Affinion Group Holdings, Inc. Announces Results For The Fourth Quarter And Year Ended December 31, 2017

STAMFORD, Conn., March 1, 2018 /PRNewswire/ -- Affinion Group Holdings, Inc. ("Affinion Holdings" or the "Company"), a global leader in loyalty and customer engagement, announced today the financial results for the three- and twelve-month periods ended December 31, 2017 (the "fourth quarter" or "quarter" and "full year," respectively).  

Key Highlights

• Net revenues were $231.5 million in the fourth quarter of 2017 and $953.1 million for the full year.
• Income from operations was $37.0 million in the fourth quarter and $140.8 million for the full year. 
• Adjusted EBITDA (as defined in Note (d) of Table 6) was $58.5 million in the fourth quarter and $235.2 million for the full year.

"During the fourth quarter, we saw solid results across our core businesses, highlighted by 23% revenue growth in our Global Loyalty segment and 7% Adjusted EBITDA growth in our core businesses," said Todd Siegel, the Company's Chief Executive Officer.  "Over the past year, we have positioned ourselves with a solid foundation for long-term success.  We have capitalized on the positive momentum in the Global Loyalty segment, continued to make significant investments in our technology platform and data analytics capabilities, and simplified our capital structure and extended debt maturities." 

"For 2018, we are focused on continued growth in our core businesses, led by new client launches in our Global Loyalty segment and engagement solutions platform business, and continued solid performance in Insurance," continued Siegel.  "Given the positive trends we see in the marketplace, we anticipate continued earnings growth in our core businesses, as compared to 2017 results."    

Results Highlights
Notes: Adjusted EBITDA as referred to above excludes any pro forma impact of acquisitions and other actions.  See Table 5 for a complete description of Adjusted EBITDA by segment and the related reconciliations to GAAP measures. See Table 6 for a complete description of Adjusted EBITDA and the related reconciliations to GAAP measures. 

Fourth Quarter Net Revenues

• Net revenues for the fourth quarter of 2017 decreased 0.4%, from $232.4 million in the fourth quarter of 2016 to $231.5 million.  The decrease in overall net revenues was primarily due to the expected revenue declines in our non-core Legacy Membership and Package segment, mostly offset by higher Global Loyalty revenue.
• Net revenues for the three core business segments (Global Loyalty, Global Customer Engagement and Insurance Solutions) for the fourth quarter of 2017 increased 5.1%, from $191.5 million in the fourth quarter of 2016 to $201.3 million. 
• Net revenues for the Legacy Membership and Package segment decreased 26.7%, from $41.2 million in the fourth quarter of 2016 to $30.2 million.

Fourth Quarter Operating Results

• Income from operations was $37.0 million as compared to $27.6 million for the fourth quarter of 2016.
• Adjusted EBITDA (as defined in Note (d) of Table 6) was $58.5 million as compared to $55.7 million for the fourth quarter of 2016, an increase of 5.0%.
• Segment EBITDA (as defined in Note (1) of Table 5) increased $6.5 million primarily as a result of lower marketing and commission expenses and lower general and administrative expenses, which were partially offset by lower net revenues.
• Segment EBITDA for the three core business segments (Global Loyalty, Global Customer Engagement and Insurance Solutions) increased $3.2 million primarily due to an increase in Global Loyalty and Insurance Solutions Segment EBITDA.
• Segment EBITDA for the Legacy Membership and Package segment increased $2.8 million as the lower net revenues were more than offset by lower marketing and commissions and lower operating and general and administrative costs.
• As compared to Segment EBITDA, fourth quarter Adjusted EBITDA reflects the exclusion of, among other items, $3.3 million in costs related primarily to restructuring of certain operations including related severance costs, $1.1 million related to facility exit costs, $0.7 million in costs related to certain litigation matters, and $0.7 million of stock compensation expense.

Full Year Net Revenues

• Net revenues for 2017 decreased 1.7%, from $969.4 million in 2016 to $953.1 million.  The decrease in overall net revenues was primarily due to the expected revenue declines in our non-core Legacy Membership and Package segment and lower revenues in our Global Customer Engagement segment, partially offset by higher Global Loyalty revenue.
• Net revenues for the three core business segments for 2017 increased 4.2%, from $781.1 million in 2016 to $813.7 million. 
• Net revenues for the Legacy Membership and Package segment decreased 26.4%, from $189.4 million in 2016 to $139.4 million.

