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Valassis Communications (NYSE:VCI)

Q4 2012 Earnings Call

February 21, 2013 11:00 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

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

Alexia S. Quadrani - JP Morgan Chase & Co, Research Division

Daniel Salmon - BMO Capital Markets U.S.

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

Edward J. Atorino - The Benchmark Company, LLC, Research Division

Bethany Caster

Operator

Good day, ladies and gentlemen, and thank you for standing by. Welcome to the Valassis Fourth Quarter and Year Ended 2012 Earnings Conference Call. [Operator Instructions] The conference is being recorded today, February 21, 2013. I would like to remind you that the discussions during this conference will include forward-looking statements, 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 other sections of the 2011 annual report Forms 10-K and reports on Forms 10-Q and Form 8-K, filed or furnished with the SEC. All discussions during this conference call will include certain financial measures that we are not prepared in accordance with Generally Accepted Accounting Principles. Reconciliations of those non-GAAP financial measures to the most comparable GAAP financial measures can be found in the press release furnished with the current report on our Form 8-K dated today, which is also available on Valassis' website on valassis.com in the Investor section.

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

Robert A. Mason

Thank you. Good morning, everyone. I'd like to thank you for joining us for our fourth quarter and full-year 2012 earnings conference call. As usual, Bob Recchia, our Chief Financial Officer, is with me. And after some prepared remarks on our Q4 and 2012 results, we look forward to answering your questions.

Shortly after being given the opportunity to assume the role of CEO, I had the chance to meet most of you for the first time. For those conversations, my characterization of 2012 centered on a year where our team would be focused on creating a foundation for future growth. When I shared our 2012 annual guidance, tied the financial component of that foundation to a model that included flattish revenue adjusted EBITDA. While I believe we successfully delivered some very important components of that plan, I'd be far less than forthcoming if I didn't share my disappointment around our Q4 Shared Mail results and where we finished the year in terms of total revenue, adjusted EBITDA and Shared Mail growth.

The shortfall in our annual revenue was driven primarily by 3 elements. First, lower-than-expected volumes within Shared Mail; second, continued [indiscernible]; and third, a lack of big wins from our new business [indiscernible] Shared Mail and Newspaper Insert product lines.

[indiscernible] notable result to aggressively manage the cost out of our business, we experienced a 3.5% decline from calendar year 2011. The adjusted EBITDA miss was primarily a result of our acquisition and investment in Brand.net, and again the lack of anticipated volume within Shared Mail.

Looking at segment performance, after our fourth quarter, where Shared Mail suffered from softness within our specialty and discount retail categories, Shared Mail ended the year at $1.365 billion in revenue or just over 1% in annual year-over-year revenue growth.

From a segment profit perspective, Shared Mail generated 5% year-over-year growth. The primary driver for softness in these categories came as a result of the pressures retailer faced, as consumers dealing with continued economic uncertainty and the potential fiscal cliff, pulled back on their holiday spending, which made 2012 look like the worst holiday shopping season since 2009.

The response we saw from multiple specialty and discount retailers was a combination of a reduction in their frequency, page counts and volumes, that drove down revenues from this key vertical by over 10% from prior-year quarter.

Despite solid growth from our restaurant, telecom and grocery verticals, the loss in retail volume and weight drove Q4 Shared Mail segment revenues down by just under 1% and segment profit by 2.7% on a year-over-year basis.

While I'll repeat my disappointment in our Shared Mail performance, I am fully convinced that the fundamentals of this business are sound. By focusing on available share, investing in ongoing innovation, like our variable data postcard, and aggressively pursuing new business opportunities, I continue to believe that we will be able to deliver 3% Shared Mail revenue growth for calendar year 2013.

Also given our current level of visibility into Q1, we expect to return to positive revenue growth for the quarter on a reduced number of total packages.

Moving on to our Neighborhood Targeted segment. We experienced a 15% year-over-year revenue decline in Q4. Virtually all of this decline was attributable to our Newspaper Insert product line, where revenue was impacted by the conversion to fee-based business model that we discussed during our 2013 guidance call. That market-driven change means that certain Neighborhood Targeted business, previously recorded as gross revenue, will now be recorded on a net fee basis.

