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Conversant Inc. (NASDAQ:CNVR)

Q4 2013 Results Earnings Conference Call

February 11, 2014, 04:30 PM ET

Executives

Erik Randerson - Investor Relations

John Giuliani - Chief Executive Officer and President

John P. Pitstick - Chief Financial Officer

Analysts

Tom White - Macquarie Equities Research

Sachin Khattar - Jefferies LLC

Peter Stabler - Wells Fargo Securities, LLC

Sumit Sinha - B. Riley & Co.

Shyam Patil - Wedbush Securities

Mitch Bartlett - Craig-Hallum & Co

Eric Martinuzzi - Lake Street Research

Mark J. Zgutowicz - Northland Capital Markets

Dan Salmon - BMO Capital Markets

Aaron Kessler - Raymond James & Co.

Operator

Good day everyone, and welcome to the Conversant Fourth Quarter 2013 Earnings Call. (Operator Instructions). As a reminder this call is being recorded. At this time, I would like to turn the call over to Mr. Erik Randerson, Vice President of Investor Relations. Please go ahead, sir.

Erik Randerson

Thank you. Good afternoon, and welcome to Conversant's Fourth Quarter 2013 Financial Results Conference Call.

Joining me on the call today are John Giuliani, Chief Executive Officer; and John Pitstick, Chief Financial Officer. This call contains forward-looking statements that involve risks and uncertainties. Actual results may differ materially from the results predicted, and reported results should not be considered as 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 our annual report on Form 10-K filed on February 27, 2013, recent quarterly reports on Form 10-Q, and other current reports on Form 8-K. 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.

I'd now like to turn the call over to John Giuliani, Chief Executive Officer of Conversant. John?

John Giuliani

Thanks, Eric. Good afternoon everyone and thanks for joining us today on our first earnings call after our recent re-brand as Conversant. I will provide a brief overview of our Q4 results and an update on our progress on key initiatives including our marketing campaign launched with the re-branding. Then I will turn over the call to John Pitstick who will provide a more detailed review of the numbers and our guidance for Q1 of 2014.

First, we had a solid Q4 to close out the year. Most notably Media segment revenue exceeded the high end of our guidance range by more than $7 million and more importantly returned to a year-over-year growth. Our bottom line also performed well and we achieved record levels of profitability. We are pleased with these results and we think many of our strategic initiatives are starting to gain traction although we acknowledge that we have more work to do.

We continue to deliver solid growth in our few largest revenue lines, CRM and affiliate marketing. Our CRM business had a best quarter for launching new clients in more than a year and in affiliate marketing, newly on-boarded clients continue to perform well. Our fastest percentage growth came from the emerging categories of mobile and video where revenue increased more than 40% year-over-year.

Our insertion-order display business demonstrated return to normal sequential trend during Q4 and I am encouraged by the progress we have made in our rebuilding of the sales infrastructure.

Now, let me talk a little bit about our new marketing campaign at our new brand Conversant. Last week we unveiled the Conversant brand and launched the largest marketing campaign in the company's history. I would like to thank our marketing team for their tremendous amount of work and effort that went into this as well as our over employee base.

The comprehensive campaign includes public relations, advertising in more than a dozen leading trade publication and direct marketing outreach aimed at thousands of media buyers. Our new website also did a great job of highlighting the full breadth and depth of our operating to our customers, partners, agencies and media professionals. We have seen an exciting initial response to this campaign. For example our team has arranged hundreds of meetings with media buyers primarily with new contacts.

Our new brand reflects strategically important accomplishments over the past year which have brought together the strength of each of our businesses to create a unified personalization company. The power of our combined assets will enhance our value proposition for customers, partner agencies and media professionals. Our strategy is reinforced by a number of industry trends. The advertising technology landscape is over saturated with point solutions, operating technologies that are not designed to integrate the complexity of the vendor landscape as-well-as the proliferation of consumer devices is leading marketers to seek pure vendors that can play a larger and more strategic role.

Conversant is well positioned to capitalize on these market dynamics. Our scale-across major marketing channel and consumer touch points enables us to be the strategic partner of choice for our client. And since we have consolidated all of our media solutions under the Conversant brand today marketers can more easily evaluate our brand capabilities than ever before. The cornerstone of our vision is that personalization is the future of digital marketing. We believe we have the technology, scale, data assets and expertise to make the vision a reality and take our personalization capabilities to a higher level.

We fully intend to be known as the personalization company. Our new tagline the power of personal speaks to how Conversant enables one-to-one relationships between brands and consumers that are proven to drive growth and stronger brand connections. While the significant investment in the re-brand will impact our profitability in Q1, we expect the initiative to pay dividends in the balance of 2014 and beyond.

I want to take a quick second to take about why Conversant. So at Conversant and how we came up with the name we seek to connect advertisers and consumers to create a conversation, an ongoing dialogue if you will between the consumer and the advertiser. We align our data and technology to create these conversations across multiple mediums plus multiple devices and across multiple ad units. This allows advertisers consistency of the copy and communication message across all three of those elements, so the consumer is getting the same message regardless of the advertisers connect to them. Ultimately the measurability of this effort will yield greater results, as far as efficacy but also because of the consistency across all these different mediums there is an efficiency play.

