Affinion Group Holdings, Inc. Announces Results For The First Quarter Ended March 31, 2018

TABLE 1

AFFINION GROUP HOLDINGS, INC.

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

AS OF MARCH 31, 2018 AND DECEMBER 31, 2017

(In millions, except share amounts)

March 31,

December 31,

2018

2017

Assets

Current assets:

Cash and cash equivalents

$

52.1

$

39.8

Restricted cash

25.0

24.8

Receivables (net of allowances for doubtful accounts of $7.9 and $7.5, 
     respectively)

178.6

155.6

Profit-sharing receivables from insurance carriers

20.0

23.4

Prepaid commissions

43.8

40.9

Other current assets

78.7

67.6

Total current assets

398.2

352.1

Property and equipment, net

107.9

108.4

Contract rights and list fees, net

18.9

18.8

Goodwill

240.4

224.7

Other intangibles, net

36.9

34.0

Other non-current assets

29.1

28.9

Total assets

$

831.4

$

766.9

Liabilities and Deficit

Current liabilities:

Current portion of long-term debt

$

13.7

$

13.9

Accounts payable and accrued expenses

384.7

325.5

Deferred revenue

61.5

51.5

Income taxes payable

3.9

3.2

Total current liabilities

463.8

394.1

Long-term debt

1,885.4

1,887.3

Deferred income taxes

7.2

5.5

Deferred revenue

3.8

4.1

Other long-term liabilities

42.0

33.5

Total liabilities

2,402.2

2,324.5

Commitments and contingencies

Deficit:

Common Stock, $0.01 par value, 520,000,000 shares authorized, 9,157,071 
     shares issued and outstanding

0.1

0.1

Class C Common Stock, $0.01 par value, 10,000,000 shares authorized, 434,897 
     shares issued and 433,813 shares outstanding

?

?

Class D Common Stock, $0.01 par value, 10,000,000 shares authorized, 457,784 
     shares issued and 456,643 shares outstanding

?

?

Additional paid in capital

413.0

412.5

Warrants

31.1

31.1

Accumulated deficit

(2,008.9)

(1,991.7)

Accumulated other comprehensive income

(6.5)

(9.5)

Treasury stock, at cost, 1,084 Class C and 1,141 Class D shares

(1.1)

(1.1)

Total Affinion Group Holdings, Inc. deficit

(1,572.3)

(1,558.6)

Non-controlling interest in subsidiary

1.5

1.0

Total deficit

(1,570.8)

(1,557.6)

Total liabilities and deficit

$

831.4

$

766.9

TABLE 2

AFFINION GROUP HOLDINGS, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

FOR THE THREE MONTHS ENDED MARCH 31, 2018 AND 2017

(In millions, except share and per share amounts)

For the Three Months Ended

March 31,

March 31,

2018

2017

Net revenues

$

238.5

$

241.1

Expenses:

Cost of revenues, exclusive of depreciation and amortization shown 
     separately below:

Marketing and commissions

66.6

77.9

Operating costs

86.7

89.4

General and administrative

30.0

24.3

Facility exit costs

0.7

0.1

Depreciation and amortization

12.1

11.3

Total expenses

196.1

203.0

Income from operations

42.4

38.1

Interest expense

(59.2)

(27.5)

Other expense, net

(0.2)

(0.1)

Income (loss) before income taxes and non-controlling interest

(17.0)

10.5

Income tax provision

(1.3)

(2.4)

Net income (loss)

(18.3)

8.1

Less: net income attributable to non-controlling interest

(0.5)

(0.3)

Net income (loss) attributable to Affinion Group Holdings, Inc.

$

(18.8)

$

7.8

Earnings (loss) per share attributable to holders of Common Stock

Basic

$

(1.38)

$

0.85

Diluted

$

(1.38)

$

0.85

Weighted average common shares outstanding

Basic

13,628,871

9,113,370

Diluted

13,628,871

9,113,370

Net income (loss)

$

(18.3)

$

8.1

Currency translation adjustment, net of tax for all periods

3.0

0.9

Comprehensive income (loss)

(15.3)

9.0

Less: comprehensive income attributable to non-controlling interest

(0.5)

(0.4)

Comprehensive income (loss) attributable to Affinion Group Holdings, Inc.

