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Valassis Communications (NYSE:VCI)

December 14, 2012 10:00 am ET

Executives

Robert A. Mason - Chief Executive Officer, President and Director

Robert L. Recchia - Chief Financial Officer, Principal Accounting Officer, Executive Vice President, Treasurer, Director and Member of Executive Committee

Analysts

Charles Edward Cerankosky - Northcoast Research

William G. Bird - Lazard Capital Markets LLC, Research Division

Mark J. Zgutowicz - Piper Jaffray Companies, Research Division

Daniel Salmon - BMO Capital Markets U.S.

William A. Warmington - Raymond James & Associates, Inc., Research Division

Daniel R. Leben - Robert W. Baird & Co. Incorporated, Research Division

Neal Shah

Charles Ruff

Operator

Good morning, ladies and gentlemen, and thank you for standing by. Welcome to the Valassis 2013 Guidance Conference Call. [Operator Instructions] Please be advised that this conference call is being recorded today, Friday, December 14, 2012, at 10 a.m. Eastern time.

I would like to remind you that the discussions during this conference call will include forward-looking statements and that Valassis' actual results could differ materially from those projected in the forward-looking statements. The factors that could cause actual results to be materially different from those expressed or implied by such forward-looking statements are discussed in the Risk Factors and Others section of the 2011 annual report on Form 10-K and in the reports on Forms 10-Q and Form 8-K filed or furnished with the SEC.

Also, the discussions during this conference call will include certain financial measures that were not prepared in accordance with generally accepted accounting principles. Reconciliation of those non-GAAP financial measures to the most directly comparable GAAP financial measures can be found in the press release furnished with the current report on Form 8-K dated today, which is also available on Valassis' website at www.valassis.com in the Investors section.

I would now like to turn the conference over to our host, Mr. Rob Mason, President and CEO. Please go ahead, sir.

Robert A. Mason

Ron, thank you. Good morning, everyone. I'd like to thank you for joining us for our 2013 guidance call. Bob Recchia, our Chief Financial Officer, is with me. And as usual, after some prepared remarks, Bob and I are looking forward to answer your questions.

It's been a privilege to lead this company for the last year. And I continue to look at 2012 as a year of significant transition, where our primary goal was to build the foundation for future growth. As I look back on the past 12 months, I am proud of the things we've done to build that foundation. We have made significant strides within our digital business where we are projecting to grow organic revenue by over 50%. We acquired 2 important digital assets and fortified them with key sales, engineering and leadership talent. We exited 2 underperforming businesses and completed organization-wide rightsizing to better position us for future growth. We reorganized and sharpened the focus within our new business development efforts and are on track to further enhance shareholder value by more than satisfying our assumption to use 50% of our free cash flow to repurchase stock. As we prepare to move into the new year, we expect to be able to capitalize on these initiatives and investments, which will help us grow our business in 2013 and beyond.

Yesterday, we announced the approval of a cash dividend policy. Within that policy, we intend to pay quarterly cash dividends beginning with the fourth quarter of this year. This week, our Board of Directors also declared the first cash dividend of $0.31 per share for that quarter. In 2013, our plan also includes continued stock repurchases under our existing program. Our Board of Directors also approved our budget. And with that, we are pleased to announce our 2013 full year financial guidance.

Our guidance reflects a mid-single digit increase in revenue as well as a 17.4% increase in diluted earnings per share. From the macroeconomic standpoint, our guidance assumes status quo across 3 major influences: one, continuing uncertainty in the domestic economy; two, low-single digit growth in U.S. advertising spend; and three, consistent with research that we see and publish, the average American consumer continuing to be very focused on savings. Our 2013 model does not depend on economic recovery to achieve our goals, but instead reflects our confidence in our products, our people and the ability to leverage our competitive advantages in the marketplace and gain an increased share of client advertising and promotional spending.

Now I would like to take you through some of our expectations within our individual business segments.

In Shared Mail, we continue to have confidence in our ability to grow the top and bottom lines of our largest and most profitable segment. Our expectation for Shared Mail, consistent with our ongoing belief in the upside potential of this business, is to grow revenue in the 3% range. There are several reasons why I believe we will be successful in driving this growth. First, as part of their ongoing focus on deals, consumers continue to rely on inserts and our weekly Shared Mail package as their primary source of savings.