And what we believe through creating these conversations is we give the marketer as-well-as the consumer more control. We think Conversant reflects where we are going and what we are trying to do with our marketers and our consumers better than any other name we've had.

So to turn other areas we are making progress against our goal of developing closer partnerships with advertising agencies. We are enabling advertising agencies to transact with us programmatically through technology platforms and these pilot programs have achieved excellent results. We will have more to report to that on future calls on where the progress is moving forward.

Finally as we continue to build into the future, last week we acquired SET Media, an innovative digital video technology company. What makes SET so special is their proprietary classification in video specific contextual advertising platform that provides marketers with unparalleled targeting capabilities and complete brand safety in digital video advertising. SET's impressive technology platform and dedicated team bring a depth of expertise in to the digital video advertising that will significantly extend Conversant's scale and capabilities in this important and fast growing part of the market.

With SET offering a contextual targeting and brand safety combined with Conversant's existing data and targeting we will create a very powerful combination in the market right now, which we will add on to in the future our expanding personalization platform we believe we will have a market leading offering geared to the future of video. With that I'll turn it over to John P., who will provide a deeper dive on the financials, and then we'll take your questions. John?

John P. Pitstick

Great. Thanks. John. Good afternoon everyone. I'll remind you that our reported financial results exclude the O&O segment that we divested last month and there is an Excel file on our Investor Relations website with those - historical months.

The Q4 revenue came in at $176.4 million and exceeded the high end of our guidance range by more than $5 million. This represents an increase of 6% from Q4, 2012 and a 32% sequential increase for compared quarter. Media segment revenue drove the out performance as all of our Media products came in above our initial expectations for Q4. Media segment revenue increased 4% year-over-year to $127.4 million, an improvement from the flat performance in the previous two quarters.

We continue to experience solid growth in our CRM, mobile, video and cross-device solutions while display revenue was down year-over-year as expected we were encouraged by the normal sequential trends we experienced in Q3/Q4 that John alluded to. For Q1 we expect Media segment revenue growth of 5% at the midpoint of our guidance range. Please keep in mind that the prior year comparison for the media segment was revenue growth of 19%, revenue comparison to ease considerably as we get into Q2 and beyond.

In Affiliate Marketing revenue increased 12% to $49.1 million and this increase is largely driven by net new client wins during the year. Looking forward to Q1 we expect a lower affiliate marketing revenue growth of 4% midpoint as a result of generally softer trend so far in the quarter along with the impact changes in the customer base that have gone into effect at the start of the year.

Adjusted EBITDA in Q4 was $74.8 million, an increase of 10% year-over-year. Adjusted EBITDA margin of 42.4% expanded by 150 basis points compared to the fourth quarter 2012. Q4 non-GAAP EPS was 67%. I will point out that EPS benefited by $0.05 from a lower effective tax rate of 34% in the quarter. If you assume the normalized tax rate of 40% that we guided to our non-GAAP EPS would have been $0.62 just above the guidance range and a 32% increase year-over-year.

On a full year basis our total revenues grew 6% to $573 million while EBITDA grew 15% to $122 million. In 2013 we generated $165 million of free cash flow, an increase of 19% year-over-year. The strong cash flow helped to fund a repurchase of 10 million shares during the year representing approximately 13% of our shares outstanding. We currently have $100 million available on our purchase authorization and expect to be active with the program here in 2014.

Our balance sheet as of December 31st included cash and cash equivalents of $81 million and our total debt was $140 million. Our cash balance increased by $27 million from prior quarter while our outstanding debt decreased by $55 million. Please keep in mind that our December cash balance does not include the $80 million proceeds we received in January when the O&O sale was completed.

So adjusting for these proceeds as well as the cash used for the acquisition of SET Media last week total cash roughly equals the year end debt balance. We think this is a pretty significant achievement considering the $224 million we invested in our share buyback program in the last several quarters. And while we had strong free cash flow in 2013 I expect 2014 to be even stronger as we utilize tax benefits from the O&O sale to reduce tax payment this year by approximately $40 million balance.

So moving onto Q1 guidance we expect consolidated revenue to be in the range of $138 million to $144 million, representing 5% growth at midpoint. We expect adjusted EBITDA to be in the range of $47 million to $49 million, representing a margin at midpoint of 34%. Included in our operating expense projections is about $3 million of one-time expense that's related to the launch of our new brand. SET Media is just beginning to ramp revenues and we expect only a nominal contribution in Q1 and we’ll absorb an operating loss of about a million dollars. So this along with the higher marketing cost will impact our EBITDA margin in the quarter by nearly 300 basis points. Lastly, we expect non-GAAP EPS to be in the range of $0.38 to $0.39 in the quarter.

And with that I turn it over to John Giuliani for some closing comments.

John Giuliani

Thank you, John. So before we go into questions I just wanted to take a minute to talk about the year sort of a review, my first year as a CEO of the new Conversant. We started really last March with our Analyst Day where we really laid out our vision for the future, what we wanted to accomplish and way we were going to do that.

Secondly, part of those visions were to simplify our story to have one company and integrate our offerings and we laid out at that time that every fiber of our being was customer focused. I think I put it to you at the Analyst Day that the star in our show is the customer. That remains our driving factor right now, as I mentioned earlier to breakthrough this sea of vendors out there in the landscape in ad technology and create the most important relationship with our customers that we can and aspire to be the best relationship.

