1-800-FLOWERS.COM, Inc. (NASDAQ: FLWS), the world’s leading
florist and gift shop, today reported revenues from continuing
operations of $253.0 million for its fiscal 2013 second quarter
ended December 30, 2012, compared with revenues from continuing
operations of $239.8 million in the prior year period. The Company
said the 5.5 percent increase, or $13.2 million, reflected growth
across all three of its business segments, driven primarily by its
Gourmet Food and Gift Baskets segment, which grew 8.9 percent, or
$11.6 million, to $142.7 million compared with $131.1 million in
the prior year period.
Gross profit margin for the quarter was 41.3 percent compared
with 41.8 percent in the prior year period, primarily reflecting
product mix associated with strong wholesale gift basket growth in
the Company’s Gourmet Food and Gift Baskets segment. Operating
expenses as a percent of revenue improved 60 basis points to 31.0
percent compared with 31.6 percent in the prior year period. The
improved operating expense ratio primarily reflects the increased
revenues for the quarter as well as the Company’s continued focus
on improving leverage across its business platform.
Adjusted EBITDA from continuing operations for the quarter
increased 3.6 percent to $31.8 million compared with Adjusted
EBITDA of $30.7 million in the prior year period. Net income from
continuing operations was $16.0 million, or $0.24 per diluted
share, compared with adjusted net income from continuing operations
of $14.3 million, or $0.22 per diluted share, in the prior year
period.
Jim McCann, CEO of 1-800-FLOWERS.COM, said, “During the fiscal
second quarter we achieved top and bottom line growth in all three
of our business segments, continuing a trend that we have seen for
two years now. This was achieved despite a combination of the
significant headwinds that characterized the quarter, including the
impacts of Superstorm Sandy on deliveries and customer demand and
the effects of weakening consumer confidence, particularly in
December, stemming from worries over the “fiscal cliff.”
“Despite these issues, we achieved revenue growth of 5.5
percent, driven primarily by our Gourmet Food and Gift Basket
segment. In this area, we saw a rebound, both top and bottom-line,
in our wholesale gift baskets business, after several years of
declines in this area, as well as strong ecommerce growth in our
Cheryl’s bakery gifts, Fannie May Fine Chocolates and The Popcorn
Factory brands, somewhat offset by lower results in our Fannie May
retail and wholesale operations. In our 1-800-FLOWERS.COM consumer
floral and BloomNet wire service businesses, we achieved enhanced
bottom-line contributions on modest revenue growth reflecting our
continued focus on enhanced merchandising and marketing programs to
drive higher gross profit margins and effective management of
operating expenses.”
During the fiscal second quarter, the Company attracted 612,000
new customers. Approximately 1.6 million customers placed orders
during the quarter, of whom 61 percent were repeat customers. This
reflects the Company’s successful efforts to engage with its
customers and deepen its relationships as their trusted Florist and
Gift Shop for all of their celebratory occasions.
McCann also noted that the company has continued to strengthen
its balance sheet, finishing the second quarter with $27.0 million
in cash and total debt of approximately $21.8 million, resulting in
a net positive cash position which the Company expects to build
upon during the second half of fiscal 2013. “Our cash position at
the end of the second quarter also reflects the more than $5
million we have spent buying back our stock since the start of the
fiscal year,” said McCann. “The strength of our balance sheet and
the increasing cash flows we are generating, provide us with
significant flexibility to grow our business and build shareholder
value. We view our stock repurchase program as one component of our
strategy for cash uses and an effective way of providing value for
our shareholders. As such, we expect to continue to be in the
market, buying back shares, during the second half of the fiscal
year.”
McCann noted that the second half of the Company’s fiscal year,
beginning in January, is more floral in nature due to the
Valentine, Easter and Mother’s Day holidays as well as other spring
gifting occasions. “During our second half, we expect to achieve
year-over-year growth in revenues, gross margin and contribution
margin driven primarily by our core 1-800-FLOWERS.COM Consumer
Floral and BloomNet Wire Services businesses.” McCann added that
the majority of this growth would likely occur during its fiscal
third quarter, reflecting the shift of the Easter holiday into the
period versus the prior year when it fell in the Company’s fiscal
fourth quarter.