$

(15.8)

$

8.6

TABLE 3

AFFINION GROUP HOLDINGS, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE THREE MONTHS ENDED MARCH 31, 2018 AND 2017

(In millions)

For the Three Months Ended

March 31,

March 31,

2018

2017

Operating Activities

Net income (loss)

$

(18.3)

$

8.1

Adjustments to reconcile net income (loss) to net cash provided by 
     operating activities:

Depreciation and amortization

12.1

11.3

Amortization of debt discount, financing costs and carrying value 
     adjustment

4.4

(8.0)

Provision for accounts receivable loss

0.3

0.6

Facility exit costs

0.7

0.1

Share-based compensation

0.5

0.9

Deferred income taxes

0.5

1.0

Net change in assets and liabilities:

Receivables

(20.4)

(16.0)

Profit-sharing receivables from insurance carriers

3.4

(3.0)

Prepaid commissions

(2.2)

0.5

Other current assets

(10.3)

(15.8)

Contract rights and list fees

(0.1)

(0.3)

Other non-current assets

0.1

0.4

Accounts payable and accrued expenses

53.1

30.7

Deferred revenue

9.3

(1.2)

Income taxes receivable and payable

1.0

0.4

Other long-term liabilities

(1.7)

(1.5)

Other, net

(1.3)

?

Net cash provided by operating activities

31.1

8.2

Investing Activities

Capital expenditures

(7.2)

(10.5)

Acquisition-related payments, net of cash acquired

(5.8)

?

Net cash used in investing activities

(13.0)

(10.5)

Financing Activities

Repayments under revolving credit facility, net

(3.0)

?

Principal payments on borrowings

(3.6)

(1.9)

Net cash used in financing activities

(6.6)

(1.9)

Effect of changes in exchange rates on cash and cash equivalents

1.0

0.3

Net increase in cash and cash equivalents

12.5

(3.9)

Cash, cash equivalents and restricted cash, beginning of period

64.6

63.8

Cash, cash equivalents and restricted cash, end of period

$

77.1

$

59.9

Supplemental Disclosure of Cash Flow Information:

Interest payments

$

34.1

$

25.3

Income tax payments, net of refunds

$

0.6

$

1.0

TABLE 4

AFFINION GROUP HOLDINGS, INC.

UNAUDITED SUPPLEMENTAL DATA FOR

SELECTED BUSINESS SEGMENTS

The following table provides data for selected business segments.

Amounts in thousands, except dollars per unit.

Three Months Ended

March 31,

2018

2017

Global Loyalty

Gross Transactional Sales Volume (1)

$

928,968

$

762,837

Gross Transactional Sales Volume per Transaction (1)

$

286.72

$

214.98

Total Transactions

3,240

3,548

Global Customer Engagement

Average Subscribers (2)

2,467

2,532

Annualized Net Revenue per Average Subscriber (3)

$

110.14

$

101.16

Engagement Solutions Platform Revenue

$

27,886

$

25,212

Insurance Solutions

Average Supplemental Insureds (2)

3,029

3,195

Annualized Net Revenue per Supplemental Insured (3)

$

64.14

$

69.53

Legacy Membership and Package

Average Legacy Members (2)

795

1,217

Annualized Net Revenue per Legacy Member (3)

$

105.07

$

106.60

(1)

Gross Transactional Sales Volume primarily includes the gross sales amount of travel bookings, gift cards and merchandise redeemed by customers of our clients' programs that we support and excludes cash redemptions and revenue generated from programming, platform, administration and other non-transactional services. Gross Transactional Sales Volume per Transaction is calculated by taking the Gross Transactional Sales Volume reported for the period and dividing it by the total transactions for the same period.

(2)

Average Subscribers, Average Supplemental Insureds and Average Legacy Members for the period are all calculated by determining the average subscribers, insureds or members, as applicable, for each month in the period (adding the number of subscribers, insureds or members, as applicable, at the beginning of the month with the number of subscribers, insureds or members, as applicable, at the end of the month and dividing that total by two) and then averaging that result for the period. A subscriber's, insured's or member's, as applicable, account is added or removed in the period in which the subscriber, insured or member, as applicable, has joined or cancelled.

(3)

Annualized Net Revenue per Average Subscriber, Supplemental Insured and Legacy Member are all calculated by taking the revenues from subscribers or insureds, as applicable, for the period and dividing it by the average subscribers or insureds, as applicable, for the period. Quarterly periods are then multiplied by four to annualize this amount for comparative purposes. Upon cancellation of a subscriber or an insured, as applicable, the subscriber's or insured's, as applicable, revenues are no longer recognized in the calculation.

TABLE 5

AFFINION GROUP HOLDINGS, INC.

