ValueClick Announces Second Quarter 2008 Results

ValueClick, Inc. (Nasdaq: VCLK) today reported financial results for the second quarter ended June 30, 2008. Revenue of $163.8 million was one percent below the low end of the $166 to $170 million guidance range issued on May 6, and within the $163 to $164 million range provided in the Company’s July 17 preliminary results press release; Adjusted-EBITDA1 of $43.5 million was above the $40 to $42 million guidance range issued on May 6; and Diluted net income per common share of $0.17 was above the high end of the $0.15 to $0.16 guidance range issued on May 6. "While increased macroeconomic uncertainty makes revenue growth more challenging for the second half of the year, we are taking meaningful steps to preserve margins and drive long-term growth and shareholder value,” said Tom Vadnais, chief executive officer of ValueClick. "We are accelerating initiatives to increase synergies among our businesses, and we have been active in our stock repurchase program since our July 17 pre-announcement. We believe ValueClick’s long-term prospects are bright, and we are committing resources to realize the opportunities in front of us while driving bottom line results.” Second Quarter 2008 Results Revenue for the second quarter of 2008 was $163.8 million, an increase of $15.2 million, or 10 percent, from $148.7 million for the second quarter of 2007. Second quarter 2008 results include three months of operations from MeziMedia, which was acquired in July 2007. Income before income taxes for the second quarter of 2008 was $29.3 million compared to $29.4 million for the second quarter of 2007. Amortization of intangible assets increased to $7.8 million for the second quarter of 2008 from $5.5 million for the second quarter of 2007, primarily due to the impact of the MeziMedia acquisition. Adjusted-EBITDA for the second quarter of 2008 was $43.5 million, an increase of 12 percent compared to $38.8 million for the second quarter of 2007. Net income for the second quarter of 2008 was $16.5 million, or $0.17 per diluted common share, compared to $17.6 million, or $0.17 per diluted common share, for the second quarter of 2007. The consolidated balance sheet as of June 30, 2008 includes $191 million in cash, cash equivalents and marketable securities, $706 million in total stockholders’ equity and no long-term debt. Stock Repurchase Program Update Today, ValueClick also provided an update on its Stock Repurchase Program. Year-to-date through July 30, the Company has repurchased approximately 10.6 million shares for $134.2 million, including 7.4 million shares repurchased for $79.5 million since the Company’s July 17 announcement of preliminary results for the second quarter of 2008 and revised fiscal year 2008 guidance. As of July 30, up to $21.8 million of ValueClick’s capital may be used to repurchase shares of the Company’s common stock under the Stock Repurchase Program. Business Outlook The following statements are 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 expense 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 is reiterating the fiscal year 2008 guidance ranges, issued previously on July 17, 2008. The fiscal year 2008 guidance is as follows: Fiscal Year 2008   Guidance Revenue   $655-$675 million Adjusted-EBITDA   $172-$176 million Adjusted-EBITDA Margin at Mid-Point of Guidance Ranges   26.2% Diluted net income per common share   $0.69-$0.71 Fiscal year 2008 diluted net income per common share guidance includes the impact of approximately $0.15 per diluted common share for stock-based compensation expense and assumes a 42.5 percent effective tax rate. The mid-point of updated fiscal year 2008 revenue guidance reflects the following year-over-year revenue growth rates per segment: Fiscal Year 2008 Revenue Guidance by Segment   Year-Over-Year Growth Affiliate Marketing2 (excludes Search123)   +8% Comparison Shopping and Search (includes Search123)   +19% pro-forma Technology   +18% Media, Total   -18% Display advertising Low single digit increase Lead generation   High 20% decrease Additionally, ValueClick is announcing guidance for the third quarter of 2008: Third Quarter 2008   Guidance Revenue   $150-$156 million Adjusted-EBITDA   $37-$40 million Diluted net income per common share   $0.14-$0.15 Third quarter 2008 guidance for diluted net income per common share includes a reduction of $0.04 per diluted common share for stock-based compensation expense and assumes a 42.5 percent net effective income tax rate. Conference Call Today at 4:30 p.m. ET Tom Vadnais, 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 on July 31, 2008 at 4:30PM ET. Investors and analysts may obtain the dial-in information through StreetEvents (www.streetevents.com). The live Webcast of the conference call will be available on the Investor Relations section of www.valueclick.com. A replay of the conference call will be available through August 7 at (888) 203-1112 and (719) 457-0820 (pass code: 1770349). An archive of the Webcast will also be available through August 7. About ValueClick ValueClick, Inc. (Nasdaq: VCLK) is one of the world’s largest integrated online marketing services companies, offering comprehensive and scalable solutions to deliver cost-effective customer acquisition for advertisers and transparent revenue streams for publishers. ValueClick’s performance-based solutions allow its customers to reach their potential through multiple online marketing channels, including affiliate and search marketing, display advertising, lead generation, ad serving and related technologies, and comparison shopping. ValueClick brands include Commission Junction, ValueClick Media, Mediaplex, Smarter.com, CouponMountain.com, and PriceRunner. 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 29, 2008; 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. 1 Adjusted-EBITDA is defined as GAAP (Generally Accepted Accounting Principles) net income before interest, income taxes, depreciation, amortization, and stock-based compensation. Please see the attached schedule for a reconciliation of GAAP net income 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 The Company announced on a May 6, 2008 conference call that, starting with second quarter 2008 financial results, it would reclassify the Search123 business from the Affiliate Marketing segment to the Comparison Shopping segment, and rename the Comparison Shopping segment "Comparison Shopping and Search.” Search123 generated approximately $21 million in revenue in 2007, and updated guidance anticipates 2008 revenue for Search123 of approximately $17 million. VALUECLICK, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands)     June 30,   December 31, 2008 2007 (Unaudited) ASSETS CURRENT ASSETS: Cash and cash equivalents $ 101,274 $ 82,767 Marketable securities 59,478 170,691 Accounts receivable, net 111,739 126,605 Other current assets   27,902   18,785 Total current assets 300,393 398,848   Marketable securities, less current portion 30,350 34,059 Property and equipment, net 19,000 19,357 Goodwill 440,764 439,532 Intangible assets, net 98,090 112,979 Other assets   11,305   6,247 TOTAL ASSETS $ 899,902 $ 1,011,022   LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities $ 111,989 $ 219,199 Non-current liabilities   81,446   81,890 Total liabilities 193,435 301,089 Total stockholders’ equity   706,467   709,933 TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $ 899,902 $ 1,011,022 VALUECLICK, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share data)     Three-month Period Ended June 30, 2008   2007 (Unaudited) (Note 1)   Revenue $ 163,831 $ 148,676 Cost of revenue   51,702   49,057 Gross profit 112,129 99,619 Operating expenses: Sales and marketing (Note 2) 46,097 42,194 General and administrative (Note 2) 20,222 17,200 Technology (Note 2) 10,164 8,735 Amortization of intangible assets acquired in business combinations   7,779   5,470 Total operating expenses   84,262   