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Valassis Communications (NYSE:VCI)

2012 Guidance Conference Call

December 13, 2011 11:00 am ET

Executives

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

Robert A. Mason - Executive Vice President of Sales and Marketing and Director

Analysts

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

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

Daniel Salmon - BMO Capital Markets U.S.

Charles Edward Cerankosky - Northcoast Research

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

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

Mark J. Zgutowicz - Piper Jaffray Companies, Research Division

Operator

Good day, ladies and gentlemen. Thank you for standing by. Welcome to the Valassis 2012 Guidance Conference Call. I'd like to remind you that discussions during this conference call will include forward-looking statements, and the actual results could differ materially from those projected in the forward-looking statements. The factors that could cause the 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 2010 annual report on Form 10-K and in the reports on Forms 10-Q and Form 8-K filed 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. A 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 and posted on the Valassis website at www.valassis.com in the investors section.

[Operator Instructions] This conference is being recorded today, Tuesday, December 13, 2011.

I would now like to turn the conference over to Mr. Rob Mason, CEO elect. Please go ahead, sir.

Robert A. Mason

Thank you, Camille, and good morning. I'd like to thank everyone for joining us today. Communicating our 2012 guidance is the first official duty of my new role, and it's both a pleasure and a privilege to lead this morning's call. I'm happy to have Bob Recchia, our Chief Financial Officer with me. And Bob and I look forward to answering your questions after some prepared remarks.

Our Board of Directors approved our 2012 budget last week, and we are pleased to announce full-year financial guidance for 2012 that reflects strong growth in diluted EPS and diluted cash EPS, metrics that we believe are the best measure of our company's performance going forward.

Our 2012 guidance reflects over a 28% increase in diluted EPS and nearly a 9% increase in diluted cash EPS when compared to our current full year 2011 guidance. Both EPS measures are calculated assuming an estimated 42.9 million fully diluted weighted average shares outstanding for 2012. Bob will be providing some additional financial details around our assumptions, including the share-based calculations.

Our 2012 plan calls for capital expenditures to be approximately $32 million, which will be used primarily for technology and investments in product development. This morning's release discusses a number of the assumption on which our full year 2012 guidance is based, and I'd like to provide some additional color on some of these assumptions, as well as a number of the factors we believe will be influencing our individual business segments in 2012.

From a macro perspective, our 2012 model assumes low-single-digit growth in U.S. advertising spend, as well as ongoing economic uncertainty. Overall, our plan reflects flattish revenue, taking into account over $70 million in 2011 revenue that we do not expect to repeat in 2012 due to the absence of custom co-op revenue, a continued slowdown in our ROP segment and the potential discontinuance or downsizing of small, noncore businesses. We look at our business in 3 segments: those existing businesses that are showing solid growth, our Shared Mail and NCH Clearing businesses; second, our new growth business, our Digital and In-Store businesses; and thirdly, our newspaper-based businesses, Neighborhood Targeted segment and FSI, where we are not anticipating any measurable top line growth.

Within our individual business segments, we perceive the following: Continued strength in our Shared Mail business, including growth in revenue and margin, driven by increases in volume and the strong operating leverage in this business. We have built-in expected postal increases into our model and, as you know, pass on these increased postal costs to clients per the terms of our customer contracts. We continue to have a very close working relationship with the United States Postal Service and are confident that their recently announced operational changes will not negatively affect the delivery or cost structure of our Shared Mail products.

Within the Neighborhood Targeted segment, we are anticipating a slight decline in revenue due to continued softness in our ROP and sampling businesses. Margins in the Neighborhood Targeted segment are projected to follow 2011 levels.

We expect that the FSI business will continue to be challenged both in terms of revenue and segment profit, especially in the first half of 2012, where we face more difficult comps. Our 2012 model reflects an anticipated loss in share and softness in industry volume. At this time, we have no planned custom co-op dates for 2012.

We've announced an FSI co-op date schedule of 41 days. Easter will fall on April 8 in 2012, so we expect pre-Easter promotion activity to straddle both the first and second quarters.

In the IDMS segment, we expect continued revenue and profit growth from NCH, our coupon-clearing business, driven by the ongoing strength in U.S. coupon redemptions.

We have also built into our 2012 model year-over-year revenue growth in both our Digital and In-Store businesses. We plan to devote more resources to drive this growth, and with the right plan and the right people in place, we believe we are well positioned to capture incremental revenue in both our In-Store and Digital business.

