ValueClick Inc.’s (VCLK) second-quarter 2010 results (both earnings and revenue) beat the Zacks Consensus Estimates, demonstrating the company’s focus on driving growth. Results were boosted by prudent cost controls.
Revenue, adjusted EBITDA and earnings per share exceeded the high end of management’s guided range provided last quarter. The company also provided encouraging third quarter 2010 guidance.
Operating Performance
Second quarter earnings per share from continuing operations (excluding amortization of intangibles but including stock-based compensation expense) of 17 cents surpassed the Zacks Consensus Estimate of 12 cents per share. Profit rose 6.3% from the year-ago level of 16 cents per share.
Earnings on a non-GAAP basis (excluding both amortization of intangibles and stock-based compensation expense) came in at 20 cents per share, above management’s guidance of 16 cents to 17 cents per share. This was also 1 cent above last year’s EPS of 19 cents. Better-than-expected earnings in the quarter were primarily due to reduction in operating expenses, partially offset by a decline in revenue.
Gross margin slightly decreased to 72.5% in the quarter from 72.9% in the year-ago quarter due to higher cost of sales, as a percentage of revenue.
Excluding amortization of intangible expenses but including stock-based compensation expense, operating expenses in the quarter fell 21.0% to $48.8 million (49.0% of total revenue) from $61.8 million (59.4% of total revenue) in the year-ago period. Lower sales and marketing (12.3% year over year) and general and administrative (9.8% year over year) contributed to a reduction in expense. Accordingly, operating margin improved to 23.6% in the quarter from 22.9% a year ago.
Adjusted EBITDA was $27.2 million or 27.4% of sales in the quarter compared with $28.2 million or 27.1% in the year-ago quarter. Results came in above the company’s expectation of an adjusted EBITDA of $24.0 million to $26.0 million or 26.0% of sales at the midpoint.
Revenue
Revenue of $99.6 million was down 4.3% year over year. However, this was above management’s revenue guidance of $95 million to $98 million. Revenue also beat the Zacks Consensus Estimate of $97.0 million.
The year-over-year decrease was mainly attributable to the fall in Media and Owned and Operated Websites (previously known as Comparison Shopping and Search) revenue, partially offset by growth in Affiliate Marketing and Technology segment revenue that performed considerably well in the quarter.
Owned and Operated Websites (32.1% of total revenue) decreased 17.5% from the year-ago quarter to $32.0 million. However, results fared better than management’s expected decline in the mid 20’s percentage range. Owned and Operated Websites revenue was negatively impacted by $11 million due to a change in one customer account, as admitted by the company.
Media, comprising 31.8% of revenue, declined 2.5% year over year to $31.6 million. Revenue from this business fell short of the company’s expectation of a low single-digit percentage growth.
Affiliate Marketing generated 28.9% of revenue, increasing 10.3% from the year-ago quarter to $28.7 million. The segment met the company’s expectation of a growth in the high single-digit percentage range.
Technology, which generated 7.2% of revenue, increased 6.8% year over year to $7.6 million and was also in line with the company’s expectation of a growth in the high single-digit range.
Balance Sheet
With no long-term debt, ValueClick exited the quarter with $194 million in cash and marketable securities (including the current portion of marketable securities) versus $182 million at the preceding quarter end. In the quarter, ValueClick generated approximately $13 million in free cash flow versus $28 million in the previous quarter.
Guidance
Management expects second half 2010 to grow on the back of increased acquisition, new growth initiative and cost controls.
For the third quarter of 2010, ValueClick expects revenue in the $100.0 million to $104.0 million range. The guidance is in sync with the Consensus expectation of $100.0 million. Adjusted EBITDA is expected in the range of $27.0 million to $28.0 million, which represents an adjusted EBITDA margin of 27.0% at the midpoint.
Year over year, the company expects revenue from Media to be up in the mid single to low double digits. Technology is expected to be up in the low double-digit to mid-teens percentage range. Affiliate Marketing is expected to be up in the high single-digit to low double-digit range. However, revenue at the Owned & Operated Websites is expected to decline in the low-to-mid 20’s percentage range. The guidance excluded contribution from the Investopedia acquisition.
Earnings on a GAAP basis are expected in the range of 13 cents to 14 cents per share, while earnings on a non-GAAP basis are expected in the range of 18 cents to 19 cents per share. According to Thomson Reuters, analysts had expected 13 cents per share in earnings on revenue of $99.7 million.
ValueClick acquired a leading financial and investing information website Investopedia.com on August 4. Investopedia will provide organic display and email traffic for ValueClick’s financial services vertical. Investopedia’s contribution will be included in the company’s results beginning from August 2010. Third-quarter guidance assumes that Investopedia will contribute approximately $1.5 million in revenue, $0.75 million in adjusted EBITDA, but will have no impact on earnings per share.