Second, we believe Shared Mail distribution will benefit from the continuing erosion of newspaper coverage. The fall release from Alliance for Audited Media showed the second-largest decline in Sunday paid printed newspaper circulation in almost 73 years. Overall readership has been somewhat buoyed by rising digital newspaper subscriptions. However, print distribution is down significantly. Newspaper penetration has become increasingly dependent on alternative non-paid distribution, and this has negatively impacted the effectiveness of circular and insert distribution within newspapers.

Third, we have new leadership in our new business development division, and we have that team focused on pursuing and landing the right opportunities. We also continue to believe we'll see strong performance from our field sales team's ability to generate new business at both the local and regional client level.

Finally, we expect to see our sales efforts associated with the variable data postcard make measurable contributions to our Shared Mail growth in 2013.

I think it is important to note that we have not assumed any revenue in our 2013 model for RedPlum Spree, the consumer-facing brand name of our new late week Shared Mail package for national retailers. We will know more about Spree's contributions once we have performance metrics from our proposed quarter 1 test.

From a bottom line perspective, the typical increase we expect to see in segment profit will be slightly offset by the influence of our product innovations, as well as the projected postage pass-through that will represent over 1/3 of our planned Shared Mail revenue increase.

The FSI business we are planning, the paid account increases we are experiencing in the back half of 2012 will continue through the first half of 2013. While it may be too early to characterize changes in the CPG promotional spend as an industry trend, as I mentioned on our Q3 call, we are seeing incremental volume return to a proven vehicle that continues to carry nearly 90% of all CP-generated -- CPG-generated offers. As a result, we expect revenue growth in our FSI segment next year to be in the low-single digit range.

From a sales standpoint, we're focused on growing our paid volumes. We are also continuing to work with our client base to optimize their offer value and expiration date strategies to help them manage their redemption budgets. Strategically, we will use Shared Mail distribution for our FSI to give clients better penetration and allow them the ability to reach homes no longer subscribing to the newspaper. On the cost side, we expect FSI paper pricing to be stable or slightly down throughout 2013.

Moving on to our Neighborhood Targeted segment. As Bob and I discussed in our Q3 earnings call, the industry has experienced a client-led change in the way business is contracted. Based on this change, we are converting to a fee-based business model for much of our newspaper inserts and ROP revenue. By adopting this business model, we will limit segment revenue volatility and moving forward, continue to sell our print media planning and placement services across a diverse client base.

To give you an idea of the scope of this change, our most recent 2012 guidance numbers include approximately $320 million in Neighborhood Targeted revenue. This business would represent only $116 million in revenue under the 2013 fee-based system. This is a $204 million swing in revenue based on how the same business would be contracted in 2013 versus 2012. Bob will provide you with more details on the impact of this change during his segment. We remain committed to our newspaper-delivered product segment, especially given the opportunity it represents to shift business to Shared Mail when paid newspaper circulation is no longer the best option.

As I have mentioned on previous earnings calls, we have made some key changes in new business development leadership personnel and the way we are approaching the market where we are identifying those opportunities that will maximize our return. As we move through 2013, we continue to view our Neighborhood Targeted segment as a very competitive low-margin business, but one that allows us to continue to offer clients optimized media plans, utilizing both newspaper and Shared Mail.

In our IDMS segment, we have built strong momentum in our digital business in 2012. We are well positioned to win a greater share of client budgets as the migration of advertising and promotional dollars continued toward digital. Our success in digital continues to be primarily focused on our ability to leverage free proprietary assets: first, our 400-plus sales organizations and their ongoing relationships with over 15,000 clients; second, over 2,000 sources of syndicated and unique proprietary data, combined with our expertise in geographic targeting, that creates a clear competitive advantage; and finally, the ability to seamlessly integrate digital and print providing unmatched scale, targetability and return on investment for our clients.

