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Valassis Announces Results for the Second Quarter Ended June 30, 2013

LIVONIA, Mich., July 25, 2013 /PRNewswire/ -- Valassis (NYSE: VCI) today announced financial results for the second quarter ended June 30, 2013.  Second-quarter 2013 revenues were $495.9 million, a decrease of 8.2% from $540.2 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, second-quarter 2013 adjusted revenues* increased 1.2%.

Second-quarter 2013 net earnings were $26.8 million, which included $0.9 million net of tax, of restructuring costs, an increase of 23.5% from $21.7 million in the prior year quarter, which included $10.7 million net of tax, of restructuring costs and asset impairments resulting from the exit of the newspaper polybag advertising and sampling and solo direct mail businesses and other non-recurring charges. Excluding these restructuring costs, asset impairments and other non-recurring charges, second-quarter 2013 adjusted net earnings* were $27.7 million  and second-quarter 2012 adjusted net earnings* were $32.4 million.

Second-quarter 2013 diluted earnings per share (EPS) was $0.68, which included the negative impact of the aforementioned restructuring costs of $0.02, an increase of 33.3% from $0.51 in the prior year quarter, which included the negative impact of the aforementioned restructuring costs, asset impairments and other non-recurring charges of $0.25. Excluding these charges, second-quarter 2013 adjusted diluted EPS* was $0.70 and second-quarter 2012 adjusted diluted EPS* was $0.76. Second-quarter 2013 adjusted EBITDA* was $66.2 million, a decrease of 13.8% from $76.8 million in the prior year quarter. 

"Despite a challenging first half, we remain committed and focused on improving our execution," said Rob Mason, Valassis President and Chief Executive Officer.  "Based on our back-half plan and current forecast, I believe we are on the right path to achieve our full-year 2013 guidance."

 Some additional highlights include:

  • Selling, General and Administrative (SG&A) Costs: Second-quarter 2013 SG&A costs were $77.7 million (which included $0.9 million in restructuring costs), compared to the prior year quarter SG&A costs of $83.5 million (which included $6.0 million in restructuring and other non-recurring costs). 
  • Capital Expenditures: Capital expenditures for second-quarter 2013 were $7.1 million.
  • Return of Capital: During second-quarter 2013, we returned approximately $44.2 million to shareholders through a combination of stock repurchases and the payment of a cash dividend. Under our stock repurchase program, we repurchased $32.2 million or 1.3 million shares of our common stock, at an average price of $25.53 per share. We paid a cash dividend of $0.31 per share of common stock, for a total of approximately $12.0 million.
  • Liquidity:
    • We reduced total debt by $18.8 million during second-quarter 2013 (including a voluntary payment of $15.0 million), and we ended the quarter with net debt (total debt less cash) of $476.4 million.
    • At June 30, 2013, we had $88.6 million in cash.

Outlook

Based on our plan and current outlook, we reiterate full-year 2013 guidance as follows:

  • diluted earnings per share (EPS) of between $3.05 and $3.20,
  • adjusted EBITDA* of between $290.0 million and $300.0 million, and
  • capital expenditures of 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: In December 2012, the Board approved a cash dividend policy pursuant to which Valassis intends to pay a quarterly cash dividend to holders of its common stock. The dividend for the quarter ended June 30, 2013 was $0.31 per share of common stock.

Business Segment Discussion

  • Shared Mail:  Revenues for the second quarter of 2013 were $335.9 million, a decrease of 3.7% compared to the prior year quarter. Segment profit for the quarter was $43.9 million, a decrease of 16.1% compared to the prior year quarter. The declines in segment results were driven primarily by volume decreases.
  • Free-standing Inserts (FSI):  Revenues for the second quarter of 2013 were $80.2 million, an increase of 13.8% compared to the prior year quarter. Segment profit for the quarter was $9.4 million, an increase of 28.8% compared to the prior year quarter. Segment results for the quarter were positively impacted by an increase in page volume and cost efficiencies.
  • Neighborhood Targeted:  Revenues for the second quarter of 2013 were $28.9 million, a decrease of 62.7% 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 $1.5 million compared to segment loss in the prior year quarter of $2.4 million, due primarily to an improved cost structure and the exit of the sampling business in the prior year quarter.
  • International, Digital Media & Services (IDMS):  Revenues for the second quarter of 2013 were $50.9 million, an increase of 17.3% compared to the prior year quarter, driven by growth in our in-store and digital businesses. Segment loss for the quarter was $0.5 million, compared to segment profit of $2.3 million in the prior year quarter, primarily due to continued investment in our in-store and digital businesses.

