You may not know Catalina Marketing, but it knows you. The unit of Checkout Holding Corp. that offers grocery-store coupons for household names like Febreze and Frito Lay is shifting its focus from coupons to collecting data on consumers.
Catalina is reworking both its business model and its capital structure out of necessity. Shoppers are changing their habits, sales and earnings are down and management expects more declines the rest of this year.
The company is talking with creditors about how to lighten its $1.6 billion debt load, which includes loans trading for less than 20 percent of their original value. Some of the borrowings come due as soon as April, and the company is working with legal and financial advisers.
"We're going through a restructuring for a reason," Marta Cyhan, Catalina's chief marketing officer, said in an interview with Bloomberg. "The marketplace has changed, marketing dollars are becoming more scarce," and Catalina's model has shifted to reflect that, she said.
Catalina, owned by private equity firms Berkshire Partners and Hellman & Friedman, is in talks with its lenders to refinance its debt, according to people with knowledge of the matter. It hired Weil Gotshal & Manges and financial adviser Centerview Partners Holdings to advise on the discussions, which have been going on since May, said the people, who asked not to be identified because the negotiations are confidential.
Those talks are going on without a permanent leader in place at Catalina. Chief Executive Officer Andrew Heyman left in the first half of 2018 after less than two years on the job. An executive team has been in charge while the search for a replacement continues.
In the meantime, Catalina no longer wants to be identified only for its coupons. "When items were all purchased in store, we had a monopoly. That was the Catalina of yesterday," said Gregory Mann, president of the emerging brands unit, which caters to smaller consumer packaged goods companies. Instead, the company is expanding its digital offering, developing products like the Catalina "Hub" that tracks purchase behavior to track how brands are performing.
The St. Petersburg, Florida-based company tracks individual shoppers through an identification code and uses that information to identify behaviors in stores and online. Catalina then delivers that information to brands and retailers to help them define future marketing goals to drive sales.
"Our greatest capability is the ability to understand and influence the conversion from a shopper to a buyer," said Cyhan, who joined the company in April 2017 as head of marketing. The majority of Catalina's business remains at grocery, convenience and drug-store chains across the globe, though it's making an effort to expand into digital platforms like mobile apps. Several new products are set to be introduced later this year, Cyhan said, declining to comment on the specifics ahead of their release.
Second-quarter sales dropped 11 percent to $136 million, and earnings before taxes, depreciation and amortization slid 10 percent to $44 million for the quarter ended June 30, said people with knowledge of the results.
Executives told investors on a conference call that in the first half of the year they were experiencing "internal and external headwinds," and that results for the back half of 2018 would be lower year-over-year and sequentially, contradicting previous forecasts for growth, the people said. The comments sent Catalina's $460 million second-lien term loan due 2022 tumbling more than 5 cents on the dollar to as low as 17 cents on Aug. 16, according to Bloomberg pricing data.
S&P Global Ratings downgraded Catalina in June to CCC because of "weak operating performance" and strained free cash flow. Unless there's a renegotiation, the company won't be able to cover interest due in April when its pay-in-kind notes must start to pay cash, which will add $43 million of expenses annually, S&P said. It calculated Catalina's leverage at 12 times a key measure of earnings as of Dec. 31.
First-lien term lenders were proposing to amend and extend their existing debts and inject $100 million of capital, Reorg Research reported last month. Talks were also held with second-lien and revolver lenders, it said.
Catalina works with more than 10,000 brands and 125 retail banners, according to management. Founded in 1983, the company set up checkout coupon programs at grocery stores in New York and California. Catalina now identifies as a media company, providing data intelligence to its retailers, partners and consumer package goods to convert shoppers into buyers.
"It's a totally new day for us," said Mann, hired March of 2017 to target emerging brands with revenue of $1 billion or less. "We've gone through such a transformation of what we now offer and what we do, we have to get the word out."
-- Bloomberg News