VALASSIS COMMUNICATIONS, INC. 
By LIVONIA, Mich., Oct. 24, 2013 /PRNewswire/ -- Valassis (NYSE: VCI) today announced financial results for the third quarter ended Sept. 30, 2013. Third-quarter 2013 revenues were $489.4 million, a decrease of 6.6% from $523.8 million in the prior year quarter. This decrease was due primarily to an anticipated decline in revenues in the Neighborhood Targeted segment resulting from the change in certain client contracts to a fee-based media placement model, as well as the discontinuance of the sampling and solo direct mail products. Without the effect of these changes, third-quarter 2013 adjusted revenues(*) increased 4.3%.
Third-quarter 2013 net earnings were $27.7 million, which included $0.6 million of restructuring costs, net of tax, a decrease of 24.5% from $36.7 million in the prior year quarter, which included a favorable income tax adjustment of $5.0 million resulting from the expiration of certain tax reserves. Excluding these restructuring costs and favorable tax adjustment, third-quarter 2013 adjusted net earnings(*) were $28.3 million and third-quarter 2012 adjusted net earnings(*) were $31.7 million.
Third-quarter 2013 diluted earnings per share (EPS) was $0.70, which included the negative impact of the aforementioned restructuring costs of $0.02, a decrease of 22.2% from $0.90 in the prior year quarter, which included the positive impact of the aforementioned income tax adjustment of $0.12. Excluding these adjustments, third-quarter 2013 adjusted diluted EPS(*) was $0.72 and third-quarter 2012 adjusted diluted EPS(*) was $0.78. Third quarter adjusted EBITDA(*) was $65.3 million, a decrease of 13.2% from $75.2 million in the prior year quarter.
"Given our year-to-date results, I recognize a clear need for change. We are executing our plan to strategically refocus, restructure and right-size our company," said Rob Mason, Valassis President and Chief Executive Officer. "We project this plan will deliver approximately $28 million in annualized cost savings, putting our company in a better position to jumpstart and accelerate growth moving forward."
Some additional highlights include:
-- Selling, General and Administrative (SG&A) Costs: Third-quarter 2013
SG&A costs were $74.6 million (including $0.7 million in restructuring
costs), compared to the prior year quarter SG&A costs of $73.4 million.
-- Capital Expenditures: Capital expenditures for third-quarter 2013 were
$4.3 million.
-- Return of Capital: During third-quarter 2013, we returned approximately
$18.6 million to shareholders through a combination of stock repurchases
and the payment of a cash dividend. Under our stock repurchase program,
we repurchased $6.9 million or 242,712 shares of our common stock, at an
average price of $28.49 per share. We paid a cash dividend of $0.31 per
share of common stock, for a total of approximately $11.7 million.
-- Liquidity:
-- We reduced total debt by $28.6 million during third-quarter 2013
(including voluntary payments/repurchases of $21.1 million), and we
ended the quarter with net debt (total debt less cash) of $461.4
million.
-- At Sept. 30, 2013, we had $75.0 million in cash.
Outlook
Based on our current performance and outlook, we are revising our full-year 2013 guidance as follows:
-- diluted earnings per share (EPS) of between $2.74 and $2.84 (previously
between $3.05 and $3.20),
-- adjusted EBITDA(*) of between $270.0 million and $275.0 million
(previously between $290.0 million and $300.0 million), and
-- capital expenditures of approximately $20 million (previously
approximately $25 million).
2013 Planned Uses of Cash:
-- Stock repurchase program: We assume the use of approximately 35-40% of
free cash flow(*) for stock repurchases during 2013. Our stock
repurchase program does not obligate us to acquire any particular amount
of shares of common stock, and may be modified or suspended at any time
at our discretion.
-- Quarterly dividend: Pursuant to our cash dividend policy, we intend to
pay a quarterly cash dividend to holders of our common stock. The
dividend for the quarter ended Sept. 30, 2013 was $0.31 per share of
common stock.
