Pareto announces third quarter financial results



    Revenue of $14.3 million; 39% growth from prior year, 62% increase YTD

    TORONTO, Nov. 14 /CNW/ - Pareto Corporation (TSX: PTO), a leading
marketing services company, today announced its financial results for the
three months ended September 30, 2007.
    "I am pleased with the results we have achieved this year," said Kerry
Shapansky, Pareto's President and Chief Executive Officer. "We said at the
start of the year that our primary focus would be returning to a pattern of
organic growth while improving profitability. We implemented a number of
changes to reinvigorate our sales organization and after nine months our
organic revenue growth rate has been 15%. In fact our revenue and EBITDA after
three quarters are higher than our totals for all of 2006. In the third
quarter our sales team secured over $12 million of new business for future
periods. Notably we signed contracts worth $3 million with a major national
retailer, and expanded our relationship with a major pharmaceutical
manufacturer in the form of a new long-term outsourcing agreement. Other new
clients added include Foresters, Heinz, Maestro Meats, and Corporate Express
who have engaged our event division to deliver a major 2008 event."
    Mr. Shapansky continued: "Our revenues tend to be lower during the summer
months as marketers avoid major campaigns, and this contributed to a low
EBITDA margin in Q3. In contrast, the fourth quarter is seasonally strong in
the marketing services industry. We anticipate Q4 EBITDA to be robust and full
year EBITDA margin to be approaching 10%. We expect 2007 revenues to exceed
2006 reported revenues by approximately 40%, representing double-digit organic
growth. This year has been a significant year of repositioning and investment
in the business, I believe we are very well positioned to capitalize on these
investments in 2008."

    
    Q3 2007 Financial Highlights

    -   Revenue was $14.3 million in the third quarter of 2007, up 39% from
        $10.3 million a year earlier.
    -   EBITDA (earnings before amortization, net interest and finance
        charges, share-based compensation, and income taxes) was
        $0.6 million, down from $0.7 million in Q3 2006.
    -   Net earnings were $76,000 compared to $464,000 in the third quarter
        of 2006.
    -   Diluted earnings per share were $0.00 versus $0.01 a year earlier.

    Year-to-date Financial Highlights

    -   Revenue was $53.4 million in the first nine months of fiscal 2007, up
        62% from $32.9 million in 2006.
    -   Pro forma year-over-year organic revenue growth was 15%.
    -   EBITDA was $3.8 million, up 39% from $2.7 million last year.
    -   Net earnings were $1.7 million or $0.04 per share in the first nine
        months of 2007, up 11% compared to $1.5 million or $0.04 per share in
        the prior year period.
    

    Aeroplan Extension

    Pareto extended its contract with Aeroplan to allow its Elevate
Incentives division to remain the sole distributor of Aeroplan Miles for use
in sales channel and employee-based incentive programs through to the end of
2008. "I am excited about continuing our mutually beneficial partnership with
Aeroplan," said Mr. Shapansky.

    Financial Review

    In the third quarter of 2007, Pareto's revenues increased $4.0 million
over the prior year primarily due to the additional revenue from SourceLink,
acquired in August 2006, and Secom Plus, acquired in October 2006.
    Operating and administrative expenses were $13.7 million in the third
quarter, an increase of 43% from $9.6 million a year earlier. The increase
resulted from the inclusion of the expenses in the businesses acquired in the
second half of 2006 plus a change in service mix of organic revenues. EBITDA
totaled $0.6 million in the third quarter, representing 4.2% of revenue,
compared to $0.7 million or 6.9% of revenue in Q3 2006.
    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, 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.
    Net earnings were $76,000 in Q3 2007, compared to $464,000 of earnings a
year earlier. The Q3 2006 earnings included a gain on acquisition of $129,000
which related to the August 2006 purchase of SourceLink. Earnings per share
decreased to $0.00 from $0.01, while the average number of shares outstanding
increased by 1% to 44.7 million.
    At September 30, 2007, the Company had drawn $4.2 million on its
operating line of credit. Pareto draws on its operating line of credit from
time to time to meet normal business obligations. In the third quarter of
2007, the Company's utilization of its operating line of credit was impacted
by $2.4 million of significant expenditures including $1.0 million of capital
asset additions, a $0.7 million account payable related to the Secom
acquisition, a $0.4 million early repayment of long-term debt, and $0.3
million expended under the Company's normal course issuer bid. Subsequent to
September 30, 2007, cash flow from operations has improved the Company's cash
position by over $2 million. Pareto's sources of short-term liquidity include
cash provided by operating activities and a $9.0 million operating line of
credit (increased from $5.5 million in July 2007). As at November 13, 2007,
the Company's capacity on its line of credit was approximately $7 million.

