Affinion Group Holdings, Inc. Announces Results For The Third Quarter Ended September 30, 2016

STAMFORD, Conn., Oct. 27, 2016 /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 September 30, 2016 (the "third quarter" or "quarter") for itself and selected financial information for its wholly-owned subsidiary, Affinion Group, Inc. ("Affinion").

"We are pleased with our performance in the third quarter, as our three core businesses – loyalty, customer engagement and insurance – reported nearly 13% Adjusted EBITDA growth year over year," said Todd Siegel, the Company's Chief Executive Officer.  "We continue to make progress on our key initiatives for 2016, including significant new partnerships in our two growth areas, Global Loyalty and Global Customer Engagement."

"Based on encouraging trends and recent business developments, we continue to believe that the Company is well-positioned for sustainable long-term success," Mr. Siegel continued.  "For 2016, our financial targets remain on track and accordingly, we reaffirm our Adjusted EBITDA guidance of $230 million to $245 million assuming 2015 year-end foreign exchange rates."

Results Highlights
Notes: Adjusted EBITDA as referred to above excludes any pro forma impact of acquisitions and other actions.  See Table 5 for a presentation of Adjusted EBITDA by segment. See Tables 6 and 7 for a complete description of Adjusted EBITDA and the related reconciliations to GAAP measures. 

Third Quarter Net Revenues

• Net revenues for the third quarter of 2016 decreased 18.3%, from $291.3 million in the third quarter of 2015 to $238.1 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 and Insurance Solutions revenue.
• Net revenues for the three core business segments (Global Loyalty, Global Customer Engagement and Insurance Solutions) for the third quarter of 2016 decreased 4.4%, from $203.7 million in the third quarter of 2015 to $194.7 million.  On a currency consistent basis, net revenues for the three core business segments were $199.4 million in the third quarter of 2016. 
• Net revenues for the Legacy Membership and Package segment decreased 50.4%, from $87.9 million in the third quarter of 2015 to $43.6 million.

Third Quarter Operating Results

• Adjusted EBITDA (as defined in Note (f) of Table 6) was $62.8 million as compared to $75.5 million for the third quarter of 2015, a decrease of 16.8%.
• Segment EBITDA (as defined in Note (1) of Table 5) decreased $11.4 million as the impact of lower net revenues was partially offset by lower marketing and commission expense, lower operating costs, and lower general and administrative expense.
• Segment EBITDA for the three core business segments (Global Loyalty, Global Customer Engagement and Insurance Solutions) increased $5.0 million, due to an increase in Insurance Solutions, Global Loyalty and Global Customer Engagement Segment EBITDA.
• Segment EBITDA for the Legacy Membership and Package segment decreased $24.1 million primarily due to lower net revenues which were partially offset by lower marketing and commissions and lower operating costs including cost savings initiatives.
• As compared to Segment EBITDA, third quarter Adjusted EBITDA reflects the exclusion of, among other items, $5.5 million in costs relating to certain litigation matters, $1.5 million in costs related primarily to restructuring of certain operations including related severance costs and $1.1 million of stock compensation expense. 

Segment Commentary

Global Loyalty net revenues increased by $2.1 million, or 5.1%, for the three months ended September 30, 2016 to $42.9 million as compared to $40.8 million for the three months ended September 30, 2015, as increased revenues from growth with existing clients were partially offset by lower revenue from the loss of a key client in 2015.

Global Loyalty Segment EBITDA increased by $0.3 million to $14.8 million for the three months ended September 30, 2016 as compared to $14.5 million for the three months ended September 30, 2015, as the increased contribution associated with existing clients was partially offset by the loss of a key client in 2015.   

Global Customer Engagement net revenues decreased by $13.6 million, or 12.8%, to $92.5 million for the three months ended September 30, 2016 as compared to $106.1 million for the three months ended September 30, 2015.  Net revenues decreased $8.9 million on a currency consistent basis, primarily due to lower revenues in our revenue enhancement business, principally caused by the timing of marketing campaign launches and the recording of a one-time non-cash adjustment, as well as lower revenues in our engagement solutions business due to the timing of product launches with new clients.  Net revenues declined $4.7 million from the unfavorable impact from foreign exchange.

