[COMPANY LOGO] Contact: Earnings Release
Bob Recchia or Michell Zarem
Tel 734.591.4900 or 734.432.2727
recchiab@valassis.com or zaremm@valassis.com
19975 Victor Parkway, Livonia, MI 48152
FOR IMMEDIATE RELEASE
Valassis Announces Financial Results
for the Third Quarter Ended Sept. 30, 2007
ADVO Acquisition Driving Positive Results
Livonia, Mich., Nov. 6, 2007: Valassis (NYSE: VCI) today announced financial
results for the third quarter ended Sept. 30, 2007. The Company reported
quarterly revenues of $607.2 million, up 144.0% from the third quarter of 2006,
due primarily to the acquisition of ADVO, Inc. (ADVO) that closed on March 2,
2007. Third-quarter net earnings were $16.4 million, or $0.34 in earnings per
share (EPS) up from $6.6 million, or $0.14 EPS, for the third quarter of 2006.
For the third quarter, operating income was $49.0 million and adjusted EBITDA*
was $71.5 million, up 41.3% from pro forma adjusted EBITDA* of $50.6 million for
the third quarter of 2006. Adjusted free cash flow* was $30.8 million for the
quarter.
"Our strong results for the quarter were driven by the success of our
integration efforts of the ADVO business," said Alan F. Schultz, Valassis
Chairman, President and CEO. "During 2007, we have made substantial progress to
improve ADVO's cost structure and optimize this business. These efforts drove an
outstanding $24.9 million improvement in ADVO's segment profit, as compared to
the third quarter of 2006. Our Neighborhood Targeted segment also delivered a
strong performance for the quarter and continues to outperform the industry.
"We expect to continue to take costs out of the shared mail business in the
fourth quarter, with 100% of the wrap being printed internally for the first
time during this period. We have also accelerated our sales integration plan and
revised sales compensation incentives that we expect will set the stage for
profitable revenue growth in the second half of 2008."
Some additional integration and financial highlights include:
o Cost Synergies: Our primary focus for 2007 has been identifying and
delivering cost synergies. We are on plan to exceed our $20 million cost
synergy target for this year.
o Business Optimization: Efforts to optimize our shared mail business are
ahead of schedule. Our package optimization initiative, designed to reduce
over-supply and deliver more profitable packages, is driving increased
profits. This quarter reflects optimization results in Los Angeles and the
partial effect of eliminating the second in-home date in Las Vegas.
Reviews of package distribution profitability continue on a
market-by-market basis.
o Sales & Marketing Integration: The complete integration of our sales
structure has been announced and will be effective Dec. 4, 2007. A new
sales compensation plan, designed to focus the sales organization on our
most profitable revenue opportunities, will be effective January 2008.
Cross selling is currently being done on a select basis and serves as
"proof of concept" for our integrated customer value proposition.
o Debt Repayment: In November 2007 we made the third voluntary $25.0 million
payment on the Senior Secured Credit Facilities Term Loan B. In the eight
months since the closing of the ADVO acquisition, we have made $78.0
million in debt repayments.
o Reduction of Capital Expenditures: We are reducing expected capital
expenditures for 2007 to $40 million or less from the previous guidance of
$50 million or less.
VCI 3Q07 Earnings
Page 2
Outlook
Management expects to meet or exceed 2007 adjusted EBITDA* guidance of $241.0
million, as outlined in our second quarter 2007 earnings release.
Looking forward, the Company expects to announce 2008 annual guidance in
December, after the Valassis Board of Directors has reviewed and approved the
Company's budget for the coming year. As previously reported, the Company
expects cost synergies of $36 million in 2008 and $40 million in 2009.
Management believes sustainable, profitable revenue growth will occur in the
second half of 2008 upon the completion of the following four initiatives: 1) a
new, integrated sales structure designed to redeploy duplicate coverage, which
is completed and will take effect Dec. 4, 2007; 2) a new sales compensation plan
which is completed and will take effect January 2008; 3) the development and
implementation of a company-wide targeting system to provide customers with
optimized media plans, which is on plan to be completed in the second quarter of
2008; and 4) cross-training of the sales organization, which began in August
2007, and will continue in 2008. In addition, Valassis is enthusiastic about its
upcoming launch of a consumer-facing brand and interactive site, both expected
to be launched in the first quarter of 2008. As a recognized leader in providing
value-oriented content to consumers, Valassis plans to deliver this value,
repurposed from its current media, in an interactive environment. We believe our
ability to drive consumer traffic with our rich source of relevant, local and
national content and existing media differentiates Valassis' entry into this
space.
