Digital advertising and marketing company, ValueClick Media, is looking to offload a segment of its business as it does not ‘advance’ its wider business strategy.
This week the company’s CEO, John Giuliani, announced the intent to pursue the divestiture of its ‘Owned & Operated Websites (O&O) Division’ – which operates sites including Investopedia, PriceRunner, Smarter.com, SymptomFind and CouponMountain.
“While we have a strong set of businesses within our O&O segment, we have concluded that they do not align with our 'One ValueClick' strategy of leveraging our broad set of unique data assets and differentiated technology platforms, to connect consumers and brands through personalised one-to-one marketing at scale,” Giuliani said.
California-based ValueClick, which was founded in 1998 and is listed on the NASDAQ Stock Market, offers online media solutions in areas such as display advertising, lead generation marketing and email marketing. It owns the well-known global affiliate marketing network, Commission Junction.
“Being able to focus entirely on our core media and affiliate marketing segments, which together currently represent more than 90% of our profitability, will allow us to direct management attention and capital resources to better serve our clients, employees and shareholders,” Giuliani added.
ValueClick, which also plans on building its own demand-side-platform (DSP), will continue to operate the O&O segment during the process of pursuing a sale, with no anticipated changes to day-to-day operations.
The decision to ditch the segment came ahead of the company’s third quarter results, for the period ended September 30, 2013.
The O&O segment, which was presented as a ‘discontinued operation’ in Q3, meant that its current and historical operating results were excluded from its Q3 results.
Affiliate marketing growth
Revenue for the Q3 period came in at the low end of adjusted guidance at $134.1 million, which is an increase of 2% compared to Q3 2012.
Affiliate marketing revenue was $38.9 million, an increase of 11% - no doubt helped by the addition of the now defunct ex-Google Affiliate Network clients that subsequently joined Commission Junction.
“Our best-in-class affiliate marketing solution, our second largest revenue stream behind CRM, had its strongest quarter of growth in more than two years,” Giuliani said.
“Our on-boarding and ramping up of new clients is on track of what we outlined last quarter, and we expect Q4 growth to be even stronger than Q3. I believe we can further enhance our leadership position in affiliate as we rollout affiliate personalisation in the coming quarters.”
In the company’s media segment, revenues were $95.3 million, a decrease of 1% year-over-year.
ValueClick’s chief financial officer and principal accounting officer, John Pitstick, said the weakness in display was largely offset by solid growth in CRM, mobile, video and its cross-device solutions.
Total adjusted EBITDA in Q3 was $50.2 million, an increase of 15% year-over-year.
Year-to-date, ValueClick has generated $101 million of free cash flow, an increase of 10% compared to the year-ago period.
Total debt outstanding as of the quarter end was $195 million. During Q3 the company also amended its credit agreement, nearly doubling it to $400 million and extending the maturity date to 2018.
“We believe the combination of our strong free cash flow, our flexible and low-cost credit facility and proceeds from the sale of O&O provides us ample resources to continue to fund our buybacks as well as invest in organic initiatives,” Pitstick said.
Tax benefits to come
Regarding the planned O&O divestiture, in addition to the ultimate sale proceeds, ValueClick also expects to achieve significant tax benefits, as well as being able to access cash currently held by our international O&O entities.
During the Q3 earnings call, Giuliani, who joined ValueClick last December, said early results also demonstrate that the company’s cross-device advertising campaign ‘significantly increased consumer engagement’, which in many cases, he said leads to generating conversion rates that are up to five times higher than the result of single-channel campaigns.
He said the company made progress in unifying its interfaces with the various ad exchanges, into a single bidding platform.
“These efforts consolidate ValueClick's relationships and buying power for real-time bidding and they've already earned us higher levels of strategic attention and product support among key partners,” he explained.
“As a result of organisational changes and product investments in tag management, we are now launching multiple product lines with a single implementation team that streamline the client's on-boarding process and facilitates the implementation of additional ValueClick solutions with these clients down the road.”
Giuliani said in the coming months ValueClick also plans on pushing through a worldwide company rebrand, changing its name and aligning its identity.
“A name change is pretty intricate from the standpoint of all the legal things you have to do and all the things you have to change - from internal URLs, emails and invoices, right down to the coffee mugs and fleeces and T-shirts - this will all have to reflect that,” he said.
“We're going to do a lot of marketing behind it because we think one of the things we haven't done as a company is market ourselves well,” Giuliani divulged.
“We think that's somewhat reflective in some of our performance. And so we think this is an excellent opportunity, but we want to do it really right.”
On Q4 guidance, ValueClick expects consolidated revenue to be in the range of $166 million to $171 million. This guidance includes $117 million to $120 million in Media revenue and $49 million to $51 million in affiliate marketing revenue. Adjusted EBITDA is expected to be in the range of $69 million to $72 million, representing a margin of 41.8% at the midpoint.
In other Q3 news, revenue acquisition management platform, Marin Software, has recorded third quarter net revenues of $20.1 million - up 30% year-over-year.
This was also the New York Stock Exchange-listed company’s eighteenth consecutive quarter of sequential quarterly revenue growth.
Adjusted EBITDA was a loss of ($5.9) million, as compared to a loss of ($5.2) million for the third quarter of 2012.
GAAP gross profit was $12.2 million, resulting in gross margin of 61%, compared to GAAP gross margin of 58% during the third quarter of 2012. GAAP loss from operations was ($7.9) million, compared to ($6.4) million for the third quarter of 2012.
Third quarter 2013 business highlights include an increase the number of active advertisers leveraging the Marin platform.
During the third quarter, 610 active advertisers utilised this, compared to 502 during the third quarter of 2012. Marin defines active advertisers as an advertiser from whom Marin recognised revenues in excess of $2,000 in at least one month during the quarter
Financial services growth
California-headquartered internet performance marketing and media company, QuinStreet, has this week reported Q1 2014 revenue of $77 million, and adjusted EBITDA of $9.6 million, or 13% of revenue.
The $77 million net revenue showed a 2% decline compared to the same quarter last year.
QuinStreet CEO, Doug Valenti, said the company is continuing to work through challenges and he touched on how the financial services client vertical grew year-over-year in the quarter, fuelled by insurance and mortgage.
He said mortgage clicks were up 67% year-over-year in the quarter, and are now generating more than $5 million in revenue per quarter. He also stressed the big market opportunity for the education vertical.
“Revenue in the quarter was almost flat with last year, and was the best year over year performance in eight quarters,” Valenti said.
"We continue to invest in initiatives that we believe will return us to growth. Our balance sheet remains strong, and we continue to deliver good free cash flow and EBITDA margin even while spending aggressively on new initiatives.”
For the quarter, adjusted net income was $4.4 million, or $0.10 per diluted share, and GAAP net loss was $0.9 million, or $0.02 per share.
Normalised free cash flow for the first quarter was $6.9 million, and the company closed the quarter with $127 million in cash and marketable securities and $37 million in net cash.
Reconciliations of adjusted net income to net loss, adjusted EBITDA to net loss and normalised free cash flow to net cash provided by operating activities are included in the accompanying tables.
“For the December quarter, our seasonally most difficult quarter, we expect revenue in the range of $67 to $70 million, in line with historic seasonality,” Valenti added.
“Adjusted EBITDA margin is expected to be approximately 10%, down from last quarter by the amount predicted by the seasonal revenue decline and resulting loss of top line leverage.”