Conversant, Inc. (CNVR) or erstwhile ValueClick (VCLK) reported fourth-quarter 2013 non-GAAP earnings of 60 cents per share, which increased 45.2% on a year-over-year basis.
On Feb 3, 2014, ValueClick announced that it has changed its name to Conversant, Inc.
Quarter Details
Revenues increased 5.9% from the year-ago quarter to $176.4 million. Reported revenues were higher than management’s guided range of $166.0 million-$171.0 million. The year-over-year increase was primarily driven by strong performances in the Affiliate Marketing segment and the Media business.
Revenues from the Affiliate Marketing segment increased 12.0% from the year-ago quarter to $49.1 million. Conversant’s Media segment reported an increase of 4.0% year over year to $127.4 million.
Operating expenses increased 2.3% year over year to $59.9 million. General & administrative expenses and technology expenses were down 11.8% and 0.04%, respectively on a year-over-year basis. Expenses related to sales and marketing increased 13.1% year over year. As a percentage of revenue, operating expenses were down 120 basis points (bps) to 34.0%.
Conversant’s non-GAAP income from operations spiked 8.9% from the year-ago quarter to $60.3 million. Operating margin increased from 33.2% in the year-ago quarter to 34.2%, primarily due to favorable mix toward value added services. Net income on a non-GAAP basis was $41.0 million compared with $31.7 million in the year-ago quarter.
Cash and cash equivalents were $81.3 million compared with $54.5 million in the previous quarter. Total debt was $140.0 million. The company reported free cash flow of $165.0 million at the end of the reported quarter compared with $100.6 million in the prior quarter.
Outlook
For the first quarter of 2014, Conversant expects revenues in the range of $138.0 million-$144 million .Non-GAAP earnings are expected to be in the range of 38 cents-39 cents per share and the Zacks Consensus Estimate of 38 cents happens to be higher than the midpoint of the management guidance.
Conversant forecasts revenues from Affiliate Marketing to be in the range of $39.0 million to $41.0 million. For the first quarter, Media revenues are expected to be in the range of $99.0 to $103.0 million.
Recommendation
Conversant reported encouraging fourth quarter results. We believe that Conversant’s strong product portfolio, aided by accretive acquisitions, will continue to drive market share, going forward. The company is realigning its operations toward high-margin businesses, which is expected to drive profitability.
We believe that the strength in the Internet advertising industry, increasing e-commerce spending, focus on core business and improving display ad growth trends will add to Conversant’s growth prospects going forward.
Additionally, we believe that the recent acquisition of SET Media provides marketers with unparalleled targeting capabilities and complete brand safety in digital video advertising, which in turn will drive growth and profitability going forward.
Conversant will face competition from Yahoo! Inc. (YHOO), Akamai Tech (AKAM) and Digital River (DRIV), which is expected to affect its profitability, going forward.
Currently, Conversant holds a Zacks Rank #2 (Buy).
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