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Executives

Gary Fuges – VP, IR and Corporate Development

John Giuliani – President and CEO

John Pitstick – CFO

Analysts

Youssef Squali – Cantor Fitzgerald

Brian Fitzgerald – Jefferies

Kerry Rice – Needham

Lauren Slabaugh – Stephens

Tom White – Macquarie

Shyam Patil – Raymond James

Richard Fetyko – Janney Capital

Scott Kessler – S&P Capital

Dan Salmon – BMO Capital Markets

Eric Martinuzzi – Lake Street Capital Markets

Ignatius Njoku – Wells Fargo Securities

ValueClick, Inc. (VCLK) Q4 2012 Earnings Call February 13, 2013 4:30 PM ET

Operator

Good day. My name is Erin and I will be your conference facilitator today. A replay of this call will be available by telephone beginning at 4:30 p.m. Pacific Time today and may be accessed through 4:30 p.m. Pacific Time on February 20, 2013. Thereafter, it can be accessed on ValueClick’s website at www.valueclick.com or www.streetevents.com. Previously filed SEC filings can also be found on ValueClick’s site. (Operator Instructions)

At this time, I would like to turn the call over to Mr. Gary Fuges, Vice President of Investor Relations and Corporate Development for ValueClick, Incorporated. Please go ahead, sir.

Gary Fuges

Thank you, Erin. Good afternoon and welcome to ValueClick’s Fourth Quarter and Fiscal Year 2012 Financial Results Conference Call. Joining me on the call today are John Giuliani, Chief Executive Officer, and John Pitstick, Chief Financial Officer.

This call will contain forward-looking statements that involve risks and uncertainties. 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 the Risk Factors and elsewhere in filings with the Securities and Exchange Commission made from time-to-time by ValueClick. These include, but are not limited to, its annual report on Form 10-K filed on February 29, 2012, recent quarterly reports on Form 10-Q and other current reports on Form 8-K. ValueClick 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.

I’d like to now turn the call over to Mr. John A. Giuliani, Chief Executive Officer of ValueClick. John?

John Giuliani

Thank you, Gary. And happy to be here for my first earning’s call as ValueClick CEO. It’s been an exciting 18 months since I joined the company. We’ve experienced consistent growth, despite headwinds from ONO in Europe, solid earnings and cash flows. I think we’ve had thoughtful capital allocation through our stock buyback program. And I personally believe we’ve made good capital decisions on behalf of our shareholders. But we’ve also embarked on a strategic initiative to integrate our businesses that will help us accelerate our organic growth rate. And so we’ve laid a great foundation to build the (inaudible).

At our core is our customer. And to be clear, our goal is to be our advertiser’s best marketing relationship. We can achieve that goal by leveraging our unit combination of the breadth and depth our offerings; our unique data and profile; and utilizing these profiles to personalize messaging across all of our offerings and across all devices.

And so headlines from Q4. We had – overall, we had a solid fourth quarter, 14% organic top line growth, strong margins across the board. But clearly, there’s more work to be done and we’re working hard to align our organization and offering to accelerate the growth – the organic growth profile and to us, this means integration.

A quick review of the integration. During Q4, we’ve made good progress in key areas of integration. Last quarter – or last quarter at the conference, we talked about integrating the sales and business development functions. We’ve hired a leader to this initiative in November, all lines of business are reporting to him now. They’ve had an initial sales meeting and even established a company-wide opportunity matrix with the expressed goal of increasing client penetration, as well as our service offering. As we mentioned last time, we expect this initiative to have some effect in 2013, probably more in the back half, but we expect this to really impact our 2014 and beyond growth plan.

Examples of early traction of our sales groups coming together. In January, we launched the top 10 Internet retailer into the affiliate marketing space, whose relationship that came out of our Dotomi’s group CRM relationship. Additionally, we have a large client that’s been historically just Affiliate and Media. We’ve leveraged the relationship to bring in CRM. All three lines of businesses are growing. The CRM is new, but the others are growing over their past performance. But more importantly, the customer’s now are dealing with one ValueClick sales representative and that person is answering all their calls and handling all their needs. And frankly, at a time – at a very important time when some of their agency relations have been not able to step up, we have been able to do that because we’ve been able to mobilize across our different business offerings. So as we go on, we’ll give you more examples of that. The most prominent examples will be in our increased growth rates.

During Q1, we completed the integration of our media operations teams under common leadership. We mentioned we would do that last time. We’ve selected that leader. We’ve now placed those – the people under that person and we’ve been working the groups together. We think there’s increased opportunity for increased efficiency in our media buy-in. We’re also consolidating publisher relationships.

As to Europe, Jim has transitioned Europe from a geographic management structure to a product-focused structure. And with that, the U.S. presidents now have direct oversight for their respective products in Europe, that is Affiliate, Media and O&O are all being managed by the U.S. division now. And Synams are aligned to drive worldwide product growth and we believe now that the worst is behind us in Europe.