Business Segment Discussion
-- Shared Mail: Revenues for the third quarter of 2013 were $342.5
million, an increase of 3.3% compared to the prior year quarter, driven
by increases in packages, postage, the variable data postcard and
distribution alliances. Segment profit for the quarter was $47.5
million, a decrease of 9.2% compared to the prior year quarter. The
decline in segment profit was driven primarily by changes in volume mix
and continued softness in wrap revenues, which offset gains from the
variable data postcard and distribution alliances.
-- Free-standing Inserts (FSI): Revenues for the third quarter of 2013
were $75.5 million, an increase of 4.6% compared to the prior year
quarter, primarily driven by an increase in page volume. Segment profit
for the quarter was $7.7 million, an increase of 1.3% compared to the
prior year quarter, primarily driven by an increase in volume, offset by
client mix and price.
-- Neighborhood Targeted: Revenues for the third quarter of 2013 were
$23.7 million, a decrease of 68.7% compared to the prior year quarter,
primarily due to the change in certain client contracts to a fee-based
media placement model. Segment loss for the quarter was $2.1 million
compared to segment loss in the prior year quarter of $1.1 million, due
primarily to continued margin pressure.
-- International, Digital Media & Services (IDMS): Revenues for the third
quarter of 2013 were $47.7 million, an increase of 7.4% compared to the
prior year quarter, driven by increased coupon clearing volumes and
growth in our in-store business. Segment loss for the quarter was $2.4
million, compared to segment profit of $0.1 million in the prior year
quarter, primarily due to losses associated with our in-store and
digital businesses.
Segment Results Summary
Three
Months
Ended
Sept. 30,
Segment Revenues ($ in millions) 2013 2012 % Change
---- ---- --------
Shared Mail $342.5 $331.4 3.3%
------ ------ ---
Free-standing Inserts $75.5 $72.2 4.6%
----- ----- ---
Neighborhood Targeted $23.7 $75.8 -68.7%
----- ----- -----
International, Digital Media &
Services $47.7 $44.4 7.4%
----- ----- ---
Total Segment Revenues $489.4 $523.8 -6.6%
------ ------ ----
Three
Months
Ended
Sept. 30,
Segment Profit (Loss) ($ in
millions) 2013 2012 % Change
---- ---- --------
Shared Mail $47.5 $52.3 -9.2%
----- ----- ----
Free-standing Inserts $7.7 $7.6 1.3%
---- ---- ---
Neighborhood Targeted ($2.1) ($1.1) -90.9%
----- ----- -----
International, Digital Media &
Services ($2.4) $0.1 **
----- ---- ---
Total Segment Profit $50.7 $58.9 -13.9%
----- ----- -----
**Not Meaningful
Conference Call Information
We will hold an investor call today to discuss our third-quarter 2013 results at 11 a.m. (EDT). The call-in number is 877-941-0844 (Conference ID: 4639008). The call will be simulcast on our website at www.valassis.com. This earnings release, webcast and a transcript of the conference call will be archived on our website under "Investors."
(*)Non-GAAP Financial Measures
We define adjusted EBITDA as net earnings before interest expense, net, other non-cash expenses (income), net, income taxes, restructuring costs and other non-recurring charges, depreciation, amortization, and stock-based compensation expense. We define adjusted revenues as revenues adjusted to (i) a net basis, for client contracts to which we were a principal and recorded revenues on a gross basis in 2012 that, in 2013, transitioned to a fee-based media placement model and were recorded on a net basis, and (ii) exclude revenues related to discontinued businesses. We define adjusted net earnings and adjusted diluted EPS as net earnings and diluted EPS excluding the effect, net of tax, of restructuring costs, asset impairments and other non-recurring charges and the expiration of certain tax reserves. We define free cash flow as net earnings before depreciation, amortization and stock-based compensation expense, less capital expenditures. Adjusted EBITDA, adjusted revenues, adjusted net earnings, adjusted diluted EPS and 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 these non-GAAP measures may be useful in assessing our operating performance and our ability to meet our debt service requirements. In addition, these non-GAAP measures are 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 performance criteria for incentive compensation. Additionally, because of management's focus on generating shareholder value, of which profitability is a primary driver, management believes these non-GAAP measures, as defined above, provide an important measure of our results of operations.