“Based on the deepening relationships we have with our customers
who continue to embrace our truly original product offerings – such
as our hit “A-Dog-Able®” floral gift line and our new FM Berries®
(incredible, fresh strawberries dipped in real Fannie May®
chocolate), we believe we are well positioned to build on the
positive trends we have been seeing in our business for several
years now and build long-term shareholder value,” he said.
SEGMENT RESULTS FROM CONTINUING
OPERATIONS:
The Company provides selected financial results for its Consumer
Floral, BloomNet and Gourmet Foods and Gift Baskets business
segments in the tables attached to this release and as follows:
- 1-800-FLOWERS.COM
Consumer Floral: During the fiscal 2013 second quarter,
revenues in this segment grew 1.0 percent to $91.8 million compared
with $91.0 million in the prior year period. This segment was the
most impacted of the Company’s businesses by Superstorm Sandy which
affected deliveries as well as customer ordering capabilities
throughout the Northeast. Revenue growth in this segment was also
affected by softer demand reflecting declines in the closely
followed Consumer Confidence Index, particularly in December,
stemming from worries over the “fiscal cliff.” Gross profit margin
for the fiscal second quarter increased 20 basis points to 39.2
percent compared with 39.0 percent in last year’s second quarter.
Segment contribution margin increased 3.0 percent, to $10.3 million
compared with $10.0 million in the prior year period. (The Company
defines Segment Contribution Margin as earnings before interest,
taxes, depreciation and amortization and before allocation of
corporate overhead expenses.)
- BloomNet Wire
Service: Revenues increased 2.5 percent to $18.7 million
compared with $18.3 million in the prior year period, also
reflecting the impact of Superstorm Sandy on wholesale product
orders from florists. Gross margin for the quarter increased 310
basis points to 52.3 percent compared with 49.2 percent in the
prior year period, primarily reflecting product and service mix.
Segment contribution margin increased 19.2 percent to $6.0 million
compared with $5.1 million in the prior year period.
- Gourmet Food and
Gift Baskets: Revenues increased 8.9 percent to $142.7
million compared with $131.1 million in the prior year period. This
was driven primarily by a rebound in wholesale gift baskets sales
into the Mass channel, after several years of declines in this
area. Ecommerce revenues also showed strong growth, particularly in
the Company’s Cheryl’s bakery gifts, Fannie May Fine Chocolates and
The Popcorn Factory brands. This was somewhat offset by lower sales
in Fannie May retail and wholesale channels, reflecting both the
economic headwinds and weather impacts during the quarter. Gross
margin was 41.0 percent compared with 42.4 percent, primarily
reflecting product mix as well as operational issues associated
with the relocation of a warehouse and distribution facility prior
to the holiday season. Segment contribution margin increased 1.9
percent to $26.9 million compared with $26.4 million in the prior
year period excluding the $3.8 million gain on the sale of 17
Fannie May stores to a new franchisee. This reflects the solid
revenue growth during the quarter somewhat offset by the
aforementioned lower gross margin percentage and higher costs
associated with operational issues.
Company Guidance:
The Company reiterated its top- and bottom-line guidance for
fiscal 2013, saying it continues to expect to achieve revenue
growth across all three of its business segments with consolidated
revenue growth for the year anticipated to be in the
mid-single-digit range. Also, based on anticipated continued
improvements in gross profit margin and operating leverage, the
Company expects to achieve double-digit, year-over-year increases
in EBITDA and EPS as well as Free Cash Flow in excess of $20
million.