Business Segment Discussion
o ADVO: ADVO revenues for the third quarter were $348.9 million. This
performance was achieved despite the elimination of the Detached Address
Label and a reduction in package distribution due to optimization efforts.
Management expected these two factors to have reduced revenue by 4.1%.
Revenue growth in the quarter was driven by a substantial improvement in
the ShopWise(R) Wrap sell-through percentage, new client wins, increased
activity by a major national retailer, reduced client credits, and higher
revenue per piece. Segment profit for the quarter was $23.7 million
compared to a loss of $1.2 million (operating loss of $5.7 million
adjusted to exclude $4.5 million of merger and litigation costs) reported
by ADVO in the third calendar quarter of 2006. Although the third quarter
of 2006 included some one-time adjustments and other charges, the majority
of the improvement was the result of wrap product line performance,
improved utilization of our distribution network and successful fixed and
variable costs reductions.
"The extraordinary performance of the ADVO business is the result of
dedication, sacrifice and collaboration by associates across our
organization," said Robert A. Mason, ADVO President. "We have done a great
job managing down costs over the past several months and now that our
sales organization is playing offense and creating some real wins, we're
seeing a significant impact to our bottom line."
o Neighborhood Targeted Products: Since Jan. 1, 2007, the Neighborhood
Targeted segment has included the Run of Press (ROP) business, previously
reported as a separate business segment. Segment revenues for the third
quarter were $117.4 million, up 13.3% from the prior year quarter. Segment
profits were up 57.1% to $19.8 million for the quarter. "The growth is due
to increases in ROP and preprints primarily in the retail,
telecommunications, casual dining, consumer packaged goods, and financial
services client verticals," said Larry Berg, Senior Vice President of
Retail and Services Sales.
o Market Delivered Free-standing Insert (FSI): Co-op FSI revenues for the
third quarter were $102.6 million, down 3.1% from the third quarter of
2006. These results were due to an expected reduction in FSI pricing
offset by increased page growth, driven by an increased industry date
schedule. FSI cost of goods sold was down slightly for the quarter on a
cost per thousand (CPM) basis. Segment profit for the quarter was $3.7
million.
o International & Services revenues are comprised of NCH Marketing Services,
Inc., Valassis Canada, Promotion Watch and In-store. International &
Services reported revenues of $28.0 million for the third quarter of 2007,
up 4.5% from the third quarter of 2006, due to higher coupon clearing
volumes in the United States and the United Kingdom and improved sales in
Valassis Canada. Segment profits for the quarter were $2.9 million after a
charge of $0.3 million related to the planned relocation of the United
Kingdom production facility.
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VCI 3Q07 Earnings
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o Household Targeted Products: Household Targeted product revenues for the
third quarter were $10.3 million, down 18.3% from the third quarter of
2006, due to continued softness in solo direct mail programs. This segment
lost $1.1 million for the quarter after incurring $0.9 million in expenses
associated with the Company's investment in its new interactive initiative
which is expected to launch in the first quarter of 2008.
Segment Results Summary
Quarter Ended Sept. 30,
Revenue by Segment (in millions) 2007 2006 % Change
- --------------------------------------- ---------- ----------- ----------
ADVO(1) $ 348.9 $ 343.8 1.5%
Neighborhood Targeted(2) $ 117.4 $ 103.6 13.3%
Free-standing Insert $ 102.6 $ 105.9 (3.1%)
International & Services $ 28.0 $ 26.8 4.5%
Household Targeted $ 10.3 $ 12.6 (18.3%)
Total Revenue $ 607.2 $ 592.7 2.4%
Quarter Ended Sept. 30,
Segment Profit (in millions) 2007 2006 % Change
- --------------------------------------- ---------- ----------- ----------
ADVO(1) $ 23.7 $ (1.2) n/a
Neighborhood Targeted(2) $ 19.8 $ 12.6 57.1%
Free-standing Insert $ 3.7 $ 12.5 (70.4%)
International & Services $ 2.9 $ (2.2) n/a
Household Targeted $ (1.1) $ 0.2 (650.0%)
Total Segment Profit $ 49.0 $ 21.9 123.7%
(1) Valassis acquired ADVO on March 2, 2007. Prior year results are given for
comparison purposes only and are not included in our reported results.
(2) Effective Jan. 1, 2007, Neighborhood Targeted includes the Run of Press
business.
