Checkpoint Systems, Inc. Announces First Quarter 2008 Results

Business Wire,  May 7, 2008  

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Company Reports 22.4% Increase in Revenue

THOROFARE, N.J. -- Checkpoint Systems, Inc. (NYSE: CKP) today reported financial results for the first quarter ended March 30, 2008.

For the first quarter of 2008, revenue was $209.6 million, an increase of 22.4%, compared to revenue of $171.2 million in the first quarter of 2007. Foreign currency had a positive impact on revenue of 8.7%, and revenue from the Alpha, SIDEP and Asialco businesses, which were acquired during the fourth quarter of 2007, accounted for approximately 9.2% of the overall sales growth in the quarter. Net earnings for the first quarter were $4.8 million, or $0.12 per diluted share, compared to net earnings of $5.0 million, or $0.12 per diluted share, in the first quarter of 2007.

Included in net earnings for the first quarter of 2008 are after-tax charges of $0.8 million, or $0.02 per diluted share, related to a deferred compensation expense adjustment from prior periods and $0.7 million, or $0.02 per diluted share, related to restructuring activities. In 2007, net earnings for the first quarter included a charge of $0.3 million, or $0.01 per diluted share, related to the Company's restructuring activities.

"Checkpoint's first quarter results represent a good start to the year," said Rob van der Merwe, President and Chief Executive Officer of Checkpoint. "The first quarter, typically slow from a seasonal perspective for both Checkpoint and the businesses we've acquired, saw organic growth and good contributions from recent acquisitions across our most significant geographies. We continued to build our reputation in the marketplace as a leading provider of shrink management solutions and services, while at the same time maintaining our focus on controlling our operating expenses."

Mr. van der Merwe continued, "First quarter revenue growth on a constant dollar basis was primarily driven by our acquisitions of the Alpha S3 product portfolio, SIDEP and Asialco, as well as a 34% increase in sales in our U.S. CCTV systems integration business and a 36% increase in our CheckNet[R] service bureau business in the U.S. Excluding acquisitions, EAS hardware sales increased 7% overall."

"We made progress against our plans to grow our business through technological leadership," continued Mr. van der Merwe. "During the quarter, Checkpoint debuted Evolve[TM], our new, state-of-the-art shrink management platform. Evolve is our next-generation suite of RF and RFID enabled products that enables retailers to take shrink management to the next level through a combination of enhanced system performance and reliability and reduced cost of ownership. With a compelling value proposition and state-of-the-art technology, this new solution enables Checkpoint to sell products to a wider array of new customers, and also generates new opportunities for increased sales to existing customers."

Financial highlights for the first quarter ended March 30, 2008:

* Revenue for the first quarter of 2008 was $209.6 million, compared to revenue of $171.2 million in the first quarter of the prior year. Foreign exchange had a positive impact on revenue of $14.8 million, or 8.7%, in the first quarter 2008, as compared to the first quarter 2007.

* Gross profit was $86.5 million, or 41.3% of revenue, compared to $70.3 million, or 41.1% of revenue, in the first quarter of 2007.

* Selling, general, and administrative expenses (SG&A) for the current year period were $73.9 million, compared with $59.8 million a year ago. As a percentage of revenue, SG&A was 35.2% in the first quarter of 2008, versus 34.9% in the first quarter of 2007. For the first quarter of 2008, SG&A expense includes a charge of $1.4 million related to a deferred compensation expense adjustment from a prior period, and $1.6 million higher bad debt provision compared to the first quarter of 2007 primarily due to a general increase in the age of accounts receivable, primarily attributable to customers outside the U.S. and a provision established for a distributor in Iran. SG&A for the first quarter of 2008 also included $0.6 million in incremental costs associated with the launch of the Evolve shrink management platform.

* Research and development expenses for the first quarter of 2008 totaled $5.2 million, or 2.5% of revenue, compared with $4.0 million, or 2.3% of revenue, in the first quarter of 2007.

* GAAP operating income in the first quarter of 2008 was $6.4 million, compared to $6.2 million in the prior year period. Excluding charges related to the deferred compensation expense adjustment from a prior period and restructuring expense, operating income in the first quarter of 2008 was $8.7 million, or 4.2% of revenue. Excluding restructuring expense, operating income in the first quarter of 2007 was $6.5 million, or 3.8% of revenue. (See attached table "Reconciliation of GAAP to Non-GAAP Measures".)

* Non-operating expense for the first quarter of 2008 totaled $1.8 million, and includes interest income of $0.6 million, interest expense of $1.3 million, a foreign exchange loss of $1.2 million, and $0.1 million of rental income. For the first quarter of 2007, non-operating income totaled $0.3 million, and includes interest income of $1.2 million, interest expense of $0.3 million, a foreign exchange loss of $0.7 million, and $0.1 million of income from the rendering of transitional services to SATO.