This change accounted for almost half of the decline in Newspaper Inserts for the fourth quarter, another $5 million of the decline in Newspaper Insert revenue was driven by the same softness in retail activity that I mentioned earlier.

For the year, Neighborhood Targeted revenue finished down 12.9% from prior year. Segment profit within Neighborhood Targeted fell $8.7 million on the same year-over-year basis with approximately 25% of that decline coming from our sampling product prior to our exit of that business.

Most of you will recall that in Q3 of 2011, we began to experience unprecedented headwinds in our FSI business related to a sudden pullback in spend from consumer packaged goods, or CPG clients. This decrease was driven by multiple factors that led to significant pressure within our client's P&L. At the time, we said that we believed the dramatic pullback would not be sustainable, and that if CPGs wanted to wanted to protect and improve their domestic share, they would have to return to spending levels in a medium. The FSI, it is a proven method of fulfilling consumer needs for savings and driving case volumes at retail. I'm very pleased to say that we made the correct call here. Our FSI performance in Q4 was a continuation of what we saw in Q3 with meaningful year-over-year improvement across virtually all of our key metrics. We showed positive gains in pages sold, average pages per book and market share.

We grew segment revenue by 1.2% on one less day date, and based on the operating leverage of our FSI business, generated an increase in segment profit of $2.4 million when compared to fourth quarter 2011.

Looking at our 2012 FSI results, it was truly the tale of 2 halves. As we cycled through decreases and client spending and the loss of custom co-op business, we experienced reductions in revenue and profit in the first half. When CPG spending returned to more normalized levels, our second half performance created a $10.8 million year-over-year improvement in segment profit on flat revenue. Looking into the first half of 2013, we see the positive momentum within the FSI continuing particularly as we work through the first quarter.

Our IDMS segment continues to be driven by 3 businesses: NCH, our coupon clearing and analytics business, in-store and our Digital business. At NCH, coupon redemption volumes declined year-over-year as they ran up against some of their toughest comps in recent history. While the fall off in volume has clearly impacted their top line, our NCH team has done a great job operating the business and by doing all the right things to maximize their margin opportunities.

Within our in-store business, Q4 marked a return to revenue growth. The year-over-year quarterly growth was driven by CPG dollars returning to an in-store industry that has been previously hard hit by their pullback in promotional activity. We've also been able to increase our share of total in-store dollars by leveraging a growing retailer network, and with the addition of Rite Aid and Family Dollar to that network in the first quarter of 2013, we will significantly increase our opportunity to attract incremental CPG dollars.

Our Digital business and the revenue growth it has generated has been a very bright spot for us in Q4 and throughout 2012. In addition to generating almost 60% year-over-year growth in organic digital revenue, we have made significant strides with the integration of and product enhancements at Brand.net. The thesis for our Digital business is simple, leverage our 400-plus strong sales organization and the well-developed relationships they own with 15,000 clients to create blended solutions across our online and offline platform that deliver unrivaled scale, with a unique capability to identify, locate and connect with consumers whether they're at home, on the go or in-store. I'm happy to say that our thesis on our Digital business is proving itself out.

In Q4, we drove $10.7 million in new revenue from 300 new Digital buyers. For the year, our team generated nearly $40 million in Digital revenue, a 106% increase from calendar year 2011. We will continue to make the right investments in our Digital business, making sure that we have the right people, the right products and competitive advantage with the objective of offering our clients real value.

Our goal in 2013 continues to be reaching a fourth quarter milepost in our Digital business, where we are on a run rate equal to $100 million in annual revenue at breakeven profitability. As we work toward that milepost, we anticipate continued segment losses during the first half of 2013 based on continued investment in our Digital business. Moving through the back half of 2013, we expect to see a positive contribution to EBITDA from our Digital division.

With that, I'll turn it over to Bob for his comments regarding our business.

Robert L. Recchia

Thanks, Rob. Rob provided a pretty thorough rundown of the business operations for the fourth quarter and year. In his opening, Rob reinforced that we did record some important accomplishments during 2012, and I'd like to take a few minutes to highlight some of them.

