Press Releases

May 6, 2014 |  Westlake Village, CA

Conversant, Inc. (NASDAQ: CNVR) today reported financial results for the

first quarter ended March 31, 2014.

"The Conversant team delivered solid execution in Q1, resulting in our

highest quarterly revenue growth in four quarters," said
John Giuliani,

president and CEO of Conversant. "The enthusiastic response to our

rebrand campaign and newly unified offerings validates our strategic

focus on personalized digital marketing across channels and devices."

Giuliani added, "Our recent acquisition of digital video technology

company, SET Media, further strengthens our personalization capabilities

and accelerates our investment in the high-growth video advertising

market."

Q1 Results Summary

In millions, except percentages and per share amounts

Q1 2014

Q1 2013

% Change

Revenue

$

145.9

$

134.5

8%

Adjusted EBITDA(1)


$


48.5


$


50.4

(4)%

GAAP Net Income from Continuing Operations


$


20.1


$


23.4

(14)%

Non-GAAP Net Income(1)

$

27.0

$

29.1

(7)%

GAAP Net Income from Continuing Operations Per Diluted Common

Share

$

0.29

$

0.30

(3)%

Non-GAAP Net Income Per Diluted Common Share(1)

$

0.39

$

0.38

3%

(1) Adjusted EBITDA, Non-GAAP Net Income and Non-GAAP Net Income Per

Diluted Common Share are Non-GAAP measures and are described below and

reconciled to their most comparable GAAP measures.

Q1 2014 Financial Summary


  • Revenue was $145.9 million, an increase of 8% year-over-year.


  • Adjusted EBITDA was $48.5 million, a decrease of 4% year-over-year.

    The year-over-year decrease reflects, among other factors,

    approximately $3.0 million in one-time rebranding costs and an

    operating loss from SET Media of approximately $1 million following

    the February 2014 acquisition.


  • Adjusted EBITDA margin decreased to 33.2% from 37.5% in the first

    quarter of 2013.


  • Non-GAAP net income per diluted common share was $0.39, an increase of

    3% year-over-year.


  • GAAP net income from continuing operations per diluted common share

    was $0.29, a decrease of 3% year-over-year.

Recent Business Highlights


  • Conversant appointed
    Oded Benyo to serve as president of the Company's

    European operations. Benyo formerly led Conversant's enterprise

    operations in the U.S., where he was instrumental in integrating

    client operations across business lines.


  • The Company achieved early progress integrating the SET Media

    acquisition by creating a technology framework to combine SET Media's

    contextual targeting platform with Conversant's more than 200 million

    anonymous consumer profiles.


  • The Company has increased its headcount by approximately 7% since

    December 31, 2013 to accelerate its growth initiatives.

Cash Flows


  • Free cash flow for the quarter ended March 31, 2014 was $38.6 million.

    The decrease year-over-year was attributable to the former Owned &

    Operated ("O&O") Websites segment cash flows being included in the

    year-ago period as well as a smaller impact from working capital

    changes in the current year period. (The Company defines free cash

    flow as net cash provided by operating activities less capital

    expenditures.)


  • Free cash flow for the trailing 12 month period ended March 31, 2014

    was $155.4 million.

Stock Repurchases


  • Conversant repurchased 758,000 common shares at an average cost of

    $24.60 per share during the first quarter ended March 31, 2014.


  • Subsequent to the quarter end and through May 6, 2014, the Company has

    repurchased an additional 792,000 shares at an average cost of $25.03

    per share.


  • As of May 6, 2014 the remaining availability under the Company's stock

    repurchase authorization was $61.5 million.

Balance Sheet


  • The Company returned to a net positive cash position as of March 31,

    2014, with cash and cash equivalents of $90.4 million and total debt

    of $60.0 million.

