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ValueClick, Inc. (VCLK)

Q4 2009 Earnings Call

February 15, 2010 4:30 pm ET

Executives

Gary Fuges - Vice President of Investor Relations and Corporate Development for ValueClick Incorporated

John Pitstick – Chief Financial Officer

Tom Vadnais – Chief Executive Officer

Analysts

Brian Fitzgerald – UBS

Mark Mahaney - Citi

Carter Malloy - Stephens Inc.

Mark May - Needham & Company

Ross Sandler - RBC Capital Markets

Analyst for Youssef Squali - Jefferies & Co.

Eric Martinuzzi - Craig-Hallum Capital

Sameet Sinha - JMP Securities

Analyst for William Morrison - Thinkequity

Townsend Buckles - J.P. Morgan

Jeff Rath - Canaccord Adams

Sandeep Aggarwal - Collins Stewart

Operator

Good day. My name is Paula 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 10 p.m. Pacific Time on February 23, 2010. 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. All lines have been placed in a listen-only mode to prevent any background noise. After the speakers' remarks, there will be a question-and-answer period. (Operator instructions)

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

Gary Fuges

Thank you. Good afternoon and welcome to ValueClick's fourth quarter 2009 financial results conference call. On the call with me today are Tom Vadnais, Chief Executive Officer and John Pitstick, Chief Financial Officer.

Today's call contains forward-looking statements that involve risks and uncertainties including, but not limited to, trends in online advertising spending, and estimates of future online performance based advertising. 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 section and elsewhere in the filings with the Securities and Exchange Commission made from time to time by ValueClick including its Annual Report on Form 10-K filed on March 2, 2009, recent quarterly reports on Form 10-Q, and current reports on Form 8-K.

Other factors that could cause actual results to differ materially from those expressed or implied in the forward-looking statements include but are not limited to the risks that market demand for online advertising in general and performance based online advertising in particular will not grow as rapidly as predicted, and legislation, litigation and governmental regulation that could negatively impact the company's performance. 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.

With that, I'd like to turn the call over to Mr. Tom Vadnais, CEO of ValueClick.

Tom Vadnais

Thank you, Gary. Good afternoon and thank you to everyone for joining us for ValueClick’s fourth quarter 2009 performance. Before we get into the results for Q4, I’d like to address the divestiture of the lead gen business we announced earlier this month. As we’ve spoken to you about it in the last few quarters, we were attempting to evolve this business into one that leveraged ValueClick’s other assets and could ultimately deliver sustainable growth.

By the end of 2009, however, we concluded the best course of action was to sell the Web clients business and focus on our remaining businesses which we believe have stronger growth margin and synergy profiles. As a result of the divestiture, the historical results of web clients have been removed from our continuing operations and all figures we are discussing today exclude this business.

With that said, we will now discuss our performance for the fourth quarter of 2009. We’re pleased with the company’s Q4 results. The display affiliate marketing and technology revenues outperformed our expectations. All four of our segments delivered better than expected bottom line results which helped drive the adjusted EBITDA margin to 31.8% for the quarter.

With the divestiture of our lead gen business, display is now the lone business within our media segment and it had a record quarter in terms of customers, revenue, and segment operating margin. Display benefited from the growth initiatives we have discussed with you on prior calls such as data and [the Gabriel] targeting improvements, vertical network launches, and off-network inventory optimization.

We are sophisticated buyers and optimizers and display inventory. The combination of our optimization technology, proprietary data platform, and campaign management expertise is driving higher effective CPMs for publishers and better ROI for advertisers.

Affiliate marketing also had a strong quarter on both the top and bottom lines. Revenue on performance was driven by strong holiday season retail sales and the top line strength drove increased segment operating margins. CJ continues to gain share in the marketplace both in the US and Europe. Client wins in 2009 in our market leadership position give us a strong platform for growth in 2010.