    Conference Call

    Pareto will host an investor conference call to discuss these results at
9:00 a.m. EST, November 14, 2007. The call may be accessed by dialing
416-644-3429 or 1-800-590-1508. A taped replay will be available for one week
by dialing 416-640-1917 or 1-877-289-8525, reference number 21252786. The call
will be available live and for one year at www.pareto.ca ("Investor Relations"
section).

    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

                                                   September 30,
                                                           2007  December 31,
                                                     (unaudited)        2006
    -------------------------------------------------------------------------
    Assets
    Current assets
    Cash                                            $         -  $ 5,020,127
    Accounts receivable                              15,808,187   12,399,746
    Inventory and work in progress                    3,109,267    2,457,361
    Other current assets                                569,020      540,698
    Current portion of loans receivable                 301,667            -
    Current future income tax assets                  1,808,157    2,903,293
                                                    -------------------------
                                                     21,596,298   23,321,225

    Loans receivable                                    486,250      616,667
    Long-term future income tax assets                  952,962      850,590
    Deferred costs                                      365,842      513,708
    Capital assets                                    3,044,997    1,722,298
    Goodwill and intangible assets                   22,658,463   17,782,873
                                                    -------------------------
                                                    $49,104,812  $44,807,361
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Liabilities and Shareholders' Equity
    Current liabilities
    Bank Indebtedness                               $ 4,196,626  $         -
    Accounts payable and accrued liabilities         10,687,822   14,059,056
    Current portion of deferred revenue               2,635,932    2,607,264
    Income taxes payable                                106,640      275,091
    Current future income tax liabilities               114,497      131,225
    Current portion of acquisition notes payable      5,066,667    1,350,000
    Current portion of long-term debt                         -      500,000
    Current portion of capital lease obligations        262,537      264,295
                                                    -------------------------
                                                     23,070,721   19,186,931
                                                    -------------------------

    Long-term future income tax liabilities             545,856      625,772
    Long-term debt                                            -      165,992
    Long-term capital lease obligations                 797,505      992,060
    Long-term acquisition notes payable                       -      100,000
                                                    -------------------------
    Total liabilities                                24,414,082   21,070,755
                                                    -------------------------

    Shareholders' equity
    Share capital                                    17,247,676   17,176,172
    Contributed surplus                                 537,257      268,895
    Retained earnings                                 6,905,797    6,291,539
                                                    -------------------------
    Total shareholders' equity                       24,690,730   23,736,606
                                                    -------------------------
                                                    $49,104,812  $44,807,361
    -------------------------------------------------------------------------



    -------------------------------------------------------------------------
                                                           Pareto Corporation
                  Consolidated Statements of Operations and Retained Earnings

    For the period ended September 30 (unaudited)
    -------------------------------------------------------------------------

                                      Three Months               Nine Months
                                 2007         2006         2007         2006
                          ---------------------------------------------------

    Revenue               $14,345,259  $10,316,477  $53,408,608  $32,885,572

    Operating and
     administrative
     expenses              13,744,123    9,608,427   49,638,232   30,176,682
                          ---------------------------------------------------
                          ---------------------------------------------------

                              601,136      708,050    3,770,376    2,708,890
                          ---------------------------------------------------
                          ---------------------------------------------------
    Amortization of
     capital assets           135,555       80,994      352,625      228,531
    Amortization of
     intangible assets
     and deferred costs        90,217       62,671      270,650      188,280
    Interest and finance
     charges, net             135,096       12,463      320,642       14,226
    Share-based compensation  125,764       69,956      310,121      207,832
    Gain on acquisition             -     (128,584)           -     (128,584)
                          ---------------------------------------------------
                              486,632       97,500    1,254,038      510,285

    Earnings before income
     taxes                    114,504      610,550    2,516,338    2,198,605