73,599 Income from operations 27,867 26,020 Interest income and other, net   1,413   3,375 Income before income taxes 29,280 29,395 Income tax expense   12,791   11,767 Net income $ 16,489 $ 17,628   Basic net income per common share $ 0.17 $ 0.18   Weighted-average shares used to compute basic net income per common share   95,363   100,038   Diluted net income per common share $ 0.17 $ 0.17   Weighted-average shares used to compute diluted net income per common share   96,133   101,623   Note 1 – The condensed consolidated statements of operations include the results of MeziMedia from the acquisition consummation date (July 30, 2007). Had this transaction been completed as of January 1, 2007, on an unaudited pro forma basis, revenue would have been $166.0 million, and net income would have been $18.3 million, or $0.18 per diluted common share, for the three-month period ended June 30, 2007. These unaudited pro forma results are for information purposes only, are not necessarily indicative of what the actual results would have been had this transaction occurred on January 1, 2007, and are not necessarily indicative of future results.   Note 2 – Includes stock-based compensation expense as follows: Three-month Period Ended June 30, 2008 2007 (Unaudited) Sales and marketing $ 1,716 $ 1,296 General and administrative 2,947 2,981 Technology   665   643 Total stock-based compensation expense $ 5,328 $ 4,920 VALUECLICK, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share data)     Six-month Period Ended June 30, 2008   2007 (Unaudited) (Note 1)   Revenue $ 339,865 $ 305,600 Cost of revenue   106,815   96,104 Gross profit 233,050 209,496 Operating expenses: Sales and marketing (Note 2) 97,798 90,646 General and administrative (Note 2) 41,876 34,741 Technology (Note 2) 20,127 17,662 Amortization of intangible assets acquired in business combinations   15,539   11,241 Total operating expenses   175,340   154,290 Income from operations 57,710 55,206 Interest income and other, net   4,464   6,314 Income before income taxes 62,174 61,520 Income tax expense   26,518   25,258 Net income $ 35,656 $ 36,262   Basic net income per common share $ 0.37 $ 0.36   Weighted-average shares used to compute basic net income per common share   96,543   99,801   Diluted net income per common share $ 0.37 $ 0.36   Weighted-average shares used to compute diluted net income per common share   97,345   101,331   Note 1 – The condensed consolidated statements of operations include the results of MeziMedia from the acquisition consummation date (July 30, 2007). Had this transaction been completed as of January 1, 2007, on an unaudited pro forma basis, revenue would have been $342.2 million, and net income would have been $38.3 million, or $0.38 per diluted common share, for the six-month period ended June 30, 2007. These unaudited pro forma results are for information purposes only, are not necessarily indicative of what the actual results would have been had this transaction occurred on January 1, 2007, and are not necessarily indicative of future results.   Note 2 – Includes stock-based compensation expense as follows: Six-month Period Ended June 30, 2008 2007 (Unaudited) Sales and marketing $ 3,398 $ 2,324 General and administrative 6,403 5,065 Technology   1,316   1,169 Total stock-based compensation expense $ 11,117 $ 8,558 VALUECLICK, INC. RECONCILIATION OF NET INCOME TO ADJUSTED-EBITDA (Note 1) (In thousands)     Three-month Period Ended June 30,   2008       2007     (Unaudited) Net income $ 16,489 $ 17,628 Less interest income and other, net (1,413 ) (3,375 ) Plus provision for income taxes 12,791 11,767 Plus amortization of intangible assets acquired in business combinations 7,779 5,470 Plus depreciation and leasehold amortization 2,552 2,343 Plus stock-based compensation   5,328     4,920   Adjusted-EBITDA $ 43,526   $ 38,753     Six-month Period Ended June 30,   2008     2007     (Unaudited) Net income $ 35,656 $ 36,262 Less interest income and