In our technology segment, revenue and profit results were also better than expected due to strong volumes in both the US and Europe. Key customer wins in 2009 and feature additions to the platform helped drive year-over-year growth. One of our growth initiatives for 2010 is to have Mediaplex work more closely with ValueClick Media to offer ValueClick advertisers a new set of media buying and campaign analytic services that leverage the best of both businesses.

As we discussed in the earnings press release, we changed the name of comparison Shopping and Search to Owned and Operated Websites in order to more accurately reflect the strategic focus of this business. We recently launched ValueClick Brands as MeziMedia’s new name to demonstrate our expansion into vertical content sites. You can get more information about these sites at ValueClickBrands.com.

In Q4 the Owned and Operated segment of revenue came in at the low end of expectations as we adjusted to the new business model put in place by one of the segment’s largest advertisers.

The good news is the remaining Q4 O&O revenue which is based on high quality traffic held up well in both the US and Europe. John will provide some color on the Owned and Operated revenue growth excluding this former large advertiser to give you a very perspective of the sustainability of this business growth going forward.

Our Q4 Owned and Operated segment margin came in higher than expected as the higher quality traffic was managed to higher profitability. We’re confident in our ability to growth the Owned and Operated segment sequentially off our new base during 2010. In addition to the content site initiative, we are expanding our Owned and Operated business in Asia.

Also, one of our key M&A goals in 2010 is to bolster Owned and Operated by acquiring content sites in key online ad verticals to help further diversify this business and to generate more revenue from direct advertiser relationships.

In summary, we ended 2009 on a positive note. While there is still uncertainty in the economy and limited visibility, I’m optimistic that our media affiliate marketing and technology businesses can post year-over-year revenue growth in 2010.

Now I’ll turn the call over to John for more detail on the financials and then I’ll finish the call with some closing comments.

John Pitstick

On a continuing operations basis, revenue for the fourth quarter was $110.4 million which is flat with the year ago period and represents a sequential increase of 5% from Q3. As Tom mentioned, the display affiliate marketing and technology businesses outperformed our initial expectations for the quarter. On a year-over-year basis, our display basis was up 18%, technology was up 2%, and affiliate marketing was flat. Relative to the comparable trends in Q3, these 3 segments posted notable improvements in our year-over-year revenue trends.

While our Owned and Operated segment came in at the low end of our expectations for Q4, excluding the one large customer change, the remainder of this segment posted a sequential increase in revenue of 9%. In addition, the Q4 margins in this business were better than we had assumed in our guidance.

The consolidated results for the fourth quarter demonstrate the earnings potential of our businesses and we achieved adjusted EBITDA of $35.1 million in the quarter. This represents a margin of 31.8% which is a nearly 800 basis point improvement from Q4 2008. Each of our four segments generated higher margins than in the year ago period.

Our GAAP EPS in the quarter was $0.20. Excluding certain favorable tax adjustments, our GAAP EPS would have been $0.18 which is above the high end of our guidance range of $0.16. We had another good quarter of cash generation, bringing the year-to-date free cash flow to $119 million.

Despite repurchasing $35 million of our stock in Q4, our balance sheet remains strong with $180 million in cash from our securities and no debt. We continue to have full access to our $100 million line of credit and we have $70 million available under our stock buyback program.

Turning to our Q1 guidance, we expect revenue of between $93 million and $97 million which reflects a decrease from Q4 due to normal seasonal trends. The midpoint of guidance for Q1 reflects low single digit year-over-year growth in media and affiliate marketing and high single digit year-over-year growth in technology.

While we are not providing full year revenue guidance at this time, we expect to achieve full year revenue growth in 2010 in these segments. The midpoint of guidance for Q1 has seen a year-over-year decrease of around 25% for our Owned and Operated segment. However, excluding the impact from the large customer change, the underlying O&O segment is expected to post a year-over-year growth in Q1 in the mid single digits.

