Conversant, Inc. (NASDAQ: CNVR) today reported financial results for the
first quarter ended March 31, 2014.
"The Conversant team delivered solid execution in Q1, resulting in our
highest quarterly revenue growth in four quarters," said
John Giuliani,
president and CEO of Conversant. "The enthusiastic response to our
rebrand campaign and newly unified offerings validates our strategic
focus on personalized digital marketing across channels and devices."
Giuliani added, "Our recent acquisition of digital video technology
company, SET Media, further strengthens our personalization capabilities
and accelerates our investment in the high-growth video advertising
market."
Q1 Results Summary
In millions, except percentages and per share amounts
Q1 2014
Q1 2013
% Change
Revenue
$
145.9
$
134.5
8%
Adjusted EBITDA(1)
$
48.5
$
50.4
(4)%
GAAP Net Income from Continuing Operations
$
20.1
$
23.4
(14)%
Non-GAAP Net Income(1)
$
27.0
$
29.1
(7)%
GAAP Net Income from Continuing Operations Per Diluted Common
Share
$
0.29
$
0.30
(3)%
Non-GAAP Net Income Per Diluted Common Share(1)
$
0.39
$
0.38
3%
(1) Adjusted EBITDA, Non-GAAP Net Income and Non-GAAP Net Income Per
Diluted Common Share are Non-GAAP measures and are described below and
reconciled to their most comparable GAAP measures.
Q1 2014 Financial Summary
Revenue was $145.9 million, an increase of 8% year-over-year.
Adjusted EBITDA was $48.5 million, a decrease of 4% year-over-year.
The year-over-year decrease reflects, among other factors,
approximately $3.0 million in one-time rebranding costs and an
operating loss from SET Media of approximately $1 million following
the February 2014 acquisition.
Adjusted EBITDA margin decreased to 33.2% from 37.5% in the first
quarter of 2013.
Non-GAAP net income per diluted common share was $0.39, an increase of
3% year-over-year.
GAAP net income from continuing operations per diluted common share
was $0.29, a decrease of 3% year-over-year.
Recent Business Highlights
Conversant appointed
Oded Benyo to serve as president of the Company's
European operations. Benyo formerly led Conversant's enterprise
operations in the U.S., where he was instrumental in integrating
client operations across business lines.
The Company achieved early progress integrating the SET Media
acquisition by creating a technology framework to combine SET Media's
contextual targeting platform with Conversant's more than 200 million
anonymous consumer profiles.
The Company has increased its headcount by approximately 7% since
December 31, 2013 to accelerate its growth initiatives.
Cash Flows
Free cash flow for the quarter ended March 31, 2014 was $38.6 million.
The decrease year-over-year was attributable to the former Owned &
Operated ("O&O") Websites segment cash flows being included in the
year-ago period as well as a smaller impact from working capital
changes in the current year period. (The Company defines free cash
flow as net cash provided by operating activities less capital
expenditures.)
Free cash flow for the trailing 12 month period ended March 31, 2014
was $155.4 million.
Stock Repurchases
Conversant repurchased 758,000 common shares at an average cost of
$24.60 per share during the first quarter ended March 31, 2014.
Subsequent to the quarter end and through May 6, 2014, the Company has
repurchased an additional 792,000 shares at an average cost of $25.03
per share.
As of May 6, 2014 the remaining availability under the Company's stock
repurchase authorization was $61.5 million.
Balance Sheet
The Company returned to a net positive cash position as of March 31,
2014, with cash and cash equivalents of $90.4 million and total debt
of $60.0 million.
Conversant Segment Financial Summary
In millions, except percentages
Q1 2014
Q1 2013
% Change
Affiliate Marketing Revenue
$
42.5
$
38.3
11%
Media Revenue
103.5
96.3
7%
Consolidated Revenue
$
145.9
$
134.5
8%
Affiliate Marketing Income from Operations
$
26.1
$
22.9
14%
Media Income from Operations
29.1
31.3
(7)%
Total Segment Income from Operations
$
55.2
$
54.2
2%
Q1 2014 Segment Results Summary
Affiliate marketing segment revenue was $42.5 million, an increase of
11% year-over-year.
