Conversant, Inc. (
or erstwhile ValueClick is rebuilding its brand value post the
divestitures of Owned & Operated Websites segment. This is
fairly reflected in its mixed second-quarter 2014 results. The
company's better-than-expected top-line growth was negatively
impacted by continuing investments and aggressive hiring.
However, share prices increased 3.16% since the company reported
results on Aug 6, reflecting growing investor optimism regarding
its future plans and long-term growth prospect.
Conversant posted non-GAAP earnings (including stock-based
compensation) of 31 cents per share in the second quarter, which
was in line with the Zacks Consensus Estimate. Earnings per share
improved significantly from 12 cents reported in the year-ago
Revenues increased 7.2% year over year to $137.4 million and were
almost in line with the mid-point of management's guided range of
$135-$140 million. However, revenues missed the Zacks Consensus
Estimate of $138 million.
The year-over-year increase was primarily driven by strong
performances from the Affiliate Marketing segment and the Media
business. Revenues from the Affiliate Marketing segment increased
almost 11% from the year-ago quarter to $40.6 million. Conversant's
Media segment reported an increase of 5.7% year over year to $96.7
In the second quarter, Conversant processed over a trillion bid
requests through its real-time bidding system. The company also
monitored over 1 billion clicks in a month and handled 2 billion
actual customer transactions.
Adjusted earnings before interest, tax, depreciation and
amortization (EBITDA) decreased 10.6% year over year to $41.8
million, which was below management's guided range of $42.0 to
$44.0 million. The decrease was primarily due to unfavorable
Operating expenses (excluding amortization) as percentage of
revenues increased 430 basis points (bps) to 42.7%, driven by
higher sales & marketing and technology related expenses, which
increased 220 and 160 bps, respectively. General &
administrative expense increased 60 bps from the year-ago quarter.
Operating income (including stock-based compensation) decreased
13.3% year over year to $33.8 million.
Net income (including stock-based compensation) was $20.7 million
or 31 cents per share compared with $9.4 million or 12 cents in the
Balance Sheet & Cash Flow
Cash and cash equivalents were $83.6 million compared with $90.4
million in the previous quarter.
Conversant repurchased 2,556,000 common shares at an average
cost of $24.39 per share during the second quarter ended Jun 30,
The company's board of directors recently approved a $150 million
increase in the share buyback program.
For the third quarter of 2014, Conversant expects revenues in the
range of $142-$148 million, up 8% from the year-ago quarter at the
mid-point. Conversant forecasts revenues from Affiliate Marketing
in the range of $40 to $41 million. Media revenues are expected in
the range of $102 to $107 million.
Adjusted EBITDA is expected in the range of $44 to $47 million,
with adjusted margin of 31.4% at the mid-point. The company expects
EBITDA margin to approach 40% in the fourth quarter, which will
bring overall margins for the full year to 34%. Management expects
EBITDA margins to return to more normalized levels in 2015.
Non-GAAP earnings are expected in the range of 37-39 cents per
share, much higher than the Zacks Consensus Estimate of 33 cents.
We believe that Conversant's strong product portfolio, aided by
accretive acquisitions, will continue to drive market share for the
rest of 2014. The company is realigning its operations toward
high-margin businesses, which is expected to drive profitability.
Moreover, the company is re-branding its business in the domestic
market, which will boost its presence among marketers. The upcoming
customer relationship marketing (CRM) product launch and European
re-branding program are additional growth catalysts.
Additionally, we believe that the acquisition of SET Media (in
February) provides marketers with unparalleled targeting
capabilities and complete brand safety in digital video
advertising, which in turn will drive growth and profitability.
However, intensifying competition from the likes of Google (
), Yahoo! (
) and Digital River (
) remains a concern. Conversant's CRM business is also expected to
face significant headwinds.
Currently, Conversant has a Zacks Rank #3 (Hold).
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