the year. Projected income taxes for the year can be impacted by changes in the mix of pre-tax income and losses in the countries in which we operate. The valuation allowance on U.S. deferred tax assets results in a GAAP tax rate on U.S. pre-tax income or losses of essentially 0%. When the mix of income or losses shifts from the U.S. to a country where the income tax rate is in the normal range, our effective tax rate will increase. Additionally, we continue to monitor our profitability in the U.S. to determine whether there is sufficient evidence that may result in a full or partial release of the U.S. valuation allowance. Should this occur, the current GAAP tax rate in the U.S. will be significantly impacted. The combination of these factors can have a material effect on the amount of reported income tax expense, and therefore our earnings per share, when compared with the projections that are the basis of our outlook. James Lucania, Acting Chief Financial Officer and Treasurer, said, "We will continue to face some margin pressures for the remainder of 2015, especially in EAS Consumables where lower production volumes are driving under absorption, exacerbated by rising material and direct labor costs in the factories. In our ALS businesses, market overcapacity in certain geographies is generating some significant pricing pressures which we expect will continue. However, we expect that the incremental income from our new EAS contract will help to offset these pressures and we continue to expect 2015 results within our prior guidance range."
Checkpoint Systems will host a conference call tomorrow, August 4, 2015, at 8:30 a.m. Eastern Time, to discuss its second quarter 2015 results. The call will be simultaneously broadcast live over the Internet. Listeners may access a webcast of the call at http://ir.checkpointsystems.com. A replay will be available following the event. Checkpoint Systems, Inc. Checkpoint Systems is a global leader in merchandise availability solutions for the retail industry, encompassing loss prevention and merchandise visibility. Checkpoint provides end-to-end solutions enabling retailers to achieve accurate real-time inventory visibility, accelerate the replenishment cycle, prevent out-of-stocks and reduce theft, thus improving merchandise availability and the shopper's experience. Checkpoint's solutions are built upon 45 years of radio frequency technology expertise, innovative high-theft and loss prevention solutions, market-leading RFID hardware, software, and comprehensive labeling capabilities, to brand, secure and track merchandise from source to shelf. Checkpoint's customers benefit from increased sales and profits by implementing merchandise availability solutions, to ensure the right merchandise is available at the right place and time when consumers are ready to buy. For more information, visit www.checkpointsystems.com. Caution Regarding Forward-Looking Statements This press release includes information that constitutes forward-looking statements. Forward-looking statements often address our expected future business and financial performance, and often contain words such as "expect," "anticipate," "intend," "plan," "believe," "seek," or "will." By their nature, forward-looking statements address matters that are subject to risks and uncertainties. Any such forward-looking statements may involve risk and uncertainties that could cause actual results to differ materially from any future results encompassed within the forward-looking statements. Factors that could cause or contribute to such differences include: the impact upon operations of accounting policies review and improvement; the impact upon operations of legal and compliance matters or internal controls review, improvement and remediation, including the detection of wrongdoing, improper activities, or circumvention of internal controls; our ability to successfully implement our strategic plan; our ability to manage growth effectively including our ability to integrate acquisitions and to achieve our financial and operational goals for our acquisitions; changes in economic or international business conditions; foreign currency exchange rate and interest rate fluctuations; lower than anticipated demand by retailers and other customers for our products; slower commitments of retail customers to chain-wide installations and/or source tagging adoption or expansion; possible increases in per unit product manufacturing costs due to less than full utilization of manufacturing capacity as a result of slowing economic conditions or other factors; our ability to provide and market innovative and cost-effective products; the development of new competitive technologies; our ability to maintain our intellectual property; competitive pricing pressures causing profit erosion; the availability and pricing of component parts and raw materials; possible increases in the payment time for receivables as a result of economic conditions or other market factors; our ability to comply with covenants and other requirements of our debt agreements; changes in regulations or standards applicable to our products; our ability to successfully implement global cost reductions in operating expenses including, field service, sales, and general and administrative expense, and our manufacturing and supply chain operations without significantly impacting revenue and profits; our ability to maintain effective internal control over financial reporting; risks generally associated with information systems upgrades and our company-wide implementation of an enterprise resource planning (ERP) system and additional matters disclosed in our Securities and Exchange Commission filings. For a more detailed discussion of these and other factors, see "Risk Factors" and "Management's Discussion and Analysis of Results of Operations and Financial Condition" in our 2014 Form 10-K, filed on March 5, 2015 with the Securities and Exchange Commission. The forward-looking statements included in this document are made only as of the date of this document, and we undertake no obligation to update these statements to reflect subsequent events or circumstances, other than as may be required by law.
Reconciliation of Non-GAAP Financial Measures in Accordance with SEC Regulation G Checkpoint Systems, Inc. reports financial results in accordance with U.S. GAAP and herein provides some Non-GAAP measures. These Non-GAAP measures are not in accordance with, nor are they a substitute for, GAAP measures. These Non-GAAP measures are intended to supplement presentation of our financial results that are prepared in accordance with GAAP. We use the Non-GAAP measures presented to evaluate and manage our operations internally. We are also providing this information to assist investors in performing additional financial analysis that is consistent with financial models developed by research analysts who follow us. We use Adjusted EBITDA in assessing our performance in addition to net earnings determined in accordance with GAAP. We believe this Non-GAAP measure serves as an appropriate measure to be used in evaluating the performance of our business and helps our investors better compare our operating performance with the operating performance of our competitors. We define Adjusted EBITDA as operating income (loss) plus Non-GAAP adjustments, plus other gain (loss), net excluding foreign exchange gain (loss), plus depreciation and amortization expense, plus stock compensation expense. We reference this Non-GAAP financial measure frequently in our decision-making because it provides supplemental information that facilitates internal comparisons to the historical operating performance of prior periods and external comparisons to competitors' historical operating performance. Adjusted EBITDA should not be considered in isolation from, and is not intended to represent an alternative measure of, operating results or of cash flows from operating activities, as determined in accordance with GAAP. Our definition of Adjusted EBITDA may not be comparable to similarly titled measurements reported by other companies. Set forth below is a reconciliation of the Non-GAAP financial measures used in this release to the most directly comparable measures based on GAAP.
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