We also set us on the path of integration in both expanding and consolidation our tech and data platform. We made a strategic decision to divest our Illinois properties and we completed that decision recently. We told you we would re-brand the company and transform the company and we done the first and we are in process of doing the second. We committed to the expansion of video and mobile and to that end we've acquired SET Media. We continue to have strong results in both of those areas and to continue to transform the company into that area.

Ultimately, we set out to improve our organic growth rate to make it more consistent and predictable. We are not there yet. We improved throughout the year although quite frankly we didn't expect to go backwards last year, we did, but we pulled together and we pulled out of that and I think quarter-by-quarter we continue to perform better.

Clearly, our work is not done yet but the last part of that is we desire to build a unified differentiated offering and I believe to that end we are well on the way. We see the market differently than other people. We know we are not always going to be the hot topic but we think over the long-haul we are going to reward our customers, our employees and our shareholders with a thoughtful positioning strategy into the future.

Again we made a great deal of progress. There is more to go. We finished much work but we won't stop until we have achieved and we created a great company and one that each of our constituents and again our shareholders, our employees and our customers can be proud to be associated with.

And with that, I will turn it over to questions.

Question-and-Answer Session

Operator

(Operator Instructions) We'll take our first question from Tom White with Macquarie.

Tom White - Macquarie Equities Research

Great. Thanks for taking my question. On Media segment gross margins looks like they declined year-over-year for the first time in several quarters. Can you guys maybe talk a little bit about your approach to kind of the relationship between revenue growth versus gross margin in that business?

And on the affiliate marketing, guidance for the first quarter look about 4% which is may be a little bit lower than we'd expected. Can you give us a little bit more color on some of the softness you alluded to affecting your affiliate marketing segment in the first quarter? Thanks.

John P. Pitstick

Sure. This is John P. I will be talking about the gross margin question first. I think it is important to keep in mind that if you look back Q1 and Q4 of prior year, those are kind of high watermarks with expected gross margins in the Media segment of 62.5%, I think in Q4 and 62.8% in the first quarter of 2013. So, I don't think our intention was to stay at that higher level albeit you kind of see the low 60 as just kind of comfort range there. So, that's something you will see relative Q4 as well as well as what we expect Q1 of 2014 gross margin to be slightly down year-on-year. But again, that's more coming out a high watermark in the prior year.

I think in general we do recognize the need to strike the write balance between revenue growth and gross margin. I think if you look at the overall P&L structure for us in 2014, you will probably see us be willing to get a little bit on the margin, overall EBITDA margins relative to some of the expansion that we achieved in 2013. So that kind of addresses the gross margin question.

John Giuliani

Yes. This is John G, I think if the trade-off is that clear that we would trade-off for more volume than higher margin. I think we are not -- we have ample ways of being profitable. You see sometimes where we are our margins will spike up. That's a lot of time based on the innovations that we have in our Media Group to acquire inventory because of our knowledge, because of our bidding systems and our programmatic alliance, we typically are heading in some of those areas.

We don't sustain those long-term because we typically, if we can get more efficient on the buying we try to work with our customers to get more efficient buys for them under the auspices of having longer term relationship as well as providing better returns. So even where we can have the ability to increase margin, we're more likely long term to keep investing that back with our customers to make the program for them.

John P. Pitstick

And then on the affiliate growth question for Q1, we are seeing as I mentioned a bit of softness just generally speaking in the ecosystem transactional volumes but we also are digesting some issues with clients where they are reevaluating some of the ways they worked with publishers particularly in the promotional part of the ecosystem.

So whether it's reducing or limitating coupon deal offering or changing the economics there. Some of those changes will flow back to us in terms of overall volumes that we see and we do from time-to-time have client losses that we digest and there's typically noise around that. So those are some of the factors there that play into the Q1 guidance.

Tom White - Macquarie Equities Research

Great, any particular verticals there on the sort of the transactional softness that you are seeing or is it just broad-based?

John Giuliani

Fairly broad based. I mean if you look at our affiliate business we have a fair amount of activity in sort of kind of electronics space. So that's the probably biggest vertical within our affiliate business and be representative of where we have seen some of the softness.

Tom White - Macquarie Equities Research

Thank you.

Operator

And we'll take our next question from Brian Fitzgerald with Jefferies.

Sachin Khattar - Jefferies LLC

Hey guys thanks. This is Sachin sitting in for Brian. How do you guys feel about your video asset currently and can you just talk to us about little more I guess about what the SET Media acquisition kind of mean for as such?

John Giuliani

Yeah I think, this is again John G., if you -- how we feel about and how we don't feel we are complete enough which is part of reason we acquired that. We think we've got ample data at data products. We think we have a good view for the future of personalization, although we don't think we are where we need to be to match what we can do with the rest of our businesses as far as personalization.

We think our bidding system in that area is really strong and we've got -- whether you call it a campaign manager or ad server, we think it's adequate for what we are doing now. I think with the SET acquisition the definition of how we build that out will be more fully to grow to a greater extent.