*We define adjusted EBITDA as net earnings before interest and other expenses,
net, 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:
o adjusted EBITDA does not reflect our cash expenditures for capital
equipment or other contractual commitments;
o 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;
o adjusted EBITDA does not reflect changes in, or cash requirements for, our
working capital needs;
o adjusted EBITDA does not reflect the significant interest expense or the
cash requirements necessary to service interest or principal payments on
our indebtedness;
o adjusted EBITDA does not reflect income tax expense or the cash necessary
to pay income taxes;
o adjusted EBITDA does not reflect the impact of earnings or charges
resulting from matters we consider not to be indicative of our ongoing
operations;
o 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;
o adjusted free cash flow does not capture debt repayment and/or the receipt
of proceeds from the issuance of debt; and
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VCI 3Q07 Earnings
Page 4
o 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 supplementally. Further important information regarding
operating results and reconciliations of these 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 accompanying this
press release, which should be thoroughly reviewed.
Conference Call Information
Valassis will hold an investor call today to discuss its third-quarter results
e call will simulcast
on Valassis' Web site, at http://www.valassis.com, and
on Valassis' Web site, at http://www.valassis.com, and replay through Nov. 19,
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 shared mail;
direct mail; newspaper-delivered promotions such as inserts, sampling, polybags
and on-page advertisements; 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
through shared mail distribution. The company has relationships with more than
15,000 advertisers worldwide in various industries. With global headquarters in
Livonia, Michigan, the company employs approximately 7,000 associates in 29
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; changes which affect the
businesses of the Company's customers and lead to reduced sales promotion
spending; challenges and costs of achieving synergies and cost savings in
connection with the ADVO acquisition and integrating ADVO's operations may be
greater than expected; the Company's substantial indebtedness, and its ability
to incur additional indebtedness, may affect the Company's financial health;
certain covenants in the Company's debt documents could adversely restrict the
Company's financial and operating flexibility; fluctuations in the amount,
timing, pages and weight, and kinds of advertising pieces from period to period,
due to a change in the Company's customers' promotional needs, inventories and
other factors; the Company's failure to attract and retain qualified personnel
may affect its business and results of operations; a rise in interest rates
could increase the Company's borrowing costs; the outcome of ADVO's pending
shareholder lawsuits; possible governmental regulation or litigation affecting
aspects of the Company's business; and general economic conditions, whether
nationally or in the market areas in which the Company conducts its business,
may be less favorable than expected. These and other risks and uncertainties
related to the Company's business are described in greater detail in its filings
with the United States Securities and Exchange Commission, including the
Company's reports on Forms 10-K and 10-Q, and the foregoing information should
be read in conjunction with these filings. 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.
Tables to follow...
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VALASSIS COMMUNICATIONS, INC.
Consolidated Balance Sheets
(dollars in thousands)
Assets Sept. 30, Dec. 31,
2007 2006
----------- -----------
Current assets:
Cash and cash equivalents $ 122,378 $ 52,619
Auction-rate securities -- 102,533
Accounts receivable 475,992 339,079
Inventories 37,617 25,834
Refundable income taxes -- 3,957
Deferred income taxes 18,140 1,789
Other 27,203 16,681
----------- -----------
Total current assets 681,330 542,492
Property, plant and equipment, at cost 498,603 262,876
Less accumulated depreciation (191,348) (153,490)
----------- -----------
Net property, plant and equipment 307,255 109,386
Intangible assets 1,214,272 208,689
Less accumulated amortization (80,890) (75,280)
----------- -----------
Net intangible assets 1,133,382 133,409
Investments 6,799 4,899
Other assets 24,339 11,240
----------- -----------
Total assets $ 2,153,105 $ 801,426
=========== ===========
More tables to follow . . .
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VCI 3Q07 Earnings
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VALASSIS COMMUNICATIONS, INC.
Consolidated Balance Sheets, Continued
(dollars in thousands)
Liabilities and Stockholders' Equity Sept. 30, Dec. 31,
2007 2006
----------- -----------
Current liabilities:
Current portion, long-term debt $ 30,900 $ --
Accounts payable and accruals 406,188 312,962
Income taxes payable 4,663 --
Progress billings 49,340 49,258
----------- -----------
Total current liabilities 491,091 362,220
Long-term debt 1,306,107 259,931
Other liabilities 17,696 8,195
Deferred income taxes 136,559 3,506
Stockholders' equity:
Common stock 634 633
Additional paid-in capital 49,551 44,225
Retained earnings 671,713 638,209
Treasury stock (520,227) (520,227)
Accumulated other
comprehensive gain (19) 4,734
----------- -----------
Total stockholders' equity 201,652 167,574
----------- -----------
Total liabilities and stockholders' equity $ 2,153,105 $ 801,426
----------- -----------
More tables to follow . . .
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VCI 3Q07 Earnings
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VALASSIS COMMUNICATIONS, INC.