So during 2013, we’ll take increased steps for integration and we’ll have an integrated approach to marketing. We’ll have a CMO in place soon, probably within the next couple of weeks. We’ve already begun to merge technology and product development. We will centralize that more as we go, but the groups are working together and prioritizing initiatives. And our data and analytics platform, we will consolidate that during the year. We will have a senior leader either appointed or hired some time during Q2.

I’ll now turn the call over to John Pitstick, who will review the Q4 financial details, as well as give guidance for our Q1.

John Pitstick

Great. Thanks, John. Our Q4 revenue came in at the high end of guidance at $199.6 million. This represents an increase of 14% compared to the year-ago period. And this is an organic growth rate, as no acquisitions are impacting the year-over-year comparisons.

The growth rate in Affiliate Marketing accelerated to 10% in Q4 and represented the strongest growth rate all year for this segment. The U.S. business was again up in the low double-digits, while Europe provided less of a drag than it had in recent quarters. Q1, the guidance range calls for worldwide revenue growth in Affiliate Marketing in the mid to high single-digits. The primary driver for the expected deceleration in the Affiliate growth rate from Q4 is in the tax vertical, which is off to a bit of a slow start as a result of the recent changes in tax regulations.

Our total Media segment revenue was $122.7 million in Q4, up 20% from Q4 2011. In addition to the strong revenue growth, we achieved record gross margin in the Media segment, driven by our ability to access large pools of inventory and utilize our data-driven analytical approach to meet the exact in ROI demand of our advertisers. Strong gross margin in Media was a significant driver of our EBITDA and our performance in Q4. Our Q1 guidance for the Media segment reflects revenue growth in the high teens, with gross margin reverting back to more normalized run rates.

Moving to O&O, this segment generated revenue of $33 million in Q4, which is down 2% year-over-year. Our traffic mix efforts continue to yield positive results on the bottom line and despite the lower revenue, profitability of this segment increased from the year-ago period. As I mentioned last quarter, after a transition here in 2012 where we focused on the margin profile and traffic mix, we believe this segment is positioned for growth in 2013 and our Q1 revenue guidance assumes a high single-digit growth in O&O.

Our overall EBITDA in Q4 was $77.1 million, a record of 38.6% of revenue and $7 million above the high end of our guidance range. All segments have strong bottom line performance, with notable outperformance by Media, as I mentioned. Our non-GAAP EPS in Q4 of $0.56 was also above the high end of our guidance and represents an increase of 21% compared to the record Q4 EPS in the year-ago period. For the full year, we achieved total revenue of $661 million, representing growth of 25% compared to 2011, and we achieved the EBITDA of $222 million, a 33% increase over 2011. We accomplished this growth while lowering our shares outstanding and reducing our net debt position.

In 2012, we generated $139 million of free cash flow and utilized $111 million of this buying back our stock, taking 6.6 million shares out of circulation at an average price of $16.86. And we expect to continue to use a portion of our free cash flow to repurchase shares.

Turning to Q1 guidance, we expect revenue of between $165 million and $168 million, implying growth at the midpoint of 14%. We expect EBITDA for Q1 to be in the range of $53 million to $55 million, representing margin at the midpoint of 32.4%. And we expect non-GAAP EPS of $0.39 to $0.41.

So with that, I’ll turn the call back to John for some closing comments.

John Giuliani

Well, thanks, John. So in follow-up, it’s, I think, a solid quarter overall, our best organic growth rate of the year, record profitability. We’re performing well. I’m personally not satisfied and I think we can do even better. We’ll expand on this and our strategic initiative at our Analyst Day on March 14. We look forward to seeing you there and explaining the vision as we see it.

Operator, we’ll now take questions.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions) We’ll go first to Youssef Squali of Cantor Fitzgerald.

Youssef Squali – Cantor Fitzgerald

Thank you very much and congratulations to John G. A couple questions, please. So I guess starting with your comments on Europe, I think you said something to the effect of that you believe that the worst is behind the company. Can you maybe just elaborate on that? And how much of a headwind is still baked into your Q1 guidance? And second, on the O&O business, your expectation is now for growth. Is the clean-up over now or do we still have some remnants of clean-up left in Q1? Thank you.

John Pitstick

Well, this is John P., just to cover up quickly on the Europe contribution and where it’s at. That’s been a theme we’ve talked about throughout the year, where it’s provided a bit of a drag on the Affiliate Marketing business in particular. For Q4, that business was pretty flat year-over-year and we actually saw some good growth out of the price for running business in Europe in Q4. And then in Q1, we’re expecting a bit more the same, with price runner up year-over-year and the other components fairly flat. So it’s better than it was, say, in the early parts of 2012 through the middle of 2012, where we were actually seeing year-over-year drops in O&O. So I think that’s the context of the statement about the worst being behind us in Europe, as I think we’ve kind of bottomed out. We’re not expecting real strong growth there, but I think the initiatives are going to keep us going in the right direction.