However, these non-GAAP financial measures have limitations as analytical tools and should not be considered in isolation from, or as alternatives to, operating income, cash flow, EPS 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 and free cash flow do 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, adjusted revenues, adjusted net earnings, adjusted
diluted EPS and free cash flow do not reflect the impact of earnings or
charges resulting from matters we consider not to be indicative of our
ongoing operations;
-- free cash flow does not represent the residual cash flow available for
discretionary expenditures because certain non-discretionary
expenditures like mandatory debt service requirements are not deducted
from the measure; 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 comparative measures correspondingly decreases.
Because of these limitations, adjusted EBITDA, adjusted revenues, adjusted net earnings, adjusted diluted EPS and 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 reconciliations of these non-GAAP financial measures to their respective most comparable GAAP measures can be found below.
Reconciliation of Adjusted Net Earnings and Adjusted Diluted EPS to Net Earnings and Diluted EPS
($ in millions except for per share data)
Three Months Ended
Sept. 30,
---------
2013 2012
---- ----
Net Earnings Diluted EPS Net Earnings Diluted EPS
------------ ----------- ------------ -----------
As reported $27.7 $0.70 $36.7 $0.90
Exclude, net of tax:
Restructuring costs and other non-recurring 0.6 0.02 - -
charges
Tax benefit due to expiration of certain tax - - (5.0) (0.12)
reserves
As adjusted $28.3 $0.72 $31.7 $0.78
===== ===== ===== =====
Reconciliation of Adjusted Revenues to Revenues
($ in millions)
Three
Months
Ended
Sept. 30,
---------
2013 2012
---- ----
Revenues, as reported $489.4 $523.8
Adjustment to a net basis
of revenues previously - (51.5)
contracted and recorded as principal
on a gross
basis in 2012
Adjustment for
discontinued businesses - (2.9)
---
Adjusted Revenues $489.4 $469.4
====== ======
Reconciliation of Full-year 2013 Adjusted EBITDA
Guidance to Full-year 2013 Net Earnings Guidance(1)
Full-year
2013
Guidance
($ in
millions)
----------
Low End High End
------- --------
Net Earnings $109.2 $113.2
plus: Interest expense, net 29.4 29.4
Income taxes 67.0 68.0
Depreciation and
amortization 46.9 46.9
Other non-cash expenses
(income), net (0.9) (0.9)
---- ----
EBITDA $251.6 $256.6
plus: Stock-based
compensation expense 16.0 16.0
Restructuring costs 2.4 2.4
Adjusted EBITDA $270.0 $275.0
====== ======
Reconciliation of Full-year 2013 Free Cash Flow to
Full-year 2013 Net Earnings Guidance(1)
Full-year
2013
Guidance
($ in
millions)
----------
Low End High End
------- --------
Net Earnings $109.2 $113.2
plus: Depreciation and
amortization 46.9 46.9
Stock-based compensation
expense 16.0 16.0
less: Capital expenditures (20.0) (20.0)
Free cash flow $152.1 $156.1
====== ======
(1) Due to the forward-
looking nature of adjusted
EBITDA and free cash flow,
information to reconcile
adjusted EBITDA and free
cash flow to cash flows
from operating activities
is not available without
unreasonable effort. We
believe that the
information necessary to
reconcile these measures
is not reasonably
estimable or predictable.