We expect Q1 adjusted EBITDA to be in the range of $24 million to $26 million which represents a margin at the midpoint of 26%. As I mentioned on our last call, we expected to incur higher than normal legal fees in the fourth quarter. However, these expenses do not materialize in Q4 but rather have been pushed into early 2010. We expect such fees to negatively impact margins in Q1 by about 150 basis points which is reflected in our margin guidance.

We expect GAAP EPS in Q1 of between $0.10 and $0.11 and non-GAAP EPS of $0.15 to $0.16. Guidance assumes a weighted average share count of 85 million diluted shares and an effective income tax rate of 42%. Stock based compensation is expected to be $2.2 million and amortization of intangible assets is expected to be $5 million.

With that, I’ll turn the call back to Tom for some closing comments.

Tom Vadnais

Thanks, John. As you can see, our business is changing. Divestiture of web clients leaves us with a set of core businesses that all have good long term growth prospects and we have initiatives in place to enhance their market positions. Our in-house technology initiatives allow us to develop one platform to support multiple ValueClick businesses which is a competitive advantage.

The most notable example to date is our common data platform which enables us to aggregate anonymous consumer browsing shopping and online purchasing and improve our targeting. We continue to enhance the platform to better leverage the data across the businesses while building in the flexibility to allow one business to customize data elements to better serve their specific clients.

We have additional technology initiatives in place including a real time bidding platform, contextual targeting, and improved data mining in analysis. ValueClick Media and CJ are generating sales synergies where ValueClick Media has started penetrating CJ’s retailer advertiser base.

In Q4, retail was a large revenue vertical and in 2010 we have plans to place and capture and advertiser budgets from CJ’s larger retail advertisers who are always looking for incremental distribution. Mediaplex advertisers are asking for more comprehensive online media buying services. To address this demand, we’re developing new services for advertisers and agencies that combine the analytics and reporting capabilities of Mediaplex with the display campaign platform and expertise of ValueClick Media.

What I want to say about these initiatives in coming quarters is I believe we’re making the right technology investment and sales and marketing decisions to better leverage our capabilities and to capture more market share.

With that, we’ll now open the line for your questions.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from Brian Fitzgerald – UBS.

Brian Fitzgerald – UBS

Could you give us any color on how the first quarter has started off and do you feel you have more visibility in this quarter than you had say in the last 18 months or so, then could you provide any color into display pricing, maybe which verticals are stronger or weaker?

Tom Vadnais

On the quarter situation, we don’t provide intra-quarter guidance on that. So I’m not going to have any comment on that. Relative to pricing, pricing is holding up very well in our segment of the display marketplace. There has been a lot written about pricing declines, CPM declines in some areas but that’s usually referring to the premium inventory sites that had traditionally been priced at very, very high levels, CPM levels, but that isn’t impacting us. We haven’t been in that part of the business.

From the verticals, there is a differential in terms of the vertical ad networks that we’ve been creating. Those verticals are able to produce higher CPMs than traditional type inventory and this is also an expansion into branding categories that we haven’t traditionally been in with our performance space so the vertical networks allow us both higher pricing and new markets for branding.

So that’s a quick summary. I hope that answered your question.

Operator

Your next question comes from Mark Mahaney – Citi.

Mark Mahaney - Citi

You talked about the vertical ad networks being able to produce higher CPMs, can you quantify that, just a range of how much higher those CPMs are? Secondly with the sale of the web clients, what impact did that have on some of your international revenue and international, especially in Europe, your positioning there, and then finally, could you just clarify, when you’re talking about Owned and Operated sites, is that just within the splay advertising segment or is that across other segments as well?

Tom Vadnais

The Owned and Operated sites is a new brand name for what we used to call comparison shopping and search so it takes those businesses which were in the US what we referred to as MeziMedia and in Europe, we refer to it as Price Runner. That all becomes Owned and Operated sites. So that’s what that one is all about.