UNAUDITED OPERATING SEGMENT RESULTS

(In millions)

Net revenues, Segment EBITDA and Adjusted EBITDA by operating segment are as follows, including a reconciliation of Affinion Holdings' income from operations for the three  months ended March 31, 2018 and 2017 to Affinion Holdings' Segment EBITDA, defined as income from operations before depreciation and amortization, and Adjusted EBITDA as defined in note (e) of Table 6:

Three Months Ended March 31,

Net Revenues

Segment EBITDA (1)

Adjusted EBITDA (1)

Increase

Increase

Increase

2018

2017

(Decrease)

2018

2017

(Decrease)

2018

2017

(Decrease)

(in millions)

Global Loyalty

$

63.8

$

57.0

$

6.8

$

25.0

$

20.1

$

4.9

$

25.5

$

25.0

$

0.5

Global Customer Engagement

95.7

89.2

6.5

21.3

12.9

8.4

23.0

14.8

8.2

Insurance Solutions

49.6

56.7

(7.1)

13.3

20.0

(6.7)

13.4

20.2

(6.8)

Subtotal

209.1

202.9

6.2

59.6

53.0

6.6

61.9

60.0

1.9

Legacy Membership and Package

29.4

38.2

(8.8)

12.5

9.0

3.5

12.6

10.9

1.7

Corporate

?

?

?

(17.6)

(12.6)

(5.0)

(12.8)

(11.0)

(1.8)

Total

$

238.5

$

241.1

$

(2.6)

54.5

49.4

5.1

61.7

59.9

1.8

Business optimization expenses and

   restructuring charges or expenses

(5.5)

(3.2)

(2.3)

Extraordinary or nonrecurring or

   unusual losses, expenses or charges

(0.1)

(6.2)

6.1

Other, net

(1.6)

(1.1)

(0.5)

Depreciation and amortization

(12.1)

(11.3)

(0.8)

(12.1)

(11.3)

(0.8)

Income from operations

$

42.4

$

38.1

$

4.3

$

42.4

$

38.1

$

4.3

Three Months Ended March 31, 2018

Global Loyalty

Global Customer Engagement

Insurance Solutions

Legacy
Membership
and Package

Corporate

Total

(in millions)

Business optimization expenses and

   restructuring charges or expenses

$

0.7

$

1.7

$

?

$

?

$

3.1

$

5.5

Extraordinary or nonrecurring or unusual

   losses, expenses or charges

(0.2)

?

0.1

0.1

0.1

0.1

Other, net

?

?

?

?

1.6

1.6

Total

$

0.5

$

1.7

$

0.1

$

0.1

$

4.8

$

7.2

Three Months Ended March 31, 2017

Global Loyalty

Global Customer Engagement

Insurance Solutions

Legacy
Membership
and Package

Corporate

Total

(in millions)

Business optimization expenses and

   restructuring charges or expenses

$

?

$

1.6

$

0.1

$

0.8

$

0.7

$

3.2

Extraordinary or nonrecurring or unusual

   losses, expenses or charges

5.2

0.1

?

1.0

(0.1)

6.2

Other, net

(0.3)

0.2

0.1

0.1

1.0

1.1

Total

$

4.9

$

1.9

$

0.2

$

1.9

$

1.6

$

10.5

(1)

Segment EBITDA consists of income from operations before depreciation and amortization. Segment EBITDA is the measure management uses to evaluate segment performance, and we present Segment EBITDA to enhance your understanding of our operating performance. We use Segment EBITDA as one criterion for evaluating our performance relative to that of our peers. We believe that Segment EBITDA is an operating performance measure, and not a liquidity measure, that provides investors and analysts with a measure of operating results unaffected by differences in capital structures, capital investment cycles and ages of related assets among otherwise comparable companies. However, Segment EBITDA may not be comparable to similarly titled measures of other companies. You should not consider Segment EBITDA as an alternative to operating or net income determined in accordance with U.S. GAAP, as an indicator of operating performance or as an alternative to cash flows from operating activities determined in accordance with U.S. GAAP, or as an indicator of cash flows, or as a measure of liquidity. For a reconciliation of Affinion Holdings' consolidated net income (loss) attributable for the twelve months ended March 31, 2018 and three months ended March 31, 2018 and 2017 to Affinion Holdings' Segment EBITDA, see Table 6.

We believe that Adjusted EBITDA for each segment provides supplemental information useful to investors as it is frequently used by the financial community to analyze performance period to period, to analyze a company's ability to service its debt and to facilitate comparisons among companies. We believe Adjusted EBITDA also provides additional supplemental information to compare results among our segments. However, Adjusted EBITDA by segment is not a measurement of financial performance under U.S. GAAP, and Adjusted EBITDA by segment may not be comparable to similarly titled measures of other companies. You should not consider Adjusted EBITDA by segment as an alternative to operating or net income determined in accordance with U.S. GAAP, as an indicator of operating performance or as an alternative to cash flows from operating activities, determined in accordance with U.S. GAAP, or as an indicator of cash flows, or as a measure of liquidity. For a discussion of the definition of Adjusted EBITDA and the reconciliation of Adjusted EBITDA to consolidated net income (loss) attributable to Affinion Group Holdings, Inc., see Table 6.

TABLE 6

AFFINION GROUP HOLDINGS, INC.