We think that, as I mentioned on my prepared remarks that both the contextual part of what that brings as well as the brand safety combined what we were doing gives us a real strength in the market right now, but also what we really felt like is we get a very focused team. They are very diligent, folks that got chance to spend time with their leader and their executives, in fact we are going to be spending more time with them over the next few days tomorrow. But there really a strong team dedicated to doing all things video.

And many -- what struck us with them is many of the things they needed to invest in such as the bidding and the ad serving we have and so the overlap was -- there wasn't a lot of overlap and so there is really sort of delineated duties which we love. And that varies by -- the focused team the quality of the team, the engineers, the account management right on down is just a fairly solid team and we plan to invest in them.

So what we think they gave us is market ready product combined what we have today with expertise of selling and delivering against that and we believe with their focus and with our other assets, we have a market superior offering ready for the future and so we like that. We like the combination there and we like the fact that their expertise in what they can do to help us to really look at the future of video.

Sachin Khattar - Jefferies LLC

Okay. Thanks a lot.

John A. Giuliani

Yeah.

Operator

We'll take our next question from Peter Stabler with Wells Fargo Securities.

Peter Stabler - Wells Fargo Securities, LLC

Good afternoon. Thanks for taking the question. Quick one on SET, first of all can you tell us whether Q1 guidance includes any revenues for can you size that business for us and confirm that it's going to be in the media segment? And then secondly getting back to CJ, I am wondering if you could some comment on the challenges and/or opportunities associated with the mobile migration for that specific business unit? Thanks very much.

John P. Pitstick

Yeah. In terms of the SET contribution I think you referred to my prepared comments that we're really beginning to ramp up to real opportunity is as John talked about bringing these pieces together with our current video offerings and scaling from there. So if you look at expectations in the quarter for that business on its own, it's less than 1% probably the numbers that we guided to. That will be in our Media business along with our other video and global assets.

So that's where the contribution for is sure as well as the incremental -- that provision as John mentioned brings in a great team and really accelerates investments we would have made otherwise in video side, that will all show up in the Media segment.

John Giuliani

If I could add on you are going to see a lag on the revenue contribution which we are very comfortable with. It will absorb some of the operating losses, the short-term revenues is relatively not low versus what we're delivering, where we look at the speed not only in the SET product growing through the next several quarters but their impact on rest of our organization and our focus on video, we will see the fruits of that in a couple of quarter but in the short term we are comfortable on them a lot to impact the top line, but within a few quarters we will see we believe some impact.

John P. Pitstick

And I think your second question was on the traditional junction business and impact of mobile. I think we have seen growth with the publisher base in terms of the transactions that happen through mobile devices. I think we're in kind of mid-teen percentage of overall transactions that go through mobile. I do think there is some work and teams are focused on making sure that systems, tracking and is adequately capturing all that activity that the publishers and ecosystems are getting full credit for that. There may be leakage there but in terms of volumes we are seeing that scale become non trivial part of the overall mix.

John Giuliani

I might add to that. Where we have implemented our Conversant Tech management system, we see an increase in those conversions on the mobile. So that's one of our initiatives to continue to expand that's tagging system and it really helps for our publishers and our advertisers to have a better knowledge and control of the spend.

Peter Stabler - Wells Fargo Securities, LLC

Great. One quick clarification then going forward because the contribution has been de minimus, can we expect that you won't be offering any sort of pro forma results for media per se? Thanks

John P. Pitstick

Yes. That's correct.

Peter Stabler - Wells Fargo Securities, LLC

Thank you.

Operator

And we will take our next question next with Sumit Sinha with B Riley.

Sumit Sinha - B. Riley & Co.

Yes. Thank you. A couple of questions here. So, in last year we oversee a tumultuous year one thing that you'd pointed out was that your fields coverage -- was not there where you wanted to be Q4 is obviously on the path to go higher but what your expectations for this year? How many people you expect to add this year? Is this going to be localized or basically national additions?

Secondly, in terms of free cash flow do you expect those 40 million in tax savings so that should benefit free cash flow. How do you tend to use it, obviously you bought SET, SET Media after a number of years of basically divesting assets. So, how should we think about you balancing buybacks versus M&A? Thank you.

John P. Pitstick

So, I will talk about the cash flow. If you look at 165 million we did in 2013, I think included in there was about $55 million, $56 million of cash tax payments, so that when we talk about kind of an overall adjustment in that next year that's starting point cash tax.

I think you will see us continued to be focused on buybacks. I mentioned earlier that, we have $100 million and you will expect us to continue to be active this year at the levels throughout the year and we'll continue to balance that with what we see as opportunities on the M&A side. I think what you saw with SET acquisition was very target opportunity and something that we though fit really nicely within our organization. So, I think we're really diligent around that process. I think you continue to see that line set and we are definitely hoping more activity in that area.

John Giuliani

In regards to the sales structure, we are going to continue to add the quality and quantity to our sales infrastructure. We have been working on that. It's a constant thing. As we integrate our offering we still like the ability for a top tier sales professional in this industry to have leading edge display video and mobile property all combined in one, not only fits with the future the way we think the market will buy, but if you think about it just from a practical standpoint a sales professional wants to have a high quality product line to sell that’s going to be in sync with the way their marketers are going to buy,

And the ability to combine three major areas of the of online advertising means they probably can sell more which in a commission world means they probably make more so we think it’s very attractive to come over with Conversant. We see that with the rebranding it’s really and we have been proliferating this general strategy and we’ll keep putting people and resources into that until such time as we see dimension returns. So we don't think there will be anytime over the next 18 months will hit the desired returns.

