LIVONIA, Mich., Feb. 21 /PRNewswire-FirstCall/ -- Valassis today announced financial results for the fourth quarter and year ended Dec. 31, 2007. The Company reported quarterly revenues of $661.5 million, up 131.0% from the fourth quarter of 2006, due primarily to the acquisition of ADVO, Inc. (ADVO) that closed on March 2, 2007. Fourth quarter net earnings were $20.6 million, up 197.3% from $6.9 million in the fourth quarter of 2006. Fourth quarter earnings per share (EPS) was $0.43 up from $0.14 in the fourth quarter of 2006. Fourth quarter adjusted EBITDA* was $78.5 million, up 6.4% from pro forma adjusted EBITDA* for the fourth quarter of 2006. Full-year revenues were up 114.9% to $2,242.2 million. Full-year net earnings were $58.0 million, up 13.1% from 2006, resulting in full-year EPS of $1.21. For the full-year ended Dec. 31, 2007, adjusted EBITDA* was $252.8 million.
"Our exceptional performance in the second half of 2007 reflects the significant improvements we have made in the management of the shared mail business and the realization of cost synergies associated with the ADVO acquisition," said Alan F. Schultz, Valassis Chairman, President and CEO. "The value of blended media solutions including shared mail is compelling to our clients, and we are aggressively cross-selling to drive sustainable, profitable revenue growth which we expect to begin realizing in the back half of 2008."
Some additional integration and recent financial highlights include:
-- Cost Synergies: Our primary focus for 2007 was delivering cost
synergies associated with the ADVO acquisition. Cost synergies
totaled $26 million for the year, exceeding our original expectation
of $18 million because they came in higher and faster than
anticipated.
-- Business Optimization: We continue to make substantial improvements
in the management of the shared mail (formerly ADVO) business. Our
optimization initiative, designed to reduce over-supply and deliver
more profitable packages, has increased the profitability of the
shared mail business and contributed significantly to our third-and
fourth-quarter performance for 2007. These efforts resulted in a 3.4%
reduction of package distribution in the fourth quarter of 2007.
-- Debt Repayment: In February 2008, we made a fourth voluntary $25.0
million payment on the term loan B portion of our senior secured
credit facility. In the 11 months since the closing of the ADVO
acquisition, we have made $104.4 million in debt repayments, of which
$100 million was voluntary.
-- Reduction of Capital Expenditures: Capital expenditures during 2007
were $38.3 million, consistent with our most recent guidance of $40
million or less.
-- Launch of RedPlum(TM) Consumer Brand: We launched our consumer brand,
RedPlum, on Jan. 3, 2008 and as part of this consumer branding
initiative, we also launched redplum.com. Our RedPlum media products
unify our portfolio under a single consumer brand that resonates with
our clients' target audience and is unique in our competitive space.
In addition, we retired the ADVO name on Dec. 31, 2007 and are now
unified under one business-to-business name, Valassis.
Outlook
Management reiterates the financial guidance for 2008 as outlined in the Dec. 18, 2007 guidance release, expecting increased adjusted EBITDA* of between $260 and $280 million. We expect low-to mid-single digit revenue growth compared to the full-year 2007 pro forma revenue of $2,465.6 million, which includes January and February 2007 revenue from ADVO of $223.4 million. Revenue growth is expected to accelerate in the second half of 2008. In 2008, capital expenditures are expected to be $35 million, and we expect adjusted cash EPS* of between $2.14 and $2.39.
Cost synergies are expected to increase to $38 million in 2008. The calculation of cost synergies is based on the annualization of 2007 synergies to $34 million and $4 million in additional cost synergies expected to be realized in 2008.
Management believes cross-selling Valassis products and services to the acquired 13,000 shared mail clients, as well as selling shared mail to Valassis' existing 2,000 clients, should drive sustainable, profitable revenue growth starting in the second half of 2008. In order to facilitate cross- selling on a scalable basis; we completed the integration of our sales organization as of Dec. 4, 2007; we instituted a new sales compensation plan as of January 2008; we are developing a company-wide targeting system, which is on plan to be completed in the second quarter of 2008; and we are continuing to cross train the sales organization.
Business Segment Discussion
-- Shared Mail (formerly ADVO): Shared Mail revenues for the fourth
quarter of 2007 were $382.9 million, flat compared to the fourth
quarter of 2006. Consistent with the third quarter of 2007, these
results were achieved despite the elimination of the Detached Address
Label and a reduction in packages due to business optimization efforts
which negatively affected revenue in this quarter by 3.2%. Revenue
results in the fourth quarter were driven by improvement in the Wrap
sell-through percentage, increased activity by a major national
retailer and higher revenue per piece. Segment profit for the quarter
was $34.8 million, up 63.4% from the fourth quarter of 2006.