John Giuliani

Well, we expect it; we’re not forecasting it. We’re – and thank you for your comments, Youssef. And I think also, bringing in Europe together under our U.S. presidents is really the key strategy. So I think we did have a year of choppiness last year. I do believe that we think the worst is behind us. We’re not reliant on growth right now, but we believe that Europe should perform a lot better and we think aligning the products with the U.S. and the management with the U.S. will eventually lead to better performance. So we’re not – we’re early on in that part – we’re early in that initiative, so I don’t want to project any success of that. But we feel like Europe should be doing better, in spite of all the headwinds we’ve had, so – and that’s what we’ve got to do to align our services and our leadership to make that happen, so.

And then O&O, you want to...

John Pitstick

Yeah. So I think you’re right, Youssef. And when you look back at our statements that we started back in the fourth quarter of 2011, I think we’re pretty up front about what we’re going to do with that segment and experienced a bit of revenue decrease throughout 2012. We’ve done that, but at the same time, improved the bottom line. And if you look at the margins for Q4, they were very strong, stronger than they’ve been in quite some time. So we feel like we’ve done the clean-up that we need to do. We’ve got the margin profile in a much better position and really have a good set of assets that we can build from, from here. So that will be the plan going into 2013.

John Giuliani

Yeah. And I think we actually expect growth out of the business, so we –the clean-up definitely and now we’re looking forward to how we can expand the business.

Youssef Squali – Cantor Fitzgerald

Okay. Thank you very much.

Operator

And we’ll take our next question from Brian Fitzgerald of Jefferies.

Brian Fitzgerald – Jefferies

Thanks, guys. When you look at your current spread between direct marketers to agencies, the customer base, can you just comment on your customer base in the different segment, how that varies?

John Giuliani

Well, for most of our business lines, the agencies aren’t – for Affiliate, even Technology to some extent and O&O, they’re not – it’s not a big player. Where agencies really play a prominent role is on the mobile part of our business and our traditional Media business and those are areas where we work hard with those agencies. They’re – I don’t expect them to have dramatic changes. I think we used to be sort of 90% to 100%. That’s now, on the traditional Media, lower; it’s probably in the 70%s. There’s always going to be a mix there, but the agency’s going to play an important part there. On the CRM side, that – it’s less so; it’s more working with the agency than through the agency typically. And – but I don’t see that changing as well. I think we’ll be kind of co-partners with our customers on those kinds of accounts.

Brian Fitzgerald – Jefferies

Great. And then maybe one quick follow-up. In terms of accessing inventory on the Facebook exchange, can you tell us what kind of – give some color about what demand you’re seeing there and – from advertisers and what the ROI is you’re seeing from that?

John Giuliani

Yeah. We see sporadic demand. It’s not something – it’s not, I wouldn’t say, across the board advertisers looking for it; it’s more – I would call it more curiosity. And so we’ve got a number of ways to do that, although part of the agreement to do the Facebook exchange requires our customers to basically give up their rights to some of the creative and for anybody using the exchange to give up their customers. And so some of the customers don’t like that aspect of it, so we’re sort of neutral. We’re in between it, so we deal with – we work between Facebook and the customer and we honor which ones we want.

Depending on the business, there can be efficiency. It’s definitely efficient inventory to buy. As I’ve mentioned probably before, we tend to look at the inventory for us is in terms of unique reach, performance and price and so I think this has lots of reach and it has – the pricing seems to be pretty good. But it’s kind of early to tell whether, over the long haul, whether the conversion rates really go up for it. But it is something we’re actively working with, with a select number of customers and again, we don’t think it’s a headline kind of thing. I think it’s part of the mix of inventory and if it works well, we’ll use, but we tend to be – we think of inventory as fairly fungible, so we’re not too tied to any one inventory source on purpose.

Brian Fitzgerald – Jefferies

Great. Thanks, guys.

John Giuliani

Yep.

Operator

We’ll take our next question from Kerry Rice of Needham.

Kerry Rice – Needham

Thanks a lot and great quarter, guys. I wanted to dig down on the Media business just a little bit more because, obviously, as you said, the upside in EBITDA came a lot from the growth there. And so was the strength or the ability to push EBITDA higher for Media, did that come – you mentioned inventory or procurement of inventory; was there just an abundance of inventory, so the prices that you paid were relatively lower than you had experienced in the past or was it also an overweighted Dotomi or can you give us some more details on how the Media drove that EBITDA upside?

John Giuliani

Yeah. First of all, I think price in the fourth quarter is generally – generally firms up and so I wouldn’t attribute too much to sort of being able to access “cheap” inventory. As I’ve said before, we’re always paying whatever the market price is and then it’s about adding value to it. So I think what you’re seeing, though, is through our innovation in automation, we’re able to decision, by using our data, decision our inventory buying more effectively, so read that as less waste. So utilizing the impressions we buy, that all goes into the margin, as well as I think you’re seeing our automation efforts are leading to higher productivity.