Part of again back to SET we love their eagerness and with our ability to invest in them you will see more sales heads and video almost immediately just from there. So we’re looking for different ways to do that but we’re very happy with the infrastructure we put in place and we try to finish in the past to look at but difference this time is we built an infrastructure leadership first and we have got some very high quality individuals around the country leading teams in LA, San Francisco, Chicago and New York and we think that’s the foundation of being able to bring on high quality sales professional. We will continue to invest in that area and it’s one that we think it will yield great dividends.

Peter Stabler - Wells Fargo Securities, LLC

Now one follow up question. John so obviously you have been talking about video and mobile for a couple of quarters and the growth chase there. So we saw that you bought SET Media. How should we think about, what do you think is missing from your portfolio that you can cater to your agency clients? Is it something that you are already working on currently? I mean sorry, you already have small currently or do you think that it’s something new that you need to acquire something latest shiny thing out there.

John P. Pitstick

I am pretty dull so I am not sure I will jump at the shiny thing but I think if we find areas like we found with SET. I can’t say that we will now define a space, hey this is missing in our portfolio and then found it. We look at the broader market. As I mentioned that's what we've been doing over the last several months, we did a very disciplined and determined approach to how we would look into video and we exhausted the market.

I can tell you we have been in contact with dozens of video company so we got a very good lay of the land and where things are sort of need to or very similar or not good at this time we just shied away from that. Where we found in SET we found unique capability that we saw added with ours and that in the strength that we already have as I mentioned with our own answer with our bidding data we felt that was really additive and what the duties are delineated.

So when we add that to that we feel like we have got a good portfolio that has to be enhanced. Past of the investment is we are going to help them build out the levels of targeting contractual and advertising they can do, we think that will yield great dividend but what we also get that we didn't have and this is not with the spirit of any other groups in our company that work on video because we have got very dedicated folks to give us the catch up in certain areas but here we have also brought a very focused team in video and so we think that will line out our strategies much more coherently in terms of video and we think this will be our fastest growing business for quite some time and we think size wise as we have the potential to rival many of our other businesses.

So we won’t be looking for -- in answer to your question we won’t be looking for anything shiny necessarily. We think we have the tools and the assets right now that can fully occupy our build out and really lead us to more exponential growth in this area but we’ll also continue to canvas the market look for the right opportunities in video. If they have it for what we’re doing long term because we are determined to be a real player long term. We think this is a very important aspect and when you really go back to our view of the world and buying at the individual level of personalization we think that the data and the ability to do that in video is an enormous opportunity for the industry.

So we’re going to be active looking at all the different video assets but to your direct question I think we have the assets right now to propel our growth in video for some time.

Peter Stabler - Wells Fargo Securities, LLC

Okay. Thank you very much.

Operator

And we will take our next question from Shyam Patil from Wedbush Securities.

Shyam Patil - Wedbush Securities

Hi, guys, congrats on the quarter. Just two questions from me. You talked a little bit about how we should think about the year from a high-level, anything more you can offer to how we should think about revenue growth for the year, EBITDA margins and maybe a breakout of affiliate in the year?

John P. Pitstick

Yeah, in terms of the official guidance I think we will stick to the quarter-to-quarter I think from a modeling perspective as I mentioned 2013 was a fantastic year in terms of EBITDA margins, we expanded those by about 300 basis points over full year 2012. And thinking back to some of the commentary we laid early last year but that wasn't necessarily our goal to expand those margins.

In 2014 when you think about the higher marketing expense obviously most of that here in the first quarter but just continued investment in growth I don't expect that it will be at the same overall EBITDA margin levels for the current year, 38.8% for the full year in 2013 I'd see us in the 37% to 38% kind of full year basis for 2014, is how I kind of think about the models but in terms of specific revenue guidance I think we will stay on quarter to quarter.

John Giuliani

I just want to add one thing on the revenue guidance, we won't be guide on affiliates but we are not satisfied where we are. And so we will continue to drive our business where our objective is. We do have some easier comp overlap in Q2 and Q3. And so we obviously are aspiring for a greater level now. And we've got a great strategy, great product portfolio. We've improved our execution. We had a lot better execution in Q4 which is why we exceeded our guidance.

And then internally we looked at that and we said hey that's good execution but we weren't celebrating, we weren't happy with our overall because it's not where we want to be but we were happy with our execution, how we collaborated, how are teams have come together.

We view where we are going as we are not there yet. So we look to get to the goals that we aspire to. But as we approve that execution we realize we are sort of in a show the room how we execute and we are willing to do that quarter-by-quarter and build over that way. But note that our growth goals are higher than our belief and our business is higher we got to go through the balance sheet.

Shyam Patil - Wedbush Securities

All right. That's very helpful. And then could you maybe give us any of your thoughts on how we should think about the insertion-order business, given some of the ups and downs there and the sales organization given that they return to normal technology as-well-as an update on your DSP offering and whether or not you have any thoughts on whether it makes sense to enter the supply side platform market? Thank you.

John P. Pitstick

The last part was the supply side?