First, our Shared Mail business grew in both revenue and segment profit for the fifth straight year. We experienced a 400-basis point improvement in our FSI gross margin, resulting in an approximate 55% increase in FSI segment profit. We grew our Digital business over 100% through a combination of acquisitions and organic growth. We reduced selling, general and administrative expenses by 4% and we spent just $21.2 million on CapEx, which included $6.7 million for a new press in our Wichita printing facility. Unfortunately, all of this has a tendency to get overshadowed when you end the year with a disappointing fourth quarter. Nevertheless, we have done some work in 2012 that should benefit us as we look forward.

Our cost-cutting efforts in 2012 will create year-on-year savings of approximately $7 million in 2013, primarily during the first half.

In our Shared Mail business, our revenue per package grew modestly, around 1%, despite having to weather some share loss due to pricing initiatives taken in 2011. Our cost to produce the Shared Mail package X postage continued to move down modestly and paper and print cost was lower as well in 2012. Our share repurchase plans saw us purchase approximately 5.1 million shares, using $112 million of our free cash flow during 2012. In addition, we instituted the quarterly cash dividend of $0.31 per share for the quarter ended December 31, 2012. Together, we anticipate using between 60% and 65% of our projected free cash flow for 2013 for these 2 important initiatives, with share repurchase being the larger of the 2 at 35% to 40%. We reduced our Term Loan A debt by $15 million and had a net debt position of $493 million at December 31, 2012. And our free cash flow for 2013 should allow us to buy back over 2 million shares and pay a quarterly cash dividend of $0.31 per share. In addition, we will further reduce our Term Loan A by $22.5 million and should have considerable cash left over for general corporate usage, which can include further share purchases.

So with that, I will turn it back to you, Rob.

Robert A. Mason

Thanks, Bob. Richard, I think at this point, we're ready to open it up for questions.

Question-and-Answer Session

Operator

[Operator Instructions] And our first question comes from the line of William Bird from Lazard.

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

Rob, I was wondering if you could comment just on your outlook on Shared Mail. Maybe if you could walk us through the bridge from negative 1% for Shared Mail growth in Q4 to the plus 3% in '13. And in Q4, I was curious if you saw anything anomalous in Shared Mail trends.

Robert A. Mason

Sure, Bill. I think -- let's look at Q4 first. Any anomaly really based on our analysis was focused on the retail category, I called out specialty and discount retailers. But I think that's more a sign of what the holiday season turned out to be in terms of consumer spend for those clients. So nothing secular in there, just unfortunate softness caused by the retail segment. To look at your question regarding 2013 and this bridge to get to 3% growth, I think one of the things that Bob referenced in his comments is that in 2011, we put a lot of effort behind instilling discipline in our sales organization, in fact, in our entire sales organization around price. We're very pleased with that effort. And the discipline it continues to have on our organization today. But I'd tell you from 30 years of experience of selling stuff, that it's very difficult to grow both share and price at the same time, and I think there's some hangover of that price effort into 2012. And going into '13, our focus is clearly on driving share. The share is there and we believe that if we're able to gain share at reasonable prices, using price to work for us is going to allow us to gain more share than we did in 2012. Big component of that share strategy is enhancing the effort and productivity of our new business effort. I talked about that as we work through the back half of 2012. When you're chasing and pursuing big new business, the conversion from prospects into clients doesn't happen anywhere near as fast. We like it to -- from big clients, I look at the selling cycles being somewhere between 6 and 9 months in terms of average duration. But I think we'll start to see positive contribution from that effort as we go into the first half of 2013. The other effort that's working -- that will work on our behalf, I believe, is beginning this year, we put John Rogers, who was formerly in charge of our field sales organization, in charge of all 3 of our core sales organizations. Why that's important is, is that John, in the last 3 years, has demonstrated an ability within our field sales organization to drive somewhere between 3% and 5% growth in Shared Mail. I think John is going to have a clear positive influence on our selling organization. The other 2 components are, I think, there's an opportunity to improve wrap performance. We've got some new compensation programs in place to focus our sales organization on that product. We think there's increased urgency around selling wrap, and the big benefit there is we can sell it now and soak up some of that finite inventory, we're going to be in much better position to drive piece growth within the Shared Mail package as we go throughout the year. And then finally, the other component that we're counting on to get to that 3% growth is innovation, particularly with our variable data postcard. We're very happy with the result of that product in 2012 and we think it will make meaningful contributions to that 3% growth number in 2013.

