Pareto announces 2010 second quarter results

Reports 51% revenue growth and a 64% increase in EBITDA

TORONTO, Aug. 6 /CNW/ - Pareto Corporation (TSX: PTO), a leading Shopper Marketing company, today announced its financial results for three-months ended June 30, 2010.

    
    Q2 2010 Financial and Operating Highlights:

    -   Revenue increased 51% to $25.8 million from $17.0 million in Q2 2009

    -   Revenue increased organically by 32% or $7.2 million during Q2

    -   EBITDA increased 64% to $3.5 million from $2.1 million in Q2 2009
    -   Net earnings increased 65% to $1.8 million from $1.1 million in
        Q2 2009
    -   Earnings per increased 104% to $0.051 per share from $0.025 per share
        in Q2 2009

    -   Signed long-term contract with major new customer
    

"Our focus on Shopper Marketing and our client-centric account management approach continued to drive strong results during the second quarter as revenue increased by more than 50% and EBITDA grew by 64%," said Kerry Shapansky, Pareto's President and CEO. "While some of our growth was driven by Direct Sales Force ("DSF"), a company that we acquired during the first quarter of this year, I'm extremely pleased with our organic growth rate of 32% in the quarter. We achieved organic growth across all client segments and we signed an unprecedented number of new customers during the quarter. In addition to new client acquisition we were also able to successfully cross-sell a number of new services to our existing customers. Our momentum continued subsequent to quarter end as, just last week, we announced an agreement to provide services for a new retail customer that is expected to eventually generate up to $75 million in revenues over the five year term of the contract."

"The strong growth that we have achieved over the past year is evidence that Shopper Marketing is now recognized across industry segments as a measurable means of driving sales," added Mr. Shapansky. "We expect our recent growth momentum to continue throughout 2010, as a number of new customer wins have not yet begun to contribute to our overall revenues."

Financial Review

Pareto's revenues for the quarter ended June 30, 2010 were $25.8 million, an increase of 51% from $17.0 million in the second quarter of 2009. The increased revenues were driven by organic growth, the return of incentive travel events cancelled in 2009 and the contribution of Direct Sales Force Inc. Adjusting for the impact of the DSF acquisition, revenues increased by $7.2 million or 32% during the quarter.

Operating and administrative expenses were $22.3 million in the second quarter of 2010, an increase of 49% from $14.9 million during the same period last year. As a percentage of revenue, operating and administrative expenses decreased slightly to 86.4% from 87.5% in the second quarter of 2009.

In the first three months of 2010, Pareto generated net earnings of $1.8 million, compared to net earnings of $1.1 million in the same period in 2009. Earnings per share increased by 104%, to $0.051 for the second quarter of 2010, from $0.025 per share in the second quarter of 2009. On a diluted basis, earnings per share increased by 96%, compared to the period ended June 30, 2009.

At June 30, 2010, Pareto had total debt of $17.2 million, compared to debt of $15.8 million at March 31, 2010. The Company generated $2.5 million of cash from operations in the second quarter of 2010, compared to $1.7 million in the second quarter of 2009. The significant increase was largely attributable to increased net earnings during the period.

Pareto currently has 35.2 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
    -------------------------------------------------------------------------
                                                        June 30  December 31
    As at                                                  2010         2009
                                                     (unaudited)    (audited)
    -------------------------------------------------------------------------

    Assets
    Current assets
    Cash                                           $    142,104 $     48,623
    Accounts receivable                              19,978,048   18,766,352
    Inventories                                       2,350,118    1,684,849
    Prepaid expenses                                    640,976      645,236
    Current future income tax assets                      2,829       41,982
                                                  ---------------------------
                                                     23,114,075   21,187,042
                                                  ---------------------------

    Loans receivable and other assets                 1,720,737    1,570,737
    Long-term future income tax assets                        -       71,243
    Capital assets                                    4,577,819    4,591,668
    Intangible assets                                 1,533,580    1,280,916
    Goodwill                                         25,888,979   21,058,577
                                                  ---------------------------
                                                   $ 56,835,190 $ 49,760,183
                                                  ---------------------------

    Liabilities and Shareholders' Equity
    Current liabilities
    Bank indebtedness                              $  6,231,356 $    415,602
    Accounts payable and accrued liabilities         11,762,741   11,035,642
    Dividends payable                                   703,910    1,792,129
    Deferred revenue                                  3,235,725    3,044,381
    Income taxes payable                              1,298,914    2,413,569
    Current portion of lease inducements                 42,482       42,482
    Current portion of long term loan                 1,650,000    1,350,000
                                                  ---------------------------
                                                     24,925,125   20,093,805
                                                  ---------------------------

    Long-term future income tax liabilities             340,969      305,985
    Deferred lease inducements                          279,019      300,260
    Long-term loan                                    9,319,347   10,191,099
                                                  ---------------------------
    Total liabilities                                34,864,463   30,891,149
                                                  ---------------------------

    Shareholders' equity
    Share capital                                    15,259,316   12,635,777
    Contributed surplus                               1,351,601    2,091,495
    Retained earnings and accumulated other
     comprehensive income                             5,359,810    4,141,762
                                                  ---------------------------
    Total shareholders' equity                       21,970,727   18,869,034
                                                  ---------------------------
                                                   $ 56,835,190 $ 49,760,183
                                                  ---------------------------