Within our digital effort, we expect revenue growth to be predominantly driven by our display offerings, with secondary contributions coming from secure print and growth in retail network offered to card products. We are projecting continued operating losses in digital through the first 3 quarters of 2013. These losses will be driven by spending in technology and product development as well as the right sales and engineering talent to drive this increasingly important business. Based on our 2013 plan, we expect by Q4, we will be at a break-even run rate in our digital business.

We're also expecting to see growth in our in-store business in 2013. Our in-store plan calls us for -- calls for us to improve our share of a renewed CPG spend and where we will expand our in-store network by 12,000 stores by on-boarding both Rite Aid and Family Dollar in the next 30 days.

NCH, our coupon clearing and analytics business, will continue to see some year-over-year volume weakness as we cycle through the first half of 2013 and CPG manufacturers continue to optimize their coupon promotions to limit redemption liabilities.

In summary, we are committed to growing our 3 largest business segments. The outlier that we see is in Neighborhood Targeted revenue where the change in business model is the key driver behind the expected year-over-year revenue decline. That completes our segment review for 2013, and at this point, I'd like to turn it over to Bob.

Robert L. Recchia

Thanks, Rob. I'd like to take a few minutes to explain the changes we've experienced in the Neighborhood Targeted segment. I'll also cover the impact of the exiting of our solo direct mail and sampling businesses. And in addition, I will talk about expectations for the cost side of our business in 2013 and the expected impact changes made in 2012 will have on the year. Lastly, I will cover our plans for the anticipated use of capital for 2013.

As Rob mentioned, we have experienced market pressure to change the way we bid on and structure newspaper placement contracts in our Neighborhood Targeted business. Unlike what agencies have been doing for years, it has never been our practice to disclose our newspaper placement rates. Moving forward, we will better align with how our clients contract for print media placement services. What this means is that business that was once recorded as a principal on a gross-revenue basis will now be recorded as an agent at a net fee. An example would be a $10 million placement deal with a 3% margin that was previously booked at $10 million in revenue will now be recorded as $300,000 of revenue. Much of the ROP and newspaper insert business has been converted to this model.

Using this approach in 2012, our Neighborhood Targeted segment revenue would have been reduced by approximately $204 million. This breaks down quarterly approximately as follows: Q1, $45 million; Q2, $47 million; Q3, $50 million; and an estimated Q4 of $62 million. These are the reductions. In addition to this change, we will experience a revenue drag as a result of exiting the solo direct mail and sampling businesses of approximately $4.1 million, $2.2 million and $2.9 million for the first 3 quarters of the year. From a profit perspective, it will have no material effect on the quarterly comparisons.

On the cost side of our business, we enter 2013 in very good shape. Paper is expected to be flat to slightly down year-on-year, and manufacturing costs should be down slightly on a unit basis given our expected growth in Shared Mail and FSI. Furthermore, the cost cuts and our optimization efforts in 2012 are expected to have a positive effect on 2013.

As a reminder, we expect that SG&A cuts in the back half of 2012 should benefit the first half of 2013 to the tune of approximately $5.6 million. Our optimization efforts, which include newspaper alliances, should have an even greater impact on the year-on-year profits of nearly $10 million. Of course, like most businesses, we face increases in some of our costs such as postage and labor, but those have been factored in to our 2013 plans. We have budgeted for a mid-single digit increase in SG&A for 2013. This is due primarily to the growth in our digital business and the inclusion of Brand.net SG&A for the full year.

In addition, incentive-based compensation plans are up over last year, and we expect modest increases in wages and benefits. Keep in mind that many of these incentive plans, including commissions and bonuses, are tied to our performance, and as such, are somewhat self-regulating. In our guidance, we have assumed that we hit all of our revenue and profit targets. But if we were to fall short, these costs will de-escalate accordingly.

Lastly, with regard to our use of capital, you can see that our board has approved a cash dividend policy and declared an initially -- initial quarterly dividend of $0.31 per share. We believe we can pay this dividend, continue our share repurchase program, improve our balance sheet through a disciplined approach, including deleveraging in accordance with the provisions of our senior secured credit facility, and still have significant dollars left to grow our business. As always, we reserve the right to use these excess dollars for general corporate purposes, which can and has included additional share repurchases in the past.