Global Customer Engagement Segment EBITDA increased by $0.4 million to $17.2 million for the three months ended September 30, 2016 as compared to $16.8 million for the three months ended September 30, 2015, as lower net revenue was more than offset by lower marketing and commission expense, lower operating costs and lower general and administrative expenses.  The lower marketing and commission expense was primarily due to the timing of campaign launches.  The lower operating costs were primarily related to lower product and servicing costs.  The lower general and administrative expenses were primarily due to the favorable impact of foreign exchange and lower employee related costs.

Insurance Solutions net revenues increased by $2.5 million, or 4.4%, to $59.3 million for the three months ended September 30, 2016 as compared to $56.8 million for the three months ended September 30, 2015 primarily due to a lower cost of insurance principally from lower claims experience which was partially offset by the impact of lower average supplemental insureds.

Insurance Solutions Segment EBITDA increased by $4.3 million to $22.4 million for the three months ended September 30, 2016 as compared to $18.1 million for the three months ended September 30, 2015, primarily from the impact of higher net revenues and lower operating expenses.

Legacy Membership and Package net revenues decreased by $44.3 million, or 50.4%, to $43.6 million for the three months ended September 30, 2016 as compared to $87.9 million for the three months ended September 30, 2015 primarily due to the expected attrition of legacy members, as well as a decline in Package revenue primarily due to the impact of lower average Package members.

Legacy Membership and Package Segment EBITDA decreased by $24.1 million to $8.2 million for the three months ended September 30, 2016 as compared to $32.3 million for the three months ended September 30, 2015 primarily due to lower net revenues resulting from the expected attrition of legacy members and Package members.  Lower net revenues were partially offset by lower marketing and commission expense and lower operating costs as a result of certain cost savings initiatives.

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 $7.7 million to $11.9 million for the three months ended September 30, 2016 as compared to $19.6 million for the three months ended September 30, 2015 primarily from lower professional fees relating to our debt refinancing transactions in 2015.

Selected Liquidity Data

Affinion Group, Inc.
At September 30, 2016, Affinion had outstanding senior notes, senior subordinated notes, and senior secured credit facilities (which consist of first lien and second lien term loan facilities and a revolving credit facility).

At September 30, 2016, Affinion had $755.6 million of first lien term loans outstanding, $425.0 million of second lien term loans outstanding, $474.5 million (net of discounts) outstanding under its senior notes, $113.9 million outstanding under the Affinion International Holdings Limited cash/PIK senior notes and $22.6 million outstanding under the Affinion Investments, LLC senior subordinated notes.

At September 30, 2016, there were no borrowings against Affinion's revolving credit facility and $69.2 million of the credit facility was available for borrowing, after giving effect to the issuance of $10.8 million in letters of credit.

As of September 30, 2016, Affinion's senior secured leverage ratio was 2.75 to 1.0. The senior secured leverage ratio is defined in Affinion's amended and restated senior secured credit facility, as amended on May 20, 2014 (senior secured debt, as defined, to Adjusted EBITDA, as defined), and must be equal to or less than 4.25 to 1.0 at September 30, 2016.

As of September 30, 2016, Affinion's fixed charge coverage ratio was 2.30 to 1.0. The fixed charge coverage ratio is defined in the indenture governing Affinion's 2010 senior notes (consolidated cash flows, as defined, which is computed with the same addbacks as in Adjusted EBITDA (as defined in Affinion's amended and restated senior secured credit facility) to fixed charges, as defined). The calculation of fixed charges excludes the amortization of deferred financing costs associated with the amendment and restatement of Affinion's credit facility on April 9, 2010.

For the nine months ended September 30, 2016, Affinion's net cash provided by operating activities was $40.4 million and the net income was $18.1 million.  Pro forma Adjusted EBITDA (as defined in Note (d) of Table 7) for both ratio calculations above was $256.9 million for the twelve months ended September 30, 2016.

