- Earnings per share were $0.59 versus guidance of $0.58 to
$0.61.
- Free cash flow was $(1.6) million versus guidance of $0.8
million to $2.5 million.
- Company maintains fiscal 2007 guidance.
Business Editors/Marketing Writers
NORWALK, Conn.--(BUSINESS WIRE)--Oct. 31, 2006--Vertrue
Incorporated (Nasdaq: VTRU), a premier internet direct marketing
services company, announced today its financial results for the fiscal
2007 first quarter ended September 30, 2006.
"As a leading internet marketer, Vertrue continues to deliver on
its mission," said Gary Johnson, President and CEO. "This quarter we
continued to expand our internet presence, increased the value we
offer to consumers and generated strong revenue growth across all of
our business units."
Mr. Johnson continued, "In line with our strategy, we
substantially increased our marketing expenses over last year's levels
to drive future growth. We also continued to assess strategic growth
opportunities that complement our overall strategy."
Revenues increased 13% to $177.3 million compared to $157.5
million in the fiscal 2006 first quarter due to a 7% increase in
Marketing Services revenues, a 95% increase in Management Services
revenues and a 22% increase in Personals revenues. The increase in
Personals revenues was primarily due to the acquisition of certain
assets of Mobile Lifestyles, Inc., an online provider of a variety of
text alerts (i.e. daily horoscopes, jokes and relationship advice) and
unlimited ringtones. Excluding revenues from Mobile Lifestyles, Inc.,
Personals revenues would have increased 3% from last year and total
revenues would have increased by 10% from last year.
EBITDA decreased 16% to $20.0 million compared to $24.0 million
reported in the fiscal 2006 first quarter. Net income decreased 23% to
$6.7 million, or $0.59 per diluted share, in the fiscal 2007 first
quarter compared to $8.6 million, or $0.74 per diluted share, in the
fiscal 2006 first quarter. Adjusted EBITDA decreased 25% to $13.8
million compared to $18.4 million last year. These decreases were the
expected result of our increased marketing and operating expenses
required to generate the increased revenue.
Free cash flow remained flat year to year at negative $1.6
million.
Compared to the guidance provided in the August 1, 2006 press
release, revenue was $177.3 million which was $10.3 million above the
low end of guidance. Earnings per share of $0.59, was $0.01 above the
low end of guidance. Adjusted EBITDA of $13.8 million was $0.9 million
below the low end of guidance as a result of increased marketing and
operating expenses required to generate the incremental revenue. Free
cash flow was negative $1.6 million and was $2.4 million below the low
end of guidance due to the lower Adjusted EBITDA and higher working
capital requirements.
Total retail members and customers increased to 6.7 million at the
end of the first quarter of fiscal 2007 from 6.5 million at the end of
the fiscal 2006 fourth quarter and included 159,000 members acquired
as part of the Mobile Lifestyles, Inc. acquisition.
During the first quarter ended September 30, 2006, the Company
purchased 63,000 shares of its common stock and spent $2.6 million.
Pursuant to this share repurchase program, the Company is authorized
to repurchase approximately 1.3 million additional shares as market
conditions permit. As of September 30, 2006, there were 9.7 million
shares of common stock outstanding.
Business Outlook
Guidance for fiscal 2007 has remained unchanged. Management offers
the following guidance for the fiscal year ended June 30, 2007
(dollars in millions, except per share amounts):
%
Increase/(Decrease)
2007 Estimate vs. 2006
--------------------- --------------------
High Low High Low
---------- ---------- ---------- ---------
Revenues $758.0 $740.0 15% 12%
EBITDA 101.5 99.8 13% 11%
Diluted EPS 3.22 3.08 14% 9%
Adjusted EBITDA 97.1 91.8 23% 16%
Free Cash Flow 45.8 40.5 130% 103%
See the table on page 9 for additional quarterly guidance
information for the second fiscal quarter of 2007.
Use of Non-GAAP Measures:
See the tables on pages 8 and 9 for reconciliations of the
non-GAAP financial measures. An explanation of the relevance of these
non-GAAP measures is located on page 9.
Conference Call Note:
Vertrue's management will host a conference call at 9:00 a.m.