Just to give you a little more clarity on this subject, in addition to our required debt service payments of $22.5 million, our current plans for 2013 are to return approximately 64% of anticipated cash flow to shareholders through a combination of share repurchase and dividends. But as always, business conditions and opportunities will dictate how we ultimately use our cash. It is our goal to drive as much shareholder value as we can using a thoughtful, disciplined approach as we did in 2012.

At this point, we can open it up for questions.

Question-and-Answer Session

Operator

[Operator Instructions] Your first question comes from Chuck Cerankosky from Northcoast Research.

Charles Edward Cerankosky - Northcoast Research

Could you talk a little bit about how the variable data postcard will affect 2013 compared to last year in terms of larger circulation and the customer base it applies to?

Robert A. Mason

Chuck, we're not ready to break VDP out from Shared Mail and guide or report on what it is doing as a product. But I will tell you, we're very pleased with the work that Mike Dorrington and his sales team have done with that product. They showed significant growth throughout 2012. We're encouraged by what we see. It will clearly play a measurable role in the volume growth that we're projecting for Shared Mail in '13. The flow-through on the VDP is not as great as what you would typically expect from an incremental piece within the package. But having said that, it is still a clear contributor to overall profitability. And what we're seeing through the sales efforts is the VDP is opening up new opportunities across a pretty broad range of categories, especially within the service industries. So we're excited about tapping into a new customer base too, Chuck.

Operator

Your next question comes from the line of William Bird from Lazard.

William G. Bird - Lazard Capital Markets LLC, Research Division

I was wondering if you could talk a bit more just on the dividend. The language around it seemed somewhat unconventional. And I just wanted to hear your philosophy on the commitment to the $0.31 quarterly dividend. And also, not to sound ungrateful, not having paid the dividend yet, but what would be required to raise the dividend?

Robert A. Mason

You know what? I'm not certain what you're referring to in the language. But by establishing the dividend, we recognize the importance of making sure that, that dividend is sustainable. And I think it would be a little premature to talk about growing that dividend at this point. The first goal is to provide a sustainable quarterly dividend, especially in an environment that is a very low yield environment. I think we did a lot of work in terms of trying to establish the right dividends, as we look at kind of the formula and what the keys are from an issuance standpoint. The first goal we had is to maintain a strong balance sheet. We want to make sure there's the right blend of security and flexibility. Secondly, we want to make sure we maintain adequate liquidity and then optimize capital structure. Then we figure if we can increase the percent of the capital we're returning to investors from that standpoint, we've got a very good formula there. What I would tell you is, as I opened with my remarks, is 2012 really was a foundational year of preparing for growth. I don't look at this free cash flow as something we want to tread water on. And if we're able to grow this business, if we're able to see digital ramp-up and cover some of the operational losses we have in that segment, the goal would be to increase free cash flow and then to use that as a rationale to increase that dividend going forward, Bill.

William G. Bird - Lazard Capital Markets LLC, Research Division

Very helpful. And just a clarification on revenue growth. You were very clear on Shared Mail and FSIs. For Neighborhood Targeted, if we kind of exclude the move to net fee, what's the underlying growth or decline for that? And then kind of same question for digital, you mentioned targeting over 100% growth. Just wondering how much of that is organic.

Robert L. Recchia

The Neighborhood Targeted is relatively flat. It will be up very slightly, we expect, when we put it all on fee-based because it's difficult to move it. It will be much more difficult to move that number. And then the second question, I'm sorry, was digital?

William G. Bird - Lazard Capital Markets LLC, Research Division

Digital organic growth.

Robert L. Recchia

That's all organic.

Robert A. Mason

Yes, Bill. Well, we referenced that we're going to see over 100% growth in digital this year. That's what's in the plan. I don't want to get a whole lot more specific than that other than I can kind of reinforce what I said, I think, on our Q2 or 3 call -- Q3 call, where I said that the goal is to be by Q4 on a run rate would put us at $100 million in annual revenue. So by Q4, we'd be on a run rate to get us to $100 million in annual digital revenue.

Operator

Your next question comes from Mark Zgutowicz from Piper Jaffray.

