This is the third in a series of interviews conducted with CEOs of interesting Canadian technology companies. The intent of this project is to provide investors with a unique understanding of what various companies are doing - directly from the top dog. Hopefully, the interviews conducted over the next few weeks will help investors to gain insight into the fundamentals of the companies to which they may not otherwise have access.
After a bit of a hiatus, this interview is conducted with Geoff Rotstein, Chief Executive Officer, Cyberplex (CX.V). The company is headquartered in Toronto, Ontario and is a pioneer in the Cost per Action (CPA) online advertising category.
Showing posts with label CPA Ad Network. Show all posts
Showing posts with label CPA Ad Network. Show all posts
1/28/10
8/6/09
CX Q2 results: Did it beat consensus?
Well, kinda mostly.
Cyberplex reported $26.0 in revenue for the quarter, a 172% improvement over Q2, 2009, and a 18.8% sequential decline from the $32 million reported for Q1, 2009. Due to historical seasonality in performance, the consensus forecast implied a 29.3% sequential decline, or $22.6 million. So, CX beat this estimate.(and the Google correlation seems to hold)
EBITDA was reported at $2.5 million or $0.03 per fully diluted share, ahead of $2.2 million consensus forecast, implying a 10% margin on revenue. CX beat this estimate.
Management stated during the investor conference call that margins were inline with expectations, and that EBITDA margins going forward should be maintained at around the 10% level for the next few quarters.
Net Income was reported at $1.0 million or $0.01 EPS, versus $0.02 EPS consensus estimate. This was a miss.
Foreign currency translation losses were high for the quarter at $1.3 million or $0.02 per share due to the surging loonie versus the U.S. dollar. During the conference call, management admitted that currency hedging strategies for the quarter did not work. For Q3, the company has hedged currency translation for the month of July and plans to continue to implement more aggressive "layered" hedging strategies for currency going forward, which should benefit earnings for Q3 and Q4.
Notwithstanding the FX-driven EPS miss, according to management, the company generated $3.4 million in free cashflow, or $0.05 per fully diluted share for the second quarter.
Gross Margins were reported at 30% for the quarter, a 13% decline from 34% reported during Q2, 2008, and a small sequential decline from 31% reported for Q1, 2009. Management is targeting 30% GM +/- 2% going forward and Q2 GM was in range. Gross Margins were inline with expectations. However, Gross Margin is a measurement that analysts need to monitor for further erosion going forward. Increasing competition could result in price erosion. Executionally, the company could offset pricing pressure through new categories (eg. social networking platforms), and both leveraging and building out its analytical capabilities to provide advertisers and publishers more value-added services. As well, management hinted at the possibility of increasing the scale of its own ad inventory, thus reducing its reliance on affiliates and third-party publishers.
As for H2 outlook, to reflect historical patterns, revenue should be forecast by analysts to decline sequentially again in Q3 from Q2, with a surge in Q4. Upside performance surprises could come in the form of deals with top 50 publishers, or more likely, significant national and multi-national advertisers. As well, the Company continues to expand its sales force with digital ad sales specialists (there is probably quite a bit of talent hanging around after all of the recent media cuts). More sales horsepower should increase revenue momentum for Q4 and Q1 2010, although analysts should be watching operating margins closely over the next few quarters to measure sales effectiveness.
Fundamentally, this story remains intact for H2 2009 as one of the more intriguing success stories during this recession. It is unlikely that we will see another major "gap up" in H2 performance this year like we did for Q4 2008. However, with a solid balance sheet, an improving world economy, a bullish outlook by management, and increasing interest in CPA advertising, H2 looks to be very solid. Analysts are likely to overlook the FX issues for now, and they should be pleased that the company beat forecasts for sales and EBITDA. Analysts are likely to scrutinize margin risk in future quarters.
With respect to potential acquisitions, the Burst Media opportunity is probably over for now. However, there are a lot of potentially accretive substitute opportunities around.
Disclosure: I own CX.
Cyberplex reported $26.0 in revenue for the quarter, a 172% improvement over Q2, 2009, and a 18.8% sequential decline from the $32 million reported for Q1, 2009. Due to historical seasonality in performance, the consensus forecast implied a 29.3% sequential decline, or $22.6 million. So, CX beat this estimate.(and the Google correlation seems to hold)
EBITDA was reported at $2.5 million or $0.03 per fully diluted share, ahead of $2.2 million consensus forecast, implying a 10% margin on revenue. CX beat this estimate.