On the web client sale, the impact on that, that really was a US operation and there was very little international involvement with the web clients business, so that should have no impact on our non-US revenue strain.

Finally on the verticals, the CPMs, we don’t discuss specifically the pricing but the CPMs are significantly higher multiples from what they are with our normal pricing because it’s a much different product. The advertising is going into this vertical network where you already have qualified potential consumers who are visiting these websites and hence the conversion in ROIs is much, much higher, and that supports the higher CPM price.

Operator

Your next question comes from Carter Malloy - Stephens Inc.

Carter Malloy - Stephens Inc.

Looking at the Owned and Operated sites, are there any other large risks inside of those, maybe customer risks or product risks there?

Tom Vadnais

The Owned and Operated sites, as I said, it’s just a name change. What it does imply though is an effort on our part to significantly reduce the customer concentration that we’ve had in the past in the comparison shopping, what we call the comparison shopping and search. Part of that strategy involves the development of a number of new, high quality content sites.

We now have 20 sites up and running around the world and this high quality content gives us the ability to attract both organic traffic over time and to further qualify consumers who are visiting our content sites and then we would have more direct advertiser relationships from a monetization standpoint. So that’s the kind of a quick summary on the O&O side.

It’s a name change but there’s significant content change underneath that name in terms of changing the strategy for that business over the long term.

Carter Malloy - Stephens Inc.

I understand that. Just looking at the legacy customer base that you had within the comparison shopping, are there other customers there that could pull out of the channel because of the lower conversion rates, despite ROI, just a lower conversion rates of that traffic?

Tom Vadnais

If you’re in the business of search, you’re dealing with a few large partners. That’s the nature of the business. But search traditionally is a very high quality, high performance, high conversion type of traffic. That’s why we like to be there. Over time, we’re reducing our concentration of revenue, however, from these sources as we’re diversifying into new revenue sources.

So the concentration level goes down but we still have a concentration issue since you’re dealing with a very small number of search providers when you’re behind that kind of traffic. So it’s changed and will continue to change as we grow other aspects of this business but there certainly is still a concentration issue there.

Just as a reminder to everybody, what brought about the decline in performance that we had and is built into our 2010 guidance is the fact that one of our largest partners had a significant change in their business model and went to using a lot more of their owned and operated inventory and that resulted from just a change in their business model, nothing that we did.

But there certainly is some concentration issue there that will always be there if you’re using [inaudible]. But we think it’s a great channel to use to drive traffic and we’ll continue to use it in a high quality way.

Operator

Your next question comes from Mark May - Needham & Company.

Mark May - Needham & Company

I’ll ask two questions if you’ll limit it to one answer, that’s fine. I understand. The first is on the ValueClick Media business. I guess the display in particular. There are a few other media or display networks out there that are bigger and also have been and are growing faster than ValueClick media. I wonder if you could explain what you think is the reason why that is and what you can do, if anything, to change that in terms of increasing or maintaining your market share. What are those companies doing that you aren’t and what are you doing to kind of fix that?

The second question is on the content website strategy. It’s still a little vague to me and I don’t know if that’s because you’re still early on or you’re just not sharing a lot of details. But what exactly is the strategy there? What verticals are you building out? You have 20 sites running today, what are they? I just would like a little more meat on the content strategy.

Tom Vadnais

Since we kind of want to stick to this one question stuff, I’ll give you a short answer to the first one and that is they talk about hundreds and hundreds of ad networks out there. I never have seen a list of them all. We’re not aware that others of our size are growing faster than us. If there are new ones on a percentage basis with a small base, they’ll grow higher on percentage, but we believe we’ve got a much broader and more diversified platform.

We’re enhancing that with more technology from our Mediaplex business so we think our growth which has been very strong the last couple of years will continue. On the content website question, the way this operates is we have a number of high quality websites, destination websites, in a number of different areas. Currently we have as an example, health, education, finance, comparison shopping, business services, travel, coupons, and there will be more over time.