Definitions:
* EBITDA: Net income (loss) before interest, taxes,
depreciation, amortization. Free Cash Flow: net cash provided by
operating activities less capital expenditures. Category
contribution margin: earnings before interest, taxes, depreciation
and amortization, before the allocation of corporate overhead
expenses. The Company presents EBITDA and Adjusted EBITDA from
continuing operations because it considers such information
meaningful supplemental measures of its performance and believes
such information is frequently used by the investment community in
the evaluation of similarly situated companies. The Company also
uses EBITDA and Adjusted EBITDA as factors used to determine the
total amount of incentive compensation available to be awarded to
executive officers and other employees. The Company’s credit
agreement uses EBITDA and Adjusted EBITDA to measure compliance
with covenants such as interest coverage and debt incurrence.
EBITDA and Adjusted EBITDA are also used by the Company to evaluate
and price potential acquisition candidates. EBITDA, Adjusted EBITDA
and Free Cash Flow have limitations as analytical tools and should
not be considered in isolation or as a substitute for analysis of
the Company's results as reported under GAAP. Some of the
limitations of EBITDA and Adjusted EBITDA are: (a) EBITDA and
Adjusted EBITDA do not reflect changes in, or cash requirements
for, the Company's working capital needs; (b) EBITDA and Adjusted
EBITDA do not reflect the significant interest expense, or the cash
requirements necessary to service interest or principal payments,
on the Company's debts; and (c) although depreciation and
amortization are non-cash charges, the assets being depreciated and
amortized may have to be replaced in the future and EBITDA does not
reflect any cash requirements for such capital expenditures. EBITDA
and Free Cash Flow should only be used on a supplemental basis
combined with GAAP results when evaluating the Company's
performance.
About 1-800-FLOWERS.COM, Inc.
1-800-FLOWERS.COM, Inc. is the world’s leading florist and gift
shop. For more than 30 years, 1-800-FLOWERS® (1-800-356-9377 or
www.1800flowers.com) has been helping deliver smiles for our
customers with gifts for every occasion, including fresh flowers
and the finest selection of plants, gift baskets, gourmet foods,
confections, candles, balloons and plush stuffed animals. As
always, our 100% Smile Guarantee backs every gift.
1-800-FLOWERS.COM’s Mobile Flower & Gift Center was named
winner of the Mobile Shopping Summit’s “Best Mobile Site of 2011.”
1-800-FLOWERS.COM was also rated number one vs. competitors for
customer satisfaction by STELLAService and named by the E-Tailing
Group as one of only nine online retailers out of 100 benchmarked
to meet the criteria for Excellence in Online Customer Service.
1-800-FLOWERS.COM has been honored in Internet Retailer’s “Hot 100:
America’s Best Retail Web Sites” for 2011. The Company’s BloomNet®
international floral wire service (www.mybloomnet.net) provides a
broad range of quality products and value-added services designed
to help professional florists grow their businesses profitably. The
1-800-FLOWERS.COM “Gift Shop” also includes gourmet gifts such as
popcorn and specialty treats from The Popcorn Factory®
(1-800-541-2676 or www.thepopcornfactory.com); cookies and baked
gifts from Cheryl’s® (1-800-443-8124 or www.cheryls.com); premium
chocolates and confections from Fannie May® confections brands
(www.fanniemay.com and www.harrylondon.com); gift baskets and
towers from 1-800-Baskets.com® (www.1800baskets.com); delicious
cut-fruit arrangements from FruitBouquets.com
(www.fruitbouquets.com); wine gifts from Winetasting.com®
(www.winetasting.com); ultra- premium meats from Stockyards.com
(www.stockyards.com); as well as exquisite, customizable
invitations and personal stationery from FineStationery.com
(www.finestationery.com). The Company’s Celebrations® brand
(www.celebrations.com) is a new premier online destination for
fabulous party ideas and planning tips. 1-800-FLOWERS.COM, Inc. is
involved in a broad range of corporate social responsibility
initiatives including continuous expansion and enhancement of its
environmentally-friendly “green” programs as well as various
philanthropic and charitable efforts. Shares in 1-800-FLOWERS.COM,
Inc. are traded on the NASDAQ Global Select Market, ticker symbol:
FLWS.