Consolidated Statements of Operations
(dollars in thousands, except per share data)
Quarter Ended Quarter Ended
Sept. 30, Sept. 30, %
2007 2006 Change
--------------- --------------- ---------------
Revenue $ 607,233 $ 248,883 + 144.0%
Costs and expenses:
Costs of products sold 459,553 187,233 + 145.4%
Selling, general and administrative 96,327 38,454 + 150.5%
Amortization 2,389 139 + 1618.7%
--------------- --------------- ---------------
Total costs and expenses 558,269 225,826 + 147.2%
Operating income 48,964 23,057 + 112.4%
Other expenses and income:
Interest expense 24,575 15,861 + 54.9%
Other (income) and expenses (2,032) (2,575) - 21.1
--------------- --------------- ---------------
Total other expenses and (income) 22,543 13,286 + 69.7%
Earnings before income taxes 26,421 9,771 + 170.4%
Income taxes 9,978 3,149 + 216.9%
--------------- --------------- ---------------
Net earnings $ 16,443 $ 6,622 + 148.3%
--------------- --------------- ---------------
Net earnings per common share, diluted $ 0.34 $ 0.14 + 142.9%
Weighted average shares outstanding, diluted 47,913 47,807 + 0.2%
Supplementary Data
Amortization $ 2,389 $ 139
Depreciation 16,418 3,486
Capital expenditures 7,899 4,025
More tables to follow . . .
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VALASSIS COMMUNICATIONS, INC.
Consolidated Statements of Operations
(dollars in thousands, except per share data)
Nine Months Nine Months
Ended Ended
Sept. 30, Sept. 30, %
2007 2006 Change
------------ ------------ ------------
Revenue $ 1,580,684 $ 757,121 + 108.8%
Costs and expenses:
Costs of products sold 1,211,392 570,474 + 112.3%
Selling, general and administrative 247,217 101,709 + 143.1%
Amortization 5,609 417 + 1245.1%
------------ ------------ ------------
Total costs and expenses 1,464,218 672,600 + 117.7%
Operating income 116,466 84,521 + 37.8%
Other expenses and income:
Interest expense 60,422 20,932 + 188.7%
Other (income) and expenses (5,695) (4,657) + 22.3%
------------ ------------ ------------
Total other expenses and (income) 54,727 16,275 + 236.3%
Earnings before income taxes 61,739 68,246 - 9.5
Income taxes 24,287 23,878 + 1.7%
------------ ------------ ------------
Net earnings $ 37,452 $ 44,368 - 15.6
------------ ------------ ------------
Net earnings per common share, diluted $ 0.78 $ 0.93 - 16.1
Weighted average shares outstanding, diluted 47,903 47,779 + 0.3%
Supplementary Data
Amortization $ 5,609 $ 417
Depreciation 38,479 10,567
Capital expenditures 20,124 8,411
More tables to follow . . .
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VALASSIS COMMUNICATIONS, INC.
Reconciliation of Non-GAAP Measures
Quarter Ended September 30, 2007
(dollars in thousands)
Reconciliation of Net Earnings to Adjusted EBITDA and Cash Flow from Operations
Three Months Three Months
Ended Ended
Sept. 30, Sept. 30,
2007 2006
------------ ------------
Net Earnings - GAAP $ 16,443
============
plus: Income taxes 9,978
Interest and other expense, net 22,543
Depreciation and amortization 18,807
------------
EBITDA $ 67,771
Acquisition/litigation-related
expenses --
Stock-based compensation
expense (SFAS No. 123R) 1,768
Amortization of customer
contract incentive 1,215
Asset write-off charge 503
Restructuring costs 263
------------ ------------
Adjusted EBITDA $ 71,520 $ 50,600 (1)
------------ ------------
Interest and other expense, net (22,543)
Income taxes (9,978)
Restructuring costs (263)
Changes in operating assets
and liabilities (18,010)
------------
Cash Flow from Operations $ 20,726
============
Reconciliation of Net Earnings to Adjusted Free Cash Flow
Three Months
Ended
Sept. 30,
2007
---------------
Net Earnings $ 16,443
Depreciation 16,418
Amortization 2,389
Stock-based compensation expense (SFAS No. 123R) 1,768
Amortization of customer contract incentive 1,215
Asset write-off charge 503
Capital expenditures (7,899)
---------------
Adjusted Free Cash Flow $ 30,837
===============
(1) Represents agreed upon adjusted EBITDA amount with the lenders under our
senior secured credit facility, as set forth in our credit agreement,
dated March 2, 2007, which is included as an exhibit to our Current Report
on Form 8-K filed with the Securities and Exchange Commission on March 8,
2007.
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