Regarding 2011, we will be announcing our Q4 and full year results in February. As stated in our release, we have reiterated our full year 2011 adjusted EBITDA guidance of $315.1 million and are increasing our 2011 guidance for diluted cash EPS to approximately $3.65 and expect capital expenditures to come in at approximately $24 million. As we turn the page from 2011 to 2012, my leadership team and I are confident in our ability to execute this 2012 plan.

At this time, I'd like to hand it over to Bob Recchia for some additional remarks before we open it up for questions.

Robert L. Recchia

Thanks, Rob. As Rob mentioned, we expect continued growth in revenue and profitability in our Shared Mail and IDMS segments. Our plan for 2012 is to continue to rely on these 2 segments while we work to improve our performance in FSI and Neighborhood Targeted.

During 2011, we anticipate spending approximately $215 million on share repurchase and expect to finish the year around $42.3 million in basic shares outstanding. Our current dilution calculation adds approximately 2 million shares to the base. For 2012, we've assumed that we will use 50% of our free cash flow to repurchase shares ratably throughout the year. We have, however, left ourselves the flexibility to use more or less than the 50% of free cash flow, as well as when to purchase the shares. This is the same approach we took in 2011 and provides us with the necessary flexibility to adjust strategy as business conditions change. As always, we will strive to improve the cost side of the business. Our manufacturing operations has continued to improve our cost per unit produced in those businesses where we have had even modest growth.

We will be challenged on the print side of the business given the softness in the FSI industry and market share loss. However, we do expect reduced unit cost and profit improvement in Shared Mail and NCH.

When we report Q4 2011, we expect to take a charge of between $15 million and $20 million for the write-down of certain technology investments, reorganization of some of our noncore businesses and the related severance costs. These businesses contributed about $16 million in revenue in 2011 but lost about $2 million in EBIT and are not part of our long-term strategy. Accordingly, we expect to sell or significantly reduce the size of these businesses to eliminate any drag on EBIT in 2012.

Since we are in the process of evaluating our options at this time, we cannot provide any more detail than this until our fourth quarter earnings call on February 16 when we expect to have finalized these decisions. You have undoubtedly noted in our release that we have highlighted EPS and cash EPS as our primary success measures. Compensation plans for 2012 have been designed around cash EPS, as we feel it is the best performance metric for us at this time. In the past, EBITDA had been used, but given our relatively low leverage of less than 2:1, our strong free cash flow, we think it is appropriate to reward employees based on this metric.

Assuming we deliver the 2012 guidance, we will have delivered relatively flat adjusted EBITDA for 3 consecutive years. But during those 3 years, interest expense will be reduced by $58 million from $87 million to approximately $29 million in 2012, and earnings per share will have risen nearly 30% on an average annual basis.

Furthermore, our basic share count will have gone from a high point of 50.6 million shares to approximately 39.5 million by the end of 2012. EBITDA does not take these things into consideration, and the Board of Directors wants to ensure that we are managing all aspects of our earnings performance, including capital allocation, to ensure best possible results for our shareholders.

Robert A. Mason

Thanks, Bob. And, Camille, if you are ready, we're ready to open it up for questions.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question is from the line of Mark Zgutowicz with Piper Jaffray.

Mark J. Zgutowicz - Piper Jaffray Companies, Research Division

Rob, I know both of you and Bob have talked in the past about sort of a 3% bogie for Shared Mail growth, and I'm just wondering if you're looking at your implied growth for Shared Mail in the flat overall revenue for next year. Is that an assumption you're using?

Robert A. Mason

It is, Mark, yes.

Mark J. Zgutowicz - Piper Jaffray Companies, Research Division

Okay. Can you talk a little bit about the sales strategy to hit that bogie next year and sort of comparing we've gone through a couple different sort of incentive plans over the last couple years. '10 was more volume-based; '11 was a little more pricing focus. Can you kind of talk about how you're looking at next year; is it a mix of the 2, or maybe provide some direction there?

Robert A. Mason

Okay. Mark, I would characterize it as a mix of volume and price. One of the objectives I'm most proud of in terms of what we accomplished in 2011 is the job that the sales organization did with price. One of the assumptions we made going into 2011 was that we were heading into a strengthening economy, and we are not making the same assumption going into 2012. So as the pricing strategy goes, I think you'll see us be more surgical as it relates to pricing and a little bit more oriented towards share amount. We're going to use price to keep business where we need to, and we're going to use price to gain more business than -- when we need to. And so I think you're going to see a blend of volume or share growth mixed in with price. We do continue to see some positive impact from pricing on our Shared Mail product in 2012.

