Affinion Group Holdings, Inc. Announces Results For The Second Quarter Ended June 30, 2017

STAMFORD, Conn., July 27, 2017 /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 month period ended June 30, 2017 (the "second quarter" or "quarter").

Key Highlights

• Net revenues were $237.3 million in the second quarter of 2017.
• Income from operations was $15.4 million in the second quarter of 2017.
• Adjusted EBITDA (as defined in Note (e) of Table 6) was $53.6 million in the second quarter of 2017.

"We once again delivered solid quarterly results in our core businesses driven by continued growth in our Loyalty segment, which reported approximately 40% year over year revenue growth in the second quarter of 2017," said Todd Siegel, the Company's Chief Executive Officer.  "Our core businesses should continue to perform well, as our loyalty, customer engagement and insurance solutions provide market leading content, services and technology, which continue to be attractive offerings for our clients and their customers.  As for the remainder of 2017, we are focused on executing against our strategic plans, and we believe our core businesses will be led by continued strong growth in our Global Loyalty segment." 

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. 

Second Quarter Net Revenues

• Net revenues for the second quarter of 2017 decreased 2.7%, from $244.0 million in the second quarter of 2016 to $237.3 million. The decrease in overall net revenues was primarily due to expected revenue declines in our non-core Legacy Membership and Package segment, as well as lower Global Customer Engagement revenue, partially offset by higher Global Loyalty revenue.
• Net revenues for the three core business segments (Global Loyalty, Global Customer Engagement and Insurance Solutions) for the second quarter of 2017 increased 3.5%, from $194.0 million in the second quarter of 2016 to $200.7 million. On a currency consistent basis, net revenues for the three core business segments were $205.2 million for the second quarter of 2017, an increase of 5.8%.
• Net revenues for the Legacy Membership and Package segment decreased 27.4%, from $50.4 million in the second quarter of 2016 to $36.6 million.

Second Quarter Operating Results

• Income from operations was $15.4 million as compared to $34.8 million for the second quarter of 2016.
• Adjusted EBITDA (as defined in Note (e) of Table 6) was $53.6 million as compared to $57.0 million for the second quarter of 2016, a decrease of 6.0%.
• Segment EBITDA (as defined in Note (1) of Table 5) decreased $21.7 million as the impact of lower net revenues and higher operating costs was partially offset by lower marketing and commission expense.
• Segment EBITDA for the three core business segments (Global Loyalty, Global Customer Engagement and Insurance Solutions) decreased $16.8 million due to a decrease in Global Loyalty and Global Customer Engagement Segment EBITDA.
• Segment EBITDA for the Legacy Membership and Package segment decreased $6.3 million as the lower net revenues were partially offset by lower marketing and commissions and lower operating and general and administrative costs including cost savings initiatives.
• As compared to Segment EBITDA, second quarter Adjusted EBITDA reflects the exclusion of, among other items, an $18.1 million charge recorded relating to the external gift card inventory cyber theft that occurred in the first quarter of 2017, $4.9 million in costs related primarily to restructuring of certain operations including related severance costs, $2.1 million in costs related to certain litigation matters, and $0.6 million of stock compensation expense.

Segment Commentary

Global Loyalty net revenues increased by $15.5 million, or 38.8%, for the three months ended June 30, 2017 to $55.5 million as compared to $40.0 million for the three months ended June 30, 2016. Global Loyalty net revenues increased for the quarter due to increased growth with existing clients and launches with new clients.

Global Loyalty Segment EBITDA decreased by $9.3 million to $3.5 million for the three months ended June 30, 2017 as compared to $12.8 million for the three months ended June 30, 2016. For the quarter, Global Loyalty Segment EBITDA decreased as the impact of the higher net revenue was more than offset by higher servicing costs and a charge recorded relating to the external gift card inventory cyber theft that occurred in the first quarter of 2017.  The charge is primarily related to a commercial dispute with one of our gift card providers, and we are seeking to recover that portion of the charge from that provider.  An insurance claim related to the theft is currently being pursued with our carriers and we expect a recovery in a future period which will be recorded when received.  Excluding the impact of the charge relating to the gift card inventory cyber theft, Segment EBITDA would have increased $8.8 million for the period, or 68.8%.       

Global Customer Engagement net revenues decreased by $9.7 million, or 9.8%, to $89.0 million for the three months ended June 30, 2017 as compared to $98.7 million for the three months ended June 30, 2016.  Net revenues declined $4.5 million in the second quarter from the unfavorable impact of foreign exchange.  On a currency consistent basis, net revenues decreased $5.2 million primarily from lower net revenues in our engagement solutions business primarily due to the timing of product launches with new clients, as well as lower revenue in our revenue enhancement business.