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

Rob, you also mentioned that you've seen a return to growth in Shared Mail in Q1. Is it likely that you get right back on track and get to 3% or do you see it as more of a build through the year?

Robert A. Mason

I think, Bill, at this point, and visibility even with the timeframe of the call today is not perfect. I don't want to get too far out in front of myself. I think the key is to capture: A, we're going to return to positive revenue growth on a reduced package count, and I think that's important. That package count in Q1, right now, we're anticipating it to be down somewhere around 2-ish percent. So if we can do that, I think the trend is very positive. And again, it will give us confidence that, that 3% number is something we continue to be--continues to be well within reach.

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

And given the action in your stock today, does that have a bearing on how you might allocate buybacks? Is it likely you may do more sooner?

Robert A. Mason

I haven't looked at the stock today, Bill. What I would tell you is, is that our approach to buybacks is to continue to be to buy as much as we can for as cheap as can and we're going to take advantage as those opportunities present themselves.

Operator

Our next question comes from the line of Alexia Quadrani from JPMorgan.

Alexia S. Quadrani - JP Morgan Chase & Co, Research Division

Just following up on the comments you gave on the Shared Mail segment, how has the retail trended so far into Q1? Has there been a bit of a bounce back? And then to clarify, I think you start off on the call talking about some pullback in weakness in the CPG spending patterns that hit a few segments. I guess, with a little bit of a lift that we saw in the FSI business, which I noticed are heavily concentrated in CPGs, I guess, if you could clarify where that weakness in this CPGs really hit the business in the quarter.

Robert A. Mason

Sure. Actually, as it relates to Q1, we don't have a lot of granularity in terms of what's happening in retail. It's a much smaller component, measurably smaller component, of our Q1 volume than it is to Q4. And with Q4 being must wins time for retailers, I think you can probably appreciate that. What we know anecdotally from talking to clients and from what we've seen published from the NRF is the retailing in January started off sluggish, and they attributed that to consumers trying to adjust to some of the new tax codes and hangover around the fiscal cliff. Since that time, it suggests that -- the NRF''s suggesting that retail is picking up a little bit of steam. But you know what? I think we're still working through an economy that is uncertainty. Just some news in the media, about $4 gas prices. So I don't see a remarkable blue sky there. But it is -- retail is a much smaller segment over Q1 Shared Mail volume. You're right in that the FSI-- the weakness that we've seen is really more historical and you'd have to go back to the period beginning with Q3 of 2011 and really work through the first half of 2012. The pull back in spend that we saw was unprecedented, and really impacted 3 products, primarily the FSI, our in-store business, and then our Newspaper pre-print segment. We cycled through that. We feel like we started to see some blue sky and positive dollars return from CPG spending in Q3 of 2012, and that was reflected, I think, in the operating performance of the FSI. Then you see that benefit in Q4. And as I said, we think we're going to be able to take advantage of that momentum through the first half of '13 and particularly what looks to be a real strong Q1 of 2013.

Alexia S. Quadrani - JP Morgan Chase & Co, Research Division

And I know you can't talk about pricing in the FSI side of the business, but can you address maybe the market share? Do you feel comfortable with the market share, how it looks like for '13?

Robert A. Mason

I wouldn't say I'm comfortable with the market share in terms of how it looks in 2013. I am, however, pleased with what our sales organization has done in the last 6 months, particularly the gains from market share and we're going to be looking to enhance that performance as we work through the rest of this year.

Operator

And our next question comes from the line of Dan Salmon from BMO Capital Markets.

Daniel Salmon - BMO Capital Markets U.S.

Two questions. Just first, could you help us -- it sounds like Shared Mail and Specialty Retail in particular through the holiday season was the reason for this, but maybe just help us understand how in mid-December when you reiterated the guidance that 298 for the full year and came in below that, was this particularly focused on the last 2 weeks of the quarter, the issues around retail? And then secondly, how would that impact your strategy as you start the testing for RedPlum Spree, which I know, is aimed to -- aimed at that type of client, hopefully, going forward.