Full Year Operating Results

• Income from operations was $140.8 million as compared to $133.0 million for 2016.
• Adjusted EBITDA was $235.2 million as compared to $235.0 million for 2016, an increase of 0.1%.
• Segment EBITDA decreased $2.1 million primarily as a result of lower net revenues and higher operating costs, which were partially offset by lower marketing and commissions and lower general and administrative expenses.
• Segment EBITDA for the three core business segments decreased $7.4 million primarily due to a decrease in Global Customer Engagement Segment EBITDA, partially offset by an increase in Global Loyalty Segment EBITDA.
• Segment EBITDA for the Legacy Membership and Package segment decreased $1.0 million as the lower net revenues were mostly offset by lower marketing and commissions and lower operating and general and administrative costs including cost savings initiatives.
• As compared to Segment EBITDA, full year Adjusted EBITDA reflects the exclusion of, among other items, a $23.2 million charge recorded in relation to the external gift card inventory cyber theft that occurred in the first quarter of 2017, $12.0 million in costs related primarily to restructuring of certain operations including related severance costs, $4.4 million in costs related to certain litigation matters, $2.8 million of stock compensation expense, and $1.2 million related to facility exit costs.

Segment Commentary

Global Loyalty net revenues increased by $10.1 million, or 22.9%, for the three months ended December 31, 2017 to $54.3 million as compared to $44.2 million for the three months ended December 31, 2016, and increased $58.1 million, or 34.8%, from $167.0 million to $225.1 million for the full year. Global Loyalty net revenues increased for the quarter and the full year primarily due to increased growth with existing clients and launches with new clients.

Global Loyalty Segment EBITDA increased by $2.4 million to $17.6 million for the three months ended December 31, 2017 as compared to $15.2 million for the three months ended December 31, 2016, and increased by $7.6 million to $64.0 million from $56.4 million for the full year. For the quarter, Global Loyalty Segment EBITDA increased as the impact of the higher net revenue was partially offset by higher servicing costs, including the opening of an additional call center in the fourth quarter. For the full year, the impact of the higher net revenue was partially offset by higher servicing costs and a charge of $23.2 million recorded in relation to the external gift card inventory cyber theft that occurred in the first quarter of 2017.         

Global Customer Engagement net revenues decreased by $1.0 million, or 1.1%, to $90.5 million for the three months ended December 31, 2017 as compared to $91.5 million for the three months ended December 31, 2016, and decreased $27.0 million, or 7.0%, from $386.3 million to $359.3 million for the full year.  Net revenues decreased for the quarter primarily as a result of lower net revenues in our revenue enhancement business.  For the full year, net revenues decreased primarily from lower net revenues in our engagement solutions business principally due to the timing of product launches with new clients, lower revenue in our revenue enhancement business, and the unfavorable impact of foreign exchange.

Global Customer Engagement Segment EBITDA decreased by $0.4 million to $15.8 million for the three months ended December 31, 2017 as compared to $16.2 million for the three months ended December 31, 2016, and decreased by $15.4 million to $55.7 million from $71.1 million for the full year. For the quarter, Global Customer Engagement Segment EBITDA decreased as the lower net revenues were partially offset by lower operating expenses. For the full year, lower net revenues and higher general and administrative expenses were partially offset by lower marketing and commission expense and lower operating costs.

Insurance Solutions net revenues increased by $0.7 million, or 1.3%, to $56.5 million for the three months ended December 31, 2017 as compared to $55.8 million for the three months ended December 31, 2016, and increased $1.5 million, or 0.7%, from $227.8 million to $229.3 million for the full year. Insurance Solutions net revenues increased for the quarter primarily due to a slightly lower claims experience partially offset by lower average supplemental insureds. For the full year, net revenues increased as the impact from lower average supplemental insureds was more than offset by an increase in the average revenue per supplemental insured along with slightly lower claims experience.  

Insurance Solutions Segment EBITDA increased by $1.2 million to $17.8 million for the three months ended December 31, 2017 as compared to $16.6 million for the three months ended December 31, 2016, and increased by $0.4 million to $78.3 million from $77.9 million for the full year. Insurance Solutions Segment EBITDA increased for the quarter primarily due to higher net revenues and slightly lower operating expenses. For the full year, the impact of higher net revenues was mostly offset by an increase in operating expenses.

Legacy Membership and Package net revenues decreased by $11.0 million, or 26.7%, to $30.2 million for the three months ended December 31, 2017 as compared to $41.2 million for the three months ended December 31, 2016, and decreased by $50.0 million, or 26.4%, from $189.4 million to $139.4 million for the full year. Legacy Membership and Package net revenues decreased for both the quarter and the full year primarily due to the expected attrition of legacy members and cessation of new marketing campaigns and terminated programs with partners, including large financial institutions, as well as a decline in package revenue primarily due to the impact of lower average package members.

Legacy Membership and Package Segment EBITDA increased by $2.8 million to $11.0 million for the three months ended December 31, 2017 as compared to $8.2 million for the three months ended December 31, 2016, and decreased by $1.0 million to $39.9 million from $40.9 million for the full year. Legacy Membership and Package Segment EBITDA increased for the quarter as the impact from lower net revenues was more than offset by lower general and administrative expenses, lower marketing and commission expense and lower operating costs. For the full year, Segment EBITDA decreased as the impact from lower net revenues was partially offset by lower general and administrative expenses, lower marketing and commission expense and lower operating costs.  