And so as we get higher productivity, whether it be a sales person or an account manager or somebody else, they can handle more volume. And when we get that leverage, we can handle that volume in the fourth quarter and that really allows us to expand some of the EBITDA margin.

You also have – we’ve employed several new media models and those have been more effective and so they lead to more enhanced pricing and optimization and so that leads to a little bit of the margin mix. And then I think you’re right, the CRM is – the composition has changed some and so that has a slightly higher margin profile. And so mixing that in with those other components leads us to a overall better margin quarter.

Kerry Rice – Needham

Great. And just to follow up on that, I know that, I think it was last quarter, there was a discussion or at least a highlight that you were going to roll out the CRM into additional verticals. Can you talk about the progress there, if that’s a 2013 kind of strategic initiative or is that further out?

John Giuliani

Yeah. No, they are doing it now and they will be more, I would guess, purposeful on the different verticals, but they’re actually doing it now. Kind of early reads because it takes a little time to read the result. But obviously, I’ve been to thousands of these programs; they all work, so it’s just a matter of helping different verticals understand them in their metric. So I really don’t have any consideration on that, but it’s early in their reads. It generally takes 90 to 120 days to get initial read.

But – and as that business development function that we mentioned keeps getting built out, you’ll see more and more proliferation of the vertical strategy because we’ll have the expertise in the sales group to do that. So I sort of look at that business development just a little bit beyond your question, but we’ve put that together now. I would look to probably invest 20% to 25% more head count in that, as well as continuing to bring in more seasoning, more training and more specificity as to where they’re going, or specialization, if you will, so that we could have a vertical focus. So that will take a little time to play out, as we get the personnel and the direction in place. And again, that will – all that will have more back half impact, but you’re seeing some of the fruits of that early on in the first quarter.

Kerry Rice – Needham

Great. Thank you so much.

John Giuliani

You’re welcome.

Operator

And going next from Stephen’s Carter Malloy.

Lauren Slabaugh – Stephens

Hey, this is Lauren Slabaugh in for Carter. We were wondering if there was anything directional that you can provide us in terms of 2013 outlook past 1Q. And in other words, you guys have had great growth this quarter and next quarter looks good; just curious if we should expect you to sustain or slow that going forward.

John Giuliani

So as you know, we don’t give full-year guidance, but I think what we’ve guided for Q1, you should think of as sort of where we think minimally the business should go in 2013 and beyond. As I mentioned before, we’re focused on improving our organic growth rates. My way of thinking is that we’ve got to create new normals. We did 14% in Q4. I think I said it on the call and everybody around here, is it did not meet my expectations of what this business can do. But we want to prove ourself before we start telling you how great we are. So – but I would expect – from your perspective, I would expect Q1 is a reflection of what we minimally think is there for the year and we’re going to work hard so that we prove any future guidance is based on the facts.

Lauren Slabaugh – Stephens

That’s helpful. Thank you. And then just quickly, could you just talk about what your approach to the buyback will be this year?

John Giuliani

Yeah, well, John, you know more about the past. Go ahead and talk about the past and then the future.

John Pitstick

Sure. So obviously, we’ve been committed to the program over the years somewhere in the neighborhood of $0.5 billion over the last five or six years, so something that the Board and management team is very comfortable with. Certainly, we expect to continue to throw off a lot of free cash flow. As we look at the M&A landscape and we’ve talked about this on the last several calls that that’s really not the primary focus now or the organic growth that John talked about. So that does leave free cash flow for us to deploy against the buyback program.

So we had about $90 million left at the end of the year and I would expect us to work through some of that throughout the course of 2013. We still think our trading multiples are probably on the low end of where they should be, so that would provide reason for us to deploy capital that way. So I think you can expect us, at some level, to be buying back stock throughout 2013.

Lauren Slabaugh – Stephens

That is helpful. Thanks so much.

Operator

And we’ll go next to Tom White from Macquarie.

Tom White – Macquarie

Great. Thanks for taking my question. I think you sort of addressed it just now, but I was hoping maybe we could get a little bit of an update on your approach to M&A. The last few quarters, you guys have talked about being in integration mode. John G., does that change with you assuming the role of CEO or any just sort of subtle changes in the way you guys approach M&A?

And then just secondly, on the Media segment, it sounds like you guys are sort of bet guiding to gross margins kind of coming back into the historical range in the first quarter. I guess I’m just trying to reconcile that with the idea that it didn’t sound like there was necessarily anything too opportunistic in terms of inventory in the fourth quarter. Can you give a little color about maybe where you think that gross margin line can go sort of over the course of 2013? Thanks.

John Giuliani

So – well, let me talk M&A first. Really no change. I haven’t got the CEO big wallet ego yet to go buy stuff. I really think our integration and our organic opportunities are the very best for us to focus on. And in a company like ours, we have a deep – we have a breadth of offerings and deep knowledge within them and so lots of opportunities and lots of great opportunity.

