Valassis Announces Financial Results for the Quarter Ended March 31, 2007
LIVONIA, Mich., May 3 /PRNewswire-FirstCall/ -- Valassis (NYSE: VCI) today
announced financial results for the first quarter ended March 31, 2007. The
company reported quarterly revenues of $361.3 million, up 45.9% from the first
quarter of 2006, primarily due to the acquisition of ADVO, Inc. that occurred on
March 2, 2007. First-quarter net earnings were $11.2 million, or $0.23 in
earnings per share (EPS). Earnings, prior to charges of $3.0 million ($1.9
million, net of tax) related to the acquisition of ADVO, were $13.1 million. For
the quarter, operating income was $26.9 million and adjusted EBITDA* was $39.6
million. Adjusted free cash flow* was $18.4 million for the quarter.
"Our emphasis is on improving profitability and free cash flow, with the
goal of reducing our net debt to EBITDA ratio to 3:1," said Alan F. Schultz,
Valassis Chairman, President and CEO. "We are pleased with the progress made to
deliver the $18 million in cost synergies previously identified for 2007, and
are confident in our ability to exceed that goal. The collaboration and tireless
effort from all associates have been exemplary and are key to achieving our
near- and long-term integration objectives.
"We have developed a comprehensive plan for integrating the two companies
and maximizing profitability. Key components of this integration plan are as
follows:
-- Drive ADVO package and profit optimization by minimizing unused
postage and eliminating unprofitable ADVO distribution;
-- Execute a ShopWise wrap sales improvement plan;
-- Eliminate the detached address label by printing the address
directly on the reformatted wrap;
-- Pass along related postal rate case cost increases to clients;
-- Exceed planned cost synergies;
-- Implement Valassis' strategic sourcing, capital expenditure and
Information Technology (IT) project policies and approval processes
throughout the combined company;
-- Print the ShopWise wrap in-house at our three manufacturing
facilities;
-- Develop a proactive, comprehensive newspaper alliance strategy;
-- Rebuild ADVO's internal graphic print capability;
-- Integrate marketing for the combined company and create a
company-wide targeting system;
-- Stabilize and optimize business processes and enterprise systems;
and -- Align our associates' 'Total Rewards Program' to our goal of
maximizing free cash flow."
Outlook
On Feb. 7, 2007, Valassis provided its outlook for 2007 for the combined
company on a pro forma basis, assuming the closing of the ADVO acquisition
occurred on Jan. 1, 2007. Based on the actual March 2, 2007 closing date of the
transaction, the following updated outlook is being provided to reflect the
partial year impact of the acquisition:
-- Revenue of $2.25 billion to $2.35 billion;
-- Adjusted EBITDA* of $255.0 to $265.0 million (includes cost
synergies, but does not include one-time expenses associated with
cost-to-achieve synergies). Expected one-time cost-to-achieve
synergies of $25.0 million to be incurred in 2007, which includes
$10.5 million of capital expenditures;
-- Expected cost synergies of $20.0 million for 2007 (increased from
the previous forecast of $18.0 million); cost synergies expected to
increase to $32.0 million for 2008 and $40.0 million for 2009;
-- Expected capital expenditures of $53.6 million for 2007; 2008 and
2009 are expected to be approximately $35.0 million each year.
Capital expenditures for the first quarter of 2007 were $5.6
million;
-- Expected depreciation and amortization for 2007 of $63.7 million,
including $8.3 million of amortization of intangible assets related
to the purchase of ADVO. Depreciation and amortization for the first
quarter was $7.4 million; and
-- Expected tax rate for 2007 is 37.2%.
*Further important information regarding operating results and related
reconciliations of non-GAAP financial measures to the most comparable GAAP
measures can be found in the "Reconciliation of Non-GAAP Measures" schedule
following the financial statements, which should be thoroughly reviewed.
Business Segment Discussion
-- Market Delivered Free-standing Insert (FSI): Co-op FSI revenues for
the first quarter were $109.6 million, down 4.9% from the first
quarter of 2006, due to a reduction in FSI pricing. Management noted
that Valassis pages produced were up by a percentage in the
mid-single digits year over year, due to unit growth in the co-op
FSI industry of approximately 2.0% and a modest improvement in
market share. FSI cost of goods sold was down for the quarter on a
cost per thousand (CPM) basis, due to reductions in media costs.
