News Column

Conversant Posts Fourth Quarter and Full Year 2013 Results

February 13, 2014

Conversant, Inc., a provider of personalized digital marketing, reported financial results for its fourth quarter and full year ended December 31, 2013.

"We delivered solid execution in the fourth quarter, driven by Media segment revenues that outperformed across all product lines," said John Giuliani, president and CEO of Conversant. "Last week we unveiled our company rebrand and launched our largest-ever marketing campaign, highlighting our leading capabilities in personalized digital marketing and sharing our vision for the future. This marks an exciting step forward for Conversant and the early response from customers and prospects has been very positive. We expect that our investments in this initiative during the first quarter will pay dividends in the balance of 2014 and beyond."

In a release on February 11, the Company noted its Q4 2013 financial summary:

-Revenue was $176.4 million, an increase of 6 percent year-over- year.

-Adjusted EBITDA was $74.8 million, an increase of 10 percent year-over-year.

-Adjusted EBITDA margin increased to 42.4 percent from 40.9 percent in the fourth quarter of 2012.

-Non-GAAP net income per diluted share was $0.67, an increase of 43 percent year-over-year.

-GAAP net income from continuing operations per diluted share was $0.57, an increase of 46 percent year-over-year.

-The effective tax rate for Q4 2013 of 34.2 percent benefited from certain discrete tax adjustments and is preliminary pending the Company's final income tax procedures. Any changes to this preliminary tax rate will be reflected in the Company's Form 10-K required to be filed by March 3.

Recent Business Highlights

-On February 6, Conversant acquired SET Media, a digital video technology company that connects brands with consumers through high quality, targeted, and brand safe video advertising campaigns. The acquisition increases Conversant's scale and capabilities within video advertising, one of the fastest-growing segments of digital advertising.

-On February 3, the Company changed its name to Conversant and initiated a comprehensive marketing campaign to highlight Conversant's leading capabilities in personalized digital marketing. The Company's common stock began trading under the new NASDAQ ticker symbol, CNVR, on February 5.

-On January 10, the Company completed the sale of its former Owned & Operated Websites (O&O) Segment. The divestiture demonstrates key progress on efforts to align the business with the Company's strategic vision, which will better serve Conversant clients, employees and shareholders.

-On December 6, 2013, the Company announced a partnership with Twitter to help advertisers tailor audiences on the social network and reach them through personalized communication from Promoted Tweets and Promoted Accounts. Conversant was the only initial launch partner capable of personalizing messaging beyond segments to the individual level and connecting with Twitter users across their devices, in real-time.

Cash Flows and Stock Repurchases

-Free cash flow for the year ended December 31, 2013 was $164.9 million, an increase of 19 percent year-over-year. (The Company defines free cash flow as net cash provided by operating activities less capital expenditures.)

-The Company expects free cash flow in 2014 will benefit from the utilization of cash tax benefits generated in connection with the O&O segment divestiture. The Company currently estimates these cash tax benefits will reduce its normalized cash tax payment obligations by approximately $40 million in 2014.

-Conversant continues to use its cash flows and strong balance sheet to return capital to shareholders. During 2013, the Company repurchased 10 million common shares for $223.8 million.

-Currently, $100 million is available under the Company's stock repurchase program.

Balance Sheet

-As of December 31, 2013, cash and cash equivalents were $81.3 million and total debt was $140 million.

-The Company grew its cash and cash equivalents by $26.8 million and reduced its outstanding debt balance by $55 million during the fourth quarter of 2013.

-The December 31, 2013 balance sheet does not include $80 million of gross proceeds from the divestiture of the O&O segment received by the Company in January 2014.

Q4 2013 Segment Results Summary

-Affiliate marketing segment revenue was $49.1 million, an increase of 12 percent year-over-year. The increase in Affiliate Marketing segment revenue and operating profitability was driven primarily by net new client wins during 2013.

-Media segment revenue was $127.4 million, an increase of 4 percent year-over-year. Continued solid growth in CRM, mobile, video and cross-device solutions was partially offset by a decline in the Company's traditional insertion-order display business.

Q1 2014 Business Outlook

-Conversant's financial guidance for the first quarter of 2014 is presented in the following tables.

-The guidance includes approximately $3 million in incremental and one-time operating expenses related to the corporate name change to Conversant and related marketing campaign to highlight the Company's leading capabilities in personalized digital marketing. The guidance also assumes the recent SET Media acquisition will contribute an operating loss of approximately $1 million and nominal revenue.

-Results for the first quarter of 2013 are provided as a basis for comparison and have been recast to reflect the reclassification of the O&O segment to discontinued operations.

Additional Guidance Assumptions

Conversant's first quarter 2014 guidance assumes: stock-based compensation of $5.0 million; amortization of intangible assets of $7.0 million ($2.5 million of which will be included in cost of revenue); net interest and other expense of $0.5 million; a 40 percent effective tax rate; and 68.5 million diluted shares outstanding.

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