Reconciliation of Adjusted EBITDA to Net
Earnings and Cash Flows from Operating
Activities
($ in millions)
Unaudited
Three
Months
Ended
Sept. 30,
---------
2013 2012
---- ----
Net Earnings - GAAP $27.7 $36.7
===== =====
plus: Income taxes 16.5 14.4
Interest expense, net 7.3 7.5
Depreciation and
amortization 11.1 13.9
Other non-cash (income)
expense, net (1.2) 0.5
-----
EBITDA $61.4 $73.0
Restructuring costs and
other 1.0 -
non-recurring charges
Stock-based compensation
expense 2.9 2.2
Adjusted EBITDA $65.3 $75.2
----- -----
Income taxes (16.5) (14.4)
Interest expense, net (7.3) (7.5)
Changes in operating assets
and liabilities (19.1) (11.9)
-----
Cash Flows from
Operating Activities $22.4 $41.4
===== =====
About Valassis
Valassis (NYSE: VCI) is a leader in intelligent media delivery, providing over 15,000 advertisers proven and innovative media solutions to influence consumers wherever they plan, shop, buy and share. By integrating online and offline data combined with powerful insights, Valassis precisely targets its clients' most valuable shoppers, offering unparalleled reach and scale. Valassis subsidiaries include Brand.net, a Valassis Digital Company, and NCH Marketing Services, Inc. RedPlum(®) is its consumer brand. Its signature Have You Seen Me?(®) program delivers hope to missing children and their families. For insights on intelligent media delivery, visit www.valassis.com and follow Valassis on Twitter at @ValassisVCI.
Cautionary Statements Regarding Forward-looking Statements
This document contains "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 our actual results, performance or achievements 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 our existing competitors; new competitors in any of our businesses; possible consolidation in our client base, a significant decrease in the number of stores in our in-store retailer network or a shift in client preferences for different promotional materials, strategies or coupon delivery methods, including, without limitation, as a result of declines in newspaper circulation and/or increased competition from new media formats including digital; an unforeseen increase in paper or postal costs; changes which affect the businesses of our clients and lead to reduced sales promotion spending, including, without limitation, a decrease of marketing budgets which are generally discretionary in nature and easier to reduce in the short-term than other expenses; our substantial indebtedness, and ability to refinance such indebtedness, if necessary, and our ability to incur additional indebtedness, may affect our financial health; the financial condition, including bankruptcies, of our clients, suppliers, senior secured credit facility lenders or other counterparties; certain covenants in our debt documents could adversely restrict our 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 our clients' promotional needs, inventories and other factors; our failure to attract and retain qualified personnel may affect our business and results of operations; a rise in interest rates could increase our borrowing costs; governmental regulation or litigation affecting aspects of our business, including laws and regulations related to the internet, internet-related technologies and activities, privacy and data security; potential security measure breaches or attacks; clients experiencing financial difficulties, or otherwise being unable to meet their obligations as they become due, could affect our results of operations and financial condition; uncertainty in the application and interpretation of applicable state sales tax laws may expose us to additional sales tax liability; a reduction in, or discontinuance of, dividend payments or stock repurchases; and general economic conditions, whether nationally, internationally, or in the market areas in which we conduct our business, including the adverse impact of the ongoing economic downturn on the marketing expenditures and activities of our clients and prospective clients as well as our vendors, with whom we rely on to provide us with quality materials at the right prices and in a timely manner. These and other risks and uncertainties related to our business are described in greater detail in our filings with the United States Securities and Exchange Commission, including our reports on Forms 10-K and 10-Q and the foregoing information should be read in conjunction with these filings. We disclaim 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
(dollars in thousands)
Unaudited
Sept. 30, Dec. 31,
2013 2012
---- ----
Assets
Current assets:
Cash and cash equivalents $74,985 $94,711
Accounts receivable, net 408,322 426,899
Inventories 36,705 43,253
Prepaid expenses and other 49,006 36,589
------ ------
Total current assets 569,018 601,452
Property, plant and
equipment, net 109,826 125,832
Goodwill 632,438 632,438
Other intangible assets,
net 203,984 215,171
Other assets 13,436 14,142
------ ------
Total assets $1,528,702 $1,589,035
========== ==========
Liabilities and Stockholders' Equity
Current liabilities:
Current portion long-term
debt $33,750 $22,500
Accounts payable 264,144 281,320
Progress billings 38,084 39,595
Accrued expenses 96,342 107,467
------ -------
Total current liabilities 432,320 450,882
Long-term debt 502,650 565,061
Deferred income taxes 57,968 57,258
Other non-current
liabilities 38,002 42,271
Total liabilities 1,030,940 1,115,472
Stockholders' equity:
Common stock 654 654
Additional paid-in
capital 84,866 102,373
Retained earnings 1,169,075 1,128,540
Accumulated other
comprehensive income 3,796 3,574
Treasury stock, at cost (760,629) (761,578)
-------- --------
Total stockholders' equity 497,762 473,563
------- -------
Total liabilities and
stockholders' equity $1,528,702 $1,589,035
========== ==========
More tables to follow . . .