Conversant Segment Financial Summary

In millions, except percentages

Q1 2014

Q1 2013

% Change

Affiliate Marketing Revenue

$

42.5

$

38.3

11%

Media Revenue

103.5

96.3

7%

Consolidated Revenue

$

145.9

$

134.5

8%

Affiliate Marketing Income from Operations

$

26.1

$

22.9

14%

Media Income from Operations

29.1

31.3

(7)%

Total Segment Income from Operations

$

55.2

$

54.2

2%

Q1 2014 Segment Results Summary


  • Affiliate marketing segment revenue was $42.5 million, an increase of

    11% year-over-year.


  • Media segment revenue was $103.5 million, an increase of 7%

    year-over-year.


  • Media segment income from operations decreased due to increased

    marketing spending in connection with Conversant's rebranding in Q1

    2014 and the operating loss incurred by SET Media.

Q2 2014 Business Outlook

Conversant's financial guidance for the second quarter of 2014 is

presented in the following tables. Results for the second quarter of

2013 are provided as a basis for comparison and have been recast to

reflect the reclassification of the Company's former O&O Websites

segment to discontinued operations.

"Our second quarter guidance implies fairly consistent revenue growth

with the first quarter and reflects the significant investments we are

making in our people and products," said
John Pitstick, Chief Financial

Officer of Conversant. "The mid-point of our earnings guidance for Q2

reflects approximately $10 million of additional cash operating expenses

as compared to the year ago period."

Consolidated Financial Outlook

Q2 2014 Guidance

Q2 2013 Actual Results

Revenue

$135 - $140 million

$128.1 million

Adjusted EBITDA

$42 - $44 million

$46.8 million

Mid-Point Adjusted EBITDA Margin

31.3%

36.5%

Non-GAAP net income per diluted common share

$0.34 - $0.35


$0.16(1)

Impact of stock-based compensation and amortization of intangibles,

net of tax

$(0.10)

$(0.08)

GAAP net income from continuing operations per diluted common share

$0.24 - $0.25


$0.08(1)


(1) Q2 2013 Non-GAAP and GAAP net income per diluted common share

were negatively impacted by an impairment charge on a note

receivable equivalent to approximately $0.18 per share.

Segment Revenue Assumptions

Q2 2014 Guidance

Q2 2013 Actual Results

Affiliate Marketing Segment Revenue

$39.5 - $40.5 million

$36.6 million

Media Segment Revenue

$95.5 - $99.5 million

$91.5 million

Additional Guidance Assumptions

Conversant's second quarter 2014 guidance assumes: stock-based

compensation of $5.3 million; amortization of intangible assets of $6.1

million ($2.5 million of which will be included in cost of revenue); net

interest and other expense of $0.5 million; a 40% effective tax rate;

and 67.8 million diluted shares outstanding.

Use of Non-GAAP Financial Measures

To provide investors with additional information regarding Conversant's

financial results, Conversant has disclosed in the tables below and

elsewhere in this press release Adjusted EBITDA and Non-GAAP Net Income

Per Diluted Common Share. Each of these Non-GAAP measures is defined

within the following section of this press release and reconciled to

their most comparable GAAP financial measure. Investors should not

consider these Non-GAAP measures in isolation or as a substitute for

GAAP financial measures. Conversant's definition of Adjusted EBITDA and

Non-GAAP Net Income Per Diluted Common Share may not necessarily be

directly comparable to similarly titled Non-GAAP measures employed by

other companies.

Q1 2014 Conference Call and Webcast Today at 4:30 p.m. Eastern Time

(1:30 p.m. Pacific Time)

Conversant management will host a conference call at 4:30 p.m. Eastern

Time (1:30 p.m. Pacific Time) today to discuss its financial and

operating results for the first quarter of 2014. A live webcast of the

conference call, along with a financial highlights presentation

containing supplemental information, will be available on Conversant's

investor relations website at http://ir.conversantmedia.com.

A replay of the webcast will be available through the same link

beginning approximately two hours after the completion of the live call.

To access the live conference call by telephone, interested parties

should dial 888-240-9378 (for domestic participants) or 913-312-0377

(for international participants) at least 10 minutes prior to the start

time and use conference ID 1633876. A telephonic replay of the

conference call will be available from 7:30 p.m. Eastern Time on May 6,

2014 until 7:30 p.m. Eastern Time on May 13, 2014. To access the replay,

interested parties should dial 888-203-1112 (for domestic participants)

and 719-457-0820 (for international participants) and the conference ID

1633876.