Segment Results Summary

                                                                                                                            



Three Months Ended June 30, 


Segment Revenues ($ in millions)

2013

2012

% Change


Shared Mail 

$335.9

$348.8

-3.7%


Free-standing Inserts

$80.2

$70.5

13.8%


Neighborhood Targeted

$28.9

$77.5

-62.7%


International, Digital Media & Services 

$50.9

$43.4

17.3%

Total Segment Revenues

$495.9

$540.2

-8.2%








Three Months Ended June 30,


Segment Profit (Loss) ($ in millions)

2013

2012

% Change


Shared Mail 

$43.9

$52.3

-16.1%


Free-standing Inserts

$9.4

$7.3

28.8%


Neighborhood Targeted

($1.5)

($2.4)

37.5%


International, Digital Media & Services

($0.5)

$2.3

-121.7%

Total Segment Profit

$51.3

$59.5

-13.8%

Conference Call Information   
We will hold an investor call today to discuss our second-quarter 2013 results at 11 a.m. (EDT). The call-in number is 877-941-8609 (Conference ID: 4624846). 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, gain or loss on extinguishment of debt, impairment charges, restructuring costs and other non-recurring charges, depreciation, amortization, and stock-based compensation expense. We define adjusted revenues as revenues excluding revenues related to (i) certain client contracts in 2012 to which we were a principal and recorded  revenues on a gross basis that, in 2013, transitioned to a fee-based media placement model and were recorded on a net basis, and (ii) discontinued products.  We define adjusted net earnings and adjusted diluted EPS as net earnings and diluted EPS excluding the effect, net of tax, of loss on extinguishment of debt and related charges, and restructuring costs, asset impairments and other non-recurring charges. 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
 June 30,



2013

2012



Net Earnings

Diluted EPS

Net Earnings

Diluted EPS







As reported


$              26.8

$              0.68

$              21.7

$               0.51

Exclude, net of tax:






  Restructuring costs, asset impairments
 and other non-recurring charges


0.9

0.02

10.7

0.25

As adjusted


$              27.7

$              0.70

$              32.4

$               0.76

Reconciliation of Adjusted Revenues to Revenues

($ in millions)


Three Months Ended
June 30,


2013

2012

Revenues, as reported

$                  495.9

$                  540.2

Adjustment to a net basis of revenues previously contracted and

 recorded as principal on a gross basis in 2012

-

(47.9)

Adjustment for discontinued products

-

(2.2)

Adjusted Revenues

$                 495.9

$                 490.1

 

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

$                  121.1

$                  127.3

plus: Interest expense, net

29.6

29.6

        Income taxes

74.3

78.1

        Depreciation and amortization

48.6

48.6

        Other non-cash expenses (income), net

-

-

EBITDA

$                  273.6

$                  283.6

plus: Stock-based compensation expense

15.0

15.0

        Restructuring costs

1.4

1.4

Adjusted EBITDA

$                 290.0

$                 300.0

 

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

$                  121.1

$                  127.3

plus: Depreciation and amortization

48.6

48.6

         Stock-based compensation expense

15.0

15.0

less: Capital expenditures

(25.0)

(25.0)

Free cash flow

$                 159.7

$                 165.9

(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




June 30,




2013


2012

Net Earnings - GAAP

$                          26.8


$                          21.7








plus:

Income taxes

16.3


14.0



Interest expense, net

7.4


6.7



Depreciation and amortization

11.4


14.4



Other non-cash expense (income), net

(0.6)


0.3

EBITDA


$                          61.3


$                          57.1









Restructuring costs, asset impairments and other non-recurring charges

1.4


17.2



Stock-based compensation expense

3.5


2.5

Adjusted EBITDA

$                          66.2


$                          76.8









Income taxes

(16.3)


(14.0)



Interest expense, net

(7.4)


(6.7)



Changes in operating assets and liabilities

17.5


(0.7)







Cash Flows from Operating Activities

$                          60.0


$                          55.4


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. Valassis consumer brands include RedPlum® and save.com. Its signature Have You Seen Me?® program delivers hope to missing children and their families. To learn more, visit Valassis.com.