    Income taxes               38,290      146,203      822,326      675,059
                          ---------------------------------------------------
                          ---------------------------------------------------
    Net earnings for the
     period                    76,214      464,347    1,694,012    1,523,546

    Retained earnings,
     beginning of period    7,037,627    6,419,434    6,291,539    5,409,564

    Excess price paid over
     carrying value on
     repurchase of common
     shares                  (208,044)    (197,242)  (1,079,754)    (246,571)
                          ---------------------------------------------------
                          ---------------------------------------------------
    Retained earnings,
     end of period        $ 6,905,797  $ 6,686,539  $ 6,905,797  $ 6,686,539
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Basic and diluted
     earnings per share   $      0.00  $      0.01  $      0.04  $      0.04
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Average number of
     common shares
     outstanding:
    Basic                  44,737,190   44,266,346   44,649,180   41,815,879
    Diluted                45,775,867   45,872,139   45,638,911   43,512,361
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



    -------------------------------------------------------------------------
                                                           Pareto Corporation
                                        Consolidated Statements of Cash Flows

    For the period ended September 30 (unaudited)
    -------------------------------------------------------------------------

                                      Three Months               Nine Months
                                  2007        2006         2007         2006
                          ---------------------------------------------------
    Operating activities
    Net earnings for the
     period               $    76,214  $   464,347  $ 1,694,012  $ 1,523,546
    Items not involving
     cash:
    Amortization of
     capital assets           135,555       80,994      352,625      228,531
    Amortization of
     intangible assets and
     deferred costs            90,217       62,671      270,650      188,280
    Non-cash interest and
     finance charges           31,813        3,281       38,375        9,843
    Share-based
     compensation             125,764       69,956      310,121      207,832
    Gain on acquisition             -     (128,584)           -     (128,584)
    Future income tax
     provision                398,014      133,362      896,120       97,932
                          ---------------------------------------------------
                              857,577      686,027    3,561,903    2,127,380
    Changes in non cash
     operating accounts    (3,545,130)   1,535,108   (7,599,686)  (4,849,857)
                          ---------------------------------------------------
                          ---------------------------------------------------
                           (2,687,553)   2,221,135   (4,037,783)  (2,722,477)
                          ---------------------------------------------------
                          ---------------------------------------------------
    Investing activities
    Capital asset
     additions               (953,554)    (121,897)  (1,675,324)    (583,909)
    Other asset additions      56,479        2,704       (2,825)     (78,822)
    Acquisitions, net
     of cash acquired         (10,589)  (1,117,222)     (33,923)  (1,792,917)
                          ---------------------------------------------------
                          ---------------------------------------------------
                             (907,664)  (1,236,415)  (1,712,072)  (2,455,648)
                          ---------------------------------------------------
                          ---------------------------------------------------
    Financing activities
    Repayment of
     acquisition notes
     payable                        -            -   (1,383,333)    (335,000)
    Repayment of long-
     term debt               (415,990)    (125,001)    (665,992)    (375,003)
    Repayment of capital
     lease obligations        (66,152)     (33,438)    (196,313)     (33,438)
    Issuance of shares         29,000       85,186      139,500    8,180,322
    Share issue costs         (20,535)           -      (20,535)    (671,972)
    Repayment of loans
     receivable                65,000            -       65,000            -
    Repurchase of common
     shares                  (322,399)    (289,412)  (1,405,225)    (361,402)
                          ---------------------------------------------------
                          ---------------------------------------------------
                             (731,076)    (362,665)  (3,466,898)   6,403,507
                          ---------------------------------------------------
                          ---------------------------------------------------

    Increase (decrease) in
     cash for the period   (4,326,293)     622,055   (9,216,753)   1,225,382

    Cash and cash
     equivalents, beginning
     of period                129,667    5,682,254    5,020,127    5,078,927
                          ---------------------------------------------------
                          ---------------------------------------------------
    Cash and cash
     equivalents, end of
     period               $(4,196,626) $ 6,304,309  $(4,196,626) $ 6,304,309
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    





For further information:

For further information: Kerry Shapansky, President and Chief Executive
Officer, Pareto Corporation, (416) 790-2350; Clint Becker, Chief Financial
Officer, Pareto Corporation, (416) 790-2360; Jeff Codispodi, Investor
Relations, Equicom Group, (416) 815-0700 ext 261

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