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Press release from Business Wire

ValueClick Announces Second Quarter 2013 Results

Thursday, August 01, 2013

ValueClick Announces Second Quarter 2013 Results

16:04 EDT Thursday, August 01, 2013

WESTLAKE VILLAGE, Calif. (Business Wire) -- ValueClick, Inc. (NASDAQ: VCLK) today reported financial results for the second quarter ended June 30, 2013. Adjusted-EBITDA1 was within its previously-issued guidance range.

“The continued strong performance by our higher value add offerings demonstrate that we are moving in the right direction, as evidenced by our strong earnings in the quarter and record free cash flow,” said John Giuliani, president and chief executive officer of ValueClick. “Despite some top line weakness in the quarter from our insertion order-driven display business, we made great progress on our integration initiatives. In addition, our significant affiliate marketing client wins during Q2 represent a great addition to our roster of direct, strategic relationships with major advertisers and provide us with an even stronger base for sustainable, profitable growth in the years to come.”

Highlights from the second quarter of 2013 include:

  • Revenue increased 4 percent from the second quarter of 2012 (Q2 2012) to $159.8 million;
  • Adjusted-EBITDA increased 12 percent from Q2 2012 to $53.1 million;
  • Adjusted-EBITDA margin increased to 33.2 percent from 30.9 percent in Q2 2012;
  • Non-GAAP net income2 per diluted common share of $0.21 was negatively impacted by an impairment charge on a note receivable. Excluding this item, non-GAAP net income per diluted common share would have been $0.39, an 11% increase from Q2 2012;
  • Record free cash flow (defined as cash from operations less capital expenditures) for the six and twelve-month periods ended June 30, 2013 of $73.5 million and $152.2 million, respectively;
  • Repurchase of 2 million shares of common stock under the share repurchase program for total cost of $52.1 million. Board of Directors increased remaining share repurchase authorization to $200 million;
  • Ending cash and cash equivalents balance of $127.1 million and $102.5 million of total debt as of June 30, 2013.

___________________________

1Adjusted-EBITDA is defined as GAAP (Generally Accepted Accounting Principles) net income from continuing operations before interest, income taxes, depreciation, amortization, and stock-based compensation. Please see the attached schedule for a reconciliation of GAAP net income from continuing operations to adjusted-EBITDA, and a discussion of why the Company believes adjusted-EBITDA is a useful financial measure to investors and how Company management uses this financial measure.

2 Non-GAAP net income is defined as GAAP income from continuing operations before the impact of stock-based compensation and amortization of intangible assets. Please see the attached schedule for a reconciliation of GAAP income from continuing operations to non-GAAP net income per diluted common share.

Non-Cash Note Impairment

ValueClick entered into a settlement agreement related to its note receivable from the sale of the promotional lead generation business in 2010. Under the terms of the settlement, ValueClick received an upfront payment of $5.5 million in July 2013 (included in "Other current assets" on the June 30 balance sheet) and recorded a non-cash impairment charge of $22.6 million (included in "Interest and other (expense) income, net" in the second quarter). This charge, net of related tax benefits, negatively impacted second quarter GAAP and non-GAAP net income per diluted common share by approximately $0.18.

Business Outlook

Today, ValueClick is providing guidance for the third quarter of 2013:

         
    Q3 Guidance
Revenue   $164-$168 million
Adjusted-EBITDA   $53-$55 million
Mid-Point Adjusted-EBITDA Margin   32.5%
Non-GAAP net income per diluted common share   $0.39-0.40
Impact of stock-based compensation and amortization of intangibles, net of tax   $(0.09)
GAAP net income per diluted common share   $0.30-$0.31
 

The consolidated revenue guidance mid-point is based on the following segment-level assumptions for revenue growth rates expressed as a percentage change from third quarter 2012 reported revenue levels:

   

Affiliate Marketing:     Up low double-digits

Media: Up low single-digits

Owned & Operated: Flat
 

Third quarter 2013 guidance assumes: stock-based compensation of $5.5 million; amortization of intangible assets of $6.5 million ($2.5 million of which will be classified in Cost of revenue); net interest and other expense of $0.5 million; a 40 percent effective tax rate; and 76 million diluted shares outstanding.

Conference Call Today at 4:30 p.m. ET

John Giuliani, chief executive officer, and John Pitstick, chief financial officer, will present an overview of the results and other factors affecting ValueClick's financial performance for the second quarter during a conference call and Webcast at 4:30 p.m. ET today. The live conference call can be accessed by dialing (888) 204-4520 or (913) 981-5559. Please dial in approximately ten minutes prior to the start time and provide the operator with the pass code 6717563. A replay of the conference call will be available from Thursday, August 1 at 7:30 p.m. ET through Thursday, August 8 at 7:30 p.m. ET at (888) 203-1112 and (719) 457-0820 (pass code: 6717563). The live and archived Webcast of the conference call will be available at http://ir.valueclick.com.