-- Neighborhood Targeted Products: The Neighborhood Targeted segment
now includes the Run of Press (ROP) business, previously reported as
a separate business segment. Revenues for the first quarter were
$100.5 million, up 15.3% from the prior year quarter, due to
increases in ROP and preprints primarily in the telecommunications,
financial services and franchise food customer verticals. As a
result, segment profits were up 48.6% to $11.0 million for the
quarter.
-- Household Targeted Products: Household Targeted product revenues for
the first quarter were $11.2 million, down 38.5% from the first
quarter of 2006, due to the continued phasing-out of the loyalty
marketing agency business and softness in solo direct mail sampling
programs. This segment experienced a $1.0 million loss for the
quarter, due to revenue declines and increased SG&A in the segment
associated with the company's investment in its online media
planning and placement and the company's new interactive initiative.
-- International & Services: International & Services revenues are
comprised of NCH Marketing Services, Valassis Canada, Promotion
Watch and in-store. International & Services reported revenues of
$27.9 million for the first quarter, up 3.7%. Segment profits were
up 28.6% to $2.7 million, driven by higher coupon clearing volumes
in the United States and the United Kingdom.
-- ADVO: ADVO revenues from March 2, 2007, the date of the closing of
the ADVO acquisition, through March 31, 2007 were $112.1 million and
operating income was $5.3 million. However, these operating results
are not indicative of ADVO's financial performance for the full
three-month period ended March 31, 2007. For the full quarter ended
March 31, 2007, ADVO revenues were $355 million, down 4.8% versus
the same quarter a year ago, due to a significant reduction in
spending by two specific customers and a 3.1% reduction in shared
mail packages. Pieces per package were up 3% for the quarter, with a
slight decline in total shared advertising pieces and revenue per
thousand pieces. ADVO's operating income, excluding
acquisition-related costs and prior billing and collection
adjustments, for the time period in 2007 prior to the close of the
transaction was approximately $1.0 million. Valassis will provide
pro forma first quarter 2007 financial information in its Securities
Exchange Commission (SEC) Form 10-Q for the first quarter.
Segment Results Summary
Quarter Ended
March 31,
Revenue by Segment (in millions) 2007 2006 % Change
Free-standing Insert $109.6 $115.3 -4.9%
Neighborhood Targeted(1) $100.5 $87.2 15.3%
Household Targeted $11.2 $18.2 -38.5%
International & Services $27.9 $26.9 3.7%
ADVO(2) $112.1 n/a n/a
Total Revenue $361.3 $247.6 45.9%
Quarter Ended
March 31,
Segment Profit/Loss (in millions) 2007 2006 % Change
Free-standing Insert $9.8 $17.6 -44.3%
Neighborhood Targeted(1) $11.0 $7.4 48.6%
Household Targeted -$1.0 $2.4 -141.7%
International & Services $2.7 $2.1 28.6%
ADVO(2) $5.3 n/a n/a
Total Segment Profit $27.8 $29.5 -5.8%
1 Neighborhood Targeted now includes the Run of Press business. The
combination of these segments was driven by the similarity in their sales
and operational processes and the fact they now have a common sales and
general management team.
2 Valassis acquired ADVO on March 2, 2007.
Conference Call Information
Valassis will hold an investor call today to discuss its first-quarter
results at 11 a.m. (EDT). The call-in number is (800) 218-0530. The call will
simulcast on Valassis' Web site, at http://www.valassis.com, and replay through
May 17, 2007 at (800) 405-2236, pass code 11072110. This earnings release and
the webcast will be archived on Valassis' Web site under "Investor."