At September 30, 2016, Affinion had $61.6 million of unrestricted cash on hand.

Affinion Group Holdings, Inc.
At September 30, 2016, Affinion Holdings had $15.0 million outstanding under its senior secured PIK/toggle notes, in addition to Affinion's debt instruments.

At September 30, 2016, Affinion Holdings had $63.1 million of unrestricted cash on hand, of which $1.5 million resides at Affinion Holdings.

Call-In Information
Affinion Group Holdings, Inc. will hold an informational call to discuss the results for the quarter ended September 30, 2016 at 10:00 a.m. (ET) on Thursday, October 27, 2016. 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 99882118. 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 October 31, 2016 by dialing 1.855.859.2056 (domestic) or 1.404.537.3406 (international) and entering passcode 99882118.

Important Notes
The information presented in this release is a comparison of the unaudited consolidated results of operations for the three and nine month periods ended September 30, 2016 to the unaudited consolidated results of operations for the three and nine month periods ended September 30, 2015.

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 5,600 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 3,150 employees and has marketing capabilities in 19 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 2016 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 and Affinion with the SEC, including Affinion Holdings' most recent Annual Report on Form 10-K as well as Affinion's 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.

(1)    Gross Transactional Sales Volume primarily includes the gross sales amount of travel bookings, gift cards and merchandise redeemed by customers of our clients' programs that we support and excludes cash redemptions and revenue generated from programming, platform, administration and other non-transactional services. Gross Transactional Sales Volume  per Transaction is calculated by taking the Gross Transactional Sales Volume reported for the period and dividing it by the total transactions for the same period.

(2)    Average Subscribers, Average Supplemental Insureds and Average Legacy Members for the period are all calculated by determining the average subscribers, insureds or members, as applicable, for each month in the period (adding the number of subscribers, insureds or members, as applicable, at the beginning of the month with the number of subscribers, insureds or members, as applicable, at the end of the month and dividing that total by two) and then averaging that result for the period. A subscriber's, insured's or member's, as applicable, account is added or removed in the period in which the subscriber, insured or member, as applicable, has joined or cancelled.

(3)    Annualized Net Revenue per Average Subscriber and Supplemental Insured are all calculated by taking the revenues from subscribers or insureds, as applicable, for the period and dividing it by the average subscribers or insureds, as applicable, for the period. Quarterly periods are then multiplied by four to annualize this amount for comparative purposes. Upon cancellation of a subscriber or an insured, as applicable, the subscriber's or insured's, as applicable, revenues are no longer recognized in the calculation.

(1)     Segment EBITDA consists of income from operations before depreciation and amortization. Segment EBITDA is the measure management uses to evaluate segment performance, and we present Segment EBITDA to enhance your understanding of our operating performance. We use Segment EBITDA as one criterion for evaluating our performance relative to that of our peers. We believe that Segment EBITDA is an operating performance measure, and not a liquidity measure, that provides investors and analysts with a measure of operating results unaffected by differences in capital structures, capital investment cycles and ages of related assets among otherwise comparable companies. However, Segment EBITDA is not a measurement of financial performance under U.S. GAAP, and Segment EBITDA may not be comparable to similarly titled measures of other companies. You should not consider Segment EBITDA as an alternative to operating or net income determined in accordance with U.S. GAAP, as an indicator of operating performance or as an alternative to cash flows from operating activities determined in accordance with U.S. GAAP, or as an indicator of cash flows, or as a measure of liquidity. For a reconciliation of Affinion Holdings' consolidated net income (loss) attributable for the twelve months ended September 30, 2016 and the three and nine months ended September 30, 2016 and 2015 to Affinion Holdings' Segment EBITDA, see Table 6.