About ValueClick

ValueClick, Inc. (NASDAQ: VCLK) is one of the world's largest digital marketing companies. Through a unique combination of data, technology and services, ValueClick increases brand awareness and drives customer acquisition at scale for the world's largest advertisers, and maximizes advertising revenue for tens of thousands of online and mobile publishers. The Company is based in Westlake Village, California, and has offices in major advertising markets worldwide. For more information, please visit www.valueclick.com.

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 in general, and performance based on-line advertising in particular, 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 ValueClick, including, but not limited to: its 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.

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.

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.

   
VALUECLICK, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
 
June 30, December 31,
2013 2012
(Unaudited)
ASSETS
Current Assets:
Cash and cash equivalents $ 127,068 $ 136,638
Accounts receivable, net 109,790 147,487
Other current assets 57,121   27,136
Total current assets 293,979 311,261
 
Note receivable, less current portion 27,615
Property and equipment, net 28,463 29,014
Goodwill 433,931 434,507
Intangible assets, net 68,892 81,822
Other assets 14,950   15,477
TOTAL ASSETS $ 840,215   $ 899,696
 
LIABILITIES AND STOCKHOLDERS' EQUITY
Borrowings under credit facility, current $ 10,000 $ 10,000
Other current liabilities 109,080 132,401
Borrowings under credit facility, less current portion 92,500 132,500
Other non-current liabilities 35,815   34,090
Total liabilities 247,395 308,991
Total stockholders' equity 592,820   590,705
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 840,215   $ 899,696
 
 
   
VALUECLICK, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
 
Three-month Period Six-month Period
Ended June 30, Ended June 30,
2013   2012 2013   2012
(Unaudited) (Unaudited)
Revenue $ 159,756 $ 153,985 $ 325,194 $ 300,417
Cost of revenue 61,978   60,377   124,333   115,062
Gross profit 97,778 93,608 200,861 185,355
Operating expenses:
Sales and marketing (Note 1) 22,828 20,649 45,293 41,576
General and administrative (Note 1) 15,708 19,519 33,921 39,091
Technology (Note 1) 17,110 16,887 33,810 32,967
Amortization of intangible assets acquired in

business combinations

3,919   6,321   7,842   12,645
Total operating expenses 59,565   63,376   120,866   126,279
Income from operations 38,213 30,232 79,995 59,076
Interest and other (expense) income, net (23,308 ) 1,497   (23,903 ) 1,726
Income before income taxes 14,905 31,729 56,092 60,802
Income tax expense 5,510   13,028   20,414   21,903
Net income from continuing operations 9,395 18,701 35,678 38,899
Net income from discontinued operations 2,480   1,635   2,480   3,008
Net income $ 11,875   $ 20,336   $ 38,158   $ 41,907
 
Net income from continuing operations

per common share - basic

$ 0.12   $ 0.24   $ 0.47   $ 0.49
Net income from continuing operations

per common share - diluted

$ 0.12   $ 0.23   $ 0.46   $ 0.48
Net income per common share - basic $ 0.16   $ 0.26   $ 0.50   $ 0.53
Net income per common share - diluted $ 0.15   $ 0.25   $ 0.49   $ 0.52
Weighted-average shares used to compute net

income per common share - basic

75,531   78,720   75,590   79,529
Weighted-average shares used to compute net

income per common share - diluted

77,413   80,336   77,490   81,221
 
 
Note 1 - Includes stock-based compensation as follows:
 
Three-month Period Six-month Period
Ended June 30, Ended June 30,
2013 2012 2013 2012
(Unaudited) (Unaudited)
Sales and marketing $ 1,406 $ 942 $ 2,580 $ 2,596
General and administrative 2,508 3,220 4,947 6,246
Technology 1,225   1,586   2,409   2,992
Total stock-based compensation $ 5,139   $ 5,748   $ 9,936   $ 11,834
 
 
 
VALUECLICK, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
 
Six-month Period
Ended June 30,
2013   2012
Cash flows from operating activities:
Net income $ 38,158 $ 41,907
Adjustments to reconcile net income to net cash provided by operating activities:
Loss on note receivable 22,556
Depreciation and amortization 19,434 23,063
Non-cash, stock-based compensation 9,936 11,834
Provision for doubtful accounts and sales credits 2,174 1,761
Amortization of discount on note receivable (570 ) (1,203 )
Deferred income taxes 2,745 (1,781 )
Tax benefit from stock-based awards 2,831 1,825
Excess tax benefit from stock-based awards (2,986 ) (1,927 )
Changes in operating assets and liabilities, excluding business acquisitions (14,809 ) (3,819 )
Net cash provided by operating activities 79,469 71,660
 
Cash flows from investing activities:
Purchases of property and equipment (6,019 ) (11,665 )
Principal payments received on note receivable 1,960 2,120
Payments for acquisitions, net of cash acquired   (152 )
Net cash used in investing activities (4,059 ) (9,697 )
 