Mark J. Zgutowicz - Piper Jaffray Companies, Research Division

Just wanted to talk a little bit about Shared Mail. With a couple of weeks left in the quarter, I was hoping you could provide a little bit of color in terms of how Shared Mail is tracking? And specifically, if you expect to see year-over-year growth at a trajectory better than what you saw with Q3's relatively flat growth?

Robert A. Mason

Mark, I don't want to get into a lot of Q4 details. This is more about '13 guidance. What I can tell you is that a, from a macro business perspective, there is no meaningful changes from our comments that we made in Q3. We, I think, referenced that we had a bunch of work to do if we're going to get to the annual 3% revenue target we set at the beginning of 2012. I think given where we were after Q3, we'd need a 7% growth in terms of Q4. I think we messaged that, and I'll just confirm for you that, that's a tough number to get there. And as we sit here in the middle of December with not having closed out November, that 3% annual total is going to be a pretty tough number to get to.

Mark J. Zgutowicz - Piper Jaffray Companies, Research Division

Okay. Well, if we assume something considerably less than that and we're modeling something closer to 1.5% growth for the year, if we exclude postage and the VDP strength, make some assumptions there that you saw in '12, it would imply that your core sort of Shared Mail growth was likely down for the year. So if we look at the 3% guidance for '13 and we exclude roughly a 200-bp -- sort of a 200-bp contribution from postage and VDP, and obviously that number could be higher, that would imply acceleration in sort of core Shared Mail growth of 100 bps or so. So if that's the case, I just was wondering if you could provide specifically what you see driving that, whether that's economic, whether that's something different that you're doing on the pricing front. You mentioned field sales. Obviously the last couple of years, you made some changes there and expected, I would think, different results than you've achieved. So I was wondering if you could provide some specifics as to what drives sort of that acceleration in core sort of Shared Mail growth?

Robert A. Mason

Sure. Mark, I think the way to think about it is predominantly, the growth is going to come from volume. You mentioned field sales. Actually in the last couple of years, we're very pleased with the job John Rogers and his team has done to drive new business growth there. And that we've really put a fair amount of focus against here in the back half of this year is on our new account development team, which is really responsible for larger national kinds of business. We have, as I said, changed out the leadership on that team. We've got them refocused. We've done some segmentation work to give them an opportunity to pursue and close the right kinds of business. And we think that effort, combined with what really looks to be an accelerating decline in overall newspaper circulation, gives us a real opportunity to achieve that growth, predominantly driven by volume in 2013.

Mark J. Zgutowicz - Piper Jaffray Companies, Research Division

Okay. So the core Shared Mail growth x VDP, you expect to accelerate in '13? Or do you expect VDP to accelerate to sort of achieve that 3% target?

Robert A. Mason

We're counting on volume. And as I said in my opening comments in the script, Mark, we think VDP will be a measurable contributor to that. But I don't want to -- it's a little bit early to start breaking VDP out as an individual product and guiding on that.

Mark J. Zgutowicz - Piper Jaffray Companies, Research Division

Okay. Just one final one then on VDP. Is that starting to expand into more accounts, or is that sort of focused on a few select clients? Just in terms of when you talk about that contribution in '13, is that going to be spread out against more clients or roughly the same compared to '12?

Robert A. Mason

Good question. I think what we've seen so far is participation by a large number of clients. You typically don't see big chunks of revenue come from one client. Because of the very targeted nature of that product, you see that come across multiple clients. And as I referenced in the answer to Chuck's question earlier, we're also very pleased with the job that team is doing in terms of expanding into categories that don't, or at least historically haven't participated in the Shared Mail package.

Operator

Your next question comes from Dan Salmon from BMO Capital Markets.

Daniel Salmon - BMO Capital Markets U.S.

One quick question. I know you don't break it out like this, but I think it's a -- I always thought it was a helpful way to think of your revenue in your business today is, if you have a rough estimate for how much of your revenue is newspaper-delivered versus other, I know that FSI segment is a little tricky and I think the accounting changes in the Neighborhood Targeted segment and for the placement services, that percentage, if we look out at our 2013 numbers, is obviously coming down. Could -- maybe, Bob, could you just help us maybe try to get a rough range of what is newspaper-delivered revenue today?