We believe that Adjusted EBITDA for each segment provides supplemental information useful to investors as it is frequently used by the financial community to analyze performance period to period, to analyze a company's ability to service its debt and to facilitate comparisons among companies. We believe Adjusted EBITDA also provides additional supplemental information to compare results among our segments. However, Adjusted EBITDA by segment is not a measurement of financial performance under U.S. GAAP, and Adjusted EBITDA by segment may not be comparable to similarly titled measures of other companies. You should not consider Adjusted EBITDA by segment as an alternative to operating or net income determined in accordance with U.S. GAAP, as an indicator of operating performance or as an alternative to cash flows from operating activities, determined in accordance with U.S. GAAP, or as an indicator of cash flows, or as a measure of liquidity. For a discussion of the definition of Adjusted EBITDA and the reconciliation of Adjusted EBITDA to consolidated net income (loss) attributable to Affinion Group Holdings, Inc., see Table 6.

(a)       Represents consolidated financial data for the year ended December 31, 2015, minus consolidated financial data for the nine months ended September 30, 2015, plus consolidated financial data for the nine months ended September 30, 2016.

(b)       Eliminates the effect of purchase accounting related to the Apollo transactions.

(c)       Represents the elimination of legal costs for certain legal matters.

(d)       Represents the elimination of costs associated with severance incurred.

(e)       Eliminates (i) the impairment charge related to the goodwill and intangible assets of the former Membership Products segment, (ii) net changes in certain reserves, (iii) share-based compensation expense, (iv) foreign currency gains and losses related to unusual, non-recurring intercompany transactions, (v) costs associated with certain strategic and corporate development activities, including business optimization, (vi) consulting fees payable to Apollo, (vii) facility exit costs and (viii) debt refinancing expenses.

(f)        Adjusted EBITDA consists of income from operations before depreciation and amortization further adjusted to exclude non-cash and unusual items and other adjustments permitted in our debt agreements to test the permissibility of certain types of transactions, including debt incurrence. We believe that the inclusion of Adjusted EBITDA is appropriate as a liquidity measure. Adjusted EBITDA is not a measurement of liquidity or financial performance under U.S. GAAP and Adjusted EBITDA may not be comparable to similarly titled measures of other companies. You should not consider Adjusted EBITDA as an alternative to cash flows from operating activities determined in accordance with U.S. GAAP, as an indicator of cash flows, as a measure of liquidity, as an alternative to operating or net income determined in accordance with U.S. GAAP or as an indicator of operating performance.

(g)       Adjusted EBITDA, excluding pro forma adjustments, does not give pro forma effect to the projected annualized benefits of restructurings and other cost savings initiatives. However, we do make such accretive pro forma adjustments as if such restructurings and cost savings initiatives had occurred on October 1, 2015 in calculating the Adjusted EBITDA under Affinion's senior secured credit facility and the indenture governing Affinion's 2010 senior notes.    

(h)       Gives effect to the projected annualized benefits of restructurings and other cost savings initiatives as if such restructurings and cost savings initiatives had occurred on October 1, 2015.

(i)        Adjusted EBITDA, including pro forma adjustments, gives pro forma effect to the adjustments discussed in (h) above.

(a)      Represents consolidated financial data for the year ended December 31, 2015, minus consolidated financial data for the nine months ended September 30, 2015, plus consolidated financial data for the nine months ended September 30, 2016.

(a)      Represents consolidated financial data for the year ended December 31, 2015, minus consolidated financial data for the nine months ended September 30, 2015, plus consolidated financial data for the nine months ended September 30, 2016.

(b)      Eliminates the effect of purchase accounting related to the Apollo transactions, legal costs for certain legal matters and costs associated with severance incurred.

(c)      Eliminates (i) net changes in certain reserves, (ii) foreign currency gains and losses related to unusual, non-recurring intercompany transactions, (iii) costs associated with certain strategic and corporate development activities, including business optimization and (iv) consulting fees payable to Apollo.

(d)     Adjusted EBITDA consists of income from operations before depreciation and amortization further adjusted to exclude non-cash and unusual items and other adjustments permitted in our debt agreements to test the permissibility of certain types of transactions, including debt incurrence. We believe that the inclusion of Adjusted EBITDA is appropriate as a liquidity measure. Adjusted EBITDA is not a measurement of liquidity or financial performance under U.S. GAAP and Adjusted EBITDA may not be comparable to similarly titled measures of other companies. You should not consider Adjusted EBITDA as an alternative to cash flows from operating activities determined in accordance with U.S. GAAP, as an indicator of cash flows, as a measure of liquidity, as an alternative to operating or net income determined in accordance with U.S. GAAP or as an indicator of operating performance.

