Pareto announces second quarter financial results



    Revenue of $17.0 million; EBITDA up 7% to $2.1 million

    TORONTO, Aug. 7 /CNW/ - Pareto Corporation (TSX: PTO), a leading
marketing services company, today announced its financial results for the
three months ended June 30, 2009.
    The Company also announced a substantial issuer bid (SIB) for the
purchase and cancellation of up to $10,000,000 of its common shares at a
purchase price of not less than $0.75 per share and not more than $1.00 per
share. The substantial issuer bid will proceed by way of a "modified Dutch
auction". The Company intends to finance the purchase through a new credit
facility arranged with a major Canadian chartered bank. The credit facility is
comprised of a three year term loan in the amount of up to $15 million and a
line of credit in the amount of $10 million which replaces the Company's
existing line of credit. Details of the substantial issuer bid are available
in a separate news release.

    
    Q2 Financial and Operating Highlights

    -   Revenue was $17.0 million in the second quarter, compared to $20.9
        million in Q2 2008
    -   EBITDA(*) was $2.1 million, an increase of 7% from $2.0 million a
        year earlier
    -   As a percentage of revenue, EBITDA margins were 12.5%, up from 9.6%
        in Q2 2008
    -   Net earnings were $1,073,962, up 12% from $961,618 in the second
        quarter of 2008
    -   Diluted earnings per share were $0.02, consistent with $0.02 a year
        earlier

    Year-to-Date Highlights

    -   Revenue of $33.2 million, compared to $37.3 million in the first half
        of 2008
    -   EBITDA of $3.5 million, representing 10.7% of revenue, compared to
        $3.2 million or 8.5% of revenue in the comparable period a year
        earlier
    -   Net earnings of $1.7 million, compared to $1.4 million in the first
        half of 2008
    -   Diluted earnings per share of $0.04, compared to $0.03 in the
        comparable period of 2007
    

    "Our revenues in the second quarter tracked to expectations," said Kerry
Shapansky, Pareto's President and CEO. "A series of non-recurring event
management projects in 2008 led us to anticipate a revenue decline. Our
success in controlling costs and improving efficiency has enabled us to
improve profitability despite a material revenue reduction. Looking to the
third quarter, we anticipate growing revenues and maintaining our Q2 EBITDA
margin levels, resulting in material improvement in EBITDA in the quarter."
    Regarding the concurrent announcement of the substantial issuer bid, Mr.
Shapansky continued: "Today's announcement of a substantial issuer bid is an
attempt to provide short term liquidity to shareholders. The bid range
represents a premium to our recent share price, but is below the range
provided by our independent valuator. It is our belief that the Company has
adequate resources to fund the SIB, maintain a quarterly dividend at current
levels, and fund an acquisition if a suitable candidate is identified."

    Financial Review

    Pareto's revenues for the three months ended June 30, 2009 were $17.0
million, a decrease of $3.8 million from revenues of $20.9 million in the
second quarter of 2008. The Company's retail promotion business grew by $1.3
million as both new and existing customers placed greater importance during
recessionary times on solutions designed to influence purchasing decisions at
the point of sale. The increase was offset, however, by a $4.3 million decline
in Pareto's incentives business, as several customers impacted by the economic
downturn have scaled back or cancelled large events, and by a $0.9 million
decline in the field merchandising business reflecting the absence of a $2.5
million project undertaken during the first half of 2008. Revenues in the
Company's other business units were relatively flat compared to the second
quarter of last year.
    EBITDA in the second quarter of 2009 was $2.1 million, representing 12.5%
of revenues, compared to $2.0 million, or 9.6% of revenues a year earlier.
EBITDA growth of 7%, despite the decline in revenues, was attributable to
reduced infrastructure costs, improved operating efficiencies, and the mix of
services sold. Operating and administrative expenses were $14.9 million in the
quarter, a decrease of 21% from $18.9 million in Q2 2008.
    Net earnings in the second quarter were $1,073,962, an increase of 12%
over $961,618 of earnings in Q2 2008. Basic and diluted earnings per share
were unchanged from a year earlier at $0.02.
    At June 30, 2009, Pareto had net bank indebtedness of $2.1 million,
compared to indebtedness of $2.0 million three months earlier. The Company
generated $957,550 of cash from operations in Q2 2009, compared to $816,583 a
year earlier.
    Pareto had 43,010,481 common shares issued and outstanding at June 30,
2009.

