Pareto announces 2010 first quarter results

Reports 19% revenue growth and a 35% increase in EBITDA

TORONTO, May 5 /CNW/ - Pareto Corporation (TSX: PTO), a leading Shopper Marketing company, today announced its financial results for three-months ended March 31, 2010.

Q1 2010 Financial and Operating Highlights:

    
    -   Revenue was $19.2 million, an increase of 19% from $16.2 million in
        Q1 2009

    -   EBITDA was $1.9 million, representing 9.9% of revenue, an increase of
        34.8% from $1.4 million or 8.6% of revenue in Q1 2009

    -   Net earnings increased 28% to $0.8 million, or $0.023 per diluted
        share, compared to $0.6 million or $0.015 per share in Q1 2009

    -   Acquired Direct Sales Force, a Canadian intercept marketing firm
    

"We are pleased to report robust growth in the first quarter of 2010, with our year-over-year revenue and EBITDA increasing by 19% and 35% respectively," said Kerry Shapansky, Pareto's President and CEO. "Our excellent results during the quarter were driven by a combination of organic growth and strong performance from our recent acquisition of Direct Sales Force ("DSF"). The acquisition has created synergies for Pareto, and already we have been successful in cross-selling a number of services between DSF and Pareto clients. Based on the strong customer demand we have seen so far this year, we expect our top-line growth to continue throughout the remainder of 2010 and achieve double digit organic growth for the year."

"In the first quarter of 2010, our shareholders continued to benefit from our 2009 decision to re-focus our business on Shopper Marketing and the implementation of a client-centric organizational structure," added Mr. Shapansky. "We continue to see evidence that clients are rethinking the way they allocate their marketing budgets and are increasingly turning to Shopper Marketing as the most effective way to influence their customers buying decisions. We are excited by the extent to which Shopper Marketing's influence is being embraced across a number of sectors. During the first quarter, we generated growth of approximately 25% in non-traditional retail sectors, such as telecommunications and financial services. We also added a number of new clients during the first three months of the year and expect to diversify and grow our client base throughout 2010."

Financial Review

Pareto's revenues for the quarter ended March 31, 2010 were $19.2 million, an increase of 19% from $16.2 million in the first quarter of 2009. The increased revenues were driven by the contribution from DSF, a Canadian intercept marketing company, acquired in January 2010, as well as a $1.0 million or 6.0% increase in organic revenue growth.

Operating and administrative expenses were $17.3 million in the first quarter of 2010, an increase of 16.9% from $14.8 million in the same period last year. As a percentage of revenue, operating and administrative expenses decreased slightly to 90.1% from 91.3% in the first quarter of 2009.

In the first three months of 2010, Pareto generated net earnings of $0.8 million, compared to net earnings of $0.6 million in the same period in 2009. Earnings per share increased by 67%, to $0.025 for the first quarter of 2010, from $0.015 per share in the first quarter of 2009. On a diluted basis, earnings per share increased by 53%, compared to the period ended March 31, 2009.

At March 31, 2010, Pareto had net debt of $15.7 million, compared to debt of $11.9 million at December 31, 2009. The Company utilized $3.9 million this quarter for the purchase of DSF. The Company generated $2.3 million of cash from operations in the first quarter of 2010, compared to $0.5 million in the first quarter of 2009. The significant increase was largely attributable to increased net earnings during the period and improved working capital.

Pareto currently has 34.4 million common shares issued and outstanding.

* Non-GAAP Measures

Pareto presents EBITDA information as supplemental figures because management believes they provide useful information regarding operating performance. EBITDA (earnings before amortization, net interest and finance charges, share based compensation, non-recurring expenses, and income taxes) is not a recognized measure under Canadian generally accepted accounting principles (GAAP), does not have standardized meaning, and is unlikely to be comparable to similar measures used by other companies. Accordingly, investors are cautioned that EBITDA should not be construed as an alternative to revenue, net earnings or loss determined in accordance with GAAP as an indicator of the financial performance of the Company or as a measure of the Company's liquidity and cash flows.

About Pareto Corporation

Pareto Corporation is a Shopper Marketing company that offers marketing execution solutions to leading companies in a broad range of industry sectors. Pareto provides measurable, quantifiable services that complement our clients' marketing and sales departments. For more information, please visit our website at www.pareto.ca.

This press release contains forward-looking statements related to expected future events and financial operating results of Pareto that involve risks and uncertainties. Actual results may differ materially from management expectations as projected in such forward-looking statements for a variety of reasons, including market and general economic conditions and the risks and uncertainties detailed from time to time in Pareto's SEDAR filings.