(e)      Adjusted EBITDA, excluding pro forma adjustments, does not give pro forma effect to the projected annualized benefits of restructurings and other cost savings initiatives. However, we do make such accretive pro forma adjustments as if such restructurings and cost savings initiatives had occurred on October 1, 2015 in calculating the Adjusted EBITDA under Affinion's senior secured credit facility and the indenture governing Affinion's 2010 senior notes.    

(f)      Gives effect to the projected annualized benefits of restructurings and other cost savings initiatives as if such restructurings and cost savings initiatives had occurred on October 1, 2015.

(g)     Adjusted EBITDA, including pro forma adjustments, gives pro forma effect to the adjustments discussed in (f) above.

(a)      Represents consolidated financial data for the year ended December 31, 2015, minus consolidated financial data for the nine months ended September 30, 2015, plus consolidated financial data for the nine months ended September 30, 2016.

(b)     Eliminates the effect of purchase accounting related to the Apollo transactions.

(c)      Represents the elimination of legal costs for certain legal matters.

(d)     Represents the elimination of costs associated with severance incurred.

(e)      Eliminates (i) the impairment charge related to the goodwill and intangible assets of the former Membership Products segment, (ii) net changes in certain reserves, (iii) share-based compensation expense, (iv) foreign currency gains and losses related to unusual, non-recurring intercompany transactions, (v) costs associated with certain strategic and corporate development activities, including business optimization, (vi) consulting fees payable to Apollo, (vii) facility exit costs and (viii)  debt refinancing expenses.

(f)      Adjusted EBITDA consists of income from operations before depreciation and amortization further adjusted to exclude non-cash and unusual items and other adjustments permitted in our debt agreements to test the permissibility of certain types of transactions, including debt incurrence. We believe that the inclusion of Adjusted EBITDA is appropriate as a liquidity measure. Adjusted EBITDA is not a measurement of liquidity or financial performance under U.S. GAAP and Adjusted EBITDA may not be comparable to similarly titled measures of other companies. You should not consider Adjusted EBITDA as an alternative to cash flows from operating activities determined in accordance with U.S. GAAP, as an indicator of cash flows, as a measure of liquidity, as an alternative to operating or net income determined in accordance with U.S. GAAP or as an indicator of operating performance.

(g)     Adjusted EBITDA, excluding pro forma adjustments, does not give pro forma effect to the projected annualized benefits of restructurings and other cost savings initiatives. However, we do make such accretive pro forma adjustments as if such restructurings and cost savings initiatives had occurred on October 1, 2015 in calculating the Adjusted EBITDA under Affinion's senior secured credit facility and the indenture governing Affinion's 2010 senior notes.    

(h)     Gives effect to the projected annualized benefits of restructurings and other cost savings initiatives as if such restructurings and cost savings initiatives had occurred on October 1, 2015.

(i)       Adjusted EBITDA, including pro forma adjustments, gives pro forma effect to the adjustments discussed in (h) above.

(j)       The senior secured leverage ratio is defined in Affinion's amended and restated senior secured credit facility, as amended on May 20, 2014 (senior secured debt, as defined, to Adjusted EBITDA, as defined). The senior secured leverage ratio must be equal to or less than 4.25 to 1.0 at September 30, 2016.

(k)     The fixed charge coverage ratio is defined in the indenture governing Affinion's 2010 senior notes (consolidated cash flows, as defined, which is computed with the same addbacks as in Adjusted EBITDA (as defined in Affinion's amended and restated senior secured credit facility) to fixed charges, as defined). The calculation of fixed charges excludes the amortization of deferred financing costs associated with the amendment and restatement of Affinion's credit facility on April 9, 2010.

SOURCE Affinion Group Holdings, Inc.

Related Links

http://www.affinion.com