About Conversant

Conversant, Inc. (NASDAQ: CNVR) is the leader in personalized digital

marketing. Conversant helps the world's biggest companies grow by

creating personalized experiences that deliver higher returns for brands

and greater satisfaction for people. We offer a fully integrated

personalization platform, personalized media programs and the world's

largest affiliate marketing network - all fueled by a deep understanding

of what motivates people to engage, connect and buy. For more

information, please visit www.conversantmedia.com.

Cautionary Information Regarding Forward-Looking Statements

This release contains forward-looking statements that involve risks

and uncertainties, including, but not limited to, the risk that market

demand for on-line advertising will not grow as rapidly as predicted,

and the risk that legislation and governmental regulation could

negatively impact the Company's performance. Actual results may differ

materially from the results predicted, and reported results should not

be considered an indication of future performance. Important factors

that could cause actual results to differ materially from those

expressed or implied in the forward-looking statements are detailed

under "Risk Factors" and elsewhere in filings with the Securities and

Exchange Commission made from time to time by Conversant, including, but

not limited to: its annual report on Form 10-K filed on March 3, 2014;

recent quarterly reports on Form 10-Q; and other current reports on Form

8-K.

The Business Outlook contained in this release is based on current

expectations. These statements are forward-looking, and actual results

may differ materially. These statements do not include the potential

impact of any mergers, acquisitions or other business combinations that

may be completed after the date of this release. Actual stock-based

compensation may differ from these estimates based on the timing and

amount of stock awards granted, the assumptions used in stock award

valuation and other factors. Actual income tax expense may differ from

these estimates based on tax planning, changes in tax accounting rules

and laws, and other factors.

Conversant undertakes no obligation to release publicly any revisions

to any forward-looking statements to reflect events or circumstances

after the date hereof or to reflect the occurrence of unanticipated

events.

CONVERSANT, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

Three-month Period

Ended March 31,

2014

2013

(Unaudited)

Revenue

$

145,913

$

134,483

Cost of revenue

47,220

42,330

Gross profit

98,693

92,153

Operating expenses:

Sales and marketing (Note 1)

26,515

21,063

General and administrative (Note 1)

17,870

16,593

Technology (Note 1)

15,972

13,623

Amortization of intangible assets acquired in business combinations

4,538

3,551

Total operating expenses

64,895

54,830

Income from operations

33,798

37,323


Interest and other income (expense), net

(264

)

(406

)

Income before income taxes

33,534

36,917

Income tax expense

13,452

13,538

Net income from continuing operations

20,082

23,379

Net income from discontinued operations

155

2,904

Gain on sale, net of tax

34,226

Net income

$

54,463

$

26,283

Net income from continuing operations per common share - basic

$

0.30

$

0.31

Net income from continuing operations per common share - diluted

$

0.29

$

0.30

Net income per common share - basic

$

0.81

$

0.35

Net income per common share - diluted

$

0.79

$

0.34

Weighted-average shares used to compute net income


per common share - basic

67,087

75,648

Weighted-average shares used to compute net income


per common share - diluted

68,727

77,567

Note 1 - Includes stock-based compensation as follows:

Three-month Period

Ended March 31,

2014

2013

(Unaudited)

Sales and marketing

$

1,161

$

1,158

General and administrative

2,403

2,254

Technology

1,185

1,105

Total stock-based compensation

$

4,749

$

4,517

CONVERSANT, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands)

March 31,

December 31,

2014

2013

(Unaudited)

ASSETS

Current Assets:

