-- Reported revenues were $135.6 million versus guidance of $130.0 million to $135.0 million.
“This quarter we have taken our company to a new level”
-- Earnings per share was $0.65 versus guidance of $0.56 to $0.59.
-- Operating cash flow was $7.9 million versus guidance of $4 to $5 million.
-- Operating cash flow before changes in assets and liabilities was $6.7 million versus guidance of $4 to $5 million.
Vertrue Incorporated (Nasdaq: VTRU), a leading marketing solutions company, announced today its financial results for the fiscal 2005 first quarter ended September 30, 2004. As announced on October 13, 2004, MemberWorks Incorporated became Vertrue Incorporated.
The Company reported revenues of $135.6 million, compared to $113.8 million reported in the fiscal 2004 first quarter, and $133.2 million reported in the fiscal 2004 fourth quarter. Revenues from Lavalife Inc., which was acquired on April 1, 2004 were $18.3 million in the fiscal 2005 first quarter and $17.7 million in the fiscal 2004 fourth quarter.
The Company reported net income of $7.6 million or $0.65 per diluted share for the fiscal 2005 first quarter compared to $3.9 million or $0.30 per diluted share for the fiscal 2004 first quarter and $8.0 million or $0.66 per diluted share for the fiscal 2004 fourth quarter. The effective tax rate used to compute net income was 36.5% in the fiscal 2005 first quarter compared to 40% used in the fiscal 2004 first quarter and full year. The net income effect of the lower rate was $0.04 per diluted share for the fiscal 2005 first quarter.
The Company reported net cash provided by operating activities of $7.9 million for the fiscal 2005 first quarter versus cash used in operating activities of $2.0 million in last year's first quarter and cash provided by operating activities of $22.7 million in the fourth quarter of fiscal 2004. Operating cash flow before changes in assets and liabilities reported for the fiscal 2005 first quarter was $6.7 million compared to $5.3 million in last year's first fiscal quarter, and $11.8 million in the fiscal 2004 fourth quarter. See the table on page 7 for a reconciliation of net cash provided by operating activities to operating cash flow before changes in assets and liabilities and for an explanation of the relevance of this measure.
"This quarter we have taken our company to a new level," said Gary Johnson, President and CEO. "Our new name, Vertrue, captures the essence of our strategy to build a leading consumer marketing company. Our acquisition of Bargain Network expands our marketing presence in more direct to consumer channels. And, our internal effort to re-invent our core membership programs positions Vertrue for long-term growth. Despite all that is new, our commitment to strong financial performance remains the same, and we are pleased with our results for the quarter."
The Company also announced today that its Board of Directors authorized the repurchase of an additional 1 million shares of its Class A common stock under its ongoing stock repurchase program. Shares may be repurchased from time to time in open market transactions. During the quarter ended September 30, 2004, the Company purchased 279,000 shares of its common stock in the open market. Pursuant to the share repurchase program, the Company is authorized to repurchase approximately 1,715,000 additional shares as market conditions permit. As of September 30, 2004, there were 10,024,000 shares of common stock outstanding.
Business Outlook:
Management offers the following guidance for the year ended June 30, 2005:
Guidance for revenues and operating cash flow remains unchanged from amounts provided in the July 28, 2004 press release. Revenues are expected to be in the range of $550 million to $560 million. Operating cash flow before changes in assets and liabilities is expected to be between $33 million and $38 million and changes in assets and liabilities is expected to be positive $10 million. Capital expenditures are expected to be approximately $12 million. Free cash flow is expected to be approximately $31 million to $36 million. Earnings per share guidance has been revised upward from $2.30 to $2.35 to $2.40 to $2.45 primarily due to a decrease in the expected effective tax rate from 40% to 37%.
Management offers the following guidance for the quarter ended December 31, 2004:
Guidance for revenues and operating cash flow remains unchanged from amounts provided in the July 28, 2004 press release. Revenues are expected to be in the range of $135 million to $140 million. Operating cash flow before changes in assets and liabilities is expected to be between $9 million and $10 million and changes in assets and liabilities are expected to be neutral. Capital expenditures are expected to be approximately $3 million. Free cash flow is expected to be approximately $6 million to $7 million. Earnings per share guidance has been revised upward from $0.38 to $0.40 to $0.40 to $0.42 primarily due to a decrease in the expected fiscal 2005 effective tax rate from 40% to 37%.
The guidance amounts described above do not include the potential effect of the acquisition of Bargain Network Inc. which was announced on October 20, 2004. In that press release, the Company reported the acquisition is expected to be dilutive to fiscal 2005 earnings by approximately $0.10 per diluted share due to the estimated level of near term amortization expense required. The acquisition is expected to be accretive to fiscal 2006 earnings.
See the table on page 7 for a reconciliation of net cash provided by operating activities to operating cash flow before changes in assets and liabilities and to free cash flow and an explanation of the relevance of these measures.
