Valassis Communications (VCI)
Q4 2012 Earnings Call
February 21, 2013 11:00 am ET
Executives
Robert A. Mason - Chief Executive Officer, President and Director
Robert L. Recchia - Chief Financial Officer, Principal Accounting Officer, Executive Vice President, Treasurer, Director and Member of Executive Committee
Analysts
William G. Bird - Lazard Capital Markets LLC, Research Division
Alexia S. Quadrani - JP Morgan Chase & Co, Research Division
Daniel Salmon - BMO Capital Markets U.S.
Daniel R. Leben - Robert W. Baird & Co. Incorporated, Research Division
Edward J. Atorino - The Benchmark Company, LLC, Research Division
Bethany Caster
Presentation
Operator
Good day, ladies and gentlemen, and thank you for standing by. Welcome to the Valassis Fourth Quarter and Year Ended 2012 Earnings Conference Call. [Operator Instructions] The conference is being recorded today, February 21, 2013. I would like to remind you that the discussions during this conference will include forward-looking statements, that Valassis' actual results could differ materially from those projected in the forward-looking statements. The factors that could cause actual results to be materially different from those expressed or implied by such forward-looking statements are discussed in the risk factors and other sections of the 2011 annual report Forms 10-K and reports on Forms 10-Q and Form 8-K, filed or furnished with the SEC. All discussions during this conference call will include certain financial measures that we are not prepared in accordance with Generally Accepted Accounting Principles. Reconciliations of those non-GAAP financial measures to the most comparable GAAP financial measures can be found in the press release furnished with the current report on our Form 8-K dated today, which is also available on Valassis' website on valassis.com in the Investor section.
I would now like to turn the conference over to our host, Rob Mason, CEO and President. Please go ahead, sir.
Robert A. Mason
Thank you. Good morning, everyone. I'd like to thank you for joining us for our fourth quarter and full-year 2012 earnings conference call. As usual, Bob Recchia, our Chief Financial Officer, is with me. And after some prepared remarks on our Q4 and 2012 results, we look forward to answering your questions.
Shortly after being given the opportunity to assume the role of CEO, I had the chance to meet most of you for the first time. For those conversations, my characterization of 2012 centered on a year where our team would be focused on creating a foundation for future growth. When I shared our 2012 annual guidance, tied the financial component of that foundation to a model that included flattish revenue adjusted EBITDA. While I believe we successfully delivered some very important components of that plan, I'd be far less than forthcoming if I didn't share my disappointment around our Q4 Shared Mail results and where we finished the year in terms of total revenue, adjusted EBITDA and Shared Mail growth.
The shortfall in our annual revenue was driven primarily by 3 elements. First, lower-than-expected volumes within Shared Mail; second, continued [indiscernible]; and third, a lack of big wins from our new business [indiscernible] Shared Mail and Newspaper Insert product lines.
[indiscernible] notable result to aggressively manage the cost out of our business, we experienced a 3.5% decline from calendar year 2011. The adjusted EBITDA miss was primarily a result of our acquisition and investment in Brand.net, and again the lack of anticipated volume within Shared Mail.
Looking at segment performance. After our fourth quarter, where Shared Mail suffered from softness within our specialty and discount retail categories, Shared Mail ended the year at $1.365 billion in revenue or just over 1% in annual year-over-year revenue growth.
From a segment profit perspective, Shared Mail generated 5% year-over-year growth. The primary driver for softness in these categories came as a result of the pressures retailer faced, as consumers dealing with continued economic uncertainty and the potential fiscal cliff pulled back on their holiday spending, which made 2012 look like the worst holiday shopping season since 2009.
The response we saw from multiple specialty and discount retailers was a combination of a reduction in their frequency, face counts and volumes, that drove down revenues from this key vertical by over 10% from prior-year quarter.
Despite solid growth from our restaurant, telecom and grocery verticals, the loss in retail volume and weight drove Q4 Shared Mail segment revenue down by just under 1% and segment profit by 2.7% on a year-over-year basis.
While I'll repeat my disappointment in our Shared Mail performance, I am fully convinced that the fundamentals of this business are sound. By focusing on available share, investing in ongoing innovation, like our variable data postcard, and aggressively pursuing new business opportunities, I continue to believe that we will be able to deliver 3% Shared Mail revenue growth for calendar year 2013.
Also given our current level of visibility into Q1, we expect to return to positive revenue growth for the quarter on a reduced number of total packages.
Moving on to our Neighborhood Targeted segment. We experienced a 15% year-over-year revenue decline in Q4. Virtually all of this decline was attributable to our Newspaper Insert product line, where revenue was impacted by the conversion to fee-based business model that we discussed during our 2013 guidance call. That market-driven change means that certain Neighborhood Targeted business, previously recorded as gross revenue, will now be recorded on a net fee basis.
This change accounted for almost half of the decline in Newspaper Inserts for the fourth quarter, another $5 million of the decline in Newspaper Insert revenue was driven by the same softness in retail activity that I mentioned earlier.
Read the rest of this transcript for free on seekingalpha.com
Copyright 2013 Seeking Alpha
