Checkpoint Systems, Inc. (CKP)

Q2 2010 Earnings Call

July 29, 2010 2:00 p.m. ET

Executives

Bob Powers - VP, IR

Rob van der Merwe - President & CEO

Ray Andrews - SVP & CFO

Analyst s

Bob Labick - CJS Securities

Reik Read - Robert W. Baird

Ajit Pai - Stifel Nicolaus

Chris McGinnis - Sidoti & Company

Jerome Lande - Millbrook Captial

Presentation

Operator

Greetings and welcome to the Checkpoint Systems Second Quarter 2010 Conference Call. At this time all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation (Operator Instructions). As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host Bob Powers, Vice President of Investor Relations for Checkpoint Systems. Thank you Mr. Powers; you may now begin.

Bob Powers

Thank you, Jan. Good afternoon and welcome to Checkpoint System's Second Quarter 2010 Results Conference Call. On the call from the company are Rob van der Merwe, Chairman, President and Chief Executive Officer; and Ray Andrews, Senior Vice President and Chief Financial Officer.

If you have not yet received the copy of this morning's second quarter 2010 results release, it's available on the company's website; click on the Investors tab. Additionally, an archived version of this conference call will be available on our website.

Before we would begin, I would like to remind you that statements made on this conference call reflecting our future plans and strategies are forward-looking statements that are based on current expectations and assumptions. These expectations and assumptions are subject to risks and uncertainty, which could affect our future plans.

Checkpoint's actual results and the timing and occurrence of expected events could differ materially from our plans and expectations due to a number of factors, such as changes in the global economy and changes in the legal environment, as well as those factors disclosed in the earnings release within our filings with the Securities and Exchange Commission.

Please be aware that all information disclosed and discussed in this conference call is as of July 29, 2010. Checkpoint undertakes no duty to update any forward-looking statements to confirm the statements to actual results or changes in the company's expectations.

At this time I would like to turn the call over to Rob van der Merwe. Rob?

Rob van der Merwe

Thanks Bob, and good morning everyone, or good afternoon. Thanks for joining yesterday. I'll briefly discuss our second quarter results and Ray will then share some more financial detail. And at the conclusion of Ray's comments, I'll make some closing remarks and then we will be happy to take your questions.

First, the improving conditions we started to experience in our core markets late last year continued through the second quarter of 2010 and as we continue to execute according to our plan. We realized another strong quarter of organic growth and our margins have remained strong. We anticipate these favorable trends will continue throughout the year.

Second, although European market conditions remain mixed, we still realized organic growth there of 10%. It should be noted that although the dollar strengthened as compared to the euro, this move had less than a 1% negative impact on total sales in the quarter.

Third, the amended and restated credit agreement in note purchase and private shelf placement that we announced last week, will provide us with more borrowing capacity and flexibility to move forward on our growth strategy, and I think the favorable terms and timing of this transaction reflect our solid performance thus far and our strong balance sheet.

Finally, with having delivered a solid first half, we feel comfortable with the full-year financial goals that we outlined at the beginning of this year. And consistent with that, we've narrowed and updated our guidance for this year, and Ray will provide more details on that shortly.

Commenting briefly on our businesses, those that are dependent on retail CapEx spend and new store openings like EAS Systems Hardware, remained soft as you would expect. That said, our CheckView, CCTV, Burglar and Fire Alarm business in the United States, however had a positive organic growth for the first time in many quarters due to a number of things including our cross-selling initiatives.

Our consumables business is performing extremely well, notably Alpha and also Hard Tag at Source Solutions. Additionally we also remain very, very pleased with our Apparel Labeling Solutions business as we approach the first year anniversary of that successful acquisition. That's Brilliant Label.

So in another way, our recurring revenue base is increasing very nicely and this is very positive. In conclusion, we are currently pursuing some notable growth prospect in both the United States and in Europe, and I remain very excited about these opportunities. We do however fully realize that markets can change rapidly, both positively and negatively, and that such we continue to remain cautiously optimistic about the balance of this year.

Ray will now take you through the second quarter financial details.

Ray Andrews

Thanks Rob. First let me say that we filed our 10-Q this morning. That will provide additional details beyond the comments I make this afternoon. Revenue for the second quarter of 2010 was $208.2 million, compared to $181.9 million in the second quarter of last year, an increase of 14.4% year-over-year. Revenue included organic growth of 10% driven by the strong performance of our Alpha, EAS consumables and Apparel Labeling Solutions businesses.

Revenue was negatively impacted by 0.009% due to foreign currency which was primarily result of the strengthening of the dollar versus the euro during the second quarter. The August 2009 acquisition of Brilliant Label contributed 5.3% to revenue growth. Gross profit margins in the quarter were 43.6%, compared to 42.7% in the second quarter of 2009. I'll provide more details on this as I review results for the segments.

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