    Outlook

    Pareto expects its incentives business to continue to be adversely
impacted in the third quarter due to the cancellation for 2009 of one of its
largest event programs, but the Company is expecting improvements in revenues
in all of its other offerings to more than offset. As a result, the Company
expects total revenues in the third quarter to show a moderate increase
compared to Q3 2008. Furthermore, given its ongoing success in achieving cost
reductions and improved operating efficiencies, and in maintaining margins in
areas where revenue has declined, the Company expects third quarter EBITDA to
be significantly higher than in Q3 2008, with EBITDA margins at least as high
as the 12.5% recorded in Q2 2009.

    (*) 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, income taxes, gain on acquisition and
non-recurring expenses) 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 marketing services 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                                               2009            2008
                                                  (unaudited)       (audited)
    -------------------------------------------------------------------------

    Assets
    Current assets
    Accounts receivable                        $  13,794,240   $  16,460,617
    Inventories                                    2,135,379       1,746,355
    Prepaid expenses                                 689,221         466,040
    Current future income tax assets                  44,181          38,167
                                              -------------------------------
                                                  16,663,021      18,711,179
                                              -------------------------------

    Loans receivable and other assets              1,512,679       1,299,045
    Long-term future income tax assets               263,345         258,209
    Capital assets                                 3,284,534       3,340,697
    Intangible assets                              1,237,935       1,343,493
    Goodwill                                      21,058,577      21,058,577
                                              -------------------------------
                                               $  44,020,091   $  46,011,200
                                              -------------------------------

    Liabilities and Shareholders' Equity
    Current liabilities
    Bank indebtedness                          $   2,140,682   $     654,573
    Accounts payable and accrued liabilities       9,071,510      12,032,039
    Dividends payable                                645,147       1,717,246
    Deferred revenue                               1,942,839       2,023,252
    Income taxes payable                             776,425         983,915
    Current portion of capital
     lease obligations                               582,503         314,275
    Current portion of lease inducements              42,482          42,482
                                              -------------------------------
                                                  15,201,588      17,767,782
                                              -------------------------------

    Long-term future income tax liabilities          337,982         194,192
    Long-term capital lease obligations                    -         395,004
    Deferred lease inducements                       321,501         342,742
                                              -------------------------------
    Total liabilities                             15,861,071      18,699,720
                                              -------------------------------

    Shareholders' equity
    Share capital                                 16,604,987      16,501,855
    Contributed surplus                            1,795,348       1,492,547
    Retained earnings and
     accumulated other
     comprehensive income                          9,758,685       9,317,078
                                              -------------------------------
    Total shareholders' equity                    28,159,020      27,311,480
                                              -------------------------------
                                               $  44,020,091   $  46,011,200
    -------------------------------------------------------------------------



    -------------------------------------------------------------------------
                                                          Pareto Corporation
                 Consolidated Statements of Operations and Retained Earnings
    -------------------------------------------------------------------------
                          Three months ended                Six months ended
                          June 30 (unaudited)             June 30 (unaudited)
                        2009            2008            2009            2008
    -------------------------------------------------------------------------

    Revenue    $  17,048,569   $  20,853,852   $  33,231,565   $  37,307,022

    Operating
     and adminis-
     trative
     expenses     14,914,809      18,859,644      29,686,678      34,133,736
               --------------------------------------------------------------

                   2,133,760       1,994,208       3,544,887       3,173,286
               --------------------------------------------------------------
    Amortization
     of capital
     assets          156,955         158,638         324,005         317,590
    Amortization
     of intangible
     assets           52,778          52,777         105,557         105,555
    Interest
     expense          51,382         171,045          96,368         285,635
    Interest
     income          (26,005)         (6,585)        (58,582)        (14,182)
    Share-based
     compensation    231,274         193,811         420,933         401,591