Cash and cash equivalents

$

90,444

$

81,319

Accounts receivable, net

131,558

148,738

Other current assets

58,707

18,510

Assets held for sale

32,802

Total current assets

280,709

281,369

Assets held for sale, less current portion

55,642

Property and equipment, net

27,356

28,006

Goodwill

402,254

388,922

Intangible assets, net

51,754

48,501

Other assets

2,770

15,335

TOTAL ASSETS

$

764,843

$

817,775

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities

111,799

130,529

Borrowings under credit facility, less current portion

60,000

140,000

Other non-current liabilities

43,838

33,645

Liabilities related to assets held for sale

8,704

Total liabilities

215,637

312,878

Total stockholders' equity

549,206

504,897

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY

$

764,843

$

817,775

CONVERSANT, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

Three-month Period
Ended March 31,

2014

2013

Cash flows from operating activities:

Net income

$

54,463

$

26,283

Adjustments to reconcile net income to net cash provided by

operating activities:

Depreciation and amortization

9,924

9,709

Non-cash, stock-based compensation

4,749

4,797

Provision for doubtful accounts and sales credits

1,057

1,760

Gain on sale of business

(34,226

)

Amortization of discount on note receivable

(570

)

Deferred income taxes

1,020

1,210

Tax benefit from stock-based awards

2,235

2,245

Excess tax benefit from stock-based awards

(2,237

)

(2,399

)

Changes in operating assets and liabilities, excluding business

acquisitions

3,306

6,430

Net cash provided by operating activities

40,291

49,465

Cash flows from investing activities:

Purchases of property and equipment

(1,738

)

(1,401

)


Principal payments received on note receivable

1,005


Proceeds from the sale of business, net of cash divested

72,813

Payments for acquisitions, net of cash acquired

(24,286

)

Net cash provided by (used in) investing activities

46,789

(396

)

Cash flows from financing activities:

Proceeds from borrowings under credit agreement

55,000

Repayments under credit agreement

(135,000

)

(62,500

)

Repurchases and retirement of common stock

(18,673

)

Proceeds from shares issued under employee stock programs

3,438

5,835

Excess tax benefit from stock-based awards

2,237

2,399

Net cash used in financing activities

(92,998

)

(54,266

)

Effect of exchange rate changes on cash and cash equivalents

110

(2,307

)

Effect on cash and cash equivalents from discontinued operations

14,933

Net increase (decrease) in cash and cash equivalents

9,125

(7,504

)

Cash and cash equivalents, beginning of period

81,319

136,638

Cash and cash equivalents, end of period

90,444

129,134

CONVERSANT, INC.

RECONCILIATION OF NET INCOME FROM CONTINUING OPERATIONS

TO ADJUSTED EBITDA (Note 1)

(In thousands)

Three-month Period

Ended March 31,

2014

2013

(Unaudited)

Net income from continuing operations

$

20,082

$

23,379


Interest and other (income) expense, net

264

406

Income tax expense

13,452

13,538

Amortization of acquired intangible assets included in cost of

revenue

2,309

1,985

Amortization of acquired intangible assets included in operating

expenses

4,538

3,551

Depreciation and leasehold amortization

3,068

2,999

Stock-based compensation

4,749

4,517

Adjusted EBITDA

$

48,462

$

50,375

Note 1 - "Adjusted EBITDA" (GAAP net income from continuing

operations before interest, income taxes, depreciation, amortization,

and stock-based compensation) included in this press release is a

non-GAAP financial measure.

Adjusted EBITDA, as defined above, may not be similar to adjusted EBITDA

measures used by other companies and is not a measurement under GAAP.

Management believes that adjusted EBITDA provides useful information to

investors about the Company's performance because it eliminates the

effects of period-to-period changes in income from interest on the

Company's cash and cash equivalents, note receivable and borrowings, and

the costs associated with income tax expense, capital investments, and

stock-based compensation which are not directly attributable to the

underlying performance of the Company's business operations. Management

uses adjusted EBITDA in evaluating the overall performance of the

Company's business operations.

Though management finds adjusted EBITDA useful for evaluating aspects of

the Company's business, its reliance on this measure is limited because

excluded items often have a material effect on the Company's earnings

and earnings per common share calculated in accordance with GAAP.

