ValueClick Hits Estimates in Q3, Guidance Disappoints

| About: Conversant, Inc. (CNVR)

ValueClick Inc. (VCLK) third quarter pro forma (excluding stock-based compensation expenses and tax-impact only) earnings per share were 15 cents, unchanged from the previous quarter but beating the Zacks Consensus Estimate by a penny.

Excluding stock-based compensation expenses, discontinued operations, amortization of intangibles and the tax impact on one-time items, non-GAAP net income from continuing operations for the quarter came in at 34 cents per share, same as in the year-ago period. Earnings were above management’s guidance of 19 cents to 20 cents per share, demonstrating the company’s focus on driving bottom-line growth.

Operating expenses in the quarter fell to $68.3 million (52.5% of total revenue) from $106.9 million (72.2% of total revenue) in the year-ago period. This was one of the major reasons the company was able to maintain profit levels, even in the face of the significant fall in revenue.

Total revenue for the quarter was $130.2 million, a decrease of 12.1% from the year-ago quarter. However, this was at the high-end of the company’s guidance of $125.0 - $130.0 million. Revenue was down year over year across all but one segment. The comparison shopping & search segment performed above the company’s expectations, while the other businesses performed in-line with management’s expectations.

Revenue for the quarter was impacted by lower growth in the lead generation business, which pulled down the Media segment’s revenue significantly. However, lead generation performed above the company’s expectations. Media segment revenue was down 26.6% from the year-ago period. Year-over-year, Comparison Shopping and Search was up 13.5%, Affiliate Marketing was down 10.1% and Technology was flat.

Adjusted EBITDA was $33.4 million or 25.7% compared to $38.2 million or 25.8% in the year-ago quarter. This was above the company’s guidance of $30.0 - $32.0 million, which represents an adjusted EBITDA margin of 24.3% at the midpoint due to margin expansion and reduction in operating expenses.

Balance Sheet Remains Strong

With no long-term debt, ValueClick exited the quarter with $182.5 million in cash and marketable securities (including the current portion of marketable securities) versus $158.7 million in the previous quarter. In the quarter, ValueClick generated approximately $22.6 million in free cash flow versus $23.5 million in the previous quarter.

Fourth Quarter Guidance Disappoints

For the fourth quarter, ValueClick expects revenue in the $128 - $138 million range. Revenue is below the Zacks Consensus Estimate of $141 million. The company expects revenue from media, affiliate marketing and technology segments to increase sequentially. Within the media segment, the company expects display revenue to grow in the mid teens and the lead generation business to be flat sequentially.

Adjusted EBITDA is expected to be in the range of $32.0 - $35.0 million, which represents an adjusted EBITDA margin of 25% at the midpoint. Earnings on a GAAP basis are expected to be in the range of 15 cents to 16 cents per share, while non-GAAP earnings are expected to be in the range of 21 cents to 22 cents per share, one cent below the Zacks Consensus Estimate.