LIVONIA, Mich., July 31 -- Valassis today announced financial results for the second quarter ended June 30, 2008. The Company reported quarterly revenues of $594.9 million, down 2.8% compared to $612.1 million for the prior year quarter. Second quarter net earnings were $7.3 million, down 25.0% from $9.8 million in the prior year quarter. Earnings per share (EPS) for the quarter were $0.15, down from $0.20 in the prior year quarter. For the second quarter of 2008, adjusted EBITDA* was $56.0 million, down 11.3% from adjusted EBITDA* of $63.1 million for the second quarter of 2007.
First half revenues for 2008 were $1,192.0 million, up 22.5% compared to the prior year corresponding period (which excludes revenue for ADVO, Inc. for the period of Jan. 1, 2007 through March 1, 2007). On a pro forma basis, first half revenues for 2008 were flat compared to pro forma revenue for the first half of 2007. First half adjusted EBITDA* was $119.1 million, up 16.0% from $102.7 million compared to the first half of 2007 (which excludes results for ADVO, Inc. for the period of Jan. 1, 2007 through March 1, 2007) and up 12.3% from $106.1 million on a pro forma basis.
"We continue to drive improvements in the Shared Mail business with segment profit up 18% this quarter versus the second quarter of 2007. In the first half, our success in accelerating cross-selling and new client acquisition is offsetting the cyclical declines in revenue from newspaper-distributed products," said Alan F. Schultz, Valassis Chairman, President and Chief Executive Officer. "In addition, consumer usage of promotional media is on the rise positioning our RedPlum portfolio of value-oriented media well for the future."
Some additional highlights include:
Continued Momentum in Cost Management
-- Business Optimization: Our shared mail optimization initiative, designed to reduce over-supply and deliver more profitable packages, has increased the profitability of this segment and contributed significantly to our performance since our acquisition of ADVO in March 2007. During the second quarter of 2008, we eliminated 21 million packages versus the prior year. The revenue associated with this reduction, combined with the revenue loss from the discontinuation of the detached address label (DAL) which occurred in mid-May 2007, represented a 1.8% revenue drag in the second quarter of 2008.
-- Cost Synergies: Total cost synergies are on track to meet our 2008 target of $38 million.
-- Data Center Insourcing: In July 2008, we successfully insourced our data center. We expect to begin realizing annualized cost savings of approximately $4.5 million in the fourth quarter of 2008. During the second quarter, the Company incurred approximately $1.0 million of additional expense associated with the redundant cost incurred in the insourcing of its data center.
-- European Restructuring: The official opening of our facility in Poland in July 2008 marked a critical step in our efforts to improve the profit margin of our European clearing operations.
-- SG&A: First half 2008 SG&A costs were $194.0 million, including $4.5 million of legal costs related to the News America lawsuit. Without these charges, SG&A was $189.5 million, down 1.6% compared to $192.6 million for the first half of 2007 on a pro forma basis (derived by adding $41.7 million of SG&A of ADVO, Inc. for the period of Jan. 1, 2007 through March 1, 2007 to the reported SG&A of $150.9 million.)
Driving Profitable Revenue Growth
-- Cross-selling: We are pleased with our first half cross-selling successes and our ability to secure additional advertising dollars from our clients. We experienced a 9.0% increase in revenue among clients who purchased additional RedPlum products in the first half of 2008 versus the first half of 2007. We expect this momentum to build and positively impact future results.
-- New Client: We are on track to meet our 2008 objective of 4000 new local clients by securing 2049 in the first half.
-- Targeting System Launch: Since its April 2008 launch, Integrated Media Optimization (IMO) is gaining traction with clients. We have engaged in IMO planning for over 50 key accounts.
"With the sale and leaseback of our Windsor facilities, we have further strengthened our liquidity position. We will repay the $100 million of Secured Notes due in January 2009 out of existing cash and have no further liquidity events until 2014," said Robert L. Recchia, Executive Vice President and Chief Financial Officer.
-- Delayed Draw Term Loan: As previously announced, in April 2008 we closed on the delayed draw term loan portion of our Senior Secured Credit Facility which is priced at LIBOR plus 175 bps and the proceeds were used to pay the Senior Secured Convertible Notes that were put to Valassis in the amount of approximately $159.9 million in May 2008.
-- Debt Repayment: As disclosed in June 2008, we consummated the sale and leaseback plan for our Windsor, Connecticut locations. The net cash proceeds for this sale were $28.8 million. The Company signed long-term leases on two of the three facilities. In July 2008, as required under our Senior Secured Credit Facility, we applied the net proceeds from the sale to repay a portion of the Company's term loan B and delayed draw term loan portions of our Senior Secured Credit Facility. Since closing the ADVO acquisition, we have made $136.2 million in debt repayments under this facility.
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