Eastern Time on October 31, 2006 to discuss the Company's first
quarter results. To listen to the conference call, please dial (800)
369-1989 five to ten minutes before the scheduled start time. The
conference call will also be available live on the investor relations
page of the Company's web site at www.vertrue.com. Please go to the
web site at least fifteen minutes prior to the call to register and
download any necessary audio software.
For those who cannot listen to the live broadcast, an audio replay
of the call will be available approximately one hour after completion
of the call and will remain available until November 5, 2006. To
listen to the audio replay, please call (866) 499-4561. A web cast
replay of the conference call will also be available on the investor
relations page of the Company's web site approximately 2 hours after
the end of the call and remain available until November 5, 2006.
About Vertrue:
Vertrue Incorporated is a premier internet direct marketing
services company. Vertrue operates a diverse group of marketing
businesses that share a unified mission: to provide every consumer
with access to savings and services that improve their daily lives.
Vetrue's members and customers have access to direct-to-consumer
savings across its five vertical markets of healthcare, personal
property, security/insurance, discounts, and personals, which are all
offered online through a set of diverse internet marketing channels.
Vertrue is headquartered in Norwalk, Conn.
Any statements herein regarding the business of the Company that
are not historical are "forward looking statements" within the meaning
of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended and are
intended to qualify for the safe harbor provisions from liability
provided by the Private Securities Litigation Reform Act of 1995.
Forward looking statements include, but are not limited to, any
projections of earnings, revenues or other financial items; any
statements of the Company's plans, strategies or objectives for future
operations; statements regarding future economic conditions or
performance; and any statements of belief or expectation. All forward
looking statements rely on assumptions and are subject to various
risks and uncertainties that could cause actual results to differ
materially from expectations. Risks and uncertainties that could
affect the Company's future results include general economic and
business conditions, the level of demand for the Company's products
and services, increased competition and regulatory and legal matters
and uncertainties. Additional discussion of these and other factors
that could cause actual results to differ from those expected is
included in the Company's most recent Quarterly Report on Form 10-Q
and Annual Report on Form 10-K as filed with the SEC. The forward
looking statements contained herein are made only as of the date of
this release, and except as otherwise required by federal securities
law, the Company has no obligation and does not intend to publicly
update or revise any forward looking statements to reflect subsequent
events or circumstances.
VERTRUE INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(In thousands, except per share data)
Three months ended
September 30,
---------------------
2006 2005
---------- ----------
Revenues $ 177,346 $ 157,528
Expenses:
Marketing 87,383 73,899
Operating 42,210 35,083
General and administrative 31,762 28,454
Amortization of intangible assets 2,039 2,436
---------- ----------
Total expenses 163,394 139,872
---------- ----------
Operating income 13,952 17,656
Interest income 1,496 635
Interest expense (5,114) (5,089)
Other income (expense), net 195 (44)
---------- ----------
Income before income taxes 10,529 13,158
Provision for income taxes (3,853) (4,517)
---------- ----------
Net income $ 6,676 $ 8,641
========== ==========
Diluted earnings per share $ 0.59 $ 0.74
========== ==========
Diluted shares used in earnings per share
calculation 12,733 12,783
========== ==========
VERTRUE INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In thousands)
Three months ended
September 30,
---------------------
2006 2005
---------- ----------
Operating Activities
Net income $ 6,676 $ 8,641
Adjustments to reconcile net income to net
cash provided by operating activities:
Revenues before deferral 169,547 147,948
Marketing costs before deferral (85,769) (69,909)
Revenues recognized (177,346) (157,528)
Marketing costs expensed 87,383 73,899
Depreciation and amortization 6,357 6,578