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



June 30,


Dec. 31,


2013


2012

Assets




Current assets:




  Cash and cash equivalents

$               88,645


$               94,711

  Accounts receivable, net

388,025


426,899

  Inventories

36,052


43,253

  Prepaid expenses and other

55,021


36,589

Total current assets

567,743


601,452

Property, plant and equipment, net

112,846


125,832

Goodwill

632,438


632,438

Other intangible assets, net

207,713


215,171

Other assets

13,668


14,142

Total assets

$          1,534,408


$          1,589,035





Liabilities and Stockholders' Equity




Current liabilities:




  Current portion long-term debt

$               30,000


$               22,500

  Accounts payable

268,009


281,320

  Progress billings

37,259


39,595

  Accrued expenses

97,431


107,467

Total current liabilities

432,699


450,882

Long-term debt

535,004


565,061

Deferred income taxes

57,842


57,258

Other non-current liabilities

40,130


42,271

Total liabilities

1,065,675


1,115,472





Stockholders' equity:




  Common stock

654


654

  Additional paid-in capital

96,089


102,373

  Retained earnings

1,153,275


1,128,540

  Accumulated other comprehensive income

2,889


3,574

  Treasury stock, at cost

(784,174)


(761,578)

Total stockholders' equity

468,733


473,563

Total liabilities and stockholders' equity

$          1,534,408


$          1,589,035


VALASSIS COMMUNICATIONS, INC.

Consolidated Statements of Operations

(in thousands, except per share data)

Unaudited



Three Months Ended




June 30,


%


2013


2012


Change







Revenues

$             495,887


$             540,238


-8.2%







Costs and expenses:






  Cost of sales

364,543


403,727


-9.7%

  Selling, general and administrative

77,723


83,523


-6.9%

  Amortization expense

3,729


3,156


18.2%

  Impairment charge

-


7,585


-100.0%

Total costs and expenses

445,995


497,991


-10.4%

Operating income

49,892


42,247


18.1%







Other expenses and income:






  Interest expense

7,498


6,755


11.0%

  Interest income

(46)


(70)


-34.3%

  Other income, net

(621)


(77)


706.5%

Total other expenses, net

6,831


6,608


3.4%

Earnings before income taxes

43,061


35,639


20.8%

Income tax expense

16,275


13,932


16.8%

Net earnings

$               26,786


$               21,707


23.4%







Net earnings per common share, diluted

$                   0.68


$                   0.51


33.3%







Weighted average common shares, diluted

38,951


42,719


-8.8%













Supplementary Data






  Amortization

3,729


3,156



  Depreciation

7,689


11,231



  Stock-based Compensation

3,509


2,515



  Capital Expenditures

7,066


2,507









VALASSIS COMMUNICATIONS, INC.

Consolidated Statements of Operations

(in thousands, except per share data)

Unaudited







Six Months Ended




June 30,


%


2013


2012


Change







Revenues

$             978,409


$          1,058,823


-7.6%







Costs and expenses:






  Cost of sales

725,311


792,621


-8.5%

  Selling, general and administrative

154,055


161,140


-4.4%

  Amortization expense

7,458


6,312


18.2%

  Impairment charge

-


7,585


-100.0%

Total costs and expenses

886,824


967,658


-8.4%

Operating income

91,585


91,165


0.5%







Other expenses and income:






  Interest expense

15,177


13,809


9.9%

  Interest income

(108)


(128)


-15.6%

  Other income, net

(923)


(774)


19.3%

Total other expenses, net

14,146


12,907


9.6%

Earnings before income taxes

77,439


78,258


-1.0%

Income tax expense

28,984


30,130


-3.8%

Net earnings

$               48,455


$               48,128


0.7%







Net earnings per common share, diluted

$                   1.21


$                   1.11


9.0%







Weighted average common shares, diluted

39,379


43,382


-9.2%













Supplementary Data






  Amortization

7,458


6,312



  Depreciation

17,247


22,785



  Stock-based Compensation

6,495


4,802



  Capital Expenditures

10,408


11,770



 

SOURCE Valassis

Mary Broaddus, Director, Investor Relations and Corporate Communications, 734-591-7375, broaddusm@valassis.com or April Masters, Manager, Investor Relations, 734-432-2778, mastersa@valassis.com