About Valassis
Valassis is the nation's leading marketing services company, offering
unique and diverse media plans with the most comprehensive product and customer
portfolio in the industry. The company offers products and services including
newspaper-delivered promotions such as inserts, sampling, polybags and on-page
advertisements; shared mail; direct mail; in-store marketing; direct-to-door
advertising and sampling; Internet-delivered marketing; loyalty marketing
software; coupon and promotion clearing; promotion planning; and analytic
services. We reach over 60 million households through weekly newspaper
distribution and 90% of U.S. homes though shared mail distribution. The company
has relationships with more than 15,000 advertisers worldwide in various
industries, representing 96 of the top 100 U.S. advertisers. With global
headquarters in Livonia, Michigan, the company employs approximately 7,500
associates in 22 states and nine countries and is widely recognized for its
associate and corporate citizenship programs. Valassis companies include ADVO,
Inc., Valassis Canada, Promotion Watch, Valassis Relationship Marketing Systems,
LLC and NCH Marketing Services, Inc. For additional information, visit the
company Web site at http://www.valassis.com.
Safe Harbor and Forward-Looking Statements
Certain statements found in this document constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. Such forward-looking statements involve known and unknown risks and
uncertainties and other factors which may cause the actual results, performance
or achievements of the Company to be materially different from any future
results, performance or achievements expressed or implied by such
forward-looking statements. Such factors include, among others, the following:
price competition from the Company's existing competitors; new competitors in
any of the Company's businesses; a shift in customer preference for different
promotional materials, strategies or coupon delivery methods; an unforeseen
increase in the Company's paper or postal costs; economic disruptions caused by
terrorist activity, armed conflict or changes in general economic conditions;
changes which affect the businesses of the Company's customers and lead to
reduced sales promotion spending; challenges and costs of achieving synergies in
connection with the ADVO acquisition and integrating ADVO's operations; or the
ability of the Company to generate a sufficient amount of cash flow to meet its
debt obligations. The Company disclaims any intention or obligation to update or
revise any forward-looking statements, whether as a result of new information,
future events or otherwise.
VALASSIS COMMUNICATIONS, INC.
Consolidated Balance Sheets
(in thousands)
Assets March 31, Dec. 31,
2007 2006
Current assets:
Cash and cash equivalents $139,679 $ 52,619
Auction-rate securities - 102,533
Accounts receivable 470,116 339,079
Inventories 30,043 25,834
Refundable income taxes 7,397 3,957
Deferred income taxes 19,873 1,789
Other 26,809 16,681
Total current assets 693,917 542,492
Property, plant and equipment,
at cost 499,322 262,876
Less accumulated depreciation (158,849) (153,490)
Net property, plant and
equipment 340,473 109,386
Intangible assets 1,220,246 208,689
Less accumulated amortization (76,188) (75,280)
Net intangible assets 1,144,058 133,409
Investments and advances to investees 5,894 4,899
Other assets 29,208 11,240
Total assets $2,213,550 $801,426
VALASSIS COMMUNICATIONS, INC.
Consolidated Balance Sheets, Continued
(in thousands)
Liabilities and Stockholders' Equity
March 31, Dec. 31,
2007 2006
Current liabilities:
Accounts payable and accruals $430,005 $312,962
Progress billings 47,687 49,258
Total current liabilities 477,692 362,220
Long-term debt 1,389,939 259,931
Other liabilities 18,615 8,195
Deferred income taxes 151,028 3,506
Stockholders' equity:
Common stock 633 633
Additional paid-in capital 45,977 44,225
Retained earnings 645,494 638,209
Treasury stock (520,227) (520,227)
Accumulated other comprehensive gain 4,399 4,734
Total stockholders' equity 176,276 167,574
Total liabilities and stockholders'
equity $2,213,550 $801,426
VALASSIS COMMUNICATIONS, INC.
Consolidated Statements of Operations
(in thousands, except per share data)
Quarter Quarter
Ended Ended
March 31, March 31, %
2007 2006 Change
Revenue $361,304 $247,646 + 45.9%
Costs and expenses:
Costs of products sold 279,017 185,269 + 50.6%
Selling, general and
administrative 54,526 32,742 + 66.5%
Amortization 908 138 + 558.0%
Total costs and expenses 334,451 218,149 + 53.3%
Operating income 26,853 29,497 - 9.0%
Other expenses and income:
Interest expense 10,619 2,855 + 271.9%
Other (income) and expenses (2,178) (1,354) + 60.9%
Total other expenses and
(income) 8,441 1,501 + 462.4%
Earnings before income taxes 18,412 27,996 - 34.2%
Income taxes 7,179 9,938 - 27.8%
Net earnings $11,233 $18,058 - 37.8%
Net earnings per common share,
diluted $ 0.23 $ 0.38 - 39.5%
Weighted average shares
outstanding, diluted 47,850 47,769 + 0.2%
Supplementary Data
Amortization $ 908 $ 138
Depreciation 6,498 3,539
Capital expenditures 5,615 1,834
VALASSIS COMMUNICATIONS, INC.