Conference Call Note:
Vertrue will host a conference call at 9:00 a.m. EDT on October 26, 2004 to discuss the Company's first quarter results. To listen to the conference call, please dial (800) 369-3147 five to ten minutes before the scheduled start time. Callers will need to enter pass code "MBRS". 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 the completion of the call and will remain available until November 6, 2004. To listen to the audio replay, please call (800) 839-1170. 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 6, 2004.
About Vertrue:
Headquartered in Stamford, Conn., Vertrue Incorporated is a category leader in both membership and loyalty programs, bringing value direct to consumers through an array of benefits in healthcare, discounts, security and personals. With broad online and offline distribution capabilities, Vertrue offers its corporate client partners effective tools to enhance market presence, strengthen customer affinity and generate additional value.
Any statements herein regarding the business of the Company that are not historical are "forward looking statements" that 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 intended is contained in the Company's most recent Quarterly Reports on Form 10-Q and Annual report on Form 10-K as filed with the SEC.
VERTRUE INCORPORATED
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(In thousands, except per share data)
Three months ended
September 30,
-----------------------
2004 2003
----------- -----------
Revenues $ 135,623 $ 113,824
Expenses:
Marketing 68,532 66,656
Operating 24,210 21,463
General and administrative 24,605 18,767
Amortization of intangible assets 1,544 318
----------- -----------
Total expenses 118,891 107,204
----------- -----------
Operating income 16,732 6,620
Interest (expense) income, net (4,643) (114)
Other income (expense), net (135) (15)
----------- -----------
Income before income taxes 11,954 6,491
Provision for income taxes (4,358) (2,596)
----------- -----------
Net income $ 7,596 $ 3,895
=========== ===========
Diluted earnings per share $ 0.65 $ 0.30
=========== ===========
Diluted shares used in earnings per share
calculation 12,949 13,011
=========== ===========
VERTRUE INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In thousands)
Three months ended
September 30,
-----------------------
2004 2003
----------- -----------
Operating Activities
Net income $ 7,596 $ 3,895
Adjustments to reconcile net income to net
cash
provided by operating activities:
Revenues before deferral 119,288 100,162
Marketing costs before deferral (62,184) (57,435)
Revenues recognized (135,623) (113,824)
Marketing costs expensed 68,532 66,656
Depreciation and amortization 5,031 2,761
Deferred and other income taxes 3,105 835
Tax benefit from employee stock plans 129 1,515
Other 822 752
----------- -----------
Operating cash flow before changes in assets
and liabilities 6,696 5,317
Net change in assets and liabilities 1,213 (7,335)
----------- -----------
Net cash provided by (used in) operating
activities 7,909 (2,018)
----------- -----------
Investing Activities
Acquisition of fixed assets (719) (921)
Purchase of short term investments (8,193) -
Acquisition of business and other investing
activities 304 -
----------- -----------
Net cash used in investing activities (8,608) (921)
----------- -----------
Financing Activities
Net proceeds from issuance of stock 919 22,089
Treasury stock purchases (7,250) (56,352)
Net proceeds from issuance of debt (583) 87,019
Payments of long-term obligations (90) (67)
----------- -----------
Net cash (used in) provided by financing
activities (7,004) 52,689
----------- -----------
Effect of exchange rate changes on cash and
cash equivalents 172 2
----------- -----------
Net (decrease) increase in cash and cash
equivalents (7,531) 49,752
Cash and cash equivalents at beginning of
period 159,496 72,260
----------- -----------
Cash and cash equivalents at end of period $ 151,965 $ 122,012
=========== ===========
VERTRUE INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(In thousands)
September 30, June 30,
2004 2004
----------- -----------
Assets
Current assets:
Cash and cash equivalents $ 151,965 $ 159,496
Restricted cash 2,117 3,120
Short-term investments 15,549 7,650
Accounts receivable 9,960 10,557
Other current assets 9,867 8,119
Membership solicitation and other deferred
costs 46,240 52,428
----------- -----------
Total current assets 235,698 241,370
Fixed assets, net 34,057 36,540
Goodwill 126,586 125,675
Intangible and other assets, net 48,545 49,577
----------- -----------
Total assets $ 444,886 $ 453,162
=========== ===========
Liabilities and Shareholders' Deficit
Current liabilities:
Current maturities of long-term
obligations $ 335 $ 338
Accounts payable 32,699 35,185
Accrued liabilities 69,629 66,075
Deferred membership fees 122,326 138,381
Deferred income taxes 10,495 12,323
----------- -----------
Total current liabilities 235,484 252,302
Deferred income taxes 10,655 4,354
Other long-term liabilities 4,893 4,930
Long-term debt 237,696 237,659
----------- -----------
Total liabilities 488,728 499,245
----------- -----------