other, net (4,464 ) (6,314 ) Plus provision for income taxes 26,518 25,258 Plus amortization of intangible assets acquired in business combinations 15,539 11,241 Plus depreciation and leasehold amortization 5,126 4,777 Plus stock-based compensation   11,117     8,558   Adjusted-EBITDA $ 89,492   $ 79,782     Note 1 – "Adjusted-EBITDA” (earnings 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 marketable securities and the costs associated with income tax expense, capital investments, and stock-based compensation expense 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 always 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 base-line 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 Ended June 30,   Six-month Period Ended June 30,   2008       2007     2008       2007   (Unaudited) (Unaudited) Media: Revenue $ 79,319 $ 100,937 $ 158,672 $ 209,359 Cost of revenue   34,527     39,885     71,010     78,417   Gross profit 44,792 61,052 87,662 130,942 Operating expenses   26,427     37,072     53,296     81,168   Segment income from operations $ 18,365   $ 23,980   $ 34,366   $ 49,774     Comparison Shopping and Search: Revenue $ 45,439 $ 13,383 $ 102,511 $ 26,602 Cost of revenue   11,800     5,269     25,587     9,630   Gross profit 33,639 8,114 76,924 16,972 Operating expenses   23,145     6,344     51,229     13,634   Segment income from operations $ 10,494   $ 1,770   $ 25,695   $ 3,338     Affiliate Marketing: Revenue $ 29,827 $ 27,041 $ 61,027 $ 55,228 Cost of revenue   4,527     3,249     8,726     6,186   Gross profit 25,300 23,792 52,301 49,042 Operating expenses   10,837     9,619     22,120     18,943   Segment income from operations $ 14,463   $ 14,173   $ 30,181   $ 30,099     Technology: Revenue $ 10,070 $ 7,768 $ 19,348 $ 15,238 Cost of revenue   1,515     1,434     2,922     2,886   Gross profit 8,555 6,334 16,426 12,352 Operating expenses   4,068     3,410     8,162     6,849   Segment income from operations $ 4,487   $ 2,924   $ 8,264   $ 5,503     Total segment income from operations $ 47,809 $ 42,847 $ 98,506 $ 88,714 Corporate expenses (6,835 ) (6,437 ) (14,140 ) (13,709 ) Stock-based compensation (5,328 ) (4,920 ) (11,117 ) (8,558 ) Amortization of intangible assets   (7,779 )   (5,470 )   (15,539 )   (11,241 ) Consolidated income from operations $ 27,867   $ 26,020   $ 57,710   $ 55,206     Reconciliation of segment revenue to consolidated revenue: Media $ 79,319 $ 100,937 $ 158,672 $ 209,359 Comparison Shopping and Search 45,439 13,383 102,511 26,602 Affiliate Marketing 29,827 27,041 61,027 55,228 Technology 10,070 7,768 19,348 15,238 Inter-segment eliminations   (824 )   (453 )   (1,693 )   (827 ) Consolidated revenue $ 163,831   $ 148,676   $ 339,865   $ 305,600   VALUECLICK, INC. SEGMENT OPERATING RESULTS (Note 1) (Prior periods restated for the reclassification of Search123 from the Affiliate Marketing segment and into the Comparison Shopping segment in the second quarter of 2008. Amounts in thousands)     Three-month Period Ended March 31, 2006   June 30, 2006   September 30, 2006   December 31, 2006 (Unaudited) Media: Revenue $ 79,385 $ 93,542 $ 98,399 $ 111,647 Cost of revenue   33,736     36,240     31,718     39,763   Gross profit 45,649 57,302 66,681 71,884 Operating expenses   27,054     34,416     42,296     43,557   Segment income from operations $ 18,595   $ 22,886   $ 24,385   $ 28,327     Comparison Shopping and Search: Revenue $ 7,804 $ 8,769 $ 9,669 $ 13,523 Cost of revenue   1,871     2,323     3,049     4,013   Gross profit 5,933 6,446 6,620 9,510 Operating expenses   5,917     5,526     5,304     6,460   Segment income from operations $ 16   $ 920   $ 1,316   $ 3,050     Affiliate Marketing: Revenue $ 24,604 $ 22,325 $ 23,598 $ 28,042 Cost of revenue   2,533     2,451     2,737     2,925   Gross profit 22,071 19,874 20,861 25,117 Operating expenses   8,319     7,664     8,474     7,786   Segment income from operations $ 13,752   $ 12,210   $ 12,387   $ 17,331     Technology: Revenue $ 5,775 $ 5,728 $ 6,525 $ 7,686 Cost of revenue   1,325     1,325     1,374     1,372   Gross profit 4,450 4,403 5,151 6,314 Operating expenses   3,082     3,130     3,245     3,239   Segment income from operations $ 1,368   $ 1,273   $ 1,906   $ 3,075     Total segment income from operations $ 33,731 $ 37,289 $ 39,994 $ 51,783 Corporate expenses (8,612 ) (3,476 ) (6,743 ) (8,101 ) Stock-based compensation (3,320 ) (3,196 ) (2,992 ) (2,432 ) Amortization of intangible assets   (5,655 )   (5,450 )   (5,462 )   (5,234 ) Consolidated income from operations $ 16,144   $ 25,167   $ 24,797   $ 36,016       Reconciliation of segment revenue to consolidated revenue: Media $ 79,385 $ 93,542 $ 98,399 $ 111,647 Comparison Shopping and Search 7,804 8,769 9,669 13,523 Affiliate Marketing 24,604 22,325 23,598 28,042 Technology 5,775 5,728 6,525 7,686 Inter-segment eliminations   (281 )   (336 )   (326 )   (462 ) Consolidated revenue $ 117,287   $ 130,028   $ 137,865   $ 160,436     Note 1 – Starting with second quarter 2008 results, ValueClick has reclassified its Search123 business from the Affiliate Marketing segment and into the Comparison Shopping segment, and renamed the Comparison Shopping segment "Comparison Shopping and Search.” For comparative information purposes, the Company has included reclassified historical segment financial performance. VALUECLICK, INC. SEGMENT OPERATING RESULTS (Note 1) (Prior periods restated for the reclassification of Search123 from the Affiliate Marketing segment and into the Comparison Shopping segment in the second quarter of 2008. Amounts in thousands)     Three-month Period Ended March 31, 2007   June 30, 2007   September 30, 2007   December 31, 2007 (Unaudited) Media: Revenue $ 108,422 $ 100,937 $ 85,602 $ 91,774 Cost of revenue   38,532     39,885     35,130     41,220   Gross profit 69,890 61,052 50,472 50,554 Operating expenses   44,096     37,072     33,269     30,957   Segment income from operations $ 25,794   $ 23,980   $ 17,203   $ 19,597     Comparison Shopping and Search: Revenue $ 13,219 $ 13,383 $ 35,703 $ 50,401 Cost of revenue   4,361     5,269     11,363     12,702   Gross profit 8,858 8,114 24,340 37,699 Operating expenses   7,290     6,344     16,129     26,741   Segment income from operations $ 1,568   $ 1,770   $ 8,211   $ 10,958     Affiliate Marketing: Revenue $ 28,187 $ 27,041 $ 27,836 $ 32,913 Cost of revenue   2,937     3,249     3,115     3,677   Gross profit 25,250 23,792 24,721 29,236 Operating expenses   9,324     9,619     10,208     10,647   Segment income from operations $ 15,926   $ 14,173   $ 14,513   $ 18,589     Technology: Revenue $ 7,470 $ 7,768 $ 8,215 $ 9,085 Cost of revenue   1,452     1,434     1,393     1,486   Gross profit 6,018 6,334 6,822 7,599 Operating expenses   3,439     3,410     3,388     3,902   Segment income from operations $ 2,579   $ 2,924   $ 3,434   $ 3,697     Total segment income from operations $ 45,867 $ 42,847 $ 43,361 $ 52,841 Corporate expenses (7,272 ) (6,437 ) (5,714 ) (10,865 ) Stock-based compensation (3,638 ) (4,920 ) (4,594 ) (5,335 ) Amortization of intangible assets   (5,771 )   (5,470 )   (6,726 )   (7,982 ) Consolidated income from operations $ 29,186   $ 26,020   $ 26,327   $ 28,659       Reconciliation of segment revenue to consolidated revenue: Media $ 108,422 $ 100,937 $ 85,602 $ 91,774 Comparison Shopping and Search 13,219 13,383 35,703 50,401 Affiliate Marketing 28,187 27,041 27,836 32,913 Technology 7,470 7,768 8,215 9,085 Inter-segment eliminations   (374 )   (453 )   (464 )   (1,049 ) Consolidated revenue $ 156,924   $ 148,676   $ 156,892   $ 183,124     Note 1 – Starting with second quarter 2008 results, ValueClick has reclassified its Search123 business from the Affiliate Marketing segment and into the Comparison Shopping segment, and renamed the Comparison Shopping segment "Comparison Shopping and Search.” For comparative information purposes, the Company has included reclassified historical segment financial performance.