"Business optimization efforts, the reduction of fixed and variable
costs, and reduced client credits and bad debt write-offs, all
contributed to the improved segment profit," said Steve Mitzel, CFO,
Shared Mail.
-- Neighborhood Targeted Products: Neighborhood Targeted revenues for
the fourth quarter were $142.4 million, up 2.2% from the prior year
quarter. Segment profit for the quarter was $16.1 million, up 10.3%
from the fourth quarter of 2006. This growth was due to strong results
in the telecommunications, financial and retail client verticals, in
addition to growth from new clients. Full-year segment revenue was
$480.5 million, up 11.2% from 2006. Full-year segment profit was
$61.3 million, up 40.9% from 2006.
-- Market Delivered Free-standing Inserts (FSI): FSI revenues for the
fourth quarter were $90.3 million, down 12.3% from the fourth quarter
of 2006. These results were consistent with our expected reduction in
pricing and an anticipated decline in industry pages in the fourth
quarter due to a shift in the date schedule that favored the third
quarter of 2007. Market share was up slightly during the quarter.
Segment profit for the quarter was $1.2 million, down 91.8% from the
fourth quarter of 2006. For the year, FSI revenues were $401.2
million, down 9.1% from 2006, due to an expected reduction in FSI
pricing, slightly offset by an increase in market share. FSI unit
costs were down slightly for the fourth quarter and full-year 2007.
Full-year segment profit was $20.2 million, down 69.3% from 2006.
-- International & Services: International & Services revenues for the
fourth quarter were $34.3 million, up 14.0% from the fourth quarter of
2006. This was a result of strong coupon clearing volumes in the
United States and the United Kingdom and increased media activity in
France and Germany. Segment profit for the quarter was $4.5 million,
up 25.0% from the fourth quarter of 2006, before one-time charges of
$7.6 million related to European restructuring. Full-year revenues
for the segment were $119.4 million, up 7.2% from 2006. Segment
profit for the year was $12.8 million, up 37.6% from 2006 before one-
time charges.
-- Household Targeted: Household Targeted product revenues for the fourth
quarter were $11.6 million, down 16.5% from the fourth quarter of
2006. Segment profit for the quarter was $0.3 million, down 50.0%
from the fourth quarter of 2006. Full-year revenues for the segment
were $45.7 million, down 22.4% from 2006, due to softness in direct
mail volume and increased postal costs. The Household Targeted
segment loss for 2007 was $1.3 million, after charges of $1.8 million
related to our interactive initiative which was launched in January
2008.
Segment Results Summary
Quarter Ended Dec. 31,
Revenue by Segment (in millions) 2007 2006 % Change
Shared Mail (ADVO)(1) $382.9 $382.3 0.2%
Neighborhood Targeted(2) $142.4 $139.4 2.2%
Free-standing Insert $90.3 $103.0 -12.3%
International & Services $34.3 $30.1 14.0%
Household Targeted $11.6 $13.9 -16.5%
Total Segment Revenue $661.5 $668.7 -1.1%
Quarter Ended Dec. 31,
Segment Profit (in millions) 2007 2006 % Change
Shared Mail (ADVO)(1) $34.8 $21.3 63.4%
Neighborhood Targeted(2) $16.1 $14.6 10.3%
Free-standing Insert $1.2 $14.7 -91.8%
International & Services(3) $4.5 $3.6 25.0%
Household Targeted $0.3 $0.6 -50.0%
Total Segment Profit $56.9 $54.8 3.8%
(1) Valassis acquired ADVO on March 2, 2007. Prior year results, which
exclude $19.2 million of merger and litigation charges, are given for
comparison purposes only and are not included in our reported
results.
(2) Neighborhood Targeted includes the Run-of-Press business.
(3) Excludes $7.6 million in non-recurring charges related to European
restructurings in the fourth quarter of 2007.
Selling, General and Administrative Costs
Selling, general and administrative (SG&A) costs in the fourth quarter of 2007 were $107.1 million, which includes $7.6 million in non-recurring charges related to restructurings in Europe.
Tax Rate
Our effective income tax rate for the fourth quarter of 2007 is 24.2%, and our rate for the full 2007 year is 34.7%. The lower rate in the fourth quarter and its resulting impact on the annual rate is primarily the result of favorable settlements and additional deductions related to acquisition costs. Our anticipated run rate for tax expense going forward is expected to be approximately 36%.