Robert A. Mason

Yes, Dan, just straight away, as we prepared for 2013 guidance based on the information we had available to us at that time, we saw no reason to revise that guidance. As you go back to the commentary I opened up the segment discussion on Shared Mail. What we saw within retail is a holiday season that's kicked off by Black Friday, get off to a very fast start with retail, particularly a lot of coverage and a lot of commentary on the amount of traffic retailers drew around Black Friday. That waned as we went through the quarter. And as retailers found the need to significantly discount inventory to move it off the shelf, we saw that activity decrease markedly. And unlike situations where there were clear absences of retailers, what I reference is as we saw pullbacks in profile, we saw pullbacks in page counts, as well as some last-minute changes in retailer plans that impacted the quarter, that at the time, like I said, we were preparing for guidance, I saw no reason to revise that guidance. And given the chance the Monday morning quarterback that with the data that I had at the time, I think I made the right call. Because you know what? What I've learned in a year is that you can make mistakes on both side of that line, and I didn't want to have a bad surprise or a good surprise.

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

And then maybe just on Spree and how this may change your thinking around it.

Robert A. Mason

Yes, you know what? Dan, I think what we saw in Q4 is more a factor of the business climate. We've done some digging in terms of what happened in retail to determine, to make sure really it wasn't some kind of secular decline. What that research was showing us based on Kantar data, is that there was an overall decline in retail spend against measured media for Q4. What I tell you is, is that I'm disappointed about the fact that our decline was greater even than, say, Newspaper decline was. And that's not good. But on the upside of that, because the decline is relatively modest, I think we can tie it to the business conditions, consumer spend patterns and nothing that's really any kind of a secular decline. What it means for Spree specifically is we are still committed to getting a package into test. We've got various interest from multiple clients. At this point, I don't want to go into detail because of competitive reasons other than to probably highlight the fact that, that test now is targeted for Q2 rather than Q1.

Operator

And our next question comes from the line of Edward Atorino from Benchmark.

Edward J. Atorino - The Benchmark Company, LLC, Research Division

My first question, Bob, is on the Neighborhood Targeted revenues. Those were, I thought, were going to be all restated. It looks like they weren't restated for the quarter.

Robert L. Recchia

Ed, one of the things that relates to that is we talked about not restating that revenue, but because of this change in business model, only recording the fee basis, but that practice is something we targeted beginning in 2013. So we had a single client who converted that business model and that was a significant driver to that decline in Q4 of 2012.

Edward J. Atorino - The Benchmark Company, LLC, Research Division

Is the new base for 2013 sort of in the 40s?

Robert L. Recchia

The new base was reduced from this year by $204 million, and I think I gave you the 4 quarters in the last meeting. It's roughly about $40 million, $40 million to $50 million -- $45 million that comes out there, but I can get that for you if you don't have it.

Edward J. Atorino - The Benchmark Company, LLC, Research Division

Okay. I'll call you later or...

Robert A. Mason

Yes, I think maybe call later. We'll just send you an e-mail.

Edward J. Atorino - The Benchmark Company, LLC, Research Division

Okay. Secondly, on your gross margin outlook, and SG&A percent of sales look like it went up. Is that just a function of the new business going in and is the new SG&A percent of sales sort of the ongoing percent?

Robert L. Recchia

It is a function of the acquisition of spend, some of the investments we're making in the Digital business. We have given you a guidance next year of mid-single digit increase in SG&A. Keep in mind, as a percentage of sales, because of the fact that the Neighborhood Targeted business is going net down by $200 million, everything that's going to go up is a percentage of sales. So our margin is going up, SG&A is going up. But for planning purposes, a mid-single digit increase off of where we're at next year that builds throughout the year is probably the right way to look at it.

Edward J. Atorino - The Benchmark Company, LLC, Research Division

And interest expense. Run the quarter out, I guess, at that level?

Robert L. Recchia

Say that again, Ed?

Edward J. Atorino - The Benchmark Company, LLC, Research Division

Interest expense?

Robert L. Recchia

Yes, interest expense should be $29 million a quarter or something like -- $29 million for the year, next year.

Edward J. Atorino - The Benchmark Company, LLC, Research Division

And lastly, getting back to the FSI business. That's the best quarter you've had in FSI in a long time. Did you get a higher revenue per package on that of revenue per mailing?

