Pareto announces third quarter financial results

Revenue of $17.6 million; EBITDA up 51% to $2.7 million

TORONTO, Nov. 9 /CNW/ - Pareto Corporation (TSX: PTO), a leading shopper marketing company, today announced its financial results for the three months ended September 30, 2009.

    
    Q3 Financial and Operating Highlights

    -  Revenue was $17.6 million in the third quarter, compared to
       $18.1 million in Q3 2008
    -  EBITDA* was $2.7 million, an increase of 51% from $1.8 million a
       year earlier
    -  As a percentage of revenue, EBITDA margins were 15.2%, up from 9.8% in
       Q3 2008
    -  Net earnings were $1.5 million, up 132% from $0.6 million in the third
       quarter of 2008
    -  Diluted earnings per share were $0.035, up from $0.015 a year earlier
    -  Completed Substantial Issuer Bid, purchasing for cancellation
       10.5 million shares for a total cost of $10.0 million

    Year-to-Date Highlights

    -  Revenue of $50.8 million, compared to $55.4 million in the first nine
       months of 2008
    -  EBITDA of $6.2 million, representing 12.2% of revenue, compared to
       $4.9 million or 8.9% of revenue in the comparable period a year
       earlier
    -  Net earnings of $3.2 million, compared to $2.1 million in the first
       nine months of 2008
    -  Diluted earnings per share of $0.075, compared to $0.050 in the
       comparable period of 2008
    

"Our continued focus on cutting costs and driving growth in our core Shopper Marketing business led to a 51% increase in EBITDA this quarter, compared to the third quarter of 2008," said Kerry Shapansky, Pareto's President and CEO. "Going forward, we will continue to increase our focus on Shopper Marketing, an area in which Pareto has been developing industry-leading expertise for more than seven years. Shopper Marketing is the fastest growing sector of the marketing industry. We believe we are uniquely well-positioned to capitalize on our position as Canada's Shopper Marketing leader and profitably grow our business in the quarters and years to come."

"During the third quarter we also successfully completed a Substantial Issuer Bid ("SIB") intended to provide a short-term liquidity opportunity to our shareholders," continued Mr. Shapansky. "Our strong financial position ensures that we had adequate resources to fund the SIB, while maintaining our quarterly dividend at current levels."

Financial Review

Pareto's revenues for the three months ended September 30, 2009 were $17.6 million, a decrease of $0.5 million from $18.1 million in the third quarter of 2008. Revenues decreased this quarter in the Company's incentives and loyalty services, down $0.9 million, as the economic environment led several customers to cancel or defer large events. Offsetting this somewhat, are increases in direct marketing and in-store messaging services.

EBITDA increased by 51% in the third quarter of 2009 to $2.7 million, representing 15.2% of revenues, compared to $1.8 million, or 9.8% of revenues a year earlier. This significant EBITDA growth was achieved despite the slight decline in quarterly revenue. The improved EBITDA was attributable to reduced infrastructure costs, ongoing improvement in operating efficiencies, and the mix of services sold. Operating and administrative expenses were $14.9 million in the quarter, a decrease of 10% from $16.4 million in Q3 2008.

Net earnings in the third quarter of 2009 were $1.5 million, an increase of 132% over $0.6 million of earnings in Q3 2008. Basic and diluted earnings per share increased to $0.035 from $0.015 a year earlier.

At September 30, 2009, Pareto had total debt of $13.5 million, compared to indebtedness of $2.7 million three months earlier. The increase in debt is attributable to the repurchase of shares from the SIB previously mentioned. The Company generated $1.9 million of cash from operations in Q3 2009, compared to $1.7 million a year earlier.

Following the completion of the SIB on September 18, 2009, Pareto had 32,584,166 common shares issued and outstanding at September 30, 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 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
    -------------------------------------------------------------------------

    -------------------------------------------------------------------------
                                                  September 30   December 31
    As at                                         2009           2008
                                                  (unaudited)    (audited)
    -------------------------------------------------------------------------

    Assets
    Current assets
    Accounts receivable                           $ 16,029,248  $ 16,460,617
    Inventories                                      2,948,487     1,746,355
    Prepaid expenses                                   607,898       466,040
    Current future income tax assets                    43,759        38,167
                                                   --------------------------
                                                    19,629,392    18,711,179
                                                   --------------------------

    Loans receivable and other assets                1,669,734     1,299,045
    Long-term future income tax assets                 183,184       258,209
    Capital assets                                   4,728,082     3,340,697
    Intangible assets                                1,292,245     1,343,493
    Goodwill                                        21,058,577    21,058,577
                                                   --------------------------
                                                  $ 48,561,214  $ 46,011,200
                                                   --------------------------

    Liabilities and Shareholders' Equity
    Current liabilities
    Bank indebtedness                             $  1,645,284  $    654,573
    Accounts payable and accrued liabilities        10,450,224    12,032,039
    Dividends payable                                  488,762     1,717,246
    Deferred revenue                                 2,774,619     2,023,252
    Income taxes payable                             1,495,295       983,915
    Current portion of capital lease obligations             -       314,275
    Current portion of lease inducements                42,482        42,482
    Current portion of long-term loan                1,200,000             -
                                                   --------------------------
                                                    18,096,666    17,767,782
                                                   --------------------------

    Long-term future income tax liabilities            326,890       194,192
    Long-term capital lease obligations                      -       395,004
    Deferred lease inducements                         310,881       342,742
    Long-term loan                                  10,623,106             -
                                                   --------------------------
    Total liabilities                               29,357,543    18,699,720
                                                   --------------------------