Non-GAAP Financial Measures
* We define adjusted EBITDA as earnings before net interest and other expenses, income taxes, depreciation, amortization, stock-based compensation expense associated with SFAS No. 123R and amortization of a client contract incentive. We define adjusted cash EPS as net earnings plus depreciation, amortization, stock-based compensation expense associated with SFAS No. 123R and amortization of a client contract incentive, less capital expenditures, divided by weighted shares outstanding. Adjusted EBITDA and adjusted cash EPS 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 cash EPS may be useful in assessing our operating performance and our ability to meet our debt service requirements. In addition, adjusted EBITDA is used by management to measure and analyze our operating performance and, along with other data, as our internal measure for setting annual operating budgets, assessing financial performance of business segments and as a performance criteria for incentive compensation. 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;
-- management believes adjusted cash EPS is a better measure of the
performance of the business than reported GAAP EPS. The primary
reason for this is because depreciation and amortization charged
against earnings to calculate GAAP EPS are expected to be in excess of
capital expenditures by approximately $39.6 million in 2008;
-- other companies, including companies in our industry, may calculate
these measures differently and as the number of differences in the way
two different companies calculate these measures increases, the degree
of their usefulness as a comparative measure correspondingly
decreases.
Because of these limitations, adjusted EBITDA and adjusted cash EPS should not be considered as measures of discretionary cash available to us to invest in the growth of our business or reduce indebtedness. We compensate for these limitations by relying primarily on our GAAP results and using these non-GAAP financial measures only supplementally. Further important information regarding operating results and reconciliations of these non-GAAP financial measures to the most comparable GAAP measures can be found below.
2008 Guidance: Projected Adjusted Cash EPS Reconciliation*:
Low End High End
Plan ($ in millions) ($ in millions)
Net Earnings $53.5 $65.9
Add back non-cash items:
Depreciation 65.0 65.0
Amortization 9.6 9.6
FAS123r expense 7.7 7.7
Contract incentive amortization 2.4 2.4
Less:
Capital Expenditures (35.0) (35.0)
Adjusted Cash Flow* $103.2 $115.6
Weighted Shares Outstanding 48,331 48,331
Adjusted Cash EPS* $2.14 $2.39
* Does not include an approximate $15 million recapture tax because it is
a non-recurring charge related to the Senior Convertible Notes expected
to be put to us in May 2008.
2008 Guidance: Projected Adjusted EBITDA Reconciliation:
Low End High End
Plan ($ in millions) ($ in millions)
Net Earnings $53.5 $65.9
Add back:
Interest and other, net 89.1 89.1
Income taxes 32.7 40.3
Depreciation and amortization 74.6 74.6
EBITDA $249.9 $269.9
Add back:
FAS123r expense 7.7 7.7
Contract incentive amortization 2.4 2.4
Adjusted EBITDA $260.0 $280.0
Reconciliation of Net Earnings to Adjusted EBITDA
Quarter Ended December 31, 2007
(dollars in thousands)
Three Months Three Months
Ended Ended
Dec. 31, Dec. 31,
2007 2006
Net Earnings - GAAP $20,550
plus: Income taxes 6,571
Interest and other expense, net 22,183
Depreciation and amortization 18,419
EBITDA $67,723
Acquisition/litigation-related
expenses -
Stock-based compensation
expense (SFAS No. 123R) 1,960
Amortization of customer contract
incentive 1,215
Asset write-off charge -
Restructuring costs 7,634
Adjusted EBITDA $78,532 $73,811 (1)
Interest and other expense, net $(22,183)
Income taxes $(6,571)
Restructuring costs, cash $(6,534)
Changes in operating assets
and liabilities $(3,845)
Cash Flow from Operations $39,399
(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.
Reconciliation of Net Earnings to Adjusted EBITDA
Year Ended December 31, 2007
(dollars in thousands)
Year Ended
Dec. 31,
2007
Net Earnings - GAAP $58,002
plus: Income taxes 30,858
Interest and other expense, net 76,910
Depreciation and amortization 62,507
EBITDA $228,277
Acquisition/litigation-related
expenses 1,987
Stock-based compensation
expense (SFAS No. 123R) 7,258
Amortization of customer contract
incentive 4,860
Asset write-off charge 1,963
Restructuring costs 8,440
Adjusted EBITDA $252,785
Interest and other expense, net $(76,910)
Income taxes $(30,858)
Acquisition/litigation-related
expenses $(1,987)
Restructuring costs, cash $(7,340)
Changes in operating assets
and liabilities $21,142
Cash Flow from Operations $156,832
Conference Call Information
Valassis will hold an investor call today to discuss its fourth-quarter and full-year 2007 results at 11 a.m. (EST). The call-in number is (800) 218-4007. The call will simulcast on Valassis' Web site, at http://www.valassis.com/, and replay through March 5, 2008 at (800) 405-2236, pass code 11102665. 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 unparalleled reach and scale to more than 15,000 advertisers. Its RedPlum portfolio delivers value on a weekly basis to over 100 million shoppers across a multi-media platform -- in-home, in-store and in-motion. Through its newest offering -- redplum.com -- consumers will find compelling national and local deals online. Headquartered in Livonia, Michigan with approximately 7,000 associates in 29 states and nine countries, Valassis is widely recognized for its associate and corporate citizenship programs, including its America's Looking for Its Missing Children(R) program. Valassis companies include Valassis Direct Mail, Inc., Valassis Canada, Promotion Watch, Valassis Relationship Marketing Systems, LLC and NCH Marketing Services, Inc. For more information, visit http://www.valassis.com/ or http://www.redplum.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 client 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 clients 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, weight and kinds of advertising pieces from period to period, due to a change in the Company's clients' 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 ...