Management stated during the investor conference call that margins were inline with expectations, and that EBITDA margins going forward should be maintained at around the 10% level for the next few quarters.
Net Income was reported at $1.0 million or $0.01 EPS, versus $0.02 EPS consensus estimate. This was a miss.
Foreign currency translation losses were high for the quarter at $1.3 million or $0.02 per share due to the surging loonie versus the U.S. dollar. During the conference call, management admitted that currency hedging strategies for the quarter did not work. For Q3, the company has hedged currency translation for the month of July and plans to continue to implement more aggressive "layered" hedging strategies for currency going forward, which should benefit earnings for Q3 and Q4.
Notwithstanding the FX-driven EPS miss, according to management, the company generated $3.4 million in free cashflow, or $0.05 per fully diluted share for the second quarter.
Gross Margins were reported at 30% for the quarter, a 13% decline from 34% reported during Q2, 2008, and a small sequential decline from 31% reported for Q1, 2009. Management is targeting 30% GM +/- 2% going forward and Q2 GM was in range. Gross Margins were inline with expectations. However, Gross Margin is a measurement that analysts need to monitor for further erosion going forward. Increasing competition could result in price erosion. Executionally, the company could offset pricing pressure through new categories (eg. social networking platforms), and both leveraging and building out its analytical capabilities to provide advertisers and publishers more value-added services. As well, management hinted at the possibility of increasing the scale of its own ad inventory, thus reducing its reliance on affiliates and third-party publishers.
As for H2 outlook, to reflect historical patterns, revenue should be forecast by analysts to decline sequentially again in Q3 from Q2, with a surge in Q4. Upside performance surprises could come in the form of deals with top 50 publishers, or more likely, significant national and multi-national advertisers. As well, the Company continues to expand its sales force with digital ad sales specialists (there is probably quite a bit of talent hanging around after all of the recent media cuts). More sales horsepower should increase revenue momentum for Q4 and Q1 2010, although analysts should be watching operating margins closely over the next few quarters to measure sales effectiveness.
Fundamentally, this story remains intact for H2 2009 as one of the more intriguing success stories during this recession. It is unlikely that we will see another major "gap up" in H2 performance this year like we did for Q4 2008. However, with a solid balance sheet, an improving world economy, a bullish outlook by management, and increasing interest in CPA advertising, H2 looks to be very solid. Analysts are likely to overlook the FX issues for now, and they should be pleased that the company beat forecasts for sales and EBITDA. Analysts are likely to scrutinize margin risk in future quarters.
With respect to potential acquisitions, the Burst Media opportunity is probably over for now. However, there are a lot of potentially accretive substitute opportunities around.
Disclosure: I own CX.
5/8/09
Cyberplex Q1 Results: Maintains Remarkable Momentum
When a micro-cap company reports an anomalous blow-out quarter (like Cyberplex did for Q4 2008 results), investors often become nervous about successive quarterly results. Is the blow-out quarter evidence of a single lucky event, or is it a true sign of progress? Experienced investors have been burned in the past by false trends disguised as inflection points, so Q1 performance was an important gauge of true progress.
Based on the Q1 results reported by Cyberplex (CX-TSX) last night, investors should be heartened that the company has hit a significant inflection points and has progressed from a story with future potential, to one measured by earnings performance for investors. Sales for the quarter increased to $32.1 million, up 307% from sales reported for Q1, 2008. EBITDA was reported at $4.3 million, and net income came in at $4.1 million or $0.07 EPS for the quarter. By comparison, the company reported EPS of $0.00 for Q1, 2008, and $0.11 for Q4, 2009. As a reminder, typically, one-third of sales and earnings occur during the Q4 reporting period. Earnings margins, excluding foreign exchange fluctuations were reported at 12% versus 13% for Q4, 2008, while gross margins came in at 31%, down 1% from Q4, 2008. The margin fluctuation should be considered in-line with analysts expectations.
During the conference call, Management continued to stress that performance-based advertising is relatively new to the market and is at the early stages of adoption by marketers and advertising agencies. Campaign concentration has decreased for Q1, with the top ten campaigns representing 55% of revenues versus 67% during Q4, 2008. As more campaigns are adopted by more advertisers, investors should continue to see less campaign concentration over the coming quarters, which should strengthen the quality of revenue streams as they grow. Management reported that approximately 70% of Q1 campaigns were repeated from the previous quarter, which infers that clients are maintaining investments in CPA-based online marketing.