Cash flows from financing activities:
Proceeds from borrowings under credit agreement 25,000 70,000
Repayments under credit agreement (65,000 ) (65,000 )
Repurchases and retirement of common stock (52,079 ) (99,568 )
Proceeds from shares issued under employee stock programs 6,349 3,605
Excess tax benefit from stock-based awards 2,986   1,927  
Net cash used in financing activities (82,744 ) (89,036 )
 
Effect of exchange rate changes on cash and cash equivalents (2,236 ) (1,447 )
Net decrease in cash and cash equivalents (9,570 ) (28,520 )
 
Cash and cash equivalents, beginning of period 136,638   116,676  
Cash and cash equivalents, end of period $ 127,068   $ 88,156  
 
 
   
VALUECLICK, INC.
RECONCILIATION OF NET INCOME FROM CONTINUING OPERATIONS
TO ADJUSTED-EBITDA (Note 1)
(In thousands)
 
Three-month Period Six-month Period
Ended June 30, Ended June 30,
2013   2012 2013   2012
(Unaudited) (Unaudited)
Net income from continuing operations $ 9,395 $ 18,701 $ 35,678 $ 38,899
Interest and other expense (income), net 23,308 (1,497 ) 23,903 (1,726 )
Income tax expense 5,510 13,028 20,414 21,903
Amortization of acquired intangible assets included in cost of revenue 2,491 2,492 4,985 4,985
Amortization of acquired intangible assets included in operating expenses 3,919 6,321 7,842 12,645
Depreciation and leasehold amortization 3,315 2,787 6,607 5,401
Stock-based compensation 5,139   5,748   9,936   11,834  
Adjusted-EBITDA $ 53,077   $ 47,580   $ 109,365   $ 93,941  
 

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.

   
VALUECLICK, 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 Six-month Period
Ended June 30, Ended June 30,
2013   2012 2013   2012
(Unaudited) (Unaudited)
Net income from continuing operations $ 9,395 $ 18,701 $ 35,678 $ 38,899
Stock-based compensation 5,139 5,748 9,936 11,834
Amortization of acquired intangible assets included in cost of revenue 2,491 2,492 4,985 4,985
Amortization of acquired intangible assets included in operating expenses 3,919 6,321 7,842 12,645
Tax impact of above items (4,606 ) (5,015 ) (9,390 ) (10,265 )
Non-GAAP net income $ 16,338   $ 28,247   $ 49,051   $ 58,098  
Non-GAAP net income per diluted common share $ 0.21   $ 0.35   $ 0.63   $ 0.72  
Weighted-average shares used to compute non-GAAP net income per diluted common share 77,413   80,336   77,490   81,221  
 

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.

   
VALUECLICK, INC.
SEGMENT OPERATING RESULTS
(In thousands)
 
Three-month Period Six-month Period
Ended June 30, Ended June 30,
2013   2012 2013   2012
(Unaudited) (Unaudited)
Affiliate Marketing:
Revenue $ 36,622 $ 33,605 $ 74,933 $ 70,712
Cost of revenue 4,526   4,200   9,088   8,376  
Gross profit 32,096 29,405 65,845 62,336
Operating expenses 9,512   9,711   20,336   19,704  
Segment income from operations $ 22,584   $ 19,694   $ 45,509   $ 42,632  
 
Media:
Revenue $ 91,490 $ 91,088 $ 187,746 $ 171,837
Cost of revenue 35,377   36,888   71,216   67,491  
Gross profit 56,113 54,200 116,530 104,346
Operating expenses 28,141   29,079   57,235   56,821  
Segment income from operations $ 27,972   $ 25,121   $ 59,295   $ 47,525  
 
Owned & Operated Websites:
Revenue $ 31,662 $ 29,401 $ 62,617 $ 58,076
Cost of revenue 19,590   16,846   39,106   34,303  
Gross profit 12,072 12,555 23,511 23,773
Operating expenses 6,106   5,736   11,925   11,621  
Segment income from operations $ 5,966   $ 6,819   $ 11,586   $ 12,152  
 

Reconciliation of segment income from operations to consolidated income from operations:

Total segment income from operations $ 56,522 $ 51,634 $ 116,390 $ 102,309
Corporate expenses (6,760 ) (6,841 ) (13,632 ) (13,769 )
Stock-based compensation (5,139 ) (5,748 ) (9,936 ) (11,834 )
Amortization of acquired intangible assets included in cost of revenue (2,491 ) (2,492 ) (4,985 ) (4,985 )
Amortization of acquired intangible assets included in operating expenses (3,919 ) (6,321 ) (7,842 ) (12,645 )
Consolidated income from operations $ 38,213   $ 30,232   $ 79,995   $ 59,076  
 
Reconciliation of segment revenue to consolidated revenue:
Affiliate Marketing $ 36,622 $ 33,605 $ 74,933 $ 70,712
Media 91,490 91,088 187,746 171,837
Owned & Operated Websites 31,662 29,401 62,617 58,076
Inter-segment eliminations (18 ) (109 ) (102 ) (208 )
Consolidated revenue $ 159,756   $ 153,985   $ 325,194   $ 300,417  

ValueClick, Inc.
John Pitstick, CFO
1-818-575-4583

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