VALASSIS COMMUNICATIONS, INC.
Consolidated Statements of Operations
(in thousands, except per share data)
Unaudited
Three Months
Ended
Sept. 30, %
---------
2013 2012 Change
---- ---- ------
Revenues $489,383 $523,822 -6.6%
Costs and expenses:
Cost of sales 361,337 388,284 -6.9%
Selling, general and
administrative 74,577 73,358 1.7%
Amortization expense 3,729 3,245 14.9%
Total costs and expenses 439,643 464,887 -5.4%
------- -------
Operating income 49,740 58,935 -15.6%
Other expenses and income:
Interest expense 7,287 7,563 -3.6%
Interest income (30) (46) -34.8%
Other (income) expense, net (1,713) 249 -788.0%
------ ---
Total other expenses, net 5,544 7,766 -28.6%
----- -----
Earnings before income taxes 44,196 51,169 -13.6%
Income tax expense 16,483 14,429 14.2%
------ ------
Net earnings $27,713 $36,740 -24.6%
======= =======
Net earnings per common share,
diluted $0.70 $0.90 -22.2%
Weighted average common
shares, diluted 38,684 40,832 -5.3%
Supplementary Data
------------------
Amortization 3,729 3,245
Depreciation 7,363 10,680
Stock-based Compensation 2,906 2,220
Capital Expenditures 4,338 4,013
VALASSIS COMMUNICATIONS, INC.
Consolidated Statements of Operations
(in thousands, except per share data)
Unaudited
Nine Months Ended
Sept. 30, %
---------
2013 2012 Change
---- ---- ------
Revenues $1,467,792 $1,582,645 -7.3%
Costs and expenses:
Cost of sales 1,086,648 1,180,905 -8.0%
Selling, general and
administrative 228,632 234,498 -2.5%
Amortization expense 11,187 9,557 17.1%
Goodwill impairment - 7,585 -100.0%
--- -----
Total costs and expenses 1,326,467 1,432,545 -7.4%
--------- ---------
Operating income 141,325 150,100 -5.8%
Other expenses and income:
Interest expense 22,464 21,372 5.1%
Interest income (138) (174) -20.7%
Other income, net (2,636) (525) 402.1%
------ ----
Total other expenses, net 19,690 20,673 -4.8%
------ ------
Earnings before income taxes 121,635 129,427 -6.0%
Income tax expense 45,467 44,559 2.0%
------ ------
Net earnings $76,168 $84,868 -10.3%
======= =======
Net earnings per common share,
diluted $1.91 $2.00 -4.5%
Weighted average common
shares, diluted 39,147 42,532 -8.0%
Supplementary Data
------------------
Amortization 11,187 9,557
Depreciation 24,610 33,465
Stock-based Compensation 9,401 7,021
Capital Expenditures 14,746 15,783
SOURCE Valassis