Robert A. Mason

Really the key metric there, Ed, and we really strung out 2 real solid quarter together in the FSI pages per book. If we're increasing that number, and I don't have that number in front of me. Bob, maybe you have it.

Robert L. Recchia

About 12% versus a year ago.

Robert A. Mason

So that's -- Ed, that's the average number of pages per book that we publish. If that number is going up, particularly by the kind of double-digits that Bob referenced, the operating leverage of that business is going to be very, very good and you're going to get significant flow through that drives the kind of performance we've seen in the last 2 quarters. It will actually drive our cost down, specifically in the media area.

Edward J. Atorino - The Benchmark Company, LLC, Research Division

Are you getting higher revenues per page?

Robert A. Mason

That does it on price, Ed. I'm not going to go there.

Operator

And our next question comes from the line of Dan Leben from Robert W. Baird.

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

In Shared Mail, Rob, you mentioned the package is declining in the first quarter. Is that something that's going to flow through the year or is there a timing shift that's driving that?

Robert A. Mason

It's clearly a Q1 phenomena, Dan, and that's related to 2 things. Some optimization efforts, Newspaper alliances, and then some calendarization, where some of those packages have moved into Q4 of '12, and actually move some shift into Q2. It's hard to get into the details of those puts and takes of calendarization. You'll see some of that throughout the year. I think when we guided '13, we talked about packages being flat or slightly down. And I think that's a solid guidance at this point.

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

Okay. And then just following up on timing issues. With Easter shifting forward about a week falling in the first quarter, could you talk about any impact that has on the seasonality for both FSI and Shared Mail in the first couple of quarters?

Robert A. Mason

Yes, I think there's some positive benefit there, Dan. That's something that gives us the confidence to talk about returning to positive growth in Shared Mail and those declining packages. And again, I talked about the FSI being strong through the first, we believe it's going to be strong through the first half of '13, particularly in Q1, and I think we're going to get some bounce in that product from that early Easter, too.

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

Okay, great. And then going back to the fourth quarter last year, Shared had a very strong quarter. You talked about grocery and Specialty Retail being contributors. Just if you can help us understand what grocery did this year in the fourth quarter. And then just some context around Specialty Retail being weak, how much of that was a comps issue versus more of a dramatic pullback in spending?

Robert A. Mason

From a grocery perspective, it was up slightly a little bit less than a point, Dan, in the quarter. And what while it doesn't sound like much, knowing that, that grocery content is a backbone for the package, both from a weight standpoint and a content standpoint, we feel good about that. From a retail perspective, there's 2 things to keep in mind: One, retailers had a significantly less positive holiday season than what they anticipated going into Q4. So I think that was a primary driver. I'll reference the other thing is that while there is a decline in other major media. That decline was not as great as what we experienced, and I would tell you that I attribute that to more of an execution issue than any kind of a judgment on Shared Mail.

Operator

[Operator Instructions] Our next question comes from the line of Bill Warmington from Raymond James.

Bethany Caster

This is Bethany Caster in for Bill Warmington. So my first question for you was can you talk about how the USPS' decision to stop Saturday delivery impacts you, if at all?

Robert A. Mason

Very little. Today, we distribute less than 0.30% of a percent of our total weekly Shared Mail volume on Saturday. I would tell you, we actually applaud Postmaster Donahoe's effort to try and streamline the USPS and their operations. We have been in very close contact with Postmaster Donahoe, his staff. Our understanding at this point is that the postal facilities will be open to receive the packages that we would typically deliver to the postal branches for early week delivery. We got plans in place to make adjustments however that shakes out but that should not have any kind of impact on the Shared Mail business.

Bethany Caster

Okay. And just to go back to comments you made on your guidance call. You had previously expected that IDMS year-over-year growth would be just under 40%. Now given the change in NCH, the way that CPG companies have been issuing coupons, do you have any update to that?

Robert A. Mason

I don't -- as we said it today, there's no change in our guidance. I'm not sure -- I don't have the transcript from guidance in front of me. But right now, NCH, our Digital business, our in-store business, which are the primary drivers of IDMS, are on track to deliver that guidance, and I don't see any reason to update it.

Bethany Caster

Perfect. And one last question. Can you give us the -- in Shared Mail, the number of packages and unused postage in the quarter?