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

                     466,384         569,686         888,281       1,096,189
    Earnings
     before
     income
     taxes         1,667,376       1,424,522       2,656,606       2,077,097
    Income
     taxes           593,413         462,904         925,873         658,706
               --------------------------------------------------------------
    Net earnings
     and
     comprehensive
     income for
     the period    1,073,963         961,618       1,730,733       1,418,391

    Retained
     earnings,
     beginning
     of period     9,329,881       7,940,323       9,317,078       7,877,806
    Dividends
     declared       (645,159)              -      (1,289,126)              -
    Excess price
     paid over
     carrying
     value on
     repurchase
     of common
     shares                         (135,841)                       (530,097)
               --------------------------------------------------------------

    Retained
     earnings, end
     of period $   9,758,685   $   8,766,100   $   9,758,685   $   8,766,100
               --------------------------------------------------------------

    Basic and
     diluted
     earnings
     per share $        0.02   $        0.02   $        0.04   $        0.03
               --------------------------------------------------------------

    Weighted
     average
     number of
     common shares
     outstanding:
    Basic         42,970,815      42,897,760      42,950,981      43,234,245
    Diluted       45,209,205      44,735,332      45,017,411      44,965,913
    -------------------------------------------------------------------------



    -------------------------------------------------------------------------
                                                          Pareto Corporation
                                       Consolidated Statements of Cash Flows
    -------------------------------------------------------------------------
                          Three months ended                Six months ended
                          June 30 (unaudited)             June 30 (unaudited)
                        2009            2008            2009            2008
    -------------------------------------------------------------------------

    Operating
     activities
    Net earnings
     for the
     period    $   1,073,963   $     961,618   $   1,730,733   $   1,418,391
    Items not
     involving
     cash:
    Amortization
     of capital
     assets          156,955         158,638         324,005         317,590
    Amortization
     of intangible
     assets           52,778          52,777         105,557         105,555
    Amortization
     of lease
     inducement      (10,620)              -         (21,241)              -
    Non-cash
     interest        (20,599)              -         (48,384)              -
    Share-based
     compensation    231,274         193,811         420,933         401,591
    Future
     income tax
     provision       178,619         405,816         132,640         611,877
               --------------------------------------------------------------
                   1,662,370       1,772,660       2,644,243       2,855,004
    Changes in
     non cash
     operating
     accounts       (704,820)       (956,077)     (1,209,261)     (1,807,226)
               --------------------------------------------------------------
                     957,550         816,583       1,434,982       1,047,778
               --------------------------------------------------------------
    Investing
     activities
    Capital
     asset
     additions      (208,320)       (431,812)       (267,841)       (484,271)
    Proceeds
     from lease
     inducement            -               -               -               -
    Loans
     receivable
     and other
     assets         (190,250)              -        (190,250)       (550,000)
    Acquisitions,
     net of cash           -         (66,668)              -      (3,066,668)
               --------------------------------------------------------------
                    (398,570)       (498,480)       (458,091)     (4,100,939)
               --------------------------------------------------------------
    Financing
     activities
    Dividends
     paid           (643,977)              -      (2,361,223)              -
    Repayment of
     capital
     lease
     obligations     (51,407)        (69,426)       (126,777)       (136,978)
    Repayment
     of Loan
     Receivables      25,000               -          25,000               -
    Issuance of
     shares                -          12,500               -          12,500
    Share
     issue costs           -               -               -          (2,051)
    Repurchase
     of common
     shares                -        (265,451)              -      (1,026,430)
               --------------------------------------------------------------
                    (670,384)       (322,377)     (2,463,000)     (1,152,959)
               --------------------------------------------------------------

    Increase
     (Decrease)
     in cash for
     the period     (111,404)         (4,274)     (1,486,109)     (4,206,120)

    (Bank Indebted-
     ness)/Cash,
     beginning
     of period    (2,029,278)     (4,570,137)       (654,573)       (368,291)
               --------------------------------------------------------------

    (Bank Indebted-
     ness)/Cash,
     end of
     period    $  (2,140,682)  $  (4,574,411)  $  (2,140,682)  $  (4,574,411)
    -------------------------------------------------------------------------
    





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; Jeff Codispodi, Investor
Relations, Equicom Group, (416) 815-0700 ext 261

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