Mark J. Zgutowicz - Piper Jaffray Companies, Research Division

Okay. That's helpful. Just shifting to FSI. I'm curious, last quarter, actually, the last couple quarters, you've obviously seen some pretty dramatic weakness there. I'm curious how Q4 trended relative to Q3. And there was a little bit of a question mark as to what was driving that. I know you had some -- put out -- showed some nice correlations in terms of consumer confidence. So -- but beyond that, can you kind of talk about sort of what you've been seeing in Q4? Has it gotten worse? And you mentioned first half being tough next year, kind of the degree as to I guess that weakness, is that similar? Should we be looking at that similar to what you saw in Q3 and potentially now in Q4?

Robert A. Mason

No, Mark. Q4 has really been a continuation of the environment we experienced in Q3. We talked about it -- as far as it relates to 2012, we talked about clients reestablishing their budgets to typical levels. What I would tell you today, that our visibility indicates that, that now is kind of a mixed bag with some clients re-upping those budgets, some clients continuing to feel this redemption pressure and pulling back on programs and other clients kind of reestablishing those budgets to maintain historical activity. So right now, I would tell you it's pretty much of a mixed bag. And one of the things that I think is also notable that I referenced in the prepared remarks is the loss of custom co-op activity that we began to feel in Q4 this year.

Mark J. Zgutowicz - Piper Jaffray Companies, Research Division

Okay. Great. One last one and I'll hop off here. In the press release, Rob, you were quoted as talking about innovative solutions that blend print and digital. I'm just curious if you think about timing of those solutions, is that something we should expect to see in Q1? Or is that potentially beyond that?

Robert A. Mason

I think you will see that on an ongoing basis and make itself apparent as we work through 2012, Mark. I think the press release talks about the need to move with more urgency there and put more focus on what I believe very strongly, what we believe very strongly as proprietary advantage in the marketplace. We've demonstrated our ability to blend newspaper and Shared Mail solutions. And this focus on blending digital and print solutions really is the next iteration of our optimization strategy. So I think you will see more of that as we work through 2012.

Mark J. Zgutowicz - Piper Jaffray Companies, Research Division

Okay. So that's -- so Q1 is -- and not to pin you to a time line here, but I'm just trying to get a sense, is Q1 probably too aggressive to expect some solutions on the digital front?

Robert A. Mason

Yes, Mark. We've actually been -- this is not a brand-new phenomena. It's more an increase in terms of the focus we're putting on that area. We've seen growth in the blended solutions, and I would tell you in the back half of 2011, and I think you should expect to see more of that as we work through 2012.

Operator

And our next question is from the line of Alexia Quadrani with JPMorgan.

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

A few questions on the FSI business. You did have custom co-op revenue in the third quarter of this year, is that correct?

Robert A. Mason

That's correct, Alexia.

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

And is the custom co-op generally just from one client? Or is it from a variety of clients?

Robert A. Mason

That revenue tends to be driven by a single client, Alexia.

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

And then still staying on the FSI business. Could you give us just sort of a general sense of what percentage of your planned FSI revenue in 2012 is under a new contract, meaning that you sort of resigned a new contract beginning January versus an ongoing contract that had previously been signed?

Robert A. Mason

I don't have that number with me. Bob, I don't know if you've got any --

Robert L. Recchia

I mean, generally, if you think about contracts being 2 years, as we get into 2012, half the contracts would have been renewed during '11 and you still got some contracts renewing in '12. But -- so off the top of my head, I would just say about half. It may be a little bit more than that because we had a lot of our bigger contracts come up for renewal this year. We'll have some of the smaller ones in '12.

Robert A. Mason

And unlike our Shared Mail business, there isn't any kind of a seasonal bubble as it relates to contract expiration or season in the FSI business, Alexia.

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

Well, I'm just trying to get a sense post-settlement what percentage of the business is sort of a new contract versus sort of an ongoing contract from sort of the presettlement time.

Robert L. Recchia

Well, I don't have that number with me, Alexia. We can take that off-line.