Robert A. Mason

Yes. Total number of packages in Q4 2012 is 9 -- what have you got? 919?.

Robert L. Recchia

919.7. And unused postage is just over 15%.

Robert A. Mason

15.1%.

Operator

And our next question is a follow-up from the line of William Bird from Lazard.

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

Rob, earlier you mentioned a shift in the RedPlum Spree test to Q2 from Q1. I was wondering if you can elaborate on why the time shift? And overall, if you could share with us what the total company organic revenue growth was in the quarter.

Robert A. Mason

I'll talk to the Spree question first, Bill. I think -- you know what? The process of putting together a cooperative package with multiple retailers who share a common footprint is not as easy as we would like it to be. There continues to be strong interest, but we want to make sure that we've got the appropriate content and enough content to make that test as fiscally positive as we can for us. And plus, to replicate the kind of results we believe Spree will generate for the retailers. So it's really just wanting to make sure we get a quality package in the market. Like I said, we've got some very strong interest, and right now, we remain very committed to getting that test launched in Q2. Bob, you got the answer to Bill's question? The other...

Robert L. Recchia

Given the fact that revenue shrunk organic growth is a hard question. Let's pull out -- give you some one-time things. You still got year-on-year, some shrinkages as a result of exiting the sampling business and the direct mail businesses. So that probably about $4 million reduction as a result of that. Rob mentioned that Newspaper Inserts, we did have one client that we converted to fee in the fourth quarter. That explains about half the decrease there, so that's about 10. So if you're look at 579 versus 595, if you normalize for the 2 of those, it's almost flat. And then in there, we have some Digital revenue associated with the Brand.net acquisition. So all in all, we were probably down about 1% if you take all the onetime factors out.

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

Okay. And then what was the order of magnitude of your Digital operating losses in 2012?

Robert L. Recchia

We don't disclose those.

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

Okay. And just one final question. How did the upfront sales through go on the Shared Mail wrap?

Robert A. Mason

It was pretty much flat with last year, Bill. And while that's not there we want it to be, I think that some of the adjustments that we've made in terms of sales compensation and some of the activities that John got his leadership involved in will address opportunities to improve sell through as we work through the year.

Operator

And I show no further questions in the queue at this time. I'd like to turn it back to management for any closing remarks.

Robert A. Mason

Well, Richard, thank you. I just got a few more comments before we wrap up. While I'm disappointed in our 2012 revenue and adjusted EBITDA performance, but I don't want to overlook our accomplishments. We've successfully acquired and integrated Circle Street and Brand.net, they're important assets in our efforts to offer clients a full range of solutions that can drive their business. We really believe we made the right call as it relates to the exiting businesses that don't align with our visions and strategies for growth. We've downsized our organization, making sure that the right resources are aligned with real growth opportunities. As Bob said in his comments, we continued our commitment to aggressively return capital to our shareholders through share buyback and the initiation of a cash dividend. Looking ahead, and as I stated in our 2013 guidance, our 2013 model has made the correct assumption as it relates to a continued uncertain economy, modest increases in client ad spending, consumer shopping behavior that is focused firmly on finding and taking advantage of deals and available market share that can fuel growth across all of our businesses. Shared Mail continues to be an extremely effective way for clients to take advantage of our proprietary ability to offer the combination of unmatched scale and targeting, as well as the strong engagement and call to action in print media. Our FSI business is very healthy, and we expect that it, along with in-store, will continue to benefit from CPG dollars returning to promotional spending. On the digital front, I continue to be excited about the progress we have made and continue to make as our clients recognize the benefit of blending online and offline media to optimize their reach, relevance and return on investment. And as we continue to benefit from our ability to generate free cash flow, we remain committed to a discipline that makes returning capital to our investors the #1 priority for that free cash flow.

In closing, I've made a very clear commitment to invest in our business and our people, because I believe these investments will drive our growth. I believe in our vision, I believe in our team, perhaps most importantly, as we sit here today, I believe in our 2013 plan to drive 3% Shared Mail revenue growth and to grow both our top and bottom line.

I want to thank everybody for your time today, for your questions this morning. We look forward to talking to you all in the very near future.

Operator

Ladies and gentlemen, that does conclude our conference call for today. ACT would like to thank you for your participation, and you may now disconnect.

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