Shyam Patil - Wedbush Securities

Supply side platforms.

John P. Pitstick

And what we are expecting.

John Giuliani

Yeah I think as we go forward you are going to see us muddy in the lines of our Media business. One of the reasons we manage it this way and we have -- we came out some say a little over a year ago where we had I think people looked at us and said a multitude of businesses. We are pretty clear that we have an affiliate business and a Media business. And within that there is devices, different mediums and different ad units.

And so in my way of thinking as I tried to explain is I kind of see those all having to come together and be similar. And then if it's really how do you serve your customers? We have direct customers and we have indirect customers. Largely our indirect customers are agency customers and we are working hard to develop tool sets and bridges with our data platforms in our trying to understand to consumer because you want to be a great agency partner. At the same time we are a great direct partner.

And so you are going to see some muddy end of that business but we think where you will see that business going is where we tie these together because there is really only -- for every advertise we have they have two types of consumers, consumers that have bought from them and consumers that haven't. And we are breaking it down that simply we are going to help them attack both of those and we are really good on the consumers, the buy side because of our CRM platform and because of our data and knowledge we are really good on the acquisitions side and we are going to bridge those two together.

And so see that insertion-order business on the indirect side really complementing or vice-versa complementing the direct business and the direct business complementing the indirect. So we'll continue to make those market moves to serve that segment. As it relates to DSP that sort of the same thing is that we see the market segment there that we have the tools and capabilities to serve our customers and that's what we are trying to do is fill that serve for them so they don't need to keep looking out. And in many times that might mean they migrate over to some of the things we are doing in our insertion business and sometimes that might means they'll migrate over to the things we are doing on our business on our shared platform business, on a more direct basis, but we are going to continue to look to market to serve each of the needs we can so that we can attain that relationship status that we want for our customers.

As far as supply side, I really don't see a lot of back for us with the exception of how we work with different programmatic folks putting the knowledgeable inventory in but I don't think you will see this as a supply side platform service offering.

Shyam Patil - Wedbush Securities

Great. Thank you.

John Giuliani

You're welcome.

Operator

And we'll take our next question from Mitch Bartlett with Craig-Hallum.

Mitch Bartlett - Craig-Hallum & Co.

Yeah I appreciate the answers of the last question on the display business. It is a good chunk of your revenues and it's had some problems last year it sounds like you are beginning to stabilize. I understand that you are viewing entire media business as one but maybe if you just give us a kind of the flow as we go through the year whether you feel confident that the business, that 20% of revenue has been stabilized?

John Giuliani

Yeah. I think we pointed to the fact that Q4 results normal seasonal trends Q3 to Q4. So I think that's indicative of a business that is on the right track here in the first quarter our business has some comps we are looking at the prior year we had growth, so going to look at that we will see the year-over-year growth numbers that we have get better in 2013, get better as we get into 2014. Quite frankly as John mentioned the comps get much easier in the second and third quarter. But more importantly the traction in terms of sales force leadership as well as significant marketing campaign that are going on associated with the rebrand those should bear some fruit as we go throughout the year.

We feel good that we have turned the corner in that business it's more likely to be a positive growth year for us in that business.

John P. Pitstick

Yes and we have seen some good internal trend that we did -- that over the past few months 30 months that gives us some confidence, but like the rest of the business we think we are rest assured quarterly and we have confidence in our business obviously as the things we are doing but we also realize that we can perform every quarter and then your confidence and the shareholder type will grow.

I will say as John mentioned the rebranding we had one of the most innovative marketing campaign that really if you do your market check and talk to some agency growth I think you will be hard pressed to find if you make some calls, people -- you will be hard pressed to not find people that have not heard of our name change, heard of our marketing effort, it was very well received last week and we think it's really going to have a great long term effect because it still allow people to listen to the story of what Conversant's all about and the many assets we have we think that will really yield great results.

But again until we actually deliver some of those we feel like we should stay a little bit on the cautious side and ensure it has been growing but we feel very good about the business and that's why we structure around media and affiliate and media is the bigger and that should be long term.

Mitch Bartlett - Craig-Hallum & Co.

Okay. You also said CRM best quarter in quite a while I can't remember the time period that you used, for on boarding new customers anything you can add there to just kind of expand on that?

John Giuliani

Yeah. We got a little as we were in this over exuberant, whatever CEO we got last year, is everybody and the one everything right away, that was me by way we can't talk about we got distracted in a lot of things we were doing on the new business front and as we force ourselves to do lots of things together, we gave up some of our basic discipline.

We have to find some new business and now the good news is, we are very accountable organization and I gave you a little year-end review what I gave to our organization back whatever it was November or December, I guess accountability for myself as a first year CEO. The goods of that and ugly of that as I move to people quickly and we probably miss stepped on some of those things.

The good news through is we are accountable, we course corrected. We sort of have taken a different look at the new business. We hired against those and we've brought some decent people in. We saw the results of that. So on the on boarding, lot of time the on boarding doesn't yield the results right away. It's particularly in the fourth quarter which is a big quarter, it's not going to impact but get them all and what the future looks like.