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

Okay. And then I guess just a bigger picture question. Right now you're under some pressure understandably with a redemption issue, so volume – industry-wide volumes are very weak in the FSI business. But how should we really think about this business longer term? I mean are you just plagued by sort of this redemption issue? Or is there other issues that are sort of depressing growth there? I mean I know you can't discuss price, but if you can sort of tell us how we really should -- is this a growth business longer term, and just a question of the economy and consumer confidence? Or is this a business we really should just sort of see more of a stable business and not necessarily growthy?

Robert A. Mason

I would tell you, Alexia, that's an interesting question because when you look at the redemption pressure, we're feeling it clearly indicates that the FSI remains a very viable way to influence consumer behavior. Having said that, it continues to be a very competitive environment, whereas the #2 player, growing shares is a challenging process. And this redemption issue that we're facing, I think, as I referenced before, clients' response to that is kind of a mixed bag right now. This was kind of an unforeseen and unprecedented pressure that came up in Q3. I don't know that we've sorted through all of the impacts and effects from it, but this is a business we remain committed to. And again, I think redemption patterns are telling us it continues to be a very viable way for CPG clients to influence consumer behavior and offer trade support.

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

And just one last question still on the FSI. Do you think your market share will be relatively the same in 2012 as it was in 2011?

Robert A. Mason

It's going to be down, Alexia, and virtually all of the decline is going to be related to the absence of custom co-ops in our 2012 plan.

Operator

And our next question is from the line of Chuck Cerankosky with Northcoast Research.

Charles Edward Cerankosky - Northcoast Research

I hope you can hear me. I'm out of the office today, but I have a couple questions for you. Regarding the loss of the custom FSI business, what drove that switch by the client?

Robert A. Mason

You know what, Chuck, we've maintained a very consistent policy of not talking about, a, specific client negotiations or relationships; and b, I think you know that we're very, very careful talking about anything related to price, so I'm not going to comment on that specific area today.

Charles Edward Cerankosky - Northcoast Research

All right. With that client gone, does it open the door for new custom FSI clients that we might see next year? I know you have none booked for now, but where is that effort at?

Robert A. Mason

You know what, Chuck, we're not actively looking to grow our share of the custom co-op business. That tends to be a business where the margins are not remarkably attractive. And as such, there are some opportunities to increase press utilization that was opened up from the loss of those programs, but we think there's a strategy in place today that will yield a more attractive margin profile.

Robert L. Recchia

And, Chuck, there's really not a lot of customers that are capable of putting a regular custom co-op program together just because you need so many brands to do that. So we prefer and we encourage them to buy in the cooperative, but it's better for us obviously, and it's much less expensive for them.

Charles Edward Cerankosky - Northcoast Research

All right. Understand. Now 2012 is an election year. How will that affect your advertising businesses? And will it switch volume in or out of your media?

Robert A. Mason

You know what, Chuck, we typically don't get any direct benefit out of an election year. One of the things that we may see is some incremental engagement with friends [ph] because what you typically see is broadcast inventory tightening up in an election and Olympic year. So there's not a direct impact, but I think there could be some positive tailwind we see from it.

Charles Edward Cerankosky - Northcoast Research

Tough to measure though.

Robert A. Mason

It is tough to measure.

Operator

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

Daniel Salmon - BMO Capital Markets U.S.

Bob, just one quick question. I know you're not giving EBITDA guidance anymore, but would a 38% tax rate and around $29 million to $30 million of interest expense be in the right ballpark for the year?

Robert L. Recchia

I'd say it's a 39% tax rate, and you're good on the interest.

Daniel Salmon - BMO Capital Markets U.S.

Okay. Great. And then just on the share buyback, you gave some good detail here on your expected share count and spending 50% of free cash flow. If I start with your cash EPS guidance, that implies about $85 million being spent on share buyback, which if I look at where the shares outstanding, I realize we're dealing with average counts here, but it would imply either a fairly low price or doing it earlier in the year rather than later. Does that jive with how you're looking at share buyback?

Robert L. Recchia

Well, I would tell you what we did is we gave you how we calculated it. I don't think that, that's necessarily how we would execute it because we don't know. So we try to give you something to go on. I think -- I saw your note earlier, it may have to be -- maybe that your base shares at the end of the period are off. But we could probably compare this off-line rather than go through numbers.

Daniel Salmon - BMO Capital Markets U.S.