VALASSIS COMMUNICATIONS, INC.
Consolidated Balance Sheets
(dollars in thousands)
Assets Dec. 31, Dec. 31,
2007 2006
Current assets:
Cash and cash equivalents $125,239 $52,619
Auction-rate securities - 102,533
Accounts receivable 515,490 339,079
Inventories 43,591 25,834
Refundable income taxes 6,553 3,957
Deferred income taxes - 1,789
Other 19,379 16,681
Total current assets 710,252 542,492
Property, plant and equipment, at cost 506,383 262,876
Less accumulated depreciation (201,832) (153,490)
Net property, plant and equipment 304,551 109,386
Intangible assets 1,229,124 208,689
Less accumulated amortization (83,195) (75,280)
Net intangible assets 1,145,929 133,409
Investments 7,159 4,899
Other assets 22,562 11,240
Total assets $2,190,453 $801,426
More tables to follow . . .
VALASSIS COMMUNICATIONS, INC.
Consolidated Balance Sheets, Continued
(dollars in thousands)
Liabilities and Stockholders' Equity Dec. 31, Dec. 31,
2007 2006
Current liabilities:
Current portion, long-term debt $30,900 $-
Accounts payable and accruals 462,410 312,962
Progress billings 45,616 49,258
Deferred income taxes 2,470 -
Total current liabilities 541,396 362,220
Long-term debt 1,279,640 259,931
Other liabilities 29,026 8,195
Deferred income taxes 120,500 3,506
Stockholders' equity:
Common stock 634 633
Additional paid-in capital 51,482 44,225
Retained earnings 692,263 638,209
Treasury stock (520,227) (520,227)
Accumulated other comprehensive
gain (loss) (4,261) 4,734
Total stockholders' equity 219,891 167,574
Total liabilities and stockholders' equity $2,190,453 $801,426
More tables to follow . . .
VALASSIS COMMUNICATIONS, INC.
Consolidated Statements of Operations
(dollars in thousands, except per share data)
Quarter Ended Quarter Ended
Dec. 31, Dec. 31, %
2007 2006 Change
Revenue $661,487 $286,369 + 131.0%
Costs and expenses:
Costs of products sold 502,789 219,114 + 129.5%
Selling, general and
administrative 107,088 49,649 + 115.7%
Amortization 2,306 139 + 1559.0%
Total costs and expenses 612,183 268,902 + 127.7%
Operating income 49,304 17,467 + 182.3%
Other expenses and income:
Interest expense 24,493 3,817 + 541.7%
Other income (2,310) (1,641) + 40.8%
Total other expenses 22,183 2,176 + 919.4%
Earnings before income taxes 27,121 15,291 + 77.4%
Income taxes 6,571 8,378 - 21.6%
Net earnings $20,550 $6,913 + 197.3%
Net earnings per common share, diluted $0.43 $0.14 + 207.1%
Weighted average shares outstanding,
diluted 47,882 47,800 + 0.2%
Supplementary Data
Amortization $2,306 $139
Depreciation 16,113 3,807
Capital expenditures 15,404 7,845
More tables to follow . . .
VALASSIS COMMUNICATIONS, INC.
Consolidated Statements of Operations
(dollars in thousands, except per share data)
Year Ended Year Ended
Dec. 31, Dec. 31, %
2007 2006 Change
Revenue $2,242,171 $1,043,491 + 114.9%
Costs and expenses:
Costs of products sold 1,714,181 789,588 + 117.1%
Selling, general and
administrative 354,305 151,358 + 134.1%
Amortization 7,915 556 + 1323.6%
Total costs and
expenses 2,076,401 941,502 + 120.5%
Operating income 165,770 101,989 + 62.5%
Other expenses and income:
Interest expense 84,915 24,749 + 243.1%
Other income (8,005) (6,298) + 27.1%
Total other expenses 76,910 18,451 + 316.8%
Earnings before income taxes 88,860 83,538 + 6.4%
Income taxes 30,858 32,256 - 4.3%
Net earnings $58,002 $51,282 + 13.1%
Net earnings per common share, diluted $1.21 $1.07 + 13.1%
Weighted average shares outstanding,
diluted 47,885 47,780 + 0.2%
Supplementary Data
Amortization $7,915 $556
Depreciation 54,592 14,374
Capital expenditures 38,302 16,256
Valassis