Net income for Q2 onward should be impacted by taxes, measured at approximately 30%. As well, seasonality should impact performance for both Q2 and Q3, where traditional dips in online activity occur, with Q4 generating 30% of sales and earnings for the year.
Based on the earnings preview from earlier this week, the Company exceeded expectations for this quarter in both sales and earnings. Clearly, the market has been anticipating a solid quarter, although performance may still have exceeded elevated expectations. Currently, the shareprice is trading at approximately 5.7x run-rate EBITDA and 7.5x fully taxed run-rate EPS for FY 2009. The P/E ratio ratio for the TSX Equity index is currently 15.6 with many issuers reporting earnings declines for Q1, 2009. With its impressive earnings growth, and apparently robust outlook, the stock appears to continue to be undervalued relative to the TSX based on a P/E comparison, despite its recent share price run. Adding to this, high growth earnings stocks typical trade higher than the index mean.
Investors may still be concerned about fragile revenue streams due to campaign and product category concentration. However, with new publishers, affiliates, and advertisers coming on, and a 21% sequential decline in reported concentration, this risk appears to be diminishing.
Finally, the Company has $4.7 million in cash and generated approximately $0.05 per fully diluted share of free cashflow for the quarter.
Investors should anticipate that performance exceeded most analysts elevated expectations for Q1 results.
Disclosure: I own shares of CX.
Based on the Q1 results reported by Cyberplex (CX-TSX) last night, investors should be heartened that the company has hit a significant inflection points and has progressed from a story with future potential, to one measured by earnings performance for investors. Sales for the quarter increased to $32.1 million, up 307% from sales reported for Q1, 2008. EBITDA was reported at $4.3 million, and net income came in at $4.1 million or $0.07 EPS for the quarter. By comparison, the company reported EPS of $0.00 for Q1, 2008, and $0.11 for Q4, 2009. As a reminder, typically, one-third of sales and earnings occur during the Q4 reporting period. Earnings margins, excluding foreign exchange fluctuations were reported at 12% versus 13% for Q4, 2008, while gross margins came in at 31%, down 1% from Q4, 2008. The margin fluctuation should be considered in-line with analysts expectations.
During the conference call, Management continued to stress that performance-based advertising is relatively new to the market and is at the early stages of adoption by marketers and advertising agencies. Campaign concentration has decreased for Q1, with the top ten campaigns representing 55% of revenues versus 67% during Q4, 2008. As more campaigns are adopted by more advertisers, investors should continue to see less campaign concentration over the coming quarters, which should strengthen the quality of revenue streams as they grow. Management reported that approximately 70% of Q1 campaigns were repeated from the previous quarter, which infers that clients are maintaining investments in CPA-based online marketing.
Net income for Q2 onward should be impacted by taxes, measured at approximately 30%. As well, seasonality should impact performance for both Q2 and Q3, where traditional dips in online activity occur, with Q4 generating 30% of sales and earnings for the year.
Based on the earnings preview from earlier this week, the Company exceeded expectations for this quarter in both sales and earnings. Clearly, the market has been anticipating a solid quarter, although performance may still have exceeded elevated expectations. Currently, the shareprice is trading at approximately 5.7x run-rate EBITDA and 7.5x fully taxed run-rate EPS for FY 2009. The P/E ratio ratio for the TSX Equity index is currently 15.6 with many issuers reporting earnings declines for Q1, 2009. With its impressive earnings growth, and apparently robust outlook, the stock appears to continue to be undervalued relative to the TSX based on a P/E comparison, despite its recent share price run. Adding to this, high growth earnings stocks typical trade higher than the index mean.
Investors may still be concerned about fragile revenue streams due to campaign and product category concentration. However, with new publishers, affiliates, and advertisers coming on, and a 21% sequential decline in reported concentration, this risk appears to be diminishing.
Finally, the Company has $4.7 million in cash and generated approximately $0.05 per fully diluted share of free cashflow for the quarter.
Investors should anticipate that performance exceeded most analysts elevated expectations for Q1 results.
Disclosure: I own shares of CX.
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