That's continuing and we have a lot of confidence on our new business strategy. Frankly both on our CRM delivery as well as our affiliated will be strong going forward. So that's kind of give a lot of help into that and we have got to make sure that we nurture it the right way and keep folks until there is really unique business in an immediate way. And it is the personalization product is the center of what we do, it allows us to create lots of value for the customers in many different ways beyond just the CRM does.

So that's really going to be a continued focus and I would look to -- as you see quarterly numbers improve in Media. I'm sure we will probably highlight some of that new business of that.

Mitch Bartlett - Craig-Hallum & Co.

Great. Thanks for the discussion.

John Giuliani

You are welcome.

Operator

And we will take our next question from Eric Martinuzzi with Lake Street Research.

Eric Martinuzzi - Lake Street Research

Thanks. If I look at the two businesses the affiliate side and the media side, obviously the affiliate side is going to more of a direct response. I guess I want to see where this the Set Media acquisition is going from a branded perspective. Is it the goal here to take you more into a branded buy so that the same people would be buying kind of a broadcast TV, you get to offer them in the same sort of package. So, let's start with, within media what percent is direct response and what percent is branded and then how do you expect that to change over the next few years?

John Giuliani

It's interesting because whether the underlying economics generally online are DR-related. And so whether it's a DR campaign, traditional nature or not, there is a performance element that is underpinning that firstly everything to it. That being said, there are some that are very focused on the direct response and that I would that's probably the minority of the overall business, may be this is just a slag number 20% of what we do, but the underpinning of that results is throughout most of business. And so we can never get too far afield from understanding that there is a tolerance level and a certainly of performance as you get more of the branding they may have a litter different aperture time of measurement which we think is appropriate.

But to your direct question about chat we do think that helps intensify the branding part of it and if you think about the brand safety element of where they come from that is tailor made to our brand structure, because one of things that most people don't have control over that does and enabled us to do in a broader Conversant strategy is ensure where your video is being played and that is very big deal for our brand marketer particularly vis-a-vis there consideration of moving television advertising to online video is where that video is going to play, who is going to see it and who is going to protect what I do and the SET team not only helps them to categorize where they are going shows them, they actually create a portfolio of every video that gets played.

So a marketer if know exactly where the video is. So from a brand safety perspective, that is just huge and so it really does play in that arena. And if you think about the combination of sort of the really understanding the audience, that we have to our other data sources and the ability to back overly contextual targeted. Again, really is a brand strategy. Now that's not to say that the only thing we compete and that's not to say that that's all of our video business, because again we want to serve the market, where the market wants to be served. I think you are right on -- you hit the nail on the head as far this enables for a further exacerbation of the brand side of things particularly in video.

Eric Martinuzzi - Lake Street Research

Your sales force the person that they are selling to and I am talking about the legacy Conversant sales person, does this offer them -- they got a new sort of arrow in the quiver that they can go to the same people that they have been selling or is the SET Media sale going to be controlled by SET Media folks in those San Francisco and New York office?

John Giuliani

Initially the SET folks are going to control that because there’s expertise there and we think there’s lots of growth from current offering we have in video on the broader Conversant sales team. So we don't want to rob either of those. Long term or even in the medium term with the guidance of the SET personal we will help migrate into our overall sales strategy because to me that’s earlier we are going to continue to broaden that sales force and so we want to make sure that sales force has the tool they need to be affective where we think that the SET enhancement are ready we’ll work between our different leaders both SET and on Conversant media to best gauge how to bring that service to our client.

And so there won’t be one size fits all right away and we think there’s real good benefit of having to focus on each of these business because there is some differences and then where we think -- and we bring them together we will bring them together because we think there is enhanced strategy with them. But even on the round there is plenty of revenue to go get separately.

Eric Martinuzzi - Lake Street Research

Thanks.

Operator

And we’ll take our next question from Mark Zgutowicz with Northland Capital Markets.

Mark J. Zgutowicz - Northland Capital Markets

Hi guys I just wanted to touch on the just affiliate marketing business if you will, how much gained revenue do you see in the quarter?

John P. Pitstick

So again I think consistent with what we laid out last couple of quarters performance there it’s been consistent with those initial expectations but I think we talked about $4 million to $5 million contribution in that range for Q4.

Mark J. Zgutowicz - Northland Capital Markets

Okay so if I look at your just overall operating growth in the second half it looks like about two third of that growth came from affiliate marketing business which obviously is a high number. I am curious how that looks in first half of the year and then how that might look in the second half of the year when you comp against again?

John P. Pitstick

Yeah I am not sure lot of moving parts to the question there. I think constant numbers for Q1 kind of guided segment level and Q1 expectations are roughly at [inaudible] just kind of mid-single digit. I think to John’s earlier comment our expectations are see higher growth of media business, media long term just given the nature of that market versus affiliate great, solid business is going to continue to grow but probably not going to have same growth profile…

John Giuliani

Going to the future Mark you will see Media making up the larger portion of our overall absolute growth and it’s a bigger business it should grow faster so as we go into the future beyond ’14, ’15, ’16 you will see that really be dominant more dominant in the portion of the growth I think that John outlined.

Mark J. Zgutowicz - Northland Capital Markets

Okay does that growth fill the $9 million to $10 million high margin again sort of pull that you will have in the second half of the year? I am just trying to understand how you are going to sort of manage through the absence of incremental gain revenue in the second half?