Special Note Regarding Forward-Looking
Statements:
This press release contains forward-looking statements within
the meaning of the Private Securities Litigation Reform Act of
1995. These forward-looking statements represent the Company’s
current expectations or beliefs concerning future events and can
generally be identified by the use of statements that include words
such as “estimate,” “expects,” “project,” “believe,” “anticipate,”
“intend,” “plan,” “foresee,” “likely,” “will,” “target” or similar
words or phrases. Forward-looking statements include, but are not
limited to, statements regarding the Company’s expectations for:
its ability to build on positive trends including increases in
revenue, gross margin and contribution margin in its Consumer
Floral business; its ability to achieve continued top and bottom
line growth in its BloomNet and Gourmet Food and Gift Baskets
categories; its ability to achieve its guidance for consolidated
revenue growth for the full year in mid-single digit range along
with further improvement in gross profit margin and double-digit
year-over-year increases in EBITDA and EPS. These forward-looking
statements are subject to risks, uncertainties and other factors,
many of which are outside of the Company’s control, which could
cause actual results to differ materially from the results
expressed or implied in the forward- looking statements, including,
among others: the Company’s ability to leverage its operating
platform and reduce operating expenses; its ability to grow its
1-800-Baskets.com business; its ability to manage the seasonality
of its businesses; its ability to cost effectively acquire and
retain customers; the outcome of contingencies, including legal
proceedings in the normal course of business; its ability to
compete against existing and new competitors; its ability to manage
expenses associated with sales and marketing and necessary general
and administrative and technology investments; its ability to
reduce promotional activities and achieve more efficient marketing
programs; and general consumer sentiment and economic conditions
that may affect levels of discretionary customer purchases of the
Company’s products. The Company undertakes no obligation to
publicly update any of the forward-looking statements, whether as a
result of new information, future events or otherwise, made in this
release or in any of its SEC filings except as may be otherwise
stated by the Company. For a more detailed description of these and
other risk factors, please refer to the Company’s SEC filings
including the Company’s Annual Reports on Form 10-K and its
Quarterly Reports on Form 10-Q. Consequently, you should not
consider any such list to be a complete set of all potential risks
and uncertainties.
Conference Call:
The Company will conduct a conference call to discuss the above
details and attached financial results today, Thursday, January 31,
2013 at 11:00 a.m. (ET). The call will be “web cast” live via the
Internet and can be accessed from the Investor Relations section of
the 1-800-FLOWERS.COM web site at www.1800flowersinc.com A
recording of the call will be posted on the Investor Relations
section of the Company’s web site within two hours of the call’s
completion. A telephonic replay of the call can be accessed for 48
hours beginning at 2:00 p.m. ET on the day of the call at:
1-855-859-2056 or 1-404-537-3406; Conference ID: 86548135.
Note: Attached tables are an integral part of this press
release without which the information presented in this press
release should be considered incomplete.