Currently ValueClick has a Zacks #2 Rank corresponding to a short-term Buy rating. Over the long term, we have a Neutral rating on the stock.
Zacks Investment Research
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Operating Performance
Second quarter earnings per share from continuing operations (excluding amortization of intangibles but including stock-based compensation expense) of 17 cents surpassed the Zacks Consensus Estimate of 12 cents per share. Profit rose 6.3% from the year-ago level of 16 cents per share.
Earnings on a non-GAAP basis (excluding both amortization of intangibles and stock-based compensation expense) came in at 20 cents per share, above management’s guidance of 16 cents to 17 cents per share. This was also 1 cent above last year’s EPS of 19 cents. Better-than-expected earnings in the quarter were primarily due to reduction in operating expenses, partially offset by a decline in revenue.
Gross margin slightly decreased to 72.5% in the quarter from 72.9% in the year-ago quarter due to higher cost of sales, as a percentage of revenue.
Excluding amortization of intangible expenses but including stock-based compensation expense, operating expenses in the quarter fell 21.0% to $48.8 million (49.0% of total revenue) from $61.8 million (59.4% of total revenue) in the year-ago period. Lower sales and marketing (12.3% year over year) and general and administrative (9.8% year over year) contributed to a reduction in expense. Accordingly, operating margin improved to 23.6% in the quarter from 22.9% a year ago.
Adjusted EBITDA was $27.2 million or 27.4% of sales in the quarter compared with $28.2 million or 27.1% in the year-ago quarter. Results came in above the company’s expectation of an adjusted EBITDA of $24.0 million to $26.0 million or 26.0% of sales at the midpoint.
Revenue
Revenue of $99.6 million was down 4.3% year over year. However, this was above management’s revenue guidance of $95 million to $98 million. Revenue also beat the Zacks Consensus Estimate of $97.0 million.
The year-over-year decrease was mainly attributable to the fall in Media and Owned and Operated Websites (previously known as Comparison Shopping and Search) revenue, partially offset by growth in Affiliate Marketing and Technology segment revenue that performed considerably well in the quarter.
Owned and Operated Websites (32.1% of total revenue) decreased 17.5% from the year-ago quarter to $32.0 million. However, results fared better than management’s expected decline in the mid 20’s percentage range. Owned and Operated Websites revenue was negatively impacted by $11 million due to a change in one customer account, as admitted by the company.
Media, comprising 31.8% of revenue, declined 2.5% year over year to $31.6 million. Revenue from this business fell short of the company’s expectation of a low single-digit percentage growth.
Affiliate Marketing generated 28.9% of revenue, increasing 10.3% from the year-ago quarter to $28.7 million. The segment met the company’s expectation of a growth in the high single-digit percentage range.
Technology, which generated 7.2% of revenue, increased 6.8% year over year to $7.6 million and was also in line with the company’s expectation of a growth in the high single-digit range.
Balance Sheet
With no long-term debt, ValueClick exited the quarter with $194 million in cash and marketable securities (including the current portion of marketable securities) versus $182 million at the preceding quarter end. In the quarter, ValueClick generated approximately $13 million in free cash flow versus $28 million in the previous quarter.
Guidance
Management expects second half 2010 to grow on the back of increased acquisition, new growth initiative and cost controls.
For the third quarter of 2010, ValueClick expects revenue in the $100.0 million to $104.0 million range. The guidance is in sync with the Consensus expectation of $100.0 million. Adjusted EBITDA is expected in the range of $27.0 million to $28.0 million, which represents an adjusted EBITDA margin of 27.0% at the midpoint.
Year over year, the company expects revenue from Media to be up in the mid single to low double digits. Technology is expected to be up in the low double-digit to mid-teens percentage range. Affiliate Marketing is expected to be up in the high single-digit to low double-digit range. However, revenue at the Owned & Operated Websites is expected to decline in the low-to-mid 20’s percentage range. The guidance excluded contribution from the Investopedia acquisition.
Earnings on a GAAP basis are expected in the range of 13 cents to 14 cents per share, while earnings on a non-GAAP basis are expected in the range of 18 cents to 19 cents per share. According to Thomson Reuters, analysts had expected 13 cents per share in earnings on revenue of $99.7 million.
ValueClick acquired a leading financial and investing information website Investopedia.com on August 4. Investopedia will provide organic display and email traffic for ValueClick’s financial services vertical. Investopedia’s contribution will be included in the company’s results beginning from August 2010. Third-quarter guidance assumes that Investopedia will contribute approximately $1.5 million in revenue, $0.75 million in adjusted EBITDA, but will have no impact on earnings per share.
Currently ValueClick has a Zacks #2 Rank corresponding to a short-term Buy rating. Over the long term, we have a Neutral rating on the stock.
Zacks Investment Research
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