Global Customer Engagement Segment EBITDA decreased by $8.1 million to $10.0 million for the three months ended June 30, 2017 as compared to $18.1 million for the three months ended June 30, 2016. For the quarter, Global Customer Engagement Segment EBITDA decreased primarily due to lower net revenues and higher operating, general and administrative and facility exit costs which were partially offset by lower marketing and commission expense. The lower marketing and commission expense was primarily due to lower volumes, a migration of certain partner commission arrangements from traditional bounty to advance commissions and the favorable impact of foreign exchange. The higher operating and facility exit costs were primarily the result of costs related to restructuring efforts for our cost savings initiatives.  The higher general and administrative expenses were largely from a provision recorded related to the collectability of a customer receivable.

Insurance Solutions net revenues increased by $0.9 million, or 1.6%, to $56.2 million for the three months ended June 30, 2017 as compared to $55.3 million for the three months ended June 30, 2016. Insurance Solutions net revenues increased for the quarter primarily due to an increase in the average revenue per supplemental insured and a lower cost of insurance principally due to lower claims experience, which were partially offset by lower average supplemental insureds.  

Insurance Solutions Segment EBITDA increased by $0.6 million to $17.8 million for the three months ended June 30, 2017 as compared to $17.2 million for the three months ended June 30, 2016. Insurance Solutions Segment EBITDA increased for the quarter primarily due to higher net revenues, partially offset by slightly higher operating expenses.

Legacy Membership and Package net revenues decreased by $13.8 million, or 27.4%, to $36.6 million for the three months ended June 30, 2017 as compared to $50.4 million for the three months ended June 30, 2016. Legacy Membership and Package net revenues decreased for the quarter primarily due to the expected attrition of legacy members and cessation of new marketing campaigns and terminated programs with large financial institution partners, as well as a decline in Package revenue primarily due to the impact of lower average Package members and an unfavorable foreign exchange impact.

Legacy Membership and Package Segment EBITDA decreased by $6.3 million to $8.1 million for the three months ended June 30, 2017 as compared to $14.4 million for the three months ended June 30, 2016. Legacy Member and Package Segment EBITDA decreased for the quarter primarily due to the lower net revenues which were partially offset by lower operating costs, lower marketing and commission expense and lower general and administrative expenses.  

Corporate costs include certain departmental service costs such as human resources, legal, corporate finance and accounting, 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 $1.4 million to $12.4 million for the three months ended June 30, 2017 as compared to $13.8 million for the three months ended June 30, 2016. Corporate costs decreased for the quarter primarily the result of lower employee incentive plan costs and the favorable impact of unrealized foreign exchange on intercompany borrowings.

Selected Liquidity Data

At June 30, 2017, there was $1,304.2 million of Affinion Group, Inc.'s term loans outstanding (net of discounts), $508.7 million (net of discounts) outstanding under Affinion Group, Inc.'s senior cash 12.5%/PIK step-up to 15.5% notes, $10.2 million outstanding under Affinion Investments, LLC's senior subordinated notes, and $11.5 million outstanding under Affinion Holdings' senior secured PIK/toggle notes.

At June 30, 2017, there were outstanding borrowings of $58.0 million against Affinion Group, Inc.'s revolving credit facility and $52.0 million of Affinion Group, Inc.'s credit facility was available for borrowing.

As of June 30, 2017, Affinion Group, Inc. was in compliance with the restrictive covenants under Affinion Group Inc.'s debt agreements.

For the six months ended June 30, 2017, Affinion Holdings' net cash used in operating activities was $4.5 million and the net loss attributable to Affinion Holdings was $17.6 million. 

At June 30, 2017, Affinion Holdings had $59.3 million of unrestricted cash on hand.

Conference Call Information

Affinion Group Holdings, Inc. will hold an informational call to discuss the results for the quarter ended June 30, 2017 at 10:00 a.m. (ET) on Thursday, July 27, 2017. 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 56036439. 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 July 31, 2017 by dialing 1.855.859.2056 (domestic) or 1.404.537.3406 (international) and entering passcode 56036439.  

Important Notes

The information presented in this release is a comparison of the unaudited consolidated results of operations for the three month period ended June 30, 2017 to the unaudited consolidated results of operations for the three month period ended June 30, 2016.

About Affinion Holdings

As a global leader with over 40 years of experience, Affinion Holdings enhances the value of its partners' customer relationships by developing and marketing loyalty solutions. Leveraging its expertise in customer engagement, product development and targeted marketing, Affinion Holdings provides programs in subscription-based lifestyle services, personal protection, insurance and other areas to help generate increased customer loyalty and significant incremental revenue for more than 5,500 marketing partners worldwide, including many of the largest and most respected companies in financial services, retail, travel, and Internet commerce. Based in Stamford, CT, the Company has approximately 3,370 employees and operates in 21 countries globally. 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 2017 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.