Media segment revenue was $103.5 million, an increase of 7%
year-over-year.
Media segment income from operations decreased due to increased
marketing spending in connection with Conversant's rebranding in Q1
2014 and the operating loss incurred by SET Media.
Q2 2014 Business Outlook
Conversant's financial guidance for the second quarter of 2014 is
presented in the following tables. Results for the second quarter of
2013 are provided as a basis for comparison and have been recast to
reflect the reclassification of the Company's former O&O Websites
segment to discontinued operations.
"Our second quarter guidance implies fairly consistent revenue growth
with the first quarter and reflects the significant investments we are
making in our people and products," said
John Pitstick, Chief Financial
Officer of Conversant. "The mid-point of our earnings guidance for Q2
reflects approximately $10 million of additional cash operating expenses
as compared to the year ago period."
Consolidated Financial Outlook
Q2 2014 Guidance
Q2 2013 Actual Results
Revenue
$135 - $140 million
$128.1 million
Adjusted EBITDA
$42 - $44 million
$46.8 million
Mid-Point Adjusted EBITDA Margin
31.3%
36.5%
Non-GAAP net income per diluted common share
$0.34 - $0.35
$0.16(1)
Impact of stock-based compensation and amortization of intangibles,
net of tax
$(0.10)
$(0.08)
GAAP net income from continuing operations per diluted common share
$0.24 - $0.25
$0.08(1)
(1) Q2 2013 Non-GAAP and GAAP net income per diluted common share
were negatively impacted by an impairment charge on a note
receivable equivalent to approximately $0.18 per share.
Segment Revenue Assumptions
Q2 2014 Guidance
Q2 2013 Actual Results
Affiliate Marketing Segment Revenue
$39.5 - $40.5 million
$36.6 million
Media Segment Revenue
$95.5 - $99.5 million
$91.5 million
Additional Guidance Assumptions
Conversant's second quarter 2014 guidance assumes: stock-based
compensation of $5.3 million; amortization of intangible assets of $6.1
million ($2.5 million of which will be included in cost of revenue); net
interest and other expense of $0.5 million; a 40% effective tax rate;
and 67.8 million diluted shares outstanding.
Use of Non-GAAP Financial Measures
To provide investors with additional information regarding Conversant's
financial results, Conversant has disclosed in the tables below and
elsewhere in this press release Adjusted EBITDA and Non-GAAP Net Income
Per Diluted Common Share. Each of these Non-GAAP measures is defined
within the following section of this press release and reconciled to
their most comparable GAAP financial measure. Investors should not
consider these Non-GAAP measures in isolation or as a substitute for
GAAP financial measures. Conversant's definition of Adjusted EBITDA and
Non-GAAP Net Income Per Diluted Common Share may not necessarily be
directly comparable to similarly titled Non-GAAP measures employed by
other companies.
Q1 2014 Conference Call and Webcast Today at 4:30 p.m. Eastern Time
(1:30 p.m. Pacific Time)
Conversant management will host a conference call at 4:30 p.m. Eastern
Time (1:30 p.m. Pacific Time) today to discuss its financial and
operating results for the first quarter of 2014. A live webcast of the
conference call, along with a financial highlights presentation
containing supplemental information, will be available on Conversant's
investor relations website at http://ir.conversantmedia.com.
A replay of the webcast will be available through the same link
beginning approximately two hours after the completion of the live call.
To access the live conference call by telephone, interested parties
should dial 888-240-9378 (for domestic participants) or 913-312-0377
(for international participants) at least 10 minutes prior to the start
time and use conference ID 1633876. A telephonic replay of the
conference call will be available from 7:30 p.m. Eastern Time on May 6,
2014 until 7:30 p.m. Eastern Time on May 13, 2014. To access the replay,
interested parties should dial 888-203-1112 (for domestic participants)
and 719-457-0820 (for international participants) and the conference ID
1633876.