Stock-based compensation 1,185 1,106
Deferred and other income taxes (774) (209)
Excess tax benefits from stock-based
compensation (434) (351)
Other 183 (26)
---------- ----------
Operating cash flow before changes in assets and
liabilities 7,008 10,149
Net change in assets and liabilities (6,140) (9,985)
---------- ----------
Net cash provided by operating activities 868 164
---------- ----------
Investing Activities
Acquisition of fixed assets (2,504) (1,816)
Purchases of short-term investments (9,000) (16,325)
Sales of short-term investments 33,219 29,636
Acquisitions of businesses, net of cash
acquired, and other investing activities (8,787) (103)
---------- ----------
Net cash provided by investing activities 12,928 11,392
---------- ----------
Financing Activities
Net proceeds from issuance of stock 1,414 1,620
Excess tax benefits from stock-based
compensation 434 351
Treasury stock purchases (2,626) (1,747)
Debt issuance costs (60) -
Payments of long-term obligations (68) (182)
---------- ----------
Net cash (used in) provided by financing
activities (906) 42
---------- ----------
Effect of exchange rate changes on cash and cash
equivalents (71) 281
---------- ----------
Net increase in cash and cash equivalents 12,819 11,879
Cash and cash equivalents at beginning of
period 36,290 64,356
---------- ----------
Cash and cash equivalents at end of period $ 49,109 $ 76,235
========== ==========
VERTRUE INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(In thousands)
September 30, June 30,
2006 2006
------------- --------------
Assets
Current assets:
Cash and cash equivalents $ 49,109 $ 36,290
Restricted cash 2,079 2,699
Short-term investments 7,553 31,798
Accounts and notes receivable, net 27,385 21,014
Prepaid expenses 6,175 9,053
Deferred marketing costs 24,867 26,463
Other current assets 5,256 4,706
------------- --------------
Total current assets 122,424 132,023
Fixed assets, net 43,928 40,568
Goodwill 214,529 212,187
Intangible assets, net 37,019 37,798
Other long-term assets 23,637 20,452
------------- --------------
Total assets $ 441,537 $ 443,028
============= ==============
Liabilities and Shareholders' Deficit
Current liabilities:
Current maturities of long-term
obligations $ 773 $ 762
Accounts payable 41,164 42,281
Accrued liabilities 65,805 64,602
Deferred revenues 77,869 84,972
Deferred income taxes 12,093 11,687
------------- --------------
Total current liabilities 197,704 204,304
Deferred income taxes 5,738 6,920
Long-term debt 238,028 237,984
Other long-term liabilities 9,232 9,989
------------- --------------
Total liabilities 450,702 459,197
------------- --------------
Shareholders' deficit:
Common stock; $0.01 par value
40,000 shares authorized; 20,240
issued (20,168 at June 30, 2006) 202 202
Capital in excess of par value 191,024 187,991
Retained earnings 75,058 68,382
Accumulated other comprehensive
income (loss) 135 214
Treasury stock, 10,581 shares at
cost (10,518 shares at June 30,
2006) (275,584) (272,958)
------------- --------------
Total shareholders' deficit (9,165) (16,169)
------------- --------------
Total liabilities and shareholders'
deficit $ 441,537 $ 443,028
============= ==============
VERTRUE INCORPORATED
ADDITIONAL INFORMATION (UNAUDITED)
KEY STATISTICS - MARKETING SERVICES
September 2006 June 2006 September 2005
--------------- ---------- ---------------
Revenue Before Deferral Mix:
Monthly 78% 76% 68%
Annual 22% 24% 32%
Other Monthly Statistics:
Average Monthly Members
Billed (in thousands) (1) 2,943 2,843 2,592
Average Monthly Member Price
Point (1) $11.77 $11.57 $10.75
Monthly Marketing Margin 37% 41% 41%
Monthly Churn Rate (2) 8% 8% 8%
Monthly Renewal Rate (3) 87% 90% 90%
Monthly New Member Price
Point $17.07 $15.80 $14.59
Monthly Acquisition Cost per
New Billed Member (4) $44.81 $39.37 $36.28
(1) During the first quarter of fiscal 2007, the methodologies for
calculating monthly price point and average monthly members billed
were changed. All prior periods have been adjusted for these changes.
(2) Defined as member cancellations in the quarter divided by the sum
of beginning average monthly members billed and new monthly members
billed during the quarter, divided by three months.
(3) Represents the percentage of renewal monthly revenue before
deferral during the quarter as a percentage of the total monthly
revenue before deferral in the previous quarter.
(4) Represents the cost to acquire a new monthly member who has
successfully billed and is not expected to cancel during the quarter.