As these sites which have been professionally developed, as these sites grow in awareness, they become a source of organic traffic but also continue to be a good source for new traffic that we drive to these sites through either search or display or email and they go to these sites, they get information about whatever the subject area that they’re interested in, then to get more detailed information or to purchase products, they click through a direct advertiser link to the advertiser that would have the types of services they might be willing to buy. So that’s how that owned and operated segment mode works.

Gary Fuges

If you go to ValueClickBrands.com, you’ll see examples of sites in different verticals. This is a vertical content strategy we’ve talked about over the last few quarters or so.

Operator

Your next question comes from Ross Sandler - RBC Capital Markets.

Ross Sandler - RBC Capital Markets

Just a quick question on the margin guidance for 1Q, 26%. That’s very little margin expansion year-over-year yet you guys removed the lower margin lead gen. So is that just conservative or are there any other one-time items in the guidance and then just a quick follow up on the O&O sites guidance for 1Q. Are you guys being impacted by this same issue that you were experiencing in 4Q around the traffic acquisition from second tier or is this some of what Tom just mentioned in terms of Yahoo changing their platform from [altogether] to [oh no] and partners sites separate.

John Pitstick

The numbers that we’ve put out there and have recasted are all excluding the divested business so the Q1 EBITDA margins last year on the same basis of the assets that we continue to have in Q1 of 2010, that margin last year was 25.6% and the margin that we’re guiding to this year for Q1 is 26% so we’re right in that same ballpark with the same set of businesses.

That’s with revenue at that midpoint of guidance being down a little bit so I think nothing’s really changed in terms of our ongoing businesses in terms of our ability to generate the margins. We also called out in my prepared comments some legal fees in the first quarter this year that will negatively impact margins about 1.5 percentage points so I think that should answer your question there on the margins.

Your second question was on the content sites?

Ross Sandler - RBC Capital Markets

On the O&O sites, some of the impact from 4Q, is that what’s impacting it in 1Q or is it some of the stuff that Tom was alluding to around the platform change at Yahoo?

John Pitstick

I think at the end of the day it really centers around the same issue. The Q1 expectations are for the most part down because of normal sequential trends. I’d say there was a little bit of revenue in that fourth quarter that was residual from some of the prior practices from our largest customer there so some of that slipped into Q4 so that won’t be there at all as we look into our Q1 guidance.

Operator

Your next question comes from Youssef Squali - Jefferies & Co.

Analyst for Youssef Squali - Jefferies & Co.

This is [inaudible] in for Youssef. There’s one question on the display side, just more color in terms of the vertical network. Just trying to understand what the contribution from vertical network to your display business in fourth quarter is. Is it material, is it still a small part of business? You were talking about or planning to launch two more verticals this year. How is that going? Just trying to understand, if this part of the business becomes material in 2010, especially when you’re carrying premium priced inventory there.

Tom Vadnais

That’s a good question. First of all, on the expansion, it’s still our plan to introduce two more vertical networks this year. We haven’t disclosed yet the specific plans, dates, and verticals involved but as that gets further clarified we’ll be discussing that with you.

In terms of the revenue contribution from these vertical networks, remember that last year was the beginning of this so it was a growing business last year but still not a significant part of our $100 +million revenue stream. We anticipate, however, it will continue to grow very quickly and when we announce the additional networks, they should grow in the same manner, so over time, this should become a significant part of the revenue stream.

I mentioned before it opens up the branding area for us that we haven’t been in, in the past, so all of our performance marketing continues and this new area of branding becomes a viable opportunity because of these vertical networks.

Where they work, it’s very simple. It’s a network of publishers that have high quality content on their site and therefore users who go to those sites for information about that vertical. Those are the prime sites to distribute appropriate ads to and result in much higher conversions and therefore pricing.

Operator

Your next question comes from Eric Martinuzzi - Craig-Hallum Capital.