    
                                                          Pareto Corporation
                                                 Consolidated Balance Sheets

    -------------------------------------------------------------------------
                                                     March 31    December 31
    As at                                                2010           2009
                                                   (unaudited)      (audited)
    -------------------------------------------------------------------------

    Assets
    Current assets
    Cash                                         $    146,690   $     48,623
    Accounts receivable                            18,852,044     18,766,352
    Inventories                                     3,318,010      1,684,849
    Prepaid expenses                                  693,041        645,236
    Current future income tax assets                    2,829         41,982
                                                  ---------------------------
                                                   23,012,614     21,187,042
                                                  ---------------------------

    Loans receivable and other assets               1,720,737      1,570,737
    Long-term future income tax assets                 24,512         71,243
    Capital assets                                  4,572,979      4,591,668
    Intangible assets                               1,357,434      1,280,916
    Goodwill                                       25,888,979     21,058,577
                                                  ---------------------------
                                                 $ 56,577,255   $ 49,760,183
                                                  ---------------------------

    Liabilities and Shareholders' Equity
    Current liabilities
    Bank indebtedness                            $  4,564,634   $    415,602
    Accounts payable and accrued liabilities       11,472,525     11,035,642
    Dividends payable                                 688,309      1,792,129
    Deferred revenue                                4,602,330      3,044,381
    Income taxes payable                            2,705,966      2,413,569
    Current portion of lease inducements               42,482         42,482
    Current portion of long-term loan               1,500,000      1,350,000
                                                  ---------------------------
                                                   25,576,246     20,093,805
                                                  ---------------------------

    Long-term future income tax liabilities           254,221        305,985
    Deferred lease inducements                        289,640        300,260
    Long-term loan                                  9,758,281     10,191,099
                                                  ---------------------------
    Total liabilities                              35,878,388     30,891,149
                                                  ---------------------------

    Shareholders' equity
    Share capital                                  14,400,394     12,635,777
    Contributed surplus                             2,006,231      2,091,495
    Retained earnings and accumulated other
     comprehensive income                           4,292,242      4,141,762
                                                  ---------------------------
    Total shareholders' equity                     20,698,867     18,869,034
                                                  ---------------------------
                                                 $ 56,577,255   $ 49,760,183
    -------------------------------------------------------------------------



                                                          Pareto Corporation
                 Consolidated Statements of Operations and Retained Earnings

    -------------------------------------------------------------------------
                                                     March 31       March 31
    For the three months ended (unaudited)               2010           2009
    -------------------------------------------------------------------------

    Revenue                                      $ 19,175,150   $ 16,182,996

    Operating and administrative expenses          17,272,803     14,771,869
                                                  ---------------------------

                                                    1,902,347      1,411,127
                                                  ---------------------------

    Amortization of capital assets                    254,861        167,050
    Amortization of intangible assets                  52,779         52,779
    Interest expense                                  196,107         44,986
    Interest income                                    (4,184)       (32,577)
    Share-based compensation                          166,007        189,659
                                                  ---------------------------
                                                      665,570        421,897

    Earnings before income taxes                    1,236,777        989,230
    Income taxes                                      397,988        332,460
                                                  ---------------------------

    Net earnings and comprehensive income for
     the period                                       838,789        656,770

    Retained earnings, beginning of period          4,141,762      9,317,078
    Dividends declared                               (688,309)      (643,967)
                                                  ---------------------------

    Retained earnings, end of period             $  4,292,242   $  9,329,881
    -------------------------------------------------------------------------

    Basic earnings per share                     $      0.025   $      0.015
    Diluted earnings per share                   $      0.023   $      0.015
    -------------------------------------------------------------------------

    Weighted average number of common shares
     outstanding:
      Basic                                        34,147,788     42,931,148
      Diluted                                      37,130,242     44,860,685

    -------------------------------------------------------------------------



                                                          Pareto Corporation
                                       Consolidated Statements of Cash Flows

    -------------------------------------------------------------------------
                                                     March 31       March 31
    For the three months ended (unaudited)               2010           2009
    -------------------------------------------------------------------------

    Operating activities
    Net earnings for the period                  $    838,789   $    656,770
    Items not involving cash:
    Amortization of capital assets                    254,861        167,050
    Amortization of intangible assets                  52,779         52,779
    Amortization of lease inducement                  (10,620)       (10,621)
    Non-cash interest                                  17,182        (27,785)
    Share-based compensation                          166,007        189,659
    Future income tax provision                        31,934        (45,979)
                                                  ---------------------------
                                                    1,350,932        981,873

    Changes in non cash operating accounts            952,327       (504,440)
                                                  ---------------------------
                                                    2,303,259        477,433
                                                  ---------------------------

    Investing activities
    Capital asset additions                          (168,475)       (59,521)
    Intangible asset additions                       (129,293)             -
    Advances for loans receivable and other
     assets                                          (150,000)             -
    Acquisitions, net of cash                      (3,865,509)             -
                                                  ---------------------------
                                                   (4,313,277)       (59,521)
                                                  ---------------------------

    Financing activities
    Bank indebtedness                               4,149,031      1,374,704
    Dividends paid                                 (1,792,129)    (1,717,246)
    Repayment of capital lease obligations                  -        (75,370)
    Issuance of shares                                 55,257              -
    Share issue costs                                  (4,074)             -
    Repayment of long term debt                      (300,000)             -
                                                  ---------------------------
                                                    2,108,085       (417,912)
                                                  ---------------------------

    Increase in cash for the period                    98,067              -

    Cash, beginning of period                          48,623              -
                                                  ---------------------------

    Cash, end of period                          $    146,690   $          -
    -------------------------------------------------------------------------
    

SOURCE PARETO CORPORATION

For further information: For further information: Kerry Shapansky, President and Chief Executive Officer, Pareto Corporation, (416) 790-2350; Karen Trudell, Chief Financial Officer, Pareto Corporation, (416) 790-2360; Glen Williams, Investor Relations, Equicom Group, (416) 815-0700 ext 272

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PARETO CORPORATION

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