    Shareholders' equity
    Share capital                                   12,635,777    16,501,855
    Contributed surplus                              1,888,789     1,492,547
    Retained earnings and accumulated other
     comprehensive income                            4,679,105     9,317,078
                                                   --------------------------
    Total shareholders' equity                      19,203,671    27,311,480
                                                   --------------------------
                                                  $ 48,561,214  $ 46,011,200
    -------------------------------------------------------------------------



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

    -------------------------------------------------------------------------
                              Three months ended        Nine months ended
                                 September 30              September 30
                                  (unaudited)               (unaudited)
                              2009          2008          2009          2008
    -------------------------------------------------------------------------

    Revenue           $ 17,591,647  $ 18,126,430  $ 50,823,212  $ 55,433,452

    Operating and
     administrative
     expenses           14,919,821    16,536,954    44,606,499    50,670,690
                      -------------------------------------------------------

                         2,671,826     1,589,476     6,216,713     4,762,762
                      -------------------------------------------------------
    Amortization of
     capital assets        153,221       177,355       477,226       494,945
    Amortization of
     intangible assets      52,779        52,778       158,336       158,333
    Interest expense        51,938       118,691       148,306       404,328
    Interest income        (47,410)       (6,375)     (105,992)      (20,559)
    Share-based
     compensation          208,441       203,214       629,374       604,805
                      -------------------------------------------------------
                           418,969       545,663     1,307,250     1,641,852

    Earnings before
     income taxes        2,252,858     1,043,813     4,909,464     3,120,910
    Income taxes           757,735       399,483     1,683,608     1,058,189
                      -------------------------------------------------------

    Net earnings and
     comprehensive
     income for the
     period              1,495,122       644,330     3,225,855     2,062,721

    Retained earnings,
     beginning of period 9,758,685     8,766,100     9,317,077     7,877,806
    Dividends declared    (488,762)            -    (1,777,887)            -
    Excess price paid
     over carrying value
     on repurchase of
     common shares      (6,085,940)            -    (6,085,940)     (530,097)
                      -------------------------------------------------------
    Retained
     earnings, end
     of period        $  4,679,105  $  9,410,430  $  4,679,105  $  9,410,430
    -------------------------------------------------------------------------

    Basic earnings
     per share        $      0.036  $      0.015  $      0.076  $      0.048
    Diluted earnings
     per share        $      0.034  $      0.014  $      0.073  $      0.046
    -------------------------------------------------------------------------

    Weighted
     average
     number of
     common shares
     outstanding:
    Basic               41,545,569    42,773,370    42,244,025    43,066,546
    Diluted             43,857,647    44,664,783    44,410,848    44,841,339
    -------------------------------------------------------------------------



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

    -------------------------------------------------------------------------
                              Three months ended        Nine months ended
                                 September 30              September 30
                                  (unaudited)               (unaudited)
                              2009          2008          2009          2008
    -------------------------------------------------------------------------

    Operating activities
    Net earnings for
     the period       $  1,495,122  $    644,330  $  3,225,855  $  2,062,721
    Items not
     involving cash:
    Amortization of
     capital assets        153,221       177,354       477,226       494,945
    Amortization of
     intangible assets      52,779        52,778       158,336       158,333
    Amortization of
     lease inducement      (10,621)      (28,571)      (31,862)      (28,571)
    Non-cash interest      (41,805)            -       (90,189)            -
    Non-cash lease
     expense                     -             -             -       197,130
    Share-based
     compensation          208,441       203,214       629,374       604,805
    Future income
     tax provision          69,491       236,099       202,131       847,976
                      -------------------------------------------------------
                         1,926,628     1,285,204     4,570,871     4,337,339

    Changes in non
     cash operating
     accounts              (37,428)      424,557    (1,246,689)   (1,579,800)
                      -------------------------------------------------------
                         1,889,200     1,709,761     3,324,182     2,757,539
                      -------------------------------------------------------

    Capital asset
     additions          (1,596,770)     (144,903)   (1,864,611)     (629,174)
    Intangible asset
     additions            (107,088)            -      (107,088)            -
    Proceeds from
     lease inducement            -       227,285             -       227,285
    Loans receivable
     and other assets     (190,250)     (188,500)     (380,500)     (738,500)
    Acquisitions,
     net of cash                 -             -             -    (3,066,668)
                      -------------------------------------------------------
                        (1,894,108)     (106,118)   (2,352,199)   (4,207,057)
                      -------------------------------------------------------

    Financing activities
    Dividends paid        (645,147)            -    (3,006,371)            -
    Repayment of capital
     lease obligations    (582,503)      (71,353)     (709,279)     (208,331)
    Repayment of Loans
     Receivable             75,000             -       100,000             -
    Proceeds from term
     loan               11,823,106             -    11,823,106             -
    Issuance of
     shares                      -        86,000             -        98,500
    Share issue costs            -             -             -        (2,051)
    Repurchase of
     common shares     (10,170,150)            -   (10,170,150)   (1,026,430)
                      -------------------------------------------------------
                           500,306        14,647    (1,962,694)    1,138,312
                      -------------------------------------------------------

    Increase
     (Decrease)
     in cash for
     the period            495,398     1,618,290      (990,711)   (2,587,830)

    (Bank Indebtedness)
     /Cash, beginning
     of period          (2,140,682)   (4,574,411)     (654,573)     (368,291)
                      -------------------------------------------------------

    (Bank Indebtedness)
     /Cash, end
     of period        $ (1,645,284) $ (2,956,121) $ (1,645,284) $ (2,956,121)
    -------------------------------------------------------------------------
    

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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