                                                          Pareto Corporation
                 Consolidated Statements of Operations and Retained Earnings
    -------------------------------------------------------------------------
                                Three months ended          Six months ended
                                June 30 (unaudited)       June 30 (unaudited)

                                 2010         2009         2010         2009
    -------------------------------------------------------------------------
    Revenue              $ 25,755,148 $ 17,048,569 $ 44,930,298 $ 33,231,565

    Operating and admin-
     itrative expenses     22,258,293   14,914,809   39,531,096   29,686,678
                        -----------------------------------------------------

                            3,496,855    2,133,760    5,399,202    3,544,887
                        -----------------------------------------------------
    Amortization of
     capital assets           223,855      156,955      478,716      324,005
    Amortization of
     intangible assets         52,778       52,778      105,557      105,557
    Interest expense          182,345       51,382      378,452       96,368
    Interest income            (4,983)     (26,005)      (9,167)     (58,582)
    Share-based comp-
     ensation                 182,518      231,274      348,525      420,933

                        -----------------------------------------------------
                              636,513      466,384    1,302,083      888,281
    Earnings before
     income taxes           2,860,342    1,667,376    4,097,119    2,656,606
    Income taxes            1,088,864      593,413    1,486,852      925,873
                        -----------------------------------------------------
    Net earnings and
     comprehensive income
     for the period         1,771,478    1,073,963    2,610,267    1,730,733

    Retained earnings,
     beginning of period    4,292,242    9,329,881    4,141,762    9,317,078
    Dividends declared       (703,910)    (645,159)  (1,392,219)  (1,289,126)
                        -----------------------------------------------------
    Retained earnings,
     end of period       $  5,359,810 $  9,758,685 $  5,359,810 $  9,758,685
    -------------------------------------------------------------------------

    Basic and earnings
     per share           $      0.051 $      0.025 $      0.076 $      0.040
    Diluted earnings
     per share           $      0.047 $      0.024 $      0.070 $      0.038
    -------------------------------------------------------------------------

    Weighted average
     number of common
     shares outstanding:
    Basic                  34,691,521   42,897,760   34,409,531   42,970,815
    Diluted                37,315,352   44,735,332   37,144,269   45,209,205
    -------------------------------------------------------------------------



                                                          Pareto Corporation
                                       Consolidated Statements of Cash Flows
    -------------------------------------------------------------------------
                                Three months ended          Six months ended
                                June 30 (unaudited)       June 30 (unaudited)

                                 2010         2009         2010         2009
    -------------------------------------------------------------------------

    Operating activities
    Net earnings for the
     period              $  1,771,478 $  1,073,963 $  2,610,267 $  1,730,733
    Items not involving
     cash:
    Amortization of
     capital assets           223,855      156,955      478,716      324,005
    Amortization of
     intangible assets         52,778       52,778      105,556      105,557
    Amortization of lease
     inducement               (10,621)     (10,620)     (21,241)     (21,241)
    Non-cash interest          11,066      (20,599)      28,248      (48,384)
    Share-based comp-
     ensation                 182,518      231,274      348,525      420,933
    Future income tax
     provision                111,260      178,619      143,194      132,640
                        -----------------------------------------------------
                            2,342,333    1,662,370    3,693,264    2,644,243
    Changes in non cash
     operating accounts    (2,589,491)    (704,820)  (1,637,163)  (1,209,261)
                        -----------------------------------------------------
                             (247,158)     957,550    2,056,101    1,434,982
                        -----------------------------------------------------
    Investing activities
    Capital asset additions  (228,695)    (208,320)    (397,170)    (267,841)
    Intangible asset
     additions               (228,924)           -     (358,217)           -
    Loans receivable and
     other assets                   -     (190,250)    (150,000)    (190,250)
    Acquisitions, net
     of cash                        -            -   (3,865,509)           -
                        -----------------------------------------------------
                             (457,619)    (398,570)  (4,770,896)    (458,091)
                        -----------------------------------------------------
    Financing activities
    Bank indebtedness       1,666,723            -    5,815,754            -
    Repayment of long
     term debt               (300,000)           -     (600,000)           -
    Dividends paid           (688,308)    (643,977)  (2,480,437)  (2,361,223)
    Repayment of capital
     lease obligations              -      (51,407)           -     (126,777)
    Repayment of loans
     receivable                     -       25,000            -       25,000
    Issuance of shares         21,775            -       77,032            -
    Share issue costs                            -       (4,074)           -
                        -----------------------------------------------------
                              700,190     (670,384)   2,808,275   (2,463,000)
                        -----------------------------------------------------
    Increase (Decrease)
     in cash for the
     period                    (4,586)    (111,404)      93,481   (1,486,109)

    (Bank Indebtedness)
     /Cash, beginning of
     period                   146,690   (2,029,278)      48,623     (654,573)
                        -----------------------------------------------------

    (Bank Indebtedness)
     /Cash, end of
     period              $    142,104 $ (2,140,682) $   142,104 $ (2,140,682)
    -------------------------------------------------------------------------
    

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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