1-800-FLOWERS.COM, Inc. and
Subsidiaries
Condensed Consolidated Balance
Sheets
(In thousands)
December 30,
2012
July 1,
2012
Assets Current assets: Cash and equivalents $ 26,964
$ 28,854 Receivables, net 36,407 14,968 Inventories 58,435 55,744
Deferred tax assets 5,902 4,993
Prepaid and other
7,262
11,082
Current assets of discontinued
operations
-
100
Total current assets $ 134,970 $ 115,741 Property, plant and
equipment, net 49,757 48,669 Goodwill 47,901 47,901 Other
intangibles, net 40,412 41,838 Deferred income taxes 2,822 2,824
Other assets 9,283 7,875 Total assets $ 285,145 $
264,848
Liabilities and stockholders’ equity Current
liabilities:
Accounts payable
$
26,135
$
17,619
Accrued expenses
63,442
52,535
Current maturities of long-term debt and
obligations under capital leases
17,250
15,756
Current liabilities of discontinued
operations
59
110
Total current liabilities $ 106,886 $ 86,020 Long-term debt
and obligations under capital leases 4,500 13,500 Other liabilities
3,368 3,580 Total liabilities 114,754
103,100 Total stockholders’ equity 170,391 161,748
Total liabilities and stockholders’ equity $ 285,145 $ 264,848
1-800-FLOWERS.COM, Inc. and
Subsidiaries
Selected Financial Information
Consolidated Statements of
Operations
(In thousands, except for per share
data)
Three Months Ended Six Months Ended December 30,
January 1, December 30, January 1, 2012 2012
2012 2012 Net revenues: E-commerce (combined online and
telephonic) $ 172,629 $ 165,130 $ 254,090 $ 243,920 Other
80,387 74,715 119,794 113,123 Total net
revenues 253,016 239,845 373,884 357,043 Cost of revenues
148,531 139,519 219,762 210,155 Gross
profit 104,485 100,326 154,122 146,888 Operating expenses:
Marketing and sales 54,901 53,020 87,891 85,302 Technology and
development 5,376 4,854 10,791 9,606 General and administrative
13,679 12,932 26,900 25,291 Depreciation and amortization
4,531 4,929 8,989 9,831 Total
operating expenses 78,487 75,735 134,571
130,030 Gain on sale of stores -
3,789 - 3,789 Operating income 25,998
28,380 19,551 20,647 Interest expense, net 559
849 861 1,671 Income from continuing
operations before income taxes 25,439 27,531 18,690 18,976 Income
tax expense from continuing operations 9,428 10,955
7,285 7,533 Income from continuing operations
16,011 16,576 11,405 11,443 Operating income from
discontinued operations, net of tax - 63 - (23 ) Gain on sale of
discontinued operations, net of tax - - -
4,478 Income from discontinued operations -
63 - 4,455 Net income $ 16,011 $
16,639 $ 11,405 $ 15,898 Net income per common share
(basic) From continuing operations $ 0.25 $ 0.26 $ 0.18 $ 0.18 From
discontinued operations - - - 0.07
Net income per common share (basic) $ 0.25 $ 0.26 $ 0.18 $
0.25
Net income per common share (diluted)
From continuing operations $ 0.24 $ 0.25 $ 0.17 $ 0.17 From
discontinued operations - - - 0.07
Net income per common share (diluted) $ 0.24 $ 0.25 $ 0.17 $
0.24 Weighted average shares used in the calculation of net
income per common share Basic 64,824 64,841
64,665 64,530 Diluted 66,557 66,050
66,695 65,989
1-800-FLOWERS.COM, Inc. and
Subsidiaries
Selected Financial Information
Consolidated Statements of Cash
Flows
(In thousands)
Six Months Ended December 30, January 1,
2012 2012
Operating
activities Net income $ 11,405 $ 15,898 Reconciliation of net
income to net cash provided by operations:
Operating activities of discontinued
operations
49
1,112
Gain on sale of discontinued
operations
-
(8,953
)
Depreciation and amortization 8,989 9,831 Amortization of deferred
financing costs 229 229 Deferred income taxes (909 ) 6,032 Bad debt
expense 477 327 Stock based compensation 2,304 2,380 Other non-cash
items 213 97 Changes in operating items, excluding the effects of
acquisitions: Receivables (21,916 ) (18,526 ) Inventories (2,691 )
(7,896 ) Prepaid and other 3,820 307 Accounts payable and accrued