Robert L. Recchia

All right. If you look at purely delivered revenue, of course, you're looking at Neighborhood Targeted and FSI, you're probably in the $400 million range for next year. And then with that, NCH is really a part of that because it's based upon primarily newspaper, but they're not a delivery piece, so about $400 million.

Robert A. Mason

Dan, there's a little bit of the FSI revenue that gets reported in newspaper, you'll recall, that actually is distributed through Shared Mail. I think our total right now in terms of the market was somewhere around 20%, 22%.

Operator

Your next question comes from Bill Warmington from Raymond James.

William A. Warmington - Raymond James & Associates, Inc., Research Division

First question, just wanted to know if you could go back on the -- to the third quarter Shared Mail growth. The 30 basis points of growth there, if you could break that down for us in terms of how much was coming from the postage rate increase there and volume versus price for the third quarter? And what I wanted to ask basically, if we could then talk about the 2013 guidance for Shared Mail in terms of, if given the postage rate increase of 135 basis points and then to get to the other -- to the 300 total, kind of look in terms of how much is going to be coming from the packages that you looked at -- you mentioned it will be down a little bit, and then volume and price.

Robert A. Mason

Bill, I don't know if it makes a lot of sense to look at a postal increase within a particular quarter. And because this call is really about '13, I haven't brought a lot of the stats with me. What I would tell you is that in '12, the postal increase, the pass-through we had was right around 1%. And so in '13, it's grown a little bit larger than that, to 1.35%, all right? The rest of the growth, as referenced to Mark's question earlier, is really, in '13, predicated on volume increases and is a combination of growth in volume inside the package and within the variable data postcard.

William A. Warmington - Raymond James & Associates, Inc., Research Division

Why do you expect packages to decrease slightly?

Robert A. Mason

Well, it is -- part of it's just the overall calendarization. And one of the things you will recall about Q3 is we saw a decline as we took some supply out of the marketplace, we reduced frequency in a couple of markets. That reduction in frequency in those markets has got to work its way through the calendar. I think within the model, there's a little bit of a larger spike in terms of downturn in packages in Q1. But it's really the calendarization of that move. Because our assumptions going in '12, and they'd hold for '13, is that packages are going to kind of move with household count. So we don't expect to see any real measurable changes in terms of packages other than that calendarization that I just mentioned.

William A. Warmington - Raymond James & Associates, Inc., Research Division

Okay, right. And then one other question on the digital side. Given Google's acquisition a couple of weeks ago of Incentive Targeting, I wanted to ask about how your digital strategy is positioned relative to Google wallet and near field communications? Is it working complementary with Google, are you competitors, is it a little bit of both?

Robert A. Mason

You know what? I would tell you that as it relates to the whole mobile wallet and mobile in totality, we're watching that very, very closely. That's an area we're very interested in. I wouldn't characterize us as partners with Google. They're obviously very active in this space, as are others. There are people in the financial services that are very active in this space, the carriers. There's a lot of people taking a hard look and testing in this space. So we're paying very, very close attention to it. We think there are some challenges particularly within the retail grocery segment as it relates to mobile wallet and the ability to sync up transactions with the POS systems in that segment. But it is clearly something that Jim Parkinson and his team have some things in development on, and we're keeping a close eye on.

William A. Warmington - Raymond James & Associates, Inc., Research Division

Okay. And one last question was -- I wanted to ask what percent of Shared Mail volume today is being -- is from delivery of FSIs?

Robert L. Recchia

None.

Robert A. Mason

None. There's no revenue there. The revenue is recognized all within the FSI.

William A. Warmington - Raymond James & Associates, Inc., Research Division

I meant volume, I'm sorry.

Robert A. Mason

What I did say earlier, about 22%, somewhere around 22% of our total FSI volume is distributed within Shared Mail today.

Operator

Your next question comes from Dan Leben from Robert W. Baird.

Daniel R. Leben - Robert W. Baird & Co. Incorporated, Research Division

Just first on RedPlum Spree, you mentioned that there's no revenue assumption in the guidance. Could you talk about the cost assumptions that you have built into the guidance?