Okay. I think that's most of what I've got. I know just the last question maybe is I know there've been some talk around a potential dividend and obviously your board has decided against us. Could you maybe just flush out how that decision came down?

Robert A. Mason

I think you characterized it very well, and we don't believe that dividend is the best use of our free cash today particularly where our stock price is. We see it something if we do begin, it's very difficult to get out of, and our board is in full alignment with that position.

Operator

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

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

Now to bring up the topic of EBITDA, which I know we're not focusing on but some other do. You're showing flat EBITDA effect on the guidance year-over-year, but you're growing the SG&A $10 million to $15 million, and the question would be what is the increased funding?

Robert A. Mason

Bob, you want to take that?

Robert L. Recchia

Yes. I mean, basically, as we put the plan together, the increase in SG&A is for increased resources in digital, increased resources in sales for some of the new products and then sort of reloading, if you will, the incentive compensation plans if we hit targets, including incentive compensation for salespeople. So every year when we start, we've got to make the assumption we're going to hit numbers. If we don't, a lot of our SG&A self-regulates down. So you're seeing that happen. As always, I think we have demonstrated this. I know we have demonstrated this. We manage that number fairly tightly, so I don't think you have to worry about that one running away from us. If it does go up and it goes up as a result of performance, then that will be a positive, that'll be a win for both sides.

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

And then what do you think you're going to invest in digital total for the year? And where is the run rate of the business currently on a revenue basis?

Robert A. Mason

I don't know if we're prepared to break that out for you this morning, Bill. I think referenced in the release I talked earlier that we're going to put more focus and approach in this business with more urgency. I think the best way to characterize it is we will invest what's necessary to really generate some meaningful growth out of our digital business and continue to try and make it a very meaningful component of our total revenue.

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

Okay. And then depreciation and amortization looks like it's going to be about $58 million in 2012. Where do you see that going in 2013 as some of the ADVO D&A processes through?

Robert L. Recchia

Bill, I don't have it in front of me. I believe it goes down a little bit in '13. I think 2014 is the year it drops down a little bit more from some of the ADVO things that are fully depreciated.

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

Got it. And then -- so it looks like free cash flow -- implied free cash flow guidance for 2012 would be just looking at a ballpark around $160 million to $170 million. Is that coming in close?

Robert L. Recchia

It's in the ballpark.

Robert A. Mason

Good guess.

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

Okay. And then your thoughts on paper prices going forward for super calendar B?

Robert A. Mason

You know what, Bill, we're wrapping that process up as we speak. My full expectation, our full expectation, is that we will go into 2011 with 0 increases in our SC grades of paper, and we are exploring every single option to make sure that, that assumption and projection holds true.

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

Got it. And last question, the -- your talk -- for assured [ph] mail, you're talking about number of pieces being flat and pieces per package being up. And what happens to the number of packages and the revenue per piece in this scenario that you're looking at?

Robert A. Mason

You know what, Bill, I think the number of packages, we're projecting to be pretty much flat or just slightly down. And then in terms of pieces per package, we see growth there, and revenue per package will be slightly up as well. I think those are the 2 key metrics you want to keep your eye on.

Operator

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

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

First one for me just on the Shared Mail side with the growth assumptions being a mix of volume with some surgical choices on pricing. How should we think about incremental margins in that business?

Robert A. Mason

I think volume will end up being the key driver to margin enhancements given the operating leverage of that business, Dan. We're going to continue to look for operating efficiencies wherever we can get them. As we're able to drive more volume, we'll see improvement, some incremental improvement in unused postage.

Robert L. Recchia

Yes. So just to quantify, it's still north of 50%, depending upon what you're putting in there in terms of the incremental volume, which means as long as we continue to grow the pieces per package and the revenue per package, you're going to continue to see improvement at the gross margin line and it flows right through the EBITDA.

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

That's helpful. On the custom co-op customer, is this customer -- do you still have the customer for the regular FSI business? Or did that piece go away as well?

Robert A. Mason

It is a customer that continues to be a cooperative FSI customer, Dan.

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

Okay. And then last one for me, just Coupons.com, the stake there, where does that stand in terms of the size of the equity stake? And have there been any changes in that position?

Robert A. Mason

There was one change a while ago when they did their capital raise and they did allow people to sell off a piece of it, but no changes since then. And we own -- I don't know even know the exact number because their share count changes. They are fairly liberal with handing out options. I would say we're probably south of 1.5%.