RECONCILIATION OF NON-GAAP FINANCIAL MEASURES

TO GAAP FINANCIAL MEASURES (UNAUDITED)

(In millions)

Set forth below is a reconciliation of Affinion Holdings' consolidated net income (loss) attributable to Affinion Group Holdings, Inc. for the twelve months ended March 31, 2018 and the three months ended March 31, 2018 and 2017 to Affinion Holdings' Adjusted EBITDA.

For the Twelve

For the Three Months

Months Ended

Ended March 31,

March 31, 2018 (a)

2018

2017

(in millions)

Net income (loss) attributable to Affinion Group Holdings, Inc.

$

(51.8)

$

(18.8)

$

7.8

Interest expense, net

217.9

59.2

27.5

Income tax provision (benefit)

(19.0)

1.3

2.4

Non-controlling interest

1.0

0.5

0.3

Other expense, net

0.5

0.2

0.1

Gain on extinguishment of debt

(3.5)

?

?

Depreciation and amortization

47.6

12.1

11.3

Business optimization expenses and restructuring charges or expenses (b)

18.5

5.5

3.2

Extraordinary or nonrecurring or unusual losses, expenses or charges (c)

21.8

0.1

6.2

Other, net (d)

4.0

1.6

1.1

Adjusted EBITDA, excluding pro forma adjustments (e) (f)

237.0

$

61.7

$

59.9

Effect of the pro forma adjustments (g)

?

Adjusted EBITDA, including pro forma adjustments (h)

$

237.0

(a)

Represents consolidated financial data for the year ended December 31, 2017, minus consolidated financial data for the three months ended March 31, 2017, plus consolidated financial data for the three months ended March 31, 2018.

(b)

Represents the elimination of the effect of business optimization expenses and restructuring charges or expenses.

(c)

Represents the elimination of extraordinary or nonrecurring or unusual losses, expenses or charges.

(d)

Primarily represents the elimination of (i) net changes in certain reserves, (ii) share-based compensation expense and (iii) foreign currency gains and losses related to unusual, non-recurring intercompany transactions.

(e)

Adjusted EBITDA consists of income from operations before depreciation and amortization further adjusted to exclude non-cash and unusual items and other adjustments permitted in our debt agreements to test the permissibility of certain types of transactions, including debt incurrence. We believe that Adjusted EBITDA is an operating performance measure, and not a liquidity measure, that provides investors and analysts with a measure of operating results unaffected by differences in capital structures, capital investment cycles and ages of related assets among otherwise comparable companies.  We use Adjusted EBITDA to evaluate our operating performance and as a basis for determining payment of bonuses under our annual incentive plan. We present Adjusted EBITDA to enhance your understanding of our operating performance.  However, Adjusted EBITDA is not a measurement of financial performance under U.S. GAAP and Adjusted EBITDA may not be comparable to similarly titled measures of other companies. You should not consider Adjusted EBITDA as an alternative to operating or net income determined in accordance with U.S. GAAP or as an indicator of operating performance or as an alternative to cash flows from operating activities determined in accordance with U.S. GAAP, or as an indicator of cash flows, or as a measure of liquidity.

(f)

Adjusted EBITDA, excluding pro forma adjustments, does not give pro forma effect to the projected annualized benefits of restructurings and other cost savings initiatives. However, we do make such accretive pro forma adjustments as if such restructurings and cost savings initiatives had occurred on April 1, 2017 in calculating the Adjusted EBITDA under Affinion's senior secured credit facility, subject to certain limitations.

(g)

Gives effect to the projected annualized benefits of restructurings and other cost savings initiatives as if such restructurings and cost savings initiatives had occurred on April 1, 2017.

(h)

Adjusted EBITDA, including pro forma adjustments, gives pro forma effect to the adjustments discussed in (g) above.    

Set forth below is a reconciliation of Affinion Holdings' consolidated net income (loss) attributable to Affinion Group Holdings, Inc. for the twelve months ended March 31, 2018 and the three months ended March 31, 2018 and 2017 to Affinion Holdings' Segment EBITDA, defined as income from operations before depreciation and amortization.

For the Twelve

For the Three Months

Months Ended

Ended March 31,

March 31, 2018 (a)

2017

2016

Net income (loss) attributable to Affinion Group Holdings, Inc.

$

(51.8)

$

(18.8)

$

7.8

Interest expense, net

217.9

59.2

27.5

Income tax provision (benefit)

(19.0)

1.3

2.4

Non-controlling interest

1.0

0.5

0.3

Other expense, net

0.5

0.2

0.1

Gain on extinguishment of debt

(3.5)

?

?

Depreciation and amortization

47.6

12.1

11.3

Segment EBITDA

$

192.7

$

54.5

$

49.4

(a)

Represents consolidated financial data for the year ended December 31, 2017, minus consolidated financial data for the three months ended March 31, 2017, plus consolidated financial data for the three months ended March 31, 2018.