Eric Martinuzzi - Craig-Hallum Capital

What was the free cash flow number again for 2009?

John Pitstick

That was $119 million.

Eric Martinuzzi - Craig-Hallum Capital

I know you guys aren’t giving 2010 outlook but my methodology for 2010 free cash flow generation is my question. Given that you’re.. I’ve come up with my own revenue obviously but a 26% adjusted EBITDA margin, I’m wondering, do those legal expenses persist beyond Q1 do you think and then what are your Cap Ex expectations for Q1 if not Q1 2010 and then I guess I’ll take it from there.

John Pitstick

On the legal fees, we do expect the first quarter to be the heaviest during 2010. There will be some that slips into the second quarter but as we sit here today, we think that will be the heaviest quarter. In terms of Cap Ex for 2001, we spent about $5 million in 2009. It’s probably going to be in that same ballpark in 2010, maybe a little bit higher, but not meaningfully higher.

Eric Martinuzzi - Craig-Hallum Capital

So historically it’s been kind of, I’ve been able to back my way into a free cash flow number with a EBITDA less Cap Ex less some kind of cash taxes number, is that still the best way to do it?

John Pitstick

Yes, that make sense.

Operator

Your next question comes from Sameet Sinha - JMP Securities.

Sameet Sinha - JMP Securities

A question on your direct advertising relationships and content creation. Obviously that’s a new business opportunity for you. Can you quantify in terms of incremental cost that will take to set up these relationships as well as create the content?

John Pitstick

Creating the content is something that we’ve been doing throughout 2009. We can do that pretty cost-efficiently given our operations in China as well as outsourcing some of that content creation. So the numbers that you see that we’re putting up for that segment this year really reflects those costs and kind of an ongoing run rate for what it’s going to take to launch more sites.

The direct advertiser relationship, we’re building that stream up. It isn’t really something that involves incremental cost. It’s more of a timing issue and a sales issue in terms of going out and getting those in place to decrease that concentration that Tom referred to, so no real cost there, just a matter of something that takes some time.

Operator

Your next question comes from William Morrison - Thinkequity.

Analyst for William Morrison - Thinkequity

This is Rob on the call for Bill. I just wanted to ask, how much CPC revenue was in Q4 on the O&O side or is implied in Q1 O&O sites guidance and with respect to how O&O sites did in Q4 relative to your initial expectations, was it a matter of the step down from that large partner being larger or more dramatic or more rapid than you initially expected or did some of the revenue replacement take longer to sort of come online or was traffic an issue at all?

Tom Vadnais

On the CPC question, really, most of what we do in that segment is priced on a CPC basis. There are some campaigns, particularly on our coupons and deal sites that are more CPA that work through the affiliate networks, but probably 90+% of what we do there is on a CPC basis in Q4 and that’s kind of the plan for Q1.

In terms of Q4 and that segment being a bit lighter than we had guided to at the midpoint, it really is the impact of that one large customer and when we gave the guidance last quarter, we were still digesting that change and it ended up coming in at the low end of our expectations but it was related to that one customer.

Analyst for William Morrison - Thinkequity

Just for clarification, by CPC I meant the search revenue from those two large partners. Are those still significant at all or are those pretty much de minimus at this point?

John Pitstick

They’re still a significant component of the revenue mix for that segment. As Tom mentioned again, the concentration is still there to some extent with respect to monetizing with those search partners.

Operator

Your next question comes from Townsend Buckles - J.P. Morgan.

Townsend Buckles - J.P. Morgan

On your margins you did an impressive job of improving profitability last year despite a weak revenue environment. Would you say your longer term target is now closer to the 30% range and in a more positive revenue environment, can we see further margin expansion from current levels or would you see more costs come back into the structure?