John P. Pitstick

I think as we talked about and John has alluded to that the sales focus we’ll think about the time and effort that was spent around the gain opportunity and the other organizational changes throughout 2013, those certainly have an impact on rest of the business. We don't look at gain as completely independent of what else happens to broader affiliate business. So resources dedicate that focus on that, you got a publisher base that has fairly finite amount of traffic they are allocating that into the ecosystem.

Those are brand new gain clients, it's not necessarily one-to-one where every dollars echoes again it's a 100% incremental within the overall network. So we don't look at this kind of absolute discreet sort of bucket. But as sales efforts focus that John alluded to but we don't see – affiliate as a growth business on a consistent basis but in its current iteration is not going to be the high flying growth as already mentioned.

John Giuliani

Yeah I would add to -- the gain growth was kind of all incremental to our growth plan because we planned on getting a fair number of those gain clients anyway. And so the fact that we got them through that gain effort was not totally incremental to our growth plans. I think we had a refocusing on our growth now on gain plan obviously and we will have to perform at those levels but I think we are very comfortable with the way John has outlined the business getting to kind of accompany with our business and we like it a lot and we are going to keep innovating in that area as-well-as some of the fine tuning that we are doing.

I think really the key to really unlock the value of the affiliates is through data and insight and helping the customers understand what the real value of this is. We think with our data and our analytical understanding that will be the critical component for the health of the category for which we are leader. And so that's where we are putting our innovation effort right now and that also adds another threshold in the business but we think what it does really allows us to continue to double down our service orientation and understanding of our customers and showing them the way to get more out of their affiliate program and understanding what the true value of those affiliate of those programs are. And so that's where you see our focus on innovation and we are going to continue to -- as a leader and health of that business that we want to be there and do that.

Mark J. Zgutowicz - Northland Capital Markets

Okay. That's great. That's helpful. Just a couple of last quick ones on the CRM business you mentioned new client or customer adds there. Is that in new verticals your existing retail vertical, maybe some color there. And then separately just was hoping to get a trailing run rate for SET, I know you talked about it being nominal but a number would be helpful? Thanks.

John Giuliani

Yeah first CRM I think largely the account base and working with our retailers I know that some of them are different types of retailers but they are also branching out into other verticals where we've got experience but they happen to have the first know the focus on. And so my guess is you should see overtime that there will be more adds to the vertical. But we really we are not going to talk on retailers and really our business starts giving advantage to retailers and so we immediately think that any retailer that's not work with us is not getting advantage and we pursue retail pretty hard. We have definite advantages over the market particularly under the Conversant umbrella.

And so to your point Mark we will be bringing other verticals we have some dedicated people doing that because we have to see success in that. It's just retail is such a great vertical for us and we know so much about it that we think it's very helpful. As far as I'll let John answer on the -- I think we are breaking a lot out of that.

John P. Pitstick

Yeah I mean it really is nominal Mark the acquisition was really something of which we think plug in to what we do it's going to be really additive, you obviously put the prior year-over-year some a 0.5% maybe of our revenue looking back it's really small from a perspective.

John Giuliani

Operator next question, please.

Operator

And we will take our next question from Dan Salmon with BMO Capital Markets. Mr. Salmon your line is open.

Dan Salmon - BMO Capital Markets

Hi guys I think all my questions have been covered. Thanks a lot.

John Giuliani

Thank you.

Operator

And we have time for one final question today. This comes from Aaron Kessler with Raymond James.

Aaron Kessler - Raymond James & Co.

Thanks, guys. Couple of questions. First from an accounting perspective for the name change should we expect it in sales and marketing or G&A?

John P. Pitstick

No, that would primarily be in the sales and marketing line.

Aaron Kessler - Raymond James & Co.

Got it. And just have a follow-up on the affiliate marketing, is there from a competitive standpoint can you discuss that a little I guess what you have seen in the market and do you think structure with affiliate marketing seriously growing slower than e-commerce which is kind of 10% to 15% I know you identified some near-term issues longer-term is there any structural issues with that? Thank you.

John Giuliani

If you look at the business over the last several years I think the worldwide numbers we reported have been little bit less than overall e-commerce growth rate. Some of that is numbers European business have been down but also I think there is a dynamic number. If you look at the overall e-commerce, we got somebody like Amazon who was growing faster than the market. So look at the rest of the market growth rates on average are less than total reported e-commerce growth rates.

So I think looking forward, I would say the affiliate opportunity is kind of currently structures it's probably something that's slightly less than the overall e-commerce growth rate opportunities. I think that's where things like innovation that John referred to are will help to make the ground but I think it's still a solid growth opportunity but it's not going to be in that 15% to 20% growth in its current iteration.

Aaron Kessler - Raymond James & Co.

Great. Thank you.

Operator

And ladies and gentlemen, this does concludes today's question-and-answer session. At this time, I'd like to turn the call back over to management for any closing remarks.

John Giuliani

Thanks everybody for your time. We look forward to seeing you throughout the quarter and talking to you after Q1.

Operator

And thank you for your participation in today's Conversant 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 5106571. The replay will be available through 4:30 p.m. Pacific Time on February 18, 2014. Thereafter the replay can be accessed by going to Conversant Investor Relation's website at www.conversantmediate.com. This does conclude today's conference. You may now disconnect.

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