Corporate costs include certain departmental service costs such as human resources, legal, corporate finance and accounting functions, and unallocated portions of information technology. Expenses, such as professional fees related to debt financing activities and stock compensation costs, are also recorded in corporate. Corporate costs decreased by $0.5 million to $13.3 million for the three months ended December 31, 2017 as compared to $13.8 million for the three months ended December 31, 2016, and decreased by $6.3 million from $56.6 million to $50.3 million for the full year.

Selected Liquidity Data

At December 31, 2017, there was $1,300.8 million of Affinion Group, Inc.'s term loans outstanding (net of discounts) and $572.4 million (net of discounts) outstanding under Affinion Group, Inc.'s senior cash 12.5%/PIK step-up to 15.5% notes due 2022.

At December 31, 2017, there were outstanding borrowings of $52.6 million (net of discounts) against Affinion Group, Inc.'s revolving credit facility and $50.0 million of Affinion Group, Inc.'s credit facility was available for borrowing, after giving effect to the issuance of $5.0 million of letters of credit.

As of December 31, 2017, Affinion Group, Inc. was in compliance with the restrictive covenants under Affinion Group Inc.'s debt agreements.

For the twelve months ended December 31, 2017, Affinion Holdings' net cash provided by operating activities was $7.0 million and the net loss attributable to Affinion Holdings was $25.2 million. 

At December 31, 2017, Affinion Holdings had $39.8 million of unrestricted cash on hand.

Conference Call Information
Affinion Holdings will hold an informational call to discuss the results for the quarter and the full year ended December 31, 2017 at 10:00 a.m. (ET) on Thursday, March 1, 2018. The conference call will be broadcast live and can be accessed by dialing 1.866.394.8483 (domestic) or 1.706.758.1455 (international) and entering passcode 6786838. Interested parties should call at least ten (10) minutes prior to the call to register. The Company will also provide an online Web simulcast of its conference call. The Web simulcast will be available online by visiting http://www.affinion.com/investors. A telephonic replay of the call will be available through midnight March 5, 2018 by dialing 1.855.859.2056 (domestic) or 1.404.537.3406 (international) and entering passcode 6786838.  

Important Notes
The information presented in this release is a comparison of the unaudited consolidated results of operations for the three month period ended December 31, 2017 and the audited consolidated results of operations for the twelve month period ended December 31, 2017 to the unaudited consolidated results of operations for the three month period ended December 31, 2016 and the audited consolidated results of operations for the twelve month period ended December 31, 2016.

About Affinion Holdings
Affinion is one of the world's leading loyalty and customer engagement solutions companies servicing over 250 million consumers with more than 6,150 client partner relationships and over 40 years of experience.  We design, administer and fulfill loyalty and customer engagement programs that strengthen and expand the value of relationships for our leading clients around the globe, including many of the largest and most respected companies in the financial services, retail, travel, and internet commerce sectors. Based in Stamford, CT, the Company has approximately 3,860 employees located in 20 countries across the globe. For more information, visit www.affinion.com.

Safe Harbor Statement Under the U.S. Private Securities Litigation Reform Act of 1995
This press release may contain "forward-looking" statements as defined by the Private Securities Litigation Reform Act of 1995 or by the U.S. Securities and Exchange Commission (SEC) in its rules, regulations and releases. These statements include, but are not limited to, discussions regarding industry outlook, the Company's expectations regarding the performance of its business, its liquidity and capital resources, its guidance for 2018 and the other non-historical statements. These statements can be identified by the use of words such as "believes" "anticipates," "expects," "intends," "plans," "continues," "estimates," "predicts," "projects," "forecasts," and similar expressions. All forward-looking statements are based on management's current expectations and beliefs only as of the date of this press release and are subject to risks, uncertainties and assumptions that could cause actual results to differ materially from those discussed in, or implied by, the forward-looking statements. Factors that could cause actual results to differ materially include, but are not limited to, risks related to general economic and business conditions and international and geopolitical events, a downturn in the credit card industry or changes in the techniques of credit card issuers, industry trends, foreign currency exchange rates, the effects of a decline in travel on the Company's travel fulfillment business, termination or expiration of one or more agreements with its marketing partners or a reduction of the marketing of its services by one or more of its marketing partners, the Company's substantial leverage, restrictions contained in its debt agreements, its inability to compete effectively, and other risks identified and discussed from time to time in reports filed by Affinion Holdings with the SEC, including Affinion Holdings' most recent Annual Report on Form 10-K.  Readers are strongly encouraged to review carefully the full cautionary statements described in these reports. Except as required by law, the Company undertakes no obligation to revise or update publicly any forward-looking statements to reflect events or circumstances after the date of this press release, or to reflect the occurrence of unanticipated events or circumstances.