John Pitstick

I think Q4 was a good example of where we can be with a strong quarter which we typically have in the fourth quarter in a given year. I wouldn’t say we’d target on a full year basis to be up that high, I think something in the upper 20’s is more of a target. We are investing in technology initiatives as Tom referred to and there are some costs associated with that but we think we can be in that high 20% range.

Operator

Your next question comes from Jeff Rath - Canaccord Adams.

Jeff Rath - Canaccord Adams

Tom, just a question for you, how would you describe your customer concentration issues outside of the O&O business, I guess mainly looking at the affiliate and the media segments?

Tom Vadnais

That is a non-issue in the other segments. We don’t have any customers over 2% of our revenue in those other segments so we’re in good shape from a concentration issue in all of those. We have had over the years in both affiliate and in the [slay], we’ve had some customer concentration issues in the 5% to 10% revenue range but they’re just not in that case in either the affiliate or the display today.

Gary Fuges

I’d add to that in affiliate marketing, there’s no customer there that represents more than 2% of revenue so we’ve got a real good customer mix there. I would characterize display as being in the same ballpark. Display is a little bit more noise there because customers tend to come in and out each quarter. It’s not necessarily the long term type contractual revenue that we get through the affiliate marketing channel.

John Pitstick

We’ll take one more question.

Operator

Your final question comes from Sandeep Aggarwal - Collins Stewart.

Sandeep Aggarwal - Collins Stewart

Which segment will likely benefit from your less distraction on the lead generation and conversely, which segment will likely suffer without your lead generation business in terms of maybe higher synergies with that business and then if you allow me I have actually one more question on the concentration issue.

John Pitstick

Let’s do the concentration question.

Sandeep Aggarwal - Collins Stewart

The question is basically, O&O properties, you talked about in the past maybe driving more traffic yourself or maybe developing a relationship with merchants directly. Can you just talk about which are the low hanging opportunities in terms of how you can reduce your dependence on some of the large search partners?

Tom Vadnais

We’re going to be doing business with search partners for a long time. As I’ve said that’s very high quality traffic. We have outstanding technology in that area of our business. So it’s something we’re going to continue to do but it will be less than 50% of our traffic and revenue stream both coming in from those channels as we go forward.

So dealing with search is something that’s going to continue to be with us and as I said, I think we’ve got a competitive advantage in that area. Why don’t you restate your first question?

Sandeep Aggarwal - Collins Stewart

Basically the question is with lead generation divestiture, you have less distraction, so which business tends to benefit more in your existing segments and because of synergies, is there any business which may suffer some losses because of the lead generation no longer part of the [inaudible]?

Tom Vadnais

Remember that the lead gen business was part of our media segment so you will see in future reporting, our media segment will be lower than it was since we no longer have that lead gen business in that segment. However, it’s fair to say that when you’re in the performance marketing arena which is what we are, you’re always doing some form of lead gen, some form of performance related service for your advertisers, so we have many other initiatives and always have had going on that do various types of lead gen so we don’t think any part of our business will be hurt as a result of the divestiture of web clients. That was one unique lead gen platform based on promotional or incentivized type of leads that we simply won’t have within our offerings anymore but we have plenty of other alternatives so we don’t see any negative impact on any parts of our business as a result of that.

Tom Vadnais

That concludes our Q4 ’09 earnings report. We appreciate all of you listening in. If you need more information, we’re always available to talk to you and this broadcast will be available to you as the operator mentioned at the beginning. Thanks everyone.

Operator

Thank you for participating in today’s ValueClick fourth quarter conference call. A replay of today’s conference will be available beginning at 4:30 pm Pacific time today by dialing 1-888-203-1112 or 1-719-457-0820. The access code for the replay is 8616047. The replay will be available through 10 pm Pacific time on February 23, 2010. Thereafter, the replay can be accessed on ValueClick’s website at www.ValueClick.com. Once again, thank you for joining us for today’s conference. This does conclude today’s call.

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Source: ValueClick, Inc. Q4 2009 Earnings Call Transcript
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