VERTRUE INCORPORATED
SEGMENT DATA
(In thousands)
Three months ended
September 30,
---------------------------
2006 2005
------------- -------------
Revenues
Marketing Services $ 140,703 $ 131,848
Personals 22,635 18,489
Management Services 14,008 7,191
------------- -------------
Total Revenues $ 177,346 $ 157,528
============= =============
EBITDA
Marketing Services $ 23,206 $ 26,969
Personals 2,076 2,295
Management Services 2,612 769
Corporate (7,876) (6,079)
------------- -------------
Total EBITDA $ 20,018 $ 23,954
============= =============
Adjusted EBITDA
Marketing Services $ 17,456 $ 21,625
Personals 2,040 2,230
Management Services 2,213 588
Corporate (7,876) (6,079)
------------- -------------
Total Adjusted EBITDA $ 13,833 $ 18,364
============= =============
VERTRUE INCORPORATED
RECONCILIATION OF NON-GAAP INFORMATION (UNAUDITED)
(In thousands)
Three months ended
September 30,
--------------------
2006 2005
--------- ----------
Reconciliation of Free Cash
Flow:
Net cash provided by operating
activities $ 868 $ 164
Capital expenditures (2,504) (1,816)
--------- ----------
Free cash flow $ (1,636) $ (1,652)
========= ==========
Three months ended September 30, 2006
-------------------------------------------------
Marketing Management
Services Personals Services Corporate Total
--------- --------- ---------- --------- --------
Reconciliation of
EBITDA and
Adjusted EBITDA:
Net income $ 6,676
Interest and other
expense, net 3,423
Provision for
income taxes 3,853
--------
Operating income $ 20,398 $ (380) $ 1,971 $ (8,037) $13,952
Depreciation and
amortization 2,808 2,456 641 161 6,066
--------- --------- ---------- --------- --------
EBITDA 23,206 2,076 2,612 (7,876) 20,018
Change in deferred
revenue (7,364) (36) (399) - (7,799)
Change in deferred
marketing 1,614 - - - 1,614
--------- --------- ---------- --------- --------
Adjusted EBITDA $ 17,456 $ 2,040 $ 2,213 $ (7,876) $13,833
========= ========= ========== ========= ========
Three months ended September 30, 2005
-------------------------------------------------
Marketing Management
Services Personals Services Corporate Total
--------- --------- ---------- --------- --------
Reconciliation of
EBITDA and
Adjusted EBITDA:
Net income $ 8,641
Interest and other
expense, net 4,498
Provision for
income taxes 4,517
--------
Operating income $ 23,699 $ (60) $ 370 $ (6,353) $17,656
Depreciation and
amortization 3,270 2,355 399 274 6,298
--------- --------- ---------- --------- --------
EBITDA 26,969 2,295 769 (6,079) 23,954
Change in deferred
revenue (9,334) (65) (181) - (9,580)
Change in deferred
marketing 3,990 - - - 3,990
--------- --------- ---------- --------- --------
Adjusted EBITDA $ 21,625 $ 2,230 $ 588 $ (6,079) $18,364
========= ========= ========== ========= ========
VERTRUE INCORPORATED
ADDITIONAL QUARTERLY OUTLOOK INFORMATION (UNAUDITED)
(In millions, except per share amounts)
Second Quarter Full Year
Fiscal 2007 Fiscal 2007
--------------- ----------------
Additional Quarterly Outlook
Information:
Revenue $175.0 - 181.0 $ 740.0 - 758.0
EPS $ 0.62 - 0.66 $ 3.08 - 3.22
Free Cash Flow $ 10.0 - 11.8 $ 40.5 - 45.8
VERTRUE INCORPORATED
RECONCILIATION OF NON-GAAP OUTLOOK INFORMATION (UNAUDITED)
(In millions)
Second Quarter Full Year
Fiscal 2007 Fiscal 2007
--------------- ----------------
Reconciliation of Free Cash Flow:
Net cash provided by operating
activities $ 12.0 - 13.8 $ 48.5 - 53.8
Deduct: Capital Expenditures (2.0) (8.0)
--------------- ----------------
Free Cash Flow $ 10.0 - 11.8 $ 40.5 - 45.8
=============== ================
Reconciliation of EBITDA and Adjusted
EBITDA:
Net income $ 7.1 - 7.6 $ 36.1 - 37.8
Provision for income taxes 4.4 - 4.6 22.1 - 23.2
Interest and other expense, net 4.2 - 3.9 16.2 - 15.1
Depreciation and amortization 6.5 25.4
--------------- ----------------
EBITDA 22.2 - 22.6 99.8 - 101.5
Changes in deferred revenue (5.0) - (3.0) (26.0) - (22.0)
Change in deferred marketing 2.1 - 1.5 18.0 - 17.6
--------------- ----------------
Adjusted EBITDA $ 19.3 - 21.1 $ 91.8 - 97.1
=============== ================
VERTRUE INCORPORATED
EXPLANATION OF NON-GAAP INFORMATION AND DEFINITIONS
EBITDA is calculated as net income excluding interest and other
expense, taxes, depreciation and amortization. Adjusted EBITDA is
calculated as EBITDA before the deferral of revenues and the deferral
of marketing costs. These measures are used by the Company's
management to evaluate the overall performance of its business. EBITDA
and Adjusted EBITDA is also used by the Company's management to
measure the overall performance of its business compared with internal
budgets, allocate capital and other resources to its operating
segments, assess the operating performance of those segments and
determine compensation under the Company's management incentive plans.