About Conversant
Conversant, Inc. (NASDAQ: CNVR) is the leader in personalized digital
marketing. Conversant helps the world's biggest companies grow by
creating personalized experiences that deliver higher returns for brands
and greater satisfaction for people. We offer a fully integrated
personalization platform, personalized media programs and the world's
largest affiliate marketing network - all fueled by a deep understanding
of what motivates people to engage, connect and buy. For more
information, please visit www.conversantmedia.com.
Cautionary Information Regarding Forward-Looking Statements
This release contains forward-looking statements that involve risks
and uncertainties, including, but not limited to, the risk that market
demand for on-line advertising will not grow as rapidly as predicted,
and the risk that legislation and governmental regulation could
negatively impact the Company's performance. Actual results may differ
materially from the results predicted, and reported results should not
be considered an indication of future performance. Important factors
that could cause actual results to differ materially from those
expressed or implied in the forward-looking statements are detailed
under "Risk Factors" and elsewhere in filings with the Securities and
Exchange Commission made from time to time by Conversant, including, but
not limited to: its annual report on Form 10-K filed on March 3, 2014;
recent quarterly reports on Form 10-Q; and other current reports on Form
8-K.
The Business Outlook contained in this release is based on current
expectations. These statements are forward-looking, and actual results
may differ materially. These statements do not include the potential
impact of any mergers, acquisitions or other business combinations that
may be completed after the date of this release. Actual stock-based
compensation may differ from these estimates based on the timing and
amount of stock awards granted, the assumptions used in stock award
valuation and other factors. Actual income tax expense may differ from
these estimates based on tax planning, changes in tax accounting rules
and laws, and other factors.
Conversant undertakes no obligation to release publicly any revisions
to any forward-looking statements to reflect events or circumstances
after the date hereof or to reflect the occurrence of unanticipated
events.
CONVERSANT, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
Three-month Period
Ended March 31,
2014
2013
(Unaudited)
Revenue
$
145,913
$
134,483
Cost of revenue
47,220
42,330
Gross profit
98,693
92,153
Operating expenses:
Sales and marketing (Note 1)
26,515
21,063
General and administrative (Note 1)
17,870
16,593
Technology (Note 1)
15,972
13,623
Amortization of intangible assets acquired in business combinations
4,538
3,551
Total operating expenses
64,895
54,830
Income from operations
33,798
37,323
Interest and other income (expense), net
(264
)
(406
)
Income before income taxes
33,534
36,917
Income tax expense
13,452
13,538
Net income from continuing operations
20,082
23,379
Net income from discontinued operations
155
2,904
Gain on sale, net of tax
34,226
—
Net income
$
54,463
$
26,283
Net income from continuing operations per common share - basic
$
0.30
$
0.31
Net income from continuing operations per common share - diluted
$
0.29
$
0.30
Net income per common share - basic
$
0.81
$
0.35
Net income per common share - diluted
$
0.79
$
0.34
Weighted-average shares used to compute net income
per common share - basic
67,087
75,648
Weighted-average shares used to compute net income
per common share - diluted
68,727
77,567
Note 1 - Includes stock-based compensation as follows:
Three-month Period
Ended March 31,
2014
2013
(Unaudited)
Sales and marketing
$
1,161
$
1,158
General and administrative
2,403
2,254
Technology
1,185
1,105
Total stock-based compensation
$
4,749
$
4,517
CONVERSANT, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
March 31,
December 31,
2014
2013
(Unaudited)
ASSETS
Current Assets:
Cash and cash equivalents
$
90,444
$
81,319
Accounts receivable, net
131,558
148,738
Other current assets
58,707
18,510
Assets held for sale
—
32,802
Total current assets
280,709
281,369