Therefore, management uses adjusted EBITDA in conjunction with GAAP

earnings and earnings per common share measures. The Company believes

that adjusted EBITDA provides investors with an additional tool for

evaluating the Company's core performance, which management uses in its

own evaluation of overall performance, and a baseline for assessing the

future earnings potential of the Company. While the GAAP results are

more complete, the Company prefers to allow investors to have this

supplemental metric since, with a reconciliation to GAAP, it may provide

greater insight into the Company's financial results.

CONVERSANT, INC.

RECONCILIATION OF GAAP NET INCOME FROM CONTINUING OPERATIONS TO

NON-GAAP DILUTED NET INCOME PER COMMON SHARE (Note 1)

(In thousands)

Three-month Period

Ended March 31,

2014

2013

(Unaudited)

Net income from continuing operations

$

20,082

$

23,379

Stock-based compensation

4,749

4,517

Amortization of acquired intangible assets included in cost of

revenue

2,309

1,985

Amortization of acquired intangible assets included in operating

expenses

4,538

3,551

Tax impact of above items

(4,681

)

(4,302

)

Non-GAAP net income

$

26,997

$

29,130

Non-GAAP net income per diluted common share

$

0.39

$

0.38

Weighted-average shares used to compute non-GAAP net income per

diluted common share

68,727

77,567

Note 1 - "Non-GAAP net income per diluted common share" (GAAP net income

from continuing operations per diluted common share before the impact of

stock-based compensation and amortization of intangible assets) included

in this press release is a non-GAAP financial measure.

Non-GAAP net income per diluted common share, as defined above, may not

be similar to non-GAAP net income per diluted common share measures used

by other companies and is not a measurement under GAAP. Management

believes that non-GAAP net income per diluted common share provides

useful information to investors about the Company's performance because

it eliminates the effects of items which are not directly attributable

to the underlying performance of the Company's business operations.

Management uses non-GAAP net income per diluted common share in

evaluating the overall performance of the Company's business operations.

Though management finds non-GAAP net income per diluted common share

useful for evaluating aspects of the Company's business, its reliance on

this measure is limited because excluded items often have a material

effect on the Company's earnings and earnings per common share

calculated in accordance with GAAP. Therefore, management uses non-GAAP

net income per diluted common share in conjunction with GAAP earnings

and earnings per common share measures. The Company believes that

non-GAAP net income per diluted common share provides investors with an

additional tool for evaluating the Company's core performance, which

management uses in its own evaluation of overall performance, and a

baseline for assessing the future earnings potential of the Company.

While the GAAP results are more complete, the Company prefers to allow

investors to have this supplemental metric since, with a reconciliation

to GAAP, it may provide greater insight into the Company's financial

results.

CONVERSANT, INC.

SEGMENT OPERATING RESULTS

(In thousands)

Three-month Period

Ended March 31,

2014

2013

(Unaudited)

Affiliate Marketing:

Revenue

$

42,464

$

38,311

Cost of revenue

4,543

4,562

Gross profit

37,921

33,749

Operating expenses

11,809

10,824

Segment income from operations

$

26,112

$

22,925

Media:

Revenue

$

103,462

$

96,256

Cost of revenue

40,363

35,839

Gross profit

63,099

60,417

Operating expenses

33,970

29,094

Segment income from operations

$

29,129

$

31,323

Reconciliation of segment income from operations


to consolidated income from operations:

Total segment income from operations

$

55,241

$

54,248

Corporate expenses

(9,847

)

(6,872

)

Stock-based compensation

(4,749

)

(4,517

)

Amortization of acquired intangible assets included in cost of

revenue

(2,309

)

(1,985

)

Amortization of acquired intangible assets included in operating

expenses

(4,538

)

(3,551

)

Consolidated income from operations

$

33,798

$

37,323

Reconciliation of segment revenue to consolidated revenue:

Affiliate Marketing

$

42,464

$

38,311

Media

103,462

96,256

Inter-segment eliminations

(13

)

(84

)

Consolidated revenue

$

145,913

$

134,483

Conversant, Inc.
Erik Randerson, CFA
818-575-4540
eranderson@conversantmedia.com

Source: Conversant, Inc.

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