ValueClick Management Discusses Q2 2012 Results - Earnings Call Transcript

ValueClick (VCLK)

Q2 2012 Earnings Call

August 02, 2012 4:30 pm ET

Executives

Gary J. Fuges - Vice President of Investor Relations & Corporate Development

James R. Zarley - Chief Executive Officer, President and Executive Director

John Pitstick - Chief Financial Officer and Principal Accounting Officer

John A. Giuliani - Chief Operating Officer and Director

Analysts

Clayton F. Moran - The Benchmark Company, LLC, Research Division

Thomas C. White - Macquarie Research

Sameet Sinha - B. Riley & Co., LLC, Research Division

Robert Coolbrith - ThinkEquity LLC, Research Division

Carter Malloy - Stephens Inc., Research Division

Ryan R. Bergan - Craig-Hallum Capital Group LLC, Research Division

Shyam Patil - Raymond James & Associates, Inc., Research Division

Peter Stabler - Wells Fargo Securities, LLC, Research Division

Gregor Schauer - Robert W. Baird & Co. Incorporated, Research Division

Presentation

Operator

Good day. My name is Melanie, and I will be your conference facilitator today. A replay of this call will be available by telephone beginning at 4:30 p.m. Pacific Time today and may be accessed through 10:00 p.m. Pacific Time on August 9, 2012. Thereafter, it can be accessed on ValueClick's website at www.valueclick.com or www.streetevents.com. Previously filed SEC filings can also be found on ValueClick's website. [Operator Instructions]

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

Gary J. Fuges

Thank you, Melanie. Good afternoon, and welcome to ValueClick's Second Quarter 2012 Financial Results Conference Call. On the call with me today are Jim Zarley, Chief Executive Officer; John Pitstick, Chief Financial Officer; and John Giuliani, Chief Operating Officer.

This call contains forward-looking statements that involve risks and uncertainties including, but not limited to, the risk that market demand for online advertising in general and performance-based online advertising in particular will not grow as rapidly as predicted; the risk that legislation and government regulation could negatively impact the company's performance; the effects of the Dotomi acquisition on ValueClick's financial results; and the potential inability to successfully operate or integrate Dotomi's business, including the potential inability to retain customers, key employees or vendors.

The actual results may differ dramatically 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 dramatically from those expressed or implied in the forward-looking statements are detailed under the risk factors and elsewhere in filings with the Securities and Exchange Commission made from time to time by ValueClick, which include, but are not limited to, its annual report on Form 10-K filed on January 29, 2012, recent quarterly reports on Form 10-Q and other current reports on Form 8-K.

ValueClick undertakes no obligation to release publicly any revisions to any forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.

With that, I'd like to turn the call over to Mr. Jim Zarley, CEO of ValueClick. Jim?

James R. Zarley

Thank you, Gary. Q2 was another strong quarter, and we continue to execute our strategic initiatives that will bring our businesses closer together to benefit of our clients. Despite challenges in Europe and our continued deemphasis of lower margin revenue streams within the Owned & Operated division, we delivered revenue and profitability above our guidance ranges. We achieved this to strengthen our U.S.-based Media businesses and Affiliate Marketing business.

In Media, our recent acquisitions and traditional businesses are performing very well. Our ongoing investments in data, real-time biddable traffic acquisition and optimization are paying on. The vast majority of our inventory we now use in our Media business comes from programmatic buying, where we are leveraging our data and optimization abilities. Even within the -- our traditional display business, we're now outsourcing about half of our traffic through programmatic buying, which supplements our network and spot-buying channels.

In addition, the recent additions of the sales force and our focus on direct advertising relationships are gaining traction. We are uniquely positioned in the market to deliver brand lift, customer leads, e-commerce transactions and customer relationship management offerings and scale. And we are starting to position the company to take a better advantage of our competitive differentiation. Through this end, we are aligning our business to work more closer together. One step in this direction is to consolidate our Mediaplex technology platform business with our Media segment, which we discussed in our prior calls and announced today as part of our Q2 results.

Mediaplex is now beginning to leverage its strategic advertiser relationships and the first-party data to capture incremental display revenue, so it makes sense to push this consolidation forward ahead of the holiday season. Our confidence in the future is reflected in our stock-buyback activity. We purchased 5.9 million shares in Q2, which was more than 7% of the total shares outstanding as of the end of Q1. And during our -- due to our strong cash flow generation and financial flexibility, our board has authorized an additional $100 million in buyback.

Now I'll turn the call over to John Pitstick, who will review Q2 results and our outlook for the second half of the year, and John Giuliani will discuss our progress on our initiatives to drive these businesses forward. John?

John Pitstick

Thanks, Jim. Revenue for Q2 of $161 million was above the high end of our guidance and represented a reported revenue increase of 29% and pro forma growth of 11%. Excluding the impact of the planned O&O revenue decline, which I'll speak to in a moment, the remainder of our businesses posted 19% pro forma growth in Q2. The worldwide growth rate in Affiliate Marketing of 3% was below our guidance for the segment of mid-single-digit growth. FX rates and additional weakness in Europe negatively impacted Affiliate revenue relative to our guidance. The U.S. business continues to perform well and posted high single-digit growth in Q2.

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