Assets held for sale, less current portion
—
55,642
Property and equipment, net
27,356
28,006
Goodwill
402,254
388,922
Intangible assets, net
51,754
48,501
Other assets
2,770
15,335
TOTAL ASSETS
$
764,843
$
817,775
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
111,799
130,529
Borrowings under credit facility, less current portion
60,000
140,000
Other non-current liabilities
43,838
33,645
Liabilities related to assets held for sale
—
8,704
Total liabilities
215,637
312,878
Total stockholders' equity
549,206
504,897
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
$
764,843
$
817,775
CONVERSANT, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Three-month Period
Ended March 31,
2014
2013
Cash flows from operating activities:
Net income
$
54,463
$
26,283
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization
9,924
9,709
Non-cash, stock-based compensation
4,749
4,797
Provision for doubtful accounts and sales credits
1,057
1,760
Gain on sale of business
(34,226
)
—
Amortization of discount on note receivable
—
(570
)
Deferred income taxes
1,020
1,210
Tax benefit from stock-based awards
2,235
2,245
Excess tax benefit from stock-based awards
(2,237
)
(2,399
)
Changes in operating assets and liabilities, excluding business
acquisitions
3,306
6,430
Net cash provided by operating activities
40,291
49,465
Cash flows from investing activities:
Purchases of property and equipment
(1,738
)
(1,401
)
Principal payments received on note receivable
—
1,005
Proceeds from the sale of business, net of cash divested
72,813
—
Payments for acquisitions, net of cash acquired
(24,286
)
—
Net cash provided by (used in) investing activities
46,789
(396
)
Cash flows from financing activities:
Proceeds from borrowings under credit agreement
55,000
—
Repayments under credit agreement
(135,000
)
(62,500
)
Repurchases and retirement of common stock
(18,673
)
—
Proceeds from shares issued under employee stock programs
3,438
5,835
Excess tax benefit from stock-based awards
2,237
2,399
Net cash used in financing activities
(92,998
)
(54,266
)
Effect of exchange rate changes on cash and cash equivalents
110
(2,307
)
Effect on cash and cash equivalents from discontinued operations
14,933
—
Net increase (decrease) in cash and cash equivalents
9,125
(7,504
)
Cash and cash equivalents, beginning of period
81,319
136,638
Cash and cash equivalents, end of period
90,444
129,134
CONVERSANT, INC.
RECONCILIATION OF NET INCOME FROM CONTINUING OPERATIONS
TO ADJUSTED EBITDA (Note 1)
(In thousands)
Three-month Period
Ended March 31,
2014
2013
(Unaudited)
Net income from continuing operations
$
20,082
$
23,379
Interest and other (income) expense, net
264
406
Income tax expense
13,452
13,538
Amortization of acquired intangible assets included in cost of
revenue
2,309
1,985
Amortization of acquired intangible assets included in operating
expenses
4,538
3,551
Depreciation and leasehold amortization
3,068
2,999
Stock-based compensation
4,749
4,517
Adjusted EBITDA
$
48,462
$
50,375
Note 1 - "Adjusted EBITDA" (GAAP net income from continuing
operations before interest, income taxes, depreciation, amortization,
and stock-based compensation) included in this press release is a
non-GAAP financial measure.
Adjusted EBITDA, as defined above, may not be similar to adjusted EBITDA
measures used by other companies and is not a measurement under GAAP.
Management believes that adjusted EBITDA provides useful information to
investors about the Company's performance because it eliminates the
effects of period-to-period changes in income from interest on the
Company's cash and cash equivalents, note receivable and borrowings, and
the costs associated with income tax expense, capital investments, and
stock-based compensation which are not directly attributable to the
underlying performance of the Company's business operations. Management
uses adjusted EBITDA in evaluating the overall performance of the
Company's business operations.
Though management finds adjusted EBITDA useful for evaluating aspects of
the Company's business, its reliance on this measure is limited because
excluded items often have a material effect on the Company's earnings
and earnings per common share calculated in accordance with GAAP.