EBITDA is useful to management and investors because it eliminates the
effects of interest and other expense, income taxes, non-cash
depreciation of tangible assets and non-cash amortization of
intangible assets. Adjusted EBITDA is useful to management and
investors because it provides insight into the current period cash
operating results. However EBITDA and Adjusted EBITDA are limited as
compared to net income in that they do not reflect the periodic
amortization of certain capitalized tangible and intangible assets
used in generating revenues in the Company's businesses, they do not
reflect net income earned for GAAP reporting purposes and they exclude
the effects of interest and taxes. EBITDA and Adjusted EBITDA should
not be considered a substitute for or superior to operating income,
net income, net cash from operating activities or other measures of
financial performance and liquidity determined in accordance with
generally accepted accounting principles. A reconciliation of EBITDA
and Adjusted EBITDA to net income prepared in accordance with
generally accepted accounting principles is presented above.
The Company's management believes that revenues before deferral
and marketing costs before deferral are important measures of
liquidity and are significant factors in understanding the Company's
operating cash flow trends. These measures are not a substitute for or
superior to revenue and marketing expense prepared in accordance with
generally accepted accounting principles. These non-GAAP measures are
used by management and the Company's investors to understand the
liquidity trends of the Company's marketing margins related to the
current period operations which are reflected within the operating
cash flow section of the cash flow statement. GAAP revenues and
marketing expenses are important measures used to understand the
marketing margins earned during the period in the income statement.
However, in order to understand the operating cash flow, it is
important to understand the primary current period drivers of that
cash flow. Two of the primary indicators of operating liquidity for
the period are revenues before deferral and marketing before deferral.
Revenues before deferral are revenues before the application of SAB
104 and represent the revenues billed during the current reporting
period less an allowance for membership cancellations. That is,
revenues before deferral for a reporting period include membership
fees received in the current reporting period that will be recorded as
GAAP revenues in future reporting periods and exclude membership fees
received in prior reporting periods that are recorded as GAAP revenues
in the current reporting period. Marketing costs before deferral are
marketing costs before the application of SAB 104 and SOP 93-7 and
represent actual marketing costs paid or accrued during the current
reporting period. That is, marketing costs before deferral for a
reporting period include costs paid or accrued in the current
reporting period that will be recorded as GAAP marketing expenses in
future reporting periods and exclude marketing expenses paid or
accrued in prior reporting periods that are recorded as GAAP marketing
expenses in the current reporting period. Neither revenues before
deferral nor marketing costs before deferral exclude charges or
liabilities that will require cash settlement.
Free cash flow is useful to management and the Company's investors
in measuring the cash generated by the Company that is available to
pursue opportunities that enhance shareholder value, such as make
acquisitions, reduce debt, and develop new products. Free Cash Flow
should not be construed as a substitute in measuring operating results
or liquidity. This metric may not be comparable to similarly titled
measures used by other companies and is not a measurement recognized
under generally accepted accounting principles. A reconciliation of
Free Cash Flow to the appropriate measure recognized under generally
accepted accounting principles (Net Cash Provided by Operating
Activities) is presented above.
CONTACT: Vertrue Incorporated
James B. Duffy, 203-324-7635
SOURCE: Vertrue Incorporated
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