And really the critical component for us and to really be successful in increasing our organic rate is really prioritizing. And as you know, sometimes when you do too much M&A, it’s hard to prioritize and the integration is very difficult. That’s why a lot of times, it just doesn’t get done. So we’re looking at this as a transformative year, but we want to make an intelligent transformation. So we think keeping our eye on the integration is the most critical thing to do, but we can’t lose fact that we want to execute better and continue to raise our growth profile.

So all that being said, we are not going to be looking for M&A opportunities. We are approached all the time and we see some things that are of interest. If they fit under our personalization and data profiling and fit with our product, like if they help us in either – with Affiliate or with mobile or video, then we will take a hard look at those. But those will be things that will be sort of areas that we think are either unique or tucked in to our product profile.

What you won’t see us this year is look for any kind of M&A at all that we think we need to add growth. I think even if we found that, I probably would hesitate to go after it because I think it’s important to us as an organization and for our customers and, frankly, for our shareholders to demonstrate our ability to create organic growth out of our existing assets and we think that opportunity’s there. So again, a long-winded answer to what you asked. Hopefully that’s a little depth.

As far as Media gross margin, I think we probably are – as we normally do in the first quarter, we tend to have a bit of compression on that. And if you think about it, the revenues, I think, seasonally go down, what, 20-ish percent or so, so you’re going to have OpEx increases as we put into investment. So our bottom line margin from those lines will be spread over less revenue while we increase for our investment for the year. So I don’t think there’s really anything bad about that. I think if you look historically, first quarter of overall business looks like we’ve added some operating margin to the bottom line. I think Q4 is a nice kind of harbinger for the future. It kind of stretches it out. You kind of see what the business can do and I think that sort of bodes well as we continue to scale the businesses, that we think there are increased productivity over time. And – but right now, I think we’re content to keep investing along all the business lines and not try to tweeze out more margin.

Tom White – Macquarie

Great. Thank you.

John Giuliani

Yeah.

Operator

And next, Shyam Patil of Raymond James.

Shyam Patil – Raymond James

Hi. Thank you. Congrats on the quarter as well. John, you mentioned that you weren’t happy with the 14% organic growth because that didn’t hit your own expectations. Can you maybe talk about what organic growth rate you think the business is capable of. And then maybe drilling down to Media specifically, what you think the growth rate potential is for that specific business line.

John Giuliani

Yeah. So first of all, you have to kind of know me; I’m never really happy about these things.

So I try to preach a healthy dissatisfaction, so we don’t get complacent and we fight off any kind of hubris or ego that sometimes happens with amounts of success. When I was running Dotomi, I don’t think we ever met our numbers and at least two or three of those years, we had 95%, 98% growth rates. And so it’s just – it’s not in my blood to be sort of satisfied, if I think there’s opportunity in front of us. And so that’s the key thing, is if there’s opportunities. And I want our organization to judge ourselves about how well do we maximize the opportunity.

So for that particular quarter, the Q4, I would have been a little happier with 15% growth. That’s not out of this park and you might say that’s a distinction without a difference kind of thing. To me, it was there and we didn’t quite get it and that’s – but it’s a great learning experience for me and for our organization. I think the expectations of our overall business will gradually grow throughout each quarter and over the next six or eight quarters, until we get ourself to a performance level of, what I would call, a new normal expectation of organic growth.

Now, that’s not just showing up for work every day and it grows; it means we’ve got to lay out the right investments, we’ve got to build the right plan, we’ve got to set the right priorities and we’ve got to get 1,800 to 1,500 people executing against those. So that takes us a little time to exercise those muscles in that direction.

But I believe long-term, we’re in a great business, right. We should – the way I’ve categorized it internally is we’re in a – we’ve chosen the right body of water to be in and we’ve got to work on the vessel so that folks like you don’t come over just when we’re dirt cheap all the time, but you come over to us because we’ve got a faster boat, a more seaworthy boat, one that you think can get ahead of some of the other people in the industry.

And that’s what we’re really working on: jetting out the engine, getting the struts going and getting everybody sort of going the right way. So I see long-term this is a business that should minimally be in the high-teen. I’m not suggesting we’re going to get there overnight, but that’s – but think that’s available. And then once we hit that stage, I guarantee I’ll be telling you that I think our prospects looks like we should be in the 20s. And so – but that’s my expectation of us, hunkering down and getting the most out of our business.

Shyam Patil – Raymond James

Great. Thanks. That was very helpful. And then just quickly on the margin, I know you’re not guiding for the year, but should we be thinking about EBITDA margins being relatively flattish year-over-year, with a focus more on driving top line growth?

John Pitstick

Yeah, this is John P. I think that’s the same theme that we’ll kind of stick with for now. And if you look back to the transcripts, last year, I probably said the exact same thing and we were able to increase margin by a couple of hundred basis points. So I think that opportunity is there. But to John’s point, we’re focused on making sure we’re investing for growth, so we’re not going to materially move those expectations up on the EBITDA margin line. But certainly, the opportunity’s there and Q4 kind of proved that out.

Shyam Patil – Raymond James

Great. Thank you.