expenses 19,687 16,214 Other assets (306 ) 2,772 Other liabilities
(212 ) 16
Net cash provided by operating
activities 21,139 19,840
Investing activities
Acquisitions, net of cash acquired - (4,336 ) Proceeds from sale of
business - 12,826 Capital expenditures (9,128 ) (8,689 ) Purchase
of investments (1,321 ) (1,111 ) Other, net 34
(299 )
Net cash used in investing activities (10,415 )
(1,609 )
Financing activities Acquisition of treasury
stock (5,149 ) (1,111 ) Proceeds from exercise of employee stock
options 83 - Proceeds from bank borrowings 47,000 56,000 Repayment
of notes payable and bank borrowings (54,500 ) (63,500 ) Repayment
of capital lease obligations (48 ) (984 )
Net cash
used in financing activities (12,614 ) (9,595 )
Net change in cash and equivalents (1,890 ) 8,636 Cash and
equivalents: Beginning of period 28,854 21,442
End of period $ 26,964 $ 30,078
1-800-FLOWERS.COM, Inc. and
Subsidiaries
Selected Financial Information
Segment Information
(in thousands)
Three Months Ended Six Months Ended December 30,
January 1, December 30, January
1, 2012 2012 % Change
2012 2012 % Change
Net revenues from continuing operations: 1-800-Flowers.com
Consumer Floral $ 91,826 $ 91,041 0.9 % $ 164,603 $ 161,181 2.1 %
BloomNet Wire Service 18,734 18,272 2.5 % 38,501 36,777 4.7 %
Gourmet Food & Gift Baskets 142,736 131,100 8.9 % 171,142
159,725 7.1 % Corporate (*) 200 189 5.8 % 394 376 4.8 %
Intercompany eliminations (480 ) (757 ) 36.6 %
(756 ) (1,016 ) 25.6 %
Total net revenues from continuing
operations $ 253,016 $ 239,845 5.5 % $ 373,884
$ 357,043 4.7 %
Three Months Ended
Six Months Ended
December 30, January 1, December
30, January 1, 2012
2012 % Change 2012
2012 % Change
Gross profit from continuing
operations: 1-800-Flowers.com Consumer Floral $ 35,954 $ 35,524
1.2 % $ 64,246 $ 62,213 3.3 % 39.2 % 39.0 % 39.0 % 38.6 %
BloomNet Wire Service 9,792 8,992 8.9 % 19,592 17,521 11.8 % 52.3 %
49.2 % 50.9 % 47.6 % Gourmet Food & Gift Baskets 58,577
55,650 5.3 % 69,782 66,865 4.4 % 41.0 % 42.4 % 40.8 % 41.9 %
Corporate (*)
162
160
1.0
%
502
289
73.7
%
81.0
%
84.7
%
127.4
%
76.9
%
Total gross profit from continuing operations $
104,485 $ 100,326 4.1 % $ 154,122 $ 146,888
4.9 %
41.3
%
41.8
%
41.2
%
41.1
%
Three Months Ended
Six Months Ended
December 30, January 1, December 30,
January 1, 2012
2012 % Change 2012 2012 %
Change
Adjusted EBITDA from continuing operations:
Segment Contribution Margin (**) 1-800-Flowers.com Consumer
Floral $ 10,286 $ 9,984 3.0 % $ 17,172 $ 15,951 7.7 % BloomNet Wire
Service 6,049 5,074 19.2 % 11,845 9,667 22.5 % Gourmet Food &
Gift Baskets 26,868 30,166 -10.9 %
24,381 28,240 -13.7 % Segment
Contribution Margin Subtotal 43,203 45,224 -4.5 % 53,398 53,858
-0.9 % Corporate (*) (12,674 ) (11,915 ) -6.4 %
(24,858 ) (23,380 ) -6.4 %
EBITDA from continuing
operations 30,529 33,309 -8.3 % 28,540 30,478 -6.4 % Add:
Stock-based compensation 1,315 1,211
8.6 % 2,304 2,380 -3.2 %
EBITDA from continuing operations,
excluding stock-based
compensation
31,844
34,520
-7.8
%
30,844
32,858
-6.1
%
Less: Gain on sale of stores - 3,789 -
- 3,789 -
Adjusted EBITDA from continuing
operations:
$ 31,844 $ 30,731
3.6
%
$
30,844
$
29,069
6.1
%
1-800-FLOWERS.COM, Inc. and
Subsidiaries
Selected Financial Information
(in thousands)
Three Months Ended Six Months Ended
December 30,
2012
January 1,
2012
December 30,
2012
January 1,
2012
Reconciliation of Net Income from
continuing operations to Adjusted EBITDA
from continuing operations
(**):
Net income from continuing operations $ 16,011 $ 16,576 $ 11,405 $
11,443 Add: Interest expense, net 559 849 861 1,671 Depreciation
and amortization 4,531 4,929 8,989 9,831 Income tax expense
9,428 10,955 7,285 7,533
EBITDA $
30,529 $ 33,309 $ 28,540 $ 30,478 Add: Stock-based compensation
1,315 1,211 2,304 2,380
EBITDA ,
excluding stock-based compensation $ 31,844 $ 34,520 $ 30,844 $