Robert A. Mason

You know what, Dan? The only allowance we've made, and it's really not measurable or material in any way, shape or form, is the Q1 test. Because until we get that thing executed, until we're able to read results from the participants in that test, it really doesn't make any sense and it's pretty hard to project what impact Spree will have from either a cost or a revenue standpoint.

Daniel R. Leben - Robert W. Baird & Co. Incorporated, Research Division

Okay. And then just as we roll up all the individual segments within IDMS, what's the overall growth look like next year in the guidance?

Robert A. Mason

Bob, you got that number?

Robert L. Recchia

The overall growth in IDMS?

Daniel R. Leben - Robert W. Baird & Co. Incorporated, Research Division

Yes.

Robert L. Recchia

It's just south of 40%.

Operator

Your next question comes from Neal Shah from Royal Capital.

Neal Shah

Just a quick question on the buybacks and the dividend. So right now, I guess according to your guidance, the mix is 35% to 40% of free cash flow going to share buybacks and 30% going to the dividend. How does that change over time, if stock goes into the 30s? So do you shift the buyback into more of a dividend at higher stock prices? Just kind of curious how you think about it.

Robert A. Mason

You know what? I don't think we've gotten real specific in terms of those plans, Neal. What I will tell you is today, buyback continues to be the primary focus of our return on capital. And I think it's a little bit premature to say what could or would change that focus. But that, for the foreseeable future, is really the area where we're going to focus on in terms of primary use to return capital to shareholders.

Neal Shah

Okay, okay. And just a quick follow-up. Just looking over last couple of years, it looks like the share count from the end of 2010 to now has gone down, I think from 52 million to 40 million shares, so a 26% reduction in share count. And during that time period, EBITDA has grown more than 10%. And then because of the share count reduction, EPS has grown more than 50%. But over that time period, the stock is down 30%. So it seems like the market's not really valuing the cash flows correctly or skeptical about the future. Are there other plans to create shareholder value if the current buyback and dividend strategy doesn't work? I guess specifically, are you open to selling to private equity? It seems like private equity owns your regional competitor, MailSouth. Just curious to get your thoughts overall.

Robert A. Mason

Just as a clarification, MailSouth really isn't a competitor of ours. They're more of a partner because the relationships we have with them allows us to extend our reach into rural markets. As far as the options we consider on a go-forward basis, we're very clear on -- our primary responsibility is to maximize the value we return to shareholders. And as such, we are open to all avenues to do that. We've been pretty consistent in saying that we believe after coming out of 2012, which was a year of really creating its foundation, if we can execute the plan we've laid out for 2013 and beyond, which includes growth in terms of top line and bottom line, and we continue to return capital as we've laid out in our 2013 plan, we think we're going to see the valuation that the market places on our stock increase. If we don't see that increase appropriately, are we open to a potential going private transaction? Yes. If that's going to maximize the return to shareholders, it is our responsibility to certainly consider those things.

Operator

Your next question comes from Chuck Ruff from Insight Investments.

Charles Ruff

Can you talk a little bit about why institute a dividend at all rather than using that cash flow to buy back stock?

Robert A. Mason

You know what? I think, Chuck, that over the course of this last year, we've gotten a lot of questions and feedback from investors. I think that there is some demand for dividend in terms of the low-yield environment we're working through. I referenced that it's a balanced approach. We will continue to use share buyback as the primary use of -- primary way we return capital to our investors. And we just feel like that in this market, that offering a reasonable yield on the dividend is a way where we can utilize what is a very attractive free cash flow yield. And through it, probably attract, too, maybe a little bit different shareholder base, who is interested in that sustainable steady yield that's hard to get another way.

Charles Ruff

I'm a taxable investor. The vast majority of my clients are taxable investors. I think the stock is worth more than today's share price. When you spend $1 of buying back stock, that increases the value of the remaining shares by more than $1, and I pay no taxes. You pay me $1, I pay taxes on it, and therefore, I'm benefiting by less than $1. So am I missing something? Or I look at it and say, "This is a negative. I'd much rather you buy back stock than pay me a dividend." But did you think along those lines or no?