Operator

And we’ll go next Richard Fetyko with Janney Capital.

Richard Fetyko – Janney Capital

Hey, John, a couple of questions. I’m curious, how do you see ValueClick’s ad networks of the traditional ad network positioned in the ecosystem? There’s been a lot of questions around that, along with sort of the DSPs and agent saturating this and that kind of et cetera. How does the positioning change with some of the integration plans that you have? And then secondly, just curious, which step in the integration process will be the most challenging in your opinion and also which one will be the most beneficial for the company?

John Giuliani

Well, so as far as the traditional business, I think our biggest probably drawback is people in the industry, when they hear the name, think they kind of know what the business is about. And I think Bill and – Bill Todd, who’s the president of that division, as well as his analytical and data staff, product folks, the technology folks, I mean – and they’ve work really hard to make it a more sophisticated business with a lot of unique data and make the performance underlying much better.

And so they don’t look like that traditional network anymore, so a lot of the challenge is telling story. I think they think fit in there very well. I think some of these things are kind of there’s naming conventions in there that sort of get people confused, but I think you’ll see us work with Bill’s team and that product to – on the non sort of CRM portion because we think we have a unique offering on the CRM and how that ties into the site, so where we have CRM. We think have a good offering there, a really unique one.

We think the non-CRM stuff, we will sort of cover a broader base through Bill’s group. And I think it positions well because we can do sort of – whether we want to run – take all the risk, run all the media, which is sort of more of a traditional way, although not from a network standpoint because most of the inventory we get is not unique inventory to any one publisher or set of publishers that Bill and his team use the market, which is one of the reasons we bring the media operations group together, so they can leverage that.

But whether you think of the media offering they have as that broader base where they take all the risk, they do it, they deliver or some portion of providing the tools to our customers, whether it’s some sort of what you might call a DSP platform or a managed DSP platform, I think you’ll see our group have those offerings or fashion those offerings that we already have so that we can be more full-service. We’re one of the few people that can do that and I think that’s where his distinction will come in, along with the fact he’s got unique data set there and then proprietary mobile and video capability.

And so I think we start to round all that stuff up and then as we build in some of the creative ad serving and creative optimization that we get out of our Chicago office that’s traditionally been with Dotomi, we think Bill and the traditional team have a really unique place in the ecosystem. And as they sort of come together with some of our other product offerings and relationships, again, we move back to this position where we think it make sense for a buyer or a customer to have ease of buying our services.

We think we can get more of a lion’s share of the business. So I think Bill’s – we’ve got a little work to do there, but I think it’s really well positioned over the course of the next few quarters, what we’re doing, to get them into a really prominent role in that area. So we feel pretty good about that. We’ve got a little work to do on that, but we think it feels good.

Which steps are most challenging, dang, I’ll tell you what, they all feel pretty challenging. I think probably the time it takes on any one of them is the most difficult. But I think we’re going to get a lot of – on these initial steps with the customers, I think we’re going to get lot out because – a lot of benefit because the – we’re making life easier for the customer. So what I’ve said consistently internally is that the star in our show is our customer. And literally when I present this to people, it’s a star because you’ve got to keep thinking in terms of our customers need help; they have – we’ve got to make it easy for them to buy from us.

And like I was giving – the anecdote I gave on the -during the call, I had a guy who was on the phone with one of our customers at one in the morning the other night and she’s saying, hey, I’ve got to call the other division; she’s like no, you don’t have to, I can take care of all that stuff for you. And they were leaning on us because they literally went to their agency and the agency said we can’t get to it until next week and we are working on it until one, two, three in the morning to get it done. I think when we get that down right, where every customer’s like that, that’s where that’s going to be the biggest benefit to our customers, which will in turn be the biggest benefit for us.

And I think to answer the first part of that question in a more straightforward way, the most challenging is going to be on the technical end of it because we’ve got different platforms. And these technical guys are all really bright and they’re all great, but they’re all protective and then you get a guy like me who doesn’t know anything about technology, so it takes a little longer. But it’s coming together. They’re great people and they – what’s great is they galvanize around our customer, which I love. So – but that will be the most challenging, but frankly, that’s not what – we don’t have to do that one right away, so we can slowly move into some of them, although we don’t tell them because I have told them they had to get some of the stuff done right away. Anyway. So thank you for the question.

Richard Fetyko – Janney Capital

Thanks for the insight.

John Giuliani

Yeah.

Operator

And we’ll go next to Scott Kessler of S&P Capital IQ.

Scott Kessler – S&P Capital

Thanks a lot. Two questions. The first one is can you speak to international growth opportunities? I think there’s been some – well, you referenced obviously the work that Jim has been doing in Europe. But I’m wondering from a product perspective, if there are opportunities to extend and enhance perhaps what you already have on those continents or bring what you have in the U.S. over there. And I have a follow-up. Thanks.

John Giuliani

Yeah. First of all, I think we referenced it; I think first, we’ve got to get things right in Europe.