Reconciliation of Non-GAAP Measures
Quarter Ended March 31, 2007
(in thousands)
Reconciliation of Operating Income to Adjusted EBITDA* and Cash Flow
from Operations
Operating Income - GAAP $26,853
Depreciation 6,498
Amortization 908
EBITDA $34,259
Acquisition/litigation-related expenses 905
Stock-based compensation expense (SFAS No. 123R) 1,753
Amortization of customer contract incentive 1,215
Asset write-off charge 1,460
Adjusted EBITDA $39,592
Interest and other expense, net (8,441)
Income taxes (7,179)
Acquisition/litigation-related expenses (905)
Changes in operating assets and liabilities 23,825
Cash Flow from Operations $46,892
Reconciliation of Net Earnings to Adjusted Free Cash Flow*
Net Earnings $11,233
Depreciation 6,498
Amortization 908
Acquisition/litigation-related expenses 905
Stock-based compensation expense (SFAS No. 123R) 1,753
Amortization of customer contract incentive 1,215
Asset write-off charge 1,460
Capital expenditures (5,615)
Adjusted Free Cash Flow $18,357
*We define adjusted EBITDA as net earnings before net interest and related
expenses, income taxes, depreciation, amortization,
acquisition/litigation-related expenses, stock-based compensation expense
associated with SFAS No. 123R, amortization of a customer contract incentive and
other non-cash charges. We define adjusted free cash flow as net earnings plus
depreciation, amortization, stock-based compensation expense,
acquisition/litigation-related expenses and other non-cash items, less capital
expenditures. Adjusted EBITDA and adjusted free cash flow are non-GAAP financial
measures commonly used by financial analysts, investors, rating agencies and
other interested parties in evaluating companies, including marketing services
companies. Accordingly, management believes that adjusted EBITDA and adjusted
free cash flow may be useful in assessing our operating performance and our
ability to meet our debt service requirements. However, these non-GAAP financial
measures have limitations as analytical tools and should not be considered in
isolation from, or as an alternative to, operating income, cash flow or other
income or cash flow data prepared in accordance with GAAP. Some of these
limitations are:
-- adjusted EBITDA does not reflect our cash expenditures for capital
equipment or other contractual commitments;
-- although depreciation and amortization are non-cash charges, the
assets being depreciated or amortized may have to be replaced in the
future, and adjusted EBITDA does not reflect cash capital
expenditure requirements for such replacements;
-- adjusted EBITDA does not reflect changes in, or cash requirements
for, our working capital needs;
-- adjusted EBITDA does not reflect the significant interest expense or
the cash requirements necessary to service interest or principal
payments on our indebtedness;
-- adjusted EBITDA does not reflect income tax expense or the cash
necessary to pay income taxes;
-- adjusted EBITDA does not reflect the impact of earnings or charges
resulting from matters we consider not to be indicative of our
ongoing operations;
-- adjusted free cash flow does not represent our residual cash flow
available for discretionary expenditures since we have mandatory
debt service requirements and other required expenditures that are
not deducted from adjusted free cash flow;
-- adjusted free cash flow does not capture debt repayment and/or the
receipt of proceeds from the issuance of debt; and
-- other companies, including companies in our industry, may calculate
these measures differently and as the number of differences in the
way two different companies calculate these measures increases, the
degree of their usefulness as a comparative measure correspondingly
decreases.
Because of these limitations, adjusted EBITDA and adjusted free cash flow
should not be considered as measures of discretionary cash available to us to
invest in the growth of our business or reduce indebtedness. We compensate for
these limitations by relying primarily on our GAAP results and using these
non-GAAP financial measures only as a supplement.
SOURCE Valassis
-0- 05/03/2007
/CONTACT: Sherry Lauderback of Valassis, +1-734-591-7374,
Fax, +1-734-591-4503, lauderbacks@valassis.com /
/Web site: http://www.valassis.com /
(VCI)