Robert L. Recchia

This is Bob. I'd say your math is correct. And I'm an individual investor in the company and I have the same math. The majority of our larger holders though are tax-advantaged and don't view it quite the same way. You will always come up with a better answer on paper by putting all your money into share buyback than you will into dividend, just mathematically, it works. But we think the combination of the 2 in terms of returning value to shareholders will ultimately benefit the share price more than just always putting share -- the money into share buyback. And there's no way to know for sure. Time will have to run on this, and we'll have to see how we're valued down the road. But that's the bet we're making. And we're also trying to get some yield into shareholders' hands. I think it will open up the stock to income funds and different sorts of people today that don't invest in it. And hopefully, it's the right move long term because that's what we're betting on.

Charles Ruff

I hope you're right.

Robert L. Recchia

Me, too.

Robert A. Mason

We all do.

Operator

Your next question comes from Jafar Azmayesh [ph] from 1776 Holdings LLC [ph].

Unknown Attendee

A couple of my better questions have already been taken, so I'll jump to my last question. With regards to acquisitions, digital or otherwise, can you take that risk off the table for us? Or are we still looking at potentially future acquisitions in that realm?

Robert A. Mason

The institution of the dividend, Jafar [ph], leaves us the ability to use some of the remaining cash flow to invest in the business. In terms of that risk, what I'll tell you is we continue to work through both the integration of Circle Street and Brand.net. We think those were very responsible and ultimately will turn out to be very valuable acquisitions. What I can tell you is, right now, there is no appetite for any mega acquisitions. We're still involved in the integration of those 2 assets. We still look at a lot of different things. But what I'll tell you is that anything that we would do in the foreseeable future would be some kind of very complementary or tuck-in acquisition, not something that's going to put a significant burden in terms of the balance sheet or suck up a lot of that free cash.

Unknown Attendee

Very good. And then the second question that's already been asked, I'm going to try to ask it maybe differently, is with regards to the buyback, is there a level at which you guys will not have an appetite and instead pay a onetime dividend or something of the sort?

Robert L. Recchia

It all depends on what the stock's trading at and what our outlook is. So we do look at how the stock is trading, what our numbers look like. But I can't sit here today and tell you that at X, we're no longer buyers because things are going to change between now and then. So it's a constant thing that we'll look at in terms of how to return capital to shareholders. And if we think there's a better way to get capital to shareholders that is more meaningful for the share price, we're going to try and do that.

Operator

And Mr. Mason, there are no further questions at this time. Please continue.

Robert A. Mason

Great, Ron, thank you. Just a few closing comments. As we transition into a new year, both myself and the entire leadership team are taking full ownership of returning our business to sustainable revenue and profit growth. We're confident in our ability to execute our 2013 plan and ready to deliver the guidance that Bob and I have shared today. I believe in our Valassis team and our rapidly evolving product portfolio. While we don't see any measurable improvement in a fragile and uncertain economic picture, we do believe that the average American consumers' continued demand for value will help create an environment for us to grow our business.

I'm also confident in our ability to drive 3% growth in Shared Mail. I believe we have the right pieces in place to make our digital business a key contributor for our future.

Our FSI business is improving, and we believe that momentum will continue into 2013. While we continue to have work to do in the Neighborhood Targeted segment, we have our team focused on what needs to get done to improve the performance from this important business segment.

As you know, we have established a strong track record of disciplined cost management and thoughtful use of capital that now has been enhanced with the addition of a quarterly cash dividend policy. We have recently developed and are committed to our new vision of intelligent media delivery. We see this as our unique ability to deliver advertising and promotional messages by combining precise targeting, powerful insights, proven media to influence purchase behavior. We are continually creating new and better ways to identify, locate and connect with consumers wherever they plan, shop, buy and share. Whether it's online, offline or in the store, we're there to drive our clients' greater success.

I want to thank you, everybody, for joining us this morning. And I'll also take this opportunity to wish you a peaceful holiday season and a very happy and healthy new year. We look forward to talking to all of you soon. Thank you.

Operator

Ladies and gentlemen, this concludes the conference call for today. Thank you for participating. You may now disconnect your lines.

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