That’s with – so Dave Yovanno, who has been involved with our Technology business, as well as our Media business in the past, and Kerri Pollard, who runs our Affiliate business, are now managing the Europe. And what I’ve given them specific direction is get the facts on the ground right, help get your people and product aligned and then set us up so we can get our platform consistent with the U.S. And as we’re evolving, particularly our Affiliate platform, our next-generation of Affiliate platform, I think you will see a very strong bent for international and a more global expansion. But it doesn’t make any sense to do that until you’ve really lined up what you’re doing overseas now with what you’re currently doing in the U.S. and then making sure that platform is next-generation and ready for growth not only here, but abroad.

But I think you’ve hit on a really key theme that we will pursue. It probably won’t go strongly until later in 2013 and probably into 2014 because we want to be intelligent about it. But I believe international can be a much broader growth perspective for us and I think an important part, particularly of our Affiliate growth strategy.

Scott Kessler – S&P Capital

Great. And actually my second question relates to O&O. When you were COO, John, I guess you didn’t have direct oversight of the O&O business, if I recall...

John Giuliani

That’s correct.

Scott Kessler – S&P Capital

But now you do and I’m wondering if you have any thoughts not only in that business in terms of how it’s positioned, but also the asset mix and whether you think over the longer-term, it makes sense to kind of keep the O&O business as currently constituted; or perhaps some of those enhancements from an M&A perspective, perhaps those could be opportunities; or maybe you look to kind of reduce the size of that business proactively. Maybe some thoughts on that.

John Giuliani

Yeah, so first of all, you’re correct, I was not – I did not have direct involvement in that business and so I’m on a learning curve. And so what I would tell you is that I wouldn’t be ready right today to tell you what our long-term strategy should be around that business. What I will tell you is I’m very impressed with the leadership in Steve Neufer over there, his team and what they’ve been able to accomplish in a managed decline, so to speak, to – over the last, I guess, what’s been five, six quarters. It’s not easy to manage that and I think they’ve done a really good job. And I think they’ve also demonstrated some areas where they can create natural and organic growth out of that business and less reliant on some of the other tactics they’ve had that we wanted to sort of pivot away from.

So I’m encouraged. And what I’ve given – as I went through with him, is I said, hey, I want to invest a little bit to find out more about the business this year and getting – he’s got a very talented team, to get them off the sort of what they’ve had to do now in the past and then move towards the growth organically in developing more consistent, persistent content that they can monetize. I want to give them a shot at that. We also are more formally right now, working back and forth with the other product offering to let the O&O help enhance those and the others help to enhance and drive traffic back to his property. And so we want to give that a proper sort of test and a chance to work its way out to see where the strategic line might fit. And then I’d like to be able to get back to you in a couple quarters and say, hey, here’s the more definitive approach on this.

But right now, we think it’s – we’re in a mode where we can think grow it some and then we would like to really test out what we can do with the business and how we might make it fit better from a strategic stand because there certainly are some aspects that are there that could be very rewarding. But in all candor, we just haven’t expressly tested them out to see if that – if they really do exist and that’s what we’re going to do over the first couple quarters and maybe a little bit beyond. I have a lot of confidence in that team, though, that they can at least figure out where we need to be. And then, well, I think we’ll make a decision at some point to how we do more with it based on those facts.

Scott Kessler – S&P Capital

Great. Thanks a lot.

John Giuliani

You are very welcome.

Operator

Well go to Dan Salmon of BMO Capital Markets.

Dan Salmon – BMO Capital Markets

Hey, guys. Two questions on Commission Junction. First, I’d be interested to hear what your publishing partners’ impressions are of Facebook gifts and how they see that as a revenue driver relative to a more typical Affiliate marketing program. And then second, I know you’ve been making some moves to expand CJ’s operability on mobile platforms and hoping you could give us a little bit more color on what the roadmap for that might be ahead in 2013.

John Giuliani

So I really don’t know much about the first question, what our publishers are thinking on the Affiliate side on the Facebook gifts. I don’t know if you’ve got any color with that.

John Pitstick

No, we haven’t heard any feedback. I think, and obviously if you look at the numbers for Affiliate in Q4, we had a good quarter. We talked about the growth accelerating, so there’s the publishers that they’ve traditionally worked with or are thinking what the channel that’s working for them. And we haven’t heard that as a theme coming up through the business, but that’s a particular concern, but we’ll keep our ears open for that.

John Giuliani

Yeah, and I think as far as CJ mobile, I think – really, I think you should think of us this year as really pressing hard all things mobile. So we sort of have been – I think we’ve been talking about our general theme in the last couple calls is we just see all this interconnectivity of devices and the interchangeability of devices is a critical component, one that we believe we can really make a name in ourselves as tying these altogether. So I think the CJ – the CRM, any of our areas, we believe mobile is a really important aspect, both from a technology standpoint and from a revenue standpoint. So I think you’ll see all those things coming together, meaning all these different – like I mentioned, the offerings kind of coming together through the personalization profile and then all of them really proliferating against the devices and particularly the mobile, whether you just make a distinction between mobile like and smartphone or some type of tablet or mini-tablet. So I think that will be a reoccurring theme for us across all the businesses.