Operator

[Operator Instructions] Our next question is from Edward Atorino with Benchmark.

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

Regarding the custom, there are some pages there obviously which are disappearing, could they reappear in the normal book? I mean would that customer put them in the normal book? Or do they just go away?

Robert A. Mason

It's tough to say. I think the way you want to think about it, Ed, is that, that chunk of revenue volume is gone.

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

Got you. And you're talking flat total revenues, right?

Robert A. Mason

Flattish. I think that's what I said, Ed, yes.

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

Is that on the neighborhood target? You had that big hole in the revenues from the loss of the insert business, et cetera. Is that sort of gone forever and that you're looking at the year-to-year comp...

Robert A. Mason

You know what, Ed, the biggest pressure point in Neighborhood Targeted was not from the inserts, but from ROP.

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

That's what I meant. I meant the ROP. That went away, a big chunk of that, right?

Robert A. Mason

Yes, a big chunk of it did go away. We have not factored any growth. In fact, there will be some continued hangover in that business as we go into 2012. The one thing you need to remember is that, that is a business that has this light switch associated with it, and at any time, because we're offering this as a service to predominately our largest clients, that light switch can get flipped on, and that business can regenerate itself almost overnight.

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

Which businesses are you going to be discontinuing? Could you...

Robert L. Recchia

We haven't specified. They're noncore; they're very small. I doubt you even know what they are.

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

Lastly, on the shares, did you say that you're going to end up at 39 million change? Would that be like the fourth quarter number?

Robert L. Recchia

39.5 million in basic shares though. You've got to add dilution to it. That would be the end of 2012.

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

Right. So scale it down from there to now, and we'll just make some guesses, I guess.

Robert L. Recchia

Yes, I mean you could probably just do it linearly.

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

Got you. So interest expense with the -- and that sort of hangs in there? Or is that going to change very much?

Robert L. Recchia

Between $29 million and $30 million.

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

Got you. Excuse me?

Robert L. Recchia

Between $29 million and $30 million.

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

Your interest expense can be between $29 million and $39 million?

Robert L. Recchia

$29 million and $30 million.

Operator

And our next question is a follow-up from the line of Chuck Cerankosky.

Charles Edward Cerankosky - Northcoast Research

Well, quick follow-up. I guess this is for Bob. I'm looking at that $15 million to $20 million charge in the fourth quarter, Bob. How much of that is going to be cash?

Robert L. Recchia

Good question. I should have included that. Very little of it, probably a couple million bucks. It's all noncash. All but maybe $2 million is noncash.

Operator

And our next question is another follow-up from the line of Mark Zgutowicz.

Mark J. Zgutowicz - Piper Jaffray Companies, Research Division

Just a quick follow-up on Shared Mail. I forgot to ask. The trends this quarter that you've been seeing in Shared Mail, could you comment on that? And if that pretends to some confidence entering Q1 or are you sort of at a restart in Q1 given Q4 is obviously seasonally stronger?

Robert A. Mason

No, Mark. I think back on our Q3 call, I referenced the fact that we had experienced this kind of speed bump between the Shared Mail business in Q3. And I saw Q4 getting back to the kind of growth we saw in the second quarter of this year. And with the visibility we have right now into Q1, I would tell you that we see that kind of growth pattern continuing into Q1 and the rest of 2012.

Operator

And there are no further questions at this time. I would now like to turn the call back over to Mr. Mason for closing remarks.

Robert A. Mason

Great. Camille, thank you. I want to thank everybody for being on this morning's call. To wrap things up, I want to make sure that I clearly understand the importance of meeting the expectations that I've set this morning. I also want to reinforce our leadership team's confidence in our ability to deliver our 2012 plan. Continued strength in our Shared Mail business and our plans around share repurchase will both play a very important role in our success in 2012. Consumers' demand for value along with marketers' need to reach these consumers in a way that delivers strong ROI, creates an environment for growth of our portfolio and the opportunities for us to enhance our client-facing value by increasing our focus and urgency in delivering blended print and digital solutions. I am incredibly proud to have the opportunity to lead such an extraordinary organization, and I'm truly excited about writing the next chapter in our company's history. Please accept our sincere best wishes for a happy and restful holiday season and a prosperous new year.

Operator

Ladies and gentlemen, this concludes the Valassis 2012 Guidance Conference Call. You may now disconnect. Thank you for using AZT Conferencing.

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