Conversant (CNVR) Posts In-line Q2 Earnings, Lags Revenues - Analyst Blog

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Conversant, Inc. ( CNVR ) 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 quarter.


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 million.

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 product mix.

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 year-ago quarter.

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, 2014.

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.

Our Take

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 ( GOOGL ), Yahoo! ( YHOO ) and Digital River ( DRIV ) 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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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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