Dan Salmon – BMO Capital Markets

Thank you.

Operator

And we’ll take our next question from Sameet Sinha of B. Riley Caris.

Gary Fuges

We’ll go to the next question, Operator.

Operator

We’ll take our next question then from Eric Martinuzzi with Lake Street Capital Markets.

Eric Martinuzzi – Lake Street Capital Markets

Thanks. You talked in broad terms about the growth expectation for the business. I was just curious, given what happened with O&O, seasonality as we’re modeling for 2013, is there anything to keep in mind or was it kind of a linear change to that business last year?

John Giuliani

Well, I think there was some impact of the timing of when we initiated that process, where it started in the fourth quarter of 2011; we had kind of worked it through to 2012. So some of that noise goes away as we look into 2013 and I would expect more normal seasonal trends to play out where you see fairly stable performance throughout the first few quarters and then again that Q4 seasonal ramp.

Eric Martinuzzi – Lake Street Capital Markets

Okay. And then you talked about the head count of around 1,500, but you’ve got a growing business here. What are the hiring plans and specifically if you could address both U.S.A. and Europe?

John Pitstick

Yeah, so we closed the year about 1,560 employees. I think if you look at the hiring plan today, we’ve got well over 100 open positions that we’re looking to fill, let’s say predominantly in the U.S. We have some select parts within Europe, primarily in the sales, where we’re putting more pressure on the market from a sales perspective over in Europe. And then here in the U.S., it’s really across the board, across all products and really most of the functions in terms of sales, client development...

John Giuliani

I think all disciplines, all functions, we’ll probably add people. I think we’ll probably heavy-up domestically, certainly on sales and customer service. Whether you call that account management or client development, that’s a spin-off of some sort of sale; it’s customer management. We’ll spend lots on that. We’ll double-down our service orientation vis-à-vis the sort of non-service or self-service people out there. We think that’s a differentiator for us and we’re going to exploit, so that you’ll see sales and sales-related, customer-related people.

Heavy on innovation, so heavy on development and analytical folks. We think that’s a distinction, as we’ve – I mentioned we’re going to bring that group together; we’re going to invest more on that. We think that is a critical differentiation. It’s also part of our DNA through many of our businesses, so that’s different than the market. And so those are three areas that we’ll go heavy: sort of innovation with development, analytical from a differentiated product and then more sales or sales pressure on the market and the corollary to that is more account people, whether it be account management or client development, the folks that will help make our customers lives easier.

Eric Martinuzzi – Lake Street Capital Markets

Thank you.

Gary Fuges

Operator, we’ll take one more question, please.

Operator

Our final question comes from Peter Stabler of Wells Fargo Securities.

Ignatius Njoku – Wells Fargo Securities

Hi, this is Ignatius Njoku for Peter. I just had a question on video, in terms of can you offer some commentary of which traction is seen from the video front? Thank you.

John Pitstick

Yeah, video is still a small product for us. I’d say it’s growing nicely. It’s one of those aspects of the, what Scott referred to as the traditional Media business that we have. It’s where they’re branching out and so it’s growing, but small. I’d say it’s – it will be an eight figure type of business for us as we look into 2013, but still a relatively small part of the overall mix. I think the key thing to think about there is that’s a completely organic initiative, where we developed the technology and went to market with that versus M&A, so it’s taken a bit longer than if we would have gone out and made an acquisition. But I think it’s integrated with the rest of our technology and data and we’ve got the right resources to grow it and it will be a big part of the business going forward.

John Giuliani

Yeah. And I think the initiatives that you’ll see around that are utilizing their data to help make it a smarter execution and rapidly trying to use the creative for personalization. We think there’s a big win within that of the personalization within the video. That’s not the easiest thing to do, but we’ve got the data to help get the right creative to the right person and then we’re working on getting the right creative into the video. So we think that’s a worthwhile initiative.

Ignatius Njoku – Wells Fargo Securities

Thank you.

John Giuliani

Thank you.

Operator

Okay. And at this time, I would like turn things back towards Mr. Fuges for any closing or final comment.

Gary Fuges

Thank you, Erin. I’d like to thank everyone for participating in the call and we look forward to seeing you at our Analyst Day on March 14 in Westlake Village at the Four Seasons and we’ll see you on the road. Thanks very much.

Operator

And once again, ladies and gentlemen, that concludes our conference. Thank you for your participation in today’s ValueClick Fourth Quarter Conference Call. A replay of today’s conference will be available beginning at 4:30 p.m. Pacific time today by dialing 1-888-203-1112 or 1-719-457-0820. The access code for the replay is 9841608. The replay will be available through 4:30 p.m. Pacific time on February 20, 2013. Thereafter, the replay can be accessed on ValueClick’s website at www.valueclick.com.

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