Therefore, management uses adjusted EBITDA in conjunction with GAAP
earnings and earnings per common share measures. The Company believes
that adjusted EBITDA provides investors with an additional tool for
evaluating the Company's core performance, which management uses in its
own evaluation of overall performance, and a baseline for assessing the
future earnings potential of the Company. While the GAAP results are
more complete, the Company prefers to allow investors to have this
supplemental metric since, with a reconciliation to GAAP, it may provide
greater insight into the Company's financial results.
CONVERSANT, INC.
RECONCILIATION OF GAAP NET INCOME FROM CONTINUING OPERATIONS TO
NON-GAAP DILUTED NET INCOME PER COMMON SHARE (Note 1)
(In thousands)
Three-month Period
Ended March 31,
2014
2013
(Unaudited)
Net income from continuing operations
$
20,082
$
23,379
Stock-based compensation
4,749
4,517
Amortization of acquired intangible assets included in cost of
revenue
2,309
1,985
Amortization of acquired intangible assets included in operating
expenses
4,538
3,551
Tax impact of above items
(4,681
)
(4,302
)
Non-GAAP net income
$
26,997
$
29,130
Non-GAAP net income per diluted common share
$
0.39
$
0.38
Weighted-average shares used to compute non-GAAP net income per
diluted common share
68,727
77,567
Note 1 - "Non-GAAP net income per diluted common share" (GAAP net income
from continuing operations per diluted common share before the impact of
stock-based compensation and amortization of intangible assets) included
in this press release is a non-GAAP financial measure.
Non-GAAP net income per diluted common share, as defined above, may not
be similar to non-GAAP net income per diluted common share measures used
by other companies and is not a measurement under GAAP. Management
believes that non-GAAP net income per diluted common share provides
useful information to investors about the Company's performance because
it eliminates the effects of items which are not directly attributable
to the underlying performance of the Company's business operations.
Management uses non-GAAP net income per diluted common share in
evaluating the overall performance of the Company's business operations.
Though management finds non-GAAP net income per diluted common share
useful for evaluating aspects of the Company's business, its reliance on
this measure is limited because excluded items often have a material
effect on the Company's earnings and earnings per common share
calculated in accordance with GAAP. Therefore, management uses non-GAAP
net income per diluted common share in conjunction with GAAP earnings
and earnings per common share measures. The Company believes that
non-GAAP net income per diluted common share provides investors with an
additional tool for evaluating the Company's core performance, which
management uses in its own evaluation of overall performance, and a
baseline for assessing the future earnings potential of the Company.
While the GAAP results are more complete, the Company prefers to allow
investors to have this supplemental metric since, with a reconciliation
to GAAP, it may provide greater insight into the Company's financial
results.
CONVERSANT, INC.
SEGMENT OPERATING RESULTS
(In thousands)
Three-month Period
Ended March 31,
2014
2013
(Unaudited)
Affiliate Marketing:
Revenue
$
42,464
$
38,311
Cost of revenue
4,543
4,562
Gross profit
37,921
33,749
Operating expenses
11,809
10,824
Segment income from operations
$
26,112
$
22,925
Media:
Revenue
$
103,462
$
96,256
Cost of revenue
40,363
35,839
Gross profit
63,099
60,417
Operating expenses
33,970
29,094
Segment income from operations
$
29,129
$
31,323
Reconciliation of segment income from operations
to consolidated income from operations:
Total segment income from operations
$
55,241
$
54,248
Corporate expenses
(9,847
)
(6,872
)
Stock-based compensation
(4,749
)
(4,517
)
Amortization of acquired intangible assets included in cost of
revenue
(2,309
)
(1,985
)
Amortization of acquired intangible assets included in operating
expenses
(4,538
)
(3,551
)
Consolidated income from operations
$
33,798
$
37,323
Reconciliation of segment revenue to consolidated revenue:
Affiliate Marketing
$
42,464
$
38,311
Media
103,462
96,256
Inter-segment eliminations
(13
)
(84
)
Consolidated revenue
$
145,913
$
134,483
Conversant, Inc.
Erik Randerson, CFA
818-575-4540
eranderson@conversantmedia.com
Source: Conversant, Inc.
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