32,858 Less: Gain on sale of stores - 3,789 -
3,789
Adjusted EBITDA from continuing operations: $
31,844 $ 30,731 $ 30,844 $ 29,069
Three Months Ended Six Months Ended
December 30,
January 1,
December 30,
January 1,
2012
2012
2012
2012
Reconciliation of Net Income and EPS
from continuing operations to Adjusted
Net Income and EPS from continuing
operations:
Net income from continuing operations $ 16,011 $ 16,576 $ 11,405 $
11,443 Less: Gain on sale of stores, net of tax -
2,281 - 2,281
Adjusted Net Income from continuing
operations $ 16,011 $ 14,295 $ 11,405 $ 9,162 Net Income
per common share from continuing operations Basic $ 0.25 $ 0.26 $
0.18 $ 0.18 Diluted $ 0.24 $ 0.25 $ 0.17 $ 0.17
Adjusted
Net Income per common share from continuing operations
Basic $ 0.25 $ 0.22 $ 0.18 $ 0.14
Diluted $ 0.24 $
0.22 $ 0.17 $ 0.14
Weighted average shares used in the
calculation of net income per common share
from continuing operations
Basic 64,824 64,841 64,665 64,530 Diluted 66,557 66,050 66,695
65,989
(*)
Corporate expenses consist of the
Company’s enterprise shared service cost centers, and include,
among other items, Information Technology, Human Resources,
Accounting and Finance, Legal, Executive and Customer Service
Center functions, as well as Stock-Based Compensation. In order to
leverage the Company’s infrastructure, these functions are operated
under a centralized management platform, providing support services
throughout the organization. The costs of these functions, other
than those of the Customer Service Center, which are allocated
directly to the above segments based upon usage, are included
within corporate expenses as they are not directly allocable to a
specific segment.
(**)
Performance is measured based on segment
contribution margin or segment Adjusted EBITDA, reflecting only the
direct controllable revenue and operating expenses of the segments.
As such, management’s measure of profitability for these segments
does not include the effect of corporate overhead, described above,
depreciation and amortization, other income (net), nor does it
include one-time charges or gains. Management utilizes EBITDA, and
adjusted financial information, as a performance measurement tool
because it considers such information a meaningful supplemental
measure of its performance and believes it is frequently used by
the investment community in the evaluation of companies with
comparable market capitalization. The Company also uses EBITDA and
adjusted financial information as one of the factors used to
determine the total amount of bonuses available to be awarded to
executive officers and other employees. The Company’s credit
agreement uses EBITDA and adjusted financial information to measure
compliance with covenants such as interest coverage and debt
incurrence. EBITDA and adjusted financial information is also used
by the Company to evaluate and price potential acquisition
candidates. EBITDA and adjusted financial information have
limitations as an analytical tool, and should not be considered in
isolation or as a substitute for analysis of the Company's results
as reported under GAAP. Some of these limitations are: (a) EBITDA
does not reflect changes in, or cash requirements for, the
Company's working capital needs; (b) EBITDA does not reflect the
significant interest expense, or the cash requirements necessary to
service interest or principal payments, on the Company's debts; and
(c) although depreciation and amortization are non-cash charges,
the assets being depreciated and amortized may have to be replaced
in the future, and EBITDA does not reflect any cash requirements
for such capital expenditures. Because of these limitations, EBITDA
should only be used on a supplemental basis combined with GAAP
results when evaluating the Company's performance.
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