Shareholders' deficit:
Common stock; $0.01 par value
40,000 shares authorized; 19,155 issued
(19,089 at June 30, 2004) 191 191
Capital in excess of par value 157,505 156,457
Accumulated equity (deficit) 17,727 10,131
Accumulated other comprehensive income (loss) 474 (373)
Treasury stock, 9,131 shares at cost (8,852
shares at June 30, 2004) (219,739) (212,489)
----------- -----------
Total shareholders' deficit (43,842) (46,083)
----------- -----------
Total liabilities and shareholders' deficit $ 444,886 $ 453,162
=========== ===========
KEY STATISTICS
September September
2004 June 2004 2003
---------- ---------- ----------
Membership Revenue Before Deferral Mix:
Monthly 50% 44% 32%
Renewal annual 40% 42% 47%
New annual 10% 14% 21%
Membership Price Points:
Monthly $11.83 $11.41 $10.72
New annual $105.00 $107.00 $105.00
Membership Marketing Margin Before
Deferral:
Monthly 22% 33% 11%
New annual 26% 35% 8%
Total 46% 54% 43%
Average monthly members billed (in
thousands) 1,417 1,340 955
VERTRUE INCORPORATED
RECONCILIATION OF NON-GAAP INFORMATION
(In thousands)
(Unaudited)
Three months ended
September 30,
-----------------------
2004 2003
----------- -----------
Reconciliation of Operating Cash Flow before
Changes in Assets and Liabilities:
Operating cash flow before changes in assets
and liabilities $ 6,696 $ 5,317
Changes in assets and liabilities 1,213 (7,335)
----------- -----------
Net cash provided by operating activities $ 7,909 $ (2,018)
=========== ===========
Reconciliation of Revenues before Deferral:
Revenues reported $ 135,623 $ 113,824
Changes in deferred membership fees (16,335) (13,662)
----------- -----------
Revenues before deferral $ 119,288 $ 100,162
=========== ===========
Reconciliation of Marketing Costs before
Deferral:
Marketing expenses reported $ 68,532 $ 66,656
Changes in solicitation and other deferred
costs (6,348) (9,221)
----------- -----------
Marketing costs before deferral $ 62,184 $ 57,435
=========== ===========
VERTRUE INCORPORATED
RECONCILIATION OF NON-GAAP OUTLOOK INFORMATION
(In thousands)
(Unaudited)
Second Quarter Full Year
Fiscal 2005 Fiscal 2005
---------------- ----------------
Reconciliation of Operating Cash Flow
before Changes in Assets and
Liabilities:
Operating cash flow before changes in
assets and liabilities $9,000 -10,000 $33,000 -38,000
Add: Changes in assets and
liabilities - 10,000
---------------- ----------------
Net cash provided by operating
activities $9,000-10,000 $43,000-48,000
================ ================
Reconciliation of Free Cash Flow:
Net cash provided by operating
activities $9,000-10,000 $43,000-48,000
Deduct: Capital Expenditures 3,000 12,000
---------------- ----------------
Free Cash Flow $6,000-7,000 $31,000-36,000
================ ================
VERTRUE INCORPORATED
EXPLANATION OF NON-GAAP INFORMATION
The Company believes that Operating Cash Flow before Changes in Assets and Liabilities is an important measure of liquidity. Operating Cash Flow before Changes in Assets and Liabilities represents the actual cash flow generated in the period, excluding the timing of cash payments and receipts. This measure is used by management and by the Company's investors. However this measure is not a substitute for, or superior to, Net Cash Provided by Operating Activities prepared in accordance with generally accepted accounting principles. A reconciliation of Operating Cash Flow before Changes in Assets and Liabilities to Net Cash Provided by Operating Activities prepared in accordance with generally accepted accounting principles is presented above.
The Company's management believes that revenues before deferral, marketing costs before deferral, and marketing margin before deferral are important measures of liquidity and are significant factors in understanding the Company's operating cash flow trends. 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, which, when netted together, result in marketing margin before deferral. Revenues before deferral are revenues before the application of SAB 104 and represent the actual membership fees billed during the current reporting period less an allowance for membership cancellations. Marketing costs before deferral are marketing costs before the application of SAB 104 and SOP 93-7 and represent actual marketing costs paid for or accrued for during the current reporting period. Neither revenues before deferral nor marketing costs before deferral exclude charges or liabilities that will require cash settlement. Additionally, these measures are not a substitute for, or superior to, Revenue and Marketing Expense prepared in accordance with generally accepted accounting principles.
Free cash flow is useful to management and the Company's investors in measuring the cash generated by the Company that is available to be used to repurchase stock, repay debt obligations and invest in future growth through new business development activities or acquisitions. Free Cash Flow should not be construed as a substitute in measuring operating results or liquidity. Such 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.
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